Monday, September 26, 2011

Gold and Commodities Continue to Dive

SUMMARY:

- Stocks finish a down week with a modest recovery, bounced by prospects G20 might intervene on Europe's behalf.
- Gold and commodities continue their dive
- Is the market different now than in times past? Yes and no.
- A cathartic selloff and reversal is a possibility, but why would one occur now?
- Indices still at support, so regardless of our biases, be ready to take what the market gives.

Modest bounce holds indices at support.

Friday was rather anticlimactic. There was a modest bounce on the indices after some very sharp selling on Wednesday and Thursday brought SP500 down to its August lows. As the often the case ahead of a weekend after some sharp selling or a sharp rally, stocks will modestly revert to the other direction to end the week. In this case, there was a bit of short covering, and that was fueled by rumors or theories that the G20 or some other entity perhaps the IMF would come to Europe's rescue over the weekend. There is talk of a new bailout package or some other plan to help prevent the EU from falling apart as its individual members slide into default and bankruptcy.

As late as Thursday, there was new economic data out of Europe that was not positive. Germany and France both put forth PMI manufacturing reports that showed contraction. That is hardly the stuff that recoveries from financial crises are made of. It rattled the markets, and thus we had the kind of selloff we had on Wednesday and Thursday. Friday we got that bounce, and it is one I talked about as a possibility. Of course we were able to take some downside gain off of the table early as stocks did start a bit lower. They started to reverse, and we locked in more downside gain as we did on Thursday.

We were also able to pick up some upside positions on a few really solid stocks that are in the right sectors and showing very good action. I am not saying that the market will reverse, and I will expand on that later. But there is the possibility out there, and these stocks are in good shape. You have to be ready to take what the market gives, particularly given that SP500 and the other indices have basically held the August lows. NASDAQ did even better; it held its trendline up off the August low as well.

This was not a major move. It was more short covering, or just a relief bounce after all that sharp selling. How do we know that? There was no news that would have driven the market higher or lower, although most of the news was less-than-positive. One news story was that credit default swaps for French and German banks are surging to the upside. Credit default swaps are basically an insurance policy. It is not the kind that we are familiar with as individuals, but it protects against third party defaults. That was one of the problems with the financial crisis in 2008; these credit default swaps exploded in price. They were going thousands of percent, and at the time I think I reported that as one of the warning indicators of the meltdown that was to come.

It is a game of "who do you trust." You buy these credit default swaps, but who will cover them? It is a kind of shell game, passing the buck down the line and hoping that when you lift up your shell that the pea is underneath. That did not work too well, and as a result we saw massive bailouts. Nonetheless, it is a signal of problems. Credit default swaps are surging on the continent, both in numbers and in price.

The ECB said it would be ready to act "next month" if the outlook in Europe worsens. They do not want to rush it or anything. That is great. This rather lackadaisical attitude toward the problem is something the ECB and Europe in general has been renowned for during this crisis. Many in the U.S. entourage that went over with Treasury Secretary Giethner came back scratching their heads and saying that Europe does not seem to think this is a serious crisis. We know it is a serious crisis, of course; been there done that. Many people say it will not be as bad as Lehman. It may not be as bad for us, but this is definitely Europe's Lehman moment. The problems there could be even worse than they were in the United States.

As noted, futures were down early but were not tanking. They were trying to start rallying into the open, as you can see from the SPY five minute chart. Futures were moving up into the open still negative, but hanging in there. Stocks worked their way higher in a continued jagged uptrend through mid-morning. They peaked and then moved basically laterally the rest of the session with very modest gains.

SP500, +0.6%; NASDAQ, +1.1%; Dow, +0.35%; SP600, +1.4%; SOX, +2%.

There were gains to the upside, but they were nothing impressive by any stretch. Just more of a relief bounce after two days of gutting by the sellers.


OTHER MARKETS

As is often case, the other markets move in one direction when stocks move down; when stocks start moving back up, they flip and turn the other way. There has been an inverse relationship here, and we saw that again with most of the other markets on Friday.

Dollar: 1.3464 versus 1.3449 euro. The dollar was basically flat. It was backsliding just a bit on the session, but it was a strong move for the dollar this week. It affirmed its breakout after testing two weeks ago. Nice, strong upside move. Looking solid. You would expect that given the troubles in Europe. It took a long time for those European troubles to break the dollar free. When it was trading down in August and late July, I was pondering why the dollar was not making the break higher with all of the problems in Europe, particularly with money coming over to the States. That money finally broke it free, along with the fear, and the dollar shot higher. There is a lot of European money in the United States in short-term demand deposits right now. Not to mention Treasuries.

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Bonds: 1.80% versus 1.71% 10 year U.S. Treasury. Bonds were down on the day. A big move, yes, but hardly as big as the moves we have seen earlier in the week as bonds exploded higher after the Federal Reserve announced its "twist" plan. But let's face it, bonds were already moving up ahead of the "twist" announcement. Once it became the word of the week and was actually going to be implemented, bonds exploded higher, particularly on Thursday. Wednesday was not a bad day, either.

People are buying those long-end bonds because that is what the Fed will be doing. They will be selling the near term. It is not in an attempt to put extra liquidity in the market, but to compress the rate curve and hopefully make things more affordable. But I have talked about that. Number one, there is no new liquidity in the market. Number two, banks are restricted in what they can lend right now. Even if they can lend, they are too scared to do it. They do not want to turn the money loose. I say they are scared, but it is also about greed. They are getting free money. Borrowing at 0%, and then they buy bonds and get a 2-4% return. If you get guaranteed money like that, would you do it? If only we could.

That is why so many banks are opening up in communities all over the country. In my small town, we have had three banks open in the past nine months. These are new banks, not just new branches. It is absurd. Why are they doing it? They are getting paid to do it. I would open as many as I could if I was able to borrow for 0% and get a guaranteed 3% return. Guaranteed there is no risk. That is so huge, and banks are taking advantage. Most of the new construction in the United States is of banks. You tell me if Federal Reserve power is not really power. They control the money, and they are helping their own. They are not helping us. They will hurt us with inflation down the road, but that is another story.

In any event, bonds are surging because of the kind of payments they are getting from the Fed. It will be making it pay for banks that get free money to put that money into the bond market.

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Gold: $1,645.00, -94.00. Gold broke its relationship on Thursday. Stocks were down and gold was down. On Friday they seemed to resume, but not in the same force. Stocks were up and gold was down sharply. It was down other 100 points on its low. That is a steep drop. It is falling further than I believed it would. Why is it selling? There is a lot of fear out there, and you would think it would still be rallying. One reason it is falling is because hedge funds, individual, banks, and others are liquidating their gold holdings in order to raise cash for other areas. Hedge funds and mutual funds tend to hate to take losses because that shows up on their prospectus. They prefer to sell what is winning and keep what is losing in the hopes that there will be a recovery. That is backwards from the way you should do it, but it is what they are doing. It is causing gold to collapse.

When it drops 100 points in a day, those who are thinking about selling gold pretty much have their minds made up for them. They are selling, too, so it is snowballing and gold is heading lower. Great. Maybe gold will get down to $1600 where there is some support. It could even go down to the high back in May of 2011 at 1577. You are looking at 1575-1600. There will be some support there even down to 1550 where there is really solid support. There is about a 100-point range where we could have gold fall and then hold. Then it would likely be a decent buy if it can base out a bit and set up. Gold is in freefall right now. It just got overheated. When the lemmings rush, they rush, and then a lot of them run off the cliff or get squashed.

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Oil: $79.85, -0.66. Oil had a tough week. It was down modestly on Friday, closing below 80 for the first time in several months. It did try to rebound after tapping 77.50 on the low, and there is a support level. There is another almost exactly where oil touched on the day. There are also other interim highs in this 77.50 range.

Does that mean it will bottom and rally here? It could. It is sitting on top of a big base from 2010 just as the stock indices are sitting on bases from the summer of 2010 as well. There is nothing to drive oil back up at this point other than a fear of inflation returning. Maybe also if something is done over the weekend with respect to the EU that is viewed as stabilizing that area. Then oil would be in position to rebound from this support level. In any event, oil remains very weak simply because world economies and the outlook remain weak at this juncture.

Looking at the chart of oil, note that it has set up a big head and shoulders pattern. It is trying to bounce near the lower neckline. If it breaks there, you would expect it to fall further. This is a support level, so you would also anticipate a little choppy trade as it comes down to test it once again.

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TECHNICAL SUMMARY

INTERNALS.

Volume. The internals backed off considerably on Friday. Volume was down 32% on the NASDAQ and down 28% on the NYSE.

Breadth. Breadth was decent. 2:1 advancers over decliners on the NASDAQ and 1.6:1 on the NYSE. That was well off the -6:1 reading seen on Thursday during that selling. This was no strength, and it was a very modest, narrow rebound by the market. That is all the indicia of a relief bounce that really meant nothing.

New Lows. Dropped off to 379 on NYSE but the damage was done with the 1132 new lows on NYSE Thursday. That is an extreme level.

Put/call ratio. And yet another close over 1.0.


CHARTS

SP500. SP500 had a major selloff for two days in a row. The bounce on Friday was nothing more than an inside day. It really tells you nothing about the move. It could continue lower from here or it could rebound. You would expect SP500 to try to bounce off of its support because it is sitting right on top of the August 2010 base that launched the rally up through April, gratis QE2. There is no Quantitative Easing right now and nothing to really bounce the market to the upside. That puts it at a critical juncture because it will have to make a decision. Will it try to bounce and rally? And for what reason would we be rallying? More on that later. Or will we fold and come back down and sell into this 2010 base and perhaps beyond? That is the key question right now. I will address some of those issues in a moment, but this makes it a very important level. Once again, SP500 is trying to hold at this level.

On Thursday it tested lower and managed to cut its losses. It was up a bit on Friday. Very important support. We will see if it can make something of this support early next week or if it goes into a deep selloff which may in itself result in a reversal. There are so many twists and turns at this time in the market.


NASDAQ. NASDAQ is pretty much the same picture. Although it has not made it to its August lows, it did hold at the up trendline off of the August low on Thursday. Then it bounced back up to test that level on Friday. I moved the trendline, pulling it back up to these lows from September. On Thursday it only tapped the trendline and on Friday it moved back up to that trendline, but it did not recover. It is still below significant resistance as you can see from prior gap points, highs, and lows during the entire August and September period. This is a very important level at 2500. There is a lane right in the middle of all these prices, and that is right at 2500. NASDAQ closed at 2483. Big week for it as well. It did not go down to the August lows, which is nice, but it does not look all that spry where it sits as of Friday.


SP600. +1.4%. A decent move on the day, but it only put them up to the lower range of support. They recovered it, but I they do not look strong at all. No wonder small caps look bad; the economy in the U.S. is bad. A lot of the big multinationals have a lot of cash and have made a lot of money. That is thanks to the policies put forth by the administration. They did what they wanted to do in that respect. Unfortunately it has not cured the economy.

