3SOF

Good morning :)

Yesterday we've had the second biggest drop of the year for the general market (and also the second biggest fall for the Main Portfolio :-\), so I believe I should make a few remarks about the current general market situation, even though I'm not a market timer.

Fundamentally, there are basically three motivations for the sell off:

1) Very weak housing market, with new home sales falling 6.6% from the year ago level and average home prices falling 2.2%. There are also reports and forecasts saying the sub-prime defaults are spreading to prime borrowers too (http://money.cnn.com/2007/07/25/real_estate/prime_catching_subprime_ills/index.htm). Country Wide Financial (CFC) specifically said that and that stock went down some more.

Home builders also reported huge losses, reversing previous very fat profits.

I don't see where's the surprise in all this. We knew this was going to happen for more than a year, and yet, the stock market kept rising. Home builders were trading at less than 8 times trailing earnings for a reason, right?

2) Credit crunch

Interest rates were starting to get a bit high, so it was getting tougher to finance projects with an expected yield that compensated the risk. I mean, if 10 year bonds give you 5.2% a year without any risk of default, why would you invest to get an even higher yield, with all the risks that carries. Some people were happy with a 5.2% return, so that started to cripple investment.

But guess what? Yesterday's stock market slump and bond market rally took interest rates down below 4.8%:

(http://www.3stocksonfire.org/trading/index.php?action=dlattach;attach=39291;image)

This was a blessing for the credit markets and it probably tilted the FED more towards cutting rates again, since the 10 year T-Bond is way below the FED funds target rate of 5.25%.

My view is we'll keep going like this, in a goldilocks economy, not too hot, not too cold, the ideal economic environment for a bull market to live and last, climbing a wall of worry. At the start of the real Bear Market there won't be a single worry in the sky, just optimism and euphoria.

3) Oil

Oil has been a concern for several years, it's an oldie. The Oil price is high because demand is high, because economic growth around the world is strong. Businesses and governments are investing in cleaner sources of energy and that will keep the price of oil contained between $60 and $80 for years to come, in my view. Oil didn't prevent the bull market in stocks until now, and it won't be this time that it will start being a factor.

Technically, as you can see on the chart below, the QQQQ hit a triple support zone with its highest volume ever, with 318 million shares changing hands :o

The trend is bullish, a strong support area was reached, the candlestick on the chart shows a short term trend reversal from bearish to bullish ... I would say that was the bottom and the market goes higher from here. Nahhh, not so fast, bottoms are almost always unpredictable, even short term bottoms, so chances are there will be some more pain down the short term road, but over the longer term I have no doubts the chart is bullish and bear's motives are unwarranted, so I remain a long term bull.

Have a nice day :)

What are some characteristics of a market turning bear?

Good post David thank you!

I'm bullish for the long therm and see here a good buying opportunity. DOW could find good support above 13000. Very healthy this correction IMO. Also some good opportunity's in Asian markets. I'm buying Nikkei and Kospi.
Great stocks in the SOF main portfolio for the long therm.
Good luck everybody and be patient. New market highs are coming end of year. JMHO

NVTL the big boys wants get out...dont forget we went up since july 06 without correction exept in March a bit.

I don´t know what to think about 3SOF performance  this year. SP500 fall down today -1.63 % and main -2.29 %. There are the same manners of nearly all 3SOF holding over last week –  3SOF was always worse than index? Maybe it is time to modify buying/selling strategy. IMMR was totally overbought at time of purchase. I suggest better timing as you did in PFSW. What about ZERO COST BASIN? Selling enough shares to recoup all of your initial investment, while leaving your profits invested in the stock for the long-term or reduce amount of stock before earnings or when the stock is overbought? What about 3SOF stock performance statistic - gain/loss after earnings?  I know patience is necessary. Have a great weekend.


Look at the chart of SDS. Bears are going to rule for the rest of the year.

Not in the business of predictions and crystal ball gazing, but the follow excerpt from Louis Navellier latest market analysis. They make some very pertinent points in relation to  last week especially i relation to emotion, the media and what is driving the market. A good read and supports David's overall view as well:

Credit concerns dominated headlines and stock prices this week. The Dow had its worst week in more than four years, down 4.23%. The Nasdaq was fell 4.65% and the S&P 500 plunged 4.95%. The S&P 500 Financials index was down 5.67%. That's what caused most of the damage this week, as the financial sector commands about 20% of the S&P 500, easily the largest component of the index.
What's been surprising is there really hasn't been much news to justify these results. In fact, there was a lot of powerful news that had little impact. Specifically, the first GDP estimate for the second quarter was a healthy 3.4%, and consumer sentiment ended July at 90.4, according to the University of Michigan. The sentiment result was five points higher than June's. As you know, consumers represent about 70% of the economy. As such, their improving attitudes have a big influence on the bottom line.
But none of that matters at the moment. Instead, investors are becoming emotional, largely due to the media, and as a result stocks are getting shot. This happens at times, especially after several months of big gains. Markets rarely continue to climb unabated for long.
Last summer, investors got concerned about commodity inflation and Mid East tensions, in February it was the yen carry trade, now it's a credit squeeze. Should we believe it this time? After all, tighter credit will slow private equity deals. But will this be enough to derail the global boom, and the strengthening U.S. economy? It is far too early to make such a call. There is nowhere near enough information, which is why the stock market has become so volatile and emotional.
We have to stick to what we know, and that is the economy is rebounding, corporate balance sheets are very strong, earnings are accelerating again, and the Fed is likely to cut interest rates this year, in our opinion.
If you can separate the emotional tendencies we all have, you can start to identify a strong buying opportunity, which is what we believe is developing. Great buying opportunities, by definition, occur when the masses are selling. That said, start looking for great stocks that have no reason to get hammered. There are plenty of them. Investors have a bad habit of selling their winners in emotional markets.
We believe most of this will be over next week. The Dow will likely test 13,000 early. If it fails, it will want to test its 200 day moving average, which is at about 12,750. If we get anywhere near there, we will scream that a buying opportunity is at hand, especially if we get there without news that has substance.
Hang in there.

would you say than that Cramer from Mad money does have a point?
he usually recomends to sell part of your position to lock in profits. This way when your stock goes down, if it is indeed a good one, you already have some shares but are able to buy more with the gains you already have and your portfolio performance doesn't get slaughte

Quote from: babouk on July 27, 2007, 05:26:16 PM
I don´t know what to think about 3SOF performance  this year. SP500 fall down today -1.63 % and main -2.29 %. There are the same manners of nearly all 3SOF holding over last week –  3SOF was always worse than index? Maybe it is time to modify buying/selling strategy. IMMR was totally overbought at time of purchase. I suggest better timing as you did in PFSW. What about ZERO COST BASIN? Selling enough shares to recoup all of your initial investment, while leaving your profits invested in the stock for the long-term or reduce amount of stock before earnings or when the stock is overbought? What about 3SOF stock performance statistic - gain/loss after earnings?  I know patience is necessary. Have a great weekend.


Look at the chart of SDS. Bears are going to rule for the rest of the year.

Just one point to note here.  Sure, 3SOF stocks went down more than the S&P this week, but they also were going up more than the S&P when it was going up.  I think we notice the differntial more when its down of course.  Not to say that I dont agree with some of your points, buying overbought stocks can be dangerous as we saw with IMMR.  Just wanted to say that the sword cuts both ways.

I think the bull market is intact as David put it. Whatever is driving the market down I have seen ppl in my office jettery with their 401k and if the pension funds start liquidating it may be the real melt down. I think after short lived bounce we may have the real sell off. But as happened last year it may lead to the market going higher eventually by the year it. Though bottom fishing may be as dangerous as panic selling now. So the best thing may be to HOLD and if you are on sidelines then wait out atleast a week. Just dont let your emotions run you.

nice daily financial market commentary imho:

DK REPORT

quotation:

Saturday, July 28, 2007
Bottom Quest

The worst thing about last week is that the there are so few signs that a bottom is near.

Both the mainstream press and the blogosphere offer some excellent reading this weekend. There's also large amounts of windbag speculation and a fair amount of bellyaching. While this all makes for titillating journalism, an evidence-based approach to the market tends to be more productive for your portfolio.

As investors ponder a sea of red, below are five sets of market-based observations:

1. Panic

All rumors to the contrary, there was no evidence of panic selling this week. Even though the Dow shed 585 points in its worst week since 2003, trading was orderly, no curbs were tripped, and from an historical perspective, the declines were chump change. This correction might accelerate into panic, but it hasn't happened yet. On the left below is a chart of this week's NASDAQ. On the right is the Composite during the LTCM scandal in the summer of 1998. From the July high in 1998, the NASDAQ tumbled 33% in 12 weeks. In the last two weeks, the NASDAQ skidded a sickening 23% (imagine the Dow falling 3100 points in eight days).That felt panicky, especially because --doh! -- everyone thought the bottom had occured four weeks earlier (red arrow).

2. Bottoms

I received numerous e-mails, comments and questions this week about identifying bottoms. Of particular interest was whether the IBD100 offered an edge. The short answer is no, the IBD100 is essentially useless at calling bottoms. Most leading stocks are bloody stumps at market lows. Most recover; many don't. However, other indicators are helpful. When these are used in combination, they're generally accurate (but look again at the red arrow on the 1998 NASDAQ chart just above). While some are crying oversold! this weekend (and the odds for a ST bounce next week are actually pretty good), almost all of the popular "bottom finders" show a market still above a Queen-approved bottom. Below are three classic proximity alerts. There are others, but those aren't there yet either. Despite the HUGE surge in New Lows this week, the blue 10-week on both the NYSE and COMPQ High-Low Indexes remains well above important bottoms. Below are 5-year charts of the High-Low Indexes, which include the Oct 2002 bottom as reference. Historically, the blue 10-week line crosses below 40 -- and even below 30 -- before a meaningful bottom is in. The percentage of NASDAQ stocks trading above their 50- and 200-day is still high for a bottom. NYSE versions of this metric produce similar results. NASDAQ market breadth as measured even by the unforgiving NASI is still above the rising trendline off the Oct 2002 bottom. NYSI offers a similar take.

3. Crash Alert?

Regular readers know that I'm hardly an alarmist, but -- believe it or not -- important market evidence emerged this week that raises the chance for a 1998-type stock market crash. First of all, we're not there yet and the odds are still long. [Re-read the previous sentence]. However, as I was preparing notes on this, I read Adam at Daily Options Report quoting Jason Goepfert on the same thing. NYSE New Lows spiked to severe levels this week. In fact, New Lows have been this high only four times in the past 10 years. Making matters weirder, the NYSE is just 7.1% below an all-time high. Also, the Dow wasn't the only chart that set a 4-year record this week. The VIX surged an ear-popping 43% to a new 4-year high, even though the SPX fell a relatively meager 4.9%. In fact, the SPX is up 6.9% from the March low, but instead of falling, the VIX has skyrocketed 160%! The VIX is now parked 36% above its 10-day, a very unstable spread for the VIX. This week, option traders priced in something ferocious -- and still unseen. Given the New Low spike and a 24-handle VIX, my observations mirror Goepfert's about what stock market history says are three plausible scenarios:

--- the worst is over, and it's time to go long for the mother-of-all short covering rallies

--- this isn't just a correction, but the 4 1/2-year bull market is done and we're grinding lower into a lengthy bear market

--- the market detects something bad on the horizon, and we're about to see a rapid, convulsive selloff

The odds of a crash are long, but the market itself has thrown these scenarios onto the table, and not just the guys at Safehaven. Below is a 10-year chart of NYSE New Lows, along with the VIX.


4. Decent Economics

Juxtaposed against the doom and gloom is that the underlying US economics are surprisingly good. GDP is recovering, earnings are solid, valuations are nominal, employment is high, inflation is stable, and yields are low. If the market does plunge wildly lower, the economics point to it being a superb buying opportunity. It's worth noting that, as subprime contagion and a rising yen threatens the US economy, the 2-year/10-year yield spread detects nary a whiff of recession. In fact, it's printing a 3 1/2-year low.

5. The Penalty Box

Below are the six worst performing groups this week. Housing is no surprise, but it's noteworthy that the metals continue to offer no refuge despite a dollar perched at the abyss. The next two losers -- energy and cyclicals -- are the most troubling economically. Utilities took out the 50- and 200-day in five sessions, and small caps lived up to their reputation as the style to avoid. Pullbacks separate the wheat from the chaff, and one useful feature of this correction is that it started during earnings season. Companies that beat estimates are holding up better than the broader market, and the fresh earnings data is useful in preparing high-quality watchlists. No single investing strategy works for everyone, but stocks that pull back the least are typically the ones first out of the gate when the selling stops. Historically, they also run the farthest.

The week's best performers? Biotech, down 1.8%, followed by the NDX, down 3.9%.

Also, it's useful to track which stocks closed higher on a week like this. It's a great set of stocks with which to start a new watchlist.

--- On the NDX, 13 stocks closed higher on the week: AAPL, AMAT, AMLN, AMZN, BIIB, BMET, CELG, CHKP, GRMN, GENZ, ISRG, TLAB, VRTX, WYNN.

--- On the OEX, 6 stocks closed higher on the week : CL, IBM, MRK, PEP, PG, T

--- On the MID, 23 stocks closed higher on the week: ADVS, AJG, BEC, BRL, BRO, BSG, CCMP, CVD, DCI, EXBD, FFIV, GGG, GPRO, MFE, PAS, PLT, RFMD, ROL, RSG, VARI, WOOF, WPO

It should be a lively week ahead, as investors learn how good they are at following the ball in the other direction.


link:

http://dkreport.blogspot.com/

charts:

Hello, I hope everyone is having a great weekend, despite the awful week we've had in the markets. As most of you know, before being a stock's investor, I've been a futures trader for several years. I especially traded stock index futures, like the PSI20, the DAX, the S&P 500 futures and the Nasdaq 100 futures. I met with hundreds of futures traders and read dozens of books on the subject.

One of those traders, a man in his 40's with 20 years of experience trading the futures markets (he was actually more of an investor, he had a long term perspective), used to talk about one of his favorite indicators, the Commitment of Traders Report (http://www.cftc.gov/cftc/cftccotreports.htm). Once, when we organized a lunch with about 80 traders and investors, he even brought a lot of printed charts and tried to show them to me in a table, with both our wifes pushing our arms in other directions ... we stood there for some time and that stuff really seemed to have prediction capabilities over the long term, as he was showing me historical evidence.

This lunch was somewhere in 2001 and we were all bears back then. At the 2003 low of the S&P 500 I was long with all I had, long and strong, because I knew the beginning of the war in Iraq would be an awesome buying opportunity (I just didn't think it would be so good ::)) ... but, after the initial very strong run up, I thought the bear market would continue and went short the markets. As it went up some more, I sold some more. Everybody in our community of traders was short back then, everybody except two guys. One is an exceptional trader that uses a self developed automatic trading system (but I heard his system stopped working a few years later and he just bought properties with the capital) and the other was the guy from the lunch, because, as he called me: "can't be Cesar, look at the COT report, commercials are long for the first time since 2000 ... this is a new and prolonged bull market" (there was also a girl that used a technical system that was also long back then).

And they were right. Especially the lunch guy ... what was his name? I can't recall his name but I remember his face and the conversations we've had perfectly.

Since then, because of historical evidence and those experiences, every time there's a stress in the general market, I go check the commitment of traders report. There are books written just to explain how to analyze the report, but for us it is enough to know that commercials are nearly always right and speculators are nearly always wrong. So, if commercials are net long and speculators are net short, the market will go higher over the medium term. If commercials are net short and speculators are net long, the market will probably have a severe correction or even a bear market. This for the S&P 500 futures.

Now take a look at this week's Commitment of Traders Report (http://www.cftc.gov/dea/futures/deacmelf.htm):

(http://www.3stocksonfire.org/trading/index.php?action=dlattach;attach=39313;image)

(http://www.3stocksonfire.org/trading/index.php?action=dlattach;attach=39314;image)

Commercials are long and "non commercials", or speculators, are short. Over time, commercials always win, I've seen it happen several times. Inversely, when the market rises a lot and you see commercials shorting, shorting, and speculators buying, buying, then you know a general market top is coming. Not this time, not now.

Another evidence that the long term bull market will prevail is the VIX. Look at the dates on points 1, 2 and 3 in the following charts from the VIX and the S&P 500:

(http://www.3stocksonfire.org/trading/index.php?action=dlattach;attach=39315;image)

(http://www.3stocksonfire.org/trading/index.php?action=dlattach;attach=39316;image)

The high points in the Volatility Index (also called the "fear gauge") corresponded to the bottoms in the general market.

Also, technically both the SPY and the QQQQ are at or near important support levels:

(http://www.3stocksonfire.org/trading/index.php?action=dlattach;attach=39317;image)

(http://www.3stocksonfire.org/trading/index.php?action=dlattach;attach=39318;image)

I'm a bull in a long term bull market, as it should be. People taking money out of the market, and they are many, are wrong, at least in my view, as they've been wrong in the recent past:

U.S. stock fund outflows highest in 5 years (http://money.cnn.com/2007/07/27/pf/funds/mutual_fund_outflows/index.htm?postversion=2007072716)

They're taking money out, the way they did around the long term bottom. Now, when and if the S&P 500 falls 5% in one week and people respond with net inflows in stock's mutual funds ... that's when I'll get worried. It's all about the money in and money out potential. The more money is in, the less likelihood of the market going up. The more money out, the more likelihood of the market going up, as the money needs a home. And where are they going to invest the money? In bonds, now that they're giving just 4.76% a year?

There was a readjustment and I think that overtime the general bull market in stocks will continue. Now, I can be wrong, as I've been in the past, but I hopefully learned something from those mistakes.

Have a nice Sunday :)

It looks like QQQQ is eyeing the $46 less steep TL below. Hopefully, some of our stocks will resist the general decline.

This was really ugly for the market ..   :-\

On the weekly chart I saw a clear sign last week that the market will drop more and more...

I hope it doesn't go any further ..

Hi fellas :)

The SPY touched its medium term ascending trendline yesterday:

(http://www.3stocksonfire.org/trading/index.php?action=dlattach;attach=39380;image)

And the candlestick pattern is a less known one, the Stick Sandwich, which signals a reversal in short term trend, from bearish to bullish:

(http://www.3stocksonfire.org/trading/index.php?action=dlattach;attach=39381;image)

We'll see what the next few days bring, I remain a bull in a bull market.

Well the SPY is definitely playing with the trendline... Hope it will close on the upside again...

Amarens

Quote from: Amarens on August 01, 2007, 02:08:35 PM
Well the SPY is definitely playing with the trendline... Hope it will close on the upside again...

Amarens

Speculators sold the market short below the key trendline, but commercials didn't let it break, pushing the market up ferociously over the last few minutes of trading. Volume on the SPY was the second highest ever.

I would say the bottom was today, but we need a close above $149.46 to get confirmation. Hopefully speculators will pay the price when the market pushes up to a new all time high by the end of the year.

I'm curious to see the Commitment of Traders report that will be published Friday, the 3rd of August.

I am interested in what the commercials are doing as per Aug 3 report. Hope David found time to review it.

Quote from: Garoh on July 31, 2007, 04:51:49 PM
This was really ugly for the market ..   :-\

On the weekly chart I saw a clear sign last week that the market will drop more and more...

I hope it doesn't go any further ..

I'm still at my point of view about the market ... and yesterday's sharp drop was a confirmation ....

I wish I'm wrong  :-\

How to Play the Market Sell-Off
http://finance.yahoo.com/expert/article/futureinvest/40790


A good read....

Quote from: jackyw on August 04, 2007, 07:28:59 PM
How to Play the Market Sell-Off
http://finance.yahoo.com/expert/article/futureinvest/40790


A good read....

That article reflects every word David has said all along! I guess Jeremy Siegel, Ph.D. subscribes to 3stocksonfire  ;D

Keep up the good work David. 

1)
Shadowtrader update  8) :
http://www.shadowtrader.net/videos/sunday080507st.html

2)
DK quotation:
...
It was clear from the beginning that Wednesday was not the perfect bottom. Not only was the dip shallow, numerous bottom indicators were far from triggering Buys.
Friday confirmed this assessment, and the NASDAQ closed at a new, 5-month low. While the Composite saw an ugly outside day, the SPX, NYSE and WLSH each sliced through their 200-day. This was not a good development, and the NASDAQ is likely to follow its peers lower.
Unfortunately, leading stocks are giving no clues that a bottom is near either. On Friday, the IBD100 tumbled 3% as just 13 of 100 stocks closed higher. The selling was heavy also, as 42 stocks saw distribution. The Composite is in bad shape, and it's going to get worse before it gets better.
....

The weekly SPX shows an index headed into no-man's land. After 5 years, a proper correction of 10% or more appears to be underway. After all of the drama this week -- Bear Stearns, AHM, the Beazer "bankruptcy", weak factory and jobs data, etc. -- the SPX slid just 1.8%. It's also only 7.8% below an all-time high. A lot of pain lays ahead for investors on the wrong side of this move, and the chart below includes a couple of famous landmarks. 1400 and 1320 are key levels, and both should produce buying interest. Whether either becomes the low of this correction is impossible to tell at this point.
......
Financials and Energy had terrible weeks, and they were the worst performing sectors. The market is also showing signs it's hunkering down for bad weather. Healthcare, Consumer Non-cyclical and Utilities were the only three sectors in the black for the week.
It's still early to be searching for value in Financials and Energy. These charts have more work to do.
.......
Please read the complete analysis incl. charts:
http://dkreport.blogspot.com/

just to have both "sides on this thread", personally I am continuing to follow Davids recommendations  ;)
cheers
Oliver

this is the prediction of a market timer saying that we are in the 7year market cycle and his predictions is pretty gloomy for the second half of the year.

the way the market is going and what his chart is predicting there seems to be a great deal of similarity.  :-\

what do you guys think of this video on CNBC?

http://www.cnbc.com/id/15840232?video=438756672 (http://www.cnbc.com/id/15840232?video=438756672)

Thanks la-onda for sharing.
A lot of trend lines broken.  :P
I will take one week at a time.

The down volume on the SPY is huge, makes even the Feb selloff look small... I feel OK about holding select tech stocks, but anything financial seems like suicide here.

Good morning :)

I tried to get my head out of the stock market during the weekend, but of course, I couldn't.

Friday's sell off was too serious, as the SPY broke down below a key support area, with enough volume to prove myself wrong about the "we're at the bottom" call:

(http://www.3stocksonfire.org/trading/index.php?action=dlattach;attach=39451;image)

Quote from: stocky on August 04, 2007, 03:03:24 PM
I am interested in what the commercials are doing as per Aug 3 report. Hope David found time to review it.

Hi stocky, indeed, I reviewed the Commitment of Traders Report (http://www.cftc.gov/dea/futures/deacmelf.htm), and commercials are still long and speculators are still short, more or less in the same proportions of the last week.

But over the weekend I thought: Who are the "commercial hedgers"? And the answer is, they are the Goldman Sachs (http://www.3stocksonfire.org/quotes_stockcharts.php?ticker=gs&submit=Get+Charts), the JP Morgans (http://www.3stocksonfire.org/quotes_stockcharts.php?ticker=jpm&submit=Get+Charts), the Bear Sterns (http://www.3stocksonfire.org/quotes_stockcharts.php?ticker=bsc&submit=Get+Charts) of this world, exactly the stocks that are dragging the market down (check their charts at the links). Should I follow the guys that are suffering the most?

Next my head went to one of the other lessons I've taken over the years, which is, "nothing, no theory or indicator is always right about the market".

And considering this I got to the conclusion that I couldn't base my investments or recommendations on the Commitment of Traders Report.

I've read a lot of bullish and bearish arguments over the past few days and thought about several of my own, and even though you don't pay the 3 SOF subscription fee for me to have doubts, I must say that I'm in doubt.

About the macroeconomic situation of the United States I thought the following article was quite revealing: Going With the Flow? (http://www.financialsense.com/Market/wrapup.htm)

The bearish arguments and evidence constant in the article are not new (I remember many people had the same bearish arguments around the market bottom in 2003), but because they're so long term, it is possible that they took four years to materialize in terms of a macroeconomic shift towards more savings and less debt, which is actually a sound long term direction, but the short term adjustment can be dramatic and prolonged. The short term, when we're talking about macroeconomics, can be very long, just think of the Nikkei 225 Index 17 years old Bear Market because one day the Japanese decided they wanted to save more (not that they had any choice, like the Americans don't).

Back in March the market sold off for the wrong reasons, at the wrong time, but now?

The bears seem to have a lot more strength and truth in their arguments.

Anyway, I have many doubts about the gloom and doom scenario, because the opening of the World, the emergence of the BRIC (Brazil, Russia, India and China) countries as economic powerhouses is truly amazing and could support another 20 years bull market. 

Moreover, in a long term investment strategy perspective, no business owner is going to sell his business just because there can be an economic recession in the US, so why should I sell his business? I truly love the microeconomic approach to investing in stocks, and there are stocks in the Main Portfolio that I'm not willing to let go whatever happens to the general economy of the United States or the World for that matter. They're individual stories and are a lot more dependent on their niche sectors and management's skills than the economic cycles.

Saying this, I can't ignore that the Main Portfolio plunged from a gain of 27% in 2007 to the current 8.9% profit for the year, as the S&P declined from a 10% advance to the current 1%. I can't ignore that if the S&P 500 falls another 10 or 15%, probably the Main will fall into negative territory for the year, and may even go 10% or more into the negative territory. There's a real possibility of this happening if nothing is done.

What I would like to do is to keep holding my specific story stocks, but at the same time protect the portfolio from the general market risk. I would say a 60% long/40% short exposure would be ideal. If I invest 20% of the Main's capital in those two times leverage short funds I would  get to a 40% short exposure.

Since I have 8.06% in cash already, I just need to sell about 12% of equity in stocks to be able to buy 10% of equity in SDS (ultra short S&P 500) and another 10% in TWM (ultra short the Russel 2000). Because these funds have a two times leverage I would have 40% short exposure. But I would also have 80% long exposure, with the portfolio, in practice, being 120% invested. With time I would probably let go of three more of the long positions to get to the 60% long/40% short "ideal" exposure to a possible bear market.

There are a lot more justifications and questions to be answered, but there's not enough time now. We'll keep this thread alive and possibly merge it with the Correction or Bear Market? (http://www.3stocksonfire.org/trading/index.php?topic=9050.0) thread. 

My plan is to sell two holdings of the Main Portfolio and buy 10% of capital in SDS and another 10% in TWM. But I still don't know which ones to sell, I'm going to review the individual story on them all and pick two to drop out.

Have a nice day :)

SPY seems to have been trading in this uptrend channel since before 2004. There is an upper resistance that was broken in September 2006 and became a support. Then, in March 2007, SPY corrected to that uptrend support and bounced off. That support stands at ~$141 again, which is ~2% down from the present level. The next uptrend support line stands at ~$132 today, which is too low to wait for. I think panic is typically a lot stronger in people than the euphoria, nevertheless let's see how that 1st support holds.

I don´t know what think about 3SOF performance :-\ Index up, 3SOF down

Quote from: babouk on August 06, 2007, 04:17:19 PM
I don´t know what think about 3SOF performance :-\ Index up, 3SOF down

Today was largely a rally in the financials which are heavily represented in the major indices, I think that is the simple explanation... could also be that small caps didnt rally in specific, as it seemed many 3SOF stocks did close red which I agree you only usually see on big market down days. 

Also, ICOC and NGA just happened to have pretty a pretty bad day that brought things down overall. 

I suppose that this is the kind of thing that happens some days when you are a long term investor, and its the kind of day you have to learn to deal with.   At least now David has added a hedge.  I didnt yet add a hedge because I always mis-timed them when we had the February correction.  I suppose I might consider adding them tomorrow now that the big move is over, though I would probably still wait till after the Fed meeting to see which way the market wants to go.  If the Fed magically decided to cut rates tomorrow, which is only a remote possibility, then hedges could hurt a lot.  But if they just stay neutral and dont even address the credit issues, then things could go south again quick in a hurry.

Quote from: tokyopua on August 06, 2007, 04:24:07 PM

Quote from: babouk on August 06, 2007, 04:17:19 PM
I don´t know what think about 3SOF performance :-\ Index up, 3SOF down

Today was largely a rally in the financials which are heavily represented in the major indices, I think that is the simple explanation... could also be that small caps didnt rally in specific, as it seemed many 3SOF stocks did close red which I agree you only usually see on big market down days. 

Also, ICOC and NGA just happened to have pretty a pretty bad day that brought things down overall. 

I suppose that this is the kind of thing that happens some days when you are a long term investor, and its the kind of day you have to learn to deal with.   At least now David has added a hedge.  I didnt yet add a hedge because I always mis-timed them when we had the February correction.  I suppose I might consider adding them tomorrow now that the big move is over, though I would probably still wait till after the Fed meeting to see which way the market wants to go.  If the Fed magically decided to cut rates tomorrow, which is only a remote possibility, then hedges could hurt a lot.  But if they just stay neutral and dont even address the credit issues, then things could go south again quick in a hurry.

I agree with your view Tokyopua :)

The S&P 500 rose on the back of financials, which have been doing poorly throughout 2007:

(http://i.cnn.net/money/2007/08/03/markets/spotlight_banking_stocks/spotlight_info1.gif)

The banking sector rose more than 5% today on what I believe was a short covering rally before the FED meeting. I don't think the FED will cut rates at this meeting, because that would spark even more panic in the market (after the initial jump), because people would start thinking: "what does the FED know that we don't about the financial system?"

But I believe the FED will go from a tightening bias to a neutral one, and it will indeed cut rates in the not so distant future. The problem is, cutting rates, at this point, will help, but it won't be enough, in the same way the Japanese cut interest rates to 0% and that didn't prevent the bear market in stocks or the economic recession.

The lack of new debt, as people enter a "debt diet", will make banks lose a lot of money, going from profits to losses. And banks' "attractive multiples" (http://money.cnn.com/2007/08/03/markets/spotlight_banking_stocks/index.htm?postversion=2007080313) are as attractive as the ones home builders had before they collapsed.

Quote from: babouk on August 06, 2007, 04:17:19 PM
I don´t know what think about 3SOF performance :-\ Index up, 3SOF down

Hey babouk, it was indeed an awful day for the Main, but don't think, wait until the end of the month before jumping into conclusions due to poor short term timing. Remind me of this when the end of the month comes.

Moreover, as I look to my watch list with hundreds of stocks, most of them went down today ... even though the S&P 500  was up almost 3% on the day.

Thanks :)

Time and again David has beaten market. The random pendulum trading of these days wont make anyone rich unless you are running alogrithmic trading. I always envy these guys who can trade with bots. Let us not cloud David's judgement.

I think the anti-Inflation sectors like GLD may be interesting places to be if and ever fed take the easy way out of cutting rates. Inflation is here just compare your last year grocery bill with these days one. The gross erosion of buying power of american consumer should not be taken lightly.

on my filter i got more sell confirms than buys (210 to 48!) (even market was up a lot yesterday) no stocks under 10 dollar running well with good volume...i found 10 stocks to buy with great chart and volume they all are between 16 and 62 dollar....especially food and pharma runs well....

pre market it s the biggest red i have seen this year since the china crash in febr/march....the last days was  distribution probably on very high volume...i trade safe with my daytrades:) ....we hit some resistences like the MA50 of divers composite...

Looks like just another "average" 250 point swing in the dow again today.  Sheesh, you know its getting crazy when you get used to a 250 point swing day. ::)

i made my $ 238.- today for 1 hour trading.....i am happy...after that i enjoyed my day with athletic training...

hey ket1390
can u share any of your filter results with us sometime? :)

The Fire Portfolio was up today  ;)  I actually own mostly those, so I survived today OK compared to what it would have been otherwise... except that I bought NGA yesterday expecting a bounce, could still happen

Anyway, Tech is good here, I believe both for fundamentals and the fact that the money leaving the financials is going to need somewhere to go, so I see a sector rotation occuring now and in the future from Financials into Tech, though I dont hear anyone calling it that as such.  Ecommerce should work well too, thus the strenght we saw in PFSW today.

yes, everyone is talking about it's time to move to tech stocks. why? Because of school and Christmas? All the gadgets they make for Christmas/school? some require flash, etc?

Quote from: Houlahan on August 09, 2007, 09:57:46 PM
yes, everyone is talking about it's time to move to tech stocks. why? Because of school and Christmas? All the gadgets they make for Christmas/school? some require flash, etc?

Well, tech starts getting seasonally strong around August and always runs strong till about end of December, almost never fail.  Probably this started due to things like Christmas, etc., but then because a self fulfilling prophecy, as everyone started to "know it was time to buy tech".  But now it seems that big tech companies like Cisco are also benefiting from global expansion, and that adds a new degree of strenght to tech that it doesnt always have.  Plus, if I am right, there will be this sector rotation aspect going on.  But its important to get tech with very strong cash positions, that way they are more immune to this credit crunch situation.

O.K. Wondering if capitulation is done and time to move forward

The monetary problem happens on paper. Those guys porduce nothing, they only lend money. The companies that are hurt, as Toky points out, are the ones with no cash and poor balance sheet. In the end, the money that the poor bastard-banks lose go to the other banks, like the Citi Group, that actually make money.

I don't understand it, if bank "A" lost money, it means bank "B" made money (unless Joe, who sold his home 2 years ago owned it entirely, which is the case for a very small percentage of homes changing hands). Money does not burn, it changes hands. So, the natural selection theory says, that a poor bastard who lost money made bad choices, and let the smart guy win. This money pumping by the European Central Bank and overnight printing in the US (they have no money, common! :D), should help the dust settle.

In my view, we should concentrate on the companies that have good international exposure. US exports are cheap, so it is easy to show good profit in US$. Cisco is a good example, as Toky mentioned.

Fed has pumped money into the market today 3 times, first time since Sept 2001 after the terrorist attacks at this volume.  Hmmm, its like a double edged sword.  Good they are doing it, but allows panic to let the market say "why are they doing this now, is there more that we dont know?"  Trump was also on CNBC today, he didnt paint a great picture, thinks a recession is coming regardless of what the Fed does.

Hopefully though, all this panic is just the contrarian indicator to mean we can start going up again.   ::)

Feels like Christmas today. RED then GREEN, RED then GREEN. lol
Thanks tokyopua for explaining. I think your right..."It's that time of the year for techs".
Have a great weekend everyone!

Why are Central Banks pumping money into the markets? This Navellier market comment provides a very good overview on what is going on:

Here's the situation. The subprime problem centered a few months ago on lenders deciding to tighten standards on risky borrowers. No big deal. That was prudent risk management. However, many banks began to fear that the subprime losses at many institutions were bigger than they could assess. As a result, some banks stopped lending overnight to each other. Overnight lending amongst banks is necessary at times to maintain cash minimums mandated by their central banks.
When enough banks were reluctant to lend to each other, overnight lending rates skyrocketed, as the lenders were demanding more interest for the unknown subprime losses. The central banks in many parts of the world feared that the tightening of credit could escalate quite rapidly. After all, if banks are reluctant to lend to each other, chances are few businesses could get loans, too, which would force many businesses to liquidate assets.
For example, if a hedge fund can't get short-term cash, it will be forced to sell long positions and cover shorts to raise cash. This happened during the past few days, which is why a lot of fundamentally superior stocks led the sell-off yesterday, and a lot of junk stocks actually rallied. In other words, hedge funds were selling their good stocks and covering short positions in their junk stocks to raise cash.
These liquidations and the jump in overnight lending rates caused many central banks to step in and inject hundreds of billions of dollars into the system to bring the overnight lending rates back down to the central banks' target lending rates. In the U.S., this is the federal funds rate, which is at 5.25%. In Europe, the target rate is at 4.0%.
During the past two days, the European Central Bank (ECB) pumped €155.85 billion ($214.56B) into the system, the U.S. Federal Reserve injected $59 billion, and other central banks around the world added billions, too.
The sudden and massive injection of money into the system caused the overnight lending rates that the banks charge each other to come back down toward their central bank's target lending rates. Basically, these central banks are attempting to prevent credit fear from turning into a 'run on the banks', without having to lower short-term interest rates, as most central banks are still worried about inflation.
In fact, the ECB is in a bit of a quandary. It was expected to raise interest rates by 25 basis points to 4.25% in September. Such a move is looking less likely if the ECB is pumping liquidity in the system.
The Federal Reserve's Federal Open Market Committee, which adjusts short-term interest rates in the U.S., held rates steady this week, and stated that inflation is still its key concern. Nevertheless, it did acknowledge that the market turmoil at hand is threatening its economic outlook for moderate growth.
And when you consider the actions the Fed took yesterday and today, it is becoming more and more likely that a rate cut will happen before November. This morning, the fed funds futures contract was pricing in almost a 50% chance for a 25 basis point rate cut in September, and 100% chance for a total cut of 50 basis points by December.
One pundit is literally screaming for a rate cut right now (i.e., Jim "Scramer" on CNBC). Donald Trump wants the Fed to cut rates by a full point immediately.
Of course, if the markets calm down soon and become satisfied with the liquidity injections, the Fed will try to keep the federal funds rate at 5.25% longer.
Even if the Fed holds at 5.25% longer, we still think it will cut short-term rates sooner than most as energy costs and the core rate of inflation come down. By the way, the July Producer Price Index comes out next Tuesday, and the July Consumer Price Index gets released on Wednesday.
As oil prices continue to fall, despite tightening inventories, inflationary pressures are continuing to moderate and the Fed will soon have the opportunity to cut key interest rates on its terms. We expect that the Fed will cut key interest rates by 0.25% at its September Federal Open Market Committee (FOMC) meeting as the core rate of inflation falls further within its comfort zone.
CONCLUSION
We had a couple of retests of the lows this week, but we could very easily bounce along these levels for several more days. We could even see lower lows, but we think most of the damage is done. In fact, we think the damage has been excessive, and stock prices will snap back once the fear dissipates.
We're already seeing some serious institutional bottom fishing. That's why many of the fundamentally superior small and mid-cap stocks soared today. There were several stocks in this club that were up 10%-20%, and many more up 5%-10%. That's further confirmation that they were oversold from forced liquidations by hedge funds and portfolio managers.

quotation from DK report ( one of my favorites sides beside shadowtrader Sundays summarization (check Member Corner):

Mega-Turnover

That rumble you hear is trading volume, which is currently tracking at record levels exceeding Wednesday and Thursday's epic totals.
It's very difficult to estimate so early in the day, but for the NASDAQ, EOD suggests the high 3.x billion shares. NYSE is above yesterday's all-time record of 2.8 billion.
Should volume back off from these quick-takes by the close, that would be interesting behavior as well. VIX almost tagged 30 before easing a bit.
A summer to remember for sure.
link:
http://dkreport.blogspot.com/

This is worth looking at  ???

http://blacklistednews.com/view.asp?ID=3942

DK Report again:
Liquidity injections can smooth out the wrinkles in financial markets, but the effects are both mildly disfiguring and very temporary.

In less than 48 hours this week, the central banks of the US, Europe, Canada, Japan, Switzerland, Australia, Singapore, Malaysia, the Philippines and Indonesia injected over $293 billion of liquidity into the global financial markets. A whopping 72% of this infusion -- $213 billion -- occurred not in the US system, but in Europe.

This was the largest global liquidity injection in history, and it's ironic that the US pump was a paltry $62 billion, one-fourth the size of Europe's.

There was also a jargon injection, with "statistical arbitration" and "quantitative funds" added to a growing list of arcane credit terminology popping up in the mainstream press.

The market also saw a volume injection, as this marked the heaviest week of trading in US stock market history. The kicker is that even though volatility reached record highs, the stock market paradoxically edged higher as well.

What's going on here?

Hard to say for sure, but below are eight observations:

1. The Stock Market
The financial markets have become more irrational than they've been in years. The source of the problem is that mortgage-backed securities -- a huge asset class -- have become difficult to value. Wall Street hates uncertainty anyway, and when it extends to the value of an entire asset class, it's a big problem. Massive positions are being liquidated for reasons other than fundamentals or technicals, making this an unusually risky time to own stocks. Because so little has been resolved, it's going to get worse before it gets better, probably much worse.

2. Statistical Arbitration and Quantitative Funds
Stat-arb is the latest variation of black box strategies in use for decades (LTCM was brought down by a variation of these). Really smart guys with computers exploit tiny, statistical abnormalities in the relationships between various securities. The spreads are so small that enormous leverage -- 3 to 10 times -- is used to make them profitable. The problem is that in an emergency, it can take 3 to 10 times as long to exit a position. When the emergency is in an illiquid asset class -- like mortgage securities -- it can really get out of hand. Perfectly good stocks get sold en masse to raise cash, which in turn triggers stops at other firms, and so on. The irrationality can accelerate rapidly.

3. Liquidity Injections vs. Rate Cuts
Because the FOMC didn't cut rates on Tuesday, Fed critics feel vindicated by this week's liquidity pump. However, liquidity injections and rate cuts are very different tools. Liquidity can be highly targeted (the Fed bought high-quality mortgage paper this week) and is very short-lived. Rate cuts are a blunt instrument capable of producing unintended consequences. The effects are also much more long-lasting.

4. Bail-Outs
There's widespread disgust at the thought that the peddlers of shameless credit products are getting "bailed out" in some way. The truth is that the peddlers are paying dearly for the Fed's help. The Fed is holding the market's best mortgage paper for just 3 days. After 3 days, the peddlers have to buy the paper back plus a Soprano-style vig that's roughly 5-19% higher than on the open market. The bad news? This caper doesn't solve the original problem of the subprime toilet paper they still can't sell.

5. Greenspan vs. Bernanke
Thanks to the bias of Greenspan's 20-year reign, an entire generation of Wall Street pros believes that the main function of the Federal Reserve is to be "accommodative". This isn't true of course, and Bernanke's data-driven approach has proved a genuine shock to the system. Despite consistent policy language and behavior, Wall Street refuses to take Bernanke at his word. You can see this doubt in Fed fund futures and the bond market, which after 1 1/2-years still resemble more of a Greenspan handicap than Bernanke's approach. Bernanke will continue to provide liquidity, but will be slow to cut rates. If things really fall apart, he will of course. But short of that, he'll continue adjust policy to the incoming data.

6. Frozen Markets
The biggest reason Bernanke will be slow to cut rates is because in the end, lower rates won't solve the problem. Illiquidity has hit the mortgage market because the value of the assets is unclear. In absolute terms, rates are low, and making them lower (a) isn't going to create valuation epiphanies, and (b) will open a can of worms in other asset classes and global economies. Transparency, not cheap rates, is the only true solution.

7. "Malt Liquor Mortgages"
The unspoken secret about the subprime mess is that these products were designed for and marketed to low-income minorities, mostly African-Americans and Hispanics. Comedian Jon Stewart had a great subprime bit on The Daily Show this week. Guest Larry Wilmore called subprime the "menthol cigarettes of loans", adding "we knew these loans were unfair, that's why we stopped paying them back!" In a twist on Black Power, Wilmore contends that Blacks are getting back at The Man by using $100 billion in leverage to strip him of power, status and wealth. Protests, voting and violence are dead ends -- using Wall Street against itself is the ultimate diss.

8. The Silver Lining
When the stat-arb boys are forced to raise cash, they sell the market's best companies, and cover shorts on the worst. This crushes hedges with a vice, yet it's why the worst stocks did so well this week, and a troubled, heavily-shorted market closed higher. The silver lining is that this irrational behavior is creating a large value inefficiency in the market. The economy is in decent shape, yet some of the most best stocks in America are being dramatically mis-priced. There's a bundle to be made when this is over.

Keep some powder dry.


http://dkreport.blogspot.com/

lol
>:D >:D >:D >:D >:D
8)

Disclaimer: Not suitable for children under the age of 3, Ron Paul, or Conspiracy Therorists. May contain parts easily swallowed that may present a choking hazard. May not fly in some situations. Not sanctioned or authorized by the Federal Reserve Board, Ben Bernanke, Shadow Governments or the Plunge Protection Team ™

DK Again with nice links included:

Monday, August 13, 2007
The Day After

After a promising start, stocks faded to unchanged on Monday as the market nursed a wicked hangover.

Volume started out heavy, but faded dramatically as the day wore on. By the close, NASDAQ trade was off 31%, and leading stocks put in a similar bleary-eyed performance. The IBD100 edged up 0.2%, but 94 of 100 stocks traded on lower volume. Strong open or not, institutional investors remain cautious.

Volatility has been so wild recently that it may come as a surprise to learn that stocks have actually traded in narrow range for the past 13 sessions. Also, price losses for the broader market are still relatively minor, with the Dow off just 5.6% from its high. The indexes are all consolidating at their 200-day, except for the Dow and NDX which are hovering at their 50-day. The market just experienced its heaviest trading week in history and stocks still aren't in an official correction yet.

In the face of all of the uncertainties surrounding the credit markets, this sideways action has produced a growing sense of bullishness among some experts. Below is a random sample of this and other bullish indicators, and there's much more of it out there:

--- Bill Cara is one of many who believe that the liquidity injection will lift stock prices.

--- KingCAMBO makes an interesting Camtasia presentation on the XLF that suggests The Fix is In, and big money is flowing back into financials.

--- Bill Rempel uses a variety of Predictive Models, and his 20-day versions remain positive for stocks. He notes that regression models are offering good odds, and that his fav EMA-based trend is still up.

--- Carl Futia offers a contrarian observation: while stocks have gone nowhere, the media has grown more bearish. Barron's, the New York Times, Chicago Tribune and Business Week Online have all published bearish front page stories.

--- In another contrarian bullish take, Mark Hulbert notes($) that the HSNSI has fallen off a cliff and is now down at a shocking 5.4%. Just four weeks ago, it was at 50.9%! While the Dow fell 5.5%, HSNSI slid 45 percentage points, a move contrarians would suggest is a tad overdone.

--- Goldman is making a bullish move from the belly of the beast, pouring $3 billion back into the deeply wounded Global Equity Opportunities quant fund.

--- There's definitely no signs that the US or global economy are rolling over, and Q2 earnings season both beat expectations and offered decent guidance.

--- Finally, there's a hodgepodge of various technical bottom finders and volatility metrics nearing extremes common at important IT bottoms.

So, are we near a bottom?

It would certainly make things simpler, but very weird clouds remain on the horizon.

--- On Thursday, both the Dow and NDX undercut their previous low, killing the new IBD rally on Day 8. The "Current Outlook" of Investor's Business Daily has returned to "Market in correction".

--- VIX and More notes that the commercials are heavily long VIX calls. This is the "smart money", and it points to continued equity downside ahead.

--- In an interesting twist, one of Bill Luby's readers noticed the purchase of 30,000 Aug 25 VIX calls on Monday. This is a $7.5 million bet that the VIX will close above 27.5 by Friday -- a big negative for the stock market. Such a large, professional move led Bill and others to wonder if another fund is about to liquidate on a massive scale.

--- Speaking of options, Jim Kingsland notes in his CNBC Options Report that despite Goldman's $3 billion GEO ante, options players aren't bullish on XLF, with puts swamping calls 2.5 to 1 on Monday. Is this another tip that more liquidation is ahead?

--- The current index consolidation at 200-day support looks like a bottom. However, it could easily be a setup for a fresh leg down. Numerous technical indicators give this possibility above-average odds.

--- In a troubling sentiment note, the AAII Sentiment Survey shows that individual investors are surprisingly sanguine about the current pullback. At 46% bullish, this group has a long way down before it reaches historic bottom territory.

-------------------------------

Strong arguments for both the bullish and bearish case are being made by experienced professionals. However, this fact alone suggests that the pullback may not be over. Historically, a sentiment extreme needs to be reached before corrective behavior is complete, and this is clearly not the case. Also, despite last week's heavy volume, an exhaustive price extreme was never reached either. Lastly, it seems very unlikely that the financial sector has given up all of the skeletons in its closet.

In the end, a strategy is perhaps most influenced by one's time horizon. With your time frame in mind, adjust risk to taste.

And get ready for another ride 'round the track.

http://dkreport.blogspot.com/

cheers
O.

The following poll results tells me we're near the bottom for the stock market:

(http://www.3stocksonfire.org/trading/index.php?action=dlattach;attach=39701;image)


CNNfn poll (http://money.cnn.com/POLLSERVER/results/33687.html)

I guess your a contrarian Dave. I personally am also with the "no way" crowd. Unfortunate but necessary we are in the beginning of a recession. Time to start saving. Opinions welcome.

uc.

Quote from: usedcasting on August 15, 2007, 09:13:20 AM
I guess your a contrarian Dave. I personally am also with the "no way" crowd. Unfortunate but necessary we are in the beginning of a recession. Time to start saving. Opinions welcome.

I totally agree.  I am going all gold.  This credit-housing-dollar bubble will make the tech bubble look like a blip.  The signs indicate to me that US is not just in the beginning of a recession but a large scale depression like the 1920s.  Bankruptcy for the US government is a matter of when not if.

This is all just my opinion.

buddjas1: what are the signs? thanks. Berloga.

Not sure about longer term, but I think we should see a bounce on the Dow around 12700 to 12800.  Tech should be OK till end of year.

Hi All
Long time no write.
I have been following John Mauldin and tend to agree with him that things will be flat to mild recession.
He's got a free newsletter you can check out at:
http://www.investorsinsight.com/

I like this guy who is pro gold as well.
http://investmentpostcards.wordpress.com/

Cesar - Keep up the good work!
I'm still with ya!

Is anybody in PLYFF? - Tungsten play (I am)

All the Best
G Man

Quote from: berloga on August 15, 2007, 09:36:35 AM
buddjas1: what are the signs? thanks. Berloga.

The sign is history repeating itself.  While there are many theories to the cause of the Great Depression, the one that makes sense to me is the "Austrian School" idea--a credit driven market expansion is a false expansion.  So when the credit dries, the bubble bursts.  There is a wealth of information on this issue, but a good place to start is:

http://www.independent.org/pdf/tir/tir_08_1_garrison.pdf

See page 115 and the following excerpt:

"In recent years, Bernanke (1983) has resurrected the old debt-deflation view of
the Great Depression. Investors who are seriously in debt when a price deflation
occurs are in big trouble. If there are enough such people and they all have to tighten
their belts, then spending falls precipitously, and the whole economy is in big
trouble—especially the banks. In the face of bad loans and hard times, banks become
more conservative. They build up their reserves, which intensifies the deflationary
pressures. The big trouble gets bigger. This kind of self-aggravating process can turn
a 1930 into a 1933. Parker describes the depression-inducing dynamics of debt cum
deflation as the "Nonmonetary/Financial hypothesis" (p. 14). He recognizes, however,
that this hypothesis is built on Friedman and Schwartz's monetary hypothesis.
Clearly, the monetary aspect is crucial because otherwise there would be no accounting
for the initial deflation. The debt, accumulated in the 1920s with little or no
regard for the deflation that lay ahead, just helps to explain how a change in a nominal
magnitude (the money supply) can have real consequences (reduced spending all
around and hence reduced employment and output levels)."

Sound familiar?  Keep in mind that hedge funds, which are primarily credit funded, account for half of NYSE volume.

http://www.taipeitimes.com/News/biz/archives/2007/08/05/2003372840

The Fed will act to lower rates. There will be some pain in the interim but when that happens the inflation cycle will continue to power higher. We are locked into inflation for the next few years, lower rates etc...

This will all pass, it's noise people. The time to buy fear is now.

Quote from: buddjas1 on August 15, 2007, 10:17:47 AM

Quote from: berloga on August 15, 2007, 09:36:35 AM
buddjas1: what are the signs? thanks. Berloga.

The sign is history repeating itself.  While there are many theories to the cause of the Great Depression, the one that makes sense to me is the "Austrian School" idea--a credit driven market expansion is a false expansion.  So when the credit dries, the bubble bursts.  There is a wealth of information on this issue, but a good place to start is:

http://www.independent.org/pdf/tir/tir_08_1_garrison.pdf

See page 115 and the following excerpt:

"In recent years, Bernanke (1983) has resurrected the old debt-deflation view of
the Great Depression. Investors who are seriously in debt when a price deflation
occurs are in big trouble. If there are enough such people and they all have to tighten
their belts, then spending falls precipitously, and the whole economy is in big
trouble—especially the banks. In the face of bad loans and hard times, banks become
more conservative. They build up their reserves, which intensifies the deflationary
pressures. The big trouble gets bigger. This kind of self-aggravating process can turn
a 1930 into a 1933. Parker describes the depression-inducing dynamics of debt cum
deflation as the "Nonmonetary/Financial hypothesis" (p. 14). He recognizes, however,
that this hypothesis is built on Friedman and Schwartz's monetary hypothesis.
Clearly, the monetary aspect is crucial because otherwise there would be no accounting
for the initial deflation. The debt, accumulated in the 1920s with little or no
regard for the deflation that lay ahead, just helps to explain how a change in a nominal
magnitude (the money supply) can have real consequences (reduced spending all
around and hence reduced employment and output levels)."

Sound familiar?

That all makes sense in general, and I cant provide a good argument to say it wont happen. 

My only contrarian indicator on that is that Fast Money reported last night that Warren Buffet just anounced yesterday a new position in Bank of America (among a LOT of other new or increased positions like NKE, WLP, UNH, DJ, BNI, etc.).  The caveat is that the announcement is as of June 30th, but its rare he would put on a position and sell it quickly.  He isnt infallible, but its worth noting.

Then, right as they were reporting that, they got in real time news that Eddie Lampert boosted his position in Citigroup by 65%.  Two of the big time billionaire investors getting into banks/financials.

If there are enough such people and they all have to tighten
their belts, then spending falls precipitously, and the whole economy is in big
trouble?especially the banks.

That is the key-if there are enough people. Right now no one really knows the scope and impact of the subprime mess and valuations of mortgage debt securities is a crap shoot and certainly the dust hasn't settled yet. If a large lender such as Countrywide report more bad news as they dig deeper into their losses then that may be the catalyst for the market to tank in a big way. I'm betting that the losses will be spread out and the crisis we see now will be looked upon as a great buying opportunity for equities that have gone through the ringer for the last several weeks.

Quote from: capricho on August 15, 2007, 10:55:32 AM
If there are enough such people and they all have to tighten
their belts, then spending falls precipitously, and the whole economy is in big
trouble?especially the banks.

That is the key-if there are enough people.

Keep in mind that consumer's total household debt now equals the GDP and household debt is 134% of income.  Consumers have to tighten their belts, as credit tightens.

http://bigpicture.typepad.com/comments/2007/04/capital_commerc.html

Thank God I can pay my credit cards in full each month and have the pink slip to my 10 year old car. Those numbers are rather sobering.

However dim the picture may look, the ecomony is no going to collapse due to the sub-prime mortgages' defaults. After all, having looked at www.foreclosure.com, I can tell that most homes that are listed there are below the median house price in that region. People who cannot afford a house should not buy in first place. Now they lose money and so do their lenders. But remember, that money went into someone else's POCKET! If the fat hedge funds lose money, they lose it to someone else!

As long as economy produces goods and services (aside from financial), it should keep up.

An important question to answer is "are the differences in modern US economy from that in the 1920's and 1930's, considering globalization and fast transportation and stronger rising economies of other countries, sufficient to make it a lot different from the Great Depression?".

