Market comments for the week ahead and beyond

Let there be no doubt, the Dow will go as low as 11,600 shortly. From there we may have a bounce up but the odds are we will continue to see this and the other stock market indexes drop lower because much concern still lies with the issue of raising the debt ceiling. We have less than 3 weeks for this issue to get resolved before the markets start to get very nervous and volatile, even though we have until Aug. 2nd before the government defaults on its debt obligation and the government shuts down. The sides are still miles apart and it seems to be playing along in a similar game of chicken as to when Newt Gingrich was the Speaker of the House during the Clinton Administration. The Republicans miscalculated then and appear to be again now. Only this time the consequences our governments credit will face is much worse as the United States has never defaulted on its debt obligation. So you see this is very serious indeed.

I have added a 6 month chart of the Dow this morning as is seen below. Notice that on Friday, which is often a low volume day, the Dow was down 172 points at the close. Notice also that the Volume was indeed higher than the entire rest of the week.

Also noteworthy was the fact that the Put to Call ratio continues to be greater than 1.00 now for 8 consecutive market days, not seen since Sept. 9, 2008. All the signs are warning investors this is serious. Don't say you didn't know it would get so bad. You have been warned!

How far down is the market going to go is subject of many guesses. My guess is that we will be first going all the way down to the 10,000 level after testing 11,600. A look at the 2 year chart below shows just how easy the Dow and other Indexes can unwind. I have identified 3 levels to test in what could be a drop as far down ultimately to test the Dow at 6,400. Yes, that's right, Dow 6,400. You read that correctly. Much depends on when and what the Fed is allowed to do. If the Fed stops its quantitative easing (QE2) and not do more, we could get there sooner rather than later. If the Fed decides it needs QE3, this drop and crash will be postponed for a while, but it will be inevitable, we will crash to test 6,400 eventually. A defense will be better than any offensive market move going forward as the odds are against a Bull market now. Fair Warning! We are in a Bear market now.

Market Outlook June 25th

GDP was revised downward for the first quarter, from 3.0% to 2.7%. Financial regulation was passed and the initial reaction was that Bank stocks rose about 1 to 2%. Is this tough reform? No, most will agree. But why not? Mainly because Republicans continue to filibuster everything proposed by the Obama Administration. They don't want Financial regulation and the industry has bought the Congress and the Senate. They have lobbied so much and got their way. this Bill does not have the teeth that would keep us from being vulnerable to shenanigans of Wall St. again. What will it take to stop Wall St.? Something they can't control, a market Crash and a Depression. That is where I believe we keep marching towards. We are destined to repeat history's lessons we seem not to have learned.

I have some friends on Wall St. and the rank and file employees say they want tough Financial regulations but their bosses are addicted to the obscene salaries they give themselves. It reenforces the saying, "power corrupts but absolute power corrupts absolutely!" I guess it is the negative part of being human.

Even though Futures had looked positive after the news was announced on Financial regulation being approved, the markets opened slightly up but then turned negative and is where they are now. We are headed lower and lower, each day like a trickle. Nothing alarming to cause a panic, but a steady erosion of prices, as despair creeps into the markets. The Republicans in the Senate are united and for 8 consecutive weeks don't seem to want to help extending the benefits of the Unemployed. They continue to Filibuster them getting an extension in unemployment benefits. That's well over 1 Million people will not get any money after June 30th. Watch them lose their homes and continue to increase this decline to an eventual Crash.

I had a personal experience growing up around this issue. My Dad worked as a Tailor in the garment business back in the 1940's. He made Men's suits and Top Coats. He worked very hard in the Spring and Summer in a sweat shop with temperatures reaching in the upper 90's and low 100's because of the Steam presses. That is the reason they called it sweat shops. Well when September came, my Dad would be laid off and he would have to go collect unemployment benefits as there was no work for a tailor. I used to go to the Unemployment office and stand in line with him. Thank God for those benefits as I don't know how we would have had money to pay the rent or buy food. It wasn't charity, as everyone had to pay part of their income for Insurance so there was money to pay them when they were laid off. So it was money earned and set aside for them when they were let go from their jobs.

So when I see Republicans not wanting to approve benefits for those unemployed, not because of anything they did, but what the wealthy cats on Wall St. created by gaming the financial system for their own benefit, I get real angry. And yet, these same Republican Senators are trying to get tax breaks for the top 100 wealthiest of us in this country. This is immoral. We deserve a Crash as it is the only way even they will get hurt. It levels the playing field, cleans the gene pool a bit, and teaches a lesson to those who have to understand the plight of those who not only don't have but have never had but crumbs. As Americans, we get the government we deserve, because we don't step up and insist on better leadership, no matter if they are Republicans or Democrats or Teabaggers or Independents. It's hard to just blame "them", when we vote for "them"!

Well the market had gone down 13 when I had started to write this and now is up 17 as I finish it. Remember the overall trend will be down with some spurts up but a steady decline when you look at the charts. First we will break below 10,000 on the Dow in the coming days and then below 9,800 in weeks and then below 9,500 and then the Fall we see us testing 9,000 or lower. Drip, drip, drip! We are in a Bear Market!

