Pre-market Monday, Dec. 8th, 2008: Is the rally real?

Many of my friends don't believe the rally is for real. But many counter with the fact that the stock market is a leading indicator and usually 6 months ahead of the news. This weekend Congress, President-Elect Obama, along with the Bush Administration, have worked out some differences on a bailout for the Auto industry. Markets in Europe and Asia all had big rally's overnight and in the early hours. So it seems as though we are off to the races at the open, and you can expect a significant rally up about 300 points early in the day.

But again, is this enough to dispel the market overall fear? The answer to me is No! Most of us believe that more jobs are going to be lost going forward, more home foreclosures, tight credit and not much good news. So this rally is a relief rally based upon the worst news any could imagine from the bad jobs report last Friday, where 533,000 jobs were lost, behind us and no other news expected for a while.

So what to do. Well, first don't sell your Ford stock. Enjoy the ride today, as it will go up to $3.50 today for a nice gain. And because of the bailout, it will continue to $4 and above per share. If you believe as I do, that there will be a pullback eventually here and retest the lows, you are going to be given another opportunity to by the ETF Ultra Short fund, symbol SDS for around $83/share. If you buy this here you will most likely make a good return. So folks who believe we are in a Dow range between 7,300 and 9,500 will be looking to add to our Short positions using ETF Ultra Short funds. Yes, we may rally for a few days this week, but ask yourself this question, Are we going to have the worst of this financial crisis behind us 6 months out?

UPDATE 1:15pm PST.
I took my own advice today and purchased more shares of SDS, this time at $80.50/share with a limit order in for that price before I left for a client. The shares of SDS actually hit a low of $80.06 today. Ford closed up as well at $3.38/share after hitting $3.54 today, which was another lucky guess.

Market action during Tuesday, Dec. 2nd: Sold 1/2 Ford shares today

I sold 1/2 of my Ford shares this morning for an 80% profit. The remaining shares I own have an average share price of less than $0.10/share and I plan to keep them. The reason I sold half the shares was to return the cash I had invested for other uses such as playing the channel of the market. Having more cash in my tax deferred account allows me to move more quickly in buying ETF Ultra Pro shares, like SSO, and Ultra Short shares like SDS and TWM, to take advantage of the big swings in the market. The more frequent trades I can make with AT LEAST A 20% RETURN THE QUICKER MY ACCOUNT BALANCES WILL GROW AND THAT IS MY GAME PLAN.

This trade today settles on Friday so I will have more liquidity to respond to opportunities rather than waiting for them.

Markets are up so far today having reached a peak so far when President-Elect Obama was speaking to the National Association of Governors, in Pennsylvania, about stimulating the economy through the States, on infrastructure and investments on Renewable Energy programs.

My take on today's market action and looking forward.

Today the markets confirmed what I have predicted last week. I said the rally last week was a Bear market rally and not to be fooled by jumping back in. I suggested buying Ultra Short ETF Funds such as DXD and SDS. Both are up now. In the case of SDS which is a short on the S&P 500 closed Friday at $89.89 and closed today at $104.75. That is a $14.86/share gain for a 16.5% gain. When I asked readers to buy this it was at $87.55. Overall it is up now 19.6%. Looking at DXD, which is an Ultra Short Fund of the Dow, it closed Friday at $79.31 and today closed at $86.20/share. That is a gain of $6.89/share for a 8.7% gain. I recommended buying this Fund at $70.50/share. It is up now 22.2%. Normally I would sell these with these gains, but the market closed at near the lows and I believe we are in for another drop tomorrow. We have gone below the recent lows on the Nasdaq, which is not a good sign for those wanting a rally. Also, the ratio of Insiders Buying is overshadowed by Insider Selling, in terms of actual dollars.

There are no good news stories on the immediate or near term horizon, and in fact, there was one negative news item today, as Hank Paulson, Treasury Secretary, announced he is changing the actions he had announced regarding the TARPS (Troubled Asset Rescue Plan which Congress finally approved prior to the election) "because the facts on the ground require a change in strategy," he said. This did not give confidence to the market. Many now believe he has not foreseen some of the current problems and has lost some credibility with the market. The markets function based upon confidence levels of investors and there appears to be less and less each day.

We are getting close to the 8,000 level and without some encouraging news in the days ahead, I fear we may take a run at the real market bottom, which I have said since September, is at about 7.300 on the Dow. If we do go there, that will be capitulation and we should not go lower.

Today's post market analysis

Well, I was correct that the market started selling off when Barack Obama started his news conference. The Dow was up to 253 when he began speaking but then quickly dropped to up only 90 points. After he finished his news conference the market went back up and ended at 248. This was very close to where Barack Obama started his speaking. What does this mean. Well, first, it was very predictable that the powerful don't like the idea of an Obama Administration. Secondly, with such terrible Unemployment numbers today, the market rally did not make sense and we know it is going to much worse.

So if I were any of you today, I would have been buying more Ultra Short ETF Funds on the S&P 500 Index, symbol SDS, and on the Dow, symbol DXD. The fact you ventured in today shows your courage. My goal is to have you preserve capital and at the same time use the trend as a friend. The trend now is down or flat, not really up.

One indicator I thought particularly illuminating was Insider Trading. I have been watching this indicator the past few weeks and have noticed that the ratio of Insiders Buying vs Selling favored the Sellers. The ratio was that for every Dollar Insiders were using to buy shares of their company, there were 3-4 dollars in selling of shares. Today was much more dramatic but that is only because 5 Insiders sold 7.5 Million shares of Marriott International Inc. today That made the ratio over $15 of Sellers to every Insider buying with $1 dollar.