Springtime For Europe Then Reality?

We have another major solution to the Eurozone Crisis. German stock market up 4.84% at 8:20 EST and climbing.  So favorable reviews from Germany should transfer across other stock markets . Globalization at work. NYT’s #1 story today. Two biggest points.

• Greek’s default grows from 21% to 50% on bonds
• A $1.4 trillion bailout package to protect banks from  bad debt of all the debtor countries in Europe.

Zero Hedge (libertarian view) negatively dissects some of the details. - A Farce, & Springtime For Europe then Reality - Citigroup’s conclusion, does a good job at outlining what happened and next steps.

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The Lobbyists Dream Candidate

The lobbyists in Washington have chosen their Dream candidate - Mitt Romney

• He’s raised more lobbyist money than all the other Republican candidates put together
• 6 times the amount Obama raised from Wall Street

Mitt just had another Washington lobbyist fund raiser in DC and the invite list included the “Dozen” Biggest of K Street  lobbyists who run our government. Link and Link and LINK

Obama was the last presidential candidate that K Street showered  a just bit more $ on than the challenger  and the negative results are evident. This time around its not even close.

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STOCKS

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Reading Tea Leaves

• Our #1 technical forecasting tool, the McCellan Oscillator, is at +67.29 - overbought = Bearish.

• Our secondary indicator, the Put Call Ratio is at 1.01 = Neutral.

• The PCR is telling us that the professionals who use the Puts and Calls are Neutral. However, since the 50DMA of the PCP is not at 1.00, but much higher at 1.17 Sentiment = Moderately Bullish

As stated before the events in Europe trump this like they did after the 2008 meltdown.

Then, the MO fluctuated between +110 to +20 for two months. At that time there was the start of a set of solutions led by our Fed and Treasury that lite a fire under stocks for two years.

The MO should reach OMG overbought levels today (over +80). This may slow down the stampede and create some dips to buy.

• Now, it seems like the perception of investors is that  the proposed solution in Europe will do something similar tot he stimulus of 2009

• Stocks, especially financials should do better, but just like 2008 people/taxpayers will suffer in Western Democracies.

• The 25% of global growth this year that comes from China(Time magazine) is critical to bullish trend developing.

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Paul’s Corner

3 Days of Ian Woodward

This past weekend I had the great pleasure of attending the fall HGSI Workshop in Palos Verdes Ca. The workshop featured lecture by Ian Woodward and Ron Brown from HGSI. Let me give you a few of the details.

Ok ok, I can hear the moaning, “Oh no here comes more Ian Woodward and HGSI talk”. Please folks humor me, read on!

Ian and Ron’s discussion lasted for three days. Interspersed throughout the weekend there were several guest speakers who added to the value of the workshop.

Ian showed us his research behind HGSI investing and Ron gave live market demonstrations how to maximize using HGSI.  This meeting really helped us understand the undercurrent of the market. Ron and Ian showed us how to get insight using HGSI and related tools in a predictive manner.

Fred Richards – an HGSI contributor, Harvard Economics Professor and longtime expert investor gave us a great overview of the world economic stage and what to expect going forward.  Fred is a great CANSLIM type investor with decades of experience and great stories. A friend of his when growing up was William O’Neil of Investor’s Business Daily.   It was wonderful hearing Fred and by good fortune I sat next to Fred at dinner Saturday evening. Ian bought dinner for all at a wonderful Mexican restaurant

LINK

Chris White demonstrated his new software EdgeRater 5.0.   Chris demonstrated how using HGSI, one can do an end of day update across the market of index, ETFs and Stocks in just a few key strokes.  Perhaps the greatest benefit of using EdgeRater with HGSI is EdgeRater takes many of the tools developed by Ian and Ron and automates them in EdgeRater giving us a predictive look into the markets.

LINK

Chris Wilson an HGSI user demonstrated his techniques for Pairs trading.  Using HGSI and a non-proprietary set of tools using HGSI, Chris broke new ground with a technique based upon the changes in RS over time between an equity and a comparative index or ETF.

