Market comments for Aug. 10th, 2011 (UPDATE)

Yesterday's market did rise as a result of the Fed's announcement to maintain low interest rates until 2013. Great, just what we need, more people borrowing cheap money with most likely no hope of paying it back because they don't have a job.

The Dow closed above the 11,000 level to finish at 11,239 for a 439 point gain. It seems to me now that the 11,000 level becomes now support level and 11,500 now becomes the resistance level.

Looking at the chart below, you can see that the move up was impressive if it wasn't that we've had so many large declines lately. Still, an impressive move nonetheless. I am expecting a move up to test the 11,500 level, then a pullback to test 11,000 again. Looks like we will be testing 11,000 support first based on a slightly negative Futures level. You see the news about low interest rates for as far as one can think right was the same as having very low interest rates these past several years. It didn't seem to do much for the economy, so I am doubtful this will have much of an effect on the market. It is still a very slow to negligible recovery. This market sold off for different reasons and those reasons are still relevant, hence the feeling we are still going to go down in these markets worldwide.

I am going to be plenty busy the next few days but I will try to post when I can. Thursday's Initial Jobless Claims is an important data point on Thursday morning.

UODATE: 5:45am PST

The Dow Futures are down this morning at -152, the S&P is at -17 and the Nasdaq is at -37 with all in a negative trend and deteriorating by the moment. Oil is up almost $3/barrel. Jim Cramer said this morning on CNBC that the "machines" are moving markets too rapidly for the average trader to participate. The "machines" he is talking about are the super fast computers which use algorithms to do its trading in the blink of an eye. This type of trading has been called High Frequency trading. Before the average trader can put an order in to Buy or Sell, these super computers have made thousands of trades. They have a definite significant advantage, as the Gatling Gun does over the Bow and Arrow.

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!

Market comments for Aug. 13th: That's Friday the 13th bad luck! UPDATE

Here we stand on Friday the 13th all wondering whether the direction of the stock market will have a reversal today based upon the recent few days Candlestick patterns, because that is what the patterns say. We should have a minor reversal today. Economic data will not be the determinant today. It won't be the social mood of traders. It will be whether the Fed wants the market to go down another day ending the week.

Even though we expect CPI data today to come in near zero or a negative reading adding to the deflationary case that has been made by many including me, it will not be the decisive data to determine market trend. That direction will need one more week to be determined. Next Friday is Options Expiration for August and 2 weeks before the start of school. Speaking of the return to school, Retail Sales numbers will shed more light on the Consumer as its data is to be released momentarily. Dow Futures before the data release was at -27 for the Dow. So here is the data:

CPI for July came in at +0.3% The market had expected +0.2%. The prior month's reading was -0.1%
Core CPI for July came in at +0.1%The market had expected +0.1%. The prior month's reading was +0.1%

Retail Sales came in at +0.4%. The market had expected +0.5%. The prior month's reading was -0.5%.
Retail Sales ex Autos came in at +0.2%. The market expected +0.4%. The prior month's reading was -0.1%.

The Dow Futures have now moved more negative with the Dow Futures now at -50, so the initial quick reaction was more negative. TIME WILL TELL WHETHER THIS PLAYS OUT FOR THE ENTIRE DAY TODAY.

Michigan Sentiment comes in in about 1 hour and 25 minutes at 9:55am EST or 6:55am PST and I will update this post top add the data so be sure to check back if you are as interested as I am to post it. The market expects 70.0. The prior month's data was 67.80.

Be sure also to visit over the weekend as I will post some charts and show where we are headed and where resistance is on both the Dow and S&P 500. You see on a micro level it is much harder to determine short term market direction. But at a Macro level it is much clearer. Thanks for visiting the site. I also am going to post soon several non stock market commentaries. One will be on the Proposition 8 Court decision which took place this week reversing the ban on Gay Marriage on Constitutional Grounds. The other article I am working on is about opinions by the Chamber of Commerce on Prop 19 in California, which would legalize Marijuana use in California for adults. I have some definite thoughts on both topics.

