Wednesday, February 28, 2007

Housing Makes the News

Market Action:
About an hour into the trading session the Dow was sporting a nice recovery move of about 125 but couldn’t hold it and faded into the close up about 50 on the day.  This big rally attempt follows on the heels of Tuesday’s rout in the major indexes.  Volume continued to be very strong with over 2 billion shares traded on the NYSE, just shy of Tuesday volume.  Tuesday’s volume, you may recall, was cited as the “reason” for the 200 point down draft in those few minutes surrounding 2:00 CST (an hour before the close).  

The action on Wednesday was pretty much what everyone expected including us.  The big thing to mention about the trading day is the statements made by our esteemed Fed Chairman Bernanke.  He tried to soothe the market by agreeing that the GDP should be where Wednesday’s revisions put it, that being 2.2% versus the initial “guess” of 3.5% growth.  

Bernanke also tried to assuage those who might think, like we do, that yesterday’s market action signified a turn in the fortunes of the economy, at least we think the market may have Recognized the possibility of a turn in the economy..  He said that sometime during the summer the economy has a “reasonable possibility” of some strengthening sometime during the middle of the year.  His comments are translated into our contrarian language.  If there is a reasonable possibility of some strengthening, then isn’t there a Good possibility that there will Not be some strengthening???

Real Estate:
Turning to some of the big news of the week in the housing market, new home sales were reported to be down 16.6% last month with expectations of only a 3.6% drop.  This news follows Tuesday’s report that the January existing home sales were up 3% on expectations for only a 0.5% increase.  

But, the more important news this evening is the continuation of the sub-prime mortgage market.  Tonight the WSJ is reporting (in an article that should be in Thursday print version, another good read for you) that the “Mortgage Defaults Start to Spread”.  The subtitle says “New Data Show That Nontraditional Loans Are Beginning To Haunt Borrowers With Midlevel Credit; Prime Still Fine”.  

This article describes the term Alt-A mortgage products and how their default rates have climbed recently:  “The credit deterioration has been almost parallel to what’s been happening in the subprime market.”  The article says this is in contrast to the report that Bernanke gave to Congress on Wednesday:  “Our assessment is that there’s not much indication that subprime issues have spread into the broader mortgage market.”  Ok.

One story in the article is about a “retired” couple who “took out an option ARM when they refinanced their $92,700 mortgage in July 2005.  The loan carried a 3.5% introductory rate that began moving upward a few months later.  The couple, who live on fixed income, are currently making the minimum payments on their loan.  But they are afraid they won’t be able to keep up with their loan and other debts once their monthly mortgage payment adjusts upward later this year.”  An option ARM allows people to pay basically whatever they want to for the first few years, like interest only, for example.

We have no real opinion on the market this evening except that the direction is down with periods of violent upside.  Wednesday’s rally was expected but now what?  As we mentioned in our last (long) post was that the analysts will be talking about this being a buying opportunity.  The underlying attitude is that of bullishness even for those that say this could result in a 10%, much needed, pullback, resulting in a good buying opportunity.  We disagree.

Trading out of the VIX Calls:
Once in a while we make mistakes (haha—leave it alone please) and one of them was our purchase of the VIX calls.  With the violent nature of the market in Tuesday’s trading the VIX moved up over 60% and we thought we were in good shape.  For some reason the market didn’t give us any results like that however.  My reasoning is that these options cannot be exercised before the expiration date (European style) and the value is not derived from the current price of the underlying asset, in this case the VIX.  After considering this overnight, we decided to get out of these options and try for something else.  We had a nice gain in them but nothing compared to what we thought we should have.  It’s a very disappointing way to find out that a good idea didn’t work out even though it did exactly what we thought it would.  We were up about 50% but should have been up over 300%.  Oh well, now we know.  These are new options and obviously trade differently that we are used to.

Dow Industrials:  12,268.63  +52.39
VIX: 15.42
HUI:  339.80
QQQQ:  43.33
RYVNX:   17.27
RYAIX:  21.68
RYCWX:  36.84
TLT:  90.15
BEGBX:  13.88

Tuesday, February 27, 2007

Well...That's Something New

Market Action:
Let’s see, did anything happen on Tuesday that we need to report.  In fact, yes, there is much to include this evening so buckle yourselves in and let’s get started.  

Days like this, one that we have been waiting for so long, are the kind of days that give us two kinds of feelings:  One, relief that all of our hard work has not gone in vain, and, two, satisfaction that the market does have some sense once in a while.  You may disagree with our assessment but you have to understand that we have been short for a while.

Market action, get going…As the market opened on Tuesday morning, the overnight futures were negative and several reasons were given.  First, the Chinese market had dropped about 9% overnight and that was weighing on the US.  Second, VeeP Cheney was considered a target in a Taliban suicide bombing attempt.  Third, just before the market opened, the durable goods orders were reported much weaker than was expected.  The one thing that wasn’t mentioned was the sub-prime mortgage malaise we have been in for the past few weeks, so we thought we would mention it.

To us, the “reason” is mostly irrelevant because the market has been ready to go down for about three months and any reason is good enough, just pick one.  The stock valuations had gotten way ahead of themselves and were due for at least a correction.  

One of the biggest surprises for us as we surveyed the day was the big break in the Dow right around an hour before the close.  We were stunned to see the Dow trade from down about 295 to down about 505 in the space of minutes, literally less than five minutes. reports a five minute period when the Dow traded at 12,335 and then at 12,089 or about 250 points.  

This drop was a mystery to us until this evening when we saw the front page article scheduled for the WSJ on Wednesday.  Apparently, trading got too heavy for the system to follow properly and the quotes on the Dow were being delayed.  Right at the top of the hour someone made a decision to go to a backup system which immediately indicated the correct price on the Dow.  

The article says that the other indexes were falling faster than the Dow (particularly noteworthy was the SP 500) so someone decided to see why.  You may want to read the article but at least we are less mystified by a five minute 200+ point drop in the Dow in the middle of the day.  The article has graphs of the major indexes.

It looked as if the market sensed a buying opportunity with that whoosh down and from there the market staged a comeback rally attempt.  Well, the market was in a deep hole so this attempt did not hold and the market traded down into the close.  Prices were off the lows of the day but, especially in the NASDAQ, not that far off the lows.

We are surprised by the fact that the electronic system “failed” with trading volume not even as high as it has been in recent memory.  Maybe the volume was especially heavy right after lunch but we still are scratching our heads on this one.  

As for some other items, we wanted to mention bonds, gold, and VIX.  In the bond market, the Treasuries enjoyed a nice day as evidenced by the TLT fund below.  The TLT traded near the high for the year during the day before settling up about 1.3%.  Gold didn’t have a bad session until after it closed for the day.  Yes, that doesn’t make sense but the big move did happen after gold closed its regular session.  From the close of its trading until the close of the stock market, gold dropped about $25 an ounce, making for a very poor day for the HUI, our gold mining index.  

