Thursday, November 5, 2009

Yesterday Was Ugly

If there were ever a chart set up to fail at the 50-day (Black Line), then this is it. Let’s see if the boys show up to defend the markets or trash them.

I think GE will be key today. Watch the $14.2 level closely if you own this one.

Wednesday, November 4, 2009

Ratigan Sharpens His Pitchfork

His version of how to fix the financial system.
Pretty good stuff -

Where Are We Now

Wednesday is Day 4 of an attempted Rally, so I am looking for a Follow Through Day (essentially a big move on big volume to show that the boys are interested in owning stocks again).

The US Dollar
The Dollar touched the 50-day (Black Line). Each time the Dollar has hit the 50-day, it has then fallen, while Stocks, Commodities and Corporate Bonds have rallied. Bottoms normally take time, so I would not expect the Dollar to immediately reverse straight up – that would be bad for risky assets like Stocks and Corporate Bonds. The Dollar bottomed in 2008 at about 71. It now sits at 76. So there is still room for the Dollar to fall, but I think it is getting late to make bets against it.

Here is another big chart (sorry).
See how the selloffs in August, September and October reversed in one day, without sitting around or retesting (Blue Arrows)? Each time, the Markets got extremely oversold (Red Arrows) and the markets bounced sharply.

People were expecting the same on this selloff and the Market rallied hard on Thursday, as the 50-day was tested (Black Arrow). The Markets sold off hard on Friday, no doubt pummeling those who bought into Thursday’s CNBC hype (I forget what they hype on that day was about).

See how the Green Line is holding here? But Technical Analysis doesn’t work. All you have to do is listen to Cramer and you will make a fortune…

Summation continues to work its way lower, as more stocks break down and fewer stocks lead (Blue Circle).

What to Do Now?
Look for what has been holding up best. That will tell you to where the money is rotating and what the big boys are interested in owning.

I didn’t sell any of my Gold or Gold Stocks in October. In aggregate, I am about 30 – 35% invested in these holdings. They paid off big today, after scaring me last week. I just turned off the news and held them, operating under the assumption that either more Government spending is going to be announced or Gold would be bought as a hedge against market uncertainty.

Stimulus 2.0 (Or Potentially QE2) Being Discussed At The Whitehouse
Yesterday, US Commerce Secretary Gary Locke said that "if there is to be another stimulus -- and that’s being hotly discussed and very seriously considered within the administration as well as members of Congress -- it needs to be very targeted, very specific and we need to be very mindful of the deficit as well.”

Stimulus 2.0 can only be financed by the printing of new money. That by definition is what drives Gold higher. Today it was also announced that the Government of India was buying over $6 billion in Gold from the IMF near All Time Highs. That feels like a “sell-the-news” type of headline, so let’s see how Gold and Gold Stocks trade the next few days. I ain’t sellin…

Gold, and especially Silver and Gold Stocks are extremely volatile, so check how much price movement you can tolerate before you ever considering owning this stuff.

Maybe the Fed will announce that it will buy more Government Debt today at the FOMC meeting. Who knows what those idiots are going to do next (My apologies to idiots for comparing you to the Fed)…

Here is a chart showing the last few days of trading for the S&P 500 ($SPX), Oil Service (OIH), Financials (XLF) and Semiconductors ($SOX). You can see that today, SPX has been relatively flat, OIH was up sharply, XLF was flat and the SOX was down.

Why is this important? It is important, because the leaders have been Financials and Semiconductors. They lead early in recoveries. Now you are seeing money flow into Gold and Energy. The outperformance of OIH is what rotation looks like. Some of you may be upset to hear this, but Semiconductors now look sellable on any rallies.

My concern is that Energy and Gold take over leadership as the recovery peaks. I think that is why you are starting to get the politicians discussing more Government consumption (Stimulus 2.0). That is the only way they can prop up the economy. I think Gold is up, because if the recovery is soon to stall, then Gold will take leadership and if the Government prints more money, then Gold will rally too – heads I will, Tails you lose.

So the markets have the opportunity to start another leg up from here. Let’s see what the big boys do. If they buy, then I will get stopped in. If they don’t show up, then I will look for another Follow Through Day from lower levels.