Tuesday, February 28, 2006

GOOG Droops on Fat Tuesday

The news this morning was decidedly shrugged off by the market; you know, little things like the Giant GDP revision to up 1.6% from 1.1%, the Conference Board Consumer Confidence Index dropping to 101.7 from 106.8 with expectations of 104.6, or the Chicago Purchasing Managers Index falling from 58.5 to 54.9 when estimates were for an unchanged number.  

You might have thought we had forgotten about the existing home sales, but we haven’t.  We may have mentioned in the last post that the estimate was for a rise of 1.5%, don’t you know that the weather in January was extraordinarily warm and interest rates were still in a fairly nice home buying range.  But still the existing home sales dropped 2.8% very much in line with our thinking.  The market shrugged off all of this negative news…  

But then, the CFO of GOOG made some statements the market perceived to be negative and GOOG dropped about 50 points in about 5 minutes and dragged the entire market down with it.  Of course, GOOG was debated all day about whether it now should be  bought or sold and by the end of the day was only down about 27 while the broader market ended lower.

As bears, we would say that the market was ready to be sold or it wouldn’t have gone down.  This trading day makes the strong week of the month look a little tepid.  We anxiously await the follow through on Wednesday.  Our position is that the market is overbought and needs to have a firm selloff.  We believe that the market peaked in early January and has now been in the midst of telling us, with all of the non-confirmations, that the market wants to go down.  We cannot emphasize this enough.  Tuesday’s market was just another little message and we should heed it.  

We are getting more confidence daily that the market is rolling over.  You should be checking your stocks to see what they have been doing in this past two months.  If they are not performing better than the market then you need to consider selling them very soon.  Let me know via the comment section with any questions you may have.

Be careful out there…

Dow Industrials:  10,993.41  -104.14  (below 11k again)
RYVNX:  18.89
RYAIX:  22.12
TLT:  91.35
BEGBX:  13.11

Monday, February 27, 2006

Housing Hits a Wall of Sheet Rock

Just a couple of quick notes on Monday’s markets…  The Dow gave the broader market a chance to catch up a little as the NASDAQ Comp rallied for nearly a percent while the Dow managed a quarter percent move.  The Russell 2000 managed to make a new high for those of you in that category.  The SP500 closed just under its 2006 high.  This time of the month generally gives the bulls a breath of air and Monday was no exception.  

The news on RIMM was a little negative but the stock only dropped about 2.5% during the day.  The court case has been bounced around in the stock market just like the price of the stock itself.  The owners of the stock do not feel much pressure to sell thinking that the courts would never allow the Blackberry to go dark in the US.  

To our way of thinking, the housing number was the most important of the day and it was not positive.  The new home sales for January dropped about 5% but more important was the inventory of unsold homes which pushed to a ten year high.  The housing market has peaked and is already heading down but the price action is a bit delayed.  Tuesday brings the existing home sales and we will be watching for that.  The consensus is for a 1.5% rise in these sales.  We’ll discuss the results of these two data points on Tuesday evening.  Until then… Be careful out there.

Dow Industrials:  11,097.55  +35.70
RYVNX:  18.33
RYAIX:  21.79
TLT:  90.90
BEGBX:  13.01

Sunday, February 26, 2006

Just Whistling

By all accounts this new week should tell us the story of what the US economy is doing.  We like the news items that are coming out this week such as Monday’s New Home Sales for January and Tuesday’s Existing Home Sales for January as well as a couple of others.  We don’t believe the market is really paying attention to these or other warning signs that are flashing red.  

Our short term momentum indicator is at an overbought position and the market volume has decreased a bit over the past week.  Right now, we are staring the first of the month in the face and are wondering if the bulls have just one more little push left in them.  We are probably going to be selling into whatever strength develops, or at least you should be.  We probably will add to our short positions.

Last Friday’s report on the durable goods was disastrous, as one report called it, neither durable nor good.  With expectations of a drop, around 2.5%, the number certainly disappointed at Down 10.2%.  This report can be ignored, and the market did ignore it, but the sting is still there: The Economy is Not Doing as Well as We Hear.  Yes, the indicator does bounce around a bit but down that much is a strong down move.  The big question is will it bounce back next month?  That is what the market Expects based on its reaction to the news on Friday.  

The market seems to be whistling past the graveyard, so to speak, disregarding the things we are pointing out right now.  We don’t think there will be much in the way of upside follow thru even if we do get a little more upside this week.  The selling will commence very soon.  There are a few stocks that have shown some signs of fatigue and these market leaders are also telling you the story of a sell off coming.  Be careful out there…

Dow Industrials:  11,061.85  -7.37
RYVNX:  18.76
RYAIX:  22.04
TLT:  91.05
BEGBX:  13.04

Thursday, February 23, 2006

More Volatility

Thursday brought more of the same type of volatility we have seen over the past few days.  From the looks of it, the market is struggling with its identity, bull or bear.  Stepping back a bit from this week’s trading and looking over the past ten years we note that the NASDAQ markets are far from their 2000 highs while the Dow Industrials is a mere 7% or so away.  This is the tale of two markets, the high one that is in front of the people everyday, that being the Dow, and the rest of the market which has been struggling for the better part of six years, our apologies to the Russell 2000 which has been strong for the last several years.

The biggest event of the past few weeks is the Dow moving ahead without the troops and that is not a good sign for the market in general.  Next to that is the overbought position the market finds itself in after this latest move.  Thursday’s drop did alleviate some of the over bought condition but the market is set up for a fall.

In the news today, the Fed released a report showing the nation’s net worth, saying that the median family’s net worth increased by 1.5% (to $93,100) after inflation during the period of 2001 to 2004.  That is after a 10.3% move from 1998 to 2001 and a 17.4% rise in the 1995 to 1998 period.  To us it looks like the consumer has been spending a lot of their net worth, you know, taking advantage of the big ATM they live in.  (We know we promised to send out our net worth spreadsheet and we still intend to do that in the near future.)

There are no good words to describe the near term trend of the market so we aren’t even going to try this evening.  Have a good weekend and maybe we can be a better idea next week about what is going on.  Remember that next week is the first of the Month and a normally strong period but in light of the over bought nature of the market, we don’t see much upside from these levels.  There does seem to be a lid on the market at the moment.

In the news for Friday will be the durable goods orders.  Expectations are for a drop of about 2.0% after a 1.8% rise in December.  Again, we don’t expect this number to affect the markets much but want to keep an eye on it for developments.

Be careful out there…

Dow Industrials:  11,069.22  -67.95
RYVNX:  18.84
RYAIX:  22.09
TLT:  91.19
BEGBX:  13.08

Wednesday, February 22, 2006

INTC Left Out of Rally

In market related news, the CPI (Consumer Price Index) jumped 0.7% for January but, of course, the Core rate only rose 0.2%, so not to worry.  We only report this number because there seems to be some interest in what the Fed wants to do about interest rates.  When the Core rate is Only 0.2% the market can believe that the Fed is almost done.  We don’t want to be looking at the actual rate of inflation because that wouldn’t support the position (yes, the sarcasm is back).

For its part, the market popped pretty hard Wednesday as many stocks took off from yesterday’s down beat day.  So, for two days the market is about net nothing, Tuesday was down about a percent and Wednesday was up about the same.  We note that the Dow is making new relative highs and trying its level best to pull the rest of the market up with it.  We see this action as a bad sign, well, let’s just say, not good for long term bulls.

Even the bond market was up today on the CPI data.  Everyone must be thinking that the Fed has managed to hold the rate of inflation down with its recent rate hikes.  We don’t see it that way due to the fact that the bond market has barely budged during the same period that the Fed has raised rates nearly 4%.  We don’t  see the change in mortgage rates as being much more than just noise, up or down about a quarter of a percent in the last couple of years.  

Today’s news for the Wednesday Update is that the little company we have been following for several years, INTC, got hit by an analyst downgrade and fell a couple of percent in this strong market.  The analyst said the target price for INTC is 16.  We would agree with the assessment if he said 6 to 10 but at least he’s got the direction correct.  

There is much uncertainty in the market right now, even though the Dow has gone up to new relative highs.  The broader market is not participating and this should be heeded by the traders and Us.  Be careful out there.  We are going to be looking for a good point to sell into coming up very soon.  The market is now over bought and, of the major indexes, the Dow is the only one pressing to new highs.  The market is close to rolling over hard.  We are trying to be patient.

Dow Industrials:  11,137.17  +68.11
RYVNX:  18.72
RYAIX:  22.02
TLT:  91.42
BEGBX:  13.06

Tuesday, February 21, 2006

Down Start to the Week

The stock market retreated on Tuesday after a day off on Monday for President’s Day.  The sell off was not particularly significant except that it did happen on the first trading day of the week.  Looking at the technical position, there are several interpretations that are possible.  One of them is that the major indexes are pulling back for a test of last week’s lows in order to gather some steam and then push ahead.  This is not our preferred reading but one that does have some merit at the moment.  There are signs that the recent rally attempt by the Dow to make new highs, while successful, left the broader market lagging and showing a glaring non-confirmation.

At this moment we can’t be sure of the course of the market near term.  There are just too many possibilities.  We are watching carefully for another good selling point.  We are already on the short side of the market with our funds along with some bonds but we may readjust our positions or add to them if the opportunity presents itself.  Tonight we wait.

The LEI were strong for January at a plus 1.1%.  The market didn’t really pay much attention to them but did slide in the Southerly direction for most of the morning after a brave start to the day on the upside.  The rest of the day was spent moving mostly sideways into the close.