I know those guys are shocked up in Washington. They cannot understand how we do not have jobs with all the money they have given to these big companies. These big companies made a lot of money and are just holding it. That is what they do. They do not hire people. You would think that our leaders would know that, but that is a whole other story.


SOX. +2%. Nice bounce. Took it right back up to the August interim peaks. It has an important level to test as well next week. It just does not look that great. The big thing is we have SP500 and the Dow both holding their August lows. They tested them and held them, and that is a positive. They can make a bounce from there. We will see if they will, and talk about some of the possible avenues that could occur next week based on the historical patterns that occur during this time of the year.


LEADERSHIP

Technology/Semiconductors. AAPL had a decent day up, 0.5% or so. It bounced off the 10 day EMA and that July peak. AAPL is an interesting stock. More than one of my subscribers said AAPL is acting very strangely. It is very strong and is not being impacted by the rest of the market. Some are saying maybe it is being treated like gold. Gold was held in very high esteem. Everyone piled into gold and no one wanted to sell it until now. AAPL is the same way. It is very strong and is ignoring the rest of the market. This has happened before, back in the last recession. Name whichever one you want. Remember back in the Irrational Exuberance period in the 90's when Greenspan rattled the markets? It rattled the markets, but it did not rattle DELL. DELL continued to move higher and higher. We made a lot of money off of DELL and some of the stock splits, even when everything else was selling.

Some of the hardest decisions I made at that time was whether I could keep my DELL options, as they were still moving. I did. I hung onto some of them, and they made beaucoup money. There was no reason to sell on the interim pullbacks, and it ended up rallying nicely. Eventually, DELL broke of course, because the time of its money-making model had passed. During that time, DELL just ignored the rest of the market. That is what AAPL appears to be doing now. It does not make much sense other than the fact that people want to have a safe place to put their money. They know AAPL. They like AAPL. They put their money in AAPL, and they are leaving it there, as you can see by the chart. The money is staying, at least for now. We will see. Everything comes to an end. But for now, it is showing what we have seen in other bell-cow stocks over the past several decades. It does not mean the market has not changed. It has. There are a lot of differences now where the market rallies up and rallies down. You see false breakdowns where it looks like stocks break down and then reverse back to the upside.

That is one of the totally different things about today's market. AAPL broke below a trading range back in June. In an old market, this would have typically been a key selloff. You would say it broke below that support, it is very well defined, and it is going to tumble. It did quickly, but it reversed just as quickly. It rallied right back up. Not only it did it rally back up in the range, it exploded out of the range for a new breakout. We are still playing that breakout now.

The market has definitely changed. Breakouts out of trading ranges can be reversed right back down. Breakdowns breaking below a trading range are often reversed right back up. Why? You have big, program-trading money looking for places to put the money. They see opportunities at these reversal points, and they are making the market a bit different than it used to be. A lot of things are still the same, but some things are different and you have to adjust. The false breakdowns and false breakouts are one area where we had to adjust.

Other areas are holding well. SIMO had a nice pullback in the electronics area. KLAC has a nifty pattern that might lead with the MACD rallying higher, making a divergent bottom. It has a flag pattern right now. It could be very interesting. TIBX has a nifty pattern as well. Higher MACD, looking to make a break to the upside. We will see what happens on that. Semiconductors and electronics are looking decent.

Retail. Certain kinds of retail the high end and extreme low end are also performing well. DG looks solid. NDN had a nice break to the upside after a good test filled a gap. DLTR is moving well. We bought into TIF today with a nice break to the upside. We will see if it can continue on. RL continues to look very strong. It broke out, it tested, and now it is trying to move back to the upside. BJRI bounced a couple of nice days here. Looking like it could be putting in a rounded bottom and ready to rally as well.

Medical/Drugs. Medical is a defensive area, but some of the stocks in medical are not that defensive because they run well. They are not your standard defensive stocks. CELG had a nice breakout. It has come back to test that breakout, and it is starting to bounce. We will see if it can hold. It might prove to be an interesting buy to the upside. QSII is a computer software company in healthcare. It is moving right up. It broke out, it has tested, and it looks like it might try to move up again. ATHN is another one of those health management companies similar to QSII. It continues to perform well as we have seen.

Drugs are not hurting either. ALXN has been working very well for us in a nice, strong uptrend. That continued in force on Friday.

There are still sectors, and quality stocks in those sectors, that can make us money. They are setting up and moving higher. Seeing that out there, I still look at this as a possibility to a move higher. Particularly when you have SP500, the Dow, and the NASDAQ all above their August lows and holding those. If they get the right news they could break back to the upside and still make us upside money.



THE MARKET

SENTIMENT INDICATORS

VIX. The VIX closed down just 0.1% on Friday. That means it still held that break to the upside on Thursday when it gapped higher. It is holding at a very high level, almost matching the August peak. Volatility is once again at high, reversal-type levels. We will be watching to see if that happens. It was not able to punch higher today. There was some early selling, and it reversed off of that. We will see. It is holding a high level. There is still worry out there, but it has not been able to break through. Maybe it is time for a reversal and a rebound from the rest of the market. Again, we will just have to see what happens with respect to the SP500 and the other indices at their lows. That sure would indicate they might be ready to bounce. More on that in a moment.

VIX: 41.25; -0.1
VXN: 39.88; -0.37
VXO: 41.63; -0.53

Put/Call Ratio (CBOE): 1.15; -0.12

Bulls versus Bears:

This is a reading of the number of bullish investment advisors versus bearish advisors. The reason you look at this is that it gives you an idea of how bullish investors are. If they are too bullish then everyone is in the market and it is heading for a top: if everyone wants to be in the market, then all the money is in and there is no more new cash to drive it higher. On the other side of the spectrum if there are a lot of bears then there is a lot of cash on the sideline, and as the market rallies it drags that cash in as the bears give in. That cash provides the market the fuel to move higher. If bears are low it is the same as a lot of bulls: everyone is in and the market does not have the cash to drive it higher.

Bulls: 37.6% versus 35.5%j. Up slightly but still below the bears for the second week and a powerful bullish signal. Still just above that important 35% level considered bullish. Has crossed down through bears, a bullish market indication. Solid move lower from 49.5% in late July. Highs from April and December (60% readings spanning December through early May 2011). The 5 year high is 62.0. The crossover level at 29% bulls from July 2010 is long gone. 35% is the threshold level suggesting bullishness. To be seriously bearish it needs to get up to the 60% to 65% level.

Bears: 39.8% versus 40.9%. A bit fewer bears but still well above 35% and well above the bulls. For a fourth week bears are over the 35% threshold considered a bullish indicator and have made that important crossover of bulls. For more reference, bearishness hit a 5 year high at 54.4% the last week of October 2008. The move over 50 took bearish sentiment to its highest level since 1995. Extreme negative sentiment. Prior levels for comparison: Bearishness peaked at 37.4% in September 2007. It topped the June 2006 peak (36%) on that run. That June peak eclipsed the March 2006 high (33%) and well above the 2005 highs that spawned new rallies (30% in May 2005, 29.2% in October 2005). That was a huge turn, unlike any seen in recent history.


NASDAQ

Stats: +27.56 points (+1.12%) to close at 2483.23
Volume: 1.964B (-32.25%)

Up Volume: 1.61B (+1.387B)
Down Volume: 300.53M (-2.389B)

A/D and Hi/Lo: Advancers led 2.18 to 1
Previous Session: Decliners led 5.76 to 1

New Highs: 4 (+1)
New Lows: 205 (-393)

NASDAQ CHART: http://investmenthouse.com/ihmedia/NASDAQ.jpeg

NASDAQ 100 CHART: http://investmenthouse.com/ihmedia/NASDAQ100.jpeg

SOX CHART: http://investmenthouse.com/ihmedia/SOX.jpeg


SP500/NYSE

Stats: +6.87 points (+0.61%) to close at 1136.43
NYSE Volume: 1.131B (-28.14%)

Up Volume: 3.5B (+3.204B)
Down Volume: 1.6B (-5.06B)

A/D and Hi/Lo: Advancers led 1.6 to 1
Previous Session: Decliners led 6.3 to 1

New Highs: 33 (-60)
New Lows: 379 (-753)

SP500 CHART: http://investmenthouse.com/ihmedia/SP500.jpeg

SP600 CHART: http://investmenthouse.com/ihmedia/SP600.jpeg


DJ30

Stats: +37.65 points (+0.35%) to close at 10771.48
Volume DJ30: 223M shares Friday versus 306M shares Thursday.

DJ30 CHART: http://www.investmenthouse.com/ihmedia/DJ30.jpeg


MONDAY

There is no doubt we will have news. It was the Fed and the "twist" this past week, but we still have a lot to come. New Home Sales, Case/Shiller. Consumer Confidence is expected to rise to 46.7. My friends, that is recession. Confidence has remained in recession levels since this selloff occurred. The textbooks may say that we have recovered and are no longer in recession. As far as the consumer is concerned, however, we have been in recession the entire time since the Lehman meltdown.

We have Durable Goods Orders. We have Initial Jobless Claims again. Every week you have to love that. We have the GDP for Q2. I believe that is the third and final estimate, and we will see what GDP comes in. It is expected to improve a bit. Yeehaw. We also have Personal Income and Spending to round out the week, and the Chicago PMI and Michigan Sentiment. We have news aplenty. That news will be important because the market is looking for something to grab ahold of.

What about action outside of just the news? There are trends that occur this time of year. We often have selloffs in August, though not as many as in September. There are still some in October, but October is kind of a follow-through month to September when the market actually bottoms. We are not there yet, but we are getting close. It does not have to be October it can be in September. What we have now is a sharp selloff back down to a prior low. We have had sharp selling, a bounce, and then a sharp selloff back to that low.

Sentiment is terrible. Bears fell a little and bulls rose a little, but they are still at a crossover point. That is a very powerful, bullish indication. But we have this pullback to support. We have all of the bullish indications from the crossover of the bulls and bears. We have a very high put/call ratio that has been high for quite some time. We have the high volatility index. We have a very high new lows reading over 1100 on the NYSE on Thursday. We have tremendously negative sentiment indicators, and we have the market technically holding support.

What often happens in this situation is a further selloff. A break of those old lows. You will have different technicians tell you different things. They will say that when you break a low and make a new low, that you have to come back and test that. We have done that on the Dow and the SP500. According to their theory, we have had that cathartic selloff and they should break to the upside. It is kind of like that false bottom I was talking about. There are two versions of that. One is not really what I consider a false bottom. It is more of this scenario where you have the retest. That would be another selloff early in the week.

Say that no one comes to the rescue of Europe over the weekend that those rumors were wrong. The market shoots lower, sells off sharply, well down into this August 2010 base. But then it reverses and slingshots back to the upside. That would be your cathartic selloff. It usually happens on a Monday or a Tuesday after this kind of Thursday selloff. This is really going toward the pattern. You have the big selloff on Thursday, you have a choppy, back-and-forth day on Friday. It traded in a range and then closed near the middle of the range. Then you have the big meltdown on Monday and/or Tuesday followed by a reversal. That is typically a bell-ringing time that you can buy for a new move higher.

