Sunday, November 30, 2008

And December Starts

Top Line: The stock market continues to drift higher. There will be setbacks, mostly to confuse the participants, but we think the market is headed higher.

Not much has happened since we last wrote except for moderately higher prices. Stocks were up strongly on Monday and continued to push higher the rest of the week. As stocks were moving up, skepticism remained that prices could continue higher. This is exactly the result we are looking for.

The news seems to be bad based on the way the media reports it. Check out this article from CNN Money. The news is that Black Friday's sales were higher than last year but the subtitle and the first paragraph are still showing negative thinking.

What should you do? There are going to be sharp pullbacks in the market so if you're still sitting on cash these selloffs will be opportunities to put it to work for you. If you are in already, as we are, these selloffs could be sharp and scary, but they should be buying opportunities not a reason to sell.

What are we looking for? The news should be tainted to the negative side especially in the early going of this rally. The Dow should move to 10,500 at a minimum sometime in the next six to nine months. Gold should attempt to cross back above the $1000 level. These are our two guiding lights.

Since we think the Dow should rise at a minimum of 20%, there will be several stocks that will move up strongly. The Gold moving up above $1000 means that we think the mining stocks will get back to the highs of last summer. They are way oversold and should make a major comeback as gold slides over the $1000 level.

The week before Thanksgiving gave you a great opportunity to buy some of those heavily sold technology stocks if that's the sector you like. Our own FSI put in a new low at 40.46 on Thursday November 20th. That day AAPL closed at 80.49 and AMZN closed at 35.03, there lows for the year. GOOG put in a new closing low on Monday the 24th at 257.44. These prices are compared to the closing highs of 199.83 for AAPL, 100.82 for AMZN, and 741.79 for GOOG.

The week before Thanksgiving contained a blowoff move in the Treasury bonds which managed to hold up into last Friday. We see this as a "terminal" move for the Treasury securities. There has been a tremendous flight to safety, that being the Treasury securities. If you look at the short T-bills, you will see rates that hardly make any sense at all. The one month bill is sitting at 0.036% and the three month bill is even lower at 0.030%. This means that players are more interested in getting their money back than getting any interest on it.

To us, that means the end of the flight to safety should be here. What does that mean? That means the stock market has some room to move and corporate bonds will make a comeback. The bonds with the most room to move up are those that are called junk bonds since they follow, or maybe lead, the stock market.

The lows in place from the week before Thanksgiving should hold. From there we just have to wait for the market to tell us when it wants us to get out. We are going back to our tells that have been keeping us in good stead, those being the Treasuries and the volatility indexes. We've already discussed the Treasuries so let's talk about the VXO. We think that the VXO has a long ways to drop. Yes, it's come down from 100 to 60 but we're probably headed for 30 or lower.

If we hadn't have been through the past two months and we told you the VXO was at 6o, you would say that it was a major buying opportunity. Well, that's what it is...a major buying opportunity, late for most securities, but still good.

Sunday, November 23, 2008

Being Thankful in 2008

Top Line: The stock market seems to have turned up (as we titled our last post, turn around Friday) and there are no more reasons to sit on the sidelines. There will be several major breathtaking pullbacks much like what we've seen over the past few months but these are to keep people thinking there is a bear market...these pullbacks should be bought.

[Editor's note: The Update will be taking the next week off. The last several weeks have been intense and interesting but we need a break. We will return for our regular post on Sunday evening next week, November 30th, for your reading pleasure on Monday morning December 1st. Have a great Thanksgiving week and remember to be thankful for something. We've all had a good year.]

Tonight as we write, the government has taken steps to bailout Citigroup. This move will back about $300 billion of toxic assets and provide another $20 billion in capital to the troubled bank. Here is a WSJ article that covers some of the highlights or you can find the article online somewhere like this article on CNN Money. It almost seems like just another bailout even though the numbers are staggering.

We are more than ready for a rally and we expect this one to last until sometime around the inauguration on January 20th. Maybe we should expect something similar to the election day rally that led to a 20% drop in the Dow but until then we expect a 30% plus rally to emerge.

In last Wednesday's post, we suggested that the President elect should show himself and that seems to be what he has done. Late in Friday's trading, news surfaced that the NY Fed Governor, Tim Geithner, was the choice for the post of Treasury Sec'y. To us, this is a good choice the little we know about him.

The market seemed to like the Treasury Sec'y news as it rallied about 500 points late Friday. We're not positive that was the reason but the timing was good. There was this matter of the Options' expiration that may have caused some of the up move.

The President elect also mentioned today that he was thinking about a $500 billion stimulus package scheduled for the next two years.

