Archive for August, 2014

Sunday, August 24th, 2014

We are beginning to become a bit concerned regarding the recent surge of ads offering buyers no money down loans on properties. These ads are from private groups of investors that will lend money to investors or buyers of real-estate properties, offering loans with almost no money down. Fanny Mae is doing the same but at least they are asking for proof of rent roles for multi-family housing. Certainly the banks are avoiding these loans and not packaging them as in the past but still there is evidence of some excesses in the market and cash sloshing around being put to good work. Is this the beginning of a problem? What happens if the market has a downturn, will these private equity investors foreclose on the properties? There are lots of questions and very few answers that we can find.

The global violence continues with innocent people falling victim to some of the insanity in war torn regions. How can a beheading be justified? It can’t… What we must realize is that we cannot understand these people as much as they cannot understand us. We cannot rely on their possible feelings of compassion because their values systems are totally different from ours. There is no way to convince them that they are wrong just as much as there is no way to convince us that what they are doing is okay. We must understand that and protect our innocent people and if that means removing their threat by violence, so be it.

The markets have been and will likely continue to ignore global violence. Global financial difficulties will not be ignored because the result of difficulties can bleed into our economy. As we approach September, we are entering a seasonally weak month of the year. Many believe that October has that honor but in actuality, it is September. October usually begins weak and closes by Halloween with an upside surprise. It seems that so long as we don’t crash by the second-third week of October, the players return and buy back their positions. What can we say, there hasn’t been an October crash since 1987 and clearly that event was enough to trigger fear in the eyes of investors even though many of them only read about the event and did not experience it.

The S&P 500 printed a life of contract high in the Thursday session. We do have a nine-count as of Thursday and several signs of exhaustion. That said, it isn’t over until the fat lady has sung and so far she hasn’t uttered a peep. We would not be surprised to see some small retracements to relieve this overbought condition. A visit to 1966.93 and 1953.57 would be shallow enough to encourage the buy-the-dips crowd to resume their buying. We are above the Ichimoku Clouds for all time-frames. The RSI is curling over at 71.31; the stochastic indicator is teetering on issuing a signal and is grossly overbought, our own indicator has just issued a sell-signal. The 5-period exponential moving average is 1979.66. The top of the Bollinger Band is 2000.93 and the lower edge is seen at 1895.23. Since printing the low of 1890.25 on August 8, the S&P 500 has made a sling-shot run to marginal new highs. %h daily 1% by 3-box point and figure chart has a new upside target of 2371.33. The 0.1% by 3-box 60 minute chart has a now downside target of 1966.89 but no down trend lines, thus we will watch this closely. The frothiness of the markets is disguised in its rotation. Some issues are leading while prior leaders are lagging. This is not really healthy but a rally is a rally and investors and professionals alike will flock to the trend dog piling in to catch the upside swings. That isn’t necessarily bad but we advise caution because these bursts to the upside can trap the late comers to the party in at the top. Remember the exit doors are only so wide and if everybody decides to leave at the same time, it can get crowded and cause exaggerated irrational behavior. That said, we believe that the buyers will appear on shallow dips and for now, the market will not suffer major retreats. The problems with tops are that they are identifiable but their end is not easily pinpointed and they can endure longer than might be believed possible. Once clue is that should this market close below 1929.67 for two consecutive days, we would believe that a trip to the August lows is in play. The biggest problem with the current rally is the lack of volume. Yes, we can say that many Europeans are of summer vacation but there should be more participation on these upside moves.

The NASDAQ 100 rallied in the Friday session printing a new high for the year. We do see a nine-count on the chart as well as signs of exhaustion. The big problem with this index is the lack of volume. The 5-period exponential moving average is 4034.00. The top of the Bollinger Band is 4078.61 and the lower edge is seen at 3815.11. The Bollinger Bands are expanding and volatility is returning to this market. Both the stochastic indicator and the RSI are grossly overbought but continue to point higher. Our own indicator has curled over and is issuing a sell-signal. We are above the Ichimoku Clouds for all time-frames. The Market Profile chart shows us that the market made a new high on low volume and settled the day in the fair value part of the bell-curve. The 1% by 3-box daily point and figure chart continues to look very positive and has achieved its upside target. The 60 minute 0.1% by 3-box chart has an upside target of 4254 and it too looks positive. If the market continues higher, we expect to see a pause in its journey within a day or so. As previously stated so long as the buy-the-dips crowd has money to spend the market will plow higher. That said; keep an eye on the retreats. Every advance has some retreats and these events can tell us volumes about the condition and psyche of the markets. If dips are bought and you are long, just relax, but should the mood become dark and declines become more sever that expected become alert to a change in mood and exit the trade until a better mood returns. We continue to advise that tight stops be employed. The worst case scenario with stops is that you get. Remember you can always jump back in, should you feel the need to do so.

