Market Wrap-up (02-03-2004)

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[Orangedog]

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Today's WrapUp by Ike Iossif 02.03.2004  Mon   Tue   Wed   Thu   Fri   Archive

"Summary for Trading Week Ending 01-30-2004"

Last week's action resulted in a rather mixed picture, which in my view calls for a "neutral" bias this week. First of all, NASDAQ did close below 2105, which was negative, but the SP didn't close below 1122, which was positive. The McClellan Oscillators got to oversold territory, which means a bounce should be imminent--a positive--but the rest of the indicators didn't come even close to the bottom of their ranges. This means there could be additional downside risk in the markets--a negative.

Based upon the current levels of most of our indicators, I estimate any additional downside risk to be  approximately 2%-3% for NASDAQ and 2.2%-4.2% for the SP. All in all, we ought to be prepared for either a bullish or a bearish action next week and perhaps a dose of both!

DJIA:  It rallied up to resistance and it pulled back. If it can close above 10700, the next resistance is at 11350. It has support at 10350 and at 10000.

DJTI:   Next support is in the 2800-2835 zone.

SP500: It has resistance at 1155 and at 1178. It has support at 1105 and at 1095-1088.

NASDAQ: It has resistance at 2155 and at  2180. It has support at  2000.

HUI: Support at 200, resistance at 250. If support at 200 doesn't hold, then the next downside target should be  180.

US Dollar:  Resistance at 91. Support at 85.

CRB:  It has support at 260 and at 250. Resistance at 270.

Oil: It has support at 30.25 and resistance at 35. If it closes above 35, the next target will be 37.0 and then 40.

Utilities:  Resistance at 274. Support at 268. Maximum upside target: 315.

Real Estate: (DJR)  Support at 186.

Conclusion

Notice that as long as the SP remains above 1122, price is controlled short-term by the rising green channel, which is bullish, and suggests that the SP can rally from channel support all the way up to channel resistance at 1155-1160. This can be accomplished in a matter of 3 trading days--by Wednesday as a matter of fact.

Once the SP gets up to channel resistance, the oversold condition of the McClellan Oscillators will be alleviated, while our indicators -once again- will be near the top of their range. This means the SP can turn back down again as early as Thursday unless we have a break-out above channel resistance and the SP rallies to weekly resistance at 1175-1178. On the other hand, if the SP closed below 1122, then channel support will be violated, and the next downside target should be in the 1095-1088 zone (at the intersection of the two blue lines) This could also be accomplished in just three trading days in a manner similar to last week's decline, during which the SP reached a high of 1155 on Tuesday and a low of 1122.38 by Thursday. In my view that would be ideal, because that kind of action would drive the McClellan Oscillators even lower and it would push our own indicators towards the bottom of their range, providing us with a low risk entry point for a tradable bounce with a magnitude of at least 3%.

I believe that the odds favoring either scenario and are almost even, since each positive is being offset by a negative and vice versa. 

There is one additional point that I would like to make for whatever is worth. Notice that despite last week's decline, the total assets in the Rydex Bear Index Funds didn't increase. In other words, speculators didn't believe that the decline would amount to anything and they were more interested in buying the dip than selling short. Usually, when a decline generates no fear and instead generates enthusiasm in anticipation of entering long positions, the enthusiasm is short-lived.

Ike Iossif

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[Orangedog]

Gather 'round, fellow doomers and malcontents! Here it is...the Tuesday Chart-fest!

Praise be to Soren for showing me the error I made with the html code last night...that also means he is partially to blame for all of Ike's charts being here in screaming clarity ;)

[superloser]

Thanks for keeping the nightly Wrap-Up going in arete's absence!

[rohry]

Thanks for posting Market Wrap-Up for us since Arete got "kicked out of the class"...

[Orangedog]

...all part of the service :P

[Orangedog]

delayed ping...sorry, still getting things in order on my end.

[Soren]

Nicely done. Thanks for posting.

There is an interesting theory being discussed on lemetropolecafe.com regarding the yen. The question is why does Japan appear to be defending 106 so vigorously (with about $70 BILLION spent in January alone).

The theory requires a bit of history: with Japanese interest rates close to zero, a Yen carry trade developed, where people borrowed yen, sold them for dollars, bought US Treasuries, and pocketed the difference in yield. So they are long Treasuries and short Yen.

Apparently the average Yen/USD level of the short positions is around 106. So once the yen falls below 106 you would expect the carry trade to unwind as the shorts cover their positions. To cover, they must sell their Treasuries and buy yen, further strengthening the yen. To prevent this unwinding, 106 is being defended.

On top of that, apparently this level was known and it was assumed by the marketplace that 106 would be defended, so a large number of call options were written at 105. To the extent these were naked calls, it would require buying yen to cover. Also, to the extent they were written by the well-connected big money players, there would be behind the scenes pressure to bail them out by defending 106.

