Congress is upset about the trade balance with China……Really? Tut, Tut, so, guys and gals, what about the fact that American industries are being sold on the cheap to foreign entities? How many of you recall the ancient adage, “Those who forget the lessons of History are destined to rediscover them!” The tragedy is we never learn and this time the lesson is being administered to the quasi-republicans who got us into this mess in the first place. Now, these smart global investors, having realized that their deflated US Dollars can be put to work by buying US corporations, are getting rid of US currency, in a fair exchange for US assets. After all, what are they to do with all those depreciating dollars, garnered from their ballooning hoards and hordes of dollars, anyway?….invest them in US Treasuries? providing icky yields or, buy a piece of American industry and have that grow, too? Not so stupid eh?
Actually, although, it is thought that these foreign investors are stepping in at the top of the market. Perhaps, they are stepping in at the right time, before our elected officials are obliged to figure out that they have been party to the selling out of America. They are buying America on the cheap; from our toll roads to our industries, and we, like tawdry whores, are selling ourselves out to the highest bidder! While we can remember when, in a previous decade, the Japanese bought Rockefeller Center at the peak of a real-estate boom, that investment would have been fabulous if held. True, we did see the market retreat shortly after that purchase and we did see real-estate values tumble, but they came back didn’t they? Ah, you don’t remember the mid to late ‘eighties, when real-estate was a dog of an investment? Well, trust us, there was a time when real-estate was not an appreciating (nor an appreciated) asset.
The question is, what is going to cause the US Market to retreat? Many of our colleagues view this market as cheap, and when viewed from a currency view-point, indeed it is cheap; that is, if you use other appreciating currencies to value our market. Probably that is perhaps why there are so many foreign purchases of US corporate assets. Then, of course, there is the fact that money remains cheap. If you can borrow at today’s rates and buy a company which produces and grows cash flow, why not buy it? Then, of course, you could look at the sum of the parts and carve up the asset into many different groups, thereafter to be sold off. This is the old “sum is worth less than its parts “theory” didn’t they make a movie about that one? Well, it is back in fashion, unless you are an Exchange; then, you need to either acquire or risk being acquired! Interesting times we live in.
Back to our original question about a market retreat; the sub-prime market isn’t large enough to cause a cave-in, the banks haven’t tightened their loose money policies, inflation continues its path, we’d guess that something major, like a “Long Term Capital” event would be necessary to crater this market. No, this is not an endorsement to go out and buy stocks; rather, to be cautious. Buy stocks but do sell covered-calls; just buy a protective put, while you are at it.
The entire retreat in the US Dollar index occurred in the morning session, when the low of 82.15 was seen at 10:05. From that level of 82.15, the US Dollar index rallied into the early close of the Friday session, closing at 82.270. All the indicators that we follow in this report, are uniformly issuing a sell-signal, from overbought levels. The 5-period exponential moving average is at 82.252. This 5-period exponential moving average, has been a very good measure of support for the US Dollar index. The top of the Bollinger band is at 82.554 and the lower edge is seen at 81.307. The market looks to have completed a short-term top; it could retreat to the 82.02, without disrupting the bullish feel to the market. There will be further support at 81.96 and 81.80 and, of course, at 81.6343. The weekly chart is a bit more positive on the US Dollar index. We are climbing the uptrend and have been doing so, for the past five weeks. The indicators on the weekly chart are uniformly positive. We look as though we could run into trouble at 82.380 and then, at 82.760. The monthly charts continue to look as though the US Dollar index has made, and will defend, this bottom. The monthly indicators are positive for the US Dollar index.
