Wednesday, April 30, 2008

The Fed Moves

Top Line: So far, so good. The Fed dropped the funds rate by 25bps, yawn, and the market decided to sell off on the news, much as we expected. Of course, not as much as we wanted to see. Now there seems to be a little doubt. We still have about half cash in our portfolio waiting for another opportunity should it present itself. We still don't think there is much chance for the Dow to clear the 13K line.

Yes, the rally just after the Fed moved took the Dow up over that line briefly but from there is was a selloff that ended with the Dow closing at 12,820 nearly 200 points lower. This was not exactly a vote of confidence in the Fed. Now, the Fed is sort of stuck for a while on the funds rate front. The next meeting is a distant June 25th, nearly two whole months (What are we going to do?) and with their significant words of encouragement for the market they really shouldn't be tampering with rates before then.

Here is the pertinent New sentence in their short statement: "The substantial easing of monetary policy to date, combined with ongoing measures to foster market liquidity, should help to promote moderate growth over time and to mitigate risks to economic activity."

Some say this means the Fed will pause in their interest rate cutting campaign. We think the Fed is giving way to the fiscal "economic stimulus" package that is hitting bank accounts with a bit of cash over the next couple of months. Nevertheless, we do Not believe they are done cutting even though they would like to have us believe they are.

This morning the first quarter GDP was released and it showed a healthy??? gain of 0.6%. We say healthy because by all accounts it should be negative, all except the account that gets reported. The other news came from ADP. As we reported last night, there was an expectation of a negative number for jobs in the 60K range but the news indicated a 10K increase.

These two pieces of news combined to give the market room to go up and as we have mentioned that's what it did. Well, at least up until about 15 minutes after the Fed's announcement.

Kind of out in left field we heard that GM had lost over $3 billion last quarter. Apparently that was good news??? as the stock was up 10% on the day. GM had been up 15% right around the time of the Fed's announcement but sold off into the close like most other stocks. Still an up 10% day on a loss of $3 billion has to be called a screaming success; however, we don't recommend you try this at home.

We still wait for the Real jobs' report on Friday. In the mean time we will look for other selling opportunities.

FSI: 92.11 (GOOG helped keep this index up today, for speculation)

Tuesday, April 29, 2008

Ah, The Fed...

Top Line: Analysis is only as useful as it matches up to the reaction that Will Be happening right after 1:15 CDT on Wednesday. That's when the Fed announces its latest effort to give confidence to the markets. We have stepped into the short side of the market in anticipation of a possible drop in the market after their news. Our position anticipates that the Fed can't say anything that would move the Dow up much.

As everyone waits for the Fed, we think their past cuts of about 3% have done just about nothing, so waiting for another one seems pointless. There are other things the Fed has done to enhance liquidity in this "credit crisis" and, while we have lw confidence that what they are doing can save the world, we understand that they have had to do something.

Similarly, the government seems to think they need to do something, too. This is reasonable, too, given the severity of the situation. Recent reviews on Hope Now have Not been raving about success. Plus, foreclosures are increasing faster than anyone thought possible at the start of the government involvement. Yes, we know, they're from the government and they're here to help us. Right. We received an email from a loyal reader who shared this article on the subject. You are correct, CM, Ouch, mind boggling numbers...

In a followup to last night's post, where we started out by saying, "First" when we didn't say anything was "Second" because we really got down the path of real estate again. So, here tonight is, "Second"...

On Friday this week we get to hear about the job situation as reported by the BLS, yes, there is an L in the middle so as not to be confused with other abbreviations. That said, the forecast for jobs is to have another negative month, down 75K. On Wednesday we get to see the ADP report which is trying to get some credibility but, still, no one has really paid too much attention to this report. ADP is expected to show a 60K decline in jobs for the month which is close to the estimate for the "real" jobs' report.

We read that the US jobs may take another tumble over the next several months causing more downward spiraling of the mortgage defaults. This news comes right when the bulls are starting to believe in the rally. Well, we don't think there is much chance for the Dow to breach the 13K level and that will favor a downward descent very soon. But, first the Fed...

Speaking of highs in market indexes, we noticed the effort expended on Tuesday to get the market up but again the effort failed with an end of day selloff much like Monday. The difference is that the move wasn't quite as big. We're not sure why we should be paying much attention to these few hours of trading right before a Fed announcement but we try to see what the market has to say even if the Fed has something else to say. We wait...

FSI: 91.34 (another good day for speculation, nearing completion)
Jackson was asking whether Grampa really knew what he was talking kid.

Monday, April 28, 2008

Is It Time?

Top Line: There are too many ways for the market to go down and not enough for it to go up so we are going to proceed with, or at least start, our selling/short program on Tuesday. We look back to the highs set last Thursday for a guide and see that Monday's highs (that would be today's highs for us) managed a look at the underside of them but didn't actually get there. This is a bearish sign and the market took it that way as it sold off the last half hour of the day. Plus, the FSI is giving us a nice overbought signal.

We may be a little early, like we usually are, but we want to re-deploy some funds into the strength we have seen over the past several sessions. The Dow has stayed under that 13K level and doesn't look like it has the umph to make it over any time soon. What have we got to look forward to this week? Well, that would be quite a bit...

First, we have the FOMC meeting this week starting on Tuesday with their announcement of nirvana on Wednesday. Nirvana is not attainable but the FOMC would have us believe that their rate cuts over the past several months will do the trick when it comes to the credit crisis. What they won't tell us is that their method will ultimately fail due to lack of funds.

The situation is that the housing bust is big enough to engulf the entire economy of the world. While that sounds like an overstatement, let's pare it down a little to make it reasonable for public consumption. Analysts have been telling us that housing will bottom "soon" and everyone should be ready to buy at cheap prices. That talk has subsided recently as more and more realistic news has found its way to the headlines.

We would like to mention just a few points in the article since they are important to note.

1. Number of people 'definitely' not buying over next two years surges to 60%; one in four homeowners fear drop in home values.

2. Fully one in seven mortgage holders fear they won't be able to make their monthly payments on time over the next six months.

3. "So the value of your house goes down temporarily," he said. Unless the homeowner must sell now or can't afford the payments, "that doesn't have that much of an impact."

The last statement is the one that indicates the underlying bullish tone we have been talking about in the markets, real estate and the stock market. So what if the value of your house goes down, it will go back up later so don't worry...unless you can't afford the payments. Unbelievable. The person that said this needs to read the Update to get an idea of what housing means to the world.

We start again...Housing has represented the most important force in the economy of the US from 9-11, about when we sold our house, to 2006. This force is the ultimate in credit creation especially when loans were made without any money down and prices were moving up. This sort of generates its own liquidity as prices always go up. Right??? Not if prices go down like they have been doing.

