Investors 411 Blog

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Neuschwanstein Castle – Germany

The Bulls are Back – Yesterday marked the second technical confirmation of  Torrid Tuesday US equities held onto or added to their gains.

The Prime catalyst mentioned yesterday was the European Central Bank giving $647 billion in low interest loans to over 532 banks.

As Popeye points out in the Comments section

Banks get Bailed Out

We get Sold Out

To keep the crony under regulated opaque crony capitalist system alive, European Banks are getting bailed out. They are the ones who made most of  the bad loans (bought the bonds) to  a handful of troubled European countries.  These financials made the loans because they could repackage them into “financial weapons of mass destruction” – credit default swaps.

The people of Europe get the higher taxes, job loses and cuts in government programs.

Sound familiar?

There are two solutions to this problem – Or its going to keep happening again and again.

• Ron Paul’s – Blowup the Fed and go on the gold standard
• Create real regulation, enoough real regulators and eliminate too big to fail shadow financials & opaque markets.

Repeat  - Bottom Line - This is a manipulated market. The ECB in what may just be the first of many loans has made an impact. Bulls Rule

Overnight Data From Europe

Germany’s DAX

Gapped up at open, lost @1/2 and fell to +0.38%  at –  at 6:40 AM EST

Other major European Indexes doing better.

DAX at  +0.20% at 8:45 EST

Italian 10 year bond

Opened at 6.96% - 2:30 AM EST

Fell to 6.90% at 6:45 AM EST

Italian bond at 6.94% at 8:45 AM EST

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Paul’s Corner

One of the things I love about the HGSI software is the various searches I look at nightly occasionally spit out stocks I have never heard of and may do that for several days in a row. BKI has been appearing repeatedly for days now.

BKI Buckeye Technologies Inc. engages in the manufacture and distribution of cellulose-based specialty products. It operates in two segments, Specialty Fibers and Nonwoven Materials. The Specialty Fibers segment offers chemical cellulose, customized fibers, and fluff pulp derived from wood and cotton cellulose materials using wetlaid technology. The Nonwovens Materials segment provides airlaid nonwoven materials derived from wood pulps, synthetic fibers, and other materials using airlaid technology. The company?s products are used in various applications, such as disposable diapers, personal hygiene products, engine air and oil filters, food casings, rayon filament, acetate plastics, thickeners, and papers. Buckeye Technologies Inc. markets and sells its products directly through its sales force, as well as through sales agents primarily in North America, Europe, Asia, and South America. The company was founded in 1992 and is headquartered in Memphis, Tennessee.

Ok big deal, a pulp mill? Interesting stuff made from wood scrap I’d burn for heat in the winter. But in an investment world of Smart Phones, flash drives, AAPL, ZNGA, why the decent chart and recent chart acceleration?

The following article surfaced yesterday and might explain the move. LINK

BKI broke out nicely yesterday from a nice 8 week base. Some of the move was probably generated from this article. Although it is somewhat thinly traded at 400,000 shrs a day, all of my favorite HGSI chart indicators are green. Even with yesterday’s pop, BKI is not over extended at the moment. If one is to trade this stock it might be beneficial to watch chart action for a few days and one shouldn’t typically trade at the open, the morning after a decent pop like it had the day before.

Several other stocks in the pulp wood group are looking good too. For your evaluation here are the other stocks within this group.

BKI

MERC

FBR

CLW

IP

WPP

INDEX

MWV

NP

UFS

SPP

GLT

ABH

VRS

KS

SWM

ONP

Note, stocks are listed in an HGSI Top Down Analysis sort from 12/22. This sort can and does change every day. The chart and the fundies should be one’s guide to stock selection.

My good friend Ian Woodward posted an excellent late night blog last evening and gave some good thought as to the current market and what to look for if this Santa Claus rally is to continue. Be sure to read it!

LINK

It’s 7 AM as I write this morning; ABC Good Morning America just came on and at the open they featured soldiers coming home from Iraq. It sure is nice this horror story is “some what” over.

Merry Christmas All!

