Wednesday, May 30, 2007

China Down Again This Evening

[Editor’s note: This is the final daily market post. The blog will continue to be published on a weekly basis for now until either we get a market break, when the blog would go daily again, or we stop writing it all together. Thank you.]

Our report on China was somewhat inaccurate last night so we want to clear it up this evening. The change in the trading was an increase in the trading “tax”, they call it a stamp tax. Apparently, the government slaps each trade with a 0.1% charge and now that cost is rising to 0.3%.

The Chinese market was down over 6% last night and tonight is down another 3% so the change may have done something but will it last?

Market Action:
Before the US markets opened for trade there was some overhang from the Chinese market but right after the market opened, down about 0.5%, the buyers came in and struggled to move it higher. Once the averages went green, there was a concerted effort to buy ‘em and all of our three major indexes closed at either new record highs or new relative highs.

The minutes from the last Fed meeting were published today and they indicate that the Fed is still concerned about inflation and that the economy will pick up some steam later in the year. You would think that since the market has built some rate cuts into the prices, that a blow to the “lower interest rates now” theme would have taken a toll on the market. But, that didn’t happen, in fact after that news, the market bolted higher to put the Dow and the SP 500 at new record close.

This action puts our analysis in a particularly bad light and would seem to suggest that the market has not topped. The month of May has seen a good up move during which we have been short and this is something that we can no longer tolerate. There are two elements to this thinking, one, we don’t like to lose money and, two, we detest being wrong. You may not mind that we’re wrong as long as you haven’t followed our advice.

We do believe that the market is overbought and when it finally does turn there will be some very fast selling and prices will drop. But, we can not in good conscience continue to be short, and we are leveraged short so we are losing money at twice the speed the market is going up. The rally from last summer has been extremely difficult for us to call and we are not sure why that is.

Our guess is that there is so much money available for trading by the various large parties that there is no other way to go but up. We have maintained that the residential mortgage market would prevent retail customers from continuing to purchase stocks and we are probably somewhat correct in this assessment. However, there are still many automatic 401(k) purchases that could still be coming from the retail side. Ultimately, we still think the residential real estate will drive the economy and the stock market down. The WSJ had a front page article on the Subprime mess and we urge you to read it. Pay particular attention to the map that shows just how much money poured into these Detroit neighborhoods. No wonder people could afford to pretend they were doing ok. For a while...

Our favorite paragraph is: "This has stripped us of our whole pride," says April Williams, 47 years old, who has until August to pay off her mortgage or vacate the two-story Colonial at 5170, where she and her husband have lived for 11 years. "There's going to be no people left in Detroit if they keep doing this to them."

In any event, we have decided to abandon the shorts we are in and step back from this market and wait until something becomes clear to us. Along with this decision, we want to reduce our commitment to this blog, maybe all together, but at least limit the time we spend on it, until we feel that the market is going down. When that time arrives and we feel that we can be of the best service to you, then we may go back to daily posts.

Right now, the market is way too overpriced to be committing new funds to it but at the same time it is shredding those of us in leverage shorts. To that end, we are going to eliminate our short positions and reduce this blog to Wednesday evenings going forward. We would write a commentary on Wednesday evening like we used to in our email version. That way you would have something to read on Thursday mornings.

We want to thank those of you who have been faithfully reading the blog. We have an idea how many hits we get here (you can see the site meter) and decided that we would continue to write as long as we had 30 hits a week. That doesn’t sound like much but it was enough to keep us writing. And, we have had more than 30 hits a week almost every week, some of which are ours, but it has been enough for us to write.

Our goal has always been to provide some level of contrary thinking with opportunities for profits. We know that has not been happening for quite some time and for that we apology to all of you.

We have been writing a daily post for over two years and this decision has not been made in haste. We have enjoyed writing most every day and will miss it.

Dow Industrials: 13,633.08 +111.78 ( new record high)
VIX: 12.83
HUI: 322.52
QQQQ: 47.19
QQQRS: 0.12 bid
QQQRT: 0.24 bid
RYVNX: 14.87
RYAIX: 20.26
RYCWX: 30.33
TLT: 86.54
BEGBX: 13.72

Tuesday, May 29, 2007

Homebuilder Pulte Announces 16% Layoffs

Late Breaking News:
The Chinese decided to raise the tax on stock market trading profits. As you might gather, this did not provide a strong backdrop to trading in China overnight. Their market opened down hard but recovered quite a bit in the early going (sound familar?) but now a few hours into the trading day the index is down over 6% and the rest of the Asian market is having some trouble, too. Our stock futures are trading down ever so slightly this evening but that could change by morning if China's market drops much further.

From earlier this evening:

Market Action:
After a long holiday weekend, the bulls were particularly anxious to start buying on Tuesday, especially the NASDAQ type stocks (and the RUT, Russell 2000). In fact, the buying actually spilled over to the blue chips and the Dow was sporting a 60 point pop about a half hour into the session. From those highs the market drifted lower the rest of the morning with the Dow sinking 35 points into negative territory. From there, the buyers came in to run the prices back up into the closing bell. The NASDAQ Comp ended with about a 0.5% move while the blue chips were only up slightly.

Still, the market did rally on Tuesday. The move doesn’t really say much because the prices stayed below last week’s highs. Those highs are not very far away so we keep a close eye on them for signs that the market will try to move back to them. We would think there is significant resistance at least in the NASDAQ. The Dow may try for another high which would not surprise anyone, but we would again like to see the other indexes fall short of relative highs to provide more evidence against a further rally.

This is the end of the month period when stocks are generally stronger. The jobs’ report is looming large on Friday as the start of June brings a weaker seasonal period, remember the “sell in May and go away” mantra.

The fourth largest homebuilder announced that it had not laid off enough workers over the past year and had painfully decided to lay off another 16% of its workforce, taking a $40 to $50 million charge. This news follows the 25% reduction that has happened already. The CEO said that “The homebuilding environment remains difficult and our current overhead levels are structured for a business that is larger than the market presently allows.” That doesn’t make it sound like a bottom is going to be in place any time soon.

Deflation Part Four:
To recap from last week, the current credit expansion has provided for the great asset inflation era with the price of homes and stocks moving up. Since this type of inflation does not warrant the Fed’s attention, it also goes unpunished. We think that asset inflation is the most difficult because it normally has the ability to drive the price of everything up. This includes the asset inflation itself because liquidity naturally flows to an asset because it’s going up.

Credit expansion has occurred simply because it has been easy to come by. You read about the mortgage loans that were being issued over the past year or so, with little or no documentation. In order for the residential real estate market to boom the way it did, there had to be a catalyst for it and the 1% Fed funds rate provided for low mortgage rates.

A credit expansion can only sustain itself with more and more credit and at some point it just can’t be done. This is the point at which we now find ourselves in, with the mortgage money getting tighter by the day. We know there is still plenty of money floating around to buy houses but the subprime and so called Alt-A money is slowly fading.

