Investors 411 Blog

A quick sharp technical bear market rally exploded Tuesday. Investor411 cautioned yesterday  -”Warning to all those who are short stocks/sectors.  We are long overdue for an oversold technical rally.  A bear market rally could see a quick explosion higher in a short period of time as shorts rush to cover.”  

These two words were supposed to put the intended victim in a hypnotic trance in an old 60 or 70 comedy movie. For Barak Obama the two key words don’t rhyme – Afghanistan Iraq .

In the last few days a US predator drone killed @20 al Qaeda or civilians at the Afghan/Pakistan boarder (depends on which news account you believe in) and there is a promised surge of another 30,000 troops in the face of diminishing foreign support.

It is heartening to see increased diplomatic efforts in Afghanistan and Pakistan. However even US military commanders say Afghanistan "cannot be won on the battlefield" AP report .

Afghan/Pakistan/India is the center of Sunni terrorism. However, If like Iraq the focus is on guns and bullets instead of hearts and minds we’ll get the same results. We may be able to eliminate some despicable people like Saddam but the end result is worse. The level of violence that we created by "unjustly" invading has diminished but -

* 3 to 5 million refugees (mostly Sunni’s) displaced or killed
* a corrupt religious Shia government replacing a corrupt secular government
* Militia’s that rule throughout Iraq an infiltrate the army.
* Radial leaders like Sadr who hold sway over the Shia majority (60+% of pop.)
* a new pro instead of anti Iranian government – making Iran more powerful to export terrorism
* loss of our positive image throughout the world Abu Ghraib and Gitmo.
* a war simmering between Turkey and the 20% Kurdish minority
* cost of $3 trillion dollars to American economy
* deaths and long term wounds of American soldiers.
* an economic disaster in Iraq.
* a inspiration or factory for producing terrorists
* a deeply divided America on Iraq

Yes there is a quazi elected government in Iraq, but the terrorists of Hamas were also elected.

Geithner Genuflects

Yesterday Wall Street favorite Tim Geithner was appointed Obama’s Treasury secretary. In his acceptance he payed homage or genuflected to Larry Summers, Obama’s chief economic advisor. Geithner is a Summers protegee. Larry Summers, as reported several times before, was instrumental in deregulating the banking industry in 1998 under Clinton. The guys who played a role in digging this economic hole should not be the major players in leading us out.

Far preferable to this dynamic duo would be Nobel prize winning economists like Stiglets and Krugman. Hero’s like Former Fed Paul Volker does have a more minor role in the Obama administration.

Lifting Global Gag

One of Obama’s first act was lifting the Global Gag on giving funds to any organization that in any way supported abortion. Bravo. Several of you emailed me on this. Thanks. Story at LINK

Stocks.

AS ALWAYS DO YOUR OWN RESEARCH BEFORE INVESTING

Headline – Treading Water/Drifting Higher

Index % Change Volume

Dow -0.48% down
NASDQ +0.82% down
S&P500 +0.56% down
Russell2000 +1.28% –

Brown = same comments as yesterday.

US Market & Foreign Markets

Technicals – Major US indexes are treading water and foreign indexes are doing the same. Even though we are treading water major indexes are drifting in the right direction. The Dow closed at 8116 and is now 150+ points above its strong support level at 7950. We are a long ways from the 9088 Dow resistance level (see chart) established in early January.

Volume did NOT confirm the drift higher.

XLF is the financial sector ETF Chart here. Financials declined – 1.78 yesterday. A relatively minor move considering some of the wild swings. Financials are the major reason stocks are in trouble. This is the index to watch.

The area around DOW 7950 to 8000 is turning into a strong support level. The more times its tested and holds the stronger it becomes. Of course, this also means if it breaks down we should have a major fall.

Stocks are down 8% in January. Old Wall Street saying – "as January goes do goes the year."

Chart of the benchmark S&P 500

Chart of the Russell 2000

Chart of the NASDQ

Chart of the Dow

Fundamentals-

7 Major Companies announced 56,000 more layoffs yesterday, Earnings news continues to disappoint, and we have a huge expected-5.2 to-5.5% GDP loss expected to be announced on Friday. Despite this chorus of bad news major indexes managed to tread water and drift ahead. What do investors see that they remain slightly bullish in the face of a pie of bad news?

