Market comments for Oct. 14th, 2010

Data released this morning shows that Initial Jobless Claims were higher at 462,000. Expectations were of 450,000. Last week the numbers reported were only 450,000, so this spike is in the wrong direction. However, as usual, they adjusted the prior week's data up from 445,000 to 449,000. Continuing Claims came in at 4.399 Million vs 4.511 Million the prior week. But the 4 week moving average is up to 459,000. When you really think about it, Americans are losing jobs to the tune of greater than 450,000 a week and have been doing so for a very long time! How sad for American workers and their families. This is not a good report for President Obama going into the elections in a few weeks.

On another note, the PPI came in at +0.4%. This was the same data as reported for August. The Core PPI, year over year increase, is up only 1.6%. The Trade deficit came in at -$46 Billion versus -$43 Billion last month. Expectations were for improvement to being down to -$40 Billion, so this too was in the wrong direction. With China's currency resisting world pressure to appreciate because they have an unfair advantage I believe they will continue to defy the world and will keep their currency as low as they can. Why not, they are in the drivers seat and they know it. Even if the whole world dropped their currencies they couldn't get it low enough to match where China's currency is because their population works for under a $1 a day. We just can't compete with them nor can anyone else.

Foreclosures reached a record 100,000 last month, and the background story, which emerged a week ago, was that an investigation of Banks and their foreclosure process is being conducted. Bank of America had stopped all foreclosure processes in 50 States pending an investigation by them.

Futures are close to unchanged or slightly lower after the release of the data.

It is now clear that with the sizable debt this country has, that the way we are dealing with it is to devalue our currency so that the value is half of what it was so we can pay the debt off in cheaper dollars to China, who holds our debt, as does Japan. That is why Japan is trying to lower its currency as well so they get paid eventually relatively equivalent dollars and why China will not inflate its currency. The major world powers are in a Currency war right now. This game is going to end very badly as wealth is being transfered out of the United States.

But we are all happy now because the stock market appears to be rising, right?! How naive the American public is. That is the price we all pay for a poor education of our kids who someday grow up and are fooled by the talking heads in Washington and vote against one's own personal interest.. Education is the one answer to get this country back on track and we haven't even begun to get serious about improving education yet. That is why we get the Government we deserve.

Market comments for Sept.16th (UPDATE)

Initial Jobless Claims came in at 450K and expectations were for 440K. That was a little more than expected. The prior week number was 451K but here again, it was revised up to 453K. The number is still basically the same, week after week, so the jobless picture is not getting better, but also at this period of time isn't getting worse either. That is good news for those employed, but bad news for the long term unemployed, as it is still very difficult to get a job.

Continuing Claims came in at 4.485 Million. Expectations were for 4.450 Million. The prior week's number was 4.478 Million but was revised upward today to 4.569 Million. Again a more negative number than previously reported. You would think with all these revisions over the past months that sometime they would revise them downward, but they don't. That is part of the reason why I believe the numbers are being deliberately manipulated.

PPI numbers released for August were +0.4%. The prior month of July it came in at +0.2%. Expectations were for +0.1%. Core PPI came in at +0.1% compared to prior month's data of 0.3%.

The Futures market is still negative with Dow Futures down about 42 and the S&P 500 down about 6 points.

FedEx sees 1Q profit double, and you would think that is good news. However, they said that the Global recovery isn't as strong as was previously reported by them. Also, in the announcement, they said they are going to layoff 1700 jobs. Read the entire story here.

Other news, which caught my eye this morning was that foreclosures are up 25% on the year. The increase in foreclosures came even as the number of properties entering the foreclosure process slowed. To read the complete article click here.

I know what you are thinking right now. Where is the market going? If it were based on the data, it should be down much lower than where we are now. But it doesn't seem to be following that course of late. It doesn't make sense to me that the market has been rising this past 2 weeks, but it has. So your guess is as good as anyone's right now. You decide!

