Wednesday Update

Stock Market Top Very Near

2010-01-06T19:56:00.000-08:00

Top Line: OK, we couldn't resist posting one more time. What with it being a new year and the market just floating, there needs to be some discussion about the potential of both.

In our Last Post, we said that the market would be lower in two years. Here we are after about six weeks and the market has tried ever so mightily to muster higher prices. With the new year, people seem to think it's a good time to buy. Well, that worked for the first trading day of the year. What has happened since? Not much, but that's why we're back for another post.

The primary reason for the post tonight is to talk about the stock market. As our title says, we think that the market is very near a top. It is that time of month when the whole world looks to the employment report which is due out on Friday morning. There is a potential for the job number to be near zero for the first time in a loooong time. We don't think this is particularly good but it does Look better than the previous months.

If the number is positive, we expect the media to say basically that the world can stop worrying, the problem is solved. This is a direct invitation for stock buyers to come in Again. We expect that the market to enjoy a last rally on this news.

In fact, we expect the high near the time of the report to be the highest level in the Dow for...well, lets just say a long time. The market is overbought and investors are very complacent even though the market has barely managed to get back half of its losses over the past couple of years.

We think that the stock market is once again thought of as a safe place for investors. We couldn't disagree more. There is always a chance that the high is still 10% higher than we are now. We have to allow for that possibility but the timing of a high coinciding with the jobs' report seems like a reasonable thing from our view of the situation.

Take a look at the gold market and the mining shares. As we mentioned in November, these classes have suffered a setback and have somewhat recovered with the rally of the last week or so. Take a look at GDX and you will see your market leader having trouble getting back above 50 when it was around 55 about a month ago.

The dollar has jumped back to life and is probably at the beginning of a major rally. No matter what you read, the dollar is said to be headed to Zero in spite of the huge rally it has experienced over the past month.

Meanwhile, the Treasury bonds have come back into a very nice buying area. We like the TLT as you know and today it was trading under 90 and nearly under 89. TLT could find its way lower into the jobs' report but the price should be close to a low that will last for a while. We would say the buying range here should be below 90 which it is. We want you to get as good a price as you can so don't just buy this all at one time, ease into it. You may want to enter the trade as early as Thursday, late in the day, or early Friday morning. Then see what happens to see whether you can get better prices over the next few weeks. Then, just sit back and enjoy the 4% yield and possible 25% capital gains over the next year or so.

Now, Treasury bonds are getting the same bad press as the dollar, maybe not quite that bad, but this makes them even more ripe for purchase. This is the best buy signal you can get...unanimous negative press. Yes, we are still contrarians.

We were going to write last night but time got away from us so here we are today. If you have mutual funds or 401(k) funds that are invested in stock market securities, this would be an ideal time to be getting out of those funds. Keep your cash for a while and watch it grow against the stock market decline.

If you are in individual stocks, you have a different set of issues. You may have missed the top in that stock or it may still top in the near future. We can't judge that without more information. What we can say is that if the stock you own has failed to participate in this latest rally, we would be inclined to say that it is probably not going to perform too well near term. If it has rallied, then you may find a better time in the next rally or two, but now is very nearly at that level anyway and should offer pretty good prices.

If you have stocks that you think will go back to the 2007 levels, then you may need to take a good look at that over the next few days and weeks. If they don't go up, then you may not see them get back to their old highs any time soon.

We are compelled to do this Sell call right now which is why we are writing again tonight. We just can't help it. We're not sure when we'll be back. Take care and have a great year.

The Last Post

2009-11-18T19:21:00.001-08:00

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 :-)

Gold:
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.

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...

Unenjoyment Report, 10.2% Unemployed

2009-11-08T21:05:00.000-08:00

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 media...gold 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.

Fed News Not Enough To Hold Gains

2009-11-04T19:35:00.000-08:00

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.

November Starts With a Volatile Day

2009-11-02T19:43:00.000-08:00

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...

Quick Update

2009-11-01T21:04:00.000-08:00

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.

Is the Update Back In Sync?

2009-10-28T18:34:00.000-07:00

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.

Another Downside Reversal

2009-10-26T18:11:00.000-07:00

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.

Strong Monday or Not?

2009-10-25T23:14:00.000-07:00

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.

Another Important Reversal Day

2009-10-21T22:26:00.000-07:00

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.

Market Trying to Decide What to Do

2009-10-18T19:41:00.000-07:00

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.

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

2009-10-14T19:28:00.000-07:00

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.

Waiting Game

2009-10-12T19:32:00.000-07:00

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...

No Post This Evening

2009-10-11T21:20:00.000-07:00

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.

Today May Have Been Significant

2009-10-08T20:55:00.000-07:00

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.

Gold at New Highs

2009-10-07T20:06:00.000-07:00

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 back...gold 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.

Jobs' Report Disappoints

2009-10-04T19:51:00.000-07:00

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.

September is Over

2009-09-30T19:33:00.000-07:00

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.

What Do You Know, a Reversal

2009-09-23T21:32:00.000-07:00

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.

Market Trying to Continue Advance

2009-09-20T20:19:00.000-07:00

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.

Market Tried to Reverse Today

2009-09-17T21:25:00.000-07:00

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.

Delay This Evening

2009-09-16T22:00:00.000-07:00

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.

Down Monday Morning?

2009-09-13T20:39:00.000-07:00

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.

09-09-09 Update Failure, One of Many

2009-09-09T21:03:00.000-07:00

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.

GDX Screams

2009-09-02T20:04:00.000-07:00

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.

We Still Recommend Selling At Least Some Of Your Stocks

2009-08-30T22:25:00.000-07:00

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.

Sell Into Whatever Strength the Market Gives

2009-08-26T19:39:00.000-07:00

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.

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

2009-08-23T19:40:00.000-07:00

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.

We Need Some Selling

2009-08-19T18:58:00.000-07:00

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 week...so 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...

Back to Work, and BTW Tiger Lost

2009-08-16T20:04:00.000-07:00

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?

Short Update

2009-08-12T19:45:00.001-07:00

Top Line: We are on vacation this week...so 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.

Just Waiting for Downside Confirmation

2009-08-09T20:45:00.001-07:00

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.

Market Ready to Drop

2009-08-05T20:28:00.000-07:00

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.

Intermediate Top May Be In

2009-08-02T21:02:00.000-07:00

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.

To REIT or Not To REIT

2009-07-29T21:40:00.000-07:00

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.

Bulls Are Out In Big Numbers

2009-07-26T20:42:00.000-07:00

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.

Rally is Getting Very Tired

2009-07-22T21:13:00.000-07:00

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.

Option Expiration Punishes Shorts/Puts

2009-07-19T20:53:00.001-07:00

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.

Volatility Puzzle

2009-07-15T22:47:00.000-07:00

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 ElliottWave.com to get started.

Getting Close to a Short Term Low in Terms of Time

2009-07-12T21:03:00.000-07:00

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.

Serious Planning Needs to Start

2009-07-08T20:48:00.000-07:00

Top Line: We are starting to see the market drop into the area we have been waiting for...that would be the 850 level in the SP500. What to do now???

Since the market is finally dropping, we want to start looking at what we need to do. For those of you who left your portfolios alone for the past couple of months, you don't have to do anything. You simply want to stay with your positions. Don't get scared out of them as prices drop into the July lows. In fact if you have come into some addition cash, you would be able to buy some good prices during this period. That would keep your mind off the fact that your other positions are losing a little money.

For those of you who did sell into last month's strength, like we did, you will now need to decide what to buy in this great opportunity. If you sold your 401(k), you could just go back and buy what you sold. If you sold some individual stocks or funds, you can simply find a good price to buy them back. If you're like us, you have been watching them get cheaper over the past few weeks.

Then, if you were as crazy as we were and went short, you have a complicated situation on your hands. How do you time the short unwind with the long purchase. With our margin account, as soon as you sell one position you can buy another. In a cash account, you will need to wait for a day or two.

We do think that the market will give us some good signals as it already has so let's take a look at what they are. Let's see if you remember the big ones. Our target is 850 in the SP500 and volatility indexes getting near 40. The other one is weaker Treasury bond prices...remember that these prices have been rallying recently.

Today's action had the SP500 slipping under the 870 level briefly. That's not too far from where we would like to start getting back into the market. It's possible our 850 target is a bit higher than the ultimate July low but that's what we want. We want to buy as prices drop and buy weakness by putting orders in Under the market.

Today's action had our favorite volatility index, VXO, moving back up near the 34 range. This is after dropping under 24 about a week ago which was a great Sell signal for stocks. That's a big change and we expect higher "fear" levels as prices drop in the market.

The long Treasury bond was up strongly today (Wednesday) giving no indication that the end of the stock drop is here. Keep your eye on TLT for a good proxy. Today it closed at 96.50 after being below 88 about three weeks ago. Everything is on track...

Today offered a great opportunity to purchase both GDX and UNG. We tried to buy both but only ended up getting into GDX. We were pretty aggressive with our purchases today but the range on GDX was a couple of points, about 34.5 to 36.5, the lower price due to the gold price coming down near the $900 level with a $20+ drop during the day. We replaced our original position that we had sold last month. The price dropped from 45 last month to 35 this month which is about what we wanted to see. Now, we are prepared to buy more if the price goes down even more. Here again, the price of GDX making a new low for the move gives us another clue that the market has not found its bottom just yet because we expect GDX to Lead the market and if it's not done going down, neither is the market.

The market does seem like it wants to drop below 850 that we have been targeting for several weeks. Now that we've replaced our GDX position, we can start concentrating on our other stocks that we sold. They have all dropped by over 15% so we are going to need to figure out how to buy them back. We have been trying to set some prices to buy but we are still waiting for the market to drop to find out what those might be. Well, now we need to make some serious decisions. It's important to put in some orders below the market and let it come down to us. It is possible that some of our stocks have already bottomed so we may need to be a little more aggressive to buy them back.

Finally, we are pretty sure that the market will put in a bottom in the next two weeks so the time to act is over the next few days. Since next week is options expiration for July, we expect the lows to show up sometime near Wednesday next week, that would be the 15th. For now, that is our target date to have executed a plan to be back in the market. As our primary clues show up, we will need to hurry up our plan.

We are considering moving our 401(k) money back into the market over a period of about a week or ten days, buying heavier on weak days. If you have questions, leave them in the comment section and we'll try to get to them as soon as we can. For those of you who know how to send me emails, that would certainly work, too. Good luck.

Jackson Has Pictures

2009-07-06T20:39:00.001-07:00

Top Line: We promised a few more pictures and here they are.

[Next Update on Wednesday evening.]

Batter Up...

The chick magnet is at it again, this time at the playground.

Crashing a graduation party...

Tough to hit a golf ball if you don't have your cool shades on...

Jobs' Report Was a Bit of a Sell Trigger

2009-07-05T20:18:00.000-07:00

Top Line: Market should continue to drop over the course of the next week or two.

Thursday's jobs' report released about an hour before the opening bell did seem to be a trigger for some selling as the market opened with a thud. The rest of the day wasn't much better although the damage was done early in the day. In the first 45 minutes of trading, the Dow was lower by 180 and managed to drop nearly 225 by the end of the day. So from Wednesday's high to Thursday's close the Dow dropped about 300 points. As for the NDX (NASDAQ 100), it dropped 35 points in the first 45 minutes and that's about where it closed.

As you might imagine the volatility indexes did climb strongly on Thursday after Wednesday's reversal. For example, the VXO traded down around 23.75 on Wednesday morning and then closed Thursday near 27.50. We expect this "rally" in fear to continue as the market puts in lower and lower prices over the next couple of weeks.

There has been too much bullishness since May and the buyers during that period of time should be pressured by now into reconsidering their positions. If, or as, the market drops in the next couple of weeks, there will be more and more urge to sell as people start believing in the continued recession theory. This week we should start seeing some second quarter earnings numbers which probably won't help the market out. In fact, this could generate more fear and therefore more selling pressure.

As we write this evening, the overnight US futures are down somewhat as the Asian markets are down a little, too. The Hang Seng (Hong Kong) index has recovered some of its lost ground but not the Nikkei (Japan). Monday morning should be pretty interesting as the US market opens on the back of the global markets lead.

We didn't provide any more pictures of Jackson but we will put some more up on Monday evening.

We hope you had a great weekend and now are ready for a couple of weeks of treacherous trading. Let's get back to it, shall we...

The Market WANTS To Go Down

2009-07-01T19:08:00.000-07:00

Top Line: The early trade in the last "half" year was to buy 'em. That only lasted for about an hour as the market jumped about 1.5%. From there it was down the rest of the day. The market is ready to go down.

The next couple of weeks are going to be pretty exciting and scarey at the same time. We expect the market to go down giving some of us a chance to unload our shorts and buy some more stock. GDX moved up so much today, we are getting nervous that we'll not be able to buy for the prices that we want. Well, GDX should drop back with the market and we Will buy more of it.

The volatility indexes dropped to fresh lows today and then reversed. With new lows Again and stocks not near their relative highs from a few weeks back, this is extremely bearish.

Remember that Thursday morning we get the employment report which could be a problem for the market but maybe not...we'll see.

Here are some more pics for you.

