Tuesday, March 31, 2009

April Begins, No Fools Here

Top Line: The stock market's big up move early in the day gave way to a last hour selloff that probably means there is some more to go on the downside in the next day or two.

The stock market staged a powerful advance during the day but failed to hold onto it all into the close. After hours, the market continued to sag setting us up for a weak Wednesday. This drop is part of the Friday jobs' report and first quarter earnings reports fears. We would like to see a little more selloff into Friday morning but it may not last that long.

In any event, the prices that we get in the next few days should be good enough to buy if you still have funds available. If not, just hang on and we'll just watch the market go up in a week or so. Our portfolio has taken a hit over the past few days due to the volatile stocks we own but the volatility should look very good in a strong market.

The Dow did manage to close higher on the day and the Asian markets are celebrating the new month as we write with Japan up about 3%. Apparently, April 1st is a new financial year in Japan.

Speaking of April 1st, don't miss out on your opportunity to play one practical joke on someone on Wednesday. We are reminded of one of our childhood riddles..."Why are soldiers so tired on April 1st?" And, of course the answer is, "They have just finished a 31 day March."

Well, we do think it's been a long month but it's been a strong one for the stock market, the strongest in about six years they say but the first up month since August. The bear market is now in a corrective move or, if you prefer a medical analogy, in remission, but it will return with a vengeance later in the year. We don't need to worry about that just yet.

Any of this selling is designed to encourage you to sell. We want to sell Strength, not weakness. Let the market or your stock tell you it is "overpriced" and then sell it. Right now, we are in the early stages of a big rally and none of these stocks are "overpriced". Take a look at what they were worth a year ago...yes, use bigcharts.com in the links to look at your favorite stock.

Speaking of the links to the left, we added some new links for you (and us). These are links we use a lot so we have them on the blog to get to them quickly and easily.

Don't forget, April Fools is here. Enjoy.

Monday, March 30, 2009

Correction Nearly Over

Top Line: Another great buying opportunity presented itself. There is possibly some more downside, not much, and that would be a great time to commit some more funds if you have any left.

Monday's market gave way very early and the ended up losing some 250 points on the day. The market is pulling back to get ready for a big move up. This pullback is right in line with a normal selloff after a big runup. These pullbacks are for one thing and that is to scare the bulls into thinking that the bear is back and is going to run them over.

The stock market will try to confuse as many people as possible. If you bought on Friday, today was a day to get scared and sell. Tomorrow may be another day to buy. What's the right thing to do? A rally is at hand and pullbacks should be bought. Upside is coming.

Like we mentioned at the top, a possible further decline may occur but that should be bought. Remember, we want to sell Strength but Not Yet. Of course, if you are trading you can sell into strength and then buy back during pullbacks. This may not work on the next rally, which looks like it will be an Elliott Wave 3, which is normally the longest and strongest move in a pattern. If wave 1 ended last week, the Dow gained over 1400 points and that would make the upcoming wave 3 higher than that. We guess it will be a move of about 2000 points taking us very near 10K. Relax and enjoy.

Sunday, March 29, 2009

Friday's Jobs' Report Is In Sight

Top Line: After last Monday's 500 point jump, the Dow has managed to keep most of that gain even after last Friday's selloff. The Dow can now proceed higher if it wants to.

As we sit down to write this post, the world markets are pulling back a bit and the US futures are following suit. The news from the auto makers might be the problem, with the CEO of GM stepping down (Wagoner). The government isn't sure if they deserve more taxpayer funds. This could lead to a drop at Monday's opening.

We think that for the most part the world is pretty bearish generally, with the main thought being that rallies should be sold. About the most bullish being that the Dow may be able to get back to 10K but most reports argue for about a 10% continuation in the rally before we head down again.

Even after the stunning 20% rally in two weeks, the world is questioning the rally. We would say that's exactly what we want to hear. That tells us the public is uncertain about the direction of the market and they have been so badly burned that they probably were selling into the final lows and Never want to have anything to the stock market again. We think they will be changing their minds as soon as the Dow hits some of our targets for around September, just, we might add, as we are getting ready to sell.

Looking at the volatility indexes, particularly the VXO, we noticed that it dropped to a low near 40 on the 18th and during last Monday's 500 point advance only managed to drop back to about 42. These are the types of things that make us smile at the same time we are scratching our head. How can option premiums be staying so high when the market is climbing so fast. We don't ask questions and just feel confident that the market can still go up a long ways...at least as far as the volatility indexes are concerned, and they are pretty strong indicators.

The stock market is again looking to Friday's jobs' report with suspicion. So far the consensus is about the same as last month, around a 650K loss in payrolls. We don't think the market has to wait for the number but there could be a slight cloud over it until the report comes out. Last week's performance was particularly strong in light of the huge runup on Monday and a pretty strong selloff into Wednesday afternoon...which reversed itself into the close.

One of the areas we have been buying in the past several weeks is natural gas and late last week natural gas sold off to new lows for the move. Meanwhile, the natural gas produces did Not selloff to new lows. This combination should be bullish over the next few months for natural gas itself and the producers should continue ot outperform as well. We only mention this because there are so few places to get a truly good bargain anymore so here is one.

In the period just before the lows of the market in early March, we were saying that a low as coming and that you should take advantage of the low prices to buy some of your favorite stocks. Our guess is that you probably can't buy them nearly as cheaply as you could back then. Some of these stocks have jumped quite a bit and will not look back, meaning they will not give you another Good chance to buy them. We hope you bought them when the opportunity was available.

We're already getting excited about a selling opportunity. The market has been so gloomy for six months and is now finally coming out of that phase so we are looking at the next possible selling point. Yes, we are a little early in our thought process but we do want to be prepared. We think there will be an early opportunity to sell into some strength. From there we will have a pullback that will give us another opportunity to buy even though those prices will not be very cheap. Then we will get a really strong run into Labor Day. You remember our target of 1234 on 9-9-09 for the SP500.

