NEW WARNINGS - DOW THEORY

More "Get out of Dodge" warnings.  Are you starting to see a trend here?

Richard Russell - SELL EVERYTHING

I guess that makes 3 of us.  I keep hearing folks tell me that if they sell out of something, what should they buy as a replacement.  Remember the old adage..... That we sometimes should not worry so much about the return ON our investment, but rather we should be worried about the return OF our investment.

Ok, given the think fog of bearishness, I would not be shocked at all to see some round of government intervention to save us all this weekend.  If there was ever a time to do it, it would have been to give us a strong day today to reassure investors over the long weekend.  Clearly we finished weakly so we holding our breath waiting for our government to save us.

GOATMUG

DOES THIS ARTICLE SAY THAT?

Please click on the link here for a MarketWatch article.  I think this guy is more bold in preaching his message than I am even though we are in total agreement.  (Perhaps I have a softer way of speaking?)  It's interesting to read from my perspective because I'm sitting here nodding my head as I review it, but at the same time I am shaking my head saying to myself...."this guy sounds like a whack job!" 

I guess now I know how many people feel when they read this blog.  I do try to balance the information with a good dose of bearishness sprinkled in with a picture of what could be different if I'm wrong.  I also try to highlight trend changes and things that demonstrate that improvements could be coming.

So, this guy doesn't mess around, just drops it in our laps and says get ready.  Personally, I think we have about 10 to 15 days to prepare (meaning market advance higher) and then it begins to crumble in earnest.  This is about the amount of time we've had between flash breakouts of new credit concerns in the Eurozone.  10-15 days is enough to lull one to sleep to get your portfolio blasted..  Don't say we (or the credit markets) didn't warn you.

MARKET CRASH

Oh yes, and if you are thinking that the new "Son of Stimulus" that is being thrown about by the Obama Administration is going to help us, you can think again.  $200 Billion in newly printed, errrr... wasted dollars won't do anything but give some government worker a job for a month or two.

GOATMUG

THIS CORROSION - LIBOR MELTS UP

I found an interesting chart to examine.  This is the 1 week-Libor rate (or the rate in which banks lend to each other overnight or in this case a 1 week rate).

Basically this is the level of trust between banks as each needs different levels of cash to support operations on a daily basis.  If they have money left over, they will lend it to others at the specific Libor rate for that time period.

As you look at this rate you must discern what the "normal interest rates" are for the current period, meaning that comparing today's Libor rates against that of 2007 will show that Libor rates are much lower now, but remember the economic climate back then was that we were coming out of a recession in 2002 and 2003 and the Fed had raised interest rates and their really was a global bull market in place in all assets - stocks, bonds, real estate markets and everything else were roaring.  What is interesting though is to examine the rate conditions on a very short time frame to see what is happening to examine stress in the market.

Currently the 1 week Libor rate is at .32% or 32 basis points (1/3 of 1 %).  Doesn't sound like much does it?  Well, it isn't as it is a direct result of the low overnight funding rates provided courtesy of central bankers that want to pump liquidity into the banking market.  Central bankers manipulate overnight lending rates in an effort to drive down borrowing costs in the front end of the curve and stimulate economic activity.  What is interesting though is that we examine the movement of the 1 week Libor over the last couple of months.  Despite promises of a trillion euros of liquidity and support for country debt, we see an escalation of prices or a corrosion of confidence between banks. 

While these rates are NOTHING like we saw in October of 2008 in the Lehman and Bear Stearns crisis, they are elevated and signaling trouble.  THESE NEED TO BE ON OUR RADAR as this was one of the key metrics that allowed me to pull all of my money out of the market in December of 2007.  Note also that this is the highest rate for 1 Wk Libor in more than 1 year.  If this rate begins to recede, great, but if it doesn't it will be cause for further concern regarding a credit meltdown.  And it is the fixed income market that pre-warns of stock market weakness.

If I have time I'll create some of my own charts and compare these rates to FF rates.  In the mean time, this is a 12 year chart of 1 week Libor that shows that despite the big % move up in the last 3 months, we are still at historic lows.  You might say, "Well look, we are so low what's the worry?"  The answer is the change in rates on a % amount is signaling that there is a risk in the market.  We need to understand that risk and identify it.

Oh, and by the way, Spanish sovereign debt had a little trouble this morning and they last issued debt at 73bps, guess what - this week they funded debt at 126 bps.  This means there was greater than a 50% increase in the cost of running and funding their government.  Try to do that with your bills at home and see how long that is sustainable.  Just another warning sign.  Spain is next up,  Portugal next, Italy, etc with Japan as the next debt crisis within 3 years.  This is ugly and about to get uglier no matter what the stock markets do over the next week or month.  I would sell all rallies especially if we climb 10% or so, in fact I'm praying for that kind of rally. 

GOATMUG

WHO OWES WHAT?

