Saturday, December 15, 2007 Weekly review

This was the start of a big test for bulls. A bottom looks to be in place, but how will it hold on the eventual test?

Joe Reed is not seeing a bullish or bearish market:

But has a bullish call on the AMEX:

Following the earlier one for the S&P:

His Summation Index points to a another (unmarked?) bottom:

Ted Burge shows 'Ted-line' support for the Dow at 13,350, with resistance at 13,659.

Ted's lines show convergence of support and the 20-day MA for the Nasdaq 100 at 2,070-2,074:

Maurice Walker has his usual good summary:

12/13 Commentary: Today the Labor Dept. released the Producer Price Index (PPI) figures, and wholesale prices rose by 3.2 percent in November, which is the biggest increase in 34 years and the largest monthly gain in wholesale inflation since August 1973. From November 2006 to November 2007, prices for finished goods rose 7.2 percent. Core prices which exclude food and energy rose 0.4 percent in November, which is double the .2 percent expected. The prior month of October experienced no change in core data. However core prices, have risen only 2.0 percent in the past twelve months.

The Producer Price Index measures inflation pressures before they reach the consumer.
The rise in wholesale prices by 3.2 is the aftermath of a 34.8 percent increase in gasoline prices for November and home heating oil prices rose by 31.5 percent. Prices for finished energy goods increased 14.1 percent in November following a - 0.8 percent decline a month earlier.

It is being reported that the Fed will now have pressure to end the rate cuts, and ultimately have to start raising rates to thwart off inflation, due to the headline PPI increase of 3.2 percent in November spilling into core PPI at .4 percent. Others are pointing to this PPI data as proof that the economy is softening and that inflation has reared its ugly head, and that the US is about to tailspin into a recession. Furthermore, there is another camp that claims that we are in a recession right now.

The error that these folks are making is simple. Month to month fluctuations occur in PPI and CPI data. Most economists are predicting that these figures will likely drop next month. This is why we like to look at the annual percentage increase, which allows us to have a much more accurate perspective.

Those that continue to tell us that rising energy prices will spill over into core inflation have been wrong so far! I have listened to their arguments and they have not convinced me of anything. Rising energy prices act like a consumption tax on the consumer. Who has less money to spend at the mall, because his pockets were emptied at the gas station. Thus the consumer cannot push prices higher.

We have a 7.2 percent year over year all inclusive PPI figure, while at the same time the core PPI, which excludes food and energy remains relatively low at 2.0 percent. That's amazing! So even with Crude Oil prices hovering around $100 dollars a barrel, it has failed to make a dent in core PPI. So inflation is behaving itself at just 2.0 YOY.

The commerce dept. also reported some key retail sales data, showing that retail sales increased at 1.2 percent last month. That increased at a much better pace than the .6 percent originally expected. That is also the largest retail sales increase in six months. You may also recall that on the weekend of black Friday the retailers reported exceptionally good sales.

Recession is not a concern at this time, with this economy growing below trend interest rates are relatively low, core inflation is in check, and with a strong revised 4.9 percent 3Q GDP. It is true that the economy will grow at a slower pace in 2008, but the only way you can convince me we are headed for a recession is if you use fuzzy math. For those who are betting on a recession, do the math. All the economic data that I study show no signs of a recession at this time, so I think they're just blowing smoke. Let's see how the CPI figures fair tomorrow.

Study the 15 minute charts on page 2, and you will find that we broke the downtrend on the RSI and have positive divergence in place. We broke out of bullish Falling Wedge today in that timeframe, so the S&P 500 may test resistance now at 1530.

I have put up his fan chart for the S&P; a break of the third would confirm a bull rally.

There is a MACD bullish divergence in combination with a stochastic 'buy' for the S&P too:

His intraday chart is interesting; there is a channel break, which if you ignore the suggested Elliot Wave Count, could see a move back to the breakout gap at 1,430:

Richard Lehman has illustrated new downward (short term) channels for the indices, but these could provide a good buying opportunity:

His words follow:

12/15 -- Short term downchannels continue and are well defined. The techs and small caps are particularly weak in their longer term channels. RUT, XLK and XTC are at support lines and need to bounce here or they will indicate more serious downtrends emerging. (Could be tax loss selling, which would augur well for a positive January effect.) Meanwhile, oil and gold are weak as well. This week could see some bottoming action leading to a Santa Claus rally, but any more serious decline will signal that the multi-year bull market is ending.

12/13 -- The ST downchannels have a little more clarity now. Most indices are bouncing off the lower channel lines and heading toward the uppers, but the DOW has already gotten there and should meet resistance now. Gold stocks have confirmed a dowside break. On a couple of sector indices, larger trend channels have finally emerged (XLE and XTC) and I also drew in a possible downtrend scenario on the SPX 3-year which is worth noting.

12/12-- I hope no one jumped back in on the long side of the Dow this morning. Today's nearly 350 point swing would have eaten you alive. The Dow came right up to the former break line, kissed it, and fell back...way back. We have ST downchannels that could be mild or steep depending on whether you use the peaks or troughs to draw your lines. We'll find out soon which ones are right.

Meanwhile, the long term charts look like a minor pullback here is well within longer bullish parameters. So this little downchannel may take us down to where the rally can pick up again. But let's watch the short term first to see where it goes.

I'll finish with one of Asher's Pinto's very neat charts. It shows the key resistance levels, and potential support, for the S&P: