It is no wonder that the banks are making money these days. They have a 6 or more point spread between where they are borrowing and where they are lending. If we look at the credit card spread; it balloons out to an average of 12 basis points. Not a bad return. As to the toxic assets on their balance sheets, some will turn out to be non-toxic and some will be toxic. If you have some free cash available and would like to gamble, you might just have good odds on the returns of 2 out of 10 toxic assets. In other words, should you buy a portfolio of say 10 toxic assets, for cents on the dollar, odds favor that 2 out of the 10 might just be good. So, if you paid 20 cents on the dollar for 10, that is 200 cents and two turned out okay, you would have your money back for the total cost, which is considering that 8 would be worth zero. Now say we are too gloomy and maybe 3 survive, you will have a winner. Again, we said gamble, this is not for investing but simply a shot at a possible gain. If you can afford to lose the entire amount, and are willing to take that chance, this could be an interesting gamble.
This week is a quadruple witch and the end of the first quarter of 2009. It really should be interesting. Just in case you have forgotten, we are beginning tax season. Yes, April 15, just a month away….oh joy! Who thinks that the IRS will give us some of the treasury funds used to bail out indigent home owners, banks or insurance companies? Here in this country we are penalized for being responsible, earning money and paying our bills. We produce income we are taxed we produce no income and take on obligations that we clearly couldn’t afford; we are let off the hook. Okay so we have a black mark on our credit record, big deal. We want bonuses for paying our bills on time, for paying our real-estate taxes on time, for paying our mortgages in a timely fashion. What are we teaching our children? Don’t pay your bills and you will be rewarded. Work for a firm, lose money for them and you will get a bonus; unless you are one of the worker bees, they just get fired. AIG is a prime example of mismanagement getting rewarded for bad behavior. Their argument, of course, is that we have to pay for talent. Our answer is, if that is talent, fire them.
Monday: Industrial production and capacity utilization for February is released at 9:15 and homebuilders issue the March housing market index. Tuesday: February housing starts are released at 8:30, and February PPI is released at 8:30. Wednesday: February CPI is released at 8:30, FOMC ends its 2-day meeting at 2:15 with a statement and its interest rate decision, and OPEC meets in Vienna. Thursday: February leading indicators are released at 10:00 and March Philadelphia Federal Reserve Survey at 10:00.
The US Dollar index gave up more than 62% of the gains it had seen from the February 23rd rally. We did see the US Dollar stop at the horizontal line, 87.67. We have a doji-like candle on the chart as a result of the Friday session. The door is open to the February low of 86.75. We have broken below the uptrend line dating back to January 8th of 2009. The downtrend line is at 89.05 for the Monday session. All the indicators that we follow are pointing lower. Our own indicator is bending to the upside but has not issued a buy-signal. The 5-day moving average is at 88.689. The top of the Bollinger band is at 90.144 and the lower edge is seen at 87.257. The US Dollar index is above the Ichimuko clouds for the daily and weekly time-frames and is in the clouds for the monthly time-frame.
The S&P 500 rallied during the roll-over period and followed thru in the Friday session. We are entering an options expiration week which should bring additional volatility to the market. We have nicely broken above the downtrend line and have opened the door to779.50 and then 796-797. We are getting overbought but continue to point to the upside. Both our own indicator and the Thomas DeMark Expert indicator are curling over to the downside; neither indicator is issuing a sell-signal at this time. The 5-day moving average is at 723.10. The top of the Bollinger band is at 816.43 and the lower edge is seen at 662.39. Should this market break below 739.00 it will find support at 727, 712 and 708. We continue to trade below the Ichimuko clouds for the daily, weekly and monthly time-frames. The weekly charts look as though we could go higher. If we close above 758.25, we will open the door to 797-800. On the other hand, don’t be surprise to see some backing and filling. The clue to our future will be found in this backing and filling behavior. Should the retreat appear and remain shallow, the bulls will have more fun on the upside. We really don’t want to see this market close below 708+/-, and 693.77, which is the uptrend line for the Monday session.
The NASDAQ 100 did not disappoint anyone with its performance, this past week. We have taken back more than 50% of the loss seen in the February-March decline. We continue to see the stochastic indicator and the RSI pointing to higher levels, although; the stochastic indicator is getting overbought. Our own indicator is curling over to the downside but has not issued a sell-signal. The Thomas DeMark Expert indicator is going flat at overbought levels. We did have a 9-count in the Monday session. The 5-day moving average is at 1122.40. The top of the Bollinger band is at 1219.38 and the lower edge is seen at 1045.16. If we can continue higher, we will see resistance at 1192.02. We continue to see this market trading below the Ichimuko clouds for the daily, weekly and the monthly time-frames. The weekly chart looks as though we are tying to form a base. To turn this chart positive we need to see a close above 1286.00. The NASDAQ 100 did not remove the November low and is the only equity index that we follow that did not.
The Russell 2000 ran to the upside this past week, rallying for three of the five trading days. This index is not as overbought as the others are. All the indicators that we follow are pointing to higher levels. Our own indicator is curling over but that is the only one that is. The 5-day moving average is at 371.88. The top of the Bollinger band is at 440.52 and the lower edge is seen at 335.13. We remain below the Ichimuko clouds for the daily and weekly time-frames. We will have resistance at 394.50 and at 406.40. We have a good uptrend line at 367.85 and a longer term downtrend line at 420.73. We would not be surprised to see this market retreat towards the uptrend line removing some of the excesses seen this past week. The point and figure chart shows that we are in an area where we will either explode to the upside or retreat.
For crude oil to venture higher, it needs to close above 50.47. All the indicators that we follow herein are turning lower and issuing a sell-signal. The 5-period moving average is at 45.678. The top of the Bollinger band is at 49.51 and the lower edge is seen at 34.119. The uptrend line is at 43.4375. So long as we stay above that level, on a closing basis, we will continue higher. Remember, that OPEC is meeting this week, another reason to be cautious. We are above the Ichimuko clouds, on a daily time-frame but remain below the clouds for the weekly and monthly time-frames. We would expect to see crude oil head higher as the market begins to feel better.
Gold has managed to close above the short-term downtrend line and is poised to challenge the 945.50 ledge ahead. The uptrend line is at 913.69. All the indicators that we follow herein are pointing to higher levels with plenty of room to the upside. The 5-day moving average is at 915.74. The top of the Bollinger band is at 1001.29 and the lower edge is seen at 887.514. We are above the Ichimuko clouds for the daily, weekly and monthly time-frames. The monthly chart of gold really looks scary with a neckline at the 681 area. The indicators on the monthly chart are all issuing a sell-signal. The daily chart shows that 891.80 is an important area for the bulls to defend if, this chart is to continue higher. The point and figure chart shows that we are consolidating and will very soon, break to one direction or the other.
Jeanette Schwarz Young CFP, CMT
One North End Avenue
New York, New York 10282