Jason and his friends ran the half marathon again this year.

The End of June Has Finally Arrived

2009-06-30T20:43:00.000-07:00

Top Line: The market could have turned the corner today. The stock market tried to start out the day higher but reversed and ended down on the day. Meanwhile the volatility indexes that have been lower day after day also reversed to the upside as stocks reversed to the downside setting us up for some more downside.

We do have to mention some pervasive talk about a head and shoulders top formation. We have read about this formation for the past few days and it has some merit except when it is so widely expected.

Normally, the head and shoulders pattern can indicate a strong failure at the neckline with a measured move after that which is about equal to the distance from the top of the head to the neckline. TRANSLATION: Looking at the SP500, the head is around 950-955 and the neckline is around 875-890 so if the market chooses to break through the neckline over the next few weeks the target would be a distance of about 75 points from the neckline...meaning the SP500 could drop to around 800.

We don't find this very satisfying since so many people are aware of it. We do favor a break of the neckline to alleviate the overbought condition indicated by the volatility indexes but we don't like the move all the way down to 800. It's just too far. We have said that the SP500 would go to around 850 and we are sticking to it. The avalanche of selling could take the SP500 down from 875 to 850 in about two heartbeats with the second one being enough to stop your heart, but we still think much below 850 is wishing for something you can't have.

As a reminder, the market is closed on Friday and we will post on Sunday evening.

More Jackson pics tonight and there should be more tomorrow evening as well. With the market closed we may still put more pictures of Jackson up over the next few days.

Just Some Pics

2009-06-29T20:00:00.001-07:00

Top Line: For some reason the stock market just wants to hold up into the end of the quarter. With the volatility indexes dropping again, stocks should be vulnerable to a major decline coming up pretty soon.

We said we would put up a quick post so that was it, the Top Line. We hope you enjoyed it :-)

But, here are some pictures for the past couple of months. We realized we haven't had a picture of Jackson since early April. No wonder our readership has declined...it can't be the market analysis, can it?

Jeff's 30th Birthday Party at the Dome.

More pictures tomorrow...

Market Taking It's Sweet Time

2009-06-28T21:05:00.000-07:00

Top Line: The stock market still wants to go down but it also wants as many bulls to go down with it. Beware the volatility indexes...

The volatility indexes seem to be collapsing, meaning the fear in the market is diminishing. The latest check on the volatility indexes is that they are the lowest of the move which is a warning since the stock indexes are not new highs. Last Thursday's strong 2.5% up move gave plenty of confidence to the new bulls driving volatility indexes down. At the very least this is a bold statement that stocks are in need of a pullback to correct this bullishness. The market will have a tough time moving up if we don't get rid of some of this bullishness.

As our title indicates, the market is taking it's sweet time about going down. We're the only impatient ones. We need to enjoy this as much as possible since a strong up move will be coming as soon as we can eliminate the enthusiasm.

We say enjoy because there is still money to be made on the downside over the next couple of weeks. We are Not encouraging you to trade that way but we do think better prices are coming for those of you who still have money sitting on the sidelines. Two important indicators are the volatility indexes and the SP500 price level. We expect the VXO to go to near 40 and the SP500 to go to near 850. If one or both of these occur, we will be extremely bullish once again.

GDX popped above 40 last week and seemed to have left all of us in the dust. But, we think more buying opportunities exist for GDX, too, although maybe not as low as we saw it last week. We will continue to buy it if it drops back into the 37's and hopefully back into the 36's. That would be a good time to buy. Of course, it is possible it could break below last week's low near 35.50 but we don't think there's a very good chance for that. We would like to see that because we would like to buy more as cheap as possible.

Our other fund, the TLT, a basket of long dated Treasury bonds, traded up strongly on Thursday along with the stock market. This is not a common thing and we expect that the stock market was in the wrong last week with the bond market making a corrective up move starting a couple of weeks ago about the same time as the stock high. This occurred back on June 11th. The SP500 hit its high for the move, so far, and the TLT hit its low on about the same day. When they move together one of them is probably acting wrong and that is probably the stock market.

We promised a few people some pictures of Jackson but they will need to wait until tomorrow, so we'll put a up a quick post tomorrow with some pics.

GDX Continues to Lead

2009-06-24T18:52:00.000-07:00

Top Line: Stocks failed to generate much in the way of buying this week with the Dow dropping for the fourth day in a row. The position in the market should provide further downside over the next couple of weeks.

[Next post should be Sunday evening.]

The stock market was hoping for good news from the Fed (???) on Wednesday but the Merry men at the Fed didn't deliver much in the way of good buying news. After their announcement, the market struggled to hold its gains. Boeing (BA) was down 5% which kept the Dow from staying positive but the other major indexes did manage to hold gains going into the close.

GDX is the major news of the week. After trading just above 45 early in the month, GDX broke below 36 both Monday and Tuesday this week for a great buying opportunity. We bought some, did you? On Tuesday morning, a gold mining analyst turned bearish on the sector and GDX put in a low around 35.50 before starting a two day run that has taken it back up into the 38's. Apparently, this analyst has Not been reading the Update. We have been suggesting buying GDX under 38 for the past couple of weeks.

If you take a look at a chart of GDX (use BigCharts.com in our links to the left), you will see a steady pattern of lower highs and lower lows since early in June...until today. Today, GDX broke out of that trend but is it a true breakout? Normally, we would like to see a little more volume to confirm the breakout but we didn't get it. This could mean there may be more buying opportunities in the near future.

We still think that today's move in GDX may not allow for a new low for the move because GDX should bottom before the broader market. Tuesday's low near 35.50 may be the low of the move which is about 20% off the 45 high earlier in the month. This 20% down move has given us a clear picture for what the stock market wants to do. We don't think that the stock market will manage to drop 20% from its highs...GDX is much more volatile than the broader market so we expect the market to only drop about 10%. Using our SP500 estimate of 850 from a high of around 955 gives about a 11% estimate.

Taking the comparison one more step, we want to look at the time from the GDX high to yesterday's possible low. That was 16 trading days from June 1st to the 23rd. So, if we go to the SP500 high back on June 11th, today was the 9th trading day since then. That would put us at a low on a projected July 2nd, just the perfect day for a low in our opinion as that is the date of the employment report. Of course, this all speculation, and the way it all plays out Will be different; but, we will be here to pinpoint the low as best we can.

A late addition: We want to emphasize that the end of the quarter could bring some strength to the market over the next few days but we still think the market needs to head down one more time before it can go on a solid run. Nothing is certain, but probabilities are high. Check out the True Contrarian in our links. He has a new post.

More of the Same Ahead

2009-06-21T20:38:00.000-07:00

Top Line: The options expiration last week (quadruple witching, as some call it) provided some support for stocks late last week...but that's over and the next few days should see the sell off reassert itself.

[Our next post should be on Wednesday evening...summer schedule.]

There's not much to add to our comments of last Tuesday because not much has changed since then. The only change is that it's a few days later and the sell off is much closer. We are expecting a strong down move here in the next week to ten days and we are prepared for it.

We have put on some shorts to protect our long positions that we have had for a while. We started buying GDX back but still think that it can go lower. When it does, we will buy more. In the mean time, we are going to continue buying back what we sold. So far we have been buying GDX back in the 37's and hope to get it cheaper than that in the coming days.

For those of you who have not sold anything, this next week may scare you but don't let it scare you out of your positions. If you have additional cash, focus on how to invest that as prices get cheaper and you can afford more stock.

The week ahead includes some more Treasury auctions, about $104 Billion, as well as a Fed meeting. The possibility exists for some volatility.

We normally think the end of the month is a period of strength. If that's true this month, we would expect more selling early in the week with a slight rally into the last few days of the month and quarter. This may not be a normal time due to the position of the market. Still, the market could drop very hard for a few days and then recover some into month end with further selling out of the employment report next month.

The June employment report is scheduled to be released next week on Thursday, July 2nd, because the Fourth of July holiday is observed on Friday the 3rd and the markets are closed. This means we could pack quite a few moves into the next two weeks. Volatility should return.

Two Triple Digit Dow Drops In A Row

2009-06-16T21:07:00.000-07:00

Top Line: The stock market suffered two triple digit declines this week while the T-bonds were strong. Expect similar action to continue for a couple of weeks, with some intermittent rallies to throw the bears off course.

[We are on a Summer schedule and plan to post twice a week, normally on Wednesday and Sunday evening. We have a conflict on Wednesday this week so we are posting on Tuesday instead. Our next post, unless something noteworthy happens, will be Sunday evening.]

TLT, our favorite long dated T-bond equivalent roared higher today. From last week's low in the mid 87's, TLT rallied to close at 92.36 near the high of the day. This gave us more confidence that the stock market would continue down both today and for the near term.

GDX has dropped about 15% and traded in the high 37's the last two days and we bought some of our position back. We don't know how low GDX will go but we thought a 15% down move was enough to justify getting back into it. We didn't get the absolute high a couple of weeks ago but we did sell half of what we sold very near 45 with the other half around 43. Purchasing below 38 makes some sense and if it gets below 37 or 36 or even 35 we will be adding more to our holdings. GDX's slide has given us some more confidence in the continued stock market slide since it has been leading the market in recent months.

The volatility indexes have started their trek up to the 40 range at which point we will be aggressively buying back the stocks we sold, other than GDX. We plan to be buying GDX back first since we expect it will bottom first. The volatility indexes may not get back to 40 but there should be some fear in this decline due to the bullishness out there over the past few weeks.

We have talked to a few people over the past week about trading their accounts. Apparently, there are some people who are getting eager to sell since the market seems to have topped. Our advise has been to stay put and try not to worry about this pullback because you don't want to be out when the market gets going again. That could happen in a very short time and you don't want to miss the initial rally phase.

As of today's close, the time to sell is nearly over since we have almost dropped half of the distance we expect to see. The continued drop is almost assured but trading in retirement accounts like 401(k)'s and 403(b)'s can only done at the end of the day so you may not be able to get out and back in with perfection in your timing.

We have been telling you what we are doing and on some days we can't get the information to you fast enough to act. We have been doing some wholesale moves over the past week in order to step aside for about a 10% down move. Since our ETF's are mostly based on commodities, they tend to move more than an SP500 index fund. They provide much greater percentage moves than a standard index fund. Like we mentioned above, GDX has dropped 15% already while the SP500 has only dropped about 5%. We can more easily trade GDX at that kind of volatility where trading the SP500 is much tighter. Plus, in the retirement accounts you can't trade during the day.

By the way, good job for those of you who contacted us. We are glad to hear from you, yes, but more than that, it shows you are starting to watch your portfolios and have a greater interest in what happens. You're taking control of what happens. This is a good thing.

We are a little crazy with our trading in this time period due to the opportunities that are created. We are trying to maintain a level balance in our portfolio while bettering our position. This is a delicate balancing act but we are hoping to own more of the stocks we used to own. As things are today, the stocks we sold have dropped about 10%-15% including our GDX.

Market Appears Ready to Roll Over

2009-06-14T19:58:00.000-07:00

Top Line: The stock market seems to be on the edge of a downturn. The bond market seems to be ready for a rally.

[We are on a Summer schedule and only posting twice a week and if conditions warrant an extra post. We have a conflict on Wednesday evening so our next post should be Tuesday evening.]

In our last post we mentioned that the long dated T-bonds may be set for a rally coming out of the 30 year T-bond auction on Thursday. Last week the Treasury conducted three auctions culminating in the 30 year auction on Thursday. After Wednesday's presumably disastrous auction, the long bonds were set up for a reversal on Thursday. Our proxy for the long dated bonds is the TLT, an ETF. On Thursday morning TLT traded at 87.45, a year and a half low and then rallied strongly into Friday's high of 90.65 before closing Friday just under 90.

We mentioned that the stock market would react in a little different fashion by doing pretty much the opposite of the long bonds. We said we would consider selling some of our long term holdings if the stock market could make a new high which did happen on Thursday just as the long bond auction was finishing up. We took that opportunity to sell into the strength and sold out of our 401(k) positions as well as a few of our long term stock holdings from purchases made over the past nine months. We did hold some of our positions and we kept our short positions in anticipation of a return to a SP500 level of around 850. From the middle of the day on Thursday to early Friday, the SP500 traded down about 20 points from 956 to 936.

During the past couple of weeks we have sold about 40% of our GDX hoping for a good reentry point in the next few weeks. GDX has been leading the market and should continue to do so. On Friday GDX traded down to 39.28 after trading above 45 earlier in June. We are hoping to buy it back in the 37's or lower. Over the next few days we will start looking at putting in some orders below the market to see if we can get some good prices. We certainly don't want to miss the move into the fall, that would not be good.

The volatility indexes have been weakening somewhat and could start a rebound if stocks fall a little here in the next few weeks. This move up would give us more confidence that a buying opportunity is at hand. Buying stocks right here would be ill advised and we would not recommend it. There are just too many indications that better stock prices are coming in the not to distant future. We will be monitoring the situation closely.

T-Bonds Smacked Again

2009-06-10T20:53:00.000-07:00

Top Line: Market is ready for a significant drop, but first we may see a quick pop.

