Top Line: The stock market staged a huge relief rally on the back of some rumors and after the market closed these rumors are starting to take shape. The sharp rally is what we have been talking about the last couple days. Options are expiring on Friday (19th) and we have been oversold.
Every day that goes by we can't believe the things we read. Tonight the government (WSJ) has decided to ask Congress for the right to set up a sort of financial cesspool that would be a repository for distressed debt (similar story from NY Times). The rumor this afternoon brought a huge rally that has carried over into the after hours market.
We won't know for sure what the details are until later. What we do know is that the three stooges....wait, the three public servants, Bernanke, Paulson, and Cox (in case you don't know this name, he's the Head of the SEC) have talked to Bush and have suggested that something drastic needs to be done.
Our first reaction to this misguided plan is that it deviates from the free market system and continues this theory that we can't let Banks fail. Make no mistake about this, it is a plan to Save banks. Wachovia (WB) is a case in point. It's stock price rallied 60% on the news, up from depressed prices caused at least in part by some financial rot in their assets.
Any time there is a big government intervention, it will be to save the banks so that there continues to be confidence...confidence in the banking system and confidence in the government. The mere fact that the Fed aided AIG tells you that banks were dependent on them to provide some stability in bank assets. Yes, AIG is/was a big company with fingers in a lot of places. Here is an article we received from one of our readers describing why they didn't let AIG fail.
We need to go to bed but wanted to let you know of one other item, this one from Chris Cox, yes the same one as above, head of the SEC. He is going to be clamping down on short sellers because, don't you know, this is where the problem is...not in our opinion. Our opinion is similar to this one which is kind of a good read even if you don't agree with the author.
Let us be clear before we sign off that this rally is strictly a bear market short seller panic and will soon be erased as we go into October. Tomorrow should be an up opening, a big one based on the markets' action this evening. Last night we reported on the Asian markets getting hit pretty hard. Well, by the end of their session, they had recovered most, if not all, of the losses we had reported. And, tonight, they are sporting some hefty gains on the back of the news out of Washington this evening.
GDX 34.20
BGEIX 16.35
HUI: 313.90
FSI: 72.62 (part of the Big Bounce)
VXO: 36.06 (high of 45.81, getting close to 50)
SDS: 72.50 -5.32 (ouch with more ouch on Friday morning)
QID: 50.60 -3.68
Dow Industrials: 11,019.69 +410.03
Thursday, September 18, 2008
Wednesday, September 17, 2008
Some Fear in the Market on Wednesday
Top Line: The stock market decided to go down on Wednesday. While the market could stage a strong rally at any time, the market has more work to do on the downside before we call the end of this drop.
When the market dropped about 500 points on Monday, we didn't have a sense that there was any fear at all, even though the VXO moved up strongly. Today, we do think there was a bit of fear in the market as the benefit from the AIG "takeover" by the Fed was short lived. Part of the reason for the short life was the Fed's early morning hangover. The US Treasury said today that it was going to hold an auction of bills, the proceeds of which would go to the Fed to expand its balance sheet. We were hoping this kind of thing would not happen and it spooked the market. [Editor's note: Please see Glenn's comment on AIG in yesterday's post.]
We had a meeting at work last week in which we were talking about negative interest rates and how Japan had them for a while. Well, believe it or not, the one month Treasury bill traded above its maturity value today which in effect is a negative yield. At the same time the 90 day Treasury bill was trading near 5 basis points (0.05%). The rates on these securities dropped like this back in March, although not to zero. These are the rates we normally compare to the Fed Funds rate that the Fed "sets" at its FOMC meetings, like the one this week when they left the rates at 2%. The Treasury bill rates would indicate they could move to zero...
One shining upside sector was none other than gold mining. (Gold, the metal, was up a stunning $75 today.) The GDX was up over 11% Today and is up over 20% from its lows set last week, yes, when we said it was time to buy it. Once in a while we get something right around here. We don't think the time is right to buy it now because we think a pull back will occur to give us another opportunity down around 30. We'll let you know when it looks good.
The market news of the day was the market but there were other things going on. This article summarizes some of the big issues floating around on Wednesday. There are not a lot of news items that convey a positive situation. We have mentioned that in this stage of the bear market cycle, the news tends to match the direction of stocks, which is down. Sometimes a contrarian outlook is ok (yes, we are guilty) but in this moment in time the news is bad and the stock market is bad, too.
Take, for example, today's news on housing. The housing starts figure for August was disappointing and the report included a downward revision to the July numbers. August actual starts were 895K versus expectations of 950K with July being revised to 954K from 965K. Building permits dropped more than housing starts indicating more contraction in that industry. Building permits dropped from 937K to 854K on expectations of around 930K. These numbers can be compared with over 2 Million just a couple of years ago. [For reference, these are annual rates.]
The stock market still has some distance to go down before it's safe to get back into the pool. As we are putting our post together this evening, the Asian markets are suffering from the US market slump. Hong Kong is down over 7% with China down nearly 6%. Japan is only down about 3%.
Right now, we are patiently waiting for the market to show us the cover point for our short positions. We think the first serious indicator will be the VXO going over 50. Today, the VXO was just shy of 40. If it hits 50, we will be getting to a point that would allow us to start moving out of QID and SDS. As far as the gold mining stocks/ETF's, we think any further buying should wait until we see a nice pullback in prices. And, we are out of the TLT's, the Treasury Bonds since they hit our price target yesterday.
GDX 34.10 (up 11% plus today)
BGEIX 16.24 (up 9% today)
HUI: 314.33 (up 11% plus today)
FSI: 68.64 (lowest point since March 10th, the low of the year)
VXO: 39.22 (high of 39.40, getting closer, and heading up, to 50)
SDS: 77.82 +6.25 (it's not too bad after all)
QID: 54.63 +5.41 (over 10% move)
Dow Industrials: 10,609.66 -449.36
Yes, a little treat for you:
Exercise Class: OK, everybody, put your foot in your mouth, literally, not like we always do.
It's a rainy day, time to get in a little reading with Gramma.
When the market dropped about 500 points on Monday, we didn't have a sense that there was any fear at all, even though the VXO moved up strongly. Today, we do think there was a bit of fear in the market as the benefit from the AIG "takeover" by the Fed was short lived. Part of the reason for the short life was the Fed's early morning hangover. The US Treasury said today that it was going to hold an auction of bills, the proceeds of which would go to the Fed to expand its balance sheet. We were hoping this kind of thing would not happen and it spooked the market. [Editor's note: Please see Glenn's comment on AIG in yesterday's post.]
We had a meeting at work last week in which we were talking about negative interest rates and how Japan had them for a while. Well, believe it or not, the one month Treasury bill traded above its maturity value today which in effect is a negative yield. At the same time the 90 day Treasury bill was trading near 5 basis points (0.05%). The rates on these securities dropped like this back in March, although not to zero. These are the rates we normally compare to the Fed Funds rate that the Fed "sets" at its FOMC meetings, like the one this week when they left the rates at 2%. The Treasury bill rates would indicate they could move to zero...
One shining upside sector was none other than gold mining. (Gold, the metal, was up a stunning $75 today.) The GDX was up over 11% Today and is up over 20% from its lows set last week, yes, when we said it was time to buy it. Once in a while we get something right around here. We don't think the time is right to buy it now because we think a pull back will occur to give us another opportunity down around 30. We'll let you know when it looks good.
The market news of the day was the market but there were other things going on. This article summarizes some of the big issues floating around on Wednesday. There are not a lot of news items that convey a positive situation. We have mentioned that in this stage of the bear market cycle, the news tends to match the direction of stocks, which is down. Sometimes a contrarian outlook is ok (yes, we are guilty) but in this moment in time the news is bad and the stock market is bad, too.
Take, for example, today's news on housing. The housing starts figure for August was disappointing and the report included a downward revision to the July numbers. August actual starts were 895K versus expectations of 950K with July being revised to 954K from 965K. Building permits dropped more than housing starts indicating more contraction in that industry. Building permits dropped from 937K to 854K on expectations of around 930K. These numbers can be compared with over 2 Million just a couple of years ago. [For reference, these are annual rates.]
The stock market still has some distance to go down before it's safe to get back into the pool. As we are putting our post together this evening, the Asian markets are suffering from the US market slump. Hong Kong is down over 7% with China down nearly 6%. Japan is only down about 3%.
Right now, we are patiently waiting for the market to show us the cover point for our short positions. We think the first serious indicator will be the VXO going over 50. Today, the VXO was just shy of 40. If it hits 50, we will be getting to a point that would allow us to start moving out of QID and SDS. As far as the gold mining stocks/ETF's, we think any further buying should wait until we see a nice pullback in prices. And, we are out of the TLT's, the Treasury Bonds since they hit our price target yesterday.
GDX 34.10 (up 11% plus today)
BGEIX 16.24 (up 9% today)
HUI: 314.33 (up 11% plus today)
FSI: 68.64 (lowest point since March 10th, the low of the year)
VXO: 39.22 (high of 39.40, getting closer, and heading up, to 50)
SDS: 77.82 +6.25 (it's not too bad after all)
QID: 54.63 +5.41 (over 10% move)
Dow Industrials: 10,609.66 -449.36
Yes, a little treat for you:
Exercise Class: OK, everybody, put your foot in your mouth, literally, not like we always do.
It's a rainy day, time to get in a little reading with Gramma.
Tuesday, September 16, 2008
The Fed Owns AIG...What???
Top Line: The only issue tonight is the Fed's intervention in the AIG saga. By now you've all heard about it but we were stunned by this move.
Looking back to the Bear Stearns' buyout by JP Morgan with a little $29 Billion help from the Fed, we think the move seems calm in comparison to the events of the past two week(end)s. In a highly criticized Fed intervention in that case, JPM took a "bold" step on short notice to save the world from financial collapse.
Ten days ago, in what we consider a widely anticipated move, the US Treasury took over the GSE's Fannie Mae and Freddie Mac in order to save the world from financial collapse. We wondered at the time what alternate universe we were in that would have the government take over the GSE's. Now, we are equally bewildered.
Over the past few days, we thought maybe the powers that be had sent a strong message that they were not going to be getting involved with the little messes that financial companies found themselves in. The first time was when Paulson said a big "NO WAY" to a Treasury involvement in the Lehman troubles. The second was this afternoon when the Fed said "NO WAY" to a modest rate cut even though the market wanted one.
Oh, but tonight's news that the Fed was in the business of loaning money to AIG trumps both of those denials. The Fed used some emergency powers this evening to bring yet another lending facility to the situation. Going back to Bear Stearns, the Fed was in the process of setting up a lending facility that would allow them to loan money to financial companies like Bear Stearns but the setup date was two weeks out, way too long for Bear Stearns to make it. That meant that the Fed's hands were tied so that's why they twisted JPM's arm and loaned them $29 Billion in order to do the Bear Stearns' deal.
Since AIG is an insurance company, they aren't afforded the same privileges from the Fed as a normal financial company. This time the Fed just said, we can do this using "emergency" powers. This time the Fed just decided there were no lenders for AIG that could put up the necessary $75 billion so they decided to put up $85 billion of their own??? Not only is the number unfathomable, the loan is for 24 months. This deal seems to provide the Fed with "options" or "warrants" that give the Fed the possibility of 80% ownership of the company and some control over decisions that are made.
We know that we are not giving you anything new to chew on but this is one of the biggest financial news items of a generation in the US. It will get some recognition in the media on Wednesday but it will not live in the spotlight it deserves. We think it is a large step in the Wrong direction. AIG dwarfs LEH in terms of the magnitude of the impact its failure would have on the financial world but that doesn't make it the right thing to do.
We have been telling you for a long, long time that the Fed will be powerless to prevent the oncoming train wreck but they are doing whatever they can to slow it down. We do not believe that the problems are over with this move. We think they have tried to be on the front end of the problems to prevent "bad" things from happening...but since their huge drops in interest rates (3.25%) over the course of the last year were not enough, the Fed seems to have spent a lot of their funds to keep the economy going.
It was February of 2007 when the subprime mortgage "issue" surfaced. Back then, the news was that it was a small problem and it would easily be contained. Right...
Today's market action took out another one of our positions, the TLT's traded above 100 so we are out of them for now. The run was pretty good with about a ten percent move in three months plus dividends of about one percent over the period.
As for the short positions we are in, SDS and QID, we were thinking about selling them this morning at the same time as the TLT's but decided that the lows are still in the future so kept them. That decision was punished as the day wore on but, if we have to, we will re-evaluate the situation over the next week or two. Our expectation is that the market will hold up for another few days since this is options expiration week and the market put in a strong low this morning and rallied out of it with the "positive" AIG news.
GDX 30.55
BGEIX 14.90
HUI: 281.36
FSI: 74.02
VXO: 33.03 (high of 37.69, getting closer, and heading up, to 50)
SDS: 71.57 -2.44 (it's too bad)
QID: 49.22 -0.89 (and more after hours)
Dow Industrials: 11,059.02 +141.51
But, why you are really here is for Jackson pic's :-)
Just playing at Grampa's house...
Every once in a while a guy just needs to clean up...
Looking back to the Bear Stearns' buyout by JP Morgan with a little $29 Billion help from the Fed, we think the move seems calm in comparison to the events of the past two week(end)s. In a highly criticized Fed intervention in that case, JPM took a "bold" step on short notice to save the world from financial collapse.
Ten days ago, in what we consider a widely anticipated move, the US Treasury took over the GSE's Fannie Mae and Freddie Mac in order to save the world from financial collapse. We wondered at the time what alternate universe we were in that would have the government take over the GSE's. Now, we are equally bewildered.
Over the past few days, we thought maybe the powers that be had sent a strong message that they were not going to be getting involved with the little messes that financial companies found themselves in. The first time was when Paulson said a big "NO WAY" to a Treasury involvement in the Lehman troubles. The second was this afternoon when the Fed said "NO WAY" to a modest rate cut even though the market wanted one.
Oh, but tonight's news that the Fed was in the business of loaning money to AIG trumps both of those denials. The Fed used some emergency powers this evening to bring yet another lending facility to the situation. Going back to Bear Stearns, the Fed was in the process of setting up a lending facility that would allow them to loan money to financial companies like Bear Stearns but the setup date was two weeks out, way too long for Bear Stearns to make it. That meant that the Fed's hands were tied so that's why they twisted JPM's arm and loaned them $29 Billion in order to do the Bear Stearns' deal.
Since AIG is an insurance company, they aren't afforded the same privileges from the Fed as a normal financial company. This time the Fed just said, we can do this using "emergency" powers. This time the Fed just decided there were no lenders for AIG that could put up the necessary $75 billion so they decided to put up $85 billion of their own??? Not only is the number unfathomable, the loan is for 24 months. This deal seems to provide the Fed with "options" or "warrants" that give the Fed the possibility of 80% ownership of the company and some control over decisions that are made.
We know that we are not giving you anything new to chew on but this is one of the biggest financial news items of a generation in the US. It will get some recognition in the media on Wednesday but it will not live in the spotlight it deserves. We think it is a large step in the Wrong direction. AIG dwarfs LEH in terms of the magnitude of the impact its failure would have on the financial world but that doesn't make it the right thing to do.
We have been telling you for a long, long time that the Fed will be powerless to prevent the oncoming train wreck but they are doing whatever they can to slow it down. We do not believe that the problems are over with this move. We think they have tried to be on the front end of the problems to prevent "bad" things from happening...but since their huge drops in interest rates (3.25%) over the course of the last year were not enough, the Fed seems to have spent a lot of their funds to keep the economy going.
It was February of 2007 when the subprime mortgage "issue" surfaced. Back then, the news was that it was a small problem and it would easily be contained. Right...