Here are some headlines which should give you pause. Click on each to go to the story:
States of Crisis for 46 Governments Facing Greek-Style Deficits

Banks ‘Dodged a Bullet’ as U.S. Congress Dilutes Trading Rules

Economy in U.S. Expands 2.7%, Less Than Forecast

Leaders differ on how to nurture a global recovery

U.S. Durable Goods Orders Crash With Aircraft


Now the Dow is down 22 points and forming a "W" pattern as the chart above shows. This means we are headed lower today. Come back for Updates during the day!

Update: 7:45am PST

I just learned that the Russell 2000 is going to be rebalanced today. Some stocks added and some taken out of the Index. What effect this will have on TZA will be negative as when they rebalance they are trying to improve the Index quality and this means that TZA will go down while the Russell goes up somewhat. That is why all the other major indexes are down but the Russell is up right now. It's not by a lot, but it explains the discrepancy. This rebalancing will create only a temporary rise of the index. Eventually all stocks and all Indexes will be going lower. It's just a matter of time, but time is what Options are all about, aren't they! I think October TZA Calls will be OK, but July ones may be affected negatively and not recover in time.

Update: 8:10am PST

We have formed 2 "W" patterns and both slant lower. Even if the market rally's somewhat from these levels to me there is a 90% chance the Dow will go lower today to complete this lower slant. Time will tell.

Update: 9:30am

We have not yet satisfied that 2nd red line "W" pattern yet, as shown in the chart above. In fact, we have formed a 3rd pattern and it is slanting up. I still believe we will go to a new low before the close today. This is not a certainty as about 10% of the times it does not follow what is expected. But I am going to stick my neck out here and say I think it wil go back to the low today, especially going into the weekend, where a storm is brewing in the Gulf and threatens Oil recovery efforts. The low of the day coincides closely with S1 for the Dow, which is at 10,088.

Update: 10:35am PST

The Dow has moved up now but the Russell 2000 is soaring because of Rebalancing and the window dressing the big boys are doing at the end of the Quarter and 6 months into the year. Also, TZA is going to have a reverse split next week. This is affecting the Russell and the price of TZA which is now below $7.00/share. I can't predict what this will do for the Options except it ads another level of uncertainty to things.

Stock market : Don't be fooled twice!

Today the Government of President Bush reported the Jobs Report at 5:30am PST and it was worse than expected, as I heard it reported on CNBC. Panelists said it was worse than expected and it didn't look good going forward. But as they watched the Futures market, they didn't see a sell-off. The market then opened an hour later and it is up right now 150 points. My friends, don't believe the market. If you have made a profit, take advantage of the move up and sell into it. The market is headed lower. There is no escaping it. Don't try to outsmart the pro's.

Think about it for a moment. We have lost 1.2 Million jobs in 2008 so far. The Unemployment rate jumped today from 6.1% to 6.5%. What is it in the numbers you don't get? Bad news is bad news. So this market in my view will sell off later in the day. If I were to pick the precise timing of the sell-off I would guess just about when Obama speaks at 11:00am PST. Why then, you ask? Because the power folks who are threatened with regulation by an Obama Administration want to make a point that they don't approve. I say "Tough, you made this mess and we are going to clean it up! So go cry in your soup. You have no idea what the average American family is going through because of your shenanigans these past 8 years." That's what I would tell them if they would listen. But they don't and won't, will they? Will you listen?

UPDATE: 11:55am PST.
Barack Obama started his news conference at 11:50am with the Dow at 253, as soon as he started with his first sentence of welcoming the Dow started to drop. In those 5 minutes the Dow has dropped to 170. It will be interesting to see what develops by the end of his News Conference.

UPDATE: 12:00pm
Dow is at 117

UPDATE: 12:05pm
Dow is at 95

Market update - Where are we going short term?

It looks to me reading the charts we are still headed lower short term. For the Dow that means going back to 8,000, for the Nasdaq it means 1500 and for the SP500 it means 850. That's about another 8% drop from here. That is the bottom of the range we hit in this Sept./Oct crash. We will bounce off these lower levels but will be testing them. Don't be fooled again when they bounce back up, as we will drop down on the Dow to about 7300 before we can truly say we are at bottom. That is where real capitulation is and I have been saying this for a couple of months now. So on rises sell, and repurchase at the lows of this band. The Dow will stay in this band of 8,000 to 9,700 for a long time or until we go down to the 7,300. If we do that money will come back into the market on much heavier volume than has been attracted back. However, longer term, volume will be a casualty of the market crash and loss of confidence in Banking, Insurance and the Government.

Bill Seidman, the man who was in charge of the Savings and Loan rescue plan back in the late 1980's, early 90's, was asked on CNBC this morning, when he thought this Mortgage crisis will get resolved. He said he hoped maybe by 2010 but there was serious doubt it would be resolved by then. That means we are in for a turbulent time.

Making money in the stock market is only going to come with increased trading in positions for smaller percent gains. You can get 5% gains with this volatility but then you must consider taking your profit. Hedging with Shorts is also something that can help stabilize the large moves. But those too must be traded when gains appear. The days are gone when the average investor hoped for a 8-10% gain in a year. Be happy now with 3-4%. That will be terrific if you don't have the time or skill to trade.