Archive for November, 2012

Sunday, November 25th, 2012

Ho Ho Ho…..Merry Christmas…….is the chant on television radio and all media. Walking down Fifth Avenue on Black Friday…. Should be renamed; “Nightmare on Fifth.” Crowds pushing and shoving, no good will only anger. Oooing and aahing at everything. Louis Vuitton store on Fifth Avenue empty just a few feet away a fake Louis seller, set up his inventory on a blanket on the sidewalk, yes selling his fakes right there one half block away from the real Louis store and his blanket was crowded. Police didn’t bother him!

Across the Hudson you could buy Knight, or a piece of it, at the right price…..wonder if there is a faux Knight being sold across the river…hum. Then the newest Christmas gift for better than normal returns are…..”Baby Bonds!” These small denomination bonds have jumbo yields and a maturity of about a dozen years. Yes, they are priced like savings bonds ($25 denominations) but have absolutely no guarantee and generally are not backed by anything either. You can earn better than 5% on this taxable investment with extremely high costs, and very little liquidity. For the right investor, this just could be the perfect Christmas gift.

Let us talk about the fiscal cliff as it impacts most. The preferential treatment of dividends will likely not be changed for most with the exception of those families earning more than $250,000 from ordinary income sources. Alternate Minimum Tax (AMT) will become a burden for one in eight families and likely will not continue in its present form. It is extremely likely that our elected officials will come to some sort of agreement and that the fiscal cliff will be a mole hill. That said there will be additional taxes for most tax payers, yes even the middle income earners will get socked with that. It is advisable to buy business equipment before the end of the year because next year “Section 179” deduction will drop and you will not have that benefit. Don’t forget you may gift away $13,000 per person this year.

Midway through the week we began seeing the telltale signs of a rounding top or as us candlestick aficionados would say, a dumpling top. The Dollar Index began printing small bodies and losing momentum creating the appearance of a ball midflight arcing over as it prepared to make its final decent. The Index left a large red candle on the daily chart Friday closing the session at 80.236. Perhaps the market simply ran out of steam, weighed down in tryptophan/turkey induced post-Thanksgiving food coma. More likely, the market was edging its way higher, pushing through a dense atmosphere above (resistance), and without the volume to support such a move as traders took off for the holidays the index found itself close to where it took off.

Currently the Bollinger Bands are pulling in a bit with the upper band at 81.55 and the lower band at 79.96. The 20-period simple moving average is at 80.76 and the 5-period exponential moving average is at 80.75. The market is below both of these measurements. The stochastic, RSI and our own indicator are all issuing clear sell signals at the moment. The market is currently resting on a bed of support that lies between approximately 79.83 and 80.22.

The 60 minute .05 x 3 point and figure chart has one activated downside target of 79.75 and has had several internal trendlines broken and several countertrend internal trendlines formed. Currently we see the index edging its way closer to the objective uptrend line. We would not be surprised to see this line penetrated a bit before the market made an about face.

The daily .5% x 3 point and figure chart still shows two activated upside targets of 85.96 and 91.72. The market has bounced off of the objective 45 degree trendline. One internal trendline appears on the map and has not yet been penetrated enough to be negated. We are also presented with a countertrend internal trend line off of the July highs. The index is beginning to give the appearance of a market coiling up.

Looking to the weekly candlestick chart, the market bounced off of the 20-period moving average and seems to be hugging the uptrend line.

This market has all the telltale signs of wanting to move lower. All the indicators are issuing a sell-signal, we have just completed a rounding top, there are currently activated downside targets on the short term point and figure chart accompanied by broken internal trend lines and the formation of countertrend internal trend lines. Last week left a big, fat, red candle on the chart. The market may need to breadth for after all, markets are human and we cannot sprint indefinitely. Regardless, we think this market has some room to the downside. We would not be surprised to see either the 79.75 target reached, which happens to be very close to the October 31st low of 79.72.

The S&P 500 enjoyed a pre-holiday rally in the shorten Friday session. From a Fibonacci point of view, the market took back a little more than 50% of the loss seen from the September high. We are approaching overbought levels but have room to run to the upside. We have been up or had higher closes than opens for the past six trading sessions. We believe that in the short-term the lion’s share of the gain has been seen, for now. We will have a pull-back within a day or so and depending on the nature of that pullback we will be able to measure the action we might see into the end of the year. Black Friday was indeed a well-received event for most merchants. The consumers ran out the door shopping and buying through that day and into the weekend. It was a merry happy time for starving stores and bargain seeking consumers. The market closed right in the congestion area and likely will have to do some work here to move aggressively higher. The down trending channel lines are wide. The top line is 1418.23 and the bottom channel line is 1339.19. The 5-period moving average is at 1390.75. The S&P 5-00 rejected the low of 1340.25 seen on November 16, 2012 leaving a “V” bottom on the chart. The rally that followed that event was robust. We continue to believe that there will be a retreat and although this does look like a Christmas rally or Santa Claus rally, it may be somewhat short-lived. We do not expect to see a collapse of the market but rather a purging of the overbought condition and some anticipation of the risk on again behavior. The top of the Bollinger Band is at 1432.11 and the lower edge is seen at 1347.36. We are below the Ichimoku Clouds for the daily-time frame but above the clouds for both the weekly and monthly time-frames. The Market Profile chart shows us in the middle of nowhere special. As to the point and figure chart, we do have a realistic upside target but also have a downtrend line that will keep this market in check. The 60 minute point and figure chart has an upside target of 1442 which seems quite reasonable.

