Inside: Market Mental Asylum
This article is meant to be a compilation of market ideas, data, analysis and guidance. It comes from a Chief Market Strategist who considers his mind to be somewhat of a market mental asylum with crazy ideas, thoughts and knowledge all thrown together. Enjoy the journey!
The Federal Reserve Slowly Gaining Massive Control
Auditing the Federal Reserve? The clamor has been silenced. The last time I heard anything about that was months ago. Slowly, over the last decade, the Federal Reserve has been taking control of the financial markets. How have they been doing this? The Federal Reserve has been shifting the markets into a pure dollar play. Have you all noticed how the markets move opposite the dollar? Every time the dollar ticks higher, the markets move lower and every time the dollar inches down, the markets scream higher. With commodity stocks now making up so much of the indexes, and everyone focused on the global recovery, the dollar is now in total control of the markets. In easier terms, the Federal Reserve now controls the markets as they have control of monetary policy. All of a sudden the printing of money does not seem so bad? Coincidence, I think not! With one swift comment from Federal Reserve Chief Ben Bernanke, he can cause the markets to jump or drop based on how the dollar reacts to his comments. The power is unbelievable. To think, many of you signed up to trade stocks yet find yourselves investing, trading in a market where the stock does not matter, just the dollars movement. Is it deliberate? It may be. With this country facing an uncertain future, it is more than likely obvious to the Federal Reserve they need to try and control the outcome. By controlling the dollar, and with a weaker dollar helping Wall Street, the printing of money seems suddenly good! Hmmm. One begins to wonder if it is all just a rigged game? Think about it. We all know massive amounts of money are being printed, but now when that happens and the dollar falls, Wall Street actually rallies. Down the road when inflation rears its ugly head and the dollar drops sharply...the markets may just rally in a big way. I say that last sentence with a little sarcasm of course. Yes, the markets will rally but nothing works out as planned. Eventually, a dollar that becomes too weak will have the opposite reaction it does now. If the Federal Reserve does not hold the dollar in a strict range, watch for 3,000 - 4,000 on the DOW. They have control of the markets, now can they keep it?
A Market Summary From A Technical Perspective
Friday February 5th, 2010
After almost four weeks of selling, the markets again sold off sharply as panic hit its peak. Global concerns over Greece and sovereign debt were everywhere. The SPDR S&P 500 ETF (NYSE:SPY) hit a low of $104.58 then reversed sharply, closing flat to higher. In addition, oil and gold had a technical collapse and washed out on extremely heavy volume and what is known as capitulation. They then reversed sharply as well. The USO, United States Oil Fund LP (NYSE:USO) flushed to a master level of $34.00 which was a former base pivot back in late September 2009. In addition, the flush on gold, SPDR Gold Trust (NYSE:GLD) filled a major gap at $102.50. This master pivots and gap fills being hit on a volume flush, signaled a reversal in the commodities. This helped fuel the reversal in the markets. By the close, the SPY stood at $106.66, oil and gold ended near the flat line and there was a technical bottoming tail on many daily charts.
Monday February 8th, 2010
After the monster reversal the previous Friday, the markets continued their upward path for the first half of the day. Global concerns still lingered in regards to what exactly the Greece bailout would entail. Just before midday, the markets began to slowly fall and in the last hour of trading the selling accelerated. The markets closed slightly lower. Volume was light however, and the closing levels, technically, put in a solid inside (bullish) flag pattern from the reversal the previous Friday.
Tuesday February 9th, 2010
After the mega reversal and capitulation in the markets from the previous Friday and the Monday inside bullish flag day, the markets ripped higher. It was a choppy trading session but by the close, gains were seen across the board. At this point in the week the dollar was beginning to act like a patient going through seizures. The key to the dollar, PowerShares DB US Dollar Index Bullish (NYSE:UUP) was a topping tail on Friday, February 5th, 2010 which as we discussed, also coincided with the bottoming tail in the markets. While the markets were bouncing higher early in the week, the dollar was falling sharply, jumping wildly and driving the intra day charts to look like an EKG. After all was said and done, a rally and market bounce followed the consolidation day. Commodities had all received a solid bounce. Anything gold, oil, steel or copper seemed to be rallying as some fears over the global debt issues were fading. Stocks like Freeport-McMoRan Copper & Gold Inc. (NYSE:FCX), Newmont Mining Corporation (NYSE:NEM), United States Steel Corporation (NYSE:X) had all soared off their recent lows.
