Let’s not waste time discussing the dreamers and ignoramuses. Rather, lets look at the fellow who knows what it takes and is ready to work for it. Let’s look at the fellow who sincerely wants to learn all you should know about this business but is unable or unwilling to get a formal education for it. It is often argued that one is able to learn about trading by reading books and obtaining information through the internet.

So if it is that simple, why do so many still fail? The reply is just as simple; Learning the wrong thing without realizing it.

Most of the books available, either at bookshops or at the library are about INVESTING and very few are actually about TRADING. So what happens is that most people don’t realize the real difference between investing and trading and will assume the two to be the same with slight variances. That could not be farther from the truth.

Investing is less difficult to learn – like learning to drive a Honda Jazz. It doesn’t take much to learn it and it is easily understood and put into practice without much difficulty. The trick thereafter is not to crash.

Trading , however, is an extremely different skill and mind set. It is akin to driving a Formula 1 car. Unlike the Honda where the manual version has the clutch on the left foot, the F1 car’s clutch is an extremely different mechanism and is controlled by the right hand. Unlike the Honda which packs less than 80bhp, the F1 car stacks up an earth-shattering 900 bhp which, in untrained and inexperienced hands, could end up killing the driver.

There is so much more to trading than investing. The skills involved are very different, the psychology is worlds apart, the knowledge needed requires way more weeks and even months to acquire and the quantity of research needed to become good investor is nothing compared to the daily research and monitoring the trader is required to do to survive the market day in and day out. Where investing requires minimum practice, trading demands never ending hours of practice time to hone the skill. The financial management skills are also extremely different in that the investor protects his capital by how much he invests while the trader requires a different skill set to manage his finances – its called “cutting loss” – something easier said than done.

So without realizing it, most beginners will pick up an investment book or visit sites hosted by investors or have contributing members who are investors and assume that all that knowledge gained will stand him in good stead as a trader.

And when things don’t work out, it gets confusing. The common query that follows is always, “Why is it others can make it but I can’t?“

You can’t blame the poor fellow because there isn’t much literature on this subject and even some so-called gurus don’t know the difference. But all you’ve got to do to know that this is true is to just look at Wall Street – how come the investors don’t have to be on the floor of the exchange everyday while the ones on the floor everyday are known as traders?

Knowledge … a bit of it can kill you quickly while the wrong kind will slowly bleed you to death.

Now we look at a controversial reason why most traders fail – The Attitude

It starts right in the beginning where most newcomers think that the market can be quite a get-rich-quick plan. This is akin to thinking that the market is like a casino. Consider this fact – the house ALWAYS wins. So if you treat the market like a casino, it will cause you to feel like most gamblers do. Gamblers always win a few but lose a lot.

Some trade like the market is a system to be beaten. Such traders ought to give themselves more credit. You’re insulting yourself for those who have this attitude. To think that the market is a system is to include yourself in that system. Therefore, the system you are looking to beat includes you. Give yourself some respect and while you’re doing that, give the market the same respect – we’re not robots in the market and we’re definitely not part of a system. We’re humans that are driven by emotions. The market is an emotional place, not mathematical. You cannot have a system to beat an emotion because there is no math that can factor emotional irrationality.

Then we have those that don’t realize how unscrupulous the market is. Their ignorance is evident when they correctly assume the market is not that clear cut but will still buy into the hype. What is obvious would be that the market is made up of a myriad of people especially those who will do anything to get an edge, even through illegal and criminal means. It’s also full of experts who have spent years in Harvard and Princeton and then more years with established institutions such as Goldman Sachs, Morgan Stanley and so on. They have hugely experienced mentors to guide them to become generation x of world class traders. These people have so much leverage and influence on market sentiment and to make their advantage more unfair, they collude with their competitive counterparts so that you can corner the larger market for their own gains. With such power, how is a three-day workshop graduate expected to beat the odds? Yet increasingly more look past the obvious and end up throwing their hard earned cash to the power-brokers.