The bottom line, if this theory is correct, is that once 106 is broken decisively, we could see a strong move in the Yen and perhaps, Japan's abandonment of such agressive support of the dollar. This in turn means problems in financing our trade deficit and probably higher interest rates. This could be a key turning point.

[Orangedog]

Considering how the yen is now at ~105.37, I looks like 106 yen has been violated like a drunken prom date. If it cracks into the sub 105 region then things could get "interesting." Stage 2 of the gold bull market seems to get closer day by day.

[palmer]

Thanks for posting the "arete" thread, Orangedog. The last chart is interesting because it looks like buying bear funds causes the market to rally. Maybe there's a cause like short squeezes, or perhaps it's just contrary sentiment: the more bearish people get, the more likely there will be a bear market rally.

[Orangedog]

Maybe there's a cause like short squeezes, or perhaps it's just contrary sentiment: the more bearish people get, the more likely there will be a bear market rally.

Bull or bear...each critter has it's season. The bull had nearly 20 years. IMO, the bear isn't ready to go back into hibernation yet.

[sourcery]

S&P 500 Globex:

So Cisco earns slightly more than estimated, and in response the market has a hissy fit. Hmmmmm....

[Orangedog]

So Cisco earns slightly more than estimated, and in response the market has a hissy fit. Hmmmmm....

Like the old saying goes...buy on rumor, sell on news. Kind of like the insiders in a lot of companies have been doing for the past year or so.

And as far as any companies earnings are converned, I'll believe their numbers when they start expensing their stock options.

[imawit]

Well I'm gonna lay off calling the BUGS. Everytime I do there's a major uptrend that lasts only about an hour or so.

Who the hell's the phantom lurker around here anyway ?

How about a predict on the G7 mtg ?

Glad you asked.

I think it'll be a wash. The US wants Japan & China to stop interdicting and let the markets dic....tate. Don't think that's in the cards nor will the W team even mention it again. They got publicly slapped down and ignored the last time. Besides, the only way the US can pay its bills is to have a fire sale on dollars.

Australia has raised its federal interest rate and Britain is just days away from doing the same. The only ones that want to devalue the Uro (phoenetic !) is France and Germany. That way they get to have their personal fire sale on Uros at the expense of all of the other members and further trash the ECB agreement/worthless/contract.

Then there's W's team. Like I said, I don't think they're going to stick out their interdict. That's not the plan or purpose in the strategy of exchanges at the moment. Besides, words can't possibly have the same interdict as action so the ladies say. So no dicting around is possible unless the big interdicter himself Greeney pants wants to stop printing USD and raise interest rates. Yeah right !

Then again, there might be some ferocious stud poker games behind locked doors.

[imawit]

Aw right, the wit can't hep it. Don't have no up or no down channels to violate so here ya go. (now that's kinda cool a double negative on the opposite polarities of the same subject. Doesn't make it a positive does it ! Q.E.D.)

A close below 393.95 breaks support. Just a touch at 408.320000 and the trend reverses to UP. Course that's when there'll be a mad rush to sell off and get all that luscious paper. You know, just in case it reflates to .85 Uro in the next 5, 10, 20 or 50 yrs from now.

[jwh_Denver]

I'm looking for advice and I know no better place than here. Right now all my investments are in gold. Sounds crazy but I have my reasons at this point. You see my wife works at Oppenheimerfunds and I want to diversify at this point to a "safer" point?

They have a bond fund ticker OPPHX that I've been looking at.

http://www.oppenheimerfunds.com/commonJhtml/fund_info/profile_facts.jhtml;sessionid=UWZM4ZOIAXMR3UGLLZCCF3Q?catId=5%20%20&_requestid=5024&fundcode=280

YTD has yielded %2.18. The thing that I lack tremendously is a lack of knowledge of bonds.

Any advice, info or whatever will be greatly appreciated. Good, bad, or ugly! TIA!

[Soren]

It's definitely not an easy call. I agree diversifying out of gold is wise (even though I am heavily concentrated in PMs). Given the uncertainty in the economy and historically low interest rates, I would be wary of chasing yield by investing in corporate bonds with lower credit ratings or buying longer durations. Keep it short and safe, and wait it out, would be my strategy. If you need income, maybe consider the energy sector. That's my $.02.

[jwh_Denver]

If you need income, maybe consider the energy sector.

That would be my first choice but Oppenheimer does not have a fund devoted to energy stocks. If I had a chance to talk to one of the big dicks there I would tell him they should.
The big O has a few other bond funds which would be better than MM but not by much. Really appreciate the info.

[jwh_Denver]

Turns out the Big O does have an energy fund, it's just not called that. My wife is going find out which one it is.