The Week Ahead: Can Doom and Gloom Save the Market?

by Tom Aspray

As often happens, strong bearish sentiment helped boost the market all week, but it’s best to wait to buy until a pullback occurs, which could come as early as mid-week, writes MoneyShow.com senior editor Tom Aspray.

The stock market got very close to the key levels in the major stock ETFs Monday, and then spent the rest of the week rebounding. This was in spite of very little in the way of positive news, either on the US economy or the Euro debt crisis.

As this sampling of financial headlines reflects, there was little to cheer about:

• Europe Lending Woes Deepen
• Economy Clips Factories
• Greek yields off the scale as 3-year bond hits 172%
• Number of Americans in poverty at highest in 50 years

Some of the Euro pain was lessened last Thursday, after the world’s central bankers moved to offer unlimited dollar funding through the end of the year. This helped the hard-hit European banks, especially those in France, to rebound.

The news on our economy was not a big help. Retail sales were flat and Best Buy (BBY) reported 30% drop in income for the second quarter. Retail sales were hurt by the several days lost because of Hurricane Irene.

A recent survey of economists by The Wall Street Journal sees a 1 in 3 chance the US will slip into a recession. They also put even odds that the euro would breakup.

The Conference Board was even more negative on the economy, as they see a 45% chance that there will be a recession.

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The Michigan Consumer Sentiment Index, released last Friday, shows a slight pickup from August’s dismal numbers. This chart from the Business Insider shows that consumer sentiment is already at levels seen in past recessions.

By the time this index drops below 60, GDP has already turned negative. While almost all economists are still downgrading their GDP forecasts to the 2% to 2.5% range, few are negative.

In light of all this, most were surprised that the Spyder Trust (SPY) was up 4.8% for the week, while the tech heavy PowerShares QQQ Trust (QQQ) led the way with a 6.4% gain.

Clearly, sentiment has shifted—the Investors Intelligence survey of newsletter writers shows that only 35.5% are bullish, compared with over 57% in early April. Also, 40.9% who are bearish, which is not far from the 47.2% level that was recorded near the March 2009 lows.

Another reading of sentiment comes from the option activity. Option expert Larry McMillan reports that put/call ratios have turned positive, as too many are buying puts in expectations of another sharp market decline.

Therefore, stock investors will be helped by an increased feeling of pessimism about the stock market and the economy. As I discuss further below, there has been some technical improvement.

The IMF meeting may set the tone for Monday’s opening. Tuesday, we get the housing starts as well as the start of the FOMC meeting. Wednesday’s existing-home sales numbers are likely to have much less impact than the FOMC announcement in the afternoon.

A clear majority of economists expect the Fed to do something. The prevailing choice is what is being referred to as “Operation Twist,” where the Fed exchanges shorter-dated Treasuries for bonds in an effort to drive down long-term rates.

However, the dramatic rally in the US bond market suggests this already may be priced in.

WHAT TO WATCH

One of last week’s casualties was the euro. Watch it closely this week, because a further break could exacerbate the Eurozone problems. Gold had another sharp setback last week, but finished the week strong and well off the lows.

The stock-market rally last week clearly improved the technical outlook, as many of the major averages came very close to key support on last Monday’s opening. Further strength is needed this week to signal a rally above the prior highs, which would likely stop out a few of the short positions.

After the current rally runs its course, the following pullback will be important. It will give us a better idea of whether a test of the August lows lies ahead.

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S&P 500
 

The Spyder Trust (SPY) made it up to $121.97 on Friday, which was just below the prior closing high. Traders likely have stops now above $123.51.

The upper boundary of the flag formation (line a) and the 61.8% Fibonacci retracement resistance is at $126.85. A daily close above this level will suggest that the August lows will hold.

Monday’s low at $114.05 briefly violated the lower support from the flag formation (line b) at $114.38. There is short-term support now at $119, with stronger levels in the $116 to $116.60 area.

The number of advancing issues was strong last week, as the S&P 500 A/D line has moved slightly above its downtrend (line c). It needs to rally higher to suggest that a short-term uptrend is in place.

It is important that key support (line d) holds on any correction.

Dow Industrials
 

The Spyder Diamonds Trust (DIA) dropped below support at $109.18 on Monday, down to a low of $108.15, before reversing to the upside. The next level of resistance to watch is between $115.30 and $117.03, which was the high of the previous rebound.

The 50% retracement resistance stands at $117.78, with the trendline resistance (line 3) at $118.60.
 

First support for DIA is now at $113, with stronger levels in the $109.90 to $112 area.

