Thursday’s stock market tried to continue the rally that has been in place for about three days but couldn’t quite keep that type of momentum going. Yes, the major indexes were up today and, yes, we lost some more money today, but we do not believe this is the start of a major bull run as so many on Wall Street are trying to make you believe.
There are many things to look at technically that should bring clarity to this subject. The very first one of those is the incredibly low volume on which this rally was built. Bull markets need volume in order to survive. If we were to see a bull market starting now, there would be massive volume and massive price movement, not this weak volume and not these little 1% to 2% moves. The bull market never lets you in, you always have to chase it. While you may feel like you should chase this, just imagine if the move would have been 3%-4% a day for a few days on big volume. You would have to chase it.
The last big thing to discount this “bull” is something we have mentioned in the past, the volatility index, VIX. (The VIX generally moves opposite the move in the market so on an up day, the VIX should be down.) We would really like to see some bearishness out there in order to call this a bull move. Instead we see the VIX sinking to its May numbers even though the price levels are still well below the May highs. Looking at the SP500, we see a high price of 1325 on May 5th and today’s close was 1297. In the NASDAQ Comp, we see a price high of 2370 on April 19th and today’s close at 2157. This value of the VIX indicates a docile complacency that bullishness is based on.
When we wrote about the Volatility Index in a post early this month (Wednesday, August 2, 2006—check the archives at the left for the full report), we said that we would know when to get bullish by watching for this VIX number to go up to around 50 or 100. Today’s VIX closed near 12 which is near the early May levels. This is not a bullish number and we remain very, extremely, mightily, pick your adjective, bearish.
We said we had a little powder that was dry and we still have it. I guess this 1550 NDX number was eating at us over the past few weeks. Now that that number has been attained, we are now willing to deploy some or all of that dry powder.
We expect the 2004 NDX lows to be at least challenged in this next move down and those are right around 1400 so about 10% from here. Our best guess is for something far greater than that, giving you a first hand look at the way the bear can destroy value in a hurry. As that develops we will be here to analyze the patterns and possibilities.
Thursday’s LEI, Leading Economic Indicators, were down 0.1% rather than the estimated up 0.1% which the stock market took as further confirmation that the Fed is indeed done. This rally tried to get going but the bulls were exhausted so not much happened on the upside on Thursday. At the moment, the battle cry is “The Fed is Done, Let’s Buy” and we would say Caveat Emptor, buyer beware.
Have a great weekend.
Dow Industrials: 11,334.96 +7.84
QQQQ: 38.73
RYVNX: 21.58
RYAIX: 24.04
RYCWX: 41.71
TLT: 86.52
BEGBX: 13.64
Thursday, August 17, 2006
Wednesday, August 16, 2006
Another Big Up Day
The stock market decided it liked the CPI numbers on Wednesday morning and that was all it took to pop the futures up just before the market opened. From there, the market ground higher all day long going out on the highs of the day. That makes two solid price moves back to back. We still didn’t see the volume that should normally be associated with this kind of move.
We are trying to figure out just what the market is trying to do here. Our portfolio has taken a significant hit in two days with this action but we still feel that the decline is coming. Granted, we could have been out for the last two days but this would have been tough to call. This week is options expiration and there may be some unwinding of positions going on with that and maybe there was a lot of short covering with sellers walking away for better prices later. In any event, the price move has been impressive even though the underlying strength doesn’t appear to be there.
You might ask what we are talking about because price moves are what all of our trading is about. Well, the price moves should be associated with solid volume to confirm the greatness of the rally. Plus, we said in last night’s post that the NASDAQ 100, NDX, had another opportunity to go to 1550 which it superceded on Wednesday. That was for a 50% retracement of one of the prior declines. With the entire price move in the past four days, the NDX has not reached back to the July highs.
All of the buying taking place right now is based on the concept of a weak economy with low inflation. So, the price moves this week are “news” related based on flawed thinking and will not stand up for long. We say flawed thinking because the whole idea of a poor economy creating a good stock market doesn’t really seem appropriate. The market participants are thinking that the Fed Can’t raise rates and that in itself will improve the economy. We don’t think so. What “Fed is done” rally is this, number 852? How many times can the excuse to rally be that the Fed won’t raise rates???
The news out of the housing sector continues to get worse with July housing starts down another 2.5%. There was some good news out of Hewlett Packard (HPQ) after the bell. That stock had a nice pop in after hours trading.
We think that the options expiration related buying will be over and now will come the test of this up move. The market is not as strong as the price moves indicate especially looking at the energy this move has taken.
Dow Industrials: 11,327.12 +96.86
QQQQ: 38.58
RYVNX: 21.68
RYAIX: 24.10
RYCWX: 41.75
TLT: 86.55
BEGBX: 13.65
We are trying to figure out just what the market is trying to do here. Our portfolio has taken a significant hit in two days with this action but we still feel that the decline is coming. Granted, we could have been out for the last two days but this would have been tough to call. This week is options expiration and there may be some unwinding of positions going on with that and maybe there was a lot of short covering with sellers walking away for better prices later. In any event, the price move has been impressive even though the underlying strength doesn’t appear to be there.
You might ask what we are talking about because price moves are what all of our trading is about. Well, the price moves should be associated with solid volume to confirm the greatness of the rally. Plus, we said in last night’s post that the NASDAQ 100, NDX, had another opportunity to go to 1550 which it superceded on Wednesday. That was for a 50% retracement of one of the prior declines. With the entire price move in the past four days, the NDX has not reached back to the July highs.
All of the buying taking place right now is based on the concept of a weak economy with low inflation. So, the price moves this week are “news” related based on flawed thinking and will not stand up for long. We say flawed thinking because the whole idea of a poor economy creating a good stock market doesn’t really seem appropriate. The market participants are thinking that the Fed Can’t raise rates and that in itself will improve the economy. We don’t think so. What “Fed is done” rally is this, number 852? How many times can the excuse to rally be that the Fed won’t raise rates???
The news out of the housing sector continues to get worse with July housing starts down another 2.5%. There was some good news out of Hewlett Packard (HPQ) after the bell. That stock had a nice pop in after hours trading.
We think that the options expiration related buying will be over and now will come the test of this up move. The market is not as strong as the price moves indicate especially looking at the energy this move has taken.
Dow Industrials: 11,327.12 +96.86
QQQQ: 38.58
RYVNX: 21.68
RYAIX: 24.10
RYCWX: 41.75
TLT: 86.55
BEGBX: 13.65
Tuesday, August 15, 2006
Bullishness Abounds
Most of the world, including us, were a bit surprised by the PPI numbers that came out an hour before the market opened. The Labor Department reported that producer prices rose a modest 0.1% but the closely watched “core” rate was a negative number, -0.3%. This was all the market needed to say the Fed would not raise rates, even though they had threatened that last week.
The current “Fed is done” rally follows about 50 others just like it. Our comments in the last post considered that the market had failed to best the high water marks made since the jobs’ report on August 4th. So, here we are with the market as bullish as it can be, and we barely broke above the jobs’ report opening prices. The market advanced today on what we consider to be very light volume for a move like this. Yes, most of it was up volume but the total was light.
We looked back to the same period four years ago to see if there are any similarities with now. Back then the market had peaked on March 19, 2002 at a level of 10,635 and dropped to a low of 7,286 at the close on October 9, 2002. This price change represents nearly a 35% drop in a little over six months. This year the Dow peaked on May 10th at 11,642 and so far the lowest we have seen there is 10,706. If 2002 is any standard, we should be looking at a Dow down another 25% or so taking us to around 8,000. On the surface 8,000 seems a bit farfetched, but in 2002 7,286 seemed farfetched, too.
Our bearish position may not bear fruit of the 25% nature but we continue to be confident that the market is going down into late September or longer. Days like Tuesday remind us that the market is trying to make people confident of the bull. We don’t believe it’s that easy to make the market go up. And, if you look at the incredible bullishness out there currently, you would think we were going to new highs every day. That is simply not the case, as we’ve had trouble getting back to the June Lows let alone the May highs.
Tuesday’s PPI signaled that the Fed could stand pat on interest rates. Does that mean that Wednesday’s CPI will give the same message? Up until early this year the market had been on a three year up move, we would call it corrective, not a bull market, since it didn’t get close to the highs set back in the year 2000 market. The Fed has raised interest rates during that period of time and the market has been waiting for them to Pause—which they did last week. There has been extremely good interest rate news the past few weeks but still the market has trouble getting going. We think that is because the market wants to go Down.
The price move on the day looked powerful to the casual bystanders. Those are the people that “want” the market to go up because they are investing in it. The market traded light volume for this type of move and the prices should not hold.
The 1550 that we thought could happen in the NDX, NASDAQ 100, is looking pretty close again. We would never have waited until this day because we had been focused on the jobs’ report and Fed Pausing meeting period for our expected high point. It is interesting to see that 1550 come into view again because if you recall that was a 50% retracement of a prior high. We’re still not back to Half way and bullishness abounds!!!
Dow Industrials: 11,230.26 +132.39
QQQQ: 37.70
RYVNX: 22.73
RYAIX: 24.67
RYCWX: 42.50
TLT: 85.92
BEGBX: 13.57
The current “Fed is done” rally follows about 50 others just like it. Our comments in the last post considered that the market had failed to best the high water marks made since the jobs’ report on August 4th. So, here we are with the market as bullish as it can be, and we barely broke above the jobs’ report opening prices. The market advanced today on what we consider to be very light volume for a move like this. Yes, most of it was up volume but the total was light.
We looked back to the same period four years ago to see if there are any similarities with now. Back then the market had peaked on March 19, 2002 at a level of 10,635 and dropped to a low of 7,286 at the close on October 9, 2002. This price change represents nearly a 35% drop in a little over six months. This year the Dow peaked on May 10th at 11,642 and so far the lowest we have seen there is 10,706. If 2002 is any standard, we should be looking at a Dow down another 25% or so taking us to around 8,000. On the surface 8,000 seems a bit farfetched, but in 2002 7,286 seemed farfetched, too.
Our bearish position may not bear fruit of the 25% nature but we continue to be confident that the market is going down into late September or longer. Days like Tuesday remind us that the market is trying to make people confident of the bull. We don’t believe it’s that easy to make the market go up. And, if you look at the incredible bullishness out there currently, you would think we were going to new highs every day. That is simply not the case, as we’ve had trouble getting back to the June Lows let alone the May highs.
Tuesday’s PPI signaled that the Fed could stand pat on interest rates. Does that mean that Wednesday’s CPI will give the same message? Up until early this year the market had been on a three year up move, we would call it corrective, not a bull market, since it didn’t get close to the highs set back in the year 2000 market. The Fed has raised interest rates during that period of time and the market has been waiting for them to Pause—which they did last week. There has been extremely good interest rate news the past few weeks but still the market has trouble getting going. We think that is because the market wants to go Down.
The price move on the day looked powerful to the casual bystanders. Those are the people that “want” the market to go up because they are investing in it. The market traded light volume for this type of move and the prices should not hold.
The 1550 that we thought could happen in the NDX, NASDAQ 100, is looking pretty close again. We would never have waited until this day because we had been focused on the jobs’ report and Fed Pausing meeting period for our expected high point. It is interesting to see that 1550 come into view again because if you recall that was a 50% retracement of a prior high. We’re still not back to Half way and bullishness abounds!!!
Dow Industrials: 11,230.26 +132.39
QQQQ: 37.70
RYVNX: 22.73
RYAIX: 24.67
RYCWX: 42.50
TLT: 85.92
BEGBX: 13.57
Monday, August 14, 2006
Another Failed Rally Attempt
Monday’s market predictably opened on a very positive note presumably on the “peace” talks between Israel and the Hezbollah. We call it a failed rally attempt. Very simply there have been a few rally mornings during this month that are there for you all to see by looking and listening to the market. Tonight we only have time to analyze one particular index, the NASDAQ 100 or NDX. If you want to do some homework yourself, follow the link to the left for Big Charts and look at a 10-Day chart with 15 minute intervals for both the Dow (symbol: INDU) and SP500 (symbol: SPX).
Looking at any of these indexes you get basically the same pattern: Going back to the jobs’ report on Friday August 4th, we see a higher opening and a big drop into the close. Then there is the Wednesday August 9th trading day that started up big due to CSCO’s earnings. And, now we have the “cease-fire” Monday August 14th early morning pop and subsequent selloff.
Let’s focus on the NDX for those days. August 4th, the high in the morning was 1530.04 (we thought it might be able to get to around 1550 but we now think this 1530 is going to be the full retracement). August 9th, the high in the morning was 1517.90 about 12 points lower than August 4th. Then there is Monday August 14th, the high was 1515.68, lower than both of the previous two early morning buying frenzies.
You could make a good argument that the Sellers were the smartest of the bunch back on August 4th, not the buyers. The second smartest were the sellers on August 9th with those that sold this Monday morning being a close third. What were You doing?
We are extremely bearish especially after three reversal days in the last seven trading days. These days are designed to force the early morning buyers to pay the highest prices of the day and by the end of That day they are already losing a substantial amount. These days are not well understood by the early morning buyers who thought, whatever the news was, that this was the day that the bull market would resume. As we have seen—if you haven’t seen, you should go look at the charts—prices are now trading below what they paid. This is called a loss, something that doesn’t make sense in a true “start to the bull market”. In tomorrow’s post we will explore the bearish possibilities for the coming six weeks or so (if you want a good preview, the True Contrarian has posted again, follow the link to the left). We’ll see you back here tomorrow.
[Editor’s note: Please accept our apologies for not having a post up for Sunday evening. The author had a pressing matter, which needed immediate attention, that came up early Sunday morning, taking him away from his normal routine for the past 36 hours. Normally, advance warning would be given to you should a normal posting not be available on a given evening before a day when the market trades. Unfortunately, that was not possible in this situation. This has certainly impacted this evening’s post as well but tomorrow there will be a full posting. Please come back for that as the market is turning very interesting right now. Thank you for your understanding.]
Dow Industrials: 11,097.87
QQQQ: 36.77
RYVNX: 24.01 (own)
RYAIX: 25.34
RYCWX: 43.51 (own)
TLT: 85.25 (own)
BEGBX: 13.49
Looking at any of these indexes you get basically the same pattern: Going back to the jobs’ report on Friday August 4th, we see a higher opening and a big drop into the close. Then there is the Wednesday August 9th trading day that started up big due to CSCO’s earnings. And, now we have the “cease-fire” Monday August 14th early morning pop and subsequent selloff.
Let’s focus on the NDX for those days. August 4th, the high in the morning was 1530.04 (we thought it might be able to get to around 1550 but we now think this 1530 is going to be the full retracement). August 9th, the high in the morning was 1517.90 about 12 points lower than August 4th. Then there is Monday August 14th, the high was 1515.68, lower than both of the previous two early morning buying frenzies.
You could make a good argument that the Sellers were the smartest of the bunch back on August 4th, not the buyers. The second smartest were the sellers on August 9th with those that sold this Monday morning being a close third. What were You doing?
We are extremely bearish especially after three reversal days in the last seven trading days. These days are designed to force the early morning buyers to pay the highest prices of the day and by the end of That day they are already losing a substantial amount. These days are not well understood by the early morning buyers who thought, whatever the news was, that this was the day that the bull market would resume. As we have seen—if you haven’t seen, you should go look at the charts—prices are now trading below what they paid. This is called a loss, something that doesn’t make sense in a true “start to the bull market”. In tomorrow’s post we will explore the bearish possibilities for the coming six weeks or so (if you want a good preview, the True Contrarian has posted again, follow the link to the left). We’ll see you back here tomorrow.
[Editor’s note: Please accept our apologies for not having a post up for Sunday evening. The author had a pressing matter, which needed immediate attention, that came up early Sunday morning, taking him away from his normal routine for the past 36 hours. Normally, advance warning would be given to you should a normal posting not be available on a given evening before a day when the market trades. Unfortunately, that was not possible in this situation. This has certainly impacted this evening’s post as well but tomorrow there will be a full posting. Please come back for that as the market is turning very interesting right now. Thank you for your understanding.]
Dow Industrials: 11,097.87
QQQQ: 36.77
RYVNX: 24.01 (own)
RYAIX: 25.34
RYCWX: 43.51 (own)
TLT: 85.25 (own)
BEGBX: 13.49
Thursday, August 10, 2006
Real Estate Woes
The early morning terrorist news sent the pre-opening futures down both here and across the pond in Europe. But, as the morning wore on, the traders here in the US decided that the thwart of the attack was better than selling so the tape went green about two hours into the session. The indexes closed near their best levels of the day. Our position remains extremely bearish for the next six weeks or so, maybe more.
