"Hot, Flat and Crowded"

The World is Flat helped millions o Americans see globalization in a new way. Now Tom Friedman (NYT’s 3 time Pulitzer Prize winner)brings a fresh outlook to the energy and climate crisis. Hot, Flat and Crowded defines why America must lead the world in energy technology.

Bottom Line

We either lead the world in creating alternative energy solution and technology – This will create wealth, jobs and make us lessen our dependent on petro dictators
or
We fight an endless series of unilateral oil wars (like Iraq) that further bankrupts our nation and makes us enemies with the rest of the world.

Stocks.

AS ALWAYS DO YOUR OWN RESEARCH BEFORE INVESTING

Index % Change Volume

Dow -1.90% up
NASDQ -2.22% up
S&P500 -2.20% up
Russell2000 -2.19% –

Headline – Support Levels Will Fall

For Long Term Investors

The technical range of the DOW is between 9764 and 7774 . (see chart) Right now we are at 8694. The lower the DOW (and other indexes) goes the better the "Buy the Dip " strategy becomes. Right now we are a little closer to the 7774 number. Yes we could break down through that number. However, if you are holding onto stocks for many years the closer we get to 7774 the better the long term buy.

Remember this is going to be at best a recession that will probably extend at least through 2009. It’s going to get worse before it gets better. The Doom and Gloom crowd is no longer talking about 8% unemployment next year, but 10%.

What generally to buy is economies (those with little debt and stronger growth) and sectors that are going to lead when a recovery occurs. (more on this later)

Best guess is that we re going to retest lows.

US Market & Foreign Markets -

Technicals – [From Tuesday - Major support level S&P 900 and 8637 Dow ] Major support levels were breeched interday, but markets closed almost directly on these levels S&P at 899 and Dow at 8694.

All markets are interconnected . Asian markets flat overnight

Volume was higher,but still well below average. Therefore volume only partly confirming the price move lower. This also indicates that the retail investor wants absolutely nothing to do with stocks.

Fundamentals -

Fannie Mae and Freddie Mac (quasi government agencies) yesterday combined with private banks to "accelerate anti foreclosure efforts". This announcement was worth 300+ points on the Dow. Good to see government and finally private banks starting to work together (Hope Now Alliance) to solve housing subprime problem. Bloomberg news LINK

We are beginning to see a little dribble of help from major banks – good news

The major problems with constructive moves that help troubled homeowners is that they take TIME to work.

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.

Real progress is being made. The credit spreads are tightening and LIBOR has fallen from 4.8% a few weeks ago to 2.18% yesterday.

That’s a real significant drop and shows retail credit is again beginning to flow. Homeowners who have adjustable mortgages tied to LIBOR should all be breathing a sigh of relief. LIBOR at 2.133% this AM. Again good news for credit and stock markets. This has to be about 20 days in a row that LIBOR has fallen. The rate of change (how fast LIBOR is falling) is decreasing = not good news

The 3MTB stabilized right at its support level. This time a significant -0.05% to +0.195%. The Fed rate is 1.00% A falling 3MTB is NOT good news. If the 3 MTB falls significantly from this support level it indicates investor panic has returned and is bearish news for stocks. Translation potential investors are willing to pay 0.195% to have a safe place for their $ for 3 months.

It is critical that this support holds

3 MTB chart

LIBOR chart (3 month)

Bottom Line – This 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 fell -4.94%. Oil is now below $59 a barrel. Perhaps 75% of oil move is Dollar goes higher = Oil goes lower.

There is a short squeeze on in oil – futures expire next Monday and traders could try to push oil prices lower (below $55).
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) . The VIX obviously moving back up

Chart of VIX.

Short Term Outlook = Technicals – support levels held as S&P and DOW closed at or above major support. NASDQ did break support level.

Reading The Tea Leaves – Today AGAIN is one of those days that could define the near term trend. The 8637 is the Dow support level (last week’s low) that has to hold The benchmark S&P 500 support level is 900 and the S&P closed at 899 (see charts) If these levels fall we will probably retest the 7800 lows.

The technical 9764 resistance level held and the predicted post election dip materialized yesterday. Failure to break out through Dow 9764 (see chart) resistance level means new range for stocks is between 9764 and 7774.

For now support levels have held. This is good news for bulls. However it is impossible to predict hedge fund redemption. Hedge funds like everyone else are having problems borrowing $ and when fat cat investors ask for redemption they have to sell stocks. This is a fundamental that is killing rallies.

Going out on a Limb – Too much technical downside momentum – looks like support will NOT hold.

Traders – Buy the Dip & Sell the Rallies

Long Term Investors = Buy the Big Dips

[Repeat] The overall problem that America has is its consumers and government is over leveraged. American have borrowed and spent their way into massive debt. The shop till you drop consumer was too dependent on the credit card and all this debt (card, mortgage, federal ™) has got to face reality.

Economically, Main Street is no where near out of the woods. But there is hope.

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 7800 and 10,500 for rest of year. Dow closes above 9764 (in strong volume) = NEUTRAL Long Term Outlook. Dow close Below support of 8637 or 900 on the S&P = BEARS RULE 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 10% stocks – only buy big dips) Wait for the next big dip to add 5%

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