Obama’s first two days are "a burst of executive sunshine " and "transparency".

Here’s 10 of Obama’s orders and/or acts

#1 Closing Guantanamo within a year
#2 Stopping the unfair and unconstitutional trials there
#3 Directing federal agencies to err on the side of transparency and not the Bush delay/secrecy over public records.
#4 tough new limitations on power of lobbyists
#5 Countered Bush’s order that allows past Presidents and VP to keep potentially embarrassing order from the public.
#6 Barred anyone in his administration from leaving and becoming a lobbyists while he is in office
#7 No one can serve in Obama administration who was a lobbyist over past two years.
#8 Both Obama and his future AG declared waterboarding "torture" and prohibited.
#9 Appointed competent top level envoys to Mideast and Afghanistan/Pakistan (Mitchell and Holbrooke) as negotiators.
#10 Spoke to all Mideast leaders (minus terrorist group Hamas)

George Washington and company when confronted with a massive foreign army not only won the day but came up with the Declaration of Independence, the Constitution and Freedom. George Bush when confronted with a small band of religious terrorist – declared war on secular Iraq, denied some basic freedoms that Washington had won and created far more adversarial and confrontational world – "You’re either with us or against us."(I know you could add to this list)

Certainly Obama is going to make mistakes, but its heartening to see America move back in the direction of our founding fathers.



Headline – Major Support Level Cracking

Index % Change Volume

Dow -1.28% up
NASDQ -2.76% ?
S&P500 -1.52% ?
Russell2000 -3.05% –

Brown = same comments as yesterday.

US Market & Foreign Markets

Technicals – Sorry could not accurately read volume figures on charts. Looks like volume was above average and flat. Because there was no significant increase volume, the #1 confirmation factor behind a price move, tells us little. Stocks were much lower but recovered some losses by the end of the day.

XLF is the financial sector ETF Chart here. As the chart shows financials after two huge swings (down then up) lost -6.35%. While this is a substantial amount it is not close to the 15% swings of the previous two days.

The financial sector is currently leading the US and world markets. Overall even though we had a massive gain yesterday the XLF has a multiyear series of lower lows and lower highs (change setting on chart to weekly to see this) – Technically this chart is about as bearish as you can get. In the shorter term a major move like yesterday’s in big volume indicates at least a short term low.

The area around DOW 7950 to 8000 is turning into a strong support level. The more times its tested and holds the stronger it becomes. Of course, this also means if it breaks down we should have a major fall.

For those of you who like to invest in individual stocks internet advertising and education stocks are doing well.

Chart of the benchmark S&P 500

Chart of the Russell 2000

Chart of the NASDQ

Chart of the Dow

Fundamentals -

MSFT fell over -11% yesterday (poor earnings report). When you consider this and the bad unemployment/housing figures and slowing +6.8% China GDP growth, the markets did a bit better than expected.

The emperor of internet advertising Google beat earnings expectations last night and was up 4+% in after hours trading. Now up +1.3% 9:22 EST

Another giant GE earnings met expectations (a loss of 44%) Analysis of their troubled financial unit. So much of GE’s business comes from financial part of business and it is way over leveraged. GE is down this AM.

Forecasting Future Trends

LIBOR LIBOR is the rate banks charge each other . It price has fallen from 3.4% three months ago to about 1.16% Its held steady in this area for about a week. (good news for stocks)

LIBOR chart (3 month)

TreasuriesT Bills yields show how fearful investors are. The lower the rate the more the fear. Short term yields – 3 month T bill fell to 0.07% and the longer term rates rose a bit. The ten year rose 2.58% (low yields show fearful investors flooding to Treasuries instead of stocks)

Treasury Bonds chart

Baltic Dry Index – Measures flow of goods between countries. Yesterday ir rose again 5+% . Almost 85% drop since June. (We’ve had a solid gain since the early December lows of around 660 to 945, but we fell from pre recession figures of around 12,000 – That’s along way to go)

BDI chart

Short Term Outlook/Strategy

Reading the Tea LeavesStrategy – Shorting rallies to protect gains is working. (see below) Until we see some light at the end of the recession tunnel VOLATILITY continues to be the most predictable major stock market trend. Obama rally (stimulus package) is holding up equities right now.

All three forecasting indexes are beginning to indicate a positive move for stocks.

LIBOR has fallen significantly and even mortgage rates have fallen. Treasuries while low are starting to rally and we have seen a significant move higher in worldwide trade (the BDI) Looks like a stock rally is possible. Overall PANIC does still rule the credit markets, but it is easing.

Financials are the problem and will be until the toxic debt question is resolved. Could take years for this to happen. But now with a new administration there is hope. Hope of future transparency, accountability and rules in this area are vital for the economic health of the US and the world.

The other major negative is the employment numbers.

The Dow is hanging in at 8123. Still above its major support level. Even though there are some positives out there, Financial Companies and Employment numbers are overwhelming investors. Bad earnings reports like MSFT led to an 11% decline. This means that bad news is NOT built into market prices. The strong 7936 to 8000 Dow support level is in danger of collapsing today. You can feel a major downside move building.

Financials/Banks are in a lot of trouble with no resolution of their toxic assets in sight. Dow 7449 is last year’s low and the next major support level.

Long Term Investors who can handle risk and are less than 10% invested in stocks – Nibble a little on any major dip. Shorter term investors keep protection (short ETF’s) for now. You may want to drop some as we get closer to 7449.


Long Term Outlook – BEARS RULE

Changes to Bottom Line Section Bolded and in Plum or crossed out

Technicals – Series of Lower Lows and Lower Highs = Bears Rule.. Technical Range for 2009 – 7449 (low) and 9654.- This is a wild guess. Any sustained move above Dow 9650 is bullish.

Fundamentals – Financial transparency/accountability problem 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 Cleaning up this mess is going to take years and growth will suffer.

Asset Allocation/Recommended Sectors (long term)

50% to 90% Cash – Long Term Investors (up to 15 to 25+% 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 father’s buy and hold market – over the 8 Bush years the Dow has gone from 11,000 to 8000 and huge 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 and/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.

SDS – ultra short S&P 500
DXD – ultra short Dow – (Both small caps and tech stocks are outperforming the DOW and S&P)
SKF – ultra short Financials (this is the sector that’s most broken)

As Always Do Your Own Research Before Investing

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