Russell Indices are rebalanced only once per year. You might say “So what”, but here is what it looked like after that rebalancing, after the close of the session for the Russell futures on Friday June 30, 2006: Russell 1000, prior to the rebalancing, down 2.25; after the rebalancing, down 1.60; Russell 2000, prior to the rebalancing, up 6.40; after the rebalancing, up 10.10, gaining 3.70 on the fair-value close, and the Russell 3000, prior to the rebalancing, down .24; after the rebalancing, up .45. What does this say?
That the Russell 2000, the small cap index, enjoyed a boost from the companies added to that index, while the Russell 3000 hardly participated and the Russell 1000 lost a few pennies. It further tells us that the small caps are back in play. This is perhaps the wildest movement due to rebalancing that we have seen in many years. On first review, it would appear that the money is being invested in the small-cap arena, with the bet being put on the line that the recovery rally will be led by this group. Remember, this group took the largest hit when the market retreated.
We can all look forward to the next FOMC meeting in August. Will they pause this time, or will they continue on their measured rate increases, or perhaps, make one final push to rate-increase #18? It would appear that we know precious little about their thought processes, assuming that they actually think, except that these “processes” are going to be data driven, that is, with a twist. In fact, we, too, have no idea what they are going to do at their next meeting. Frankly, we don’t think that they know what they are going to do at their next meeting. Clearly, the market would dearly love to see this process concluded. The celebrations observed following Thursday’s market rally was neither more nor less than a: Whew! Glad that one is over! Many do believe it is now over and that we can look forward to a “pause” in the immediate future.
What can we say about the rather muted reaction to the last day of the quarter? Perhaps, the realignment was seen on Thursday, after the FOMC’s announcement was made. That 217 rally could have been fueled by not only euphoria, but also by end-of-quarter, portfolio dressing. This led us to a dull get-away-Friday, in the markets. It seemed as though the early, out-of-town migration for the Independence Day Holiday, began after the close on Thursday. Except for the strange action in the Russell 2000, the market was fairly quiet during the Friday session, which ended the year’s 2nd quarter.
So here it is, we will continue to bounce back and forth on every economic data point, as it is released and, as it will relate to the future indications of inflation and of economic health. We know precious little more than we knew, before the statement was released. Without interpretation, the statement is absolutely clearly foggy enough to send this market reeling, in either direction, according to the data point released on the offending day.
We continue to believe that once the rally has run its course, a return to sanity and reality will drag this market downward. That drag should allow a test of the recent lows, with an undercutting of those lows. At that point, we will quickly know if the downturn will be more vicious than we are now seeing. Should the market fail to make a “V” bottom, once it probes the recent bottom, we believe that the market will have more pain for the bulls. Should we “V” bottom and rally upwards, reclaiming the 200 day moving average, we will see a sign of relief in the investment community. Certainly, it is not a time to ignore the markets; rather it is a time to pay close attention to them.
Monday: June ISM AND May construction spending are released at 10:00, June car sales are released and June credit manager’s report is released at 08:00. Wednesday: Chain store sales are released at 07:45, and May factory orders are released at 10:00. Thursday: The European Central Bank releases its interest rate decision, The Bank of England releases its interest rate decision, ISM non manufacturing index is released at 10:00, June chain store sales are released, Challenger, Gray & Christmas releases lay-off report at 07:30 and the bulls run in Pamplona, Spain. Friday: June nonfarm payrolls and unemployment are released at 08:30, ECRI future inflation gauge is released at 09:40 and ECRI weekly leading indices is released at 10:30.
The put/call ratio rallied back to a bullish 134/100 from last week’s neutral 112/100. The VIX faded even further, to close the Friday session at 13.08 down from the previous week’s 15.89, down from last month’s 14.32 but higher than last year’s 11.40. If you look at the chart of the VIX, it is oversold and about to turn to the upside. We have entered an area of congestion and should see good support down to the 11.30 area. We believe that within a day or so, there will be a rally in the VIX, returning the VIX to the 15.30 area and perhaps, a return to the 16.79 area as well.