We have noticed, in the past several weeks, various real estate reports involving the residential housing market. The WSJ has an article in Thursday’s edition that seems to exhibit some of current issues. It appears on page D1 and is titled “Homeowners Start to Feel The Pain of Rising Rates” with a subtitle of “Payments on Adjustable Loans Hit Overstretched Borrowers; ‘Budgets Are Out of Whack’” by Ruth Simon.
The article starts by saying that an accountant refinanced her $312,000 mortgage in 2004 with an option adjustable-rate mortgage with an introductory rate of 2.35%. The option in the title of the mortgage meant that the accountant had multiple payment choices each month. Obviously one of the ways she chose to use was to pay less than the interest on the loan because her mortgage now stands at $324,000. The problem is that after two years, the introductory 2.35% has jumped to 8.75% with a minimum monthly payment of $2,257. Using our math skills we notice that the 2.35% interest only payment would be about $611 a month. One thing, though, is that the mortgage went up about $12,000 in two years meaning that she was paying about $500 a month less than she was supposed to. What do these people think?
The article continues with the accountant’s story saying that she tried to sell the house last summer (in our opinion the height of the housing prices) at $400,000 but now have it on the market at $270,000. Doing the math on that, we see that with a mortgage of about $324K and a selling price of about $270K less realtor fees of about $10K, these people would have to cough up about $64K at the closing. This is referred to as a “short sale” in the article, meaning the sale price is short of the mortgage. (In the auto finance world, this is called being upside down.)
The article talks about another person who bought a house here in St. Paul two and a half years ago. This guy got an 80-20 loan and we’re not talking about 80% loan and 20% down, we’re talking about an 80% first mortgage with a 20% second. His two year ARM reset to a higher rate and increased his payments $200 a month. The article goes on to say that he was stretched before this increase??? and now he starting to fall behind on his water bills, car payments and student loan. Last month, it says, he received a letter from his lender with the words “rate increase” on the envelope but he didn’t open it “because it gets too discouraging”. He then says, “If I had been aware both loans were interest-only, I would have probably turned the loan down”. What?!?
The one point in the article is that “Many of these borrowers took out loans that didn’t require them to document their income and overstated their earnings”. But, all of us Know that real estate prices always go up, Right?
Keep these things in mind when you are thinking about the stock market. That’s what we do on a regular basis because we believe the housing market will fail badly and it will take the stock market down with it.
Dow Industrials: 11,124.37 +48.19
QQQQ: 36.79
RYVNX: 23.93 (own)
RYAIX: 25.29
RYCWX: 43.29 (own)
TLT: 85.77 (own)
BEGBX: 13.61
We have noticed, in the past several weeks, various real estate reports involving the residential housing market. The WSJ has an article in Thursday’s edition that seems to exhibit some of current issues. It appears on page D1 and is titled “Homeowners Start to Feel The Pain of Rising Rates” with a subtitle of “Payments on Adjustable Loans Hit Overstretched Borrowers; ‘Budgets Are Out of Whack’” by Ruth Simon.
The article starts by saying that an accountant refinanced her $312,000 mortgage in 2004 with an option adjustable-rate mortgage with an introductory rate of 2.35%. The option in the title of the mortgage meant that the accountant had multiple payment choices each month. Obviously one of the ways she chose to use was to pay less than the interest on the loan because her mortgage now stands at $324,000. The problem is that after two years, the introductory 2.35% has jumped to 8.75% with a minimum monthly payment of $2,257. Using our math skills we notice that the 2.35% interest only payment would be about $611 a month. One thing, though, is that the mortgage went up about $12,000 in two years meaning that she was paying about $500 a month less than she was supposed to. What do these people think?
The article continues with the accountant’s story saying that she tried to sell the house last summer (in our opinion the height of the housing prices) at $400,000 but now have it on the market at $270,000. Doing the math on that, we see that with a mortgage of about $324K and a selling price of about $270K less realtor fees of about $10K, these people would have to cough up about $64K at the closing. This is referred to as a “short sale” in the article, meaning the sale price is short of the mortgage. (In the auto finance world, this is called being upside down.)
The article talks about another person who bought a house here in St. Paul two and a half years ago. This guy got an 80-20 loan and we’re not talking about 80% loan and 20% down, we’re talking about an 80% first mortgage with a 20% second. His two year ARM reset to a higher rate and increased his payments $200 a month. The article goes on to say that he was stretched before this increase??? and now he starting to fall behind on his water bills, car payments and student loan. Last month, it says, he received a letter from his lender with the words “rate increase” on the envelope but he didn’t open it “because it gets too discouraging”. He then says, “If I had been aware both loans were interest-only, I would have probably turned the loan down”. What?!?
The one point in the article is that “Many of these borrowers took out loans that didn’t require them to document their income and overstated their earnings”. But, all of us Know that real estate prices always go up, Right?
Keep these things in mind when you are thinking about the stock market. That’s what we do on a regular basis because we believe the housing market will fail badly and it will take the stock market down with it.
Dow Industrials: 11,124.37 +48.19
QQQQ: 36.79
RYVNX: 23.93 (own)
RYAIX: 25.29
RYCWX: 43.29 (own)
TLT: 85.77 (own)
BEGBX: 13.61
Wednesday, August 09, 2006
Major Reversal Day, Again
We’re not sure where to start this evening as we catch our breath after this wild day in the stock market. John Chambers, the CSCO kid, announced on Tuesday evening that CSCO would be doing well over the next year, projecting higher revenues. We noticed that the revenue numbers were somewhat tainted by the fact that Receivables were up nearly the same amount as revenues, meaning that there are still some outstanding bills that need to be paid on the sales. But, the CSCO kid did manage to spin a good story for the market, at least in the early going.
As the market was opening, there was a head of steam based on the CSCO news and the futures had lit up the pre-opening prices. We start with the NASDAQ 100, NDX, which was the index most heavily affected by CSCO. At the opening, the NDX jumped 1.3% and by around noon CDT it had moved up over 2.2% to 1517.90.
In the past few weeks we had been watching for jobs’ report Friday, August 4th, because we thought that could be the high in the market. If you go back to that day and see where the NDX traded, the high was just over 1530. We had said that it had the potential to go to 1550 so we were a bit high there but we did call the time frame. Anyway, Wednesday’s 1517 was well short of last Friday’s 1530 and it was on much more hype than the jobs’ report generated.
Looking at the trading day for the Dow, we see that it jumped at the opening bell as well, about 75 points within a few minutes. From there it started its sojourn down and down all day long with only a minor bump up right around noon CDT, closing pretty much on the low of the day, down nearly 100 points. The high for the day at right around 11,250 was again lower than the jobs’ report Friday, August 4th, high of around 11,340.
If you look at the pattern of trading last Friday and then on Wednesday, you can see the similar up big mornings with a drop off the rest of the day. These are bearish patterns especially combined with the lower highs on the Wednesday spurt relative to the Friday spurt. This trading represents a very Weak market and one we are happy to be short in. We truly hope you have exited your longs because the next move will not be pleasant if you haven’t. With the Dow up above 11,000 even now, there is so little fear in the market generally. We don’t see that number holding much longer especially given the bullish undertone that brought us Wednesday morning’s trading.
People are bullish without Any real price moves to the upside. Looking back to the May highs and comparing the bullishness then to now is a little difficult but we are much lower in price now than we were back then, especially in the NASDAQ indexes. The Dow high in May was right around 11,700 and now it’s just under 11,100 for about 600 points or about 6%. The NASDAQ 100, NDX, the May high was (actually the NDX high was in April) at 1750 and today’s close around 1485 is 265 points lower or 15%. Even CSCO is 10% lower at tonight’s close of 19.78 compared to its April/May highs at 22.
We are confidently bearish this evening which is probably a bad thing but we still think the market is heading down into early fall. The market action Friday and Wednesday have given us good reason to be bearish. The market’s message is very clear—it wants to go down.
We’ll be back tomorrow. These next few weeks should be very profitable for our short positions.
Dow Industrials: 11,076.18 -97.41
QQQQ: 36.53
RYVNX: 24.27 (own)
RYAIX: 25.47
RYCWX: 43.66 (own)
TLT: 85.90 (own)
BEGBX: 13.68
As the market was opening, there was a head of steam based on the CSCO news and the futures had lit up the pre-opening prices. We start with the NASDAQ 100, NDX, which was the index most heavily affected by CSCO. At the opening, the NDX jumped 1.3% and by around noon CDT it had moved up over 2.2% to 1517.90.
In the past few weeks we had been watching for jobs’ report Friday, August 4th, because we thought that could be the high in the market. If you go back to that day and see where the NDX traded, the high was just over 1530. We had said that it had the potential to go to 1550 so we were a bit high there but we did call the time frame. Anyway, Wednesday’s 1517 was well short of last Friday’s 1530 and it was on much more hype than the jobs’ report generated.
Looking at the trading day for the Dow, we see that it jumped at the opening bell as well, about 75 points within a few minutes. From there it started its sojourn down and down all day long with only a minor bump up right around noon CDT, closing pretty much on the low of the day, down nearly 100 points. The high for the day at right around 11,250 was again lower than the jobs’ report Friday, August 4th, high of around 11,340.
If you look at the pattern of trading last Friday and then on Wednesday, you can see the similar up big mornings with a drop off the rest of the day. These are bearish patterns especially combined with the lower highs on the Wednesday spurt relative to the Friday spurt. This trading represents a very Weak market and one we are happy to be short in. We truly hope you have exited your longs because the next move will not be pleasant if you haven’t. With the Dow up above 11,000 even now, there is so little fear in the market generally. We don’t see that number holding much longer especially given the bullish undertone that brought us Wednesday morning’s trading.
People are bullish without Any real price moves to the upside. Looking back to the May highs and comparing the bullishness then to now is a little difficult but we are much lower in price now than we were back then, especially in the NASDAQ indexes. The Dow high in May was right around 11,700 and now it’s just under 11,100 for about 600 points or about 6%. The NASDAQ 100, NDX, the May high was (actually the NDX high was in April) at 1750 and today’s close around 1485 is 265 points lower or 15%. Even CSCO is 10% lower at tonight’s close of 19.78 compared to its April/May highs at 22.
We are confidently bearish this evening which is probably a bad thing but we still think the market is heading down into early fall. The market action Friday and Wednesday have given us good reason to be bearish. The market’s message is very clear—it wants to go down.
We’ll be back tomorrow. These next few weeks should be very profitable for our short positions.
Dow Industrials: 11,076.18 -97.41
QQQQ: 36.53
RYVNX: 24.27 (own)
RYAIX: 25.47
RYCWX: 43.66 (own)
TLT: 85.90 (own)
BEGBX: 13.68
Tuesday, August 08, 2006
The Pause
So the Fed is done. We sort of feel the urge to sing the Wizard of Oz song, the “Wicked Witch is Dead”, using slightly modified words, such as…the wicked old Fed is Done. Tuesday’s news met with some wild action in the market for a little while with the market jumping on the initial news and then falling dramatically and then rallying and so forth until the close was down about a 0.5% from Monday’s close.
We could spend some more time on the Fed news but that Pause is Finally behind us and we have discussed it enough. The stock market now needs something new to “worry” about. That something comes in the form of the Fed’s next move, please. Anyway, the Fed is telling us that maybe there will be another rate hike sometime if maybe, possibly, the economy slows enough.
Pardon me, but isn’t it the job of the Fed to be concerned about inflation? In reaction to the news, Goldman Sachs Economic Research, as quoted in the online WSJ, said that “the main surprise was the committee’s lack of any reference to labor costs, which now show a more consistent pattern of acceleration across major indicators…we now think that the 5.25% funds rate target will represent the final move of this tightening cycle.” We couldn’t agree more.
The stock market certainly shrugged off the Fed news in after hours trading as CSCO, one of the favorite NASDAQ stocks, announced earnings that were basically in line with expectations while revenues were up substantially. John Chambers, CSCO’s CEO, is generally a pretty upbeat guy especially on earning’s calls. Tuesday evening he was predictably optimistic about revenue growth for fiscal 2007. This was all the after hours market needed to pop CSCO’s shares almost 10% and at the same time erase all of the NASDAQ 100 losses for the day. We will see how the stock trades in the early going on Wednesday.
The stock market may be up on the back of CSCO’s news this evening but we do not see a huge up move sticking on Wednesday. Still, we know that the traders’ memories are very short indeed and anything can happen. We expect continued selling with some violent upside moves to keep everyone guessing over the next six to eight weeks. In our opinion the stock market needs to come down a bunch in that time. This opinion is held because of the total lack of concern on the part of the media and the players.
One of our (former) readers said in order for us to see a drop of that size we would need an event. I’m not sure what kind of event can drop the stock market 10%-15% in the space of a month and a half but I don’t want to know. We think the drop will come with almost no news—news items confirming the drop will be viewed by us as a possible time to switch course, the contrarians we are.
Dow Industrials: 11,173.59 -45.79
QQQQ: 36.48
RYVNX: 24.28
RYAIX: 25.47
RYCWX: 42.94
TLT: 86.18
BEGBX: 13.70
We could spend some more time on the Fed news but that Pause is Finally behind us and we have discussed it enough. The stock market now needs something new to “worry” about. That something comes in the form of the Fed’s next move, please. Anyway, the Fed is telling us that maybe there will be another rate hike sometime if maybe, possibly, the economy slows enough.
Pardon me, but isn’t it the job of the Fed to be concerned about inflation? In reaction to the news, Goldman Sachs Economic Research, as quoted in the online WSJ, said that “the main surprise was the committee’s lack of any reference to labor costs, which now show a more consistent pattern of acceleration across major indicators…we now think that the 5.25% funds rate target will represent the final move of this tightening cycle.” We couldn’t agree more.
The stock market certainly shrugged off the Fed news in after hours trading as CSCO, one of the favorite NASDAQ stocks, announced earnings that were basically in line with expectations while revenues were up substantially. John Chambers, CSCO’s CEO, is generally a pretty upbeat guy especially on earning’s calls. Tuesday evening he was predictably optimistic about revenue growth for fiscal 2007. This was all the after hours market needed to pop CSCO’s shares almost 10% and at the same time erase all of the NASDAQ 100 losses for the day. We will see how the stock trades in the early going on Wednesday.
The stock market may be up on the back of CSCO’s news this evening but we do not see a huge up move sticking on Wednesday. Still, we know that the traders’ memories are very short indeed and anything can happen. We expect continued selling with some violent upside moves to keep everyone guessing over the next six to eight weeks. In our opinion the stock market needs to come down a bunch in that time. This opinion is held because of the total lack of concern on the part of the media and the players.
One of our (former) readers said in order for us to see a drop of that size we would need an event. I’m not sure what kind of event can drop the stock market 10%-15% in the space of a month and a half but I don’t want to know. We think the drop will come with almost no news—news items confirming the drop will be viewed by us as a possible time to switch course, the contrarians we are.
Dow Industrials: 11,173.59 -45.79
QQQQ: 36.48
RYVNX: 24.28
RYAIX: 25.47
RYCWX: 42.94
TLT: 86.18
BEGBX: 13.70
Monday, August 07, 2006
Waiting to Inhale
The stock market didn’t seem too bothered by the news about the Alaskan Pipeline. There was a poor start to the day and a drop in the afternoon but for the most part the market managed to ignore the oil news. Oil itself jumped a couple of bucks to $77 a barrel. What is so amazing about this is that oil traded at $79.50 just a few weeks ago. The Prudhoe Bay shutdown by BP takes quite a bit of oil offline at the same time we are seeing Iran’s supply line and the availability of Nigerian oil have heavily contributed to oil uncertainty. But, the stock market is not troubled by such things, apparently. Instead, the stock market is concentrating on how inflation could be troubling the Fed???
The Fed will give us their decision (to hold rates steady) around 1:15 CDT on Tuesday. We have voiced our position that they will Not raise rates when they meet. We do want to explore the possibilities of Tuesday’s action coming out of the announcement. That would be opposed to Monday’s extremely dull trading and light volume, mostly waiting for the Fed’s decision. We can not say this any clearer: The Fed will hold the interest rates steady and the market will then go down. A carefully crafted statement might give the market a short term boost but we have seen the action since the GDP announcement of a couple of weeks ago—bullishness is overrated at this time.