As prices go up, there are speculators that come in and buy houses just to "make money" and they didn't want to have to deal with loan documentation. After all, they weren't going to be holding the house very long, just long enough to sell if for more than they paid for it. This technique worked pretty well in the stock market for a while and then it worked well in the residential real estate market for a while, too. Now what???

What is happening now is that people are generally pulling in their horns and are being forced to live within their means. This is almost impossible for many. We saw another article that emphasizes this point. We print the first couple of paragraphs for your pleasure:

From CNN Money: Jason Liebrecht used to write about his motorcycle adventures on his blog. But since early this month, the 36-year-old San Diego computer software engineer's daily musings have been about a less thrilling new experience: unemployment."Do I find a job, or do I head to Central and South America on the motorcycle?" he wrote on Day 4. By Day 7, he had become more realistic: "So far in the last week I've made $1,245 off of EBay sales. Mostly stuff I wasn't using, or don't need much. Nice way to clean the house up!"After selling some stock and applying for unemployment, Liebrecht figures he can pay his $2,300-a-month mortgage and other bills for just two months. When his company health insurance runs out in a few weeks, he'll go uncovered because he can't afford the premiums."You have to just hope you land on your feet," Liebrecht said in an interview.

Reality strikes when credit cards are at their limit and you have sold everything you have on Ebay. This type of behavior in the general public will slow most economic activity and drag the recession into reality. Just take a look around at what your circle of friends are doing. The trend seems to be that the things associated with real estate extravaganza, such as getting loans for declining residential mortgages, are no longer "Cool". With gas prices and food prices up, people are starting to value conservation and reducing debt. These are the things that cause the economy to plunge. In the long run, if we can get this credit psychology changed, the economy will be able to come out better but we don't think that will matter in the short run.

So, engulf the world, yes, we think it will. No matter what the Fed says on Wednesday, the mood will Not change. Even if the Fed lowers rates again, people aren't going to go out and borrow money or the banks/lending institutions will make that activity more difficult.

FSI: 90.19 (hey, look here back in the 90s)

And, then, there is Uncle Jason...

Sunday, April 27, 2008

How is the Dow Index Calculated?

Top Line: There seems to be an eerie calm in the air over Wall Street and that makes us nervous. The upcoming week contains several market moving opportunities being it's the end of the month what with the jobs' report due out on Friday. We think this will be a good week to get ourselves back on the short side.

To continue with that thought, the highs on Thursday held on Friday as MSFT tugged the indexes down. With the NASDAQ indexes being market cap weighted, MSFT dropping means a significant drag on them. As for its effect on the Dow, that's much less potent since the Dow is a price weighted index. Ok, we'll try to explain that...

The way the Dow is calculated is an "average" of the prices of all the Dow stocks. Just add up the prices of all 30 stocks and then divide by a number, called the divisor. That number reflects prior Dow stock splits. Let's say there are two stocks in the index and they are both 100. If we were to add them up, we would get 200 which we could call an index if we like. But, let's say that today's the day that one of them splits itself in two such that tomorrow it will be trading at 50, yes, there will be twice as many shares to the market value doesn't change.

Our index is a price weighted average but we don't want it to drop from 200 down to 150 in one day when nothing in particular happened. So, what we do is we change our divisor from 1 to whatever will make our new index the same as it was the day before, 200. One of our stocks is 100 and the other is now 50 and if we add that up we get 150. In order for us to divide by some number to get 200, we divide today's price by yesterday's to get the new divisor. 150 divided by 200 is 0.75 and now all we need to do is divide the new sum of 150 by 0.75 and we see that the index can still be 200, 150/0.75 is 200.

This calculation is the same way the Dow is calculated only with 30 stocks. We have shown you how the split calculation works but there is another time when the divisor changes. That time is when there is a change in the components of the Dow index. If they change out a stock and add a new one, they probably don't have the same price so a similar "rebalancing" would occur at that time. The calculation would be add the 30 stock prices up under both sets of components. Then a new divisor would be born and the process continues.

We are not too satisfied with the price weighted Dow index but that's the way it's been for as long as it has been in operation and our emotions will not be taken into account. Our problem with the method is not that it has to be market cap weighted because all of these stocks are large enough. Our problem is that they are not the same price level.

For example, PFE (there's our new friend, Pfizer) is trading right about 20 and IBM is trading just over 120. When PFE moves 10% it goes up 2 bucks but if IBM moves 10% it moves up 12 bucks. That 12 bucks is over half the weight of PFE in the total Dow index. Two 10% moves are definitely not equal in the index. With a divisor currently near 0.125 (you can find the real one in the WSJ, if you like) when a stock moves 1 point, the Dow moves 8 points, approximately. So, in our example, if PFE moves up 10% or $2, the Dow will move up about 16 points but if IBM moves up 10% or $12 the Dow will move up 96 points.

Getting back to MSFT's little move on Friday of 6% but only about 2 points, it only pushed the Dow down by about 16 points easily made up for by the other 29 stocks in the index. But, a 6% move in the largest NASDAQ stock by market cap will have a dramatic effect on the market cap weighted averages. Oh, you want to hear how that works, too? Here you go...

Market cap weighted indexes like the NASDAQ uses provides a different way to measure price movements. Each stock has a number of outstanding shares and a current price and that's how their market cap is calculated, shares outstanding times price. Then this number is added up and of course that is a huge number so it is normalized with a divisor. In this type of calculation a stock split doesn't affect the index because the market cap does not change if the stock splits.

Using this method gives much more weight to the larger companies in the index but that doesn't have much to do with your mutual fund unless the fund has a weighting of the stocks in the NASDAQ similar to the index's. So, there are problems with either method. But, as we mentioned about an hour ago above, a stock like MSFT has a significant impact on the NASDAQ indexes since the market value move of 6% is larger than many companies' total value.

Just a few comments about the market's potential this week. We are getting more bearish by the day and think the best situation is to get short again. We plan to do that this week and most likely prior to Friday. The best way to look at this is in the NDX, NASDAQ 100. The NDX has come up from around 1670 to 1940 last Thursday or 270 points, or over 15%. That is a solid countertrend move which could go further which is why we are keen observers this week.

Our position gets support from several sources with the most important being sentiment, bullish sentiment that is. Even our new copy of Barron's that came on Saturday shows a Bull sticking his toe into the water, as in "come on in, the water's fine". This type of confidence in the Bull returning gives us our first signs of a possible turn down.

Our biggest problem is that the next move down is going to be a dramatic affair and we don't want to miss it. So far we have seen a good down move from October but the next move down should make that pale in comparison.