As I finish writing this post, the Dow Futures have recovered to only -6. So it might not be that bad a Friday the 13th for the Longs but instead could be for the Shorts. Have a nice weekend.

UPDATE: 6:55am PST

Michigan Consumer Sentiment came in at 69.6%, which was not quite 70.0 but close and better than July.

Market comments for Aug. 10th (Update)

Economic data released this morning showed Q2 Productivity was the lowest since Q4 of 2008. It came in at -0.9%. Expectations were for +0.1%. Unit Labor Costs rose slightly +0.2%. Expectations were for them to rise 1.3%. Later this morning, data for Wholesale prices will be released. Expectations are Wholesale prices will be at 0.0% gain. I expect it to go negative, showing deflation but 0% is still amazing when you think about it.

Then the big item today is the FOMC will be releasing its rate decision and comments at 2:00pm EST or 11:00am PST., which is being anticipated with some anxiety. People want to know how the Fed will react to deflation and whether there will be more easing of Interest rates. Will the Printing Presses roar printing new money faster than it can be used. The worry had been Inflation but there appears that is not what the Fed is now concerned about. It's Deflation, just like in the 1930's.

Futures are down 105 points on the Dow.

UPDATE: 9:15AM PST

Above is the chart from Haver Analytics of Unit Labor Costs. Trend is pretty bad indeed. Looks like another piece of data showing deflationary times ahead to me

A philosophical view of the stock market and commentary.

Yesterday's market action was a function of fluctuations in currency movement and the same could happen today, according to Art Cashin of UBS Warburg on CNBC this morning. I don't know if that was the cause but there was a surge of the dollar at the open yesterday and, within an hour of the close, the Dollar dropped. Theses fluctuations are expected to continue as Europeans settle in on what they think about the Euro now in light of the 1 Trillion bailout of EU zone countries.

Having said that, we continue to be in a negative frame of mind in US markets. Today the PPI number for April came in at -0.1%, which is deflationary in itself. That continues to plague our economy as we have had negative CPI or zero CPI with all the money and stimulus the Fed has been actively creating. Even with this major effort, there appears to be deflation worries continuing and so far the Fed has not managed to abate this concern. Inflation watchers, rightfully so, keep looking for inflation to rear its ugly head. It has in effect with the rise in Gold and other precious metals, but not enough to turn the tide in the direction of inflation. There is contention on this topic in most Cable programs based upon commentary by their guests.

You would think this would be the most ideal time to pay down Federal Debt with nearly zero interest rates, but it appears for political reasons we prefer to pay the debt down when interest rates rise and the pain is greater. I just don't understand the shortsightedness of Americans. I do understand the politics of the situation, as we are a democracy where politicians are working to get re-elected immediately after winning an election and pain means sure defeat at the polls. Which is why the pain caused by our lack of backbone in dealing with these issues at a logical time is not great enough to make us move into action. That is why we had a Great Depression and why we are destined to repeat history again, unfortunately. This is why I favor the view the markets will drop significantly and shake us to the core as the excesses of the 80's to the first part of the 21st Century will shape a new generation of true fiscal conservatives. We need a cleansing and we are going to have one. That is why the markets do follow Elliott wave Theory and are based on Fibonacci numbers. It is based upon the very nature of man (and woman).

Dow trend and prediction? See 10 year chart here

I haven't posted on the stock market recently so I decided to tell you where my head is right now. Above you will see the first 10 Year Chart of the Dow, which I assembled after the close today. The second c hart is from an earlier prediction I made which showed I expect the Dow to retest the lows. You will notice that there is significant resistance at Dow 11,000 looking at the first 5 years of the first chart. It has been an impressive rise form the lows of 6,400 but it appears to me now that we are in the process of forming a Head and Shoulder pattern that will mark the top. We have already formed the Left Shoulder in the past 2 months and are now making the head. From the Head formation we will drop somewhat and possibly as low as 10,000 but then will rise again to form the Right Shoulder. When that is complete the real correction will take place. This seems to me to be setting up for the May/June timeframe which will be the kickoff season for the November political Mid term campaigns.