Dr. Jeffrey Scott, an HGSI user, presented stocks for consideration of our next JIRM index, our early warning indicator of a failing market.  For background, check out Ian’s blog, posted on the HGSI website: Stock Market: Doom and Gloom or Plain Sailing? September 25th, 2011.This exercise gave us early insight we are clearly seeing rotation into unusual leaders such as SBUX, KMB and MCD. This rotation reflects the current fear in the marketplace.  This was an excellent lesson in chart reading and fundamental analysis. We ended up selecting 19 high quality leaders in this exercise. Only attendees have this list and if you wish to see it you have to attend a work shop.

LINK

For me the highlight of the workshop was a brief lecture by Gil Morales (author of Trade Like an O’Neill Disciple) to review his tidea on current market conditions and update us on pocket pivots.  Gil was supposed to give an hour discussion but it soon turned into 2 ½ hour lesson of correctly shorting a stock. Gil also painted a concerned picture on the market and gave us some names to consider shorting.  Gil was an analyst for Investors Business Daily. He uses HGSI to scan for pocket pivots. A pocket pivot signal gives a very early signal that a stock is getting ready to break out. I have studied the signals for months now and they do appear to be a very good early indicator.

LINK

My wife joined me on this trip and we took some time touring Pasadena, Hollywood, Beverly Hills and Bellaire. She really enjoyed buying clothes! I was a great weekend.

We all like to talk about our best stock trade. The investment I made this past weekend with respect to time, air fare, hotel, Seminar cost has to be the best stock investment I have ever made. It was an outstanding weekend.

If any of you are serious about developing your trading skills, Ian’s next workshop is scheduled for March 24-26. I encourage you to join us.

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Positions

SPY – (ETF tracks S&P 500 or SPX) bought at 122.5 (See Monday’s blog for details)

Your Stock List#5 - Mea Culpa – Holding stocks through earnings season is always dangerous. 5 of our 14 stocks took  some big earnings hits (one on an analysts downgrade) So Paul & I have decided to drop TSU, RES, CROX, GMCR, & CPHD. Their positions will be closed at end of day. LINK to entire list (scroll down)

Future considerations – SSO (ETF that is @2X SPX) Buy on dip. Investors411 uses a buy the dip strategy in markets that are trending higher.

Bottom Line - It looks like a trend is starting. This is a significant bailout in Europe. There will probably be more. Little discussed China is the key to global growth and this trend developing.  The greatest risk is at the start of a trend, but also the biggest reward. Obviously the trend is NOT solidly in place.

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Long Term Outlook

3 to 6+ months

CAUTIOUSLY BULLISH

Investors411 has 5 different valuations - BULLISH, CAUTIOUSLY BULLISH, NEUTRAL, CAUTIOUSLY BEARISH, and BEARISH.

* Everything written in BROWN is a repeat from a previous day(s)

AS ALWAYS, DO YOUR OWN RESEARCH BEFORE INVESTING

ALL TRADING INVOLVES RISK AND POTENTIAL LOSS OF PRINCIPLE

CHECK ALL DATA, I MAKE MORE THAN GRAMER ERRORS.

No Repeat Depression

Two highly respected Economist have completed  a major study saying, “A Second Great Depression was averted” for the following reasons. Quote -

• the Wall Street bailout,
• the bank stress tests,
• the emergency lending and asset purchases by the Federal Reserve
• the Obama administration’s fiscal stimulus program

Without this GDP would be 6.5% lower this year and there would be 8,500,00o fewer jobs.

Most economists usual use cautious approaches in quantitative models. They forget – the panic of  banks collapsing, fed by an over hyping media would have cause a far more serious problem.

Investors411 and many of you have been beating the drums on this for 2 years, and its good finally to see a major study come out. Especially one that supports our thesis. Now besides Greenspan, Paulson, Bernanke, Geithner , etc., telling us we would have gone over the cliff, we have some academic support.

Alan Binder Princeton Prof. & former Vice Chair of Fed

Mark Zandi – Chief economist Moody’s Analytic

Smoking Hot Debate

If you’ve missed the comments section of Investors411 you’ve missed the some of the best thing this blog offers – Information and debate on stocks & politics. Right now Jsovjani & Popeye are going toe to toe. Hard to tell if they agree or agree to disagree.