What will drive this down move? It is possible that a decrease in oil prices will fuel (yes, we know it's a little weak but the pun was intended) a downdraft in oil stocks which in turn will drag the Dow and the rest of the market down.

Please check out the True Contrarian at the link to the left. He just, finally, updated his site tonight and he says something similar about oil and other commodities.

FSI: 88.82 (not much going on here on Friday)

Oh, yes, more pictures of our grandson, Jackson.

Jackson had a few shots and still had a couple of bandages on his thigh:

Sleeping in his swing is just the ticket:

Comfortable in Grampa's arm:

Thursday, April 24, 2008

MSFT Sets a Negative Tone for Friday

Top Line: Thursday's trading showed us that the market has not decided what to do just yet. Our position is that we are getting close to the top of this rally but we want to give it some room just because we haven't stopped hearing bearish analysis. We have thought the 13,000 level would contain this rally and, so far at least, it has.

Next week the market hears from the Fed again and the question on the minds of market participants is "Do they dare lower rates one more time?" Well, maybe that's not what they're asking but we thought it was kind of funny, at least. There is a firm belief that the Fed will lower the fed funds rate 25 bps to 2% and they will say that there won't be any more rate cuts until they can see what their prior moves have done for the world.

The world realizes that the Fed has done some dangerous things. The Fed is now trying to put on the brakes just a little, because of the government's "Economic Stimulus" package that is starting to mail out checks next week. Ok, seriously, they really don't know how to put the brakes on but they want to make the world think that they're exercising some restraint. And, actually, the market has taken note of this.

The response has been to kick gold down and, believe it or not, give the dollar a boost. We're not sure that the dollar can go straight up from here but we do think the dollar can rally from here. We mentioned the commodities, especially gold, have been coming back in from their large moves and that is in combination with the dollar's nascent rally. Yes, we know that a two day up move isn't a trend so maybe "rally" is a little strong, but the situation is enticing at the moment.

Back to the market action, out of the gate, the market headed down due to some earnings news as well as a few other news items. The announcement that new home sales took a dive was followed by the market going down. But, that was followed by a run up that took the Dow from being down about 60 around the 12,700 range, then and rallying almost 250 points, to being up around 180 near the 12,950 range. Then it sold off about 100 points into the close. Quite the wild ride indeed.

We found out what caused some of the concern on Wednesday night, that being the announcement from SBUX (Starbucks), in case you didn't hear. We have mentioned that SBUX should be a very good estimate of the consumer, why not stop drinking that expensive cup of coffee to cut down on expenses? At the moment we don't really need to mention the details of their poor news, we just have seen SBUX drop from 40 to today's 15 over the past 18 months or so. The afterhours market on Wednesday didn't like the news very much but on Thursday the news was deemed to be "company" specific and not really something for us to worry about.

After hours tonight we heard from MSFT and the market was a bit disappointed in their news. MSFT has had a good run up this past several weeks in anticipation of Great news, like Tony the Tiger, but the stock was hit for about 5% in after hours trading. What can we say? Not much...

FSI: 88.69 (GOOG is down but the others hold up the FSI today)

Wednesday, April 23, 2008

Shine Up That AAPL

Top Line: The stock market continues to struggle higher in the face of all kinds of bad news. Some consider this bullish but we just see it as typical trading in a corrective countertrend move. As the market goes up, or at least as some stocks go up, the world doesn't quite understand how it can. Pretty soon, they won't be asking how it can but will be buying just because it is going up. This day is fairly close at hand and we will try to be ready to pull the trigger.

We see that the futures are trading lower this evening on what we thought was a negative reaction to Apple's (AAPL) earnings report. That doesn't seem to be the reason as we see AAPL is not trading much lower than it did in the regular trading hours. AMZN is down, another of the Four Horsemen, or in our case the Fo(u)r Speculation Index.

We know it's Wednesday evening and we should be giving you a better Update post but there is a grandson in the our world who takes priority even over the Update...we will bring you more on Thursday evening.

In the mean time, we spotted this article yesterday and meant to provide the link to it but inadvertently left it out so here it is tonight. It's fairly lengthy but, being long time Update readers, the subject matter has been laid out in a very readable manner. The subject? That would be the failure of Triple A rated mortgage backed securities, better known to us as Subprime.

Please feel free to comment on the drug companies...we are looking for some good ideas. PFE is now trading under 20.

FSI: 88.49 (very little change here, in fact the geometric version was unchanged at 90.66)

Tuesday, April 22, 2008

Drugs Anyone?

Top Line: These are the days that are designed to confuse. With the market struggling to go up in here, days like today make the bearish case look better. We still think there is room on the upside.

You may recall the magic number 12,750 from several of our past posts. The Dow level of 12,750 seems important to the market because it has traded there several times in the past few months. Today, Tuesday, the Dow dropped below that level again and closed just under it at 12,720. What are the implications?

Our interpretation has been clouded over the past few days because we have seen a move that took the Dow up to just under 13,000 which is exactly the level we would like to see as the top of this move. Does that mean the Dow is done going up? That's the question we have to ask ourselves and on a day like today where the Dow drops below the key 12,750 level After trading near our target of 13,000...we think the probability is rising that the top is in for this move. We would like to see a move back up to that 12,900 level and then a failure to be sure but we can't always have what we want...does anyone hear Mick Jagger singing...but you get what you need.

The stock market should give us more clues that it has finished going up. With days like Tuesday, bears get some traction and that makes us think there is more room on the upside. You do remember that we are extreme contrarians, don't you?

The news is dismal but the market struggles higher. That defines the countertrend rally we happen to be in at the moment. The market is trying to shrug off the obvious and look over the Canyon to the upside on the other side. We want to give it ample room to go up. Anticipating the next down move too early may give us large bruises in our portfolio, like normal.

One odd item for your consideration: Fleck has made some comments on the drug companies and we solicit your comments, especially the readers from Evansville--especially on BMY, Bristol Myers Squibb. BMY has nearly a 6% dividend--any thoughts? The other ones are Eli Lilly (LLY at about 4%) and Pfizer (PFE at about 6%). These should be pretty good names especially with the baby boomers needing their drugs over the next couple of decades...

FSI: 88.96 (GOOG was up again and carried all three other stocks which were down)

Monday, April 21, 2008

Mortgage Problems in Our Backyard

Top Line: The best way to describe it is to say that the market is struggling to go up. Days like Friday, when GOOG provided some good fodder for traders, make the move look effortless. On other days, the market just can't make much progress. Such is the nature of countertrend moves and we just have to be patient.

