and drifted weaker ahead of the US economic releases. The US currency weakened to fresh record lows beyond 1.4150 after the data, but the Euro struggled to extend the gains as it remained over-bought.
SOFTS: March sugar closed down 4 points at 10.10 cents today. Prices closed near the session low today. Bulls still have some upside technical momentum after big gains produced last week. A bull flag or bullish pennant pattern still may be forming on the daily bar chart..
A normal short-term price correction for the strong Energy stock sector. Technology stock sector price made a new 9-week high and relative strength made a new 2-year high.
Consumer Discretionary stock sector relative strength made another new 6-year low.
Financial stock sector relative strength broke down to another new 7 week low.
U.S. dollar broke down to another new 34-year low.
Foreign stocks outperformed 6 days in a row, as the U.S. dollar crumbled.
The Commodity Theme Going back more than three decades there have only been two major peaks for the commodity theme. The first was during the third quarter of 1981 while the second occurred during the third quarter of 1994.
Technical Analysis: Soy Complex, Grain Futures November soybean prices Friday closed lower and near the sessionlow on profit-taking pressure from recent gains. No chart damageoccurred. Soybean futures prices are still in a steep uptrendfrom the August low, with no strong technical signs of a markettop being in place.
Minor, short-term profit taking is evident.
Momentum slowed.
Minor divergences appeared. The Energy stock sector price and relative strength both made new all-time highs--again.
Technology stock sector price made a new 8-week high.
Industrial stock sector relative strength made a new 5-week high.
Financial stock sector relative strength is sagging again.
Coca Cola Below we show two comparative charts of the U.S. Dollar Index (DXY) futures and the ratio between the stock price of Coca Cola (KO) and the S&P 500 Index (SPX). The top chart covers the time frame from mid-2003 into mid-2006 while the lower chart starts in mid-2005.
Under Trend The Fed cut the funds rate and discount rate by 50 basis points, equities exploded to the upside, and the U.S. dollar tanked as crude oil made new highs. That about covers yesterday’s news so let’s move on to today’s Chart Presentation.
A Bullish Surprise from the Fed
Short-term stock price momentum surged. Foreign stocks bounced the highest.
The Energy stock sector price and relative strength both made new all-time highs, and Energy remains the leading sector.
Materials stock sector upgraded to Bullish.
Inflation expectations have been rising in September.
LIVESTOCK: October hogs closed down $1.15 at $63.87. October hogs closed sharply lower on Tuesday as it extends this month's decline. The low-range close sets the stage for a steady to lower opening on Wednesday. If October extends today's decline, July's low crossing at 63.47 is the next downside target.
From Copper to Crude The Federal Open Market Committee (FOMC) meets today to decide on the near-term direction of short-term U.S. interest rates. The Fed funds futures suggest the Fed will reduce the funds rate by 25 basis points although many seem to feel that if comes down to a coin toss the Fed will likely cut the rate by 50 basis points.
Waiting for the Fed
Short-term momentum has eased back to neutral. The Energy stock sector relative strength made another new all-time high and remains the leading sector.
Inflation expectations have been rising in September.
New highs for Crude Oil and Gold.
The Financial sector underperformed, and that main trend is Bearish.
U.S. dollar’s minor “Dead Cat Bounce” is not significant.
GRAINS: December corn futures closed up 3 1/4 cents at $3.52 1/4 today Prices closed near mid-range. The corn market was supported by solid gains in soybeans and wheat today, but ideas of a huge U.S. corn crop as harvest gets under way will limit the upside in corn. Same story: Recent price action still suggests corn prices will remain in a choppy trading range between the August high of $3.72 and the July low of $3.24 1/2 for at least the near term.
The US currency weakened sharply to record lows around 1.3980 following the Fed’s rate announcement.The FOMC unanimously voted for 0.50% rate cuts in the Fed funds and discount rates. In the statement accompanying the decision, the Fed stated that the action was taken to forestall harm to the wider economy caused by the housing downturn. The Fed retained some reference to inflation risks, but downgraded it as an issue.