There are also a lot more different professions nowadays that did not exist back then: IT, microelectronics, biotech, programmers, more types of doctors, more resorts and public recreation facilities, etc., etc. The point is, there is a much greater variety of jobs now than compared to the 1920's. That may make a difference, in my opinion.

fyi:
Crisis or Opportunity?
Equity losses have been painful; however, this is a time for bargain-hunting – not panic selling.

Share prices around the globe fell sharply in reaction to the subprime mortgage mess in the United States. As so often happens in a situation like this, perceptions have gone far beyond the reality of the situation.

There was undoubtedly cause for concern in that market, but investors appear to have over-reacted. Panic selling that spread to other sectors of the investment world became a self-fulfilling prophecy as investors dumped other forms of debt and then equities. Falling prices were spurred on by selling caused by fund redemptions, accelerating the downward spiral.
There is so much nervousness in the markets that it is impossible to predict with any certainty what is coming next. A rational look at the markets suggests that a rebound is imminent, as has happened so many times in the past in a situation like this.

Let us start with an objective look at the subprime mortgage situation – the trigger for the melt down. First, subprime mortgages represent only a small portion of the overall mortgage market in the United States. Actual defaults on subprime mortgages have been about 5% to date. So far, 85% of borrowers in that market continue to make timely payments.
Inevitably, the default figures will get worse. But, remember, those loans are all backed by real estate. Undoubtedly, the value of the real estate will fall short of the loan amount in those cases where the borrowers default. To explore the potential implication, assume the delinquency rate was to soar to 25% and as an example, suppose that in each of those cases the realized value of the collateral falls 25% short of the loan amount. Then, the overall subprime market would lose about 7% of its value. That is hardly a catastrophic event for the world economy.

It is a classic reality that markets are driven by reactions to front page headlines. Profits are made by those investors who take the time to digest the details buried in the news articles. The present situation appears to follow that pattern.
A recent Associated Press headline screamed: "Existing Home Sales Fall in 41 States"and the lead paragraph expanded on that dire news with the observation that "home prices were down in one-third of the metropolitan areas surveyed."
Investors who took the time to read the whole article found that there were "price gains for 65 percent of the areas surveyed" compared to a year ago. That same article goes on to quote a real estate expert who notes that "the fundamental momentum clearly suggests stabilizing price trends in many local markets."
The subprime situation has spurred lenders and investors around the world to take a fresh look at risk with respect to their investments. That means that money for such things as leveraged buyouts has become harder to source. That is a good thing, as some of the private equity deals that were being done bordered on ludicrous.
Holders of subprime mortgages may be in jeapardy of seeing losses. However, the more important debt markets are still in good shape. For example, the global default rates on corporate bonds are at historic lows.
While hedge funds and private equity funds have reduced the rate of new investments, money is still coming in to the markets from two sources that are growing ever more important. Sovereign wealth funds are pumping huge amounts of capital into the global investment markets. Primarily backed by oil exporting nations, these funds are increasingly investing in Western capital markets.
Central Bank foreign currency reserves are also being deployed in more entrepreneurial ways than was the case in the past. China, with a $1.3 trillion of foreign reserves, now leads the world and is seeking to deploy a significant portion of its enormous wealth in ways that generate a real return.
In spite of the perception created by many of the headlines, the U. S. economy continues to expand, albeit slower than most investors would like. Most importantly, the rest of the world continues to grow at a fast pace, making the U. S. economy less important over time in the context of world economic growth.
One of the important implications is that the U. S. dollar remains under downward pressure. The steady shift of wealth away from the U. S. will continue to erode the value of the dollar. Hard assets such as gold and other metals will remain an important hedge. Resource backed currencies such as the Canadian dollar will hold value better than the U. S. dollar.
Global demand for metals has not been impacted in any way by the fears surrounding the American subprime mortgage market. Exploration and development companies will continue to be rewarded for success.

The most important implication is that panic selling of resource companies has created many outstanding buying opportunities. I expect prices to rebound fairly quickly as investors gain a better understanding of the realities of the current situation.

We're starting to see several economists forecasting the US economy will enter a recession in early 2008, due to a consumption retrenchment.

buddjas1 may very well be right in his doom and gloom economic outlook, I'm even going to risk saying he's probably right.

But, that's not a big deal in terms of the long term future for the stock market, as you can check in the following long term chart of the S&P 500:

(http://www.3stocksonfire.org/trading/index.php?action=dlattach;attach=39707;image)

Back then the S&P 500 fell 20% from top to bottom, and now we're "just" 10% off the highs, so perhaps we're just halfway through the decline phase.

But it's too late to sell now, in my view. I prefer to start getting ready to buy the 30% I have in available cash in fundamentally strong stocks when there are signs the downturn is over.

Why do I believe the long term bull market will continue beyond the current "short term" economic problems? Well, the fact that now we have several other growth engines in the World, besides Europe, North America and Japan, is a much larger and broader economic development than a consumption recession in the US, which everybody and his mother has been predicting for years.

The fact that now there are 3 billion or more people that are starting to get purchasing power for the goods and services American companies provide is a huge factor that will continue to drive long term profitability for US public companies. What is more important, a 3% increase or 1% decline in the US GDP, or a new US growing in China, another one in India, and another one in Russia? (if you join Eastern Europe the population size is about the same as the US). And South America too, another potential US there. What you have in the cards is a 1 or 2% decline in the US GDP and the potential emergence of four new economic blocks perhaps almost as powerful as the US over the long term.

The "globalization bubble" is still to happen, and it may very well provide an even larger long term advance for equities than the 1991-2000 five fold advance you see on the chart.

This is just my humble opinion, I can be wrong.

I agree with David. In fact I posted my comments above that are based off of the same assumptions. I went to Russia in May and saw a lot of developments going on there. The country seems to be on a long term track of raising its economy.

The other day there was a program on TV, I accidentally flipped channels, and saw something that resembled the star wars landscape: huge marvelous buildings of all sorts and proportions, great novel architeture. Well, this was not Star Wars, alright, it was modern Shanghai! The look of the city places NYC in misery. Of course, it is understandable, NYC had its sky scrapers built 50 years ago. Nevertheless, other economies will thrive.

Does anyone know where to find a vix measurement? The talking heads have been saying that generally when it's in the 40's,a bottom is in or near. Anyone? Thanks>

You can find the vix at yahoo: enter ticker symbol ^vix.  It is a delayed quote but will tell you what you need to know.  You can also see historical charts.  Anyways, here it is, currently at 34.50:

http://finance.yahoo.com/q/bc?s=%5EVIX&t=1y

$VIX on my data feed and on stockcharts.

Checking it out. Thanks.

Ok,I found it on Yahoo and my scottrade data feed. Very cool. Anyway,the 40's are still a ways off,so there may still be more near term pain. GLTA

I'm attaching the vix monthly chart  (last 10 years).
Pls note we are currently among the highest of this indicator

Quote from: tokyopua on August 15, 2007, 09:50:38 AM
Not sure about longer term, but I think we should see a bounce on the Dow around 12700 to 12800.  Tech should be OK till end of year.

Dow is down like 1000 points in 6 days, RSI is 31.6, quite oversold.  A bounce of some sort has to happen soon, at least it did in February when we hit this kind of situation.

Latin American markets really getting trashed today. ^MERV and ^BVSP both down nearly 9%. I've got my eyes on SDA for a possible buy soon, but how low will she go?

VIX hit 37.5 now at 36.11. I think today or tommorrow could present some really good buy opportunities. Options expiration tommorrow.

Made several purchases this morn, I hope not prematurely, but think not. Bought SDA, TDY,SRCL,AXYS today.

Lots of fire sales in Latin American stocks today. I've got an entire portfolio of about 30 Latin American stocks I've held for almost 4 years and not selling now.

By the way I  reactivated my account here. Decided that there is just way too much valuable information on this site to pass up for $50/month. Like La-ondas info on GIGM that gave me the courage to buy heavily before the ER came out. Yep, GIGM is definitely a keeper. Thanks La-onda.

Quote from: BigSully1 on August 16, 2007, 02:16:07 PM
Made several purchases this morn, I hope not prematurely, but think not. Bought SDA, TDY,SRCL,AXYS today.

Lots of fire sales in Latin American stocks today. I've got an entire portfolio of about 30 Latin American stocks I've held for almost 4 years and not selling now.

By the way I  reactivated my account here. Decided that there is just way too much valuable information on this site to pass up for $50/month. Like La-ondas info on GIGM that gave me the courage to buy heavily before the ER came out. Yep, GIGM is definitely a keeper. Thanks La-onda.

Applauds for sticking around, I've enjoyed your posts and learned a lot from you! 

Thanks Tokyo and likewise, I appreciate and learned alot from you.

Quote from: tokyopua on August 16, 2007, 12:01:20 PM

Quote from: tokyopua on August 15, 2007, 09:50:38 AM
Not sure about longer term, but I think we should see a bounce on the Dow around 12700 to 12800.  Tech should be OK till end of year.

Dow is down like 1000 points in 6 days, RSI is 31.6, quite oversold.  A bounce of some sort has to happen soon, at least it did in February when we hit this kind of situation.

Dunno what you guys think,  but that is what I was looking for in terms of a bounce!

looks like there will be a bounce tomorrow. The S&P 500 reversed very nice from a low of 1370 it closed at 1411.

VPHM will explode tomorrow nice finish there waited for 8.50 there we go

Well, I took my chances and bought more GIGM, IMMR, SWIR, NVTL, and GSB today.

JKN

I also made some heavy purchases yesterday and today. I made a very large purchase in NYX today. That stock is on sale and all this volatility is going to boost earnings!

The market, measured by the SPY, had its highest volume ever today, with 541 million shares changing hands.

Could it be that the current correction is over with a 12.2% top to bottom decline? Time will tell, but I figure the long term bull market will continue, and the setup is powerful for a run up to new all time highs in late 2007 or early 2008.

I'm not quite sure if the downturn is quite over yet.  Man does it feel like 1998. >:D  Wow the volatility. :o

We'll probably rally for a couple of days.  But I would think we would trend lower to the lows from March at least, or the worse case senario we go to the 4 year trendline near 2200 for the Nasdaq.

Anyway I'll be ready to grab more of these growth stocks after big down days...and maybe by year's end we'll party like its 1999. :D

Global growth is here and it's not going anywhere.  I think we may actually see a global stock bubble in the works throughout 2008.  We'll see.

Hi Guys,

I've just posted a Technical Analysis of the S&P-500:
http://www.3stocksonfire.org/trading/index.php?topic=10180.0

regards ;)

just fyi:

1) nice daily video:
http://www.kingcambo.com/traders/897829

2)
Cara's Thurs. Report, Aug. 16, 2007, 9:25 AM

Market Chat

There is a wave of panic selling underway at this point that is looking like any primary technical support has failed. A Bear market has probably started. Stocks, however, are over-sold, and may be in for a bounce. [ADDENDUM]

Just as likely is an October 1987 Black Monday scenario.

Yesterday, the Major US equity indexes closed at fresh 4-month lows with more losses in the DJIA (-1.57 pct to 12861), S&P 500 Index (-1.39 pct to 1406.7), Nasdaq Composite (-1.61 pct), and Russell 2000 small caps (-1.49 pct to 751.54). The average loss was actually less than the previous day, but the succession of losses, and the timing of the day-ending sell-off is what is worrying traders.

Overnight, the Asia-Pacific equity markets showed a degree of selling panic, as did the European markets earlier today.

Yesterday's biggest losers were: Energy (XLE -2.75 pct) and Basic Materials (XLB -2.51 pct). Cramer used the Deflation word last evening. I don't see it. What I do see is a withdrawal of capital from markets, starting months ago in the Financials (XLF) and Consumer Discretionary Spending (XLY) and now moving to the commodity price sensitive sectors. The biggest loser on the day was the $XAU goldminers group, which lost -4.25 pct to 132.45. Reports attribute the losses to the wind-up of the Carry Trade and the strength of the Yen. I don't believe it. The gold bullion is remaining firm as the Yen strengthens. The sell-ff in stocks is from failing hedge funds and margin calls in retail accounts that are moving to cash by selling what the owners/managers of the capital consider their highest risk. Fundamentally, with bullion prices and corp earnings, however, and the over-extended rise of the $USD (against the Euro, Pound sterling, Cdn and Aussie Dollars), leads me to believe there will be be a recovery in the miners.

By not closing put writes, the severe drop this week has resulted in gold stocks being put to those traders who got caught in the downdraft. However, unlike the put writes for stocks in many other sectors, which were closed earlier, there is a fundamental basis of holding onto the best quality goldminer stocks.

In any event, as Jim Cramer and others say, we all can see prices falling, it is important to look for ways to avoid the most damage. Anybody who no longer feels comfortable should not be holding stocks. In fact, they should have gone to cash as a primary strategy as I suggested some time ago.

International Economics Review

The US market has driven short rates down faster and further in a day or two than I can remember. I believe that the G-20 central banker liquidity injections will continue until Euro LIBOR and Bankers Acceptance rates come off their 52-week highs. This is an emergency situation, and with respect to the key econ data that is being released this week, the capital market is presently focused almost entirely on credit collapse; hence the G-20 is the party with the answers the market is looking for. Yesterday, there was much new econ data to consider, some of it very positive, but traders happen to be focused at this point on emotion.
The US headline CPI (+0.1 pct) and Core CPI (+0.2 pct) met consensus estimates. The numbers are considered good. New York's Empire State Manufacturing index dropped down to 25.1 in August from 26.5 in July, but much better than the anticipated 17.75.
The Department of Energy reported US crude oil inventories fell by -5.2 million barrels, Gasoline inventories fell by -1.1 million barrels, and distillates (heating oil and diesel fuel) fell by -1.1 million barrels. The numbers reflect continuing levels of econ growth.
US industrial production for July increased +0.3 pct, resulting from a drop in utilities, while capacity use lifted to 81.9 pct. The June net foreign buying of long-maturity US securities was $107.0 billion in June, down from May's $112.5 billion, so apparently there is still strong demand.
The NAHB housing market index for August sales of new, single-family homes decreased to 22 from July's level of 24, which had been the lowest level since January 1991.

Breaking News:

Fed declares "downside risks" to economy have increased, OKs half percentage point cut in discount rate on loans to banks.

Quote from: realcoolhead on August 17, 2007, 08:26:48 AM
Breaking News:

Fed declares "downside risks" to economy have increased, OKs half percentage point cut in discount rate on loans to banks.

The FED is a friend of the bulls now. If the problem is credit, easing interest rates will surely help. This move in the discount rate opens the door for cutting the federal funds rate as early as in the next meeting in September, perhaps with a 50 basis point rate cut.

There will be a massive short covering today, let's hope the market holds or builds upon the higher open. I remember the day when the FED cut interest rates by surprise in 2001 and the Nasdaq rose 14% on the day. But it was an intraday rate cut, I think it works much better than while the market is closed, Bernanke still needs to learn a few tricks from Greenspan ;D

14%? That would put NASDAQ to new high in 07 ...  ;D

Quote from: David Randolph on August 17, 2007, 08:44:59 AM

Quote from: realcoolhead on August 17, 2007, 08:26:48 AM
Breaking News:

Fed declares "downside risks" to economy have increased, OKs half percentage point cut in discount rate on loans to banks.

The FED is a friend of the bulls now. If the problem is credit, easing interest rates will surely help. This move in the discount rate opens the door for cutting the federal funds rate as early as in the next meeting in September, perhaps with a 50 basis point rate cut.

There will be a massive short covering today, let's hope the market holds or builds upon the higher open. I remember the day when the FED cut interest rates by surprise in 2001 and the Nasdaq rose 14% on the day. But it was an intraday rate cut, I think it works much better than while the market is open, Bernanke still needs to learn a few tricks from Greenspan ;D

Things calmed down from that explosive opening, but its options expiration today, so we could get back to that 300 point plus upside on the dow at the end of trading still.

CNBC now talking about how the Fed was clearly trying to hit the bears in the dutch tender parts because the ETF options losses were immediate for many people and it probably took out entire hedge funds in one fell swoop as ETF options expiry is at market open .  This would not have been the case if they announced at 3:30 PM, which is the options expiry for individual stocks (from what I understand now). 

Quote from: David Randolph on August 17, 2007, 08:44:59 AM

Quote from: realcoolhead on August 17, 2007, 08:26:48 AM
Breaking News:

Fed declares "downside risks" to economy have increased, OKs half percentage point cut in discount rate on loans to banks.

The FED is a friend of the bulls now. If the problem is credit, easing interest rates will surely help. This move in the discount rate opens the door for cutting the federal funds rate as early as in the next meeting in September, perhaps with a 50 basis point rate cut.

There will be a massive short covering today, let's hope the market holds or builds upon the higher open. I remember the day when the FED cut interest rates by surprise in 2001 and the Nasdaq rose 14% on the day. But it was an intraday rate cut, I think it works much better than while the market is closed, Bernanke still needs to learn a few tricks from Greenspan ;D

How did you feel about the action Friday, David?  Cramer had been on in the morning predicting the largest point move in Dow history.  Later he said that because Japan had been down 5.42% overnight that the Fed move saved us from a 500 point decline Friday and another one Monday.

A lot of people are now saying that you cant get in front of the Fed, that it will bulldoze the shorts.   Of course, there are also the permabears citing things like 9 trillion dollars in hedge funds with only 1.5 trillion dollars in actual assets (i.e. that they are leveraged), the death of the american consumer as mortgages reset, etc.   

Anyway, I think this puts us mostly back on a level playing field if not back into straight out bullish action for awhile, Im interested in what others here think now.

I'm keepeing a low profile until things settle down.
I was going to start buying again last friday but changed my mind mainly
because of the imbalance of hedge funds vs. actual assets in a highly volatile
market.
The attached chart of the volatility index - last 10 years, is self explanatory
regarding  risk/reward posssibilities. 

bloomberg was interviewing on of the multimillionaire guys, I don't remember his name but he mentioned something along the lines that in 2008 there will be another big decline due to subprime loans (5year ARM) due next year for interest 5yr adjustment.

so should we be having a shorter outlook considering future market decline due to these additional 5 year ARM loans due next year for a interest adjustment?
:-\

Economists like Paul Samuelson, Alan Greenspan, etc., say basically there are 3 possible
scenarios:
1) Moderate recession in 2008.
2) Worldwide banks may dump huge amounts of $$$ to reestablish markets
     and optimistic prognosis of world growth.
3) Markets might live with inflation above central banks targets.

You can choose the option you like or a combo, and decide the risk/rewards
you can handle.

The Federal Reserve cut the discount rate to 5.75 percent from 6.75 percent. This is a symbolic action as the discount window is nowadays rarely used, but it does indicate that a cut in the fed funds rate is being considered. The discount rate is the overnight rate at which the Fed lends to banks if they have a shortfall, while the more widely used fed funds rate (5.25%) is the lower rate at which banks lend overnight to each other.

While the Fed's actions will ensure the stability of the banking system it is unlikely to reverse the course of the market. Banks are likely to re-assess their risk exposure and many forms of credit will become more expensive. Tighter credit will affect sales - so there may well be a long term effect, but it will take months before we can assess the impact on earnings.

The Dow Jones Industrial Average tested the lower border of the trend channel at 12800 before recovering sharply. Sharp rallies in a bear-trend cannot be trusted and we should wait for a second test that respects the lower channel border. Twiggs Money Flow continues with a large bearish divergence; a break of the downward trendline would indicate that distribution is ending.

Talk that the FED will cut the FED funds rate at or before the September 18th meeting will probably keep the general market going north.

Today there were several bad news out, with more problems in mortgage lending and a German bank saying it is getting harder to get loans from foreign banks, and yet the futures reversed course in the morning and the DAX is actually higher now after being down a lot in the morning.

This feels like all the credit problems are the past now, everybody knows about them and they've been discounted. Buffet agrees, as he has been buying financial assets (like a big position in Bank of America) and there are rumors he's preparing to buy certain assets, including mortgage assets, from CountryWide Financial, the largest US mortgage lender, which has been in severe trouble.

From a technical standpoint, the first test for the SPY will only come at $147.48, when it meets the short term descending trendline on the chart below.

Interesting article  :-X
=============================


The Croesus Chronicles
My, How Fast Liquidity Disappeared
Robert Lenzner, 08.20.07, 2:23 PM ET

The Garden of Eden began to look like a perfect storm until the Fed acted last Friday.

We experienced a host of "Black Swans" that spooked the equity markets. We are now experiencing a temporary reprieve that will enable the de-leveraging of credit to continue.

On Thursday, Aug. 16, Christopher Wood, emerging markets analyst at CLSA (an affiliate of Crédit Lyonnais), predicted that "the world is nowhere yet near the peak of the fear that will be generated by the unwinding of the credit bubble."

Mark well the shocking events that led to a panic in credit markets that triggered a panic in the stock market. Bear Stearns (nyse: BSC - news - people ) hedge funds froze up. Goldman Sachs (nyse: GS - news - people ) had to inject $2 billion of its own money into its hedge fund to maintain solvency. BNP Paribas (other-otc: BNPQY - news - people ), the sixth-largest bank in the world, refused to honor obligations because it could not properly value its holdings.

And so on. In just several trading sessions, shares of the Powers That Be of Higher Finance--Morgan Stanley (nyse: MS - news - people ), JPMorgan Chase (nyse: JPM - news - people ), Citigroup (nyse: C - news - people ), Goldman Sachs, Merrill Lynch (nyse: MER - news - people ) and Lehman Brothers (nyse: LEH - news - people )--lost over 20% of their value in the stock market. Until Friday's partial bailout, that's a bear market in financial stocks by any definition.

But beware: The repricing of risk is not finished.

A hodgepodge of foreign investors--banks in Asia and Europe--own various species of subprime debt, and as the rating agencies downgrade this paper, they will have to mark it to market. J. Kyle Bass, managing partner of Hayman Capital in Dallas, predicted on July 30 that the highly leveraged mezzanine paper of the CDO (collateralized debt obligations) structures "will fetch bids of around 10 cents on the dollar, creating what he calls an "ensuing horror show."

This "horror show" will take time to work its way through the financial system. Expect to see huge losses taken by banks and other investors around the globe that will underscore the excesses of the past few years of reaching for yield without a clear understanding of what they were buying.

Then there's the troubling symbiosis of hedge funds and investment banks.

The banks have lent billions to hedge funds that hold illiquid and highly leveraged assets and need to raise money to meet the demands of banks for more collateral. Second, the banks are still warehousing loans to private equity houses for multibillion-dollar leveraged buyout deals that are stymied for the moment.

AS CLSA's Wood put it last week in Greed and Fear, his investment letter: "It is crucial that market discipline is reasserted in the profligate behavior that had become commonplace in the credit world."

There's blame all around for this "profligate behavior." First, there's the mortgage banks that lent 100% of the purchase price of a home without demanding income and net worth statements from the buyer. Then there are the naive buyers who believed they'd get an easy ride on easy credit conditions.

Thirdly, there are the investment banks and commercial banks that gathered the lousy mortgages together and sold packages of them indiscriminately to investors. Finally, there are the rating agencies that were paid scads of money to give credit ratings without truly understanding the paper they were valuing.

Now, for predictions by Croesus:

The Fed will continue to ease credit conditions due to the disappearance of liquidity. The Eurodollar futures market is discounting a full percentage point (100 basis points) cut in the federal funds rate from 5.25% to 4.25% by March 2008. Whether that will save the US economy from recession is anyone's guess. Housing will continue to deteriorate, and this will feed through into weaker personal consumption.

As John Plender, the thoughtful Financial Times columnist, put it over the weekend: "If an economy is robust but unsoundly financed, it will not stay robust for long." Well, the robust days are over for the time being. Gains in average hourly earnings peaked out early in 2007 at a 4.3% annual rate.

Next prediction: The rating agencies and the world of structured finance will get a black eye and require investigation by Congress. A horde of investors will pull their money from a horde of hedge funds, and some of the worst hit will close their doors. A portion of the private equity deals will be delayed, at minimum, and some will never be done. A reform of the tax on private equity--from "carried interest" to ordinary income--won't happen, as it will be seen as damaging the stock market's underpinnings.

The markets will continue to be volatile, especially the stock market in the U.S., where the requirement for an uptick on a stock before it can be shorted has been removed by the deregulators, who have enabled sharp, violent downdrafts in the market by hedge funds and other professional bears. A terrible mistake.

In the credit markets, credit derivative swap indexes will continue to offer brilliant ways to price murky markets, to hedge risk and disperse around the globe. These indexes will give derivatives a good name as they serve as benchmarks for pricing debt markets, in the same manner as the Dow Jones industrial average and the Standard & Poor's 500 are indexes for pricing the stock market.

Watch the debt markets for signs of what to expect in the stock market. The debt markets are twice as large as global equity markets, over $100 trillion, compared with $50 trillion. They are an early warning sign of troubles ahead.

If de-leveraging in the credit markets has a long way to go--and I believe it does--then expect more downdrafts in the equity markets. The Bernanke reprieve may be a way to lighten up exposure if the updraft continues.

Today the so-called TED spread, between three-month Treasuries and the London Interbank Offered Rate, soared to 300 basis points, up from its usual 20 basis points. This is an indication that the market is still worried about the financial condition of the world's largest banks (see chart below).

An interesting article about the bearishness outthere and what that means for the general market:

Short course (http://www.marketwatch.com/News/Story/Story.aspx?guid=%7BF38452F6%2D7CD2%2D4553%2D8D25%2D2C6997DCB220%7D&siteid=nwhnwhnr)

the recent bounce is soon finished....today it gaps up the QQQQ ist 48.00 pre market....it looks like distribution to me....the bounce volume is getting weaker every day....and will be interesting how the MA 50 resistence reacts.......down from here...maybe buying QID today if things turn red...

Quote from: ket1390 on August 23, 2007, 06:45:29 AM
the recent bounce is soon finished....today it gaps up the QQQQ ist 48.00 pre market....it looks like distribution to me....the bounce volume is getting weaker every day....and will be interesting how the MA 50 resistence reacts.......down from here...maybe buying QID today if things turn red...

Hi ket1390, thanks for your general market view.

It seems to me that the market is actually making a very painful (for the bear's majority (http://www.marketwatch.com/News/Story/Story.aspx?guid=%7BF38452F6%2D7CD2%2D4553%2D8D25%2D2C6997DCB220%7D&siteid=nwhnwhnr)) breakaway gap of its short term descending trendline. The way I see the chart unfolding, I guess this could be an inverted Head & Shoulders bottom, with the current bullish move ending below $150.59, and then another down move to make the 2nd shoulder around $142 - $143 (in the SPY), and then a move to new all time highs by the end of the year.

Of course, it could play out differently, but I remain a long term bull in this market.

hi david
in the past weeks was the volume much higher on red days than on green days....thats not positive in my view.

all major indizes are below the MA50....now they re gonna attack this indicator....i am not long until we stay a couple of days over this important indicator....if we reject from the MA 50 resistence i am staying more bearish...then it s a confirmed bearish sign.

Quote from: ket1390 on August 23, 2007, 07:14:09 AM
hi david
in the past weeks was the volume much higher on red days than on green days....thats not positive in my view.

all major indizes are below the MA50....now they re gonna attack this indicator....i am not long until we stay a couple of days over this important indicator....if we reject from the MA 50 resistence i am staying more bearish...then it s a confirmed bearish sign.

Volume being lower now is actually bullish, not bearish. I have a technical analysis book which has an entire 11 page chapter on how to analyze volumes, let me go get it ... here it is, two situations:

- A sustained decline suddenly gets faster and sharper, with much higher volumes.

Interpretation: The end of the negative trend is in sight, stopping or reversing. As with situation 3, it is an exhaustion phenomenon, now called "selling climax". The sharp increase in volume will mean that there are already many buyers, attracted by the lower prices, therefore stopping the decline.

- After a selling climax, prices start trending up, but with lower volume

This is a classic way to end a bear market or big correction. The rise is made with lower volumes because the dominant pessimism didn't allow the appearance of a significant number of buyers. But, if despite the pessimism, prices are climbing, it means there are less sellers now. Potential sellers already sold and are holding cash. The pressure is on the demand side now.

Combining the two I get to the conclusion that the bottom was made on the August 16th selling climax. Now, I don't know if we'll trend to new highs right away or if the inverted H&S scenario I've laid will play out. Either way, it won't change my attitude towards the market, which is to hold my shares through all the turbulence, with the expectation of a new all time high later in the year or early next year.

yeah you are right...here a 5year monthly chart of the QQQQ nothing damaged yet....a montly close below 45 could be a topic where it s getting bearish on this index.

I've just posted an update to my SPX Analysis:
http://www.3stocksonfire.org/trading/index.php?topic=10180.msg104653#msg104653

regards ;)

Punk Ziegel is out saying that mortgage business may have accounted for 1/3 of  Lehman Brothers profits at one point.

it that is true -- and is true for other brokerage firms -- earnings are going to be a DISASTER.

it could come into play in the financials.

The QQQQ reacted negatively after touching its short term descending trendline as you can see on the chart below:

(http://www.3stocksonfire.org/trading/index.php?action=dlattach;attach=39889;image)

As for the SPY, as we can read on Ramsburg's analysis (http://www.3stocksonfire.org/trading/index.php?topic=10180.msg104653#msg104653), it's still not conclusive:

(http://www.3stocksonfire.org/trading/index.php?action=dlattach;attach=39890;image)

I actually hope/expect the market to go down to the S2 area, because that's where I'm planning to buy 4 new holdings for the Main Portfolio, filling up the truck. Not because I think the general market trend is crucial for those specific companies future, but because I guess  then it will be easier to identify four stocks that have short and long term appreciation potential, so that they can help push up the Main to a nice close for 2007, say, in the 15-25% profit range?

This is my current view and strategy.

I'm going to take one week off for vacations, because clearly my productivity hasn't been as I would like it to be, it's so damn hot here in Portugal now. My wife and kids have also been requesting this week for long.

Anyway, I'll write about this in the daily newsletter.

See you folks :)

I just posted a quick update to my SPX Technical Analysis here:
http://www.3stocksonfire.org/trading/index.php?topic=10180.msg104750#msg104750

regards,

Hi All
Thought this was an interesting short term analysis.
I'm with David thought that low volume means folks are holding their shares.
Best
GMan

http://investmentpostcards.wordpress.com/2007/08/27/temporary-stock-market-bounce-or-sustainable-rally/

Just a quick update:

Today's session was ugly and not nice to watch, but given the recent big pullback and taking in consideration the current volatility in play, this wasn't completely out of context. Apparently the motivation for today's sell-off was the Fed Minutes, which didn't brought anything new, just the same fears that pushed the markets down some weeks ago.

From a technical perspective, the recent breakout was washed away from the charts and the SPX is once again trading below the 1460 reference level and the ema-200. I guess climbing 110 points in 7 sessions without breathing was not sustainable... I was expecting a little sell-off before watching the breakout of 1460 last week, instead we have now this bigger sell-off :-(
The current layout is still compatible with an inverted H&S pattern (assuming a second shoulder is done during the next 20 points down from this spot). It's difficult to draw short term supports with this volatility, but despite the short term, the «big picture» is still intact at this point.

Regards,

The action yesterday filled some gaps to the downside on the major indices (there was one in the $NDX) and left some gaps to the upside which should at least fill so that much upside should be baked in.  Volume yesterday was half that of the other most recent big down day (per CNBC report) so it also may not be so significant.

My take is there was panic from the Fed minutes, but I totally expected there would be no cutting bias since there had been none in the last statement and then suddenly they were cutting the discount rate out of nowhere a few days later as if they suddenty realized there was a bigger problem than inflation. 

Well I don't think were done with the down turn quite yet.  I feel like we're in no man's land right now.  I feel we at least have to test or come close to the lows of mid-August...and there is still a possibility of hitting the 5-year trend-line. ::)  which on the Nasdaq stands around 2200.

Also I don't see this debt thing going away anytime soon.  When financials are hurting in a capitalistic society...I sense problems.

However, I think the positive growth from Asia and South America will eventually turn the markets much higher.  We just need to get through this credit mess right now.  I would like to see another capitulation day......and that will be the day to jump in to these high growth stocks.  Otherwise, right now...I'm selling into strength and buying in extreme weakness.

$900M dollar bet.



http://www.moneymorning.com/2007/08/29/this-900-million-bet-has-global-traders-talking%e2%80%a6/

Quote from: kslifka on August 29, 2007, 09:07:45 PM
Well I don't think were done with the down turn quite yet.  I feel like we're in no man's land right now. 

I agree kslifka... and untill we see the market breaking new highs... or new relative lows, we'll stay in doubt ;)

Quote from: tokyopua on August 29, 2007, 09:24:16 AM
Volume yesterday was half that of the other most recent big down day (per CNBC report) so it also may not be so significant.

Thats true, and yesterday was the same volume again ;)

Quote from: BigSully1 on August 30, 2007, 01:27:48 AM
$900M dollar bet.
http://www.moneymorning.com/2007/08/29/this-900-million-bet-has-global-traders-talking%e2%80%a6/

Hi BigSully1,
I don't remember seeing anything like that in options.... thanks for sharing, this is important information.

Quick Chart Update:
Yesterday’s candle was an indication of strength; the SPX has quickly recovered all of Tuesday’s losses (actually, the SPY closed above the body of Tuesday’s candle).
The index closed above 1460, but this isn’t a reference anymore, the resistance stands now at 1479 points and we can introduce a new short term support at 1432.

Regards,

Quote from: BigSully1 on August 30, 2007, 01:27:48 AM
$900M dollar bet.



http://www.moneymorning.com/2007/08/29/this-900-million-bet-has-global-traders-talking%e2%80%a6/

Also read link at bottom of article. China insists it won\t drop dollars.

Hi
i'll share you you my idea about the market action ..

this is a short term technical analysis for Nasdaq :

On the 15 minutes chart Nasdaq is at a downtrend line pointing to about 2563 this will work a a resistance to take the nasdaq to 2540 .. in case we break this resistance this will lead us to 2580 however if it fails ! this means we'er going to see 2520 today ...

This will help you for knowing the market direction in those cases ....

I wish you all best luck

Interesting Article - Looks like a setup for a strong rally!

http://www.businessweek.com/investor/content/aug2007/pi20070813_329324.htm

Can Stocks Hold the Line?
The S&P 500's ability to hold support around 1430 in this volatile environment would be a victory for the bulls

From Standard & Poor's Equity <ResearchFear>, relief, and panic sum up the wild swings in emotions we saw last week as price volatility on a daily basis soared. August is often the slowest trading month of the year but not in 2007. We have seen record volume on the Nasdaq while NYSE came very close to setting a record. Let's hope September and October, which have typically been tricky months for the market, turn out differently this time.

The retest of the Aug. 3 closing low of 1433 and the intraday low of 1427 on Monday, Aug. 6, was something I have been talking about, but it occurred way faster than we anticipated. It only took a week to make a round trip back to those levels as the intraday low on Friday, Aug. 10, was 1431.42. We are by no means out of the woods yet, but holding support in this kind of environment is a victory for the bulls.

If the 1430 area does hold, as we expect, then we would like to see a strong rally develop and take out the recent closing high up at 1497. This would complete a very compact double bottom reversal formation, and it would suggest to us that the worst is finally over. Even if the S&P 500 does hold around 1430 and rallies, we would still expect more testing sometime in later August or September.

We hate to use the word "if" so many times but in this volatile market, but in this case it's appropriate. If the 1430 zone does not represent a floor for the S&P 500, the next area of chart support sits in the 1364 to 1410 range. This zone represents the base the "500" put in back in February. There are other pieces of technical support in that range, so it makes it that much more important.

Long-term trendline support, off the highs over the past couple of years, sits at 1428, very close to Monday's intraday low. A 61.8% retracement of the rally off the March lows, targets the 1437 level. The 65-week exponential moving average lies at 1412 and this average has done a good job of acting like a floor for the "500" during the bull market.

Another piece of potential support within the zone of chart support outlined above is the 80-week exponential average, and that lies at 1391.

If this zone of support is taken out, there is long-term trendline support, off the lows of the past couple of years, at 1330. The top of the next zone of chart support sits in the 1325 area.

The quick rally that occurred during the week, if you can still remember, ran out of steam right in an area of thick, technical resistance. The S&P 500 finished Wednesday at 1497.49, and had an intraday high of 1503.89. Chart resistance begins in the 1490 zone, from the double bottom in June, and extends up to the all-time high of 1553. A 50% retracement of the recent decline targeted the 1493 level while a 61.8% retracement is up at 1507.23. In addition, both the 65-day exponential moving average and the 50-day exponential average sit just below 1500.

We suspect the recent price volatility has shaken even some of the most grizzled Wall Street veterans. In the last 13 trade days (ending Thursday), the S&P 500 has fallen 1.98% or more on four different occasions. Since July 12, the index has also rallied at least 1.9% on two days. Since the major bear market lows in October 2002 and March 2003, moves of this magnitude have been pretty rare. These wild price swings often occur near a major low, but there have been times (2000) when they occurred near a price high. The marketplace had gotten used to low price volatility over the last four years and we are paying for that calm right now.

Market sentiment (emotions) has been on a roller coaster of late, and fortunately in our view, has swung back to the bearish side very quickly. This sets the market up for a potentially powerful reversal to the upside. One of the most dramatic moves in market sentiment can be witnessed by the sea change in the Investor's Intelligence poll. In the last two weeks, bearish sentiment has jumped to 31.5% from 18%. The increase of 13.5 percentage points in just two weeks is the biggest move since February 1990, just as the market was starting a pretty good rally. Bullish sentiment has dropped to 43.8% from 53.9% over the last two weeks. The spread between bulls and bears is at its narrowest point since the correction in the summer of 2006.

Option investors have been getting defensive in a hurry as put/call ratios have spiked higher. The 10-day equity-only put/call ratio has moved from 0.54 in the middle of July to a recent high of 0.78. The peak in this ratio was 0.82 during March's bottom and 0.74 last summer. The CBOE total put/call ratio has jumped from 0.89 in the middle of July to 1.25 on August 6. The peak in March, which was an all-time high, was 1.31 while the high last summer was 1.21.

The ISE Sentiment Index, which only measures opening long transactions by investors, has fallen from a recent high of 186 in early July all the way to 51 on Aug. 7. This is the lowest reading, and most pessimistic, since data started back in October 2002.

Internally, the market is showing signs of a major washout, in our view, and at levels that have been close to intermediate-term bottoms. NYSE new lows/issues traded has soared to 23.5% on July 26, and hit 19% on August 6. The July figure was the highest since May 2004. New lows have traced out one positive divergence, a positive in our view, as this is often seen near market lows.

The market often times looks the ugliest near intermediate- and long-term lows. It can also look bad when standing at the precipice. While we think the market is trying to hammer out a low, we would remain cautious until we get price confirmation.

GLTAL

Bourbon   ;)

$900M dollar bet.



http://www.moneymorning.com/2007/08/29/this-900-million-bet-has-global-traders-talking%e2%80%a6/



Got this response from my inside connection at Goldman Sachs.

"It is most likely a hedge for a portfolio or a large cover call trade. It is not likely that anyone will bet that the market is going to drop that much, it is too risky for everyone involved.
More and more in the industry managers buy into the premium of these options. So they average out the cost of the stocks and sell the options to cover the call. Particularly with a three week option that far into the money
I hope this helps,

Best
GMan

Quick Update:
Yesterday session didn’t have much action compared to the regular volatility we’ve been watching lately.  During the session there was a lot of small ups and downs, showing indecision, probably because Bernanke’s speech today.

Technically speaking, I’m still looking to the 1479 level as the main upside barrier for short term quickly followed by 1490. If we watch a close above these levels, the overall technical layout will be much better, taking in consideration that the down swing would be broken to the upside and also because there is a sort of Inverted H&S pattern in play. For the downside, 1432 remains as the nearest support level, but anything its possible today, especially with a lot of ears on Bernanke’s words (personally I don’t think he’s going to give many clues at this point), the SPX futures are up 15 points, but that means absolutely nothing ;)

Regards,

Market analysis

http://thechartpatterntrader.blogspot.com

One thing as the narrator says, be very careful next week when volume should return to the market. Will likely be some games played and fakeouts.

Quote from: BigSully1 on August 30, 2007, 09:24:08 AM

Quote from: BigSully1 on August 30, 2007, 01:27:48 AM
$900M dollar bet.



http://www.moneymorning.com/2007/08/29/this-900-million-bet-has-global-traders-talking%e2%80%a6/

Also read link at bottom of article. China insists it won\t drop dollars.

Is China quietly dumping US treasuries? Very worrisome. I think I'm going to resist buying anymore stocks for now for next couple weeks and instead consider increased hedging. Be cautious folks.

http://www.telegraph.co.uk/money/main.jhtml;jsessionid=OFUSXC05QVVI1QFIQMFSFGGAVCBQ0IV0?xml=/money/2007/09/05/bcnchina105.xml

This report is a must read:

http://trentland.com/strats/djia0907.pdf

I sold all my holdings today. Just don't feel right with the markets.  I'd rather buy back alittle higher if the dust settles and everything turns out okay.  My only holding now is QID.
I believe this credit issue is bigger since its only keeps getting worse by the week.

Good Luck fellow members!

Quote from: mbaugh on September 17, 2007, 12:26:12 PM
I sold all my holdings today. Just don't feel right with the markets.  I'd rather buy back alittle higher if the dust settles and everything turns out okay.  My only holding now is QID.
I believe this credit issue is bigger since its only keeps getting worse by the week.

Good Luck fellow members!

Hi mbaugh, I hope you were able to buy back some of your holdings. If not, don't worry, these mistakes happen as you go through a very hard learning process.

I'm glad I was able to hold most of my holdings throughout the correction process ... in fact, the most damaging mistakes I made this year were selling stocks which had very attractive fundamentals and stories, just because "I wasn't feeling right" about them.

I believe it is clear now, as one looks to the chart below and what happened today, that the long term bull market is intact and the S&P 500 is set to trade at new all time highs before 2007 ends.

The World isn't the same anymore ... North American consumption isn't as important as it once was, because the other 6 billion people in the World are learning with the 300 million Americans how to do business and grow their economies. The emergence of new and huge sources of growth and consumption (which were incipient just a few years ago) is the central theme of the current bull market in stocks, which I believe may even be a bigger one than the 1982-2000 bull market.

Peter Lynch says in his book, "One Up on Wall Street", that most people can't make money in stocks because they're always getting scared out of them. They can't sustain the long term focus, because the majority doesn't know why he's holding the stocks he owns. Another study says that if one loses the three or four strong upside days in a year he will probably lose most of the advance ... so I've been learning how to sit tight and hold stocks for as long as I believe their specific fundamental story, not trying to time the market, but just holding them with strong hands.

Currently the Main Portfolio is up about 17% in 2007. The jury is still out if I'm going to make the 30% long term objective or not. But if I can't make it, the cause will be my selling of very attractive stocks, like SILC, JASO, ASTI and others. I still believe one or two rockets which are currently in a sleeping mode, like CIMT, PFSW or GSB will provide a hand to the Main by year's end.

It was a good day, there's more tomorrow, thank you for your support and I ask you to never hesitate to make questions, especially strategic questions or related to the individual holding's fundamentals. Thank you.

You've demonstrated good stubborness. With 15 possible position we can afford to wait on a couple untold-story stocks like CIMT or GSB for quite a while until they finally wake up.

I made similar mistakes this year as well by letting go off SILC, JASO and a couple more. My wife on the other hand, kept all her holdings since July and is at about the same point compared to where it all started. I am down about 6% from July. But lately I haven't let go of any of my 3SOF holdings and they are working well. I bought JASO at $35 a while back. I should have gotten into ASTI as you recommended - look at this beauty today - up 30%!!

Could you take a look please and comment (ASTI)?
Keep up the good work, Cesar!

Quote from: berloga on September 18, 2007, 09:40:32 PM
I should have gotten into ASTI as you recommended - look at this beauty today - up 30%!!

Could you take a look please and comment (ASTI)?
Keep up the good work, Cesar!

I've done this twice in the past two weeks.  I bought CTDC due to technicals in early September only to sell it when it hit the 200dma two days later.  The next day(after I had sold)...at one point it jumped up 100%

ASTI...I bought due to technicals last week.  Unfortunately due to a margin call.  I ended up selling ASTI for a small profit a couple of days later.  Today it's up over 30%.  I guess I should have sold one of my other loser stocks instead.

I don't own...but as soon as I get funds I will buy HOKU.  HOKU looks poised to make a big move soon.  Hopefully I will have funds in my account before it breaks.

Congrats David on 301%  Will look forward to your adding new positions.

Congrats David! Job Well Done!  No I did not buy back any of the holdings, I did a couple of quick daytrades and made some good dough.  I still have a bad feeling and decided I'm gonna just watch for a week or so before I jump in again.  The markets in my opinion needs a correction and since the Fed exceeded expectations on the rate cut, that generally means things are worse than they seem.  Anyways, I hope I'm wrong and the market keeps setting new all time highs.  Good Luck.

Quote from: mbaugh on September 19, 2007, 10:44:51 AM
Congrats David! Job Well Done!  No I did not buy back any of the holdings, I did a couple of quick daytrades and made some good dough.  I still have a bad feeling and decided I'm gonna just watch for a week or so before I jump in again.  The markets in my opinion needs a correction and since the Fed exceeded expectations on the rate cut, that generally means things are worse than they seem.  Anyways, I hope I'm wrong and the market keeps setting new all time highs.  Good Luck.

Hi mbaugh :)

I'm not selling anything, that would be a sin and anti-patriotic (just kidding ;D), but I do feel that the market will end today's session on the negative column. Of course, I can be wrong and there isn't much value in this information ...

It's just that the market opened with a gap up, after a very, very strong day, and instead of pulling back to close the gap after the open, it went even higher. This short term action tells me the public woke up today and thought "I need to buy in a hurry", but the public keeps getting shaken out.

So, maybe there will be a pullback to $150 - $151 on the SPY, I don't think we'll go to new all time highs in a straight line.

(no one should buy or sell based on this information, not if he's a long term investor as I am).

How the herd got fleeced on Wall Street,
Investors hit by big "volatility stick" 

First let me say that I've never yet seen a significant stock market pullback or correction (like the one we've just seen) that didn't end with an overblown financial scare story.
Near the bottom of the last major pullback in late February/early March the media was pounding the drums of a housing collapse and a sub-prime mortgage meltdown. We were told by the press that this crisis would soon spill over into all major sectors of the economy and that financial markets would melt, including a crash in the stock market.

Did the stock market crash? Did the economy falter and the unemployment rate skyrocket? Did the housing market collapse even worse than it already had? The answer to each of these questions of course is "No!" What happened instead is that the stock market as measured by the S&P 500 found a strong level of support and took off from there to make an all-time high, traveling almost 200 points in the process.

This is how the media operate (on fear) and they make their money by telling people what they want to hear, which is always in line with the latest crisis of the hour.

There are a couple of things I've learned about the mainstream financial press over the years as it relates to the stock market. One is that you can always count on the press to spread fear and panic after a major market decline. There is currently no shortage of negatives the media can direct our attention to in order to get us worried: the oil price, the "credit crunch," the sub-prime meltdown and housing recession, the weak dollar, etc.

Too many investors have been under the media's spell as these investors have been too scared to take advantage of the two great buying opportunities the market has presented them with this year. The first one was in March and the other in August. This really isn't at all surprising given that most mainstream investors are under the control of the media, psychologically speaking (see Lonny Kocina's book, Media Hypnosis, for a more in-depth discussion of this concept of media mind control). As Don Hays puts it, "The news is the camouflage that drives the herd crazy."

Volatility is also used as a weapon against mainstream investors. It can be used, for instance, to clear small investors out of the way so that big money traders can scoop up shares at bargain prices. Most small investors simply can't afford a prolonged exposure to market volatility and are often forced to sell out to the big money traders, who in turn are more than happy to relieve the small traders of their shares at cheap prices.

From a psychological standpoint, volatility has been shown to increase anxiety and paranoia in most investors. It makes them more likely to let go of a potentially profitable long position at the slightest hint of weakness. Ironically, this helps bolster the stock market's support since an increase in worry has been shown to strengthen the market's "Wall of Worry." It comes as no surprise then that the recent market bottom was been accompanied by a huge increase in bearish sentiment, worry and volatility. It's as if investors have been collectively hit by a big "volatility stick" and are afraid to go anywhere near the stock market.

To underscore the point I've been trying to make that the most important role of market volatility, let's discuss the correlations between volatility increases and insider buying of stocks during market panics. Other than the obvious benefits that increased volatility confers to insider traders in making short term capital gains, it can also be used as a weapon to scare away the small investors from participating in a market uptrend as we've looked at here. Additional proof of this is the comparison that can be made between the Gambill Oscillator, which measures insider buying, and the Volatility Index.

The Gambill Oscillator tracks corporate insider activity in the Russell 3000 stocks. Along with the VXO, the Gambill Oscillator is showing the highest level of insider buying since the March 2003 bear market low. Since 2002 when this indicator was first created, whenever the oscillator went above 25% (which it did in the latest correction), the stock market was up over 10% in the coming six months and up 22% over the next year. The Gambill Oscillator hit a high reading of 75% during the broad market decline.

Another point worth making is that since 1990, whenever the Volatility Index has been between 30 and 40, as it was during the recent correction, the stock market has been up by an average of nearly 11% over the next six months. Moreover, the market's gains over the following 12 months has been an average 16.2%. This compares with average "normal" market returns of 4.8% and 10.2%, respectively, over the 6-month and 12-month time frames.

Bolstering this bullish stock market outlook based on the insider sales data is a recent report by a respected financial newspaper. According to the Financial Times, total insider buying in the U.S. stock market reached $252 million in August, the highest level since 2003. This compares to a seasonal average of $186 million. At the same time, insider sales have dropped sharply from a four-year monthly average of $4 billion to $2.9 billion.

Volatility can indeed be used as a "big stick" to hit small investors with and send them running for cover. But this stick has two edges and the end result of the recent volatility spike will be positive for stocks.

Applaud, setrvis! Very well put. Simple overviews like this help keep myself calm in the face of the great market volatility.

I have much to learn  ;D

Quote from: David Randolph on September 19, 2007, 11:30:49 AM

Quote from: mbaugh on September 19, 2007, 10:44:51 AM
Congrats David! Job Well Done!  No I did not buy back any of the holdings, I did a couple of quick daytrades and made some good dough.  I still have a bad feeling and decided I'm gonna just watch for a week or so before I jump in again.  The markets in my opinion needs a correction and since the Fed exceeded expectations on the rate cut, that generally means things are worse than they seem.  Anyways, I hope I'm wrong and the market keeps setting new all time highs.  Good Luck.

Hi mbaugh :)

I'm not selling anything, that would be a sin and anti-patriotic (just kidding ;D), but I do feel that the market will end today's session on the negative column. Of course, I can be wrong and there isn't much value in this information ...

It's just that the market opened with a gap up, after a very, very strong day, and instead of pulling back to close the gap after the open, it went even higher. This short term action tells me the public woke up today and thought "I need to buy in a hurry", but the public keeps getting shaken out.

So, maybe there will be a pullback to $150 - $151 on the SPY, I don't think we'll go to new all time highs in a straight line.

(no one should buy or sell based on this information, not if he's a long term investor as I am).

Rate-Cut Rally Goes On.......

Stocks continued to march higher Wednesday, retaining their momentum after the Federal Reserve's surprise decision to cut the overnight fed funds rate by 50 basis points.

After rising more than 125 points earlier, the Dow Jones Industrial Average pared its gains but still closed ahead by 76.17 points, or 0.55%, at 13,815.56. The S&P 500 was up 9.25 points, or 0.61%, at 1529.03. The Nasdaq Composite rose 14.82 points, or 0.56%, to 2666.48.

The Dow has now jumped 7.6% since it last closed below the 13,000 level a month ago. The S&P 500 is only 25 points away from its record close, set on July 19.

Breadth was positive and volume was strong. On the New York Stock Exchange 3.73 billion shares changed hands. Volume on the Nasdaq reached 2.12 billion shares. Winners outpaced losers about 2 to 1.

Major averages in the U.S. had one of their best performances of the year on Tuesday after the Federal Open Market Committee, the Central Bank's policymaking arm, cut interest rates by 50 basis points. Most analysts had anticipated a cut of only 25 basis points. It was the first rate cut in more than four years.

By the end of the day, the Dow had rallied 335.97 points, or 2.51%, to 13,739.39. The S&P 500 climbed 43.13 points, or 2.92%, to 1519.78, and the Nasdaq gained 70 points, or 2.71%, to 2651.66.

" [Investors should] take yesterday's move as confirmation that the Fed is behind the bulls on the economy and the market 100%," said Marc Pado, U.S. market strategist with Cantor Fitzgerald. "This was a technical breakout and a fundamental and psychological lift."

Overseas markets followed U.S. averages higher. Overnight, Japan's Nikkei 225 surged 3.7%, and Hong Kong's Hang Seng rose 4%. In Europe, London's FTSE 100 and the Paris CAC 40 were up roughly 3%. Germany's Xetra Dax was up 2.3%.

While traders were still cheering the Fed's move, there was plenty to contend in the new session. The Labor Department said its consumer price index for August slipped 0.1%, compared with expectations for no change. As expected, the core index, which excludes food and energy and is a key measure of inflation, rose 0.2%.

Ian Shepherdson, chief economist with High Frequency Economics, said the CPI data are a sign that "the Fed's ease yesterday was not a gamble."

"The exact core month-over-month number was enough to nudge down the year-over-year rate to 2.1% from 2.2%," said Shepherdson. "We expect a dip below 2% early next year. Either way, core inflation has now been falling for nearly a year."

Meanwhile, investors also had to sort through data about the flailing housing market. The Census Bureau said that housing starts fell 2.6% in August, compared with a 6.9% drop in July. Building permits were down 5.9% last month, steeper than the 1.7% decline in July.

Additionally, the Mortgage Bankers Association said its weekly applications survey index rose last week to a reading of 673.2 from 657.4 the week before.

Broker earnings were again in focus. Morgan Stanley (MS:) posted a 17% decline in third-quarter earnings, and the results fell well short of the Thomson First Call average estimate. Shares of Morgan Stanley lost $1.48, or 2.2%, to $67.03.

The report came a day after Lehman Brothers (LEH:) posted a better-than-expected quarter. Later this week, Bear Stearns (BSC:) and Goldman Sachs (GS:) will report their quarterly results.

Elsewhere, foodmaker General Mills (GIS:) posted fiscal first-quarter results that increased 8% from a year ago, beating estimates by a penny. The stock rose 24 cents, or 0.4%, at $58.91.

Stubbornly high oil prices wasn't nagging traders. Crude earlier topped the $82-a-barrel level for the first time ever before pulling back. The October front-month contract finished up 42 cents at $81.93 a barrel.

Crude rallied after the Energy Department's weekly inventory report said crude stocks dropped by 3.8 million barrels last week. Gasoline stocks rose by 400,000 barrels, and distillates also increased.

U.S. Treasury bonds continued to slide. The 10-year note was down 14/32 in price, yielding 4.53%. The 30-year bond shed 1-2/32, raising the yield to 4.83%.