The Euro found support in the Thursday session. On Friday, although the Euro closed near its worst level of the day, it did not test the Thursday low. We have a 7-count on the bottom. The indicators are uniformly issuing a buy-signal for the Euro. The 5-period exponential moving average is at 1.34714. The top of the Bollinger band is at 1.36802 and the lower edge is seen at 1.34186. The weekly chart looks as though the Euro has put is a short-term top and it continues to roll to the downside. The indicators are uniformly issuing a sell-signal on the weekly chart. There should be some support at 1.33940. The downtrend line on the weekly chart is at 1.35278. Naturally, we need to see a close above this level by the Friday session. A note about the Euro and the US Dollar index: There are far too many US Dollar-bears out there. It seems as though the “Ship is listing badly to one side”. When this occurs, we frequently find that the boat might tip over and sink. In other words, the crowd is usually not correct when the agreement is all in one direction. Perhaps, standing aside until the situation becomes clearer, would be a good choice.
The S&P 500 saw an inside day in the Friday session. The indicators that we follow are mixed. Both the stochastic indicator and the RSI are issuing a buy-signal, from just above neutral levels. Our own indicator looks as though it could issue a buy-signal in the next session and the Thomas DeMark Expert indicator is issuing a solid sell-signal. The 5-period exponential moving average is at 1518.81. The top of the Bollinger band is at 1533.22 and the lower edge is seen at 1491.17. The market could retreat to the 1496.10 level, and continue to remain bullish. Although the indicators are more or less bullish, the market feels a bit heavy here. We will probably have a lift on the Tuesday session, after the next round of mergers and acquisions, completed over the weekend, are announced. This has been the market trend for many week sand will continue, until it doesn’t. The weekly chart has a 9-count on it, with signs of exhaustion. We are not taking the exhaustion signal very seriously, because this pattern has been in effect for the past six weeks. The indicators are uniformly issuing a sell-signal, at overbought levels; now that, is something to take note of. We are stretched to the upside and could use more than a day of retreat to purge this market of some of its excesses. The monthly chart also has a 9-count. The indicators on the monthly chart, are overbought, but none is issuing a sell-signal.
The NASDAQ 100 chart looks much like the S&P 500 chart. The indicators are mixed, with both our own indicator and the stochastic indicator about ready to issue a buy-signal. The RSI is already issuing a buy-signal, but the Thomas DeMark Expert indicator has issued a sell-signal. The 5-period exponential moving average is at 1898.05. The top of the Bollinger band is at 1923.76 and the lower edge is seen at 1876.13. If we remove the low of 1874.00, we will open the door to a steeper drop to the 1812.00 level. The weekly chart shows that we’ve made a foray to the upside in last week’s session, and retreated from that level. The indicators are uniformly issuing a sell-signal. The chart shows that a break below 1873.50, will be a dangerous sign for the bulls.
The Russell 2000 remains in an uptrend. We had an inside day in the Friday session, and now seem poised to move higher. The stochastic indicator, our own indicator and the RSI, are all pointing higher, from near-overbought levels. The Thomas DeMark Expert indicator has just turned down, and has issued a sell-signal. The 5-period exponential moving average is at 83.124. The top of the Bollinger band is at 842.81 and the lower edge is seen at 81.403. The weekly chart tells us that as long as we stay above 811.80, we are in no danger of a deep retreat. The stochastic indicator and our own indicator, both are overbought but appear as though they could issue a buy-signal. The Thomas DeMark Expert indicator is issuing a solid sell-signal. The monthly chart continues to look positive, although, extremely overbought. We do have a sell-setup done and if we close below 810.30, we would have a solid sell-signal. We do have 9-count on the monthly chart, which is a negative for the market, in the long-term.
The continuous commodity index is going sideways, and so long as it remains above 401.16, we will give it to the bulls. The trading range for this index is bounded by 408.05, on the upside and 401.16, on the downside. The stochastic indicator, our own indicator and the RSI, all are issuing a buy-signal. The Thomas DeMark Expert indicator is not issuing a signal; it is going sideways. The 5-period exponential moving average is at 404.04. The top of the Bollinger band is at 407.01 and the lower edge is seen at 401.29. The weekly chart shows this sideways action. The indicators on the weekly chart are not really issuing anything of value, at this time. The monthly indicators are equally as flat as are the weekly indicators.
