Archive for July, 2014

Sunday, July 27th, 2014

Money funds that cater to institutional investors (generally made up of small investors investing in mutual funds and the like) will be allowed to “break the buck” no longer be required to adhere to a $1.00 value and will be allowed to let their rates float. Additionally, the SEC will allow the money market funds to temporarily block investors form withdrawing money during times of financial stress…….Further, the SEC will allow money funds to charge emergency redemption fees….so why put your temporary cash into a money market fund if you will be restricted during times when you actually might need those funds to survive. We thought that the SEC was supposed to protect investors, how would this protect them. Their mission statement is: “The mission of the U.S. Securities and Exchange Commission is to protect investors, maintain fair, orderly, and efficient markets, and facilitate capital formation.”

Oh well, back to the global conflicts: the fact that the US stock market doesn’t seem to care a whit about global hot spots and chaos is a testament to the US market’s strength. Basically, the market is telling us that it is strong and that in spite of these outside forces that it will proceed higher. Global conflicts are in Ukraine, Syria, Libya, Iran, Iraq, Israel, Gaza, etc. Then there is Scotland who wants independence from Mother England, all but the whiskey producers who would like to stay a part of Great Britain. Yes, the current rally is long in the tooth but there is no reason to abandon ship. We know that there are icebergs ahead but we do not know when they will appear thus we should stay the course and protect our investments and always be ready to change our course quickly.

Never underestimate Putin or overestimate Obama.

The S&P 500 retreated 0.5% in the option’s expiration Friday session closing not too far away from the lows of the session. We are not sure if this downdraft was caused by nervousness in front of the weekend or portfolio managers and traders taking some cash off the table. This index continues to remain above the uptrend line. A new life of contract high was printed in the Thursday session. The 5-period exponential moving average is 1973.45. The top of the Bollinger Band is 1984.21 and the lower edge is seen at 1952.23. The stochastic indicator, our own indicator and the RSI all have issued a sell-signal. The stochastic indicator and our own indicator are both pointing lower for the weekly and monthly time-frames. We are above the Ichimoku Clouds for all time-frames. The 1% by 3-box point and figure chart has an upside target of 2278.81 and looks quite positive. The 60 minute 0.1% by 3-box chart has an internal downtrend line and seems to be losing momentum. Again we advise to keep your stops tight and remain nibble, ready to jump to the sidelines.

The NASDAQ 100 retreated less than the S&P 500 in percentage terms shaving off 0.4% of its value in the Friday session. The good news for this session is that the NASDAQ was able to stay above its 5-day exponential moving average of 39.34.37. The bad news is that we have sell- signals issued by the stochastic indicator, the RSI as well as our own indicator. This index remains above the uptrend line drawn from April. It is also above the shorter-term uptrend line drawn from June. The upward trending channel lines are 3872.68 and 3992.94. The upper edge of the Bollinger Band is 3979.06 and the lower edge is seen at 3842.78. The horizontal support line is 3955.75 and 3921.25. We are above the Ichimoku Clouds for all time-frames. As we move into the August time-frame we will see softness appearing. Remember that September is seasonally the worst month of the year as traders anticipate the October retreat, which, generally does not materialize. Traders position themselves ahead of time and that is likely why September seems to have downside pressure. The daily 1% by 3-box point and figure chart remains very positive. The 60 minute 0.1% by 3-box chart has some internal downtrend lines but still looks positive.

We saved the worst for last and that is the Russell 2000. This index retreated 9 points or handles in the Friday session. We have a sell-signal issued by the stochastic indicator and the RSI. Our own indicator will issue a sell-signal in the next session. This index has broken the uptrend line and seems to be stair stepping its way lower. The 5-period exponential moving average is 1145.93. The top of the Bollinger Band is 1210.86 and the lower edge is seen at 1118.36. Clearly the risk on trade is the current pattern. This index is continues to have more downside risk than the other indices. If the Russell 2000 can close for two days above 1161.60, we will become friendlier towards this market. Till that time, we are in the bear camp especially if 1123.80 is removed for two-days.

Gold rallied 1.07% in the Friday session. All the indicators that we follow herein are issuing a buy-signal. We are above the Ichimoku Clouds for the daily time-frame, in the clouds for the weekly time-frame and below the clouds for the monthly time-frame. The 5-period exponential moving average is 1305.46. The top of the Bollinger Band is 1341.68 and the lower edge is seen at 1291.38. The downward trending channel lines are 1312.70 and 1269.10. The uptrend line, which only has two points connected, is 1289.85. We see a point of resistance at the 1319 horizontal congestion line. The 60 minute 0.2% by 3-box point and figure chart has an active downside target of 1210.64. The Bollinger Bands are expanding on this chart and the market is above the uptrend line and looks to be setting up to challenge the internal downtrend line. The RSI on this chart continues to point lower. The daily 1% by 3-box chart has an active 1113.19 target as well as an upside target of 1812.66. We continue to like gold but it is going to have to gain our trust before we jump headlong into a position. Our position is to wait and see.

Crude oil fell out and climbed back into the recent congestion area in the Friday session. The candlestick left on the chart is a long tailed doji-like candlestick. Essentially what that candlestick is saying is that when the bears were in charge of the trade they were unable to press the market lower and lost to the bulls who came in and returned the market to almost neutral. The candlestick also tells us that the bulls had a chance to run with the trade and the bears stepped in and pressed the market lower thus, there was little change in crude in the Friday session. Behind the scenes it should be noted that the US Dollar had a really strong showing in the Friday session. This fact alone should have pushed crude even lower. The 5-period exponential moving average is 102.11. The top of the Bollinger Band is 104.88 and the lower edge is seen at 99.29. The line in the sand is 101.82. Naturally should the market remove 101.00, we will see some liquidation from the longs. As to the indicators, they are mixed but seem to be losing momentum. The monthly chart continues to look like a wedge. We closed the session inside the Ichimoku Clouds for both the daily and monthly time-frame and above the clouds for the weekly time-frame. The 60 minute 0.2% by 3-box chart has a downside target of 96.68 and looks as though the market will break to one side or the other. The daily 1% by 3-box chart has both an upside target, 125.95 and a downside target of 82.93. Take no position until the market tells you where it wants to go. Right now, the market is straddling the fence and hasn’t made up its mind.

The US Dollar Index sprinted to the upside this week closing the Friday session at 81.04. The Bollinger Bands are currently expanding with the upper band at 81 and the lower band at 79.71. The 5-period exponential moving average is 80.84, the 20-period simple moving average is 80.353 and the index is currently above both. The RSI continues to issue a buy signal at overbought levels and our own indicator seems to be debating a sell signal. The daily candle chart shows resistance at above at 81.29 and support below at 80.75-80.80 and below that at 80.62. Looking to the weekly chart, we see the index has started breaking out of a long consolidation pattern. That said, we would need the index to stay above the downtrend line this week to confirm the break. Resistance above is at 81.41 while 80.62 should act as support. The 30 minute .05 x 3 Point and Figure Chart shows an uptrend with several internal uptrend lines. there are currently two activated upside targets at 81.45 and 82.70.

So where to from here? If we were long the dollar index, we would likely take some of our winnings off the table at this point. There is much uncertainty in today’s world. Ukraine, Israel and Iraq have certainly helped spur the index’s break along a little quicker. That said the index could move to 81.41. If the chaos were to calm down, a cease fire were to hold in Israel and the Ukrainians stayed out of the lime light for a week, the index could nestle back into its consolidation and the week’s rally may, from a technical perspective, be seen as noise.

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