We certainly live in interesting times. We, here in the USA, are well known for closing the barn door after all the chickens have gone. We are watching our elected officials, who know little more than their names and how to raise money, attempt to regulate the financial industry. The elected officials focus, at the moment, is trying to understand financial language, which they seem to have a lot of difficulty with, and understand what we do and how we do it. Sadly, there is no Rosetta Stone software or Berlitz Language course for investments. It takes years to understand these convoluted subjects. Yet, these fine fellows and gals are attempting to regulate that which they do not understand. The result will be regulations that force investments to flee our shores much as the some of the IPO industry has done.
These new regulations won’t hurt the big guys, people like Madoff, but rather will be the death of many of the smaller investment vehicles. Why? That is simple, the mountain of paper work that will accompany the proposed new regulations will make compliance so expensive that the smaller firms won’t be able to afford to hire the paper pushers to fill out the forms and keep them compliant. On the investment side of that horrible outcome, we have a new cottage industry for some unemployed compliance people, that is; to keep firms current with the mountain of paperwork that will be required, should the regulators prevail with their recommendations. By the way, none of the proposed regulations would have stopped Madoff or any other thief any more than bomb sniffing dogs would have helped prevent the horror of 9/11.
If we had to give a prognosis for the health of this patient after the new proposed regulations we would call the outcome guarded. With the new health panel, we might just throw in the towel and opt to not treat, fold our financial tents and move to another country that is more open to freedoms and entrepreneurial adventures. The USA is not the place to find your millions, but might be a good place to spend it. Our properties and industries will become cheaper as the value of our currency depreciates. Naturally we would advise those long US Dollars to rethink treasuries and perhaps think corporations, land, and industries.
As we head into the Christmas buying season we are concerned that this season will be a huge disappointment to the retailers. The comps will be good because we are comparing this season to last year’s season which, as you remember, was awful. True, the retailers have lighted up on their inventories to a great extent, hoping to avoid price slashing sales just to get rid of inventory. 47% of retailers have already started slashing prices on their merchandise. The hope is that this lean inventory will spark orders which will bring our factories and people back to work. The problem with that thought process is; that because credit card companies today are charging much higher rates than they did last year, it is likely that the consumer will not spend much at all. Remember, last year at this time credit card rates were four to five percentage points lower than they are today. Are you really expecting the consumer to buy Granny a scarf on funds being charged 25% interest? Maybe the consumer will find other ways to make or find gifts for loved ones. The consumer is strapped and will hunker down further, rather than lose their homes and their ability to care for their families.
Monday: September ISM is released at 10:00. Wednesday: Alcoa kicks off earning season and we get a look at August consumer credit at 3:00. Thursday: August wholesale inventories, September chain store sales, the European Central Bank issues an interest rate decision, the Bank of England releases their interest rate decision, Fed Chairman Bernanke speaks, and Kansas City Fed Chief Hoenig speaks. Friday: August international trade deficit is released at 8:30, the bond market closes early in advance of the Columbus Day Holiday and Atlanta Fed President Lockhart speaks.
The US Dollar index had more up days than down days last week. The index seems to be coiling and is trading between 77.72 and 76.865. The downtrend line for the Monday session will be at 77.651 and the uptrend line will be at 77.025. A violation of either side will tell you to which side the coil will break. Frankly be believe the break will be to the downside. The 5-day moving average is at 76.988. The top of the Bollinger band is at 77.781 and the lower edge is seen at 76.865. We are below the Ichimoko clouds for all time-frames. The Thomas DeMark Expert indicator, our own indicator and the RSI have all issued a sell-signal. The stochastic indicator is curling over and will likely issue a sell-signal in the Monday session. The weekly chart shows that we are grossly oversold and we are actually getting some mild buy-signals for that time-frame. The danger is that we break the Thursday low of 76.045 with velocity. Just a poke below the number won’t work; we need to see a waterfall effect. That type of action will open the door to 74.75, 73.365, 72.75 and 71.555. The Market Profile chart is scary below 76.05, real scary.
