Dollar Tanks, Gold Soars

MARKET SUMMARY

- Where we stand now: a look back at the stimulus rally.
- Dollar tanks, gold soars, all on what the Fed will or won't do.
- Non-Farm Payrolls weak, as unemployment rate hits 11.2%, both despite failing attempts, again, to make things look better than they are.
- INTC pulls its guidance, sparking the tablet/PC debate anew, but PC's won't die.
- Stocks at a new high on presumed liquidity. Entries are more taxing here, but a bit of a pullback to start the week will help.

You can't fight the Fed . . . as long as it delivers.

The recent action, indeed the entire move off the June low, has demonstrated the old adage 'you cannot fight the Fed.' When the Fed gets in its collective mind it wants to bring about a result, it will stay at it until it, as another Fed adage that I discovered (as many others have as well), it goes too far. Right now the Fed is focused on the new 2012 slowdown that has the US, in my view, already in recession. Its concern is, ironically, a lagging indicator, employment. At this stage in the 'recovery' (a.k.a. renewed meltdown), things are so bad, the jobs situation has been so negative for so long, the Fed is viewing jobs as a leading indicator for everything else. Basically the Fed feels that if jobs don't get better, nothing is going to get better because the US worker psyche is so damaged. Thus everyone, the Fed and Fed-watchers, were anxiously awaiting the Friday August jobs report.


IBD chart on real versus reported unemployment.

This was an important economic data point, one that many are saying will force the Fed to finally deliver upon its promise of more stimulus 'if the conditions warrant.' At 96K new jobs and unemployment falling to 8.1% thanks to a mass exodus of disappointed job seekers, likely the 'conditions' are ripe for action. Think about it. Typically unemployment RISES in a recovery as more people look for work. The jobs market is SO bad (and as a corollary, the benefits if you don't work are at the highest ever), people are simply giving up looking altogether. Perhaps that is what Bernanke is talking about when he urges the government to take fiscal action. Not likely, as that is a more subtle aspect of economics (if you pay someone to do something, they will do it), but it is a fiscal issue that needs to be addressed. Okay, just one paragraph and I am already digressing. Going to be one of those reports I suppose.

Bigger Picture Assessment.

If you step back and look at the rally thus far, aside from Thursday (heck, even including Thursday), you see a rally based upon the promise of more liquidity. Back in June, our entire premise for the rally was the promise to add more liquidity to the system. Technically stocks held good position even through the mid-June selling. That told me that the market was not rolling but was setting up for a new move, a move at the time I relayed to you was based upon the hope, that later turned to promise from Bernanke himself, of more stimulus.



I Ben Bernanke, do promise more stimulus. You can trust me. More is on the way. How much? Oh, about this much . . .

Along the way the Fed convinced Mario Draghi of the ECB that only US-style QE would work for Europe. Geithner started sowing those seeds over a year ago with his trips to Europe where, at first, he was almost booed off the Continent. The Euros believed this was a US centered problem and they were just feeling the side effects. As the European economies turned to road kill, however, the ECB dogma turned, primarily with the retirement of Mr. Trichet. With him went the remaining vestiges of inflation fighting as the ECB's prime directive.


What about the prime directive, Jim?

With Draghi the focus turned to preserving the EU and the euro. As we found out in July, that meant, at least to Draghi, 'at any cost.' The markets loved it. Now Europe was biting the apple of QE, or at least promising to. Everyone waited for Merkel and Germany to issue the usual 'Nein!' post-haste. It didn't come. Oh yes a few lower officials protested, but Germany appeared to acquiesce to Draghi's bold statements.

Then came the August FOMC meeting. No stimulus was announced, but this was just days after Draghi's bold statements. The Fed had cover to look tough, to be bold, to . . . stay the course. A rather bizarre July jobs report also gave the Fed some room to tap dance as the BLS turned a negative actual jobs print into a jobs gain thanks to truly astounding variations in the birth/death rate and seasonal adjustments for the month of July, adjustments not made in about forever for the month.

Thus when Jackson Hole and Bernanke's typical Friday speech at the 'symposium' (a.k.a. trout fishing trip) rolled around just last Friday, he offered no further QE, just the wink and a nod that more was coming.



Oh, you didn't see that wink and nod? You thought the speech was identical to what he has said over the past several weeks? Man, you must have missed it because the market certainly saw something in that same text and delivery we have seen before.

This is, however, what is really meant by 'coordinated' central bank action. Draghi would take a new tack for the ECB. This would allow the US Fed to lay low, keep its powder dry, to provide advice on a plan that has 'worked' while Draghi changed the mindset in Europe. The old 'good cop/bad cop' routine on a global economic level.


