Weekly Market Update 5/1/11

I have moved the intermediate-term market call to bullish. The upside breakout on Wednesday took my indicators back to bullish. I did not send out a mid-week update because I feel the risk is to high to get back in at these levels.

In case you haven’t heard Fed Chairman Bernake held an unprecedented press conference after the FOMC meeting on Wednesday. The movement in gold since the press conference is a no confidence vote for the dollar. Gold has risen almost 4% since Tuesday. This is also the primary reason behind the move in the stock market. The dollar has lost 17% since last June and the SPY is up 29% over the same time frame. If or when the Dollar decides to take a breather from this massive sell-off the stock market rally is over. The Dollar is nearing major long-term support at 72. The Dollar should get a bounce and the stock markets should see a correction.

Jobless claims again came in solidly above its 4-week moving average. This Friday brings the monthly unemployment figures. This number always has the potential to change the market trend.

Weekly Market Update 5/8/11

Fridays Employment Situation numbers showed an up tick in the headline unemployment rate. The market took the overall release as bullish taking the DJIA up triple digits in early part of the session before giving a good part of those gains back heading into the close. Personally I didn’t see anything that excited me. Some of the less reported releases were showing that the jobs that are being created are of the part-time variety. I can hardly get exited about that. Jobless claims on Thursday were worse than expected too. The 4-week moving average of Jobless Claims jumped over 20,000 from the prior week and is over 40,000 higher than a month ago. Remember I said until we have seen the 4-week moving average decline for a while the economy is not improving.

The markets spent most of the week in correction mode. There are two things that helped in initiating or perpetuating the sell-off. One is the Dollar, and the other rising margin rates on various futures contracts. The Dollar reached long-term support and was due for a bounce. Margin increases in some of the overextended futures helped insure that they would see a short-term correction. I am not so sure it was a coincidence that these two events occurred at the same time. Raising margins on Silver and Crude for example were bound to have a greater effect (cause a larger correction) if they coincided with a rising Dollar. What better timing than when the Dollar reaches a support level that is likely to cause a bounce. If you are willing to take this a step further what are the chances the Fed may have had something to due with encouraging the margin increases. If the futures corrections are large enough, the Fed just might be able to justify QE3.

A stock-bond ratio model that I follow has now turned bearish. We are currently only 25% exposed to the market and I am not changing that at this point. This may however change my desire to buy any dips at this point. I know last week the intermediate-term market call moved back to bullish. Normally I would be looking to buy dips now however, with the change in the stock-bond model I feel much better being mostly in cash.

Weekly Market Update 5/15/11

It was a relatively quiet week. All the major indexes ended the week just about where they started. The Debt ceiling is starting to make more and more headlines. It is possible that this will begin to weigh on the stock market.

Weekly Market Update 5/22/11

It was another quiet week with mild losses for the stock market. The dollar rally has slowed for the time being and the moves in stocks and commodities have paused as well. Rest assured as soon as the dollar starts to move again these other markets will too. The debt problems in Ireland and Greece are again making headlines. Albeit not to the extent they did before. The news is still really bad and you have to wonder how much longer the rest of Europe will be willing to keep bailing out the more indebted nations. Keep an eye on what happens in Europe some of the same things could be coming to a city or state near you.

Weekly Market Update 5/29/11

There was not much excitement in the markets this past week. The economic reports are still painting a less than rosy picture. Unemployment claims were still solidly over 400k. GDP has gone from a respectable 3.1% in Q4 of 2010 to 1.8% in Q1 of 2011. More evidence the economy is far from recovery. This patient is on life support. Friday we have the monthly Employment Situation. I would be surprised if we saw anything positive come out of that report.

I have been working on a theory as to why I think a Third round of quantitative easing , or QE3, is a forgone conclusion. The U.S. has to much debt. $14 Trillion is the number that is often mentioned in the press but this number does not include unfunded liabilities. I have seen estimates that our national debt with unfunded liabilities is as high as $144 Trillions. That is $1.2 Million per taxpayer. Does anyone think we have a chance in hell of paying that off? The Fed knows this, and they are taking advantage of the fact that the US Dollar is the world’s reserve currency. When they print more Dollar bills they are exporting inflation. If you think the world hates us now, wait until they figure this one out. The problem is the Fed has been catching some heat for QE1 and QE2 so they have announced that this operation will end June 30. A few events happening at the same time have caused the Dollar to rally.

Those items are:
The Dollar reached long-term support.
The Euro is in more trouble than the Dollar.
A major retracement in some commodities.
Our economy is not yet in recovery mode.
Currently politicians and voters do not have the cajones to make the tough decisions.