Tonight's comments include our outlook on Treasury bonds, gold, and the stock market. First up is the T-bond market. For the last several months T-bonds have been sought after as a flight to safety dominated trading. More recently the Fed has been trading these safe bonds for less desirable mortgage backed securities in order to encourage lending. Has this worked? We don't think it has and neither does the government which is trying to get more involved in the mortgage market, too. For now, our position is that T-bonds have put in a top which will lead to a bit higher rates there. The intent is that corporate bonds and mortgage securities will be more sought after, at least for a while. If we get a large enough selloff in T-bonds there may be an opportunity there later.

Next up is gold and other precious metals and mining stocks. We still consider this sector to be in the beginning of a larger correction for commodities in general. We look at gold as being the quintessential (we like this word) commodity which describes the entire commodity world in a nutshell. Yes, oil is higher every day and it doesn't seem to be following gold but these things don't always top together. We see a drop in gold and an ultimate drop in oil and gas.

Last, is our favorite, the stock market. With the stock market suffering the ill effects of the drop from October to March, the current countertrend rally looks weak. Stocks seem to struggle most days but overall we have seen a large price move when looking at the March lows until now. It just doesn't Feel like a very good move. Part of that comes from the up spike we had from the lows that didn't make it look like a lot when measured from the close. Plus, the Dow didn't confirm the NASDAQ March low. Our position is that we want to get ready for the end of this up countertrend rally. The clues will be when we don't hear any bearish comments meaning the fear will have disappeared. That's when we'll try to get short again.

Tuesday brings us news on existing home sales. While it doesn't matter what they are, the market perceives the that the worst is behind us. One of the two large newspapers in town, the Star Tribune, has a three part series on a county that had a lot of real estate speculation a couple of years ago that has now come to roost. Sunday's article described the overall situation and today's (Monday's) article was about how speculators bought properties, several who were not in a good position to buy, and Tuesday's article is about how the communities had built roads, water and sewer, and schools in response to the home building. [sarcasm coming] But, Greenspan had no hand in causing any problems. Yicks.

Sorry, we got distracted there with a bolt from Greenspan's past. If you do happen to go look at one of those articles, you should be able to see Tuesday's article, too. It isn't up tonight or we would include the link here. [Here is the third part in the series on Wright County.]

The article on Monday described a family who met a couple of men at Perkins, one of the local eating establisments, to discuss a real estate venture over a good steak. The men laid out the plans for this family to purchase a $300,000 home that would provide rental income and provide 8% return for what they thought was guaranteed for life or at least long enough to make a few bucks. To sweeten the deal, the men said that for every house they purchased they would give the family $5,000 so "How many would you like?" The deal is $24K of appreciation, rental income that would pay the mortgage, and $5,000 Per house. How could this possibly be a bad deal? "I'll take four." Four, you say, well in that case we'll have to apply for four mortgages at different mortgage brokers at the same time so they won't know we're trying to buy four houses. And all four mortgages were granted...Wow.

Ok, the mortgage problem is not ours but it is sort of in our backyard.

FSI: 88.59 (an up day even after Friday's 13%+ move)

Sunday, April 20, 2008

Market Up on GOOG News

Top Line: The stock market has undergone an amazing metamorphosis with a down move being reversed to up over the last few trading sessions. We think the up move still has a ways to go but we don't have any long positions due to this being what should be only a countertrend rally.

The Asain markets and our own futures are up this evening with confident expectations for a rally in the US on Monday morning. With confidence growing out of pessimism, we are waiting until the last of the new bears has turned into a bull.

In the early stages of a turn there are many who think the last move is just about to re-emerge. In this case they sell the rallies keeping the early stages of the rally from going too far. Finally, when the downturn just never comes, these new bears will start to think bullish thoughts again. This may be due to the fact that they have sold all they can sell. The upswing can then get into gear with fewer sellers around. Soon, we will be reading only about very bullish things and it is then that we will want to begin our quest for shorting again.

As for Friday's trading, GOOG did spark a big rally on Wall Street and was up about 20% all by itself. GOOG makes up part of our own FSI and managed to push that index up 13% with a little help from the other three components, AAPL, AMZN, and RIMM, all up on the day. Even with this big move the FSI is still down 17% on the year. The NDX, NASDAQ 100, got a little help from GOOG and its friends and managed a 3%+ up move, too.

In the news, we still hear a lot about the way the government is getting involved with the "mortgage crisis". Not that we think this is old news, we think it is the real story but the market is currently thinking that something is being done about it, even if it has to be the government doing it. Our concern is that the government is getting the taxpayers involved and that will eventually become the market's concern. That is an issue for another day. The other part of our concern is that the Fed has tried to do too much and will become a ward of the government, too, before this is all over.

So, how there can actually be bulls out there is beyond our comprehension but the market is moving up on the latest money being generated by the powers that be, namely the Fed in this instance. We have mentioned on several occasions that the Fed doesn't have enough money to handle the current problem which is one reason the government has felt compelled to get involved. For now, though, the world perceives that the Fed's injections are good enough. Well, they are being put to good use (yes, sarcasm) by pushing stock prices up.

We are quite convinced that the latest up move we are seeing is only a short term party. The real market will be growling soon enough. For now, we are glad to have stepped aside to allow the bull to pass harmlessly through our cape. We have no intention of killing the bullish move because it isn't a real bull...ok, this analogy is getting old.

FSI: 87.76 (big move on the back of GOOG's 20% day)

Thursday, April 17, 2008

GOOG Has a Good Quarter

Top Line: As the market closed on Thursday, GOOG announced their earnings and caused quite a move in its stock price. After closing the regular session down about 5 to about 450, GOOG jumped to 525 on the news. This move is likely to carry over to trading on Friday so that will continue the up move at least until morning.

For the trading day, there was not much going on at all. After Wednesday's giant move, it seemed that the traders were tired and just wanting to get the day over with. Then came GOOG's news and away we went again.

The Dow closed at 12,620 on Thursday and from the looks of the overnight futures there could be some upward movement in the morning. We have been talking about the 12,750 area saying that it holds the potential to resist the upward move. A move through 12,750 could get us back to the 13,000 level, a very interesting place for the Dow to be.

The 12,750 level has been a critical point for the Dow for several months now and you can check that on at the link on the left. Take a look at a one year chart of the Dow, symbol INDU. Draw a line right at 12,750 and see where the market has bounced off of that line both from the top and the bottom. This type of technical action is real.

We were getting a little concerned that this counter trend rally was already over but with trading since Tuesday afternoon we feel much better. With a rally in the works, we now need to find a good entry point for the next move down which should be a strong move.

For now, we will just watch and wait.