Whose the best cop now Jimmy?


Robert Patorelli plays a very disturbed police officer in 'Striking Distance.'

Then the past week Draghi and company leaked the plan for bond buying a day before the ECB voted on it. The markets responded nicely. Then in a twist from the norm, when the plan was released on Thursday, markets surged on the news versus the rumor. SP500 and NASDAQ broke to new post-bear market highs and they held them. All indices surged. Friday, not so much. A weak-kneed jobs report puts the Fed right back in the stimulus play, and while gold surged, the stock indices hesitated. Perhaps a bit hung over from the Thursday party, but still expecting Fed stimulus.

But not so fast. Everything and I mean everything regarding stimulus at this point is just a promise. Draghi's bold statements, while not overtly challenged by Germany, are just statements at this point, Thursday vote or no. Why? Because the German high court still has to rule on the bond buying issue, the opinion due next Wednesday.

Surprise, surprise (as Gomer Pyle used to say), that is the day before the FOMC September rate decision meeting concludes. Once again the ECB goes first, then the US Fed. This time there may be a different script, a change in the good cop/bad cop routine. No one appears to be factoring a German chop block on Draghi's ECB designs. The Germans have been uncharacteristically quiet post-whatever it takes comments. Perhaps German officials are simply laying low, avoiding the political heat, and letting the court do the dirty work.

If the German court drops the hammer on 'whatever it takes,' then the Fed is front and center. It will be forced to act. Stimulus promise becomes stimulus delivered, regardless of Friday's jobs report that most people are saying has forced the Fed's hand this coming week. No, the real force may be the German court which, by all legal arguments, should find that the bond buying is against the German charter. Of course, the 'not so affordable healthcare act' should have been struck down here in the US but a political court, claiming it was not political, found a way to support it (and stick us all with unlimited tax liability for just being a citizen, as we shall see unfold in the years to come). So, the law is no guarantee when courts, the arbiters of the law, are involved.

And your meaning is . . .

So, you are asking yourself (or are sending off an email to me right now), what the hell does all of that mean for the market? It means that this entire rally off of the June low, including last Thursday's super surge that took SP500 and NASDAQ to new post-bear market highs, is still all driven on the PROMISE of stimulus (funny, when I typed that I typed in 'inflation;' Freudian slip I suppose. No, I guess that was really a Milton Friedman-like slip.).

There is still no stimulus in the bank so to speak, and thus this rally on the hope and dream of more Fed QE and indeed ECB QE is vaporous. Yes China has announced additional stimulus to build rails and roads (railroads?) and the horrid US jobs report could very well be the 'additional data,' of the crappy sort, that pushed the Fed to act. But for now it is all hope and change, er, hope and dream stimulus. Perhaps, just perhaps, that is why stocks waffled Friday. Nah; gold surged on the session so gold traders are thinking QE and the resultant currency diminution and inflation.


Stimulus will still come. The Administration wants it.

One way or another, however, despite the reality of just a promise of stimulus, the markets are likely to get their stimulus. The jobs report, despite being spun as a drop in the unemployment rate (thanks to the exodus of almost 400K people from the ranks of looking, a.k.a. hoping, for a job), there was nothing good in this report. It was easily bad enough to warrant stimulus. Perhaps that is what the Administration wanted so it did not go too far in toying with the numbers to make it look better. After all, stimulus at this point has much more impact on financial markets and the so-called 'wealth effect' than anything the Administration can do in the few months ahead of the election. So, let a worse number out, get the Fed to act, blame Congress and the republicans for doing nothing and forcing the Fed to act, and hope that that is enough so there is not a change in November (how is that for a play on 'hope and change'?). Sometimes I crack myself up. Sometimes.


THE MARKET ACTION.

All of this culminated with that strong Thursday surge in stocks that saw stock indices hitting new post-bear market highs as well as gold hitting a new recovery high. Many undercurrents are at work. Stocks love the liquidity promised by Draghi and the Fed. They are running on that hope. Gold loves inflation and weaker currencies, both the likely and real result of more QE by the Fed. It is all one big party . . . until it ends.

It didn't end Friday, but it was not a party either. Stocks were understandably a bit hung over but managed, in most cases, to move modestly further to the upside. Futures were up early in the session and opened higher, but then it was a struggle through most of the day. Indeed, until the last hour, stocks traded in a very narrow range with modest gains to losses on some of the indices. Late in the day a bump higher took SP500 to a session high, and it closed with a very decent gain on the session and to close out the week.