We thought we would spend a little time on the VIX just because it deserves some attention this evening; after all it was up 64% today, closing at 18.31 up 7.16.  For some reason, traders seemed to think it was a good day to be buying puts, which is what pushes up the VIX.  What we are really questioning is the options trading that was reported in the VIX options.  For an index that closed at 18.31, a 15 call option should be worth at least 3.31 and we see it being reported at less than 2, we are skeptical and didn’t report that number this evening.

Oh yes, there is more but we want to keep this section as “short” as possible.  Actually, that’s not true, there is more.  

Let us first say that the top is in and any rally attempts should be used to capitalize on the downside.  We do expect some violent upside moves over the next several months but we don’t expect they can get back to Monday’s price levels.  We remind you of the price levels of our primary indexes (we apologize for the spacing):

Monday morning’s high:
Dow                12,700
SP 500              1,457
NASDAQ         2,525
NDX                 1,850

Tuesday’s close:
Dow                12,216
SP 500              1,399
NASDAQ         2,407
NDX                 1,756

Year end 2006:
Dow                12,463
SP 500              1,418
NASDAQ         2,415
NDX                 1,756

The analysis that will be done by most market watchers will be the same tired old rhetoric we have heard for 20 years (since the 1987 “crash”) that this is a buying opportunity and you shouldn’t get panicked by a sudden move like this.

We have been watching and waiting for this Day for a long time and we think that this is the First day of a long painful sell off.  Markets need more than one day to make up for four years of rally.  This day will be followed by many more points to the downside this year.  

We had a pretty good day as noted below.  

Comments would be most appreciated by us and other readers.

Dow Industrials:  12,216.24  -416.02 (not at a new record high)
VIX: 18.31  (up 64%)
VIXEC.X:  ???  (we’re not sure what’s going on here)
HUI:  334.72 (down 27.10)
QQQQ:  43.19 (down 1.85)
RYVNX:   17.37 (up 8.22%--own)
RYAIX:  21.74
RYCWX:  37.14 (up 6.69%--own)
TLT:  90.56
BEGBX:  13.90

Monday, February 26, 2007

Trying to be Patient

Market Action:
Monday morning started with a bang as the market heard about some big takeover deal.  TXU, Texas Utility, agreed to be acquired by a group led by two private equity firms, KKR and Texas Pacific Group, the price tag, $32 billion.  While we’re not exactly sure why the entire market was celebrating this bit of news, we did notice that it was up.  The Dow jumped about 50 points at the bell and the other major indexes jumped as well.  This jump was then followed by a sell off that took the Dow down about 85 points from the early peak, before churning a little higher into the close, down 15.  We do know why the market jumps on this type of news; the possibility exists that another company may be taken out.  

This makes four trading days in a row the Dow has closed lower and these four days were preceded by four days of record highs in the Dow.  In our last post we mentioned that we expected a little rally and today’s early 50 point rally may have been it but we don’t think so.  We think another rally day is in order; maybe this will be the last.  

We must admit that watching this market, we think it is in slow motion with the eventual drop inevitable but elusive.  We are watching the pattern develop in slow motion but it is developing and we just watch the picture form.  A top has been forming over the past several months and with such a long top we should see a fierce decline.  

Be careful out there.

Dow Industrials:  12,632.26  -15.22
VIX: 11.15
VIXEC.X: 1.05 (down in spite of VIX being up)
HUI:  361.82
QQQQ:  45.04
RYVNX:   16.05
RYAIX:  20.88
RYCWX:  34.81
TLT:  89.43
BEGBX:  13.79

Sunday, February 25, 2007

Dearly "Departed" Wins

[Editor’s note: Tonight’s post has been delayed and shortened by our Oscar diversion.  Please accept our apologies.]

Market Action:
Friday’s action saw some deterioration in the early going but the rest of the day showed little action at all.  The major averages ended down on the day, in sync for a change, except for the SOX.  The Philadelphia Semi-Conductor index rallied once again after its big move on Thursday.  

Opinion/ Analysis:
The rally in the SOX has been somewhat responsible for the strength in the NASDAQ indexes compared to the Dow/SP 500.  The Dow has now put in three down days in a row at the same time the SOX has been moving up steadily.  

In the next few days the market faces the end of the month strength.  With the all important jobs’ report being pushed into next week, the market is free to do what it wants this week.  We think the Dow has shown us a solid down pattern and now is in a position to make an upward move to correct that weakness.  We look for a small rally.  The NASDAQ indexes have not seem much in the way of downside so we want to encourage them to sit back and watch a little strength in the Dow.

Upcoming News Events for the Week:
January durable goods orders—Tuesday
February consumer confidence—Tuesday
January existing home sales—Tuesday
Q4 GDP figures—Wednesday
February Chicago PMI—Wednesday
New home sales—Wednesday
February ISM manufacturing index—Thursday
Sorry, no jobs’ report this week—Next Week Friday

Dow Industrials:  12,647.48  -38.54
VIX: 10.58
VIXEC.X: 1.10  (just the bid, until it’s sold)
HUI:  357.29
QQQQ:  45.26
RYVNX:   15.89
RYAIX:  20.77
RYCWX:  34.72
TLT:  88.84
BEGBX:  13.72

Thursday, February 22, 2007

Closing in on a Top

Market Action:
The stock market found joy in something in the early going as all of the major indexes sported gains.  But, a half an hour into the trading session, we saw the high price for the day in the Dow.  The Dow dropped nearly a hundred points in the next hour and a half and spent the rest of the day trading in a narrow range from there, closing with about a 50 point loss on the day.

This day the NASDAQ indexes decided it was time for both of them to break into new recovery high territory.  So, it is complete, all of the major indexes have now made new recovery highs and the Dow has made new record highs.  

The chip sector was on fire Thursday with the SOX (Philadelphia Semiconductor Index) climbing nearly 3%.  Linear Technology Corp (LLTC) was up nearly 10% while Maxim Integrated Products (MXIM) and National Semiconductor (NSM) were up north of 7%.  The chip sector has been sought after for a while now with analysts trying to find something to promote.  These companies are hoping to take advantage of the VISTA wave, even though this is a seasonally slow time of year for tech.

As we come to the end of another week, we are again exhausted from watching this market inch up to new high after new high.  At some point, whatever is trying to hold up this market will break and we will see a decent sized downside move.  