The trading on Friday highlighted the gold mining stocks with GDX jumping over 25% as gold jumped about $50. All of our positions had good gains and should continue to produce good gains until January sometime. The economy will continue to struggle but the market is looking past all of that right now. With all of the money being thrown at these problems, gold is probably telling us that inflation is coming back...Can you say, trillions of dollars of stimulus and bailouts or whatever you want to call them?

Thursday, November 20, 2008

Turn Around Friday???

Top Line: Another new low for the market on Thursday. For those of you sitting out there with cash, you aren't going to get much better prices than you can get right now.

Where we would like to start this evening is the Treasury bond market. There was an absolute melt up in the Treasury's today. The 30 year bond ended the day down 44 bps to 3.47%. This market is one of the largest and most heavily traded in the world and to see it move like this during a day is almost unprecedented. Just think about this for a minute...the 30 year Treasury bond moved almost a half a percent in one day. WOW.

What's wow about it is the government's insatiable desire for money would seem to Raise rates not cut them by nearly a half point in one day. All the deflationists out there must think this puts an exclamation mark on their argument. If 30 year Treasury bonds are only yielding 3.47%, then inflation is going to go down for 30 years!!! We would argue with them, at least for the next few months.

Ok, you all know that the stock market was down 444 points on Thursday so let's see if there is anything else we can discuss. After the market closed this evening, DELL announced their earnings that actually beat expectations although their revenues were lower than expected. This news surprised the market just as the news from HPQ did. The world doesn't really believe either of these two announcements...but here at the Update it's exactly that situation we have been waiting for. The public not believing any good news and selling everything. We think that this will be the inflection point in the market...Buy stocks Now.

The big downside leaders were financials, particularly Citigroup, which was hammered for another 25% today. This stock is under 5 bucks. This is just ridiculous. Why are people selling this stock for $5? Sellers just don't have any idea what they are doing. The Update is not recommending to buy it but what are these people thinking? Obviously, they are not thinking, this is totally irrational behavior.

The volatility indexes were up again today which makes sense based on the huge selloff but this is a good reason to buy as we have been saying for several days. Yes, we know you are tired of us saying it, but we are getting more and more bullish with every down tick in the market.

Today the volume in the market was pretty heavy which gives us more thoughts that the selling has very little left. Once the sellers are done selling, there will be some gap ups that will shatter the shorts in this market. All of the talk you hear about the hedge funds selling or de-leveraging as they call it is a nice story ,and may have been true a month or two or more ago, but the hedge funds are now trying to figure out how to make money. How do they do this? Could their strategy be shorting stocks since it's so Easy? That would make them have to Buy stocks in order to cover those shorts to push prices back up again. Think about it.

As we write, the Asian markets have begun to trade strongly up. The Hong Kong market, the Hang Seng index, started down about 3% and has now turned around and traded up 4.5%, and that is only the morning session, may be more in the afternoon session. The same thing is happening in Japan, with the Nikkei 225 starting down about 4% but is now trading up about 3%. (One thing is that the Nikkei had traded down under 7000 back in October and tonight it traded down to 7400.) The South Korean market opened down about 3% (but not quite to the October lows) and now is trading up nearly 7%. These are powerful reversals which could provide some 'round the globe upside on Friday. As it stands right now, the US futures market is up over 2%.

What else? Bottom line...we are about to see how fast the stock market can go up. There are so many depressing analysts out there that the public is going to stay away from the market for a long time...probably about a year from now when prices are back up to much higher levels. Our target for prices in the next few months is the 11K to 12K range. There are so many great values out there right now. Take a look at T, AA, DD, PFE, JPM as well as one of our favorite, the GDX. The market is tired of going down...

Wednesday, November 19, 2008

Dow Below 8000

Top Line: If you were looking for better prices, here you go. The Dow closed under 8000 for the first time since 2003 and close to the 2002 lows as well. The financials took a large hit today with Citigroup down over 20%, yes, today. All of this selling leaves the market extremely oversold...still waiting for a solid rally.

Wednesday the Big 3 were in Washington pleading for money from Congress. Apparently, they flew in on their private jets which seemed to anger the public. The public thinks all the employees at these auto companies make $75 a hour, which also distresses them. Barney Frank thinks that the employees at AIG make well over $75 an hour and no one was complaining about the government bailing them out, why should we bail out the Big 3.

We're not sure that the failure of these talks in Washington had a negative effect on Wall Street with the Dow dropping over 400 points. We're not exactly sure if Wall Street wants a bail out of the Big 3 or what. Maybe they want a government orchestrated Chapter XI bankruptcy. But, wait...

