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!

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.

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.

Market comments for the week ending Nov. 12th

Well as it turns out the Put to Call ratio did signal this week's drop in the market. The Dow dropped 252 points, but that is only 2.2% for the week. What was also amazing was that Cisco stock dropped about 17% in one day on the news they were going to miss analysts expectations, even while having a good quarter. But Cisco dropped more yesterday closing at $20.15 and hitting a low yesterday of $20.03 for the day. Cisco was as at its recent high of $24.50, before the earnings disappointment. So it has had a 17.8% haircut. Notice from the chart below the gap down but look more importantly at the volume traded. This has more to go down, depending on market conditions.

Now look at the volume during the decline this week and compare it to the previous volume average, from the chart of the Dow below. You will also notice that the pullback on Friday dropped us below the uptrend line. The big question is will it go back over it or continue to drop.

The market does look like it will go down further but it is anyone's guess how much and on which days.

Below is a 3 month chart of the S&P 500, which shows a similar pattern and the break of the uptrend line.

This coming week there will be more political banter, because the President is back from his Asia trip. There has been some deliberate leaked news about proposed cuts in spending and raising taxes from the bipartisan White House Commission on Fiscal Responsibility and Reform that President Obama had formed, which is headed by Erskine Bowles, and Alan Simpson. I think they had leaked these ideas out to the media so that commentary could start in advance of the President returning to Washington, and most likely will dominate the news along with any unexpected Financial bombs which come to light this week. The Irish Debt issue has crept back in the headlines in Europe and there is an uneasiness with the Fed's actions and approach with Quantitative Easing (QE2). Ever onward!

Cisco disappoints analysts in after hours. Stock drops 15%.

In after hours tonight, according to Bloomberg.com, Cisco forecast sales and profit for this quarter that fell short of analysts’ estimates, sending the shares down as much as 15 percent in late trading. This will have an impact on the Dow tomorrow as the Fed will have to start to use QE2 to help prop up stocks, as many sell Cisco shares.

To read this article on the announcement, click here and a commentary on Yahoo here.

Heck of a move up today in the stock market.

Yes, today the market soared after the rise after the close on Friday. The Volume equalled Fridays which had been higher than many days last week. It was convincing and propelled the Dow from 8,500 to the 8,700 level, closing at 8,721. This was just under the 200 day Moving Average, but both the S&P 500 and the Nasdaq have gone above the 200 day MA, and it happened on stronger volume. This is why I say it is convincing.

So where do we go from here? Well it looks like we are headed higher and, in fact, we may go back to the top of the range for the Dow which is at 9,300. The Dow is taking out both Citigroup and GM and replacing them with Cisco Systems and Travelers Ins. Co. Today some commentators said that the Dow may now become more volatile with these 2 new additions.

This makes it very difficult for those holding Shorts like TZA and SDS as I am. I had several friends ask me today what to do if they still hold them. Here's what I said. First you must ask yourself a couple of questions. The first is this. Do you believe we are not going to go back to 7,300 on the Dow? If the answer is I don't think we will go lower and retest 7,300 or lower, then you should sell those Short positions. If you think we will eventually go back and test that level, as I do believe we will, then hold on and wait. You could buy more shares as your positions continue to deteriorate and average down from your current price. I will tell you what I am going to do. I am going to continue to hold my shares of TZA and as the Indexes continue to rise, I will wait and buy more shares of TZA cheaper and hopefully will be rewarded before years end. As most of you know from reading here, I believe we will have a major drop and retest most likely in the Sept./Oct. timeframe.

I did not expect this rise with still all the bad news out there and most everyone knowing Friday's unemployment numbers will be about 9.2%. But I said I would say I was wrong if I was. I was wrong when I thought we would have the pullback. Sorry friends. But I never promised you I would be always right, either! It doesn't make sense from where I sit that the market would be going up, but I can't fight the facts. I do believe this is a false sense of comfort and I still caution to preserve capital. I felt this way back in the year 2000 and felt then like I was crying in the wilderness as everybody wanted to jump on the gravy train of a higher Nasdaq because of the Dot Com bubble. I said to go to cash then too, 6 weeks before the big drop. But most didn't head my warnings except a few that did and were thrilled they had. Stay tuned!