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.

Nikkei vs Dow 2 year chart

As a follow up to yesterday's charts on the Nikkei and Dow I have another chart today showing both indexes plotted on the same 2 year chart. As you can see there has begun a divergence of the 2 Indexes. The Nikkei has been going steadily down of late as the Dow continues to rise. It is my strong belief that the Dow will turn down and join the Nikkei once again, as the 2 indexes do track each other very well. At this time their spread is greater than it has been over this 2 year period.

With the Dubai troubles over non payment of their loans, this could increase the magnitude of the reversal. It's a good time to be on the Short side of this market. The ETF, TZA, should increase, as should FAZ as both are Ultra Shorts. TZA is a Triple Short of the Russell Index and FAZ is an Ultra Short of Financials.

Note, the chart is on a Log scale.

Markets will be down for the coming week. Why?

I have been thinking about the market drop on Friday on accelerated volume. I was trying to come up with some possible reasons which have not ben the usual suspects. This is difficult to do as I have been expecting this pullback for months and I seen signs everywhere that things aren't going to get better any time soon on the economy even though Wall St. seems to defy Main St. So what did I come up with this time and what would be the rationale that this time the market drop is for real and will continue at least for Monday or Tuesday and then possibly on Friday.

So first, Treasury Secretary Geithner was interviewed on Meet the Press by david Gregory. Geithner when pressed seem to say Unemployment will continue to rise even while the economy is recovering as employment is a lagging indicator. But there was more in Geithner's head tilting, a sign of not wanting to answer directly the questions as he knows more than he is saying. I think Geithner knows that next weeks announced Unemployment numbers for October are going to take us over 10% and then the heat will be on. That happens on Friday I believe.

But besides that big piece of news, there are elections being held in several States for Mayor's and for Governors as well as a Congressional opening in Upstate NY, which will reflect a defeat for Democrats which Republicans will play up with the media, as they should. One can rationalize President Obama has had only a short time to fix the problems and one could argue that he may have made some problems worse. But that will be decided by historians and I am not a historian. But I believe that this gives impetus for the markets to correct specifically at this time. It is before Thanksgiving and the start of Christmas Shopping season, so the damage might not be that much of a drag on business than what the economic conditions are already saying about Consumer Spending this year. So what better time for a correction.

This is also in advance of proposed legislation for Regulatory reforms which have already passed Rep. Barney Franks Committee. There is nothing Wall Street would like more to do than to cause alarm to be slow about imposing additional regulations as the market is fragile, they will say. Gee, all this at a time when Executive Compensation is being ratcheted down in 7 of the largest firms bailed out by the Fed. Oh, and late me remind you that this past Friday was the end of the year for many Funds. So, yes, this is the best time politically, financially, economically and emotionally to have this correction. It is all part of the manipulation we have come to expect. To me it is long overdue and I have been saying so for months. But heck, what do I know, I'm only the 200 lb. Gorilla in the room. :) Yes, the market should end down for the week. Hedging with some ETF Shorts might be a smart play for some quick profit.

My Direxion 3x Short of the Russell index, symbol TZA, was finally up for a week. It went up 19.4% since last Friday, Oct.23rd. I see it going up another 20-30% this week as well. It closed Friday at $14.28/share. The ETF of the Financials, symbol FAZ, also moved up this week gaining 18.5% since Oct. 23rd.

UPDATE: 5:30PM PST
The NIKKEI has taken the lead tonight and is down over 250 points. The reason for this can be twofold. First, it could be a reaction from the Dow drop on Friday but it could also be because CIT has announced it is declaring bankruptcy protection.

Put to Call ratio on current market: Up!

The market closed on Friday with the Put to Call ratio back up over 1.00 for the second of the past 3 market days. On Tuesday, the Put to Call ratio closed at a new recent high of 1.08 while on Friday it closed at 1.05 after hitting a high of 1.14 during the first 1 hour of trading.

We have been in a market rally the past 3 months after hitting a low on March 30th and I have added some dates to the chart below to show you what was happening in advance with the Put to Call ratio. I believe this is the start of the decline I have been expecting for the past 2 months but never materialized. Rather, we had been in a very tight range causing much frustration for Bulls and Bears alike.


I believe that is about to change with Bears reaping their patient reward while Bulls wonder why they didn't take their profits while they had them. This unwinding may take us until September Options Expiration the third week of September or until October's but it will materialize. As I aid in a previous post, the ETF Bear Funds should be a nice rate of return and many not owning any might consider this play as it isn't too late to buy them. There are many to choose from and you might check to my post dated May 23rd, where I list them all. I have TZA as my readers know and also some FAZ as well. Good luck and Happy 4th of July!