We will be notified of the opportunity to sell by the volatility indexes and possibly some other indicators. If we decide to take some off the table for a pullback it will be because of some compelling evidence. We certainly don't want to miss the final runup of prices later in the summer. By selling, we run the risk of missing out on a good run. So, we will need very strong evidence to sell. Otherwise, we will just hold out until the highs of the year in late summer or early fall.

Wednesday, March 25, 2009

GDX Leads The Way

Top Line: The stock market gave bulls some concerns after a big rally failed. With the rally into the close, it is possible the correction is over. We are looking for a strong market coming out of today's trading.

[Editor's note: There will likely not be a Thursday post this week. The next post will be Sunday evening. Happy Trading.]

The market created a possible pattern that allows for a continuation of the recent rally. This pattern is not perfect but does represent a good chance that the next up phase is about to begin or did begin on Wednesday afternoon. We will know more as trading begins on Thursday but the overnight futures are up enough to give us some encouragement.

One of the stocks, funds, we have been following, GDX, turned in an interesting performance today as well. This stock has been in the front of this market leading it up starting way back in October when it was one of the first stocks to bottom. Since then it has more than doubled and today closed at its highest level since that October low.

This move is significant because gold itself is not at a new high for the move. We generally say that the mining stocks lead the precious metals so with today's new relative high in the GDX we expect gold to follow suit and rally. In the mean time, GDX should continue its recent run and maybe get over 40 soon.

Over in the Treasury bond world, yesterday's "positive" news that the Fed was about to buy some 10 year Treasury bonds didn't help the bond market today as Treasuries fell (rates rose) all across the curve. This was Not a good day for bonds even though the Fed purchased more than they were expected to buy at $7.5 billion. A 40 year auction the in UK only produced bids for 93% of bonds offered.

These tidbits support our position that rates are going up and soon. We recommended refinancing your mortgage after last week's announcement by the Fed to buy up $1 trillion worth of long bonds and mortgages. That news popped the bonds hard and fast but they settled back down soon after. Then yesterday the Fed popped the bonds again with their announcement that they would begin their purchased today. Yesterday the bonds got a pop but not today. Rates are headed higher...good for us savers. We think these news items are glaring and important for the direction of bonds...down as we see it, with rates on the way up.

Tuesday, March 24, 2009

How High is the Sky?

Top Line: The market seems to have put in a short term top on Monday. After 1300 points in two weeks, the Dow probably needs a break; but, remember, surprises are to the upside.

The market opened with a thud in the morning and while it struggled to get back to even a couple of time, in the end, the sellers took control in the final half hour. With such a strong move over the past two weeks, the market needs to sell off just to reduce the bullish sentiment that has developed. The market needs to create a reasonable doubt among the buyers, "Will this market go back down and test the lows from two weeks ago?" We like a little backing and filling.

During the afternoon, there was another Fed "announcement" that they would begin buying some ten year Treasury bonds. The Treasury bonds across the curve jumped on that news. The TLT, a fund of long term Treasury bonds that we like to follow, went from 102 to 105 in about a half hour. Last week when the Fed said they would buy long term Treasury bonds right after the FOMC meeting, TLT went from just over 101 to 108 in about ten minutes. Just for perspective, the TLT was 123 in December.

With the first wave of the rally probably done with a Dow gain of 1300 points we can get a sense of how we think the market is giving us clues on its direction. We are taking a stab at the big moves we see in the next several months. The first thing is that this is a "corrective" move that is correcting the drop from the highs of October 2007 to lows of March 2009, a total of about 7700 points. These are ballpark figures but we think that a corrective move of 61.8% or about 4750 points. That puts the Dow at the low (6470) plus that correction (4750) which gets us to an estimated 11,250...about. That's one estimate. Here's another...

The market has given us a first rally, which has been powerful. This 1300 point move suggests another look at the future. We think a corrective move is a three wave move, at least that's one possibility. The first wave is up and the second corrects the first and the third moves up strongly, sometimes it's called a wave C or as some call it a "fill".

Our estimate for the first wave is based on the 1300 point first rally. We expect the full first wave to be about 3500 points with the second wave correcting that move down about 1000 points, maybe 1300 points. Then the third and final wave would take the Dow up a similar 3500 points. So, if you start with a low of 6470 and add 3500, you see our first wave would take us up near 10K and then a pullback to 8700 or 9000 with a final push back to 12,500 which is our estimate for this move. Yes, we are looking at 12,345 in the Dow on 9-9-09 (based on our SP500 estimate from the Sunday evening post).

So, if you're trying to figure out if the rally is over, these numbers should give you a bit a perspective of where the market could go. We would say that somewhere between 11K and 13K is a good guess. Doesn't seem possible, does it? Enjoy.

Monday, March 23, 2009

500 Point Spring Loaded Rally

Top Line: The market staged a breath taking rally on Monday. The Dow is now up 1300 points in about two weeks...maybe not tomorrow but there is more to come.

The stock market has possibly completed the first leg of its rally by jumping 500 points today. The media would have you believe that this rally had something to do with the proposal by Treasury to use "already committed" money, from the TARP, along with private funds to Save the World.

With so few details surrounding the "plan", we just don't think the market was particularly moved by this news. It is possible that some excitement was generated by the news but let's make it clear that if the market didn't want to go up, it wouldn't have. Period.

The plan, from what we can tell, is sort of a non-plan anyway. We're going to get a few parties together to think about buying these Toxic assets and then we'll invite the sellers to see if they want to really sell what they have. To us, the biggest question is, "What is the difference between how they are currently valued and what the buyers will bid for them?" If the sellers are holding them at the correct price already, why would they sell them? To raise capital??? That may be a motivation, if they have already marked these assets down to close to what the buyers will pay for them.

