A Look at Monday’s Activity:

The overall market moved sharply higher on Monday in a broad based move that saw every index I track move higher on the day with the exception of the Semiconductors.  The strongest sectors were the Banking,  Insurance,  Oil & Gas, Natural Gas,  Chemicals, Commodities, Airlines,  Broker/Dealers, Cyclicals, Transports, and Retailers.  Oil was higher by $0.39 to $80.24 per barrel, and Gold was lower by $45.00 to $1,592.70 per ounce.  It should be noted that Gold is lower by just over $213 per ounce in the last 3 trading days.  Wheat was higher by $0.074 to $6.482 per bushel, and Corn was higher by $0.094 to $6.48 per bushel, while Soybeans were $0.016 to $12.596 per bushel.

A Few Thoughts Before the Open:

In looking at the charts of the indices I track from yesterday’s trading activity, many of them remain in oversold territory.  Also, despite the strong move upwards yesterday, only a small handful of sector indices managed to reach their 9-day moving average. I would consider yesterday’s move to be anything more than a bounce from last week’s selloff.

As of the writing of this blog,  the pre-market futures are signalling a positive open.  However, I remain cautious on declaring any sort of a market rally following a couple of days of upside movement.  Remember, a trend remains in place until it is broken; and as of right now I see the market trending sideways.  We are far short of a breakout to the upside, and until then I don’t see any reason to get excited.

A Look at Friday’s Activity:  The overall market was slightly higher in a relatively broad based move that saw a majority of the sector indices I follow move higher on the day.  The weakness in the market was primarily concentrated in the commodity related indices and stocks.  This appears to have been a result of Gold’s $100 selloff.  While it is not entirely clear as to why Gold has been under pressure lately, a lot of speculation has centered on Gold being liquidated to meet margin calls on equities.

Oil was lower by $0.66 to $79.85 per barrel, and Gold was lower by $101.70 to $1,637.70 per ounce.  Wheat was higher by $0.07 to $6.406 per bushel, Corn was lower by $0.114 to $6.384 per bushel, while Soybeans were lower by $0.25 to $12.58 per bushel.

A Few Thoughts Before the Open:  In looking at a chart of the Dow Jones Industrial Average,  I think considering the size of Thursday’s selloff,  Friday’s move higher was extremely weak.  Normally you would expect some form of bounce following Thursday’s move lower, and in my opinion Friday’s move doesn’t count.  As I write this morning’s blog, the pre-market futures are indicating an almost 120 point jump on the open.  While it might be tempting to see this as a rally, and I am not even close to considering it to be so.

The Dow Jones Industrial Average is deeply oversold; and we would need to see a rally back to 11,000 in order to be just 2 standard deviations away from the Dow’s 9-Day moving average; and then we would still be far from any form of a market rally.

In looking at my chart of the Dow,  I am seeing a sideways pattern with a downward bias. The highs are getting lower, and the lows are getting lower.  Not good if you are bear.  I spent a little time to see if I could find any cycles currently moving through the market.  I really couldn’t find a well defined cycle.  I did see a rough pattern showing a market hitting a cyclical bottom every 6-7 weeks.  This a rough and spotty pattern,  but it points to a new low sometime in the 1st two weeks of October.  This should not be construed to mean that we will see a rally of any significance following this bottom; what is means in my book is that I am looking for a new low, below the current 10,719 sometime in the 1st half of October.

The Bottom Line:  I am not expecting a market rally anytime soon and I am expecting the market to continue to move lower over the course of the next 2 to 3 weeks.

A Look at Thursday’s Market Activity:  The overall market sold off sharply on Thursday in a move that saw every index I track move lower on the day.  The Dow Jones Industrial Average finished the day 391 points lower.  In doing so it closed just above support at 10,719.94

The weakest sectors were the Gold/Silver, Oil Services, Commodities,  Oil & Gas, Chemicals, High Tech, Airlines, Biotech, and Transports.  Nothing was higher on the day.  WTI Oil was lower by $5.41 to $80.51 per barrel, Brent North Sea Oil was lower by $4.87 to $105.49 per barrel,  and Gold was lower by $66.40 to $1,739.40 per ounce.  Wheat was lower by $0.33 to $6.3366 per bushel, Corn was $0.356 to $6.50 per bushel, and Soybeans were lower by $0.374 to $12.83 per bushel.

