Market summary for May 27th

Today started positive in all 3 Indexes, the Dow, the Nasdaq and the S&P 500, but they all ended down today, giving up much of yesterdays gains on about the same, to slightly higher volume. The volume is still low considering the 50 day Moving average Volume. The Nasdaq continues to flirt with trying to staying above the 200 day Moving average, as it has stayed above the 200 Day MA for 4 days in a month. For the past 2 days it has managed to stay above it, which currently crosses the axis at 1,700. Today's close was at 1,748. Tech's have led the Market up for the past 3 months, but seem to have staled out at the 200 day MA the past 2 weeks.

The Dow closed today at 8,300. The 200 day MA crosses the axis now at 8,900. While there still is room for the Dow to climb, it too has stalled the past 12 days in a tight range of between 8,200 and 8,600. The Dow's volume has been below the 50 day MA volume 19 out of the past 23 days. We need to have a breakout either above or below 8,200 and 8,600 to see where the next trend is going to take us. To me this and especially the 200 Day MA line are is going to limit the upside move.

The S&P 500 closed today at 893. The 200 day MA crosses the axis at 930. We reached a climax on this Index on May 8th when the Index closed at 930. Since then we have taken a step down. The range here is from 885 to 913. This 200 day MA is dropping at a rate of about 15 points a week. So if we stay exactly where we are now, the 200 day will be pressing on the Index to go lower in 2 weeks. That should take us past the Unemployment numbers for May as well as the GM bankruptcy to determine the impact on the market.

Treasuries rose sharply today as the curve between 2 year and 10 year was the steepest on record on concern surging sales of U.S. debt will overwhelm the Federal Reserve’s efforts to keep borrowing costs low. Ten-year notes have lost 10.3 percent this year, according to Merrill Lynch & Co. indexes, while 30-year bonds have lost 27.5 percent. The unprecedented government borrowing has created concern about a rise in consumer prices. Policy makers have expanded the Fed’s balance sheet to $2.2 trillion while excess reserves at U.S. banks have increased to $896.3 billion.

The VIX closed up and closed at 32.36, while the Put to Call ratio closed at 0.86, up from yesterday's close of 0.72 for the day.

Market setback: Gov't pulls back offer of more bailout for Auto's

Yesterday the government said they were NOT going to bail out GM as they had not done enough according to news reports. This story caused the Futures to be down in Asia and this morning the stock market opened down 200 within 10 minutes of the open, causing both the Dow and S&P to drop below the 50 day Moving averages and the S&P to go below the 800 level.

What effect this story is going to have on the market this week is unknown. But as I said a little over a week ago, any news will move this market dramatically in either direction. The market can recover from this depending on the story later on today by President Obama. But right now we don't have the details of the governments position other than GM's Wagoner has resigned and Chrysler is being asked to merge with Fiat. Stay tuned.

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.

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.

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.

The most dangerous times for our fragile economy: The next 60 days!

This has been the most vulnerable period of this market crash and financial institution conundrum these past 2 months, but we are about to enter its most critical and dangerous period. That time is bounded by Congress going home on recess and doesn't reconvene until the next Congress reconvenes and the January 20th Inauguration of President Obama. The country has lost total confidence in Bush and Cheney and now Hank Paulson, just as we did with Katrina's "Brownie". This is the time of year we are to give thanks for our blessings and the only thing I can think we collectively are thankful for is that Bush et al will be finally gone!

God help this country in the interim. The Congress needs to make their recess short and get back to work soon after, as it is all about confidence right now and we are facing a collapse of GM and possibly their suppliers. This could precipitate the other 2 U.S. Auto makers having exaggerated problems and more layoffs. The unemployment figures today didn't help pushing the unemployed now to over 4 Million people, not including their families.

Art Cashin of USB Warburg was on CNBC this morning and said we need to hold the intraday low of 7,882 today with a meaningful bounce up off it. That is still over 100 points from the close yesterday. As I have said since September, the low for this market is around 7,200-7,300 on the Dow. There is a 20-year uptrend line that crosses at about the 7,200 level that if broken we all should pray, as we then would be headed down into the abyss. Let's hope this does not happen. Sorry for the gloom but that's where things really are. Cash is King!

