Monday, January 30, 2006

The Last Interest Rate Hike?

I received a call from one of our readers (thanks HZ) telling me that Cramer had touted PAAS on his after hours show and of course the stock continued its recent surge in after hours trading following that announcement.  Over the past week, PAAS has been on a tear jumping from below 19 to tonight’s after hours final quote of 23.73 on one source.  It’s great that Cramer came out tonight to tout a stock that now is over 23 (on its way to where???) that we were buying in the 12’s and, yes, selling around 18.  So, we left a little on the table but we are not now going to be following Cramer’s advice due to the Lateness with which it is offered.  We are now in a speculative blow off in the precious metals and one can never tell when it will reverse itself.  We have made some good coin on this stock and we will again but not today.  

I also received an email from another reader today (thanks CM and Hi to you and your family, too) sharing a technical article on the recent action in the market.  The author explained that the market has been giving head fakes and producing a Bearish chart pattern along with weak relative strength indicators.  We are very much in tune with those weak relative strength indicators in the stock market and we note that, in agreement with article, that ours are also not confirming the move.  These are called Negative divergences in the article, we call them Non-confirmations.  

We are looking at extremely high volume figures over the past week but that volume is not being confirmed by price action this time.  You may say, well, the price will catch up to it but we say and have said that Supply is meeting Demand creating higher volume.  We have speculative issues being bid up and of course energy stocks have held up the market almost single handedly.  

We mentioned that the market will face a few items that have the potential to move it, not the least of which is Greenspan’s Last Fed Meeting.  The market is all over this as it thinks that the baby 25bps interest rate hike we will see Tuesday will be the last and they are looking for confirmation of this from the announcement.  The market wants to ride this horse once more I guess.  We’ll see.

After that news, we get to hear the President tell us the State of the Union in which he will tell us that all’s well except for a laundry list of things that we need to fix and it won’t cost too much money, especially since we’ll just borrow it from the rest of the world and no one in the US will have to pay higher taxes for any of it.  Ok, maybe I’m a little ahead of the speech but we know that Health Care will probably be the core message in the SOTU speech.  Pay attention to How we plan to pay for it.  Hopefully we can address that issue in tomorrow’s post…

Until then, Be Careful out there and sell into this strength.

Dow Industrials:  10,899.92  -7.29
RYVNX:  17.90
RYAIX:  21.50
TLT:  90.42
BEGBX:  13.18

Sunday, January 29, 2006

Big Week Ahead

While this may be old news considering it was reported early Friday, we thought the GDP number is important to mention.  The number was a surprising 1.1% versus expectations of 2.6%, with last quarter’s number coming it at 4.1%.  Of course the interpretation by the silly stock market continues to be that a number like that will keep the Fed contained as it looks at raising interest rates.  The Dow rallied almost 100 points in the face of obviously slowing growth.  Meanwhile the December new home sales jumped 2.9% erasing some of November’s negative 11.3% number.  The consensus was for a further drop of 1.4%.  We probably shouldn’t confuse you with other facts like the prices of houses have dropped steadily while inventory for housing is at a record high.

So far, the economy is making it look like a slow, almost imperceptible, turn but the GDP number seems to indicate a broader contraction than anyone is willing to admit.  With housing turning down, there will be further declines in the GDP.  We always wonder about the inflation expectations as the GDP is always deflated by some inflation figures.  The lower the inflation factor assumed, the higher the GDP number will be.  I wonder…

Well, this week is going to be packed with news and the stock market and the bond market will make the most of it.  The big items are the Fed meeting, not to mention the fact that it is Greenspan’s last one, and the jobs report, both of which have the potential for making markets move.  There are too many others to list separately but we will highlight them as they occur during the week.

Tonight, the futures are not doing too much but that doesn’t mean that Monday won’t bring its own fireworks.  It is the end of the month and the last couple of trading days have been strong up days on significant volume.  We think that means that demand is finally meeting supply but we don’t know that for sure.  There are pockets of strength in the market, not the least of which seems to be the precious metals but we have abandoned that category due to the extreme prices there.  We wait patiently for better ones and we will get back into them when we get a good opportunity.  With so much media attention to the recent upward move in precious metals, we have to say that the end of the move must be here, too.

As you all know the Maestro is finally leaving his post as chairman of the Fed.  He is retiring amidst a sea of admiration that we don’t really think he deserves but the world won’t speak badly of him for now.  We’re not sure if they ever will but, as the True Contrarian says in his Sunday post, “Greenspan has created the illusion of prosperity through the creation of a mountain of debt, both personal and private.”  You can visit his site for more information if you like.

Until tomorrow, be careful and be selling this rally.

Dow Industrials:  10,907.21  +97.74
RYVNX:  17.95
RYAIX:  21.53
TLT:  90.51
BEGBX:  13.19

Thursday, January 26, 2006

100 Point Advance

The Dow Industrials mounted a substantial rally today, up almost 100 points.  Days like this can help people forget the likes of last Friday when we saw a drop of more than 200 points.  The headline that GM lost $4.8 billion in the fourth quarter wasn’t enough to get any notice whatsoever.  The bold bulls decided it was largely a nonevent and bought them from the bell.  Of course, GM was down hard on the day.