But, if the sellers have a gap between the price they are holding these assets and what they are going to sell them for, then they have to take an immediate capital loss and this would not help their capital situation.

The answer should have been figured out a long time ago but doesn't seem to have been. What needs to happen is that these assets get marked to what they are worth and let's stop pretending that they're worth more than that. So far, these institutions have stayed in business and we think the writedowns would have to be dealt with just like they have been done over the past two years. Of course, no institution wants to go the way of Bear Stearns or Lehman or even AIG. Everyone is afraid of where the next shoe will fall.

We apologize for the complicated discussion here but we are so baffled by the lack of leadership in this entire mess going way back to the initial announcement that subprime mortgages were Not really a problem and they could be contained.

Keep your focus on the market or, as we recommend, just relax and let it ride. We will have pullbacks but the next big move should make this 1300 points look like a warm up band. It is appropriate to buy weakness, if some develops and if you have funds available; but, please don't chase these stocks. That's one of the ways we got in trouble last fall. We chased a few stocks and then they dropped back. Let these stocks come to you. If they don't, fine, wait until another day.

If you're a trader, like we are, then you may want to play these back and forth moves but just remember, the market is not going to act like it did over the past few months. The next up move will be powerful and you don't want to miss out on that. (Yes, this 500 points felt pretty powerful but so far it's just one day.)

Sunday, March 22, 2009

Market Has A Spring In It's Step

Top Line: For the last couple of days the market has rested a bit to clear the air. The sellers haven't come to the party for the most part and we expect a spring in prices. (Too much spring talk for you?)

The Update is very calm this evening as we see the near term direction of the market to be in the direction that will benefit our portfolio. If you have not finished your buying, you may want to hurry as bargain prices are gone. These prices are more like discounts rather than bargains.

We have been screaming about buying stocks for nearly six months and almost all stocks have been a bargain prices in that period. It's almost like there is no reason for you to make money over the next several months if you managed to get into stocks in this period of time.

For the past six months we have felt a lot of pressure that the market just was heavy but that is more like a bargain light than a warning bell to get out. Our position is that you buy when prices are low and you sell when they're high...novel approach wouldn't you say?

We now have to sit back and wait for a good selling opportunity which shouldn't be here for at least a couple of months. Relax and enjoy the profits rolling in. We think the low is in place and it's kind of a fun point to remember...easy to remember, too.

The February jobs' report that came out on March 6th held the low in the SP500. The date was 3-6-09 or as we like to say three six nine and the low in the SP500 was a devilish 666. Let's see if we can get a 85% rally from there on say 9-9-09 with an SP500 around 1234. What's your guess for the high?

Thursday, March 19, 2009

China Syndrome

Top Line: Today was commodity day in a continuation of the recognition that the Fed signalled that inflation wasn't an issue that they were concerned about. This will be a theme for the rest of the year...that inflation is back. That's one of our reasons for concentrating on commodities.

The biggest move for the Update was the 15% rise in natural gas. We bought it still a little higher than this but 15% does take a lot of the sting out of it. We are concentrated in the precious metals, mining stocks in particular, as well as energy commodities, natural gas and coal as well as oil producers and natural gas producers. This made today a very strong day for us.

After reading more about yesterday's Fed news, we would like to spend a few minutes reviewing their decision. A few weeks ago, the Chinese made some public comments about the US and their responsibilities toward the US Treasury bonds. China owns a bunch of the US debt and they wanted to take their concerns to the public.

In like manner, the Fed took their announcement to the public telling all of us that they would buy a trillion dollars or so of debt, such as US T-bonds and some Mortgage Backed Securities (MBS). The first question is why do you make a public announcement? Why don't you just go Do It and don't bother with the announcement? Of course, you know why, they wanted to make a splash in the market. We don't think they got the reaction they were looking for exactly.

The announcement denied the possibility that these moves would create even a hint of inflation but the inflation sentries were standing tall and the dollar just got creamed. We think a cheaper dollar is responsible for the higher commodity prices, especially oil and gold, but a cheaper dollar will put a lift in stocks, too. The one thing it Should not do is boost Treasury bond prices. So, currently, the bonds are Overpriced and they will come down. So, if you want or need to refi your mortgage, do it Soon.

On the day of the birth of our first son, we went to see the China Syndrome. If you recall, this movie's title represents the idea that a nuclear meltdown with its extreme heat would basically melt everything below it and therefore go through the earth to China. We think the economic meltdown could actually make it through the earth to China as described above...therefore our title this evening.

Wednesday, March 18, 2009

Fed Creates Some Chaos

Top Line: The stock market got a boost from the Fed today in order to jump over the resistance we mentioned yesterday. We are enjoying the rally...trying to relax.

In the morning the market did decide to pull back from resistance. There seemed to be a sense that the Fed would "save" the market with their announcement as the Dow came back from a 150 deficit in the morning to only a 50 point loss just before the Fed's announcement. Of course, off the announcement, the Dow jumped 150 in about ten minutes and was up 100 points before going up another 50 points. Still, the rally didn't hold very well in the Dow.

Meanwhile, over in the Treasury bonds, where the news was greeted with some incredible buying, the 30 year bond was up 7% immediately in probably one of the biggest moves ever in that short a period of time...but it faded into the close, too. So, you have one more good opportunity to refinance your home at low rates. The rates dropped nearly 50bps on the 10 year bond which is the key rate for the mortgages. That means rates could go down a half a point.

Maybe we should mention what the Fed said...that they were going to buy $300 billion of Treasury bonds, plus another $750 billion of mortgage backed securities (MBS), along with $100 billion, or something close to the, of Fannie and Freddie debt. What amazes us is that the Chairman was just on "60 Minutes" on Sunday evening talking about how he was confident in the recovery starting by the end of the year. Well, now we know a little of what he meant, he's gonna make it happen. Of course, there was the obligatory pooh-poohing of the possible inflation threat with all of the money being injected into the system.

