Thankfully, people, gurus and financial journalists have stopped talking about finding a bottom in the market. This is the first sign of a possible bear market rally in our future. We do expect to see further gloomy news from the retailers regarding Christmas sales, and further gloomy news on the housing front. Good news is bad for the market, no news is bad for the market and bad news is always bad for the market.
Thus, we are getting to a point where the news will become common placed and we will become used to hearing the doom and gloom. At that point, we will stop listening and actually look for value. This is how we will enter a rally in this market. Rather than looking for stocking stuffers for your Christmas holiday, look at cheap stock. Yes, the blood is running on Wall Street and yes, many companies will fail, but some will survive and will be worth the risk of buying their shares. Look for companies will little or no debt on their balance sheets. Look for companies that actually make money, maybe less now than before, but make money nonetheless. Look for companies that are needed for the aging baby boomer generation, like drug companies, if they pay a divided even better. These would make good stocking stuffers since they have again reached the status of teenagers. Rather then spending $20 on junk, buy one share of something that will have value in the future, say Microsoft, or The General Electric Company, Pfizer, or even take a chance on Cisco etc. There are many good companies with dividend reinvestment plans and earnings that you can buy for less than $20 per share!
We know that we have been growling bears for a very long time, but we feel that real value can be found and we are willing to gamble on that opinion.
Monday: October existing home sales are released at 10:00 and the Chicago Fed activity index is released.
Tuesday: 3rd quarter GDP is released at 8:30, S&P/Case Shiller home price index is released, and November consumer confidence is released at 10:00.
Wednesday: October personal income and consumption is released at 8:30, October durable goods are released at 8:30, November Chicago PMI is released at 9:45, November Michigan Sentiment is released at 9:45-10:00, and October new home sales are released at 10:00.
Thursday: THANKSGIVING HOLIDAY. Friday: Markets close early in the USA.
Last week we were given a mechanical sell-signal for the US Dollar index. That sell-signal continues in force. The action seen in the Friday session could be seen as bearish. We have, what appears to be, a hangman candle. The US Dollar index has been and remains in overbought condition. There is nothing telling us that this index will decline however; we continue to believe that this index will retreat to, at the very least, the uptrend line which is at 87.001. The 5-day moving average is at 87.833. The top of the Bollinger band is at 88.886 and the lower edge is seen at 84.945. All the indicators that we follow herein are going sideways near or at overbought levels. Not one is issuing a sell-signal, however; not one is issuing a buy-signal either. We are above the Ichimuko clouds for both the daily and the weekly time-frame. We are below the Ichimuko clouds for the monthly time-frame. The longer term charts are also overbought and look like a pole. We expect some of the excesses seen on the upside to be removed. We can either go sideways or simply decline a bit to adjust the chart to a more normal look.
Although the S&P 500 rallied in the Friday session, it made a new low and a lower high for the day. As you know, that action is not bullish, but here is the good news, we are getting a buy-signal from the stochastic indicator, our own indicator and the RSI. The Thomas DeMark Expert indicator continues pointing lower at oversold levels. The 5-day moving average is at 814.05. The top of the Bollinger band is at 1025.52 and the lower edge is seen at 765.29. The downtrend lines are at 892 and 899. Clearly we need to close above 894 by Friday to encourage the bravest buyers back into this market. We are below the Ichimuko clouds for the daily, weekly and monthly time-frames. We are oversold on all three of those time-frames. Will that cause a rally, no we can remain oversold for long periods of time so don’t be fooled. Although we continue to sound extremely bearish we do believe that there will be a very tradable bounce which should add 10 to 20% to the averages.
The NASDAQ 100 enjoyed a last hour rally in the Friday session taking the index from grossly oversold to less grossly oversold. The stochastic indicator, our own indicator and the RSI are all uniformly issuing a fresh buy-signal. The 5-day moving average is at 1111.10. The top of the Bollinger band is at 1417.95 and the lower edge is seen at 1041.21. We remain below the Ichimuko clouds for all time-frames. The downtrend line is at 1128.26, a level we must close above to turn the daily chart back to the upside. It would also be interesting to see this index make a higher high and a higher low, neither of which has been the case lately. We are grossly oversold on the weekly chart as well as on the monthly chart.
The Russell 2000 action was disappointing in the Friday session. Although this index did rally, it was not a leader and was seen as a laggard. The 5-day moving average is at 420.04. The top of the Bollinger band is at 566.21 and the lower edge is seen at 387.11. Naturally, we are below the Ichimuko clouds for all time-frames. Our concern lies with the history of the Russell 2000 which has always led the rally rather than following the rally. We remain concerned with the action in this index as it relates to the market. While we believe that the market is due for a bounce, we wonder out loud if this index will enjoy the same rally as will be seen in the other indices. This index is usually the source of tax selling for the end of the year. This year, we very much doubt, if these small capitalization stocks will be need to be sold to off-set gains. What gains should be the by-word!
Crude oil made a marginal lower low in the Friday session. Crude’s momentum to the downside seems to be slowing down. We actually are getting a buy-signal from the indicators that we follow. The 5-day moving average is at 52.74. The top of the Bollinger band is at 72.63 and the lower edge is seen at 48.96. We are below the Ichimuko clouds for all time-frames. The downtrend line on the daily chart is at 53.20. Naturally, we need to close above that level to at least give some fuel for a rally.
Gold rallied in the Friday session taking it all the way to the 802.80 level before the sellers appeared. We are getting very overbought but all the indicators continue to point to higher levels. We remain below the Ichimuko clouds for the daily and monthly time-frame and below the clouds for the weekly time-frame. The 5-day moving average is at 750.25. The top of the Bollinger band is at 773.43 and the lower edge is seen at 704.90. We continue to like gold on pull-backs but would not chase it.
Jeanette Schwarz Young, CFP, CMT
One North End Avenue
New York, New York 10282