This is pretty good.  I first saw it on K.D's site - http://www.market-ticker.org/

There is no way to embed the link so click here and you can watch it - about 2 minutes of your life for a chuckle - if it were funny.

http://www.abc.net.au/news/video/2010/05/20/2905304.htm

Have a great weekend.  Nice rally at the end of the day - who would have seen that coming?

GOATMUG

TO EVERYTHING TURN, TURN, TURN

More info to substantiate that we should look for a move higher.  The number of stocks trading above their 40 day moving average has dropped significantly and since this is a contrarian indicator we should take notice and look for a rebound.

As usual I've documented the source of this chart and am posting with permission.  I don't use the premium version of the site personally, but if someone does, shoot me a comment and let me know how it works.  In particular we are looking at the chart at the bottom in green that is showing a move that would indicate this is overdone.

Growthstock Advantage Newsletter

GOATMUG

TURN COMING? IT STILL MAY BE A FEW DAYS OFF -- DOUBLE DIP?

We are getting awfully close to the bottoms endured during the "flash crash" of last week on May 6th.  I am anticipating a turn soon as the fear is so thick that it is palatable.  We have not seen the last of our friends at the FED and there should be an end to the unsettled issues of financial reform being thrown about in CONgress.

Did you catch that all of this weakness in the market occurred immediately after Goldman Sachs was hit with an SEC inquiry and that it has accelerated as talk of bank reform has gotten serious?  The banks are stilling leading the direction of the market and while they have shaken the market it will rise again like some phoenix from the flames.

I have a mixture of things I want to post so that you have a mid-month update of things to watch.  Clearly things look weak and shaken here, but I am anticipating a bounce here that will take us back to the 1160 to 1175 area.  Once that area is attained it is imperative that we clear the decks as the true wash out will have begun. 

I've been kicking myself because I have been identifying the end of April as my time frame for a significant drop.  When that drop didn't come in my time frame I questioned it and actually pressed more into what was continuing to work and extended my time frame for an end of May drop.  Within a week or so later, the first market drop occurred validating everything I've been writing for some time.  Well, here we are facing an almost 10% drop in the DOW and I'm suggesting that a turn could be coming with a decent sized rally only to be followed by a sobering drop in early to mid July.  

What I'm stating is that we are probably due to a reversal because that just what happens in markets.  A true market is not one-sided like the market we experienced over the last 14 months.  It waxes and wanes.  It oscillates.  Like a tidal wave of fear and complacency we have ups and downs.  Many have forgotten that and now the fear is here we must remember that we need to buy when we don't feel like it and sell when we are most jubilant.  In fact, I was selling my options today that were going higher as the market dropped.  (I won't mention the name of what I was buying because I firmly believe that that trade will reverse and if you bought it, it would be like playing with a loaded revolver).  I didn't want to sell at the close today because the greed within me was telling me that it just might go lower tomorrow, but the conservative manager within me was planning on scaling out so I could reverse when the market started showing a trend to go higher.  If we have continued weakness --- I'll probably be shorting, but I'll be closing out all trades by the end of each day.

Don't get me wrong --- nothing has fundamentally gotten better over the last two weeks that are not subject to reversing for a double dip recession, but price action should slow and reverse.  I mentioned earlier today or yesterday that the CPI data (as the government reports it) came in weak showing the absence of inflation.  This will allow the FED all it needs in terms of a go ahead to print more and inflate every asset class (even though it is working less effectively than before).

Ok, here are a few charts I'm looking at....

VIX - (fear index) is off the chart.  If you bought the VXX I recommended a while back and held it WAAAY past the stops I suggested you are in the money big time.  Again, I often see the trends but am looking at so many things that I'll identify it and move on.  It was pretty obvious that the VIX was too low as it dropped into the 16 level - so good for you if you make money here.  I of course suggest you sell the increased volatility now and be a disciplined trader.  VXX is now trading at $34.  Even my early identification of that trade was at $25, but you would have had to tolerate some pain to get to see the money!

Financial Conditions Index - Update

Didn't we just state the other day how this thing was showing that we were out of recession?  May's update said NOT SO FAST!  Today's print is not healthy.  There is a true collapse of liquidity going on and this thing is looking sick.  There had better be some quick intervention soon or we're going to begin seeing some stories about increased inter bank lending rates and distrust in the banking rates for overnight lending ---- ala Part II of the Lehman and Bear Stearn collapse.

My friend Guy Lerner at http://www.thetechnicaltake.com/ is still suggesting that there is time to go on this decline.  I would not bet against him, but I certainly am cautious especially since I've done pretty well on this decline.

Be safe and conservative here, no reason to blow your foot off.  If you have questions, let's discuss it, leave a comment!

