Reading The Tea Leaves -

The Forecasting indexes have changed to mostly Neutral & its the confirmation day after  big rally. China news is going to hurt.

From yesterday in brown – Three paths in descending order of preference.

• Yes the bottom -TJX (Target) had a great earnings report and outlook. Oversold markets & 50DMA support levels hold. GM IPO energizes markets
• We’re in for an acceptable 5 to 10% consolidation after a nine week bull run with a S&P support level of 1130. (SPX now at 1179)
• A double dip recession is out there and Investors will soon realize the horror as foreclosures rise, Europe falls apart

The problem here is – if you combine choices the more bearish choices #s 2 & 3, are larger than #1.

The GM deal with a potential strong Christmas season and QE2′s print & dump could swing an oversold market. – It did. Today is a confirmation day for yesterday’s big rally but the China news is going to hurt.

• Stocks remain flat or go higher = confirmation & good
• Stocks loose up to 1/2 their previous days gains = fair
• Stocks loose more than 1/2 the gain = bad
• Stocks loose all gains or more = duck and cover

Positions

• EEM – (Emerging Markets ETF)

Short term Traders. – See no clear advantage to a trade today, although momentum is with the bulls.

Investors. [From yesterday in brown] The MO goes below -60 buying becomes a much better option. Twice in the last 3 years the MO has reached -130. So you could loose out especially if there is a double dip recession. So I started small and nibbled on a little EEM (emerging market ETF) A  position at 45.28 Willing to accept a 7 or 8% loss on this. If we keep going lower I’m going to add some more EEM and country specific ETF’s on dips. (See POSITIONS Section of blog.)

Investors411 main strategy is to “buy the dip” in a positively trending market. When panic is in the street we buy.

I think the chances of a double dip recession are remote, but a flatline US economy coupled with (right now over heated) growing emerging markets is more possible.

Long Term Outlook has been changed back to CAUTIOUSLY BULLISH from NEUTRAL. It will remain there unless the major US indexes fall back below their 50 day moving averages of pice (see charts on top right of blog) CAUTION – We are on the cusp of change so Long Term Outlook might flip flop for a while.

Look for Paul R’s always enlightening remarks on stocks and sectors in the comments section of the blog. See POSITION section of blog for lists of potential stocks & ETF’s including “YOUR Stock List.” -

Massachusetts

Jobs/ Divided Governments

Lets take a look at two states California and my home state of Massachusetts.  California has divided government with Democrats in control of the state legislature and Arnold the Republican “terminator” as Governor for the last 8 years Massachusetts has both a a Democratic Legislature and Democrat Deval Patrick as Governor for the last 4 years

• California – 12.4 % unemployment. foreclosure abound, & education in crises mode. Government grinded to almost a hault.
• Massachusetts 8.6% unemployment, #1 in student education 2007 to 2009 (US dept. of education), and 7 straight months of jobs growth. All this with 97% of our citizens having health care for years.

If all Republicans and Democrats do is fail to compromise and like the tea party – let off steam/scream – the result can be far worse than expected when your state has a divided legislature.

Compare Massachusetts. employment rate or education rankings with that of any high population industrialized state like New Jersey (9.6% unemployment) Florida (11.7%) etc.. Right wing, CNN even rated Massachusetts as #5 on list of best states to do business in.

TARP

An in depth analysis of what it cost us to keep from economic catastrophe. Answer extremely little.

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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!

DOUBLE CHECK ALL DATA, I MAKE MORE THAN GRAMMAR MISTAKES

Index	Percentage	Volume
Dow	+0.39%	down
NASDQ	+0.09%	down
S&P	+0.44%	down
Russell 2000	+0.47%	-

Technicals, Fundamentals & Analysis

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

US Stock Markets -

Same Old Song - The Black Box/High Frequency Traders are buying the dips. Markets move slightly higher and volume down.

