Sunday, April 30, 2006

Dollar Goes Down

Here we are at the beginning of May.  Normally, we would have seen a pretty solid advance in the few days preceding the first of the month but on Friday the market had to deal with the MSFT news.  MSFT ended down over 3 points over 11% to a price that is essentially at the lows of the past few years.  The NASDAQ did suffer a loss due to this big drop in MSFT.  These NASDAQ indexes are determined by the Value of the stocks in them so when a Big stock like MSFT goes down 11% the indexes get hit pretty hard with both the Comp and the NDX down nearly 1%.

Over the weekend, we see the headline on BARRON’s magazine that says “DOW 12,000” and just wonder how bullish people are.  It is true that the Dow didn’t suffer much at the hands of MSFT on Friday due to several components being up enough to nearly make MSFT a non-event for the Dow.  The bullishness is almost arrogant at this time with the comments about all the bad news out there not being able to affect the market.  They are speaking of high oil and gas prices, higher interest rates, a weakening dollar and other commodities being higher.  

Last week the Fed Head made comments that seemed to make everyone think the Fed is about to PAUSE in its interest rate hiking campaign.  This announcement did some damage to the dollar but the stock market was supposed to have done better because of the news and didn’t.  Bonds didn’t seem to get hurt too badly on the news either, one of my weekend reads called the bond market the “deer in the headlights”.  

In the week upcoming, we do see a few interesting items.  The first one being the immigrant walk out day on Monday.  Apparently, there is a large ground swell of support for this walk out with even some companies closing down just to accommodate the Immigrant Day Off.  The only reason we bring this up is that it could have some impact on the market, but we’re not sure what it might be.

The other is the jobs report on Friday.  This generally seems to be a market mover and with this market so ready to go down, the jobs report also seems like a good spark to start the market in the other direction.  As we get through the week we will continue to watch for this report and how the market acts going into the number.

“Sell in May and Go away” so you…
Be careful out there.

Dow Industrials:  11,367.14  -15.37
RYVNX:   18.44
RYAIX:  21.94
TLT:  84.16
BEGBX:  13.34 (dollar has been weak)

Thursday, April 27, 2006


We are going to stick as close to the current situation as possible and try to advise you on the near term course of the market.  As we have said over the past few weeks, there is the potential for a lot of volatility right here and the reason is that the market is beginning its turn from an up move to a down move.  This action was on display today.  When we say the market is going to volatile, we mean that it is likely to go up and down without much trend in sight.  This is typically called “whipsaw”.

Today’s action in the Dow showed a good sized drop of about 75 points at the opening and then just vaulted higher after the first half hour.  From the down 75 points going up 110 points in about ten minutes and then falling about 80 points right after that.  So, in an hour and a half, the Dow moved down 75, up 110 and down 80 for about 265 points—that is called “whipsaw” and it is very tough to trade.  The point is that it is signaling a turn in the market.  We can’t tell you how long we will see this volatility but with all the bullishness out there, we expect the bulls to put up a good fight…a losing battle in our opinion but a fight none the less.  

After the first hour and a half the Dow proceeded to go on another 120 point up move, this one lasted nearly two hours and was pretty much a steady grind higher.  The net of it being that the Dow ended up about 28 points but based on the ride, you could say we traveled about 450 points on Thursday.

“What caused this action?” you might ask.  Well, we note the new Fed Head was speaking about the possibility of the Fed pausing in their interest rate hikes.  So, don’t you think that is what the market has been waiting to hear?!?  So, was the Dow up 350 points celebrating?  No, it wasn’t.  So, what was moving?  Normally, a loose monetary policy leads to weakness in the dollar which is exactly what happened.  The rest of the action was “scratch your head” type action, commodities were down, bonds were up and the stock market was, well, undecided really.

Then came the bomb after the close from MSFT.  While the news out of MSFT was nothing too surprising, such as Xbox is selling well but we lose money on every one we sell.  But, MSFT has not been really doing anything as far as price movement for many years and their entire earnings announcement did not leave a good taste in the after hours market.  The price dropped about a $1.50, over 5%.  Surprisingly, it didn’t really carry over into the rest of the tech sector.

