Head of Lehman Brothers Dick Fuld

Friends and Enemies?

What countries do your fellow citizens look at favorably and unfavorably? Gallop Poll has some fascinating results with Canada on top and Iran on the bottom. In black and white, over the top terms – who are out top 3 friends and top 3 enemies? Interesting - 90% is the largest rating up or down.

D’s blog comment

As always check out the comments on right hand side of blog by Popeye, PaulR, D, & Doggie’s Mom on Israel and stocks. One comment is something I think or hope we all share by D -

I’m so sick of those who are blinded by their emotions and stereotype one side as all evil and the other as all good.

Seeking Alpha

Three of you last week sent me editorials/articles from this financial site.  THANKS Reality is money makes the world go around – or at least influences everything from politics to religion. One particular man to follow is Jeff Nielson – read The Plutarch nation about the huge and growing division between rich and poor in the USA – How great the tax cuts are for t he wealthy and how small they are for the Middle class.

Lehman Brothers

Turns out that Lehman Brothers was lying about how much money they had and their accountants (Ernst and Young) backed them up according to a 2200 page report. Lehman’s collapse set off the 2008 meltdown. Seeking Alpha currently has 3 stories on this, but this  Dylan Ratigan video best explains how “the crooks” scammed the world through “repo transaction ” One of the Greatest crimes in history.”

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. (No changes this weekend)

Flat day in weak volume. Volume has NOT confirmed the move higher over the last few weeks. Cutting this section short to answer YOUR QUESTIONS

• What exactly is going elliptical? I really wish there were a clear set of exact rules to follow. Basically, its when a stocks moves too high too fast in big volume – it runs out of buyers and collapses because there is no one left to buy. This can also happen with sellers and going down too fast. This can happen interday (for day traders to use), but most of you are longer term traders than that.  Look at the charts of 3 stocks that have just gone elliptical. IMAX, C & CNAM (the later went elliptical @ a week ago. Common characteristic three or four days of a 20+% move higher in HUGE volume. Usually the bigger the climb & volume the worse the drop afterward. First off going elliptical is almost always a time to sell.  The harder question is when to jump back in. (tomorrow)
• Are TYH and other ETF’s that do 2 and 3 times what a market basket of stock do dangerous to hold overnight? See PaulR’s always astute market comments on the right side of blog. Short answer is YES. If you look at the “candlestick” chart of TYH over the last 6 months you will find several times is opened @3+%lower and one time in late November it opened @5% lower. This puts it in the same category  as “high beta” (hot stocks) stocks like Citigroup. Citi’s chart shows a  few more days it fell over 3+% and one time in December plunged @7% overnight. There is a big risk in both.
• Solution – First learn more about the technical aspect of investing. Second you can mitigate the risk by buying less.  Say you think technology is going to go up so you buy QQQQ (basically a tech ETF that mirrors tech.) THY does roughly 3X what QQQQ does. Therefore, Invest 1/3 the money in TYH that you would have in the QQQQ. It’s then almost the exact same risk in total money and you have 2/3 of your capital earning interest or for another investment. This is called leverage. And as many of you know there are a zillion other ways to mitigate risk through leverage. Some good (like this if you don’t go & over leverage your whole portfolio) and some that can get you and the world in a whole lot of trouble.

Significant Indexes

• McClellan Oscillator fell a again to +51.09 yesterday. We are still under +60 or Overbought territory. StockCharts has a better version of the McClellan chart ($NYMO) LINK. Two weeks ago week the NYMO reached a high of 75.33. Interesting fact here NYMO is falling as stocks slowly melt up.  This is probably due to the fact that this Oscillator takes into account volume that is declining.
• BDI - The Baltic Dry Index, which measures the cost of world trade (also a good indicator of how China is doing since they are huge exporters/importers) has exploded higher in the last few weeks. After flattening for a few days it is again starting to explode higher = Bulls rule
• USD – The Dollar 0 Friday the dollar -0.58% and broke through a support level.  In the past there has been a strong correlation between a falling dollar and a rising US stock market. = Bullish sign
  

Positions

The  Positions Section = latest buys and sells – (Revised positions last weekend) - These are positions I actually own

Over the last few days several of you have sent emails with many interesting new stocks RINO, CTRP & explosive CNAM are three I’ll add to tomorrow’s watch list.

