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“Danger Will Robinson

Danger Danger”


Robot from old TV Series – Lost in Space

Europe


The first thing in the morning almost every stock analyst looks at is European Markets. Why? – If European markets are 2% lower then US equities open 2% lower.

The major problem is there is no viable solution apparent for the European debt crisis. One day there is going to be a panic about the solvency of  a major European bank and the European markets will be down 5% and falling. The US will do the same.


BAC


Bank of America our largest too big to fail is in deep trouble.  No one really knows how exposed BAC or any too big to fail institution is to bad debt in the USA or Europe because US banks don’t have mark to market accounting and the derivative market is opaque.

How bad is BAC? It hit a three year closing low yesterday. 6 month chart, 3 year chart.

BAC is the worst off of all the major shadow banks and the anchor that is leading the others down.

When a major bank/stock  market meltdown occurs is impossible to predict. – today, next month, next year. Until there is a viable European solution every stock is at risk. Especially financials. Therefore …


It’s time to take out the old Lost In Space Robot that warns of impending danger and shout -


“Danger Will Robinson, Danger Danger.”

Yes this debt crisis is, as Yogi Berra would say, 2008 all over again.


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News Briefs

Russia – What Russian New anchor thinks of Obama. 12 Second video (fun)

Art History & Pepper Spray – A photo essay including nude paintings (fun) Thanks to RF for the heads up on this.


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Happy Thanksgiving

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STOCKS

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The Stock Market Skater on Thin Ice/Shark Below


Yesterday US equities fell slightly. This confirmed the significant downside move Monday. If you look at a chart of the S&P 500 (See FINANCIAL CHARTS on right side of blog) you will notice the current meltdown is starting out almost exactly like the early August meltdown.

Ron Hera – Seeking Alpha contributor – The gap between the haves and have nots in the USA is growing so fast that  by 2032 the USA will be a third world country. How Quickly the USA is Becoming A Third World Country

Japanese markets were down 2.1% overnight. China overtook Japan as the world’s # 2 economy. EWJ chart (the ETF for Japan) is bearish. Few care about Japan and all eyes are on the largest economic block Europe.

Fed sets Stress Test for Big US banks becuse of European Crisis. Financial Times Story

Germany’s DAX down -0.07 at 8:45 AM EST

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Reading The Tea Leaves

Our #1 technical forecasting tool, the McCellan Oscillator fell to -77.24. 50DMA at +16.68 = Bullish

While we did see a record -140 on the MO in August, a -77 with the 50 DMA at +17 means the market is ripe, technically, for some sort of rebound.

Same Bottom LineNews from Europe can and will trump the technically bullish oversold US market.

Technicals give us some short term hope, but then there’s the European Sword of Damocles. See yesterday’s Investors411

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Hedge Trades

This is NOT an event driven hedge trade like GMCR or ANF.

  • Longer Term a Call on AAPL and a Put on AMZN. Expiration dates of Put and Call should be similar and at/near value of current price.
  • You can also go long AAPL and short AMZN

Reasoning

  • It’s very hard to make an investment in an events driven market. You have little idea which way stocks will turn. (See above)
  • Technically APPL’s chart is much better than AMZN. The later seems to be free fall.
  • Exit strategy – Exit 1/2 the trade with  5+% gain. Let the rest ride.  5% loss is downside exit.  Larger profits if you are doing puts and calls.

Puts and calls are preferable because you risk a set amount of $.


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Paul’s Corner

Mea Culpa

Yesterday in Paul’s Corner we discussed Ian Woodward’s newest market indicator, “%B X Bandwidth“. This indicator created about a month ago by Ian Woodward (HGSI) is a very good indicator that can get you into and out of the market several days before feast or famine.

In yesterday’s post I suggested that since this was a new indicator it doesn’t have too much history but appears to be a real silver bullet in the market analysis tool kit. Well my good friend Ian Woodward was nice enough to call to my attention (while wielding a 2X4) that while it’s a new indicator, we have  oodles of history available using HGSI and EdgeRater software to generate several years of spread sheet  which shows the validity of “%B X Bandwidth”.

For your review here are the images Ian created for Investors411:

May 5, 2010 Flash Crash – LINK

Sept. 1, 2010 New Rally – LINK

March 2009 Bull Run Start - LINK

July 15, 2009 Continuation    - LINK

Many thanks to Ian for providing these images! Have a great Thanksgiving folks and after the festivities take a few minutes and review Ian’s blog and study “%B X Bandwidth” a bit more.

Ian’s Blog LINK


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Positions

Hopefully Longer term positions.

EUO (double short the Euro currency)   1/2 position Bought at 18.60 Friday, EUO closed yesterday at  18.72


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Longer Term Outlook

3+ months

We’ve had two major down days in the last two weeks, both were confirmed by a flat or lower stock market the next day. Therefore the Long term outlook is in dange of a downgrade to CAUTIOUSLY BEARISH.


NEUTRAL


Investors411 has 5 different valuations - BULLISH, CAUTIOUSLY BULLISH, NEUTRAL, CAUTIOUSLY BEARISH, and BEARISH.

Everything written in BROWN is a repeat from a previous day(s)

AS ALWAYS, DO YOUR OWN RESEARCH BEFORE INVESTING

ALL TRADING INVOLVES RISK AND POTENTIAL LOSS OF PRINCIPLE

CHECK ALL DATA, I MAKE MORE THAN GRAMER ERRORS.


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