Disclaimer, all comments are for education only and are not meant as stock buy or sell recommendations.

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Our #1 technical forecasting tool, the McCellan Oscillator rose to +34.86 . 50DMA at +5.88 = NEUTRAL/bearish

We’re on the cusp of moderately overbought, but no where near clear reversal territory.

See past Investors411 for all the other bullish factors influencing the market this week.

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The fact that the ECB is making very low interest rates yo 500+ European banks takes some heat off of Europe and mitigates the Italian Problem. If Italy goes into “controlled bankruptcy” it’s impact on European banks will be less devastating.

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The 7.00% rate on the Italian 10 year is still significant, but less so after the ECB intervention. The 6.94% proximity to 7.00% is the only thing holding back another major rally today.

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For more information on trading strategies see STRATEGY Section of blog.

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Europe still has Significant Influence over US Stocks

Although there are some significant analysts out their like Jim Cramer (ex Goldman Sachs executive) who believe that we got some short term stability out of the European Summit and the US should be focused on what happens here this week. The other side has a good longer term argument, despite Friday’s rally.

Friday’s low volume rally is typical of the manipulated markets we saw as our Fed flooded the USA with liquidity (QE #1, QE #2 and other less transparent measures)

The longer term problem lies in the enforced austerity of poorer European countries which is sold as they pay or the richer countries taxpayers will pay. It’s a problem is imbedded in the German and the worldwide Bankster financial system that allows phony capitalism and those troubled European bonds to bring financial Armageddon.

Remember, just like in 2008, the now threatened bonds were bought because they could be repackaged and sold as derivatives, This over leveraging in an opaque CDS system (CDS = Warren Buffet’s term Weapons of Financial Destruction) still thrives.

There are several decent editorial out there. A solid editorial by Mohamed El Erian LINK. The best I found was from The Atlantic and it may make your eyes glass over, because its technical – Here’s the LINK and here’s the money line in  Clive Crook’s editorial.

Germany’s demands are bad finance, bad fiscal policy, and bad constitutional design. You don’t fix this mess by ruling out forceful action until closer integration has been achieved. You don’t repair Europe’s underlying political dysfunction by increasing the distance between government and governed.

Bottom Line - Investors411 does NOT see as rosy picture as Cramer presents.

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Germany’s DAX down 1.81% at 6:15 AM EST

DAX down - 1.96% at 8:22 AM EST

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Our #1 technical forecasting tool, the McCellan Oscillator fell slightly to +16,80. 50DMA at +11.22 = NEUTRAL

The S&P 500′s 200 DMA is proving to be a strong resistance level for US equities.

See chart at right top of blog. We have failed to significantly crack this level for 5 days. The longer we fail to crack this level significantly, the stronger it gets. We are back just below breakout levels.

Market cheerleaders are hyping that the Italian short term bond rate today fell below 6% (7% is danger level)

• News from Europe is still a trump card.
• Other big event of week is the Fed meets this week.

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Germany’s DAX today up +0.54% at 6:30 AM EST

Up +1.00% at 8:45 AM EST

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Our #1 technical forecasting tool, the McCellan Oscillator rose to -2.58. 50DMA at +9.38 = Neutral

The MO has been an outstanding tool in helping to predict tops and bottoms. Investors411 will continue to use it as long as it works. However – This is a manipulated market so ALL technical tools are secondary. The actions of the Puppet Master are paramount.

From Last Tuesday – For now bulls rule … Bottom Line – Old Wall Street axiom

Don’t fight the Fed.

The Fed manipulated the puppet strings (some hidden others transparent) and the USA didn’t go over the cliff. Can they and their allies do the same in Europe? – They certainly picked a perfect spot to make a big move. Our MO indicator was at -100 or OMG oversold levels.

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Woudda, Soudda Couldda entered more long positions on last Tuesday for Investors411 hypothetical portfolio. For now I settle for stocks that are trending well, but not over extended in YSL #7. Again watch for Paul’s comments on these.