What we want is for someone to say, enough is enough. The world is waiting for something to Work, for all the money that is being thrown at the problems. And, we think our President elect has virtually disappeared from the stage. All of his voters are probably wondering what he's going to say. We have expected that the New President, whoever it would be, would inspire the nation and all of that inspiration would lift some fear out of the market. Looking back to the day of the election, the Dow closed over 9600 and today it closed right at 8000. What makes sense?

We don't expect that the President elect will be able to do much about the economy long term due to the massive tax liability that is coming due in the name of Social Security, but we still think the public thinks he can do something. That's the key but he needs to show himself in order for people to fell confident that he can still do something. The period between now and January 20th is supposed to be a very positive stock environment due to a New president. Where is he?

The market wants to go up but it needs something. The government has given so much money out that there doesn't seem to be any more pockets to put it in. There are not enough credit worthy entities, at least in the minds of the financial institutions, to give the excess money to but they are still too scared to actually invest it.

This is typically what happens when powerful stimulus packages are used...the banks buy bonds and stocks because they are less than willing to loan it until there are good credit risks. When stocks go up people generally feel better and more willing to spend money. While it doesn't seem like that could even be possible now, that is exactly what we think will happen. A year or so from now there should be some major denial about what is happening right now.

Think about what was happening a year ago. The mortgage problems were known then but there was significant denial that it would mean anything for stock prices. Guess what, they did.
When things seem irrational, they usually are, but the world looks around and says, well, this must be real because...the media says so or something just as flimsy.

There is always room for more analysis so let's continue. We have not fared well with our long positions since that high on November 4th. We have been long a couple of stock index ETFs and we are starting to think there are so many good stock values out there that will preform better than these index ETFs. We have considered switching from the ETFs to some of these cheap stocks due to the possible return available. We wouldn't expect that the ETFs would triple in value but some stocks will. There seems to be more risk with individual stocks but that's one of those statements that begs us to say, more risk more reward...yeah, it's a bad comeback in this market. It's still ugly out there but we do think there is a lot of opportunity for gains.

One more item...CPI. The CPI was down 1% last month and now the whole world is worried about deflation. The CPI is such a tortured number anyway but the food and energy component has been isolated as something that is volatile and should not be included in Real analysis. We haven't even mentioned this silly number because we think it is so meaningless. The problem is that with deflation being squeezed out of the news, that doesn't help our precious metals position. Yes, it's time to stop...see you tomorrow.

Tuesday, November 18, 2008

HPQ Surprises the Street

Top Line: Another day comes and goes but the volatility stays. The market seems to be scraping along the bottom and can't find a way to climb out of the cellar...that should change very soon. Thanksgiving is coming.

After we posted last night, the Asian markets managed to take the US futures down over night. But, in bullish bolt from the sky, Hewlett (HPQ) pre-announced that it expects to post better than expected earnings. That was enough to bring the futures back to positive just as the market was opening on Tuesday.

The Dow generally moved up for the first couple of hours and finally touched a 200 point rally. From there we saw the Dow drop over 350 points over the next couple of hours. Then with an hour to go, the Dow staged a major rally to take it back up to end up about 150. Volatility rules.

These are the kind of days that would normally be followed by a serious rally. The blue chips lead the market out of the doldrums and then the broader market gets in gear the next day. That theory had plenty of subscribers as the market closed Tuesday. The first fifteen minutes of the after hours trading saw a huge jump in the Q's but as we get our post up we notice that the rally has completely fizzled out.

The market is oversold and there are plenty of bargains out there. For those of you who sitting out there with cash, these prices are so great. You have obviously been smarter than the Update by waiting but at some point these prices have to start getting interesting even to you.

We think the gold mining stocks are still some of the best buys along with several other commodity related stocks. Yes, we've been recommending GDX since 30 and now it's down near 20. We still think GDX represents a great value with plenty of upside.

The fundamentals are that the government/Fed have been pumping money into the system. When this money finally gets used, inflation will be the result. While we have been proponents of deflation in the past year, the powers that be have thrown caution to the wind and have done what they can to reflate the world.

This Reflation is their answer to the biggest Credit Crisis the world has ever seen. No, it's not going to work ultimately but for the short run we see it creating some inflation in order to prevent home prices from dropping...that way people will Feel better even though their home value is still declining, the price isn't.

Monday, November 17, 2008

Notes for 2009 Due Now

Top Line: This is options' expiration week which has the potential to move this market up. Asian markets are down in sympathy to the down day in the US but the US futures are about flat on the evening.

