Thursday, June 30, 2011

Market comments for June 30th

Today is the last trading day for June and the second quarter. The headline reads as follows, but is it a true reflection of the data? "Jobless Claims in U.S. Decline, Top Estimates"

More Americans than forecast filed applications for unemployment benefits last week, indicating little progress in the labor market. So is that saying that claims fell? a drop of only 1,000 is statistically indifferent from last weeks number and if they gave weight to the fact that Continuing Claims had increased too, it would have been more accurate.

It is true that Jobless claims fell by 1,000 to 428,000 in the week ended June 25, Labor Department figures showed today in Washington. And that the median forecast of economists in a Bloomberg News survey called for a drop to 420,000. So is 428K versus an expectation a big miss or not? Well it's a lot more than only a 1,000 drop is. These headlines are so misleading and manipulative, no wonder Consumer Confidence is at the lowest level in a non recession period since 1978. People just don't believe the media manipulation of the data anymore. The truth of this story is that we are still having over 400K Initial Jobless claims weekly and not below 400K weekly which we were for a stretch. As long as we continue to create so many unemployed, the economy is not going to get better and we are not going to be able to pay the debt off! That's a fact!

Oh, and on a separate note this: The Bloomberg Consumer Comfort Index rose to minus 43.9 from minus 44.9. So is this that much better? Think not as it is still minus and not plus.

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Tuesday, June 28, 2011

Consumer Confidence for June

What BS this morning on CNBC. The guests are hyping the Consumer Confidence numbers as the reason the market is up. Well just for Fair and Balanced reporting, here's the Consumer Confidence data: Consumer Confidence for June came in at a 58.5 reading compared to last month's 61.7 reading. Now I know that the story is that they had expected it would come in worse, but the fact it is worse than last month is alarming. Here's the chart below on Consumer Confidence for the past 30 plus years and a red X pointing to today's number at the right of the chart.

Are you feeling better now? I think not, as this number is almost at the lows of 2008 and 2009. You will notice that at no time on this chart did we have a reading this low and Not be in a recession. This indicates to me at least psychologically, people feel like it's a recession.

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Saturday, June 25, 2011

Unwillingness by people to prepare themselves for inevitable disasters.

This out from a Marin County, CA Grand Jury report on June 24th regarding Emergency preparedness of the County to an emergency. This is from the Pacific Sun newspaper:

Marin not 'ready' in event of disaster, says grand jury

by Jason Walsh

Always be prepared, concludes the Marin County Civil Grand Jury in its latest report on county disaster preparedness.

In the event of a major disaster, such as a "big one" sized earthquake, most Marin residents would likely be without emergency-response assistance for the first three to seven days, the grand jury says in its report released June 24, "Disaster Preparedness in Marin: Are You Ready?"

An investigation into Marin's disaster preparedness was launched by the grand jury in the wake of the Australian floods, tornados through the U.S., the Japanese earthquake and tsunami and other recent horrors in Chile, Haiti and New Zealand. Its findings: the ability of public safety personnel to respond quickly to assist residents is "severely compromised" and that "complacency [by residents is not a plan."
The grand jury found that 70 to 80 percent of Marin's "first responders"—fire fighers, police and paramedics—reside outside of the county—some as far away as Kern, Sutter, Nevada and Butte counties. Plus, only 30 to 33 percent of first responders are on duty at any given time, meaning there are not enough personnel to aid all residents for a period between 3 to 7 days following a disaster.

To be better prepared, the grand jury recommends that residents take advantage of training by Community Emergency Response Teams (CERT)—which trains neighborhood volunteers to augment the work of first responders—and Get Ready Marin, the two-hour program offered through local fire departments that assist residents in preparing a "shelter in place."

The report was particularly glowing of the City of Mill Valley's disaster preparation—calling it a "model that other cities and towns might emulate." Particularly, the grand jury lauded Mill Valley's "Fire in Mill Valley" blaze-resistant landscaping plan, as well as its Mill Valley Vegetation Management Plan, two programs aimed at preventing large-scale fires, a big concern for the town at the base of Mt. Tam. Additionally, Mill Valley received kudos for its semi-annual training of educators and its Get Ready 5th Grade preparedness programs. "To date," reports the grand jury, "800 residents have taken (Get Ready Marin) classes in Mill Valley."

The grand jury also credited the Town of Tiburon, which originally developed the Get Ready Marin program in the wake of 9/11.

"When a disaster occurs," concludes the report, "Marin residents must realize they will be on their own until first responders arrive."

Recommendations by the grand jury include: The County Office of Emergency Services create an electronic database to track OEC training required of managers and staff; that the county OES take over the management of CERT in 2012 and fund the program annually; and that the Board of Supervisors and the Sheriff's department "ensure that programs for disaster preparedness are given the highest priority."