We can come back in a few months and see if this plays out as I anticipate. It's just a guess as the markets really are being manipulated with excess dollars provided by the Fed in the form of significant liquidity in many forms. But I am very suspicious about Wall Street and their coziness with the Republican supporters. Much debate has begun regarding Financial reforms as evident by Sen. Chris Dodd suggesting his own reforms on his committee as he broke off working with Republicans. He is also retiring in November and I have written about the inherent conflict of interest he has because he will most likely go to work for one of these financial institutions after leaving the Senate.

So if the market begins its slide, the chance for meaningful regulations will be faced with a declining market and calls not to tamper with the market, as it is too fragile. It makes good strategic sense from the Financial Institutions own interests, as well as those elected officials beholding to those Institutions, to make this point. We already have Goldman Sachs working on the in the marketplace and former officials of Goldman Sachs are also working on this inside of the government. They have their bases covered. This is not good for remedying these concerns.

Market Outlook for May 28, 2009

Futures point up this morning as Durable Goods Orders showed a 1.9% gain for April. But March numbers were revised down 2.1%. All 3 Indexes show small moves up this morning and are not something that can be counted on for the day. While Weekly Jobless Claims were reported down this morning to 623,000 for the past week. But Continuing Claims reached a new high at 6.79 Million.

Still there is a lack of clarity as to what the strategy is for the Government regarding trying to keep mortgages available with cheap interest rates but the Treasuries for 2 year and 10 year duration seemed to suggest rates will be rising, which would seem to thwart the Fed's plans to keep Mortgage Interest rates low. The Bond market is getting nervous and hence the big swing down yesterday.

Oil is up again to $63/barell. Gold hovers around $955/ounce as Silver has moved over $15/ounce. European markets are all down this morning as well.

As we travel through the no mans land of 8,200 to 8,600 on the Dow waiting for a clear direction, none seems to be showing itself. But pressing the markets continues to be the decline in the 200 Day Moving average daily for all 3 Indexes, the Dow, Nasdaq and the S&P 500. If I were to guess, and we all know that's all it is, I believe the market will be down again today but not by more than 100 on the Dow. We are going to stay in this tight range until some news breaks to drive these markets decisively. That could take the whole summer, I'm sorry to say. Or there could be something Internationally which triggers the drop.

Market outlook going forward? Down in advance of the 3 day weekend.

Back on April 25th I said the following: "Gold closed yesterday at $914/ounce and 2 weeks ago it closed at $890/ounce. This is a 2.7% gain. The Dow didn't gain anything, the S&P500 gained only 1.2% and the Nasdaq gained 2.5%. Technology did the best in the markets, but not as good as did Gold. I have said to watch Gold prices to get a best sense of direction of the market. If Gold goes up, the markets will drop and if Gold drops the market should go up. I think there is a trend building for Gold's continued rise, going forward."

Gold closed today at $953/ounce, up $15/ounce in trading. I think we are still going higher!

On May 16th I said to watch the Tech sector. I said specifically the following: "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.

On May 9th, in my post on the "Put to Call ratio as an Indicator" 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.

Well on Friday May 8th the Dow closed at 8,574. Many analysts and investors then, including Jim Cramer, were telling people to jump into the market before the train leaves the station. Yesterday it closed at 8,292 and because we have a 3 day weekend because of Memorial Day, the Banks and the Stock market will be closed on Monday. Therefore many may not want to hold stock going into the long weekend and therefore it should be a down day today. Volume both on Wednesday and Thursday was higher than on Monday and Tuesday. So we have had dropping prices on higher Volume, a Bearish indicator.