These are also those who buy into the concept that the market can be analyzed fundamentally with valuations. Such valuations do aid in reducing risk. But that is an investment-styled strategy and not suited for trading. Trading is way faster and seldom allows the security time to flex its fundamental muscles before the next gyration takes out the profits. Read the previous lesson to know the difference between the investor and the trader and you’ll have a clearer understanding of this.

Others rely purely on technical analysis. I can’t deny that I base lots of my analysis on technicals. But that is not the end all. It just takes one bit of macroeconomic news and all that technical analysis is out the window faster than you can say “Cut loss!” TA is great as long as there isn’t any news to upset the prevailing sentiment if volumes don’t dip. But the market is never so generous. So ultimately, TA is only a “best guess” … and contrary to common belief, TA is not the best guess of when to buy or sell – rather it is most reliable when used to guess the best potential against the least risk or the most risk against unfavorable potential.

Then there are those who believe that a good tip from a trader is the key to easy money without putting in any effort. For this, I have only one analogy; Would you take a heap of hard-earned money from your wallet and give it to someone you hardly know and expect to get all of it back after a few weeks? And if that person was trustworthy, would you still do it? And do you really believe that it will come back with more than you gave him? If in life we don’t make such practices, then the same principles should be applied in the financial world and first and foremost, in the market. The desire to get-rich-quick-and-easy makes simple people do really silly things with their money. Which is always only after getting burned that you hear those famous last words, “ … if only I knew …“. Yes, you’ve heard the horror stories time and again and so has everyone else. Yet people continue to write new chapters into this horror story ever so frequently … all in the name of greed, gluttony and sloth.

The financial markets are like an office block in a busy business district. The people who go to work there are serious professionals who take the things they’re doing very seriously. They are highly experienced, very influential and extremely powerful. It is also like a hospital where the surgeons, doctors and nurses are highly qualified and trained professionals. People put their life in their hands everyday.

Then one day, some over-zealous graduate with three days of workshop knowledge comes into this office block and expects to beat everyone out of their jobs. Or this hyped-up graduate with only three days of experience comes into the hospital and expects everyone to trust him with their former lifestyle.

Okay, maybe that’s a tiny stretch but the implications are no different. Every professional takes years to study his craft and then spends more years honing the skills with hours and hours of practice and hard work. There is no easy path to success and you will see failures along the way. The financial market is to be respected and feared. There is no other attitude except humility that will help a trader survive it.

It is stated that more than 80% of the market is made up of those who lose and less than 20% are winners. The truth is that those statistics apply to any profession – how many top rated lawyers, engineers, surgeons, etc are there when compared to many also-rans?

The big money is always at the very top where there are few who have it while the small money is at the end where most have to fight for it. And there are only two ways to be at the top – either you are already there or work hard to get there.

By Conrad

On the 30-minute chart, SPY surged above 111 and then consolidated around this level the last two days. CCI surged above +100 and remains in positive territory. A consolidation after an advance is simply a rest that can be considered neutral. Those with a bearish bias may point to lack of follow through, but SPY is clearly strong as long as it holds its gains. There is a support zone around 110 from the gap. This is the first level to watch, but I am setting key short-term support at 109. A move below this level and a CCI break below -100 would reverse the short-term uptrend. Time to sit tight until the next signal.

The markets started off on a solid note on Monday, after the G20 showed minimal concern with regards to the weakness in the US dollar.  US equity markets surged, with DJIA and S&P up 2.0% and 2.2%, respectively.  Financials and industrials outperformed which lead the markets higher. The main message from the weekend G-20 meeting was that governments would maintain and back strong stimulus efforts to those economies which are now moving in the right direction to deal with the current recession.

On Wednesday there was a plethora of economic data out of Asia which stimulated confidence that global growth was on the mend.  The impressive retail sales figure (up 16.2% y/y vs. 15.7% expectations and 15.5% in Sept) and industrial production (which accelerated from a 13.9% y/y pace in Sept to 16.1% in Oct vs. 15.5% expectations) helped bolster hopes China will help the global economy to gain further traction.  This, combined with the better than expected Japanese machine orders which grew more than twice as fast as expected in Sept, reinforced faith in the recovery. Orders were up 10.5% m/m, much more than the 4.1% expected.