A stock market is after all just a market of stocks. If major companies like Caterpillar (builds major construction equipment) (chart link ) falls over 8% after a dismal earning report yesterday and is perilously close to breaking through its low (support level) are in trouble be very cautious. CAT stands to to be one of the companies that gains from Obama’s stimulus plan.

If Financials are the index to watch, then CAT is the stock to watch. If CAT can keep treading water and drift ahead there is hope.

Forecasting Future Trends

LIBOR – LIBOR is the rate banks charge each other. It price has fallen from 3.4% three months ago to about 1.18% Its held steady in this area for about a week. (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 T bill flat at 0.07% yesterday and the longer term rates again rose a bit. The ten year rose 2.64% (low yields show fearfull investors flooding to Treasuries instead of stocks)

Treasury Bonds chart

Baltic Dry Index – Measures flow of goods between countries. Yesterday ir rose again almost 1.5% . Almost 85% drop since June. (We’ve had a solid steady gain since the early December lows of around 660 to 995, but we fell from pre recession figures of around 12,000 – That’s along way to go)

BDI chart

Short Term Outlook/Strategy

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

Technically, markets are consolidating despite some horrible economic news. That’s bullish news. Volume is not confirming or denying the bulls or bears right now. Secondary indicators (LIBOR Treasuries and BDI) are improving. The area around Dow 7950 has turned into one strong support level . It has bent but it has nor really been broken.

Therefore, Some sort of short term rally seems probable. Buying/nibbling close on dips at Dow 8,000 is much better than doing the same at 9,000. Protecting any purchased position as stocks rally (get closer to 9,000) seems to be working.

AS ALWAYS DO YOUR RESEARCH BEFORE INVESTING

Long Term Outlook – BEARS RULE

This Section Rarely Changes
Changes to Bottom Line Section Bolded and in Plum or crossed out

Technicals – Series of Lower Lows and Lower Highs = Bears Rule.. Technical Range for 2009 – 7449 (low) and 9654.- This is a wild guess. Any sustained move above Dow 9650 is bullish.

Fundamentals – Financial transparency/accountability problem is far far far far far far far far far bigger than anyone thought. Cleaning up this mess is going to take years and growth will suffer.

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 8000 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.

SDS – ultra short S&P 500
DXD – ultra short Dow – (Both small caps and tech stocks are outperforming the DOW and S&P)
SKF – ultra short Financials (this is the sector that’s most broken)

As Always Do Your Own Research Before Investing

Obama’s first two days are "a burst of executive sunshine " and "transparency".

Here’s 10 of Obama’s orders and/or acts

#1 Closing Guantanamo within a year
#2 Stopping the unfair and unconstitutional trials there
#3 Directing federal agencies to err on the side of transparency and not the Bush delay/secrecy over public records.
#4 tough new limitations on power of lobbyists
#5 Countered Bush’s order that allows past Presidents and VP to keep potentially embarrassing order from the public.
#6 Barred anyone in his administration from leaving and becoming a lobbyists while he is in office
#7 No one can serve in Obama administration who was a lobbyist over past two years.
#8 Both Obama and his future AG declared waterboarding "torture" and prohibited.
#9 Appointed competent top level envoys to Mideast and Afghanistan/Pakistan (Mitchell and Holbrooke) as negotiators.
#10 Spoke to all Mideast leaders (minus terrorist group Hamas)

George Washington and company when confronted with a massive foreign army not only won the day but came up with the Declaration of Independence, the Constitution and Freedom. George Bush when confronted with a small band of religious terrorist – declared war on secular Iraq, denied some basic freedoms that Washington had won and created far more adversarial and confrontational world – "You’re either with us or against us."(I know you could add to this list)

Certainly Obama is going to make mistakes, but its heartening to see America move back in the direction of our founding fathers.

Stocks.

AS ALWAYS DO YOUR OWN RESEARCH BEFORE INVESTING

Headline – Major Support Level Cracking

Index % Change Volume

Dow -1.28% up
NASDQ -2.76% ?
S&P500 -1.52% ?
Russell2000 -3.05% –

Brown = same comments as yesterday.

US Market & Foreign Markets

Technicals – Sorry could not accurately read volume figures on charts. Looks like volume was above average and flat. Because there was no significant increase volume, the #1 confirmation factor behind a price move, tells us little. Stocks were much lower but recovered some losses by the end of the day.

XLF is the financial sector ETF Chart here. As the chart shows financials after two huge swings (down then up) lost -6.35%. While this is a substantial amount it is not close to the 15% swings of the previous two days.