Today's market action took out another one of our positions, the TLT's traded above 100 so we are out of them for now. The run was pretty good with about a ten percent move in three months plus dividends of about one percent over the period.
As for the short positions we are in, SDS and QID, we were thinking about selling them this morning at the same time as the TLT's but decided that the lows are still in the future so kept them. That decision was punished as the day wore on but, if we have to, we will re-evaluate the situation over the next week or two. Our expectation is that the market will hold up for another few days since this is options expiration week and the market put in a strong low this morning and rallied out of it with the "positive" AIG news.
GDX 30.55
BGEIX 14.90
HUI: 281.36
FSI: 74.02
VXO: 33.03 (high of 37.69, getting closer, and heading up, to 50)
SDS: 71.57 -2.44 (it's too bad)
QID: 49.22 -0.89 (and more after hours)
Dow Industrials: 11,059.02 +141.51
But, why you are really here is for Jackson pic's :-)
Just playing at Grampa's house...
Every once in a while a guy just needs to clean up...
Monday, September 15, 2008
Downside Pressure
Top Line: The Dow dropped over 500 points on Monday which sounds like a lot of downside. We didn't see much fear exhibited during the day. There were several bombs that went off but it seemed like the main driver was that this was a good buying opportunity...so the bottom is still a ways off.
The fallout from the weekend's big meetings was a rough start to the week's trading. The Dow opened down about 300 points. One of the things we tried to get into last night's vanishing post was a discussion not of how much the initial drop but of the Next move. We have seen buyers step in on most of these "little" morning drops but this is a Bear market and things are different in a Bear market.
Today's reaction to the initial drop was the predictable buying but it really didn't get very far. Ok, maybe it was a 150 point up move but in the grand scheme of the day, it wasn't very far. And, that move turned out to be the high of the day. From there, Persistent selling took the market down and down until about a half hour when a rally moved the market out of the 400 loss to a loss of only 300 going into the last 15 minutes. From there, a vicious selloff occurred taking the Dow down 200 points to close down the 500 you have already heard about.
The market didn't seem to exhibit much fear and the 100 point rally late in the day sort of proves that theory. We see some recognition of the financial problems in the market coming in but capitulation has not arrived. The VXO did spike to 34 this morning so it's moving toward our target of 50.
There is a little Fed meeting on Tuesday to put a big question mark in the near term stock market plans. The Asian markets are down quite a bit this evening and that seems to be dragging down the overnight US futures but we all know how fickle those thinly traded futures can be. Plus, with the events of the weekend, the Fed Funds futures actually show a chance that the Fed could lower rates tomorrow by 25bps. We have been of the opinion that no rate cut will happen tomorrow but we could be wrong. If we had to predict the move by the Fed, we would have to say no change tomorrow but look for future cuts in the meetings to come.
The market is still due for a drop with the Dow dropping below 10K and our guess would be near 9K over the next few weeks. Like we have said, we are on red alert looking for a place to switch out of our short positions (QID and SDS) and into something a little more...bullish.
As far as Treasury bonds are concerned, they had a giant upside move today. The TLT's moved above the 98 level and are getting to a point where there may be little upside left in them. At any rate we are getting ready to sell our positions here in the 98 to 100 range. If the stock market can open lower, bonds could open up and prices near 99 seem pretty good given our entry point around 91 or lower.
And, oil has dropped well below 100 so our target has been met there. Gas futures fell hard today after Ike has moved on but we see that pump prices have popped a bit over the weekend. This move up is not justified by the market but we understand how prices get pushed on the whiff of fear generated by a large hurricane. Scarcity in some areas has been reported to sort of justify the high prices.
GDX Friday 31.25 Monday 30.33
BGEIX Friday 15.15 Monday 14.49
HUI: Friday 290.45 Monday 276.91
FSI: Friday 74.83 Monday 72.81
VXO: Friday 29.33 Monday 33.61 (heading up to 50)
SDS: Friday 67.41 Monday 74.01
QID: Friday 47.09 Monday 50.11
Dow Industrials: Friday 11,421.99 Monday 10,917.51 -504.48
Yes, we do have more pic's of Jackson from this weekend which we will try to post in the next few days. Too late to do that this evening.
The fallout from the weekend's big meetings was a rough start to the week's trading. The Dow opened down about 300 points. One of the things we tried to get into last night's vanishing post was a discussion not of how much the initial drop but of the Next move. We have seen buyers step in on most of these "little" morning drops but this is a Bear market and things are different in a Bear market.
Today's reaction to the initial drop was the predictable buying but it really didn't get very far. Ok, maybe it was a 150 point up move but in the grand scheme of the day, it wasn't very far. And, that move turned out to be the high of the day. From there, Persistent selling took the market down and down until about a half hour when a rally moved the market out of the 400 loss to a loss of only 300 going into the last 15 minutes. From there, a vicious selloff occurred taking the Dow down 200 points to close down the 500 you have already heard about.
The market didn't seem to exhibit much fear and the 100 point rally late in the day sort of proves that theory. We see some recognition of the financial problems in the market coming in but capitulation has not arrived. The VXO did spike to 34 this morning so it's moving toward our target of 50.
There is a little Fed meeting on Tuesday to put a big question mark in the near term stock market plans. The Asian markets are down quite a bit this evening and that seems to be dragging down the overnight US futures but we all know how fickle those thinly traded futures can be. Plus, with the events of the weekend, the Fed Funds futures actually show a chance that the Fed could lower rates tomorrow by 25bps. We have been of the opinion that no rate cut will happen tomorrow but we could be wrong. If we had to predict the move by the Fed, we would have to say no change tomorrow but look for future cuts in the meetings to come.
The market is still due for a drop with the Dow dropping below 10K and our guess would be near 9K over the next few weeks. Like we have said, we are on red alert looking for a place to switch out of our short positions (QID and SDS) and into something a little more...bullish.
As far as Treasury bonds are concerned, they had a giant upside move today. The TLT's moved above the 98 level and are getting to a point where there may be little upside left in them. At any rate we are getting ready to sell our positions here in the 98 to 100 range. If the stock market can open lower, bonds could open up and prices near 99 seem pretty good given our entry point around 91 or lower.
And, oil has dropped well below 100 so our target has been met there. Gas futures fell hard today after Ike has moved on but we see that pump prices have popped a bit over the weekend. This move up is not justified by the market but we understand how prices get pushed on the whiff of fear generated by a large hurricane. Scarcity in some areas has been reported to sort of justify the high prices.
GDX Friday 31.25 Monday 30.33
BGEIX Friday 15.15 Monday 14.49
HUI: Friday 290.45 Monday 276.91
FSI: Friday 74.83 Monday 72.81
VXO: Friday 29.33 Monday 33.61 (heading up to 50)
SDS: Friday 67.41 Monday 74.01
QID: Friday 47.09 Monday 50.11
Dow Industrials: Friday 11,421.99 Monday 10,917.51 -504.48
Yes, we do have more pic's of Jackson from this weekend which we will try to post in the next few days. Too late to do that this evening.
Sunday, September 14, 2008
Another Bad Night
Top Line: The stock market took a hit tonight as the financial meetings over the weekend were less than productive. The failure of Lehman seems to be at hand. The failure of us to keep a post seems sort of permanent. Please see the papers for full information of the events of the weekend. The US futures are down hard this evening following that news. With the market in the perfect position to fall hard, this seems right in line with our way of thinking. We need to remain at red alert for a good time to take some profits in our short positions and our main indicator to do this will be the VXO approaching and/or exceeding 50. It closed just under 30 on Friday so there is some distance to go but a big down opening on Monday morning will push that number up closer to 50. A last minute emergency rescue of Lehman may be worked out overnight because the government knows that a financial system crisis can induce massive fear in the markets. They don't want that but with all of the bombs going off the last few days, covering them all is a bit difficult. Merrill Lynch says it wants to be purchased by the Bank of America and AIG is trying to restructure. Lehman seems to be very close to liquidation. All of these things are going to be too much for one weekend's worth of work.
Be alert this week and protect yourself.
Be alert this week and protect yourself.
Thursday, September 11, 2008
Impressive Late Day Rally
Top Line: The stock market has every reason to go down but the fantasy of a rally is alive in the hearts and minds of the bulls. Today's two reasons to keep the fantasy going are related to the Fed and Lehman. Any near term rally should not have much staying power and again, it will be completely reversed.
The stock market opened on its lows of the day and pretty much ran up the rest of the day. With about a half hour to go a news item, or should we say a rumor, hit the Street that suggested that Bank of America was going to buy out the troubled Lehman Brothers. When that story broke the Dow was slightly down on the day but that quickly changed as the buyers bid stocks up in the final half hour of trading. It was a stunning rally that added nearly 200 points.
This past week, enough bad economic news to indicate that inflation may be somewhat less of a problem than was thought just last month. By now you already know what the combination of these two things means, the market expects a Rate Cut...Now. Well, next week the Fed will meet and decide what to do with rates. Just for the record, we don't think that the Fed will lower rates next week. We do think and have thought for a while that the next rate move would be down so it's nice that the world has once again come over to the Update's way of thinking.
In spite of the "bid" for Lehman, it did not respond in the late day rally. Lehman and Merrill Lynch were punched for harsh losses on the day and were in the top five volume leaders. Lehman was down another 40% on the day while MER was only down about 15%. Another stock in the top five was AIG which opened down in the morning and traded under 14, unbelievable.
We apologize for another post without answering the important questions we have been asked over the past week. The important thing is that the answers to those questions are still going to be relevant next week.
We've started to keep data on way too many items but we think they represent the most important of what we are tracking right now so we'll stay with them. Have a good weekend.
GDX 28.20
BGEIX 13.75
HUI: 262.97 -5.76
FSI: 75.28 (relief rally)
VXO: 27.11 -0.28 (heading up to 50)
SDS: 68.03 -2.01
QID: 46.92 -2.14
Dow Industrials: 11,433.71 +164.79
The stock market opened on its lows of the day and pretty much ran up the rest of the day. With about a half hour to go a news item, or should we say a rumor, hit the Street that suggested that Bank of America was going to buy out the troubled Lehman Brothers. When that story broke the Dow was slightly down on the day but that quickly changed as the buyers bid stocks up in the final half hour of trading. It was a stunning rally that added nearly 200 points.
This past week, enough bad economic news to indicate that inflation may be somewhat less of a problem than was thought just last month. By now you already know what the combination of these two things means, the market expects a Rate Cut...Now. Well, next week the Fed will meet and decide what to do with rates. Just for the record, we don't think that the Fed will lower rates next week. We do think and have thought for a while that the next rate move would be down so it's nice that the world has once again come over to the Update's way of thinking.
In spite of the "bid" for Lehman, it did not respond in the late day rally. Lehman and Merrill Lynch were punched for harsh losses on the day and were in the top five volume leaders. Lehman was down another 40% on the day while MER was only down about 15%. Another stock in the top five was AIG which opened down in the morning and traded under 14, unbelievable.
We apologize for another post without answering the important questions we have been asked over the past week. The important thing is that the answers to those questions are still going to be relevant next week.
We've started to keep data on way too many items but we think they represent the most important of what we are tracking right now so we'll stay with them. Have a good weekend.
GDX 28.20
BGEIX 13.75
HUI: 262.97 -5.76
FSI: 75.28 (relief rally)
VXO: 27.11 -0.28 (heading up to 50)
SDS: 68.03 -2.01
QID: 46.92 -2.14
Dow Industrials: 11,433.71 +164.79
Wednesday, September 10, 2008
Just the Facts Tonight
Top Line: The Lehman earnings news was not pretty but the market seemed prepared for worse as the market opened fairly strong. As the day wore on, the Dow managed a gain of about 125 points before ending up only 38. With the Fed meeting coming up next week, the market may now be a little distorted for the next week or so. Still, we are Significantly bearish.
Tonight's post is mostly just stats and very little to no analysis. We'll be back tomorrow.
The US futures are down along with the Asian markets tonight. The stock market is on the edge and is just about ready to fall off...that is the primary focus right now.
As it is Wednesday evening and since we just made another recommendation in our last post, we thought it appropriate to take a look at our current position.
Our Position (from our August 7th post, August 19th post, and the August 26th post):
Bearish on US stocks, Dow target of 9000 (timing is close)
Bearish on Gold, target of $600. (possibly a little aggressive)
Bearish on Oil, target of $100. (possibly a little timid as oil traded at $101 today)
Still Bearish on US Residential Real Estate, no real target
Bullish on US Treasury bonds, ETF TLT target of 100 (may be the maximum, sell into strength)
Bullish on US Dollar, target 90 (now at 80 and ready for a short term pullback)
Bullish on Volatility, VXO to 50
So, not much change here but we want to add some others:
As we mentioned in our last post, Gold mining stocks are ready for purchase and we thought they may give us some slightly better prices today which they did. GDX traded down to 27.43 after closing at 28.10 on Tuesday. This opportunity may be available over the next few weeks but for today, it probably was the best long term buy along with several other gold mining stocks including the ones we mentioned in yesterday's post.
Bullish on GDX, target, well, let's start with 50 (September 10th)
Bullish on BGEIX, target about 25 (September 10th, 14.07)
HUI: 268.73 +8.48
FSI: 72.55 (lowest close since March 19th...actually March 20th)
VXO: 27.39 -0.49 (heading up to 50)
SDS: 70.04 -0.80
QID: 49.06 -0.46
Dow Industrials: 11,268.92 +38.19
Tonight's post is mostly just stats and very little to no analysis. We'll be back tomorrow.
The US futures are down along with the Asian markets tonight. The stock market is on the edge and is just about ready to fall off...that is the primary focus right now.
As it is Wednesday evening and since we just made another recommendation in our last post, we thought it appropriate to take a look at our current position.
Our Position (from our August 7th post, August 19th post, and the August 26th post):
Bearish on US stocks, Dow target of 9000 (timing is close)
Bearish on Gold, target of $600. (possibly a little aggressive)
Bearish on Oil, target of $100. (possibly a little timid as oil traded at $101 today)
Still Bearish on US Residential Real Estate, no real target
Bullish on US Treasury bonds, ETF TLT target of 100 (may be the maximum, sell into strength)
Bullish on US Dollar, target 90 (now at 80 and ready for a short term pullback)
Bullish on Volatility, VXO to 50
So, not much change here but we want to add some others:
As we mentioned in our last post, Gold mining stocks are ready for purchase and we thought they may give us some slightly better prices today which they did. GDX traded down to 27.43 after closing at 28.10 on Tuesday. This opportunity may be available over the next few weeks but for today, it probably was the best long term buy along with several other gold mining stocks including the ones we mentioned in yesterday's post.
Bullish on GDX, target, well, let's start with 50 (September 10th)
Bullish on BGEIX, target about 25 (September 10th, 14.07)
HUI: 268.73 +8.48
FSI: 72.55 (lowest close since March 19th...actually March 20th)
VXO: 27.39 -0.49 (heading up to 50)
SDS: 70.04 -0.80
QID: 49.06 -0.46
Dow Industrials: 11,268.92 +38.19
Tuesday, September 09, 2008
Time for Gold Mining Stocks
Top Line: Stocks were down hard and have more to go.
The stock market attempted to rally at the opening bell this morning but that effort failed and stocks tumbled most of the rest of the day and closed on their lows of the session. Tuesday's session presented some good opportunities, as well.
There are several topics to discuss this evening and we hope that there is time to get at least some highlights. Let's start with the gold mining stocks since they had the largest move that we could see. We suggest that you open up another window on your browser (you can use our link to Bigcharts on the left)and take a look at some of your favorite gold mining stocks. In case you don't have any favorites, we will mention a few here along with some gold funds and you will be able to see what we're talking about by looking at these dramatic charts.
