Wednesday, May 31, 2006

Fed is a Hawk...Right

We are waiting for the Friday jobs’ report but in the mean time we did see some volatile trading today.  In front of the Fed’s minutes, the market was hopeful, anticipating a dovish Fed.  Then the news hit and the minutes were a little more hawkish than the market wanted to see and the market dropped but only to about even on the day.  As the day wore on, the market did head up and finished on a high point but not as high as it was earlier in the session.  Actually the SP500 did finish on the high of the day and the Russell 2000 was close to its high.

It seems that we will need to wait another day before the market gives us a good rally.  Well, the Dow has drawn a line in the sand right around 11,275 last Friday.  If the Dow can get back to that level, then we can see what kind of up move we can get.  The basic idea is that there is now a great deal of, recent, overhead supply and those buyers are “hoping” to get out even if they can.  They have started to consider that they may not and could it be that they may have to sell into the next decline because they are scared?

The next decline will be a very treacherous one that we are trying to avoid, maybe actually profit from.  The reports on the decline are that it will be mild and that it may very well be over already.  We don’t see it quite like that.  The decline is about three weeks old compared to the three years of upside, so we see a protracted decline that will last until fall more than likely.

We did note that silver had a rough day giving back Tuesday’s gain but PAAS has been trying to put in a bottom here this week.  The mining stocks do seem to lead the metal so we are getting intrigued again as PAAS is bucking the metal.  We haven’t done anything as of today but we are definitely starting to think about it.  If the Fed does stop raising rates, then the precious metal complex could have a little spring, something to consider.  

Something else to consider…


Dow Industrials:  11,168.31  +73.88
RYVNX:   21.45
RYAIX:  23.72
TLT:  83.67
BEGBX:  13.56

Tuesday, May 30, 2006

No News is Bad

The stock market greeted the new week with a post three day holiday trading drop. The Dow was down about 185 points taking it back down to last week’s low, three up days of trading overwhelmed by one down day. These are the kind of days that should scare the world a bit and Japan is down this evening as we write this (about 2%). The broader market was down taking the indexes down to last week’s lows. What happens now?

Let’s examine the day’s trading first. In our last post we reminded you that the normal retracement of the prior decline would be to go back up to the range of 11,275 to 11,350 or there about. The stock market wasted no time in acting on the notion that the market had reached a resistance point and promptly went down at the bell on Tuesday.

Typically, the corrective action is a little choppy before another wave down would occur. We have said that this time of the month is a normally strong period and with today’s action, we could see another up move that completes the corrective move.

One issue that is important on a day like Tuesday is the complete lack of news to justify this decline. The media did what it could to “explain” Tuesday’s drop. There was the consumer confidence number that was down but better than expected and the media said that, yes, it was better than expected but the actual move down was large. Then there was the Wal-Mart and GM news that took those stocks down a bit but those are only two stocks. Finally, there was the news that the Snowman, Secretary Treasurer Snow, was stepping down and a successor from Goldman Sachs would step in to take his place. What happened to the “tough Fed” talk and the end of the interest rate increases if weakness shows up?

Our thought is that the market wanted to go down and it did. The news of the day did not do much to affect the market and that is the kind of day that should put some fear in the traders. There was a bit of fear but there was no Panic selling and we continue to wait for some overwhelming fear before we want to be getting long this market.

We are not concerned about the near term action but are more focused on the continued decline in stocks over the next several months. These coming days will push the market down and will give some pain to those who stay long. Yes, of course, there will be some up stocks but your mutual fund will be trying to beat the averages not give you a positive return. We suggest selling into any strength that develops.

There is a news item that is coming on Friday that really could move the market and that would be the jobs’ report. Right now, expectations are running around an increase of about 180K new jobs being created. We will be focusing on Friday for a possible weaker number than that so that the interest rate fears can be calmed—you know, the Fed can stop raising rates.

Be careful out there…

Dow Industrials: 11,094.43 -184.18
RYVNX: 21.67
RYAIX: 23.84
TLT: 84.17
BEGBX: 13.65

Monday, May 29, 2006

This Week: A Good Time to Sell

After the long holiday weekend, the market is ready to start trading in a short week.  The short week contains the start of a new month and with that we know we get to see the job’s report and quite a few other important reports.  We don’t mention many of these reports in the Update due to the relative low market moving potential of some of them.  But, we know the job’s report is normally a big deal for the market and this month is no exception.

Looking at the technical situation presented by the market over the past week, we see that the SP500 managed a pretty good bounce right around its 200 day SMA.  This type of bounce is pretty much technical in nature meaning that program buying is responsible for the bounce.  The huge volume (record daily volume) in the SPY (Spiders—SP500 ETF) and the QQQQ’s (NASDAQ 100—ETF) attests to the technical nature of the bounce.  These vehicles allow for fast exposure to the market.

Friday’s market was pretty dull and biased to the upside given there was no one around.  Light volume was the order of the day and not much of note happened for us to report.  Yes, the bounce continued but on extremely light volume.

That bounce has now reached the price levels we mentioned in the last post, at least for the Dow.  The 11,275 to 11,350 range remains the target bounce area and we see some resistance now that we have reached that level.  We will comment more in the next post about the potential significance of this area of resistance.  With bullishness coming back on line in the US very quickly, we see this bounce as almost terminal, if it wasn’t for the bulls’ hope for “bad” economic numbers.  You remember, the Fed will have to be tough if the economy starts to pick up.  Ok…

Seriously, the market is in the strong part of the month and we recommend selling any strength that develops this week.  The best time to sell your stocks is when they have an early morning advance so, if you see that, you may want to take advantage of it.  This makes it difficult to know when to sell your mutual funds due to the one time a day that can be used to sell/buy.  Hopefully, you have been out for this recent decline.  If not, that decline was the warning shot to let you know that the up move is now Over.  Please do not leave much on the table going into next week.

