• About
  • Press Room
  • About PFGBEST
  • Leadership
    • Chairman's Letter
    • President's Letter
  • Testimonials
  • Ad Campaigns
  • Employment
• Services
  • Research
    • Currency Report
    • Metals Report
    • Energy Report
    • Grain Report
    • Interest Rate Report
    • Livestock Report
    • Nemenoff Report
    • Stock Indices Report
    • Softs Report
  • Trading Accounts
    • Self Directed
    • Broker Assisted
  • Managed Investments
    • Managed Home
    • CTA Challenge
    • FAQ
    • Contact
  • Trading Systems
  • FOREX
    • Platforms
    • Managed Forex
    • Institutional
    • Settlements
    • Accumulation
    • Client Services
  • Global Services
    • Home
    • About
    • Photos
    • Turnkey IB
    • Contact
  • Branches/IB´s
    • Turnkey IB
    • Contact
  • Physical Metals
• Platforms
  • Futures and Forex
    • BESTDirect™ 8
    • BESTDirect™ 7.4
    • eSignal for BESTDirect™
    • BESTDirect™ Navigator
    • BESTDirect™ NinjaTrader
    • BESTDirect™ Pro Trader
    • BESTDirect™ Web
    • BESTDirect™ API
  • Forex
    • BESTDirect™ MetaTrader 4
    • BESTDirect™ FX Options
    • BESTDirect™ FX Express
    • PFG Currenex
  • Options
    • BESTDirect™ Options Navigator
• Tools
  • Quotes & Charts
  • Web Seminars
    • Live Events
    • Recorded Events
  • Contracts
    • Margins
    • Calendar
  • Simulated Trading
    • Simulated Futures Trading
    • Get Started
    • Signup
    • Contracts
    • Single Stock Futures
• Store
  • PFG Products
  • Bookstore
• Contact

The Stock Indices Report

by James Gangloff

Down Goes the Dollar, Up Go the Markets

11/18/2009

The rise of the United States indices continued to march upward last week with all three of the major indexes obtaining new 13 month highs.  The S&P 500 gained 2.3% for the week ending November 13, while the DJIA and NASDAQ followed suit posting similar gains of 2.5% and 2.6%, respectively.  The ramped upward trend of the U.S. markets has shown diminutive signs of wanting a decent breather as they continue their upward climb from their lows obtained in the early part of March of this year. 

In some of my previous reports, I have addressed how the massive amounts of funds that were pulled from the markets during their abrupt downfall were now flowing back into the markets as equities were at values akin to the extreme sales Main Street has been seeing in stores across America because of the Great Recession.  Additionally, I depicted how the money from the Obama Administration’s roughly $700 billion stimulus package has also aided greatly to the vast gains of the U.S. markets.

More and more talk and analysis, however, has been shifting from the two primary reasons mentioned above for the upward shift in the markets’ directions.  Investment experts are gaining in masses in relation to warranting the decline of the U.S. dollar as a proponent of the indices’ moves upward since March.  The weekly chart below delineates the inverse relation between the U.S. dollar index and the major U.S. indices to which the wizards of Wall Street have been taking notice.  (Note that this chart shows the convergences and divergences of the dollar in relation to the indexes on a percentage basis.)

This most recent converse relation of the dollar to the markets began, for the most part, at the end of May.  This inverse relationship is easily seen by viewing the graph.  Since a weekly chart is being used to show these contradictory progressions, both weekly and monthly dates will have to be used to show some of the extreme parts on the chart above to highlight the said relationship. 

The strength of the dollar’s extreme convergences toward or away from the indexes portrayed below will be supported by the spikes in volume that are shown directly below the diagram.  Although there is not a perfect negative correlation – nor could there possibly be -- of the dollar to the markets, six of the strongest examples from the chart above that accentuate this opposite relationship are the following:

1)  September 2008 – The dollar diverged further from the indices on high volume and ended with low volume.

2)  December 2008 – The dollar converged closer to the indexes on modest volume and ended on low volume. 

3)  Beginning of March 2009 – This is the furthest divergence on the chart for the indexes being gauged and the dollar has relatively high volume on its strong move away from the markets.  It also delineates the point where the downward trend ended and a key reversal took    place to initiate the current Bull Run.