Cartoon by Pete Steiner LINK

The head Republican of the Deficit Super Committee  Senator Jon Kyle called Grover Norquist “the 13th negotiator.” Why?

“The lobbyist, who runs Americans for Tax Reform, has a tight hold on the Republican party, having secured written pledges from almost all its members of Congress that they will not vote for a single tax rise.” LINK

Norquist, after the vote promptly “proclaimed victory“

All six Republican members of the deficit super committee have signed Norquist’s pledge.  All the Republican Presidential candidates have signed the pledge.

Across Europe governments have agreed to both raise taxes and cut spending to balance budgets. Democrats here have sought some relatively minor tax hikes from the wealthiest Americans who have prospered over the last three decades while middle class growth has stagnated.

Norquist says NO

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$75,000,000,000,000

$75 Trillion

This is How the amount of  debt from financial WMD’s (Derivatives or Credit Default Swaps) that now sits in a US government FDIC Insured Account.

“Bank Of America Dumps $75 Trillion In Derivatives On U.S. Taxpayers With Federal Approval”

Seeking Alpha’s – Avery Goodman editorial LINK.  Original Bloomberg News Source

“Contrary to popular [Republican] belief, which blames the global financial crisis on subprime borrowers, it was the derivatives, based upon the likelihood that those borrowers would pay their debts, that were the primary catalyst triggering the global economic crisis of 2008.”

The real debt of our broken financial system from the 2008 meltdown and now the Euro crisis lies in opaque “free market” derivatives market.

Many Thanks to Robert H for the heads up on this.

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STOCKS

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The Stock Market Skater STILL on Thin Ice/Shark Below

Welcome to Black Friday. Christmas is supposed to be a religious holiday in celebration of the teachings of Jesus Christ. Instead its turned into the sanctification of shopping.

Wednesday was another significant fall again on European news.

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Germany’s DAX closed down @o.5% yesterday and today down -0.37 at 8:45 AM EST

So expect US stocks to fall between 0.5 & 1.o% at open

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Our #1 technical forecasting tool, the McCellan Oscillator fell to -106.62. 50DMA at +13.99 = Bullish

While we did see a record -140 on the MO in August, a -107 with the 50 DMA at +14 means the market is very ripe, technically, for some sort of rebound.

Same Bottom Line - News from Europe can and will trump the technically bullish oversold US market.

Traders - Few are going to be willing to hold stocks over weekend on fear of more bad news. However another Dow 200+ point fall puts us in OMG oversold territory. You need a lot of guts, no financial earthquake in Europe & a better than expected black Friday would help, but you could see a rally Monday AM.

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“Danger Will Robinson

Danger Danger”

Robot from old TV Series – Lost in Space

Europe

The first thing in the morning almost every stock analyst looks at is European Markets. Why? – If European markets are 2% lower then US equities open 2% lower.

The major problem is there is no viable solution apparent for the European debt crisis. One day there is going to be a panic about the solvency of  a major European bank and the European markets will be down 5% and falling. The US will do the same.

BAC

Bank of America our largest too big to fail is in deep trouble.  No one really knows how exposed BAC or any too big to fail institution is to bad debt in the USA or Europe because US banks don’t have mark to market accounting and the derivative market is opaque.

How bad is BAC? It hit a three year closing low yesterday. 6 month chart, 3 year chart.

BAC is the worst off of all the major shadow banks and the anchor that is leading the others down.

When a major bank/stock  market meltdown occurs is impossible to predict. – today, next month, next year. Until there is a viable European solution every stock is at risk. Especially financials. Therefore …

It’s time to take out the old Lost In Space Robot that warns of impending danger and shout -

“Danger Will Robinson, Danger Danger.”

Yes this debt crisis is, as Yogi Berra would say, 2008 all over again.

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News Briefs

Russia – What Russian New anchor thinks of Obama. 12 Second video (fun)

Art History & Pepper Spray – A photo essay including nude paintings (fun) Thanks to RF for the heads up on this.

