No Repeat Depression

Two highly respected Economist have completed  a major study saying, “A Second Great Depression was averted” for the following reasons. Quote -

• the Wall Street bailout,
• the bank stress tests,
• the emergency lending and asset purchases by the Federal Reserve
• the Obama administration’s fiscal stimulus program

Without this GDP would be 6.5% lower this year and there would be 8,500,00o fewer jobs.

Most economists usual use cautious approaches in quantitative models. They forget – the panic of  banks collapsing, fed by an over hyping media would have cause a far more serious problem.

Investors411 and many of you have been beating the drums on this for 2 years, and its good finally to see a major study come out. Especially one that supports our thesis. Now besides Greenspan, Paulson, Bernanke, Geithner , etc., telling us we would have gone over the cliff, we have some academic support.

Alan Binder Princeton Prof. & former Vice Chair of Fed

Mark Zandi – Chief economist Moody’s Analytic

Smoking Hot Debate

If you’ve missed the comments section of Investors411 you’ve missed the some of the best thing this blog offers – Information and debate on stocks & politics. Right now Jsovjani & Popeye are going toe to toe. Hard to tell if they agree or agree to disagree.

Jsovjani has produced a set of statistics that show the concentration of wealth before Ronald Reagan took office of the richest 1% of Americans was @ 20% and when he left office it was @ 36%. Popeye believes that he has finally found some common ground with Jsovjani our resident “deficit hawk.” The rich getting richer coupled with the fact that President Reagan raised the deficit by over 400% makes “Ronald Reagan, economically one of the worst presidents we ever had.”

What will Jsovjani reply?

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!

Index	Percentage	Volume
Dow	+0.12%	up
NASDQ	-0.36%	down
S&P 500	-0.10%	up
Russell 2000	-0.46%	-

Technicals, Fundamentals & Analysis

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

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

Another typical light volume day which saw rotation (a bullish thing) out of high beta stocks into more mundane stocks. Overall things were flat.

There was one big bearish sign out there - crude oil – took a big hit right at its resistance level.

Earning continue.

Significant Indexes-

• McClellan Oscillator (MO) fell  to +75.69 [+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. Yesterday’s close = 75.69 = BEARISH But, the MO fell 21+ points and major indexes were flat. Plus its 50 DMA is crossing its 200DMA, and the chart shows a series of higher lows and higher highs. Best read of tea leaves is we are now looking like the MO will drop more on flat days and get us out of overbought territory. Then rally as stocks go higher.
• 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 just broke a major downside support level two days ago = 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 7 day+10% rally and is at 1869 = Bullish

Reading Tea Leaves-

The highly overbought position of US equities eased yesterday. We are just overbought now. See MO above. Another day/two of easing will give the bulls another chance to charge. There is so much bullish momentum behind the move higher, its hard to see it all stop now. At least retail investors should buy the dip. If we continue to fall out of overbought positions with stocks remaining flat – This would be a signal to go long.

However, Black Box/High Frequency Traders rule, and they may think its time to take profits from this rally. If you’re a trader what to look for (probably on the SPX daily chart) is that every time the SPX rises to a certain level it gets sold into by BB/HFT’s

Positions

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

Updated over weekends Investors411 holds ONE small position in SDS at this time

Sticking with overall strategy on short ETF’s. However, Probably selling 1/2 of SDS today. Reasons stated above under MO.

EWZ (Brazil – chart on side of blog)) an ETF Investors411 owned for years is again outperforming and is a buy the dip opportunity.

GLD – (Gold) has come down off its high. But a big dip in big/above average volume is a signal to wait.

Going to try to put together YOUR Stock List with Paul R (if he has the time) before I leave for trip.

S&P 500 at 1113. Breakout point to turn Long Term Outlook to CAUTIOUSLY BULLISH is 1131

Long Term Outlook – NEUTRAL

AS ALWAYS, DO YOUR OWN RESEARCH BEFORE INVESTING!

Shock & Awe for Bears

The unemployment report Friday both shocked and awed Wall Street Bears and almost all economists . Even more than the startled jumping Panda. (Thanks David Fry for photo)

The dramatic drop in job losses coupled with a positive +2.8% GDP growth for the last quarter is certainly good news for every bull on Wall Street and Main St. Economic momentum is flowing in a positive direction both in the USA & especially emerging markets.

Why?

There’s good, bad, and ugly behind the positive economic news . Since, Obama’s Afghanistan policy is such a disaster (at least to those of you who have commented and Investors411 – See additional Clinton, Gates LINK [we're nation building & there for as long as it takes] and Friedman [against surge LINK ] on Talk shows over weekend) lets start out today with the good and give Obama some credit.

There are 4 major reasons why we have seemingly turned a corner. - TARP, emerging markets, printing money, and stimulus.

