Gearing Up For The Slow Month Of August

August is typically a slow month on Wallstreet and the end of July can be a time where professional money managers square up some positions that give them concern before they head off to vacation. This squaring up of positions doesn't mean irrational or violent swings in the markets, but it could mean that companies in what are considered questionable sectors could see some additional selling. The chances of professional investors and money managers taking on more risk heading into August is slim, more likely this is a time to eliminate risk.

One area that comes to mind is Oil. Since the futures market is much more leveraged when it comes to trading, expecting the trend to change and a strong rally to ensue is less likely. There have been talk by the experts on television that technology stocks should benefit the most from oil's decline as money rotates to sectors with stable earnings. Below is a chart of Light Sweet Crude followed by a chart of the Nasdaq 100 Index.

Light Sweet Crude(click to enlarge)

NDX - Nasdaq 100 Index

While oil has had a strong pull back after a great run, it is still in a strong uptrend. Until oil rallies again and fails to make a new high, money will most likely not rotate into other sectors with any strong momentum. One variable to watch effecting the price of oil is the value of the U.S. Dollar. The chart below is of the U.S. Dollar Index. If the dollar starts to weaken again, it could be the spark for another up move in oil.

U.S. Dollar Index

The chart below shows that momentum could be slowing for the down moves experienced this year. It doesn't mean that the market is turning, it does mean that money is looking for advantageous places to go.

NYSE Composite Index(click to enlarge)

One alternative view is that momentum is slowing, it is just that the financial stocks can only go so low, some are counting the days until they hit zero.

Elliott Wave Special Offer

Dear Friends,

In my email inbox today, I got a message from our friends at Elliott Wave International. In it, they deliver an update on the FreeWeek they’re running for U.S. Stocks, Bonds, Gold, Silver and more (there’s still time to take part: click here).

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In the email, I was reminded about a forecast I’d almost forgotten, one that was delivered by the company way back in July 2005:

"This time, there’s no mistaking who the Enrons of the bust phase will be. They will be the firms now peddling adjustable-rate, no interest/nothing down and assorted other types of subprime mortgages."

– The Elliott Wave Financial Forecast, July 2005

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There’s still time for you to read what Elliott Wave International sometimes calls “tomorrow’s news today” right now during their FreeWeek (click here). If time is an issue for you, you can even print out the publications before FreeWeek ends and read them at your leisure.

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Mortgage crisis pales compared to Medicare crisis

By: Dr. Barry Sears

Right now the mortgage crisis is the top economic concern of most Americans. In fact, today the average mortgage debt for a typical family is about $90,000, which is owed to someone. But new figures about the debt the US government has piled up in terms of unpaid obligations (primarily for Medicare) are far more disturbing. These obligations can only be met by increasing taxes. Today the average debt in the form of unpaid taxes per family is more than $500,000. This is a debt load that makes virtually every family in America bankrupt. This potential debt loan will only get worse in 2011 when the first baby boomers reach age 65 and can begin to access the virtually free medical care that Medicare provides. The unfunded liabilities of Medicare are based on the assumption that people are going to be a lot sicker in the future. If you change that dynamic, then the economics also change. The key is Zone Diet coupled with high-dose fish oil. Together they reduce the inflammation that drives chronic disease. The more that people take control of their health future, the less they have to rely on government largesse. However, time is running out. And if nothing is done, then in three years we will wish for the good old days when trying to figure out how to pay the mortgage was a family’s biggest concern.

Dr. Sears Webpage

The Larry Kudlow Pinstripe Indicator

After having watched and listened to Larry Kudlow in amazement for years, a hidden indicator has finally been spotted. It was there in front of us all the time. This indicator has to do with the width of the pinstripes on his suits. If he is wearing a conservative tight small pinstripe suit with narrow widths, what he is talking about might have some value. Might is the key word. However, if he is wearing one of his wide stripe suits, beware because the "BS" indicator is going to be flashing in the red for sure.

About six weeks ago when oil was under $120, Larry was saying that if oil could have just a 10-15% correction, the Dow and S&P 500 would be off to the races ready to make new highs. Did anyone really think that if Crude went back to $105 from $120 that would be a reason to put on the rally cap? I guess some people did and still do. It is easy to refuse to view the price of oil as something that is here to stay. With gasoline at $4.30 a gallon, energy is now a burden of ever increasing weight. So if oil has a correction later in the year from $150 to $120, Larry will tell us it is time to load up the canoe for the new bull market, again.

Light Sweet Crude with linear regression channels(click to enlarge)

S&P 500 Index with linear regression channels(click to enlarge)

S&P 500 Index Opening Range Levels(click to enlarge)

Prechter Releases Free Resources on What to Do in a Recession

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In fact, here’s a little secret for you: When you measure the S&P 500 in a basket of commodities rather than the U.S. dollar, you will see it has declined as far as 75%.

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Prechter’s outlook is more than unconventional. And it’s more than contrarian. It’s a crystal clear and downright frightening explanation of where the markets are today, according to a man that’s studied them for more than three decades.

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