I know it is easy to get caught up in the excitement when the market is rising and you're not in and invested. It has a way of enticing us in because we are afraid we might lose out on the gains. How do I know this? Because I have experienced the same thing in times past. But I realize that there must be logic and rationality and an over arching belief about current conditions in the world and the U.S to give validity to such hope and promise. That time will come. But it is not now. As long as you continue to see or hear about more layoffs and foreclosures at the clip we have seen recently, it can't be getting better any time soon. It may not get worse, but it is pretty bad now if you haven't noticed. We all have friends or family or neighbors who are unemployed and scared about finding a job, any job. And when the FED says things are going to be bad going forward, when they change their projections on unemployment and GDP, pay attention.

Futures point to a higher open today. But beware, it makes sense to me that the markets should close down for the 3 day weekend. The last hour will be what to watch. Oh and one last thing, the 3 Month LIBOR rate has dropped to 0.66%, which is unbelievably low. And speaking of banks, BankUnited FSB has been shut down by regulators. It is the largest bank to be closed down this year. It is located in Florida.

UPDATE 6:00am PST.

Art Cashin was just on CNBC and believes the market will close up today because he believes the Shorts will be nervous going into a long weekend. So there you have it. We are on opposite sides on this one. He is usually more correct in his market calls than I am. But one ting he did say was that yesterday there was markets were scared yesterday on the question of US AAA Rating by S&P could be downgraded. Later in the day the Ratings agency came out and said there was no merit to the rumors. However, Pimco's Mohammed El Erian, also on CNBC this morning, was concerned of the unintended consequences of government policies and the implications to the markets. So there seems enough concerns going forward to stay cautious and not just jump in and blow all your cash in the market.

Markets and politics: Where are we going?

A review of yesterday shows the VIX closed at 43.68, showing the increased volatility I expected because of the approaching Options expiration today. The Fed took major action to buy back long term debt which caused an unprecedented increase of $60/ounce in Gold. The Put to Call ratio closed at 0.77 on Thursday, up from Wednesday's 0.65 closing level.

I think all in all it was a good thing the market pulled back yesterday because we were rising on a very rapid rate. Today I expect more volatility and while I can't predict today's market move, even though Futures are pointing for the market to be up today, I see the market continuing with this rally into next week and eventually over the Dow 8,000 level and the S&P 500 over 800 as well. The Dow closed yesterday at 7,400 after hitting a high during the day of 7,548 and the S&P 500 closed at 784 after reaching a high of 803 for the day. I believe this rally will end somewhere between 8,000 and 9,000 which is the range of where it has been previously. Because we went to the lows of 6,500 on the Dow I expect the rally to end between 8,000 and 8,500 and most likely not go higher until we have gone back and retested the lows.

Congressional action is the main unknown right now. The latest focus of their intellectual capital is on the AIG bonuses and outrage the voters have shown on this matter. They were caught, along with Tim Geithner, with their pants down, as in calculating which position they should take, they thought it better not to be sued over breach of contract for not paying the bonuses, than to pay them. They were all wrong. Mistake made, lesson learned and now, like adults, they all should get on with the issues on better oversight banking and insurance regulations, improving the economy, helping stabilize the banking system, managing healthcare costs, a better Energy policy which includes more Wind and Solar, as we surely have some whopper problems to solve as a country.

Surprised by today's market action

Yes, I was surprised by the market action today. With so many layoffs and missed earnings by Caterpillar, I thought the market would take a step down. Volume was lighter than Fridays so we will know more by Wednesday, when the Fed completes its 2 days of meetings. Maybe many believe the bad news is already baked into this market, but I doubt it is. I am willing to be a believer with real data. I did not sell TNA nor SSO as I was looking to add to my positions on any drop. But it didn't happen today. I truly think we will all make at least 20-25% on this round trip for these ETF trades and I predict, again, within a 6 week period. That does not preclude a trip lower. If you are smart, buy on dips down and accumulate, because I think this next move up will be more like a sling shot, quick and far. Predicting the market direction means being in tune with the news and predicting outcomes there as well.

