Thursday, July 31, 2008

No Title Tonight???

Top Line: The stock market is giving a clinic on volatility and it has dropped about 20% over the past nine months but the VXO, volatility index, is about flat line. We expect a jolt of downside will get the VXO back into normal sinus rhythm. To translate that into, well, the best English we have, would be to say that the VXO will most likely jump up to a level that is more in line with the current conditions in the market. Yeah, you're right, that's not exactly English...

In our Top Line from yesterday's post, we mentioned that the NASDAQ was weaker than the blue chips. On Thursday the opposite was true, the NASDAQ was much stronger than the blue chips. When the market doesn't move together, there isn't enough buying power and we think that is bearish. By the end of the day

The month of August begins on Friday and we think it should be quite a month indeed. Friday morning we get the jobs' report and with that out of the way, the market then needs to wait until next week's FOMC meeting. After that, it should be ready to go down. We would not be surprised to see a decline before that because the market can surprise on the downside in a bear market.

As we mentioned in our last post, this should be a good time to follow some numbers especially the VXO, volatility index, so we can get an idea when some fear comes into the market. As the VXO goes up, it means that the premium on put options has increased. As people buy puts because they're scared, they will pay any amount of money and that is what pushes up the premium which in turn pushes up the VXO.

We have purchased two main assets that take advantage of the drop in the market. We have chosen the ProShares ETF's that are based on the SP500 and the QQQQ's (NASDAQ 100) dropping, so they go up when the SP500 and the QQQQ's (NASDAQ 100) go down. The SDS is the Ultra Short SP 500 and the QID is the Ultra Short QQQ. We have added the ProShares link on the left so that we can easily get to it.

We said we would include the Dow Industrials, too, so that is shown below, too.

Have a good weekend.

FSI: 80.78 (even with the NASDAQ hanging in there, the FSI fell 1%)
You didn't think we would stop showing this number, did you?

VXO: 24.67 +2.04 (Up means puts have more premium than yesterday)

SDS: 67.47 +1.76
QID: 43.94 +0.23

Dow Industrials: 11,378.02 -205.67

Oh, yeah, and we have a couple of Jackson pictures :-)

Sorry, Jeff but Jackson has such a good smile on this picture.

Wednesday, July 30, 2008

Squeezing the New Bears Again

Top Line: The stock market enjoyed another volatile day and ended to the up side. The NASDAQ indexes were much weaker than the blue chips, giving the impression of weak overall performance. The headliner Dow was up nearly 200 points to give the crowd another reason to think the Bottom is in. Right.

We would like to spend a little time on some diverse subjects. First is the topic of the Federal Reserve. This morning (Wednesday), the Fed announced that it would extend and enhance the auction facilities that it began back in the dark financial days surrounding the Bear Stearns bailout.

We went back to our March 11th post entitled, "Helicopter Ben Is At It Again", and reviewed the decision the Fed made to get into the mortgage business via the TSLF (Term Securities Lending Facility) which was supposed to be a temporary stop gap to the credit crisis. Today the Fed announced that it would extend that facility through January, 2009.

This announcement should be carefully considered by the investment community for what it is, continuing fear on the part of the Fed that the credit crisis is definitely Not over as so many would like to believe. The Fed believes it can shore up the entire contraction in credit by offering more money to the banks for their less than perfect assets. To us, this is big news and sets us up for the FOMC meeting next week. Oh, in case you were wondering, there will be no rate increase next week. We didn't think you were expecting one.

Second, we would like to discuss the bear market we are in. For those of you who like to pay attention to Elliott wave theory, there are some important patterns playing out in the major indexes that need to be discussed again. We have been in what could be described as an upward correction in the down move and have just today completed our positions for the next down move (we couldn't resist the great prices we saw in the pre-market trading).

The market may need to get past the jobs' report on Friday and the FOMC meeting next week in order to decline in a big way but there is little doubt in our mind that the market will experience a mad dash for the exits over the next few months. The Elliott wave pattern we are in, or going to be in very shortly, should be one of the strongest down moves you have seen since 2002. This rally phase is failing miserably and will lead to further selling just around the corner.

So, we can talk about trying to get short at the very top of this corrective up move but what is important to remember is that we don't want to be exposed to the stock markets of the world while they are going down. We think there will be few places to hide in the stock market over the next couple of months.

Third, the commodities are rolling over and because of this there will be a few sharp and violent up moves. Why? Well, because that's what happens when investments move up strongly for a long time, people get confident that the move will continue until the end of time, which of course it will. So, whenever there is a pullback in any formerly high flying asset, the people that were wishing they had bought in think they now are getting a bargain price for whatever they are buying. This can cause a violent up move because there are normally several people watching and when they see the up move start they jump in too. Later, they find out that the price came down for a reason and that is because it was going down.

Fourth, since we have now completed our purchases for the next down move, we need to set our attention on the timing of getting out and moving into something else. And, what should we be looking at to buy? And, how do we go about making such a move? We will explore these questions as we see what happens but we can tell you that we are already considering what we would like to do.

As for our purchases over the past couple of weeks, we made several transactions to try to get good prices but sometimes work gets in the way. Many times we like to see how the market is opening in the pre-market trading to get an idea of what to do. That's exactly what we did this morning. We saw the pop in the futures and decided to try for a purchase of QID below the market. We entered a limit order before we left for work this morning and it filled during the first run up in the hour after the market opened. The point is that we didn't have to chase the price up. We simply have waited patiently (ok maybe not that patiently) for an opportunity to complete our purchased and we think we got a good one. We will find out over the next few days whether we have acted too soon (wanna bet) or not.

Fifth, we want to remind you that this blog is an extension of what we are doing with our assets. Whether that's something you should be doing is up to You. We do not have a crystal ball and our thoughts and actions can change quickly as market conditions warrant. So, BE CAREFUL.

FSI: 81.57 ( a weak up day)

PS We think it is time to include a couple of items here at the bottom of each post. We think relevant information is the VXO close and our main two assets as well as the Dow Industrials just to keep track of things. So tomorrow evening is the end of July and we will add them.

Tuesday, July 29, 2008

Shaking the New Bears

Top Line: Well, that was a little more rally than what we would have liked but that's the way bear market rallies tend to be, Sharp and Violent. The NASDAQ has been slightly stronger than the blue chip indexes and, while we did switch to fully negative in our last post, we do like the action so that we can put the last of our funds to work.