Among analysts'' actions, UBS cut its ratings for merger partners Sirius Satellite Radio (SIRI:) and XM Satellite Radio (XMSR:) to neutral from buy. Sirius declined 4.3% to close at $3.35, and XM slid 5.5% to $14.

fyi:

Jason Goepfert of www.sentimentrader.com tells us that signals like yesterday (19th of Sept) —with 30 to 1 upside to downside volume presents one of the most leveraged risk-reward potential that you will ever find. Here's Jason's quote.
The last time we had a 25-to-1 up volume day was August 20, 1982, as equities were making their low before the huge bull market of the past 25 years. Since 1950, there have been a total of 7 days with such a skewed ratio.
The interesting thing is that in most cases (5 of the 7) stocks fell back in the very short-term, with a negative return the following day. But within five days, 6 of the 7 were positive, and that kind of return continued to build.
By three months later, all 7 were positive and the average return was +9.4%. The remarkable thing is that during those three months, on average the most that the S&P 500 dropped was -1.8% while the average maximum gain was +12.5%. That is one of the most lopsided risk/reward ratios over that time frame that we have seen in any study. For those curious, here are the dates: 12/27/50, 1/11/51, 10/23/57, 11/15/57, 11/1/78, 8/17/82 and 8/20/82.

How did the $900,000,000 bet turn out?

Quote from: BigSully1 on August 30, 2007, 01:27:48 AM
$900M dollar bet.



http://www.moneymorning.com/2007/08/29/this-900-million-bet-has-global-traders-talking%e2%80%a6/

Quote from: Kublakhan on September 21, 2007, 03:29:59 PM
How did the $900,000,000 bet turn out?

Quote from: BigSully1 on August 30, 2007, 01:27:48 AM
$900M dollar bet.



http://www.moneymorning.com/2007/08/29/this-900-million-bet-has-global-traders-talking%e2%80%a6/

I don't know, I wasn't involved in it myself, and it didn't much affect my actions, but there were both winners and losers depending on which side played. Seems that one of the bullish scenarios laid out in the article played out.

just FYI:

Investing
The Credit Crisis Could Be Just Beginning
By Jon D. Markman
Special to TheStreet.com
9/21/2007 6:40 AM EDT

Satyajit Das is laughing. It appears I have said something very funny, but I have no idea what it was. My only clue is that the laugh sounds somewhat pitying.

One of the world's leading experts on credit derivatives (financial instruments that transfer credit risk from one party to another), Das is the author of a 4,200-page reference work on the subject, among a half-dozen other tomes. As a developer and marketer of the exotic instruments himself over the past 30 years, he seemed like the ideal industry insider to help us get to the bottom of the recent debt crunch -- and I expected him to defend and explain the practice. I started by asking the Calcutta-born Australian whether the credit crisis was in what Americans would call the "third inning." This was pretty amusing, it seemed, judging from the laughter. So I tried again. "Second inning?" More laughter. "First?" Still too optimistic.

Das, who knows as much about global money flows as anyone in the world, stopped chuckling long enough to suggest that we're actually still in the middle of the national anthem before a game destined to go into extra innings. And it won't end well for the global economy.

Ursa Major
Das is pretty droll for a math whiz, but his message is dead serious. He thinks we're on the verge of a bear market of epic proportions. The cause: Massive levels of debt underlying the world economic system are about to unwind in a profound and persistent way.

He's not sure if it will play out like the 13-year decline of 90% in Japan from 1990 to 2003 that followed the bursting of a credit bubble there, or like the 15-year flat spot in the U.S. market from 1960 to 1975. But either way, he foresees hard times as an optimistic era of too much liquidity, too much leverage and too much financial engineering slowly and inevitably deflates.
Like an ex-mobster turning state's witness, Das has turned his back on his old pals in the derivatives biz to warn anyone who will listen -- mostly banks and hedge funds that pay him consulting fees -- that the jig is up.

Rather than joining the crowd that blames the mess on American slobs who took on more mortgage debt than they could afford and have endangered the world by stiffing lenders, he points a finger at three parties: regulators who stood by as U.S. banks developed ingenious but dangerous ways of shifting trillions of dollars of credit risk off their balance sheets and into the hands of unsophisticated foreign investors, hedge and pension fund managers who gorged on high-yield debt instruments they didn't understand and financial engineers who built towers of "securitized" debt with math models that were fundamentally flawed.

"Defaulting middle-class U.S. homeowners are blamed, but they are merely a pawn in the game," he says. "Those loans were invented so that hedge funds would have high-yield debt to buy."

The Liquidity Factory
Das' view sounds cynical, but it makes sense if you stop thinking about mortgages as a way for people to finance houses and think about them instead as a way for lenders to generate cash flow and to create collateral during an era of a flat interest rate curve.
Although subprime U.S. loans seem like small change in the context of the multitrillion-dollar debt market, it turns out that these high-yield instruments were an important part of the machine that Das calls the global "liquidity factory." Just like a small amount of gasoline can power an entire truck given the right combination of spark plugs, pistons and transmission, subprime loans became the fuel that underlies derivative securities that are many, many times their size.
Here's how it worked: In olden days, like 10 years ago, banks wrote and funded their own loans. In the new game, Das points out, banks "originate" loans, "warehouse" them on their balance sheets for a brief time, then "distribute" them to investors by packaging them into derivatives called collateralized debt obligations, or CDOs, and similar instruments. In this scheme, banks don't need to tie up as much capital, so they can put more money out on loan.
The more loans that were sold, the more they could use as collateral for more loans, so credit standards were lowered to get more paper out the door -- a task that was accelerated in recent years via fly-by-night brokers that are now accused of predatory lending practices.

Buyers of these credit risks in CDO form were insurance companies, pension funds and hedge-fund managers from Bonn to Beijing. Because money was readily available at low interest rates in Japan and the U.S., these managers leveraged up their bets by buying the CDOs with borrowed funds. So if you follow the bouncing ball, borrowed money bought borrowed money. And then because they had the blessing of credit-ratings agencies relying on mathematical models suggesting that they would rarely default, these CDOs were in turn used as collateral to do more borrowing.

In this way, Das points out, credit risk moved from banks, where it was regulated and observable, to places where it was less regulated and difficult to identify.

Turning $1 Into $20
The liquidity factory was self-perpetuating and seemingly unstoppable. As assets bought with borrowed money rose in value, players could borrow more money against them, and it thus seemed logical to borrow even more to increase returns. Bankers figured out how to strip money out of existing assets to do so, much as a homeowner might strip equity from his house to buy another house.

These triple-borrowed assets were then in turn increasingly used as collateral for commercial paper -- the short-term borrowings of banks and corporations -- which was purchased by supposedly low-risk money market funds. According to Das' figures, up to 53% of the $2.2 trillion of commercial paper in the U.S. market is now asset-backed, with about 50% of that in mortgages.

When you add it all up, according to Das' research, a single dollar of "real" capital supports $20 to $30 of loans. This spiral of borrowing on an increasingly thin base of real assets, writ large and in nearly infinite variety, ultimately created a world in which derivatives outstanding earlier this year stood at $485 trillion -- or eight times total global gross domestic product of $60 trillion. Without a central governmental authority keeping tabs on these cross-border flows and ensuring a standard of record-keeping and quality, investors increasingly didn't know what they were buying or what any given security was really worth.

A Painful Unwinding
Here is where the U.S. mortgage holder shows up again. As subprime loan default rates doubled, in contravention of what the models forecast, the CDOs those mortgages backed began to collapse. Because these instruments were so hard to value, banks and funds started looking at all CDOs and other paper backed by mortgages with suspicion, and refused to accept them as collateral for the sort of short-term borrowing that underpins today's money markets.
Through late last month, according to Das, as much as $300 billion in leveraged finance loans had been "orphaned," which means that they can't be sold off or used as collateral.

One of the wonders of leverage is that it amplifies losses on the way down just as it amplifies gains on the way up. The more an asset that is bought with borrowed money falls in value, the more you have to sell other stuff to fulfill the loan-to-value covenants. It's a vicious cycle.
In this context, banks' objective was to prevent customers from selling their derivates at a discount, because they would then have to mark down the value of all the other assets in the debt chain, an event that would lead to the need to make margin calls on customers who are already thin on cash.

Now it may seem hard to believe, but much of the past few years' advance in the stock market was underwritten by CDO-type instruments that go under the heading of "structured finance." I'm talking about private-equity takeovers, leveraged buyouts and corporate stock buybacks -- the works. So the structured finance market is coming undone; not only will those pillars of strength for equities be knocked away, but many recent deals that were predicated on the easy availability of money will likely also go bust, Das says.

That is why he considers the current market volatility much more profound than a simple "correction" in prices. He sees it as a gigantic liquidity bubble unwinding -- a process that can take a long, long time.

While you might think that the U.S. Federal Reserve can help prevent disaster by lowering interest rates dramatically, as it did Wednesday, the evidence is not at all clear.
The problem, after all, is not the amount of money in the system but the fact that buyers are in the process of rejecting the entire new risk-transfer model and its associated leverage and counterparty risks.

Lower rates will not help that. "At best," Das says, "they help smooth the transition."

link:
http://www.thestreet.com/_rms/s/the-credit-crisis-could-be-just-beginning/newsanalysis/investing/10380613.html

QuoteSo, maybe there will be a pullback to $150 - $151 on the SPY, I don't think we'll go to new all time highs in a straight line.

We've had the pullback, time to move back up and challenge the all time high at $156.

The candlestick pattern will probably resemble a "Mat Hold" which is a bullish continuation pattern (http://www.stock-market-targets.com/mat-hold.html):

Yep I am bullish on the SPY also. I trade the SPY and XAO (Aussie top500). XAO which has just broken out to all time highs today. It's pattern resembles SPY closely over time. Don't think though today we get the SPY breakout after consolidation, but I think soon.

Quote from: AussieTrader on September 25, 2007, 09:27:40 AM
Yep I am bullish on the SPY also. I trade the SPY and XAO (Aussie top500). XAO which has just broken out to all time highs today. It's pattern resembles SPY closely over time. Don't think though today we get the SPY breakout after consolidation, but I think soon.

Thanks for this Aussie. The strength in the Australian market can be a nice explanation to why ICOC has been so strong lately, the company derives a meaningful part of its revenues and most of its growth from its Australia unit.

The SPY touched the $150.59 support level, prior resistance. The way the market reacted to the negative news on the consumer confidence front and housing market tells me we'll have a powerful bullish engulfing day today, with the SPY closing above its yesterday high of $152.82. We'll see :)

Consolidation to breakout pattern still in play for the SPY. Closing within the tight flag. Breakout and close above the purple line is what I am positioned for:

I should start an index thread somewhere else. This thread perhaps is not the ideal one for this.  Anyway continuing the conversation re SPY I think we get David's bullish engulfing type day today. The market just wants to move upwards. I think 1550 highs are just days away.

Judging from what the DAX did just now I guess there's going to be a pretty ugly sell off in the market today :-\

Perhaps it is better this way, to put some ice in the speculative heads pushing up stocks just because they're Chinese, not looking at the fundamentals. Every time the fast money shows up, the market heads down to make the cleaning.

Longer term the bull market will continue, in my view. That is, good stocks will rise, bad stocks will fall.

I'm positive the SPY will make an higher low, that is, it won't close below $144.33 on this short term descending move, but it may very well go down below the $150.59 support line, to perhaps touch the green trendline you see in the chart below.

I guess this would be the point where people would start seriously questioning the effect of the FED rate cut and start claiming for more cuts from the FED, which the FED will deliver, because inflation is low.

And then we would have another leg up towards the all time high at $156.

Of course, this can be all wrong (probably), and these things keep changing. As for the Main Portfolio, it is filled with good stocks, I'm not going to do any market timing with them, as they're all long term investments.

Here's an interesting article that was written in 1999.

http://www.gold-eagle.com/gold_digest_99/tice040599.html

Quote from: AussieTrader on September 27, 2007, 02:09:55 AM
..... The market just wants to move upwards. I think 1550 highs are just days away.

Q4 starts with a bang and delivers that breakout day challenging all time highs. Based on the Nas100 and DOW the S&P 'should' breakout again above the 1550 highs, most probably will require a few days consolidation to make that stick. I have taken profits on this move and will wait for confirmation on how it reacts to the resistance.

You may ask why I am trading S&P? Because I am using CFDs (contract for difference) in a particular account. CFD's give huge leverage opportunity (+20 times your account value). So, I can take relative large position sizes safely, only using a small amount of $ collateral. Plus, as the volatility on the index is only around 1 to 1.5% each day with no real risk of a 5 or 10% down day (like with a stock delivering unwelcome news) the risk reward is nice.

DOW is still holding above it's July 14022 high, thus far. $RUT Russell 200 small cap has been in the green again all day, still is. RUT has underperformed it's large/mid cap brethren thus far this year. Is it time for it to play catch up and again outperform? With a decreasing interest rate environment I would think so, but will/can they cut again?

QuoteIs it time for it to play catch up and again outperform?

I don't know, I could never figure out which factors make small caps outperform or under perform large caps. I prefer to play it from a company specific standpoint and take the S&P 500 as a barometer for the general market.

QuoteWith a decreasing interest rate environment I would think so, but will/can they cut again?

It depends. If it's needed they'll cut, if it's not needed, they won't cut. The "need" will be told by where the S&P 500 is when the meeting takes place. My take is it won't be needed, because the S&P 500 will be at an all time high at October 18th.

The following sentiment studies tell me the current bull run won't stop on this side of $156:

MarketWatch readers rate risk of October crash
Narrow majority 'worried' or 'somewhat worried' as more than 12,000 vote (http://www.marketwatch.com/news/story/marketwatch-poll-majority-worried-about/story.aspx?guid=%7BC162B46B%2D06C0%2D4CF9%2DA089%2DBB9BC4C7A716%7D&dist=hplatest)

A lot of sound and fury
Commentary: Newsletters remain largely in cash, despite Dow's record high (http://www.marketwatch.com/news/story/contrarians-think-new-djia-high/story.aspx?guid=%7B38C59E69%2DA631%2D45B2%2DBC96%2DBEF98874BECD%7D)

People are still mostly on the sidelines, but they will be forced to get in as the S&P 500 breaks out to a new all time high. It has to do with the potential of money in and money out.

I think tighter money conditions can restrict small caps funding more so than large and if they are already heavily in debt, can be more burden on small caps.

I don't know who the Marketwatch pollsters are (big guys or retail) , but I fall somewhere btween 2 and 3, cautiously optimistic. I might err on the side of caution, but thats O.K with me. Seems to me you are still also cautiously optimistic as you have not yet fully invested yourself.

It depends. If it's needed they'll cut, if it's not needed, they won't cut. The "need" will be told by where the S&P 500 is when the meeting takes place. My take is it won't be needed, because the S&P 500 will be at an all time high at October 18th.

The following sentiment studies tell me the current bull run won't stop on this side of $156:

MarketWatch readers rate risk of October crash
Narrow majority 'worried' or 'somewhat worried' as more than 12,000 vote (http://www.marketwatch.com/news/story/marketwatch-poll-majority-worried-about/story.aspx?guid=%7BC162B46B%2D06C0%2D4CF9%2DA089%2DBB9BC4C7A716%7D&dist=hplatest)

A lot of sound and fury
Commentary: Newsletters remain largely in cash, despite Dow's record high (http://www.marketwatch.com/news/story/contrarians-think-new-djia-high/story.aspx?guid=%7B38C59E69%2DA631%2D45B2%2DBC96%2DBEF98874BECD%7D)

People are still mostly on the sidelines, but they will be forced to get in as the S&P 500 breaks out to a new all time high. It has to do with the potential of money in and money out.
[/quote]

David, I'm just wondering what you expect will drive the markets higher before Oct. 18, Good economic news, earnings reports or expectations of another rate cut? And then if the market is built up on expectations of another rate cut and they don't cut rates, then what? I don't think the market wants to hear very good news right now. Seems to me they only want tepid news and evidence of slowdown to further bolster the argument for another rate cut.

Small caps also tend to do much better in lower interest rate environments because earnings growth often exceeds inflationary pressures much better than Large Caps.

Quote from: BigSully1 on October 03, 2007, 02:55:17 PM
I think tighter money conditions can restrict small caps funding more so than large and if they are already heavily in debt, can be more burden on small caps.

I don't know who the Marketwatch pollsters are (big guys or retail) , but I fall somewhere btween 2 and 3, cautiously optimistic. I might err on the side of caution, but thats O.K with me. Seems to me you are still also cautiously optimistic as you have not yet fully invested yourself.

O.K. David, I can't say you're not fully invested now and still being cautious, I see you bought 3 more positions for the port. Actually I'm about 92% in long positions and no short myself. About 8% cash. So I guess I'm really about as bullish as you are. Thinking about what you have been saying about on the sidelines within a wall of worry, and  also the way many top stocks have been behaving even on recent down market days is  very reaasuring.  Many are still breaking out  on strong volume and seeing new highs. Short interest ratios have hit all time highs is also very good news for us. So we need to forget all the gloom and doom predictions and just listen to the market, and the market is telling us to remain bullish, unless something changes, IMO.

Hi David

I`am wondering if you are trying to exploit the China hot market why not try a position in the Indian market as you know it also are hot... just an opinion

Thank you

Some food for thought: I just ran across some commentary in IBD. Evidently Alan Greenspan made some comments back in Dec. 1996 (I don't remember them)  to the effect of the irrational exuberance, investors and stocks getting ahead of themserlves, etc. If one heeded his comments and sold,  they would have missed out on one of the best 3 year runs ever.

Quote from: Rmagos on October 04, 2007, 12:43:26 PM
Hi David

I`am wondering if you are trying to exploit the China hot market why not try a position in the Indian market as you know it also are hot... just an opinion

Thank you

I think thats a good idea Rmagos. I need to limit my port to an already overly abundant Chinese/Asian weighting. Maybe you can come up with list of suggestions or even a list of all/most U.S traded Indian stocks?

Quote from: BigSully1 on October 04, 2007, 02:26:16 PM

Quote from: Rmagos on October 04, 2007, 12:43:26 PM

I think thats a good idea Rmagos. I need to limit my port to an already overly abundant Chinese/Asian weighting. Maybe you can come up with list of suggestions or even a list of all/most U.S traded Indian stocks?

I`ll try to do the job.. I don`t know if I can, but tomorrow I`ll post what I`ll have

Quote from: BigSully1 on October 04, 2007, 02:26:16 PM

Quote from: Rmagos on October 04, 2007, 12:43:26 PM
Hi David

I`am wondering if you are trying to exploit the China hot market why not try a position in the Indian market as you know it also are hot... just an opinion

Thank you

I think thats a good idea Rmagos. I need to limit my port to an already overly abundant Chinese weighting. Maybe you can come up with list of suggestions or even a list of all/most U.S traded Indian stocks?

Actually we probably should start separate threads for all foreign/emerging markets including China, Indian, other Asian, Russia, Latin America, Israel, Australia, Europe etc. etc. Maybe even one for U.S companies doing big business in emerging markets. I started a list of Chinese on the daily stock analysis board, but it should have been started elsewhere.

I just realized the other day that my entire portfolio was now about 78% foreign/emerging markets. Most advisors would severely frown on this, but hey it didn't start out that way, it grew that way.

The "better half" told me that Iraq just bought 100M in weapons from China, saying that the U.S. was too slow to supply them. That figures. There was also something again about tickets for the "Hannah Montana and Cheetah Girls" live show. Asked her to tivo it, will get details later.

Quote from: BigSully1 on October 04, 2007, 02:55:16 PM

Quote from: BigSully1 on October 04, 2007, 02:26:16 PM

Quote from: Rmagos on October 04, 2007, 12:43:26 PM
Hi David

I`am wondering if you are trying to exploit the China hot market why not try a position in the Indian market as you know it also are hot... just an opinion

Thank you

I think thats a good idea Rmagos. I need to limit my port to an already overly abundant Chinese weighting. Maybe you can come up with list of suggestions or even a list of all/most U.S traded Indian stocks?

Actually we probably should start separate threads for all foreign/emerging markets including China, Indian, other Asian, Russia, Latin America, Israel, Australia, Europe etc. etc. Maybe even one for U.S companies doing big business in emerging markets. I started a list of Chinese on the daily stock analysis board, but it should have been started elsewhere.

I just realized the other day that my entire portfolio was now about 78% foreign/emerging markets. Most advisors would severely frown on this, but hey it didn't start out that way, it grew that way.

BigSully1...I started a China thread in the STOCK TRADING category below last week.  But not one person responded to it :-\.

Sorry, kslifka, I guess I missed it. I was thinking about having them on the member boards though..

You know I have gotten myself so caught up in the China frenzy, I did something totally out of character and really VERY stupid that I've never done before, not even close. When you first posted about DSWL the other day or was it yesterday?. I looked at your post, your chart, your thoughts, saw that it hadn't run up yet and just instantly bought it without even looking anywhere else to even see what it was. Granted it was only 3K shares and it did good today, but I didn't even bother looking to see what is all about until a couple hours ago. I'm not so sure thats it's "undervalued" at all, maybe when comparing to some other Chinese rockets overvaluation it is, still haven't looked at it hard enough yet. There's some others that I'm just now looking deeper into also and  starting to question, one I'm going to write about tommorow.

I'm going to have to nip this behavior in the bud before it eventually gets me in trouble. From now on it's going to have to be look closely first before I shoot, cause next time, I might just shoot myself in the foot. Best of luck to you, kslifka.

BadSully  :-[

Oh here is a site that updates an entire list of Chinese stock prices every 15-20 minutes if your interested. I actually pulled it off the DSWL yahoo message board, a place I rarely ever visit. Gotta stop that too. Feel free to post the link wherever.

http://chinabizfocus.com/modules/InvestChina/performances.php?sel=performances&perf=daily

China is probably in a bubble...but I don't see why you think DSWL is NOT undervalued.  Anyway.

from my experience .... bubbles last several months..or more.  Two years ago we went through an oil bubble that lasted about 4 months.  By the end, only the truly strong oil companies survived even though today the price of oil continues to be high. 

I've thought many China stocks have been undervalued over the past couple of years...I guess because they are "Risky"...I wonder if we've gotten over that....

Quote from: kslifka on October 04, 2007, 11:13:32 PM
China is probably in a bubble...but I don't see why you think DSWL is NOT undervalued.  Anyway.

from my experience .... bubbles last several months..or more.  Two years ago we went through an oil bubble that lasted about 4 months.  By the end, only the truly strong oil companies survived even though today the price of oil continues to be high. 

I've thought many China stocks have been undervalued over the past couple of years...I guess because they are "Risky"...I wonder if we've gotten over that....

Just in a nutshell -  cash/debt, divi, institutional and insider holdings might look attractive to some, but declining profits, sales, higher expenses, resulting in declining gross/net margin that is not up to par in a not very attractive industry. The decline could be just a ST thing and not a trend, but I wouldn't bet on it at all.

I'm not saying I'm sorry I bought it at all, it's just the way I went about doing it that I'm concerned about.  I'm not selling yet, the momo has likely just started. Traders will likely see the biggest Chinese gainer yesterday, see that it hasn't run very far yet, look at the chart and are going to want regardless of what I think of it's valuation. Sure it it could run up to 15, 16, even 20, but I think it would absolutely be overvalued and I would be more than happy to let em have it.

Hey Bad BigSully, DSWL had a nice chart setup in place, I had it on my list to buy yesterday (purely on technicals) but in the end decided not to, which turned out to be an error. If you position size correctly and have the right risk management rules in place you can still protect yourself well enough.

Who knows how long China mania will run for, no way of telling, so lets try and participate and profit ;)

As for my friend the SPY, well again a nice tight consolidation after latest breakout points to another upward leg around the corner which would take out 1550 and get into blue skies. I have started accumulating my SPY position in this flag pattern and have a buy stop entry waiting on the break of 1550.
Today we have non farm pay rolls. No idea what it will say or the market reaction to it, but it will set the speculation rolling for the next fed announcement end Oct. Technicals say SPY IS going higher (but that is not a guarantee ;)

The mini-uptrend pause, which started Tuesday, caused the market indices to test their support levels, and the INDU (DJIA) fell slightly below 14,000. Nevertheless, indications are that this near-term correction in the market will be short, shallow and mainly sideways.


There are some early signs that the indices may stop correcting downward, and start to ratchet up again, maybe sometime today. The trade-term indicators are mixed. Some are neutral and some are oversold. An upward rotation in the QQQQ started about 3PM yesterday, and INDU and INX formed bases at the same time. Whether and when intraday the three indices carry through with a rally, as early as today, may depend on catalytic economic news this morning. News with such potential is discussed below along with several stocks in the news.

With a near-term rally expected shortly, this is a good time to examine uptrending stocks.
Absent the recent strength in tech and energy shares.

Technology issues were battered by weakness in semiconductor shares as Morgan Stanley initiated coverage of Intel , Advanced Micro Devices and Nvidia, with underperform ratings due to an "aggressive price environment" and an inventory glut. SanDisk shares dropped 2.9% in concert with weakness in Micron Technology, off 7.7%, which printed its third straight quarterly loss on Wednesday. Energy shares came under pressure as the US Energy Department's weekly inventory report disclosed an unexpected gain of 1.2 million barrels in crude, and oil prices dropped 28 cents to below $80 per barrel. Exxon Mobil shares fell 1%, after reaching another 52-week high Tuesday. And ConocoPhillips shares fell 1.7% on company assertions that refining margins in the third quarter would widely miss second quarter levels. In case readers need any reminder of the Fed's import on equity market prices, a recap may be in order. Following Fed interest rate cuts on September 17, the ensuing rally in equity markets generated 4.8% gains in the DJIA, 6.4% in the Nasdaq, and 4.7% in the S&P 500. It was a dismal August nonfarm payroll and its attendant recession concerns that catalyzed Fed members to adopt its more dovish tone, addressing growth concerns at the expense of inflationary ones, and presenting the Street with unexpected 50 bp rate cuts. With the worst of the credit crunch believed behind us, tomorrow's jobs figure may once again prove pivotal to the Fed decision on October 30-31. Yesterday's data suggest nonfarm payrolls have recovered from August lows, growing in line with expectations of 115K, although perhaps indicating a step-up in unemployment to a 4.7% rate. ADP's healthy 58K adds, in line with expectations, do not include government hirings, which are expected to have rebounded in September; initial jobless claims held steady at 317K, up 16K, still signaling a strong jobs market; Challenger job cuts have declined 9.7% from August levels, and 8.1% from a year earlier. Besides the benign jobs data, yesterday's ISM service index further dampened expectations for an additional interest rate cut as it pointed to improved employment and rising inflation numbers, with the index printing at 54.8 in September, well beyond the 50 point expansion level. Both the Bank of England and European Central Bank held rates at current levels, as expected. 

In the corporate corner, Pier 1 shares advanced 9.8% due to insider buying and improved turnaround prospects. Radian shares fell 9.5% on news that Deloitte and Touche had quit as company auditors; the firm recently reported one of its market value collateralized debt obligations of asset-backed securities was in trouble, although S&P has maintained the company's AA-rating. CSX shares fell 2.6% on a lower rating by Morgan Stanley. Bear Stearns (off 0.7%) announced 310 mortgage-business firings; the company will host its semi-annual investor meeting today. Credit Suisse added to its 150 job cuts with 170 more in its commercial mortgage business. Las Vegas Sands shares fell 11.8% as investors realized the rumored 100% revenue gains likely to come in at a still-healthy 55% from Macau growth; Wynn shares dropped 9.9%. However, over the past 52 weeks Las Vegas Sands' shares are up 90%, and Wynn's up 120%. Marriott International posted third quarter results of 31 cents adjusted, topping estimates by one cent.

Quote from: AussieTrader on October 05, 2007, 03:40:42 AM
As for my friend the SPY, well again a nice tight consolidation after latest breakout points to another upward leg around the corner which would take out 1550 and get into blue skies. I have started accumulating my SPY position in this flag pattern and have a buy stop entry waiting on the break of 1550.
Today we have non farm pay rolls. No idea what it will say or the market reaction to it, but it will set the speculation rolling for the next fed announcement end Oct. Technicals say SPY IS going higher (but that is not a guarantee ;)

Nice breakout from the consolidation period again. Now blue skies and personally I think we are set for bullish continuation through this year and probably further interest rate cuts from the fed starting end Oct.
Fundamentals and growth are leading the way (Dow, NAS100, S&P500), as David has said before it may take days / weeks / months but ultimately fundamentally superior stocks will lead. Hopefully we are looking at an extended period of time that will benefit owners of those types of stocks.

Market may go to the moon
or sell hard by next noon
Dont worry be happy
and profits will come soon


Have a nice weekend all. Also if you guys have time, checkout my new blog @

funnytrader.blogspot.com

Quote from: David Randolph on August 06, 2007, 06:25:42 AM
Good morning :)

I tried to get my head out of the stock market during the weekend, but of course, I couldn't.

Friday's sell off was too serious, as the SPY broke down below a key support area, with enough volume to prove myself wrong about the "we're at the bottom" call:

(http://www.3stocksonfire.org/trading/index.php?action=dlattach;attach=39451;image)

Quote from: stocky on August 04, 2007, 03:03:24 PM
I am interested in what the commercials are doing as per Aug 3 report. Hope David found time to review it.

Hi stocky, indeed, I reviewed the Commitment of Traders Report (http://www.cftc.gov/dea/futures/deacmelf.htm), and commercials are still long and speculators are still short, more or less in the same proportions of the last week.

But over the weekend I thought: Who are the "commercial hedgers"? And the answer is, they are the Goldman Sachs (http://www.3stocksonfire.org/quotes_stockcharts.php?ticker=gs&submit=Get+Charts), the JP Morgans (http://www.3stocksonfire.org/quotes_stockcharts.php?ticker=jpm&submit=Get+Charts), the Bear Sterns (http://www.3stocksonfire.org/quotes_stockcharts.php?ticker=bsc&submit=Get+Charts) of this world, exactly the stocks that are dragging the market down (check their charts at the links). Should I follow the guys that are suffering the most?

Next my head went to one of the other lessons I've taken over the years, which is, "nothing, no theory or indicator is always right about the market".

And considering this I got to the conclusion that I couldn't base my investments or recommendations on the Commitment of Traders Report.

I've read a lot of bullish and bearish arguments over the past few days and thought about several of my own, and even though you don't pay the 3 SOF subscription fee for me to have doubts, I must say that I'm in doubt.

About the macroeconomic situation of the United States I thought the following article was quite revealing: Going With the Flow? (http://www.financialsense.com/Market/wrapup.htm)

The bearish arguments and evidence constant in the article are not new (I remember many people had the same bearish arguments around the market bottom in 2003), but because they're so long term, it is possible that they took four years to materialize in terms of a macroeconomic shift towards more savings and less debt, which is actually a sound long term direction, but the short term adjustment can be dramatic and prolonged. The short term, when we're talking about macroeconomics, can be very long, just think of the Nikkei 225 Index 17 years old Bear Market because one day the Japanese decided they wanted to save more (not that they had any choice, like the Americans don't).

Back in March the market sold off for the wrong reasons, at the wrong time, but now?

The bears seem to have a lot more strength and truth in their arguments.

Anyway, I have many doubts about the gloom and doom scenario, because the opening of the World, the emergence of the BRIC (Brazil, Russia, India and China) countries as economic powerhouses is truly amazing and could support another 20 years bull market. 

Moreover, in a long term investment strategy perspective, no business owner is going to sell his business just because there can be an economic recession in the US, so why should I sell his business? I truly love the microeconomic approach to investing in stocks, and there are stocks in the Main Portfolio that I'm not willing to let go whatever happens to the general economy of the United States or the World for that matter. They're individual stories and are a lot more dependent on their niche sectors and management's skills than the economic cycles.

Saying this, I can't ignore that the Main Portfolio plunged from a gain of 27% in 2007 to the current 8.9% profit for the year, as the S&P declined from a 10% advance to the current 1%. I can't ignore that if the S&P 500 falls another 10 or 15%, probably the Main will fall into negative territory for the year, and may even go 10% or more into the negative territory. There's a real possibility of this happening if nothing is done.

What I would like to do is to keep holding my specific story stocks, but at the same time protect the portfolio from the general market risk. I would say a 60% long/40% short exposure would be ideal. If I invest 20% of the Main's capital in those two times leverage short funds I would  get to a 40% short exposure.

Since I have 8.06% in cash already, I just need to sell about 12% of equity in stocks to be able to buy 10% of equity in SDS (ultra short S&P 500) and another 10% in TWM (ultra short the Russel 2000). Because these funds have a two times leverage I would have 40% short exposure. But I would also have 80% long exposure, with the portfolio, in practice, being 120% invested. With time I would probably let go of three more of the long positions to get to the 60% long/40% short "ideal" exposure to a possible bear market.

There are a lot more justifications and questions to be answered, but there's not enough time now. We'll keep this thread alive and possibly merge it with the Correction or Bear Market? (http://www.3stocksonfire.org/trading/index.php?topic=9050.0) thread. 

My plan is to sell two holdings of the Main Portfolio and buy 10% of capital in SDS and another 10% in TWM. But I still don't know which ones to sell, I'm going to review the individual story on them all and pick two to drop out.

Have a nice day :)

David,

Years ago I would have been one of the many to sell out my entire portfolio probably right at the bottom and would be afraid to get back in and lose out on the next leg up. I want to applaud you for your vision,calm and past experiences during the tough market times and working diligently to find those fundamentally strong stocks.

Brad

Yes, David has been a wonderful resource for me as well. Because of him (and the many other valuable members on this site) I had the courage and conviction to go from %80 cash to %100 stocks on that key reversal day back in when the Dow rallied from -500 to close relatively flat on the day. This was shortly after I had gone to mostly cash because things looked toppy.

I would be kicking myself now if I had let the fear rule my decision process and stayed in a money market account; but instead I'm happy as a pig in slop and crushing the market returns for the year.

Dow Jones 30 Industrials (INDU)
Bull run now.......JMHO of course  ;)
Looking for 14,700 to 14,800 this month ???

Yeah, the SPY closed at a new all time high yesterday, and even though most analysts are advising people to take profits (if they have them), history tells us new highs should be bought, not sold. I'm expecting something like another 3-5% upside between now and the end of the year (of course, there will be pullbacks, but you know, it's a bull market - you can't lose your position).

Ouch!!!!!!!!!!!!

So here is a 'pullback' ;)

I closed out my SPY positions today at various prices in the 1560 to 1570 zone (I have no trade execution costs so can exit like that, CFD providers make their money on the spread and finance costs.) I am not prediciting a collapse, but my strategy uses big leverage and therefor I require the confidence that the position can / will be moving in my favour and not in corrective / consolidating phase.
SPY remains in bull mode for now so lets see.

The SPY almost never leaves a gap open, so we're probably going to close this at $154.26 before continuing the bull run.

Shanghai Stock Exchange up 2% today. Might provide some fuel for the US traded Chinese rockets.

Link to SSE http://www.sse.com.cn/sseportal/en_us/ps/home.shtml

QuoteThe SPY almost never leaves a gap open, so we're probably going to close this at $154.26 before continuing the bull run.

The gap is closed now.

David, I understand that you are not a short term trader but with 4th Quarter being statistically the best stock appreciation quarter, what stocks in the main portofolio would you recommend for short term appreciation over the quarter for new investment money?

Keep up the great work on the long term focus.

Quote from: [email protected] on October 16, 2007, 07:47:24 AM
David, I understand that you are not a short term trader but with 4th Quarter being statistically the best stock appreciation quarter, what stocks in the main portofolio would you recommend for short term appreciation over the quarter for new investment money?

Keep up the great work on the long term focus.

I'm not sure which stocks to pick for the short term mschultz, but I think CIMT, GIGM, JAKK, GSB, SDTH, CHME.OB and ETLT.OB may have the strongest short term catalysts. This group can be also somewhat more riskier than the average holding of the Main Portfolio.

Good luck :)

Any comments  ???  :-\ ???

options exp today

Quote from: BigSully1 on October 19, 2007, 02:41:41 PM
Any comments  ???  :-\ ???

options exp today

So far down volume for the SPY is unlikely to be greater than it was on Sept 18th, even considering today is options expiration.  Seems a bit fast to go back into full blown correction mode.  Boone Pickens says $90 oil shouldnt hurt that much, and that seems to be the biggest reason for the down move today.

Quote from: tokyopua on October 19, 2007, 03:24:21 PM

Quote from: BigSully1 on October 19, 2007, 02:41:41 PM
Any comments  ???  :-\ ???

options exp today

So far down volume for the SPY is unlikely to be greater than it was on Sept 18th, even considering today is options expiration.  Seems a bit fast to go back into full blown correction mode.  Boone Pickens says $90 oil shouldnt hurt that much, and that seems to be the biggest reason for the down move today.

It plunged enough to kick in the trading curbs on the NYSE again. Lots of negatives contributing today. Oil above $90. Some pretty tepid ER's, More S&P credit rating reductions. Options exp., and probably even some superstition about being the 20 year anniversary (Oct 19, 1987) of "Black Monday" when DOW plunged 23% with similar concerns about int. rates/slowing econ. growth.

Technically it closed just above the high from early July

Thanks Ksifkla. Are we sitting at other significant levels on the other indices?

Quote from: tokyopua on October 19, 2007, 03:24:21 PM

Quote from: BigSully1 on October 19, 2007, 02:41:41 PM
Any comments  ???  :-\ ???

options exp today

So far down volume for the SPY is unlikely to be greater than it was on Sept 18th, even considering today is options expiration.  Seems a bit fast to go back into full blown correction mode.  Boone Pickens says $90 oil shouldnt hurt that much, and that seems to be the biggest reason for the down move today.

Tokyo, I'm eager to see whether IBD says now in correction mode or not.  As of yesterdays action their current outlook was still; "market in confirmed rally" with distibution days counted in recent weeks; "3 for Nasdaq and S&P 500, 2 for DOW, 1 for NYSE."

I think "carry trade" is the biggest problem.

Quote from: tokyopua on October 19, 2007, 03:24:21 PM

Quote from: BigSully1 on October 19, 2007, 02:41:41 PM
Any comments  ???  :-\ ???

options exp today

So far down volume for the SPY is unlikely to be greater than it was on Sept 18th, even considering today is options expiration.  Seems a bit fast to go back into full blown correction mode.  Boone Pickens says $90 oil shouldnt hurt that much, and that seems to be the biggest reason for the down move today.

Quote from: BigSully1 on October 19, 2007, 05:08:18 PM

Quote from: tokyopua on October 19, 2007, 03:24:21 PM

Quote from: BigSully1 on October 19, 2007, 02:41:41 PM
Any comments  ???  :-\ ???

options exp today

So far down volume for the SPY is unlikely to be greater than it was on Sept 18th, even considering today is options expiration.  Seems a bit fast to go back into full blown correction mode.  Boone Pickens says $90 oil shouldnt hurt that much, and that seems to be the biggest reason for the down move today.

Tokyo, I'm eager to see whether IBD says now in correction mode or not.  As of yesterdays action their current outlook was still; "market in confirmed rally" with distibution days counted in recent weeks; "3 for Nasdaq and S&P 500, 2 for DOW, 1 for NYSE."

Still in confirmed rally, not enough distribution days to qualify for correction yet.

-----------------------------------------------

Stock Market Slides On Latest Wave Of Bad Earnings
BY MARIE BEERENS

INVESTOR'S BUSINESS DAILY

Posted 10/19/2007

Blue chips blackened the stock market Friday.

On the 20th anniversary of the Black Monday market crash, heavy equipment maker Caterpillar (CAT) lowered its 2007 outlook based on slow U.S. economic growth.

3M, a diversified industrial firm, said it has to lower prices on some products due to competitive pressures.


Both Dow components weighed heavily on the industrial average, dragging down the rest of the market. It was the market's worst decline since Aug. 28, the day before the Nasdaq followed through on the current uptrend.

The Nasdaq, which has been the leading index since the follow-through, plunged 2.6%. The Dow and the S&P 500 also tumbled 2.6%. The NYSE was right on their heels, down 2.5%.

Smaller stocks took the biggest hit, with the S&P 600 sliding 3%.

Trading volume swelled, stoked in part by the monthly options expiration. That gave the market its second distribution day of the week, and four total for the Nasdaq and S&P 500.

Investors took to the safe haven of Treasuries. The 10-year yield slid 10 basis points to 4.40%, the lowest since mid-September.

With recession fears rising, Wall Street is convinced the Fed will cut rates by a quarter-point Oct. 31. Traders had the odds at 32% at the start of last week.

The IBD 100 index, which tracks top-tier growth stocks, shed 3.4% on the day.

Remember, when the market pulls back, leading growth stocks will fall more than the general indexes.

That's why investors should exercise caution. With the market jittery every time an earnings headline hits the wires, safeguarding some of your gains may not be a bad idea.

Pay attention to which stocks are holding up well vs. those that are falling in heavy trade. Trim your laggards and focus on your leaders. Always cut a loss if a stock falls 7% to 8% below your initial purchase price.

Despite the broad sell-off, several leaders performed well Friday.

Intuitive Surgical (ISRG) gapped up after beating Q3 earnings estimates by 20%. The maker of advanced surgical systems soared 5%, hitting a record high on six times its usual turnover.

DealerTrack (TRAK) jumped 4%, hitting an all-time high on eight times the regular volume. The developer of software to link car dealers with financial institutions priced an offering of 4.5 million shares at 46.40 per share.

On the downside, energy firms slumped as the price of crude retreated from record highs.

Schlumberger (SLB) tumbled 11%, plunging below its 50-day moving average on 4 1/2 times normal trade. The provider of oil and gas field services topped Q3 earnings estimates. But its CEO said its North America pricing power is set for further declines.

Quote from: kslifka on October 19, 2007, 04:29:56 PM
Technically it closed just above the high from early July

It also closed the gap that was open on the chart you showed.

Let me just drop a few lines about the general market and the US economy.

We now have a global economy and the best prepared economy in the World for this environment is, you guessed it, the United States:

GENEVA (AP) -- The United States has regained its status as the world's most competitive economy thanks to strong innovation and excellent universities, according to a survey released Wednesday by the World Economic Forum. (http://money.cnn.com/2007/10/31/news/economy/bc.globalcompetitiveness.ap/index.htm?postversion=2007103106)

Nearly half of Americans think the economy is in a recession (http://money.cnn.com/2007/10/18/news/economy/recession/index.htm) (which is a powerful contrarian indicator).

Despite all the housing, credit troubles and the stock market fall in August, the US economy grew 3.9% in the third quarter (//http://).

And my thesis was confirmed:

«"Exports generated 45 percent of this quarter's GDP growth.  Last year we had a record $1.4 trillion in exports - that is up 12.7 percent (over 2005).  If we continue on our current path of opening up overseas markets and expanding exports this year should be even better with a very strong growth rate."»

«"This is not a zero-sum game.  We do well when our trading partners do well," he explained.  "So our exports increase when other economies grow, because when other economies grow, that means their demand for all goods - some of which are domestic to them but some of which come from us - also grow.  And so a significant fraction of the export growth we have seen has been a result of growing economies around the world and that is a good sign." »

On Wednesday the FED cut interest rates by 25 bp as we all know.

And yet, yesterday, the SPY plunged 2.7%. This got me worried, because, with so many good news, how come the market goes down?

I think the market suffered from a "what next" phenomenon. With all the good news out, the next thing must be bad news ... and a CitiGroup downgrade was the catalyst for the sell off in the general market:

«Citigroup shares, which finished 7 percent lower, tumbled after a CIBC World Markets analyst lowered the rating of the company's stock and warned that Citigroup may have to cut its dividend in order to raise $30 billion in capital. Citigroup declined to comment on the matter.»

My thinking on this issue is that the housing and credit problems are a thing of the past, and strong economic growth is the future. Sure, banks and builders will feel some more pain, but most people that would default on their homes payment already did that and most people that would stop paying their credit cards bills already did that too.

The average US consumer won't feel it for a long time, but the US economy is growing strongly on exports due to its competitiveness and a weaker US dollar. This is just what the World needed, a re balance. Less growth in consumption in the US and more exports. Less exports in the rest of the world and more internal demand. Don't forget the Chinese save more than half of their personal income :o

We have strong growth, low inflation and low interest rates. Moreover, the World market is much bigger than before, with the emergence of the BRIC countries as huge economies, where before little existed in economic terms.

This is a great economic environment to own stocks for the long term.

I believe the SPY is in a trading range but ultimately it will breakout to new all time highs.

GM's huge non-cash charge, $oil moving near $100 and the falling USD will probably make the SPY touch the base of its symmetrical triangle once again.

But, longer term, because the stock market's valuation is attractive, interest rates are low (not providing many alternative investments to stocks), economic growth is robust because of strong exports and business investment and also because most people feel pessimist and are holding cash, I believe the SPY will end up continuing its long term bull market, breaking out to new all time highs above $156.

Anyway, as you know, I've adopted a microeconomic approach and the stocks held in the Main Portfolio are good businesses that I expect to grow in good or bad economic times.

Looks like SPX is below an important support level now. Lets hope it can close back above 1490, or it could get really ugly.

Quote from: BigSully1 on November 07, 2007, 01:26:46 PM
Looks like SPX is below an important support level now. Lets hope it can close back above 1490, or it could get really ugly.

Nah, we're gonna have a late day rally.

Besides, the most important technical level now is the 200 days SMA, currently at $148.35 on the SPY. Just my opinion.

QuoteNah, we're gonna have a late day rally.

I say this because when the big boys are accumulating it usually shows up first in the European futures markets (after-hours). Their buying orders, because the market is less liquid (especially in extended hours trading) are noticed here but not in the US, at least not yet.

But I can be wrong, just sharing a few tricks with you, just in case you wanna be a futures day trader (for God sake, no!).

Oops, I did it again! (sorry)

Quote from: David Randolph on November 07, 2007, 01:35:47 PM

Quote from: BigSully1 on November 07, 2007, 01:26:46 PM
Looks like SPX is below an important support level now. Lets hope it can close back above 1490, or it could get really ugly.

Nah, we're gonna have a late day rally.

Besides, the most important technical level now is the 200 days SMA, currently at $148.35 on the SPY. Just my opinion.

Pretty much the same difference, isn't it? 1490 on SPX or 148.35 on the SPY?

QuotePretty much the same difference, isn't it? 1490 on SPX or 148.35 on the SPY?

Yeah, I guess so, sorry I focused on the following part of your comment:

QuoteLooks like SPX is below an important support level now. Lets hope it can close back above 1490, or it could get really ugly.

I use the SPY because of the candlesticks.

By the way, where's the 200 on the SPX? Perhaps we touched it.

We didn't touch SPY's, because the MM stands at $148.35 and the low of the day was $148.61. But trading isn't an exact science (it's more of a gamble, actually).

I show 1483.20 as the 200, so it actually it didn't quite touch it there either. I was thinking it was 1490.

Quote from: BigSully1 on November 07, 2007, 03:00:10 PM
I show 1483.20 as the 200, so it actually it didn't quite touch it there either. I was thinking it was 1490.

Ok, NOW we touched it! Not a lot of time for a comeback, probably tomorrow.

I can't imagine what would be a catalyst now. Ugly. Ugly.

Quote from: BigSully1 on November 07, 2007, 03:59:35 PM
I can't imagine what would be a catalyst now. Ugly. Ugly.

Indeed, brutal sell off for a close below the 200 days SMA "key" support level. I was wrong, and so were the DAX players, or else we'll get some news after hours which reverses sentiment or something.

Anyway, it's over now, I'm going to watch a football game. See ya :)

Too bad  >:(

CSCO down big time now and the market in a very ugly situation !

time to buy, just now!

;D

IBD has a new category I havent seen for describing where the market is right now.  Usually they say confirmed correction, attempted rally, or confirmed rally.  After today it is "market rally under pressure". 

On the positive side they had this to say:
----------------------------------------
Despite the recent slump, the market still has several factors working in its favor.

First, consider recent history. The last time the Nasdaq flashed a down day of 70 points or more was Oct. 19. A week and a half later, the index had turned around and surged to new high ground.

Next and more importantly, check out Wall Street's leaders. If you own Google, (GOOG) Research In Motion, (RIMM) Baidu.com (BIDU) or other institutional-quality stocks and never checked the day's headlines, you never would know that the broad market had sharply fallen.

That is a lesson in itself. If you don't own such stocks, it's time to take a hard look at your portfolio.

David,

I have a some questions. These are of a general nature, but I favor your opinion.

1) How serious do you think the Chinese are to get ready to dump their USD? Converting to Euro sounds like a big step and they'll lose even more by driving the buck down.

2) What can the US do to reduce dependence on Chinese imports? I realize that $40bln a month goes to the Middle East, which is close to the growth in external debt, by the way. But still, is it to blantant to institute economic sanctions against China for regulating its Yuan?

3) How much should we want to make to feel comfortable here? If we take at least about 8% inflation in the US, about 10% annual reduction in the dollar value (today $CAN=US$1.1 !!!) and about 5% reduction in property values per annum, we get 1.08x1.1x1.05=~1.25. This is 25% capital growth post tax. In pre-tax money, using 25% tax, we get 1.55. Of course, it largely depends on the value of the depretiating property vs the invested capital. But nevertheless, it comes down to some serious money to be made to only offset the capital erosion.

  I guess I just share the worries of many others about the state of the US economy. I believe that, without substantial political changes, it'll be hard to come out of this predicament for the country.

Thanks.
Berloga

From an ER I read tonight;

"We believe the odds favor a further drop in interest rates and that markets will return to the historical pattern of being up in the third and fourth years of the four-year presidential election cycle," Mr. Holmes says. "A century of data shows the presidential election cycle to be one of the most reliable market barometers. The economic conditions we see today, both at home and abroad, give us confidence that this year and 2008 will follow the long-term trend."

Quote from: tokyopua on November 07, 2007, 10:04:19 PM

Next and more importantly, check out Wall Street's leaders. If you own Google, (GOOG) Research In Motion, (RIMM) Baidu.com (BIDU) or other institutional-quality stocks and never checked the day's headlines, you never would know that the broad market had sharply fallen.

That is a lesson in itself. If you don't own such stocks, it's time to take a hard look at your portfolio.

Quote from Rich Duprey - Motley Fool;

"Because the world of penny stocks is full of shysters peddling manipulation and deceit, it's often hard for investors to separate the few good companies residing there from the multitude best ignored."

"Although many people like investing in penny stocks, believing that such stocks have a better chance of increasing many times in value, nothing says that a $20 stock can't double, triple, or quadruple in value just as easily as a cheaper one. Considering that a cheap stock may be cheap for a very good reason, there's ample evidence to suggest that higher-priced stocks may actually have a better chance of going up than cheap ones do. "

Quote from: BigSully1 on November 08, 2007, 01:54:42 PM

Quote from: tokyopua on November 07, 2007, 10:04:19 PM

Next and more importantly, check out Wall Street's leaders. If you own Google, (GOOG) Research In Motion, (RIMM) Baidu.com (BIDU) or other institutional-quality stocks and never checked the day's headlines, you never would know that the broad market had sharply fallen.

That is a lesson in itself. If you don't own such stocks, it's time to take a hard look at your portfolio.

Quote from Rich Duprey - Motley Fool;

"Because the world of penny stocks is full of shysters peddling manipulation and deceit, it's often hard for investors to separate the few good companies residing there from the multitude best ignored."

IEAM is a very good example of this, hope you guys threw in the towel finally on that one, long before today.

Funny how everyone completely clams up when the chips get down a little. I get all exited when there's a big sale going on and go on a big shopping spree.

Hey BigSully1
I thought the same thing. Not much chatter. I enjoy reading everyone's thoughts and comments.
I love sales too, unfortunately, I am "stuck", no free cash. Oh well, another day.

Posted on: Today at 03:22:06 PMPosted by: BigSully1
Funny how everyone completely clams up when the chips get down a little. I get all exited when there's a big sale going on and go on a shopping spree.       
                  How can you tell when something is ''on sale''? I recall scrambling to sell jaso at around $26 and feeling lucky to have made a small profit. Look at it now. Then I watch gigm dive into the teens,feeling really dumb,but not pulling the trigger either.Now is gigm on sale?Or do a lot of people think it's headed back to nine. Thoughts to ponder.

Probably no surprise after the carnage we saw intraday and the volume, but IBD now says we are in a correction.  The rally we had recently was really pretty short, hope this correction will be short too and that we can still have a year end rally.

Quote from: soxguy on November 08, 2007, 07:31:41 PM
Posted on: Today at 03:22:06 PMPosted by: BigSully1
Funny how everyone completely clams up when the chips get down a little. I get all exited when there's a big sale going on and go on a shopping spree.       
                  How can you tell when something is ''on sale''? I recall scrambling to sell jaso at around $26 and feeling lucky to have made a small profit. Look at it now. Then I watch gigm dive into the teens,feeling really dumb,but not pulling the trigger either.Now is gigm on sale?Or do a lot of people think it's headed back to nine. Thoughts to ponder.

Hi, Soxguy. I have enough confidence in GIGM to believe the 50MA was a very good place to buy, so to me the stock was indeed very much on sale at $18.48. That's not to say that somebody won't be willing to sell for less later. IBD says that usually a pullback to the 10 week (50 DMA) is a very good place to buy or add on a market-leading stock, and GIGM is a market leader, even though it's not on their 100 list, at least not yet. I've still alot to learn on T/A but I think if you will look at like a 10 minute chart, you will see that many thought the same as I and were buying at the 50., check out the volume during that time and the total volume for the day. I think this should confirm that it was a good buy. This was GIGM's only pullback to the 50MA since it's awesome run began in August.

What ever would make you think it's ever going back to $9, barring some anti-gambling/gaming legislation? Is that what you fear? I see no reason to fear it, only to be aware that it could happen someday. Until then I see NO reason at all to be bearish on it, and every reason to remain bullish. Try to avoid those Yahoo message boards!

I don't understand what you mean by "Then I watch gigm dive into the teens, feeling really dumb,but not pulling the trigger either".
If you mean feeling dumb for not selling before it sold into the teens, don't feel that way, I didn't sell any, David didn't, and I think alot of others didn't. If you mean dumb for not buying today, well don't do that either. I still think its "on sale" and IBD says that still in buying range up to 5% above key points, but they would also say to always use a stop loss  at 7 or 8 %, if you're into that stop thing, but I think today GIGM confirmed it has strong support at the 50 DMA, by the volume, and the bounce.

As for SYX, for me it was definitely on sale today. All the latest info was already out there for all to see  (it was awesome) and I couldn't believe there were those who were still selling around $20. I had to double up, there was nothing at all technical about it, the fundamentals were displayed like a peacock's tail.  Probably not the best sector to be in at the moment, but most definitely undervalued by my standards.

Best of luck to you, Soxguy.

Hey tokyopua,
I hope this is a short correction too.
I am not expecting much from the month of November. Hopefully, by early December things will pick up.
Have a great weekend.

Quote from: Houlahan on November 08, 2007, 04:08:36 PM
Hey BigSully1
I thought the same thing. Not much chatter. I enjoy reading everyone's thoughts and comments.
I love sales too, unfortunately, I am "stuck", no free cash. Oh well, another day.

Hey Houlihan! Yes it feels lonesome on days like today. Sometimes I wonder if I'm the only one  closing out hedges and buying. Hope I did the right thing, there might be better opps coming, who really knows?

Best wishes to you, Houlihan.

