The markets close on Saturdays; thank goodness, this might just give us the time to recoup enough energy to enter into another work week. The old adage goes “You see one cockroach, you know there have to more lurking out there.” That too, is the general feeling about the sub-prime market. Unfortunately, many of these loans were packaged together with AAA paper and thus, have been described as ‘investment grade paper’. When these loans are dissected, we find that the sub-prime part is in the stew, rather like the logo popularizing Ragu “it’s in there.”
We fear that in spite of the infusion of cash into the banking systems, we need to purge ourselves of our enthusiastic excesses; similarly, this market need to rid itself of its excesses. True, we have had a correction which, no doubt, will lead to a robust bounce, but that well may provide an important opportunity to rethink your portfolio and bail out where needed. Much depends on your time- horizon and on your cash flow needs. If you are a boomer, perhaps you should consider lightening up on some of your higher risks; to play it safe a while. For you youngsters, you have the luxury of time in which to regain any lost ground, during these purging exercises.
Many of our colleagues are pounding the table, crying about increased turbulence in the market, as measured by the VIX, the volatility index. We remind you that we are simply returning to normal levels of angst after dabbling in “fairy-tale-land” for lo, these past many years. Goldilocks is out and the Three Bears have returned. The Bulls have rejoined their brothers in the ring and the bears are out hunting for forage before their winter’s hibernation.
As we review and monitor charts and actions on a daily basis, a divergence is seen when one views the Russell 2000 as compared to the other indices. This index has under-performed on the downside for the past three days. Also, take a look at the SOX. This index of semiconductor stocks is performing really well, considering the carnage in the averages. Believe me, I am not a raging bull, nor any kind of bull, right now, but I do believe that I scent a bounce in the winds. The question is, “will that bounce trap the bulls?” Remember, the “buy the dips” crowd is just standing there, waiting. The other point to consider is that there are portfolio managers who need to play catch-up�.but ketchup, is what they might get for their efforts, reminiscent of spilled blood. In that effort, they could easily be seen jumping, on any rally in the presumption that the rout is over. After all, they need but to look back at the February 27th thru March 6 rout, to make a good case for a recovering rally, taking the market to new highs! Ahem, we don’t think so, but hey, to each his own. We believe that real damage has been done in the financial markets. We further believe that the bandage that the central bankers are applying, will not fix this problem. We need to purge ourselves of our excesses to allow this market to cleanse itself. Remember the last leg of this bull market, after the “dot-com” debacle originated from levels, not coincident to market bottoms. We haven’t yet seen the carnage that accompanies these events.
There is another problem that we need to remember and that is of the weakening US Dollar. If the FOMC reduces interest rates, the US Dollar will decline. Do we really want to see that happen? And, what would that do to unwind the status of the US Dollar as a reserve currency. Perhaps gold would regain more of its glitter, and become more important. We believe that the small declines seen in the gold market, were the result of margin calls, not weakness in gold. When the margin clerks call for money, you sell whatever assets you can, to meet that call. If you can’t sell your bonds, yes, you sell gold, stocks, commodities, etc. To add to the turmoil seen in the recent week, we are entering August options- expiration-week. Perhaps some of the positions have already been unwound or, perhaps, we have more to go. Just fasten your seatbelt. Friday’s session in the S&P 500, of down 25, to plus 8, to down 20, etc, was just the test-run��hang on, we are returning to a more volatile era. We are not going to tell you that we told you, but… we did!
The daily chart of the Yen is very whippy; one day up, one day down; looking much like a swinging pendulum. We note that the market defended the lows in last Monday’s session, making a dramatic return to the upside. This was followed by disappointing rally attempts, leaving red candles on the chart, in all but the Friday session. The stochastic indicator on the daily chart, is grossly oversold, crawling along the bottom of the chart, in single digits. The stochastic indicator is going sideways, at these levels. The RSI is also oversold, but not as oversold as it had been; yet, it continues to go sideways. Our own indicator is issuing a sell-signal. The Thomas DeMark Expert indicator is going sideways, near neutral levels. The 5-period exponential moving average is at 117.764. The top of the Bollinger band is at 121.535 and the lower edge is seen at 116.279. The downtrend line for the Monday session is at 119.186. The Yen rebounded, leaving a hammer-candle on the weekly chart. The stochastic indicator is in single digits and continues to fall. Both our own indicator and the Thomas DeMark Expert indicator are issuing a buy-signal. The RSI is going sideways near oversold levels. The 5-period exponential moving average is at 118.723. The top of the Bollinger band is at 123.322 and the lower edge is seen at 116.200. This market looks as though it is trying to regain some footing, for a return to the upside. The downtrend line is at 118.134, but this line is much too steep. The monthly chart has no remarkable events, but looks to be hammering out a bottom.