We like to follow the HUI index and will use that as our basis for the discussion. If you choose a time frame of six months you will include the high for the year, symbol is HUI. The high in March was about 520 and today's close was right at 260 for a 50% drop in about six months. Looking back over the period from mid-July, you can see that the high was around 480 so in about two months the index has dropped 220 points with over 25 points just today. Looking back over just the September trading, six trading days, the index has gone from 345 to 260 in dramatic fashion.
We have mentioned that gold mining stocks usually lead the metals and this should be true now as well. Gold has not come down quite like the mining stocks have. You can see the gold chart (with one less decimal place--in case you're wondering, it allows a lower trading price) using the symbol GLD. In that chart you can see the March high over 1000 (100 on the chart). The price of gold has tumbled it's true but not like the mining stocks. We think gold will continue lower based on the mining stocks' lead.
Our favorite vehicles in this area are BGEIX (a mutual fund), GDX (an ETF), PAAS (a silver mining company), and NEM and ABX (gold mining companies). All of these have now come down to a place where the prices are compelling for purchase. It is possible that the lows of today will be exceeded in the short run but then they would be even more compelling. It is also possible that these prices represent the spike low that will be considered The low in this move.
The other thing about the move this group has exhibited over the past six trading days is that it could be a preview of what we will see in the stock market at some point (very soon). The GDX has dropped from 37.64 on the last day of August to today's 28.10 for a 25% drop in six trading days. SIX DAYS. It's time to buy the gold mining complex.
Some stocks drop quite fast all by themselves and today AIG and LEH were among them. AIG dropped nearly 20% to a new low for the move and LEH dropped 45%, yes today, on news that its talks with a Korean company had ended. LEH is scheduled to announce earnings on Wednesday morning. In general, financial institutions reversed any upside they had on Monday. Of course, as we write, the US stock futures are up this evening...
Just a quick comment about oil and gas, both were down today and made new lows for the move. Oil was down about $3 a barrel and gas was down about 10 cents a gallon...on the exchange, not the pump. Here in beautiful MN, gas is $3.47 this week and with today's 10 cent drop in the market we would expect pump prices to drop about 10 cents within a day or two...oh, yeah, right...of course we won't get that, it will be more like two weeks. Ok, we were a little aggressive on our date for $3 gas a Labor Day but we still think a $2 handle on the the gas price is coming...
We have other items to write about but there is no time this evening. We wanted to make sure to mention the gold mining opportunity, that was our main focus this evening. These things don't last very long.
CM sent us a link to an article that happened to be posted that described the weak rally on Monday. While it is a little late getting it to you, the points made in the article by the highly regarded Mark Hulbert coincide closely with the Update's.
We received a few questions over the past few days in regard to the recent drop in the stock market as well as some residential real estate questions and some further questions about the Fannie and Freddie Take Over, so we will try to discuss those in tomorrow's post. Any comments on these three or other topics would be welcome. Just click on the comment link below...as always, you can remain anonymous or tell us who you are, it makes no difference.
HUI: 260.25 -26.29 (lowest close since December, 2005 when gold was about $500)
FSI: 72.70 (lowest close since March 19th, last night's number was really 73.97)
VXO: 27.80 +3.08 (heading up to 50)
SDS: 70.85 +4.19 (SP500 was down big on Tuesday)
QID: 49.52 +1.65
Dow Industrials: 11,230.73 -280.01 (two day net gain of 9 points)
The stock market attempted to rally at the opening bell this morning but that effort failed and stocks tumbled most of the rest of the day and closed on their lows of the session. Tuesday's session presented some good opportunities, as well.
There are several topics to discuss this evening and we hope that there is time to get at least some highlights. Let's start with the gold mining stocks since they had the largest move that we could see. We suggest that you open up another window on your browser (you can use our link to Bigcharts on the left)and take a look at some of your favorite gold mining stocks. In case you don't have any favorites, we will mention a few here along with some gold funds and you will be able to see what we're talking about by looking at these dramatic charts.
We like to follow the HUI index and will use that as our basis for the discussion. If you choose a time frame of six months you will include the high for the year, symbol is HUI. The high in March was about 520 and today's close was right at 260 for a 50% drop in about six months. Looking back over the period from mid-July, you can see that the high was around 480 so in about two months the index has dropped 220 points with over 25 points just today. Looking back over just the September trading, six trading days, the index has gone from 345 to 260 in dramatic fashion.
We have mentioned that gold mining stocks usually lead the metals and this should be true now as well. Gold has not come down quite like the mining stocks have. You can see the gold chart (with one less decimal place--in case you're wondering, it allows a lower trading price) using the symbol GLD. In that chart you can see the March high over 1000 (100 on the chart). The price of gold has tumbled it's true but not like the mining stocks. We think gold will continue lower based on the mining stocks' lead.
Our favorite vehicles in this area are BGEIX (a mutual fund), GDX (an ETF), PAAS (a silver mining company), and NEM and ABX (gold mining companies). All of these have now come down to a place where the prices are compelling for purchase. It is possible that the lows of today will be exceeded in the short run but then they would be even more compelling. It is also possible that these prices represent the spike low that will be considered The low in this move.
The other thing about the move this group has exhibited over the past six trading days is that it could be a preview of what we will see in the stock market at some point (very soon). The GDX has dropped from 37.64 on the last day of August to today's 28.10 for a 25% drop in six trading days. SIX DAYS. It's time to buy the gold mining complex.
Some stocks drop quite fast all by themselves and today AIG and LEH were among them. AIG dropped nearly 20% to a new low for the move and LEH dropped 45%, yes today, on news that its talks with a Korean company had ended. LEH is scheduled to announce earnings on Wednesday morning. In general, financial institutions reversed any upside they had on Monday. Of course, as we write, the US stock futures are up this evening...
Just a quick comment about oil and gas, both were down today and made new lows for the move. Oil was down about $3 a barrel and gas was down about 10 cents a gallon...on the exchange, not the pump. Here in beautiful MN, gas is $3.47 this week and with today's 10 cent drop in the market we would expect pump prices to drop about 10 cents within a day or two...oh, yeah, right...of course we won't get that, it will be more like two weeks. Ok, we were a little aggressive on our date for $3 gas a Labor Day but we still think a $2 handle on the the gas price is coming...
We have other items to write about but there is no time this evening. We wanted to make sure to mention the gold mining opportunity, that was our main focus this evening. These things don't last very long.
CM sent us a link to an article that happened to be posted that described the weak rally on Monday. While it is a little late getting it to you, the points made in the article by the highly regarded Mark Hulbert coincide closely with the Update's.
We received a few questions over the past few days in regard to the recent drop in the stock market as well as some residential real estate questions and some further questions about the Fannie and Freddie Take Over, so we will try to discuss those in tomorrow's post. Any comments on these three or other topics would be welcome. Just click on the comment link below...as always, you can remain anonymous or tell us who you are, it makes no difference.
HUI: 260.25 -26.29 (lowest close since December, 2005 when gold was about $500)
FSI: 72.70 (lowest close since March 19th, last night's number was really 73.97)
VXO: 27.80 +3.08 (heading up to 50)
SDS: 70.85 +4.19 (SP500 was down big on Tuesday)
QID: 49.52 +1.65
Dow Industrials: 11,230.73 -280.01 (two day net gain of 9 points)
Monday, September 08, 2008
Take Over Monday, US Treasury Style
Top Line: No real surprises in today's market. The Fannie/Freddie take over by the government in the form of the US Treasury dominated the trading on Monday. The opening bell ushered in the High of the day and that point now will be a ceiling for prices, in other words overhead resistance.
Here is a quote from the WSJ:
"The Treasury plan limits the size of each company's mortgage portfolios to a maximum of $850 billion as of the end of 2009. (Fannie currently owns about $758 billion of mortgages and related securities, while Freddie's total is about $798 billion.) After that, the Treasury intends for the mortgage holdings to shrink about 10% a year until they reach about $250 billion at each company."
Read the last sentence again...shrink about 10% a year until they reach about $250 billion...
What that tells us is that the government does Not intend to "grow" the business but shrink it over time. They don't say how fast they would shrink but you can't shrink unless you don't expand... Effectively, this Take Over will take these two "companies" off the grid of future home sales, reducing their involvement in new mortgages to a bare minimum.
The mortgage business has relied on the GSE's to provide lower interest rate mortgages due to their quasi-government backing. The chatter today was how mortgage rates can now go down because the government is back in the game backing mortgages. We don't see it that way.
The market takes it to mean, and they should in our humble opinion, that the mortgages already on the books are now going to have better government backing. As with all of the actions taken by the Officials in power, this one is designed to protect the banks (and maybe to encourage foreign central banks to hold onto their mortgage backed securities rather than dump them on the market).
We can not emphasize this point enough so the market reinforces it for you. In the stock market, the biggest losers were the two GSE's, FNM and FRE. The other top two losers were Washington Mutual (WaMu as we call them) and Lehman Brothers, the two weak sisters in the mortgage game.
To round out the top ten volume leaders, we find Citigroup, Bank of America, Wachovia Bank, Wells Fargo, and JP Morgan, to mention the banks. All of these banks were up big on Monday, not surprisingly because of the perception in the market that the government has taken care of them...yes, Again.
And, while the banks were cruisin', the techs were bruisin' as GOOG was down 5% on the day helping to drag the NASDAQ 100 to a Loss on the day, see the QID below (it was up because the NASDAQ 1oo was down). A strange day indeed...
We may have further comments as the "weak" progresses but we do not believe this is a bullish event, both the jump in prices off the bell this morning, or the Government Take Over of the GSE's. The government may have needed to step in to this pile of dung but they can not stop prices of homes from continuing their journey Southward.
FSI: 76.77 (lowest close since March 20th, GOOG is five points from its March low)
VXO: 24.72 -0.72 (heading up to 50)
SDS: 66.66 -3.00
QID: 47.87 +0.57
Dow Industrials: 11,510.74 +289.78
Here are a couple of Jackson pics:
Relaxing at home and smiling at, well, Gramma.
It was Grandparents' day at Jackson's school,
so Grampa got to spend a few minutes with Jackson and his friends.
Yes, Gramma was there, too, and one of Jackson's friends took our picture :-)
.
Here is a quote from the WSJ:
"The Treasury plan limits the size of each company's mortgage portfolios to a maximum of $850 billion as of the end of 2009. (Fannie currently owns about $758 billion of mortgages and related securities, while Freddie's total is about $798 billion.) After that, the Treasury intends for the mortgage holdings to shrink about 10% a year until they reach about $250 billion at each company."
Read the last sentence again...shrink about 10% a year until they reach about $250 billion...
What that tells us is that the government does Not intend to "grow" the business but shrink it over time. They don't say how fast they would shrink but you can't shrink unless you don't expand... Effectively, this Take Over will take these two "companies" off the grid of future home sales, reducing their involvement in new mortgages to a bare minimum.
The mortgage business has relied on the GSE's to provide lower interest rate mortgages due to their quasi-government backing. The chatter today was how mortgage rates can now go down because the government is back in the game backing mortgages. We don't see it that way.
The market takes it to mean, and they should in our humble opinion, that the mortgages already on the books are now going to have better government backing. As with all of the actions taken by the Officials in power, this one is designed to protect the banks (and maybe to encourage foreign central banks to hold onto their mortgage backed securities rather than dump them on the market).
We can not emphasize this point enough so the market reinforces it for you. In the stock market, the biggest losers were the two GSE's, FNM and FRE. The other top two losers were Washington Mutual (WaMu as we call them) and Lehman Brothers, the two weak sisters in the mortgage game.
To round out the top ten volume leaders, we find Citigroup, Bank of America, Wachovia Bank, Wells Fargo, and JP Morgan, to mention the banks. All of these banks were up big on Monday, not surprisingly because of the perception in the market that the government has taken care of them...yes, Again.
And, while the banks were cruisin', the techs were bruisin' as GOOG was down 5% on the day helping to drag the NASDAQ 100 to a Loss on the day, see the QID below (it was up because the NASDAQ 1oo was down). A strange day indeed...
We may have further comments as the "weak" progresses but we do not believe this is a bullish event, both the jump in prices off the bell this morning, or the Government Take Over of the GSE's. The government may have needed to step in to this pile of dung but they can not stop prices of homes from continuing their journey Southward.
FSI: 76.77 (lowest close since March 20th, GOOG is five points from its March low)
VXO: 24.72 -0.72 (heading up to 50)
SDS: 66.66 -3.00
QID: 47.87 +0.57
Dow Industrials: 11,510.74 +289.78
Here are a couple of Jackson pics:
Relaxing at home and smiling at, well, Gramma.
It was Grandparents' day at Jackson's school,
so Grampa got to spend a few minutes with Jackson and his friends.
Yes, Gramma was there, too, and one of Jackson's friends took our picture :-)
.
Sunday, September 07, 2008
Fannie and Freddie See US Treasury's Money
Top Line: Over the weekend, the US Treasury decided to take over the big mortgage GSE's, Fannie Mae and Freddie Mac. This move gives the bulls some extreme ammunition over the next few trading hours. We think this is only a temporary rally that will be fully retraced with further lows coming on its heals.
With Monday's opening expected to be a complete moon shot, we can only wait until this thing is over. As we have mentioned in the past, these types of rallies normally only happen in bear markets so we don't think this indicates underlying strength.
The government has been working hard for over a year, trying to provide some "confidence" to the markets. Meanwhile, the Fed has done whatever it can to provide liquidity to the markets (ok, to the banks). These things have been done when there really wasn't any fear in the market place. The powers that be have tried to anticipate how to deal with the financial problems that seemed to be coming. So far, the public has never really felt any fear...especially as measured by the volatility measures we have been following. (see the VXO below and for prior days)
This weekend it was the US Treasury's turn to Save the People with its take over of the GSE's. This plan proposes, Again, that if the government doesn't do Something, the world will never be the same. They can't let these poor GSE's go under because Maybe something bad might happen. We couldn't let that happen, could we!?!
This is supposed to be a Free market system but it seems that every time the government gets a little whiff of possible problems, they have to Do something. Well, the time is coming when what they Should be doing something and they will have run out of bullets to do it.
We know that the market wants to go down and we think it will. These "major" interventions do little to stop it.
FSI: 76.77 (lowest close since April 17th the day before GOOG jumped 90 points)
VXO: 25.43 -1.30 (heading up to 50, spiked a little today)
SDS: 69.66 -0.30
QID: 47.30 +0.31
Dow Industrials: 11,220.96 +32.73
With Monday's opening expected to be a complete moon shot, we can only wait until this thing is over. As we have mentioned in the past, these types of rallies normally only happen in bear markets so we don't think this indicates underlying strength.
The government has been working hard for over a year, trying to provide some "confidence" to the markets. Meanwhile, the Fed has done whatever it can to provide liquidity to the markets (ok, to the banks). These things have been done when there really wasn't any fear in the market place. The powers that be have tried to anticipate how to deal with the financial problems that seemed to be coming. So far, the public has never really felt any fear...especially as measured by the volatility measures we have been following. (see the VXO below and for prior days)
This weekend it was the US Treasury's turn to Save the People with its take over of the GSE's. This plan proposes, Again, that if the government doesn't do Something, the world will never be the same. They can't let these poor GSE's go under because Maybe something bad might happen. We couldn't let that happen, could we!?!
This is supposed to be a Free market system but it seems that every time the government gets a little whiff of possible problems, they have to Do something. Well, the time is coming when what they Should be doing something and they will have run out of bullets to do it.
We know that the market wants to go down and we think it will. These "major" interventions do little to stop it.