The market has been treading water since we had that spurt last week Monday, June 1st. During this time the SP500 has traded between 930 and 950. This type of trading is like coiling up some power and it normally releases in a thrust. In this case, we do expect a quick pop to the upside in order to complete this leg of the upside.

We are giving some serious thought to lightening up on some of our long positions, especially in our 401(k) where we are forced to be in index funds. This pop may be an opportunity to do some selling, especially if the prices get high enough. Of course, for our funds (ETF's), we can take full advantage of the intraday moves whereas with the 401(k) we are forced to trade at the end of the day.

GDX has been giving us some guidance to sell other positions. GDX topped out just over 45 last week Monday and we did sell about a quarter of our position just under 45. We almost bought some back when it dipped into the 30's in the last few days but decided to wait. That's beside the point...which is really that GDX leads the market and it dropped about 10% in a week and probably has some more to go. Yes, GDX is probably more volatile than the broader market but we are more concerned about the direction at this point.

The other two major indicators we have been mentioning here at the Update are the T-bonds and the volatility indexes. Let's start with the T-bonds. This week the Treasury is selling more bonds and today's 10 year auction seemed to be a bit of a dog.

Just to give you some perspective, our proxy for the long bond is TLT, an ETF. TLT dropped to 87.56, the lowest price for a year and a half. And, TLT traded at 123.15 back in late December. Yes, that's a big drop, nearly 30%. Ouch.

Thursday (today for you) the 30 year bonds are being offered. The question is, "What will the long bond do after the auction?" Since the long bond has been trashed by most media outlets, we expect that the sellers are about done. So, with the possibility of further selloff going into the auction, the stock market could actually pop in the morning. We can't be sure about this timing or if the market will actually pop but the bonds are in a good position to support such a move.

Looking at the volatility indexes, they are in the high 20's and represent a good place to turn around and head back up to near 40. This indicator can't help us much on Thursday with timing the market move but we do think that the number is bound to go back up in any market decline. We certainly would like to be in a position to buy stocks when these indexes get near 40.

Ok, what to do? We think there are many different ideas going on here. We do think that the "stay put" or the "stand pat" philosophy is a mighty fine one since we do think that there is a lot more upside going into the fall. None of this changes our position that the SP500 will be 1234 around 9-9-09.

If you want to Do something, you could sell some of your positions like in your 401(k) but not all of them. That way, you can do a maybe we get a decline and if so buy some good bargains as they show up in the next few weeks.

You can sell out your entire position and just wait for good prices...we don't prefer this approach because of the obvious difficulty to get back in at better prices. You can never know what will really happen. You'll need to be more aggressive about getting back in and we do not want anyone to Chase stocks when they are buying them.

For us, we have already taken some short positions as well as having sold some of our holdings to raise some cash. If we do get some more rally in the near future, we will attempt to sell some more of our long term holdings. This would be in the hope that we can buy them back at better prices. The only difference tonight is that we are seriously considering moving some/most/all of our 401(k) assets to bonds for a while. These assets are at a high and could be purchased later if and when the SP500 drops.

Our position states that the SP500 will drop to around 850 in the next down move before rallying into the fall. Any drop will bring in some buyers so there will be a choppy drop speckled with a few hard down days to reinforce the bears argument. When the bears get mentioned in the media again, we will start looking to buy. Sounds easy enough. Right...

Remember we are on a summer schedule and will be posting Wednesday and Sunday evenings. If something special happens, we might post on other evenings as well. If we get this pop tomorrow we may put up a short post tomorrow, otherwise we'll be back on Sunday evening.

Birth/Death Model Provides Lift to Jobs

2009-06-07T19:01:00.000-07:00

Top Line: We still expect a quick selloff (SP500 to 850) before we see much more buying. Our expectation for higher prices later this year remains in tact, that is, the SP500 going to 1234 on 9-9-09.

The employment report caused a burst of buying at the opening of trade of Friday. This was quickly swamped with sell orders but eventually the flat line of the past few days kicked in and the stocks idled the rest of the day. We don't think fundamentals are too important in this market but the lower lost jobs for May were created out of thin air in the birth/death model. This is something that estimates the creation of new small businesses or the dissolution of same and this past month it was responsible for over 200K jobs. We're not so sure about that number.

The real action has been in gold and T-bonds, both of which were down on Friday. Gold was down about $20 with GDX down in tandem. The TLT, a long dated T-bond ETF, was down under 90 for the first time since last fall. We have purchased a small position in TLT for a quick trade...possibly for a week or two. This is conjunction with our thought that the bonds have just gone down too hard, too fast.

Since our last post, we also were able to purchase some more UNG (see last post for details) with its breathtaking plunge below 13.50 on Thursday morning. We scrambled to get a trade in but had to pay more than 13.50. The price low was a good entry point. We think that UNG is so oversold that the upcoming correction should leave UNG pretty much unscathed.

The employment report may stand as the high point for the next few weeks. If we exceed that top, then our correction theory may have already happened or it may not happen. We fully expect the correction due to the bullishness that exists in the media and among traders generally. The public has become interested in the market again which is a sign of being overbought.

We expect that there will be a great buying opportunity, the last one for some time, coming up in the month of June for those of you who have not purchased enough stocks. We will watch carefully and try to provide timely information for you. We have decided to post twice a week, on Sunday evening and Wednesday evening, but if something like a buying opportunity shows up in between those days, we will likely post something.

Drop May Have Started Today

2009-06-03T18:10:00.000-07:00

Top Line: The stock market did a major head fake over the past week and today reality started to creep back in. Expect more downside directly ahead.

The most dramatic downside moves on Wednesday were in the commodities, which of course is what makes up most of our portfolio. We have some downside protection with our short positions but they can't make up for the huge down moves in commodities. Still, the commodities have been leading the broad market and this time they are leading it lower.

As you all know, our largest holding is GDX, a gold mining ETF, and it dropped from near 45 this week to 41.30 on its low today. For those of you who have missed out on GDX, we hope you did not buy it at 45 over the past few days. There may be an entry point coming up as the market drop continues. We would suggest that GDX will bottom first, maybe even ahead of gold itself. When GDX starts to make a positive move, in a week or two, that will give us a great early indication that the stock market is about to turn around.

Over the next few weeks, we (still) expect the SP500 to drop to the 850 range, which ia still a ways away from today's close of 931. This drop needs to happen because of all the recent bullishness that came out of just the latest week of the rally. General Public confidence of upside is a sure sign of price drops. When someone says, "I think stocks are going up", we would think that meant stocks Have Already gone up.

The bulls have taken over the sentiment and this attitude needs an adjustment. That will come as the market drops about 10% creating the same type of panic that people felt over the past year only in a mini version. We here at the Update will be watching our two favorite indicators at this time, the Treasury bonds and the volatility indexes, particularly the VXO which we have mentioned several times.

The T-bonds seem to have found a short term bottom. Our proxy for long dated Treasuries is TLT and that has been trading in the 90 to 92 range for several days. Should this pattern hold, we would expect that the TLT could move back up to near 100 or about 10%. From there the prices should drop to a much lower level as the stock market moves up.

Right now the VXO is around 30 and we would like to see this move up to 40 before we try to start buying our favorite stocks. As time goes by this month, these opportunities will only be available for a short period of time. Why? There are recent buyers that have come into the party very late in the price move and they need to feel some pain. Where were they in March when prices bottomed? At the same time, there are many entities that are looking to buy on a pullback. These people can't be given much of a chance either. The market won't give them much of an opportunity.

Our main goal will be to buy before prices go up which means that we will be paying higher prices and watch prices drop to the lows. We don't want to be too early but likewise we won't want to be too late. If you see these three leading indicators then you will probably see some good prices in your favorite stocks. We will be watching GDX to see if we can get in below 40 since we think the 30's will be a great support area.

We had a question off line today and would like to present the concept here. The question revolved around nat gas (natural gas) specifically whether it's a good buy right now. UNG is an ETF that corresponds to the price of natural gas. Today nat gas dropped by 10% during the day and represents a good value. If prices come down in the next few weeks from here, we would certainly buy some more. We actually bought some today. We had sold some on Monday near 16 in our trading account and decided to replace it here in the 14's again. If it goes down some more, we will buy more.

The question related to whether the fundamentals were strong enough to justify higher nat gas prices. Would economic contraction cause nat gas to decline further rather than go up? Our answer is that the economic contraction doesn't induce much real decline in usage of the product. Think of last year's price of oil near $145 a barrel. When the price dropped to $35, it wasn't because demand dropped by 60%, it was because of the herd mentality. Likewise, nat gas demand isn't driven by price too much. Yes, some will turn to nat gas to heat their homes or their water because it's now cheaper than other forms of energy for the same BTUs.

We recommend that if you are buying this or any stock over the next few weeks, please buy a small portion at a time and buy at Lower prices than your last. So, we paid 14.75 today and then bought some more at 14.32 and then bought more at 14.02. These prices now average much better than if we had purchased our entire position at 14.75. If you want more info on how to do this...leave a question in the comment section or contact me directly if you know how.

Market Pops in Late Friday Trading

2009-05-31T20:06:00.000-07:00

Top Line: The stock market staged a 100 point Dow rally in the final minutes of trading on Friday. That move calls into question our position that we expect a drop in the SP500 to around 850 or so, but we are sticking to it for now, not withstanding our general bullish position that sees the SP500 at 1234 on 9-9-09.

[The Update is considering going on a "summer" schedule where we post once or twice a week. We are leaning toward a "Wednesday" Update where we would post on Wednesday evening so you could read it on Thursday morning. We have considered Sunday evening but think it doesn't allow for enough good information; in other words, Monday's can be quite different than one expects on Sunday evening. We are starting this week so our next post should be Wednesday evening.]

Our short term forecast remains that the stock market should work its way to the SP500 850 level in the next couple of weeks maybe three weeks. This would shake out the current late comers to this party. From there, the stock market should start its march to higher levels this fall.

There is an article in our local Sunday paper that caught our attention. The title is, "Take time to map out your money strategy", with a subtitle of, "Feeling lost about which direction to take with your investments? Write it all down." The article asks the standard questions like, "What are your goals for the money?", "What is your Time horizon?", "What are your liquidity needs?", "What is your tax strategy?", and finally, "What is your asset allocation, target percentages for those investments , and re balancing plan?"

We here at the Update, think these questions are a little off the mark but the majority of the world really still believes that one can answer these questions and be right or keep their assets safe. We don't think the reason for saving money should be any basis for investing. We don't even think your time horizon is a good basis for investing. In fact liquidity needs will take care of themselves if you are investing properly. Tax strategy??? Really, you think you should invest based on your particular tax situation??? And, the last question on asset allocation and re-balancing is our particular favorite. How can you make decisions on how to change your current asset allocation and expect That exercise will help your performance?

The market does not care about any of these things. The market is a continuous stream and it is always moving up and down and sideways. It doesn't care how you answer these silly questions, it is just going to do what it is going to do. You can either follow it or try to force it. It doesn't take much to figure out which one of these approaches will fail.

Most people tend to think that market timing is "luck" and not science, so they don't believe it can work. These people are now trying to figure out if they should Exit the market. These people think of themselves as long term investors that just need to tweak their "asset allocation" and everything will be fine but then they sell everything as the market is forming a bottom in March or even last fall in October and November. They aren't long term investors if they scampered away from those lows.

We have not always been right about timing but we have fared pretty well over the past year where the "long term" investor most likely lost a lot of money. This market is not for "long term" investors and will punish such thinking over the course of the next ten years or so. People have "learned" over the past 25 years that the market always goes up and all dips should be purchased. In ten years, all of these people will be out of the market after learning that such a course of action will take most of their assets away from them.

Such is the nature of bear markets generally. They punish the complacent bulls who just "don't have time to spend on their investments". Investors will forget the lessons of the bull market, which were buy and hold, as their holdings go up and down, mostly down. They will learn the bear market rules just in time for another major bull market shows up. As that market goes up, they will say things like, "I'm glad I'm out." Reliance on mutual funds or index funds will be a distant memory just like it was back at the 1982 start of the bull market when the Dow was below 800.

Month End Strength is Waning

2009-05-28T20:59:00.000-07:00

Top Line: The stock market is wanting to go down but the month end strength seems to be holding it up for now. Still, the early May highs near 8600 in the Dow are very much intact. We expect a couple of weeks of soft trading taking the Dow down near the 8000 level.

Today's highlight was the GDX which closed right at 43. We've been on this long journey through the 30's which seemed like forever although there were several trading opportunities if you chose to take them, which we did take a few. From it's low of 15.83 back in October, GDX crossed into the 30's in December for a quick double. Since December it's been trading mostly in the 30's until this past week as it finally jumped into the 40's. This long string of 30's should provide some significant support and has already served as a spring board to the 40's. What is next for GDX?

We think the gold will now show some strength following the GDX pop over 40. Right now gold is sitting just under some resistance around the $975 level. Once it gets through that there is some very tough resistance at the all time highs near $1033. That is not all that far away and we think that level is possible in the month of June. All of this action could take GDX up some more. We will keep a close eye on it since GDX represents nearly 50% of our portfolio now that it has outperformed the rest of the stocks we have.