I believe that the bounce in the Dollar and decline in commodities will make it easier for the Fed to justify QE3. However, there will need to be some economic reason that will be used as the primary reason for needing another round of quantitative easing. I could be wrong on this part but a new bear market would do the trick. If the market corrects by 20%, the Fed would feel compelled to do something to support the market. Bernanke himself has said the rising stock market is evidence his policies are working. Therefore a sizeable market correction would give him justification for QE3.

The Euro is in even worst shape than the Dollar. That is good for Bernanke and the Fed. I don’t see how the Euro can survive. France and Germany as well as the European banks will tire of extending counties like Greece, Ireland, Portugal, Italy and Spain more money. I would be surprised if the Euro can last two more years. Remember the motto of the current administration, “Never let a serious crisis go to waste.”

As soon as we see some major economic event, the kind of event that could justify QE3, I think it will then be time to put the “Risk Trade” back on. Until then I think it is probably best to sit on the sidelines and keep our powder dry.

Weekly Market Update 9/5/10

The market must have run out of sellers because the economic numbers I saw surely would not have caused a rally one or two weeks ago. The market started the rally on Wednesday based on positive economic data out of China. Does anyone else find that odd? China makes the stuff we buy not vice versa. So what likely happened was there was a lack of any new sellers willing to come to market prior to the holiday weekend.

This rally has successfully pushed us up against resistance and I would be very surprised if we saw another day like the last three. At most I think we have one or two moderate up days before this move tops out. If we do manage a close over 113 on SPY, I will have to reevaluate my position. We are light on domestic economic reports this week. The monetary policy announcements from Canada and England could shed light on the prospects for their economies going forward. President Obama has said he plans to announce a new economic stimulus plan this week. If this is another spending plan I doubt the markets will like it.

Weekly Market Update 9/12/10

Instead of one or two moderate up days like I expected, we ended up with a moderate week. The DJIA, Nasdaq and, S&P 500 were all up less than one percent for the week.

The markets yawned off the new proposed economic stimulus package. After all, it is only a measly $50 billion.

I am feeling like a glass is half empty kind of guy right now. I am just not buying the positive spin on some of these economic numbers. Normally a reduced trade deficit would sound like a good thing right? However when we import nearly everything that tells me we aren’t buying as much as we used to. Exports were up in the report but imports declined 2.1% from the prior month. We will see what the Retail Sales number looks like on Tuesday. Maybe those numbers will make the glass look half full.

We are right up against resistance at 113 again this week. Retail participation in the market has been seasonally week. Any breakout above 113 without retail participation would be suspect. I will be monitoring the market and sending a email out if I make any changes to the intermediate term forecast.

Midweek Update for 9/20/10

Well the SPY managed to close decisively over 113. I am going to have
to bite the bullet and make our intermediate term call bullish. I
recommend making a buy position in SPY for 25% of your portfolio on
the open Tuesday morning.

There are times when things just don’t add up, but you must go with
trend. I would prefer to be adding on a pullback, and I will be
adding to this position if we get one. The market is currently
overbought. However that does not mean a pullback is imminent. That
is why we are opening a position now.

Weekly Market Update 9/19/10

The SPY did manage two closes over 113 and the 14 period RSI did manage 3 closes over 60. Normally I would have to consider moving the short-term call to bullish. However, we have some conflicting signals going on. The QQQQ has decisively closed above the mid June and early August highs. The SPY and the DJIA have not been able to make a convincing close above their mid June and early August highs. In addition to that the volume has been week in the SPY and DJIA. A look at the On Balance Volume also shows the Nasdaq 100 is the only index that has made new highs with good volume.

The economic reports that came out this week were very neutral A New York newspaper is reporting that poll workers are having to file tax withholding forms for the first time ever. If poll workers are required to do this in all states this could give the employment numbers, that come out in October, an artificial boost.

I am waiting to see a couple convincing closes on the SPY before I will change the intermediate term call to bullish. I will send out a mid-week email if that occurs.

Weekly Market Update 5/2/10

Some volatility has found its way back into the market. We have not seen two large down days this close since the decline that lead to the February low. Momentum is waning; the market has basically been flat over the past three weeks. Where it goes from here is anybodies guess but with market sentiment at bullish extremes this is probably not a bad time to tighten stops.

It appears Greece is close to a bailout from the EU and IMF. The question is how will the markets react. Will they see it as bandage when a tourniquet is needed? There is a troubling trend I am starting to see emerge as it is occurring in Greece and here in the U.S. As governments struggle to balance their budgets during this prolonged recession, they are starting to get resistance from labor groups and those reluctant to seeing a cut in wages or benefits. Those with the biggest budget problems could face financing issues just has Greece has.