As you know, there is another driver of credit expansion and that is the government. The budget deficit has created a large amount of money that has been subsidized by many foreign governments. With the US trade deficit being what it is, very large indeed, these foreign governments have a lot of dollars flowing into their countries. The natural thing to do has been to send those dollars back to the US in the form of buying US Treasury bonds or actual US assets.

We believe this flow of funds may start having a different effect as our economy fades a little and the trade deficit begins to shrink. You are thinking that the Americans will continue to buy no matter what. Well, we think the contraction in the real estate market will hinder them in trying to purchase anything they want.

The other issue is if foreign central banks, or OPEC for that matter, decided that they may not want to deal in dollars. This is starting to occur already even without a reduction in the trade deficit but if the trade deficit started to shrink, there would be even less reason for these parties to continue to pursue dollar or dollar based assets.

The complacency on this issue is not a comforting thought but we do want to situate ourselves properly as we watch the US stock market drift along. The discussion is all about global warming, something that might be a problem in 50 years. Where is the discussion about the financial problems facing the US and its markets?

Dow Industrials: 13,521.34 +14.06
VIX: 13.53
HUI: 321.56
QQQQ: 46.81
QQQRS: 0.18 bid
QQQRT: 0.36 bid
RYVNX: 15.16
RYAIX: 20.45
RYCWX: 30.84
TLT: 86.36
BEGBX: 13.74

Monday, May 28, 2007

Technically Weak Friday

[We would like to say thanks for a good time this past weekend in Evansville. We appreciate the hospitality we were shown when we were there and it was good to see you.]

Market Action:
The stock market decided to move up after Thursday’s strong down move. We figure that there are still enough people out there who are looking for “bargains” after the mini fire sale the day before. By the end of the day the Dow was sporting a pretty nice gain while the other major indexes were making modest recoveries from the day before. The Dow recovered nearly 80% of its Thursday loss, while the NASDAQ Comp and the SP 500 gained back about half.

Granted, Friday was the day before a long holiday weekend and the Friday before a Memorial Day holiday has has a strong upward bias in years past. (Last year’s Dow point move was up 67.56 compared to this year’s 66.15 up move.) We stress that very little can be taken from this day due to the technical factors surrounding the day, such as very light volume.

In fact the volume was the lightest of the year so far.

The technical condition of the market is again precarious. We look at the recovery of the Dow on Friday and try to imagine how that can affect trading over the Next few days. As we said earlier, we can not gain much from Friday’s trading.

Our take on the position of the market is based on the NASDAQ 100, NDX. Starting on Thursday afternoon, the NDX dropped into a low near Thursday’s close and this drop was from a new relative high. It was a strong down move and could be the start of a fairly large down move. So far, the corrective rally has not taken much of the decline back. In fact, the retracement has been nearly a perfect 38.2% move.

If we see some follow through to the downside over the next few days, we might just conclude that the decline is for real. The Dow doesn’t have quite the same pattern but could be coaxed into it if the market could hold the high from last week. We did manage to have a down week last week in the three major indexes we follow. We now need some good follow through.

News for the Upcoming Week:
As we go into the new week, a short trading week, there are a few items of note, most of them being on Friday, especially the May jobs’ report:
This week—Maybe some more deflation talk from the Update
Tuesday—Consumer confidence
Thursday—First quarter GDP, second guess (first guess was 1.3%)
Thursday—Chicago Purchasing Managers Index (PMI)
Friday—Jobs’ report (commonly known as non-farm payrolls)
Friday—Personal income and spending (with PCE inflation)
Friday—May ISM Index
Friday—Pending home sales for April

Dow Industrials: 13,507.28 +66.15
VIX: 13.34
HUI: 322.25
QQQQ: 46.45
QQQRS: 0.24 bid
QQQRT: 0.49 bid
RYVNX: 15.32
RYAIX: 20.56
RYCWX: 30.88
TLT: 86.37
BEGBX: 13.75

Thursday, May 24, 2007

A Good Down Day for a Change

Market Action:
Before the market opened, we found out that durable goods orders were up a little less than expected but last month's number was revised higher. This news did not seem to get much attention but the pre-market trading was stronger. The Dow got off to a strong start in the morning up about 45 points or so.

Then new home sales were reported to be up about 16% last month. The prices were another story as they fell about 10% from last month and some considered that the pop in sales might have been due to the drop in prices. As this report was released the Dow popped again and traded up around 100 points to trade at a new high, but its friends didn’t feel like joining in. It is true they were up early but nothing quite like the Dow. Even the SP 500 didn’t get to a new high. Other indexes were struggling to stay up in the morning but just couldn’t hold the gains. One by one, they all fell into negative territory.

After the Dow’s bolt up to a new high with a 100 point gain, it quickly lost that 100 points and then bled another 100 by the end of the day. It did manage to get a little bounce at the close but still closed down 84 points, or about 0.62%. The SP 500 was down nearly 1% and the NASDAQ Comp was down 1.5% so this was a day of strong downside action.

The volume on the NYSE was a strong 1.7 billion shares and this on a strong down day, with declining stocks exceeding advancers by about 2000. This is some confirmation of a turn in the market. The outside down day in the Dow is another.

We want to reserve judgment on this market until we see a bit more downside but this is a good start to a down move if there is going to be one now. The prices fell through the upward trend line support on Wednesday and in last night’s post we said that a break in trend support should give “us a little instantaneous move in the opposite direction, which we got on Wednesday” and this move continued on Thursday.

In our opinion, there is much hot air to come out of the overpriced market but we can’t be sure this is the move until we see more follow through. We remain bearish with bearish positions and welcome a day like Thursday. The nagging question is can this market now go down or is it another in a long series of fake outs.

The Dow made a very strong reversal move today going up 100 and down 200 and for now, this is a good start. We will examine the moves it can make over the next few trading days and maybe we can get a better idea what its intentions are.

The market is closed on Monday for Memorial Day and we will return Monday evening for your reading pleasure on Tuesday morning. We will abandon the Deflation talk this evening but will resume that next week, especially if the market decides to get dull again. Have a happy and safe holiday.

Dow Industrials: 13,441.13 -84.52 (four down days in a row)
VIX: 14.08
HUI: 318.74 (down 10.67)
QQQQ: 46.16
QQQRS: 0.33 bid
QQQRT: 0.63 bid
RYVNX: 15.55
RYAIX: 20.70
RYCWX: 31.15
TLT: 86.57
BEGBX: 13.77

Wednesday, May 23, 2007

Three Down Days in a Row

Market Action:
Wednesday did provide some market action that seems worthy to present here. Let us recall that the Dow has now been down three days in a row and four out of five days. While the down price is not very much, the price break could still be important.

For whatever reason, and that could be just because it was Wednesday, the stock futures were up before the opening bell. The trading in the first hour pushed the Dow up about 70 points to a new record trading high. And, for the first time in this run, the SP 500 managed to trade above its 2000 high. But, both indexes closed down on the day.

