Market outlook and commentary July 8th and beyond

Today's close marked the lowest closing price for the Dow and S%P 500 for 2 months and it is clear that the Indexes are going lower, as today's volume spiked for the previous day. The drop continues to hug the downtrend line of the 2 year chart of the Dow which I posted back on June 25th. The Dow closed down 160 points today to 8,163 while the S&P 500 closed at 881.The Put to Call ratio closed today at 1.01 after hitting an intraday spike to 1.14 at the first half hour of trading. This represents 3 of the past 6 days where this Index was over 1.00 and it has happened every other day. If it continues in this short pattern, tomorrow would see it back off to about 0.81-0.88. The market could still drop some but I believe this continual decline will happen slowly, rather than precipitously. The Dow is now at the 8100 level and the S&P 500 has gone as low as 878 today. Remember Art Cashin said on CNBC earlier that 877 is a key support level and if we go below it we are headed down to 840 or 800 on the S&P.

My ETF Ultra Short, symbol TZA has now risen to $25.63/share and continues to rise slowly. Those who bought this as low as $20/share are now up 25%. Tomorrow these ETF's will all have a reverse split which should not affect the total value you have invested but the share price will be significantly higher with a 10 to 1 reverse split on some and 20 to 1 on others.

Not much talk of Green Shoots lately and rather, the conversation has now moved to focus on not just earnings reports but more exactly future estimates by these companies. If they set the bars lower, it will confirm that recovery does not look like it will happen as thought just a few months ago. This can and should cast a more negative tone to the market for the next few months. Adding to the conversation and discussion is the fact that VP Biden and Laura Tyson have independently said they might consider a second stimulus. That too will add to the negative tone.. Again, I remind you to preserve capital so that a few months from now all the gains you made the past 3 months aren't all wiped out. If your portfolio has gained back 25-40%, as some have, it is not a sin to take the profit and sit on cash, waiting again to buy back near the lows in the 7,000's on the Dow or lower.

Market update for June 11, 2009

Weekly jobless claims came in at 601,000 which was down 24,000. Continuing Claims were at 6.816 Million jobs. Retail Sales were up 0.5% compared to last month being down. However if you look behind the overall Retail Sales number, the reason it was up was because of Commodities and Energy price increases. The more important numbers for sales of Electronics, Furniture, Appliances and other Consumer discretionary spending items, were all down. The Consumer has stopped spending in all but the absolutely necessary items. This does not bode well for Retailers. We are heading into the months they consider placing orders for Christmas that require long lead times to manufacture. Look for Coal in this Christmas's stocking.

The so called Green Chutes don't look so green today even while the market is trying to go higher. By the way, when you read other articles talking about "Green Shoots", notice they are misspelling it. I'm not a good speller as writing on flip charts over the years has taken its toll from speed over accuracy.:)

The Futures today are pointed only slightly down, while they were slightly up earlier before the Retail Sales and Weekly Jobless Claims were announced. European markets are down currently so it is a good bet today will be down as well. I am still consistent with my outlook that the markets will head lower and not continue to rise. We are in a range which only goes as high as 9,300 and as low as 7,800 but we will test the lows at the 7,200 and possibly go to the low of 6,440 on the Dow by Options Expiration near the end of October.

There was also an article today titled Option ARMs Threaten U.S. Housing Rebound as 2011 Resets Peak from Bloomberg news and the Housing market. One excerpt worth noting was this:

About 1 million option ARMs are estimated to reset higher in the next four years, according to real estate data firm First American CoreLogic of Santa Ana, California. About three quarters of those loans will adjust next year and in 2011, with the peak coming in August 2011 when about 54,000 loans recast, the data show.

Option ARM borrowers hit with unaffordable monthly payments are another threat to the housing recovery and the economy, said Susan Wachter, a professor of real estate finance at the University of Pennsylvania’s Wharton School in Philadelphia. Owners who surrender properties to the bank rather than make higher payments for homes that have plummeted in value will further depress real estate prices and add to the inventory of properties on the market, she said.

“The option ARM recasts will drive up the foreclosure supply, undermining the recovery in the housing market,” Wachter said in an interview. “The option ARMs will be part of the reason that the path to recovery will be long and slow.”