In our opinion, any time in the past three months has been a good time to sell and move your cash to the sidelines, taking advantage of the short term interest rates around 5%.  Our favorite index, the NDX, has crossed the 1800 line so many times in the last three months, we should call in the toll free police—yes, we made that joke up all by ourselves, you get it right, the 1-800 line…

Right now we are most concerned with the trading pattern that is playing out in all of the major indexes we follow.  The weakness in this advance, the persistency of it notwithstanding, has not given rise to a decline in prices but there is a distinct possibility that timing is right here, right now.

The market is certainly at an overpriced place and needs a least some correction.  Yes, we know, we have said this for months now.  The market is about to tell us for certain that it is done going up.  The Best way for it to do that would be for it to make one more little run to the upside that ends in a sell off.  But, we will take a continuation of the downside we have seen in the Dow the last two days.  The major indexes should roll over together right now and show a convincing move through trendline support.  (The trendline is the upward sloping line that forms under the prices over the past several months in the SP 500 and the Dow.  The SP 500 is probably more important because it represents more stocks.)  

That is how we would like to leave it with you tonight.  We encourage you to do some homework this weekend and find your way to make some changes to your asset allocation.    

Dow Industrials:  12,686.02  -52.39
VIX: 10.18
VIXEC.X: 1.10 x 1.20
HUI:  356.34
QQQQ:  45.42  (new recovery high)
RYVNX:   15.77
RYAIX:  20.69
RYCWX:  34.50
TLT:  88.21
BEGBX:  13.65

Wednesday, February 21, 2007

More of the Same

Market Action:
The CPI news rattled the futures at the beginning of the day, or so the media said, driving the opening to be a little lower.  The Dow opened down about 60 points, some of which was due to Tuesday night’s news from HPQ (Hewlett-Packard).  By the close HPQ was down 2 points, almost 5%.  

There was another news item that might have caught the eye of traders which didn’t get too much mention.  We see that another sub-prime mortgage company announced some bad news about its future earnings.  NovaStar Financial (NFI) said it had a fourth quarter loss and warned that “it may shed its real-estate-investment-trust status, partly because of recent loan defaults”, that according to the WSJ.  NFI fell 42% on Wednesday.  The WSJ reported that New Century Financial lost 6.5% and Fremont General last 3.3%, two other companies in the sub-prime space.

But, like we have become accustomed to, the early morning sell off was met with some buying which managed to erase all of the NASDAQ losses and by the end of the day the Comp had managed to close green and at another new recover high.  The NDX, NASDAQ 100, rallied to green but has not managed to break above its January high of 1847.  Will that happen???

Well, it is possible that the NDX could rally to a new recovery high but we continue to stress that the near term look at the market is for an end to this balmy bull weather.  The market did manage to turn it around again on Wednesday but each of these recoveries is getting a little weaker.  The volume seems to be showing no signs of increasing and this should be a troubling sign to the bulls out there.  

To repeat, this market is showing new highs in prices but does not get very high marks in the technical indicators under the sheets.  The biggest problem is the volume which is markedly lower than early in this rally that seems to have stretched out over a long period of time.  We normally look at the 5 day upside volume and that has been over 1 billion shares several times since the lows of last summer.  This past week when the Dow has made four consecutive new record highs in a row, that number has failed to get above 900 million.  

We have seen a confluence of our most respected stock analysts come together in their view of the market.  They have all recently become much more aggressive in calling for an imminent decline in the market.  One said tonight that the decline will begin within hours.  You might like to think that all of us, number one should be committed, but more important, are contrarian indicators, meaning you should probably go out and “mortgage the farm” to go long.  Well, we did consider that this evening before writing our post but we still think the mainstream media is on the bullish bandwagon.

The problem with predicting a market turn is that the when is so difficult to pick.  For the most part there has been no reason to be long this market for the last several months because prices have not moved much at all.  

The reason we have remained mostly negative on stocks is that when the market moves down, there may be a mass exodus driving prices down hard quickly.  We don’t like to mention the C word so we only refer to it tonight in the historical sense.  


Dow Industrials:  12,738.41  -48.23
VIX: 10.20
VIXEC.X: 1.15 x 1.20
HUI:  354.57 (big up move, gold  was up, too)
QQQQ:  45.19
RYVNX:   15.89
RYAIX:  20.76
RYCWX:  34.22
TLT:  88.69
BEGBX:  13.69

Tuesday, February 20, 2007

Another Slow Volume Day

Market Action:
As the market opened, sellers materialized and sold off the Dow for about 60 points in the first hour of trading.  This selling seemed to come out of thin air but we know there were some negative reports to justify some of the sell off.  Right after the 30 minute sell off, the buyers came back in as they usually seem to do on early sell offs.  The 60 point loss seemed to evaporate as quickly as it came and soon the Dow was sporting green managing to hold it into the close for about 20 points.

The turnaround in the NASDAQ stocks was even more dramatic as the Comp rallied to a new relative high.  The SP 500 managed a similar feat by pushing to another new relative high.  So, our three indexes have now broken to new highs, not including the NDX which did fail to make a new high.  After the close, HPQ announced their happy news but the market didn’t react very well and in the end sold HPQ.  This will be a question mark in Wednesday’s trading.

Opinion/ Analysis:
The best we can say is that the volume associated with this last few days has been very poor.  Maybe traders decided to take an extended weekend on both sides of the Presidents’ Day holiday.  Since the 12th of February (six trading days) the average daily volume on the NYSE has been less than 1.4 billion shares.  Maybe Wednesday, the traders will return.

At the moment, we are trying to decide whether to do a little soft shoe or sing Edelweiss as we exit the stage out the back door.  We are so tired of the extreme bullishness and the minor upside action we have seen for the past few months.  Now, the NASDAQ Comp has joined the party by showing it too can be at new relative highs.  

The market has to exhale at some point and we think that point is very near.  The price highs we are seeing are just barely showing any strength at all under the covers.  For example, the Dow’s four day record high streak has carried it 113 points above its previous high back on the first of February.  More important is the low volume.  

The bulls are tired after carrying this market for so long without much downside in that whole time.  Imagine yourself if you kept inhaling with only minor periods for rest and no full exhale.  When you finally decided to exhale it would be a very large gush of air.  That’s how we think this market will react once it starts to exhale.

Option Execution:
Thanks for the comment, Erick.  I know you might think the VIX would have dropped on a day like Tuesday but in fact as you can see in the table below it went up.  Your instinct that the call purchase would be easy is correct because the options traders did not believe the uptick in the VIX.  We decided to stick with the May 15s and picked some up at 1.25.  This is a long term play, at least in options terms (three month time horizon).  We will monitor only the Bid from here on in the table below, since that is what we can reasonably sell them for.  We are looking for at least 20 in the VIX before expiration.