With about two hours to go in the trading day, the market sold off, taking the NASDAQ 100 down 12 points on the day but 20 points down from the highs. So, here we are in the middle of the week and we have another signal from the market that all is not so well. The up trend line that was in place for about a week has been broken and with it, stock prices are now in a questionable place.

Normally, breaking the trend line gives us a little instantaneous move in the opposite direction, which we got on Wednesday. Now, the question is, “Does this break set us up for the next move down?”

We have been patiently waiting for the market to turn down and each time we think there has been a signal from the market, we get an upside reversal. On Wednesday, the market gave us this new direction that may last or may not. Some follow through would give us some more confirmation that the market is ready to go down.

With the voices in the news so bullish, and our technical indicators so weak, we can’t say that we would be surprised with a down move since we have been expecting it for the last several weeks. But, it would make us feel better about our analysis.

We continue to hold our bearish positions, with great pain, but we think that any other course would lead to bigger problems.

Deflation Part Three:
Since the market did provide some entertainment on Wednesday we will keep this section brief this evening.

In Part Two we discussed the global liquidity madness and tonight we would like to provide a little more information. As the US expanded its debt and its trade deficit there was an unintended consequence, world wide credit expansion. With a number of countries tying their currency to the US currency, they had a need to follow the US in the expansion of their own currency.

If you look at the dollar value from its recent high in 2001 to its low in 2005, it dropped approximately 1/3 in value from 120 to 80. This happened to be the same period of time that the Fed was lowering rates to 1% which as we have been reporting is one of the reasons for the dollar’s fall.

Importantly, the currencies that were/are pegged to the dollar had to follow suit and match their currency expansion to the dollar at least somewhat which helped increase credit expansion in those countries as well. Eventually, it seems the whole world has been expanding credit and all manner of assets have been going up except for the dollar of all things.

It remains our position that the dollar will now find some way to rally as it will again be sought after and this will be the start of the great deflation that we have been expecting ever since the housing market started to fade.

Dow Industrials: 13,525.65 -14.30
VIX: 13.24
HUI: 329.41
QQQQ: 46.83
QQQRS: 0.21 bid
QQQRT: 0.39 bid
RYVNX: 15.07
RYAIX: 20.38
RYCWX: 30.77
TLT: 86.49
BEGBX: 13.78

Tuesday, May 22, 2007

Deflation Part Two

Market Action:
Not much movement of any kind on Tuesday.

Nothing to report on the market except it didn’t do much and didn’t give us much to comment on.

Deflation Part Two:
The current global liquidity madness is brought to you mostly by the credit hungry US government and its citizens. As credit, more appropriately called Debt, continues to expand, inflation has no where to go but up. The calculators of the CPI factors are doing their best to make sure the actual inflation doesn’t come through. Some of this is due to the need to contain Social Security payments because the increases in monthly Social Security are tied directly to the CPI.

The main ingredient of a credit expansion that exudes inflation is the creation of money through various means. The one we are concerned with is the mortgage market and how it gets its funding. Much of the funding there comes in the form of securitization which means that the various mortgage pools are sold to investors.

Some, well, a lot, of the mortgage pools are packaged into CMO’s that slice and dice the payments from this pool into cash flows for various pieces, called tranches. The interesting thing that we don’t fully know is who would buy the riskier tranches.

What we do know is that some of the subprime mortgages have failed to provide for some of those risky classes. Someone has taken a huge loss in them and we know that they are still showing losses in some of the later pools.

Our natural answer to the question of money expansion is that the Fed stands in the background and buys Treasury securities to provide general liquidity to the planet. The government spends more money than in takes in and sells bonds to whoever will buy them. This has recently been overseas countries. So, as we purchase goods from them, they have an excess of dollars which they use to buy our government bonds. From there the cycle continues; but, where is the Fed in this maze?

We think they have been very supportive in this endeavor but other foreign central banks have aided and abetted them. As we purchase goods from all over the world, those central banks can provide more liquidity than they would have otherwise. In fact China has been booming for several years based mainly on the trade surplus they have with the US.

We see this as Part One, that is, the credit expansion phase. Next comes the credit contraction phase which the Fed knows is coming but is trying to put it off as long as possible. This is not a good thing.

Dow Industrials: 13,539.95 -2.93 (down?)
VIX: 13.06
HUI: 324.85
QQQQ: 47.05?
QQQRS: 0.17 bid
QQQRT: 0.32 bid
RYVNX: 14.88
RYAIX: 20.25
RYCWX: 30.68
TLT: 86.74
BEGBX: 13.80

Monday, May 21, 2007

Deflation Part One

Market Action:
The market unceremoniously traded higher on this Monday morning charging to new relative highs in all the major indexes we follow. With about an hour to go, someone pushed a sell button somewhere and brought the averages down off the mountain top.

We have nothing to say about the market this evening so we have decided to give you the day off. This is a holiday week and volume will probably be light again unless for some reason we find some sellers out there.

Deflation Part One:
As the stock market continues its heavenly journey, we must find something else to pass the time so the topic of the week will be Deflation. Looking back over the past few years, as the residential housing market has faded, we have seen very little in terms of headline inflation. As the media focuses on “core” inflation and the market waits for “good” news on the “core” inflation, there are real inflation forces at work that can not be denied even with the modest “core” inflation figures.

Our premise rests in the residential real estate market being the key to the economy and ultimately the stock market. The reason the consumer hasn’t been “tired” in the last five years is their ability to extract cash from their houses that have “appreciated”. The economists are at least recognizing that the consumer might be having some trouble but it’s because of the higher gas prices, not home price depreciation. The economists say that the economy won’t be affected by the consumers’ lack of funds.

Plus, the real estate market seems to be doing ok in the media but for some reason home builders and the home improvement stores are having difficulty. We even see ads for low teaser interest rates on homes, like get $500,000 for your mortgage and pay under $1500 a month. So, even though subprime mortgage companies are having trouble, there doesn’t seem to be any shortage of funds for mortgages in general.

We’ll be discussing deflation this week, unless something better comes along.

Dow Industrials: 13,542.88 -13.65
VIX: 13.30
HUI: 330.77
QQQQ: 47.01
QQQRS: 0.18 bid
QQQRT: 0.35 bid
RYVNX: 14.95
RYAIX: 20.30
RYCWX: 30.66
TLT: 8719
BEGBX: 13.81

Sunday, May 20, 2007

Can We Have a Down Week?

Market Action:
Friday happened to be options expiration so there seemed to be some buyers out early and the tone of the market was, yet again, bullish. Volume was stronger, most likely due to options expiration, but not as strong as we saw on May 1st when there was 130 million more shares traded on the NYSE than last Friday.

By many measures, the stock market is getting tired or at least showing signs of fatigue. The main ingredients are the soldiers are not following the lead of the generals, meaning the smaller stocks are not going up anymore.

