Who is going to buy our debt? Why would another country buy our debt with money other than that from the trade imbalance the US has with their country? That means when we buy goods from another country, we pay for those goods and services in US Dollars. The recipient of those dollars can either spend the US dollars or sell them. When the foreign countries spend US dollars it usually is for US Treasuries or US equities/ bonds. As the economy slows down, we are importing less thus, the amount of money invested in the US Treasuries of US funds is diminishing. If we flood the market with currency, in an effort to bail the economy out of its rutt, that will bring down the buying power of the dollar when converted to a foreign currency, and thus cause the foreign governments concern. These are important thoughts that we Americans should think about. Bad enough we are hocking our children’s futures but what happens if the rest of the globe decides not to fund our debt. We are aware that we can just print more money, but doesn’t that have its problems as well.
Anybody looking for a quick fix out of this problem is going to be sorely disappointed. It is like an obese eater wondering why the weight can’t come off quickly. The short and long answer is that it took years of excess to gain that weight and it will take years of lean eating to get rid of the excess. Once we have understood that point, we will be well on our way to accomplishing our goal. The danger now is the calls for protectionism, not only in the USA but also in England, France, Latvia etc. The global recession has cut jobs all over and those seeking jobs are angry.
The next great bubble is beginning to emerge and it can be found in the FOREX markets where you can achieve 200 to 1 leverage. Okay so you can still get 10 to one leverage in the bond market but it is dwarfed by the FOREX market. Remember, you heard it here first! A collapse in that market would really sent the globe reeling so, try to shore up your funds and make sure that you are not part of that leverage. For the record, we have been early on our warning calls, so please know that although we believe that there will be a problem eventually, it is not now.
Rather than complain about the TARP plan we would humbly suggest that if that money were given to those who pay taxes with the condition that the money is to be used to pay down debt, the public would get back some buying power. That money could go a long way to helping those in trouble, those on the edge of trouble and those who have always paid into the system. To give the money to those who have gotten us into this mess, is much like pouring gasoline on a fire. Where will the next $600 toilet seat be purchased or how about the $800 hammer? The government needs to learn that it is not only the “toxic” securities that are the problem but the leverage that was employed on those securities that got us into this mess.
Tuesday: Restructuring deadline for GM and Chrysler, February housing market index is released at 1:00, 4th quarter e-commerce sales are released at 10:00, international capital flows are reported at 9:00, and St. Louis Fed President Bullard speaks. Wednesday: January import prices are released at 8:30, January housing starts are released at 8:30, January industrial production and capacity utilization is released at 9:15, minutes of the December 27-28 FOMC meeting are released at 2:00, and Federal Reserve Chairman Bernanke speaks. Thursday: January PPI is released at 8:30, January leading indicator index is released at 10:00, and February Philadelphia Survey of Business outlook is released at 10:00. Friday: January CPI is released at 8:30.
The US Dollar Index broke to the upside in the Thursday session opening the door to 87.405. When looking at the Market Profile chart one sees that any value above 89.01 will any short left in this market, and force that short to cover. This activity should cause a run to the upside. However; on the downside a trade below 82.80 will cause the longs to become concerned and probably sell their positions opening the door to 77.97. So long as this market remains between these levels, we will remain stuck in a range. The 5 day moving average is at 86.124. The top of the Bollinger band is at 87.194 and the lower edge is seen at 84.588. The stochastic indicator, our own indicator and the RSI have all turned lower and are issuing a fresh sell-signal. The Thomas DeMark Expert indicator is going sideways near overbought levels. The uptrend line for the Monday session is at 86.221 and for the Tuesday session is at 86.336. We are above the Ichimuko clouds on the daily and weekly time-frames and below the clouds for the monthly time-frame. The monthly chart looks as though it is trying to move to the upside. The weekly chart is also constructive. We are overbought on the weekly chart but there looks like there is more room to the upside.
The S&P 500 is really stuck in a trading range bounded by 873 and 942.75, on the upside and 797.50 on the downside. So long as we stay between these borders, we know where we are going. Remember, the longer we consolidate, or stay in a trading range, the more violent the breakout to the upside, or the downside will be. Your first clue will be 873 on the upside and 804 on the downside. The 5-day moving average is at 835.80. The top of the Bollinger band is at 868.01 and the lower edge is seen at 804.05. All the indicators that we follow herein are pointing lower with room to the downside. We are below the Ichimuko clouds on the daily, weekly and monthly time-frames. The Market Profile chart really illustrates how stuck the market is. On the other hand, if this market can close above 942.75, it will take a huge run to the upside. On the other side of the track a break of the November lows, will open the door to a whooshing sound as the market looks for support.
The NASDAQ 100 remains in its trading range of 1287.00 to 1132. All the indicators that we follow herein continue to issue a sell-signal. The 5-day moving average is at 1241.45. The top of the Bollinger band is at 1274.88 and the lower edge is seen at 1140.52. We are above the Ichimuko clouds on the daily time-frame but below the clouds on the weekly and the monthly time-frame. The good news is that this market is trying to go higher with higher lows and slightly higher highs, for the past three days. The bad news is that we seem to be stuck.
The Russell 2000 closed below the uptrend line in the Friday session. We did make some progress to the upside in the Friday session. The Friday low was higher than the Thursday low, which is a good thing. The 5-day moving average is at 451.48. The top of the Bollinger band is at 471.75 and the lower edge is seen at 431.79. So long as we remain above 425.60, we will not test the November lows, however; if we close below that level, it will open the door to the November lows. On the upside, if we can close above 473.10, the early 500’s won’t be far off into the future. The Russell 2000 remains below the Ichimuko clouds on the daily time-frame. We can’t stay here forever so expect to see an eventual resolution to this trading range. Follow the trend and don’t fight the tape.
March crude oil made another low in the Thursday session. The market rebounded in the Friday session but has now opened the door to $25 or so. The 5-day moving average is at 36.90. The top of the Bollinger band is at 46.58 and the lower edge is seen at 35.09. We are below the Ichimuko clouds for the daily, weekly and the monthly time-frames. All the indicators that we follow herein are issuing a buy-signal from deeply oversold levels. We wouldn’t be surprised to see this market bounce to 41 and then 44 in the short-term. This market continues to drift lower and needs to close above 40.56 to encourage some shorts to cover.
April gold broke out to the upside opening the door to the highs. Unfortunately, the rally will have to wait until some of the excess bullishness wears itself out. All the indicators that we follow herein are issuing a solid fresh sell-signal. The uptrend line is at 909.46. The 5-day moving average is at 928.58. The top of the Bollinger band is at 961.29 and the lower edge is seen at 834.44. We are above the Ichimuko clouds on the daily, weekly and monthly time frames. We would love to own more but will not chase this market.
Jeanette Schwarz Young CFP, CMT
One North End Avenue
New York, New York 10282