The Equity markets continued to hold onto gains for the week as market participants awaited the Jobless Claims number out of the US, which was scheduled on Thursday.  The U.S. Labor Department said in its weekly report that initial claims for jobless benefits fell by 12,000 to 502,000 in the week ended Nov. 7. That was the lowest level since Jan. 3. The previous week’s level was revised to 514,000 from 512,000.  Although analysts were expecting a drop to 510,000, optimists were hoping for a fall below 500,000.  The result disappointed and resulted in some profit taking, which caused the equity indices to drop and the dollar to rise.

On Friday, the EMU released its GDP which came out slightly worse than expected.   Euro-zone gross domestic product grew 0.4% in the third quarter, after dipping 0.2% in the second. This was the first quarterly expansion since the first quarter of 2008. On an annualized basis, the contraction in GDP eased to 4.1% from 4.8% in the second quarter. Economists were expecting the first estimate of third-quarter GDP to show that the economy had expanded 0.6% on a quarterly basis and contracted 3.9% on an annual basis.

Forex:

Even though the Dollar showed relative strength last week, it failed to present any major moves, appearing to be running out of steam.  The euro lost ground after failing to sustain gains above $1.5000 and dropped towards the end of the trading week. Even though traders preferred to cash in on recent gains, the currency managed to stay above the $1.4875/85 area (around the 20-day moving average and 38.2% retracement of the recent rally).  The Euro zone industrial production data was somewhat disappointing, and increased by only 0.3% m/m in Sept (0.5% exp). On the upside, economic data also showed that Germany’s output jumped 3% in Sept and contributing to the slightly smaller than expected contraction in Germany’s GDP result for the third quarter.  Spain’s GDP also showed a better than expected result at -4.0% y/y vs. -4.1%. From a technical point of view, the Euro is now in danger of forming a double top, struggling advance above $1.50.  One must note that break below 1.48 could create a downdraft for the EUR/USD and lead to additional selling pressure.

The Australian dollar hit new highs for the year touching 93 cents against the US dollar.  Australian home approvals climbed by the most in six months in September, giving the RBA justification to hike rates in coming months. Though the central bank has pointedly used the word ‘gradual’ to describe the movement of interest rates in coming months, improving data continues to underpin speculation of sharper tightening.  The AUD/USD finished the week just under multi-year highs.

Pound came under pressure after the BoE’s King, commented after the release of the Quarterly Inflation report. The bank Governor talked about the benefits to the economy of a weaker pound and mentioned that it could help economic growth.  He also said he has an “open mind” on bond purchases, suggesting the BoE has not necessarily reached the end of Q/E.  The BoE said inflation is still expected to come in below the 2% target for most of the next 3 years before edging higher.  The Dovish comments had a negative impact on the sterling sending the cable down after posting hefty gains. Even though, fundamental data is pointing to further weakness, technical levels could hold strong, especially as the Sterling is now trading around prior resistance.

The week Ahead

Next week, a wave of data is going to be released, some of which will have a major effect on the intraday sessions.  On Monday the week will start off with US Retail sales and Business Inventories.  On Tuesday the market will need to absorb UK CPI and US PPI, Industrial Production and Capacity Utilization. During the week Australian Wage Price Index will be released, followed by UK BOE minutes and the closely watched US CPI figure. The number will be scrutinized by investors to make sure that inflation isn’t showing signs that could hurt economic growth. On Friday the BOJ will announce their interest rate decision. The bank is expected to hold at current levels of 0.1%.

We wish you successful trading!

Consumer sentiment and the U.S. trade balance are the limelight for the week. Traders and investors are worried that the weak consumer sentiment will curb the spending on the holiday season with less than 40 days to go.