TARP – Bailing out Shadow Banks was started by Paulson/ Bush and continued under Geithner /Obama.  TARP is working better than almost everyone expected. Last week Bank of America announce plans to pay back $45 billion (plus interest)and losses far less than expected. See NYT. See LINK

Emerging Markets – They kept emerging, especially China. (see past Investors411) They’re the locomotive and we are the caboose.

Printing Money – The Fed just kept printing trillions of dollars faster than a super market buys toilet paper. The unusual part is investors from around the world bought truck loads of that toilet paper in the form of US treasury bonds with insignificant interest rates. If/when rates go up, boy will those  investors have a huge supply of TP to whip their ____.

Stimulus - Around the world governments stimulated their economies with programs. You can make a case for Germany & China’s program being better than ours, but Obama’s stimulus (he was limited by Republican opposition) was relatively good.

Remember the old story of you can give a poor man a fish or you can teach him to fish. Well, economists have ways of measuring just how stimulative throwing money at a problem is. Does your dollar buy  even one fish or lots of fishes?

• The Republican mantra is always cut taxes – Mark Zandi , economist from Moody’s and a McCain’s economic adviser “making all the Bush tax cuts permanent and cutting the corporate tax rate–would raise GDP by at most 37 cents for each $1 of revenue loss. ”
  
• Obama’s stimulus – “By contrast, increased outlays for infrastructure, aid to state and local governments and extended unemployment benefits increase GDP by between $1.41 and $1.57 for every $1 spent.”

The bipartisan Congressional Budget Office measured the whole thing and you can find more on why/what stimulus worked at LINK

Common Sense – Yes there are time tax cuts work especially targeted and in a recession.

But, when you cut taxes to a company you never know where that money is going to go – Fat bonuses for executives, a new home in Dubai (the global sex slave capital of the world), buying financials WMD’s (Warren Buffett’s term for Credit Default Swaps) or sometimes even good stuff like into research & development.

What you want to have happen is DEMAND increase for your product. The more money flows, the more demand. The reason you see sources like CNBC, right wing polls and think tanks always call for tax cuts is they control the companies or the companies are their big advertisers/sponsors.  Greed is good for me is their mantra.

KISS & STOCKS

Keep It Simple Stupid

AS ALWAYS, DO YOUR OWN RESEARCH BEFORE INVESTING!

Index	Percentage percentage	Volume
Dow	+0.22%	up
NASDQ	+0.98%	up
S&P500	+0.55%	up
Russell2000-+2.38%		-

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

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

Technicals, Fundamentals & Analysis

Economic Bears were shocked and awed at the fall in unemployment. Great news for Main Street USA, but we have a deep deep hole to climb out of.  This is mixed news for US Stocks.

The news is mixed for Wall Street, because good economic news in employment means the government/Fed will probably stimulate less. Therefore,  financial companies will no longer be able to borrow for nothing,  and their interest rates will rise sooner rather than later.  The dollar also gets stronger and those companies making more because the cheaper goods sold faster overseas will cost more – looss demand & profits.

Technically we had HUGE volume accompany a price rise. Unfortunately, for most major indexes the rally was less than a significant 1%. Stocks first went way up, then down and settled for moderate gains.

Small cap stocks, are more dependent on a recovery on Main Street did gain a significant +2.38% Bigger companies have more contracts abroad.

Fearless Forecast – Last weeks unexpected positive jobs number helped create a positive week. Investors predicted a flat to down week. Oops. This week we should be all over the place, but some solid economic fundamentals are coming into the light. This should help stocks in the long run. Once the dollar calms down (expect it to rise and gold to fall) we should improve. Flat to up week .

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 a small rose +45 points yesterday and closed at 4107. Technically  the BDI broke out through its major resistance level 4291 (this year’s high) over a week ago.  The BDI has rallied about 1800 points since late September. After 16 up days in a row, 9 down days in a row & now up 3 days in a row. Multi day moves in one direction are common and the decline in rate of change usually signals a reversal.

What it means – Long term we created a higher high on the chart = Bullish. The BDI is far more useful as a long term indicator of not only world trade, but specifically China and growing emerging markets. After, what looks like a technical correction we are agin moving higher.

——-

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 an ENORMOUS +1.44% Friday . Anything close to or over +/- 0.50 is significant  The dollar closed at $75.59 .

The dollar’s rise did temper the rally, but the whole dynamic or fundamentals have changed. See Positions below.

——-

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

The index closed at +23,51 This is a Slightly Overbought Position . This chart is showing we seemed to have reached a plateau. It’s spilled over a little bit, but the McClellan index has moved between +25 & -25 .  There has been no clear buy or sell signal for over a month.  Oversold conditions (@ -60) = buy, Overbought positions (@+60) = sell

The closer we get to +/- 60 the better our chances of making money with a shorter term buy/sell signal

Positions

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

(again a little behind on latest moves)

We’ve had, and volume has confirmed, a quantum shift in markets. This may be temporary and it may be long term, but it necessitates major changes in positions.