This topic is of special interest to me as I serve on my town's Emergency Responsiveness Committee. The most difficult task is to get residents interested enough to go to a 2 hour class. This is never easy. I have been thinking if there were some tangible incentive for people to take a class they might. I am really receptive to any ideas here from you, so feel free to make some. Thanks!

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Market outlook: Painful times

Lest there be any doubt, the markets are heading down a lot more down. If you had any doubts, look at the volume of Fridays drop in the chart below, with 280 million shares traded. Average volume runs about 180 million shares these days. The volume for the last two days should have woken you up to what's happening. The major stock of the Dow 30 stocks responsible for this spike at the close was Cisco's stock. This market move of the past 30 days is a systematic steady erosion and not the quick panic correction followed by a nice rebound. This is eventually going to get quite painful for most people.

Most people will watch the drip, drip drip of their losses like a deer caught in the headlights. Those of us who are on the short side of this market, will reap the rewards of our patience. But here this, I will not take much pleasure out of this as the true meaning of this decline was avoidable and many fine people are going to be hurt financially. As a newsletter I read today said, "Wall Street thinks all is rosy, but Main Street knows it is a depression."

I have posted many charts on this site and showed some 30 year charts in those posts. The future does not look rosy. I wish it did! But we must face the reality that our elected officials are not trying to solve our countries problems. And let's be honest here folks, the Republicans are still saying no to any taxes, even for millionaires. They would rather see us default on our debt and try and win some political advantage then to fix the economy. I realize I am being partisan here, so save your emails to me. The last time this happened was when the then Speaker of the House, Newt Gingrich, shut down the government. They lost the next election smartly. It wasn't necessary. People were reacting to the inflexibility of those in power. If everything is on the table, so is taxes!

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Friday, June 24, 2011

Casey Anthony Trial: What's new today?

I have been following the trail somewhat regarding the accusations that Casey killed her daughter, Caylee. Not much to report that some others haven't already reported, but one thing which caught my eye today was that Casey seems to have gotten her hair cut or in a different style. The photo on top is from weeks ago. She had long hair for most of the trial but as we are getting closer to the end of the trial, look at the photo to below the first. Could she be unconsciously trying to look more unfeminine and motherly by such a short style where the hair is away from her face? For what reason might she do that? If her Defense attorney's condoned that move, I think they made a big mistake, as any woman who changes her hairstyle gets new attention and a new look by others. That's the reason people do it. But in this case that "Do" can project an image damaging to her defense. Here something I looked up on the matter:

"The Dramatic Haircut

Going from Long to Short Hair

Whether you've gotten a promotion, are tired of your infant using your hair as his own personal toy, or are just in need of something new, changing your hairstyle from long to short can be fun - and nerve-wracking. If you've had long hair for most of your life, it can be even more frightening.
1. Consider your personality. While a short, spiky cut may look great on someone who likes sports and is adventurous, if you're quiet and soft-spoken, you may feel uncomfortable."

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Market comments for June 24th

Which way will today's market play out? That is what I have been asking myself. The market had been down over 200 points yesterday but managed to stage a comeback and close down only 59 points on the Dow. But as you can see from the 3 month chart below, there was a definite Sell signal confirmed with a Hammer Candlestick pattern not only for the Dow, but also for the other major indexes like the S&P 500. Notice also the higher volume yesterday on the lower chart of the Dow 3 month chart.

But still the market did save over a 200 plus drop in the Dow and that gave me pause. So I pealed back some of the data to see what the charts are telling me going into today. Below you will notice a 2 day chart of the Dow in 5 minute increments. This chart clearly shows the surge back up from the lows and does show a slanted upwards "W" pattern or Head and Shoulder pattern going into the close.

So as we are within a few minutes of the open, I believe today will be a struggle between the Bulls and the Bears for control. Watch the range be tight for most of the day as the Volatility will drop. Watch volume as it should be less than yesterday as well.

There are still major issues to be dealt with like the impasse of the Congress to raise the debt ceiling and you know all is still not well in Greece. So if I had to bet, I would say we have a higher chance of ending down today than up. Of course, on the other hand, the Fed still has some influence in manipulating the market with still some funds left to spend before the end of June. Maybe we should all just go away and come back in the Fall after all. :)

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Thursday, June 23, 2011

Market comments for June 23rd UPDATE

Initial jobless Claims remained above the 400K level again this week. The data released was 429K for the week and last week's data was revised upwards from 414K to 420K. This data comes after Fed Chairman Bernanke had a news conference yesterday where he said the Fed saw a slowing economy and these words prompted a market reversal yesterday, where the Dow closed down.

