The time for change is today for tomorrow never ever comes; change now or remain woven in yesterday's cocoon forever.
Take a look at the following new stories that made headlines on Monday and Tuesday.
Confidence plunges, inflation rate soars
NEW YORK - No good news today on the economic front. Consumer confidence plunged, the wholesale inflation rate soared, the number of homes being foreclosed jumped, home prices fell sharply and a report predicts big increases in health care costs.
The New York-based Conference Board says in a report released on Tuesday that its Consumer Confidence Index plunged in February to 75.0 from a revised 87.3 in January. The reading — the lowest since the index registered 64.8 in February 2003 — is far below the 83.0 analysts expected. Inflation at the wholesale level soared in January, pushed higher by rising costs for food, energy and medicine. The monthly increase carried the annual inflation rate to its fastest jump in a quarter century. Full Story
Reports reflect bleak housing picture
House prices may still have a long way to fall. Across much of the nation, home values are dropping — even those backed by solid mortgages — and banks are repossessing more every day. Most experts say the dive won't hit bottom for another year and only after excess inventory is sharply reduced and credit markets improve. More government intervention may be needed, too, if the free market system doesn't work quick enough.
U.S. home prices dropped 8.9 percent in the final quarter of 2007 compared with a year ago, according to the Standard & Poor's/Case-Shiller home price index released Tuesday. That marked the steepest decline in the index's 20-year history. Full Story
Worries grow for worse 'stagflation'
WASHINGTON - It's a toxic economic mix the nation hasn't seen in three decades: Prices are speeding upward at the fastest pace in a quarter century, even as the economy loses steam. Economists call the disease "stagflation," and they're worried it might be coming back. Already, paychecks aren't stretching as far, and jobs are harder to find, threatening to set off a vicious cycle that could make things even worse. The economy nearly stalled in the final three months of last year and probably is barely growing or even shrinking now. That's the "stagnation" part of the ailment. Typically, that slowdown should slow inflation as well — the second part of the diagnosis — but prices are still marching higher.
The latest worrisome news came Tuesday: a government report showing wholesale prices climbed 7.4 percent in the past year. That was the biggest annual leap since 1981. "We're in a slowdown," Press Secretary Dana Perino said at the White House, where the economics talk was still upbeat until recently. Full Story
Now most of these news stories made headlines today (Tuesday) and one would have thought the markets would have crashed or at the very least closed down a 100-150 points. Instead all it took was a headlines stating that IBM would be buying back up to 15 billion dollars worth of it shares to turn the market around. When a market climbs a wall of worry it bodes well for the intermediate and longer term pictures. This is what we call a strong psychological development. While the overall volume has been dropping in the last few trading days; the markets closed up on higher volume today and that is always a positive.
Stagflation normally is a very bad word and normally negative in terms of market action. However we are not in normal times. Half of the world still lives on under a dollar a day and they desperately want to climb out of this hole. For them it’s not a matter of trying to get the better things in life; it’s just a matter of trying to get the very basic things in life. They just want to be able to eat a decent balanced meal everyday, have clean water and a safe and decent place to live in. Most westerners cannot imagine having to live like this or that such a huge percent of the world’s population lives in conditions that make any Jail in the US almost seem like a luxury palace. One has to travel there to take a look at this situation with their own eyes and only then can one understand the full reason behind the soaring commodity markets and why this trend will not end anytime soon. One can dream about or plan on owning a high end luxury car but this is not a necessity; the same thing goes for planning a dream vacation. But how many of us dream of simply owning a simple car or dream about having a piece of steak or chicken for dinner or having cup of coffee with slice of cheesecake or a cup of tea with scones or crumpets. The answer would be almost none or 0 but this is not the case in many developing nations.