Market summary for June 22, 2009 and comments

Today the market dropped on the Dow 202 points closing at 8,339, while the Nasdaq closed down 61 to finish the day at 1766 and the S&P 500 closed below 900 for the first time since May 27th, closing at 893. The Volatility Index closed at 31.17 after hitting a high of 32.05 earlier today. The Put to Call ratio closed at 0.92 while Gold closed at 923, down 12 dollars/ounce. The signs have been there for weeks since the Candlestick pattern on June 5th showed the first sign of market reversal, and then was confirmed again on June 15th, as I wrote in my post on both days. Both the Dow and the S&P 500 are now below the 200 day Moving Average again.

Meanwhile, contributing to the market decline today was this little tidbit: World Bank Says Global Economic Recession to Deepen from Bloomberg news. And I quote, "The world economy will contract 2.9 percent, compared with a previous forecast of a 1.7 percent decline, the Washington- based lender said in a report today. Growth will be 2 percent next year, down from a 2.3 percent prediction the bank said."

Also in the article was this: "The World Bank cut its forecast for the U.S. this year, calling for a 3 percent drop in the world’s biggest economy, after predicting a 2.4 percent contraction in March.

Japan’s gross domestic product will shrink 6.8 percent, more than the previous prediction of a 5.3 percent decline, the lender said. The euro area’s economy may shrink 4.5 percent, compared with the previous estimate of a 2.7 percent contraction.

Global trade may drop by 9.7 percent, compared with a March forecast of a 6.1 percent decline.

I do expect the Dow to go below 8,000 and the S&P 500 to go below 840 as well. Options Expiration for the Quarter in June 30th and I do not know what the effect of that will be on the market.

One other piece of news I thought was relevant was this gem: "Insiders Exit Shares at the Fastest Pace in Two Years." I have been saying this was one of the reasons I thought the market was headed down and wrote so on many occasions. I receive 2 reports daily on Insider Buying and selling from J3SG.com and for months it has shown the dollar amount of Insider Selling far exceeded the dollar amount of Buying for any given day. I had posted the theory, how can things be really getting better in the economy if so many Insiders who have most likely lost money like the rest of us, are selling their company stock. If they saw Green Shoots and recovery wouldn't it make sense to be buying more shares of their company stock? Anyway, read the "Insider Exit shares at the Fastest Pace in Two Years" article and conclude what you will. I am still holding my ETF Ultra Shorts Triple pay of the Small Caps, symbol TZA, as well as the Ultra Short Triple lay of the Financials, symbol FAZ.

The market should just be in the beginning phases of a eventual retreat to 7,300 lows or lower by the end of October.

Using triple play ETF's to trade in the stock market.

Let me start first with what a Triple play ETF is. It is often noted as "3x". It is an instrument, which is based on an index of stocks designed to give you triple the swing of the based index. If the base index of stocks moves up 1%, then the Long ETF would give you nearly a 3% gain and the Short would give you a 3% loss. This instrument is most useful when the overall stock market is in a tight range of about a 2% movement over the period of a week or longer. We have been in that period the last few weeks.

I have gone through the list of all ETF's specifically looking for these Triple plays and will list them alphabetically below along with the basket of stocks they are based upon and whether they are a Bull (Long) or Bear (Short).

DZK Developing Market Bull 3x
EDC Emerging Market Bull 3x
DPK Developing Market Bear 3x
ERY Energy Bear 3x
ERX Energy Bull 3x
FAS Financial Bull 3x
FAZ Financial Bear 3x
MWJ Mid Cap Bull 3x
MWN Mid cap Bear 3x
TMF 30 Year Treasury Bull 3x
TMV 30 Year Treasury Bear 3x
TNA Small Cap Bull 3x
TYD 10 Year Treasury Bull 3x
TYH Tech Bull 3x
TYO 10 Year Treasury Bear 3x
TYP Tech Bear 3x
TZA Small cap Bear 3x

If you have been reading my Blog you know I currently own TZA and also some FAZ shares, as I believe we are going to have another correction and eventually test the low 7,000's on the Dow and possibly retest the 6,440 low of March. That will mean another loss for those long the market of 12% from here or even possibly 24%. Having triple plays if this should occur would mean gains of between 36% and 75%. Of course if I am wrong and the market goes up an equivalent amount I could lose another 36% or 75% as well. I just don't think I am wrong here. But the good thing is that there will be an answer as time will tell!