Or you have the false bottom where it breaks down and looks terrible. It closes below that level, but then it comes back and makes the move back to the upside. We had that last summer with July and August. It broke below key levels, looked very bad, but only stayed down there a few days and then reversed. It tested once more, and then it was off to the races. That is the false breakdown, and we could see that as well a breakdown below this important support level.

The question is why that would happen. The market does indeed forecast in advance. In order for that to happen, the market would have to be forecasting better economic times ahead. Can we really expect better economic times ahead and near enough to make the market care? Let's face it. We have an election that is over a year away. If we get a new President, it would not be in until January. That is a long time. The market looks ahead a long time, but it will not look ahead that far because. There are too many variables out there with what we have being put forth from the administration. What the administration would be willing to sign from the Republicans and what the Republicans would be willing to pass from the President are two different things. There is not much chance of either one passing. We are not looking at anything that would change the situation.

Maybe that would be it. Maybe if we just left things alone and did not try to prop them up, they would finally fall off and then find their true bottom. That is one of the problems with this stimulus we have had. It has not allowed things to hit their bottom, and we have been slowly bleeding to death by a thousand cuts. That has not helped anybody as we have seen. Everyone is just miserable. Sentiment has been low record lows for years now, and it is getting worse.

You have to figure out how the market would see that there is some kind of turn coming. In the past, the market has typically bottomed and rallied when some kind of meaningful stimulus has passed. Almost to the day of the Iraq War and the announcement of some stimulus, the stock market bottomed under George W. Bush. It rallied and we had some great gains in the economy. 7%+ GDP growth. Very strong. It is just knowing that the stimulus is in place. It does not want to wait for the good news to actually appear in terms of better economic data.

The market knows when the right tools are put in place. One of the problems we are having now is that the market saw what the twist would be. The market saw what the President was going to propose, and the market realized that it was not going to pass. If it did, it would not do anything because it is more of the same old crapola that got us where we are right now. Just more in debt, wondering where all the jobs are as a bunch of multinationals are sitting on billions of dollars. More government intervention will not make that change. We would need the market to see something that no one else sees. That is often the case, but there has to be some reason out there for the market to move higher. Frankly, I do not see that as being the case.

I posit that there is no reason for the market to rally. There is no reason for the economy to improve other than just people saying "to hell with it," and spending some money at Christmas because it has been such a crappy year. Maybe people will try to make it a better year at the end of the year. We will see. That could happen it happened in 2009. People were tired of not spending any money after the Lehman meltdown and decided to have a better Christmas than any of the retailers expected. Then there was a shortage of goods, and they had to make last-minute orders to fill the needs. We will see.

Regardless of what I think could happen, we have to look at what the market is going to do and be ready for it. It is at support and it could bounce. We have good stocks that look ready to bounce. We need to be ready to play those if they are ready to move. I will continue to look at those. We have some good upside plays. We picked up some on Friday. We still have some such as AAPL and others that are ready to move. We have a few more over the weekend that look as if they could make some money and to the upside, for that matter if the market wants to bottom here.

We will have to see how Monday plays out and if it wants to ride lower or not. We will also have some downside plays. We already have some in position. If the market does make that cathartic run to the downside if it wants to dive toward those August 2010 lows or thereabouts we will make a ton of money on those. We will also have a few other downside plays in case that happens. We can make that money in a day or two if we make that kind of steep dive. That is fast money, and it is nice money. You get in, you get out, and then you play the upside.

Regardless of what our guts tell us, and regardless of what our brain tell us, the market will do what it will do. It is at a crossroads right now, and we need to be ready to play it. And we are. We are represented and have plays on both sides of the ledger. It makes it difficult when the market has been extraordinarily choppy. But it is at a resistance point. It is at a support point right now. It will go one way or the other, and we can make money even if it decides to go both ways, i.e., that cathartic selloff followed by a reversal. I will see you on Monday. Have a great weekend and enjoy it as best you can!



Support and Resistance

NASDAQ: Closed at 2483.23

Resistance:
2512 is last week's gap down point
2532 is the early August gap down point
2540 is the early November 2010 lower gap point
2546 is the early September 2011 gap down point
2555 is the mid-August 2011 peak
2569 is the November gap up point through the April 2010 peak
The 50 day EMA at 2574
2580 is the November 2010 closing high
2593 is the November intraday high
2599 is the June 2011 low
2603 is the March 2011 intraday low (post-Japan low)
2612 is the late August 2011 peak
2645-2650ish from December 2010 consolidation
2676 is the January 2010 low
2686 is the January 2011 closing low
The 200 day SMA at 2704
2706 to 2705 is the April 2011 low and the February 2011 and consolidation low (bottom of the trading range) 2723 to 2705 is the range of support at the bottom of the January to May trading range
2759 is the May low
2762 is the February low
2796 is the February gap down point
2816 is the early April peak.
2825 is the 2007 closing peak.
2841 is the February 2011 peak
2862 is the 2007 peak
2879 is the July 2011 peak
2888 is the May 2011 peak

Support:
2469 is the November 2010 low
2331 from October 2010 low and the August 2011 low
2305 from the August 2010 peak (summertime base)
2139 is the May and June 2010 low
2123 is the August 2010 gap down point
2100 from the August 2010 lows


S&P 500: Closed at 1136.43
Resistance:
1159 is the August up trendline
1178-1180 is the October 2010/November 2010 consolidation low
1196 is the November 2010 consolidation peak
The 50 day EMA at 1208
1209 is the mid-August 2011 high
1220 is the April 2010 peak
1227 is the November 2010 peak
1231 is the late August 2011 peak
1234 is the August 2011 low
1235 is the mid-December 2010 consolidation low
1249 is the March 2011 low (post-Japan)
1255 is the late December 2010 consolidation range
1275 is the January 2010 low, early January 2011 peak
The 200 day SMA at 1282
1295 to 1294 is the April 2011 low and the February 2011 consolidation low (bottom of the trading range)
1313 from the August 2008 interim peak
1318.51 is the May low
1325-27 is the March 2008 closing low and the May 2006 peak.
1332 is the early March peak
1340 is the early April 2011 peak
1344 is the February 2011 peak is being challenged again
1357 is the July 2011 peak
1364 is the March 2007 low
1370 is the August 2007 low
1371 is the recent May 2011 peak

Support:
1131 - 1127 from August 2010 base peak.
1119 is the early August closing low
1109 is the mid-September 2010 gap up point
1101 is the August 2011 low
1099 from the mid-July interim peak
1040 from the August 2010 lows and May/June 2010 lows
1011 is the summer 2010 low


Dow: Closed at 10,771.48
Resistance:
10,978 is the bottom of the November 2010 consolidation
11,178 from November 2010
11,452 is the November 2010 peak
The 50 day EMA at 11,509
11,555 is the March low
The August low at 11,700
11,717 is the late August 2011 peak
11,734 from 11-98 peak
11,867 from the August 2009 high and peak on that bounce in the selling.
11,893 from March 2008 closing low
The June low at 11,897 (closing)
The 200 day SMA at 11,997
12,094 is the April 2011 low
12,110 from the March 2007 closing low
12,283 is the March 2011 peak
12,391 is the February 2011 peak
12,876 is the May high
12,754 is the July intraday peak
13,058 from the May 2008 peak on that bounce in the selling

Support:
10,750 from September 2010
10,720 is the August closing low
10,705-710 from January 2010 peak
10,694-700 from August 2010 peak
9938 is the August 2010 low


Economic Calendar

September 19 - Monday
NAHB Housing Market Index, September (10:00): 14 actual versus 15 expected, 15 prior

September 20 - Tuesday
Housing Starts, August (8:30): 571K actual versus 590K expected, 601K prior (revised from 604K)
Building Permits, August (8:30): 620K actual versus 585K expected, 601K prior (revised from 597K)
FOMC Rate Decision, September (14:15): First day in the bag

September 21 - Wednesday
MBA Mortgage Index, 09/17 (7:00): 0.6% actual versus +6.3% prior
Existing Home Sales, August (10:00): 5.03M actual versus 4.70M expected, 4.67M prior
Crude Inventories, 09/17 (10:30): -7.336M actual versus -6.704M prior
FOMC Rate Decision, September (14:15): 0.25% actual versus 0.25% expected, 0.25% prior

September 22 - Thursday
Initial Claims, 09/17 (8:30): 423K actual versus 418K expected, 432K prior (revised from 428K)
Continuing Claims, 09/10 (8:30): 3727K actual versus 3730K expected, 3755K prior (revised from 3726K)
FHFA Housing Price I, July (10:00): 0.8% actual versus 0.7% prior (revised from 0.9%)
Leading Indicators, August (10:00): 0.3% actual versus 0.1% expected, 0.6% prior (revised from 0.5%)


September 26 - Monday
New Home Sales, August (10:00): 293K expected, 298K prior

September 27 - Tuesday
Case-Shiller 20-city, July (9:00): 4.5% expected, -4.52% prior
Consumer Confidence, September (10:00): 46.7 expected, 44.5 prior

September 28 - Wednesday
MBA Mortgage Index, 09/24 (7:00): 0.6% prior
Durable Orders, August (8:30): 0.0% expected, 4.1% prior (revised from 4.0%)
Durable Orders ex Trans, August (8:30): -0.2% expected, 0.8% prior (revised from 0.7%)
Crude Inventories, 09/24 (10:30): -7.336M prior

September 29 - Thursday
Initial Claims, 09/24 (8:30): 420K expected, 423K prior
Continuing Claims, 09/17 (8:30): 3713K expected, 3727K prior
GDP - Third Estimate, Q2 (8:30): 1.2% expected, 1.0% prior
GDP Deflator - Third Estimate, Q2 (8:30): 2.4% expected, 2.4% prior
Pending Home Sales, July (10:00): -1.3% expected, -1.3% prior

September 30 - Friday
Personal Income, August (8:30): 0.0% expected, 0.3% prior
Personal Spending, August (8:30): 0.2% expected, 0.8% prior
PCE Prices - Core, August (8:30): 0.2% expected, 0.2% prior
Chicago PMI, September (9:45): 54.0 expected, 56.5 prior
Michigan Sentiment - Final, September (9:55): 57.6 expected, 57.8 prior

By: Jon Johnson, Editor
Copyright 2011 | All Rights Reserved

Jon Johnson is the Editor of The Daily at InvestmentHouse.com

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Sunday, September 18, 2011

Note to Geithner: Our Politics Are Not Terrible

SUMMARY:

- A week of gains on less worry about Europe, but its troubles are not just ending.
- Michigan Sentiment tops expectations but it is still at recession levels.
- Note to Geithner: our politics are not terrible and don't ever take sides with anyone against the family again, ever.
- A bit of a pause after the week's gains would do the rally well.
- Anticipating more upside, but be ready, just in case.