We will be back tomorrow to recap the action after the Fed announces. In the mean time, we hope that you have taken advantage of these higher prices and sold into these little early morning rallies. The afterhours market this evening certainly is making a case for a pop at the opening, after all, the oil news is now discounted (sarcasm, sorry). We will see you tomorrow.
Dow Industrials: 11,219.38 -20.97
QQQQ: 36.71
RYVNX: 23.97
RYAIX: 25.31
RYCWX: 42.57
TLT: 86.37
BEGBX: 13.68
The Fed will give us their decision (to hold rates steady) around 1:15 CDT on Tuesday. We have voiced our position that they will Not raise rates when they meet. We do want to explore the possibilities of Tuesday’s action coming out of the announcement. That would be opposed to Monday’s extremely dull trading and light volume, mostly waiting for the Fed’s decision. We can not say this any clearer: The Fed will hold the interest rates steady and the market will then go down. A carefully crafted statement might give the market a short term boost but we have seen the action since the GDP announcement of a couple of weeks ago—bullishness is overrated at this time.
We will be back tomorrow to recap the action after the Fed announces. In the mean time, we hope that you have taken advantage of these higher prices and sold into these little early morning rallies. The afterhours market this evening certainly is making a case for a pop at the opening, after all, the oil news is now discounted (sarcasm, sorry). We will see you tomorrow.
Dow Industrials: 11,219.38 -20.97
QQQQ: 36.71
RYVNX: 23.97
RYAIX: 25.31
RYCWX: 42.57
TLT: 86.37
BEGBX: 13.68
Sunday, August 06, 2006
The Fed is Done?
Friday morning the jobs’ report gave the market the news it was looking for, or did it? The jobs’ report showed that job creation was below expectations for the fourth month in a row. Yes, that meant that the Fed will surely Pause on Tuesday, August 8th, but is it really what the market wanted to hear?
At the moment of the news, which came an hour before the opening bell, the buyers came in to bid stocks up. The opening bell just brought in more buyers. How many times have we said you should Sell Early Strength, especially when the market is in an overbought situation as it currently is? At any rate, the high for the day was registered about fifteen minutes into the normal session.
Those of you who follow the QQQQ’s saw it go from Thursday’s close of 37.12 to the 37.63 high of the day fifteen minutes after the opening bell on Friday. From there the QQQQ’s leaked to a low of 36.62 about an hour before the close and then staged a big rally to close down only 0.17 at 36.95…quite the wide ride. The rest of the stock market followed a similar pattern.
Our analysis has been that the Fed would not raise rates on the 8th due to the cooling of the economy (look at Thursday’s post for instance). On Friday morning, the jobs’ report was weak enough to push several more people in our camp. (The bond market was quite happy with the news and the dollar was quite unhappy, both as you would expect.) The difference in the way most think and the way we think is how we expect the market to react to the Fed being done.
We have thought it would react by selling off. We weren’t sure that the first reaction would be a moon shot, like Friday morning was, but we are pretty sure that the aftermath will be a sell off. Why? Every time the market has heard news that would allow the Fed to stop hiking rates, we have seen a “Fed is done” rally. When the news is actually that the Fed is done, we didn’t expect Another rally—Buy the Rumor, Sell the News.
Ok, so it’s not Tuesday and the Fed has Not Paused just yet, so what’s the big deal? We think the news (jobs’ report) was just what the Fed needed to know in order to hold the line on rates. Not only that, the rest of the world figured it out at that moment, too. We think the Actual announcement on Tuesday afternoon will be greeted with boredom and selling.
For another take on the Fed’s situation, the True Contrarian (link on the left) presents an argument that the Fed needs to hold the rates level and announce that it will decide what to do going forward. He thinks that if the Fed raises this week, the market will think it has “run out of bullets”, so to speak. This would put the Fed in a powerless position, one that he doesn’t think they will allow. Whether his analysis is right or not (we’re not sure the Fed is that shrewd), we do agree that there will be no rate hike this week.
Dow Industrials: 11,240.35 -2.24
QQQQ: 36.95
RYVNX: 23.65 (own)
RYAIX: 25.14
RYCWX: 42.40 (own)
TLT: 86.32 (own)
BEGBX: 13.71
At the moment of the news, which came an hour before the opening bell, the buyers came in to bid stocks up. The opening bell just brought in more buyers. How many times have we said you should Sell Early Strength, especially when the market is in an overbought situation as it currently is? At any rate, the high for the day was registered about fifteen minutes into the normal session.
Those of you who follow the QQQQ’s saw it go from Thursday’s close of 37.12 to the 37.63 high of the day fifteen minutes after the opening bell on Friday. From there the QQQQ’s leaked to a low of 36.62 about an hour before the close and then staged a big rally to close down only 0.17 at 36.95…quite the wide ride. The rest of the stock market followed a similar pattern.
Our analysis has been that the Fed would not raise rates on the 8th due to the cooling of the economy (look at Thursday’s post for instance). On Friday morning, the jobs’ report was weak enough to push several more people in our camp. (The bond market was quite happy with the news and the dollar was quite unhappy, both as you would expect.) The difference in the way most think and the way we think is how we expect the market to react to the Fed being done.
We have thought it would react by selling off. We weren’t sure that the first reaction would be a moon shot, like Friday morning was, but we are pretty sure that the aftermath will be a sell off. Why? Every time the market has heard news that would allow the Fed to stop hiking rates, we have seen a “Fed is done” rally. When the news is actually that the Fed is done, we didn’t expect Another rally—Buy the Rumor, Sell the News.
Ok, so it’s not Tuesday and the Fed has Not Paused just yet, so what’s the big deal? We think the news (jobs’ report) was just what the Fed needed to know in order to hold the line on rates. Not only that, the rest of the world figured it out at that moment, too. We think the Actual announcement on Tuesday afternoon will be greeted with boredom and selling.
For another take on the Fed’s situation, the True Contrarian (link on the left) presents an argument that the Fed needs to hold the rates level and announce that it will decide what to do going forward. He thinks that if the Fed raises this week, the market will think it has “run out of bullets”, so to speak. This would put the Fed in a powerless position, one that he doesn’t think they will allow. Whether his analysis is right or not (we’re not sure the Fed is that shrewd), we do agree that there will be no rate hike this week.
Dow Industrials: 11,240.35 -2.24
QQQQ: 36.95
RYVNX: 23.65 (own)
RYAIX: 25.14
RYCWX: 42.40 (own)
TLT: 86.32 (own)
BEGBX: 13.71
Thursday, August 03, 2006
Jobs' Report Up Next
Thursday’s stock market opened with a thud as the major indexes took a hit on the interest rate news out of Europe. The ECB, European Central Bank, raised rates but that was pretty much a given; but, the Bank of England also raised their rates and that wasn’t expected. The European bourses didn’t like the news because investors there had the notion that central banks were in the business of tightening.
This news caused our own futures to drop going into the opening bell and the indexes opened on what turned out to be the lows of the day. The news out of Starbucks (SBUX) and Sprint Nextel (S) helped to discourage buyers at the bell as both of these stocks got hit hard. Both stocks did recover some of their price declines as the market rallied the rest of the day. Only a quick selloff at the end of the session managed to keep the indexes from closing on their best levels of the day.
We think the SBUX’s news was right down our alley. The company provides high buck coffee to many people and some of those people may be deciding to switch to cheaper or no coffee in order to pay for another expensive liquid, you know, what we call gas—it really is a liquid even though they call it gas. The SBUX news solidifies our position that the consumer is under duress due to the housing market and whatever fancy mortgage they are stuck with.
This rally brought the Dow and the SP 500 back to what we have been calling the ceiling. Both of these indexes tried to break through but didn’t manage to do that on Thursday. So, what’s next?
Friday morning brings the July jobs’ report. The Update has been waiting for this report for about three weeks. We should listen to our own words when we went long a couple of weeks ago. Back then we said the market would probably rally into the July jobs’ report or maybe even to the Fed’s FOMC meeting next Tuesday. But, no, we changed our minds based on the poor trading in the market late last week. So far, though, our decision to go short last week has not been a big mistake. We had thought the NASDAQ 100 might return to the 1550 level and so far it has only managed a return to about 1518. Yes, you’re right, it still could go there over the next few days but let’s concentrate on the jobs’ report for Friday morning.
We have talked about the “Fed is Done” rally number…whatever, and wonder if there are a couple of more of them. We think there is a great probability that the Fed will Pause next week when it decides what to do. Some of it depends on the Friday jobs’ report and what it will show. We are in the camp that says that the number will be weaker than the 150K expectation. In normal circumstances this would instantaneously produce a rally in the stock market but we are not so sure for Friday. It would provide us more interesting thought processes if the jobs’ number was higher. The Fed would have to scramble to find a way to say that it didn’t really matter and that they were going to Pause anyway. This would at least cause some uncertainty in the market place.
Anyway, it’s Thursday evening and we are thinking that we are glad to have a little dry powder to maybe short some more over the next few days. This period of time will be very difficult to trade and will be easy to lose money if you do trade. We do think that at the end of the day of the Fed Pausing, August 8th, the market will be ready to head down in earnest.
Have a great weekend. We will post late Sunday evening and then we’ll see you here next Monday morning.
Dow Industrials: 11,242.59 +42.66
QQQQ: 37.12
RYVNX: 23.42
RYAIX: 25.01
RYCWX: 42.35
TLT: 85.80
BEGBX: 13.59
This news caused our own futures to drop going into the opening bell and the indexes opened on what turned out to be the lows of the day. The news out of Starbucks (SBUX) and Sprint Nextel (S) helped to discourage buyers at the bell as both of these stocks got hit hard. Both stocks did recover some of their price declines as the market rallied the rest of the day. Only a quick selloff at the end of the session managed to keep the indexes from closing on their best levels of the day.
We think the SBUX’s news was right down our alley. The company provides high buck coffee to many people and some of those people may be deciding to switch to cheaper or no coffee in order to pay for another expensive liquid, you know, what we call gas—it really is a liquid even though they call it gas. The SBUX news solidifies our position that the consumer is under duress due to the housing market and whatever fancy mortgage they are stuck with.
This rally brought the Dow and the SP 500 back to what we have been calling the ceiling. Both of these indexes tried to break through but didn’t manage to do that on Thursday. So, what’s next?
Friday morning brings the July jobs’ report. The Update has been waiting for this report for about three weeks. We should listen to our own words when we went long a couple of weeks ago. Back then we said the market would probably rally into the July jobs’ report or maybe even to the Fed’s FOMC meeting next Tuesday. But, no, we changed our minds based on the poor trading in the market late last week. So far, though, our decision to go short last week has not been a big mistake. We had thought the NASDAQ 100 might return to the 1550 level and so far it has only managed a return to about 1518. Yes, you’re right, it still could go there over the next few days but let’s concentrate on the jobs’ report for Friday morning.
We have talked about the “Fed is Done” rally number…whatever, and wonder if there are a couple of more of them. We think there is a great probability that the Fed will Pause next week when it decides what to do. Some of it depends on the Friday jobs’ report and what it will show. We are in the camp that says that the number will be weaker than the 150K expectation. In normal circumstances this would instantaneously produce a rally in the stock market but we are not so sure for Friday. It would provide us more interesting thought processes if the jobs’ number was higher. The Fed would have to scramble to find a way to say that it didn’t really matter and that they were going to Pause anyway. This would at least cause some uncertainty in the market place.
Anyway, it’s Thursday evening and we are thinking that we are glad to have a little dry powder to maybe short some more over the next few days. This period of time will be very difficult to trade and will be easy to lose money if you do trade. We do think that at the end of the day of the Fed Pausing, August 8th, the market will be ready to head down in earnest.
Have a great weekend. We will post late Sunday evening and then we’ll see you here next Monday morning.
Dow Industrials: 11,242.59 +42.66
QQQQ: 37.12
RYVNX: 23.42
RYAIX: 25.01
RYCWX: 42.35
TLT: 85.80
BEGBX: 13.59
Wednesday, August 02, 2006
Volatility Indexes
On Wednesday the stock market decided to rally. The stock market does have the right to do whatever it wants, so a rally on a day like today seems reasonable. Given the volatility of the past couple of weeks, we think the participants are having trouble deciding what the market wants to do.
When we first called for a short term low in the market back in the middle of July, we were looking at the current time frame for getting out of our longs and back into some short positions. Our key focal points were the jobs’ report out this Friday and the Fed meeting on August 8th. The stock market has been holding under the early July highs even on a closing basis. This action suggests the next leg of the down move is near at hand. The Dow peaked last Friday near the 11,240 area and the NASDAQ Comp and NASDAQ 100 both peaked this past Monday before dropping strongly on Tuesday and closing the gap on Wednesday. The SP 500 did make a new high on Wednesday but it seems to be the lone index.
The market seems to have a ceiling on it at these levels. We will see if the market can break through it or not. We are heavily against that idea but we could be wrong.
Volatility Indexes: We have been watching the VXO and VIX, option volatility indexes, for some idea as to whether the market is ready to go down or not. The volatility indexes move up when the market goes down and they go down when the market goes up. What we try to do as bears is determine when the good times are to go short and when are the good/great times to go long. We will spend more time on these indexes as we see the market go down but, for now, we wanted to tell you what we think they are saying right now.
If you look at these volatility indexes on a daily basis you will see them move up strongly on unexpected down moves in the stock market. If you look at them on a chart you will see a nice negative correlation against the stock market. What we have seen very recently is that they collapse much faster than they go up. This indicates that the participants have no thought (fear) that the markets could actually go down on a sustained basis. These indexes should be reflecting at least some fear in the market place by increases that stick. In reality, as the markets rally out of down situations, these indexes just collapse, suggesting a lot of complacency on the part of the participants.
If you are looking for a fairly decent indicator of buy recommendations, these volatility indexes have had good track records. As these indexes climb up toward 50 or 100 we will be looking at covering our shorts and going long. Yes, we would be looking at other indicators as well but for a pure fear index, the volatility indexes are great. We will be discussing these in more detail as the market goes down.
Dow Industrials: 11,199.93 +74.20
QQQQ: 36.89
RYVNX: 23.74
RYAIX: 25.18
RYCWX: 42.71
TLT: 85.78
BEGBX: 13.59
When we first called for a short term low in the market back in the middle of July, we were looking at the current time frame for getting out of our longs and back into some short positions. Our key focal points were the jobs’ report out this Friday and the Fed meeting on August 8th. The stock market has been holding under the early July highs even on a closing basis. This action suggests the next leg of the down move is near at hand. The Dow peaked last Friday near the 11,240 area and the NASDAQ Comp and NASDAQ 100 both peaked this past Monday before dropping strongly on Tuesday and closing the gap on Wednesday. The SP 500 did make a new high on Wednesday but it seems to be the lone index.
The market seems to have a ceiling on it at these levels. We will see if the market can break through it or not. We are heavily against that idea but we could be wrong.
Volatility Indexes: We have been watching the VXO and VIX, option volatility indexes, for some idea as to whether the market is ready to go down or not. The volatility indexes move up when the market goes down and they go down when the market goes up. What we try to do as bears is determine when the good times are to go short and when are the good/great times to go long. We will spend more time on these indexes as we see the market go down but, for now, we wanted to tell you what we think they are saying right now.
If you look at these volatility indexes on a daily basis you will see them move up strongly on unexpected down moves in the stock market. If you look at them on a chart you will see a nice negative correlation against the stock market. What we have seen very recently is that they collapse much faster than they go up. This indicates that the participants have no thought (fear) that the markets could actually go down on a sustained basis. These indexes should be reflecting at least some fear in the market place by increases that stick. In reality, as the markets rally out of down situations, these indexes just collapse, suggesting a lot of complacency on the part of the participants.
If you are looking for a fairly decent indicator of buy recommendations, these volatility indexes have had good track records. As these indexes climb up toward 50 or 100 we will be looking at covering our shorts and going long. Yes, we would be looking at other indicators as well but for a pure fear index, the volatility indexes are great. We will be discussing these in more detail as the market goes down.
Dow Industrials: 11,199.93 +74.20
QQQQ: 36.89
RYVNX: 23.74
RYAIX: 25.18
RYCWX: 42.71
TLT: 85.78
BEGBX: 13.59
Tuesday, August 01, 2006
August Starts Down
The stock market fell across the board on Tuesday morning as the data for the news items we mentioned in yesterday’s post started coming in a little too “good” for the market to like. The media was all abuzz today, all day, about the inflation number (PCE deflator—personal consumption expenditures, and in this case the “core” PCE deflator) being more than the Fed can tolerate. Meanwhile, the bonds were not reacting much at all to the data, suggesting that the media may be just a little off in their assessment of the reason the stock market was falling.
