The good news on the stock and bond market is; that the talking air-heads have stopped talking about finding a bottom in the market. This is the first symptom of an impending bounce in the wind. This bounce can take the market on a wild ride to the upside, but a ride that may not pan out for the bulls. At this time, we remain deeply mired in a downtrend.
Another huge problem for this market is that there is virtually and actually, no money available, from one bank to another….nothing, in other words liquidity has dried up. Desks are at a stand-still and unable to process anything. This is, in part is what is causing the huge implosions in the market. Liquidity is being found where ever there is something to be sold and, at this time it is stocks and commodities that are being sold. Perhaps if liquidity returns to this market, that pressure will be removed and things can become less erratic and more logical. Then there are the margin clerks selling out accounts to ensure that the margin calls are met. A first sign of relief will be if the market can rally into the close.
Here is a piece of good news for the market; we are beginning to see divergences in some indicators. Further, we are grossly oversold and could bounce from these levels. That said, this is not a declaration that the bear market is over, rather, it is a declaration that we are in a position from which we will see a very nice rally. Remember also,people will be watching earnings this week. More important than the earnings are the forecasts that generally accompany the earnings report. This will not be a pretty sight, but perhaps will give us some insight as to what these top companies are seeing from their vantage points, away from the manic market. It certainly can’t be that good, as Main Street and Wall Street are both feeling the pains of the economic slowdown. The market hates uncertainty and so long as the slowdown can be quantified, it will be possible to plan and trade around that information.
Monday: Fed President Fisher speaks and Chicago Fed President Evans speaks. Tuesday: August consumer credit is released at 3:00, Fed Chairman Bernanke speaks, Alcoa begins the 3rd quarter earnings parade, and the Fed releases the minutes of its September meeting at 2:00. Wednesday: Philadelphia Fed President Plosser speaks and the ban on short-sales ends…yikes! Thursday: August wholesale inventories are released at 10:00, Minneapolis Fed President Stern speaks, chain-store sales for September are released, and the Bank of England releases its interest rate decision. Friday: August international trade and import prices are released at 8:30, General Electric reports earnings and, the markets close early in advance of the Columbus Day Holiday.
The US Dollar index has been in rally mode for nine of the past ten trading session. Friday’s session was the first in 8 that this index closed lower than it opened leaving a small bodies red candle on the chart. The indicators that we follow are overbought and bending to the downside. The 5-day moving average is at 79.529. The top of the Bollinger band is at 81.185 and the lower edge is seen at 76.0485. During the Friday session we did trade above the upper Bollinger band and then retreated from that level. We are above the Ichimuko clouds for the daily and the weekly time-frames but below the clouds for the monthly time-frame. On the upside, should this market trade above
81.00 it will move quickly higher. On the downside, should this market trade below 76.20 we will see a quick move to 74.10. We believe that the US Dollar Index will retreat in the coming days. We are also concerned about our trading partner’s reaction to the
accommodations given to the markets. Will they continue to buy our treasuries or will they abandon their dollars for gold or some other currency.
The Euro looks as though it could go lower, although it is grossly oversold. It looks as though we could trade as low as 134 without much trouble. All the indicators that we follow are oversold and all continue to point lower. We are below the Ichimuko clouds for the daily time-frame, below the clouds for the weekly time-frame and above the clouds for the monthly time frame. The 5-period moving average is at 140.43. The top of the Bollinger band is at 148.14 and the lower edge is seen at 137.239. The Euro is oversold on the daily, weekly and the monthly time-frame. No buy signals to be found. This week the European Central Bank will issue an interest rate decision along with a statement. We should see some resolution to the direction of trade at that time.
The S&P 500 is back to levels not seen since 2004. The market is grossly oversold and we see divergences in some of the indicators. The Thomas DeMark Expert indicator is going sideways at a higher low than was seen four days ago. Our own indicator is at higher levels, still oversold but higher lows than seen several days ago. The Stochastic indicator is not diverging and is making a lower low with nary a bend. The 5-day moving average is at 1137.80. The top of the Bollinger band is at 1289.93 and the lower edge is seen at 1111.73.