So, where could we find out about the market's reaction to the new threat to inflation??? That would be in two major places, gold and the dollar. Gold reversed a drop of $25 to rally to a $30 gain and the dollar dropped hard, both of these events happened right after the news. What those pieces of information tell us is that the market thinks that inflation could indeed be a problem...soon. By the way, the news on February's CPI was that it was up 0.4%...where's that deflation?

With gold reversing to the upside this afternoon, GDX enjoyed a good rally for a change. If you purchased it in the 29's last week, today was a big smile, wasn't it? Even for us, the 10% move was very enjoyable. Patience is required, we have a long ways to go to get to 55 which is our lowest target.

By the way, just because the Fed has now confirmed that it "will" be buying all of these assets, doesn't mean they actually will, does it???

Tuesday, March 17, 2009

Close to Resistance, What's Next?

Top Line: The market defied gravity on Tuesday with the Dow rallying 180 points. Next up is some powerful resistance directly overhead. Let's see what can happen next.

The one drawback to today's rally was the lower volume associated with it. To us, that is not a huge negative on a day like today. Let's take a look at why.

We think it is "easy" for the market to travel between two non-essential points like the last low and the last high; but, to move below the last low or above the last high is a difficult maneuver indeed. Today the market moved up to the last significant high and did it on low volume. That could mean the world's traders have decided to wait until the resistance levels just to see what might happen after that.

Let's say the market can penetrate the boundaries above. To confirm the break, we should see a powerful day on heavy volume. Since the Dow has run up over 900 in the last seven sessions, we wonder if it has the strength to break through on this particular attempt. Remember we were expecting a down day today and we had a big rally instead so the market has some room to move down without any damage to the main trend (which seems to be Up now).

The important thing is that we are not only expecting an eventual break of these resistance points, we are expecting a huge rally going into the fall. The nearterm movements are only meaningful if you have not been fully invested. Then these movements may give you opportunity to get in. We hope you haven't waited until now.

Just for the record, the resistance levels are 780 in the SP500 and 7405 in the Dow. Any serious break of these numbers on volume will likely mean the market will move up quickly from these levels.

Son, thanks for the comment in yesterday's post. Great.

Monday, March 16, 2009

FOMC Should Be a Non-Event

Top Line: The market decided to do an arch today, up in the morning and down in the afternoon. This is the look of a turnaround in prices that may last a couple of days. This may be related to the timing of the FOMC meeting going on Tuesday and Wednesday. We'll review again in the next few days.

As for the FOMC meeting, how can this be anything but trivial to the market? What are they going to say, "Oh, yeah, we can't lower rates anymore or we would." Bernanke was on "60 Minutes" on Sunday evening and suggested that the economy would be coming out of the recession this year and that 2010 would be a recovery year. Bernanke did put a caveat into his speech that the government must make sure that the financial sector finds its footing. He does not want the government to lose its resolve in this effort. Here is a similar article from the WSJ.

To continue with Bernanke, he said that they are "printing money" so that it doesn't cost the taxpayers so much...What? He said once the economy turns around, this extra money will need to be extracted so that the economy doesn't produce a lot of inflation. This fits pretty well with our short term rally in the stock market followed by a dreadful downturn. When will the Chairman figure that it's a good time to pull out these excess funds? We think that the market will go up (a lot) this year and that will be enough to encourage them to start withdrawing. This will help the market go back down and then they will try yet again to restart the economy with these extra funds again...and so it goes.

The market will try to see how far the correction can go. This downturn could give us good clues for the next big move. We do think that that it's possible that the downturn is going to be shallow and brings the buyers back sooner than later. It's possible that some of the major indexes find a way to drop to new lows which would be a nice non-confirmation with a strong rally to follow. If all indexes manage to make new lows, we'll have to consider a slightly lower low but we don't think this should happen...

However, the recent news out of Washington is getting scary. The politicians are going after blood at AIG and that is a good way to bring fear back into the market for one last drop. We seem to have a voice of reason in Bernanke (kind of surprising really but when all around him are seemingly not smelling the coffee, he does seem to sound reasonable) against the wierd leadership from the government. We are treading on dangerous ground here. This is not a time to put fear into the people. We need confidence.

Sunday, March 15, 2009

The Ides of March

Top Line: Will the stock market take a quick break from its torrid rally? Any breaks should be short lived and probably should be bought.

The Dow managed another up day on Friday, probably because it's so undervalued. We're not sure that we'd buy all of the stocks in the Dow but we do like the prospects from here. The market should find its way higher over the next several months and we will be patiently waiting Some More for a good exit point.

As you can tell, we here at the Update are traders at heart and waiting for rallies is just not our style. But, the stocks/funds we own have a good possibility to double from here or from recent prices. It didn't take SSO long to go up 25% from its low at 14.16 back on Friday afternoon of March 6th. That's a pretty good annual return for some and it happened in a week.

Last week we said the easiest thing to do now is to relax. Well, that may not be so easy to do. We have watched the market drop 30% in the very recent past and now we just saw a 10% up move in about a week. Volatility seems to be high and it is reflected in the volatility indexes. We normally follow the VXO which is settled in around 45 on Friday.

The VXO traded as high as 103 last October and more recently has traded in a 40 to 55 range. These numbers are abnormally high and indicate major stress on the traders. People are willing to pay up for put protection on their stocks. The VXO should be a good indicator for us as we decide when to stop "relaxing" and figure out what we should be doing with our portfolios. The main idea would be that we don't want to think about exiting long positions until the VXO gets at least under 40 and more likely under 20.

For the crazy traders, like we are, a drop below 40 may be an opportunity to take some profits but it really depends on whether you think you will get back in if prices drop and the VXO can climb above 40 again. We don't think this is a satisfying style so we will have to say relax until VXO gets at least into the 20's. Then we'll start thinking about what to do.