Wednesday we get to hear about the CPI and how it faired for January.  After last week’s PPI number pushing above estimates, we could see some higher numbers for CPI as well.  We still don’t think the number will have much bearing on the stock market.  As a reminder the inverted yield curve is still fully entrenched.  Meanwhile the Fed is worried about inflation and will most likely raise rates at the end of March at the new Chairman’s first meeting.

Be careful out there, any upside will not be worth playing, just selling.

Dow Industrials:  11,069.06  -46.26
RYVNX:  19.22
RYAIX:  22.31
TLT:  90.80
BEGBX:  13.06

Monday, February 20, 2006

Inverted Yield Curve Continues

While it was a few days ago, Friday’s news on the PPI continues to hold the Fed to their path leading to higher interest rates, at least short term rates.  Meanwhile, the bond market decided to pop up driving interest rates on the longer end of the curve down a bit.  Greenspan’s “conundrum” continues.  The Fed, it seems, has no choice but to raise rates again next month but the bond market stays inverted.  

Right now the rates on the curve predict a recession due to the inversion.  Late Friday, the two-year Treasury was 0.12% more than the 10-year Treasury which was 0.03% more than the 30-year.  You might see slightly different numbers but the point here is that the curve is inverted meaning the long bonds are arguing for a recession coming soon.  Over the weekend there have been a number of articles talking about this very issue, some arguing that it’s different this time, others emphatically calling for recession.  

Our position has been and continues to be that the recession has been delayed due to the expansionary tactics taken by both the government and the Fed.  The government has done everything in its power to spend money and lower taxes while the Fed did what it could to promote asset inflation so it didn’t show up in the CPI.  Since the economy has only responded by moving up 3% to 4% in the GDP, this strategy may not work very much longer.  Once the government is in debt and the consumers are in debt, where do we go from there?  We think the bond market knows.

The stock market has managed to get itself back to a slightly overbought condition even though the broader market can’t seem to catch up to the Dow.  The Dow being over the big 11K figure is diverting attention from the rest of the market which is definitely lagging behind.  We saw a great headline last Friday wondering why the big cap stocks hadn’t been participating in the rally.  The big caps Never really went down like the NASDAQ stocks, the tech high flyers back in the early part of the decade.  But, right now they are leading the pack and that is Not a good sign.  The article seems to have missed the point just a little.

This week has a couple of items for the markets to consider such as the Leading Economic Indicators (LEI) on Tuesday and the CPI on Wednesday with durable goods orders coming out on Friday.  We think the stock market will basically ignore all of them but we mention them just in case.  Maybe we’ll know more after tomorrow.  Until then, Be careful out there.

Dow Industrials:  11,115.32  -5.36
RYVNX:  18.77
RYAIX:  22.05
TLT:  90.95
BEGBX:  13.07

Thursday, February 16, 2006

New Dow High Unconfirmed

The Dow made a good move to a new high, without the full participation of the rest of the market.  This type of move could very well be confirmed by the broader market over the course of the next few days but it does put a shadow on the Dow’s breakout.  As we mentioned previously, even the Russell 2000, the strong index, did not confirm today.  Yes, it was very close and may follow through on Friday but it Lags the Dow tonight.  These are the little cracks that show up near the top of a move.  

As we look at the other indexes, the SP 500 is close to breaking a new high but the NASDAQ Comp is about 1.5% away.  These numbers don’t sound like much but they are important due to the Dow’s leadership here.  The NASDAQ 100 is about 4% from its recent high.  

To add more technical information this evening, our momentum indicators are weak not to mention that two key indicators are not in strong confirmation positions, one being my favorite tea leaf, the 5 day upside volume and the other being the 5 day average new highs in the NYSE.  

The basic idea here is that the momentum high had probably been put in place, that being back on January 11th.  The two indicators are weaker in comparison to that date.  Looking at the 5 day upside volume, January 11th had 1,047 million shares and today had 975 million.  The January 11th total for 5 day average new highs was 302 while today it was only 135.  This last indicator shows you that there are fewer new highs, meaning fewer Leaders, in this latest advance.  So, while prices have moved a bit higher, the broader market is struggling.

Thursday’s news on housing starts was almost stunning, up 14.5%.  The media tempered the news, saying it was due to the warmest January on record for the country.  In other words, don’t worry, the Fed won’t have to raise rates.  Ok, maybe that tired old line is not playing in the market these days.  Today the bulls won.  We bears will have our day.

Be careful out there…

Dow Industrials:  11,120.68  +61.71
RYVNX:  18.46
RYAIX:  21.86
TLT:  90.23
BEGBX:  13.00

Wednesday, February 15, 2006

New High in the Dow

Wednesday’s market was decidedly upbeat even as the Dow bumped up against its January highs and stalled. Now, the question is, “Can it best those highs?” Now that the Dow is here, I guess it would be nice to see a little upside from the Dow so I could put some more of my cash to work on the down side. This move in the Dow has been, noticeably, without the broader market and this should be somewhat troubling to the bulls.

