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 commentary for May 31st

Well the Dow is up to +123 points on the Dow this morning within the first 15 minutes. You might be saying to yourself, "Wow, I wonder what great news came out this morning?" Well I don't know about good news, but the Case Shiller Housing 20 city Index number came in at -3.61, which was down from April's number of -3.41 for example. And the Chicago PMI came in at an incredibly low number of 56.6 for May. Expectations were for 63.0 and last month it came in at 67.6, so you can see how bad that is.

We are awaiting the Consumer Confidence number in a few minutes which I will update here, but the news this morning is anything but good and yet the market soars, as usual completely ignoring the facts with the remaining QE2 funds being applied to the continued manipulation of market data. This is so much worse than any odds favoring the house in Vegas. Will we ever learn this will have a bad ending? I doubt it until it actually happens! Shame on us.

Update: 7:00am PST

Consumer Confidence was down remarkably to 60.8, while last month the number came in at 65.4 and expectations for 67.5, so this too is just awful for the economy outlook as well as the above data.

Has the stock market really gone up? A look at the Dow Gold ratio

I have updated my recent charts on the price of Gold and also the Dow/Gold ratio and I find it quite revealing in light of the bullishness of those in the stock market and investor sentiment numbers being at near record highs. As you can see from the chart of the price of Gold, we have set a new record high this week. Of course that is the price of Gold in US dollar currency. The Dow/Gold ratio from the other chart shows that the trend continues to go down. Many investors in the stock market have felt very good at the gains they have made in the past year or so. You see since January 1st, 2010 to March 23, 2011 the Dow has gained about 13.9%. On the surface, that would appear to be a fabulous year, wouldn't it, that is unless you compare it to the price of Gold. Gold has risen in the same period over 33%. Now that is a big gain. So if you consider Gold a standard to measure your progress financially in real assets, you have lost significant ground based upon this data. Still feel good?


This all happening with the help of a Fed whose job has been to try and help the recovery using another round of Quantitative Easing (QE2), or as many like to call it, printing money out of thin air. The consequence of this is that in order to purchase a 1 ounce gold bar a year ago you would have needed 39% less dollars than today. Taking the same analogy consider for a moment the real value of Real Estate on a Gold basis if you really want to be depressed. We all know housing prices have dropped significantly around the country and many consider the absolute value in dollars as their yardstick. But it you consider that while housing prices have dropped about 10% over the past year in dollar terms, the value of properties, as measured in ounces of Gold, those houses have really dropped in value and the numbers are staggering. That's what's happening to our Country. You can buy US assets in Gold or Oil today at far cheaper prices than what we mentally think is their true worth. Depressing, to say the least. Of course if you have a lot of Gold, or Oil, you can buy much of America today for a bargain. But who would want it? Below is a chart of Housing Prices in terms of ounces of Gold to purchase a home.

Market comments for March 9th trading

Market action on Tuesday, while an impressive gain from the day's drop on Monday, kept both the Dow and the S&P 500 within an even tighter range. The Bulls are using the day's progress as evidence we are still in a Bull market. The problem is the charts say otherwise. It isn't so clear that we are still in a rising market.

The 2 charts below clearly show that in the past 5 market days the range has been tightening. You will notice that both on the Dow chart and the S&P chart we are forming lower highs and higher lows. This is setting up a breakout either to the upside or to the downside. It is impossible to guess which way it will go, especially because the Fed can trump any downturn with more QE2 funds to prop up the market. Stay tuned to see where we wind up. Oh, and by the way, in the last 15 minutes today over 40 million shares were traded by Institutions!

The reality of the economy and the irrationality of the Fed and Wall St.

Yes my friends, new data released today defies the logic of the markets. First piece of news was that Michigan Sentiment came in lower than expected for December at 72.7. The prior months reading was 74.5 and the expectation for Dec. was 75.5. So much for that "good news"!

Then the Retail Sales number was reported at 0.6% for Dec. Expectations were for 1.0% for Dec. Nov. came in at 0.8%. So this clearly is in the wrong direction and includes the Christmas shopping data. Remember how they said it was a great season? Hmmmm.

The CPI came in at +0.5% for Dec. Expectations were for +0.3%, so that's in the wrong direction but Core CPI came in at only +0.1%, which excludes Oil for some reason. You don't need gasoline or heating Oil, right? That isn't a "cost" to you, right?