Today is a confirmation day for Friday’s move.  More than anything else – looking for dollar to hold or add to gains.  Will buy some ETF’s and stocks until McClellan says we are overbought (@+60)

Recommended ETF’s and Trades

SELLING

GLD – Investors411 sold all of DGP several trading days ago and 1/2 of GLD on Friday. Last entry into this position was at $92.7 .  Traders should sell the rest and longer term investors could hold onto last 1/2 position (5% of portfolio).

Gold will rise again, but for now there is just too much downside momentum. Will be back into GLD & GDP late.

NVS -The flu scare is over. Thenumber of states that have serious flu has dropped from 43 to 25. Time to take profits on last 1/2 this position. Let’s take our profits 21+%

AMZN – Taking profits. Markets rallied yesterday and AMZN dropped 2.54%. Never a good sign to see NASQ rally 1% and your tech stock drop. Again, this in part, was a flu play. Why be greedy we have about a 16+% profit.

BUYING

FXI – Adding more to this positions. If Main Street is recovering faster than expected, so will China. Their currency & exports is tied to the dollar. So in one major sense, their recovery is tied, in part, to the USA. They have under performed major USA indexes recently.

IWM or UWM (an ultra fund that does basically 2x IWM) These ETF’s both track small cap stocks (Russell 2000) IF, Main Street is recovering faster than expected they should outperform the other indexes. They have under performed so far and should,like China, make up soe lost ground relative to other major US indexes.

BAC – Bank of America. They’re paying back TARP shows solid fundamental strength. (I know they are a shadow bank bad guys) Bought BAC Friday.

Start small & Build your position – Buy the dip.

Again any stock investment or ETF that doubles or triples what a normal ETF does is a short term play for traders and short term investors – NOT long term Investors .

Long Term Outlook = CAUTIOUSLY BULLISH

Note  - Last Update for the week.

Where are the New Jobs?

Dorothy Lange’s famous photo –  Migrant Mother from Wikipedia

Right now – job cuts are declining in the USA - down @700k in January to @200+k last month. Major reasons why -

• China India and other emerging markets keep growing and stimulus packages around the world stimulate their growth. Therefore US global companies  don’t need to lay off more workers.
• The US government stimulus package creates jobs and cuts taxes. In a year or two the Obama or US stimulus package will run it course.
• The Fed has injected massive amounts of capital into the system propping up the shadow financial system and keeping it from failing-thus saving jobs.
• The automotive sector has been bailed out preventing a total collapse of jobs in the sector.

What happens when the stimulus, and cash infusions run their course. Where will the new jobs come from?

Wall Street companies are playing cut throat with each other trying to get into Emerging Markets (China #1 on the list). Labor costs are cheaper there and they have growing GDP’s. (some of this is phony accounting, but overall they far outstrip the USA in growth) So Wall Street companies will as they have in the past hire lower cost and now better educated workers from abroad. Now there is even more incentive to hire abroad because of their growing markets. It’s even cheaper for US companies to hire European workers because they don’t have to worry about health care costs.

Bottom Line –  Jobs has historically been a lagging indicator after a recession because of globalization. It sure looks like job creation is going to be worse this time than after other recessions. What’s going to happen in the long term after all the stimulus, tax cuts, money printing etc. becomes no longer sustainable?

One major  Obama/Tom Friedman’s solution is to turn alternative energy into the next tech explosion (like the internet). But, the investment, so far is way too limited and others from Germany to China are already leading the charge in this area.

Your Comments

Check out “Doggies Mom” who has a LINK to an editorial on health care by Rose Ann DeMoro and Michael Moore .

STOCKS

AS ALWAYS, DO YOUR OWN RESEARCH BEFORE INVESTING!

Index	Percentage %	Volume
Dow	-0.48%	up
NASDQ	-0.31%	up
S&P500	-0.22%	up
Russell2000	-0.45%	-

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 and Fundamentals

Volume rose a bit as stocks retreated. Volume was below average. No real confirmation or follow through of Monday’s rally.  Probably means all eyes are on the Jobless claims at the end of the week.

There is some clear change in overall feeling. The BDI has fallen for 4 months – although the rate of decline has slowed. This indicates China, who was buying all kinds of raw materials because they were cheap has stopped.  China was a major growth factor in leading us out of the recession. This also indicates that the US did not buy as many holiday items from abroad. Potential for a slow holiday season.

The up side fundamental is the stock market. Because it has had a phenomenal run from the lows investors may feel like spending some of those gains.

Bottom Line – Although we could move higher and Dow 10,000 is drawing investors like a magnet, there is reason for CAUTION. If we get a reasonable jobs number – under 200,000 lost jobs in September you may see a short rally.  Its starting to feel like traders will sell the rally.  Still holding on to the Long term CAUTIOUSLY BULLISH outlook

Big news for week is the jobs number for the month of Sept. coming out Friday.

——–

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) .