Barron’s cover story this week is “Second-Home Glut” with a summary of “With vacation homes flooding the market, sellers are cutting asking prices by up to 40%...”  The big drag is the sudden pop in inventory.  With homes coming on the market so fast that buyers are being able to be choosy.  The real estate market continues to deflate.

Be careful out there…

Dow Industrials:  11,278.61 +67.56
RYVNX:   20.76
RYAIX:  23.32
TLT:  84.21
BEGBX:  13.54

Thursday, May 25, 2006

A Bounce

Before we get to the technical analysis below, which can be a little difficult to read, we thought we would recap the trading day for Thursday.  The GDP came in below expectations at 5.3% versus 5.8%.  This is considered “good” by the market who is hoping the Fed can stop the interest rate hikes.  The other number of note is the existing home sales which dropped about what was expected.  Don’t forget, this number is an old number because these sales are measured at the time of close not the time of sale, so there could be a month or more delay.  

Probably the most worrisome piece of information in the housing report is the inventory number which increased again.  There seems to be about six months of inventory on the market right now, that’s up about 40% from a year ago.  Friday’s WSJ has an article about the GDP and the housing report that has a quote from an economist at High Frequency Economics.  Ian Shepherdson is quoted as saying “What’s interesting is the unbelievable speed with which people are dumping houses on the market.  I don’t think the market can absorb this much supply this quickly.”  The article says that this 40% increase is the largest year over year rise since 1982, when the Realtor’s association began collecting data.  We continue to insist that housing will tell us what will happen to the economy over the next few years.  This report supports our view that the housing market is not very healthy.    

Here comes the technical stuff:  To continue our analysis from the Tuesday’s post, the Dow traded to a low around 11,030 on Wednesday which is a drop of 640 points from its recent high.  We are talking about intraday highs and lows.  A normal retracement of 640 points would be 245 points.  What that means is that a good first area of resistance would be about 245 points higher than the low on Wednesday.  Adding 245 points to 11,030 we get to 11,275.  The next area of resistance if that doesn’t contain the advance would be half the distance which would be 320 points taking us back up to around 11,350.  This is a 75 point range and we will be watching very carefully as we approach these levels.  We would recommend using these prices to sell into, especially if they occur at the beginning of the trading day.  

The market has been oversold for a few days and Thursday’s rally has relieved some of this oversold condition but not much.  We did see that the rally was not what you would call robust; maybe we will see a little more action on Friday.  The volume was strong but not as strong as we have seen during much of the decline.  On the day of the closing high, the NYSE volume was 1.59 billion shares.  On the two days before that, we saw 1.51 and 1.54 billion shares.  Then the decline started and we have been at or above 1.8 billion shares on every day except one, May 16th when we had 1.66 billion.  Yesterday the volume was 2.25 billion shares but today we only saw 1.72 billion shares.  I realize these numbers are dizzying but they are important.  I also know that we have a holiday weekend coming up and that could be a reason for the lower volume.  We still think these volume figures are worth sharing with you.

We wish you a safe and enjoyable holiday weekend.

Dow Industrials:  11,211.05  +93.73
RYVNX:   20.90
RYAIX:  23.40
TLT:  84.27
BEGBX:  13.61

Wednesday, May 24, 2006

Surprise--No Gap Down

The market has a mind of its own and decided not to listen to a thing we said in our last post.  The market did not gap lower on Wednesday morning as we expected but did manage to drop a little before moving up and down the rest of the day.  What can be said about this market is that it’s not dull.  The volatility exhibited in the markets over the past few days can be very difficult to trade and we would advise against it even thought it can be fun to try to catch one of the waves up or down.  This market is not for the timid.

There were other surprises besides the no gap down opening like the housing number.  April new home sales Rose by 4.9% even with expectations of a drop of 5.2%.  The durable goods orders were down 4.8% versus a flat expectation.  Later the Commerce Department said that businesses orders for capital goods dropped in April.  These numbers are not giving the market clear insight into what is going to happen.  The Fed has said that the numbers will be used to see if rates need to be raised again or not so all eyes are now focused on these reports.  Since the next Fed meeting is not until late June, the market has no fear at this time making buy and sell decisions.  

Thursday we get to see what the GDP was in first quarter as well as April existing home sales.  These numbers will be scrutinized and probably bought—meaning that buyers will be assured that for the time being there is no reason not to buy stocks.  We say this due to the fact that there is no fear in the market anyway and that we are getting very oversold and we are heading into a holiday weekend (and the end of the month), all of which should provide some support to the market in general.

Still, this market has shown its ability to get sold for no reason at all over the past two weeks.  Even with a modest rally over the next week, the market can still drop hard after that.  We recommend extreme caution in the market and of course recommend selling any rallies.

The precious metals were smashed on Wednesday with gold dropping $36 or about 5% on the day.  This decline has been predicted by the mining stocks as they have been dropping more than the gold for several weeks now.  In fact, the mining stocks are starting to look a little more interesting at these levels so we are going to be paying more attention to them over the next several weeks.  If gold continues to drop with the precious metals stabilizing we can start to think about getting back into them.  Our favorite little silver stock, PAAS, dropped into the low 18’s today after trading as high as 27.68 back on March 30th.  That’s a 1/3 loss in less than two months.  

Be careful out there…

Dow Industrials:  11,117.32  +18.97
RYVNX:   21.43
RYAIX:  23.68
TLT:  84.60
BEGBX:  13.62

Tuesday, May 23, 2006

Possible Gap Down on Wednesday

Watching the early morning market on Tuesday was pretty much as expected, markets all over the world were rebounding from Monday’s huge lose and so was the US market.  The Dow jumped 75 points out of the gate while the NASDAQ Comp pushed up nearly 28 points or nearly 1.5%, quite impressive gains for the opening.  After the open, though, there didn’t seem to be any follow through to the upside as the market just sort of treaded water for several hours.  This being the beginning of a “bounce” should have been a strong affair with power generated from shorts covering as well as out and out buyers.  What was going on?