Dow Industrials:  12,786.64  +19.07
VIX: 10.24  (up on the day)
VIXEC.X: 1.20 x 1.35 (in at 1.25)
HUI:  339.10
QQQQ:  45.03
RYVNX:   15.97
RYAIX:  20.82
RYCWX:  33.98
TLT:  88.84
BEGBX:  13.69

Monday, February 19, 2007

Short Week Ahead

Market Action:
In our last post which was Thursday evening, ancient history, MSFT had just dropped a little stinker on the market.  That news was that MSFT, CEO Steve Ballmer, had mentioned that maybe the analyst’s expectations for VISTA were too high given projected PC growth rates.  

That news served to drag MSFT down some in overnight trading and that mild weakness carried into early trading on Friday.  As we have mentioned in the past, bad news on one company is mostly company specific but good news on a company is deemed to be globally significant.  So, the NDX, the NASDAQ 100 and our favorite index, started a little down in the morning but managed to get close to even by the end of the day.  As for MSFT, it didn’t fair nearly as well, trading in a narrow range after the early hit.

One noteworthy news item hit the market on Friday and that was the January housing starts.  That number was considerably bad down 14.3% after expectations were for only a 2.6% lower number.  The market didn’t really budge, that would be both the stock and bond market, after that news but we thought we should mention it due to our stance on the housing market.  The PPI didn’t do much for the market either with it matching expectations.

Last week we concentrated mostly on the stock market and we think we will start to share the stage somewhat with other areas this week.  We will see how the week shapes up.  Importantly, the stock market is in the late stages of this countertrend rally we have been in since last summer.  We are trying to position ourselves for a stock market drop that should take us down quite a ways by October.  

As we said above, the news is generally not bullish but the market continues to ignore what is going on in the real world.  The market marches to a different drummer anyway and that is the supposed liquidity that is being assumed in the market.  We think that the housing slowdown will have its way on liquidity.  Housing is an important economic driver and it seems to be continuing to slow down, or maybe going in reverse.

Upcoming News Events for the Week (light week):
Earnings reports for HD, WMT, HPQ—Tuesday
January CPI--Wednesday
January leading economic indicators—Wednesday
January FOMC minutes—Wednesday
Earnings report for TOL—Thursday

Trading Note:
We have been following the VIX for possible entry into the call options the past few days.  When we tried to execute a trade on Friday, we couldn’t get a trade off due to some technical difficulties.  We plan to take another look to see if there may be a better time to do this or whether this is the right option to buy.  If the market is headed down into October we may want to get into a longer dated option.

Dow Industrials:  12,767.57  +2.56  (record high)
VIX: 10.02
VIXEC.X:  1.30 x 1.35
HUI:  347.09
QQQQ:  44.71
RYVNX:   16.18
RYAIX:  20.95
RYCWX:  34.07
TLT:  88.64
BEGBX:  13.70

Thursday, February 15, 2007

One More for the Record Books

Market Action:
The market opened with a little steam but not very much.  The price move was labored and at the end of the day the volume was very light.  In fact, for the week, volume has averaged less than 1.5 billion shares on the NYSE.  Don’t forget that this is an options expiration week and there is usually stronger volume.

So, with not much really going on during the trading day, MSFT made a negative statement after the closing bell that pushed down after hours trading.  CEO Steve Ballmer said that some analysts may have projected higher revenue for VISTA than is justified by the PC growth rates over the same period.

This little tidbit seemed to cool the normally exuberant post-closing bell buyers.  The drop in MSFT’s price was modest but with the market cap that it carries, it weighed on the overnight futures.

In a regular old top, volume would be swelling, in our opinion, as this price level would bring out sellers to meet the heavy demand of buyers.  That is just not the case here at Record highs in the Dow.  No, quite the opposite is occurring with volume actually contracting in Thursday’s trading.  To our way of thinking this is called exhaustion.

Our analysis shows that the momentum has not been part of this latest move up to new record highs, this includes relative strength.  

Bottom line is that the market is in a precarious position perched at the top of the cliff.  Will it go higher or can it go higher?  Of course, anything is possible but today’s action suggests that the bulls are very tired.

Action Item:
Friday offers us an opportunity to see if the bears can be awakened from their hibernation.  Since November, the Dow has bounced off trendline support and the time has come to challenge that line.  If you looked at where the Dow is, you would know that this week’s rally has moved the price significantly above that trendline.  That means there is some distance to get down to it and then through it.  

Tonight we think the time has come for a couple of bearish option plays.  We have been talking about and publishing the closing bid/ask price, that of the VIX May 07 calls.  A call is an option that benefits from a rise in price.  While this trade is a little backwards, what else would you expect from us contrarians, it makes sense if you follow the logic.  

The VIX is low because there is no fear in the market due to the high price levels.  When the market goes down, this index will go up and eventually give us a buy stock signal when it spikes up.  While it is going up the market will most likely be going down.  That is why we want to buy a call on the VIX.  With a possible drop in the market in the morning, we may have to chase this trade a little but we will try to be patient and get a good price, around 1.35.

That’s enough options talk for one night.  There will be other times for us to talk about put options in the coming weeks.

Have a great weekend and take some time to analyze your exposure to stocks.      

Dow Industrials:  12,765.01  +23.15
VIX: 10.22
VIXEC.X:  1.25 x 1.40
HUI:  349.83
QQQQ:  44.86
RYVNX:   16.13
RYAIX:  20.91
RYCWX:  34.04
TLT:  88.33
BEGBX:  13.71

Wednesday, February 14, 2007

Bernanke Rules

Market Action:
As the market opened for trading on Wednesday, the bulls were on a tear especially after the “good” news from AMAT on Tuesday after the close.  You may recall that when a company, and AMAT is a fairly large one, announces what is perceived to be good news, that news is deemed to be good news for the entire market and that was mostly the case in the early going on Wednesday.

A half hour into the session, Bernanke started his semi-annual address to Congress, starting this day in the Senate and going to the House on Thursday.  What he says in front of the House will be essentially what he said to the Senate so the “news” is out.  His comments were interpreted as interest rate friendly based on his comments about consumer spending remaining in tact through the housing slowdown and that now housing is stabilizing, Bullish words from the head of the central bank.  So, the bulls partied hard for about half an hour right after his comments.  

From there, the Dow traded in a fairly narrow range the rest of the day and ended up 87 points to another new high.  Well, we have to tell you that we are getting very tired of this market bouncing out of what looks like a good down trend.  The SP 500 also made a relative new high but the NASDAQ still has a short distance to go to best its January high.  

