Market Outlook 01-31-10

There are many who are looking for a market collapse and others that look at this pull back as a buying opportunity.  There are traders that are using various technical indicators to determine what to do.  Could it be time to look at some fundamental facts?  Are many of the top stocks that move the markets fairly valued at this level?  Take IBM for example.  This year each quarterly profit exceeded last years profit picture. A look at one valuation shows that IBM is fully valued at this price.  There are dozens of ways to judge the value of a stock and this is just one.

The stock is currently trading at $122 and by this method the median value is only $120.  There are literally dozens of stocks in the same condition.  The chart courtesy of www.powerinvestor.com .  There are many stocks that are very undervalued.  Where and when will this rotation take place?

It doesn’t matter if you use technical analysis or fundamental analysis or a combination of both.  One must be aware of the funds and ETFs that are basing their buys and sells upon the fundamentals of certain sectors.  I am basically a technical trader, but I want to know which areas should have the greatest potential for a major momentum move.

China-XINHUA 25 ETF (FXI)

The IMF has put forth some interesting numbers.  They have more economists working for them than Obama and friends.  The IMF estimates that GDP growth in China and India will be about 10% for 2010 and 2011.  The estimate for the US is 2.7% in 2010 and 2.4% in 2011 and for Europe the guesstimate is 1/7% for 2010 and 1.4% for 2011.  I assume that my data source is correct.  At any rate Asia is supposed to out perform the developed countries by a goodly amount.  Right or Wrong it is worth a look.  The FXI is the ETF for the XINHUA 25.  The Chinese big board.  There are ETFs for many other countries and you can look at those to see what is happening around the world.  The main problem with this ETF is that a lot of the major moves take place while the western world is asleep. 

The FXI closed Friday at 38.36 down on the day.  The index has been falling since mid November of 2009.  Price has gone through the short-term cycle target for the retracement down and is now approaching the longer term cycle price objective at 36.26.  For price to restart its move up price would have to go through the entry price at 40.39 and then the first price objective would be 43.  There is currently up side pressure being applied to price on this chart and the indicator is in the over extended are for the down move. On a lower time frame if price can go through 38.55 it could reach 39.55 a target for that move higher.  That target price still would not trigger the entry price for the longer term cycle move higher.

Gold Future (GCJ0)

The future continues its move lower.  At this time it is being supported by the first price objective for the move down at 1082.  The next price objective for this move would be 1044.  For price to restart a move higher it would have to go through 1124 and then the first price objective would be 1174.  At this time there is downside pressure being applied to price.  The indicator is in the over extended area of the chart and trying to turn up.  At this time Gold seems to be tied to the rise and fall of the US Dollar.  If the dollar continues its rise I would expect the price of gold to try and reach the second price objective for the retracement down.  The entry price for the move higher is based upon the current low of 1074. 

The US Dollar Index Future (DXH0)

Much to the surprise of many the US Dollar continues its rise.  It closed on Friday at 79.64 and is heading for the first price objective at 80.  The target price for this move higher would be 81.  For price to move lower off of this high price would have to go through 78.80 and then the first price objective would be 78.  The numbers may be just a hair off due to the compression of the chart.  With the problems going on with the debt structure in Greece, Spain, Italy and Portugal the Euro should remain weak and the Euro makes up the largest percentage of the dollar index.  Each price objective should act as support/resistance and once price goes through that level it should act as resistance/support for a retracement.  There is still upside pressure being applied to price and the indicator is once again entering the over extended area of the chart.

The S&P 500 Index (SPX)

The Indx closed down at 1073.87.  This was not a good week for the markets as a whole.  Price is moving down toward the first price objective at 1052.  The second price objective for this retracement down would be 1002.  For price to start a move higher it would have to go through 1102 and then the first price objective would be 1132.  There is still down side pressure being applied to price.  The indicator is in the very over extended area of the chart.  It tried to move up last week and was turned back.  From this level there should be at least a little bounce.  With many of the S&P 500 reporting this coming week a catalyst for this move might happen. 

The E-Mini Future (ESH0) 01-28-10

The E Mini closed down on the day and in the after hours trading it is currently down another 1.75.   The chart shows down one, but it keeps trading.  The 15 min. chart is beginning to look like a W bottom if the current lows hold.  That is a big if considering that no matter how good the earnings are price still can’t advance.  At this time I believe that any rally should be short-lived .  The first price objective for the move down is still 1051.  There is currently slight upside pressure and there is divergence at the low.  The indicator is trying to turn up.  For price to go higher it will have to go through 1106 and then the first price objective would be 1137.  There are still some large S&P 500 companies that will release earnings next week.   If you are long keep your stops tight.

The NASDAQ 100 ETF (QQQQ)

Can the Apple Ipad and earnings report revitalize the tech sector?  So far price hasn’t broken any previous lows and the move higher seems to be intact.  Price has found support at the price objective for the move down on a lower time frame which is just above the first price objective for the move down on the daily chart.  Price closed at 44.70  up 0.35.  The pressure indicator is in the over extended location on the chart and is trying to turn up and apply upside pressure upon price.   For price to restart the short cycle move higher it would have to go through 45.46 and then the first price objective would be about 47.   Price has broken the uptrend line and price could move higher and track that line higher.   There are a lot of tech stocks with charts that look very similar to this one. 

The US Dollar Index Future (DXH0) 01-27-10

It appears that the markets are keying off of the dollar.  Whether this continues is a question to be answered at a later date.  The Index closed the day up 0.29 at 78.90.  Price reached a target price of 79 on a lower time frame chart and the first price objective on the daily chart continues to act as resistance.  The indicator is showing that there is still a little upside pressure being applied.  It tried to turn down the other day unsuccessfully.  There is still a  price objective of 80 on this index.  For price to start a retracement down price would have to go through 78.11 and then the first price objective would be 77.24.

The dollar is key in the pricing of the soft commodities, crude oil, and the metals, both precious and basic.  The ETFs DBA, GDX, UYM and RJA along with others currently move contra to the dollar.  Of course the softs are also affected by weather and planting numbers and the others by different factors.  Right now the main impulse is being applied by the dollars move.  

The S&P 500 ETF (SPY) 01-27-09

The SPY closed today at 109.83 up 0.52.   The first price objective for the move down has acted as support at 108.83.  Pressure has crossed over from an over extended area of the chart and is trying to apply upside pressure to this chart.  The market, the DOW (INDU),  and closed the day with a rally.  The news from the Fed was perceived as beneficial to the markets and it appears that prices are looking to rally.  The question is how far can it rally from this level?  Will this bull continue or will this be just another retracement before the next leg down?  The second price objective for the move down would be 105.65.  For the market to move higher price should have to go through 111.33 and then the first price objective would be 114.35.  The target price for the longer cycle remains at 115.94.

The Gold Dollar Overlay (GCG0/DXH0) 01-27-10

I have received several emails asking about gold.  My reply was if you want to know about gold right now follow the dollar Index.  At this time it is easier to track and right now they seem to line up pretty good.  The horizontal lines are the price objectives for the gold chart.  As long as the dollar stays strong, gold will have a problem rallying.  Of course one really wants to know if the dollar moves gold or gold moves the dollar?  It is kind of the tail wagging the dog if you believe the gold scenario.