As we look back over the past six weeks or so, specifically back to October 10th, we see the news continuing to be very bad but the market is not really moving down with the news. The QQQQ, or the NASDAQ 100, NDX, has fallen to a lower low than October 10th but only a modest one. The news, with it's acompanying selling, has not been able to push prices down very far. The news has been just terrible but the stock market has stopped going down.

The market is in a difficult period of time. It's trying to buck the news. The economy is showing bad news but the market is done going down. We realize that the market can go down more if it wants to but the October lows are pretty solid for the broader market. Some stocks are lower now than they were back in October but not all stocks trade the same.

These are the times that don't make a lot of sense when trading the stock market. The market has been very volatile which is being reflected in the volatility indexes but it's not actually putting in new lows. These are powerful messages being sent by the market that it doesn't really want to go down.

We can only look back on the past several weeks and say that we should have been trading more. The market has come down from around 14K about a year ago so now it's trying to turn itself around. This is not an easy task and because of this provides a lot of back and forth action. The problem here is that the back and forth can whipsaw you unless you have impeccable timing which is almost impossible. These times make it very easy to lose money.

For now, the market wants to squeeze as many part time bulls out of the market and entice them to turn to bears. For those of you who are wondering what to do, we recommend that you write down some of your thoughts about what you think you should do, along with how the market is trading. Make sure you can keep these notes for about six months so you can look back and see what you were thinking. Wouldn't it be nice to have something like that from a year ago?

How about a nice pic of Jackson and Grampa?

Sunday, November 16, 2008

Market Should Resolve to the Upside This Week

Top Line: The late day selloff on Friday set up a negative emotional weekend for most. We think any further selloff is limited at best. Generally, the stock market should go up between now and Thanksgiving.

Friday's stock market took a major turn to the downside late in the day. That selloff continued in after hours with more early Sunday evening in the futures market. The sellers can't seem to get enough during regular hours.

We're still being bombarded by bearish chatter in the media. Most articles we read have negative undertones but very little bullish statements. Any bullish statements are generally accompanied by other comments such as we're oversold for the moment.

On Friday, the VXO climbed back to the 70 level indicating another buying opportunity. Let's do a quick reality check on the VXO. We think the market has entered into a period of higher volatility than has been the case since the 2002 market low. That's true, we do, but let's take a quick look at that 2002 low. Both then and at the 9-11 low in 2001, the VXO couldn't get over 60 and barely made it over 50. We have been over 50 consistently through October and November. VXO closed under 50 two times in these two months. That is solidly bullish.

Oh, and by the way, Japan announced that it's officially in a recession. Did you hear that, Officially? The worst possible news...oh wait, that would be the Most Obvious news has now been released about Japan. The Nikkei is up about 3% as we write this. Yes, the Japanese stock market is up on that news. Big surprise.

So, there are eight trading days until Thanksgiving so we need to get this rally on the road. With the market starting in the hole from Friday's after hours trading, there's some extra distance for it to go. As the Asian markets are recovering, the US futures are also digging their way out of the cellar. This could be a wild week. We say it's resolved to the upside after last Thursday's performance...

Thursday, November 13, 2008

Stock Market Provides a Difficult Test for Participants

Top Line: The stock market gave us another wild ride on Thursday. Our position is that the market made a clear bottom.

In our last post, we asked if you were ready for today's test. The stock market gives a test every day but we thought maybe Thursday's trading would provide more like a big test than a little daily quiz. How did you do?

When taking this daily test, you are never given the subject or any idea what the questions will be, so you have to be Ready for anything. With INTC's news, along with several other bearish news items, going into the opening on Thursday, stocks had every right to collapse...but they didn't.

Trading was surprisingly calm. In fact, the Dow opened up about a 100 points. From there, the Dow fell 200 points but an hour into the session was back up 100 points. The rest of the day is almost unbelievable. Over the next 2 1/2 hours the Dow dropped 400 points at which time we went on a furious rally. In two hours the Dow went up 500 points before dropping 200 points. That left about an hour to go and during that hour the Dow moved up another 500 points.

What does this mean? By itself it may not mean too much as it might be just like all of the other crazy rallies we've seen. We think this day holds much different signals than all of the other crazy days we've seen over the past month or so.

On this day we saw a new low in the NASDAQ and the SP500 but not the Dow. Remember we have been saying that our premise is that the October lows in the Dow are The lows there. Now we think that the lows today are the lows for the broader market because of the action in other markets like the dollar, gold, oil, and Treasury bonds.

All of these markets had what we would call false breakout moves similar to the stock market. As the Dow was turning, the Treasury bonds turned down, the dollar turned down after hitting a new high for the move, gold had a reversal to the upside, and oil turned up after hitting a new low for the move. The volatility indexes were both lower on the day after spiking in the morning.

