Dallas, TX
July 9, 2010, 08:00 EST		 Dr. Joe Duarte's Market I.Q.


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Looking Ahead As Market Attempts To Recover
What's Hot Today:

U.S. stock index futures were flat on Friday. A quiet exit into the weekend may not be a bad idea.

Today's Economic Calendar



News For Thought

Retail sales remain sluggish. According to Investors Business Daily: "June sales were sluggish despite heavy discounts, retailers reported Thursday, the latest evidence of a cautious consumer and slowing economic expansion. Sales at stores open at least a year rose 3.1% vs. June 2009, Retail Metrics said. That was below its forecast for 3.5% growth following May’s 2.7% gain."

South Korea central bank "surprises" with interest rate increase. According to Marketwatch.com: "The Bank of Korea unexpectedly hiked its benchmark interest rate by 25 basis points to 2.25% Friday, after 14 of 15 analysts surveyed by Dow Jones Newswires had forecast the central bank would stand pat. The BOK had cut by a total of 325 basis points from October 2008 to February 2009 to a record low of 2.00%. After the announcement, the benchmark Kospi index was up 0.5%."

Mainstream media confirms earlier poll results about independents abandoning Obama. According to The Washington Post: "President Obama has been going backward with independents for more than a year, and the Democrats stand to suffer the effects in the November elections. The Gallup organization reported this week that just 38 percent of independents now approve of the job Obama is doing, the lowest point in his presidency and down from 56 percent a year ago. Top Democratic strategists are gloomy enough about the prospect of turning those voters around quickly that they believe the more important priority for the next four months is to maximize turnout among the new voters who backed Obama in 2008. Those new voters may be receptive to partisan appeals. Whether that will help with independents is another question. What caused the defection of a group that stood solidly with the Democrats in 2008, as well as in 2006, when the party was returned to power in Congress? The factors include dissatisfaction with the economy, a rebellion against the president's agenda and disappointment that Obama hasn't delivered on his campaign promises to change the culture of Washington." Anyone who follows Rasmussen Reports.com knew most of this stuff months ago. Still, confirmation is important for those of us who try to make money by handicapping what's most likely to come out of Washington.

Looking Ahead As Market Attempts To Recover
Market Wants To Believe Congress Will Do The Right Thing
July may be the month where the key dynamics that move the markets for the rest of the year converge. The combination of a major rise in bearish sentiment and the potential for some pre-election maneuvering in Washington could lead to a tradeable rally in stocks.

The economy is rolling over. The data suggests it, the general feeling in the workplace is palpable, and the politicians in Washington, up for re-election are starting to panic. That means that some kind of activity is on its way. And the most likely place where things could move is on the tax front.

Its' clear that business leaders are unhappy with Washington. Many of them backed Mr. Obama and they've gotten nothing in return, other than higher costs of doing business down the road as the healt care bill gets implemented and the prospect of more regulation. They should have known better. Mr. Obama told everyone who would listen during his campaign that his main goal was the redistribution of wealth.

That being said, the public and the polls have made it clear. A large number of Democrats, and possibly some Republicans (although the GOP doesn't seem to understand this part of the data) are likely to lose their jobs in November. So Congress has left Washington early for summer break and are in the community kissing babies (and body parts that we won't mention) to get votes in November.

There is an interesting buzz in the political press now, though, that is intereting. The Wall Street Journal's John Fund recently noted that there may be some kind of deal possible after the election where some of the Bush tax cuts get extended, but possibly in exchange for other tax increases to offset them. That's a trial balloon, but it's an important one, as it means that taxes are now on the talking point list, and that it is plausible that some of the expected increases that are supposed to go into place in January may be smaller than expected, or may not come at all for some time into the future.

That would be a good thing.



Chart Courtesy of StockCharts.com


Elsewhere, we have two interesting charts to look at. First, the NYSE advance decline line (NYAD). This indicator never broke below its recent lows. That's a positive, although the NYSE a-d line is distorted by ETFs, bond funds, and preferred stocks. Still, it shows that the damage there wasn't as severe as it was on the Nasdaq.



Chart Courtesy of StockCharts.com


Our second chart, the Nasdaq advance decline line (NAAD) shows a different picture. Yes, it seems to have turned up. But two things stand out. First, the damage here was much worse than the damage on the NYSE. That's because there are fewer distortions here. This is a fairly pure portrait of the market's breadth without preferred stocks, bond funds, and other non stock entities. And this picture shows that the Nasdaq's breadth has not recovered siginficantly in the last couple of rally days.

What it means is that investors, if this indeed is a lasting rally, should be very selective about where they put their money.

Conclusion

Two important developments occurred this week. First, Washington finally got the message that they haven't done a good job since Mr. Obama got elected. They are now fearing that they will lose their jobs and that means that some positives may come out of Congress and the White House. Our expectations are very low, but it is worth noting that something positive may happen.

We'll wait to see what's coming before we get too excited. But, anything beyond what we've experienced so far would be worth exploring.

Second, the market may have bottomed, and theoretically may have even made its low for the year, as traders start to factor in some sort of positive action in Washington.

The problem with getting too excited about this is that betting that Congress will do the right thing is a risky business. Yet, that's all the market has right now.

We'll be on Twitter some time today before the market closes with some updated comments.

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.

 

Market Moves - Stock Of The Day
Dollar Bull ETF (NYSE: UUP) In Long Term Correction
The Dollar Bull ETF (NYSE: UUP) remains in a long term up trend, but is also in the midst of what could be an extended correction.



Chart Courtesy of StockCharts.com


The dollar is in an intermediate term down trend, although it seems to be in the early stages of what could be a long term bull market.

We're not trying to be confusing. The charts are pretty clear on this. The dollar is above its 200-day moving average. That means that the long term trend is up.

The problem is that the dollar rallied quite a bit since bottoming in December. It has given back some 33% of its gains, and has fallen below its 20 and 50 day moving averages. But the 200-day average is well below the current price.

That suggests that we could see the dollar give back more of its gains before it even attempts to move higher again on a consistent basis.

For now, it's best to avoid the dollar or to own a small short position. Dr. Duarte owns shares in the U.S. Dollar Bear Fund (NYSE: UDN).

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