Archive for June, 2013

Sunday, June 30th, 2013

Happy Birthday America! We certainly have come a long way in our 237 years as a nation but have back peddled quite a bit in recent years. This country, a melting pot of immigrants, was founded as a place where freedoms would be preserved. Our history shows that for most of our existence we remained steadfast in that path. In recent years; however, it has become apparent that our freedoms of “Life, Liberty and the Pursuit of Happiness” have been moderated by the many “big brothers” who have appeared and begun control of our lives. Even the IRS has a hit list these days, of those who “big brother” would like investigated. So what happened to our freedom and our mission? When did we become so socialistic? A better question would be: do some of these controls and manipulations bleed into our markets? The recent plunge in the gold ETF might bring a few questions when looking at the open interest and COT report on gold.

The first half of 2013 is in the books. The markets enjoyed very robust rallies and encouraged investors to return. Friday marked the annual rebalancing of the Russell indices, which gave a boost to those issues added to the indices. This activity also helped lift the S&P and other related indices early in the trading session. At the end of the day the profit takers closed out their positions and removed the portfolio risk, where possible, in front of the non-trading weekend. The markets manic behavior returned. Although the industrials lost ground in the Friday session, the NASDAQ composite tacked on 0.04% or 1.39 points. Speaking of rallies, the US Dollar index has enjoyed a fantastic two week rally taking it within striking zone of the May 2013 high of 84.595. As we all remember from our studies, as the US interest rates inch higher, the bond values fall (they are inverse relationships) and the US currency advances. The result is a fall in dollar priced commodities and generally a fall in gold. A rise in interest rates helps prevent inflation. That said, inflation as measured by the Fed is bogus as anybody who eats, pays bills and drives knows. Our government does not measure these things in their gauge. This run rate of inflation will moderate as the cost of the raw materials priced in dollars drops.

Well the US Dollar Index has certainly been on a bender as of late. Since we last wrote about this market, the US Dollar Index formed a catapult (well almost a catapult if not for going one box too low) and has blown to the upside. The index closed the Friday session up for the day at 83.38. We are currently inside the Bollinger bands and they are going flat with the upper band at 83.71 and the lower band at 80.27. The 20-period simple moving average is 81.99 and the 5-period exponential moving average is 82.99 (we are above both). Our indicator is continuing to issue a buy signal with the CCI pulling in just slightly (signaling a decline in momentum) and the RSI is still pointing up near the 70 level, however; also signaling a loss in some momentum. Looking to support and resistance lines we see the market stopped short of the 83.64 level, a resistance line that has for the most part held this market in check since July of 2010. Should the Index break above this point it is back to the recent highs we go. Looking below, the 82.24 support line should hold this market up. The 60 minute .05 x 3 point and figure chart shows we continue to be in an uptrend, have formed several internal trend lines and have two activated upside targets of 84.30 and 85.35. This chart is signaling continued action to the upside. Our gut reaction, taking all of this in, is that this market is a bit overextended and will need to back and fill.

When looking at the flipped chart (an upside down chart) of the S&P 500 this past week it showed that the market took a dive to the congestion area seen in March and April of 2013 and a rather abrupt rally from that area retrieving more than 38.2% of the loss from the high of May 22, 2013. If we were to see a minimal 50% reaction, the S&P 500 would rally to 1619.37 and a 61.8% rally would take us to 1634.98. The larger picture of the rally that began in October of 2011 shows this as a minor retreat. Even if we were to use the rally from the beginning of the January 2013, the retreat seen last week would not be seen as anything but a slight retreat in a bull market. That said, it does indicate to the complacent investor that retreats will and can occur and that one of these days, the retreat will be more than this slight annoyance. We continue to believe that we are in an uptrend but that this uptrend is “long in the tooth” and we believe that there will be a retreat seen, in the not too distant future, that will take us to 1531 and 1450. If you look at the rally from the January gap, we have broken the uptrend line. (These numbers are based on the September futures contract not the cash.)