Obviously, our top call last week was a bit premature for the Dow.  Looking at the technical backdrop for Wednesday’s new high we think the numbers are a little weak again.  One of our favorite indicators is the 5 day upside volume (NYSE) and that indicator is sitting at 780 million shares after Wednesday’s trading.  This is well short of the mark set at most relative highs which is right around 1 billion shares.  Even the total volume for the day was light at right around 1.5 billion shares.  So, volume is an indicator that really isn’t showing us the strength we would expect.

New 52 week highs on the NYSE were strong on Wednesday at 403 but at a new high you would expect them to be a little stronger than that.  Looking back to the early December highs, we saw 585 new highs (December 5th), well above today’s number.

Our momentum indicator has also lagged this advance but this is sometimes a lagging indicator with it being able to confirm a top rather than predict a top.  At any rate, these three indicators of ours are not showing powerful numbers at all.  Yes, price is moving up but under the weak technicals, this move is not being confirmed by underlying strength.

The pattern that the market is in shows some trendline support (upward trending pattern) but on lower volume (downward trending pattern).  Prices are stronger than volume and that is not a good sign.  Once we see the trendline support break, there will be more confirmation that a high is behind us.  We so try to beat that break because so much of a move can happen on the day of the break.  

There is no doubt that this move is a major finishing move based on the weak technical support.  The only question is “When will it end?” and we think the answer is soon.  We are fully short with our funds so we are putting our money on that statement.  We wish we would have waited one more day to deploy that last of our funds.  (We are keeping some powder dry to trade the VIX options or other options but that is a very small portion of our assets—too much risk.)  Prices were much cheaper today.

Dow Industrials:  12,741.86  +87.01 (new all time record high)
VIX: 10.23  (dipped below 10 early in the day)
VIXEC.X: 1.30 x  1.40
HUI:  346.27
QQQQ:  44.60
RYVNX:   16.28
RYAIX:  21.01
RYCWX:  34.16 (new low)
TLT:  88.07
BEGBX:  13.64

Tuesday, February 13, 2007

Happy Valentine's Day

Market Action:
When we mentioned “the market needs to rally a little…” we didn’t mean the Dow should go up over a 100 points, but that’s what can happen when a Dow component gets a potential buyout (AA, Alcoa), another Dow component announces a major stock repurchase (MMM) and yet another Dow component is given a (questionable) upgrade (GM).  As the market opened on Tuesday, the stage was set for a jump in the Dow.

The market enjoyed a nice early rally with the initial gains in the Dow being over 50 points.  Over in the NASDAQ, early morning action wasn’t quite as strong and these indexes closed less than what they were in the first half hour of the day.

After the market closed, one of our old friends, AMAT, announced good earnings but provided fairly weak guidance as far as we could tell.  The stock was up about 4% in after hours trading and helped the techs to get a little excited about Wednesday’s trading day.

The stock market may try to stretch gains in the morning, what with such “good” news from AMAT, but the lid is still on the NASDAQ indexes.  The Dow seems to have gotten a little too giddy for its own good on the day before Bernanke goes before Congress the next two days.  Of course, Bernanke won’t want to say anything to disturb the markets but he might have to say something in order for the market to pay any attention at all to him.  

Bernanke being in front of the world this week will only serve to distract the market.  He can’t really move the market unless it wants to be moved.  Any movement in the next couple of days will be attributed to his words, most likely.  

To us, the market has not put in the rally we thought might happen but there may be a few remnants left for Wednesday morning.  We will see.  

As for the VIX, it managed to fall a great deal on Tuesday (over 10%) making the calls we talked about in our last post much more affordable but…We think that since the index dropped that much, there may be more leverage in a different strike or expiration month.  We will take another look on Wednesday for opportunities.  This spike down in the VIX has given us a good opportunity, now we need to find a good way to take advantage of it.  

Dow Industrials:  12,654.85  +102.30
VIX: 10.34 (huge drop)
VIXEC.X: 1.25 x 1.50
HUI:  342.59
QQQQ:  43.86
RYVNX:   16.86 (added more funds here)
RYAIX:  21.38
RYCWX:  34.64
TLT:  87.24
BEGBX:  13.54

Monday, February 12, 2007

Down Monday

Market Action:
Monday morning the stock market thought it would try to start the day with a little upside.  That’s about all it was as the Dow managed about 25 points before rolling over and dropping into the negative about a half hour into the session.  The Dow traded in a narrow range for a few hours and then fell a little more but managed a little recovery into the closing bell that left it only about 28 points lower.

The important part of Monday’s trading will be tested in Tuesday’s trading.  What was different about Monday was the lack of any real buying after the prices dropped.  There was also a lack of volume, Monday being the lightest trading session of the year for the NYSE.  Tuesday will be a telling day.

As mentioned in the last post, the stock market will take priority in our discussions this week and maybe longer depending on how the market moves.  

Looking at the pattern of trading, the stock market has now satisfied some key bearish positioning.  The trading in the past month has been setting us up for a top and now that we have some technical evidence in place we will look for further confirmation of the downtrend.  

While it may sound wrong, the market needs to rally a little to correct the drop we’ve seen in the past few days.  We don’t think much of an advance is necessary and it may not advance much at all.  If it does rally, we want to make sure it does not push up to break last week’s highs.  If so, we may need to adjust our thinking one more time.

With the current setup, and the fact that we’re near the end of earnings season and in the middle of a month, we don’t see much buying pressure showing itself over the course of the next couple of weeks.  Much will hinge on Tuesday’s trading.  As we view the situation, there is a distinct possibility of a little rally during the day that may or may not hold the entire day.  If we get the rally in the early part of the day, that would not be a good thing for the bulls.  Actually, that would not be that great for us, since we have some funds that need to be added to the short side.  

There seems to be an eerie silence in the market the past few days.  The big news on Monday was the drop in the oil price.  The market hasn’t really know how to understand the price of oil especially since, for most of the market’s rally in the past year, oil has been rising.  Now there is a section of the media who say that the price of oil dropping is a bullish thing (too).  We say, oil can do what it is doing but, when it goes down, there are forces that will pull the stock market down at the same time.  Forget oil, watch the market.

We have been looking at a couple of interesting ideas and now think the time may be right to get serious about some of them.  One of them is the VIX.  With the market getting a little dose of dropping, the VIX has started to respond by going up a bit.  This is one indicator that we have included in the table below for several months now.  We think if the market is about to go down a little this next few months, we might want to consider getting involved with this index.  One way to do this is to buy call options on the index.  That way, when the index moves up, the calls will move up with it.  We will present this idea better in the coming days.  With any rally, the VIX should move back down a little and give us an opportunity to buy some calls at reasonable prices.  