The Reuters/University of Michigan index of consumer sentiment fell to 66 in November, down from 70.6 in October. Analysts had been hoping to see the measure rise as high as 72 in the latest report. The negative numbers in the consumer sentiment will likely to weight on the market going ahead of the holiday season. In the coming holiday season, consumers will likely to buy only the quality and essential stuff for the celebration as some of the companies are still firing people in this week.

The U.S. trade balance widened more than expected in September, with import prices rising faster than export prices. The trade deficit widened to 36.5 billion in September, compared with expectations for an expansion to $32 billion, according to economists polled by MarketWatch. The Dollar suffered immediately after the release of the U.S. trade balance report. While the Dollar suffers losses, the rest of the markets such as equity, commodities and gold gained on the “Risk-On” trade.

Overall, the trading volumes in the market were below average throughout the week. The market basically went flat after the great start on Monday. Traders and investors were seen traded lightly as they are looking for the direction from the APEC meeting in Singapore later in the week.

Major Events

• Orion Bank closed as the federal deposit insurance fund take $1 billion hit.
• U.S. Trade balance widens more than 18%.
• Gold surge to a high of 1128 on Globex on Monday 16/11/09

Economic Data

There will be a glut of important economic data coming out in the coming week. The October U.S. Retail sales will be in the limelight and set the pace and sentiment for the week. Economist estimate a 1% seasonally adjusted increase in sales for October, a strong rebound after a 1.5% decline in September.

The street will be watching the inflation number from the Producer price index and the Consumer price index. The market will likely to feel the pressure from the Fed, if the data indicate a much stronger inflation reading.

Housing Start and Homebuilders’ index will shed more light in the process of the economy recovery. The October reports will be significant as the buyer and builders did not know that the Congress will extend the home-buyer tax credit past its Nov. 30 expiration and expanded it to repeat buyers.

Manufacturing data such as Industrial production, Capacity utilization and Philly Fed Index will be on the tap.

Lastly, the street will look at the weekly jobless claims and leading indicators to guide them for the rest of the year.

Earnings

The third-quarter earnings had finally come to an end in the coming week with the mildest profit decline in two years, easily topping low expectations, even as revenue growth is still out of reach.

80% of S&P 500 companies have beat analysts’ estimates for the third quarter, according to Thomson Reuters. Profits dropped about 14%, far better than in recent quarters.

While the street had an easy third quarter earnings expectation, the fourth quarter is likely to be a different story. This holiday season will hold the key for the fourth quarter earnings.

Summary

The streets had been watching on the leaders, especially from China at ongoing the APEC meeting in Singapore. The U.S. dollar and the Yuan issues had brought up at the meeting. One of the China official joint a renown Hong Kong businessman warn against the risk of the Asia asset bubble due to the ultra loose monetary policy in the United State of America.

The market will be watching closely on the economic data and looking for direction from the Fed Speeches in the coming week. However, the market will give number one priority to the U.S. Dollar, regardless of the economic data.
In conclusion, the market will likely to go higher as long as the Fed favor the cheap credit and refuse to tighten up the monetary policy. The market will continue to stay volatile in the coming week, as there are many economic data that are schedule to release. Furthermore, President Obama will likely to say something from his visit to the East.

Will we experience Santa Claus Rally in this year?

Sector Rotation

Last week, Consumer Discretionary (1.08%) after several companies being upgraded by analysts. Materials (1.01%) took the second spot followed by Technology (0.74%), Health Care (0.44%), Consumer Staples (0.34%), Industrials (-0.22%), Utilities (-0.27%), Financials (-1.08%) and Energy (-1.55%).

Gold continue to be in the limelight. Gold seem to be unstoppable in recent weeks as it making new high for the year. Everybody seems to love gold recently as it is the best investment tool currently. Gold offer the protection of weak dollar, a defensive play by nature and also benefit from the commodities rally.

While many people are buying gold, I would like to point out that Gold trade might be overbought recently. Alternative to gold, silver is another option to be considered. So far, Silver had not been in the limelight and it is at a better buying price than gold. Thus, Silver seems to be the best alternative for Gold trading.