So how's the market reaction to this news? Well the markets were down before the news came out and now they are up! Go figure, it's QE2 at work distorting reality of the economy. Thanks Fed Chairman Bernanke!

Bernanke says he is not printing more money.

Fed Chairman Ben Bernanke said on 60 Minutes last night that this money for QE2 (Quantitative Easing) is not money that has been printed. He also said he could possibly have QE3 if it is needed, with the implication that QE4 could also be used. But he insisted that this money is not just being printed. Technically he is correct. But let's take a look at just how he is doing it. This Video clip from You Tube explains quite clearly how he is able to do this.


Wish I could do that with my Bank accounts, don't you?

Market comments for the week of Nov. 29th

Good day everyone. Hoping you are resting and catching your breath this longest of holiday weekends. You all work hard and once in a while you get a chance to rest so I hope you are taking it and resting as hard as you work.

Today I have 3 charts I am posting below. All 3 charts cover the past 3 months and all have 25 and 50 day Moving Average lines on them. You will notice that both the Dow and S&P500 are in a tight range between the 25 and 50 day Moving Average lines. The 3rd chart is of the Russell 2000 and it has a noticeably different chart pattern. It has remained above both the 25 and 50 day Moving Average recently. I believe that this Index is in an overbought condition and should have a larger drop when the breakout occurs to the downside. The Russell 2000 Candlestick pattern was a Hammer on Friday. So we shall see if this reverses the uptrend.



I have received many questions as to whether TZA will ever recover from the losses piled up on this Ultra Short ETF. That's a great question, but like all market moves, I can't tell you. All I can say is that I firmly believe we are eventually going to have a major market correction and retest the lows on the Dow of 6440, and when that happens many are going to be very scared. Whether the trigger is a Sovereign debt issue in the Euro zone or an economic trigger here as many believe QE2 from the Fed is killing us by death of 1000 cuts at a time.

In the meantime, live life the best you can to its fullest, as life is short. Spend quality time with family and tell them you love them. And as the Christmas holiday approaches, do something for the least of us, as you will feel good when you do. Whatever you have it's more than many in this world.

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!

Economic indicators for the week of Nov. 1st

This will be a very busy week, indeed. Most likely the most important piece of news this week will not be Initial Jobless Claims, or CPI or Home Sales. One of the most important piece of news will be on Wednesday when the Fed meets and decides how much Quantitative Easing (QE2) the Fed will chose to initiate. Many expect about $200-400 Billion dollars. Many say this won't help enough, as it is too little an amount. Expect a market reaction when the Fed does announce their intentions along with their Interest rate decision. But even this is not the most important information of the week. Below is a list of Indicators being released and the day and time of the announcements.

The Unemployment rate for October will be released on Friday, as will Pending Home Sales. But the most important information released this week will be the Election results. That we will know most likely by Wednesday, not Tuesday as many races are very tight.

What's it going to take to get out of our economic funk? It's contrary to what you think!

We are all concerned about the economy and the stock market. The talking heads on CNBC and other networks like Bloomberg are asking questions like these: Will the Fed's Quantitative Easing work this time when it didn't seem to work last time? What's it going to take to get more confidence back to Consumers? Will the individual investor return to the stock market or have we lost a generation of investors? I have given these questions some serious thought and with my background of understanding people and the psychology that drives them, there are answers which will seem contrary to what the experts in the Fed and the markets are currently providing. Here are some of my answers to these questions.

For confidence to come back, the stock market must go down and have a retest of the lows! It is the only way where people will be convinced that the market is reflecting the economy. Without the drop, which by the way had been predicted by me incorrectly for the past 6-9 months, people believe the markets are being manipulated (which they are) and therefore an unsafe place to invest or to make money. It is the very avoidance of market turmoil, which has driven the lack of confidence in the connection of Wall St. to Main St. I am not saying it won't scare people, but they will feel relieved if there were a successful test of the lows and that there is the all clear sign with respect to investing in the market and the economy. The economy needs a spark right now and the Fed can't provide it. It has shot its wad already and it failed. The government isn't responsible for creating jobs, it's the Private sector. The Private sector won't until the mood of the Consumer is more optimistic and they are spending somewhat more than they have been.

I am afraid without the market drop, hordes of people will stay in a funk, things will remain depressed and many will feel there is no hope of recovering. The world needs the boldness and courage of the American people to lead the world out of this mess. The answer is NOT to try and protect the stock market but to allow it to reflect reality. We need the stock market to fall and retest the lows successfully so that we can reset the psychology of the public.