Market Commentary – August 11th, 2011

A Few More Thoughts Before the Open:

I’ve got a few more minutes in the office this  morning and wanted to update the support and resistance points on a couple of the sector indices I have talked about recently.

M.S. Commodities Related Equity Index ‘CRX’:  The ‘CRX’ closed at 845.16.  I see upside resistance on the ‘CRX’ at 847.10 and downside support at 814.77.

KBW Banking Index ‘BKW:  The ‘BKW’ closed at 19.46.  I see upside resistance on the ‘BKW’ at 34.28 and downside support at approximately 6.74 (a level not seen since 1989) on a closing basis.

S&P Banking Index ‘BIX’:  The ‘BIX’ closed 108.25.  I see upside resistance on the ‘BIX’ at 117.52 and downside support at 100.96 on a closing basis.

Amex Broker/Dealer Index ‘XBD’:  The ‘XBD’ closed at 84.97  I see upside resistance at 92.97 and downside support at 80.87 on a closing basis.

S&P Insurance Index ‘IUX’:  The ‘IUX’ closed at 152.72  I see upside resistance on the ‘IUX’ at 175.13 and downside support at 143.80 on a closing basis.

Amex Gold & Silver Index:  The Amex Gold & Silver Index ‘XAU’ closed at 205.54  Despite record high prices in the price of Gold, the ‘XAU’ is actually down 12.65% year to date.  I see upside resistance on the ‘XAU’ at 208.78 and downside support at 189.48  Unfortunately as of right now I have no clear indication as to the direction of the ‘XAU’.  My thoughts are that we are going to need a few more trading days to see a clearer picture on the ‘XAU’.

Amex Oil & Gas Index:  The Amex Oil & Gas Index ‘XOI’ closed at 1,062.76  I currently see upside resistance on the ‘XOI’ at 1,093.86 on a closing basis.  I am expecting the ‘XOI’ to continue to move lower and test 1,029.20 on a closing basis.

M.S. Cyclicals Index:  The M.S. Cyclicals Index ‘CYC’ closed yesterday at 830.08  I currently see upside resistance on the ‘CYC’ at 868.97 and downside support at 792.28  on a closing basis.

M.S. Consumer Index:  The M.S. Consumer Index ‘CMR’ closed at 657.87  I currently see upside resistance on the ‘CMR’ at 691.44 and downside support at 649.86 on a closing basis.

A Few Thoughts Before the Open:

The overall market sold off sharply yesterday in a broad based move that saw every sector index I track move lower on the day.  Despite the 519 point drop by the Dow Jones Industrial Average it was not the worst performing index on the day.  The worst performing sectors were actually the Financials and the Healthcare indices.  It should be no surprise that both of these sectors were the subject of massive new regulations during the 1st two (2) years of the Obama presidency. Regulation matters.  I’ve often said that bull markets were the result of either new technology or deregulation.  Well the opposite side of that coin is also true;  too much regulation can lead to bear markets.

Oil was higher by $3.59 to $82.89 per barrel, and Gold was higher by $41.30 to $1,782.70  per ounce.  Corn was lower by $0.20 to $6.78 per bushel, and Wheat was higher by $0.1320 to $6.85 per bushel.  Corn and wheat can be very sensitive to volatile information such as the weather.  However I think all four (4) of these commodities are somewhat of an indicator of future economic growth and inflation.  My thoughts are that Gold and Oil are going to be key indicators about the future direction of our economy.  I think Oil is going to be an indicator for economic growth and Gold an indicator for inflation.  The price of Gold is clearly signaling rising inflation.  If Oil continues to drop in price, then that is a sign of a stagnating economy.

With yesterday’s selloff and new closing low on the Dow,  I thought I should again take a look at the technical support and resistance levels on the charts.

Dow Jones Industrial Average:  The Dow Jones Industrials closed at 10,719.94  I continue to see upside resistance on the Dow at 11,006.22 and downside support at 10,698.75 and then 10,415.54 on a closing basis.

S&P 500 ‘SPX’:  The S&P 500 closed at 1,120.76 I see upside resistance on the S&P 500 at 1,127.79 and downside support at 1,115.01 and then 1,096.48 on a closing basis.

NASDAQ 100 Index ‘NDX’:  The NASDAQ 100 closed at 2,073.09  I see upside resistance on the NDX at 2,100 and downside support at 1,975.33 on a closing basis.

The Dow Jones Transportation Average:  The Dow Transports closed at 4,377.14  I see upside resistance on the Dow Transports at 4,320.05.  If that level of downside support fails, then the next downside support level is at 4,277.44 on a closing basis.

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