The stock market does what it can to shake out the weak hands and Tuesday's rally brings that into clear focus. So what do you think? Did the news from Merrill Lynch (MER) that it was selling some assets for 20 cents on the dollar and that it was going to raise some capital, too, give you confidence in the company or the economy??? Or, how about the Case-Shiller home price index dropping 15.8% over the past year? Do you think that is bullish for stocks? And, do you feel confident about the new read on consumer confidence, the one that says it went up last month? What about the government taking over Fannie and Freddie paired up with a half trillion dollar budget deficit planned for the next fiscal year? This is the kind of day that the news just doesn't make much sense when put next to the stock market move. But wait, there was the news on the price of oil dropping $3 a barrel, could that be the trigger??? Somewhere in all of this the market decided it had to go up on Tuesday.

What does make sense is that the blue chips have sold off quite a bit recently and we had a snap back rally to shake the confidence of new bears. The dip below 11K was enough to create bears from thin air. The market is now in the process of testing their conviction to the short side. We seem to think the big picture is still pretty negative and the pattern in the stock prices is decidedly down.

The NASDAQ has been giving us some trouble and when the market moved down strongly on Monday we thought that the threat of higher prices there was severely reduced. With Tuesday's strong rally, there could still be a possibility of a little higher prices in the NASDAQ but with the overhead resistance on the blue chip indexes right above these prices, the NASDAQ probably can't move up much from here either.

What we mentioned a few posts ago was the jobs' report that is due out on Friday and how that might represent a good spot for the NASDAQ indexes to peak. We might have to drag that line out again this evening but we'll try not to mention it...not our best humor, we know.

We are in the period of time during the end of the month when we feel normal bullish tendencies in the market plus we have the jobs' report on Friday and next week we have the FOMC meeting to brighten the market mood. The Fed is in a difficult place right now but with oil easing and gold dropping a bit, the threat of rising inflation may seem to be fading in their minds. That may be enough for them to consider modifying their language in the announcement but the world still thinks that inflation is a problem. That train left the station a long time it's time for the deflation of the housing situation.

That will have to wait for tomorrow...

FSI: 81.03 (good up move but only about half of Monday's down move)

Monday, July 28, 2008

Blue Monday on the Street

Top Line: The stock market looks like it has begun its descent to the 2008 lows. We had given the benefit of the doubt to the NASDAQ but remained cautiously bearish. That position has been firmly established on Monday and we are now firmly bearish on the stock market.

Our cash position is still about 20% in our trading account and we will be completing our short positions with any rally attempt. While we would have liked to put that money to work this morning, we had other commitments that didn't allow us to take advantage of the situation that presented itself.

This evening, we are looking at the possibility of a little bit of a rally out of the lows which should give us the opportunity to complete our purchases. We probably won't be able to match the prices that were available on Monday morning but with a strong move down on the horizon, we should take advantage.

We are going to be doing Update lite for a few days while we watch this market decline develop so we solicit your questions or comments while we sort of wait for a low. If any trouble materializes with our position we will of course let you know but we are going to be looking at when to exit our current strategy and what to buy when we do.

We did notice that MER (Merrill Lynch) announced their plans to liquidate $30 billion worth of mortgage securities at a huge loss (20 cents on the dollar, ouch) And sell some stock to enhance their capital position. We're pretty sure that the world will now think that's the bottom of the mortgage problems...and so it goes.

FSI: 79.73 (very volatile indeed)

Sunday, July 27, 2008

Two More Banks Fail

Top Line: We have probably already started down to find the lows of 2008. Here at the Update, we think that the NASDAQ has a small possibility to rally for just a little while, maybe until the Friday morning jobs' report, but ultimately it will follow the blue chip indexes into the cellar.

While we think the NASDAQ can rally, the market may have other ideas, so we are cautiously bearish on the NASDAQ until it gets into gear on the downside...which should happen in a very, very short period of time. As we like to think, it's much better to be a little early (which we normally are) than to be just a little late. We try to get ahead of the move and then the media can figure out just why the market did what it did...good luck with that.

Last Friday the market enjoyed a bounce based on Juniper Networks' (JNPR) news on Thursday evening. So, here we have good earning's news from One company and the world is so much better. The members of our FSI index were particularly strong except for AMZN which was up 10% the day before.

So, trading was strong on the NASDAQ due to all the good fortune at JNPR. On the blue chip side there was a little more trouble. Our thought on the situation is that the blue chips have gone below the lows of March and are now struggling with that resistance. Once support levels are broken, they become areas of resistance. On the NASDAQ side, the March lows have not been violated which gives rise to the relative strength in those indexes.

On Friday evening after the close, the FDIC revealed that another two banks had failed and their assets were being taken over by Mutual of Omaha Bank. So far the world doesn't seem too concerned about US banks failing or the fact that the government is thinking about taking charge of the GSE's Fannie and Freddie. As long as the government is taking care of us, we don't have to worry. We hope you do not think this way.

Your homework assignment is this fine article from the NY Times.

The WSJ links we provide sometimes require more than just a quick link but we want to provide them to you in case you can read them. We see this evening that the Minneapolis bridge collapse is going to be mentioned in a front page article on Monday. The article describes the effect that less gasoline usage is having on highway funding. Isn't it ironic that higher gas prices mean there is less tax revenue? These are the unintended consequences.

Happy Trading...

FSI: 82.53 (bound to head down to the lows of 2008 shortly)

Thursday, July 24, 2008

This Turn Down Does Not Come With a Mint

Top Line: Thursday's trading showed that the rally we have seen for the past week or so is probably over. We think that rally will soon be completely erased as we head into a huge down move. The move today was strongly down and looks bearish...with more to come.

The stock market did indeed roll over (from our Tuesday Update) and found the Southerly direction to be the preferred one on Thursday. We added to our short positions by purchasing some SDS early in the day. Of course, at the end of the day today we wish we would have purchased more, much more. We are going to look for ways to complete our deployment of funds to the short side.

In yesterday's comment section, we received a question from CM about the possibilities for the SP500 index. So, tonight we will approach this subject with a little less rigor than we normally do with the Dow. The one thing we think is that the distance we travel down will ultimately correct the rally we have had since 1982 (yes, that's the year 1982) and that's a long way down from here. We're not going to get all the way down because we are in a corrective phase that should retrace about 61.8% of the rise. What was the rise?

Well, back in 1982, the SP500 was just under 200 and the high last October was over 1550. If we do the math, that's about a 1350 move and 61.8% move back down would be 835 points or about 715. That is a number that we most likely won't see for quite a while and we'll probably have a rally between here and there which we will want to trade. But, the ultimate low will come in the next few years and should test that 700ish number in the SP500.

