Thursday, September 04, 2008

Stocks In High Gear and Heading South

Top Line: With the market down on Thursday, we may finally be seeing the relentless down move (persistent selling) that we have been waiting for these last few weeks. Since Tuesday morning's blast off, the Dow has dropped 600 points with little intervening upside. Over the next few weeks we'll see how strong the bear is.

As the market was opening this morning, there was a gloom hanging over the street after weekly jobless claims came in higher than expected. Now, the number was up 15K from last week to 444K when expectations were to drop to 420K. Is that the reason for the 100 point drop in the Dow at the bell?

What we think is that these numbers have little to do with it, at all. The Bear is back and fear is taking hold. Please understand that the news in this period pretty much matches up with the way the market is trading...look for more "bad" news in the next few weeks.

Now that we finally have seen some downside, what's next? Well, we have our sights set on the July lows first and the NDX, NASDAQ 100, has a jump on the rest of the indexes we follow. This index being the first to make a closing low that is lower than the July closing lows gives us confidence that other indexes will follow suit.

The NASDAQ 100 is a good leader to the downside. Over the past few weeks, the Dow has held up better than most other indexes. Now, it is following the broader market lower.

We like to call the Dow the Headliner Index since that's the number that people hear on the news, as in the headline news. So, as the broader market is letting us know that the up move is over, the public is seeing the Dow Hold its own, no worries.

Right now, the public has now been brought into the "recognition" mode when they believe that stocks are going down and convinces them to sell. The market is now getting severely dangerous because the public is getting ready to sell.

The problem is always, when will the public decide to sell? The important thing is to be In Front of them. Either that, or just be prepared to buy when they are about done with their panic selling. We are a little ahead of ourselves (we think) but the time is going to be upon us suddenly and we need to be prepared.

The lows of the year are in jeopardy as we go into the next few weeks of trading. We will get some of the best prices of the last few years.

As the market opens on Friday morning, there will be an important news item, the jobs' report, to deal with. We don't think anything can change the selling that's building but the number could be a "reason" for the media to tell us why. We'll have to wait until after the numbers come out and the market's reaction to them before the media contorts the news to match the market.

Today, oil was down during the collapse of stock prices so what did the media do? Why, of course, they let us know that dropping oil prices are not good for stocks. So, now we're waiting for them to agree with the Update that they really don't have much to do with each other.

Let's get back to our comments about gold mining stocks last night. Today, the GDX fell hard and gave us an even better chance to buy but of course we are pretty loaded up on the short side and have little cash to be buying gold mining stocks. Again, we are hoping to get another chance in the next few weeks.

FSI: 77.40 (lowest close since April 17th the day before GOOG jumped 90 points)

VXO: 26.73 +3.58 (heading up to 50, spiked a little today)

SDS: 69.96 +3.85
QID: 46.99 +2.69

Dow Industrials: 11,188.23 -344.65

1 comment:

Anonymous said...

We received a question via email this morning about the "jobs' report" so we thought we'd share our answer:

There are two (core) numbers that come out on the first Friday of the month and both are considered to be part of the "jobs' report". The first is the number of jobs added in the month and the other is the unemployment rate. This morning's numbers were a continuation of the negative trend we've been seeing for all of 2008. There were 84K jobs lost last month (605K for the year so far) and the unemployment rate jumped to 6.1% from 5.7% last month (ouch). These numbers are not always consistent due to the way the unemployment rate is calculated but this is a big jump.