Wednesday, December 31, 2008

Morning Update - New Year's Eve

Good Morning,

Futures are basically flat about 45 minutes to the open.

Israel says “no” to any ceasefire and attacks on Gaza are to continue. Gold is actually down overnight. By the way, even with the pounding gold took, it’s still going to close up for the year, amazing. The same cannot be said for almost all other commodities, especially oil which is now 4 years backwards in time.

Your house? It’s anywhere from 5 to 20 years backwards in time. How will you know when home prices have come down enough to justify stepping back into the market? When ALL the expenses of owning a home and financing it CONVENTIONALLY add up to LESS that what you can receive in rents. That’s an easy exercise to run for your area, some areas are probably pretty close to that now, but many areas are not. Don’t forget that average ANYTHING (home prices, P/E ratios, etc.) are average because they spend as much time and distance below the average as they do above it! Thus, prices tend to overshoot on the downside just as they do on the upside.

Weekly unemployment claims for Christmas week were just released… ahhh, what do you think with a shortened snowy holiday week, more claims or less? Of course it’s less, so let’s all go out and buy stocks! They claim, "Difficulty adjusting for seasonal factors." Ha, ha… there was a 45 point ramp on the news that those claims fell from to a still recessionary level of 492,000 from a horrific 586,000 the week prior. Frankly, it’s amazing to me that that many people were forced to file unemployment during Christmas week. Ask those families if our country is experiencing a recession or a depression…

Hey, yesterday’s low volume 184 point hurrah was a 90% up day! That is further evidence that we have begun wave ‘c’ up of the larger wave ‘B’ up/sideways. Short term stochastic is overbought, so a little price decline today will not surprise me, it may even just be intraday before the rally resumes.

There is a pivot at SPX 912, and there is resistance at 920 to get through before any rally can get legs. Once through that level, a run up to 1,000 or a little higher is definitely on the table – IF we clear that area of resistance and it’s pretty strong. There’s a pivot point, a trendline, and the upper Bollinger now all coinciding with that area.

Yesterday the VIX closed at the bottom of the small range it’s been in. A break down from that range would be bullish for equities.

Below is a 6 month daily chart of GLD. Note that it has created an expanding ‘W’ pattern and just recently broke above that trendline and the 200 day moving average. Also note an ascending wedge (bearish) and a possible double top at 87. The stochastic is oversold on the daily and the fast is as well on the weekly. I would expect some pullback before any significant move higher, but it is possible that it could run a little higher first. This is interesting, because if equities are about to run higher, I would normally expect gold to run with them.

At any rate, my best guess for today is that at some point we’ll need to see a small pullback to satisfy the oscillators, but it looks like a run to the 912/920 area is definitely on the table in here too. There are people who are just dying to play this on the long side, I won’t be doing that myself until 920 is in the rearview mirror, and the oscillators are well out of overbought.

Have a good day,