SP500 +0.4%
NASDAQ +0.02%
Dow +0.11%
SP600 +0.49%
SOX -0.82%

No big losses at all, but just a stall. A hangover, as it were. The markets have a big week next week with the FOMC decision for September as well as the German high court's ruling on whether bond buying is legal under the German constitution. Stocks were understandably indecisive on Friday, although they were hardly in the mood to give anything serious back. We may get a bit of a pullback to start the week as they ponder what will happen at the German high court and with the US Fed. Again, I do not think that will stall the moves. I do believe that there is enough to continue the move, based on everything I have outlined above, if the Fed makes its move to the next Quantitative Easing.


OTHER MARKETS

The other markets mostly performed as you would expect if there will be Fed action. That would have its implications on various markets.

Dollar. 1.27991 versus 1.2637 euro. The dollar was hit hard. It put in something of a toppish head and shoulders pattern, and it is breaking to the downside. It is tough. When you are the reserve currency and you fall, everything that you buy increases in price. Why? Because everything is priced in your currency, so it is a double whammy if you are the reserve currency. Although it gives a lot more flexibility and options with printing money, it does have its drawbacks. Now every barrel of oil will cost more. Every ton of ore will cost more. If it is priced in dollars, it will hurt. Not that we would escape it if we were not the reserve currency; if your currency falls in value, things will be more expensive. It is just more notable and very painful for us because we have that double whammy. As the dollar falls, you will see what it did to other commodities in a moment.

The dollar tried to hold at the upper support and failed rather horribly. Makes you wonder what will happen if the Fed actually does announce this week that they are going with Quantitative Easing.


Gravity's a b**ch, isn't it?


Bonds. 1.66% versus 1.67% 10 year Treasury. Bonds were strange on the day. Typically with the jobs report being weak and economic data being weak, bonds tend to rally because investors move into them for safety. If the Fed is going to initiate bond buying in another Quantitative Easing round, bonds should improve as well because they will be buying bonds.

Here is something to consider: what will Quantitative Easing look like in this round? Will it be just another round of the Fed purchasing treasuries? That is like Operation Twist on a grander scale. Kind of. At least this bond buying would inject more liquidity, which is what the market really wants. What I am hearing and what I have talked about before is that the Fed may want to focus on buying mortgage-backed securities with the goal of driving mortgage rates down to basically 0. That will force people to refinance and bring more money into the economy. A lot of people have refinanced over the past few years, and there has been a drop off in that. Remember a lot of the commentators said that houses can no longer be used as piggy banks. Everyone has done their refinancing, and they have tapped out their equity. If you drop rates more, you can get more people to refinance and maybe make some more money every week. Voila, you are in better shape overall. More money going into the economy, in other words.

Bonds may not be rallying on this news similar to what they did last week when Bernanke spoke at Jackson Hole conference. Maybe this week the bond market, which is supposedly smarter money, is saying it will be mortgage-backed securities that the Fed will focus on versus out-and-out buying of bonds. Interesting -- I hope. Hopefully I did not put you to sleep with that.


Gold. 1740.10, +34.50. Gold surged. Screaming to the upside. A clear breakout, a test of the breakout, and now on a full-fledged run to the upside. Lowering the value of the currency makes gold rise in price, and it also increases the odds of inflation. We already have a lot of money in the system, and we already have a huge amount of debt. It makes sense that gold would anticipate inflation rising from that. Gold is surging to the upside, and I do not see a top in mind. Looks like 1800 or so from that February-March peak will be the next point to shoot for. There is a little bit of resistance when it reaches that level.


Oil. 96.42, +0.89. Oil was up on the day. It did not break the 200 day EMA. It is moving laterally. As the dollar fell, naturally the oil rose even though the economic outlook for the US and the rest of the world stinks. Nonetheless, when the dollar falls, oil prices will rally because oil is dominated in dollars. We are still looking for a breakout. A nice cup with handle of sorts, a little inverted head and shoulders at the bottom. We are looking for a breakout, and we will see if it can deliver.


TECHNICAL SUMMARY

Internals. It was not as vigorous a day on Friday. As noted, it was a bit hung over.

Volume. NASDAQ -9.5%, 1.7B; NYSE 623M. Note that it is an elevated volume on NASDAQ. We have seen volume push in to the upside over the last week. Volume was down on the NYSE as well.


Breadth. NASDAQ +1.4:1; NYSE +2.1:1. Breadth backed off. Positive breadth and still overall positive volume. As the buyers have definitely moved in, some shorts have covered.


