Saturday, July 31, 2010

5 Year overview of the Dow and S&P500 (UPDATE)

I have posted 2 charts this morning showing where we are relative to the longer term market trend because many of you are wondering whether we are going back up to new highs in the market. The news outlets are full of people who are predicting just that and say that the worst is over and we are ready for as breakout to the upside. My data analysis suggest that is not going to happen any time soon. I believe we are now most likely to drop over the next few months and into October, as we end Q3.

Let's look at both charts above for a moment. There are similarities in the pattern of both charts and I have added a blue downtrend line for each, which we will not go above, and also a red resistance line, also a barrier to moving higher.I know looking at a 2 month chart gives you a sense we might be going up over Dow 11,000, but I am confident that is not going to occur. We closed at Dow 10,466 yesterday. The last 4 days have been down in the Dow, not up and while yesterday's market action for the Dow was impressive, as the Dow was up much of the day in the face of headwinds caused by a lower than expected Q2 GDP number, it still had negative distribution if you look at the Volume chart.

I have been disappointed that so many have been fooled by the media and aren't really giving as much weight to the economic data for the past week. There were many negative readings for the week if you check the previous post. This is not an economy in real recovery. It is weighted down by the Consumer not really seeing things better from their day to day experiences. Until that changes I am sorry but the economy won't really recover as we hope it will. We are unfortunately in this mess for years to come. My guess at least 5 years from a Housing and Jobs point of view. More foreclosures are lining up this Fall, as Adjustable Rate Mortgages must refinance to Fixed Mortgages, over the coming 6 months to a year and which were set 5 years ago. Many of these people borrowed on their equity and assumed prices would continue to go up as they had for many decades. Unfortunately this group is most likely most vulnerable to foreclosure as they are retired people who borrowed the equity on their homes and now their homes are under water. It is so sad.

UPDATE: Sunday 6:00pm PST

I changed and updated the original S&P chart from what was posted. Notice that on the S&P chart I have drawn 2 blue lines. Notice that when I connect the #2 Blue line under the last "W" pattern and extend it back over the 5 years, you can see it touches all the low points, this before the market had problems in 2008. To me the use of software program trading has resulted in patterns like this. It isn't just coincidence this happened. It is programmed to. This 2nd line does not show a similar analysis for the Dow. It is likely we will stay bound in the S&P between these 2 blue lines although the #1 blue line is not as much resistance as is the solid red horizontal line which crosses the axis at 1,190.

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Friday, July 30, 2010

Summary of Projections versus actuals for economic data released this week

This is a summary of the economic data released this week along with what the expectations were for this data.

Monday, July 26th
10:00am EST. New Home Sales for June. Forecast is 295K and the prior month reading was 300K.
Actuals: 330K

Tuesday, July 27th
10:00am EST. Consumer Confidence for July. Forecast is 51.0 and the prior month was 52.9.
Actuals: 50.4

Wednesday, July 28th
8:30am EST. Durable Goods Orders for June. Forecast is +1.0% and the prior month was -0.6%
8:30am EST. Durable Goods orders ex Transportation. Forecast is +0.5% and prior month was +1.6%
2:00pm EST Fed's Beige Book.
Actuals: Durable Goods -1.0%
Actuals: Durable Goods ex Transports -0.6%

Thursday, July 29th
8:30am EST. Initial Jobless Claims. Forecast is for 450K and the prior week was 464K.
8:30am EST. Continuing Claims. Forecast is for 4.550 Million and prior week was 4.487 Million
2:00pm EST. Fed's Beige Book.
Actuals: Initial Claims 475K
Actuals: Continuing Claims 4.565 Million

Friday, July 30th
8:30am EST. GDP for Q2. Forecast is for 3.0% and Prior was 2.7%. Market is expecting 2.5%.
8:30am EST. Chain Deflator for Q2. Forecast is 0.7% and prior period was 1.1%
8:30am EST. Employment Cost Index for Q2. Forecast is 0.5% and prior period was 0.6%
9:45am EST. Chicago PMI for July. Forecast is for 58.5 and prior month was 59.1
9:55am EST. Univ. of Michigan Sentiment for July. Forecast is 67.5 and prior month was 66.5
Actuals: GDP 2.4%
Actuals: Chain Deflator 1.8%

The remaining data will be added as it becomes available today on Univ. of Michigan Consumer Confidence.

Actuals: Chicago PMI 62.3
Actuals: Univ. of Michigan Sentiment 67.8

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GDP disappoints for Q2 (UPDATE)

GDP came in at 2.4% for the second quarter. I expected this but experts had expected 3.0%. Dow Futures dropped about 80 points. GDP Deflator came in at up 1.8%. They revised Q1 to being up 3.7%. from the previous data of 2.7%. So we have gone from a 3.7% in Q1 to 2.4% in Q2. This proves GDP is going down and making the case for a double dip recession more certain. Finally we have some data which confirms the disconnect which has been going on lately that there is a disconnect between the stock market and the reality of the economy. Now comes the spin from the talking heads on CNBC or just changing the subject so we don't focus too long on the GDP disappointment. Remember our debt as a percentage of GDP is what determines whether we can borrow money or not. This hurts the case for cheaper borrowing to fund our debt.

In just a little while this morning, we will get the Univ. of Michigan Consumer Confidence number, which should be like a hammer to this market. The number will come in much worse than originally expected. The market should not be up today as there is no positive way to look at this data. All the spin in the world can't put lipstick on this pig. The big question is how low the market will go today. It should be significant given the real data.

Come back later for the Updates on Consumer Confidence posted as part of this post. Look for the additional word UPDATE in the title.

Consumer Confidence for July came in at 67.8 versus expected number of 67.5.

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Thursday, July 29, 2010

Initial Jobless Claims and Continuing Claims

Well the data is in and was reported for Initial Jobless Claims of 457,000 for the week ending July 27th, down 11,000. That is not as good as the 450,000 which was expected. The data reported the prior week was 464,000. Continuing Claims rose to 4.565 Million from a previous week's data of 4.464 Million. They said the increase could be because of the approved extra unemployment insurance benefits, which were approved by Congress after a 2 month prolonged filibuster by Republicans. The final vote to approve came after the Senator for West Virginia was appointed to replace Sen. Robert Byrd's after his death.

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Wednesday, July 28, 2010

Durable Goods Orders decline unexpectedly

The other shoe dropped this morning as Durable Goods Orders for June came in at -1.0% compared to May's data of -0.6%. Expectations were for a positive +1.0%. They revised May's data downward, as well, to -0.8% from -0.6% and that isn't good either. If you look at Durable Goods Orders less Transportation, the data came in at -0.6% compared to May's data of +1.2%. This is not good news for the economy nor for the stock market.

So couple yesterday's Conference Board's Sentiment Index data which was also disappointing at 50.4 versus an expected 51.0 and a previous month data revised of 54.3, and you have 2 sets of poor numbers if you wanted to see a strengthening economy, to help solve the Unemployment problem. Things are pointing in the wrong direction. Instead of getting better we are getting worse. There is no other way to be realistic about these numbers.

I will be out this morning and will not see the market's reaction until I return, but Futures are dropping in pre-market, the Dow Futures are down 30. They should be down a lot more in my view on this data. European markets are still positive after the reporting our news on Durable Goods Orders. Be looking for the positive spin they try to put on this on CNBC. But you believe the spin at your own peril. I notice that CNBC is sprinkling in good earnings reports to lessen the focus on Durable Goods data.

Be sure to leave a comment below, if you want to add anything to the conversation or the spin.

