Perhaps, now that some of the air has been removed from the helium balloon, it appears that prices in the housing market have softened. The bottom line is that the housing balloon has simply corrected its excesses and, is really in fine shape. Looking at the cost of money, there is some good news for the home buyer; rates have been dropping which, helps the affordability of housing. Now, for the house flipper, or condo flipper, “don’t give up your day job just yet.”
As to inflation, which the government doesn’t see because they don’t shop or eat or need heat in the winter to live, it is doing just fine thank you. We noted that imported Christmas cards, printed in China, the fancy sort were about $10.00; while the ones we purchased printed here in the USA were $40.00. Does that mean that ink here is more expensive or that the guy pushing the buttons is? What a difference in price! That is a simple example of why we are a service economy, and really can’t compete with foreign production.
Small capitalization stocks are beginning to lag the big capitalization stocks. This is not a good sign for a continued rally. Why? Because it is the small capitalization stocks that have lead the rally dating back to July. It well may be that this, simply was an underperforming week, but we are keeping on eye on this divergence. Going into the last two weeks of the year, it is probable that the market will continue to try to retain the gains so as to lock in a stellar year. Both the mid-cap and the Russell 2000 underperformed in this past week’s “run run Rudolph rally,” when compared with the S&P500 and the Dow Jones Industrials.
Seasonal spirits, both liquid and emotional seem to be reflected by this giddiness of this market. Bulls abound, bears are in hibernation. Can it go higher? Sure, but more import to ask is will it. This past week we had the last of the quadruple witch options expirations for the year. Now that these numbers are in the books, will the market continue its buoyancy or will it retreat into the Christmas Holiday? If history is a guide, it probably will remain happy for the week. If analysis is employed, one would believe a retreat is to be seen as early as the Monday session.
This past week the US Dollar index rallied, this put some pressure on the ever rising cost of raw materials, as illustrated by the Continuous Commodity Index. When you look at the Jeffries CRB you see a rally this week, of course this is attributable to the appreciation in energy and industrial metals. However; when you look at the Continuous Commodity Index, this index which was formerly called the CRB, had a decline this past week. Because one index, the CRB is really industrial index, and the Continuous Commodity Index is an equally weighted index of agriculturals, softs, metals and energy, you see a better indicator of inflation in that index. There is a recognizable difference between these indices which are frequently confused by a name change of two years ago. Remember also, that because all the commodities that are in that index are traded in US Dollars, the appreciation of the US Dollar will have a negative affect of the price.
On to the VIX. We were at 9.31 in 1993 and even lower before that time. We see complacency abound. It would appear that Santa’s elves are busy sprinkling fairy happy dust on the market. Not that the market should be sad after looking at their bonus checks this year. They should and have rejoiced!
The put/call ratio is at 154/100 which is a very bullish reading. It is up from the previous week’s 139/100, which was already bullish. The VIX, on the other hand, is nearing the basement level. Of course, there is still the sub-basement. The VIX closed the week at 10.05 down from the previous week’s 12.07, but matching last month’s 10.05 but lower than last year’s 10.68. Perhaps, this is a season of low VIX. If we go back in history, we seem to have our VIX lows during the Christmas season.
The US Dollar index has enjoyed a full two weeks of joy and appreciation. The joy of the season translated into a rally last week beginning on Wednesday. This rally has regained almost, but not quite 61.8% of the loss from the November highs. We do have signs of exhaustion, on the part of the US Dollar index. We note a 5-count, which in itself isn’t awful, but in combination with the overbought condition in this market could cause some grief to the bulls. The stochastic indicator is curling to the downside but continues to using a buy-signal. Our own indicator is issuing a continued buy-signal as is the RSI, both of these indicators are at or approaching overbought levels. The Thomas DeMark expert indicator is issuing a sell-signal at overbought levels. The 5-period exponential moving average is at 83.23. The top of the Bollinger band is at 84.74 and the lower edge is seen at 81.49. The weekly chart shows us that we could rally further although we find that all the indicators that we follow are loosing momentum on the upside. We also see that we have come up to the 38% retracement level on the weekly chart of the US Dollar index. We believe that the US Dollar index might have some more room on the upside but that it will retreat within a day or so.
