Market Discussion

[la-onda]

fyi: nice charts from Tim Knight

[tokyopua]

And his proof for all this was what?  LOL, oh yeah, he didnt have any, it was all his "view".   Add one to the conspiracy theory files 

What did the Old fool have to say about today, considering he had predicted a washout?  Hope he isnt still on a plane, the guy has some great comments about market action.

just fyi, to get a full picture and lots of different statements  :

Economist: Expect Fed to lower Dow to 8,000
Critic claims agreements involving billions used to shift market

Consumers should expect a deep recession, triggered by the "stealth methodology" of the Federal Reserve to "depress" the market even while lowering interest rates in an ostensible effort to stimulate economic growth, an economic analyst is charging.

"The Federal Reserve is directly involved in manipulating the stock market," said economic analyst Mike Bolser in a telephone interview with WND yesterday. The New York Stock Exchange finished the day down 108.03 points, closing at 12,635.16, much as Bolser predicted, despite recent emergency Fed rate cuts of 1.25 percentage points aimed at stimulating the economy. "Fed wants the Dow Jones Industrial Average and other financial indicators to descend in a managed way," Bolser said. "The Fed wants to drive the DJIA toward the 8,000 level, or below, in order to help create a deep recession which will have the effect of slowing consumption across the board, and dampening the otherwise harmful effects of inflation.

"A falling DOW is only one element of the recession effects of the excessive Fed-created housing and credit creation, whose bubbles are now bursting," he added.

"Without this recession, we would be on quick trip to hyper-inflation," Bolser, the author of an internationally followed newsletter published in conjunction with his InterventionalAnalysis.com website, said, "and the Fed wants to prevent this."

In his twice-daily subscription newsletter, Bolser has devised a quantitative methodology for utilizing Federal Reserve repurchase agreements to predict upward and downward movements of the DJIA, measured on a 30-day moving average. Yesterday, Bolser noted the Fed added $18 billion to repurchase agreements, edging the pool up to a total of $153.158 billion in unexpired temporary repurchase agreements. Repurchase agreements involve a sophisticated use of government securities issued every day by the Fed, but little understood or followed, even by sophisticated investors. A repurchase agreement, as defined by the Fed, is a government security offered by the federal government to a small list of specified primary government securities dealers, for a limited period of time, usually 28 days or less, with overnight return being the most common. The government securities are "rented" by the primary dealers and they can be added to the primary dealer's portfolio or collateralized and then used in the open market to implement the Fed's open market policy.

At the end of the repurchase agreement, the Fed obligates itself to take back the government securities from the primary dealers, effectively canceling the contract. Meanwhile, while holding the government securities let out by the Fed in the repo agreement, primary dealers are free to utilize the liquidity provided by the repurchase agreement to manipulate the economy in accordance with the Fed's true monetary policy, whether publicly declared or not.

Primary dealers use the funds provided by the government securities they hold under the repurchase agreements to buy dollar exchange futures contracts, stock market futures, or to buy commodities contracts, including gold mining shares, all in accord with implementing Federal Reserve monetary policy to manipulate currency, commodity and stock markets up or down, depending what goals the Fed wants to accomplish at any particular time, the economist alleges.

Over the past several months, however, the Fed has implemented a policy to issue smaller amounts of daily repurchase agreements, with the goal of reducing the total pool of repurchase agreements available to the Fed's short list of 20 banks that are qualified by the Fed to serve as primary government securities dealers participating in the Fed's Open Market Operations.

Only the 20 banks specified in the Federal Reserve Bank of New York's list of primary government securities dealers are allowed to participate in Fed repurchase agreements.

"The primary government security dealer banks are like a private club," Bolser told WND. "You get to stay in the club as long as you take the repurchase agreements and enter the markets to implement Fed monetary policy the way the Fed wants it implemented. Violate the unspoken rules, and you risk being thrown out of the club."

Yesterday's $18 billion addition to the repurchase agreement pool caused the total amount of the outstanding repurchase agreement pool to remain below the DJIA 30-day moving average in a clear trend.

Bolser used this data to predict the Fed was manipulating the stock market lower, a controversial prediction when most economists see the Fed's emergency actions to reduce the target Fed Funds rate 1.25 percentage points lower over an eight-day period that ended with last Wednesday's meeting of the Federal Open Market Committee.

"Ultimately, the government is in the business of inflating the dollar," Bolser said, "so the Fed is trying to engineer a recession, in order to cushion the pernicious effects of its own inflation."

"In my view, the government intentionally desires a deep recession not unlike that of the 1930s," he continued. "The Fed, however, dissembles, attempting to display the opposite impression with its rate cuts."