The GM news hit the market about the same time as the durable goods orders were released.  The durable goods orders were up 1.3% on expectations of about 0.9% with demand higher for airplanes, machinery, CARS, and capital goods.  So, when GM loses $8.45 a share during a strong durable goods period, one could make the case that if durable goods orders were not so strong that GM could sell less vehicles and lose even more money.  Earnings were negative $8.45 a share on a stock that is trading at $23.  

On a little brighter note, MSFT (Mr. Softie to you, or is it Microsoft) announced some stronger earnings after the close and gave the after hours market a lift.  As we write this, the futures are up strongly and could put some upward pressure on stocks in the early going on Friday.  

Of course, during the day, Chipotle made its debut breaking underwriting at $22 and opening around $45.  McDonalds decided to spin off part of the company and had a great day doing so.  They retained a controlling interest in the company so they are smiling I’m sure.  

We, ever the contrarians, were disappointed in one article that said that Ralph Acampora thought the Dow was headed for 8400.  We have rarely agreed with Mr. Acampora on a short term basis so we were happy to read that he thinks this pullback to 8400 will set the market up for a large bull move, in his quantitative words “a gangbuster move going into the latter part of 2006, all of 2007, and probably 2008.”  At least you could be bullish under his interpretation of the up coming Years.

In spite of the sage advice of Mr. Acampora, the market is teasing the bulls again, rallying strongly on Thursday.  We are of the opinion that we have a little pop here due to the “oversold” (in some opinions) market and the end of the month happy time.  The test for the market is to climb above the highs of the month.  We don’t have an opinion on the actual attempt but will comment on any progress towards that goal if it develops.  We still recommend you Be careful…

Dow Industrials:  10,809.47  +99.73
RYVNX:  18.38
RYAIX:  21.79
TLT:  90.51
BEGBX:  13.30

Wednesday, January 25, 2006

Lower Existing Home Sales

You may not be surprised by this but the big news of the day was the existing home sales being down 5.7% from an upwardly revised November pace. Still, the data point is still there at 5.7% Lower than November. We are not surprised by the number and expect more of the same going through the year. The article in the WSJ was quick to point out that total sales for 2005 were up 4.2% from the 2004 pace and the median price was up 10.5% from 2004 to 2005. While these items are important, we would suggest that housing has probably seen its high point in 2005 and will show a decline in both numbers over the course of 2006.

When the news came out, the market dropped from its higher open. The Dow dropped about 60 points in a half hour and then tried to recover ending about where it was when it dropped 60. After all was said and done, the market basically was flat except for the NASDAQ 100 which dropped over 0.5%.

The real estate market is an important piece of the entire economy. This sector has employed many people, and while growing it has provided enormous liquidity for itself. Here at the WU, we think that the realization of the real estate turn in the stock market will cause a bit of a drop. This represents the core of our thinking on the stock market. We’re not sure the stock market is capable of figuring it out for itself but in time it will. While we know we keep hammering on this point, the fact is that the data points are coming in to support the theory.

And, as we have surmised over the past couple of months, the dollar looks to be going down again after a fairly decent up move in 2005. We mentioned that the dollar composite, which is what we concentrate on here at the WU, has dropped from an intermediate high of 120 back in 2001 to a low of around 80 in early 2005. By November of 2005 it had rallied back to the 92.50 level. Now, it’s dropping into the 80’s and this week fell below 88. This move doesn’t seem like much but we are keeping an eye on it.

We see significantly less bullishness out there for the stock market, meaning we don’t see much buying going on. The fact that buyers are not coming into this level probably means we will be dropping again soon. Today’s volume was high as was yesterday’s and there was little movement upward. We surmise that this is due to sellers meeting buying demand and when the buying slows down, prices will go down. The bulls have used a lot of fire power this year so far.

As you can see below, the TLT dropped quite a bit on Wednesday even with the poor housing numbers. We probably are staying too long at the party, what little partying there is in the bond market these days. If the bond market fails here and mortgage rates go up, the housing market will have even more difficulty.

That’s enough for tonight, but you Be careful out there…

Dow Industrials: 10,709.74 -2.48
RYVNX: 18.68
RYAIX: 21.96
TLT: 90.90 (ouch)
BEGBX: 13.38

Tuesday, January 24, 2006

An Up Day

The stock market recorded an up day Tuesday rallying the Dow only about 25 points but pushing the NASDAQ COMP up over 16.  So, how does this fit into the grand scheme?  Well, the COMP drop last Friday was about 55 points and now we’ve seen a nice corrective rally of about 17 points so far.  The overnight futures are higher this evening but those cannot be trusted for real trading in the morning.  Fibonacci would allow about 20 points of correction at the first level of resistance and then about 27 at the second level.  The best we can say is that the market should be hitting resistance in the next ten points, or so, on the COMP.  The Dow has barely registered on this bounce.

One of our readers (thanks CM) sent in a nice article on the technical side of the market over the past several weeks.  It reads like a page out of the Wednesday Update (WU) with its talk of support and resistance, as well as failures.  We know that the market reacts to the failure of achieving the previous high.  This is exactly what happened last week when the Dow first broke down through 11K, after a magnificent three days above that level.  Then it tried to rally but couldn’t get back to that 11K level, setting it up for the fall on Friday.  The article, Where’s the Bounce? By Tomi Kilgore, was on for those of you interested in trying to find it.  I’m not the only one paying attention to these types of things.