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Tuesday, July 27, 2010

Amazing: France declares war against al-Qaeda

So I just saw this article posted on and was so surprised I had to comment. Where has France been these past 9 years? Doesn't it know the Brits have been fighting Al Qaeda with us and so has NATO forces. I know the President of France is reacting to the killing of a humanitarian worker from France who was killed in Niger. But Al-Qaeda has been killing people from all over the world for a long time. I'm not saying I don't appreciate our allies really being committed to this, it's just a surprise it took 9 years for a Declaration like this.

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More on Consumer Confidence data for July

In order to put the data in perspective here are some facts on Consumer Confidence data released today by the Conference Board:

The Conference Board, a private research group, said Tuesday that its Consumer Confidence Index slipped to 50.4 in July, down from the revised 54.3 in June. Economists surveyed by Thomson Reuters expected 51.0. Just to put the number in perspective, if you look at a chart of the data from Market Harmonics charting it shows that Consumer Confidence has stayed relatively low and the same since June 2009. These are the facts. To look at their chart click here. It has not been updated with the data released today, but if you look at the last point, which should be revised upward to 54.0, not 52.9, and then see where 50.4 is on the axis, you can clearly see we are in the same range we have been in for over 1 year and that we are really not feeling better.

The decline follows last month's nearly 10-point drop, from 62.7 in May, which marked the biggest since February, when the measure also fell 10 points.

One component of the Consumer Confidence Index, which measures how people feel now about the economy now, declined to 26.1, from 26.8. The other barometer, which measures respondent's outlook over the next six months, declined to 66.6, from 72.7 last month.

This is not good as Consumers represent 70% of the economy. Americans are reluctant to spend any money on any non essentials it seems, understandably with the jobless rate near 10%.

The Conference Board survey is based on a random survey that was mailed to 5,000 households from July 1 to July 21. It is relevant and a leading indicator rather than what the reported GDP number that will be released Friday, which is a lagging indicator. Tomorrow's Durable Goods orders while can be a leading indicator, it doesn't mean that the Sales will be there but rather merely a build of some inventories so remember that tomorrow when the data is reported at 8:30am EST.

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Case-Shiller Index shows an Improvement

The 20 City Case-Shiller Index showed an improvement in housing. The number came in at 4.61%. What was expected was 4.0%. This indicator is a 2 month lagging indicator but in this euphoric market it still moved the Futures up to Dow +66. Market is just opening now.


Monday, July 26, 2010

Puts and Calls Total Volume and what it means to the next market trend

Ok, for those of you early birds for Tuesday morning, I have compiled some interesting charts on the Total Volume of Puts and Calls from January 2009 to the close of the market today. The first chart is of the total of all Puts and Calls. The second chart is of all the Calls only. And the 3rd chart is of all the Puts only for this time period. What is fascinating to me is that the overall drop in total volume seems to be more related to people buying less Calls, than Puts. If things are getting better in the economy and hence the market, which is supposed to be a leading indicator, wouldn't you expect there to be more purchases of Calls. That's not what the charts show. The average of the Puts and the range are much larger and wider than the Calls. It says to me that the real money is betting on a correction, not a major rally like we had in most of 2009. What do these charts say to you? Leave a comment. And don't forget to come back to see the Consumer Confidence data Update after they are released at 10:00am EST.

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Consumer Confidence (Update)

Tomorrow is a key day for the stock market. Here's why. Consumer Confidence data will be released before the market opens. It is expected to be 51.9 by the experts. It is one of the most important pieces of data for the week. Wednesday is the other big news, Durable Goods orders. And Friday is the GDP data for Q2.

The S&P is sitting right at the 200 day Moving average at the close tonight. The data tomorrow will tip it one way or another. Volume should be significant tomorrow despite it being summer.

Come back here to see the data reported in an Update tomorrow morning.

UPDATE: 10:01 EST July 27th

Consumer Confidence came in at 50.4 compared to expectation of 51, so it was a little worse than expected. June's number was revised up to 54.3 from 52.9, which would normally make this drop a more significant one. At the same time the numbers were being reported the gov't announced it was holding a Housing Conference to decide what to do with Freddie Mac and Fannie Mae. Gee, you think they were trying to get the conversation off the poor Consumer Confidence numbers? Hmmm, let me guess. Ah, yes!

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Sunday, July 25, 2010

Sanctions against North Korea? How many are in the U.S's bag?

OK, every time North Korea does something we don't approve of, and the pursuit of Nuclear Weapons seems on the top of the list, we threaten them with new Sanctions. So here's my question. How many more sanctions could we employ? Let the American people and North Korea see what we are considering in total, rather than in piecemeal. If you want to stop someone from doing something and you are threatening them with some action, wouldn't it be wise to share all of what sanctions we are considering if you wanted to get them to stop. Otherwise they continue to build more nuclear material for bombs and also Missiles to deliver them. We either can or can't influence them, short of war. Oh and while we are at it, what about what we are willing to do regarding China and her role in this? You see I think it is all nothing but show for the American people as we are not willing to go to war over this, unless North Korea used a Nuclear Missile. I don't even think we would go to war with them if they shared the technology with others, because they already have with Iran and now Miramar (Burma). Quite honestly, I think Americans are getting tired of this strategy used by every Administration, Republican and Democrat alike. Don't you?

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Saturday, July 24, 2010

Economic Indicators for the week of July 26th

Here's the rundown of data expected this coming week and their relative importance as to where the economy is headed. Three of the more important indicators this week will be Consumer Confidence, Durable Goods orders and GDP. Here's the breakdown by day:

Monday, July 26th
10:00am EST. New Home Sales for June. Forecast is 295K and the prior month reading was 300K.

Tuesday, July 27th
10:00am EST. Consumer Confidence for July. Forecast is 51.0 and the prior month was 52.9.

Wednesday, July 28th
8:30am EST. Durable Goods Orders for June. Forecast is +1.0% and the prior month was -0.6%
8:30am EST. Durable Goods orders ex Transportation. Forecast is +0.5% and prior month was +1.6%
2:00pm EST Fed's Beige Book.

Thursday, July 29th
8:30am EST. Initial Jobless Claims. Forecast is for 450K and the prior week was 464K.
8:30am EST. Continuing Claims. Forecast is for 4.550 Million and prior week was 4.487 Million
2:00pm EST. Fed's Beige Book.

Friday, July 30th
8:30am EST. GDP for Q2. Forecast is for 3.0% and Prior was 2.7%. Market is expecting 2.5%.
8:30am EST. Chain Deflator for Q2. Forecast is 0.7% and prior period was 1.1%
8:30am EST. Employment Cost Index for Q2. Forecast is 0.5% and prior period was 0.6%
9:45am EST. Chicago PMI for July. Forecast is for 58.5 and prior month was 59.1
9:55am EST. Univ. of Michigan Sentiment for July. Forecast is 67.5 and prior month was 66.5

That's the rundown for the coming week. I will try and update my site each day with the actual data. As for the market reaction it is difficult to predict without any actual data but I will give it a try. If GDP comes in 2.0-2.5% the market will react quite negatively. If it comes in at the expected 3.0% or better, it will be claimed as a victory and the market will have a positive reaction. However the Durable Goods orders and Consumer Confidence will have more of an effect as they are predictors of the present and future, not the past. So if I were weighting the data this week, I would tend to weight these later data points more heavily as market direction predictors. Durable goods orders are expected to rise so anything less than that will be negative. As for CONSUMER CONFIDENCE, it is expected to drop only slightly from 52.9 to 51. If we get any reading below 51, the market will react quite negatively. Therefore Tuesday is the most important data this week in my view. Stay tuned for the results and please come back.

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Friday, July 23, 2010

Market Outlook for July 23rd and beyond

I took some time this morning to take another look at my short term and long term view of the Dow chart patterns and see what is clearer to me now. I was amazed that I realized something not seen before or put into a more realistic view and it surprised me, I must admit. What I say will be obvious only AFTER I have said it, for those following my posts here.

