Dow 5000?...A Long Shot, But...

Today's "Chart of the Day" article provided an analysis of the Dow 30 (on an inflation-adjusted basis).

I would add that if history does repeat itself, we could be here (second red arrow) and headed here (5000)...a very long shot, indeed, and one that could take a decade, or so, in the making, but still a probability, nonetheless.

Perhaps Obama Will Find One on QuiBids...

The Higher They Go, The Higher The Probability

The higher that stocks go, the higher the probability of this scenario playing out on the VIX. (I last wrote about the VIX here).

North Korea Causes 5.0 Earthquake

Irresponsible actions from North Korea caused this 5.0 earthquake today. For more information on their nuclear test blast that caused it, you can read this Guardian UK article.

Until something more definitive/aggressive (and effective) comes from the United Nations Security Council, I see no reason why further blasts will not be forthcoming from North Korea...they seem to be proceeding with their plans (whatever they are) unabated and undeterred.

Otherwise, they (the Security Council) will have no alternative but to accept those consequences (immediate and eventual fallouts), just as they will have to accept today's consequences (as this blast is already a "fait accompli"). Members of the Council should consider the safety of all citizens of this fair planet when making decisions, which should not be based on self-serving gains/ideals. Any members who do not uphold such global safety ideals should not be allowed to be a member and, thus, receive all attendant benefits and privileges.

This is my opinion as a concerned citizen of this planet.

Beware of this Credit Card Scam

I thought this warning (which I received in my e-mail today) was worth posting here...

Zero Hedge Article re: The Fed and Foreign Banks

This Zero Hedge article is worth a read. I found their discovery disturbing, but revealing.

Money Flow for February Week 1

Further to my last Weekly Market Update, this week's update will look at:

• 6 Major Indices
• 9 Major Sectors
• Financial Stocks
• Social Media Stocks/ETF & BBRY
• 30-Year Bonds
• U.S. $

6 Major Indices

As shown on the Weekly charts and 1-Week percentage gained/lost graph below of the Major Indices, the largest gains were made in the Dow Transports, with minor gains in the S&P 500, Nasdaq 100, and Russell 2000, while the Dow 30 and Dow Utilities were, essentially, flat.

As I mentioned in my last weekly update, I was going to be watching to see if the Nasdaq and Utilities played catch-up. The Nasdaq only produced minor gains, while none were achieved in Utilities.

9 Major Sectors

As shown on the Weekly charts and 1-Week percentage gained/lost graph below of the Major Sectors, the largest gains were made in Consumer Staples, followed by Technology, Energy, Consumer Discretionary, Industrials, and Health Care. Utilities and Financials were flat, and Materials ended in a loss.

Financial Stocks

As shown on the Weekly charts below, there were either small gains made in the bank and credit card stocks, or they were flat on the week. Volumes are low, and they are pushing up against their upper Bollinger Bands in overbought territory.

Social Media Stocks/ETF & BBRY

As shown on the Weekly charts below, there were varying levels of interest in these cheaper, beaten-down high-beta (mainly social media) stocks (and social media ETF), although LNKD spiked considerably higher after its earnings report was released this week. All of them, with the exception of FB, are pushing up against their upper Bollinger Bands. These are ones to watch going forward to gauge the amount of risk-appetite that may or may not be continuing by market participants and, to what degree (by higher or lower volumes).

30-Year Bonds

Price dropped below major support a couple of weeks ago, as shown on the 5-Year Weekly chart below, but bounced back up this week to close just below what is now major resistance, on higher volumes. A break and hold above this major resistance level would question whether non-Fed money is, in fact, fleeing out of 30-Year Bonds in any meaningful or impactful way (to be put to use in buying other markets).

U.S. $

As shown on the 5-Year Weekly chart below of the U.S. $, price bounced back this week to close above the 80.00 level. This price level represents the level at which the highest volume of trades has occurred during the 5-year chart period (the POC or pink horizontal line on the Volume Profile along the right hand side of the chart) and would be the dividing line between bull and bear sentiment in this currency. Traders returned to the "safety trade" in the dollar, and, as can be seen above, bonds.