There was news also on the Oil front this morning with rumors causing Oil prices to drop over $4/barrel. When the IEA held an emergency meeting, they announced they were releasing 60 million barrels of Oil stock, prices rebounded some. The Oil market will settle down some later but where it settles is anyone's guess.

Today's expected drop in US stock markets should see the Dow below the 12,000 level again. The big question still confronting nervous markets is whether Greece will enact tough austerity measures, as they must or default, and whether the US will pass a measure to raise its debt ceiling and calm jittery financial markets. Because the bluster from the Republicans has quieted on this issue in recent weeks, I do believe they have decided to extract as much cuts as they can in the deficit and then declare victory and raise the debt limit to get us to the next hurdle which is fighting for more cuts. This fight will be fought as an election issue during the Presidential campaign, in my view.

UPDATE: 7:15am PST

No sooner do I get this Blog up and make comments that I believe that the Debt Ceiling would be raised because Republicans have been noticeably quiet this past 2 weeks about their reluctance to raise the Debt Ceiling without drastic cuts in spending, that Eric Cantor issues a statement that the bipartisan negotiations have reached an impasse. These were the negotiations headed by VP Biden. Cantor says that only the President and Speaker Boehner can break the impasse. Here we go again!

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Tuesday, June 21, 2011

My Big Fat Greek Vote at midnight tonight. UPDATE

That's right, tonight a drama plays out in Greece, where Greek Prime Minister George Papandreou faces a vote of confidence vote by Parliament. That is the first of the hurdles he must pass. If he succeeds with the vote of confidence, then he must gain approval for tough austerity measures so that Greece will be bailed out by other European countries. It is going to be full of drama for sure. What else to expect from the passionate Greeks?! :)

While markets are up this morning, don't bet long here as there are a series of moves that must take place to kick the world debt crisis can down the road. But for now, we get the market bounce. I would advise paying attention not only to this drama playing out, but also the drama here at home with the debt ceiling negotiations taking place between the Democrats and the Republicans and lead by VP Biden. Oh, and watch for another pronouncement by the Fed on passing the Debt Ceiling limit as soon as possible and not to continue to play brinkmanship with it.

In the mean time, yesterday's market did end the 13day streak of the Put to Call ratio exceeding 1.00, as it closed with a 0.89 reading. Continue to watch the market for lower highs and lower lows with a zig zag pattern in effect.

UPDATE: 4:00pm PST
Greek Prime Minister George Papandreou won a vote of confidence, bolstering his new government’s chances of pushing through austerity measures to secure further international financial aid for the country.
A total of 155 lawmakers supported the motion in the 300- seat parliament in Athens early this morning, with 143 voting against,

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Monday, June 20, 2011

States Debt Pit: Meredith Whitney interview by CNN

I don't know how many of you have seen this video clip of Meredith Whitney, but if you haven't it is well worth the time. The topic is States Debt pit and was on CNN.

In the same article I read the following alarming fact: "Taxpayers have spent $4 billion since 1978 on California's capital punishment system -- and with only 13 executions to show for it. That's about $308 million per execution.

And without substantial changes, the state's total bill will expand to $9 billion by 2030, according to a new study by federal appeals Judge Arthur Alarcón and Paula Mitchell, his law clerk and a professor at Loyola Law School. The situation is now so severe, voters must choose to pay higher taxes or abolish the death penalty, the authors say."

To read the entire article click here.

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Saturday, June 18, 2011

It's official! The PC ratio reached 13 consecutive days greater than 1.00

It's official, the Total Put to Call ratio of Equities and Index Options has now exceeded 1.00 for 13 consecutive days, as of the market close yesterday. As mentioned the past 3 days, this is the first time this ratio has had this many consecutive days greater than 1.00 since June 26th, 2008.

It turns out that was the quiet period before the storm to come over the next 9 months. That was a period where we were just learning of the concerns of the Sub Prime problem affecting our economy. and by March of that next year the Dow crashed from the 11,500 level down to the 6,500 level, as is shown in the chart below.

Whether history will repeat itself this time around is anybody's guess. But with all the tampering of the monetary policy by the Fed and a weak stimulus package having little effect on job creation, God only knows where we are headed in the next year. From my vantage point it doesn't look good unless the country has the stomach and courage to do another real stimulus package for this economy like was done during the Great Depression. We need a real new WPA program. But the wealthy and their puppets in Congress want nothing to do with it. As long as they already have theirs socked away, why take the chance and invest in lower income Americans called the Middle Class, they say. I say we had better! What do you say?

Met a really nice guy last night who writes Financial books and has edited some of the classics on Trading and Technical Analysis. Had a great time talking with him. A shout out to Charles!

