Technical Tuesday – Topping Or Popping?

Was it only just before Halloween that we were last enthusiastic about possibly breaking over our 5% lines?  It seems so long ago – yet here we are, on Election Day (well, interim election day, which hardly counts) all enthusiastic again about how great everything is – what with Europe being fixed and all…

I know, rather than Election Day, it seems more like Groundhog Day (the movie, not the actual day when Americans think a large rat can determine the weather) and not just because we keep electing the same idiots to office over and over and over again but because we are led through this market cycle over and over and over again – wondering – when will it ever end?

Up would be good – Hell, DOWN would be good – anything but dipping back into our range for another few months of nothing in particular.  Yes, I know I’m the one who called the range and we’ve had tons of fun playing the range but, come on – it’s BORING!   Just 100 lousy Dow points and we pop that 5% line and another 100 and we’re really getting somewhere – is that too much to ask?

Sadly, it just might be.  Let’s ignore the other 8,970 stocks and talk about the Dow.  We need 200 points there or about 1.5% and those are our large-cap Industrials like AA, BA, CAT, CVX, DD, GE, UTX and XOM and our Consumer Product giants like DIS, HD, JNJ, KFT, KO, MCD, MMM, MRK, MSFT, PFE (we consume A LOT of drugs!), PG, T, VZ and WMT, Tech Titans like CSCO, HPQ, IBM and INTC as well as key Financials like AXP, BAC, JPM and TRV.

Hmmm, come to think of it, that’s not too many actual industrial companies in the Dow Jones Industrial Average, is it?  A reflection of the sad state of American industry, I suppose.  Still, it’s the index we’re stuck with and, if we are going to believe they have a good shot at making that 5% line then we have to believe they are, as a group, undervalued by at least 1.5% – especially, CAT, CVX, IBM, KO, MCD, UTX and XOM, who are the heavy-weights of our price-weighted index.

XOM and CVX are up considerably in the last month due to a 25% jump in the price of oil – based mainly on the same old rumor that we will be bombing Iran any minute now (always popular around election season to send the Conservatives into a feeding frenzy).  

Is $100 oil the key to market Nirvana?  Gosh, I hope not.  Well how about the Consumer Sector?

Er…  No, I guess not.  OK, moving on then – I guess we have to set our sites on the Industrials, who benefit most from a weak Dollar (also good for the Financials) to boost our exports.  Funny how it always comes back to the Dollar, right?  

Well, that makes it a very tough call as the Dollar is right in the middle of it’s trading range, between 74 and 80 and, while that may not seem very wide (less than 8%), it’s been enough to cause 20% swings in the market from the August low to the October high and here, in the middle of the range, is why we lean towards "Cashy and Cautious" no matter how excited we are that Europe is fixed — again.  

So let’s be very careful out there and watch our big chart levels closely, we are short on oil and we’ll want to press our bet on a test of the $38 line on USO ($97.50 oil) but we’re going to be quite happy to fall back and reload at $100 (USO $39) as that would just be silly to expect our Planet’s 140M unemployed to pay that much for fuel, isn’t it?

I’m on vacation today but watch that 77 line in the Dollar – if they can’t break it, I just can’t see us going higher.