Archive for July, 2016

Sunday, July 31st, 2016

All of the following quotes are from L. Frank Baum: The Wonderful Wizard of Oz which are appropriate given the cyclonic party behavior seen by both parties moving towards the upcoming November presidential elections here in the USA.

“Pay no attention to the man behind the curtain!” ….good quote for both the Republican and Democratic conventions….ignore them sift through the facts and vote! On that basis, maybe your vote doesn’t count anyway. Our message to the candidates is another quote; “Some people without brains do an awful lot of talking, don’t you think?”

“Oh – You’re a very bad man!” (Dorothy)
“Oh, no my dear. I’m a very good man. I’m just a very bad Wizard.”

“My world, my world….How can such a good little girl like you destroy all of my beautiful wickedness.” (Wicket Witch of the North)

Remember, August is a vacation month for much of Europe and other countries. Here in the USA, we also slow down during summer vacation months. Take that into account when trading. Volumes will likely be lighter than normal. This can and led to swift up and down movements.

Today, because of negative and artificially low interest rates, money is on a mission to find yield. Therefore, that market continues in rally mode with very shallow retreats. The US Dollar is a strong currency with little perceived sovereign risk. Our paltry interest rates are better than negative rates, thus bond money flows to our shores. Currently, we have noticed that investors are beginning to become interested in not only dividends but also growth.

Much of the financial press complains that money is not being invested at levels seen the in the past. Exchange Traded Funds (ETF’s) and Exchange Traded Notes (ETN’s) have captured much of the funds that were previously invested in single name issues. Thus the money is invested but in a different product.

The English Pound has suffered a major devaluation. Brexit, will boost the sale of exports from England because devaluation has made English products and services more competitive. As for the English, so long as they don’t travel outside of England or purchase/invest their weak currency overseas, they should be fine. The bubblicious London housing market has taken a slashing. The apartments and houses aren’t cheaper for the English but for foreigners, they might appear as a bargain. That said, without a robust financial economy who will rent and buy the inventory of real-estate. Now that London will no longer be the heart of the European Central Bank, lots of jobs will be lost. A great deal of movement will be seen as financial companies many of which will move to Dublin Ireland, to enjoy the lower tax rate.

The S&P 500 rallied 6.25 handles (points) in the Friday session piercing and actually closing above the horizontal resistance line at 2169.75 and printing a life-of-contract high. This line has held the market for the past 12 or so trading days. The Bollinger Bands are narrowing which shows us that the volatility is contracting. The 5-period exponential moving average is going sideways which is another indication of a flat market. On the other hand, the distribution curve seen on the Friday Market Profile chart is in line with an up market (3:2:1). The most frequently traded price was 2168.50. There was a volume spike at 3:55 which clearly was attributable to end of day trading. This was the fifth week higher for the S&P. We generally see a maximum of six weeks in one direction on the weekly chart. That said, there have been occasions when the market has rallied for seven and even several eight week rallies, but these are rare and usual. Probability kicks in at about the fifth week increasing the probability that a downdraft is near.

The NASDAQ 100 printed a high for 2016 in the Friday session, but that was not life-of-contract high. We have to go back to January of 2000 to find the life-of-contract high of 4884.00. The high for 2015 was 4739.50. The candlestick left on the chart on Friday is a doji-like candlestick. A doji generally indicates that the market was unable to tumble but at the same time was unable to rally significantly. In other words, the bulls and bears were evenly matched. In this case, the bulls had it by a nose. We see this sort of formation when the market is indecisive and likely to change direction. This is a warning candlestick, not necessarily bearish but alerting you to pay attention. The stochastic indicator has just issued a sell-signal. The RSI is flat at overbought levels. Our own indicator is pointing higher but moving slowly. The most frequently traded price was 4728. The curve is a normal curve on the Market Profile chart. The high for this session was seen at noon after which the market drifted until about 3:00 when it moved up closing at 4730.

The Russell 2000 gained 6.50 handles (points) in the Friday session revisiting a level seen in August of 2015. The all-time high was seen on June 22, 2015 when the Russell 2000 printed 1292.30. Both the stochastic indicator and the RSI are pointing higher while our own indicator is issuing a sell-signal. The stochastic indicator has been in overbought territory since July 17. This does not mean that it cannot continue this way but just lets us know that the rally is a bit long in the tooth. Friday’s session was an outside day. The index printed a new year’s high and also printed a lower low than the previous session, in other words, the range expanded. The high for the day was printed at high noon. From there, the market retreated to 1213.10 by 1:00 and then resumed the rally into the close. The most frequently traded price was 1212.50 but the heaviest volume was seen at 1217.00 where 8.9% of the day’s volume was traded. The 12 by 3-box point and figure chart shows the consolidation and remains, somewhat positive.

With the news that the FOMC was floundering on a rate increase, the US Dollar Index cratered 1.206 handles (points) in the Friday session. This is actually good for the US economy because it makes our exports more affordable. The support level of 95.33-95.37 held for now. The next support level on this market is at 95.14 and then at 94.185. All the indicators that we follow herein continue to issue a sell-signal. The downward velocity is too steep to continue at this pace and we expect to see some backing and filling. The most frequently traded price was 95.475-9550. In the overnight session 96.35 was the most frequently traded price. There is a clear bimodal curve one for overnight and one for the day session. The highest volume of 8.3% of the trades was seen in the day-session at 95.75. The low for the day was seen at 11:00 after which the market rallied to 95.69 at 12:45 from there, the market retreated to 95.43 then rallied by to 95.51 at the close of the electronic session. The US Dollar can and probably move marginally lower before it is set up for a rebound. Remember we have the “Jobs Data” this coming Friday and this index will be sensitive to those results. We continue to believe that the FOMC will not do anything prior to the election to avoid any political view of their actions so, we vote for December as the next possible rate change month.

Crude oil actually rallied 0.24 in the Friday session but printed a lower high and a lower low for the day. That, is definition of a down trending candlestick. The next level of support is 39.85. All the indicators that we follow herein are issuing a buy-signal. The down trending channel lines are at 44.56 and 40.60. We are below the five-period exponential moving average which is at 42.07, which for us is bearish. We would not take a long position until the market is above the five-period exponential moving average. Crude oil rallied on high volume to 11:15 after which, the volume subsided and the market retreated to 41.08 by 12:30. From there, the market again rallied with a high print for the day of 41.67 at 2:15, then declined into the close. It actually looked like a short covering rally and position flattening into the close. The most frequently traded price was 41.00.

Gold rallied 17.4 handles (points) in the Friday session. The chart looks as though gold is making a rounding bottom. The next resistance level is 1355.4. Support must hold 1310.7 and then 1306 or risk a quick trip to 1287.8. All the indicators that we follow herein are pointing higher although our own indicator is curling over to the downside. The Bollinger bands are flattish. The upward trending channel lines are 1319.82 and 1352.72. The most frequently traded price was 1340. We are concerned about the lack of volume in this index.

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