Depression set in to the US Dollar Index when the FOMC raised the rates only ¼ point, and released a fuzzy statement. That depression continued into the Friday session, as the US Dollar Index receded to the lower edge of its trading range and, to a point where it could revisit the recent lows at 83.80, basis the September future’s contract. The stochastic indicator is continuing to issue a sell-signal and is approaching oversold levels. The RSI and our own indicator are both issuing a continued sell-signal and are at the negative side of neutral. The Thomas DeMark Expert indicator is almost oversold and continues to issue a sell-signal. The 5-period exponential moving average is at 85.57. The top of the Bollinger Band is at 86.58 and the lower edge is seen at 85.02. The weekly chart seems to be a bit toppy. We have a mechanical sell-signal on this chart. The stochastic indicator, the RSI and our own indicator are all issuing a sell-signal on the weekly chart. The Thomas DeMark Expert indicator is going sideways, at overbought levels. We would be cautious if trading from the long side of the US Dollar index and would expect to see a test, near the low of 83.80. Should the 83.80 level fail to hold the US Dollar index, then one must be prepared for levels in the 80 area.
The Euro will be subject to ECB noise this week, as that group meets to decide and announce its interest rate decision. On Thursday, we also have the Bank of England announcing their rate decision, so it should be a volatile session. These decisions come early in the New York trading session, so wake up early for this event. There will be an obvious reaction in the US Dollar index, as well, so stay tuned. The stochastic indicator is getting overbought, but continues to issue a buy-signal. Our own indicator and the RSI are issuing a continued buy-signal. Even the Thomas DeMark Expert indicator is issuing a continued buy-signal. The 5-period exponential moving average is at 1.27326. The top of the Bollinger Band is at 1.28050 and the lower edge is seen at 1.25562. The weekly chart shows that the Euro has returned to the uptrend line. The weekly stochastic indicator, the RSI, our own indicator and the Thomas DeMark Expert indicator are all issuing a buy-signal. We place a protective stop at 1.2550, if long. We could see some backing and filling after the last two-day rally in the Euro, with a return to the 1.26000 level. That might be another good place for a stop, on a long position.
The S&P 500 September Futures contract enjoyed a spectacular rally in the Thursday trading session. We witnessed some early progress to the upside, in that index, early in the session, with a small retreat at the close of the day. The index closed at “fair value” for its monthly adjustment. The stochastic indicator is curling over to the downside, however, has not issued a sell-signal. The RSI has issued a sell-signal. Our own indicator will issue a sell-signal, in either the Monday or Wednesday session. The Thomas DeMark Expert indicator is issuing a continued buy-signal and is in overbought territory. The 5-period exponential moving average is at 1269.60. The top of the Bollinger Band is at 1283.23 and the lower edge is seen at 1231.78. It is not unreasonable to believe that we will again visit the 1270 area, most likely within the next few days. The uptrend line is at 1250.22 for the Monday session. We have decisively broken the downtrend line, as a result of the Thursday relief rally, but until we close above 1303.00, we won’t be convinced that it is more than a response from an oversold condition. The weekly chart indicates that we could return to the 1269 area. The weekly chart looks better than does the daily chart. The weekly chart shows that all of the indicators are issuing a buy-signal. The monthly charts are directly opposite to the weekly charts and look as though we could decline further.
We have a mechanical buy-signal on the NASDAQ 100 September futures contract. But, before you run out and buy the index, be aware that it is a mechanical signal; not one we would trade on. The stochastic indicator is curling over to the downside and will issue a sell-signal, in either the Monday or Wednesday session. The RSI has given us a sell-signal. Our own indicator looks very much like the stochastic indicator, except that it never did get quite so overbought and is almost issuing, but hasn’t at this time, a sell-signal. The Thomas DeMark Expert indicator is issuing a continued buy-signal and is approaching overbought territory. The 5-period exponential moving average is at 1581.91. The top of the Bollinger Band is at 1610.31 and the lower edge is seen at 1530.82. We need to see a close above the 1609.50 area for us to believe that a trip to 1646 is on schedule. On the other hand, a close below 1537, and then 1528.75, will project more pain for the NASDAQ bulls. The weekly charts look okay, but not great. The indicators on the weekly chart are all pointing to higher prices. The pattern could be that of a bear flag, but we are not sure of it, at this time. That said, we would advise caution until the picture gets clearer.