I have posted a 6 month chart and a 30 year chart of the Dow and will be speaking to both in a minute. But first some background. I have stated here repeatedly that we are headed to retest the lows of 6,400 made last year and that I did not believe we would hold that level. I have also bought a number of ETF Ultra Shorts in support of that view. I have been expecting the drop sometime this Fall, starting in September/October and therefore bought some Options expiring in October and January. The Dow this week has been going up after the large drop of 267 points last Friday and has all but recovered form that drop, confusing me and many others it appears.

The news hasn't been terribly good this week. In fact, the news has not been good at all. Fed Chairman, Bernanke, testified before Congress that these are "very uncertain times" and this normally would scare the markets terribly. But nevertheless, the Dow and other Indexes here and in Europe have all recovered this week and the US Indexes are poised to go over their 200 day Moving Averages, as is visible in the 6 month Dow chart above.

What gives? Do I still believe we will have a very volatile 2 months in Sept./Oct.? Yes, I still do. Do I believe we will test the 6,400 level then? No I don't. Then what has convinced me otherwise? It is the 30 year chart. You will notice that I have drawn several blue arrow lines on this chart. Each represents the length of time it took for the "W" pattern, or Head and Shoulder pattern, to form, with the 3rd peak currently in its formative phase. If you look at the width of the 2 arrows they span a number of years. I realized that this 3rd phase could take that long as well! This is the new realization I have had and it has had an impact on my thinking and therefore my trading.

Looking at the 6 month chart now makes more sense as this is not going straight down. It will be more drawn out and could take years. But in fact we are headed down eventually. But it should unfold more slowly that I had expressed here and considered given the blind spot I had. I am a little wiser today, so now let me see how that plays out in my posts here. It suggests more frequent trading for me and taking a chance to take less profits in more frequent trading periods. I will try to increase my volume of trades significantly, riding short periods up and down in a narrower channel. We shall see if tis is effective or not, but it appears that is where I am headed.

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Thursday, July 22, 2010

Market news for July 22nd

Initial Jobless claims rose to 464K claims, which was worse than the 445K expected. However, Continuing claims dropped to 4.487 Million from 4.710 Million the prior week. In spite of the increase in Jobless Claims the market seems to be shrugging the news of as the Dow Futures stand at +100 an hour before the open.

Existing Home Sales numbers come out at 7:00am PST, 10:00am EST, but I won't be here to post the numbers. I will upon my return later today along with comments about the market. Also, Leading Indicators are also reported at that hour and those too will be reported here below, in the form of an Update.

Yesterday, E-Bay announced it beat earnings for the last quarter. Congrats to CEO, John Donahoe. WellsFargo Bank also reprted better than expected earnings.

Thanks for stopping by.

UPDATE: 7:02am PST

Leading Economic indicators were down-0.2% from being up 0.5% the previous month. Expectations were for the indicator to be down -0.4%. The Dow now up 207 for the morning. It rose about 30 in the last 2 minutes.

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Tuesday, July 20, 2010

What's up with Silver?

The SIlver ETF, symbol SLV, is at a critical juncture. It is very close to its support level and 200 day MA as well as below its 50 day MA. I have posted 2 charts of SLV, one is a 6 month chart and the other is a 3 year chart. I have drawn support levels and importantly on the 3 year chart it is about to break below the uptrend line, even though today it was up slightly. I believe as the market goes lower so will Silver. Silver is not Gold and that is important and while they track over time, when SLV starts to decline, it declines much more rapidly than Gold. Therefore my play here is to buy the ETF Ultra short of Silver, symbol ZSL as it is a double the movement of Silver and in the opposite direction. If Silver goes up 1%, ZSL goes down 2% and if Silver goes down 1%, ZSL goes up 2%. This is something worth watching and tracking into the Fall.

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Market outlook for July 20th: Rainy with Clouds

Well after the bell yesterday, IBM reported its earnings as did Texas Instruments. Both disappointed on top line Revenue expectations and that has set the stage for today's market action. Futures are down and Europe is down this morning. Also out this morning was Housing Starts and Building Permits. The news there was mixed. Housing starts came in at 549K for June compared to an expectation of 575K, which was worse than expected, and Building Permits came in at 586K compared to the expectation of 572K, which was better news than expected. That rallied the Futures a bit so they weren't as negative before the news came out Dow Futures were down about 100 before the Housing data, but after the data they came in at down only 75. However, currently the Dow Futures have slipped back down 93.

Expect today to show another leg down on this slowly unwinding market. I will post Updates here during the day today. So if you have read this once be sure to come back and see the Updates and commentary.

Also, news on Goldman Sachs missing expectations on their numbers also is causing some market turmoil. It is clear that the top line Revenue Growth is not there and the only way companies are making their earnings is but cutting costs. It isn't going to get better any time soon according to Pimco's Mohamed El-Erian, CEO and Co CIO who was on CNBC this morning.

I will also post today something on Silver and ZSL and that there is about to be a significant break below key supports on Silver and that this can be payed by buying ZSL or adding to previous positions. Look for tha post later this morning.

UPDATE: 9:45am PST

AS you can see from the above chart we started down about 125 for the Dow but have steadily risen up in spite of the news. Well the Dow formed a "W" pattern with the slant pointing down. We therefore should go lower from below the lowest leg of the "W" pattern. That would take us to Dow down over 100 again today.

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Sunday, July 18, 2010

Stock market outlook: Protecting your Assets

As shown above, the 2 year Dow chart shows that we have made lower lows now 3 times as signified by the Blue lines. Also shown is the recent "W" pattern which is signified by the Red line. Notice that it is slanting down. This means that most likely we are in for another lower low, which should easily go below the 3rd Blue line. This pattern of lower lows and lower highs should continue through the Fall and into 2011 with the economy facing the real prospect of Deflation and no job growth.

What to do, what to do in the face of these problems? I can't tell you what to do, but I can tell you what I am doing. I am paying attention to all the data I can and look at my own assets daily as to where they are and how best I can take advantage of the knowledge I have acquired and the analysis I have done. For example, Treasury two-year note yields fell to a record low as reports showed that consumer confidence plunged to the lowest level in a year and retail sales declined, heightening concern the economic recovery is stalling. These all are consistent with a stalled economy and increasing the risk to us.

Yields on 10-year notes traded near a 14-month low this week after minutes of the Federal Reserve’s June meeting showed policy makers noted that risks to the recovery increased. Housing starts and sales of existing homes declined last month, reports next week are forecast to show. So in face of this information it is almost impossible for the stock market to go up. It will go down. So being long and staying in stocks is foolish, unless you are considerably hedged to the down side. I have sold many of my stock positions but have several still that I know will not drop much with a market retreat and will have a minimum effect on my total portfolio. I have shares the ETF Ultra Short of the Russell 2000 Index, symbol TZA. This is a Triple play, meaning that for every 1% the Russell 2000 goes down, TZA goes up 3%. I also have TZA Option Calls for October and for March. I have traded these twice so far and the shares I currently own are all from the profit I already have made so there is no chance to even lose my original investment. If these rise significantly, as I expect they will, I can more than double my investment in them.

I also own shares of the Banking Index ETF Ultra Short, symbol FAZ. These I expect to also rise in value. I have also purchased some other Put Options on stocks I know will drop with the market drop. I also own ZSL, which is an ETF Ultra Short on Silver. So I am a very defensive mode at this time and plan to become even more defensive going forward. Much will depend on the rate of deceleration of market Indexes. This is unfolding at a slow rate currently but the pace will increase sharply one of these days in the next month. pay attention to your portfolio. Talk to your Financial Advisor regularly if you are worried. Make sure you can sleep well at night as things are going to be very scary. The Fall is coming faster than you think and you remember what the markets do in September and October. TAKING ACTION THEN WILL BE TOO LATE.