Yes, there was some news today, but we are more interested in the news from the market itself.

FSI: 77.37 (this may change on Friday if GOOG's price move can hold)

Wednesday, April 16, 2008

And The Nile It Is, Denial, That Is

Top Line: Wednesday brought a little rally, one that we hoped would show up sometime soon. Now the Dow is above the point when we heard about the GE miss last Friday. Can it go higher? That's a very good question and we think the answer is "not much". The Dow should have difficulty with the 12,750 area which you might be able to consider is where we are tonight with the Dow trading as high as 12,625 today. What's a 125 points between friends?!?

Last night's news from INTC and US Bank helped ignite an intense fire in the overnight markets and then JP Morgan added more fuel to the fire. The increased CPI number didn't even get a passing glance in the stock market although the bond market did suffer an important loss on Wednesday. Then after the market closed it was IBM's turn as well as EBAY's and both were greeted favorably by the market. In Asian trading on Tuesday night (their Wednesday) there wasn't much enthusiasm for the INTC news but tonight's trading (their Thursday) is showing more buying as the Dow was up strongly.

Back to bonds: Treasury bonds broke through a trend channel on Wednesday, meaning it was going along nicely in an upward pattern with higher highs and higher lows but today it made a lower low. This could have a negative effect on the Treasury bond market if there is any followthrough. As we have mentioned here occasionally in the last couple of months, the Fed has desired this to happen but this break is not exactly what they had in mind.

This break in bonds was accompanied by the big stock rally which dragged money from the bond market to stocks. What the Fed wants is for credit to expand with the catalyst being lower corporate bond interest rates so companies will borrow money Or lower mortgage rates so people can get cheaper mortgages.

The problem with all of this thinking is that the bankers, or more appropriately the mortgage underwriters, have tightened up their standards for getting loans. Why not? There are so many foreclosures and defaults on mortgages that there are very few reasons to throw more cash at such investments. What's a Fed supposed to do?

So, here we are. The stock market has now made an effort to move higher, commodities are still screaming higher with oil at record highs, the Treasury bond market is lower. What do we do now? The stock market has some work to do on the upside if it really is going to convince anyone to get real bullish. The world has just seen a lot of bearishness and has recently was convinced the market was going to go down. Now, there is reasonable doubt in people's minds. Our opinion is the market wants to confuse as many participants as possible so it will go up some more.

And, so it goes, the market seemingly ignores the real economy as INTC and IBM have given the tech heads a reason to celebrate. Bad news? What bad news? The market action is trying to convince the world that the worst is over and the market is about to go to new highs. We think there will be worse news ahead but for now the market is happy to be in a river in Egypt--yes, denial, in case you were wondering.

FSI: 78.02 (not a very strong showing from the Horsemen)

Tuesday, April 15, 2008

INTC Gets a Boost From Earnings

Top Line: Well, the stock market may have some rally fight left in it after all. Right after the market closed its normal trading, INTC announced their earnings and, while they didn't knock the ball out of the park, the market thought the value of the stock needed to be increased so there was some buying interest. This gives us some breathing room on our latest forecast for an upward move that takes us into May. It's still iffy though.

As we looked at the early news on Tuesday, the PPI (producer price index) put up a monster number, 1.1% for the Month, on expectations of about 0.6%. This was enough to send the Treasury bond prices down but the stock market had other ideas, like not going down but then again not going up much either.

Why stocks should go up on PPI news like that is a question for you to figure out. We don't think the news drives stocks so much as stocks drive the news but this doesn't seem to satisfy many people. Granted, this is earnings season and we could have missed something but the PPI news was really the big news of the morning as far as we could tell.

Of course, that all seems to have changed with INTC's news afterhours. Several tech stocks were higher along with INTC which was up 7% by itself. The Asian markets are trading up on that news as well as some bank earnings reports, notably US Bank. So, all seems to be happy and nice for the market on Wednesday morning.

Our short term view continues to be that we will see a rally that will take up back up to 12,750. We have thought that the rally would go through that number but resistance there has been significant. Any time we get close to that level, the market backs off. We will revisit our position if the Dow chooses to move up toward that level. Right now, we think the immediate danger of a drop is limited, but...

Don't forget our longer term view that the market is headed for a protracted selloff whenever this latest rally decides to give out. We think this is down the road a ways so we aren't going to bother spending too much time on it, except to say that we need to be aware of the trade we are making. It's not a solid opportunity because it should be a corrective move which are always tough to trade anyway.

FSI: 76.07

Monday, April 14, 2008

Tax Day

Top Line: On Monday just before the market opened, Wachovia Bank brought more bad write off news for the market to deal with. There are lots of problems bubbling at the surface of the news and the bulls will say that it has not tanked the market. We have been proponents of a bit of a rally in here but it has definitely not been forthcoming. We are still holding out some hope...

We just want to make sure our position is clear, once again. Yes, we were trying to get cute with this rally idea knowing that the move is a corrective move in Front of what should be a major drop in the market. As we go through the next few days of trading, we are going to keep a very close eye on what could be a failure of this rally, what there is of it.

Our thought is that the next Down move will take out the March low on its way to a much lower level. With that said, we are going to close out this evening. The market is a dangerous place to be and we recommend a CASH position with possible reinvestment after we dive to new lows. Do you remember the adage, "Sell in May and go away"? We thought so...

We here in Minnesota are hearing about the possible merger of Delta and Northwest. That is probably the biggest news item, ok, here anyway. Do you need some reading material???

FSI: 76.47 (modest change along with the broader market)

Sunday, April 13, 2008

401(k) Loans

Top Line: Friday's market was not what you would call a reason to buy stocks. With GE's bomb just before the market opened, the stock market took a tailspin. Now, the question becomes what to do or what will the market do? The answer should be given to us sometime early during this week. We think the GE news is an indication of just how deep the financial pain is, not that it should surprise any of the Update readers. It's just that the surprises are to the downside and we are having a difficult time maintaining our rally trading stance. Hopefully, we can see a bounce after this big GE selloff so we can at least get short.

It's late on a Sunday evening, so we're going to just answer one quick question that we received late last week. A recent reader asked a question about borrowing some money from a 401(k) and was it a good time based on interest rates where they are now. So...we feel compelled to take a stab at this.

Here's what we think we know about the 401(k) loan, which is not a lot but more than some we suspect. Typically, you can borrow up to half of your balance with a max of about $50K the last time we checked. The normal terms are fixed payments at a fixed rate and a repayment period of five years. The payment is deducted from your payroll check.

If you no longer work at the company, you will most likely need to pay off the balance of the loan or, if you can't pay it off, take a "distribution" to pay off the loan. A distribution means the company would take money out of your account and pay off your loan--this is a taxable event with penalties.