In conclusion, Silver will likely to benefit from the rise of the Gold.

Technical Analysis

The S&P 500 Index closed at 1093 last week. This indicated a gain of 24 points (2.4%) from the previous week’s close.

The market had to thanks the Dollar for another great run for the week. The dollar weakens on Monday after the negative comments from the official. Traders and investors gladly took it on stride as it bid the market furiously on Monday.

The market continues to ignore the bad economic data such as consumer sentiment and IBD/TIPP Economic Optimism. The market look set to close higher for the year of 2009.

Technically, S&P 500 Index had blast through the 20 moving average and the 1075 level convincingly, indicated that the bullish momentum is still very strong. However, S&P 500 Index fail to establish itself above the 1100 level, will cap the movement of the bull. This week the market will likely to test 1100 level again, with the objective of establishing itself above the psychological level of 1100. Looking at the chart, S&P 500 Index failed to close above the red color trend line on Friday, might indicate that the bull have exhausted from the great run off the March low.

The street’s optimism and confidence in the market remain high after the officials stated that the Dollar is still slightly overvalued in the world. Throughout the week, most of the articles have pointed a weaker dollar for the next couple of months.

Looking at weekly candles, the S&P 500 Index is suggesting a pause. The weekly candle shows an ugly shooting star that indicates a reversal or pause in the coming week. The psychological level 1100 will likely to act as a strong resistant for the market.

Looking at daily candles, we also have an ugly shooting star candle signaling that the S&P 500 Index looks like it might be starting the week slightly to the downside. The market will likely to be flat.

The immediate support levels are S1: 1075, S2: 1050 and S3: 1025.
The immediate resistance levels are R1: 1100, R2: 1125 and R3: 1150.

In conclusion, the market this coming week is likely to be very volatile as there are many economic data that are schedule for releases. The market sentiment remain bullish and this likely means that the market will test the psychological level 1100. If the market able to establish itself above the psychological level in the coming week, it will be able to surge higher for the end of the year. The market will have to find support from the weak dollar as it propels itself higher in year 2009. Therefore, the weakness of the Dollar will be the key towards the bullishness of the market.

[Lawrence Chua]

-Bulk of the evidence remains bullish
-IWM leads the pack
-SPY extends short-term uptrend 
-Past MACD divergences in SPY
-MACD diverges for QQQQ
-Autozone (AZO) firms at support
-Oracle (ORCL) recovers after sharp decline
-Qualcom (QCOM) bounces after hammer
-Comcast (CMCSA) firms after sharp decline
-Nvdia (NVDA) retraces 50% of prior advance
-Paychex (PAYX) firms at broken resistance
-Vulcan Materials (VMC) bounces on good volume

Intermarket Overview – daily

Intermarket Overview – weekly


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US Dollar Index – daily

US Dollar Index – weekly

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Gold Continuous Futures – daily

Gold Continuous Futures – weekly

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West Texas Intermediate – daily

West Texas Intermediate – weekly

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30-year Treasury Bond – daily

30-year Treasury Bond – weekly

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The street had begun to question the strength of this market going into the next twelve months. Conservative investors are still showing doubts in the market while there are a growing number of traders and investors who believe that the recovery story is on the roll.

Conservative investors supported their argument by pointing towards the weak unemployment in the country. They also pointed out that the top line earnings still did not meet expectations. Furthermore, they cited that the regional banks are still suffering and small business could not manage to secure credit from these banks.

The other camp of investors and traders think that the recovery is already on the way. They cited that the market tends to lead the economy rather than vice versa. They also pointed to the fact that so far in quarter, companies that have reported their earnings results posted better than expected earnings. Their arguments are backed up by the fact that there are still many sidelined monies that will eventually come into the equity markets due to the weakness in the Dollar.

