Wednesday, January 06, 2010

Stock Market Top Very Near

Top Line: OK, we couldn't resist posting one more time. What with it being a new year and the market just floating, there needs to be some discussion about the potential of both.

In our Last Post, we said that the market would be lower in two years. Here we are after about six weeks and the market has tried ever so mightily to muster higher prices. With the new year, people seem to think it's a good time to buy. Well, that worked for the first trading day of the year. What has happened since? Not much, but that's why we're back for another post.

The primary reason for the post tonight is to talk about the stock market. As our title says, we think that the market is very near a top. It is that time of month when the whole world looks to the employment report which is due out on Friday morning. There is a potential for the job number to be near zero for the first time in a loooong time. We don't think this is particularly good but it does Look better than the previous months.

If the number is positive, we expect the media to say basically that the world can stop worrying, the problem is solved. This is a direct invitation for stock buyers to come in Again. We expect that the market to enjoy a last rally on this news.

In fact, we expect the high near the time of the report to be the highest level in the Dow for...well, lets just say a long time. The market is overbought and investors are very complacent even though the market has barely managed to get back half of its losses over the past couple of years.

We think that the stock market is once again thought of as a safe place for investors. We couldn't disagree more. There is always a chance that the high is still 10% higher than we are now. We have to allow for that possibility but the timing of a high coinciding with the jobs' report seems like a reasonable thing from our view of the situation.

Take a look at the gold market and the mining shares. As we mentioned in November, these classes have suffered a setback and have somewhat recovered with the rally of the last week or so. Take a look at GDX and you will see your market leader having trouble getting back above 50 when it was around 55 about a month ago.

The dollar has jumped back to life and is probably at the beginning of a major rally. No matter what you read, the dollar is said to be headed to Zero in spite of the huge rally it has experienced over the past month.

Meanwhile, the Treasury bonds have come back into a very nice buying area. We like the TLT as you know and today it was trading under 90 and nearly under 89. TLT could find its way lower into the jobs' report but the price should be close to a low that will last for a while. We would say the buying range here should be below 90 which it is. We want you to get as good a price as you can so don't just buy this all at one time, ease into it. You may want to enter the trade as early as Thursday, late in the day, or early Friday morning. Then see what happens to see whether you can get better prices over the next few weeks. Then, just sit back and enjoy the 4% yield and possible 25% capital gains over the next year or so.

Now, Treasury bonds are getting the same bad press as the dollar, maybe not quite that bad, but this makes them even more ripe for purchase. This is the best buy signal you can get...unanimous negative press. Yes, we are still contrarians.

We were going to write last night but time got away from us so here we are today. If you have mutual funds or 401(k) funds that are invested in stock market securities, this would be an ideal time to be getting out of those funds. Keep your cash for a while and watch it grow against the stock market decline.

If you are in individual stocks, you have a different set of issues. You may have missed the top in that stock or it may still top in the near future. We can't judge that without more information. What we can say is that if the stock you own has failed to participate in this latest rally, we would be inclined to say that it is probably not going to perform too well near term. If it has rallied, then you may find a better time in the next rally or two, but now is very nearly at that level anyway and should offer pretty good prices.

If you have stocks that you think will go back to the 2007 levels, then you may need to take a good look at that over the next few days and weeks. If they don't go up, then you may not see them get back to their old highs any time soon.

We are compelled to do this Sell call right now which is why we are writing again tonight. We just can't help it. We're not sure when we'll be back. Take care and have a great year.

Wednesday, November 18, 2009

The Last Post

Top Line: Probably the biggest news in the market is the Update. With our last post, we hit 1000 posts and this, the 1001st is probably the last, at least for a while. We are going on an extended break.

We want to leave our last mark here by summarizing our current position on the various markets we have been keeping an eye on. Remember what day this is because these comments are only good for about a day :-)

Here is a problem brewing. While gold has been punching higher to new all time highs, GDX has been painfully lagging. This can only mean that there should be a change in direction, from up to down. How long this decline will last is difficult to say but one would think it would be linked to the action in the dollar.