When Japan opened this evening, there was a loud thud as the Nikkei Dow dropped about 300 points or 2%.  We think that the US market might be a little stressed in the morning, too.  As bears, we wouldn’t be unhappy if that was the case but we know that the era of volatility could still be in tact so we need to be a little cautious as we go into trading on the last day of the month.  We have failed to mention the end of the month strength the last few days but we always note divergences from this pattern.  Friday’s trading could be a big divergence.  Then there is the weekend to think about it and next week is May.  

You know the Motto…”Sell in May and Go away”, usually till September or October.

Be careful out there…

Dow Industrials:  11,382.51  +28.02
RYVNX:   18.08
RYAIX:  21.72
TLT:  84.10
BEGBX:  13.25  (dollar gets hit again)

Wednesday, April 26, 2006

Housing Numbers Are Strong

Wednesday’s three news offerings were surprisingly strong. The durable goods orders were up 6.1% blowing out forecasts of 1.6% going into the number. We realize this number can be quite volatile but that is a strong number on the surface. The March New home sales also surprised to the upside, up 13.8% versus expectations of 3.2%. Looking at the reports on the Fed’s Beige Book, we see that the Fed reported good economic growth in the last several weeks.

In fact, with all of the numbers out this past few weeks, one would probably have to agree with the GDP estimates coming out on Friday looking for 5% growth. We are still in a state of disbelief this evening as we consider the data points presented. As far as housing goes, we find such an outsized gain going against the facts but we are rather focused on the local market, here in Minneapolis.

Looking at the WSJ, Wednesday’s edition had an article on page D1 describing how “Housing Strength Shifts to New Markets”. This article shows that Minneapolis has increased inventory by 43%, while other markets are showing much bigger increases in inventory. There are places that have smaller or negative increases in inventories but the point is that the market is bringing out a lot of Sellers, we’re not so sure about the buyers. It is possible that some of these home sales are occurring at lower prices due to new sellers entering the market with a need to sell. If a home is priced right, or low, in this type of market, it may well sell.

The Dow did make a new high for the move even though the broader indexes we follow did not, including the Russell 2000. The market is showing some signs of getting over bought but the momentum indicators are weak, at best...

Be careful out there…

Dow Industrials: 11,354.49 +71.24
RYVNX: 18.39
RYAIX: 21.91
TLT: 83.99
BEGBX: 13.15

Tuesday, April 25, 2006

Bonds Get Punished

On Tuesday morning, the stock market got off to a positive start, after all the market was down on Monday so Tuesday had to be an up day.  When the two pieces of news came out after the first half an hour, the market was conflicted but chose the “Fed is tough” trade and sold off.  The consumer confidence numbers proved the consensus wrong by going up a couple of points rather than down.  The existing home sales advanced a little last month but don’t forget this is a bit of a lagging indicator.  Existing home sales are usually measured when they are “closed” not when they are sold.  In any event the market found a low to trade off in the early afternoon and managed to trim its losses before closing down only modestly.  

Wednesday brings us some interesting items including the durable goods orders, the March New Home sales and the Fed’s Beige Book, all of which could have some impact on trading.  The durable goods orders are expected to be up 1.6% after last month’s 2.7% increase.  New home sales may rebound after last month’s huge 10.5% drop and the consensus is just that, up about 3.2%.  This number is more of a coincident indicator because new home sales are recorded when sold not when closed.  And, we are very interested in this number here at the Wednesday Update.  And, lastly, the Fed’s Beige Book can bring some excitement to those bulls out there who think that a halt in the interest rate hikes is bullish.  We’ll see what happens.

As for the bond market, it was not happy with the housing numbers this morning, even though the inventories went up again.  The bonds got hit for about 10bps which is pretty big for one day.  The consumer confidence number being strong also added to the “sell bonds” bias on Tuesday.

The technical landscape is extremely dangerous right now.  We have mentioned the past few days that the market may want to be a little volatile over the next few weeks and that is our current stance.  However, there is no reason to be long this market any more.  There are better places to be, namely cash, right now.  If you’re trying to trade this market you will probably get sliced and diced.  The market will look like it’s going up for a few minutes or hours and then turn on a dime and drop and look like it’s going down.  It will be so easy to lose money trading.  After this volatile period, it is almost a certainty that the market will go down starting sometime in the next month and dropping into the fall as it normally does.  So, Please…

Be careful out there…

Dow Industrials:  11,283.25 -53.07
RYVNX:   18.40
RYAIX:  21.92
TLT:  84.13  ouch
BEGBX:  13.14

Monday, April 24, 2006

Housing Numbers Due the Next Two Days

Monday started rather poorly on Wall Street but after the early morning sell off, the buyers stepped in to start trading the day away.  Prices trended up for most of the rest of the day but just barely up.  The major indexes we follow did not manage to close green but were much better than where they started the day.