Market outlook for May 21, 2009: "DOW"n again! :) UPDATE #2

Looking at all the indicators this morning in pre market, they point to a down market today. I played around with Capitals in the title to signify DOW and down. Hope you got it when you read it. Starting with European stocks, all Indexes are down 1.5-2.3% this morning. Same is true for Asian stocks last night. Gold has risen to $940/ounce. Oil yesterday closed over $60/barrel and all 3 US. Indexes, the Dow, Nasdaq and S&P 500 all dropped sharply in the last hour of trading, following the same pattern the day before. But yesterday's drop was much steeper than on Tuesday. The Put to Call ratio closed at 0.86, while the VIX closed at 29.03 after hitting a low for the day of 26.57.

What is apparently driving the market lower? It is the newly released FOMC Minutes of the meeting of April 28th and 29th, which showed the Fed expects the economic outlook to be worse than it did in January. I will show some highlights here, but if you want to read the comments for yourself click on this link and read them for yourself in entirety. Make sure when you go to the link you not only click on the Statement but actually download the 344 KB file. Here's some excerpts and summary conclusions from the report:

Federal Reserve officials, who see possible signs of “stabilization” in the U.S. economy, signaled they’re not convinced those improvements will persist. They saw “significant downside risks” to the outlook for the economy, with the global financial system still “vulnerable to further shocks.” They forecast a deeper U.S. contraction than they foresaw in January, with a 9 percent unemployment rate lasting through the end of 2010. The jobless rate may remain as high as 8.5 percent in late 2011. A firming in consumer confidence, industrial production and other areas of the economy indicate the recession may be easing. Banks are still struggling with rising loan delinquencies in a variety of categories. Nearly 8 percent of residential real estate loans were delinquent in the first quarter, up from 6.3 percent in the fourth quarter, according to seasonally adjusted Fed data.

So if the economy is counting on consumer confidence recovering, it seems to me the unemployment picture will not improve until jobs do. That may be the same conclusion other investors have and why they see a pull back in order, hence al the markets dropping.

Additional news is feeding the concern. Here are a few headlines to add to the worry:
- Four Accused of Plotting to Bomb New York Synagogue (As if we needed this very real threat! Thank God the FBI caught them)
- U.K. May Lose AAA Rating at S&P as Government Debt Approaches 100% of GDP (How about a whole country losing its rating. I told you it was worse in Europe)
- Greenspan Says U.S. Banks Still Have `Large' Unfunded Capital Requirement (As Reagan would say, "There he goes again! Do we need this from him right now?)
- Weekly Jobless Claims down 12,000 to 631,000 and Continuing Claims rose to a new high at 6.66 Million unemployed. (Does the number 666 scare you? It should!)

Today I am planning on buying more TZA at these levels and may add more FAZ to my current shares. Both are Triple Short investment as it seems to be the only smart move to me right now.

UPDATE #1: 7:00am PST
The Put to Call ratio in the first 1/2 hour of trading rose to 0.96. Gold has hit $940/ounce as well. The Dow is now down 120 at below 8,300 and the S&P 500 is below 900 and at 892. Nasdaq got as low as at 1,704 but is staying above 1,700 level so far.

UPDATE #2 12:00pm PST

With one hour to go, the Dow is down about 190 and Gold has risen to close at $953, up $15/ounce. The Put to Call ratio hit a high today of 1.11 after 1 hour of trading. Currently it has pulled back to 0.98 at Noon PST. And lastly the VIX has moved up to 32.64 and reversed the downtrend it has had the past few weeks. We are looking at a 3 day weekend because of Memorial Day weekend and many are using the long weekend to take profits so expect this decline to continue tomorrow.

Pre market outlook for May 20, 2009: More of the same ambivalence!.UPDATE

The market continues to struggle between the Bulls and the Bears. So far it is a tie. Pre Market Futures indicators show again an upward bias, although trading currently in Europe is mixed. Gold holds at $927/ounce in European trading. The Put to Call ratio was basically unchanged yesterday from Monday closing at 0.82, up from 0.78 on Monday's close. However the VIX Index closed below 30 for the first time since September at 28.80, which is not good for those wishing for volatility and wider spreads in prices during the trading day. Just ahead of summer vacations this is the kind of market that can cause markets to drift lower for the longs ahead of the Fall turbulence we have become accustomed.

There were only a few pieces of news worth commenting on this morning. First was what is going on in Japan. Here are a few news excerpts I found noteworthy.

Japan Economy Shrinks Record 15.2% as Exports, Spending Plunge. Gross domestic product fell an annualized 15.2 percent in the three months ended March 31, following a revised fourth- quarter drop of 14.4 percent, the Cabinet Office said today in Tokyo. The economy contracted 3.5 percent in the year ended March 31, the most since records began in 1955. “There is a huge problem of over-capacity,” said Hiromichi Shirakawa, chief economist at Credit Suisse Group AG in Tokyo. “That means capital spending is not likely to pick up.” The failure of export demand to do better than simply stabilize will probably limit the scope of Japan’s recovery.