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Friday, June 17, 2011

Market comments for June 17th: Put to Call ratio analysis

Something a little different today for my most faithful readers, I have some charts you will only find here. I have recently been comparing the period of June 2008 to June 2011 because we have recently logged in 12 days now of the Put to Call ratio exceeding a 1.00 reading. I thought today a bit more refinement was in order to see what can be learned from a more in depth analysis.

To start with let me explain some of the data. There are Options of Puts and Calls taken out on stocks (Equities) and on the Indexes, like the Dow or S&P500. When I have reported to you that the Put to Call ratio has exceeded 1.00 for 12 consecutive days, I have included all of these Options in a Total reading. Today I am going to break down Equities from Indexes and am going to look at 2 periods, all of June of 2008 vs. June 2011 to the close yesterday.

Below are 4 charts. 2 of the charts are of the Equity volumes for 2008 and 2011 and 2 are for the Index volumes for 2008 and 2011. As you can see from all 4 charts that only one chart seems to have a real trend and that one is for Index Puts and Calls, (that is the first chart) and that the volume not only is trending but also that it exceeds all other Options Volumes for both periods.

To me this means that the biggest bets being made right now are being made for an overall market drop, hence the Index Put options rising to significantly higher volumes in 2011 than in 2008, before the major market correction down to 6,500 on the Dow. It seems to me that this time people are putting their money where their mouth is. Traders see that it isn't specific stocks which will tend to be hit in a correction, but rather the entire market. That is something to take note of.

UPDATE: 7:52am PST

Also of significant note today is that Options expire for the month of June and for the Quarter. Expiring equity, P.M. settled index options and treasury/interest rate option classes cease trading. Expiring cash-settled currency options cease trading at 12:00 p.m. EST. This is why the Volume is already over 148 Million shares in just a little over an hour this morning.

The Michigan Sentiment Index came in below expectations this morning for June. A reading of 71.8 is below expectations, which was 73.5 and below last month's 74.3 reading.

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Thursday, June 16, 2011

Market comments for June 16th

Another day and another market drop. The Dow closed down again yesterday as did our other Indexes. We start today with the Nikkei and European markets down again today because of the turmoil in Greece. Our Economic data was a little better this morning with Initial Jobless Claims dropping for the week of 6/11 to 414K. Expectations were for 425K, so this is a bit better and in the right direction.

Yesterday we closed with another consecutive day when the Put to Call ratio was =>1.00 for the 11th consecutive day. Yesterday's chart shows the history of this indicator and let's face it, people don't really feel that well about the economy or the stock market and are selling, rather than looking to buy on the dips. As long as that mindset is present, it does portend good times ahead for the Bulls, but does for the ever louder Bears.

Today's chart below is of 3 months for the Dow. Of particular interest to me and should be to you was not only the fact that we are getting lower lows and lower highs on bounces, but that the down volume is much stronger than the up volume. Yesterday, the volume was stronger than the previous 2 days of the market rising slightly. And then before that, the volume was higher too. The trend is still down, but we haven't yet gotten to the real scary drops that are coming. Don't say you had no clue of this coming!

The culmination of this in the form of a sharp deep drop may come in the next few weeks. Much is riding on the negotiations of V.P. Biden and the Congressional leaders who are trying to get enough votes to pass the legislation to raise the debt ceiling. It looks now like somewhere between $1 and $2 Trillion dollars will be reduced over the next 10 years, in the level of debt we have. However, if neither political party did nothing, the debt would rise $6 Trillion with what Congress has already approved. So cutting $2 Trillion is a step in the right direction, but not enough. We will be revisiting this issue for the foreseeable future. In the mean time, everyone knows that and many don't have the confidence to buy stocks, so drip, drip, drip, the market goes.

Today is the 100th Birthday of my former employer of 18 years, IBM. Happy Birthday, IBM! It was a great company and still is.

And lastly, I want to thank all those who wrote me privately yesterday on my Cisco article. It looks like many outside AND inside agree with my comments.

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Wednesday, June 15, 2011

Cisco stock hits multiyear low

Cisco stock this morning in pre-market has hit a multiyear low breaking below $15/share to $14.93 and the big question for investors is when will the drop stop. The previous low was at about $13.80 in March 2009 and it looks like the stock is on its way to retesting that low, as seen in the chart below. The stock is dragging the Dow down and it appears will remain one of the Dogs of the Dow for the foreseeable future, given the mia culpa by its CEO John Chambers recently in the press. It is my opinion that Cisco's turnaround needs require the same medicine that IBM needed in its day, a Lou Gerstner type CEO. I know, as I left IBM before Gerstner arrived, because I saw that IBM was inflexible and flexibility was needed at the time. It took Lou Gerstner to create that flexibility and kill many sacred cows. The person who created the problems can not turn around the business, as he is usually blinded by his own previous decisions and has unknowingly strong attachments to those decisions made in the past being "right." It's a shame the Board doesn't act swiftly to stop this slow death from playing out. There are many very smart employees at Cisco and the talent pool is very deep. The company needs a transformation and a break from past misguided decisions. Ego has killed many a business. Keeping one's Ego in check takes help from experts and a reverence for self examination. I don't think this CEO has that in him.