Jsovjani has produced a set of statistics that show the concentration of wealth before Ronald Reagan took office of the richest 1% of Americans was @ 20% and when he left office it was @ 36%. Popeye believes that he has finally found some common ground with Jsovjani our resident “deficit hawk.” The rich getting richer coupled with the fact that President Reagan raised the deficit by over 400% makes “Ronald Reagan, economically one of the worst presidents we ever had.”

What will Jsovjani reply?

KISS & Stocks (Keep It Simple Stupid)

If you don’t understand a term look in up at Investopedia.com dictionary

AS ALWAYS, DO YOUR OWN RESEARCH BEFORE INVESTING!

Index	Percentage	Volume
Dow	+0.12%	up
NASDQ	-0.36%	down
S&P 500	-0.10%	up
Russell 2000	-0.46%	-

Technicals, Fundamentals & Analysis

Investors411 record – 5 years of beating benchmark S&P 500

Mantra for week -The Black Box/High Frequency Traders BB/HFT control the vast majority of trades.

Another typical light volume day which saw rotation (a bullish thing) out of high beta stocks into more mundane stocks. Overall things were flat.

There was one big bearish sign out there - crude oil – took a big hit right at its resistance level.

Earning continue.

Significant Indexes-

• McClellan Oscillator (MO) fell  to +75.69 [+60 or above = Overbought = sell. -60 or below = Oversold = buy]. StockCharts has a better version of the McClellan chart ($NYMO) LINK. –  & Investopedia on –  How the MO works. Yesterday’s close = 75.69 = BEARISH But, the MO fell 21+ points and major indexes were flat. Plus its 50 DMA is crossing its 200DMA, and the chart shows a series of higher lows and higher highs. Best read of tea leaves is we are now looking like the MO will drop more on flat days and get us out of overbought territory. Then rally as stocks go higher.
• US Dollar –  The dollar  rose slightly  +0.12% yesterday [Anything over +/- @0.50 is significant.] The dollar/stocks relationship is strong – Dollar up = stocks down and visa versa. Dollar just broke a major downside support level two days ago = Bullish
• BDI - The  Baltic Dry Index (Measures cost of shipping – Higher costs good = more being shipped = Bullish. Also, good proxy of China.) BDI was in free fall from a high of @4200 to 1700 . This was a huge -60% drop in 8 weeks is very bearish Often a leading indicator for stocks. Here’s a 3 year chart of BDI for context. The BDI has staged a 7 day+10% rally and is at 1869 = Bullish

Reading Tea Leaves-

The highly overbought position of US equities eased yesterday. We are just overbought now. See MO above. Another day/two of easing will give the bulls another chance to charge. There is so much bullish momentum behind the move higher, its hard to see it all stop now. At least retail investors should buy the dip. If we continue to fall out of overbought positions with stocks remaining flat – This would be a signal to go long.

However, Black Box/High Frequency Traders rule, and they may think its time to take profits from this rally. If you’re a trader what to look for (probably on the SPX daily chart) is that every time the SPX rises to a certain level it gets sold into by BB/HFT’s

Positions

The  Positions Section link to latest & former buys and sells  - These are positions I actually own

Updated over weekends Investors411 holds ONE small position in SDS at this time

Sticking with overall strategy on short ETF’s. However, Probably selling 1/2 of SDS today. Reasons stated above under MO.

EWZ (Brazil – chart on side of blog)) an ETF Investors411 owned for years is again outperforming and is a buy the dip opportunity.

GLD – (Gold) has come down off its high. But a big dip in big/above average volume is a signal to wait.

Going to try to put together YOUR Stock List with Paul R (if he has the time) before I leave for trip.

S&P 500 at 1113. Breakout point to turn Long Term Outlook to CAUTIOUSLY BULLISH is 1131

Long Term Outlook – NEUTRAL

AS ALWAYS, DO YOUR OWN RESEARCH BEFORE INVESTING!

Why give bailout money to the  pond scum sucking shadow banks/institutions that caused the financial meltdown and not to me? – Obama’s outlines his economic plan – Imagine This – Liverpool and Antwerp train stations

 

Banknotes from all over world from British Museum

Imagine This

Your walking through a train station and suddenly the following happens Liverpool Train Station & Antwerp Tain Station. The Liverpool strain station has already had over 10 million views on You Tube, but the Antwerp one is a bit better. T-Mobile is the originator.

