August Ends Depressed

August 31, 2010
The month of August is usually a very light volume trading month that generally favors higher prices for the stock market indexes. Well, that was not the case this month as the S&P 500 Index is down nearly 8.0 percent from the August 9th pivot high of 1129.00 on the broad based index. This decline comes after the Federal Reserve Bank kept rates unchanged on August 10th and Fed Chairman Ben Bernanke vowed that the Fed has many more tricks up its sleeve to keep the market afloat.

Is this something that one would want to invest in? There is only so long that the powers that be can try and drive the dollar lower in order to inflate the major stock market indexes higher. Their strategy is obviously not working because oil is having trouble trading higher and that is even with the geopolitical fear premium that is built into the price. That is showing lack of demand even with China booming. Gold continues to trade higher which tells the market participants that the market is being supported artificially and the institutions believe that gold is the one true currency. Bond yields remain at extremely low levels despite all the talking heads calling it a bubble. How can it be a bubble when the Federal Reserve Bank has the Fed funds rate at zero percent since December 2008, and the market is still stalling out. Where else do you expect the institutions to put their money? They already own gold and a yield in a bond is better than no yield at all.

Perhaps all of this propping and artificial stimulus is not what the market needs after all. Perhaps the market needs things to fail. Yes, I said it, failure. Perhaps, the markets need to get back to capitalism the way it was designed to work. Capitalism is not designed to reward failure. It was designed to let bankrupt business’ fail. However, in this current system failure has only been rewarded and continues to be rewarded. Look at the large banks and insurance companies that should have failed. They are still holding toxic assets that cannot be calculated. However, due to the rules being changed in the middle of the game these toxic assets are now considered good assets and help there balance sheets instead of hurting them. Whats wrong with this picture? I once read that if you bury nuclear waste materials in a sealed container underground they will eventually rise to the surface and cause even more havoc on the environment. Well, that looks to be taking place now.

Look at the housing market. Now the banks that gave the bad loans have been bailed out so are the people that took the loans. Some people are actually living in these shadow foreclosed homes for years now without even paying their mortgage. How long can this insanity go on? Something eventually has got to give. In any case, the month August is ending very poorly on extremely light volume. This is bearish action and should keep us on our toes into next month when the something or someone else gets bailed out.

Nicholas Santiago
Chief Market Strategist
http://www.InTheMoneyStocks.com


Surprise Positive Data Saves Market From Major Break

August 31, 2010

The hand of “GOD” or maybe just the Plunge Protection Team

The markets were looking ugly this morning, hanging onto a master trend line support on the daily chart that would dictate whether the Hindenburg Omen would play out in a crash scenario.  Yesterday, the markets gave up almost all the gains from the Friday rally, a very bearish signal. A move lower today would have sealed the fate of this market, the SPDR S&P 500 ETF (NYSE:SPY) headed towards $101.00 and then $95.00 easily. As of now, the hand of “GOD” or maybe, just maybe the Plunge Protection Team saved the day.

First, at 9:00am ET, the Case Shiller Index was released.  The Case Shiller Index for June rose 4.23%. Analyst had expected 3.1%. This gave the futures a small bid off their lows but the markets remained weak. Then at 9:45am ET, the Chicago PMI was released and again surprised analysts. Chicago’s Purchasing Managers Index was reported at 56.7 for August. This again was taken as good news and sent the markets up a little more. Each piece of good news not quite enough yet to move the markets to the positive side.  Then finally, at 10:00am ET Consumer Confidence was released.  Consumer Confidence came in at 53.5 after analysts expected a number at 50.  The markets surged yet again and have since moved nicely into positive territory.

Three key pieces of good news have saved the market today.  Suspicious? Most likely. Are these numbers actually legit real numbers? I will leave that to each one of you to decide for yourselves. To understand the keys to this market being saved one must look at the timing. We are entering the lightest time frame of the year.  Why is that important?  Because if you are going to save the market, it is easiest to do it on light volume. Next, understand why the market would need to be saved.  To do this, note the chart below showing the master trend line.  Should this line break, the markets have a solid chance of collapsing quickly and ferociously. In addition, the powers that be have an incentive to save the market prior to the Labor Day holiday weekend. This is a three day weekend when families go on vacation and spend money.  If you let the markets collapse prior to this weekend, families, consumers will not be in a jovial mood to spend, spend, spend.

The next few days should be very interesting in this market. It is looking more and more like they want to keep this market floating prior to the holiday weekend as to get the best spending out of the consumer they can.

As long as the markets hang above this key trend line, oil should hold up in this lower range. The United States Oil Fund LP (ETF) (NYSE:USO) is lower by 0.20 to $32.82 (-0.61%).  The dollar is slightly weaker with the PowerShares DB US Dollar Index Bullish (NYSE:UUP) down 0.06 to $24.08 (-0.25%). To get more hardcore analysis, guidance, swing trades and education, join the Research Center.