The Dow Industrials A/D closed for one day below the long-term uptrend (line h) before reversing. It closed Friday just barely above the near-term resistance. A move well above the prior peak will improve the technical outlook.

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Nasdaq-100
 

The strength in the PowerShares QQQ Trust (QQQ) got the market’s attention last week, as it gained 6.4%. QQQ was able to close above the 61.8% retracement resistance at $56.07 last Thursday.

In Friday’s article, I took a close look at not only the PowerShares QQQ Trust (QQQ), but also the Select Sector SPDR Technology (XLK), Semiconductor HOLDRs Trust (SMH), and Apple (AAPL). The particularly bullish action in AAPL, a market leader, is a positive for the overall market.

Friday’s high was very close to the start of the next resistance at $56.80 to $57 (line a), with the 78.6% retracement resistance next at $57.71.

There is initial support at $55.20, with stronger support sitting at $54 to $54.50. A close below Monday’s lows of $52.57 would suggest the rally is over.

The Nasdaq-100 A/D line is acting the strongest, as it has convincingly broken its downtrend (line c) and has moved above the prior peak. This is consistent with a bottom formation. This was the only A/D line to hold above the 2011 support.

Russell 2000
 

The iShares Russell 2000 Index Fund (IWM) was up almost as much as the QQQ, but the chart still looks weaker. If we have begun a sustainable new rally, then the small- and mid-caps should eventually start to outperform.

There is next resistance at $72.50 to $73.84, with the major 50% retracement resistance at $74.82. Support now sits at $66.37 to $65.93, which if broken will signal a drop to the major 50% support at $60.54.

The Russell 2000 A/D line continues to look quite weak, as it dropped to new lows before last week’s rebound. It is still well below the previous highs.

Sector Focus
 

All of the major sectors were higher last week, but only technology was able to overcome the previous highs. The Select Sector SPDR Utilities (XLU) was a bit lower Friday, but it still looks like one of the strongest sectors.

For a healthy market, we need more than just these two sectors to push prices higher. It is possible that the Select Sector SPDR Consumer Staples (XLP) and Select Sector SPDR Health Care (XLH) will be able to breakout above the previous highs.

Oil
 

November crude oil held up well last week, and has reached the apex of its triangle formation. Therefore, an upside breakout above the resistance at $90.52 would be suspect.

The daily chart shows an apparent flag formation, which is likely just a pause in the downtrend. There is initial support now at $85, which is almost $3 below Friday’s close. A daily close below the $83.20 level would be more negative.

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High Heating Oil Prices Continue to Drain Wallets in the Northeast

By DAVID SCHEPP

Bitter cold and repeated heavy snowstorms helped make winter in the Northeastern U.S. particularly brutal this year. Adding to the chills were soaring prices for heating oil that are likely to be the highest on record.

By the time the six-month-long winter heating season is over, the average homeowner in the Northeast will have laid out $2,431 for fuel to fire boilers and furnaces, Reuters reported, citing data from the U.S. Energy Information Administration, which provides forecasts of energy costs. The amount is about $200 more than the Energy Department predicted in October -- and almost $500 more than the average just a year ago.

Temperatures were indeed colder than average in December and January, but that's not the source of the high price for heating oil. "[R]ising oil prices, not colder weather, have been the primary cause of the increase in forecasts of average winter season heating expenditures for households heating with oil," the EIA said in its statement.

The price of heating oil rose to $90 a barrel this month, up from $78 in October, Reuters noted. That rise pushed the average retail price for residential heating oil to $3.59 a gallon this week, up 73 cents from a year earlier, the EIA said.

Demand Is Down, But Not Prices

The increase in the cost of heating oil as crude prices have steadied or fallen in recent days is a conundrum, says Josh Garrett, managing editor of HeatingOil.com , a Manhattan-based information service for both dealers and consumers.

With healthy supplies of heating oil and rising temperatures in the Northeast, prices have little reason to remain at such high levels, Garrett says. Mild weather in recent days has lowered demand 20% from levels typical for this time of year.

Garrett offers no predictions about where heating oil prices will go as the Northeast heads into the final six weeks of the heating season. "I'm at a loss," he says. Prices should slide lower because supplies remain high. But, he adds, that's been true the entire season, and plentiful stores of heating oil haven't had much effect on lowering prices.

Budget Cuts Target Home Heating Assistance Program

Sustained high prices for home heating oil raise the specter of fewer people being able to afford to keep their homes warm come next heating season. That will be especially true if cuts to the federal Low Income Home Energy Assistance Program are implemented.
As part of his draft budget released last week, President Obama targeted $2.5 billion in cuts to the $5.1 billion program that helps low-income households with energy costs. Obama justified the cuts by noting that the price of natural gas, a dominant heating source nationwide, has fallen steadily in the last two years.