A Few Thoughts Before the Open:  In looking at the charts from yesterday’s trading activities I have the following thoughts and comments.  

1.  A vast majority of the indices I look at broke through downside support yesterday.  Many of them look as if they could easily test the March 2009 lows.  This is an extremely negative situation.  I do not see a handful of indices testing these lows and the rest of the market rallying.  I think if these indices retest their March 2009 lows they will drag the rest of the market lower.

2.  The Dow Jones Industrial Average closed at 10,733.83.  I have downside support at 10,719.94 If the Dow closes below this level, at any point in the next few trading days, then I see the next level of support at 10,415.54.  However with the current situation we could easily move through that support level in a couple of week’s worth of trading.  If that is the case, then we are looking the support levels set shortly after the “Flash Crash,” where I see downside support on the Dow Jones Industrial Average coming in at 9,686.48  I think there is a very good chance we could see the Dow break through support at 10,415.54 within the next couple of weeks, and there is good chance we could see the Dow test post “Flash Crash” support at 9,686.48 within the next 4-8 weeks.

In looking at the indices I track, I have the following updates on support and resistance:

Dow Jones Industrial Average:  The Dow Jones Industrials closed at 10,733.83  I currently see upside resistance on the Dow at 11,613.53 and downside support at 10,719.94 on a closing basis.    If support fails to hold at 10,719.94 then I see the next level of support coming in at 10.415.54 on a closing basis.

S&P 500 ‘SPX’:  The S&P 500 closed at 1,129.56  I see upside resistance on the S&P 500 at 1,218.89 and downside support at 1,127.79 on a closing basis. I think the S&P 500 is going to move lower and test 1,127.79.  If support fails to hold at that level, then I see the next level of support coming into play at 1,096.48

NASDAQ 100 Index ‘NDX’:  The NASDAQ 100 closed at 2,184.59  The NASDAQ 100 broke support yesterday at 2,192.96   I now see upside resistance on the NDX at 2,192.96 and downside support at 2,038.22 I see the NASDAQ 100 continuing to move lower and testing support at 2,038.22 on a closing basis.  If support fails to hold at that level, then I see the next point of downside support beingat 1,975.33 on a closing basis.

The Dow Jones Transportation Average:  The Dow Transports closed at 4,149.94 The Dow Jones Transportation Average broke through downside support at 4,221.60   I now see upside resistance on the Dow Transports at 4,221.60 and downside support level  at 4,082.51 on a closing basis.  I see the Dow Jones Transportation Average continuing  to move lower and test 4,082.51 on a closing basis.

M.S. Commodities Related Equity Index ‘CRX’:  The Morgan Stanley Commodities Related Index ‘CRX’ closed at 784.81.  The CRX broke through downside support yesterday at 824.91 and basically closed on our second downside support level of 784.22 I now see upside resistance on the ‘CRX’ at 824.91 and downside support at 684.90

KBW Banking Index ‘BKX:  The ‘BKX’ closed at 34.45.  I see upside resistance on the ‘BKW’ at 35.10 and downside support at approximately 23.34  on a closing basis, basically the 2009 financial crisis closing low.

S&P Banking Index ‘BIX’:  The ‘BIX’ closed 109.35.  I see upside resistance on the ‘BIX’ at 120.71 and downside support at 100.96 on a closing basis.

Amex Broker/Dealer Index ‘XBD’:  The ‘XBD’ closed at 79.98   I see upside resistance at 80.87 and downside support at 80.87 on a closing basis. I am expecting the ‘XBD” to continue to move lower and test 80.8763.48  on a closing basis.