To read more on this news item above click here.

Another news item was about HPQ ( Hewlett-Packard) and their earnings after the bell yesterday. Here are various excerpts from that story:

Hewlett-Packard Co. said Tuesday that earnings fell 17% in the second fiscal quarter as sales fell across nearly all the company's business lines, most particularly among PCs, servers and printers... -They also disclosed plans to lay off another 6,000 workers -- on top of previously announced job cuts -- as it continues to shed costs... Revenue fell across nearly all of the company's business lines during the quarter. In the earnings call, Hurd said the company is ahead of schedule integrating the EDS acquisition. The company is more than halfway through the planned workforce reduction of 25,000 employees that it outlined last year.

Hurd also said the company has found an additional $500 million in cost savings -- mostly through facilities and other real estate commitments that will be eliminated. H-P also said it will lay off an additional 2% of its workforce -- beyond the number it spelled out last year -- over the next 12 months. That equates to about 6,000 more job cuts at the company.

Many market traders said they see this as positive. I don't know why to be honest. Companies laying off more workers and cutting out costs through restructuring may all sound great but it adds to the overall unemployment rate for the country and those jobs will never be coming back. In my view the real story going on is that Corporate America may survive by cutting workers everywhere but the overall affect on the economy is going to continue to be crippling for a very long time to come. This means more foreclosures down the line, more government help and a lengthening of the time when this thing finally turns around. Markets may move up on selective companies taking dramatic actions to survive, but this is setting up a real plunge in the markets eventually in the Fall unless things change where more jobs are created. With al the talk of stimulus, I don't see it showing up on the jobs front.

Somebody please paint me a rosier picture! You Comment below and I will put it up here for all to see. I continue to hold TZA and FAZ shares.

UPDATE: 4:00PM PST

Markets closed down today. Gold closed at $938/ounce. The Put to Call ratio closed at 0.86. The VIX Index closed up at 29.03 but not until it hit a low of 26.57 earlier in the morning.

Market outlook for the week of May 18th, 2009

Back on April 10th, I made these comments for my Blog post that day regarding watching the price of Gold:

Gold has finally gone down as the market has gone up. On March 17th I said the following, "If Gold can get back below 900 watch the market move up more strongly. Gold is at 916 in pre-market. The low closing last week was 905. We were as low as 820 in January and I can see Gold pulling back significantly to these levels if news continues good."

As we now know from the 3 month chart above, after that statement on March 17th, Gold shares soared after the treasury decided to buy back Treasury notes, going to $952 before settling in back at the close Friday of 880. That is a significant pullback and shows the rally for the past 30 days is for real. Watch for moves up in Gold to signal a market reversal."

If you want to know where the market is going watch Gold, because as either inflation is going up or if people are more worried/scared, or manufacturing has sharply increased and is using more of the precious metal, Gold rises. Well this week we saw the Core CPI almost at zero so that indicator should not make Gold rise. Neither has manufacturing increased the use of Gold. But Gold did rise this week, closing at $932/ounce. The only reason is that people are more worried about where we are in the recovery of our financial system and the economy. Gold may go over the $952/ounce it had done back earlier.

The Dow closed this week at 8,269. This is down 305 points from the previous week's close of 8,574. The Nasdaq closed this week at 1680 and is down 59 points from the previous week's close of 1739. And the S&P 500 closed this week at 883 and is down 27 points from the previous week's close of 910. These declines although not steep were steady starting on Tuesday and continuing to the close Friday. When the market is in a declining phase low volume can chip away at these indexes for quite a while until the final surge to the lows and then reversal in trend. So as we look ahead, it is difficult to predict when this decline will stop and where it will stop.

The flood of newly issued shares by many of the Banks to raise capital sucked the wind and momentum of the uptrend rally in this market. More new shares should hit the market this week and next so I am pretty confident this downtrend will last for at least several weeks. My guess is that it will be gradual and possible as a zig-zag saw tooth pattern. You know those patterns as they are teasers. One day up a few points and then a day down of larger proportion. If you are wanting the market to go up it can be very frustrating to watch. However, if you have a sizable short position as I do, you can just let it play out and relax until it picks up steam and volume, because eventually one sells their position to take a profit. Timing is difficult during this pattern but if the focus is profit and not greed, it is a much easier trade.

