Market comments for March 15th UPDATE

Japanese stocks overnight had a terrible day dropping over 1000 points. The Futures are showing a drop in all US Indexes of about 1.5% to 2.3%. The continuing explosions at the Nuclear Reactors are causing concerns all over the world where Nuclear Reactors are used. Many lessons will be learned here in the next few years but for now panic is settling in all countries, including the U.S. It's hard not to see a connection to the Japanese stock market and the troubles in Japan as the cause of our market drop. But our market started to drop much before the Earthquake in Japan.

I expect the market to drop again and then have a rise but the rise will be a lower high than before and we will continue to make lower lows as I have stated here for a number of weeks. If you don't want to sell your stocks, then buy a hedge like some Ultra Short ETFs like TZA, SOS, FAZ and any others that go inverse of the Indexes they represent. It will help cushion your losses. But again, think if this is a longer drop, it might be better to sell now and take some profit and repurchase much later when stocks are cheap. The chart below is my best guess at Tuesday's action in the Dow. Notice the constant slide of the Dow drop.

UPDATE 5:40pm PST

Here is the actual chart of the Dow after the close today.

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.

Summarizing where we are in the stock market after the close on Tuesday, new Support levels have been determined because of the 150 point drop on the Dow today. S2 (Second level Support) is now at 10,278 and S1 (First level Support) is at 10,360. Clearly we went through several previous levels of support and the Dow is poised to drop in coming days.

For the Russell 2000, S2 is at 652 and S1 is at 644. The Russell closed today at 646 down 14.12 or
-2.14%. Since TZA is a 3x ETF Ultra Short of the movement of the Russell, it closed at $7.00, up $0.44 or 6.71% today. I expect these shares to continue to rise and the Call Options for October and January to continue to rise. R2 (Second level Resistance) for TZA is at $7.08 as we already went above R1 which was at $6.17/share. We most likely will go above this level possibly tomorrow.

Those of you who have been following my site now know how to identify and analyze these "W" patterns which foretell of the next most likely direction of the market. In the 6 month chart above, I have identified the overall "W" pattern, you can see it slants downward as indicated by the Red line under the "W" pattern. This usually means this Index will most likely go lower than the bottom of the second bottom point of the "W". This same pattern is evident in the S&P 500 Index and also the Russell 2000. The Nasdaq index has the same pattern but the "W" slants upward, meaning this Index should go up. However this seems inconsistent and will need to be resolved over time. One scenario might be that a single stock drops significantly driving the Nasdaq down greater than the other Indexes and thus resolves the discrepancy. This could happen during earnings season which starts in a few weeks.

The Fed speaks Wednesday on Interest rates. Don't expect any new news but in spite of that watch for a market reaction. Things are not tightening by the Fed because we are in Deflation, not Inflation!

Dow Intraday pointing down while TZA pointing up (Update)

The Dow Intraday chart today, June 8th, is pointing to go lower, as can be seen by the chart above. As you can see by my identification of the "W" pattens and the slant of the "W" the direction to follow.

In addition I have placed a 2 month chart of TZA. For those new here, TZA is an ETF Ultra Short of the Russell 2000 Index. It is a Triple movement Ultra Short. TZA goes in the opposite direction of the Russell. So if the Russell 2000 drops 1%, TZA goes up 3%. As you can see from the chart below, this "W" pattern is slanted up and so is TZA. It has made a breakout to the upside. You might even want to look at a 1 year chart of TZA. Do yuo think money could be made here? :)


UPDATE 12:30pm
Well as you look at the Intraday of the Dow below you can see the last "W" pattern is slanting down. This usually says we are going lower than the bottom right leg of the "W". Notice the other "W" patterns did follow through on the direction of the slant after the "W" was formed. We shall see!