Midweek Update for 5/6/10

In case you have not heard the market took a serious drop today. At one point the DJIA was down 1000 points, before closing down 347 points, or –3.20%. The jury is still out on what caused the sell off, but two primary factors are the Greece bailout and error in a Proctor and Gamble trade. I am sorry but something is seriously wrong when a trade error can cause a 1000-point decline.

I am glad that I have been 75% cash for the time being but questioning whether I should have had stops on my Quarterly ETF portfolio. I think in the long run the quarterly rotation will keep us out of any prolonged declines, and that is why I am hesitant to place any stops on this portfolio. The portfolio is down 6 percent for the quarter, with most of the damage in SCZ, which is of 10%.

The charts look pretty scary. Today’s price action basically even if it was a result of trade error is a bit bothersome. On more than one occasion I have seen the markets trade back down to the trade error lows. I am not sure why, maybe the markets feel a need to test that level again. Anyway if that happen the DJIA will have to trade down another 600 points before it can stabilize.

Weekly Market Update 5/9/10

Friday came and went and there still does not seem to be a consensus as to what the hell happened on Thursday. In November 2007 the NYSE ended trading curbs, which limited program trading. Prior to that date program sales could not be placed on a down tick if the curbs were in affect. Now only circuit breakers remain and they do not kick in until the DJIA has dropped 10% or 1050 points. Today a lot more trading occurs off the floor of the major exchanges and on the electronic exchanges. There are no consensus rules, between the various exchanges, that handle an event such as the one that occurred on Thursday. In my personal opinion some sort of circuit breaker at -5% and program trading limits at -3% would be more appropriate. Sometimes things happen in the market that no one can explain and, a temporary halt to trading to figure out what is going on, is not a bad idea. Another possibility is that sense market sentiment was so high; there were probably a lot of stops in place that started getting triggered, as the market began its fall. Something like yelling, “fire!” in a crowded theatre. I would like to think that the SEC would come out, before the end of the week, with some safeguards to prevent this from happening again. This is a real blow to the confidence that people have in the markets something will have to be done ASAP.

Until there is some stability to the markets I do not think I will be recommending any trades. The charts are just plain ugly. There is a void between the Friday lows and Thursday lows and it will be hard for me to put faith in any attempts the market makes at forming a bottom until the Thursday lows are tested.

Weekly Market Update 5/16/10

The week came and went and still there is no consensus, on what caused the May 6th sell off. I find that somewhat disturbing. What I find even more disturbing however is, that the SEC has not come up with any plans for trading halts to prevent future declines of a similar magnitude.

From a technical standpoint the averages managed to rally through Wednesday but rolled over on Thursday and Friday. The high this week provide a price level that when breached to the upside will begin to give some comfort to some stabilization in the market. I am not saying that is what I expect. However, until The May 6th lows are tested or the market can make a series of higher highs, we are kind of in a no mans land, with no clear intermediate term direction.

Weekly Market Update 5/23/10

The SEC is still investigating the May 6th “flash crash.” Several factors appear to have contributed to the sell off. The factors appear to be, inconsistent rules among the various exchanges, speculation in the futures market and, the lack of participation by market makers. It appears that the market makers were not able to step in and be the buyer of last resort. Maybe that is because so many went out of business as the electronic exchanges took volume from the physical exchanges.

The markets took another big hit this week. But as I have been saying the last few weekends I felt there was a good chance the May 6th low would need to be revisited. The markets tested that low during Friday’s open then proceed to make a very strong rally to close up 1.5% for the day. If the markets have worked out there issue with the Euro, I think there is a very good chance this is a tradable low. Most of the trading strategies I watch will require a decent bounce from this level before triggering a buy signal. But the more aggressive subscribers could look to go long the SPY if in the final hour of trading the SPY is trading over 110. The market should be able to manage at least a two-week rally from these levels. I will have to wait for more signals to come in before I can get more confident about a longer-term scenario.

Weekly Market Update 5/30/10

A rare but reliable technical signal has set up this week. This signal is 9 for 9 dating back to 2000. Simply put when the 14 period ADX goes over 40 buy at a price of 2 times the 21 day average true range added to the 5 day low, then hold for 15 trade days. The buy price would be 110.90 on the SPY. Keep in mind this is a short-term signal and I would not recommend it for your 401k or retirement account.

We did not get the close over 110 on Monday I was hoping for. As bullish as sentiment was last month it has done almost a complete reversal. This could mean we are getting close to some buy setups. The market has sold off but now it will have to show some strength over a period longer than a couple days. If we have seen the worst of the selling, the ADX signal could start a cascade of buy signals. Only time will tell.