Where's the stock market going next? Try wearing this story for size, down! (UPDATE)

I have not posted anything on the market since Saturday's post. In that piece I said the following, "The 200-day moving average is still trending downward. This tells me to hold off. It’s not yet time to jump back into the markets. This is not the time to buy & hold… not yet. Believe me, I’m watching this indicator closely." At that time the Dow was at 8,574 and the Nasdaq was at 1739. Today the market closed with the Dow at 8,285 and the Nasdaq closed at 1664. While the Dow dropped 185 points today, the volume was less than yesterdays. Same was true for the Nasdaq Composite Index volume. I would have liked to see a bit higher volume but it just means the drive lower will be slow and not fast.

TZA gained $3.67/share today to close at $30.84 for a 13.5% gain for the day. FAZ gained $0.75/share to close at $6.17 for a 13.9% gain. That was a nice recovery for both Triple Shorts. The Put to Call ratio closed today at 0.89, not anywhere near the extreme highs we had for the past year. There's plenty of room for it to go higher. I hope you now believe what I have maintained for a while through difficult times for Short positions. I know your question so here's the answer. The market should go lower, in my opinion. If you want to know the slope of the downtrend just look at the slope of the 200 day Moving average line for the Dow and the S&P 500. The Indexes should stay below the line. On the Dow, the line now crosses the axis a little below 9,000. On the S&P 500, the line crosses the axis at 950 and on the Nasdaq, it crosses the axis at 1735. It will be the Nasdaq Index to watch. Since we closed today at 1664 we are just below it and have stayed below it the past 5 days. Before that, we were above it for 3 days. So the pullback is being led by the Nasdaq. Watch that index during the day to get a sense if we are going to go above it and stay there. I just don't think that is going to happen any time soon.

Another piece of info I learned today was that when the top 19 largest U.S. banks were Stress Tests, the oversees branches of these banks were not included in the test. Considering Europe is in worse shape than the US, it seems that the Stress Test results most likely would have been worse. This would have meant much more money would need to be raised by each of the banks failing the tests. When I say that Europe is in worse shape consider this Spain currently has 17% Unemployment. And consider this, many of the banks requiring to raise Capital are doing it all at the same time. This will dry up money for new investments and cause additional pressure on the banking Index and on stocks in general. This all points to the market going down.

Let me answer another question you might have. Is it too late to get in on the Shorts like TZA and FAZ? Simply put, no!

UPDATE: 6:00AM PST

Looking for more clues as to market direction this morning and Gold is now at $925/ounce. It is still going up. I think Gold will continue to go up as the market pulls back. Unemployment claims for the week rose to 637,000, an increase of 32,000 from the previous week. This shows that we have not leveled off in unemployment as many had hoped. Continuing claims, also reported this morning, are at the highest level since 1950, 6.56 Million unemployed. One other number worth noting is the 3 Month LIBOR rate which is currently at 0.854, this is the lowest I have seen this number in many years. It is the rate Banks lend to each other.

Also, Asian markets sold off last night and European markets are mostly down this morning. While our Futures point to a neutral open, I believe we will go lower for the day. Art Cashin of UBS Warburg when asked this morning about market direction he said we need to hold the S&P500 at 870 or above. If we break through that level it's then 862 and if we break through that level we go to 820. Art also said it needed to be watched carefully as we go lower, because of the difficulty in predicting how low it is going to go.

Market Outlook for week of May 4th

I keep saying I need a clear signal to tell market direction and the question on your mind is, Did I find any? Before I answer that here's a summary of how I look at the past week and where we find ourselves, going into the week of May 4th.

The Dow closed the week at 8,212 and this was a gain of 136 points, or 1.7% for the week. The Nasdaq closed the week at 1719 and that was a gain of 25 points, or 1.5% for the week. Those aren't big gains for the week by any measure. It felt like we were up a lot more given each day the indexes seemed to be up. Again, it feels like a smoke screen to me. The big question is how was the corresponding Volume of trading for the week. It was down again this week. So for the past 3 weeks Volume has declined steadily each week in the Dow stocks and the NYSE. However, the Tech sector Nasdaq maintained a bright spot with steady volume these past weeks with the index rising. This is the bright spot in the market to me and points to the Tech's going to lead us out of the recent big market decline from the Fall.