Update: 1:15pm Market closed
Well I made a mistake as I was in too much of a rush today in my last 1/2 hour update. I missed the larger "W" pattern which had formed and was so focused on the tiny one I forgot that the larger "W pattern slanted up. I drew it in with a Red dash line. I am very sorry for the error. I will take my time next time and not rush. No excuses. I'm just surprised that no one called me on it and pointed it out. You had your chance. Next time. :)

Friday June 4th stock market commentary

The jobs numbers came out this morning. It's obvious that the government was responsible for job creation by hiring Census workers. Private sector jobs were up only 41,000 jobs. This was taken by the market very negatively. The Dow Futures before the report were at -60, but after the report they dropped to -200. I expect this to start the decline in the markets and to follow my predictive pattern I posted here in previous posts and repost today below, as well as what the market has done since this prediction.. This is going to be a bad day and Monday should follow through on today's drop.

You will notice from the chart above that the Eurozones Blue Chip Index looks bad and was pointing down even before the Jobs report, but the jobs report drove all of Europe's Indexes lower. Most are down about 2.5% currently.

I will add Updates on this same post during the day with comments and charts, so come back and see what has been added.

I am thrilled I am on the right side of this trade now by selling my TZA Puts yesterday and Buying the TZA Calls. Remember TZA is an ETF Ultra Short of the Russell 2000 index, symbol $RUT. So buy buying TZA Calls, the purchaser believes the Russell 2000 will be going down. TZA is a Triple short, meaning that for every 1% move down on the Russell 2000 Index, TZA moves 3% up. It is one of the most leveraged Option plays in my view.


Update: 7:00am PST
With 1/2 hour into the trading day, the Dow dropped down as expected about 205 points, but has recovered only about 25 points off the bottom. I haven't posted the Intraday chart yet, but it looks like a "w" pattern was formed and is slanted down. So I believe we will take out the current lows of the day and go lower.

Update: 9:40am
As the Intraday chart above shows we did go lower this morning. But if you look at the red line I have drawn, it points to even lower levels between now and closing. In view of this I purchased more TZA Calls for October for $1.50/share with a Strike Price of $9.00



Update: 11:00am PST
OK, here is the proof in the chart above that we did go lower. I do not know how low we are going today but several things are noteworthy. First, the volume is high today for this time at 120 Million shares traded on the Dow. Also, the Put to Call ratio has moved from 0.60 in the first 1/2 hour of trading to 0.91 this hour.

Update: 12:40pm PST
There's 20 minutes to go before the market closes. The key today will be if the Dow closes at the lows. If it does, it may mean a reversal of the market next Monday or Tuesday. If it doesn't, we have more downward momentum to go. Stay tuned as we are down 346 points!

Miscellaneous tidbits

I wanted to update my Blog readers in the face of a very quiet news time right now. Yesterday I bout additional shares of the ETF Ultra Short on Silver, symbol ZSL. I got the shares for $4.07/share. When the speculation on Gold and Silver abates, and the prices in those metals drop, I want to make a nice profit. Since Silver usually drops much more than Silver, I figured that was the better play.

Over the next 30-45 days the market direction will become much clearer with the Earnings season for last quarter being reported for the history books. The real question to ask yourself is this. Will the improvements in earnings this year really be enough to justify these high prices for stocks or will a correction finally happen? Unemployment isn't really going to get better anytime soon so when the Unemployment rate for December is announced tomorrow don't be surprised.

This month is going to be cold for many of us, but we know that it too will eventually end and warmer days will be ahead. Stay warm!

Is Shorting Silver still a good idea?

I thought I would update my recent postings with Silver and using its ETF Ultra Short, symbol ZSL. I have shown above the most recent 6 month chart on ZSL and also the 6 month chart on the price of Silver. I got into this trade at $4.24/share and later bought more at $4.54. Current price as of the close of Friday was $4.78/share. You can see from the chart of ZSL that it is now over its 50 day Moving Average line.

In the 10 year chart below of Silver, you can see that the normal price point for Silver is much lower. That in part is the reason I am using ZSL as a trade, because I believe Silver will go back to a more normal range of $12=$13/ounce, compared to where it is now around $17/ounce.