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West Virginia Gov. Joe Manchin nominates Bryd's replacement signalling Unemployment Benefits Bill Will Pass Tuesday!

Yes, Gov. Joe Manchin of West VA has nominated his close confidant as an interim appointment to fill former Democratic Sen. Robert Byrd's Senate seat. Here's an excerpt on the announcement from CNN's article and video clip:

West Virginia Gov. Joe Manchin named attorney and political confidante Carte Goodwin on Friday to fill the late Sen. Robert C. Byrd's seat until a special election is held. Goodwin will be sworn in Tuesday.

and this:

Sen. Jay Rockefeller, D-West Virginia, stressed the importance of Goodwin's appointment as the Senate's 59th Democrat. Immediately after Goodwin is sworn in, Rockefeller said, Democrats are expected to pass an unemployment benefits bill that has been blocked by the GOP leadership.

Yes, finally some benefits will be passed for the unemployed who had been without jobs for over a year. I believe the payments will be retroactive to help them pay their bills. And at some level this will have a stimulus effect as they will most likely need to spend the money right away. This stops Republicans filibustering at least on this important issue. Good job Governor Manchin for doing the right thing. I was critical on my July 8th post of you and so now I congratulate you for doing the right thing. Sen. Byrd is proud of you.

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Saturday, July 17, 2010

Economic Indicators for the week of July 19th

First a comment about yesterday's market action. The most important data from yesterday's market drop in all Indexes was that the Volume was the highest since June 25th and the drop was the largest since June 29th. And yesterday, the Candlestick pattern for the Dow and many other indexes, was the Black Opening Marubozu pattern. This pattern shows that the market dropped from the opening to most of the day, but did not close at the lows, leaving a small shadow. I suspect more down days will follow yesterday's close.

Here is the economic data to be released this coming week:

Monday, July 19th 10:00am EST:
-National Home Builders Index for July. Prior month data was 17 for June.

Tuesday, July 20th 8:30am EST:
-Building Permits for June. Prior month of May data was 574K permits. Expectations are for watered down 560K permits.
-Housing Starts for June. Prior month of May data was 593K starts. Expectations are that the number will drop to 570K starts.

Wednesday, July 21st 10:30am EST:
-Crude Inventories for week. Prior readings were for 5.06 Million barrels.

Thursday, July 22nd 8:30am
-Initial Jobless Claims for week. Prior readings were 429K and expectations are that number will increase to 440K. (Comment: A larger number will cause a significant market negative reaction. It is the 2nd most important number of the week.)
-Continuing Claims. Prior reading was 4.681 Million people. Expectations are for 4.600 Million. (Comment: If this number also increases significantly the market will most likely have a significant negative reaction. It is the 3rd most important number of the week.

Thursday, July 22nd 10:00am
-Existing Home Sales for June. Prior month of May data was 5.66 Million homes sold. Expectations are for 5.40 Million homes. (Any number below 5.0 will cause alarm to the market.) It is the #1 most important data released for the week.
-Leading Indicators. Expectations are for a -0.4% number. (When Leading Indicators are negative, that is not showing growth in our economy but rather a slowing of the economy.

Just from the expectations by economists with all these numbers, you can see a negative tone to what will be announced this week. Normally that will contribute to the market decline. However, also in the mix are earnings announcements for the coming week.

Monday: IBM, Texas Instruments and Hasbro

Tuesday: Apple, Goldman Sachs, Bank of NY, Johnson and Johnson, PepsiCo, United Airlines, United Health, Yahoo

Wednesday: Abbott Labs, American Airlines, Coca-Cola, EBay, Morgan Stanley, EMC, Starbucks, US Bancorp, United Technologies, US Airways, Netflix, Wells Fargo

Thursday: 3m, Amazon, American Express, AT&T, Capital One, Continental Airlines, E-Trade, Eli Lilly, Hershey, JetBlue, Microsoft, Philip Morris, Travelers Insurance, Union Pacific, Xerox

Friday: Ford, Honeywell, Kimberly-Clark, McDonalds, Schlumberger, Verizon

These are but a few earnings to be released this week but as you can see any can move the market and most likely will some of the time. The facts to pay particular attention to is the economic data for the week as that will set the tone whether earnings exceed, meet or fail to meet expectations. It is the water that surrounds each of these companies and the environment they find themselves in with investors. High Unemployment, low Consumer Confidence, dropping housing values and a climate of worry about Deflation now by the Fed is the reflection from this water. Pay attention to your ASSets. :)

Also on Tuesday, the Senate is to vote on ending the Republican Filibuster on the Financial reform Bill and on extending Unemployment benefits for the millions of unemployed. Politics is another of the many variables affecting our economy with this divided government. You would think that elected officials would be interested in working together. But no, they are more worried about keeping their own jobs than they are you and your interests or your job. You can pick either Party here as it makes no difference as far as I can see. Bah, humbug!

Hope to see you here throughout each day this week. I post in the morning usually and then update the post throughout the day with my comments or observations and predictions. So visiting once only and you miss much. Just look at a few previous posts to see what I mean. Have a nice day! Summer is fun.

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Friday, July 16, 2010

Market outlook for July 16th (With continuous Updates)

Well the news came out this morning on CPI. First the actual data and then how the media is portraying it. The CPI for the month of June came in at -0.1%. For the month of May it was -0.2%. The Core CPI for June came in at +0.2% while for May it was 0.1%. That's the unvarnished data. Now here are the headlines I noticed across the internet this morning:

Headline: Consumer prices dip for third straight month
Excerpt: "The Consumer Price Index, the government's most closely watch inflation barometer, dipped 0.1 percent in June, the Labor Department reported Friday. Less expensive energy bills were a big factor behind the drop. Prices for some food items, airlines fares, computers, telephone service and personal care products also fell last month."

Headline: Prices Excluding Food, Fuel in U.S. Exceed Forecast
Excerpt: "The cost of living in the U.S., excluding food and energy prices, climbed in June more than forecast, easing concern that a slowdown in growth will spur deflation. The so-called core rate of the consumer-price index increased 0.2 percent, the most since October and exceeding the 0.1 percent gain projected by the median forecast of economists surveyed by Bloomberg News, figures from the Labor Department showed today in Washington. Prices overall fell 0.1 percent, a third straight decrease and matching the median forecast."

So what's important to focus on her.I think the fact that the CPI is down for the 3rd straight month and in fact down for most of the past 6 months, but no one mentions that. You see yesterday in the NY Times, there was a column about the Fed being split at its latest FOMC meeting in that a number of them raised concern about Deflation for the first time. Quoting from the article, "Inflation has been running well below its unofficial target of 2%, so much that a few officials fear that the US is at risk of the kind of deflationary spiral that has hobbled the Japanese economy for the better part of 2 decades." So even here at the FOMC meeting is the deflation issue is creeping into the forefront of the news.

Now add to that how us real people feel and you get a better view of how things really are. Just out are readings of Consumer Confidence which is important because the Consumer makes up 70% of our economy they say. So here is the info on that: The survey's preliminary July reading on the overall index on consumer sentiment plummeted to 66.5 from 76.0 in June. So we know how things really are going and sooner or later the markets will have to follow suit and replicate the real economy no matter how much the Fed is pumping money into firms like Goldman Sachs and others to get them to manipulate the stock market by buying near the close of the market every day. Just look at 1 minute charts of the Dow or Nasdaq or any Index for the last hour of trading compared to the previous time during the day. You will be convinced if you are objective.