Commodity prices were down for years because these individuals were denied every single thing you and I take for granted. Prices were kept low because they simply could not afford the very basic things in life. As the economies in Asia and other impoverished nations continue to improve and hundreds of thousands of individuals jump from poverty to the middle class level every few weeks; the demand for these basic items will continue to soar. Imagine this; most of these individuals have never driven a car, they have never had the luxury to consume meat on a regular basis, no proper sanitation, no coffee, no pastries and cakes and the list goes on. So when their incomes start to rise the first thing that probably comes to mind after moving to a better place is the thought of buying a new car; now that TATA motors has come out with a 2500 dollar car this dream is now a reality for millions of individuals. Then off course they also want to be able to eat more meat, drink coffee, eat pastries, etc .Thus the demand for wheat, cocoa, coffee, sugar, oil, copper, meat, milk, butter etc all start to soar. It is safe to assume that unless the US economy completely comes to a stand still (highly unlikely) demand for these products will not ease for a long time to come. It is for this reason we stated that the next leg up will be selective in that not all the sectors are going to rise. Commodity based stocks are going to be the ones that will rise the most and its for this reason we have positioned ourselves in segments of this sector we think are most likely to benefit from this increased demand; certain sectors are going to experience even higher gains as they have been held back and are now in the process of playing catch up.
Do not for one moment think the ride up is going to be smooth and easy; for if it was every single jackass would be a multimillionaire. It takes patience and discipline to make money. Look at how patience and discipline have rewarded all the early Palladium bullion traders; initially bullion did nothing then it exploded upwards only to mount a brutal correction. Palladium soared from 180 (Feb 2004) to over 390 before pulling back. Weak hands would have bailed out but now this position is up almost 200% and the second position of 330 (April 07) is up another 66.6%. We feel that the Journey on Palladium has only just begun.
One also has to remember that one cannot win on all the stocks one has positions in because that’s just how the markets operate, bullion could trade higher but some rat in the company starts to play with the books or mismanages the business and the stock plunges. It’s for this reason we have spread ourselves and invested in several different companies.
The Dow transports continue to behave in a healthy manner; they appear to be locked in a range right now between 4590-4860. Two things need to transpire now; first they need to break past 4860 for 9 days but the more important hurdle is 4950. If they can trade above this range for 18-21 days in a row then there is a very good chance that they could trade up to 5220 before pulling back. If they get to 5220 another new development will occur; the transports will experience a phase shift. The phase will move from down to up. Right now the phase is downwards. Phase and trend are not the same; the trend can be upwards but the phase down. When the phase is down the power of the move is usually diminished so strongest move is achieved when an index or stock is in an uptrend and in an upward phase. Once the Transports experience a phase shift it will only be a matter of time before the Dow plays catch up. When it comes to the Dow the main hurdle for the Dow is now 12800. We feel that when the transports take out 4950 the Dow should be able to surge past 12800. Once the Dow can trade past 12800 for 21-24 days in a row it will be in a position to test the 13250-13450 ranges before pulling back.
The 3 moving averages of new highs that we maintain all surged past their counterpart moving averages of new lows for the first time in weeks; this illustrates underlying strength in the markets. At least from the inside the markets are slowly building up strength; keyword being slowly. What makes the current conditions maddening for many is that both the bears and the bulls are confused. In others words neither one is sure which direction to bet on so they keep jumping in and out. However at some point in time the masses will start to follow the smart money which so far does not appear to be shorting the markets in an aggressive manner. In the interim this is the best time to build positions in the early leaders for these chaps will truly explode when the market conditions change. Already we have several stocks from our portfolio putting in new 52 week highs.
NYSE short interest ratio continues to trade at record levels week after week after week; to date no bear market has begun with the short interest ratio in record territory. Also many so called top analysts and market technicians have already stated that we are in a bear market; this is very good contrarian indicator and bodes well for the markets in the long run.
Another very interesting fact is that the average public investor’s cash position has increased significantly in the past few months. This sort of action signifies fear and uncertainty; both are perfect ingredients for the markets as markets usually climb walls of worries and fall down cliffs of joy.
As we stated last week and the week before last one negative that we have in this market is that there is simply too much bullishness in the OEX options arena and we would like to see some fear sink into these traders. In addition the odd lotters are still not shorting the markets aggressively as we would like them too. Until OEX option traders or odd lotters turn extremely bearish we feel the markets will continue their range bound action. The only thing that could bypass all this would be a buy signal from our smart money indicator.
