Is it time for Investors to put on their helmets and head to the bunkers?

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!

Technicals, Fundamentals & Analysis

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

Mantra for the month - The Black Box/High Frequency Traders BB/HFT control the majority of trades. Paul R in the comments section has found a great source describing the BB/HFT traders and consequences of what they do.

Another increased above average sell off that has been typical of the BB/HFT controlled US indexes for many many moons.

Perhaps its time to bring  out the old  Lost in Space Robot with all its bells and whistles and scream DANGER WILL ROBINSON DANGER DANGER. This was the third big volume significant downside day in the last two months and that almost always means the worst is yet to come (The Hindenberg Omen?) But BB/HFT’s have made a mokery of this kind of technical analysis. So caution is in order but the Robot is peaking out of the closet.

Here’s what’s holding up US stocks (Clearly NOT the US economy which is deteriorating) – Emerging Markets

EEM the ETF for emerging markets was down about 1/2 of US indexes (-0.77%) How long can emerging markets can things to hold together in the USA (see Reading Tea Leaves)

Significant Indexes

• The Dollar (USD)  [Anything price move over +/- 0.50 is significant. Doll moves inversely to stocks] The dollar rose +0.27% yesterday.  Almost two week trend = Neutral
• The Baltic Dry Index (BDI) [measures cost of world trade. Also proxy for China & emerging markets] Rally +3.66% yesterday. 5 week trend = Bullish
• McClellan Index – (MO) [The rough guideline is over +60 = overbought market = sell positions or short stocks, & -60 = oversold market = buy stocks.] MO fell to -27.32 = Neutral

Reading Tea Leaves

The good – The 5 week rally in the BDI is a clear sign that emerging market growth is continuing. China’s ( the #1 emerging market) stimulus worked, but almost overheated their growth. They have come down into a more normal range and are becoming more self sufficient every day.

The Bad – Back in 2008 Investors411 stated – the economic mess was far, far far, far, far bigger than expected (best example financial sector & this statement is still posted in POSITIONS section of blog) Economic mega trends (see OVERVIEW section of blog) have started to fracture both the USA & Europe economically. Neither has an abundance of cheap oil (peak oil mega trend)

The Ugly – Obama’s stimulus plan & tax cuts have halted the fall, but the jobs are still going overseas because of globalization mega trend. More jobs will be lost as the will for more stimulus fades. It’s election time and even a $60 billion (may have figure wrong) aimed directly at small business (“the engine of jobs growth”) and formerly supported by many Republicans was filibustered by those same Republicans. Nothing will get done in the next two months.

Longer term - 10s of millions of new jobs are being created each year in emerging markets. Millions more are graduating from universities in these emerging markets. When a computer tech will work 12 hour shift in China for $0.75 an hour and the same tech in the USA costs $18.75  for an 8 hour shift, who is Apple going to hire? (I made up the figures)

Just finished writting this and I’ve talked myself into and even more bearish position.  So lets go with the kitty in a helmet

Positions

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

Current positions - EWZ & EWS sold 1/2 of EWS for 0.5% gain

Because of yesterday’s meltdown  held off on buying USO & will start with a smaller 2% stake in a dip today.

Long Term Outlook – NEUTRAL

AS ALWAYS, DO YOUR OWN RESEARCH BEFORE INVESTING!

The Problem is Suburbia

Geography 101

Throughout the last 100 years geography has worked for and against the USA. Today mega trends dominate the flow of what happens. Investors411 has focused on 3 megatrends for years. There are, of course more. Lets look at an overly simplistic view of US history as a geography lesson to understand the pickle where in today.

• We ended the Great Depression with the massive spending of FDR’s New Deal and World War 2
• The end result was a debt that was 30% of GDP (relativity — today its @10%)

How did we fix this huge debt problem? We relocated people into suburbia  - built massive highways, factories, shopping malls and developed greater tolerance. Yes, we had much higher taxes then. The middle class and suburbia flourished and perhaps reached its zenith in the late 70’s (see comments section of blog for amount of wealth in top 1%) The Geography here is we sprspeadead out in & built a vast suburban sprawl , worked hard, eliminated a massive deficit. This achieved a lot for many Americans.