I think this is still a good trade and in the coming weeks of January and February, it will prove profitable. I said in earlier posts I see an unsure market until earnings come out in the beginning of February and coincidentally I see the action the Fed will take to start to allow the economy to make it on its own, causing a drop in Silver in the short term. However long term I see both Gold and Silver increasing in value. This trade is good for only 3 months I suspect.

Gold or Silver? Long or Short?

I thought that since there has been much made recently of the move of Gold this past 6 months to a year, that I would comment on it as a current market play. And, I can't talk about Gold without talking about Silver because over the past 5-10 years, when Gold moves up, Silver moves up at a faster rate, and if Gold moves down, Silver moves down at a faster rate. So as far as I am concerned, the play when considering either as a stock play, Silver is the one to consider.

Let's start by looking at the 1 year chart of both precious metals below. The first chart is the 1 year Gold chart. It had a low of $815 and a high of about $1225/ounce for a gain of $410 from the low or 50.3% for Gold.


The second chart is the 1 year Silver chart. It had a low of $10.50 and a high of about $19.50/ounce for a gain of $9 from the low or 85.7% for Silver. You getting my drift here and why I have always written here that Silver is the play overall when considering the greatest gains during times of significant movement in price? Hope so!


Ok, now let's take a broader look at both metals on a 5 year chart for each. The first chart is the 5 year Gold chart. It had a low of $400 and a high of about $1225/ounce for a gain of $825 from the low or 206% for Gold.


The second chart is the 5 year Silver chart. It had a low of $6.50 and a high of about $20.90/ounce for a gain of $14.40 from the low or 222% for Silver. When comparing both precious metals now for both periods, it is clear that over the longer haul, Silver still outpaces the gains in Gold as a trade and particularly over the past year, while Gold has gotten all the attention, Silver was the trade play to make for the move up. You still with me? Ok, now to the final point of this post.


This last chart shows an ETF Ultra Short of Silver, symbol ZSL for the past year. You will notice it has had the inverse move of Silver to the downside. It had a high of $23.75 and a low of $3.66 for a loss of 84.6%. I bought the Ultra Short ETF, ZSL, because I expect that Silver is going to drop again and settle back to a more normal level and that the gains in this should far outpace any other investment. The reason is that if it goes back to where it was a year ago, you do the math. I just bought it at $4.24/share and if it goes back to its former 1 year high of $23.75, that's a gain of $19.51 or 460%. Now you get it! Even if it goes only half way back to where Silver drops back to only half of its price move, say around $13-$14/ounce, it is a huge percentage gain for this investment trade. Many say inflation is on the horizon. I say not for quite a while and this play will be over before that happens in my humble opinion. We still have some deflation out there. I think it's a no brainer.

And if you look carefully at the last 5 data points of ZSL on the 2 month chart below, you will notice it is headed up and the volume is strong. I think the case to consider this as an ETF stock to trade is strong. The three trend lines, the 9 day Moving average line as well as the 18 and 27 day resistance lines, have all fallen. We closed also above the 50 day Moving average line on Friday. Have I built a strong enough case fpr you yet to consider this?


Remember, I do not now your own financial situation and can't advise anyone as to what to do as you are responsible for your own investments and I am not a licensed financial advisor. I'm just someone trying to stimulate your thinking about your investments. But I would certainly talk this over with your own personal financial advisor and get some expert advice. Ok, I have given the obligatory cautionary note. The rest is up to you to check out.

Consider being a Follower of this Blog by clicking on the word "Follower" at the top of this page just above the WETHEPEOPLE title. Wishing you more prosperity and good health in the New Year.

