Happy
May. In much of the world that has a winter, the spring is welcomed in with
tulips. In the seventeenth century tulipomania commenced and tulip bulb values
went so high they became an actual type of currency. Their value changed from
day to day and were quoted like shares of stock. During the period 1634-1637,
people abandoned jobs, businesses, wives, homes and lovers to become tulip
growers. They still look nice today. This week the dates of May 7-9 are
celebrated in countries in Europe as VE day - Victory in Europe Day the
dates when the World War II Allies formally accepted the unconditional surrender
of the armed forces of Nazi Germany. This is the 63rd year anniversary. I remember
the
celebration and parade of the 50th anniversary as Boris Yeltsin was
president and on that day President Bill Clinton was at his side during the
parade here in Moscow. I have never seen before nor do I expect to again see so
many pope at one event. It was breathtaking.
Well back to the market. April 1 is called April Fool's day and there are many
practical jokes but it seems that the US government waited until May 2 to give us
all a good one when they released the Bureau of Labor Statistics jobs report. It
is being hailed my many financial websites as a great joke and a good
laugh is being had by all. My TV cable company used to carry CNBC but stopped at
the new year. I could have switched companies but seems CNBC not worth the
bother. Still though, I wonder if Larry Kudlow is still on and if so, I bet he
missed the joke and fell for it instead. The BLS (Bureau of Labor
Statistics) uses a birth/death calculation to be able to kind of make statistics
up as they go along. In time real and honest records are used but mostly a year or so late
and no one cares by then. Well first off they did say basically that there
were only an additional 20,000 job losses in April compared to the average last 3
months of about 77,000 per month. One quote from Barrons I like is "So we take
this occasion to tip our hat to the bureau's artistry in being able to fashion a
comparatively heartening picture of the job market out of some very unpromising
raw material."
They did, to their credit, tack on an additional 8,000 losses to the previous two
months but still their calculations are, to say the least, a bit over the top.
Barrons this weekend in guessing who will get the Pulitzer Prize for
Fiction suggested that hands down it will be the BLS with this report. They call it
"a brilliant narrative". For this birth/death "adjustment" the BLS adds a lot
of jobs such as an estimated 45,000 new jobs in
construction! The actual survey results showed that construction jobs fell by
61,000. They also estimate that 8,000 new jobs in
finance were created. All in all the BLS added 267,000 jobs
to "adjust" the official figures. Regardless, it made for a rally
day on Friday for a good part until profit taking kicked in.
As far at the unemployment rate they decided to not count people who are working
part time. So if normally a person worked 40 hours a week and after being
unemployed for a time found some part time work they would be taken off the list
even though they are really still looking for a "real" job. It seems that
fulltime employment declined by 375,000 but that makes
for a poor headline so it is better not to talk about full time job unemployment.
The ISM Institute of Supply Management's survey
of 400 manufacturing executives stayed at the March reading of 48.6. A reading above 50
reflects growth in the sector. A reading below 50
represents a decline in manufacturing.
Over the past week breadth indicators deteriorated but the market
in general made a minor gain as show on the indexes below.
Here are the winners and losers in sectors for the week.
The weekly top and bottom industries
We now have the Fed out of the way for a while and a
good share of the earnings reports so what outside force
will it be that will cause the market to move up or
down? We know about "sell in May and go away" so we do not
have seasonality on our side.
For the market to advance we only need enough fund and
money mangers and people to worry about being
underinvested in such great times so that they buy more
stocks. So far though the volume and other indicators do
not show that happening. Will we be able to climb that
wall of worry or slip back down? There does seem to be
though a bit of a shift as energy and commodities are
pulling back and some money goes back into financials,
technology and retail but not an easy time as things
seem like they have quite a ways to go to fix the
problems in housing and financial sectors.
We have way too many chart this week - we will try to
have less next.
This past week we had 26 new
trades from the watch list. This makes the last 3 week
in a row total of 79 trades. This just
cannot be sustained at such a high level but sure it
great right now.
The Dow broke above its trend
line. The triangle drawn is not exact however the apex
of it as draw may still point to some change at the apex
- near the end of May.
This longer term view shows it is also now at another level of resistance.
This is the Dow using 3 line break chart. They are
build up in a different wat from candles so notice that
the dates have no consistent length on the time line.
This style strips away most of the noise of daily
trading ranges so can be useful for longer term trades
as a mechanical trading system. This method I made uses
the CCI and a modified stochastics to give buy and sell
signals. It is not extensively back tested so one needs
to also use conventional stops. In this chart the blue
lines are sell and shorts while the green lines are
covers and going long. There are eight trades shown here
staring July 23 and ending Friday for accounting
purposes. This was a total of 5,625 points over 9
months. If you used the e-mini this was a total of
$28,125 profit (before commissions) for each contract.
For overnight hold contracts one typically ties up about
$2,000 so 10 contracts would have tied up $20,000 and in
this example grossed $281,125 over this period. Pretty
amazing return on investment for a mechanical system.
(Note that we are not including the run from March
15 to June 4 of 2006 - a 3 month hold)
Here is the DXD ultra short for the Dow. Showing it in case this media
driven market enthusiasm turns out to be a bear trap. Keep this handy. If the
Dow does pick up momentum however this could first go to the dotted line. RSI is
getting oversold and stochastics already is.
