Thursday, August 31, 2006

August is Finally Done

Thankfully, August is now behind us and we couldn’t be happier from a market perspective.  Oh yes, we like summer but the last two weeks have been made of some of the dullest days we can remember.  Take for example, Thursday, August 31, 2006.  On this day, the Dow dropped 1.76 and the NASDAQ Comp dropped 1.98 with the SP 500 down 45 cents.  For those of you writing covered calls, the market is quietly pulling out the premium in your options so you actually might be happy with the dullness.  We, on the other hand, are not.  We note that markets don’t stay quiet like this for very long, but at this time of year, there is a definite bias towards this type of quiet trading.  August is over, YES.

The first day of September could start out with something other than dullness due to the jobs’ report that is coming out just before the opening bell.  We normally see the jobs’ report as the end of the month end bullishness witnessing a little spike in the early morning trading which doesn’t seem to sustain itself.  This week being as dull as it has been could leave the market yawning at the news of jobs, weak or strong.  

The current estimate for new jobs is 125K with 113K being created last month.  Sometimes the market pays attention to the revised number to get an idea how the total new jobs were created.  It’s not a science; it’s more of an art.  The Fed has entered into this equation and at the same time the weakening housing market has created a little uneasiness.  If job growth is weak, the market may not like the number this time even though it would be aligned with the “Fed is done” trade we have seen so often in the last, what, year and a half???  

An article we read suggested that the job growth had to be in sort of a goldilocks situation, our interpretation.  The article said that if growth was a little too much, there would be cause for market to think the Fed could raise rates.  Not enough growth would mean there was weakness in the economy in general and that would also cause a bearish reaction.  Therefore, our interpretation of goldilocks, it’s got to be “just right”.  That thinking extends to the wage growth as well.  This report has to have just the right ingredients for the bulls to stay happy.

Another article mentioned that INTC, one of our favorite shorts, might be planning a mass layoff of between 10% and 20% of its workforce.  We always wonder what that means.  If we are truly coming into the so called “strong second half” why are companies like INTC laying off people?  Could it be that business really isn’t that good?  The announcement is supposed to be coming sometime next week.  What would normally happen, in this “expense reduction” mode, is a stock rally but INTC has already rallied from about 17 to a 20 in Wednesday’s trading.  If a rally comes out of that announcement, we would be very much inclined to short it or sell it or buy puts against it.  

As you might know, we are also very interested in the pending home sales for July that will be announced shortly after the market opens on Friday.  July had some of the highest interest rates for mortgages in a long time so the number could be dismissed if it is bad.  The assumption would be that the rates have come down a bit now so sales could have picked up some after July.

We wish all of you a happy and safe long holiday weekend.  The Labor Day weekend has always reminded me that a new year is beginning so we also would say, “Happy New Year” to you and yours.  May this year be a good year for you.

Dow Industrials:  11,381.15  -1.76
QQQQ:  38.87
RYVNX:   21.50
RYAIX:  24.02
RYCWX:  41.50
TLT:  88.08
BEGBX:  13.76

Wednesday, August 30, 2006

Dull Day

There really is not much to say this evening as we look at the trading day on Wednesday.  Volume remains low due to the summer vacations the traders must be on but that is nothing new to you.  The most important thing for us to focus attention on is that the trading in the next couple of months will not be all that kind to the bulls.  Sure, they’ve had their five day rally which doesn’t inspire much buying mostly just complacency because stocks are not “going down” so we don’t have to sell.

Tonight, we just want to get ready for the month of September.  Friday brings us the jobs’ report but we also get to see the ISM Manufacturing index and the pending home sales along with the University of Michigan consumer sentiment index.  All are capable of moving the market at least by next week.  We will keep this to a minimum tonight so you can get back to what you were doing.

Hopefully, next month’s trading will be a little more exciting than we’ve seen this month.

Dow Industrials:  11,382.91  +12.97
QQQQ:  38.91
RYVNX:   21.43
RYAIX:  23.99
RYCWX:  41.48
TLT:  87.87
BEGBX:  13.75

Tuesday, August 29, 2006

The Fed is Done...Again

The Fed is Done, the Fed is Done, the Fed is Done…We thought maybe the “Fed is Done” trade was a thing of the past but here were are again, rallying on the possibility that the Fed is done raising rates. Even though we have mentioned here that the Fed is Done raising rates, the market still needs to read the Update to get this vital information.

Tuesday the stock market decided to take another run at the recent highs and the NASDAQ Comp succeeded in breaking the high from a couple of weeks ago. The other averages were not quite as jubilant. They mostly just tried to get back to Monday’s high. The turnaround after the Fed minutes came out was almost breathtaking with the NASDAQ Comp, the happiest index on Tuesday, moving up about 30 points from low to high. Still, that really isn’t much of a rally given the place the indexes are trading.

This evening we would like to say that the market continues over bought and will have to succumb to selling soon. We are near the end of the month so there may be some position squaring going on but the bottom line is that no matter if the Fed is done or not, the market needs to go down over the next couple of months. Right now, it seems to be in denial if that is possible. The key reason for the complacency is that the players are not in the house, they are still on vacation—volume is light, although Tuesday’s volume was the highest in the last week, wow.

We had a notion that Monday’s highs might be the ultimate retracement but that was not to be today. There was a little more upside on Tuesday but we still believe that the right place to be is short or in cash.

In reading the media reports on the Fed’s minutes from their last meeting, we see references to the Fed being done “tightening”. The idea that what they have been doing is tightening seems to miss the mark of the incredible credit expansion that has taken place even during the “tightening” period. Tightening means that credit is more difficult to get and we certainly aren’t in that place.

We wait until Friday’s jobs’ report. See you tomorrow.

Dow Industrials: 11,369.94 +17.93
QQQQ: 38.73
RYVNX: 21.65
RYAIX: 24.11
RYCWX: 41.58
TLT: 87.64
BEGBX: 13.72

Monday, August 28, 2006

Another Up Monday

On Monday, the stock market decided that lower oil prices, due to Ernesto avoiding some of the main oil rigs in the Gulf, were the panacea that would cure the ills of the past few trading days.  Yes, the stock market was up on Monday but not by enough to call it a win for the bulls.  Certainly, news related advances will not be sustained.

We are presuming that this week we will get light trading and today’s volume (NYSE) was just a little more than last Friday.  The volume is generally lower during these late weeks in August but this year’s volume is 10% less than for the same period a year ago.  

Tuesday brings us the August Conference Board consumer confidence figure and after hours the ABC/Washington Post consumer confidence for August.  We expect continued weakness in these numbers and the market probably expects weakness as well.  We’re not thinking that these numbers have much chance of moving the market—but we could be wrong.  The big report is Friday when we see that jobs’ report, we’re trying to be patient with the market this week.

There are a few items to cover this evening.  The first is the rally on Monday.  We did kind of expect a little pop to complete the recent pattern.  The trading of last week seemed to suggest there would be a final new high for this move surpassing the highs we saw two weeks ago.  

We know it’s easy to predict what’s already happened, but it was Monday and Monday’s are supposed to have a little lift to them.  What intrigued us was the pattern was similar across the major indexes we follow.  Monday’s action allowed the SP500 and, later in the day, the Dow to surpass the peaks made a few weeks ago while the NASDAQ indexes, Comp and NDX, did Not follow their lead.  Of course, they could follow suit but they certainly do not have to.  They could just be declaring that the Dow is again showing strength whereas the broader indexes are not following.  So, potentially, the move we saw during the day on Monday is the high to complete the pattern.

Next, we would direct your attention to the True Contrarian’s site where he gives a long term outlook on some of the various markets we follow.  The main item for consumption is his call for the precious metals complex.  He is looking for a dip to around 248 for the HUI which currently sits at 336, that’s close to a 30% drop and he thinks that it will happen this year.  Take a look by clicking on the link to the left.

Third, we continue to watch the Treasury bond rally, a recent steady move that seems to correlate to the Fed’s Pause at their last meeting.  We still like the Treasury bond market and think there is some upside potential as the stock market drops into the end of the year.  There will be some point that we will exit these bonds and get into something else, like precious metals but for now, we wait.

Last, we remind you to take a look at the high water marks we mentioned in our last post to get an idea where the current ceiling for prices is: the April/May highs.  We think they are strong ceilings and will not be broken for a long time.  

Dow Industrials:  11,352.01  +67.96
QQQQ:  38.61
RYVNX:   21.74
RYAIX:  24.15
RYCWX:  41.69
TLT:  87.52
BEGBX:  13.71

Sunday, August 27, 2006

Time to Connect the Dots?

Not much happened last week while we were away so we didn’t miss much in the way of analysis.  We expect continued sideways trading in the next few days as people are still out on vacation and coming back only after the Labor Day weekend coming up.  There are some kinks in that scenario because there is a big report out on Friday and that is the jobs’ report which we have been using as one of our guides to this market.  There are several other reports out this coming week that have the potential to move the market.  We will only focus on a few in the coming days, one of them being the July pending home sales which comes out on Friday after the jobs’ report.  So, Friday could have some interesting play going into the long holiday weekend.  

As for the stock market action we do think that the market is sitting atop a trap door that when opened will produce much selling pressure.  We’re not sure the catalyst to open that door nor do we want to speculate on it but we think the door will open fairly soon.  Our primary indicator tells us whether the market is overbought or oversold and right now as well as for the past week has been right near the overbought range.  Given the rally we had the week before that, an overbought range does make some sense.  

Looking at the prices to try to figure out anything that makes sense, we see that the Prices for the indexes are not being able to reach back to the May highs.  The rally efforts have been making for interesting media coverage and have given the bulls a chance to relax Again.  We call this feeling complacency and we measure it in the volatility indexes that you can watch, too.  While the Prices on the indexes can’t quite get back to the May highs, the volatility indexes are right back to where they were in early May when this decline started.

We repeat the April/May highs for the indexes, on a closing basis:

Dow Indu….11,642.65 on May 10th    Last Friday 11,284.05
NASDAQ COMP….2370.88 on April 19th    Last Friday 2140.29
SP 500….1325.76 on May 5th    Last Friday 1295.09

Do you wonder why people are so bullish, or should we say complacent, in the face of these types of price levels?  

Tonight, as we write this, we think that a market decline is very close.  Our thoughts are focused on the change of heart that the market had when the housing data was released last week.  As we reported in the our post, Wednesday evening, August 23rd, the market went down in the face of news that would bolster the Fed’s ability to stop raising rates.  To us this is a significant change in the way the news is being absorbed.  As the news unfolds over the next few weeks, we will be watching for that subtle change to manifest itself in a down market.  

We have been talking about the housing arena doing the stock market in for quite a while now.  We think the time has come for the market to really start connecting the dots on this thinking.  On Friday, H&R Block, yes, the tax people, said that they were taking a $102 million loan loss provision. You might like to know what that’s for, so we tell you, it’s for their involvement in the sub-prime mortgage business in the form of Option One Mortgage.  HRB’s stock was down just about 9% on Friday.

Of course, the way Barron’s connected the dots in this week’s edition was to proclaim on the Cover, under the title of Housing Ripple, that, “As home prices sink, stocks in the sector are falling to attractive levels.  It’s time to get constructive on names like Countrywide, Pulte and Whirlpool.”  

Dow Industrials:  11,284.05  -20.41
QQQQ:  38.32
RYVNX:   22.08  (own)
RYAIX:  24.34
RYCWX:  42.17  (own)
TLT:  87.44  (own)
BEGBX:  13.67

Wednesday, August 23, 2006

Housing Data Turns Market Down

The stock market got off to a brisk opening at least until the housing data was released. Then the market did an unexpected thing, it went down, which, of course, given our positions we like but... The housing stat we are speaking of is the existing home sales which were reported to be down 4.1% on expectations of a decline of 1.2%.

We are especially interested in these numbers as they are the basis of our bearish position in the stock market. We just don’t think the numbers are really as Good as they say they are. One number that we question is the year over year price change in the median sales price of existing homes. That number went up 0.9% and we are scratching our heads on this one. Are all the Good houses being purchased at higher prices??? Even though there were about 11.2% fewer sales this past month compared to last year at this time, people were still paying higher prices for the ones that were purchased??? We don’t really understand how this can be. Inventories of unsold homes in the nation rose 3.2% to a record 3.85 million, a 7.3 month supply at the July rate of sales.

The Wall Street Journal (WSJ) had a front page article concerning the housing market. The article appeared in Wednesday’s edition and it is a must read. The article has bits and pieces of several stories related to the housing situation that track right with our thinking process. You may not remember that we mentioned last year about this time that the housing market had probably peaked in the summer of 2005. We see that time frame discussed in the article, looking backwards after the Fact. We told you last year as it was happening—once in a while we can be right on the money. Anyway, the article has something for everybody and we recommend a quick read.

