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Dallas, TX
December 16, 2009, 08:00 EST |
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Dr. Joe Duarte's Market I.Q. |
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The Internet's Intelligence Digest
Intelligence, Market Timing, And Trading Strategy For Traders and Investors
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Dollar Improvement May Boost Small Stocks And Stabilize Market
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What's Hot Today: |
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U.S. stock index futures were pointing to a higher open
on Wednesday. Better than expected housing numbers pushed the futures higher.
Today's Economic Calendar:
- Bank Reserve Settlement
- MBA Purchase Applications 7:00 AM ET
- Consumer Price Index 8:30 AM ET
- Housing Starts 8:30 AM ET
- Current Account 8:30 AM ET
- EIA Petroleum Status Report 10:30 AM ET
- FOMC Meeting Announcement 2:15 PM ET
News For Thought
White House says wants to improve regulatory climate for manufacturers. According
to Reuters, the White House is thinking about improving the regulatory climate
for manufacturing. In fact, although the headline suggests that the White House
may be moving toward the middle, the fine print says otherwise. According to
the report, Vice-President Biden will be meeting with manufacturers to address "tax
and regulatory regimes that promote American manufacturing and do not place an
undue burden on those who wish to manufacture products in America." Mr. Biden
added that any policies with regard to manufacturing should "consistent with
the country's fiscal and environmental goals."
In fact, it suggests that the next leg of protectionism is about to start as
Mr. Biden noted: ""We must be sure that those who wish to sell the goods that
they make in the U.S. in other countries have the market access they need and
that those who sell domestically do not face unfair competition from advantaged
foreign producers." To be sure, we're for fair trade, but this suggests that
now that some kind of health care agenda is in the works, the next phase of the
centralization of the U.S. economy is about to start.
Iran fires long range missile. U.S. considers disaster training in response
to Iran missle attack. According to The Wall Street Journal: "Iran said Wednesday
it successfully test-fired an upgraded version of its longest-range missile,
which it said is now faster and harder to shoot down. The test of the missile
-- which is capable of hitting Israel and parts of Europe -- is Iran's latest
show of military strength at a time when it is locked in a standoff with the
West over its nuclear program. Tehran has been intent on demonstrating it can
retaliate against any military strike on its nuclear facilities by the U.S. or
Israel." Meanwhile Reuters reported: "The United States will test its core missile
defenses for the first time in January against a simulated long-range Iranian
attack, a top Pentagon official said on Monday, amid tensions with Tehran. Speaking
at the Reuters Aerospace and Defense Summit in Washington, Army Lieutenant General
Patrick O'Reilly, the head of the Missile Defense Agency, said the roughly $150
million test was a departure from the more standard scenario of a North Korean
attack."
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Dollar Improvement May Boost Small Stocks And Stabilize Market
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Technical Improvements Visible In Otherwise Lackluster Market
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The apparent bottoming of the U.S. Dollar may be having a
beneficial effect on the stock market, returning to a more normal relationship
that was prevalent in the past.
Chart Courtesy of StockCharts.com
In fact, despite the lack of a new high on the S & P 500 of late, the technical
aspects of this market have improved, except for the lackluster volume, which
suggests that the heavy hitters took an early holiday break after huge gains
from the March bottom. If you’re looking for something more tangible, consider
the fact that the small stocks have improved their performance lately, even
though the blue chips are still in the lead as far as making new highs for
the year. Also look at the NYSE advance decline line, which has recently made
a new high for the move from the March bottom.
Central to what happens in the market at this point is the dollar. For example
small stocks tend to do well with a strong dollar, something that may be in the
works if the current bottoming of the greenback continues. A strong dollar is
usually not as good an influence on the earnings of large multinational companies,
such as the ones in the Dow, as they book more sales overseas as it is for small
companies whose sales are more dependent on the domestic U.S. sales. This relationship
seems to be more reliable now after the subprime mortgage crisis and the global
economy’s implosion.
Chart Courtesy of StockCharts.com
Yet, the improvement in the small stocks of the Russell 2000 Index (RUT), which
roughly corresponds to the dollar starting to move sideways and slightly higher,
may be a good signal for the overall stock market as we head into 2010. In other
words, it's hard to get too negative if the dollar steadies out and the small
stocks join the big stocks in a continuation of the current rally. To us, it
looks as if the improvement in the NYSE A-D line is at least partially due to
the improvement in the small stocks.
Chart Courtesy of StockCharts.com
The bottom line is that there is a subtle change in the markets that may be dependent
on the fate of the dollar.
