Welcome to some new readers. Usually Updates is published 4 to 5 times a week. This week there will be no Friday Update and maybe a short one on Thursday.

This is stream of consciousness writing. Please allow for errors.

Obama McCain Debate Tonight

Town Hall style favors McCain. Economic situation favors Obama. Polls have moved toward Obama in the last few weeks and he has a slight lead. Debates can often switch momentum.


In response to the McCain going negative the Obama campaign has finally dropped the Keating Bomb . The full video is now out.


Best Advise

Being out of stocks is best for long term investors. Do nothing if you are already in stocks. Make sure your $ are FDIC insured and money markets are SPIC insured. Trading opportunity exists. VIX indicates that we are near a short term low. We are very oversold. = Short term Rally


Index  % Change  Volume

Dow -3.58% up

NASDQ -4.34% up

S&P500 -3.85% up

Russell2000 -3.79% –

US Market & Foreign Markets

Headline – Worldwide Meltdown

The Good
At one point the Dow was down 800 points and stocks rallied into the close, ending up down only 370 points. We are way oversold according to virtually every technical indicator out there and overdue for a technical bounce.

The Bad
Volume increased moderately/slightly and was above average. Volume is the chief confirmation factor for price moves. Therefore, the 4% loss combined with the increased volume is makes bears happy. Dow closed below 10,000 support level.

The Ugly

The VIX (measures fear in the S&P 500) hit a new all time high. (see below) This does usually always mean a reversal. However, the volume behind yesterday’s fall was not the massive volume usually associated with a climax selloff.


Last week

GE’s early earnings report and having to raise capital typified the bad economic news. GE has a financial component that threatens the huge conglomerate and GE had to offer Buffet and Bond holders great terms in order to raise $13 billion in new capital. Translation they are having trouble raising money from banks.


Europe meltdown as various countries like Germany, Greece and others had to guarantee deposits in banks. What happened was a massive run on European banks. Ireland guaranteed its bank’s deposit last week and depositors from all over Europe took their savings out of their banks and put them into Irish banks. Hopefully European banks should get organized and pull the LIBOR rates down. This could spark a rally.


Bank of America pre announced earnings and is down. Alcoa is down 5+% in pre market- First company to report. This is the beginning of earnings season. GM just halted production in all of its European plants. – This is all BAD news, but lots of bad news is already built into the markets.

The good news
Fed is finding new ways to introduce more capital to the markets. Australian Fed just announced a massive 1.00% rate cut. There is hope that the rest of the world will follow.

Chart of the benchmark S&P 500

Chart of the Russell 2000

Chart of the NASDQ

Chart of the Dow

Credit Markets are Leading All Other Markets.

How Close is Credit to Freezing UP?

The 3 Month Treasury Bill/Bond dropped -12.77% to 0.41%. The good news here is that at one point in the day people were willing to pay 0.10% for a 3 month safe haven for their funds. (note – there are some panicked folks that do not think the 3MTB is a safe haven) Therefore the 0.41% close is better than it could have been.

LIBOR is still rose to +4.27% from 4.11%.  The spread between the LIBOR and the 3MTB increased yesterday and that surely is NOT good news. It costs more to borrow money and folks seem to be putting $ under mattresses.

3 MTB chart


Oil prices continue to fall dramatically, as do almost all commodities. This is an indication that investors see a worldwide recession/depression in front of us and the demand for oil will dry up. Oil prices fell -6.07% to $87.81 a barrel.

Futures have oil prices back up over $90.

Chart of oil (WTIC)

The Dollar

The relative strength of the dollar is good news for the USA. It show that worldwide there is bore confidence in the USA than other countries.

Chart of Dollar


Chart of VIX.

Fear reigns as the VIX is now at 52.05. It reached 58.24 yesterday. This is the highest the revised VIX has ever been. The extreme level of fear indicates an oversold market and the possibility of at least a short term bounce.

Short Term Outlook

Technically – Almost all technical indicators point to a short term rally. However fundamentals and specifically the credit market rule. If credit fears ease markets will rise.

Fundamentally – Lots of talking heads are blaming yesterday’s fall on fears that the bailout/rescue US plan will not work. It looks more like the fact that recession/depression fears spread to Europe and the rest of the world was largely to blame.

Psychologically fear has to play itself out and the high level of the VIX indicates we are near that point. If we had had massive selling and close at the lows of the day (down 800 on Dow) that would have been a classic bottom.

Bernanke speaks to congress today.

Best Read of the Tea Leaves . – The technical levels are really oversold and the VIX is at the highest ever. In the long term markets are driven by fundamentals, but it sure looks like we will see a short term relief rally.

Because the panic was worldwide the case for at least a short term bottom is even stronger. Even though news like GM halting production in all its European plants hurts the fact that we are going to have a recession is already built into prices.

Note: There is a major difference between Traders who think of trades in hours, days and weeks) and Long term Investors who think of investments in terms of years and decades.


Long Term Outlook – BEARISH

Technicals – The VIX gives a clear buy signal. (Short term traders only)
Fundamentals – financial mortgage transparency problem is far far far far far far far far far bigger than anyone thought. But there is hope in a bailout plan

(Caution – this “Outlook” is based on US equities and while US markets greatly influence other markets it is not necessarily the outlook for recommended sectors.)

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.

Asset Allocation/Recommended Sectors (long term)

* 85% to 100% Cash -

* 10% US Index Funds
UWM (2x what Russell 2000 does) & QLD (2X what the NASDQ does) Generally – Really Big Banks Look good

*5% Emerging Markets
EWZ (Brazil) should out perform other emerging markets in a rally and under perform in a fall

Chief Strategy – Buy the dips of trending sector
Traders who have a strong tolerance for risk jump in on dips. Sell into rallies. Long term Investors who can tolerate very very high risk and are 100% in cash could nibble a little on big dips.

Changes to Bottom Line Section Bolded

As Always Do Your Own Research Before Investing

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