Looking at last week’s performance, the market had a great week with 4 out of 5 days registering gains. This great performance was fueled by the better than expected earnings results from notable companies such as JP Morgan Chase, Goldman Sachs, Intel Corp and Google Inc.

Easy Monetary policy also lent a helping hand to fuel the stock market growth for the past few weeks to months. Investors and traders will continue to do the re-inflation trade as long as the Fed maintains the easy credit policy.

The economic data was rather mixed last week. Sentiment reports such as the IBD/TIPP Economic Optimism and Michigan Consumer Sentiment shows that the reports came out worse than expected. However, the stronger than expected results from Retail Sales, Weekly Unemployment Claims and Weekly Crude Oil Inventory help to support the market.

Major Events

• California bank becomes 99th to fail in U.S. in 2009
• U.S. Dollar hit 14 months low
• Fed Chairman Bernanke hints that more stimulus package might hit the main street.

Economic Data

Investors and traders have been weighing earning results against the growth of the economy. This week, there are some important economic data that will make an impact on the market.

On Monday, the NAHB is due to post its October housing market index. Tuesday will bring in numbers from the September PPI, housing starts and building permits. On Wednesday we have the Fed Beige Book. Thursday brings weekly jobless claims and September leading indicators. Lastly on Friday, existing home sales data for September will be released.

Earnings

61 S&P 500 companies having reported earnings so far, with 79% topping analysts’ expectations, 11% having matched and only 10% have come in below expectations, according to Thomson Reuters.

So far, the earnings results have come out similar to the last quarter’s earnings with many companies beating lowered expectations.

Next week, another 75 S&P500 companies are due to report earnings along with 11 Dow components.

Among the highlights next week will be results from Apple Inc. due after the close of trading on Monday. Tuesday will bring, among others, Coca-Cola Co., Dupont, Pfizer Inc. and United Technologies Corp. Wednesday sees results from Boeing Co., Freeport McMoran, Morgan Stanley and Wells Fargo. On Thursday, results are expected from 3M Co., AT&T Inc., Credit Suisse Group, Dow Chemical Co., McDonald’s, Merck, and Travelers Cos. Microsoft Corp. are due to release its earnings on Friday.

Summary

Another week of better than expected earnings from the major companies. It has been the headline for the week as Goldman Sachs, JP Morgan Chase, Intel Corp. and Google Inc. smashed earnings records amid the slow economy.

The sentiment on the street has been surging along with the market recently. Many traders and investors seem to be comfortable in putting money into this market as it establishes itself above the psychological mark 10,000. Many of them are putting money into risky assets than holding the ever-depreciating Dollar in the near term. The correlation between the rising equity price and falling Dollar seems so obvious that even main street is shorting the Dollar to buy every other hard asset in the market.

The weakening Dollar so far has helped to boost earnings for the Conglomerates and helped the growth in exporting industries. However, the problem with a weakening Dollar will be a bigger bubble in the asset market and the loss of faith in the currency. The biggest problem of all will be Hyperinflation not too far down the road.

The coming week’s earnings results are likely to be the same as the previous week, showing better than expected grades. The market is likely to maintain its grip above the major psychological levels.

In conclusion, the market should stay higher in the coming week as long as companies post better than expected earnings results. The U.S. Dollar will be the main focus going forward. As long as the Fed maintains a loose monetary policy, the market should push higher. Any hints of dissatisfaction with the weak dollar will make the market very edgy.

Sector Rotation

Once again the Energy (3.64%) took the top spot to lead the market higher for the week followed by Industrials (2.11%), Materials (1.46%), Consumer Discretionary (1.4%), Consumer Staple (1.31%), Health Care (0.76%), Utilities (0.47%), Technology (0.43%) and Financials (-0.91%).

Same story again with the weakness in the Dollar – it continues to spur the growth in the commodities sectors such as Energy and Materials.

Financial and Technology sectors took a beating due to the “buy the rumor, sell the news” trade last week.

In conclusion, the market will continue to surge higher as long as the Dollar remains weak. The sectors that are likely to benefit from the weak Dollar will be Energy, Industrial and Materials.