The interesting thing about a "loan" from your 401(k) is that you are actually borrowing from your money. When you take this loan from yourself, the balance of your loan has to be in "cash" equivalents and not invested in other funds. The obvious reason is that the money is being taken out of your account and paid to you. Another way to look at this is the fund manager has to invest the cash fund and one way to do it is to loan it to you, instead of buying short term paper with it.

The bottom line is that your loan has a fixed rate of interest but the "cash" fund you're in is variable. What we mean is that you should earn interest on your balance. It's a little backwards but you get interest on the loan paid into your account. We don't know if this is really done but that's the way it's supposed to work. If you don't understand this, then please read the fine print of your loan so that you can find out just what you are getting yourself into...please.

There is the obvious rant that has to come from the Update on loans from your 401(k)...forgive us but we have to say this. We do not like the idea of taking loans from your 401(k). Yes, the rate is good and you have the money to borrow but, no, we just don't like the terms all that much...see above. So much of what we read is that people who have saved for retirement now are taking the money out to pay for living expenses. These are living expenses that were supposed to be in retirement, not at age 42. But, if you must borrow then at least know what you're getting into...

Ok, thanks for letting us say that. You wanted to know about interest rates on your loan. Well, we don't know for sure what will happen to rates but some of the great bond market fund managers suggest that Treasury bond yields are headed up. Who can blame them when rates are at incredible lows?

The short end of the curve, for loans shorter than five years for example, the rates have dropped on Treasury securities. From our standpoint, the short end of the curve will not be going up anytime soon, but the question is will the 401(k) loan interest rate go down any more?

We do not think the loan interest rate can go down very much for these loans due to the very low rates at the short end of the curve. The Fed just lowered rates to 2.25% on overnight funds and the lowest those have been is 1% this decade. So the most they can probably drop is back down to 1%, although we're not sure what the Fed might do. They could only lower them to 0% but the question is still what will happen to the 401(k) loan interest rate?

We think there is very little downside rate action on these types of loans. So, if you must borrow, this rate is near the lowest you will receive, in our humble opinion.

Reading material:
Gretchen Morgenson on HELOCs (Home Equity Line of Credit) and Rate Auction Failure Fallout

FSI: 76.95 (still holding up pretty well)

Thursday, April 10, 2008

Market Struggling Higher

Top Line: The rally looked pretty good going into the afternoon but the market let much of it go before the close. The NDX (NASDAQ 100) did get up about 1.5% on the close and we would like to see a little more before its done. The Dow has been held down because of the proximity to the 12,750 line but here to we think that line may give way later in the month.

For now, we see very little reason to trade this market. The moves in both directions are weak and seem unsustainable. With the uncertainty built into countertrend moves in the first place, the market will try to confuse the most people during that period of time.

The market pretty much convinced everyone it wanted to go down with all the bad news about Bear Stearns and the dollar a few weeks back. The news did not really change all that much since then but the market has enjoyed a bounce even though it is currently a stalled bounce.

As we look to the near term future, there are very few options for investors. Traders who are willing to take a little risk can profit but should remain nimble and take profits quickly. We could be wrong, we all know we have been before, but we still think the next down move will literally wipe out many players and we do Not want to be around for that.

We have said that the news will continue to look bad and confuse those who have been convinced of a bear move. This has happened as the Dow has rallied about a thousand points with no real solidly bullish news to justify it. You may think the Bear Stearns buyout is bullish but it's only so because of the players involved, not because the news is very good.

The politicians would like us to believe that the world can be "fixed" but there can be no good fix that is not inordinately expensive. The problem can not easily be solved, there will be more pain and it will be spread around to all of us.

The best article of the day comes from one of our favorite reads, Glenn Beck. His latest contribution compares America to an alcoholic who needs a 12 step program. It's a good read if you haven't seen it.

FSI: 79.55 (not quite back to 80)

Wednesday, April 09, 2008

FSI Should Provide Some Direction

Top Line: The stock market continues to flag in here and we still think there should be another good sized rally before this upward correction is over. Of course, we do see the same weakness as you do so we are keeping an eye on the exits--even though we're not needing to sell holdings, just would like to get short if the opportunity presented itself. We don't think that time is now...

We have only a few items to share this evening. The first is that we wanted to remind you that we have a great tool for gauging the speculating community and that is our own FSI tracked at the bottom of every post going back several months. This index inspired by Jim Cramer the crazy guy on financial television who said the Four Horsemen were there for us. So, we have been tracking the four stocks in our index, the FSI.

Anyway, the importance of this index is its ability to tell us in technical terms whether the market is in danger of going down again. We try to teach that the strength of any move can be measured by how it looks compared to the last similar move. So, in the current case, the index has dropped all the way down to 78.48 (yes, sarcasm is traditional around here, you know that by now don't you?) from its recent high of a couple trading days ago at 80.36.

You can check for yourself, but the mid-March lows just under 70 (67.04 on March 10th to be exact) are quite a ways from here. If we approach those lows any time, we will be more interested in talking about more downside. In the meantime, with FSI holding up pretty well here, we don't think there is much concern for meaningful downside.

That is not to say there isn't ample room for the market to drop, it's just that the FSI, which is our Fo(u)r Speculation Index, has not given us much evidence. Other indicators should and are being consulted to make sure that we aren't putting all of our eggs in the FSI basket. We just want to let you know that you have a friend in the game and it's our FSI.

We have a couple of articles of interest this evening. The first come from one of our readers and is a light hearted look at whether the recent run up is a meaningful one or just a trading low. This comes from Market Watch with a little help from, check them out sometime. There is some funny stuff here.

The other article is a little more serious and has to do with the current economic conditions many are facing right now...and, we might add, into the future.

BTW, thanks for the comment Erick. The former Fed Chairman is astounding, and you are correct, that is not a good word in this context.

FSI: 78.48 (as we mentioned, not much to worry about)

Tuesday, April 08, 2008

Greenspan Comments From the Update and the WSJ

Top Line: Tuesday market brought sellers back with prices dropping right out of the chute after AMD's news from Monday evening and other news events. We continue to see weak moves in both directions, up and down, but we think the rally can continue. Tuesday's down move was weak much like the rally over the past few weeks has been which could give buyers some confidence.

We mentioned the Greenspan op-ed piece in our last post and Tuesday the WSJ printed an article centering on his chagrin about how people were starting to think of his "work". The former chairman had such glowing reviews when he was in office that he was called Maestro. Now, he is being relegated to the position of scapegoat for Causing the mortgage mess. How was he supposed to know what to do? It wasn't like he was Chairman of the World, just Chairman of the Fed...