The point is not that they are worried about non-confirmations but that our analysis is showing some relative weakness in the broad market. What this means is that the market, the Dow, is making new highs but their stocks are not. This could lead them to be patient (should I say greedy) and hope their stocks move up with the Dow. So far, in the last couple of years, the Russell 2000 has been running well ahead of the Dow and now it is rather lagging it. From this view of the pond, the next move up will leave many stocks behind and will lead to a very large selloff as the Dow eventually tips over.

We are not sure if the Dow can actually make a strong showing above the January highs. The rest of the market is so far behind that a Dow flurry above its January highs would most certainly be short lived. The market in general is at a critical point right now with the Dow at a new high for the year (4 ½ years as they say) with the broader markets trying to catch up. This is not a well founded bull run but we have seen some upside.

Just a quick note about CAT, Caterpillar, a company we have mentioned here and a component of the Dow: This is the Dow leader up today to a new high. This stock needs some help if the Dow is going to keep going. CAT can't do it alone.

What happened on Wednesday? Well, as we mentioned, Bennie (was on the) Hill talking about the economy and said some contradictory things but the headlines were consistent with Higher interest rates coming. This, even as the Chairman made comments about the outlook for inflation over the next couple of years in the 2% range. We’re not sure the Fed will continue raising rates but we do know they still have an accommodative stance due to the huge increases in the money supply over the past year.

For the moment, I think the market was relieved that the Chairman finally spoke. The notion of continuity in the Fed seems comforting to the market even though there is talk of higher rates. The reaction in the dollar was positive. The dollar has enjoyed a particularly good rally over the last month and with the “tough” talk by the new Fed Chairman, that rally continued a bit more today. We think it’s about over.

Gold and silver were down on the tough talk and bonds were mostly calm. The stock market was not sure what to make of it all and was choppy all day with a positive outcome at the end of the day.

Thursday brings us January housing starts and we are always interested in those here at the Wednesday update. This report may not have much significance to trading but we are still going to pay attention to it. The underlying housing market has weakened considerably over the past six months and this should eventually lead to a slowing in the economy due to less consumer debt being allowed by the great housing ATM.

In that regard, we note tonight that WaMu, Washington Mutual, is laying off 2,500 at its home-loan business. WaMu is one of the largest mortgage lenders in the US and today it announced that it would reduce the number of its processing offices that provide administrative support to its home-loan business from 26 to 16. We just keep hearing negative news on housing.

Be patient and Be careful out there…

Dow Industrials: 11,058.97 +30.58
RYVNX: 18.80
RYAIX: 22.06
TLT: 90.21
BEGBX: 13.00

Tuesday, February 14, 2006

Back Above 11K

Tonight, we see that the Dow has indeed made another run over 11K and, not surprisingly, has left the broader indexes we follow in the dust.  This latest run has even left the Russell 2000 lagging.  This is not a bullish sign even though the headliner Dow number will be touted as big news.  

Wednesday we get to hear what the new Fed Chairman has to say and that should have some bearing on the course of the market for a little while anyway.  The natural course would seem to be for a pull back after this unconfirmed move up in the Dow.  The market should take some time to come back a little if it wants to give the broader market a chance to catch up.  So, that is the most likely scenario, tomorrow’s speech by the new Fed Head, while positively anticipated, will probably bring the market down temporarily.

That is not to say that it can’t go up because it most certainly can.  We just think that if it does go up without confirmation by the broader market, it is significantly doomed.  A new relative high in the Dow would certainly exacerbate an already confusing market.  So, we will wait.

In the news Tuesday, retail sales were up a big 2.3% for January, with many comments on the mild weather contributing to the good sales figure.  December’s numbers were revised Downward a tad.

In upcoming news, Thursday brings January housing starts (kind of a deceptive indicator on the state of the housing market due to spec homes being started) and Friday brings the Producer Price Index (PPI) as well as the Michigan consumer sentiment index.  Any of these do have a potential for moving the market but we still think the big event of the week is Mr. Bernanke’s appearance on the Hill.

Be careful out there.    

Dow Industrials:  11,028.39  +136.07
RYVNX:  19.06
RYAIX:  22.21
TLT:  89.99
BEGBX:  13.03

Monday, February 13, 2006

Bennie and the Feds

(Many apologies to Elton John for my particular use of his popular song.)

The stock market showed signs of weakness during the day on Monday but failed to follow through on those signs.  We have mentioned that the pattern in the market seems to be that of a clear down move but days like Monday through our thinking off a bit.  Since Monday’s are normally strong days, the down day should mean something to the bearish camp but tonight we must again wait until we see some follow through to the downside.  

The news this week is sparse so the new Fed Chairman’s upcoming appearance before Congress was hauled out as Monday’s excuse for weakness.  Since Mr. Bernanke has not given us much in the way of public speaking since his induction to the hall of bankers’ fame, this week’s speech is somewhat of an unknown for the Street.  The market expects the new Chairman to talk tough on inflation but to say that the end of rate hikes is near.  