Technical Analysis

The S&P500 Index closed at 1087 last week. This indicates a gain of 16 points (1.5%) from the previous week’s close.

The market had a run of 4 consecutive positive days in this week. The push on Thursday was fueled by the euphoria of getting above the 10,000 mark on the Dow Jones Industrial Average.

Technically, there are no signs of slowing down the bull after such a great run since March and July. The market had managed to close above the 50 Day Moving Average since 15th of July. Apparently, the market always seems to be able to find a buyer to bid up the price from the dip of the 50 MA level.

Looking at the daily chart, the market is going higher amid a slower pace as compared to the early stage of the bullish surge. The S&P500 Index will face a tough job to climb above the 1,200 mark for the end of this year.

Meanwhile, the street’s optimism and confidence in the market continues to push higher after the Dow Jones Industrial Average managed to establish a close above the 10,000 mark.

Many folks are likely to be more comfortable in putting their money in the market now as the fear of a double dip seems to have disappeared recently from the news. Furthermore, the media has been creating a lot of fear with regard to the depreciating value in the purchasing power of the U.S. Dollar.

Many people believe that the Dollar is going to fall further and are trying their best to safeguard their Dollar through investing in Gold, Oil, base metals and even good quality stocks.

Looking at weekly candles, the S&P500 Index is suggesting some upside movement if it can break above 1100 in the coming week. The weekly chart shows a healthy bullish candle that might translate into further gain in the coming week.

Looking at daily candles, the S&P500 Index looks like it might be starting the week slightly towards the positive side. The candle formation, a “hammer” on the rising trend tends to point toward a consolidation over the next few days.

The immediate support levels are S1: 1080, S2: 1060 and S3: 1040.
The immediate resistance levels are R1: 1100, R2: 1150 and R3: 1200.

In conclusion, the market this coming week is likely to be bullish if it can break above the 1100 level. Earnings will play a big part in deciding the fate of the market. The U.S. Dollar will also play another big part towards the growth in the equity market. Overall market sentiment remains bullish but the economic view is still bearish. Thus, the strategy in this market is go with the bullish flow but maintain a clear mind ahead of the economy situation.

It would be wise to not commit more than 50% of your cash to trading now. Buying yourself some insurance in the form of cheap Puts may not be a bad idea should the market decide that it has had enough of this bull-run.

It is October, after all.

[Conrad Alvin Lim]

APPLE TESTS OLD HIGH — MARKET IS LOSING HOUSING AND REIT SUPPORT — CONSUMER DISCRETIONARY/STAPLES RATIO IS STARTING TO WEAKEN WHICH SHOWS MORE CAUTION — HERSHEY FOODS RISES WHILE SHERWIN WILLIAMS TUMBLES

Global equity markets soared last week, after strong earnings releases in the United States led the benchmark S&P 500 index to new highs for 2009.  The S&P 500 rose 16 points or 1.5% during the week, while the Dow Industrial index broke the psychological 10,000 level.  European indices such as the DAX and the FTSE made new highs for 2009, while Asian equity markets posted solid weeks after previously retracing from high level.

The markets started on a positive note on Monday, following the prior week’s rally in the equity markets.  The market leveled off on Tuesday prior to a wave of global economic releases and numerous earning releases from large caps. On Wednesday the markets shifted into high gear, after strong earnings numbers from Intel and JP Morgan (Tuesday evening and Wednesday morning respectively).

The markets also welcomed strong Retail sales on Wednesday which, excluding sales of autos and food sales, increased 0.5%. It was a welcome sign of consumer activity especially after one of the deepest downturns in history.  The headline number fell 1.5% in September with the end of the “cash for clunkers” program, but consumer spending rose in many categories, lifting hopes that the economic recovery is gaining momentum at the start of the holiday shopping season.

