I need to keep my eye on the ball and focus on what really occurred today.
Volume
There was a lot more Down Volume today than Up Volume, so the conviction was on the move down and not the move up.
Advance/Decline
For every 2 stocks that were up today, there were 3 stocks down.
New Highs – 1
Transmeta
New Lows - 1161 (including these key names)
Berkshire Hathaway, Intel, Cisco, Qualcomm, Applied Materials, Bidu, Amazon, Corning, Costco, Target, Macy’s, Sears, JC Penny, Polo, Nordstrom, Deckers, The Gap, Goldman Sachs, Citibank, Bank of America, Northern Trust, Blackstone, UBS, Metlife, CIT, Prudential, Lincoln Financial, Principal, Dryships, Freeport McMoran, Dow Chemical, DuPont, International Paper, Boeing, Medtronic, Vornado, Public Storage, Avalonbay, Simon Properties, Equity Residential, Crude Oil
Do you see how the same names keep showing up on this list? Once you are being sold off by institutions, you continue to be until they have exhausted their selling and only after these stocks have had months or years to repair themselves do you buy them again.
You must identify and avoid losers. The problem is that right now, virtually all stocks are losers!
New Index Lows
NYSE, Russell 2000 (Small Cap), Commercial Real Estate (REITs), Materials, Oil, Banking (KBE), Semiconductors, Retail (XRT)
The Bond Markets
The key to what is going on right now is the Bond Markets. Paulson talked about how the credit markets are freeing up, but you know better. If there were any buyers for corporate debt right now, then the automakers, credit card companies and insurance companies would not be begging for money.
The bottom line is that until the government nationalizes the banks and wipes their bad debt away, we're just chasing our tails. No lending will get done as long as the banks remain insolvent. Now the consumer is terrified and has stopped borrowing and stopped buying. Sure sounds like a serious recession or worse to me...
US Government Debt
US Treasuries had a huge day today. You would expect to see a lot of selling in Treasuries on a day when the Dow is up almost 2%. But that was not the case today. That is not a Bullish sign.
Here are the charts of the stocks which track the 7-10-year (IEF) and 20-year (TLT) US Treasury indexes. IEF looks like it is destined to retest the 92.50 area. TLT has pulled back into massive support (Green Arrows and Dashed Line). It will take a long time to break that level. If resistance is broken (Blue Line), then look for TLT to explode to new highs. If this occurs, then by definition, Interest Rates will also implode...
Corporate bonds are imploding
HYG is the tracking stock for the "High Yield" (Junk) Bond Index. It is the inverse of the Treasury charts, as nobody wants to own JUNK. PFD is a bond fund focusing in Preferred Stock. Think of these as risky bonds with the ability to be converted into stock down the road. Does PFD look like a chart you should be owning right now? VVR is a leveraged, Junk Bond Fund. So not only do you own bad stuff, you are borrowing to buy even more of it. VVR looks like the chart of a bankrupt bank.
Just like in stocks, you want to stick with what is working in Bonds. I don't know when these trends are going to reverse, but if I keep doing my homework every night, I will have a real good chance of seeing the turn occur and then be able to react to the changes.
In order to see just how bad the pricing has become in bonds that aren't US Treasuries, you need to see the chart on this link. This is the yield you must pay above the yield of Treasuries to get somebody to buy your AAA Asset-Backed Bonds. Remember, this the 2nd best rated paper in existence. That's great paper. Yields are up 3% in a week!
http://mrmortgage.ml-implode.com/wp-content/uploads/2008/11/cmbx-aaa.png
I told you all that this was going to happen. There was no way that Obama was going to walk in and guarantee all the debt and preferred stock of the banks who got us into this mess. Because there is no upside to the taxpayer if he does. So you are seeing Junk and Mortgages crack.
The reason for the sudden change in the markets is that Paulson stated he would not use the TARP to buy Asset-Backed Bonds. And today it became real clear that at least 1 of the 3 Automakers will not survive.
This is not the type of stuff that drives markets up. This is the type of stuff that leads to another round of panic.
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