Indices make it five straight even as some worry creeps back in about Europe.

Stocks were able to close out five straight upside sessions with another round of very credible gains. A great return from the prior week shortened by Labor Day and a very solid move took SP500 back near its August peak and broke NASDAQ over its August peak for a new closing high off of the August low. That puts it above its June peak and trying to extend the move, basically waiting for SP500 and the other indices to play a little catch up.

It was week marked by Europe . . . again, though this time around it was not necessarily about getting stuck in the eye with a stick. Instead some order was brought to the picture as investors believed (hoped?) things under more control, at least hoping that was occurring. Big central banks put dollar facilities in place for European banks feared to be going under. They had to rely on the ECB to help them conduct their day-to-day activities, as they were unable to obtain dollar reserves. The five largest banks in the world joined together to create a lending facility to allow European banks access to dollars. It seemed to satisfy investors further and helped extend the rally. Moreover, Germany said there would be no "uncontrolled insolvency" of Greece. As I said earlier in the week, however, that leaves the question open of a controlled insolvency, but the markets took heart from Merkel's statement nonetheless.

In general it was an an upbeat week with respect to Europe, something of a reversal of roles. Again, it beats getting stuck in the eye with a stick. Overall a positive and that allowed the stock market to rally. Other markets went the opposite way as they retrenched their moves as the stock market recovered. Those markets had rallied on the fear out of Europe. With fear subsiding somewhat, the dollar, bonds, and gold faded off of their recent sharp upside moves. Nothing major, no rollovers, just backtracking after strong moves.

One of the really bothersome issues during the week was the talk of the U.S. and its political process. This administration is really down on our political process. That is not surprising given where I think its true roots lie. Timothy Geithner was talking in Poland on Friday, and it was disturbing and offensive as a citizen to listen to him say that our "politics are terrible." He is referring to the fact that we actually debate things. In our country people have strong convictions and sometimes they disagree with what the administration wants. I'm sorry, but I think that makes our politics the best in the world. We can have this kind of debate in the open, and principled people who have strongly-held beliefs can stand up and say the emperor has no clothes without fear of retribution.

That is the fundamental strength of our system. It does not make it terrible; again, it makes it the best in the world. I don't know about you, but I have had enough of these punks in DC telling the rest of the world and all of us that because we have strong beliefs that are not in line with the leaders in D.C., that we are obstructionists, that our politics are bad and our system does not work. To the contrary, it works. We have the best system in the world when it is allowed to work versus strangling it with regulation (as I spoke about last night with respect to small business) and then picking winners and losers. More making excuses and apologizing to the world. Someone needs to give Geithner a Michael Corleone moment: don't ever again take sides with others against the family, ever.

Another example. Thursday Mr. Sanders, the socialist senator, heard someone complain in Congress about the government stepping in and picking winners and losers and how that was not its business. He said we pick winners and losers. He said that is what we do, so let's not worry about it. Let's just worry about whether we are picking the RIGHT winners and losers. That is a bald-faced admission that the government is involved where it should not be. It is no surprise given what has happened over the last three years with GM, Chrysler, AIG, with Fannie Mae, Freddie Mac, Sallie Mae, etc. The list is endless where they have intruded upon the private sector. It has become so ingrained that these pompous asses in DC think that is their job. Can they actually read? Do they comprehend what the Constitution says? Even the most rudimentary reading leads any rational person to conclude we have a limited government. It is a government with specific, enumerated powers. Nowhere in that document does it even imply the feds are empowered to take over private businesses. Where is the due process in that? The equal protection? Alas, but I digress yet again.

The market is performing well. It was five days up on the SP500 and company. It put it right at its 50 day EMA and below the August peaks. Looking at the intraday chart, stocks were a bit soft to begin with, but they rallied right away. Unfortunately they turned and sold right away as well, putting it to negative. A bit of softness early on was no problem. After this kind of move, I somewhat expected it. I also expected a little volatility given it was expiration and we are ahead of a weekend after four days of gains.

Stocks double bottomed mid-morning (isn't that so often the case?) and turned right back up and rallied. They never made it back to the session high but did a credible job of posting that fifth gain in a row.

SP500, +0.6%; NASDAQ, +0.6%; Dow, +0.66%; SP600, slightly negative at -0.04%; SOX, +0.2%.

The small caps are lagging, chasing the bus hollering "Wait for me." I do not know if the market will wait. With the economy as bad as it is, it is no wonder the small caps are struggling. On the other hand, tech and the chips are leading as they should this time of year. Friday the moves were not bad, just not great moves. Considering the market had rallied five days it is natural for moves to slow down a bit. It is hard to complain with five days up as this is the first time this occurred in quite awhile, and not bad given all of the problems confronting investors and small businesses. Indeed, we have to worry about our own country in addition to Europe. We are not strong by any means as evidenced by sentiment on Friday. Better, but it still shows we have problems.

Michigan Sentiment came in at 57.8, better than the 56.3 expected and 55.7 prior. The sad part is that the future expectations were the lowest since 1980. Things might be better right now, after bouncing back from August when everyone felt bad, but they are not good long term. People do not feel that the economy is heading in the right direction. You see that in all kinds of polls measuring popularity and anything else you can think of.

It is not a great time in America. I do not think it is quite morning in America by any stretch of the imagination as our second Summer of Recovery turned out not to be a recovery. After all, according to a Wall Street Journal poll, one in three now say that we are heading into a recession. That is not a good level of confidence in the economy. Even though the Michigan Sentiment numbers were better, numbers in the 50's are recession level. Anyone who looked at our history and were unbiased in their views would say we are in a recession based on our sentiment. Sentiment indicators are right on the button, and that is where we are.


OTHER MARKETS

Dollar: 1.3788 versus 1.3886 Euro. The dollar rebounded modestly. The dollar cruised up through this week, and then it sold off. Why? It rallied based on how weak Europe is. Now that there action has been taken on the continent to try to alleviate the debt crisis, the dollar pulled back. On Friday it did bounce. In the effort to play "pin the tail on the reason," a lot of the financial stations said people felt the efforts to help the European situation would not be that successful. All in all, the dollar is still in a very sharp uptrend. Looking at the DXYO, it is still holding well above this important support that were the highs hit after it broke its trend. It broke through those this week, and now it is testing them. It looks solid to make this test and then continue to the upside.

http://investmenthouse.com/ihmedia/dxy0.jpeg


Bonds: 2.07% versus 2.08% 10 year U.S. Treasury. Bonds overall rallied. There were a lot of auctions of U.S. notes this week, and they did well. Bonds have pulled back; in other words, yields have rallied. They pulled back in price, but it is just a normal test as we saw in late August. Still in excellent shape to move higher. That is not a great vote of economic confidence at this point, but then again, why should there be economic confidence? The numbers give no reason to believe that is the case.

http://investmenthouse.com/ihmedia/tlt.jpeg


Gold: $1,814.70, +33.30. Gold bounced back up after its pullback. It is trying to make a higher low. Very solid bounce. There is no reason it should not bounce. It is in an uptrend. It just had a bit of double-top action. We will see how it fares next week. It will be a very important week because it has come back to some support. It is initially trying to bounce. It may still wander back down toward the 50 day EMA and the intraday lows from the second week of August before it makes a turn back to the upside.

http://investmenthouse.com/ihmedia/xgld.jpeg


Oil: $87.86, -1.54. Oil closed the week down. All week oil banged its head at the 90-day resistance and was unable to move through. That is a serious resistance point. It has come back to test that level, and it had done so the past week and a half, unable to move through. Maybe trying to set up some kind of bullish move, but it is getting squeezed right here. I see no reason it should go up with the economies the way they are. This week with Europe performing supposedly better with the bailouts and what have you, it should have moved higher. It was unable to break through 90, so I do not think it will be able to break through that level now. It should turn back and sell once more.

http://investmenthouse.com/ihmedia/xoil.jpeg


TECHNICAL SUMMARY

INTERNALS.

Volume. Volume spiked higher. It was expiration Friday, so we cannot read too much into that. NASDAQ volume rallied 36% to 2.66B. NYSE volume rallied almost 60% to 1.4B.

Breadth. The advance/decline line was boring with a 1.1:1 reading advancers over decliners on both the NYSE and NASDAQ.

I want to draw attention to one of the sentiment indicators of the bulls and the bears. I reported this earlier in the week, but this bears noting again. It has only happened a few times; that is, the bears crossing over above the bulls. The bears logged a 40.9% reading, up from 37.6% this week. The bulls fell from 38.7% to 35.5%. The bullish players in the market fell below the number of bearish players in the market. It is similar to the put/call ratio that measures the number of puts to calls; when it is higher than one, that is an unusual situation. Usually bulls are more prevalent than bears. More people are out using puts, and that means there is a high level of anticipation that the market will fall.

Historically when it gets extreme, that means the market the ready to rally. It is a very important indicator when you have this crossover of the bears up through the bulls. It does not happen often. It last happened in July 2010. Then the market rallied quite nicely. Now we have a crossover here. Will we get a nice rally off of this? We have five days up, and we will see if it can continue.


CHARTS

SP500. SP500 bumped into the 50 day EMA as it gets close to its August peak. It still has the August peak to deal with. Then it has the November peak at 1227 before it can even consider the March closing low at 1256 and then the June low at roughly 1260. It still has room to run. That is good because even after a little pullback early next week for a day or two, that the gives it a great springboard to move higher and test those levels.


NASDAQ. NASDAQ has already broken up through its June low. It is getting into that resistance range, having cleared its highs on this rally and putting in a new closing high. That is a positive as the techs lead. They typically start to show leadership this time of the year. Up five days. They could pull back and test right into this. I do not know how deep it would go. The 50 day EMA looks like a reasonable level at 2580. It could go back a bit more. A bit of pullback gives it a ramp to rally up further into its resistance level as well.


SP600. The small caps were disappointing. They were down on the session, again trading roughly flat with a doji. They moved up to their mid-August peak. They have not even hit the August high yet, and they are struggling. The economy is weak and the data we saw this week was no better. Indeed, it was worse once more with regional manufacturing and jobless claims. There is no reason to expect small caps to perform any better. There is no reason to perform better given the "Regulation Nation" that Fox News has been detailing all week about how the regulations impact small businesses.

There is a disproportionately heavy impact on the small businesses with respect to all of these regulations being passed. It is killing our economy and our middle class, and that is the irony. The administration talks about rescuing the middle class since it is being beaten to death. The middle class are those people who have their own small businesses. They are getting ground into dust by the regulations and red tape, and they cannot make a go of it anymore. More and more are shuttering their businesses every day, and we will go into economic decline as a result. We are on our way right now. It is not going to change unless there is some change.