In “normal’ times, meaning the last little while, any weakness in the economic indicators would remind traders that the Fed won’t have to raise rates again. This type of thinking leads to the next logical place of buying stocks. Instead, the stock market went down and the bond market went down. Think of it, traders were thinking rationally for a change except that why did they think that way on Wednesday? We can’t answer that. I know you come to this blog to get insight into some of the goings on in the market so we apologize for our lack of answers on this topic.

We do think that if the market wants to go down at this time, there will be no shortage of sellers and there will be no question whether the market is going down or not. So, we have been prepared for this in our trading.

[Remember there will be no posting tomorrow and our next posting will be Sunday evening for your reading pleasure on Monday morning. See you back here then. Have a good weekend.]

Dow Industrials: 11,297.90 -41.94
QQQQ: 38.14
RYVNX: 22.26
RYAIX: 24.43
RYCWX: 42.04
TLT: 87.15
BEGBX: 13.69

Tuesday, August 22, 2006

Future Fed Governor Speaks

The stock market had a modestly wild day on Tuesday with the indexes spurting up for the first few hours and then dropping into the middle of the day before rallying to close very near flat on the day. One of the future Fed governors was speaking about upward pressure on inflation and how that may cause the Fed to raise rates again. The market seems to be a little jittery about the prospect of inflation because it doesn’t want the Fed to raise rates again. On the other hand, there wasn’t much in the way of fear on the Street.

The volume was again light, although slightly higher than Monday’s volume. Our position is that volume needs to be part of any rally and a rally without volume is doomed. Last August, there was light volume also. Just for kicks we decided to see how the indexes have performed over the past year.

............................A year ago................ Today
Dow...................... 10,569 .................. 11,339
SP 500 .....................1221 .................... 1298
NASDAQ Comp ............ 2141.................... 2150

As you can see the NASDAQ Comp has barely budged in a year while the crazy Dow is up 750 points. This is one confirmation that the broader market isn’t doing quite as well as the blue chips. That is Not bullish.

As we head into Wednesday’s trading we note the two housing reports due out the next two days, existing home sales on Wednesday and new home sales on Thursday. Both of these are expected to show a decline which on the surface the stock market should like, you know, the whole inflation being in check so the Fed doesn’t have to raise rates again.

Underneath, the reports could show continuing deterioration in the housing market with a corresponding impact on the economy at large. We look forward to some Action in the market and we are hoping for it to be on the downside.

With that in mind, we note that our indicators are again flashing red, as in overbought. The five day upside volume peaked on Friday at a modest 989 thousand; a low high due to the low volume we have seen. All signals show a weak advance last week and a modest rollover this week so far.

[Reminder: No new posting for you on Friday—our last post this week will be tomorrow night for your reading on Thursday.]

Dow Industrials: 11,339.84 -5.21
QQQQ: 38.43
RYVNX: 21.90 (own)
RYAIX: 24.23
RYCWX: 41.74 (own)
TLT: 87.11 (own)
BEGBX: 13.69

Monday, August 21, 2006

Low Volume Continues

Monday morning the stock market opened weak and traded in a very narrow range for the better part of the day.  There was one drop late in the morning and then a rebound out of that low with a slower replay of the same thing over the next several hours.  All in all it was a Dull day with Very light volume, the lightest of the year except for the mini-trading day between the weekend and the Fourth of July.  This volume drought is a bearish indicator.  

The rally we saw last week was on pretty low volume and today’s volume on the downside was even lighter.  The bulls might look at Monday’s volume and take some comfort in the down day with low volume.  We would say that it is a harbinger of the coming disinterest in the market.  The market now wants to figure out if it’s finally time to go down.  These volume figures are confirming that need.

There was some international news that was said to put a damper on the opening…we don’t think that had much to do with the selloff on Monday.  The news out of Iran could be a market mover if things get out of hand but we don’t think it had much to do with Monday.  

One thing that might have had some influence was the report from Lowe’s, the second largest home improvement retailer (can you name the largest?).  Lowe’s had an 11% increase in net earnings for the second quarter but missed expectations by a penny.  Then it lowered its outlook for the full year results.  The stock only lost 4% but its news fits in with our general view of the housing situation—slowing down.  (HD was only down a little over a percent.)

For further confirmation of this, we wait intently for the home sales reports due later in the week.  On Wednesday we get the existing home sales and on Thursday we see the new home sales.  

The reports out of the media on Monday were pretty much as expected, saying that the market was due for a pull back after last week’s advance.  You know our view, that being that last week’s rally was Very weak and should be entirely retraced in a very short period of time.

[Editor’s note:  The posting schedule is going to be revised for this week only.  There is a good chance that the Update will not have a new posting for Thursday.  The regular schedule will be followed starting Sunday evening the 27th.]

Dow Industrials:  11,345.05  -36.42
QQQQ:  38.42
RYVNX:   21.95
RYAIX:  24.26
RYCWX:  41.67
TLT:  87.08
BEGBX:  13.75

Sunday, August 20, 2006

It's 1991 All Over Again

Options expiration is over and now we can focus on the readjustment period that normally follows.  The final day of the week showed the Lowest volume of the week at the NYSE.  Looking at the week, the Dow made a monster move of nearly 300 points, ok maybe a baby monster move, but on modest volume of less than 1.5 billion shares a day.  For perspective, the average daily volume for 2006 has been 1.668 billion shares and that counts some of those half days of trading that are sometimes less then 1 billion shares.

Our observation is that a lot of bullish enthusiasm built up during last week and that increases complacency.  We have watching the news and the prices and the volume and there isn’t a good story that ties them together except Bull Trap.  We will reserve judgment until we get trading underway for the week in the morning.  But, we did use some of our dry powder on Friday to add to our short positions.  

One of the big stories last week was the follow up to MSFT’s stock buyback program.  It seems when MSFT sent out the tender letter to solicit current owner’s stock, they didn’t get a very good response, only about $4 billion worth of stock was tendered back to them.  The report was that most MSFT owners didn’t think 24.75 was enough for their stock.  This report was enough to pop the stock about 4.5% on Friday to help the Dow to a fifth straight up close.

The WSJ, at so the online version reports, is set have a page one story titled “Consumers Curb Upscale Buying As Gasoline Prices, Housing Bite”.  The article says that many retailers are feeling the pinch of higher gas prices with several reporting disappointing sales figures.  The article cites Starbucks, Whole Foods Market and William-Sonoma, as well as Brunswick (boat maker) and Panera Bread.  