4)  End of May 2009 to First Week of June – The dollar converged closer to the markets beginning with modest volume and ending with high volume.

5)  First Week of September 2009 – The dollar converged closer to the indices on high volume.

6)  First Week of November 2009 – The dollar diverged further from the indexes on relatively high volume.

The equal number of convergences and divergences cited above, which have merit based upon the height of the volume of the dollar for each scenario, support the notion of an inverse relation of the dollar to the indices.

What Does This Mean for the Markets? 

The Street has taken more notice to this as an increasing amount of commentaries relating to the decline of the dollar contributing to the rise in the markets have been coming out through various media.  More financial practitioners are citing that declines in the dollar, which occurred again last week, are assisting to extend the gains in commodities as these drops also have had the same effect in several of the past weeks.  The depreciating dollar makes the value of the commodities of the U.S. less expensive for foreign nations which facilitate an increase in our exports.  This, in turn, enhances the growth of our economy as the purchase of our commodities becomes less expensive for other nations.

Additionally, it is assumed that people are risk averse.  Therefore, a weak dollar will cause individuals to move their assets into classes where their risk for partaking in an investment is potentially compensated either equally or more than the return they can obtain in relation to the asset’s risk.  With bank and money market yields that don’t even come close to keeping up with the average inflation rate, the real value of an investment in the currency of the U.S. declines over time and will not grow in real terms until rates surpass that of inflation.  This causes those who seek to protect and grow the value of their money to shift it into categories such as equities which will potentially reward them for the additional risk for which they take on.

As demonstrated above, the current inverse relationship of the dollar to the U.S. markets is a key component that should be monitored along with other important fundamental, technical, and sentiment indicators.  Thus, investors should be cognizant of the convergences and divergences of the U.S. dollar in relation to the indices that are supported by high levels of volume as it is often a signal of a change in the trend -- albeit most likely a short-term one for the time being.  

Fundamentals

The following are important economic reports that will have a potential impact on the markets for the next five trading sessions and lead up to the Thanksgiving holiday:

Monday -- Existing Home Sales -- 10:00 ET

*Tuesday -- GDP -- 8:30 ET 

Tuesday -- S&P Case-Shiller HPI -- 9:00 ET

Tuesday -- Consumer Confidence -- 10:00 ET 

*Wednesday -- Durable Goods Orders -- 8:30 ET                                          

*Wednesday -- Personal Income & Outlays -- 8:30 ET

Wednesday -- Jobless Claims -- 8:30 ET 

Wednesday -- Consumer Sentiment -- 9:55 ET          

Wednesday -- New Home Sales -- 10:00 ET

Technicals 

Sentiment

The December E-Mini had 6,553 puts outstanding compared to its 5,526 open calls for the business day November 17^th as stated in the CME Group’s final report on volume and open interest.  These figures provide a put call/ratio of 1.19.   The ratio is down 48% from last week’s research which had a very high put/call ratio of 2.5.  The numbers in last week’s account were computed by using the preliminary report of the CME Group regarding volume and open interest for November 6^th. 

Although the 1.19 ratio is still a bullish signal for the markets from a contrarian standpoint, the steep declines in the ratio depicted within the past few reports indicate that this figure is quickly nearing a point of neutrality if the pace of the reductions in the ratio continues.  If a neutral put/call ratio is surpassed to reach a number that represents a ratio that is less than one, the contrarians will view this as a bearish outlook for the indices. 

For the time being, however, the current put/call ratio of 1.19 is still a bullish signal.  Use caution when using this number from a contrarian stance as it is just slightly providing a bullish reading and, more importantly, is accompanied by a rampant rate of decline.  This number is most useful for short-term trades on the December E-mini for the stated reasons.

Recommendation

Go long ESZ9 at 1092.

Place protective stop at 1081.

Liquidate ESZ9 at target of 1103.

James M. Gangloff, MBA
Senior Research Analyst / Stock Market Indices
Portfolio Strategist / Managed Futures
PFG BEST
Toll Free:  800-275-8844
Direct:  312-563-8162
Fax:  312-563-8526
E-mail:  jgangloff@pfgbest.com

For further information regarding the logic behind this report, please e-mail or call me at my information listed above.  I value the thoughts and opinions of those that follow my stock indices reports and even incorporate their points within my research as often I am provided information from readers that warrant documentation.  Additionally, our diverse investment panel at PFG BEST will assist you with obtaining your personal financial objectives through our experienced financial groups. 