GOATMUG

BOUNCE COMING? - CPI DATA, EURO RANT AND POWER GRAB

I will be looking for a bounce as the SPY trades down to $106.50 at that line of support.  The fundamental picture is getting pretty nasty, but I believe that area will be defended strongly.  Most traders are looking at the S&P 500 ($SPX) at a level of 1050.  If that area is breached, you better run for cover on everything you own as you could see the markets drop another 10% to 20% from those levels.  Europe and Asia are falling apart quickly.  If this continues, look for the Euro to trade at parity with the dollar.  -


TRADING UPATE AND OTHER IDEAS
So, having said all of this, let me summarize.  We are getting close to the point where we have wild-eyed fear in the market.  These are the exactly the times when the market catches a bid and moves higher.  So look for opportunities with your dry powder. 

One other note - the CPI has come out again showing no inflation.  This should grab your attention if you are invested in metals, commodities, and oil.  These are all selling off because the inflation trade looks dead about now.  In general I've made money playing those directional trades, but as I mentioned the other day about gold - you might exit now and buy later as the fear continues to wash throughout the world.  There will be an opportunity to buy again.

Sadly, I've been thinking more about the Euro and the trouble that the Eurozone is facing.  I throw about phrases that suggest that the Euro will collapse, but really my thoughts are that the ECB will change the structure of their confederation.  Currently the European Union leadership (ECB) has no real power or autonomy to enact policies without consent and a one by one vote by the individual nations.  Ultimately I believe their will be a consolidation of power by the ECB where they obtain policy making power and power to make taxation and appropriation policies.  In other words, this means that the ECB will take power from the individual nation states of Europe and run the area in a federal manner (like the United States).  This may not sit well with the EU countries citizens, but that is the price you pay to be a WORLD CITIZEN.  What is dangerous in my mind is that the US leadership seems happy to participate in this world management approach and I would look for our leadership to contribute and participate in world taxation schemes ---- like Kyoto or Cap and Trade, which are veiled ways of taking taxes from the citizens of each country and redistributing them to others (and of course skimming off adminstration and trading costs for bankers and the political class) .

Perhaps its time to go to Europe for vacation --- just remember to pack your riot gear.

GOATMUG

WOPR JUST TOOK US TO DEFCON 4 -

Remember the computer from the movie War Games --- the WOPR?  Remember how it just wanted to play a game?  In playing the game the computer began automatically ratcheting up the security protocol for the US and it perceived the game was real and couldn't differentiate between the two.  Well WOPR just kicked up the alarms a few notches!

If you weren't at Defcon 4 or 5 you better be now.  The Germans made some unilateral decisions that might be the sudden catalyst for upsetting the finely tuned ponzi scheme that all central banks have been playing for the last few decades, but really moving all their chips in over the last 14 months.

The decisions made by the Germans attempt to do a number of nutty things but they essentially are trying to ban speculation of government bonds.  They also attempt to ban shorting of their top 10 financial institutions and insurers and ban on naked CDS.

HAVE THE GOVERNMENTS LEARNED NOTHING?  It was the shorts that have uncovered and discerned all of the lies in the credit and equity markets.  It is the shorts that continue to uproot the misdirection and over leverage in banking and government debt.  It is the shorts that provide liquidity and fodder for bulls when the markets turn around.  As we witnessed when outlawing shorts is implemented there is typically a brief move upward followed by a complete meltdown.

When word of the ECB and IMF bailout surfaced last Monday word hit the street that German citizens rushed (not walk) to gold and silver dealers and quickly bought out domestic supplies.  The Germans have the strongest economy in Europe and if there was an actual referendum on whether to bail out the Greeks or other nations it would certainly fail.  And this point is crucial.  Have you noticed that all participants in this world crisis are unwilling (citizens that is).  Did you get a proxy statement in the mail regarding your desire to have the United States provide $50 Billion to the IMF (we are 17% of the IMF funding)?  No, your dollars are being spent and national sovereignty and representative government is being usurped.  Congress appropriates funds not some IMF, the FED, or the Treasury!  You are witnessing the disconnect between the ruling class and those that are being ruled.  In the US we like to claim that we are free, but clearly use of our tax dollars to support an island in Southern Europe does not benefit us nor is there a likelihood of repayment.

What would cause the Germans to buy gold?  I think those citizens know that the Euro cannot last given the pressures that are mounting.  Several nasty things can happen as a result of the one-sided decisions made by the Merkel led government in Germany.

First, Germany's sovereign debt may drop significantly in value as traders and portfolio managers attempt to exit positions related to their country debt.  Look for US Treasuries to go higher in value and yields to continue to drop.
We'll see European stocks drop and also we'll ultimately see German banks drop significantly.  Any rational investor must be asking what the German government regulators are seeing on German balance sheets and what is causing them to strike out at short sellers.  Look for these very institutions that are being protected to get hammered as people exit positions in fear.