Last week, which the media has let everyone know, the Dow was up for the seventh straight week and there was nothing out there that could derail this freight train in the upcoming week. At the same time, the NASDAQ Comp, the NASDAQ 100 and the RUT (Russell 2000) were all down. The semi-conductors were down 3% last week.

A further market rally seems to be a foregone conclusion by most pundits, except for a few of us. As you well know, this market has gone up in spite of our analysis to the contrary. This is the kind of rally that deserves to go down, and go down hard, but for some reason the media can imagine a market that may never go down again. This is simply not true and it is so not true when this kind of thinking is going on. We think there will come a day very soon that the market will just drop for no reason at all, and then keep dropping because of the leverage of the hedge funds or for some other reason.

An article in the WSJ caught our eye this evening, “Economy May Revive Without Consumers”, talking about how, yes, the consumers did pull in their horns a bit in April but not to worry because the other areas of the economy would be able to pick up the slack. Since we haven’t had a consumer led recession in so long, there won’t be one. We beg to differ on this score. The consumer will lead this recession as they stop buying, mostly, houses, but other things as well. If the consumer won’t buy things, why would they be made in the first place?

News for the Upcoming Week:
This week—The Update will tackle the deflation topic.
Tuesday—Redbook sales index
Thursday—April durable goods orders
Thursday—April new home sales
Friday—April existing home sales

Dow Industrials: 13,556.53 +79.81
VIX: 12.76
HUI: 328.59
QQQQ: 46
QQQRS: 0.25 bid
QQQRT: 0.45 bid
RYVNX: 15.17
RYAIX: 20.44
RYCWX: 30.34
TLT: 86.93
BEGBX: 13.84

Thursday, May 17, 2007

Did the Market Have a Pulse Thursday?

Market Action:
With options expiration due on Friday, we figured there would be some volatility this week and through Wednesday that was the case. We’re not sure if the market was actually open on Thursday since it traded in such a narrow range and on light volume.

Even with the release of the LEI, leading economic indicators, there wasn’t much stirring but, of course, that number was not worth stirring over. We had thought that with the stock market up strongly in April that the LEI would get a good boost in the arm. That wasn’t the case as stock prices were one of only two of the ten indicators showing gains, the other was the real money supply. (To make a statement about that, we would have to say that those are not the best two to be showing gains especially if the others are showing losses.) Seven others were down.

The actual number was down 0.5%, but last month’s number was revised up from 0.1% to 0.6% which is exactly 0.5%. With all of these big month late modifications in the number, the value of the LEI seems to be going down and the stock market did not care one bit about them. There was no pulse at all in stocks.

Thursday’s trading didn’t add much to the stock picture and we figure we should leave you alone this evening. There were some comments that Bernanke made about the housing market which didn’t sound like a bail out, but something like that will be tried. We’re not sure how effective it will be, especially since so many people have lost their homes due to foreclosure already. Anyway, Bernanke still thinks that the housing, what word should we use, oh yes, “problem” really isn’t too bad. “…the financial system will absorb the losses from the subprime mortgage problems without serious problems.” Oh, maybe we should have said Problem twice like he did.

Anyway, have a good weekend and we will try again next week.

Dow Industrials: 13,476.72 -10.81
VIX: 13.51
HUI: 322.59 (gold weaker)
QQQQ: 46.33
QQQRS: 0.34 bid
QQQRT: 0.61 bid
RYVNX: 15.36
RYAIX: 20.57
RYCWX: 30.93
TLT: 87.51
BEGBX: 13.84 (dollar stronger)

Wednesday, May 16, 2007

Back to the Same Old, Same Old

Market Action:
You already know what happened on Wednesday, a new Dow record high, but we will painfully push through some of the happenings. As we mentioned in our last post, volatility would pick up a bit this week and on Wednesday there was some movement. Early morning strength derived from mixed housing reports, something for everyone, particularly suited to the neo-bulls.

The actual housing starts were up (???) for the month of April, while building permits were down. Therefore, the stocks could rally for whatever reason they liked, stronger starts is positive and weaker permits allows the Fed to lower rates, or something like that.

All was well for about an hour and a half and then, out of no where a wave of selling came in taking the major averages down for about a half hour. From there though it was up the rest of the day with the Dow closing at another record high and basically closing at the highest ever, 13,487.

Maybe we should have stuck with our favorite sector, the semi-conductors, which happened not to participate in the rally on Wednesday. However, they have been on a run the last month, but remain below the highs of early 2006.

The SP 500 joined the Dow on Wednesday by moving to new relative highs for the move. This same thing can Not be said for the other indexes we follow. We are going to include coverage of the RUT (Russell 2000) more frequently in these pages, since it has been one of the leading indexes in the market since 2003. Looking at a ten day intraday chart for the Dow and RUT, they go in the opposite directions.

(For a picture of this, please use BigCharts in the links to the left and use the advanced charts. If you enter the RUT in the symbol space and use the time of 10 days and frequency of 5 minutes and then click the compare to box and click on DJIA, you will see the divergence of the two indexes.)

Right now, we feel like the technical indicators are the only thing we can watch. The media is so bullish that it can’t present an unbiased opinion on the market. Yeah, we know, what else is new?

Some of the items we noticed as we put together our numbers were the volume was lighter on Wednesday than Thursday and the new 52 week highs were less also. With these items starting to glare out from the market, other people should begin to see them too.

What was Down on Wednesday? That would be gold and silver and oil, along with the Euro, since the dollar was up again and the aforementioned semi-conductor index.

What will Thursday bring?

Dow Industrials: 13,487.53 +103.69 (yes, a record)
VIX: 13.50
HUI: 325.44
QQQQ: 46.55
QQQRS: 0.29 bid
QQQRT: 0.54 bid
RYVNX: 15.24
RYAIX: 20.49
RYCWX: 30.87
TLT: 87.87
BEGBX: 13.88 (dollar is moving up)

Tuesday, May 15, 2007

Something Different

Market Action:
The “core” CPI, you know the one, without food and energy, was up 0.2% last month, just like we expected in our last post. (By the way, we didn’t guess the number; we expected the number to be the maximum allowable by the market.) With this news the market, having been “worried” about the CPI, turned around before the opening bell so the Dow jumped about 35 points with the other indexes up a bit, too.

From there, the market fell back until about a half hour into the session. (Prepare yourself for some sarcasm.) With the market in need of some good news so it could trade higher, voila, a news item hit the wire that satisfied the bill: Home prices dropped for a third straight quarter. The logic is twisted but, if you have been following the homage paid to the Fed’s ability to move the market higher with its little wave of the interest rate wand, you would no doubt understand that the Fed would be looking at that particular piece of data and resolve to lower rates at its earliest convenience. (It makes so little sense to us.)

That little piece of news vaulted the market higher, nearly 100 points on the Dow inside of about 15 minutes. Then, after a modest pullback, the Dow continued up until it was up about 135 around midday.