FSI: 76.77 (lowest close since April 17th the day before GOOG jumped 90 points)
VXO: 25.43 -1.30 (heading up to 50, spiked a little today)
SDS: 69.66 -0.30
QID: 47.30 +0.31
Dow Industrials: 11,220.96 +32.73
Thursday, September 04, 2008
Stocks In High Gear and Heading South
Top Line: With the market down on Thursday, we may finally be seeing the relentless down move (persistent selling) that we have been waiting for these last few weeks. Since Tuesday morning's blast off, the Dow has dropped 600 points with little intervening upside. Over the next few weeks we'll see how strong the bear is.
As the market was opening this morning, there was a gloom hanging over the street after weekly jobless claims came in higher than expected. Now, the number was up 15K from last week to 444K when expectations were to drop to 420K. Is that the reason for the 100 point drop in the Dow at the bell?
What we think is that these numbers have little to do with it, at all. The Bear is back and fear is taking hold. Please understand that the news in this period pretty much matches up with the way the market is trading...look for more "bad" news in the next few weeks.
Now that we finally have seen some downside, what's next? Well, we have our sights set on the July lows first and the NDX, NASDAQ 100, has a jump on the rest of the indexes we follow. This index being the first to make a closing low that is lower than the July closing lows gives us confidence that other indexes will follow suit.
The NASDAQ 100 is a good leader to the downside. Over the past few weeks, the Dow has held up better than most other indexes. Now, it is following the broader market lower.
We like to call the Dow the Headliner Index since that's the number that people hear on the news, as in the headline news. So, as the broader market is letting us know that the up move is over, the public is seeing the Dow Hold its own, no worries.
Right now, the public has now been brought into the "recognition" mode when they believe that stocks are going down and convinces them to sell. The market is now getting severely dangerous because the public is getting ready to sell.
The problem is always, when will the public decide to sell? The important thing is to be In Front of them. Either that, or just be prepared to buy when they are about done with their panic selling. We are a little ahead of ourselves (we think) but the time is going to be upon us suddenly and we need to be prepared.
The lows of the year are in jeopardy as we go into the next few weeks of trading. We will get some of the best prices of the last few years.
As the market opens on Friday morning, there will be an important news item, the jobs' report, to deal with. We don't think anything can change the selling that's building but the number could be a "reason" for the media to tell us why. We'll have to wait until after the numbers come out and the market's reaction to them before the media contorts the news to match the market.
Today, oil was down during the collapse of stock prices so what did the media do? Why, of course, they let us know that dropping oil prices are not good for stocks. So, now we're waiting for them to agree with the Update that they really don't have much to do with each other.
Let's get back to our comments about gold mining stocks last night. Today, the GDX fell hard and gave us an even better chance to buy but of course we are pretty loaded up on the short side and have little cash to be buying gold mining stocks. Again, we are hoping to get another chance in the next few weeks.
FSI: 77.40 (lowest close since April 17th the day before GOOG jumped 90 points)
VXO: 26.73 +3.58 (heading up to 50, spiked a little today)
SDS: 69.96 +3.85
QID: 46.99 +2.69
Dow Industrials: 11,188.23 -344.65
As the market was opening this morning, there was a gloom hanging over the street after weekly jobless claims came in higher than expected. Now, the number was up 15K from last week to 444K when expectations were to drop to 420K. Is that the reason for the 100 point drop in the Dow at the bell?
What we think is that these numbers have little to do with it, at all. The Bear is back and fear is taking hold. Please understand that the news in this period pretty much matches up with the way the market is trading...look for more "bad" news in the next few weeks.
Now that we finally have seen some downside, what's next? Well, we have our sights set on the July lows first and the NDX, NASDAQ 100, has a jump on the rest of the indexes we follow. This index being the first to make a closing low that is lower than the July closing lows gives us confidence that other indexes will follow suit.
The NASDAQ 100 is a good leader to the downside. Over the past few weeks, the Dow has held up better than most other indexes. Now, it is following the broader market lower.
We like to call the Dow the Headliner Index since that's the number that people hear on the news, as in the headline news. So, as the broader market is letting us know that the up move is over, the public is seeing the Dow Hold its own, no worries.
Right now, the public has now been brought into the "recognition" mode when they believe that stocks are going down and convinces them to sell. The market is now getting severely dangerous because the public is getting ready to sell.
The problem is always, when will the public decide to sell? The important thing is to be In Front of them. Either that, or just be prepared to buy when they are about done with their panic selling. We are a little ahead of ourselves (we think) but the time is going to be upon us suddenly and we need to be prepared.
The lows of the year are in jeopardy as we go into the next few weeks of trading. We will get some of the best prices of the last few years.
As the market opens on Friday morning, there will be an important news item, the jobs' report, to deal with. We don't think anything can change the selling that's building but the number could be a "reason" for the media to tell us why. We'll have to wait until after the numbers come out and the market's reaction to them before the media contorts the news to match the market.
Today, oil was down during the collapse of stock prices so what did the media do? Why, of course, they let us know that dropping oil prices are not good for stocks. So, now we're waiting for them to agree with the Update that they really don't have much to do with each other.
Let's get back to our comments about gold mining stocks last night. Today, the GDX fell hard and gave us an even better chance to buy but of course we are pretty loaded up on the short side and have little cash to be buying gold mining stocks. Again, we are hoping to get another chance in the next few weeks.
FSI: 77.40 (lowest close since April 17th the day before GOOG jumped 90 points)
VXO: 26.73 +3.58 (heading up to 50, spiked a little today)
SDS: 69.96 +3.85
QID: 46.99 +2.69
Dow Industrials: 11,188.23 -344.65
Wednesday, September 03, 2008
Stock Indexes Diverge
Top Line: Financial stocks were strong and semiconductors were weak so the Dow was up on the day and the NASDAQ 100 was down. This type of divergence is not a hallmark of a strong market. We continue to wait until the selloff occurs. Patience is in order.
The next four to six weeks will give the market time to find some sellers. In the mean time, we seem to be content with our positions. As the gold complex has moved down just a little, there may be some opportunities there as well, right now with GDX spiking to a low this week near 33.50.
The news on Wednesday came from the Fed's Beige Book, yes, it's a clever name based on the color that this report comes in. Anyway, the Fed said some negative things about the economy but said that inflation has been affecting prices but not wages so much. Thank them for this earth shattering info when you get a chance, brilliant. Oh, yeah, the analysis by the media was that the Fed would probably not raise interest rates at its next meeting...really???
The other news was from the car makers who still make cars but are having some trouble actually selling them. GM had a remarkable month of August with sales down Only 20% and said that with the overwhelming success of its Employee discount to all program was going to be extended to the end of September. We can't make this up.
As for the gold mining stocks, we noticed that the GDX fell to a low price again today on the back of a small pullback in gold. This may represent an opportunity to consider. Gold mining stocks have been hit very hard over the past two months, about 30%. GDX was trading under 34 today after being up around 52 in July. Our favorite trading vehicle is the mutual fund, BGEIX, but GDX works well, too. NEM is a gold mining company and ASA is a closed end fund that specializes in gold mining stocks. At the moment, we are more interested in being short the stock market but this is an excellent opportunity. We were hoping to see it go lower along with the rest of the stock market but that is not a sure thing.
FSI: 80.30 (lowest close since August 4th)
VXO: 23.15 -0.69 (heading up to 50, spike there sometime soon)
SDS: 66.11 +0.16
QID: 44.30 +0.90
Dow Industrials: 11,532.88 +15.96
The next four to six weeks will give the market time to find some sellers. In the mean time, we seem to be content with our positions. As the gold complex has moved down just a little, there may be some opportunities there as well, right now with GDX spiking to a low this week near 33.50.
The news on Wednesday came from the Fed's Beige Book, yes, it's a clever name based on the color that this report comes in. Anyway, the Fed said some negative things about the economy but said that inflation has been affecting prices but not wages so much. Thank them for this earth shattering info when you get a chance, brilliant. Oh, yeah, the analysis by the media was that the Fed would probably not raise interest rates at its next meeting...really???
The other news was from the car makers who still make cars but are having some trouble actually selling them. GM had a remarkable month of August with sales down Only 20% and said that with the overwhelming success of its Employee discount to all program was going to be extended to the end of September. We can't make this up.
As for the gold mining stocks, we noticed that the GDX fell to a low price again today on the back of a small pullback in gold. This may represent an opportunity to consider. Gold mining stocks have been hit very hard over the past two months, about 30%. GDX was trading under 34 today after being up around 52 in July. Our favorite trading vehicle is the mutual fund, BGEIX, but GDX works well, too. NEM is a gold mining company and ASA is a closed end fund that specializes in gold mining stocks. At the moment, we are more interested in being short the stock market but this is an excellent opportunity. We were hoping to see it go lower along with the rest of the stock market but that is not a sure thing.
FSI: 80.30 (lowest close since August 4th)
VXO: 23.15 -0.69 (heading up to 50, spike there sometime soon)
SDS: 66.11 +0.16
QID: 44.30 +0.90
Dow Industrials: 11,532.88 +15.96
Tuesday, September 02, 2008
Outside Down Day
Top Line: The stock market was off to the races early in the day with oil down about $10 before the market opened. The celebration lasted about fifteen minutes before the turn around came. Persistent selling for most of the rest of the day left the Dow precariously positioned for a severe selloff.
When the market starts out strong and ends weak, it is generally bearish and can be an outside down day if certain criteria are met. Key characteristics of an outside down day that the prices have to be higher than yesterday's high at some point during the day, preferably the morning, and then close lower than yesterday's low. But, regardless if Tuesday was an outside down day or not, it certainly was a reversal to the downside day.
When the crowd woke up on Tuesday, it found out that the predicted, expected results of Gustav were not occurring. They also woke up to find that the stock market was rushing off without them so they had to get on board, too. Unfortunately, the early morning buyers were followed by even more sellers and the market dropped.
We read the early stories about the stock market rallying on lower oil and then the later stories about the stock market reversal. Those stories didn't know what to make of the decline in prices because as luck would have it oil was Not rallying to cause stocks to fall. This continues to be a problem. When studying the moves of any market, the media rarely knows what to make of it. What makes "sense" to them is that higher oil should be harmful to stocks but the facts just haven't borne that out. It just happens that markets sometimes move together and sometimes they don't. Simple correlations do Not work for trading.
What we mentioned back in our August 24th post, Kiss of Death, Technically Speaking, that the chart showed that prices had cut through an up trendline and had then come back to that up sloping line from the underside to "kiss" it goodbye. Since that Friday (August 22nd), the market has touched that line two more times, Tuesday's strong opening should be the last.
The last month and a half has been a buildup to this trading day. With Tuesday's reversal, we may have entered the downtrend we have been expecting for several weeks now. The market normally is weak in September, not always, but usually. The mantra is that you should Sell in May and go away Until September or October.
What was strong today? That would be banks and home builders...with oil services down hard.
We are getting close to a large selloff and we are going to have to be prepared for covering our shorts and getting long. We were in too much haste when we established our short positions and didn't get the best prices for our entrance. We want to be handle this better this time. We will prepare for it over the coming two weeks and then see how it works.
FSI: 80.72 (lowest close since August 4th)
VXO: 23.84 +1.25 (heading up to 50)
SDS: 65.95 +0.84
QID: 43.40 +1.09
Dow Industrials: 11,516.92 -27.04
When the market starts out strong and ends weak, it is generally bearish and can be an outside down day if certain criteria are met. Key characteristics of an outside down day that the prices have to be higher than yesterday's high at some point during the day, preferably the morning, and then close lower than yesterday's low. But, regardless if Tuesday was an outside down day or not, it certainly was a reversal to the downside day.
When the crowd woke up on Tuesday, it found out that the predicted, expected results of Gustav were not occurring. They also woke up to find that the stock market was rushing off without them so they had to get on board, too. Unfortunately, the early morning buyers were followed by even more sellers and the market dropped.
We read the early stories about the stock market rallying on lower oil and then the later stories about the stock market reversal. Those stories didn't know what to make of the decline in prices because as luck would have it oil was Not rallying to cause stocks to fall. This continues to be a problem. When studying the moves of any market, the media rarely knows what to make of it. What makes "sense" to them is that higher oil should be harmful to stocks but the facts just haven't borne that out. It just happens that markets sometimes move together and sometimes they don't. Simple correlations do Not work for trading.
What we mentioned back in our August 24th post, Kiss of Death, Technically Speaking, that the chart showed that prices had cut through an up trendline and had then come back to that up sloping line from the underside to "kiss" it goodbye. Since that Friday (August 22nd), the market has touched that line two more times, Tuesday's strong opening should be the last.
The last month and a half has been a buildup to this trading day. With Tuesday's reversal, we may have entered the downtrend we have been expecting for several weeks now. The market normally is weak in September, not always, but usually. The mantra is that you should Sell in May and go away Until September or October.
What was strong today? That would be banks and home builders...with oil services down hard.
We are getting close to a large selloff and we are going to have to be prepared for covering our shorts and getting long. We were in too much haste when we established our short positions and didn't get the best prices for our entrance. We want to be handle this better this time. We will prepare for it over the coming two weeks and then see how it works.
FSI: 80.72 (lowest close since August 4th)
VXO: 23.84 +1.25 (heading up to 50)
SDS: 65.95 +0.84
QID: 43.40 +1.09
Dow Industrials: 11,516.92 -27.04
Monday, September 01, 2008
Happy New Year to All
Top Line: The weekend's news is mostly about Gustav. The oil market has dropped about $4 this evening as Gustav is thought to have been a little less severe than expected. Yes, you guessed it, the US stock futures are stronger on that news as well.
As we go into the new week (and it's a considered a new Year here at the Update, BTW, Happy New Year to you), we are expecting a week that will disappoint the bulls. We saw the strength last week but the market was Down for the week and we expect further downside this week, net downside anyway. The news item of the week is the always popular jobs' report due out on Friday morning. This week, the announcement is expected to continue the trend of negative job growth with a loss of about 60K jobs.
The stock market is showing signs of fatigue, especially on Friday when the NASDAQ dropped almost enough to take out the rally of the two prior days. The NASDAQ should be leading the way South on this next down move. Last week as the Dow was trying to put on a brave face by holding up near the 11,600 the NASDAQ indexes were not faring so well. And, DELL did have a very negative impact on the NASDAQ on Friday, being down nearly 14%.
Our other indicator for this down move is the volatility measure, VXO. This index may have found a bottom and should have some upward mobility over the next few weeks.
We're going to pay special attention to the stock market these days because we are getting very close to a cliff dive and we want to be prepared for some action...that would be getting out of our short positions and consider the long side.
We trust you had a safe and enjoyable weekend. More from the Update tomorrow. Oh, yeah, the Update has a notion that the start of the "year" is Labor Day, not New Years' Day. This is because of the new start in the fall that we all had by starting school around Labor Day.
FSI: 81.11 (lowest close since August 4th)
VXO: 22.59 +1.91 (heading up to 50)
SDS: 65.11 +1.24
QID: 42.31 +1.33
Dow Industrials: 11,543.55 -171.63
As we go into the new week (and it's a considered a new Year here at the Update, BTW, Happy New Year to you), we are expecting a week that will disappoint the bulls. We saw the strength last week but the market was Down for the week and we expect further downside this week, net downside anyway. The news item of the week is the always popular jobs' report due out on Friday morning. This week, the announcement is expected to continue the trend of negative job growth with a loss of about 60K jobs.
The stock market is showing signs of fatigue, especially on Friday when the NASDAQ dropped almost enough to take out the rally of the two prior days. The NASDAQ should be leading the way South on this next down move. Last week as the Dow was trying to put on a brave face by holding up near the 11,600 the NASDAQ indexes were not faring so well. And, DELL did have a very negative impact on the NASDAQ on Friday, being down nearly 14%.