Tonight we want to add one to the table below, that would be the 15s of May 2007, symbol VIXEC.X.  The closing price is not always a very good indicator of the option due to stale quotes so we will indicate the bid and ask.  Our opinion is that the VIX can climb to 20 in the coming weeks and ultimately much higher than that.  If the VIX can get back to 20, this call option could be worth $5.  Something for us to think about and for you to not think about—unless you are crazy like we are.  Comments are welcome.

Dow Industrials:  12,552.55  -28.28
VIX: 11.61
VIXEC.X: 1.45 X 1.60
HUI:  336.89
QQQQ:  43.70
RYVNX:   16.96
RYAIX:  21.45
RYCWX:  35.21
TLT:  87.43
BEGBX:  13.48

Sunday, February 11, 2007

The Bears Win on Friday (not Super Bowl)

Market Action:
As is often the case, and we mention it quite often, the way the market starts seems to be the wrong direction for the day.  Friday is a good case in point.  The Dow jumped about 40 points at the bell.  Apparently, there was some big excitement in the early going because a hedge fund had its IPO.  FIG (Fortress Investment Group) broke at $18 and then opened at 35 before closing at 31, quite a day for a hedge fund.  

The market traded up for about ten minutes before it sprung a leak and started to sell off.  The sell off intensified mid-day as Micron Technology (MU) made an announcement that flash memory (the kind used for digital cameras and other devices) prices were going to plummet as supply would overwhelm demand this year.  That announcement seemed to hit the techs pretty hard as all across the board they seemed to be sold.

By the end of the day the market did try to limp higher into the close but the day was definitely a win for the bears.  The Dow was down over 50 and the NDX, our favorite index, the NASDAQ 100, dropped 25 points or about 1.4%.

As we mentioned at the top, Friday started out strong but finished very weak in keeping with the “be careful at the opening” theme.  Could this be the break in prices we have been looking for over the last couple of months?  The answer is a cautious yes.  With this drop, the market is saying in technical terms that the rally from last summer will now be at least corrected if not retraced completely.  In either case, the next major move should be lower.

With the market giving a good signal that it wants to turn down now, we are going to be spending most, if not all, of our time in this week’s posts on the stock market.  The market should give us more and more signals that it is turning down and we want to point them out here in these posts.

The upcoming week looks like it could have some news items that could better confirm our near term thought that finally the market is rolling over.  

Upcoming News Events for the Week (a busy week ahead):
December Trade Deficit—Tuesday
Applied Materials’ (AMAT) earnings—Tuesday
Retail Sales—Wednesday
December Business Inventories--Wednesday
Bernanke at the Senate—Wednesday
Bernanke at the House—Thursday
February NY Fed Manufacturing Index—Thursday
February Philly Fed Business Index—Thursday
January PPI—Friday
January Housing Starts—Friday
February Options Expiration--Friday

Dow Industrials:  12,580.83  -56.80
VIX: 11.10
HUI:  340.06
QQQQ:  43.84
RYVNX:   16.82
RYAIX:  21.36
RYCWX:  35.04
TLT:  87.63
BEGBX:  13.53

Thursday, February 08, 2007

Topic of the Day: Real Estate

Market Action:
As we were writing our last post on Wednesday evening, the stock futures were trading higher but overnight they faded.  By the opening bell, stocks were trading lower and that’s exactly how they opened.  

The NDX, NASDAQ 100, traded down to 1800 a number that has been like a magic magnet for this index.  Back on November 15th the NDX moved above the 1800 mark for the first time in several years and since that day it has traded at 1800 on 28 separate days out of 57 days.  Don’t forget this period of time has been an extremely bullish time in market sentiment but this index has done Nothing since November 15th except trade around 1800.  As per usual, the early morning sell off was greeted with buying and the NDX rallied into the close but failed to close positive.

As for the other indexes, the Dow stayed in negative territory all day long.  The SP 500 traded about the same as the Dow with just a little green late in the day before closing down only slightly.

With the SP 500 closing at a new relative high on Wednesday, this index needed to go down from the bell in order to preserve the bearish nature of our last post.  When it did go down, and fairly strongly down, at the opening, we were thinking the market was confirming the top for us.  As the day wore on, we were a little disappointed in the lack of downside follow thru.  It was just like most other days when the market opens down, the buyers think it’s an opportunity to buy.  This day still leaves the jury out deliberating.  

We are aware that it is Thursday evening and that we won’t be writing again until Sunday evening but we have to wait for more info.  The important thing to remember in all of this is that the market is in dire need of a pullback and we think it will be a very harsh pullback indeed.  

Real Estate:
Thursday was real estate day in the Wall Street Journal (WSJ, as we usually call it).  There were no less than three prominent articles on real estate in Thursday’s edition.  We recommend taking a little time to read through them.  The first is on the front page and is entitled “Faulty Assumptions:  In Home-Lending Push, Banks Misjudged Risk.”  

This article talks about the way HSBC aggressively pursued the sub-prime mortgage market over the past few years.  This week HSBC announced that it was increasing the reserve for bad loans by 20% or $1.76 billion.  Most of these loans are considered to be second liens or home equity loans and most at the time of the original mortgage in order to eliminate the need for mortgage insurance.  As these loans are starting to deteriorate, they can only be described as financial “rot” in their balance sheet.  HSBC loaned or purchased mortgages for the sub-prime market and now the debt is no longer being serviced.  

One of the items in the article struck our attention.  Back in late 2005 the bankruptcy laws were being revised making it more difficult for people to file for bankruptcy.  (You may recall that mid-2005 was the peak in the real estate market by most standards.)  When the default rates were going up in late 2005, HSBC thought the reason was that people were trying to get ahead of the new bankruptcy laws.  As time went on, they began to realize that “they had a broader problem.”

Another topic in the article is “stated income” loans.  You’ll want to find out about those.

The other two articles are in the Personal Journal section of the paper (Section D).  The first is on the front page of that section and is entitled “Mortgage Refinancing Gets Tougher.”  On the second page you’ll find another article entitled “Glut of Homes Supply Deters Price Growth.”  

All three of these articles are important to the future of the economy and again encourage you to read them.  We would normally give you some analysis of the articles but you should read them for yourselves.  We have been saying some of these things were going to happen a long time ago and now the media is getting around to telling us the horror stories.

Dow Industrials:  12,637.63  -29.24
VIX: 10.44
HUI:  340.75
QQQQ:  44.45
RYVNX:   16.35
RYAIX:  21.05
RYCWX:  34.70
TLT:  88.13
BEGBX:  13.60

Wednesday, February 07, 2007

Calling the Stock Market Top

Market Action:
CSCO led the charge at the opening bell with a jump of about 5% after Tuesday’s late day earnings announcement.  As we mentioned last night, the CSCO good news was going to be spread over “the entire world” and we would see some upside excitement.