Summary

In summary, holders of long positions (in equities) are carrying an enormous amount of risk at the moment. Accordingly, we may see further slow, choppy, shallow movements, and small weekly gains if the equity markets continue their trek upwards, while participants rotate into and out of various sectors. Alternatively, it may not take much in the way of foreign or domestic negative news to prompt them to begin taking profits in these positions, and we may see some kind of general market pullback. Events such as this coming Options Expiration Friday, the market closure on the following President's Day Monday, and resolution of the "Fiscal Cliff" by the beginning of March may produce some kind of impact on markets, either positive or negative, and we may see a rise in intraday volatility as we near those dates.

Lower weekly volumes of late (other than the recent volume spikes in the cheaper, beaten-down Social Media stocks and BBRY) indicates to me that there are fewer buyers willing to take on such high risk at the moment, so we may, indeed, see a pullback come into play, sooner rather than later.

Furthermore, a return to the U.S. $ and 30-Year Bonds indicates that participants are hedging against such increased downside risks.

No doubt, the recent small advancement in AAPL has helped to prop up the Nasdaq 100 and S&P 500 Indices, so it's worth keeping an eye on that one, along with those mentioned above, as well as Japan's Nikkei Futures Index, the EUR/USD Forex pair, and my Fed Monetary Stimulus Program "Canaries," which have been showing signs of stress and weakness, as I discussed in their respective posts this past week.

Markets in China will be closed this week, due to Chinese New Year celebrations of the Year of the Water Snake (which begins on Sunday), as the Year of the Water Dragon is ending. I wish Chinese people all around the world a safe and Happy New Year...may we all prosper in 2013!

Have a great weekend and good luck next week!

Japan's Nikkei Trading Within Resistance Confluence Zone

I last wrote about Japan's Nikkei E-mini Futures Index on January 23rd.

Since then, price continued to rally through the Fibonacci resistance confluence zone, attempted a breakout at its upper level, which failed, and is now trading in the midst of that zone, as shown on the Weekly chart below.

We'll see whether their Central Bank's/government's aggressive asset purchase/fiscal program continues to support this rally to propel (and, more importantly, hold) price above the next Fibonacci confluence resistance zone at 11670 to a potential (Fibonacci confluence) target at 12670. Near-term support lies at 10900ish (a Fibonacci confluence level).

Euro Weakness

At the time of writing this post in afternoon trading today (Thursday), the EUR/USD Forex pair is down around 112 pips and up a bit from its low of the day, which is fractionally below the upper 1/3 Fibonacci retracement level at 1.3372, as shown on this Weekly chart below.

The next level of support is further down around 1.3255ish at the former large "diamond" apex. A close below today's low of 1.3369 may send it down to that level, or lower, depending on the markets' risk appetite (or aversion to it) at the moment, on the heels of ECB Chairman Draghi's pre-market press conference today.

"Canaries" Look Tired & Riskier Assets Appear to be Overvalued

I last wrote about what I call the Fed Monetary Stimulus Program "Canaries" in my post of January 11th. I have six of them...namely ETFs compared (by ratio) with their respective Stock Market Index. I chose these in order to determine relative strength/weakness, which may hold clues for further accumulation of riskier assets. At that time, five of the six were poised for a breakout above major resistance levels, and the sixth (European Financials ETF) was picking up steam and outperforming its Index.

Since then, my last post gave a very general/broad characterization of where I thought the Four E-mini Futures Indices (YM, ES, NQ & TF) were headed this year. However, I thought it would be prudent to review where my "Canaries" are trading at the moment, on a shorter time frame to either support or add caution to what I concluded in this last post.

So that we can compare current action with that of where they were in early January, I've, once again, provided Weekly ratio charts for each "Canary," as follows.

XLF:SPX ~ U.S. Financials ETF has continued to base at its resistance level...all indicators are in overbought territory.

EUFN:STOX50 ~ European Financials ETF began to rally against its European Index, but has been basing at its resistance level...all indicators are in overbought territory.

GXC:SSEC ~ Chinese Financials ETF has declined against the Shanghai Index and is sitting on a level of support...all indicators are still trending down, but are approaching oversold levels.

XHB:SPX ~ Homebuilders ETF has basically resumed its high-basing after attempting to break above resistance...all indicators have recently turned down at their overbought levels.