At any rate, a half hour into the trading day, the ISM announced the manufacturing index was slightly better than expected and the market dropped more. Save for a decent rally near the end of the day, the action was down and ugly. About the only thing positive was that the selling was done on an average volume day.
Tuesday was the first day of the month and the market put up some very red numbers, not the best way to begin a month. Maybe the bulls can make Wednesday look a little better but the damage on Tuesday was noticeable. We have mentioned the Dow Transportation average in the last week, not because we follow it much, but because it has dropped so much in the past few weeks, about 15%. The Dow Jones Industrials are masking the weakness in the broader market. Looking at Tuesday’s trading the Dow was down about a half a percent while the NASDAQ Comp was down almost 1.5% (NASDAQ 100 was down 1.62%) and the Dow Transports down nearly 2%. We are trying to think of a way the bulls could ignore Tuesday’s trading—nothing comes to mind.
Our main thought process for the stock market is for it to drop consistently into the middle to late part of September with a possibility of going into October. Some analysts we read are looking to the January period for a low point. We would say that if the market plays out the way we are expecting the broader market may put in a good tradable low in late September with the Dow putting in a low in January and scaring the general public. We would be watching for non-confirmations of the Dow’s low in the broader markets and our various indicators.
With our forecast of a low approaching sometime in the fall, we are heavily short the market via the Rydex inverse funds, both the OTC (RYVNX) and the Dow (RYCWX), and we have some exposure to the Treasury bond market in the TLT’s. We do not endorse the short position for you, the reader, but we would suggest a cash position in your 401(k) just to sit out the decline. This blog is not trying to give you ideas, just our view of the various markets we trade and/or follow. You need to make up your own mind by reading as much as you can. This site has no stake in your portfolio, only you do. You need to make a good decision how to manage it. Good fortune to all of you as we start the month of August, on a down day in the stock market.
Cash is king.
Dow Industrials: 11,125.73 -59.95
QQQQ: 36.48
RYVNX: 24.24
RYAIX: 25.44
RYCWX: 43.26
TLT: 85.46
BEGBX: 13.62
At any rate, a half hour into the trading day, the ISM announced the manufacturing index was slightly better than expected and the market dropped more. Save for a decent rally near the end of the day, the action was down and ugly. About the only thing positive was that the selling was done on an average volume day.
Tuesday was the first day of the month and the market put up some very red numbers, not the best way to begin a month. Maybe the bulls can make Wednesday look a little better but the damage on Tuesday was noticeable. We have mentioned the Dow Transportation average in the last week, not because we follow it much, but because it has dropped so much in the past few weeks, about 15%. The Dow Jones Industrials are masking the weakness in the broader market. Looking at Tuesday’s trading the Dow was down about a half a percent while the NASDAQ Comp was down almost 1.5% (NASDAQ 100 was down 1.62%) and the Dow Transports down nearly 2%. We are trying to think of a way the bulls could ignore Tuesday’s trading—nothing comes to mind.
Our main thought process for the stock market is for it to drop consistently into the middle to late part of September with a possibility of going into October. Some analysts we read are looking to the January period for a low point. We would say that if the market plays out the way we are expecting the broader market may put in a good tradable low in late September with the Dow putting in a low in January and scaring the general public. We would be watching for non-confirmations of the Dow’s low in the broader markets and our various indicators.
With our forecast of a low approaching sometime in the fall, we are heavily short the market via the Rydex inverse funds, both the OTC (RYVNX) and the Dow (RYCWX), and we have some exposure to the Treasury bond market in the TLT’s. We do not endorse the short position for you, the reader, but we would suggest a cash position in your 401(k) just to sit out the decline. This blog is not trying to give you ideas, just our view of the various markets we trade and/or follow. You need to make up your own mind by reading as much as you can. This site has no stake in your portfolio, only you do. You need to make a good decision how to manage it. Good fortune to all of you as we start the month of August, on a down day in the stock market.
Cash is king.
Dow Industrials: 11,125.73 -59.95
QQQQ: 36.48
RYVNX: 24.24
RYAIX: 25.44
RYCWX: 43.26
TLT: 85.46
BEGBX: 13.62
Monday, July 31, 2006
Dull Last Day of July
The last day of July has yielded little in the way of new information for us. The stock market basically took the day off especially after the big Friday rally. Our indicators are still showing an overbought market and we expect that the next few days will bring small if any upside price increases.
There are a few news items on tap for Tuesday that we have mentioned in the past couple of posts. The July Challenger layoff report, something we haven’t discussed here before, is due out well before the market opens. This report indicates mass layoffs at larger firms that were announced in July. About an hour before the market opens, the June personal income and spending numbers will be available both expected to rise about the same as last month. About a half hour after the market opens, we get to see the numbers we want to see, the June pending home sales. Also at that time are the June construction spending, expected to be up 0.3% compared to last month’s decline of 0.4%, and the July ISM manufacturing business index.
These numbers do have some significance due to the “data watching” Fed. The Fed is trying to hold rates level next week when it meets so they are crossing their fingers and toes that the data allows them to hold firm. We put a rate increase next week somewhere between “no way” and Dumb and Dumber’s “so you’re telling me there’s a chance” of one in a million. Okay, maybe we need to be a little more open minded about yet another rate increase but the Fed is definitely concerned that it has already gone too far. This is notwithstanding some of the recent tough inflation comments.
We are in the camp that thinks whatever the Fed does or says next Tuesday will be largely sold by the stock market. Meanwhile, the dollar will probably not like news of no rate increase. As we have seen for the past few days, the dollar has been a little weaker suggesting it believes that the Fed is Done. Since the stock market has had So Many “Fed is done” rallies, we just don’t think there will be much of one on that news.
Nothing much went on Monday so we’ll be back tomorrow for a recap of whether or not the news items of Tuesday can move the market.
Dow Industrials: 11,185.68 -34.02
QQQQ: 37.10
RYVNX: 23.47
RYAIX: 25.02
RYCWX: 42.81
TLT: 85.80
BEGBX: 13.58
There are a few news items on tap for Tuesday that we have mentioned in the past couple of posts. The July Challenger layoff report, something we haven’t discussed here before, is due out well before the market opens. This report indicates mass layoffs at larger firms that were announced in July. About an hour before the market opens, the June personal income and spending numbers will be available both expected to rise about the same as last month. About a half hour after the market opens, we get to see the numbers we want to see, the June pending home sales. Also at that time are the June construction spending, expected to be up 0.3% compared to last month’s decline of 0.4%, and the July ISM manufacturing business index.
These numbers do have some significance due to the “data watching” Fed. The Fed is trying to hold rates level next week when it meets so they are crossing their fingers and toes that the data allows them to hold firm. We put a rate increase next week somewhere between “no way” and Dumb and Dumber’s “so you’re telling me there’s a chance” of one in a million. Okay, maybe we need to be a little more open minded about yet another rate increase but the Fed is definitely concerned that it has already gone too far. This is notwithstanding some of the recent tough inflation comments.
We are in the camp that thinks whatever the Fed does or says next Tuesday will be largely sold by the stock market. Meanwhile, the dollar will probably not like news of no rate increase. As we have seen for the past few days, the dollar has been a little weaker suggesting it believes that the Fed is Done. Since the stock market has had So Many “Fed is done” rallies, we just don’t think there will be much of one on that news.
Nothing much went on Monday so we’ll be back tomorrow for a recap of whether or not the news items of Tuesday can move the market.
Dow Industrials: 11,185.68 -34.02
QQQQ: 37.10
RYVNX: 23.47
RYAIX: 25.02
RYCWX: 42.81
TLT: 85.80
BEGBX: 13.58
Sunday, July 30, 2006
Bad GDP Equals Good Stock Market
The stock market charged ahead on Friday on the “good” news about the second quarter GDP, which was less than expected and less than half of the first quarter’s number. Of course, the reason it’s “good” news is that surely the Fed can stop raising rates with all the negative news out about the economy. We’re wondering how many “Fed is done” rallies the market can produce, especially since the Fed hasn’t actually stopped raising rates. We’re also wondering why a poor GDP number is supposed be good news. Such is the twisted logic of the stock market these days.
One thing we noticed is that as strong a day the market had in terms of price, the volume was not as strong as you would like to see given the magnitude of the price move. This is typical of a corrective wave, which is what we think. The other item of note is the QQQQ’s price action. We notice that the big move up has left the QQQQ’s Below their June LOWS. So, the bulls are getting all lathered up for a big move but the overhead supply is going to very heavy. (Editor’s note: Overhead supply means that a lot of stock has recently traded at prices above the current price and those owners want to get out even. When the prices get back to where they bought, they will become sellers and create a supply ceiling.)
As you know by reading previous days’ posts, we have gone short again after a little bullish period. We were expecting a rally to take us into this week and then we were going to reverse course but we went early…again. This means that we were pinched by the big Friday, bad GDP number, 37th “Fed is done” rally. As it stands this evening, we are ok with being short again but we could have had better prices Friday. Since you didn’t have a crystal ball when we turned course you could have gotten better prices for those inverse funds than we did. We do still have some dry powder to take advantage of any further price increases this week.
Barron’s reminded us this weekend that the NASDAQ Comp index crossed 2000 for the first time back in July of 1998 and right now that index is trading just above 2000. The point of the article was that the NASDAQ was supposed to be all of the companies in the great growth engine but here we are after a round trip from 2000 to over 5000 back to 2000 and what have we got to show for eight years—no price increase.
The upcoming week offers the jobs’ report on Friday which to us is the biggest event of the week. Tuesday is filled with new data, with the most important one to us being the June pending home sales. We continue to watch housing for clues to unwinding of the great credit bubble.
The last item on our minds is the position of our short term momentum indicators. They are generally overbought as of Friday. One of our favorites is the 5 day upside volume indicator which is near all time highs and signaling at least a minor pullback. Our oscillator just jumped to overbought on Friday. As we start August this week, we want to position for the minimum long exposure to the market as possible. The market has a great distance to go down in the next six to ten weeks and we want to at least get you out of your long positions. We recommend hiding in cash for the next couple of months. Your 401(k)’s will thank you in September.
Dow Industrials: 11,219.70 +119.27
QQQQ: 37.11
RYVNX: 23.43
RYAIX: 25.00
RYCWX: 42.54
TLT: 85.70
BEGBX: 13.55
One thing we noticed is that as strong a day the market had in terms of price, the volume was not as strong as you would like to see given the magnitude of the price move. This is typical of a corrective wave, which is what we think. The other item of note is the QQQQ’s price action. We notice that the big move up has left the QQQQ’s Below their June LOWS. So, the bulls are getting all lathered up for a big move but the overhead supply is going to very heavy. (Editor’s note: Overhead supply means that a lot of stock has recently traded at prices above the current price and those owners want to get out even. When the prices get back to where they bought, they will become sellers and create a supply ceiling.)
As you know by reading previous days’ posts, we have gone short again after a little bullish period. We were expecting a rally to take us into this week and then we were going to reverse course but we went early…again. This means that we were pinched by the big Friday, bad GDP number, 37th “Fed is done” rally. As it stands this evening, we are ok with being short again but we could have had better prices Friday. Since you didn’t have a crystal ball when we turned course you could have gotten better prices for those inverse funds than we did. We do still have some dry powder to take advantage of any further price increases this week.
Barron’s reminded us this weekend that the NASDAQ Comp index crossed 2000 for the first time back in July of 1998 and right now that index is trading just above 2000. The point of the article was that the NASDAQ was supposed to be all of the companies in the great growth engine but here we are after a round trip from 2000 to over 5000 back to 2000 and what have we got to show for eight years—no price increase.
The upcoming week offers the jobs’ report on Friday which to us is the biggest event of the week. Tuesday is filled with new data, with the most important one to us being the June pending home sales. We continue to watch housing for clues to unwinding of the great credit bubble.
The last item on our minds is the position of our short term momentum indicators. They are generally overbought as of Friday. One of our favorites is the 5 day upside volume indicator which is near all time highs and signaling at least a minor pullback. Our oscillator just jumped to overbought on Friday. As we start August this week, we want to position for the minimum long exposure to the market as possible. The market has a great distance to go down in the next six to ten weeks and we want to at least get you out of your long positions. We recommend hiding in cash for the next couple of months. Your 401(k)’s will thank you in September.
Dow Industrials: 11,219.70 +119.27
QQQQ: 37.11
RYVNX: 23.43
RYAIX: 25.00
RYCWX: 42.54
TLT: 85.70
BEGBX: 13.55
Thursday, July 27, 2006
We Reverse Course
Where do we start? After yesterday’s post, we began looking for strike three and we think we found it Thursday morning when the market popped up at the open. The Dow was up about 80 in three seconds flat right after the opening bell and then traded around there until just after lunch when the gains of the day quickly evaporated with the Dow ending down about 2 points on the day.
Over in our favorite index, NDX, there was a spurt at the opening that completely erased the last hour drop on Wednesday. About fifteen minutes into the day the index peaked and headed south for the better part of the day until a rally picked up the index at the close. We decided to exit our QQQQ long position as the market was coming off its morning highs. Had we been watching the market we would have sold into the early rally but we necessarily had to trade a little later. We still were up on the day on our sell and up about 2% for the we(a)k we were long. We will probably regret our decision to get out of our long but later in the day we put our RYDEX inverse fund trades back on to make it even more painful if we are wrong.
We like our little recognitions that the market gets stronger at the end of the month and that it needed a rally after a week ago Tuesday’s lows and that it should have been for longer than seven trading days but…we can’t follow our own thinking. The market seems to be saying it’s time to turn out the lights. We could be wrong but the market looked as weak Thursday as we have seen in a while.
The market was oversold going into our Tuesday low last week and now has managed to crawl out of that oversold condition. Much energy was spent on the seven and a half day rally but little was accomplished. The over performing Dow was unable to get back to its high of a month ago and has had early morning highs that faded during the afternoon. The NDX has just Not performed like it was going to go up from here.
At any rate, we took the QQQQ long off the table and brought back the Rydex inverse funds. We split our holdings into the NASDAQ 100 and the Dow 2 times inverse funds. We have felt that the Dow would not go down as much as the NDX for the first half of the year which is why we were in the RYVNX which is the 2x NDX inverse fund. Now, we think the Dow can match the down side performance of the NDX so we bought some RYCWX. We are deeply in the bearish camp with our assets. If the market decides to go up we will be in need of assistance, we’ll let you know. You say, you won’t be home, that’s too bad, it’d be nice to see you. Anyway, we will know soon, I’m sure.
Dow Industrials: 11,100.43 -2.08
QQQQ: 36.35 (out this morning)
RYVNX: 24.46 (in this afternoon)
RYAIX: 25.54
RYCWX: 43.42 (Dow Inverse fund—in this afternoon)
TLT: 85.21 (still in)
BEGBX: 13.48
Over in our favorite index, NDX, there was a spurt at the opening that completely erased the last hour drop on Wednesday. About fifteen minutes into the day the index peaked and headed south for the better part of the day until a rally picked up the index at the close. We decided to exit our QQQQ long position as the market was coming off its morning highs. Had we been watching the market we would have sold into the early rally but we necessarily had to trade a little later. We still were up on the day on our sell and up about 2% for the we(a)k we were long. We will probably regret our decision to get out of our long but later in the day we put our RYDEX inverse fund trades back on to make it even more painful if we are wrong.
We like our little recognitions that the market gets stronger at the end of the month and that it needed a rally after a week ago Tuesday’s lows and that it should have been for longer than seven trading days but…we can’t follow our own thinking. The market seems to be saying it’s time to turn out the lights. We could be wrong but the market looked as weak Thursday as we have seen in a while.
The market was oversold going into our Tuesday low last week and now has managed to crawl out of that oversold condition. Much energy was spent on the seven and a half day rally but little was accomplished. The over performing Dow was unable to get back to its high of a month ago and has had early morning highs that faded during the afternoon. The NDX has just Not performed like it was going to go up from here.
At any rate, we took the QQQQ long off the table and brought back the Rydex inverse funds. We split our holdings into the NASDAQ 100 and the Dow 2 times inverse funds. We have felt that the Dow would not go down as much as the NDX for the first half of the year which is why we were in the RYVNX which is the 2x NDX inverse fund. Now, we think the Dow can match the down side performance of the NDX so we bought some RYCWX. We are deeply in the bearish camp with our assets. If the market decides to go up we will be in need of assistance, we’ll let you know. You say, you won’t be home, that’s too bad, it’d be nice to see you. Anyway, we will know soon, I’m sure.