Remember, this week, Thursday, we will be able to see the minutes of the Bank of England’s last meeting. This should give us some interesting insights as to their thoughts process. The daily chart of the British Pound Sterling, clearly shows that this currency is defending 201.40. The low in the Friday session was 201.44. We do have a doji candle, as a result of that session. The market seems to be in a congestive area, bounded, on the bottom, by 201.40 and, at the top, at 204.49. The stochastic indicator is oversold, but is not issuing anything and is simply going sideways. Our own indicator is doing much the same thing, but at neutral levels. The RSI, also at neutral, is not trending. Only the Thomas DeMark Expert indicator is issuing a sell-signal, at oversold levels. The 5-period exponential moving average is at 202.65. The top of the Bollinger band is at 206.32 and the lower edge is seen at 201.30. The weekly chart shows signs of exhaustion. All the indicators that we follow herein, are issuing a sell-signal. The uptrend line is at 199.06, for this week, ending, on Friday. The monthly uptrend line is at 200.03.
The Australian Dollar continued the Thursday decline in the Friday session, brings the lows within close range of the June 27th low of 83.36, the low of June 14, of 83.11 and the low of May 29th, of 81.40. The stochastic indicator is oversold, but continues to issue a sell-signal. All the indicators that we follow herein, are issuing a sell-signal. The 5-period exponential moving average is at 85.10. The top of the Bollinger band is at 88.86 and the lower edge is seen at 83.81. It seems likely that we will test, at the very least, the 83.36-83.11 level, again. The weekly chart confirms the weakness seen in the daily chart. All the indicators that we follow are issuing a uniform sell-signal. We do see signs of exhaustion and, we are expanding the range of the trade.
With all the unpleasantness seen in the debt markets, Canada has been quiet, with regard to any problems they might have. The chart looks as though we are making a rounding top. We are getting mixed signals from the indicators. The stochastic indicator, our own indicator and the RSI, continue to issue a buy-signal, but the Thomas DeMark Expert indicator is issuing a sell-signal. The chart does not look bad, rather, it looks good. The short-term uptrend line is at 94.22. The 5-period exponential moving average is at 95.02. The top of the Bollinger band is at 96.73 and the lower edge is seen at 93.73. The weekly chart supports the feeling that this market is making a rounding-top. So long as we stay above 93.50, we will give it to the bulls; should we close below that level, on a weekly basis, we would become rather bearish. The indicators remain at, or near, overbought levels and are going sideways. Only the Thomas DeMark Expert indicator is issuing a sell-signal, on the weekly chart. We are cautious on the Canadian Dollar.
The New Zealand Dollar looks similar to that of the Australian Dollar, but has cracked and retreated, breaking cleanly from previous support levels. It looks as though we will test the June 1st 73.30 level, perhaps step into the gap of 72.43 to73.02. This gap came at the end of May, this year. The indicators are uniformly oversold and continue to issue a sell-signal. The velocity of these signals is somewhat muted, but nonetheless, there. The 5-period exponential moving average is at 75.41. The top of the Bollinger band is at 80.99 and the lower edge is seen at 73.82. The weekly chart has a continued sign of exhaustion. The indicators on the weekly chart, are uniformly issuing a continued sell-signal. The chart shows that we do have a liability to the June 1st lows of 72.02.
The Swiss Franc has a doji candle, seen in both the Thursday and Friday session. We note, on this chart, that there is a point of inflection, due to be felt, in the night session on Thursday, at 83.67. This should lead to a violent move in the Swiss Franc. The stochastic indicator is going sideways, at neutral; our own indicator and the RSI are both going sideways, at neutral levels. The Thomas DeMark Expert indicator is tilting to the downside. The 5-period exponential moving average is at 83.85. The top of the Bollinger band is at 84.33 and the lower edge is seen at 82.78. The weekly uptrend line is at 83.42. The indicators on the weekly chart, are uniformly issuing a sell-signal, from overbought levels. We do have signs of exhaustion on the weekly chart and, what looks like a failure, as the market tried to probe to the upside. The monthly chart continues to look positive.