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Happy Thanksgiving

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STOCKS

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The Stock Market Skater on Thin Ice/Shark Below

Yesterday US equities fell slightly. This confirmed the significant downside move Monday. If you look at a chart of the S&P 500 (See FINANCIAL CHARTS on right side of blog) you will notice the current meltdown is starting out almost exactly like the early August meltdown.

Ron Hera – Seeking Alpha contributor – The gap between the haves and have nots in the USA is growing so fast that  by 2032 the USA will be a third world country. How Quickly the USA is Becoming A Third World Country

Japanese markets were down 2.1% overnight. China overtook Japan as the world’s # 2 economy. EWJ chart (the ETF for Japan) is bearish. Few care about Japan and all eyes are on the largest economic block Europe.

Fed sets Stress Test for Big US banks becuse of European Crisis. Financial Times Story

Germany’s DAX down -0.07 at 8:45 AM EST

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Our #1 technical forecasting tool, the McCellan Oscillator fell to -77.24. 50DMA at +16.68 = Bullish

While we did see a record -140 on the MO in August, a -77 with the 50 DMA at +17 means the market is ripe, technically, for some sort of rebound.

Same Bottom Line - News from Europe can and will trump the technically bullish oversold US market.

Technicals give us some short term hope, but then there’s the European Sword of Damocles. See yesterday’s Investors411

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Hedge Trades

This is NOT an event driven hedge trade like GMCR or ANF.

• Longer Term a Call on AAPL and a Put on AMZN. Expiration dates of Put and Call should be similar and at/near value of current price.

Reasoning

• It’s very hard to make an investment in an events driven market. You have little idea which way stocks will turn. (See above)

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Paul’s Corner

Mea Culpa

Yesterday in Paul’s Corner we discussed Ian Woodward’s newest market indicator, “%B X Bandwidth“. This indicator created about a month ago by Ian Woodward (HGSI) is a very good indicator that can get you into and out of the market several days before feast or famine.

In yesterday’s post I suggested that since this was a new indicator it doesn’t have too much history but appears to be a real silver bullet in the market analysis tool kit. Well my good friend Ian Woodward was nice enough to call to my attention (while wielding a 2X4) that while it’s a new indicator, we have  oodles of history available using HGSI and EdgeRater software to generate several years of spread sheet  which shows the validity of “%B X Bandwidth”.

For your review here are the images Ian created for Investors411:

May 5, 2010 Flash Crash – LINK

Sept. 1, 2010 New Rally – LINK

March 2009 Bull Run Start - LINK

July 15, 2009 Continuation    - LINK

Many thanks to Ian for providing these images! Have a great Thanksgiving folks and after the festivities take a few minutes and review Ian’s blog and study “%B X Bandwidth” a bit more.

Ian’s Blog LINK

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Just like in the US mortgage crisis, a whole bunch of banks and their friends took on some questionable European debt.

These sophisticated mega bond holder were happy to buy questionable bonds because they could bundle them and sell the on the opaque Derivatives Market (Credit Default Swaps) – This questionable insurance put additional leverage on the debt.

Gains were privatized and the risk socialized =

Crony “free market” capitalism

The debt in Europe is massive and when the bond rate of a particular country hits 7% (10 year bond) payments become unsustainable. The question becomes who is going to socialize the risk?

The USA has already donate $5 trillion in stimulus, bailouts loans, money printing, taxes etc. because of the 2008 credit crisis which came to a head when Lehman Brothers had $150 billion in bad bond debt.

Now the largest debtor country in Europe has $2.25 trillion in debt approaching  7%. A number, in the past, that has forced other countries into messy “controlled” fluid bankruptcies. Also meltdowns on global stock markets.

Who is going to Socialize the Risk?

Crony “free market” Capitalism

Just like 2008, we don’t even have an accurate accounting of which globalized shadow bank has how much debt. Only that this over leveraged European debt is MASSIVE

European mechanisms for dealing with this debt are structurally weaker the the USA (fodder for another editorial) and the potential size of the debt in HUGE.

Reading the Tea Leaves - Nobody is willing to socialize the risk. So the Sword of Damocles hangs over stock and financial markets around the world.