The article continues with how you need to go back to 1991 to find a similar time when consumers were pulling back.  At that time we had entered Desert Storm and there was a lot of interest in CNN’s coverage of the war efforts.  The 1991 era was a deep recession.  Right now, there are anecdotal instances of recessionary trends but the GDP keeps growing.  We will probably hear a lot more about 1991 as we go deeper into the fall, with all of the similarities of a recessionary period today.  

Of course our favorite part of the article is the reference to the housing market.  Early in the article, they point to the price of gas as the culprit for the consumer pulling in their horns but later in the article there is a paragraph blaming the slowdown in the housing market as another reason consumers are being hit.  In the paragraph it mentions the index of home builder sentiment plunging to its lowest level since…1991.  There it is again.

We do not expect the upcoming week to be as generous to the bulls as last week was.  In fact we need to get this little “head fake” behind us and get to the real work of the bear market.  We will return tomorrow…

Dow Industrials:  11,381.47  +46.51
QQQQ:  38.79
RYVNX:   21.52
RYAIX:  24.03
RYCWX:  41.42
TLT:  86.77
BEGBX:  13.65

Thursday, August 17, 2006

Not Exactly a Bull Market

Thursday’s stock market tried to continue the rally that has been in place for about three days but couldn’t quite keep that type of momentum going.  Yes, the major indexes were up today and, yes, we lost some more money today, but we do not believe this is the start of a major bull run as so many on Wall Street are trying to make you believe.  

There are many things to look at technically that should bring clarity to this subject.  The very first one of those is the incredibly low volume on which this rally was built.  Bull markets need volume in order to survive.  If we were to see a bull market starting now, there would be massive volume and massive price movement, not this weak volume and not these little 1% to 2% moves.  The bull market never lets you in, you always have to chase it.  While you may feel like you should chase this, just imagine if the move would have been 3%-4% a day for a few days on big volume.  You would have to chase it.  

The last big thing to discount this “bull” is something we have mentioned in the past, the volatility index, VIX.  (The VIX generally moves opposite the move in the market so on an up day, the VIX should be down.)  We would really like to see some bearishness out there in order to call this a bull move.  Instead we see the VIX sinking to its May numbers even though the price levels are still well below the May highs.  Looking at the SP500, we see a high price of 1325 on May 5th and today’s close was 1297.  In the NASDAQ Comp, we see a price high of 2370 on April 19th and today’s close at 2157.  This value of the VIX indicates a docile complacency that bullishness is based on.  

When we wrote about the Volatility Index in a post early this month (Wednesday, August 2, 2006—check the archives at the left for the full report), we said that we would know when to get bullish by watching for this VIX number to go up to around 50 or 100.  Today’s VIX closed near 12 which is near the early May levels.  This is not a bullish number and we remain very, extremely, mightily, pick your adjective, bearish.

We said we had a little powder that was dry and we still have it.  I guess this 1550 NDX number was eating at us over the past few weeks.  Now that that number has been attained, we are now willing to deploy some or all of that dry powder.  

We expect the 2004 NDX lows to be at least challenged in this next move down and those are right around 1400 so about 10% from here.  Our best guess is for something far greater than that, giving you a first hand look at the way the bear can destroy value in a hurry.  As that develops we will be here to analyze the patterns and possibilities.  

Thursday’s LEI, Leading Economic Indicators, were down 0.1% rather than the estimated up 0.1% which the stock market took as further confirmation that the Fed is indeed done.  This rally tried to get going but the bulls were exhausted so not much happened on the upside on Thursday.  At the moment, the battle cry is “The Fed is Done, Let’s Buy” and we would say Caveat Emptor, buyer beware.  

Have a great weekend.

Dow Industrials:  11,334.96  +7.84
QQQQ:  38.73
RYVNX:   21.58
RYAIX:  24.04
RYCWX:  41.71
TLT:  86.52
BEGBX:  13.64

Wednesday, August 16, 2006

Another Big Up Day

The stock market decided it liked the CPI numbers on Wednesday morning and that was all it took to pop the futures up just before the market opened.  From there, the market ground higher all day long going out on the highs of the day.  That makes two solid price moves back to back.  We still didn’t see the volume that should normally be associated with this kind of move.

We are trying to figure out just what the market is trying to do here.  Our portfolio has taken a significant hit in two days with this action but we still feel that the decline is coming.  Granted, we could have been out for the last two days but this would have been tough to call.  This week is options expiration and there may be some unwinding of positions going on with that and maybe there was a lot of short covering with sellers walking away for better prices later.  In any event, the price move has been impressive even though the underlying strength doesn’t appear to be there.  

You might ask what we are talking about because price moves are what all of our trading is about.  Well, the price moves should be associated with solid volume to confirm the greatness of the rally.  Plus, we said in last night’s post that the NASDAQ 100, NDX, had another opportunity to go to 1550 which it superceded on Wednesday.  That was for a 50% retracement of one of the prior declines.  With the entire price move in the past four days, the NDX has not reached back to the July highs.  

All of the buying taking place right now is based on the concept of a weak economy with low inflation.  So, the price moves this week are “news” related based on flawed thinking and will not stand up for long.  We say flawed thinking because the whole idea of a poor economy creating a good stock market doesn’t really seem appropriate.  The market participants are thinking that the Fed Can’t raise rates and that in itself will improve the economy.  We don’t think so.  What “Fed is done” rally is this, number 852?  How many times can the excuse to rally be that the Fed won’t raise rates???

The news out of the housing sector continues to get worse with July housing starts down another 2.5%.  There was some good news out of Hewlett Packard (HPQ) after the bell.  That stock had a nice pop in after hours trading.

We think that the options expiration related buying will be over and now will come the test of this up move.  The market is not as strong as the price moves indicate especially looking at the energy this move has taken.

Dow Industrials:  11,327.12  +96.86
QQQQ:  38.58
RYVNX:   21.68
RYAIX:  24.10
RYCWX:  41.75
TLT:  86.55
BEGBX:  13.65

Tuesday, August 15, 2006

Bullishness Abounds

Most of the world, including us, were a bit surprised by the PPI numbers that came out an hour before the market opened.  The Labor Department reported that producer prices rose a modest 0.1% but the closely watched “core” rate was a negative number, -0.3%.  This was all the market needed to say the Fed would not raise rates, even though they had threatened that last week.

The current “Fed is done” rally follows about 50 others just like it.  Our comments in the last post considered that the market had failed to best the high water marks made since the jobs’ report on August 4th.  So, here we are with the market as bullish as it can be, and we barely broke above the jobs’ report opening prices.  The market advanced today on what we consider to be very light volume for a move like this.  Yes, most of it was up volume but the total was light.

