When the wealthy stop buying we notice. Why? Because most of the rest of the earners (middle class and lower class) can’t afford to buy much due to lack of income and high debt levels, so we rely on the upper stratosphere to not only pay the most in taxes, both government and state, but to also spend more and spread that wealth. In recent days and weeks it is noticeable that some tightening of spending habits is returning. When the markets initially took a dive during the “Great Liquidity Crisis” of recent years, the wealthy retreated and began hoarding their available cash. In the months following the “Great Liquidity Crisis” the wealthy returned and reopened the rusted purse to grease the wheels of the economy. Lately, the coins are safe in the purse which is tightly fastened to the hip. Are they the “Smart Money” or are they just good observers of a trend?
So, who believes that Goldman’s reputation was tarnished by the recent settlement? Goldman may be tarnished for a short time, about two weeks, but within a month or two all will be forgotten by the public and business will return to normal. The only effect that this nasty ordeal will have on Goldman is a bill for $550 million as a penalty without admitting or denying anything like guilt. There is a wonderful article in Saturday’s NEW YORK TIMES titled “Goldman’s Concessions, Regulators May be Satisfied” by Julie Creswell that talks about how much in real terms that this fine will cost Goldman. Ms Creswell indicated in that article that the cost will be “about 15 days of profits.” Don’t you just wish you could cut deals like this one? I murdered so and so, but I will pay an obnoxious fee and we will agree that I did not admit nor did I deny doing anything wrong. Do the people who lost money because of this slight Goldman digression get to tell the people that they owe money to that they do not admit nor deny owing them money and that the Goldman deal covered the tab?
This past Friday was an options expiration day which could have played into the downside action. We certainly are not sure but it has been the habit of markets to become more volatile on options expiration days. The S&P 500 lost 2.52% on the day and the VIX a measurement of the volatility of the nearby options on the S&P 500 was up 4.42%. The weekly chart of the VIX seems to be coiling telling us that there will be a large move in our future. The daily chart shows the VIX climbing up the uptrend line which is at 26.68 for the Monday session. The indicators on the VIX are all issuing a buy-signal. In clear terms this indicates that the options players believe that the market will continue to retreat. Remember a rally in the VIX is an increase in volatility of the options on the S&P 500 in the nearby months. This generally precedes a decline in the S&P 500. Time will tell whether this is accurate.
Tuesday: June housing starts and building permits are issued at 8:30, the Bank of Canada is expected to hike interest rates, Fed Governor Tarullo testifies on the “Hill” and Goldman Sachs reports earnings.
Wednesday: Fed Chairman Bernanke testifies on the “Hill.”
Thursday: June existing home sales are released at 10:00 and June Leading Indicators are released at 10:00.
Friday: The results of the European Bank stress test are released.
The US Dollar index left a doji like (there was a really small body on the candle) candle on the chart as a result of the Friday trading session. We need to see the US Dollar index rally above the upper channel line of 84.87 to get the bears to even consider covering their shorts. The lower channel line is at 82.27. We closed right on the lower Bollinger band after probing the below the band. The 5-day moving average is at 83.44. The top of the Bollinger band is at 87.193 and the lower edge is seen at 82.517. The first resistance will be 83.57, the former support zone, for the US Dollar Index. The stochastic indicator is issuing a buy-signal at oversold levels, however; the RSI is going sideways at oversold levels and the Thomas DeMark Expert indictor is also going sideways. Our own indicator looks as though it might issue a buy-signal in the Monday session but at this moment there is no buy-signal on that indicator. We believe that the US Dollar index will bounce, the question is what is that bounce going to look like? We continue to be reluctant to go long the US Dollar index and would remain very nibble on this trade. Naturally, we are below the Ichimoku Clouds for the daily time-frame and are above the clouds for the weekly time-frame. We would not be surprised to see the US Dollar index trade to 81.69 and possibly 79.94 in the not too distant future.
