2nd Quarter GDP really disappoints!

This morning the Commerce Department released its numbers on the economy. Gross domestic product rose at a 1.3% annual rate in the second quarter following a 0.4% gain in the prior quarter that was less than previously estimated. What's even more striking to me than the 2nd quarter low number of 1.3% is the revision to 1st Quarter numbers. The 1st quarter numbers previously reported were 1.9% and now have been revised downward to 0.4%. That's a very large difference. In fact, for all practical purposes that's basically close to negative growth and if this quarter gets revised downward by Sept, it may have shown we are in a Recession right now.The official definition of a Recession is 2 consecutive quarters of negative growth.

If it smells like a recession, feels like a recession, and speaks like a recession, it most likely IS a recession!

In the mean time, the Futures markets are predicting today to be a significant stock market drop again. Hold on to your hats!

Consumer Sentiment data for July was also released and came in at a 63.7, which compares to a 63.8 reading for June. Again, not in the right direction for a recovery.

Watch the rise in those TZA Call Options today for October Expiration at a Strike price of $41. I said we could see $6.00 for those which you could have bought for $2.69 just last week.

UPDATE: 6:53am PST

The Chicago PMI came in at 58.8 this morning for July. The month of June came in previously at a 61.1 reading.

Stock market at a critical point

The debt ceiling crisis impasse resumes again tonight with Speaker Boehner not getting the votes he needed from his own Party. We are now getting close to the point of no return. As you can see from the 2 charts below, we are headed down. The Dow and Russell 2000 are below their respective 50 day and 100 day Moving averages. Tomorrow will be an interesting day and Monday even more interesting and volatile.

I recently purchased TZA Call Options at $2.69 and $2.81 for October expiration at a Strike price of $41. Those call options have increased in value now to $4.80 and I expect it to go to at least $6.00 before the debt ceiling issue is resolved.

Market outlook for July 14th (UPDATE)

So yesterday the market fooled me and went over the 10,300 level I thought would hold. We actually hit a high of 10,407 for the day. We went above the 50 Day Moving average, which now is at about 10,250, but seemed to stay below the 200 day Moving average which is now at 10,385. The Dow closed yesterday at 10,363. Earnings for Intel seemed to please folks after the closing bell yesterday, but today is another day and right now the Futures are pointing down before the expected economic data is released in an hour.

Today, Retail Sales will be reported along with Business Inventories, Import and Export Prices, the Minutes of the FOMC meeting from the Fed and Oil inventories. Any one of these will be food for Bulls and Bears alike. Retail sales are expected to be down -0.2%. Anything lower will mean fuel for the Bears and anything better will be a case for the Bulls. However, remember this, these are lagging indicators and for June. Here we are in July. The real question is, WHAT WILL THE 3RD AND 4TH QUARTER LOOK LIKE? IT will affect our Debt/GDP ratio and the cost of borrowing going forward as well as whether the government will get necessary taxes from increased growth to help pay for the debt. The answer to this also has political ramifications for Democrats and Republicans alike. So these numbers on the economy get more and more important as we approach the 4th quarter.

It was painful yesterday to watch the TZA Call Options drop 20% and the underlying stock price to drop 10% or $3.57/share. It ate away at my profits made on earlier transactions, but I held and did not sell any. I expect some recovery today and in the days ahead and still am very bearish going into the rest of the year.

For today, keep an eye on the 200 Day MA of 10,385 and also the 50 day MA of 10,250. I would like to see us stay below the 200 day and to go below the 50 day by the closing bell so that this temporary rally ends, but that's only because I am on the Short side of the market right now because I do not believe that the economy is healthy nor do I believe we are out of serious danger. Rallies to me give a false sense of confidence to people and that is not the reality of this world crisis.

UPDATE: 8:40am EST.
Retail Sales came in at -0.5% which was significantly worse than the -0.2% expected. So that's one big one for the Bears. But Retail Sales ex auto sales were down only -0.1% versus an expectation of only -0.2%. This makes the case for the Bulls. So pick you side and your poison as to what you believe. :) I believe the -0.5% because it is the pure overall number. Now tell me the economy is really doing better. Ha!