If you actually take a look at the dollar chart for the last two years, you would notice that the dollar was Lower last year than it is now. What we find interesting about that is all of the bad press the dollar has received over the past several weeks. Gold has exploded and the dollar gets negative media but stops going down. This "strength" in the dollar flies in the face of strong gold. GDX and the dollar confirm that gold is near a peak, at least a short term top.

Continued negative press on the dollar has probably convinced many to short the dollar. This used to be done with the Japanese yen. Rates were very low, at times negative, in Japan and the yen was going down. This caused the world to borrow yen at low rates and buy other currencies to buy stocks in those countries, which were rising. This is called a carry trade. Assuming that the dollar continues to go down and with low rates available, why not use these dollars to buy gold??? This will end badly if the dollar turns around or interest rates move up.

Treasury Bonds:
Here is another difficult market. We have expected that the stock market drop would give a lift to T-bonds. The stock market has continued to rally but, strangely, the T-bonds have not fallen, at least not much. The highest prices for the stock market and gold have not had the intended effect on T-bonds. Instead T-bonds have held their own and have given us further evidence that the stock market and gold are not on a solid upward trajectory. When will this change? It may be this week or later but there is too much evidence to ignore.

The Stock Market:
Here is where we are with the Update: This last 1000 posts have been about our take on the stock market. Our intention was to keep us honest with ourselves about how we were thinking about the current market conditions. When we look back to our early July posts and read them carefully, we can see that we missed something. Our titles even indicate that we thought a low was at hand but still we didn't take advantage of the lows at that time.

Since then we have struggled to let go of the thinking process. Our main thought is that we are much better traders than bulls. We have to get back to trading and stop trying to figure out the intermediate term. We think better in the three day time frame or less. This large move stuff is interesting but difficult to trade. We need to stick with our strengths and not try to figure out how the market will sit two or six months out.

What we do think is that the market will be much lower in two years. How does that help us trade tomorrow? We're not exactly sure. What we do know is that the way We make the best money is to trade frequently. This is not a good strategy for most people and does not make sense for a blog.

The last item is the one that troubles us the most. We are contrarian thinkers and go against the grain of the media to make our best trades. We have enjoyed the position we have taken but recently have been less interested in arguing about the stock market, trying to influence others. We think we have a good way to trade with an eye to how the market reacts to the news.

This is the most difficult thing we do...try to convince others to do things that make financial sense when all they think is that the media is right. We are convinced that we can always make money because the market participants are really not very concerned about what makes sense. Most people just want to know the market is going up before they buy (too late) and then sell when the know the market is going down (also too late). We can not change this and have decided to abandon the effort.

To the several people that have been faithful readers of the Update, we want you to know that you have kept us writing longer than we would normally have done. Without anyone reading, this really wouldn't have made much sense.

For those of you who know our email address, we would be happy to continue to stay in correspondence with you and will contact some of you on our own. We apologize for the abrupt change but we think this is the best time to discontinue our work. Life has taken us in new directions and a new chapter is now emerging which eliminates the time that would normally be spent working on this blog.

Buy Low and Sell High...not necessarily in that order.
Call if you get rich, or Put it in writing...

Sunday, November 08, 2009

Unenjoyment Report, 10.2% Unemployed

Top Line: Market action seems to be giving bulls more confidence. The market has always been a con artist and will continue to do so. We are very near a top/turning point.

Last Friday's employment report was dismal in that it contained a double digit rate for unemployment and continued job losses but at least this time the number was under 200K. Great. Still, the market opened down after the news early Friday and then bolted up as if to say that the job picture really wasn't as bad as 10.2% sounds. The market is usually quick to say it's the end of bad news so we're just gonna buy em, after all they are marked down from Thursday's close so they must be cheap.