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Tuesday, June 14, 2011

Market comments for June 15th: Astonishing!

The Put to Call ratio today closed once again above the 1.00 level this time reaching 10 consecutive days the ratio has reached this occurrence. The last time the Put to Call ratio had a run like this was starting on June 26th, 2008 where for 13 consecutive days a 1.00 Put to Call ratio was observed. In the chart below, I have circled both occurrences with red circles and arrows pointing to both periods.

In the chart below, the Dow Industrials average is plotted so that you can see what turbulence followed just after the June 26th, 2008 period. It started the big selloff in the market.

The real question to ponder right now is whether we are at the precipice of the decline, as we were at roughly this time in 2008 as you can see from the chart. That was the beginning of the drop all the way down to Dow 6,500. Back in June 26th 2008, the Dow was at 11,500, which wasn't too far from where we are starting now, is it? :) Only time will tell and it will be hindsight as that. Coincidence or correlated? Cause or Effect? That is the real question. Astonishing!

UPDATE: 5:45am PST

The Core CPI for May came in at +0.3% or an annual rate of +3.6. Also, the Empire State Index dropped from + 11.88 in May to -7.79 in June and that isn't good! Dow Futures are down about 110 points and the Nasdaq Futures are down about -20 points. Adding to the drop in the Futures is the riots in Greece over the austerity required to get bailed out by the EU. The people don't want any part of it and have turned unfortunately to violence in the streets as tear gas and water cannons are now targeting those protesters.

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Market comments for June 14th

The latest data released this morning was on Retail Sales for May. Expectations were for -0.7% but the actual number came in at only -0.2%. See, that's an improvement. Retail Sales ex Auto came in at +0.3% and expectations were for the number to come in at +0.4%.

The PPI for May came in at +0.2% while expectations were for a reading of +0.1%. That's all the financial statistics for today which are meaningful although Business Inventories for April data will be released at 7:00am PST, I will not report it.

Dow Futures are up about 100 points today so expect that long awaited bounce this morning. But the overall trend appears to be down and with talk of more quantitative easing, it is clear the Fed sees deflation as the problem, not inflation.

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Sunday, June 12, 2011

Market comments for the week ahead and beyond

Let there be no doubt, the Dow will go as low as 11,600 shortly. From there we may have a bounce up but the odds are we will continue to see this and the other stock market indexes drop lower because much concern still lies with the issue of raising the debt ceiling. We have less than 3 weeks for this issue to get resolved before the markets start to get very nervous and volatile, even though we have until Aug. 2nd before the government defaults on its debt obligation and the government shuts down. The sides are still miles apart and it seems to be playing along in a similar game of chicken as to when Newt Gingrich was the Speaker of the House during the Clinton Administration. The Republicans miscalculated then and appear to be again now. Only this time the consequences our governments credit will face is much worse as the United States has never defaulted on its debt obligation. So you see this is very serious indeed.

I have added a 6 month chart of the Dow this morning as is seen below. Notice that on Friday, which is often a low volume day, the Dow was down 172 points at the close. Notice also that the Volume was indeed higher than the entire rest of the week.

Also noteworthy was the fact that the Put to Call ratio continues to be greater than 1.00 now for 8 consecutive market days, not seen since Sept. 9, 2008. All the signs are warning investors this is serious. Don't say you didn't know it would get so bad. You have been warned!

How far down is the market going to go is subject of many guesses. My guess is that we will be first going all the way down to the 10,000 level after testing 11,600. A look at the 2 year chart below shows just how easy the Dow and other Indexes can unwind. I have identified 3 levels to test in what could be a drop as far down ultimately to test the Dow at 6,400. Yes, that's right, Dow 6,400. You read that correctly. Much depends on when and what the Fed is allowed to do. If the Fed stops its quantitative easing (QE2) and not do more, we could get there sooner rather than later. If the Fed decides it needs QE3, this drop and crash will be postponed for a while, but it will be inevitable, we will crash to test 6,400 eventually. A defense will be better than any offensive market move going forward as the odds are against a Bull market now. Fair Warning! We are in a Bear market now.

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Friday, June 10, 2011

Market comments for June 10th

The market gain yesterday in the Dow and other indexes might have been impressive, fist glance when you consider the Dow gained 75 points to close at 12,124, but of note to me was that the volume was less than the previous 3 days this week in the chart below. That is not the kind of bottoming out of a declining market that one would expect.