We think that will hurt the dollar again and probably will have some negative effect on the bond market as well.  Meanwhile, the precious metals would benefit from such an outcome too.  One thing to remember is that anything the new Chairman says will probably only affect the market for a short period of time after which the real work will be done.  

The markets will try to recover on Tuesday morning after gaining some composure late in the day on Monday.  Then, the market will do what it thinks best.  Our momentum indicators are a little oversold now for the first time since the October lows.  Don’t read this wrong, the October lows were much more oversold than the current time frame but we have turned away from the over bought position the market has been in since October.

To be a little clearer, the position of our momentum indicators represents a place where some buying could come in.  We would remind you of what we have said recently about the Dow being the strong player.  If we could see the Dow continue its strength without the broader indexes participating, that would be a great sign and opportunity.  But, we have to Wait.

Until then, Be Careful out there…

Dow Industrials:  10,862.32  -26.73
RYVNX:  19.42
RYAIX:  22.41
TLT:  90.31
BEGBX:  13.03

Sunday, February 12, 2006

Any Follow Through for Monday?

The stock market has very little news to work with this week including no significant earnings reports.  With that in mind, some caution might be indicated as we head into the new week.  Friday’s action was somewhat stronger than I anticipated but the major indexes failed to better their highs created on Thursday, the day before.

Without further upside being generated from this point, there may be a good chance for the bears to come back to Wall Street.  If we do see a push above the highs on Thursday, then we could see a bit more rally.  Remember the Dow is the strongest index of the majors that we follow.  This is the type of action that you want to see as a bear, that the Dow goes up by itself.  That is a good indication that the captains are moving but the infantry is lagging behind.  You can’t win a war like that and you can’t expect the market to follow through on the upside without the infantry.

If we see some upside in the Dow, we are hoping to see the rest of the market not participate.  If we don’t see some upside from the Dow on Monday, typically the strongest day of the week, then we may have exhausted the rally efforts.  Tonight’s markets are not showing any strength especially Japan which is down 300 points as we write this.  Our futures are not showing any life either but it is just overnight trading which is fairly meaningless anyway.  We need to see what happens when the market opens in the morning.  

Be careful out there.

Dow Industrials:  10,919.05  +35.70
RYVNX:  19.01
RYAIX:  22.18
TLT:  90.30
BEGBX:  13.04

Friday, February 10, 2006

Long Bond Returns

We need to correct something we said in yesterday’s post.  Clinton’s administration did promote the idea of pushing more 10 year bonds versus 30 year but do you remember the actual timing of the dismissal of the 30 year bond?  I thought you may need a refresher.  Back in 2001 there were many things going on not the least of which was 9-11.  During the months prior to that fateful day, the stock market had been losing ground and then that day generated a lot of economic upheaval as well as many other upheavals.  At that time there was serious consideration that a major recession would result from the fallout of 9-11.  And, in early November, the GDP was estimated for the third quarter and it had shrunk from the quarter before, quite an event considering what had been happening in the US economy for that past several years. But, what else was going on?

Yes, the stock market had been in a bit of a drop for the better part of the year.  The big news at that time was the Enron collapse.  Mr. Kenneth Lay had appealed to the government (and his friend Bush) to lend a hand.  The Bush administration didn’t think it could help Enron directly but one of the things it could do was distract the investor world to the bond removal.  This was supposed to bring stability to the economic conditions and interest rates in particular.  You may not have read the story or remember these two events being tied together in this fashion because no large media attention tied these two events together.  We do find it coincidental that the long bond is being reinstated just as the trial for the Enron players is starting.

To review the long bond auction, you may want to reach for the WSJ and read the “Return of Long Bond Hits All the High Notes” scheduled for Friday’s paper.  In the article it says that the auction went so well that the rate on the offering dropped 0.14% below the old bond.  And, it briefly fell below the rate of the fed funds overnight lending rate of 4.5% ending at a yield of about 4.511%, now that is what you call a flat yield curve.  

Okay, back to the stock market.  Thursday represented a negative bearish day even though the Dow itself managed to have a positive close.  The other indexes we follow, namely the SP500 and the NASDAQ Comp and 100, all fell, with the NASDAQ 100 falling about 1%.  The market opened strong following through from Wednesday’s strength but about an hour into the session started losing momentum.  The Dow managed to outperform the other indexes for the two trading days on Tuesday and Wednesday making the world think that it was off to the races again.  The problem is that the broader market didn’t have the same type of up move.  