Obama’s Economic Outline

This guy is a gifted communicator. Where we’ve been economically and where we are going – yesterday’s major economic address. He went a long way in convincing me and you know I’ve been a fierce critic of his economic team. Speech and video here.

Why Pond Scum Bankers Get Bailed Out

This is just Economics 101. It is the most asked question/discussion I get personally and one that all American’s are asking. Why not just give me the money instead of the pond scum banks that created the whole financial mess?

• Banks by law have to keep $1 in assets to every $8 to $10 they loan out. This sends 8 to 10  times more money flowing into the system than giving you a dollar. Banks, if they are run properly, are far more crucial than you because this 8/10 to 1 ratio of  capital going back into the economic system. This dramatically impacts you from mortgages to credit cards.
• Without a viable banking system the economy collapses. The crooks at AIG were the end line in the daisy chain of over leveraged shadow banks.
• You are getting a tax cut or all but the most wealth Americans are. However for you the money has a limited impact on the overall economy.  At best,  it has only a one to one ratio going into the economy because you might save it or use it to pay down debt.  

The problem is everyone got massively over leveraged. The shadow banks in collusion and/or stupidity with some conglomerates, insurance companies, politicians and rating agencies loaned out say $30 for every one dollar of  assets,  instead of the historical $8 to $10 ratio of assets to loans. Many consumers (YOU) and shadow banks added way too much debt to their bottom line.

 

 

AS ALWAYS DO YOUR OWN RESEARCH BEFORE INVESTING

STOCKS

Index	Percentage %	Volume
Dow	-1.71%	up
NASDQ	-1.67%	up
S&P500	-2.01%	up
Russell2000	-3.17%	-

 

Technicals & Fundamentals

For the first time since the current rally began in early March volume has confirmed a major move lower. Volume, our #1 confirmation factor, rose and was well above average.  Usually two or three of these big volume & price drop days are enough to turn the market back to the bear camp.  So watch the volume.

XLF - The ETF that tracks financials (mostly shadow banks) fell -6.59%% in increased, well above average volume.  Financials (mostly shadow banks) have lead this rally and if they  collapse so will almost all other sectors. The 7% loss is less than 1/2 of the 16% gain on Monday and we’ve only had one day of heavy volume, but this could be the first sign of a correction.

Monday’s Technical Outlook - After a major rally what bulls want for a minimum is for volume to decrease and markets to hold onto over 50% of gains. Obviously preferable would be another rally day in big volume

Short Term Outlook – First technical chink in the bulls armor has appeared. Too early to make a call, but short term traders should pay attention. The Danger signs – another big price/volume decline probably led by financials and/or stocks moving lower on no news or good news.

 

AS ALWAYS DO YOUR OWN RESEARCH BEFORE INVESTING! 

 

 

 

A Stiff Upper Lip 

You’ve got to admire the Brit’s for their stiff upper lip. Across the pond they’re in a lot more trouble than we are from England to the Ukraine. Most of the emerging democracies of Eastern Europe bought into what they thought was the American dream. It turned into an over leveraged toxic asset bubble with banks/countries wobbling on the cliff of insolvency nightmare.  

But at least the Brits  have some degree of transparency. Here almost everything  except the amount of bailout and stimulus funds is a deep dark secret. Take the deeply troubled Bank of Scotland now all but completely nationalized by the Bank of England.

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Transparency

The Royal Bank of Scotland has put admitted to  $722 billion of “troubled assets” of over leveraged toxic debt and are trying to wind down those liabilities. This loss is staggering England with about 1/5th the gross GDP of the USA.  But, they are dealing with the problem in the open.  We don’t even know the staggering amount of over leveraged debt of AIG, GE, GM or any of our major/minor banks.  The only thing we do know is the near meltdown of the financial system when Lehman Brothers went belly up and its toxic debt brought the entire worldwide banking system to its knees.

Unfortunately we also know this problem is going to get worse. Because more defaults are on the way,  unemployment is growing, home prices declining, and esoteric mortgages will soon start charging higher rates of reurn.

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Obama Pass/Fail

Let’s give the guy credit for a transparent budget. He’s getting some excellent reviews because he stopped hiding many items like the Iraq war as part of the overall budget. 