At the same time the broader market didn’t quite react the same way. Yes, the broad market moved up powerfully with the housing news but then when it tried to rally after that pull back there was a muted up move that didn’t even get back to that earlier high, except for the SP 500 and the Dow. This was something different than we have seen before. We think different is good.

From the Dow highs of the day, up around 135, there was a slow leak in the market that lasted the rest of the day. The Dow itself managed to stay positive but all the other indexes we follow were down on the day with the NASDAQ Comp and 100 as well as the RUT (Russell 2000) down about 1% on the day.

The stock market staged a dramatic reversal on Tuesday on some heavier volume than we’ve seen for a few weeks. This nascent down move still needs to make more progress in order for it to get some respect but the pattern is in place for a strong down move.

The SP 500 did manage to make a new relative high in the midday rally, along with the Dow, but it reversed just like all of the indexes.

We actually think the Dow closing up on the day, to an all time high, is poetic. We think of it as the general leading the troops to battle and then looking back to see that the soldiers have actually abandoned the fight.

This is options expiration week and with it we normally see some volatility but this week could see more than a normal amount due to the position of the market. The volatility index, VIX, moved up slightly on Tuesday but could move dramatically higher if you look at the chart (see BigCharts link at the left).

There is a new wind blowing across Wall Street and we think it is in the southerly direction.

China Update:
We mentioned China in our last post and note that is traded down about 3.5% after we finished. Apparently, a 3.5% down move is not worthy to mention when we have such good CPI news to enchant the US stock market. This is something to watch very carefully and we plan to add it to our watch list this week—we will report any developments.

Dow Industrials: 13,383.84 +37.06 (another record high)
VIX: 14.01
HUI: 329.39
QQQQ: 46.10
QQQRS: 0.42 bid
QQQRT: 0.73 bid
RYVNX: 15.56
RYAIX: 20.70
RYCWX: 31.38
TLT: 87.93
BEGBX: 13.94

Monday, May 14, 2007

Can you say “Non-Confirmation”?

Market Action:
As the market opened on Monday, the traders seemed happy to bid up the prices in the early going only to lose their resolve over the course of the day. Most of the broader indexes were down on the day while the Dow stood alone with a positive close. In fact the Dow managed to score a new high in the early minutes of trading. The blue chips managed to stay positive for the day after just a few minutes in the red late in the afternoon.

Jumping to our opinion section, there is a chance that the market showed us a very important non-confirmation on Monday, with the Dow making a trading high without any other indexes doing the same. Is it possible that the subtle top is in as of Monday morning? Well, the first test of this theory, a theory that the market has just espoused, comes on Tuesday morning when we see the CPI for April. We will have to wait and see but while we do here are few items for consideration…

The SP 500 index seems to have peaked on May 9th at 1513.80. Monday’s close at 1503.15 is about 10 points below that peak: did not confirm Dow’s move to a new high on Monday.

The NASDAQ Comp index seems to have peaked on May 7th at 2580.06 with Monday’s close of 2546.44 about 33 points lower. Comp did not confirm Dow’s new high.

NDX (NASDAQ 100) seems to have peaked on May 9th at 1909.30 about 20 points above Monday’s close of 1888.08. NDX failed to confirm Dow’s new high.

Furthermore, RUT (Russell 2000) seems to have peaked on May 9th at 836.99 which is 14 points above Monday’s close of 822.33. Not only that, the RUT has been the leader in this market for several years, and on Monday it closed below its February highs. This index has been substantially weaker than the others over the course of this last three months. RUT has failed to confirm the Dow’s Monday high.

You may recall our post on the evening of May 9th titled "Rally May Be Done".

There is one other item for your pleasure. One of the main reasons the Dow dropped so much back in February, you remember, over 400 points, was that the Chinese market had dropped about 9%. That day the Chinese index dropped from 284 to 259. As we write this tonight, the Chinese index is trading around 408. Doing the math, the move from 259 to 408 is roughly 57%.

So, one of the world’s major markets has climbed 57% in about three months. We consider that to be just a bit speculative, maybe a house of cards would be a better description. The Chinese market has the capability of stumbling very badly leading to another world wide collapse in stock prices over the next several months. We do not feel the need to stand in the way of that.

Before we go, let’s talk about the CPI. For the most part the market has signaled a high is in place so now we have to see whether or not it is paying attention to itself.

The world has learned that the “CORE” CPI is the only number that matters to the market when it comes to inflation. We note that a 0.2% upward move in that number has been accepted as tolerable to the market. The market would need to see something much higher than that in order to sell off on the news, because that would signal the Fed had the leeway to raise rates…

We are not in the inflation camp even though gas prices have gone through the roof recently. We stand firm on our position that the housing market will wring out any inflation that is out there. We stand in the camp of those who see a rate cut coming from the Fed sometime this year because the economy will evoke that kind of response by the Fed. The market may actually not like a rate cut when it comes because it might be too small or, as they say, too little, too late. But that is for another day.

This day, Tuesday, the market is at an important cross road in our opinion. The CPI figure stands to be greeted with a new market, one that may not take kindly to any number that is published. We expect the CPI to be contained at the “core” level to the 0.2% increase amount but now we await the market’s response. This should be interesting.

Dow Industrials: 13,346.78 +20.56
VIX: 13.96
HUI: 331.00
QQQQ: 46.46
QQQRS: 0.37 bid
QQQRT: 0.64 bid
RYVNX: 15.29
RYAIX: 20.52
RYCWX: 31.54
TLT: 87.96
BEGBX: 13.91

Sunday, May 13, 2007

Flat PPI Leads to Market Rally

Market Action:
Stock traders thought about what the Fed had said on Wednesday about inflation being the biggest concern on their minds and with the flat PPI decided that it was time to buy (this report was for "core" PPI with expectation of a 0.2% increase). After all, the correction was over, you remember, the one on Thursday. On top of that, retail sales were disappointing which should also be considered a bullish thing, just because the Fed can maybe, just maybe, lower rates soon.

Whatever the reason for the early up in stocks, it managed to carry for the day as the market went out on its highs for the day even though it didn’t manage to totally erase Thursday’s losses. That job looks to be for Monday morning based on the futures this evening, not to mention the huge move in Asia; Hong Kong is up over 2%.

Our opinion section has a hole in it this evening—there is not much to say about the market this evening. Monday’s trade will be important as we watch to see if last Wednesday’s highs can be broken to the upside. We obviously do not prefer that outcome based on our leveraged short position but it could happen. The market remains overbought and sentiment is running so bullish that no one can believe there will ever be a market correction again—huh?

News for the Upcoming week:
Wednesday—housing starts and building permits
Thursday—LEI, leading economic indicators
(This includes the stock market, so could be stronger than expected.)
Earnings news—Wal-Mart on Tuesday

Dow Industrials: 13,326.22 +111.09
VIX: 12.95
HUI: 337.84
QQQQ: 46.78
QQQRS: 0.30 bid
QQQRT: 0.51 bid
RYVNX: 15.12
RYAIX: 20.40
RYCWX: 31.61
TLT: 88.19
BEGBX: 13.94

Thursday, May 10, 2007

Down: Day 1

Market Action:
The stock market opened weaker, Tried to rally, but failed in that effort. The Dow dropped about 75 points in the first 15 minutes of trading only to be followed by buyers coming in to rally it. This rally only took the Dow back up a little ways such that the Dow was only down about 30 points an hour into the day.