Our other indicator for this down move is the volatility measure, VXO. This index may have found a bottom and should have some upward mobility over the next few weeks.
We're going to pay special attention to the stock market these days because we are getting very close to a cliff dive and we want to be prepared for some action...that would be getting out of our short positions and consider the long side.
We trust you had a safe and enjoyable weekend. More from the Update tomorrow. Oh, yeah, the Update has a notion that the start of the "year" is Labor Day, not New Years' Day. This is because of the new start in the fall that we all had by starting school around Labor Day.
FSI: 81.11 (lowest close since August 4th)
VXO: 22.59 +1.91 (heading up to 50)
SDS: 65.11 +1.24
QID: 42.31 +1.33
Dow Industrials: 11,543.55 -171.63
Thursday, August 28, 2008
Dell Brings the House Down
Top Line: The stock market enjoyed the GDP news and jumped at the open. From there stocks didn't look back. The oil market had a brief scare from the hurricane (Gustav) which seemed to threaten the oil fields in the Gulf; but, after a quick shot up to $120, oil fell even quicker to the $114 level fueling the stock market (yes, we know, oil doesn't drive the stock market but they all think it does so that's what they report). After the close, Dell significantly disappointed the market.
Let's start with the GDP. The Deflator was up even though it was at 4.2%. This reading is at least "reasonable" enough for us to accept it. Still the GDP was up more than expectations of about 2.7%. We know there were a few extra dollars floating around from the government's rebate checks. We are surprised how the GDP can hold up this way even with the rebate checks because home sales are dismal.
The oil market did retreat a bit in the morning but there was persistent buying into the close after the lows of the day had been set shortly after the open.
But, a quick glance at the most active stocks on this very low volume day, shows us what was really moving. Top volume slot held Freddie Mac (FRE) up 11%, second was Fannie Mae (FNM) up 22%, Ambac Financial (ABK) up 41% was in third. Even the fourth volume leader, Citigroup (C), was up over 5%. On top of that, the Philly Housing Sector was also up nearly 5%. Apparently, the entire housing, financial problem has been fixed...maybe not.
The news after the market closed may be the biggest news of all. The world does think that the technology sector will be immune from any further weakening in the economy. How they can really think that is a mystery to us here at the Update. With the consumer starting to really pull back on spending, the technology sector should feel the effects just like everything else.
After the close this evening, DELL announced earnings that failed to meet expectations. The world expected them to Blow Out earnings which is also a reason for the 200+ run in the Dow. Then, after the news, there was a somewhat stunned spectator booth just before they sold off the stock to the tune of 10%, setting the stage for a fairly poor opening on Friday.
Look for the Update to return on Monday evening for your reading pleasure on Tuesday morning. Labor Day is Monday and the market is closed so there will be no post on Sunday evening.
FSI: 83.28 (up but not much)
VXO: 20.68 -1.00 (heading up to 50)
SDS: 63.87 -1.57
QID: 40.98 -0.32
Dow Industrials: 11,715.15 +212.64
Here are two of the best pics (so far) of Jackson:
Let's start with the GDP. The Deflator was up even though it was at 4.2%. This reading is at least "reasonable" enough for us to accept it. Still the GDP was up more than expectations of about 2.7%. We know there were a few extra dollars floating around from the government's rebate checks. We are surprised how the GDP can hold up this way even with the rebate checks because home sales are dismal.
The oil market did retreat a bit in the morning but there was persistent buying into the close after the lows of the day had been set shortly after the open.
But, a quick glance at the most active stocks on this very low volume day, shows us what was really moving. Top volume slot held Freddie Mac (FRE) up 11%, second was Fannie Mae (FNM) up 22%, Ambac Financial (ABK) up 41% was in third. Even the fourth volume leader, Citigroup (C), was up over 5%. On top of that, the Philly Housing Sector was also up nearly 5%. Apparently, the entire housing, financial problem has been fixed...maybe not.
The news after the market closed may be the biggest news of all. The world does think that the technology sector will be immune from any further weakening in the economy. How they can really think that is a mystery to us here at the Update. With the consumer starting to really pull back on spending, the technology sector should feel the effects just like everything else.
After the close this evening, DELL announced earnings that failed to meet expectations. The world expected them to Blow Out earnings which is also a reason for the 200+ run in the Dow. Then, after the news, there was a somewhat stunned spectator booth just before they sold off the stock to the tune of 10%, setting the stage for a fairly poor opening on Friday.
Look for the Update to return on Monday evening for your reading pleasure on Tuesday morning. Labor Day is Monday and the market is closed so there will be no post on Sunday evening.
FSI: 83.28 (up but not much)
VXO: 20.68 -1.00 (heading up to 50)
SDS: 63.87 -1.57
QID: 40.98 -0.32
Dow Industrials: 11,715.15 +212.64
Here are two of the best pics (so far) of Jackson:
Wednesday, August 27, 2008
Durable Goods Boost the Market
Top Line: The stock market had a little more spunk on Wednesday but the highs of the day occurred right around mid-day. After that, the indexes started to slip but still ended up but well off its highs. We are still thinking that the market is in the early stages of a major decline.
There are some near term possibilities in the market but the August 15th highs should hold. If they don't, we'll look at the upside potential. Since we don't think that will happen, we will postpone our discussion on it.
This morning, durable goods orders news indicated an "unexpected" jump in July. Meanwhile oil "jumped" $2 this morning which would normally suggest a huge drop in the stock market but Not today. No, today the Dow "jumped" on the oil/durable goods orders. Did we ever mention that we don't think the Dow moves because of the price of oil? Yes, we may have.
The market is trying to hold out, and it may hold out for another few days until after Labor Day, but ultimately we think it will succumb to the sellers.
FSI: 82.85 (down again on Wednesday)
VXO: 21.68 -0.04 (heading up to 50)
SDS: 65.44 -1.14
QID: 41.30 -0.37
Dow Industrials: 11,502.51 +89.64
There are some near term possibilities in the market but the August 15th highs should hold. If they don't, we'll look at the upside potential. Since we don't think that will happen, we will postpone our discussion on it.
This morning, durable goods orders news indicated an "unexpected" jump in July. Meanwhile oil "jumped" $2 this morning which would normally suggest a huge drop in the stock market but Not today. No, today the Dow "jumped" on the oil/durable goods orders. Did we ever mention that we don't think the Dow moves because of the price of oil? Yes, we may have.
The market is trying to hold out, and it may hold out for another few days until after Labor Day, but ultimately we think it will succumb to the sellers.
FSI: 82.85 (down again on Wednesday)
VXO: 21.68 -0.04 (heading up to 50)
SDS: 65.44 -1.14
QID: 41.30 -0.37
Dow Industrials: 11,502.51 +89.64
Tuesday, August 26, 2008
Weak Response to Monday's Sell Off
Top Line: The stock market struggled to gain any traction Tuesday. Buying could not get going after Monday's drop. Normally, we would expect at least a minor buying exercise after a day like that...in this case the relatively mild reaction seems bearish to us. Look for some more selling over the next several weeks.
Our prediction for tonight is that we Will have a complete post. Really. After that we can maybe start making some qualified statements about the stock market. Maybe not. We apologize for last night's miss on the post but let's get to tonight's...
After the big hit the market took on Monday, Tuesday was going to be a chance for the bulls to come in and bid stocks back up. There was some effort to do that during the day but prices didn't move much. This could be interpreted by us to be bearish because there are still enough sellers to keep the prices down on a day when the bulls were supposed to be back in the game.
We have mentioned the tendency of the market to have some buying going into the end of the month particularly when it coincides with a holiday weekend...like this weekend. We haven't given up on the bulls just yet but there are some signs that they are not going to be doing much buying in the near term.
Well, we should be careful about these kinds of calls but the stock market is in the free fall period following the Kiss...uh...goodbye on Friday last week. There are targets to take out on this fall that are the March and July lows. We think over the next two months that these targets will be taken out and by a significant margin. You can see our round number targets in our August 19th post:
Our Position (from our August 7th post and our August 19th post):
Bearish on US stocks, Dow target of 9000.
Bearish on Gold, target of $600. (possibly a little aggressive)
Bearish on Oil, target of $100. (possibly a little timid)
Still Bearish on US Residential Real Estate, no real target (Case-Shiller said down 15.4% this year)
Bullish on US Treasury bonds, ETF TLT target of 100 (fine tune this soon)
Bullish on US Dollar, target 90
Bullish on Volatility, VXO to 50
We'll try to post our position at least once a week and certainly when we make any changes we will let you know here. For now, we see no particular reason to change these right now.
FSI: 83.20 (strong down move Tuesday)
VXO: 21.72 -0.60 (heading up to 50)
SDS: 66.58 -0.44
QID: 41.67 +0.12
Dow Industrials: 11,412.87 +26.62
Our prediction for tonight is that we Will have a complete post. Really. After that we can maybe start making some qualified statements about the stock market. Maybe not. We apologize for last night's miss on the post but let's get to tonight's...
After the big hit the market took on Monday, Tuesday was going to be a chance for the bulls to come in and bid stocks back up. There was some effort to do that during the day but prices didn't move much. This could be interpreted by us to be bearish because there are still enough sellers to keep the prices down on a day when the bulls were supposed to be back in the game.
We have mentioned the tendency of the market to have some buying going into the end of the month particularly when it coincides with a holiday weekend...like this weekend. We haven't given up on the bulls just yet but there are some signs that they are not going to be doing much buying in the near term.
Well, we should be careful about these kinds of calls but the stock market is in the free fall period following the Kiss...uh...goodbye on Friday last week. There are targets to take out on this fall that are the March and July lows. We think over the next two months that these targets will be taken out and by a significant margin. You can see our round number targets in our August 19th post:
Our Position (from our August 7th post and our August 19th post):
Bearish on US stocks, Dow target of 9000.
Bearish on Gold, target of $600. (possibly a little aggressive)
Bearish on Oil, target of $100. (possibly a little timid)
Still Bearish on US Residential Real Estate, no real target (Case-Shiller said down 15.4% this year)
Bullish on US Treasury bonds, ETF TLT target of 100 (fine tune this soon)
Bullish on US Dollar, target 90
Bullish on Volatility, VXO to 50
We'll try to post our position at least once a week and certainly when we make any changes we will let you know here. For now, we see no particular reason to change these right now.
FSI: 83.20 (strong down move Tuesday)
VXO: 21.72 -0.60 (heading up to 50)
SDS: 66.58 -0.44
QID: 41.67 +0.12
Dow Industrials: 11,412.87 +26.62
Monday, August 25, 2008
Brief or Short?
Top Line: The stock market may have started its strongest down move in the down move from last October. As we mentioned in our last post, the possibility of the kiss of death increased with the down move on Monday.
The trading day may have been even more negative had there been a little more volume but the bulls should not be rationalizing the drop because of low volume. We think that in this stage of the move, low volume is a sign that there is no buying. The August timeframe normally has low volume anyway so we really can't conclude much, but certainly it's not an excuse to be bullish, like everything else seems to be.
Please tell me this didn't happen again. We have lost our post again...Something has to change...
The trading day may have been even more negative had there been a little more volume but the bulls should not be rationalizing the drop because of low volume. We think that in this stage of the move, low volume is a sign that there is no buying. The August timeframe normally has low volume anyway so we really can't conclude much, but certainly it's not an excuse to be bullish, like everything else seems to be.
Please tell me this didn't happen again. We have lost our post again...Something has to change...
Sunday, August 24, 2008
The Kiss of Death, Technically Speaking
Top Line: After the Update's week off, the market, as measured by the Dow, is just slightly lower than when we left you. As time passes, the market is getting closer and closer to the edge, hence tonight's title. More on that later.
With the last week of the month upon us, and time passing quickly, we look to the near term possibilities for the market. This time is traditionally a strong time of the month but with the market coming into a strong Down move, the complacency may just get a little jolt of reality.
To summarize last week, we would say that the market has tried to fool most of us into thinking that the worst is over when the truth is buried in the price facts that the market has previously given us. As we mentioned in the Top Line, the Dow is lower than it was the week before. And, going back two weeks, the Dow is down about 200 points. No, that's not much, but it doesn't match up with the idea of the strong up days. In addition, with some time to watch CNBC this past week, there was certainly a lot of talk about how much the market's ups and downs were mostly due to "the movement in oil prices", please.
Now, to the Kiss of Death: One (technical) interpretation of the current Dow position is something we have mentioned several times in the past. The idea is that support becomes resistance but in this case the support line is not horizontal like in most of our technical discussions. This time there is a "bullish" up trendline that has supported the rally from the July lows. Once this up trendline is broken to the downside, the market likes to try to come back up to it, pretending that the up trend is still in place, and as we mentioned trying to fool many.
The fact is that the market is now struggling to regain that trendline and it has just touched it from the underside. This touch from the underside of the up trendline is called the Kiss of Death and suggests a solid down move coming off that line. We see that the strongest wave of the down move that started last October is not in its strongest position so the Kiss may in fact be a legitimate read. Yes, it is technical but the situation does indicate a weakening in the latest up move since the middle of July. This weakening can be seen on the chart better than in the financial news...probably.
So, as we move into the new week, we will be watching to see how accurate the above analysis is. The market can do what ever it wants, but the complacency of the players as measured by the volatililty indexes does fit well. It seems that the greatest fear the players have at the moment is the fear of missing out on the next up move. Just imagine if that doesn't materialize. All of these new bulls will be very, very disappointed. The idea of the market letting them get in at "the Bottom" is pretty funny.
FSI: Tuesday 84.61, Wednesday 84.80, Thursday 85.10, Friday 85.85
VXO: Tuesday 23.22, Wednesday 21.70, Thursday 21.26, Friday 20.47 (heading up to 50)
SDS: Friday 64.52
QID: Friday 40.08
Dow Industrials: Tuesday 11,348.55, Wednesday 11,417.43, Thursday 11,430.21, Friday 11,628.06
PS We missed the question from Warren Buffet the other day, fortunately he's not related to the real Warren Buffett. But, he still needs an answer to his question. We were actually looking at ABK when we were discussing the 4 to 5 move and of course we saw it take off on Thursday morning after closing right around 4 on August 13th when we mentioned it. From there it spurted up to 6+ and recently has dropped back down to just over 5. Apparently we missed that move...oh well, it did seem to work out for those gamblers. Congrats.
Jackson meets Jeff's Day Care provider Sharon...not too sure about her.
Then there's the grin when Jason told him about his new black eye...
With the last week of the month upon us, and time passing quickly, we look to the near term possibilities for the market. This time is traditionally a strong time of the month but with the market coming into a strong Down move, the complacency may just get a little jolt of reality.
To summarize last week, we would say that the market has tried to fool most of us into thinking that the worst is over when the truth is buried in the price facts that the market has previously given us. As we mentioned in the Top Line, the Dow is lower than it was the week before. And, going back two weeks, the Dow is down about 200 points. No, that's not much, but it doesn't match up with the idea of the strong up days. In addition, with some time to watch CNBC this past week, there was certainly a lot of talk about how much the market's ups and downs were mostly due to "the movement in oil prices", please.
Now, to the Kiss of Death: One (technical) interpretation of the current Dow position is something we have mentioned several times in the past. The idea is that support becomes resistance but in this case the support line is not horizontal like in most of our technical discussions. This time there is a "bullish" up trendline that has supported the rally from the July lows. Once this up trendline is broken to the downside, the market likes to try to come back up to it, pretending that the up trend is still in place, and as we mentioned trying to fool many.
The fact is that the market is now struggling to regain that trendline and it has just touched it from the underside. This touch from the underside of the up trendline is called the Kiss of Death and suggests a solid down move coming off that line. We see that the strongest wave of the down move that started last October is not in its strongest position so the Kiss may in fact be a legitimate read. Yes, it is technical but the situation does indicate a weakening in the latest up move since the middle of July. This weakening can be seen on the chart better than in the financial news...probably.