The next data out will be at 7:00am PST and it will be the Philly Fed data. Last month the number came in at -7.7, which surprised many. Initially expectations were that the number would come in today at +2.0, but since the expectation was lowered to 0.0, so we will see what actually it come sin at. Come back and I will post it below, just after 7:00am PST, with the word UPDATE, added in the title of this post.

UPDATE 7:30am PST

The Philly Fed data came in lower than expected at -0.2, which drove the market lower. The day is setting up as a Hammer Candlestick pattern, which usually means that the trend has been broken and it shall now drive lower in coming days of trading. Trading volume is still very low, relatively speaking.

Dow closes at 10,000:What's up now?

The big question of the day is whether a Dow over 10,000 is a sustainable level. As I look at the chart above, I see it will not last. If you click on the chart and make it larger, you will notice the downtrend red line crosses just above 10,000 on the Dow. So technically, we have not broken through this resistance level but we are about as close as it gets.

Earnings are still coming out and we aren't even 1/3 of the way through reporting. Today, Google reports as does IBM and AMD. Thee is definitely a fight for direction here between the Bulls, who appear to have unlimited government funding to firms like Goldman Sachs, and the Bears, who appear to be fighting on a much smaller scale. Unemployment claims dropped a bit this week to 515,000 lost jobs. Everyone hails this as good news as it isn't as bad as it has been. But I'm sorry, we aren't adding new jobs, we're still losing them at a clip of over 500,000 a week. Someone think that is good?

I will not proclaim we are going higher until I see the data. That would be a solid breakthrough of the red resistance line on my chart. If we move only slightly up and then pullback and stay below the line, we will have that healthy correction we need. Stay tuned!

Still think everything is much better because the Dow is over 10,000? Then read this on foreclosures from Yahoo news: WASHINGTON – The number of households caught up in the foreclosure crisis rose more than 5 percent from summer to fall as a federal effort to assist struggling borrowers was overwhelmed by a flood of defaults among people who lost their jobs.
The foreclosure crisis affected nearly 938,000 properties in the July-September quarter, compared with about 890,000 in the prior three months, according to a report released Thursday by RealtyTrac Inc. That puts foreclosure-related filings on a pace to hit about 3.5 million this year, up from more than 2.3 million last year.
Unemployment is the main reason homeowners are falling into trouble. While the economy is likely out of recession, the unemployment rate — now at a 26-year high of 9.8 percent — isn't expected to peak until the middle of next year.

Retail sales down another month!

Latest data for July Retail Sales shows it down 0.6%, ex Autos. Overall Retail Sales were down 0.1% for July.The reason to take out the auto numbers is they were pumped up by gov't action from the "Cash for Clunkers" program. This is not good news going into the Back to School season. Import prices are down over 19.3% year over year and once again it shows us in a deflationary environment.The number of U.S. households on the verge of losing their homes rose 7 percent from June to July, as the escalating foreclosure crisis continued to outpace government efforts to limit the damage. Nevada led the nation in foreclosures for July. Foreclosure filings were up 32 percent from the same month last year, RealtyTrac Inc. said Thursday. More than 360,000 households, or one in every 355 homes, received a foreclosure-related notice.

Banks repossessed more than 87,000 homes in July, up from about 79,000 homes a month earlier.

Unemployment unexpectedly increased for the week. The 4 week moving average is up to 558,000 lost jobs.

The Consumer is not returning to the marketplace according to these numbers and unless they do, more are going to lose jobs and more foreclosures are on the horizon. You feeling optimistic now? It's back to school soon and the reality of the world as people return from vacation. Take a deep breath!

Don't forget to take my Mini Poll on the right margin as to how long you believe the recession will last.

Foreclosures rise as banks make huge profits. What's wrong with this picture?

Here's several related stories which should cause great concern:
• "Foreclosures rise 15 percent in first half of 2009" versus then next two stories
• "JPMorgan Chase posts 2Q profit, surpasses Street"
• "Goldman Sachs sees record profit"

You see both JP Morgan and Goldman Sachs received significant Tarp money to ease the Credit crisis in the Mortgage industry to prevent foreclosures. In this earnings report, JP Morgan also said they had paid back all $25 Billion in TARP funds to the Government. Here's more details on the Mortgage article that should cause concern.