THE CHARTS

SP500. There is a lot of short interest typically down at the bottom of a selloff, and short covering drives the rally higher. As this juncture, there is a lot of pessimism even with the market at its highs because it was all driven by stimulus. There was concern as to whether the ECB would follow through with any stimulus. They are still concerned about that. The German court as not ruled, as we know. There is also a lot of awareness of economic weakness and problems facing the country such as the fiscal cliff. There was a lot of pessimism even though stocks were up at the prior highs.

There was quite a bit of short interest, and this could be a short squeeze, but it is also overall buying. We saw strong breadth on Thursday. It was 3.8:1 on NYSE and 3.4:1 on NASDAQ. It was fairly broad buying pushing the indices higher. SP500 is now in a new post-bear market high. It is looking solid, although it likely will come back and test. It may be a little pensive ahead of the FOMC meeting this week.


NASDAQ. After NASDAQ broke to that new post-bear market high on Thursday, it did stall on Friday. It was not a major stall; just a little doji, and likely a continuation doji. Again, we could get a pullback to test the break. It is right at the old highs, so it does not have a lot of room to give. A little pause would not be unusual to start the week. Frankly, it just depends on where investors wake up. Do they believe that more stimulus is coming and want to put money in ahead of the FOMC? Or will they be pensive and wait for the German high court and the FOMC to deliver the news?

That is where we are now. We have a breakout, and indicators point to the upside. Although you always have some backfilling and testing.


SP600. SP600 showed the same type of action. It broke to a new closing high. It moved to a new post-bear market high, intraday and closing, on Friday. Continuing the move, continuing the breakout and looking quite solid.


SOX. SOX backed off on Friday, but it has that good pattern with the double bottom with handle. A great break to the upside on Thursday, but it backed off on Friday. The INTC news came out. It cut its Q3 revenue estimates, and it withdrew its full year revenues and gross margin estimates.

We have a problem with INTC. It is suffering from the PC market as is DELL and HPQ. I do not think the PC market will die, but it is shifting. Tablets are out, and a lot of people have those. A lot of companies cannot use tablets, however. In our group we cannot use tablets because they do not have enough horsepower to run the trading software that we need along with the high-intensity graphics and the volume of data that we get. We need the high-speed processors and lots of RAM in order to run those.

DELL makes a PC tablet with a screen that you can flip, and you can load it up with the best processors and RAM there is. It is a high-performance machine in a tablet package. And maybe the MSFT version coming out later in the year will be decent. But you cannot use an iPod or the Samsung tablet for anything that takes serious computer power. We looked into it, and all of the trading platforms laughed when we asked about using a tablet. But I digress.

My point is that the PC market is in contraction, no doubt. But there will be some kind of merging of the tablets and the PCs because the tablets simply do not have the power right now to do what we need. They are great for people just sending emails and a few pictures. For serious stuff, we need the PC chips. INTC is down; I am not saying I would invest in it. But that explains where we are and why the chips were down, so to speak.

I still like the pattern here. Why? What goes into phones, tablets, and basically everything? Different kinds of chips. There are other stocks that performed well, even though INTC, a PC-based chip maker, is struggling.


LEADERSHIP

As noted on Thursday, stocks basically went up.

Energy. Even energy stocks were going back up. A lot of that is due to it dollar heading down. I don't want to spend a lot of time jumping into stocks, but I want to point out that there are stocks moving. HAL in one. We had even looked at it in this reversal. Being foolish, we did not jump in after the big reversal at an important level. Blame me on that one. Others spotted it and I said we should hold off. CVX looked a bit weak, but it has bounced back up to a new rally high. Energy looks good.

Financial. BAC is one we have played because it was a great entry point with a great price point. It is performing well. Second position on this one, running to the upside, looking very strong as it moves higher. It is not the only one. Even the financial service companies look good. JPM is another big bank doing well. MS is running higher, moving through the 200 day EMA. Financials of all strips are doing well. Why? Because there will be more money put into the system. More money in the system means they make more money.

Technology/Telecom/Semis. Techs are not bad as well. AAPL is just going with the flow. It is not leading at the moment, it is just rolling on momentum. Although it did hit a new closing high. A lot of stocks are already up, but there are others that look like they might be able to make a turn. LVLT is more in the communications market. That is where we are seeing those still with room to turn to the upside. Another is APKT. It looks like it might be ready to turn and move. They are out there, but a lot of techs have already run to the upside pretty well.

Surprisingly, JNPR has made a turn and it is breaking to the upside. MSPD broke down on us last time, but it looks to be setting up a double bottom with rising MACD. We will keep an eye on that. There are still possibilities that we can look into and maybe pick up something. CREE is another. It has potential to the upside in the tech, telecom, and chip areas.