From Friday “Shorter term traders – ” Bought a 10% (Of portfolio) position in TYH at 151.50. Put stop at that 151.5 and may sell 1/2 for 3 to 5% gain hopefully today. TYH closed at 154.99 – Sold 1/2 TYH at 156,oo for +3% gain Friday AM

Long Term Outlook = CAUTIOUSLY BULLISH

AS ALWAYS DO YOUR OWN RESEARCH BEFORE INVESTING

Iraq Fireworks

US troops are leaving Iraq cities today. Last night there was a different kind of fireworks in the skies in Iraq. (Huffington Post photo)

Here’s one big problem – The fascist government in Iran is a major backer of their fellow Shia in Iraq. This includes Sadr who fought US occupation and immediately recognized Ahmadinejad as President. Reasonable to predict the "Supreme Leader" in Iran will try to have the same fascist and militant influence in Iraq as they do over terrorist groups Hamas and Hezbollah .

Iran (week 3 )

Nico Pitney’s blog at the Huffington Post has broke and provided more info than any other US news outlet . here

Elections were certified by Supreme Leader’s government. More, but smaller (in thousands not 10′s of thousands+) demonstrations and increasing arrests. Iranian protesters are shouting Allah Acbar on their rooftops every night in defiance.

Climate Change/Environmental Legislation

Willing to bet that 75% of America’s population has no idea that this legislation is working its way through Congress. Yesterday Investors411 went over one reason why this legislation is important – to combat global warming . Let’s go over one more.

#2 Pollution

Close the garage door, turn on the car engine, open the car windows, go to sleep and you don’t wake up. Pollution kills

We are a carbon based economy and this has had a huge positive economic impact. But the cumulative effect of growing population and increasing pollutants has turned many Chinese cities days into nights where cars have to drive around with headlights on and use windshield wipers to view the road (massive pollution mostly from coal). Simply put, pollution kills by everything from cancer to emphysema.  Trillions in health care costs could be saved and life expectancy would grow with less pollution.

Realism is needed here . Carbon based energy is very efficient and transitioning to alternatives is going to take many decades.

Chevron has "human energy" ads that proclaims we are going to need to work on ways of creating new sources of energy – wind, solar, geothermal, natural gas and oil. They’re right. You simply can’t just shut down oil exploration without devastating the world’s economic structure. But we can take some concrete steps to more environmentally friendly solutions.

(to be continued)

STOCKS

AS ALWAYS, DO YOUR OWN RESEARCH BEFORE INVESTING

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Your Market Questions (part 1)

Thanks for all the public and private comments on how well Investors411 did in the first 1/2 of the year .

See Positions section & last Thursday’s update . (click on calendar) The major question is will we do as well in the first 1/2 of the year in the 2nd 1/2. Also, a general worry over the long term viability of stocks and the economy .

These questions are  outlined and addressed  in the Strategy and Overview sections of blog. Most of those sections were first introduced at the beginning of the year, then added to a few months ago. Little has changed.

The long term economic problem is the huge hole that was dug by removing the regulations on capitalism and letting greed run wild.  When it takes decades (especially the last one) to dig an economic hole, you don’t climb out of it overnight.

What’s happened is most savvy investors realizes that we almost had a complete world wide financial collapse last September and it now looks like we will survive. The major problems is getting banks to make loans, keeping loans affordable, and fixing growing unemployment.  Fixing these now could have long term negative impact.

China, India, Brazil simply have better balance sheets than the USA and in the case of Brazil more natural resources. They also did not did deep holes.

If we don’t develop alternative energy we will be stuck in a downward energy spiral forever. Cheap oil (the kind that bubbles out of the ground) is a finite commodity. Any recovery is going to be accompanied by rising oil prices.

Will the second half be as good as the first? I doubt it. Our core holdings should outperform, and if stocks do go higher in the USA our ETF’s should do even better . Investors411 biggest mistake is not being disciplined enough in buying dips.

(More later)

Significant forecasting tools/Indexes for stock markets

Note - Repeated statements in brown. Added the VIX back as a prediction tool .

BDI - The Baltic Dry Index measures the flow of goods (world trade) . If trade is diminishing through out the world then a worldwide recovery is in big trouble. BDI started back up yesterday Long term Bullish although consolidating right now.

$USD - The Dollar fell-0.72% Friday and -0 0.04% yesterday. Any move over 0.50 is significant. The strong inverse correlation between the dollar and stocks has existed for many moons. Neutral – we are in a consolidating pattern.