We want to take a few minutes to explain our position in this game of the stock market. There is so little that media says that makes any sense and to assign a "reason" to trading presumes that if you could just predict tomorrow's news, you could have a good idea what the market was going to do tomorrow. Good luck with that. Even if you could predict the news tomorrow, you might not actually be able to do the same with the market's reaction.

What we have tried to encourage here at the Update is to try to see when an asset is trading at a good price for either buying or selling. Over the past few years, these extremes have been prevalent in the market. The problem is that the media is so strongly encouraging the current emotional state of the market that it is very difficult to go against them. What do they know? Do they know what is going to happen tomorrow or next month or next year? No. Do they know what happened Yesterday? Maybe. For today, they are just guessing that the news has something to do with the market. It does but not in the way they think. We would say that the Market drives the news, not the other way around.

We remain very cautious about this market as we have for the last couple of months. This is a state of mind because of how bullish the media has become. Gold is trading at new all time highs so there is a story for the has gone up so it must be Going up. We would ask, "Why?" And, if gold is at new all time highs, "Why doesn't GDX exhibit similar results?" GDX is supposed to Lead the gold, again, not the other way around. We read bullish analysts talk about how mining stocks will "eventually" catch up with gold's move. We are near term Bearish on GDX and gold Because GDX is not catching up it is signalling that the move in gold is not to be trusted.

In fact GDX has led the stock market over the past couple of years and should continue to do so. If you take a look at how gold has exploded the last few days and GDX is still holding under its former highs, you have a recipe for gold going down. Of course, we can't know when it's going down but we think the price is too high to justify a continued move up. This position is specifically because GDX has not Led. It could be very possible that gold drops along with GDX over the next few weeks and Then GDX leads on the way up. We would be willing and eager to change our actions based on our best signals.

As for the stock market, we think that the best guess is that we have a rally in the morning (Monday) and that may be the top of this move (we see the futures are up this evening which doesn't mean much but they could be directionally correct). The last post we suggested that the rally may be over but said it was a little short of its potential and of course it decided to rally. Predicting this rollover timing is difficult so we must concentrate on getting good prices.

Have a great week, we hope to be back on Wednesday evening.

Wednesday, November 04, 2009

Fed News Not Enough To Hold Gains

Top Line: The Fed's "news" brought its usual blip for the following half hour or so and then the market decided to go down. We expect that the rally for the past few days should be the relief rally that will lead to further declines.

You might have noticed over the past few days that the market just can't seem to hold. This phenomenon is part of the roll over. As the stock market has been so volatile and it still "feels" like it could go either way. The real story is that the market has gotten too overbought and the buyers don't have enough money to keep it moving up.

Trading the stock market is always a difficult task and there is always potential for losses. When the market opened today, the buyers were out due to some employment news from ADP. Then when the Fed made their announcements, the market was fairly volatile but after the volatility the market was higher than when the news hit. From there the market fell to negative, at least in some indexes, before ending about unchanged for the day, near the lows of the day. These types of things should scare the bulls and we do not believe they will hang around too long.

The trading today looked and felt like the right ending to the correction. We say correction because the latest drop from the highs from a couple of weeks ago. The only problem with this discussion is that the rally out of the lows seems a little short relative to the drop but that can be because the market is really ready to drop without much relief.

We are significantly bearish at the moment. The drag on the market is pretty strong. Every rally has trouble sticking and the sellers are ready.

The big news seems to be that gold hit a new high near $1100 today with the dollar falling sharply. The dollar has not dropped below its lows of last week but still could. These two assets are at the center of the debate of whether the stock market can move down or or not. We have said that gold could hit $1100 on this move but that would represent a short term high with a move back down to triple digits before another rally, if we get one.

Right now, we want to make sure that we remove ourselves from the downside risk that has risen quite a bit. If we see a "buying" opportunity we will present it to you. The possibility of a decline of over 10% is very high.

Monday, November 02, 2009

November Starts With a Volatile Day

Top Line: The start of November gave the bulls a breather from the heavy selling from Friday. After maybe some more upside, the sell off should continue.