This is the exact action we would like to see for a turn. Volume was not spectacular but it was decent. One other indicator, the number of new 52 week lows, were only at 776. Yes, that's a big number but a far cry from the 2900 of October 10th, the technical low.

We have read many articles this evening and watched some talking heads on CNBC, too. All of them are skeptical of the move today which we think also confirms the significance of the rally. We think it's different this time. We will know fairly soon whether we are right but it's like we have already said, the market shouldn't reward people who missed the October lows.

So, how do you know how you scored on today's test? We think there are a few ways to tell.

You Pass if you said yes to these questions:
Did you purchase anything near 8000 in the Dow? (This deserves an A, we didn't have any cash available...this is bad)
Did you calmly think the market was ready for a turn as it was dropping in the morning? (This is where we were today, mostly calm and mostly glad to have it behind us.)

You Fail if you said yes to these questions:
Did you sell any of your positions near Dow 8000?
Were you scrambling to figure out what to sell during today's drop?
Or, did you think you would unload some of your 401k holdings today if the market wasn't going to come back?

What ever your score was today doesn't mean you are right tomorrow but today was a significant test. We hope our readers had a calm day today and enjoyed the rally as much as we did.

Wednesday, November 12, 2008

Thursday is the Big Test, Are You Ready?

Top Line: After the negative news from BBY, we had another big down day followed by a bad announcement from INTC after hours. Let's not forget the mid-day announcement from Treasury made by Paulson which gave the market some chills, too. With all of that news, the market is getting smacked after hours and the Asian markets are getting beat up tonight. Since it looks like the market will open down in the morning, it might not...or if it does, let's see if that is a good day for the start of a rally.

The deterioration of the market over the past few days has been a decidedly trying time. With these huge moves in both directions, the average investor would probably be best served by taking their money out of the stock market all together. But, even as we see the possibility that the market moves down on Thursday morning, how much more downside is there?

Since we've dropped about 15% over the past few weeks, we think the market is now Extremely oversold. Looking at the volatility index, we see it back up to around 70 at the close which confirms the oversold nature of the market.

We would suggest that any drop in the morning should be bought, but we don't have much cash left. The post this evening has been reduced due to house guests. Yes, there are many other items for this evening but you are on your own on Thursday...The Test begins.

Tuesday, November 11, 2008

Patience is Required

Top Line: The stock market put on its unique version of scare the bulls. The global markets followed Monday's drop in the US market and the US continued the drop on Tuesday morning...well, it continued most of the day, actually. Is it going to be over soon?

Looking back over the past six weeks or so, the market has pretty much done one thing, be volatile. Tuesday was no exception with its over 300 point drop followed by a 300 point rally and then a 200 point drop. The volatility we have seen the past several weeks is enough to scare even the most steadfast bulls.

We have our eye on the way the market trades to see exactly what it wants to do. With these volatility figures (as measured by the VXO) are truly stunning given how complacent the players were about a year ago, even early this summer VXO was well under 20 versus over 60 these days.

Whatever the market does over the next few days or hours or weeks, when the VXO is over 60 after being well over 80 in October, it is Not time to sell, it's time to buy.

The main idea is that the market "feels" like it is always going down. The facts are still that the market bottomed back in October, mostly. There are still a few stocks making new lows in these down days but Most of them are done going down. We operate on the premise that the Dow bottomed for this move back on October 10th down around 7850 or so.

Back on election day the Dow closed over 9600, it's true, and it traded around 8600 today. That's a thousand points down from those highs. Yes, you could have taken profits on that day last week and now could be buying back in but that is simply too difficult to do unless you are willing to spend some time watching and trading.

Our position is that this is a trading market and will be a trading market for some time to come, but we have commited to the long side of the market. That means we would be buying on dips like this expecting an up move over the next several months.

This day was difficult for our portfolio due to our heavy allocation of commodities producers which fell hard today...but looking back to the lows of two weeks ago, we're much higher.

Take a look at Oil. Back on October 10th, oil traded down into the 77 range and today it traded down into the 58 range. Given this huge drop in the past month, what do you think happened to Exxon (XOM)? Right, it bottomed on October 10th down around 56 and a half. So, if you had the courage to Buy it then you would have made a great trade even if you sold it today at 72, something like 30%.

So, it "Feels" like it's bad but it really isn't. Yeah, we know, just a wait a few days...Please.

This brings us to the main point of this post...Fear and Greed. We have found over the years that people have the worst time selling at high prices. That's the greed factor at work. The other part of this theory is what we should call the "It'll come back" factor. We have been trained by the market over the past 25 years that the market always comes back.