There is not much to report this evening so we’ll concentrate on the upcoming news over the next few days.  First, the housing reports that we like so much, on Tuesday we get to see the March existing home sales which are projected to show a drop of about 3% after a bounce last month of 5.25% in February.  There are also some retail sales reports on Tuesday that may shed some light on the consumer.  Then there will be the April Conference Board Consumer Confidence report.  With the President’s approval ratings down so far, we would expect some downward push in this report and consensus does show a modest drop from 107.2 down to 106.

On Wednesday we get to see the March Durable Goods Orders expected to show a modest rise of 1.6%.  We see that the other report out on Wednesday is the March new home sales which are also expected to show a higher number to the tune of 3.2%.  We think these two numbers sort of go hand in hand as the orders for durable goods many times go into new homes.

In the afternoon on Wednesday, we get a look at the Fed’s Beige Book which should provide for more speculation on what the Fed might be looking at when it thinks about the course of short term interest rates. More as we go through the week and there are some important numbers coming out this week but we just can’t tell how the market may react due to the wild speculation out there currently.

We would say that the market should be very volatile over the next several weeks as we feel a turn is here.  When the market turns, there usually are some violent moves in the opposite direction.   We would recommend caution if you need to trade.  Otherwise we offer our standard message…

Be careful out there…

Dow Industrials:  11,336.32  -11.13
RYVNX:   18.29
RYAIX:  21.85
TLT:  85.14
BEGBX:  13.16  (the dollar is weakening)

Sunday, April 23, 2006

Supply Meets Demand

Last Friday was options expiration so you might have thought there would be some fireworks. Friday was even quadruple witching, meaning the stock futures also expired which normally causes some movement. Looking at the Dow, we didn’t see much in the way of a big change in price but we did see a falloff during the afternoon.

There was a marked difference in the way the NASDAQ traded. The Comp had a pop in the early going but that didn’t last for more than about two seconds. This move was on the back of GOOG’s earnings released on Thursday evening. While GOOG managed to put in a fairly strong day, its highs were shortly after the bell when it traded right around 450. After the early pop, GOOG sold off the rest of the day to close near 437 up about 22 points. Meanwhile the Comp ended down nearly a full percent so even GOOG couldn’t hold it up.

We see an interesting week ahead as the market tries to stretch the bullish euphoria after that 200 point day last week. The market traded fairly large chunks of volume during last week’s sessions especially after the 200 point move. We think supply is there to meet the demand. The other thing that we will be watching will be how volatile trading will be. The starts and stops of the past few weeks indicate that there is a turn coming, one of significance. On top of that, the strength in prices has not carried over into our non-price technical indicators. Momentum has indeed slowed even considering the 200 point move.

We see that the precious metals came back with a vengeance on Friday too. Here, too, we think it’s important to follow the volatility for signs of a turn. We continue to watch.

You should…Be careful out there…

Dow Industrials: 11,347.45 +4.56
RYVNX: 18.23
RYAIX: 21.82
TLT: 84.80
BEGBX: 13.06

Thursday, April 20, 2006

Precious Metals Turn to Stone

On Thursday morning we were trying to figure out why the market just took off after a half hour of trading.  Then we realized that the Leading Indicators were supposed to be released at that time.  We rationalized that the LEI must have been less than expected thereby allowing the “Fed is Done” trade that has been so popular recently.  While we searched a little bit for the number, we did find it but it was not easily found.  And, as reasoned, the number was below expectations.  Yippee, the economy is not as strong.  Yes, it is twisted.

The Dow sprinted up over a hundred points to a new high for the last six years, since the highs set in early 2001.  You know that the market sees the old highs as a challenge and really wants to tackle them, for the Dow anyway.  Meanwhile, the Russell 2000 goes on making actual new highs, although it was down today, which has given those small cap players a lot of confidence in the market.

We continue to be amazed at the lack of concern on the part of the tech world.  INTC’s numbers were just terrible but the stock moves up.  INTC has been weak for quite a while now and we figure it will continue to lead the market down but for now, the market thinks the worst is behind it, or something.  Maybe the Fed will bail out INTC too.

