Wednesday, November 18, 2009

The Last Post

Top Line: Probably the biggest news in the market is the Update. With our last post, we hit 1000 posts and this, the 1001st is probably the last, at least for a while. We are going on an extended break.

We want to leave our last mark here by summarizing our current position on the various markets we have been keeping an eye on. Remember what day this is because these comments are only good for about a day :-)

Here is a problem brewing. While gold has been punching higher to new all time highs, GDX has been painfully lagging. This can only mean that there should be a change in direction, from up to down. How long this decline will last is difficult to say but one would think it would be linked to the action in the dollar.

If you actually take a look at the dollar chart for the last two years, you would notice that the dollar was Lower last year than it is now. What we find interesting about that is all of the bad press the dollar has received over the past several weeks. Gold has exploded and the dollar gets negative media but stops going down. This "strength" in the dollar flies in the face of strong gold. GDX and the dollar confirm that gold is near a peak, at least a short term top.

Continued negative press on the dollar has probably convinced many to short the dollar. This used to be done with the Japanese yen. Rates were very low, at times negative, in Japan and the yen was going down. This caused the world to borrow yen at low rates and buy other currencies to buy stocks in those countries, which were rising. This is called a carry trade. Assuming that the dollar continues to go down and with low rates available, why not use these dollars to buy gold??? This will end badly if the dollar turns around or interest rates move up.

Treasury Bonds:
Here is another difficult market. We have expected that the stock market drop would give a lift to T-bonds. The stock market has continued to rally but, strangely, the T-bonds have not fallen, at least not much. The highest prices for the stock market and gold have not had the intended effect on T-bonds. Instead T-bonds have held their own and have given us further evidence that the stock market and gold are not on a solid upward trajectory. When will this change? It may be this week or later but there is too much evidence to ignore.

The Stock Market:
Here is where we are with the Update: This last 1000 posts have been about our take on the stock market. Our intention was to keep us honest with ourselves about how we were thinking about the current market conditions. When we look back to our early July posts and read them carefully, we can see that we missed something. Our titles even indicate that we thought a low was at hand but still we didn't take advantage of the lows at that time.

Since then we have struggled to let go of the thinking process. Our main thought is that we are much better traders than bulls. We have to get back to trading and stop trying to figure out the intermediate term. We think better in the three day time frame or less. This large move stuff is interesting but difficult to trade. We need to stick with our strengths and not try to figure out how the market will sit two or six months out.

What we do think is that the market will be much lower in two years. How does that help us trade tomorrow? We're not exactly sure. What we do know is that the way We make the best money is to trade frequently. This is not a good strategy for most people and does not make sense for a blog.

The last item is the one that troubles us the most. We are contrarian thinkers and go against the grain of the media to make our best trades. We have enjoyed the position we have taken but recently have been less interested in arguing about the stock market, trying to influence others. We think we have a good way to trade with an eye to how the market reacts to the news.

This is the most difficult thing we do...try to convince others to do things that make financial sense when all they think is that the media is right. We are convinced that we can always make money because the market participants are really not very concerned about what makes sense. Most people just want to know the market is going up before they buy (too late) and then sell when the know the market is going down (also too late). We can not change this and have decided to abandon the effort.

To the several people that have been faithful readers of the Update, we want you to know that you have kept us writing longer than we would normally have done. Without anyone reading, this really wouldn't have made much sense.

For those of you who know our email address, we would be happy to continue to stay in correspondence with you and will contact some of you on our own. We apologize for the abrupt change but we think this is the best time to discontinue our work. Life has taken us in new directions and a new chapter is now emerging which eliminates the time that would normally be spent working on this blog.

Buy Low and Sell High...not necessarily in that order.
Call if you get rich, or Put it in writing...

Sunday, November 08, 2009

Unenjoyment Report, 10.2% Unemployed

Top Line: Market action seems to be giving bulls more confidence. The market has always been a con artist and will continue to do so. We are very near a top/turning point.

Last Friday's employment report was dismal in that it contained a double digit rate for unemployment and continued job losses but at least this time the number was under 200K. Great. Still, the market opened down after the news early Friday and then bolted up as if to say that the job picture really wasn't as bad as 10.2% sounds. The market is usually quick to say it's the end of bad news so we're just gonna buy em, after all they are marked down from Thursday's close so they must be cheap.

We want to take a few minutes to explain our position in this game of the stock market. There is so little that media says that makes any sense and to assign a "reason" to trading presumes that if you could just predict tomorrow's news, you could have a good idea what the market was going to do tomorrow. Good luck with that. Even if you could predict the news tomorrow, you might not actually be able to do the same with the market's reaction.

What we have tried to encourage here at the Update is to try to see when an asset is trading at a good price for either buying or selling. Over the past few years, these extremes have been prevalent in the market. The problem is that the media is so strongly encouraging the current emotional state of the market that it is very difficult to go against them. What do they know? Do they know what is going to happen tomorrow or next month or next year? No. Do they know what happened Yesterday? Maybe. For today, they are just guessing that the news has something to do with the market. It does but not in the way they think. We would say that the Market drives the news, not the other way around.

We remain very cautious about this market as we have for the last couple of months. This is a state of mind because of how bullish the media has become. Gold is trading at new all time highs so there is a story for the has gone up so it must be Going up. We would ask, "Why?" And, if gold is at new all time highs, "Why doesn't GDX exhibit similar results?" GDX is supposed to Lead the gold, again, not the other way around. We read bullish analysts talk about how mining stocks will "eventually" catch up with gold's move. We are near term Bearish on GDX and gold Because GDX is not catching up it is signalling that the move in gold is not to be trusted.

In fact GDX has led the stock market over the past couple of years and should continue to do so. If you take a look at how gold has exploded the last few days and GDX is still holding under its former highs, you have a recipe for gold going down. Of course, we can't know when it's going down but we think the price is too high to justify a continued move up. This position is specifically because GDX has not Led. It could be very possible that gold drops along with GDX over the next few weeks and Then GDX leads on the way up. We would be willing and eager to change our actions based on our best signals.

As for the stock market, we think that the best guess is that we have a rally in the morning (Monday) and that may be the top of this move (we see the futures are up this evening which doesn't mean much but they could be directionally correct). The last post we suggested that the rally may be over but said it was a little short of its potential and of course it decided to rally. Predicting this rollover timing is difficult so we must concentrate on getting good prices.

Have a great week, we hope to be back on Wednesday evening.

Wednesday, November 04, 2009

Fed News Not Enough To Hold Gains

Top Line: The Fed's "news" brought its usual blip for the following half hour or so and then the market decided to go down. We expect that the rally for the past few days should be the relief rally that will lead to further declines.

You might have noticed over the past few days that the market just can't seem to hold. This phenomenon is part of the roll over. As the stock market has been so volatile and it still "feels" like it could go either way. The real story is that the market has gotten too overbought and the buyers don't have enough money to keep it moving up.

Trading the stock market is always a difficult task and there is always potential for losses. When the market opened today, the buyers were out due to some employment news from ADP. Then when the Fed made their announcements, the market was fairly volatile but after the volatility the market was higher than when the news hit. From there the market fell to negative, at least in some indexes, before ending about unchanged for the day, near the lows of the day. These types of things should scare the bulls and we do not believe they will hang around too long.

The trading today looked and felt like the right ending to the correction. We say correction because the latest drop from the highs from a couple of weeks ago. The only problem with this discussion is that the rally out of the lows seems a little short relative to the drop but that can be because the market is really ready to drop without much relief.

We are significantly bearish at the moment. The drag on the market is pretty strong. Every rally has trouble sticking and the sellers are ready.

The big news seems to be that gold hit a new high near $1100 today with the dollar falling sharply. The dollar has not dropped below its lows of last week but still could. These two assets are at the center of the debate of whether the stock market can move down or or not. We have said that gold could hit $1100 on this move but that would represent a short term high with a move back down to triple digits before another rally, if we get one.

Right now, we want to make sure that we remove ourselves from the downside risk that has risen quite a bit. If we see a "buying" opportunity we will present it to you. The possibility of a decline of over 10% is very high.

Monday, November 02, 2009

November Starts With a Volatile Day

Top Line: The start of November gave the bulls a breather from the heavy selling from Friday. After maybe some more upside, the sell off should continue.

As the week progresses, there are plenty of land mines for the market in the way of news. The big ones are the employment report on Friday and the Fed's news on Wednesday...ok, maybe that's not all that big, the Fed has become almost irrelevant. There are other news items including some little things like the Stanley/Black and Decker deal that was announced tonight. How will the market react to them?

Well, we are pretty sure we don't really know exactly what will happen but we do think that there is little doubt that the market wants to resolve to the downside, at least for the time being. As we see the volatility rise again, there should be some more intense down moves as we move through the next few weeks. Then we'll see how much the market wants to go down.

