The Imploding Economy

We never thought we would enjoy CSPAN, but in this past week’s CompliancEX, the February 6th edition, there was a film clip of Representative Gary Ackerman from
Bayside N.Y. taking his shots at the SEC. If we could vote for this guy, we would. He minces no word and just attacked the officials of the House Financial Service Committee for their “see no evil, speak no evil, do no evil” attitude. We need more guys like Representative Ackerman who are not afraid to state the public outrage. Too bad he didn’t get onto Thain and his 1.25 million dollar office makeover. We would love to apply for Thain’s chauffeur’s job at $225,000 per year, with no risks, and full benefits.

Friday’s dismal jobs report sparked off the rally based on the thought that the elected officials in Washington will have to do something about this imploding economy. Unfortunately, the pork laden result will not help many, and cost plenty for those of us left paying taxes. This economy is awful, but do take the time to look back in history at the results of similar stimulus plans. When you look back to the 1930’s there were huge stimulus plans, most of which, were failures. Unfortunately, it was a war that got this country into action and stimulated the economy. Let us not hope for a war. We do not have the answers as to how to turn this economy around, but our thoughts are that we need to produce stuff that we need. Yes, we produce food, and that sector of the economy continues to fare well, yes the healthcare sectors are also doing well. We need to figure out where to spend our tax dollars so that jobs, good jobs, will be the result of that investment. That means we need to figure out what are needs are and, what our needs will be, say in five years, make plans to fill those needs and go for it. Our general thoughts are that in five years we are going to need much more in the way of health care and drugs. We will need no nonsense housing for the aging baby boomers. Developments where all the nasty little stuff is done for the boomer seniors, you know like lawn care, snow shoveling, even grocery delivery and stocking services. Little communities where working seniors can age gracefully, next thought is what do the current flock of babies born in the past five years need. We have had a huge influx of children. Well, some working moms and dads need to join up with some nonworking moms and dads and care for the children. We need to solve for the explosion of children needing care and education. Then there are all the little things that kids need like clothes, shoes and education. How about a weekend off for the working parents? A place that you can park you kid for the weekend so that you can have some alone time with your spouse.
At to the stock market, we are entitled to a bounce. We note that should the rally in the S&P 500 continue above 876 even, we could see a run for the 942.75 high seen on January 6th. The Pattern that we see is that of a “W” well, so long as we do not trade below 806.25. This pattern will take the market above 942.75 that is, if the pattern plays out as it should play out. The good news for the market is that it rallied on bad news. We do need some follow thru to convince us further.
Monday: The Geithner financial-rescue plan is unveiled. Tuesday: December wholesale inventories are released at 10:00, Federal Reserve Chairman Bernanke testifies on the “Hill,” Treasury Secretary Geithner testifies about the rescue plan on the “Hill.” New York Fed President Dudley speaks and
Israel holds elections. Wednesday: December International Trade is released at 8:30, more testimony on the “Hill” regarding TARP, Fed Governor Duke speaks, Chicago Fed President Evans speaks and the Federal budget is released at 2:00. Thursday: January retail sales are released at 8:30, and December business inventories are released at 10:00. Friday: Early close for the bond market ahead of the Presidents Day Holiday.
The US Dollar index retreated in the Friday session, but remained above the uptrend line of 85.54 for the Monday session. The downtrend line is at 86.65. Yes, you guessed it we will have a point of inflection on Friday at 86.25. A point of inflection will only occur so long as the US Dollar index remains above the uptrend line and below the downtrend line. In other words, we need to see this market consolidate further until Friday. Should this occur, you will have an explosive move, either up or down, in the Friday session. The 5-day moving average is at 85.998. The top of the Bollinger band is at 87.136 and the lower edge is seen at 84.08. All of the indicators that we follow are issuing a sell-signal. We are above the Ichimuko clouds for the daily and the weekly time-frame but below the clouds for the monthly time-frame. We are overbought and turning lower on the weekly and the monthly charts.
The S&P 500 is forming a “W” formation which is very bullish. This formation is on the daily chart of the S&P 500 which indicates that should the formation continue that we would see the S&P 500 trade up to 942.75 and then, perhaps up to 1008.50. We have been consolidating for a long time and if we can break out, we will enjoy a good rally. Does this indicate that the downturn is over? NO, it does not. Should the market decide to retreat and remove the 806 level, it will open the door to 797.50 and then the November lows. The 5-day moving average is at 838.15. The top of the Bollinger band is at 874.32 and the lower edge is seen at 805.00. All the indicators that we follow herein are issuing a continued buy-signal. Yes, they are getting to the overbought level but they still have plenty of room to the upside. The Market Profile chart illustrates the trading range best. You will see on that chart a long length of consolidation. We remain below the Ichimuko clouds on all time-frames.
The NASDAQ 100 is completing a “W” formation. The target is 1287.00 or higher. The 5-day moving average is at 1224.15. The top of the Bollinger band is at 1251.88 and the lower edge is seen at 1138.84. All the indicators that we follow herein continue to issue a buy-signal albeit at overbought levels. We managed to trade above the Ichimuko clouds on the daily time-frame but we remain below the clouds on the weekly and monthly time-frame. The indicators on the weekly and monthly charts are positive and issuing a buy-signal from oversold levels. The biggest problem we see with the chart is that we are above the upper Bollinger band and we are also grossly overbought on the daily chart. This lets us know that we can’t stay where we are for very long. We will either consolidate at these levels or retreat within a day or so.
The Russell 2000 enjoyed a robust rally in the Friday session. This index is also showing a possible “W” pattern formation. The buy trigger is seen at 474.20. Again the same rules apply here; we can not close below 441.10 or the upside deal is off. The 5-day moving average is at 453.24. The top of the Bollinger band is at 475.86 and the lower edge is seen at 432.28. All the indicators that we follow herein are issuing a continued buy-signal with plenty of room to the upside. We are just below the Ichimuko clouds and looks as though we will break out to the upside within a day or so. Our initial upside target, should the pattern play out is 518.60. The Market Profile chart indicates that should this market trade above 504.30 there will be little resistance up to 565.80, then above that we could whoosh to the upside. We caution you that there is a lot that can happen between here and there.
Crude oil continues to trade quietly in its trading range. At the moment we are testing support and could see a push to the downside. Should we break 38.00 in the March crude, the door will be open to 25. The 5-day moving average is at 40.50. The top of the Bollinger band is at 46.14 and the lower edge is seen at38.77. We are trading below the Ichimuko clouds on the daily, the weekly and the monthly time-frames. We are oversold as measured by all the indicators that we follow, not only for the daily chart but all time-frames that we discuss.
April gold retreated in the Friday session leaving a candle reflecting the inside day. We need to close above 923.51, which is the downtrend line for the Monday session. Should we continue to consolidate here, we will have a point of inflection by mid-Tuesday or Wednesday of this week. We see the downtrend and uptrend lines converging at 922.00 at that time. From there, we should have a violent move, either up or down. All the indicators that we follow are issuing a sell-signal. The 5-day moving average is at 906.10. The top of the Bollinger band is at 950.58 and the lower edge is seen at 797.05. We are above the Ichimuko clouds on the daily and the monthly time-frames and in the clouds for the weekly time-frame. Although we like gold, we believe that it can and probably will retreat to the 834 and then 804 levels. We will watch this market to find an area in which to enter it.
Jeanette Schwarz Young CFP, CMT
Box 1952
One North End Avenue
New York, New York 10282