The market was looking for the right direction all morning and most of the trading day. The Dow opened up strongly and ended pretty much where it started, up about 100. The market will not suffer much of a correction here over the next few weeks but some of this current bullishness needs to be eliminated. One way to do that would be for a brief drop below what is considered "safe" support say around 850 to 875 in the SP500. Look for that in the next couple of weeks.

The Treasury bonds were putting on a brave face today opening up but then dropping back to yesterday's lows once again. They did manage to pull themselves out of that low and close higher. Let's see what happens next. We think they are close to a short term low, if they didn't already see one today. The news is strongly bearish on bonds and this is causing us a moment to think like a contrarian. We would buy some if they would drop much more although we think the short positions we have are better...we could be wrong.

We considered the 2x funds and the new fangled 3x funds that are available. We do own a couple of 2x funds now, SDS and QID, but we know they are dangerous plus they do not work too well if the market goes against you while you hold them. Let's take a look at the way the 3x funds would trade versus just buying or shorting the underlying index on which these funds are based.

Let's say you wanted to get long and decided to buy a 3x vehicle. Let's say you're right and the underlying index goes up 10%. Your asset is a 3x vehicle and it should go up 30%. That's great and what you intended. But, if your index declines 10% first, you may have an issue. In this case your asset would decline 30%. Then let's say the index rallies 1o%, not back to the original but up 10%. The index had dropped from, say, 100 to 90 (10% loss) and now rallies to 99 (10% up from 90). What has happened to the 3x fund in the same period of time? Well, in the 10% drop turns into 30% so an asset would drop from 100 to 70 (30% loss) and then it rallies to 91 (a 30% increase over 70). Wow, the 3x fund lost money on the round trip where the basic index nearly recovered its loss??? Be Careful. See yesterday's post for the numbers on QID or take a look at the one year chart of the QQQQ's and the QID (use bigcharts.com to the left).

Finally, natural gas got a spurt today as UNG managed to go up over a dollar. That was a nice move off the lows. The recent lows in May are higher than the lows in April signalling some strength. This could be a good performer into winter this year, possibly back to 30.

Wednesday Was Not Kind to Long Treasury Bonds

2009-05-27T18:22:00.000-07:00

Top Line: The stock market tried to continue Tuesday's rally but couldn't hold it. This rollover is probably going to take us down to 850 or so in the SP500.

The situation is that the market wants to go down before it goes up. We are just waiting for another buying opportunity. We expect a couple more weeks of softness in the market and no real downside pressure due to the many people who are just waiting for some opportunity to get into the market.

Today's market featured another drop in the Treasury bonds. TLT, an ETF that tracks the long dated Treasuries, was down again. TLT traded near 97.50 just last Thursday and today closed right around 90.50 for a seven point drop in four trading days. This week the Treasury is trying to sell some debt. For some reason, the results haven't been too bad but the Treasuries have not fared well at all. Since tomorrow is the last auction for the week, we may get some relief in this extreme selloff.

In last night's post we mentioned the QID which looked like a terrific buy this morning under 35. The QID is a short fund that is supposed to be twice the percentage move of the QQQQ's. This type of fund does not perform well over long periods of time and this is evidenced by the price low today. Today's 34.72 was the 52 week low suggesting that the QQQQ's were at their 52 week high which of course is not true. Today the QQQQ's were at a high of 35.19 even though the 52 week high was back in June of 2008 just over 50.

To make this analysis complete, last year the QQQQ's were at 50 and today they are at 35. That means that the price is 30% less than last year. That should mean that the QID would be 60% more than it was last year when the QQQQ's were 50. Instead the QID is about the same as it was last year. Yes, QID was over 100 back in the fall when the QQQQ's were down around 25. What this tells us is that these vehicles need to be used carefully.

What we mean by carefully is that if you can get on a move then you can make twice the amount using these vehicles; but, you need to get out when the move is over. No, that's not an easy thing to do but we have at least warned you.

For today, we would have bought some QID but we had some trouble with our trading account, a very unusual event that affected many traders. Our goal for that trade would be to hold it through the drop that should be ending in June sometime. This trade would have complemented our SDS trade which is a two times short based on the SP500. Again, these are not long term strategies or hedges, just short term trades. They are Not for everybody. If you want to make these trades be extremely careful.

Strength Could Be a Good Opportunity

2009-05-26T20:31:00.000-07:00

Top Line: The stock market liked the news on consumer confidence and pretty much ignored the 20% drop in home prices year over year. The Dow may now be ready to drop but with the end of the month this week, we may have to wait until next week.

Today's rally of nearly 200 Dow points gave investors plenty to cheer about. These are the things that send chils up our back. The public is bullish and a day like this encourages such thinking. The volatility indexes were down again suggesting this move was accompanied by a reduction in fear.

All of these point to a rally that is unsustainable in the short run. We still expect some more selloff as we go into June. The market is free to make it look good by rallying strongly but not being able to best the highs of the last couple of weeks. Yes, it could get higher over the coming days but today's move is just an attempt to get back to the May highs.

With today's rally, the opportunity to sell something is available but we still don't think it's the best course of action. Even with some more downside, who knows if you stocks are going to go down even if the market goes down? We prefer the selling be done around Labor Day not Memorial Day.

The commodities were not very strong today so most of our portfolio was average in performance plus we still have our short position which we considered exiting that position this morning but work got in the way. Hindsight says we would have been better off or we could have reinstated it later in the day. We are considering a couple of ideas for Wednesday.

Those ideas include the TLT, which is a fund of long dated Treasury bonds. The True Contrarian mentions them in his update for the week. The price is even cheaper at the end of trading today than it was when he mentioned it a few days ago. We might take a run at it for a quick trade, say a couple of weeks or so.

The other idea is to short the NDX by buying QID, which is the two times short equivalent of QQQQ. This would also be a short term trade and would be used to hedge our long positions in case of a down move which we think is almost inevitable. We are playing with a little fire because the market could jump here in spite of it being the center of the bulls attention. Plus, we don't really think there is much downside to be had so this trade would necessarily be quick.

Our recommendation to you is to stay fully invested and enjoy your summer by doing all the things you like to do which of course includes reading the Wednesday Update. Then if the market does come down, you can buy more of your favorite stocks. If it doesn't you can just smile and wait until it's the right time to sell.

Summer Starts

2009-05-25T20:04:00.000-07:00

Top Line: The market seems to have some more downside potential. The next few weeks should be soft...followed by a strong rally.

With the Dow down about 150 on Thursday with a few more on Friday, our short position has been rewarded a bit. We don't expect a lot of downside but the current situation can be a profitable one or at least a hedge against our main portfolio.

This brings us to the main issue for the day, that of being bullish or bearish. We have been bearish for many years waiting for the kind of drop that we saw last year. Once that drop occurred we became bullish and have been for about seven months or so. Now, we are looking for the first harsh drop in the market since the March lows.

This switching positions seems to confuse a lot of people. When the readership hears bearish talk from us for a long time, they get comfortable with that position and expect to hear bearish if they come back. Now that we are mostly bullish, their expectations are not being met. The public has turned bearish recently and most of these people are now stubbornly bearish. Any negative talk aligns with their thought process.

We here at the Update think that the market dictates what we should be doing. If the market is going up, we need to be long. If the market needs to go down, we will certainly be willing to go short. That is what we know best. But, that is not the only direction the market goes. We are usually the early ones out of our positions which can be a problem but we always expect being early is better than being tardy when it comes to the market. Those of you that know us, know that being late in life is one of our trademarks but not when it comes to the market.

This is the problem with following the market, you can't always be bearish. If a trader always thinks the market is going up, they will lose all of their money when it goes down, against them. With our current positions being very long, we wanted to take advantage of this short term down turn but didn't want to sell our positions. So, in our trading account we put on some short positions.

Anyway, if you read this blog and wonder why what you're hearing much different things in the main stream media, that is by design. We use the main stream media as a contrarian indicator many times. When they are most bearish we want to be bullish (generally). This can include individual items in order to get good prices for our trades. This of course is not our only indicator.

Right now the market is soft because the main stream media convinced everyone the market was safe again. When they start questioning a further rally, we will get more bullish. Until then, we will be waiting for other indications.

GDX Breaks the 40 Barrier

2009-05-20T20:38:00.000-07:00

Top Line: The market is ready to complete the pause we have been talking about. The final move here should bring the market down about 10%. Don't forget, some of that drop has already occurred.

[We are taking an extended weekend and with Memorial Day on Monday, we don't plan another post until Monday evening for your reading pleasure on Tuesday morning.]

It seems like we've been talking about a pause in the market's advance for a long time. The SP500 is the same level as it was about three weeks ago. That's a good kind of pause, one that doesn't have much of a price drop. The problem is that some price drop has to happen or does it?

We have been patiently waiting for an opportunity to buy some of our favorite stocks on the cheap, at least cheap at this time. If prices do go down a little we may have some desire to buy but we need to be patient and stingy.

Today we actually decided to take a short position in our trading account. This is not a recommendation to you but we do have our reasons for taking this position for a few days or weeks. We have been watching a few things over the past few weeks. The first red flag we talked about was the obvious bullishness. When you read headlines that indicate the coast is clear for buying, well, you know how we think...start heading for the exits.

The volatility indexes are the next red flag. VXO, the main index we follow, has been dropping hard for the last few days and still the market has failed to find its way to higher prices. The May 8th high of 930 in the SP500 came with a VXO of about 33 and today VXO dropped to 26.5 even as the SP500 could only manage 924. We even hear from the media that a drop in volatility indexes is a good sign that people have put some fear behind them...where are those exits again?

Of course, the red flags wouldn't have been complete without the last one...Treasury bonds were up on the day moving up with the stock market. Taking all of these things into account, as well as looking at the technical picture, we decided the rally today was a good one to short into...so we did. We don't expect to be in these shorts to long but we thought we would disclose just how much we think this market is going down.

In the meantime, however, the market opened on Wednesday with a commodity blast. With our portfolio full of commodity type assets, we enjoyed a surge in values, especially GDX which blasted up to 41 within the first trading hour. GDX has been trading mostly in the 30's since the beginning of the year and has not been over 40 since last year before the drop. Now that it has broken the 40 barrier, we expect that the 40's should be GDX's home for a little while. If we do happen to get back down into the 30's, we don't think it will stay there long.

Have a great holiday weekend.

Waiting for Higher VXO

2009-05-19T19:04:00.001-07:00

Top Line: The stock market had difficulty making any headway during the day and ended with a significant sell off. The market seems to want to go down. The next several weeks could give us some good buying opportunities.

The first thing we noticed was that the VXO managed to dip to 28 with about an hour to go. This was enough to spark a selloff. Here is where we see sentiment getting a little ahead of the market. Bullishness picked up a couple of weeks ago just as the market was peaking for this move. Since then the volatility indexes have continued to fall suggesting that the market is going up, too. However, that is just not happening. So, we see sentiment improving just as the market is about to drop.

What has managed to move up over the past few weeks is GDX. GDX traded near 39.5 today after trading around 36 two weeks ago. But, as the market faded at the end of the day, GDX fell as well. We were having a pretty good day until then. We keep wanting to see it with a 4 handle, maybe next week or maybe next month. oh well

The focus we have should stay on the coming drop in prices which may be here now. A couple of weeks ago the SP500 pushed up to 930 and that is looking more and more like the first wave top. We were expecting a little higher but the market has probably spoken and we need to listen. We have been talking about the Pause and we seem to be in it but the market keeps popping up giving a possible higher high but it just can't materialize.

The main reason we see that the market has been having trouble going up is because it's Supposed to be going down. We think that the buyers will show up at higher prices than most think. There are some buyers or bears that think the market will drop significantly from here but we just don't see it. Of course, we don't have perfect future vision as you well know but the market needs to go up and this down trend shouldn't be too deep. We would like to get some stocks at cheap prices, too but you may remember that we Did get some good prices on what we currently own.

Let's be careful about this drop that we don't do anything that we will regret. If we get some good prices we will be happy. We did notice that natural gas dropped below $4 again and may be something we want to consider again. Other ideas may emerge as the market drops. Remember that we want to see the volatility indexes jump back up, with VXO maybe going back into the 40's during this down move. Let's be patient.

Big Early Turnaround

2009-05-18T21:56:00.000-07:00

Top Line: That didn't really look like more downside and that is the reason we say that surprises are to the upside. We still favor more downside to get rid of the excess bullishness but the market may have other plans.

Today the Dow gained nearly 3% and the other major indexes were up that much, too. These rally days are the reason we say that you should not touch your core holdings. Except that GDX didn't manage to do much, the rest of our stocks had good moves. We have already commited to these positions some time ago and they should serve us well for the coming decline and subsequent rally.

At any rate, the current rally could extend a little further as we finish up this pattern. From there we should see a small pullback into the late May early June period which could give us some good buying opportunities.

By the way, don't think that Lowe's was the main event on Monday. Lowe's may have got the juices flowing but it isn't enough to push the entire market up 3%. When the market goes up 3% when it's supposed to be going down, then the Market is the main event.

We had some family visiting this evening so the post is necessarily rushed.

Back in the Saddle Again

2009-05-17T19:08:00.000-07:00

Top Line: We definitely needed a break. The market is retreating somewhat, something we have called a Pause, and we needed a pause, too. Look for more downside in the market.