Also, Elizabeth Warren in charge of monitoring TARP funds said this morning on Bloomberg TV that 76% of large Banks on Wall Street have paid back their TARP loans. However, only 10% of the smaller Banks have been able to pay back TARP loans. She added that 15% of the smaller banks which borrowed TARP money have missed at least one dividend payment to the government for the use of these funds and that it is going to get worse for these smaller banks. Another piece of data for the Bears.

UPDATE 9:00am EST.
More bad news for the Bulls. Import prices dropped to a -0.6% compared to the previous month at +0.5%. There is No Inflation folks. There is Deflation as I have been saying now for a while. Export prices were down also to -0.2%. That's Deflationary as well! Let's see the market's reaction together today.

UPDATE: 5:00pm EST
The FOMC released their minutes today. If I had to boil it down this is what they said:

Six Years

Most FOMC policy makers expected that the U.S. may not return to its long-term rates of economic growth, unemployment and inflation for as long as six years, the minutes said.

“Participants generally anticipated that, in light of the severity of the economic downturn, it would take some time for the economy to converge fully to its longer-run path as characterized by sustainable rates of output growth, unemployment, and inflation,” the minutes said. “Most expected the convergence process to take no more than five to six years.”

Market outlook July 6th

The ISM's Service sector data was released this morning for the previous month. May's data came in at 55.4 and June's is at 53.8, worse than the consensus of 55.0 expected. This seemed not to affect negatively the strong surge of markets this morning as the Dow is up 167 to 9868 this morning. Commentators on CNBC remind people that any number over 50 means that non-manufacturing is growing, albeit at a slower pace than the previous several months, thanks to the chart by Econoday, Inc. above shows.

The market has backed off the highs so far and the Dow is currently at 9833, up 147. A small "W" pattern is observable with the slant downward currently on the Intraday chart. This means we should be going lower in a while. That would mean lower than Dow 9824.

This morning has been a good time to add more TZA Call Options if you wanted as the prices are down about 15%. I will update the Intraday information today as it becomes available and trends discernible.

Update: 8:00am PST

The Intraday chart above shows the "W" pattern slanting downwards so I hope you have either sold so far today or bought your Put Options or TZA Call Options as they will be getting more expensive now today.

UPDATE 8:38AM PST

As you can see the Dow did go lower as the "W" pattern predicted. Now it has made a stand and may try to go back up. Look for another "W" pattern to emerge but this chart shows where we are right now.

Update: 9:16am PST

As you can see the "W" pattern is slanting upwards so that means up again. Sorry I can't be of more help but today is a roller-coaster day, the kiddies kind. Not too high and not too low but a ride nonetheless. Shorts aren't happy today and my guess the longs aren't either as they have had 9 out of the past 10 days down and they don't know whether they can believe this rally. Don't, it's a temporary break from the negativity of the market for those long the market.

Update: 9:30am PST

It has made a reversal and now down to the lows today. This new "W" pattern is showing the way for the day and it is lower. The full "W" has not emerged but you can guess what it will look like and I have drawn the red line under where I think we are now headed.

Update: 10:50am PST

As the chart above shows we hav e gone lower still and the last full "W" is slanted down. Also we are forming a still lower W pattern that has not yet been completed. So it's a good bet now we could finish negatively today as the Dow now is only up 35 points to 9721.

Update: 11:25am PST

The Dow actually did go negative as did all indexes including the Russell 2000, which TZA tracks inversely. TZA hit a new recent high of over $9.00/share. I can't say how the market will finish but you can see there is another "W" pattern forming. If the second leg is higher than the first it will go up, otherwise the markets will most likely finish negative today. It has had a mighty drop since earlier posts.

Update: 12:10pm PST

This will be my last post for today. Business is calling and I must go. You will notice that there was a formation of another "W" pattern at the end of the chart, but this one is flat. This means that the Dow will stay close to these levels, not going up a lot or down a lot until a new "W" pattern emerges. One thing for sure, the Bulls have had their sails ruffled as the Dow has lost most if not all of the gains it made earlier and then some.

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.