2388 is support now resistance level/number to watch – After a short two day rally of +29 points the BDI fell yesterday -7 and closed at 2185. These are very small moves, but in the right direction.

The BDI is almost 50% off its high (early June) Before that it gained almost over 630% from its all time low of 663 in Dec. of 2008 (April 2009 high of 4291 ) A 50% retracement from highs is a major support level. Therefore some stabilization is understandable.

What this means – World trade is in trouble – lots of ships are sitting in ports empty.  To some degree, China has stopped buying raw materials and/or the US consumer is not buying as rapidly as earlier in the year. Braking a support level is significant, but 2192 (current level) is still a long way from the Dec. 2008 663 low. = Storm clouds gathering

——-

$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

The dollar rose +0.17% yesterday to $77.12 . Its chart shows it has clearly formed a short term higher high over the last two weeks. Higher dollar usually leads to lower stock prices.

Last year’s low was around $71, so there is a long way to go before the next major support level.

Positions

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

revised to reflect recent trades last weekend

AS ALWAYS DO YOUR OWN RESEARCH BEFORE INVESTING!

Cautious Optimism on Stimulus

Christina Romer

We’ve come back from the edge of the financial cliff, Stocks have rallied significantly, & Job loss has decreased from @700,00 a month to 216,000 last month.

“We have absolutely seen a change in trajectory,” said Christina Romer, top White House economic adviser. White House said that translated to about “one million jobs that would have been lost without government efforts “

There have certainly been many different government programs along with the Fed that have change the financial picture – In its first report to Congress on the stimulus, the White House Council on Economic Advisers said the economy was improving and would have been far worse without the stimulus . LINK

Also Treasury Secretary Tim Geithner both in front of congress and on the CNBC echoed some of those achievements and future problems – LINK

One interesting point is besides these economic gains $80 billion have come back in from the loans.

Making $ off the Stimulus

Instead of editorializing on the stimulus, let’s take a look at how to trade/invest on this huge amount of cash stimulating the US and the world’s economy and make your portfolio grow. Some significant points.

• The Chinese stimulus is over twice as large as the US relative to the GDP of each country. Their stimulus is more focused (one political party) and faster acting. We’ve already seen a far bigger move in their market than ours. This should continue. Invest in China
• US has guaranteed the solvency of the giant “too big to fail” shadow financials. Smaller banks are not covered and getting toasted. From the best Goldman Sachs t o the worst AIG & Citi , if the government is going to guarantee your survival you have a huge advantage. Invest in too big to fail shadow financials
  
• All the printing of money,taxpayer stimulus, & government loans is forcing the dollar lower. The US is a deficit nation. This forces commodities (traded in dollars) higher. Invest in commodities – Copper, Gold, energy & and energy rich countries – Brazil

Health Care

One of you sent in the a link to different views on health care from the NYT. Will post this on the comments section of the blog. This echoes a comment made by Doggie’s Mom.

STOCKS

AS ALWAYS, DO YOUR OWN RESEARCH BEFORE INVESTING!

Index	Percentage %	Volume
Dow	+0.84%	up
NASDQ	+1.15%	down
S&P500	+1.04%	up
Russell2000	+1.45%	-

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 and Fundamentals

NASDQ continued its breakout move. Both the Dow & the S&P, joined the NASDQ  broke out to new yearly price highs yesterday. Small cap stocks (Russell 2000) broke out two days ago. – Bullish sign

Up five trading days in a row for major indexes – we’re getting a bit oversold.

This rally is very much related to the dollar dropping. According the talking heads over 1/2 of the profits of the S&P 500 come from foreign countries – so when the dollar drops their profits grow.

——–

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) It looks like we could be forming another lower high and that would reinforce the mid term bearish pattern . The BDI has leveled off and started to rise over the last two weeks. Flat yesterday +01 yesterday.

Each day this looks more like a base has been formed above a key support level Longer flat bottoms and slowly moving higher is usually indication of, at least, a short term bottom-Bullish short term outlook for BDI and we have certainly recovered from the devastating lows of Dec./Jan.

The BDI is 41% off its high (early June) Before that it gained almost +170% from early April to Jun e

——-

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

The dollar dropped of the table and through its major support level three days ago and has continued to fall.  It fell -0,30% yesterday. This added drop is confirmation of the technical breakdown the day before. Dollar closed at $76.81. Its  major support level is @$77.5 . After 11 days of consecutively being up one day and down the next, the dollar has fallen 4 days in a row. Short term Bullish for most stocks

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

Bottom Line – Both the BDI & the Dollar are forecasting at least a short term rally.

Last year’s low was around $71, so there is a long way to go before the next major support level.

Positions

The whole Positions Section has been revised (Click on “Positions” at top of blog). Check it out

Instead of waiting for that illusive 5 to 10% dip to invest nibble a little bit now. This is a dollar dropping rally. Don’t get a sugar high from it.