Today's market was very volatile as the Dow jumped out of the blocks this morning and sported a 150 point rally in the first 30 minutes. After hanging around that level for about two hours, the market decided to drop back below even over the next hour and traded around there for an hour or so. After that the Dow moved higher into the close with about a 75 point advance. To us, this was a small victory for the bears.

The market probably won't get much from the Fed on Wednesday but tonight the Australians decided to raise interest rates again. No, not much but it was an increase. The Fed doesn't have the...ah...ability to raise rates for now so we expect much the same from them this week.

Tuesday has a few elections in it. Could they move the market on Wednesday?

Anyway, the big news for the week should be the employment report on Friday. We expect the market to be lower in a couple weeks than it is now and the employment report could be a catalyst in the stair step lower.

We will be back on Wednesday evening after the Fed...

Sunday, November 01, 2009

Quick Update

Top Line: The stock market dropped hard on Friday to a new low for the move in the major indexes that we follow. This is the start of a major drop in the market. Whatever rallies the market has should be sold.

Friday's sell off seemed to be a shocker to all of those who thought Wednesday's sell off was a good "buying opportunity". To be clear, the good buying opportunities were last March when the SP500 was trading under 700, not now when the index is near 1100. After the index has rallied 50% in about six months, it's Not time to buy.

The volatility indexes we follow traded above 30 and the VIX actually closed above 30. This should be a glimpse of the future when theses indexes jump to the levels we have seen over the past year and possibly higher.

We have been out of town this weekend and it's late so we will post again on Monday evening.

Wednesday, October 28, 2009

Is the Update Back In Sync?

Top Line: The stock market spent most of the day simply going down and we would say the trend has turned down. And, that we May finally be back in sync.

The news on new home sales was included in the "reasons" the market went down today but that doesn't really answer the question why sell stocks when new home sales aren't as expected? The market can think anything it wants and today it was in the mood to sell stocks regardless of the news.

Take a look at GDX and you will see that it has been on a mission lower the last week or so. Since Monday morning's spurt above 47 it has dropped to close at 41.87 today, a 10% move in three days. When we said we would consider buying it in 30's, we didn't think it might be this week. It's not in the 30's just yet but that's less than 2 points away.

You may have noticed the chatter about how the mining stocks have taken a beating when gold itself has only dropped a little. We say that the stocks move in front of the metal so we would expect the metal itself to drop following mining stocks down. We will see.

The catalyst for all of this is the strong dollar coming off its lows over the past few days. After the incredibly negative press on the dollar, the dollar refuses to go down anymore. The result is a sudden change in the playing field for commodities and the stock market. Even Treasury bonds have been strong the past few days, in spite of the huge supply coming to market this week.

It may be that GDX is too oversold to go down anymore but we don't recommend buying it at this time. We will take a look at it if we see a three handle (in the 30's) on it. Until then it's a falling knife and it should be avoided.

All we can say this evening is we are now glad to be short. A sudden drop is not out of the question. Take a look at our company, ING. They announced a restructure and the stock has lost 30% in three days. We wouldn't suggest that is how the overall market will trade but it is in the realm of possible. As we have noticed, there seems to be a lot of pent up selling.

The opinions we read today were quite bullish actually which we like. The headlines were that this is a buying opportunity not a correction??? This is different from what we have been hearing and should allow the sellers to continue their quest.

Monday, October 26, 2009

Another Downside Reversal

Top Line: Monday was Not up and that is something new...that we like. Monday showed yet another big reversal to the downside. These are bearish days and most likely are setting us up for a solid down move.

The market took off like a rocket this morning especially in the NASDAQ 100. In a half hour the NDX was up 1.5% and held there for about an hour when it fell out of bed suddenly. In the next hour, NDX fell 2% wiping out the early morning launch and then some. The rest of the day was spent just treading water. But, the action in NDX actually was an outside down day.

All of these downside reversals we have seen in the market the past few days should resolve to the downside. GDX is one of the confirming indicators. Maybe we should start with the dollar's rebound today.

The dollar was very strong today giving some deep knee bends for the commodities. What is kind of surprising was that the bonds were down today, too. We can rationalize that with the fact that the US Treasury is trying to sell a very large amount of debt this week. The dealers need to hold prices down so they can buy 'em cheap. Or, they are just going down. We are expecting the stock market to go down and some of that money should go into the dollar denominated US Treasury bond market. Just not this week.

Going back to GDX, gold was down about $15 dollars and GDX was down about 2 bucks at 44.69. This was after GDX was up about a buck in the early morning launch. GDX seems to have topped for the time being at the 49.74 high about two weeks back. So far, we've seen a 10% drop in GDX and we expect that it will lead the market down some more. We will be looking at buying GDX back under 40. We're not completely sure we will but we are keeping an eye on it.

Yes, Jackson likes swimming... Humpty Dumpty sat on a wall, Humpty Dumpty has a great fall. Now fall into the pool, Jackson.

Sunday, October 25, 2009

Strong Monday or Not?

Top Line: The market continues to exhibit topping action. Please see our comment in the last post for details on Friday morning's action.

The past several weeks have seen strong Monday's so maybe this week the market can break that pattern.

We have no time this evening for a post so will add more on Monday evening.

Wednesday, October 21, 2009

Another Important Reversal Day

Top Line: The stock market had a outside down day which is a bearish sign. We look for further confirmation of downside.

Outside down days are technically bearish due to what they imply. That being, early strength leading to late weakness, which is exactly what happened. Both ends of the day seemed to be driven by news about WFC (Wells Fargo). Early in the day, WFC announced blowout earnings and late in the day an important analyst downgraded the stock. So, news was a driver in this outside down day which doesn't sit well with us but we will definitely take the downside.

This action should be followed by further downside and it should come immediately. The technical picture is ripe with downside potential. Look at a chart and you can see that this vertical run looks very brittle. The possibility exists that the entire rise from the March lows is over today. Yes, we have said that before but that doesn't mean that it's wrong. In fact the next down move could be very destructive to stocks so to side step that move would be ok.

The volatility indexes were some of today's standout performers. The VXO dipped below 20 before blasting higher in the final hour. This is a meaningful reversal and gives us confirmation of the down move that happened in the stock market.

As for our gold mining stock proxy, GDX, it traded to 49 this morning just shy of last week's highs before dropping to close a little lower at 47.39. This reversal was strong but not as strong as the outside down day we saw in the major indexes. GDX started down in the early part of the day and could not get back below those opening lows, still, a strong reversal along with the stock market.

The dollar is the holdout in today's events. It too had a reversal but not as strong as we would have liked to have seen. There are so many dollar bears out there. Take a look at the news. It is unanimously negative. We can only ask why the dollar isn't much lower if all that is said is true.

Today's reversal is the clearest signal we have seen recently to indicate that the market may finally be ready to head south. We will continue to watch this move and see if it does develop into a lasting sell off. We said in our last post there is some pent up selling that could occur in a hurry. We are short already so that wouldn't bother us too much...but as you know we are certainly not very profitable over the past couple of months.

Listen to the market telling you to be cautious. Sell your long positions. The risk is too much to keep your positions.

Sunday, October 18, 2009

Market Trying to Decide What to Do

Top Line: The stock market is indeed struggling to go up. Friday saw some downside but not enough to convince us that the top is definitely in. We need to see some normal selling.

Friday's options expiration brought in a few sellers after the two days above 10K in the Dow. Tonight the futures are a little weak but we still need some proof for the downside. Yes, we are already short but the market has been indecisive about moving up. With the upward drift, selling has only been enough to relieve overbought conditions, not enough to get oversold.

Every day that goes by, we think the market can't continue to go up but it manages to hold on. The more resistance the market has to selling means that selling doesn't occur. We would say that there is some pent up selling that will come as soon as a little break down happens.

The Update is keenly interested in the market's down move that seems almost around the corner but still illusive. As you see the market turn over, we will be adding more information to the Update. Sometimes we like to comment during the day if we see something happening. If that happens, we need to put those thoughts in the comment section so check those out. We don't have the ability to post at work so a comment has to do.

The technical position of the market is measured in a couple of ways. Our favorite indicators are the dollar, bonds, and gold, not to mention the volatility indexes. Tonight we look at the dollar for a few minutes. It looks like the dollar is trying hard to put in a low. The media is trying to convince everyone the dollar is going down forever and no one cares that it's going down. The possibility is that there is so much negative press that all of the sellers are gone.