The big news today was the Pixar purchase by Disney.  I don’t see this having any big influence on the market but thought I would mention it.  The news we are waiting for is over the next couple of days.  Wednesday brings the December existing homes sales with a forecast of -1.0%.  Then on Thursday we get to see the durable goods orders, expected to show a 1.5% increase.  And, then on Friday comes the December new home sales with a consensus of -1.4% after last month’s -11.3%.  We are interested to hear what the real numbers are going to be.  

Be careful.

Dow Industrials:  10,712.22   +23.45
RYVNX:  18.48
RYAIX:  21.84
TLT:  91.90
BEGBX:  13.48

Monday, January 23, 2006

Calm After the Storm

After Friday’s drubbing, the market managed to hold on Monday.  The market was in no mood to attempt a recovery from Friday.  In fact, it barely managed to stay positive.  For a Monday, the trading was unimpressive.  Normally, after a Friday options expiration where stocks took a hit, there would be some bounce back rally and there was a modest one but nothing that the bulls would have liked.

Now is when everyone is looking around to see if there is any sign of buying and then if there is any follow through to that buying, meaning the buying can be sustained.  Such was not the case on this Monday.  It did appear that the bears were resting but after Friday it only appears that way.  There should have been a good sized rebound.  Now the buyers are going to get a little more timid.  The sellers seem to have taken the upper hand for now, but we continue to watch.

Two items in the news Monday, the first is the LEI, the leading economic indicators.  The LEI showed a little strength as it was up 0.1%.  This is certainly nothing that played into the market today as it was largely ignored.  

The other item has to do with RIMM, Research in Motion, the makers of the popular Blackberry handset.  The Supreme Court refused to hear the case.  RIMM is a Canadian based company competing fiercely here in the US against NTP Inc. on a patent dispute.  We have commented on RIMM in the past and wonder if it can now settle its problems with NTP.  NTP would like to shut them down here in the US and that remains a possibility.  RIMM was down about 4% on that news today.

As we wait for future confirmation of the bear market reasserting itself, we continue to watch the markets for signs of what it wants to do.  Friday was a big clue we think so we are waiting patiently for future weakness.  As the weeks progress, we expect a number of people will be talking about how they should have sold in the first couple of weeks of January but now it’s too late—COME ON, don’t be one of those people.

Be careful and watch for good selling opportunities, those would be when the market or your stock rallies.  

Dow Industrials: 10,688.77  +21.38
RYVNX:  18.68
RYAIX:  21.95
TLT:  92.35
BEGBX:  13.48

Sunday, January 22, 2006

The Morning After

The stock market had several issues to deal with on Friday, not the least of which was options expiration.  As the market opened there were two big companies, both Dow Industrial components, that announced less than stellar earnings news, that being GE and C, General Electric and Citigroup.  These companies started the Dow down about 30 points at the bell while the NASDAQ opened rather quietly.  This did not last too long.

As the day wore on, the sellers dominated trading and pushed prices down mostly all day such that by the end of the day the Dow was down over 200 points and the NASDAQ was down over 50.  On Friday there was no celebrating the buying opportunity, as that had been done the day before.  No, on this day, there was mostly just rationalizing the fact that many stocks were down.  The loudest point was that options expiration had pushed the volume and the volatility up.

While we may agree with the high volume being related to options expiration, there was persistent selling all day long and only one Dow Industrial component was up on the day and that was McDonald’s.  All of the other components were down in a very pervasive down day (I am liking the P words today, I guess).  The stock market got pounded with heavy volume—that is the important part to remember.  The other part is that the Dow has dropped below all of its trading for year.  The stock market must try to pull it together on Monday—we don’t expect a lot, if any.  


Dow Industrials:   10,667.39  -213.32
RYVNX:  18.67  (what a difference a day makes)
RYAIX:  21.95
TLT:  92.38
BEGBX:  13.34

Thursday, January 19, 2006

Options Expiration Friday

The market is trying its best to rally out of the selloff that occurred this past week.  The SOX was the leader again today, up about 3%, again leaving INTC beside the road.  Both the dollar and gold were up today in another wild day for gold up about $15.  Gold likes the Fed not raising rates either but the dollar shouldn’t like it???

The day was full of news so let’s get to it.  First, we note with interest that home construction dropped 8.9%, not a total shocker but a key indicator for the Wednesday Update.  For its part the stock market liked that news as it means the Fed can slow its onslaught of interest rate increases.  This line of thinking seems contra intuitive because a stronger housing market should be good for the economy but who am I to judge.  The entire rally from the first trading day of the year has been all about the Fed stemming the tide.  

With the long post last night we failed to mention the CPI which was down 0.1%.  I want you to note that this was the headline since it was in the bulls favor.  How long have we been told that the core rate is the important Fed watching rate?  Of course, there was mention of the core rate being exactly as expected up 0.2%.  Just wanted to remind you of the wonderful spin the media uses.  (Speaking of the CPI we are going to have to drag out the deflation story pretty soon what with both housing and the CPI going down.)

Our old arch enemy bin Laden was in the news on Thursday, making threats and demands.  What a happy guy.  He could have some ability to move the markets one way or the other, at least for a few moments.  

In earnings news, after the close, MOT, Motorola said that its earnings jumped 86% but the stock took a dive after the news.  MOT said it couldn’t meet the holiday demand for its RAZR thin cell phone.  This and the bin Laden news seems to be putting drag on the overnight futures this evening.  We’ll see how the market trades in the morning.

