3SOF

Shadowtrader update:

http://www.shadowtrader.net/videos/sunday030208st.html

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Old Fool Notes – 03/01/08

Friday was one ugly day.  Although the volume was up a bit at 2.4 billion, it was not runaway.  The ratio was huge, however, at 9 to 1 in favor of the bears.  Granted, we had a 60 point drop but 9 to 1 just says there were no real buyers in the game.  Given all of the ugly news lately and the political uncertainty, it will be a lot of work to dig out.

I gave the bears back the channel on the daily chart.  They have not had 3 days down but the total channel was tipped very slightly down, so I gave it back.  The indicators also look ragged so they deserve it.  Not a pretty chart.

The hourly charts look interesting.  You will note that we have a support just below at about 2265 and another at about 2250.  That should be an area where the bulls chose to fight back.  If not, the 2225 and 2200 are obvious landing areas.

The option boys were heavy into the puts on Friday and the ratio chart reflects that fact.  You will also note that it is getting into the buy area.  This is also true for all of my bottoming charts.

The weekly chart looks very bad.  The door is wide open to 2200 on this chart.

The Wilshire chart loss was almost exactly the same as the NAZ in percentage terms.  It did manage to hold an important support level.  Unfortunately, it is not a good looking chart.

The P&F chart tripped a double bottom breakdown and clearly shows the battle for break out versus break down that has been going on for the past month.  Many years ago, when the P&F was all we had to work with, one would say to wait until one direction won the day.

I had a few trades in the LT port at the close on Friday.  Still picking up some financials and utilities to drop over there.  Trading port is 100% cash.  The short term hourly chart shows our support and resistance levels well.  Clearly, resistance has been working better than support lately.  Obviously, a break below 2200 would be deadly for the bulls and a break above about 2370 would get rough on the bears.  Bottom line is that we have a 200 point playpen for the day traders and hedge funds.  The momentum is down but the technicals once again say we are close to a bottom.  I don't have a clue which direction will win.  I do believe the bulls will fight to stay in the game.  I have to get on the plane again Wednesday so I am not going to commit much either way.  We will see.  Follow the ball as best you can.

Charts link below.  It's the first of the month so throw me a few votes over at SC.

http://stockcharts.com/def/servlet/Favorites.CServlet?obj=ID2071209

QuoteIn an effort to technically explain what's happening over the short term (an effort that probably I shouldn't make - but I have 11 years of this on my back), I guess that what the SPY is doing is a retest to the broken descending trendline. The trendline was a resistance that should now work as support. I see it at $135.23 today and I don't expect the SPY to close below that level.

Wrong again

Friday was an exceptionally tough day on all fronts. It was the general market that broke down below what I perceived as support (the previous descending resistance didn't act as support and the SPY is back below that line) and on the company specific front I had IMMR down 17.6% after reporting weaker than expected results.

I already wrote my analysis for IMMR on that stock's specific thread and I believe the fall was due to temporary effects and everything remains basically on track with what I expected for that company, so I'll continue holding it.

As for the general market ... I'm afraid I'm speechless, since my analysis of the prevailing sentiment, historical background, investment alternatives and my long term macroeconomic outlook tells me that stocks should be starting to trend higher as the low, in my opinion, was already made at $126 on the SPY.

The market, at least over the short term, is not in tandem with my views of the situation. I'm not sure if I'm due for a painful forced awareness of the situation or if things are just taking somewhat longer than I thought to go in the direction I anticipated.

For now I'll consider the SPY is inside a trading range, which has been established roughly between $132 and $139 and I'll hang on to my notion that we're still in a long term bull market that will be at new highs 6 months from now.

However, I'm starting to prepare myself, mentally, for the possibility of being wrong, but I still didn't get to a conclusion if, in the case of being wrong on my general market forecast, I should dramatically reduce my exposure to the equity market or if I should hold to stocks based on their company specific fundamentals.

The questions are:

1) What is the long term macro-economic outlook for the US and the World economies?
2) Should I incorporate the macro outlook in my company specific analysis and investment decisions?

As it is now my answer to the 1st question is "Positive" and to the 2nd question it is "No".

But if I have to adapt and evolve to achieve my long term goals I'll do so.

10:30 am : The Nasdaq and S&P 500 make it back into the green, buoyed by the slightly better than expected ISM Index reading.

Six of the ten sectors are trading higher. The financial sector (-1.1%) is the main laggard, but is well off its worst level. Energy (+1.6%) and Materials (+1.2%) are providing leadership, lifted by strong gains in commodities as the Dollar Index (-0.5%) falls to lifetime lows.

The CRB Commodity Index is back on the rise after making an 11.7% advance in February, its largest monthly percent gain since the 1970s. It is currenlty sporting a healthy 1.1% gain as gold and oil climb to all-time intraday highs. Crude oil hit an all-time non inflation adjusted high of $103.95 per barrel. Gold hit $991.00 per ounce, its all-time intraday high when not adjusted for inflation.