The Put to Call ratio is also slowly rising but only very slowly as it closed yesterday at 0.80 and while it reached as high as 0.93 on Thursday intraday, it had a much lower range yesterday between 0.73 and 0.80. The VIX also remained subdued closing yesterday at 33.12, up 1.75 for the day, but well below the highs we had come to expect in the 40's and 50's when the market dropped back in early March. It still was a healthy 5.6% gain. It may be the more sensitive of the indicators to watch, in the coming weeks.

Look now at the 3 charts above. They are of all 3 Indexes, the Dow, Nasdaq and SP500. The red line is the 200 day Moving Average for each Index. If you look at the slope of that line, it is my belief that will be the rate of decline for the next few weeks. It looks to me almost predictable. So if you take the Dow, I would guess that we will be down testing the 8,000 level in the 2 weeks and on the Nasdaq we should be testing the 1600 level and on the S&P 500 we should be testing the 840 level again. Here, Jim Cramer of CNBC's Mad Money and I part ways, as he sees Tech stocks taking us higher. I see Tech stocks now leading us down as many take their profits from the lows. Besides, it is the closest Index to the 200 day Moving Average and is being pressed to go lower. Let's see if I'm correct. Stay tuned.

So I will continue to hold both TZA and FAZ and enjoy the ride. I think those on the Short side can go away and come back in a week.

Where's the stock market going next? Try wearing this story for size, down! (UPDATE)

I have not posted anything on the market since Saturday's post. In that piece I said the following, "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." At that time the Dow was at 8,574 and the Nasdaq was at 1739. Today the market closed with the Dow at 8,285 and the Nasdaq closed at 1664. While the Dow dropped 185 points today, the volume was less than yesterdays. Same was true for the Nasdaq Composite Index volume. I would have liked to see a bit higher volume but it just means the drive lower will be slow and not fast.

TZA gained $3.67/share today to close at $30.84 for a 13.5% gain for the day. FAZ gained $0.75/share to close at $6.17 for a 13.9% gain. That was a nice recovery for both Triple Shorts. The Put to Call ratio closed today at 0.89, not anywhere near the extreme highs we had for the past year. There's plenty of room for it to go higher. I hope you now believe what I have maintained for a while through difficult times for Short positions. I know your question so here's the answer. The market should go lower, in my opinion. If you want to know the slope of the downtrend just look at the slope of the 200 day Moving average line for the Dow and the S&P 500. The Indexes should stay below the line. On the Dow, the line now crosses the axis a little below 9,000. On the S&P 500, the line crosses the axis at 950 and on the Nasdaq, it crosses the axis at 1735. It will be the Nasdaq Index to watch. Since we closed today at 1664 we are just below it and have stayed below it the past 5 days. Before that, we were above it for 3 days. So the pullback is being led by the Nasdaq. Watch that index during the day to get a sense if we are going to go above it and stay there. I just don't think that is going to happen any time soon.

Another piece of info I learned today was that when the top 19 largest U.S. banks were Stress Tests, the oversees branches of these banks were not included in the test. Considering Europe is in worse shape than the US, it seems that the Stress Test results most likely would have been worse. This would have meant much more money would need to be raised by each of the banks failing the tests. When I say that Europe is in worse shape consider this Spain currently has 17% Unemployment. And consider this, many of the banks requiring to raise Capital are doing it all at the same time. This will dry up money for new investments and cause additional pressure on the banking Index and on stocks in general. This all points to the market going down.

Let me answer another question you might have. Is it too late to get in on the Shorts like TZA and FAZ? Simply put, no!

UPDATE: 6:00AM PST

Looking for more clues as to market direction this morning and Gold is now at $925/ounce. It is still going up. I think Gold will continue to go up as the market pulls back. Unemployment claims for the week rose to 637,000, an increase of 32,000 from the previous week. This shows that we have not leveled off in unemployment as many had hoped. Continuing claims, also reported this morning, are at the highest level since 1950, 6.56 Million unemployed. One other number worth noting is the 3 Month LIBOR rate which is currently at 0.854, this is the lowest I have seen this number in many years. It is the rate Banks lend to each other.

Also, Asian markets sold off last night and European markets are mostly down this morning. While our Futures point to a neutral open, I believe we will go lower for the day. Art Cashin of UBS Warburg when asked this morning about market direction he said we need to hold the S&P500 at 870 or above. If we break through that level it's then 862 and if we break through that level we go to 820. Art also said it needed to be watched carefully as we go lower, because of the difficulty in predicting how low it is going to go.

Market close May 7th summary

The Volume on the pullback today beat yesterday's volume. That is good news for those of us who have been waiting for this pullback. The Put to Call ratio in the first half hour hit a low of 0.56 and it closed at 0.80, while the VIX Index was 33.44 at the close. Finally the market acted rationally for a change. The Dow closed at 8,410, down 102, the S&P 500 closed at 907, down 12 points and the Nasdaq closed at 1716, down 43 points. So most likely this pullback has more pent up steam so I would not be surprised with a drop tomorrow on news of the Unemployment rate, combined with the Stress test results which should be released in 30 minutes from this posting.