After the market closed this evening, GOOG reported earnings and revenue which were substantial according to the media.  That stock soared about 8% in after hours trading, so the big speculation continues.  Hope you are all enjoying the wildness.  

Speaking of wildness, the precious metals decided to drop like a non-precious stone as silver went down about $2 on Thursday and looking at the over night markets silver is down another 50 cents.  Gold dropped about $30 during the trading day.  These are big numbers and we would not be surprised if this rout continued for a few days or weeks.  This may give us another opportunity to get in.  This speculation in gold, oil and the stock market will Not last forever.  

We don’t know think the market has much left in it as the momentum has not followed it.  The indicators that we follow are showing weak or toppy.  We would definitely not chase these prices—we suggest selling into strength and that is what we have seen in some of the big speculative names.   What are your stocks doing?

Be Very Careful out there…

Dow Industrials:  11,342.89  +64.12
RYVNX:   17.81
RYAIX:  21.56
TLT:  84.31
BEGBX:  13.05

Wednesday, April 19, 2006

INTC Reports

Wednesday’s report on the CPI was a little more realistic than Tuesday’s PPI report with the “core” rate up 0.3% versus expectations of 0.2%.  Between the Fed getting a little tired of raising rates and the inflation picture continuing to deteriorate, the precious metals are soaring.  Gold is well around $635 and silver is trading near $14.50.  These numbers are huge compared to where they were just a year ago.  Yes, I know, we have been on the sidelines for some time waiting for a good entry point.  That’s sometimes what happens in strong markets, you don’t get a chance to get in.

This is unlike the current stock market action which had a strong day on Tuesday and Wednesday’s follow through showed some pretty firm action.  Even these strong days leave the market seemingly weak.  The NASDAQ Comp did make a new high for the move but it just doesn’t feel like you have to buy right now.  

After the market closed on Wednesday, AAPL and INTC announced with both of them adding to their prices even though INTC’s report was very poor indeed,  38% drop in first quarter profit on revenues that were about 5% less.  We recall that INTC’s price has dropped below 20 and stays there this evening.  Tomorrow’s trading should be very interesting.

A WSJ article slated for Thursday’s edition talks about the “Majority Sees Housing Bubble on Verge of Collapse”.  The article says that “more than 70% of US consumers believe a national housing bubble will burst and home prices will collapse within the next year, although 56% believe it’s unlikely to happen in the area where they live”.  

Lastly, I was hoping we would have some additional comments on Erick’s comment this week but none was there.  The future of the dollar and what to put your money in is something that should be important to most.  We will continue to analyze this as time permits.  In the mean time, take advantage of these high prices and sell.  Otherwise…

Be careful out there…

Dow Industrials:  11,278.77  +10.00
RYVNX:   17.70
RYAIX:  21.49
TLT:  84.38
BEGBX:  13.10

Tuesday, April 18, 2006

Hurray for the Fed

The stock market staged a big rally on Tuesday with the Dow surging almost 200 points, the largest one day up move since last April 21st when it went up 206 points.  That move was sandwiched between a down 115 and a down 60 but it was a thousand Dow points lower.  That means the Dow is up approximately 10% in a year, not bad.

There were two pieces of news that helped the Dow and the rest of the market move up on Tuesday.  You probably already know that they are both related to the Fed stopping their campaign of raising interest rates.  The first was the housing starts number for March which was announced before the market opened.  The number was down about the same amount as February, 7.8%.  Don’t you know this is good news because the Fed won’t have to raise interest rates much longer?!?  The other piece of news was the minutes to the Fed meeting which brought big headlines stating the end of the interest rate hikes.

We think the market has been using the end of rate hikes for an excuse to go up for quite a while now.  This may not be the last time we see a price spike based on the Fed being done raising rates.  We do think that the Fed will have to stop raising rates sometime soon but as we said in yesterday’s post, the reason they have been raising is not due to strong economic data or inflationary pressures but because the dollar needs a boost.  Today’s news didn’t do much for the dollar as you can imagine.

That brings us to Erick’s comment in yesterday’s post.  He’s questioning how best to position yourself given the dollar will be weak over the next year.  In his comment, Erick mentions some key thoughts that we share such as the reason oil prices have gone up is due to the weaker dollar and could we use gold to buy oil?  He even makes a reference to the housing market in relation to the price of oil.  He then asks some very difficult questions that we thought we would try to address but we don’t think there is a very good answer in today’s world.