To get back to your more immediate question, we thought maybe we should "guess" on the low for this upcoming move in the SP500. Let's be clear, we don't have a crystal ball and we will continue to advise you as we go down to that low; but, the move down into September or so should take the SP500 down to right around 1000. This move is a rough guess and we will refine it as we move forward.

Back to the action, we saw that AMZN did manage to hold up the NDX (unfortunately for QID) but that was just today. The next few months will bear down hard on all of the FSI components.

FSI: 80.40 (held up pretty well with AMZN's plus 10% move)

We finally were able to upload a couple of new pictures of Jackson...Yes. That horse he's riding is really a dog.

Did you ever see such a great smile?

Wednesday, July 23, 2008

Just Ahead of a Decline?

Top Line: With Wednesday's spike in the morning, the Update is starting to deploy funds on the short side. We talked about the QID we purchased last week and forgot to say that we had sold it so we have been mostly in cash for the last few days. Now, the task is to try to find good prices. For this down move that we expect, we are using two primary ETFs, QID and SDS.

After a slow start on Wednesday, the market got rolling about ten minutes into the day. The market just popped for about forty five minutes following Tuesday's late day run. Looking at the NDX, our favorite index, we can see a low point on Tuesday afternoon with about two hours to trade right around 1792. Compare that with Wednesday's spike high at 1865 about an hour into the day and you can see the move was over 70 points in three trading hours or almost 4%.

These are ideal times to take advantage of high prices to sell. Of course, for us and we're guessing you, these are in the middle of work hours which makes it difficult to think about trading. So, you have to "guess" the best place to enter your trades if you are trading the ETFs or guess at the best days to add to short funds like RYVNX or RYCWX. We can't really give you advice as to what to buy or sell but these are some good "short" type vehicles.

Vehicle plus today's closing price with the 52 week high:
QID (ETF based on the QQQQs) 44.27 57.75 (on March 9th)
SDS (ETF based on the SP500) 66.44 75.74 (on July 15th)
RYVNX (Fund based on NDX) 13.82 17.89 (on March 9th)
RYCWX (Fund based on Dow) 37.61 42.51 (on July 15th)

Do you see the pattern? The March lows in the NDX have not been broken to date but should be on this move. For the blue chip indexes, the financial stocks moved to a spike low on July 15th which should be broken but it may mean that other sectors will need to be responsible for going down.

If you are of the Long mind and really want to purchase something, you have the long term Treasury bond ETF, TLT. This fund has been trading near 90 again and has the potential to go back up to test the 52 week high near 98 over the next couple of months. Plus, you get a dividend along the way. The dividend is paid at the beginning of the month and amounts to about 4% per year. Total return could be about 10% for the period--not too bad.

FSI: 81.93 (back over 80 again with more strong action after the bell from AMZN)

Tuesday, July 22, 2008

Any More Upside???

Top Line: Market has fulfilled the price targets we have been anticipating. Now, we need to figure out what specific positions to add and when to add them. Since we here at the Update are generally a tad early on our calls (isn't that better than being a little late???), we will probably be early again with this sell but we think the market is about to roll over once again. We think the maximum potential move down right now is 9000 in the Dow which is significant indeed, but we are way ahead of ourselves...

The market got kicked down as the market opened on Tuesday from the AAPL news on Monday evening. Well, that and the American Express news which pushed the fantasy that things in the prime sector are doing ok. From there the buyers came in and pushed prices up to about even in the Dow where we traded in a narrow range until about an hour to go. Then the buyers came in to rally stocks strongly in the last hour.

A few weeks ago we said we would take a look at the Dow to see if it was higher than it was then. We don't like wasting time on this sort of thing but are happy to report that the market finally did turn up and give us a good rally since the Dow lows around the 15th. Since Then the Dow has rallied over 600 points and has vindicated our call, whew.

But now we are in a bit of a dilemma this evening because of the position of the market. We have been thinking, persistently, over the past three weeks (check the Top Lines in July) that the Dow would rally into this period of time. What now? Well, we think the rally maybe has some more room to go and we would like to sell into any big early morning strength.

The market has weathered the storms of some large earnings problems and by looking at some of the stunning rebounds in some of the financial stocks you could think the market is on pretty good ground. So, that is where we will start this evening.

Let's start with AIG. We have watched this stock with interest for many years and have found it to be a leading financial stock, meaning it leads the financials (lower in the recent case). When it comes to the stock market generally, the financials seem to lead so AIG has been a front runner to a certain degree. The rally in AIG has been breathtaking going from a low of 19.73 back on July 15, just a week ago, to today's close of 28.14. No matter how you cut it, that is a 40% up move in a Week. Wow. That brings us to tonight's main item, timing.

Stocks don't all bottom at the same time. It may very well be that the 19.73 price on AIG last week is the low for the move and we won't see lower prices on it until some time next year or the following year. We do think a pullback is in order for the financials but it may only be enough to test the lows set last week. Still had you purchased AIG near 20 last week, a 40% move in a week should be just what you wanted. Just remember that the 70 price may not occur again for a long, long time.

Our point is that AIG may have put in its low for the year last week and probably several other stocks did as well, particularly financial stocks. Generally speaking, the news on the financials has matched their performance during this move down from the May highs. Over the past week we have seen a nice corrective rally to relieve the oversold condition that had presented itself in early July.

As many of the stocks that produced that the low last week, some of them were actually at their year lows and will not be able to help put in the final low of 2008 in the averages which is coming over the next two months. While that sounds like we have a crystal ball, we don't; what we do have is a sense about the pattern of the market and an election in November. We think a low needs to happen in front of the election and then a rally going into the end of the year that may carry up until Spring 2009.

For now, we think the market is putting in a high which may have some more to go but we don't think there is very much. That is why we think further strength represents a good opportunity for us to move in the short direction. So, that is what we are going to be doing...adding short positions as rallies appear. Since the 2008 low will probably be involved in this move, we want to be flexible to be able to start thinking about what to do when that low arrives. If it's anything like the move we saw in the financials over the past week, we definitely want to be ready.

Let's not get ahead of ourselves, there is a possibility of huge downside in this next move and the warning signs for a Low are the least of our concern at this point. We will need to see some fear with this next move so that we know there is a serious low in place. Remember those volatility indexes VIX and VXO, they should be bottoming out here in the low 20's after pushing up to the 30's last week. Then get ready for a move up to significant highs near 50 which will be our guideline to get back into the long side...for now, let's stick with the next strong down move that is just around the corner.