So, as we move into the new week, we will be watching to see how accurate the above analysis is. The market can do what ever it wants, but the complacency of the players as measured by the volatililty indexes does fit well. It seems that the greatest fear the players have at the moment is the fear of missing out on the next up move. Just imagine if that doesn't materialize. All of these new bulls will be very, very disappointed. The idea of the market letting them get in at "the Bottom" is pretty funny.
FSI: Tuesday 84.61, Wednesday 84.80, Thursday 85.10, Friday 85.85
VXO: Tuesday 23.22, Wednesday 21.70, Thursday 21.26, Friday 20.47 (heading up to 50)
SDS: Friday 64.52
QID: Friday 40.08
Dow Industrials: Tuesday 11,348.55, Wednesday 11,417.43, Thursday 11,430.21, Friday 11,628.06
PS We missed the question from Warren Buffet the other day, fortunately he's not related to the real Warren Buffett. But, he still needs an answer to his question. We were actually looking at ABK when we were discussing the 4 to 5 move and of course we saw it take off on Thursday morning after closing right around 4 on August 13th when we mentioned it. From there it spurted up to 6+ and recently has dropped back down to just over 5. Apparently we missed that move...oh well, it did seem to work out for those gamblers. Congrats.
Jackson meets Jeff's Day Care provider Sharon...not too sure about her.
Then there's the grin when Jason told him about his new black eye...
Tuesday, August 19, 2008
Special Update, Vacation (New Kind of SUV)
Top Line: The market is now getting into its own version of selling off. This move should be the one we have been looking for over the past several weeks...yes, early as always. We are writing this quick Update to say there is much more to go and we think the move will last approximately eight weeks with acceleration to the downside on the late end of that.
Not much has changed in our viewpoint but the precious metals call may be a little too aggressive on the downside. The GDX (gold mining index ETF) may have put in a short term low on Friday morning down around 77 after trading at around 97 a month ago. We still think the GDX can make a lower low but for now it's a bit oversold.
Is that Bugs Bunny or the Easter Bunny?
Ready, Aim...Grab a Duck
Our Position (from our August 7th post):
Bearish on US stocks, Dow target of 9000.
Bearish on Gold, target of $600.
Bearish on Oil, target of $100.
Still Bearish on US Residential Real Estate, no real target.
Bullish on US Treasury bonds, ETF TLT target of 100.
Bullish on US Dollar, target 90.
Bullish on Volatility, VXO to 50.
Not much has changed in our viewpoint but the precious metals call may be a little too aggressive on the downside. The GDX (gold mining index ETF) may have put in a short term low on Friday morning down around 77 after trading at around 97 a month ago. We still think the GDX can make a lower low but for now it's a bit oversold.
US Treasury bonds have moved up nicely over the past week with the TLT's up from just under 90 to over 93. We think the 100 level is a bit aggressive, too but will stick with it for now until we get closer to that level.
The reason that you are here is more for the stock market but these other markets will be places to trade as we go into 2009 and one that we have mentioned in the past is the Japanese stock market. Recently, it's being hit pretty hard and prices have come down into an interesting place. Remember that we like to buy...yes, Low, and sell High. In order to do that we need to see what Low is and buy it and see what high is and Sell it.
The US stock market is now in a strong down faze or should be with the trading of the last two days. We are reporting here around one o'clock CDT with about 2 hours to go in the trading day and the trading since Monday morning has been significantly lower. We use the word significantly to indicate that some important price levels have been breached so more selling should ensue.
Hope you're having a good week in spite of AIG dropping below 20 again today. As we mentioned in an earlier post, AIG May have put in its low for this move but a test would be in order and that may have happened today. Of course there is always more downside before it finds its real low.
FSI: Friday 87.50 Monday 85.83 (turn down?)
VXO: Friday 21.50 Monday 22.38 Now 23.52 (heading up to 50)
SDS: Friday 63.80 Monday 65.63 Now 67.00
QID: Friday 38.63 Monday 39.58 Now 40.55
Dow Industrials: Friday 11,659.90 Monday 11,479.39 Now 11,365.65 (9,000, a long ways off?)
The main reason we are posting today is to show a couple pics of Jackson (at the petting zoo).
Is that Bugs Bunny or the Easter Bunny?
Ready, Aim...Grab a Duck
Thursday, August 14, 2008
What's a Correction?
Top Line: Another up day on Thursday...we do not think this can last much longer. Options expire on Friday (the 15th) and that may put an end to the rally.
[Editor's note: As a reminder, the Update will probably be on vacation for the next week, with the next scheduled post on Sunday the 24th. Possible special posts may be available during the week, but no promises. Plus, we do have some new Jackson pics that may be posted over the next few days so come back on Monday for further info.)
Our position continues to be that this is just a corrective rally in a much larger downside move. What does that mean? Well, normally you think of a "correction" as a down move because the market "always" goes up so if it goes down it must be a correction. But, when it drops 20%, the media tells you it really is a bear market, not just a correction. Very Not helpful.
Here at the Update, we think the market can move in both directions and we try, heavy on the try part, to figure out which direction it is going. When the market moves in either direction, we can see it from a visual perspective. Then when the market moves in the opposite direction without violating the extremes of the prior move, that is a correction.
If you look at the Dow back in October (symbol INDU on bigcharts.com), it was above 14,000. With the move down into the July lows, there have been a few up moves which never really got back up to where we started. Right now we are moving up from the July lows but have not even really made a dent in the drop from the 13,000 level back in May. Looking at the Dow, the move looks particularly anemic, not at all like it's about to jump back up to 13,000.
The picture over in the NASDAQ is a little different but has the same "structure" or look. If you look at the COMP (NASDAQ Composite) you see a "double" bottom at the March and July lows. This is generally a bullish development but in this case it doesn't look that strong. The NASDAQ has been stronger than the blue chips because the financials are getting hammered while the techs are enjoying the benefit of that money exiting the financials. As Fleck says, moving the Jell-O around the plate.
The NASDAQ stocks being more bouyant than the blue chips in this situation probably means that no one is at all worried about a sell off in the stock market. After all, the techs are holding up in spite of the news swirling around. As we have said many times, when the news doesn't match the market, we are probably in a "correction" and this time the news is bad and the market is going up. This can not last very long and it is just convincing many that the bull market is back on track and it is safe to put money to work in the market...we Know that the market is Not that easy.
Anyway, looking at these two charts, INDU and COMP, gives us a better perspective on how strong (or weak) any move really is. While the market can do whatever it wants, we think that the next move will be Strongly down and No bullish positions should be established. Yes, we were very early on our QID purchases but the SDS has not moved against us by very much at all.
When the market turns, many of these current buyers will turn into sellers. That would include those buyers who have weak Hands, meaning they will get nervous and sell, and those shortsellers who were buying to cover. In any event, buyers will be scarce in this next down move. The move so far has just been a correction and even with the huge feel of Power in the NASDAQ, those indexes are still below their early June highs and well below their highs from last fall (October/November). Going back to 2000, these indexes are Far from those peaks.
In two and a half years the NASDAQ Comp dropped from 5000 to about 1200 and then from the lows of 2002, we have seen a rally get to the fall 2007 highs five years later that were around 2750. Two years to drop powerfully by 3800 points and five years to limp back up 1500 points. That my friends is a correction and is begging for more downside.
FSI: 87.74 (new August high, below July highs)
VXO: 23.93 +0.93 (heading up to 50)
SDS: 64.49 -0.88
QID: 38.64 -0.98
Dow Industrials: 11,615.93 +82.97
[Editor's note: As a reminder, the Update will probably be on vacation for the next week, with the next scheduled post on Sunday the 24th. Possible special posts may be available during the week, but no promises. Plus, we do have some new Jackson pics that may be posted over the next few days so come back on Monday for further info.)
Our position continues to be that this is just a corrective rally in a much larger downside move. What does that mean? Well, normally you think of a "correction" as a down move because the market "always" goes up so if it goes down it must be a correction. But, when it drops 20%, the media tells you it really is a bear market, not just a correction. Very Not helpful.
Here at the Update, we think the market can move in both directions and we try, heavy on the try part, to figure out which direction it is going. When the market moves in either direction, we can see it from a visual perspective. Then when the market moves in the opposite direction without violating the extremes of the prior move, that is a correction.
If you look at the Dow back in October (symbol INDU on bigcharts.com), it was above 14,000. With the move down into the July lows, there have been a few up moves which never really got back up to where we started. Right now we are moving up from the July lows but have not even really made a dent in the drop from the 13,000 level back in May. Looking at the Dow, the move looks particularly anemic, not at all like it's about to jump back up to 13,000.
The picture over in the NASDAQ is a little different but has the same "structure" or look. If you look at the COMP (NASDAQ Composite) you see a "double" bottom at the March and July lows. This is generally a bullish development but in this case it doesn't look that strong. The NASDAQ has been stronger than the blue chips because the financials are getting hammered while the techs are enjoying the benefit of that money exiting the financials. As Fleck says, moving the Jell-O around the plate.
The NASDAQ stocks being more bouyant than the blue chips in this situation probably means that no one is at all worried about a sell off in the stock market. After all, the techs are holding up in spite of the news swirling around. As we have said many times, when the news doesn't match the market, we are probably in a "correction" and this time the news is bad and the market is going up. This can not last very long and it is just convincing many that the bull market is back on track and it is safe to put money to work in the market...we Know that the market is Not that easy.
Anyway, looking at these two charts, INDU and COMP, gives us a better perspective on how strong (or weak) any move really is. While the market can do whatever it wants, we think that the next move will be Strongly down and No bullish positions should be established. Yes, we were very early on our QID purchases but the SDS has not moved against us by very much at all.
When the market turns, many of these current buyers will turn into sellers. That would include those buyers who have weak Hands, meaning they will get nervous and sell, and those shortsellers who were buying to cover. In any event, buyers will be scarce in this next down move. The move so far has just been a correction and even with the huge feel of Power in the NASDAQ, those indexes are still below their early June highs and well below their highs from last fall (October/November). Going back to 2000, these indexes are Far from those peaks.
In two and a half years the NASDAQ Comp dropped from 5000 to about 1200 and then from the lows of 2002, we have seen a rally get to the fall 2007 highs five years later that were around 2750. Two years to drop powerfully by 3800 points and five years to limp back up 1500 points. That my friends is a correction and is begging for more downside.
FSI: 87.74 (new August high, below July highs)
VXO: 23.93 +0.93 (heading up to 50)
SDS: 64.49 -0.88
QID: 38.64 -0.98
Dow Industrials: 11,615.93 +82.97
Wednesday, August 13, 2008
To Gamble or Not To Gamble, That is the Question
Top Line: The stock market continues its efforts to defy gravity but we think that will soon end and a significant drop will occur. Patience is the order of the day.
While we wait there are a few orders of business we should take care of. The first is that we plan to be taking the week off next week and may not post anything during the week. We plan to put up a post tomorrow, Thursday but then no post until Sunday evening the 24th.
Then there was a question we received today via email that we wanted to discuss here. That was the question about whether a couple of stocks would be a good buy at this time. The stocks in question have taken quite a tumble over the past year and have a difficult future if you look at fundamentals alone.
What we would say is that if you are planning to buy these stocks or other stocks that have fallen from grace, so to speak, we would recommend you do so in the hope of trading for a mild gain and not expect that these stocks will ever attain the lofty prices from just a year ago. That doesn't mean that you can't "play" them for a good percentage move but that is what you have to do. You can't buy them and put them away.
The way to play stocks that are cheap is different than investing, it's more like gambling. So, you need to trade like you are gambling. Let's say that you put a bet down and win, what do you do? Let it ride and bet again? Or, do you take the money off the table and go home? Well, our suggestion would be to take the money and RUN. Such is the case of the quick gains (and we should say losses) that may be had in these types of stocks.
One of these stocks traded at 6 a week ago and today closed at 4. If you are planning to buy this stock, you should be very happy with a 1 dollar move which would be 25%. That is a great trade and would be a nice smile for a short trade.
Other than that, we don't think it very wise to buy this type of stock. The risk is that it goes to 0 and the reward could be a double or so. What is the purpose of the trade? Gambling is fun and that is what this is but play to win.
There are possibilities that show up at times that truly are good values and we are coming up to one of those times in the next few weeks or a couple of months. There will be chances to double your money over a period of several months to a year and without a lot of risk. There is always risk but if you can actually find some value, then you can simultaneously limit your risk.
We are looking at a couple of value trades that are materializing and the first one is the gold mining stocks which we discussed a few days ago. The GDX has already jumped 10% in those two days from 34 to 37.5. We're not suggesting that you should run out and buy this tomorrow but to watch for another opportunity. We think this is probably in an area that offers some interesting options...never say options to a trader.
There are a couple of other ideas we are entertaining but they can wait for another day. The biggest ones are to come up with appropriate long positions in the stock market when we have a good selloff...yes, we think that will develop over the next month or so.
As for the market action on Wednesday, the financials led the market lower in the early going. JPM continued its decline from yesterday. The banking index declined over 4% and appears headed for a test, at least, of the July lows which are 25% lower from here.
One of our main concerns for the market surrounds the actual traders that are making decisions with other people's money. There are so many highly leveraged (meaning they use borrowed money along with some of their own capital) and they are momentum players (meaning they have computers that let them know what particular stocks are being sought after and they get on board, too. Both of these have the ability to move stock prices fast and furious at a moment's notice so we think the best place to be is in Cash, King Cash...at least for now.
FSI: 86.71
VXO: 23.93 +0.93 (heading up to 50)
SDS: 65.37 +0.82
QID: 39.62 +0.05
Dow Industrials: 11,532.96 -109.51
While we wait there are a few orders of business we should take care of. The first is that we plan to be taking the week off next week and may not post anything during the week. We plan to put up a post tomorrow, Thursday but then no post until Sunday evening the 24th.
Then there was a question we received today via email that we wanted to discuss here. That was the question about whether a couple of stocks would be a good buy at this time. The stocks in question have taken quite a tumble over the past year and have a difficult future if you look at fundamentals alone.
What we would say is that if you are planning to buy these stocks or other stocks that have fallen from grace, so to speak, we would recommend you do so in the hope of trading for a mild gain and not expect that these stocks will ever attain the lofty prices from just a year ago. That doesn't mean that you can't "play" them for a good percentage move but that is what you have to do. You can't buy them and put them away.
The way to play stocks that are cheap is different than investing, it's more like gambling. So, you need to trade like you are gambling. Let's say that you put a bet down and win, what do you do? Let it ride and bet again? Or, do you take the money off the table and go home? Well, our suggestion would be to take the money and RUN. Such is the case of the quick gains (and we should say losses) that may be had in these types of stocks.
One of these stocks traded at 6 a week ago and today closed at 4. If you are planning to buy this stock, you should be very happy with a 1 dollar move which would be 25%. That is a great trade and would be a nice smile for a short trade.
Other than that, we don't think it very wise to buy this type of stock. The risk is that it goes to 0 and the reward could be a double or so. What is the purpose of the trade? Gambling is fun and that is what this is but play to win.
There are possibilities that show up at times that truly are good values and we are coming up to one of those times in the next few weeks or a couple of months. There will be chances to double your money over a period of several months to a year and without a lot of risk. There is always risk but if you can actually find some value, then you can simultaneously limit your risk.
We are looking at a couple of value trades that are materializing and the first one is the gold mining stocks which we discussed a few days ago. The GDX has already jumped 10% in those two days from 34 to 37.5. We're not suggesting that you should run out and buy this tomorrow but to watch for another opportunity. We think this is probably in an area that offers some interesting options...never say options to a trader.