Dow Industrials: 11,100.43 -2.08
QQQQ: 36.35 (out this morning)
RYVNX: 24.46 (in this afternoon)
RYAIX: 25.54
RYCWX: 43.42 (Dow Inverse fund—in this afternoon)
TLT: 85.21 (still in)
BEGBX: 13.48
Wednesday, July 26, 2006
Strike Three?
Let’s start with our favorite index the NDX, the NASDAQ 100, and its tracking stock, the QQQQ’s. This is now the sixth full trading day since our “important” low back last week Tuesday and there has been very little power for this index. Out of the Tuesday low we saw a good rally into last week Wednesday’s high much more muted than the reaction in the Dow. Going into last Friday, the index quickly traded down near its Tuesday lows but did manage not to break them. Starting on Monday we have seen another rally to those Wednesday highs from last week.
In case you weren’t reading that very closely, we think that this “pattern” represents a possible end to the upward correction of the NDX. The first leg up into last week Wednesday was the “a” wave and then the pullback into Friday was the “b” wave and then this week has been wave “c”. A three wave pattern is corrective and in this case signals the correction may be over. Strike one.
We have felt fairly confident in our position that the NDX needed to correct an oversold condition. Looking at the Dow, we see a similar pattern but the magnitude of the upward correction has been significantly better. By definition, this pattern difference in the two indexes is bearish since the Dow is “out performing” the broader indexes. Strike two.
We can only say that corrections are dangerous to play and we have had ample opportunity for the bulls to get a little serious about rallying the NDX. In the context of the entire market, the bear doesn’t seem to be letting up much even though the headline number, the Dow Industrials, has been showing stronger numbers.
Underneath the surface a lot of bad things are going on, one of which is the Dow Transports which we mentioned yesterday. After UPS’s news on Tuesday, the Transports got hammered by 80 points and by nearly another 125 on Wednesday. This index is down well over 4% in two days but no one ever really watched the Transports so it doesn’t really matter—right.
The tech news is punishing many investors if you look at some of those stocks. We think of AMZN more as a tech due to the way it interacts with the customer and it was down over 20% on Wednesday after its news on Tuesday evening. Looking through the list of NASDAQ 100 stocks there are several with 4% plus declines for Wednesday, make that 10 or 10% of them.
Probably the biggest “news” of the day was the Fed’s beige book which was, how shall we say this, Flashing subliminal messages about the course of interest rates. After that report, there can be little doubt that the Fed is preparing the market for at least a pause in the interest rate hikes when it meets on August 8th a couple of weeks away. This Big message from the Fed was Meant to give the market a chance to rally without the Fed actually being able to say they were pausing. But, the dollar did not like the news as you might expect (check the BEGBX below and compare it to yesterday’s number). Not only that, the stock market couldn’t hold its gains into the closing bell.
We leave you with this tonight: The market could very well have completed its upward correction on Wednesday or may do so on Thursday morning. Normally, this time of the month is the strongest but we have not seen the strength we thought we’d see in the broader indexes. We thought the NDX and friends would out perform to the upside relative to the Dow. That has not happened so we have become very cautious in here. We thought we could wait until the middle of next week or even later but our senses are on full alert. The Asian markets are up this evening and pulling the US overnight futures up a little in the process. Please review your positions. We’ll be back again tomorrow for more information. See you then.
Dow Industrials: 11,102.51 -1.20
QQQQ: 36.59
RYVNX: 24.15
RYAIX: 25.37
TLT: 85.34
BEGBX: 13.45
In case you weren’t reading that very closely, we think that this “pattern” represents a possible end to the upward correction of the NDX. The first leg up into last week Wednesday was the “a” wave and then the pullback into Friday was the “b” wave and then this week has been wave “c”. A three wave pattern is corrective and in this case signals the correction may be over. Strike one.
We have felt fairly confident in our position that the NDX needed to correct an oversold condition. Looking at the Dow, we see a similar pattern but the magnitude of the upward correction has been significantly better. By definition, this pattern difference in the two indexes is bearish since the Dow is “out performing” the broader indexes. Strike two.
We can only say that corrections are dangerous to play and we have had ample opportunity for the bulls to get a little serious about rallying the NDX. In the context of the entire market, the bear doesn’t seem to be letting up much even though the headline number, the Dow Industrials, has been showing stronger numbers.
Underneath the surface a lot of bad things are going on, one of which is the Dow Transports which we mentioned yesterday. After UPS’s news on Tuesday, the Transports got hammered by 80 points and by nearly another 125 on Wednesday. This index is down well over 4% in two days but no one ever really watched the Transports so it doesn’t really matter—right.
The tech news is punishing many investors if you look at some of those stocks. We think of AMZN more as a tech due to the way it interacts with the customer and it was down over 20% on Wednesday after its news on Tuesday evening. Looking through the list of NASDAQ 100 stocks there are several with 4% plus declines for Wednesday, make that 10 or 10% of them.
Probably the biggest “news” of the day was the Fed’s beige book which was, how shall we say this, Flashing subliminal messages about the course of interest rates. After that report, there can be little doubt that the Fed is preparing the market for at least a pause in the interest rate hikes when it meets on August 8th a couple of weeks away. This Big message from the Fed was Meant to give the market a chance to rally without the Fed actually being able to say they were pausing. But, the dollar did not like the news as you might expect (check the BEGBX below and compare it to yesterday’s number). Not only that, the stock market couldn’t hold its gains into the closing bell.
We leave you with this tonight: The market could very well have completed its upward correction on Wednesday or may do so on Thursday morning. Normally, this time of the month is the strongest but we have not seen the strength we thought we’d see in the broader indexes. We thought the NDX and friends would out perform to the upside relative to the Dow. That has not happened so we have become very cautious in here. We thought we could wait until the middle of next week or even later but our senses are on full alert. The Asian markets are up this evening and pulling the US overnight futures up a little in the process. Please review your positions. We’ll be back again tomorrow for more information. See you then.
Dow Industrials: 11,102.51 -1.20
QQQQ: 36.59
RYVNX: 24.15
RYAIX: 25.37
TLT: 85.34
BEGBX: 13.45
Tuesday, July 25, 2006
UPS Slams Transports
Monday night’s news on TXN didn’t mean much for the stock market on Tuesday morning. In the Dow, MMM, 3 M, started the day out with a big miss on earnings that the market punished with the stock down 5% on the day. MMM had been hit about a month ago when it pre-announced and now it is down about 20% from its May highs.
Over at UPS, the United Parcel Service, there was some more bad news. UPS announced disappointing results because it had to pay too much for fuel as well as the effects of a slowing economy. The stock took a big 10% haircut today leading the Dow Jones Transportation index to a 1.76% loss. We have questioned the logic of these transports just continuing to go up in spite of increasing fuel prices so today some of that logic is being realized.
The rest of the market traded sideways for the better part of the day with a good sized spurt the last hour and a half of the day to show some positive closing prices. This happy close was not greeted very well by the after hours news with AMZN announcing dismal earnings. The stock got smacked for 10% after that news. So, while the QQQQ’s we own did have a nice up day, the after hours took it all away. We can only imagine what the trading day will be like on Wednesday.
We did see the existing home sales fell again, as expected, last month. That makes eight in the last ten months that home sales have fallen. And, as sales have fallen, inventories are rising, this month to a new world record 3.725 million units. This represents a 6.8 month supply using June’s pace. Last June (2005), the supply was only 4.4 months. On top of that, prices, while still rising, only rose 0.9% from year ago levels, the smallest year over year gain since May 1995.
The Fed is not doubt monitoring the economy and will take note of the important news items of this week especially the first estimate of second quarter GDP growth. Current estimates come in at a modest increase of 3.2% with some forecasting even less for the third quarter. The big Fed meeting is on August 8th and will provide some entertainment for a few minutes at least. Yes, it is a few weeks away but we are at a point where the Fed Has to stop raising rates and the market knows it. Any further weakness that we see in the other news items like the durable goods orders or new home sales on Thursday will cause them to relax and enjoy the ability not to raise rates again.
We are thinking that the current rally can continue until about then but we are looking more at the July jobs report that is due on Friday August 4th. We’ll fine tune our thinking as the days go b(u)y—ok, not funny because we are not sure that with the weakness we are seeing in some of these stocks whether we will actually see a rally or if the train wreck will show up first. We are still long the QQQQ’s.
Dow Industrials: 11,103.71 +52.66
QQQQ: 36.62
RYVNX: 24.08
RYAIX: 25.34
TLT: 85.03
BEGBX: 13.35
Over at UPS, the United Parcel Service, there was some more bad news. UPS announced disappointing results because it had to pay too much for fuel as well as the effects of a slowing economy. The stock took a big 10% haircut today leading the Dow Jones Transportation index to a 1.76% loss. We have questioned the logic of these transports just continuing to go up in spite of increasing fuel prices so today some of that logic is being realized.
The rest of the market traded sideways for the better part of the day with a good sized spurt the last hour and a half of the day to show some positive closing prices. This happy close was not greeted very well by the after hours news with AMZN announcing dismal earnings. The stock got smacked for 10% after that news. So, while the QQQQ’s we own did have a nice up day, the after hours took it all away. We can only imagine what the trading day will be like on Wednesday.
We did see the existing home sales fell again, as expected, last month. That makes eight in the last ten months that home sales have fallen. And, as sales have fallen, inventories are rising, this month to a new world record 3.725 million units. This represents a 6.8 month supply using June’s pace. Last June (2005), the supply was only 4.4 months. On top of that, prices, while still rising, only rose 0.9% from year ago levels, the smallest year over year gain since May 1995.
The Fed is not doubt monitoring the economy and will take note of the important news items of this week especially the first estimate of second quarter GDP growth. Current estimates come in at a modest increase of 3.2% with some forecasting even less for the third quarter. The big Fed meeting is on August 8th and will provide some entertainment for a few minutes at least. Yes, it is a few weeks away but we are at a point where the Fed Has to stop raising rates and the market knows it. Any further weakness that we see in the other news items like the durable goods orders or new home sales on Thursday will cause them to relax and enjoy the ability not to raise rates again.
We are thinking that the current rally can continue until about then but we are looking more at the July jobs report that is due on Friday August 4th. We’ll fine tune our thinking as the days go b(u)y—ok, not funny because we are not sure that with the weakness we are seeing in some of these stocks whether we will actually see a rally or if the train wreck will show up first. We are still long the QQQQ’s.
Dow Industrials: 11,103.71 +52.66
QQQQ: 36.62
RYVNX: 24.08
RYAIX: 25.34
TLT: 85.03
BEGBX: 13.35
Monday, July 24, 2006
Barron's Says "Time to Buy"
We opined last week that the stock market may have put in an important low on Tuesday and then it rallied strongly on Wednesday before falling for the next two days. In that fall, the indexes we follow did not fall through those support areas created on Tuesday. That left Monday to complete the picture and the stock market was up about 2% for the day showing at least a near term bounce off those new lows from last Tuesday.
The stock market seemed compelled to go up on Monday. Even BARRON’S was bullish with a front cover that said “Time to Buy” in Bold print and large font. The picture on the front cover is of a bull blowing up a bear with a large stick of dynamite. Pictures like that always bring out the contrarian in us and this time we think there will be a major bull trap during this rally. If the bulls were on the verge of selling their positions, the 200 point up days should calm them down. We don’t want them to actually sell just yet; we will be looking for a nice rally here and have it fail as we go into the middle of August and Then have them sell and become good little bears.
Don’t forget, this is the “Fed is done” rally and news to that effect will push the market up. For instance, Tuesday’s existing home sales could support the Fed or not. We also get to hear about retail sales and consumer confidence, both of which have the potential to push the market one way or the other.
For now we are content to hold some QQQQ’s long but one of the reasons we bought them is to be able to sell into morning strength if and when we get it. That same day we may be able to jump back into our inverse funds. At least that’s the current plan.
This evening brought earnings “good” news from TXN, Texas Instruments. The stock was up 3% during the day and then another 4% after the announcement after hours.
We found it interesting that an analyst at Citigroup raised DELL to a Buy from a Hold and moved their price target to $28 from $24, this despite last Friday’s earnings warning from DELL. While we don’t subscribe to the $28, the market did seem to like the news and popped the stock 4% on the day. This is the type of thing that moves the market and we don’t see this being a fundamentally strong thing. With the stock under extreme pressure and dropping to a multiyear low, there is still reason to sell this stock. These little pops in the price are consistent with a stock that is going down.
Dow Industrials: 11,051.05 +182.67
QQQQ: 36.41 (we own this)
RYVNX: 24.32
RYAIX: 25.46
TLT: 85.28
BEGBX: 13.41
The stock market seemed compelled to go up on Monday. Even BARRON’S was bullish with a front cover that said “Time to Buy” in Bold print and large font. The picture on the front cover is of a bull blowing up a bear with a large stick of dynamite. Pictures like that always bring out the contrarian in us and this time we think there will be a major bull trap during this rally. If the bulls were on the verge of selling their positions, the 200 point up days should calm them down. We don’t want them to actually sell just yet; we will be looking for a nice rally here and have it fail as we go into the middle of August and Then have them sell and become good little bears.
Don’t forget, this is the “Fed is done” rally and news to that effect will push the market up. For instance, Tuesday’s existing home sales could support the Fed or not. We also get to hear about retail sales and consumer confidence, both of which have the potential to push the market one way or the other.
For now we are content to hold some QQQQ’s long but one of the reasons we bought them is to be able to sell into morning strength if and when we get it. That same day we may be able to jump back into our inverse funds. At least that’s the current plan.
This evening brought earnings “good” news from TXN, Texas Instruments. The stock was up 3% during the day and then another 4% after the announcement after hours.
We found it interesting that an analyst at Citigroup raised DELL to a Buy from a Hold and moved their price target to $28 from $24, this despite last Friday’s earnings warning from DELL. While we don’t subscribe to the $28, the market did seem to like the news and popped the stock 4% on the day. This is the type of thing that moves the market and we don’t see this being a fundamentally strong thing. With the stock under extreme pressure and dropping to a multiyear low, there is still reason to sell this stock. These little pops in the price are consistent with a stock that is going down.
Dow Industrials: 11,051.05 +182.67
QQQQ: 36.41 (we own this)
RYVNX: 24.32
RYAIX: 25.46
TLT: 85.28
BEGBX: 13.41
Sunday, July 23, 2006
Bullish Angst
The stock market decided to go down some more on Friday, adding to our angst about whether it wants to go up or not. We held our long positions through Friday and will be especially watching them to see if the market really doesn’t want to go up for a few weeks. When you see the extreme pressure exerted by the sellers (bears to us), there really seems like no upside coming at all.
After Wednesday’s strong advance on the back of the good Fed Chairman’s dovish speech (dovish on interest rates), we did think there would be a little pullback followed with a nice rally that would allow us to reestablish our short positions. Again, we look at the headline Dow Industrials and see that index not being hit as hard as the NASDAQ indexes we follow. For example, for the week, from Friday’s (14th) close to Friday’s (21st) close, the Dow was up 129 points while the NASDAQ Comp was Down about 17. So, roughly the Dow was up about 1% on the week and the Comp was down about 1%.
Yes, we seem to have gotten to cutesy on our trade for the week but we still think there may be some upside this week. If no upside comes to relieve the bull’s pain, there will be some significant selling sooner rather than later this summer. The market will not be kind on the next downswing, which is why we would like to see a little rally for you to sell into and for us to take up our short positions again.
Last Friday was options expiration and there may be some overreaction to that. Volume (NYSE) was the strongest of the month most likely due to the expiration. Monday will bring us some answers to our questions but the next two weeks are going to be filled with opportunities to Make Mistakes.
We do have some interest in the list of news items for the upcoming week. With Tuesday bringing us the June existing home sales and Thursday the new home sales, we will be looking forward to those reports. Thursday also brings the durable goods orders which we like to follow but the market tends to shrug off. We have noticed the media recent efforts to try to down play the housing sector’s influence on the rest of the economy. Maybe the stock market is listening, maybe not.