Wednesday February 10th, 2010
Again, following the market surge the previous day, the markets whipped back and forth, controlled by a dollar that just did not know which way to go. Technically speaking, the topping tail from Friday, February 5th, 2010 and the whippy nature in the following days leads us to believe a near term top is in place on the dollar. However, the control the dollar has over the markets, with the wild swings did not make it easy to trade. A short term dying bull in the dollar does not drop dead easily and the markets paid the price again today. When all was said and done, the markets closed slightly lower. After the previous day rally, this inside small move down was viewed as bullish again. An in spirit of bull flag pause day was in place.
Thursday February 11th, 2010
As you can guess, following each pause day since the bottoming tail on February 5th, 2010, the markets had rallied and today was no different. Up, up and away they went after some initial whipsaw on the dollar. Buyers continued to inch into the markets. Up days since the massive volume reversal the previous Friday were filled with more volume than down days. That signals institutions were buying the market and not necessarily selling. That is a short term bullish sign as well. By the close, the markets were positive in a solid way with the SPY closing above a master level at $108.13. $108.00 has been a master level for months now and must be respected. Note, it still needs to be confirmed.
Friday February 12th, 2010
After one of the wildest weeks of intra day swings I have seen since possibly late 2008, the markets had one last gasp. China raised their lending rates to curb growth and money flow. The markets took that initially as a major positive for the U.S dollar as globally, a slowing China is negative for everyone. Why would they fly to the dollar? The dollar is still the major safety net and reserve currency of the world. The markets gapped lower and sold hard. At the lows, the DOW was down about 150 points. As the dollar approached the double top and high pivot of the previous Fridays topping tail it started to reverse. The markets slammed high going to gap fill on the SPY. Then sold hard as the dollar bounced. The dollar then sold again and the markets screamed back to the double top...yet the dollar inched higher again. In the final gasp of one of the wildest trading weeks I have seen in a long time, the markets rushed higher in the final 15 minutes of the day to close mixed. The SPY closed above $108.00 at $108.04. This is a positive and also a negative. The positive is the SPY held the master $108.00 for the second day in a row. The negative is you did not confirm the move with a higher close. Overall, the reversal must be looked at as bullish. After being down significantly on the day, the markets were able to close flat. What a week!
Market Perspective and Angles For The Coming Week
The bottoming tail on the daily market and SPY charts from over a week ago is the tell tale signal to continue to expect extreme choppy slight upside movement. Since that bottoming tail, each day has been a push, pause (bullish consolidation), push. In addition, the hard, early flush on Friday, followed by the impressive rally back to near break even must be viewed as short term bullish as well. The dollar still looks to have made a short term top though expect the wild intra day swings that will cause the market to rip higher and dump hard. Oil and gold have had a solid move higher in the last week off their lows, look for consolidation and a little more short term upside movement. Generally, next week is expected to be much like last. Choppy with minor overall upside.
Stocks To Watch
After Baidu, Inc. (NASDAQ:BIDU) reported spectacular earnings on Tuesday February 9th, the stock ripped higher. With continued bullish sentiment on a possible Google Inc. (NASDAQ:GOOG) China pullout, Bidu its getting extended. Look for Bidu to take out the even number of $500.00. Once it pushes through that level, I will begin to expect a pullback. It is possible this will happen next week.
Exxon Mobil Corporation (NYSE:XOM) reported a blow out quarter in the middle of a horrific down trend in the markets. The stock ripped higher initially, but has had trouble maintaining the momentum due to the weakness in the markets and commodities. I expect Exxon Mobil to show strength in the coming week as the chart appears to creating a bottom. In addition, the stock price has fallen from a late November 2009 high of over $76.00 to a recent low below $64.00. The current price is just off those lows at $64.80.
As a small cap, I have to start getting extremely interested in Jackson Hewitt Tax Service Inc. (NYSE:JTX). Here is a stock that is expected to do 220 million in sales for their year ending in early 2011 with $0.50 in EPS. The stock has been crushed recently, dropping from a 2010 high of over $5.00 to a Friday closing price of $2.32. That is a forward P/E of less than 5. Whether the shorts are punishing it or funds are selling, this stock is due for a solid technical bounce. It looks to be a bounce value play at these levels with a possible move back over $3.00 or more.
This concludes this weekend mental asylum report from Chief Market Strategist Gareth Soloway. Join the club and start learnings technical analysis and making profits. See you all at InTheMoneyStocks.com.
Gareth Soloway
Chief Market Strategist
InTheMoneyStocks.com
