Archive for August, 2012

Sunday, August 26th, 2012

As we approach September the vacationing Europeans and Americans will return to their posts and get back to work. We have some excitement to look forward to this coming week, thanks to the Fed’s Jackson Hole confab. So what will QE3 really do? Initially, we will have a rally but then reality will sink in we will drift as we have done for most of the summer. It will be an upward tilting drift supported by the large dividend paying securities. The question of the tax treatment on those dividends will be on the Congress agenda but even if they do not continue with this favorable treatment of dividends, so long as risk free money remains a negative investment, these stocks will continue to move higher.

Happy Labor Day to all, wish our underemployed had better jobs, and that the economy was on the brink of expansion but alas that is a wish. The brilliant academics will gather and try to figure out how to fix an economy even though they do not have the life experience to understand the real mess. Yes several of the FOMC member do have life experience but unfortunately very few. You have an academic incubator trying to solve real life problems and that has been, to date disastrous. Nothing much is getting better and the public knows it. Then we have the Euro-mess which continues as the leaders pass the buck or the euro to the next meeting or whatever.

After last week’s consolidation, the US Dollar index drifted southward towards the bottom side of the short term channel that has held the index for the last month. The US Dollar index paused at our first support line, 81.556 and then went on to briefly poke through and then be caught by our lower support line at 81.387, closing the Friday session at 81.603. The Bollinger Bands are expanding and we have been below the lower band from Wednesday original breech to the Friday close. The upper band is at 83.33 and the lower band at 81.55. The index is currently below the 5-period exponential moving average (which is at 81.75) and the 20-period simple moving average (which is at 82.45). All indicators that we follow on a daily bases are issuing clear buy-signals. The index will likely move to the upside and back and fill for a bit. A break above the upper channel line would likely bring us into last week’s congestion zone. The index might find resistance at the upper channel line on the way up. On the downside we see liability for this week down to 81.024.

The 60 minute .05% x 3 point and figure chart shows we have met and exceeded the two targets of 81.445 and 81.55. There are no new targets in either direction and the index seems to be making its way back to the internal downtrend line.

The longer term daily .5% x 3 point and figure chart shows that while we are still clearly in a long term uptrend, the index is falling back towards the internal support line at 80.56. There are no new targets this week as we still have two activated upside targets at 85.96 and 91.72, and one activated downside target at 66.65. The Bollinger bands show this to be an Index that has been riding the upper band and that was in need of some rest.

The weekly candle chart shows the index to still be in a triangle going back to September 2011. The buyers are coming in at higher and higher levels and this week the index broke below support that dated from June which was at 81.389 though it did close above it. All indicators that we follow are issuing sell-signals the uptrend line, that has marks the lower end of this triangle, will continue to act as solid support.

Putting the pieces together, we are riding the bottom Bollinger Band on a daily time-frame and in need of some consolidation and a brief move up. We feel that the index will likely bounce around in a rectangle and drift towards 81.024 (even if it moves back into last week’s consolidation zone first). The triangle drawn from the weekly candles is getting awfully narrow and we have not visited the lower bound since May of 2012 and we feel that is exactly what the index is doing.

The S&P 500 futures have remained within the up trending channel lines and, inside the Bollinger Bands. During this past week we burned off some of the overbought condition and have, as of Friday, set ourselves up for a rally. The stochastic indicator, our own indicator and the RSI all are issuing a buy-signal. The 5-period exponential moving average is at1408.36. The top of the Bollinger Band is at 1427.48 and the lower edge is seen at 1367.48. We are above the Ichimoku Clouds for all the time-frames. When looking at the Market Profile chart there is no overhead supply and there will be little resistance as this market rallies. The weekly Market Profile chart shows us that we are in the upper edge of the range between 1252.48 and 1417.28. The point and figure 1% three-box reversal shot has several unfilled upside targets and no recent downside targets. The 60-minute 1 by 3-box chart shows that there are two downtrend lines with an upside target of 1435. What is also clear on this chart is that the volume is very light at the upper prints. Well, it is vacation time.