SOX. SOX managed a modest gain, but it has had a good move and is a bit tired. This is the time leaders often start to take the lead, and that is exactly what they did. We made some money on some stocks on the way higher this week. We will look to do that after a pullback to test this initial move.


LEADERSHIP

Semiconductors/Technology. Technology was clearly the leader on the week. AAPL was moving nicely. It may have been partly due to RIMM's earnings as it gapped to the downside on its terrible showing. Of course, AAPL benefits from that as it was felt that RIMM's tablet might somehow rival the iPad. Does not look like that will be the case. AAPL the moving up toward its July high, getting some legs and sprinting well. GOOG made a little move. It bounced up to the top of its resistance range. Very important gap points here. It will be a big week for GOOG. Which way will it go?

Techs were performing just fine, and so were semiconductors. NVDA performed well this week. A nice, solid move to the upside. This was pretty much across the board. SLAB was moving higher as well. It put in a nice five-day day rally on its own. We will be looking from some pullback from these leaders in tech and semiconductors next week. It might give us a bit of entry.

China. China was not tearing things up, but it did not look bad. EDU was coming back and testing after a breakout. Looking solid. It could give us some action. We have been trying to get SNDA. It gapped higher on us on Friday over the 50 day EMA. Maybe it will test back this week and we can get in on that play as well. There is a little action in China giving things a decent look.

Retail. Retail had another good week. DG was surging higher almost 2% on Friday. DLTR had a good week as well. It was not a super move on Friday, but it had a nice week. BWLD came back to life. We took some gain off the table on Friday. There are moves out there occurring. They could use a bit of a pullback now to give us some new entry points. That is what we are expecting this week.

We have had five days to the upside. We are looking for a little pullback where we can pick up some of these leaders. We also need to watch for some downside plays. Stocks have rallied, but we have to be ready just in case they do not want to play along with the rally scenario.



THE MARKET

SENTIMENT INDICATORS

VIX. Volatility started to crack on Friday. It had been holding up quite well, and that indicated that the market was still trying to bounce higher. On Thursday and Friday it did start to crack, breaking through these gap points and prior holds in the pullback. There is a bit of wiggle room here, and it did hold at the 50 day EMA. It can still bounce at this point. In other words, the market could sell off, and it would ricochet higher. It is suggesting now that maybe investors are not anticipating a selloff as much as they were. That is a positive.

The market has put in a good week, and next week will be important. The test will tell whether or not it is a normal pullback that the market can rally off of, or if the sellers will come in to rip it and flip it. Then there could be problems to the downside which would, of course, send volatility spiking.

VIX: 30.98; -0.99
VXN: 29.36; -1.31
VXO: 31.28; -1.23

Put/Call Ratio (CBOE): 1.02; 0

Bulls versus Bears:

This is a reading of the number of bullish investment advisors versus bearish advisors. The reason you look at this is that it gives you an idea of how bullish investors are. If they are too bullish then everyone is in the market and it is heading for a top: if everyone wants to be in the market, then all the money is in and there is no more new cash to drive it higher. On the other side of the spectrum if there are a lot of bears then there is a lot of cash on the sideline, and as the market rallies it drags that cash in as the bears give in. That cash provides the market the fuel to move higher. If bears are low it is the same as a lot of bulls: everyone is in and the market does not have the cash to drive it higher.

Bulls: 35.5% versus 38.7%. Falling sharply, down from 40.9% just three weeks back. At that important 35% level considered bullish. Has crossed down through bears, a bullish market indication. Solid move lower from 49.5% in late July. Highs from April and December (60% readings spanning December through early May 2011). The 5 year high is 62.0. The crossover level at 29% bulls from July 2010 is long gone. 35% is the threshold level suggesting bullishness. To be seriously bearish it needs to get up to the 60% to 65% level.

Bears: 40.9% versus 37.6%. Big upside move and through the falling number of bulls. I said it moves quickly when it gets going. For a third week bears are over the 35% threshold considered a bullish indicator and have made that important crossover of bulls. For more reference, bearishness hit a 5 year high at 54.4% the last week of October 2008. The move over 50 took bearish sentiment to its highest level since 1995. Extreme negative sentiment. Prior levels for comparison: Bearishness peaked at 37.4% in September 2007. It topped the June 2006 peak (36%) on that run. That June peak eclipsed the March 2006 high (33%) and well above the 2005 highs that spawned new rallies (30% in May 2005, 29.2% in October 2005). That was a huge turn, unlike any seen in recent history.



NASDAQ

Stats: +15.24 points (+0.58%) to close at 2622.31
Volume: 2.669B (+36.87%)

Up Volume: 1.25B (-270M)
Down Volume: 1.51B (+1.052B)

A/D and Hi/Lo: Advancers led 1.14 to 1
Previous Session: Advancers led 1.98 to 1

New Highs: 35 (+10)
New Lows: 51 (-7)

NASDAQ CHART: http://investmenthouse.com/ihmedia/NASDAQ.jpeg

NASDAQ 100 CHART: http://investmenthouse.com/ihmedia/NASDAQ100.jpeg

SOX CHART: http://investmenthouse.com/ihmedia/SOX.jpeg


SP500/NYSE

Stats: +6.9 points (+0.57%) to close at 1216.01
NYSE Volume: 1.421B (+59.48%)

Up Volume: 2.47B (-1.05B)
Down Volume: 2.24B (+1.775B)

A/D and Hi/Lo: Advancers led 1.1 to 1
Previous Session: Advancers led 2.92 to 1

New Highs: 54 (+12)
New Lows: 28 (+3)

SP500 CHART: http://investmenthouse.com/ihmedia/SP500.jpeg

SP600 CHART: http://investmenthouse.com/ihmedia/SP600.jpeg


DJ30

Stats: +75.91 points (+0.66%) to close at 11509.09
Volume DJ30: 425M shares Friday versus 172M shares Thursday.

DJ30 CHART: http://www.investmenthouse.com/ihmedia/DJ30.jpeg


MONDAY

Next week there is more economic data, of course. We cannot get away from it. Tuesday Housing Starts and Permits report. We have a two-day FOMC meeting on Tuesday and Wednesday, for what that is worth. We will not hear much from them. I think there are a lot of issues the Fed has to deal with. Most people will be watching and listening very closely with respect to any Quantitative Easing or other type of stimulus from them. They will not do anything unless it becomes apparent in DC on the fiscal side that the President's so-called jobs plan is dead in water. After they give up on that, then they would like to come in with some sort of stimulus. That would help stocks given the liquidity. That is what this whole move has been based on thus far. If more comes in, stocks will enjoy it.

This is the two-day, September meeting. They said they would talk more about Quantitative Easing, but again, I do not think they will put anything out on this meeting because the President is touting his stimulus. Unless he says they will not pass it and admits defeat without a fight. It could be, because I think this is more of a campaign reelection ploy than a real jobs plan. But I still do not think the Fed will come out unless the President throws up his hands and says he cannot work with the Republicans.

Thursday you have Initial Jobless Claims and Leading Indicators. The Leading Indicators we have seen have not been very leading. They have been up, but the economy is not moving higher.

There is the economic picture. It will have some impact, but the real play is in the technical picture. Five days to the upside, a little pullback, and it sets a good ramp for a continued move higher. It is not too much rocket science at this point. I was laughing earlier because on CNBC today they were saying how everyone is being a technician right now because that is working. It always works but it is only acknowledged as working when the fundamental players cannot figure out what the heck is going on. The market goes back and forth and they see what they call value, but no one wants it.

That is the problem with value investing. A company could be a great value, but still no one wants it. Great values become even greater values they can become super values. At some point they will make a turn and be wanted. The charts show you that. You can wait until then to buy instead of putting your money in it because it is a damn good company and then waiting for six month or a year or longer for it to do something. It is just a different philosophy, kind of like Washington, DC right now, I suppose. Interestingly, one is more successful than the other.

I am looking for a pullback. It is not a good time to enter. We did not buy any new positions on Friday. Indeed, we were taking some gain off the table in AAPL and FLIR. We took those off the table, and it was worth it. Now we look for a pullback to give us some new upside positions. That is where you come in with plays at the ready. There are some great stocks that are already pulling back. There are good stocks we want to get a chance at again. We will see if we can move into those if they give us the pullback.

At the same time, you have to be ready with the just-in-case downside. Things look like they want to rally in the market overall. It is the time of the year for techs to lead and rally, and they are doing that. But if some nasty stuff comes out of Europe if all the good vibes from this week evaporate and things turn negative then we have to be ready for the downside. We already have some in hand. Some we are in are kind of sticking us in the eye right now, but they are also bumping up against resistance. If we get a bit of pullback, we can look at those and take them to the downside, or at least get a better exit point.

What is the culmination? I think we will get a bit of a pullback. Looking at NASDAQ's chart, it has already broken through its June low. So it comes back and tests, and then it makes a new bounced to the upside. That is what we are looking for. I do not think this move is dead yet. I think the liquidity generated by the ECB and the other central banks will have a lingering effect. I think that will make investors anticipate some kind of Quantitative Easing by the Fed. That gives this rally additional legs. We will look to play it more to the upside, particularly after a pullback. Then we will look for the downside. If it turns over and starts to fall after that, then we will be ready to play that. But we also have to be ready this week in case the that good will engendered this past week dissipates on some news out of Europe.

I hate to say it, but Europe is driving this right now along with some technical aspects. We have to play the technical aspects with an idea that the European problem could arise once more and wreck everything. You cannot play solely on that, however. You do not know when that will happen. You look at what stocks are setting up as leadership. They have been doing that and have started to the upside. You play those, and then you take some profits when it is reasonable to do so. Then you continue to play the move as far as you can.

That has been the plan. That has what we have been doing all along in this trading range, and we are not about to stop. Next week we will see if we get a pullback that gives us more entries for some upside to make additional money.

Have a great weekend!