Right now, we just want to see small pullbacks and large advances. Since we're already into March, the Ides to be specific, the final run up in prices is getting closer. We have suffered through the past six months so now the corrective phase of the bear market should give us some stellar gains. Bear market rallies are normally intense and, since we've seen such a selloff, there will be an intense rally to work off the pessimism that the selloff created.

Thursday, March 12, 2009

700 Points

Top Line: At the open the market was greeted to the news that S&P downgraded GE's debt. This seemed to just make the bulls happier as GE rallied over 12% on the day as the Dow jumped another couple hundred points.

Let's see, the low in the Dow was 6470 late last Friday, the day of the jobs' report, which seemed to us to be the ideal day for an inflection low point. Today the Dow closed at 7170 which makes the rally in the last four days a sizzling hot 700 points well over 10%.

The market will have its moments of scary declines but, for now, we are fully engaged and expect a rip roaring rally for the next several months. We hope you are on board and have fastened your seatbelts, it will be a wild ride.

The problem is that the market has trained us all that rallies need to be sold so for some time that is what will happen. We don't think the selloffs will be very strong generally but they will be present. They will shake the confidence in the bull run.

So, what do we do? The easiest thing to do now is to relax. But, we may want to do some other things along the way. It's difficult to know exactly when a stock moves up so it's difficult to know when to sell each stock. Along the way we may want to play but we don't want to move too early on the run up.

We're going to relax tonight and enjoy the 700 points. We'll see what kind of selloff the market can generate. We like any early morning selloffs because that gives everyone a chance to "buy a little lower" than the day before.

Wednesday, March 11, 2009

The Great Debate Starts

Top Line: The stock market decided to rest after its big up day on Tuesday. There could be more resting on Thursday before a good rally begins sometime in the next few days.

We can never be sure that a low is in and the point reached in the last week Could be the low of the move from 14K in the Dow back in late 2007 but it's a good guess at best. The reason it is not just a guess is that we had such a significant rally on Tuesday. In hindsight, two days worth of it, there is a much better chance that it is a good low but we won't know until later. What we do know is that these are some good prices in many assets. Which ones are the ones that represent value? That question is all about judgment and will only be known in the future.

A couple of years ago, the housing market had become the center of the world for a lot of people. They were speculating in Florida real estate or taking money out of their inflated home equities, or just plain envious of their neighbors' ability to take advantage of the new lending practices. That has all changed and fear has spread to the markets where people have taken their money of the market, too.

Putting money in a money market fund yields very little if any interest but that's where people are keeping the money they have taken out of the markets. The consumer has slowed spending on many items including housing for a variety of reasons, but most of them involve fear. The hope of the country rested on the shoulders of the newly elected President and that is a large task. That hope seemed to cresendo right at election day when the Dow was around 9600.

Since the Dow has dropped 3000 points since then, a lot of hope has vanished. What we read is that people are just Hoping for a rally and that Tuesday's rally shows that hope has returned. The articles are very bearish however as they point to continued optimism for stocks, suddenly everyone has turned into a contrarian. This optimism is Not what is supposed to show up near the lows or at a turn, so these articles seem to be signalling more downside to come.

We have been watching the market fall most days in the past couple of months and Tuesday's rally is what we have been waiting for. We know that as the market goes up, there will be plenty of bears to go around telling us this is the top or that's the top and you should sell now. This is what we were talking about in yesterday's post, that there will be a lot of blather about whether this is it or not.

To our way of thinking the market is Extremely oversold, witness the 30% selloff in about four months and the 50% selloff in just over a year. The market has been due to bounce from somewhere and it did. Yes, it's possible it will try to go back down to test the low but if it does there will be very few participants in that move and the best prices have already been seen in most securities. But, this bounce is going to be a very strong one and will carry much further than most think.

Many people look at the Dow so that's what we will do. The Dow's 200 day SMA (Simple Moving Average, illustrated in bigcharts using indicators) is near 10K which is over 3000 points away and a couple of days ago was over 3500 points away. Only a 50% move will get us back to that level and we don't think it will stop there. We think the move will be much more than that and it will be quick.

You're wondering how we can be so bullish when the economy stinks. We are not talking about the economy. We are talking about the market. Once the market starts rolling, the market will really get going. The economy may follow the market out of the doldrums but it doesn't really have to and right now it doesn't even matter. When the market was rolling around 14K, who was concerned about it going down? It did go down and the economy followed, not the other way around.

Imagine all of the folks who still have stocks if the market would move up. They would be utterly delighted that they had not sold and so would people like us who have bought over the past several months. This would generate a lot of good feelings about the economy that it could actually turn it around temporarily. Just imagine the proud politicians as the sit around congratulating themselves on righting the ship. Just imagine the people who will want to be part of the great 2009 stock market event. "Who me, no, I sold out back in March when I knew it was going to go down to 4000." Are you kidding? They will be out buying stocks and telling people they were smart enough to buy in March, no matter when it is.

Forget about the debate, and concentrate on the direction of the market. Speaking of the market, it looked like you weren't going to be able to get GDX under 30 since it opened above that this morning but it did manage a quick gift trip down for you. Otherwise, Wednesday is the perfect setup for more upside.

Tuesday, March 10, 2009

The Rally Begins

Top Line: Well, here it comes...all the blather about whether this is it or not. The time has arrived for buying any good pullbacks and Not selling strength until we see a good move.

Today we saw the raw power of the market. When there are too many bears around, the market needs to restore the balance. The way that happens is a massive short squeeze as happened on Tuesday. What happens now?