The Russell 2000 was the beneficiary of rebalancing and/or a closing price blip upward. At 04:15 the closing price was 727.80 and change; then, once the fair value was computed, up we went to 731.50. This was one of the strangest events we have seen in a while. One thing is obvious, either the pricing was wrong and the bulls received a weekend valuation gift, or the stocks added to the Russell 2000 are fabulous and must be bought. Stay tuned for the result of this one. It is indeed strange: the other Russell indices enjoyed small adjustments, while this small cap index popped. The stochastic indicator is extremely overbought and continues to issue a buy-signal. The RSI is pointing to higher numbers and is approaching overbought. Our own indicator is curling over to the downside and it appears that it will issue a sell-signal, in either the Monday or Wednesday session. The Thomas DeMark Expert indicator is issuing a continued buy-signal, at overbought levels.
The continuous commodity index was the beneficiary of the decline in the US Dollar. As you well know, most commodities are priced in US Dollars and as such, as the dollar declines, these commodities tend to appreciate in value. The stochastic indicator is issuing a buy-signal, as is the RSI and our own indicator. All three indicators are overbought, but not curling over to the downside. This gives us reason to believe that there is more room to the upside. The Thomas DeMark Expert indicator is issuing a sell-signal. The 5-period exponential moving average is at 378.19. The top of the Bollinger Band is at 382.36 and the bottom edge is seen at 361.13. The weekly chart is very bullish. All of the indicators are issuing a buy-signal. The downtrend line has been decisively broken to the upside. The monthly charts continue to look good, although the Thomas DeMark Expert indicator is flat-lining and our own indicator is in agreement; the others are issuing a continued buy-signal. We need to see a close over the 387.52 level, at which time, we will again rally to the highs.
September coffee staged an impressive rally in the Friday session, at the New York Board of Trade. This contract has finally broken the downtrend line and appears to be getting ready to challenge some resistance, at the105.90 area. We’ve heard of frost worries from some, but it seems as though the funds, which are extremely short coffee, are beginning to get a trifle nervous. As the market declines, trading has become very dull and listless. The shorts are looking for a push downward, but it seems that most downside pushes are supported by buying. The locals are getting ground up in the process, bouncing from short to long, to short to long, feeling like the swings of a bungee jumper. The stochastic indicator is issuing a continued buy-signal and is getting overbought. Our own indicator is issuing a continued buy-signal, as is the RSI. The Thomas DeMark Expert indicator is issuing a continued buy-signal and is at overbought levels. The 5-period exponential moving average is at 99.00. The top of the Bollinger Band is at 100.44 and the lower edge is seen at 95.24. Wow! Even the weekly chart of coffee looks good. All of the indicators are issuing a buy-signal. Coffee must close above 106.00 to remove the weekly downtrend line. The uptrend line for the Monday session is at 99.00, a number that needs to be respected.
September cocoa has had a very nice run; however, we could be in for some backing and filling for a short time while excesses are removed from the market. The stochastic indicator is issuing a sell-signal, as is the Thomas DeMark Expert indicator, both from overbought levels. Our own indicator continues to issue a buy-signal, but seems to be losing power. The RSI is just plain overbought and continues to see higher prices. The 5-period exponential moving average is at 15.94. The top of the Bollinger Band is at 16.21 and the lower edge is seen at 14.77. We are concerned about the Friday candle left on the chart; should the market open lower than the Friday opening level of 16.27 and stay below that level, we could be setting up for a sell-signal. We won’t know until Monday, so if long, keep your stops tight. The weekly chart shows the massive rally seen this past week. The indicators are all issuing a buy-signal.
August crude oil reflected the expectations of a normal 4th of July, driving holiday. Should the market remove the 74.50 area, we would believe that the old highs will be revisited. The stochastic indicator is curling over at overbought levels, but has not issued a sell-signal. Our own indicator is about to issue a sell-signal. The Thomas DeMark Expert indicator has issued a sell-signal and the RSI is just pointing to higher levels, at very overbought levels. The 5-period exponential moving average is at 72.78. The top of the Bollinger Band is at 73.86 and the lower edge is seen at 68.03. Obviously, the market closed above the top Bollinger Band, which tells us that either the Bollinger Band expands and moves up quickly; or, that this market will back off of that price. The weekly chart shows that crude oil has broken the downtrend line. All of the indicators are issuing a buy-signal on the weekly chart. The monthly chart also looks okay, but not as bullish as the other charts look.
