Sideways isn’t so bad, you know
CURRENT BUY –- 100% of portfolio stock allocation $$$
KEYLINE 7-25-09 BUY — 50% allocation only (S&P @ 970)
SIGNAL 10-9-09 BUY — balance of 50% (S&P @ 1071)
Sometimes you just wonder how long the market can meander sideways. But then, you remember that the rule in charting is that the sideways movement, called a “correction in time,” (especially after a long rally) can be the best world of all. What such a market says is that, yes, the heavy preponderance of buyers has declined, but, the auction market is now at almost a balance between buyers and sellers and the index prices should hold their own until more buyers come to the game.
My wife used to ask me why the market was up or down on a particular day. My answer became so “the same” that she often answered for me. My answer on days where the market was up was “More buyers than sellers,” and on down days “More sellers than buyers.” She used to laugh, but I am sure she got tired of hearing that. I recall she would often say, “No, I mean really!” Sorry honey, but who REALLY knows exactly for sure. Sometimes it is clear, but most of the time it is foggy at best to pick the one best reason. That is why in the daily “Munchin” report I try to give you the 5-7 main reasons the market moved up or down for the day, at least as I see them. Take your pick, as any one of them usually has had at least some noticeable impact during the day.
But, on to the markets. I told you last week that if the bonds held steady, the dollar steady, gold was soft and the S&P above 1,100 on the Friday close this would be the best scenario for the week. We only got the S&P to cooperate. The bonds were decidedly down on much stronger than expected retail sales and consumer confidence. Bonds took the hit, as they say, because the good consumer numbers portend a recovering economy.
That potential recovery means that the Fed may soon be able to raise rates and try to get back to the historical mean of about 5% interest rates. But, the rub is that rising rates means lower profits 80-90% of the time, and lower profits means lower stock prices. This last effect is one the Fed would like to avoid, at least for the next 12 months or so. All of this is the main reason I developed and use the Keyline so diligently. It keeps me out in bad selloffs and in on good rallies –- like this one.
The Charts
Ok, let’s get to the charts for this week. By the way, I am including two charts this week that I have made a part of the closing data at the end of this weekly Keyline Report, the dollar and copper. The dollar I have shown you several months ago, but I will now be including it on a more regular basis. Copper I am including because of all the commodities — it is the one that is most used by professional traders to gauge the effects of inflation. Yes, there is a commodity index that included almost all the commodities, but copper is the single most sensitive commodity over the years and traders even call this metal “Dr. Copper,” as it is most often the first to signal changes in the inflation winds.
But first, let’s get to the S&P chart.
You can see that we are just “crawling up the chart’s Headline”. So far, we have held above it, but just barely, as the market has worked over the last month or so to digest the huge rally that began last March. My target remains the S&P 1220-40 area at this point, but I am keeping a close watch for any weakness that might signal a shift from the current sideways movement. For now, we are above the Keyline (at 1059) and holding above the 1,100 mark all this week would be a good sign. About 1,080 is still a critical support. Note in the MOMENTUM SECTION, at the bottom of the chart, that the green line (fast stochastic) has moved back into the 80 area (see red circle), a rather high reading for a good up move to develop. But, I have seen it happen before. Just need to be alert to this high reading for now. Let’s let the chart show us the way here, however.
Now on to the dollar chart
I am showing the last 10 years here, so you can get a good grasp of the decline this period of time has produced. It is substantial, but the lower dollar has also helped to reduce our import-export balances. But, we need to really cut oil imports to make any more of a dent, it would appear.
The current price remains well below the Keyline (at 79.92) and, you can see by the chart, that the bit of a dollar rally they have talked about the last 10 days is really a very anemic move –- so far. The big news here is that the Japanese yen is replacing the dollar as the choice of the “carriage trade” traders. That means that the dollar will be bought for the next month or so, as these traders buy dollars to repay their “carriage trade” loans and move to the yen.
I expect, assuming the shift is relatively smooth, the dollar will continue to gain some in price, but should remain below the Keyline for now. This gain in the dollar will weigh on the stock market, as it means, primarily, that the U.S. will be less competitive in world markets with its goods and services –- less profits to the minds of investors. A steady to mildly higher dollar this week would be the best scenario.
And finally, on to the copper chart
I had this chart in the daily “Munchin’” report this past week, but I am including it here again, as I have more extensive comments to make about it. This time I am showing the chart back 10 years. You can see it did the same nosedive that stock market did, as would be expected. But, note that it began to rally as early as January of this year, nearly 60 days ahead of the March low. I suspect that this was one of the major clues to the big investors that that March low was not a harbinger of more lows and may have help set off the rally we are still experiencing.
Note in the MOMENTUM SECTION at the bottom of the chart that the green line (fast stochastic) is quite low and the black line (slow stochastic) is still in the 70 area. This kind of setup is usually a harbinger of higher copper prices. This might also be telling us that the current stock market rally might be ready for more up move. I will be watching this closely.
We remain well above the Keyline (at 2.8808) for now, but like we did in the late July to October period, prices are moving sideways pretty much. I am keeping a watch on this one for any weakness that might break the $3.00 level. If that were to occur, we might well see the stock market begin to drop again, also. If that were to occur, the drop would hopefully not be like it was last year. But, for now, the $3.00 level is a critical support. Watch the price updates I give you daily to keep up on this one. Best scenario is to hold steady in price this week.
The Bottom Line This Week
Well, that pretty much wraps up this week. I will have the daily update to keep you current on any major developments during the week. But, I will not be giving you a summary this week, as I have in the past, of the major news events influencing the market all week. That I am now doing within each daily update report.
But, here is the way I see the bottom line that would make this week’s scenario a good one. The S&P needs to remain above the 1,100 level, bonds really need to find support in this 117 area, Gold needs to hold steady — but above $1,100 level, oil should hold the $68-72 area and the dollar not break above the 77.50 mark, as the “carriage trade” exits the dollar usage and shifts to the use of the yen.
So, as always, do have a good investing week. And you keep in touch. I do! See you next week.
Weekly Changes
Closes as of Fri. 12-11-09 WK. CHANGE (cash) KEYLINE# ABV/BLW
DOW INDU. 10,471.50 +83 points 9,848 ABV +623
S&P 1,106.41 +43 points 1,059 ABV +47
NASDAQ 2,190.31 -4.05 points 1,969 ABV +221
30 YR BONDS 117 21/32 -23/32nds 115 24/32 ABV +1 30/32
GOLD $1,132.50 -$37.00 $1,044.40 ABV $88.10
OIL $69.56 -$5.91 $83.21 BLW $13.58
DOLLAR INDEX 76.57 +.63 79.03 BLW 2.46
COPPER $3.1330 +$.0285 $2.8808 ABV +.2522
Top 10 Stock Sectors Last 6 Months @12-11-09
1. BROADCAST (+70.3%) SAME AS LAST WEEK SAME
2. TOOLS (+65.0%) #7 LAST WEEK UP
3. AUTO (+49.0%) SAME AS LAST WEEK SAME
4. ELECTRICAL (+48.0%) #6 LAST WEEK UP
5. ENGINES (43.4%) #4 LAST WEEK DOWN
6. PRINTING (+42.5%) #2 LAST WEEK DOWN
7. TEXTILE (+41.1%) #10 LAST WEEK UP
8. MINING (+38.6%) #9 LAST WEEK UP
9. PUBLISHING (+36.7%) #5 LAST WEEK DOWN
10. CHEMICAL (+34.4%) NEW TO LIST UP
*The name Super Chart Keyline is a registered Trademark of Max Whitmore.
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