There are a couple of other ideas we are entertaining but they can wait for another day. The biggest ones are to come up with appropriate long positions in the stock market when we have a good selloff...yes, we think that will develop over the next month or so.
As for the market action on Wednesday, the financials led the market lower in the early going. JPM continued its decline from yesterday. The banking index declined over 4% and appears headed for a test, at least, of the July lows which are 25% lower from here.
One of our main concerns for the market surrounds the actual traders that are making decisions with other people's money. There are so many highly leveraged (meaning they use borrowed money along with some of their own capital) and they are momentum players (meaning they have computers that let them know what particular stocks are being sought after and they get on board, too. Both of these have the ability to move stock prices fast and furious at a moment's notice so we think the best place to be is in Cash, King Cash...at least for now.
FSI: 86.71
VXO: 23.93 +0.93 (heading up to 50)
SDS: 65.37 +0.82
QID: 39.62 +0.05
Dow Industrials: 11,532.96 -109.51
Tuesday, August 12, 2008
Twins Get Beat By the Yankees in 12
Top Line: The stock market struggled on Tuesday with most indexes ending lower on the day. The market is clearly overbought with the straight up move we've seen over the past ten days. Now, we simply wait for the pull back to get into gear...we expect that to happen very soon.
On Tuesday, the problem was in the financials again as the techs seem to be ignoring the problems in the economy. The Philadelphia Semi-Conductor Index was actually up today (along with our own FSI) in spite of the pounding the banks were taking. JPM announced plans to write down some mortgage assets by $1.5 billion in the third quarter. JPM was down nearly 10% on the back of that news today. And, that news was not received very well by the rest of the financials.
As we are writing this evening, we noticed that Japan's GDP drooped by 2.4% in the second quarter, an indication of recession. Going back to the first quarter, Japan's GDP had risen by a 4% annual rate. Did someone turn out the light? Their stock market is down 2% as we write.
We happened to be at the Twins/Yankees game tonight which took us into the 12th inning and didn't give us time to write a full update. We did receive an email from CM today with two great real estate articles that are at least good reads. Thanks CM.
The first is a general indictment of the viewpoint that subprime could be contained or that it was just subprime causing mortgage problems. The second indicates our position that the residential mortgage problems are far from over. The article points out that many home-owners are now Upside Down.
FSI: 86.90 (an up day for the FSI and not confirming the broader market)
VXO: 23.00 +0.74 (heading up to 50)
SDS: 64.55 +1.27
QID: 39.57 -0.09
Dow Industrials: 11,642.47 -139.88
On Tuesday, the problem was in the financials again as the techs seem to be ignoring the problems in the economy. The Philadelphia Semi-Conductor Index was actually up today (along with our own FSI) in spite of the pounding the banks were taking. JPM announced plans to write down some mortgage assets by $1.5 billion in the third quarter. JPM was down nearly 10% on the back of that news today. And, that news was not received very well by the rest of the financials.
As we are writing this evening, we noticed that Japan's GDP drooped by 2.4% in the second quarter, an indication of recession. Going back to the first quarter, Japan's GDP had risen by a 4% annual rate. Did someone turn out the light? Their stock market is down 2% as we write.
We happened to be at the Twins/Yankees game tonight which took us into the 12th inning and didn't give us time to write a full update. We did receive an email from CM today with two great real estate articles that are at least good reads. Thanks CM.
The first is a general indictment of the viewpoint that subprime could be contained or that it was just subprime causing mortgage problems. The second indicates our position that the residential mortgage problems are far from over. The article points out that many home-owners are now Upside Down.
FSI: 86.90 (an up day for the FSI and not confirming the broader market)
VXO: 23.00 +0.74 (heading up to 50)
SDS: 64.55 +1.27
QID: 39.57 -0.09
Dow Industrials: 11,642.47 -139.88
Monday, August 11, 2008
Trying to Remain Patient
Top Line: Where to begin??? The major mover on Monday was Gold (and Silver and of course, the dollar). Haven't the Olympic Gold medals been paid for already? The stock market had another wild day which should be close to going down hard.
The stock market charged ahead for the better part of the day but ran into some trouble with two hours to go. It ended near the middle of the trading range. The main issue for the Update is that the market still thinks it can go up and of course it can if it wants to. Our position is that the rally from the July lows is only correcting the drop from the May/June highs and will eventually fail. The market seems strong to many and the price move has been strong. The strength can not last and when it does end the market should be in virtual free fall.
We have just lost the rest of our post for the evening and we are getting extremely tired of dealing with this. The essence of the remaining paragraphs is that the GDX, a gold mining ETF, has dropped into an interesting position this evening and deserves at least some consideration at this point. The mining stocks have been subdued with the rally in the metals and now they are leading to the downside. With gold dropping hard today and this evening, the mining stocks have told us that the gold will probably Keep dropping. As you know our target price for gold is around $600 but that doesn't mean the gold stocks will drop from here.
More tomorrow and hopefully we can keep the post...
FSI: 86.81
VXO: 22.26 +0.38 (heading up to 50)
SDS: 63.28 -1.22
QID: 39.66 -0.76
Dow Industrials: 11,782.35 +48.03
The stock market charged ahead for the better part of the day but ran into some trouble with two hours to go. It ended near the middle of the trading range. The main issue for the Update is that the market still thinks it can go up and of course it can if it wants to. Our position is that the rally from the July lows is only correcting the drop from the May/June highs and will eventually fail. The market seems strong to many and the price move has been strong. The strength can not last and when it does end the market should be in virtual free fall.
We have just lost the rest of our post for the evening and we are getting extremely tired of dealing with this. The essence of the remaining paragraphs is that the GDX, a gold mining ETF, has dropped into an interesting position this evening and deserves at least some consideration at this point. The mining stocks have been subdued with the rally in the metals and now they are leading to the downside. With gold dropping hard today and this evening, the mining stocks have told us that the gold will probably Keep dropping. As you know our target price for gold is around $600 but that doesn't mean the gold stocks will drop from here.
More tomorrow and hopefully we can keep the post...
FSI: 86.81
VXO: 22.26 +0.38 (heading up to 50)
SDS: 63.28 -1.22
QID: 39.66 -0.76
Dow Industrials: 11,782.35 +48.03
Sunday, August 10, 2008
Brand New Week
Top Line: The strength in the market on Friday is setting us up for an even stronger selloff. The higher the prices go, the fewer people will believe that the market can go down and will act accordingly. When it's time to rush for the exits, they will be last ones out of the theater.
Friday's up move was the conclusion of a strong week for the market, particularly in the NASDAQ, with the NDX up about 7% from Monday's low to Friday's high. As the buyers, including short sellers who were covering their positions, concluded the week, they were feeling pretty confident that there was no chance for a selloff in the near future. As we see it, the complete lack of fear of a selloff has deteriorated to No fear at all.
We are going to sit back and see how the market plays out this week. This happens to be options' expiration week and should bring its own brand of volatility. As it stands this evening, we do not have anything new for you. Take a look at our position statement from our last post to find out what our targets are.
The dollar broke out on the upside and in the short run that had detrimental effect on the commodities like the primary ones we follow, gold and oil, but also for many others. Of course the media has convinced the new market participants that whenever oil goes down, the stock market should go up and up it went on Friday.
One article to share this evening only because we have been following CDS's for a few years now and want to keep track of these types of articles, this one again from Gretchen Morgenson of the NY Times.
FSI: 85.34 (Still below the July 17th level)
VXO: 21.88 -0.75 (heading up to 50)
SDS: 64.50 -2.74
QID: 40.42 -1.61 (it was a tough day for the bears)
Dow Industrials: 11,734.32 +302.89
Friday's up move was the conclusion of a strong week for the market, particularly in the NASDAQ, with the NDX up about 7% from Monday's low to Friday's high. As the buyers, including short sellers who were covering their positions, concluded the week, they were feeling pretty confident that there was no chance for a selloff in the near future. As we see it, the complete lack of fear of a selloff has deteriorated to No fear at all.
We are going to sit back and see how the market plays out this week. This happens to be options' expiration week and should bring its own brand of volatility. As it stands this evening, we do not have anything new for you. Take a look at our position statement from our last post to find out what our targets are.
The dollar broke out on the upside and in the short run that had detrimental effect on the commodities like the primary ones we follow, gold and oil, but also for many others. Of course the media has convinced the new market participants that whenever oil goes down, the stock market should go up and up it went on Friday.
One article to share this evening only because we have been following CDS's for a few years now and want to keep track of these types of articles, this one again from Gretchen Morgenson of the NY Times.
FSI: 85.34 (Still below the July 17th level)
VXO: 21.88 -0.75 (heading up to 50)
SDS: 64.50 -2.74
QID: 40.42 -1.61 (it was a tough day for the bears)
Dow Industrials: 11,734.32 +302.89
Thursday, August 07, 2008
Bear Market Can Now Get Serious
Top Line: The stock market has probably finished putting in its top for this move...finally. The market could possibly retest the highs of the last two days but that test should fail.
Our Position:
Bearish on US stocks, Dow target of 9000.
Bearish on Gold, target of $600. Bearish on Oil, target of $100.
Still Bearish on US Residential Real Estate, no real target.
Bullish on US Treasury bonds, ETF TLT target of 100.
Bullish on US Dollar, target 90.
Bullish on Volatility, VXO to 50.
The stock market opened with a thud as AIG opened about 15% lower. That alone dropped the Dow by about 50 points but it opened even lower than that, down 100 and quickly dropped another 50.
Another item that put a drag on the market was the pre-open announcement that jobless claims had hit a six year high. Unemployment is rising, but consumers are still finding ways to spend money as the consumer credit was up last month, even with the government rebate program mostly behind us.
From there we saw a little meandering, yes we said meandering, until the last couple of hours when the sellers persistently took it down to close 225 points lower.
Some of the move back up was instigated by the news that the pending home sales went up 5.3% for the month. We would really like to see transaction amounts versus number of sales. The report even said that foreclosures were being purchased at prices significantly less than other houses in their neighborhoods. These transaction numbers are available or will be soon.
In other housing news, we have mentioned previously that this housing situation is being compared to the lows of 1991. Today the headline went back to 1982. We enjoyed the reference to "Field of Dreams" in the article. The CFO of Hovnanian Enterprises said they were not speculating on homes anymore and his quote was good, "We don't build them and hope they come." Great line. Terrible reality for residential housing.
Over at the NASDAQ things were not quite the same. Looking at the NASDAQ 100, NDX, it did open lower but quickly bounced to trade up on the day. It was a rally grinding higher all morning from being down about 20 to up about 10. From there though, the sellers came in and took it back down to the morning lows on the close.
Then there was the subset of the NASDAQ, the Philadelphia Semi-Conductor Index. This is the new strength in the market--why, we can't say. The members of that index that jumped in price were INTC and AMD, as well as AMAT, several of the stocks we have been following for years (not too much mention here at the Update recently). Apparently the market doesn't think the current environment will affect these businesses. In addition, MSFT was up today and contributed to the strength of the NASDAQ indexes.
We think that the position we are in is fine for now and we will begin to research what we are going to do over the next few months. Our first clue to re-adjust our position is to see the VXO move up to the 35-40 range and we'll need to get serious when it gets even higher than that. So, in the mean time we will need to get a plan together and watch several asset classes--we mostly expect we will be looking at gold mining stocks but there will be others.
FSI: 82.24 (starting down?)
VXO: 22.63 +1.67 (heading up to 50)
SDS: 67.24 +1.99 (that's better)
QID: 42.03 +0.36
Dow Industrials: 11,431.43 -224.64
Our Position:
Bearish on US stocks, Dow target of 9000.
Bearish on Gold, target of $600. Bearish on Oil, target of $100.
Still Bearish on US Residential Real Estate, no real target.
Bullish on US Treasury bonds, ETF TLT target of 100.
Bullish on US Dollar, target 90.
Bullish on Volatility, VXO to 50.
The stock market opened with a thud as AIG opened about 15% lower. That alone dropped the Dow by about 50 points but it opened even lower than that, down 100 and quickly dropped another 50.
Another item that put a drag on the market was the pre-open announcement that jobless claims had hit a six year high. Unemployment is rising, but consumers are still finding ways to spend money as the consumer credit was up last month, even with the government rebate program mostly behind us.
From there we saw a little meandering, yes we said meandering, until the last couple of hours when the sellers persistently took it down to close 225 points lower.
Some of the move back up was instigated by the news that the pending home sales went up 5.3% for the month. We would really like to see transaction amounts versus number of sales. The report even said that foreclosures were being purchased at prices significantly less than other houses in their neighborhoods. These transaction numbers are available or will be soon.
In other housing news, we have mentioned previously that this housing situation is being compared to the lows of 1991. Today the headline went back to 1982. We enjoyed the reference to "Field of Dreams" in the article. The CFO of Hovnanian Enterprises said they were not speculating on homes anymore and his quote was good, "We don't build them and hope they come." Great line. Terrible reality for residential housing.
Over at the NASDAQ things were not quite the same. Looking at the NASDAQ 100, NDX, it did open lower but quickly bounced to trade up on the day. It was a rally grinding higher all morning from being down about 20 to up about 10. From there though, the sellers came in and took it back down to the morning lows on the close.
Then there was the subset of the NASDAQ, the Philadelphia Semi-Conductor Index. This is the new strength in the market--why, we can't say. The members of that index that jumped in price were INTC and AMD, as well as AMAT, several of the stocks we have been following for years (not too much mention here at the Update recently). Apparently the market doesn't think the current environment will affect these businesses. In addition, MSFT was up today and contributed to the strength of the NASDAQ indexes.
We think that the position we are in is fine for now and we will begin to research what we are going to do over the next few months. Our first clue to re-adjust our position is to see the VXO move up to the 35-40 range and we'll need to get serious when it gets even higher than that. So, in the mean time we will need to get a plan together and watch several asset classes--we mostly expect we will be looking at gold mining stocks but there will be others.
FSI: 82.24 (starting down?)
VXO: 22.63 +1.67 (heading up to 50)
SDS: 67.24 +1.99 (that's better)
QID: 42.03 +0.36
Dow Industrials: 11,431.43 -224.64
Wednesday, August 06, 2008
AIG Puts Up a Dud for Earnings
Top Line: The market tried one more day of rally and this might be the last effort in this up move. The over zealous buyers in the NASDAQ just couldn't buy fast enough leaving the blue chips to lag on Wednesday. This is a dangerous sign that the up move is Over.
To us it doesn't seem worthwhile to discuss much about the day's trading because we think tomorrow's trading should be much more interesting. The stock market, at least in terms of the NASDAQ, seems to have put in a high for the move which means that we should be headed into the strong down move that should follow.
We marvel at the market advancing for these last two days and just wonder what these buyers are thinking. Some of them, it would seem, are merely covering short positions they couldn't hold for one reason or another. Others, caught up in the "This is Definitely thE Bottom" thinking, just want to make a quick trade.
And, then after the close AIG announced their latest bombshell, a $5.36 Billion loss in the latest quarter due to writedowns tied to the, say it with me, Housing slump. For our colleagues at American General Finance, we see the article discusses the Wilmington Finance mortgage business:
"AIG's American General Finance lost $40 million as the home lender increased its allowance for loan losses and spent money to scale back its Wilmington Finance Inc. mortgage business. The unit earned a profit of $43 million in the same period a year earlier."
We continue to view AIG as a market leader, especially a financial sector leader. Right now the company has put up three negative quarters in a row with no current end in sight, something which should be coming to a financial company near you.