We have a 9-red count on the natural gas chart. This chart has been the source of disappointment for some time now. It seems to be having trouble with any rally. We are getting some divergences, which speak to a move to the upside. The stochastic indicator is issuing a sell-signal, at grossly oversold levels. Our own indicator is issuing a buy-signal, as is the Thomas DeMark Expert indicator. The RSI is near oversold levels, but not telling us much. The 5-period exponential moving average is at 6.219. The top of the Bollinger Band is at 7.539 and the lower edge is seen at 5.718. This market seems to be getting dull at the lower levels, spurring excitement as it rallies. We are in hurricane season and at these low levels, we feel the risk reward is not on the short side of this market. The weekly chart shows that we have returned to the congestive area, last seen in January of 2005. All of the indicators are oversold and all continue to issue a sell-signal. The monthly chart shows a very oversold market, with the hint of a rally in the future. The Thomas DeMark Expert indicator is issuing a buy-signal and our own indicator is getting ready to do the same. Both the stochastic and the RSI are very oversold.
August heating oil has an inside day in the Friday session. The stochastic indicator is curling over to the downside, but has not issued a sell-signal. Our own indicator, the RSI and the Thomas DeMark Expert have all issued a sell-signal. The 5-period exponential moving average is at 2.0222. The top of the Bollinger Band is at 2.0547 and the lower edge is seen at 1.9315. The weekly chart looks okay, but the indicators are confusing. The stochastic indicator is issuing a sell-signal, while our own indicator is issuing a buy-signal. The Thomas DeMark Expert indicator is issuing a buy-signal, as is the RSI. The chart looks as though the market is stabilizing here, at higher prices.
August gold enjoyed a robust rally in the Friday session. Remember, gold is priced in US Dollars, so if the currency takes a hit, gold should rally as a result of that retreat. The question is not that it rallied, but: how much did it rally? This is telling us that either inflation is really out there, or that the market believes that the FOMC has fallen behind the inflation curve and has made an error, in its tame quarter point increase. The downtrend line has been removed. The stochastic indicator is issuing a buy-signal and is at extremely overbought levels. The RSI and our own indicator are also issuing a buy-signal. The Thomas DeMark Expert indicator is issuing a buy-signal. The 5-period exponential moving average is at 595.80. The top of the Bollinger Band is at 607.20 and the lower edge is seen at 558.50. The weekly chart is as positive as is the daily chart. All of the indicators are issuing a buy-signal. We continue to like the gold metal, so long as it stays above 547.
NYA CASH (8169.07)
Resistance 8189.11 8204.31 8241.15 8252 8271 8282 8290 8322 8361 8390 8400 8422.24 8438.02 8478.49 8494.40 8512 8526.76 8580 8598 8634.88(H)
Support 8141.49 8100.77 8038.11 7990.55 7924.62 7901.40 7883 7872 7855 7805 7798.30 7780.33 7753.95 7739.47 7716 7708.11 7693 7677 7667.64 7642.81 7634.58 7621.26 7599.78 7566.02 7546.67 7529.15 7516.48 7498.75 7470.90 7455.70 7422.77 7407 7380.75 7369 7339 7316 7293 7280 7263.32 7251.87 7233 7214 7200 7174.95 7160 7138 7116.60 7107 7091 7084 7060 7047 7028 6993.30 6971.22 6958 6936 6924.00 6913 6906.23 6887 6843 6800 6786 6749.41 6701.47 6699.84 6680