Back in 1982, the Dow was in the 700's and last fall it was over 14K. It's easy to get the idea the market always comes back in that environment. Last time we looked, though, the Dow was under 9000. People are starting to get the idea that the market is Never coming back. That's exactly what we've been waiting for in order to be extremely bullish. This is the Fear factor at work.

Right now, the media is trying to convince you that the market is never coming back. Does that make you believe it or not? Last year, no one was inclined to sell because, "stocks are going to the moon" (thanks PH). There was no fear when the Dow was at 14K and no one was looking to sell. Now, with prices down 40% plus, everyone is interested in selling on Weakness. As prices drop, people want to sell. When stocks rally, people have a bit of a relief...

This prices are incredible and should be purchased on dips, Not sold.

Yes, we know why you come here...Jackson. So, here you go, finally another picture or two...
Who's the Goofball???
Or, is it a halloween Duck???

Monday, November 10, 2008

Early High Fades Into the Close

Top Line: Another reversal from the early morning pop. How many times have we seen it happen! The early morning buyers or sellers open the market well off of the even line and the other team comes in and moves the market the other way, all day. As Asia opened tonight, stocks were following the US down but have since recovered and are heading back up...US to follow??? [Late addition: Asia has dropped back as we finish up our post.]

The news continues to run with two themes, companies in trouble and governments bailing them out. American Express asked for, and the Fed granted, the right to be a bank holding company. In the process they have the ability to get at some of the $700 billion that Congress approved.

AIG posted a monster loss of nearly $25 billion. Fannie said it may need more money from the government. Circuit City declared bankruptcy but will stay in business, at least for now. Nortel puts up a big loss. DHL has decided it wants to move out of the US. Starbucks (SBUX) had some bad things to say about their future. GM put in a trade that was equal to the price it traded at in 1946, but buy and hold...go. YICKS.

Tomorrow's another day...

Sunday, November 09, 2008

Stimulus Abounds

Top Line: The Friday unemployment report looked mighty bad but it was expected. Our last post had a title that said to buy the report. So far, that was good advice. More upside this week.

The stock market handed out a few ulcers the past couple of weeks with huge swings in prices. As we looked at the drop going into Thursday's close, we noticed that the market had not really challenged its lows of October. With the worst jobs' report expected on Friday, the market sold off hard on Thursday but failed to scare too many out of their positions. Strong hands holding stocks these days?

The big news this evening is the Asian moves. China announced an economic stimulus package and Taiwan cut interest rates for the fourth time in about a month. In case you didn't notice the governments and central banks of the world are doing all they can to stimulate the global economy.

These efforts will continue to push up the stock markets of the world. Tonight, the Chinese stock market has jumped 5% and, meanwhile, Japan is up nearly 6%. Of course, the US futures market couldn't be left out and is trading up about 3% to fair value this evening, too. Monday could prove to be a stunning global rally.

We just noticed that there is some big news this evening here in the US, that of the government changing the AIG aid package. The terms of the original $123 billion package were onerous for AIG and are being renegotiated. The New Deal (sorry) is going to be $150 billion (we think that means $27 billion more?) but comes with much better terms. Both deals allow the government to take over at least part of the company.

Along with this announcement is the efforts to provide funds to the auto industry. The country is worried that the industry collapse would cause major economic stress due to the number of people employed by the industry. They cite a number of 10% of all those employed work in the auto industry in some capacity.

We leave you this evening with an article from Gretchen Morgenson of the NY Times. This article is some more nuts and bolts of the financial collapse, focusing on the fall of Merrill Lynch.

Thursday, November 06, 2008

Buy the Jobs' Report

Top Line: Another huge down day on Thursday in anticipation of a difficult jobs' report due out on Friday morning. We think the worst is behind us with the lows having been set in October.

Here we are on Thursday evening and the market appears to be looking down into the abyss once again. CSCO's earnings gave the market a poor start but it just got worse over the course of the day. The central bankers in Europe decided to drop interest rates today but that sure didn't help the markets very much. The car makers were in Washington with their cups in hand for money, please. Then, after hours Disney (DIS) said less people came through their gates in the last few months.

Fear has been elevated again as the market has gone down the last two days. The volatility index jumped the last two days as the Dow dropped nearly a thousand points. This is setting up to be a bullish conclusion due to the heights of these indexes.

So many bears, especially in the public, can only mean one thing...higher prices. All of these newly declared bears will be proven wrong and will lose money in the process. The volatility index will come down and they will all turn back into bulls...then we'll turn bearish again.