We looked back to the same period four years ago to see if there are any similarities with now.  Back then the market had peaked on March 19, 2002 at a level of 10,635 and dropped to a low of 7,286 at the close on October 9, 2002.  This price change represents nearly a 35% drop in a little over six months.  This year the Dow peaked on May 10th at 11,642 and so far the lowest we have seen there is 10,706.  If 2002 is any standard, we should be looking at a Dow down another 25% or so taking us to around 8,000.  On the surface 8,000 seems a bit farfetched, but in 2002 7,286 seemed farfetched, too.

Our bearish position may not bear fruit of the 25% nature but we continue to be confident that the market is going down into late September or longer.  Days like Tuesday remind us that the market is trying to make people confident of the bull.  We don’t believe it’s that easy to make the market go up.  And, if you look at the incredible bullishness out there currently, you would think we were going to new highs every day.  That is simply not the case, as we’ve had trouble getting back to the June Lows let alone the May highs.

Tuesday’s PPI signaled that the Fed could stand pat on interest rates.  Does that mean that Wednesday’s CPI will give the same message?  Up until early this year the market had been on a three year up move, we would call it corrective, not a bull market, since it didn’t get close to the highs set back in the year 2000 market.  The Fed has raised interest rates during that period of time and the market has been waiting for them to Pause—which they did last week.  There has been extremely good interest rate news the past few weeks but still the market has trouble getting going.  We think that is because the market wants to go Down.

The price move on the day looked powerful to the casual bystanders.  Those are the people that “want” the market to go up because they are investing in it.  The market traded light volume for this type of move and the prices should not hold.  

The 1550 that we thought could happen in the NDX, NASDAQ 100, is looking pretty close again.  We would never have waited until this day because we had been focused on the jobs’ report and Fed Pausing meeting period for our expected high point.  It is interesting to see that 1550 come into view again because if you recall that was a 50% retracement of a prior high.  We’re still not back to Half way and bullishness abounds!!!  

Dow Industrials:  11,230.26  +132.39
QQQQ:  37.70
RYVNX:   22.73
RYAIX:  24.67
RYCWX:  42.50
TLT:  85.92
BEGBX:  13.57

Monday, August 14, 2006

Another Failed Rally Attempt

Monday’s market predictably opened on a very positive note presumably on the “peace” talks between Israel and the Hezbollah.  We call it a failed rally attempt.  Very simply there have been a few rally mornings during this month that are there for you all to see by looking and listening to the market.  Tonight we only have time to analyze one particular index, the NASDAQ 100 or NDX.  If you want to do some homework yourself, follow the link to the left for Big Charts and look at a 10-Day chart with 15 minute intervals for both the Dow (symbol: INDU) and SP500 (symbol: SPX).

Looking at any of these indexes you get basically the same pattern:  Going back to the jobs’ report on Friday August 4th, we see a higher opening and a big drop into the close.  Then there is the Wednesday August 9th trading day that started up big due to CSCO’s earnings.  And, now we have the “cease-fire” Monday August 14th early morning pop and subsequent selloff.  

Let’s focus on the NDX for those days.  August 4th, the high in the morning was 1530.04 (we thought it might be able to get to around 1550 but we now think this 1530 is going to be the full retracement).  August 9th, the high in the morning was 1517.90 about 12 points lower than August 4th.  Then there is Monday August 14th, the high was 1515.68, lower than both of the previous two early morning buying frenzies.  

You could make a good argument that the Sellers were the smartest of the bunch back on August 4th, not the buyers.  The second smartest were the sellers on August 9th with those that sold this Monday morning being a close third.  What were You doing?

We are extremely bearish especially after three reversal days in the last seven trading days.  These days are designed to force the early morning buyers to pay the highest prices of the day and by the end of That day they are already losing a substantial amount.  These days are not well understood by the early morning buyers who thought, whatever the news was, that this was the day that the bull market would resume.  As we have seen—if you haven’t seen, you should go look at the charts—prices are now trading below what they paid.  This is called a loss, something that doesn’t make sense in a true “start to the bull market”.  In tomorrow’s post we will explore the bearish possibilities for the coming six weeks or so (if you want a good preview, the True Contrarian has posted again, follow the link to the left).  We’ll see you back here tomorrow.    

[Editor’s note:  Please accept our apologies for not having a post up for Sunday evening.  The author had a pressing matter, which needed immediate attention, that came up early Sunday morning, taking him away from his normal routine for the past 36 hours.  Normally, advance warning would be given to you should a normal posting not be available on a given evening before a day when the market trades.  Unfortunately, that was not possible in this situation.  This has certainly impacted this evening’s post as well but tomorrow there will be a full posting.  Please come back for that as the market is turning very interesting right now.  Thank you for your understanding.]  

Dow Industrials:  11,097.87
QQQQ:  36.77
RYVNX:   24.01  (own)
RYAIX:  25.34
RYCWX:  43.51   (own)
TLT:  85.25   (own)
BEGBX:  13.49

Thursday, August 10, 2006

Real Estate Woes

The early morning terrorist news sent the pre-opening futures down both here and across the pond in Europe.  But, as the morning wore on, the traders here in the US decided that the thwart of the attack was better than selling so the tape went green about two hours into the session.  The indexes closed near their best levels of the day.  Our position remains extremely bearish for the next six weeks or so, maybe more.

We have noticed, in the past several weeks, various real estate reports involving the residential housing market.  The WSJ has an article in Thursday’s edition that seems to exhibit some of current issues.  It appears on page D1 and is titled “Homeowners Start to Feel The Pain of Rising Rates” with a subtitle of “Payments on Adjustable Loans Hit Overstretched Borrowers; ‘Budgets Are Out of Whack’” by Ruth Simon.

The article starts by saying that an accountant refinanced her $312,000 mortgage in 2004 with an option adjustable-rate mortgage with an introductory rate of 2.35%.  The option in the title of the mortgage meant that the accountant had multiple payment choices each month.  Obviously one of the ways she chose to use was to pay less than the interest on the loan because her mortgage now stands at $324,000.  The problem is that after two years, the introductory 2.35% has jumped to 8.75% with a minimum monthly payment of $2,257.  Using our math skills we notice that the 2.35% interest only payment would be about $611 a month.  One thing, though, is that the mortgage went up about $12,000 in two years meaning that she was paying about $500 a month less than she was supposed to.  What do these people think?  