James Gangloff
PFGBEST Research Team
800.275.8844
312.563.8162
jgangloff@pfgbest.com

A Second Psychological Indicator for An Economic Recovery Beginning with “10” in a Month

11/9/2009

This Time, However, for the Worse 

It was less than a month ago, back on October 19^th, when the Dow Jones Industrial Average crossed the psychological 10,000 mark, the first of our psychological meters beginning with “10,” to end that day’s session at 10,015.86.  The crossing of the 10K level was the first time the Dow was above this emotional level for the markets in over a year when it hit an intraday high of 10,205.04 on October 7, 2008. Yet on this date it failed to close above 10,000.  The Dow last closed above 10,000 before the October 19^th surpassing, which occurred four days before its last intraday high of 2008, when it ended the trading day on October 3, 2008 at 10,325.38.

The October 19^th’ closing above the 10,000 plane marked a breaking of the commonly acknowledged psychological mark for both investors and the citizens of the U.S. that the market rally had legs and an economic recovery was making a solidified advancement.  This, in turn, lead to a significant increase in optimism within the majority of the U.S. population as people had been anxiously awaiting a firm sign that we were in fact pulling out of the Great Recession.

However, a second number came out this past Friday again beginning with “10” that thwarted a large portion of the positive outlook created with October’s movement beyond the Dow’s 10,000 point value.  The number came in the form of a report of the jobless rate in America.  Much to the surprise of America, the unemployment rate soared to 10.2%.  It was formally at 9.8% with a consensus that the rate would stay below the 10% level and come out at 9.9%.  This .4% increase in the jobless rate underlines a fundamental notion that even though the markets continue their upward movements, as the Dow closed the week out up 3.2% from its open, largely significant pessimistic numbers are not necessarily prime determinants of market movement within these atypical times. 

Many investors were left perplexed that such a strong fundamental factor that the unemployment rate is did not pull the markets down for the day with its drastically negative number.  The Dow closed up on Friday seventeen basis points (.17%) still above 10K at 10,023.42.   Industry experts came up with various rationales as how the markets -- namely the Dow, the S&P 500, and the NASDAQ -- all continued their upward movements.  Three key justifications for the markets forward moves with cynical figures are the following:  

1)  Upgrades on stocks kept the markets moving higher.  Some of the influential upgrades were Bernstein Research’s moving its rating on GE to “outperform” in addition to raising its rating on Amazon (AMZN).  Additional upgrades to the “buy’ level were made by Goldman Sachs on Travelers Cos Inc (TRV) and XL Capital (X).

2)  In the opinion of Randy Frederick, director of trading and derivatives at Charles Schwab & Co., “the headline numbers look terrible, but for traders and investors looking for trends, a closer look at the report shows that there is a trend of slowed job losses.” (Source: Moon, Angela, Yahoo! Finance)

 3)Voters are losing confidence in the political party responsible for the creation of jobs as promised during the political election by our current president:  The “Hope and Change” pledge is losing its appeal.

“Hope” is losing ground as jobs continue to decline rapidly versus the optimistic promise of job creation during the presidential    campaign.  The major “change” that is occurring is unemployment numbers that have been at declining at rapid levels.  This was supported by the strong backward move in the unemployment rate that was well off the already negative consensus figure.  Additional “change” that has occurred is the record deficit of the United States. 

Americans have been felling these ill effects for far too long and once again are using the power of their vote to change those in charge as Republicans won the governorships that were formerly held by Democrats in both Virginia and New Jersey.  Thus, Americans are beginning to instigate, once again, a new regime of “Hope and Change” as they did with the Democratic Party led by the election of President Obama back in November of 2008.     

At the conclusion of this report, I will state how the information above ties into a long-term outlook for the markets.