Until then we will try to navigate through these Cheap stock prices. Jim Cramer inspired the Update to set up our own index, the FSI, the Fo(u)r Speculation Index. He proclaimed the Four Horseman to continue to push the market up...that was about a year ago. The four horsemen are AAPL, AMZN, GOOG, RIMM.

We said, he's wrong and they would lead the market down. We watched the FSI go from our initial point of 100 on October 22, 2007, down to 49.90 on October 27, 2008. (Yes, it went up to 111 on November 6, 2007, GOOG was 741, now it's 331) What's our point, you might ask???

Today, Mr. Cramer has declared that Coal is Over (at the same time he said it was ok to buy Peabody). Guess what the Update thinks. Right, we think he's wrong again, even though we do like the Peabody play so much that we bought some today. We like the symbol, BTU, great isn't it? We think coal is a good idea since it's not a popular play. We like to play this with KOL which dipped into the 15's today. Oh, yeah, BTU traded down about 15% today to 28ish. Yes, there are many great bargains in the market. (We're starting to sound like Cramer. Scary.)

The stock market is seriously oversold generally and particularly after a two day drubbing of nearly 1000 points in the Dow. We see the bad news being dangled out there and notice that the Dow is sitting right at 8700, nearly a 1000 points above the October 10th lows. Why is this? Why isn't it trading down in the 6000's? Because it's Done going down.

We entered a comment around noon on Thursday and discussed the 61.8% Fibonacci retracement level that would make sense if we were truly going up rather than starting a new down trend. The numbers we presented were 8730 in the Dow and 1235 in the NDX. The Dow did break down a little from 8730 but the NDX stopped going down at 1235 .85. Do we Know that these are the lows for the next few months? No, but it's a pretty good thought at the moment.

As we have been writing this evening, the world markets are coming back from the edge. When Japan opened, the Nikkei opened down over 600 points or about 7% but has climbed back and is only down about 100. Don't forget, even when it was down 600, the Nikkei was up nearly 20% from it's lows two weeks ago, yeah some bear market. Plus, the SP500 futures are now up about 15.

We think the anticipation of such bad news tomorrow morning (yes, the jobs' report) has blurred the reality of the market. Even if the number is bad, the market has Already sold off for that. If we get any selloff at all after the report, and even if we don't, Buy...

Wednesday, November 05, 2008

Jobs on Tap for Friday

Top Line: The market pulled back from the nice run it's had over the past several sessions. The dropped nearly 500 points and then CSCO announced poor results after hours to send the overnight futures down.

The Asian spurt the day before didn't make it around the globe to the US. In fact it fell apart in Europe before the US even opened. Then the ADP, you know, the payroll check company, said that 157K jobs were lost in the past month. This report can sometimes indicate how the Real jobs' report, released on Friday, can look. The estimates for the Real report are for job losses of between 180K and 200K.

As the day wore on, the selling continued until the Dow was down nearly 500 on the day. The possibility exists that the selloff is complete but with CSCO's news tonight and the jobs' report coming up on Friday, Thursday could challenge that theory. The situation is difficult to judge in the short run but we tend to think that the market is looking to Friday morning for information on trading.

At any rate, this selloff may be the punch down some have been looking for...we don't like a further drop because that would mean that there would be another chance for buying. The fear generated in October should have been enough and based on the volatility indexes from that period there really shouldn't be a test of those lows, let alone a penetration of them.

We keep thinking about the extreme in the number of new 52 week lows on the 10th of October, nearly 90% of all NYSE issues. That was the technical low but the closing price low happened a week ago Monday with several new lows, meaning there were stocks setting new bargain basement deals.

The fallout from Wall Street's selloff is the trading in Asia which is down 6% in some countries. This would indicate that the selloff will continue around the globe back to the US in the morning. Let's see what happens...

Tuesday, November 04, 2008

The Election is Behind Us, Finally

Top Line: The Dow jumped 300 points, following the other world markets up. Today is one of those days when people start questioning their belief that the stock market is going to zero.

We are concentrating on the election this evening but we received a couple of comments via email today which we thought we would address in tonight's post.

Question #1: Don't all the wild and violent moves normally indicate some sort of inflection point?

Yes, normally with such violent back and forth moves, the market is struggling with the current trend and trying to turn back the other way. We think that there will be more violence ahead but we do think the low has been put in back in October. All of the October violence was just ahead of today's election. We do think that the gas prices dropping in the last few weeks has changed some minds about the election and the economy. Here in MN gas is under $2 a gallon.