Retail. Retail continues to look good. More money hopefully means more wealth effect, I guess. RL is breaking to the upside quite nicely. LULU had an explosive move as its earnings came in. Not terribly great but better than expected. They are moving higher as well.

Healthcare/Drugs. We have seen the health care and drugs perform. They are still looking good. Maybe it is still just turning the corner. It might be something we can buy into. LCAV is trying to break back to the upside. That is interesting. SVNT it also interesting, coming off of a flag pattern. They are out there. They are moving again, and we were into some of them. Obviously they have been running well for us. They were starting to perform better when things got a little bit dicey as the SP500 traded up to these other highs and backed off. We saw defensive plays start to perform again. Thursday and Friday the general market overall performed, but it took these stocks higher with it. It also shows another indication that there was broad buying in the market.

Metals. With inflation comes asset price increases and financial price increases on commodities. FCX surged to the upside. What a big move. AA put in two strong days. Really a strong day on Friday, rising almost 4% when a lot of the market was waffling on that session. The metals are surging, anticipating inflation and a lower dollar. As the dollar fell, copper and aluminum jumped to the upside.


THE ECONOMY

TO VIEW THE ECONOMY VIDEO CLICK THE FOLLOWING LINK:
Flash: http://investmenthouse1.com/ihmedia/f/eco/eco.html

So much more to the Non-Jobs report than the headlines.



NONFARM PAYROLLS, August (8:30): 96K actual versus 130K expected, 141K prior (revised from 163K)
Nonfarm Private Payrolls, August (8:30): 103K actual versus 144K expected, 162K prior (revised from 172K)

Only 52.2% of companies added jobs in August, the lowest since February 2010.
4 out of 5 months of less than 100K jobs this year.

UNEMPLOYMENT RATE, August (8:30): 8.1% actual versus 8.3% expected, 8.3% prior

Participation: 368,000 more people left the work force, driving the participation rate to 63.5% from 63.7%, the lowest in 31 years.

BUT, the US civilian population (outside of prisons) has grown 186K/month to 243.5M in August, an all-time high.

REAL UNEMPLOYMENT RATE: 11.2% to 11.7% depending upon whether you use a steady participation rate (the first number) or the 3 decade average (the second number).

Since 1948 there have been 82 months of unemployment greater than 8%. 43 of those months (52%) have occurred under Obama.


Hourly Earnings, August (8:30): 0.0% actual versus 0.2% expected, 0.1% prior

Average Workweek, August (8:30): 34.4 actual versus 34.5 expected, 34.4 prior (revised from 34.5)


Mark Zandi on CNBC
There was talk of conspiracies at the BLS on CNBC, mostly in mocking tones. Mark Zandi, the supposedly unbiased, independent economist scoffed at the idea of data manipulation, saying there is a formula used to calculate the numbers and thus there is 'no way' they can be manipulated.

Of course, that is assuming the data input in the formula is correct, and indeed that is the POINT Mr. Zandi.

Yes we all know that 2 + 2 = 4. We know 2 is constant. But, what if you define 2 as some other number? You then alter the result EVEN IF THE FORUMLA IS THE SAME.

When the BLS makes seasonal adjustments you would assume it does so in a rational manner. As seen in July, there was no rational manner. It did not correspond to any adjustments in the past 20 years, even in those years where July 4th fell at the same time as it did this July. Same for the birth/death rate. It was a factor of 10 above any other July over the past decade and more.

The formula is what the formula is. It is the age-old idea of garbage in, garbage out, however, where the issue arises.


Secular Change in Employment?

Part time workers are becoming the norm.

As of August, 8M additional workers were classified as part-time compared to the start of current recession/depression 4 years back.

An additional 5.2M part-time workers are considered marginally attached to the workforce, working part time.

Total: 13.2M part-time workers who want more work on top of 12.5+M completely unemployed gives you 25.7M unemployed versus the U6 report of 14.7M 'underemployed.'



Meaning: The employment market is shifting from full employment to part-time, contract work. The legal practice is already turned this way before the depression. Document reviews are mostly conducted by contract attorneys working for large companies that manage document reviews for large law firms. More cost effective because lower hourly rates, limited benefits.

Can the Fed do anything about this? No.



THE MARKET

SENTIMENT INDICATORS

VIX. When volatility was down at the March 2012 and the May 2011 lows in mid August, the talk was that a major selloff was coming. Even on Tuesday of last week we heard some of the brokers saying a major plunge was coming and to get out of the market now. Volatility did run higher, and the market did fade, but it was just some. It was not a major fade. There were some spikes in there; it did not look good necessarily. There was that reversal session on SP500, the selloffs on these two sessions, but they were always followed by upside recoveries.