Hi BigSully1,
I am sure you will be fine. There is always a rally somewhere.
There were some good buys today, if you were brave enough to buy and you were. It was good to see the rally from today's low. I need to learn when to buy and when to sell.
Thanks for posting good ER stocks.
I enjoy your posts.
Happy trading.

Quote from: BigSully1 on November 08, 2007, 01:54:42 PM

Quote from: tokyopua on November 07, 2007, 10:04:19 PM

Next and more importantly, check out Wall Street's leaders. If you own Google, (GOOG) Research In Motion, (RIMM) Baidu.com (BIDU) or other institutional-quality stocks and never checked the day's headlines, you never would know that the broad market had sharply fallen.

That is a lesson in itself. If you don't own such stocks, it's time to take a hard look at your portfolio.

Quote from Rich Duprey - Motley Fool;

"Because the world of penny stocks is full of shysters peddling manipulation and deceit, it's often hard for investors to separate the few good companies residing there from the multitude best ignored."

"Although many people like investing in penny stocks, believing that such stocks have a better chance of increasing many times in value, nothing says that a $20 stock can't double, triple, or quadruple in value just as easily as a cheaper one. Considering that a cheap stock may be cheap for a very good reason, there's ample evidence to suggest that higher-priced stocks may actually have a better chance of going up than cheap ones do. "

I should make myself clear. I'm not totally against "cheap stocks" or even OTCBB's, only when they are an overly substantial percentage of what is supposed to be a LT holding  portfolio.

I rarely ever buy OTCBB's, but today I did so.  Will post about it on the "My Stocks" thread where it belongs.

Thank you Houlihan, and you're welcome!

Hey Big Sully and others chatting here,

Yes natural instinct when shares go down is for people to feel bad and not want to share. What everyone needs to remember is that a) You'll never sell at the top, so don't worry about it b) In any trend following type trade (which really is what 3SoF is doing) it is part of the trade expectation that you give profit back at the end because you exit when something changes to that trend (e.g fundamental news, serious break of established trend etc). Naturally that change causes price action to be coming downwards.

A few days ago I opened hedge positions on the SPX and a few weakened companies within the S&P500. I say hedged because I was still holding long positions (such as some 3SoF) and was not looking to sell those at this stage. Hedging just gives a bit of insurance if you see short term downwards action within an otherwise longer term upwards market or vice versa.

That said I haven't yet closed my hedge positions, I don't think we are 'out of correction' just yet. Indeed who knows it may be just the start of bearish period.

Regardless of market direction, there are many trading vehicles / strategies to enable you to profit / hedge or remain even available to you. 3SoF mostly plays the long side, that means you are guaranteed to get into periods of 'drawdown' on your equity when the market is not in your favour, that is a fact you can take to the bank.

Cheers

Quote from: Houlahan on November 08, 2007, 09:46:53 PM
Hi BigSully1,
I am sure you will be fine. There is always a rally somewhere.
There were some good buys today, if you were brave enough to buy and you were. It was good to see the rally from today's low. I need to learn when to buy and when to sell.
Thanks for posting good ER stocks.
I enjoy your posts.
Happy trading.

Houlihan, it's nice to know someone appreciates the "good" ER reports. I always track  them anyway, but I quit posting about them on the member boards, because I didn't think there was any  interest.

There was a number of days I didn't post them, but still tracked, when I get a chance, I'll post them all, probably on the public boards like I did last couple days.  Are you interested in the "bad" or "ugly ones"? If not for shorting, some are very good companies with a "bad" or "ugly" Q that get unreasonably beat down (especially in this environment) and can lead to a good buying opp.

Got lots more to go through tonight yet with many more reporting after the close.

Have a good night..

Quote from: AussieTrader on November 08, 2007, 10:17:15 PM
Hey Big Sully and others chatting here,

Yes natural instinct when shares go down is for people to feel bad and not want to share. What everyone needs to remember is that a) You'll never sell at the top, so don't worry about it b) In any trend following type trade (which really is what 3SoF is doing) it is part of the trade expectation that you give profit back at the end because you exit when something changes to that trend (e.g fundamental news, serious break of established trend etc). Naturally that change causes price action to be coming downwards.

A few days ago I opened hedge positions on the SPX and a few weakened companies within the S&P500. I say hedged because I was still holding long positions (such as some 3SoF) and was not looking to sell those at this stage. Hedging just gives a bit of insurance if you see short term downwards action within an otherwise longer term upwards market or vice versa.

That said I haven't yet closed my hedge positions, I don't think we are 'out of correction' just yet. Indeed who knows it may be just the start of bearish period.

Regardless of market direction, there are many trading vehicles / strategies to enable you to profit / hedge or remain even available to you. 3SoF mostly plays the long side, that means you are guaranteed to get into periods of 'drawdown' on your equity when the market is not in your favour, that is a fact you can take to the bank.

Cheers

Hey Aussie. Are you from Australia? Always wanted to go there and New Zealand. One of these days....

Agree with all you are saying, including that the market definitely is currently more bearish biased now. I can always increase my hedging again, if need be. I almost exclusively use TWM and a few sector ultra shorts, individual shorts, and PM's. I should learn to use options though, I guess.

Gotta stop the chat for now, got much to do. Have a good one.

I have to agree with AussieTrader here.  It's a little too early to be considering going long.  Although grabbing GIGM at the 50dma was probably not a bad short term trading strategy going into earnings.

The sell-off in the market broke several technical levels.  I believe we will go lower in the weeks ahead now. I have been waiting for this correction...I don't believe it will be a deep or long correction...but I may be wrong.   ???

Remember August is historically quiet while October is historically volatile.  In reality the opposite became reality in 2007.   I'm being a contrarian now.  I will wait to see how things play out.  Right now too many people...in my opinion...believe there will be an end of the year rally, we shall see.   :-\

Longer term...I still believe we are in a bull market because of global expansion, and we could see a tremendous bull run next year. ;D

Quote from: kslifka on November 08, 2007, 10:46:42 PM
I have to agree with AussieTrader here.  It's a little too early to be considering going long.  Although grabbing GIGM at the 50dma was probably not a bad short term trading strategy going into earnings.

The sell-off in the market broke several technical levels.  I believe we will go lower in the weeks ahead now. I have been waiting for this correction...I don't believe it will be a deep or long correction...but I may be wrong.   ???

Remember August is historically quiet while October is historically volatile.  In reality the opposite became reality in 2007.   I'm being a contrarian now.  I will wait to see how things play out.  Right now too many people...in my opinion...believe there will be an end of the year rally, we shall see.   :-\

Longer term...I still believe we are in a bull market because of global expansion, and we could see a tremendous bull run next year. ;D

Kslifka, I pretty sure it was you that said, you were pretty sure there would be a correction after the interest rate cut. You were right, and you did help convince me to take some more protective measures. So just curious, do you sell most everything and wait on the sidelines then? Make very ST opportunistic trades? Is that what many others are doing?

Quote from: BigSully1 on November 09, 2007, 01:48:42 PM

Quote from: kslifka on November 08, 2007, 10:46:42 PM
I have to agree with AussieTrader here.  It's a little too early to be considering going long.  Although grabbing GIGM at the 50dma was probably not a bad short term trading strategy going into earnings.

The sell-off in the market broke several technical levels.  I believe we will go lower in the weeks ahead now. I have been waiting for this correction...I don't believe it will be a deep or long correction...but I may be wrong.   ???

Remember August is historically quiet while October is historically volatile.  In reality the opposite became reality in 2007.   I'm being a contrarian now.  I will wait to see how things play out.  Right now too many people...in my opinion...believe there will be an end of the year rally, we shall see.   :-\

Longer term...I still believe we are in a bull market because of global expansion, and we could see a tremendous bull run next year. ;D

Kslifka, I pretty sure it was you that said, you were pretty sure there would be a correction after the interest rate cut. You were right, and you did help convince me to take some more protective measures. So just curious, do you sell most everything and wait on the sidelines then? Make very ST opportunistic trades? Is that what many others are doing?

Well I still have some long term holds that are down.  Right now I'm taking advantage of the volatility to make some day trades...in this type of situation...I'll buy a "hot" stock that has come down big in the middle of the day and if the market looks like it turning positive toward the end of the day...I'll jump on it and sell before the close.  I think it's too risky in a "correcting" market to jump into spiking stocks. 

Thanks kslifka! That was awesome. That's all I wanted to hear was....how do you do it. I know it is risky. I was going OK, at least on the + side, but I got burned recently. I usually try to trade good stocks. Anything from GOOG to ONNN.

Maybe the market isn' slumping today,but these stocks with earnings out sure are. What a pain. And i was actually looking forward to today.

This market is irrationally depressive, especially towards small cap stocks. Great buying opportunities out there ... stocks are so cheap it hurts.

About 9 months back I wanted to buy an 'entry level' house in Los Angeles I went to the loan companies and the way they were ready to give out loans it scared the hell out of me. I told my wife that problem is not really high prices of houses, but these guys who would give loans to those ppl who really cant afford it and pushing prices higher and higer.

Even 9 months back they were accomodating and willing to help out, just to get their cut. They did not even once asked me if I can afford the house for which I am going to pay such a big sum.

I hope I am wrong and the credit and bank write offs are done but I have still to see the spill over. Six months back there was only 1 house in my zip code in the house auction, even though there were 666 listed at forclosure.com. Three months back there were about 6, this time the number has barely doubled.

So dont know whats going on but the wisdom tooth of housing is just showing its pain. I think its going to hurt more.

Everywhere I read the so called experts are saying to be defensive and to dump small caps right now in preparation for the inevitable downturn to take place in '08. The last few sessions has certainly been a testament to this. Despite David's opinion that the stocks in the 3SOF Main are so undervalued and fundamentally sound to warrant long term positions I still don't buy the argument that one must be oblivious to the overall market in general and to maintain a buy and hold strategy. The market so far has not been kind to this approach. I have become quite pessimistic about the global economy and the risks to equities. I can't help but think that as we move forward the bears will continue to devour small caps like the ones in the Main.

After 4 terrible sessions I finally pulled the trigger and sold off 50% of my portfolio at a horrible loss. Yes, this may be a mistake.

I could be wrong but I do not see this period as a buying opportunity for equities and especially for small caps.

Good luck for those willing to weather the storm.

QuoteEverywhere I read the so called experts are saying to be defensive and to dump small caps right now in preparation for the inevitable downturn to take place in '08.

Are they? Well, at least keep on record that I say exactly the opposite.

QuoteThe last few sessions has certainly been a testament to this. Despite David's opinion that the stocks in the 3SOF Main are so undervalued and fundamentally sound to warrant long term positions I still don't buy the argument that one must be oblivious to the overall market in general and to maintain a buy and hold strategy.

A few days ago the Main was up 37% on the year. Now it is up 18.55%. My take is that a couple of weeks from now, just as naturally as it came down, it will move up to close the year with a 30% plus gain. Things change pretty fast.

QuoteThe market so far has not been kind to this approach.

Even though the Main is taking its biggest hit ever today I still consider an 18.55% return a "kind" reward. Buffet did just 22% a year and he's one of the richest men in the World.

QuoteI have become quite pessimistic about the global economy and the risks to equities. I can't help but think that as we move forward the bears will continue to devour small caps like the ones in the Main.

Time will tell.

QuoteAfter 4 terrible sessions I finally pulled the trigger and sold off 50% of my portfolio at a horrible loss. Yes, this may be a mistake.

I think it was a mistake, but time will tell. If I wanted I could sell all my portfolio right now and I would be up 18.55% for the year, but no, I'm pretty sure that I'll do 30% plus if I just keep holding everything.

QuoteI could be wrong but I do not see this period as a buying opportunity for equities and especially for small caps.

I respect your opinion and decision capricho. To me you're a "weak hand", but I understand.

QuoteGood luck for those willing to weather the storm.

Thanks, good luck to you too.

David, your insight in stocks and mkt is way above all of us here. I again want to stress that we should not have any .OB in the main or have a completely different portfolio for them. Just its a matter of risk. And yes it hurts to see stocks sold pretty cheaply. And I share the same opinion, 3SoF main will be up by 30% by year end. No doubt about that.

As a contrarian...I like the pessimism that I'm hearing.  The time anyone should have dumped any stocks was last week or the week before when it was clearly topping out.  The Dow was the first to indicate the topping...then the Nasdaq followed. We probably still have lower to go but by no means are we anywhere near a bear market.  The chart doesn't lie...

Right now the DOW could tag the 12800 trend line.  The Nasdaq has a little further down to go (%)-wise to just under 2500.

People are fearful now...whether it's valid or not...I don't quite think so.  Notice how some of the beaten  down-financials are slowly starting to turn upward....although I wouldn't quite buy those yet.

I will wait for complete investor apathy and a bounce off the trendlines to jump in with both feet.  I think this will come within the week to 10 days.

Sorry about the grammar in that last sentence. My computer posted it prior to me finishing my typing...I think you get the gist of what I said.

I do hope the 3SOF does indeed finish up 30% for the year but I personally think the odds of that happening in this environment are slim.

Capricho

If you are investing/trading based on fundamentals then cheaper the stock goes, better it becomes, doesn't it? Now 3SoF main is the same kind. Add to it the Long Term horizon and you would see the today event as a blip. Important thing is whether you are a short term or long term. For that will decide whether you are looking for support or looking for quarter over quarter or year over year numbers. For if you are worried too much about technicals then the main holdings may not be the best place.

The main was initially technical and short term based and for better it evolved into fundamental and long term. I think thats one of the best decisions David had taken. But really whether he sticks to this Long Term is on test, especially after days like this. If he liquidates then giving out 3 yr targets with optimal selling prices just does not mean anything. But again if the main has .OB holdings with some funny warrents or funds transferred through shabby acquisitions then they will melt away in no time.

Just have plenty of time on hands due to Veteran's Day off from work. So thinking out loud here.

There is nothing wrong holding fundamentally good stocks with "strong hands". I strongly believe 3SOF evolved in the right direction.

However, the key words here are "fundamentally good stocks". I sense that David, being a young idealist man, has a natural tendency being honest himself and at the same time believing in others, even with reports from .OB stocks. That, I think, is his weakness.

Another thing is no matter how fundamentally good a company is, there is always uncertainty down the road that can potentially make the company fail, therefore we need diversification. Carefully choosing stocks from different sectors, even all with the same high beta, can potentially reduce volatility because of low or negative correlation. To this regard, I again propose increasing the number of stocks in the main portfolio. Look at this one: http://quicktake.morningstar.com/FundNet/Snapshot.aspx?Country=USA&pgid=hetopquote&Symbol=CGMFX , it returned more than 60% so far this year, yet it constantly has 20-30 holdings. So more stocks to a certain degree don't necessarily kill the performance yet have the potential of reducing volatility.

So in sum, here is my wish list from David:

1. Continue to adopt fundamental approach with long-term view.
2. Exclude .OB .PK stocks for good.
3. hold up to 20 stocks.

Finally, holding long-term view also means we can tolerate poor performance from time to time. Say, if we "only" return 15% this year, so what? Maybe next year it will be +50%. 30%+ annual return is over many years, we don't have to achieve it every year.

All of the near-term trend indicators have sunk into their oversold zones, indicating the market indices are expected to rally soon, but first the market indices are likely to wallow along current levels for a couple of days, so buyers are advised to wait for the bottom to be confirmed when the near-term trend indicators cross up out of their oversold zones and the DJIA rises above 13,200.

The near-term trend indicators can go lower too, but are so close to being in their oversold sub-basements now that a further substantial decline in the market indices is not likely. However, time and time again, experience has demonstrated it wise to wait for a signal and confirmation that a near-term uptrend is in progress. This may take a couple or more days. The signal will occur when near-term trend indicators climb out of their oversold zones and the confirmation will occur when the DJIA rises above 13,200 and stays there.

The catalyzing factors in recent abrupt trade-term trend movements have been the subprime mortgage debacles involving several large financial institutions. Since the underlying real estate blues continue, perhaps the worrying is not over, but the tenor has changed from shock to recrimination about timing of announcements. Therefore, a period of fewer surprises and thus quieter markets may be in store. In any event, the trade-term trend indicators became oversold late Friday, and thus should rally.

QuoteI don't see anything wrong in trying to protect my capital and not turning a profit into a loss.

I used to think this way too, but now I invest from a business perspective. Business owners don't sell out their businesses just because the general market turns south.

Motley Fool has an interesting story about this issue. A "star" fund manager sold all his holdings just a few weeks before the 1987 crash, saving investors in his fund billions of dollars. His popularity soared to new highs, the man appeared to know a lot about protecting capital and market timing. But, 5 years later, he was not only under performing the general market, he was also making less money than the people that bought him the shares he sold just before the crash.

No market timer will ever catch a 5 or 10 bagger, there will always be something to worry about ... and no market timer will always make the right calls.

QuoteI do hope the 3SOF does indeed finish up 30% for the year but I personally think the odds of that happening in this environment are slim.

Well, in August the Main was up just 2%. Two months later it was up 37%. Now it is up 17%. It can either go down to being up just 5% for the year or move up towards a 30% gain. I bet on the latter, because stocks are fundamentally very attractive and, even though I don't know much about that, I believe the general market is within a trading range and it will end up breaking out on the upside.

Not many people considers it, but I believe globalization and the emergence of the BRIC countries as economic powerhouses is as big or even bigger than Industrial Revolution in the late XVIII century. There are 3 billion new consumers and investors showing up in the World and Americans are worried about their housing market and credit defaults. The negatives are peanuts compared to the positives and yet, everybody is focused on the negatives.

By the way, let me tell you that I think your housing market isn't overvalued at all, I mean, the average American earns 4 times more than the average Portuguese, and I could buy a condo apartment cheaper in the US (on average) than what I can do in Portugal.

I've never seen or studied a Bear Market starting with so much pessimism in the press.

Anyway, focusing on businesses and their price, most Main holdings are good businesses and they've been going down anyway ... consider GIGM, ASTI, IMMR, TBSI ... there's no macro or micro argument to take these shares down. They're going down because they were up. But longer term it will be just a blip ... how can anyone own a stock for a 1,000% gain if he's always getting worried about everything?

I respect everybody's opinion and attitude, of course. It was a tough day, the toughest of all ... fortunately I saved some optimism from that day when it was up roughly 5%.

I'm going to sleep now (hopefully) and will come before the next open to update the analysis on all holdings. I want to read about all those business models and how and why these stocks will go up immensely in good or bad economic times, in bull or bear markets.

Everytime the market goes into a correction it seems everyone turns into nervous nellies...remember last March and again in August. 

I made some of my best money from late 2001 into  2002 and 2003, when no one I knew would touch the stock market.

This is not a time to panic.  Especially when you look at the long term charts of the nasdaq and dow.  Doesn't look so bad now...does it?

It's all about rotation ... you have to rotate with what ever they are inflating. they can't inflate housing right now, so they will inflate some other asset. Probably stocks.  ;D
If you are in the right asset class at any given time you beat any average.
Preserve you ass... by moving in and out of any asset class.  ;)

It won't surprise me in the least for the Main to pop tomorrow after the recent bloodbath but there the are several reasons for my pessimism.

First, I believe that the American consumer, and not BRIC economies still dominate the US, and by extension, the global economy. Despite the emergence of the BRIC economies the average consumer purchasing power in BRIC countries does match that of the US consumer. Walmart has already reduced pricing of many holiday items down ahead of Black Friday because it senses a decline in 4th quarter consumer spending. I believe that not only will 4th quarter consumer spending be sub-par but much of next year will be as well. It does seem like an act of desperation when I see Christmas displays set up in malls the day after Halloween. And I suspect that most US consumers are already up to their eyeballs in revolving credit card debt.

Second, the real estate bubble in the US is finally going through a correction and I really don't see much end in sight for the short-term. The last time we had this type of price depreciation was about 1990, and it took 7-8 years after that time for many regional markets to finally rebound. An increase in interest rates by the Fed (which could very well occur) and continued weakness in jobs, not to mention resets of adjustable loans can only worsen the downturn.

Third, no one knows the extent of the credit crisis and what the extent the financial and insurance industries are exposed for further losses. The stock market will continue to behave erratically as long as the actual amount is not evident and the fear of the unknown persists. I may sound cynical but it's hard for me to feel sorry for Wall Street brokers who may have to forgo their $5,000,000 Christmas bonuses this year.

Fourth, gas prices. A steady rise will can only incite inflationary pressures and interest rate hikes. It is a fairly safe bet that with the continued destabilizing situations in Nigeria and Venezuela, and the power struggle between Russia, Kajikistan, Iran and Europe for the Caspian oil reserves that price pressures will probably continue to increase. Not to mention any further saber rattling from Bush and co.

Fifth, the dollar's weakening value. Of course this is a double edge sword, as US exports become more attractive to foreign buyers the devaluing of the greenback will also place further pressure on China to continue to divest, fueling pressure on the Fed to raise interest rates.

And finally, US jobs. It is a sad state of affairs when the US economy is being driven by the US consumer and that for the most part the only job sector with any growth is low wage service jobs.

Oh, and did I mention the US account deficit?

With all of these hurdles it just seems like a perfect storm brewing for a serious recession and it's not exactly the kind of environment that inspires a positive attitude towards the stock market.

Okay call me a nervious Nellie but that's how I see it.

Everywhere?? That is really good news!!  ;D

Quote from: capricho on November 12, 2007, 03:21:06 PM
Everywhere I read the so called experts are saying to be defensive and to dump small caps right now in preparation for the inevitable downturn to take place in '08. The last few sessions has certainly been a testament to this. Despite David's opinion that the stocks in the 3SOF Main are so undervalued and fundamentally sound to warrant long term positions I still don't buy the argument that one must be oblivious to the overall market in general and to maintain a buy and hold strategy. The market so far has not been kind to this approach. I have become quite pessimistic about the global economy and the risks to equities. I can't help but think that as we move forward the bears will continue to devour small caps like the ones in the Main.

After 4 terrible sessions I finally pulled the trigger and sold off 50% of my portfolio at a horrible loss. Yes, this may be a mistake.

I could be wrong but I do not see this period as a buying opportunity for equities and especially for small caps.

Good luck for those willing to weather the storm.

and at the same time believing in others, even with reports from .OB stocks. That, I think, is his weakness

David. That is also what I worry about. I do appreciate your effort and admire your talent. But I do not like the fact that you trust those reports and CC too much.

Quote from: realcoolhead on November 12, 2007, 06:28:27 PM
There is nothing wrong holding fundamentally good stocks with "strong hands". I strongly believe 3SOF evolved in the right direction.

However, the key words here are "fundamentally good stocks". I sense that David, being a young idealist man, has a natural tendency being honest himself and at the same time believing in others, even with reports from .OB stocks. That, I think, is his weakness.

Another thing is no matter how fundamentally good a company is, there is always uncertainty down the road that can potentially make the company fail, therefore we need diversification. Carefully choosing stocks from different sectors, even all with the same high beta, can potentially reduce volatility because of low or negative correlation. To this regard, I again propose increasing the number of stocks in the main portfolio. Look at this one: http://quicktake.morningstar.com/FundNet/Snapshot.aspx?Country=USA&pgid=hetopquote&Symbol=CGMFX , it returned more than 60% so far this year, yet it constantly has 20-30 holdings. So more stocks to a certain degree don't necessarily kill the performance yet have the potential of reducing volatility.

So in sum, here is my wish list from David:

1. Continue to adopt fundamental approach with long-term view.
2. Exclude .OB .PK stocks for good.
3. hold up to 20 stocks.

Finally, holding long-term view also means we can tolerate poor performance from time to time. Say, if we "only" return 15% this year, so what? Maybe next year it will be +50%. 30%+ annual return is over many years, we don't have to achieve it every year.

QuoteI used to think this way too, but now I invest from a business perspective. Business owners don't sell out their businesses just because the general market turns south.

Come on, David. This reasoning is not right. Business owners know more than you do about their companies. Plus, they sometime simply can not get out.

QuoteMotley Fool has an interesting story about this issue. A "star" fund manager sold all his holdings just a few weeks before the 1987 crash, saving investors in his fund billions of dollars. His popularity soared to new highs, the man appeared to know a lot about protecting capital and market timing. But, 5 years later, he was not only under performing the general market, he was also making less money than the people that bought him the shares he sold just before the crash.

The manager is simply not good enough. There is nothing wrong to protect the capital according to market timing, whether HE can  do it well is another story. I think oblivious is similar to over sensitive.

QuoteNo market timer will ever catch a 5 or 10 bagger, there will always be something to worry about ... and no market timer will always make the right calls.

5 or 10 bagger is not important. The only important thing is whether the portfolio can go up big every year. As the portfolio is well diversified, one 10 bagger will not help a lot. And maybe this 10 bagger can be achieved only in 10 years.

QuoteNot many people considers it, but I believe globalization and the emergence of the BRIC countries as economic powerhouses is as big or even bigger than Industrial Revolution in the late XVIII century. There are 3 billion new consumers and investors showing up in the World and Americans are worried about their housing market and credit defaults. The negatives are peanuts compared to the positives and yet, everybody is focused on the negatives.

I strongly agree with this part. Long-term wise, these negatives are nothing.

QuoteI've never seen or studied a Bear Market starting with so much pessimism in the press.

haha  ;D Can not agree more, especially when the pessimism has been there for a long term.

Anyway, focusing on businesses and their price, most Main holdings are good businesses and they've been going down anyway ... consider GIGM, ASTI, IMMR, TBSI ... there's no macro or micro argument to take these shares down. They're going down because they were up. But longer term it will be just a blip ... how can anyone own a stock for a 1,000% gain if he's always getting worried about everything?

I respect everybody's opinion and attitude, of course. It was a tough day, the toughest of all ... fortunately I saved some optimism from that day when it was up roughly 5%.

I'm going to sleep now (hopefully) and will come before the next open to update the analysis on all holdings. I want to read about all those business models and how and why these stocks will go up immensely in good or bad economic times, in bull or bear markets.

Wow, I took a 8.5% hit today myself, that is a record lol! 

But that is part of playing this game.  I didnt really feel bad today at all, I am trying something new here with David doing the long term approach, and it makes sense to me even on a day like today, its all about state control.  I allow myself to enjoy those up days, but dont panic on the inevitable crazy down days like today. 

If we go into a bear market from here I may wind up regretting the decision, but I believe that human ingenuity and progress is advancing around the globe and in the US in particular, and that this will drive the markets even more over the coming years than even just "globalization".  We are on the knee of the curve, in my opinion, and we will make more progress in the next 20 years than in all of the last century, then equal that amount of progress in the next 10 after that, etc..  The rate of accelaration of our progress is itself ever increasing now, its no longer on the linear part of the exponential curve.  Biotechnology, nanotechnology, etc.  these types of advancements are going to create phenomenal wealth which will permeate our planet, and the US will still be one of the nexus points for these revolutions. 

OK, I got waaaay off on a tangent, time to go to bed lol.  tomorrow is another day for all of us, hopefully much better in monetary terms!  :D

Just downloaded the Fisher Investment take on where the market is heading, they viewed the Q3 correction as normal, predicted a possible bumpy ride in Q4 with a resumption of the bull market into end of year and 2008.  Here was a good quote:

"Thus we believe it is better to remain invested during corrections than to try to navigate around them."

The market indices made a third and fourth attempt to get out of their oversold cellars yesterday, to no avail. They wallowed along, trying to form bases upon which to launch near-term rallies. The former support level of DJIA 13,200 is now the ceiling to be exceeded before a near-term rally can be confirmed. A fifth try to start a near-term uptrend is likely to happen this morning, but the real deal is probably still a day or two away.

The only solace for the bulls is that the market indices seem to have leveled out at the 13,000 level. However, the intermediate-term trend still has some room to become more oversold.

An interesting chart and idea:

David, your chart corroborates the statement that Tokiopua quoted right above, underlining, "stay out in wrong time and you lose big". This further supports the idea of long-term investing in sound companies. Remember, the old Jew I told you about that works at Raytheon (the large defense company), who's become a millionaire from his stock investments? He told me he searches for "good" companies, buys their stock and holds for a long time. He only sells when the company no longer qualifies for his definition of "good".

OK. Lot of buying today. What makes the mood change? Good news from Walmart and Goldman Saks? Oil down? Stocks you couldn't give away yesterday are rising. One day event? Back down tommorow? Points to ponder.

Good point with a slight correction: I am pretty sure the statistics is done for major US indices, which does not include .OB stocks  ;D

Talking about statistics, statistically most .OB stocks are bad investments, so even though I wish you good luck with holding CHME.OB and UTVG.OB, you are against long odds --- although I can not argue with you based on company specific news.

For the record, I didn't buy any of those .OBs and so far so good.  >:D

Quote from: David Randolph on November 13, 2007, 12:23:42 PM
An interesting chart and idea:

I knew the market would pop, but jeeze...not like this. I took most of what people had stated on here at heart and I did get back in at the opening, so far recovering nearly all my losses yesterday. Thanks David and others...

It seems the market behaves irrationally on its own terms in spite of what I see as serious threats to the long term global economy.

Quote from: capricho on November 13, 2007, 03:52:39 PM
I knew the market would pop, but jeeze...not like this. I took most of what people had stated on here at heart and I did get back in at the opening, so far recovering nearly all my losses yesterday. Thanks David and others...

It seems the market behaves irrationally on its own terms in spite of what I see as serious threats to the long term global economy.

Nice day...probably some short covering.  I don't sense a (bottom) quite yet...so we'll probably have some more downward movement....and I would love to see a capitulation day to confirm a bottom.

Gotta love the move in GIGM before earnings.  >:D(even though I don't own it :P)

David. I still think avoiding (big) loss is more important. We always have chance to earn money in the stock market.

Quote from: David Randolph on November 13, 2007, 12:23:42 PM
An interesting chart and idea:

Quote from: kslifka on November 13, 2007, 04:06:29 PM

Quote from: capricho on November 13, 2007, 03:52:39 PM
I knew the market would pop, but jeeze...not like this. I took most of what people had stated on here at heart and I did get back in at the opening, so far recovering nearly all my losses yesterday. Thanks David and others...

It seems the market behaves irrationally on its own terms in spite of what I see as serious threats to the long term global economy.

Nice day...probably some short covering.  I don't sense a (bottom) quite yet...so we'll probably have some more downward movement....and I would love to see a capitulation day to confirm a bottom.

Gotta love the move in GIGM before earnings.  >:D(even though I don't own it :P)

Yep, we are not out of the woods yet.  Today didnt have high volume, which it should have given yesterday was a holiday.  But it was a good sign nonetheless that there can still be a lot of strong catalysts to move the market forward.

No one comment on PFSW and GIGM results?

The fifth try was the charm. The DJIA rocketed up through its 13,200 ceiling yesterday as all the indicators turned up. The near-term rally has begun. However, yesterday's run-up caused the market indices to get momentarily overbought and this should be corrected by a pause that refreshes this morning before the near-term uptrend resumes.

This enabled the intermediate-term trend to halt its downward move and reverse the path of the indicators.

The DJIA will need to stay above 13,200 and continue rising. There are about 400 points between yesterday's close and the next ceiling at 13,700. The DJIA appears to be gathering momentum to traverse this gap over the next week.

The trade-term trend is not without some say in this process. It may be catalyzed today by the inflation report due out this morning. However, yesterday's intraday rally gave the indicators little chance to do other than become overbought by day end. That is most likely to result in a corrective move by the market indices, depending on the news- induced mood this morning. The correction could be no more than a sideways move as the buoying effect of the near-term rally is expected to cause the trade-term trend to progressively find higher intraday highs and higher intraday lows over the next few days.

Quote from: AussieTrader on November 08, 2007, 10:17:15 PM

A few days ago I opened hedge positions on the SPX and a few weakened companies within the S&P500. I say hedged because I was still holding long positions (such as some 3SoF) and was not looking to sell those at this stage. Hedging just gives a bit of insurance if you see short term downwards action within an otherwise longer term upwards market or vice versa.

That said I haven't yet closed my hedge positions, I don't think we are 'out of correction' just yet. Indeed who knows it may be just the start of bearish period.

Regardless of market direction, there are many trading vehicles / strategies to enable you to profit / hedge or remain even available to you. 3SoF mostly plays the long side, that means you are guaranteed to get into periods of 'drawdown' on your equity when the market is not in your favour, that is a fact you can take to the bank.

Cheers

I am still 'hedged'

Nasdaq is trading between its SMA50 and SMA200 lines right now. It very decisevely pierced through the SMA200 in August and then swiftly shot up. It could touch SMA200 again, which on QQQQ is about 3% down and then continue on. It looks undecided at the moment.

Your hedging the positions comes quite useful during big sudden market moves, Aussie. Thanks.

I think were getting close...it appears the market mentality has lost the fear and has turned a little negatively apathetic.  But...I'm waiting for the day where the market "throws in the towel"...and all stocks and sectors puke(capitulate).  Of course this may not happen in the near future...in that case...I will patiently wait.

To correct a momentary overbought status, brought on by the sharp run-up on Tuesday, the market indices moved mainly sideways yesterday until late in the day when a brief sell-off ensued. The DJIA dropped down close to its 13,200 level from which the near-term uptrend began. It is expected to continue although this morning will provide the opportunity for the intraday decline to bottom out before the market indices will move on up.

While still preliminary to a full-blown establishment of a new intermediate-term uptrend, the signs are unmistakable.
Uptrends to downtrends flipped from negative to positive.

After a continuation this morning of yesterday's sell-off, the market indices are expected to resume the rally begun on Tuesday. This is supported by the movement of the near-term trend indicators.

There is some potentially catalytic news coming today, which could influence how far the market indices will dip today before resumption of the near-term uptrend. However, by day's end yesterday the trade-term indicators had already become oversold. Therefore, whatever dip happens this morning, it is not expected to last long or be very deep.
Provided, of course, that one of the economic measures is not such a surprise that fear of the worst turns into a selling frenzy. The late day sell-off yesterday appears to have been mainly trade-term pessimism, so the dissipation of that pessimism this morning is expected to provide an opportunity for long stock bargain hunters to establish positions to ride the wave of the evolving near-term uptrend.

David, what's your take on the charts of SPY and the QQQQ's?  The reason I'm asking is the last time we had a major down trend you were correct on your analysis in calling the bottom.  My take is that we are at a bottom and way oversold.  However with the credit situation not going away anytime soon, these too indexes can take the good fundamental stocks down with them.  Just looking for some peace of mind from the master! ;D

QuoteDavid, what's your take on the charts of SPY and the QQQQ's?  The reason I'm asking is the last time we had a major down trend you were correct on your analysis in calling the bottom.

I'm no master at all, far from it, but I believe the SPY hit the bottom today and I give you three reasons for that:

1) The SPY is in a lateral trend and hit support today at $143.7, as you can see on the chart below;
2) Goldman Sachs issued a SELL recommendation for Citigroup today. The big boys wouldn't do this if they wanted to sell, I think they're buying and will push the market up in the two final hours of trading;
3) There's going to be a report out on housing at 1 pm. Prior to this, this report declined for eight straight months and of course forecasts for the November number are for another decline. I believe that if we get just "not so negative" news it will be enough to spark a rally in the stock market.

Unfortunately for the bulls here I can be wrong.

I have lost more money in these 2 weeks of November than at any other 2 week period ever lol.  This business of holding through corrections can get pretty nerve wracking, but Im hanging in there.

Quote from: tokyopua on November 19, 2007, 11:59:37 PM
I have lost more money in these 2 weeks of November than at any other 2 week period ever lol.  This business of holding through corrections can get pretty nerve wracking, but Im hanging in there.

I am 100% with you tokyopua !  :o :o

Old Fool quotation:
Nasty, nasty.  The bears seem to have a headlock on this market.  Obviously, as evidenced by the volume, the chief bull has no interest in coming out to play.  The volume today was down significantly at 2.1 billion but the ratio was huge - 5.3 to 1 in favor of the bears.  All of my bottoming charts are screaming up so look for a big move in the next few days.  Shorts should keep tight stops and not bet against the tape.

The daily chart is firmly in the bear camp.  Nuff said.

The hourly charts are also suffering.  Note that 2580-2575 is still the death strike.

The ratio chart moved up today in sympathy for the huge oversold condition.  However, the move was not enough to even inspire a yawn.  Bears still in control.

The weekly chart is also in pain.  I have not updated it so that you can see what's happening.  Another green week is needed.

The Wilshire chart looks like total crap.  Nuff said.

The P&F chart is self explanatory.  Up against the wall!

I had only one trade today - went to 25% long QID on the opening failure.  I should have added more but was just too busy to pay a lot of attention.  The stop on the QID is at 2620.  Will flip to QLD at 2625 and start on puts at 2575.  This is a tough spot since my bottoming charts say "up soon" and follow the ball says more down.  This situation demands an option spread but I just don't have the time to nurse that.  So I'll set some alarms and conditional trades and let the autopilot take care of it.  From Thanksgiving to the end of the year is our "very busy" season so I will be on autopilot a lot.

Charts link below

http://stockcharts.com/def/servlet/Favorites.CServlet?obj=ID2071209

DAVID

Seriously: our portfolios are going down at light speed, which is your opinion on this?
Sell all the positions and wait for better times or keep waiting?

My portfolio lost 40% in two weeks, due also to a part of margin trading now I am closing. But the rest?
What the community here thinks?

thanks in advance for your replies,

Tera

Is this capitulation??  >:D

We'll see what happens after the fed minutes.

Fed minutes probably sealed the deal for a red close today

Just when I think the market has bottomed out it gets worse and worse and worse. This has indeed been the ugliest two weeks that my portfolio has endured. Despite David's optimism I can't imagine how the Main will come close to reaching the target 30% by years end.

I hope this is capitulation, if you go to the cnbc website, all 10 headlines are negative, not a single positive one.

if it is, it's also a great time to buy (if I had money...)

I don't know if that was capitulation or not.  (Sure felt like it...with all stocks...even good ones getting taken to the woodshed).

Quote from: Kublakhan on November 20, 2007, 02:15:31 PM
Fed minutes probably sealed the deal for a red close today

I admit that I know nothing.   :)

Quote from: capricho on November 20, 2007, 02:40:13 PM
I can't imagine how the Main will come close to reaching the target 30% by years end.

Well, I've been trading credit spreads since January, and my account is up 134% since then.  Come join us in the BetterTrades.com chat room. 

Quote from: Leaira on November 20, 2007, 04:21:06 PM
Well, I've been trading credit spreads since January, and my account is up 134% since then.  Come join us in the BetterTrades.com chat room. 

Yes credit spreads are an option approach which can be a great vehicle. Well done for your success, long may it continue. But rather than just advertise another website, I'd love to see you share some of your strategies in a more real time basis for people to see. In fact I see you have said you have a $200/$195 Bull put spread on FSLR, big volatility there. It would be great to follwo the outcome of that position. Good luck with it.

Leiara, I'm not smart enough to follow you on how the credit spreads work nor do I trust my ability to master something so arcane and complicated. I do agree it would be a good idea for you to start a separate thread on this board so we can learn.

The other two positions I have are:

FWLT 145/150 bear call spread
GD 85/80 bull put spread

I will get into more positions next week.  I'll let you know what I get into!   :)


Leaira

I am not going to be as polite as AussieTrader. I think it is very unfair to David to advertise another website here. Also to imply option trading yields outstanding return without a word of HUGE risk is very misleading and irresponsible.

Quote from: AussieTrader on November 20, 2007, 05:29:20 PM

Quote from: Leaira on November 20, 2007, 04:21:06 PM
Well, I've been trading credit spreads since January, and my account is up 134% since then.  Come join us in the BetterTrades.com chat room. 

Yes credit spreads are an option approach which can be a great vehicle. Well done for your success, long may it continue. But rather than just advertise another website, I'd love to see you share some of your strategies in a more real time basis for people to see. In fact I see you have said you have a $200/$195 Bull put spread on FSLR, big volatility there. It would be great to follwo the outcome of that position. Good luck with it.

I agree with realcoolhead regarding both website mkting and options. Since we are looking for fairness for overselves all the time in the market it would be fair to David and 3SoF team that such marketing should not be done. Hope Leaira understands that. And though the main is hitting hard, David is still the best stockpicker I had known, may be Warren Buffet is the other.

Quote from: stocky on November 20, 2007, 09:34:15 PM
I agree with realcoolhead regarding both website mkting and options. Since we are looking for fairness for overselves all the time in the market it would be fair to David and 3SoF team that such marketing should not be done. Hope Leaira understands that. And though the main is hitting hard, David is still the best stockpicker I had known, may be Warren Buffet is the other.

I would not feel bad to see the moderators edit out the mention of that other website, especially given the circumstances of the post.  It is certianly within their rights to do so.

Jeez, give her a break. Although I can't speak for David I'm sure he's not afraid of a mention of another website by a star member who is just trying to pass along information. I didn't see any harm in it just as I don't see any harm in someone recommending Yahoo Finance, Barchart, Clearstation, StockTA, Google Finance or whatever to check up on stocks.

I remember David awarding Leaira some kind of award a while ago for her ability to pick stocks. Considering she's probably half the age of most members I give her kudos for her precociousness and her willingness to share her knowledge to dimwits like me.

I wanted to butt-in and say a few words.  Before I begin, I want you to know I've had a few beers tonight (trying to ease the pain ;D)  The biggest problem we have here on 3 stocksonfire is that I believe most here are still short-term traders, I know I am myself, I have been trying to become a long-term investor and I admit it is hard.  David is right about everything he says regarding the fact that the long-term is the best way.  The problem is everyone here watches the markets everyday and therefore we react accordingly.  A long-term investor does not watch the market on a daily basis and most rely on their monthly statements to see the changes to their accounts.  An example is that my grandparents do better than me because they do nothing, at the end of the year their investments are higher than mine and yet I trade for a living (been doing it for 3 years).  What I'm trying to say is that people may get upset with the main's portfolio drop, but in reality these are investments for at least 3 years.  I bet if we all had the patience to wait until 3 years we would be up huge with David's picks.  So what do we do?  I'll be the first to admit, I don't know what to do, I'm trying to get my account big enough so that I can have a long term portfolio like David's and a trading account.  Right now I just trade.  I just wonder how many others here have the same problem.  I know that we can all do better if David went back to the short-term trading style like he had when he started this site and have a long -term account.  I fully understand why he doesn't since it is so stressful.  Anyways what I'm trying to say is if this is truly a long-term site then maybe we shouldn't really be watching it tick by tick.  My X-mas wish is for us to have this long-term site and a short-term trader portfolio utilizing David's talent.  I'll stop now....Good Night folks,  and David, keep up the good work, you are still the best I have ever seen or will ever see.

I suppose if these are indeed long term picks then there would be no reason for daily updates nor any reason to dump etlt, icoc, and nga, nor any reason for David to monitor and to contribute to the board on a daily basis. We would all simply tuck away the recommended picks in a time capsule and come back in three years and pop the champagne.

I don't think it's that simple nor do I truly think these are necessarily long positions to be bought and forgotten about. All of these picks have a relatively high beta and with that risk comes an inherent desire-or prudence-to track them like the wild children they are.

I'm of two minds about the prospects of the portfolio gaining strength now. On the one hand I can see the logic in David's wait and see approach, but on the other hand I have a worried sense that we're relying on nothing more than blind faith to make things turn around. Just last week some members were talking of a bottoming and a buying opportunity and yet things have just gotten much worse for the portfolio since.

 
 


For Now, Go Cautiously,
And Buy Nasdaq at 2575
By JAMES B. STEWART
November 21, 2007; Page D3

After Monday's triple-digit plunge below 13000, the Dow Jones Industrial Average was nearing its August lows, with financial stocks and home builders again leading the way down. But here the similarity between then and now ends.

In August, there was a credit panic followed by an interest-rate cut and inflation fears that drove oil, gold and other commodities to record levels. Now, just three months later, inflation has given way to a new fear: recession. A brief rally yesterday morning led the average above 13000, but Freddie Mac's poor earnings and concerns about the depth of the credit crunch sent it down again by the afternoon. The average closed just above 13000.

In the intervening months, I've read all sorts of reassuring reports on the health of the financial system, the prospects for technology spending and the vitality of the American consumer. They all had just one caveat: All bets are off if there is a recession.

Recession fears appear to have been the driving force in the market's recent turmoil. Among the hardest hit have been economy-sensitive sectors that were supposed to benefit from lower interest rates, a weak dollar and stronger inflation -- the forces driving the market back in August.

Over the past week (through Monday), some of the weakest sectors have been construction and farm machinery (-2.32%), gold (-2.59%), chemicals (-3.91%), paper and packaging (-5.96%), airlines (-6.2%), metals and mining (-6.55%), autos (-9.95%) and trucking (-11.66%). Until this week, many were among the year's best-performing areas, and had rebounded strongly after August's slump.

Among these tidings of bad cheer, the consumer discretionary sector was also hard hit as the holiday shopping season got under way. Apparel was down 4.03%, general merchandise down 5.01% and department stores dropped 6.1%. Everyone seems to be ratcheting down their expectations for the season, with Thanksgiving discounts already proliferating.

So will there or won't there be a recession?

You already have the answer to that: No one knows. Once we do, the opportunities to make money from the present uncertainty will have vanished.

For the record, no one -- at least no one in a position of responsibility and authority -- is using the "R" word. Federal Reserve Chairman Ben Bernanke has been warning of an economic slowdown in the U.S., but measures of global growth remain strong. At the same time, the latest inflation readings have remained tame, even with a weak dollar. Little more than a month ago, investors were giddy with hopes for a soft landing, driving market averages to new highs. What, really, has changed?

My own sense is that investors' recent mood swings have been overdone at the extremes of both optimism and pessimism, and that caution remains the appropriate stance. I'm not changing my own approach, which remains focused on stocks of companies that benefit from global growth, a weak dollar and strong commodities prices. I'm not rushing into defensive areas. I'm still avoiding the financial sector, which continues to spew forth unwelcome surprises.

Meanwhile, for those of you recalibrating your buy and sell thresholds in line with the Common Sense system, a 10% decline from the Nasdaq high of 2860 reached on Halloween is 2575, which is my new buying target. That's when the holiday shopping season will really begin (at least for stocks), so it's not too soon to be preparing your list.

Both mbaugh and capricho applauds. I do agree that most of us are short term trader and I would also count myself into it. And by short term I certainly dont mean day trader but someone with the horizon of at the most a month to a year. It would be a good idea to have another portfolio, certainly not like the fire, where you have 33.3% in one stock. May be 6.66% but for swing trading or relatively shorter horizon then the current 3 year. Putting up a poll in this regard wont be a bad idea.

Quote from: capricho on November 20, 2007, 11:24:40 PM
Jeez, give her a break. Although I can't speak for David I'm sure he's not afraid of a mention of another website by a star member who is just trying to pass along information. I didn't see any harm in it just as I don't see any harm in someone recommending Yahoo Finance, Barchart, Clearstation, StockTA, Google Finance or whatever to check up on stocks.

I remember David awarding Leaira some kind of award a while ago for her ability to pick stocks. Considering she's probably half the age of most members I give her kudos for her precociousness and her willingness to share her knowledge to dimwits like me.

The problem is that in this case, prior to her showing up and claiming a 134% return year to date a few days ago in the midst of 3SOF suffering was that her last posts were on August 21st, also conveniently talking about what 3SOF should be doing in options at a time when it was down fairly hard.  So where was the willingness to share for 3 months when 3SOF was doing just fine? 

I do recall what you are talking about early on and I found her posts interesting in the past, but getting them recently in this way recently timed when the Main Portfolio is down together with mentions of amazing gains and a mention of another website comes off as spammy, otherwise why not share more consistently and at less "kick em while they are down" times?  David has his record public for all of us to see on a daily basis, and then people come in and say oh, BTW, up 134% YTD, come see us in this site and trust that.  Maybe they are telling the truth and maybe they arent, but its still not fair.

I suppose it may be inadvertent and not intentional and if she stays around to teach in a new thread and consistently contributes and we can guage how this credit spread trading works over time, then we can all feel it was indeed inadvertent.   In the meantime, I am still saying that 3SOF moderators would be entirely within their rights both as moderators and to protect their board and even their members from possible spam to remove the mention of the other website given this context.

I come from the belief that removing a comment because it mentions another website, despite its context, shows that the moderator must feel somehow threatened by it. One of the qualities David possesses is a very high degree of confidence as well as a rather devoted but small base of followers who will likely not abandon 3SOF for that other site.

I know what you're saying about the timing of her posts and I can see how it can be construed as being somewhat immature and self serving but it didn't really bother me. I was actually more impressed by her ability to make sense of something that is all greek to me as I happen to lack the numerical intelligence to understand any of it.

Capricho, have you ever owned your own business? I'm guessing not. How would you feel if someone walked into your store and started telling customers about another place down the way that is better? Rubbish.

Quote from: capricho on November 21, 2007, 11:18:28 AM
I come from the belief that removing a comment because it mentions another website, despite its context, shows that the moderator must feel somehow threatened by it. One of the qualities David possesses is a very high degree of confidence as well as a rather devoted but small base of followers who will likely not abandon 3SOF for that other site.

I know what you're saying about the timing of her posts and I can see how it can be construed as being somewhat immature and self serving but it didn't really bother me. I was actually more impressed by her ability to make sense of something that is all greek to me as I happen to lack the numerical intelligence to understand any of it.

I am sure if you put your mind to it for long enough you can understand options better.  I agree that probably the moderators here wont remove the reference, but if they did I wouldnt question their confidence.  As realcoolhead mentioned, there is HUGE risk in options, and so if they remove the site they are in a way protecting members here who might be looking for that quick way to recap losses, only to find worse losses in options.  I mean, for the most part here we cannot lose more than we have invested following David (unless we use margin but he doesnt reccommend that anyway), but with certain options strategies you can easily lose more than you actually have, and fast too.

Further, there is the member experience.  When too many mentions of other websites are allowed, it can lead to an avalanche effect, i.e. where one spammer gets away with spamming, then others start.  We dont see this too much here in the members only area because it would cost too much to spam in general, but still, it can happen.  A spammer could spend $50 to get in for a month, continually promote other sites, and get their money's worth that way, plus a few good stock picks in the meantime. 

I guess we will all have differing viewpoints on what should be done, but at the end of the day, 3SOF is well within its rights to edit that post if they want to.  I own a website with a high traffic forum and I would have edited a post like that given the context and risk, but that is just me lol.

ygtradr, yes I am a business owner and in fact I have often told prospective clients to check out the competition if they want and in fact most do. I have no problem in that because I provide a reputable, quality service that is considered superior to that provided by most of my competitors.

Now I could be wrong but I really don't think David will be threatened by the mentioning of another website. Did Leaira's post seem spammy? Maybe. Was it a big deal? No.

Well I also own my own business and I would never tolerate someone walking into my store and advertising the compeition. I doubt most other business owners would either.

The last time I checked 3SOF is not a store and it does not sell products. It's a message board in which members share ideas and information. And I don't recall Leaira saying that the other website was 'better' than 3SOF.

3SOF is a business, and it does sell a product called a subscription service.  As a web business owner, I see no difference between a person physically walking into your store and talking about the competition, and a person spamming another site in your forum.  In fact, it is worse because in a forum there is a permanent record, its more like your competition coming into your store and putting up a poster for their service on your wall.  Would you allow THAT?  In a physical store, the person might come in, talk up their store in yours, but only one or two customers might hear about it and that is the end of it.

And check the reply to quote from that post, the clear implication was 3SOF was not going to hit target for the year, but if you go to this other website, that is where she got 134% money making skills from.  Clearly stating its better by inference.

OK, that being the case, then hypothetically speaking here, what if your business was bungee jumping, and while you make sure your customers use double thick bungee cords for safety, a guy walks in your store talking about how the place down the road is so much more exciting and such a rush (but fails to mention they use rubber bands instead of bungee cord and that while they work to give you a hell of a rush, there is a much greater risk is you will go SPLAT when using their service)?  I am exagerrating but the issue here was not just about talking up the competition, it was done in the context of something RISKY, so there is also the aspect of protecting and/or educating the members here.  Realcoolhead pointed that out fortunately, but not everyone realizes the serious risk in options trading.

So as not to keep entirely off topic, another bad manner for forum posting, I should mention its nice to see a bit of a reversal in the last 2 hours off the bottoms, would love to see another green close going into Thanksgiving, its been brutal recently!

Quote from: capricho on November 21, 2007, 12:45:39 PM
The last time I checked 3SOF is not a store and it does not sell products. It's a message board in which members share ideas and information. And I don't recall Leaira saying that the other website was 'better' than 3SOF.

Doesn't sell a product? I've got news for you bud, information is a product. And yes, it is a store. One without walls which is exactly why spamming is such a problem on the internet. People do things on the web they would never do in real life.

My name isn't 'bud' and I find the tone of your posts to be impolite. I hope you're not like that in real life.

My tone wasn't impolite. I'm sorry you got offended but I didn't say anything for you to get worked up over. Relax.

alright guys. slooooow down. it's david's site so i figured he'd do as he pleases. whatever you guys decide on what he should do is really irrelevant. for me, i checked out the other person's site...it's cool...but it doesn't entice me to pay for anything there. i'm satisfied with 3sof. if we get some more 'spammy' type messages playing around here...i'm sure the moderators will do something. for right now...i personally would just let it be. if it's a great site, i'm sure david would endorse it as a supplement. for right now though...i don't think it matters. it's really up to him...

so...another 200pt drop! hmmm...i feel this should be the bottom. I felt that this is the support from August and lines up with the support/resistance since beginning of the year. If i'm right, this could be the start of the year-end rally we've all been waiting for...

We may get a rally only when most ppl don't think so and that's when they are either short or sitting on tons of cash.

Thanks 3SoF and all members. Enjoy and forget about mkt for a while. To do my part I will buy Jakks handheld game today.

Quote from: kpunarc on November 21, 2007, 05:06:59 PM
so...another 200pt drop! hmmm...i feel this should be the bottom. I felt that this is the support from August and lines up with the support/resistance since beginning of the year. If i'm right, this could be the start of the year-end rally we've all been waiting for...

The market sure looks oversold at this point.  Im not watching any TV, but the dollar drop has to be accelerating the yen carry trade, etc., is this being talked about these days on TV?  Im curious what Cramer is saying on his show.  Goldman called for dow 14000 by year end often this year, are they still bullish?  I know about the mortgage issues and 100 dollar oil, high oil prices caused corrections before too.  The mortgage writedowns are supposed to reach $300 Billion, but even if that money all came straight out of the stock market it shouldnt warrant a 10% drop we have seen in the last 3 weeks. 

Its year 3 of a presidential election cycle, I think the market has been up almost every such year to date, so hopefully this is a bottom and at least we go sideways for awhile, that would be a sure welcome respite to daily 3% drawdowns. 

If I am looking for any positives in today's action its that it happened on low volume, which sets up some possibilities for more meaningful follow throughs and subsequent follow throughs that signal the end of corrections in the IBD model.

The market looked oversold last week too and I was expecting a strong rally that never materialized. Results from Black Friday will certainly weigh in early next week, good or bad, so the roller coaster ride isn't likely to end.


Some folks on here have asked David to avoid the .OB and China stocks and I agree. I didn't buy either CHME or UTVG and instead bought some GOOG and a Euro ETF last week to add to the mix.

