Showing posts with label Dow Jones. Show all posts
Showing posts with label Dow Jones. Show all posts

Tuesday, September 20, 2011

The Rise and Fall of US Stocks All in One Day; Making a Budget and Sticking to It

The Markets

Stocks did an about-face midday on Tuesday, shaving away all of the morning gains as the afternoon wore on and word from Europe was mixed. The Dow Jones Industrials and S&P 500 each made a run at the lower end of their 50-day moving averages, hit resistance and failed, badly.

All of the averages made suspicious-looking early moves between 10 and 11 am EDT, hovered near the highs, made new highs around 2:00 pm and then fell remarkably into the close, with not even a hint of a closing bounce.

From a technical point of view, meeting resistance at the 50-day MA makes perfect sense and the indices will likely take another run at it in coming days, though it seems a hurdle too high to surpass, considering all of the significant headwinds facing companies (lowered earnings forecasts) and nations, especially those in the Eurozone - Greece, Italy, Portugal, Ireland - to say nothing about the current poor economic conditions in the USA.

Stocks have been mired in a basically directionless trading range for the better part of two months and that's making people even more nervous and keeping significant amounts of money out of stocks and into treasuries, corporate paper, cash and equivalents, gold and other tangible assets. The fear surrounding a default by Greece and the associated fallout to other European countries and banks has the market in a condition of near paralysis.

Until the sovereign debt issues are resolved one way or another, stocks will be unlikely to advance as investors are simply too afraid to stake out new, large positions.

On the data front, housing starts fell to a three-month low, from 601,000 annualized in July to 571,000 in August. With such a glut of cheap foreclosures and bank REO property on the market, in addition to the nearly 300,000 residential homes held by Fannie Mae, hope for a recovery by the end of this year are fading fast. With the onset of colder weather and the usual seasonal downturn, one could easily suggest that housing will dive even lower or bounce around the bottom until Spring of 2012 at the earliest. Of course, such numbers didn't faze Wall Street in the least. Optimists pointed out that building permits rose from 601K in July to 620K in August, though it's only a 3% move, barely more than a rounding error.

So, with Europe still a basket case and the US close behind, the markets are stuck in neutral, awaiting some kind of announcement from the FOMC, which began a two-day meeting today with a rate announcement due out tomorrow around 2:15 pm. The wording of the FOMC statement is unlikely to change dramatically, though many on the street believe the Fed will either outline some new policy such as "operation twist" in which they purchase longer-dated securities in order to drive long rates lower, or announce another round of quantitative easing, which would be dubbed QE3, though that concept, having already failed to goose the economy twice in the past two years, is unlikely to gather much traction within the Fed circle.

All should be expecting something from the Fed, even though many believe that they have exhausted nearly all of their policy tools.

Dow 11,408.66, +7.65 (0.07%)
NASDAQ 2,590.24, -22.59 (0.86%)
S&P 500 1,202.09, -2.00 (0.17%)
NYSE Composite 7,217.11, -17.52 (0.24%)
NASDAQ Volume 1,942,335,500
NYSE Volume 4,250,461,500
Combined NYSE & NASDAQ Advance - Decline: 2261-4207
Combined NYSE & NASDAQ New highs - New lows: 85-189
WTI crude oil: 86.89, +1.19
Gold: 1804.80, +26.30
Silver: 39.74, +0.09

Idea: Making and Sticking to a Budget

We've all heard forever that making a budget for household and/or business expenses and income is a smart and necessary step toward financial freedom and fiscal responsibility, but, taking our lead from Washington, few people seem able to keep the process honest or reach desired outcomes. Our federal government is probably the worst example of budgeting known to man, as the process is riddled with partisan politics, fudged calculations, unrealistic expectations and projections and extraneous falderol like earmarks, off-balance sheet expenditures and unfunded liabilities like Social Security and Medicare.

Household budgets are a bit simpler to make though not quite as difficult to keep. The best approach is to go for a monthly outlook, as most of us have recurring expenses that serve as a baseline. Things like utility bills, phone and cable bills, car payments, mortgage payments (though some of us have eliminated those recently) and credit card expenses come due at some time or another during the month and have to be paid in a reasonably timely manner.

After that, items such as food, clothing, entertainment, (liquor and cigarettes if so inclined) and other variable expenses should be calculated out on a monthly basis as best as possible. That way, one can readily see where overspending or potential savings might occur. The regular bills, known in the business world as "fixed expenses" aren't going to change much, if at all, month to month, and one will find that over time, even variable expenses don't bounce around very much.