"Cutting rates will not boost the economy in an environment where the credit bubble has burst and banks are afraid to lend," he explained. "But decreasing the repurchase pool will push the economy down, especially when the primary banks execute monetary policy in accordance with the wishes of the Fed to short the market with future contracts that push the indices down."

Bolser argued the Fed's ability to manipulate the market by increasing or decreasing the pool of available repurchase agreements amounts to a "stealth methodology" where the Fed can now depress the market, while implementing a policy of lowering interest rates, which most economists would see as trying to stimulate economic growth and the stock market.

"You have to remember the primary goal of the Fed is to support the bond market, which the Fed has done for quarter century," Bolser stressed. "The Fed needs a strong bond market so the Treasury can sell the enormous amount of Treasury securities, especially to China, that we need to sell to finance what this year may be as large as a $400 billion dollar budget deficit calculated on a cash basis."

"As a result, the friend of the Fed is the bond speculator," he added.

Among the U.S. banks and securities firms currently on the list are Bank of America Securities, Cantor Fitzgerald, Countrywide Securities, Bear Stearns, Daiwa Securities America, Goldman Sachs, Greenwich Capital Markets, HSBC Securities (USA), J.P. Morgan Securities, Lehman Brothers, Merrill Lynch Government Securities, and Morgan Stanley.

Also on the list are France's BNP Paribas Securities, Great Britain's Barclays Capital, Switzerland's Credit Suisse Securities, Japan's Mizuho Securities, and Germany's Dresden Kleinwort Wasserstein Securities.

"These dealers are the foot soldiers of the Fed, as it implements monetary policy," Bolser said.

Studying Bolser's "Repos/DOW" chart from Dec. 7, 2007, through yesterday, a broad correlation between the downward movement in the Fed repurchase agreements pool totals and the DJIA as seen by tracking the 30-day moving average is clear.

"With this strategy, the Fed hopes we won't experience the extreme 'stag-flation' we had in the late-1970s," he argues. "The Fed hopes to induce a recession to manage downward stock prices and commodity prices, including oil, gold, copper, and lumber, as well as the overall consumer demand for retail goods."

"Stag-flation" is an unusual economic situation combined when economic stagnation is combined with inflation, much as the economy is currently experiencing, such that economists fear we are entering a recession while food and energy prices continue to rise sharply.

http://wnd.com/index.php?fa=PAGE.view&pageId=55601

[tokyopua]

ISM Report, Fed Official's Remarks Hammer Stocks
BY JONAH KERI

INVESTOR'S BUSINESS DAILY

Posted 2/5/2008

Stocks plunged Tuesday, as a weak service-sector report and pessimistic comments from a Fed official whacked the market.

The Nasdaq tumbled 3.1%. The NYSE composite dived 3.6%, the S&P 500 3.2%, the Dow 2.9%. The small-cap S&P 600 dropped 2.8%.

Volume picked up across the board, as the major indexes closed at their intraday trading lows.


The Institute for Supply Management's service-sector index dived below 50 in January, falling well short of estimates. That marked the first time that the service sector, which accounts for the bulk of the U.S. economy, had contracted since March 2003.

The ISM reading followed last week's January payroll report, which showed a drop in jobs for the first time in more than four years. Those two gauges have hiked fears that the economy is headed for a recession. The Federal Reserve has tried to ward off a downturn, slashing interest rates five times since September — including two big cuts in a recent eight-day span.

On Tuesday, Richmond Fed President Jeffrey Lacker said the likelihood of a recession has climbed, with the January jobs numbers a prime example of weakness. Lacker said the Fed may need to make more rate cuts. He also called the risk of inflation "substantial."

Lacker's comments, released around 12:15 p.m. EST, made a bad day worse. The S&P 500 notched its biggest loss in nearly a year.

Tuesday's sell-off, combined with Monday's losses, have erased most of last week's gains.

That's how precarious the market is right now: Indexes notched one of their biggest up weeks in years, only to see most of it vanish in two days. The S&P 500 has now recorded its worst year-to-date start in the index's history.

High-quality stocks have plummeted, leaving only a handful of defensives in their wake. Church & Dwight, (CHD) which makes Arm & Hammer baking soda and other household products, was one of the few highly rated stocks to rise Tuesday. When defensive stocks take the lead, that's usually a bad sign for the market.

On Thursday, three of the market's broad indexes notched 1.7% gains in heavier volume. In past, less-volatile environments, that might have been enough to signal a follow-through day.

