Archive for September, 2012

Sunday, September 23rd, 2012

Here we are in September with the Fed racing down the race course with the pedal to the metal… limits in sight. This action will not end well and, just as the racer, will crash because if you make the slightest mistake at excessive speeds, you will not have a good outcome. The Fed will lead us into the abyss with its reckless actions. We are in favor of helping the economy but to flood it with money that never reaches the general population is not a directed action. Bernanke and Company have admitted that they do not know that this action will help repair our problems. We know that the previous actions have not helped, so why should we believe that this Q for infinity will work. We don’t and neither do they.

What would help would be to create jobs and encourage corporations to hire American. We have to give these corporations reason to employ Americans rather than to send the work elsewhere. How about a tax break for those companies that bring jobs to our shore? Wouldn’t that help? That would start the ball rolling. Once we have more people working they spend money that causes companies to expand and produce more…..get the picture? You have to create a reason to hire, a tax break might help. That type of action will allow the process to move forward and the expansion will begin. Giving the banks money isn’t helping the velocity of money. In the past that has always helped but today it is not working.

It is clear that Bernanke and Company would like the US Stock market to rally adding to our GDP. Financial services are a large contributor to GDP as well as health care services, which is another positive, driver. The Fed is trying to stimulate personal consumption, but for that, you need to have jobs. Autos have been stimulated by providing unusually low interest rates. Fuel is a fly in the ointment but there is a fix for that also. The US should stop fighting the oil companies and allow pipe lines and exploration. The US can provide enough oil for most of our own use, cutting our dependence on imports. We also have lots of natural gas which could be used. Coal is another product that the US produces and exports. Unfortunately, those exports are somewhat curtailed by the sediment that has formed in the Great Lake region at the ports where the cargo vessels are only 40% full, not because there isn’t a need but because the deep water ports are not deep enough to allow full cargo. How about a little help here instead of for the corn producers who produce a product, ethanol, which is a dumb biofuel insomuch as it costs a lot to convert into a fuel. We could use canola oil, palm oil or grease, just to name a few, as biofuels with less trouble on the conversion.

The US Dollar Index began to find some support this week at the 78.824 level after pulling down to 78.60 last Friday. After the pummeling this index has taken from Draghi and Bernanke over the past few weeks we are reminded of Rocky saying “it’s not about how hard you hit but how hard you can get hit and keep moving forward,” as we are finally seeing some upside targets on the 60 minute point and figure and some buy signals on our indicators. Still, there is downside risk over the next few weeks to 78.105 and the pullback we’ve seen in the past month has been so sharp that it is only natural that the Index takes a breather for she has been sprinting rather than jogging to the downside, at least from September 7th – 17th. We are technicians, guided by charts rather than preconceived notions and will leave it to these charts to tell us what the Index may be up to.

The daily candlestick chart shows the index bounced off of the 78.646-78.834 support zone this week. This has historically been a high traffic area going back to December or 2011. Looking at the downtrend line drawn from the July 24th high, the index had pulled drastically below that line leaving a very steep unsustainable downdraft. We believe that some backing and filling is needed.. These kinds of sharp moves cannot keep up indefinitely. On the downside there is still liability down to 78.105, the November/December 2011 low. On the upside, we would not be surprised to see the index rally back to the down trend line. As far as indicators go, the fast stochastic is above the low but starting to turn down and our own indicator while our own indicator while not issuing a sell signal is beginning to turn over. The 9 period RSI has been in a down trend since the end of May and although it had turned up last week it is rolling over. The Upper Bollinger Band is at 84.35 and the lower band is at 79.52. The Bollinger Bands are currently expanding and the index is below the lower band. We know that it cannot stay there for too long before either returning inside the band or having the bands expand. The 20 period simple moving average is 81.457 and the 5 period exponential is at 79.375. So far we are seeing hints that the index may be pausing before moving back down.

The 60 minute .05 x 3 point and figure chart shows we are still in a down trend and are below all the internal trend lines. There is currently one inactivated downside target of 78.05. This chart is signaling to us that all hope should not be lost. On the upside there is one activated target of 80.95 and one inactivated target at 79.90. Countertrend internal trend lines have begun to form and the September 13th low looks like a pole. W hen we see countertrend internal trend lines forming and counter trend targets, we tend to believe the market may about face. This chart leads us to believe that at least for the short term, the index will back and fill and drift to the upside, perhaps around 80 or so.

The longer term daily .5% x 3 point and figure chart shows the index has moved fairly violently to the downside and found support at the 78.97 level, which also happens to be the uptrend line. There are no new targets as there is still an activated upside target of 85.96 and a downside target of 66.65. We see further downside risk on this chart to the 78.58 level

The weekly candlestick chart shows we have broken the triangle formation very badly to the downside. The index is currently sitting on support at 78.59 though we wouldn’t be shocked to see it move down to 78.088. On the upside a move to 80.436 would be reasonable and expected. Putting this all together, the index may back and fill and revert to the mean, moving back to the downtrend line on the daily candle chart. The 60 minute point and figure chart seems to support this. After this, the index will likely continue to move down to 78.105.