Dow Industrials: 10,868.38 -59.72
RYVNX: 25.35 (too cutesy)
RYAIX: 26.00
TLT: 85.33
BEGBX: 13.47
After Wednesday’s strong advance on the back of the good Fed Chairman’s dovish speech (dovish on interest rates), we did think there would be a little pullback followed with a nice rally that would allow us to reestablish our short positions. Again, we look at the headline Dow Industrials and see that index not being hit as hard as the NASDAQ indexes we follow. For example, for the week, from Friday’s (14th) close to Friday’s (21st) close, the Dow was up 129 points while the NASDAQ Comp was Down about 17. So, roughly the Dow was up about 1% on the week and the Comp was down about 1%.
Yes, we seem to have gotten to cutesy on our trade for the week but we still think there may be some upside this week. If no upside comes to relieve the bull’s pain, there will be some significant selling sooner rather than later this summer. The market will not be kind on the next downswing, which is why we would like to see a little rally for you to sell into and for us to take up our short positions again.
Last Friday was options expiration and there may be some overreaction to that. Volume (NYSE) was the strongest of the month most likely due to the expiration. Monday will bring us some answers to our questions but the next two weeks are going to be filled with opportunities to Make Mistakes.
We do have some interest in the list of news items for the upcoming week. With Tuesday bringing us the June existing home sales and Thursday the new home sales, we will be looking forward to those reports. Thursday also brings the durable goods orders which we like to follow but the market tends to shrug off. We have noticed the media recent efforts to try to down play the housing sector’s influence on the rest of the economy. Maybe the stock market is listening, maybe not.
Dow Industrials: 10,868.38 -59.72
RYVNX: 25.35 (too cutesy)
RYAIX: 26.00
TLT: 85.33
BEGBX: 13.47
Thursday, July 20, 2006
Fairly Deep Correction
Maybe the Update was too cutesy a couple of days ago when we decided to unload our shorts and realize some gains for the year, because the stock market had trouble maintaining its ground on Thursday. The headline number of down 83 represented by the Dow Industrials showed a pretty good day relative to Wednesday’s 212 point explosion. The NASDAQ Comp didn’t fair nearly as well by falling more on Thursday than it went up on Wednesday. Tech weakness followed some quarterly earnings reports that forced some stocks down fairly hard.
As you probably know by now, the NDX, NASDAQ 100, is our favorite index along with the QQQQ, the ETF that tracks the NDX. This index dropped more on Thursday than it went up on Wednesday, too, but we look at the lows of Tuesday for comparison. That low was about 1448 and we compare it to the high of the move which was about 1496 or about a 48 point move up. Using our Fibonacci ratio for a natural corrective move we would multiply by 0.618 (times the 48 point up move) and come up with about 30 points. Now call me crazy but that would mean the Fibonacci prediction for a low in the correction would be 30 points down from the 1496 high which is 1466. You might ask, “What did the NDX index close at today?” and we would have to say 1466.
Does that mean the correction is over? Well, not necessarily. The correction is only over if the market stops going down. So, will it stop going down? In the after hours market, there were some interesting developments, the first being the GOOG earnings report and the second being the MSFT announcement of a $20 billion share buy back before August 18th. Both of these seemed to bolster the market at least a little. Don’t get me wrong, the market was very ugly on Thursday and the selling only stopped because someone rang the bell to close the trading day. There are No assurances in the market, anything can happen.
Our position is that Tuesday’s lows are fairly important and, if broken, will probably usher in some very serious selling. But, we are long the QQQQ’s and bought more today because we think the market will rally into the early part of August. We are willing to change our minds because we are not committed to this position. We are much more interested in the larger drop after this first drop gets corrected. What that means is that we think the low point on Tuesday will provide a good bottom and we will correct this large drop from the January highs in the NDX. We aren’t sure but the 1761 high down to the 1448 low is a nice 313 points. A typical 0.618 Fibonacci retracement/correction would be 196 points bringing us back up to 1641. We do not expect such a large correction but the 0.382 Fibonacci number (1-0.618=0.382) would get us back to 1550 which would be a spot to look for an end to the corrective move.
We apologize for the heavy tech talk this evening but we are trying to see if the market is behaving normally in the Fibonacci world and tonight it seems that it is. We would start getting a little suspicious that the rally wasn’t going any further if we didn’t see some upside on Friday, especially if the market could break the Tuesday lows. These are just guidelines, not really rules (any Pirates fans out there).
Have a good weekend.
Dow Industrials: 10,928.10 -83.32
QQQQ: 36.08
RYVNX: 24.83
RYAIX: 25.72
TLT: 85.49
BEGBX: 13.39
As you probably know by now, the NDX, NASDAQ 100, is our favorite index along with the QQQQ, the ETF that tracks the NDX. This index dropped more on Thursday than it went up on Wednesday, too, but we look at the lows of Tuesday for comparison. That low was about 1448 and we compare it to the high of the move which was about 1496 or about a 48 point move up. Using our Fibonacci ratio for a natural corrective move we would multiply by 0.618 (times the 48 point up move) and come up with about 30 points. Now call me crazy but that would mean the Fibonacci prediction for a low in the correction would be 30 points down from the 1496 high which is 1466. You might ask, “What did the NDX index close at today?” and we would have to say 1466.
Does that mean the correction is over? Well, not necessarily. The correction is only over if the market stops going down. So, will it stop going down? In the after hours market, there were some interesting developments, the first being the GOOG earnings report and the second being the MSFT announcement of a $20 billion share buy back before August 18th. Both of these seemed to bolster the market at least a little. Don’t get me wrong, the market was very ugly on Thursday and the selling only stopped because someone rang the bell to close the trading day. There are No assurances in the market, anything can happen.
Our position is that Tuesday’s lows are fairly important and, if broken, will probably usher in some very serious selling. But, we are long the QQQQ’s and bought more today because we think the market will rally into the early part of August. We are willing to change our minds because we are not committed to this position. We are much more interested in the larger drop after this first drop gets corrected. What that means is that we think the low point on Tuesday will provide a good bottom and we will correct this large drop from the January highs in the NDX. We aren’t sure but the 1761 high down to the 1448 low is a nice 313 points. A typical 0.618 Fibonacci retracement/correction would be 196 points bringing us back up to 1641. We do not expect such a large correction but the 0.382 Fibonacci number (1-0.618=0.382) would get us back to 1550 which would be a spot to look for an end to the corrective move.
We apologize for the heavy tech talk this evening but we are trying to see if the market is behaving normally in the Fibonacci world and tonight it seems that it is. We would start getting a little suspicious that the rally wasn’t going any further if we didn’t see some upside on Friday, especially if the market could break the Tuesday lows. These are just guidelines, not really rules (any Pirates fans out there).
Have a good weekend.
Dow Industrials: 10,928.10 -83.32
QQQQ: 36.08
RYVNX: 24.83
RYAIX: 25.72
TLT: 85.49
BEGBX: 13.39
Wednesday, July 19, 2006
Impressive Rally
The stock market staged an impressive rally on Wednesday with the New Fed Chairman as the lead cheerleader. The Chairman said that the economy is cooling, hooray hooray, oh wait a minute, and that should cool inflation, now, hooray hooray. This speech was just after the CPI numbers were released showing a bit higher inflation than the market wanted to see. The housing starts were announced about the same time and they were weaker than expected so the market was somewhat confused. It did enjoy the Fed Chairman’s speech and was off to the races after that.
We, of course, were happy to be out of our short position for today’s rally, but the Dow was the out performer today up 1.96%, not the NASDAQ (up 1.83%) or the SP500 (up 1.86%). We follow the NASDAQ 100 (up only1.24% most likely due to YHOO which was down 7% by itself) which was not up nearly as much as those three.
Wednesday’s rally certainly came out of the blue, big blue, with IBM leading the charge a bit. But seriously, this rally was big in the Dow and now we need to wonder how far this can go. With options expiring this week, it is little wonder that the market is up, too many people caught on the wrong side of their options trades. In order to make up for that, they buy stocks.
Again, we need to focus on the near term of the market. We think this rally could carry until early August at which time we will be all over the short side again. We don’t know how much room we have to allow for the rally but a 200 point start is pretty strong. We will keep our eyes on it for further clues as to when to sell. The volume was not particularly strong given the 200 points so maybe the Dow got a little ahead of itself.
This is the rally that is being caused by the Fed stopping its rate hikes. The dollar got hit hard and precious metals bounced. Bonds were strong and completely erased Tuesday’s losses.
We’ll be back tomorrow night.
Dow Industrials: 11,011.42 +212.19
RYVNX: 24.06
RYAIX: 25.31
TLT: 85.24
BEGBX: 13.36
We, of course, were happy to be out of our short position for today’s rally, but the Dow was the out performer today up 1.96%, not the NASDAQ (up 1.83%) or the SP500 (up 1.86%). We follow the NASDAQ 100 (up only1.24% most likely due to YHOO which was down 7% by itself) which was not up nearly as much as those three.
Wednesday’s rally certainly came out of the blue, big blue, with IBM leading the charge a bit. But seriously, this rally was big in the Dow and now we need to wonder how far this can go. With options expiring this week, it is little wonder that the market is up, too many people caught on the wrong side of their options trades. In order to make up for that, they buy stocks.
Again, we need to focus on the near term of the market. We think this rally could carry until early August at which time we will be all over the short side again. We don’t know how much room we have to allow for the rally but a 200 point start is pretty strong. We will keep our eyes on it for further clues as to when to sell. The volume was not particularly strong given the 200 points so maybe the Dow got a little ahead of itself.
This is the rally that is being caused by the Fed stopping its rate hikes. The dollar got hit hard and precious metals bounced. Bonds were strong and completely erased Tuesday’s losses.
We’ll be back tomorrow night.
Dow Industrials: 11,011.42 +212.19
RYVNX: 24.06
RYAIX: 25.31
TLT: 85.24
BEGBX: 13.36
Tuesday, July 18, 2006
We Exit Our Shorts For Now
Tuesday’s market probably completed a move down in the NDX, NASDAQ 100. As we look at the chart from early January to today we see a good move down from the high. Back on January 11th, the NDX traded as high as 1761.46 and today it traded down to 1446.77, for a drop of 314.69 or 17.8%, not bad for a first move down. The move up started on October 6, 2002 at 795.25 and we think it finished at the 1761.46 high in January. Of course, you could have participated in most of the move down had you climbed on the RYVNX in early May. When the NDX was 1715.23 on May 8th, the RYVNX closed at 18.17 compared to the January low of 16.99. Today’s close stands at 24.66 for a very tidy profit from either of those two points.
We have been talking about the possibility of getting out of our positions for a short term low and then getting back in when prices are a little better. We mentioned not getting too cutesy about this trade and wondered whether it was such a good idea. Well, after the market closed on Tuesday, YHOO disappointed and dropped about 14% in after hours trading. We do know how this tends to work as the market could open a little weak in the morning and rally from there. There is the little matter of the CPI coming out just before the market opens on Wednesday.
The positions we take don’t always work out and because of this we always recommend a lot of caution with our ideas. Right now, we are trying to set our sights on the jobs report due out in a couple of weeks. We are hoping to see a little bounce out of today’s lows in the NDX. IBM did have some decent news after the close as well and it was slightly better and received much better than the YHOO news. Tomorrow we’ll see what will happen.
We do Not recommend this but we did take a long position today so we are slightly bullish over the very short term. This huge drop we’ve seen in the past couple of months could have a nice corrective bounce and we would like nothing more than to take a little of the upside into our pockets. Again, we don’t think you should try this at this time due to the short term nature of this trade but if we do get this rally over the next couple of weeks we would recommend you sell what you have left. The fall lows will provide us a nice opportunity to get long again.
To follow up on gold, it was down again today. After trading up to $675 on Sunday night, we see it at $630 this evening. The interesting thing about this gold move is that, if you look at the HUI, you see that it peaked about two weeks ago. Gold peaked on Sunday night. The stocks lead the metal, generally.
Dow Industrials: 10,799.23 +51.87
RYVNX: 24.66 (out here)
RYAIX: 25.62
TLT: 84.44
BEGBX: 13.24
We have been talking about the possibility of getting out of our positions for a short term low and then getting back in when prices are a little better. We mentioned not getting too cutesy about this trade and wondered whether it was such a good idea. Well, after the market closed on Tuesday, YHOO disappointed and dropped about 14% in after hours trading. We do know how this tends to work as the market could open a little weak in the morning and rally from there. There is the little matter of the CPI coming out just before the market opens on Wednesday.
The positions we take don’t always work out and because of this we always recommend a lot of caution with our ideas. Right now, we are trying to set our sights on the jobs report due out in a couple of weeks. We are hoping to see a little bounce out of today’s lows in the NDX. IBM did have some decent news after the close as well and it was slightly better and received much better than the YHOO news. Tomorrow we’ll see what will happen.
We do Not recommend this but we did take a long position today so we are slightly bullish over the very short term. This huge drop we’ve seen in the past couple of months could have a nice corrective bounce and we would like nothing more than to take a little of the upside into our pockets. Again, we don’t think you should try this at this time due to the short term nature of this trade but if we do get this rally over the next couple of weeks we would recommend you sell what you have left. The fall lows will provide us a nice opportunity to get long again.
To follow up on gold, it was down again today. After trading up to $675 on Sunday night, we see it at $630 this evening. The interesting thing about this gold move is that, if you look at the HUI, you see that it peaked about two weeks ago. Gold peaked on Sunday night. The stocks lead the metal, generally.
Dow Industrials: 10,799.23 +51.87
RYVNX: 24.66 (out here)
RYAIX: 25.62
TLT: 84.44
BEGBX: 13.24
Monday, July 17, 2006
Gold Produces Outside Down Day
The stock market started the week out by doing basically nothing with the Dow up 8 little points. The broader market didn’t match up as the decliners out numbered the advancers on the NYSE. The NDX, NASDAQ 100, did trade higher for some reason and we need to keep our eyes on that index for signs of a short term low in the stock market. As of this evening we are not willing to get out of our position but we don’t want to get cutesy either. We need to focus on the lower, much lower, lows that will be had in September or October. Sometimes we like to try to time things a little too much but we don’t want to miss a good trading opportunity.
The big move of the day came in the gold market as gold issued a major sell signal today with the outside down reversal day. An outside down day is most important when it happens to end a move in one direction or the other. We describe the nature of an outside day as one that trades higher than yesterday’s high and lower than yesterday’s low. In this case, the outside down day, trading starts out very optimistically higher besting Friday’s high and then trades down the rest of the day to close below Friday’s low.
Gold traded as high as $667 on Friday and in Sunday night trading went just over $675 and then collapsed to $640 in late afternoon trading on Monday. As we write this, gold has recovered a bit to about $652 but the peak has probably been seen here for a while. The pattern in the metal is not pretty as this latest peak is well off the nearly $725 high set right at the time the stock market was peaking in early May. This failure to reach back to the peak is in lock step with the HUI and is very bearish near term.
Tech talk: For those of you who want to watch Fibonacci in action, this may be your best opportunity. The $725 high set in May is followed by a strong drop into the June lows near $550, this is wave one. Then, we see gold rallying to Monday’s (Sunday night’s) high of $675, wave two. A good guess at the Wave three is a 1.618 multiple of the wave one move and measured from the Wave two high, like this: Wave one is $175 from $725 down to $550. Multiply $175 by 1.618 to get about $280 and this $280 is the drop expected in this next move from the wave two top of $675 or $395. Doesn’t seem possible, does it? Well, even if we are only talking about a move down equal to the wave one drop of $175, we are still looking at $500.
Tuesday brings the Producer Price Index (PPI) and consensus is up 0.3% with “core” PPI up only 0.2%. Normally, the PPI is not as big a market mover as the CPI but we are willing to watch this number on Tuesday. The CPI will be out on Wednesday and expectations are for a 0.2% rise in both the base and the “core”. We are really waiting for the housing starts number due out on Wednesday.
If you haven’t checked out the Elliott wave free week, you have one more day to get some valuable analysis for the price of signing up for it. We recommend reading the July Financial Forecast and the Short Term Update (STU) on the subscriber’s page. Tonight’s Short Term Update shares a tidbit that we found interesting: “…the September S&P futures contract has closed down the week of July 14 to July 21 for the past 10 straight years…” This comes from the Supertrader’s Almanac (www.supertraderalmanac.com) by Frank Taucher. We don’t really follow these types of things but do find it interesting.