The article continues with the accountant’s story saying that she tried to sell the house last summer (in our opinion the height of the housing prices) at $400,000 but now have it on the market at $270,000.  Doing the math on that, we see that with a mortgage of about $324K and a selling price of about $270K less realtor fees of about $10K, these people would have to cough up about $64K at the closing.  This is referred to as a “short sale” in the article, meaning the sale price is short of the mortgage.  (In the auto finance world, this is called being upside down.)

The article talks about another person who bought a house here in St. Paul two and a half years ago.  This guy got an 80-20 loan and we’re not talking about 80% loan and 20% down, we’re talking about an 80% first mortgage with a 20% second.  His two year ARM reset to a higher rate and increased his payments $200 a month.  The article goes on to say that he was stretched before this increase??? and now he starting to fall behind on his water bills, car payments and student loan.  Last month, it says, he received a letter from his lender with the words “rate increase” on the envelope but he didn’t open it “because it gets too discouraging”.  He then says, “If I had been aware both loans were interest-only, I would have probably turned the loan down”.  What?!?

The one point in the article is that “Many of these borrowers took out loans that didn’t require them to document their income and overstated their earnings”.  But, all of us Know that real estate prices always go up, Right?

Keep these things in mind when you are thinking about the stock market.  That’s what we do on a regular basis because we believe the housing market will fail badly and it will take the stock market down with it.

Dow Industrials:  11,124.37  +48.19
QQQQ:  36.79
RYVNX:   23.93  (own)
RYAIX:  25.29
RYCWX:  43.29  (own)
TLT:  85.77  (own)
BEGBX:  13.61

Wednesday, August 09, 2006

Major Reversal Day, Again

We’re not sure where to start this evening as we catch our breath after this wild day in the stock market.  John Chambers, the CSCO kid, announced on Tuesday evening that CSCO would be doing well over the next year, projecting higher revenues.  We noticed that the revenue numbers were somewhat tainted by the fact that Receivables were up nearly the same amount as revenues, meaning that there are still some outstanding bills that need to be paid on the sales.  But, the CSCO kid did manage to spin a good story for the market, at least in the early going.  

As the market was opening, there was a head of steam based on the CSCO news and the futures had lit up the pre-opening prices.  We start with the NASDAQ 100, NDX, which was the index most heavily affected by CSCO.  At the opening, the NDX jumped 1.3% and by around noon CDT it had moved up over 2.2% to 1517.90.  

In the past few weeks we had been watching for jobs’ report Friday, August 4th, because we thought that could be the high in the market.  If you go back to that day and see where the NDX traded, the high was just over 1530.  We had said that it had the potential to go to 1550 so we were a bit high there but we did call the time frame.  Anyway, Wednesday’s 1517 was well short of last Friday’s 1530 and it was on much more hype than the jobs’ report generated.

Looking at the trading day for the Dow, we see that it jumped at the opening bell as well, about 75 points within a few minutes.  From there it started its sojourn down and down all day long with only a minor bump up right around noon CDT, closing pretty much on the low of the day, down nearly 100 points.  The high for the day at right around 11,250 was again lower than the jobs’ report Friday, August 4th, high of around 11,340.  

If you look at the pattern of trading last Friday and then on Wednesday, you can see the similar up big mornings with a drop off the rest of the day.  These are bearish patterns especially combined with the lower highs on the Wednesday spurt relative to the Friday spurt.  This trading represents a very Weak market and one we are happy to be short in.  We truly hope you have exited your longs because the next move will not be pleasant if you haven’t.  With the Dow up above 11,000 even now, there is so little fear in the market generally.  We don’t see that number holding much longer especially given the bullish undertone that brought us Wednesday morning’s trading.  

People are bullish without Any real price moves to the upside.  Looking back to the May highs and comparing the bullishness then to now is a little difficult but we are much lower in price now than we were back then, especially in the NASDAQ indexes.  The Dow high in May was right around 11,700 and now it’s just under 11,100 for about 600 points or about 6%.  The NASDAQ 100, NDX, the May high was (actually the NDX high was in April) at 1750 and today’s close around 1485 is 265 points lower or 15%.   Even CSCO is 10% lower at tonight’s close of 19.78 compared to its April/May highs at 22.  

We are confidently bearish this evening which is probably a bad thing but we still think the market is heading down into early fall.  The market action Friday and Wednesday have given us good reason to be bearish.  The market’s message is very clear—it wants to go down.

We’ll be back tomorrow.  These next few weeks should be very profitable for our short positions.

Dow Industrials:  11,076.18  -97.41
QQQQ:  36.53
RYVNX:   24.27  (own)
RYAIX:  25.47
RYCWX:  43.66  (own)
TLT:  85.90   (own)
BEGBX:  13.68

Tuesday, August 08, 2006

The Pause

So the Fed is done.  We sort of feel the urge to sing the Wizard of Oz song, the “Wicked Witch is Dead”, using slightly modified words, such as…the wicked old Fed is Done.  Tuesday’s news met with some wild action in the market for a little while with the market jumping on the initial news and then falling dramatically and then rallying and so forth until the close was down about a 0.5% from Monday’s close.

We could spend some more time on the Fed news but that Pause is Finally behind us and we have discussed it enough.  The stock market now needs something new to “worry” about.  That something comes in the form of the Fed’s next move, please.  Anyway, the Fed is telling us that maybe there will be another rate hike sometime if maybe, possibly, the economy slows enough.  

Pardon me, but isn’t it the job of the Fed to be concerned about inflation?  In reaction to the news, Goldman Sachs Economic Research, as quoted in the online WSJ, said that “the main surprise was the committee’s lack of any reference to labor costs, which now show a more consistent pattern of acceleration across major indicators…we now think that the 5.25% funds rate target will represent the final move of this tightening cycle.”  We couldn’t agree more.

The stock market certainly shrugged off the Fed news in after hours trading as CSCO, one of the favorite NASDAQ stocks, announced earnings that were basically in line with expectations while revenues were up substantially.  John Chambers, CSCO’s CEO, is generally a pretty upbeat guy especially on earning’s calls.  Tuesday evening he was predictably optimistic about revenue growth for fiscal 2007.  This was all the after hours market needed to pop CSCO’s shares almost 10% and at the same time erase all of the NASDAQ 100 losses for the day.  We will see how the stock trades in the early going on Wednesday.      

The stock market may be up on the back of CSCO’s news this evening but we do not see a huge up move sticking on Wednesday.  Still, we know that the traders’ memories are very short indeed and anything can happen.  We expect continued selling with some violent upside moves to keep everyone guessing over the next six to eight weeks.  In our opinion the stock market needs to come down a bunch in that time.  This opinion is held because of the total lack of concern on the part of the media and the players.  

