.

Stock Trading in

Three Dimensions

.

A Warning

• Yesterday in the comments section I issued a warming to traders essentially saying-that there may be a big shark out there. Many stock market analysts will just look at one dimension and look at the technical aspects of a market, usually the benchmark S&P 500 and make a call. That’s using one dimension.

• Fundamentals are the second dimension. Two weeks ago the Fed and other Central banks essentially told Europe we have your back. There was a huge rally on this news. Yesterday Fed chair Bernanke said he was very worried about Europe but the Fed would NOT bail out Europe. The Fed often works in mysterious ways, but the statement seems opposed to the promised help a couple weeks back.

• John Murphy is the father of inter market analysis – the third dimension. Different markets are strongly correlated. If commodities fall so will stocks. Yesterday oil prices fell 5.05% (One ugly chart) Industrial Metals fell 2.79% (Another ugly chart) Sugar fell 2.61% (Another Ugly chart) compared to the benchmark S&P 500. It fell 1.13%.  A whole lot less.

The cutting edge of the knife is in the inverse relationship (inter market analysis) between Italian bond yields and stocks.

Virtually all investment eyes are focused on Europe.  The breaking point here is  a 7% yield on the 10 year Italian bond. Reaching 7% would be considered unsustainable for the 3rd largest economy in Europe and force a “controlled bankruptcy.”

Therefore the most important technical tool is

10 year Italian bond rate

Using the linked chart above change the setting to the daily rate. You will see a chart that shot up to 6.89% twice and has been beaten back. At 7:40 EST the Italian bond rate stands at 6.69%. A huge fall.

Some financial entity(s) has intervened through a proxy. Was it a Fed (and/or one of their allies) backed bank/entity?  Who knows?

Bottom Line

Trading in 3D is critical, especially for shorter term traders. We are in a danger zone with the Italian bond yield close to 7.00%. There’s a big SHARK out there.

However, for today it looks like the bulls will rally European markets, which will rally our somewhat oversold stocks. At least that’s how stocks look at 7:40 EST.

AS ALWAYS, DO YOUR OWN RESEARCH BEFORE INVESTING

ALL TRADING INVOLVES RISK AND POTENTIAL LOSS OF PRINCIPLE

CHECK ALL DATA, I MAKE MORE THAN GRAMMAR  ERRORS.

Our problems are small relative to the people of Japan, Let’s take a moment to remember their  horrific situation.

Japan

Just like Al Jazeera provided superior coverage for Arab news, so does NHK World in English. It has the view from Japan. A second hydrogen explosion (video) has occurred this AM.

The Bank of Japan has dumped $185 billion into their economy today – a lot of this was in quantitative easing. Stocks there down over 6% & marginally elsewhere.

Anonymous

David Frum - Republican pols fear their base, Dem pols despise it.”

The State Department has “fired” its spokesperson PJ Crowley. He stated that US citizen awaiting trial Bradley Manning (Wikileaks informant) treatment as “ridiculous, counterproductive and stupid,”

Private Manning’s (not convicted of anything) conditions from Salon – “23-hour-a-day solitary confinement, barring him from exercising in his cell, punitively imposing “suicide watch” restrictions on him against the recommendations of brig psychiatrists, and subjecting him to prolonged, forced nudity designed to humiliate and degrade.”

Also from the Atalantic –  “to sleep without clothes and stand naked for morning parade:”

Speaking out against that abuse is a firing offense in the Obama White House.

At least the Cheney/Bush White House focused on non Americans.

This is just WRONG, no matter what you feel about Wikileaks

_____________

The (in)famous group of computer hackers Anonymous (video) taking non violent action against the oligarchy that runs the USA through Bank of America today. They have downloaded files on BOA at 8:00 AM EST

If you may remember Anonymous  caught the US Chamber of Commerce and security firms/lobbyists conspiring  to smear opponents and their families.

You can follow this via Twitter here

So YOU can decide for yourself – Here’s the video Operaton A99  - Empire State Rebellion

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	+0.50%	down
NASDQ	+0.54%	down
S&P 500	+0.71%	down
Russell 2000	+0.41%	-

_____________

.