The S&P 500 retreated in the Friday session leaving an image almost identical to that seen in the Thursday session. The main difference between the two days was that Thursday the market closed above its opening level and on Friday, the market closed below the opening level. The range was almost the same with the difference only a quarter on the high and the lows of the day. The high on Friday was 0.25 higher than the high on Thursday and the low of Friday was 0.25 lower than the low on Thursday. The S&P 500 closed below the Ichimoku Clouds for the daily time-frame and above the clouds for both the weekly and the monthly time-frames. The 5-period exponential moving average is at 1597.09. The top of the Bollinger Band is at 1659.74 and the lower edge is seen at 1569.32. The 60 minute 1 by 3-box chart has both upside and downside unrealized targets with several internal up pointing trendlines. There is a major downtrend lines visible on this chart. The upside target is 1629 and the downside target is 1562. The Thomas DeMark Expert indicator continues to point higher. Our own indicator is curling over to the downside but is not issuing a sell-signal. The stochastic indicator and the RSI are both issuing sell-signals. We are entering the summer months which can be viewed as either the summer doldrums or a summer rally. We then head into the scary September October period. All of this points to an interesting time ahead.

NASDAQ 100 wins the prize for the best index in the Friday trading session. The NASDAQ 100 left a doji candlestick on the chart and closed inside the Ichimoku Clouds for the daily time-frame. The index is above the Ichimoku Clouds for both the weekly and the monthly time-frames. The 5-period exponential moving average is 2891.53. The top of the Bollinger Band is 3023.74 and the lower edge is seen at 2840.18. We see good support at 2855.29 and at 2796 or so. The 30 minute Market Profile chart formed a perfect bell shaped curve with the bulge at 2910 but the high volume just above that level. When looking at the 0.1% by e-box point and figure chart we see both upside and downside targets. There are so internal upside trendlines and a very serious downtrend line. The 30 minute 3 by 3-box chart highlights the importance of the 2916 area. The 30 minute chart does look better than the 60 minute chart. The Thomas DeMark Expert indicator, our own indicator and the stochastic indicator are all pointing higher. The RSI is flat at 45.58.

The Russell 2000 retreated in the Friday session even though the annual rebalancing occurred. The candlestick demonstrated traits of a high wave candle. The 5-period exponential moving average is 968.68. The top of the Bollinger Band is 1001.31 and the lower edge is 948.87. The Thomas DeMark Expert indicator continues to issue a buy signal. Both our own indicator and the stochastic indicator are curling over and could issue a sell-signal is a few days. The RSI is curling to the downside. If you look at the Market Profile chart, you will see very little trading to the upside and lots of trading on the downside. The 30 minute point and figure 1 by 3-box chart has both internal uptrend and downtrend lines. We do have an unfilled downside target of 954. When reviewing the 60 minute 0.15% by 3-box reversal chart a clear downtrend line seems to be holding its ground. We have an unfilled target of 952.28. The Russell 2000 closed above the Ichimoku Clouds for all time-frames.

Crude oil has been in rally mode in spite of the rally in the US Dollar. It seems to be telling us that the buyers are expecting to see some economic expansion. The rally in crude went against the strength in the US Dollar. We are above the Ichimoku Clouds for all time-frames. The daily indicators are turning negative yet, the weekly and the monthly indicators are positive. The 5-period exponential moving average is at 96.09. The top of the Bollinger Band is at 98.76 and the lower edge is seen at 92.77. The line in the sand for this product is seen at 93.74. We have an uptrend line at 94.02 and a downtrend line at 97.81. The daily 1% by 3-box point and figure chart is very positive. The 60 minute 0.6% by 3-box reversal chart is also positive.

For all those wanting to see really ugly charts, we suggest that you look at the chart of gold. Could Friday have been a reversal of this very deep sell-off? We certainly wouldn’t bet the farm on that one. We have been stair stepping our way lower since the high was posted in 2012. Yes the indicators are pointing higher but this just might be a false signal. We are below the Ichimoku Clouds for both the daily and the weekly charts. We are inside the clouds for the monthly time-frame. The 60 minute 0.5% by 3-box chart looks absolutely awful. The 5-period exponential moving average is 1245.36. The top of the Bollinger Band is 1474.60 and the lower edge is seen at 1208.40. Please do not try to catch a falling knife. We do not know where the bottom is and will likely miss that level. We would rather step in a little late than to try to bottom fish this one.