Strong Data: No Sign Of An Early High
July 25, 2008 10:18 AM
We are at 1261.50 45 mins in. The only issue is sma’s up here. But this appears to be timing only as i see no sign of a high, thus far. Trend lines on the cash market suggest we are likely to not go much higher than maybe mid 1270’s, if you believe in trend lines. Unless news, I highly doubt we will go much lower than 1257 here on any checkdowns…
Update: Well, it keeps selling near the high….looks the action will come near the close….if we clear the 07/22 low late…then I expect big trouble…if we can clear todays highs late…then we should make a push, probably to 1273 or so….we will see.
Recap Update: Well, I did not account for the other possibility - that it would clear neither and just sit in a tight range, which is what happened.
Morning Call: Durable Orders Very Strong
July 25, 2008 10:13 AM
Durable Orders were very strong this morning, up .8%. Not sure where this data is coming from, but it is last month. At any rate, the 07/22 low low on the SP has held, which is somewhat important.
Market Recap: The SP House Of Cards Folds
July 25, 2008 12:16 AM
I have been mentioning that the SP clearly looked like a house of cards. In addition, taking out Tuesday’s high was not “justified” and created an even bigger house of cards.
The selling seemed like it was likely to be mild today. But as i have mentioned, when the charts do not have clear “buy points”, once the market turns it can get very ugly, very fast, as there is nothing to stop the fall. This is what I mean by a “house of cards”.
The data today was negative, but not alarmingly so. So there was no real catalyst for a hard sell-off. i think it was simply the fact that there were no buy points for traders, and it just kept falling. In addition, I believe the NY suit against UBS that was announced midday got the selling going in full swing in the financials. This just creates more uncertainty surrounding the group as now people may wonder about possible litigation risk in the group. I would guess that there is exposure to litigation surrounding selling sub-prime mortgage backed securities, but I am not familiar enough about the process to comment logically.
Going forward, it is going to be somewhat difficult. You will just have to see what is going on intraday. There really is no other way to know as we have no clear cut buy points on the SP. The 07/22 low is somewhat important on the futures, but i do not consider it a “real” reversal point. The Dow low is likely the only real low worth consideration and I have been suspect of it as it seemed predetermined, not a real low.
The Economy: The Market Just Doesn’t Get It
July 24, 2008 11:45 PM
People have probably grown tired of my gloom and doom on the U.S. economy as it is getting to be a tired song. But let’s look at the expectations for the data today, existing home sales and jobless claims.
The “consensus” was for claims to 380k and home sales to be 4.95 million. Briefing.com had the numbers at 372k and 4.97 million. Both were grossly over optimistic, but once again Briefing.com was above the consensus. If you recall my previous posts about Briefing and the President, Dick Green, they simply do not understand what is going on, IMO. This is not a typical cyclical downturn and everyone keeps acting like it is. The expecations have been wildly optimistic each month and they have been wrong virtually every month.
There are zero indications of any kind, and I mean zero, that the economy is even close of a sign of turning. Consumer debt levels are at all time highs. Real Incomes are declining. How is it possible that the economy can rise in this situation? The only way is to turn the tide on real incomes. The ONLY way this will happen is a dramatic change in trade policy to revitalize our manufacturing base. I have said this 150 times, possibly more, but I simply see no other possible solution to this and anyone that disagrees with this view I simply want reasons that I am wrong. As they say, the math is the math, and currently, the numbers simply do not add up.
Market Down: Range Likely Tight Early In This Range
July 24, 2008 10:47 AM
I do not see any “clear” cut short signal on the cash market and the low of today was an SMA bounce. The selling is likely to be relatively mild today, especially early on. No naked shorting of financials allowed yet, and this should keep the selling pressure mild. This is probably an SMA issue as I warned yesterday that the market was bumping up against what i consider a key SMA.
Anyhow, I see no sign of a low, as of yet, but this is the same exact SMA pattern that causes the reversal on 07/22. We could never get under the sma’s, it reversed, and off she went. That day, I thought we would stay low, and pressure late, but didn’t work out that way. Today, even if we stay low, the selling is likely to be more muted.
The low, thus far, is 1270.50 which was clearly an sma bounce. Watch out for a reversal attempt if that clears, especially above 1266 or so. I highly doubt we will challenge the 07/22 low.
Market Recap Update: Ugh. The market did exactly what I thought was going to happen on Tuesday, but didn’t. The sma’s were identical then and today. Both suggested that early lows would bounce, and they did. And then I thought pressure would be applied late if it could not reverse. That was exactly what happened today but “should” have happened Tuesday. My guess is the selling pressure intensified late because of UBS and the fact that I mentioned often that the SP was clearly a house of cards.