To bailout or not to bailout the Auto Industry? UPDATE

I wrote a recent post, Nov. 8th, on the proposed bailout of the Auto Industry (see post below). In summary I had said that while initially I didn't think it was a good idea, when you look into the issue in more detail, a bailout is a good thing as long as it is conditional that first the company had to file for bankruptcy but were required to have all the workers own the business. All non employee shareholders would lose their equity under the new restructuring but the employees would be given some % of the shares of the new company. Their elected Union representatives would be on the Board with an equal vote on where the business was going and had to approve of the plans. What this industry needs is accountability across Labor and Management. They must bury their past grievances and agree to a true partnership. Their Benefits would need to be trimmed significantly in a cost cutting measure, and they would need to equally share the pain. The government would act as the Arbitrator of last resort if issues remained and would have final say over ultimate decisions, as a condition for the billion of dollars given in the bailout.

This morning several experts on the Auto Industry are quoted in this article (worth your time to read fully) on Bloomberg.com that "GM Collapse at $200 Billion Would Exceed Bailout Tab". Quoting further from the article, "A GM collapse would mean 'more aid to specific states like Michigan, Ohio, and Indiana, and more money into unemployment and extended benefits,' Nariman Behravesh, chief economist at IHS Global Insight Inc. in Lexington, Massachusetts, said yesterday in an interview.

Behravesh's projection of $100 billion to $200 billion in costs dwarfs the $25 billion industry bailout plan that will be debated in Congress next week to prop up Detroit-based GM, Ford Motor Co. and Chrysler LLC. The drain on taxpayers from a rescue or a GM failure is a central issue for U.S. lawmakers."

So it seems a no-brainer we must rescue the Auto Industry after any like GM declares bankruptcy or we are cutting our nose to spite our faces. No one wants socialism. We all want Free Enterprise to return. But we are in a world wide crisis of historic and epic proportions which require unusual, once in a lifetime remedies. The article did not include the costs of default Mortgages by Auto industry workers unable t pay for their mortgages. But we have a chance to create an Auto industry that leads us into the future where we do not burn fossil fuels to run our autos. You see even cheap gas is bad, as it does nothing but add to our problem with Global Warming and that has catastrophic consequences for the entire planet.

President-Elect Obama will lead us into becoming the leader of Green technology on the planet with jobs that make people feel good about what they are working on, similar to when people like myself worked on the Apollo Moon program under the Kennedy Administration. It was a glorious time and nothing like that has been offered by any President since. There is no option here. We must save the Auto Industry and an additional $25 Billion is a paltry amount compared to not bailing them out.

To bailout or not to bailout the Auto Industry?

A few words are in order regarding the idea of a rescue of the Auto Industry. On the face of it I am opposed to it because it seems we are rewarding an Industry which never really got it this past 20 years and allowed companies like Toyota to capture market share by building cars Americans really wanted which were more energy efficient. Having said that, when I pull the onion layers back a bit, I realize that this problem is not the workers fault, but its leaderships. They build the cars they are told to build. But if we let the likes of GM fail, we will hurt all the auto workers, and they would add to the unemployment lines, as well as increasing Home Foreclosures, just when we are trying to stabilize markets. So it could create an even worse scenario. So what to do is the real question?

I have a solution that many may find appealing. What if the government did agree to bail out the company but as a condition of the agreement, the company had to file for bankruptcy but were required to have all the workers own the business. Non employee shareholders would lose their equity under the new restructuring but the employees would be given some % of the shares of the new company and their elected Union representatives would be on the Board with an equal vote on where the business was going and had to approve of the plans. What this industry needs is accountability across Labor and Management. They must bury their past grievances and agree to a true partnership. Their Benefits would need to be trimmed significantly in a cost cutting measure, and they would need to equally share the pain. The government would act as the Arbitrator of last resort if issues remained and would have final say over ultimate decisions, as a condition for the billion of dollars given in the bailout.

I am open to ideas about this as I am no expert on how to do this effectively. But I do like to see some accountability by everyone and for shareholders to not be bailed out. Share your views and let's begin a discussion. Thanks. And if you like the idea let's pass it around and get it to our Representatives, Senators and especially Obama. We all need to help and think about this as if we were all auto workers. I invite auto workers to add in the comments and please identify the fact in your comment that you are an auto worker.

And by the way, I have just sent this idea to Barack Obama via his web site for the Transition period. We all need to help solve Americas problems and be individually accountable for doing something to make things a little better.