So the market has had a minor reaction to the news with the Dow down as much as about 180 points this morning. Let's see how the day ends. My guess as it always has been of late is that it SHOULD be down based on the evidence, but manipulation of the markets has not yet abated. Time will tell if sanity rules.

UPDATE: 8:00am PST
The Dow has managed to stay below the 50 day Moving Average again today and that is a good reversal from past couple of days. It puts the rise in the market on hold and sets up a declining trend. The 50 day MA is at about 10,250, while the 200 day MA is at 10,380. The other thing I like particularly about the day unfolding is that we are forming a Hammer pattern which stops the uptrend and reverses it. That would keep in tact the trend of lower highs (the first rally a month or so ago was to 10,594 and this one will have peaked at 10,400) and lower lows. This will mean that we will most likely go below the previous recent low of 9,614.

UPDATE; 8:30am PST
Volume is up significantly at 160 Million shares so far compared to yesterday's 210 Million shares traded on the Dow for the whole day!

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Thursday, July 15, 2010

Economic Indicators for July 15

Here I am waiting for a flight from Rochester, NY to go home via Chicago and I check the economic news out at 5:30am PST, and guess what, I see more bad news. For a starter, the PPI came in at -0.5 percent, which is another indicator we are in Deflation, not Inflation! Anybody listening out there? And that's with all the stimulation the gov't was allowed to spend. Paul Krugman warned that we needed twice as much stimulus back when the government was deciding what was needed, but Republicans in the Senate and a few Democrats like Ben Nelson and Independent Joe Lieberman wouldn't support any more. In fact they didn't even suppot the amount which was approved by Democrats and Independent Bernie Sanders of Vermont. Thank God they passed what they did!

Here's the other piece of news. The NY Fed announced that the Empire Manufacturing Index came in at 5.0, which is barely manufacturing. Last month the number was 19.6 and the expectation for this month was for a reading of 19.0, so how's that for a taste of reality.

One last piece of data to type on this iPhone, Continuing Claims came in much higher than expected at 4.654 Million Continuing Claims versus an expected number of 4.440 Million Claims. Still think the economy is getting better? What planet are you living on, because it doesn't look that way from where I sit!

I will be watching the market as much as I can traveling home today. God bless the iPhone! Good luck investing or trading.

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Wednesday, July 14, 2010

Market outlook for July 14th (UPDATE)

So yesterday the market fooled me and went over the 10,300 level I thought would hold. We actually hit a high of 10,407 for the day. We went above the 50 Day Moving average, which now is at about 10,250, but seemed to stay below the 200 day Moving average which is now at 10,385. The Dow closed yesterday at 10,363. Earnings for Intel seemed to please folks after the closing bell yesterday, but today is another day and right now the Futures are pointing down before the expected economic data is released in an hour.

Today, Retail Sales will be reported along with Business Inventories, Import and Export Prices, the Minutes of the FOMC meeting from the Fed and Oil inventories. Any one of these will be food for Bulls and Bears alike. Retail sales are expected to be down -0.2%. Anything lower will mean fuel for the Bears and anything better will be a case for the Bulls. However, remember this, these are lagging indicators and for June. Here we are in July. The real question is, WHAT WILL THE 3RD AND 4TH QUARTER LOOK LIKE? IT will affect our Debt/GDP ratio and the cost of borrowing going forward as well as whether the government will get necessary taxes from increased growth to help pay for the debt. The answer to this also has political ramifications for Democrats and Republicans alike. So these numbers on the economy get more and more important as we approach the 4th quarter.

It was painful yesterday to watch the TZA Call Options drop 20% and the underlying stock price to drop 10% or $3.57/share. It ate away at my profits made on earlier transactions, but I held and did not sell any. I expect some recovery today and in the days ahead and still am very bearish going into the rest of the year.

For today, keep an eye on the 200 Day MA of 10,385 and also the 50 day MA of 10,250. I would like to see us stay below the 200 day and to go below the 50 day by the closing bell so that this temporary rally ends, but that's only because I am on the Short side of the market right now because I do not believe that the economy is healthy nor do I believe we are out of serious danger. Rallies to me give a false sense of confidence to people and that is not the reality of this world crisis.

UPDATE: 8:40am EST.
Retail Sales came in at -0.5% which was significantly worse than the -0.2% expected. So that's one big one for the Bears. But Retail Sales ex auto sales were down only -0.1% versus an expectation of only -0.2%. This makes the case for the Bulls. So pick you side and your poison as to what you believe. :) I believe the -0.5% because it is the pure overall number. Now tell me the economy is really doing better. Ha!

Also, Elizabeth Warren in charge of monitoring TARP funds said this morning on Bloomberg TV that 76% of large Banks on Wall Street have paid back their TARP loans. However, only 10% of the smaller Banks have been able to pay back TARP loans. She added that 15% of the smaller banks which borrowed TARP money have missed at least one dividend payment to the government for the use of these funds and that it is going to get worse for these smaller banks. Another piece of data for the Bears.

UPDATE 9:00am EST.
More bad news for the Bulls. Import prices dropped to a -0.6% compared to the previous month at +0.5%. There is No Inflation folks. There is Deflation as I have been saying now for a while. Export prices were down also to -0.2%. That's Deflationary as well! Let's see the market's reaction together today.

UPDATE: 5:00pm EST
The FOMC released their minutes today. If I had to boil it down this is what they said:

Six Years

Most FOMC policy makers expected that the U.S. may not return to its long-term rates of economic growth, unemployment and inflation for as long as six years, the minutes said.

“Participants generally anticipated that, in light of the severity of the economic downturn, it would take some time for the economy to converge fully to its longer-run path as characterized by sustainable rates of output growth, unemployment, and inflation,” the minutes said. “Most expected the convergence process to take no more than five to six years.”

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Tuesday, July 13, 2010

Headlines and comments for July 13th

Ok, want to get a sense of what's going on and where the market is headed? Let's just look at the headlines from today's web site. I'll write the headline in quotes and then make a comment after each. Here they are:

-"European Stocks, U.S. Index Futures Rally on Alcoa Earnings; Euro weakens" Hmmm, why is the Euro weakening, I thought things were improving in Europe, as the Greek debt crisis had abated. Well it turns out they are now worrying about Portugal's debt, as Moody downgraded it.

-Greece Bill Sale Below EU Bailout Rate Eases Concern over Borrowing Costs" Hmmm, but what about Portugal's debt crisis looming?

-"Europe's Banks Poised to Win Reprieve in Basel on How Capital is Defined" Hmmm, I don't get a chance to redefine what my capital is. What kind of game is this? And why do they have to redefine what capital is? Haven't they had a definition all these years already? What's the old definition and what's going to be the new one? Isn't money, money? Oh, and here is the real news from the article, "A push to water down stringent standards proposed last year by the Basel Committee on Banking Supervision, and to allow more time to implement them, is led by France and Germany, according to bankers, regulators and lobbyists involved in the talks. Representatives from the U.S. and the U.K., who have sought to rein in risk-taking, are willing to compromise on how capital is defined to reach an agreement at a committee meeting that begins tomorrow, the people said." Feel better now? I don't! The games Governments are playing now threatens our very economic survival.

-"German Investor Confidence Drops as Debt Crisis Threatens to Hobble Growth" Hmmm, I thought we solved the Debt problem with 1 Trillion Euros. Are you telling us you are still worried? Now you've got me worried! It turns out that German investor confidence declined for a third month in July as Europe’s debt crisis threatens to cripple economic growth and banks undergo stress tests to prove their durability. Imagine that, they lend 1 Trillion to solve the debt crisis but then worry whether they have 1 Trillion to lend. By the way, this is the 3rd month of declining German Investor confidence has dropped. It went down to a 15 month low of 21.2 and they had expected a drop to only 25.3 from the 28.7 level in June. Hmmm, this is the only real truth out there it seems today. The German's seem to know it's a shell game. Their confidence level, or lack of it, says it all for me!