But last week, there were no top-notch stocks setting up in bullish price bases. There wasn't much underlying strength supporting the indexes' advance.

Even if the broad market rights itself, that may not be enough to signal an all-clear for investors. Every bull market needs two elements: strength among the major indexes and high-quality leaders. History tells us you can't have one without the other. Cash is the safest place to be until we see those dual signs of strength.

[David Randolph]

The levels I'll be watching on the SPY are the $133.2 and the $132.06 level. We have to hold these on a closing basis to continue playing the game with the $137 "crucial" level (it is getting less crucial by the day, as expected).

If the market fails to hold these support levels on a closing basis we'll probably head down to make a double bottom around $126.

These are very volatile and tough times, but certainly long term investors in good companies will be compensated for their patience, as they always were in history.

I feel we're near the bottom, but I also fear that the disappointment caused by the inability of the FED or of Microsoft buyout to move and sustain this market higher will bring some more downside action.

I guess time will tell and I need to refocus my attention on my individual stocks, which represent companies, which probably will continue to see their specific fundamentals improve and therefore their stock price. Don't forget that even while the SPY was falling 50% from its highs, there were many stocks rising (mostly value stocks). 

I got my computer working again just a few moments ago, but I'll still try to post charts and a few comments on some of the Main holdings before the open.

[kslifka]

We'll probably see that big drop tomorrow morning.  CSCO earnings guidance and uncertainty for Q3 causing the futures to drop.

But listening to the conference call...he doesn't expect this U.S. slow-down to last more than this quarter.  He still sees strong growth in the emerging markets.

I'm hoping this will be that final wash-out.

The news report below seems more pessimistic than what I'm hearing from Chambers on the conference call.

Cisco gives weak outlook; tech shares down
Wednesday February 6, 5:40 pm ET
By Sinead Carew

NEW YORK (Reuters) - Cisco Systems Inc (NasdaqGS:CSCO - News) gave a weaker-than-expected revenue growth forecast and said its U.S. and European customers were being increasingly cautious, sending its shares down 7 percent on Wednesday.

ADVERTISEMENT
The technology bellwether, which makes network equipment for phone companies and other businesses, also said it would not provide a view for fiscal 2008 due to uncertainty.

Cisco forecast fiscal third-quarter revenue to rise 10 percent year-on-year, short of the 15 percent growth expected by Wall Street, according to Reuters Estimates.

The outlook overshadowed a 7.2 percent increase in Cisco's second-quarter profit, which was in line with expectations.

"We are seeing our U.S. and European customers being increasingly cautious," Chief Executive John Chambers said on a conference call.

His comments also dragged down other technology shares in extended trading. Hewlett-Packard Co (NYSE:HPQ - News) shares fell 1.8 percent, IBM (NYSE:IBM - News) fell 1.5 percent, Microsoft Corp (NasdaqGS:MSFT - News) fell 1.4 percent and Google Inc (NasdaqGS:GOOG - News) lost 1.3 percent.

Cisco is the world's top maker of the routers and switches that direct traffic on data networks. It earns much of its revenue from enterprises which buy its equipment to run office networks.

Its shares have fallen about 28 percent since Chambers said in November that the company was seeing dramatic decreases in orders from U.S. banks.

For the fiscal second quarter ended January 25, Cisco said the profit was $2.1 billion, or 33 cents per share, compared with $1.9 billion, or 31 cents a share, in the year-ago quarter.

Earnings per share before unusual items were 38 cents, matching the average analyst forecast according to Reuters Estimates.

Sales rose 16.5 percent to $9.8 billion, in line with expectations.

Cisco has been moving into new markets such as video conferences and high-end video conferences, and also owns television set top box maker Scientific Atlanta.

Moving into the second half of its fiscal year, Chambers said the San Jose, California-based company was in good shape with a product pipeline that is well developed, and it's seeing balanced momentum across its core and advanced technology groups.

Cisco shares initially rose after the results to $23.84, but then fell to $21.42 following Chambers' outlook. The stock earlier closed 0.8 percent lower on Nasdaq at $23.08.

(Additional reporting by Duncan Martell in San Francisco and Kristina Cooke and Herb Lash in New York, editing by Richard Chang and Braden Reddall)

[David Randolph]

We'll probably see that big drop tomorrow morning.  CSCO earnings guidance and uncertainty for Q3 causing the futures to drop.

But listening to the conference call...he doesn't expect this U.S. slow-down to last more than this quarter.  He still sees strong growth in the emerging markets.

Chambers is usually optimistic, one couldn't expect him to be too gloomy.

The news report below seems more pessimistic than what I'm hearing from Chambers on the conference call.