Speaking of financial companies having difficulty, we wanted to mention Freddie Mac this evening. FRE posted earnings, well not earnings at all, just losses, to the tune of $1.63 a share. This GSE does what again??? Right it makes money in the mortgage market, or again, just loses money in the mortgage market.
Fannie Mae (FNM) and FRE are poster children for the Wednesday Update's housing theme. These companies are essentially bankrupt, meaning they don't have any surplus on the balance sheet but they continue to do business because of their apparent government sponsorship. We don't want to spend much time here on this subject because we think we've sufficiently pounded it into the ground, but we will let someone else write that part. The article indicates that the new CEO thinks he can "time the stock sale" even after a little dividend cut:
"Freddie today slashed its dividend at least 80 percent, and Chief Executive Officer Richard Syron reiterated that the company wants to raise $5.5 billion in new capital, saying it is evaluating what the appropriate timing would be to do so."
How much does this guy Make???
Looking back over the past couple of weeks, we said some things that have actually turned out to be correct but we Didn't wait for them and ended up missing out on the good timing...great. As always we seem to jump the gun a little but we would rather be a little early than a little late.
The market decided it didn't want to actually be done with the upward correction and managed to prolong the move for another ten days longer than we anticipated. It is possible that the correction is still not over but today's action in the NASDAQ seems final even though it still may try a few more points on the upside.
In the end the Bear will win the battle and we will move into a severe down slope and we think that is upon us as early as tomorrow (Thursday to you). Yes, we had a thought it might have been last Friday morning after the jobs' report and then again right after the Fed's announcement on Tuesday. The market has held on and put in a new high for the move starting at the July lows, not in all our major indexes but some. This divergence seems to be important and we will watch to see if it is over the next few days.
FSI: 83.12 (good move but still nearly 10% off the July high)
VXO: 20.96 -1.09 (extraordinary, absolutely No fear left)
SDS: 65.25 -0.44 (down again)
QID: 41.67 -1.27 (that hurts)
Dow Industrials: 11,656.07 +40.30
Both Jackson and Grampa were trying to take a little nap.
Two pals :-)
To us it doesn't seem worthwhile to discuss much about the day's trading because we think tomorrow's trading should be much more interesting. The stock market, at least in terms of the NASDAQ, seems to have put in a high for the move which means that we should be headed into the strong down move that should follow.
We marvel at the market advancing for these last two days and just wonder what these buyers are thinking. Some of them, it would seem, are merely covering short positions they couldn't hold for one reason or another. Others, caught up in the "This is Definitely thE Bottom" thinking, just want to make a quick trade.
And, then after the close AIG announced their latest bombshell, a $5.36 Billion loss in the latest quarter due to writedowns tied to the, say it with me, Housing slump. For our colleagues at American General Finance, we see the article discusses the Wilmington Finance mortgage business:
"AIG's American General Finance lost $40 million as the home lender increased its allowance for loan losses and spent money to scale back its Wilmington Finance Inc. mortgage business. The unit earned a profit of $43 million in the same period a year earlier."
We continue to view AIG as a market leader, especially a financial sector leader. Right now the company has put up three negative quarters in a row with no current end in sight, something which should be coming to a financial company near you.
Speaking of financial companies having difficulty, we wanted to mention Freddie Mac this evening. FRE posted earnings, well not earnings at all, just losses, to the tune of $1.63 a share. This GSE does what again??? Right it makes money in the mortgage market, or again, just loses money in the mortgage market.
Fannie Mae (FNM) and FRE are poster children for the Wednesday Update's housing theme. These companies are essentially bankrupt, meaning they don't have any surplus on the balance sheet but they continue to do business because of their apparent government sponsorship. We don't want to spend much time here on this subject because we think we've sufficiently pounded it into the ground, but we will let someone else write that part. The article indicates that the new CEO thinks he can "time the stock sale" even after a little dividend cut:
"Freddie today slashed its dividend at least 80 percent, and Chief Executive Officer Richard Syron reiterated that the company wants to raise $5.5 billion in new capital, saying it is evaluating what the appropriate timing would be to do so."
How much does this guy Make???
Looking back over the past couple of weeks, we said some things that have actually turned out to be correct but we Didn't wait for them and ended up missing out on the good timing...great. As always we seem to jump the gun a little but we would rather be a little early than a little late.
The market decided it didn't want to actually be done with the upward correction and managed to prolong the move for another ten days longer than we anticipated. It is possible that the correction is still not over but today's action in the NASDAQ seems final even though it still may try a few more points on the upside.
In the end the Bear will win the battle and we will move into a severe down slope and we think that is upon us as early as tomorrow (Thursday to you). Yes, we had a thought it might have been last Friday morning after the jobs' report and then again right after the Fed's announcement on Tuesday. The market has held on and put in a new high for the move starting at the July lows, not in all our major indexes but some. This divergence seems to be important and we will watch to see if it is over the next few days.
FSI: 83.12 (good move but still nearly 10% off the July high)
VXO: 20.96 -1.09 (extraordinary, absolutely No fear left)
SDS: 65.25 -0.44 (down again)
QID: 41.67 -1.27 (that hurts)
Dow Industrials: 11,656.07 +40.30
Both Jackson and Grampa were trying to take a little nap.
Two pals :-)
Tuesday, August 05, 2008
Big Bear Market Rally
Top Line: Tuesday's move was definitely not what we expected. These types of giant up moves usually happen in bear markets, oh, that's right, we're in one and a day like this confirms it. The pattern has developed differently than we had considered but is still Just a correction of the drop from May to July.
When we put our post to bed last night, we thought we might have a little rally on Tuesday but for some reason the futures were up overnight as the European markets opened. When our markets opened they were on a tear and they never looked back, all day long. Prices just went up and up and up with hardly a rest all day. This type of move is what we were expecting about a week ago to complete the upward correction but it did not materialize then.
The media indicated that the market was up due to oil being down and not because the Fed left rates alone again and didn't raise them. That is an odd comment after Monday's trading when oil was down nearly $4 and the market was heavy all day. But, who are we to argue with the all knowing media?
As for the Fed, they are in a box because the world has identified inflation as a problem (to us, inflation is yesterday's news) and the Fed wants to show that it is being diligent about inflation, please. The Fed knows that the credit crunch is in full force and they are trying to stem the tide of credit going out.
Meanwhile, oil and gas prices are falling in the past month and many other commodities are falling, too. The quintessential commodity, that would be gold, is dropping strongly, too. Today's move brought gold solidly under $900, with the price dropping about $22. So, while the Fed is paying lip service to their fight against inflation, commodity prices are way ahead of them.
After the market closed, CSCO announced that they had beaten earnings estimates by (are they serious?) one cent. Mr. Chambers was less than his normal optimistic self but the stock moved up strongly after the announcement anyway. So, the market, at least the NASDAQ anyway, is set up to open strongly again on Wednesday morning.
This apparent followthru from today's trading will be telling, but we think the market is very near the top of its range. As you know, this month we are keeping track of the closing level of the VXO, a volatility index. Today's level is
FSI: 81.72 (good move but not even close to the highs of July)
VXO: 22.05 -2.80 (down 11.27%, fear has left the stadium)
SDS: 65.69 -3.81 (ouch)
QID: 42.94 -2.89 (double ouch)
Dow Industrials: 11,615.77 +331.62 (highest close since the July 23rd high)
Yes, we do have a few more pics of Jackson and we will put them up tomorrow. You gotta come back for those.
When we put our post to bed last night, we thought we might have a little rally on Tuesday but for some reason the futures were up overnight as the European markets opened. When our markets opened they were on a tear and they never looked back, all day long. Prices just went up and up and up with hardly a rest all day. This type of move is what we were expecting about a week ago to complete the upward correction but it did not materialize then.
The media indicated that the market was up due to oil being down and not because the Fed left rates alone again and didn't raise them. That is an odd comment after Monday's trading when oil was down nearly $4 and the market was heavy all day. But, who are we to argue with the all knowing media?
As for the Fed, they are in a box because the world has identified inflation as a problem (to us, inflation is yesterday's news) and the Fed wants to show that it is being diligent about inflation, please. The Fed knows that the credit crunch is in full force and they are trying to stem the tide of credit going out.
Meanwhile, oil and gas prices are falling in the past month and many other commodities are falling, too. The quintessential commodity, that would be gold, is dropping strongly, too. Today's move brought gold solidly under $900, with the price dropping about $22. So, while the Fed is paying lip service to their fight against inflation, commodity prices are way ahead of them.
After the market closed, CSCO announced that they had beaten earnings estimates by (are they serious?) one cent. Mr. Chambers was less than his normal optimistic self but the stock moved up strongly after the announcement anyway. So, the market, at least the NASDAQ anyway, is set up to open strongly again on Wednesday morning.
This apparent followthru from today's trading will be telling, but we think the market is very near the top of its range. As you know, this month we are keeping track of the closing level of the VXO, a volatility index. Today's level is
FSI: 81.72 (good move but not even close to the highs of July)
VXO: 22.05 -2.80 (down 11.27%, fear has left the stadium)
SDS: 65.69 -3.81 (ouch)
QID: 42.94 -2.89 (double ouch)
Dow Industrials: 11,615.77 +331.62 (highest close since the July 23rd high)
Yes, we do have a few more pics of Jackson and we will put them up tomorrow. You gotta come back for those.
Monday, August 04, 2008
Patience, Waiting for the Fed
Top Line: The stock market is biding its time waiting for the FOMC meeting results before it makes its decision to go anywhere. Once their announcement is made, we think the market will be free to head South, now, it might be after a little trading excitement surrounding the news but ultimately we should see it drop. We don't think there is much time left to wait for a drop.
Since the drop is coming as early as five seconds after the announcement, we have completed our deployment of funds to the short side of the market. It took us about two weeks for this job because we were trying to get good prices. One thing, we had a notion that the NASDAQ would peak out a little later than the SP500 and that is what happened.
The SP500 peaked back on the 23rd of July and the next week could not best that high. The NASDAQ 100 made its high back on July 30 which is the last day we purchased QID. All of this is pretty fresh and is subject to being the victim of a spike in the next day or two but we do not think this will be the type of move that will take out the July 30th highs.
Today's action included a drop in the price of oil that took it down to a new low for the move since it peaked. Oil is now down almost 20% from its July peak of 147.90 but even a big drop today of just about $4 was not enough to help the stock market out of the red.
We have normally considered the jobs' report to be the significant news item of the month. We have also considered the period of time surrounding the end of the month or the beginning of the month to be a stronger time for stocks. Plus, normally Monday's are strong, too. We mention these things here due to the Lack of strength since last Thursday, including the jobs' report.
With the Fed meeting anticipated to be a formality with no real changes in the announcement, there should be no surprises for the market. The news should bring us the end of what little strength there has been over the past few days. We expect a small rally on Tuesday with the possibility of some continued temporary strength after the announcement. This will lead to a swan dive into the bottom of the pool over the next few weeks.
More after the news on Tuesday...
FSI: 79.67 (dipped below 80 again) [Editor's note: should be 78.50]
VXO: 24.85 +0.59
SDS: 69.50 +1.30
QID: 45.83 +1.05
Dow Industrials: 11,284.15 -42.17
Since the drop is coming as early as five seconds after the announcement, we have completed our deployment of funds to the short side of the market. It took us about two weeks for this job because we were trying to get good prices. One thing, we had a notion that the NASDAQ would peak out a little later than the SP500 and that is what happened.
The SP500 peaked back on the 23rd of July and the next week could not best that high. The NASDAQ 100 made its high back on July 30 which is the last day we purchased QID. All of this is pretty fresh and is subject to being the victim of a spike in the next day or two but we do not think this will be the type of move that will take out the July 30th highs.
Today's action included a drop in the price of oil that took it down to a new low for the move since it peaked. Oil is now down almost 20% from its July peak of 147.90 but even a big drop today of just about $4 was not enough to help the stock market out of the red.
We have normally considered the jobs' report to be the significant news item of the month. We have also considered the period of time surrounding the end of the month or the beginning of the month to be a stronger time for stocks. Plus, normally Monday's are strong, too. We mention these things here due to the Lack of strength since last Thursday, including the jobs' report.
With the Fed meeting anticipated to be a formality with no real changes in the announcement, there should be no surprises for the market. The news should bring us the end of what little strength there has been over the past few days. We expect a small rally on Tuesday with the possibility of some continued temporary strength after the announcement. This will lead to a swan dive into the bottom of the pool over the next few weeks.
More after the news on Tuesday...
FSI: 79.67 (dipped below 80 again) [Editor's note: should be 78.50]
VXO: 24.85 +0.59
SDS: 69.50 +1.30
QID: 45.83 +1.05
Dow Industrials: 11,284.15 -42.17
Sunday, August 03, 2008
Try to Avoid Large Principal Losses
Top Line: The stock market started August with some weakness but ended the day much better than where it could have. The new week should show some renewed selling most likely right after the Fed's announcement on Tuesday, whatever that might be.
We promised a reader that we would give her some advice about what to do with her portfolio right now. She suggested that our writing style is a little over the top and could we please make it easier to read? Well, we can at least try. We do think the Update needs to be scanned most every day so you can get a feel for the way we describe the market and the way it moves. There is a continuity to this blog that you can become familiar and comfortable with as you contemplate your own thoughts on the market...but we digress.
To our readers, we wish to convey that there is more to go on the downside. The way this all works is that stock owners feel pressure every day about their portfolio because it is going down. But, the media or your conscience has convinced people to hold on through the downturn because you know no one can really time the market. But, people keep watching the value of their mutual funds drop and get more nervous by the day. Finally comes the day when prices go low enough to dry people to sell and that sell order is just to get out. That time is rapidly approaching.
Our advice to our reader last week was to do one of two things, either sell Right now, or don't do anything, well, ok, maybe do something, like turning off the television so as not to hear how bad the stock market is doing over the next few months but do not trade out of you funds near the bottom of the move. That way you aren't tempted to sell into the weakness.
The stock market is about to enter a steep decline so the prudent thing to do is to sell your equity holdings, no matter where these are located in the world. Then you can by-pass the worst of the decline that is coming up. The idea would be to get back in at some point, much lower than here. Try to avoid those losses.
FSI: 79.67 (dipped below 80 again)
VXO: 24.26 -0.41
SDS: 68.20 +0.73
QID: 44.78+0.84
Dow Industrials: 11,326.32 -51.70
We promised a reader that we would give her some advice about what to do with her portfolio right now. She suggested that our writing style is a little over the top and could we please make it easier to read? Well, we can at least try. We do think the Update needs to be scanned most every day so you can get a feel for the way we describe the market and the way it moves. There is a continuity to this blog that you can become familiar and comfortable with as you contemplate your own thoughts on the market...but we digress.
To our readers, we wish to convey that there is more to go on the downside. The way this all works is that stock owners feel pressure every day about their portfolio because it is going down. But, the media or your conscience has convinced people to hold on through the downturn because you know no one can really time the market. But, people keep watching the value of their mutual funds drop and get more nervous by the day. Finally comes the day when prices go low enough to dry people to sell and that sell order is just to get out. That time is rapidly approaching.
Our advice to our reader last week was to do one of two things, either sell Right now, or don't do anything, well, ok, maybe do something, like turning off the television so as not to hear how bad the stock market is doing over the next few months but do not trade out of you funds near the bottom of the move. That way you aren't tempted to sell into the weakness.
The stock market is about to enter a steep decline so the prudent thing to do is to sell your equity holdings, no matter where these are located in the world. Then you can by-pass the worst of the decline that is coming up. The idea would be to get back in at some point, much lower than here. Try to avoid those losses.
FSI: 79.67 (dipped below 80 again)
VXO: 24.26 -0.41
SDS: 68.20 +0.73
QID: 44.78+0.84
Dow Industrials: 11,326.32 -51.70
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