Perhaps the only thing that will motivate more socializing of the risk is when a too big to fail bank goes belly up becuse it has too much European debt and through the opaque CDS market – fear of worldwide contagion spreads.

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Obama’s Stand

Like it or not Obama has drawn a line in the sand on deficit reduction -

The Super committee has now officially imploded. Countries far worse off than ours (Ireland, Portugal, & Greece) have already implemented far more relatively onerous tax hikes and deficits cuts.

Obama’s line in the sand to Congress - I will veto any attempt to undo the automatic cuts if you try to exempt any part of them (Pork = any previously agreed cuts that come into effect if plan is not approved). He will only approve a complete plan.

This president is serious about a comprehensive deficit plan

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STOCKS

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Fundamentals simplified

• The Bulls case - Emerging markets are basically sound and the USA is picking up steam.

Yesterday, US markets fell significantly due to European news.

The day after a significant move in one direction is the “confirmation day” It tells us if traders have doubts about the  big loss/gain.

US market open is dominated by European trading, The DAX (Germany’s stocks – by far the leading market in Europe) is up +0.22 at 8:20 AM EST. Expect US markets to follow.

By using the homepage of Stockcharts.com you can follow the DAX and other major European indexes in real time.  Use the “Today in Market chart and highlight the appropriate index. (It’s free)

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Our #1 technical forecasting tool, the McCellan Oscillator fell to -72.62. 50DMA at +18.29 = Bullish

While we did see a record -140 on the MO in August, a -73 with the 50 DMA at +18 means the market is ripe, technically, for some sort of rebound.

Bottom Line – News from Europe can and will trump the technically bullish oversold US market.

Technicals give us some short term hope, but then there’s the Sword of Damocles.

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Paul’s Corner

What? A big Swoosh? The sound of your grandkid’s inheritance being sucked out of your portfolio? Yup not a great day, but you know the drill today will be up 600, right? As usual Barr gave a great warning last Friday and hopefully you protected your assets.

How would you like to have had a warning on Nov 9 and exit signal on Nov 16? Take a look at Ian Woodward’s (HGSI) latest blog where he discusses %B and Bandwidth.

LINK

Clear as mud eh? Well it’s pretty simple stuff. %B  represents where a stock sit’s in its Bollinger Band and Bandwidth is the actual measurement of the width of the Bollinger Bands surrounding your stock. Using the two you can accurately gauge the health of a single stock or the overall market.

Ian has been preaching this stuff for several years. Recently I questioned Ian about a certain move of the Bollinger Bands of the S&P 1500 index. In our discussion he spotted a way to take the position of the index within its Bollinger Band (%B) and multiply it by the Bandwidth you get a very fast confirming indicator.

Ian’s chart shows the early warnings on Nov 09 and the Outta Here warning on Nov 16.

LINK

This stuff is only a few weeks old and doesn’t have years worth of confirming signals to prove the wealth of this new  indicator,  but from what I see it’s a real silver bullet in the HGSI market analysis tool kit.

YSL 7 is just about finished. Barr and I have a few stocks to kick around, hopefully next Tuesday we will publish.

Happy Thanksgiving all!

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Put/Call Hedge Trades

This is NOT an event driven hedge trade like GMCR or ANF.

Longer Term a Call on AAPL and a Put on AMZN.

Reasoning

• It’s very hard to make an investment in an events driven market. You have little idea which way stocks will turn.

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The Big Lie

Super Committee

Credit to the Tea Party for forcing the issue of deficit reduction to a head. It is a serious long term issue.

Virtually all news outlook say congress is deadlocked over what to cut and/or tax to further balance the budget. This can gets kicked down the road because no penalties come into effect till 2013 – after the election.

Unfortunately, because of the attention focused on the deficit, almost nothing has been done about the clear and present danger that our financial system has created.

• $5 to 10 trillion in new loans or debt created by the financial meltdown

• The loss of 8 million jobs.