The financial sector is currently leading the US and world markets. Overall even though we had a massive gain yesterday the XLF has a multiyear series of lower lows and lower highs (change setting on chart to weekly to see this) – Technically this chart is about as bearish as you can get. In the shorter term a major move like yesterday’s in big volume indicates at least a short term low.

The area around DOW 7950 to 8000 is turning into a strong support level. The more times its tested and holds the stronger it becomes. Of course, this also means if it breaks down we should have a major fall.

For those of you who like to invest in individual stocks internet advertising and education stocks are doing well.

Chart of the benchmark S&P 500

Chart of the Russell 2000

Chart of the NASDQ

Chart of the Dow

Fundamentals -

MSFT fell over -11% yesterday (poor earnings report). When you consider this and the bad unemployment/housing figures and slowing +6.8% China GDP growth, the markets did a bit better than expected.

The emperor of internet advertising Google beat earnings expectations last night and was up 4+% in after hours trading. Now up +1.3% 9:22 EST

Another giant GE earnings met expectations (a loss of 44%) Analysis of their troubled financial unit. So much of GE’s business comes from financial part of business and it is way over leveraged. GE is down this AM.

Forecasting Future Trends

LIBOR – LIBOR is the rate banks charge each other . It price has fallen from 3.4% three months ago to about 1.16% Its held steady in this area for about a week. (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 T bill fell to 0.07% and the longer term rates rose a bit. The ten year rose 2.58% (low yields show fearful investors flooding to Treasuries instead of stocks)

Treasury Bonds chart

Baltic Dry Index – Measures flow of goods between countries. Yesterday ir rose again 5+% . Almost 85% drop since June. (We’ve had a solid gain since the early December lows of around 660 to 945, but we fell from pre recession figures of around 12,000 – That’s along way to go)

BDI chart

Short Term Outlook/Strategy

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

All three forecasting indexes are beginning to indicate a positive move for stocks.

LIBOR has fallen significantly and even mortgage rates have fallen. Treasuries while low are starting to rally and we have seen a significant move higher in worldwide trade (the BDI) Looks like a stock rally is possible. Overall PANIC does still rule the credit markets, but it is easing.

Financials are the problem and will be until the toxic debt question is resolved. Could take years for this to happen. But now with a new administration there is hope. Hope of future transparency, accountability and rules in this area are vital for the economic health of the US and the world.

The other major negative is the employment numbers.

The Dow is hanging in at 8123. Still above its major support level. Even though there are some positives out there, Financial Companies and Employment numbers are overwhelming investors. Bad earnings reports like MSFT led to an 11% decline. This means that bad news is NOT built into market prices. The strong 7936 to 8000 Dow support level is in danger of collapsing today. You can feel a major downside move building.

Financials/Banks are in a lot of trouble with no resolution of their toxic assets in sight. Dow 7449 is last year’s low and the next major support level.

Long Term Investors who can handle risk and are less than 10% invested in stocks – Nibble a little on any major dip. Shorter term investors keep protection (short ETF’s) for now. You may want to drop some as we get closer to 7449.

AS ALWAYS DO YOUR RESEARCH BEFORE INVESTING

Long Term Outlook – BEARS RULE

Changes to Bottom Line Section Bolded and in Plum or crossed out

Technicals – Series of Lower Lows and Lower Highs = Bears Rule.. Technical Range for 2009 – 7449 (low) and 9654.- This is a wild guess. Any sustained move above Dow 9650 is bullish.

Fundamentals – Financial transparency/accountability 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 Cleaning up this mess is going to take years and growth will suffer.

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 8000 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.

SDS – ultra short S&P 500
DXD – ultra short Dow – (Both small caps and tech stocks are outperforming the DOW and S&P)
SKF – ultra short Financials (this is the sector that’s most broken)

As Always Do Your Own Research Before Investing

The overwhelming crowd in Washington was certainly uplifting. However, at our hotel far more Jamaican’s than white American’s on holiday joined together to watch Obama take the oath of office. Tears flowed freely in the room. Obama’s inauguration has had a major impact on Jamaican’s and others throughout the world. At least now there is hope, but hope alone in not enough.

Another interesting point is that the resorts and plane flights were packed with people = what recession.