Of course the dollar will rise.  Large banks in the US will get hit although larger US firms that pay dividends may go down less as there will also be a flight to safety.  Think utilities and telecom here.

Global contagion is a real possibility here.  In the 30's the 2nd collapse in 1934 was caused by the failure of a German bank - by the way, that drop in the stock market lasted for a couple of years and amounted to an almost 70% drop.  In the depression there was also a move by world governments to create protectionist schemes and make decisions that impacted other nations unilaterally.  (Sound familiar?)

I'll post more, but you've been warned and I hope as usual that I'm just being alarmist.

GOATMUG

SHOULD I BUY GOLD?

I've been asked recently by a few readers if they should buy gold now that the shiny metal has reached highs here near $1,250 an ounce.  It is interesting how the notion that something is near a high spurs us to take action and get interested in something.  While I haven't been thinking about buying gold, I have been contemplating taking advantage of the mania and attempting to research the business of being a gold wholesaler. 

In my own experience when I bought my own physical silver and gold I found a huge disparity in pricing on the internet in attempting to find a good distributor.  Ultimately even when you've found someone with a long track record and a good reputation you have to trust that your Fed wire into electronic space will result in you receiving a package 3 or 5 days later.  In my examination of pricing I see that their is a HUGE difference between sellers in their mark up over the spot rate.  What is interesting is that the companies and websites with the best marketing pitches and targeted niche plays were by far the most expensive.  In fact, one company that markets and focuses on Christians was charging 3 to 4 times as much over the spot market rate than what I was able to obtain my metal!

At the end of the day I simply believe if I were to say that I was an honest distributor with a fair price, many would be willing to purchase gold and silver and American Eagle coins from the Goat!  After writing all of this as an intro I may be too late.  When the likes of these two companies join the mania, you have got to think that you are a bit late to the party.  Is my interest signaling a market top?  PROBABLY!!!  Please read the attached article that details that Sears and K-Mart are getting into the gold exchange business.

I can hear it now! - We've got a Gold Light special on isle 4!

http://www.cnbc.com/id/37190771/

Ok, to the point, do we buy gold?  I am not a buyer here.  I think the concern over the Euro and the ECB bailout has been the big catalyst for gold's move.  It is due for a pullback.  I am a buyer at the $1,100 to $1,050 level and not before - this would be about a 15% to 18% correction from today's lofty levels.


Finally, if you know of anyone in the gold business that would be willing and able to answer questions regarding that industry, please let me know.  As you might guess I am slow to move in these endeavors and I research this stuff like crazy.  I'd love to find someone and hear their individual perspective before spending more time on this project.
GOATMUG

MOS - SHORT OPPORTUNITY AGAIN?

Here is another look at MOS.  I have no position here, but a break through $46.50 will have me adding many puts.
The long term lower trend line and the support all line up here to make a line in the sand.  If there is no break, this could easily rally much higher especially if the overall markets turn around.

Personally I'd set a stop at $48.00 to stop the bleeding if this reverses, but $42.27 is my target exit on a profitable trade.

Here is a close up of the same image....

Goatmug

WADDELL & REED TO BLAME FOR THE MARKET CRASH ON MAY 6?

Please examine the story from Reuters here that examines the broker dealer Waddell & Reed as a possible source for the drop in the markets on May 6.

http://www.reuters.com/article/idUSTRE64D42W20100514

The story goes that sometime in the 20 to 30 minutes of nuttiness, Waddell & Reed entered in a trade to sell 75,000 e-mini contracts into the market.  The sale had a notional value of close to $4 Billion.  Waddell manages several mutual funds and explained that they were employing a hedging strategy for protect their clients.  In the text of the story we see some other pieces of data to note.

On average, 50,000 e-mini contracts usually trade in an hour, but in the specific 20 minute period of the fall and rise in the market almost 850,000 e-mini contracts exchanged hands.

Here's the money quote -

"To get rid of 75,000 contracts, that's a lot of trading even if the market is healthy," the trader said. "But when suddenly the market changes and there's not as many bids there to trade with, 75,000 is going to cause quite a shock to the market.
"That's an enormous position for anybody, whether it's a hedge or whether it's a trade. It's a big position, no doubt about it," the trader said."

So again, this story raises more questions than answers and I'm just going to lay them out in no particular order.

1)  Where is the mysterious "fat-finger" trade of 16,000,000,000 future trades that CNBC kept referring to?
2)  What broker or hedge fund really went bankrupt in that time period.  If something happened according to the rumor, someone really blew up.
3)  Is it any coincidence that the politicians were examining Fed and bank regulation right at the time of the drop?
4)  Who caused the amazing rally that made the markets rise 700 DOW points from the lows?
5)  Does anyone really trust this market?
6)  When are we going to unplug the computers that are doing HFTs?


