Market outlook for May 21, 2009: "DOW"n again! :) UPDATE #2

Looking at all the indicators this morning in pre market, they point to a down market today. I played around with Capitals in the title to signify DOW and down. Hope you got it when you read it. Starting with European stocks, all Indexes are down 1.5-2.3% this morning. Same is true for Asian stocks last night. Gold has risen to $940/ounce. Oil yesterday closed over $60/barrel and all 3 US. Indexes, the Dow, Nasdaq and S&P 500 all dropped sharply in the last hour of trading, following the same pattern the day before. But yesterday's drop was much steeper than on Tuesday. The Put to Call ratio closed at 0.86, while the VIX closed at 29.03 after hitting a low for the day of 26.57.

What is apparently driving the market lower? It is the newly released FOMC Minutes of the meeting of April 28th and 29th, which showed the Fed expects the economic outlook to be worse than it did in January. I will show some highlights here, but if you want to read the comments for yourself click on this link and read them for yourself in entirety. Make sure when you go to the link you not only click on the Statement but actually download the 344 KB file. Here's some excerpts and summary conclusions from the report:

Federal Reserve officials, who see possible signs of “stabilization” in the U.S. economy, signaled they’re not convinced those improvements will persist. They saw “significant downside risks” to the outlook for the economy, with the global financial system still “vulnerable to further shocks.” They forecast a deeper U.S. contraction than they foresaw in January, with a 9 percent unemployment rate lasting through the end of 2010. The jobless rate may remain as high as 8.5 percent in late 2011. A firming in consumer confidence, industrial production and other areas of the economy indicate the recession may be easing. Banks are still struggling with rising loan delinquencies in a variety of categories. Nearly 8 percent of residential real estate loans were delinquent in the first quarter, up from 6.3 percent in the fourth quarter, according to seasonally adjusted Fed data.

So if the economy is counting on consumer confidence recovering, it seems to me the unemployment picture will not improve until jobs do. That may be the same conclusion other investors have and why they see a pull back in order, hence al the markets dropping.

Additional news is feeding the concern. Here are a few headlines to add to the worry:
- Four Accused of Plotting to Bomb New York Synagogue (As if we needed this very real threat! Thank God the FBI caught them)
- U.K. May Lose AAA Rating at S&P as Government Debt Approaches 100% of GDP (How about a whole country losing its rating. I told you it was worse in Europe)
- Greenspan Says U.S. Banks Still Have `Large' Unfunded Capital Requirement (As Reagan would say, "There he goes again! Do we need this from him right now?)
- Weekly Jobless Claims down 12,000 to 631,000 and Continuing Claims rose to a new high at 6.66 Million unemployed. (Does the number 666 scare you? It should!)

Today I am planning on buying more TZA at these levels and may add more FAZ to my current shares. Both are Triple Short investment as it seems to be the only smart move to me right now.

UPDATE #1: 7:00am PST
The Put to Call ratio in the first 1/2 hour of trading rose to 0.96. Gold has hit $940/ounce as well. The Dow is now down 120 at below 8,300 and the S&P 500 is below 900 and at 892. Nasdaq got as low as at 1,704 but is staying above 1,700 level so far.

UPDATE #2 12:00pm PST

With one hour to go, the Dow is down about 190 and Gold has risen to close at $953, up $15/ounce. The Put to Call ratio hit a high today of 1.11 after 1 hour of trading. Currently it has pulled back to 0.98 at Noon PST. And lastly the VIX has moved up to 32.64 and reversed the downtrend it has had the past few weeks. We are looking at a 3 day weekend because of Memorial Day weekend and many are using the long weekend to take profits so expect this decline to continue tomorrow.