Memory Lane This is certainly an interesting period of time for the markets and one, we suspect, that in some ways defies analysis by historical comparison. Still we soldier on with our convictions and our arguments even in the face of what seems to be a creeping state of chaos through the global credit markets.We are going to take a little stroll down memory lane today as we show and attempt to explain the sequence of markets events that have helped to build the foundation for our thesis.
Bouncing Back
Stocks Are Resilient The SPY is up 8.69% from its 137 low on 8/16/07, despite bad news.
The Energy stock sector relative strength made another new all-time high and remains the leading sector.
Inflation expectations have been rising in September, but...
Friday saw downside reversals for Crude Oil and Gold.
With subdued activity ahead of Tuesday’s Federal Reserve interest rate decision.The New York manufacturing index fell to 14.7 in September from 25.1 the previous month, but this failed to have a significant impact as attention remained on the Fed’s response to the weaker economy.
Negative Trend Sept. 13 (Bloomberg)
— Crude oil traded near a record $80 a barrel in New York
after U.S. stockpiles dropped more than forecast and on
concern that storms in the Gulf of Mexico and the Atlantic
may disrupt output.
The major trend of the stock
market remains Bullish.
The Energy sector is the upside leader, followed by Technology and
Industrial sectors.
Consumer Discretionary sector relative strength made a new 5-year
low.
Financial sector looks vulnerable to further depreciation.
SOFTS:
October sugar closed down 1 points at 9.28 cents today SOFTS: October sugar closed down 1
points at 9.28 cents today. Prices closed nearer the session
low and hit a fresh three-week low today. Bears still have
the overall near-term technical advantage. A potentially
bearish symmetrical triangle pattern on the daily bar chart
has again formed.
The Euro spiked higher after the US sales data, but failed to hold the gain and drifted back towards 1.3850 in a continuing dollar correction from recent sharp losses. With the dollar unable to break resistance levels, consolidation is liable to be a dominant theme ahead of Tuesday’s Federal Reserve interest rate decision.
METALS: December gold futures closed down $0.40 at $720.70
today METALS: December
gold futures closed down $0.40 at $720.70 today. Prices
closed nearer the session high again today. The bulls still
have solid upside technical momentum, amid a weaker U.S.
dollar versus the other major currencies recently, and on
record high crude oil prices. Prices are in a steep uptrend
from the August low.
The dollar weakened to around 1.3925 against the Euro in European trade on Thursday, a fresh record low, before a rebound to 1.3865. The dollar found further support close to 1.39 even though rallies quickly attracted selling pressure.
Chart Presentation:
To Ease or Not to Ease According to
Goldman Sachs on Monday the odds of a 50 basis point
reduction in the Fed funds rate next week were 97%.
Following the October Fed meeting the odds were 99% that the
funds rate would either be at 4.75% or 4.50%. In other
words...
The major trend of the stock
market remains Bullish.
The Energy sector is the upside leader, followed by Technology and
Industrial sectors.
Consumer Discretionary sector relative strength made a new 5-year
low.
Financial sector looks vulnerable to further depreciation.
SOFTS:
October sugar closed down 1 points at 9.28 cents today SOFTS: October sugar closed down 1
points at 9.28 cents today. Prices closed nearer the session
low and hit a fresh three-week low today. Bears still have
the overall near-term technical advantage. A potentially
bearish symmetrical triangle pattern on the daily bar chart
has again formed.
The dollar failed to hold
stronger than 1.38 against the Euro on Tuesday and weakened to
lows around 1.3845, very close to the record 1.3850 low seen in
July. The US currency also weakened to a fresh 15-year low on a
trade-weighted basis.
Equity
Markets Our point today is to show that the reason the equity markets
are currently so choppy is that the commodity cyclical trend
remains the dominant theme. Beyond that we wanted to show what
is supposed to happen around the time that these two trend begin
to diverge.
Biggest one-day loss since 8/9/07 All sectors
fell for the second consecutive day. Financials and Energy
sectors fell the most. Breadth was extremely Bearish. Price
momentum oscillators are now neutral and falling. But the
crowd already is Bearish, so the Art of Contrary Thinking
would suggest looking for an upside surprise.
