Last weekends video that the last 2 weeks in March would be weak was spot on. The market is follow the Presidential seasonal cycle very closely.
Next week the market should swing up as long as a bad external news event doesn’t come along. In fact, the first week in April is one of the strongest swing move up weeks all year! Keep in mind that next week is a short trading week with the markets being closed on Good Friday (April 6th).
The Dow, S&P 500, Nasdaq, and Russell 2000 all confirm that a swing move up next week is possible. All have uptrend ratings. My weekend rating for trading next week is that the Bulls have the advantage over the Bears. No a strong advantage, just an advantage.
The TICK is probably one of the strongest indicators this week for predicting a Bulls over Bears advantage next week. This week we saw a swing move down in the TICK with a closing a -505. That is still within the range for normal retail trading and does not indicate institutional sentiment. But if you simply look at the fact that last week was the swing move down on the TICK, then there’s about an 85% chance that the market will do a swing move up next week. The reason is that the swing moves usually go one down week, then one up week.
Here’s another reason I’m giving a Bulls on top rating for markets next week. What was October of 2011? It was the first month of the 4th quarter. What did the market do? It began a huge run up. What was January of 2012? It was also the first month of a quarter, the 1st quarter. What did the market do? Just like in October of 2011, it had a big run up. In other words, we’re noticing a pattern of higher institutional participation coming during the 1st month of the quarter. This is most likely due to start of quarter re-positioning.
The VIX continues to have a downtrend rating, that’s bullish folks. It was our only leading indicator back in October than predicted a big move up. For those of you new to my weekly analysis videos, the VIX is a measure of PUT buying / hedging. Think of PUT buying as shorting the market, that is a bet that the market will go down. If the VIX is in a downtrend rating, then PUT buying / hedging continues to drop which is bullish for the market.
I’m slightly disappointed with the Elder system applied to the S&P 500 daily and weekly charts this week. It gives a blue high / low bar which means indecision or a neutral rating. Therefore we have to throw it out this week.
Gold mining large caps (GDX) and small caps (GDXJ) continue to have downtrend ratings. Worse, XAU continues to have a strong downtrend rating. GLD has a very weak downtrend rating. Oil has a very weak downtrend rating. Commodities continue to under perform the market right now. That weakness can’t be explained by the U.S. dollar either which has a sidelines rating. But with that said, I’m not selling my smallcap gold mining stock (PGLC.OB) yet. Can a smallcap gold mining company make money on $1,600 per ounce gold? You bet. If gold broke below $1,300 then I’d have to re-evaluate my smallcap gold mining stock and find out at what cost they can get gold out of the ground. The typical range is $300 to $900 per ounce.
Fundamental analysis reports that moved markets last week were: Wednesday’s Durable Goods Orders, Thursday’s GDP, and Friday’s Personal Income and Outlays.
The Durable Goods report showed that durable orders rebounded last month but disappointed in magnitude though the excluding transportation component was as expected. In February, new factory orders for durables rebounded 2.2%, following a revised 3.6% drop in January (prior revised estimate, down 3.7%) and 3.3% jump in December. The market consensus called for a 2.9% gain.
The GDP report revealed that the economy in the fourth quarter was essentially as earlier believed except domestic demand was modestly stronger. For its final estimate, the Commerce Department kept fourth quarter GDP growth at 3%, matching the second estimate for the overall number. The median market forecast was for an unrevised 3%. The latest quarter was stronger than the 1.8% rise in the third quarter.
The Personal Income and Outlays report showed that personal income growth was up but below expectations. But consumers were opening their wallets with spending up sharply. Personal income in February advanced 0.2% after a 0.2% gain the month before. The February number posted lower than analysts’ forecast for a 0.4% surge. The important wages & salaries component was a little stronger, advancing 0.3%, following a 0.4% gain in January. Overall income growth was held back by flat interest income and flat wages in the government sector.
Fundamental analysis reports with the greatest probability of moving markets next week are:
Mon – Apr 02, 2012 = ISM Mfg Index
*Fri – Apr 06, 2012 = Employment Situation
Markets will be closed next Friday for the Good Friday Holiday (April 6th 2012). If the Employment Situation report surprises, look for a carry over impact the following Monday, April 9th 2012.