Market comments for Oct. 14th, 2011

Today's focus is on the Put to Call ratio for all Equities and Indexes. The chart below shows this ratio for all of 2010 and Year to date for 2011. You can see from the chart that this ratio has been greater than 1.0 for all but 3 days since July 29th, the area under the red line. This while the stock market has rallied this past week. Many are wondering whether they should jump on this rally so they don't miss it. Some wonder whether there will be a sharp reversal and that this is a Bear trap. To answer this question, the Put to call ratio should help you decided. People believe there is a Bull market when the ratio is much lower than it is now. So one thing to watch is whether the Put to Call ratio daily readings start to consistently stay below 1.0 and start heading down to 0.7 or 0.6 or lower, but that's not where we are now. Paying attention of this data can help take out some of the anguish of trying to decide what to do.

Stock market direction? Nothing has really changed!

Since the beginning of August, when the stock market had its big drop based upon the announcement of the Fed that they were going to keep Interest rates low until 2013, nothing much has really changed. We have been in a tight range that does't feel so tight because of the high volatility. One week we are just below 11,000, wondering if we are going to hold support here or go lower and the next we are back up to 11,500 wondering if we can break much above this apparent resistance level. It has been worrisome for most investors but not for day traders. The best day traders are making some money, but the rest of us watch in disbelief.

I have compiled some 1 year charts below to reiterate and reenforce previous posts where I said we are in a tight range but now we are closer to a breakout, one direction or another. I have stated many times I believe this direction is lower, so no sense repeating much more than that.

This week Germany's Lower House of Parliament approved increasing the proposed EFSF (European Financial Stability Facility) expanding the euro-area rescue fund's fire power to stem the region's debt crisis. To read more about this Fund and the politics in Germany over this issue, click here. This seemed to move their stock market higher but as the week progressed you can see in the charts below, it pulled back.




You can see I have drawn red lines showing support levels and Blue lines showing resistance levels. You will also note that since the drop in August we have stayed below the 50 day moving average consistently. This line might be a good indicator to track market direction so that you are not fooled as we many during the Bear Trap so noted on a number of charts by the blue circle covering their mistaken purchases. Use these charts as a reminder of where we are and above all remember the Fed doesn't think we are going to get better until at least 2013!

This coming week on Friday, we will get the Unemployment rate for September. This could move markets. Also on Monday be watching for the ISM Index at 10:am EST or 7:00am PST. Expectations are for a reading of 50.5 and the previous month the number was 50.6. I expect the number to come in at 50.0 or less, given the lack of business activity there was in September. Earnings also will be front and center now for the next 4 weeks. You will be hearing about "beating expectations" by companies. Remember, these predictions were lowered last time so that beating these expectations should not be difficult.

Market comments for Sept. 29, 2011: Still in a tight range!

Initial Jobless Claims dropped this week to 391K, which was lower than expected. This data gave the market a boost in premarket. Also reported this morning was a revised GDP number for Q2. The final number reported GDP grew at 1.3%. Both pieces of data were better news than expected and traders are hoping to time the bottom of the market as many are venturing in the past few days. This stems form "hope" the EU has a plan for solving the sovereign debt problem for Greece and that their strategy will be a template for Italy should it be necessary. It's the same action Bernanke is taking, print more money.

A good friend of mine dropped me an email early this morning with an article from ZeroHedge worth reading. Here is the link. The article discusses Fed Chairman Bernanke's speech last night and his concerns about stemming deflation it seems at all costs. This is worth the read. The article is titled, "Goodbye Operation Twist, Hello QE X+1" and was written by Tyler Durden very early this morning.

Now that we recently retested Dow 11,000 and it held, even tough we went below 11,000 for a couple of days, it looks as though we are going to retest Dow 11,500 again for the 3rd time in several months. We seem to be more volatile lately, but we are still holding this tight range of between 11,000 and 11,500. Traders love the daily volatility, but long term investors don't and are looking for a guide to market direction.

UPDATE: 6:00am PST
Germany's lower House of Parliament has approved the expansion of the bailout fund needed for the sovereign debt crisis. Read the news by clicking here.