AS ALWAYS DO YOUR OWN RESEARCH BEFORE INVESTING!

Wall Street Journal and Stimulus

The weekend WSJ had a lead editorial (you have to subscribe to get the editorial) that suggested the remainder ($400 billion) of the stimulus should be given to American business in the form of a tax cut .  The WSJ does, of course, have a "supply side/free market" economic bias that is to enrich the companies they write about. What is good for Wall Street in the short term is often quite the opposite for the long term well being of the country and even stocks. Best example is the WSJ support for "free markets" to regulate themselves greatly intensified the worldwide recession. (see past Investors411)

If you cut taxes for business here’s what happens-

• The money could go into a stock buyback
• The money could go into dividends
• The money could go into bonuses for top executives
• The money could go into research
• The money could go into hiring new workers  – First choice to hire is, of course, cheaper labor outside the US that does not have  heath care or has fully paid health insurance by the country.

Stimulus value for the American economy is minimal, but for the individual company its great. The stock market is recovering quite well on its own, why do we need to cut its taxes more?

If you offer a stimulus plan that gets money flowing and more people buying products – business also grows, but so does the economy because more money flows. I’ve given two examples, but there are others in the stimulus program

• The $8000 first time home buyer stimulus . This works in a myriad of ways Some – Stimulates a much larger purchase ($100,000+ homes), new homes need new appliances, increases property values of surrounding homes, helps fix the declining foreclosure crisis, could result in more construction jobs etc. In short much more money flows and demand grows.
• The Cash for Clunkers progra m – Even if you factor in only the cars built in America (60% – see your emails) This encouraged the purchase of the remaining 2009 inventory, put more efficient cars on the highway, gets more money flowing (purchase of a $20,000 car).

In short DEMAND increasing and MONEY FLOWING among more people makes an  economy grow far faster than simply cutting taxes on business which has almost no impact on demand and gross money flows.

STOCKS

AS ALWAYS, DO YOUR OWN RESEARCH BEFORE INVESTING!

Index	Percentage %	Volume
Dow	+1.03%	down
NASDQ	+1.79%	down
S&P500	+1.31%	down
Russell2000	+1.42%	-

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 and Fundamentals

Major US indexes rose in light decreased volume on Friday.  The decreased volume show indecision of investors and traders over the jobs data.  The jobs rate fore from 9.4 to 9.7% but the job loss fell from 247,000 to 216,000 jobs. Over 1/2 the job loss was in the manufacturing and construction sectors.

Last Week , FEARLESS FORECAST – "is for a down week ." Major US markets were down as well as most world markets .

This week , FEARLESS FORECAST - is for an up week .

Major news for the week is going to be Obama’s health care speech on Wednesday. Anything less than a clear full & forceful  commitment  to a public plan for heath care will give insurance companies and some major HMO’s a quick boost in price.

Bottom line here is Wall Street will probably come out of this with the feeling that they own or have broken the Obama administration.  This should add to stock prices in the short term.  The long term is a different story (more later).  The BDI has also started to level off and formed a base. (see below)

History – In 1929, right before the great depression, the market reached its high on the Tuesday after Labor day

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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) It looks like we could be forming another lower high and that would reinforce the mid term bearish pattern . The BDI has leveled off over the last 9 days , +17 yesterday.

Unfortunately, since early summer we have created  lower lows and lower high that confirms both the mid term bearish trend .@ 2298 is a major area of support and the BDI has fallen since early June from 4291 to 2413. This is just 115 points away from a major support level.

The 9 days of relatively flat trading could be a technical base forming just above the BDI’s major support level.  The 17 Friday is a small,but hopeful move in a bullish direction.

The BDI is 41% off its high (early June) Before that it gained almost +170% from early April to June

——-

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

The dollar was fell -0.35 % Friday. Dollar closed at $78.16. Its  major support level is @$77.5 & it has 2 major resistance levels – a falling 50 day moving ave. at @$79.o0 and the August highs of @ $79.5 .  If it breaks down through support stocks should rise, if it breaks up through resistance stocks should fall.

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

For an unbelievable 11 straight days the dollar has reversed direction – One day up and the next day down.  If the dollar goes in the same direction two days in a row you might call it a trend.

Positions

The whole Positions Section has been revised (Click on "Positions" at top of blog). Check it out

Sold 1/3 (or 6% total stock) position in FXI (China) Boy this sure looks like a mistake this AM

My bias – I will be away at an art show this weekend & I tend to get conservative when I’m not near my computer. – Too scared of bad jobless figures on Friday. The decrease

Your Comments

Both privately and in the comment section of the blog you are asking for individual stock recommendations. OK I have a few. NVS (Novartis)-  a swine flu play (46% of US flu vaccine) and Apple computer – AAPL (Apple is moving into China)

I bought both these stocks early last week. Please remember this is a trade rather than an a longer term investment. I have a predetermined 8% loss price that I will get out. What I have is a trailing stop which means if the stock goes up so does the stop.  Will take 1/2 profits with a @8% gain and let the rest ride.

