Going to London and Paris over holidays. May be able to send abbreviated Updates from Europe. Otherwise no Updates till Jan 5th.

HAPPY HOLIDAYS!

Stocks.

AS ALWAYS DO YOUR OWN RESEARCH BEFORE INVESTING

Headline – Santa is Applying for a TARP Loan

Index % Change Volume

Dow -1.18% down
NASDQ -0.71% down
S&P500 -0.97% down
Russell2000 -1.35% –

italics = same comments as yesterday.

US Market & Foreign Markets

Technicals-

The Dow fell for the fifth day in a row and took out its support level of 8500. Dow at 8419 The other indexes are still above their respective short term support levels. Volume was weak/decreased and therefore did not confirm the fall.

Historically light trading for this and next week. Still if the Dow drags the other indexes along with it we are looking at challenging last years lows.

Foreign markets are reflecting the fall in the Dow.

Chart of the benchmark S&P 500

Chart of the Russell 2000

Chart of the NASDQ

Chart of the Dow

Fundamentals-

Obama Rally = HOPE A whole bunch of stimulus that has already been thrown at stocks, plus the composition of Obama’ economic team & his proposed stimulus package.

Holiday’s – Bah Humbug

From Reuters a consensus outlook . US GDP down 6% in this quarter. Down 2% next quarter and a weak recovery at the end of 09.

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 is being made. LIBOR has fallen from 3.4% two months ago to about 1.47% LIBOR rates are on their second leg down and have again fallen significantly. LIBOR is the rate banks charge each other, not businesses. Some credit cards, loans and mortgages are tied to LIBOR so this is good news. Some credit cards & mortgage rates are tied to Fed prime rate.

LIBOR chart (3 month)

Treasury Bonds

The 3 month has basically flatlined at 0.01% Longer term rose yeilds rose slightly. The 3 year fell slightly.
Fearful investors are putting their money in Treasury bonds for 3 months to 30 years, they are NOT investing in stocks. Investors are willing to pay an unbelievably low 2.17% for a ten year treasury bond.

Yields keep falling = Continued deterioration of credit market. Low Yields = There is simply NO confidence in the credit markets 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.

BDI fell about 2% yesterday to 784. We have had a significant rally off the lows of @660 two weeks ago week, but again have started to fall again.

Long term picture The BDI had seen an almost 90% loss since June. It seems, a least for a week international trade has picked up but has again begun to slowly fall. These shipping figures confirm world wide recession.

Dollar Falling

Dollar was flat again yesterday.

Wild ride over the last three weeks- especially last week. Basically, the dollar has gone from a high of $88 to low of $78 and at the end of the last two days setteled at $81. Chart of the dollar .

The dollar is falling because of the low US interest rates and it looks like the Fed will bee printing a whole lot of $ to keep the financial system liquid. Other countries are doing the same thing. This collective devaluation of currencies can lead to a worldwide deflation if it continues. This is not what we want to have happen.

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. Long term stock rallies simply do not have the money supply to exist as long as the credit panic continues.

Dow 8500 support has been broken. However in the short term the Dow is a bit oversold. The other major indexes are still hanging in above support. However the uptrend has been broken in the Dow.

How markets react to news is out #2 forecasting tool after volume. Bad news seems to be impacting stocks more that it has a week ago. Then bad news had little impact a week or two ago. Therefore, the shorter term uptrend is showing some signs of cracking.

Another major dip would be a buying opportunity

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. Obama/stimulus rally may be starting to fade

Look for range between 7449 and 9654 for rest of year.

Fundamentals – Financial transparency 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 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 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 fathers market – over the 8 Bush years the Dow has gone from 11,000 to 8,500 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.

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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