Other notable commodity gains include wheat with a 3.7% advance, and silver, up 2.6%. DJ30 -8.55 NASDAQ +2.19 SP500 +2.56 NASDAQ Dec/Adv/Vol 1407/1182/445 mln NYSE Dec/Adv/Vol 1385/1503/312 mln

12:30 pm : Commodities are rallying once again.  Gold hit an all-time high of $993.30 per ounce, but has since retreated a bit to $988.60.  The all-time high reached today is well below gold's 1980 inflation adjusted high that surpassed $1800 per ounce.

Meanwhile, oil hit an all-time high of $104.56 per barrel on the decline in inventories.  By most calculations, oil is now trading above its inflation adjusted high.DJ30 +58.29 NASDAQ +18.00 SP500 +9.11 NASDAQ Dec/Adv/Vol 1149/1572/1.08 bln NYSE Dec/Adv/Vol 1076/1957/679 mln

Hi fellow traders.

It is interesting to read different opinions here about the economic developments. I came across a blog of a Russian economist Dmitry Orlov who seems to be rather renowned. He lives in the US and is interested in the health of the local economy. What he compares in some of his short articles is the two empires: SU (Soviet Union) and the US. The first one already collapsed. The question is: when will the 2nd one collapse?

  David

the sky is falling chiken little .to be a good investor is to be open to all possabilites but to have strenth when things dont go your way.if the us calapses the world dose .dont count on it.

Hi fellow traders.

  David has mentioned that the USA will soon share its leadership position with the other countries in the World. Well, I believe it is inevitable. A few points here that Michael has also made are summed up:

• US is a unique country whose debt and monetary reserve is concentrated in the same currency - the US dollar. No other country has that luxury.
  
• US prints US dollars. :-) Nice trick. Well, will not work anymore. With another powerful currency, Euro, arising, many countries that hold their currency reserves in USD will start converting into different tangibles. Commodities can be traded directly using contracts, like China is already doing with the Saudis, avoiding the mercantile Exchange, or bartered. By printing money, US devalues the dollar. Lowering the interest rate, as Michael pointed out is a bad thing to do. The 175 billion dollar debt bond that Mr. Bush is priniting to give every electorate a measly $800, further shows inaptness or unwillingness of US politicians to fix the ecomony, instead of playing the political games.
• US is used to partially supplying itself with energy (oil), unlike Europe, that has built almost a 100% dependence on the outside suppliers, hence more flexibility in dealing with supply. US is just used to kick ass in the World anywhere at any time. They go to the Arabias, boot the arabs for their oil. The rest of the World used to trade, not boot. Bad habbit.
• US has NO infrustructure and very meager public transportation. In addition, most of the middle class populace lives in the suburbia. If oild hits $10-15, US Americans will be walking miles to work, or will simply become jobless. In contrast, Europe is urbanized and most people can get work by a bycicle, subway, bus, electric cars. Europe is better prepared for an energy crisis.
• US Americans are not used to be energy frugal. For example, Germans will think twice even on a hot day before making ice - it costs energy. Americans will turn on their air conditioner even when it is 25C outside (my neighbors in Massachusetts do). Being energy conscioutious is a key in tough economic conditions.
• In the past, while US was still enjoying cash flow, they chose not to invest in electric car development, not build mass transit systems attractive to consumers, instead they created monstrosities, like Ford pick up trucks F350, Dodge, Chevy, etc. Lust for energy is what they are. To make them run smooth, US spends billions on road maintainance, yet most States ignore advances in the modern technology for pavement construction and hence costly repairs are made every year. Contract based construction and plowing drains State finances rather quickly.
• A word on China and India. 60% of Chinese prducts are consumed in the US. US goes down, China will follow. At least, we will not be alone! :-)

It is interesting to read different opinions here about the economic developments. I came across a blog of a Russian economist Dmitry Orlov who seems to be rather renowned. He lives in the US and is interested in the health of the local economy. What he compares in some of his short articles is the two empires: SU (Soviet Union) and the US. The first one already collapsed. The question is: when will the 2nd one collapse?

  Read more in the following blog.

http://cluborlov.blogspot.com/search?updated-min=2006-01-01T00%3A00%3A00-08%3A00&updated-max=2007-01-01T00%3A00%3A00-08%3A00&max-results=1

  And the article is here:

http://docs.google.com/View?docid=dtxqwqr_25g7bchc

Thanks.
Berloga.

It's good to be an optimist, stock, I am one myself. It is simply interesting to read on others' opinions. I am not afraid of any difficulties that may come. I am not also painting a doom's day scenario. The World is changing, so will everybody. And the World will not go down with the US, as you think. The matter of fact is that all empires collapse sooner or later. Do you believe Romans thought for a second that their world will be in ruins? Do you think Hitler or Stalin thought they were not invincible? Do you think Putin's empire is invincible or stupid Bush's? Think twice.