-"U.K. Inflation Slows Less Than Forecast; Rate is Above Government Target" Hasn't anybody been paying attention there? What good is a target if you never have acted on anything away from target before? Oh now you are concerned. Well the World is really experiencing Deflation if they pay attention.

That's enough to get you going on the headlines this morning from Hope you enjoyed the recap and comments. You get the point, it's all a game of manipulation with a smattering of honesty mixed in for good measure. Read headlines for what they are really saying. There is another way to interpret each, using a more skeptical eye.

After reading all the headlines, I looked at the charts again and I do not believe we will go over 10,300 and stay above that level. And we are close as yesterday we closed at 10,1216.

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Monday, July 12, 2010

Market outlook for July 12th

I have posted a Dow chart for the past 6 months and have underlined in red the formation of the "W" pattern which has emerged. The red line extends under the "W" pattern's bottom lowest legs. As mentioned on many earlier posts, a slanting downward "W" usually means new lower lows are coming than the lowest leg of the "W" already formed. You will also notice that there is a gold line showing the 50 day Moving average is about at 10,300. The market will not go above this line and even if it does briefly, the Dow will stay below it. We are close to the top of this short rally, which has occurred on low volume as the bottom of the chart above indicates. When price rises and volume drops, that is a very bearish sign.

So this market is bounded by resistance at 10,300 and an inevitable drop below the lowest levels so far. That is where we will stay for a while. Today starts earnings season for the second quarter. Watch for a more cautious outlook from companies going forward for the remainder of the year. The reasoning being that everyone knows the economy is soft, so why take the risk and get penalized for showing a bright future when if they miss higher expectations next quarter the market will be punishing to their stock price. So caution is the word this earnings cycle.

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Sunday, July 11, 2010

Leading Economic Indicators for week of July 12th.

Leading Economic Indicators for the week are as follows:

Tuesday, July 13th:
Trade Balance for May. Market expects $39.5 Billion.
Treasury Budget for June. Market expects $70 Billion.

Wednesday, July 14th:
Retail Sales for June. Market expects -0.2%. Last month -1.2%
Export Prices for June.
Import Prices for June ex-oil
Business Inventories for May 0.3%.
Minutes of FOMC meeting released at 2:00pm EST.

Thursday, July 15th
Initial Claims
Continuing Claims
PPI for June. Market expects -0.1%
Industrial Production for June. Market expects -0.2%
Capacity Utilization for June. Market expects 74.1%
Philadelphia Fed for July. Market expects 10

Friday, July 15th
Core CPI, CPI for June. Market expects 0.0% & -0.2%
Michigan Sentiment for July. Market expects 74.0, and prior reading was 76.5%

In overnight trading the Nikkei is up 7 points at this hour. This is not reinforcing of the drive last week so only time will tell what will happen. If you are on vacation, enjoy it and visit here less frequently. Summer comes only once per year unfortunately. :)

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Friday, July 09, 2010

Market outlook for July 9th

Hi all. Well the market is in a tight range today. The Intraday shows the Dow keeps bouncing around the unchanged line only briefly going negative. Volume is extremely low, as many appear headed out for the weekend early. I guess I should too. But wanted to give my readers a heads up, as I am traveling starting tomorrow until next Thursday. I will do some posting if events warrant but it will be less frequently until I return to home base.

Remember the overall trend is still down and that if you take a good look at a 2 or 3 month chart, you will see we are forming another "W" pattern and it is slanted lower. Happy summer.

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Thursday, July 08, 2010

The real story on the Jobless Claims data released today.

Weekly Jobless Claims declined according to government data. Of course it did, what would you expect when people can't file for benefits because Congress didn't pass legislation to extend benefits. There are over 3 Million whose benefits are at risk without the extension over the next 30 to 45 days. And it looks like Democratic Governor Joe Manchin, of West Virginia, is more interested in his career, than appointing a replacement Senator for the passing Democratic Senator Byrd, thus allowing Republicans to continue the filibuster to avoid the passage of the extension of benefits. He may wait until November and have a special election and has asked his Attorney General to make a ruling, as to whether this is legal. Of course, he is not the only Democrat creating this problem. Senator Ben Nelson of Nebraska, a Democrat, has continually joined with the Republicans in continuing to filibuster the legislation, even though the 2 Republican women Senators from Maine, Snow and Collins, voted with the Democrats on this one.

Look, as long as the Congress denies extending the benefits of Millions of Americans, the numbers are going to look like things are getting better. They're not, let's be honest here! It's like denying a toothache, eventually it must be treated and most likely will be worse rather than better, later. It's their game, so I guess they can play it if they want. If you want to see the data, click here to go to Yahoo article on the actual numbers.

Futures are pointing up again today and Europe is up.

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Wednesday, July 07, 2010

Market outlook for July 7th

Ok, so yesterday we went like a yo-yo, up and down and up again. Volatility is on the rise.The Put to Call ratio has stayed in the range of 0.98 to 1.26 in intraday moves. I think on a larger scale this will continue. The chart of the Intraday yesterday shows we formed a "W" pattern near the close which was slanted down. That infers that this market will go down this morning starting at least below the 9869 level of the low yesterday. Futures are pointing in that direction so we will have to see it unfold. We have broken below the Dow 9800 Support level for 3 consecutive trading days and not gone above this 9,800 support level, so we have begun our decline, drip, drip drip!

UPDATE 11:15am PST

Well as you can see I am surprised that we had this rally today. No real good reason for it but the Longs are very happy they have it as they were getting depressed. I have posted above the Intraday as I usually do but also have posted a 2 month chart of the Dow to show you again we have formed a "W" pattern and it is slanting lower. It doesn't mean we can't go up a day or a few days, but the inevitable is already baked in here, in my opinion. These are days to decide what on the Short side you want to own or what profits to take. I hope you are all doing that. I am adding to a few positions today on the Option side. One piece of data of particular interest is that the Volume is less than yesterday and that is always a cautionary move and one to have with suspicion as to the move's validity. Stay awake out there.

Update: 5:00pm PST

The market is closed and has been for a few hours before I got to posting this. But it was a barn burner today with the Dow rising about 275 points to close at 10,018. The Nasdaq closed up 65 points to 2159 and the S&P 500 closed up 32 points to 1060. To say I wasn't surprised would be a lie. I was as surprised as many. Also the volume actually surged in the last hour to close higher than yesterday's volume. That was impressive and deserves my respect and caution. The 200 Day Moving Average crosses the axis at 10,380 while the 50 day Moving average crosses the axis at 10,350. As these keep dropping it will be more difficult to go above these levels as they will provide resistance. I do not believe this rally will go over 10,350, which will keep the "lower high than previous high" in tact. With the Fed and the Government with plenty of money to manipulate the market, and summer volume diminished, it will be easy for them to achieve their goal of keeping prices from dropping too low for the politics of the season.

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Tuesday, July 06, 2010

Market outlook July 6th

The ISM's Service sector data was released this morning for the previous month. May's data came in at 55.4 and June's is at 53.8, worse than the consensus of 55.0 expected. This seemed not to affect negatively the strong surge of markets this morning as the Dow is up 167 to 9868 this morning. Commentators on CNBC remind people that any number over 50 means that non-manufacturing is growing, albeit at a slower pace than the previous several months, thanks to the chart by Econoday, Inc. above shows.

The market has backed off the highs so far and the Dow is currently at 9833, up 147. A small "W" pattern is observable with the slant downward currently on the Intraday chart. This means we should be going lower in a while. That would mean lower than Dow 9824.

This morning has been a good time to add more TZA Call Options if you wanted as the prices are down about 15%. I will update the Intraday information today as it becomes available and trends discernible.