We expected a late day surge to take out the morning highs but this did not happen.  There were several headlines crossing the media about the Fed head Bernanke and the comments he was making about the future of interest rates.  We don’t buy the argument that the market dropped because of those comments.  If the market wants to rally, the market will rally.  If the market is oversold as it currently is, the rally could very well be spirited as shorts have to cover pushing prices up quickly.

What did happen was that prices reversed course late in the day and ended down.  This is not really what a bounce is supposed to look like and it leads us to wonder if the market wants to go down hard right now.  The market is oversold which is the time we see normally would see some fear and selling.  One way to explain it is that there are two things that can happen at an oversold point.  First, the buyers step aside and say that prices may come down some more so I don’t need to buy right now.  Second, the sellers start to panic a little and sell into the weakness.  The whole scenario is sitting there tonight after the late day sell off.

Here’s our analysis for what it’s worth.  We said that a normal correction would be about 200 points.  Tonight we can quantify the number a little better.  The drop in the Dow was from 11,670 ten days ago to 11,040 yesterday or 630 points.  Today’s rally took the Dow up to 11,202 for 162 points or a retracement of 25.7%.  This is enough of a corrective rally but the normal amount would be 38.2% or 240 points or 50% for 315 points.

The market is oversold which makes us nervous about the Wednesday.  The after hours trading confirmed our thoughts that the market wants to drop tomorrow so we are looking for a gap down in the morning with the possibility of a very negative day on Wednesday.  If this scenario does not play out the way we expect, we will rethink our position in our next post.  But, we are very glad that we are out of the market and a little short.  We repeat, the market is oversold and very vulnerable to a huge sell off.  

There are a couple of big reports due out on Wednesday, the durable goods and, one of our favorites, the April new home sales.  Expectations are for declines in both of these, with durable goods down 0.1% and home sales down 3.5%.  The market may find solace in weaker numbers but that is not guaranteed.  

Monday, the global markets were aggressively sold and Tuesday, they bounced back strongly.  In New York, the story will continue on Wednesday.  It should be quite a ride and we will be back tomorrow to recap the action.

Be careful out there…

Dow Industrials:  11,098.35  -26.98
RYVNX:   21.73
RYAIX:  23.85
TLT:  84.56
BEGBX:  13.62

Monday, May 22, 2006

Global Meltdown

Close examination of the global markets reveals an interesting thing, that being most of them were down big on Monday.  Taking a look at India first, we read that their main index was down about 10% in two trading hours which triggered a two hour trading halt.  After the halt the index managed to rally back and only close down 4.2%, only.  Since its high on May 10th, that index has now dropped 20%, but of course quite a bit higher than it was just a year ago.  The Brazilian market was down sharply along with Mexico and Argentina, all down over 3% on Monday.  

The markets around the world were hit hard in a sea of red that spanned the globe but here in New York, the picture was quite a bit better, at least in terms of the Dow.  Yes, it’s true it was down pretty much all day even though it did peak into positive territory briefly in the afternoon.  The Philadelphia Semiconductor index fared the worst as it stayed down most of the day and ended about 4% lower.  The culprit here could have been a WSJ article that brought up option expenses that will probably be larger than previously expected.

At any rate, our initial read on the market in yesterday’s post was a bit off the mark as we expected a relatively mild week but Monday we got started on a very volatile trip.  Based on the trading on Monday, the Dow seems to have some support here at the magic round number of 11,000.  Even with a couple of attempts to go down there the last few days, including the global meltdown on Monday, the Dow has decided not to go through that magic number so far.  We may need to have that 200 point rally we discussed in the last post.  Maybe that will come as we head into the holiday weekend.  We’ll see.

If this rally materializes, we recommend that you take that opportunity to lighten up on your long positions.  The market has now been kind enough to show you some downside that may not be over for a while.  Even the bulls that were quoted in the media were saying that this pullback is not done.  Well, we agree that the worst of the decline is ahead of us but we will see violent rallies between now and the ultimate low.

Be careful out there…

Dow Industrials:  11,125.33  -18.73
RYVNX:   21.30
RYAIX:  23.61
TLT:  84.61
BEGBX:  13.66

Sunday, May 21, 2006

Market Trying to Stop Bleeding

The stock market showed some signs of life on Thursday and Friday but was this due to the options expiration on Friday?  Volume was heavy on Friday due mostly to the options expiration, we think.  The market is finally showing signs of being oversold and now it’s up to the bulls to see if they can mount a rally.  After a 500 point Dow downdraft, a normal corrective rally would be around 200 points.  The way this market is trading that doesn’t seem like much to us.  

The upcoming week should be a little less dramatic than the last two weeks.  There is a holiday weekend coming up, the opening three day weekend of “summer”.  The end of the month is in sight and that is normally a stronger period of the month.  We just don’t see any reason to be getting long in this rally.  We see it as a time to unload what’s left of your stock.  The rally is in no way guaranteed but the market is showing signs that a bounce may occur, how ever much that will be, we don’t really know.  200 points would be our guess but less than that is certainly possible the way this decline started.

We cannot definitively declare that the “top” is in due to the continued liquidity in the system.  From our standpoint, we see the residential real estate market being a tough place to be right now.  With prices gradually coming down, the real estate speculators, now called flippers, may be in a bit of a bind.  Of course, since real estate “always goes up”, the speculator feels that waiting longer is all that needs to be done to get the higher prices.  That thinking may get many of them in larger and larger losses.

This decline does Feel like the top is in, but we have seen this type of thing before with no follow thru to the downside.  This time may be different due to the timing of the decline (in May) and the over bought nature of the market, not to mention the unabashed bullishness of the participants.

We consider the upcoming week with its many reports:  durable goods and new home sales on Wednesday, GDP and existing home sales on Thursday, and Friday’s information on personal income and spending.  The week has some potential for problems but the focus on “bad” numbers allowing the Fed to stop raising rates may still be the theme to watch.  