The NASDAQ 100 chart looks like a bull flag is forming. The 5-period exponential moving average is at 2769.76. The top of the Bollinger Band is at 2823.81 and the lower edge is seen at 2609.46. The stochastic indicator is issuing a fresh buy signal at the 77.73 level. Remember this indicator has been overbought since the beginning of August. Our own indicator is about a day away from issuing a buy-signal. The RSI is pointing higher at 70.06. We are above the Ichimoku Clouds for all time-frames. We noticed that the NASDAQ 100 made a higher taking out all previous highs from February of 2001. The Market Profile chart shows that there is no overhead supply to hold down this market and that above 2796.80 we will likely melt to the upside. We do have a doji candlestick on the weekly continuation chart. The stochastic indicator, the RSI and our own indicator are pointing higher for the monthly time-frame but are overbought and issuing a sell-signal on the weekly chart. We also have a nine count on the weekly chart. It has been our experience that once a nine-count is seen, you will go sideways for up to 12 more days but then, you will fall victim to profit takers. Once that nine appears, the caution flags go up.

The Russell 2000 has been the laggard in this 2012 rally season. This index has not removed the March highs and seems to be having some trouble gaining traction to the upside. We are above the Ichimoku Clouds for all time-frames. The 5-period exponential moving average is at 808.33. The top of the Bollinger Band is at 824.75 and the lower edge is seen at 771.48. If the market retreats, this index will retreat more than the S&P 500 and more than the NASDAQ 100. The stochastic indicator is bending to the upside at neutral levels, our own indicator is doing the same, the RSI is bending slightly to the upside and the Thomas DeMark Expert indicator is issuing a sell-signal. The Russell 2000 has not broken the uptrend line dating back to June that is a good thing. So long as the S&P 500 and the NASDAQ 100 continue to rally, this market will follow. It is not a leader to the upside but will likely be the leader to the downside. The point and figure 60 minute chart has some upside targets but more troubling are the downtrend lines.

Crude oil left a doji candlestick on the chart as a result of the Friday session. We are above the Ichimoku Clouds for the daily and the monthly time-frames but in the clouds on the weekly chart. The 5-period exponential moving average is 96.12. The top of the Bollinger Band is at 99.00 and the lower edge is seen at 87.46. The stochastic indicator has issued a sell-signal that said, if it doesn’t fall below 58.6 level and reverses to the upside, it will have been a retreat in a larger up trending market. The RSI is pointing lower but the bend is slight and seems to be trying to curl over. The 1% by 3-box point and figure chart has an upside unfilled target at 118.65. Unless and until 98.29 is removed that is a dream for the crude bulls. The Market Profile chart also indicates to us that the 97.82 level will likely present some problems for the crude oil bulls. Once that resistance level is removed, if it is removed, we should quickly rally to the equilibrium level of 104.52. The up trending channel lines are support at 92.82 and resistance at 102.44.

Gold broke out of the rectangle and left a breakaway upside gap on the chart. Although Friday’s session left an inside day on the chart, this is a bullish chart. The stochastic indicator and the RSI are both overbought but the stochastic continues to issue a buy-signal. We would expect to see some backing and filling and perhaps a test of the gap, within a few days. The point and figure chart shows an unfilled upside target at 1696 or so. The Market Profile chart shows that we are in thin trading areas and that should we rally above 1688.40 that there will be little overhead supply and we will likely quickly move higher. The 5-period exponential moving average is at 1652.96. The upper Bollinger Band is at 1661.97 and the lower edge is seen at 1576.52. We are above the upper band and it is likely that we will return to the inside of that band. On the other hand, if the volatility continues, then the band will expand to accommodate the trade. We noticed that the silver chart is gappier than the gold chart, because of less volume and even crazier than gold. We continue to stay with the liquidity of the gold market and do not trade in the silver futures market.