Once one has all the monthly expenses lined up, then it's time to match it against income (if one still has any) and see how it balances out. If you are one of the lucky few who have an extra $5,000-$2,000,000 on the income side of the ledger, you can stop reading right here. You don't need a budget; you need a financial advisor or a beach house.

If, however, you're like most people, you'll see where all that money goes, and when you stop crying, you might find a little bit left over. Anything more than 10-20% above your monthly regular expenses would be a great sign. If you find yourself a few hundred dollars short each month, then there's work to do.

Where most people get into trouble is in making exceptions, overspending (usually caused by not thinking and acting on emotion), and bogus projections, like "I'll get a raise soon," or the classic fail, "when I start receiving Social Security checks..." as wishful thinking almost never returns positive results.

Another trap is not counting the little things that add up to big headaches without one noticing. Things like that morning latte - and doughnut, bagel, croissant or McDonald's McBiscuit - the extra tip for the heavenly lunch waitress or waiter, tolls, parking fees, snacks, bottled water, the occasional needed home item, more expensive gas than calculated, all contribute to budget busting in all but the most frugal environments.

There are remedies for those items, such as keeping receipts for everything or a log book exclusively for "little" expenses, but the best way is to take your monthly expense total and add 10% to it, calling it the miscellaneous expense column. If you're judicious and cautious, you'll find yourself spending less than that 10%, but it's doubtful it will add up to very much. The key concept is that every dime and dollar counts, even those $200 binge nights out with the guys or gals.

In the end, we'd all like to earn more and save more, the goal eventually being filthy rich and not having to worry about money any more. Since that's an unlikely event for the vast majority, taking a little time each month to review and preview income and expenses gives one a clearer outlook on where one's been, where one's money is going and what can be done about it.

There are an assortment of online tools and sites which can provide some assistance. Here's a good place to start, with brief reviews of some of the best budgeting websites.

Wednesday, May 18, 2011

Making Money at the Margins and Why the Rigged Game Doesn't Matter

OK, all you wise guys who think they know how the markets work and how to make money in them. If you've been paying attention the past few weeks and months, you may have noticed some kinds of patterns that have developed, both in individual stocks and in the general indices.

One such pattern is playing out right now, and, of course, as all things on Wall Street are now played out in factors of milliseconds, this one and its tangential cousin, is pretty obvious.

First, let's look at the overall picture and then we'll jump into the tangent by-product of what is essentially a swing trade that takes place over the span of a few weeks, but can be played by the day, hour, or, if you have ultra-fast connections, the millisecond.

It's all about movement and that herky-jerky, up-down action that's become so common over the past ten years or so. Taking a look at the movement of the Dow Jones Industrials over the past two weeks (actually, 13 trading sessions, or the month of May, to date), we find the following:


So, we see stocks go up, stocks go down, but, by the end of the day, the RANGE, from the highs to the lows, are amplified double, triple or many more times the amount of gain.

Why is this significant? Because, if you know which way the market is going, minute-to-minute, day-to-day, obviously, you can make a fortune. And you know those sharpies at Goldman Sachs, Merrill Lynch (owned by Bank of America), Morgan Stanley and JP Morgan have all been boasting some awesome profits on their trades. Most of them will go entire quarters without having more than one or two losing days.

How do they do it, and why can't you and I? Because, they pretty much are the market. Their volume of trades is probably 75% or more of the total volume trading. They can move individual stocks any way they like, whole indices if they work in collusion. Funny word, that collusion. In its barest form, it is defined as: Secret or illegal cooperation or conspiracy, esp. in order to cheat or deceive others. Oh, yeah, and it's very, very illegal.

Now, I'm not saying that these big Wall Street firms are engaging in anything illegal. After all, the government just bailed them out with billions of dollars of taxpayer dollars a few years ago and the Fed keeps shuffling them money nearly every day via their POMOs. So, why would they need to cheat?

Well, nobody has to cheat, but it sure makes the game a heck of a lot easier if you do. And, judging by what these very same firms did when they were hurling mortgage-backed securities and credit default swaps around, they've shown a propensity for, uh, cutting corners and shading the truth, all to their advantage.

By determining the direction of the market due to the size of their cumulative trades, they almost have to make money every day, every minute, every, yes, millisecond. They are the best at their craft, no doubt about that, and they can shave every last dollar off an individual investor's hide. No doubt, they are not very concerned with the success or failure of anybody but themselves and their largest clients, who are likely clued into the game and whose money they use to goose or deflate stocks and whole markets.