Analysis of the Markets

Fundamentals

The influential economic reports that can have the tendency to move the market indices for better or for worse will not come out until the last two days of the trading week.  The following are the details regarding these fundamental accounts:

Thursday   –  Jobless Claims   --  8:30 AM ET  --  Prior: 512K;  Consensus: 512K

Thursday   –  Treasury Budget  --  2:00 PM ET  --  Prior: -$46.6 B;  Consensus: -$150.0 B 

*Friday  --  International Trade  --  8:30 AM ET  --  Prior: $-30.7 B;  Consensus: -32.5 B

Friday  –  Consumer Sentiment   –  9:55 AM ET  --  Prior: 70.6; Consensus: 71.0

The first figure to come out, the jobless claims report, shows no deviation from the prior number in relation to its consensus.  This is a positive sign for the markets as the prior figure remains constant with its estimated number.  This is optimistic for the markets as the majority of the economic data has moved in a negative manner for a period of time which has been extremely drawn-out. 

There is not much of a surprise with a consensus number that is more than triple the prior figure for the treasury budget report which is extremely bearish for the indices. The logic for this massive increase is that the government of the U.S. needs an enormous amount of funds to finance its major ongoing undertakings.  Among some of its largest endeavors are the nearly $800 billion stimulus plan and two wars. The rationale as to how the deficit actually increases is best construed on Bloomberg’s website in its treasury budget analysis where the following explanation is concisely stated within it:

“The Federal government borrows money through the issuance of Treasury securities; so higher deficits mean a larger supply of securities and (again, assuming constant demand) lower prices. With notes and bonds, lower prices are equated with higher yields, so in this example, the government borrows money at higher interest rates. That impact ripples across all other interest rate-bearing securities and creates a higher interest-rate environment for stocks, which is bearish.”

The most pertinent economic reading for the week should be the international trade number.  Characteristically, the higher the exports of the U.S. are in relation to its imports, the more likely it is the markets will move positively.  In essence, this is supported by the fact that an increase in exports relative to imports generally raises corporate profits as foreign companies are “buying American” at a beneficial rate.  This is influential in moving stocks up.  However, the trade deficit for the U.S. is approximated to increase by $1.8 billion which is bearish for the indices.

Of the four reports, the one that is the most bullish for the markets is the consumer sentiment report.  It is estimated that its number will move up by four tenths of a point from 70.6 to 71.0 indicating that, although by just a slight amount, consumers are more confident in their ability to spend in addition to the overall wellbeing of the economy.  This leads to a tendency for increased sales for companies which, in turn, ideally produce earnings and the growth of stock prices.  This, therefore, is a driver of upward moves for the indices.  

For the most part, the consensus numbers are already factored into the prices of both the indices and their futures contracts as sustained by advocates of the efficient market hypothesis.  However, deviations from these fundamental estimates, especially ones that are extreme in nature, will very likely move the indices by large amounts. 

This is not always the case, though, as the markets experienced last week little movement at the time the unemployment report posted a percentage that was far from the consensus figure.  The large divergence from the consensus, as explained and rationalized earlier in this report, proved that key fundamental factors that are largely off their estimates will not necessarily move the markets in their expected direction.   

Techinicals

For this week, I'll be using a multi chart methodology for the technical portion of my trade recommendation on the E-Mini S&P 500 (ESZ9).  My rationale for using this technique is that I am unable to indentify a logical resistance level on the 5 day chart as it is at a five day high today.  By looking at key indicators within both the five day and six month charts of the E-Mini S&P 500, I am able to make a logical conclusion for both a plane of support and resistance for the recommendation in addition to other conclusions. Therefore, by using the same chart under two differing time frames, my proposal for a play on the E-mini will be middle-term by nature.  The key sings I was able to derive from the 5 day and 6 month graphs, in addition to significant indicators, are depicted below with the merits to back each of them. 

Outlook for the Markets

Medium-term

As no resistance levels are portrayed in the five day chart to allow for a logical short-term play, my current recommendation should be viewed as medium-term in length as indicated previously.  According to the merits of the fundamental, technical, and sentiment analysis I have conducted, I advocated initiating the following position:

Sell ESZ9 at 1095.

Place a protective stop at 1110.

Buy the ESZ9 at 1070 for the target profit price.

For more detailed information relating to the multi charting process I used for the technical part of the recommendation, including the platforms and parameters of the indicators employed, contact me at my information listed at the finale of this report as the technique is quite intriguing from a reasoning standpoint.   Also, for additional basis as to why and where I placed the sell order, the buy to lock in profits, and the protective stop, use my contact data to reach out to me.   

Long-term

How Do Positive Markets with Negative Economic Reports Relate to the Long-Term Market Outlook?