Technicals, Fundamentals & Analysis

Investors411 record - 6 years of beating benchmark S&P 500

BUBBLE-ICIOUS - Investors411 term for the stock market – We are all riding on the outside of an ever expanding &  Central Bank manipulated stock bubble. See Investors411 STRATEGY section for more

• Major US indexes had a typical manipulated (FED liquidity) Friday. The same type of low volume rally that we’ve had for the past 6 months.
• Nothing could shake this pattern until we started having oil price over $100 a barrel. Now add Japan’s natural and nuclear disaster
• “what is most impressive is how well this market has held up in the face of a series of events that could only be described as a Chicken Little world.” –  from John Nayardi - Living in Interesting and Dangerous Times analysis of  events starting with Bill Gross (see last week’s investors411) cashing out of US Treasuries to Japan.
• Bahrain opposition/protest leaders say Saudi’s who troops are now helping dictator their constitutes an act of war. This is Sunni vs. Shia so potential  very explosive
• Technical analysts from Tom DeMark to Paul’s favorite at HGSI have spoken and so many others out for months that a correction was coming. Could the fundamental factors now make this a reality?

________________

.

Shorter Term Forecasting Indexes

• The Dollar (USD) [Any daily price move over +/- 0.50 is significant. Dollar usually moves inversely to stocks] Dollar has changed direction AGAIN. Down a a significant -0.65% yesterday. Chart for last three weeks still clearly bearish for dollar.   Oil prices now are by far the #1 forecasting index and its trumping the dollar see below. The dollar is flip flopping more than a fish brought out of water,. Impossible to call right now. For stocks dollar short term trading pattern = Neutral.
• McClellan Index - (MO) [The very rough guideline is over +60 = overbought market = sell positions or short stocks, & -60 = oversold market = buy stocks .] MO rose to -26.62 . We broke a 3 month old support level and that’s bearish. But we are approaching -60 and that’s bullish. The short term  MO Stocks outlook = Neutral/Bearish

________________

.

Reading The Tea Leaves

Technical analysis for all its benefits does not move markets. Fundamentals do.

Technicals are like road signs and traffic lights. There may be a bridge out ahead or a super highway with no traffic. Investors has listed a parade of technical analysts who have sounded the alarm over the last few months. Economically Investors411 agrees, but its because fundamental factors have changed.  Remember, What happens economically is NOT always what happens to stocks.

Its the fundamentals that drive stocks. Fundamentals like The Fed’s quantitative easing drives stocks, $100 dollar oil drives stocks and now economic catastrophes like Japan drives stocks.

The Chicken Little moment for the US economy and perhaps the world comes when investors no longer have faith in the US dollar. That’s when the bubble explodes. We are moving in that direction as gold moves higher and the dollar falls, but far from collapse.

Bill Gross’s move out of treasuries was an early warning sign. But until the dollar starts collapsing chicken little stays in the hen house

What to watch today

• USO - ETF for oil - Oil up = stocks down
• UUP - (Tracking ETF for dollar) Remember - The dollar is a contrarian indicator. Bad dollar = good stocks
• AAPL – Rallied of its 50DMA..

___________________

Positions

TNA – Obviously the news out of Japan has changed dramatically. Hundreds feared has turned into well over 10,000 and we have at least partial reactor meltdowns in at lest two reactors perhaps more. – A bad day to be long at the open. 5% stop loss in place and will sell 1/2 near open.

DGP & SLV – Have the potential to explode higher. Reason – Investor’s after Japan will believe even more no currency is safe. Will try to buy

UCO -(2x oil prices) Why not, its also a hedge against higher gas prices.

REMX (Rare Earth ETF) - Really believe this a good long term holding.

DGP – (ETF is 2X gold) . Set to follow silver SLV and approaching breakout. Broke out to new all time high and has started to pull back.

DBC - (Commodities ETF) For a more complete list of commodity ETF’s see POSITIONS listed at top of blog  DBC is tilted to energy.  A good alternative would be DJP that is more agriculture and metals - Both DBC & DJP are on breakout runs.

RJA (Agriculture commodities Index)An ETN, not an ETF. Hopefully longer term holding. .

UWM (2x small cap stocks) TNA (3X small cap stocks)

_________________

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

Special Note - From Friday “Considering changing the Long Term Outlook to NEUTRAL” – Changed – Ironic its NOT high oil prices, but Japan that is the tipping point. Japan is the a serious factor ($5 trillion dollar per year) in global growth. When Long term Outlook is first changed it may bounce back. Time will tell

Health Care

Robert Reich – fromer Sec. of Labor

Frankly Abby Gold (see comments on right) says it all on health care .  This country used to care. There was a bond between neighbors. Now the rich get socialism whenever they are in trouble and the poor and working class average Americans get ground into the ground. This is a mega trend in the USA that’s spiraling in the wrong direction.