Face it, with four or five big firms handling most of the daily volume, does anybody else really stand a chance? And just how reliable are these stocks which are jumping around in inconceivable patterns on a fundamental basis?

It makes one question the validity and freedom of our markets, something which I've called into question many times here. To be perfectly honest, I've often considered giving up this daily blog, because, when one gets right down to the nitty-gritty details, there's no technical analysis needed, no market savvy needed. All one really has to do is go with the flow, day-by-day, every day, to make money, but that assumes you know which way the flow is going. It would be a full time job, though there's no guarantee that even the smartest, most skilled day-traders, armed with the best data and fastest computers, would come out ahead, only because the big boys on the inside would be skimming at the margins all along.

There's little doubt that the traders on the street, employed by the major firms, have a massive advantage, and it's probably much the same way in commodity markets, forex markets and any other market in which they have established a presence. While the markets may be kind to those at the top, the risk level is quite high for everyone else, and that's why I just write about it. I haven't made a single trade in almost two years, and even then I was playing very lightly.

So, what to do?

Honestly, I don't know. I've advocated silver and gold for the past few years, but we've seen recently what can happen there, especially in the case of silver, which took a 30% haircut in just about two weeks time, proving no market is safe from the ravages of the Wall Street gang.

That covers the general trend here. No about that tangential trade. Referring to the chart above again, notice today's action: an 80 point gain and a mere 128 point range. Today's trading was almost all one-way, and I'll wager that tomorrow will be more of the same, and maybe even Friday, too. Why? Take a look at the calendar. Options expiration is Friday and there's plenty of money out there looking to cash in on the upside.

For all the ups and downs over the past 13 sessions, the Dow is only down 250 points, about 2%. By Friday, there's a very good chance it will be less than that, and a whole bunch of traders will be high-fiving each other over their exploits in the options markets.

Hey, it's a lifestyle.

Dow 12,560.18, +80.60 (0.65%)
NASDAQ 2,815.00, +31.79 (1.14%)
S&P 500 1,340.68, +11.70 (0.88%)
NYSE Composite 8,407.48, +74.41 (0.89%)

Things turned dramatically today for now apparent reason. Advancers trounced decliners, 4999-1573. On the NASDAQ, a dead heat. There were an equal number of stocks making new highs and new lows, 52 of each. Over on the NYSE, new highs led new lows, 121-22. Volume was right back in the old toilet, simply because, as stated above, there aren't that many players.

NASDAQ Volume 1,893,562,500
NYSE Volume 3,871,767,500

Crude oil was up sharply, gaining $3.19, to $100.10 on reports of a drawdown in supply and raging fires in Alberta, Canada, home to major oil operations. While Canada is our largest supplier of oil (no, honey, not those nasty A-Rabs), the amount of crude affected is a small fraction of the daily import total, but that doesn't matter to the market manipulators, apparently. Anything to goose the price at the pump a little higher, they'll use it, whether it makes sense or not.

Gold managed a gain of $9.90, hitting the $1496.90 mark, while silver rocketed higher by $1.11, to $35.02. Word has been circulating that the major shorters of silver have cut back their activity to a level not seen since last fall. That should be a signal to most silver players that it's safe to wade back into the market, as the price manipulators have covered their out-of-line bets and gone to play elsewhere.

What else can one conclude from the wild swings and unusual weather but that ours is a very strange and still quite untamed world.

Thursday, February 11, 2010

The Diversification Lie

Whenever and wherever investment strategies are the topic of discussion, sure as the sun sets in the West, somebody will open their yap about the need to be diversified, of not having all of your eggs in one basket, of segmenting your portfolio to match your investment style and other such sage advice, all of which serves to increase trading activity, market liquidity, but mostly, the size of your broker's monthly commission check.

Unless you are sufficiently wealthy (in which case, you'd probably be in TIPS or Treasuries or another high-yielding asset class), diversifying your portfolio usually means spreading out your risk over a number of different stocks or a combination of stocks, bonds, mutual funds and money markets. All of this results in a higher transaction rate, good for the financial services industry and bad for you. It's just plain money out of your pocket, and diversification, as has been proven in bear markets and bulls, isn't a safeguard against risk, nor does it help maximize profits. At best, diversified portfolios amplify losses and reduce profitability.

What we'd all like is a couple of dead-nuts winners and no losers. Diversifying, spreading out and trading frequently only reinforces the desire to trade - or, gamble, which is exactly what it always has been and always will be - while virtually guaranteeing mediocre results. The normal result of spreading, if you're lucky, is a couple of winners, a couple of losers and an overall performance that will be somewhere close to the averages. You might as well just buy index funds or play index futures or options, forget everything about charts and fundamentals and timing and just bet one way or the other. Like any other wager, you'll win some and lose some and probably come out a loser, which is how most people doing their own trading end up.