RTH:SPX ~ Retail ETF has been basing in a range from mid-2012...all indicators are trending down, but at a slower pace and are in the neutral zone.

EEM:SPX ~ Emerging Markets ETF has declined against the SPX and sits just below near-term support...all indicators are still trending down and are not yet in oversold territory.

Conclusion

From this data, I would conclude that European Financials is the riskier bet (on a breakout and sustainable rally) at the moment, followed by U.S. Financials and Homebuilders. Retail could go either way, but a break and hold below its 50 sma (blue) would signal further weakness to come. Chinese Financials may be poised for a bounce, but would need confirmation of any reversal on its indicators (and I don't see any positive divergences yet). Emerging Markets is poised for further weakness. 

It appears that riskier assets are overvalued at the moment. Market Makers may be "pushing on a string" at these levels...a pullback of some kind may be ahead in the near term to make entries into these sectors more attractive and sustainable in the long run.

Weekly Regression Channels on the E-Mini Futures Indices

Price can continue to rise for quite some time to their +1 Regression Channel deviation level (solid pink), according to these Weekly line charts of the YM, ES, NQ & TF.

Of course, they could also drop to the -1 deviation level, but I think that's very unlikely, especially since the markets have been reassured by the Fed that they'll continue to provide monetary support for, what appears to be, some time to come yet.

No doubt, they (the Market Makers) will take advantage of that opportunity, while it's available...BUT, I'd suggest they'd better be quick about it (and do so convincingly, since the markets are at multi-year resistance highs and the "recovering" economy is still fragile and subject to global and domestic "surprises"), IF they hope to attract money from the sidelines (lest those potential investors become forever disinterested in the markets and find a "new game in town," if they haven't done so already).

~~~

***UPDATE February 5: The Department of Justice has just announced in a news conference today that it has filed a civil lawsuit against U.S. Credit Rating Agency, Standards & Poor's, alleging that it engaged in a scheme to defraud investors by inflating securities that misrepresented their true credit risks prior to the financial crisis. You can read more about this in this Bloomberg article and in this ZeroHedge article. We'll see if this is just the beginning of DOJ lawsuits that may come forward against other rating agencies and/or market participants.

It's precisely situations like this that do not instill confidence in investors. Market Makers have their work cut out for them this year to convince investors that "buying equities is the only game in town."  I, therefore, submit that any moves up this year are bound to be slow, choppy, and weighed down by negative (foreign and domestic) news announcements.

Money Flow for January Week 5

Further to my last weekly market update, this week's update will look at:

• 6 Major Indices
• 9 Major Sectors
• Ratio Charts comparing the SPX to other Major World Indices

6 Major Indices

As shown on the Weekly charts and 1-Week percentage gained/lost graph below of the Major Indices, all but one closed higher on the week than the prior week. Rather than the Dow Transports Index leading on this week's gains (as it has in the past few weeks), it was the one that lost a minor amount. The Nasdaq 100 gained the most, and the Russell 2000 gained the least.

In my earlier post today (Friday), I mentioned the Dow 30 reaching 14000 for the first time since October 2007, when it reached its all-time high of 14198.10. It closed above 14000 today, and the current uptrend on the Daily timeframe on the INDU, SPX, NDX & RUT remains intact. As an aside, the SPX also closed above 1500 and the RUT closed above 900 (both important "century numbers") for a second consecutive week. We'll see whether these levels hold as support in the near-term for these 3 Major Indices.

The Weekly charts below of their corresponding 4 E-mini Futures Indices shows that volumes picked up very slightly on this week's advance...something to watch to see if higher volumes continue to flow into equities now that the 14000 level has been broken. Inasmuch as the upper Bollinger Band is being pushed higher on Big-caps, Small-caps, and Transports, we may see some kind of pause (or even minor pullback) on those while Technology and Utilities play catch-up...however, I'm not seeing excessive/frothy volumes to suggest that, so we may see continued steady upward momentum in all Indices as we move closer to the next equity Options Expiration period on February 15th.

9 Major Sectors

As shown on the Weekly charts and 1-Week percentage gained/lost graph below of the Major Sectors, the largest gains this past week were in Energy and Technology, while Consumer Discretionary and Materials lost the most. Inasmuch as new life-time highs were reached the prior week in Consumer Discretionary, it's understandable that some profits were taken this week. As with their respective Indices noted above, the Technology and Utilities Sectors have yet to reach their upper Weekly Bollinger Bands, so we may see more of an interest generated in these Sectors in the coming week(s).

Ratio Charts comparing the SPX to other Major World Indices

I last wrote about these in my post of January 11th. As I mentioned, the SPX began to bounce in early January after generally trending down from mid-2012, as compared with their Major World Index counterparts. The following Weekly ratio charts show that the SPX has continued to outpace some of the others, while remaining neutral against the World Index, Britain, Russia, and Australia, and declining against China and Japan. These are worth monitoring over the coming weeks to see if the current momentum continues and to see whether the U.S. is, in fact, the "best place to invest for 2013," as some analysts/fund managers have been claiming.

Summary

In summary, I'll basically repeat what I said last week -- "We may see a general advance in equities for some time this year, punctuated by pullbacks, as buyers rotate into and out of various Sectors/Indices to relieve overbought scenarios and (for those that haven't already) to, perhaps reach new all-time highs." This is supported by the Fed's re-affirmation (at its last meeting on January 30th) to "continue its purchase of Treasury and agency mortgage-backed securities, and employ its other policy tools as appropriate."

We'll see if price holds above the 14000 level on the Dow 30, the 1500 level on the S&P 500, and the 900 level on the Russell 2000 Indices. Increasing volumes (without being excessive or frothy) on further (orderly) advances above those levels should indicate that more money is now flowing into equities to support a sustainable rally from here...I'd become concerned if we suddenly see parabolic upside moves on high volumes, which, to me, could indicate that a pullback is near.