"The data show that, despite the Obama administration's plan to encourage the lending industry to prevent foreclosures by handing out $50 billion in subsidies, the nation's housing woes continue to spread. Experts don't expect foreclosures to peak until the middle of next year.
Foreclosure filings rose more than 33 percent in June compared with the same month last year and were up nearly 5 percent from May, RealtyTrac said.
"Despite all the efforts to date, we clearly haven't got a handle on how to address the situation," said Rick Sharga, RealtyTrac's senior vice president for marketing."

So despite the earnings looking very god in the banking and financial industry, things are not getting better. Compare that to the rising tolls of the unemployed, now expected to go as high as 13% by some estimates, and you have a recipe for a calamity ahead of us. This must affect the stock market negatively if the stock market is truly free of manipulation. But we know it isn't, don't we. My friends, it used to be one could generally predict market direction based on certain outcomes in the economy and based upon data which supports future predictions. The truth is I can't any more and I doubt any one else can as well. That should be the biggest concern of all. When the stock market becomes unpredictable, it is time to consider ending the trust placed in the system and cash in. There is an expression made famous by the man who was shown by the psychologist a series of ink blot charts. Evert time the man was shown a chart and asked what he saw, the man would say, "people naked". The psychologist turned to the man and asked him, Why do you keep seeing naked women. The man replied, it's not my fault, you're the one with the pictures! I see the same thing in the stock market right now, reason to give great pause as to the integrity of the entire system. Just because we are on a slower decline than we were before, we are still in decline with much more expected over the next several years with more people losing jobs begetting more foreclosures and less disposable income to prop up corporate profits and so the cycle continues. Help me see something differently here.

The Markets in review and outlook for week ahead

Many were surprised at this week's market action. I know I was! I had predicted a market pullback last week going into this one and had also said mid week that the range of the Dow and S&P 500 has gotten much tighter and I did not thing we were going to go to higher than 8,500. This tightened this new range on the Dow from 7,500 to 8,500. I also said we had come to almost 8,200 and to me it was riskier to stay bullish then it was to believe we should go down from here. So where did we end up now that we have the advantage of hindsight?

First ask yourself this question. Did the market go up steadily this week? Don't look it up just think how you felt about the week. Ok, here's how it ended. The Dow was up only 48 points for the entire week, closing at 8,131 compared to a week ago Friday when it closed at 8,083. But didn't it "feel" like it was going up all week? How could it move up so slowly to only a 48 point gain for the week? To me it was a very controlled market. By controlled I mean the big Institutions controlled the market action this week very tightly. Why, you wonder? Because everyone who could fund and IRA or Retirement account did so, and the inflows, although less than other year's funding, because of the more unemployed, still represented new money. They did not want to scare you just yet as they want this new money to be invested into the market so they can go short and take it without causing much more harm to the overall market. They just want your money.

What was the play in my mind this week. It was raising cash by selling and/or buying ETF Ultra Short TZA or SDS or any of those instruments which are Short the market. From here ahead, I don't see a precipitous drop back down to the 6,440 low on the Dow and corresponding other indexes like the S&P 500 or Russell 2000. But I do see us meandering lower now that the psychology seems to have changed around to this recession is going to end and things are looking better or there is a "glimmer of hope" out there. That means you can buy these ETF's near their lows now and watch them rise as the market pulls back.

I purchased the ETF ULtra Short, TZA, this week several times building a very decent position with the shares. My last purchase was at $31.97, which is very near the new low for the ETF of $31.66/share yesterday. I expect to make at least $15-$20/share on this ETF before long. Remember back in the beginning of March, this ETF was at a high of about $112 and at the end of November was above $150/share. So there is plenty of opportunity here to make some very high profits. The risk is that the market is now going to continue to climb back up to 9,000 and things are going to be much better in the economy. Either way it goes, we win in a sense, don't we.