Along comes mega trends of  globalization (jobs move abroad) and peak oil (end of cheap energy sources). Geographically, the suburban sprawl depended on cheap energy and the building of more suburbia to thrive. We did hold ourselves together for a while with innovation (computers/internet) but soon because of “scaling” these too are being developed faster and cheaper overseas.

Now. Unlike almost every other country we’re stuck in a geographical nightmare that is dependent on cheap energy and its own further suburban growth to survive.

If you’d like to see a more radical apocalyptic presentation of this kind of scenario read Minnesota economist Jim Kunstler for a while. (Thanks to AG who first showed me this site)

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!

Technicals, Fundamentals & Analysis

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

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

Many thanks to Paul R for providing stock information in the comments section over the last 5 days. We are both working together on YOUR on a stock list. Many of you have sent in stocks to be considered and a few more will be added. Hopefully, we’ll be able to get this together by mid week before we both leave.

Significant Indexes-

• McClellan Oscillator (MO) fell  to +40.41 over the last few days [+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. MO is back from overbought to = Neutral
• 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  is in a two month long fall and is approaching a major support level. The fall = 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 two week rally and is up +16% rally and is at 1942 = Bullish

Reading Tea Leaves-

We’ve had what looks like a four day breather in a month long rally. The MO is back in the upper end of neutral territory. It did establish a higher high above 90 (see chart) This gives the bulls over 50 points (90-40=50) of wiggle  room to move higher. The benchmark S&P is at 1101 and major resistance is at 1131 (see chart) The dollar and the BDI have turned bullish for stocks. So another charge higher is likely.

While the possibility of a good week for stocks exists, not only will we impact resistance levels on the S&P 500, but we will also confront support levels for the dollar. The BB/HFT traders that dominate stocks pay very close attention to the larger currency markets.

Simply put and longer term - GLOBALIZATION is a reality. Jobs and GDP growth are in emerging markets. The US can remain stagnant economically and US stocks can/will move higher along with China, India, Indonesia, Viet Nam etc. There is long term danger here, but for now globalization, peak oil mega trends are back dominating and the financial meltdown (the problem has NOT been fixed)  is not taking its toll on these markets.

Positions

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

The remaining 1/2 of SDS (ETF that double shorts the S&P 500) was sold at 33.17 on Friday for a +2% gain. Total gain a measly +1% on this position. Again will enter buy short ETF’s when MO gets overbought. This week will wait till/if we reach at least +80.

EWZ (Brazil ETF) - Bought 10% of portfolio position at 69.80 on Friday.

FXI – Under consideration if market does not make huge move higher today.

Any US or foreign stocks that benefits from emerging markets is back on the table.

Long Term Outlook - NEUTRAL

AS ALWAYS, DO YOUR OWN RESEARCH BEFORE INVESTING!

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National Georaphic – Great Wall of China (Emerging Markets)

Trends, Wars, & YOUR Money

Investors411 has followed 3 or 4 major investment trends over the last decade - Globalization, Peak Oil, Spread the Wealth & The Great Recession (the later needs some revision).  Global politics and events have impacted these trends and therefore investment choices.

• Fall 2008s financial meltdown proved again Free markets need regulations or they form boom and bust cycles . Even, arguably, the #1 proponent of self regulating free markets Alan Greenspan admitted he was wrong
• Working middle class taxpayers in the USA and around the world bailed unregulated markets with stimulus, packages, printing money, TARP programs, taxes , etc. This was socialism for the rich . It further expanded the gulf between the rich and poor in many countries.
• Emerging markets have kicked our asses as far as growth is concerned for almost a decade. Globalization and Spreading the Wealth to a growing, not shrinking, working class were the primary causes behind this.
• Most emerging markets have a managed or planned economy vs. our more unregulated economy. Few emerging markets were involved in highly speculative trading vehicles (example – Credit Default Swaps)

More recent events impacting trends.