Mediocrity is what keeps brokerages and professionals in business. Sooner or later, all those day-trading wizards burn out because, just like in Las Vegas, they can't beat the house, which on Wall Street is better known as the inside money - the very brokers who use your money to gamble and hedge against. Individual investors surely don't stand a snowball's chance in hell in today's trading environment, when stocks turn on a rumor, phrase or the whim of the inside money, so diversification only accelerates the losing process, all to the great satisfaction of the Fat Cats.

The only way to win in stocks, just like gambling, is to make large, smart moves and make them as infrequently as possible. Buy and hold is still a viable strategy, but the trick is knowing not only what to buy, but when, and when to get out. A single big winner is still the best strategy. All the diversification talk is pure bunk, made for fools who think they're actually "investing."

Get real. Save your money. In a sock. When you've got $100,000, think about how badly you'd feel losing 10 or 20% of it, or more. You'll forget investing and go back to saving. Believe me, I spent years analyzing stocks, markets, investments, the economy and more, and I WON'T PUT A PLUGGED NICKEL INTO STOCKS, mostly because I know the pros still have a huge edge.

Think it over. Do you have 8 to 10 hours a day to plot your moves and act upon them? Do you have other people backing you who will support your trades with trades of their own? Do you have huge sums of money to hedge and cause market runs and momentum shifts? Obviously not.

A case in point is today's rally, yesterday's decline, the rally the day before, the sharp drop the day before that. do you have the stomach for that kind of volatility? Up one minute and down the next? I didn't think so.

Dow 10,144.19, +105.81 (1.05%)
NASDAQ 2,177.41, +29.54 (1.38%)
S&P 500 1,078.47, +10.34 (0.97%)
NYSE Composite 6,898.72, +79.60 (1.17%

Advancing issues beat back decliners, 4874-1598 (3-1); 140 new highs, 65 new lows, still not enough of a spread to call any change in direction. Volume was average.

NYSE Volume 5,165,277,500
NASDAQ Volume 2,149,687,500

Stocks remain in a consolidation phase around Dow 10,000, which could last a few more weeks before a breakdown occurs. Upside potential remains weak due to current economic conditions.

Commodities caught some fire on Thursday, though oil was down 2 cents, to $75.28. Gold added $18.90, to $1,095.20. Silver ended 29 cents higher, at $15.59.

Unless tomorrow is a huge day to the downside, stocks are on track for a winning week, which would end a string of four straight losers. That's a bet worth taking. The only other week stocks finished higher in 2010 was the first week of the year.

Tuesday, February 2, 2010

Earnings Check-up Spurs Stocks Higher

A big surprise from homebuilder D.R. Horton (DHI) pushed stocks higher on Tuesday, as optimism spread that the US economy was truly on the rebound. The company said it earned $192 million, or 56 cents per share, in its fiscal first quarter, after analysts' called for a loss of $62.6 million, or 13 cents per share. The gigantic improvement, however, was mostly due to a tax gain of $149 million, making the true earnings picture much cloudier. Shares of D.H. Horton rose nearly 11% on the day.

Additionally, Emerson Electric (EMR) beat estimates, posting a profit, though a smaller one than last year at the same time.

Dow Chemical (DOW) may have had the most sobering and honest report of the day, though. The company earned $87 million, or 8 cents per share, compared to a loss of $1.55 billion, or $1.68 a share, in the year-ago period. While becoming profitable again, Chairman and Chief Executive Andrew Liveris warned that growth in the US and Europe may lag and that the overall global economy remains uneven.

Investors took all of this in stride and bought stocks like they were going out of style, which, to some degree, they actually are. There's more and more investor skittishness stemming from the financial meltdown of '08 and the missteps and inconsistent signals from both the administration and congress aren't helping matters much. A ton of money is still parked in money market funds or headed into less-mainstream investments.

Stocks are below their recent highs, though not down far enough to encourage the kind of wide-eyed participation seen today.

With the January non-farms payroll data due out on Friday, and ADP's private employment survey hitting the wires prior to Wednesday's open, the two-day rally may be more of a bounce than a lasting event. Unemployment remains stubbornly high and any disappointment in the upcoming employment data may skewer those who rushed in yesterday and today.