The Euro did step into the open gap on the chart and actually closed in the gap. It would not be unreasonable for a small bounce to be seen followed by a move into and filling the existing gap, which takes the Euro to 1.30220. The stochastic indicator is issuing a sell-signal. Our own indicator is issuing a sell-signal as is the RSI. All of those indicators seem to be loosing momentum on the downside. The Thomas DeMark Expert indicator is issuing a buy-signal. We do have a four-count on the bottom which isn’t particularly remarkable. The downdraft has been steep but could go a bit further. The 5-period exponential moving average is at 1.32252. The top of the Bollinger band is at 1.35376 and the lower edge is seen at 1.28841. The uptrend line for the Monday session is at 1.31093 and the very short-term downtrend line is at 1.32604, the longer downtrend line is at 1.32883. A close above either of these lines would renew the bullishness of the euro. The weekly chart shows that the euro has retreated below the upper Bollinger band and is nearing the uptrend line on the chart. Further, we see that there will be a point of inflection in two weeks. The stochastic indicator and the other indicators are all pointing to lower levels issuing a sell-signal in the weekly chart. The monthly chart is giving a mixed reading with Thomas DeMark issuing a buy-signal and the RSI, a sell-signal.
February gold gave us an early warning about the rally in the US Dollar index when it retreated in the Tuesday session. Gold is oversold and while the stochastic indicator, our own indicator and the RSI are all pointing lower, we know that we are so oversold that there will bounce within a day or so. The pounding that gold took, in the Friday session, may have been a bit excessive, and we believe that after a little more softness in this market that there will be a rally taking us back to the 632 level. The Thomas DeMark Expert indicator is issuing a buy-signal from oversold levels. The 5-period exponential moving average is at 628.40. The top of the Bollinger band is at 654.90 and the lower edge is seen at 620.10. The downtrend line for the Monday session is at 628.60. We have an 8-count on the bottom, although it looks a bit lower, we are nearing some support levels at 608 and at 600. Unfortunately for the bulls, the weekly chart shows that we could retreat further and probably will see the 600 and 608 levels. The stochastic indicator is issuing a sell-signal as is the Thomas DeMark Expert indicator, our own indicator and the RSI. There it is four out of four sell-signals. While the chart tells us to be cautious, we feel that this week should be important for gold resulting in a point of inflection by the end of the week.
The S&P 500 enjoyed a terrific rally resulting in a new yearly high for this index. Friday’s session opened with a gap to the upside which took all day to fill, leaving a doji on the chart with the wick at a new annual high. The stochastic indicator is issuing a sell-signal at overbought levels. The RSI is going sideways at overbought levels and our own indicator just might issue a sell-signal in the Monday session. The Thomas DeMark Expert indicator is issuing a sell-signal at overbought levels. We did have a 9 count on the upside which serves to fire a shot over the heads of the headless bulls. The weekly charts show that the market is OVERBOUGHT big time! We have a 12 count on the chart and signs of exhaustion. The indicators are still pointing higher all issuing a continued buy-signal. We must add that this market has been exhausted for some time now which is causing some skepticism since we haven’t seen any downside resolution. The 5-period exponential moving average, as measured on the weekly chart, has been shown to offer good support levels. There have been no instances of a close below this in since the week of July 21st. This week that number is 1414.79. The monthly chart reflects much of the same information seen on the weekly chart. We are grossly overbought but without a sell-signal. We have remained above the 5-period exponential moving average for the entire run of the rally beginning in July of 2006.
The NASDAQ 100 made a new high in the Friday session but closed far below that level. The stochastic indicator has just issued a sell-signal but is the only indicator doing so at this time. The Thomas DeMark Expert indicator is issuing a continued buy-signal the RSI is going sideways and our own indicator, while curling to the downside, continues to issue a buy-signal. The 5-period exponential moving average is at 1818.27. The top of the Bollinger band is at 1835.54 the lower edge is seen at 1777.42. We did get a 9-count on Wednesday and this gives us some reason for caution on the market. The weekly chart shows an overbought market in need of a rest. We have a 9-count on the weekly chart and the indicators that we follow are all overbought. The 5-period exponential moving average seems to be a good place to put a floating stop, if you are long. That number on the weekly chart is 1801.58. The very short uptrend line is at 1814.95 on the weekly chart. We have a 10-count and look as though we could retreat in the near-term. The monthly chart is overbought and continues to point higher.
The Russell 2000 printed a new high on Thursday. Friday’s session which was an inside day. This action, closing the options expiration session below its opening, left a red candle on the chart. The stochastic indicator is issuing a buy-signal from overbought levels. The Thomas DeMark Expert indicator is in agreement with that finding. The RSI is going sideways issuing nothing of value and our own indicator is issuing a sell-signal. We continue to see divergences in these indicators. The 5-period exponential moving average is at 799.22. The top of the Bollinger band is at 808.72 and the lower edge is seen at 777.79. The uptrend line for the Monday session is at 799.07. The weekly chart has a doji candle indicating that we are in transition. Either this will be a resting point for consolidation or a possible change of direction from up to down. It is not clear which it is at this time. The indicators on the weekly chart are uniformly overbought. Had you used the 5-period exponential moving average on a closing basis as a floating stop, you would still be long. This average has acted as a very good prop under the market, on the weekly chart. The monthly chart has given us a 13 count and now a 14 count. We see that all the indicators are overbought and pointing higher.