The Dow put in a weaker intermediate closing high of 10,953 on February 1st than it did on January 11 at 11,043.  Thursday the Dow traded as high as 10,952 (I am not kidding, but this is the intraday high and the February 1st number is the closing figure) but it didn’t manage to close any where near that at 10,883.  This is after trading down to 10,737 late Tuesday.  Summary, along with similar numbers for the NASDAQ Comp:

Early January closing high        Dow 11,043      Comp  2331
February 1st closing high           Dow 10,953      Comp 2310  This failure is similar
Thursday’s trading high     Dow 10,952     Comp 2284  This failure is different

This last line is very telling about the market in general.  The Comp failed by 1.5% to match its February 1st close while the Dow almost matched it.  Thursday was very negative day.  The market has failed to follow through on Wednesday’s rally which should shake some confidence.

You might have seen the article on ORCL laying off 2,000 workers.  The article just said something about how GOOG and YHOO could hire that many people in a day so it wasn’t a big deal.  I think it’s a little arrogant to be waving off 2,000 jobs like it’s no big deal.  We call it whistling past the graveyard.

Friday may be a volatile day with the turn that we saw on Thursday.  Be careful out there and have a good weekend…

[We had another problem with the website last night so we are having to post this morning.]

Dow Industrials:  10,883.35  +24.73
RYVNX:  19.22
RYAIX:  22.29
TLT:  90.80
BEGBX:  13.08

Wednesday, February 08, 2006

CSCO Saves the Day

CSCO did indeed bring some life back for the stock market bulls with a little help from our ex-Federal Reserve Chairman Greenspan.  What he said did not really match up with the market’s recent mode of operation, that being, trading up on the Fed Not being able to continue their interest rate march higher.  Mr. Greenspan said the economy was stronger than most think and therefore the Fed has some unfinished business.  So, at least for Wednesday, the market is “having its cake and eating it too” since the market can now go up on good economic news that might force rates higher or it can go up based on a weak economy that would allow the Fed to slow its rate hikes down.  If you can follow all that, then maybe you could actually understand what the ex-chairman was saying, too.

Yes, the market had a good day today but we still think that is didn’t have that great of a day.  We have said many times that the market can play around all it wants to between areas of support and resistance but it only matters if those levels can be broken.  We remain bearish.  The Dow could try to eek out a few more points but it doesn’t really matter.  We only care about it breaking above the January highs, over 11K.  Then we might have to take a better look.

Wednesday is a historic day for the bond market as the US Treasury is bringing back the 30 year bond, something that hasn’t been around for about 10 years, Clinton’s era.  Back then, Clinton suggested that the government was spending too much money on interest by selling those long bonds with higher yields, so he suggested that the country abandon the long bond in favor of the ten year bond.  This was a good idea at the time but now long rates are at about the same level as the ten year so it seems like a good idea to bring them back.  To celebrate, the Treasury is bringing about $14 billion worth to market.  There is some expectation that the sale will go well.  From this desk, I don’t really understand how someone can invest in 30 year bonds in this environment, especially when you hardly get anything for going out that far, except more risk.  Good luck to all of you out there buying them.

Dow Industrials:  10,858.62  +108.86
RYVNX:  18.85
RYAIX:  22.07
TLT: 90.39
BEGBX:  13.03

Tuesday, February 07, 2006

GM Slashes Dividend

In an article that will appear in Wednesday’s WSJ, “Finding a House Gets Easier”, we find a few items that bear mentioning (yes, I said “bear”).  This type of article really points up the fact that the housing market has quickly cooled from last spring’s crazy pace.  On Tuesday, Toll Brothers (TOL) reported a 29% decline in new orders for first quarter, ending January 31.  We have mentioned TOL in these pages due to its high profile among home builders, selling luxury homes.  With Tuesday’s news, TOL slipped to a 52 week low under 30 after trading near 60 last summer.  The company represents our position very well that the housing market is in a little trouble at the moment.

The same article mentioned the inventory of houses and condo’s on the market has continued at a very high level saying that with seasonal adjustments, inventories have climbed 38% since April, the largest 8 month increase on record.  This inventory has provided buyers a good chance to take their time about buying due to the available selection.  The article has a chart that shows the change in inventory in various markets such as DC, Miami, Los Angeles, and Manhattan, which are, respectively, 149.2%, 98.3%, 88.0%, and 86.9% more than last year.  Detroit made the list with a 38.0% increase.  Could that be due to two causes, US automaker woes and general housing woes?  

Speaking of the US automakers, GM was in the news again today finally deciding to slash its dividend, in half.  In another WSJ article from Wednesday, front page, “Pressured GM Slashes Pay, Benefits”, we learn that GM will cut its dividend and pay for its top five executives as well as curtail benefits for salaried workers.  The article says that GM may have to file for bankruptcy protection in things don’t change.  This is in sharp contrast to the Toyota Motor Corporation which is “gnawing at GM and Ford’s market share”.  Toyota, the article continues, is on track to invest $11.8 billion in plant and equipment before the end of its fiscal year which ends March 31.  This is up nearly 30% from the year before.