One of our readers sent me an article on three warning signs (thanks CM) that we should be paying attention to.  One of them is the fact that consumer credit has contracted in the last two consecutive months, another is that home sales have turned down, and the last is that the yield curve inverted briefly in December.  These are three signs that the economy is not on as firm ground as many think, and it enhances the recession thinking as well as the deflation thinking.  The article is on,2933,182076,00.html.  

We are certainly interested to see if the market can hold this latest advance.  Thursday’s market was not a strong affair, just a bounce.  For a while it looked as if the market would just go merrily on higher but as soon as the highs were in, the market struggled.  Talk to you Sunday evening.

Dow Industrials:  10,880.71  +25.85
RYVNX:  17.58
RYAIX:  21.28
TLT:  92.14
BEGBX:  13.30


Wednesday, January 18, 2006

Modest Down Day

Buyers immediately came in on Wednesday morning and lifted prices after the market opened significantly lower, such that the Dow was nearly unchanged an hour into the session.  The other indexes were not quite that strong but they did start out lower.  Curiously, the one index that did manage to close positive was the Philadelphia Semiconductor Index, the SOX as we know it.  This index has INTC in it and INTC was down over 10% today so I guess the hit it took was stock specific.  When the market rallied in the first hour, the SOX was the leader but it didn’t get any help from INTC all day.  So, there you go, the SOX leads the bullish charge but leaves INTC on the side of the road to die.  

The news from the Fed’s beige book was greeted with some buying in the afternoon too but for the most part the market went out about the way it came in, down a bit.  The media was full of bullish articles recommending people not panic or my personal favorite from CNN.Money about the Chicken Little’s being wrong and world is not coming to an end and that the market is 10% undervalued right now.

We consider all bullishness to be the result of the early January rally that took the Dow over the big 11K hurdle.  The fact of the matter is that the market is Overbought and is due for at least a correction.  As of the close today the Dow is down about 200 points from the highs set last week.  Today, the market showed signs of rolling over from its overbought position finally.  

The important thing to remember is that analysts, including me, do not really know what the market is going to do this year.  I like to think we bring some unbiased (although predominantly bearish) opinion but…  

Based on the Barron’s Roundtable discussion I mentioned yesterday there are people in both camps.  One of my favorite sections in the article was that someone said they thought that the market was going to go up about 15% this year and another one said that he was in the 10% to 20% camp too but on the downside.  Both of these people cannot be right but they are looking at the same market.  

We warn you to protect yourself from generalized thinking and concentrate on your stocks.  Well, we do generally think you should sell but there are some sectors that may outperform, I just don’t think it’s that easy to find out which those are.  Our focus is on the technology, financial and precious metals.  None of these look like value buys at this time.  

After the close, AMD, Advanced Micro Devices, had some good news and the stock popped about 10%.  AMD is INTC’s primary competitor; let’s see, INTC is down 10% and AMD is up 10% but in the same industry and basically on the same day.  We have been watching this pair for a while.  Back in October AMD was trading around 20 and tonight in the after hours trading, it closed at 37.80 according to one source.  INTC, on the other hand, traded down under 22 in the fall and rallied to just over 27 in the first week of the year only to close tonight at 22.51 in after hours.  

In other earnings news, AAPL (Apple Computer) announced earnings after the close that didn’t satisfy and it suffered a drop of about 7% right after the news but managed to trim those losses before the close of after hours trading so that it only sported a 3% loss.  EBAY announced stunning results but 2006 forecasts were less than hoped for by the owners and they sold EBAY off a little in after hours.

Japan turned around last night and tonight is trading up.  There has been some volatility there this week, wow.  

Thursday we are going to be looking to see what the December new housing starts number is.  This number could be a market mover but even if it isn’t, we are going to be interested in the number.  Real estate will be the key to the stock market and the economy this year.  Be careful…

Dow Industrials:  10,854.86  -41.46  (not much decline here)
RYVNX:  17.84
RYAIX:  21.44
TLT:  92.57  (couldn’t hold the early strength)
BEGBX:  13.37

Tuesday, January 17, 2006

Can You Feel It?

Lots to cover tonight, for a nice change, so let’s get to it.  Obviously, we missed the call on the morning action as we figured it would be just another “Monday”.  (In our defense, we did say that the market probably wouldn’t hold any of the early gains.)  Overnight trading was uncharacteristically down going into Tuesday’s opening and the market opened with a bit of a thud.  So many times the market has managed to enjoy this type of opening and move it up shortly into the morning session, not so on Tuesday.  

Much to the bulls dismay, the market basically chopped around all day long with no real effort to the upside even though it closed near its best levels of the day, that was down over 60 points in the Dow.  The blame was given to oil which tacked on nearly 4% today moving above $66 again on Iranian concerns as well as disruptions in Nigerian oil.  The late summer highs over $70 look to be in sight with this recently powerful move up in oil, with some modest resistance near $68, but not much.

So, after a day of lower prices, the market looked to the news after the market closed for some hope.  That was not to come after INTC and YHOO both disappointed and dropped about 10% each on fairly strong volume in the after hours trading.  After that news, the futures are very weak this evening as we write this with the SP’s down about 9 points and the NASDAQ 100’s down about 25.  Wednesday’s trading will be something to see as the market unravels the mystery of where it wants to go after the bell.  

