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Bulls & Bears

The case for a rising or falling stock (not economics) market

The Bears

  • At best unemployment in the USA has stabilized around 9.5%. The stimulus that has caused the reversal will soon run out and employment will grow.
  • Housing prices have at best stabilized. 90+% of mortgages are now in some way backed by the US government  (Fannie & Freddie)
  • Not only is the middle class in the USA shrinking, most people are saving more than they used to. Money flows are therefore diminishing.
  • The European bank stress test was at a best a PR exercise. US banks are not loaning like they used to. They’d rather make more profit in other areas and are still in after shock from the original crisis.
  • European Union with the world’s largest GDP, has many shattered economies (PIIGS &  Eastern Europe) and the others are no better off than the USA.
  • The US has an exploding military budget $1,003,000,000,000 ($1.03 trillion) last year. If you count all our military expenditures it is over 60% of the world’s military budget.
  • Iraq ‘s March elections created a stalemate with no government. The two leading candidates lavishing praising Hezbollah’s founding ayatollah and meeting/praising  Sadr (anti American ayatollah in self imposed exile in Iran) to beg he joins their side in new government.
  • AfghanistanWikiLeaks has just released 90,000 documents showing “devastating portrait of the failing war.”
  • China, the leading emerging market has a housing bubble.
  • Stocks are overbought according to the MO (see below)

The Bulls

  • The dollar is falling and close to breaking out of chart pattern to downside. Lower dollar = higher US stocks because US goods will cost less overseas.
  • Oil prices near breakout to new 3 month highs. Higher oil shows greater consumption = bullish, but not if you’re a consumer.
  • Shipping prices have rebounded and are moving higher. See BDI below.
  • According to International Energy Agency China surpassed the USA in energy consumption in 2009.
  • Most US companies that reported better than expected profits cited emerging markets (China specifically) as where they were growing the fastest and creating jobs.
  • China will spend $738 billion over the next decade on clean energy. = growth. The USA can’t get a weak climate or energy bill passed congress.
  • Unless you want to invest in some European bonds (example Greece) there is almost nowhere to go besides stocks to get more than a couple % growth for your $.
  • Black Box/High Frequency Traders dominate the market and they are ONLY concerned about short term results. They can go long or short.
  • Weak banking reform means shadow banks can again get over leveraged.= more profits=higher stock prices till another crash.

I’m sure I missed some. To see the positions Investor’s411 is taking see Positions below and also click on POSITIONS at top of blog.

KISS & Stocks (Keep It Simple Stupid)

If you don’t understand a term look in up at Investopedia.com dictionary

AS ALWAYS, DO YOUR OWN RESEARCH BEFORE INVESTING!

Index Percentage Volume
Dow +0.99% down
NASDQ +1.05% up
S&P 500 +0.82% down
Russell 2000 +2.39% -

Technicals, Fundamentals & Analysis

Investors411 record – 5 years of beating benchmark S&P 500

Mantra -The Black Box/High Frequency Traders control the vast majority of trades.

The NASDQ volume was slightly above average, but the other major indexes had a typical light volume rally that has become the norm for the Black Box traders that control the markets.

News on the earnings week ahead

Significant Indexes-

  • McClellan Oscillator (MO) rose dramatically to +79.48 [+60 or above = Overbought = sell. -60 or below = Oversold = buy]. StockCharts has a better version of the McClellan chart ($NYMO) LINK. –  & Investopedia on –  How the MO works. 79.25 = BEARISH
  • US Dollar –  The dollar  fell  -0.16% yesterday [Anything over +/- @0.50 is significant.] The dollar/stocks relationship is strong – Dollar up = stocks down and visa versa. The Black Box traders, have used the inverse relationship of the dollar as a key part of their trading system. At bottom of trading range. = Neutral/Bullish
  • BDI The  Baltic Dry Index (Measures cost of shipping – Higher costs good = more being shipped = Bullish. Also, good proxy of China.) BDI was in free fall from a high of @4200 to 1700 . This was a huge -60% drop in 8 weeks is very bearish Often a leading indicator for stocks. Here’s a 3 year chart of BDI for context. The BDI has staged a 6 day +7% rally and is at 1826 = bullish

Reading Tea Leaves-

The McClellan Oscillator at +79.46 shows stocks as being overbought. I’d be just a little more cautious about using short ETF’s too early because of the strong bullsh sentiment right now among Black Box traders. But, its clearly time to think about using those ETF’s that short major indexes. Click on POSITION at top of blog for more info.

The MO has not been above 80 since the big spring rally in April of 2009 – then it reached @ 105. In early Jan. of 2009 it did reach 120.

Positions

The  Positions Section link to latest & former buys and sells  - These are positions I actually own

Updated over weekends Investors411 holds ONE position in SDS at this time

Strategy – From Thursday - The same as before - If/as US major indexes become more overbought the more ETF’s that sort the market will be purchased. Starting out with SH. Then the higher above 60 the MO goes, the more SDS (200% short the S&P 500) and other even 300% short ETF’s will be used the higher the MO goes.  See POSITIONS section at top of blog for more. Therefore what is happening is a series of trades (Short ETF’s) the more overbought the market becomes.

The same entry/exit strategy applies. Considering dropping exit/entry point to 4 instead of 5%. See Friday’s Investors411 for more. The following trades were made Friday.

  • SH (ETF that shorts the S&P 500) was sold for 51.26 – a -2% loss. The other 1/2 of SH was sold earlier for a 3% gain
  • SDS (ETF the shorts the S&P 500 at 200%) was bought at 32.50 Nibbled with just a 2% of portfolio position.

Reasoning - The majority of technical analysts seem to be bullish, the BDI has reversed its 8 week fall & the dollar is right at its major support level.Therefore they may be room for 3 week bull rally may continue. We could reach a high above 100 on the MO. However the MO chart has not gone over +80 (where it is now) since April of 2009. Translation – There is some greater risk in this trade than if we had long term bearish outlook. However the more overbought thing get the safer the trade.

Longer term investors may want to wait to see of the MO goes up another 20 points before nibbling. Please recognize that right now this looks like it may only be  a trade  and NOT a long term investment

EWZ (Brazil) an ETF Investors411 owned for years is again outperforming and is a buy the dip opportunity.

GLD – (Gold) has come down off its high and any further dip Investors411 will buy.

The Long Term Outlook has been changed to NEUTRAL from Cautiously Bearish As explained/predicted Friday, the benchmark S&P 500 broke through the first of 4 different resistance levels. Another 3% move higher and the remaining 3 levels will fall.

Long Term Outlook – NEUTRAL

AS ALWAYS, DO YOUR OWN RESEARCH BEFORE INVESTING!

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