At the same time, gold is trying to find a short term top. The media is still trying to look at gold positively. The dollar and gold are polar opposites and normally they should trade opposite. With gold at all time highs the dollar should be at new lows but it's not. Last year, the dollar was even lower than it has been the past few days. This could allow the dollar to drop a little more but we think it is signalling that it is close to a low if it hasn't already put in.

Let's keep a close eye on the dollar to see if it is finding its way higher. If so, that would be negative for commodities in general. This may give us an opportunity if the market can move down. Stay tuned.

Wednesday, October 14, 2009

Dow 10,000, Let's Party???

Top Line: More of the same...the earnings for INTC and JPM were greeted with a big lift to the market. The Dow crossed back into 10K land and some would like to see that be the start of something big.

Everyone is excited about the Dow 10,000 event. March 1999 seems like a long time ago but that was the First time the Dow crossed 10K. That time, there were Dow 10K caps for all the traders on Wall Street. Were there caps today or just dunce hats? We don't know but the fanfare had to be much more subdued than 10 years ago.

Still, the media wants you to believe the fantasy that now is a good time to believe the worst is behind us. We are wondering where these news stories were in March when the worst truly was behind us, for the time being. Now, after a 50% move, they expect that you are OK to get back into the market.

Whatever you may think, after no gain for 10 years, there should be no celebration...but people who own stocks for the long term are eternal optimists. We call it the Lost Decade and we expect another Lost Decade to come. OK, enough.

As far as the real action today, stocks were up on the back of JPM and INTC earnings. The earnings were somewhat better than expected and that seemed to be the catalyst for the market's move up...expectations that most earnings reports will show good news. At some point the market will stop partying and move against those complacent stock holders or fresh new buyers. In the mean time, we hope they are very careful.

We are not going to say that we have called this market right over the past few months but we also don't think there can be much more upside based on the money that's been used to get us where we are.

Realism does cross our minds on occasion and this should be one of those times. We do not think the market can continue going up but it is. The right thing for the Update to do is to continue to wait for a point to get back in if that is truly the right thing. We won't know that until it actually happens.

We have considered our position that GDX would go to 55 and gold would go to $1100 but we seriously think there should be more than that. GDX has struggled to keep up with the move in gold and our position is that is not bullish for GDX or gold. We expect both should be sold right here and now. If we get a chance to buy GDX back we will certainly take a hard look at doing so. That would be around 40 and maybe even lower. However, even if that happens we would make sure that it was the right thing to do.

For now, the stock market is not safe due to GDX not leading anymore. We will continue to watch the miners to see if they can tell us anything else. As we have said, gold could go to $1100 but that's not all that far away. One of the Fed officials said that he didn't think the Fed would change their powerful accommodating policy until employment improved so gold got a little pop from that but we are quickly coming to a reversal in both the dollar and gold, of course in the opposite direction. Be careful.

What we are looking for in the stock market is a turn. What we have been getting for a couple of months is modest pullbacks with higher highs after them. This creates a safe environment for traders and gives stock owns comfort because they now don't have to sell. They sleep better due to all the little comeback rallies that have happened over the past three months. In order for them to take note, their stocks need to roll over pretty hard. When that happens, sellers will come back, probably in panic, as usual.

While it's easy, or seems so, to be bullish now, it will not be as easy when stocks are going back down.

Monday, October 12, 2009

Waiting Game

Top Line: The stock market traded pretty flat after an up opening. The main event was dullness. The market still seems to be putting in a top of some kind.

The Columbus Day holiday was a dull event and there really wasn't much new information that we saw. The market opened strong and the various indexes traded back to or near last month's highs. If the market wants to go higher, it will. We still think that the market has stretched itself too far already but with no impetus to go down, we need to wait for confirmation that it actually wants to go down.

As we sit here and wait for the market to make up its mind, time is passing with no meaningful moves. For the past month, we have traded in a pretty tight range (about 5%). The moves we have seen have not been easily traded so we have been patiently waiting.

The TLT has had a rough few days but it should be just a minor setback. The move coincides with a similar but opposite move in stocks so now we need to figure out if either is real. The only way we can do that is to wait for the market to tell us. The odds favor that the market needs to make a move down.

GDX and gold were continuing their dance with gold moving ahead of GDX as we mentioned a few days ago. This is not a good sign if you are looking for a confirmed higher move. It is possible that gold is heading to $1100 as we expect but even if it doesn't there should be a rapid move back down probably dropping back into the triple digits. Since GDX is not really confirming gold's move, we expect that GDX will move down below 40. We will try to buy some more down there.

As we move through the month of October, there should be some downside. This could be a swift move but we expect there to be a reason for it. Earnings could be the cause, whether they aren't good enough or are actually bad. The only real thing that matters is how the market deals with whatever news there is. We wait some more...

Sunday, October 11, 2009

No Post This Evening

The market should tell us more on Monday so we will post Monday evening. We went to the Twins' last game at the MetroDome tonight. Yes, they got sweep by the Yanks.

Thursday, October 08, 2009

Today May Have Been Significant

Top Line: Today was a key reversal day for gold and the dollar as both moved to extremes and then backed off. This has implications for the broader market.

We feel compelled to post this evening. There were a few key indications that present information that is valuable. The combinations are interesting.

The dollar collapsed to a fresh relative low like it seemed to have wanted to do for about a month. Meanwhile gold jumped to a new actual high. Normally this is what is supposed to happen, these two asset classes move in opposite directions. We think that the reversals are what are important today. The media will most likely tell you about the extremes in both and conclude they will continue in that direction.

Today's reversal is a first good sign that the moves might be over. Time will tell but for now we say that the market is showing us something different. The reason we say that is the action in GDX today. Yes, GDX went to a new high for the move near 50, that's true. But, as we mentioned yesterday, GDX is Following gold, not leading. This is not a sustainable in our opinion.

While this was going on, the stock market was merrily moving higher which it can easily do because it is Below its recent highs. We think the market can always get back to where it was but getting past that is what makes us pay attention. Today, the market failed to get back to the highs together with a new relative low in the dollar and a new high in gold.

Taken all together, we think today was significant. We hope you found some way to sell some of your GDX in the 49's today. If not, we would probably have you re-read yesterday's post and figure out a way to get off that risk for awhile as we wait for further developments. Tomorrow should tell us a lot about whether today was important or not.

Wednesday, October 07, 2009

Gold at New Highs

Top Line: The market does not seem to want to go down. Our key indicators are still negative on stocks. No buying should be done here.

As we look at the last three days trading, the Dow has run up over 200 points. GDX has jumped back up to the 48 level even as gold has mounted a rally to new highs. TLT has remained pretty strong in spite of these developments and we watch it carefully.

The key item for us is the dollar which is struggling under the strain of negative press, mostly. Gold has popped to a new high but the dollar and the TLT have remained steadfast. The dollar should be making new relative lows along with the spurt in gold and TLT should be dropping due to the same.

Let's concentrate on GDX for the moment. We are in a position that GDX is getting close to a long term capital gain if you purchased it last year at this time and haven't sold it. This makes the decision to hold on much easier since we still think GDX will enjoy some remarkable gains going into 2010.

Right now, with GDX under performing gold, we are getting a little concerned about GDX and frankly the gold move as well. Gold could well pop to $1100 and is moving up as we write. That price isn't too far away and we'll see how GDX reacts to any more upside in gold. With all of this bullishness in gold, we contrarians get nervous. The interesting thing is that no one actually believes that inflation may be a problem but still gold rallies. Imagine if people begin to think that inflation may come will soar. This is exactly what we think. We don't really think a lot of inflation is coming but we do think enough will appear so as to scare gold much higher which will be led by the GDX.

We mostly think that GDX Leads gold, not the other way around. If GDX is struggling to follow gold up, which it currently is, we would want to lighten up on both. Again, if you have a taxable position, we would be more cautious about selling if the position is close to a long term capital gain. If it is, then we may recommend a legal tax hedge just in case the complex drops.

Since we are trying to focus on GDX, we would want to short something else. This is not something that you should do without some serious thinking. In fact we're not sure we would recommend this to you unless you are close to a long term capital gain. If you are near a year, holding out until then would be an extremely tax friendly transaction.

We will explain this further if you like. Send an email or make a comment here. First of all you will need to get a margin account in order to short something. Please do not attempt this without full consideration of taxes and whether you really want to deal with selling your position.

This recommendation to buy GDX over the past year has yielded us great gains. That is not a good reason to sell necessarily but when you have a good gain you sometimes want to protect it. In this case, there are plenty of reasons not to sell. If you have been trading it all along and there is no pretense of a long term holding period, then you can feel free to do more trading.

The question then becomes is this a good time to get out. If it is, we would recommend a strict buy back point which we will be watching and waiting for.