• Good news – markets move up in lighter volume
• Bad news – No worries the Fed will inject money into the economy. Currently using the POMO
• Dollar fall – Means better outlook for exporters in their earnings reports.

Here’s a stock analysis by respected Abby Joseph Cohen

Significant Indexes

• The Dollar (USD) [Anything daily price move over +/- 0.50 is significant. Dollar usually moves inversely to stocks] The dollar fell  -0.80% Friday.  Looks like we have had a very short consolidation. Basically free fall. Set chart to one year or more – You will see big support level at $74+. Currently dollar at $78.09. For stocks fall is = Bullish
• The Baltic Dry Index (BDI) [measures cost of world trade. Also proxy for China & emerging markets] Rose a tiny +o.25% Friday.  An 8 week bull run, then a two week fall, now pushing higher. Now flat for last few sessions = Neutral
• McClellan Index – (MO) [The rough guideline is over +60 = overbought market = sell positions or short stocks, & -60 = oversold market = buy stocks.]   Rose to +22.42. Still lots of room to move higher or lower. Location= NEUTRAL

Reading Tea Leaves

Hard to see any serious stock reversal with the dollar continuing to fall. The BB/HFT’s algorithms seem to be set to buy the dip.

Earnings season is around the corner and the lower dollar should help forecast of exporters.

Positions

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

(I do manage 6 accounts that have other positions)

• EWS (Singapore)  One of several foreign ETF’s that have broken out and starting to get over extended.
• USO (price of oil/commodity). Exploded through resistance level and nearing 5 month high. Part of this is tied to dollar falling.
• SSO (2x what S&P does) 1/2 this got stopped out for small 4% gain.  A 2% trailing stop the rest set today.
• TYH (3X technology) Got stopped out for a measly 1+% profit.

Considering taking profits on 1/2 of EWS & USO. EWS is in double digits for profits and USO close. Would let the rest ride. Perhaps another 2% stop loss set near open. Both EWS & USO are longer term investments.

What happened to Green Mountain Coffee  GMCR - An almost 20% dip between close and the next day’s open is the risk you take in investing in individual stocks. Big melt ups and downs are unpredictable.  That’s why Investors411 has spent time on beating the drums for “Diversity” and “Pigs Gets Slaughtered” (See last weeks and previous updates).

Your safer owning all or a large chunk of YOUR stock List.

Same holds true for country based ETF’s but they are far less vulnerable. Only in a huge meltdown will you see them drop perhaps 4% between a close and open.

Same smaller impact for Dividend based stocks and ETF’s (see positions section of blog)

Especially if you are holding only a few stocks – we are entering earnings season and the volatility increases.

Longer Term Outlook - CAUTIOUSLY BULLISH

AS ALWAYS, DO YOUR OWN RESEARCH BEFORE INVESTING!

Investors411 record – 4 1/2 years of beating benchmark S&P 500

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Barack The Barbarian

Picked up my copy of “Barack the Barbarian” with my grandson at the local comic book store yesterday. “You betcha” I choose the copy with the scantily clad Red Sarah on the cover. Opening scene – A  better than buff with loin cloth and boots Obama riding a blue donkey - “into a place where the interest of a wealthy few were placed before the interests of the needful many.”

For more including bigger photos click here

The CIA Lied

This should come as no shock. CIA director Leon Panetta has admitted that the CIA lied to Congress about the war in Iran. More here

No surprise here. The whole Cheney/Bush continually lied about the “unjust” Iran war (“unjust” was the term used by the Sec. General of the UN and pretty much the rest of the world)

Californification – Why Referendum’s Suck.

By far California has the deepest fiscal problem of any state . Californian’s are pointing and blaming a whole lot of people from the “Governator” on down.  But they have only themselves to blame or more specifically their referendum system. I’m not specifically singling out people in California, because most people will vote their self interest in any referendum and few look at the big picture.

Just a few example of how California went broke through referendums.