The move today was strong and came out of no where. The possibilities are numerous but here is our thought. Remember that the market has taught everyone that rallies of all sorts must be sold. Today's rally has started to turn that thinking a little. Still, the selling thinking is strong. What we would like to see is that a good selloff occurs but can't really make it all the way back down to last Friday's lows in the Dow and SP500. Those lows should hold any further deterioration in prices.

Of course, it is possible that the market does not look back. We don't like the possibility that the market gives everyone another chance at good prices. The prices shouldn't get back to their lows of the past few days because that would just be too easy. Ok, maybe it's really not That easy. People have all kinds of trouble knowing how to trade. If a gift appears in the form of lower prices after this, there won't be many takers. They will wait until prices really move up from there.

As far as GDX is concerned, another prime opportunity was available to purchase it under 30. With some luck, there will be another chance on Wednesday. These gifts don't happen very often. There will be others but buying time is nearly over for any assets. We say that because it's extremely difficult to pay higher prices for stocks once you have seen the lows. So when GDX moves back above 30, buyers will be thinking that they can wait for another chance below 30 and it may not happen so they will end up buying it after it makes a new high for the move.

Monday, March 09, 2009

Another Down Monday

Top Line: Don't get discouraged by marginally lower prices. As this is the best buying opportunity we have had a quite some time, lower prices simply mean that you can still buy some good values.

Tuesday the market got an early jump after starting poorly. The buyers seemed to have jumped the gun a little seeing as how the market promptly made them losers over the course of the day. Some of the financials were up today if you can call C going from 1.03 to 1.05 up 2 cents but the press will tell you 2%...right.

The problem with these small stocks, like C and BAC and even F, when they dominate trading they distort some of the technicians valuable trading tools. When technicians are confused by their own indicators, they don't know what it all means. We are Not talking about the proficient technical traders here at the Update, of course.

With the market down after the morning flurry to the upside, several of the top traded stocks were up on the day meaning up volume was higher than a down 80 Dow day would normally indicate. So, with decliners swamping advancers by a wide margin of about two and a half to one, the TRIN, or trading index looked too bullish and therefore was taken as bearish--which we would do normally, too, given our natural bearishness generally. However, in this case, we think the number is meaningless given the position of these once giant stocks trading at penny stock prices.

What we need to be thinking about is how to deploy our funds in a manner consistent with the upcoming rally. We don't want to chase anything especially after a rally begins so we want to make sure any cash we have is either put to good use now or kept for a rainy day because we need some ability to trade other opportunities that come along.

We noticed, painfully, that GDX fell today but not by enough to warrant any buying. It would have to drop below 30 again before we would be able to recommend a purchase there. Hopefully, you have purchased enough of GDX at much lower prices so you don't need to buy any more here.

What else can you buy? Well, the SP500 is getting to an interesting point as we mentioned last week. There are a couple of ways to play it and tonight we would recommend finding a good closed end fund or go straight to the SSO here near 14.5. We don't think it will get back to the 100 it was in 2007 but 45 is possible. Since it is a leveraged fund, it is not for everyone. We sold it back in late December near 26 and it's nearly half that now because of the leverage associated with it. So, invest carefully...always.

There are some closed end funds that are available that may provide some better, non-leveraged vehicles. Some of these funds are trading at significant discounts to their NAV which makes them excellent choices. Do some homework or read the True Contrarian who updated his website today. It's a good read.

Sunday, March 08, 2009

Waiting for a Low to Appear

Top Line: The stock market staged a strong comeback in the final half hour of trading on Friday; but, as far as last week goes, the trading was down and down hard. We are close to a bottom both in terms of price and time. Take advantage of your favorite stock's low price.

The main event this year will be a major stock market rally. Based on the bearish press we read and sentiment in general. These are great times to be a contrarian and pick up the bargains that are left out there by those who want to sell into this weakness.

We generally try to follow our motto which is, "Buy low, Sell high", but sometimes it just isn't that easy to do. The current environment is so cloudy and grim that it's difficult to see the direction the market wants to go. In any event, it is still important to buy low which is certainly prevailing in the market place at the current time.

We have been following, or should we say owning, GDX for a long time and purchased it from about 30 down to the high teens last fall. Certainly, a price in the teens was a good one but the low was in the 15's and that would have been an excellent one. How can you buy which stocks are dropping everyday? The way you do it is not to buy everything at once.

We have not been very patient ourselves and have resorted to putting as much extra money we can into the market as we can. We should have been more patient. We didn't know what the low was for GDX but we kept on buying until we had gone slightly over our comfort zone for the amount we wanted to own. Then of course we saw it rise into the end of the year giving that protion of our portfolio even more glaring excess. All things being equal, all of our stocks would have gone up about the same amount and together. As it turned out, so far, that is far from the truth. GDX has been our early leader.

We thought GDX was a good buy earlier last week when we saw it drop back under 30 briefly, or anywhere near that level, but tonight it is back around 33 which is a 10% jump in a few days. That indicates it's probably no longer a good buy. We mention these details for you to apply some of these thought processes on the stocks you are watching.

According to our view of Elliott wave, there should be one pretty good bounce followed by another drop to "complete" the down pattern. Those moves might not allow you much time to make decisions about buying so be careful. The window for buying is quickly closing. Once the market heads up, there will be a powerful rally. Recall that that has been no such rally for over two months. This action almost assures us there will be a major rally out of this upcoming low.

We did think the jobs' report could have been an inflection point but the news wasn't bad enough so the market couldn't "over-react" like we wanted to see. There was a bit of a rally out of the news on Friday morning but it didn't last long and the market sold off all day until with 30 minutes remaining it sprinted up. This is interesting action in front of a weekend. Either there were some nervous but profitable shorts that wanted to take some profits or it was the start of our little rally leg. Monday will give us some better clues, hopefully. Until tomorrow...

Thursday, March 05, 2009

Jobs' Report Set to Ring the Opening Bell

Top Line: We are probably at or within shouting distance of the lows in the Dow. We want to comfortably sit back and watch a violent rally erupt.