With that in mind, the stock market is currently being led by GDX. If GDX leads the market and gold, at least in the current environment, then we need to watch GDX for clues. If GDX does manage to rally with gold here, we would need to consider that the market can go up as well. We do not have this position at the moment, as we are fairly bearish stocks. This, as you know, has not served us well over the past couple of months.

Sunday, October 04, 2009

Jobs' Report Disappoints

Top Line: The stock market seems to be tracing out a down move. The Dow dropped 200 points on Thursday and failed to make any headway on Friday after the jobs' report. The market should have a solid intermediate high in place and we will see how far it can go down.

Since the 23rd, the Dow has dropped about 400 points and we don't think the first wave is complete. The market may try a quick pop on Monday morning or maybe a little longer than that. After that we should see another drop to a fresh low for the move. At that point we may have the first completed down wave which will tell us some more about how far we can go down.

If we were to guess, that first wave could be around 550 points down to the 9350 level in the Dow. That should give us a good read on the next move which we will project when we have that information. For now, we would say that would mean about a move to 8500 in the Dow in the next month or so. More as we see it develop.

TLT jumped above 100 as the jobs' report was announced Friday morning but then dropped the rest of the day. Still, TLT is showing some strength over the past month and should give us some confidence in our current position that the market is declining. Meanwhile, GDX dropped to a relative low on Friday morning. Both of these indicators support our position.

October should give us a much anticipated drop in the market. The Update will be back on Wednesday evening and we'll see how things go.

Wednesday, September 30, 2009

September is Over

Top Line: Since last Wednesday's reversal, stocks have stayed under the high set that day. We will look to that September 23rd high as our ceiling.

Today's action gave us more questions than answers due to the early freefall followed by a churn higher. That up move took stocks back to where they were in the morning.

The market is struggling with several items this week. The Big one is the jobs' report on Friday but today's end of quarter probably had something to do with the somewhat wild ride. The quarter was very strong and the big money needed to do their final adjustments to show they managed to participate in the big rally. The morning's news provided the media with enough reasons to be confused and you can read their accounts for yourself.

Last week's highs should hold. We have seen a continued rally for the entire third quarter. No, it hasn't been studded with a lot of big days but just a steady churn higher. This gives people a sense of security and gets them to buy. The media have been calling for a high for a long time and we have been bearish for most of this rally, too. This has not been a good quarter for the Update. Maybe fourth quarter will be better.

Let's take a look at two of our indicators, GDX and TLT. GDX seems to have topped two weeks ago while the broader market seems to have topped a week ago. This is very compatible with the leading nature of GDX. As for TLT, it continues to be strong, putting in new highs for the move around 99. This action means the TLT has rallied over 10% from its lows. Higher prices for TLT, our long bond proxy, means that the safety play is still happening. That implies that the smart money is probably moving out of the stock market and into safe positions.

These two indicators are still lined up with our thinking process that we are in the early stages of a stock selloff. The next two days should be interesting. The first day of the quarter may give us clues to the rest of the quarter but the second day will provide some hesitation as we get the September jobs' report. What would you want to get into tomorrow. We generally say that the jobs' report marks an important point in the month. This month could continue that tradition. We expect October to have a down trend so Friday morning could give us an effort to best last week' highs and fail...or, it could give us something else. We prefer the former.

Take care and we'll be back on Sunday evening.

Wednesday, September 23, 2009

What Do You Know, a Reversal

Top Line: Huge Downside Reversal. Well, maybe not So huge but still it is a step in the right direction for the market, that would be down.

[Editor's note: We will Not post on Sunday evening but will be back Next Wednesday evening. We apologize for continuing on our Summer schedule but the market has been tough to read over the past month, at least for us. We were out of sync as you know from reading our posts. Since the July lows, which we were predicting and didn't buy, we have been struggling. Today's move puts us back insynch so to speak, at least we think so. We are thinking of adding a emoticon to indicate if we Feel insync or out of sync but haven't decided for sure. Maybe we will be insync for the rest of time...Right.]

Going into the Fed's announcement this afternoon, the market was holding onto modest gains, especially in the NASDAQ 100. After the announcement, stocks exploded to the upside for about a half hour and then it happened...finally...a Reversal which took stocks down the rest of the day. The decline was about 2% from top to bottom which isn't a lot and may not be convincing to some but it did give us some indication that the turn may have happened.

Today's trading represents an outside down day which is a good reversal day. Outside down means that compared to the day before the trading was both higher and lower and then finishing down below the previous day's low. With the market signalling its turn today, many were expecting something a lot different right after the announcement, but the market couldn't support the earlier buyers leading to significant selling in the final hour.

Things have been coming to this point for quite some time and the Fed announcement gave us the ideal reversal situation. First, with ever continuing zero interest rates, the dollar has been getting punished. Then today there seemed to be no relief and it plunged to new lows for the move. The sellers were then exhausted and the dollar rallied, basically leading the stock market but in the opposite direction. (See DXY on the bigcharts for a reverse image of the stock market move today.)

The telltale leader was GDX. As gold moved higher and higher GDX moved up too until a couple of days ago when both started to find trouble rallying to relative highs. Today's high in gold was near last week's high but was just too much to hold onto. Gold and GDX fell along with the market which should make some sense to readers.

What else should make sense is that the Treasury bonds moved with the dollar and opposite the stock market. TLT, our proxy for the long bond, has been trading in the 95.5 to 96.5 ranger for about a week and today it started to drop through 95.5 going to 95.2, again scaring the bulls a little. What is missed in the analysis is that TLT traded in the high 80's back in early June when the SP500 was 950. Today the SP500 was at 1080 before reversing.

The last piece of the pie is the volatility indexes which really traded with the dollar and Treasury bonds...also making sense to long time readers. The VIX found a new 52 week low today at 22.19 before reversing Up to close at 23.49. We expect a 3 handle on the VIX before this selloff is over. (For those of you who read this "handle" stuff and wonder what that means, we use it to indicate the Front number on the price, in this case that would be 3 if it was in the 30's.)

We sold the rest of our long positions except for a large quantity of UNG, we did sell some UNG today as well but only part of our position. With commodities about to drop due to dollar strength, we expect we can sit out of our long positions for at least a while.

We want to emphasize our long standing position that we don't want to ride this next wave down and there is a greater than zero probability that today's high was The high so we want to be out of our longs. We are strictly short (except for some UNG) and now we have a little cash to take advantage of the opportunities that present themselves.

We do have it in the back of our minds that public sentiment for stocks is still not giddy enough and we expect people to come back into the market full force before this rally completes itself. This Could happen after we see a good sized correction in the current rally. That's a while off but we want to be clear that we still think GDX will have a good run which will come when inflation worries hit the market.

We say inflation worries because the Fed, no matter what they may have implied today, will Not pull the punch bowl of easy liquidity because they do Not believe the worst is behind us. They want to Make Sure that the economy has survived this test well before they do anything to jeopardize the recovery. Again, we think this is a major possibility but we will assess this position as we find out how much the market can actually go down now...that should be a lot. Yes, it's a technical term. We will know more when we see how the first wave presents itself. Then we can at least take a guess. For now, we would say that the September move from just under 1000 in the SP500 should be completely erased and then it's just a question of how deep we get to the July lows around 870.

While we wait, here are some new pictures of Jackson. It was grandparents' day last week so we had frosted doughnuts with Jackson at his school. He enjoyed them as much as the grandparents did :-)

Great Gramma was here for a couple of weeks and she enjoyed some time with Jackson, too.

Of course, new pj's are always good, especially if they come from Gramma and have a monster on the front. At least you know where the monster is and it's not under the bed.

Remember, our next post will be next Wednesday, September 30th.

Sunday, September 20, 2009

Market Trying to Continue Advance

Top Line: With options' expiration behind us, the stock market should be free to trade with some normalcy...ok, maybe with the Fed's announcement on Wednesday the market still can be a little temperamental.

The market has had a pretty good September and it seems that we have been waiting and waiting for a break. Our position is that as the market goes up, we think it is becoming more and more dangerous. Meanwhile, there seems to be some complacency and outright bullishness.

We see that the overnight markets are a little skittish with the stock futures down just a little and gold down about $6. There are so many reasons for the market to go down but as long as it is continuing its run we have to respect it. Pullbacks have been opportunities to buy, not the start of a down move. With this uptrend in place, it does have an end and we will be waiting to see the trend switch from up to down.

With that in mind, we remind you that we are still looking for some more upside but we can not be Sure about that. We are pretty sure but, with stocks in a more and more precarious position, this could be the actual top. That is why we are so cautious and getting more cautious by the day.

As for the Fed, we think they don't carry the same weight as they once did. With short term rates virtually zero, what can they say to move the market? We don't think there is anything they can say. The market has given them the benefit of the doubt as to whether their money policies are the right thing to do or not. Only time will tell but the market seems to believe that what they are doing is ok.