The Fall of the 21st Century Roman Empire

First, I did support this Rescue Plan of our Banking and Credit system with the $700 Billion plan. However, with today’s Congressional passage of the Rescue Plan, the country has declared that the Free Enterprise system is not really free any longer. Both Parties approved this Rescue Plan. Now our banking system has been socialized and thank God this Bill passed.

I hate to think what might have happened if it had failed to be passed. But make no mistake, today our Financial System was declared dead and resurrected by our collective good. It may or may not work. But it clearly has set a precedent that times have changed, government Can help solve our problems and we need to consider how that might be used to reinvest in Renewable Energy technology as well as possible changes in our Healthcare system. "Yes We Can!", will be the new mantra. But, in the meantime, expect many to lose their jobs, in spite of the passage of this Bill. Credit may still be tight as Banks wait to receive funds from the Fed.

And on another note, there was nothing John McCain did when he returned to Washington and suspended his campaign, to get this passed. Any claim to the contrary should be dismissed as mere posturing. All of the requirements outlined by Barack Obama early on in this crisis were passed and the foundation of the Bill. It was not a good day in some respects for America, the second Roman Empire, but it had one bright spot, the Republicans joined the Democrats and passed this very required Bill.

AIG, now what? Republicans still think derregulation is good?

The news today is that the Fed is willing to give a loan to AIG Insurance company to help it with its liquidity problem. AIG had a Balance Sheet of $1 TRILLION dollars. The Fed is going to lend it $85 Billion dollars for a 2 year period. For the loan the Fed will own 80% of AIG. I don't know about you but that essentially would be equal to $800 Billion of the company. It doesn't make sense unless the company really doesn't own assets worth $1 Trillion dollars in the first place.

All my life I have heard that we shouldn't be regulating business as the Free Enterprise system is the best in the world and regulation, they argue, constricts the free flow of capital to markets needing that capital to grow and develop for the benefit of "shareholders". So the American people bought into that line of reasoning, hook, line and sinker. We bought shares of Stock or Bonds thinking that it was a level playing field and that these markets and companies had some regulation to protect us. Little did we know the limited regulation was there not to protect shareholders and the system. With certainty, it has failed us as proven by several examples, AIG, Lehman Bros and Merrill Lynch and the forced mergers of some and the failures and bailouts of others. The same was true back in 1929. As a result of the crash in 1929, the Glass-Steagall Act was implemented by Roosevelt to prohibit the crash from happening ever again. Then with Ronald Reagan, we saw the beginning of the deregulation process that started to unwind that legislation and allowed Insurance companies and banks to merge.

We are now so integrated in a Global economy, that we have gone from a problem affecting just the US to affecting markets worldwide. Now, when a Bank or Insurance company fails, it has the additional concerns of affecting not only those companies and its shareholders, but other non related businesses, as well as Pension Plans that invest in those businesses and now become at-risk.

Let's me make sure there is clarity as to what this means overall. First, there is no level playing field. As an individual investor, you are on your own and the system is gamed against you. As long as we continue to elect Republicans, we will have little or no protection and our economy will be at risk. It is time we are willing to risk the alternative. Social Security, as a system to help retirees, was instituted by Democrats, and thank God it is still there for people. Many of our Nations problems need fresh thinking from the grip of the Republican party. Even though we had President Clinton, a Democrat as President, he had to deal with a Republican led Congress.

When the Healthcare plans formed HMO’S and PPO’S and were allowed to change from non-profit to becoming for-profit corporations, it was the downfall of healthcare. It changed everything. Now we are faced with higher healthcare costs every year, while executives reap millions and millions of dollars squeezed from us under the guise of operational cost increases. Healthcare is the next system to collapse.

We must have the courage to swing the pendulum the other direction while we still have time. Let's hope and pray that the Democrats, under the leadership of Barack Obama and Joe Biden, will seize this moment and positively change the equation which focuses back on the Middle Class and the Poor and reinstitutes policies that benefit most Americans not just the wealthy. If not, you are seeing the early stages of the Fall of the current Roman Empire, the United States of America!