The S&P 500 futures contract had a serious decline in the Friday session. We closed below 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. All time-frames are curling to the downside. It looks like 1040 is a line in the sand for this index. Below 1002 there is real trouble with little support seen until 990, 975.50 and 941. The 5-day moving average is at 1082.15. The top of the Bollinger band is at 1120.21 and the lower edge is seen at 1004.61. All the indicators that we follow herein are issuing a sell-signal for the daily time-frame. The top of the channel line (we chopped off the tops) is at 1090.50 and the lower channel line is at 980. The indicators show that we have plenty of room to the downside. Stay nibble and stay short-term.
The NASDAQ 100 fell for a third day in the Friday session retreated 47.25 points of 2.56%. We are below the Ichimoku Clouds for the daily time-frame, above the clouds for the weekly time-frame and in the clouds for the monthly time-frame. The downtrend line for the Monday session is at 1860. We have signs of exhaustion on the daily chart. The 5-day moving average is at1833.05. The top of the Bollinger band is at 1917.24 and the lower edge is seen at 1697.32. All the indicators that we follow herein continue to point lower with plenty of room to the downside. There should be support at 1791.90. The trend channel lines are 1861.40 for the upper line and 1663.77 for the lower line, be aware that we are chopping off some of the extreme levels for these lines. The point and figure chart looks just awful for the bulls and delightful for the bears….get the picture. The Market Profile chart shows that there is the “Great Nothingness” below 1698. All in all, not a pretty picture, so, stay nibble and stay short-term.
The Russell 2000 declined 22.20 points in the Friday session or 3.52% and is the obvious winner for the greatest percentage decline for the Friday session of those indices that we study. The channel lines are 643.61 at the top and 567.76 at the bottom. Remember, we are cutting off the outliers to draw these lines. We are below the Ichimoku Clouds for the daily time-frame but remain above the clouds for the weekly time-frame. We should see support at the 606.90 level, with a warning that if this level doesn’t hold we likely will open the door to 584.30. The 5-day moving average is at 627.56. The top of the Bollinger band is at 660.36 and the lower edge is seen at 585.09. The indicators that we follow continue to issue a sell-signal and have made further progress to the downside than the S&P 500 or the NASDAQ 100. We continue to have plenty of room to the downside and are just at or below the neutral levels, so we are not oversold. The Market Profile chart warns us that should this index close below 581, we likely will see a plunge to the downside. The Point and Figure chart again reflects a bearish dream and bullish nightmare. Stay nibble and stay alert.
Crude oil displayed an inside day in the Friday session. We have a downtrend line at 77.09 that will meet the uptrend line, which is at 75.18 on Tuesday which could cause some violent move to either the upside or the downside. The rules for a point of inflection, as a trader, is to go with the trend and don’t fight the direction. Many traders take great joy in going against the trend. In this instance, don’t. There is a longer uptrend line at 72.77. The 5-day moving average is at 76.35. The top of the Bollinger band is at 79.69 and the lower edge is seen at 71.58. The RSI is pointing to the downside and the stochastic indicator is issuing a sell-signal. Right now, we will just monitor the action of the market for direction. We are above the Ichimoku Clouds for the daily and weekly time-frames and are below the clouds for the monthly time-frame. The indicators are positive for the weekly time-frame and we have a doji-like candle for the weekly time-frame. The Market Profile chart indicates that the “Great Nothing” returns below 67.84.
Gold has retreated for the past three days yet has remained within the channel lines of 1285.90 and 1182.64. Although the indicators continue to point lower, we are inclined to buy the dips. Gold is above the Ichimoku Clouds for the daily and the weekly time-frames. The weekly channel lines are 1383.73 and 1153 for the bottom line. The indicators on the weekly chart continue to point higher. The 5-day moving average is at 1237.40. The top of the Bollinger band is at 1276.21 and the lower edge is seen at 1083.32. Should gold retreat to 1182, we will wait to see if 1153 is seen, if not, we will begin to nibble.