The big movers on Friday were the precious metals as both gold and silver got slammed pretty hard.  Gold got hit for over $20 and silver is back down in the low $12 range.  Finally, the mining stocks outperformed the metals.  This could be a sign that the huge drop in metals may take a break here but we don’t think it will really stop for a while.  These overbought markets can’t get these conditions taken care of in a week.  There needs to be both time and Pain for those that bought into these highs.

As we put this post up, the overnight stock futures are showing a positive opening in the making.  Does that surprise us on Monday eve?  Not really.  With no fear, this market is certainly not done going down.  Once fear starts coming into the market we will start thinking about getting back in.  For now, cash is king.

Be careful out there…

Dow Industrials:  11,144.06  +15.77
RYVNX:   20.87
RYAIX:  23.37
TLT:  84.43
BEGBX:  13.53

Thursday, May 18, 2006

Eight Straight Down Days

For eight straight days, the NASDAQ Comp has gone down, from a close of 2344.99 on May 8th to Thursday’s close of 2180.32.  For the arithmetically challenged, like me, that’s 164.67 points or 7% in just over a week’s worth of trading.  The Dow’s high close of the year came on Wednesday last week, that being 11,642.65 with an intraday high of 11,670.  Today’s close was a little lower than that at 11,128.29 for about 4.5% and over 500 points, all in about a week.  

Thursday’s market started out strong because you know that the market is oversold and must bounce.  The bulls bought that headline for the opening bell and tried to hold on but by the end of the day sellers came in and ruined the bull party.  We say that there is too much bullishness and, until there is some fear, there will be no sustainable rally.  That’s a bold statement considering that the NASDAQ Comp has been down eight days running.

Something else that we need to mention is that thing we have talked about before.  The worst points for the market are After an oversold condition, that’s when the biggest down moves occur.  The trading on Thursday showed that the bulls are definitely Not in charge right now and that down move in the afternoon must have spooked them.  

That was until after the bell when Dell announced that it was no longer going to be exclusively using INTC and would start using AMD processors in some of its high end servers.  [You don’t suppose they will put a sign on their computers that says “AMD Inside”, do you?]  That did a couple of things, one it masked the negative earnings report from Dell and popped the price of AMD about 12% (DELL was also up about 4%).  The other thing it did was, no surprise here, drop INTC about 5%.  So, the overnight market is doing just fine and the futures are signaling another positive opening tonight.  Where’s the fear?!?

In the news of the day, the LEI (leading economic indicators) actually fell 0.1% versus expectations of a small 0.1% rise.  The bonds liked that report and it also liked some of the tough Fed talk during the day.  The dollar seems to be trying to put in a bottom here after its recent slide from 92 to 84, but this could just be a lull in the storm.

Be careful out there…The NASDAQ Comp now is trading below all of the 2006 prices and is at its lowest close since early November.  

Have a great weekend and we’ll post again on Sunday evening.

Dow Industrials:  11,128.29  -77.32
RYVNX:   21.21
RYAIX:  23.56
TLT:  84.21
BEGBX:  13.58

Wednesday, May 17, 2006

0.1% Equals Minus 214

The main thought process for Wednesday trading was based on a 0.1% miss on the guess for the government’s guess on the CPI.  When the report came out an hour before the market opened, the futures were shining with gains and a positive outlook for the day.  Then the all important “Core” CPI was announced at 0.3% versus expectations of 0.2% and the waterfall started.  

If you really think that the market dropped on Wednesday due to this report you go right ahead and believe it but the market would Not go down if it didn’t want or need to go down.  How does it make any sense that the report coming in at one tenth of a point higher than expected drive prices that much???  The fact is that it really can’t but the market has been hoping for a Fed slow down in rate increases and anything that weighs on that is perceived as negative or bearish.  

At any rate, the market opened with a thud and fell even more over the next couple of hours when the NYSE index had dropped enough to invoke trading collars, at which time the market immediately stopped going down.  The whole collar idea is rather disheartening to the bears but is a somewhat reasonable thing for true investors.  They talk about how the market needs to protect against volatility but that doesn’t count when the market is volatile going up, then it’s ok.  But, I digress…

The stock market flopped and chopped around most of the rest of the day but ended lower by about 1.75% across the board, actually led by the Dow.  The market has gone down a “little” and the market analysts are still calling this a buying opportunity so we think there is ample room to drop from here.  It may not be a straight down affair but so far it has stunned many after last week’s closeness of the Dow to its old high.

The move over the past week has mostly been in the broader market and finally the Dow is participating in the move.  This 200 point move gives some fear to the general public, but it does Not make them sell.  The prices are still high and this is just a minor pullback.

The inflation news gets the “Fed is tough” talk going again.  The Fed is not tough but the reaction today was pure “Fed is tough” trading.  The dollar was higher and bonds were lower and the stock market, well, you know, it was kicked hard.  

We hope the advice to “Sell in May and go away” didn’t give you license to wait until the End of the month to sell but we still think there is more to go on the downside.  We certainly don’t think the market has felt any pain so far, and with the modest run up over the past three years, there should be at least some pain before this is over.  And, we don’t think it can be over in a week compared to a three year build up.

The mere fact that the futures contracts are up overnight again is enough for us to remain bearish—the players do not have any fear.  Until we see some fear, as in price drops, we will be happy to be out or short.

Be careful out there…

Dow Industrials:  11,205.61  -214.28
RYVNX:   20.90
RYAIX:  23.39
TLT:  83.08
BEGBX:  13.48  (the dollar had a good day)

Tuesday, May 16, 2006

Housing Starts Fall

Tuesday’s news was about what we expected, lower housing and inflation denial.  On the housing front, April housing starts fell 7.4% against expectations of a drop of about 0.5%.  What did this report do?  It acted to dispel inflation concerns and help the Fed decide not to raise rates—when will they stop with this logic?!?  Then the PPI showed a 0.9% pop last month but not to worry, most of that was food and energy, nothing anyone really needs to worry about.  So, core inflation at the producer level was just 0.1%, see, no problem.