Ask ten different economists or investment experts this question and you’ll likely get ten answers that are not close in coherence with one another.  The markets continue to hold to their upward trend that began in the spring of this year, yet the majority of the fundamental data continues to remain overwhelmingly negative which is irony in itself. 

To provide a contrary logic to Randy Frederick’s quote (of Charles Schwab & Co.) in the beginning of this report, the fact of the matter is how bad can the economic figures actually get before the reports cannot logically get any worse?  As an example, millions of Americas have lost their jobs over the course of the recession, but as of recently at a slower rate.  This poses the fact that there is a level at which jobs loses will decline at a slower rate as the jobs that have had to be cut out of necessity have already been removed for the most part.  This would reasonably conclude that is impossible to have a rate of unemployment that continues to grow at a faster rate over the long term.  (To note, jobs that were necessary during the U.S.’ last expansionary period have in large part already been eliminated.  However, if the economy continues to decline, as the economic reports for the most part indicate it will, the further elimination of jobs will occur as there will no longer be a need for them.) 

If one looks at this from a theoretical standpoint, a constantly declining unemployment number at a higher rate could go on indefinitely until every American was without a job.  At that point, the higher rate of decline in job loses would have to stop as there would be no more jobs to cut.  This is virtually an unrealistic situation and could only occur in very extreme circumstances such as extinction of our nation.  The point of this theory is to bring to light the truth that just because job losses are occurring at a slower rate does not signal a reversal in our economy.

The commentary rationalized above further supports my long term conclusion for the markets.  As stated in my previous analysis, it is still my opinion that a true economic recovery will not occur until the unemployment rate moves in a positive direction and businesses overall begin to expand while new ones come into existence.  With credit markets currently being very tight, it is very hard for small business to accomplish either of the two stated objectives just mentioned. 

To the surprise of many Americans, small business actually account for the majority of the jobs in the U.S. as many individuals assume that the larger business are indeed accountable for most of the jobs in America as they are know as the “big businesses.”  This fact is backed by an article posted on posted on Yahoo! Finance on November 7^th titled “What recovery? Unemployment shoots past 10 percent.”  The article states that the following:

“Troubles for small businesses could have a disproportionate effect on the economy, because they account for about 60 percent of the nation’s jobs.  They tend to rely on credit cards and home equity lines – both of which banks have tightened – for cash flow.”

Indeed, without the development of small businesses a true recovery of the economy of the United States is not likely to occur.  According to the analysis contained within this report and my previous ones, my standpoint is still bullish on the markets in the long-term even though much of the bullishness has to do factors such as “artificial” GDP via the stimulus plan and the cost cutting plans incorporated by numerous companies to enhance their earnings per share.  These economic and market related initiatives are contrary to true or sustainable GDP growth and can only go so far before an absolute destabilization of the economy occurs. 

In order for our nation to regain its composure to provide for true positive fundamental numbers that will continue to support the upward movement of the markets, imperative factors such as a favorable move in the unemployment rate need to take place.  Until this happens, Americans will for the most part keep their wallets in their pockets and purses as there is not much money in them to spur the growth of our national economy.

As for now, factor such as the massive amounts of money that are still on the sidelines and the “artificial” creation of GDP, in additional to additional reasoning I have put forth in the past weeks, keeps my long-term posture for the markets bullish.  As stated, fiscal and firm specific situations will evidently have to change which will have a large influence on my longer term take on the movement of the markets in the future.

James M. Gangloff, MBA
Senior Research Analyst / Stock Market Indices
Portfolio Strategist / Managed Futures
PFG BEST
Toll Free:  800-275-8844
Direct:  312-563-8162
Fax:  312-563-8526
E-mail:  jgangloff@pfgbest.com

For further information regarding the logic behind this report, please e-mail or call me at my information listed above.  I value the thoughts and opinions of those that follow my stock indices reports and even incorporate their points within my research as often I am provided information from readers that warrant documentation.  Additionally, our diverse investment panel at PFG/BEST will assist you with obtaining your personal financial objectives through our experienced financial groups. 