Indeed, the media is filled with negative stories and they've been reporting always the dark side of things. Usually it isn't like this when the markets are at a top, the media tends to provide what people want to hear/read.

I'm hoping this will be that final wash-out.

Me too. I thought we've made the lows and would move up from there, but now there's an increasing likelihood that we'll go down to re-test the lows at $126. 

I also think this because of the inflation talk coming from FED officials yesterday, which will probably make the people who bought thinking "the FED will do everything it can to avoid a recession" press the sell button.

It has been a very tough time. All the economic problems were not unexpected (housing, credit problems, consumer slowdown), but they seem to be worse than expected. Like when housing started falling, it seemed the worst had passed but the deterioration continued further.

The market wasn't all that smart to figure the immediate future out. Or else it was looking further into the future (12 months from now) as it usually does.

Over the long term I see the economic progress of the World as a structural event which will change the economic landscape. I expect the BRIC countries to grow for as long and as far as Japan and Germany did after the second World War. The only difference now is that we're talking about 3 billion people, instead of 200 million. It will take at least a decade and maybe two, but the march of progress has invaded those countries.

This is probably the best ever economic time to invest in stocks for the long term. However, over the short term, because of the US's prior excesses we'll have to take some pain as we've been taking.

Going to cash or short now isn't a good option in my view. The best thing to do is to hold stocks through the storm, even though the temptation to sell is strong. I guess the best way to accomplish this is to focus on the individual companies specific fundamentals and ignore the price. Warren Buffet does this and it worked well for him over the past 50 years.

[David Randolph]

Strong bounce from the lower open, I hope it sticks. The SPY didn't surpass and hold yesterday's midpoint, at $133.82, though. These levels usually work as resistance levels.

We'll see how the rest of the day plays out, it would be nice to avoid the trip down to $126. For today's candle to be bullish we would have to completely engulf yesterday's candle, that is, close above $135.25.

[David Randolph]

I've amended the previous post, besides bad spelling I wrote the midpoint was $131.82, but obviously it is $133.82.

A rally to the midpoint after the open often means just short covering ... we would need really strong buying to take us above $133.82 and close beyond $135.25. This would probably mean that the "second valley" was made. It would be specially positive because the news has been so gloomy ...

But as it is now bears still have the upper hand on the short term direction of the market.

(not that this matters for long term stock investors)

[la-onda]

shadowtrqader update:
http://www.shadowtrader.net/videos/sunday021008st.html

[la-onda]

fyi:
Old Fool Notes – 02/11/08

Bulls had a reasonable day today – at least it was positive.  Volume continues to sag and was only 2.1 billion today.  The ratio was 1.5 to 1 in favor of the bulls – good efficiency for 15 points.  The big boys are just stalling until there is a better picture going forward.  There is the grand debate concerning whether or not we have a recession and the continuing wait for more clarity from the financials.  In the meantime, I continue to wait for some signal either way.

The daily chart has flipped to the bulls because they had 3 up days in a row.  All of the indicators are also picking up nicely.  Pretty decent chart at this point.

The hourly charts also look pretty good.  I am not opposed to a slow grind up.

The ratio chart finally perked up today but is still in neutral territory.

The weekly chart is still firmly in the bear camp and needs a lot of work.  It also illustrates that there is no need to get in a rush in either direction.

The Wilshire does not look as good as the NAZ but is holding its own.  Neutral and no rush.

The P&F is neutral.

No trades today – I was traveling back home today.  All we can do in a "grumpy" market like we have is to watch the support/resistance levels and follow the indicators that have worked in the past.  The OBV continues to improve and that is a good sign because it tells us that the buyers outweigh the sellers.  All of my bottoming charts continue to move in the right direction but are not getting carried away – and that's good.  Bottom line – we are just hanging out waiting.

Charts link below.

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

[David Randolph]

Buffet is showing his cards:

Buffett bids for bond biz
Says Berkshire Hathaway offered to reinsure $800 billion in munis

Beautiful

There are several signs that this market has not just bottomed, but that it is getting ready to push towards new all time highs. I don't consider the current rally as a rebound in a bear market, but the resumption of the long term bull market, which never ended, just had a very rough correction.

Moreover I'm quite pleased with the way the Main has been doing, catching up with the S&P 500 and the Russel 2000. I expect these two indices to rise about 10% in 2008 and the Main to outperform smartly for a 30% gain on the year.

I'll just have to patiently keep holding all stocks, every time I move I get a little bit behind, the name of the game is to sit tight and let the market do all the work.