July cocoa made an upside run in the Wednesday session, and again, in the Thursday session, failing to stay positive on Thursday. Friday, we opened lower and remained lower. The indicators are uniformly issuing a sell-signal. The 5-period exponential moving average is at 19.37. The top of the Bollinger band is at 19.86 and the lower edge is seen at 18.20. The weekly chart isn’t quite that positive. The indicators on the weekly chart are uniformly issuing a sell-signal. Even the monthly chart is not all that positive. Should July cocoa remove 17.55 before making a new high, or closing above 19.85, we could be opening the door for a rather steep retreat.
July sugar finally rallied in both the Thursday and the Friday sessions. The Friday rally removed the ledge of resistance at 9.38, without much trouble. The stochastic indicator, the RSI and our own indicator; all are getting overbought and pointing, higher. The Thomas DeMark Expert indicator is issuing a solid sell-signal. The 5-period exponential moving average is at 9.02. The top of the Bollinger band is at 9.57 and the lower edge is seen at 8.51. The weekly chart looks positive. Three of the four indicators are issuing a continued buy-signal; only the Thomas DeMark Expert indicator is diverging and not issuing anything of value. After the aggressive rally in this market, expect to see some backing and filling, before another run to the upside is made.
July coffee seems to be trying to break to the upside, but is turned away at the 114.00 level. We need to get thru that level to open the door to a more aggressive rally. Unfortunately, the indicators are not seeing that as a near-term event, but rather, are warning us that we could first go somewhat lower. The 5-period exponential moving average is at 112.32. The top of the Bollinger band is at 114.76 and the lower edge is seen at 101.75. The formation of the chart is very positive. We have seen a rounding bottom and, what appears to be a tea-cup formation. Naturally, this is a positive formation. The weekly chart shows that we have broken the downtrend line. The indicators remain positive, but with a flatter slope. We think that the bottom is in for a while, and that higher prices will be seen, after some more backing and filling.
July Frozen Concentrated Orange Juice had a very difficult week last week. The market retreated, for most of the week, with the low seen in the Thursday session. The low of 154.80 must hold, for a rally. The downtrend has been too steep. The market seems to be trying to recover and return, to the upside. The indicators are oversold and curling to the upside. Only the RSI is issuing a buy-signal. The stochastic indicator looks as though it could issue a buy-signal in the next session. The 5-period exponential moving average is at 159.15. The top of the Bollinger band is at 172.06 and the lower edge is seen at 155.93. We do have an 8 count on the bottom, showing us that the product is extremely oversold. All the indicators that we follow herein are issuing a buy-signal. The weekly chart shows that we have a liability to the downside, with a possible test of the recent low of 146.00. The indicators on the weekly chart are uniformly issuing a sell-signal. We need to see a close above 164.70, at a minimum, to turn this chart positive.
July cotton appears to have a reverse head-and-shoulders formation, with a resolution, to the upside. The sessions of Thursday and Friday were very positive and the market looks as thought it could travel farther, to the upside. The indicators are uniformly overbought and continue to issue a buy-signal. The weekly chart is positive. The market has been in rally mode for the past two weeks.
June gold rallied in the Friday session. The indicators are very oversold and are curling to the upside. Only the RSI has issued a buy-signal; the stochastic indicator will issue a buy-signal in the next session. The market needs to close above 661 to remove the downtrend line. The 5-period exponential moving average is at 658.90. The top of the Bollinger band is at 671.49 and the lower edge is seen at 648.19. The weekly chart is less friendly than is the daily chart. The market has broken the uptrend line and is extremely oversold. The market has been in retreat for the past three weeks and, on the weekly chart, looks as though it could go lower.
Jeanette Schwarz Young, CFP, CMT
Box 1952 c/o New York Board of Trade
One North End Avenue
New York, New York 10282