Tuesday, July 07, 2009

Market outlook and commentary July 8th and beyond

Today's close marked the lowest closing price for the Dow and S%P 500 for 2 months and it is clear that the Indexes are going lower, as today's volume spiked for the previous day. The drop continues to hug the downtrend line of the 2 year chart of the Dow which I posted back on June 25th. The Dow closed down 160 points today to 8,163 while the S&P 500 closed at 881.The Put to Call ratio closed today at 1.01 after hitting an intraday spike to 1.14 at the first half hour of trading. This represents 3 of the past 6 days where this Index was over 1.00 and it has happened every other day. If it continues in this short pattern, tomorrow would see it back off to about 0.81-0.88. The market could still drop some but I believe this continual decline will happen slowly, rather than precipitously. The Dow is now at the 8100 level and the S&P 500 has gone as low as 878 today. Remember Art Cashin said on CNBC earlier that 877 is a key support level and if we go below it we are headed down to 840 or 800 on the S&P.

My ETF Ultra Short, symbol TZA has now risen to $25.63/share and continues to rise slowly. Those who bought this as low as $20/share are now up 25%. Tomorrow these ETF's will all have a reverse split which should not affect the total value you have invested but the share price will be significantly higher with a 10 to 1 reverse split on some and 20 to 1 on others.

Not much talk of Green Shoots lately and rather, the conversation has now moved to focus on not just earnings reports but more exactly future estimates by these companies. If they set the bars lower, it will confirm that recovery does not look like it will happen as thought just a few months ago. This can and should cast a more negative tone to the market for the next few months. Adding to the conversation and discussion is the fact that VP Biden and Laura Tyson have independently said they might consider a second stimulus. That too will add to the negative tone.. Again, I remind you to preserve capital so that a few months from now all the gains you made the past 3 months aren't all wiped out. If your portfolio has gained back 25-40%, as some have, it is not a sin to take the profit and sit on cash, waiting again to buy back near the lows in the 7,000's on the Dow or lower.

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