FSI: 79.69 (actually up on the day after AAPL's crushing news on Monday)

Trying to add a couple of Jackson's pics but the site couldn't upload them so we'll try again tomorrow...sorry.

Monday, July 21, 2008

One AAPL Spoils the Whole Evening

Top Line: We have been looking to add some shorts this week anticipating a small rally. Stocks opened higher on Monday which gave us a small opportunity but we didn't take advantage of it. We do want to have these positions in place by the end of the week...

The big news on the market came after the bell on Monday when AAPL announced earnings and provided lower guidance. This gave AAPL a 10% haircut in after hours trading and brought other stocks down along with it. The article still has bullish undertones by saying that, "Apple has a reputation for conservative financial forecasts". Even so, several owners are now ex-owners...

The other news late in the day was from American Express, who said profit fell 37 percent as more consumers defaulted on loans according to the article. We have discussed CDSs here on occasion but we thought we would add just a few comments on them here. CDSs, or Credit Default Swaps, are derivatives that allow investors to, what we call, "get on" or "get off" the credit risk of any particular company's bonds. The price goes up when credit risk increases which is what the article says happened with the American Express CDSs. A CDS protects or insures the value of the bond. So, if you own a bond you can eliminate, or "get off", your credit risk by buying protection. Or, if you don't own the bonds but want to "get on" the risk because you are speculating that there will be an improvement, you sell a CDS.

We are trying to find an entry point for getting short on stocks this week and we are hoping that the news from AAPL tonight won't preclude us from getting good prices on our shorts. We think it's possible to get a rally out of this low on Tuesday morning.

FSI: 79.49 (still higher than April 17th)

FSI if calculated after hours: 76.66 (now this Is finally lower than the April 17th level)

The good news is that we do have some new pics of Jackson this evening, courtesy of his Mom, Danielle. Thank you, Danielle. Oh, you'll have to come back tomorrow to see another one :-)

Sunday, July 20, 2008

Monday, Oh Well

Top Line: We think the market will try one last little rally this week before we take the plunge to produce the 2008 lows. We should have a good selling opportunity this week.

Last Friday, a long time ago indeed, we had a divergent stock market with the financials and the techs going in opposite directions. With the GOOG news, the tech portion fell out of bed but the financials were doing much better.

As we take a look at a company like C (Citicorp), we see a low stuck in last Tuesday just around 14 and by Friday, C was trading over 20 before closing at 19.35. Let's look at another one, say AIG. Same time frame, Tuesday morning AIG traded down to 19.73 (oh man) and it closed on Friday at 25.07. As you see, both of these stocks are up over 25% in about three days. Of course, the GOOG's of the world didn't fare nearly as well. GOOG closed down nearly 10% on Friday.

The very problem we are concerned with this week is the differences in these two big sectors that we do like to keep our eye on. It's never easy but the divergence we saw on Friday raises the level of difficulty. We expect a fairly good rally that will lift both of these sectors and show the market has the ability to rally. But, the tech sector seems to have a little more upside to go compared to the financials which, as you can see above, have jumped over the past few days.

There are two articles of interest from the weekend. Once comes from James Grant who has an article in the WSJ this weekend entitled, "Why No Outrage?" This is a pay site as we have mentioned before but sometimes you can get it free so we post up the link for you.

The other article comes from Gretchen Morgenson of the NY Times. Her article highlights the debt position of a person who has gone over the edge with some difficulty of getting out of debt, "Given a Shovel, Americans Dig Deeper Into Debt ".

More Monday evening...

FSI: 80.45 (still above the April 17th price level)

Thursday, July 17, 2008

Did You Say You Like Volatility?

Top Line: Between the closing bell and fifteen minutes later the market had a metamorphosis that changed the day from very positive to very negative. GOOG announced and the market did not like it. NDX may have topped this afternoon but there is a good possibility we will see a little higher price in the Dow next week.

The stock market responded to Thursday's drop in oil prices, the third day of losses in oil. Oil is down $15 in the last three days and Gas is down over 40 cents in those same three days. Remember that the price of gas in the market will be reflected at the pump over a period of days depending on where you might be.

Anyway...the stock market enjoyed another positive trading day as oil dropped another $4 or so. We were a little surprised by the large up move overnight which carried into the early trading Thursday morning. We should say we expected a mildly negative day. We know that options expire on Friday (tomorrow or today for you) so some volatility is expected but we certainly weren't expecting a complete reversal right after the bell.

We have been planning to trade or hold the QIDs as the market goes into its next down leg so we were paying attention to them on this day because of the early morning strength and then the late day rally allowed us to purchase some of them at a pretty good price around 43.82 just before the close. We decided to only buy a small portion of the position we want to own just in case better prices come along, we want to have some "powder dry" as the saying goes.

QID trades opposite the QQQQs with a 2x leverage effect--meaning that if the QQQQs go down the QIDs go up by twice the percentage. So with the QQQQs up 30 cents on the day, the QIDs were down about 65 cents near the close. As we looked at the QID in afterhours trading we saw that it was not down at all and was actually up. We thought there was some mistake or it was a quote from the day before...ok it's irrational but we certainly couldn't believe the number so...

Then we checked to see what was going on and found out that GOOG had announced their earnings and the market did not approve and then MSFT announced and also disappointed. Both of these events have caused a stir in the after hours market. The QID closed the after hours trading session at 45.40 up sharply from our purchase price just a few minutes before the regular trading hours closed. What to do, oh, what to do? We like these types of problems. We'll see what the morning never knows.

In case you're interested, here's the web site for ProShares. It indicates the ETFs that are available. If you have questions, indicate in the comments section...Ok, back to the real work...

We wanted to continue our discussion from the last post about Elliott wave. The discussion ended abruptly as we were getting to the good stuff. We think that the first wave (wave one) of the third wave is in progress. This wave started at the 13,000 level in the Dow back in May. Since third waves are normally stronger and longer than the other waves, they subdivide more deliberately and they are easier to "see". We don't think it's going to be very easy to explain it but our position is that the market is now in the fourth wave of the first wave of the third wave, very complicated indeed but here's what it means...

Fourth waves in a down impulse move are actually up moves which is why we've been looking for a rally over the past few weeks. Now the question is, "When does the fourth wave end and the fifth wave, a strong down move again, begin?" Of course, there is another question, too, which is "How deep will the fifth wave take the Dow?" Based on the patten that has emerged through the first four waves we can "guess" how far the fifth wave can go.