S&P Insurance Index ‘IUX’:  The ‘IUX’ closed at 145.82 I see upside resistance on the ‘IUX’ at 175.13 and downside support at 143.80 on a closing basis.  I am currently expecting the ‘IUX’ to continue to move lower and test 143.80 on a closing basis. If the S&P Insurance Index ‘IUX’ closes below 143.80, then I expect the ‘IUX’ to continue to move lower and test 120.07 on a closing basis.

Amex Gold & Silver Index:  The Amex Gold & Silver Index ‘XAU’ closed at 197.11  I see upside resistance on the ‘XAU’ at 208.47 and downside support at 189.49

Amex Oil & Gas Index:  The Amex Oil & Gas Index closed at 1,032.44  I currently see upside resistance on the ‘XOI’ at 1,050.78 on a closing basis and downside support at 1,029.20.

M.S. Cyclicals Index:  The M.S. Cyclicals Index ‘CYC’ closed yesterday at 762.10  I currently see upside resistance on the ‘CYC’ at 789.46 and downside support at 710.93  on a closing basis.

M.S. Consumer Index:  The M.S. Consumer Index ‘CMR’ closed at 682.59  I currently see upside resistance on the ‘CMR’ at 691.44. and downside support at 657.87 on a closing basis.

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A Look at Wednesday’s Trading Activity:  The overall market sold off yesterday following the announcement of the results from the Federal Reserve Board’s policy meeting.  The announcement that the Fed would continue buying bonds in an attempt to manipulate interest rates was received very poorly by the market.  (I’ve inserted a chart of yesterday’s Dow Jones Industrial Average at the end of this blog to show how well the market appreciated the Fed’s move.) The weakest sectors yesterday were the Biotech, Insurance, Banking, Oil Services, Broker/Dealer, Cyclicals’, Transports, Chemicals, Oil & Gas, Commodities, Airlines, High Tech, Gold/Silver, and Healthcare Providers.  All the other indices were lower as well.

Oil was lower by $1.00 to $85.92 per barrel, and Gold was lower by $1.10 to $1,805.80 per ounce.  Wheat was lower by $0.080 to $6.666 per bushel, Corn was lower by $0.044 to $6.856 per bushel, and Soybeans were lower by $0.174 to $13.20 per bushel.

A Few Thoughts Before the Open:  In looking at the charts from yesterday’s trading activity, obviously everything was moving to the downside.  As a point of concern, a fairly high number of the heaviest volume issues appeared to break downside support. This is obviously not a positive sign. Also, it should be noted that the S&P Insurance Index ‘IUX’ had the most bearish looking chart.  I am not exactly sure why, but I will try to see what I can find out today and provide an update in tomorrow’s blog.

In looking at the charts, I think there is a good chance we could retest the market’s August lows within the next few days.

In looking at the various indices I track, I have the following comments.

Dow Jones Industrial Average:  The Dow Jones Industrials closed at 11,124.84    I currently see upside resistance on the Dow at 11,613.53 and downside support at 10,719.94 on a closing basis.  I think the Dow Jones Industrial Average could move lower and test 10,719.94 within the next several trading days.  If support fails to hold at 10,719.94 then I see the next level of support coming in at 10.415.54 on a closing basis.

S&P 500 ‘SPX’:  The S&P 500 closed at 1,166.76  I see upside resistance on the S&P 500 at 1,218.89 and downside support at 1,127.79 on a closing basis. I think the S&P 500 is going to move lower and test 1,127.79.  If support fails to hold at that level, then I see the next level of support coming into play at 1,096.48

NASDAQ 100 Index ‘NDX’:  The NASDAQ 100 closed at 2,258.30  I see upside resistance on the NDX at 2,325.06 and downside support at 2,192.96 I see the NASDAQ 100 moving lower and testing 2,192.96 on a closing basis.  If support fails to hold at that level, then I see the next point of downside support beingat 1,975.33 on a closing basis.

