Archive for September, 2014

Sunday, September 28th, 2014

There will be no market letter for the next two weeks. We will be attending the International Federation of Technical Analysts (IFTA) convention in London.

What does a strong US dollar mean to the markets and the USA? The first and most obvious result of a strong dollar is that our exports will cost off shore buyers more money in terms of their own currency. If it takes more of currency to convert a purchase into US dollars, then the price rises. That said, this is coming at a time when the Euro Zone is flat lining and not expanding, Asia has its problems and the emerging markets are in trouble. To be clear, the US will lose sales because of the strength of the US dollar making its products less competitive. As to commodities, which are traded in US dollars, their prices will slide and gold, the hedge against inflation, well that is taking it on the chin. Some of the US dollar is strengthen can be attributed to the fact that US government securities yield more than those of our trading partners. The US dollar is also viewed as a safe haven for money. As to inflation, that is curbed by increasing interest rates in the US and the stronger US dollar. Expectations expressed by the market are that interest rates here in the US will ratchet higher. Again this provides strength for the US dollar.

Visitors to our shores find that the strength of the US dollar eats into their buying power. Things just cost more. We believe that the US will take note of this and try, in some way, to talk the US dollar down from its perch. While a weak US dollar is not good, a strong US dollar is also not good for economic growth and exports. We need Goldilocks to return with the not too strong and not too weak US dollar. As the US dollar strengthens the equity markets offer less value for off-shore investors because we become too expensive taking more of their currency to buy US based securities. Imports will become cheaper as the US dollar strengthens keeping inflation in check. None of this is good for gold which has been under pressure of late. If you want gold to rally pray for instability in currencies and rampant inflation.

Short-term loans made to those who can least afford to borrow are predatory here in the US. Banks won’t lend leading the borrowers to those who will and who generally charge excessive interest rates for the risk of that loan. As to the ultra-rich, well they can use fine art, handbags, jewelry and collectables as collateral to obtain a loan. Interesting world eh?

The S&P 500 had a very choppy week and for the most part was under pressure for much of the week. The market rallied in the Friday session no doubt spurred on by short covering and bottom fishers. We are above the Ichimoku Clouds for all time-frames. The indicators have turned positive. The 5-period exponential moving average is 1977.02. The top of the Bollinger Band is 2008.98 and the lower edge is seen at 1965.81. The downward trending channel lines are 1985.54 and 1951.95. The indicators have turned negative on the weekly chart which continues in a very real uptrend. The volume picked up in the Friday session indicating to us that either it was a short-covering inspired rally or the buy-the–dips crowd returned. The daily 1% by 3-box point and figure chart continues to look extremely bullish. The 60 minute 0.1% by 3-box chart has an upside target of 1986.65 and shows a market that seems to have some strength. We continue to advise that you keep your stops tight and if elected keep the proceeds of any sale in cash for the time being.

The NASDAQ 100 advanced 0.9% in the Friday session on increased volume. The RSI, stochastic indicator and our own indicator are now issuing a buy-signal. The Thomas DeMark Expert indicator continues to point lower. This market traded flat in the overnight session but at 8:00 EST the market began retreating and by the New York open was in total retreat mode. Then, the market stabilized at about 1:00 and remained very range bound until 2:00 when it enjoyed a small rally into the close. The 5-period exponential moving average is 4045.39. The top of the expanding Bollinger Band is 4113.31 and the lower edge is seen at 4017.35. The indicators for the weekly chart continue to issue a sell-signal near overbought levels. Our line in the sand for this index is at 3996.34. Should that level fail to support this market, we will drop to 3961.75 and 3919.50. The 30 minute Market Profile chart shows some filling in the areas of the Thursday single and double prints. The daily 1% by 3-box point and figure chart has achieved its upside target and continues to look very positive. The 60 minute 0.1% by 3-box chart has a downtrend line in place and seems to be advancing to a previous area of congestion.

The Russell 2000 halted its decline in the Friday session adding 6.70 points or handles on the day. The chart has waterfall qualities which tells us that this steep retreat has to flatten out a bit and cannot continue at this pace. The very steep downward trending channel lines are 1118.66 and 1083.56. The horizontal support line of 1097.80 was almost tested but came close enough for us to call this a successful test of a major support area. Should that line fail to support this market, the door will be opened to 1068.60…..yikes! The less steep downtrend line is at 1151.86, where we see good resistance. Actually the resistance should appear beginning at 1134.30 into the congestion area above at 1149.90 or so. The good news is that both the RSI and stochastic indicator did not make a lower low on the most recent decline in the Thursday session, this divergence signaled the rally seen in the Friday session. That said, there is lots of work to be done to repair this chart. We have resistance at 1124.20 and 1134.30 before we ever come near the downtrend line at 1151.86. The weekly chart shows a head-and-shoulders formation with a test of the neckline. The indicators for both the weekly and monthly chart continue to issue sell-signals. The Russell 2000 closed below the Ichimoku Clouds for the daily time-frame, in the clouds for the weekly time-frame and above the clouds for the monthly time-frame. The 5-period exponential moving average is 1117.96. The top of the expanding Bollinger Band is 1188.95 and the lower edge is seen at 1104.95. The 30 minute Market Profile chart looks much like the Market Profile charts of the S&P 500 and the NASDAQ 100. The Market Profile chart illustrates that the single and double prints seen in the middle of the Thursday session are now being filled in with more work to be done on the upside. 17.3% of the Friday volume was seen at 1108.20. We can interpret this as a market established value area. The Heikin-Ashi chart offers an interesting view of the Russell 2000 which is not positive. Should the NASDAQ 100 and the S&P 500 rally aggressively, this index will play catch up and could yield a quick trade. That said, this index is the leader on the downside as risk adverse money flows out of this index and into the more stable S&P 500. Above all, caution is warranted and stops need to be employed on any position taken in this index. Nuf said!

