Hope/Obama

Second Market Updates with editorial cartoons on hope sent in by one of you will follow today.

Auto Loans/Bailouts/TARP

You can get caught robbing a bank and thrown in jail. But if you’re a bank you can take hundreds of billions of dollars from the taxpayers and not be held accountable. Now the General Accounting Office says the $750 billion taxpayer loans/bailout is not transparent and accountable .

Auto makers in front of congress today. Now concessions from Unions .

The financial institutions that created the recession by over leveraging debt created this meltdown just get money shoveled at them. No matte how you feel about the auto loan/bailout – at least there is some accountability being forced on the auto industry.

India/Pakistan

This situation is deteriorating as more evidence of Pakistan’s indirect involvement (elements within Pakistan’s military) with the terrorist group (Lashkar-e-Taiba or LET) responsible for the Mumbai and other terrorist attacks becomes evident. The Asian Times is the largest english online foreign news source for the region. Their reports show a growing knowledge of Pakistani involvement and weak leadership in India.

Stocks.

AS ALWAYS DO YOUR OWN RESEARCH BEFORE INVESTING

Headline – Volatility

Index % Change Volume

Dow +2.05% down
NASDQ +2.94% up
S&P500 +2.58% up
Russell2000 +2.70% –

italics = same comments as yesterday.

US Market & Foreign Markets

Technicals

Major US markets went through a roller coaster ride and closed higher. We have made up @2/3 of Monday’s huge meltdown combining Tuesday’s and Wednesday’s gains. This technically gives the short term momentum to the bulls. Volume has been below or at average since the week began. Both up days had slightly more volume across the board than Monday’s low volume meltdown.

Analysis – The bulls are regaining short term control of the markets. Very few people are coming in off the sidelines to invest.

There was also a lot of bad economic news Wednesday. Before each report markets dropped, but when the bad news was announced markets stabilized and rallied. How markets react to news is the #2 confirmation factor behind volume. Both factors are bullish right now, even though many are on sidelines.

Chart of the benchmark S&P 500

Chart of the Russell 2000

Chart of the NASDQ

Chart of the Dow

Fundamentals

Auto makers are back in front of congress today.

Monthly jobs report due out Friday. Preliminary indication that it is really bad already seems to be discounted by stock market.

England just did a major interest rate cut of 1.00% to 2.00%.
Think ECB (Europe) also did 0.75% cut – more than expected.

Three Month Treasury Bill & LIBOR

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

Real progress WAS being made. LIBOR has fallen from 4.8% six weeks ago to @2 .2% LIBOR rates have flattened over the last three weeks. LIBOR is the rate banks charge each other, not businesses. LIBOR is the rate banks charge each other. LIBOR has flatlined

LIBOR chart (3 month)

Treasury Bonds

Again 3 Month Treasury Bond held steady at 0.01%. 6 Month, 2,3,5, 10 & 30 year all fell slightly.

If investors are putting their money in Treasury bonds for 3 months to 30 years, they are NOT investing in stocks. The silver lining in this panic to find a safe place for money is people all over the world are choosing the USA. This is part of the $ we use for bailouts or loans.

There is simply NO confidence in the credit markets – Americans and foreigners are investing in US treasuries and paying ridiculously low interest rates.. Yields falling at all levels = a massive flight to US Treasury bonds at all levels. PANIC RULES

Baltic Dry Index

The Baltic Dry Index is a forward looking indicator that measures pre production materials that are shipped around the world.

Bloomberg data and chart . (If the link does not work Google – bloomberg baltic dry index)

Set range indicator to one month and you will see this chart has dropped to 672 – @6% loss this week on top or a 13+% loss last week – An over 90+% loss since June. This is a clear indication that worldwide recession is growing.

Short Term Outlook

Reading the Tea Leaves -

PANIC RULES the credit markets and its hard to see money flowing into stocks while so many potential investors are putting $ in treasuries at ridiculously low rates. The Baltic Dry Index chart another major concern.

Dow 8831 and 8923 are the two resistance levels that need to get taken out. (see chart of Dow) The Dow is now at 8591. We seemed to have established enough momentum to at least challenge these levels this week or early next week. Short term technical momentum is back with the bulls.

Mea Culpa – Thought yesterday would be a down day, but as mentioned daily predictions are minor. Watch the major (and minor) resistance levels, volume figures, and how markets react to news.

Daily forecasts/guesses are very minor and what’s important is to short the big rallies and buy the big dips. The closer you get to the low of 7449 – go long. The closer you get to 9654 – go short. The long term trend down – Bears Rule Therefore, getting close to or breaking 7449 is the place to nibble a little long. Anything close to 9000 is a place to short.

AS ALWAYS DO YOUR RESEARCH BEFORE INVESTING

Long Term Outlook – BEARS RULE

Changes to Bottom Line Section Bolded .

Technicals – Series of Lower Lows and Lower Highs = Bears Rule
Look for range between 7449 and 9654 for rest of year.

Fundamentals – Financial mortgage transparency problem (credit default swaps $50 to $70 trillion ?) is far far far far far far far far far bigger than anyone thought.
It’s looks like the recession will last through 2009 – perhaps longer Hopes of a more competent Obama administration have rallied stocks.

Asset Allocation/Recommended Sectors (long term)

50% to 90% Cash – Long Term Investors (up to 15+% stocks – only buy big dips) Wait for the next big dip to add 5 to 10%
Be Cautious and PROTECT YOUR MONEY (use ETF’s that short major indexes ) when stocks have a big rally

*5%+% US Index Funds
UWM (ETF that does 2x what Russell 2000 does) & QLD (ETF that does 2X the NASDQ ) DDM (ETF that does 2X the Dow ) SSO (ETF does 2X the S&P 500)

*5%+ Emerging Markets
EWZ (Brazil) should out perform other emerging markets in a rally and under perform in a fall – highest risk and dependent on oil prices
FXI (China ETF) should outperform USA

*5%+ Alternative Energy
GEX(Alternative energy ETF) Obama administration will focus on this area

*5% Gold
GLD is the ETF for gold-

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 big dip) Do not buy into rallies.

Shorting – Three ETF that short 2x what 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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