• The @20 to 25% decline in the #1 asset of middle class American’s – their homes

• 6,000,000 foreclosures since 2007 with 4,000,00 in the works – Almost 1/2 of all mortgages under water.

• A major European fiscal meltdown impacting the world.

“On either approach, [to deficit reduction] the poor and middle class would suffer grievously while the rich and powerful would win yet again”

From Columbia prof.  David Sachs –  LINK to his editorial

“The key to understanding the U.S. economy is to understand that we have two economies, not one. The economy of rich Americans is booming. Salaries are high. Profits are soaring. Luxury brands and upscale restaurants are packed. There is no recession.

The economy of the middle class and poor is in crisis. Poverty and near-poverty are spreading. Unemployment is rampant. Household incomes have been falling sharply. Millions of discouraged workers have dropped out of the labor force entirely. The poor work at minimum wages to provide services for the rich.”

Reality

“When Obama has one of his many $35,800-a-plate fundraising dinners, he doesn’t meet young people struggling to cover tuition payments…The big money on the Republican side is even worse.

The upshot is that both parties champion the 1 percent, the Republicans gleefully and the Democrats sheepishly.”

Sach’s editorial is full of cooberating  data

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OWS

The reason lobbyists and the media for the 1% are in a jihad attacking the messenger of OWS is because they are so afraid of this message getting out – LINK to message/Short Video

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STOCKS

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From Friday

“The Whole Financial World is Skating on Thin Ice”

The Ice got a whole lot Thinner over weekend

Friday’s Warning from Investors411 -

“Like in the Wizard of Oz I don’t know how long the man(men) behind the curtain can keep holding our fundamentally flawed financial system together. Downside risk grows every day, because little is being done about fixing the root cause of our problems…If/When the ice breaks on the opaque, deregulated, & manipulated financial system great danger lies below.”

Friday market was basically flat. Technically, this confirmed the big drop on Thursday. = Bearish

Market Open is dominated by European trading, The DAX (Germany) is down 2.58 at 8:45 AM EST. Expect US markets to follow.

The single largest reason the US and most European markets were flat Friday is the ECB bought enough Italian and Spanish bonds to keep their rate of the 10 year bond below 7%.  The 7% level seems to be the tipping point number where Ireland, Portugal and Greece began their” controlled” default on their bonds.

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Our #1 technical forecasting tool, the McCellan Oscillator fell to -40.38. 50DMA at +19.15 = Neutral/ Bullish

Repeat From Thursday - However, if you read the MO like a chart it has just broken a support level and that’s Bearish

On Aug 8th the MO reached -141 the lowest its been ( I’m looking at a 3 year chart that includes the 2009 meltdown) That’s a hundred point drop.

So overall technical conclusion is -

there is a lot of wiggle room for markets to technically roast and toast before some sort of rebound occurs.

Repeat From Friday - Europe again dictates the open This makes holding stocks overnight very risky. If you can handle an event driven market where your stock/ETF/mutual fund jumps 2 +% up or down at the open then this market is for you.

Commodity prices fell like stones Thursday, for the most part held onto those losses. If commodities prices fall – stocks will follow.

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Event Driven Put/Call Hedge Trade

[ Straddle or Combination Trade]

This trade depends on an earnings report [We could also use any expected announcement, like an upcoming FDA drug approval] and earnings season is over.  So very few trades present themselves like the GMCR that made 200% and the ANF that made 70%

Kudos to JS – Who writes a column on puts and calls and announce in the comments section that he was shorting this weeks market by using calls on SDS. This looks like a very wise move to protect his long positions.

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• Over three weeks ago Investors411 stated for those that could handle the risk a RISK ON Trade off the market low was probable.

• Monday The Long Term Outlook was changed to CAUTIOUSLY BULLISH

• The major fundamental reasoning behind the rally was discussed this week and is summarized in brown above.
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• #1 forecasting tool, the MO fell dramatically to 44.61 Moderately overbought = Neutral/Bearish
• Our secondary forecasting tool the PCR rose slightly to 1.04 = Neutral
• See Strategy section for more on MO & PCP