We will reassess after the Fed's announcement on Wednesday.

Thursday, September 17, 2009

Market Tried to Reverse Today

Top Line: Stocks are moving ahead but the pace of the advance is labored at best. There are so many reasons for the market to stall and turn down, at least for a small correction.

The trading over the past few days has included the effects of options' expiration coming up Friday, the 18th. As we move into next week, a more normal trading pattern should emerge. That's not to say that the market will be easier to figure out, just that the multiple personality of the market will be reduced by one.

Let's take a look at the usual suspects, starting with GDX. Trading in GDX has become wild with huge volume and big moves, up, that is. We have seen this stock jump over the past couple of weeks from 38 to 48, a pretty healthy move. The move in GDX is not surprising because the broad market has gone up and GDX has been leading it for about a year now. The move in GDX gives you some idea how this stock can move if it wants to. We still expect a modest pullback in gold itself and GDX. Depending on how deep these corrections are, we will be buyers.

The volatility indexes have not done much of anything for the last week and have only modestly moved even as the indexes have run up 10% over the last couple of weeks. We don't believe the options' players are reading this correctly because the VXX has been dropping with the advance in the stock market. VXX is basically a volatility futures proxy while the volatility indexes we follow, VIX and VXO, are based on the options values.

Our constant companion, TLT, has stayed strong over the past several weeks, too, even though the market has gone straight up. Some have suggested that, at least on the front end of the curve, you know, the one to three month rates, with the expiration of some of the Fed programs, investors want to stay in the safety of Treasuries.

We see the dollar has also dropped to a significant low amid much dollar bashing in the media. This is indicative of a near term low being put into place.

The higher prices go, the more dangerous it becomes to be long stocks. We can't say that we have played this right at all over the past couple of months but the market is starting to become very overbought. The prices in some of these stocks have moved plenty far. Confidence is briming and very little fear remains. This fact alone is enough to drive a market in the other direction.

Confidence and the stock market should not be present in the same sentence. Every trade is a way to lose money and fear is a very good thing to have when your hard earned cash is on the table so to speak. Of course, we like to take advantage of good prices both on the entry point and the exit point but patience has never been a strong suite for us.

We are "confident" that we will be wrong in the future but we also think the market will have some struggles as we move into 2010 and beyond, with a possible low sometime in late 2011 or 2012. So, even though we think that the market will pull back here, we are much more likely to see it go down hard during the next two years. The market is doing much as we have said it would do...and didn't pay attention to our own words. Now, we think prices are just Too High to own them.

On Thursday the market did manage to reverse lower after a little bit of a run early on, which took the market to new highs for the move. The final couple of hours did manage to cut those losses but the market closed off its highs for the day, something new for a change.

Wednesday, September 16, 2009

Delay This Evening

Top Line: Stocks continued their upward movement with steady progress.

We have been out of internet access this evening so we will need to postpone our post until Thursday evening.

Lucky for you, there are some pictures of Jackson with his Sponge Bob Square Pants pillow and his Grampa and his stuffed chocolate Lab that stays at Grampa and Gramma's house.

Sunday, September 13, 2009

Down Monday Morning?

Top Line: The stock market continues to try to hold up with ever diminishing power. Tonight's futures and the Asian markets are down with the possibility that a down start to Monday may occur.

The main idea tonight is that the market is ready to take a breather. We have been waiting for that since, well, a long time. Our portfolio has gradually moved from extremely long to its current nearly completely short position.

With the volatility indexes barely breaking below their earlier lows, the market is set up for a good drop. When the volatility indexes are low that indicates some investor complacency, in other words, No fear. With prices drifting higher and volatility slightly lower, we expect a reversal in both of these directions.

Stocks, in terms of the SP500, should drop back down about 10% or down to about 900. If a selloff does occur, we sort of expect a sharp decline but we will be watching closely for a tradable bottom.

We still think the public is not sure about the market and a selloff would scare them off even more. What this tells us is that the market is not at its top but we can not be sure. With the market, you need to be careful about making predictions about what happens after the current move...but we seem to be disregarding that recommendation.

We think the public will find some optimism later in the year as prices take out the current highs and move a bit higher, yes, to SP500 1234 level. When this occurs, we will be watching to see if the public truly is buying heavily. If so, we will have more confidence that a high is at hand.

Right now, there is some exaggerated insider selling and the market feels overbought so we remain heavily short getting ready for a sizable pullback.

Wednesday, September 09, 2009

09-09-09 Update Failure, One of Many

Top Line: The stock market seems to have some strong buying interest on dips the last few weeks. The has been little net progress in the indexes but a pop to finish the move is possible.

We have been saying for months that the SP500 would go up to 1234 on this day, 9-9-09. Well, we missed by about 20% but we did get the direction right. We went back to our March posts to see when we were suggesting this level. It was on Sunday evening, March 22, go check the archives at the left for yourself. In fact, take a look at how bullish we were back then during the weeks surrounding the low on 3-6-09, SP500 of 666.

But, that was then and this is now. We have become much more bearish in our thinking over the past few weeks and have moved to a net short position which has just been painful as the market continues to defy gravity. What does the market tell us now?

The market has done very little in the way of net gain for several weeks. It has frustrated the bulls and the bears but maybe it has opened the door for some resolution now that full September trading is here. We say that but we realize that trading is not very strong in general. Citigroup continues to dominate trading (day trading probably) as it contributes greatly to the daily volume every day, at a price around 4 dollars. This is what the volume on the NYSE has come to, one stock trading around 4 bucks. This isn't something for stock technicians to be hanging their bullish hats on day after day.

But, we digress. The stock market may have some upside left. We thought that the market would take a breather when it got to an overbought position and it did but it was more like a shallow breath. The NASDAQ indexes as well as some other broader indexes did break their August highs today even though the SP500 and the Dow did not. We think it shows the wrong message if you are bearish. For bearish thinking you want the generals to be leading not the troops. So, we are again on the wrong side of this move. We can't say how far it will go from here but there certainly doesn't seem to be any real selling in sight.

From a contrarian's viewpoint, that is one of the most important considerations, complacency in sentiment. There seems to be no fear in the market as the volatility indexes hang around here in the low 20's. The other interesting event has been the GDX. We recommend a quick look at a ten day chart of GDX. You will see it sitting around 38-39 for the early part of that period and then a rally that culminated on Tuesday morning on a jump to nearly 47.50 and now followed by a close around 44 today.

One of the hedged gold miners, ABX, (American) Barrick Gold, one of the largest miners, announced that it would be unwinding its downside hedge. These miners like to protect themselves from a drop in the price of gold which is why they hedge. ABX has said it thinks the price of gold is going up. It is so strong in its belief that it is willing to unwind its downside hedge. In fact ABX is selling stock to pay for the unwind. This story seems to be part of the craziness in the gold mining stocks over the past seven days or so. Fascinating story for the contrarians. So bullish because gold can't go down...sounds like gold may be nearing a top.

We hope you enjoyed your 9-9-09 even though the SP500 did not reach our target for that day. We are still cautious and will be watching for more signals from the market.

Wednesday, September 02, 2009

GDX Screams

Top Line: The market did decide to slide on Tuesday after all the "good" news on the economy earlier that day. Now what? The stock market still needs to go down to get rid of some of the bullishness.

Yes, the switch from hugely bullish on Tuesday morning with a reversal from the down open to the positive situation an hour after the open. Then we see the Real reversal going from the 50 plus to the 200 minus. People are fickle and change their minds easily. It's a trader's mentality. The way a person decides what to do can't be something that happens with a 200 point swing in the Dow Jones Industrial average. Going from bullish to bearish in a couple of hours. Please.

The stock market seems to have put in a top on Tuesday morning. We won't be sure until we see some more selling but the idea that the market should go down is still in effect for the Update. As we patiently wait for the market to continue what it started on Tuesday, we will probably see a few days of upside going into the holiday weekend. This, of course, is Not guaranteed.

There is this one other Thing that we need to discuss, GDX. Did you notice that GDX was up nearly 10% today? We are not that happy about it since we don't own very much of it anymore. We were hoping to get most of it back in the area of 36 but that will now need to wait and possibly need to be raised. Gold itself jumped as it looked like it wanted to break out of its recent tight range. Gold mining stocks usually signal the move but actually followed this move today which doesn't confirm this move...still, the 10% move is convincing.

Treasury bonds have had a good few days and now are getting to a place where we might be willing to start thinking about selling them. We have been watching the TLT and have seen about 10% rally in the last couple of months with possibly some more to go. We will be looking to sell them as the market goes down. We'll keep you posted.

Meanwhile, the market continues to keep people guessing. That's the way it works, keep most of the people losing money.