Both stocks have decent technical charts, a fundamental story, & if markets move higher, they should outperform like they did Friday. (Buy the dip)

I do not like recommending individual stocks and much prefer ETF’s. Sectors are easier to understand, more liquid, and less likely to dramatically fall.

GLD – our 5% position in gold is doing quite well

Have to update positions section (away all weekend) Investors411 problem is that we are under invested in equities. The predicted 5 to 10% correction this month almost happened last week (-4+%), but close doesn’t count.

AS ALWAYS DO YOUR OWN RESEARCH BEFORE INVESTING!

Obama – Leadership & Polls

Lots have analysts have remarked how fast Obama (now at about +50%) poll numbers are dropping .  The one missing ingredient is leadership.

Yes, Obama has lost  support among Democrats and Independents for nor following though on some of his promises. However, the most visible issue is the health care debate . He is getting slaughtered on this because he has NO POSITION . There is something vague about if nothing’s done medicare will go broke and in another 8 years costs will double. This is True, but what or where is the Obama Health Care plan?

Right now Obama looks like that 98 pound weakling who is getting sand kicked in his face.  They labeled him and his non existent Obama plan all sorts of names and it sticks because he doesn’t have a concrete plan. Unless he chooses something and leads the only way to go is down and the mob will win .

Cash for Clunkers

The best stimulus program to come out of government .  The government spends something like $3,500 and gets the consumer to spent $15,000 to $20,000 on a new more fuel efficient car.

The government is getting the consumer to spend @5 times what it has invested .  That 5 times gets multiplied by fuel efficiencies, tax revenues, keeping manufacturing jobs, and the employees of the dealers and manufacturers spend that money to buy other stuff. This all gets money flowing even faster.

This program should be continued with other big ticket items that can be made more fuel efficient .

The best rival to Cash for Clunkers is the $8,000 stimulus for first time home buyers. This also has a huge multiplier effect.

STOCKS

AS ALWAYS, DO YOUR OWN RESEARCH BEFORE INVESTING!

Index	Percentage %	Volume
Dow	-1.96%	up
NASDQ	-2.00%	up
S&P500	-2.21%	up
Russell2000	-2.45%	-

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 and Fundamentals

Major US markets had a significant meltdown in increased above average volume .  BEAR’S RULE the short term momentum and the volume indicates that there is more downside to come.

A week ago I mentioned that Jim Cramer was wrong and we were due for a more significant correction.

Support levels to watch on benchmark S&P 500. SPX currently at 998. The first is 980 . If that falls we could see a lot deeper correction .  Lots depends on the jobs data on Friday. However, we had great manufacturing news and when good news sinks the market – that’s an indication of more pain to come.

Lots of analyst look at this as a technical correction.  We came too far too fast. But there is a major underlying fundamental factor. The BDI shows worldwide trade falling. Much of this is due to China pulling back on buying commodities. China also has a technically overheated market. (see yesterday’s blog)

The big news for the month is the jobs report on Friday Right now we reacted so poorly to the good ISM (manufacturing) news, you have to worry about the employment news.

On financials from yesterday-If you prefer gambling to investing, I’d wait another day or until prices get closer to 200& 50 day moving average before putting bullish chips on the table.

Therefore , FEARLESS FORECAST – is for a down week .

The  jobs report for August comes out Friday most important fundamental of the week. ISM (manufacturing ) report out today.  What’s key here is  we get a good number (above 50 would mean manufacturing growth) If market does not move higher on good number, it is a strong indication that market correction underway. - You betcha-what now looks like a  correction is underway not only in exporting countries, but importing countries (USA)

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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) It looks like we could be forming another lower high and that would reinforce the mid term bearish pattern . The BDI has leveled off – Up +2 yesterday

“Remember almost every country has based their recovery on exporting their way out of this mess” (Source – seeking Alpha)The infotainment financial channels and analysts used the BDI when things were going well and are now ignoring it. The #1 factor behind the BDI’s retreat is China seems to have stopped or seriously slowed down buying commodities.

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

The dollar was rose a significant +0.75 % yesterday. Dollar closed at $78.74. Its  major support level is @$77.5 & it has 2 major resistance levels – a falling 50 day moving ave. at @$79.20 and the August highs of @ $79.5 .  If it breaks down through support stocks should rise, if it breaks up through resistance stocks should fall.

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

This is the index to watch because its impact is immediate.

Positions

The whole Positions Section has been revised (Click on “Positions” at top of blog). Check it out

The high Beta names are getting beaten up. Financials took a big hit yesterday.   The BDI’s drop and the fall of the Shanghai Index technically (see yesterday’s update) certainly forecasted and forecasts further deterioration. If the BDI has stopped its fall we’re OK

My philosophy has always been why be greedy – China/Brazil in the long run will outperform the USA. But a correction will take those stocks further down.