Fear of a bad jobs' report pushed stock prices down on Thursday. There were other news items but the fear factor superceded all of them, regardless what the media tells you.

There was a news item that people had to scratch their heads on and that was the regular Thursday morning announcement of new claims for unemployment in the prior week. The news...new claims dropped and the total number on unemployment benefits dropped as well, unexpectedly says the media. The truth is that the media actually believes all the stuff they report. Worse, so does the public.

We noted that the Europeans are getting on board with the stimulus as both the Bank of England (BOE) and the European Central Bank (ECB) lowered rates on Thursday morning. In fact the BOE said it would promote bank lending by buying some 75 billion pounds (about $100 billion) bank assets. That news did not excite the markets as most European stock markets were down about 5% on the day. The news was widely expected...

Friday's news will bring a bit of crazy trading at least for a few minutes. The problem is that the news comes out before the market opens. Still that may be one of the best times to buy some more of your favorite stocks.

Today's drop in the market probably signifies that we need at least one more rally and drop before we see the end of the current downturn. With the lows in place this afternoon, there is little reason for the market to continue down too much further.

Anyway, the news for tomorrow will dominate trading in the short run so we expect that the market will quickly make up its mind on the jobs' report. The overnight markets are not doing much except that the Asian markets are selling off a bit after the selloff on Wall Street. It's Friday there and they can't wait until the US jobs' report is out, they have to sell now and wait for the news and then wait for Monday's trading.

We think that the reaction to the news will be to buy stocks, especially if it's worse than expected which is pretty larger number already, up in the 650K area. We'll be watching for a worse number than that but February was a short month so it's anyone's guess. For our part, we think a rally can ensue out of the early morning lows. It may not hold but it should appear.

Thursday saw gold and miners going back up which is nice. Balance...It's a good thing.

Yes, it's time to buy again. We would like to see a selling opportunity but here is another buying opportunity. Relax and buy...in few months all will become clear.

Wednesday, March 04, 2009

No Post Tonight

Top Line: Market jumped today but couldn't hold all of the gains into the close. We are very close to a low.

[Editor's note: Glenn is not feeling too well this evening so there will not be a post tonight, and on Wednesday. It's a shame.]

Tuesday, March 03, 2009

Square Root Day

Top Line: Tuesday was not a confidence inspiring day. After a 300 point decline on Monday, the market should have had a small bounce. When the low is in, you will know it.

The buyers are definitely on strike with only moderate upside being generated in the current market. The past month of trading has yielded a massive decline in the Dow which should have produced some buyers by now.

We continue to look at Friday's jobs' report as a possible low point. The trading in front of it has been very poor indeed. Every rally gets sold and this included the after hours market. Right after the close on Tuesday, the futures and index vehicles dropped almost 2% in a heartbeat. We couldn't find any news to justify the drop which in our mind is not a good indication. However, in overnight trading, these losses have disappeared as Asia opened for business with a little bit of a bounce.

If you were paying some attention to GDX today, you may have noticed that it traded under 30 which would have been a pretty good entry point. Otherwise, today was a day that should have generated a rally but didn't. This should indicate further selling ahead. The last three trading days have dropped hard on heavy volume. This indicates some strength in the move and should mean it has some more to go, not much but more. We expect a low soon. (Yes, it is a broken record.)

This is not the post we wanted to put up tonight because we were hoping to spend some time on the Buffett letter but since we had no real rally today, the market again needs some attention. The underlying technicals are consistent with further selling. The past three trading days have generated capitulation type volume but, today at least, there were some buyers holding up the prices even on the huge selling going on. When the buying begins, there will be so many that have wanted to be bullish and had sold, that the buying will be frantic.

Just a few tidbits from Buffett's letter which we hope you found time to read. If not, please check in yesterday's post for the link.

Early on, at the bottom of the second page (page 3 in his numbering) he states that, "America's best days lie ahead."

In the following paragraph he says, "We're certain, for example, that the economy will be in shambles throughout 2009--and, for that matter, probably well beyond--but that conclusion does not tell us whether the stock market will rise or fall."

One of his lines is similar to what we have been saying for the past several months,"Whether we're talking about socks or stocks, I like buying quality merchandise when it is marked down."

He describes the situation in the home/mortgage market in no uncertain terms while comparing it to the "fiasco", as he calls it, one of their devisions had in 1997-2000, "...investors, government and rating agencies learned exactly nothing from the manufactured-home debacle. Instead, in an eerie rerun of that disaster, the same mistakes were repeated with conventional homes in the 2004-07 period: Lenders happily made loans that borrowers couldn't repay out of their incomes, and borrowers just as happily signed up tomeet those payments. Both parties counted on 'house-price appreciation' to make this otherwise impossible arrangement work. It was Scarlett O'Hara all over again: 'I'll think about it tomorrow.' The consequences of this behavior are now reverberating through every corner of our economy."

Here is the last bit of the letter that we will mention this evening. He describes back-tested models as susceptible to errors. "Nevertheless, they are frequently touted in financial markets as guides to future action. (If merely looking up past financial data would tell you what the future holds, the Forbes 400 would consist of librarians.)" Indeed...

BTW, Square root day is when the day and month equal the square root of the two digit year, as in today's 3-3-09.

Monday, March 02, 2009

Low is Getting Closer By the Day

Top Line: The market took a trip South today and easily broke through the 7K line. Clearly we are closer to the low than we were last Friday.

There are a lot of bears jumping on this move and bulls, too. When everyone seems to be selling, the market is nearly done going down. Yes, it's tough to hold your ground especially if you rode the market down from the highs of 2007. This last down move is going to shake out the last of the sellers, for now.