From there, though, the market felt a little selling pressure and spent the next hour and a half dropping about 100 points. The Dow stabilized for the next few hours but sold off in the last hour to close about on the low of the day.

The reason for the early morning sell off? That would be reports out of some of the retail stores reporting much lower sales than expected, stores like Wal-Mart, JC Penney, and Kohl’s.

Another report on the trade deficit showed a larger increase there than was expected. We remind people (and economists) that the trade deficit is pretty easy to predict. Take the number of real days in the month and compare it to the days in the prior month. The number of days in March was 22 compared with February’s 20. That would be a 10% increase and we don’t know much about anything, except the price of oil is about the same over the period. How much was the increase??? 10.4%

Finally, a trading day that qualifies as not bullish, dare we say bearish, even.

One of the ideas we wanted to mention this week was the phenomenon of the day traders. They are called day traders because the only trade during the day, meaning when the market closes, they have no positions. If someone holds positions overnight, they are called swing traders and normally this is not the preferred strategy among “day traders”.

So, when there is an event of any kind that causes the market to gap down at the open, the day traders have little choice but to buy stocks for an eventual up move. On Thursday we saw something different. There was a wave of selling that came in right after the “day traders” got into their positions. No matter what a day trader needs to get out of whatever position they are in, so they became sellers during the day, too.

You can pretty much figure out where we stand on the market. We think this is a tell tale day that will lead to more selling. The market broke some key support but, yes, there are several more below us since the prices have gotten so high over the past month. We contend that those support areas will be broken.

We realize that Thursday’s move could be a day in the life of a big bull run but we think that this run is now more than just a little tired. Plus, Friday brings us the PPI which the market should be paying very close attention to, since the Fed doesn’t seem too concerned about the slowing economy but they are concerned about inflation. The expectations are for the loaded PPI (you know, the one with all the data included) to be up 0.6% and the PPI lite (the “core” PPI without food and energy, please) is only supposed to be up 0.2%.

We are not concerned about inflation here at the Update but we know the market is suddenly unsure of what is going on. That is where all of this will play out. The market will go down for what seems to be no reason at all, and in our minds that’s just the way it went up.

Gold/Mining Stocks:
Before we close our post this evening, we need to mention the precious metals complex. We have suggested that gold would drop into the $450 range with silver and mining stocks going down as well. Thursday marks a pretty strong break in this complex, with gold dropping about $15, leading us to conclude that the move down in probably official. This move comes in combination of the dollar going up for a while.

The HUI, a gold mining index we follow, dropped to 332 and we think it has the potential to drop another 20%. If this happens, we will have some great opportunities to buy the precious metals complex. Patience, as always.

Dow Industrials: 13,215.13 -147.74 (seriously?)
VIX: 13.60
HUI: 332.04 (down 10.17)
QQQQ: 46.19
QQQRS: 0.47 bid
QQQRT: 0.78 bid
RYVNX: 15.50
RYAIX: 20.64
RYCWX: 32.15
TLT: 88.50
BEGBX: 13.89

Wednesday, May 09, 2007

Rally May Be Done

Market Action:
CSCO was the headline for the opening on Wednesday as that stock started the market on a poor footing. To balance the negative CSCO news, an analyst upgraded IBM and that gave the bulls some fuel to hold prices fairly level for the Dow, but…

There was one other news item, that from TOL, Toll Brothers home builders. TOL said that it faces difficult conditions in most markets and they had to reduce their most recent forecasts. The Chief Executive Robert Toll said “Twenty months into this housing downturn, we continue to face difficult conditions in most of our markets”. Of course, as you know, Wall Street doesn’t hear news like that because they have already decided the housing problem is behind us.

The NASDAQ indexes started down and of course gradually worked their way back to even before the Fed’s announcement. From there, Wednesday’s action was dominated by the aftermath of the Fed’s non-decision on interest rates.

At first some selling came in but that lasted only about 5 minutes and then there was some nervous trading for about a half hour with the market moving around to find some place to trade. About a half hour after the decision, the market leaped ahead and closed up, not much, but up on the day.

You’re probably sick of hearing this but Wednesday’s action felt pretty weak to us. The volume was not out of the ordinary and we know that most traders were “worried” about the Fed’s decision and couldn’t really trade until after the announcement (are they kidding us?). But, given that we have come so far, so fast, we are more convinced than ever that the market is about to suffer some down days and they will occur very soon if not on Thursday.

One of the items is the way the VIX traded. When the index drops like it did today (it didn’t drop much) it means that options traders are moving away from put options meaning they have less fear of a drop in the market. We note that the VIX closed at 12.88 here at nearly 13,400 in the Dow and back in February, just before the big drop in the Dow, it was trading around 10. Back in those days, long ago, the Dow was down around 12,700 (did we say Down).

Our momentum indicators are telling us that the move has lost some strength. Looking at momentum indicators on any standard charting service (check BigCharts in the links on the left) at least shows a flattening of momentum which should lead to a roll over and down.

We have become so numb to this never ending up beat of the market that we have almost succumbed to these up days as being a way of life forever. It reminds us of the Minnesota winter that seemed to drag on and on, but even that came to an end and we had temps around 80 degrees here today. So to, the market will turn over and go down. We think the time is here and the time is now.

When the market turns, there will be a rush to the exits and prices will drop quickly. One of the biggest problems is that hedge funds have continued to buy up this market just because it is going up. They are mostly long and leveraged. With a downturn that lasts more than one day, they could easily all decide to get out. They don’t worry about what a company’s long term outlook is and they certainly don’t fall in love with their stocks and hold them till they die; they are only concerned about if the price is going up.

This is not the time to be investing in stocks. “Sell in May and Go Away.” This May brings you some of the highest prices ever, especially in large blue chip companies.

Dow Industrials: 13,362.87 +53.80 (record high)
VIX: 12.88
HUI: 342.21
QQQQ: 46.84
QQQRS: 0.32 bid
QQQRT: 0.53 bid
RYVNX: 15.01
RYAIX: 20.32
RYCWX: 31.46
TLT: 88.29
BEGBX: 13.95

Tuesday, May 08, 2007

Record Streak Ends on a Down 3 Point Day

Market Action:
The market opened lower on Tuesday as the overnight futures were down somewhat going into the session. HPQ, Hewlett Packard, decided to announce their earnings a bit early due to an error, they had inadvertently sent the news to a third party and thought they should get it to the rest of the world, too. The real earnings will be coming out next week so they’ll have a chance to move up on the news twice (oh that sarcasm). The news was pretty much in line with expectations but the stock moved up in early trading. After falling back with the broader market in the first hour, HPQ managed to rally to close slightly above where it opened, up about 2.75%.