• If you’re in this for the long term (years) hold onto all FXI & EWZ
• If you’re not let’s sell 1/3 to 1/2 the positions. The gains should be @ 20+% and hopefully buy back in at a lower price

When the BDI starts to recover – reaches a higher high. Then jump back in. Right now, this is NOT some huge reversal, but a correction of an overheated market. If the BDI continues to fall from current levels, we are much deeper trouble.

Your Comments

Both privately and in the comment section of the blog you are asking for individual stock recommendations. OK I have a few. Stay tuned.

AS ALWAYS DO YOUR OWN RESEARCH BEFORE INVESTING!

The “Socialist” Joker

Obama – SF Bay photo

The attempts to break up civil discourse at the Town Meetings Democrats are having to discuss health care is turning into anarchy. Encouraged by the FOX news cable channel, the right wing, and host Glenn Beck who considers Obama “a racist,” mobs are trying to break up normal debates and discussions of the issues.  Latest “Violence” at Tampa Bay town hall meeting. Link here Photo below

There are also pictures of Obama with white powder and red lipstick on his face, depicting him as The “Socialist” Joker. For those too young to remember in the first half of the last century white men used to put black powder on their faces and lips to mimic black men as a vaudeville act. Needless to say this was derogatory and racist. Link to story here Photo above.

Tampa Bay mob banging on windows of meeting – Huffington Post.

Propaganda/Falsehoods – HealthCare

The estimated cost of House version of health care plan is $90 Billion a year NOT a trillion dollars a year. The proposed payment is a tax on those earning over $1,000,000 a year. The trillion dollar figure is estimated cost over 10 years. Two sources Debunking the spin

• WaPo’s Steve Pearlstein – Link here
• NYT Paul Krugman - Link here

Impact of Stimulus

The NYT feature story is the impact of the stimulus package. So far @ $100 billion of the $7 80 billion has been spent. Headline – “With Jobs Data Due, Experts See Some Lift From Stimulus ” Story link here

Bottom Line – If you sit back and do nothing the mob wins. The in your face yelling works unless you act.  Send some emails, write an editorial, go to a Town Meeting (see yesterday’s blog) – Do something, anything – Make a Difference - Its your country

STOCKS

AS ALWAYS, DO YOUR OWN RESEARCH BEFORE INVESTING!

Index	Percentage %	Volume
Dow	-0.27%	up
NASDQ	-1.00 %	flat
S&P500	-0.56%	up
Russell2000	-1.48%	-

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 and Fundamentals

Volume is beginning to pick up and so is the downside moves in front of the unemployment data. Volume is the #1 conformation of a price move. This is a sign that we have reached a top (a bullish higher high of prices) and are due for some sort of correction. Actually long overdue for a correction,

Even though jobs are a lagging indicator in an economic recovery, these figures are very important. Waiting for results…

US employment data for July -247,000 jobs – Better than expected loss . Best monthly number since Aug. 2008.  Rate down to to 9.4% from 9.5% – Markets rally on news.

This paragraph was written last – Rally in stocks

Significant forecasting tools/Indexes for stock markets

BDI - The Baltic Dry Index measures the flow of goods (world trade) It looks like we could be forming another lower high and that would reinforce the mid term bearish pattern . 2975 is the major support level and the BDI closed at 3051 down last six days in a row. As long as we hang in above 2975 stocks should do well.  This chart (click on BDI at beginning of paragraph) moves rather smoothly.

In a nut shell the BDI is

• short term – Bears rule
  
• mid term -  Bearish pattern
• long term - Bullish pattern

Warning - The BDI falling through its support level at 2975 would be very bearish. IT DID yesterday . What’s worse the rate of downward momentum is accelerating BDI fell 109 points two days ago and 144 points yesterday. We broke through a major support level and the rate of change downward is accelerating = Bears Rule

Simply put - if the cost to trade is breaking down between countries, so is the amount of goods that flow between countries.  One of the greatest dangers to a worldwide economic recovery is the breakdown of buying and selling goods between countries.

$USD - The dollar rose a health +o.57% yesterday. Dollar closed at $78.00 (weighed against a market basket of other currencies)  We did establish a lower low for the dollar earlier this week.  This chart is important as a forecasting tool because there is a strong inverse correlation between the dollar and both (most) stocks and oil prices

Here’s a multi year chart of the US dollar that show the line in the sand support level or its all time low below $71.00 in April to June of 2008

Dollar up usually = stocks down.

Positions

The whole Positions Section has been revised (Click on “Positions” at top of blog). Check it out

See Thursday’s comments and those made earlier this week. The BDI breakdown through support and accelerating decline is a longer term BEARISH SIGN .

AS ALWAYS DO YOUR OWN RESEARCH BEFORE INVESTING!