The Dow Jones Transportation Average:  The Dow Transports closed at 4,281.16  I see upside resistance on the Dow Transports at 4,683.96 and downside support level  at 4,221.60 on a closing basis.  I see the Dow Jones Transportation Average continuing to move lower and test 4,221.60 on a closing basis. If downside support fails at that level, then I expect the Dow Jones Transportation Average to continue to move lower and test 4,082.51 on a closing basis.

M.S. Commodities Related Equity Index ‘CRX’:  The Morgan Stanley Commodities Related Index ‘CRX’ closed at 836.32.  I see upside resistance on the ‘CRX’ at 847.10 and downside support at 824.91.  If downside support on the Morgans Stanley Commodities Related Index ‘CRX’ fails at 824.91, then I see downside support coming in at 784.22 on a closing basis.

KBW Banking Index ‘BKW:  The ‘BKW’ closed at 35.40.  I see upside resistance on the ‘BKW’ at 41.42 and downside support at approximately 35.10 on a closing basis. If downside support fails at 35.10, then I expect the BKW to continue to move lower and test 23.34, the 2009 financial crisis closing low.

S&P Banking Index ‘BIX’:  The ‘BIX’ closed 111.39.  I see upside resistance on the ‘BIX’ at 120.71 and downside support at 100.96 on a closing basis.

Amex Broker/Dealer Index ‘XBD’:  The ‘XBD’ closed at 82.31   I see upside resistance at 92.97 and downside support at 80.87 on a closing basis. I am expecting the ‘XBD” to continue to move lower and test 80.87  on a closing basis. If the Amex Broker/Dealer Index ‘XBD’ breaks through support at 80.87, then I expect the ‘XBD’ to continue to move lower and test 63.48on a closing basis.

S&P Insurance Index ‘IUX’:  The ‘IUX’ closed at 149.64  I see upside resistance on the ‘IUX’ at 175.13 and downside support at 143.80 on a closing basis.  I am currently expecting the ‘IUX’ to continue to move lower and test 143.80 on a closing basis. If the S&P Insurance Index ‘IUX’ closes below 143.80, then I expect the ‘IUX’ to continue to move lower and test 120.07 on a closing basis.

Amex Gold & Silver Index:  The Amex Gold & Silver Index ‘XAU’ closed at 213.80  I see upside resistance on the ‘XAU’ at 228.95 and downside support at 208.47 I have been looking at increasing volatility this index and as a result have widened my trading range by adjusting the downside support level down to 208.47.  As a result I basically see this index tracking sideways between 228.95 on the upper end and 208.47 on the lower end.

Amex Oil & Gas Index:  The Amex Oil & Gas Index closed at 1,084.32  I currently see upside resistance on the ‘XOI’ at 1,169.65 on a closing basis and downside support at 1,050.78.  The ‘XOI’ appears to be in a sideways trading pattern.  I have widened our trading band to 1,151.76 on the high end and 1,050.78 on the lower end.  If the Amex Oil & Gas Index ‘XOI’ closes below 1,051.76, then I expect it 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 804.10  I currently see upside resistance on the ‘CYC’ at 868.97 and downside support at 789.46  on a closing basis. I am expecting the M.S. Cyclicals Index ‘CYC’ to continue to move lower and test 789.46 on a closing basis. If support fails to hold at those levels, then I expect the ‘CYC’ to continue to move lower and test 763.32 on a closing basis.

M.S. Consumer Index:  The M.S. Consumer Index ‘CMR’ closed at 698.19  I currently see upside resistance on the ‘CMR’ at 725.78. and downside support at 691.44 on a closing basis.