Put to Call ratio as a market Indicator

This morning I was doing some research and had a discovery that I wanted to share with my readers. It has to do with stock market indicators I track daily and what they mean to me. I am always open to hear other points of view on the same data so have at it if you like. The one I chose to focus on today was the much touted Put to Call ratio. Simply put, it is a ratio of the trading volume of put options to call options. It is used to gauge investor sentiment. For example, a high volume of puts compared to calls indicates a bearish sentiment in the market. I use the extremes of this indicator to help me determine market turning points and whether I should buy or sell stocks. In looking at the Put to Call ratio from 2004 to 2009, I discovered some interesting facts. First looking at the chart above, I have selected the most extreme values on the Index and plotted them as they occur over time on the Dow chart. You can see that most of the extreme point showed Bearish trends for most of 2007 and 2008, with the exception of a few low data extreme points such as 0.57 and 0.66. Most of the signals said to sell. You might want to double click on the chart to see it larger on a separate page.

The number of times the Put to Call ratio was at the highs of between 1.2 and 1.7 was 135 times out of 1400 data points. That's 9.6% of the time the sentiment was very pessimistic (Bearish). Interestingly, of those 135 times, here's the number of times by year:

2004 9
2005 9
2006 20
2007 33
2008 36
2009 0 (so far)

Here's a breakdown of these 36 signals by month for 2008
Jan 5
Feb 2
Mar 9
April 2
May 0
June 1
July 2
Aug 0
Sept 5
Oct 7
Nov 3
Dec 0

Remember it was Oct. 2008 that had the big drop from a Dow of 11,000 to about 7,800. The Put to Call ratio was screaming in March warning us of an impending drop in the market.

The number of times the Put to Call ratio was at the lows of between 0.69 to as low as 0.32, was 88 times out of 1400 data points. That's 6.3% of the time the sentiment was very optimistic (Bullish). Again, interestingly, of those 88 times, here's the number of times by year:

2004 51
2005 13
2006 15
2007 2
2008 0*
2009 6

* Notice that there were 0 Bullish signals in 2008 and also notice that for only the first 4 months of 2009 there has been 6 Bullish signals. It may be we are in line for about 18 for the year at this rate.

Here's what the Dow did in each of those years starting with the first number the opening price in January and the second number the December ending.

2004 10,425 10,800
2005 10,800 10,796
2006 10,796 12,500
2007 12,500 13,264
2008 13,264 8,483
2009 8,483 8,574 Closing price on May 8th

It is clear from the above data that there were many signals to sell and prevent the loss of capital by watching this Put to Call Indicator. The difficulty with using any single indicator to make a market decision is that you don't know if you are in a transition period within that indicator or not. So using the highs and lows as determination points can be misleading and costly, as I can tell you first hand. I don't use a single indicator, but try to use several. I happen to like this one but trends are more important as you can see from the above data, than isolated data points.

If any of you were recipients of my Newsletter and can remember back in 2000, I had used the indicator at its extreme to tell my readers I was going into 100% cash at that time because the extreme reading on the Put to Call ratio was at the most Bullish signal at 0.30. That extreme value of Bullishness could be a great tool to find a turning point while everyone is buying and selling into the rally. Conversely, when the Put to call ratio was at the extreme pessimistic value after 9/11, I used it to Buy back into the market, as did many others. So the take away is this from the Put to Call ratio, when the numbers start showing consistently a high or low value, believe the trend. If the numbers are staying low, it is a bullish sign and the market should rally. If the numbers are pointing higher, it is a bearish sign and the market will drop. However at both extremes they will reverse that trend.