The OEX March 620 call options we are following are now up even more. As we stated before we are just roughly following these and the rough entry price we listed last time were in the 10-12 dollar ranges; the low for this option was 11.80. To be fair we are going to increase the entry points to 13-14 dollars. The option is currently trading at 24 dollars. We would go ahead and sell this for a profit. Those that got into Dow or QQQQ options should also close these options.
Just to clarify matters, our primary method of following gains is going to be via the number of points the Dow has gained since we issued our call to go long and the secondary method is going to be via an OEX option that we monitor from a distance. In Feb 6th issue we recommended going long in the 12000-12070 ranges; the Dow traded within this range and so from a points basis we are now sitting on roughly 660 points; for futures traders this translates into 3300 dollars per contract on the mini Dow contracts or 6600 on the full contracts.
Right now it looks like the markets are slowly building up steam for an upwards move; only time will tell how powerful this move will end up being. However based on the fact that the markets continue to trade sideways or trend upwards on bad news days, the high Short interest ratio on the NYSE, the increasing NYSE specialist/Public short interest figures and no sell signals from our indicators all lead us to believe that the potential for a powerful rally is still significant. To date we have two buy signals from our smart money indicator on the hourly charts; a buy signal on the daily charts would be one of the most powerful bullish confirmations we could get. Continue to add to or purchase stocks listed in our main portfolio.
New additional Comments March 6th, 2008
Bernake the Fed Head indicated the challenge the feds were facing when he made the following comments recently.
“I don’t know how to fix it,” he said during testimony before the Senate banking committee last Thursday. “I don’t know what to do about it.
From a mass psychology perspective though this indicates that fear levels are running quite high now that even the Feds are temporarily stumped. As everyone knows market bottoms usually occur when pessimism levels are sky high; right now these levels continue to increase. We feel that in the not to distant future central bankers on a world wide basis will sit down and hammer out some sort of plan for if not things could get progressively worse and this is not in their interests. The smart money seems to be betting that the markets are going to mount some sort of turnaround in the not too distant future as they are not aggressively shorting the markets. The high NYSE short interest ratio is another positive contrarian development; no market has crashed with such a high short interest ratio.
The transports also seem to be holding up remarkably well given the record high oil prices. Finally the trading volume has eased a bi; after hitting the 6 billion and then 7 billion mark for one day; current trading acgtivity has fallen below the 5 billion mark. The largest trading volume day ever took place on a day when the markets close up so this is still a very huge positive. This market now is a traders market and only those positioned in the right sectors will do well; the next leg up is going to be selective and not all the stocks will trend higher, some will actually trend lower while the markets trend higher.
THE MACRO OUTLOOK
Our outlooks are updated once a month. We will update our views here again in the next issue.
The dollar was actually able to test the 77.20 mark and surpass it without trading past 76.20 for 18-21 days in a row. However it was unable to hold onto these gains and it broke down. As the noise about the housing sector continues to increase and now that rumours are circulating Country Wide Financial might file for bankruptcy the pressure is going to be on the Feds to lower rates aggressively. Thus it’s possible that they could lower rates by 50 basis points which would most likely push the dollar to test its lows only because of the aggressive nature of the cut. If the cuts are administered in dosages of 25 basis points we will have small pull backs but then the dollar will adjust and trade higher as demand for dollars is slowly growing because its one of the biggest contrarian type plays out there right now. If the dollar fails to hold above 75.30 it almost definitely test its lows and this will give our international subscribers a second chance to buy dollars at a really low rate. It’s estimated right now that the Euro is 20% overvalued in relation to the dollar. Long term the dollar still needs to trade past 78.40 for 29 days in a row to go onto put in a series of new 52 week highs. 08/01/08
The dollar failed to hold above 75.30 and went on to re test its low thus giving everyone a second chance to get in at almost the bottom. Note how fast it jumped back up and is currently trading at 76.20. The dollar is certainly exhibiting early strength as logically it should have gone to put in a series of new lows after the Feds cut interest rates by a total of 125 basis points. We have a very powerful intra Market positive divergence signal here. The dollar needs to trade past 76.20 for 21 days in a row. If it can do this then it has a really good chance of trading to the 78 ranges before pulling back. 6th Feb 2008
