The gloomy news from Washington continues snuffing out every rally that is attempted. Every time an elected official speaks the market retreats. We now have “The Obama Indicator” which continues to signal oratorical excellence paired with market depression. As our silver tongued leader speaks the market retreats. So what is a few trillion here or there we will tax the rich to pay for the poor and middle class. All we need are some green tights and Robin Hood will appear.
Tax and spend is the mantra for the government and, should the proposed tax increases become law–run and hide will be the mantra for corporations and the wealthier citizens. Speaking of citizens it is likely that both our corporate citizens as well as our wealthier citizens will seek residency elsewhere. Residency in a place that doesn’t punish success and seems more equitable. We can remember a recent time when many corporations fled to Ireland for the benefit of a lower tax rate. In truth most corporations will remain domiciled where they are now, but some adventurous companies will decide to leave our shores for friendlier lands with lower corporate tax rates.
So what is going on with this market? We see it as a market which is subjected to daily margin calls and is slowly drifting lower. We do not see aggressive selling in this market even when we drift below previous lows. We do not see a rally in the VIX to levels seen in the November low. What we do see is fear of loss, or capital preservation. Even with interest rates at near zero, money is nested where it is safe. We are back to kindergarten and nobody wants to be first into the investment waters. It is the “ole you go first” mindset of our youth.
Credit card companies are charging ridiculously high rates for balances. The latest best rate heard recently was 12% plus libor. Gee, ya think the spread is wide enough? Just incase that isn’t bad enough, real-estate taxes are rising. Our own real-estate tax rose 37% in one year. We understand the need to raise taxes because of the foreclosures, but this is ridiculous. We have noticed that families just skirting on the edge of meeting their monthly obligations are being pushed into failure with this sort of action. Would it not be better to hold real-estate taxes steady and allow the home-owners to stay solvent? Wouldn’t a tax relief bill that holds the line on real-estate taxes be more beneficial to the “middle class” earner than giving away more money to poorly run institutions or other pork projects that seem to be incorporated in the stimulus plan?
Monday: January personal income and consumptions is released at 8:30, January construction spending is released at 10:00,
February ISM is released at 10:00 and Richmond Fed President Lacker speaks.
Tuesday: Auto makers report sales for February, and the Bank of Canada releases its interest rate decision (a cut is expected).
Wednesday: Challenger Gray & Christmas release their February Job Cuts, and the Beige- book is released at 2:00.
Thursday: The European Central Bank releases its interest rate decision (a reduction of 50bp is expected), and the Bank of England will also release its interest rate decision (a 50bp reduction is expected).
Friday: February nonfarm payrolls are released along with the unemployment rate–duck and cover for that one.
The US Dollar Index remains grossly overbought. After removing the February 18 high of 88.57, the market retreated closing the session with a modest increase for the day. There are no signs of a top as yet. All the indicators that we follow continue to point higher. We would expect to see at least a retreat to the uptrend line of 86.30 or so. The 5-day moving average is at 87.725. The top of the Bollinger band is at 8868 and the lower edge is seen at 84.968. Should the market close above 89.25, there will be little, in the way of overhead supply, to stop the rally. We are above the Ichimuko clouds on the daily and the weekly time-frames and just into the clouds for the monthly time-frame. So far so good for the US Dollar index, however; we believe that this index will retreat to the uptrend line and perhaps poke thru the line to test for the stops and then return back above it. Naturally, this is a very short-term view. Longer term, we have a huge problem if the US Dollar retreats below 78.775. Remember, now that we are in March this contract rolls to the June futures on the second Thursday of March.
The S&P 500 looks awful; this is a slow drift lower. The stochastic indicator and the RSI are both oversold, the former grossly oversold. Our own indicator is pointing lower with more room to the downside. The Thomas DeMark Expert indicator is pointing lower but is not as yet oversold. We had a nine count in the Monday session, but guess what, we went lower. The 5-day moving average is at 752.30. The top of the Bollinger band is at 879.94 and the lower edge is seen at 727.34. We do expect to see a rally within a day or so. The question remains, will this rally have enough energy to get the market above 786.50? Naturally, we are below the Ichimuko clouds for all time-frames. When looking at the quarterly chart of the S&P 500 it shows that there is no support below. We have removed a decade worth of rallies. We are below where we were in 1997. Thanks to “The Chart Store. www.thechartstore.com” we were able to view really long-term charts. We have some lower levels of support at about 609 but we really don’t want to venture to those levels. If this market can close above 762-763, we will have a possible return to 797.50 and 805 +/-. Don’t forget that this index rolls in two weeks.
The NASDAQ 100 continues to look better than the S&P 500 does. Yes we are in a downtrend but that downtrend has not removed the November lows. The indicators on this index are somewhat different than those of the S&P 500. The stochastic indicator is about to cross and issue a buy-signal. The RSI has stopped declining. Our own indicator continues to issue a sell-signal but the momentum to the downside is greatly diminished. The 5-day moving average is at 1140.50. The volume value point is found at 1123. We remain below the Ichimuko clouds for the daily, weekly and monthly time-frames. If this market can close above 1155.98, we will be setup for a rally. The November low for this market was seen at 1017.75. Perhaps this market has behaved better than the S&P 500 because there are no banks in this index. Of course that makes sense, however; what we can take away from this index is that perhaps we are trying to find a short term point from where a DCB can begin. Oh, DCB is dead-cat-bounce.
The Russell 2000 is enjoying the same results as the NASDAQ 100 in that it has not removed the November lows and is out-performing the S&P 500. Again, there aren’t a lot of banks nested in this index. We have a buy-signal as issued by the stochastic indicator on the daily chart. Our own indicator is flat and not issuing anything of value. The RSI is oversold and going flat and the Thomas DeMark Expert indicator is also flat but at neutral. It would appear that we are getting ready to try a rally for a change. All we need is a close above 398 to stir the rally pot. The 5-day moving average is at 397.58. The volume value point is found at 390.80. The top of the Bollinger band is at 479.44 and the lower edge is seen at 383.64. We are below the Ichimuko clouds for the daily and weekly time-frames. We should see a rally to 418.20 and then to 453.70.
April crude oil has been in rally mode for most of this past week. As such, we have gotten overbought and currently find that the indicators are curling over, no sell-signal yet. The 5-day moving average is at 42.1760. The top of the Bollinger band is at 47.90 and the lower edge is seen at 37.33. The volume value point is at 43.73. Unfortunately, for the bulls, we have a doji candle as a result of the Friday session. A doji candle indicates that the market is in transition and will likely change directions. This finding is also verified by the indicators. We remain below the Ichimuko clouds for the daily, weekly and monthly time-frames. On a positive note, the indicators for the weekly time-frame are issuing a continued buy-signal and the indicators for the monthly time-frame are about to issue a buy-signal from grossly oversold levels. We need to see this market remain above 32.48.
April gold broke its uptrend line this past week. We do see support for the yellow metal at 917.80. The daily chart shows that the indicators are bending to the upside however are not giving a buy-signal. We appear to be several days, or longer, away for that signal. We are above the Ichimuko clouds for the daily, weekly and monthly charts. The 5-day moving average is at 963.16. The top of the Bollinger band is at 1005.57 and the lower edge is seen at 878.63. The volume value area is at 945.50. We would love to see gold trade at 891.90 where we believe there should be good support. Below that level we have a liability to 847 and 831.20.
Jeanette Schwarz Young CFP, CMT
One North End Avenue
New York, New York 10282