The Dow Jones transportation index continues to run which seems very
strange compared to the economy.
Here it is nearing its 2006 summer high.
.
The Nasdaq broke above its
trend line and 200-day EMA on average volume a higher
resistance is shown.
Nasdaq shows next resistance level at 2540
Nasdaq bullish percent now back above 50-day EMA
Nasdaq 100 basically at resistance zone
The Nasdaq 100 proxy QQQQ monthly shows a good rebound from the 50-month
EMA but on lower volume and this could turn out to be a bear flag.
As we did with the Dow short ETF, here is one ultrashort ETF for the Nasdaq 100
- QID - keep it handy for market pullbacks and go long when the Naz 100
is going down.
The semiconductor index SOX weekly getting close to its 50-week EMA
though now it is above the first horizontal resistance.
On the daily chart the SOX is at some resistance and the 200-day EMA
We have several S&P 500 charts today. this shows the trend line break
from last week the horizontal and 200-day EMA break from this week.
The S&P 500 60-min chart showing the next level of resistance not
far overhead.
This monthly S&P 500 chart would be more believable if stochastics had
gone under 20. This suggest to me that it will do so in the future.
If the market continues to advance we would see the 13-day cross back over the
34-day EMA on this S&P 500 weekly chart. For a new bull we would want to
see MACD back over 0.
Our S&P 500 bullish percent indicator gave a very brief sell signal on
Thursday but it was not seen until Friday as the data for this chart does not
update until the following day and by then the rally was back on. So we know to
look at the market before making a decision to sell or buy and not base it on
this alone.
The NYSE broke above it
200-day EMA, horizontal resistance and the trend line.
The new highs on the NYSE
are actually less than they were was during the last two
rallies. This does not suggest much strength in the
current rally so far.
The number of stocks on the NYSE now
over their 50 day MA is near levels it was during other
tops however it can stay there a while as it has in the
past.
The NYSE
advance decline line is actually not to far away
from when it hit tops before and those corresponded to
tops in the NYSE as seen in the lower part of the chart.
Year long view of the Russell 2000 showing it is at the Fibonacci line,
200-day EMA and horizontal resistance.
Closer view of Russell 2000 where resistance is at 740.
Some fear was leaving the market as VIX shows as it dropped under the
December low.
As fear lessened in stocks money went into them and out of bonds which caused
yields in bonds to rise. The 30-year bond yield closed at 4.55%. Now back at its
channel top and 200-day EMA.
Oil overshot our 116 target
by $4 and has started a pullback and stochastics dropped
under 80. Will watch to see if it gets back under 20 and
oil first support at 108 - 50-day EMA.
This DUG chart (ultras short for oil and gas sector) shows the buy signal
from last week as RSI went over 30 and stochastics over 20. In time it may reach
back to 34.50 or the 50-day EMA at 35.30. To avoid the noise from this type of
candle chart, the mechanical system I developed using the 3 line break chart is
shown next.
The DUG three line break showing the use of CCI as a sell signal when it
drops under 100 and a buy when it is under -100 and goes back over it. The
custom stochastics is also useful in combination. Sometimes a signal may not
come from the CCI or stochastics so you can also use the bar as it changes
color and goes out of range of your stop. You can go long and short or you can
also use DIG for one side of the trade if your account (as in some IRAs)
does not allow shorts. This chart shows about 98 points in profit counting longs
and shorts. Excellent returns and good if you cannot watch the market during the
day. You can see that March through June had three quick false break outs but
using break even or tight stops would have had you out of them soon.
XLE energy ETF showing the stochastics 20/80 buy and sell signals.
Daily gold chart now at the
200-day EMA and the 38% retrace since the October 2006
low.
Our longer term gold shows the
350 day EMA that for a long time has provided support.
A closer view of gold. Will watch stochastics and MACD for future crossovers
signaling a possible buy.
The gold ETG GLD shown
here on a 3 line break chart. The sell signal came as
the CCI dropped under 100 and the custom stochastics
dropped under 80. This shows an additional method to
give a buy signal if there is none from CCI or
stochastics as can happen during extended runs. You can
use a simple horizontal break out line.
Silver made a little bounce
at the 200-day EMA
The gold and silver index XAU still below the 200-day EMA. Likely to at
lest test the 160 support.
The EURO/Yen ratio chart
The Japanese Yen sitting at the 38% retrace but under the 50-day so it
may head to the 200-day which is right at the 50% retrace.
The US dollar continue its
move and made it to the fist level. May need to
consolidate as a big move in a short time but the Fed
gave perhaps a hint that rates are near the bottom. When
rate increase start to be counted on this will probably
add strength to the dollar.
|
Butch Cooley Market Comments
(Butch is founder of
Leg Up House
and the
Butch Cooley Worldwide
Hunting and Fishing . He has
been an active trader for decades.)
Butch has taken ill this week so will
have no written comments. I am sure he would have loved
to comment on the supposed
45,000 new
jobs in construction reported in the BLS report on
Friday.
Get well soon
Butch!
|
Weekly economic calendar from briefing.com - a light
week
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