Actually the response was not exactly as we expected due to the immediate pullback in the indexes right after the open.  The Dow actually went negative during this period.  We were scratching our heads wondering why the pop wasn’t a little stronger and then…

The market jumped after the early indecision such that the Dow was right at the 12,700 line, a new trading high.  The NDX only managed to get up to 1816.77, but still very close to our target of 1820 to 1825.  The market traded in place for about three hours before we saw a break which took the Dow negative again and the NDX lost half of its morning gains.  

With about an hour to go in the session, the market managed to rally giving the Dow a green close but not by much, 0.56 as you can see below.  The NDX recovered most of its early gains and closed up 1% at 1810.95.  

We are concentrating on the Dow and the NDX, NASDAQ 100, in this post due to our keen interest in these two indexes.  Both of them rallied just like we mentioned in our last post.  The Dow made a new trading high but couldn’t close above last week’s all time high and the NDX moved up near our range but a fair distance from its January high at 1847.  

In December we forecast that we would see a high in the first couple weeks of January and we wanted to allocate more funds to the short side at that time.  Well, the NDX did top in the period right in the middle of the month but the Dow and the SP 500 have continued their move higher even on Wednesday.  

We think the best time to go short is right now, with the NDX climbing and not achieving a new high so we added to our Rydex position on Wednesday afternoon.  We wanted to free up some of our funds that are tied up in the bond market so we could add to our short position over the next few days if conditions warrant so we sold out of our TLT position.

In our opinion, the market has a great probability of having topped today or in the last few weeks.  There are many technical conditions that bring us to that conclusion and we are now putting most of our funds on the short side of the stock market.  We will not go into all of the details this evening but we thought we would emphasize our point by telling you how we traded today.

We strongly urge you to move into cash in most of your positions.  Some of you have thoughts that you can beat the market with the stocks you have and maybe you are right. Tonight you should take a good hard look at your positions to determine if you still think that way.  Right now we are looking at what we think is a major top in stocks and an ideal time to sell—we said this last night but not in such uncertain terms.  Yes, there will be other opportunities to sell or go short but these are some of the best prices in the indexes you will probably see for a long time.  

Calling tops is not a science but we try to make it that way.  The market may still want to crawl higher but if it does want to go down, there will be very little question about that.  We are thinking that could start as early as Thursday.

Dow Industrials:  12,666.87  +0.56
VIX: 10.32
HUI:  332.45
QQQQ:  44.46
RYVNX:   16.34 (added more to portfolio today)
RYAIX:  21.04
RYCWX:  34.52
TLT:  88.06 (sold out today at 88.05)
BEGBX:  13.60

Tuesday, February 06, 2007

CSCO Party, Don't Miss It

Market Action:
While the averages don’t really indicate it, the market was anything but dull on Tuesday.  The volume was on the weak side so the fireworks were somewhat contained price wise.  The opening was up but not “strong” and about a half an hour into the day the NASDAQ indexes collapsed about 0.75%, after which you have to know we had to rally into the close, which we did.  Clearly the trap door was open under the market but the traders managed to bring it back to a decent close with little or no change in the major indexes.  

The after hours story was what most traders were waiting for, the report on CSCO from Mr. John Chambers.  The news out of CSCO was nothing but “spectacular” and according Chambers “It was clearly another very strong quarter—that really is the proof point that our vision of how the industry is playing out is working.”  After that news CSCO was back near its highs for the year, up about 4%.

The CSCO news may be what we have been looking for in terms of the near term rally we expect in the NDX.  When a company like CSCO has positive news, the market interprets that as being for the entire world so we expect a pretty strong opening on Wednesday.  We are expecting the NDX to move into the 1820 to 1825 area or maybe a little higher.  This type of move would take out the highs of the last couple of weeks but not the 1847 highs around January 12 and 16, the trading days surrounding the Martin Luther King Jr. holiday.  

Wednesday represents a very good day for a test of the NASDAQ highs as the Dow probably makes a new high.  We are thinking that the 1847 high in the NDX is going to hold because we are at such overbought conditions again in the broader market.  This would be a good time for the market to top and fall away—the day after CSCO’s earnings.

Dow Industrials:  12,666.31  +4.57
VIX: 10.65
HUI:  334.64
QQQQ:  44.05
RYVNX:   16.67
RYAIX:  21.25
RYCWX:  34.56
TLT:  87.80
BEGBX:  13.58

Monday, February 05, 2007

Dull City

Market Action:
There was none except for the little 35 point burst about an hour into the session.  This followed the news that the January ISM Services (Non-Manufacturing) Index was a bit higher than expected.  This makes two days in a row, Friday and Monday, that have been as dull as can be.  

Precious Metals:
As promised in our last post, we wanted to make some comments on the metals complex.  We’ll start with silver and our favorite silver mining company PAAS.  There seems to be some disconnect between these two entities at the moment.  We have been watching for a good entry point into the metals and PAAS has been one stock we follow for a good opportunity.  But, that opportunity has turned into mostly a selling one.  PAAS has entered a new all time high in Monday’s trading.  Unfortunately, we think it is more like a sell signal than a breakaway buy signal.  

As for Gold, we saw it spike to a new relative high over $700 back in May of last year.  Since then it has been struggling to retake that number but has been failing in the $650 range.  We have reason to believe that this failure is due to in part to the significant bullishness in the complex along with the significant bearishness in the dollar.  

The message is that Gold will probably need to head down for a little ways before we are ready to buy into the complex.  The same is true for silver but the difference is that PAAS has been throwing off the scent of the trail.

For those of you that remember, we were suggesting to buy PAAS when it was in the four’s and we have actually traded it up until it got to about 18.  So, we have left quite a bit on the table now that it’s 29 but we do not think it is a good buy at this point.  We can’t suggest shorting it but we are going to avoid buying it until it gets back to the teens.

As for the rest of the precious metals complex, we will avoid it as well.  With the HUI at 333 at Monday’s close, there is little reason to get excited about any of these stocks.  We want to see the HUI head down into the 250-270 range before we get involved.

We wanted to let you know that we have been keeping our eye on the complex and will advise once we get to a buying point which seems to be down the road a ways from here.

The stock market trading of the last two days has given us little in terms of down side and instead has convinced us that there is one more spike left.  The Dow will make another new high soon, along with a relative new high in the SP 500.  We do Not believe that the NASDAQ Comp or the NDX, NASDAQ 100, can put in another relative new high but...there is a distinct possibility that from this boredom we will emerge with one last spike with which to put on some additional short positions.  

The NDX is the index we like to follow because we can trade it in so many ways.  The January high was about 1847 and with a close of 1795 on Monday, that index has a long ways to go to get to 1847.  The next spike up should take this index back up to around 1820 or 1825 with a burst, showing much price strength in the process.  The problem is that the high will not be attained and this “strength” will only be perceived and not real.  There will be much talk about the NDX type stocks in the next few days and that will help to lift the prices—so we can put on more positions.  Enjoy the bounce.