Crude Oil rallied in the Friday session in spite of the rally seen in the US Dollar Index. The chart shows a head-and-shoulders bottom formation but stops short of breaking the neckline and signing a leg to the upside. The downward trending rather flat channel lines are 93.78 and 90.01. The shallow uptrend line is 90.26 and the more aggressive up trendline is 90.97. The volume seen on this rally has been respectable. The 5-period exponential moving average is 92.57. The top of the Bollinger Band is 94.50 and the lower edge is seen at 90.24. The daily 0.9% by 3-box chart has a new upside target of 102.74 and the trade is bucking against a downtrend line trading in an area of congestion. The 60 minute .02% by 3-box chart has an upside target of 95.53 and looks positive; however, when looking at the 60 minute 0.1% by 3-box point and figure chart, there is a downside target of 91.9 and an internal downtrend line. Simply put both numbers need to be respected. All the indicators that we follow herein are positive for both the daily and weekly time-frames. We are below the Ichimoku Clouds for both the daily and monthly time-frames. We are slightly above the clouds for the weekly time-frame. The longer time-frame, the monthly chart shows a coiling or pennant. The 30 minute Market Profile chart shows a slight higher high and higher low. 14.7% of the Friday volume was at 93.00. The Heikin-Ashi chart looks positive and shows resistance levels at 94.13, 94.94 and 95.47. One thing to note for this product is that it rallied as the US Dollar rallied showing strength, at least in the Friday session. Time will tell if this support can hold. Till that is apparent, keep your stops tight and don’t fight the tape.

Gold looks awful as usual. As the US Dollar rallied in the Friday session gold fell, not making a new low and making a higher low but continued under pressure. Although our indicators have not issued another sell-signal from near oversold levels, they are curling over, not good for the gold bulls. The steep downward trending channel lines are 1237.91 and 1199.50. The short downtrend line is 1232.94. The longer downtrend line is 1279.51. The 5-period exponential moving average is 1221.04. The top of the Bollinger Band is 1283.82 and the lower edge is seen at 1198.40. Although this chart certainly isn’t positive there are some beginnings of support. We have a horizontal line of resistance at 1243.0 and one above that at 1281.00. On the downside this market needs to stay above 1180.90 or much lower levels will be seen. The indicators on the weekly chart are turning positive. We are below the Ichimoku Clouds for all time-frames. The Heikin-Ashi chart is beginning to give us some reason to believe that we could have a rally in the near future. The daily 1% by 3-box point and figure chart has both an upside target of 1812.66 and a downside target of 1113.19. We have an internal downtrend line. This chart is not positive nor is it exceedingly negative and looks like we are in congestion for now. The 60 minute 0.2% by 3-box point and figure chart has an upside target of 1254.97 and a downside target of 1167.87. The chart looks neither positive nor very negative and looks like gold is consolidating. We would love to recommend buying gold but we feel that until this market shows us where it is going, that there will be more risk for this trade than we would care to accept.

The US Dollar Index is an animal. The rally in the Friday session took this index to a high of 85.82 before closing at 85.78. We are above the Ichimoku Clouds for both the daily and weekly time-frames but are inside the clouds for the monthly time-frame. This market closed at its best level since the end of 2010. The weekly chart looks like pole and yes, it is overbought but with no indication that it will sell off and closed above the upper Bollinger Band for the past six weeks. The 5-period exponential moving average is 85.278. The top of the Bollinger Band is 85.81 and the lower edge is seen at 82.937. This index has exceeding the upside target on the 0.5% by 3-box daily point and figure chart. The 60 minute 0.1% by 3-box point and figure chart has an upside target of 86.467. This looks like a very strong up trending market. 16% of the trading volume was seen at 85.74. This market has been overbought since July 18, 2014 and continues to go higher. Just goes to show you that you cannot fight a bullish market so, don’t. Every indicator that we follow continues to point higher. We believe that it is likely that this market could return to 84.93 where some of the late longs might jump into the trade. Below that level, there is support at 84.43.

Risk
Trading Futures, Options on Futures, and retail off-exchange foreign currency transactions involves substantial risk of loss and is not suitable for all investors. You should carefully consider whether trading is suitable for you in light of your circumstances, knowledge, and financial resources. You may lose all or more of your initial investment.