You will notice there are 2 charts I posted this week. One is a chart of the Put to Call ratio (if you click on it it will enlarge and then go back a page to come back here). You will notice that in my view there are new Buy and Sell levels to consider in using the Put to Call ratio as a tool. Any movement outside the last set of red bands signal either a Buy or Sell. If it drops low, Sell and if it goes above the upper red band Buy. You can see there has been a shift down on November 19th and 20th, the last clear buy signal at 1.40 and 1.31 respectively. This was when the Dow hit 7,500 and then went back up to over 9,000 the first week in January. There was a Sell signal on February 9th when the Put to Call ratio hit a low of 0.67, which began the descent of the Dow from about 8,000 to the low of 6,440 culminating on March 6th and 7th. You will notice the signals from the Put to Call ratio come a day or two ahead of the market move.

I also have said to watch Gold prices as a tell of market direction. I had expected the price to go back up over $900/ounce this week and stay there but it didn't, as the market did rise instead of drop. As you can see from the other chart both Gold and Silver dropped in price this week. Both metals are used not only as a currency play but is used in manufacturing. If you look at how both Platinum and Palladium acted this past week and over this 3 month period for each of these charts, the prices have steadily risen. Something must correct here. Either Platinum and Palladium are going to have a significant pullback, which I doubt, or Gold and Silver prices are going to start to reverse course and increase again. I think that is a more likely outcome given we have set in place prices of all commodities to rise as inflation rises due to the stimulus efforts of countries around the world. Inflation is the major concern of world leaders going forward.

I realize this is a much longer post than usual about the market, but I felt it was necessary to get people to be grounded again in reality. Things are still very bad. The unemployment rate will get worse. Foreclosures will rise both in Residential and now Commercial Real Estate, not only because of the increase in the ranks of the unemployed, but also because more loans will be re written with higher interest rates than many had during the Sub-prime lending years. Those mortgages are set to move to higher interest rates throughout the remainder of this year and next year, compounding the present housing problems We are far from being over this problem. Invest with an eye to taking profits when available. The mantra should be preserve Capital for the next year. On a final thought, today's San Francisco headline is that the Unemployment rate for California for March is now 11.2%, the highest in 68 years.

I also invite you to take the mini poll on the right margin if you have not done so this month. I have data back to December from this poll and I am trying to see any trends in people's view of the recession. Thanks for the visit and come back when you can. You can also subscribe to this site by clicking on the Orange RSS logo. You will be notified via email every time I post anything new. Thanks!

Market outlook: The week of Dec.15th

I was watching 60 Minutes last night, and (if you haven's seen it please do) when I heard we are at the beginning of a second wave of Mortgage foreclosures, which will peak in 2010-2011. This is just awful going forward. It shows that even if the stock markets rise, it is only temporary. The news is going to depress people for the next few years and we are all going to be wishing the pain would stop for so many. Even President Barack Obama will have difficulty getting in front of this mess. I can't think of a single thing to turn this coming crisis around and that is unusual for me.

So my outlook for the market, not only for this week but for many weeks and years is not good. This temporary bubble of a recent rise in the markets is truly temporary. After the holidays we are going to face another round of reality and scary market drops. The best place to be will be on the Short side of the trades. ETF's such as SDS, DXD, TZA and others will be the place to be. Even if the market rises, it is not going to go up enough to get the shorts to dump them, because all they have to do is wait a bit for the bad news to put a damper on any rise. short term trades to get any profit will become a skill worth having.

This Friday's Options Expiration is quadruple witching, so watch for considerable volatility in the market. Playing the channel should work if you traded near either end of the range between 73,00 and 9,500 on the Dow and respective ranges on the Nasdaq and the S&P500. I still own my SDS and will be looking for a way to sell it if we get nearer to the extreme. If it doesn’t get there this week, I will just keep holding it and either hold or add to my position in it. Good luck my friends.