Be Still My Beating Heart

Baseball – Our beloved Boston Red Sox with their backs to the wall and 7 runs behind with 3 innings to go, scored 8 runs and won the game. They might not win this AL championship series, but it was one hell of an exiting game. Lesson – Its not over till the fat lady sings.

Presidential Elections

This race is going to tighten, the fat lady is not singing, Obama is vulnerable to negative campaigning as Clinton campaign showed. He may be less vulnerable now that Americans know him better, but negative campaigning works.

"Joe the Plumber" (major subject of last debate) was a great media distraction for McCain. Like Palin, Joe whose real name is Sam was not exactly properly vetted.

* A Republican who voted in the Republican primary
* Made 40K in 2006, not near 250k
* The business he works for and want to buy is worth 100K not 250K
* He’s not a plumber but a contractor
* His big issue – wants to eliminate social security.
* has a $1000+ tax lien for not paying state taxes.

In other words Joe would receive a lot more tax help under Obama’s plan than McCain’s. Giving bigger tax breaks to the middle class works because they go out and spend it. That’s what makes small business grow – a healthy middle class buying products from small businesses.

Counter add – If I were Obama I would have Al the real plumber, Jane the real nurse and Charlie the real cop all who pay their taxes, and do not want to eliminate social security explain how Obama’s tax plan helps them. Counter punching can be very effective.

Still Joe the plumber is a good campaign strategy for McCain because it distracts from the main issue which is how closely tied to Bush/the economy McCain is. This is what McCain wants to distance himself from and what Obama wants to tie him to.

Warren Buffett is Buying.

Perhaps Obama’s most important endorser and the world’s richest man is buying. Interesting he bought when stocks dropped 300 to 400 points yesterday and stopped when stocks rallied. His Buy American, I Am op-ed in NYT LINK

Buffett’s simple strategy is to "be fearful when others are greedy and greedy when others are fearful."

Really wish I knew what Buffett was buying.

Stocks.

AS ALWAYS DO YOUR OWN RESEARCH BEFORE INVESTING

Index % Change Volume

Dow +4.68% up
NASDQ +5.49% up
S&P500 +4.25% up
Russell2000 +6.86% –

Headline – Strong Rebound

US Market & Foreign Markets -

Technicals – Another major move in the last hour of trading. This time stocks soared and volume confirmed the move higher.- Volume was both above average and increased over the previous day’s huge fall. We also gained back a little over 1/2 the previous day’s losses.

There was a massive 800 point swing from the lows of the days to the highs.

Every market technician is looking at this weeks trading pattern as a "double bottom." The major US indexes went back and retested the lows and they held. This,coupled with a strong volume rebound and an oversold market sets up at least a the promise of a short term rally.

A breakout over Monday’s high would establish a short term bullish pattern.

Fundamentals – Good news in Credit Markets (see below)

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 exploded higher +117.5% yesterday to an interest rate of 0.435%. This is very good news fro the credit markets. o.435 is not a great number, but the improvement is. Another few days like yesterday and a whole lot of money will come off the sidelines and hopefully into stocks.

Set up below is another new link to LIBOR 3 month chart. Here’s a link to a definition from Investopedia

As the chart shows the LIBOR, while still very high is moving slowly in the right direction – down. (4.8 to 4.5%)

LIBOR is around 4.4 to 4.5% and with the Fed at 1.5% the LIBOR should be at about 1.6% to 1.7%. So we have a long way to go.

3 MTB chart

LIBOR chart (3 month)

OIL

Basically stocks go up so does oil. Stocks go down so does oil. It’s all about fears of how long the recession will last.

Chart of oil (WTIC)

The Dollar

Chart of Dollar

The VIX

The VIX (measures amount of fear/volatility in S&P) again hit a record high yesterday. This is a contrarian indicator. Each time a new high is established it usually is a good time to buy stocks.

Chart of VIX.

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Short Term Outlook

Best Read of the Tea Leaves . – The real charts to watch are the LIBOR and the 3MTB and the spread between the two. A clear trend is beginning to emerge. Fear is dissipating and credit rates are dropping. While they are both still extremely far apart the move is in the right direction.

Technically US equities are at a critical point. They are near major support levels of Friday’s lows and closing low. If these support levels fall, we’ll have to wait for another big volume climax sell off for a new low.

As predicted support levels held yesterday and it looks like we can put our rally caps on. The first important resistance level to break is Monday’s high.

Personally I’m still nibbling on every large dip. (less than 5% invested) GEX (alternative energy) looks promising if Obama gets elected.

Bottom Line – There is going to be a significant recession and global growth will slow. We have a massive long term energy problem and a large deficit – so growth is going to be erratic. But right now there seems to be a feeling of hope that the credit crisis is improving. Make no mistake the entire credit derivative market is huge and unregulated. It goes well beyond housing and no one can really predict how sever the recession will be or even if the new improved plan will work. We’ve dug a huge whole that is going to take years to crawl out of.

But technical signs show some improvement = at least a short term rally.

AS ALWAYS DO YOUR RESEARCH BEFORE INVESTING

Long Term Outlook – Cautiously Bearish

TechnicalsDouble 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.

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 recession will be is be is the major question. It’s beginning to look like the recession might last through 2009

Asset Allocation/Recommended Sectors (long term)

* 80% to 100% 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

*5% Alternative Energy
GEX(Alternative energy ETF) (If Obama wins you will see this sector flourish)

Chief Strategy – Buy the DIPS of trending sector
Traders who have a strong tolerance for risk jump in on dips and invest more. Sell into major rallies. Long term Investors who can tolerate risk and are 100% in cash nibble just a little on dips. Do not buy into rallies

Changes to Bottom Line Section Bolded

As Always Do Your Own Research Before Investing

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