Support and Resistance

NASDAQ: Closed at 2622.31

Resistance:
2645-2650ish from December 2010 consolidation
2676 is the January 2010 low
2686 is the January 2011 closing low
The 200 day SMA at 2705
2706 to 2705 is the April 2011 low and the February 2011 and consolidation low (bottom of the trading range) 2723 to 2705 is the range of support at the bottom of the January to May trading range
2759 is the May low
2762 is the February low
2796 is the February gap down point
2816 is the early April peak.
2825 is the 2007 closing peak.
2841 is the February 2011 peak
2862 is the 2007 peak
2879 is the July 2011 peak
2888 is the May 2011 peak

Support:
2612 is the late August 2011 peak
2603 is the March 2011 intraday low (post-Japan low)
2599 is the June 2011 low
2593 is the November intraday high
The 50 day EMA at 2582
2580 is the November 2010 closing high
2569 is the November gap up point through the April 2010 peak
2555 is the mid-August 2011 peak
2546 is the early September 2011 gap down point
2540 is the early November 2010 lower gap point
2532 is the early August gap down point
2512 is last week's gap down point
2469 is the November 2010 low
2331 from October 2010 low and the August 2011 low
2305 from the August 2010 peak (summertime base)
2139 is the May and June 2010 low
2123 is the August 2010 gap down point
2100 from the August 2010 lows


S&P 500: Closed at 1216.01
Resistance:
The 50 day EMA at 1218
1220 is the April 2010 peak
1227 is the November 2010 peak
1231 is the late August 2011 peak
1234 is the August 2011 low
1235 is the mid-December 2010 consolidation low
1249 is the March 2011 low (post-Japan)
1255 is the late December 2010 consolidation range
1275 is the January 2010 low, early January 2011 peak
The 200 day SMA at 1283
1295 to 1294 is the April 2011 low and the February 2011 consolidation low (bottom of the trading range)
1313 from the August 2008 interim peak
1318.51 is the May low
1325-27 is the March 2008 closing low and the May 2006 peak.
1332 is the early March peak
1340 is the early April 2011 peak
1344 is the February 2011 peak is being challenged again
1357 is the July 2011 peak
1364 is the March 2007 low
1370 is the August 2007 low
1371 is the recent May 2011 peak

Support:
1209 is the mid-August 2011 high
1196 is the November 2010 consolidation peak
1178-1180 is the October 2010/November 2010 consolidation low
1131 - 1127 from August 2010 base peak.
1119 is the early August closing low
1109 is the mid-September 2010 gap up point
1101 is the August 2011 low
1099 from the mid-July interim peak
1040 from the August 2010 lows and May/June 2010 lows
1011 is the summer 2010 low


Dow: Closed at 11,509.09
Resistance:
11,555 is the March low
The 50 day EMA at 11,570
The August low at 11,700
11,717 is the late August 2011 peak
11,734 from 11-98 peak
11,867 from the August 2009 high and peak on that bounce in the selling.
11,893 from March 2008 closing low
The June low at 11,897 (closing)
The 200 day SMA at 12,001
12,094 is the April 2011 low
12,110 from the March 2007 closing low
12,283 is the March 2011 peak
12,391 is the February 2011 peak
12,876 is the May high
12,754 is the July intraday peak
13,058 from the May 2008 peak on that bounce in the selling

Support:
11,452 is the November 2010 peak
11,178 from November 2010
10,978 is the bottom of the November 2010 consolidation
10,750 from September 2010
10,720 is the August closing low
10,705-710 from January 2010 peak
10,694-700 from August 2010 peak
9938 is the August 2010 low


Economic Calendar

September 13 - Tuesday
Export Prices ex-ag., August (8:30): 0.3% actual versus 0.1% prior (revised from 0.5%)
Import Prices ex-oil, August (8:30): 0.2% actual versus 0.2% prior (revised from 0.4%)
Treasury Budget, August (14:00): -$134.2B actual versus -$132.0B expected, -$129.4B prior (revised from -$90.5B)

September 14 - Wednesday
MBA Mortgage Index, 09/10 (7:00): +6.3% actual versus -4.9% prior
MBA Mortgage Purchas, 09/10 (7:00): -4.9% prior
PPI, August (8:30): 0.0% actual versus 0.0% expected, 0.2% prior
Core PPI, August (8:30): 0.1% actual versus 0.2% expected, 0.4% prior
Retail Sales, August (8:30): 0.0% actual versus 0.2% expected, 0.3% prior (revised from 0.5%)
Retail Sales ex-auto, August (8:30): 0.1% actual versus 0.3% expected, 0.3% prior (revised from 0.5%)
Business Inventories, July (10:00): 0.4% actual versus 0.5% expected, 0.4% prior (revised from 0.3%)
Crude Inventories, 09/10 (10:30): -6.7M actual versus -3.963M prior

September 15 - Thursday
Initial Claims, 09/10 (8:30): 428K actual versus 410K expected, 417K prior (revised from 414K)
Continuing Claims, 09/03 (8:30): 3726K actual versus 3700K expected, 3738K prior (revised from 3717K)
CPI, August (8:30): 0.4% actual versus 0.2% expected, 0.5% prior
Core CPI, August (8:30): 0.2% actual versus 0.2% expected, 0.2% prior
Empire Manufacturing, September (8:30): -8.8 actual versus -4.0 expected, -7.7 prior
Current Account Balance, Q2 (8:30): -$118.0B actual versus -$121.5B expected, -$119.3 prior
Industrial Production, August (9:15): 0.2% actual versus 0.0% expected, 0.9% prior (no revisions)
Capacity Utilization, August (9:15): 77.4% actual versus 77.4% expected, 77.3% prior (revised from 77.5%)
Philadelphia Fed, September (10:00): -17.5 actual versus -10.0 expected, -30.7 prior

September 16 - Friday
Net Long-Term TIC Fl, July (9:00): $9.5B actual versus $3.7B prior
Michigan Sentiment, September (9:55): 57.8 actual versus 56.3 expected, 55.7 prior


September 19 - Monday
NAHB Housing Market , September (10:00): 15 expected, 15 prior

September 20 - Tuesday
Housing Starts, August (8:30): 592K expected, 604K prior
Building Permits, August (8:30): 588K expected, 597K prior
FOMC Rate Decision, September (14:15): 0.25% prior

September 21 - Wednesday
MBA Mortgage Index, 09/17 (7:00): +6.3% prior
Existing Home Sales, August (10:00): 4.70M expected, 4.67M prior
Crude Inventories, 09/17 (10:30): -6.7M prior
FOMC Rate Decision, September (14:15): 0.25% expected, 0.25% prior

September 22 - Thursday
Initial Claims, 09/17 (8:30): 417K expected, 428K prior
Continuing Claims, 09/10 (8:30): 3730K expected, 3726K prior
FHFA Housing Price I, July (10:00): 0.9% prior
Leading Indicators, August (10:00): 0.1% expected, 0.5% prior

By: Jon Johnson, Editor
Copyright 2011 | All Rights Reserved

Jon Johnson is the Editor of The Daily at InvestmentHouse.com

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Monday, September 12, 2011

Things Not All Roses for Big Companies

SUMMARY:

- More problems 'over there' again undercut US stocks as German ECB chief economist quits amid speculation Greece defaults soon.
- Half a stimulus that did nothing is still nothing as far as financial markets are concerned.
- Things are not all roses for the big companies: TXN outlook disappoints while BAC to lay off tens of thousands.
- Terror threat increase adds to pre-weekend damper.
- The campaign plan has started: Geithner states effectiveness of Obama 'stimulus' bill "depends upon Congress."
- Indices still in their recent uptrend despite falling 5 of 6 sessions.
- Potential leaders still holding onto and building their patterns.

When $447B is not enough, or more accurately, directed at the wrong things.

It was another tough session for stocks. Indeed, it was a tough week for stocks as they closed down for the fifth session out of six. That puts them down for two weeks in a row, and that is two out of three weeks that the market has closed to the downside ahead of the weekend. Not good action. Even so, the indices are still holding the uptrends off of the early-August low. SP500 is still holding its uptrend. NASDAQ is still holding its uptrend as well it actually has a double bottom and is holding off of that. The small caps are holding their uptrend as well. Remember, the early-August low is important in itself because it tested the Summer 2010 base highs and has held thus far.

The indices look rather ugly. They have had the big tumble down, and they made an ABCD pattern. They tried to bounce back up but they are selling. They could very easily sell down to the prior low. Then we just have to see whether they continue down. I opined earlier that if they sold off that low, they would probably break down into the Summer 2010 base and trade down to a very important level in SP500 at 1040. It has touched that level several times and held. That is the start of the range of next support, however, because there is the July low at about 1015-1020. There are other levels that use that as support as well, looking back to early-October 2009.

This is a support range that the indices would head down to if this upper support range from the base breaks. It is something of a positive that the indices are still holding their uptrends even after five out of six days to the downside. And we still have a lot of those leader wannabes holding their patterns together, building their bases even as the market sells off. That is a positive. If these stocks refuse to give in and build their patterns and break higher, that will be a plus to the upside for the market overall.

Looking at the action intraday, the stocks started lower. Futures were down all morning. There was some not-good news, and I will discuss that later. They recovered with an initial bounce, but that was unable to stick and stocks headed lower. There were some issues that caused them to head lower. Greece was one of them and, I will go into that more later. Stocks sold off to lows late in the afternoon session, and then they put in a token short-covering bounce late in the day. It did not do much good, although it did bounce the indices off their lows and keep them in the short-term uptrends.

SP500, -2.7%; NASDAQ, -2.4%; Dow, -2.7%; SP600, -3%; SOX, -1%.

There was a quartet of news for the day. Number one, the traders were beating their heads against the desk again. As noted, stocks were down five out of six sessions, and one of the reasons was they found no solace in the President's major jobs speech on Thursday night. It was $447B in proposed spending. That is roughly half of what was spent in stimulus number one, and that simply was not enough. Or perhaps it was not the right kind of spending. This is the same stuff that was tried before. It is what has been tried all during the recovery. Maybe not part of the initial stimulus, but it has been thrown at the recession and has not worked. We had a little bump in GDP, but if you raise that much liquidity through monetary policy as the Fed did (basically printing money) you will get the financial increase which helps boost the ability of corporations to spend money. That is exactly what we have seen. And that is pretty much all we have seen.

There was not much joy found in the President's plan. The chance of it passing as proposed are not that good. The Republicans are simply not going to go for some parts of the program that are pure Keynesian theory. As Rick Perry said in the GOP debate, this entire scenario has once again proved that Keynesian policies simply do not work when it comes to the economy.

One of the things bothering the market was "over there." Europe once again was the highlight. There were two stories out of Europe that dogged the market all day. Number one, the ECB lost one of its executive council members. Mr. Stark from Germany, one of its chief economists, walked out. It was almost a protest resignation. It shows there still is some dissension in Germany even though the German courts said that the bailout was constitutional. So a pensive Mr. Stark exited stage right, and that had investors worried. Why was he leaving? Was he getting out before the storm, or was it just a protest? We will know at some point, but right now it was enough to rattle investors.

Then Mr. Papandreou in Greece was defending his austerity even as all other indicators in all of the markets show it will likely not work. Credit default swaps are surging for Greece, and currency trades show there is no faith in Greece. The bond rates are also having issues. It is saying that the country will default. That was the rumor during the day that really started to impact the market mid-morning and send it lower. It seems like it could not get much worse than that, although it will, believe me. In any event, the market was worried about that. The question is will Greece be forced to default over the weekend? That was the speculation, and it may happen this weekend. That is never good for the markets.

The third story of bad news had to deal with U.S. companies. TXN gave a lackluster mid-quarter update on Thursday night. Even though the stock traded up and chip stocks showed relative strength, it was not good news for the market overall. Then BAC announced that it could make layoffs in the amount of 40K workers. The number is not fixed yet, but that is a huge hickey. It also dovetails with what some are saying with respect to the jobs picture. The number of layoffs are increasing once again, job creation is falling, and jobless claims on a weekly basis are rising again. All of these add up to a typical indicator that a new recession is coming. In this case, it would be a double-dip. In my view and that of many others small businesses especially there was never an end to the first recession. It was only the large corporations that got subsidies and benefited from the Obama export-nation plans. There was not good news with respect to the jobs report and hence the economy as well.