Four Bad Bear Markets – Understanding long term bear markets is critical and the following two charts will give you a relative idea what a bear market looks like.  The G 20 – rhetoric and results.  Israel – right wing takes control and spurns Obama/Clinton peace process. Stimulus & Budget. Employment #’s. Why the current rally may continue – “Rotation” and volume.

 

 

 

 

 

 

 

 

 

 

Click on either chart to see bigger chart. Charts from dshort.com

 

 

 

Four Bad Bears

These charts graphically put in perspective where we are relative to 3 other major bear markets starting with the Dow from 1929 to 1932  The first chart is over 34 months and the second is over 10 years.  The second includes the often never mentioned 9 year long NASDQ bear market.

You can draw you own conclusions, but notice how far we’ve fallen and how close we are to the Dow 1929 to 1932 crash. Each bear market is different, and we are fundamentally moving a lot quicker than they did in 1929 to fix the problem.

 

G – 20

The rookie, Barak Obama, didn’t hit a home run but he certainly was a hit. He translated his world wide star power into results from refereeing a France/China verbal spat to getting a trillion for emerging markets. You can read the NYT editorial  the G 20 here More came out of G 20 than almost everyone expected. Obama message – “the world is in this together” – resounded.

This AM (EST) Obama is speaking to an packed audience in France and tying the failure of a mortgage in Florida to the failure of a bank in Iceland.

Israel

My closest Israeli friend absolutely hates the newly elected Netanyahu government. It’s like giving American neocons complete control of Israel. Netanyahu has already told the Obama  “Stop Iran or I Will.” 

Netanyahu picked an extremist as his foreign minister – a former Moldovan night club bouncer named Avigdor Lieberman, who like Iran’s Ahmadinejad has made some outrageous threat. He immediately  “spurned” the peace process started by Bush and supported by Obama/Clinton.

Stimulus & Budget

Although many Republican’s voted against Obama’s stimulus plan the last Republican (South Carolina) holdout governor caved in and will accept the stimulus for his state to keep teachers in the schools and cops on the street.

House and Senate have passed basically the Obama budget.

 

AS ALWAYS DO YOUR OWN RESEARCH BEFORE INVESTING

 

 

Index	Percentage %	Volume
Dow	+0.04%	down
NASDQ	-0.18%	down
S&P500	-0,10%	down
Russell2000	-1.33%	-

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News

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Nationalization

It’s here. The concept of nationalization has come out of the closet and now even Bernanke and Greenspan are using the term.  Worries over nationalization have caused a meltdown in stocks, but it seems to be better choice than the systemic chaos of bankruptcies or the taxpayers continuing to to be the major shovel throwing money at the problem.

Now the big boys  Bernanke and Greenspan are  using the N word. At Investors411 (see archives) you watched this significant trend develop from a whisper to a market mover that will significantly change our governments response to the financial crisis.

Learning lessons from India

India has been terrorized by multiple terrorist attacks that have originated from inside Pakistan. Yet they have not gone to war with them unlike the Bush administration who went to war with a country that had nothing to do with WMD’s or 911. The significant Muslim population of India has rejected the Mumbai terrorists. For more see Tom Friedman’s editorial – No Way, No How, Not Here.

Helping Mortgage Holders

Finally a plan to keep the rate of foreclosures from growing. All he Paulson TARP plan did was shovel money at banks. Obama has announced a plan to help possibly 9 million threatened homeowners.  The ripple effect of not helping would bring down a lot more financial institutions and further devalue home across America. Many comments on this are like those on the stimulus plan – while significant it is not enough – NYT editorial

Israel Elections

The vast majority of elections analysts see the right wing gaining power in Israel. To most Israeli’s and Americans the war against Hamas had a far better outcome than the war against Hezbollah. Of course there are many worldwide angered by both wars. While the centrists  did barely win the most seats in Israel’s parliament the  divided right wing parties picked up a substantial majority. 

Bottom Line – The peace process has become a whole lot harder

Stanford, Another Madoff

Another this time smaller $8 billion dollar Ponzi scheme has come to light.  Seems investors thought nothing of  investing in 10% to 14% yielding CD’s controlled by the Stanford Group. Mr S is on the lamb.  

Bottom Line - Once again the understaffed, incompetent SEC is caught with its pants down. When all you had under Bush (really since Reagan) was cut cut cut government and don’t you dare dare dare regulate free markets – Stanford/Madoff and an over leveraged financial catastrophy is the result.

 

Stocks

AS ALWAYS DO YOUR OWN RESEARCH BEFORE INVESTING!

 

Short Term Outlook

Major US markets took a breather yesterday. Foreign markets have rebounded somewhat overnight. CNBC, the most popular financial channel (they are right wing cheer leaders corporations) has a decent morning compilation of how markets are setting up for the day.

Momentum is still with the bears.

Long Term Outlook = Bears Rule

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See STRATEGY POSITIONS & ARCHIVES sections of blog for more

AS ALWAYS DO YOUR OWN RESEARCH BEFORE INVESTING!