Well if you follow Dow Theory we have officially entered a bear market after the close today below the August low close. Personally, I'm waiting to see what happens come monday. If we get a close below todays then I'll have to consider that we are indeed in a bear market. However, I don't buy it yet.

The way I see it we definitely get another cut before end of year. How much is the question. We have functional employment, GDP has been relatively strong and the global economy is still humming right along. Fed cuts will only pressure the dollar further so will people continue to buy bonds at these levels with a declining dollar? I doubt it and that is bullish for the markets. Just my opnion.

Happy thanksgiving to those celebrating.

Quote from: ygtrdr on November 21, 2007, 08:07:32 PM
Well if you follow Dow Theory we have officially entered a bear market after the close today below the August low close. Personally, I'm waiting to see what happens come monday. If we get a close below todays then I'll have to consider that we are indeed in a bear market. However, I don't buy it yet.

The way I see it we definitely get another cut before end of year. How much is the question. We have functional employment, GDP has been relatively strong and the global economy is still humming right along. Fed cuts will only pressure the dollar further so will people continue to buy bonds at these levels with a declining dollar? I doubt it and that is bullish for the markets. Just my opnion.

Happy thanksgiving to those celebrating.

Declining dollar should also be making the US market cheaper for the rest of the world to buy, which should be good for the market.

Can you elaborate a bit on how Dow theory works to call a bear market, hadnt heard of that before.

from Dow Theory

QuoteMarket comment
The Dow Industrials closed below the August closing low of 12,845.78, confirming an earlier breakdown in the Dow Transports and putting the Dow Theory in the bearish camp for the first time in more than four years. While we do not believe in timing the market in an all-or-nothing fashion, raising more cash seems prudent. Our recommended cash position is being increased to a range of 20% to 25%.
While it may be impractical to make small sells in all your holdings, you should do what is necessary to raise cash to 20% to 25% of your equity portfolio while maintaining a diversified and roughly equal-weighted portfolio.

Quote from: tokyopua on November 21, 2007, 10:08:34 PM

Quote from: ygtrdr on November 21, 2007, 08:07:32 PM
Well if you follow Dow Theory we have officially entered a bear market after the close today below the August low close. Personally, I'm waiting to see what happens come monday. If we get a close below todays then I'll have to consider that we are indeed in a bear market. However, I don't buy it yet.

The way I see it we definitely get another cut before end of year. How much is the question. We have functional employment, GDP has been relatively strong and the global economy is still humming right along. Fed cuts will only pressure the dollar further so will people continue to buy bonds at these levels with a declining dollar? I doubt it and that is bullish for the markets. Just my opnion.

Happy thanksgiving to those celebrating.

Declining dollar should also be making the US market cheaper for the rest of the world to buy, which should be good for the market.

Can you elaborate a bit on how Dow theory works to call a bear market, hadnt heard of that before.

Hi Tokyopua. Dow Theory in a nutshell says that if the transports and the industrials make new highs and do not penetrate previous important lows then we are in an uptrend. Conversely if both the transports and industrials penetrate previous important lows then we are in a bear market. The transports broke the previous lows earlier in the week and the industrials violated the support levels today.

However I reamain skeptical for a couple reasons. This is a holiday week so I want to see how the markets act next week when we have a full trading week. The S&P has not followed the Dow yet so we have a divergence of the two indexes and the Q's still haven't confirmed a bear either. I also am bullish on the Fed. Helicopter Ben won't allow deflation.

Thanks gents, applauds to each of you for educating me.  And lets hope that the S&P and Nasdaq are the more imporant indices in this case.  Will also be interesting to see what David thinks... perhaps we can also get some good ole technical analysis from Rams too!

I think the S&P's are a much better indicator of the overall health of the markets than the Dow. They haven't even tested the August lows yet. A lot of people are getting bearish on this Dow Theory mumbo jumbo. This is a good thing for the bulls.

Quote from: ygtrdr on November 22, 2007, 12:06:50 AM
I think the S&P's are a much better indicator of the overall health of the markets than the Dow. They haven't even tested the August lows yet. A lot of people are getting bearish on this Dow Theory mumbo jumbo. This is a good thing for the bulls.

Warren Buffet also made big bets on the railroads starting last year, so while the transports may be down a bit now, they can always come back if the Oracle is right as usual.  He was right on the dollar as it turns out and we are seeing now lol, just not in the timeframe people had been expecting him to be right about it....

Quote from: tokyopua on November 21, 2007, 11:54:44 PM
Thanks gents, applauds to each of you for educating me.  And lets hope that the S&P and Nasdaq are the more imporant indices in this case.  Will also be interesting to see what David thinks... perhaps we can also get some good ole technical analysis from Rams too!

Hi toky and everybody,

This last weeks have been demoralizing for any mid/long term strategy, the SPX just turned negative for the year and our Main Portfolio is just up +5% but ugly at this time…

Anyway, and for technical analysis purposes only, I don’t think we have a confirmed bear market like some people are saying. Ok, SPX below the EMA-200, both EMA200 and 50 with negative tendency at the moment, huge sell off, weak dolar, weak macro developments, lots of pessimism, etc…

I rather thing this is a HUGE consolidation movement, something no so unusual but definitively scary… Sometimes the market just has to do what is necessary to hurt the majority of the players, wash positions from both sides of the trenches and keep up with the trend.
Last month and before, the market washed away most short positions when hitting new all time highs, and also many people that sold August sell-off jumped again for the long side… now this horrible sell off, and the shorts are back in town and the October buyers are selling their positions…

But still, the main reference I’m looking for the SPX is the long term ascending support; the same that had stopped August plunge. This reference is approximately at 1406 right now, this exact location is not important, but instead a range nearby. Even in a worst case scenario, we only have a technical bear market confirmed with a close below August lows… and even then it may be a Baskerville signal…

Adding up this scenarios with the general ultra-pessimism, we generally have a good entry point.

In other words, I’m scared like anybody else on the long side… but still very confident this is just (another) rough market moment.

In attach this 2 charts for the SPX (short term + long term)

Best regards to all !

Hi everybody
This is an article found in the "TELEGRAPH"

The global credit crisis has hit Asia with a vengeance for the first time, triggering a massive flight to safety as investors across the region pull out of risky assets.

Yields on three-month deposits in China and Korea have plummeted to near 1pc in a spectacular fall over recent days, caused by panic withdrawls from money market funds and credit derivatives.

"This is a severe warning sign," said Hans Redeker, currency chief at BNP Paribas. "Asia ignored the credit crunch in August but now we're seeing the poison beginning to paralyse the whole global economy," he said.

Korean and Chinese three-month yields have fallen from 4pc to 1pc in a matter of days in a eerie replay of events in late August when flight from banks and the US commercial paper markets caused yields on three-month Treasuries to falls at the fastest rate ever recorded. Asian investors appear to be opting for deposit accounts with government guarantees.

It is unclear what prompted this latest "heart attack" in the credit system, though rumours abound that Asian banks have yet to own up to their share of the expected $400bn to $500bn losses from the US mortgage debacle.

Stock markets were battered across the region. The Hang Seng index in Hong Kong fell 4.15pc, while Tokyo's Nikkei slumped to the lowest level in a year and a half, dragged down by the shares of the 'Seven Samurai' exporters.

Asian jitters set off fresh turmoil on Europe's credit markets. The iTraxx index measuring default insurance on bank and insurance bonds hit an all-time high of 63.5.

"The whole financial market is in turmoil with Bund-Swap-Spreads going through the roof," said Andrew Guy, director of ADG Capital Management.

Marcus Schuler, director of credit marketing at Deutsche Bank, said spreads on low-grade European bonds had been jumping ten basis points a day for the last week. "There's been risk aversion across the board," he said.

In a rare move, the European Covered Bond Council said it was suspending trading of mortgage-linked bonds in the inter-bank-market owing to the "undue over-acceleration in the widening of spreads".

Abbey National today cancelled its sale of covered bonds, the third company to withdraw an issue this week.

Charles Dumas, chief strategist for Lombard Street Research, said credit woes had led to an alarming spike in the 'Ted spread' between commercial Libor and US Treasury bills, now near 150 basis points. "Libor is at a premium to T-bills not matched the great crash in 1987," he said.

Mr Redcker said the flight from risk has led to a sudden unwinding of the $1,200bn yen "carry trade" as hedge funds and Japanese investors close risky positions. The yen has snapped back violently from yen118 to yen108 against the dollar since early October, with similar moves against other Anglo-Saxon currencies.

"We're seeing a liquidation of the carry trade. For years it created liquidity for global equities in an upward spiral, but this has now turned into a downward spiral. Base metal prices are falling, which that tells us that Asia may not be as strong as we thought," he said.

Copper prices fell 6.4 percent in Shanghai today. It follows data showing China's copper imports fell 4.4pc in October, a sign that central bank moves to choke off credit is starting to slow runaway investment in heavy industry and construction.

Jerry Lou, China analyst for Morgan Stanley, said the Shanghai bourse -- already down 15pc -- was now the word's "biggest valuation bubble". "Lessons from Japan in the late 1980s show that once the stock market starts to head down, earnings and multiple contraction can together crush the market like a market rolling downhill," he said.

http://www.telegraph.co.uk/money/main.jhtml;jsessionid=AH3N3IOTOUD11QFIQMGSFF4AVCBQWIV0?xml=/money/2007/11/21/bcnasia121.xml

Oh, I see some sharp debates have been going on here! I agree with the other posters about having the neccessity to the short term stability of the 3SOF portfolio. I like the long-term approach, but unfortunately, I cannot own all of the stocks offered here due to my portfolio limitations. Hence, if I miss a 10-bagger, all my other investments may become meaningless. Therefore, having a 2nd portfolio with 5-10 positions filled targeting short-term gain could uplift the moral here. The dodgy Chinese stocks could be traded there. The riskier the business, the less likelihood must be for it to play into the Main. David, would you address this please? Thanks much!

  In regards to the comment made by Leaira... It is not tactful. I understand she's young, but nevertheless. It's the same as saying to a femishing person that you've just had a nice dinner. Also, I don't see the reason to believe her that she made 134% this year. Or maybe I can, but perhaps she lost 70% last year? Who knows? She does not come here often, as Tokyo noticed. And, there is a difference between a business owner, like capricho, suggesting to check the competition himself, or a customer doing it for him. Will you consider selling cheese in someone else's cheese shop?

  In any case, losing money is not good, but losinng yourself is even worse. Let's help David collectively to adjust the pace of this website to provide more dynamics and introduce some short-term strategies to balance the investment.

  OK, I am off to eat the rabbit (I don't like turkey). Au revoir! ::)

The DJIA continues to look like a ball bouncing down a hill,
It continues to look for a place to stop. The 13,000 support level has been penetrated twice now, and there is more bouncing downward due.
The next level of support, and perhaps the bottom, will be at 12,750, probably sometime next week, before a reversing near-term rally can get going.

The intermediate-term downtrend is in charge. It eroded further yesterday by all its measures.
Dove further into its oversold zone, but can still go down more.

The near-term trend indicators have tried several times in the last two weeks to kick up the market indices and each time have failed to sustain any significant rally.
The action of both trend indicators signals that the market indices' downhill rolling ball has not found a place to rest and until it does no meaningful rally can ensue. However, with all of the indicators in or near their oversold territories, it is reasonable to expect a bottom in the DJIA 12,750 area.

The trade-term trends are adding enough bounce every day that the prudent buyer of stocks will wait for the bottom of this intermediate-term trend to be clearly established before jumping into long positions with abandon. Seemingly there currently remains much economic uncertainty about a credit crisis-triggered future recession and other factors for equity value discounting from fear to be replaced by enthusiastic outlooks. It has now been estimated that the sub-prime loan debacle created $400 billion in bad loans, and financial institutions have yet to own up publicly to a quarter of that amount. That alone casts a continuing pall over equity valuations, and until it is lifted the stock market is going to have a difficult time rallying.

Quote from: setravis on November 22, 2007, 12:48:53 PM
The DJIA continues to look like a ball bouncing down a hill,
It continues to look for a place to stop. The 13,000 support level has been penetrated twice now, and there is more bouncing downward due.
The next level of support, and perhaps the bottom, will be at 12,750, probably sometime next week, before a reversing near-term rally can get going.

The intermediate-term downtrend is in charge. It eroded further yesterday by all its measures.
Dove further into its oversold zone, but can still go down more.

The near-term trend indicators have tried several times in the last two weeks to kick up the market indices and each time have failed to sustain any significant rally.
The action of both trend indicators signals that the market indices' downhill rolling ball has not found a place to rest and until it does no meaningful rally can ensue. However, with all of the indicators in or near their oversold territories, it is reasonable to expect a bottom in the DJIA 12,750 area.

The trade-term trends are adding enough bounce every day that the prudent buyer of stocks will wait for the bottom of this intermediate-term trend to be clearly established before jumping into long positions with abandon. Seemingly there currently remains much economic uncertainty about a credit crisis-triggered future recession and other factors for equity value discounting from fear to be replaced by enthusiastic outlooks. It has now been estimated that the sub-prime loan debacle created $400 billion in bad loans, and financial institutions have yet to own up publicly to a quarter of that amount. That alone casts a continuing pall over equity valuations, and until it is lifted the stock market is going to have a difficult time rallying.

I think we have all noted that the DOW chart has broken down but that the S&P is more important and hasnt yet broken down.  However, once concern I have is that the DOW was benefiting from globalization, and that is our main argument as to why things should continue to be bullish longer term. 

So am I wrong about the DOW being so tied to globalization and thus less of a proxy for it, or can we draw another trend line in a different way that shows the DOW to still be in an uptrend, etc.?

One concern I have is the fact that the main credit problems we are facing are not limited to just the US market but all markets worldwide which makes this a global problem that has not happened before.  It seems everyone in the world has some form of money in the sub-prime mess and is causing a major credit strain world-wide.  I realize past expereince and history shows that the markets tend to recover, but all the recoveries vary in length of time.  We do not know how long this market will take to recover since we really don't know the extent of the damage since many experts believe the mortgage problems will only get worse since the adjustable rates will begin to take effect in the next several of months causing the foreclosure rates to sky rocket even higher.  This market could stall for a long-time.  Here's a link from Stockcharts that I have followed for awhile and it tends to be right on the money.  This link is updated everyday.  http://stockcharts.com/def/servlet/Favorites.CServlet?obj=ID1886603

All I'm saying is that we need to be a little more cautious and maybe hold a ultrashort index to offset the drawdowns on the stocks we own.  Believe me, I want to be wrong and see the market rally but when I see stocks like TBSI and EXM fall like they did it makes me wonder why the big funds don't buy since these stocks are ultra cheap now.  Based on the link above, the bearish view of the S&P chart shows a very steep decline if things don't improve soon.

Right now the markets need some new developments such as the Black Friday sales #, and so far I'm hearing good reports such as Shop Tracs 8% increase over last years #'s.  We'll see on Monday!  Good Night!

All the bearish drum beating is to force Fed into lowering rates. When the fed lower rates inflation creeps in the system. When that happens it jacks up the prices and profits. Over time the profts increases Year over Year [note even if their is no growth, inflation means you made more paper money then when their was less inflation last year] and we see the corresponding increase in prices. In such case do you want to stay out or short, what would be your portfolio look like.

Now this is very simplistic explanation but something to think about. Personally, I would like the Fed to stop messing with interest rate and thus stop pushing Dollar lower.

enjoy reading:
The Financial Tsunami: Sub-Prime Mortgage Debt is but the Tip of the Iceberg

By F. William Engdahl

Global Research, November 23, 2007

Part 1: Deutsche Bank's painful lesson                 

Even experienced banker friends tell me that they think the worst of the US banking troubles are over and that things are slowly getting back to normal. What is lacking in their rosy optimism is the realization of the scale of the ongoing deterioration in credit markets globally, centered in the American asset-backed securities market, and especially in the market for CDO's—Collateralized Debt Obligations and CMO's—Collateralized Mortgage Obligations. By now every serious reader has heard the term "It's a crisis in Sub-Prime US home mortgage debt." What almost no one I know understands is that the Sub-Prime problem is but the tip of a colossal iceberg that is in a slow meltdown. I offer one recent example to illustrate my point that the "Financial Tsunami" is only beginning.

Deutsche Bank got a hard shock a few days ago when a judge in the state of Ohio in the USA made a ruling that the bank had no legal right to foreclose on 14 homes whose owners had failed to keep current in their monthly mortgage payments. Now this might sound like small beer for Deutsche Bank, one of the world's largest banks with over €1.1 trillion (Billionen) in assets worldwide. As Hilmar Kopper used to say, "peanuts." It's not at all peanuts, however, for the Anglo-Saxon banking world and its European allies like Deutsche Bank, BNP Paribas, Barclays Bank, HSBC or others. Why?

A US Federal Judge, C.A. Boyko in Federal District Court in Cleveland Ohio ruled to dismiss a claim by Deutsche Bank National Trust Company. DB's US subsidiary was seeking to take possession of 14 homes from Cleveland residents living in them, in order to claim the assets.

Here comes the hair in the soup. The Judge asked DB to show documents proving legal title to the 14 homes. DB could not. All DB attorneys could show was a document showing only an "intent to convey the rights in the mortgages." They could not produce the actual mortgage, the heart of Western property rights since the Magna Charta of not longer.

Again why could Deutsche Bank not show the 14 mortgages on the 14 homes? Because they live in the exotic new world of "global securitization", where banks like DB or Citigroup buy tens of thousands of mortgages from small local lending banks, "bundle" them into Jumbo new securities which then are rated by Moody's or Standard & Poors or Fitch, and sell them as bonds to pension funds or other banks or private investors who naively believed they were buying bonds rated AAA, the highest, and never realized that their "bundle" of say 1,000 different home mortgages, contained maybe 20% or 200 mortgages rated "sub-prime," i.e. of dubious credit quality.

Indeed the profits being earned in the past seven years by the world's largest financial players from Goldman Sachs to Morgan Stanley to HSBC, Chase, and yes, Deutsche Bank, were so staggering, few bothered to open the risk models used by the professionals who bundled the mortgages. Certainly not the Big Three rating companies who had a criminal conflict of interest in giving top debt ratings. That changed abruptly last August and since then the major banks have issued one after another report of disastrous "sub-prime" losses.

A new unexpected factor

The Ohio ruling that dismissed DB's claim to foreclose and take back the 14 homes for non-payment, is far more than bad luck for the bank of Josef Ackermann. It is an earth-shaking precedent for all banks holding what they had thought were collateral in form of real estate property.

How this? Because of the complex structure of asset-backed securities and the widely dispersed ownership of mortgage securities (not actual mortgages but the securities based on same) no one is yet able to identify who precisely holds the physical mortgage document. Oops! A tiny legal detail our Wall Street Rocket Scientist derivatives experts ignored when they were bundling and issuing hundreds of billions of dollars worth of CMO's in the past six or seven years. As of January 2007 some $6.5 trillion of securitized mortgage debt was outstanding in the United States. That's a lot by any measure!

In the Ohio case Deutsche Bank is acting as "Trustee" for "securitization pools" or groups of disparate investors who may reside anywhere. But the Trustee never got the legal document known as the mortgage. Judge Boyko ordered DB to prove they were the owners of the mortgages or notes and they could not. DB could only argue that the banks had foreclosed on such cases for years without challenge. The Judge then declared that the banks "seem to adopt the attitude that since they have been doing this for so long, unchallenged, this practice equates with legal compliance. Finally put to the test," the Judge concluded, "their weak legal arguments compel the court to stop them at the gate." Deutsche Bank has refused comment.

What next?

As news of this legal precedent spreads across the USA like a California brushfire, hundreds of thousands of struggling homeowners who took the bait in times of historically low interest rates to buy a home with often, no money paid down, and the first 2 years with extremely low interest rate in what are known as "interest only" Adjustable Rate Mortgages (ARMs), now face exploding mortgage monthly payments at just the point the US economy is sinking into severe recession. (I regret the plethora of abbreviations used here but it is the fault of Wall Street bankers not this author).

The peak period of the US real estate bubble which began in about 2002 when Alan Greenspan began the most aggressive series of rate cuts in Federal Reserve history was 2005-2006. Greenspan's intent, as he admitted at the time, was to replace the Dot.com internet stock bubble with a real estate home investment and lending bubble. He argued that was the only way to keep the US economy from deep recession. In retrospect a recession in 2002 would have been far milder and less damaging than what we now face.

Of course, Greenspan has since safely retired, written his memoirs and handed the control (and blame) of the mess over to a young ex-Princeton professor, Ben Bernanke. As a Princeton graduate, I can say I would never trust monetary policy for the world's most powerful central bank in the hands of a Princeton economics professor. Keep them in their ivy-covered towers.

Now the last phase of every speculative bubble is the one where the animal juices get the most excited. This has been the case with every major speculative bubble since the Holland Tulip speculation of the 1630's to the South Sea Bubble of 1720 to the 1929 Wall Street crash. It was true as well with the US 2002-2007 Real Estate bubble. In the last two years of the boom in selling real estate loans, banks were convinced they could resell the mortgage loans to a Wall Street financial house who would bundle it with thousands of good better and worse quality mortgage loans and resell them as Collateralized Mortgage Obligation bonds. In the flush of greed, banks became increasingly reckless of the credit worthiness of the prospective home owners. In many cases they did not even bother to check if the person was employed. Who cares? It will be resold and securitized and the risk of mortgage default was historically low.

That was in 2005. The most Sub-prime mortgages written with Adjustable Rate Mortgage contracts were written between 2005-2006, the last and most furious phase of the US bubble. Now a whole new wave of mortgage defaults is about to explode onto the scene beginning January 2008. Between December 2007 and July 1, 2008 more than $690 Billion in mortgages will face an interest rate jump according to the contract terms of the ARMs written two years before. That means market interest rates for those mortgages will explode monthly payments just as recession drives incomes down. Hundreds of thousands of homeowners will be forced to do the last resort of any homeowner: stop monthly mortgage payments.

Here is where the Ohio court decision guarantees that the next phase of the US mortgage crisis will assume Tsunami dimension. If the Ohio Deutsche Bank precedent holds in the appeal to the Supreme Court, millions of homes will be in default but the banks prevented from seizing them as collateral assets to resell. Robert Shiller of Yale, the controversial and often correct author of the book, Irrational Exuberance, predicting the 2001-2 Dot.com stock crash, estimates US housing prices could fall as much as 50% in some areas given how home prices have diverged relative to rents.

The $690 billion worth of "interest only" ARMs due for interest rate hike between now and July 2008 are by and large not Sub-prime but a little higher quality, but only just. There are a total of $1.4 trillion in "interest only" ARMs according to the US research firm, First American Loan Performance. A recent study calculates that, as these ARMs face staggering higher interest costs in the next 9 months, more than $325 billion of the loans will default leaving 1 million property owners in technical mortgage default. But if banks are unable to reclaim the homes as assets to offset the non-performing mortgages, the US banking system and a chunk of the global banking system faces a financial gridlock that will make events to date truly "peanuts" by comparison.

We will discuss the global geo-political implications of this in our next report, The Financial Tsunami: Part 2.

F. William Engdahl is the author of A Century of War: Anglo-American Oil Politics and the New World Order. He is a Research Associate of the Centre for Research on Globalization (CRG).  His most recent book, which has just been released by Global Research is Seeds of Destruction, The Hidden Agenda of Genetic Manipulation.

Quote from: mbaugh on November 25, 2007, 12:50:49 AM
One concern I have is the fact that the main credit problems we are facing are not limited to just the US market but all markets worldwide which makes this a global problem that has not happened before.  It seems everyone in the world has some form of money in the sub-prime mess and is causing a major credit strain world-wide.  I realize past expereince and history shows that the markets tend to recover, but all the recoveries vary in length of time.  We do not know how long this market will take to recover since we really don't know the extent of the damage since many experts believe the mortgage problems will only get worse since the adjustable rates will begin to take effect in the next several of months causing the foreclosure rates to sky rocket even higher.  This market could stall for a long-time.  Here's a link from Stockcharts that I have followed for awhile and it tends to be right on the money.  This link is updated everyday.  http://stockcharts.com/def/servlet/Favorites.CServlet?obj=ID1886603

All I'm saying is that we need to be a little more cautious and maybe hold a ultrashort index to offset the drawdowns on   the stocks we own.  Believe me, I want to be wrong and see the market rally but when I see stocks like TBSI and EXM fall like they did it makes me wonder why the big funds don't buy since these stocks are ultra cheap now.  Based on the link above, the bearish view of the S&P chart shows a very steep decline if things don't improve soon.

Right now the markets need some new developments such as the Black Friday sales #, and so far I'm hearing good reports such as Shop Tracs 8% increase over last years #'s.  We'll see on Monday!  Good Night!

Hi mbaugh, thanks for sharing that link.  Do you know what line the "Green Line" is in their charts, is it the 50dma, etc?

Also, in a number of places they expect "one more rally"  but I wasnt sure if that is before Nov. 23, or after, as even though it was on low volume due to the shortened day Friday, the market could be said to have rallied.  So I guess my question amounts to asking whether they wrote this after market close on Friday, or before?

The judge must be smoking something. If the idea of mortgage reselling is negated then you should be similarly worried about the margin account and stocks that you are holding weither for actual amount or in margin. The reason b/c these stocks are loaned in quite a complex fashion.

A simple argument against the absence of a single mortgage holder is that if there can be more than one title holders or lease holders why not multiple mortgage holders, even down to minute percentages. Infact any loan above 417,000 usually have atleast two different mortgages. If I can get away with paying mortgage or loosing house b/c their is no single mortgage, then its the most absurd thing I had ever heard since I learned 2 + 2 = 1 + 1 + 1 + 1. And I am sure that the only thing the banks may now need to do would be 'Mortgage Trail', should be a piece of cake. If their is legal loop hole then I think Govt can jump in to plug.

To me drum beating of this kind is a very clear sign that Wall St want to create enough fear to force Fed into making the bad decision of lowering interest rates. The market has already priced in these well known issues. The worst hit sectors, the banks, are actually getting accumulated by none less then Warren Buffet, in the form of Wachovia and UBS. Also if the transport sector is such a poor place to be then why again Warren Buffet is grabbing any Railroad share that he can lay hand on. Just few points to consider before selling your shares dirt cheap to the Big Money.

Quote from: la-onda on November 25, 2007, 08:22:37 AM
enjoy reading:
The Financial Tsunami: Sub-Prime Mortgage Debt is but the Tip of the Iceberg

By F. William Engdahl

Global Research, November 23, 2007

Part 1: Deutsche Bank's painful lesson                 

Even experienced banker friends tell me that they think the worst of the US banking troubles are over and that things are slowly getting back to normal. What is lacking in their rosy optimism is the realization of the scale of the ongoing deterioration in credit markets globally, centered in the American asset-backed securities market, and especially in the market for CDO's—Collateralized Debt Obligations and CMO's—Collateralized Mortgage Obligations. By now every serious reader has heard the term "It's a crisis in Sub-Prime US home mortgage debt." What almost no one I know understands is that the Sub-Prime problem is but the tip of a colossal iceberg that is in a slow meltdown. I offer one recent example to illustrate my point that the "Financial Tsunami" is only beginning.

Deutsche Bank got a hard shock a few days ago when a judge in the state of Ohio in the USA made a ruling that the bank had no legal right to foreclose on 14 homes whose owners had failed to keep current in their monthly mortgage payments. Now this might sound like small beer for Deutsche Bank, one of the world's largest banks with over €1.1 trillion (Billionen) in assets worldwide. As Hilmar Kopper used to say, "peanuts." It's not at all peanuts, however, for the Anglo-Saxon banking world and its European allies like Deutsche Bank, BNP Paribas, Barclays Bank, HSBC or others. Why?

A US Federal Judge, C.A. Boyko in Federal District Court in Cleveland Ohio ruled to dismiss a claim by Deutsche Bank National Trust Company. DB's US subsidiary was seeking to take possession of 14 homes from Cleveland residents living in them, in order to claim the assets.

Here comes the hair in the soup. The Judge asked DB to show documents proving legal title to the 14 homes. DB could not. All DB attorneys could show was a document showing only an "intent to convey the rights in the mortgages." They could not produce the actual mortgage, the heart of Western property rights since the Magna Charta of not longer.

Again why could Deutsche Bank not show the 14 mortgages on the 14 homes? Because they live in the exotic new world of "global securitization", where banks like DB or Citigroup buy tens of thousands of mortgages from small local lending banks, "bundle" them into Jumbo new securities which then are rated by Moody's or Standard & Poors or Fitch, and sell them as bonds to pension funds or other banks or private investors who naively believed they were buying bonds rated AAA, the highest, and never realized that their "bundle" of say 1,000 different home mortgages, contained maybe 20% or 200 mortgages rated "sub-prime," i.e. of dubious credit quality.

Indeed the profits being earned in the past seven years by the world's largest financial players from Goldman Sachs to Morgan Stanley to HSBC, Chase, and yes, Deutsche Bank, were so staggering, few bothered to open the risk models used by the professionals who bundled the mortgages. Certainly not the Big Three rating companies who had a criminal conflict of interest in giving top debt ratings. That changed abruptly last August and since then the major banks have issued one after another report of disastrous "sub-prime" losses.

A new unexpected factor

The Ohio ruling that dismissed DB's claim to foreclose and take back the 14 homes for non-payment, is far more than bad luck for the bank of Josef Ackermann. It is an earth-shaking precedent for all banks holding what they had thought were collateral in form of real estate property.

How this? Because of the complex structure of asset-backed securities and the widely dispersed ownership of mortgage securities (not actual mortgages but the securities based on same) no one is yet able to identify who precisely holds the physical mortgage document. Oops! A tiny legal detail our Wall Street Rocket Scientist derivatives experts ignored when they were bundling and issuing hundreds of billions of dollars worth of CMO's in the past six or seven years. As of January 2007 some $6.5 trillion of securitized mortgage debt was outstanding in the United States. That's a lot by any measure!

In the Ohio case Deutsche Bank is acting as "Trustee" for "securitization pools" or groups of disparate investors who may reside anywhere. But the Trustee never got the legal document known as the mortgage. Judge Boyko ordered DB to prove they were the owners of the mortgages or notes and they could not. DB could only argue that the banks had foreclosed on such cases for years without challenge. The Judge then declared that the banks "seem to adopt the attitude that since they have been doing this for so long, unchallenged, this practice equates with legal compliance. Finally put to the test," the Judge concluded, "their weak legal arguments compel the court to stop them at the gate." Deutsche Bank has refused comment.

What next?

As news of this legal precedent spreads across the USA like a California brushfire, hundreds of thousands of struggling homeowners who took the bait in times of historically low interest rates to buy a home with often, no money paid down, and the first 2 years with extremely low interest rate in what are known as "interest only" Adjustable Rate Mortgages (ARMs), now face exploding mortgage monthly payments at just the point the US economy is sinking into severe recession. (I regret the plethora of abbreviations used here but it is the fault of Wall Street bankers not this author).

The peak period of the US real estate bubble which began in about 2002 when Alan Greenspan began the most aggressive series of rate cuts in Federal Reserve history was 2005-2006. Greenspan's intent, as he admitted at the time, was to replace the Dot.com internet stock bubble with a real estate home investment and lending bubble. He argued that was the only way to keep the US economy from deep recession. In retrospect a recession in 2002 would have been far milder and less damaging than what we now face.

Of course, Greenspan has since safely retired, written his memoirs and handed the control (and blame) of the mess over to a young ex-Princeton professor, Ben Bernanke. As a Princeton graduate, I can say I would never trust monetary policy for the world's most powerful central bank in the hands of a Princeton economics professor. Keep them in their ivy-covered towers.

Now the last phase of every speculative bubble is the one where the animal juices get the most excited. This has been the case with every major speculative bubble since the Holland Tulip speculation of the 1630's to the South Sea Bubble of 1720 to the 1929 Wall Street crash. It was true as well with the US 2002-2007 Real Estate bubble. In the last two years of the boom in selling real estate loans, banks were convinced they could resell the mortgage loans to a Wall Street financial house who would bundle it with thousands of good better and worse quality mortgage loans and resell them as Collateralized Mortgage Obligation bonds. In the flush of greed, banks became increasingly reckless of the credit worthiness of the prospective home owners. In many cases they did not even bother to check if the person was employed. Who cares? It will be resold and securitized and the risk of mortgage default was historically low.

That was in 2005. The most Sub-prime mortgages written with Adjustable Rate Mortgage contracts were written between 2005-2006, the last and most furious phase of the US bubble. Now a whole new wave of mortgage defaults is about to explode onto the scene beginning January 2008. Between December 2007 and July 1, 2008 more than $690 Billion in mortgages will face an interest rate jump according to the contract terms of the ARMs written two years before. That means market interest rates for those mortgages will explode monthly payments just as recession drives incomes down. Hundreds of thousands of homeowners will be forced to do the last resort of any homeowner: stop monthly mortgage payments.

Here is where the Ohio court decision guarantees that the next phase of the US mortgage crisis will assume Tsunami dimension. If the Ohio Deutsche Bank precedent holds in the appeal to the Supreme Court, millions of homes will be in default but the banks prevented from seizing them as collateral assets to resell. Robert Shiller of Yale, the controversial and often correct author of the book, Irrational Exuberance, predicting the 2001-2 Dot.com stock crash, estimates US housing prices could fall as much as 50% in some areas given how home prices have diverged relative to rents.

The $690 billion worth of "interest only" ARMs due for interest rate hike between now and July 2008 are by and large not Sub-prime but a little higher quality, but only just. There are a total of $1.4 trillion in "interest only" ARMs according to the US research firm, First American Loan Performance. A recent study calculates that, as these ARMs face staggering higher interest costs in the next 9 months, more than $325 billion of the loans will default leaving 1 million property owners in technical mortgage default. But if banks are unable to reclaim the homes as assets to offset the non-performing mortgages, the US banking system and a chunk of the global banking system faces a financial gridlock that will make events to date truly "peanuts" by comparison.

We will discuss the global geo-political implications of this in our next report, The Financial Tsunami: Part 2.

F. William Engdahl is the author of A Century of War: Anglo-American Oil Politics and the New World Order. He is a Research Associate of the Centre for Research on Globalization (CRG).  His most recent book, which has just been released by Global Research is Seeds of Destruction, The Hidden Agenda of Genetic Manipulation.

The guy sounds like a bit of a sensationalist and conspiracy theorist, given he also published this last thing about the hidden agena of Genetic Manipulation lol.  The other thing that makes his argument a bit tenuous is that its centered around this one recent court case.  

What if Ohio is the only court in the US to take this stance, what if that judgement is appealed by DB and overturned, what if Deutsche Bank can get the mortgage titles somewhere (clearly they do exist), etc.  

Its good to be concerned and cautious (I am right now), and the CDOs do sound like they could be a big problem, but this Tsunami stuff sounds too much like Global Thermonuclear War type scenario and needs stronger arguments than one court case that was ruled on a few days ago and hasnt even been appealed yet or commented on by DB.  

Quote from: tokyopua on November 25, 2007, 12:54:22 PM

Quote from: mbaugh on November 25, 2007, 12:50:49 AM
One concern I have is the fact that the main credit problems we are facing are not limited to just the US market but all markets worldwide which makes this a global problem that has not happened before.  It seems everyone in the world has some form of money in the sub-prime mess and is causing a major credit strain world-wide.  I realize past expereince and history shows that the markets tend to recover, but all the recoveries vary in length of time.  We do not know how long this market will take to recover since we really don't know the extent of the damage since many experts believe the mortgage problems will only get worse since the adjustable rates will begin to take effect in the next several of months causing the foreclosure rates to sky rocket even higher.  This market could stall for a long-time.  Here's a link from Stockcharts that I have followed for awhile and it tends to be right on the money.  This link is updated everyday.  http://stockcharts.com/def/servlet/Favorites.CServlet?obj=ID1886603

All I'm saying is that we need to be a little more cautious and maybe hold a ultrashort index to offset the drawdowns on   the stocks we own.  Believe me, I want to be wrong and see the market rally but when I see stocks like TBSI and EXM fall like they did it makes me wonder why the big funds don't buy since these stocks are ultra cheap now.  Based on the link above, the bearish view of the S&P chart shows a very steep decline if things don't improve soon.

Right now the markets need some new developments such as the Black Friday sales #, and so far I'm hearing good reports such as Shop Tracs 8% increase over last years #'s.  We'll see on Monday!  Good Night!

Hi mbaugh, thanks for sharing that link.  Do you know what line the "Green Line" is in their charts, is it the 50dma, etc?

Also, in a number of places they expect "one more rally"  but I wasnt sure if that is before Nov. 23, or after, as even though it was on low volume due to the shortened day Friday, the market could be said to have rallied.  So I guess my question amounts to asking whether they wrote this after market close on Friday, or before?

I have no idea what the green line is.  The charts are updated everyday after the markets close.  I've been following it for several months and it has been very precise.  maybe David can figure out the magic green line.

Quote from: mbaugh on November 25, 2007, 05:36:04 PM

Quote from: tokyopua on November 25, 2007, 12:54:22 PM

Quote from: mbaugh on November 25, 2007, 12:50:49 AM
One concern I have is the fact that the main credit problems we are facing are not limited to just the US market but all markets worldwide which makes this a global problem that has not happened before.  It seems everyone in the world has some form of money in the sub-prime mess and is causing a major credit strain world-wide.  I realize past expereince and history shows that the markets tend to recover, but all the recoveries vary in length of time.  We do not know how long this market will take to recover since we really don't know the extent of the damage since many experts believe the mortgage problems will only get worse since the adjustable rates will begin to take effect in the next several of months causing the foreclosure rates to sky rocket even higher.  This market could stall for a long-time.  Here's a link from Stockcharts that I have followed for awhile and it tends to be right on the money.  This link is updated everyday.  http://stockcharts.com/def/servlet/Favorites.CServlet?obj=ID1886603

All I'm saying is that we need to be a little more cautious and maybe hold a ultrashort index to offset the drawdowns on   the stocks we own.  Believe me, I want to be wrong and see the market rally but when I see stocks like TBSI and EXM fall like they did it makes me wonder why the big funds don't buy since these stocks are ultra cheap now.  Based on the link above, the bearish view of the S&P chart shows a very steep decline if things don't improve soon.

Right now the markets need some new developments such as the Black Friday sales #, and so far I'm hearing good reports such as Shop Tracs 8% increase over last years #'s.  We'll see on Monday!  Good Night!

Hi mbaugh, thanks for sharing that link.  Do you know what line the "Green Line" is in their charts, is it the 50dma, etc?

Also, in a number of places they expect "one more rally"  but I wasnt sure if that is before Nov. 23, or after, as even though it was on low volume due to the shortened day Friday, the market could be said to have rallied.  So I guess my question amounts to asking whether they wrote this after market close on Friday, or before?

I have no idea what the green line is.  The charts are updated everyday after the markets close.  I've been following it for several months and it has been very precise.  maybe David can figure out the magic green line.

It looks like the green line in those charts (Blue line on mine) is the 50ema on the weekly chart.
But if you look back over the past 3 years...if you had sold below the "MAGIC LINE" you would have sold at the low.  ???    I really don't see this logic. :-\

Quote from: kslifka on November 25, 2007, 05:55:37 PM

Quote from: mbaugh on November 25, 2007, 05:36:04 PM

Quote from: tokyopua on November 25, 2007, 12:54:22 PM

Quote from: mbaugh on November 25, 2007, 12:50:49 AM
One concern I have is the fact that the main credit problems we are facing are not limited to just the US market but all markets worldwide which makes this a global problem that has not happened before.  It seems everyone in the world has some form of money in the sub-prime mess and is causing a major credit strain world-wide.  I realize past expereince and history shows that the markets tend to recover, but all the recoveries vary in length of time.  We do not know how long this market will take to recover since we really don't know the extent of the damage since many experts believe the mortgage problems will only get worse since the adjustable rates will begin to take effect in the next several of months causing the foreclosure rates to sky rocket even higher.  This market could stall for a long-time.  Here's a link from Stockcharts that I have followed for awhile and it tends to be right on the money.  This link is updated everyday.  http://stockcharts.com/def/servlet/Favorites.CServlet?obj=ID1886603

All I'm saying is that we need to be a little more cautious and maybe hold a ultrashort index to offset the drawdowns on   the stocks we own.  Believe me, I want to be wrong and see the market rally but when I see stocks like TBSI and EXM fall like they did it makes me wonder why the big funds don't buy since these stocks are ultra cheap now.  Based on the link above, the bearish view of the S&P chart shows a very steep decline if things don't improve soon.

Right now the markets need some new developments such as the Black Friday sales #, and so far I'm hearing good reports such as Shop Tracs 8% increase over last years #'s.  We'll see on Monday!  Good Night!

Hi mbaugh, thanks for sharing that link.  Do you know what line the "Green Line" is in their charts, is it the 50dma, etc?

Also, in a number of places they expect "one more rally"  but I wasnt sure if that is before Nov. 23, or after, as even though it was on low volume due to the shortened day Friday, the market could be said to have rallied.  So I guess my question amounts to asking whether they wrote this after market close on Friday, or before?

I have no idea what the green line is.  The charts are updated everyday after the markets close.  I've been following it for several months and it has been very precise.  maybe David can figure out the magic green line.

It looks like the green line in those charts (Blue line on mine) is the 50ema on the weekly chart.
But if you look back over the past 3 years...if you had sold below the "MAGIC LINE" you would have sold at the low.  ???    I really don't see this logic. :-\

I seem to recall in some cases they were saying to sell way "above the green line" and buy at the green line, but also "sell on closes below the green line" but clearly as you say there were a number of times where it rallied right after that, and you would have sold at the absolute low?

Retailers Post Robust Start to Holidays
Saturday November 24, 10:33 pm ET
By Anne D'Innocenzio, AP Business Writer
Nation's Retailers Post a Robust Start to the Holiday Season, Research Group Says

NEW YORK (AP) -- The nation's retailers had a robust start to the holiday shopping season, according to results announced Saturday by a national research group that tracks sales at retail outlets across the country. According to ShopperTrak RCT Corp., which tracks sales at more than 50,000 retail outlets, total sales rose 8.3 percent to about $10.3 billion on Friday, the day after Thanksgiving, compared with $9.5 billion on the same day a year ago. ShopperTrak had expected an increase of no more than 4 percent to 5 percent.

"This is a really strong number. ... You can't have a good season unless it starts well," said Bill Martin, co-founder of ShopperTrak, citing strength across all regions. "It's very encouraging. When you look at September and October, shoppers weren't in the stores."

In a separate statement released Saturday, J.C. Penney Co. reported "strong performance across all merchandise categories," including fine jewelry, outerwear, and young men's and children's assortments. But the department store chain cautioned, "while we are encouraged by our strong start, it is still early in the holiday season, and we are mindful of the headwinds consumers are facing."

J.C. Penney, Wal-Mart Stores Inc. and other major retailers are expected to report same-store results for November on Dec. 6. Same-store sales are those at stores opened at least a year and are considered a key indicator of a retailer's strength.

The upbeat reports were encouraging since merchants have been struggling with anemic sales in recent months, as shoppers, particularly in the middle and lower-income brackets, were becoming more frugal amid higher gas and food prices and an escalating credit crunch.

In an apparent sign of desperation, the nation's stores ushered in the official start of the holiday shopping season on Friday with expanded hours, including midnight openings, and a blitz of early morning specials that were more generous than a year ago. J.C. Penney and Kohl's Corp. opened at 4 a.m., an hour earlier than a year ago.

The strategy appears to have worked, as shoppers jammed stores in record numbers for early morning deals on Friday. Martin noted that judging by the strong figures on Friday, stores were able to sustain strong sales throughout the day. He said he's counting on strong traffic throughout the weekend as many stores, including Macy's Inc., are continuing with special deals. While Black Friday -- so named because it was traditionally when the surge of shopping made stores profitable -- starts holiday shopping, it is not considered a bellwether for the season. However, merchants see Black Friday as setting an important tone to the overall season: What consumers see that day influences where they will shop for the rest of the year.
Last year, retailers had a good start during the Thanksgiving weekend, but many stores struggled in December, and a shopping surge just before and after Christmas wasn't enough to make up for lost sales.

This year, the Washington-based National Retail Federation predicted that total holiday sales would be up 4 percent for the combined November and December period, the slowest growth since a 1.3 percent rise in 2002. Holiday sales rose 4.6 percent in 2006 and growth has averaged 4.8 percent over the last decade.

Quote from: la-onda on November 25, 2007, 10:19:10 PM
Retailers Post Robust Start to Holidays
Saturday November 24, 10:33 pm ET
By Anne D'Innocenzio, AP Business Writer
Nation's Retailers Post a Robust Start to the Holiday Season, Research Group Says

NEW YORK (AP) -- The nation's retailers had a robust start to the holiday shopping season, according to results announced Saturday by a national research group that tracks sales at retail outlets across the country. According to ShopperTrak RCT Corp., which tracks sales at more than 50,000 retail outlets, total sales rose 8.3 percent to about $10.3 billion on Friday, the day after Thanksgiving, compared with $9.5 billion on the same day a year ago. ShopperTrak had expected an increase of no more than 4 percent to 5 percent.

"This is a really strong number. ... You can't have a good season unless it starts well," said Bill Martin, co-founder of ShopperTrak, citing strength across all regions. "It's very encouraging. When you look at September and October, shoppers weren't in the stores."

In a separate statement released Saturday, J.C. Penney Co. reported "strong performance across all merchandise categories," including fine jewelry, outerwear, and young men's and children's assortments. But the department store chain cautioned, "while we are encouraged by our strong start, it is still early in the holiday season, and we are mindful of the headwinds consumers are facing."

J.C. Penney, Wal-Mart Stores Inc. and other major retailers are expected to report same-store results for November on Dec. 6. Same-store sales are those at stores opened at least a year and are considered a key indicator of a retailer's strength.

The upbeat reports were encouraging since merchants have been struggling with anemic sales in recent months, as shoppers, particularly in the middle and lower-income brackets, were becoming more frugal amid higher gas and food prices and an escalating credit crunch.

In an apparent sign of desperation, the nation's stores ushered in the official start of the holiday shopping season on Friday with expanded hours, including midnight openings, and a blitz of early morning specials that were more generous than a year ago. J.C. Penney and Kohl's Corp. opened at 4 a.m., an hour earlier than a year ago.

The strategy appears to have worked, as shoppers jammed stores in record numbers for early morning deals on Friday. Martin noted that judging by the strong figures on Friday, stores were able to sustain strong sales throughout the day. He said he's counting on strong traffic throughout the weekend as many stores, including Macy's Inc., are continuing with special deals. While Black Friday -- so named because it was traditionally when the surge of shopping made stores profitable -- starts holiday shopping, it is not considered a bellwether for the season. However, merchants see Black Friday as setting an important tone to the overall season: What consumers see that day influences where they will shop for the rest of the year.
Last year, retailers had a good start during the Thanksgiving weekend, but many stores struggled in December, and a shopping surge just before and after Christmas wasn't enough to make up for lost sales.

This year, the Washington-based National Retail Federation predicted that total holiday sales would be up 4 percent for the combined November and December period, the slowest growth since a 1.3 percent rise in 2002. Holiday sales rose 4.6 percent in 2006 and growth has averaged 4.8 percent over the last decade.

This is encouraging news, thanks for posting it.  As they said, its too early to call the entire retail season, but it should help stocks tomorrow at least not to come off their Friday gains so much, and maybe even go up a little!  Im still hoping for an end of year rally, this is a step in the right direction!
 

The logic could be: Buying when it touches the green line"? :-)

Another tough day in the market, SPY just touched its ascending trend line as drawn in Rams recent post on the SPY.  Kinda landed with a thud on it actually, not a pretty candle. 

On the "good side" volume was down a lot, especially considering Friday had already been a low volume day so we might have expected volume to make up for that today. 

Fed is going to inject more funds to help banks and calm markets, so this could be the low we have been waiting for.  Low volume today sets us up for a good oversold rally on strong volume.  Famous last words lol, I thought today should be about even and instead it was another tank...

Quote from: terainvestment on November 26, 2007, 04:22:04 AM
The logic could be: Buying when it touches the green line"? :-)

It does seem they are buying, they bought QLD today apparently, they must think this is the bottom...

It's hard to think positive long term when being slaughtered like this on a seemingly daily basis and with no end in sight over the damage the credit crisis is having. I am really loath to come out negative for the year as I am sure anyone is. Every time I think the market will rebound because it's oversold it doesn't and instead it goes deeper into the red. This REALLY sucks.

Regaining the losses on picks like TBSI will take lots of patience and if those losses continue at the current rate then it's game over. Placing stops may not be a bad idea and neither is getting an inverse fund as a hedge. I was really pleased last night when reports of Black Friday came in strong and I had anticipated a nice pop today as a result. But instead we get another 2 point loss. This market is just incredibly bearish. Where's Santa?

I don't like the the selling pressure into the close the past few weeks.  This has got to change to reverse the downtrend.

But...I believe there will be one hell of a short sqeeze coming this week.  >:D
Maybe even tomorrow.

I listened to a local CNBC radio guy I never heard before. He was said something along the lines that if the S&P500 doesn't go below 1372 we would have a great market come back, but if 1372 was broken he was recomending adding to the market short positions.  ???
now the S&P500 did not close below1372 so I am hoping this is a good sign.
any thoughts?
Thanks.

kslifka, I had the same thought! There will be a wave of short squeezes when the market.. finally... for real.....rallies. Not sure about this week, but I feel stronger about next week.
I am shorting one stock...C.

Another doom and gloom article I came across from Daily Kos:

Housing-credit crisis exposing the rotten core of American Markets and Economy
by reform
Sun Nov 25, 2007 at 11:44:25 PM PST

The recent downturn in housing and the accompanying mortgage security crisis are merely the exposed tip of the deep irresponsibility at the center of our financial and political markets. The housing downturn is a superficial crisis that has exposed the fundamental financial imbalances produced by the incompentence and greed at the center of our economy. These imbalances are threatening to trigger a global crisis.

Although the fed's recent reductions in the Overnight and Discount Rates are large, rate reductions alone can not solve the underlying problems below the housing and mortgate security downturns. The rate reductions are a bone that the fed threw to the stock market. The recent fed rate reductions have accelerated, not diminished the actual crisis.

In normal times, these fed moves might work. Wall Street will not know what the mortgage securities are worth until the real estate market stabilizes, and that will not happen for at least 18 months. Sales in the real estate market depend on mortgage securities to fund their loans. The interest rates on real estate depend on the perceived risks and relative values of the mortgage securities. The fed reductions would normally reduce risk to all of the players in this chain of market relationships. If times were normal.

Rate reductions would be ok, if the US were alone in world and lived in a bubble. But at least 20% of American debt has foreign funding sources. China, England, and Saudi Arabia are holding trillions of dollars in their national reserves that are plunging in value. The fed's rate reductions, while propping up domestic credit, are accelerating fall of American securities, and American credit-worthiness across global markets.

The real problem, below our domestic and foreign credit crisis, is that the fundamental engine of American profitability is based on rates of growth that have proven to be unsustainable in the present, let alone into the future. These unsustainable growth rates have been fueled and funded by low-wage foreign labor, low interest foreign loans, and economic trickery with our retirement money. It appears that our citizens are rejecting the unlimited movement of foreign labor into the US, and our foreign lenders are looking to reduce their exposure in dollars.

During the last 20 years housing prices have been rising rapidly on a spiraling updraft of housing prices. To the forces of demographic growth and cheap money, another key source of funds behind this economic updraft is the massive amounts of liquidity injected into the equities market when Congress deferred taxes on stock investments made for retirement purposes. This alone pumped 40 billion a month into equities during the height of the dot-com boom.

Rising housing prices have been supported by this ever-expanding supply of market liquidity and credit to maintain upward pressure on prices. Between 1989 and now, this combination of economic tricks was sufficient to steadily push housing prices up. The 401k mutual fund money has also distorted the value of stocks, pushing equity prices higher than honest valuation merits, and contributing significantly to the dot-com bubble.

This monthly flow of tens of billions of 401k money into equities has also contribuited significantly to the speculative character of today's market. Despite this massive liquidity, the upper limit of housing price growth has been reached. At this point it appears that there is not enough liquidity nor credit in the US, or any will in global market, to maintain upward pressure on housing prices. The housing market reached the size where there was not enough buyers, nor credit, to continue further expansion.

This rise in housing prices has been going on for decades, but was supercharged after the dot-com bust. It was after the bust that the housing bubble was initiated to carry the economy across the down time of the dot-com bust.

After starting the housing bubble, Greenspan had five years to bring rates up sufficiently to quash the radical speculation in housing, defend the international value of the dollar, and build a sufficient rate cushion to allow future rate cuts in a downturn like the one we are now facing. Greenspan failed to respond.

The reason we are in this crisis now is that Greenspan did not raise interest rates enough as the economy rose out of the dot-com bust, but instead kept rates low, and ran the housing bubble through the roof.

This allowed speculation to seriously distort housing and housing securities while simultanously weakening the dollar. By not raising rates during the housing run-up, the fed now finds itself poised between a weak dollar and a weak market while maintaining historically low interest rates. This position neutralizes the ability of rate cuts to productively stimulate markets without seriously damaging the value of the dollar.

This means that housing prices for the last 20 years have had nothing to do with actual demand or value. Prices were established and driven upward by debt-based speculation, rather than responsible investment. The housing run-up was based on naked speculation fueled by cheap money.

We are experiencing an rather rapid reversion of prices in the housing market from speculation back to prices based on the level of sales that can be supported by the actual wealth of average individuals in society, and what they can responsibly purchase.

Unfortunately for our housing market, the middle and lower classes have been stripped of their share of the national wealth during the last 30 years, and are incapable of restarting the housing market, let alone maintain consumer consumption on their diminished share of the nation's wealth without a fat line of cheap credit.

The reversion of prices to normal market conditions has not only exposed millions of homeowners to foreclosure and made the value of all mortgage based securities uncertain, but it has triggered a global "moment," a global realization that the American markets and financial system are not properly valuing assets, or responsibly structuring credit and growth.

This has made it vitally important to every player in the global economy, including nations, global investors, and global business interests, to immediately ascertain the actual value of all American assets, especially the dollar. This realization has exposed all american assets, especially the dollar, to a radical reevaluation across global markets.

Although the Fed's recent rate reductions have marginally shored up domestic credit markets, they have destabilized the international institutions holding mortgage securities by significantly undermining the value of their dollar holdings. This has damaged global confidence in the dollar, and has intensified the necessity for international financial institutions to reassess not just the value of the dollar, but the centrality of its role in international transactions.

This does not matter as much to domestic financial institutions, but it puts international holders of dollar-denominated securities in a position of getting screwed by either outcome: If the securities fail, they are screwed, and if the securities are preserved by devaluing the dollar, they are also screwed.

The fed's rate reductions were the final trigger that caused global markets to finally seriously reassess the value of the dollar, after over a decade of weakness. This reevaluation has in turn exposed the fact that the massive US corporate profits taken during the last 10 years have been made in an economy that is drowning itself in debt.

The recent massive downturn in the dollar signals the world has had a change in their perception of not just the dollar, but of the American economy itself. This has caused such a precipitous drop in the dollar that major players can no longer just reevaluate the value of the dollar, but are now reassessing the dollar's central position in global markets.