Banks

Updates has warned over the impending meltdown in financial/bank stocks. (see below) Bank prices collapsed yesterday and the FLX (see below) reached new lows. Now Bank of America and Citi group, two huge financials loaded with credit default swaps, are again melting down. Will the Obama administration, like the Bush administration just throw money at these and other institutions without any accountability or transparency?

One major concern – It was Obama’s new chief economist Larry Summers (as Clinton’s Tres. Sec. Clinton) who enthusiastically supported the deregulation that opened the door for most of the problems are swamping financial companies.

Few banks made any loans with the cash they were given in part 1 of the TARP. England and other countries have nationalized trouble banks that were "too big to fail" and are forcing these institutions to make loans instead of buying other banks, paying dividends, & handing out bonuses. Obama’s administration this AM halted the regulatory process pending review.

Bottom Line – Over the last few decades we have cut government so that it became too weak to regulate big business. Mega companies from CitiGroup to General to GM proved that left to themselves they were incapable of self regulation.

The absolutism of "free trade" and "free markets" have let greed run wild. Combine this with no real central planing and an eviscerated government. The result is a stock market, country and world facing the largest economic crisis since the Great Depression.

Remember – You should be very critical of TARP part 1, but it did prevent a worldwide run on the banks. While major banks are in trouble there is currently no run on the banks.

Stocks.

AS ALWAYS DO YOUR OWN RESEARCH BEFORE INVESTING

Headline – Financial Meltdown

Index % Change Volume

Dow -4.01% down
NASDQ -5.78% down
S&P500 -5.28% down
Russell2000 -7.03% –

Brown = same comments as yesterday.

US Market & Foreign Markets

Technicals – Major meltdown led by financials. The Dow broke through its major support at 8,000 and ended the day at 7949.

XLF is the financial sector ETF Chart here. As the chart shows financials fell another -16.53% yesterday to new lows. 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. Other banking indexes are approaching or have broken through November lows. Mega banks Bank of America and Citigroup are leading this deterioration. The problem is all their over leveraged debt. (credit default swaps)

Bank Sector is collapsing. Volume did NOT increase (probably because of the inauguration). However this sector could easily drag the rest of the American and foreign markets with it.

Chart of the benchmark S&P 500

Chart of the Russell 2000

Chart of the NASDQ

Chart of the Dow

Fundamentals – All the talk of passing the second 1/2 of the TARP ($350 billion) is focusing investor attention on the problems of the markets.

IBM – Had a very positive earnings report.

Both Citi and BAC are leading financials and the rest of stocks DOWN. State Street Bank and others are also getting clocked.

Forecasting Future Trends

LIBOR – LIBOR is the rate banks charge each other . It price has fallen from 3.4% three months ago to about 1.12% (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 T bill was falt at 0.07% and longer term treasuries were basically fell 10 year rose to to 2.38% (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 remailed flat . Almost 85% drop since June. (short term good news are the gains over the last two weeks)

BDI chart

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.

Support levels have broken for all major indexes. Dow at 8200 and has a minor support level at 8148 (see chart) and the psychological 8000 number. Both these levels have broken and the Dow is at 7949. The 8000 level is the line in the sand. If the Dow can regain 8000 today there is a chance we could rally.

The short term Obama inauguration rally has been OVERWHELMED by the financial meltdown.
We could stabilize today, but confidence in banks seem shattered. Economist Nourille Roubini yesterday announced that banks are basically insolvent. Any extended rally is impossible without a solvent banking sector.

AS ALWAYS DO YOUR RESEARCH BEFORE INVESTING

Long Term Outlook – BEARS RULE

Changes to Bottom Line Section Bolded and in Plum or crossed out

Technicals – Series of Lower Lows and Lower Highs = Bears Rule.. 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

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 8000 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

Just a quick note before leaving. Ironically flying US Airlines to Charlotte, then Jamaica.

Stocks.

AS ALWAYS DO YOUR OWN RESEARCH BEFORE INVESTING

Headline – Obama Rally(part 3)

Index % Change Volume

Dow +0.15% up
NASDQ +1.49% up
S&P500 +0.13% up
Russell2000 +2.09% –

US Indexes fell to the Dow 8000 support level (@-200 pts) and then rallied in big time volume. The Obama inauguration, passage or TARP part 2, an oversold market condition, and probable passage of stimulus plan should rally stocks today and Tuesday.

Congratulations to those long term investors (as suggested at end of last Updates) who bought the dip yesterday. At least right now it looks like the right move.

Back Wednesday

Barr