What can we say, the market it totally neurotic! What we are seeing is fear and insecurity. Further, we will feel and hear the humming of the monetary printing presses opening the flood of money into the market. We are not the sole printers of money; it seems to be a global affair. So, if everybody opens the presses and prints more money, there will be more money in circulation. Eventually, the increased flood of money hitting the globe will just inflate the cost of things, not tomorrow, or next week but eventually it will happen.
We all are feeling that the Grinch is ruling Christmas. This will be a slim Holiday season with unemployment demonstrating a growth pattern that is a matter of extreme concern. Perhaps, people are pulling out the stops and just buying for Christmas with the feeling that their will be entering bankruptcy soon anyway so, why not stick the retailers with the bill. It is possible that much of the debt being added to credit cards is debt that will never be paid off, in that way the retailers and the credit card issuers will suffer along with the depressed shopper. Very large painful events lead people to throw caution to the wind and have an attitude of “it doesn’t matter anyway.” We could be at such desperate times today.
As to the manic markets! Volatility is exercising its strength on the market. We can be down 200 Dow points and up 200 Dow points all in an hour’s time. Things are out of control and totally nuts. Reminds us of fish caught in a net swimming to one side and then the other, eventually to be caught by the fisherman. The market will bottom when it bottoms. On the way to the bottom there are no signs like bottom 2 miles ahead. There will be some signs of a bottom such as volume drying up on the downside, higher lows and higher highs and volume coming in on the upside. Will that be a true bottom, maybe yes and maybe no, we certainly won’t know until we are there and we will know as a matter of retrospect rather than foresight.
If you like a stock, buy it. Sell the calls buy the puts and sit back and relax. Look at every trade as a risk-reward situation. If the stock is trading at 14, the most you will loose is 14. If you can live with that, buy the stock, if you can’t live with that, well stand down from the trade. If you are buying a stock at 14 to sell at 15, the risk-reward is not in your corner. Think before you trade!
Monday: Fed Governor Kohn speaks and Fed Governor Kroszner speaks. Tuesday: October pending home sales index are released at 10:00 and the Bank of Canada is expected to cut rates. Wednesday: Wholesale trade for October is released at 10:00 and the Federal Budget is released at 2:00. Thursday: Import/Export prices for November along with international trade for October are released at 8:30. Friday: October retail sales are released at 8:30, November PPI is released at 8:30, December Michigan Sentiment is released at 9:55 and October business inventories are released at 10:00.
The US Dollar index had an inside day in the Friday session. We remain above the uptrend line on the daily chart. That uptrend line is at 86.78. All of the indicators that we follow herein continue to issue a buy-signal. The 5-day moving average is at 86.924. The top of the Bollinger band is at 88.639 and the lower edge is seen at 85.271. The downtrend line for the Monday session is at 87.55. We will come to a point of inflection by Wednesday of this week when, we should see a violent resolution to the pennant. The Market Profile chart tells us that should we trade at the 87.71 to 88.20 area that we will become unstable and move quickly out of that area, either to the up or the down side. The market is very overbought on the weekly chart, however; there trend continues to the upside. We are above the Ichimuko clouds for the daily and the weekly time-frame and we are in the clouds for the monthly time-frame. All of what we are seeing makes us cautious on the US Dollar index.
The S&P 500 began the Friday session with a giant decline after the “Jobs Report” at 8:30 in the morning but by 1:00 EST it moved into rally mode and took off to the upside trading as high as 879.50 before closing the session at 872.50. Both our own indicator and the stochastic indicator are grossly overbought, but continue to point higher. The RSI is going sideways at neutral levels and the Thomas DeMark Expert indicator is pointing lower. The 5-day moving average is at 850.65. The top of the Bollinger band is at 945.43 and the lower edge is seen at 775.42. As we trade higher we find lots of resistance overhead. This week we roll on Wednesday into the March futures. These quarterly rolls usually have an upside bias as the shorts cover and move the trade out to the next quarter. Thursday, March futures will be the quoted month. The uptrend line on the weekly chart is at 842.83. There has been some speculation that the S&P 500 could be making a reverse head and shoulders bottom. Frankly, there is too much uncertainty to come to that conclusion and the pattern needs to play out. It is too early to come to that conclusion.
Clearly, the NASDAQ 100 had an outside day in the Friday session closing above the downtrend line on the daily chart. Both the stochastic indicator and our own indicator continue to issue a buy-signal but at very overbought levels. The RSI continues to bend to the upside. The Thomas DeMark Expert indicator is issuing a sell-signal at oversold levels. The 5-day moving average is at 1139.30. The top of the Bollinger band is at 1277.98 and the lower edge is seen at 1048.75. We are below the Ichimuko clouds for the daily, weekly and the monthly time-frames. The weekly chart looks as though either we are forming a bear flag or just pausing at lower levels hoping to find some support. If we had to guess, we would be cautiously optimistic that we will have a short-term rally into the end of the year. Naturally, this looks more like a coin-toss than good analysis and sometimes we have to wait to see which way the coin flips. So long as we remain above 1072.25 and 1017.75 we will be in position to rally further. Should we break below the already mentioned number…..look out below!
The Russell 2000 did not have an outside day in the Friday session. We were surprised to note that this index did not remove the Thursday highs and did exceed the Thursday lows. This index is above the uptrend line which is at 448.61 for the Monday session. The 5-day moving average is at 442.10. The top of the Bollinger band is at 510.77 and the lower edge is seen at 390.03. We are below the Ichimuko clouds on the daily and weekly time-frame. The data is incomplete for the monthly chart. There is good support for the Russell 2000 at 413.10 but below that level….watch out below! Overhead we have lots of resistance until we get past 581.40 where we should see this index lift higher.
Crude oil closed the session at a very unstable area. We note that should crude oil trade down to below 40.50 we will open the door to much lower levels. On the other hand should crude oil trade above 44.40 we could see a lift back to the 46.20 area. The 5-day moving average is at 45.50. The top of the Bollinger band is at 64.62 and the lower edge is seen at 41.88. Obviously, we are below that level, which means that we can’t stay there very long. The indicators are oversold but are not bending to the upside. We are below the Ichimuko clouds for the daily, weekly and the monthly time-frames. The chart looks like a well defined downtrend trade with nothing special in the chart. We simply are going lower each day. When we do see a rally it goes sideways then, resumes its downward trek.
Gold is trending lower. The indicators are not oversold and continue to point lower. The 5-day moving average is at 769.66. The top of the Bollinger band is at 835.89 and the lower edge is seen at 695.82. We are below the Ichimuko clouds on the daily and weekly charts and are above the clouds for the monthly time-frame. Both the weekly and the daily chart indicators continue to issue a sell-signal. If long, you don’t want to see the market trade below 744.00. If short, you will have resistance all the up to 785.70. Should the market trade above that level, expect to see quick moves to the upside beginning at 793.80 carrying the trade to 826 or so.
Jeanette Schwarz Young CFP, CMT
One North End Avenue
New York, New York 10282
December 7, 2008