But on the other hand he’s getting clobbered with his rosy economic assessment of the future. Whose he kidding? The US GDP will be -1.2% this year and +3.2% next year. A consensus of Economists believes otherwise as Peter Goodman in NYT point out. (Many thanks to one of you who emailed me this article)

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“Geithner’s Folly”

Our new Sec. of Treasury has come up with something called a “stress test” for big banks.  Let’s get real. The vast majority of these toxic institutions invented the stuff that the Bank of Scotland has already admitted to. Big banks are broken. Wake up and smell the coffee – Geithner “is asking the wrong question. The question he is posing is: how can the government save Citigroup? The right question is: how can the government rebuild the banking system?”  Bob Kuttner, columnist for BusinessWeek, Boston Globe and co founder of the American Prospect on no matter how good the rescue plan is it doesn’t matter a lick if you don’t fix the banks.

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AS ALWAYS DO YOUR OWN RESEARCH BEFORE INVESTING!

Stocks

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Index	Percentage %	Volume
Dow	-1.66%	huge
NASDQ	-0.98%	up
S&P500	-2.36%	huge
Russell2000	-1.00%	-

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Technicals & Fundamentals

Just about every front page is covering the biggest ever quarterly loss - $62 billion by AIG. 

From Friday – “The Ugly news” would be - “The SPX ends closing  a bit below 741.  This would just establish a lower low (see chart on right side of blog) and further entrench the bears rule chart pattern.”  

The SPX ended up at 735 (A bit below its mother of all support barriers) and technically this along with no climax selloff  shows there’s more down side to come. Perhaps today we may see a climax selling panic today and a chance to nibble. To have a “climax” sell off you need both a big fall and big volume.

Big news of the week is the employment numbers for February come out Friday. 

Reading the Tea Leaves – How many Danger Will Robinson Danger Danger signals can there be?   – Hope you protected any long investments.

 

Long Term Outlook = BEARS RULE

 

See STRATEGY, POSITIONS, OVERVIEW  & ARCHIVES sections of blog for more

AS ALWAYS DO YOUR OWN RESEARCH BEFORE INVESTING!

 

Market Updates – That Dirty Word

 

Index	Percentage %	Volume
Dow	-1.04%	down
NASDQ	-0.48%	down
S&P500	-1.00%	down
Russell2000	-0.46%	-

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Trends, Politics & Economics

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“Vengeance is Mine…”

“saith the Lord.” Another list of the top 25 people to blame for the financial crisis from Time magazine. Here’s the top 5:

 

1. Angelo Mozilo- CEO of Countrywide. America’s biggest mortgage leander popularized exotic mortgages.
2. Phil Gramm-  Head of Senate Banking wrote the infamous 1999 legislation and championed deregulation
3. Alan Greenspan- Fed chair who admitted his mistake “that financial firms could regulate themselves.”
4. Chris Cox- SEC chair whose  hands off attitude  and lax enforcement  failed to act against over leveraging and fraud.
5. The American Consumer-  Borrowing, borrowing, borrowing.

 

That Dirty Word – Nationalization

First it starts as a whisper then the voices grow.  Now more and more from every political and economic stripe are considering controlled reorganization under the government – Nationalization The unlikely trio of R – Phil Graham, D Maxine Waters & R Peter King have all used the N word. Obama has left the door open. Harvard’s ultra bear Niall Ferguson Economist Nouril Roubini makes the case for nationalization and so does Joe Nocera of the NYT business page. So has Simon Johnson from MIT’s Sloan Business School.

Who is going to pay for all this hell our deregulated, over leveraged financial/banking industry has brought down on us? Bank bond holders, shareholders, China,management, employees, pensioners, taxpayers(you). How big a haircut is each group going to take? How many of you want just your tax dollars to go to bailing out banks?

The Roubini and Nocera editorials bring up all the times we have successfully temporarily reorganized banks or put them into “receivership.”(why not include GM)

 

1. The USA in the 1980′s – called “bridge banks”
2. Sweden in 1992
3. The International Monetary Fund – This is exactly what the IMF tells emerging markets to do
4. Indy Mac – A 9 billion dollar bank was recently taken over by the FDIC and emerged far more solvent 6 months late

 

The downside here is Wall Street doesn’t like the idea because bond, shareholders, and management would take a hit.  So would the stock market. Many banks in Europe are already being temporarily nationalized.