Wednesday morning brings the CPI with expectations of 0.2%.  This report has not generated much in the way of the market but with an opening like we are probably going to see on Wednesday (in case you didn’t read above very carefully, that would be Down) it could exacerbate the situation given it comes in a bit higher than that.  In all likelihood there will be very little response to the CPI numbers but we feel compelled to remind you that they are out there.

This past weekend I had an opportunity to read Barron’s magazine article that comes out in January each year, the Roundtable discussion.  This is a conversation with several high profile investment people making their annual predictions for the coming year.  There were some interesting comments and, as usual, differing opinions which is what makes this such a fascinating article to read each year.  The most “intelligent” comments were from the PIMCO bond king, Bill Gross, who we have quoted before.  

Mr. Gross suggested that there may be trouble in real estate land and in dollar land in the near term.  His point about real estate was the simple fact that so many people have recently used exotic mortgages to slip into housing that was just a little too pricey for them to buy with the traditional type mortgages.  Mr. Gross said that these ARM type mortgages are coming up for reset and that reset will automatically pop up the monthly payments required on these houses.  This will put additional pressure on the housing market as less and less speculation will be able to be done as people need to actually pay for some of that debt they created.

His other thought was regarding the dollar.  He said it was “doomed” as a currency.  Now, Mr. Gross can be a little cavalier in his description of things but he was trying to make an important point about the dollar.  This couples with the changing of the guard at the Fed from Greenspan to Bernanke.  

This market has a very sensitive tone to it this evening.  We’re not sure that all this bullishness can be rewarded with an up market.  We may be wrong but Wednesday could be a very difficult day.  Japan has been a good up run here over the last few months but after our news after the bell the Nikkei Dow is down over 700 points or about 5%.  If that can hold, New York will have a tough morning.  

Of course, the Fed’s beige book will be coming out right after lunch so maybe they can focus on what the Fed said a while back.  Then again, maybe not.

Dow Industrials:  10,896.32  -63.55
RYVNX:  17.43
RYAIX:   21.19
TLT:  92.44
BEGBX:  13.38

Monday, January 16, 2006

Volatile Week Ahead

The stock market has spent most of the year trying to go up with the Dow crossing over that magic 11K figure for three days last week.  Friday’s close was just under that figure as the Dow had dropped below 11K on Thursday.  

We anticipate a volatile week this week as the bulls and the bears try to figure out if the market is “for real” or not.  The week contains the first options expiration of the year and that in itself should provide enough fireworks.  Tuesday we get to hear from INTC which should provide the market with something to chew on.  There is a lot of hype surrounding INTC’s announcement so there will be a lot of attention directed to it.

The front page of the WSJ on Tuesday will provide another trigger, that being the fourth quarter slowdown.  The article points out that economists estimate that overall growth fell below 3% in the fourth quarter.  Don’t worry though, consensus for growth in 2006 is still higher than that at 3.4%.  

We are looking forward to another week of trading.  All of the buying that took place over the past two weeks has eaten away at some of the cash sitting out there and we look for a modest pullback for now.  

Even thought it’s Tuesday, the market thinks it’s Monday so we expect at least an up opening.  We’re not expecting much and we expect it to be sold.  As the week progresses we will look for more clues as to the future direction of the market.  

We think the correct position is Cash and Cash is King.  Be careful and be selling.

Dow Industrials: 10,959.87  -2.49
RYVNX:   17.23
RYAIX:    21.06
TLT:   92.03  (What a difference two days can make!)
BEGBX:  13.42

Just as a reminder, these four investments had dividends at the end of the year or as is the case with TLT monthly dividends that have not been taken into account.  These dividends  make these numbers better than what they show by adding a little extra income.

Thursday, January 12, 2006

Only 3 Days Over 11K?

Not much in the news today as the Dow and the broader market decided to take the day off with regard to the rally. We continue to report that the momentum indicators are overbought and that, by itself, is reason for caution. This pullback was well contained today but it brought the Dow back under the magic 11K figure we have seen the last three days.

We mentioned the trade gap report in the last post but wanted to review that data point. The main issue is the oil. The average price of a barrel of crude was 52.16 in November having fallen 7.3% from the October. Fast forward to today when the price is right around $64 and you can see where the trade gap / deficit is going.

The other issue is the size of the deficit. I guess when you’re talking about $60 billion another $4 or $5 billion really doesn’t matter but… the trade deficit over the past three months has been the highest ever. November’s number, from Thursday morning, was $64.2 billion, in third place to October’s world record of $68.1 billion and September’s number of $66 billion. You can probably start to envision what that number will be for December and now January with the price of oil so high.

Friday the 13th we get the Producer Price Index (PPI) for December and expectations are for a bounce back from the last month’s -0.7% to a much more positive number of 0.5%. But, don’t forget that depending on which way things go, we probably will need to consider seriously the PPI ex-food and energy because they’re so volatile. (Do you hear the sarcasm?)

We’re not sure what could drive the market in either direction and with a huge PPI, the market might decide it doesn’t like the idea because the Fed may not be able to slow its rate hikes. We don’t think there are too many dreary ideas like that to move the market. The slowing rate hikes news has run its course for the time being but not much else has that kind of media attention to move the market. We are still bearish and particularly against Wednesday’s highs in all indexes.