James Gangloff
PFGBEST Research Team
800.275.8844
312.563.8162
jgangloff@pfgbest.com

We Have GDP! However…

11/4/2009

The S&P 500 index ended last week on a large downslide losing 4% from its close on Friday, October 23. However, good news relating to the U.S. gross domestic product hit the markets Wednesday of last week for the first time in four quarters.   The GDP of the U.S. economy increased at a 3.5% annual pace for the third quarter of ’09 after four prolonged quarters on negative numbers.  The positive GDP figure once again is a signal that the recession we have been entrenched in is coming to an end. 

The chart below, which was updated before the latest Q3 GDP percentage figure, shows how since the beginning of the century the U.S. has not experienced even two consecutive quarters of GDP losses.  It was not until this past quarter did the streak of negative GDP quarterly reports come to a conclusion. 

Yet this positive number could once again be a false indicator that the economy is in fact far from breaking through the current deep recession.  There have been other instances pertaining to pertinent financial information where well renowned economist and analysts, most notably Federal Reserve Chairman Ben Bernanke, have called an end to our great recession.  As stated by The Washington Post staff writers on September 19, 2009, Bernanke declared the recession is "very likely over."

A Real Economic Recovery vs. The Obama Stimulus Plan

There have been many key financial indicators for those who have the same inclination as Bernanke and think the recession is over.  The biggest and most widely held reason that the U.S. has pulled out of its recession according to those that believe it has is the fact that, with the exception of October’s negative return for the S&P, the index has astonishingly been able to post high positive returns on a monthly basis from March through September.  Many economists, institutions, advisors, individual investors, and the like look at the ramped returns of the markets since March as a primary sign that the recession is over.  The returns for the said affirmative months are the following:

MARCH +8.5%;   APRIL +9.4%;   MAY +5.3%;   JUNE (this month was slightly positive with a .18 increase in the index);   JULY +7.4%; AUGUST +3.6%;   SEPTEMBER +3.6% (same as August’s % return)

The S&P’s streak of posting positive returns for seven consecutive months ended in October as the index ended the month down slightly with a 2% loss.

The opposing school of thought, known as classical economics, would argue that the sharp, upward movement of the markets is primarily the result of the United State’s stimulus plan.  This theory is rooted in the capitalistic approach with its beginnings most notably attributed to Adam Smith and his book The Wealth of Nations.  The free market approach has further been supported by numerous economists such as the Nobel prize winner Milton Friedman, political leaders such as former president Ronald Reagan, and arguably the overwhelming majority of U.S. citizens.  In essence, free markets for the most part are the premises for obtaining “The American Dream.” 

The belief in this economic theory is that government intervention will work in the short-term, but the advantages federal actions add to the national economic system will dissipate once they are removed.  Therefore, advocates of this theory state there is no long term benefit to the economy via the involvement of the government such as the implementation of the Obama Administration’s $787 billion stimulus package which has been a exceptionally large contributor to the record $1.4 trillion deficit. 

What Does All This Mean for the Markets?

As the U.S. markets prove, the stimulus plan is working as of now by pumping money back into the economy through programs such as the Cash-for-Clunkers program and the $8,000 tax credit for first time home purchasers.  Once the stimulus money runs out, how will the government continue to provide the economy with the monetary necessities to keep the economy growing?  The United States, as mentioned, already has a record deficit and a current 9.8% unemployment rate that many experts expect to easily exceed 10% by the year 2010. 

Those that are verse in economics as well as individuals that apply common logic realize that once the stimulus money runs out so could the momentum that is contributing to the quick upward movement of the U.S. markets.  If that in fact does occur, the U.S. could see a double dip in the markets that will result in a double dip recession.  Many fear a double dip recession is imminent if key economic factors such as the unemployment rate and spending cuts by companies do not start to move in a positive direction.

Fundamentals

In addition to less impactful reports still to come out this week regarding figures that will impact both commerce and the markets, there are four reports slated for Thursday and Friday that should be watched closely as they have the greatest potential to move the major indices.  Of the four reports, the most critical one in relation to effecting market movements will be the report on the unemployment rate.  The following are the reports to be cognizant of for the remainder of this week:

Thursday  –  8:30 AM ET – Jobless Claims – Prior: 530K;  Consensus: 523K

Thursday  – 8:30 AM ET – Nonfarm Productivity -- Prior: 6.6%;  Consensus: 6.3% 

Thursday  – 8:30 AM ET – Unit Labor Costs – Prior: -5.9%; Consensus: -3.9%

Friday -- 8:30 AM ET -- Unemployment Rate for October  -- As mentioned, this report has the biggest potential to effect the markets.  Currently the unemployment rate stands at 9.8% with a consensus estimate of 9.9%.