Seriously, we think he really doesn't know that he was sort of at the financial wheel. His comments reflect that he didn't seem to think he had anything to do with either the tech bubble back in 1999 to 2000 or the real estate bubble that formed after that until 2005. What can the Chairman of the Federal Reserve Board do, anyway? That, unbelievably, seems to sum it up.

We have often cited here in these posts that the Fed watches the short T-bill rates to get its global positioning for the fed funds rates that it sets. This is the way Greenspan set rates, by letting the market decide for him what to do. This is not the way his predecessor, Paul Volcker went about business. Today Volcker is back to his inflation fighting tough talk from the early 80's and meanwhile, Greenspan says that the central banks of the world really don't have the ability to create bubbles. These two personalities are near opposites.

Without permission but with many thanks, we give you the WSJ's summary of Greenspan comments for your review (you can find them on page one of Tuesday's paper):


Decision making:
"Monetary policy is process based on probabilities. I don't remember a case when the process by which the decision making at the Federal Reserve failed. Events often did not proceed as we anticipated, but that resulted from a lack of foresight, not from a flawed decision-making process."

Low interest rates:
"I'm an old 19th-century liberal who is uncomfortable with low interest rates. My inner soul didn't feel comfortable."

"Omniscience is not given to us. There is no way to predict how innovative markets will develop. All you can do is set a general strategy. The choice is between a lightly or tightly regulated economy. The former is highly competitive, innovative, and dynamic -- but periodically visited by wrenching crises. The latter is more stable, but slower growing."

The housing bubble:
"I'm surprised it went as far as it did. I am having the same problem now with surging prices of oil and food. Are they bubbles?"

The role of adjustable-rate mortgages in the housing crisis:
"Adjustable-rate mortgages were the cheapest way they could finance home purchases. But if they were not available, home purchases arguably would have been financed with fixed-rate mortgages. There's no evidence of which I'm aware that says that price would be importantly less if adjustable-rate mortgages had been less."

Failure of market self-regulation:
"There were far more failures here than I expected. I've been chagrined at how badly some of the judgments of very sophisticated investors have been with respect to risks...It's all human psychology with which we're dealing, not institutions. The argument, therefore, is not to discard counterparty surveillance, but, essentially, to patch it back together."

His early disbelief at the surge in subprime lending:
"When in 2005 I first ran across the sharp spike in subprime-mortgage originations estimated by a private vendor, which was later confirmed, I said, "This makes no sense." Markets don't move that fast."

Can we add anything to this? Probably not...he has said it all. We see that his successor thinks a little more aggressively in that he actually thinks he can do something...we say "Bear-ly". We probably need to explain that we mean "Bear Stearnly" not barely.

FSI: 79.52 (the speculators had a tough day, too)

And then there was Jackson with his mom...the last time we saw him.

Monday, April 07, 2008

Weak Rally Exposed

Top Line: Here comes the question: Has the rally lost its umph? On a day like Monday, it sure feels like it. The market respects that 12,750 line in the Dow, at least for now. Maybe it's revving up for another run. More below...

The most important topic this evening is Monday's market action. The strength in the morning gave way to the selling in the afternoon. What was the Dow high you may ask? 12,732 would be the answer, just inches from the 12,750 line. The resistance there is strong as we have mentioned. This is a level the market has set as a line, not us.

The important information about Monday's trading, sometimes lost on the rest of the world, is the low volume. Here we are in the middle of a "rally" and the market is having trouble making believers out of anyone, at least in terms of actually buying stocks. There is a notion of Relief that can be felt but not a lot of buying conviction. Of course, that is also seen in the selloff at the end of the day, but confirmed by the light volume.

These are the times that are difficult to "feel" and analysis is more of an art as opposed to science--yes, technical analysis can be thought of as science don't you think? Ok, maybe it is some voodoo but the 12,750 line has stopped the advance so there is some validity to it, at least.

Seriously, the weakness in this advance is evident and under normal price corrections this move ranks at a level that could be considered complete. So, even though our best guess is that the market will continue to rally up to near 13,000, if only to fake out the technicians, we must consider that there is at least a possibility that the advance is over.

We are long term bearish and have gotten, as we have said before, cute about this advance. We really thought there would be a little more power to it but we may have to reconsider.

The first earnings news was delivered by Alcoa (AA), the company that normally has the first release of the season. The news from AA was not particularly good. Remember the backdrop of this company is commodities which have had a good run. AA said that other commodities (that would be oil) and competition were hampering its earnings.

Likewise, Advanced Micro Devices (AMD) didn't wow the street either with its pre-announcement news. AMD is a direct competitor with Intel (INTC) and INTC had pulled out the stops to compete with AMD over the past year. This may sound like good news for INTC but that may not be true, except that INTC may have garnered some market share. But, how big is that market now?

AMD said that revenues would probably not hit targets and they would not return to profitability like they said they might a while ago. And, by the way, they have decided to lay off 10% of their workforce in case you wondered what they were doing about their situation.

These two bits of news have put a drag on the overnight futures' trading and may actually lead to some selling in the morning. This selling got started late in Monday's real trading and has now continued into the evening futures.

Ok, yes, there were some news events in the last few days that need to be mentioned. We saw that Greenspan had bothered to offer an op-ed piece to the Financial Times but thought it was a pay site so we didn't share it last night. Tonight there may be a way for you to read it or at least a review of it. Ok, enough all ready.

FSI: 80.36 (up just a little but the 8 handle "looks" nice)

Thank heaven for little boys...

His Dad does Rule...

Sunday, April 06, 2008

And Monday It Is

Top Line: With the Friday jobs' report looking even worse than expected, the market decided not to worry about it at all. For its part, the Dow has done very little for the period Wednesday thru Friday last week but did not get very concerned about the drop in jobs. The news is that the worst "may" be over. Well, we'll see about that...

But, for the time being we agree that the market wants to go up, even the Dow with its own resistance line right here above us at 12,750. As we have said, this little line will be violated but it has been and should be strong resistance. if you look back over the past few months, this number has either been support or resistance on three or four separate occasions.

What does the week hold? Well, this will be a continuation of the quarterly earnings season but really the market has looked past all of the "past" problems, which is what earnings season is about and is looking ahead to brighter days. So, even as managements may be getting a little less cautious, but staying cautious enough, the traders are feeling the wind in their faces as the power boat revs up its engine.

The Sunday New York Times article from Gretchen Morgenson doesn't give us much new but it does provide further Main Stream Media attention being given to the mortgage issue.

This is where we will leave you this evening, even though we have more editoral comments about the world, tonight doesn't seem the best place to argue about the stock market countertrend rally. We don't know how far it will go but we are happy to be sitting it out...