Why we are here

The American expansion during the last 30 years can be characterized as a frenzy of consumer consumption married to a frenzy of corporate profits. The consumer and corporate elements of the expansion are connected at the hip, both in economic, as well as psychological terms. Each side requires the greed, ignorance, and justification of the other side to maintain its own position.

Consumption and profit are, in fact, different manifestations of the same selfish irresponsibility. The consumer mentality expresses lower class selfishness by exposing that "our" working class has accepted debt shopping and "consumption," as the nature and goal of life. Simultaneously, our massive expansion has revealed that our elite and business classes consider the nature and goal of life to be the pursuit of unbridled growth, profit, and power.

Both sides of our great expansion, the worker and the businessman, are dependent on gross consumption, debt, and irresponsible "profits" for their mutual existence. Both sides of this sick equation have been based on nothing more than irresponsible growth, fueled by massive demographic expansion, funded by irresponsible speculation.

This irresponsible expansion has created a vast American private debt that exceeds our ability to repay, either today, or out of projected future profits. The bursting of the housing bubble has made this very clear to all disinterested observers.

In other words, our expansion, and the profits generated by the corporations for the last 20 years, have been funded by expanding consumer debt, which until recently was collateralized by the speculative growth in the value of the housing and equities markets, not by actual economic growth and expansion of the wealth of consumers.

Although our population growth is very real, the real growth in the overall wealth of our country has been a mirage funded by sub-prime loans and cheap money.

The last 30 years of massive demographic and economic growth has been used as cover by our corporate aristocracy to put aside our democratic practices, and loot our economy, drain our infrastructure, and move the bulk of the wealth of our country from the bottom and middle to the top. That is the real root of our housing, credit, and currency crisis.

Our country has plunged itself into an unsustainable downward spiral of massive debt to fuel this 30 year upward spiral of profit and physical expansion that pushed corporate profits and consumer consumption to historical levels. Now the world is going to balance the books, because we have refused to.

The result is that the housing bubble is triggering a cascading collapse that is traveling through our set of nested economic imbalances. The bursting of the housing bubble has sparked a mortgage crisis which has initiated a credit crisis which is triggering a reevaluation of all dollar-denominated assets in the world.

At the end of this cycle, we are going to find that our inability to face our housing, mortgage, and credit bubbles has significantly diminished the willingness of foreigners to finance American consumer credit. It started in housing, moved into credit, and is now collapsing the value of the dollar.

This in turn has exposed the world to the sad fact that American corporate profits are being sucked out of an economy that is, and has been, losing money.

So, independent of the vastly expanding profits of the corporations, the ultimate basis of American profit has been exposed as a pyramid scheme based on the availability of ever-expanding debt to payback previous debt. This is now common knowledge among global investors. The inevitable result, which we are now experiencing, is that the value of the dollar is shrinking faster than corporations can increase their profits to offset the actual loss of value.

The Fed's infusions of cash and lowering of the discount rate will do nothing to re inflate the speculative bubble in housing, nor will it give the market clarity as to the actual value of the mortgage securities. But it will accelerate the dollar's loss of value, which will have the overall effect of tightening, rather than loosening, credit.

The only thing that will save millions of families from foreclosure and mortgage securities from collapsing, is for housing prices to continue rising in value. That's not going to happen.

The real estate market can no longer depend on the middle-class to pull up the nation by its own bootstraps, as the middle-class has been robbed of their share of the national wealth.

Credit for the real estate market is no longer based on national or local conditions. American credit is now subject to, and dependent upon, the changing global estimation of the value of the dollar, and the risks associated with dealing in dollars, to obtain funds for consumer credit. The world is not only demanding America pay more for the credit necessary to maintain our consumer spending, but they are making much less money available to fund American debt.

These dollars, which would normally loaned back to the US by our dependent trading partners, are now being invested in better, more secure opportunities.

It appears that the big holders of dollars are dumping them on the market, not by selling dollars, but by buying huge amounts of global commodities with their excess dollars. I believe that the recent large price movements in global commodities indicate that the big global players are offloading massive amounts of dollars into commodities such as oil, copper, wheat, gold, and a range of other commodities.

It looks to me like the Brits, Arabs, and Chinese are selling dollars without going through the foreign exchange markets by buying commodities that they will later sell for anything but dollars.

These radical increases in all global commodities prices are working through the markets as I write, and are a direct indication in the global loss of confidence in the dollar.

Long before housing could stabilize, in a couple of years from now, the shocks from the housing and credit markets on the global economy pose a significant likelihood that the value of the dollar will drop sufficiently to limiting the credit available to restart housing, thereby stifiling any housing recovery, and putting significant downward pressure on our economy for years to come.

The net result of all this will be a significant decline in American economic activity accompanied by a significant upturn in prices. This portends a long downturn, not just for the American housing market, but of American consumption itself.

It appears to me that we are heading into a significant downturn that will be followed by an extended period of stagflation.

We are entering a very dangerous situation where it is highly possible that the world will retract a significant amount of our credit until our economy, rather than our corporations, actually becomes profitable.

The fed's hands are effectively tied. If the fed raises rates, the dollar will proportionally stabilize, but the housing speculators will scream in pain. If the fed drops rates, the dollar will plunge, and our domestic party will continue for a bit longer, as the world burns dollars around us.

The fed is damned if they do, and damned if they don't, raise rates.

At this time two things are clear: Housing will continue to fall for 18 months to 2 years, and the credit crisis will deepen in response to the fall in value of both housing and the dollar.

At this point no amount of Fed intervention will prevent the various markets from falling precipitously. The failures of the housing, auto, credit markets and the collaspe of the dollar will eventually pull the dow down to between 6800 and 7200. I see this as the market level that our actual economic activity will support. I see us hitting this low by June of 2008.

American economic weakness presents a significant risk of bringing down unstable foreign economies, such as China, and likewise, economic disruptions in China could cause even greater disruptions in our housing, credit, and currency markets that would make our present imbalances seem insignificant.

Our indebtedness and economic trickery is exposing the whole world to a significant risk of a sustained global downturn in economic activity, if not an outright global depression.

But nobody really knows just how these massive American debt imbalances will work out. The disturbing fact is that the US is not doing a damn thing to address or change the fundamental causes of our dangerous position: Irresponsible growth based on speculation.

That's where we are right now, between a rock and a hard place. Uncertainty and instability will characterize the markets until the US stops buying on credit and moves the basis of consumption off debt.

This is why the Fed's pumping the financial markets with cash, and dropping the interest rates are so disturbing. Rather than paying the bills, and only growing responsibly from now on, the fed is trying to grow our way out of this jam with cheap money, when it was our irresponsible growth based on cheap money that brought us to this crisis.

Unfortunately for our corporate devils and their consumer minions, we have run out of the money, energy and water with which to grow out of the hole our previous growth has put us in. We are tapped out, and this era of irresponsible speculative growth is officially over.

It's time to pay the bills

The Fed cannot stop the global markets from reevaluating American housing, American credit-worthiness, the dollar, and ultimately the global role of the dollar. Consequently, the value of all assets based on the dollar are now uncertain.

This reevaluation is now reverberating around the all of world's interdependent markets. It will only slowdown and stabilize when the repayment rate on our debt exceeds the rate at which we are borrowing.

And that's not going to happen voluntarily.

Hang on tight, this is going to be a crazy ride.

Quote from: AussieTrader on November 15, 2007, 04:56:08 PM

Quote from: AussieTrader on November 08, 2007, 10:17:15 PM

A few days ago I opened hedge positions on the SPX and a few weakened companies within the S&P500. I say hedged because I was still holding long positions (such as some 3SoF) and was not looking to sell those at this stage. Hedging just gives a bit of insurance if you see short term downwards action within an otherwise longer term upwards market or vice versa.

That said I haven't yet closed my hedge positions, I don't think we are 'out of correction' just yet. Indeed who knows it may be just the start of bearish period.

Regardless of market direction, there are many trading vehicles / strategies to enable you to profit / hedge or remain even available to you. 3SoF mostly plays the long side, that means you are guaranteed to get into periods of 'drawdown' on your equity when the market is not in your favour, that is a fact you can take to the bank.

Cheers

I am still 'hedged'

My SPY 'hedge' is now more weighted to the short side than the long. Speculatively I shorted BIDU strength today. Internets are pretty much the only strong participants out there, they can't swim against the trend for too long. I see more lows before highs (over what timeframe, well that is the unknown). Here are a couple of SPY charts for perusal: Short term with downtrend, longer term at key 'support'.

Quote from: pinoleropuro on November 26, 2007, 08:52:54 PM
I listened to a local CNBC radio guy I never heard before. He was said something along the lines that if the S&P500 doesn't go below 1372 we would have a great market come back, but if 1372 was broken he was recomending adding to the market short positions.  ???
now the S&P500 did not close below1372 so I am hoping this is a good sign.
any thoughts?
Thanks.

I guess that CNBC guy was talking about the lowest close set back last February which was actually 1374.

Monday's close of 1407 for the S&P500 matched the close set back on August 15th and also hit a steep trendline going back to July of 2006.

But I have to say...looking back at chart history and trend-lines for the broad markets...and subsequent market direction doesn't always hold true .

Well wouldn't you know...look who's coming to rescue Citibank.

http://biz.yahoo.com/ap/071126/citigroup_abu_dhabi.html

Citi Sells Stake to Abu Dhabi Fund
Monday November 26, 11:51 pm ET
By Joseph Altman, AP Business Writer
Abu Dhabi's Sovereign Fund Agrees to Invest $7.5 Billion for a 4.9 Percent Stake in Citigroup

NEW YORK (AP) -- Citigroup said late Monday that the Abu Dhabi Investment Authority will invest $7.5 billion in the nation's largest bank, offering needed capital to offset big losses from mortgages and other investments.

ADVERTISEMENT
The cash from the sovereign investment fund of the Gulf Arab state, which has been a beneficiary of this year's surge in oil prices, will be convertible into no more than 4.9 percent of Citigroup Inc.'s equity. Citigroup characterized the investment as passive and said the fund will not be able to name any board members to the bank.

The Investment Authority would become one of Citi's largest shareholders.

The Abu Dhabi investment, which was expected to close within the next several days, will be considered Tier 1 capital for regulatory purposes, helping Citi reach its goal of returning to its target capital ratios in the first half of 2008, the bank said.

Citigroup's shares have lost about 45 percent of their value since the beginning of this year, wiping away $124 billion in market capitalization, as the drumbeat of bad news about its investment losses has mounted.

"We see in Citi a highly respected company with a premier brand and with tremendous opportunities for growth," said the Investment Authority's managing director, Sheikh Ahmed Bin Zayed Al Nahayan. "This investment reflects our confidence in Citi's potential to build shareholder value."

Charles Prince stepped down as Citigroup's chairman and chief executive on Nov. 4, the same day Citi announced that it will likely write down the value of its portfolio by $8 billion to $11 billion in the fourth quarter.

In the third quarter, the bank's exposure to assets tied to subprime mortgages led to a loss of about $6.5 billion.

The Investment Authority will receive equity units that pay an 11 percent annual yield until they are converted into Citigroup common shares at a price of up to $37.24 a share between March 15, 2010, and Sept. 15, 2011.

The investment is the latest by sovereign funds in the Middle East that have been building up their overseas investments recently, many of them on the back of oil prices that have risen more than 60 percent this year and have brought the region record cash flows.

Dubai International Capital, which is owned by the ruler of that booming Persian Gulf city-state, announced earlier Monday that it has acquired a stake of undisclosed size in the Japanese electronics and media company Sony Corp. Its other investments this year included acquiring a 3.12 percent of European Aeronautic Defence & Space Co., which builds Airbus commercial planes and military aircraft. The firm also holds stakes in Daimler AG and British bank HSBC Holdings PLC.

Many companies have welcomed such investments because the funds tend to be stable investors, but some U.S. officials have expressed concern that their acquisitions could target sensitive industries with links to national security.

Abu Dhabi's move recalls the early 1990s investment in Citi made by Saudi Prince Alwaleed bin Talal. After Citi made some losing bets on U.S. real estate and Latin America, Alwaleed bought a stake in the bank for less than $600 million that has since ballooned into several billions of dollars.

The Abu Dhabi investment, which was expected to close within the next several days, comes at a time when Citi is trying to reassure investors amid heavy credit-related losses and its search for a new CEO.

"This investment, from one of the world's leading and most sophisticated equity investors, provides further capital to allow Citi to pursue attractive opportunities to grow its business," Acting Chief Executive Win Bischoff said in a statement.

Citi shares fell $1, or 3.2 percent, to close at $30.70 Monday after hitting a five-year low earlier in the day.

"This investment also enables us to access capital in an efficient manner, and is consistent with our strategy of maintaining a balance sheet that benefits from highly diverse sources of funding in terms of both geography and type of security," Bischoff said.

Quote from: capricho on November 27, 2007, 12:08:09 AM
Another doom and gloom article I came across from Daily Kos:

Housing-credit crisis exposing the rotten core of American Markets and Economy
by reform
Sun Nov 25, 2007 at 11:44:25 PM PST

The recent downturn in housing and the accompanying mortgage security crisis are merely the exposed tip of the deep irresponsibility at the center of our financial and political markets. The housing downturn is a superficial crisis that has exposed the fundamental financial imbalances produced by the incompentence and greed at the center of our economy. These imbalances are threatening to trigger a global crisis.

Although the fed's recent reductions in the Overnight and Discount Rates are large, rate reductions alone can not solve the underlying problems below the housing and mortgate security downturns. The rate reductions are a bone that the fed threw to the stock market. The recent fed rate reductions have accelerated, not diminished the actual crisis.

In normal times, these fed moves might work. Wall Street will not know what the mortgage securities are worth until the real estate market stabilizes, and that will not happen for at least 18 months. Sales in the real estate market depend on mortgage securities to fund their loans. The interest rates on real estate depend on the perceived risks and relative values of the mortgage securities. The fed reductions would normally reduce risk to all of the players in this chain of market relationships. If times were normal.

Rate reductions would be ok, if the US were alone in world and lived in a bubble. But at least 20% of American debt has foreign funding sources. China, England, and Saudi Arabia are holding trillions of dollars in their national reserves that are plunging in value. The fed's rate reductions, while propping up domestic credit, are accelerating fall of American securities, and American credit-worthiness across global markets.

The real problem, below our domestic and foreign credit crisis, is that the fundamental engine of American profitability is based on rates of growth that have proven to be unsustainable in the present, let alone into the future. These unsustainable growth rates have been fueled and funded by low-wage foreign labor, low interest foreign loans, and economic trickery with our retirement money. It appears that our citizens are rejecting the unlimited movement of foreign labor into the US, and our foreign lenders are looking to reduce their exposure in dollars.

During the last 20 years housing prices have been rising rapidly on a spiraling updraft of housing prices. To the forces of demographic growth and cheap money, another key source of funds behind this economic updraft is the massive amounts of liquidity injected into the equities market when Congress deferred taxes on stock investments made for retirement purposes. This alone pumped 40 billion a month into equities during the height of the dot-com boom.

Rising housing prices have been supported by this ever-expanding supply of market liquidity and credit to maintain upward pressure on prices. Between 1989 and now, this combination of economic tricks was sufficient to steadily push housing prices up. The 401k mutual fund money has also distorted the value of stocks, pushing equity prices higher than honest valuation merits, and contributing significantly to the dot-com bubble.

This monthly flow of tens of billions of 401k money into equities has also contribuited significantly to the speculative character of today's market. Despite this massive liquidity, the upper limit of housing price growth has been reached. At this point it appears that there is not enough liquidity nor credit in the US, or any will in global market, to maintain upward pressure on housing prices. The housing market reached the size where there was not enough buyers, nor credit, to continue further expansion.

This rise in housing prices has been going on for decades, but was supercharged after the dot-com bust. It was after the bust that the housing bubble was initiated to carry the economy across the down time of the dot-com bust.

After starting the housing bubble, Greenspan had five years to bring rates up sufficiently to quash the radical speculation in housing, defend the international value of the dollar, and build a sufficient rate cushion to allow future rate cuts in a downturn like the one we are now facing. Greenspan failed to respond.

The reason we are in this crisis now is that Greenspan did not raise interest rates enough as the economy rose out of the dot-com bust, but instead kept rates low, and ran the housing bubble through the roof.

This allowed speculation to seriously distort housing and housing securities while simultanously weakening the dollar. By not raising rates during the housing run-up, the fed now finds itself poised between a weak dollar and a weak market while maintaining historically low interest rates. This position neutralizes the ability of rate cuts to productively stimulate markets without seriously damaging the value of the dollar.

This means that housing prices for the last 20 years have had nothing to do with actual demand or value. Prices were established and driven upward by debt-based speculation, rather than responsible investment. The housing run-up was based on naked speculation fueled by cheap money.

We are experiencing an rather rapid reversion of prices in the housing market from speculation back to prices based on the level of sales that can be supported by the actual wealth of average individuals in society, and what they can responsibly purchase.

Unfortunately for our housing market, the middle and lower classes have been stripped of their share of the national wealth during the last 30 years, and are incapable of restarting the housing market, let alone maintain consumer consumption on their diminished share of the nation's wealth without a fat line of cheap credit.

The reversion of prices to normal market conditions has not only exposed millions of homeowners to foreclosure and made the value of all mortgage based securities uncertain, but it has triggered a global "moment," a global realization that the American markets and financial system are not properly valuing assets, or responsibly structuring credit and growth.

This has made it vitally important to every player in the global economy, including nations, global investors, and global business interests, to immediately ascertain the actual value of all American assets, especially the dollar. This realization has exposed all american assets, especially the dollar, to a radical reevaluation across global markets.

Although the Fed's recent rate reductions have marginally shored up domestic credit markets, they have destabilized the international institutions holding mortgage securities by significantly undermining the value of their dollar holdings. This has damaged global confidence in the dollar, and has intensified the necessity for international financial institutions to reassess not just the value of the dollar, but the centrality of its role in international transactions.

This does not matter as much to domestic financial institutions, but it puts international holders of dollar-denominated securities in a position of getting screwed by either outcome: If the securities fail, they are screwed, and if the securities are preserved by devaluing the dollar, they are also screwed.

The fed's rate reductions were the final trigger that caused global markets to finally seriously reassess the value of the dollar, after over a decade of weakness. This reevaluation has in turn exposed the fact that the massive US corporate profits taken during the last 10 years have been made in an economy that is drowning itself in debt.

The recent massive downturn in the dollar signals the world has had a change in their perception of not just the dollar, but of the American economy itself. This has caused such a precipitous drop in the dollar that major players can no longer just reevaluate the value of the dollar, but are now reassessing the dollar's central position in global markets.

Why we are here

The American expansion during the last 30 years can be characterized as a frenzy of consumer consumption married to a frenzy of corporate profits. The consumer and corporate elements of the expansion are connected at the hip, both in economic, as well as psychological terms. Each side requires the greed, ignorance, and justification of the other side to maintain its own position.

Consumption and profit are, in fact, different manifestations of the same selfish irresponsibility. The consumer mentality expresses lower class selfishness by exposing that "our" working class has accepted debt shopping and "consumption," as the nature and goal of life. Simultaneously, our massive expansion has revealed that our elite and business classes consider the nature and goal of life to be the pursuit of unbridled growth, profit, and power.

Both sides of our great expansion, the worker and the businessman, are dependent on gross consumption, debt, and irresponsible "profits" for their mutual existence. Both sides of this sick equation have been based on nothing more than irresponsible growth, fueled by massive demographic expansion, funded by irresponsible speculation.

This irresponsible expansion has created a vast American private debt that exceeds our ability to repay, either today, or out of projected future profits. The bursting of the housing bubble has made this very clear to all disinterested observers.

In other words, our expansion, and the profits generated by the corporations for the last 20 years, have been funded by expanding consumer debt, which until recently was collateralized by the speculative growth in the value of the housing and equities markets, not by actual economic growth and expansion of the wealth of consumers.

Although our population growth is very real, the real growth in the overall wealth of our country has been a mirage funded by sub-prime loans and cheap money.

The last 30 years of massive demographic and economic growth has been used as cover by our corporate aristocracy to put aside our democratic practices, and loot our economy, drain our infrastructure, and move the bulk of the wealth of our country from the bottom and middle to the top. That is the real root of our housing, credit, and currency crisis.

Our country has plunged itself into an unsustainable downward spiral of massive debt to fuel this 30 year upward spiral of profit and physical expansion that pushed corporate profits and consumer consumption to historical levels. Now the world is going to balance the books, because we have refused to.

The result is that the housing bubble is triggering a cascading collapse that is traveling through our set of nested economic imbalances. The bursting of the housing bubble has sparked a mortgage crisis which has initiated a credit crisis which is triggering a reevaluation of all dollar-denominated assets in the world.

At the end of this cycle, we are going to find that our inability to face our housing, mortgage, and credit bubbles has significantly diminished the willingness of foreigners to finance American consumer credit. It started in housing, moved into credit, and is now collapsing the value of the dollar.

This in turn has exposed the world to the sad fact that American corporate profits are being sucked out of an economy that is, and has been, losing money.

So, independent of the vastly expanding profits of the corporations, the ultimate basis of American profit has been exposed as a pyramid scheme based on the availability of ever-expanding debt to payback previous debt. This is now common knowledge among global investors. The inevitable result, which we are now experiencing, is that the value of the dollar is shrinking faster than corporations can increase their profits to offset the actual loss of value.

The Fed's infusions of cash and lowering of the discount rate will do nothing to re inflate the speculative bubble in housing, nor will it give the market clarity as to the actual value of the mortgage securities. But it will accelerate the dollar's loss of value, which will have the overall effect of tightening, rather than loosening, credit.

The only thing that will save millions of families from foreclosure and mortgage securities from collapsing, is for housing prices to continue rising in value. That's not going to happen.

The real estate market can no longer depend on the middle-class to pull up the nation by its own bootstraps, as the middle-class has been robbed of their share of the national wealth.

Credit for the real estate market is no longer based on national or local conditions. American credit is now subject to, and dependent upon, the changing global estimation of the value of the dollar, and the risks associated with dealing in dollars, to obtain funds for consumer credit. The world is not only demanding America pay more for the credit necessary to maintain our consumer spending, but they are making much less money available to fund American debt.

These dollars, which would normally loaned back to the US by our dependent trading partners, are now being invested in better, more secure opportunities.

It appears that the big holders of dollars are dumping them on the market, not by selling dollars, but by buying huge amounts of global commodities with their excess dollars. I believe that the recent large price movements in global commodities indicate that the big global players are offloading massive amounts of dollars into commodities such as oil, copper, wheat, gold, and a range of other commodities.

It looks to me like the Brits, Arabs, and Chinese are selling dollars without going through the foreign exchange markets by buying commodities that they will later sell for anything but dollars.

These radical increases in all global commodities prices are working through the markets as I write, and are a direct indication in the global loss of confidence in the dollar.

Long before housing could stabilize, in a couple of years from now, the shocks from the housing and credit markets on the global economy pose a significant likelihood that the value of the dollar will drop sufficiently to limiting the credit available to restart housing, thereby stifiling any housing recovery, and putting significant downward pressure on our economy for years to come.

The net result of all this will be a significant decline in American economic activity accompanied by a significant upturn in prices. This portends a long downturn, not just for the American housing market, but of American consumption itself.

It appears to me that we are heading into a significant downturn that will be followed by an extended period of stagflation.

We are entering a very dangerous situation where it is highly possible that the world will retract a significant amount of our credit until our economy, rather than our corporations, actually becomes profitable.

The fed's hands are effectively tied. If the fed raises rates, the dollar will proportionally stabilize, but the housing speculators will scream in pain. If the fed drops rates, the dollar will plunge, and our domestic party will continue for a bit longer, as the world burns dollars around us.

The fed is damned if they do, and damned if they don't, raise rates.

At this time two things are clear: Housing will continue to fall for 18 months to 2 years, and the credit crisis will deepen in response to the fall in value of both housing and the dollar.

At this point no amount of Fed intervention will prevent the various markets from falling precipitously. The failures of the housing, auto, credit markets and the collaspe of the dollar will eventually pull the dow down to between 6800 and 7200. I see this as the market level that our actual economic activity will support. I see us hitting this low by June of 2008.

American economic weakness presents a significant risk of bringing down unstable foreign economies, such as China, and likewise, economic disruptions in China could cause even greater disruptions in our housing, credit, and currency markets that would make our present imbalances seem insignificant.

Our indebtedness and economic trickery is exposing the whole world to a significant risk of a sustained global downturn in economic activity, if not an outright global depression.

But nobody really knows just how these massive American debt imbalances will work out. The disturbing fact is that the US is not doing a damn thing to address or change the fundamental causes of our dangerous position: Irresponsible growth based on speculation.

That's where we are right now, between a rock and a hard place. Uncertainty and instability will characterize the markets until the US stops buying on credit and moves the basis of consumption off debt.

This is why the Fed's pumping the financial markets with cash, and dropping the interest rates are so disturbing. Rather than paying the bills, and only growing responsibly from now on, the fed is trying to grow our way out of this jam with cheap money, when it was our irresponsible growth based on cheap money that brought us to this crisis.

Unfortunately for our corporate devils and their consumer minions, we have run out of the money, energy and water with which to grow out of the hole our previous growth has put us in. We are tapped out, and this era of irresponsible speculative growth is officially over.

It's time to pay the bills

The Fed cannot stop the global markets from reevaluating American housing, American credit-worthiness, the dollar, and ultimately the global role of the dollar. Consequently, the value of all assets based on the dollar are now uncertain.

This reevaluation is now reverberating around the all of world's interdependent markets. It will only slowdown and stabilize when the repayment rate on our debt exceeds the rate at which we are borrowing.

And that's not going to happen voluntarily.

Hang on tight, this is going to be a crazy ride.

I had difficulty following the logic he used to get from one paragraph to another in many cases, the arguments didnt fully hold water.  For example, if low rates caused the housing bubble, how come Japan doesnt have an insane housing bubble, I know a guy there who has a 1.5% mortgage!  Sure they were coming off a housing bubble in the late 80s, but they have had 2 decades of super low interest rates, and this article is saying the same amount of time with "low" rates caused the housing bubble.  So Japan should by the same argument have a housing bubble much larger than ours, but there is none, houses are moderately priced there.

Also, calling the corporations devils shows too much pre-existing negative bias on the part of the author.  Corporations are the way humans band together around the world and make new products and inovations that drive profitability, sure there are greedy people in them but they are the cornerstone of our economic system, they are not "devils".  I like it when they make me profit, but I dont call them "angels" for that reason as that would be too biased the opposite way.  And his prediction of the Dow going to 6800 in 7 months from now?  Seems a bit overblown.

I think things can be bad but this guy is another spooky doom and gloom guy, clearly its not all *that* bad lol.   And even it were, we read these exact same kind of articles left and right in February, and what happened to the market since then?  We are still above the lows of that period.

Thanks for sharing that link!  Guess those crazy Arabs didnt get the memo worth $7.5 billion to them below from Daily Kos that the Dow is going to 6800 in the next 7 monhts  :P

Quote from: kslifka on November 27, 2007, 12:46:52 AM
Well wouldn't you know...look who's coming to rescue Citibank.

http://biz.yahoo.com/ap/071126/citigroup_abu_dhabi.html

Citi Sells Stake to Abu Dhabi Fund
Monday November 26, 11:51 pm ET
By Joseph Altman, AP Business Writer
Abu Dhabi's Sovereign Fund Agrees to Invest $7.5 Billion for a 4.9 Percent Stake in Citigroup

NEW YORK (AP) -- Citigroup said late Monday that the Abu Dhabi Investment Authority will invest $7.5 billion in the nation's largest bank, offering needed capital to offset big losses from mortgages and other investments.

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The cash from the sovereign investment fund of the Gulf Arab state, which has been a beneficiary of this year's surge in oil prices, will be convertible into no more than 4.9 percent of Citigroup Inc.'s equity. Citigroup characterized the investment as passive and said the fund will not be able to name any board members to the bank.

The Investment Authority would become one of Citi's largest shareholders.

The Abu Dhabi investment, which was expected to close within the next several days, will be considered Tier 1 capital for regulatory purposes, helping Citi reach its goal of returning to its target capital ratios in the first half of 2008, the bank said.

Citigroup's shares have lost about 45 percent of their value since the beginning of this year, wiping away $124 billion in market capitalization, as the drumbeat of bad news about its investment losses has mounted.

"We see in Citi a highly respected company with a premier brand and with tremendous opportunities for growth," said the Investment Authority's managing director, Sheikh Ahmed Bin Zayed Al Nahayan. "This investment reflects our confidence in Citi's potential to build shareholder value."

Charles Prince stepped down as Citigroup's chairman and chief executive on Nov. 4, the same day Citi announced that it will likely write down the value of its portfolio by $8 billion to $11 billion in the fourth quarter.

In the third quarter, the bank's exposure to assets tied to subprime mortgages led to a loss of about $6.5 billion.

The Investment Authority will receive equity units that pay an 11 percent annual yield until they are converted into Citigroup common shares at a price of up to $37.24 a share between March 15, 2010, and Sept. 15, 2011.

The investment is the latest by sovereign funds in the Middle East that have been building up their overseas investments recently, many of them on the back of oil prices that have risen more than 60 percent this year and have brought the region record cash flows.

Dubai International Capital, which is owned by the ruler of that booming Persian Gulf city-state, announced earlier Monday that it has acquired a stake of undisclosed size in the Japanese electronics and media company Sony Corp. Its other investments this year included acquiring a 3.12 percent of European Aeronautic Defence & Space Co., which builds Airbus commercial planes and military aircraft. The firm also holds stakes in Daimler AG and British bank HSBC Holdings PLC.

Many companies have welcomed such investments because the funds tend to be stable investors, but some U.S. officials have expressed concern that their acquisitions could target sensitive industries with links to national security.

Abu Dhabi's move recalls the early 1990s investment in Citi made by Saudi Prince Alwaleed bin Talal. After Citi made some losing bets on U.S. real estate and Latin America, Alwaleed bought a stake in the bank for less than $600 million that has since ballooned into several billions of dollars.

The Abu Dhabi investment, which was expected to close within the next several days, comes at a time when Citi is trying to reassure investors amid heavy credit-related losses and its search for a new CEO.

"This investment, from one of the world's leading and most sophisticated equity investors, provides further capital to allow Citi to pursue attractive opportunities to grow its business," Acting Chief Executive Win Bischoff said in a statement.

Citi shares fell $1, or 3.2 percent, to close at $30.70 Monday after hitting a five-year low earlier in the day.

"This investment also enables us to access capital in an efficient manner, and is consistent with our strategy of maintaining a balance sheet that benefits from highly diverse sources of funding in terms of both geography and type of security," Bischoff said.

Quote from: AussieTrader on November 27, 2007, 12:32:48 AM

Quote from: AussieTrader on November 15, 2007, 04:56:08 PM

Quote from: AussieTrader on November 08, 2007, 10:17:15 PM

A few days ago I opened hedge positions on the SPX and a few weakened companies within the S&P500. I say hedged because I was still holding long positions (such as some 3SoF) and was not looking to sell those at this stage. Hedging just gives a bit of insurance if you see short term downwards action within an otherwise longer term upwards market or vice versa.

That said I haven't yet closed my hedge positions, I don't think we are 'out of correction' just yet. Indeed who knows it may be just the start of bearish period.

Regardless of market direction, there are many trading vehicles / strategies to enable you to profit / hedge or remain even available to you. 3SoF mostly plays the long side, that means you are guaranteed to get into periods of 'drawdown' on your equity when the market is not in your favour, that is a fact you can take to the bank.

Cheers

I am still 'hedged'

My SPY 'hedge' is now more weighted to the short side than the long. Speculatively I shorted BIDU strength today. Internets are pretty much the only strong participants out there, they can't swim against the trend for too long. I see more lows before highs (over what timeframe, well that is the unknown). Here are a couple of SPY charts for perusal: Short term with downtrend, longer term at key 'support'.

So you say you see more lows before highs, does that mean you are still long term bullish despite all this credit crunch news, etc.?

Quote from: tokyopua on November 27, 2007, 01:35:23 AM
So you say you see more lows before highs, does that mean you are still long term bullish despite all this credit crunch news, etc.?

My trading approaches have moved me more short than long. That is my current view.

3SoF runs a model investment portfolio long sided, long term. That is a great approach and will yield excellent results over the long term. I run multiple trading approaches over different timeframes long / short with different capital allocated to each approach based on my risk rules. Plus I take a salary out of my trading. This leads to me hedging / shorting / positioning differently to 3SoF because I can't just allow my overall port to drawdown based on 1 market direction sentiment.
Currently I can't see any catalyst or reason that tells me markets are about to re-bound and make a nice run to prior highs. But just because I can't see it doen't mean it won't, just I can't see it. Hence my positioning.

Miss Blondie here! I can't believe I am short C. I saw the news at 10pm EST last night. Thanks for posting the info. The market will rally today b/c of C! Go C! but wait til I can get out.

Quote from: Houlahan on November 27, 2007, 07:49:12 AM
Miss Blondie here! I can't believe I am short C. I saw the news at 10pm EST last night. Thanks for posting the info. The market will rally today b/c of C! Go C! but wait til I can get out.

U.S. consumer confidence index weaker than expected (http://www.marketwatch.com/News/Story/Story.aspx?guid=%7BD33298D0%2DE230%2D4E10%2D891F%2D3967A560BACC%7D&siteid=mktw)

«WASHINGTON (MarketWatch) -- U.S. consumer confidence sank in November on growing concerns about the future, the Conference Board reported Tuesday. The consumer confidence index fell to 87.3 from 95.2, well below the 90.2 expected by economists surveyed by MarketWatch. It was the lowest level and the biggest one-month decline since Hurricane Katrina in the fall of 2005. The decline in November was driven by a big drop in expectations, fueled by higher energy prices and falling prices for stocks and homes. The expectations index fell to a four-year low of 68.7 from 80 in October, while the present situation index fell modestly to 115.4 from 118.0.»

If consumers knew what the future holds they would all make a lot of money in the stock market. There's a negative correlation between consumer confidence and the stock market.

I think we're very near the lows and anyone shorting will lose money. Long to the bone here.

The market is responding positively to bad news on the economy. Bears will notice this and will probably run for cover throughout the session. The FED will cut rates again and probably that's going to be the catalyst to push the market to new all time highs (historically it takes 3 consecutive cuts to move things).

Anyway, I'll just shut up because market timing isn't my game and my hand is as cold as it has ever been. Need to cover some stocks, see ya :)

Today should signal the start of a new rally attempt in the IBD model assuming we keep a good point gain into the close (I know, big assumption recently), then if I recall correctly they will want to see a major follow through sometime starting 4 days after the first rally attempt. 

That number of days seems strangely arbitrary to me, but that is what I recall, and they have lots of historical evidence to show that its valid I guess (again, assuming I have that number correct).  So that would put us out into next week, then probably the next major up catalyst to get us out fully would indeed be a rate cut as David mentioned.  It seems to me a rate cut is in the cards or else the Fed wouldnt have decided to be injecting funds into the market again.  That was the precursor to their first rate cuts this year.

Anyway, so far volume isnt quite what I think we would be hoping for on the SPY at least, at the current rate it might not match yesterday's volume.    (214 Million shares traded yesterday, only 149 M traded today).  Hopefully trade picks up a bit in the last hours (but doesnt drop the market down too much either at the same time)!

QuoteAnyway, so far volume isnt quite what I think we would be hoping for on the SPY at least, at the current rate it might not match yesterday's volume.    (214 Million shares traded yesterday, only 149 M traded today).  Hopefully trade picks up a bit in the last hours (but doesnt drop the market down too much either at the same time)!

Light volume might mean there's less selling pressure now. Let's see if we can hold and extend gains into the close.

I agree with David here, whoever is selling at this point (unlike Aussie, who did a while back) is probably going to lose money. I know it would sound logical to expect a catalyst for the market to go up from here, but I personally do not see much to invest into in the US other than the stock market. The closing costs are $10 (can't beat that), compared to properties transaction, a PC is all that is needed, etc. Investors will scratch their onion heads and will put their money back where it belongs, i.e. the stock market.   ;)

Quote from: David Randolph on November 27, 2007, 02:23:01 PM

QuoteAnyway, so far volume isnt quite what I think we would be hoping for on the SPY at least, at the current rate it might not match yesterday's volume.    (214 Million shares traded yesterday, only 149 M traded today).  Hopefully trade picks up a bit in the last hours (but doesnt drop the market down too much either at the same time)!

Light volume might mean there's less selling pressure now. Let's see if we can hold and extend gains into the close.

Looks like SPY volume will be about the same as or even just a bit more than yesterday, which is a good balance between needing some volume for confirmation but not too much to show the selling pressure has lessened .  If the market closes at the present level it should be a good mix of volume and point advance.

Quote from: tokyopua on November 27, 2007, 03:26:04 PM

Quote from: David Randolph on November 27, 2007, 02:23:01 PM

QuoteAnyway, so far volume isnt quite what I think we would be hoping for on the SPY at least, at the current rate it might not match yesterday's volume.    (214 Million shares traded yesterday, only 149 M traded today).  Hopefully trade picks up a bit in the last hours (but doesnt drop the market down too much either at the same time)!

Light volume might mean there's less selling pressure now. Let's see if we can hold and extend gains into the close.

Looks like SPY volume will be about the same as or even just a bit more than yesterday, which is a good balance between needing some volume for confirmation but not too much to show the selling pressure has lessened .  If the market closes at the present level it should be a good mix of volume and point advance.

Pretty much what I was expecting to happen today did happen, we got an IBD style rally attempt.  Here is their article from the subscription service called the Big Picture:

------------------------------------------------------------

Stocks Rally, Stage Rare Up Day In Higher Volume
BY JONAH KERI

INVESTOR'S BUSINESS DAILY

Posted 11/27/2007

Stocks darted in higher volume Tuesday, buoyed by a capital infusion for Citigroup (C) and a sharp drop in oil prices.

The Nasdaq climbed 1.6%. The NYSE composite advanced 1.4%. The S&P 500 picked up 1.5%, and the Dow industrials 1.7%. Small caps bagged more modest gains, as the S&P 600 rose 0.9%.

Volume picked up across the board. It swelled 12% on the NYSE and 10% on the Nasdaq compared with Monday's levels.


The major indexes fell sharply on Monday, as concerns over the possibility of the Federal Reserve reducing contributions to major banks and lenders heightened fears over the credit crunch.

But Citigroup got some encouraging news late Monday, as Abu Dhabi's investment arm said it would invest $7.5 billion to help offset Citi's credit losses, in exchange for a stake of nearly 5% in the company. Other big banks perked up on the news, including Merrill Lynch, (MER) Goldman Sachs (GS) and Morgan Stanley. (MS)

Wall Street has been searching for signs of hope in both the credit and equity markets for the past several weeks.

Both have remained under pressure, as the ailing mortgage market has wreaked havoc on banks and stocks have fallen into an intermediate correction.

Rally attempts on both fronts have been short-lived. Tuesday marked Day 1 of a new rally try for the broad market indexes. But the stock market hasn't strung together back-to-back up days in weeks.

A small number of sectors have shown signs of strength. Some energy stocks have rallied, thanks to surging oil prices.

January crude did fall $3.28 to settle at $94.42 a barrel on reports that OPEC could agree to raise production at its next meeting.

Still, offshore drilling firm Transocean (RIG) continued its ascent. The stock jumped 6.36 to 135.75 in brisk trade Tuesday, good for an all-time high.

A few big leaders from the most recent rally also showed some resilience. Chinese search engine giant Baidu.com (BIDU) rose 5% to climb back above its 50-day moving average. Deckers Outdoor (DECK) touched an all-time intraday high, ramping up 10.67 to 143.81.

But for the most part, the pockets of the market that have fared best have been defensive groups such as pharmaceuticals and tobacco — typically not the kinds of stocks you'd expect to lead a bull run.

Elsewhere, the November Consumer Confidence Index came in weaker than expected. Also, the Chicago and Philadelphia Fed presidents both said the economic outlook for the fourth quarter and beyond remains uncertain.

The central bank will next meet on Dec. 11 to make a decision on interest rates. Although Fed officials have voiced reluctance to cut rates, traders in fed funds futures have fully priced in a quarter-point rate cut for next month.

Meanwhile, bond prices slid following Monday's rally. The yield on the 10-year note surged to 3.95% vs. 3.84% late Monday.
----------------------------------------------------------

Couple of bad news in after market hours.. Feddie cut the dividend in half and wells fargo another feary news....

Lets hope the rally rather pull up continue..

I believe...Abu Dhabi stake in Citi...is the first of many more investments coming from the Middle East.  And as much as many Americans will hate to see money coming from the Middle East because of fear...I believe they will be the savior of the Banks and the Economy.  They have so much money on the sidelines.  Are they seeing the end to high Oil prices, and they need to put their money somewhere??  (I'm being contrarian here).   Remember follow the smart money...they don't care where it comes from. 

Remember every strong bull market follows fear and extreme volatility in the market.  The American consumer is so much less important now in the over all global economy ...and it will become more so in the coming years...as more countries take on Capitalism and expand at extremely high growth rates.

I'm not calling a bottom at all yet...but I believe we're getting close. We shall see :-\

Just my humble opinion.

Quote from: Houlahan on November 27, 2007, 07:49:12 AM
Miss Blondie here! I can't believe I am short C. I saw the news at 10pm EST last night. Thanks for posting the info. The market will rally today b/c of C! Go C! but wait til I can get out.

'Interestingly, Citigroup's stock actually closed lower, down $0.38 to $30.32. It turns out that Citi had to give the ADIA an eye-popper of a deal for the cash. Citi will pay the ADIA 11% per year, or $825 million, then allow a swap into common shares priced between $31.83 and $37.24 per share.
The 11% rate is almost twice the rate that Citi offers its bond investors, well above average junk bond rates (around 9%), and substantially more than the 7.25% rate that Countrywide paid Bank of America for its emergency financing three months ago. And the deal will dilute Citi's common stock by as much as 235.6 million shares. Ouch! No wonder the stock was down. ' - Source Navellier and Associates

Quote from: kslifka on November 27, 2007, 11:26:47 PM
I believe...Abu Dhabi stake in Citi...is the first of many more investments coming from the Middle East.  And as much as many Americans will hate to see money coming from the Middle East because of fear...I believe they will be the savior of the Banks and the Economy.  They have so much money on the sidelines.  Are they seeing the end to high Oil prices, and they need to put their money somewhere??  (I'm being contrarian here).   Remember follow the smart money...they don't care where it comes from. 

Remember every strong bull market follows fear and extreme volatility in the market.  The American consumer is so much less important now in the over all global economy ...and it will become more so in the coming years...as more countries take on Capitalism and expand at extremely high growth rates.

I'm not calling a bottom at all yet...but I believe we're getting close. We shall see :-\

Just my humble opinion.

I agree with you on a number of points, especially that the end of high oil prices could be near, at least for near term.  We had about a 50% rise in what, the last few months?  And a tripling in something like 3 years.  Even if prices could stay high, it would be prudent for the OPEC countries to diversify those profits.  I think the commodity bull market also has some component of them diversifying into commodities also.

Seems like today the Citi news gave the bulls a leg to stand on to cause a bit of a short squeeze today, even though Citi sort of sold its soul lol and  went down on the day.  So yeah, could be that there are still a few more down days, I would not care as long as we go mostly sideways on average from here till a fed rate cut on Dec 11th, then head up, that would be a normal time cycle for an average correction.

Good points on C!
The media made me believe C would surge yesterday :P, but like you said it dropped. In my head, all I saw was bad news for C. They cut 45,000 jobs on top of all that neg. news. But I traded with my emotions. Lesson learned. I enjoy your thoughts! thanks

I thought historically December was a good stock market month? But this has been a wild and crazy market. I believe we will have a Merry Stock Market at years end.  :) Which is only a month away!

it looks like we have a strong up trend, so technically tomorrow could be a key reversal day. Iin order for it to be a key reversal day we need higher volume for it to be a strong signal and then we all need to be long. If this does not happen this could possibly simply be a short market rally. I hope that is not the case. :-\

Actually I think today could be the rally confirmation day already in the IBD definition, no need to worry about tomorrow. 

I wrote below that the follow through day was supposed to be after 4 days, but the more I think about it that doesnt make sense, its probably WITHIN 4 days.  I will post whatever IBD has to say in their Big Picture article later today, but this looks really good for the market (well, except there are some gaps up today that might get filled, but still good).  I bet that IBD will say tonight that we are in a confirmed rally. ;D

Quote from: pinoleropuro on November 28, 2007, 03:28:03 PM
it looks like we have a strong up trend, so technically tomorrow could be a key reversal day. Iin order for it to be a key reversal day we need higher volume for it to be a strong signal and then we all need to be long. If this does not happen this could possibly simply be a short market rally. I hope that is not the case. :-\

A nice day indeed... ;D  It looks like the bottom has been set.  Today's action was probably alot of short covering...like I was expecting. 

We'll probably have another strong down day or two early next week...as we test (or get close) to the lows set earlier this week....but after that..from my experience we should move higher to close the year.  If you look at charts of of the markets from the past...we rarely trade sideways near the bottoms.

I know technical issues are important, but give a look at today top news:

1) wells fargo takes 1.4 Bln in losses
2) Existing Home Sales Fall for Eighth Straight Month
3) Fed: Economy Loses Speed, Shopping Slows
4) Bear Stearns Cuts 4 Percent of Staff
5) Wolseley to Cut 1,300 More US Jobs
6) Credit Crunch Slows Private Equity Firms

and mr. Market what does?
up 3%.

I think the worse is back, hopefully no more write offs coming.

Today I read an interesting report issued by a top private banker that affirm that US stocks are extremely undervalued at these prices, at an average of 42.2%.

The problem now is the weak dollar and a possible flowing out of money from US stock markets to other booming markets.

time will tell, stay tuned :-)

Weak dollar is bullish for US equities.

Quote from: kslifka on November 26, 2007, 08:35:31 PM
I don't like the the selling pressure into the close the past few weeks.  This has got to change to reverse the downtrend.

But...I believe there will be one hell of a short squeeze coming this week.  >:D
Maybe even tomorrow.

Applaud! You called it correctly. 

Quote from: terainvestment on November 28, 2007, 04:22:06 PM
I know technical issues are important, but give a look at today top news:

1) wells fargo takes 1.4 Bln in losses
2) Existing Home Sales Fall for Eighth Straight Month
3) Fed: Economy Loses Speed, Shopping Slows
4) Bear Stearns Cuts 4 Percent of Staff
5) Wolseley to Cut 1,300 More US Jobs
6) Credit Crunch Slows Private Equity Firms

and mr. Market what does?
up 3%.

I think the worse is back, hopefully no more write offs coming.

Today I read an interesting report issued by a top private banker that affirm that US stocks are extremely undervalued at these prices, at an average of 42.2%.

The problem now is the weak dollar and a possible flowing out of money from US stock markets to other booming markets.

time will tell, stay tuned :-)

Terainvestment....this is what we've been waiting for.  Stocks going up even with bad news.  This means...for the most part all of this horrendous news is priced in.  Look at Wells Fargo...It was up today even with the bad news. 

The housing crunch has been known for a long time...to the market it's old news.   

The layoffs at the big brokerage firms had been speculated since October...now it wouldn't be good if we see layoffs hitting other parts of the economy...but so far it hasn't.

And the dollar versus the yen seems to have found a bottom...

The market was looking for a reason to rally today...but the December interest rate cut had already been anticipated....this is why I don't see clear skies ahead quite yet.   We'll probably have another one or two sharp sell-offs...(If I see a hammer coming on one of these down days...I will jump in with both feet.) 

In my mind we're getting close. ;)

Quote from: tokyopua on November 28, 2007, 03:50:09 PM
Actually I think today could be the rally confirmation day already in the IBD definition, no need to worry about tomorrow. 

I wrote below that the follow through day was supposed to be after 4 days, but the more I think about it that doesnt make sense, its probably WITHIN 4 days.  I will post whatever IBD has to say in their Big Picture article later today, but this looks really good for the market (well, except there are some gaps up today that might get filled, but still good).  I bet that IBD will say tonight that we are in a confirmed rally. ;D

Well, my optimism was a bit premature, IBD still considers this a correction, though it did call it Day 2 of a rally attempt.  Of course, in the same vein, they didnt call it a correction till we were already something like 6% off the highs so they try to be pretty sure before they call a spade a spade it seems. 

Some interesting points in the article.

-------------------------
THE
BIG PICTURE        Stocks Rally, Stage Rare Up Day In Higher Volume

More Credit Woes Send Major Indexes To New Lows

Retailers, Banks Lead Black Friday-Shortened Gains

Stocks Tumble Again Ahead Of Holiday


Stocks Surge Again On Top Fed Official's Comments
BY JONAH KERI

INVESTOR'S BUSINESS DAILY

Posted 11/28/2007

Stocks surged in higher volume Wednesday, rallying for the second straight session.

Fed comments hinting of more interest-rate cuts sparked the market, which got an added lift from another tumble in oil prices and a rally by financials.

The Nasdaq jumped 3.2%, doubling the size of Tuesday's advance. The Dow industrials bounced 2.6%, the NYSE composite 2.8%. The S&P vaulted 2.9%.


Volume perked up across the board.

Wednesday offered several encouraging signs for investors. But each one must be taken with a grain of salt, given the lessons taught to us by market history.

The Federal Reserve's No. 2 official, Donald Kohn, issued comments that hinted at a rate cut at the Fed's Dec. 11 meeting. The key fed funds rate currently stands at 4.5%, after rate cuts in September and October.

The last two times the Fed cut rates, the stock market cheered. The Nasdaq jumped 2.7% on Sept. 18 and 1.5% on Oct. 31. But the market couldn't sustain its gains after the second cut, as Oct. 31 proved to be the day the Nasdaq peaked.

Investors also reacted to a second consecutive big drop in oil prices on Wednesday. A smaller-than-expected drop in crude oil and distillate supplies helped shove January crude down $3.80 to $90.62 a barrel.

But oil prices' direction doesn't always provide a reliable indicator of the market's trend either. Stocks rallied for much of the year amid a steady uptick in oil prices.

Wednesday's price gain was one of the biggest of the year for the Nasdaq, an encouraging sign. But one big day doesn't mean much in the grander scheme. The Nasdaq's nine biggest up days of all time all occurred during the bear market of 2000 to 2003.

More recently, the Nasdaq's biggest up day of this year came on Nov. 13 — right before the market started a new leg down.

For now, consider Wednesday to be Day 2 of a rally attempt by the major indexes. We'll need to see more signs of strength among both the broad indexes and leading stocks before the market can take on a more bullish hue.

Top-rated stocks offered some encouragement. The IBD 100 soared 4.5%, marking one of its biggest up days of 2007.

The list of highly rated stocks gaining ground in brisk volume included big-cap leaders such as Amazon.com, (AMZN) Google, (GOOG) MasterCard (MA) and BlackRock, (BLK) as well as a bevy of mid-cap winners.

Elsewhere, Wells Fargo (WFC) said late Tuesday it would take a $1.4 billion write-down in Q4 for defaults. That was seen as a sign that subprime damage may be easing.

The Fed's beige book was gloomy but the market has seen positive signs elsewhere. For example, U.S. commanders are seeing significant progress in Iraq.

SPY still has a gap that may need to be filled...between 142.5-144. Something worth noting...

Quote from: ygtrdr on November 28, 2007, 04:40:04 PM
Weak dollar is bullish for US equities.

Weak dollar is bullish for US equities?
Sure?
I am an Italian investor, so my currency is Euro. If I invest in US stock market, my investment currency becomes US/$. Say that I invest in a US stock that in one year gains 10%. If the $ goes down 15% in that year (as it did), my total return on investment will be: 10% - 15% = - (minus) 5%

So, money flows where the currency are strong, not where are weak! :-)
The currency reflect the "state of health" of a country. Do you think that US is in good health for the long term?

that is why I am thinking we may get an injection of liquidity at the discount window but not really another rate cut. if I am correct that could be a disappointment for the short term but great for the long term.
any thoughts? ???

another cut rate on $ only will get the effect to weakening again the US only.
The problem is that you Americans (I love American people) are paying the dysaster of Iraq war that caused the public debt to explode to never seen levels.

I think US fallen down in a huge trap: you have been attacked on 2001 by...by who? Bin Laden?
Then US reacted, declared war to Afghanistan and Iraq with the goal to establish a beach head in the Middle East to get oil, but you failed.

At this point, man with long beard and women with burka became pretty annoyed to have US people on their "ass" (sorry for the bad word). They sit on billions of oil gallons, so who cares about USA?
Oil price started and went up, then skyrocketed and huge quantity of money were drained from your wallets to Arabian wallets...

Then the last shot: the Arabian already own the 7% of "corporate America", so they are full informed of what goes well and what goes bad....and the bad was the subprime exposure and the bubble on real estate.
Just a needle, here and there and the bubble exploded...financial collapsed, and then came back again the Arabian and so what?
The US finance is moving from Jewish people to Arabic people.

Guys: what we are seeing now is an all of the time changement, the third world war fighted only with money.

Quote from: terainvestment on November 29, 2007, 05:20:26 AM

Quote from: ygtrdr on November 28, 2007, 04:40:04 PM
Weak dollar is bullish for US equities.

Weak dollar is bullish for US equities?
Sure?
I am an Italian investor, so my currency is Euro. If I invest in US stock market, my investment currency becomes US/$. Say that I invest in a US stock that in one year gains 10%. If the $ goes down 15% in that year (as it did), my total return on investment will be: 10% - 15% = - (minus) 5%

So, money flows where the currency are strong, not where are weak! :-)
The currency reflect the "state of health" of a country. Do you think that US is in good health for the long term?

Hi terrainvestment

Let me ask you this:

Do you think the sovereign wealth funds, with trillions of dollars in reserves, are going to primarily be buying expensive assets, or cheap assets? The US is on sale right now, whether that is good or bad is debatable but we are the worlds largest, most diversified economy and I have no doubts that Abu Dhabi deal with Citi is just the beginning of the large amounts of foreign reserves that will be pouring into our economy. Investment into our economy is bullish for equities. Just like in the 80's with the japanese.

QuoteDo you think the sovereign wealth funds, with trillions of dollars in reserves, are going to primarily be buying expensive assets, or cheap assets? The US is on sale right now, whether that is good or bad is debatable but we are the worlds largest, most diversified economy and I have no doubts that Abu Dhabi deal with Citi is just the beginning of the large amounts of foreign reserves that will be pouring into our economy. Investment into our economy is bullish for equities. Just like in the 80's with the japanese.

Arabian and Chinese money pouring into the US financial markets is just another evidence that globalization is working and good for everybody ... especially for the US. The creation of wealth elsewhere besides North America, Europe and Japan is not only good to sell those billions of people products, they invest in our countries too. Everybody wins when there are more rich people in the World. The wealth isn't merely transfered. It is created by the emergence of new markets and capitalist economies.

I totally agree with, please don't confuse on the fact that I am not bullish on US stock markets.
If I were not bullish, I would not use the margin right now.

What I was going to say is that a weak dollar causes the current undervaluation of US stocks to stay undervalued, that's it.

And I agree also with David. We are all saying the same thing, only from different point of views.