• Prop 13 – Your property is valued at the time you bought it – So, two simialar houses one bought 30 years ago is worth sometimes 80% less than the  similar property bought today = Huge shortfall in revenue.
• State legislators need a 2/3 vote to make any changes in taxes. (one of two states with this law)
  
• All residence are given tuition free admission to state colleges.

Actually this is strikingly similar to the US government. Over the last ten years our federal government similarly voted to let capitalism have almost  no regulations, ran trillions dollar wars, created huge trade deficits, and instituted new spending programs while reducing taxes.

Iran

photo from Truthdig

Another day of demonstrations in Iraq.  Protestors shouting Allah Acbar from rooftops at night in defiance of the government.  Nico Pitney at Huffington Post & Andrew Sullivan (scroll down) at Atlantic carry lots of videos.

STOCKS

AS ALWAYS, DO YOUR OWN RESEARCH BEFORE INVESTING

Index	Percentage %	Volume
Dow	+0.06%	down
NASDQ	+0.31%	down
S&P500	+0.35%	down
Russell2000	-0.09%	-

Investors411 record – 4 1/2 years of beating benchmark S&P 500

(see results for last 1/2 year – click  6/25 & scroll down)

Technicals and Fundamentals

As predicted at the beginning of the week we are already challenging the major support level. We did stay above the mega 875 support level on the benchmark S&P 500 yesterday. Technically – a short term bullish sign.

Earnings season around the corner.

Another major forecasting tool is how markets/stocks react to news.

• Yesterday the first company to report was Alcoa Aluminum with better than expected news.
• The Dollar fell dramatically
• Unemployment figure for the week fell dramatically.

This was a lot of good news and US stock markets went nowhere. = Bear’s Rule

Significant forecasting tools/Indexes for stock markets

Note - Repeated statements in brown.

The BDI has become the best of these three forecasting tools .

BDI - The Baltic Dry Index measures the flow of goods (world trade) . BDI fell for the 7th day in a row .  Clearly established  bears rule trading pattern of lower highs and now lower lows over the last month.   WARNING -  The breakdown in trade is very significant to any worldwide recovery . BEARS RULE

The BDI is now the first chart I look at each day. – Globalization has greatly added to the interconnectedness of the world’s economies. It’s a worldwide recession, and if trade prices break down so will individual economies.

Here’s a bit more descriptive look at the BDI. Again you can adjust the chart’s time period.

$USD - The Dollar fell dramatically yesterday -0.98% The strong inverse correlation between the dollar and stocks has existed for many moons. Dollar up = markets down.

Just like that the dollar went from close to the top of its consolidation pattern to close to the bottom (see recent Investors411). This should have given stocks a real boost higher.  It didn’t. Bad news in short term for stocks Long term Bearish pattern for Dollar = bullish for stocks

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Reading the Tea Leaves

Forget adding to any positions right now. Until the BDI starts to turn up adding to long positions are way too risky. The fact that US markets did not move higher on yesterday’s good economic news is another bad sign.

Warning – Sure looks like the major support level of 875 on the S&P 500 is still in trouble. Expect a major attack today. If 875 goes down we could see a quick 2 to 5% loss on the S&P 500. Next major support around 830 .

Our Positions (For more see Positions section of Investors 411-scroll down)

Cutting back on the last 2.5% of GEX seems prudent at this time. We will reenter alternative energy using PBW (a more liquid alternative energy). Hopefully at a lower price than it is now.

Why – Oil prices are tumbling and energy is tied to oil. It will be a while before cap and trade makes its way through congress.  Technically even though oil prices paused in their decline there is probably another leg down and this will take alternative energy with it.

Short Term Bottom Line – Investors are waiting to see how earnings season develops. Alcoa’s better than expected earnings failed to move markets. Some or the giants report next week. If they too have better than expected earnings and investors fail to buy we’re in trouble.

Still look at a dip below 875 as a “buy the dip” opportunity.

AS ALWAYS DO YOUR OWN RESEARCH BEFORE INVESTING