If you get too wrapped up in the VIX, you can get burned. I know people got burned doing that. We even had some short positions. We take short positions as a hedge when we are at these highs, but our plays are still predominantly upside because of the good technical action overall and some good leadership. Nonetheless, a lot of people went deeply short, and they are getting squeezed to say the least.

While the VIX did hit that low and bounced, it is nowhere near the prior bounces, and it has already reversed sharply.

VIX: 14.38; -1.22
VXN: 15.44; -1.57
VXO: 13.37; -1.31

Put/Call Ratio (CBOE): 0.74; -0.12

Bulls versus Bears

Bulls: 51.0% versus 48.9% versus 43.6%. Five weeks and up from 39%. Bulls are felling pretty solid now. Another 10 points and not that great, but 10 points is a long way from here and the market can run quite a bit in that interval. Undercut 35%, the threshold for bullishness, in early June. You would expect it to rise and it has. Still not at a dangerous level, just working as it should. As noted, hit 34% in early June. It did its job and the market is on the rally. Hard drop to 34 from 39.3% as economic reality and a choppy stock market hit. Off the 55+ level hit in late February. That was the highest level since April and May of 2011, the peak of the post-bear market high. 35% is the threshold level suggesting bullishness. To be seriously bearish it needs to get up to the 60% to 65% level.

Bears: 24.5% versus 24.5% versus 26.6%. Down from 27.7% five weeks back. Still above the May lows so still some room to work with, i.e. room for the indices to rally. Never made it to the 35% that can be a bullish indication, but the bulls were weak enough back in June. Over 35% is the threshold to be really be a good upside indicator. For 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: +0.61 points (+0.02%) to close at 3136.42
Volume: 1.708B (-9.63%)

Up Volume: 842.23M (-807.77M)
Down Volume: 883.8M (+640.01M)

A/D and Hi/Lo: Advancers led 1.39 to 1
Previous Session: Advancers led 3.38 to 1

New Highs: 159 (-34)
New Lows: 30 (0)


SP500/NYSE

Stats: +5.8 points (+0.4%) to close at 1437.92
NYSE Volume: 623M (-6.17%)

A/D and Hi/Lo: Advancers led 2.16 to 1
Previous Session: Advancers led 3.79 to 1

New Highs: 307 (-14)
New Lows: 13 (-1)


DJ30

Stats: +14.64 points (+0.11%) to close at 13306.64
Volume: 142M shares Friday versus 108M shares Thursday. Elevated volume on the week for the Dow as well.


MONDAY

There is a veritable cornucopia of economic news out next week. It starts slow but builds rapidly. On Wednesday we have the pricing. Wholesale, import and export prices. It will be important to look at those with the dollar's action. This will be delayed, but it will be good to see what the trend is because we know where the trend is going right now.

Thursday brings another initial claims, PPI, and then there is the big decision from the FOMC. I checked the site, and it is saying Thursday when it usually comes out on Wednesday. We will make sure we know what is going on with that. Why do we think it was moved back? Because the German high court decision is due on Wednesday the 12th. What has been the pattern lately? Europe first and the US second. That way the US can try to keep its powder dry. If the German court comes back with a "nein," that means the US will have to act because the markets will react negatively to that. We will need some kind of backstop, and I believe that is how the Fed sees itself right now.

Friday will be an important session. Not only trading post-FOMC and German high Court, but there are retail sales for August. Very important. Consumer prices for August are also very important. Not to mention industrial production and capacity utilization. Then throw in Michigan Sentiment, not to mention inventories for businesses. They will not be building because of production; they will be building because of lack of sales. We know manufacturing is down across the nation.

We have a HUGE week of data. What does it all mean? Looking back at the markets, we had a big breakout on Thursday and a little continuation on Friday. Maybe a bit of softness, a little bit of indecision ahead of the Wednesday and Thursday important announcements from the German high court and the FOMC. I don't believe it will be anything where the market turns tail and runs. I don't believe we will see any kind of major reversal occur off of this breakout move. Too many indices are strong, and a lot of stocks are high right now. They could use a test, though, and that test could be the pause that refreshes, particularly if there is liquidity coming. Liquidity answers all prayers in financial markets.

We have a breakout, and we may have a test. Then we have a resumption. We were buying on a lot of these days. The market was down, but remember that it would not give up. I came out before it broke to the upside and said we had these reversals, but they have not been given up. We keep seeing patterns in stocks saying "pick up some interest." So we did, and we are glad. Thursday the market gapped higher and ran, and we were not able to get as many positions as we wanted to. We got some, and we are happy to have those. Friday was an even worse day because we did not get any real giveback from the market. We could use a pullback to get some actual plays. We bird-dogged a few of them when talking about the leaders, but it is pretty thin out there when looking for stocks in position to buy right now. We will likely get a pullback off of this good move, and that will give us positions we can take once they do that.