I did not sell FAZ today and am still holding all my TZA shares. TZA gained back 6.6%, closing at 27.83/share and FAZ gained 8.2%, closing at 5.67/share.

You will notice from the 2 charts above the following:

When in the top chart the VIX Index started to really go up it was a signal to sell. The market started to go erratic around October and had 2 peaks, one in November and the other in December. But since then this Index has retreated back to the level where the rise started.

In the second chart the Put to Call ratio has settled down to the levels consistently not seen since mid May, and it has even gone to new lower levels most recently. While not at the very lowest levels I have seen over the years, if it continues to drop It will be flashing a very strong sell signal. Back in the rise of the market in 1999 and 2000 the Put to Call ratio hit the 0.30 level, which signaled the big selloff in the Dot.com bubble. While we have a long way to go to get to those very low levels, I will continue to watch this indicator for any signs of a major selloff. Remember, very high levels of Put to Call ratios is often a signal to be buying and low extremes to sell. This is why I put red lines around the most recent ranges of this indicator.

Market Outlook for May 7th and the near term (UPDATE)

It is feeling to me this rally is going to continue. When you add some apparent news on Retail, which is better than expected, and you have a real rally going on. I knew this rally was going to be for real, but I didn't know it was going to be so steady and strong, even on less volume. All my indicators show a continuation of this trend, as there doesn't seem to be bad news enough for the pullback I anticipated. But heck, maybe that is the exact moment when things are too optimistic. :)

The Put to Call ratio closed yesterday at 0.77 and the VIX Index closed at 32.45, which is thew lowest it has been since September, the beginning of the Sub Prime impact on markets. Yesterdays Volume for Dow and Nasdaq stocks hasn't been this high since April 20th. So the gain yesterday was convincing, at least to me. The Nasdaq Composite Index did end the day with a Hammer Candlestick pattern suggesting this is the end on the move up for that Index. The Dow ended the day with a Doji Cross pattern, suggesting a draw in the contest between Bulls and Bears.

There is an expression my Uncle uses in times like this, "don't fight the tape". I think it is appropriate at this juncture of the market, and I did fight it all the way. I should sometime listen to my own advice which I made about this rally back in mid March, this rally is for real and many may regret not having stocks in their portfolio becasue there will be some good gains."

FAZ shows a clear confirmation of a Sell Confirmed signal at the close yesterday by AmericanBull.com, so I may sell my few shares in it today. Regarding my shares of TZA, currently at $26.12/share, AmericanBull.com suggests a Buy If signal at the close yesterday. I am going to continue to hold these shares and may buy more to average down my costs on the shares. The market will eventually pull back and we are closer to the top of the range now, not the bottom, with the Dow closing yesterday at 8,567. I had said the top of this range is 9,200 and the bottom of this range is 7,300, so we are clearly nearer the top. The 200 day Moving Average crosses the Dow now at 9,000, so I do not see us going over this level.

When you compare where we are now, relative to 9,000, we are set for a pullback very soon. So I am holding on to my TZA shares and may take some profits now on some recent gainers and not try to time the top. This rally is not a call to Buy and Hold, but to trade it. These markets will not return to Dow 10,000 any time soon. So trading for profit is the only wise play going forward. If you can't do that, better keep your assets in cash.

UPDATE: 9:30am PST

It looks like the Nasdaq hammer Candlestick pattern was correct, the market has pulled back. Volume on both the Nasdaq and Dow are ahead of yesterday's good volume, so this downside move has more to go and may start a real reversal in trend. Gold is up to $914/ounce.

Market Summary for May 4th and looking ahead

The markets are getting many to believe that they better get in as the train is leaving the station, but they are still timid, as low Volume says they are still waiting. There definitely is nibbling going on. I look at Insider trading daily and notice that the Insiders are still selling to raise cash, over buying, by a large dollar volume. My guess is that Hedge Funds may need to raise cash too and so there will be some selloffs into rallies but not to scare us. That is why this advance is so steady. It has not had the volatility one would expect given the past 6 months. The VIX index has been steady between 34-39 and much lower than the upper 40's to 50's level it had been at. The new money has come from funding of retirement accounts by April 15th but some will put this money into more secure investments and so this source of money to drive the market higher is about spent.

