Stocks.

AS ALWAYS DO YOUR OWN RESEARCH BEFORE INVESTING

Politics – Polls & Ads

As predicted – polls have narrowed in the last 10 days from @Obama +8 to Obama @ +5. However Obama is holding his own in former Kerry states and in the crucial former Bush/swing states Obama has some large leads (6+ to 10 point leads). – Colorado, New Mexico, Nevada, Iowa, Ohio, & Virginia. An unexpected terrorist event could quickly change the dynamics of this narrowing race. See following LINK

Only 5 days and 4 years to go till the next election.

Obama’s latest two adds: to supporters LINK and a effective negative McCain/Palin (for the first time Palin is used) ad on the Economy LINK

Index % Change Volume

Dow -0.82% down
NASDQ +0.47% down
S&P500 -1.11% down
Russell2000 +1.73% –

Headline – Amazing Rally (part 2)?

US Market & Foreign Markets -

Technicals – Asian markets rallied big time. Japan up +10% and Korea up +12%. Japan is doing a $51 billion dollar bailout plan announced after Japan’s market closed. Forget everything Expect a major rally in US stocks today Asian markets led the 10% rally on Monday and we should see another big upside move today.LINK

Fundamentals may indicate a long term recession, but the collective feeling that collectively the world has a viable solution to the credit/long term recession problem.

Long term, does this mean we are out of the economic woods – NO – The economy is still going to suffer in 2009 but Wall Street is back and a Dow 10,000 is possible before November 4th.

USA GDP #’s show negative -0.3% GDP growth for the last quarter. Will get revised later – probably down. Big decline in consumption data – down 3%. Government spending (your rebate check) helped keep the damage minimal. The rally in Asia will should shadow this.

Exxon quarterly earnings just came in with the biggest profit margins ever for any company in the history of the world – $14.3 billion.

Chart of the benchmark S&P 500

Chart of the Russell 2000

Chart of the NASDQ

Chart of the Dow

Three Month Treasury Bill & LIBOR

Credit markets are the dog and the Stock Markets are the tail. Without credit the the tail won’t wag.

The 3 MTB moved lower -24.67% yesterday to an interest rate of +0.56% This is actually relatively good news, because the FED lowered rates -0.50% to 1.00%. and the gap between the 3MTB and the Fed rate has again narrowed considerably. (- 24.67% drop vs a -33% drop in Fed rate) The gap between the two is decreasing.

As the chart shows the LIBOR, while still very high but taken a dramatic drop since the revised rescue/bailout plan of buying equity in banks has been accepted) LIBOR in a week+ has dropped from 4.8% to 3.19% this AM. Again the rate of change has diminished. We still have a long way to go. LIBOR should be a lot closer to new 1.00 % Fed rate but the trend is very clear.

NB – The LIBOR rates Updates has been tracking is London’s and the US rate has actually decreases somewhat more over the last 4 days.

Translation – The lower the gap between the 3MTB and LIBOR the more it shows credit markets returning to normal. This is all moving in the right direction

3 MTB chart

LIBOR chart (3 month)

Bottom Line – Banks are not leading to other banks, but the commercial leading market is slowly opening up. This helps Main Street’s access to credit cards to adjustable mortgage rates.

OIL

Basically stocks go up so does oil. Oil also has an inverse relation to the dollar. The dollar rises and oil goes down. (Oil is mostly traded in US dollars – So when dollar rises oil goes down in price) Yesterday, oil rocketed higher +7.60% to $67.50 a barrel. This is mostly related to the rise in the markets (stocks rise = better outlook for economy = more people will use oil) and a short term drop in the dollar.

The dollar has been on a longer term move higher.

Oil futures prices up another 1% to 2% this AM – this on a 7.6% gain yesterday is another indicator of a big rally.

Chart of oil (WTIC)

The Dollar

Dollar and Yen are rising. (More on this later)

Chart of Dollar

The VIX

The VIX (measures amount of fear/volatility in S&P) . The VIX is at or near its highest levels ever. This indicates a rebound is possible and that’s what happened yesterday.

Chart of VIX.

Short Term Outlook = Rally.

This market is a short term traders dream and a long term investor’s nightmare. People are trading on emotions not fundamentals. Right now the emotions favor a melt up.

Reading The Tea Leaves – Longer Term expect a market between 11,000 and 8000 for next few months. Right now it looks like investors feel the worldwide recession is not going to be as bad as feared.

Best guess- traders should lock in (sell) gains at 9764 or 10,000 and wait for a dip to buy. Longer term investors buy the dips.

CAUTION – it is impossible to gage how much forced selling hedge funds will have to do and that is the wild card in this rally.

Economically, Main Street no where near out of the woods, but the stock market is oversold and emotionally ready to rumble.

AS ALWAYS DO YOUR RESEARCH BEFORE INVESTING

Long Term Outlook -Cautiously Bearish

Changes to Bottom Line Section Bolded

Technicals – Double bottom has formed, advance in strong , increased volume, and a new high on VIX -Technically all this = at least a short term rally and maybe a long term bottom. Reading tea leaves – Look for range between 8000 and 11000 for rest of year. Dow closes above 9764 = NEUTRAL Long Term Outlook.
Fundamentals – financial mortgage transparency problem is far far far far far far far far far bigger than anyone thought. New worldwide rescue plan offers hope, but this rally is going to be a bumpy ride because retail investors trust has been shaken. Global growth is obviously slowing

People feel like we are in a recession. The actual strict definition – 2 quarters of negative GDP growth has not occurred. How bad the worldwide recession will be is be is the major question. It’s beginning to look like the recession might last through 2009 – perhaps longer

Asset Allocation/Recommended Sectors (long term)

* 75 60 % to 100 95 % Cash – This depends on your risk tolerance

*10% US Index Funds
UWM (ETF that does 2x what Russell 2000 does) & QLD (ETF that does 2X what the NASDQ does) DDM (ETF that does 2X what the Dow does)
*5 % Emerging Markets
EWZ (Brazil) should out perform other emerging markets in a rally and under perform in a fall – highest risk
*5 % Alternative Energy
GEX(Alternative energy ETF) (If Obama wins you will see this sector flourish)

Chief Strategy – Buy the DIPS of trending sector – This is not your fathers market- over the 8 Bush years the Dow has gone from 11,000 to 8,500 and uncertainty clouds the future. The major trend now is volatility.

Traders who have a strong tolerance for risk jump in on dips and invest more. Sell or go short into major rallies. Long term Investors who can tolerate risk and are 100% in cash nibble just a little on big dips. (5% on each dip) Do not buy into rallies.

Shorting – Three ETF that short 2x what the the major indexes do -
TWM – ultra short Russell 2000
QID – ultra short NASDQ
SDS – ultra short S&P 500

As Always Do Your Own Research Before Investing

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