Gareth Soloway
Chief Market Strategist
http://www.InTheMoneyStocks.com

This SPY chart shows the low from March 2009 connected to the recent pivot lows.
This is everything in terms of the market breaking down or holding up.

Financial Stocks Find Traction

August 31, 2010

The financial stocks like Goldman Sachs Group, Inc. (NYSE:GS), JPMorgan Chase & Co. (NYSE:JPM) and Wells Fargo & Company (NYSE:WFC) are getting a bid today and helping the markets stay positive. These financial stocks are a major key to the whether or not the market can stay up and not collapse lower in the next few weeks.  Note the Financial Select Sector SPDR (ETF) (NYSE:XLF) is still holding the double bottom level. See chart below.  Keep an eye on this double bottom. When it gives way, the markets will collapse as well. To get more hardcore analysis, guidance, swing trades and education, join the Research Center.

Gareth Soloway
Chief Market Strategist
http://www.InTheMoneyStocks.com


When Markets Decline On Light Volume Watch Out!

August 31, 2010
In March 2009, the S&P 500, and the Dow Jones Industrial Average found a low and staged a sharp recovery rally into April 2010. Throughout that time that the market rallied higher the volume was extremely light. However, when the stock market indexes had corrections in June 2009, and January 2010, the volume on the decline was very strong telling us that this was institutional selling and not the traditional retail investor selling stocks. When the major stock market averages topped out in April 2010 the market declined on heavy volume again telling us that this was again institutional selling.

Yesterday’s stock market decline was very interesting for one important reason and that is because the stock market actually declined on very light volume. Since March 2009, the stock market has normally rallied higher when the major stock market indexes traded such light volume. Yesterday the SPDR S&P 500 Index ETF (NYSE:SPY) traded just 166 million shares. This is very light volume and a change in character for from what we normally see in the market. Generally, we follow the old market adage which states, “never short a dull market”. Yesterday was extremely dull and the Dow Jones Industrial Average declined by over 140.00 points to close under the psychological 10,000 level on the highly followed index.

What is this light volume decline telling us? It is telling us that selling pressure remains in this market at this time. This is a major negative in my opinion for the stock markets. However, the one positive that a trader or investor could find for the stock market at this time is that the commodity stocks are holding firm at this time. Should the leading commodity stocks such as Freeport McMoRan Copper & Gold Inc (NYSE:FCX), Cliffs Natural Resources Inc (NYSE:CLF), and United States Steel Corp (NYSE:X) start to break down then watch out. That would be a clear indication that the Chinese consumption boom is over and a deflationary tailspin has begun.

The entire plan by the U.S. Treasury, and the Federal Reserve Bank is to try and inflate the major stock markets back to health. Whether or not this can be done remains to be seen. History suggests that governments and central banks that have tried to inflate their markets back to health have failed. Japan has been trying to do this over the past 10 years with little to no success at all. We are certainly living in interesting times.

Nicholas Santiago
Chief Market Strategist
http://www.InTheMoneyStocks.com


AKS and the Commodity Complex Lift Markets

August 31, 2010

AKS and most other leading commodity stocks are trading higher today as the U.S. Dollar Index trades lower today. As we all know when the dollar is lower the commodity markets will inflate higher. AKS will have short term intra-day reistance around the $13.10 area.


The Magic Wand Behind Every Move In The Market

August 31, 2010

When the U.S. Dollar Index bounces higher the stock market indexes simply deflate and trade lower. The opposite is true when the U.S. Dollar Index declines the stock market indexes inflate and rally higher. Therefore, the dollar chart remains extremely important on all time frames.


Cisco Systems Finally Nearing Solid Daily Support Levels

August 30, 2010

Just like many major technology players, Cisco Systems, Inc. (NASDAQ:CSCO) has been beaten down as a double dip recession is looking likely.  Intel Corporation (NASDAQ:INTC) and Ciena Corporation (NASDAQ:CIEN) are two others that have been crushed off their 52 week highs and are sitting near or at their 52 week lows.

While Cisco Systems is having trouble finding buyers, it is coming into a major level on the daily chart. The chart is showing a master support range between $20.00 and $20.50. This level is key because not only is there a major gap fill point but also two other pivot tops from 2009.  The combination of these three could signal a short term bottom on CSCO and a possible bounce higher.  While a solid bounce is likely, it is unlikely that this will remain the bottom for very long. Note the chart below. If you would like more hardcore analysis, swing trades and education, join the Research Center.

Gareth Soloway
Chief Market Strategist
http://www.InTheMoneyStocks.com