FSI: 79.73 (speculators had a pretty good day on Friday)

What we do have for you is a few more grandson pics...we'll have more this week. We know that is the reason many of you have stopped by so here you go.

And one for SSP...

Thursday, April 03, 2008

Friday Brings the Jobs' Report

Top Line: Friday brings us our normal "beginning of the month" event, the jobs' report and pretty much whatever has happened the last few days will get gobbled up in the wake of that report. Our position remains that the Dow is in the midst of an upward correction that should take it, first over the hurdle of major resistance at 12,750, and then up to 13,000.

The jobs' report has never given the Update such a difficult time to handicap the event. The WSJ has a best estimate of a 50,000 loss in jobs and calls for a possible 70,000 loss of jobs. Earlier this week, ADP gave us a much brighter picture by saying that they saw an increase of 8,000 private sector jobs over the past month. Ok, 8K is not really "much brighter" but it is better than negative 70K.

As we know, these numbers will have some estimates for the birth/death model built into them but as we always say, it's not the number but the market's reaction to the number. That's where we seem to be having some difficulty this month. What can the market's reaction be?

Well, let's see, if the there is a higher number of jobs than expected, what would the market's choice be? Well, it might think that all the financial games that the Fed has played over the past several weeks/months will now pay off and we can go back into growth mode. You know what we really think about in, it won't happen; but, what will happen is not so much what the market thinks about. The market sometimes just wants to believe it may happen so we can get an up Day.

If the jobs picture is worse than expected, there could be some reason for concern on the market's part; but, again, it might still choose to believe that the world is now a better place and it is time to buy. This is the path that most do not understand, even though in the longer term it will settle out, in the short run it doesn't make much sense.

As you can see, we are at a loss and we are pretty sure the market doesn't know what to do either. Of course, when the number comes out and the market reacts, someone will say in the media that this was the expected outcome. Right, like anyone knows.

In the news, we see that the PTB (powers that be) were again gathered together to discuss the Bear Stearns bailout, or should we say the market bailout as did our beloved Chairman of the Fed in these words and as reported by the WSJ on Friday's front page:

Quoting from the WSJ: ...Mr. Bernanke agreed with a lawmaker who suggested the Fed rescued Wall Street more broadly.

"If you want to say we bailed out the market in general, I guess that's true," he said. "But we felt that was necessary in the interest of the American economy." He reiterated comments from a day earlier that the Fed doesn't expect to lose money on its $30 billion loan. J.P. Morgan has agreed to cover the first $1 billion in losses, if there are any.

Mr. Dimon said his bank "could not and would not have assumed the substantial risk" of buying Bear without the Fed's involvement.

End WSJ Quote.

These statements seem to lead to a lot of controversy about the actual value of Bear Stearns. Our questions are, "If the Fed didn't expect to lose money on the $30 billion, then why wasn't Bear Stearns able to dispose of these assets and why didn't JP Morgan not want to assume the Substantial risk?" And, "What is this necessity due to it being in the best interest of America?"

These are mostly rhetorical questions that have implied answers but truly what do they really think would have happened? We say, unfortunately we may find out in the next event.

FSI: 78.10 (even the speculators were waiting for the jobs' number)

Wednesday, April 02, 2008

Back to the 12,750 Line in the Dow

Top Line: The stock market is in a place where it needs to make another decision, does it go up through heavy resistance or not? We here at the Update are assuming it will decide to go up through it but the line of resistance is strong right here at 12,750.

The evening has gotten away from us but we should be focusing on the market's moves anyway. The Chairman of the Fed was speaking today, the market traded up and then couldn't hold on to those gains, ADP suggested that the Friday jobs' report may not be as bad as some fear, the Senate decided to try a bipartisan arrangement to aid housing, before the market opened Best Buy managed to put in a better number than expected, and RIMM gave the market good news after the close. Of these items, there is one that stands out tonight...the market's moves.

For those of you who have been reading this blog for a while, you may remember the 12,750 area in the Dow. We had used it as a ceiling over the past few months and it worked pretty well back then. Today, the Dow got it in its head to move up but that line represented strong resistance even though the Dow didn't quite get to it during was having trouble.

Our primary thought is that the market has put in a short term low that will give the Dow a bounce to rally it above the 13,000 line but we need to see the 12,750 line get taken out first. There are several players who are watching the same line. To make sure that we take a good run at it, the market decided to back up today and maybe it will take another run at it soon enough.

When we saw the large move on Tuesday on low volume, it looked to us like a finishing move rather than the start of something big, but we need to be Patient with this little correction. Any time the market corrects itself, either up or down, the direction is more of a waffle than a straight line. Still, there is a chance that Wednesday's highs will be the highs of this correction. If so, that could mean we drift around here, plus or minus a couple hundred points and then go lower. Right now, we need to wait and be Patient.

FSI: 78.30 (not much going on today)

Tuesday, April 01, 2008

Market Moves Up on April Fool's Cue

Top Line: With the rally on Tuesday, we can now say that the market is in the correction of the down move we saw since October. Our original estimate was that we would see the Dow challenge the 13,000 level. Right now we think that number should give the Dow some trouble but we will assess as we get closer to it.

There's really not much to say this evening, ok just joking on April Fool's evening. The stock market has found a way to go up and the bearishness is almost a memory. To be sure, it will be back before you know it but for now we will respect the current up move. The one problem with the move is the volume should have been a little stronger...

We repeat that the fundamentals don't really justify an uptrend but that doesn't stop the market in the short run. In the short run, the market got oversold and the public got a little bearish. Now, the market moves up a little and the world is scratching their collective head.

As we said, we are long term bearish but in the short run, we have to give the pass to the bulls. We couldn't dive in and go long but we did get out of our short positions last week, yes, a little later than we should have but we didn't have to endure this run up today.

There were some moves in the other markets that we should mention. First, the gold market was hit hard again on Tuesday as it was down nearly $40. Gold hit a high near $1,040 back on March 17th and now is down under $890. That's two weeks to drop about 15%. That's the way the commodities trade and we expect a further drop bringing it down a long ways. We are thinking that gold/silver or the mining stocks may present us a nice opportunity later in the year so we are keeping our eyes on it.

The Treasury bonds also got smashed with the long bond down nearly 2 points. This action is what the Fed has wanted to have happen for a while now. There are some buyers in the stock market, some sellers in gold and T bonds, and some interest in the US Dollar. Fed officials must be smiling. We recommend they enjoy the moment...there's more downside coming albeit a little while down the road.

FSI: 78.60 (solid performance from the speculating community)