• Wars - The US weapons budget has exploded over the last decade to the #1 budget sector and to @ 50% of the world spends on weapons. Obama has increased the weapons budget and the secret war in Pakistan is no longer a secret.
• Trade war brewing – Relationship between the world’s #1 economy and the world’s fastest growing economy is souring. Check out NYT’s stories on China over last few months
• China – has moved to defuse a growing housing (people moving to cities for better jobs) and a possible  inflation bubble before it pops. Decent month old editorial on this. Remember Chinese banks did NOT sell credit default swaps on housing, so this housing bubble is not as sever as USA’s. But, this is still a serious problem.
• JOBS – While the job losses have declined in the USA from -700,000 to @ -50,000 a month, we increased last month. Obviously US jobs over the last decade have been lost to globalization and consumers in the USA are now saving more. Considering the above 3 bullet points its hard to see stimulus plan alone keep this figure from flattening or falling. (more later)

Bottom Line – Let’s try to be as objective as possible and look at the technicals. In this case, the chart of either the FXI (China) or EEM (Emerging Markets)

Both charts are similar, but China (FXI ) is a little more sever. Notice how fast they exploded in the first 1/2 of 2009 and that growth slowing in the last 1/2. Now for the first time the 50 day moving averages are heading down . In fact China is trading below its 200 day moving average. The countries led us out of recession (Indonesia, Brazil, India, & China never even entered a recession)

It certainly looks like growth has peaked and emerging markets are now in a correction phase.

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!

Investors411 record – 5 years of beating benchmark S&P 500 and almost all major US indexes

Technicals, Fundamentals & Analysis

See Positions , Strategy , and Overview for changes made over weekend.

US Markets basically held onto the significant gains of the last two days – an oversold bounce. Holding onto gains = short term Bullish

CSCO – again had a great earning report and is putting 2000 to 3000 new people to work.

Hard to see a major  move in stocks in front of – The Monthly jobs report t on Friday Each of these reports becomes more and more important.  In November we reached positive job growth (+6,000 ). But this is looking like retailers hiring folks for Christmas buying season.

Best Read of Tea Leaves – You’re NOT going to be happy with the jobs numbers.

Significant indexes

• McClellan Index at -32,18 = We’ve pulled way back from -90 or oversold levels two days ago. Over -60 + Oversold
• BDI – This chart shows the Baltic Dry Index (scroll down) , a measure of shipping costs, Has broken through a major month long  support level at @ 3000 and is keeps falling. Yesterday the BDI closed at  2673.= Bearish However the rate of decline is SLOWING and this almost always indicates at least a short term reversal.
  

Positions

The  Positions Section (also at top of blog) has the latest buys and sells (Usually updated over weekends – will try to update last few weeks today) – These are positions I actually own

SELLING & BUYING

Thanks to 5 of you who sent in suggestions fo r Stock Watch Lis t!

ETF’s – were still 6% FXI (China), 10% EWZ (Brazil), & 10% MOO (Agriculture) – Since we have rallied would consider selling  another 5% (hopefully in a rally – which seems unlikely today)

Long Term Outlook = NEUTRAL

AS ALWAYS DO YOUR OWN RESEARCH BEFORE INVESTING

A Frog in Hot Water

The old adage goes – Throw a frog in hot water and he’ll jump right out, but you can slowly bring the water to a boil and that frog will stay put.

A little known Republican State Senator, Scott Brown , won a stunning upset victory in the MA Senate race last night. Like Mitt Romney in 2002, he beat  Dem. Shannon O’Brien, Brown toasted another woman who ran a weak campaign – Martha Coakly.  For perhaps the best analysis of what this means see Nate Silver’s – Let’s Play The Blame Game

Health Care – Obviously in deep trouble. The only way Health Care would pass is if the House passes the Senate Bill. Since Democrats in the House have already voted for a far more progressive health care plan and will get hit for that in the next election Obama is going to argue why not vote for the Senate version.

Bottom Line – Health care. – You blew it – RIP

That Frog in this case is the typical American worker who is in the pot of ever increasing temperature .