Dow Industrials:  12,661.74  -8.25
VIX: 10.55
HUI:  333.54
QQQQ:  44.12
RYVNX:   16.62
RYAIX:  21.21
RYCWX:  34.58
TLT:  87.32
BEGBX:  13.53

Sunday, February 04, 2007

Jobs' Report Fairly Neutral for Stocks

Market Action:
Friday morning got started with the jobs’ report which was fairly neutral in our opinion.  The 111K new jobs reported were just shy of the 150K expected but the earlier months were revised upward enough to offset the different and more.  The market reacted in a similar fashion, fairly neutral.

The SP 500 happened to be the steady performer with a gradual upward grind for most of the day even though it only advanced a couple of points.  The Dow was down on the day with no particular reason.

The Dow Jones Transports have been trudging higher and have now put the world on notice that the Dow Theory is bullish since they are confirming the new high in the Dow Industrials.  We don’t think that’s going to bear any fruit, buying now After the trigger.

Real Estate:
We wanted to make a quick mention of an article that surfaced in our reading this evening.  On page A1 of Monday’s WSJ there should be an article entitled “Vacant Homes For Sale Cloud Economic Hopes”.  We encourage you to find a WSJ and read that article.  It mentions that the homeowner vacancy rate, “an often-overlooked measure of how many homes for sale in the country are empty…has climbed to its highest level since the Census Bureau began tracking it four decades ago.”  

With the market in no hurry to do much of anything, there really isn’t much to report this evening and we again wait until Monday for some clues as to the market direction.  But, we are getting ever so close to a top in the Dow.  The only question we have is “When?”

As time passes, the mid-January peak in the NDX, NASDAQ 100, is looking more and more like a spike high and a top.  This past week’s showing for the stock market in general was reported to be a good positive week but the NDX doesn’t really share in the “New High” fever.  And, as strong as the SP 500 has been, it does not have a “new high” in place either, just a relative new high.

Our indicators are overbought and ready to help roll this market over.  The Dow is soon going to finish its last gasp move and it will roll over and head down along with the NDX.  In the mean time we are looking for a good place to get aggressively bearish and we think that will be in the next two weeks.  We already feel strongly about the NDX and now it’s just a matter of time for the Dow.  When it starts to roll over, then we will see a flood of sellers.  

In our next post we will make some comments on precious metals.  As a preview, we think silver has a big move coming up which will help shape PAAS’s future.

Upcoming News Events for the Week:
January ISM Non-Manufacturing Index—Monday
Not much else worth mentioning here.

Dow Industrials:  12,653.49  -20.19
VIX: 10.08
HUI:  332.32
QQQQ:  44.16
RYVNX:   16.56
RYAIX:  21.18
RYCWX:  34.61
TLT:  87.20
BEGBX:  13.53

Thursday, February 01, 2007

DELL Ends Down on the Day

Market Action:
Continuing from yesterday’s post…The big story on Thursday had to be DELL.  Here we have the stock being pushed higher over night and early on Thursday morning all because the CEO resigned and Michael Dell is back in that job.  Our first thought is “Are all of these traders crazy?” and then we start to get more to the point on our second thought:  “Hasn’t Michael Dell been there the whole time and hasn’t he been overseeing the entire operation anyway?  How could the CEO leaving do anything positive to the future of DELL?”  

As the market opened DELL was up about 5% which happened to be the high of the trading day.  DELL pretty much went down all day and closed on the lows of the session.  

On to the other stock from yesterday’s post:  GOOG had about the same trading pattern as DELL but with a slightly different starting point.  As we noted in our last post, the market didn’t take to kindly to GOOG’s earnings report.  Rather than open up 5% as DELL did or open down about 3% as the overnight trading had finished, GOOG opened about flat and leaked all day closing down about 4%.

These two stocks are probably responsible for the NDX’s poor performance in the face of a new record high in the Dow.  The NDX actually ended down on the day.  The only other major index that was down on the day happened to be oil services.  

[In related news this evening, we note that the WSJ is reporting tonight (and probably in Friday’s paper edition) that DELL is being accused of improper accounting in some of its dealings with INTC.  In a case that is seeking class action status for DELL shareholders, there are accusations of taking, possibly illegal, kickbacks from INTC.  If you remember, DELL was exclusively an INTC Inside brand much to the exclusion of AMD.  Read the story for yourself but this is not good news and could be some of the same things the SEC is finding.]  

One piece of news that should have moved the market and didn’t was the January ISM manufacturing report.  This report indicates weakness below 50 and the number was below 50 at 49.3 when expectations were for an increase to 52.0 from last month’s 51.4.  A 49.3 indicates contraction and since that number hasn’t been below 50 for nearly four years the market should have been a little concerned.  Any negative reaction was very short lived.

After the market closed, we heard from AMZN that earnings were not really as good as the street was looking for.  At the first announcement AMZN was up $2 or about 5% but by the end of after hours trading it was only up 20 cents, but it was up for some reason.

Friday’s Jobs’ Report:
CNN posted a headline in the afternoon that the bean counters had found some 1 million jobs that had fallen through the cracks over the past few years.  Ok, let’s get serious here.  The jobs for a month are right around 100K every month and now the government is going to tell us that hey sorry we forgot to count some jobs and by the way the number we missed is around a million over the course of about 18 months.

We have seen modest jobs increases with what is know as the birth death model which we don’t honestly understand what on earth they are talking about.  So, when the jobs are reported on Friday morning, there will be a sub-heading that indicates that they forgot to include these additional jobs.  What we understand is that these additions serve to increase the denominator of the unemployment number so we could see a decrease in that number on Friday.  The number of jobs expected still remains around 150K and that is the number the market will focus on.  

The month end rally we have been waiting for seems to have materialized, in the Dow and the SP 500 at least.  These two indexes exceeded their January highs and in the Dow’s case that means we have a new all time record high in that index.

Our indicators are now at overbought status and we believe the NASDAQ indexes have actually seen their tops in this cycle.  With the Dow moving up, there are plenty of people with glazed looks watching and hoping for higher prices.  In the Dow that may be possible for another few points, maybe a couple hundred or so but this is the time to be looking at your mutual funds for possible changes.  With this Dow all time high, how are your mutual funds stacking up?


Dow Industrials:  12,673.68  +51.99
VIX: 10.31
HUI:  339.11
QQQQ:  44.02
RYVNX:   16.67
RYAIX:  21.24
RYCWX:  34.47
TLT:  87.09
BEGBX:  13.56