Update: 8:00am PST

The Intraday chart above shows the "W" pattern slanting downwards so I hope you have either sold so far today or bought your Put Options or TZA Call Options as they will be getting more expensive now today.


As you can see the Dow did go lower as the "W" pattern predicted. Now it has made a stand and may try to go back up. Look for another "W" pattern to emerge but this chart shows where we are right now.

Update: 9:16am PST

As you can see the "W" pattern is slanting upwards so that means up again. Sorry I can't be of more help but today is a roller-coaster day, the kiddies kind. Not too high and not too low but a ride nonetheless. Shorts aren't happy today and my guess the longs aren't either as they have had 9 out of the past 10 days down and they don't know whether they can believe this rally. Don't, it's a temporary break from the negativity of the market for those long the market.

Update: 9:30am PST

It has made a reversal and now down to the lows today. This new "W" pattern is showing the way for the day and it is lower. The full "W" has not emerged but you can guess what it will look like and I have drawn the red line under where I think we are now headed.

Update: 10:50am PST

As the chart above shows we hav e gone lower still and the last full "W" is slanted down. Also we are forming a still lower W pattern that has not yet been completed. So it's a good bet now we could finish negatively today as the Dow now is only up 35 points to 9721.

Update: 11:25am PST

The Dow actually did go negative as did all indexes including the Russell 2000, which TZA tracks inversely. TZA hit a new recent high of over $9.00/share. I can't say how the market will finish but you can see there is another "W" pattern forming. If the second leg is higher than the first it will go up, otherwise the markets will most likely finish negative today. It has had a mighty drop since earlier posts.

Update: 12:10pm PST

This will be my last post for today. Business is calling and I must go. You will notice that there was a formation of another "W" pattern at the end of the chart, but this one is flat. This means that the Dow will stay close to these levels, not going up a lot or down a lot until a new "W" pattern emerges. One thing for sure, the Bulls have had their sails ruffled as the Dow has lost most if not all of the gains it made earlier and then some.

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Sunday, July 04, 2010

The Road to Financial Independence

This post needs to be read along with the previous post, because they both support each other as to the direction of the stock market. Today's chart shows the Put to Call ratio for the years 2009 in red and for 2010 in Blue. 2010 has shifted up significantly in Puts, as the ratio has made a step function up. On April 14th of 2010, the Put to Call ratio hit a multi year low, signaling a sell to followers of this indicator. The market has been going lower after this low Put to Call ratio. I wrote about it that day and said it was a multi year low going all the way back to 2007. I said it could indicate the correction could begin. It turns out this was the the main indicator of a market which was about to correct. The Dow on April 14th closed at 11,018. On Friday the Dow closed at 9,686. That's a 1,332 point or a 12.1% drop.

We are in the process of a decline to eventually test the 6,400 lows and in doing so will fail to hold there. If this does occur, it will eliminate a whole generation of investors, as it eliminated many in the Great Depression. I will continue to warn readers of the bad times ahead. Reading this message on July 4th, Independence Day, may not be what you wanted, but becoming financially Independent, drives my writing. It is my wish for everyone to stay free and become financially independent. I am concerned that this Generation X, of all generations, is not equipped to survive a major financial crisis, which is certain to change many of their lives, as well as their parents' lives.

Just as if you faced the threat of a hurricane or earthquake, there are things you can do to prepare yourself with regards to financial planning . The old paradigms will not hold true going forward, at least not for a very long time. One paradigm will not work going forward. For example, "a Buy and Hold strategy is wise, as markets in the long term go up". And yet, many still have that philosophy and use that strategy. Unfortunately, they might become too old to benefit from this strategy. It will be many years before we recover from this expected drop. From about 1962 to 1980, the stock market stayed basically flat. The Dow was at about 1,000 then as you can see above.

The Federal, State and Local governments could do something to help the economy, if they really wanted to, but it would be short term pain to have long term gain. Politically it would be difficult, as many hate Wall Street and don't want any breaks given regarding investment losses. For example, they could change the IRS code affecting stock losses. They could allow an individual to write down losses from previous years against gains made within a given year, rather than the limit of $3,000/year, which is now in effect. This would help reduce taxes and provide more disposable income, which would help to stimulate the economy and help many survive. But I think it is time to change this law as many have not recovered from losses in 2008. There will be more to come on ideas like this in future articles. Feel free to add your suggestion here.

The Road to Financial Independence starts with small steps. The first step is becoming aware of what is going on around you, staying informed and noticing what seems to be changing. Take your head out of the sand and start testing what you hear in the media against what you are feeling and experiencing personally. Trust your gut, but then verify. Look at where your money goes and how steady is your stream of income. Consider what would happen with a 50%-70% haircut in your invested assets for an extended period of time from today's values. There is much to think about.

Start with this question. Do I manage my own investments or do I use a professional? Do I have a good track record with my current advisor? Do I trust my Financial Advisor? If there is any hesitation in answering these last 2 questions affirmatively, consider looking for another Financial Advisor immediately. But remember, you should be paying more attention to your investments than your Financial Advisor. It's your money you worked hard to save. Many of you are still working hard, 70-80 hours a week. You have got to find the time to spend a minimum of 2 hours a week on your investments. You can start learning by reading more books. Then you can ask your Financial Advisor better questions. A more informed client is all the better for a Financial Advisor, as they can help tailor your investments to your needs. Good luck and come back. And don't forget to read the previous post titled, "Stock Market Outlook: As it is above, so it is below."

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Saturday, July 03, 2010

Stock market Outlook: As it is above, so it is below!

I have posted 2 interesting charts of the Dow. One covers the past 6 month period and the other the past 30 years. The patterns are very similar. They both form Head and Shoulder patterns which I like to call "W" patterns for short. Focusing on the 6 month chart first, you can see I have drawn a red line connecting the bottoms of the "W". You will notice that this red line slants down. This indicates that the market will most likely head lower. Well it has in the case of the 6 month chart as the market closed down below their support levels the past 2 days, shaking up some long in the market and exciting those short in the market. But one thing I have learned is not to bet that this trend will continue. There is too little data at this point to know if the market will continue down or simply reverse just looking at the pattern so far. However, if you use this data in conjunction with a broader view much can be revealed.

Let's now take a look at the 30 year chart above. It too has formed a "W" pattern, although the right side of the "W" pattern is still forming. You will notice that the granularity is not as distinct when you look at this time period. Moves of 100 to 200 points get blurred and it is difficult to predict immediate short term moves. However, longer term moves become apparent. In this case the red line drawn shows a slanting downward pattern suggesting a much lower low is what we are in store for. In fact the second bottom leg of the "W" pattern was at 6,400, if you remember. You can see the implication is that we will go below this level when we go down. This is why I have been shouting and trying to get people's attention to this. These patterns are very predictable and to ignore them and their meaning is to do so at your peril.

Many have the view that charts don't mean anything and can't really predict future direction. That is not true as I have shown countless times here. Just read my previous posts for the past 3 months when I look and analyze daily chart patterns or when I predict drops in coming weeks and months. This is not because I am psychic or something. It is because market action is based upon actions and reactions of human beings. Human beings are for the most part predictable as their social moods tell us the probability of certain things happening again.

Have you ever heard the phrase, "history is about to repeat itself"? Or the phrase, "will they ever learn?" This is being played out today in the actions in the Eurozone in dealing with the sovereign debt issues and their stock markets as well as here in the U.S., where Fed Chariman Bernanke and Treasury Secretary Geithner are pleading with the Europeans not to take the austerity path, as the recovery is still fragile. Bernanke and Geithner worry about Deflation while Europeans are worrying about Inflation.