In precious metals, we weren’t shocked to learn that gold fell about $20 today with silver down about 35 cents.  With that move, Jim Cramer’s influence on PAAS is just about over as PAAS fell over $2 back to levels prior to Cramer’s tout last week.  Cramer was also long one our favorite shorts, INTC.  I’m not sure if he ever told you to sell it but INTC has not had such a good month closing today under 21 after trading over 26 in early January and over 27 in early December.  

One of our readers, an avid follower of Cramer I guess, mentioned he said that if the Fed raises rates one more time, he will quit his TV program.  Come on Ben, let’s help him out.  You do remember that the new Fed chairman is Ben Bernanke, right?  That decision is more than a month away and a lot can happen between now and then.  Sadly, we are expecting the Fed to find it difficult to raise rates in March with the trouble we may see.  But, Go BEN !!!

After the close this evening, we heard from CSCO.  The news wasn’t really outstanding but the market liked something.  Yes, the revenues were up but earnings were down, with CSCO up to its old tricks of earning how much above expectations???  You guessed it, 1 penny.  Isn’t it amazing?!?

Well, let’s see what happens on Wednesday.  Will CSCO be able to give a short term boost to the market or not?  To us, it would just be a good selling opportunity, the market wants to go down so…you Be careful out there.

Dow Industrials:  10,749.76  -48.51
RYVNX:  19.27
RYAIX:  22.32
TLT:  90.60
BEGBX:  13.05

Monday, February 06, 2006

Dull Day

Not much to report for Monday.  The market couldn’t manage to stay awake long enough to trade today.  This means that the market will likely try to bounce on Tuesday morning even though there may not be much staying power.  We still contend that the market is about ready to give us lower prices and that has not changed today.  There is some uncertainty out there but mostly it’s called complacency.

We don’t normally discuss measurements to complacency but one such measure is the volatility index which examines price levels of options.  These volatility measures have contracted over the past three or four years.  In the late 90’s and early 2000’s the volatility index moved between 20 and 40 after having been near 10 in the mid 90’s.  Over the past three years this number has again fallen back into the low double digit range.  

As you might have guessed, on options expiration Friday, January 20th, that number jumped considerably from about 12 to about 14.5.  Since then it has fallen back, in the rally after that 200 point decline and now has risen again to just over 13 today.  That is the nature of index.  It gives you information of the current mood of the market.  

We expect that number to increase back to the 20 range this year sometime, forced there by plenty of downward pressure on the market.  The market certainly is not prepared for a major drop right now and a 13 in the volatility index represents this complacency.  We will monitor this number as the market declines to see if that complacency can be changed to fear.  Complacency is the first cousin to greed, the lazy cousin but a cousin.  The fat cats sit back and say they will wait for the next big up move before they sell.  That big up move comes and then they say I can wait longer.  Then the market goes against them and they say, I should have done this or that.

We want those cousins to sell their stocks to us when prices go down but for now, Be careful out there.

Dow Industrials:  10,798.27  +4.65
RYVNX:  19.14
RYAIX:  22.24
TLT:  91.03
BEGBX:  13.06

Sunday, February 05, 2006

Jobs Report Pushes Stocks Down

It’s a brand new week and the market needs to find some footing right now.  Some of the indexes we follow are getting close to their late January lows and some have gone below them.  The pattern of these indexes is distinct and represents the start of a down move that could develop fairly quickly.

The first clue the market gave was back on the January options expiration, January 20th when the Dow dropped some 200 points.  The futile, but inevitable, rally attempt was met with selling and now the stock market is heading back down, this time may be steeper than most expect.  

On Friday, the market continued the down trend that started on Thursday, and that was on no real news.  Friday did have some news, the jobs report, that was fairly good but “stock market” bad because it was perceived to keep the Fed in a position to raise rates.  This media confusion is not unexpected but it does need to be taken into perspective.  We don’t really care what the media says; we care what the market says.  

The market set a low target back in late January that target now will act as some support for the next few days but we think the pattern is such that it will not hold for long.  The market is in a very precarious position at the moment based on the momentum indicators and the basic technical position that exists.  We urge extreme caution and repeat our recent mantra … Be careful out there and we hope you’ve already sold into these rallies so far this year.  

This coming week is a fairly quiet one as far as news goes, with hardly any economic news to speak of and with most of the earnings reports out.  We think that if the selling continues on “no” news, that would not be a good sign for the bulls.  Monday’s can be strong but the market has seen the early month rally and now is faced with some trouble in the next couple of weeks.  Be careful out there… (one more time)

Dow Industrials:  10,793.62
RYVNX:  18.98
RYAIX:  22.15
TLT:  90.85
BEGBX:  13.12

Thursday, February 02, 2006

January Jobs Report

Thursday was not a good day for the stock market. The only news that might have weighed on the market happened to be the productivity number which was down for the first time in five years. Since that news was promptly disregarded by analysts, I don’t think that was the reason for the stock market’s drop. But then, what was the reason?

