The S&P 500 ETF (SPY) 08-31-10

This was an interesting day for the last day of the month.  After this morning’s announcements, which were better that expected, The Dow Jones Average (INDU) rallied to plus 60 and then the rest of the day was spent hammering it to minus 30 and it finally closed up 4.99 at 10,014.72.  Once again the 10,000 level held.  The Spyder had a range of  1.50 points and ended the day down 0.001, basically even at 105.39.  Then after the close the SPY took off like a scalded cat and ran to 105.84.   There is still upside pressure being applied to the Daily chart.  The 104 level held once again as the bears tried to drive price through that level.  107.27 remains the entry price for the next move higher with 110 as the first price objective.  101 remains the target for this move down. 

The Dow Jones Average (INDU) 08-30-10

Well!  Today was diametrically opposed to last Friday in its action.   The problem is that the indicators are also opposite of where they were on Friday.  Does that bode well for an up market tomorrow?  Only the reports can tell us, and then maybe what ever the news it is interpreted as good.  There is also some very bearish sentiment out there right now.  The INDU closed the day down 14.92 at 10,009.73,  Just above the 10,000 support threshold.  10,000 has proven to be the magic number in the past.  Can it be today?  The 90 day moving average for the Dow is at 10,269 with the 200 day moving average at 10,452.  Plenty of room for a rally and not break the down move.  So far the second price objective for the move down at 9964 has held and the target price for the move down remains at 9716.  For price to move higher price would have to go through 10212 with the first price objective at 10,486.   There is still positive pressure being applied to price on the daily and the indicator on the lower time frames is over extended. 

This Weeks Reports 08-29-10

Commentary on the Bonds. 08-29-10

My personal opinion is that interest rates have to rise.  That is a personal opinion.  Here is the problem.  The Fed is doing everything in its power to keep interest rates at some of the lowest levels seen in years.   Here is the reason that I don’t short the bonds.  The question is how low can interest rates go.  With the fear factor I have not idea.  But I will give you one reason not to short the bonds.

Let us start the example with $1000 bond yielding 10%.  That makes and interest payment of $100.  If interest rates go from 10% to 9% the result is that the value of the bond goes from $1000 to $1,111.11.  Basically a 10% risk factor.  Simple math.  100/.09=1,111.11.

Now let us do the same thing in today’s environment.  If a $1000 bond yields 3% the interest is $30 and if interest rates drop to 2% the value goes to $1500 and if a $1000 bond yields 2% and interest rates drop to 1% that $1000 bond becomes worth $2000.  So the question is do you buy the bonds because of the leverage to the up side in price because of the governments pressure to lower current interest rates or do you short the bonds because you feel that interest rates will rise.  I think that the risk reward ratio is way out of whack at this time to be on either side of this market. 

 Just some thoughts from an old man.  Ira.

Crude Oil – October (8-28-10)

A couple of days ago, the Crude report showed large inventories.  But traders paid little attention to that and Crude took off.  At the news, Crude stopped right at its second price objective of 70.89 for the smaller cycle move down and also went past its first price objective for the larger cycle move down at 72.20.  Over the past two days it has rallied up, hitting the entry price for the retracement at 73.58 (in blue) with a first price objective at 76.40 and a second price objective at 79.22 (not shown).  It also held the low made in late May at 70.35.  For price to start a new move down, it would have to take out Friday’s low and then the first price objective would be 69.13.

Arthur

Bonds (8-28-10)

Bonds stopped just above the 2nd price objective for the move up and have now hit the entry to the retracement down at 134-21.  The first price objective is 132-10.  This is based on the September contract, the numbers will be slightly different when the bond futures roll to the December contract.  Fed Chairman Bernanke announced this week that the Fed would do everything necessary to help the ailing economy.  The question is how many bullets does he have left.  The answer so far has been to print money and that may continue, which, in turn, could lead to hyperinflation down the road.  However the Fed does not seem concerned about that at this time.  Also, this should be an interesting week with several reports including the monthly labor report.  But we are also approaching a holiday and seasonality implies a rally into the holiday.  Will that hold true this time?  Labor Report vs. Labor Holiday.  Should be a good fight.

Arthur

Comparison between the US Dollar, The Euro and the SPY 08-28-10

The question that I wanted a partial answer to was whether there was any correlation between the Dollar, the Euro and the Markets.  I am using the SPY as a market indicator.  It appears from the attached charts that the SPY has been moving in step with the Euro and opposite to the US Dollar.  If that relationship remains then one should be able to get an indication as to where the US markets should go.   I believe that the charts are self-explanatory.  There is an analysis of the Euro, the US Dollar and the SPY following this.

The September Euro (EUU0) 08-28-10

The Euro closed the week at 1.2761 up on the week.  There is currently upside pressure being applied to the Euro on the daily chart.  For price to start a major move higher it would have to go through the entry price of 1.2969 and then the first price objective would be 1.3330.  Price found support at the first price objective for a move down.  For price to restart a move lower it would once again have to go through PO1 at 1.2602 and then the first price objective for the short cycle move down would be 1.2412.  The analysis of the US dollar follows this and as the Euro has a large percentage of the dollar index they should move in opposite directions and they do. 

The U.S. Dollar Index Future for September (DXU0) 08-28-10

I am looking for a correlation between the Dollar, the Euro and the US markets.  The dollar closed the week at 82.78 down on the week.  There is also downside pressure being applied to price.  Price has gone through the EP for a move higher with the first price objective at 84.69.  For price to restart a move lower it would have to go through 82.04 and then the first price objective for the move down would be 80.42.  Based upon this information I would expect the Dollar to move lower.  On the lower time frames there are price objectives at 82.56 and 82.46.  Price should find some support at that level.   Neither of these levels would trigger the longer term move lower. 

 

The S&P 500 ETF (SPY) 08-28-10

This was an extraordinary Friday.  The Dow opened up plus 70+ points and then immediately went to down 30+ points within the first half hour of trading.  Then there was a steady rise the rest of the day until the Dow closed up over 160 points.  The SPY had a similar experience.  The SPY closed Friday at 106.86, just below the high of the day.  There is upside pressure being applied to the daily chart at this time.  The chart has remained the same for the past several days.  104 continues to act as support.  The entry price for the next move higher is still 107.31 with 110 as the first price objective.  There is one hook in this picture.  The fact that the lower time frames are showing very over extended readings.  I would expect some sort of profit taking on Monday, if not at the opening then a little later in the day.  Unless you are trading out of hedged positions it is very difficult to trade these very volatile markets.  If you are long, I would hedge using either puts or the negative ETF SDS.  Once the next move is clear you can remove the hedge.   In order to restart a move down price would have to go through 104.62 and then the first price objective would be 102.44.