Dr. John L. Faessel
ON THE MARKET
Commentary and Insights
Quote of the day
“It's time to put grown-ups in charge”
~ John Boehner ~
GOP House leader
Existing-home sales plunge 27% - the lowest level in 15 years
$1 trillion a year deficits for the next 10-years now expected
Social Security shortfall now $16 trillion
Treasury yields collapse
McClellan Oscillator OVERSOLD at minus 207
The Trend Remains Down
Investor Sentiment Horrible
Yesterday economic news about the woeful state of our nation’s economy put investors in full retreat and stock markets fell immediately through important support. Volume jumped to average. Up / down volume on the NASDAQ was 5.5 to 1 negative - on the NYSE - 7 to 1 negative. It was a terrible, gap down day.
Looking forward, the four month consolidation looks tenuous. On the plus side, sentiment is terrible (a plus for the market) and oversoldness is significant but not quite at absolute death –watch spectrum lows. "Price" is on the lows of the channel in the S&P 500 (SPX) and in the NASDAQ 100 index (NDX). Bollinger band and stochastics analysis suggests we are also at reversal levels.
Will the support lows (the head of the “reverse head and shoulder” set up) that are at (SPX) 1010 hold? Yesterday the (SPX) closed at 1051. While we may face some short-term gut wrenching downside, I think that will bring oversoldness and investor sentiment to the sufficiently dire levels necessary for a decent low. That could occur over the next couple of days.
Obviously, the market is now focusing on the horrors of the economy and not on the superb numbers that are being generated in profits, or analysts expectations going forward, that are also supposed to be terrific. Merger and acquisition activity is high and while corporate America has tons of cash but they're not investing because of worries about the fiscal, regulatory and economic backdrop. All of this, to me anyway, seems like the trading range will hold up but we're again quite close to the "fish or cut bait" levels were it's always dicey. Of course, the other side of that argument is that the economy is plunging into a double dip recession and that would throw analyst projections in the ash can.
Another thought to keep in mind; the summer is close to an end and it appears that the Republicans may well take control of the House and the Senate (and the purse strings). I vividly remember the day after the election in November 1994 when the Republicans took control of the House (think purse strings again) in the bond market reversed that day on a new huge move as the spendthrifts were kicked out. It seems we never learn. That was the beginning of the huge stock market move that eventuated into the 6-year near straight up market advance and bubble of 1999/2000. I wonder now though if the intrinsic damage to the economy (and culture) is irreparable. Another musing; that bubble created a huge cash infusion into the Treasury in the form of capital gains and income. Remember the.com bubble and the NASDAQ at 5132 and the Semiconductor Index (SOX) that appreciated 748% or 41% a month, or 10% a week or 2% a day for 18-months. When I hear the “lefts” spin about the Clinton policies that created the (bubble) surplus my head spins.
Price Support in the S&P 500 (SPX) is 1047 then deep support lows at 1011. Deep channel support is 955. Resistance will be at 1060 then 1070/1074/1080 and1100.
Key indicators and metrics:
· The McClellan Oscillator “well” OVERSOLD at minus 207
· The Treasury 10-year yield 2.49% - 17-month lows (March 2009)
· Treasury 2-year yield at 0.49%
· 3-month LIBOR slides to 0.307 – 29th straight decline
· CBOE Put / Call Exchange Volume Ratio at 0.95
· (VIX) at 27.46
· Euro at 1.2647
· Copper at 3.251
If you would like a copy the just-released Standard Chartered report on what they think will be a global shortage of copper, iron ore, thermal and coking coal: Dr.Faessel@onthemar.com
For my list of Best Ideas for 2010 please send an e-mail request to: Dr.Faessel@onthemar.com