Investors411 May 20th  downgrade has come to pass

Now we are at another crossroad and may have to learn how to hug bears

Yesterday we broke the support level for our summer trading pattern. Today would be a confirmation day of that move.

If the move is confirmedBEARS RULE. Therefore, we may have to do what the pro’s do – Accept reality and make $$$ off a a bear market. Embrace the bear or he’ll eat your $$$ (confirmation in this case is holding onto most of yesterday’s loss)

For more see Current Positions below.

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Stocks

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

AS ALWAYS, DO YOUR OWN RESEARCH BEFORE INVESTING!

DOUBLE CHECK ALL DATA, I MAKE MORE THAN GRAMMAR MISTAKES

Index Percentage Volume
Dow -2.36% up
NASDQ -3.29% up
S&P 500 -2.85% up
Russell 2000 -5.38%

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Market Analysis

Focus on TechnicalsFundamentalsHFT’s

  • That HurtMany support levels fells on key sectors and indexes yesterday.  Volume rose. Benchmark S&P 500 support level at 1120 was crushed as S&P ended day at 1099.
  • The warnings Investors411 has repeated again and again (below) have come to pass. Stocks are at a crossroads and long term investors may have to hug the bear.
  • TrendKicking the can down the road on Greece is mana from heaven for HFT’s who can use every news items to execute short squeezes, pump and dumps or catching institutional traders with losing long positions. An extremely strong correlation exists between European and US markets.
  • Long Term Stock Trend The benchmark S&P 500 (see chart on right side of blog) has spent the entire months of August and September trading below the 50 & 200 day price moving average (red and blue lines on chart) – Any credible analyst will tell you that’s a very bearish sign.
  • Giant airlines AMF fell 33% on fears of bankruptcy. BAC, JPM and other banks took hits yesterday

Investors411 – Technical Forecasting Tools.

  • The PCR rose to +1.28 (Roughly - above 1.25 is getting Bearish and below 0.80 is getting Bullish. 1.00 = same amount of puts and calls. Over last two years the highest for PCR is @1.50 and lowest @0.60 - anything approach these levels shows change likely For more information on PCR LINK) Second day above 1.25, but still not at extreme levels that show potential reversal. = Neutral/bearish

The McClellan Oscillator (#1 forecasting tool)

  • (MO) fell  to -53.56 (Rough estimates =-30 somewhat oversold, -60 oversold, -90 OMG oversold & +30 somewhat overbought, +60 overbought and +90 OMG overbought) On August 8th (former low) MO fell to -140. Over the last 3 years -80 has almost guaranteed at least a +5% move higher in the S&P. = Neutral/Bullish

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Reading The Tea Leaves

Short Term Outlook

days, week+

  • Our#1 Forecasting Tool is starting to turn very Bullish. Another major hit  Dow down closeto 200 would get us below -80 on the MO and at OMG oversold levels. So for those that can tolerate the risk, if another major meltdown occurs today, you have a short term risk on (long) trade.
  • The problem is there is negative fundamentals on so many levels – Europe is a festering wound, China is slowing, Japan still stunned & many in the USA are focused on contracting the money supply.
  • Financials (ETF = XLF) are the sector to watch. They are at the heart of the European crisis and what ails the USA. Long term their chart is bearish. Shorter term there is a series of lower highs and lows on the chart = bearish. US stocks can NOT sustain a rally can without this group.

Longer Term Outlook

month, months

  • Repeat Same old mantraMay 20th forecast still stands. The May 20th summer forecast has come to pass and now we wait to see the Fed’s next move. Add to this Europe is a whole lot worse than previously thought back in May. For the Fed to act significantly – inject more liquidity - I’m afraid we need to see stocks do worse for that to happen.
  • Second downgrade Sept 22 - Unfortunately - Has come to pass.

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Paul’s Corner

Relentless and treacherous and not over yet…. (Cramer)

As much as we love to kick Cramer (CNBC) for his comments on the market, he is right on the money with this comment he made at 4 AM this morning. But but but, we bottomed yesterday at the same point as back on Aug. 8, we have a double bottom and all will be Ok…………..but but but, it wasn’t a capitulation blow off, volume was way off of Aug 8’s volume, so do we bounce here? Do we slide off the cliff?

Just last week on Paul’s Corner we were discussing how well YSL 5 had done in this treacherous market:

It’s amazing how well most of YSL 5 stocks have done during the last few weeks of market paranoia. As of Monday’s close YSL5 +7.48 vs +1.96 for the S&P 500, that’s from the close of Aug 18 to yesterday’s close.

At the close yesterday  (Oct 3) YSL 5 was down -3.63 vs. S&P 500 -3.80, so we are still ahead of the S&P, just barely. Most of YSL 5 charts are horrible. Only stock with a chart that appears to be holding in this quick sand is CPHD. Even the dividend stocks are giving us concern, NLY down -15.3% from its high on 6/24. NLY is also down -10.4% in a year but it has paid +14% dividends (approx.).

The current Group Performance Report for YSL 5:

LINK

Chris asked yesterday when we could expect an all clear. I have no idea at the moment, as I suggested yesterday in the comments section when we have Eureka’s and Kahunas coming out of our ears then it will be safe.

I wish I knew which way the market was going to go, but I’m not as smart as I appear so for me I’m in ca$h and plan on staying there a wee bit longer. Critic asked yesterday if I played the short ETF’s. I have on occasion, but in this volatile range bound market we have seen for the past few months I tend to find safety ca$h and I’m happy to be there. If I miss a big day playing a short or long ETF so be it.

I’d love to post a list of stocks to buy at this point, other than a few “food” stocks like Hershey there isn’t anything sweet enough for me to reach for.

Disclaimer – aw you know the drill.


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Current Positions

Below – Investors411  hypothetical portfolio that should outperform the S&P 500

See POSITIONS Section of blog for more on YSL#5.(scroll to bottom)

Traders

  • Short term forecasting tools show growing advantage with bulls. But not yet significant.
  • There’s plenty of lions and tigers and BEARS out there, but
  • Any significant move lower this AM should create a Risk On trade for stocks to change direction. Only for those that can handle the risk

Our Hedge Investment - Theory – Technology will do better than financial sector over time. Going both  long and short. Hopefully covers us in up or down market.

  • Short Financials – Investors411 will use ultra short SKF (opened at 78.91 – now at 91.90
  • Long technology - Investors411 will use ultra long QQQ (tech’s) QLD (opened at 81.13 – now at 69.14)
  • This hedge play is almost exactly flat.

Gold – Gold (GLD) seems to have found some stability after a significant fall.

Fundamentally, gold should rise because to stay out of recession both Europe and the US are probably going to end up printing more money and have zero% interest rates. This is bullish for gold in the long term.

Since Europe has father to go to reach the level the US has (already 0% interest rates and has printed lots of $$$) shorting the Euro (EUO – double shorts Euro) is also a decent trade. Therefore gold should do especially well relative to the Euro. Right now the Euro is way over extended, so wait for a pullback.

Disclaimer - I buy everything in the hypothetical Investors411 portfolio. If stock is mentioned and I own it you will know.

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Long Term Outlook

(for US stocks only – not our economy)

CAUTIOUSLY BEARISH*

*Investors411 has 5 different long term 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

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