The Put to Call ratio is hanging more closer to the lows of the past 6 months than the highs from around 0.65-0.85. We are in the Dow range of 7,800 to 9,300 level we had been in before hitting the lows of 6,440. I do not see us going to 9,000 on this move up. I do see it at about 8,500-8,600 max and then a pullback. So I have decided to hold on to TZA and FAZ and ride this move up to its conclusion. I know when I am tempted to sell without supporting data, in this case high volume, we are close to the market move in the other direction. Therefore, I will Hold and not sell my ETF's, TZA and FAZ, but wait for them to be back in favor.

Market Outlook for week of May 4th

I keep saying I need a clear signal to tell market direction and the question on your mind is, Did I find any? Before I answer that here's a summary of how I look at the past week and where we find ourselves, going into the week of May 4th.

The Dow closed the week at 8,212 and this was a gain of 136 points, or 1.7% for the week. The Nasdaq closed the week at 1719 and that was a gain of 25 points, or 1.5% for the week. Those aren't big gains for the week by any measure. It felt like we were up a lot more given each day the indexes seemed to be up. Again, it feels like a smoke screen to me. The big question is how was the corresponding Volume of trading for the week. It was down again this week. So for the past 3 weeks Volume has declined steadily each week in the Dow stocks and the NYSE. However, the Tech sector Nasdaq maintained a bright spot with steady volume these past weeks with the index rising. This is the bright spot in the market to me and points to the Tech's going to lead us out of the recent big market decline from the Fall.

I have put several 6 month charts ahead of this post, worth clicking on. The first chart is of just the Dow to show the decline in Volume the past week. The second is a comparison of the Nasdaq Composite Index as compared to the Dow and the third is a comparison of the Nasdaq Composite Index as compared to the SP500. The gains of Technology seem to indicate this might be where to have been invested.

The signal I am looking for is Volume. If Volume spikes up, it won't matter what direction as direction will be clearer. Right now it is a rally lacking conviction. Now this can be a good thing as well. Many are skeptical, including yours truly, that the gains are real and many believe that we are not in a Bull Market Rally, but instead are in a Bear Market Rally. If the market can stay the course, as it has since the lows, it will eventually convert the Bears to cover their shorts and we will be on our way to a real Bull Market. But we are clearly not there yet.

The Put to Call ratio closed at 0.82, not low enough to give a sell signal but not high enough for a convincing Buy signal. To me the Put to Call would need to get over 1.05-1.20 to convince me to Buy. And it would have to get as low as 0.55-0.60 to Sell, or buy more Shorts. Some news will spark both this move and the Volume spike, but we still wait for clarity.

The news of this coming week regarding the Unemployment Rate for April has already been discounted. It will show a higher rate but a slowing of the decline over previous months. It is my opinion it will be reported at 9% or higher, getting ever closer to the 10% double digit rate most pessimistic scenarios had surmised. I do not expect this to tank the markets and do expect them to take the number in stride. More questionable will be the market's reaction to the Stress Test results expected to be released on May 7th, the day before the release of the Unemployment numbers.

If you look at the drop in Volume of the Dow index, and look at the Volume of Citigroup dropping this week, you can see a correlation. many banks had weaker Volume this week over the previous week. This can easily be seen by looking at a 6 month Chart of the volume of the Financial ETF, FAS. When they announced earlier this week that there are rebuttals by the Banks to the Treasury's Stress Test data, it quieted trading for both FAS and the short FAZ.

Add to the mix, Warren Buffet's latest comments on Real Estate and it provides an interesting back drop for the coming week. Here's what Buffet said, "There’s no signs of any real bounce at all in anything to do with housing, retailing, all that sort of thing,” said Buffett, 78, in a Bloomberg Television interview before the Omaha, Nebraska-based company’s annual shareholder meeting today. “You never know for sure, even if there’s a leveling off, which way the next move will be.”

So I leave you hopefully convinced that the market direction is still not clear, even while the Dow and S&P goes a bit higher. The only real good news is that Technology seems to be the bright spot and this is substantiated with good solid Volume. So if you believe this rally is for real, make sure you own some good tech companies in your portfolio or at least some dogs that show some life. But remember my overall advice, no matter what, preserve capital!