Economist Robert Reich has an editorial on – What happened to the public option. LINK

Mexico & Afghanistan

(to be continued over weekend)

KISS & STOCKS

Keep It Simple Stupid

For those of you whose eyes gloss over in the stock section I’ve tried to KISS it today, but I left a little in for those who want the deeper analysis

AS ALWAYS, DO YOUR OWN RESEARCH BEFORE INVESTING!

Index	Percentage %	Volume
Dow	-0.90%	up
NASDQ	-1.66%	up
S&P500	-1.34%	up
Russell2000	-2.41%	-

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

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

• Brown = repeat statements
• Green = usually bullish statements
• Red = Usually bearish statements

Technicals, Fundamentals & Analysis

Volume – Volume  rising (see above chart) is important, but it saw still below average. So there is no real big forecasting signal.

Something called Options expiring (3rd Friday of each month – today) is probably what’s behind all this volume. The more sophisticated short term traders are forced to cover some of their bets at the last minute before they have to buy or sell a stock they have an option on.

If you get lost with a term or want to know more use Investopedia.com dictionary and other help programs or Stockcharts.com tutorial programs.

Why Stocks Move Lower – Yesterday we did Higher and probably the #1 reason is the government shoveling so much money into the economy at almost zero interest rate forces people into stocks. The alternative is a measly couple points in a bank savings account or add another point for a bond. So here’s the downside -

• Job, Job, Jobs – Companies fired workers and now first will  first hire overseas where it cost less and the growth is greater.
• American’s middle class went overboard into debt and is now saving more. Our consumers are saving more, therefore, not buying. Good to save more, but bad for economic growth
• Trust – The rich (shadow financials & others) get risk socialized by the government and the middle class gets capitalism. Folks know their getting screwed – they/we are angry.
• Foreclosures – still happening at a far too big a rate despite stimulus.

The best case scenario for economy – All those who made huge money in the stock market or trading credit derivatives this year buy and eventually this will “trickle down” to the middle class.

Important to remember – Stocks can move in one direction and the economy in another.  Perversely, in the short term, if job loss stays high interest rates will stay low to act as a counter balance.  Stocks historically always rise in low interest rate environments.

Now going to get a bit more technical

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

——–

Significant forecasting tools/Indexes for stock markets

(Besides #1 Volume & #2 Reaction to News)

BDI - The Baltic Dry Index measures the flow of goods by price (world trade) .

The BDI has broken out to new yearly high

The BDI rose a n insignificant  +18 points yesterday and closed at 4661. Up 16 days in a row . Technically it broke out through its major resistance level 4291 (this year’s high)  The BDI has rallied about 2400 + points since late September.

The BDI is starting to go PARABOLIC – starting to move up too far too fast-inevitable result is a crash and burn.  We seem to be at the top of the parabola. DANGER for Bulls

——-

The Dollar is currently the #1 forecasting tool .

$USD - Check out the 6 month chart (to the left) or a multi year chart of the US dollar of the US dollar.

Mantra – Dollar up = US stocks down & Dollar down = US stocks up

US dollar rose  +0.31% yesterday. The dollar closed at $75. 29 . This is back above the major $75.00 support level. 

CAUTION – The first breakout (up or down) is often false. This happened two days ago . Dollar back in trading range. The top of that range is the falling 50 day moving ave. now at $76.02

——-

$NYMO The NY Stock Exchange McClellan (EOD) Index measures how much the NYSE is oversold or overbought .

The index closed at-22.67 This indicates stocks are slightly oversold and momentum for bears is growing

Even though the Dollar Rules consider overbought levels (60+) on this index a point to lighten up on stocks)

Key to chart – Zero  is roughly  neutral and roughly when you approach to @ +60 you are overbought and approaching-60 you are oversold . Buy at oversold and sell at overbought. Nothing is absolute in this chart. In fact using the moving averages as a central point is better than using zero. Nothing is absolute about the minus or plus 60 number either.

Oversold conditions = buy, Overbought positions = sell

Positions

The  Positions Section (top of blog) to see all the latest buys and sells

Sorry have not had a chance to update Positions section in well over a week – see past updates.

Long Term Outlook - We are on the cusp of change between CAUTIOUSLY BULLISH and NEUTRAL for stocks.

Bottom Line – As Investors411 warned US equities are turning negative.  The point to add to positions will NOT come till we reach oversold positions on the McClellan Oscillator

Long Term Outlook = NEUTRAL