GOATMUG

TRADING UPDATE - SLV BREAKING OUT

I'm running around today and don't have much time to post, but wanted to make a brief post.  Overall the last couple of weeks have been nuts.  The 1000 point drop and subsequent intra-day rally of 700 points followed by a 200 point loss followed by a 400 point gain leave us all wondering what the heck is going on.  As a longer term investor it frankly makes me shake my head and want to pull out and wait until the true trend emerges.  As many of you know, I believe the true trend is down, we just have the invisible hand of government creating an illusion and delaying what is necessary for this country to be an economic leader.

In the mean-time we see our government has now exported solutions like the TARP to Europe in the form of IMF funding (we are 17% of the IMF) loaning money and making swap lines available to the EU, IMF, and ailing nations.  Isn't it great that you didn't have a say in how your money would be frittered away?

As yesterday's announcement was made the EURO seemed to come alive and vaulted higher on the news that Greece and other ailing nations would be bailed out.  The ECB and IMF will directly support (buy) bonds of these bankrupt nations and prevent them from falling in price (sound familiar?- the US says that it just stopped doing that but we know that Japan is now doing it as well).  By buying the bonds in the open market it distorts the real price of bonds so it hides the real  or appropriate cost of the risk, and also allows the ailing country to continue to roll its expiring debt.    So, essentially the ECB and IMF basically are allowing the lies that European nations are actually worthy to lend money to --- to go on.  And of course, we're lending them more money when borrowed money is actually the problem.

There was only one problem with how things worked out yesterday.  The EURO fell apart at the end of the day and ended exactly the same way it had at the beginning.  Essentially traders didn't buy the whole buyout and bailout and think that this doesn't do anything but buy these countries a few more months or a year.  Traders are putting their money down shorting the Euro.  Rumors are being posted that the banks in Europe are actually shorting the Euro too!  Isn't that great, we're essentially bailing them out by buying sovereign debt of countries (which they hold on their balance sheets) and they are shorting the Euro knowing that it will continue to fall.   The act of shorting continues the problem and continues to make it fall!

So to summarize, the bailout added more debt as a solution for too much debt.  The US taxpayer has no say in giving away money that is doomed not to be repaid and the bankers in Europe are going to make money on failing as they bet that they will fail!

Gold and silver are tipping us off too that the market believes this is either going to be a collapse where metals will be the only thing worth anything or they are betting that this is inflationary and the metals are going to go up as inflation kicks in.  Here is a chart I'm watching on SLV.  I hate buying anything when it it is near highs, but it is clearly breaking out to the upside.

No matter what, I think we will rise, but again, I'm leaning toward the idea that we retest 10250 again on the DOW.  I'll put up some charts and show why I believe that, but no matter what, I'm going to bet that many Joe 6-Packs just take their money out of the market and let the computers eat each other alive.  This market is insane and not based on fundamentals, just market moving stories strung together, which is hard to trade.

GOATMUG

US FOODSTAMP PROGRAM - 40,000,000 IN MAY

I mentioned in yesterday's update that I was also working on some other items.  I'll keep them coming now that I've learned how to write a macro in VB to save excel graphs as a gif.  I can't tell you how long it has taken me to get this done (it was simple, I just needed to Google it rather than struggle over and over again!). 

Anyway, here is a graphic of the number of folks on the SNAP program or those taking foodstamps.  The number of people as of May taking foodstamps is almost 40 million.  The annual projected cost for feeding them at $200 a month is above $5,000,000.

Projections for 2011 suggest that the number of people taking foodstamps will be 43 million.  Why isn't the USDA projecting the number will go down?

Goatmug

MAY UPDATE - FUNDAMENTALS GAINING / RECOVERY WATCH?

RAIL TRAFFIC -
Total rail traffic continues to show increases YoY, however we must continue to look at previous levels from 2008 and note that we are still 50,000 tones away from peak levels.  We are taking note that the increase continues.

Crushed Stone and Lumber continue to tick up which indicates some growth in commercial real estate development.  Lumber doesn't get me too excited, but the rate of growth on the trend line of crushed stone is saying that we need to look for new project starts.  This may also be a flow through of some of those Obama "shovel" ready projects that weren't so ready.  Perhaps those road construction projects are getting going.

KSU - KSU was bloodied tremendously during the correction.  In fact in the midst of the correction, several banks downgraded some other rails too.  KSU dropped from over $41.00 to $36 in the last several days.  The firm reported great earnings and management also released good forward guidance.  The knock on it was that they just issued stock to take out high cost debt.  I will post a chart if it looks good for an entry. 

WLI DATA FROM ERCI -
The stimulus plan to get homes moving did create results as first time home buyers and trade up buyers got off their tails and entered into contracts to buy homes.  The answer we'll be watching for will be whether or not it will last.  The timing is pretty good in the sense that the summer moving season is here, so the next 2 months will be critical. 