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A Look at Tuesday’s Market Activity:  The overall market was mixed with the Dow Jones Industrial Average slightly higher while the NASDAQ 100 and the S&P 500 were lower.  The majority of the various sector indices I track were lower as well.  The weakest sectors were High Tech,  Transports,  Cyclicals,  Retailers,  Oil Services, Chemicals, Telecom,  Oil & Gas, Airlines, Natural Gas, and Insurance indices. There was strength in the Gold/Silver, Banking, Healthcare Related, and Consumer indices.  bby

Oil was higher by $1.11 to $86.92 per barrel, and Gold was higher by $30.20 to $1,806.90 per ounce.  Wheat was higher by $0.016 to $6.746 per bushel, Corn was lower by $0.020 to $6.902, and Soybeans were higher by $0.020 to $13.38 per bushel.

A Few Thoughts Before the Open:  In Looking at the charts from yesterday’s trading activity I have the following thoughts.

1.  Despite yesterday’s relatively flat close by the major market indices, several of the various sector indices looked to be turning back to negative territory.  My thoughts are that this could be a sign of things to come over the course of the next few trading days.

2.  In looking at the charts of the stocks with the heaviest trading volume, the vast majority that appeared to be breaking out from their sideways trading patterns, broke to the downside, not the upside.  This is usually the sign of a market downturn not a rally.

3.  The utility stocks have been the best performing sector over the course of the last several days.  In fact the Dow Jones Utility Average set a new yearly closing high yesterday.  I think this is primarily the result of two factors. The 1st being yield hungry investors are looking for alternatives to the ultra-low bond yields.  The 2nd being, the EPA recently announced it would not be implementing new regulations that would have had a very negative impact on the utility industry.

In looking at a chart of the Dow Jones Utility Average, which I have included below, it looks as if the Dow Jones Utility Average has completed a “cup pattern” with a measured move to 491.64  On a longer term basis,  I think there is a possibility that if the Dow Jones Utility Average closes above the 491.64 level, then it could continue to move higher and test 550.66, which is a point of upside resistance established on December 7th, 2007.

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A Look at Monday’s Activity:  The overall market was moderately lower yesterday in a relatively broad based move that saw the majority of the indices I track move lower as well.  The weakest sectors were the Broker/Dealers,  Banking, Insurance, Commodities,  Oil Services,  Airlines, Cyclicals, High Tech,  Oil & Gas,  Healthcare related, Chemicals, and Transports.  There was strength in the Nasdaq 100 ‘NDX’ and the Amex Computer Index ‘XCI’.  Oil was lower by $2.37 to $85.81 per barrel, and Gold was lower by $35.80 to $1,776.70 per ounce.  Wheat was lower by $0.152 to $6.73 per bushel, and Corn was higher by $0.002 to $6.922 per bushel, while Soybeans were lower by $0.194 to $13.336 per bushel.

A Few Thoughts Before the Open:  In looking at the charts from yesterday’s trading activity I do not see anything that really stands out as being significant.  However there are two things worth noting.  The 1st being that the NASDAQ 100 ‘NDX’ looks to be stronger than the other major market indices. In comparing the charts of the Nasdaq 100 to the Dow Jones Industrial Average there appears to be a divergence in their performance over the course of the last year.  However other than the fact that the Nasdaq 100 declined significantly more following the dot.com bubble bursting and therefore has a greater amount to recover, I can’t find any significance to this.

The other thing that I noticed was that it looks like the health of the Financials and Healthcare related indices are still looking weak. I think this a point of concern if you are expecting a major rally anytime soon in the overall market.

Finally,  I would like to urge a word of caution on any expectations that the European financial crisis is going to be solved anytime soon.  The solution to the problems is Europe is going to take a cultural change that may take several generations to fully implement.  The model of the European Social Entitlements has been under development since the end of World War II, basically 70 years.  It will probably take almost as long for those countries to get their spending and debt under control, and enter a political climate is where the voters don’t try to vote their benefits (and the deficit/spending problems) back every couple of years.

I think  the net result of this is that the European sovereign debt crisis is here to stay for the next several years,  it is going to effect the world economy; and as a result we are going to see a discount applied to international companies that results in an overall lower Price to Earnings (P/E) ratio. If I am correct, then the market will trade at a lower level, and annual returns will be less than we are used to.

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