 

 

Stocks

AS ALWAYS DO YOUR OWN RESEARCH BEFORE INVESTING

 

Short Term Outlook

Danger Will Robinson Danger Danger - The growing threat of nationalization is going to start taking its toll on stocks – especially financials. (see above)  Even though volume was low (volume not confirming downside price move) technicals especially on the Dow are deteriorating. Sort of like a death of a thousand cuts (See Dow chart on right)

Its time to bring out the old Lost in Space robot with all its bells and whistles shouting Danger Will Robinson Danger Danger. – The threat of nationalization could cause another leg down in the markets.

Our Positions

These are listed under Recommendations or Stocks Picks on the Blog. Also the strategy of when to buy is listed under the strategy section on the blog.  Why fundamentally were these Exchange Traded Funds chosen?

 

GLD (Gold) – Investors usually buy gold when everything else is going bad. The second reason is all the stimulus plans around the world in the long run means inflation and that’s also good for gold.

FXI (China) Simply relative to the USA China is far better off.  They have a surplus of money while we are massively in debt. Their stimulus plan is is a greater percentage of GDP than ours. Our military costs are huge and w are deeply involved in wars/conflicts throughout the world. China is far less involved militarily. Vhina has a growing middle class and our is shrinking.

EWZ (Brazil) Brazil simply has an abundance of natural resources – Both oil and alternative energy.  About 5 years ago a left wing government took over and spread the wealth to more middle class working families. Even more so than China they are vulnerable to the worldwide recession because oil prices fall in recessions and they have lots of oil.

GEX – (Alternative Energy)  If we do not start developing alternative energy resources then our future as an industrial, economic power will decline even faster.  Obama was elected, in part, because of his belief in alternative energy.  The stimulus plan begins to deliver on this commitment to energy indpendence and America’s economic well being.

UWM (small caps) & QLD (mostly technology) over  SDS (S&P 500) and DXD (Dow).  The later two are short positions and the first two long positions.  Small caps and technology are less impacted by the financial crisis.  The are far less likely to be over leveraged. (See strategy section of blog)

Cash is king.

Long Term Outlook = Bears Rule

(see strategy section of blog for more)

AS ALWAYS DO YOUR OWN RESEARCH BEFORE INVESTING!

FDR and Stimulus

President Herbert Hover eighty years ago offered no stimulus or loans to a crumbling economy. As a consequence bank after bank failed Unemployment rose above 25 % and by the time Roosevelt (FDR) took over in 1932 we were already in the Great Depression . But, FDR made progress and consequently Americans overwhelmingly re elected him to office in 36. By 1937 he had through a massive government stimulus program reversed the growing unemployment figure and reduced it to under 15 %.

Unfortunately FDR, tried to balance the budget too early in 1937 and the recovery slowed. Again Americans showed overwhelming confidence in FDR and reelected him in 1940. American’s vote again confirmed confidence in his stimulus program. WW2 was in itself one big government stimulus program as was the post WW 2 GI bills and other economic measures. We emerged from all this government stimulus far stronger.

Basic economics teaches you to stimulate faltering economies and when times are good you don’t stimulate, but lower deficits. Many ultra right wing zealots are now trying to re write FDR’s historic economic actions and leadership. These are the same voices that believed "free markets" need no regulations, and lead us into the current crisis.

Undoubtedly, the government has done a poor job in transparency and accountability in the current stimulus and loans packages. However, we have not had the cascading loss of banks and insurance companies (AIG) that would have led to other industries collapsing throughout the world. This is NOT a plea for blanket bailouts. Poorly managed companies have to be allowed to fail. But it does clearly show government stimulating and regulating a faltering economy works.

Bill Cosby and Education

Bill Cosby last Sunday on Face the Nation came up with some interesting statistics on why we should be offering more funding for inner city schools. It costs us $41,000 a year to incarcerate a prisoner and only $8,000 educate a child. You pay now or pay later. Add to this that incarcerated prisoners and welfare moms pay no taxes vs someone who enters the work force and pays taxes.

Funding education should be a priority. (more later)

Stocks.