Lately the market is signaling a Bullish, not bearish trend with the Put to Call closing on Friday at 0.86 and it has been as low os 0.65 recently (May 5th). We are close to testing this rally as we approach the 200 day Moving averages for the Dow and S&P 500. We have gone over the 200 day Moving average on the Nasdaq this past week but retreated below it. This next week is an important week. If I just use the Put to Call ratio as an indicator, it says the market will go higher. But if I consider the 200 day Moving average it gives me pause and has been the reason I have not sold my ETF Ultra Short, TZA. It has been painful to hold on to the shares given the big drop from about $31-$36/share purchase price to the close yesterday at $25/share. Luckily, my shares of other stocks like BCON rose significantly lately to minimize the paper loss. Here's an excerpt from the Dynamic Wealth Report on the 200 day Moving average from Feb 23rd, 2009 and is applicable today:

The 200-day moving average is still trending downward. This tells me to hold off. It’s not yet time to jump back into the markets. This is not the time to buy & hold… not yet. Believe me, I’m watching this indicator closely.

Once we start trending higher, it’ll be time to get reinvested in the markets - in a big way. Until then, continue hedging your positions… buy stocks very selectively, and stick to the strength of the markets. If you do decide to take positions, make them small… it’s a traders market right now.

One other piece of data I am watching is Insider trading. Insider Selling dollars amounts dominate the Buying and has for many months. If things are really go up a lot, someone should tell the Insiders, because they don't seem to think so!
Good luck this week. Don't forget to vote for May on my Mini Poll as to when you believe the recession will end.

Market Rally: Will it continue this week?

That is the big question at the end of today's trading. The Dow went up 379 points to close at 6,926. The S&P 500 went up 43 points top close at 719. This is was especially good as many had seen the S&P needed to get up over 700 again. The key level for the S&P this week would be to go over 740, as many shorts would get rid of their shorts very quickly. They haven't been nervous in a while. The ETF Ultra Short triple play, TZA lost over 20% today, while another ETF triple play of the Small Caps, symbol TNA, gained over 20%.

The Volume was very good and a number of stocks went back above their 20 and 40 day moving averages all in one day. I think the rally will continue just because it has been long awaited and many do not want to sell into it until they have gotten back some of their losses. I would not sell into this rally too soon. The Dow could go all the way above not just 7,000 but 8,000 as well.

Gold dropped again today, down 22 points closing below $900 to finish at $896. This is very bullish for stocks. I also have noticed an increase in trucks on the highways the past 2-3 weeks here in the Bay area. This has been a good sign although the sample size is quite small and not representative of the economy in general. But it was a hopeful sign. I will be traveling to Las Vegas tomorrow and I will see first hand how Vegas is fairing. I expect to see some there watching the NCAA March Madness basketball tournament on the jumbo screens.

Rep. Barney Frank today said he believes the SEC along with Congress would reinstitute the Uptick rule. And Fed Chairman Bernanke today said he believed the recession would be over in the second half of 2009.

All in all it was a terrific day to help my portfolio and I expect it to continue. Don't be disheartened if it drops during some time tomorrow. This rally has legs and I do not believe you will be disappointed!

Stocks to watch in the coming week

Another look back of the trade of the ETF Ultra Shorts, SDS and TZA, shows the day to sell it was Wednesday, as yesterday both stocks did not reach the Wednesday's highs nor my sell price. Yesterday, SDS reached a high of $86.18 and I had sold my shares at $86.65 and TZA reached a high yesterday of $66.88 and my sell price Wednesday was $67.24.

I am holding and accumulating shares of TNA as they drop and the same with SSO. I did not venture in for a day trade of TZA nor SDS.

I continue with my recommendation of Apple, symbol APPL. I am watching Ford Motor, symbol F, as it has dropped now to $1.80/share. I believe this stock will drop further and there will be a buying opportunity again at lower prices. I would stay away from GM as I see this stock dropping significantly more from the $3.49/share price. Given its current condition and even with a bailout, the chance to fail, this stock is overvalued and investors need to be wary. Ford is the better to invest in for the long term.

I had told a number of close friends and relatives that MGM Mirage, symbol MGM, was going to drop when it recently was at $14/share and I said it would have been a good one to short as I saw the price dropping below $10/share. Well this week it dropped as low as $8.80 once again. Reports I get from Vegas is that rooms are a plenty and gaming is not attracting the usual wealthy groups of Asians once a significant revenue stream for the Casinos. The next big event to try to draw crowds is the Super Bowl. Early estimates of group size may disappoint, resulting in another check on revenue for the Casinos.