[realcoolhead]

No David, if the next bull run starts and small-cap leads the way again, I predict the Main will be up 67% in 2008. 

Buffet is showing his cards:

Buffett bids for bond biz
Says Berkshire Hathaway offered to reinsure $800 billion in munis

Beautiful

There are several signs that this market has not just bottomed, but that it is getting ready to push towards new all time highs. I don't consider the current rally as a rebound in a bear market, but the resumption of the long term bull market, which never ended, just had a very rough correction.

Moreover I'm quite pleased with the way the Main has been doing, catching up with the S&P 500 and the Russel 2000. I expect these two indices to rise about 10% in 2008 and the Main to outperform smartly for a 30% gain on the year.

I'll just have to patiently keep holding all stocks, every time I move I get a little bit behind, the name of the game is to sit tight and let the market do all the work.

[la-onda]

fyi as always:

Old Fool Notes – 02/13/08
The bulls had a very nice day today.  There was steady buying pressure once we got past some initial selling.  Volume is still fairly low which indicates caution by both buyers and sellers.  Volume today was only 2.2 billion with a ratio of 7.8 to 1 in favor of the bulls.  Given a 54 point day and high ratio the low volume is kind of surprising.  The big boys are certainly not charging off the bench but are reloading slowly.

The daily channel chart looks very nice.  We claimed the 14-day EMA today but there is still a lot of work to do.  The 50-day is way up at 2460.  In any event - a nice looking chart with all indicators on a buy signal.

The hourly charts also look very nice.  I have cleaned up the support and resistance levels a bit.

The ratio chart improved a bit but the option boys did not take a big bite – and that's good.  I expect there is considerable hedging going on.

The weekly chart is finally perking up.

The Wilshire chart perked up nicely but is lagging the NAZ – probably reflects caution.  Note that we did take out the 14-day EMA and all indicators look very good.

The P&F chart set 3 more Xs today but has not yet turned off the bear target.  That will take about another 30 points.

I added more QLD on the initial pullback (20%) and also on the second dip (15%) – both around 2343-2345.  The master stop has been moved up to 2350.  I am now 75% long QLD in the trading port.  I'll add more above 2385-2390.  If we move up at the open, I'll also move the stop up to the 2355-2360 area.  I have had a nice little run on this position and profit protection is essential.  It looks to me like the bulls are slowly taking back control.  But, as always, follow the ball.

Charts link below.

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

[tokyopua]

Looks like no problems with the global expansion theme in January in China at least:

------------------------
http://biz.yahoo.com/ap/080215/china_trade_surplus.html
------------------------

AP
China January Trade Surplus Up 22.7 Pct.
Friday February 15, 2:15 am ET 
China Says January Trade Surplus Expands 22.7 Percent to $19.5 Billion, State News Reports


BEIJING (AP) -- China's global trade surplus in January rose 22.7 percent compared with the year-earlier period to $19.5 billion, a state news agency reported Friday.
The figure, reported by the Xinhua News Agency, appeared likely to fuel foreign criticism of Beijing's swollen surpluses and calls by some American lawmakers for punitive tariffs on Chinese imports.

The January trade gap was well below October's record monthly high of $27 billion. It was the first month since last April that China's trade gap was below $20 billion.

[la-onda]

as always fyi:
Old Fool Notes – 02/17/08
Even though Friday was a down day, the bulls did not put in a bad showing with only an 11 point loss on the Naz and a plus number on the S&P.  The volume fell again, barely breaking 2.0 billion with a ratio of 2.3 to 1 in favor of the bears.  Caution abounds and the buyers are pretty much on strike except on the deep dips.

The daily channel chart is still in the bull camp but only by a whisker.  Note the OBV.  Clearly, we need some positive action on Monday or Tuesday.  If not, the week could get ugly.

The hourly charts show the last half pushback on Friday and we have a bottoming pattern on some of the indicators.  Kind of neutral actually.

The ratio chart continues its slow slide – no good news here.

At least we pulled off an up week on the weekly chart but that did not give us much on the indicators.  Still in the bear camp.

We had a tie on the Wilshire and the indicators are a mixed bag.  No signal either way here.

The P&F added a couple of Os but no new signal.  Neutral here also.

I had no trades in the TP on Friday.  100% cash in the TP.  Continued to add to financials and tech on the dips in the LT port.  I don't really have a clue where we are headed.  As I have said before, we are either bottoming or setting up for a retest of the 2200 area.  My plan is to wait and continue to dribble cash into the LT port.  I will set some cash aside for the retest if it happens.  Cash is a position and there is clearly no rush.

Charts link below.

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