Since the first wave (of the third wave) dropped from about 13,000 to about 12,400 or 600 points, one possibility is that the fifth wave will be the same amount or about 600 points. That would be measured from the Top of the fourth wave (of the third wave) which could have occurred today near 11,450 (we had mentioned 11,500 in our previous post as a possible top here). If that is the case, we expect the minimum drop to take us down to 600 points below that at 10,850. Now, that doesn't really seem reasonable since we just traded at that price on Tuesday morning. No, 10,850 does not seem like the appropriate target. So, is there another?

We expect that the fifth wave will try to compete with the third wave for price movement. Wave three started right around our old friend 12,750 and ended on Tuesday at 10,850 for about 1900 points, ouch. So, if the fifth wave tries to compete with it, then we could see that 1900 points from where ever the fourth wave ends which should be either today at 11,450 or next week around 11,500. That kind of move would take us down to 9,600 which really feels like a good place to put in a low. In fact, since the Elliott wave Rule is that the third wave can't be the shortest of waves one, three and five, it is possible for the fifth wave to actually be more than the third wave because the third is already more than the first. (It makes sense, just read it again.) We're getting ahead of ourselves just a little but we wanted to give you an idea where we were heading.

We also want to be clear that this move since May (Dow 13,000) is just the First wave of wave three. There are waves two through five to go After we get done with the first wave which will likely take us below 10,000 before October. Once that low gets recorded, Elliott wave says that we should get a second wave bounce that will retrace, at a normal minimum, 38.2% of the first wave. Taking these points into account, the first wave will have gone from 13,000 to, say, 9600 or about 3400 points. Taking 38.2% of 3400 gives us about 1300 points which would take the second wave back up to nearly 11,000 in the Dow. These are very rough estimates and will be refined as we go along. The next big question is, "What about wave three?"

Well, since we think corrective moves take a while and are very complicated, it will take some time to complete. Since wave one will have lasted from May to September (there's that theme again, sell in May and buy in September), or about five months, we expect the second wave to last a little less than that but it could extent. The big guess would be a second wave top around January (state of the union, maybe???).

Then comes wave three, the big kahuna. The timing of wave three should be 2009, yes, most of the year, with devastating percentage moves in many stocks. Again, remember that the third wave is usually the strongest and longest and if wave one was 3400 points, imagine what wave three will be. Estimates are dangerous at this point but a simple estimate would be a factor of 1.618 as a minimum move compared to wave one. That math is 5500 points. If the Dow moves back up to 11,000 in wave two then it will get cut in half in wave three down. We are well ahead of ourselves but wanted to give you a little roadmap for the future.

Take care and read the post again. This is good stuff...

FSI at the close of regular hours: 86.25
FSI at the close of extended trading: 81.31 (still higher than April 17th)

Wednesday, July 16, 2008

Major Tech Talk, But Necessary Talk

Top Line: Finally, we get a rally. This phase should last about a week. We're looking for about another 250 to 300 points in the Dow. That would be 11,500 or so. We'll keep you posted.

We don't really think it's necessary to go into the "reasons" for the rally that the media has presented to us. We want to jump right into the tech talk we mentioned in our last post. This is the time that the Elliott wave theory works pretty impulse move versus a corrective move. An impulse move develops over a five wave move. In a down impulse move, like we're in now, the first wave is down; the second wave is considered a corrective wave which in this case would be up; then the third wave, normally the strongest and longest move, is back down again; and then four is up and the final wave, wave five, is back down again.

The Elliott wave rules say that the third wave can Not be the shortest of the one, three and five wave and the top of the four wave can Not cross higher than the bottom of wave one. The other item is that this is also considered a fractal, meaning that the larger waves, called higher degree, look similar to the smaller waves at lower degrees. We're not sure we can get into too much detail but we'll walk through an example and you can get an idea what will happen going forward. Since the pattern has already opened up quite a bit of information for us, we can sort of deduce what the rest of the pattern will look like...yes, very interesting.

We are in the middle of an impulse move. We'll take a look at the Dow for an example. We could use the Dow or the SP500 or the NDX or many others but let's stick to the Dow for this exercise. We're trying to present Elliott wave in one post and this will not cover very much but should lead to some followup comments as the full down wave develops over the next few Years.

At its high back in October, the ninth to be exact, the Dow closed at 14,164. From there the Dow dropped into January (or March) and fell into the 11,650 range or about 2500 points. From there the Dow moved back up to just above the 13,000 level before starting another descent in May.

So, here's your test...what is wave one and when did it end? And, where are we now?

We're not always sure where we are in the Elliott wave pattern but sometimes it seems clearer especially after the fact. We think Wave One started back in October just over 14,000 and ended in January (for the Dow) near 11,650. That's when wave two, a more difficult corrective wave, started. The move back up to 13,000 represents the entire wave two. That means that we are now in the third wave. So, where are we in wave three???

As we mentioned, these are fractals and since the third wave is supposed to be the strongest and longest it should look like a five wave by itself. This is where it gets interesting Right Now. We are probably in wave one of wave three. When does it end? Well, tomorrow night we will take a look at this wave one which started back in May. Yes, it's a lot of info but it's good stuff...

Wednesday's big up move should leave the buyers a little tired for a few days but we should see the finishing touches to this up move sometime next week.

FSI: 86.55 (nice up move)

Tuesday, July 15, 2008

Bernanke Turn Around Tuesday???

Top Line: The stock market put in another low for the move on Tuesday. From there the buyers came in and gave us some upside excitement. The turn may have finally arrived. We think the market is in for a pretty good up move over the next ten days or so.

Before the market opened on Tuesday, there were a few things going on: first, the selloffs in the overseas markets; second, the ugly PPI news, of course the core rate was ok, right; third, was the news from GM that the company was cutting their dividend and cutting some employees' benefits and bonuses. Those items paled in comparison to the big event that was coming up after the opening, that being the big speech by the esteemed Chairman of the Federal Reserve, Ben Bernanke.

As the market opened, prices dropped for about a half hour such that the Dow dropped well over 200 points. At that point Bernanke gave us the bad news that we all know--inflation prospects were picking up and there is pressure on the economy. Wow, something totally unexpected...yes, sarcasm is still in our toolbox. Since Bernanke gave us the ok to think these things so the market decided to rally out of the obvious news.