As the week progresses, there are plenty of land mines for the market in the way of news. The big ones are the employment report on Friday and the Fed's news on Wednesday...ok, maybe that's not all that big, the Fed has become almost irrelevant. There are other news items including some little things like the Stanley/Black and Decker deal that was announced tonight. How will the market react to them?

Well, we are pretty sure we don't really know exactly what will happen but we do think that there is little doubt that the market wants to resolve to the downside, at least for the time being. As we see the volatility rise again, there should be some more intense down moves as we move through the next few weeks. Then we'll see how much the market wants to go down.

Today's market was very volatile as the Dow jumped out of the blocks this morning and sported a 150 point rally in the first 30 minutes. After hanging around that level for about two hours, the market decided to drop back below even over the next hour and traded around there for an hour or so. After that the Dow moved higher into the close with about a 75 point advance. To us, this was a small victory for the bears.

The market probably won't get much from the Fed on Wednesday but tonight the Australians decided to raise interest rates again. No, not much but it was an increase. The Fed doesn't have the...ah...ability to raise rates for now so we expect much the same from them this week.

Tuesday has a few elections in it. Could they move the market on Wednesday?

Anyway, the big news for the week should be the employment report on Friday. We expect the market to be lower in a couple weeks than it is now and the employment report could be a catalyst in the stair step lower.

We will be back on Wednesday evening after the Fed...

Sunday, November 01, 2009

Quick Update

Top Line: The stock market dropped hard on Friday to a new low for the move in the major indexes that we follow. This is the start of a major drop in the market. Whatever rallies the market has should be sold.

Friday's sell off seemed to be a shocker to all of those who thought Wednesday's sell off was a good "buying opportunity". To be clear, the good buying opportunities were last March when the SP500 was trading under 700, not now when the index is near 1100. After the index has rallied 50% in about six months, it's Not time to buy.

The volatility indexes we follow traded above 30 and the VIX actually closed above 30. This should be a glimpse of the future when theses indexes jump to the levels we have seen over the past year and possibly higher.

We have been out of town this weekend and it's late so we will post again on Monday evening.

Wednesday, October 28, 2009

Is the Update Back In Sync?

Top Line: The stock market spent most of the day simply going down and we would say the trend has turned down. And, that we May finally be back in sync.

The news on new home sales was included in the "reasons" the market went down today but that doesn't really answer the question why sell stocks when new home sales aren't as expected? The market can think anything it wants and today it was in the mood to sell stocks regardless of the news.

Take a look at GDX and you will see that it has been on a mission lower the last week or so. Since Monday morning's spurt above 47 it has dropped to close at 41.87 today, a 10% move in three days. When we said we would consider buying it in 30's, we didn't think it might be this week. It's not in the 30's just yet but that's less than 2 points away.

You may have noticed the chatter about how the mining stocks have taken a beating when gold itself has only dropped a little. We say that the stocks move in front of the metal so we would expect the metal itself to drop following mining stocks down. We will see.

The catalyst for all of this is the strong dollar coming off its lows over the past few days. After the incredibly negative press on the dollar, the dollar refuses to go down anymore. The result is a sudden change in the playing field for commodities and the stock market. Even Treasury bonds have been strong the past few days, in spite of the huge supply coming to market this week.

It may be that GDX is too oversold to go down anymore but we don't recommend buying it at this time. We will take a look at it if we see a three handle (in the 30's) on it. Until then it's a falling knife and it should be avoided.

All we can say this evening is we are now glad to be short. A sudden drop is not out of the question. Take a look at our company, ING. They announced a restructure and the stock has lost 30% in three days. We wouldn't suggest that is how the overall market will trade but it is in the realm of possible. As we have noticed, there seems to be a lot of pent up selling.

The opinions we read today were quite bullish actually which we like. The headlines were that this is a buying opportunity not a correction??? This is different from what we have been hearing and should allow the sellers to continue their quest.