Besides the worries over unemployment, price rises in stocks are pushing p/e ratios close to nosebleed territory even though many companies have not increased revenues to the point at which they are planning to hire.

Dow 10,296.85, +111.32 (1.09%)
NASDAQ 2,190.06, +18.86 (0.87%)
S&P 500 1,103.32, +14.14 (1.30%)
NYSE Composite 7,101.44, +93.21 (1.33%)

Advancing issues outpaced decliners by a healthy margin for the second straight day, 4470-2051. There were 157 new highs, to just 57 new lows. Volume was very good, though not out of the recent range.

NYSE Volume 5,502,060,000
NASDAQ Volume 2,508,011,500

Commodities advanced, with crude oil leading the charge, up $1.77, to $77.23. Gold rose $13.20, to 1,118.20. Silver gained 8 cents to $16.74.

The major indices fell through their 50-day moving averages last week, so a snap-back rally like this is not unconventional. Notably, the 50-day moving average for the Dow Jones Industrials has reversed course, pointing lower for the first time since July of last year. It's going to take more than a few company earnings reports to restore confidence and resume last year's miracle rally.

A more probable outcome is that stocks languish further after earnings dissipate from investors' minds and the focus shifts more toward economic reports, the government and outside events. Growth in the economy has returned, but the stock market gains were so overdone in '09 that there's little upside from here.

Adding to the confusion are housing and unemployment, which remain the bogey men in the closet. Nobody is going to sleep well until foreclosure data begins to subside and employment begins to perk up. For now, it's mostly empty rhetoric and cheerleading from major firms and the entrenched financial reporters who toil on Wall Street.

Real estate markets across the country are still reeling, government budgets are broken, especially in municipalities of more than 100,000, and jobs simply are not being created by the biggest companies. The stimulus package passed by congress last year only staved off a depression. Another round of stimuli - focused on Main Street and small business - is essential to sustain any momentum that's been garnered.

As for stocks, they're generally 20-30% below their 2007 highs, and while many investors are hoping for a return to those levels, that outcome is highly in doubt because stock prices were wildly over-inflated at that juncture. The collapse of the market was more a predestined event than a surprise, so bullish arguments for continuation of the rally - which seems to have fallen apart - ring hollow.

Wednesday, October 14, 2009

Dow Pops 10,000

I am actually exhausted from playing today's breakout rally. I've been up since 4:00 am, so great was my anticipation of the day the Dow finally popped 10,000. Here's what you need to know:

The last time the Dow crossed and closed above 10000 was on December 11, 2003. By January 26, 2004, it had topped out at 10,702, finally peaking in October, 2007 above 14,000.

Prior to that, the Dow's first cross of 10,000 was March 26 of 1999, during the heat of the dot-com boom. After testing the level for 5 trading days, the index finally climbed above the mark on April 7. On January 16, 2000, it peaked at 11722.98.

The people telling you that Dow 10,000 is insignificant and that it has crossed over that point 26 times are misleading you, whether on purpose or through partial ignorance. Every time the Dow has pierced the 10,000 mark to the upside in the midst of a rally, it has continued higher, significantly.

Today's move was interesting in that it came with options expiration just 2 days away. This kept a lid on stocks through most of the session, frustrating all but the most savvy investors, who knew that option positions were being flipped with every uptick short of 10,000. By 3:00, the lid came off as players sat back, counted their profits and held overnight. Some of the biggest options payoffs come on the final days of trading, though recently, Wednesdays have been the most active. Nobody wants to be caught in an upside down position with no way out, so holding until the final expiration is only for the best or the worst options traders.

Noting that, Thursday and Friday may be a little light, but Monday, when new positions are being staked out, should be explosive. There are more earnings due out over the course of the next three weeks, with the next two the busiest. Knowing which stocks to play will be essential to profits.

Dow 10,015.86, +144.80 (1.47%)
NASDAQ 2,172.23, +32.34 (1.51%)
S&P 500 1,092.02, +18.83 (1.75%)
NYSE Composite 7,182.38, +150.51 (2.14%)

Today really was all about the Dow Jones Industrials, but only 25 of the 30 stocks were gainers. Home Depot (HD), Johnson & Johnson (JNJ), AT&T (T), Verizon (VZ) and Wal-Mart (WMT) were the only losers and their losses were light. There will always be laggards, but as long as there are leaders, the Dow Index is still relevant.