RUI CASH (691.80)
Resistance 692.41 696.71 700.64 703.79 706.22 710.69 714.97 717.19 719 722.86(H)
Support 689 687.85 685.36 683.49 681.17 679 677.84 675.65 673.15 670.69 668 665.05 663.18 661.28 658.23 656.20 653.80 650.61 647 644.67 641.46 638.70 635.58 633.87 631 628.46 624.98 621 619.20 617 614.25 611.70 609 607 604.665 602.50 599.39 595.70 593.40 590.58 588 585.27 582 579.24
Russell 1000 Value (722.04)
Resistance 723.03 725.26 727.53 731 734 737 740.25 744 748.74 (H)
Support 718.98 715.89 712.29 710.65 708.98 706.60 703.39 701.38 700.34 697.65 695.98 693.38 690.61 687.26 684.85 683.16 679.76(just go short) 677 674 671.25 669.40 667.70 666 663.44 661 659 656 653 650 648.11 644.62 641.05 640 638.05 635 632.90 630 627.20 624.61 620 615 613.48 610.29 608.48 607.76 606.92 604.91 599.92 596 593.73 590.6
Russell 1000 Growth (505.90)
Resistance 506.74 508.43 510.32 513.71 516 520.25 522 525 527 530 532 534.43(H) 536 539
Support 504.50 502.52 498.65 495.83 494 492.80 490 488 486.43 485.50 483.17 480.94 477 475 471 468 464 462 460.87 457.82 455 450.31 445.34 443.88 442 440 438 436 434 432 429 427 425 423 421 418.68 416 414 412 410
TO A0 (Russell 2000 cash) (724.58)
Resistance 725.08 729.55 731.14 735 737.45 739.75 742.40 746.09 749.70 753 755 758.12 761 764 767 772.12 774.71 776 779 781 784.62(H)
Support 722 720.10 718.52 714.32 710.31 708.83 705 702.30 701.01 699.63 696.04 694.56 690.14 687.10 684.90 682.69 681.50 679 677.08 673.22 671.98 669.05(just go short) 666.36 663.65 659.35 655.95 653 650 647.35 644.33 642 638 635.33 632.73 630.40 628.54 626.91 624.41 621 618 615.31 612.71 609.41 607 601 596 593 590.53 587 584 579.38 577.93 573 570 567 565.21 559.70 558.58 554.13 551.87 548.45 545 541.96 538 536 533 529 526
SPX CASH (1270.20)
Resistance 1272.47 1277 1281.40 1284.75 1291.94 1295.57 1296.35 1306.59 1313.92 1319.85 1326.53(H)
Support 1261.02 1257.98 1253.37 1248.29 1244.50 1241.43 1237.59 1235.18 1231.57 1228.81 1222.52 1219.29 1211.27 1202.35 1199.71 1195.90 1192.34 1187.13 1179.59 1175.44 1171.35 1168.20 1164.50 1161.43 1152 1147 1140 1132.84 1130.54 1128 1124.62 1120.19 1118.60 1110 1094 1090.19 1087 1079 1068
NDX CASH (1575.23)
Resistance 1576.79 1589.82 1590.83 1595.29 1606.37 1618.85 1628.25 1635.81 1648.23 1652.26 1660.82 1676.63 1685.66 1697 1706.33 1713.84 1720.15 1724 1735.50 1741.35 1749 1761.46(H)
Support 1566.59 1562.64 1551.05 1544.30 1538.14 gap to1531.59 1525.78 1520 1511.53 1500.18 1490.53 1485.60 1480 1475.26 1469.35 1456 1448 1438 1428 1420.79 1412.63 1408.59 1399.05 1397.50 1388.20 1380 1374 1366.73 1356 1348.27 1334 1320.95 1309
DX U6 (84.90)
Resistance 84.98 85.05 85.19 85.24 85.48 85.60 85.79 86.16 86.45 86.68 86.70 86.99 87.09 87.24 87.62 87.67 87.77 87.80 87.96 88.08 88.13 88.19 88.27 88.33 88.45 88.33 88.51 88.60 gap to 89.17 89.27 89.37 89.39 89.52 89.69 89.84 89.90 89.99 90.05 90.17 90.26 90.34 90.79 90.99 91.06 91.16 91.18 91.22 91.33 91.49 91.55 91.60 91.68 91.74 91.98 92.05 92.27 92.45 92.54 92.61 92.80 93.00 93.28
Support 84.88 84.80 84.77 84.53 84.50 84.42 84.37 84.23 84.16 84.12 84.01 83.88 83.79 83.67 83.60 83.57 83.47 83.41(I) 83.30 83.15 83.05 82.99 82.86 82.72 82.65 82.59 82.37 82.18 82.02 81.98 81.81 81.75 81.66 81.48 81.39 81.31 81.25 81.12 81.00 80.98 80.69 80.22(4/28/95)
by Jeanette Schwarz Young, CFP, CMT
Box** 1952** c/o New York Board of Trade
One North End Avenue
New York, New York 10282