Dow Industrials: 10,962.36 -81.08
RYVNX: 17.20
RYAIX: 21.04
TLT: 91.50
BEGBX: 13.32

11K Day 3

The stock market continues to be overbought and we are firmly bearish at least for a modest correction of this big up move. I am posting on Thursday morning right after the opening bell and there seems to be a weak start on the street. We saw a weak start on Tuesday morning that didn't stick but the market is more overbought today than Tuesday. Volume has been fairly strong and has been on higher prices. This has been expected with the first week of the year normally used to commit funds. This may be a bullish thing but for now, we need at least a correction of the move.

The news this morning is that the trade deficit narrowed last month. On the surface there are any number of conclusions to draw from that, not the least of which is that Americans bought less overall last month. We think that the consumer will pull in their horns this year due to their ATM's not furnishing them with enough cash to continue spending above their needs. The consumer will need to start paying the debt that has built up over the past ten years. These events will cause a recession.

The other news is the price of oil persistently rising over the past few days, North of $64 this morning. The market has had to deal with higher oil and higher interest rates and has risen in the face of these things. The time is soon coming when that will not be the case.

This is necessarily quick (and late) but I wanted to post something to let you know that I am still here. We weren't able to put a good post up last night due to some other commitments that came up at the last minute before I drafted the post. We should be back to normal this evening.

Thanks for your patience

Dow Industrials: 11,043.44 +31.86
RYVNX: 16.99
RYAIX: 20.92
TLT: 90.89
BEGBX: 13.37

Tuesday, January 10, 2006

Day 2 for 11K

Not much to report from Tuesday’s trading or news.  The Dow managed to hold on to 11K somehow and the broader market shrugged off early selling to close basically flat.  The bonds got smacked probably based on near term supply issues, coming next month.

Apple computer (AAPL) announced that it was putting Intel (INTC) inside—which could be the biggest news of the day.  INTC didn’t react much either way to that news.

So, a few people have tried to contact me regarding the latest run to 11K in the Dow.  I think they just want to let me know that they are paying attention to the market and know that I would be interested, which I am.  These types of calls are proof positive that the majority of the world (okay maybe some of the people I know) watch the Dow and whatever it does is what the market is doing.  

Hitting 11K may be exciting and all but the whole idea is that the Dow has been there before a few times in the past decade and people are Still bullish.  

We watched the market with pain today as the nice little pullback was erased and the market managed a flat close.  Right now the market is doing what it can to confuse the most people.  We are losing money over the past six weeks and we don’t like it very much.  The market is Still over bought and is due at least a correction in this rally.  When it does come down, we will assess the indicators to see what we think then.  

For now Be careful and Be selling.  Cash is King.

Dow Industrials:  11,011.58  -0.32
RYVNX:   17.27
RYAIX:  21.08
TLT:  91.04  (not a good day for bonds)
BEGBX: 13.33

Monday, January 09, 2006


Monday the market staged another rally as is the normal course for Monday’s.  This one left the Dow Industrials above the Magic 11,000 number.  So, all the bulls should be happy and Should Be Selling.  Once you get to the top of a mountain, you take a deep breath, look around and say “What a beautiful view”, and then go back down.

In Sunday’s post, titled SELL, we said to sell in Monday’s session and that we would deploy more funds on the short side here at WU.  The market gave us a remarkable opportunity to increase our positions with the gains recorded today.  We dived into more of the RYVNX at today’s close of 17.31 after getting in much higher in October at 20.56.

Today George Soros made the news with his 2007 pick for a US recession.  He thinks the Fed will move the funds rate up to a too high 4.75 % and deflate housing prices to tip the economy into a recession in 2007.  He said the collapse in housing prices could be associated with a dollar decline, something we have alluded to in these pages.  

Consumer credit fell in November marking the first consecutive two month decline since June 1992.  Last week there were other headlines that we noticed like, Freddie Mac sees home sales down 6% to 8% in 2006, US mortgage applications decrease, Americans saving less than nothing… At some point some one is going to put the dots together and make a very ugly picture of the true nature of the market.

In one of my daily reads, I saw an interesting thought that I wanted to share with you.  Stock prices are not sure what they want to do.  Stocks, like BBY, get hammered one day and magically bought the next.  Why is that?  The article suggested that there is no anticipation in the market by either the analysts or the players.  It suggested that no one is anticipating a price changing event in a stock, they are all following the price change going on right now.  

We have watched market rally for the past week on significant volume and probably should be a little more cautious about calling for an entry point here but the market is overbought and should be sold.  Momentum indicators have flattened and our favorite volume indicator has hit a high below the high set in early November.  The five day upside volume surged past 1.2 billion shares today and is flashing red.  We are pleased to be able to get these prices.  

Be Careful and Be Selling.  Cash is King.

Dow Industrials:  11,011.90  +52.59  (There you go)
RYVNX:  17.31
RYAIX:  21.10  (did you buy some of this today?)
TLT:  91.78
BEGBX:  13.36

Sunday, January 08, 2006


The Dow Industrials closed right near the 10,950 mark we have talked about several times in the last month.  If, and we don’t think it will, but if the Dow can make a meaningful advance above here, then there could be some additional move left in the Dow.  We don’t think that there is much left here due to the extreme buying we saw last week.  Taken together with the fact that most of the momentum indicators are overbought, these signals are too loud to ignore.