Dow Industrials: 10,747.36 +8.01
RYVNX: 24.79
RYAIX: 25.68
TLT: 85.17
BEGBX: 13.26
The big move of the day came in the gold market as gold issued a major sell signal today with the outside down reversal day. An outside down day is most important when it happens to end a move in one direction or the other. We describe the nature of an outside day as one that trades higher than yesterday’s high and lower than yesterday’s low. In this case, the outside down day, trading starts out very optimistically higher besting Friday’s high and then trades down the rest of the day to close below Friday’s low.
Gold traded as high as $667 on Friday and in Sunday night trading went just over $675 and then collapsed to $640 in late afternoon trading on Monday. As we write this, gold has recovered a bit to about $652 but the peak has probably been seen here for a while. The pattern in the metal is not pretty as this latest peak is well off the nearly $725 high set right at the time the stock market was peaking in early May. This failure to reach back to the peak is in lock step with the HUI and is very bearish near term.
Tech talk: For those of you who want to watch Fibonacci in action, this may be your best opportunity. The $725 high set in May is followed by a strong drop into the June lows near $550, this is wave one. Then, we see gold rallying to Monday’s (Sunday night’s) high of $675, wave two. A good guess at the Wave three is a 1.618 multiple of the wave one move and measured from the Wave two high, like this: Wave one is $175 from $725 down to $550. Multiply $175 by 1.618 to get about $280 and this $280 is the drop expected in this next move from the wave two top of $675 or $395. Doesn’t seem possible, does it? Well, even if we are only talking about a move down equal to the wave one drop of $175, we are still looking at $500.
Tuesday brings the Producer Price Index (PPI) and consensus is up 0.3% with “core” PPI up only 0.2%. Normally, the PPI is not as big a market mover as the CPI but we are willing to watch this number on Tuesday. The CPI will be out on Wednesday and expectations are for a 0.2% rise in both the base and the “core”. We are really waiting for the housing starts number due out on Wednesday.
If you haven’t checked out the Elliott wave free week, you have one more day to get some valuable analysis for the price of signing up for it. We recommend reading the July Financial Forecast and the Short Term Update (STU) on the subscriber’s page. Tonight’s Short Term Update shares a tidbit that we found interesting: “…the September S&P futures contract has closed down the week of July 14 to July 21 for the past 10 straight years…” This comes from the Supertrader’s Almanac (www.supertraderalmanac.com) by Frank Taucher. We don’t really follow these types of things but do find it interesting.
Dow Industrials: 10,747.36 +8.01
RYVNX: 24.79
RYAIX: 25.68
TLT: 85.17
BEGBX: 13.26
Sunday, July 16, 2006
July Options Expiration Week
The stock market fell again on Friday putting the three day drop in the Dow at nearly 400 points. Meanwhile the other indexes we follow have fallen also. Our main index is the NASDAQ 100, NDX, where we have substantial positions in the Rydex inverse funds based on this index. The index has been leading the charge lower since January and we may finally be seeing the other indexes come in line with the NDX.
We are cognizant of the potential bounce the NDX may exhibit here. This week is options expiration week and with it there may tend to be a bit of volatility. During the week we also have several fun numbers coming out like the PPI and CPI on Tuesday and Wednesday, respectively, and the June housing starts on Wednesday as well.
If you have taken some time to look over the Elliott wave website, you have seen some very good analysis including analysis on the NDX. They show a very important chart that has the NDX pretty much completing a five wave decline, which is normally followed by a three wave counter trend rise. We are considering exiting our position in the Rydex funds this week and waiting until the rally plays out and get back into these positions going into the early part of August. We will let you know. Our position has been in place for a while now and we have a very nice profit in the RYVNX.
If you haven’t looked over that website, you should and take advantage of the wealth of Free info available until Wednesday afternoon.
[Editor’s note: Out of necessity, we just post a quick note this evening as we have been out of town and weren’t able to return to do a full posting. We apologize for the lack of info this evening but we will be back tomorrow for a full report.]
Dow Industrials: 10,739.35 -106.94
RYVNX: 24.98
RYAIX: 25.78
TLT: 85.04
BEGBX: 13.40
We are cognizant of the potential bounce the NDX may exhibit here. This week is options expiration week and with it there may tend to be a bit of volatility. During the week we also have several fun numbers coming out like the PPI and CPI on Tuesday and Wednesday, respectively, and the June housing starts on Wednesday as well.
If you have taken some time to look over the Elliott wave website, you have seen some very good analysis including analysis on the NDX. They show a very important chart that has the NDX pretty much completing a five wave decline, which is normally followed by a three wave counter trend rise. We are considering exiting our position in the Rydex funds this week and waiting until the rally plays out and get back into these positions going into the early part of August. We will let you know. Our position has been in place for a while now and we have a very nice profit in the RYVNX.
If you haven’t looked over that website, you should and take advantage of the wealth of Free info available until Wednesday afternoon.
[Editor’s note: Out of necessity, we just post a quick note this evening as we have been out of town and weren’t able to return to do a full posting. We apologize for the lack of info this evening but we will be back tomorrow for a full report.]
Dow Industrials: 10,739.35 -106.94
RYVNX: 24.98
RYAIX: 25.78
TLT: 85.04
BEGBX: 13.40
Thursday, July 13, 2006
Possible Breakaway Gap on Friday
Tonight, as we write, the futures are actually down quite a bit, predicting a lower opening in the morning. This hasn’t happened very often recently and it shows some capitulation by the bulls. We think this is an important topic this evening as we have shared this type of thinking in the past and tonight a possible moment is occurring.
In order for the market to decline as much as we think it will, there needs to be some big down days. These days generally come when there is recognition of a trend change like we have seen over the past few weeks. For most of the spring we have said to sell in May and go away and the earlier in May you would have sold the better. But, right now, the rest of the world is starting to feel the significance of the move that’s happening.
Thursday was a very telling day and it wasn’t very difficult for anyone to tell what was happening. First, there was a good sized drop in the first hour or so of trading followed by a spirited rally that actually took the NASDAQ 100, NDX, green for a few minutes. After that the market started to free fall again into the close, with the NDX closing basically on the low for the day and down 23 points. In the overnight futures market, the NDX futures are under fair value by almost another 10 points.
We are only too happy to be in cash with most of our funds and in the Rydex inverse funds with the rest except for some TLT fund. We hope that you took the opportunity to unload most of your stocks in the past few months. We are going to stop telling you to “be careful out there….” because the time for being careful is over.
We want to remind you that it is FREE WEEK over at Elliott Wave International. Just go to this website and sign up for their free information. This is free until next Wednesday afternoon so hurry and take advantage of it:
http://www.elliottwave.com/freeweek
So, we have seen the True Contrarian’s point of view and now we see similar views expressed from Elliott Wave International that the market is about to drop about 25% going into the fall or early winter. On Thursday, the market shared that same information with us so I think we are safe in assuming the fall is coming.
We suggest sitting on the sidelines of most investments, particularly stocks, until we see some reason to venture back into the water, which shouldn’t be until late in the fall. We may have some opportunities in the mining stocks earlier than that or some other class but for now, cash is king. Of course, we do have positions in the Rydex inverse funds to take advantage of the near term drop. If the NDX drops by some 20% the RYVNX will go up about 40% and the RYAIX will go up about 20%. Go team.
Have a great trading day and a good weekend.
Dow Industrials: 10,846.29 -166.89
RYVNX: 24.43 (another 52 week high)
RYAIX: 25.49 (another 52 week high)
TLT: 84.99
BEGBX: 13.41
In order for the market to decline as much as we think it will, there needs to be some big down days. These days generally come when there is recognition of a trend change like we have seen over the past few weeks. For most of the spring we have said to sell in May and go away and the earlier in May you would have sold the better. But, right now, the rest of the world is starting to feel the significance of the move that’s happening.
Thursday was a very telling day and it wasn’t very difficult for anyone to tell what was happening. First, there was a good sized drop in the first hour or so of trading followed by a spirited rally that actually took the NASDAQ 100, NDX, green for a few minutes. After that the market started to free fall again into the close, with the NDX closing basically on the low for the day and down 23 points. In the overnight futures market, the NDX futures are under fair value by almost another 10 points.
We are only too happy to be in cash with most of our funds and in the Rydex inverse funds with the rest except for some TLT fund. We hope that you took the opportunity to unload most of your stocks in the past few months. We are going to stop telling you to “be careful out there….” because the time for being careful is over.
We want to remind you that it is FREE WEEK over at Elliott Wave International. Just go to this website and sign up for their free information. This is free until next Wednesday afternoon so hurry and take advantage of it:
http://www.elliottwave.com/freeweek
So, we have seen the True Contrarian’s point of view and now we see similar views expressed from Elliott Wave International that the market is about to drop about 25% going into the fall or early winter. On Thursday, the market shared that same information with us so I think we are safe in assuming the fall is coming.
We suggest sitting on the sidelines of most investments, particularly stocks, until we see some reason to venture back into the water, which shouldn’t be until late in the fall. We may have some opportunities in the mining stocks earlier than that or some other class but for now, cash is king. Of course, we do have positions in the Rydex inverse funds to take advantage of the near term drop. If the NDX drops by some 20% the RYVNX will go up about 40% and the RYAIX will go up about 20%. Go team.
Have a great trading day and a good weekend.
Dow Industrials: 10,846.29 -166.89
RYVNX: 24.43 (another 52 week high)
RYAIX: 25.49 (another 52 week high)
TLT: 84.99
BEGBX: 13.41
Wednesday, July 12, 2006
Not Pretty
That was not pretty, even the media didn’t like it. As trading began on Wednesday, the market had to deal with a few minor pains. One of those, near and dear to our short tech hearts, was the downgrade on DELL which pushed that stock down over 4% by the end of the day. Another was the news about the trade deficit widening, although that was less than expected; but, within that report was the fact that oil imports reached a record $28 billion up $4 billion from the prior month, 17%. Don’t forget that this is May’s number and the report we read said the price of crude was just over $61 a barrel. As you probably know, the price of oil is well over $70 a barrel now.
The stock market just went down and down all day long. The NASDAQ indexes were hit hard with the DELL news. At the end of the day the NASDAQ 100 index had broken through last October’s low. This move pushed our Rydex inverse funds up to new 52 week highs on Wednesday as noted below. When the indexes break through important lows like that, some pain is felt but there was no news story that pointed it out as far as we could tell. The other indexes we follow have not broken their respective October lows but we believe it’s only a matter of time.
Over the next several weeks we expect the stock market to continue its decline but there will be rallies to confuse the traders. This is only natural. Our best guess is that stocks will decline and Treasury bonds will move up (rates will decline). We are less convinced of the dollar so we are going to step aside from the BEGBX fund below for now. We haven’t actually acquired a position in that fund but have been watching it carefully.
The stock market is in the midst of earnings season and these have not been very good so far and any time we have an important report it could give the market a problem. We repeat that we see very little upside in the coming weeks. Our estimate for the position of the stock market is unbelievably still near overbought even after Wednesday’s trading so…
Be careful out there.
Dow Industrials: 11,013.18 -121.59
RYVNX: 23.69 (new 52 week high)
RYAIX: 25.09 (new 52 week high)
TLT: 84.66
BEGBX: 13.37 (dollar strong again today)
The stock market just went down and down all day long. The NASDAQ indexes were hit hard with the DELL news. At the end of the day the NASDAQ 100 index had broken through last October’s low. This move pushed our Rydex inverse funds up to new 52 week highs on Wednesday as noted below. When the indexes break through important lows like that, some pain is felt but there was no news story that pointed it out as far as we could tell. The other indexes we follow have not broken their respective October lows but we believe it’s only a matter of time.
Over the next several weeks we expect the stock market to continue its decline but there will be rallies to confuse the traders. This is only natural. Our best guess is that stocks will decline and Treasury bonds will move up (rates will decline). We are less convinced of the dollar so we are going to step aside from the BEGBX fund below for now. We haven’t actually acquired a position in that fund but have been watching it carefully.
The stock market is in the midst of earnings season and these have not been very good so far and any time we have an important report it could give the market a problem. We repeat that we see very little upside in the coming weeks. Our estimate for the position of the stock market is unbelievably still near overbought even after Wednesday’s trading so…
Be careful out there.
Dow Industrials: 11,013.18 -121.59
RYVNX: 23.69 (new 52 week high)
RYAIX: 25.09 (new 52 week high)
TLT: 84.66
BEGBX: 13.37 (dollar strong again today)
Tuesday, July 11, 2006
The KLAC Attack
The stock market was down in the early going on Tuesday, some say due to the India bombings. During the afternoon one of the tech companies, KLAC, KLA Tencor, had a conference call with some analysts and said some warm and fuzzy things about Orders (bookings). Apparently this ignited a fire under the stock market and we saw some violent up moves during the early afternoon. From the early afternoon lows, the Dow rallied for about 100 points during the afternoon while the NDX, NASDAQ 100, rallied for about 25 points or about 1.5%.
The stock market is trying very hard not to let go and drop a Lot. It didn’t go down on Tuesday but over the next few months we still expect a very harsh and unexpected drop. We said to sell in May and go away and we are sticking to that until we see a good sized drop. Since May the NDX has dropped about 200 points so far for more than 10% and we expect another 10% or more before it’s over.
The Dow has been the laggard to the downside but that is the way it usually is. The Dow is made up of big cap companies and seems more stable to the unsuspecting public. Most people look at the Dow and judge the direction of the market or their portfolios by how it is doing—without actually looking to see what those two things are actually doing.
Speaking of actually looking at what is really going on, we urge you to read the “True Contrarian” on the link at the left. He has posted a nice update on the markets from here to the early autumn period and we are in lock step with his thinking. Go down a few pages to the bold print dated July 11th. The primary use for his postings is the gold calls but he does mention other markets too. He is looking for a good opportunity to buy gold mining stocks in the late summer to early fall. We will watch for good entry points.
The stock market seems to have dodged a bullet on Tuesday but we don’t think there will be much on the way of upside with this move. The market is still basically overbought and complacent. If a rally continues, sell it. We will get much better prices to buy back into stocks come fall. Until tomorrow’s post…
Be careful out there.
Dow Industrials: 11,134.77 +31.22
RYVNX: 22.75
RYAIX: 24.59
TLT: 84.64
BEGBX: 13.48
The stock market is trying very hard not to let go and drop a Lot. It didn’t go down on Tuesday but over the next few months we still expect a very harsh and unexpected drop. We said to sell in May and go away and we are sticking to that until we see a good sized drop. Since May the NDX has dropped about 200 points so far for more than 10% and we expect another 10% or more before it’s over.
The Dow has been the laggard to the downside but that is the way it usually is. The Dow is made up of big cap companies and seems more stable to the unsuspecting public. Most people look at the Dow and judge the direction of the market or their portfolios by how it is doing—without actually looking to see what those two things are actually doing.
Speaking of actually looking at what is really going on, we urge you to read the “True Contrarian” on the link at the left. He has posted a nice update on the markets from here to the early autumn period and we are in lock step with his thinking. Go down a few pages to the bold print dated July 11th. The primary use for his postings is the gold calls but he does mention other markets too. He is looking for a good opportunity to buy gold mining stocks in the late summer to early fall. We will watch for good entry points.
The stock market seems to have dodged a bullet on Tuesday but we don’t think there will be much on the way of upside with this move. The market is still basically overbought and complacent. If a rally continues, sell it. We will get much better prices to buy back into stocks come fall. Until tomorrow’s post…
Be careful out there.
Dow Industrials: 11,134.77 +31.22
RYVNX: 22.75
RYAIX: 24.59
TLT: 84.64
BEGBX: 13.48
Monday, July 10, 2006
Techs Go Down Quietly
Last Friday it was MMM that warned and Monday it was EMC’s turn. Just before the market opened, EMC lowered its outlook for second quarter results. EMC is a tech company and led the NASDAQ down on Monday turning in nearly a 7% loss for itself by the end of the day. The NASDAQ 100 traded up 11 points early Monday but two hours into the day it couldn’t stay green and by the end of the day ended down about 12 or just less than 1%. The Merrill Lynch strategist Richard Bernstein downgraded the tech sector because of interest rates hikes by the Fed.
Meanwhile back at the funny farm, the Dow opened up and kept going up for about an hour and a half to plus 80 on the day making up for some of the 134 gouging it took on Friday. But, from there the Dow basically slide all day long and was trading in negative territory before rallying in the last hour to close up about 12 points.
In case you haven’t noticed, the stock market is having trouble holding its head above water and the “bear” is reasserting itself. We saw the little “Fed is done” rally last week but that has quickly crumbled especially in the broader market and more particularly in tech. Looking at the NDX, the NASDAQ 100, it is now trying to hold the 52 week lows and probably will fail very soon. The low there is 1502.20 and it closed Monday at 1520.90 so about 1 percent above the year low.