This weekend is Labor Day and the Update will not be posting on Sunday evening as usual. We will post on Wednesday evening next week. We are not sure when we'll get back to a normal daily schedule or if we should. We'll keep you informed and if you have any thoughts, let us know in comments. Have a great weekend.

Sunday, August 30, 2009

We Still Recommend Selling At Least Some Of Your Stocks

Top Line: Last Friday's action looked like the start of a downtrend as we mentioned in the comment section in our last post. The stock market should now retrace a great deal of the rally from the July lows down around 870 in the SP500.

The stock market's reversal on Friday didn't lead to much in the way of net selling but the opening blast followed by a cliff dive fits our definition of an important reversal. This reversal came at the right time and could be a harbinger of near term selling. The Asian markets, other than Japan, are down with China down over 5% as we write. The Chinese market has been the source of a lot of movement this year and that continues this evening.

We want to point out that the best course of action right now is to get out of at least some of your long stock positions. There will be lower prices in September to get back in. We sound like we know that will be the case and we Don't know for sure. The market's position Seems to be poised for a reversal. We are short and would certainly like there to be some selling.

What we do know is that sentiment has grown to a level that is too high to ignore. This sends chills down a contrarian's spine and keeps us firmly in the bearish camp. This message will be lost as the market drops over the next several weeks but for now it rings loud and clear...Sell.

What we do not see is full public buying of stocks. There may be some bullish sentiment in the press and among investment advisors but we still don't seem to see the public enamored with stocks. This would be the final piece in the puzzle for now but it just doesn't seem like there is much buzz about the market. This type of behavior will take more than a four digit Dow, which is one reason we are not convinced these current highs are the final ones for the countertrend move. This should start the chatter back up at work and in your family discussions. If bullishness is the conversation already, please let all of us know. That would definitely put us in a longer term bearish mood.

That thinking does not allow us to hold stocks here because the probability of a high here is just too high to ignore. As the market drops, or if it does, we will then see how the world reacts to lower prices. If there is a huge build up of negative sentiment, then we will get bullish again. If the volatility indexes go up very fast to levels of March, then we will probably get bullish again. But, if the market heads down and people continue to buy the dips and volatility does not go up, meaning there is no fear of a larger down move, we will have to conclude that the market will go into the abyss. We don't have to worry about that thinking just now but we will be watching it closely.

Right now we are watching the Treasury bonds, or our proxy for them, the TLT. We have seen a nice rally and this provides us with some confidence in the stock drop. Our other consideration is the GDX which popped over 40 on Friday but is well off its early June highs around 45. We continue to think its lows for the move are in down around 34 and will be looking to buy it back if it gets into the 36 range. We'll keep you posted.

Wednesday, August 26, 2009

Sell Into Whatever Strength the Market Gives

Top Line: There is significant lack of upward momentum but the stock market seems to float higher every day. The wind should be blowing in a different direction very soon.

We saw the big announcement that Bernanke is being allowed to run the Fed for another term. And, while that may not have been the reason for the early rally that day, it seemed like a good high profile news story to bring the last of the bulls in to buy. We don't always get a bell to ring signaling the high for the move so this may not be it.

The market started getting tired this week, no more tired than we are...waiting for the market to turn over. The first moves are not going to be big but the turn should be very close if not very noticeable. This is giving you a good chance to get out of your positions. We think there could be a significant drop, enough to warrant selling some of your holdings. We do think there will be a good chance to get back in a little later, say later in September.

If you want to hold onto your positions through this sell off, you can, but the odds of this recent move being a top are more than zero. We are pretty sure that the market will make new highs near our target of 1234 in the SP500 because the public is just now starting to get excited about the bull move. There needs to be a sell off to scare some of them off but then a large rally should spring out of the next low. This rally should get Everyone excited about the possibilities and that's when we will unequivocally sell our long stock positions. The point being that you can close your eyes for this drop especially if you are in taxable positions that could be long term gains if you hold them for another few months.

For now, we recommend selling at least some of your holdings, especially if they're in a retirement account where gains are not taxable right now.

Sunday, August 23, 2009

Is It Possible for the Market to Go Down?!?

Top Line: We didn't get any selling at all and the market seems like it wants to go even higher. The market may Feel like it wants to go higher but that's not an emotion that you should be paying attention together.

With the market moving higher, we deem the market to be ever more dangerous. We would recommend taking the opportunity to sell into this strength. We know that the most likely situation is that the market will resolve to the upside over the next few months but it is well overbought right now. So, if you decide to get off the risk for now, there may be a rush to get back in if we get an opportunity.

The possibilities are endless about how the market will move. This is the last week of the month and the market has been strong recently. Last Monday's big drop was severely bought and gave the market four days of straight up to make up for that loss and then some. This evening the futures are higher after the Japanese market jumped on the gun, up 3% as we write.

The end of the month is coming and the end of vacations is also over. The real traders will be back soon. Friday's volume was a little heavier than we've seen over the past few weeks but it was options' expiration which normally boosts trading. The next week or two should start to see some higher volume as people come back from the Hampton's or where ever they are. We have not been trading nearly as much over the past few weeks due either.

When the market dropped last Monday, many bears came out of hiding. This was a clue that the bullishness had dissipated at least little. We are surprised that this was enough to push the market up as much as it did and with possible more upside early this week. We are patiently waiting for a pullback that is worthy of the rally we have seen over the past week.

Our main focus is the level of the market. Last week we thought that 1018 in the SP500 would hold any rally but that obviously did not hold. Now, the market has thrown itself over that level and created a lot of extra bullishness...this Should be enought to get us a selloff. We'll see.

Wednesday, August 19, 2009

We Need Some Selling

Top Line: The best we can say this evening is that the SP500 still has that 1018 level overhead which should not be touched before we see lower prices.

Stocks opened lower on China's weakness overnight. That didn't last too long and buyers came in to bid up stocks. Halfway through the day another burst of buying occurred taking stocks positive on the day.

We follow and trade the NASDAQ 100 and various funds that are based on it like QQQQ. We have been patiently waiting for some movement in the market over the past month or so and noticed that the QQQQ has traded in a narrow range of about two points during that time. Monday saw that index drop but it stayed in that two point range.

There was some movement in some of the stocks/funds we watch. Even GDX had a wide range today with a start near 37 moving up to the 38.50 range. Ok, maybe it's not a huge range but it was a really good trade. We have been talking about buying GDX in the 36 range so we are very close to start our buying campaign, but we're not there just yet.

With options' expiration coming on Friday, there could be some volatility in prices just because there has been such a tight range over the past month. There is no obvious strong conviction on either call or put buyers so there may not be much in the way of options' driven trading.

But, the market has failed to move up over the past month and has just this week broke down a bit. The last couple of days have corrected the out-sized move on Monday. We say out-sized based on the trading of the past month.

Now, we are coming to the end of the earnings announcements and the market may be free to trade on its own. We think the market could be weak over the next a weak week on the horizon in our view. Going into September we should see a 8 handle on the SP500. It may not drop too far into the 800's but we think that a move down would at least put a scare into some of the bulls allowing for another run up into the fall.

We have thought there has been too much bullishness and now we have seen a flat market for a month. That is enough to relieve the bullishness but in order to see the price levels we are expecting there has to be some out and out bearishness which can only be generated by much lower prices. These small pullbacks like Monday are still buying opportunities to the players. This is Not bearishness...

Sunday, August 16, 2009

Back to Work, and BTW Tiger Lost

Top Line: The stock market should have topped back at the SP500 level of 1018 and so far the market has respected that line. The slow turn down has started. This move will be faster later in the move, in September.

The stock market showed some signs of price declines, especially on Friday. There was some bounce back late on Friday but we think that bounce was just a little countertrend correction of the down move. What that means is that a decline, or advance, will not go in a straight line. There will always be Corrections in the move that go against the main trend.

We just thought we would mention how GDX has been trading. Over the past ten days GDX tradeded up to nearly 42 and last week it broke 38.50. Back in mid-July GDX nearly got down to 34 which represented good value and now looks like it may be the low for the move. The stock will most likely suffer some further declines as the stock market drops but we do not think that the 34 low will be taken out. Another way to say that is GDX has probably put in its low for the move and will not go below it in the next month. Another way to look at it is that if it gets down to the 34's or so, BUY IT. We'll keep an eye on it, too.

We have been on vacation and have not been watching the market during the trading day. [We have been at the PGA Championship this week and no cell phones were allowed. Not only that, today Tiger Lost.] We hope to be more on top of it starting Monday. Any thoughts from you?