SOFTS: October sugar closed down 1 points at 9.45 cents in quiet
trading today SOFTS: October sugar closed down 1 points at 9.45 cents in
quiet trading today. Prices closed near mid-range. Bears still
have the overall near-term technical advantage. Bulls' next
upside price objective is to push and close prices above solid
resistance at last week's high of 9.73 cents.
After initially failed to hold gains on Tuesday and weakening
back to 1.3680, the dollar strengthened to 1.3610 later in US
trading as a sharp Wall Street fall triggered defensive US
currency demand.
Commodity
Prices The idea is that a downward trend for commodity prices goes
with falling interest rates while an upward trend will go with
rising interest rates. What likely caused the ‘crash’ in 1987
was the combination of strong commodity prices and relentlessly
rising interest rates.
Could the Bears get squeezed harder before this rebound is
over?
All sectors fell. Industrial and Technology sectors fell the
least. Utilities and Consumer Discretionary sectors fell the
most. Crude Oil prices rose again after closing above their
August downtrend line on 8/24/07. Price momentum oscillators
have worked off their oversold readings.
LIVESTOCK: October live cattle closed down $0.02 at $97.80
today LIVESTOCK: October
live cattle closed down $0.02 at $97.80 today. Prices closed
near the session low in quieter trading after Friday's big
gains that saw prices gap higher on the daily bar chart,
produce a bullish weekly high close and prices hit a fresh
three-week high. Bulls still do have near-term technical
momentum.
U.S. economy shifts from consumer driven to capital spending
driven Our basic view is that the U.S. economy shifts from consumer
driven to capital spending driven on occasion. When the tech
cycle ended in 2000 easier credit conditions helped fuel a new
consumer spending cycle and in the days, months, and years to
come the Fed’s attempts to staunch the bleeding in the housing
market will lead to an offset through increased capital
spending.
Good Trend Day on Friday Materials and
Energy were the strongest sectors. Foreign stocks
outperformed again. Excessive Bullish sentiment has been
shaken out of the market. Price momentum oscillators,
oversold in late July, have been mostly rising since.
Volatility has settled down, and market conditions appear to
be returning to normal.
Chicago Board of Trade December corn prices Friday closed
lower Chicago Board of Trade December corn prices Friday closed
lower and near the session low. Late last week's price
action did produce a buying "exhaustion tail" on the daily
bar chart, whereby the bulls became exhausted at higher
price levels and then prices backed well off the weekly
high.
The dollar was unable to strengthen through 1.3550 against
the Euro on Friday and weakened steadily to lows around 1.3680
even though the US economic data was stronger than expected.
Overall risk aversion lifted during the day which put downward
pressure on the US dollar and yen.
Forex
markets We mention all of this because even though the correction in
the forex markets for the Australian dollar, New Zealand dollar,
and even the euro/yen cross may have felt like a ‘crash’ it
really wasn’t.
Consolidation is normal and natural after a big price move
Volatility is settling down,
and market conditions appear to be returning to normal.
Falling Energy prices were a big drag on the major price indexes.
Crude Oil prices fell steeply to a new 8-week low.
Airlines benefited from falling Energy prices.
ENERGIES: October crude oil closed up $0.57 at $69.83 a
barrel today ENERGIES: October crude oil closed up $0.57 at $69.83 a
barrel today. Prices closed nearer the session high on short
covering. The next upside price objective for the bulls is
producing a close above solid resistance at $71.50 a barrel.
Natural
gas futures In trading
yesterday natural gas futures hit 5.54 which is close to one
third of the peak price reached at the end of 2005 and very
close to the level which gas began to rise from back in 2004. In
other words natural gas prices have gone ‘round trip’ while
stocks like KO have done much the same thing but in reverse.
Each time we look at FNM and its propensity to resolve higher
our conviction in our argument increases. Stocks and markets
pushed lower after the first half of 2004 are rising and sector
that swung higher are now under pressure.