This type of day is much like the worst event for bulls due to the drop "without a cause". While we argue with the price of oil having much effect on the stock market, the price of oil was down on Thursday, too, without much impact on the decline in stocks. When the media has trouble figuring out “Why” the market went down, then there is a Reason it went down but it can usually only be explained by general selling.

The market ended the day with earnings news from AMZN which wasn’t very good. That’s not going to be enough to push the market down, especially if GOOG’s news was not enough to move the market down. The week’s news does seem to have a negative tilt to it so the market has tried to keep a positive attitude (Fed reasoning). What’s coming on Friday morning is the jobs report. There is not much riding on the number but, for the bulls, the number shouldn’t be very good or the old “Fed has to raise rates because it’s too good” trading environment may occur. If the number is not so good, the market can go merrily along, as in whistling past the graveyard.

All of this talk tonight will have no bearing until we can see what the trading will be like in the morning After the jobs report. Thursday was a scary day due to no proximate cause for the decline. Normally this time of the month brings some strength to the market and looking back over the past two weeks we have seen a pretty good rally but today was a different story.

We remind you of our normal position that we take: The market has set a goal for itself during the first few weeks of the year. Then a pullback occurs, a strong pullback, and the market needs to try to overcome that pullback and try to rally above it. We talked about the rally that “couldn’t” this week and today helped confirm that thought. Friday is an important day so Be careful out there and we hope you have sold into this past week’s rally.

Dow Industrials: 10,851.98 -101.97
RYVNX: 18.51
RYAIX: 21.87
TLT: 90.21
BEGBX: 13.18

Wednesday, February 01, 2006

Dip Buyers Unite

The market was true to form on Wednesday morning as it gapped down on the GOOG news and proceeded to rally them from there.  The late morning showed little in the way of movement but after a brief drop right after noon, the Dow moved up strongly to close nearly 90 points on the day.  Today the Dow was leading the pack which is not necessarily the way the bulls would like it.  We could see the Dow peak its head above that 11K figure again only to go there without confirmation from the broader market, and we are speaking of the other major indexes we follow, NASDAQ and the SP500.

The big news for today was the “Blackberry” news which suggested that RIMM could possibly get out from under the patent infringement case it has been under for a while now.  On that news, RIMM rallied about 10%, no fear there.  Even GOOG managed to rally back up above 400 by day’s end so not much fear there either.  We had a notion that GOOG’s news might have a negative impact on the overall market but apparently everyone is ok with the minor miss that GOOG had.  And, the SOTU (State of the Union) address on Tuesday evening didn’t spark any consternation on the street either, not to mention the little interest rate bump the Fed did on Tuesday.  Nothing seems to matter to anyone.

So, that’s about all there is for Wednesday.  Remember there is another event this week that could move the market—but probably not—and that is the jobs report out on Friday.  We’ll talk to you tomorrow and don’t forget to Be careful and Be selling this rally.

Dow Industrials:  10,953.95  +89.09
RYVNX:  17.93
RYAIX:  21.52
TLT:  90.04
BEGBX:  13.15

The Day of the GOOG

As far as the market is concerned, GOOG trumped Greenspan and Bush on Tuesday.  GOOG announced earnings that were, shall we say, less than the market was expecting after the market closed.  The stock was quickly down about 30 points and fell about 70 at one point before closing down about 50 in after hours.

The Fed did celebrate Greenspan’s last meeting with yet another giant interest rate increase of 25 bps, widely expected of course.  The market spiked one way and the other for the rest of the afternoon but basically ended just about where it was right before the announcement.  The Fed finally removed the “measured” language from the statement which might have been a reason to buy stocks but basically it failed to move the market much.  We keep reminding you that rates went up today even though it wasn’t very much.  A quarter point here and a quarter point there and pretty soon you are talking about some real money—ok I stole it, get over it.

The State of the Union (SOTU) speech seemed to be focused mostly on the war on terror but there were a few other things that Bush mentioned, some of which can be constructive to the market.  He made comments on holding the line on taxes by making the current tax cuts permanent.  And, at the same time, we are magically going to be able to cut the deficit in half by 2009.  The SOTU was not endorsed by the overnight markets as they were down about the same as they were prior to the speech.  Like we mentioned earlier, GOOG had the impact on the market, not the Fed or the SOTU.

We are flying a little blind this evening because we don’t have internet service but we will try to get this out in the morning if we get service back up and maybe we can make some comments on the pre-market.  With GOOG causing havoc in the after hours, the first of the month trading could be a little soft to start out.    

It’s Wednesday morning and the futures in the premarket have mostly stayed lower but have come up a bit, with GOOG only down about 48 as I write this.  When the market opens we will see if they can rally them after a nice drop in the early going.  The market is vulnerable as you can tell by a drop like GOOG produced.  The rally that “couldn’t” make it back will now have trouble reinstating itself.  

Dow Industrials:  10,864.86  -35.06
RYVNX:  17.98
RYAIX:  21.55
TLT:  90.67
BEGBX:  13.26