We saw and heard bullishness a couple of weeks ago and figured that the market needed to take a short break from its blistering rally over the past couple of months. We don't think this little drop will amount to very much simply because there are so many who still want to get in. We said that when the market went up it wouldn't allow people to get in. Until now, that has been pretty true with only modest pullbacks. Now, we should see enough of a decline to tone down the the bullishness (easily measured in the volatility indexes as they move up).

If you look at a chart of the TLT (an ETF that represents long dated Treasury bonds) you can see that it has crashed through its 200 day SMA (Simple Moving Average...use bigcharts to see the picture). Now, TLT is trying to regain that line which it may briefly do...or not. Whatever happens, the next move for TLT is pretty much straight down. This is a classic chart pattern that is at least ominous if not deadly. With TLT going down, that means interest rates would be moving up which is in line with our thinking.

As far as our positions, we think there will be a modest buying opportunity that develops over the next few weeks as the market drops a couple more percent. Some of the stocks we are in tend to move a little more than the general market so excess downside can provide some good opportunities in these stocks. As we get closer to the end of the month, we will see what stocks make be good buys. As you watch your favorite stocks you may be able to pick up a couple more shares if they drop.

Gold has been holding up pretty well into this stock decline/bond rally. In fact gold has rallied about $50 in May so far. GDX has been a beneficiary of the move in gold as it too has rallied nearly 20% in May but has faltered a bit over the past few trading days. Since it is a large portion of our portfolio, we watch it very carefully and we are looking for 40's in the next few weeks. We have said this before, yes, but sooner or later it will happen. It may be headed much higher so a stop in the 40's is required.

Just a quick side note: We went to see the new Star Trek movie today...very good flick.

Time for a Break

2009-05-12T20:09:00.000-07:00

Taking a break...we'll be back on Sunday evening.

Conflicting Indexes May Mean More Downside

2009-05-11T20:45:00.000-07:00

Top Line: Stocks trade heavy and seem to want to go down at least a little. The downside leadership in the NASDAQ indexes was not evident on Monday as the NDX (NASDAQ 100) was up on the day.

The bullishness is pretty thick these last few days which should be a lid on this rally we've had for two months. That's how it works. The market is disdained and then it rallies without much notice. Now that it's up over 30% in a couple of months, everyone is bullish or nearly so. These are dangerous times to invest new funds. When the media convinces people that the rally is for real then the public can come in and buy stocks from the professionals. It's an age old tradition.

Right now we are walking a fine line between selling and holding our positions. The drop we expect doesn't have to be much but it should substantially reduce the current bullishness that has popped up. With the Dow down 155 today the volatility indexes didn't go up very much which is somewhat disappointing but it probably means that more pressure, in terms of lower prices, will need to be put on the new bulls who just bought.

We would be looking for bargains in the next few weeks to a month. The drop here should be enough to make people scared again but we don't think the prices will go much more than maybe 10%. This could be our drop that we were thinking about a while back. We thought the Dow would get up to 10K before bullishness would pick up but it may be now.

Our play will be to not touch our long term holdings for now. We do like to trade a little so we may do some of that over the next few weeks, both long and short. Stocks should give us plenty of opportunity for volatility trades where whipsaw action is likely to steal some money from many traders. Surprises are currently to the Upside and will be until later this summer or early fall.

Jobs' Report About What Was Expected

2009-05-10T20:22:00.000-07:00

Top Line: The stock market continues to hold up even as bullish enthusiasm increases. This is a dangerous development and we expect a small correction coming up soon.

The jobs' report was indeed greeted by a higher opening on Friday which was sold hard and then the buyers came back in, at least in the blue chips (banks especially after the stress tests results were released). This is a classic head fake we talked about in our last post...however, the double head fake was a little unusual. The NASDAQ indexes didn't come back very far from their selloffs as compared to the runup in the blue chips...a red flag we mentioned last week.

The volatility indexes were weak again on Friday indicating reducing fear in the market which is a bearish development to add to the list of reasons for caution in the near term. As we have said, we do not think you should do anything with your long term positions but right now we would not advise buying anything, at least until prices came down and gave us a better opportunity.

In our trading account we have some GDX but that's all. The rest is in cash and is waiting for a good opportunity. All of our stocks in our portfolio had very good runs in the past couple of weeks and extremely good runs since the early March lows. We still do Not think this is a good enough reason to sell them.

We see the VXO, volatility index, coming down but only to the low 30's. This is not a reason to sell, more of a reason to Not buy. If the stock market now drops a little and the volatility indexes move up strongly, then we would be eager to add to our long positions. If not, we would be starting to look at the recent bullishness and need to move up our timetable of selling...that is a bridge to cross another day, after the stocks decline...if they decline.

Right now we think that stocks could come back down just in order to reduce the recent swelling of bullishness. People are starting to talk about the market in a positive way again and are probably getting confident to buy. These are red flags to us contrarians. But, while we expect a modest selloff here over the next few weeks, we do see higher highs coming in the next few months.

April Jobs' Report May Produce Head Fake

2009-05-07T20:21:00.000-07:00

Top Line: The pause we have been discussing is in progress. We expect more downside over the next week or so, especially with options expiring next week.

Our position is that the jobs' report will trip up several traders. The futures are higher this evening with many expecting the number coming tomorrow to be better than expected. This has the possibility of running prices up into the number and then falling for about four trading days. We are looking forward to the possibilities.

As we mentioned, we don't expect you to do anything with your long term holdings. If you don't think you can handle a drop in prices this soon, then you may want to reduce some of your stocks but this is a dangerous tactic for many reasons.

The market turned on a dime this morning as it peaked with the CSCO news on Wednesday evening (the news wasn't really all that good but the traders were hyperventilating over it). We went into bear trading mode as soon as we saw the huge opening. Of course, the immediate reversal gave us a very nice quick bear trade and we are hoping for another one on Friday morning.

During the afternoon, the Treasury bonds took a hit right after the 30 year auction was complete. By the end of the day the long bond jumped 25 basis points, or a quarter of a point. This is a big jump for one day and it may be just what we were looking for in this market to put a short term end to the selling, or more appropriately, the hemorrhaging. In terms of TLT, the price was 123 in late December and it traded into the 94's. Maybe we can get a little rally out of the bonds while the stock market lets some air out.

As we get into next week, we will be re-establishing our long positions in our trading account. At least we think next week will be the time. We will of course watch for good prices in our favorite stocks.

Happy Mother's Day

Reversal for NDX, Another Pause Warning

2009-05-06T20:24:00.000-07:00

Top Line: The stock market moved up but grudgingly so. The NASDAQ Comp barely eked out a gain at all while the NDX (NASDAQ 100) was flat as a pancake, up four cents. The pause may be here.

The market participants are getting braver. They see the stress tests and are not bothered by the possible results. They see the jobs' report coming on Friday and then see the ADP report that job losses were much less than expected so are confidently buying stocks. You know that kind of thing makes us Very nervous. So nervous are we, that we took some profits today in our trading account. No, we didn't touch our long term funds but we may sell some of those if we get even better prices.

With the T-bonds holding their own and the volatility indexes sliding even on selling, we felt if would be best to take some profits. In the last four trading days our trading account was up 35% so we thought it was time to exit some of our positions for a few days. We like selling into strength and will now wait for a good buying opportunity which may not come but if it does will be in a weak market.

As we look out over the next few trading days, the news, as we mentioned above, could give us some strength going into Friday morning. If it does, we may sell some of our long term holdings but, again, it would be a temporary sell. The past two months have given our portfolio a strong lift and we need to be patient with the gains because there should be a lot more to go. Consider that the SP500 is just barely over 900 and we think there is another 300 points Plus to go, about the same percentage move as we have seen already.

We're not saying that you should do anything at all. We just think that we had to sell into this strength with the move we have seen in our trading account over the past few days. The market will do what it wants to do but the indications we have seen in the last few days give us pause.

Looking at the NDX, we saw a big opening this morning with the index jumping 1% at the bell probably heavily due to the ADP jobs report. In about an hour, the NDX was sporting a Loss of 2% so there was a big selloff from the early morning highs. This was the low for the day but with the Dow up on the day, the NDX was giving no good confirmation of the move.

Meanwhile, our commodities stocks were pretty hot all day. Since we still have a job (that sounds like a bad thing in this context) we have trouble trading but on the way into work we did figure that we would need to put some sell order in due to the strong opening. Unfortunately, our stocks kept going up after we sold them but not a lot. Anyway, we are hoping to buy them back at better prices over the next two weeks. Anyway, we have the same stocks in our long term accounts so those accounts got fatter after we sold our trading account assets.

The thought we have is that the jobs' report will present a selling opportunity on Friday morning but next week is options' expiration and should force a bit of a selloff. When stocks are strong going into the week of options, the large players make sure that their positions don't get hurt too badly, if only for a few days until options expire.

We will wait for a good opportunity to buy back in...and hope there is such a thing next week.

Market May Want to Pause, Too Many Eager Buyers

2009-05-05T20:26:00.000-07:00

Top Line: The stock market took a little breather today after the run up we've seen over the past couple of days. This could be setting up for another run or for more breather. Only the market can tell us that. Maybe the traders were just celebrating Cinco De Mayo.

We want to concentrate on the near term direction of the market. Our favorite indicators are telling us some things this evening and we should be heeding at least the warning in the short run.

First, we have the volatility indexes which went down during today's breather. This is not the direction we wanted to see if we are bullish. Volatility should go Up when markets go down, not down, but we don't want to read too much into this one day blip...but there is more.

Second, the Treasury bonds have stabilized over the past couple of days which could proceed a bounce. With a bounce in Treasury bonds, that means that money is being sent over to that market and less is going to stocks so, at the very least, they suggest some near term caution in the stock market.

We could be setting up for a short term drop that could take a little wind out of the bulls sails so we want to be ready for buying opportunities that may pop up. And, for us, we want to be tuned in to the possible trading opportunities as well.

For long term assets, we don't recommend making any changes since this could just be a couple days or a few more of consolidation. If it gets to be more than that, then there may be some buying opportunities.

The futures are down this evening which could lead to a down opening. This could be all of the downside we get with a burst of power coming out of that. We just can't be sure this evening. The market does like to give buyers some confidence (just like all con artists) so they will come in and buy just before the sellers come back in. That is what seems to have happened in the past few days.

Just so you don't forget our stance, we are very bullish through the summer and into the fall. Any short term drop should be used to buy more stocks, be opportunistic. Any selling you may choose to do should be into strength and you should take steps to buy your positions back with any sell off that may occur after you sell.

It is just way easier to stay the course and let the market scare the bulls and scare the bears. When there are no more bears, we will be Sellers but there are plenty of skeptics out there right now and the market has a long ways to go Up.

A Very Good Day

2009-05-04T21:32:00.000-07:00

Top Line: Monday was a good day. The market is in a strong move and should continue for some time.

With gold over $900 Again, GDX performed well, up about 6%. The rest of our portfolio was up, too, with coal being the major winner of the day.

There is little to say this evening as we go vertical in this rise. Recognition should hit the stock market as it did in many of the commodity names on Monday.

We have been trading over the past few weeks but we think the power of this rally should be significant and we may stand pat...but then again, we are traders at heart. We didn't sell anything in this strength today so maybe we have made a slight error in the short run. Only time will tell.

We started our last post with a flat line until the employment report on Friday...but we always need to say in this environment, "Surprises to the upside". As the market goes up, people are still not convinced that more is coming. Soon, many will believe and pile in pushing prices up. The media is still skeptical which keeps us strongly bullish as we have been for quite some time.

On Monday the VXO, volatility index, closed at its lowest point all year but it's still a chunky 34+. While there could be a drop in the market, we would expect a bounce in this volatility index to keep us bullish. We don't really want to think too seriously about selling our stocks (other than our trading positions) until the VXO gets into the low 20's and even then, we would just be thinking about selling them.

T Bonds Down Again

2009-05-03T19:34:00.000-07:00

Top Line: The stock market's broader indexes were up modestly on Friday. The action on Thursday was somewhat negative as the market was up strongly in the morning but couldn't hold those gains. The near term could be flat to down as we head into the employment report. In the meantime, the Asian market as well as the US futures are up this evening.

While the broader market struggled on Friday, our portfolio came to life with natural gas having a decent day for a change. Natural gas has been going down what seems to be every day so when it jumps on any given day, we get a little excited. We had purchased some more of it during the past week so were delighted to see the strong rally on Friday. Now, we would like to see a little more over the coming days, weeks.

As the title of our last post indicates, Treasury bonds are the news and they have pretty much dropped every day for the last two weeks. That means that interest rates have risen appropriately along with them. Last week, TLT broke below 100 and fell into the 96.50 range as the week ended.

TLT has a 200 day SMA (Simple Moving Average) just above 101 and on Friday the 24th TLT dropped below the line and then closed below it. The next couple days, TLT tried to regain that 101 line and it did at the opening on Tuesday the 28th. But that day ended up being an outside down day as TLT closed sharply lower after failing to hold that 200 day line.