Consolidation is normal and natural after a big price move
Volatility is settling down, and market conditions appear to
be returning to normal. Falling Energy prices were a big
drag on the major price indexes. Crude Oil prices fell
steeply to a new 8-week low. Airlines benefited from falling
Energy prices.
METALS: December gold futures closed up $2.50 at $668.70
today METALS: December gold futures closed up $2.50 at $668.70
today. Prices closed near the session high today on some
short covering. Bears have the slight technical advantage.
Bears' next downside price objective is closing prices below
solid technical support at $660.00. Bulls' next upside price
objective is to produce a close above solid resistance at
$680.00 an ounce. First resistance is seen at today's high
of $671.60 and then at $675.00.
The dollar was unable to strengthen through
the 1.3450 level against the Euro and weakened to lows near
1.3550 in US trading with the Euro gaining some traction from
gains against the yen. A gradual easing of risk aversion also
undermined defensive demand for the dollar as US Treasuries
weakened.
Adjusting
relative and absolute prices One of our ongoing arguments has been that the markets are
systematically adjusting relative and absolute prices. A major
bull market in U.S. large cap financial, tech, and consumer
sectors is followed by a catch up rally in small cap and
commodities. Over time the S&P 500 Index has been roughly
tripling every 11 years with the dominant theme changing about
every six to seven years.
Consolidation is normal and natural after a big price move.
Volatility is
settling down, and market conditions appear to be returning
to normal. Falling Energy prices were a big drag on the
major price indexes. Crude Oil prices fell steeply to a new
8-week low. Airlines benefited from falling Energy prices.
Price momentum oscillators, oversold in late July, have been
rising.
Sentiment is rising up from extremely oversold readings.
SOFTS: October sugar closed down 11 points at 9.31 cents
yesterday SOFTS: October sugar closed down 11 points at 9.31 cents
today. Prices closed nearer the session low. Serious
near-term chart damage has been inflicted recently. Bears
still have downside technical momentum on their side as a
steep three-week-old downtrend is in place on the daily bar
chart.
TBonds The argument is that the peak for the TBonds is made once the
moving average lines for the sum cross up through ‘100’. For
that to happen the yield on eurodollars has to decline below the
funds rate and we have shown that this happened last week. Since
we are using moving average lines it should take some time
before the sum can move above 100 but it still opens up the
potential for the TBonds to rise to or through 120 before the
next peak is finally reached.
Consolidation looks normal Materials and
Industrial sectors outperformed. Financial and Energy
underperformed. Price momentum oscillators, oversold in late
July, have been rising. Sentiment is rising up from
extremely oversold readings.
LIVESTOCK: October live cattle closed up $0.17 at $95.65
today LIVESTOCK: October live cattle closed up $0.17 at $95.65
today. Prices closed near mid-range on tepid short covering
following recent strong losses. Ideas of higher cash cattle
trade taking place later this week amid a good start for
beef prices this week also limited selling interest today.
The Euro pushed above the 1.35 level against the dollar in
early Europe on Monday and, despite strengthening back towards
1.3460 in US trading, the dollar was unable to make any
significant headway.
DECEMBER CORN Chicago Board of Trade December corn prices Friday closed
higher and near the session high on short covering and some
fresh bargain-hunting buying. Bulls will have to close
prices above solid resistance at $3.50 to regain some fresh
upside technical momentum.
Equity markets Much of the pressure on the equity markets has occurred since
June so the charts suggest that the problem lies in part with
the upside break out by crude oil futures through the March to
May peak around 67. In other words notice that both BSX and MSFT
were holding fairly positive trends until oil prices turned
upwards in May and then broke to new highs in mid-June.
The Fed to the Rescue The Fed cut the Discount Rate
and “is prepared to act as needed.”
Price momentum oscillators, oversold in late July, are now rising.
Sentiment is rising up from extremely oversold readings.
The Euro weakened back to lows near 1.3380 in early Europe on
Friday before securing a firm recovery to highs above 1.35. The
dollar proved resilient and settled close to 1.3475 as low risk
tolerances still encouraged defensive US currency buying.