Thursday morning may be interesting as the three less influential reports all come out at the same time.  It may not be much of a surprise if the markets don’t move much if one report misses its projection and the others meet or beat their expectations as there could be an offsetting effect.  The same is true if the opposite occurs by one report beating its anticipated figure and the others meeting or missing their estimated numbers. 

However, if all three of these reports exhibit the same behavior in relation to each one of their consensus figures there will likely be a strong move in the indexes depending whether or not the all the figures are favorable or negative in relation to their anticipated numbers .  That would occur, of course, if all three reports don’t meet each of their individual consensus numbers.   

Friday’s unemployment report will be the big driver of the movement in the markets in regards to its actual figure relating to its consensus.  A lower than expected consensus number should drive the markets higher.  Conversely, a higher than expected figure could send the markets on a sharp spike downward.  A decline in the markets would set the tone for a pessimistic weekend and, hence, a negative start for the indexes next week and perhaps forthcoming weeks also.

As for next week, there are no key economic reports that could potentially impact the indices in a major way for better or worse until Thursday.  Details regarding these reports will be discussed next week in my Stock Indices Report.

Sentiment

The CME Group’s Volume and Open Interest final report for November 2, 2009 states that for the S&P E-Mini (Dec. ’09) there were 16,768 puts active versus 8,196 calls.  These numbers relating to the puts and calls of the December E-mini presents a put/call ratio of 2.04.  This ratio declined by 4.4% since the October 11^th report.  Although the ratio is lower, it still indicates a very bearish sentiment within the markets which adds merit that the markets will move higher as it has since my last report on October 11^th.

Aaron Task depicts in the Tech Ticker section of Yahoo! Finance that James Paulsen, the CIO of Wells Capital Management who overlooks $375 billion, further supports the notion of the high bearish sentiment portrayed by the high put/call ratio demonstrated above.  Paulsen states that the “wall of worry” is still extremely high despite a “persistent array” of thriving financial markets, positive news regarding the economy, and more and more companies reporting positive earnings reports.  All this equates to a bullish outlook from a contrarian perspective according to Paulsen.  

Technicals 

The following is a chart of December ’09 E-mini for the S&P 500.  The technical indicators used within the chart and what they point to regarding the long-term market directions are described below the chart. 

The chart of the December E-mini, which spans roughly six months, gives a picture of what to expect regarding the movement of the S&P 500 from a purely technical standpoint.  It demonstrates an uptrend in the market starting on the 13^th of July.  Noticing it began on the thirteenth could imply to those that are superstitious that the merits of the technicals used within this chart could prove to be unlucky.  However, as the saying goes “it is what it is” and an upward trend did in fact begin on the thirteenth after the period of congestion that marked the beginning of this technical portrait. 

The E-mini held closely to the upper Bollinger Band for most of the trend retreating to the lower one only twice.  It is currently moving upward from its second move to the lower Bollinger Band portraying an implication that the E-mini wants to continue the trend.  A viable level of support can be placed around 1,020.00 as in late August this area prove as an area of resistance until it broke through and demonstrated a support level in the beginning of October.

As for the MACD, the last indication of a reversal in the market occurred on approximately October 23^rd as it signaled a down move in the E-mini.  According to this chart, the MACD does not provide any additional signals for a directional change.  However, the RSI (which is at 35 on the chart) is closely approaching the psychological level of 30 which demonstrates that the E-mini is currently oversold.  This would merit an upward movement in the contract to complement its recent upward move off the lower Bollinger Band.

Outlook for the Markets

Short-term

Today the Federal Reserve reiterated its intent on keeping interest rates “exceptionally low.”   This objective regarding very low rates is to remain in effect for an “extended period” as Bernanke and his entourage stated that the U.S. is gaining ground in relation to the economy. 

Most investors did not expect the Fed to change interest rates and, therefore, this expectation was more the most part already built into the markets.  However, the Fed officially not raising rates is still a positive confirmation for a bullish short-term outlook for the indices.  The following opportunity is a short-term futures play that is based on a five day chart that goes until today's close for the S&P 500 E-Mini:

Go long ESZ09 at 1,041.