Of additional note has been the Put to Call ratio of this week, as is shown in the chart below. Pay particular attention to the little red line average of this week's data at the end of the chart. It is clearly above the recent trend line. The graph is of the Put to Call ratio from Oct. 2nd, 2008 to the close of the market yesterday. The Put to Call ratio has exceeded 1.00 for 7 consecutive days as of the close yesterday. This has not occurred since the period from Oct. 2nd-Oct 9th, 2008. So take note of where we are right now. We are at the beginning of where the final crisis started in 2008, comparing the 2 sets of Put to Call ratio data that had 7 days in a row above a 1.00 reading!

Today's Futures point lower and while I would expect a continued bounce today to close the market to the upside, This recent decline has more steam to go lower. As the issue of raising the debt ceiling becomes more of a game of chicken with politicians, I think this will take its affect on the markets. I think we are headed to test 11,600 in the coming week or two.

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Thursday, June 09, 2011

Market comments for June 9th UPDATED

Today the Initial jobless Claims were reported. It marked the ninth straight week in which applications have been above 400,000. That trend represents a setback after applications had been declining all winter.

Applications had fallen in February to 375,000, a level that signals sustainable job growth. They stayed below 400,000 for seven of nine weeks. But applications surged in April to 478,000 — an eight-month high — and they have been stuck above 400,000 since then.

The Futures are running +40 for the Dow, +4 for the S&P and +6 for the Nasdaq. Hard to believe that the market will bounce up today and that news but it looks like that is what is in store for today. As you can see from the chart below, we are due for a bounce up at some point and maybe it starts today.

European markets are up a little this morning and it looks like the Central Bank President Jean- Claude Trichet will signal today that policy makers intend to raise interest rates as soon as next month. As a result, the euro climbed against the yen and the dollar.

UPDATE: 7:30am PST

According to, European Central Bank President Jean- Claude Trichet signaled the bank intends to raise interest rates next month, saying “strong vigilance” is warranted to contain inflation.

Latest data confirm “continued upward pressure on inflation,” Trichet said in Frankfurt today after the ECB kept its benchmark lending rate at 1.25 percent, as forecast by all 52 economists in a Bloomberg News survey. “Accordingly, strong vigilance is warranted.”

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Tuesday, June 07, 2011

Dow Gold ratio hits a new 1 1/2 year low

As an added feature today, I have noted that the Dow/Gold ratio hit a new low yesterday of 7.8 and it looks like it is not yet as low as it is going. First an explanation of the Dow/Gold ratio for those unfamiliar with it.

In very simple words, the Dow-Gold ratio tell investors how many ounces of gold is needed to buy one Dow Jones Industrial Index.

If we consider today's index value and gold prices then:

Dow-Gold Ratio = Value of Dow Jones / Value of Gold in Ounce = 12,089 / 1549 = 7.8

So, if the Dow-Gold ratio were to touch one, either gold will go ballistic in the long term or the Dow Jones Index will crash very significantly.

The first chart below is of the Dow/Gold ratio for all of 2010 and 2011 as of the close of the market yesterday.

The second chart shows the Dow/Gold ratio every year since 1980 taken on Jan. 31st. The last data point on the chart is for yesterday's close of a 7.8 reading.

This 3rd chart below is and commentary is from an article written by Faisal Humayun and Seeking Alpha on June 7th 2009:

This from Seeking Alpha:

"Below is my opinion (Faisal Humayun) on why I feel that Dow-Gold ratio will touch one and why I also feel that it will be gold that will go ballistic in the long term leading to this ratio touching one.

Before I proceed, I would like to present a 200 year Dow-Gold chart for readers. This will give a clear idea as to how this ratio has moved historically.

What is interesting is that the stock markets have gone up post 2003 till late 2007. But during this period, the Dow-Gold ratio has gone down. This means that the stock markets have gone up only in nominal terms. In terms of real money or other hard assets the US stock market has been on a decline since 2000 as indicated by the Dow/Gold ratio."

To read the entire article on Seeking Alpha, click here, it's worth the read.

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Monday, June 06, 2011

Market comment for June 7th

As I said on my post over the weekend, this week i most critical and if we broke below the current uptrend line, we were heading much lower. Well we did go below that line and broke below some key levels. For the S&P 500, it was the 1300 level, for the Russell 2000, it was 800 and both those were broken today. The Dow key level is 12,000 and we are close to breaking below that level as well and on the Nasdaq it is close to going below 2700.

From the chart below of the Dow, you can see that the steepness of the drive down has accelerated as is shown on the 3 month chart and the 2 trend lines drawn in Red.