The semiconductor index we generally follow is the SOX. Looking at the SOX this evening we see that it dropped over 2% today and broke through the October/November 2005 lows. The semi’s are struggling to say the least and this is going on while the Dow is still above the 11K mark.
After the market closed on Monday, AA, Alcoa, reported second quarter earnings. The company failed to meet market expectations for sales and fell 4.5% in after hours trading. Still the futures are showing a positive opening for the market on Tuesday. We’ll see if that holds true or not. Likewise, Lucent warned of lower revenue and profit. I’d tell you that the stock traded lower in after hours trading but that would not surprise anyone. This is a $2 stock and it is known for its “wild” trading, please.
We expect very little strength to develop in the market any time soon. The market is Overbought right now and at any moment is ready to roll over Hard. We hope you have unloaded your stocks and if not…
Be careful out there.
Dow Industrials: 11,103.55 +12.88
RYVNX: 23.11
RYAIX: 24.77
TLT: 84.37
BEGBX: 13.41
Meanwhile back at the funny farm, the Dow opened up and kept going up for about an hour and a half to plus 80 on the day making up for some of the 134 gouging it took on Friday. But, from there the Dow basically slide all day long and was trading in negative territory before rallying in the last hour to close up about 12 points.
In case you haven’t noticed, the stock market is having trouble holding its head above water and the “bear” is reasserting itself. We saw the little “Fed is done” rally last week but that has quickly crumbled especially in the broader market and more particularly in tech. Looking at the NDX, the NASDAQ 100, it is now trying to hold the 52 week lows and probably will fail very soon. The low there is 1502.20 and it closed Monday at 1520.90 so about 1 percent above the year low.
The semiconductor index we generally follow is the SOX. Looking at the SOX this evening we see that it dropped over 2% today and broke through the October/November 2005 lows. The semi’s are struggling to say the least and this is going on while the Dow is still above the 11K mark.
After the market closed on Monday, AA, Alcoa, reported second quarter earnings. The company failed to meet market expectations for sales and fell 4.5% in after hours trading. Still the futures are showing a positive opening for the market on Tuesday. We’ll see if that holds true or not. Likewise, Lucent warned of lower revenue and profit. I’d tell you that the stock traded lower in after hours trading but that would not surprise anyone. This is a $2 stock and it is known for its “wild” trading, please.
We expect very little strength to develop in the market any time soon. The market is Overbought right now and at any moment is ready to roll over Hard. We hope you have unloaded your stocks and if not…
Be careful out there.
Dow Industrials: 11,103.55 +12.88
RYVNX: 23.11
RYAIX: 24.77
TLT: 84.37
BEGBX: 13.41
Sunday, July 09, 2006
MMM Overwhelms Jobs Report
Here we are in front of a new week of trading and having to look back at last Friday’s trading to get some idea of what is going to happen this week, the old look in the rear view mirror to see where you’re going. This is normally not a very good idea in the real world so we need to be careful not to put too much credibility on where we’ve been but we do need to review the Friday trading day.
Our last post said we thought we would see a pretty good pop at the opening if the jobs report was at all weak and Weak is what we got. The ADP estimate we told you about last week was about 368K and the composite estimate was 175K and the number actually came in at 121K an hour before the market opened. Bonds liked the number all day long and stocks liked the number until…
Just before the opening, MMM, Minnesota Mining and Manufacturing warned that second quarter profit would miss earlier guidance. The reason, weaker than expected demand for optical films used in flat screen TV’s and computer monitors. The news immediately hit MMM, a Dow component, and the stock market reacted negatively. The opening bell included a five point drop in MMM and the Dow was quickly down about 85 points. The selling picked up about half way through the session with the Dow down about 160 before rallying to close down 134.
This action reveals the tenuous nature of the market at the present time. On Thursday we saw MO jumping on the tobacco news and then Friday we get the crushing blow of MMM. We expect that the market is not prepared for any negative news coming out of second quarter earnings reports. Of course, the media is extremely bullish on the upcoming reports but when a company of MMM’s stature gets hammered for almost 9% there could be more where that came from.
There isn’t much in the way of economic news in the next week but we will try to keep you posted on the earnings news that we find interesting.
We do hope you took the opportunity to get out of some of your holding over the past week. The 200 point Dow rally was a very good time to do so. Looking back on our call for a rally starting right after the Fed news and going to 10 o’clock last Thursday was spot on—How do we do it? The MO news spurred that little rally on Thursday morning allowing us to be happily bullish for a week. For those of you who traded PAAS in that period of time, you would have bought it for right around 16.85 and sold it around 18.40 for a tidy 9% profit in a week.
Be careful out there.
Dow Industrials: 11,090.67 -134.63
RYVNX: 22.72
RYAIX: 24.56
TLT: 84.29
BEGBX: 13.49
Our last post said we thought we would see a pretty good pop at the opening if the jobs report was at all weak and Weak is what we got. The ADP estimate we told you about last week was about 368K and the composite estimate was 175K and the number actually came in at 121K an hour before the market opened. Bonds liked the number all day long and stocks liked the number until…
Just before the opening, MMM, Minnesota Mining and Manufacturing warned that second quarter profit would miss earlier guidance. The reason, weaker than expected demand for optical films used in flat screen TV’s and computer monitors. The news immediately hit MMM, a Dow component, and the stock market reacted negatively. The opening bell included a five point drop in MMM and the Dow was quickly down about 85 points. The selling picked up about half way through the session with the Dow down about 160 before rallying to close down 134.
This action reveals the tenuous nature of the market at the present time. On Thursday we saw MO jumping on the tobacco news and then Friday we get the crushing blow of MMM. We expect that the market is not prepared for any negative news coming out of second quarter earnings reports. Of course, the media is extremely bullish on the upcoming reports but when a company of MMM’s stature gets hammered for almost 9% there could be more where that came from.
There isn’t much in the way of economic news in the next week but we will try to keep you posted on the earnings news that we find interesting.
We do hope you took the opportunity to get out of some of your holding over the past week. The 200 point Dow rally was a very good time to do so. Looking back on our call for a rally starting right after the Fed news and going to 10 o’clock last Thursday was spot on—How do we do it? The MO news spurred that little rally on Thursday morning allowing us to be happily bullish for a week. For those of you who traded PAAS in that period of time, you would have bought it for right around 16.85 and sold it around 18.40 for a tidy 9% profit in a week.
Be careful out there.
Dow Industrials: 11,090.67 -134.63
RYVNX: 22.72
RYAIX: 24.56
TLT: 84.29
BEGBX: 13.49
Thursday, July 06, 2006
Mo Rules
Our title tonight refers to the Company Altria, symbol MO, which owns Philip Morris the cigarette company. In today’s news, the tobacco industry got a drag on some fresh air as the Florida Supreme Court upheld a ruling tossing out the $145 billion verdict. With this news, as you might imagine, tobacco stocks were smokin’. MO itself was up a nice 6%, trading to an all time high on the back of that news during the day.
We only bring this up because when we were asked back in early 2000 what to buy, we said MO. It was trading at 19 or so and had a 48 cent quarterly dividend for a cool 10%. This was during the time of the initial ruling. Six years later this stock pays an 80 cent quarterly dividend for $3.20 a year, about 17% on the original purchase price, and sells for 77.
I don’t want to debate the “social responsibility” of the stock because I know there are good reasons for people to shy away from this type of company. I am simply trying to point out the contrarian play that was available to you when the stock market was going down in the first few years of this century. MO was responsible for about half of the Dow’s gains on Thursday.
The Dow did do a little bouncing back on Thursday helped much by MO. Looking at the broader averages, there was a mixed bag. Our favorite index, the NASDAQ 100, was actually down on the day.
This sets us up for Friday’s jobs report. The market seems like it wants to go up on the early news. We would like this as it would set up a perfect reversal from any highs that might develop. Here’s the analysis: The stock market has anticipated a big number of jobs based on the ADP report that said that nonfarm payrolls grew 368K last month. The estimate currently floating around is 175K for Friday morning. So the news on ADP Wednesday pushed the market down, why?, because the Fed may have to keep raising interest rates. If the 175K estimate is high and the number comes in lower than that, the market might be inclined to make up for the hole it dug on Wednesday. Twisted logic.
Last week, the Update turned bullish for the time frame from the Fed’s announcement to Thursday at 10 o’clock (we meant to say Friday at 10 o’clock due to the jobs report, but we didn’t say that). Anyway, with the tobacco news on Thursday pushing up the Dow right at 10 o’clock, we saw a 200 point rally in those few days with the peak right at 10 o’clock. But, it is possible that Friday’s high could be higher than that. Either way, we have seen good opportunities for you to unload some of your stocks in these days.
We were advised of an article in the July 5th WSJ's Mutual Fund Quarterly Review entitled "Surviving a Real-Estate Slowdown". The WSJ interviewed Kenneth Heebner, the manager of a very successful real estate mutual fund, on his thoughts about the current real estate environment. His comments should be credible, although he does not completely line up with our thoughts. See if you can find a copy to read (page B1).
By the way, this contrarian would tell you to sell MO right now particularly if you had purchased it back in early 2000. Anyway, it’s my birthday on Friday so today’s post was just a lot of fun stuff to reflect the fact that I made it another year.
Be careful out there.
Dow Industrials: 11,225.30 +73.48
RYVNX: 22.19
RYAIX: 24.27
TLT: 83.75
BEGBX: 13.40
We only bring this up because when we were asked back in early 2000 what to buy, we said MO. It was trading at 19 or so and had a 48 cent quarterly dividend for a cool 10%. This was during the time of the initial ruling. Six years later this stock pays an 80 cent quarterly dividend for $3.20 a year, about 17% on the original purchase price, and sells for 77.
I don’t want to debate the “social responsibility” of the stock because I know there are good reasons for people to shy away from this type of company. I am simply trying to point out the contrarian play that was available to you when the stock market was going down in the first few years of this century. MO was responsible for about half of the Dow’s gains on Thursday.
The Dow did do a little bouncing back on Thursday helped much by MO. Looking at the broader averages, there was a mixed bag. Our favorite index, the NASDAQ 100, was actually down on the day.
This sets us up for Friday’s jobs report. The market seems like it wants to go up on the early news. We would like this as it would set up a perfect reversal from any highs that might develop. Here’s the analysis: The stock market has anticipated a big number of jobs based on the ADP report that said that nonfarm payrolls grew 368K last month. The estimate currently floating around is 175K for Friday morning. So the news on ADP Wednesday pushed the market down, why?, because the Fed may have to keep raising interest rates. If the 175K estimate is high and the number comes in lower than that, the market might be inclined to make up for the hole it dug on Wednesday. Twisted logic.
Last week, the Update turned bullish for the time frame from the Fed’s announcement to Thursday at 10 o’clock (we meant to say Friday at 10 o’clock due to the jobs report, but we didn’t say that). Anyway, with the tobacco news on Thursday pushing up the Dow right at 10 o’clock, we saw a 200 point rally in those few days with the peak right at 10 o’clock. But, it is possible that Friday’s high could be higher than that. Either way, we have seen good opportunities for you to unload some of your stocks in these days.
We were advised of an article in the July 5th WSJ's Mutual Fund Quarterly Review entitled "Surviving a Real-Estate Slowdown". The WSJ interviewed Kenneth Heebner, the manager of a very successful real estate mutual fund, on his thoughts about the current real estate environment. His comments should be credible, although he does not completely line up with our thoughts. See if you can find a copy to read (page B1).
By the way, this contrarian would tell you to sell MO right now particularly if you had purchased it back in early 2000. Anyway, it’s my birthday on Friday so today’s post was just a lot of fun stuff to reflect the fact that I made it another year.
Be careful out there.
Dow Industrials: 11,225.30 +73.48
RYVNX: 22.19
RYAIX: 24.27
TLT: 83.75
BEGBX: 13.40
Wednesday, July 05, 2006
Fed Trumps North Korea
Here it is July 5th and we are back. The market continued its volatile ways while we were off and we expect more of the same for the near term. We can’t remember much about last Friday or Monday so let’s take a look at the trading on Tuesday.
Before the market opened there was more softness in the futures that had been down overnight. The media brought the North Korean missile tests out for traders to get the idea that was why the market was down. We don’t think that is the case but the media does have the authoritative final say in these matters, not the market…sarcasm still works.
Our last couple of posts were advising that a rally would be coming after the Fed raised rates and we got a pretty good run in the Dow. The move was fairly fast though as the actual peak in the Dow occurred near Friday’s open at 11,235 after trading down near 10,950 last week. That’s nearly 300 points in a few days. Monday’s shortened trading day was an up one with the Dow rallying about 78 points.
Trading for the rest of this week will be related to the jobs report due out on Friday morning, our normal pick for the high of the month. This week the market is paying close attention to the “strength” in the economy for signs as to what the Fed will do. To that end, the North Korean missile test does not really tell the market very much about what the Fed will do, but there was a report out on Wednesday forecasting Friday’s total nonfarm payroll will be growth of 368K. The current estimate is for a 170K increase. The market seemed to be spooked by this fresh estimate and, with the bond market reacting as it did (down), we tend to give this report some credibility. Since the broader market was down on Wednesday, we think that the market may have discounted some of this news already. Now, we just need to wait until Friday morning to find out.
Wednesday’s broader market dug some deep holes in the “Fed inspired" rally since the middle of last week. We are still looking to Friday morning for some good signals on the market. We did note that our momentum indicators have turned over bought in the last few trading days even with the light holiday trading. These are difficult days to trade.
On Wednesday, oil rallied to over $75 and this seems to rattle a few of the media folks. We have talked about the price of oil going up along with the stock market in the past several years. We don't see this as particularly interesting at the moment, oil goes up with the stock market. How do you trade that? Probably buy oil related stocks--which we don't really follow here.
We should have probably given you better advice about what to buy last week especially given our interest in the mining stocks. We saw that PAAS traded around 16.75 right before the Fed made its announcement and traded up to 18.60 early Monday morning for a very nice 10% plus trade. Oh well, maybe next time, in the mean time...
Be careful out there.
Dow Industrials: 11,151.82 -76.20
RYVNX: 22.12
RYAIX: 24.23
TLT: 83.24
BEGBX: 13.34
Before the market opened there was more softness in the futures that had been down overnight. The media brought the North Korean missile tests out for traders to get the idea that was why the market was down. We don’t think that is the case but the media does have the authoritative final say in these matters, not the market…sarcasm still works.
Our last couple of posts were advising that a rally would be coming after the Fed raised rates and we got a pretty good run in the Dow. The move was fairly fast though as the actual peak in the Dow occurred near Friday’s open at 11,235 after trading down near 10,950 last week. That’s nearly 300 points in a few days. Monday’s shortened trading day was an up one with the Dow rallying about 78 points.
Trading for the rest of this week will be related to the jobs report due out on Friday morning, our normal pick for the high of the month. This week the market is paying close attention to the “strength” in the economy for signs as to what the Fed will do. To that end, the North Korean missile test does not really tell the market very much about what the Fed will do, but there was a report out on Wednesday forecasting Friday’s total nonfarm payroll will be growth of 368K. The current estimate is for a 170K increase. The market seemed to be spooked by this fresh estimate and, with the bond market reacting as it did (down), we tend to give this report some credibility. Since the broader market was down on Wednesday, we think that the market may have discounted some of this news already. Now, we just need to wait until Friday morning to find out.
Wednesday’s broader market dug some deep holes in the “Fed inspired" rally since the middle of last week. We are still looking to Friday morning for some good signals on the market. We did note that our momentum indicators have turned over bought in the last few trading days even with the light holiday trading. These are difficult days to trade.
On Wednesday, oil rallied to over $75 and this seems to rattle a few of the media folks. We have talked about the price of oil going up along with the stock market in the past several years. We don't see this as particularly interesting at the moment, oil goes up with the stock market. How do you trade that? Probably buy oil related stocks--which we don't really follow here.
We should have probably given you better advice about what to buy last week especially given our interest in the mining stocks. We saw that PAAS traded around 16.75 right before the Fed made its announcement and traded up to 18.60 early Monday morning for a very nice 10% plus trade. Oh well, maybe next time, in the mean time...
Be careful out there.
Dow Industrials: 11,151.82 -76.20
RYVNX: 22.12
RYAIX: 24.23
TLT: 83.24
BEGBX: 13.34
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