AS ALWAYS DO YOUR OWN RESEARCH BEFORE INVESTING

Headline – Citigroup, AA & Retail #’s -Bad news.

Index % Change Volume

Dow -0.30% up
NASDQ +0.50% up
S&P500 +0.18% up
Russell2000 +1.06% –

italics = same comments as yesterday.

US Market & Foreign Markets

Technicals – Major US markets "churned" yesterday. That’s the term Wall Street uses for high volume days where the market went nowhere.

XLF is the financial sector ETF Chart here. As the chart shows financials rose +1.37% yesterday after loosing over -5% the day before. While any gain is positive, a +1.37 gain is not enough to put the bulls back in charge. Financials used to be the largest sector of the market and may no longer hold that distinction. But they are certainly capable of leading all major indexes lower.

The major indexes are at their major support levels (just above or below). Volume is starting to pick up. This is never a good sign as we start to move lower. Foreign markets are following the US lead.

AA is the symbol for Alcoa Aluminum, the first Dow company to report. It went down again another 5% in massive volume yesterday. Early indications are negative earnings and outlook are not built into markets and investors are beginning to realize there is going to be no second half recovery. (Bad news for stocks)

Chart of the benchmark S&P 500

Chart of the Russell 2000

Chart of the NASDQ

Chart of the Dow

Fundamentals – What’s happened is the Bush administration has asked congress for the second 1/2 of the poorly administered bank/financials (and auto) bailout/loans. The Obama administration will oversee the use of these funds. This has spooked stocks – especially financials. CitiGroup, the mother of all banks, broke support levels and fell 17% in huge volume. City has already twice received bailout funds. Citi is in the too big to fail category and its failure would mean a run on suspect banks worldwide. Citi did recover +5% in reduced volume yesterday. Problem – Citigroup is up to its neck in credit default swaps.

The bottom line – Just the knowledge that the government thinks the bank/financial needs more financial help is enough to make worried investors panic and sell. This time the Panic is a bit more orderly, but with no transparency and no accountability its pretty hard to invest in a financial stock. You know they’re in trouble, especially Citigroup, but who knows which ones will go belly up and what criteria the government is using to hand out loans.

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

Earnings season begins this week. However, Citigroup remains the stock to watch.

Retail sales numbers out this AM are far worse than expected.

Treasury Secretary Geitner, who Wall Street likes, nomination is in trouble.

Forecasting Future Trends

The following is a group of indexes that are all interrelated and strongly influence how stocks moves. At different times one index may be more influential than the other.

LIBOR – LIBOR is the rate banks charge each other. It price has fallen from 3.4% three months ago to about 1.08% (good news for stocks)

LIBOR chart (3 month)

Treasuries – T Bills yields show how fearful investors are. The lower the rate the more the fear. Short term yields – 3 month rose to +0.07% and longer term treasuries were basically flat. 10 year fell to 2.29% (low yields show fearfull investors flooding to Treasuries instead of stocks – Bad news for stocks)

Treasury Bonds chart

Baltic Dry Index – Measures flow of goods between countries. Yesterday it rose another 2+% yesterday. Almost 85% drop since June. (short term good news a 2, 4, 6, 2, & 2% gains in last 5 days)

BDI chart

We’ve seen a short term pop in international trade to go along with a solid bullish move in inter bank lending rates. Both are bullish signs. However, Panic still rules the credit markets. Prices of major banks are have again started to go south. Looks like at some time another chunk of bailout $ is going to be needed to fix banks in the future. Bush yesterday announced he’s going for the second chunk of bailout/loan money.

Short Term Outlook/Strategy

Reading the Tea Leaves-

PANIC STILL RULES the credit markets

Strategy – Shorting rallies to protect gains is working. (see below) Until we 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.

There are some positives out there but -

Add a falling financial sector, AA news, & now the miserable retail #’s = the Dow 8500 support and other major index support level will NOT hold.

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 phase 2 is underway. Technical Range for 2009 – 7449 (low) and 9654.- This is a wild guess. Any sustained move above Dow 9650 is bullish.

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 father’s buy and hold market – over the 8 Bush years the Dow has gone from 11,000 to 9000 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

Going to London and Paris over holidays. May be able to send abbreviated Updates from Europe.