Expect this drop lower on the Dow to continue as we are going to test the previous low of 11,600 soon. And in my view, this is just the beginning inning of the correction. Don't forget though that markets don't go just straight down. Expect a bounce up but it will be a lower high than previous points followed by new lower lows.

I must make one statement about Rep. Anthony Weiner. The truth is I don't care what he did in his personal life regarding taking and sending photos of his crotch. What did bother me was his lying about it from the beginning. He would have been better served to tell the truth form the beginning and gone on with his life. Instead, he now is living with the embarrassment he tried to avoid from the beginning except now, we know he also lies. It doesn't change the facts that he has been a very good voice for the Democrats, which now has been silenced, at least for a while.

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Saturday, June 04, 2011

Market commentary: Looking ahead to a critical juncture in the markets and the country

Before giving an outlook for the week ahead, I think it important to review where we are now and as usual I will be using a number of unique charts to se where we are and see if any trend emerges for a higher probability market call. To start this off I would like to focus first on the Dow.

In the chart below I have made a custom chart of the Dow from January 1st, 2010 to the close of the market yesterday, June 3rd. You will notice that I have drawn 2 blue trend lines showing the uptrend of the Dow one starting in July 2010 and the other more vertical line starting around Sept. 1st 2010. We are currently touching this line and will see whether we break below it next week or not. If we do break below it then the other lower line becomes the next major support level. You will notice that this week there was also a Volume spike with the selloff this week as is indicated in the lower chart. You will also notice that I have placed several dates on this chart which will be important to look at on a chart of the Put to Call ratio in my next series.

You can see from the chart below of the Put to Call ratio for the same period of all of 2010 and to the close of the market yesterday, that the Put to Call ratio closed yesterday at a reading of 1.24 and that the Put to Call ratio had not gone that high since 9/10/10. Compare that date on this chart to the chart above of the Dow and what happened after that high a reading was reached. The Dow started its climb which lasted almost a year.

The key to me here is to look at the Put to Call ratio for 1/2 the time before the 9/10/10 date. It was a period of higher variation in the ratio and correspondingly a wilder time in the Dow. There was a higher Put to call ratio of 1.53 during that period as you can see on the chart from a Dow of 11,200 down to a Dow of 9,800.

This next week is very critical for the market. If we break below the current uptrend line we could go much lower. With all the lack of action by the Congress on raising the debt ceiling, this is just adding gasoline on a potential firestorm. Within the next 30 days, Moody's is going to consider whether to lower the U.S. rating from triple AAA causing huge problems around the globe. This is an irresponsible action of Congress. Playing chicken with the debt crisis is similar to what Newt Gingrich did during the Clinton Presidency and shut down the government, but much worse. Back then it only affected U.S. workers and the American people some of which didn't get their Soc. Security checks. But this time we are giving the middle finger to the world and especially those who hold our debt and will not be so eager to fund our debt in the future should we default. These are very dangerous times.

So what would I do right now? I would be defensive right now. I wouldn't be a buyer of stocks until the trend became clearer. I would take some money off the table so if the market drops, I have locked in any profits I have gained over the past year. Watch the Put to Call ratio daily and see if we are going higher. While normally a 1.24 reading would be a Buy signal, we could get much higher Put to Call ratios in the near term and all they might be saying is not to be a buyer quite yet as there is a lot more downside.

Also, look at the Treasury Bond yields just from April 25th. I have been recording the data daily and this chart says that all interest rates have dropped, from a 3 month to a 30 year and I might add rather quickly. Ask yourself this question, why has the Fed wanted the interest rates so low and going lower? People on Fixed income are getting creamed. It's like the Fed is trying to get everyone to look for riskier investments and get their money out into circulation to "stimulate" the economy more. the 30 year Treasury Bonds are at only 4.21%.

Now that the Fed and our Government has taken on all the risk, they seem to want to unload that risk on you and me and our children and grandchildren's lives. There is a temporary solution to this. If we could come up with legislation to increase the debt limit, which must be raised no matter what else we do, then that would calm the markets. Then the Congress needs to identify a minimum of $4 Trillion it is going to reduce the national debt and still invest in certain growth ares where we must. Republicans and Democrats need to stop the idealogical battles and start to put the country first and find savings across the board. Defense must be trimmed, healthcare needs simplification and technology improvements, Foreign aid needs not to be routinely given, but subjected to new criteria as to whether they do something for America There should be some strings on repatriation of corporations funds abroad, so that if corporations are allowed to bring money back, they must create meaningful manufacturing and service jobs here to compete better in the world and ensure the survival of our Middle Class and our economy. We need high speed rail in America. It would mean less emissions and less pollution from cars. And the wealthiest Americans must pay more taxes! Let's get on with it!