[What is an outside down day? That is when an asset trades above the high of the day before and then closes below the low of the day before. On Monday TLT traded between 101.19 and 100.06 closing at 101. On Tuesday it traded at 101.58 early in the day and then traded down to 99.09, closing at 99.35 well below the lows on Monday. Normally this is a bearish reversal and indicates further downside action.]

The 200 day SMA is still rising slightly for TLT so there will be a tug for it to come back up at some point but once the 200 day line turns down, TLT will be heading down strongly. We are bearish on TLT and have been for some time.

GDX continues to underwhelm but we do think that it is about to run up over the next several weeks. GDX is very undervalued compared to the price of gold. This represents a good buy down here in the low 30's. If the price drops over the next week or two, it would start to scream at us to buy more, even though our portfolio is heavily invested in GDX already.

Please check out the True Contrarian. He has a new post as of this evening and he is strongly bullish on GDX due to his inflationary expectation.

Treasury Bonds Are the News

2009-04-29T19:15:00.000-07:00

Top Line: The stock market moved higher in line with our thoughts and should continue going higher.

[Editor's note: Reminder that there will be no post tomorrow. The next post will be on Sunday evening for your reading pleasure on Monday morning.]

After the last few days of the swine flu scare the market was tired of waiting to rally and it jumped out of the gates this morning. After moving up about 2%, the market tread water for a few hours waiting for the Fed's announcement. When that Non-Event occurred the market went up about another per cent but then spent the rest of the day going back down. The final tally put the Dow up about 2% with a little up tick right during the last few minutes. All in all a strong performance. The major indexes all moved to bullish new highs for the move.

Meanwhile, over in the Treasury bond market, the yield on the 30 year bond closed above 4%. That's the first time the long bond has been over 4% since last November. As we keep saying, the long bond traded down near 2.5% late in December so the big December bond rally has come and gone. There is most likely quite a long ways to go from here. We expect rates to move up quickly to 4.5% on the long bond and maybe get up to 6% later this year. We think the bond rally that started in the early 1980's ended at the end of December and rates are now in a secular uptrend that will eventually get them over 10%.

The news before the market opened included a sharply worse GDP result than was expected. The annualized rate was negative 6.1% on expectations of negative 4.7%. Tonight we need to spend a little time discussing the GDP and interest rates generally.

First, the GDP number sounds bad but it looks bad because of the price deflator which came in at a high 2.9%. So, the economy contracted And inflation was higher. This is not a good combination. Second, this inflation number has the potential to push up interest rates as we have been mentioning recently, such as we did back a couple of paragraphs.

Long Treasury Bond Nearly Back to 4%

2009-04-28T20:52:00.001-07:00

Top Line: The stock market should be nearly ready for a strong run up.

[Editor's note: There will be no Thursday evening post this week. We will post on Wednesday evening but not again until Sunday evening.]

The media would have us believe that the swine flu and some bad news on the banks is the cause of the weak performance the last few days. We say, "What weak performance?" The Dow is down just about 60 points in the last two days and the news is being pumped up to fit a 600 point drop.

Consumer confidence jumped in April to 39.2 compared to a revised 26.9 last month. The expectation was for the number to rise to only 29.5. The world isn't sure what to make of some of the "positive" reports. We expect them and so does the market.

Normally, we are talking about the jobs' report since May 1st is Friday, but not this month. The jobs' report is coming out next week Friday, the 8th of May.

One subtle shift in the past few days is being almost totally ignored by the media and that is the break down in the Treasury bond market. Today the long bond nearly pushed above 4%. If you recall, that rate was about 2.5% at the end of December. The reason the media is ignoring it is because they don't understand or realize the significance of the news.

We have discussed the bubble in the bond market that occurred back in December. The consequences of a bubble are normally a severe correction or worse. With the Treasury bonds, we did see a large drop in prices during January but since then prices have stabilized until the past few days. This break seems to open the door for higher interest rates shortly.

As you know, we follow TLT, an ETF of long dated Treasury bonds. TLT has been bouncing off the 100 line since February but today it broke through it and closed below it. When it hit 100 this afternoon, there were several sell stops that must have been sitting there because it dropped from 100 to 99.5 in about ten minutes. TLT traded above 123 in late December. So, even the Treasury bonds are risky, you can lose 20% in about a quarter with more losses to come.

The significance of this event is that as money is coming out of "risk free" assets, it probably will be going into "risky-er" assets like stocks. At the very least, Treasury bonds are falling in value. There seems to be an enormous amount of cash on the sidelines with everyone selling in the past six months and now they are selling the Treasuries as well. That cash needs to find a better home than money market funds. Stocks would be the logical choice.

(What's a sell stop? If you buy a stock or other asset, you can ask your broker to sell it if the price drops to a certain level. This is known as a sell stop, because you are selling your position and stopping the losses. Sell stops come in two forms, market sell stops and limit sell stops. When your stock goes down to your pain point it will either trigger a market order or it will put a limit sell order out there. Sometimes a limit sell stop never actually gets you off the position because the selling is so harsh that it "blows by you" on its way to much lower levels. Either way, we think sell stops are a good way to lose money because you automatically sell for a loss on the way down. We like to sell into Strength not weakness.)

Down Monday But Not By Much

2009-04-27T22:02:00.001-07:00

Top Line: Selling continues to be met with buying. The weekend news of swine flu and banks going under brought in some selling but the Dow is still above 8000.

The worst news over the weekend caused some minor selling in the market but in the end the Dow was only off about 50 points. The sellers are just not strong enough to take this market down...yes, for a short period of time they can but the new owners of stock are not weak hands. They bought stock for a good rally.

As we look at the last few weeks, the market has very much marked time. We have called the flat action a correction and we still think the possibility for a strong rally is high. The futures were down on Sunday evening and they are down again this evening as swine flu is giving traders a reason to be cautious.

What ever selloff occurs in the next few days, it will be another, in a long line of buying opportunities. The swine flu victims (stocks that have sold off due to the scare, that is) may be good buys, if you are looking to add to your stocks. We bought some more natural gas in the past few trading sessions as that commodity continues to put in new multi-year lows. This has been our worst performer since we started buying it back in January as we started buying just a bit early it seems.

Our advice at the moment is to relax. We have had an intense market over the past six months with all manner of selling going on. We were taking that opportunity to buy and this takes some time and effort. Now that we are fully invested or nearly so, the effort level has settled down and we are now getting our sights trained on the selling opportunity that is coming.

As we have mentioned on several occasions, we will know when the selling opportunity hits because we will start hearing the media talk about the new bull market or your neighbor is telling you what a great stock he bought last week or last month that you should consider buying.

Our other clue will be when the volatilitiy indexes settle down a lot from here. They remain stubbornly high so any market sentiment indicators that tell us that people are mostly bullish need to be measured against these indexes. Right now the VXO is still near 40 and relaxation is the order of the day.

Stocks go down and stocks go up. Right now they are trending up and will have bull scaring moments along the way. We are going to relax and pay strict attention to the items above. In that regard, we may be trimming back our posts to reflect the lower intensity of the market. We are doing some trading but we don't think it's appropriate to discuss those trades in this blog. We are only trading in our small trading account. The main portfolios have not been touched for months and we plan to keep it that way until such time as the market tells us to sell.

Fed to Meet This Week

2009-04-26T19:20:00.000-07:00

Top Line: The market direction is still up, in spite of a lot of efforts to hold it back.

The stock market continues to defy its critics. Every day the sellers come in and, it seems, that everyday the buyers come in behind them. Tonight's crisis du jour is the government proclaiming that there is at least one bank out there that "failed" the stress test. This news has brought some selling into the overnight markets. Is this really shocking news?

After last Friday's rally, the technicians are trying to figure out what happened. You see the market wasn't supposed to break above the highs of the week but it did. Hmm, what to do oh what to do?

As the market was getting ready to close on Friday, according to Fleck, the SP announced that there would about 14% in corporate defaults by 2010. That caused a very quick sell off in the final few moments of trading and now there is follow through on that "news". We put the "news" in quotes because this is the same organization that said that CDO's and CMO's of all kinds were rated AAA, including some subprime mortgage backed securities. So now, all of a sudden, they are certain that we will have huge default rates. It could happen but the market really doesn't care right now. It wants to go up.

You see, the market doesn't really think about today's news all that much. It is more concerned about the state of the world in six months or so. Yes, the market will "react" to news of the day but that is because there are those out there who really think that this stuff is not already known by the market. They read the headlines and think they are the only ones who know this information. Since the media is now reporting the news it must just be happening now so you can still make money off that news. It really can't be that easy and it isn't.

We'll see what happens this week. The quarterly earnings reports are still coming in and the Fed has a two day meeting this week. What do you suppose the Fed will say on Wednesday? The economy is slowing its descent and still needs monetary stimulus but soon it will be doing ok and we will need to pull some liquidity out of the market place to keep inflation at bay...is not a bad guess. They certainly won't be raising rates.

One item of interest from Friday's trading that we thought to be noteworthy was the trading in the TLT, an ETF that tracks the long end of the Treasury bond market. TLT made a new low for 2009; this, after the Fed is buying bonds like crazy. A bad breakdown of the TLT which would mean that the bonds themselves were breaking down would mean that there may be more money coming out of bonds and into the stock market. Just a thought. What do you think?

Market Still Marking Time

2009-04-23T21:45:00.000-07:00

Top Line: The stock market tried to come back Thursday and did manage to put in an up day. There is some weakness overnight (again?) which could spill over into Friday's trading.

The stock market has had some difficulty over the past few weeks and the main stated reason from the media is the "bank stress tests". Traders are worried that these tests may show that a bank or two might have some trouble. There's a shocker. We would say, it's a classic sell on the rumor and buy on the news but we'll wait for confirmation.

The headlines didn't read too well today with existing homes down 3%, Chrysler possibly headed into bankruptcy, the Fed's losses on its Bear Stearns adventure last year (Maiden Lane), all on top of the uncertainty surrounding the stress tests. After hours the news on earnings was from Microsoft (MSFT) and Amazon (AMZN). MSFT's results were down but about what was expected and the stock rose 3% in afterhours trading while AMZN managed to beat expectations and rallied, too.

Still, in overnight trading, the US futures are down even with MSFT and AMZN being up. The stress tests are getting a lot of attention this evening due to the headlines that say, "Bank Stress Tests Will Enter Critical Phase on Friday".

Meanwhile, gold decided to pick up its head today and get back over $900. That had some positive influence on GDX but it didn't hold up very well going into the close. This evening gold is up some more. The $900 level seems important to the gold market so we will watch to see if it falls below it again. It may not.

Top is a Long Ways Off

2009-04-22T20:10:00.001-07:00

Top Line: The stock market dropped hard in the final hour of trading after a nice rally during the day. Short term the market seems to want to drop some more but the selling should be contained to a few percent or so. Again, surprises to the Up side.

The vertical descent in the final hour was sharp and took a lot of steam out of the earlier trading. We watched prices drop on many different stocks. As an example, GDX traded around 32.20 about a half hour before the close but closed at 31.60.

This steep drop may indicate there is something negative about to hit the market in the way of selling pressure. Then, after the market closed, Apple (AAPL) announce positive news on the sales (iPhones) and pushed up the after hours tech market. AAPL made a nice up move after that news hit, about 4 points.

As always, there are cross currents causing difficult visibility for stocks. To us, the important idea revolves around public sentiment in stocks. If we had some information about the way the public was trading we would know more about how we should trade so here's our thought...

The stock market has tried to convince investors that they should put there money elsewhere. Until we have some convincing signs that the public is back into the market, we plan to stick with our long positions. When ever the public is not concerned about another decline, which we think will happen during the summer, then we will be looking to sell our stocks. For clues on this, we offer the VXO and other volatility measures, but another useful tool is your neighbor telling you it's time to get back in the market because stocks are going up "again".

When we get to the top of this current rally, the only question on people's minds will be, "How much money can I make in the market, again?" People will have forgotten how bad this October thru April period has been. Sentiment is extremely negative in the short term and the long term. When the sentiment becomes positive again, we will be sellers. Since the sentiment (volatility) has not improved, we remain firmly bullish.

Geithner Spurs Bank Stock Rally

2009-04-21T20:56:00.000-07:00

Top Line: The stock market staged an unexpected rally on Tuesday. Most thought the market was going to head back down to test the lows immediately. Whatever selloff occurs should not deter us from the greater goal of much higher prices later in the year.

Some news turned stocks around this morning. The Treasury Secretary said that most banks were well capitalized which spurred buying in banks and stocks in general. This talk is in the midst of the bank "stress tests" that have everyone worried that banks will get F's on the Test.

The media still thinks the story is the bearish one where stocks are on the verge of collapse. Our primary focus is to try to get an idea when the public is getting back into the market. The bear market caused a lot of emotional selling because people thought prices would go to zero. There was much bad news associated with the timing of the market drop which gave people added incentive to "trust" their emotions and sell.

We think the public's fear is measured in the volatility indexes. VXO stands near 40 and will surely drop substantially as the market advances. What we are looking for is public conviction that the market is going up once more. The mood was decidedly negative over the past six months or so which drove the public to sell. We think that mood will go 180 degrees in the other direction.