The history of the Great Depression was studied by Bernanke and he is trying to avoid making the same mistakes which were made back then; belt tightening. That is what happened to continue the length of the Great Depression and is the main reason why he and Geithner have advised for more Stimulus. And because we are human beings and play politics, the Party out of office, the Republicans, are driving like the Europeans for austerity, belt tightening and cutting the debt at a time when the experts believe this will throw us not only back into a double-dip recession but another Great Depression. You see humans are predictable as the need for winning is strong in us as is the desire Not to lose. Both positions are equally challenging positions in the face of a crisis and bring out the worst in us all.

So my friends as we enter this long weekend to celebrate our Independence as a Country, we will never be independent of our emotions in crisis as we are human and often do repeat history unfortunately. However, knowing this should get you to at least give this viewpoint some consideration, as your financial well being hangs in the balance. Good luck with your choice. I tell you these things to try to wake you up, in case you are sleeping at the switch. I have nothing to gain or lose in your choice. I trust the charts. Happy July 4th and your Independence!

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Friday, July 02, 2010

Market outlook for July 2 and beyond

The Unemployment rate came in better than expected at 9.5% in June versus 9.7% in May. Hours worked in June were down -0.1% compared to data for May which was up +0.2%. Private Sector jobs increased 83,000 in June compared to adding 33,000 in May. Non Farm payrolls were down -125,000 jobs. Market reaction was somewhat positive with the Futures on the Dow up 12 points. The unemployment rate percentage is better than it has been in about a year. The question of the day is whether this news is enough to stop the downtrend in the market. My view is that it is NOT because the social mood in the country is poor and depressed. Not much for people to celebrate these days. For the past 2 days we have dipped below very strong Support levels which indicate to me that the next stop will be to test 8;000 on the Dow. This will take some time, possibly the Fall, and it will not go in a straight like down but rather a series of lower lowers with small rallies up.

I will be here and reporting my views throughout the morning. Then it is off to see the Marin County Fair and my wife's art pieces which are being shown in the Fine Arts exhibit. Here below are two of her recent pieces of Metal art being exhibited. Enjoy.

Come back later today to see more on the markets. Take time to read some previous posts going as far back as March. I don't think you will be disappointed. Have a Happy July 4th weekend.

UPDATE: 7:50am PST

Well we have enough enough know to see the direction of the market after the market went up then down then up, forming a "W" pattern which slants down. So we should go lower today from the lows on this chart. Also, because Monday is a holiday, I think many will not want to be Long going into it and therefore there will be more selling than buying. Stay tuned!

UPDATE: 8:10am PST

The data is in and the Dow did go lower as the slanted "W" pattern suggested. We will have to wait to see the next "W" pattern emerge but one thing is for certain, while the Unemployment rate dropped to 9.5%, the market is in a negative mood as I said earlier and the trend will continue down in the coming days, weeks and months. It will feel like a Chinese water torture, drip, drip, drip. Hmmm, that sounds like Water Boarding and torture!

Update: 10:53am PST

Here's the last "W" pattern I am posting before the close today. To me it says we are going still lower. So far today, every call has been correct as the downward slanting red line indicates future direction. It is a good, but not perfect, predictor as you have seen. We will see what happens today, but I do not want the indexes to form an inverted Hammer pattern, closing at the low, as it would mean a reversal in trend and I just don't see it in the cards in the immediate future.

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Thursday, July 01, 2010

Market Outlook July 1

As you can see from the above Intraday chart of the Dow, we are up off the lows, but the last "W" pattern is pointing down. I expect the Dow and other indexes to test the lows of the days. Tomorrow's job's report is only a minor event that the media will make major story. The spin will be on both sides but no mater what they say, the unemployed still represent too many Americans. Whether the number is 10% or it manages to stay below it is irrelevant because the real unemployment number is almost 18%. That's a heck of a lot of people.

We are going to be going down in all indexes. This is a 2 year chart of the Dow and you can see we have broken below the support level and are going much lower. The question is at what pace. But by Sept. and October we will be much lower than now. Some see 9,000, some see 8,000. The real question is ultimately where will be the low. I see much lower than both 9,000 and 8,000, as you know if you have been reading here.

Update: 4:30pm PST

As you can see from the chart above that the Dow did manage to go lower after the first slanted "W" pattern which I commented about earlier. While there are a number of these patterns here, I only want to focus on the last one where I drew another red line. You will notice this one slants down also and when we pick up the market tomorrow, it is most likely to go lower in the morning.

The Unemployment data for June will be announced at 5:30am PST. Many expect the data to be higher unemployment so some of the news is baked in already within a small increase. However, should this turn out to be much more unemployed than expected, we may see a big selloff. Anything else might be a small relief rally for the day. Summarizing what I see might happen, if the Unemployment rate stays at or below 9.9% the market might actually rally. If the Unemployment is at 10.0% we will have a small selloff of less than 100 points on the Dow (1%). If however it is 10.2% or greater, expect a big selloff of 2.5-3%. There you have it. I will be here tomorrow and posting several times during the day. Hope you come by. Remember the overall market trend no matter what transpires tomorrow is negative. Trade accordingly.

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Senate Republicans holding up Financial Reforms: So what's new.

GOP Senators are holding up passage of the Financial reform Bill worked on since the markets tanked. They continue to do the bidding of their masters, Corporations and specifically the lobbying efforts of big Banks. Republicans argue that we have enough Financial reform and we don't need more as they say this restricts the flow of capital. And their problem with that is what? I thought that is how we got in trouble in the first place. We had unregulated, unfeathered gambling on Wall Street causing $65 Trillion dollars in risky Derivatives and caused Banks to promote bad Sub Prime loans.

We are seeing the same political antics we have seen on every other piece of legislation since the election of President Obama. The Democrats want financial reform, so they proposed legislation in the Banking and Finance Committee, chaired by Rep. Barney Frank, Democrat from Massachusetts, in the Congress and Sen. Chris Dodd, Democrat from Connecticut, in the Senate in early 2009, with the hopes of working with Republicans in a bipartisan effort. Six months earlier, the stock markets had melted down due to the Sub Prime loan problem and Banks had been repackaging them and selling them as Derivatives. The Bush Administration had pushed through TARP at that time as they were worried the banking system might collapse. It was very scary times. This was the background when Barack Obama was elected. What was not known was that Senate Republicans were going to decide not to work with our new President when it came tome to vote for change.

The Republicans kept negotiating with Democrats in hopes of moving them off their "extreme Socialist agenda" and negotiated throughout 2009 on these Committees until Democrats moved off their positions and the Bill was diluted. They continued this approach well into 2010 until, on the Senate side, Sen. Dodd finally gave up and decided to write the Bill himself. He wrote a Bill but did not go back to earlier positions he had. He incorporated the Republican negotiated points into his Bill, less a few minor deletions, but in essence the same Bill. The Republicans as a block have not voted for this Bill and even if it gets passed, because the Bill was diluted, it still will not solve many of the original problems because the Republicans have endorsed all of the Bank Lobby positions. Banks don't really want regulation, so now you understand the problem.

So here we are trying to pass Financial reform as the stock market keeps dropping and the problems have not been totally solved in this legislation and will not as long as the Democrats attempt some bipartisanship. The Republicans can claim the Bill does nothing to resolve some of the issues (They are correct in this but it is because they worked to dilute the legislation). It actually does restrict the flow of capital, as it was intended. It all sounds bad from people who don't understand the issue or the background. In any event this Congress and this President will be blamed for the outcome. The Democrats have been hoodwinked and the Senate hasn't had the courage to change the filibuster Rule and get passed these regulations. I am so tired of Democrats being wimps. You know if their roles were reversed the Republicans would eliminate the Rule in a heart beat! It's a damn shame.

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