I think the mortgage market is starting to actually feel the pain even amidst all the optimism about rates and the economy in general.  Housing is such an economic driver, certainly that is true in this last few years, that the market will have trouble ignoring it for very long.  There are so many industries that depend on housing, not to mention all of the jobs that real estate has created over the past five to ten years.

For follow-ups, Wednesday brings the CPI and Thursday brings the LEI, leading economic indicators.  Both of these have the potential to be market moving but neither probably will.  It is more likely that the market will now be taken over by the underlying technicals that are in place.  This is the current market as we see it…

There has been a definite downdraft in the prices over the past week, or so, since the Fed announced.  The Dow has been much firmer than the broader market and the dollar has literally been clobbered.  For that matter, gold and other precious metals along with the mining stocks have also been hit.  Tonight we focus especially on the stock market as that is the primary focus of the Update.

The way a strong move in the market starts is for a trend to be broken and then a small correction of that break, giving people confidence that it was just a minor setback.  In fact at times like that the sentiment is very bullish due to the recent prior move.  Then it doesn’t happen, all of the bullishness that the market “feels” is just hanging out there and there are simply no buyers around.  This is a very dangerous time—like right now.  The market has dropped and now the last few days there has been an attempt to get back up but so far it just hasn’t happened.

This brings the market to what we technicians call the point of recognition, when every one starts to realize that the market is going down.  The buyers walk away and wait for better prices and the prices just drop.  The probability for this drop is very high for this point in time right now.  The stars are aligned as they say and the market is ready for a drop after all of this bullishness.  The time has come for the market to finally go down.

We hope that you have prepared for this event since we have reminded you to “Sell in May and Go Away” for a while now.  We recommend cash right now and we don’t think you will be disappointed.  

Be careful out there…be extremely careful.

Dow Industrials:  11,419.89  -8.88
RYVNX:   20.27
RYAIX:  23.04
TLT:  83.60
BEGBX:  13.64

Monday, May 15, 2006

Gold Hits the Panic Button

Tonight we focus on just a few key ideas.  The first is that the market had a difficult time “correcting” the decline of the past few days.  What does that mean?  Well, we will know more as trading unfolds over the next few days.  But, the path of least resistance is down and there doesn’t really seem to be much to stop the decline.  There was some stability in the market for the better part of the day but this is after we have seen some large price declines.  

The other idea is the trading for Tuesday.  Can the big reports for the month, those being the April housing starts and the April PPI (producer price index) bring some life back to the market?  These are reports that could have market moving capabilities especially in this environment.  We aren’t going to say that the direction will necessarily be up either.

I think the most stunning move in the past few days is the price of the mining stocks.  The index we have been mentioning here, the HUI, has taken a turn for the worse since last Thursday.  On Thursday morning the index traded at a new 52 week high (sell morning strength like this) just over 401 and Tuesday it closed at 343.  That’s about a 15% move in three days of trading, that is a lot.  Gold, which we think follows the price of precious metals, popped to a new high over $730 on Friday morning and has dropped about $55 an ounce in the last two days to $675 even though it closed a little higher than that.


Be careful out there.  

Dow Industrials:  11,428.77  +47.78
RYVNX:   20.00
RYAIX:  22.88
TLT:  82.98
BEGBX:  13.53

Sunday, May 14, 2006

Market Ends a Rough Week

The stock market finished lower on Friday as the Dow put in two days of triple digit losses. The last time the Dow had two triple digit down days in row was back in June of last year when it fell six days in a row. The volume on the downside the last two days has been pretty chunky, something else to watch.

We have mentioned over the past several weeks that the Dow is showing a lot more strength in price than the broader market. Even in this decline out of the Fed raising rates on Wednesday, the Dow has outperformed the broader market. The NASDAQ Comp is down 4.3% in the past few days measuring from the close on Monday May 8th of 2344.99 to Friday’s close of 2243.78. Comparing that to the Dow, we see that the Dow closed at a relative high on Wednesday, after the Fed announcement, at 11,642 and closed Friday at 11,380 for a 2.2% decline. The media is now telling the people that the Dow is still within striking distance of its old high. There is No concern that the market has fallen at this point. That is the nature of the market.

The week was not very kind to the bulls; even the Dow was down on the week. Stocks took a beating and we see the calendar shows us it is May, a completely reasonable time for the market to start heading south. Even the great precious metals stocks got roughed up a bit late in the week with the HUI down 4.8% on Friday alone.

Whether the market moves back up to correct some of this recent drop or not, we think the top is probably now in and “All rallies should be Sold”. We have been talking about May being a great time to Sell and Go Away so we hope you took the opportunity of the highs in the last week or so to lighten up.

This upcoming week has a few pitfalls in it for the market starting with April housing figures on Tuesday along with April PPI. Wednesday brings the CPI and Thursday the LEI, leading economic indicators. There should be plenty to occupy the minds of traders as the week progresses. Monday is the 15th and we are clearly in a weaker period of the month for stocks so there won’t be much to hold up stocks, in our humble opinion.

The Chinese have decided to let their currency rise against the dollar in a surprise move over the weekend. The futures overnight have a little decline this evening due to the news. The market thinks, quite rightly, that this move may cause a little extra inflation in the US. The US is bound and determined to get the dollar lower and they are succeeding. This should be an interesting week.

Be careful out there…

Dow Industrials: 11,380.99 -119.74
RYVNX: 19.97
RYAIX: 22.86
TLT: 82.65
BEGBX: 13.61

Thursday, May 11, 2006

And So It Begins

On Thursday morning the market was greeted by retail sales for April and they were up less than expected.  The report said growth in consumer spending continued in spite of high fuel prices.  This is economic double talk at its highest level.  The retail sales figures include money spent on fuel !!!  Anyway, the retail sales were up 0.5% against expectations of 0.8% but if you take out the effect of fuel retail sales were only up 0.1%.