One of our (former) readers said in order for us to see a drop of that size we would need an event.  I’m not sure what kind of event can drop the stock market 10%-15% in the space of a month and a half but I don’t want to know.  We think the drop will come with almost no news—news items confirming the drop will be viewed by us as a possible time to switch course, the contrarians we are.

Dow Industrials:  11,173.59  -45.79
QQQQ:  36.48
RYVNX:   24.28
RYAIX:  25.47
RYCWX:  42.94
TLT:  86.18
BEGBX:  13.70

Monday, August 07, 2006

Waiting to Inhale

The stock market didn’t seem too bothered by the news about the Alaskan Pipeline.  There was a poor start to the day and a drop in the afternoon but for the most part the market managed to ignore the oil news.  Oil itself jumped a couple of bucks to $77 a barrel.  What is so amazing about this is that oil traded at $79.50 just a few weeks ago.  The Prudhoe Bay shutdown by BP takes quite a bit of oil offline at the same time we are seeing Iran’s supply line and the availability of Nigerian oil have heavily contributed to oil uncertainty.  But, the stock market is not troubled by such things, apparently.  Instead, the stock market is concentrating on how inflation could be troubling the Fed???
The Fed will give us their decision (to hold rates steady) around 1:15 CDT on Tuesday.  We have voiced our position that they will Not raise rates when they meet.  We do want to explore the possibilities of Tuesday’s action coming out of the announcement.  That would be opposed to Monday’s extremely dull trading and light volume, mostly waiting for the Fed’s decision.  We can not say this any clearer:  The Fed will hold the interest rates steady and the market will then go down.  A carefully crafted statement might give the market a short term boost but we have seen the action since the GDP announcement of a couple of weeks ago—bullishness is overrated at this time.

We will be back tomorrow to recap the action after the Fed announces.  In the mean time, we hope that you have taken advantage of these higher prices and sold into these little early morning rallies.  The afterhours market this evening certainly is making a case for a pop at the opening, after all, the oil news is now discounted (sarcasm, sorry).  We will see you tomorrow.

Dow Industrials:  11,219.38  -20.97
QQQQ:  36.71
RYVNX:   23.97
RYAIX:  25.31
RYCWX:  42.57
TLT:  86.37
BEGBX:  13.68

Sunday, August 06, 2006

The Fed is Done?

Friday morning the jobs’ report gave the market the news it was looking for, or did it?  The jobs’ report showed that job creation was below expectations for the fourth month in a row.  Yes, that meant that the Fed will surely Pause on Tuesday, August 8th, but is it really what the market wanted to hear?

At the moment of the news, which came an hour before the opening bell, the buyers came in to bid stocks up.  The opening bell just brought in more buyers.  How many times have we said you should Sell Early Strength, especially when the market is in an overbought situation as it currently is?  At any rate, the high for the day was registered about fifteen minutes into the normal session.  

Those of you who follow the QQQQ’s saw it go from Thursday’s close of 37.12 to the 37.63 high of the day fifteen minutes after the opening bell on Friday.  From there the QQQQ’s leaked to a low of 36.62 about an hour before the close and then staged a big rally to close down only 0.17 at 36.95…quite the wide ride.  The rest of the stock market followed a similar pattern.

Our analysis has been that the Fed would not raise rates on the 8th due to the cooling of the economy (look at Thursday’s post for instance).  On Friday morning, the jobs’ report was weak enough to push several more people in our camp.  (The bond market was quite happy with the news and the dollar was quite unhappy, both as you would expect.)  The difference in the way most think and the way we think is how we expect the market to react to the Fed being done.  

We have thought it would react by selling off.  We weren’t sure that the first reaction would be a moon shot, like Friday morning was, but we are pretty sure that the aftermath will be a sell off.  Why?  Every time the market has heard news that would allow the Fed to stop hiking rates, we have seen a “Fed is done” rally.  When the news is actually that the Fed is done, we didn’t expect Another rally—Buy the Rumor, Sell the News.  

Ok, so it’s not Tuesday and the Fed has Not Paused just yet, so what’s the big deal?  We think the news (jobs’ report) was just what the Fed needed to know in order to hold the line on rates.  Not only that, the rest of the world figured it out at that moment, too.  We think the Actual announcement on Tuesday afternoon will be greeted with boredom and selling.  

For another take on the Fed’s situation, the True Contrarian (link on the left) presents an argument that the Fed needs to hold the rates level and announce that it will decide what to do going forward.  He thinks that if the Fed raises this week, the market will think it has “run out of bullets”, so to speak.  This would put the Fed in a powerless position, one that he doesn’t think they will allow.  Whether his analysis is right or not (we’re not sure the Fed is that shrewd), we do agree that there will be no rate hike this week.

Dow Industrials:  11,240.35  -2.24
QQQQ:  36.95
RYVNX:   23.65  (own)
RYAIX:  25.14
RYCWX:  42.40  (own)
TLT:  86.32  (own)
BEGBX:  13.71

Thursday, August 03, 2006

Jobs' Report Up Next

Thursday’s stock market opened with a thud as the major indexes took a hit on the interest rate news out of Europe.  The ECB, European Central Bank, raised rates but that was pretty much a given; but, the Bank of England also raised their rates and that wasn’t expected.  The European bourses didn’t like the news because investors there had the notion that central banks were in the business of tightening.  

This news caused our own futures to drop going into the opening bell and the indexes opened on what turned out to be the lows of the day.  The news out of Starbucks (SBUX) and Sprint Nextel (S) helped to discourage buyers at the bell as both of these stocks got hit hard.  Both stocks did recover some of their price declines as the market rallied the rest of the day.  Only a quick selloff at the end of the session managed to keep the indexes from closing on their best levels of the day.

We think the SBUX’s news was right down our alley.  The company provides high buck coffee to many people and some of those people may be deciding to switch to cheaper or no coffee in order to pay for another expensive liquid, you know, what we call gas—it really is a liquid even though they call it gas.  The SBUX news solidifies our position that the consumer is under duress due to the housing market and whatever fancy mortgage they are stuck with.    

This rally brought the Dow and the SP 500 back to what we have been calling the ceiling.  Both of these indexes tried to break through but didn’t manage to do that on Thursday.  So, what’s next?

