Archive for December, 2013

Sunday, December 22nd, 2013

The mad dash to purchase Christmas gifts is in its final days. As the e-commerce ventures closed up shop the brick and mortar retailers make the final push for sales. It appears to us that e-tailers will be the winners this season. Seriously it is so much easier to point and click. As a Christmas gift to all currently unemployed people, the congress has failed to pass an extension for people getting unemployment benefits. The end date is December 29, 2013 thank you Mr. Grinch.

We are also in the last weeks of the year in which losses and gains for the year can be taken. We expect to see a quiet close to the end of this trading year. The Fed gave the gift of certainty, the beginning of their “taper.” Markets despise uncertainty and this announcement by the FOMC relieved the fear of when the taper would begin. This action removed the obstacle of uncertainty from the market which in turn relieved the markets. Thus the buyers and those short the markets ran out the door (in actuality point and click or phoned in) and bought the markets. The markets, Dow Jones Averages and the S&P 500 printed new all-time highs. The Russell 2000 came within two points of printing a new high and left a bullish engulfing candlestick on the chart. (That is a candlestick the has both a higher high and lower low than was seen in the previous session. The candlestick engulfs its preceding candlestick.) The NASDAQ 100 printed a high for the year but failed to print an all-time high and remains some distance away from that high. Remember the Tech Bubble? Well that number remains as the all-time high for the NASDAQ 100. It isn’t a bad idea to remember these bubbles, Bitcoin, real-estate and tech, all have had an impact on investor’s judgment as greed overtakes intelligence. We are not saying that we are there yet, but we are getting closer every day. We do expect to see competition for the Bitcoin market, other Bitcoin type providers, pop up in the not too distant future. When this occurs, consider that as a sign of the market getting much too frothy. Hide under a rock or buy hard assets that if they fall on your body part, will hurt. Hide from cyber money, or…. you could buy some tulips.

The US Dollar Index closed the Friday session at 80.57, leaving a spinning top on the chart after a mild bounce from the 79.83 low. If these charts could talk… well they do. We believe the price discounts everything and there is much information to be gleamed from these festive red and white candle charts. The Fed came out with news of tapering this week. In theory, this should mean a jump in the dollar as it spells higher interest rates and thus higher demand for US Dollars. Alas, the jump in the index was mild and we are still in a down trend. So what does it all mean? While the index behaved as expected it was a bit subdued in its response. In other words, market participants aren’t buying it and believe the fed is still stacking the deck.

The 5-period exponential moving average is 80.45 and the 20-period simple moving average is 80.44 (we are above both). The Bollinger Bands are turning in ever so slightly and our indicator is issuing a buy signal while the RSI is turning down. Aside from a few turns and twists, the Dollar Index has been in a downtrend since May 23. Despite some mild breaches, the market has been contained on the downside by the 80 level. With a decisive break here, we would expect this market to head south for the winter and visit the October lows of 79.60 or so. We would want to see the Downtrend line broken before we looked for some moves to the upside. If, hypothetically this were to occur, we would expect this market to go to 81.36 – 81.50.

The weekly candlestick chart of course confirms these levels. We see upside resistance at 81.50 and downside support at 79.60 or so. The 30 minute 0.05 x 3 box point and figure chart shows our downside target of 79.90 as having been met. We are currently in an uptrend with two activated targets, on the downside 79.60 and on the upside, 81.50. As a rule of thumb, when we fight the point and figure chart, we typically loose…. Well though these may be words we live to regret, we are still bearing on the Dollar Index and foresee a move to the 79.60 level. Be prepared and be fluid. Know the levels that ought to change your opinion.