HOME PRICES -
Home prices continue to move up per the leading home price index, but the measure of real home price is showing no change in its downward move.  The leveling off of this index does give us a sense that perhaps the leading index could be telling the truth, but we'll have to wait and see.  I personally believe we have a couple of issues with the leading index that will make this thing turn back down. 
First, we have the absence of the Fed's intervention in the MBS market.  As they have said they will stop agency purchases, we will have a move up in interest rates, UNLESS we have a flight to safety and all of a sudden other asset classes are perceived to be much riskier (ANY COINCIDENCE?).
Second, the termination of the stimulus plan will make those buyers that were "stimulated" get deals done.  In other words, these were probably all buyers that would have bought in the next 6 months anyway.  I agree totally with the pull forward of demand theory that suggests that this program just moved the timeline up a bit to take advantage of the taxpayer's open wallet.
Third, I don't think we've seen an end to the tidal wave of foreclosures that banks are going to release.  I don't think that the release of the inventory has been captured in the leading indicators data.
Fourth, the mortgage loan guarantors are broke and filled to the gills in horribly defaulted loans.  At some point someone sane will stop the madness and really tighten up mortgage lending standards.

WLI Data Leading Indicators are showing a complete reversal in the very short term.  We'll need to watch it to see what happens next week.

FCI - FINANCIAL CONDITIONS INDEX -http://www.bloomberg.com/apps/quote?ticker=BFCIUS:IND
CAN YOU SAY WOW!??  I've been watching this indicator every single day for the last week.  As you know, this is a quick measure of 7 or 8 pieces of data that give us an idea if we are in recession or expansion.  For the last 14 months the FCI has moved from the abyss to expansion.  As I've reported often, the FCI data is subject to the manipulation errrr the momentum delivered by all sorts of Fed related activities.  So therefore attempts to increase liquidity tend to bump up the FCI.  It only took one week to shatter the great work that has been going on in the FCI.  The FCI now is well below zero (although it could easily come back up with a string of good days).  I mention this simply because I felt pretty strongly that we'd have a double dip, but the speed of the reversal shown here certainly is surprising.  The first picture is from Tuesday.  The second snapshot is one that shows the level of the FCI at -.77 on Sunday May 9th.

 
 
 
 
 
 
 
 
 
 
 
 

 
 
 
 
 
 
 
 
 
 
 
 
 
USD - http://www.bloomberg.com/apps/quote?ticker=DXY%3AIND
The USD caught a bid over the last several days as fear gripped the world and great buys like Greek debt seems not so great.  When real fear sets in the US treasury bond is really king and in those times, they need to convert their currencies into dollars making the currency go up in comparison to a basket of other currencies of the world.  This also makes yields on treasuries drop too as the prices of the US debt does higher.  As of Sunday night, we're seeing the dollar off a bit here because the EU is stepping in an offering a plan to "protect the EURO" and stating they are going to commit $962 billion Euros to provide economic stability.  So they would have you believe that they have made all the worries go away and everything is all better....... until Spain and Portugal and Italy need bailing out.
I'm not sure how providing another 1 Trillion euros worth of loans provided by equally bankrupt countries will help much but go ahead and pass the kool-aid, it's starting to get hot here and at least it might provide a week or two of liquid confidence to the market.
 
 
 

 
 
 
 
 
 
 
 
 
 
 
 
 
BALTIC DRY GOODS INDEX - http://www.bloomberg.com/apps/quote?ticker=BDIY%3AIND

While the markets and commodities were getting shelled over the last week, something odd was happening to the Baltic Dry Goods Index.  Remember, this is the spot price for getting a ship to move your dry commodities around at the last minute.  Note the move higher.  We've been looking for higher highs and higher lows to indicate that the demand for commodities is real.  Just watching, but in the midst of such a sell off you might expect to see some paralysis in the spot shipping rates too.  It didn't happen last week, even though many of the shippers like DRYS got hammered.  I'm showing that the index is now at 3608 as of Sunday night.  Obviously higher than that last peak in late March.

 

JOBS DATA -
Non farm payroll data showed that employment INCREASED 290,000 jobs last week.  The positive report shows that employers are adding people.  There are also folks that were discouraged and not looking that are now back at it.  This will actually lead to a higher unemployment rate as the BLS folks must count people that are actively searching.  It is very interesting that as people drop off of unemployment benefits they magically find jobs!  Don't get me wrong, there are extremely tough circumstances out there and there are legitimate folks that cannot find work.  On the other hand there are other folks that can find work that don't because they have access to some income and as a result aren't looking.  No matter what, this is the third month of gains and we need to be looking at it.

GDP -
GDP was reported at the end of the month and it came in at a +3.2%.  This was down from the previous quarter's number of +5.6%, but it is still positive.