Friday morning brings the July jobs’ report.  The Update has been waiting for this report for about three weeks.  We should listen to our own words when we went long a couple of weeks ago.  Back then we said the market would probably rally into the July jobs’ report or maybe even to the Fed’s FOMC meeting next Tuesday.  But, no, we changed our minds based on the poor trading in the market late last week.  So far, though, our decision to go short last week has not been a big mistake.  We had thought the NASDAQ 100 might return to the 1550 level and so far it has only managed a return to about 1518.  Yes, you’re right, it still could go there over the next few days but let’s concentrate on the jobs’ report for Friday morning.

We have talked about the “Fed is Done” rally number…whatever, and wonder if there are a couple of more of them.  We think there is a great probability that the Fed will Pause next week when it decides what to do.  Some of it depends on the Friday jobs’ report and what it will show.  We are in the camp that says that the number will be weaker than the 150K expectation.  In normal circumstances this would instantaneously produce a rally in the stock market but we are not so sure for Friday.  It would provide us more interesting thought processes if the jobs’ number was higher.  The Fed would have to scramble to find a way to say that it didn’t really matter and that they were going to Pause anyway.  This would at least cause some uncertainty in the market place.

Anyway, it’s Thursday evening and we are thinking that we are glad to have a little dry powder to maybe short some more over the next few days.  This period of time will be very difficult to trade and will be easy to lose money if you do trade.  We do think that at the end of the day of the Fed Pausing, August 8th, the market will be ready to head down in earnest.  

Have a great weekend.  We will post late Sunday evening and then we’ll see you here next Monday morning.  

Dow Industrials:  11,242.59  +42.66
QQQQ:  37.12
RYVNX:   23.42
RYAIX:  25.01
RYCWX:  42.35
TLT:  85.80
BEGBX:  13.59

Wednesday, August 02, 2006

Volatility Indexes

On Wednesday the stock market decided to rally. The stock market does have the right to do whatever it wants, so a rally on a day like today seems reasonable. Given the volatility of the past couple of weeks, we think the participants are having trouble deciding what the market wants to do.

When we first called for a short term low in the market back in the middle of July, we were looking at the current time frame for getting out of our longs and back into some short positions. Our key focal points were the jobs’ report out this Friday and the Fed meeting on August 8th. The stock market has been holding under the early July highs even on a closing basis. This action suggests the next leg of the down move is near at hand. The Dow peaked last Friday near the 11,240 area and the NASDAQ Comp and NASDAQ 100 both peaked this past Monday before dropping strongly on Tuesday and closing the gap on Wednesday. The SP 500 did make a new high on Wednesday but it seems to be the lone index.

The market seems to have a ceiling on it at these levels. We will see if the market can break through it or not. We are heavily against that idea but we could be wrong.

Volatility Indexes: We have been watching the VXO and VIX, option volatility indexes, for some idea as to whether the market is ready to go down or not. The volatility indexes move up when the market goes down and they go down when the market goes up. What we try to do as bears is determine when the good times are to go short and when are the good/great times to go long. We will spend more time on these indexes as we see the market go down but, for now, we wanted to tell you what we think they are saying right now.

If you look at these volatility indexes on a daily basis you will see them move up strongly on unexpected down moves in the stock market. If you look at them on a chart you will see a nice negative correlation against the stock market. What we have seen very recently is that they collapse much faster than they go up. This indicates that the participants have no thought (fear) that the markets could actually go down on a sustained basis. These indexes should be reflecting at least some fear in the market place by increases that stick. In reality, as the markets rally out of down situations, these indexes just collapse, suggesting a lot of complacency on the part of the participants.

If you are looking for a fairly decent indicator of buy recommendations, these volatility indexes have had good track records. As these indexes climb up toward 50 or 100 we will be looking at covering our shorts and going long. Yes, we would be looking at other indicators as well but for a pure fear index, the volatility indexes are great. We will be discussing these in more detail as the market goes down.

Dow Industrials: 11,199.93 +74.20
QQQQ: 36.89
RYVNX: 23.74
RYAIX: 25.18
RYCWX: 42.71
TLT: 85.78
BEGBX: 13.59

Tuesday, August 01, 2006

August Starts Down

The stock market fell across the board on Tuesday morning as the data for the news items we mentioned in yesterday’s post started coming in a little too “good” for the market to like.  The media was all abuzz today, all day, about the inflation number (PCE deflator—personal consumption expenditures, and in this case the “core” PCE deflator) being more than the Fed can tolerate.  Meanwhile, the bonds were not reacting much at all to the data, suggesting that the media may be just a little off in their assessment of the reason the stock market was falling.  

At any rate, a half hour into the trading day, the ISM announced the manufacturing index was slightly better than expected and the market dropped more.  Save for a decent rally near the end of the day, the action was down and ugly.  About the only thing positive was that the selling was done on an average volume day.

Tuesday was the first day of the month and the market put up some very red numbers, not the best way to begin a month.  Maybe the bulls can make Wednesday look a little better but the damage on Tuesday was noticeable.  We have mentioned the Dow Transportation average in the last week, not because we follow it much, but because it has dropped so much in the past few weeks, about 15%.  The Dow Jones Industrials are masking the weakness in the broader market.  Looking at Tuesday’s trading the Dow was down about a half a percent while the NASDAQ Comp was down almost 1.5% (NASDAQ 100 was down 1.62%) and the Dow Transports down nearly 2%.  We are trying to think of a way the bulls could ignore Tuesday’s trading—nothing comes to mind.

Our main thought process for the stock market is for it to drop consistently into the middle to late part of September with a possibility of going into October.  Some analysts we read are looking to the January period for a low point.  We would say that if the market plays out the way we are expecting the broader market may put in a good tradable low in late September with the Dow putting in a low in January and scaring the general public.  We would be watching for non-confirmations of the Dow’s low in the broader markets and our various indicators.  

With our forecast of a low approaching sometime in the fall, we are heavily short the market via the Rydex inverse funds, both the OTC (RYVNX) and the Dow (RYCWX), and we have some exposure to the Treasury bond market in the TLT’s.  We do not endorse the short position for you, the reader, but we would suggest a cash position in your 401(k) just to sit out the decline.  This blog is not trying to give you ideas, just our view of the various markets we trade and/or follow.  You need to make up your own mind by reading as much as you can.  This site has no stake in your portfolio, only you do.  You need to make a good decision how to manage it.  Good fortune to all of you as we start the month of August, on a down day in the stock market.

Cash is king.

Dow Industrials:  11,125.73  -59.95
QQQQ:  36.48
RYVNX:   24.24
RYAIX:  25.44
RYCWX:  43.26
TLT:  85.46
BEGBX:  13.62