The Russell 2000 close above the 5, 50, 100, and 200 day moving averages closing the session up 2.50 on the day. The 5-period exponential moving average is 1154.92. The top of the Bollinger Band is 1166.97 and the lower edge is seen at 1105.95. The up trending channel lines are 1139.74 and 1170.17. We have horizontal lines of resistance at 1161.80 and 1171.20. Our own indicator is issuing a sell-signal but the movement on this indicator is flattish at best. The RSI and stochastic indicators continue to issue the all clear and are beginning to approach overbought readings. This index, the home to the risk on trade, has been lagging the other indices in advances and has been outperforming on the downside. We remain inside the Ichimoku Clouds for the daily time-frame and are above the clouds for both the weekly and the monthly time-frames. The Market Profile chart looks as though the market is range bound. We closed the Friday session a little above the fattest level of the bell-curve. The Renko chart tells the story of a market in the throes of great indecision.

Crude Oil really looks lousy and lost more ground in the Friday session. Worse yet, the 50 day moving average crossed below the 100 day moving average. The price of crude closed below all the moving averages that we measure. Crude oil is below the Ichimoku Clouds for all time-frames. The 5-period exponential moving average is 93.68. The top of the Bollinger Band is 98.75 and the lower edge is found at 91.93. The down trending channel lines are 94.72 and 91.05. It does appear that we will test the 92.12 level last seen on March 14, 2014. The 60 minute 0.1% by 3-box chart has a downside target of 92.18 and appears to be forming a pennant. We also note that the Bollinger Bands on the point and figure chart are beginning to contract. The daily 1% by 3-box chart has a downside target of, gulp, 80.49. When looking at the monthly chart, we still are in a trading range. The weekly chart gives us support at 85.92 and 80.99. As to the indicators only our own indicator is positive and issuing a buy, the stochastic indicator and the RSI are pointing to lower levels.

Gold close positive in the Friday session but never regained the loss seen in the Thursday session. The RSI and the stochastic indicator appear to be turning positive but our own indicator remains bearish. The downward trending channel lines are 1292.70 and 1268.50. The 5-period exponential moving average is 1288.50. The top of the Bollinger Band is 1321.76 and the lower edge is seen at 1277.36. Should 1273.40 fail to support this market, we expect to see the door opened to the 1242.20 level. We are below the Ichimoku Clouds for both the monthly and daily time-frames and in the clouds for the weekly time-frame. The RSI is pointing higher but the stochastic indicator, although curling to the upside, has not issued a buy alert. Our own indicator looks as though it might issue a go long signal but it is too soon to identify when that might be. The 60 minute 0.2% by 3-box chart has a downside target of 1262.52. This is a very ugly chart with nothing positive on it. The daily 1% by 2-box point and figure chart has a downside target of 1113.19. We do see an internal uptrend line but feel that this might not hold. Gold looks as though it is in trouble here. We are not convinced, as yet, that a bearish stance should be taken. The Market Profile chart shows us a narrowing of the range and a close in the area of fair value. We will let the market tell us where it wants to go and that should become obvious in a very short time.

Up up and away she goes! The US Dollar Index broke out on Tuesday, taking out 81.73, and has made new highs for the year closing the Friday session at 82.36. The Bollinger Bands are currently expanding with the upper band at 82.20 and the lower band at 80.94. The 20-period simple moving average is 81.57, the 5-period exponential moving average is 82.1 and the index is above both. While the RSI is continuing to point higher, our own indicator is signaling the Dollar Index may need a few minutes to catch its breath. Above we see the next lines of resistance are at 82.75 followed by 83 flat. Below, the 82 level should prop the index up with 81.75 acting as support below. The uptrend line drawn off of the July 10th low is pretty steep. The index’s outpacing this line shows it has been nothing short of a rocket.

Looking to the weekly chart, we see a clear break out. The next resistance level is again confirmed at 82.75 with 83.18 appearing as resistance going out a little longer term. The 30 minute .05 x 3 point and figure chart is incredibly bullish. The index has met all previous upside targets and has formed and activated a new one at 84.15. The index is in an uptrend with multiple internal uptrend lines having formed. Taking all of these pieces together, the index looks like it will continue to move to the upside after a momentary pause. The dollar index loves chaos and that is exactly what is going on in the world. That said, it takes an ever increasing amount of chaos to continue to prop up the index and things will eventually calm down.

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