As for Monday, this will be a time for patience. We will have a few plays on the report to look at, but we would like to see two or three days of indecision and maybe a little pullback to give us better entry points. We can even buy some before the news comes out on Thursday. Why? Frankly, I think the Fed has to act whether it wants to or not. If the German high court rules against the bond plan, then the Fed has to act. If the German high court rules for it, that is fine, but then the US economic data was so bad on Friday, I think it still has to act.

Bernanke is much more political than other Fed chairman have been, and he wants to keep his job. He knows if the Republicans win he will lose his job. He will not pause for one second in thinking about whether to push forth new stimulus. The best way for him to keep his job is to keep the current party in power. Since they cannot impact the economy that much before the election, then they will impact what they can: The stock market through liquidity. Liquidity has an immediate effect, and it will have an impact on the stock market. At least the Obama administration could say that the stock market is up. We all know it is because of liquidity, but we are smarter than most. The masses think that the stock market is up so things must be good. They do not understand that it is all made of paper and debt. Maybe they do. Maybe I am just jaded in my years of doing this.

To summarize, there are not a lot of great buys right now. We had a great break to the upside, and it will still probably go higher. We need better entry points. We need a bit of a pullback. There are some stocks that look good and are ready to move higher. We can enter those if they continue. But overall, we would like to see stocks come back and test a bit and maybe give us the opportunity to buy into what we could not buy into on Thursday or Friday thanks to those gaps and runs that never came back.

With that in mind, we will be patient. And we will be happy that we bought stocks when the market was waffling just because the stocks were saying, "buy me." We bought them because that is what you do. You might think that things do not look right, it is too high, and there are so many negatives in the world. But if the stocks are saying "look at me," you better pay attention and at least put some money to work. That is what we were doing. We did not back up the truck, but we were putting some money to work. We already have some great upside positions that continue to work for us as well.

With a little pullback, we can exit out of the upside that gapped and ran. We are just looking for a better exit point on a lot of those. We can use this to pick up some upside as the market turns back higher on the news of the German court and/or the US Fed putting forth stimulus. I made the call, and we will see if we get it now.

I will see you on Monday. Have a great weekend!


Support and resistance

NASDAQ: Closed at 3136.42

Resistance:
3134 is the March 2012 post-bear market peak: broken, not forgotten.
3227 is the April 2000 intraday low
3401 is the May 2000 closing low

Support:
3101 is the August 2012 high
3090 is the mid-March interim high
3076 is the late April 2012 high
The 20 day EMA at 3062
3042 from 5/2000 low
3026 from 10/2000 low
3024 is the gap point from early May
The 50 day EMA at 3005
3000 is the February 2012 post-bear market high
2999 is the bottom of the August 2012 consolidation
2988 is the July 2012 high
2962 is the April 2012 low
2950 is the mid-April closing low
2942 is the mid-June 2012 high
2910 is the March 2012 low
2900 is the March 2012 low
The 200 day SMA at 2889
2888 is the May 2011 peak and PRIOR post-bear market high
2879 is the July 2011 peak
2866 is the July 2012 closing low
2862 is the 2007 peak
2841 is the February 2011 peak
2816 is the early April 2011 peak.
2810 is the low in the shoulders
2754 is the October 2011 high
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


S&P 500: Closed at 1437.92

Resistance:
1440 from November 2007 closing lows

Support:
1433 from August 2007 closing lows
1425 from May 2008 closing highs
1427 is the August 2012 peak
1422.38 is the prior post-bear market high (March 2012)
The 20 day EMA at 1408
1406 is the early May 2012 peak
1402.22 is the closing low of the August 2012 lateral consolidation
The 50 day EMA at 1389
1378 is the February 2012 peak
1375 is the early July 2012 peak
1371 is the May 2011 peak, the post-bear market high
1363.46 is June 2012 high
1359 is the April 2012 low
1357 is the July 2011 peak
1344 is the February 2011 peak
The 200 day SMA at 1342
1340 is the early April 2011 peak
1332 is the early March 2011 peak
1325 is the July 2012 intraday low
1309 is the right shoulder low from June 2012
1295 to 1294 is the April 2011 low and the February 2011 consolidation low (bottom of the trading range)
1293 is the October 2011 peak
1275 is the January 2010 low, early January 2011 peak
1267 is the December 2011 peak
1266 is the June 2012 base low