~~~

Enjoy your weekend and good luck next week! For those who enjoy the Super Bowl, I hope your favourite team wins on Sunday, and for those who'd rather watch the "Puppy Bowl," here's a sneak preview.

Markets "Hooked on Stimulus" as the Dow 30 Hits 14000

The Dow 30 hit 14000 a few minutes ago (for the first time since October 2007 when it reached its all-time high of 14198.10). All the Major Indices are up as I write this about 45 minutes after the markets have opened on Friday, as shown on the Daily charts below.

Mixed data released today shows that the Unemployment Rate has risen from 7.8% to 7.9%. Notwithstanding all the QE monetary stimulus programs that the Fed has implemented since 2009, it remains well above the low unemployment rates in 2007 (although it has been in a general decline since the peak in November 2009), as shown on the graph below. So far, the advance in the stock markets has outpaced the decline in the unemployment rate (and direct benefits of QE in that area), but, as I believe that Mr. Bernanke has mentioned, they are looking for financial stability...if the markets are an indication of that, then that particular objective is being met, so far. However, without further meaningful reductions in unemployment, one wonders for how long the Fed can continue to support the markets.

Regardless, markets appear to be "hooked on Fed stimulus," as the Fed continues its bond purchase program and is ready to employ its other policy tools, as they stated in their press release after their last meeting on January 30th. Here is an excerpt:

     "The Committee will closely monitor incoming information on economic and financial developments in coming months. If the outlook for the labor market does not improve substantially, the Committee will continue its purchase of Treasury and agency mortgage-backed securities, and employ its other policy tools as appropriate, until such improvement is achieved in a context of price stability. In determining the size, pace, and composition of its asset purchases, the Committee will, as always, take appropriate account of the likely efficacy and costs of such purchases."

The current uptrend remains intact.

Canada's BlackBerry 10, eh!

Best wishes to Canada's BlackBerry (formerly known as Research in Motion) on today's release of its new BlackBerry Z10 and Q10 (keyboard version) products.

Here is a link to BlackBerry's web site.

With respect to their company name change, the new ticker symbol in the U.S. will be BBRY and in Canada will be BB, effective next week (even though their company name change is effective immediately).

We'll see if price remains above its channel, following its high-volume breakout two weeks ago, as shown on the 5-Year Weekly chart below of RIMM (as it's currently listed in the U.S.).