Place a protective stop at 1,032.

Place a sell on the ESZ09 at 1,055 for the target profit price.   

For an explanation on the logic used to make this recommendation, please contact me via my information that is listed in my signature at the conclusion of this report.

Long-term

The markets are likely to continue their trends upward as explained in the sentiment and technical portion of this week’s report.  However, extreme deviations from the fundamental data are currently the only serious opponents in the near-term that could change the course of the market’s upward trend. 

I also titled the first part of the report with a positive connotation that the U.S. finally experienced a positive GDP report after four consecutive quarters of negative GDP figures.  Recall though that in the latter part of the title I stated “However…”  This one word implied there is more to be said than just speaking of the merit of the elating report for the U.S. regarding the first positive quarter for GDP in a year.  I elaborated that the GDP report was fueled mostly by the Obama Administration’s stimulus plan that many experts lay claim was the primary factor for producing an optimistic GDP number. 

As iterated, once the money from the stimulus ends the economy could likely experience a double dip recession which would occur once the stimulus is fully depleted which will happen much farther out in the future.  From an economic standpoint, the U.S. cannot continue to feed the economy money as our record deficit is under very tight scrutiny around the world.  Unless Barak’s deficit spending comes through to instigate a recovery of the economy in full through methods such as the creation of jobs and business expansion, the markets will likely pull back substantially and a self fulfilling prophecy of the double dip recession will take place.  In summary, the Obama Administration should be providing the citizens of the United States methods on how to fish so they can eat for a lifetime rather than handing them the fish so they can eat for the day.   

James M. Gangloff
Senior Stock Indices Research Analyst / Portfolio Strategist – Managed Futures
PFG/BEST
Toll Free:  800-275-8844
Direct:  312-563-8162
Fax:  312-563-8526
E-mail:  jgangloff@pfgbest.com 

A Note from the Author:

For further insights regarding this report or to simply express thoughts that are either complimentary or divergent from mine, please contact me directly at 312-563-8162 or e-mail me at jgangloff@pfgbest.com. 

I always believe there are multiple thought processes to any logical conclusions brought forth within a report.  My experience has shown me there is never a “precise” or “exact” answer to any conclusions brought forth within any individuals writing.  This being said, the thoughts, opinions, and so forth brought about by readers of my reports and dialogues are highly respected by myself and taking into substantial consideration for further pieces regarding my future reports and discussions relating to the market indices as well as investment and planning strategies.

Furthermore, if you are an active investor or even looking to become one to help enhance the overall performance of your investments while potentially reducing your risk exposure, please contact me via the information on my signature listed above. 

My well verse and in-depth background in dealing with numerous investments, financial instruments, and strategies may indeed be a benefit to your overall financial well being as the premises for what I do on a professional level is to enhance my clienteles’ overall financial situation.  Ironically, I learn a great amount about investment methodologies through my own personal clients just as they do through my reports, individual discussions and meetings.

Making sound investments is indeed a combination of science and art…so invest with competent knowledge and a logical thought process.

An individual once told me that the day you stop learning is the day you die.

Do not hesitate to give me a call on any topics referenced above as I’m here to assist you in obtaining your investment and/or trading objectives.  Time is often money! 

I look forward to hearing your thoughts regarding your investment methodologies and being of assistance with sound and prudent investment and planning strategies.  Additionally, I am particularly interested in individual investors’ thoughts regarding the rational for the U.S.’ current economic situation.

Sincerely,

James Gangloff

James Gangloff
PFGBEST Research Team
800.275.8844
312.563.8162
jgangloff@pfgbest.com

There is a substantial risk of loss in trading futures and options.

Past performance is not indicative of future results. The information and data in this report were obtained from sources considered reliable. Their accuracy or completeness is not guaranteed and the giving of the same is not to be deemed as an offer or solicitation on our part with respect to the sale or purchase of any securities or commodities. PFGBEST, its officers and directors may in the normal course of business have positions, which may or may not agree with the opinions expressed in this report. Any decision to purchase or sell as a result of the opinions expressed in this report will be the full responsibility of the person authorizing such transaction.

There is a substantial risk of loss in trading commodity futures, options and foreign exchange products. Past performance is not indicative of future results.