Dow: Closed at 13,306.64
Resistance:
13,331 is the August 2012 post-bear market high
13,668 from 12-2007 peak
13,692 from 6-2007 peak
14,022 from 7-07 peak

Support:
13,297 is the April 2012, prior post bear market high
13,058 from the May 2008 peak on that bounce in the selling
13,056 is the February 2012 high
The 50 day EMA at 13,014
12,971 is the early July 2012 high
12,754 is the July intraday peak
The 200 day SMA at 12,735
12,716 is the April 2012 closing low
12,391 is the February 2011 peak
12,369 is the left shoulder low from May 2012
12,284 is the October 2011 peak
12,258 is the December 2011 peak
12,110 from the March 2007 closing low
12,094 is the April 2011 low
12,035 is the June 2012 base low
The June 2011 low at 11,897 (closing)
11,734 from 11-98 peak
11,717 is the late August 2011 peak


Economic Calendar

September 4 - Tuesday
ISM Index, August (10:00): 49.6 actual versus 50.0 expected, 49.8 prior
Construction Spending, July (10:00): -0.9% actual versus 0.5% expected, 0.4% prior
Auto Sales, August (14:00): 5.0M prior
Truck Sales, August (14:00): 6.0M prior

September 5 - Wednesday
MBA Mortgage Index, 09/01 (7:00): -2.5% actual versus -4.3% prior
Productivity-Rev., Q2 (8:30): 2.2% actual versus 1.8% expected, 1.6% prior
Unit Labor Costs - R, Q2 (8:30): 1.5% actual versus 1.4% expected, 1.7% prior

September 6 - Thursday
Challenger Job Cuts, August (7:30): -36.9% actual versus -44.5% prior
ADP Employment Change, August (8:15): 201K actual versus 143K expected, 173K prior (revised from 163K)
Initial Claims, 09/01 (8:30): 365K actual versus 373K expected, 377K prior (revised from 374K)
Continuing Claims, 08/25 (8:30): 3322K actual versus 3300K expected, 3328K prior (revised from 3316K)
ISM Services, August (10:00): 53.7 actual versus 52.4 expected, 52.6 prior
Crude Inventories, 09/01 (11:00): -7.426M actual versus 3.778M prior

September 7 - Friday
Nonfarm Payrolls, August (8:30): 96K actual versus 130K expected, 141K prior (revised from 163K)
Nonfarm Private Payrolls, August (8:30): 103K actual versus 144K expected, 162K prior (revised from 172K)
Unemployment Rate, August (8:30): 8.1% actual versus 8.3% expected, 8.3% prior
Hourly Earnings, August (8:30): 0.0% actual versus 0.2% expected, 0.1% prior
Average Workweek, August (8:30): 34.4 actual versus 34.5 expected, 34.4 prior (revised from 34.5)


September 10 - Monday
Consumer Credit, July (15:00): $10.0B expected, $6.5B prior

September 11 - Tuesday
Trade Balance, July (8:30): -$44.0B expected, -$42.9B prior

September 12 - Wednesday
MBA Mortgage Index, 09/08 (7:00): -2.5% prior
Export Prices ex-agriculture, August (8:30): -1.4% prior
Import Prices ex-oil, August (8:30): -0.3% prior
Wholesale Inventories, July (10:00): 0.3% expected, -0.2% prior
Crude Inventories, 09/08 (10:30): -7.426M prior

September 13 - Thursday
Initial Claims, 09/08 (8:30): 369K expected, 365K prior
Continuing Claims, 09/01 (8:30): 3300K expected, 3322K prior
PPI, August (8:30): 1.2% expected, 0.3% prior
Core PPI, August (8:30): 0.2% expected, 0.4% prior
FOMC Rate Decision, September (24:30): 0.25% expected, 0.25% prior
Treasury Budget, August (14:00): -$134.1B prior

September 14 - Friday
Retail Sales, August (8:30): 0.7% expected, 0.8% prior
Retail Sales ex-auto, August (8:30): 0.8% expected, 0.8% prior
CPI, August (8:30): 0.6% expected, 0.0% prior
Core CPI, August (8:30): 0.2% expected, 0.1% prior
Industrial Production, August (9:15): -0.2% expected, 0.6% prior
Capacity Utilization, August (9:15): 79.2% expected, 79.3% prior
Michigan Sentiment, September (9:55): 73.3 expected, 74.3 prior
Business Inventories, July (10:00): 0.4% expected, 0.1 prior

By: Jon Johnson, Editor
Copyright 2012 | All Rights Reserved

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

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