Wednesday, August 12, 2009

Short Update

Top Line: We are on vacation this the market is still trying to put in a top. Today's new relative high in the NASDAQ 100 was not confirmed by the other indexes. The market is struggling to stay up. Even with the Fed's announcement today and the real estate news, the market is still struggling. Full Update on Sunday.

Sunday, August 09, 2009

Just Waiting for Downside Confirmation

Top Line: The stock market seems to pivot on those employment reports and last week's report could be one of those pivots. We expect to see lower prices over the next few weeks, maybe into September.

The market failed to hold onto all of its gains late Friday and went out a little weak. The SP500 hit 1018 mid-day Friday and closed near 1010. The 1018 should represent extreme overhead resistance even though the market could rally Monday morning. The week end news was pretty bullish, meaning we would be very bearish, so most of the public is now confident in a market advance even though the market has already gone up 50% in a little over four months. Welcome to the party, but it's about over for now.

The message of the market is clear right now...tough sledding for the up move. More likely, the market is about to take all of those buyers down with it. The bullish consensus could bring more late buyers in after the weekend but there aren't many left, especially after Friday's capitulation buying.

Our comments on Friday morning still hold. The dollar has put in a pretty good bottom, it seems, and this gives us some confidence about the rest of the market. Strong dollar means weak stocks and commodities but strong Treasury bonds. We are looking for an increase in volatility due to falling stock prices.

GDX fell below 40 once again which should lead the way for stocks in general to follow lower. We are light on GDX after selling some of it last week so we are going to be looking to buy some more back here in the 30's, hopefully down in the 36 range. We'll keep an eye on it. We don't think it will punch through the low near 34 but it could give us another great buying opportunity down around that 36.

For now, we will continue to hold our bearish positions and expect the market to turn down from here. We say the turn will be subtle for a few days but it will eventually turn into serious selling. Too much bullishness will give way to selling and then Too much bearishness...which will be the time we want to get excited about the rally going into the fall or early winter.

We do need to see some downside to confirm our position that the market is going down. That would include a continued move in the indicators we mentioned above.

Wednesday, August 05, 2009

Market Ready to Drop

Top Line: The stock market needs to go down. The spike we saw last week was not the top as the market decided to push a little bit higher this week. Now, let's go down.

The main news item came after hours in the form of CSCO's earnings. The normally effervescent CSCO CEO John Chambers was less than sure about the bottom being in just yet. He wanted to see some more data before making a determination.

This revelation was not well received in the after hours as CSCO dropped about 3.5%. This move dragged down the overnight futures but only modestly. The bulls still think these little pullbacks are buying opportunities...which brings us to our post.

The stock market has been struggling to maintain the upside over the past week or more. Most bulls say that this means that the market can go higher right now. Well, yes it has gone higher for the past few days generally but it's not making progress. Today (Wednesday) it was down slightly and yesterday (Tuesday) was mostly flat.

As the market goes higher, the Update is continuing to sell its stocks. We have become very bearish in our positions. We do hold some modest long positions but we are mostly short right now. We were using our short position to hedge against a drop in the market and as the market went up, we started selling our stocks and buying more hedges until now we are heavily short.

We're not exactly sure how this happened which is a bad thing. But, we do feel like the market has a fair amount of downside over the next four to six weeks.

For those of you who held onto your stocks, good for you. Now you should have some pretty nice profits. We want to say you should lighten up for the downturn but, if you do, you will need to make sure to get back in later. We are looking for a nice pullback and then a good sized run up going into the fall.

For those of you who sold some of your stocks, you may want to sell the rest of them here. We assume you are agile enough to try to get back in as prices drop. We will need to be patient.

Today, the market is trying to put on a brave face rallying in spite of any and all bad news. This week's employment report coming out Friday morning is expected to show a modest improvement in the job losses but a little uptick in the unemployment rate, a number already very close to 10%.

Our perspective is that the market is ready for a pullback to correct this huge run-up over the past month or so. It will start slowly, like yesterday, with a little weakness and then it will get some legs. We expect the volatility indexes, our main fear gauge, to rally strongly, as people begin to wonder if the sell-off will test the March lows. We don't think that will happen but just having people talk about it will be enough for us.

We will be watching the volatility indexes for confirmation of the drop. We also expect the Treasury Bonds to go up along with the dollar. Commodities, such as gold and oil, may drop along with the stock market. We would not like to see UNG drop now that natural gas has reached $4 again but it could drop, too. We have sold much of our GDX holdings again but will aggressively buy it back if it drops back into the 38 range. We'll keep an eye on it to get as good of a price as we can.

Take care and we'll be back on Sunday evening.

Sunday, August 02, 2009

Intermediate Top May Be In

Top Line: As we mentioned in our comment last Thursday morning, we do think the market reached an intermediate high and will now "correct" the rally of the past several weeks.

As we have been repeating for the past few posts, the media has pumped up the bullishness in the marketplace. The contrarian in us generally gets the chills when bullishness gets so high. We have sold a bunch of our long positions but have kept a core position in most of our favorite stocks.

We point to our standard warning systems, as boring as it is, but they have told us nothing different over the past few sessions. Treasury bonds are showing some surprising strength. Our standard proxy for the long dated T-bonds is the ETF TLT. Last Monday, TLT traded near 90 and by Friday it was near 95. This is the boring T-bond, up 5% in a week.

Meanwhile the volatility indexes seem to have put their lows in about five or six trading days ago even as the market climbed to its peak on Thursday. This shows that relative increases in prices of stocks has not improved the volatility and should be showing that the a turn is now in the works. We expect the turn occurred on Thursday morning.

The market should turn down and trade lower over the next couple of weeks. Now we just need to see the turn develop and try to estimate the low. We would normally say that the minimum distance would be about 38.2% of the prior move. From the 869 low to the 996 high is about 127 points so roughly 50 points down would be our absolute minimum down move, about 950 (basis the SP500).

We think the drop may gather some steam and could possibly drop much more than that even to the extent of going below 869, although that would be an outside chance. We don't know where it will go but we do think the bullishness is too much for it to stay up here for now.

Ultimately, when this correction plays out, we expect that bullishness will wane dramatically and we will then see a huge rally that takes the SP500 up to our initial target around 1234. It looks like our date of 9-9-09 will be more like 11-10-09 but we still like the 1234 level.

We'll be back on Wednesday evening as we continue our summer schedule.

Wednesday, July 29, 2009

To REIT or Not To REIT

Top Line: The stock market continues to cling to the high prices. With a possible burst up to fresh highs, the market would be free to go back down. Or, it could just go down from here.

The past few days have seen the SP500 trade in a very tight 15 point range, about 967 to 982. This type of action sometimes leads to a pop and then a good sized drop should follow. If not, the market is ready to drop about 10% over the next month or so.

Yes, we know we missed the rally over the past couple of weeks because we didn't heed our own advice, but the current message is fairly clear...down move ahead. The bullishness in the media is too strong to think anything else, in our contrarian opinion.

GDX continues to go down signalling a drop for the market. The volatility indexes are refusing to go down anymore. The dollar is close to a low and Treasury bonds are holding or even getting stronger.

The Treasury auctions of the past couple of days did not go as well as they thought Monday's auction went but still the long bond is stronger. The Treasury is trying to sell a mountain of debt this week and still the long bond holds its price.

We had a question in an email today that related to a 7-9 year time horizon and what we think would be a good investment for this period. Please understand that the best advice we can offer at the moment, or at any time really, is to buy value and sell strength. Over the next 7-9 years, or 10 years as we expect, the market will be in a roller coaster ride with the ultimate lows to be registered in the 7-9 year period probably with a higher low in about 10 years.

In this environment, we think that buy and hold is a poor strategy no matter who the buyer is. The next 10 years will present several opportunities to make very high percentage moves such as have been made in the past year or two. Buy and hold will come back as soon as the media and your friends start telling you they will never put another dollar into the market again. That should happen after they've lost a lot of money and be in about 2019.

For now, if you think a particular stock looks good, because it is cheap and it has the potential to run up a long ways, then by all means buy it. We don't see many stocks like that now because we think the market is going down for the next few weeks.

The stock that was mentioned was a real estate investment trust (REIT) which as you might imagine invests in real estate. Our particular position is that real estate is to be avoided in this market but we do Not follow REIT's, although we've heard of the one mentioned. In this case the dividend is near 15% which seems too good to be true. Like we said, we don't follow these vehicles and can not give you good advice on them.

What we can do is to advise you to be nimble with those funds. Assume that the T-bonds will perform in the opposite direction as stocks and trade back and forth between the two investments as conditions warrant. Or, come back here and we'll try to nail down the timing for you...or maybe we'll just try do that and you can take or leave our advice. Right now, we're headed down in our opinion so holding TLT may be an ok idea for about a month. Then we might switch to GDX or some other commodity for the wild ride we expect from August to October or November.