The fourth bit of news was the potential credible terrorist threat for Washington, DC and New York. It could be car bombs or truck bombs going off. Something to rattle us and let us know the terrorists are still there. They are potent. They have things they can do. They think they know who these guys are, but they do not know where they are. They see suspicious activity and are taking action on it. They alerted everyone to be on the lookout. It reminds me of Fahrenheit 451 by Ray Bradbury where they get on the news and say, "Here's your guy, now find him." It is a bit different scenario because there are real bad guys here. It has been enough to help rattle the market. A terror attack may not be devastating to the financial markets, but it would be a major drag near term.


OTHER MARKETS

The quartet of news obviously had its impact on stocks, and it also impacted the other markets. It definitely sent the U.S. dollar skyrocketing again on Friday.

Dollar: 1.3672 versus 1.3886 euro. That is a six-month high for the dollar against the Euro as it smashed through the resistance. It looks like the trend is continuing. Is it because of U.S. strength? No. On Thursday night the President basically said he will devalue our dollar more. He would have to devalue the dollar because he will need to print more money to pay for the deficits he will create. It is another half trillion dollars in deficit that the Deficit Panel will have to figure out how to handle if, of course, it passes. It skyrocketed the dollar, no doubt to the chagrin of Treasury Secretary Giethner and Fed Chief Ben Bernanke who want a cheap dollar, and also the President who wants an export nation. I would love to see the dollar double from here. That would do more for US citizens and small businesses than anything the government could do stimulus-wise.

The government wants to devalue our currency. They want to run up inflation and shred our savings in dollars in order to help pay off its debts. If we have a surging dollar, that benefits us because suddenly we can buy more with our dollars. The federal government may not realize this, but if we can buy more with our dollars, we WILL buy more. And that will help the economy. People will start investing here because they will not see the dollar as a bad place to put money.

Say you were going to invest money in the United States but they were debasing the currency so it loses 18% of its value against other currencies in two months. Would you still want to put money there? Of course not. That is keeping money out of the U.S.. That is insanity, and that is why no country has ever devalued its currency to prosperity. You want to make your currency more valuable so other investors want to put their money in dollar-denominated investments. A rising dollar is beautiful, and I love to see it. It probably will not continue, but it is going higher for the near term.

http://investmenthouse.com/ihmedia/dxy0.jpeg


Bonds: 1.92% versus 1.98% 10 year U.S. Treasury. Bonds surged. This is a record low for the 10 year yield. Incredible. Bonds are on a massive run. As I said all along, if the economy was improving they would not be running. Obviously that is why they broke out and ran. If you watch it, the bond market is telling you that the economy is not so good. It is telling you there is fear in the world. You have money coming into the dollar and bonds from Europe. It is rushing away from Europe because they believe collapse is imminent in several of the PIIGS countries.

http://investmenthouse.com/ihmedia/tlt.jpeg


Gold: $1,859.50, +2.00. Gold was touted as being up on the session, and it did close up. It was just a two-dollar gain, so it was no surge to the upside. Gold continues its run. There is no doubt its uptrend is in place, but it is spending a lot of time at the 20 day EMA and has not been able to break through that mid-August peak. Indeed, it reversed in early September when it rallied up to that level and hit it. Of course it did not sell off. We are looking for a potential breakdown from this third high. That could be the move that takes gold a bit lower for more of a consolidation, but a lot of that depends on what happens in other parts of the world. That makes it difficult to come in and make the plays on gold. As fear ratchets up that perhaps Greece or Italy will collapse, then gold will run higher.

http://investmenthouse.com/ihmedia/xgld.jpeg


Oil: $87.24, -1.81. Oil closed lower. I said the 90-level was resistance. Wednesday and Thursday it tapped at 90 (it used that level as support back in June), and it faded back off that high. It rallied Wednesday on the storm that was forming in the Gulf. That storm will now head into Mexico without meandering up into the central or northern Gulf of Mexico. Oil prices have no reason to rise for storm events, so therefore they are falling back down. It looks like there will be another selloff in oil barring something like a terror attack or a new storm forming that will plow through production areas in the Gulf of Mexico.

http://investmenthouse.com/ihmedia/xoil.jpeg


TECHNICAL SUMMARY

INTERNALS.

Volume. Volume surged on the day. Up 4% to 2B shares on NASDAQ, and up 30% on the NYSE to 1.13B shares. That pushed the NYSE above average for the first time in over a week. NASDAQ bumped right to average for the first time in over a week.

Breadth. Breadth was -5:1 on NASDAQ, and NYSE matched that at -5:1 as well.


CHARTS

SP500. There was some serious downside action, no doubt, but it really was not any different from the back and forth we have seen. We have seen a lot of volatility as NASDAQ and other indices test those Summer 2010 base highs. We are getting volatility back and forth. What does that mean? The buyers and sellers are fighting it out at that level. This is an important level. The indices have given up the QE2 rally completely. They have come back down to the base that formed right before the breakout on QE2. Now this is very important level indeed. They could hold and continue back to the upside. Maybe it will be on an announcement of a new Quantitative Easing program now that the President has put forth his plan or parts of it. He will drag out more as the weeks go by, apparently. Either it will continue upside or it will break down and sell off down to those levels I talked about earlier. That would be a fairly serious move. Although this move from late July into August is not chopped liver at all as SP500 shows.

We have had the breakdown and we have an ABCD set up. It is coming back to test. We have an uptrend in place that is holding, and we will see if that can make the difference aided by, of course, the stocks that are showing similar patterns.


NASDAQ. NASDAQ gapped lower and sold off. But it is also holding its uptrend off of the double bottom it formed in August. It is hanging in there, but I would not call it strong. I will not say it is a lock to go back up. It is struggling as well, but it is still a big battle between the buyers and sellers. Friday was not a day they found what they needed. They did not get the love they needed from the President as far as the kind of stimulus that works. It is the kind of stimulus that plays to voters, and that does not help the stock market. Why? The stock market wants growth. Growth leads to earnings increases, and earnings increases lead to stock price increases. Busy jobs were you fix a school or paint a bridge are nice, but they are temporary. And they are paid for with funds taken away from someone with a productive business. Once those jobs are done, the stimulus is gone. It is not lasting. Then you have a double whammy: You no longer have that job, and the people you took money from are not able to be as productive as they could have been.


SP600. The small caps are very similar to NASDAQ. Double bottom, bounce, still holding their trend. It is getting tenuous. Do not get me wrong, it is not like they will leap off. There is still a big battle going on right now as to who will win.


SOX. SOX was down only 1%, showing relative strength. Perhaps it is about time that those stocks will be able to help the market after dragging it lower for such a long period.



LEADERSHIP

Retail. Retail is still managing to perform rather well. LTD had a nice ABCD pattern. It broke higher and it is testing in a little flag. Looking solid. RGR has formed a flag after a nice run to the upside. DLTR is forming a flag after a breakout move. DG is coming back to test the breakout, holding the highs from the base that it formed before that. PII has a double bottom, broke out, and it has come back to test.

With the exception of PII and maybe the LTD, discounters are performing very well. That is not a good thing for the market overall as people seek value with the fewer dollars they possess. Those dollars are also worth much less than they were thanks to the devaluation of the dollar. Maybe they will soon be worth more. We will see.

Technology. RIMM rallied nicely. It is coming back to test, and it is forming a pennant. It is still way down in its pattern, but that is solid action that could be setting up a new move to the upside. We see something similar from NVDA. It broke its trends, it has gapped and is testing. It is an important test now to see if it can hold. IPGP is in semiconductors. While it is down and had a relatively rough ride, it is at serious support at the near-term trendline that the indices are showing, the 200 day EMA, and the top of its support range. So it could bounce here as well. These are not fantastic patterns because the market is not fantastic. However, as we have seen with the other patterns where stocks are building off their lows, it can be a nice move higher.

China. NTES is coming back and forming a flag off of a double bottom maybe a double bottom with handle. BIDU continues to hold up well. It has even formed an inverted head and shoulders to consolidate this move. That is an ABCD. It broke higher, tested, and now it looks like it wants to go back up again. SINA broke out of its triangle and came back to test. Looks good.

Inverted head and shoulders/double bottom patterns. There are others that I have talked about a lot lately in these double bottoms or inverted head and shoulders. SHAW is performing this way right now. It broke higher and is coming back to test. It makes it very intriguing.

We are seeing the same thing we have seen all along. There are some stocks performing quite well. Retail is performing well overall along with some Chinese stocks. Maybe China is getting ready to start popping again. Generally, however, the market is not in fantastic shape. Again, as I talked about the past week, the majority of the leaders are some big drug stocks, personal product stocks such as CL, and utilities stocks. They have been performing the best as large groups, and those are defensive plays. They do not necessarily indicate that the economy or the market is ready to run higher.

I do have some hope, although I hate to say it since it rhymes with dope. There are some positives in those patterns that did not break down as the market struggled late in the week these inverted head and shoulders and double bottoms. ACI is an example; it held up just fine. These are upside bullish patterns, and they could turn into nice winners to the upside. That gives me the idea that the market will be able to hold this trend near term and bounce one more time.



THE ECONOMY

TO VIEW THE ECONOMY VIDEO CLICK THE FOLLOWING LINK:

Flash: http://investmenthouse1.com/ihmedia/f/eco/eco.html

$900B didn't succeed, so how will $447B more for the same things be different? Hello, Mr. Einstein?

Geithner: Obama proposal to have a "sustainable impact" but effectiveness "depends upon Congress."

Saying it enough makes it happen? "Pass the bill" uttered 18 times.

Crisis? Mentioned 10 times in the address. Why wait so long at Martha's Vineyard?

How will the Deficit Panel make necessary reductions with another half trillion throw away?




THE MARKET

SENTIMENT INDICATORS

VIX. The VIX never did fall as the market rallied. It held its pattern. It formed a pennant, and with the selling on Friday, it gapped to the upside and rose 12%. A strong move on the VIX, and it could be that it will try to make a breakout. Of course, if the market continues selling, that is exactly what it will do. It bounced down off of its upper trendline on Friday, so it was not clearly a case that it will going for the breakout unabated. But if there a problem over the weekend and there is further selling, it will break out.

My main point is that it never really tanked as the market posted some big upside days. The fact that it did not fall off shows that traders are anticipating more downside.

