04-28-2008: June S&P 500 Index: Jaws of Inflation Trap Begin to Close on Fixed-Income People
Technical factors seem so in balance to us that the News becomes the tipping factor, and fundamentals play a greater role than usual. Fundamentals don't look good! Common sense tells us huge Federal deficits, both the budget deficit and the trade deficit, a falling U.S. Dollar, huge energy prices spilling over onto the cost of everything else we buy causing inflation without corresponding corporate profits, disappointing earnings reports, falling consumer sentiment, and a President that prefers to make jokes before the National Press Corps Association Dinner while the country falls apart... almost like Nero fiddling while Rome burns... our picture for America is grim indeed.
We've said it over and over on this website, Hillary is the "white hope" for America (no racial slur intended!) But given the politics of the absolutely lousy leaders of the Democrat Party, the likes of Howard Dean, Nancy Pelosi, Harry Reid, and Stenny Hoyer, plus the monstrous and undemocratic "super delegate" system that preserves the "elite" of that unfortunate party, it is beginning to appear that Hillary will not win the nomination, barring some unforeseen trajedy like some spoiler getting hit with a truck!
So, basically what happens is that we run into the next four years without much of a plan but a guarantee of a lot of "change." That equates to uncertainty, and markets abhor uncertainty.
We wish we could be more positive, but with support for "change without a plan" coming from the nation's youngest and brightest college students, it looks like more of the "same old, same old" for outsourcing by America's corporate "managers," whose priorities are to "get ahead," "rise to the top," and not to keep themselves rather than America strong. Thus we find our aerospace companies in dire straits trying to recruit college graduates away from Wall Street, and our technology so hard-won by inventors, scientists, and researchers, being exported overseas by non-technical "managers" and government "leaders." The signs of the meltdown are already upon us, as seen as the gas pumps, and as usual, the "rich" of this nation who are relatively un-hurt, solve the dilemna by placing their burden on the backs of fixed income people, the old and the sick, and running inflation up into the moon. Thus we see luxury condo sales in places like New York City and Miami, jewelry sales, and other high-end items booming and their purveyors asking, "What recession?"
Next time you hear some Treasury Secretary or Federal Reserve Chairman say, "A little inflation is good," write to your elected representatives and ask them what they are doing about trying to get those jackasses removed.
June S&P 500 Index:
June S&P 500 Index:
The S&P 500 Index has been lagging slightly behind the other major stock indices. Some favorable earnings from automobile manufacturers and other big-cap stocks have supported the Dow, while the NASDAQ does not appear to have been seriously undermined by Microsoft's failure to acquire Yahoo. Still, earnings data does not appear to be positive enough, and it seems unlikely that the Fed will make another rate cut, thus holding back further progress in the S&P. The U.S. Dollar is benefitting from ideas that the Fed is closing on the end of its rate cut cycle. The Univ. of Michigan's Consumer Sentiment Index fell to 62.6 in April, the lowest in 26 years. Financial companies continue to report weak earnings, although often better-than-expected, but still weak. Iran continues to try to provoke an incident with U.S. warships in the Persian Gulf. Analysts are still confused as to whether the last three big rate cuts and several injections of liquidity will be enough to turn the stock market around. The same analysts are skeptical of Standard & Poor's projection that operating earnings for S&P 500 companies will be up 18.5% in 2008. Subprime mortgage problems, a slow housing sector, Iraq, Iran, high energy prices, a weak dollar, and big increases in Federal spending once again amount to huge problems for the index. Some of the prosperity of the '90's was due to shrinking defense spending, but a $3 trillion price tag on the Iraq War (and rising) has reversed the trend.
175.0I T 4/25
I CME - Jun-08 S & P 500 E-Mini (50 X Idx) Cm.=0.01 Lim.= 0.1
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The above point-and-figure chart is giving a conventional buy signal.
We are headed toward a cyclical low and a weak seasonal up period.
Our best-performing internal program is "WilderRT." It is giving a sell signal.
Results of "WilderRT" for S&P 500 Index (blue lines = successful trades, red, unsuccessful): (Not always in the market.)
Our third system is working on a longer-term buy signal. (Note, disregard the year date on the chart. Our regular readers know this is not a Y2K-compliant system, but it still works.)
The point value is $50 (for the mini-contract.) Initial margin on a single contract is $3,500. Use of options is advised.
Scale trade sellers are entering the market in this price range for the longer term.
In the chart below, the yellow line is the futures price, read on the right axis. All other colors are read on the left axis. Red is small speculators. Green is large speculators. Blue is commercials. It would seem that no one has got it completely right, but we would have to go with the Commercials on this one. That seems odd, given that the contract size would favor Commercials and Large Speculators trading the Maxi contract. Commercials are getting increasingly-short.
The average volatility shown below suggests that the major trend direction of down remains intact from a volatility low point.
Our option trade recommendation is based upon incredibly-bad quotes put out by the Chicago Mercantile Exchange on the S&P 500 Index options. It is to Sell the S&P 500 Index (Maxi) September 1390 Call @ 194.00 or better. (Nice trick, if you can get that price.) Be sure to have your broker call the floor for the latest bid/ask before placing any order for any commodities option.
Here's an intraday chart for the previous day ( 4/25 ).
Risk Versus Opportunity Report
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SPM8 S&P 500 Index
High Price: 1444
Current Price: 1397
Low Price: 1302
Risk: -0.068
Opportunity: -0.138
(O/R) Ratio = 2.021
Level Table:
| Factors | Weighted Points |
|---|---|
| Parabolic Chart | + 1 |
| Nirvana Chart | - 1 |
| News | - 1 |
| Point & Figure | + 1 |
| Cyclicals | - 1 |
| Seasonals | + 1 |
| Internal System 1 | - 1 |
| Internal System 2 | 0 |
| Third System | + 1 |
| Commitment of Traders | - 1 |
| Historic Range | - 1 |
| Range/Volatility | - 1 |
| Level Table | + 1 |
| Other Factors | + 1 |
| Total | - 1 |
Place 4 June S&P 500 Index E-Mini Contracts on a Sell Watch with stoploss @ +28.70 above the get-in point.________________________________________________________________________________________________________E.L.