Sunday, July 26, 2009

Bulls Are Out In Big Numbers

Top Line: The market didn't take long to jump with the Dow jumping up over 9000. We are looking for a pullback. When it occurs, we will estimate the distance it can travel.

The stock market jumped with the SP500 going from about 870 to last week's 980 about 13% in just two weeks. We are not happy to have missed this. Now we need to know if there is some downside and how much. We do think the downside is more possible than apparent. We have our reasons for this thinking...

The first is that the volatility indexes are having trouble dropping much more as the market jumped. With the SP500 jumping up 30 points last week while the volatility indexes hardly moved.

Our favorite stock for the 2009 is GDX and it has been our leader since October. With GDX not participating in the rally, as in, not making it back to 45, we think the market needs to back off a little to allow GDX to get back into its lead role.

Also, there seems to be a lot of bullishness. No one is really considering that the market can go down from here. If it does, the prices won't go down much at all, or so they think. These things raise the hair on the back of our contrarian necks.

Lastly, we don't think that the T-bond market is giving a clear signal of lower prices. They bottomed back about a month ago and even with the stock market continuing to march higher, the T-bonds have not been inclined to decline.

We will keep an eye on this market over the next few days.

Wednesday, July 22, 2009

Rally is Getting Very Tired

Top Line: Unbelievable...NASDAQ is up eleven days in a row. There is an end to such moves.

Yes, the Dow was down on the day after its own seven day up move. Is it possible that the market could turn down for a few days?

You may be feeling it, too, all the bullishness after a big up move. Where is that bullishness before the up move? Normally, people don't get bullish until After the move. Complacency is at a peak as well as measured by the volatility indexes. Maybe we should say Fear is at a low point as people now believe the market will go up some more.

We don't believe that the market has much upside in the short term but now the question is more about how low can it go. The answer is that the market can go down just like it went up. As people notice the market has gone down, they will get more bearish...amazing how this works.

We look back over the past couple of weeks and notice our own advice about how the market would go down to about 850 and probably lower. Then there was the talk about how the world was expecting a break down from the supposed head and shoulders top and were setting up for such an event. We thought that as the market dropped below 880, people would start anticipating such a move down to 800 in the SP500. We also mentioned that these short sellers would not be rewarded for their thought process because the market would not fulfill the normal head and shoulders pattern. We should read what we write and take that advice.

But, what to do now after a 10% up move in two weeks? We believe that the path of least resistance really is down with so many bullish, or should we say relieved, stock owners. The volatility indexes have struggled to go down although they have dropped a little over the past few sessions. This summer rally is almost over and we'll have to wait and see what kind of down move we can get. The next two days should be revealing.

Back on Sunday.

Sunday, July 19, 2009

Option Expiration Punishes Shorts/Puts

Top Line: The market should be close to a high with some selling coming back into the market this week.

We have not been doing too well calling this market the last week or two. We look back on our comments about the anticipated head and shoulders top formation and wonder why we didn't pay more attention to ourselves. We said that some would go short around 880 or 870 in the SP500 and the market would not give them what they wanted, a quick drop to 800. Instead, the market did drop to just below 870 and then it jumped to where it is now, about 935.

So, what is going on? The volatility indexes are trying to tell us that the market is overbought. This means that we should not be considering buying at this time, unless it is something that will go up if the market goes down. The last few days, the volatility indexes have gone down but there doesn't seem be much in the way of further progress. The volatility indexes by themselves would say the market is heading down.

Last Friday was options' expiration which the market seemed to think needed to punish the puts that were expecting to have a quick 10% drop after that head and shoulders top.

Our attitude is that the market still needs to go down, at least a little from here. We will continue to monitor just how much downside there may be. It still is possible to get this market back down to that 850 we've been talking about for a while now but we will stay focused to see just how far any downside will take us.

Wednesday, July 15, 2009

Volatility Puzzle

Top Line: A lot can happen in a couple days. The market has certainly denied the head and shoulders top so many were predicting with a resounding rally. The rally shouldn't have too much more to go if any.

We only have time to discuss the volatility index puzzle. With the market running up about 3% across the board on Wednesday, why did the VIX move up by the end of the day? That's a good question and one we are not sure that we have a good answer for but we will give it shot.

INTC (Intel) announced what the market thought was the news of the century so there was a huge rally right away in the morning trade. This caused the VIX to drop from about 26 just before the INTC announcement on Tuesday to just under 24 as the market opened. The last time the VIX was that low was back in early September when the SP500 was right around 1250. This is an extreme condition with bullishness very high.

Some amount of realism needed to come back into the options market and as the day wore on and stocks continued to grind higher and higher, the options traders were pushing premiums up causing the volatility indexes to move higher as well. This is an odd event by itself except that taken in the context of the sheer low level of the index is enough to convince us that the market has not finished its work on the downside.

Taken by itself, the volatility index increase could be very bullish but we now need to see what other indications are going to turn. We expect the market to actually head lower on Thursday morning and we think the Treasury bonds will turn higher after a thorough pounding the last few days. As the rest of the players in the game make up their minds as to what to do, we will then have a clear picture of what's going on.

More on Sunday evening.

PS Elliott Wave is having their famous "free week". Take advantage of that.
Go to to get started.

Sunday, July 12, 2009

Getting Close to a Short Term Low in Terms of Time

Top Line: Stock prices could potentially be putting in their lows in the next several trading days, let's say about ten days.

We received a question in last week's comment section which we have not answered. We thought it deserves a couple of paragraphs in tonight's post.

The question is, "What should we do if the SP500 drops below 850?"

The first answer is that we Expect the SP500 to drop below 850 and that's where we want to do our buying. The question is more like what if the SP500 drops to, say, 750, which of course it could but we think that is for the "next" time down. That seems like a long ways to go but we can't say that it can't because the market is always capable of multiple personalities.

The amateur chartists are telling us that the SP500 has just experienced a head and shoulders top which should lead to a "measured move" down to about 800. Right now, we are trading near the neckline around 880 and a good break of that should, in these technicians minds at least, produce a sharp move down to just under 800.

What this thinking causes them to do is to short stocks right after the market makes a solid move below 880 or maybe 870. This selling could lead to a quick drop just below 850 but we don't think these new chartists will be able to capitalize on the "great" short idea because the market will not accommodate their analysis. When too many expect something, it is likely Not to happen.

Should you "hold off" until we get down to another support level? We would say that anything under the SP500 850 level should represent good buying opportunities. If a drop like that is accompanied by a surge in the volatility indexes, say VXO goes to 38 or 42, then we would say it is a great time to buy.

Here's what we expect will happen over the next two to three weeks. We have been well served by Elliott wave in the past and now we think it appropriate to go back to that model. We assume that the market will put in a bottom in the next three weeks and it will go something like a reverse head and shoulders with a sharp move down with a rally following. Then another sharp plunge to a new low and then a rally. This would be followed by another drop to a low similar to the first low.

In Elliott wave terms we are probably coming into a third wave low which will lead to a fourth wave bounce and then a fifth wave low, The low for the move. This would then be followed by a strong rally which would be a wave one up which would be followed by a wave two back down. From there we would expect you had better be in or you will miss the biggest rally in the shortest period of your life.

We will guess that the third wave would spike down below 850 and then the fourth would rally back above 850 but stay below 875 and then fall in a fifth wave to about 835 or so. Then we will have a rally back to about 880 or maybe 900 indicating that maybe something different is going on to those savvy few. This spike needs to be sold and we expect it to be sold down just about to 850 but maybe not.

The way to trade this is to simply figure out What you want to buy and how much you want to buy and then of course picking your prices. With the potential of three good buying opportunities coming up, we should be taking full advantage of them. For the stocks you want to buy, it seems likely that they will put in their bottoms in or near one of those three lows. You won't know which until after the fact. That means you have to take a shot at buying for the right price by being bold and entering orders that are GTC (good till canceled).

We have a difficult time doing that because we always think we can get better prices than just guessing in the evening when you are putting in your orders. We do think if you are buying a stock, you should only pick up part of your position on the first decline and more on the second decline and maybe more on the third, if they all develop.

As we view the overnight markets, they are mostly down including the US futures. The Japanese have just announced that deflation is still going on there, wholesale prices dropped 6.6% in June. There are other news items out of Japan and other Asian countries, perceived as bad for the stock market. Here in the US, the second quarter earnings are starting to be released which is giving some pause for concern. We think that will be part of the driver for low prices coming up but that after a while the market will begin to look past them to brighter days ahead.

We think it is time to start getting ready for a great buying opportunity for stocks. This could be the last good time to buy until after we go down next year. And, we think it is essential to financial success to be long coming out of these July lows.