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Friday, June 03, 2011

Unemployment Rate rises to 9.1%!!

The Unemployment rate for May rose to 9.1%. Wednesday I made a prediction that the rate was going to rise to this level and that could be what others in the market expected, hence the selloff two days ago. This will have a very negative impact on the stock market today and continue the downtrend of lower lows, followed by lower highs.

Non-Farm Payrolls for May were 54K jobs added. Expectations were for 169K. In April it was reported we added 244K new Non-Farm jobs, but today, that number was revised down to 232K.

These data released today combined with previous data this week of a much lower Consumer Confidence (60.8 vs. 66 in April) and much lower Chicago PMI number (56.6 vs. 67.6 in April) have the Futures market for the Dow down -142. This is going to be a rough day for the Bulls and a rough week as well.

Next week this trend will continue!

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Thursday, June 02, 2011

Mitt Romney announces his run for the Presidency today. Bravo!

Mitt Romney announced today that he was running for President and made his announcement in New Hampshire. Many here know that I tend to be a social liberal and a fiscal conservative, although at times I have been more liberal recently on fiscal matters, like agreeing with the bailout of GM.

Having said that, I need to make a comment about Mitt Romney. When he is in a room with any group of people, he tends to be the smartest person in the room. He is a very likable person if you spend any time with him and his background makes him an excellent candidate for fixing our economy.

You're wondering I expect by now, what about President Obama? Sure I like President Obama, not only as a person, but also as a leader. However, regarding smarts, Mitt Romney has almost no equal. I say this as someone who met Mitt Romney, when he was the head of Bain Capital, and I was at a meeting with him. He asked excellent questions, was compassionate, and was solution-minded based upon his comments and questions.

Normally I would have to pause before voting to decide whether I would vote for President Obama or Mitt Romney. Mitt's appeal is much more central than the other candidates in the race. But Mitt has allowed the crazies in his Party to pull him off his game. In my humble opinion, Mitt should NOT cater to them, but be himself. If he stopped worrying about how the "base" feel or reacted to what he was saying, he will not lose the nomination. But if Mitt can't be Mitt, he doesn't have a chance from "normal" Reagan Republicans to get the nomination. I have said here before, I voted for Reagan. I know this is a difficult problem for Mitt, because some of his "handlers/advisors" in the past, got him to flip flop, which he should never have done. Mitt should be proud he was able to implement a healthcare solution he could get passed in Massachusetts, a very Democratic State. Bravo!

So don't dismiss this guy. Get to know him. Really listen to what he has to say versus the crazies who have no chance to win the general election in 2012. The Independents will be deciding who is going to be President in 2012. Mitt does have a a very good chance to win the Republican nomination! And this would be a good step for our country as it would mean a more centrist race with less nastiness. Good luck Mitt!

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What's in a headline? Misleading the public!

Headline reads: "Jobless Claims in U.S. Decreased Less Than Forecast.". So what does this phrase really mean for a Public who has only time to read a headline? Has our financial news media and our government finally perfected the art of clever Marketing, where there should be none? I think they have. Let me rewrite the headline for a more realistic result, "Initial Jobless Claims still too strong for a recovery!" You see the expectations were for only 400K Initial Jobless Claims and we got 422K. Remember, we were below 400K for about 4 weeks last month, but since then, we have been steadily gaining in these jobless claims. Additionally, last week's data of 424K was revised upward this week to 428K. Get the gist of the news now? Hope so.

Oh, and did you know that the reason the market turned around this morning from positive to negative was the fact there are news reports that the NY Attorney General has issued a Subpoena for Goldman Sachs over there testimony to Congress last month. Senator Levin of Michigan said then that Goldman Sachs had misled Congress about the company’s bets on the housing market. The firm has said its testimony was truthful.

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Wednesday, June 01, 2011

Market comments for June 2nd UPDATED

The market on Wednesday finally dropped given the recent poor economic news. I have said that I thought there would be lower highs and lower lows going forward and today we seemed to affirm that prediction with a drop of 288 points on the Dow. Below, I have added a 3 month chart of the Dow, which shows new lower lows, signified by Blue arrows and new lower lows, signified in Red arrows.

Thursday will show the release of Initial Jobless Claims, Productivity, Factory Orders and Unit Labor Costs. On Friday the Unemployment rate for May will be released as well.

UPDATED June 2nd at 5:38am PST

Initial Jobless Claims for the week of May 28th came in higher than expected again for the 4th straight week at 422K, while expectations were for only 400K. It seems that it is going to take a long time before we get back below 400K as were were over a month ago. I would expect this data will show that the Unemployment rate ticks up for May to possibly 9.1%. If it does this, that would be the second month in a row where the rate has increased again.

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