On the day, simple indicators expressed exactly what kind of session it was: BULLISH! Advancers clobbered declining issues, 4887-1640 (3-1). New highs were all over the place, 921 of them, the most in over two years. There were 94 new lows. Volume was average, which means that those still out of the market have not yet found the courage to get in the game. They have missed the most significant rally of a generation, but the best part is that they don't know it's not over yet. There are still plenty of success stories to be told in this rally. When the outside money comes in, it will just add fuel to the already overheated fire and probably cause a correction as profits are taken with enthusiasm. Market tops always occur when the late money or stupid money gets involved and this is no different.

NYSE Volume 6,248,702,000
NASDAQ Volume 2,383,078,250

Talk has been rampant about predictions for the end of the year. Dow 10,700 and 11,150 and S&P 1200 have been popular numbers thrown out by experienced, professional traders. Those sound like reasonable targets. All of the major indices made new 2009 and multi-month highs.

Commodities took a back seat to stocks. Oil gained $1.03, to $75.18. Gold fell 30 cents, to $1,064.70. Silver was up 7 cents, to $17.91. They were a side show, but still tradable on pullbacks.

The rally was led by a troika of grand news. Intel posted exceptional 3rd quarter numbers and even better guidance. JP Morgan Chase blew the lid off, beat the 52 cents the street was expecting by 30 cents. 82 cents per share! Then, at 8:30 am, retail sales showed improvement when the cash for clunkers was stripped out. Finally, consumer demand has emerged. Just n time for Christmas.

There are more companies reporting tomorrow, notable Goldman Sachs (GS) and Google (GOOG). They are both expected to have blockbuster results.

The importance of Dow 10,000 cannot be underestimated. everyone who works on Wall Street feels better tonight than they did this morning. All investors who are in the market are probably a little more at ease. We, after all are human, and the number is an emotional one. It just plain makes us feel good about the economy. Everyone on the planet can relate to the big, round number, especially following the events of the past year.

There are more gains ahead.

Happy trading!

Friday, October 9, 2009

Blowing The Top Off

On strength in the health care and technology sectors, US equities managed to finish one of their best weeks of the year with a strongly positive session. IBM led the Dow to new 52-week and 2009 highs, while the S&P finished just .17 short of its high for the year, set back on September 22 (1071.66). The NASDAQ also closed within shouting distance of its 200 closing high, just 7 points short of 2146.30, also the close on September 22.

The major indices closed higher every day this week except for the Dow, which posted a 6-point loss on Wednesday. This sets up an interesting scenario for the first big week of earnings season. A number of highly-traded stocks report next week, including Charles Schwab (SCHW) on Monday; Intel (INTC) and Johnson & Johnson (JNJ) on Tuesday; JP Morgan Chase (JPM) on Wednesday; Citigroup (C), Cypress Semi (CY), Goldman Sachs (GS), Google (GOOG), IBM (IBM) and Nokia (NOK) on Thursday; and Bank of America (BAC) and General Electric (GE) on Friday.

Dow 9,864.94, +78.07 (0.80%)
NASDAQ 2,139.28, +15.35 (0.72%)
S&P 500 1,071.49, +6.01 (0.56%)
NYSE Composite 7,015.54, +24.87 (0.36%)

Advancing issues beat decliners, 3942-2445, though the gains were not as broadly-based as earlier in the week. New highs beat new lows, 482-45. Volume was significantly below the levels of the rest of the week, but nobody seemed to care, with stocks soaring, even on a day in which the markets decoupled from the dollar trade, which was strengthened through intervention by the Bank of Japan and some veiled comments from the Fed Chairman, friendly uncle Ben Bernanke.

NYSE Volume 4,310,388,500
NASDAQ Volume 1,900,588,625

Due to the strong dollar, moves in the commodity markets were muted, though oil managed to gain 8 cents, to $71.77. Gold kicked back from its three-day record run, losing $7.70, to $1,048.60. Silver relinquished 13 cents to close at $17.69.

Considering the conditions in the market, it was something magnificent to see the Dow soar to a new closing high, but the US economy appears to be something of a coiled spring, about to explode with growth in all directions. Companies have cut the workforce to the bone while recovering from the worst financial crisis since the Great Depression. While there are still voices of macro-economics who believe that our debt levels are too high (they are) and the banking sector too weak (probably not in comparison to the rest of the world) to promote significant expansion, companies and investors are not convinced. Most of the working population is working, though this latest recession and the accompanying stimulus may have created an even larger underclass of unproductive cretins living off the earnings of the producers.

The big fear is that unemployment stays at elevated levels for too long a period. The government, by its actions such as extending unemployment benefits and increasing welfare payments only serves to exacerbate the condition, and washington must reign in its own profligacy. Otherwise, the massive spending the feds have thrown at the problem will create an ever more severe economic crisis in which the government cannot meet the demands of the people it is sworn to serve.