Stock Market: Where do we head from here?

I took the time this morning to look at all the stocks on my watch list. I have about 40 stocks on my watch list. I noticed that the majority had one thing in common, most were trending down on the MACD lines. The MACD is a tool which measures convergence and divergence of the moving averages. You can get a good definition of it at this site Investopedia. It showed me more evidence that the 3 major indexes, the Dow, S&P 500 and the Nasdaq, are trending negative going into the last week of the year and most likely the first week in January.

Given the escalation of the conflict between Israel and Hamas on the Gaza strip, the Futures are pointing negative since the close on Friday. With the retail sales looking abysmal it will not be surprising to see the markets get shaky tomorrow, even with light volume. I do not believe it is too late to buy the ETF Ultra Short of the S&P 500, symbol SDS as it closed at $76.11 on Friday after paying out an $11.46 dividend to shareholders.

Check back here during the week for updates on the market.

ETF Ultra Short funds drop big time today but don't be alarmed

The reason the ETF Ultra Short of the S&P500, symbol SDS, dropped so much today was because the Funds are required by law to distribute profits at year end. That happens at the close today. You will notice the dividend per share will be $11.46/share. That is almost exactly what the share price drop is today. These will be Short term Capital Gains and in taxed accounts you will be required to pay a tax on the gains. For some it may be the only gains this year.

Market Outlook on Quadruple Witching day

Today is Quadruple Witching day for Options to expire for the end of 2008. Markets oversees are down but the news is that the Auto Industry bailout will be announced by President Bush. Ford Motors and GM stocks are up in pre-market about 10%. 3 Month LIBOR rates are at a new low at 1.50%. Having said that, the past 2 days have been down as I had predicted they might be and I don't see that they will rise today. Is it possible, yes. But going into the first week in January I see the markets having a very difficult time. So being on the Short side is the only strategy that makes sense for this timeframe. I see the markets rising near January 20th inauguration of President-Elect Obama. Just the magnitude of the proposed stimulus should help give hope in the markets.

I still own all my ETF Ultra Short shares of the S&P500, symbol SDS as well as TZA, which is a small cap ETF Short play.

Since many will be away I want to wish everyone a very Merry Christmas. Remember holidays with family can be healing. And everyone needs to be healed this year. If you haven't given to any charity this holiday because it has been tough, reconsider giving to your local Food Bank. They can really use the added help this year. God Bless.

Dec. 17, 2008: The day after the Fed goes "All in."

So yesterday was a barn burner and the market rose above the 40 day Moving Averages on all 3 Indexes, the Dow, Nasdaq and the S&P500. So it would look like we are going to keep going up, Right? Don't believe it. It was best said this morning on CNBC by John Vogel, the Founder of Vanguard, that the Fed is pushing on string. He said they had to do it, but it doesn't make everything good again nor drive people to lend again.

I think we are still in for a rough time in the market. I still consider a conspiracy theory they are doing their best to get consumers to shop for Christmas presents as it can raise all boats. But have you looked at people shopping lately? No one is carrying any bags home. They are just walking in the Malls and stores as if they are on some exercise program.

Near the close yesterday I loaded up on TZA which is the 3x Short trade following small caps. I bought the shares at $53.50. So the gains I had on Monday were wiped out yesterday when the stock dropped over $13/share from the market rise after the Fed announced their unprecedented action. If the market does drop in the next week or after the holiday, these shares will provide unusually high returns. I still own all my SDS ETF Ultra Short shares. Yesterday it went back down to the lows of my last purchase at $81/share and even a little lower settling in at $80/share. I do not plan to sell these shares until I make a good profit on them. This should happen in January, as I believe we will test the lows before Jan. 20th Inauguration of President-Elect Obama.