We’re not sure if that report really mattered too much but the market fell out of the starting blocks and fell most of the day.  During the middle of the day, the market sort of stabilized but couldn’t hold those levels into the late afternoon. With a minor rally at the very end of the day the Dow moved up about 20 points to close down 141 points or about 1.2%.  Meanwhile the NASDAQ Comp fell 48 points down 2%.  It just wasn’t a pretty day for the bulls.

We here at bear headquarters have enjoyed the last two days’ trading with the Fed starting the party with their little 25 bps rise in rates along with their unsure direction as to the future course of rates.  The market is now in the right time frame to go down and go down it did on Thursday but is this the start of something big?  We think so as we see the market falling for about six months pretty much in a steady fall.  This theory will be challenged at times, including maybe Friday, but in general we are confident in our positions at this point.

The big Dow loser was none other than AIG, my former employer.  AIG announced earnings on Wednesday and then promptly dropped about 5% on Thursday.  The last big market drop we remember, AIG led that fall.  Maybe history is repeating itself.  We will see.  As far as other Dow stocks go, all of them were down except JNJ (Johnson and Johnson).  

There was a lot of talk about how this drop is healthy for the market so we’ll see if the bulls can muster the strength to come back from this drubbing.  If they can, we expect a number of nonconfirmations as the NASDAQ dropped fairly hard through its 50 day SMA on decent but not strong volume.  The Dow is only a few hundred points from regaining its highest close ever but the broader market is far from its old highs.  


Have a great weekend.  

Dow Industrials:  11,500.73  - 141.92
RYVNX:   19.44
RYAIX:  22.55
TLT:  83.34
BEGBX:  13.56  (dollar resuming its fall)

Wednesday, May 10, 2006

Sweet Sixteen?

The Fed calmly raised rates another 25 bps on Wednesday afternoon, this for the 16th time in the last 16 meetings.  If someone was told that the Fed had raised rates 16 times in a row, that person would probably immediately ask if the Dow had gone negative but not in this environment.  In the twisted world of the current market, as long as the market knows what the Fed is about to do, the traders think that they don’t have to worry.  They may consider the Fed allowing the world to go about its business to be a good thing.  

In their statement, the Fed was sure to provide a way to pause but wanted to sound tough on inflation too.  The market didn’t really know which one to believe shortly after the announcement.  Predictably, the participants wanted to have the market go up and the Dow did go up a bit right after the announcement.  The NASDAQ had a bit more trouble led by the SOX, the Philadelphia Semi-Conductor Index.  The SOX by itself ended the day down about 2.5% and the NASDAQ Comp was down about 0.75%.  CSCO could be blamed for part of this and maybe partly the uncertainty that the Fed left in its statement.  As for the Dow, it managed another relative new high, that makes five days in a row.

The Dow had an unlikely hero today in GM.  The party in GM’s stock is almost comical with interest rates steadily rising and GM near bankruptcy.  But, the last few days the stock has jumped about 15% to about 26.50 after playing in the mud under 20 as little as a month ago.  For those of you who are arithmetically challenged, that’s over 30% in a month…Please, who’s buying this stock???

In other interest related news, the dollar wasn’t sure if it should believe the Fed was going to stop raising rates or not.  Initially, the dollar spiked but settled down during the day but in trading this evening, it is definitely higher.  One could speculate that it is Hoping for higher rates.  The precious metals were mixed today so they didn’t really know what to make of the Fed either.  So, don’t feel too bad if you (and I) don’t know what the Fed is trying to do.

What you should do is…

“Sell in May and GO AWAY” and Be careful out there.

Dow Industrials:  11,642.65  +2.88
RYVNX:   18.62
RYAIX:  22.06
TLT:  83.75
BEGBX:  13.49

Tuesday, May 09, 2006

Gold at $700

Surely someone has noticed that gold has now touched $700 an ounce.  What is less visible is the dollar dropping for the last month.  Normally, you do expect these two to travel in different directions as they are now doing; but, the central bankers don’t really like to see gold at such a high price due to the obvious reflection on the inflation rate.  

On Wednesday when the FOMC makes their announcement of a 25 bps rate increase, again, they will also make some other statements about the future of interest rates.  The market seems overly interested in this number, but only because the Fed may signal a Pause in their rate hiking ways.  As these words emanate from the group, the market will then be in a position to decide whether it likes the news or not.  From our perspective, the market has been anticipating this Pause for so long that we don’t believe it can be greeted with any more than a sell off.  The time is right for a down move and the jobs report last Friday along with whatever the Fed says on Wednesday afternoon (1:15 CDT) should provide plenty of downward motion, not that either of these is bearish necessarily.  The reason they are bearish is that the market has been going up on anticipation of a weak economy and therefore a reason to slow interest hikes so when it actually happens we don’t think the market will really like it but they surely will have few people left to buy.

So, while all eyes are on the Fed, the tech sector seems to be suggesting some difficulties.  Monday evening it was DELL who lowered guidance (for the third time since August) and Tuesday evening it was CSCO who had what was perceived to be good news on the initial announcement.  The company, in the conference call, was not overly optimistic about the future which led to later selling.

Just a quick note on the rally in the Dow before we close the post for this evening:  The Dow seems to be up every day and Tuesday was no exception with another rally of 55 points.  We watch the broader market and there is very little participation in this rally.  The NASDAQ Comp was down 6 points while the Dow was up 55.  The Dow has made new relative highs for the past four consecutive days while the Comp has a couple of percent to go to get to a new relative high.  These are not particularly bullish views on the market.  Remember that the Wednesday Update has been partial to getting out of Tech stocks including INTC, MSFT and others.  These stocks have not performed very well in this glorious Dow rally.  These are signs that need to be heeded.  And, you should…

“Sell in May and Go Away” and Be careful out there.

Dow Industrials:  11,639.77  +55.23
RYVNX:   18.26
RYAIX:  21.85
TLT:  83.60
BEGBX:  13.49

Monday, May 08, 2006

DELL Lowers Forecast

Monday’s trading seemed quite muted and that could very well be due to the big news coming during the week, the Fed’s announcement on interest rates.  Due out on Wednesday, the FOMC will most likely raise rates another 25 bps, the market is certainly expecting this.  What they are anxiously hoping to hear is the course of future interest rate moves anticipated by the Fed.