For the past week, the S&P 500 has been backing and filling leaving three doji candlesticks on the chart. We saw the index poke above the upper channel line on September 14 and we have a nine-count which was seen on September 18. We are trading near overbought levels but the rate of change is slowing down. The stochastic indicator, our own indicator and the RSI are all drifting ever so slightly to the downside. The 5-period exponential moving average is at 1451.70. The top of the Bollinger Band is at 1471.72 and the lower edge is seen at 1386.85. The weekly chart is overbought and has signs of exhaustion. We have a narrow inside day candlestick on the weekly chart. The indicators on the weekly chart are all pointing lower. The market profile chart tells us that at 1465 we are in the single print area of the chart and that is likely that we will not remain there for very long. The edge of the bell shaped curve tells you that you are not in a stable area of the trade and that the market does not like this level. There are two ways to trade this, either we will break out to the upside, catching the shorts and forcing them to trade or, we will return to the comfort zone bulge of the chart. The other side of the trade is 1440 where the longs will become uncomfortable. The point and figure chart is telling us a different story and continues to look positive for the bulls. The 60 minute point and figure chart indicates that there could be a problem at this level.

The NASDAQ 100 has three doji candles formed in the last three trading days. All the indicators that we follow herein are issuing a sell-signal at overbought levels. The 5-period exponential moving average is at 2847.58. The top of the Bollinger Band is at 2874.66 and the lower edge is seen at 2737.51. The stochastic indicator, our own indicator and the Thomas DeMark Expert indicator are all issuing a sell-signal. The RSI is flat at the 70.27 level. The market profile chart shows single prints at 2870. We know that we are fairly close to levels which are not stable. This market could melt to the upside should we remove that level. On the downside of the same chart, we see that at 2730, we become very unstable and could likely fall to 2642.50 on a down draft. On the weekly chart there are signs of exhaustion although last week the index did print a higher high but left a doji like candlestick on the chart. The stochastic indicator and the RSI are both overbought on the weekly indicator but are not issuing a sell-signal. The Thomas DeMark Expert indicator is issuing a sell-signal. The daily point and figure 1% by 3 box chart continues to look very positive for the NASDAQ. The 60 minute point and figure chart is also very bullish.

The Russell 2000 rallied in the Friday session putting in the first positive day for the week. The 5-period exponential moving average is at851.16. The top of the Bollinger Band is at 870.34 and the lower edge is seen at 797.85. The stochastic indicator and the RSI are both issuing a buy-signal very near overbought levels. Our own indicator is curling to the upside but has not issued a signal as yet. The Thomas DeMark Expert indicator is pointing lower. The pattern that we see could be a bull flag although the spike to the downside on Thursday was a little bit more than desired. We continue to trade inside the upward trending channel lines. The top line is at 872.90 and the lower line is at 829.8. We are above the Ichimoku Clouds for all time-frames. The market profile chart shows us that there is no overhead supply above 864.50. The 864.50 level is not too stable and if we pass that level, we will likely see a quick sprint to the upside. On the other side of the coin the downside level to watch is 828.75. Below that level we will see support at 812.50 or so.

Crude oil took a dive in the Thursday session trading as low as 90.66 recovering to 92.37 on the close. The Friday session left a doji candlestick on the chart and a tiny upside gap. We are above the Ichimoku Clouds for the daily and the monthly time-frame but below the clouds for the weekly time-frame. The weekly chart looks awful and has a very large red candlestick. The point and figure chart reveals some downtrend lines and some concern regarding the advance of this product. We are between the uptrend and downtrend lines on the 1% by 3-box daily chart. The stochastic indicator is oversold but is unclear as to its direction. The RSI is near oversold levels and going sideways. The 5-period exponential moving average is at 93.72. The top of the Bollinger Band is at 99.24 and the lower edge is seen at 92.19. The nicest thing we can say about crude oil is that it will likely back and fill here for a while. The market profile chart shows us that we closed in the area considered as fair value. The chart also shows that above 100.50 we will likely quickly move to the 102.75 area and below 90.75 we will drop to the 87 area.

Gold loves the Fed and its free money policy. The market rallied in the Friday session achieving highs for the year. We seem to be stair-stepping higher. The 5-period exponential moving average is at 1767.26. The top of the Bollinger Band is at 1803.31 and the lower edge is seen at 1639. We are above the Ichimoku Clouds for all time-frames. All the indicators we use are overbought but none have given us a sell-signal. The up trending channel lines are a bit steep but are 1798.76 and 1715.26. The market profile weekly chart shows us that above 1773.20 we will likely rally to the 1816 area and open the door to 1916. We continue to like gold but would prefer to purchase it on pull backs.