"Recession Plagued Nation Demands New Bubble to Invest In."

The above headline is from "The Onion" Sometimes humor tell the truth better than analysts. After an internet and housing bubble American’s are looking for the next Ponzi scheme.

Nobel prize winner Paul Krugman expects "were in for months, perhaps a year of economic hell ."

Paulson and Bernanke as Heroes

In the past few month Updates has spent a lot of time punching holes in the TARP bailout and other financial moves. The government loans/bailouts have been termed "Not accountable," "did not fix the lack of regulation problem," "not transparent," "arrogant" and "what looks like Paulson giving $ to cronies (banking buddies like Rubin)" While there is a clear negative side the actions taken it does not necessarily add
up to failure.

Herbert Hover failed to act. He let bank after bank go under and the end result was the Great Depression . When Lehman Brothers failed this year the almost $400 billion of bad over leveraged debt shook countries and banking systems worldwide.

Twice the entire world economic/financial stood on the brink of the abyss.

1. The AIG bailout. The world’s largest insurance collapse would have taken down the entire insurance industry. AIG was/is overloaded with credit defaults swap obligations. – just like Lehman.
2. The TARP financial/bank bailout and the second bailout to the world’s largest bank Citigroup. Again Citi and banks are over leveraged with obligations like credit default swaps.

Paulson and Bernanke have not fixed the problem - but they have kept the entire world’s financial system ticking . The ships been hit by an iceberg, but it is still afloat. Bernanke and Paulson do deserve some credit.

Solutions

There are many. Some of the more obvious ones

1. We need laws to regulate financial companies, – free markets and especially Financials (credit default swaps etc.) need some structure or else they go wild.
2. The over leveraged situation needs to get reduced.
3. Temporarily stop building houses or find some other way to stabilize housing/foreclosure market.
4. Stimulus – This worked for FDR until he tried to balance the budget too soon in 1937. Then he needed the a huge stimulus package (WW 2) to ultimately fix things.

"What Me Worry" Alfred E Neuman

Huge financial entities (domestic and foreign) knees are trembling with worry.

1. Banks are not loaning money – they are probably over leveraged and need the cash just to stay in business.
2. Big money is all hiding in Treasury Bonds. – the Yields are ridiculously low
3. Corporate bond yields are ridiculously high – this means a whole mess of defaults should happen in the future.
4. Check out the drop in the Baltic Dry Index (see below)
5. We’ve entered this mess with an already huge deficit.

Hope Krugman is right and "we are in for months, perhaps a year of economic hell" and not something worse.

Stocks

AS ALWAYS DO YOUR OWN RESEARCH BEFORE INVESTING

Headline – Still Consolidation
Index % Change Volume

Dow -0.69% down
NASDQ -2.04% down
S&P500 -1.83% down
Russell2000 -2.30% –

italics = same comments as yesterday.

US Market & Foreign Markets

Technicals-

This week and next have historically had light trading. Also the next three weeks have historically been positive.

The shorter term mojo is still with the bulls until stock’s close below their opening price on last Tuesday. This area just above 8500 held for three days in a row (last Friday, Mon. and Tues.) and is a short term support level – 8500

The Dow fell below 8500, but rallied to close above it at 8517 So technical support while threatened, held yesterday.

Today again will be a test of this level.

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.

Lots of down grades of companies by brokers was most cited reason stocks fell yesterday.

Here’s about a disastrous an outlook as I can find from a self described Dr Doom and Gloom .

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 [MISTAKE 4.8 is the European LIBOR rate high 3.4% is the US high] two months ago to about 1.46% 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

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 fall more than -2% yesterday to 801. We have had a significant rally off the lows of @660 two weeks ago week, but again have started to fall. Big 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 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. These are historically big moves for the dollar. Chart.

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.

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 is the technical support level that’s closest and 9000 is the upside resistance level.

Historically the markets turn before the economy, however fundamentally its hard to see signs of any long term economic turn.

Hedges

As I’ve discussed with many of you, personally I am long (bought lots of) FXI (the China ETF) and I’m hedging it with a short position in US equities – SDS or others listed below. The higher FXI gets the more I hedge. The lower it goes the less I hedge.

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 part 2 seems to be taking hold. 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