It's likely a very positive development that the dollar exhibited some strength and that bonds have sold off, increasing yields. If anything, the market, especially bond yields, will telegraph the next Fed move to raise interest rates, which seems to be coming sooner rather than later, and would be a good sign of real recovery and strength.

What most economics fail to include in their calculations are the robust dynamics of the US economy and the magic of innovation, which usually serves as a spur to both economic and job growth. The government jawboning about clean and green energy is a step in the right direction, but the markets will be the ultimate arbitrageur of what works and what doesn't. New products continue to come to market, and that builds economic activity more than any feeble weak-dollar trade ever could.

The US economy appears poised to break out into a new era of prosperity and the market is forecasting that development. As trite and cliche as it may sound, those who say that it's a mistake to bet against the US economy are probably dead right.

Tuesday, February 24, 2009

Nice Bounce, But the Dow Is Headed to 5237

Tuesday was get even day for the bulls, wiping out most of Monday's losses, almost as though they never happened. But they did, as we know, with the Dow, S&P and NYSE Composite all breaking below support and hitting new lows.

So, while Tuesday will likely go down in the books as a simple snap-back rally, Monday was the more portentous of the two days, and we are now sure as shootin' going back to the 7100 level, though just when that happens is an open question.

Dow 7,350.94, +236.16 (3.32%)
NASDAQ 1,441.83, +54.11 (3.90%)
S&P 500 773.14, +29.81 (4.01%)
NYSE Composite 4,821.73, +187.95 (4.06%)

The likelihood of a rally is very good here, as the market was technically oversold. There are still speculators with cash in hand, dying to jump in and today was one such day. Their hopes of quick, easy money will be soon dashed. It took three months to retrace back to the November 20 lows, so surely a 2-4 month time span is surely appropriate for a revisit to 7114.78, yesterday's close.

For the rest of this week, though, and into next - prior to the Friday, March 6 BLS Non-farm Labor report - prospects are reasonably good for gains.

We've entered a period of the recession and bear market that may prove difficult to track and predict. Major indices have taken half off their 2007 peaks, so further deterioration should be slower and more agonizing. We could witness a period of sideways action for some months, but an eventual, final purge is needed and we haven't gotten to such capitulation yet. That could come in 6 weeks or 9 months. It's up to the markets and highly dependent on how well the government handles the crisis, which, up to this point, hasn't been very promising.

Fed Chairman, Ben Bernanke, testifying before congress today, said, "it is reasonable to expect the recession to end this year." Should we believe him? Maybe, maybe not. Recall, this is the same man who said that the subprime problem was "contained" back in the first quarter of 2008, so we know that his powers of prediction and grasp of the situation are less than accurate. Furthermore, he's presided over the worst economic catastrophe since the 30s, and as of yet his solutions haven't produced any positive developments. Still, even a broken clock is right twice a day, so, by calling for an end of the recession in 10 month's time, the erstwhile chairman has provided himself plenty of room for error.

Yesterday, I postulated that this recession, being larger and far different than anything other than the Great Depression, is going to last longer and plunge the US economy deeper than the others, which generally last 16-24 months. I am still looking at a horizon of 27-30 months duration, which puts recovery off until January 2010 at the earliest and June 2010 at the latest, using September through December 2007 as the actual start of the recession.

So, where's the bottom? I ran some calculations, using a fairly simplistic - but I believe sound - formula: comparing the price of the Dow Jones Industrials to the annual growth rate of US GDP.

I found an excellent site for tracking GDP growth rates by region and country back to 1961, here.

Using 1992 as a baseline, annual GDP growth over 17 years (1992-2008) came to 2.94%. Then, using the same baseline for the Dow, I calculated that 2.94% growth on top of the Dow at 3200 (an average closing price from January-March 1992, a very stable period). The result was 5237. Mark that number down, because that's where the Dow is headed.

To get an idea of just how overinflated the Dow (and stocks in general) had become from 2005-2008, consider that starting at 3200 in 1992, the Dow grew by more than 9% per year over that 17-year span. It's simply not believable, rational or normal for stocks to advance at such an exceptional rate. 2-5% is more like it, and that's why - back in the good old days before 1980 - investors sought out stocks more for their dividend yields than their growth potential.

Obviously, the internet and the coming of age of baby boomers brought in a gaggle of rubes who knew little about investing, and the market now has rewarded them justly by eviscerating most of their money. The market is probably going to take a little more before it's done.