It's good to have different opinions that, at the end of the day, converge on the same goal: enjoy the creation of wealth for everybody, and not only for "privileged" and western people.

Showing just how sensitive stock prices are to any unexpected news, yesterday the market indices oriented their shaking in one direction: up. The near-term rally, which had been trying to happen for two weeks, finally got underway. The DJIA broke through 13,000 and 13,200. Today it will try to stay above 13,200 and thus show the near-term rally has legs.

Virtually every indicator measured supports the premise that the near-term rally base was formed around 13,000 and the DJIA's next ceiling to penetrate will be around 13,600. Getting there, though is still likely to be choppy. The intermediate-term trend indicators rose also, but not enough to signal and confirm an intermediate term uptrend.

Nevertheless, the uptrends to downtrends enjoyed the first solid positive day this month.

A new intermediate-term uptrend will be confirmed when these indicators rise above their oversold zones, and the DJIA rises above 13,250 and stays there.
In the meantime, the intermediate-term trend is having little or no impact on the near-term rally. All four near-term indicators now have moved firmly above their oversold zone lines and appear on course to continue driving the market indices upward.
The confirmation of the near-term uptrend's finally gaining momentum yesterday was made when the market indices crossed up above the index ceilings established over the last week

Thanks to a hint that interest rates might again be cut by the central bank, the ignition of near-term rally, although characterized here previously as overdue, was spectacular and visible in all directions worldwide. The trade-term trends reacted with unrestrained enthusiasm. From an economics point of view, the message was the Fed would fill the credit crunch hole, still of undisclosed depth, by cutting all interest rates to compensate for the mortgage losses, which still loom large. But that fear was forgotten for the moment as euphoria took over and stock prices soared. In the process the market indices became overbought intraday and will need to correct somewhat this morning, probably mainly sideways to slightly down since the near-term rally is in full bloom.


Ultimately, the only story that counts is your own. Whether you buy the story of a soaring or a souring stock, your own research is more important than collective opinions. But these collective opinions make an individual's due diligence much easier.  ;) 

Hi everybody
The text I`ll post down is just a "food for tought" and the scientific explanation why David has "strong hands" ... he has an exceptional prefrontal dominant cortex (I don´t know him, but I do bet on that) where between the pros and cons the buying/selling decisions are made... it is also my humble piece of contribution to make this community the best investors place in the net
Have a good weekend

Why Logic Often Takes A Backseat
The study of neuroeconomics may topple the notion of rational decision-making

The National Hockey League and its players wrangle over a salary cap. The impasse causes the season to be canceled. Everybody loses. What went wrong?

According to the new science of neuroeconomics, the explanation might lie inside the brains of the negotiators. Not in the prefrontal cortex, where people rationally weigh pros and cons, but deep inside, where powerful emotions arise. Brain scans show that when people feel they're being treated unfairly, a small area called the anterior insula lights up, engendering the same disgust that people get from, say, smelling a skunk. That overwhelms the deliberations of the prefrontal cortex. With primitive brain functions so powerful, it's no wonder that economic transactions often go awry. "In some ways, modern economic life for humans is like a monkey driving a car," says Colin F. Camerer, an economist at California Institute of Technology.

Until recently, economists contented themselves with observing people from the outside. Now, Camerer and others, teaming up with psychologists and neuroscientists, are using a technique called functional magnetic resonance imaging to look inside the skull. It's like watching Congress debate instead of inferring what's going on by reading the laws that get passed.

Neuroeconomics, while still regarded skeptically by mainstream economists, could be the next big thing in the field. It promises to put economics on a firmer footing by describing people as they really are, not as some oversimplified mathematical model would have them be. Eventually it could help economists design incentives that gently guide people toward making decisions that are in their long-term best interests in everything from labor negotiations to diets to 401(k) plans. Says Harvard University economist David I. Laibson, another leading researcher: "To understand the real foundations of our behavior and our choices, we need to get inside the black box."

A GRAB BAG OF ANOMALIES?
Neuroeconomics could also give economics an alternative theoretical framework. Since the early 1900s, economists have mainly assumed that people have a stable and consistent set of preferences that they try to satisfy. When faced with an apparently illogical outcome -- such as the cancellation of the hockey season -- they try to explain it as the result of a reasoned decision process. Such top economists as Gary S. Becker, Milton Friedman, and Robert E. Lucas Jr., all Nobel prize winners, have argued that discrimination, unemployment, and stock market gyrations can have rational origins.

In recent years, the assumption of rationality has taken some hard shots as economists have shown that people often lack self-control, are shortsighted, and overreact to the fear of losses. But to date, these attacks on rationality -- under the broad heading of "behavioral economics" -- have seemed more like a grab bag of anomalies than a consistent alternative theory. So the assumption of rationality survives.

By linking economic behavior to brain activity, however, neuroeconomics may finally supply the model that knocks mainstream economics off its throne. The new theory should fit better with reality, but it won't be as mathematically clean -- because the brain is a confusing place, with different parts handling different jobs. Says Camerer: "You are forced to think about a brain which has many somewhat modular circuits."

One of the most fruitful avenues of neuro research is "time inconsistency." When people decide about the distant future, they're roughly as rational as economic textbooks assume. But when faced with a choice of whether to consume something now or delay gratification, they can be as impulsive as chimps. Harvard's Laibson coined "quasi-hyperbolic discounting" to describe the behavior, but that was just a label, not an explanation.

So Laibson and others scanned people inside MRI machines and discovered two parts of the brain operating in radically different ways. For decisions about the far-off future, the prefrontal cortex takes a long-term perspective. But for decisions such as whether to buy another chocolate bar right now, the limbic system takes over and demands immediate gratification. Last year the journal Science published the research by Laibson, Princeton University neuroscientists Samuel M. McClure and Jonathan D. Cohen, and Carnegie-Mellon University economist George Loewenstein.

How does it help to know that you're literally "of two minds"? You could arrange your affairs to make sure that your rational brain stays in control -- for example, by committing now to saving a certain percentage of your paycheck each month in the future. Many people already do that. Trouble is, long-term commitments can be too rigid if circumstances change. Ideally, you'd like to wait to commit to a savings plan until you see whether you can afford it -- but not wait so long that your animal brain takes over and you lose the will to save. The new research could help get that balance right.

A key tenet of standard economics is that making people happy is a simple matter of giving them more of what they like. But neuroscience shows that's not true. The brain's striatum quickly gets used to new stimuli and expects them to continue. People are on a treadmill in which only unexpected pleasures can make them happier. That explains why happiness of people in rich countries hasn't increased despite higher living standards.

Neuroeconomics also challenges the notion that emotions can only corrupt economic decision-making. Indeed, emotions grab people's attention and motivate them to focus their rational brains on the issue at hand, says Antonio R. Damasio, a University of Iowa College of Medicine neurologist who studies brain-damaged patients. In his writings, he says that people who feel no emotions are bad at making decisions.

The most controversial aspect of neuroeconomics is what to do with its findings. Cornell University economist Robert H. Frank favors taxation of conspicuous consumption, arguing that flashy spending simply raises expectations, making the rich no happier and squeezing the middle class. Laibson, in contrast, isn't willing to go much further than using neuroeconomics to, say, improve the default choices in 401(k)s.

Neuroeconomics has its skeptics. Richard Thaler of the University of Chicago, a leading behavioral economist, argues that it has yet to produce a major, surprising finding. He says he prefers to leave brain research to the neuroscientists. But he adds: "I am a big believer in letting all flowers bloom."

Even believers in neuroeconomics aren't sure just how far to take it. Should economic policy satisfy the farsighted prefrontal cortex? Or should it sometimes indulge the impulsive limbic system? By peering into the brain, economists are making discoveries that will keep them arguing for years to come.

Excerpt from an article posted in "Business Week" in March28 2005
Author (Unknown???)

The DJIA held above 13,200 Friday, confirming the near-term rally has momentum and is expected to keep on rolling. The market indices had a sideways move Thursday to correct the acute overbought market state on Wednesday, but the pause did not represent weakness in the near-term uptrend, and is expected to encounter minimal resistance until the DJIA gets to 13,600.
Virtually every measure supports the notion that the near-term uptrend is progressing and will continue to do so for the next week. adds up to a reasonable expectation for relatively clear sailing by the DJIA to the 13,600 level over the next week.

Thursday's sideways move by the trade-term trends, enabling the DJIA to confirm the rally by hovering above the 13,200 level, was consistent with a market correcting an intraday overbought state and with a market where the participants are ever-sensitive to impacting economic news and thus were waiting for word from on high.
It came, when the Fed Chairman Bernanke hinted another rate cut might be forthcoming.
That should be enough to cause the market indices to climb up further, because the next best thing to assuaging fear by quantifying the scope and expected terminus of the fear-producing stimulus is to have the perceived problem salved with a broad-based treatment.
It all comes down to how much do stock values have to absorb of the huge mortgage loan losses. Any interest rate cut will provide a much broader base over which to spread the grief, and thus down-valuing in the stock market segment of the economy can cease and allow the buyers to dominate trading.
Thus the pessimism that caused the 10% correction downward by the indices over the past month is now giving way to optimism that somebody other than stocks will bear a disproportionate share of the drag from bad loans.


Ultimately, the only story that counts is your own. Whether you buy the story of a soaring or a souring stock, your own research is more important than collective opinions. But these collective opinions make an individual's due diligence much easier.     

fyi:
http://www.shadowtrader.net/videos/sunday120207st.html
very interesting, as always

Quote from: la-onda on December 02, 2007, 07:31:27 PM
fyi:
http://www.shadowtrader.net/videos/sunday120207st.html
very interesting, as always

Cool videos, are those always free to view, or is it trial subscription, etc.?

you have to subscribe via Mail (it´s free)

Quote from: la-onda on December 03, 2007, 12:57:02 AM
you have to subscribe via Mail (it´s free)

Very nice post La Onda

The market is in a good shape and will see new highs .

I do appreciate you posting them too, Laonda. they are very informative.
Thanks. applaud!

There is a DJIA floor at 13,200 and a ceiling at 13,600 within which range the DJIA is expected to move for the rest of this week. Yesterday brought a mini-uptrend pause, which is likely to extend into this morning. The near-term uptrend is then anticipated to start up again, and the DJIA is going to make its first attempt at penetrating its 13,600 ceiling later this week, before stalling out again.

Any subsequent uptrend pause should not be of great moment because the intermediate-term uptrend was reconfirmed yesterday.

The Trend Ratio moved up a notch to 34 and the gap between intermediate-term stock uptrend lengths to downtrend ones shifted to the favor of the uptrend ones for the first time in six weeks. All of these movements add up to an intermediate-term trend gathering upward momentum, which will buoy the shorter term market trends rotating more quickly but with less force.

Currently the near-term uptrend is in a mini-pause.
Overall, this near-term uptrend pause should provide long buyers with opportunities to participate handsomely in the next leg up by the market indices.

Lurking in the background, of course, is the continuing anxiety over how deep the credit crunch hole really may be. Such fears crop up every day or two and of late frequently stimulate a trade-term downtrend cycle. That anxiety is present this morning and it would not take much to fan a downtrend fire, but the trade-term indicators are already close to being oversold and it appears that after a few trading hours of sliding down not lower than the DJIA floor, the index should begin its climb toward 13,600. The news later this week regarding a Federal plan to save defaulting home borrowers from foreclosures may be the spark that is needed to turn fear to indifference to enthusiastic buying.

Ultimately, the only story that counts is your own. Whether you buy the story of a soaring or a souring stock, your own research is more important than collective opinions. But these collective opinions make an individual's due diligence much easier.   ;) ;D

The mini-uptrend pause by the market indices, expected to end yesterday, appears to have done so. The DJIA retreated close to its 13,200 floor of support, and is expected to begin a climb this morning, headed for its ceiling of resistance at 13,600.

The intermediate-term trend indicators continued to confirm this uptrend has commenced.

Thus, the DJIA sits just above its intermediate-term trend support level, which is enjoying a shallow up slope and is expected to provide a base from which the leg up by the market indices can launch.

The main driving force at the moment is the near-term trend, which is also uptrending and which also is the principal reason behind the mini-uptrend pause by the market indices in the last two days.
The near-term trend indicators are all positioned to move up.

Whether the DJIA can reach 13,600 in the next few days, in part, hinges on the robustness of the rebound up expected today. The trade-term trend indicators are near oversold levels, and thus are positioned for a rally. Last week the trade-term trends were the main cause of substantial swings in the market indices both intra- and inter- day; this week has not brought similar volatility. The announcement that a bailout plan is shortly to be announced for homeowners with impending mortgage defaults and foreclosures, seemingly has allayed some of the anxiety that the credit crunch could cause a recession. But the concern remains and any negative unexpected news could trigger a change in trade-term trend direction. It appears more likely that the sentiment will remain in a continuing state of uncertainty, leaving the market indices to drift along in a shallow uptrend. Perhaps today or tomorrow some conviction to that uptrend will be forthcoming.


Ultimately, the only story that counts is your own. Whether you buy the story of a soaring or a souring stock, your own research is more important than collective opinions. But these collective opinions make an individual's due diligence much easier.   ;D ;) 

The market indices took off from their support bases and headed north yesterday, with a sharp move upward . The DJIA took off from its support at 13,200, moved up about 200 points, and should continue moving up, probably at a slower pace, over the next two days until it touches its 13,600 ceiling and stalls out.

Uptrends to downtends ended their one day flirtation with a negative bias, and became very positive again.
This polarization to the positive is indicative of momentum gathering for this uptrend rally and it caused the intermediate-term trend indicators to become more positive.
All this adds up to an intermediate-term uptrend, which is gaining strength, and soon is expected to be a major contributor to an upward trek by the market indices.

At the moment, the near-term uptrend is not doing too bad a job in the contributory department. In fact, it was the main driving force of yesterday's move by the market indices. All  near-term trend indicators moved in a positive direction. It is likely that these indicators will top out when the DJIA reaches the 13,600 ceiling. Thus they will be expected to retreat as the DJIA attempts, and falls back, maybe more than once, to penetrate its ceiling of resistance. The DJIA retreat when it does come, however, is not expected to be severe, as by that time the intermediate-term uptrend should have evolved to the point of being a strong buoying upward force for the market indices.

The foregoing paints a rosy outlook for the bulls and such is warranted by the movement of the indicators, but it does not mean the trade-term trends can be ignored. Investors do so at their own peril because the minute one takes his/her eye off the potential for unexpected news, the more likely it seems some surprise will ignite a quick reaction by the market indices. Consensus expectation remains focused on the potential for a recession being brought on by the still-undefined, black hole credit crisis, but the announcement today is expected to ameliorate these concerns to some degree, as it will portend relief for approximately 750,000 out of the two million troubled subprime home mortgages facing default/foreclosure. The trade-term trends became somewhat overbought by the end of trading yesterday and that is not sustainable all today without some correcting. It is likely that such correcting will be mainly a sideways intraday move by the market indices as the rally started yesterday continues this morning but tails off somewhat later in the day.


Markets rallied smartly yesterday on economic data suggesting a recession might be avoided in the US, bringing back such terms as "soft landing" to pundits' texts. Furthermore, markets cheered a mortgage aid plan reportedly in the works, as well as retail sales numbers that might top expectations. Data on inflationary pressures were positive, with third quarter nonfarm productivity up at a 6.3% annual rate, the strongest in four years, and unit labor costs down 2%. Expectations are for the rise in productivity and slowing in wage growth to ease the risk of inflation, thereby permitting the Fed to lower its perceived risk to inflation and adopt a more dovish stance favoring concern for growth. The ADP numbers, however, indicated greater strength in the economy than expected, also raising the odds of a nonfarm payrolls report surprise on Friday, as it printed 189K November hiring additions, compared to expectations of 70K adds. Analysts were skeptical of the numbers, however, due to contradicting evidence of job losses in manufacturing and construction arenas. This morning's weekly jobless claims printed in line with estimates, dropping15K to 338K, with the four-week average up 4,750 to 340,250. The Organization of Economic Cooperation and Development opined the US likely to avoid a recession next year, although growth will slow. This morning's retail numbers showed Wal-Mart November same-store-sales grew 1.9%, with company projections of 1-3% for December. Costco topped expectations with sales up 9% compared to estimates of 6.6%, and Nordstrom's sales jumped 8.7% compared to estimates of 3.7% same-store-sales growth. What may weigh most heavily on next week's Fed decision may be the internal dynamics of the banking industry, in which the 3-month LIBOR rate, up 19 consecutive days to 5.15% Tuesday from 4.88% one month ago, is now 65 bp higher than the Fed funds rate. Liquidity issues then may tip Bernanke's hand in favor of a more accommodative stance than might be suggested by recent economic data. The Bank of England dropped its key rate this morning 1/4 point to 5.5%, its first hike since August 2005, with European central bankers The SIV "superfund" reportedly may reach only half the $100 billion size. OPEC's decision to hold production levels steady generated an uptick in oil companies shares, such as Chevron up 2.5% and Exxon Mobil, up 2%, although oil prices actually edged 65 cents lower to $86.84 on inventory levels reported yesterday of a domestic fuel supply increase. Among share prices gaining Wednesday, big-cap technology shares rebounded with Microsoft up 4.2%, Oracle 5.9%, Google 2.1%, Apple 3.2% and International Business Machines 1.4% as investors bought into areas believed immune to writedowns from mortgage-related exposure, and also those with significant global earnings potential.   

ShadowTraderPro Focus Report for December 7, 2007 (free trial ending today)

The Big Picture
Good morning, Traders. The bulls took control early and never let go, as broad market indices trended higher all session and closed at the highs of the day. Unlike Wednesday where the bulls wavered after lunch, there was a strong appetite for stocks all day long. Markets pulled back mildly while President Bush revealed a new plan to assist homeowners with the sub-prime crunch. The markets responded positively to the news, as stocks picked up momentum in the final 90 minutes of trading. Small cap stocks significantly outperformed the broad market with the Russell 2000 gaining 2.8%. Market internals were convincingly bullish on both exchanges. The advance/decline lines and breath readings climbed higher in step with the price action.

Half the core sector list closed with strong gains of more than 2%. The Broker/Dealer Index rallied 3.7% and looks poised to make a run at the 50ma. As we mentioned earlier this week, the Oil Service Sector ($OSX) finally broke the daily downtrend line and closed above the 50ma on powerful price action (RIG shot up 5% on massive volume after pulling back to the 20ma). Oil stocks in general did very well and we should see more than a few long setups develop over the next few weeks. Leading stocks finally followed through on bullish setups, logging strong gains. Some of the days bigger moves were from ISRG, CMG, LIFC, DO, FLS, RIG, JEC, and HES. We still see some solid long setups out there such as BIDU, ATW, and MICC, which are forming a bull flags.

The S&P 500 has staged an impressive rally off the lows with four sessions of at least 1.5% gains. Looking at the daily chart of the S&P 500 above we see that the index in just two sessions reclaimed the 200ma and the 50ma! Clearly traders do not want to be short ahead of the December 11 Fed meeting. We want to stress to our loyal and kind readers that although you see three short calls down there in the bulls and bears section we are not bearish. These stocks are listed because they are showing extreme relative weakness. Think of these shorts as potential NICE's. Today the Nasdaq rallied 1.6% while NICE cracked 4.8% to a new 52-week closing low!

Under The Hood
When we say "under the hood" we mean market internals, ie: what was really happening behind the scenes. ShadowTraders who listen to our daily broadcast every day live on the thinkorswim platform know that all closing figures on the major averages should only be interpreted in the context of market internals. Look for convergences and divergences in the breadth, a/d line, and trin figures below to either confirm or cast doubt on what all those talking heads on TV are telling you.

Dow Jones Industrial Average    13,619.89    +174.93    +1.30%
S&P 500    1,507.34    +22.34    +1.50%
Nasdaq Composite    2,709.03    +42.67    +1.60%
Nasdaq 100    2,127.65    +28.34    +1.35%
Russell 2000    786.95    +21.32    2.78%
Spot Gold    $807.1/oz.    +3.40    +0.42%
Crude Oil    $90.23/bbl.    +2.74    +3.13%
NYSE Overall Volume    1,290,340K    n/a    -10%
Nasdaq Overall Volume    2,272,640K    n/a    -16%
NYSE Breadth    5.5 : 1    positive    
Nasdaq Breadth    4.1 : 1    positive    
NYSE Breadth Ratio    85.15       
Nasdaq Breadth Ratio    80.43       
NYSE Advancers/Decliners    +1,858       
Nasdaq Advancers/Decliners    +1,333       
NYSE Trin    .66       
NASDAQ Trin    .63       
$VIX    20.96    -1.57    
Strongest Groups: Homebuilders, Broker/Dealer & Steel
Weakest Groups: Utilities, Retail & Drugs

Heads Up
Up and coming economic and corporate data that may move markets this week:

Today
    08:30am EST - Nonfarm Payrolls
    08:30am EST - Unemployment Rate
    08:30am EST - Hourly Earnings
    08:30am EST - Average Workweek
    10:00am EST - Consumer Sentiment
    Bulls and Bears

This section is for self-directed traders and investors who like to "do it themselves". Every trading day, Bulls and Bears will list long and short equity setups with defined entries and stops. Note: A listing in this section does NOT necessarily mean that the stock will end up as a part of the ShadowTraderPro Model Portfolio. Plays listed here change daily and are not managed or tracked by ShadowTrader unless traded via e-mail alert.

Long Ideas
    Symbol    Trigger Price    Stop Price    Notes
    BIDU    401.00       bull flag breakout, stop beneath low of breakout bar
    CLB    122.51    116.19    break of daily downtrend line from tight ranged hourly chart
    ONXX    56.51    53.39    breakout from tight ranged consolidation
    STP    77.51    73.29    break of hourly downtrend line on tight pullback at the highs.

Short Ideas
    Symbol    Trigger Price    Stop Price    Notes
    CRDN    47.24    48.33    double inverted hammers in strong market
    MEG    21.66    22.86    ugly weakness in face of strong market
    EEP    50.99    51.76    inverted hammer in strong market

Quote from: tokyopua on November 28, 2007, 08:11:59 PM

Quote from: tokyopua on November 28, 2007, 03:50:09 PM
Actually I think today could be the rally confirmation day already in the IBD definition, no need to worry about tomorrow. 

I wrote below that the follow through day was supposed to be after 4 days, but the more I think about it that doesnt make sense, its probably WITHIN 4 days.  I will post whatever IBD has to say in their Big Picture article later today, but this looks really good for the market (well, except there are some gaps up today that might get filled, but still good).  I bet that IBD will say tonight that we are in a confirmed rally. ;D

Well, my optimism was a bit premature, IBD still considers this a correction, though it did call it Day 2 of a rally attempt.  Of course, in the same vein, they didnt call it a correction till we were already something like 6% off the highs so they try to be pretty sure before they call a spade a spade it seems. 

Some interesting points in the article.

-------------------------
THE
BIG PICTURE        Stocks Rally, Stage Rare Up Day In Higher Volume

More Credit Woes Send Major Indexes To New Lows

Retailers, Banks Lead Black Friday-Shortened Gains

Stocks Tumble Again Ahead Of Holiday


Stocks Surge Again On Top Fed Official's Comments
BY JONAH KERI

INVESTOR'S BUSINESS DAILY

Posted 11/28/2007

Stocks surged in higher volume Wednesday, rallying for the second straight session.

Fed comments hinting of more interest-rate cuts sparked the market, which got an added lift from another tumble in oil prices and a rally by financials.

The Nasdaq jumped 3.2%, doubling the size of Tuesday's advance. The Dow industrials bounced 2.6%, the NYSE composite 2.8%. The S&P vaulted 2.9%.


Volume perked up across the board.

Wednesday offered several encouraging signs for investors. But each one must be taken with a grain of salt, given the lessons taught to us by market history.

The Federal Reserve's No. 2 official, Donald Kohn, issued comments that hinted at a rate cut at the Fed's Dec. 11 meeting. The key fed funds rate currently stands at 4.5%, after rate cuts in September and October.

The last two times the Fed cut rates, the stock market cheered. The Nasdaq jumped 2.7% on Sept. 18 and 1.5% on Oct. 31. But the market couldn't sustain its gains after the second cut, as Oct. 31 proved to be the day the Nasdaq peaked.

Investors also reacted to a second consecutive big drop in oil prices on Wednesday. A smaller-than-expected drop in crude oil and distillate supplies helped shove January crude down $3.80 to $90.62 a barrel.

But oil prices' direction doesn't always provide a reliable indicator of the market's trend either. Stocks rallied for much of the year amid a steady uptick in oil prices.

Wednesday's price gain was one of the biggest of the year for the Nasdaq, an encouraging sign. But one big day doesn't mean much in the grander scheme. The Nasdaq's nine biggest up days of all time all occurred during the bear market of 2000 to 2003.

More recently, the Nasdaq's biggest up day of this year came on Nov. 13 — right before the market started a new leg down.

For now, consider Wednesday to be Day 2 of a rally attempt by the major indexes. We'll need to see more signs of strength among both the broad indexes and leading stocks before the market can take on a more bullish hue.

Top-rated stocks offered some encouragement. The IBD 100 soared 4.5%, marking one of its biggest up days of 2007.

The list of highly rated stocks gaining ground in brisk volume included big-cap leaders such as Amazon.com, (AMZN) Google, (GOOG) MasterCard (MA) and BlackRock, (BLK) as well as a bevy of mid-cap winners.

Elsewhere, Wells Fargo (WFC) said late Tuesday it would take a $1.4 billion write-down in Q4 for defaults. That was seen as a sign that subprime damage may be easing.

The Fed's beige book was gloomy but the market has seen positive signs elsewhere. For example, U.S. commanders are seeing significant progress in Iraq.

OK, so yesterday, 8 calendar days later they finally called it a confirmed rally.  Like I was saying, I think they are a few days late to the game, but want to be sure.  All I know is it is always reassuring to me when IBD says we are in a confirmed rally.

WHHEWWWW!! ;D :D ;) :) :o >:D

And congrats to David for having the conviction and big cojones to hang on through this one and still learn some new lessons along the way. 

 ;)

nice:
http://www.shadowtrader.net/videos/sunday120907st.html

Something is horribly wrong with the equity market when stocks rise and fall with such power based on a 1/4 point interest rate change.  The American economy and perhaps the world economy is too credit driven and not sustainable, in my humble opinion.

just speculation and profit taking...turn off your pc and turn on again next week, you will see nothing is changed

My concerns are not short term, as I am not a short term trader.  I am just making a general point that the world's market too credit driven.  One can make the argument that 50% of the market cap is fake--based on nothing more than credit that will never be paid back.

fyi:
STOCKS TUMBLE ON FED MOVE -- FINANCIALS LEAD DECLINE -- BONDS RISE ON
FLIGHT TO SAFETYFED CUTS TWO RATES BY A QUARTER POINT
... The market was more than a little disappointed by the two modest rate cuts by the
Fed and its accompanying statement. It lowered both the Fed fund and discount rates by a quarter of a point. Apparently, the market was hoping for more. The Fed's statement also showed a continuing concern about inflation. Judging from today's heavy selling, market
participants appear to be of the belief that the Fed has fallen behind the curve and is underestimating the threat to the economy from subprime and housing problems. At least that's the message the markets sent today. Stock fell heavily while bond prices rose sharply in a flight to safety. All market sectors and industry groups fell. The hardest hit were financials, homebuilders, and retailers all of whom are directly impacted by interest rates. Small caps and transports also fell sharply. Just yesterday I warned that lack of upside confirmation by those three groups threatened the viability of any yearend rally.

MARKET INDEXES FALL IN HEAVY TRADING
... Today's combination of falling prices and rising volume was decidedly negative. One of
readers expressed concern this week about the lack of upside volume in stock index ETFs during the recent rebound. The Dow Diamonds, the S&P 500 SPDRs and the Nasdaq 100 Power Shares have shown a marked decline in trading activity over the last month. Notice how the green volume bars (up volume) have been getting smaller and smaller as prices have advanced. That's a sign that the rally is on weak technical footing. To make matters worse, today's selloff of more than 2% came on noticeably heavy volume. All three indexes fell back below their 50-day averages, while the S&P 500 SPDR is threatening its 200-day line. Unless the Fed does something more dramatic before its next meeting, prospects for a continuing rally appear greatly diminished after today's heavy selling. Stay defensive.

Stocks Tumble Broadly On Fed's Interest Rate Cut
BY JONAH KERI

INVESTOR'S BUSINESS DAILY

Posted 12/11/2007

Stocks tumbled Tuesday, as the Fed's latest interest rate cut disappointed the market.

The Nasdaq dropped 2.4%. The NYSE composite skidded 2.6%, the S&P 500 2.5%, the Dow industrials 2.1%. Small caps fell hardest, as the S&P 600 dived 3%.

Volume surged across the board, picking up steam right after the Fed's news. Trading rose 19% on the Nasdaq and 27% on the NYSE compared with Monday's levels.


Heading into the session, futures traders had fully priced in the odds of a quarter-point rate cut. Many investors expected a half-point move.

The central bank opted for the quarter-point snip. Meanwhile, the market saw no encouraging signs in the Fed's remarks.

"Incoming information suggests that economic growth is slowing, reflecting the intensification of the housing correction and some softening in business and consumer spending," Fed officials noted.

The 1-2 punch of the more conservative rate cut and no strong signal of further easings turned stocks' early gains into big losses.

In the first five minutes after the announcement, the Nasdaq plunged about 1%. It kept falling from there, closing near its intraday lows.

The session marked the Nasdaq's second round of distribution since the market followed through on a new rally Nov. 28. Tuesday was the biggest one-day price decline for the Nasdaq since a 2.7% drop Nov. 7. Other major indexes also saw their largest drops since the early part of November.

Several leading stocks slid in heavy volume. The IBD 100 swooned 3.3%.

Bucyrus International (BUCY) touched an all-time high early in the day then reversed, closing down 7.72 to 88.66 on nearly twice its normal trade. However, the mining equipment maker held above its 50-day moving average.

Russian mobile phone service provider VimpelCom (VIP) shed 3.58 to 37.08 on double its average volume. It also remained above its 50-day after a brisk recent run-up.

When the market followed through late last month, we noted the need to wade into the market gradually, without overextending yourself too quickly.

That kind of prudence remains the best course of action two weeks later. Buy only the best stocks as they pass optimal buy points.

When you buy, start with a half-position, then look to fill out the rest if the stock shows strength. Avoid buying on margin until the market delivers more signs of strength, with more top stocks breaking out of sound bases.

If you've already jumped into the market and hit a snag, follow a set of sound sell rules. Sell any stock that falls 7% or 8% from your buy point.

Treasury prices surged on the rate cut. The yield on the benchmark 10-year note slid to 3.97% from 4.16% Monday.

I cant help but feeling that its good they only cut by 1/4 percent, because regardless of their conservative language today, it means they still have that other 1/4 point to cut next meeting, its like keeping an ace up your sleeve. 

For example, what would the markets do if they cut 1/2 point today, but not at all next meeting?  Its one thing to expect a half point rate cut and only get a quarter, but much worse IMO to expect a quarter point cut and get BUPKIS, ZILCH, ZERO, NADA!!!!

Exactly. That's way FED cut only 1/4 point instead of 1/2 point.
They will have in this way some more room and align with the current European prime rate that is at 4%.

I "love" these sell-offs because even if shake our portfolio, they wash out from the markets the weak hands and propose great entry prices for our stocks.

Pre market today is already pointing higher, so just a storm for nothing :-)

good morning!

looking at the SPX chart in the short term it looks like it will loose about another 1% today then it will set in a temporary base in which to rally. the fast stochastic has t come back down. after that comes the seasonal Christmas rally.

"Capitulation?! you know the one we didn't get during the 10% correction" was the comment of a short term trader in another forum.
hmm.

My take is the FED cut interest rates by just a quarter of a percentage point, instead of the half a point many hoped for, because the FED is looking ahead, not through the review mirror.

The FED already cut interest rates a full percentage point and they currently stand at 4.25%. This is less than what rates were in the 1990-91 recession we've talked earlier on this thread (http://www.3stocksonfire.org/trading/index.php?topic=10600.msg109167#msg109167):

(http://www.3stocksonfire.org/trading/index.php?action=dlattach;attach=42488;image)

Perhaps, if the US economy enters a cyclical recession and I think it will, the FED lowers rates another half a point during the course of 2008 and that's it.

I've already shown you what the stock market did while the 1990-91 recession was still ongoing:

(http://www.3stocksonfire.org/trading/index.php?action=dlattach;attach=42050;image)

It just took off, as the long term Bull Market continued.

I believe the outcome will be similar this time. The causes for this recession are cyclical and normal. Home builders and banks got greedy, had very fat profits while the party went on, but now they're paying the price of being reckless and greedy. They lent money to people they shouldn't have and now have these huge write downs in assets to make. And they are making them, they're feeling the pain and paying the price. The economy is functioning well.

In the meantime the World economy is growing and united like never before. We have the emergence of economic powerhouses where before nothing relevant in economic terms existed. The BRIC countries will, in my opinion and within a decade, bring 3 billion new consumers with purchasing power to the world market. People often downplay the inequalities the World has. People in these countries are 20 times poorer than the average American, if they rise to be just 10 times poorer, that's a double. And if they rise to be just 5 times poorer, that's a quadruple.

I've heard yesterday on CNBC that now more than half of the S&P 500 companies' revenues come from outside of the United States. More than half. So the S&P 500 is now more dependent on the World economy than the US economy.

The 1 million or 2 million Americans defaulting on their home payments or credit card payments is nothing compared to the World economy strength and what that means for the stock market's future.

I've a 700 pages book here called "The Wealth and Poverty of Nations" which explains why countries got richer or poorer throughout the centuries and I can assure you we're living an unprecedented time. Never in its history the World has been so open and everybody is using the same economic model (finally), the model that made the US what it is today. Capitalism is at work throughout the whole World now (with a few small exceptions) and it should work elsewhere the same way it worked in the US.

I think investors have plenty of reasons to be optimistic for the next decade. Sometime down the line everybody will rush in to buy shares and will drive valuations to stratospheric and unsustainable levels and then the S&P 500 will have a 50% hair cut, just like it happened in the 2000-2003 period.

My take is the S&P 500 will reach 6,000 points sometime between now and 2018 and then it will fall back down to 3,000 points ;D The march towards 2,000 points will be the slowest, then it will take 5 years or more to move from 2,000 to 4,000. The final 2,000 points, especially the final 1,000, will be made rather quickly, as the usual speculative bubble at the top progresses and then it blows out.

We're not at the top now, the market is in a prolonged trading range before it makes a bullish breakout to new all time highs. Be bearish or a weak hand and risk missing your way to a small fortune, depending on your initial capital.

I'll just hold on to my holdings throughout the storm and I expect to be paid handsomely for my patience. Anyway, the Main Portfolio is up 22% this year, I wish all years were like this, but I expect better results going forward, as the general market will probably help the stockpicker's job.

This was out about an hour ago:

Fed alliance to fight credit crunch (http://money.cnn.com/2007/12/12/news/economy/bc.na.fin.eco.us.fed.credit.ap/index.htm?postversion=2007121209)

Bernanke is very imaginative. If you needed a catalyst to take this market to new all time highs, you got one.

Morgan Stanley issues full US recession alert

By Ambrose Evans-Pritchard, International Business Editor
Last Updated: 2:17am GMT 13/12/2007

Morgan Stanley has issued a full recession alert for the US economy, warning of a sharp slowdown in business investment and a "perfect storm" for consumers as the housing slump spreads.
   
In a report "Recession Coming" released today, the bank's US team said the credit crunch had started to inflict serious damage on US companies.

"Slipping sales and tightening credit are pushing companies into liquidation mode, especially in motor vehicles," it said.

"Three-month dollar Libor spreads have jumped by 60 to 80 basis points over the last month. High yield spreads have widened even more significantly. The absolute cost of borrowing is higher than in June."

"As delinquencies and defaults soar, lenders are tightening credit for commercial, credit card and auto lending, as well as for all mortgage borrowers," said the report, written by the bank's chief US economist Dick Berner. He said the foreclosure rate on residential mortgages had reached a 19-year high of 5.59pc in the third quarter while the glut of unsold properties would lead to a 40pc crash in housing construction.

"We think overall housing starts will run below one million units in each of the next two years -- a level not seen in the history of the modern data since 1959," he said.

Although the US job market has apparently held up well, an average monthly fall of 138,000 in the number of self-employed workers over the last quarter suggests it may now be buckling. "Consumers face what could be a perfect storm," said Mr Berner.
   
Bank of America closes fund

The partial freeze on subprime mortgage rates announced last week by US treasury secretary Hank Paulson may help cushion the blow for some banks, but it could equally backfire by adding a "risk premium" that drives even more lenders out of the mortgage market.

Like Goldman Sachs, and Lehman Brothers, the bank no longer believes Asia and Europe will come to the rescue as America slows.

It has slashed its 2008 growth forecast for Japan from 1.9pc to 0.9pc, and warned that credit stress will weigh heavily on the eurozone.

Mr Berner said US demand is likely to contract by 1pc each quarter for the first nine months of 2008, but the picture could be far worse if the Federal Reserve fails to slash rates fast enough. It is betting on a quarter point cut this week, with three more cuts by the middle of next year. "We expect the Fed to insure against the worst outcome," he said.

Morgan Stanley is the first major Wall Street bank to warn that it is may now be too late to stop a recession, though most have shifted to an ultra-cautious stance in recent weeks.
The bank at first treated the August crunch as a "mid-cycle correction", much like the financial storm after Russia's default in 1998. But the collapse of the US commercial paper market has now continued for seventeen weeks, suggesting a "fundamental deleveraging of the banking system."

Mr Berner - known at Morgan Stanley as the "resident bull"- is one of the most closely watched analysts on Wall Street. While he began to turn bearish last April as the credit markets turned nasty, the latest report is written in tones that may is rattle the fast-diminishing band of optimists.

http://www.telegraph.co.uk/money/main.jhtml?view=DETAILS&grid=A1YourView&xml=/money/2007/12/11/cnusa111.xml

QuoteMr Berner - known at Morgan Stanley as the "resident bull"- is one of the most closely watched analysts on Wall Street. While he began to turn bearish last April as the credit markets turned nasty, the latest report is written in tones that may is rattle the fast-diminishing band of optimists.

Do you know why Richard Berner is known as the "resident bull"? Because he was a bull on the US economy throughout the 2000-2003 period, while the S&P 500 lost 50% of its value. And he was right, the US economy had its mildest recession ever after September 11, 2001.

Now he's prepared to be a pessimist on the US economy while the long term bull market in stocks is ongoing. My take is he'll be right again, the US economy will have a recession, and the S&P 500 will be up 20% - 30% twelve months from now.

Most economists are forecasting an economic recession in 2008 and the S&P 500 is just 4% shy of a new all time high. This should tell us something ... follow the money, not the talk.

nice chart quotation imho

Greenspan: Odds Rising for a Recession
Thursday December 13, 7:00 pm ET
By Jeannine Aversa, AP Economics Writer 
Greenspan: Odds of a Recessions Are Rising, Economic Growth Is Getting Close to 'Stall Speed'


WASHINGTON (AP) -- Former Federal Reserve Chairman Alan Greenspan says the odds the U.S. will fall into a recession are "clearly rising" and he believes economic growth is "getting close to stall speed."
ADVERTISEMENT





Greenspan, who ran the central bank for 18 1/2 years, until early 2006, offered his views on the economy in an interview on NPR News' Morning Edition that will air on Friday. Excerpts of the interview were released on Thursday.

A severe slump in the housing market, a stubborn credit crisis and turbulence on Wall Street are endangering the country's economic health. Growth in the current October through December period is expected to have slowed to a feeble pace of just 1.5 percent, or less.

Economists, including Greenspan, have warned that the chances of a recession are growing.

Asked whether the economy will tip into a recession -- something that has not happened since 2001 -- Greenspan said, "It's too soon to say, but the odds are clearly rising."

He said he felt this way because of the slowing pace of growth. "We are getting close to stall speed," he said. "We are far more vulnerable at levels where growth is so slow than we would be otherwise," he added. "Indeed, it's like someone who has an immune system that's not working very well is subject to all sorts of diseases and the economy at this lever of growth is subject to all sorts of shocks."

Greenspan's remarks come just days after the Federal Reserve, under Chairman Ben Bernanke, sliced a key interest rate for a third time this year to prevent the housing and credit troubles from sinking the economy.

The situation poses the biggest challenge yet to Bernanke since succeeding Greenspan in February 2006.

Some analysts have questioned whether Bernanke waited too long to cut the Fed's key rate and whether he has acted aggressively enough to soothe the economy's woes. The Fed initially dropped its key rate in September, the first reduction in four years. That was followed up by additional rate cuts in late October and then again on Tuesday.

Greenspan again rejected criticism that his policy actions helped to feed a housing boom that eventually went bust. Critics say Greenspan held interest rates too low for too long after the 2001 recession.

To have prevented such euphoria in housing that fed a bubble in prices, Greenspan said the Fed would have had to jack up interest rates so high that it would have damaged the economy. "That would have broken the back of the economy, and brought the housing boom down," Greenspan said.

Hi All
Long time no post!
Thought this was refreshing.
Happy Holidays and New Year to everyone.
All the Best
GMan


China and the Arabian Peninsula as Market Stabilizers
December 11, 2007 20:13 GMT
By George Friedman 


The single most interesting thing about today's global economy is what has not occurred. In 1979, oil prices soared to slightly more than $100 a barrel in current dollars, and they are approaching that historic high again. Meanwhile, the subprime meltdown continues to play out. Many financial institutions have been hurt, many individual lives have been shattered and many Wall Street operators once considered brilliant have been declared dunderheads. Despite all the predictions that the current situation is just the tip of the iceberg, however, the crisis is progressing in a fairly orderly fashion. Distinguish here between financial institutions, financial markets and the economy. People in the financial world tend to confuse the three. Some financial institutions are being hurt badly. Those experiencing the pain mistakenly think their suffering reflects the condition of the financial markets and economy. But the financial markets are managing, as is the economy.

What we are seeing is the convergence of two massive forces. Oil prices, along with primary commodity prices in general, have soared. Also, one of the periodic financial bubbles -- the subprime mortgage market -- has burst. Either of these alone should have created global havoc. Neither has. The stock market has not plummeted. The Standard & Poor's 500 fell from a high of about 1,565 in mid-October to a low of 1,400 on Oct. 19. Since then, it has rebounded as high as 1,550. Given the media rhetoric and the heads rolling in the financial sector, we would expect to see devastating numbers. And yet, we are not.

Nor are the numbers devastating in the bond markets. By definition, a liquidity crisis occurs when the money supply is too tight and demand is too great. In other words, a liquidity crisis would be reflected in high interest rates. That hasn't happened. In fact, both short-term and, particularly, long-term interest rates have trended downward over the past weeks. It might be said that interest rates are low, but that lenders won't lend. If so, that is sectoral and short-term at most. Low interest rates and no liquidity is an oxymoron.

This is not the result of actions at the Federal Reserve. The Fed can influence short-term rates, but the longer the yield curve, the longer the payoff date on a loan or bond and the less impact the Fed has. Long-term rates reflect the current availability of money and expectations on interest rates in the future.

In the U.S. stock market -- and world markets, for that matter -- we have seen nothing like the devastation prophesied. As we have said in the past, the subprime crisis compared with the savings and loan crisis, for example, is by itself small potatoes. Sure, those financial houses that stocked up on the securitized mortgage debt are going to be hurt, but that does not translate into a geopolitical event, or even into a recession. Many people are arguing that we are only seeing the tip of the iceberg, and that defaults in other categories of the mortgage market coupled with declining housing markets will set off a devastating chain reaction.

That may well be the case, though something weird is going on here. Given the broad belief that the subprime crisis is only the beginning of a general financial crisis, and that the economy will go into recession, we would have expected major market declines by now. Markets discount in anticipation of events, not after events have happened. Historically, market declines occur about six months before recessions begin. So far, however, the perceived liquidity crisis has not been reflected in higher long-term interest rates, and the perceived recession has not been reflected in a significant decline in the global equity markets.

When we add in surging oil and commodity prices, we would have expected all hell to break loose in these markets. Certainly, the consequences of high commodity prices during the 1970s helped drive up interest rates as money was transferred to Third World countries that were selling commodities. As a result, the cost of money for modernizing aging industrial plants in the United States surged into double digits, while equity markets were unable to serve capital needs and remained flat.

So what is going on?

Part of the answer might well be this: For the past five years or so, China has been throwing around huge amounts of cash. The Chinese made big, big money selling overseas -- more than even the growing Chinese economy could metabolize. That led to massive dollar reserves in China and the need for the Chinese to invest outside their own financial markets. Given that the United States is China's primary consumer and the only economy large and stable enough to absorb its reserves, the Chinese -- state and nonstate entities alike -- regard the U.S. markets as safe-havens for their investments. That is one of the things that have kept interest rates relatively low and the equity markets moving. This process of Asian money flowing into U.S. markets goes back to the early 1980s.

Another part of the answer might lie in the self-stabilizing feature of oil prices, the rise of which should be devastating to U.S. markets at first glance. The size of the price surge and the stability of demand have created dollar reserves in oil-exporting countries far in excess of anything that can be absorbed locally. The United Arab Emirates, for example, has made so much money, particularly in 2007, that it has to invest in overseas markets.

In some sense, it doesn't matter where the money goes. Money, like oil, is fungible, which means that if all the petrodollars went into Europe then other money would flow into the United States as European interest rates fell and European stocks rose. But there are always short-term factors to consider. The Persian Gulf oil producers and the Chinese have one thing in common -- they are linked to the dollar. As the dollar declines, assets in other countries become more expensive, particularly if you regard the dollar's fall as ultimately reversible. Dollars invested in dollar-denominated vehicles make sense. Therefore, we are seeing two massive inflows of dollars to the United States -- one from China and one from the energy industry. China's dollar reserves are derived from sales to the United States, so it is stuck in the dollar zone. Plus, the Chinese have pegged the yuan to the dollar. The energy industry, also part of the dollar zone, needs to find a home for its money -- and the largest, most liquid dollar-denominated market in the world is the United States.

The United States has created an odd dollar zone drawing in China and the Persian Gulf. (Other energy producers such as Russia, Nigeria and Venezuela have no problem using their dollars internally.) Unhinging China from the dollar is impossible; it sells in dollars to the United States, a linkage that gives it a stable platform, even if it pays relatively more for oil. Additionally, the Arabian Peninsula sells oil in dollars, and trying to convert those contracts to euros would be mind-bogglingly difficult. Existing contracts and new contracts managed in multiple currencies -- both spot and forward managed -- would have to be renegotiated. Any business working in multiple currencies faces a challenge, and the bigger the business, the bigger the challenge. The Arabian Peninsula accordingly will not be able to hedge currencies and manage the contracts just by flipping a switch.

This provides an explanation for the resiliency of U.S. markets. Every time the news on the subprime situation sounds so horrendous that it seems the U.S. markets will crash, the opposite occurs. In fact, markets in the United States rose through the early days, then sold off and now have rallied again. Where is the money coming from?

We would argue that the money is coming from the dollar bloc and its huge free cash flow from China, and at the moment, the Arabian Peninsula in particular. This influx usually happens anonymously through ordinary market actions, though occasionally it becomes apparent through large, single transactions that are quite open. Last week, for example, Dubai invested $7 billion in Citigroup, helping to clean up the company's balance sheet and, not incidentally, letting it be known that dollars being accumulated in the Persian Gulf will be used to stabilize U.S. markets.

This is not an act of charity. Dubai and the rest of the Arabian Peninsula, as well as China, are holding huge dollar reserves, and the last thing they want to do is sell those dollars in sufficient quantity to drive the dollar's price even lower. Nor do they want to see a financial crisis in the U.S. markets. Both the Chinese and the Arabs have far too much to lose to want such an outcome. So, in an infinite number of open market transactions, as well as occasionally public investments, they are moving to support the U.S. markets, albeit for their own reasons.

It is the only explanation for what we are seeing. The markets should be selling off like crazy, given the financial problems. They are not. They keep bouncing back, no matter how hard they are driven down. That money is not coming from the financial institutions and hedge funds that got ripped on mortgages. But it is coming from somewhere. We think that somewhere is the land of $90-per-barrel crude and really cheap toys.

Many people will see this as a tilt in global power. When others must invest in the United States, however, they are not the ones with the power; the United States is. To us, it looks far more like the Chinese and Arabs are trapped in a financial system that leaves them few options but to recycle their dollars into the United States. They wind up holding dollars -- or currencies linked to dollars -- and then can speculate by leaving, or they can play it safe by staying. In our view, these two sources of cash are the reason global markets are stable.

Energy prices might fall (indeed, all commodities are inherently cyclic, and oil is no exception), and the amount of free cash flow in the Arabian Peninsula might drop, but there still will be surplus dollars in China as long as it is an export-based economy. Put another way, the international system is producing aggregate return on capital distributed in peculiar ways. Given the size of the U.S. economy and the dynamics of the dollar, much of that money will flow back into the United States. The United States can have its financial crisis. Global forces appear to be stabilizing it.

The Chinese and the Arabs are not in the U.S. markets because they like the United States. They don't. They are locked in. Regardless of the rumors of major shifts, it is hard to see how shifts could occur. It is the irony of the moment that China and the Arabian Peninsula, neither of them particularly fond of the United States, are trapped into stabilizing the United States. And, so far, they are doing a fine job.

Quote from: guitarman on December 14, 2007, 10:24:06 PM
Hi All
Long time no post!
Thought this was refreshing.
Happy Holidays and New Year to everyone.
All the Best
GMan


China and the Arabian Peninsula as Market Stabilizers
December 11, 2007 20:13 GMT
By George Friedman 


The single most interesting thing about today's global economy is what has not occurred. In 1979, oil prices soared to slightly more than $100 a barrel in current dollars, and they are approaching that historic high again. Meanwhile, the subprime meltdown continues to play out. Many financial institutions have been hurt, many individual lives have been shattered and many Wall Street operators once considered brilliant have been declared dunderheads. Despite all the predictions that the current situation is just the tip of the iceberg, however, the crisis is progressing in a fairly orderly fashion. Distinguish here between financial institutions, financial markets and the economy. People in the financial world tend to confuse the three. Some financial institutions are being hurt badly. Those experiencing the pain mistakenly think their suffering reflects the condition of the financial markets and economy. But the financial markets are managing, as is the economy.

What we are seeing is the convergence of two massive forces. Oil prices, along with primary commodity prices in general, have soared. Also, one of the periodic financial bubbles -- the subprime mortgage market -- has burst. Either of these alone should have created global havoc. Neither has. The stock market has not plummeted. The Standard & Poor's 500 fell from a high of about 1,565 in mid-October to a low of 1,400 on Oct. 19. Since then, it has rebounded as high as 1,550. Given the media rhetoric and the heads rolling in the financial sector, we would expect to see devastating numbers. And yet, we are not.

Nor are the numbers devastating in the bond markets. By definition, a liquidity crisis occurs when the money supply is too tight and demand is too great. In other words, a liquidity crisis would be reflected in high interest rates. That hasn't happened. In fact, both short-term and, particularly, long-term interest rates have trended downward over the past weeks. It might be said that interest rates are low, but that lenders won't lend. If so, that is sectoral and short-term at most. Low interest rates and no liquidity is an oxymoron.

This is not the result of actions at the Federal Reserve. The Fed can influence short-term rates, but the longer the yield curve, the longer the payoff date on a loan or bond and the less impact the Fed has. Long-term rates reflect the current availability of money and expectations on interest rates in the future.

In the U.S. stock market -- and world markets, for that matter -- we have seen nothing like the devastation prophesied. As we have said in the past, the subprime crisis compared with the savings and loan crisis, for example, is by itself small potatoes. Sure, those financial houses that stocked up on the securitized mortgage debt are going to be hurt, but that does not translate into a geopolitical event, or even into a recession. Many people are arguing that we are only seeing the tip of the iceberg, and that defaults in other categories of the mortgage market coupled with declining housing markets will set off a devastating chain reaction.

That may well be the case, though something weird is going on here. Given the broad belief that the subprime crisis is only the beginning of a general financial crisis, and that the economy will go into recession, we would have expected major market declines by now. Markets discount in anticipation of events, not after events have happened. Historically, market declines occur about six months before recessions begin. So far, however, the perceived liquidity crisis has not been reflected in higher long-term interest rates, and the perceived recession has not been reflected in a significant decline in the global equity markets.

When we add in surging oil and commodity prices, we would have expected all hell to break loose in these markets. Certainly, the consequences of high commodity prices during the 1970s helped drive up interest rates as money was transferred to Third World countries that were selling commodities. As a result, the cost of money for modernizing aging industrial plants in the United States surged into double digits, while equity markets were unable to serve capital needs and remained flat.

So what is going on?

Part of the answer might well be this: For the past five years or so, China has been throwing around huge amounts of cash. The Chinese made big, big money selling overseas -- more than even the growing Chinese economy could metabolize. That led to massive dollar reserves in China and the need for the Chinese to invest outside their own financial markets. Given that the United States is China's primary consumer and the only economy large and stable enough to absorb its reserves, the Chinese -- state and nonstate entities alike -- regard the U.S. markets as safe-havens for their investments. That is one of the things that have kept interest rates relatively low and the equity markets moving. This process of Asian money flowing into U.S. markets goes back to the early 1980s.

Another part of the answer might lie in the self-stabilizing feature of oil prices, the rise of which should be devastating to U.S. markets at first glance. The size of the price surge and the stability of demand have created dollar reserves in oil-exporting countries far in excess of anything that can be absorbed locally. The United Arab Emirates, for example, has made so much money, particularly in 2007, that it has to invest in overseas markets.

In some sense, it doesn't matter where the money goes. Money, like oil, is fungible, which means that if all the petrodollars went into Europe then other money would flow into the United States as European interest rates fell and European stocks rose. But there are always short-term factors to consider. The Persian Gulf oil producers and the Chinese have one thing in common -- they are linked to the dollar. As the dollar declines, assets in other countries become more expensive, particularly if you regard the dollar's fall as ultimately reversible. Dollars invested in dollar-denominated vehicles make sense. Therefore, we are seeing two massive inflows of dollars to the United States -- one from China and one from the energy industry. China's dollar reserves are derived from sales to the United States, so it is stuck in the dollar zone. Plus, the Chinese have pegged the yuan to the dollar. The energy industry, also part of the dollar zone, needs to find a home for its money -- and the largest, most liquid dollar-denominated market in the world is the United States.

The United States has created an odd dollar zone drawing in China and the Persian Gulf. (Other energy producers such as Russia, Nigeria and Venezuela have no problem using their dollars internally.) Unhinging China from the dollar is impossible; it sells in dollars to the United States, a linkage that gives it a stable platform, even if it pays relatively more for oil. Additionally, the Arabian Peninsula sells oil in dollars, and trying to convert those contracts to euros would be mind-bogglingly difficult. Existing contracts and new contracts managed in multiple currencies -- both spot and forward managed -- would have to be renegotiated. Any business working in multiple currencies faces a challenge, and the bigger the business, the bigger the challenge. The Arabian Peninsula accordingly will not be able to hedge currencies and manage the contracts just by flipping a switch.