Fed rate cut The
Aussie dollar’s weakness certainly argues that we are closer to
a Fed rate cut than we were at the start of the week. We have
also been using the price of 3-month eurodollar futures as a
guide because in mid-December of 2000 (chart below) the yield on
3-month eurodollar futures declined below the funds rate (funds
rate at 6.5% so any price higher than 93.50 for eurodollars
indicated a yield below 6.5%).
Downside momentum is dissipating DJIA tested
and closed above its 200-day simple moving average. The S&P
500 held above its March low and closed higher. Sentiment
extremely oversold.
Stock indexes Trading Thursday saw major meltdowns in many markets.
Stock indexes did rebound by the close. The serious
short-term credit crunch has spilled over into a major
crisis of confidence in many markets.
The dollar has remained
generally strong during the past 24 hours and strengthened to
highs near 1.3360 against the Euro before drifting weaker and
fluctuating around the 1.34 level.
Crude
oil prices As crude oil prices moved higher this year the markets were
forced to unwind expectations of easier credit conditions. With
the Fed diligently worrying about inflationary pressures one
commodity after another took a turn spiking higher. While
definitely more dramatic the situation today is similar to that
of last week, last month, and last quarter. As crude oil prices
trend higher there is downward pressure on the non-commodity
equity markets sectors and that will only change when oil prices
start to decline in earnest.
DJIA nearing 200-day simple moving average Downside
momentum shows force, but not as much as previously.
Sentiment is quite Bearish. Major stock price indices fell
steeply to new 4- to 5-month lows. The DJIA (now at
12,861.50) fell very near to its rising 200-day simple
moving average, now at 12,832.62. This moving average is
closely watched by many traders.
METALS: December gold futures closed up $0.40 at $680.10
yesterday. METALS: December gold futures closed up $0.40 at $680.10
yesterday. Prices closed near the session high. Bulls and
bears are on a near-term level technical playing field. Gold
traders will continue to closely monitor the value of the
U.S. dollar.
The Euro remained under pressure in European trading on
Wednesday with lows around 1.3460 before a fragile recovery to
1.3490. The Euro was unable to sustain the gains and slipped
back to 1.3450 later in US trading as Wall Street slipped again.
Crude
oil prices As crude oil prices moved higher this year the markets were
forced to unwind expectations of easier credit conditions. With
the Fed diligently worrying about inflationary pressures one
commodity after another took a turn spiking higher. While
definitely more dramatic the situation today is similar to that
of last week, last month, and last quarter. As crude oil prices
trend higher there is downward pressure on the non-commodity
equity markets sectors and that will only change when oil prices
start to decline in earnest.
Going to Extremes This is the
highest level of Puts relative to Calls in more than three
years, since August 2004. Also, it is more than 4 standard
deviations above the one-year mean of 0.64. This means that
the Put/Call Ratio is at an extreme of Bearishness
sentiment, which is Bullish according to the Art of Contrary
Opinion.
SOFTS: October sugar closed up 1 point at 9.46 cents today SOFTS: October sugar closed up 1 point at 9.46 cents
today. Prices closed nearer the session low and hit a fresh
five-week low again today. Tepid short covering was featured
today. Bears still have downside technical momentum on their
side as a steep two-week-old downtrend is in place on the
daily bar chart.
The Euro remained under pressure during Tuesday with the
currency unable to hold above the 1.36 level against the dollar.
The Euro was unable to secure any recovery in US trading and
weakened to lows near 1.3530, the lowest level since the
beginning of July. Equity markets have weakened again and there
is likely to be a further pressure to repay dollar-denominated
loans. The general reduction in risk appetite will tend to
support the US dollar.
Oil
prices When oil
prices broke lower in March of 2003 the SPX began to recover and
by late April it was pushing back to the recent highs. One might
think that airlines like ALK would rise on the first indication
of oil price weakness but the stock held near the lows until oil
prices had fallen back close to 25. ALK, MTU, and DNA then
pushed higher for close t