There was another item, coming from the SEC. The SEC made some waves by suggesting that short selling should be curtailed in Fannie Mae and Freddie Mac. Of course, there was some intimation about short selling in general. Are we supposed to presume that short sellers are the reason these stocks went down??? We don't have an ax to grind but the idea that stock prices won't go down because you stop short selling is just plain ignorant.

Ok, let's get back to it...After the run up and with about an hour to go in the day, the market was sporting some hefty gains. The Dow was up about 65 points. Then, going into the close, the market sold off with the Dow ending down over 90 points. These days have been extremely volatile and trading is treacherous.

Then after the close, INTC announced positive results. What will Wednesday bring? We are sticking with our rally call but we have not seen one so far. As the Dow keeps dropping in what seems like slow torture people are getting a little nervous.

The stock market is in the late stages of the...well, we'll get to all of that tomorrow evening. We'll spend some time in our next post to do some tech talk, Elliott wave style. For a preview, we think we are in a devastating c wave that will last for a long time. There will be tradable bounces during this wave but, as we have seen, calling them are very tough...surprises are to the downside.

FSI: 83.38 (still dropping but well above the March lows)

We think that we need to start paying attention to a couple of other indicators and we'll bring those into our discussion tomorrow evening as well. For one, we'll keep track of at least one of the volatility indexes. If you have any others you might be interested in, please leave your ideas in the comment section.

And, we do apologize to those of you who come here for the pictures of Jackson--we don't have any new pics. We'll try to get more over the next few days.

Monday, July 14, 2008

Housing is Still a Big Problem

Top Line: The market seems to continue its slow slide which feels more like a water torture for the owners of stock. Our position remains that we should see a little rally to alleviate the completely oversold condition but that doesn't mean we aren't going to see more downside right on the back of that, we should. The market should drop about 20% more going into the month of September. If you do the math on that, 20% of 11,000 is 2200 points so let's round it off to 2000 which brings us down to the 9000 level or so.

On Monday morning, the stock market blasted off at the bell but that was the high tick of the day as the market fell for most of the session. There were some bursts of buying but they didn't last long as sellers continued to push prices down. The interesting thought is that the new owners tend to be more interested in picking a bottom than being long term investors so as they buy they want to sell for a quick gain. When that gain doesn't appear they sell to someone else who has the same idea.

As we mentioned in our last post, the powers that be tried to make some promises on Fannie and Freddie on Sunday evening; and, the stock market greeted that news with joy for all of one minute at the open on Monday. These GSEs are at the center of the mortgage problems that we are facing, it's not subprime. Subprime is so 2007. We now have subprime creep which means that Alt-A is having trouble, too. This resulted in the IndyMac failure late last week.

There are so many issues tied up in the mortgage mess so it's a good thing you have been following along with us over the past several Years. Contained??? Probably not. What is happening now is the socialization of the problem. All these problems are in the process of being taken under the wing of the government, as in, We the People. Last year we heard that the subprime would be contained, then we had that little challenge in Bear Stearns and now we see the need to help out the GSEs. The latest piece with IndyMac being taken over is that the FDIC is going to get involved, too. Remember the F stands for Federal and that also stands for We the People.

There was a non-mortgage related, well pretty much non-mortgage anyway, event on Monday and that was the buyout of Anheuser Busch by a European company at a huge price. This article is cleverly titled "This Bud's for EU". Ok, so it's not really about the real economy or the market but we thought it was at least comical.

On a more serious note, we wanted to recap our position on the housing market. We receive Barron's on Saturday and the most recent issue shows a roller-coaster on the front that is on the downslope but very near the bottom of that slope with a move up right after that. What the picture is supposed to convey is that the housing market is about to turn around. This is not going to happen and here are the reasons why not.

First, demand is weak. The buyers out there are looking to buy "cheap" houses and are looking for that great deal. If they decide to put an offer on a house, then they need to get financing. This is not a slam dunk like it was a couple of years ago which leads us to...

Second, lenders have tightened standards. Yes, there are still some investors who are providing money for home buyers but they are requiring very squeaky clean borrowers. Many mortgage bankers are going out of business, witness IndyMac, which translates to fewer loans being made.

Third, supply of homes on the market could be described as a glut. Whether a for sale sign is in front of a foreclosed house or the house of a desperate seller, there are a lot of houses on the market.

Fourth, the prices of homes are too high. Just because the first three have come 180 degrees (that's math speak for an about face) doesn't mean that prices shouldn't. Prices for homes have fallen, a lot in some areas, but the affordability is still in question. As we have heard, many people can't afford the houses they are in if they had to re qualify for a mortgage. The measuring stick is to compare the mortgage payment with the rent payment. In this case, the rent is not enough to pay for the mortgage payment--houses prices are too high. We know that this is not the case all over but that is the state of the market generally.

FSI: 84.45 (the lowest level since April 17th)

Sunday, July 13, 2008

Government Intervention Redux

Top Line: We do think that the market has finally put in a short term low on Friday. We're looking for a corrective rally that will get us out of this hugely oversold condition.

[Editor's note: Thursday evening our internet provider decided to drop us, ok, it was probably related to a storm that came through here. We apologize for missing the post.]

And, we would like to answer your question, Erick, but there won't be time to give you a full answer. So, let's give you some highlights and as we get into this rally phase we can discuss the possibilities of "history" repeating just before we get into the next decline.

The volatility indexes are based on the premium in put options. What makes a put have premium and what is premium? Well, if the market is going up, there is little incentive to buy puts and in fact it might be reasonable to sell them as an investment strategy. In either case, the value of the options is squeezed and therefore the premium is tiny. This action pushes the value of the volatility index down.

Your question has to do with buying puts Before a crash. What we are talking about is when the crashlike event is occurring and people have decided they Have to have puts because the market is going to zero. This is when the volatility indexes explode in price and they give us that very necessary information that puts are being purchased with no regard to price. When fear rules, we need to be selectively buying stocks. More as we approach those moments in September or thereabouts.

But, tonight there is a large news item out there that we must discuss...yes, you have already heard the news if you had the radio on but we do need to talk about the government getting involved we say Intervention Redux...

This move on a Sunday evening just before the Asian markets open is out of the same playbook that we saw when Bear Stearns was purchased by JP Morgan. Back then, we saw the Fed and the Government get involved to get the deal done. They were in the background guaranteeing the deal. This time, we're not so sure what's going on. We wonder what they are thinking when they get involved with the Fannie and Freddie mortgage situation.