The Dow actually traded down about 75 points in the early going but that was the low for the day. From there the rally started up again such that by the end of the day, the Dow could have closed up again but failed and ended down just 3 points.

CSCO brought its news to the market right after the closing bell and, while the news wasn’t great, it really wasn’t bad either. CSCO’s guidance for the next quarter wasn’t as strong as the company had said earlier and the stock didn’t trade well after that news. By the end of the after hours session, CSCO was down nearly 6%, pulling down the overnight NASDAQ 100 futures. We’ll see if that means anything when stocks open on Wednesday. There is that pesky little news from the Fed that everyone is concerned about.

The Fed news has caught the market’s attention and we expect that the news we get shortly after lunch will be “no change” and this will give the market cause for joy. Ok, maybe we’re a little cynical after this incredible run but we do think the market still wants to rally even though it is extremely tired and in need of a rest.

The news will not change the landscape of the market. We have seen this market go up for no reason at all and it will go down for the same reasons, just because it will. The mere fact that there has been virtually no selling for over a month, gives the market a good enough reason to trade down a little. You may think that a little drop of 75 points can take care of the current over bought condition. This is just simply not true. Anyone who wants to sell has been rewarded for not selling and those that don’t want to sell are even more complacent than ever—although our friend, the VIX, has not gone down much in this rally.

With the CSCO news now out and the Fed news coming out on Wednesday and with most of the earnings news out, there is little reason for the market to trade down this week. However, this is exactly the time that it can and probably will go down, at least a little. We hold to our contention that you should “sell in May and go away”.

[Editor’s note: We recommend a re-read of our last post, especially the real estate section.]

Dow Industrials: 13,309.07 -3.90 (really?)
VIX: 13.21
HUI: 341.39
QQQQ: 46.73
QQQRS: 0.39 bid
QQQRT: 0.64 bid
RYVNX: 15.10
RYAIX: 20.37
RYCWX: 31.73
TLT: 88.64
BEGBX: 13.97

Monday, May 07, 2007

Vacant Houses

Market Action:
The market probably shouldn’t have opened today, except for Alcoa (AA), the company that is buying another aluminum company, Alcan. Normally, this kind of move would put a bid under the company being bought, which it did, but it’s not supposed to put a bid under the company buying, but it did that. AA was up over 8% on the day and by itself giving the Dow nearly 25 points, about half of the total move. The trading for the rest of the market was pretty dull and the volume was light again, too.

The market seemed to be waiting for something on Monday and we think there are a few items it may be doing that. One is the earnings news expected out of CSCO on Tuesday and the other is the news out of the Fed on Wednesday. We think these two items are basically already known but the market is anticipating something else may happen, therefore the slowdown in trading on Monday.

There may be one other thing that the market is paying attention to and that is all of these big buyouts. Monday, AA proposed a buyout of Alcan and over the past few weeks we’ve seen some rather large companies in the news, like Dow Jones being bought out by Rupert Murdoch. Then this past weekend, Warren Buffet said he wants to buy a large company, in the neighborhood of $40 to $60 billion. We think all of this large company buyout talk is one reason for the Dow to be moving up, people anticipating which company will be bought out next.

As far as the Dow making yet another record high Monday, we continue to be amazed at the absence of sellers. We did note that not all stocks participated in Monday’s Dow advance. The NASDAQ Comp was down (the 100 was just slightly positive) and the RUT, the Russell 2000, ended lower. We realize that the market has done this type of thing before but we do think there is some reason for watching these signals.

The underlying strength of the market continues to wane and we keep watching it to see when the prices wane. We have held our breath far too long.

Real Estate, An ugly mess in housing:
We saw an article on CNN that gave us pause to reflect on what is going on in housing. The name of the article is “The ugly face of foreclosure” and maybe you saw it, too. The article mentioned the city of Cleveland and one of the neighborhoods, the Slavic Village—600 vacant and boarded up houses out of about 11,000. On some Pittsburg streets, every fifth or sixth house is boarded up. The article went on to say that some vacant houses are broken into and the copper plumbing is stolen and sometimes the aluminum siding is striped, both to be sold.

More from the article: Cities are having trouble fighting off problems because foreclosures cause tax collections to suffer. Now with home prices declining, home owners are requesting changes to their assessments, reducing them, so that tax collections are lower. This reduces the cities’ revenues and their ability to help these neighborhoods.

This real estate problem is not going away and is only getting worse. The economy will not be able to withstand the ultimate price that housing will extract from it without a recession or more. We admit that the timing of the effect on the market has eluded us but the event has only gotten closer, and the market advance has Not diminished it.

When someone says the government should bail out the poor people who have been taken advantage of by the subprime brokers or appraisers or bankers, we wonder why this was allowed to happen in the first place. If we can assess this problem building in front of our eyes, why did the Fed let this happen? Our simple answer is they were afraid to have a recession. They have tried to convince us, and maybe even themselves, that the business cycle is dead, meaning that we didn’t really have to have recessions anymore.

Easy credit is a way to postpone a recession and that’s exactly what has happened. Look what’s happened to the easy credit—foreclosures and the destruction of several neighborhoods in the country. What they have done is set us up for this devastating depression that is going on in the neighborhoods of many cities in the country.

This is not going to end pleasantly.

Dow Industrials: 13,312.97 +48.35
VIX: 13.15
HUI: 346.24
QQQQ: 46.63
QQQRS: 0.39 bid
QQQRT: 0.64 bid
RYVNX: 15.16
RYAIX: 20.41
RYCWX: 31.73
TLT: 88.84
BEGBX: 13.99

Sunday, May 06, 2007

April Jobs' Report Produces a Yawn

April Jobs’ Report:
The jobs’ report showed a low 88K jobs added compared to an expected, also low, 100K. This is the lowest increase in over two years and, to us, represents the underlying weakness in the economy coupled with the weak housing market.

March’s jobs’ number was revised slightly down by 3K at 177K. February’s number was right around the 90K mark so now we have had two months with jobs growth less than 100K this year. Don’t forget there is the other factor, the CES birth/death model, which tries to estimate the number of new jobs created by newly established firms (births). For April that number happened to be 317K which may be completely accurate but it does make one question the 88K number that was published.

This Week’s Fed Meeting:
The market certainly had a little thought in the back of its mind that the weak jobs’ report may encourage the Fed to be more giving, sooner rather than later, on the interest rate front. The jury is Not really out on this week’s interest rate move verdict. We are pretty convinced there will be no change in the fed funds interest rate this week.

Market Action:
The market’s reaction to the weak April jobs’ report was, as you might surmise, to buy stocks. The bond market seemed pleased with the modest job growth.

As the morning progressed, the major indexes we follow made new highs, which we have been expecting for about a week now. From the early Friday morning highs, the market sold off but not in the fashion we were looking for. And, there was the inevitable low created and then a little buying going into the close.