Last Friday, with a weak jobs report, the market responded with a large up move because a weak economy means less pressure on interest rates and therefore the stock market can move even higher.  We like to remind you of the twisted logic that the market uses to decide when to buy and sell.  These are the things that often start to make sense to people in the stock market, especially after the media pounds this logic into their heads.  We reject this thinking due to the total lack of logic that it really holds.  Stocks need good earning power to drive the prices up, not lower interest rates in a weak economy.

Right after the market closed, DELL indicated that it would not make its earnings forecast and said that revenue would come in at the low end of their targeted range.  This announcement gave the stock a jolt of reality, unlike the twisted market logic in the last paragraph.  The stock was down in after hours about 6% even though the Fed might stop raising interest rates after this week.  That didn’t seem to help DELL.

In other news, the Warren Buffett show was on in Omaha over the weekend.  The headline has been that Buffett thinks real estate will slowdown in the near future.  He does have a bit more experience in these things than most of us but he does agree with us that the housing market will slow down.  No, I don’t think he reads the Update but comes up with this thinking all on his own.  We have extrapolated that thinking to the entire economy due to the weakening buying power of the consumer as the large ATM they live in stops spitting out money whenever they might need it.

The technical side of the market is showing overbought again after this little run up even though the momentum has slowed dramatically.  Here you have it, higher prices in the Blue Chips/large cap stocks and weak momentum and a tepid response from the broader market. We think the ideal time to sell will be this month even though we have endured a little bit of Dow upside and we have been out of the market for some time.  The move down from here could be swift so we hope that you…

Sell in May and Go Away and that you Be careful out there.

Dow Industrials:  11,584.54  +6.80
RYVNX:   18.17
RYAIX:  21.79
TLT:  83.65
BEGBX:  13.44

Sunday, May 07, 2006

Weak Jobs Report

On Friday, we saw the same twisted logic that the market has been using for months now.  As long as the Fed is perceived to be slowing their incessant interest rate increases, then buyers are safe in the market.  Meanwhile, this week will show another baby move in the interest rate march when the Fed meets once again.  

Getting back to the market, the jobs report on Friday was considerably weaker than expected which fits in nicely with the logic we just discussed.  April job numbers were weaker than expected and February and March numbers were revised lower.  The market celebrated, just as we expected, on Friday morning after that news.  Even the bond market was inspired to move up for a change.  But, while the early morning was the high for some of the indexes we follow, the Dow and others made new highs for the move later in the day.  The Dow looks like it wants to move to a new all time high now that it is nearly there.  As you all know that would represent a pretty large nonconfirmation across the other indexes.  But, that doesn’t seem to hold the market back.

We continue to see the housing market turn over and down.  Last week, Toll Brothers (TOL), a leading luxury homebuilder reported that orders declined 32% in its second quarter after reporting in first quarter that its orders were off 29%.  The company said that it would probably be delivering several less homes than originally thought.  The Chief Executive said that they are entering their ninth month of slower sales in most of their markets.  Housing is getting some front page news, except this story appears on page A2 of the WSJ.

The money just keeps flowing to keep the market from going down.  Friday’s move was fairly strong on the surface and gives those paying attention only to the Dow a sense that the market is “going up”.  We figure that when it’s that obvious, it can’t last too long but we seem to be getting nickel and dimed to death as we see no downward pressure on stocks.  Meanwhile, the dollar is sinking daily due to the prospect that interest rates may not be moving up any longer.  With that in mind, we watch the Euro region and the Asian’s (especially China) rumbling about higher interest rates.  The Fed is in a great deal of trouble.

We continue to say, “Sell in May and Go Away” and if you don’t Be careful out there…

Dow Industrials:  11,577.74  +138.88
RYVNX:   18.19
RYAIX:  21.81
TLT:  83.60
BEGBX:  13.46

Thursday, May 04, 2006

Jobs Report Looms

The stock market reiterated its sell signal on Thursday as the Dow made another relative new high without the participation or confirmation by any other index that we follow.  The momentum indicators did show some life but not enough to confirm this Dow high.  And, Friday brings the jobs report which we think generally marks the end of the month end strength, and we expect no exception to that rule this month.

If you decided to participate in this and chose one of the Rydex funds we follow below, you were able to get a fairly good price for them.  The time to dive into something like this is before the market decides to go down but sometimes the move seems difficult due to the extreme bullishness around you.  Contrarian thinking is frowned upon during these times and this time it is actually laughed at.  Bullish thinking will quickly fade once this latest nonconfirmation is recognized.  

Friday’s jobs report has the potential to provide very good prices to sell into.  We like to sell into the early morning strength when it occurs.  The other thing that the market is waiting for is the FOMC (Fed meeting) next week which is sure to bring another baby rate increase of 25 bps.  These two events have the potential to move the market.

We know that the market always reserves the right to rally a little bit more but as it does this the risk climbs on the long side.  For some reason the stock market has not recognized the end of the real estate boom as a time to sell, at least not yet.  The market has failed to worry about interest rates going up or gold or oil going up.  The market can continue to ignore the facts but when it finally wakes up to them, the direction Has to be down, and quickly.  

Please take some time this month to examine your positions and Do what you think you need to do…

“Sell in May and GO AWAY” and Be careful out there.

Dow Industrials:  11,438.86  +38.58
RYVNX:   18.45
RYAIX:  21.96
TLT:  83.10
BEGBX:  13.42  (dollar keeps sliding)

Wednesday, May 03, 2006

Market Issuing Sell Signal

The stock market is showing signs of fatigue the last few days.  As the end of the month/beginning of the month period draws to a close, which we usually think is the jobs report on the first Friday of the month, the market didn’t show that much strength, except for last Thursday when the Fed Head suggested a Pause in interest rate hikes.  We see the momentum (technical) indicators register a very tepid “strong” period and wonder if the rest of the technical community sees the same thing.