Morning Call: Existing Home Sales and Initial Claims Are Not Good
July 24, 2008 10:27 AM
The data was not good again this morning, which I believe is can be counted on with near certainty with this economy. The market has thus far ignored all bad news regarding data and earnings warnings. We do not have a clear cut short here, it is more of a trend break, and as I mentioned yesterday, we were bumping up against what i consider a key SMA line yesterday.
I do not see any earnings that will cause panic of buying here. Per usual the market may be “excited” over “beating the street” like Union Pacific, but earnings still fell about 40% from last quarter. So this euphoria seems silly to me. I would guess that rails would trade inversely to oil, to some degree. But they still have a huge advantage versus trucking unless oil gets cut in half.
Selling is likely to be “mild” as I see things as still no naked shorting of financials, and no clear cut “short” Once again, the market seems to be watching oil.
Long Term Investing: This Is Why I Am Skeptical Of The Strategy
July 23, 2008 11:43 PM
I have long mentioned that I am very skeptical of long term investing with the current fundamentals of the U.S. economy. The reason is simple. Real incomes are declining, not rising. I also believe that real incomes are falling far more than is reported because most any analyst alive believes that inflation is currently being drastically under-reported.
CNN Money had an article titled “U.S. Middle Class: “On The Edge” today that confirms some of my long held beliefs. In the article, “experts” (how do you become an expert anyhow?) told Congress that median household income declined $1175 from 2000-2007. In addition, the average family is spending $4655 more in basic household expenses like food, gas, health insurance and housing.
It goes on to say that to cover these soaring expenses and declining incomes consumers have turned to credit cards. A full 10% of total disposable income goes to paying credit card bills. This is a shocking number.
Anyhow, the point is, I simply do not see why stocks will always go up and up, over time, when the fundamentals clearly suggest otherwise. It is possible that declining incomes could change, and the fundamentals become better. But how and why? With the current trade policies I see this problem getting worse, not better.
Therefore, while long term investing always worked in the past, the strategy seems like foolishness to me. The economy, and hence stocks, always went up over time in the past as real incomes rose for 70 years. This is simply not the case any longer and hasn’t been in at least 7 years. Perhaps we will get a dramatic change of course. But this seems unlikely to me. Nobody seems to have a clear workable plan to solve this problem.
Market Recap: I Am Still No Help Here
July 23, 2008 11:13 PM
The market clearly has been trading on two things, IMO. The daily drop in oil and the financials soaring. This has made direction difficult as I am not certain when oil will stop it’s decline.
With that said, the SP is clearly a complete “house of cards” other than the 07/22 low and makes little, if any sense, IMO. When I see chart patterns like this whether intraday or longer term, I become more and more skeptical of the move because it smells like short covering. In addition, once it turns, it can get very ugly, very fast as there is nothing to stop the fall.
I still believe this has been a short covering rally and a “lack of shorting” rally caused by the emergency decision to not allow naked shorting of the financials. I believe this has caused a long bias on financials regardless of whether supported by fact or not. Regardless of facts, if everyone is on one side of the trade, it will go in that direction. Considering that the public is generally only on the long side, whether via 401k mutual funds or stocks, this creates a one sided market when the shorts are taken out of play. Obviously this is why the “emergency rule” was enacted.
In addition, you can see the one sided trading going on because almost all big companies have given poor guidance - at best, other than IBM. Most have just flat out warned. But they trade higher anyhow. This is another reason I smell a lack of shorting. This seems like a one sided trade - for now. Once the naked shorts are given free reign again, we will see if this lasts - and how long.
Market Update: Once Again, The Close Is All That Matters
July 23, 2008 11:46 AM
There seems to be an issue up top, but no “clear” rejection as I see it. This doesn’t surprise me as there are two issues. Psychological 1300 on the SP not much higher and we are bumping up against a key SMA, IMO. This market has been diffifult lately as it seems to be totally trading on oil and ignoring any and all bad earnings - which there has been PLENTY. In addition, I believe that the new rule on shorting big financials is putting a “long bias” to the markets.
Market Recap: Strength Surprised Me - But Mentioned What Was “Happening” Early On
July 23, 2008 12:37 AM
I mentioned that both the Dow and the SP should be short under yesterday’s highs. We gapped lower and more very ugly earnings data and what happens? It reverses 20 mins in. I ssmelled the reversal attempt and mentioned it in my intraday comments. Once I saw the reaction to the low, and then we popped above the early high, I said “the gap is likely to fill here”. And it did. It then rallied into the close as I had posted was likely if we cleared the highs late.
This is why it isn’t as simple as saying “short under this high” or “long above this low”. As it depends. When there are large gaps, you simply have to watch and see what is going on. If your initial thoughts were wrong, then you have to admit you are wrong and go with what you see. Does it seem to make any sense for the market to rally with AXP, AAPL and a slew of others warning? No. Does it matter? No. It is what it is.
My intial thought was we would stay low, and then sell off late in the day. But it didn’t play out that way and all you can do is react to what you see.
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