In Elliott wave parlance, we are in a fifth and final wave of this large initial selling wave. The market needed to "complete" itself and it is now doing so. Sellers are coming from everywhere just trying to get out. We like to call this capitulation selling. Normally, a capitulation sell can gather some serious steam to the downside and today's 3oo point drop is definitely part of that move. Of course, there is that other thing we talk about once in a while...oversold conditions are the perfect setup for a fast selloff sometimes known as a CR....we can't say that word here. We think the market has defined itself very bearishly and we Now Need a Rally...

Even with the new lows in the blue chip indexes, the NASDAQ indexes are still above their respective lows from last fall. The Russell 2000 did succumb today and it is possible that the NASDAQ indexes will need to put in a token new low as well. This could be a very quick move down following some upside here in the next day or so.

The overnight market this evening is strong for US futures and indicates a strong opening on Tuesday. This doesn't necessarily mean it will actually play out but the timing of a quick rally here is good. As just mentioned, that should be followed by another drop which we would consider to be the Last drop of this move. That should be followed by a strong rally.

We want to concentrate on that last sentence. The rally that develops out of these lows will not leave any doubt in your mind that the market is going up. A little 100 point Dow rally is Not enough to suggest that this first phase of the bear market is over. We need to see a huge burst of power from the lows that should come in the next few days or weeks.

We wanted to mention the GDX this evening, too. We see that it was down over 2 today begging the question, "Is it a buy right now?" What we would say that gold has only dropped about $75 from its highs and the miners have been smashed, about 20%. To us, that type of move suggests that gold may have further to fall. Certainly, we expect GDX to move up to at least 55 so when you get a good opportunity to buy it after a 20% pullback that is a gift. We don't think you need to get too cute here because prices are low but if you put some orders in below the market you may get filled in the next few days. GDX is a volatile vehicle and can move 20% in a very short period of time.

As for other opportunities, there are plenty but the question is what is a good investment. We have mentioned that we have entered some energy trades and today these assets were reduced by a lot so to us they are certainly good buys, too. We failed to mention that we have been in coal producers which with precious metals were the two top declining classes today at losses of around 15%. Ouch, but good for new buyers. Oil dropped about 10% today giving the energy sector some additional trouble.

Right now, we think there are so many bargains out there that you can hardly make a mistake on your entry point over the next few days. We mentioned SSO a while back and at that time we said if you could get it under 21, it was a good buy. Well, today, it closed at 15.75. That is a steal. SSO is a leveraged SP500 vehicle that you should look at or ask me about before you invest. Still, even if it gets back to our 21, that's a 25% move. We sold it near 26 back in late December.

Long post tonight and no new pictures...we did add one of Jason to yesterday's post.

BTW, DT, we just saw your comments this evening and are glad you are enjoying the pics and also getting back into the market. For the next few months we will be "correcting" a 8000 point Dow move. Just a 50% correction would give us 4000 points from here back to 10,500 plus. Happy buying. Those crazy 401(k)'s are so tough to make any money. You don't really know what you're getting. It's sad.

One last item...Warren Buffett's letter to shareholders is always a good read, every year. [Editior's note: To read it click on the link and then click on 2008.] We were hoping to recap some of his great lines here tonight but the market needed our attention. Maybe tomorrow. In the mean time enjoy the letter. He discusses several topics that are near and dear to the Update...especially housing and mortgages.

Sunday, March 01, 2009

Low is Near

Top Line: Global stock markets are still falling. We continue to expect a solid low. Since no buyers have been strong enough at these levels, they will have to come in at lower prices...

AIG is back in the news again with its fourth injection of funds. This time it's for $30 billion. We're not positive but the world markets are trading lower this evening including the US futures seemingly on the back of this news.

Bear markets are tough markets to make money in, mostly because the population hasn't lived through one for a very long time. Yes, there have been significant drops in the market over the period of the last bull run, but the last bear market was prior to the 1982 low. That's over 25 years ago. Who can remember what happened before that?!?

The lows of last October and November are now being challenged here in the last few trading days. Many see that the broader indexes are not challenging their own lows but say that they should do that soon. We like this kind of thinking process when the bulls agree that the market needs to go down.

Our position is that the blue chips are putting in their lows here and that they will be in this month, hopefully sooner rather than later. We like the Friday jobs' report as a good time to put in a low. Surely, the report will be terrible with the consensus view around 600K losses. At some point the market just expects bad news and has it priced in (the say the market has "discounted" the news).

We think the potential for a huge rally is still out there. Pessimism is thick and people just don't want to think about having money in the market anymore. They certainly don't want to talk about it much. Yes, we are here to discuss it most every day.

We have told you that we moved much of our portfolio into commodities, mostly energy related funds. This has been ok for our trading portfolios compared to our 401(k) which has included some exposure to ING since October. This was not a very good idea at the time and we should have stuck with the other funds in the 401(k) which have done better than ING. No, they have not fared well but better than ING.

Gold has been telling us for while now that the rest of the commodities will probably regain some traction in the next phase. Tonight gold is trying to rally again, up over $10. Still, it's a ways to get back to $1000.

We have picked energy as the place to be along with gold miners and some other funds. Natural gas carved out a scoop of prices under $4 last week and has now bounced out of that range. For those of you in the cold belt, that has Not translated to lower energy bills this winter because the providers were so scared last summer that they bought futures in order to provide natural gas this winter. We think it is or has been well undervalued and is one of the areas we have pursued.

Oil is up about $10 from its lows and this is another area where we have been sitting. Overall, our positions have not performed too well but with prices turning around, we think we are well positioned to see some good gains going into the summer.

We have a couple more Maui pics for you. One of our best whale shots and a picture of Maui with Haleakala in the distance on the right (added another one with Jason in it).

Jason said to take his picture so there was some Proof that he was in Maui, so Jason here's your proof. Do you remember being there? It's been a long time, we need to go back this month...

And, of course, one of Jackson. Here he's enjoying a little pool time with Gramma.