Long term momentum for dollar is bearish. Short term  mo is neutral, but we are closer to a bottom side breakdown than an upside breakout. Any breakout or breakdown would be significant.

VIX – Measures Volatility in S&P 500. Notice this chart is in almost a straight line down.  The less volatility means the better investors are feeling. Yesterday the VIX fell to the same level it was when Lehman Brothers collapsed and markets exploded to the downside.  Stocks still have not reached the level they were when Lehman collapsed. Long term Bullish for stocks

NB – The above are secondary indicators. Our mantra has always been Volume is the #1 forecasting tool – Right now volume is not giving any clear long term signal.

Reading the Tea Leaves .

This weeks fearless forecast – A rally, but one that does not get to new highs. Yesterday we had a mild to moderate rally in 3 of the 4 major indexes. Small caps(Russell2000) lost ground, but this is probably due to the annual rebalancing where some stocks are added and others kicked out of the index.

Short term – Volume dropped and markets rallied – you like stocks to go up, but when volume drops in a rally a reversal is usually around the corner.

AS ALWAYS DO YOUR OWN RESEARCH BEFORE INVESTING

WHAT’S UP? - The Upcoming War – Shadow banks vs. the ordinary American Taxpayers: We are loosing; Simon Johnson (again) and “The Quit Coup;” Privatizing gains and socializing risk; The major issues between the shadow banks and us. Your questions on investing – When to invest & the long term outlook.

Still the best article out there describing how the shadow banks are winning  The Quiet Coup comes from Simon Johnson (former head of IMF and MIT prof)

Your Questions

 Popeye raises some interesting questions in comments section of blog.

•  Be more specific as to when to invest - The Positions section of the blog carries some specific recommendations. However I simply do not have the time to watch stocks and exactly determine when a “Buy the Dip” opportunity exactly occurs.  Also, each of you is a different kind of investor/trader. What you do depends on your level of risk.
• What about the long term? – Unless we radically change the shadow institutions privatizing gains and you socializing losses, the American economy as we know it is doomed to oblivion. What will emerge is a wealthy oligarchy and a poorer underclass. Far more bullish on some foreign economies that are building their middle classes than America’s that is diminishing its middle class. See Overview section of blog. Hope Obama can change this. (See above – The Upcoming war) More on this later.
• I try to change the Positions section each weekend. The Changes are in plum. Check it out. I do realize some of this can be unclear to less sophisticated investors/traders. So either make a comment on the blog or privately send me email. 

STOCKS

AS ALWAYS, DO YOUR OWN RESEARCH BEFORE INVESTING

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Technicals & Fundamentals

Major markets held onto most of their gains from the “Wowie Zowie” rally as volume dropped a bit. Consolidation after a major rally is bullish for equities. As long as we hold onto at least 50% of Friday & Monday’s gains the bulls are in charge of short term momentum.

XLF - The ETF that tracks financials (mostly shadow banks )Broke out of its consolidation pattern Monday and fell  -1,45% in decreased volume yesterday.  Again it looks like consolidation after a big move higher. 

Reading the tea leaves - [Longer term]  As stated in Strategy section (click on Strategy at top of blog – mostly written at the start of 2009) Dow 8000 is basically the cut off line. Below 8,000 slowly adding to positions or “nibbling” was suggested.  The Dow is now at 8,410.  

Therefore, Longer term investors should be more cautious about buying the dips. The Dow unlike the benchmark S&P 500 has not yet reached its yearly high at around 9,000. It is the trailing index.  It does have some wiggle room to move higher.

Markets are dynamic and right now Dow 9000 is probably going to be the new standard instead of 8000.  The 8000 was the standard at the beginning of the year.

It  looks like the Dow (30 major companies) will get dragged along higher by the other 3 major indexes. Short term momentum is still clearly  with the bulls. 9000 is not impossible and neither is 9654 (the November 2008 high). However -

Bottom Line – The rapidity of the bulls momentum will probably slow the higher we go.  Shadow banks  and China are still leading the bulls.  

At some point in time this year the major WAR between shadow banks and  the taxpayers over regulating financials and their size will happen. This in the short term will negatively impact stocks and in the long term impact the viability of our economy. (See above) Lots of the negatives in America’s economy are still growing.

Example – Right now according to WSJ 20% of homeowners have bigger mortgages  than the home are worth

AS ALWAYS DO YOUR OWN RESEARCH BEFORE INVESTING !