This provides an explanation for the resiliency of U.S. markets. Every time the news on the subprime situation sounds so horrendous that it seems the U.S. markets will crash, the opposite occurs. In fact, markets in the United States rose through the early days, then sold off and now have rallied again. Where is the money coming from?

We would argue that the money is coming from the dollar bloc and its huge free cash flow from China, and at the moment, the Arabian Peninsula in particular. This influx usually happens anonymously through ordinary market actions, though occasionally it becomes apparent through large, single transactions that are quite open. Last week, for example, Dubai invested $7 billion in Citigroup, helping to clean up the company's balance sheet and, not incidentally, letting it be known that dollars being accumulated in the Persian Gulf will be used to stabilize U.S. markets.

This is not an act of charity. Dubai and the rest of the Arabian Peninsula, as well as China, are holding huge dollar reserves, and the last thing they want to do is sell those dollars in sufficient quantity to drive the dollar's price even lower. Nor do they want to see a financial crisis in the U.S. markets. Both the Chinese and the Arabs have far too much to lose to want such an outcome. So, in an infinite number of open market transactions, as well as occasionally public investments, they are moving to support the U.S. markets, albeit for their own reasons.

It is the only explanation for what we are seeing. The markets should be selling off like crazy, given the financial problems. They are not. They keep bouncing back, no matter how hard they are driven down. That money is not coming from the financial institutions and hedge funds that got ripped on mortgages. But it is coming from somewhere. We think that somewhere is the land of $90-per-barrel crude and really cheap toys.

Many people will see this as a tilt in global power. When others must invest in the United States, however, they are not the ones with the power; the United States is. To us, it looks far more like the Chinese and Arabs are trapped in a financial system that leaves them few options but to recycle their dollars into the United States. They wind up holding dollars -- or currencies linked to dollars -- and then can speculate by leaving, or they can play it safe by staying. In our view, these two sources of cash are the reason global markets are stable.

Energy prices might fall (indeed, all commodities are inherently cyclic, and oil is no exception), and the amount of free cash flow in the Arabian Peninsula might drop, but there still will be surplus dollars in China as long as it is an export-based economy. Put another way, the international system is producing aggregate return on capital distributed in peculiar ways. Given the size of the U.S. economy and the dynamics of the dollar, much of that money will flow back into the United States. The United States can have its financial crisis. Global forces appear to be stabilizing it.

The Chinese and the Arabs are not in the U.S. markets because they like the United States. They don't. They are locked in. Regardless of the rumors of major shifts, it is hard to see how shifts could occur. It is the irony of the moment that China and the Arabian Peninsula, neither of them particularly fond of the United States, are trapped into stabilizing the United States. And, so far, they are doing a fine job.

George Friedman  ::)

Too Many mistakes in his articl !!
I think he knows nothing about oil producer . He's saying that arabs oil producer  their currencies are linked to the dollar And this is wrong  ???
there are only two countries out of 6 are linked to Dollar , also he's saying these weird words (The Chinese and the Arabs are not in the U.S. markets because they like the United States. They don't. They are locked in)  ???
If they'er locked in as he said , then why did Dubai invest $7 billion in Citigroup ?!! why investing in a bad economy ?  ::)
I know very well about the Arabian Gulf producer and they have been  investing in the us markets since1980 and if they decide to sell their investment I'm 100% will drug the market extremly down for months ...

The US. Market still very cheap and many investors are moving to the market . many stocks are 50% below their real value .

We will see new highs for the market , this is what I think for now ..

Good luck

The turmoil in the market indices slowed Thursday. Since the DJIA's fall last Tuesday, the trend of this index has been slightly down; however, the index has vacillated within a narrowing range of support and resistance, now approaching 13,300 and 13,500. The 44- point gain chalked up at the close yesterday is expected to be given back, and the DJIA should move mainly sideways until the current near-term downtrend has bottomed out, which is now expected to happen early next week.

The intermediate-term uptrend continues to develop despite the downward effect of the near-term trend. Uptrends to downtrends turned negative, an occurrence consistent with the rapidly declining near-term trend indicators. The intermediate term indicators, and Trend Ratio (percent of stocks in uptrends) took the shock pretty much in stride, holding steady and consistent with an uptrending support level for the DJIA, now approaching 13,300.

Previously, a 1.5% correction downward in the DJIA was forecasted, but it was not expected to happen in one day. Last Tuesday and Wednesday the market became very volatile, and 2.5% swings, both up and down, occurred very rapidly. Overall the near-term trend decline over three days has been about 250 DJIA points, or 2%, since this near-term downtrend commenced. The near-term trend indicators have retreated substantially from their previously overbought circumstances, and signs are their downward treks are slowing but a couple more days are likely to be required for these indicators to find their bottoms. Thus, it is probable that the DJIA will oscillate up and down between 13,300 and 13,500 as these two support/resistance levels converge and the near-term downtrend runs its course.

Separating the trend signal from the noise created by the trade-term trend has been the name of the game recently. With intraday DJIA swings of 300-400 points, the multi-day trend directions are not only obscured, but they become of lesser moment than the intraday gyrations. Nevertheless, anticipated economic uncertainty is the mood-driving force of buyers and sellers in the stock marketplace, and as long as various measures are interpreted as leading to more uncertainty, the stock market will be volatile. Trend proprietary indicators have proved reliable measures of the trends underlying the noise, and they currently point to an emerging intermediate-term uptrend opposed by a near-term downtrend, which will tend to neutralize each other until the near-term downtrend is spent.

shadowtrader update:
http://www.shadowtrader.net/videos/sunday121607st.html

;)

cheers
Oliver

I guess we can expect another volatile week.

Friday's Market Wrap video from IBD; I hope the link works.

http://www.investors.com/MediaCenter/?MediaID=753&t=V

Quote from: BigSully1 on December 17, 2007, 10:54:01 AM
Friday's Market Wrap video from IBD; I hope the link works.

http://www.investors.com/MediaCenter/?MediaID=753&t=V

Cool link, I like their format.

They said the rally was intact, but in The Big Picture column after today's action, they say "Market Rally Under Pressure"   :(

Quote from: tokyopua on December 18, 2007, 02:17:38 AM

Quote from: BigSully1 on December 17, 2007, 10:54:01 AM
Friday's Market Wrap video from IBD; I hope the link works.

http://www.investors.com/MediaCenter/?MediaID=753&t=V

Cool link, I like their format.

They said the rally was intact, but in The Big Picture column after today's action, they say "Market Rally Under Pressure"  :-[

Yes, they are also counting yesterdays trade as another distribution day for the indices.
Mondays Market Wrap;

http://www.investors.com/MediaCenter/?MediaID=757&t=V

Things looking better here. ;D

This could be the reversal.

its looking like a double bottom or W formation getting ready for the seosonal Christmas rally

IBD Market Wrap Tuesday;

http://www.investors.com/MediaCenter/?MediaID=764&t=V

Wednesday Market wrap

http://www.investors.com/MediaCenter/?MediaID=768&t=V

Quote from: BigSully1 on December 19, 2007, 11:00:11 PM
Wednesday Market wrap

http://www.investors.com/MediaCenter/?MediaID=768&t=V

These videos are great educational tools, as its often hard to follow IBD theory just from reading their books.  One of the problems for me is the way they use those wierd bars  ??? to show stock price history graphs.  Man, if they just used candlesticks, that would be  8).

Quote from: tokyopua on December 20, 2007, 02:46:58 AM

Quote from: BigSully1 on December 19, 2007, 11:00:11 PM
Wednesday Market wrap

http://www.investors.com/MediaCenter/?MediaID=768&t=V

These videos are great educational tools, as its often hard to follow IBD theory just from reading their books.  One of the problems for me is the way they use those wierd bars  ??? to show stock price history graphs.  Man, if they just used candlesticks, that would be  8).

Yes, I really like the vids but also wonder why they don't use candlesticks. I think anyone can access the videos without any subscription, at least I don't have to sign in to get them, so I won't post the links anymore. They also just started a new educational video series the other day, but can't find them now.

investors.com

Here's the daily stock analysis on Innerworkings INWK-interesting

http://www.investors.com/MediaCenter/?MediaID=771&t=V

Shadowtrader update:
http://www.shadowtrader.net/videos/sunday122307st.html

;)

final shadowtrader for 2007:
part1:
http://www.shadowtrader.net/videos/sunday123007st_1.html
part2:
http://www.shadowtrader.net/videos/sunday123007st_2.html

all the best for 2008!

Oliver

new year quotations:

(from old fool)
Happy New Year To All!  Monday was not a very good day but I am guessing much of it was tax loss selling.  (The rule was changed a couple of years ago – sell date is what counts now, not settlement date.)  Volume was still low at 1.5 billion with a ratio of 2.5 to 1.  Not bad efficiency.  Tomorrow should be very interesting. The bears captured the daily channel with 3 straight down days.  The indicators still look OK but the bulls need to come alive.  Right now the door is open all the way down to about 2610 and the bulls need to slam that door.  It could get ugly if they don't. The hourly charts look pretty nasty.  About the only thing positive is that the bulls did put up some fight and managed to save 2650.  That last 30 minutes was very ugly.
The ratio chart was up about 3000 when the bulls were doing a bit of buying but the option boys threw in the towel when we rolled over.  We are, however, still in positive crossover.  Keep an eye on this Wed – it will give you some insight into the option guys though process.
The weekly chart still looks OK but needs a kick in the butt.  We REALLY need an up week.
The Wilshire took a small hit but not as much as the NAZ – that's good.  I would not mind seeing the small fry take the lead up – that would be very positive.
The P&F chart dropped another 2 Os but has not issued a signal.  This chart is totally neutral.
No trades for me on Monday.  I swore off drugs (the market) for the last few days of the year.  100% cash in the TP.  I did make a strategic decision to take a BIG tax loss on WM and swap it for XLF in the LT taxable port.  (Fidelity says that's not a wash trade.)  It has been a very good year over in the LT port and I can use that loss.  I don't have a freaking clue what will happen tomorrow.  The market will be news driven and we have plenty due Wed-Fri.  Next support area is at 2635-2640 followed by 2625.  Resistance is at 2670.  Watch those levels and follow the ball.

Charts link below – first of the month – please throw me some votes so I can find the chart list.

http://stockcharts.com/def/servlet/Favorites.CServlet?obj=ID2071209

and additionally two chart quotations:

question to the gang:
Is this Old Fool update (from IV) usefull for you?
Should I continue with the posting?

thanks for your feedback!
Oliver

Old Fool Notes - 01/02/08
The first trading day of 08 did not look very optimistic and extended our losing streak to 4 consecutive days.  The bulls were totally on the side line and just refused to buy anything except a few select stocks.  Basically everything that could go wrong did.  Dollar dropped, gold and oil went up, ISM went down, etc.  So in the end we had increased volume of 2.0-2.1 billion (depending on whose number you like) with a ratio of 3.5 to 1 - a hell of an efficient day for the bears.

The daily chart looks like hell.  It is firmly in the bear camp.  The bulls managed to put on a small push and save 2600.  But I would not put 2575 out of reach.

The hourly charts clearly show that 2600 is about the last stop down to 2560.  The chart indicators are actually neutral, suggesting a move in either direction.

The ratio chart is on last stand.  The option boys did not even try today but went with the flow.  Still in positive crossover but with a negative chart pattern.

The weekly chart is just hanging on.  Positive action needed very soon.

The Wilshire chart suffered from another drop but, yet again, did not drop as bad as the Naz.  Sooner or later this will mean something - but not today.

The P&F chart set a high pole warning - not good.  The bulls have 10-20 points to play with on this chart but surely don't want more than that.

I had no trades today - much too busy to fool with it.  I will also note that today was a classic example of why you should stay on the bench until after 10am.  I have a number of internals charts that suggest that we are very close to the bottom of this move.  Nothing is lost, however, in waiting for some confirmation.  The dip could certainly go on for another day or two.  No need to rush facing up to a train - patience required.  Friday's job report will dictate the move so I plan to sit on the side until then.  Now, if I wake up in the morning and see futures up 20, I may change my mind.  But I doubt that happens.

Charts link below - Thanks for the votes last month.  I got a note from Stockcharts that I was awarded another month of service for the number of votes I received.  Shot - that's worth about $25 and I'll take all the help I can get.  Seriously - appreciate the support.

http://stockcharts.com/def/servlet/Favorites.CServlet?obj=ID2071209

This member of the gang finds them useful, applaud!  Its nice when we all pitch in info, I try sometimes to add the IBD Big Picture, etc.  So if you dont mind, please keep posting, at least on these crazy days when we need all the perspective we can get!

Quote from: la-onda on January 02, 2008, 11:33:42 PM
question to the gang:
Is this Old Fool update (from IV) usefull for you?
Should I continue with the posting?

thanks for your feedback!
Oliver

Old Fool Notes - 01/02/08
The first trading day of 08 did not look very optimistic and extended our losing streak to 4 consecutive days.  The bulls were totally on the side line and just refused to buy anything except a few select stocks.  Basically everything that could go wrong did.  Dollar dropped, gold and oil went up, ISM went down, etc.  So in the end we had increased volume of 2.0-2.1 billion (depending on whose number you like) with a ratio of 3.5 to 1 - a hell of an efficient day for the bears.

The daily chart looks like hell.  It is firmly in the bear camp.  The bulls managed to put on a small push and save 2600.  But I would not put 2575 out of reach.

The hourly charts clearly show that 2600 is about the last stop down to 2560.  The chart indicators are actually neutral, suggesting a move in either direction.

The ratio chart is on last stand.  The option boys did not even try today but went with the flow.  Still in positive crossover but with a negative chart pattern.

The weekly chart is just hanging on.  Positive action needed very soon.

The Wilshire chart suffered from another drop but, yet again, did not drop as bad as the Naz.  Sooner or later this will mean something - but not today.

The P&F chart set a high pole warning - not good.  The bulls have 10-20 points to play with on this chart but surely don't want more than that.

I had no trades today - much too busy to fool with it.  I will also note that today was a classic example of why you should stay on the bench until after 10am.  I have a number of internals charts that suggest that we are very close to the bottom of this move.  Nothing is lost, however, in waiting for some confirmation.  The dip could certainly go on for another day or two.  No need to rush facing up to a train - patience required.  Friday's job report will dictate the move so I plan to sit on the side until then.  Now, if I wake up in the morning and see futures up 20, I may change my mind.  But I doubt that happens.

Charts link below - Thanks for the votes last month.  I got a note from Stockcharts that I was awarded another month of service for the number of votes I received.  Shot - that's worth about $25 and I'll take all the help I can get.  Seriously - appreciate the support.

http://stockcharts.com/def/servlet/Favorites.CServlet?obj=ID2071209

You have my vote for continuance, La-onda.

IBD Big Picture:  Market rally back under pressure:

----------------------------------------

Stocks fell hard Wednesday, starting the new year with losses on a weak manufacturing report and surging oil prices.

The Nasdaq tumbled 1.6%. The NYSE composite sank 1%, the S&P 500 1.4%, and the Dow industrials 1.7%.Volume surged across the board, as traders returned to Wall Street after the New Year's holiday. NYSE trading rose 26% compared with Monday's pre-holiday levels. Nasdaq turnover swelled 44%.

Wednesday's session marked a distribution day for the major indexes. That brings the total to six for the Nasdaq and five for the broad NYSE indexes over the past few weeks.


It also netted a fourth straight down day for the Nasdaq, including back-to-back distribution days. The technology-laden composite has now dropped 4.2% over the past four sessions. That's the worst four-day streak since Nov. 7 to Nov. 12.

The market's November rough patch prompted a change in IBD's Market Pulse, to acknowledge the market coming under pressure. We've made the same change today.

January is often an uncertain time for the market. Given that history, along with stocks' recent jitters, it's a good idea to switch to a conservative approach.

Avoid new buys. Cut losses short. If you own a leading stock that's starting to waver, consider taking partial profits.

A manufacturing report dealt the day's first blow. The Institute for Supply Management's index for December sank to 47.7 from 50.8 in November.

That was the first contraction in manufacturing activity since January 2007. It was also the weakest reading since April 2003.

Elsewhere, oil and gold prices spiked to record highs. February crude soared above $100 a barrel intraday. It pulled back a bit but still closed up $3.64 at $99.62.

February gold jumped $23.20, closing at $861.20 an ounce.

Stocks showed a little life in the afternoon, as the Federal Reserve released the minutes from its Dec. 11 policy meeting.

But the market's bounceback didn't last, as the major gauges closed near their intraday lows.

Several top-rated stocks took a hit, as the IBD 100 gave up 0.8%.

Fossil (FOSL) gapped down at the opening bell, closing down 2.19 at 39.79 in twice its normal trade.

The maker of watches, handbags and other accessories fell after a Piper Jaffray analyst downgraded the stock to neutral from a buy rating, citing valuation concerns.

Amphenol (APH) slid 2.17 to 44.20 in brisk turnover. The maker of fiber-optic connectors dropped all the way to its 50-day moving average after a downgrade by Stifel Nicolaus.

The news wasn't all bad among leading stocks. China Medical (CMED) Technologies picked up 2.47 to close at 46.86, breaking out of a two-month base.

Amazon.com, (AMZN) Southwestern Energy (SWN) and a few other highly rated issues also fared well.

------------------------------------------------

Things just arent looking good...

Jobs number was ugly.  :'(

Nasdaq hitting that trend-line...

Brutal    :'(

Trend-line broken.

Next trendline (which I can't get on Stockcharts) going back 5 years brings us to around 2230 on the Nasdaq. :-\

just great entry points for us!

stay tuned ;-)

Quote from: kslifka on January 04, 2008, 02:46:44 PM
Brutal    :'(

Trend-line broken.

Next trendline (which I can't get on Stockcharts) going back 5 years brings us to around 2230 on the Nasdaq. :-\

Agreed, brutal.  The broken trend line made me reconsider some things. 

I sold all US holdings except for GSB, the rest remaining are my Chinese or Israeli holdings.  And for those remaining that I havent held long, I will consider dropping for now and looking for better entries. 

CIMT for example though I know I wont sell no matter what, I have almost held that a year and it is doing well despite the market downturn.

Looking at the chart you posted, would you agree that the three labeled peaks on the right side now look like a head and shoulders pattern which just broke to the downside (and through a major trend line a that)?

Quote from: tokyopua on January 04, 2008, 04:39:05 PM

Quote from: kslifka on January 04, 2008, 02:46:44 PM
Brutal    :'(

Trend-line broken.

Next trendline (which I can't get on Stockcharts) going back 5 years brings us to around 2230 on the Nasdaq. :-\

Agreed, brutal.  The broken trend line made me reconsider some things. 

I sold all US holdings except for GSB, the rest remaining are my Chinese or Israeli holdings.  And for those remaining that I havent held long, I will consider dropping for now and looking for better entries. 

CIMT for example though I know I wont sell no matter what, I have almost held that a year and it is doing well despite the market downturn.

Looking at the chart you posted, would you agree that the three labeled peaks on the right side now look like a head and shoulders pattern which just broke to the downside (and through a major trend line a that)?

Looks more like a "bearish" "M" shape. 

The double top in a short period of time in December was the warning signal.

Quote from: kslifka on January 04, 2008, 05:24:29 PM

Quote from: tokyopua on January 04, 2008, 04:39:05 PM

Quote from: kslifka on January 04, 2008, 02:46:44 PM
Brutal    :'(

Trend-line broken.

Next trendline (which I can't get on Stockcharts) going back 5 years brings us to around 2230 on the Nasdaq. :-\

Agreed, brutal.  The broken trend line made me reconsider some things. 

I sold all US holdings except for GSB, the rest remaining are my Chinese or Israeli holdings.  And for those remaining that I havent held long, I will consider dropping for now and looking for better entries. 

CIMT for example though I know I wont sell no matter what, I have almost held that a year and it is doing well despite the market downturn.

Looking at the chart you posted, would you agree that the three labeled peaks on the right side now look like a head and shoulders pattern which just broke to the downside (and through a major trend line a that)?

Looks more like a "bearish" "M" shape. 

The double top in a short period of time in December was the warning signal.

I was looking at the longer term chart you posted of the $COMPQ, so starting in mid July last year it looks like a left shoulder at 2724 peak, the head at 2861 peak, the right shoulder is that M shape with a peak around 2734.

Well, anyway you slice it this isnt looking good.  :'(

Quote from: tokyopua on January 04, 2008, 04:39:05 PM

Quote from: kslifka on January 04, 2008, 02:46:44 PM
Brutal    :'(

Trend-line broken.

Next trendline (which I can't get on Stockcharts) going back 5 years brings us to around 2230 on the Nasdaq. :-\

Agreed, brutal.  The broken trend line made me reconsider some things. 

I sold all US holdings except for GSB, the rest remaining are my Chinese or Israeli holdings.  And for those remaining that I havent held long, I will consider dropping for now and looking for better entries. 

CIMT for example though I know I wont sell no matter what, I have almost held that a year and it is doing well despite the market downturn.

Looking at the chart you posted, would you agree that the three labeled peaks on the right side now look like a head and shoulders pattern which just broke to the downside (and through a major trend line a that)?

I think you did the right thing Tokyo. I'm pretty sure IBD will now take a corrective mode posture from their "rally under pressure" one. They have already been saying for some time that you shouldn't be fully invested, to be careful entering into new positions and be quick to cut losses.

I've cut only a few holdings, but instead have gone on margin to hedge with ultrashorts late last year. That is the only time I ever use margin and feel safe doing so for that purpose. But It may be time to consider selling more longs and becoming "net short"

I think the only thing that can probably turn this around now would be a surprise early interest rate cut of .5 BEFORE the end of month. I think it might be a possibility.

[/quote]

Quote from: BigSully1 on January 04, 2008, 05:59:03 PM

Quote from: tokyopua on January 04, 2008, 04:39:05 PM

Quote from: kslifka on January 04, 2008, 02:46:44 PM
Brutal    :'(

Trend-line broken.

Next trendline (which I can't get on Stockcharts) going back 5 years brings us to around 2230 on the Nasdaq. :-\

Agreed, brutal.  The broken trend line made me reconsider some things. 

I sold all US holdings except for GSB, the rest remaining are my Chinese or Israeli holdings.  And for those remaining that I havent held long, I will consider dropping for now and looking for better entries. 

CIMT for example though I know I wont sell no matter what, I have almost held that a year and it is doing well despite the market downturn.

Looking at the chart you posted, would you agree that the three labeled peaks on the right side now look like a head and shoulders pattern which just broke to the downside (and through a major trend line a that)?

I think you did the right thing Tokyo. I'm pretty sure IBD will now take a corrective mode posture from their "rally under pressure" one. They have already been saying for some time that you shouldn't be fully invested, to be careful entering into new positions and be quick to cut losses.

I've cut only a few holdings, but instead have gone on margin to hedge with ultrashorts late last year. That is the only time I ever use margin and feel safe doing so for that purpose. But It may be time to consider selling more longs and becoming "net short"

I think the only thing that can probably turn this around now would be a surprise early interest rate cut of .5 BEFORE the end of month. I think it might be a possibility.

[/quote]

I agree with you BigSully...a sell into any rally would be advisable here.  There is that possibility that we do get a surprise early rate cut...which you just never know with Bernanke

I sold all US holdings except for GSB, the rest remaining are my Chinese or Israeli holdings.  


[/quote]

Tokyo what you said brought a funny, or very sad (depending on how you look at it) thought to mind. It used to be when there was trouble with the U.S. economy, the first thing we did was pull out of emerging markets as they were considered very risky and were severely effected by our economy. Nowadays we tend to seek safe haven in the emergings markets when trouble brews here. Geez, how times have changed.

just fyi:

Charts That Suggest a Bounce
(from Tim Knight)
This is one of the days that must be handled adroitly. Being ham-handed on a day like this can cause huge damage (or at least blow big opportunities).

I'm out of my index puts. I've bought S&P calls (yep, calls). I've still got a bushel of equity puts, but I'm trimming here and there. As I look at the index charts, I see mounting evidence for a bounce here. The big picture looks better than ever for a bear market. But I'm profoundly nervous about a bounce at this point and feel compelled to hedge against that possibility. Here are the charts, without commentary:

(UPDATE: Well, that was a profound waste of money on my part. I bought SPX and RUT calls. Saw things weaken. And thus generated my only multi-thousand dollar losses for the day. Stick to the bearish plays, dickhead.....)
I just wanted to make sure my last post about a possible bounce wasn't at the top!

Clearly it's an awesome day for the bears. I think all of us are expecting dumbshit Bernanke to show up and get on his knees for the bulls like he always does with a 300 basis point cut this weekend or something.

Quote from: terainvestment on January 04, 2008, 02:48:36 PM
just great entry points for us!

stay tuned ;-)

I agree good entry point.
Tell me what you think, anyone? Look at the DDM -  Ultra Dow 30 ProShares Fund
We are getting close to 75.65 range, maybe a few more down days. This was the low March 07.
I know past performance does not guarantee future results, but I think a bounce is in the near future. jmo

la-onda look at the UltraShort Russell 2000 Fund. They all look up.
What goes up must come down. 
I am sorry for your loses today. And I am sure you do not want to hear any news of a bounce, especially from a dumb blond.
By the way, I love your input and sharing of knowledge on the forum.

Quote from: BigSully1 on January 04, 2008, 07:29:13 PM

I sold all US holdings except for GSB, the rest remaining are my Chinese or Israeli holdings.  

Tokyo what you said brought a funny, or very sad (depending on how you look at it) thought to mind. It used to be when there was trouble with the U.S. economy, the first thing we did was pull out of emerging markets as they were considered very risky and were severely effected by our economy. Nowadays we tend to seek safe haven in the emergings markets when trouble brews here. Geez, how times have changed.


[/quote]

Heh, well not sure I am doing the right thing, but that is just how it all played out.  But it was the jobs number in the US that brought this on today, and foreign stocks like SDTH and CIMT have been doing great or at least fine despite the market downturn.  GSB also wasnt getting hit much, though CHME was starting to hurt again.  I got into UTVG really low so still gaining there, but since its recent I feel less tied to it than others and could jettison it with an eye to buy later.  GIGM I had but David called the sell so it was gone before today. 

I didnt sell anything during the last correction, but considering this rally didnt last but for a few weeks, I dont plan to be as cavalier this time around.

Anyway, will watch the IBD recap and think about this over the weekend.  Here is what IBD has to say in the meantime (as expected they say the market is back in correction):

-----------------------

Stocks Dive On Jobs Report As Correction Takes Hold
BY JONAH KERI

INVESTOR'S BUSINESS DAILY

Posted 1/4/2008

Stocks plunged Friday, as a weak jobs report served a knockout blow to the market's ailing rally.

The Nasdaq gapped down at the opening bell, then closed near the day's lows, sliding 3.8%. That marked the Nasdaq's biggest single-day loss since February.

The S&P 500 swooned 2.5%, the NYSE composite 2.3% and the Dow 2%. The IBD 100 slid 4.2%.


Volume surged across the board, the latest bout of distribution for a market that racked up multiple higher-volume sell-offs the past couple of weeks.

For the week, the Nasdaq skidded 6.3%. The S&P 500 dropped 4.5%, the Dow 4.2% and the NYSE composite 3.8%. Top-rated stocks tracked by the IBD 100 slumped 5.1%.

Those losses confirm that the market's in a correction. Today's Market Pulse notes the change.

When stocks move into a correction, there's only one sure way to protect your capital: cutting losses and moving to cash. At a minimum, that means selling any stock that's fallen 7% to 8% from your initial purchase point.

This is exactly the sort of market situation that demands such discipline. All big losses begin as manageable declines, whether for the broad market or your portfolio.

If you sell a stock when it drops 7% from your buy point, you need just a 7.7% gain to get back to even.

If you let that loss grow to 25%, you'll require a 33% profit to get back to even. A 33% loss requires a 50% gain to even the score. Let a loss swell to 50%, and you'll need a 100% gain to return to square one.

At the start of a correction, you don't know how deep the losses are going to go or how long they'll last. Taking a defensive stance protects you against that uncertainty.

Being an individual investor affords you the luxury of buying during bull markets and staying high and dry when things turn for the worse. In 2007, growth investors who jumped into institutional quality leaders during the brief rallies, then cashed out when corrections hit, netted solid profits.

If you feel you absolutely must own some stocks, look to defensive names. Coca-Cola, (KO) Colgate-Palmolive (CL) and other defensive stocks have held up well. Fund managers often rotate money into such stocks when the market falls.

The December jobs report showed a gain of just 18,000 jobs, well short of the projected 70,000-job bump. The unemployment rate spiked to 5%, above the expected 4.8% figure.

Futures traders are betting on a bigger rate cut at the Federal Reserve's next meeting. The odds of a 50-point cut are pegged at 68%

-----------------------------------------------

An emergency rate cut before the next meeting would be great, but I dont see it happening personally.

Anyone know what Cramer is saying about the chances of a rate cut, somehow he is pretty accurate on those IME?

This is what I found on another service.
"Watch GS, the way Goldman Sacs goes so does the market"
"If the financials keep going down the lower the market will go"

He told his group to go to cash in December right before the year was over and go short.

http://www.investors.com/mediacenter/MediaArchive.aspx?t=v

They mention a stock called IRIS, might be worth checking into... 

Otherwise though, they recommend not buying new stocks as usual during a correction and looking for rally attempts.  Clearly rate cuts will bring rally attempts, the question will be whether there are follow through days afterwards to get the market back into full rally mode.

shadowtrader update:

http://www.shadowtrader.net/videos/sunday010608st2.wmv

;)

Interesting read from Yahoo MB on the QQQQ's, I have this bad feeling about the markets in the U.S. and eventually abroad, the same feeling I had in Dec. 1999, but for different reasons.  I know David is investing for the long term, but Cash is king sometimes.  I may miss a bounce on a Fed cut, but for know I'm out of the market with a good return for the year.  (I just want to preserve my capital)  Will wait for the clouds to clear for a jump back in, it's going to have to be a "I know that I know revelation when I re-invest."  I will still subscribe to 3stocks, because David is one of the best and I respect his views.  GLTA, cheers, Ellen

View all Topics | View all Messages   < Newer Topic | Older Topic >
TRUTH SERUM: 2008     24-Dec-07 02:58 pm   
Don't be delusional...

- If real estate and related garbage accounted for ~30-40% GDP growth in the last five years is smelling like shit it is bound to have ramifications that are going to be painful...

- If financials at ~20% to 25% of S&P 500 are getting destroyed by real estate and related derivatives kryptonite it is bound to squeeze the shit out of the American Eagle in every quarter as credit contraction takes hold...

- If corporates are at the peak of their profits and that the business cycle is tipping downwards, cheap talk on valuations being cheap is nothing but intellectual prostitution.

- If consumers at ~72% of GDP is with zero savings and loaded to gills with debt, and the housing ATM machine away, and job outlook weakening by the minute are hurting despite forced smiles at Christmas dinner tables it is bound to bound to destroy the lazy and zero IQ society that USA has become.

- If corporate balance sheets - are being destroyed as in the case of financials; - are being frivoulsly used to repurchase stock to offset generous options dilution as in the case of technology companies; - are being used to dole out generous dividends in the case of consumer companies; - are being used to fund expensive new drugs/new fabs with nothing much to show in the case of drug /semiconductor companies; and being used as a source of cash to meet working capital obligations in most cases in the face of credit contraction; it shows there is no hope for stability, and little faith in profitable growth.

- If credit markets are in a deep freeze, consuming anti-freeze in terms of Arab, Chinese, Singaporean, or local funding on onerous terms is not going to cure the loss of trust in corporate balance sheets that are laden with toxic garbage.

- Fraud Engineering Department (FED) can accept garbage as collateral but it is garbage on it books at the end of the day; ECB can inject $0.5 trillion in ready credit but LIBOR knows it is liuidity/credit is not the issue. Cost of capital can be addressed in with various capital structures, but cost of garbage and price for garbage always ZERO!

- If stock market on its most logical day has an IQ of 70, there is no ned to analyze it logically to the nth degree but trade the hell out of it based on the magic show being enacted.

- If stock market participants look so glum to you at just a few percentage points of the peak of many indices, imaginw waht it would be likw when the indices and their components are off 30% or greater?

Enjoy your Christmas dinner, for I will assure you that truth serum will enter your blood stream and your brain cells shortly afterwards...

I think its time again for David to post the 90-91 recession with what happened afterwards chart again. If you are really long term investor [more than 1 to 3 years] you should not be worried about the current flux. However, for short termers it is time to be cautious.

One more thing. David has more experience and better record than anyone of us. But his outlook is much longer term and you need to have the same outlook if you want to replicate his performance. Now if you are buying with David and selling b/c market is looking bad then you may underperform.

To know your time horizon is as much important as picking the right stocks. Decide this first.

from IV:
Friday was a nasty day for the ages.  Nothing but down.  The volume was high at 2.5 billion with a ratio of 13.6 to 1 – no typo folks.  No wonder we lost 100 points.  Anyone that had any profit cashed it in.

The daily channel chart is dismal – no other way to describe it.

The hourly charts are also dismal and basically unusable at this point exceprt for upside resistance.

The ratio chart sided with the bears and has gone into bear crossover mode.

The weekly chart is not dead but it is hurting real bad.  2500 is the line in the sand.

Again, the Wilshire did not get hit as bad as the NAZ but it was ugly anyway.

The P&F is showing a NASTY double bottom breakdown.

I went 30% long QID on the 10am breakdown and sold it near the close.  If we had been down 50, I probably would have held it but a day like Friday is nothing to mess with.  This is a very dangerous market for both bulls and bears.  There is a reasonable possibility of a strong pushback or a further challenge to the 2400-2450 range.  I don't know which will transpire but I do know what Friday was all about – it was heavy profit taking.  There was some fear mixed in and the big bulls need to start putting on the breaks to stabilize the situation.  Otherwise, it could turn into pure fear.  Let's see what happens tomorrow.

Charts link below.

http://stockcharts.com/def/servlet/Favorites.CServlet?obj=ID2071209

Have a good evening,

The Old Fool
8)

Well, the sky is falling, AGAIN At least according to some pundits.

I live in NY State, US. We are a rust belt State and the area outside of NYC has seen the bulk of the old time industries leave the area. We have never been a high growth area in the last 50 years. Would you like to know what an article on the front page of the local Buffalo paper was talking about? It talked about how the Albany,NY region was booming. Our local economy is stable, but things are beginning to happen. Hundreds of millions in water front development are underway. The housing market is steady and progressing about the same as it has always been. A couple of real estate agents I know had all time record years. The small town I live in had  about 250,000 visitors to a local summer theater. There are several housing developments underway. Qualified buyers are getting mortgages just fine. There are no big new unemployment lines, even though the employment market has been soft for as long as I can remember. there is no panic or pervasive talk about loosing jobs as there has been in past recessions.
There are forecloses and, periodic announcements of job losses (and job gains)  The high price of oil is eroding discretionary income, but it hasn't stopped people from filling the stadium for a loosing football team or even for a Jan 1 outdoor hockey event. People are living pretty much the same as always.

I don't believe that we are alone in this outlook. The Midwest is flush with corn money, as one example. Our idiot president will be gone in less than a year, which will create a new foreign policy, stimulate the whole scientific/technology areas such as stem cell research, green energy industries, and even the antiquated US auto industries may finally be forced to modernize their thinking.

I see financial's in trouble, but don't see a "credit crunch" which is a different animal altogether. I see certain over heated housing markets, where values have tripled, retrenching 10-15%. Painful for some individuals, but not "the end of the world as we know it"  Good buying opportunities for the millions of first time home owners out there.
Inflation is moderate, especially outside of the energy sector.

Will the market continue to be volatile, probably. Will it have a downward bias, sometimes. Will there be trading opportunities, yes. Will there be investment opportunities, absolutely.

My advice for 2008 to myself- stay calm, keep a clear head. Chicken little has never been right before and there is NO evidence that he will be this time.   

Quote from: tokyopua on January 05, 2008, 02:38:15 PM
http://www.investors.com/mediacenter/MediaArchive.aspx?t=v

They mention a stock called IRIS, might be worth checking into... 

Otherwise though, they recommend not buying new stocks as usual during a correction and looking for rally attempts.  Clearly rate cuts will bring rally attempts, the question will be whether there are follow through days afterwards to get the market back into full rally mode.

IRIS is making that breakout attempt. new high.

We're starting to see a pretty good divergence between the Nasdaq and and the China markets.(and I understand the Nasdaq has been hit the hardest...down 7 days in a row :(...we probably will see a rally Tuesday :) )

Take a look at the 5-day charts...when the U.S. markets started dropping and the China markets started to rise.

This is the signal toward the global story...I think we need to see if we want to move higher.

old fool from IV:

Old Fool Notes - 01/07/08

I was reasonably impressed by the NAZ action today - the bulls did not throw in the towel.  At the same time the Dow and broader market advanced a bit.  Nice bottoming action across the board.  Volume was 2.6 billion with a ratio of 1.6 to 1 in favor of the bears.  About right for 5 points.  No rush - I expect slow motion action here.

The bears still own the daily channel chart and there is little justification for fighting the tape.  The bulls do not need to fight hard - just hold her steady.

The hourly charts show a bit of bottoming action and we were able to drop in some new support and resistance levels.  No rush is the message here.

The ratio chart perked up a bit but the chart is still in bear crossover mode.  But not very strong in either direction - neutral.

The weekly chart has, once again, flipped the channel to the bears.  At the same time the indicators are in bottoming mode.  So - neutral.  This chart clearly suggests that the bulls need to push fairly hard this week.  That is somewhat inconsistent with my concept of slow motion action and is a bit of a conundrum.

The Wilshire turned in a slightly positive day.  That's about the fourth day in a row it has outperformed the NAZ - and it certainly needs it.  Neutral.

The P&F chart added another 2 Os to the double bottom breakdown on the early move down.  Not a favorable chart.  The bulls need to get with the program.

No trades today - much too busy to play.  However, if you were inclined to day trade, it may have been a very good day.  The action was fairly furious.  Overall, I interpret the action as favorable for the bulls moving forward.  They will have to reinforce the action over the next few days in the face of continuing downgrades by the big houses.  Can they stand the pressure?  I don't know.  We will see and in the meantime, I will just hang out.  Danger for both bull and bear still exist and there is no sense in rushing.

Charts link below.

http://stockcharts.com/def/servlet/Favorites.CServlet?obj=ID2071209

upside down W formation? ???
http://books.google.com/books?id=Xu1QwIwCJdQC&pg=PA626&lpg=PA626&dq=upside+down+w+formation&source=web&ots=H6IGvhTMt8&sig=9DKvfVnf4IEWyCrSZEOp7HY-kCE (http://books.google.com/books?id=Xu1QwIwCJdQC&pg=PA626&lpg=PA626&dq=upside+down+w+formation&source=web&ots=H6IGvhTMt8&sig=9DKvfVnf4IEWyCrSZEOp7HY-kCE)
When a Relative Strength Index Line spikes down and penetrates 30 on the Index Scale, then moves up, then is followed by another down spike (less than the first), a buby signal is generated as the index line rises to a level equal to the middle of the "W" Formation. A sell signal appears in a similar manner, but spiking up rather than down (an upside down "w"), above 70 on the index scale.

Do you ever wish sometimes the market would just close...instead of selling off in the last hour.

Down 8 days in a row now with the Nasdaq.  Hasn't happened in years. :P

Ouch, crazy day.  I had weak hands yesterday and sold more stocks, I am down to CIMT, CHME.OB and UTVG.OB.  I am really tempted to buy some back for a bounce, but with days like this I am still not sure what is up with this crazy market.  ::) :(

The market is in "spook" mode.  Any bad news related to consumer debt is sending the market into to a tailspin.

Once the market closes it's eyes to this bad news and goes up...would be a good time to get in ...in my opinion.  Either way...we should see a rally very  soon....I mean the Nasdaq down 8 days in a row...when's the last time that's happened ???

One thing to watch for now are earnings warnings.  This could really put the market into a tailspin.

It is nice to see CIMT green during this bloodbath. :)

Quote from: kslifka on January 08, 2008, 05:06:36 PM
The market is in "spook" mode.  Any bad news related to consumer debt is sending the market into to a tailspin.

Once the market closes it's eyes to this bad news and goes up...would be a good time to get in ...in my opinion.  Either way...we should see a rally very  soon....I mean the Nasdaq down 8 days in a row...when's the last time that's happened ???

One thing to watch for now are earnings warnings.  This could really put the market into a tailspin.

It is nice to see CIMT green during this bloodbath. :)

Today it was another CFC bankruptcy rumor. (Could be more than just rumor)

I've already been negatively surprised by a few early reporters. Hope thats not becoming a trend. Are we already be in a recession and just don't realize it yet?

Quote from: BigSully1 on January 08, 2008, 05:19:42 PM

Quote from: kslifka on January 08, 2008, 05:06:36 PM
The market is in "spook" mode.  Any bad news related to consumer debt is sending the market into to a tailspin.

Once the market closes it's eyes to this bad news and goes up...would be a good time to get in ...in my opinion.  Either way...we should see a rally very  soon....I mean the Nasdaq down 8 days in a row...when's the last time that's happened ???

One thing to watch for now are earnings warnings.  This could really put the market into a tailspin.

It is nice to see CIMT green during this bloodbath. :)

Today it was another CFC bankruptcy rumor. (Could be more than just rumor)

I've already been negatively surprised by a few early reporters. Hope thats not becoming a trend. Are we already be in a recession and just don't realize it yet?

I think the earnings will give us a clearer picture to the recession question.  Right now the market is acting like "yes" we are in a recession or "will" be in one this quarter.

Having said that, I believe the market sometimes scares itself.   Business' start cutting back and getting more conservative...because the stock market is telling them too.

Quote from: kslifka on January 08, 2008, 03:57:11 PM
Do you ever wish sometimes the market would just close...instead of selling off in the last hour.

Down 8 days in a row now with the Nasdaq.  Hasn't happened in years. :P

Sometimes capitulation works out this way ... instead of a key reversal day you get a series of negative days.

This period reminds me of 2004, when the market had an 8 months correction. I remember when the market broke down below the horizontal supports and ...

(http://www.3stocksonfire.org/trading/index.php?action=dlattach;attach=43008;image)

... that was the bottom:

(http://www.3stocksonfire.org/trading/index.php?action=dlattach;attach=43009;image)

I guess that what we'll get now will be something similar ... perhaps we'll break down through the $137 support on a crazy gap down ... it will be extremely scary and almost impossible to hold on to your shares ... a year from now, with the market 20% higher, almost nobody will remember it, like almost nobody remembers the 2004 break.

This is my view of future events, I can be wrong.

Quote from: David Randolph on January 08, 2008, 05:59:00 PM

Quote from: kslifka on January 08, 2008, 03:57:11 PM
Do you ever wish sometimes the market would just close...instead of selling off in the last hour.

Down 8 days in a row now with the Nasdaq.  Hasn't happened in years. :P

Sometimes capitulation works out this way ... instead of a key reversal day you get a series of negative days.

This period reminds me of 2004, when the market had an 8 months correction. I remember I when the market broke down below the horizontal supports and ...

(http://www.3stocksonfire.org/trading/index.php?action=dlattach;attach=43008;image)

... that was the bottom:

(http://www.3stocksonfire.org/trading/index.php?action=dlattach;attach=43009;image)

I guess that what we'll get now will be something similar ... perhaps we'll break down through the $137 support on a crazy gap down ... it will be extremely scary and almost impossible to hold on to your shares ... a year from now, with the market 20% higher, almost nobody will remember it, like almost nobody remembers the 2004 break.

This is my view of future events, I can be wrong.

But didn't we already see a capitulation day not long ago in mid-August of 2007.  I wouldn't think we would see another one so soon in a bullish trend.

Also, Fundamentally 2004 was very different than 2007/2008.

In 2004 the Fed was actually raising rates. (I had to go back and listen to a 2004 stock market review by NPR to remember what was going on back then because I don't really remember any big negative "news" items at the time.)

2004 was also the first time that the threat for rapidly rising oil which touched $55/barrel started to negatively affect the market...($55 per barrel would be a dream now.)

Fundamentally and the "feel" of this market reminds me somewhat of 2001/2002...minus the sub-prime mess now and the internet bubble of 2000.   Companies were starting to lay people off and stopped spending  money.  Also, The fed was cutting rates.
Earnings warnings became a daily occurrence.  Of course because of the tech bubble, in 2001 company valuations and earnings expectations were extremely high.

So while I don't personally believe we'll see the extreme market drop like we saw in 2001/2002....we will probably see some problems for the coming months.

I'm starting to believe the Fed will cut rates before it meets on January 30th.   This will at least give a short term bounce in the market.

And, Yes over the longer term....the U.S. market always goes up.

Yes layoffs waves in the local economy is starting and I do know many specific instances but that could be true for CA I am not sure about other parts of US. It does feel like 2000 when a CS Professor told me to go learn something else other than coming to his Java class. I am no longer at School but was wondering what the Professors are suggesting now.

from IV
Old Fool Notes - 01/08/08
Nasty and more nasty.  The market apparently was just looking for an excuse to sell and they got it from some obscure comment by a T executive.  Funny game we play in.  The volume was 2.6 billion with a ratio of 4.1 to 1 in favor of the bears.  That is a hell of a good ratio considering 59 points down - very efficient for the bears.
The daily chart shows the swift destruction to the down side.  The indicators are all in control of the bears and there is no sign of relief.
The hourly chart is death for the bulls.  There may be an oversold rebound but I would be careful chasing it.  The bulls were trying to build a bottom pattern in the 2500 range but it failed on news.  Nothing good here until we work back up to 2500.
The ratio chart bailed hard and is now in bottoming territory.  But it is not screaming buy - so don't.
This will probably be the third week down on the weekly chart - further confirmation of tough times ahead.  You will also note a hard cut through the lower Bollinger and it has been a long time since that happened.  OBV has also crossed over and that is not good.
The Wilshire also cratered - just not as bad as the Naz.  In fact, all of the broad market averages outperformed the NAZ.  Interesting observation that you should keep in mind.
The P&F chart added 3 more Os and set a target at 2380.  That's the spike down level from the low back in August.  Maybe, maybe not.

No trades today.  I was out all afternoon and got back about 3:45.  Beside, since I largely missed the dump, I vowed not to get in until we had strong bottoming signals.  Then I will be entering slowly because it looks like 08 is going to be very volatile.  Great if you are able to day trade, but it doesn't look like I will have that luxury - at least for a few months.  In any event, it looks like we may try 2400 on the down side.  On the upside, I may try my luck at 2470 and 2490 - but not too heavy.  2500 is the key.  I have a couple of tons of cash stacked up in the TP and LTP and I will be patient.  The bull turn will come - but not now.

Charts link below - thanks for the votes - we need to stay ahead of the crazy Russian.  LOL

http://stockcharts.com/def/servlet/Favorites.CServlet?obj=ID2071209

I believe that using historical comparisons to evaluate and analyze current market conditions is just plain folly. Each day and each year brings new and different factors that affect market momentum. Events in the past cannot possibly be a predictor or should be used as a basis for comparing what is occurring today. I am dismayed that 2008 has started off so lousy and is heading bearish and I don't see much upside potential right now.

Seems like the market is going to keep butting up against descending trendline resistance this year as finally there arent enough catalysts to push to new highs (in 2007 there was M&A, decent earnings, global expansion, and the "year before an election is always up" dogma), but enough bearish arguments exist now vs the one bullish global expansion argument to push down until we turn the corner on them (weak consumer, recession, credit crunch, subprime mortgages, $100 oil, etc.

I think its not a time to buy right now, but its OK to cut some losers that seem likely to lose more, and hold select stocks that seem unlikely to lose a lot even in a correction, and keep an eye out for when to go all in again.   Luckily we have a great watchilst from among stocks in this portfolio, there are still some I didnt buy in the first place but remain great companies, just great companies in a bad market... this was what Buffett always looked for, a major firesale on good merchandise, seems we may get that this year sometime.

-------------------------------------------------------

Stocks Dive On AT&T Report Of Consumer Weakness
BY JONAH KERI

INVESTOR'S BUSINESS DAILY

Posted 1/8/2008

A bearish reversal slammed the stock market Tuesday after AT&T (T) reported "softness" on the consumer side of its business.

The Nasdaq started higher as it bounced back and forth most of the day. But the composite swooned in the session's final 90 minutes, slumping 2.4%.

The NYSE indexes also turned tail. The NYSE composite dropped 1.4%. The S&P 500 skidded 1.8% and the Dow industrials 1.9%. Small caps fared worst, as the S&P 600 dived 2.6%.


Volume increased across the board. Trading grew 3% on the Nasdaq and 10% on the NYSE compared with Monday's levels.

The major indexes appeared poised to build on Monday's rebound, as stocks ran out to early gains. Sellers erased those gains by midday, although bargain hunters returned and lifted the indexes back near the morning highs.

That all changed in a hurry when AT&T  CEO Randall Stephenson warned of weakness in the company's consumer divisions. The company stands by its profit guidance. But it's disconnecting more phone and broadband customers who aren't paying their bills.

Already skittish over recession fears, Wall Street cringed at the AT&T news, sending stocks sharply lower right to the closing bell.

The session marked the eighth straight down day for the Nasdaq. The tech-laden index has now dropped 8% so far in 2008. The S&P 500 is down 5.3% for the year, the Dow 5.1%, the NYSE composite 4.3%.

Each passing day confirms the market's status: We're in a clear correction. The broad indexes have flashed multiple big down days in rapid volume. Leading stocks are faltering. Even recent market stalwarts such as Apple, (AAPL) Google (GOOG) and Research In Motion (RIMM) have slashed through key support levels, often in heavy turnover.

Intuitive Surgical joined the ranks of battered leaders Tuesday. The maker of robotic surgery equipment gapped down and lost 9% in above-average volume. Wachovia downgraded the stock before the open.

In this kind of climate, it's best to play defense. First and foremost, cut your losses short. Don't make excuses, or hope for a turnaround. You never know how long a correction's going to last, or how far stocks will fall.

Elsewhere, the National Association of Realtors said contracts to sell existing homes fell more than expected in November.

Rumors have swirled that ailing mortgage lender Countrywide Financial (CFC) could file for bankruptcy, though the company denied the speculation.

Also, Bear Stearns (BSC) said its chief executive is stepping down, as the investment bank deals with huge subprime mortgage losses.

nice chart summarization (quoted from IV):
Dow, Gold & Other Charts
Today was quite a significant day in the markets.  The Dow broke the neckline of a bearish Head & Shoulder pattern.  Meanwhile gold soared to an all-time high (presently it is up another $11 to $890).  What I found interesting in doing charts this evening is how gold began its decoulpling from the base metals and the broader markets in July.  There seems to be some real gusto behind this move that started $250 ago.  It appears that not even the Working Group of Financial Markets can keep this market from dropping.  The ABX bond derivative market is beginning to swoon again, meaning banks are going to suffer more from write downs.

Dow,
http://stockcharts.com/h-sc/ui?s=$INDU&p=W&yr=2&mn=0&dy=0&id=p59491674830&a=113378532&listNum=3

Dow in Euro's,
http://stockcharts.com/h-sc/ui?s=$INDU:$XEU&p=M&yr=10&mn=0&dy=0&id=p86978068780&a=121968511&listNum=3

Nasdaq,
http://stockcharts.com/h-sc/ui?s=$COMPQ&p=W&yr=1&mn=6&dy=0&id=p75662807509&a=113690123&listNum=3

S&P 500 (worst start of year peformance ever),
http://stockcharts.com/h-sc/ui?s=$SPX&p=W&yr=1&mn=10&dy=0&id=p76888624666&a=113591019&listNum=3

Gold,
http://stockcharts.com/h-sc/ui?s=$GOLD&p=D&yr=0&mn=6&dy=0&id=p56197037009&a=125323719&listNum=3

Gold Stock Index, HUI,
http://stockcharts.com/h-sc/ui?s=$HUI&p=D&yr=0&mn=6&dy=0&id=p55546338224&a=114611050&listNum=3

Gold versus Industrial (Base) Metals,
http://stockcharts.com/h-sc/ui?s=$GOLD:$GYX&p=W&yr=2&mn=0&dy=0&id=p10763554549&a=127321229&listNum=3

Gold versus the Dow,
http://stockcharts.com/h-sc/ui?s=$GOLD:$INDU&p=W&yr=2&mn=6&dy=0&id=p76882858762&a=127321339&listNum=3

Platinum,
http://stockcharts.com/h-sc/ui?s=$PLAT&p=D&yr=0&mn=6&dy=0&id=p53227617593&a=108052216&listNum=3

Silver,
http://stockcharts.com/h-sc/ui?s=$SILVER&p=D&yr=0&mn=5&dy=0&id=p13781750949&a=106456550&listNum=3

US Dollar,
http://stockcharts.com/h-sc/ui?s=$USD&p=D&yr=0&mn=6&dy=0&id=p60294625739&a=112138636&listNum=3

la-onda please forgive me! You must be laughing that I thought the market would bounce soon. This market acts like a woman. Moody and unpredictable. Sorry ladies.  :P

Quote from: Houlahan on January 09, 2008, 09:51:38 AM
la-onda please forgive me! You must be laughing that I thought the market would bounce soon. This market acts like a woman. Moody and unpredictable. Sorry ladies.  :P

;D :-*

I think at this point we reached a bottom for sure ...

I will go long today  ;D

Quoteplease check my links from my last posting, could be a rebound coming tomorrow

Quote from: Garoh on January 10, 2008, 06:16:54 AM

I think at this point we reached a bottom for sure ...

I will go long today  ;D

I don't know guys, maybe we're not done yet on the downside.

Bernanke will speak today and the market has been at work to question the FED's credibility and ability to take us out of this crisis. The final shot to the sentiment will be the complete distrust and loss of faith in the FED.

The technical guys will also lose faith when/if we break $137 to the downside.

I expect half of the weak hands to leave the market when this capitulation under $137 occurs.

The other half of the weak hands will feel extremely fortunate to have held on and will be glad to leave the market when the next rally towards the top of the current trading range occurs.

Only the few strong hands will be in the market for the 6-month long bullish leg that will take the SPY 10% above its current all time high, that is, towards $170 plus.

I expect this to push the Main up 30% plus for the year of 2008.

The market has its ways ...

Bernanke opted to say he's ready to cut rates aggressively. I hope "don't fight the FED" works and the current rally holds.

Got to go pick up my kids from school, have a nice day :)

Quote from: David Randolph on January 10, 2008, 12:24:21 PM
Bernanke opted to say he's ready to cut rates aggressively. I hope "don't fight the FED" works and the current rally holds.

Got to go pick up my kids from school, have a nice day :)

I somehoew missed that. I thought he wasn't scheduled to speak until 1800 GMT which I calculated to be 2:00 p.m. CST. Am I wrong?

QuoteI somehoew missed that. I thought he wasn't scheduled to speak until 1800 GMT which I calculated to be 2:00 p.m. CST. Am I wrong?

There was an information leak to Reuters ???

Hi DAVID,

in your 2008 plan you announced that you will build a portfolio of 12 stocks, one for each month. I think is a great idea that will improve the operations of your site and attract new prospects, with an higher chance to convert them into subscribers and increase this great community.

So, when do you think to begin building this new portfolio?
I am very curious and probably other members also are.

Thanks and keep up with your great work, no one here cares about daily ups and downs of this crazy market! :-)