The chart of the Cash Continuous Commodity Index looks as though this index is trying to hold the 395.98 level. We see divergences in the indicators. The stochastic indicator is issuing a continued sell-signal and is at oversold levels. Our own indicator is issuing a continued sell-signal as is the RSI. Only the Thomas DeMark Expert indicator is issuing a buy-signal. The 5-period exponential moving average is at 397.88. The top of the Bollinger band is at 407.74 and the lower edge is seen at 390.54. So long as the low of the Friday session holds, we believe we could see a renewed rally. Should the low of Friday fail to hold, we will revisit the 392.82 and the 367.66 level. Keep your eye on the US Dollar index and gold. As the US Dollar index rallies, commodities retreat. As gold rallies, the US Dollar index retreats and the Continuous Commodity Index rallies. The weekly chart looks like it is rolling over to the downside. The indicators uniformly are issuing a sell-signal. The monthly chart is supportive of the findings in the weekly chart. The monthly chart has a 10 count and appears ready to retreat.
March cocoa has enjoyed a stellar rally from the14.77 low of November 21st. The stochastic indicator is issuing a sell-signal as is our own indicator. The RSI is pointing lower as well. The Thomas DeMark Expert indicator is issuing nothing but is going sideways at neutral levels. We would expect to see support at 16.34, 16.06 and further at 15.82. The 5-period exponential moving average is at 16.51. The top of the Bollinger band is at 17.01 and the lower edge is seen at 14.32. On the weekly charts, we see signs of exhaustion. The stochastic indicator on the weekly chart is issuing a sell-signal although the Thomas DeMark Expert indicator is issuing a buy-signal. Our own indicator is curling over to the downside and will issue a sell-signal. We would not be surprised to see a retreat in March cocoa after having enjoyed a three-week rally.
March coffee’s crop report was issued after the close of the Friday session. The report was bearish for coffee. The Friday session opened higher, but without any follow thru to the upside and below the opening call. This action caused the market to retreat into the close of the session creating a very bearish candle on the chart. We have a solid automated sell-signal as a result of the Friday session. The stochastic indicator is issuing a sell-signal as are all the indicators followed herein. The 5-period exponential moving average is at 127.17. The top of the Bollinger band is at 131.00 and the lower edge is seen at 118.01. The weekly chart shows a true doji candle. As you know, a doji is a candle which indicates that the market is in transition or about to change direction. The indicators on the weekly chart uniformly are issuing a sell-signal. Again, on this chart it is easy to see that the 5-period exponential moving average has been excellent as a support line for March coffee.
March Frozen Concentrated Orange Juice left a bullish engulfing candle on the chart as a result of the Friday trading session. We have moved our coverage from the January expiry to the March expiry because the open interest has flipped to March from January. The stochastic indicator is issuing a buy-signal. Our own indicator and the RSI are in agreement with that signal. The Thomas DeMark Expert indicator is going sideways at oversold levels. The weekly chart paints a different picture. The weekly indicators are uniformly issuing a sell-signal. Would we sell Juice? Heck no, we don’t like locomotives running us over. We are beginning to believe that a haircut is in the wings, and sooner rather than later.
January crude oil has enjoyed a three-day rally, but remains within a trading range. The stochastic indicator is issuing a buy-signal as are all the indicators followed herein. The 5-period exponential moving average is at 62.38. The top of the Bollinger band is at 64.40 and the lower edge is seen at 58.31. The market is closing on the top of the range which is at 65.42. Again there is nothing special about this really range-bound market. The weekly chart shows a market making a rounding bottom with plenty of room to the upside. The stochastic indicator, as well as all the indicators we follow, is issuing a buy-signal. Should the market break from its current range-bound behavior, we could move beyond the $70 range without much trouble. The monthly chart is verifying the findings of the weekly chart.
Natural gas looks as though it could challenge the lows of 7.216 seen on December 11th. The stochastic indicator is rolling over to the downside and is issuing a sell-signal. The Thomas DeMark Expert indicator is issuing a sell-signal. The RSI and our own indicator are both issuing a sell-signal. The stochastic indicator, our own indicator and the RSI are all at oversold levels. The 5-period exponential moving average is at 7.531. The top of the Bollinger band is at 9.023 and the lower edge is seen at 7.067. The weekly chart is ugly and although oversold, looks as though this market could easily retreat further. The monthly chart validates the findings of the weekly chart. We see on the monthly chart that we are approaching an area of congestion at 7.00 area where we should find some good support.
Jeanette Schwarz Young, CFP, CMT
Box 1952 c/o New York Board of Trade
One North End Avenue
New York, New York 10282