This first snap back rally after the long bear market drop from October 2007 to March 2009 should provide enough euphoria for us contrarians to feel confident selling our positions and start to think about going short again. From where we sit, it looks as though people think there is too much risk in the stock market. That doesn't fit with our sell point so we will not sell (except for some fun trading).

Big Down Monday

2009-04-20T21:17:00.000-07:00

Top Line: A down day provides a scare to the new bulls out there and gives us another chance to buy. If we get more downside in the coming few days, we may do some more buying.

On Monday, the market decided it was time to go down. We do Not believe any news item drove this behavior in spite of the headlines which indicated that the world was worried about the banks. It's true that the banks sold off strongly but other stocks were down as well. We think the bullish trade was a little crowded so the market went down.

How long will this last? Our opinion is that it won't last very long at all. The selling was pretty strong today and we don't need too many days like this to get prices to attractive levels. Several of the stocks we follow seem to be at buying opportunities now...not as attractive as they were over the past several months but good enough.

As we mentioned, we purchased GDX on Friday which turned out to be a good move at least for today as it was one of the only ports in the storm in the stock market. Gold and silver were up today on what the media called flight to safety. Platinum and palladium were down hard though so we're not sure what the real story is. The dollar was strong today which should have hurt all of the precious metals.

The biggest mover seemed to be oil, down almost 10%. The volatility in oil has given many opportunities to fail or to make a lot of money. Trading has been the only thing to do in that market with violent swings. Still, the lows down in the mid-30's still seem to be solid.

The volatility indexes were up strongly today just as we expected with the market down sharply. The fear picked up today as the sellers dumped stocks or bought puts to protect their positions. The VXO jumped but failed to stay over 40. Our confidence level in the rally gets a boost as these volatility indexes move higher. Eventually they will come back down and this will be caused by a rising stock market, therefore confidence will replace fear. Or maybe the fear will change to fear of missing the rally.

Can the Market Hold Its Gains?

2009-04-19T20:32:00.000-07:00

Top Line: Possible interpretations of the market in the short term are conflicting but we see a strong market through much of the summer. There will be pullbacks but by the end of summer the market will have surprised to the upside.

This evening the US futures are down but we have seen this before. The market does Feel like it is resting, not preparing to drop. From our perspective, the market is correcting the huge advance from the lows of March 6th. That correction is playing out in the form of no advance.

There are other interpretations, of course. With GDX dropping about 20% over the past few weeks, the possibility exists that the broader market could experience a strong drop as well. We're not convinced but will keep our attention focused on these possibilities.

Friday had a positive bias to it as April options expired. Some of our stocks were up fairly strong while others didn't move too much. GDX was the strongest downside performer so we decided to buy just a little more. We had sold a piece of it back in February and now we replaced that part we sold so we're back to the level we want to be for the summer. We might trade it again a couple of times but only a small portion of it. We had sold about 15% of our position in February.

We read many stock market related items and are having trouble figuring out what the public sentiment really is. We see so many conflicting reports but still think that the main notion for the public is that they are sellers into the strength. What seems reasonable is that people are still shell shocked by the huge drop and they don't even want to know what has happened in their accounts.

That brings us to the volatility indexes. The one we follow in the blog is the VXO which, in April, has dropped from about 46 to about 35, the lowest level since September. This drop has come from a little fear flowing out of the market and maybe people have become a little complacent, relatively speaking, over the past few weeks. We think this indicator is one of the most important we can be watching, especially if the market does decide to go down. If so, the behavior of the volatility indexes could give us good clues as to the public's sentiment toward stocks.

Market Keeps Going Up

2009-04-16T19:16:00.000-07:00

Top Line: The stock market continues to defy gravity with the Dow up another 100 points on Thursday.

Jamie Dimon of JP Morgan had a good time announcing earnings this morning. The market still had a little trouble in the early going but from the morning lows there was mostly upside. Early selling and late buying means the uptrend is continuing.

The problem today for us was that gold was down and GDX was down as well. We were considering making some moves to buy some more GDX today but we didn't. If you are looking for something to buy, GDX looks like a good one here in the low 30's. These gold mining stocks are so under priced relative to the price of gold and will have a spring loaded effect once gold gets back over the thousand dollar mark.

The Treasury bonds were somewhat weak today but they have been coasting in a fairly narrow range for nearly three months. The little spike they had on the Fed's announcement that they would buy long dated Treasuries quickly retreated. We don't think these bonds can continue in this narrow pattern for much longer and we think they will break to the downside (price...yields will go up) soon. This break should allow stocks to move up accordingly.

We wanted to mention something we have been watching for the last few days. We like the NASDAQ 100 (NDX, if you want to look at it with bigcharts.com) as an index. NDX is the basis for QQQQ...but we digress. The NDX closed at 1352 today and we are watching the election day high that it reached on November 4th which was 1378. The NDX is 2% away from that important high. Other indexes have more to go but once we do get over that November high, there should be a further strong move. We'll keep this simmering.

We have been watching the volatility indexes which have been coming down the last few days. We're not sure if that has anything to do with the options' expiration tomorrow, but the drop means some of the fear is coming out of the market. There is a long ways to go to get to our exit point but as these indexes come down, the possibility remains that there will be stock market pullbacks to push them back up again.

Tax Day is Here

2009-04-15T21:29:00.000-07:00

Top Line: The stock market did open lower on Wednesday and then rallied, especially the last hour, with the Dow starting out down about 60 and finishing up about 110. Was it a good buying opportunity or not? It sure didn't feel like it.

Our position about the market advance from last month has been that the market will not let most investors back in without paying higher prices. Even this corrective phase we've been in has been mostly sideways with little downside. That could change but for now, the market still reserves the right to go straight up from here.

All of this talk about whether the Economy is out of the woods or not has very little to do with the stock market. In fact the stock market should be giving us clues as to what the economy is going to be doing several months from now, not the other way around. So, you can listen to Roubini or any other economic bears but remember they are not talking about the stock market. They are gloom and doom about the economy.

All of this negative talk allows the stock market to continue to press higher. As long as skepticism is ruling the media, we will continue to hold our long positions. We are finally starting to see the volatility indexes drop into the 30's but these levels are still very high and need to come down quite a bit before we start thinking of selling.

Wednesday was mostly a dull day with the exception of the final hour in which the Dow gained about 120 points. To us, that's not too convincing although the Dow did retake the 8K level.

The financial markets are all struggling with the "turn". Treasury bonds are holding up ok for now but we think that won't be the case very long in spite of the Fed's purchases of Treasury securities. The Fed doesn't think it's a problem to print money and buy Treasury securities because inflation is not a threat. Today's CPI number mostly confirmed that in their minds. To us, the days of low inflation are quickly turning into inflationary pressure which should be very good for gold and the miners. So far, though, gold has fallen through the $900 level and is having trouble with it. We will keep our eyes open for developments.

Did You Get Your Taxes Done???

2009-04-14T19:40:00.000-07:00

Top Line: The stock market dropped on Tuesday as the Dow fell through the 8K mark once again. With INTC's (Intel) reaction to their earning's news after the close, Wednesday morning could be a bit of a challenge.

The market seemed to be thinking about the Goldman Sachs stock offering which dropped that stock about 10% today. There was the news that retail sales fell in March after some gains in the prior two months. The market is being very cautious about rallying. Once the market goes up another couple 1000 points no one will be cautious.

Last Tuesday, we thought the market was in a short downtrend that we said might end on Wednesday, April 15th down around 7400. Well, the market has had some backing and filling but today was only able to get down to the 7920 level. We don't think the market will actually drop into the 7400 level anymore but Wednesday could give us a nice trading low. We'll see.

After the market dropped on the GS/retail sales news today, INTC announced their earnings which beat expectations both in earnings and in revenues, as well as margins. That news did not inspire the market and INTC fell about 5% after the announcement. So, it looks like Tuesday was the financial stocks turn to go down and Wednesday could be the tech's chance to go down.

We need to remind you, in case you were wondering, we think this would be a buying opportunity.

Goldman Sachs Sends Mixed Message

2009-04-13T21:18:00.000-07:00

Top Line: Earnings are on the minds of investors for several weeks. There may be some surprises but, all in all, the market should focus on the good reports. If we get a good pullback, we would recommend buying, as we have done for several months.

After the bell, Goldman Sachs announced a $1.8 billion profit. GS (we like their symbol) has also announced a $5 billion stock offering to raise funds to pay off the TARP money. Tonight's earnings were initially bought but ultimately succumbed to the weight of the stock offering. We should point out that the price increase during the trading day was 5.82 while the selloff amounted to only 1.94 so it was a positive day for GS.

The news before the bell was that the government wants GM (as they say Government Motors) to file for bankruptcy protection. That seemed to be the reason the market opened down hard this morning but over the course of the day the market mostly rallied. Still, the Dow managed to hold onto the 8K level. Why do you think that is?

Most of the opinions out there seem to think that the market is now overbought and should be sold. The most bullish opinions have the market correcting the huge gains we have seen over the past several weeks. We have said it would be appropriate for the market Not to let people back in with a selloff. We know a selloff can occur at any time but we would say that it is a buying opportunity and it will be bought.

We direct your attention to our favorite tells. The first one is the VXO, which traded back above 40 today. After a 25% rally, the VXO is stubbornly near 40, we think this is bullish.

Second, as bearish as the world has been in the past six months, there will be a bounce that clears that thinking process out. By the time this rally is over, we should have market sentiment that is wildly bullish. Do you really think that the bearishness can be eliminated by a one month move that took the Dow up 25% but represents only 1600 points out of the 7500 or so that we dropped.

Third, the money keeps on coming and where will it go? Right, it will go straight into the market. There is so much fear out there that cash is now definitely King. We heard about this Bloomberg article describing the cash levels: "Investors had a record 45 percent of assets in cash, including money-market investments, and a record-low equity allocation of 41 percent in March, according to the survey data. Historical averages are 25 percent and 60 percent, respectively." You can see a graphical version on the GRAPH tab on that website. People have their money in money market funds earning, what, less than one percent just because they fear the market??? As soon as the market shows them that it's going up "for Real", they will want to own stocks again and this 45% figure will drop as money goes back into the stock market.

As we write, the US futures are down a little which could indicate another down opening on Tuesday. With prices where they are, will the broader market sell off enough to encourage more buyers to come in? We still think there is some buying pressure under the market with "Surprises to the Upside" always possible.

Option Expiration Week Starts

2009-04-12T20:42:00.000-07:00

Top Line: Dow closed above 8K again on the back of the Wells Fargo earnings forecast. These bursts of power are suspect because of their current news basis. However, if a pullback occurs, this would be another buying opportunity.

The Thursday morning news from Wells Fargo created a buying frenzy on Wall Street and not just in the banking industry. Many sectors benefited from the news. As we have said, when we are in a bullish pattern, surprises are to the upside. That's what we had on Thursday, a surprise to the upside.

The market is trying to decide what to do and when that happens there generally are a few back and forth moves to establish who is in charge, the bulls or the bears. We also though that the deep slump in prices would be followed by a sharp rally catching many off guard and not allowing many to buy.

This 1600 point move in the Dow creates a lot of skeptics. There are those that think the market has gone way to far and now must test the recent lows. There are a few who say that the strong move we've seen may have a little further to go but it's on it's last legs. We know that there will be several opportunities for these folks to be "right" over the next few months but in about six months the move will be much more than people currently think.

As soon as the market gets to the fall highs, then everyone will be saying they predicted it and that it now has a Lot more to go on the upside. When everyone believes it, then we will be ready to sell to them.

As we look forward to the week, we notice that the week contains an option expiration. The April options normally don't have a large influence on stocks but that may not be the case this month. We will keep you posted as the week progresses.

Long Easter Weekend Coming Up

2009-04-08T19:45:00.000-07:00

Top Line: The market Seems to be in a down move right now but the holiday and the bullish position in the pattern is holding it up. We'll see if our target of next Wednesday being the low really happens. Surprises, at this time, are definitely to the upside.

This is a brief post to let you know that with the market being closed for Good Friday, our next post will be Sunday evening.

Today's rally seems to be based somewhat on the Micron news. Micron said they would be raising capital and that they had funding for it. Ok, Micron isn't known for their stable income statement so the mere fact that they are able to raise funding in this environment may be a good sign that risk taking is alive and well.

We still think the market wants to go down a little but the next move up may be pulling it up already. In any event, the market is getting ready for a big up move. We think that the Dow will jump about 2000 points in the next month or so.

We wish you a blessed Easter.

Patience Grasshopper

2009-04-07T20:43:00.000-07:00

Top Line: A new down phase has hit the market but it should not last more than a week or more than 400 points.

Tuesday's action was not what we were hoping for but it isn't the worst news either. It is a nice test for the new bulls. Do they have what it takes to hold onto their stocks?

After the market makes a strong move in any direction, we should always expect a correction. Strong moves are normally pretty straightforward in their path. Corrections don't have the nice pattern to them and this latest pattern has turned into something stronger than we expected.

We thought the market wouldn't let anyone into the market, that it would make them pay higher prices. What we found out is that there is a lot of fear out there still and a selloff at this point allows more selling from those that now feel like they've had a good run and it's time to get out.