Conclusion
In the short term, the stock market may get a reprieve if the dollar continues
to climb. Yet, there are plenty of reasons for the market to be overwhelmed as
the new political year starts in 2010.
The market is trying to decide whether it’s going to finally deliver the Santa
Claus rally, or if it’s going to worry about politics, the economy, and what
lies ahead for next year. If it chooses the former as a trading catalyst, we
could see modest, and possibly fairly good gains in the next couple of weeks.
If it chooses the latter, we’ll get more of what we’ve been getting lately, not
much, and lots of it.
What’s there to worry about? Taxes, taxes, taxes, and yes, more taxes in the
ways of fees, regulations, loopholes, mandates, and taxes. Did we mention taxes?
You got it, taxes and at some point in the future the draining of the excessive
liquidity in the market from the Federal Reserve. The latter won’t come right
away, but you can expect the talking about it to start as early as Wednesday’s
FOMC statement after the two day Fed meeting.
Technically, the market needs to take out the 1120 area on the S & P 500
convincingly so that stocks could climb for the next week or two in the traditional
holiday fashion. If you’re looking for something positive, consider the fact
that the small stocks have improved their performance lately, even though the
blue chips are still in the lead as far as making new highs for the year.
What’s the take home message? Make no big bets. Take no big risks. And remain
patient while holding on to what’s working.
Know when to sell and how to make money when the market falls. Get a detailed
trading plan in your pocket. Read Dr. Duarte's All NEW Books "Market Timing For Dummies." and "Trading Futures For Dummies." The Trading Manuals for
All Seasons. Also Available As Kindle Books. |
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Market Moves - Stock Of The Day
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Russell 2000 ETF (NYSE: IWM) Looks To Make Up For Lost Time
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The small stocks
have lagged the big cap stocks for some time. But recent
action in shares of the Rusell 2000 ETF (NYSE: IWM) suggest
that some catching up has been under way.
Chart Courtesy of StockCharts.com
Bull markets thrive when most stocks, small, mid size,
and large advance together. That's why we've been worrying
about the lack of rallying in the small stocks for the
past few weeks.
But as the dollar has been bottoming, the small stocks have also been improving.
That makes sense, since small company sales tend to be more domestic, and a strong
dollar tends to favor the domestic economy.
IWM topped out in late September, but has worked its way back to where it's only
2 or so percent off of that high. A couple of good Santa Claus rally days and
IWM will have confirmed the fairly good action in the large stocks of late.
It's a soft confirmation, which means that it may or may not be hugely meaningful
in the longer term. But, in the short term it's somewhat comforting.
We still remain cautious, though. This is an old rally now, and it has come a
long way. It's way overdue for a significant correction.
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Technical
Look at the Market |
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S & P Nears Recent Highs Again - SPY ETF Remains at 4-stars
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The S & P
500 pulled back on 12-15, without taking out 1119. This
is still constructive, especially since the volatility
bands are still shrinking, a technical configuration
that suggests a big move is coming.
But the market is still torn between two major influences. That means that traders
have to choose between the positive seasonality of the Christmas holidays, or
the political uncertainties of the moment. That's a tough call, which is why
the market is going nowhere.
So the technical aspects of the market are increasingly important, and that's
why the volatility bands are very important to keep an eye on.
The bottom line is that it pays to be careful.
Summary of Start Rating System
We are adapting our star based rating system to the S & P SPDR ETF (NYSE:
SPY). In this section a 5-star rating for SPY is a signal that down side risk
is very low and that the chances of a further rise in prices are greater than
those of a fall. A 4-star rating Means that the risk is less attractive but that
the odds of a rise in SPY still outweigh the risks of a fall.
A 3-stars rating on SPY suggests that the odds of a rise and a fall are even.
2-stars and 1-stars suggest that down side risk is on the rise.
In no way is this star rating system intended as a series of buy and sell recommendations.
The system is intended as a guide to the general trend of the market and the
S & P SPDR ETF.
Star ratings can change rapidly based on the market's action. Followers of the
ratings should review them on a daily basis.
Star Ratings for S & P SPDR ETF (NYSE: SPY) - updated 12-8-09
S & P SPDR ETF (NYSE: SPY), 4 stars on 12-1-09 - closing price 110.84. Closing
price on 12-15-09 111.35. Short term support is at 109.57. Resistance is at 111.74
and is being tested. A sustained move move above 111.74 would raise the rating
to 5-stars. A move below 109 would drop the rating to 3-stars.
Chart Courtesy of StockCharts.com
Chart Courtesy of StockCharts.com
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