Question #2: Without getting to ahead of ourselves, what is the medium term outlook (1st & 2nd Qtr '09). Rally post election regardless of who gets elected and then what? In stocks? Out of stocks? Is Dow 8,000 as low as markets are expected to go in the next 3-5 years? Fleck mentioned a possibility of sliding down again.

Ok, there are a few questions in there. Let's start with our position for the next couple of years and maybe that will answer the question being asked. We had expected a low in the market in September or October this year and, for the moment, that seems to have played out pretty well. Now, the market is climbing out of a deep oversold condition caused by public fear. The rally has been fierce over the past week with the Dow up nearly 18% since last Monday's close.

So, you want us to drag out our crystal ball...Again??? Well, if we were to guess the future, we would say that the market will rise for several months, but with some significant pullbacks which will shake out some of the bulls. We want to stress that this up move is Counter Trend meaning it is going against the grain of the overall Bear market.

Once this up move ends, which we expect will last at least until April next year, the Big Bear market will step in and destroy values. To guess how high this up move will go, we have already suggested that would be somewhere between 10,500 and 12,500, possibly higher. After that, we expect a severe long term bear market that lasts maybe 18 months which will be a slow burn but take the Dow down well below 8,000. But, we are getting ahead of ourselves.

Let's stop with the answer to that last question since the question is more, What to do, rather than what the market's end points are. Here is the key point of the market. For several years we had significantly low volatility and now we are going to go into a period of time with significant volatility. This will not require you to trade but trading may be the best way to capitalize on the volatility.

We are putting our readers on notice this evening that we will be trading much more the next few months than we have done over the past year. We look back over the past year and realize that we were short for most of the year but with a short period of bullishness which gave us about 750 points. No, it doesn't sound like much but it did enhance our return for the year. We expect that you will not be interested in trading as much as we will want to so we'll have to work something out.

We just heard that the presidential election has been decided in favor of the Democrats. With that we will end the post and wish you luck.

[Editor's note: Check out the new additions in the left column.]

Monday, November 03, 2008

A New Month and A New President At Hand

Top Line: Here we are at the start of November and we have a calm day. There was very little action on Monday possibly due to the election anticipation but also possibly due to the end of the crazy month of October.

The start of a new month puts in some distance from the two important lows of October, the spike low on the 10th and the low close last Monday the 27th. The Update thinks these lows are very important and represent the lows of 2008. There are many who are looking for another spike down but that spike may only be minor pullback not something that takes out the October lows. We remain fully invested in long positions.

We continue to watch the important indicators that represent coming off the lows. The biggest one is the volatility index, VXO. It has come off its highs over the past week. After hitting a high of 103.41 back on October 10th (spike low) the index backed off. After the market went down again and put in the closing low on October 27th, the index could only manage to get back up to around 85 and now has dropped into the 50's. Our other indicators are less definitive but are supportive of the move off the lows.

The look and feel of the trading in the last few days presents an opportunity for a pullback going into the election. As mentioned earlier, this should not be a huge spike down, just a pullback. These are opportunities to buy in case you haven't completed your buying. The main idea is to set your price under the market and let the stock come back to you.

We received an email from CM who shared an article with us and asked about our timing versus this guy's. Sometimes, others read the Update to get good timing ideas but probably not this guy. He's only got a 1.9% return through September. Following the Update's timing there should be a much better return than that (at least in 2008). Of course, we are still trying to get even after taking those GDX shares into our portfolio. Even with that, we are doing pretty well on the whole year.

We are going to give way to the election and see what happens tomorrow. From all the media attention, you might think the market has priced in an Obama victory but the actual news, one way or the other, may allow the market to react. We see a pullback coming on Tuesday and possibly Wednesday depending on who wins the election but to us these would be buying opportunities.

Sunday, November 02, 2008

Can Dow Get Over 10K This Week?

Top Line: We are troubled by the market's lack of power the last few trading days. It needs to get on its horse and run a little.

Yes, we have moved up 15% from the lows so maybe we're just looking over our shoulder. The stock market needs to break out above its highs set a couple of weeks ago. You probably recall the near 1000 point rally on the 13th of October followed the next day by a huge opening which got sold later in the day. That was a powerful move and now we need to break above those prices in order to get above 10K which is where we need to go.

The Update thinks the 10K mountain can be attained in the next few days but we do need some power to get there. So far, we don't see that power. However, the Asian markets are strong this evening, even though Japan is not trading. Hong Kong is up 5% setting the US up for a good Monday morning trade. We'll see if we can get through the night without a down tick...

We are going to leave you with another Gretchen Morgenson article (NY Times). We don't think it's much news to our readers but here it is. Back tomorrow...