FUNDAMENTALS - WHAT'S IT ALL MEAN?
Well, I've strung together a bunch of stuff that indicates that things are getting better.  The reason why I document these things is that if you read in my tone that I'm bearish, I write it and post it so that I can be challenged by the real numbers.  So, the data including GDP, Home Prices, Jobs, and Rail Traffic all look like they are not only turning the corner, but have posted several periods of strong numbers.  The bear in me wants to point out that the rate of change of improvement is slowing for almost all of these items, so we need to keep watching.  This of course would dovetail exactly with my idea that we'll have a double dip recession in the economy.  In addition, although the consumer seems to be back to his old ways, I'm still betting that much of the economy's recovery has been on the back of an inventory build of depleted merchandise and materials as manufacturers need to restock since they simply halted inventory replacement orders during the really tough and scary times of 2008 and 2009.  Now that all of that inventory was run down to nothing, they had to get ordering and manufacturing.  Once all the factories and companies are restocked, we'll need to rely on real demand to provide economic growth.  My bet is that that growth isn't there.

Last week will be all that the consumer needs to see that the stock market really hasn't recovered and is just as unstable as it was in 2008.  Remember, we've noted all too many times that the FED and government KNOW that the STOCK MARKET is economy.  What I mean by this is simply that the stock market previously was an indicator of health in the market, rather now, the stock market is the driver of "health or perceived health" in the economy.  This makes it so much simpler to know what to do to kick the economy into gear doesn't it.  If the market drives the economy, the strategy is to goose the market to goose the economy.  And guess what?  This is exactly why in March of 2009 that the government outlawed short selling and started buying stocks through the large primary dealer banks.  We've seen consumer confidence rise and the stock market has risen.  What will happen to that same consumer confidence if the market volatility of the last week stays and we suffer several more serious setbacks?  My guess is that the US consumer that has previously driven 70% of our economy, will suddenly go back on strike and remain conservative.  Perhaps it isn't such a bad thing that they return to frugality. 

Anyway, I continue to watch the fundamental recovery, but almost every fiber in me desires to see the linkage of each data point to the government hand that is pushing it.  When the government doesn't or can't keep pushing it, will the recovery halt as well?

I've got a couple of other items to post and I'll do those plus add a trading update in tomorrow's posts.  The infamous 1000 point plunge is extremely concerning and normal trade action indicates that we'll probably see that same 10,000 level on the DOW again simply to retest it.  I keep hearing that everyone wants to find out how we had this avalanche downward.  I personally want to know how we had the rise upward to recover.  Many professional traders have their finger on the trigger as they have thought this was a fake rally for the last 2000 points on the DOW.  So did everyone of those guys see that the market was tumbling and hit the sell button?  Do you really believe that some hapless trader fat-fingered a trade and entered in an order to sell 16 billion S & P futures?  REALLY?  Where is the P& L hit then?  If that happened, a hedge fund or bank would have gone bankrupt instantly and at least we would have heard that someone got fired.

That drop was real and it was panic.  I'm not so sure that the surge was real though.  At least real in the sense that it was inspired by average Joe buying stocks to take advantage of the drop.  It certainly was Fed inspired, I'd bet.

Goatmug

SPX & TOMMOROW'S VOTE

SPX is down again today, all on the fear that this European debt issue has real consequences for the world recovery.  European parliments are voting over the next day whether or not to extend more credit and bailout Greece.  In my opinion all of this is absolutely necessary to continue the game of pretending all of these countries and banks are solvent.  What choice to the finanical elites have but to keep it going? 

As I mentioned a couple of days ago, if a country (GERMANY) votes to reject this proposal, you can expect a total meltdown in markets worldwide.  Ultimately, if there is a rejection, the IMF, EU, and the USA will come up with something else to paper over the fact that addressing a debt problem with more debt is not a way to solve the problem.  At the end of the day reality says that someone (banks and debt holders) will need to take losses and write them down from their assets on balance sheet.  That pain is what everyone in the world is attempting to avoid and pretend that everything is just fine.

So, if Germany does not go along with the charade, expect nastiness.  If Germany does, expect a pop to the upside.

I've attached a chart of the SPX so you can see the major support lines  - this is a close up of a 700 week chart.  Below the chart I will note the support levels and upper resistance levels.

RIGHT NOW THE SPX is trading at 1159, remember this is a weekly chart so it shows a data point last week near 1200.

Lower Support Levels (lines are drawn)
1136
1086
1055
Upper Resistance (if we get moving back up in celebration) -
1216
1176
1161

WILD ENVIRONMENT - TRADING UPDATE (MOS)

The last two days have been quite crazy and therefore I've tried as best as I could to be watching the market and focused on the breakdown and the potential rebound for buying opportunities.