One can argue that my analysis is too cursory, arbitrary and that it doesn't account for inflation or dividends, and to that I say, well, do your own analysis, please! I encourage all investors to analyze, slice and dice and dissect the markets for price discovery. There are many methods, and I believe mine will prove as sound as any. I'll state right here and now that I'll be within 400 points of the eventual, true bottom, and I'll accurately predict the market bottom to occur between August and November of this year. (Hey, it's only my reputation at risk here.)

Getting back to Tuesday's issues, besides Bernanke blathering at the insipid senators and lethargic legislators, the S&P/Case-Shiller Home Price Index dropped 18.55% in the 4th quarter of 2008 from the same period in 2007. Nationally, home prices are down 23% since their mid-2006 peak, suggesting that the decline is far from over.

Between the stimulus plan, bank bailout and foreclosure plan forwarded by the president and congress over the past few weeks, the housing market should bottom out by this time next year, with a total national decline of 34-38%, though many homes in what were once the hottest markets could fall by 50% or more.

Consumer confidence checked in today with a record low reading of 25.0, The Conference Board reported.

On the day, advancers finally held the edge over declining issues, 5271-1401. New lows continued ahead of new highs, 736-9. Volume was very strong, a function both of pent-up demand and furious short-covering.

NYSE Volume 1,841,785,000
NASDAQ Volume 2,371,004,000

Commodities were once again mixed. Crude oil futures finished $1.52 higher, at $39.96. Precious metals continued to be hit by a profit-taking wave, as gold pushed lower by $25.50, to $969.50. Silver presented investors with a buying opportunity, down 46 cents, to 14.00.

As mentioned before, gold and silver still look attractive at current levels and they will present buying opportunity over the next few weeks and months. Stocks are still risky, though if you are day-trading, good gains are possible for quick-turn artists.

Tuesday, September 4, 2007

Stocks continue win streak

The Dow Jones Industrials closed on Tuesday at its highest point since August 8, though it is still 210 points below that level and a full 552 off the all-time high. On the first day back from the Labor Day weekend, the message was clear: there's room on the upside as well as the downside.

The Dow closed positively for the second day in a row, though follow-through beyond that is questionable. The Dow has not put together 3 winning sessions since that August 8 date, when the index closed at 13,657.86, and that number would need to be exceeded to re-confirm the bull market. Failing that, we would be in the early stages of a confirmed bear market.

Those of us willing to go out on a limb would suggest that we've already begun the bear, instead of being caught in the clutches of a nasty "correction", which was, in fact, cut off at the 10% declination by the Fed and the PPT, or Goldman Sachs, Lehman Brothers and the rest of that gang of thieving, conniving bankers and brokers.

While the Fed, the Treasury, the government, the big banks and brokerages, the financial press and that weird guy down the street with the funky hat don't want the general public to be alarmed that the stock market has turned bearish or that there's even a "correction", the matter seems somewhat already settled by scores of traders who are steering clients clear of US stocks and have been for the last three weeks.

Dow 13,448.86 +91.12; NASDAQ 2,630.24 +33.88; S&P 500 1,489.42 +15.43; NYSE Composite 9,698.68 +101.40

So, the sheeple investor is being led by the nose to a serious shearing, if not an outright, bloody slaughter. Those daring to dip a toe into the long side of the trade are willing to buy the absolute lie that the Fed and the banks can manage the destruction of trillions of dollars of investments without the US economy suffering so much as a hiccup. It's the blind faith of fools which is leading this market higher, without the benefit of any fundamental chart confirmation.

Buy if you like, but cooler heads are staying on vacation for the foreseeable future.

Volume on the markets today was better than it has been for most of the past three weeks, but hardly what anyone would call "heavy."
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Advancing issues were better than decliners by about a 5-2 ratio, and new highs outdid new lows (for the second day in a row), 164-101, though that margin is hardly convincing.

The Dow actually punctured upside resistance late in the day on Tuesday, but quickly retreated 40 points into the close.

Oil was up another $1.04 to close at $75.08, while gold added $9.60 to $691.50 and silver was up 22 cents to close at $12.45.

The peculiarity of the commodity surge is that it should not occur in a vacuum as this current manifestation is. The correlation between stocks, oil and metals is as broken as the credit markets. Albeit, life goes on, until, at least, the next calamity.

Keep an eagle eye on Dow 13,657. If that number is not exceeded, more downside can be expected in short order. Getting beyond that will take a herculean effort, or, failing that, extreme measures of manipulation by covert insiders.