The S&P 500 rallied in the Friday session and printed a new all-time high for this contract. When we look at the volume for this futures contract we cannot help but notice that the Thursday session, which yielded a doji candlestick (one where the open and closing prices are nearly the same and ideally are the same). The Friday session when a new all-time life of contract high was seen had less than normal volume. We are overbought as measured by the indicators that we follow herein. That said, not one of these indicators has issued as much as a curl to the downside. We are above the Ichimoku Clouds for all time-frames. The 5-period exponential moving average is 1802.71. The top of the Bollinger Band is 1821.22 and the lower edge is seen at 1772.14. As to overhead resistance, there is none at the moment. Clear sailing to the upside with no sellers waiting in the wings to close their positions without a loss…..that is overhead supply. There is no overhead supply above 1818. That is the new high printed in the Friday session. The Market Profile 30 minute chart clearly illustrates to us that above 1813.75, where 21.8% of the day’s trading volume occurred, there was a quick scramble to cover shorts. It should also be noted that Friday was a quadruple witch, which always escorts in additional volatility as options players flatten their accounts either via stock purchase/sale or option purchase/sale. Futures go off the board at the open so they have little to do with the closing volatility and action. As you know the options on stocks expire on Friday and are settled on Saturday. That is Saturday assignments are issued and clearing houses are informed if they have customers that have positions that will be exercised. The 1% by 3-box daily point and figure chart continues to look bullish. The 0.2% by 3-box 60 minute point and figure chart has an upside target of 1834.43. This chart continues to look very bullish, but again, we have concerns about the lack of volume.

The NASDAQ 100 did print a high for the year and remains above the Ichimoku Clouds for all time-frames. We are overbought as measured by all the indicators that we follow herein. To that we must add that all the indicators are pointing higher without as much as a bend in the pattern. The 5-period exponential moving average is 3500.83. The top of the Bollinger Band is at 3534.77 and the lower edge is seen at 3421.05. This chart does look extremely neurotic but nonetheless positive. We are overbought for all time-frames, daily, weekly and monthly. The 1% by 3-box point and figure chart looks very bullish and has lots of internal uptrend lines. The 60 minute 0.2% by 3-box chart has an upside target of 3582.51 and looks very bullish. So here is the question: was the market really that short that it scrambled violently to cover or are the players gambling that when Japan and Europe open they will play catch-up with the US markets and just buy the markets? This is a good question. We have no overhead supply to worry about and the momentum is to the upside. The problem is that the volume is not where it should be for a breakout.

The Russell 2000 had a huge bullish engulfing candlestick as a result of the action in the Friday session. We are overbought as measured by the stochastic indicator and the Thomas DeMark Expert indicator. The RSI is at 64.74 and our own indicator still has room to the upside. All of the indicators that we follow herein continue to point higher. The weekly and the monthly time-frames show a very overbought market but one that continues to move higher. Actually the monthly chart has pole like qualities which remind us of the tech bubble. The 5-period exponential moving average is 1129.80. The top of the Bollinger Band is at 1149.70 and the lower edge is seen at 1100.99. We are above the Ichimoku Clouds for all time-frames. Remember, this index is likely the beneficiary of the January buying spree. It is possible that this index full of growth stocks will be the target of those wishing to cash in on the anticipated recovery of the US economy…..

Although gold rallied in the Friday session, it truly has an ugly chart. Both the stochastic indicator and the RSI have turned the corner and are now pointing higher although the stochastic indicator has not given us an all-clear signal as yet. Our own indicator is curling to the upside and will give us a buy-signal within a day or so, as long as the market continues higher. The 5-period exponential moving average is 1213.23. The top of the Bollinger Band is at 1268.52 and the lower edge is seen at 1199.97. The downward trending channel lines are 1239.76 and 1167.18. The chart shows that 25.6% of the day’s volume was seen at 1192.50, short covering? The daily Market Profile chart shows that the direction of the market continues to be lower. The 1% by 3-box point and figure chart has a downside target of 1146.92. There are numerous downtrend lines on that chart. The 0.2% by 3-box 60 minute chart confirms the target seen on the daily 1% by 3-box point and figure chart, well almost. The target number on the 0.2% 60 minute chart is actually 1149.35 a tad higher. The target at 1196.2 was met.

Crude Oil has been in rally mode and has emerged above the Ichimoku Clouds for the weekly and monthly time-frames, but remains inside the clouds for the daily time-frame. All the indicators that we follow herein are pointing higher. The stochastic indicator is overbought but the RSI has a little more juice left in this run. Our own indicator remains positive. The up trending channel lines are 100.72 and 95.86. The 5-period exponential moving average is 98.22. The top of the Bollinger Band is at 100.61 and the lower edge is seen at 91.95. The increase in the price of crude will have an impact on the expansion of the economy. Increased costs of fuel help fire up inflation and actually are a cost for all; it is like another sales tax. The 60 minute 0.2% by 3-box point and figure chart is bullish with an upside target of 100.42. The 1% daily 3-box point and figure chart does have a strong downtrend line in place. Crude oil has broken and closed above the downtrend line and we believe that crude oil can trade to 101.60 where it will find resistance.

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