The S&P 500 has retreated for seven of the eight prior trading days. Friday’s action continued the steep declines seen in the Thursday session. We have gotten oversold, however; we are not getting any buy-signals as yet. We expect to see buy-signals from all the indicators within a day or two. We are above the Ichimoko clouds for the daily time-frame, in the clouds for the weekly time-frame and below the clouds for the monthly time-frame. The 5-day moving average is at 1047.50. The top of the Bollinger band is at 1079.06 and the lower edge is seen at 1016.52. The low of the Friday session pierced that lower Bollinger band and was repelled by it. Should the market continue its retreat, we expect to see support at 1008 and 1007; these were previous resistance levels on this index ascent. There is further support at 991.25 and at 976.75. Resistance will be found at 1027.50 and 1035.75. The uptrend line for the Monday session is at 1023.40 and the downtrend line is at 1055.00. In other words, we need to close above 1055.00 to turn this slide around. On the other hand, should we close below 1023.40 we will likely revisit the 1007-1008 levels. We believe should we test these lower levels on a continued retreat that we will bounce from those levels with vigor. This is a very short-term view of the market.
The chart of the NASDAQ 100 isn’t as awful looking as that of the S&P 500. That said, it does seem to tell us that we could go somewhat lower, to the 1620-1623 level. Yes the market is oversold however; the RSI and Thomas DeMark Expert indicator continue to point lower. Only the stochastic indicator and our own indicator are curling to the upside and looks as though, within a day or so, will issue a buy-signal. Naturally, these signals are very short-term signals. The 5-day moving average is at 1704.972. The top of the Bollinger band is at 1752.46 and the lower edge is seen at 1644.73. We are above the Ichimoko clouds for the daily and the weekly time-frames. We are in the clouds for the monthly time-frame. We do have sell-signals on the weekly and the monthly charts. The weekly close was right above the uptrend line at 1656.50. Naturally, it is important to stay above that level.
The Russell 2000 declined for four of the five trading days last week. This index actually has a buy-signal issued from the Thomas DeMark Expert indicator. The RSI continues to point lower and both the stochastic indicator and our own indicator are curling to the upside but a day or so away from a buy-signal. The 5-day moving average is at 601.35. The top of the Bollinger band is at 628.52 and the lower edge is seen at 571.12. We are above the Ichimoko clouds for the daily and weekly time-frames. The indicators on the weekly chart are uniformly issuing a sell-signal from overbought levels. This leaves us with a short-term possible buy signal but for a very short term trade only. We are four days down and the probability calculations tell us that it is likely that we will bounce within a day or so. We have seen robust rallies in this index for higher closes for as long as 12 days in a row on the downside it is rare to see a lower close for more than 7 days in a row. We should find support at 567-568 and then at 555.
Crude oil is trading between the uptrend line at 67.07 and the downtrend line at 71.30. The indicators seem to be rolling over to the downside indicating that we could retreat to that uptrend line. The 5-day moving average is at 68.59. The top of the Bollinger band is at 73.94 and the lower edge is seen at 65.60. We are above the Ichimoko clouds for the daily and the monthly time-frames but in the clouds for the weekly time-frame. The weekly chart illustrates that this market is coiling and a move above 75 should cause the shorts to cover. We would expect to see the shorts get nervous should crude oil trade above 73.16 and total panic set in above 75 or so. On the downside, we won’t worry the longs out of the market unless we close below 65.
Gold rallied in the Friday session closing at 1003.20. We need to see gold stay above 982.20 to remain bullish. The downtrend line is seen at 1007 and another one is at 1010.8. The uptrend line is at 967.48. In other words, gold can trade down to 967.48 and continue to remain in a bullish uptrend. All the indicators that we follow herein are issuing a buy-signal for gold. The 5-day moving average is at 1001.30. The top of the Bollinger band is at 1018.49 and the lower edge is seen at 986.91. We are above the Ichimoko clouds for the daily, weekly and monthly time-frames. The trendlines work for all time-frames. We are not gold bugs but remain bullish on gold.