Our first objective is to remove Friday’s high of 1161.00. If that can be done, then we will see resistance at 1174, 1180, 1192 and 1203. On the downside, there is 1084, 1036, 1021, 9640 and the March 2003 low of 9082.5. The low of the dot-nothing bubble was 8860 seen in October of 2002. We are below the Ichimuko clouds for all time-frames. We are oversold for all time-frames. We are getting to the point of blood in the streets and total despair. There is chatter on the IM’s of doom and gloom of levels that won’t hold and of total depression. We must be getting close to a real tradable bounce…the smell of blood is in the air. Another interesting point is the volume on the e-mini contract dropped off a cliff for the weekly chart although the daily chart had average volume.
The NASDAQ 100 took another hit in the Friday session. There are real divergences in the daily chart of the NASDAQ 100. Our own indicator is giving a fresh buy-signal, the RSI is going sideways and the Thomas DeMark Expert indicator is actually giving a buy-signal. The 5-day moving average is at 1536.65. The top of the Bollinger band is at 1853.67 and the lower edge is seen at 1495.25. We remain below the Ichimuko clouds on the daily, weekly and monthly charts. We are oversold for all time-frames. We need to see a close above 1590.50 for a reversal of trend, on a short-term basis and a close above 1722.21 for a longer view of the trend. We closed below the lower edge of the Bollinger band and it is not reasonable to expect us to stay there. The other possibility is that the volatility continues to expand and the bands move wider apart. We do expect to see this market move back inside these bands. The weekly chart shows us that this past week was one of the worst weeks for the NASDAQ 100 in a very long time. The week’s range was incredible from a high of 1688 to a low of 1474.75, wow!
The Russell 2000 had been the best of the financials that is until this past week when, the sell-off was concentrated in this index. This market dropped from a high of 708 to a low of 614.10 in five trading days….wow! Yes, we are oversold, only the Thomas DeMark Expert indicator is diverging issuing a buy-signal while the other indicators continue to point lower, albeit at lower levels. The 5-day moving average is at 652.04. The top of the Bollinger band is at 760.59 and the lower edge is seen at 634.92, a level we closed below. Naturally, we will not be able to stay at that level unless, the volatility blows out further. If you want to check the volatility of the Russell 2000, it has its own volatility which is now at an unbelievable 49.93. We are below the Ichimuko clouds for the daily chart. We should find support at the 600 area.
The continuous commodity index looks as lousy as the financial indices, well almost as bad. The stochastic indicator, our own indicator and the Thomas DeMark Expert indicator are all issuing a buy-signal on the daily time-frame. The 5-day moving average is at 445.01. The top of the Bollinger band is at 499.15 and the lower edge is seen at 434.84. We see another index that has closed below the lower Bollinger band, and we know that this will not be sustained for very long. We find ourselves below the Ichimuko clouds for the daily and weekly time-frames but above the clouds for the monthly time frame. It does look as though we could return to the 405 area, which should offer some support for this index. We are oversold on all of the time-frames. We expect to see a bounce in this index in the Monday session or at the latest in the Tuesday session. This bounce does not turn the chart around but rather is a “dead-cat-bounce.” We remain in a downtrend for all time-frames.
Crude oil chart shows a doji candle as a result of the Friday session. As you know, a doji candle reveals transition and tells us that neither the bulls nor the bears won during the trading session. Many times we see a doji-candle when a change of direction is in the wind. The indicators are telling us the same story that we could change directions, from down to up. The 5-period moving average is at 96.67. The top of the Bollinger band is at 111.34 and the lower edge is seen at 90.72. Naturally, we are below the Ichimuko clouds for the daily chart, in the clouds for the weekly and above the clouds for the monthly time-frame. We are in an area where we should find some price support.
Gold closed below the Ichimuko clouds on the daily chart and seems to be continuing its roll to the downside. We are getting oversold enough to see some bounce. The 5-day moving average is at 868.00. The top of the Bollinger band is at 945.36 and the lower edge is seen at 736.08. We continue to believe that should we close below 750, we will quickly whoosh lower, possibly as low as 682.50. Below the 682.50 area we have a liability to 650. On the upside, we could see a run above 890 which would open the door to 940.
Jeanette Schwarz Young, CFP, CMT
One North End Avenue
New York, New York 10282