But, on an optimistic note, a collapse can be prevented. It is easier to do so now than 2000 years ago. I very much hope that the US government will lighten up and make progressive changes and that the conservative to the bone Americans will cheer the changes, although they may be painful. Believe me, when one enters a room and proclaims "I am American", makes quite not the same effect it used to even 20 years ago. World changes, little chicken stock.

the USA works threw its problems .i don't consider it an empire super power yes.it dos not base it self on invade and take over .some times it may look that way

Homeowner Equity Is Lowest Since 1945
Thursday March 6, 12:50 pm ET
By J.W. Elphinstone, AP Business Writer 
Federal Reserve Report Shows Homeowner Equity Dipping Below 50 Percent, the Lowest on Record


NEW YORK (AP) -- Americans' percentage of equity in their homes fell below 50 percent for the first time on record since 1945, the Federal Reserve said Thursday.
Homeowners' portion of equity slipped to downwardly revised 49.6 percent in the second quarter of 2007, the central bank reported in its quarterly U.S. Flow of Funds Accounts, and declined further to 47.9 percent in the fourth quarter -- the third straight quarter it was under 50 percent.

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That marks the first time homeowners' debt on their houses exceeds their equity since the Fed started tracking the data in 1945.

The total value of equity also fell for the third straight quarter to $9.65 trillion from a downwardly revised $9.93 trillion in the third quarter.

Home equity, which is equal to the percentage of a home's market value minus mortgage-related debt, has steadily decreased even as home prices jumped earlier this decade due to a surge in cash-out refinances, home equity loans and lines of credit and an increase in 100 percent or more home financing.

Economists expect this figure to drop even further as declining home prices eat into the value of most Americans' single largest asset.

Moody's Economy.com estimates that 8.8 million homeowners, or about 10.3 percent of homes, will have zero or negative equity by the end of the month. Even more disturbing, about 13.8 million households, or 15.9 percent, will be "upside down" if prices fall 20 percent from their peak.

The latest Standard & Poor's/Case-Shiller index showed U.S. home prices plunging 8.9 percent in the final quarter of 2007 compared with a year ago, the steepest decline in the 20-year history of the index.

The news follows a report from the Mortgage Bankers Association on Thursday that home foreclosures skyrocketed to an all-time high in the final quarter of last year. The proportion of all mortgages nationwide that fell into foreclosure surged to a record of 0.83 percent, while the percentage of adjustable-rate mortgages to borrowers with risky credit that entered the foreclosure process soared to a record of 5.29 percent.

Experts expect foreclosures to rise as more homeowners struggle with adjusting rates on their mortgages, making their monthly payments unaffordable. Problems in the credit markets and eroding home values are making it harder to refinance out of unmanageable loans.

The threat of so-called "mortgage walkers," or homeowners who can afford their payments but decide not to pay, also increases as home values depreciate and equity diminishes. Banks and credit-rating agencies already are seeing early evidence of this.

On Tuesday, Fed Chairman Ben Bernanke suggested lenders reduce loan amounts to provide relief to beleaguered homeowners.

What a bloodbath! All I have left are cliches,like it's always darkest before the dawn. And aspirin for my headache.

It's so sad and the US economy does not have to be like this. 

If the US government stops policing the world, then the budget would drop (by about half), then the government could lower taxes (perhaps eliminate corporate taxation), then corporate earnings would substantially increase, then the stock market would follow accordingly.

One policy change could double the value of the stock market almost overnight. 

Instead, nothing will change.  Bernanke will continue to cut interest rates, which requires the printing of money out of thin air, which increases inflation, which makes it so that consumers have to stop spending money on technology to buy the now higher priced food, which lowers corporate profit, which lowers the tax base, which will cause the government to increase taxes, which will cause etc. etc.

The US is closer to the next great depression than people want to admit.

I agree, buddjas1, if wise steps are not made by the government, the empire can and will collapse. But, as you also point out, it is possible to avoid. I'll reiterate the article I've mentioned earlier:

http://docs.google.com/View?docid=dtxqwqr_25g7bchc

Well after breaking the triangle from last week.  I'm measuring technically we may fall to about 1220 on the S&P.  Interestingly that will be the low from the summer of 2006.  It looks like strong support there.  So we probably will be in for a swift kick...in the next few days...could happen Friday...depending on the Jobs report...I guess. 

Quote from: berloga on March 06, 2008, 05:55:00 PM
I agree, buddjas1, if wise steps are not made by the government, the empire can and will collapse. But, as you also point out, it is possible to avoid. I'll reiterate the article I've mentioned earlier:

http://docs.google.com/View?docid=dtxqwqr_25g7bchc

Can't we all just continue living in denial instead?