But that's not true for heating oil, says Garrett, in a blog post at HeatingOil.com. After hitting their highest levels ever in the summer of 2008, crude oil prices crashed along with the economy in late 2008 and early 2009, making heating oil "quite affordable." Since then, however, prices have risen sharply, doubling during the slightly more than two years since Obama took office and rising 38% in the last year alone.

Garrett doubts that the proposed 50% cut in LIHEAP funding will make it into the final budget, noting that strong negative reactions from constituents and lawmakers "will translate into a much less severe cut." Legislators from Maine to Maryland, regardless of party, will work together during budget negotiations to ensure that the cuts to the program aren't made, he says.

"They realize this is a huge issue for their constituents," says Garrett, "and they're definitely not going to stand idly by and let the program get gutted."

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Survivor Trading System - Trades of 14 February

I trades di Survivor System del 14 Febrraio. I risultati real-time di Survivor e di alcuni altri nostri trading systems sono a disposizione al seguente link: http://www.box.net/shared/5vajnzc4cp

Trades of Survivor System on 14 February. Real-time results of Survivor and our some other trading systemsare available at the following link: http://www.box.net/shared/5vajnzc4cp

Gas Prices Hit Their Highest Level Ever For Mid-February

by Mike "Mish" Shedlock

U.S. gasoline prices have jumped to the highest levels ever for the middle of February. The national average hit $3.127 per gallon on Friday, about 50 cents above a year ago.

The price is about 6 percent higher than on this date in 2008. The next day, pump prices began a string of 32 gains over 34 days. They rose 39 percent over five months, eventually hitting an all-time high of $4.11 per gallon in July.

Although gas prices are expected to rise, most experts aren't expecting a reprise of 2008, when the price spike forced many drivers to join car pools and trade in gas-guzzling SUVs for fuel-efficient cars.

"It would be a mistake to think we're going to have that all over again," said OPIS chief oil analyst Tom Kloza.

He says oil demand will slide in the U.S. by May, as refineries slow fuel production while they switch to summer blends of gas. World oil consumption also may not rise as much as expected.

And Kloza contends that oil traders are more cautious now, after getting burned when oil plunged to $33 per barrel in early 2009, just six months after hitting $147 per barrel. Even the most bullish traders no longer think they can chase commodity prices higher without risk, he says.

Still, Kloza expects gas to reach $3.50 to $3.75 per gallon this spring because of the usual run-up in prices ahead of the summer driving season. That would mean an increase of 12 to 20 percent from the current level.

Crude Futures - Monthly Chart

Image: Mish's Global Economic Trend Analysis

Crude futures for now have stalled right at 50% retrace level of the 2008 plunge in spite of the recent turbulence in Egypt.

Unleaded Gasoline Futures - Monthly Chart

Image: Mish's Global Economic Trend Analysis

Unleaded gasoline futures and gas pump prices follow the price of crude as one might expect.

Note the seasonal nature of the moves. Gasoline prices (and crude futures) tend to rise from January until June or July in most years.

In 2007, there was a ramp from the beginning of the year that ended in April, followed by a pullback until July. From then it was straight up for a full year.

2009 was back to the familiar pattern of continued strength from the beginning of the year until July. 2010 had a July low instead of a high, similar to 2007.

Crude Futures - Daily Chart

Image: Mish's Global Economic Trend Analysis

Prices at the pump may be up, but crude prices are down since the start of the year as noted by the dashed line. Prices at the pump will head lower eventually if crude prices keep sliding.

Inability for crude prices to continue higher with events in Egypt and the Mideast might be meaningful. Moreover, interest rate hikes in China could start weighing on commodity prices in general, especially if those hikes come at a pace faster than expected.

There are a lot of variables in play, including seasonality, rate hikes in China, the extremely overbought reflation trade, Quantitative Easing, and price action weakness (except for a 2-day pop now taken back) in the face of events in Egypt.

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Have reached their targets?

Qui a lato riportiamo i grafici di Cotton, Euro Bund, Heating Oil e British Pound,  i cui prezzi si stanno avvicinando ai target dei rispettivi cicli in essere. A questo si accompagnano alcune divergenze negative che potrebbero portare ad ritracciamento dei prezzi dagli attuali massimi di periodo.

Here we report the charts of Cotton, Euro Bund, Heating Oil and British Pound, whose prices are approaching the the target of their cycles in place. This is accompanied by some negative divergences which could lead to a prices retracement from the current high.