Friday, June 25, 2010

Market Outlook June 25th

GDP was revised downward for the first quarter, from 3.0% to 2.7%. Financial regulation was passed and the initial reaction was that Bank stocks rose about 1 to 2%. Is this tough reform? No, most will agree. But why not? Mainly because Republicans continue to filibuster everything proposed by the Obama Administration. They don't want Financial regulation and the industry has bought the Congress and the Senate. They have lobbied so much and got their way. this Bill does not have the teeth that would keep us from being vulnerable to shenanigans of Wall St. again. What will it take to stop Wall St.? Something they can't control, a market Crash and a Depression. That is where I believe we keep marching towards. We are destined to repeat history's lessons we seem not to have learned.

I have some friends on Wall St. and the rank and file employees say they want tough Financial regulations but their bosses are addicted to the obscene salaries they give themselves. It reenforces the saying, "power corrupts but absolute power corrupts absolutely!" I guess it is the negative part of being human.

Even though Futures had looked positive after the news was announced on Financial regulation being approved, the markets opened slightly up but then turned negative and is where they are now. We are headed lower and lower, each day like a trickle. Nothing alarming to cause a panic, but a steady erosion of prices, as despair creeps into the markets. The Republicans in the Senate are united and for 8 consecutive weeks don't seem to want to help extending the benefits of the Unemployed. They continue to Filibuster them getting an extension in unemployment benefits. That's well over 1 Million people will not get any money after June 30th. Watch them lose their homes and continue to increase this decline to an eventual Crash.

I had a personal experience growing up around this issue. My Dad worked as a Tailor in the garment business back in the 1940's. He made Men's suits and Top Coats. He worked very hard in the Spring and Summer in a sweat shop with temperatures reaching in the upper 90's and low 100's because of the Steam presses. That is the reason they called it sweat shops. Well when September came, my Dad would be laid off and he would have to go collect unemployment benefits as there was no work for a tailor. I used to go to the Unemployment office and stand in line with him. Thank God for those benefits as I don't know how we would have had money to pay the rent or buy food. It wasn't charity, as everyone had to pay part of their income for Insurance so there was money to pay them when they were laid off. So it was money earned and set aside for them when they were let go from their jobs.

So when I see Republicans not wanting to approve benefits for those unemployed, not because of anything they did, but what the wealthy cats on Wall St. created by gaming the financial system for their own benefit, I get real angry. And yet, these same Republican Senators are trying to get tax breaks for the top 100 wealthiest of us in this country. This is immoral. We deserve a Crash as it is the only way even they will get hurt. It levels the playing field, cleans the gene pool a bit, and teaches a lesson to those who have to understand the plight of those who not only don't have but have never had but crumbs. As Americans, we get the government we deserve, because we don't step up and insist on better leadership, no matter if they are Republicans or Democrats or Teabaggers or Independents. It's hard to just blame "them", when we vote for "them"!

Well the market had gone down 13 when I had started to write this and now is up 17 as I finish it. Remember the overall trend will be down with some spurts up but a steady decline when you look at the charts. First we will break below 10,000 on the Dow in the coming days and then below 9,800 in weeks and then below 9,500 and then the Fall we see us testing 9,000 or lower. Drip, drip, drip! We are in a Bear Market!

Here are some headlines which should give you pause. Click on each to go to the story:
States of Crisis for 46 Governments Facing Greek-Style Deficits

Banks ‘Dodged a Bullet’ as U.S. Congress Dilutes Trading Rules

Economy in U.S. Expands 2.7%, Less Than Forecast

Leaders differ on how to nurture a global recovery

U.S. Durable Goods Orders Crash With Aircraft

Now the Dow is down 22 points and forming a "W" pattern as the chart above shows. This means we are headed lower today. Come back for Updates during the day!

Update: 7:45am PST

I just learned that the Russell 2000 is going to be rebalanced today. Some stocks added and some taken out of the Index. What effect this will have on TZA will be negative as when they rebalance they are trying to improve the Index quality and this means that TZA will go down while the Russell goes up somewhat. That is why all the other major indexes are down but the Russell is up right now. It's not by a lot, but it explains the discrepancy. This rebalancing will create only a temporary rise of the index. Eventually all stocks and all Indexes will be going lower. It's just a matter of time, but time is what Options are all about, aren't they! I think October TZA Calls will be OK, but July ones may be affected negatively and not recover in time.

Update: 8:10am PST

We have formed 2 "W" patterns and both slant lower. Even if the market rally's somewhat from these levels to me there is a 90% chance the Dow will go lower today to complete this lower slant. Time will tell.

Update: 9:30am

We have not yet satisfied that 2nd red line "W" pattern yet, as shown in the chart above. In fact, we have formed a 3rd pattern and it is slanting up. I still believe we will go to a new low before the close today. This is not a certainty as about 10% of the times it does not follow what is expected. But I am going to stick my neck out here and say I think it wil go back to the low today, especially going into the weekend, where a storm is brewing in the Gulf and threatens Oil recovery efforts. The low of the day coincides closely with S1 for the Dow, which is at 10,088.

Update: 10:35am PST

The Dow has moved up now but the Russell 2000 is soaring because of Rebalancing and the window dressing the big boys are doing at the end of the Quarter and 6 months into the year. Also, TZA is going to have a reverse split next week. This is affecting the Russell and the price of TZA which is now below $7.00/share. I can't predict what this will do for the Options except it ads another level of uncertainty to things.

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