He basically wants to know what assets to hold given the dollar will go down and will the dollar buy less next year?  So, here goes and if anyone else cares to comment on this very important topic please post a comment, either anonymously or sign it.

We continue to believe that the very nature of the credit bubble we are in is that credit will collapse onto itself.  We firmly believe that the powers that be are today trying to hold up the illusion that you can borrow yourself out of financial trouble, both at the government level and the personal level.  We here at the Wednesday Update have tried to push the idea of reducing your debt levels and prepare for the inevitable credit bubble decrease.  The problem is that if deflation does occur, debt gets more difficult to repay.

We believe that the deflation problem is a ways off and maybe more than a year off but it is a consideration at this time.  The housing slowdown is not something that should be good news to the stock market.  The full problem of slower housing means that the liquidity that has spurred the market will not be there much longer.  

With the PPI out today in all of its absurdity, meaning it’s so low it’s ridiculous, the Fed can claim victory over inflation.  With oil and gold and all commodities up, and in some cases large amounts, how can the PPI be taken seriously?   On Wednesday we get to see another meaningless number called the CPI.  

We will have more to say on Erick’s comment in tomorrow’s post.  Please add your own comments and we can have a good discussion on it.

Back to the market action, after the market closed there was a bullish interpretation of the news from YHOO pushing that stock up in after hours trading as well as giving GOOG a little push too.  These stocks are not good leaders for this market but it looks like the market thinks they are.  This rally is typical of the violent short covering that can occur when a market is trending down (not to mention when the news is interpreted so poorly, as the Fed rate news was today).

Be careful out there…and now you have another good selling opportunity, go for it.

Dow Industrials:  11,268.77  +194.99
RYVNX:   17.84
RYAIX:  21.57
TLT:  84.90
BEGBX:  13.03

Monday, April 17, 2006


The stock market opened the week with a little rally for about a half hour and held it for about another half hour before letting go and falling into the afternoon.  Just before the close and into after hours trading the market made a recovery and in overnight trading is up.  The overnight trading thinks that the selloff on Monday was overdone and of course the market will rally again on Tuesday.  

The Dow ended down over 60 points and the NASDAQ was down about 15, neither number much to worry about on the surface.  But, there is much to look at under the covers, such as the price of oil (over $70 on Monday) and its relationship to the dollar, or the price of gold (over $600 on Monday) and its relationship to inflation, at least commodity inflation.

On Monday the WSJ had an article on the fate of the dollar in the near term.  As many of you know, oil has traditionally been valued in dollars because the producers wanted a strong currency for their product.  Recently, especially with the introduction of the Euro currency, the oil producing nations have started to consider other currencies in exchange for their product.  The dollar has been the World’s Reserve currency for many years and now the dollar may be resuming its retreat after a counter trend rally over the past few years.  

The WSJ article “Dollar May Resume Slide As Foreign Oil Producers Invest In Other Markets” on page A2 of Monday’s edition is well worth the read.  Their point, as ours, is that as the dollar was falling in price from early 2002 the oil producers have accumulated dollars in hopes that it would rally out of its doldrums once the Fed started pushing up interest rates.  If the dollar is about to embark on another trip south, the oil exporters may decide its time to diversify away from the dollar and that would certainly cause a more rapid fall in the greenback.

We here at the Wednesday Update feel that the exodus from the currency is one of the primary reasons that the Fed has continued to raise rates.  They are not concerned about inflation as such and they are not worried about the economy overheating.  Quite the contrary, they are worried about the devaluation of the dollar.  They think they can control the value of the dollar by pumping up rates.  

The markets have come to a confluence all of a sudden, intensified by the commodities, especially gold.  The stock market is hoping for an end to the rate increases, the dollar wants them to continue.  The inflation fighting Fed (that is tongue in cheek) is watching the twin deficits grow and are slowly losing control.  We say that Real Estate, residential real estate in particular, is the canary in the coal mine and, that might be blamed on interest rates rising.  The Fed is definitely in a quandary or they should be.  I don’t like to use this word but it seems to be right:  There is a palpable feeling of an impending dislocation in the air.  

With the release of the PPI (Producer Price Index) on Tuesday morning and the CPI on Wednesday morning, there could very well be some trouble in the markets.  There is really no reason to be long stocks any more.  The market is about to wake up to the recognition that the road for prices is down and there could easily be a rush for the exits that will surprise most.