VIX: 38.52; +4.2
VXN: 37.99; +4.34
VXO: 40.63; +7.01

Put/Call Ratio (CBOE): 1.34; +0.2

Bulls versus Bears:

This is a reading of the number of bullish investment advisors versus bearish advisors. The reason you look at this is that it gives you an idea of how bullish investors are. If they are too bullish then everyone is in the market and it is heading for a top: if everyone wants to be in the market, then all the money is in and there is no more new cash to drive it higher. On the other side of the spectrum if there are a lot of bears then there is a lot of cash on the sideline, and as the market rallies it drags that cash in as the bears give in. That cash provides the market the fuel to move higher. If bears are low it is the same as a lot of bulls: everyone is in and the market does not have the cash to drive it higher.

Bulls: 38.7% versus 40.9%. Bulls fell as they should, heading toward that important 35% level and on the verge of crossing down through bears, a bullish market indication. Solid move lower from 49.5% in late July. Highs from April and December (60% readings spanning December through early May 2011). The 5 year high is 62.0. The crossover level at 29% bulls from July 2010 is long gone. 35% is the threshold level suggesting bullishness. To be seriously bearish it needs to get up to the 60% to 65% level.

Bears: 37.6% versus 36.6%. When it starts to move, it moves quickly. For a second week bears are over the 35% threshold considered a bullish indicator. For more reference, bearishness hit a 5 year high at 54.4% the last week of October 2008. The move over 50 took bearish sentiment to its highest level since 1995. Extreme negative sentiment. Prior levels for comparison: Bearishness peaked at 37.4% in September 2007. It topped the June 2006 peak (36%) on that run. That June peak eclipsed the March 2006 high (33%) and well above the 2005 highs that spawned new rallies (30% in May 2005, 29.2% in October 2005). That was a huge turn, unlike any seen in recent history.


NASDAQ

Stats: -61.15 points (-2.42%) to close at 2467.99
Volume: 2.036B (+4.09%)

Up Volume: 273.04M (-428.88M)
Down Volume: 1.78B (+500M)

A/D and Hi/Lo: Decliners led 4.94 to 1
Previous Session: Decliners led 3.08 to 1

New Highs: 11 (-17)
New Lows: 195 (+138)

NASDAQ CHART: http://investmenthouse.com/ihmedia/NASDAQ.jpeg

NASDAQ 100 CHART: http://investmenthouse.com/ihmedia/NASDAQ100.jpeg

SOX CHART: http://investmenthouse.com/ihmedia/SOX.jpeg


SP500/NYSE

Stats: -31.67 points (-2.67%) to close at 1154.23
NYSE Volume: 1.139B (+29.43%)

Up Volume: 168.01M (-431.56M)
Down Volume: 4.67B (+1.33B)

A/D and Hi/Lo: Decliners led 4.93 to 1
Previous Session: Decliners led 3.03 to 1

New Highs: 50 (+1)
New Lows: 221 (+191)

SP500 CHART: http://investmenthouse.com/ihmedia/SP500.jpeg

SP600 CHART: http://investmenthouse.com/ihmedia/SP600.jpeg


DJ30

Stats: -303.68 points (-2.69%) to close at 10992.13
Volume DJ30: 228M shares Friday versus 173M shares Thursday.

DJ30 CHART: http://www.investmenthouse.com/ihmedia/DJ30.jpeg


MONDAY

If we can make it through the weekend and all the issues (whether a potential terror attack or a Greek or other European government folding), then the market will be happy at least with a chance of bouncing. It has a stimulus package that the Congress and the President will work their way through. Some of it will be passed. We also have Ben Bernanke out with the possibility of another Quantitative Easing move. If that happens, then the market will be very pleased and ready to rally.

There is plenty of data next week. We will see the PPI, Retail Sales, the CPI, more Jobless Claims, Industrial Production and Capacity, and then the Philly Fed along with Michigan Sentiment. There will be plenty of scheduled data to go along with the daily stories out of Europe and any other stories we may have from other nations in trouble (it could be the U.S). We have plenty of news, and we have plenty of stocks in position to make a bounce. If they can fulfill the patterns they are showing, it can bounce the indices back up toward that June peak.

I am still not looking for a breakout. Maybe I am being pollyanna in trying to look for a bounce at all, but the indices keep fighting off these attempts to sell it. As long as these stocks we have been watching continue to hold these patterns, hold support, and build on them, then there is the potential for the market to rally back up. There are a lot of stocks in this double bottom or inverted head and shoulders pattern. If they get the catalyst to move higher and this is the time of year you start to see technology and growth stocks start to move then we will see the stock market break higher as well. MACD is showing the momentum change, and a lot of these look like they are ready to break higher. All it takes is a handful of them to start making the move. The buyers come in, and then we can get that nice rally up to the June low and maybe into this range.

We will see how it comes out on Monday. I hoped we can all get through this weekend. I think we will, and that will let the market bounce to the upside.

Have a great weekend!



Support and Resistance

NASDAQ: Closed at 2529.14

Resistance:
2532 is the early August gap down point
2540 is the early November 2010 lower gap point
2546 is the early September 2011 gap down point
2555 is the mid-August 2011 peak
2569 is the November gap up point through the April 2010 peak
2580 is the November 2010 closing high
The 50 day EMA at 2591
2593 is the November intraday high
2599 is the June 2011 low
2603 is the March 2011 intraday low (post-Japan low)
2645-2650ish from December 2010 consolidation
2676 is the January 2010 low
2686 is the January 2011 closing low
The 200 day SMA at 2705
2706 to 2705 is the April 2011 low and the February 2011 and consolidation low (bottom of the trading range) 2723 to 2705 is the range of support at the bottom of the January to May trading range
2759 is the May low
2762 is the February low
2796 is the February gap down point
2816 is the early April peak.
2825 is the 2007 closing peak.
2841 is the February 2011 peak
2862 is the 2007 peak
2879 is the July 2011 peak
2888 is the May 2011 peak


Support:
2512 is last week's gap down point
2469 is the November 2010 low
2331 from October 2010 low and the August 2011 low
2305 from the August 2010 peak (summertime base)
2139 is the May and June 2010 low
2123 is the August 2010 gap down point
2100 from the August 2010 lows


S&P 500: Closed at 1185.90
Resistance:
1196 is the November 2010 consolidation peak
1209 is the mid-August 2011 high
1220 is the April 2010 peak
1227 is the November 2010 peak
The 50 day EMA at 1226
1231 is the late August 2011 peak
1234 is the August 2011 low
1235 is the mid-December 2010 consolidation low
1249 is the March 2011 low (post-Japan)
1255 is the late December 2010 consolidation range
1275 is the January 2010 low, early January 2011 peak
The 200 day SMA at 1284
1295 to 1294 is the April 2011 low and the February 2011 consolidation low (bottom of the trading range)
1313 from the August 2008 interim peak
1318.51 is the May low
1325-27 is the March 2008 closing low and the May 2006 peak.
1332 is the early March peak
1340 is the early April 2011 peak
1344 is the February 2011 peak is being challenged again
1357 is the July 2011 peak
1364 is the March 2007 low
1370 is the August 2007 low
1371 is the recent May 2011 peak

Support:
1178-1180 is the October 2010/November 2010 consolidation low
1131 - 1127 from August 2010 base peak.
1119 is the early August closing low
1109 is the mid-September 2010 gap up point
1101 is the August 2011 low
1099 from the mid-July interim peak
1040 from the August 2010 lows and May/June 2010 lows
1011 is the summer 2010 low


Dow: Closed at 11,295.81
Resistance:
11,452 is the November 2010 peak
11,555 is the March low
The 50 day EMA at 11,660
The August low at 11,700
11,717 is the late August 2011 peak
11,734 from 11-98 peak
11,867 from the August 2009 high and peak on that bounce in the selling.
11,893 from March 2008 closing low
The June low at 11,897 (closing)
The 200 day SMA at 11,998
12,094 is the April 2011 low
12,110 from the March 2007 closing low
12,283 is the March 2011 peak
12,391 is the February 2011 peak
12,876 is the May high
12,754 is the July intraday peak
13,058 from the May 2008 peak on that bounce in the selling

Support:
11,178 from November 2010
10,978 is the bottom of the November 2010 consolidation
10,750 from September 2010
10,720 is the August closing low
10,705-710 from January 2010 peak
10,694-700 from August 2010 peak
9938 is the August 2010 low


Economic Calendar

September 6 - Tuesday
ISM Services, August (10:00): 53.3 actual versus 51.0 expected, 52.7 prior

September 7 - Wednesday
MBA Mortgage Index, 09/03 (7:00): -4.9% actual versus -9.6% prior

September 8 - Thursday
Initial Jobless Claims, 09/03 (8:30): 414K actual versus 400K expected, 412K prior (revised from 409K)
Continuing Claims, 08/27 (8:30): 3717K actual versus 3700K expected, 3747K prior (revised from 3735K)
Trade Balance, July (8:30): -$44.8B actual versus -$51.5B expected, -$51.6B prior (revised from -$53.1B)
Crude Inventories, 09/03 (11:00): -3.963M actual versus 5.281M prior
Consumer Credit, July (15:00): $12.0B actual versus $5.0B expected, $11.3B prior

September 9 - Friday
Wholesale Inventories, July (10:00): 0.8% actual versus 0.7% expected, 0.6% prior


September 13 - Tuesday
Export Prices ex-ag., August (8:30): 0.5% prior
Import Prices ex-oil, August (8:30): 0.4% prior
Treasury Budget, August (14:00): -$132.0B expected, -$90.5B prior

September 14 - Wednesday
MBA Mortgage Index, 09/10 (7:00): -4.9% prior
MBA Mortgage Purchases, 09/10 (7:00): -4.9% prior
PPI, August (8:30): 0.0% expected, 0.2% prior
Core PPI, August (8:30): 0.2% expected, 0.4% prior
Retail Sales, August (8:30): 0.2% expected, 0.5% prior
Retail Sales ex-auto, August (8:30): 0.3% expected, 0.5% prior
Business Inventories, July (10:00): 0.5% expected, 0.3% prior
Crude Inventories, 09/10 (10:30): -3.963M prior

September 15 - Thursday
Initial Jobless Claims, 09/10 (8:30): 410K expected, 414K prior
Continuing Claims, 09/03 (8:30): 3700K expected, 3717K prior
CPI, August (8:30): 0.2% expected, 0.5% prior
Core CPI, August (8:30): 0.2% expected, 0.2% prior
Empire Manufacturing, September (8:30): -4.0 expected, -7.7 prior
Current Account Balance, Q2 (8:30): -$121.5B expected, -$119.3 prior
Industrial Production, August (9:15): 0.0% expected, 0.9% prior
Capacity Utilization, August (9:15): 77.4% expected, 77.5% prior
Philadelphia Fed, September (10:00): -10.0 expected, -30.7 prior

September 16 - Friday
Net Long-Term TIC Fl, July (9:00): $3.7B prior
Michigan Sentiment, Preliminary September (9:55): 56.3 expected, 55.7 prior

By: Jon Johnson, Editor
Copyright 2011 | All Rights Reserved

Jon Johnson is the Editor of The Daily at InvestmentHouse.com

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