The Dow has now made 10 new record highs in the last 13 trading sessions. We are not exactly jumping for joy on this news. The market seems to have no trouble going up even with the underlying technicals not confirming the move.

News for the Upcoming Week:
Tuesday—Semiannual ISM forecast
Wednesday—FOMC meeting with interest rate decision
Thursday—Trade balance
Friday—Retail sales
Plus, first quarter earnings reports are still rolling in

Dow Industrials: 13,264.62 +23.24
VIX: 12.91
HUI: 345.91
QQQQ: 46.63
QQQRS: 0.40 bid
QQQRT: 0.65
RYVNX: 15.16
RYAIX: 20.41
RYCWX: 31.94
TLT: 88.60
BEGBX: 13.99

Thursday, May 03, 2007

Is This Pamplona?

Market Action:
Up another day and that’s even with the questionable earnings report from GM. Before the bell, GM reported that it had a 90% decline in first quarter profit, the reason? That would be mostly due to “housing market weakness”.

GM has a 49% stake in GMAC and that dragged down GM’s earnings. GM said it reflected a net loss of $115 million due to GMAC. Meanwhile GMAC announced a net loss of $305 million versus a profit of $495 million in the year ago period.

As you know, the market thinks the news is specific only to GM and that any housing related issues have already been discounted, to which we reply, fat chance. GM opened down on the day and just sold off the whole day, opening at 31.76 down from Wednesday’s close of 32.44, and closing down at 30.69, down over 5%.

Friday could be a make or break day for the Update. We have considered whether the market has a rational bone in its body and we need only to go back a couple of months to see a severe drop. It is the Update’s opinion that the stock market is ready to turn down and we have picked Friday morning’s jobs’ report to be the point of inflection.

With 22 of the last 25 days having up closings for the Dow, there is just a little bullishness, complacency and a huge amount of over bought. Yes, as the peaks fell back over the past month, it didn’t take long for buyers to come back in and push prices back up. Right now, we want to remind you of how the bottom fell out of the market only two months ago. There was little warning the day of the “subprime” meltdown. The rally we have been in currently has mesmerized the vast majority of traders but we think when the market turns, it will turn on a dime, much like it did back in late February.

We think that day is here and that Friday is it. The advance the last few days, with attendant Record Dow closes, met some sellers and has the potential to have run out of buyers. This is a drop kind of scenario with the major players, the hedge funds with all of their leverage (read that, borrowed money), ready to sell at a moment’s notice because they don’t fall in love with their positions, they trade them.

So, as we close for this Thursday and week, we are solemnly cautious and realize that the bulls could run Pamplona but on Friday they could easily be stopped by the bears. Time will be upon us very soon—good luck to all of you.

Dow Industrials: 13,241.38 +29.50
VIX: 13.09
HUI: 345.20
QQQQ: 46.59
QQQRS: 0.44
QQQRT: 0.68
RYVNX: 15.14
RYAIX: 20.40
RYCWX: 32.02
TLT: 88.24
BEGBX: 13.94

Wednesday, May 02, 2007

Subprime Downgraded?

Market Action:
The stock market jumped at the opening based on nothing that we could find???, as Fleck says, just because the market was open. Here again the Dow jumped to a new closing high and a new trading high during the day but the NASDAQ Comp and the SP 500 struggled to eke out just a bit higher close.

Opinion/ Analysis:
We’re not going to bore you tonight with details on how the market will trade over the next few days because we stand in amazement of the tenacity of this rally. We do think there is a chance that the jobs’ report can provide some structure to the top of this rally. For this info, though, we must wait.

The trading pattern of the past couple of days could indicate that a top is now in at today’s highs but we need to see some confirmation of this by having the Dow actually go down and break some of the support it has generated. We believe, but we have No official info on this, the bulls that are buying at the moment are mostly over leveraged hedge funds that can turn on a dime and go the other way and/or short sellers who are in need of covering. So, there is buying going on but are these long term stock holders???

So, we leave you this evening with our fingers crossed that the market has finally made a lasting high or will in the next couple of days going into the jobs’ report. The momentum has waned but the bullish sentiment continues and, to us, this is a recipe for an about face.

Real Estate:
We notice this evening that the WSJ has an article on the Subprime mortgage market. If you can find the article in Thursday’s paper, it is good reading for those of us that still feel that the real estate market will ultimately tip over the stock market. Anyway, the article, written by Serena Ng, talks about how in the last two weeks Moody’s has cut credit ratings on 30 bonds issued in 2006 that are backed by subprime mortgages.

The article says that more than half of the original ratings on the bonds were investment grade but have now been cut to junk status. When a bond is rated investment grade there is minimal expected risk The article says this:

"It's embarrassing for a ratings company to downgrade bonds so quickly" after the bonds were issued, said Paul Ullman, chief executive of HFH Group, a New York hedge fund active in the mortgage market. "It reflects poorly on all parties in the underwriting process and their judgment of the credit-worthiness of the bonds." May 3, 2007

We say, this real estate problem is Not over.

Dow Industrials: 13,211.88 +75.74 (yes, a new record)
VIX: 13.08
HUI: 341.76
QQQQ: 46.42
QQQRS: 0.47 bid
QQQRT: 0.73 bid
RYVNX: 15.23
RYAIX: 20.46
RYCWX: 32.18
TLT: 88.44
BEGBX: 13.99

Tuesday, May 01, 2007

Dow Shows Some Muscle

Market Action:
The indestructible Industrials, the Dow, that is, seems to have more energy in it as it continued its winning ways on Tuesday with another record closing high. The Dow component PG, Procter Gamble, reported strong earnings and guidance early and happened to be one of the few Dow stocks down on Tuesday. Go figure.

The broader market failed to enjoy the out performance of the Dow. The markets all had a good couple of hours to end the day higher but the Dow showed its independent strength. Even the Dow failed to best its high from Monday…

The position of the indexes is extremely important this evening and we are going to be cautious as the week progresses, as we look to that all important jobs’ report on Friday.

The volume was surprisingly strong on Tuesday which brings in our final requirement for a high. We like to see supply meeting demand at the top, heavy volume means there are buyers there but the sellers have decided to keep the lid on prices. Both trading days in May have exceeded 1.7 billion shares on the NYSE and the only day in April that had higher volume than these two days was options expiration Friday.

The market is in a highly critical point right now and it has Not resolved itself as of tonight and we are going to have to wait until it does.

Real Estate News:
On Tuesday pending homes sales were announced at down 4.9% which continues to show weak housing numbers. While the market seems to have deemed the real estate Problem to be behind us, it keeps nipping at our heels.

Dow Industrials: 13,136.14 +73.23 (new record closing high)
VIX: 13.51
HUI: 337.07
QQQQ: 46.12
QQQRS: 0.56 bid
QQQRT: 0.88 bid
RYVNX: 15.90
RYAIX: 20.63
RYCWX: 32.54
TLT: 88.49
BEGBX: 14.06