• Globalization is slowly eliminating working class jobs across America
• Weapons budgets are growing at the rate of 10 to 20% each year
• For the first time in our history we cut taxes and went to war.
• Our federal and trade deficit exploded from 2000 to 2008.
• The era of cheap oil is OVER. The supply has peaked and the demand from billions of people in emerging markets is growing.
• Because of our suburban sprawl and relative lack of public transportation we are far more vulnerable to high oil prices.
• Time tested solutions like stimulating the economy to fix it will not work as well because of our already huge deficit.
• There fewer and fewer laws to govern excess GREED on Wall St. Main Street has socialized the risk for Wall Street
• The rich in the USA are getting richer and what’s left of the American working class (those not newly unemployed) are paying the bill
• As the situation worsens, self preservation kicks in, and Americans care less and less about others.

The American frog is in a pot that’s getting hotter and hotter.

There is an upside to all of this outside the USA. Hundreds of millions (perhaps billions) in emerging markets are increasing their standard of living. They have or are learning to Manage their capitalism and hopefully not repeat mistakes that were made here.  Greed is a powerful factor and one hopes eventually more democracy will grow abroad.  If Time magazine called the last decade The Decade from Hell for the USA – it could get a whole lot worse for the American frog in this decade.

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!

Investors411 record – 5 years of beating benchmark S&P 500 and almost all major US indexes

Technicals, Fundamentals & Analysis

See Positions , Strategy , and Overview for changes made over weekend.

Stocks staged a major rally (above 1%) in decreased, average volume. Volume, our #1 confirmation factor did NOT confirm the move higher. Even though we achieved some new highs (for a calander year) on 3 of the major indexes we are doing it in reduced volume.

• McClellan Index at +i3.14 = A little bit overbought.  There’s a long way to go till we reach @-60 or oversold or @ +60 or overbought

IBM reported after the bell and beat top and bottom line expectations. This was not a grand slam, but IBM did solidly better, but lost money in after hours trading.   The important news from IBM which does 60% of its business abroad was that their areas of growth were "Brazil, China, & India."

Even though stocks rallied yesterday still believe in down week.

Positions

The  Positions Section (also at top of blog) has the latest buys and sells (Usually updated over weekends)

These are positions I actually own

SELLING & BUYING

YOUR Watch List of Stocks . Unfortunately, I’m not daily checking these stocks out. Ideally, you’d like to McClellan index below zero (the further the better) and these all would be better buys. We developed most of these potential stocks about two weeks ago. Check old Investors411 for more.

Again the problem with buying now is that markets are slightly overbought and you would like stocks oversold position. Click on ticker symbol for chart. Going to limit Watch List to @ 10 stocks.  80% of investments wil be ETF’s 20% stocks.

NB – I feel much more confident with ETF’s because they reflect global trends than individual stock. Too many things can go wrong with individual stocks.

• SEED – In a buy the dip position.
  
• AAPL – big +4.42% rally yesterday. Sitting on breakout point. AAPL moves markets – if this goes higher so does the market.
  
• AMZN – We sold at highs and AMZN has formed lower highs and lows. In bearish mid term pattern. Will drop from list soon
• HMIN - Failed breakout, back at lower end of trading pattern. Will drop from list soon
  
• CAAS – Buy the dip opportunity as CAAS falls to just above 50 day moving average.
  
• PCLN – Buy the dip opportunity
  
• F – Still too over extended to buy
• DRWI – New – Big exporter to China -  Looks great but still too overextended to buy
  
• ENOC – New – Reduces costs for utilities – Great long term chart. formed base for last 5 months moving higher – A buy
• ATHN – New - Software reduces costs for health care - Clear trend higher since June – Buy the dip opportunity
  
• IMAX – Great long term chart – falling back to its 50 day moving average. A buy the dip opportunity

Mistake – I let my emotions over rule logic on IMAX It was too overextended from 50 day moving average to buy at 13.9. So I’ve sold the small position (1% of portfolio I bought at 13.9 for 10% loss) Keeping 1% bought at 12.9 and will add more at lower price.  Perhaps the most important rule of investing learn from mistakes and do not repeat them.

If markets were overbought I’d strongly consider ENOC, CAAS, ATHN, SEED, & PCLN.

See POSITIONS (scroll down) for details on this and what’s under consideration for 2010.

Long Term Outlook = CAUTIOUSLY BULLISH