Market outlook Jan. 16 2009: Is this the Obama lift?

Is this the Obama lift we experienced yesterday and will it continue? It could be but news continues to be very dismal and for most investors it is very difficult to part with dollars right now and put them to work in the stock market and into an uncertain future. The psychology of Americans is still fear based and greed seems a long way off as survival reigns the day. This is true except when it has come to Banks benefiting from TARP funds from us, the taxpayer. Things look worse to me now than they did a month or two ago. The reason is that more information is now known that should give us pause.

For one thing, we now know that the first release of TARP funds didn't work to stabilize the banking system, because Bank of America and Citigroup are needing more money and are trying to restructure. Remember Citi was given a guaranteed 300 Billion in loans from the government and now they are still in trouble. Bank of America said they didn't need TARP money and now are asking for it and taking it. To me this all means that while Billions sounds like a lot of money, and it is, the magnitude of our financial problems must be in the Trillions and that is very scary, as WE MAY NOT HAVE ENOUGH MONEY TO SOLVE THIS PROBLEM AND STILL HAVE OUR CURRENCY HAVE ANY INTRINSIC VALUE. There are cracks in State governments financial well being and some are amassing huge debt. Pension funds aren't being funded like they used to be for employees and the Governments Insurance of Pensions is in trouble. Governor Douglas from Vermont says that it looks like there will be increased unemployment for at least 2 years and States need to plan for this. Did you read that correctly, 2 years minimum?! Yes, all the while many have said the recovery will happen in the second half of 2009. As the Godfather would say, "Forget about it!"

So even an Obama rally today or next week will inevitably give way to the reality of our current and expected future economic condition. It will be difficult to time the bottoms and tops of the markets but I am convinced we are in a long term trading range of 7,300 to 9,300 on the Dow and 750 to 950 on the S&P 500. So when we don't go near the extremes of these ranges don't fight the trend. To put it simply, the risks of market indexes going down are much greater than they are going up. If you are fortunate enough to catch the extreme of the bands in your trades, you will be rewarded with 25% gains on market rises and 21% on market drops. These are worth waiting for even if you must wait an entire year to complete the round trip of the trade. Worst case you will do a 10% trade in either direction if you get close enough. For the Dow, that would mean buying ETF Longs at 8,000 and selling them at 9,000 and buying ETF shorts at 9,000 and selling them at 8,000 on the Dow, For the S&P 500 it would mean buying ETF Longs at 825 like SSO and selling them when the S&P 500 hits 900.

Hope this helps you think about these trades in a little longer timeframe. I would love a rally for Obama so let's all celebrate the hope of our future with a man who has the right temperament, right mindset and is in good physical condition. We all need him to be successful so give hope a chance. Good luck Mr. President. We're pulling for you and your team and let's not let him down as citizens with our tend to be negative when we need to help turn this around.

Markets are closed Monday for the Martin Luther King holiday. See you back here soon.