Bloomberg Survey

================================================================
Release Period Prior Median
Indicator Date Value Forecast
================================================================
Construct Spending MOM% 5/4 March -0.9% -1.6%
Pending Homes MOM% 5/4 March 2.1% 0.0%
ISM NonManu Index 5/5 April 40.8 42.0
Initial Claims ,000’s 5/7 2-May 631 635
Cont. Claims ,000’s 5/7 25-Apr 6271 6350
Productivity QOQ% 5/7 4Q -0.4% 0.8%
Labor Costs QOQ% 5/7 4Q P 5.7% 2.8%
Cons. Credit $ Blns 5/7 March -7.5 -4.5
Nonfarm Payrolls ,000’s 5/8 April -663 -600
Unemploy Rate % 5/8 April 8.5% 8.9%
Manu Payrolls ,000’s 5/8 April -161 -157
Hourly Earnings MOM% 5/8 April 0.2% 0.2%
Hourly Earnings YOY% 5/8 April 3.4% 3.3%
Avg Weekly Hours 5/8 April 33.2 33.2
Whlsale Inv. MOM% 5/8 March -1.5% -1.0%
================================================================

Stress test results on Banks delayed! UPDATE

News just out tonight. A small excerpt of the story follows:

"U.S. Bank Test Results Delayed as Conclusions Debated

By Craig Torres and Robert Schmidt

April 30 (Bloomberg) -- The Federal Reserve will postpone the release of stress tests on the biggest U.S. banks while executives debate preliminary findings with examiners, according to government and industry officials.

The results, originally scheduled for publication on May 4, now may not be revealed until toward the end of next week, said the people, who declined to be identified. A new release date may be announced as soon as tomorrow, they said.

Regulators and bank executives are concerned about how the disclosure is handled because weaker institutions could suffer a collapse in their stock prices."

The impact on this news on the Bank Indexes of the stock market are unknown at this time. However it may be very good news for those like myself holding the ETF Short of the Financials, a triple play, symbol FAZ. Since this ETF shorts the Financials it may get a real boost tomorrow as some bank big stops drop. The market does not like uncertainty. If they wait a whole month to release the results this is not very good for banks and shareholders. Remember, the idea of the stress tests, according to Treasury Secretary, Tim Geithner, was to bring confidence to the markets and specifically the banks. FAZ closed today at $8.31/share and I purchased it last week at $8.50/share. The market may also shrug off the news and banks could rally as it delays any news. Let's see the market's reaction tomorrow, May 1st. Many markets abroad will be closed tomorrow, as it is May Day.

UPDATE: May 1st 8:20am PST

Here's the latest news on this from Bloomberg News:

Regulators Said to Plan Stress-Test Disclosures on May 7

By Craig Torres

May 1 (Bloomberg) -- The Federal Reserve and U.S. banking regulators will reveal the results of the tests on the country’s 19 largest banks on May 7 after financial markets close, according to a government official.

The government will unveil both aggregate information and firm-specific details about the capital buffer required to absorb losses if the recession worsens, the official said on condition of anonymity.

Market summary of today's action, April 29th

The question for the day, Did we have a significant breakout today to the upside? Well, it depends on the what definition you use to the meaning of the word "significant". Again the move was at one time up over 200 points on the Dow. It closed up an amazing 166 points on a day when GDP for the first quarter was announced as down 6.1%. There was other bad news in other metrics but laid on top of all this data was the concern over the Swine Flu. It wasn't until after the market closed that WHO (World Health Organization) raised their alert now to a 5 out of a possible 6. How this will affect markets worldwide tomorrow is uncertain. The major disappointment if there is one today, is that the Volume continues to be very low and not convincing of the true nature of this rally. I lost money on paper today on both TZA and FAZ, but they were offset by gains in other stocks. The Put to Call ratio hit a low during the first hour or so of 0.67 but closed at 0.75 and while it is not as low as it has been it is setting up a sell signal, if we continue this decline in the ratio. Tomorrow is the last day of the month of April and so the month appears to be ending fairly decently on the indexes.

I know it is frustrating to be waiting for a pull back and not get one, so I feel your pain. Do what's best for you. I need some strong signal to change my mind and I haven't gotten it yet. So I am staying pat unless during the days something says to change my mind. I will post as quickly as I can, if I do.

Don't forget to take the Mini Poll on the right margin about how long the recession will last. Only vote once per month. Tomorrow will be the last day of this month's data accumulation and on Friday I will post the summary compared to past months. Thanks for coming by and feel free to leave a comment on your views of the market or anything else for that matter.

Stock Market strategy update

This morning I purchased shares of the ETF Financial Bear Triple, symbol FAZ, as I see the Banks going through more volatility to the downside over the coming week or so. The outbreak of the Swine Flu reports over the weekend have put a damper on the market and so it continues in the recent tight range. We are all waiting for a breakout in one direction or another and the longer this goes on, the more pent up demand for a larger swing. It is my belief this will be to the downside and it may take waiting till next week when they report on the Stress Test results for each of the 19 Banks tested.

I have said before and accentuate again today, I believe it is in everyone's interest to preserve capital until the economic and financial picture looks more certain. So far so good. Time will tell if this was a wise choice. I continue owning my TZA shares.