The NASDAQ 100 did rally aggressively in the Friday shortened post-holiday session. We have regained 38% of the losses seen from the retreat from the September 21, 2012 high of 2871.75. All of the indicators that we follow herein are pointing higher with room to the upside. The 5-day exponential moving average is at 2602.08. The top of the Bollinger Band is at 2702.46 and the lower edge is seen at 2509.53. We are below the Ichimoku Clouds for the daily time-frame, but above the clouds for both the weekly and the monthly time-frames. The NASDAQ 100 is touching the upper edge of the down trending channel line of 2638.05 which tells us that it will either punch through that line or find resistance at that level. We believe that the market may poke through that line but will retreat within a day or so. The lower channel line is 2489.56. The Market Profile chart shows that we are close to the upper edge and if we rally further we will likely visit 2731. The point and figure 1% by 3 daily chart has an upside target of 2780.58 but there is also a downtrend line there to respect. The 60 minute 0.1% by 3 box chart gives us 2740.90 as an upside target.

The Russell 2000 enjoyed a nice rally in the abbreviated Friday session and now has signs of exhaustion. The market had sold off aggressively into the bullish engulfing candlestick on November 16, 2012. The downside spike seen in the November 16th session took this index below the channel lines for a third day and by the end of that session the Russell 2000 had boomeranged back to the upside. The down trending channel lines are 812.69 and 772.76. We are below the Ichimoku Clouds for the daily time-frame but above the clouds for the weekly time-frame. All of the indicators that we follow herein continue to point higher. That said, we see that the DeMark Expert indicator appears to be losing speed on the upside and is beginning to roll over. The 5-period exponential moving average is at 796.70. The top of the Bollinger Band is at 829.55 and the lower edge is seen at 767.03. The Market Profile chart shows that the market is in a congestion area. We see some resistance above 808.92 which will lead to a run to 828.18. Below 757.6….duck and cover would be a good trading idea. The 1% by 3 box daily point and figure chart clearly shows that we are in an area of congestion. We have a not activated downside target of 618.88 and downtrend lines on the chart to respect. The 60 minute point and figure chart tells us that this market has crossed and closed above the downtrend line. We have an upside target of 816.

Crude oil left a bullish engulfing candlestick on the chart as a result of the Friday trading session. We are below the Ichimoku Clouds for the daily and weekly time-frames and in the clouds for the month time-frame. The 5-period exponential moving average is at 875.92. The top of the Bollinger Band is at 88.87 and the lower edge is seen at 83.85. So long as we remain above 84.05, we will give the direction to the bulls. All the indicators that we follow herein are pointing higher with plenty of room to the upside. Here are some important levels seen on the Market Profile chart. At the 89.88 level, it is likely that we will return to the stable area around 86.50 or so. Should we move above the 89.88 level, it is likely that we will find comfort at about 91.60. Above 93.48 we will move significantly higher. On the downside, below 83.98 we will open the door to the 79 area. The 1% by 3 box daily point and figure chart shows that we are above the uptrend line and below the downtrend line…clearly something has got to give. The 60 minute 1% by 3 chart shows the same thing as the daily chart does. Time will tell but we tend to believe that the direction will be to the upside.

Gold had a very positive reaction in the Friday session gaining 23.60 dollars on the day. We closed just barely above the Ichimoku Clouds for the daily time-frame. We are above the clouds for the weekly and the monthly time-frames. All of the indicators that we follow herein continue to issue a buy-signal and have plenty of room to the upside. The 5-period exponential moving average is at 1735.45. The top of the Bollinger Band is at 1751.38 and the lower edge is seen at 1688.06. We have what looks like an inverted head-and- shoulders pattern on the daily chart. The daily Market Profile chart shows that we closed the trading session at a very unstable area of the chart. We will either rally to 1767 or we will return to 1721, but we cannot stay here very long. The point and figure chart 15 by 3 clearly shows that we have broken out to the upside.