Last week we talked about media suggesting the market was “hoping” for a weak employment number so the Fed would back off on their interest rate hikes.  Well, Friday’s jobs report showed a lower than expected 108K jobs created in December as opposed to the expected amount of 220K or so.  Let’s not forget that the numbers included a bump to the November numbers of 90K which could be taken together with the 108K to come close to 200K, but that is too logical.  The market decided to go on a major tear, especially in the NASDAQ.  Oh, and before I forget, why is this economic expansion only creating about 200K jobs a month, this is very weak?

I received an email about an article related to the Chinese possibly switching its reserves Away from the Dollar.  (Thanks EC)  These are rocky times for the dollar after its stunning run up that took it up to 92 into the end of November last year.  The dollar was not too happy with the notion that the Fed might be near an end in its interest rate hikes and has dropped from that 92 in November to below 89 last week.  The Chinese suggesting they want to move some of their reserves to something else, like gold or possibly the Euro, may deal a significant blow to the dollar.  You may ask “What’s the big deal?” and I would tell you that the Big Deal is that Real interest rates, long term interest rate, those not controlled by the Fed, would go up.  We are waiting for this to happen (preferably after we get out of our TLT’s).

In the short run, we are going to sell into this strength starting Monday.  We are going to go out of cash and into shorts as we think this rally is nearly over.  We normally would not recommend this to our readers and we don’t recommend that now.  [If you so choose, we would suggest buying the RYAIX, which is a 1 times inverse fund of the NASDAQ 100.  We have been in the RYVNX (yes I know) which is a 2 times inverse fund of the NASDAQ 100, a little more speculative than the 1 times fund.]  But, we do suggest selling some of your long positions.  You probably have pretty good prices in your stocks and now would be a good time to consider getting out.

Be careful and Be selling.  CASH IS KING again.

Dow Industrials:  10,959.31  +77.16
RYVNX:  17.44  (ouch but a good buy and we will buy)
RYAIX:  21.18
TLT:  91.72
BEGBX:  13.42  (as this goes up, the dollar has gone down)

Thursday, January 05, 2006

January Jobs Report

Thursday’s market tried to keep the rally going but the Dow struggled to close up and then only by 2 points.  The Dow has had a weak advance, relatively speaking by not being able to get over 10,900.  The NASDAQ COMP on the other hand has shown some strength over the past three days.  

Friday gives us the monthly jobs report since it is the first Friday of the month.  Thursday evening’s CNN Money headline was “Hoping for the worst on jobs?”  Here is a time when even the bulls don’t really know what to think.  They now currently see that the Fed clearly is indicating the end is in sight for further rate hikes.  This thought pattern was bullish this past Tuesday as the market sprinted ahead after that news.  So, now the jobs report must be weak in order to keep the Fed to their promise.  

Another announcement on Thursday that seemed noteworthy was from IBM.  They said they would discontinue their contributions to their pension plan starting in 2008 and concentrate more on their 401(k).  IBM said this action would save them about $3 billion in four years.  We find it interesting that now that the pension plan is starting to cost more money due to lower interest rates, IBM doesn’t want to make these contributions.

Take a look at Friday’s WSJ for an article titled “Home-Sales Index Declines Again; Jobless Claims Fall”.  We point this out so that you can read for yourself the news coming out of the housing market.  The pending-sales index fell 2.5% in November from October, falling for the third consecutive month.  The article says that the data seems to suggest the housing market peaked in mid-2005 somewhere around when we were starting to see signs.  

The housing market is a difficult animal to wrestle.  I’m not sure that the article is completely honest about the future of that market.  Human nature forces people to do things that cause prices to roll over slowly rather than immediately crash.  We have discussed the slow rollover and it reminds us of a roller coaster coming over the top, it starts slowly as the first cars come over the top and by the time the last car is over the top the speed picks up quite a bit.  People hold back on selling their homes and then start dropping prices.  

Our core philosophy about the stock market centers on the housing juggernaut slowing down.  The ability for people to take money out of the ATM’s they live in is being reduced by slower increases in prices.  The key is that so many people have speculated on housing and these are the people who will Have to sell at some point.  They never thought they would hold the houses for long anyway.  It will be a rough year if housing fails.  There are many jobs in that business and a Lot of debt that needs to be paid.

As for the jobs report, the estimate is for about 220,000 new jobs.  We don’t know what effect the real report will have on the market but we said yesterday that Thursday would probably be a top and so far we think that is just about right.  

We hope you are taking steps to sell into this rally.  Cash is king again.  We see no good alternative to cash at the moment.  That is, unless you think you can go short.  Be careful and be selling any further rallies.

Dow Industrials:  10,882.15  +2.00
RYVNX:  18.06 (buy now)
TLT:  91.89
BEGBX:  13.34  (the dollar finally stopped falling, for a day)

Wednesday, January 04, 2006

Two Up Days in a Row

By all accounts the market continued to move higher Wednesday.  The SP 500 managed a new closing high for the move and the NASDAQ COMP tried to but missed by a small margin.  The bulls are having a good time and this will probably continue for a short while.  Today the momentum indicators have pushed up and are near over bought levels.  If we were to guess, we think this rally has about one more day in it.  Of course, the move over the past two days in the NASDAQ has been quite impressive.  The other NASDAQ index we follow, the 100, has been lagging the COMP and we’re not really sure why that is.  

For the market in general, this is definitely a time to start taking some profits for you bulls.  We talk about this all the time, I know, but the reason you are in the market is to make some money and the last two days have done just that.  What are you going to do?