Global Economic Data Continues to Show Improvement

Also on Wednesday, Japan’s central bank held fast on interest rates, in an effort to spur lending and bolster the corporate-debt market. The ‘no change’ statement came despite recent improvement in the world’s second largest economy.  BOJ Governor Masaaki Shirakawa indicated that the central bank is still leaning towards stopping the purchasing of corporate debt as scheduled at the end of the year, though no formal decision was announced on the issue after a two-day policy board meeting.

In the United Kingdom, the number of people claiming unemployment benefits hit its highest level for more than 12 years in September, but the monthly rise was smaller than expected, hinting that the labor market may have seen the worst.  The number of people claiming Jobseeker’s Allowance benefit in September totaled 1.63 million, the highest level since April 1997, the Office for National Statistics said.

The euro zone saw its fourth straight monthly increase in industrial output in August, providing further confirmation that the region’s severe recession ended around the middle of 2009.  Industrial output in the 16 countries that have adopted the euro currency swelled 0.9% in August from July. The production data eased worries that the euro zone might slide back into contraction later this year or next, though some economists warned that growth would likely slow once government stimulus programs run their course.

The Pound Climbs Higher, USD/CAD at major Support

It was an interesting week for the sterling, climbing dramatically higher against the U.S Dollar. The Bank of England had a positive effect on the Sterling last week as Paul Fisher released an optimistic view on the UK’s situation, sending the GBP/USD six big figures higher for the week. Fisher said that the central bank may pause in its QE (quantitative easing) program and mentioned that he has confidence that the program is working as hoped. This came after a positive surprise in the jobless numbers. Even though the fundamentals for the pound are still negative, with interest rate differentials favoring other currencies, investors preferred the undervalued currency driving it up for the week. Next week’s Bank of England’s minute may ruin the party as analysts are expecting the bank to lay low for the moment and let its recent policy leak through the system.

From a technical point of view the GBP/USD bounced off trend line support and has now headed into range. Even though a minor trend line lies ahead, one could expect consolidation on this pair around current levels.

Similar to the British pound, the Japanese yen reversed during the course of last week.  The BoJ’s upgrade of the economy this week (the government assessment was more pessimistic) does not alter the view that BoJ rates will remain extremely accommodative for an extended period making the yen a primary funding currency.  The USD/JPY broke above its downtrend line (around ¥89.90) drawn off the dollar’s Aug peak, after establishing a base around ¥88.00 causing the 5 and 20 day moving averages to cross to the upside.  Yen losses are likely to shake out momentum traders that took advantage of the yen’s August and September rally.  With the yen uptrend abating, momentum traders, who pay to be long yen against higher yielding currencies, are likely to trim positions triggering further yen losses.  A break above ¥91.70 could present a long position to ¥92.90.

The Bank of Canada is scheduled to meet this week and is expected to stick to its previous statement; leaving rates unchanged thru mid-2010.  Concerns about C$ strength are unlikely to lead to an intervention, especially given limited potential for intervention success. Even though the chart is trading on weekly support, further Dollar weakness together with rising oil prices could lead this pair lower in the long term, to test support level 2.

The Week Ahead

Economic data will continue to have an effect on the intraday sessions this week. In the U.S the market will be watching construction output in the EMU and US NAHB housing index, two events that could cause movement.  Tuesday will also be an interesting day as the Bank of Canada will announce their interest rate decision.  With Australia paving the way, recently raising rates, the markets could be in for a surprise.

Furthermore, the second half of the week should be exiting as the US beige book, UK retail sales and Canadian retail sales are all expected to be released.  Friday’s session will be influenced by the big man’s comments (Ben Bernanke), mentioning the Fed’s outlook.

-Bulk of the evidence remains bullish
-SPY surges to new highs in October
-S&P 500 enters retracement zone on weekly chart
-NYSE AD Line hits new high
-VIX moves to new low
-MACD stays bullish despite divergences
-Russell 2000 and S&P 100 exceed September highs
-Bullish percent indices are all above 50%
-Dollar records yet another new low
-Gold remains bullish, but short-term overbought 
-Oil breaks channel resistance
-Bonds test key support zone