We see that one of our favorite journalists has given us some editorial comments on the "bailout" so we'll give her a chance to present some of the important thoughts. Gretchen Morgenson from the NY Times gives us, "The Fannie and Freddie Fallout".

The news that the two GSEs would be "rescued" was greeted with a pop in the futures as they opened this evening. Now, will that hold as we get to the open in the morning? We kind of think it will as we have been calling for a trading low over the past couple of weeks. The main idea is that the market will have a sharp, some would say violent, up move that will last for a handfull of trading days.

One other "little" item that came out late last week was the news about the failure of IndyMac, yes, it's because of the mortgage market. This is a very large player that is now Out. The FDIC is now going to provide some guarantees for the depositors, not all of them will be made whole due to the limited amount that the FDIC covers.

FSI: 85.91 (Thursday's number was 87.88)

Wednesday, July 09, 2008

Wednesday's Update

Top Line: The trading on Wednesday did not look like a continuation of Tuesday's rally...oh no, much to the contrary. While it does Look bad, we are still holding out for higher prices in the next week or so.

There were a few issues we weren't able to get to last night so let's see if we can recap what needs to be done this evening. Let's start with CSCO from last night. John Chambers, CSCO's CEO, normally one of the most optimistic guys, decided to offer a little dimmer view of the world of electronics. This news could have been disregarded by the market but somehow we don't think it was. CSCO was down almost 6% on the day dragging the NASDAQ market down with it.

Alcoa (AA) started the earnings' season out on Tuesday evening after the close of trading and AA was able to "beat" the lowered estimates by just a bit. From our perspective, AA is a commodity producer and as such will not hold up in a sagging economy. The market opened the stock up about 7% or so but then sold it off to close down over 2%, with much of that related to the entire market getting sold.

Getting back to Wednesday's action, there was little upside on the day. The market tried to put on a brave face but as the day progressed selling continued. The biggest losers of the day were probably in the banking sector, again, as the KBW index was down nearly 6% on the day...yes, it was up big on Tuesday but down on Wednesday.

Still, there doesn't seem to be any real fear. A key gauge for fear is the volatility indexes which were up today but are well below where they should be given the way prices have dropped over the past month.

The volatility indexes go up based on how expensive put options are. The higher the price of the puts, the higher the volatility. What we see is a modest pick up in the indexes but if fear entered the market, then people would want to own puts at any price to protect their holdings or just to speculate on the "guaranteed" decline. That hasn't far. We expect to see much higher numbers in these indexes and then we will actually consider going long based on the bargains that may be available at that time.

We are going to put this post up now and wait until tomorrow's close to decide if Wednesday's selloff is worth paying more attention to or not. We don't think the market is in the right position to "crash" right now, so we don't see a huge selloff as the next move but the last two days have certainly been volatile. Maybe tomorrow we can talk about the Elliott wave positions that the market seems to be in at the moment...for now, they are a blueprint for much more downside ahead.

Late addition: As we are signing off for the evening, we noticed that the Asian markets have turned higher after opening lower on the back of Wall Street's down day. With that, the US futures market has gained some ground as well so Thursday could be another interesting day...

FSI: 87.78 (significant drop but holding above the last week's lows)

Tuesday, July 08, 2008

Bounce Should Continue

Top Line: The market gave us a pretty good bounce today and we think there is still a little room to go over the next week or so. Oil prices dropped another $5 today with the dollar up again.

The stock market traded on both sides of unchanged for most of the day even though the NDX, NASDAQ 100, seemed to be a little stronger than other indexes. With about two hours to go the buyers came in and pushed the indexes up to their highs of the day at the close. The Dow was up 150 points while the NASDAQ was up a larger percentage than that.

As you may recall we mentioned that the futures were down a bit as we were writing last night's post and that we were expecting a rally out of that.

Sorry...we lost our post again this evening.

Here are the articles we were commenting on when we lost it:

Bernanke calms markets by extending term lending facilities.

Pending US Home Resales down more than expected.

We expect more upside before this is over. More in our Wednesday post...

FSI: 90.42 (highest since June 25th)

Sorry about the spelling errors but we try to get concepts here not spelling. In last night's post we commented on the Cse's (government sponsored enterprises) and they are really GSE's.

Monday, July 07, 2008

Fannie Mae Getting Her Fannie Kicked

Top Line: Monday gave us another very volatile stock trading session with a jump at the open and then a fall into the afternoon but then a big rally after that and another fall into the close. These types of moves occur, we think, at times when the market really doesn't know what to do and could be ready for a short term change of pace. We still think the Dow will be higher in two weeks than now.

There is a large bear on the front of Barron's this week with the title "The Bear's Back"; and, there has been a lot of chatter about a 20% correction being a bear market. These types of obvious statements give us contrarians a real chill. With that big bear on the cover, Barron's does have an article that says something we thought seemed pretty reasonable. In his Streetwise column entitled "Falling Markets' Nastiest Habit", Michael Santoli reminds us that the "outsized focus last week on the Dow's reaching 'official' bear-market status with a 20% decline from a recent high is a bit like fixating on the moment that storm winds go from 73 to 74 mph to formally become a hurricane." [The link is a pay site but you may be able to read it or you can dig up this week's Barron's somewhere to read it, page 7.]

Monday's big news was a Lehman analyst's remarks about Fannie Mae and Freddie Mac. The analyst said the two Cse's (government sponsored enterprises) would need to add a total of $75 billion in capital. We're not really surprised by this news but several of the current owners of the two companies decided they didn't want to be anymore and sold their shares. These stocks closed down over 15% on Monday even after having been beaten down for the better part of the past year. The prices have dropped about 80% since the October highs and have both become the poster children of the mortgage disaster and this 20% correction, defining a bear market in some minds. These prices have not been seen since the mid-90s.

The focus here this evening is the potential for a stock market rally. As we write this evening, the Asian markets are getting hit to the tune of 3% and we speak of Hong Kong and Japan. In what appears to be a sympathy move, the US futures are fading into the darkness, too. Both the SP 500 and the NDX futures are down about 0.75% looking at fair value so there is the potential for a weak opening on Tuesday morning. That may finally bring us some buying.

On Monday morning, the price of oil dropped back under $140 which caused the bulls to come in and buy in the early morning; but, in the end, that was not enough to hold up the Dow. Oil did close down about $4 on the day. We think this may also finally be the beginning/continuation of the commodity sell off. Most think inflation is going to run wild and commodities will continue to be on fire. What do you think that means to the contrarian here? Correct, we are bearish most commodities. Gold has failed to get back up to $1000 even as oil has continued to move up even though that move has been more moderate lately. Meanwhile, the dollar continues to hold its own putting further downward pressure on the commodities, especially oil.