Market outlook: The week of Dec.15th

I was watching 60 Minutes last night, and (if you haven's seen it please do) when I heard we are at the beginning of a second wave of Mortgage foreclosures, which will peak in 2010-2011. This is just awful going forward. It shows that even if the stock markets rise, it is only temporary. The news is going to depress people for the next few years and we are all going to be wishing the pain would stop for so many. Even President Barack Obama will have difficulty getting in front of this mess. I can't think of a single thing to turn this coming crisis around and that is unusual for me.

So my outlook for the market, not only for this week but for many weeks and years is not good. This temporary bubble of a recent rise in the markets is truly temporary. After the holidays we are going to face another round of reality and scary market drops. The best place to be will be on the Short side of the trades. ETF's such as SDS, DXD, TZA and others will be the place to be. Even if the market rises, it is not going to go up enough to get the shorts to dump them, because all they have to do is wait a bit for the bad news to put a damper on any rise. short term trades to get any profit will become a skill worth having.

This Friday's Options Expiration is quadruple witching, so watch for considerable volatility in the market. Playing the channel should work if you traded near either end of the range between 73,00 and 9,500 on the Dow and respective ranges on the Nasdaq and the S&P500. I still own my SDS and will be looking for a way to sell it if we get nearer to the extreme. If it doesn’t get there this week, I will just keep holding it and either hold or add to my position in it. Good luck my friends.

Where are we headed in the stock market now? Unfortunately back to the lows!

Today will be Black Friday in the stock market. The failure of the Congress, specifically the Republicans in the Senate, to pass the rescue bridge loan for the Auto Industry, along with a few Democrats, will scare everyone in coming days. Portfolios will take a haircut and ensure this Christmas is bleak for retailers as well. You are watching the slow unwinding of our economy and unless their is strong leadership to stop this decline we are headed for the Great Depression of 2009.

The Dow is down over 260 before the pre-market opens in 45 minutes. I expect it to be much worse today. The Democrats in Congress are looking to President Bush to save the day and to agree to use TARP funds to come up with the loan. I can hear the argument the Democrats are using to convince the President. It goes something like this.

Mr. President you came to Congress fearing a calamity in the Banking and Insurance Industry and asked us to trust you and Hank Paulson with approval of $700 Billion in TARP money. In fact Mr. President, you submitted only a 1 page document asking us to just trust you, with no strings attached to the money. We added about 400 pages of requirements to the package but nevertheless we passed the legislation to basically give you cart blanche for the funds. Now for only $14 Billion of that $700 Billion, we are asking you to return the favor and save the auto industry at least till March. It costs only 1 month for what we have allowed you to spend in Iraq. So Mr. President, you can once again feel omnipotent as one of your last final acts, and approve this money and walk away a hero to the very Middle Class you nearly destroyed in your 8 years as President.

Getting to the market, if you have bought and held the ETF Ultra Short of the S&P500, symbol SDS, you are sitting pretty this morning. If you also added to your position you are going to see very good gains today and possibly Monday as I see Monday as a possible culmination of the drive to the lows of the market and retesting next week around 7300 to 7500 on the Dow. When we get there we may have Capitulation in the markets worldwide. Ford is down in pre-market to a low of $2.12/share. It may be a good buy back down below $2.00 as something will come along when Barack Obama becomes President on Jan. 20th and pass the funds needed with the new Congress. GM will most likely close factories to save cash until then.

Hold on for a tough ride just before Christmas. And if you are an Auto worker, I am sorry for your situation and the pain you will be going through, at least short term. You didn't create this mess, it was the leadership.

UPDATE 1:20pm P.S.T.
Comments by Paulson regarding the prospect of using TARP funds to provide a bridge loan for the Auto Industry, had the effect of neutralizing the negative outlook of the markets, at least for today. It does not put off the inevitable market pullback, only delays it. That's fine right now. We need a break as the stress can be too much for some. I will write more this weekend on the market so stay tuned.