I have put several 6 month charts ahead of this post, worth clicking on. The first chart is of just the Dow to show the decline in Volume the past week. The second is a comparison of the Nasdaq Composite Index as compared to the Dow and the third is a comparison of the Nasdaq Composite Index as compared to the SP500. The gains of Technology seem to indicate this might be where to have been invested.

The signal I am looking for is Volume. If Volume spikes up, it won't matter what direction as direction will be clearer. Right now it is a rally lacking conviction. Now this can be a good thing as well. Many are skeptical, including yours truly, that the gains are real and many believe that we are not in a Bull Market Rally, but instead are in a Bear Market Rally. If the market can stay the course, as it has since the lows, it will eventually convert the Bears to cover their shorts and we will be on our way to a real Bull Market. But we are clearly not there yet.

The Put to Call ratio closed at 0.82, not low enough to give a sell signal but not high enough for a convincing Buy signal. To me the Put to Call would need to get over 1.05-1.20 to convince me to Buy. And it would have to get as low as 0.55-0.60 to Sell, or buy more Shorts. Some news will spark both this move and the Volume spike, but we still wait for clarity.

The news of this coming week regarding the Unemployment Rate for April has already been discounted. It will show a higher rate but a slowing of the decline over previous months. It is my opinion it will be reported at 9% or higher, getting ever closer to the 10% double digit rate most pessimistic scenarios had surmised. I do not expect this to tank the markets and do expect them to take the number in stride. More questionable will be the market's reaction to the Stress Test results expected to be released on May 7th, the day before the release of the Unemployment numbers.

If you look at the drop in Volume of the Dow index, and look at the Volume of Citigroup dropping this week, you can see a correlation. many banks had weaker Volume this week over the previous week. This can easily be seen by looking at a 6 month Chart of the volume of the Financial ETF, FAS. When they announced earlier this week that there are rebuttals by the Banks to the Treasury's Stress Test data, it quieted trading for both FAS and the short FAZ.

Add to the mix, Warren Buffet's latest comments on Real Estate and it provides an interesting back drop for the coming week. Here's what Buffet said, "There’s no signs of any real bounce at all in anything to do with housing, retailing, all that sort of thing,” said Buffett, 78, in a Bloomberg Television interview before the Omaha, Nebraska-based company’s annual shareholder meeting today. “You never know for sure, even if there’s a leveling off, which way the next move will be.”

So I leave you hopefully convinced that the market direction is still not clear, even while the Dow and S&P goes a bit higher. The only real good news is that Technology seems to be the bright spot and this is substantiated with good solid Volume. So if you believe this rally is for real, make sure you own some good tech companies in your portfolio or at least some dogs that show some life. But remember my overall advice, no matter what, preserve capital!

Bloomberg Survey

================================================================
Release Period Prior Median
Indicator Date Value Forecast
================================================================
Construct Spending MOM% 5/4 March -0.9% -1.6%
Pending Homes MOM% 5/4 March 2.1% 0.0%
ISM NonManu Index 5/5 April 40.8 42.0
Initial Claims ,000’s 5/7 2-May 631 635
Cont. Claims ,000’s 5/7 25-Apr 6271 6350
Productivity QOQ% 5/7 4Q -0.4% 0.8%
Labor Costs QOQ% 5/7 4Q P 5.7% 2.8%
Cons. Credit $ Blns 5/7 March -7.5 -4.5
Nonfarm Payrolls ,000’s 5/8 April -663 -600
Unemploy Rate % 5/8 April 8.5% 8.9%
Manu Payrolls ,000’s 5/8 April -161 -157
Hourly Earnings MOM% 5/8 April 0.2% 0.2%
Hourly Earnings YOY% 5/8 April 3.4% 3.3%
Avg Weekly Hours 5/8 April 33.2 33.2
Whlsale Inv. MOM% 5/8 March -1.5% -1.0%
================================================================

Stress test results on Banks delayed! UPDATE

News just out tonight. A small excerpt of the story follows:

"U.S. Bank Test Results Delayed as Conclusions Debated

By Craig Torres and Robert Schmidt

April 30 (Bloomberg) -- The Federal Reserve will postpone the release of stress tests on the biggest U.S. banks while executives debate preliminary findings with examiners, according to government and industry officials.

The results, originally scheduled for publication on May 4, now may not be revealed until toward the end of next week, said the people, who declined to be identified. A new release date may be announced as soon as tomorrow, they said.

Regulators and bank executives are concerned about how the disclosure is handled because weaker institutions could suffer a collapse in their stock prices."

