Dallas, TX
May 22, 2012, 08:00 EST		 Dr. Joe Duarte's Market I.Q.


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Intelligence, Market Timing, And Trading Strategy For Traders and Investors

Has The Down Trend Finally Been Broken?
What's Hot Today:
U.S. stocks are likely to try to add to Monday's gains on Tuesday. A negative close would be a negative.

Economic Calendar
  • ICSC-Goldman Store Sales 7:45 AM ET

  • Redbook 8:55 AM ET

  • Existing Home Sales 10:00 AM ET

  • Richmond Fed Manufacturing Index 10:00 AM ET

  • 4-Week Bill Auction 11:30 AM ET

  • 2-Yr Note Auction 1:00 PM ET

News For Thought:

Chief anti-money laundering operative to leave U.S. Treasury post. According to The Wall Street Journal: "The Treasury Department has dismissed the country's top anti-money-laundering regulator from his post, people familiar with the matter said, a rare move that the Obama administration isn't explaining. James Freis, who has run the Treasury Department's Financial Crimes Enforcement Network since 2007, is leaving the agency once his successor has been found, according to a memo sent to department employees by David Cohen, Treasury's undersecretary for terrorism and financial intelligence, Thursday. Mr. Freis held a mostly apolitical post and was responsible for helping coordinate the government's anti-money-laundering policies and sifting through bank data to identify potential violations of the Bank Secrecy Act or other laws and regulations."

China: Preferred path to U.S. Treasuries. According to Reuters: "China can now bypass Wall Street when buying U.S. government debt and go straight to the U.S. Treasury in what is the Treasury's first-ever direct relationship with a foreign government, according to documents viewed by Reuters."

The report added: "The other central banks, including the Bank of Japan, which has a large appetite for Treasurys, place orders for U.S. debt with major Wall Street banks designated by the government as primary dealers. Those dealers then bid on their behalf at Treasury auctions. China, which holds $1.17 trillion in U.S. Treasurys, still buys some Treasurys through primary dealers, but since June 2011, that route hasn't been necessary. The documents viewed by Reuters show the U.S. Treasury Department has given the People's Bank of China a direct computer link to its auction system, which the Chinese first used to buy two-year notes in late June 2011."

Wonder if they'll get preferred status at obtaining U.S. military secrets next. On the other hand, maybe the U.S. government is looking to cut Wall Street out altogether, just like they seem to be ready to cut out all private enterprise and Capitalism in general.

Intrade fall for Obama continues. About three weeks ago we started looking at the Intrade.com odds of President Obama being re-elected. When we started the President was ahead with a solid 60% expectation of winning the election. When we checked at 8:14 Central Time on Monday night, the president was at 56.3% while Mitt Romney's chances were at 40.5%. This is the lowest odds we've seen for the president and the highest we've seen for Romney.

Other polls have returned to what have been "normal" numbers so far, with Rasmussen having Obama up by a 47 to 44% margin. Real Clear Politics.com has Mr. Obama up by an average of 2.3% in its survey of polls from 4-28 to 5-20.

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Has The Down Trend Finally Been Broken?
History Suggests That A Choppy Trading Pattern Is Most Likely In The Short Term
Monday's bounce was highly predictable, and is most likely the start of a period of choppy trading for the markets.

The S & P 500 (SPX) bounced back nicely, but ended up just above its 200-day moving average. That means that investors will now have to decide whether to take a chance on going long, doubling up on their shorts, or just waiting to see what happens next. We are in the latter camp and see no reason to make any agressive moves at this point other than compiling a potential list of longs and being patient.



Chart Courtesy of StockCharts.com


If we use last year's market, which traded under similar circumstances, as a model, we can see that it took three months for all of the indecision to be taken out of the market. And last year was only about Europe and the econmy. This year's third, and quite significant variable, is the election. This third variable will add a new layer of uncertainty to the economy in the U.S. The situation in Europe remains fluid. It's clear that the Eurozone doesn't want Greece to leave the pact in a messy way. But it's also clear that they aren't sure as to how to make that happen.

The S & P 500 (SPX) fell through its own 200-day line fairly convincingly on Thursday, and further below the key line on Friday. The index now has support inside the 1287-1300 band, where it closed on Friday. A convincing break below this band, without a quick snapback could lead to more selling.



Chart Courtesy of StockCharts.com


The small stocks in the Russell 2000 Index (RUT) lagged the large stocks in their bounce. This remains a negative, especially since the smaller stocks took a bigger hit during the decline. We like to see the small stocks keep up or beat the big stocks. When that happens it's a sign that investors are betting on growth and are willing to take risks.

The market's breadth and momentum indicators were mixed on Monday. The Nasdaq Advance Decline line (NAAD) bounced slightly, but not very convincingly. It is very early in what could be either a successful bottoming process or not. So we have to give the market a bit of time to tell us which way things are most likely to break.



Chart Courtesy of StockCharts.com


The action in the Nasdaq Hi-Lo line (NAHL) remained negative. This indicator made a new low on Monday as the number of stocks making new lows expanded. This tends to be a lagging indicator, though, so we must observe it in the proper context.



Chart Courtesy of StockCharts.com


Conclusion

Monday was the first day of what could be a lengthy period of recovery for the market. It's too early to know which way things will go, up, back down, or sideways. Within the next week, we should have a better idea.

At this point, we should have a fairly good amount of cash, and should be ready to sell our short selling ETFs if the need arises. We are also compiling a shopping list to put into work if the market shows us that conditions are going to stabilize and improve to the up side.

Trading Plan Review

We remain cautious. We have been raising cash. We have some short sales via ETFs on the books but are paying attention to the sell stops on these ETFs.

We are compiling a list of potential stocks to own in the next few weeks to months if this market settles down.

Any remaining long positions are hedged at this time.

Our energy portfolio is long natural gas and hedged otherwise against losses by shorting the energy sector. Our health care portfolio is now 100% short but could be back on the long side shortly if conditions improve.

We are back in cash in the volatile gold market. We are in cash in bonds, but are looking to get short.

When you understand the big picture, the next step is how to survive and profit from what lies ahead. That's why we recommend: "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
Is Apple Inc. (Nasdaq: AAPL) Correction Over?
Shares of Apple Inc. (Nasdaq: AAPL) bounced back on Monday. For investors, though, the real question is whether the correction is finally over.



Chart Courtesy of StockCharts.com


A couple of months ago, the Apple story was pronounced as being over. The news that Samsung was number one in cell phones served to push Apple's shares inot a negative trading pattern as the Android system based phones were finally making a dent on the I-phone and related technology.

The stock lost 19% of tis value from the top on April 10, to what may be the bottom on May 18. The stock bounced on news that analysts had once again turned bullish on the stock after having dug deeper into recent data that suggested that Apple's market share had begun to shrink.

We tend to look at the charts more than what analysts say, although, what analysts say clearly affects the charts. More specifically, it's what a stock does in response to reports that matters. And Apple responded in a positive way. The charts are still showing a lower low and lower high trading pattern. So things are still negative for Apple. But, they may improve if the bounce remains in place and adds to Monday's rally.

The 20 and 50-day moving averages are just above the Monday close and provide significant resistance. If Apple fails at these levels, the stock is likely to move toward a new low. That's the real test.

Joe-Duarte.com is your own personal trading plan, updated daily. "Market Timing For Dummies" and "Trading Futures for Dummies" offer excellent ways to put together such a plan.

For more details on how analyze intermarket relationships and how to use technical analysis in your daily portfolio managmement buy "Market Timing For Dummies" and "Trading Futures for Dummies." Visit our bookstore.

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