Alert! Warning; we could be forming an “M” pattern in the Euro. The conditions that would signal that “M” formation are: 1, the Euro can not make a new high, 2, the Euro needs to close below 1.36310. The result of these two conditions will lead to a return to the 1.3410 and 1.3306 levels. The stochastic indicator is curling to the upside, but has not issued a buy-signal. Our own indicator and the RSI are going sideways. The Thomas DeMark Expert indicator is issuing a solid, continued, sell-signal, at neutral levels. We have broken the uptrend line, which is at 1.37340, for the Monday session. The downtrend line is at 1.3815. The weekly chart shows signs of exhaustion. All the indicators that we follow are uniformly issuing a sell-signal, basis the weekly chart. Even the monthly chart is overbought; however, the indicators on the monthly chart continue to point higher, at overbought levels.
The US Dollar index tested the lows in the Monday session and rebounded from that level, trading to the upper edge of the range. For this index to turn bullish, we need to see a close above 80.89. The stochastic indicator is curling over to the downside, but has not issued a sell-signal. Our own indicator is also curling over to the downside. The RSI is pointing lower. The Thomas DeMark Expert indicator is issuing a buy-signal. The 5 period exponential moving average is at 80.481. The top of the Bollinger band is at 80.888 and the lower edge is seen at 79.905. Here is the deal; this chart looks like a “W” pattern. To remain positive for the US Dollar index, the market must stay above 79.925 on the downside, and must close above 80.89; this action would open the door to the 83.00 level, with a stop at 81.980. The weekly chart looks as though the US Dollar index is defending the lows and could be in the process of forming a bottom; well, for a short while, anyway. The downtrend line in the weekly chart is at 80.565; a number we need to close above, on a weekly basis. The indicators are uniformly issuing a buy-signal, from oversold levels. The divergence seen in the RSI is that the recent lows had a higher RSI than the previous test of that low. The long-term downtrend line is at 82.209, which holds on the monthly chart, as well. The indicators on the monthly chart are oversold, but are going sideways. We do have a red-9-count, on the monthly chart.
The S&P 500 has been on a wild ride this past week, enjoying a three day rally; then, there was Thursday and Friday, which added gloom and doom to the mix and sent this index lower, probing the Monday lows of 1432.30. The Friday session was one of the most manic sessions seen in a long time. We were down 25, then up 8, then down again, then up again, finally closing the session, down; but nothing compared to the intraday swings. The indicators are uniformly issuing a continued sell-signal. The 5-period exponential moving average is at 1466.72. The top of the Bollinger band is at 1582.11 and the lower edge is seen at 1419.91. Here, also, we see that the market could be forming a “W” pattern. Again, the rules are these: the market must remain above the Monday low of 1432.30 and must close above 1510.00, which was Tuesday’s high. A violation of the low, removes the pattern. A short-term downtrend line is at 1498.82, a level that would need to be removed to turn this chart around. The weekly chart is more encouraging than is the daily chart. Here we see that all the indicators, save the Thomas DeMark Expert indicator, are issuing a uniform buy-signal. Our own indicator is slightly iffy, but nonetheless, there. This chart also shows that we have a downside liability to 1368.70, which was the March low. The monthly chart shows a rounding-top with a likely return to those March lows. All the indicators on the monthly chart, continue to issue a sell-signal.
The NASDAQ 100 does not have a “W” formation; but rather, a continuation of a downtrend. Friday, the NASDAQ 100 broke, leaving a lower low in its wake. All the indicators that we follow herein are issuing a sell-signal. The stochastic indicator is curling, but only going sideways. The 5-period exponential moving average is at 1954.38. The top of the Bollinger band is at 2090.19 and the lower edge is seen at 1908.65. The weekly chart has a doji-like candle. All the indicators that we follow herein, are issuing a continued sell-signal. The weekly chart shows that we have a liability to a minimum of 1873.50, with lower levels in the offing. The indicators on the monthly chart are issuing a sell-signal. The chart does not look great, but on a monthly basis, the retreat looks minimal.
And the week’s winner is: the Russell 2000; which, after a Monday dump to 744.70, never looked back, and rallied to a high of 807.20, in the Wednesday session. Friday, the Russell 2000 traded as high as 804.10 intraday; closing the session with a respectable plus 4.40 on the day! The indicators are uniformly issuing a buy-signal and, believe it or not, the Thomas DeMark Expert indicator is overbought. The other indicators are at neutral levels. Noteworthy also, is the fact that when the low on Monday was printed, the indicators were making higher lows. This is a classic divergence. The 5-period exponential moving average is at 785.06. The top of the Bollinger band is at 869.31 and the lower edge is seen at 741.43. The weekly chart has a bullish engulfing candle�..duh�that is bullish. The indicators are all issuing a buy-signal. The monthly chart isn’t as bullish as are the weekly and daily charts. The indicators, the RSI, the stochastic indicator and our own indicator, are curling to the upside, but have not issued a buy-signal. The Thomas DeMark Expert indicator is issuing a continued sell-signal. We also note here that the semiconductor index behaved very well, in the past few sessions. This could be helping the Russell 2000 index of small capitalizing stocks. The SOX index enjoyed a good week and closed positive in the Friday session.