Please keep a close eye on your investments—we would of course recommend selling them as soon as possible…You should

Be careful out there, very careful…

Dow Industrials:  11,073.78  -63.87
RYVNX:   18.54
RYAIX:  21.99
TLT:  84.75
BEGBX:  12.97

Sunday, April 16, 2006

Oil Back at $70

The stock market starts off the week with a bit of a head wind even thought the overnight futures are showing no sign of fatigue.  The price of oil in Asian trading touched $70 which should be sending chills down the Fed fearing market.  The Fed needs to rein in inflation and if oil continues to go up, maybe raising interest rates will help.  Such is the twisted logic of the market.  

In reality, last week was a bit of a down market but not too much.  The market has lost momentum and spent most of the week getting oversold.  Ideally, Monday will bring a rally that gets sold, again.  At this point, May is approaching and there should be ample reason to turn this market over and start digging into last fall’s rally.  And, then we may want to start digging into the rally of the past couple of years while we’re at it.  

We do expect the market to be trading much lower by the fall of 2006.  Right now, we are basically just waiting for the market to move prices in the same direction as the momentum.  Mid-week last week, the Dow bounced off its 50 day SMA and now is trying to decide whether it wants to break through it on the downside.  Meanwhile, the NASDAQ Comp ran up through its January high near 2330 and spent a few days in that rarified air before coming back down.  Now, it is sitting at 2326 after being down near 2300 on Wednesday and thinking about that 2330 line again.  By all counts, this week should be a good week for us to see what the market wants to do.  

Be careful out there…

Dow Industrials:  11,137.65  +7.68
RYVNX:   18.16
RYAIX:  21.76
TLT:  84.44
BEGBX:  12.85

Wednesday, April 12, 2006

Several Tidbits on Wednesday

The stock market put on a brave face on Wednesday and managed to stay out of negative territory, barely positive in some cases but positive.  And, while it was a dull trading day, there were some noteworthy items.

The first thing is the trade deficit which dropped about $3 billion in February, about 2.5%.  We mention the 2.5% drop because one of our reads today was about the fact that February has 28 days in it versus January which has 31.  We thought this was interesting just because that would be about a 10% reduction in time and what we saw was only a 2.5% reduction in the actual amount.  Something to think about especially since February’s number is the third largest on record and a huge number in its own rite.

Then, there was the must read article in the Wall Street Journal from Wednesday, April 12th entitled “Hot Homes Get Cold” on page B1.  I hope you have a chance to read it because it’s all about what we have been mentioning for a long time.  The article considers the Florida housing market and what has happened to it over the last couple of months.  The examples shown in the article represent a stark picture in the booming state of Florida.  The last paragraph tells of a broker who has 35 listings and said that they had three days last week “with not a single showing…We usually get 2-6 showings a day.”  The broker goes on to say that one of the home owners called him in tears saying that her husband had purchased two investment properties and they are now going to lose their “life savings” if they sell the homes in this market.  Again, something to think about.

Then, after the bell, we started to see quarterly earnings reports starting with AMD (Advanced Micro Devices).  This company is in direct competition with INTC and is starting to take some market share away from INTC.  Their report was good but not good enough for the market.  This earnings period has the potential to drive the market.  We would think that the direction would be down.

In that regard, the market has been struggling over the past few weeks and we see that the momentum indicators are starting to turn down.  The basic pattern would suggest that a bounce would be attempted and a subsequent sell off would occur.  We see the start of this down turn being in the past, not the future.  Yes, there is always a possibility that the market could go to make new relative highs but the technical nature just doesn’t suggest that in the least.  If we do get any kind of rally at all it will most likely be a technically weak one and would be the last.  There are all kinds of reasons to get out of this market and stay out.

Be careful out there…

[Programming note:  the stock market is closed on Friday so there will be no post on Thursday evening.]

Dow Industrials:  11,129.97  +40.34
RYVNX:   18.29
RYAIX:  21.83
TLT:  85.04
BEGBX:  12.89

Tuesday, April 11, 2006

Dow Has Another Outside Down Day

The stock market started strong again on Tuesday with the Dow moving up about 45 points in the early going.  This move had zero follow through and about an hour into the session it dropped about 45 points in five minutes and spent the rest of the day doing basically nothing.  It did drop a bit into the late afternoon but managed to rally into the close but the sell off left it down over 50 points, with the other indexes down too.