This downtrend has the ability to go down another 300-400 Dow points. That should scare a lot of bulls right there. So, let's review our situation. The Dow put in a low at 6470 and then rallied strongly to the March 26th high near 8000. Let's call that 1500 points. From there we are having a correction that will likely take us back down to the 7400 level in the next few days, let's say next week Wednesday (we pick that day because of options' expiration that week on the 17th). The move out of that low should be a very strong one and lift us to the 10K mark in several weeks.

Anyway, 7400ish in the Dow will feel like a very big selloff indeed which it's supposed to feel that way. We can't say for sure that 7400 will happen but after today's drop, it is a likely outcome. In the scheme of things, though, the low formed will be a solid low and be followed by an explosive rally. It will make the rally from the 6470 low look weak.

The reason is that this selloff will convince most that the rally is over for sure and that new lows will be forthcoming. When the market turns around, there will be a collective head scratch and then they will all change their minds and buy. This buying will persist for a couple of weeks and the Dow should run into some "round number" resistance at 10K and then fall back for a few weeks or trade in a range for that time. We expect a drop from the 10K level to about 8500 before we get the final push which should correspond to the first run which will have gone from 6470 to 10K or about 3500 points. That would take the Dow up to the 12K level which is how we arrive at this number.

When we get to the Labor Day period of time and if stocks have gone up as much as we think, there will be no more worries about buying stocks. All systems will be go and the green light to buy will be blazing. Memories of last fall will have vanished mysteriously and the New prosperity will be predicted. That will be the time for us to vanish--well, maybe just sell our stocks.

We Were Hoping Michigan State Would Win, Big Ten

2009-04-06T21:45:00.000-07:00

Top Line: The market sold off in early trading on Monday but then rallied the rest of the day. This action is what we like to see...except for GDX which seems to keep going down every day. It will come back soon and zoom higher in a few months.

Monday didn't offer us much in the way of new information but it did look like we were going to have a crushing down day. It ended stronger than most thought it would. We are still looking for a very strong rally in the not too distant future with the Dow jumping to near 10K. This rally will be accompanied by a chorus of naysayers who will tell you every step of the way that the market is overbought and should be sold.

As we mentioned in our last post, we are keeping our eyes on the volatility indexes and they should provide valuable clues as to when these naysayers will finally be correct. In the meantime, the VXO is still over 40 today.

We thought we should mention GDX due to its percipitace fall in the last few trading sessions. We were strongly recommending buying GDX last month when it fell below 30 and now it is getting close to that mark again. Certainly, if you have some funds available, GDX is starting to look very attractive again. Always remember that mining stocks, which GDX is a fund of mining stocks, are extremely volatile.

If you don't think you can handle that volatility, you may want to try something else, like maybe skydiving or base jumping. When dealing with some of these sector stocks/funds, they do tend to be volatile but that gives us the best upside potential, too. But, you need to be able to withstand the likes of GDX when it drops from 38 to 33 in a couple of trading days. Fortunately, our entry price is quite a bit less than that so it doesn't feel too bad.

We are so bullish on GDX that these buying opportunities seem unfair because people shouldn't be allowed to get in at such low prices. We worked hard to get it down in the teens last fall. They aren't going to be able to get those prices again for a very long time. We remind you that you should never chase these stocks or any others for that matter.

We watched Michigan State lose to UNC and the Twins lose their home opener to the Seattle Mariners. It wasn't our night, but we did watch it at Home.

This One's For You, DT

2009-04-05T21:49:00.000-07:00

Top Line: The Dow managed to push ahead on Friday to above that 8K mark. With so many analysts making statements that the market can't go much higher and the volatility indexes holding pretty steady in the face of this powerful rally, we must conclude there is quite a bit of rally to go.

DT, this post's for you. Thank you for your comment last week. This evening we would like to explore your thought process on the market and see if we can provide a different look at the market like we try to do in every post. Before we do, we wanted to say that we appreciate your kind words and hope that you will continue your diligence in your investing...and we really enjoy being grandparents.

In that regard, we thought we would add a recent picture of Jackson...walking, not in Memphis, but in our house. Jackson came to visit Grampa and Gramma on Friday evening for a few hours and we took a picture (or maybe two) of him walking...

And, one of him playing...
Did you make it down here? Good, we'll get into our Sunday evening post...

This Game, as you say, is a dangerous one, especially in a bear market. The thing about secular (long term) bear markets is they give us great opportunities to make good percentage gains. Granted, a bear market is not for the buy and hold investor but the opportunities are there if you are willing to look for them.

Last summer, DT said she was worried that she was losing money and didn't want to lose any more. That is the first step in taking control of your retirement funds. Don't let the market run you over. She could feel the fear and wanted to do something about it. She acted before the market collapsed and preserved a lot of her assets.

We are in a bear market and prices generally go down in bear markets, dotted with significant up moves, of course. Once you are willing to make some trades on your own, you realize that this is not so bad...but you do have to watch what's going on.

If you don't like watching what's going on, then you maybe should get out for a few years until we've hit bottom and then you can ride the new, and mostly boring, bull market that should start about ten years from now. Then you can go back to your "normal" buy and hold strategy, with periodic sharp pullbacks...

Of course, there is a problem with that, too. We are trying to retire in the next ten years. How do we retire without building some wealth in order to do that?

Let's get back to the real subject, fear. The wonderful media is continuing to provide plenty of opportunity for us to fear another plunge into the financial abyss. Why should we listen to them? After all, weren't they telling us a year ago that oil was going to $200 a barrel and gas to $10 a gallon? Now, they're experts on the stock market.

The main place to get your fear measured is in the volatility indexes. We like the VXO, but there are others you can watch, too, the VIX and the VXN. All of them are elevated but what does that mean? When the stock market goes down, the media says there's a lot of "volatility" in the market. When it goes up, they say we are in a positive trend or a bull market. To us, volatility means up and down but that doesn't really matter.

The volatility indexes measure the premium that is built into the puts. When people are afraid that their stocks are going down, they want to protect the downside and they will do it by buying puts. If their stocks go down, their newly acquired puts will go up and offset the losses in their stocks. This can be done at any time and is done all the time; but, when people get scared, more and more people take this approach and it drives put prices up causing some premium to be built into them...and in turn the volatility indexes go up as well because they measure the premium in options. The higher the premium, the higher the level of fear, and the higher the volatility indexes go.

When times are "normal" meaning people think we're in a bull market, put premiums are still there but just not very high. The VXO would "normally" run around 20 but in times of fear, the VXO can jump to much higher levels. Last fall when you could fell the fear, the VXO traded as high as 103.41, that's fear. We normally think that if the VXO gets higher than 40 we should be buying stocks which was one reason we were buying stocks last fall.

What's going on today? We have just had a 20% plus rally in stocks in about a month, the largest rally in that time since the 30's and the VXO is around 40. To us, there is still plenty of fear lingering in the market if the VXO is 40. Translation: Do Not Sell. Yes, there will be some scary down days but we are in the midst of a strong rally inside of a major bear market. On top of that, the drop we experienced last fall and even this year into March 6th was harsh and fast. The rally out of that low should be violent and fast.

We think the Dow will go to 12K (SP500 to 1,234) and our target date is 9-9-09. If you feel the need to sell into some strength before then, of course you can, it's your money; but, before you do, you should come back here (everyday) and find out what we think...but more importantly, you should listen to what the market is saying. One of the best places to do that is in the volatility indexes. They tell the truth about the fear. The media can only tell you what is going on Now, not what will be.

So, rather than looking at the Dow to see if it's at 9000 or 9500 or even 10K, look at the VXO and see if it's near 20. If so, you may be able to sell some stocks. If it's 15, make sure you sell quickly and maybe go short or buy T bonds. Otherwise, if the Dow is at 10K and the VXO is at 30, we might suggest holding out for higher prices.

One last thought, we do think there will be two major up moves this year with a modest pullback in between. The first large wave may just go to 10K and the VXO may go to 20 or 25. This may be a good time to look at our stocks to see which ones could be trimmed back. Then if we get a good selloff back to 8500 or so, we can jump back in. That will be known in the fullness of time. For now, the VXO is at 40, so don't worry too much.

Dow Crosses 8000 Briefly

2009-04-02T20:00:00.000-07:00

Top Line: The Dow jumped over the 8000 mark on Thursday but couldn't hold it. 22 points away. So, you have seen it, do you believe it? The Dow closed 1500 points above its March 6th low.

Media coverage suggested that there were some important news items that drove the market up today. The big one is that the FASB relaxing the mark to market rules. We thought we wanted More transparency from our financial companies. Those assets that are difficult to value because there really isn't a market for them can be valued at any amount the company thinks is appropriate.

The other idea was the G-20's promise of nirvana coming. Maybe they didn't say nirvana, just an important inflection point, but the media gave them some credit for the rally. Really.

No media source gave us the Elliott Wave 3 argument that we suggested ??? That's ok, we don't want them to know everything, do we?

After hours Research in Motion (RIMM), one of the members of our FSI (four horsemen fame) announced good news and popped the stock as well as the futures. News like this shouldn't give us much in the way of solid price movement but good news from these tech firms does surprise the markets a little.

Oil was up quite a bit and the dollar and T bonds were down. This makes good sense. That gold was down hard is a head scratcher??? We had heard on Wednesday that the ECB (European Central Bank) sold 35 tons of gold in the recent past which could be a reason that gold has had a rough go of it recently. Then today (Thursday) the G-20 made some comments on selling gold which did some more damage to the market.

In terms of our portfolio, GDX was a drag today and we are getting tired of seeing this stock in the 30's. No, we don't want to see the 20's again but we are waiting patiently for the 40's. GDX traded in the 30's in December. The chart does look like it wants to make a run up very soon.

One item of interest on today's stunning rally was that the VXO closed Up on the day. That means that traders were bidding up puts as the market moved up, a very unusual event. This is very encouraging to us that the market is going to continue its rally.

And, last but probably least, is the jobs' report that is due out on Friday morning. The expectations are that over 670K jobs were lost last month and that the unemployment rate jumped to 8.5% (from 8.1%). Will this have any effect on the market? If it does it will be short lived because the market is definitely Expecting bad news.

A Nice Pop For April Fools Like Us

2009-04-01T20:05:00.000-07:00

Top Line: Wednesday started with a giant thud as predicted by the futures action on Tuesday evening. The opening bell was the low of the day and the market quietly moved up most of the day. Probably more to come.

In our last post, we suggested that the market might drop in the next day or two. That seemed to be completed this morning with the huge down opening. The market failed to break through the lows of the past few days.

These shallow selloffs is what the Update expects for the most part as we rally this spring. The market doesn't want to let anyone in and will probably not give us a meaningful selloff until we have many more participants who are convinced the market is going up. Then we can have a good selloff.

This evening the futures are firm and the Asian markets are up again, enjoying the strength on Wall Street today. The last two days, Japan has rallied 6%. We know that the trading session is not over this evening in Japan so anything can still happen but a 6% move in two days isn't too bad.

Turning to the gold mining complex, we were interested in the higher GDX price today without much movement in gold. We have been saying that the gold miners are very cheap compared to the price of gold. The relationship of miners to gold is simple. The higher the price of gold, the higher the value of the miners. It's like the miners have the gold mines and the amount of gold in those mines fluctuates with the price of gold. Assuming extraction costs don't change too much from day to day, the value of the miners should go up with the price of gold. Ok, it's maybe not quite that simple, but you get the idea.

The other thought is that the miners generally foreshadow the price of gold. If miners are rising, then gold the metal should follow suit. Today gold didn't move much but GDX jumped nearly 5%. GDX closed at the highest level since last fall and gold is now modestly under its highest price. Going back a year or so, when GDX was over 50, gold was about where it is now. This doesn't really bolster our position over periods of time but it does indicate that GDX is well undervalued. It would be nice if we had a few more days like today to get us back to better balance between gold and GDX.

And, we know why you come here...yes, Jackson pictures. We learned that Jackson took his first steps on March 31st so we went to see for ourselves this evening. There are no pictures of the event but we did see him walk. He is pretty confident in his walking. The first we saw him walk, his mom stood him up and he walked from the kitchen through the dining room into the living room and into the hall and then into mom and dad's bedroom and into their closet. Unbelievable.

Anyway, here are some older pictures of him, from a few weeks ago before he could walk???

Having a bath and shampoo after dinner with Gramma.

Examining Gramma's doll to see if her eyes and nose worked properly.

Chillin' with Cali at Grampa and Gramma's house.

April Begins, No Fools Here

2009-03-31T20:21:00.000-07:00

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.

Correction Nearly Over

2009-03-30T21:36:00.000-07:00

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.

Friday's Jobs' Report Is In Sight

2009-03-29T20:52:00.000-07:00

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.

GDX Leads The Way

2009-03-25T20:16:00.001-07:00

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.

How High is the Sky?

2009-03-24T19:08:00.000-07:00

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.

500 Point Spring Loaded Rally

2009-03-23T20:42:00.000-07:00

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.)

Market Has A Spring In It's Step

2009-03-22T20:10:00.000-07:00

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?

China Syndrome

2009-03-19T18:43:00.000-07:00

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.

Fed Creates Some Chaos

2009-03-18T18:59:00.000-07:00

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???