The good news for inflation is that the Continuous Commodity index cracked below the neckline of an “M” formation. The stochastic indicator is curling to the upside and will issue a buy-signal, should this index rally in the Monday session. The Thomas DeMark Expert indicator is issuing a solid buy-signal. We have an 8-count on the bottom. The candle left on the chart has a long tail indicating that when the bears had control, they were unable to keep the pressure on and lost the battle to the bulls who, were able to return this index from the 413.00 to 415.83 by the close of the market. The 5-period exponential moving average is at 417.79. The top of the Bollinger band is at 425.64 and the lower edge is seen at 414.07. The weekly chart paints a different picture. Here we have a large red candle as a result of this past week’s trading. The indicators are uniformly issue a sell-signal. We have a red 13 on both the weekly and the monthly charts. All the indicators on the monthly chart are issuing a sell-signal.
October sugar is nearing the projections of 9.17. This would complete the pattern seen on this chart. The stochastic indicator, the RSI and our own indicator are all issuing a continued sell-signal. Both the RSI and stochastic indicator are in oversold territory. The Thomas DeMark Expert indicator is issuing a buy-signal from overbought levels. The 5-period exponential moving average is at 9.79. The top of the Bollinger band is at 10.49 and the lower edge is seen at 9.62. The weekly chart shows a rounding top. All the indicators that we follow herein are issuing a solid sell-signal, none near oversold or even neutral levels. This indicates to us that there is more room to the downside.
September cocoa looks as though it may have reached a level of support. Although the downside target was 17.86, Friday’s low of 18.02 may be enough of a decline to muster a rally. All the indicators that we follow are issuing a fresh buy-signal from oversold levels. The 5-period exponential moving average is at 18.51. The top of the Bollinger band is at 21.75 and the lower edge is seen at 17.68. The weekly chart continues to warn of lower levels. The indicators are uniformly continuing to issue a sell-signal. We are nearing some support at 17.89, which is the weekly uptrend line. The chart looks as though the downside is pretty close to completion.
We will be moving our coverage to December coffee next week. This past Friday was the expiration of the September options. We have completed our pattern which projected 121.00. This is a neckline number on the weekly chart and a level at which we will need to take a bit of a rest. All the indicators that we follow are overbought and all are issuing a sell-signal. The 5-period exponential moving average is at 118.77. The top of the Bollinger band is at 120.34 and the lower edge is seen at 109.76. We have signs of exhaustion on the daily chart. The weekly chart shows that we have clearly broken above the downtrend line. The indicators, although overbought, continue to issue a buy-signal. The large “W” formation tells us that we need to close above 121.15 for a run to 137.00 or so. Give coffee a chance to rest a while and then expect to see a run for the gold.
September Frozen Concentrated Orange Juice chart shows two doji-candles on the chart both on Thursday and on Friday. The market appears to be confused. The indicators are all at or near oversold levels yet they continue to issue a sell-signal. We are in a congestion area off 125 to 130. Should we break to the downside, 118.90 will become the downside target, to the upside; we can look for 142.45 to stop the rally. The 5-period exponential moving average is at 140.20. The top of the Bollinger band is at 145.94 and the lower edge is seen at 126.45. The weekly chart has a large red candle as a result of last week’s trading. The indicators are uniformly issuing a sell-signal. The weekly chart doesn’t look good.
December cotton retreated for most of last week. All the indicators continue to issue a sell-signal. The market looks as though it were a waterfall spilling its water to the river below it. The downtrend is too steep to continue so, expect to see some halt to this slide. The 5-period exponential moving average is at 62.66. The top of the Bollinger band is at 66.92 and the lower edge is seen at 61.21. The weekly candle is a really scary red one with signs of exhaustion. All the indicators are pointing lower issuing a continued sell-signal. The weekly chart indicates that we can expect to see support at 60.50. The downtrend line for the Monday session is at 63.56. Right now, we would avoid this market until the 60.50 area is tested. Then, we will reassess the damage.
Jeanette Schwarz Young, CFP, CMT
Box 1952 c/o New York Board of Trade
One North End Avenue
New York, New York 10282
www.optnqueen.com/
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