This post should read a lot like the post two days ago when we had the last outside down day.  Tuesday’s trading in the Dow produced an outside down day again (barely), with just one trading day in between.  That in between day was a Monday, a dull day indeed.  This type of trading is significantly bearish given the volume accompanies the move.  Tuesday’s volume was slightly higher than Friday’s but Friday’s was a little more negative with less upside volume and more downside volume than Tuesday.

Tuesday’s trading in the Dow allowed that index to drop below its 50 day SMA but it managed to rally above it by the end of the session.  Dropping below a rising 50 day SMA is not all that bearish because the trend is still up in that situation but the rest of the indicators are showing weakness as well.  Add all of this up and you start seeing a pattern of bearish behavior.

Our favorite index, the NASDAQ 100 (NDX), has been struggling over the past month to follow the lead of the broader averages to break to new relative highs.  Friday’s key reversal, followed by Tuesday’s reversal, brings this index down near 1700 again, a place that it has enjoyed being over the past several months.  The 50 day SMA for the NDX has been flat to down over the past two weeks and this index is ready to lead the market down.

Be careful out there… be extremely careful.

Dow Industrials:  11,089.63  -51.70
RYVNX:   18.29
RYAIX:  21.83
TLT:  85.56
BEGBX:  12.91

Monday, April 10, 2006

Just Another Dull Monday

For a Monday, the stock market barely woke up.  Normally, Monday seems to be the strong day of the weak…excuse me…week.  Looking at the two days together, Friday and Monday, the move since mid-day Friday looks like a flat line.  There was little attempt on Monday to correct the big outside down day the market had on Friday.

Other markets have been moving, pretty much all commodities have gone up with oil trying to recover its old highs just over $70, closing on Monday near $69.  Precious metals have been involved in this move with spot gold virtually at $600 an ounce and silver right around $12.50.  We can remember a time not too long ago when these precious metals numbers were 30% less than they are now.

Bond prices have decided to go the other way and they have dropped about 5% over the past couple of weeks, Treasury bonds in particular.  With bonds dropping in price, yields have been rising pushing mortgage rates up in the process.  The media has started to pick this up a little, talking about how 25% of the mortgages are ARM types and will be resetting to new, higher rates over the next two years.  Special types of mortgages, like neg-am, negative amortization, and io, interest only, will probably get hit the hardest, with some of these monthly payments going up 50%.  This will not be a pleasant time for anyone holding these mortgages.  

With the market basically flat Monday, it leaves us precious little to say, except that we didn’t get to see much of a bounce, and this on a Monday.

Be careful out there…

Dow Industrials:  11,141.33  +21.29
RYVNX:   17.99
RYAIX:  21.65
TLT:  85.26
BEGBX:  12.86

Sunday, April 09, 2006

Outside Down Day

Thanks for your patience last week as we didn’t post last week at all.  We are now back and will resume posting every evening prior to a market trading day (usually around 10 o’clock Central Time).  

The market seemed to be grinding higher most of the week we were gone until Friday when the jobs report was released.  In typical fashion, the market greeted the slightly better than expected report with some enthusiasm, only to give way to selling shortly after the opening and ending down considerably on the day.  As many of you know, when we have an up opening like that followed by a large selloff that doesn’t come back, we have the possibility of an outside down day and, indeed, the Dow suffered such a day on Friday.  In fact, all of the major indexes we follow recorded an outside down day:  NASDAQ COMP, SP500, SOX, HUI, RUT  [As a reminder, an outside down day is one that has a higher high than the day before and a close lower than the low of the day before.]

A couple of weeks ago when the broader indexes broke to new [relative] highs we were a little concerned that we would see a bigger rally than we wanted.  The broader markets did manage to rally to make up for lagging in the Dow’s run earlier.  But, Friday was a bearish key reversal but again not on very strong volume.  The advancing volume was a meager 220 million shares as compared to the average for the year so far of 864 million but the total volume was not strong enough to give us strong confidence this rally is over.

Price action alone does indicate a very negative day on Friday but that is not the only indicator that is important.   Our other indicators do show some loss of momentum in last week’s rally ending with the big reversal on Friday so we are anxious to see the trading this upcoming week.

Be Careful out there…

Dow Industrials:  11,120.04  -96.46
RYVNX:   17.90
RYAIX:  21.59
TLT:  85.10
BEGBX:  12.86