Your emails – Thanks for all the emails and I will reply to each one. Sometimes it takes a while. The following is from one of your emails.

Keith Oldberman on Happiness

This editorial is about being less alone in the world, compassion, love and the human heart. The world is so full of hate and meaningless division – why not spread happiness. This YouTube video really is worth the six minutes video.

This editorial is to powerful to write about anything else.

Stocks

AS ALWAYS DO YOUR OWN RESEARCH BEFORE INVESTING
Index % Change Volume

Dow  +6.67% up
NASDQ  +6.50% up
S&P500  +6.92% up
Russell2000 +8.48%

Headline – Fear and Greed
Anatomy of a HUGE Technical Rally

US Market & Foreign Markets

Technicals

Note – if you do not understand any of the terms used go to Investopedia.com’s dictionary and look them up.

Yesterday’s rally was all about the technical aspects of the market and had little to do with fundamentals.

Markets began the day oversold. They began to drop. One by one key support levels for the four major indexes began to fall. (see yesterday’s Updates for details) The NASDQ broke support levels yesterday, New lows for small caps, then new lows for the "old benchmark" S&P 500. When the S&P support level broke there was a lot of automatic sell orders that flooded the market. These are called stop/loss orders. Fear flooded the market and there was almost an immediate drop. By 1:00 PM EST the Dow had fallen 300 points.

However, at Dow 8000 (the Dow is the new "benchmark" because all the media uses it to define what’s happening) which was just about the last line in the sand or support level  – major institutions started to buy at about 1:00 PM EST.  The fear had all been washed out of the market and when this support was established a rally occurred because no sellers were left Within 45 minutes stocks were back to even.

Technical investors realized that the lows had been tested and held. Then in an instant like that greed took over. By 2:00 the Major indexes were back to flatline or zero losses.  Technical traders realized that the major players were willing to support the market at Dow 8,000 and jumped in to get aboard the rally/greed train. They realized that everyone who was going to sell had already sold panicked and sold when the markets dropped 300 points. So from 3:00 to 4:00 PM EST the Dow moved from 8350 to 8835 as everyone jumped on the rally train.

Volume was increased and well above average.  This confirms the move higher and means there should be some sort of follow through to this move.

Chart of the benchmark S&P 500

Chart of the Russell 2000

Chart of the NASDQ

Chart of the Dow

Fundamentals

Have NOT changed! Who knows what the jobless picture will be in 2009 (somewhere between 7% and 10%) Housing prices have fallen about 20% and have perhaps another 15% to go (guesstimate of compilation of experts out there) There are a mountain of negative fundamental factors out there. In the long term fundamentals move the market.

Obama brings with him the hope of change, Hope is great, but trust in fundamental substance and don’t get too excited about one or two day massive moves. Especially moves that are technically based.

Big G-20 (USA and 19 other countries on economics) conference over weekend.

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.

Real progress is being made. The credit spreads are tightening and LIBOR has fallen from 4.8% a three weeks ago to 2.15% yesterday. However the last two days have seen a very slight rise in LIBOR.

LIBOR at___? this AM.

The 3MTB rose +35.17% yesterday and closed at 0.190%  The Fed rate is 1.00% The rally is good news, but it is still below the 0.20% support level. A normal 3MTB would be just under the Fed rate.

3 MTB chart

LIBOR chart (3 month)

Bottom Line – LIBOR falling helps Main Street’s – Credit cards to adjustable mortgage rates are tied to LIBOR. But by no means is credit back to normal.

OIL

Oil prices rose with stock prices +5.16  Oil is now at $59.06 a barrel.

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) .

Chart of VIX

Short Term Outlook = NASDQ broke support and closed at a new low. Other major indexes within 2% of closing lows
Reading The Tea Leaves  – Big volume rally changes short term momentum to bulls

Going out on a Limb – All the other major indexes did break support, but the Benchmark Dow held.  First crucial resistance level is 9764.

Today is a confirmation day of yesterday’s rally. If we loose less than 1/2 of gains that’s still acceptable, especially if volume is light. If we close flat that’s good. If we rally that’s better. If we have another huge rally to the 9764 resistance level that’s great.

But in the long term you need fundamentals to confirm the rally. When we get close to 9764 it will be time to add short positions.

Traders -   Buy the Dip & Sell the Rallies – Selling short positions proved to be the right move. [From yesterday "why be greedy" - sell 1/2 short positions]

Long Term Investors = Buy the Big Dips – [From yesterday - "Time to start thinking about nibbling a little"]

[Repeat] The overall problem that America has is consumers and government are over leveraged. American’s have borrowed and spent their way into massive debt.

FXI The ETF for China has been added to list of recommended ETF’s

China was able to offer a 20% of GDP stimulus package, has no debt and should recover from an economic meltdown far faster than the USA. This country is not over leveraged. Their chart (technicals) shows a breakout from a consolidation pattern in huge volume.

The downside of a China investment is they are huge polluters.

EWZ (Brazil) This chart is looking better than US markets. Notice Brazil unlike the USA was not even close to testing its lows yesterday. The chart is not as technically sound as China’s. Caution here is Brazil is going to be far more volatile than the USA.

AS ALWAYS DO YOUR RESEARCH BEFORE INVESTING

Long Term Outlook – BEARS RULE

Changes to Bottom Line section bolded .

Technicals -  Double bottom has formed, advance in strong increased volume,. Technically all this = at least a short term rally and maybe a long term bottom.

Reading tea leaves – Look for range between 8000 and 10,000 for rest of year. Dow closes above 9764 (in strong volume) = NEUTRAL Long Term Outlook.

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. 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

We are in a recession.  How bad/long 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)

50%  to 90%  Cash – This depends on your risk tolerance – Long Term Investors (up to 15+% stocks – only buy big dips) Wait for the next big dip to add 5 to 10%

*10%+% 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 10% + Emerging Markets
EWZ (Brazil) should out perform other emerging markets in a rally and under perform in a fall – highest risk
FXI (China ETF)

*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 9,000 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 the major indexes do – Long term traders should use these ETF’s when markets get close to major resistance levels.

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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