Whether they do or not, the stock market is making it very clear that the end of this rally is upon us.  That is not surprising as May tends to be the time to “Sell in May and GO AWAY”, oh sorry.   At least the technical picture certainly is flashing red right now.  With the prices so high and the momentum waning, what could be better than selling some stock to reduce your exposure?  Well, one of our readers thinks that selling covered calls would be a good idea and that is an acceptable strategy in a flat to down market.  With our version of down markets, maybe a stronger approach should be employed, like selling all together or buying protective puts.

We don’t think the news of the day requires any time in the posting tonight due to the pressing nature of the market’s position.  The problem with waiting is that you might miss quite a bit of the fall.  On the other hand, there are reasons to wait to be more sure.  One that we can think of is that we have had several of these false tops over the past several months.  The situation as it exists now is a little different because of the calendar and the weakness in the momentum indicators.  Either way, this is a very good time to be paying close attention to your positions.

We would say that the standard technique for looking at your stocks is to see if they are participating in this “big cap” rally.  If so, you may be able to relax but, if not, you should take action.  

Remember to “Sell in May and GO AWAY’ and to Be careful out there…

Friday brings the jobs report—we will review the situation in tomorrow’s post, be there.

Dow Industrials:  11,400.28  -16.17
RYVNX:   18.77
RYAIX:  22.15
TLT:  83.24
BEGBX:  13.35

Tuesday, May 02, 2006

Bad News, the Dow is Up

The Dow seemed to be the leader of the party on Tuesday jumping 73 points.  CAT, BA (Boeing), and XOM (Exxon-Mobil) all sported more than a point move to aid in the Dow’s advance.  The problem is that the Dow and the SP500 are the new market leaders each eking out a new high for the move today.  I say this is a problem because when the big cap stocks are the leaders and the smaller stocks are not following, the market is in trouble.  Even the RUT (Russell 2000) is not making new highs and it has been the market leader for a while now.  The momentum indicators we follow turned over today rather than moving up.  We always say that the market can turn this type of indicator around but there are several large divergences that are noteworthy, especially the big cap up move.

In case you were wondering what all that was about, it means we have been given another sell signal by the market.

In the news today, the big three auto makers, GM, Ford, and Chrysler, announced declining sales in the month, with GM down 10.7%, Ford down 6.8%.  Chrysler sales were down 6.2% falling below Toyota for the first time in total sales.  The big headliner was that sales were down at the big three due to higher gas prices.  Well, that could be true but we continue to believe that there are sinister forces at work in the world of finance.  Ok, this isn’t a Sherlock Holmes story but we believe that the economy is showing signs of both higher interest rates and lower home prices.  

Meanwhile, the new Fed Head is already being criticized.  Bernanke has taken over the position vacated by the Maestro, big shoes to fill indeed.  The Fed doesn’t want to rock the boat called the stock market so it wants to make sure that everyone knows what it’s going to do at the next meeting.  Last week Bernanke said the Fed could pause even while inflation was rising.  We guess he thinks that it’s possible that the Fed has raised enough or close to enough and with the normal lag in the economy, they should just wait to make sure.  

Let’s be clear, the Fed is going to hike rates at its meeting next week, make no mistake about it.  The market is well aware of the Fed’s intentions for next week.  What the market wants is assurances that the Fed is done.  There is a good chance the Fed will be done next week but the Fed has two big problems, that being the dollar and the bond market.  The Fed can try to control short rates but the bond market controls longer rates and right now it is pushing rates up.  Meanwhile, the dollar seems to be dropping every day.

We encourage you to voice your comments in the comment section.  This Fed is about to become impotent with the dollar and the bond market taking over their job.  What do you think?  Does the Fed have a good idea what they are doing???

Be careful out there and don’t forget to “Sell in May and GO AWAY”.

Dow Industrials:  11,416.45  +73.16
RYVNX:   18.67
RYAIX:  22.10
TLT:  83.42
BEGBX:  13.37

Monday, May 01, 2006

Bernanke Steps Back

May Day brings a chill over the market.  On Monday afternoon the Fed Head was quoted as saying that “It’s worrisome that people would look at me as dovish and not necessarily an aggressive inflation-fighter”.  In case you weren’t following the market, the flat line the market created in the better part of the day was decidedly not flat after the Bernanke’s remarks were disclosed.  The NASDAQ fell about 1% in 30 minutes before stabilizing just before the close.  The Dow dropped almost 100 points in that same half hour and closed down after a pretty flat but up day until the news.

We generally say that the first of the month is strong and today was not that.  We have said recently that the market should be volatile here due to turning down and the bulls not wanting that to happen.  With that in mind we don’t think that the market will fall off a cliff right here and now but little cracks like this show you the fragility of the market.  If the market was truly strong, then the market would have shrugged off the news even though it broke late in the day.  Since the selloff occurred at the end of the day, traders need to pay attention because that’s when the smart money trades.  Volume during that half hour was strong.

There really isn’t much new news to report this evening but we do want to mention something that we have talked about in the past, and that is the Silver ETF.  Late last week the silver ETF, symbol: SLV, started trading.  We were a bit disappointed that it trades at 10 times the price of an ounce of silver right or around $135 since silver is around $13.50.  That means there will be less shares purchased even though the percentage move is the same.  This is different than the gold ETF, symbol: GLD, which trades at one tenth the price of an ounce of gold.  This gives us a great opportunity to trade the metal which should be easier than trying to find some good silver companies (although, we do like to follow PAAS).  We’ll keep an eye on it and when we see a good entry point we will be mentioning it here.

We want to mention the big number of the week that comes out on Friday.  That number is of course the jobs report and we expect it to generate some market movement.  This would be in line with the current volatile nature of the current market.  

The double mantra has become…

Be careful out there and don’t forget to “Sell in May and Go away”

Dow Industrials:  11,343.29 -23.85
RYVNX:   18.76
RYAIX:  22.14
TLT:  83.20
BEGBX:  13.35