FSI: 88.10 (the speculation index has been firm for the past few sessions)

Sunday, July 06, 2008

New Week Ahead

Top Line: The stock market seems ready to proceed up for the next few weeks. After dropping for the past six weeks, the market has effectively increased the bearish sentiment. This bearish sentiment will not be rewarded in the short run and we think the market will advance. In case you are wondering about our "change of heart", we do not think this up move will last very long and it will be followed by another crushing down move.

After the long weekend, we can hardly remember what happened last week but we know the jobs' report was pretty much in line, the ECB (as we stated in our Thursday edit) raised interest rates by 25bps, and NVDA got hit without much damage to the rest of the market. These news bites did not hurt the dollar which rallied about a percent during the day, nor did the stock market take a dive with the Dow ending up about 70 points on the shortened trading day.

The blueprint we are following is that the stock market will have one of its normal bear market rallies. Normal bear market rallies can be recognized by their violence, meaning price moves are large. Unfortunately, the trend remains down and eventually the market goes down. It's just this type of action that gives the bulls another reason to hold on to their stocks.

Speaking of the bulls, we wanted to briefly mention a couple of thoughts this evening on trading. "Corrections" are sharp and don't seem to let up except for those moonshots in the preceeding paragraph. The bulls think the market will always come back so there is no reason to trade out of the current situaion. Ok, we maybe would concede that the market has come back but we are looking at a protracted bear market, one that will change diehard bulls into bears. In the meantime, these violent rallies keep the "hope" alive. We don't see a real good buying opportunity for a couple of years but there will be some decent ones over the net six months.

FSI: 86.83 (uptick signals an up move to come)

Wednesday, July 02, 2008

Market Ready for Fireworks?

Top Line: With the short trading day on Thursday and with the Fourth of July holiday on tap, there could be some fireworks on Wall Street. We still think we are very close to a low right now even though there is a possibility of a good sized drop at the opening on Thursday. We expect the Dow to be higher in two weeks than it is tonight. We'll check back in two weeks to see where we're at. We finally got that headline we have been waiting for, you know the one about how Now we have entered a bear market. Again, where were they in October??? These statements are not meant to "scare" people but that's what happens and This contrarian thinks it marks a trading low.

[Editor's note: With the holiday, the next post will be Sunday evening.]

The way the market closed on Monday, we thought maybe a rally would emerge today. Right. Well, at least it was interesting. With two hours left in the day, the Dow was about even on the day. At the end of the day it was down 166.

Then after hours, NVDA warned that their earnings were not going to be up to expectations. Their announcement came with the news that there were some technical problems with some of their chips for notebook computers. You can imagine that the market did not like that news very much and punched NVDA to the tune of 20% after that news.

So, what can happen in the morning? Well, the market could try to ignore the news because it doesn't apply to any other company except NVDA...yes, it's weak we know.

There are some other issues to deal with in the morning such as the decision by the Bank of England on their interest rates. The world worries about the dollar and oil so when the fantasy of the Bank of England raising rates is discussed the results are that the dollar will go down, oil will go up and the stock market will go down. This argument requires some reality. [Thursday morning update: It's the ECB (European Central Bank) not the Bank of England and they did raise rates by 25 bps so now we'll see what happens. The market pretty much expected this rate increase so the futures are not doing much after the announcement a few minutes ago. Of course NVDA is down 27% to 13.70 in pre-market trading.]

Yes, the other big news that actually could have some value is our own jobs' report. The numbers are expected to be job losses of about 60K but an improvement in the unemployment rate from 5.5% to 5.4%.

Have a great holiday weekend...see you next week.

FSI: 85.73 (a new low for the move)

Tuesday, July 01, 2008

Reversal Day?

Top Line: We missed a little on our call for the day on Tuesday with the Dow dropping hard in the morning and the NASDAQ dropping below last Friday's low. But, then the market turned around and finished up on the day. The NDX rallied nearly 1.5% after being down over 1%. Now we see what happens next. We think at least a pause in the decline has arrived. June was brutal and there are several bears out there who now, all of a sudden, think that the market will go down. Where were they in May?

We wanted to make another comment on the Jackson plus a couple from our last post. There comes a time in the life of an investor when you have been watching a stock or fund for a long time and you get to know that investment as well as anyone. You know the right time to buy and, more importantly, you know the time that you Should sell. This is where things get tough and greed sets in. You think it can go higher but alas you miss your opporunity. Then you tell yourself if it only comes back to where it was, Then you will sell.

The easiest thing to do is buy, but selling is tough. Selling high is tough because you always think you can get more for it...this is greed and has no place in your disciplined trading strategy. So, what you do is watch it go down and down and down some more until you think it will go to zero so you sell it. By the way, some stocks do go to zero.

Anyway back to the Jackson plus a couple bucks...AIG has fallen out of bed over the past year due to several factors. Unfortunately, this is a difficult situation from a trading perspective because the price hasn't been this low in a long time, more than ten years ago. With prices dropping like this on some major bellweather stocks like AIG and GM, you can easily push your thinking that the entire economy might experience something fairly bad.

If you think you want to buy one of those two stocks, you have to ask yourself what your risk tolerance level is. The largest percentage moves occur in the final stages of a down move. What that means is that if you buy a stock that has already dropped quite a bit, you have a great chance to lose a large percentage of you principal.

We advocate caution for the next couple of months until the market finds a more lasting bottom. AIG may have found its bottom but you don't know that until you see a bounce and then a retest of the last low. Then you can make a better guess as to whether you think the stock can move back up. In the mean time you don't want to try to "catch the falling knife".

The question has kind of spurred us to take a bit longer view of the market. We thought we would start by saying that the True Contrarian has issued another post today which is interesting reading. We subscribe to his daily service which is well thought out and calm. His analysis suggests that this is an election year which will lead to its own movements but that 2009 may be when the real bear shows up in the stock market.

And, thanks to CM for providing some additional info on SBUX. Starbucks (SBUX) said they would be closing and additional 500 corporate owned stores on top of the 100 they had originally planned. This is out of about 7000 stores. CM recalled our discussion on the company, saying that SBUX would be a good indicator of the state of the consumer and how willing they are to forgo their latte. As a side note, after their announcement the stock went up...of course.

FSI: 88.01 (big rally on the back of strong gains in three out of four components)

Oh, yeah, one more pic...