The impact on this news on the Bank Indexes of the stock market are unknown at this time. However it may be very good news for those like myself holding the ETF Short of the Financials, a triple play, symbol FAZ. Since this ETF shorts the Financials it may get a real boost tomorrow as some bank big stops drop. The market does not like uncertainty. If they wait a whole month to release the results this is not very good for banks and shareholders. Remember, the idea of the stress tests, according to Treasury Secretary, Tim Geithner, was to bring confidence to the markets and specifically the banks. FAZ closed today at $8.31/share and I purchased it last week at $8.50/share. The market may also shrug off the news and banks could rally as it delays any news. Let's see the market's reaction tomorrow, May 1st. Many markets abroad will be closed tomorrow, as it is May Day.

UPDATE: May 1st 8:20am PST

Here's the latest news on this from Bloomberg News:

Regulators Said to Plan Stress-Test Disclosures on May 7

By Craig Torres

May 1 (Bloomberg) -- The Federal Reserve and U.S. banking regulators will reveal the results of the tests on the country’s 19 largest banks on May 7 after financial markets close, according to a government official.

The government will unveil both aggregate information and firm-specific details about the capital buffer required to absorb losses if the recession worsens, the official said on condition of anonymity.

Market news and outlook April 29th

Major data was released this morning on GDP. For the first Quarter GDP was down 6.1% and this is the 3rd consecutive quarter of negative GDP. Exports for Q1 were down 30%, the lowest since 1969, while Imports were down 34%. Consumer Spending increased 2.2%. Inventories declined 2.7%. Home Investments showed a 38% decline and Business Investment in Structures was down 44.2%.

In Pre-market the news seems to be shrugged off, as Futures are still positive with the Dow up 71. Watch the market carefully today, as we may have the breakout many of us have expected. I happen to think it has a higher probability of dropping than going up, but I am right only about 67% of the time. To me the news is very bad and I don't see why the market is still up. It was significantly less than the -4% GDP expected.

I asked myself if I have changed my spending patterns recently since the scary market decline and I would have to admit only slightly. I still go out to local restaurants, but since I don't need any new equipment or appliances, I am not really spending much.

The Swine Flu seems to be growing at a relatively slow pace, which is good. The first U.S. death was reported in Texas today of a 23 month old toddler. Hopefully this scare will dissipate and the concern lessoned. We don't need this crisis on top of all the crisis we still face. The large Banks are still very much in trouble and the release of the Stress Tests on the top 19 Banks will be announced on Monday. So the market seems to be waiting, apparently frozen at current levels. Today is also President Obama's 100th day in office and the general tone from that should be good with him garnishing a 69% approval rating.

BANK OF AMERICA HOLDS THEIR SHAREHOLDERS MEETING TODAY AND THE VOTE TO KEEP THE CEO KEN LEWIS WILL MAKE NEWS EITHER WAY. Many expect him to be outed by angry shareholders. Quite honestly if he is outed as CEO it is difficult to predict the market's reaction on Citi stock but I have bet that Banks share prices will drop going forward so we shall see what this meeting does today, to that end.

I remain pessimistic regarding a market advance. I believe this rally has been a Bear Market Rally and not the beginning of a new Bull Market. There is an emerging Commercial Real Estate crisis added to the home foreclosure problem still front and center, with each additional layoff contributing to more foreclosures in the system. Next week April Unemployment numbers will be released which will heighten the concern. Layoffs are still in the mind of Executive decision makers in many if not all businesses. This is not a good sign. Preserve Capital until the picture of the future shows more promise.

Don't forget to vote in the Mini Poll on how long the recession will last on the right margin. Vote only once per month. data will be summarized next week.

Stock Market strategy update

This morning I purchased shares of the ETF Financial Bear Triple, symbol FAZ, as I see the Banks going through more volatility to the downside over the coming week or so. The outbreak of the Swine Flu reports over the weekend have put a damper on the market and so it continues in the recent tight range. We are all waiting for a breakout in one direction or another and the longer this goes on, the more pent up demand for a larger swing. It is my belief this will be to the downside and it may take waiting till next week when they report on the Stress Test results for each of the 19 Banks tested.

I have said before and accentuate again today, I believe it is in everyone's interest to preserve capital until the economic and financial picture looks more certain. So far so good. Time will tell if this was a wise choice. I continue owning my TZA shares.