The major markets we follow have mostly been up with the stock market up the most the last few days.  Oil has enjoyed a rally from $58 to $63 in about a week and gold is up from $495 to $535, while the HUI has made a big move from 252 to 303 in two weeks (yes, I know, we are out).  Bonds are up, too.  The only big market where we should be somewhat concerned is the Dollar which has not liked the Fed’s news very much.  

We have talked about the possible dollar reaction to any slow down in interest rate hikes.  The primary reason for the Fed to raise interest rates has been to protect the dollar, not to fight inflation as is the normal thought process.  We do expect to see at least another rate hike coming here in late January which the dollar will shrug off and the stock market will probably cheer for a day or so, it being thought to be the last.  

Until we have a clear place to enter new trades we will wait until this rally is exhausted which may be on Thursday but we just don’t know for sure.  Whenever it is exhausted we expect to have a pull back and then a rally, just because, but a rally that doesn’t quite make a good high.  That will be our best signal to establish new short positions.

Until then be careful and be selling into these strong mornings.

Dow Industrials:  10,880.15  +32.74  
RYVNX:  18.25
TLT:  92.00
BEGBX:  13.35   (two days of dollar declines have pushed this up)

Tuesday, January 03, 2006

Outside Up Day

Tuesday’s market had to make a decision on the direction it wanted to take.  Early on it was up as the overnight futures were strong.  That early rally fizzled as we dropped hard for a little while during which the Dow was down about 30 points.  This fade was followed by a move back to unchanged where it traded for the next couple of hours.  Then the Fed’s minutes were released indicating that the Fed was almost done increasing rates.  Well, the next hour was pretty much straight up as the Dow gained about 140 points.  Other market indexes fared similarly and brought smiles to many bulls.  

As we mentioned in yesterday’s post, we expected “a traditional rally for the first few days of the year.”  We didn’t think the market would try to make the entire Fibonacci retracement in one day but it may have.  We actually thought about the 10,850 level as the perfect retracement level when we posted yesterday but today may mean the bulls want to move up a little bit more.  That is fine with us as we could take advantage of higher prices to sell into.  That has been the plan anyway.  We will see how the market trades in the next day or two.

Today’s volume was fairly strong the indexes all enjoyed an outside Up day.  These types of days should be viewed with a little caution as it was news related and did not come out of thin air.  When rallies or declines come just because and without any news, those are the ones to really watch.  It has been widely anticipated by the bulls that the Fed would have to stop raising rates sometime soon.  Today’s news that the rate increase program is almost over gave the market a relief rally.  

Don’t forget to watch for a move up to the ceiling the market set for itself over the past couple of months.  These levels are the key ones to watch.  A big rally like today was preceded by weakness last week so be careful.  

You may be aware that the type of environment we are in would be good for the precious metals and their stocks.  That was true in a big way today as gold was up about $12 and the HUI was up over 20.  It’s difficult to watch these prices go up without us but we still don’t think the rally has legs even though today was pretty impressive.

That brings us back to the stock market.  The stock market rallied in spite of the big increase in oil prices.  So, the market is shrugging off fundamental negatives coming from the commodities markets.  Again we say, Be careful and be selling rallies.

Dow Industrials:   10,847.41   +129.91
RYVNX:     18.60  
TLT:    91.78
BEGBX:  13.22  (dollar took a hit today)

Monday, January 02, 2006

Happy New Year

A new year is upon us and with it comes an opportunity for a clean slate, so to speak.  This new year hasn’t been with us very long and we haven’t made too many mistakes so far.  Let’s see that we don’t knowingly make a lot of investing mistakes this year.  

For 2005 we didn’t see much movement in the major averages and it was a struggle to continue to pay attention throughout most of the year due to the Dow magnet of 10,500 even though the October rally pushed the Dow up near 11,000.  That magnet seemed active again in the last week of the year, as the Dow sank 165 points in those four days to close at 10,717 just about where it began the year.  All three of the major indexes we follow showed less than a 3% return for the year.  Our early mantra of “cash is king” was a particularly good strategy as the stable value fund, that most of my 401(k) money was in, earned about 4.5%.  How was your year?

[Speaking of your year, we are planning on sending out an email update sometime in the next couple of weeks to those people I have sent the WU to when I stopped writing it this summer.  I will include my little excel spreadsheet for calculating your net worth.  You should start collecting the year end mail that you receive in order to do your own calculation.  So, be on the look out for that email.]  

As for the new year, we expect a traditional rally for the first few days of the year. Although last week’s drop doesn’t really set the market up for any new high fireworks, it does set us up for a possible bounce up to create the illusion of a solid rally.  The market has shown nothing in the way of solid strength for almost two months so we’ll see how the first week can play before we get too excited about any upside.  

As the next few days of trading should tell us much about the current state of the market, we will hold off any changes until a clearer picture emerges.  We consider that any good rally will give us more opportunities to short.  This thought process will firm up quickly over the next few days so come back soon.

End of the year 2005 values (yes, I know, if only I could give you values for the end of year 2006):
Dow Industrials:  10,717.50
SP500:    1248.29
NASDAQ COMP:     2205.32
NASDAQ 100:   1645.20
RYVNX:  19.43
TLT:  91.90  
BEGBX:  13.03  (xdiv a few days ago of about 22 cents)