If you visited SlopeofHope a couple of weeks ago, I identified a trade in MOS that I've been trading with great frustration. 
http://slopeofhope.com/2010/04/mos-breakdown.html

At the time of writing the post, the stock was trading at $52.70.  I identified a stop at $53.25 and a target of $48.  I use options to short stocks typically so I bought puts.  As you might guess I was immediately stopped out of the trade within 15 minutes of putting it on!!! YUCK!

In fact, I believed enough in the trade set up that I actually put the trade on 2 more times and was stopped out each time within hours.

I'm posting this here because I want to encourage you as traders to stay with your convictions and always continue to minimize losses and continue examining your trades so you can maximize the opportunities when they actually come to fruition.  On Friday I saw the set up again as MOS hit the mid $52.50 area, so I re-entered puts on the position.  As the day wore on, Monday provided weakness and then Tuesday and Wednesday finished the trade.  As we went underneath my target of $48 I sold my put position.

Happily, I am pretty flexible and as MOS traded down to the mid $47.40 range I see pretty good support for MOS.  I have purchased June $50 calls on MOS and am now doing quite well since it is now trading at $49.65 as I type.  I will exit this long trade on a break above $51.75 and prepare to short again if it looks weak.

Keep in mind that Thursday is the big European vote, I probably will be in all cash with my trading account.

Again, I'm not posting this to say how great I am, I'm posting this to encourage you to examine these charts and identify pretty easily the areas of support where price simply hits a ceiling or somehow stops a rapid decent and then use that as a way to buy or sell momentum that breaks through those areas.  Finally, the lesson of stops is so important.  I limited my losses despite the fact that I had losing trades 3 times!!!  My one winning trade (now two) has compensated me for all of those small losses and earned significantly more.  I closed that short position out too, so it is on the books rather than some unrealized profit.  This is why we need to learn to limit losses and let winners run to your targets.

Check out the revised chart on MOS and see why I'm looking to sell near $52.

EDIT ----11:46AM - sold my MOS June $50 Calls at a +12% profit.  I may be leaving some on the table here, but 12% in an hour is nothing to throw away.   Profits are better than losses. 

Goatmug

WEB OF DEBT - WEB OF DEATH

If you are wondering why I keeping making posts about Greece and ranting about how the entire system is built on excessive debt look no further than the NYTimes for a graphic that says it all.

Can you imagine a German looking at Greeks rioting because their pensions may be reduced thinking that you are actually going to extend these people more money? I believe Greeks can retire at age 55 on a public pension, I guess I'd be rioting too if I had grown used to the idea that someone else would take care of me for the next 40 years!!!

DEBT WEB



As I type the Dow is down 276 points. I am hopeful for some turnaround here, but there is a real possibility that later in the week the Europeans vote down a bailout for Greece. Remember what happened in the US when TARP funding was voted down the first time? The S&P500 went down almost 8% that day. Be on your toes this week.

WANT MORE?

- Read this pretty good article on the "What If" the Euro collapsed by Julian Phillips

I don't agree with everything he says, but I've found few folks that actually outline what they think will happen, so I like it!

What will happen to currencies if the Euro collapses?



Goatmug

IMPACT OF HEALTHCARE REFORM -

I was asked to give a speech last week to some Christian Business Owners on the impact of Healthcare Reform. I've had some techincal difficulties posting the actual slideshow here on my blog, so I made a pdf available and Tim Knight at Slope of Hope posted it for me this weekend. As usual, please check out Tim's site if you are in any way interested in trading, it is great stuff. www.slopeofhope.com

The talk was well received however I discerned that there is so much frustration in people that they feel like they have no voice and they are angry. Each person that posed a question really needed an outlet to vent. In fact, the majority of the questions were rhetorical.

I've tried to position this presentation in an even handed fashion where we examine the good stuff about the bill and point out the things that need improvement. At the end of the day no one will argue that the current system doesn't really stink. Unfortunately I still have not heard anything that convinces me that we can come close to paying a portion of the future liability we are signing up for.

Face it, if I wasn't concerned about the future cost and long term fiscal solvency of my family I would drive new cars every year, live in a house that was 5 times larger, trade for a living, write a blog, and take two week vacations in Paris and blame it on a volcano. However, I am pragmatic and focused on reality therefore I weigh the risk and the cost of each purchase.

Our government's leadership does not possess the same value system that I do and this is why this program is doomed never to make financial sense. When we raise taxes and add a VAT it still will not be enough to meet the future obligations created in this plan.

Don't get me wrong, I want everyone to have insurance and be healthy, I just want someone to show me the money!

Download Goatmug-HealthReformActSummary-4.29

The presentation was divided into two parts. The first 18 slides were the subject matter in my talk, the remaining 40 slides provide details about the timeline of implementation and highlights the provisions as they are scheduled which I did not have time to cover. - I did not include the additional slides here, but I will attempt to make them available on along with the actual vocal commentary when I post it on You Tube.


Goatmug