Oil did not trade below 87 on a closing basis and in doing so built steam for another leg up. It briefly flirted with the 100 mark; our initial long term target of 99 has been hit and now we wait for the second target of 120 to be taken out. Ultimately if the current chaotic situation surrounding the oil markets does not change than our long term price target of 300 will one day not seem as ridiculous as it seems now? The same could have been said of our now hit target of 99 dollars. Oil does not have a chance to correct simply because of the current geopolitical situation and it does not look like things are going to get better. If its not Iran, then its Venezuela or Nigeria and the oil reserves in Iraq are still nothing but a pipe dream because of the instability there. Demand on the other hand continues to soar. Ideally oil should pull back to the 81 dollars and trade sideways but ideal is not what always happens, so risk takers can go long on a pull back to the 89-90 ranges; place a stop at 83 and take profits at 99 dollars. For oil to trade significantly higher it will need to trade past 99 dollars for 27 days in a row; if it does this there is a very good chance it will test 120 in less than 6 months. 08/01/08
Traders were filled as oil traded in the suggested ranges (89-90) however it has not been able to rally past the 90 mark; make sure to maintain your stops at 83. oil needs to trade past 90 for 6 days and in doing so it will probably spike to the 96.00- 99.00 ranges. We would lower our exit points to the 96.00 ranges to ensure a quick exit if the above ranges are tested. 6th Feb 2008
Some parts of the country are experiencing terrible winter storms and other parts actually are unusually warm. Today it felt like spring on the entire East Coast; in fact in New York almost everyone was walking around with no jackets or very light jackets. However the fact remains that the main problem right now is supplies and a major portion of our supply comes from Canada; Canadian supplies are dwindling at a faster than expected rate and its getting harder and harder to locate huge new gas fields. So in the end unless massive new discoveries are made both in the US and Canada even without extremely huge demand, supplies are going to continue to drop and hence price will rise. From a futures perspective the Natural gas market is one of the trickiest to play as a dollar move translates into a 10,000 dollar profit or loss depending on which side of the market you are. If it can stay above 7.20 for 11 days in a row on a closing basis it will have a very good chance of testing the 8.40 and possibly 9.00 mark before pulling back. Risk takers can go long in the 7.20-7.50 ranges. 08/01/08
Natural gas surged to 8.40 as envisioned; traders who took part in this play should have closed their positions with gains of 12,000 per contract. This market is not for the faint of heart as the moves are huge on a dollar basis. If it pulls back to the 7.50-7.65 ranges open new longs place a stop at 7.05 and take profits in the 8.10-8.40 ranges. Natural gas is now trading in a range; it needs to break past 8.40 for 18-21 days in a row to be in a position to trade to the 9.00 mark and higher. 6th Feb 2008
We kept continuously advising our subscribers to purchase bullion for months on end and palladium dipped below our suggested entry prices several times. As stated on the 4th of December a break past 354 would easily carry it to 369; the move up was strong enough to propel it much higher. Today palladium bullion closed at 381.80. Its still incredibly cheap relative Gold and appears mouth-wateringly cheap in comparison to Platinum. It now needs to trade above 390 for 21 days in a row; once it does this it will be in a position to put in a series of new 52 week highs. A break past this level could also provide it with the energy to start its first leg up on its journey to the 600 plus price point level. 08/01/08
It traded past 390 for less than 21 days in a row but was still able to go on to put in a new 52 week high and actually 2 year new high. As a result of this rapid surge past to the 420 mark it will now need to trade above 420 for roughly 27-30 days. If this pattern is completed its going to set up the framework for an explosive upwards move. Palladium right now is now the underdog not only to Platinum but to Gold and in reality Gold should be palladiums underdog as Palladium is much rarer. If the above pattern completes we should be able to test 450 and then 470 relatively soon. 6thFeb 2008
It was unable to trade past 321 within 9 days however it broke furiously past this level after 3 failures and closed the day up 15.75 at 329.85. It now needs to stay above 321 for 15 days in a row to indicate the worst is behind it and if it can stay above 330 for 6 days in a row it will have a very good chance of testing the 360 mark before pulling back. If it gets to 360 and pulls back hard it will indicate that copper is going to probably test its recent lows and then trade past them. However we will need to see how it reacts when and if it hits the 360 mark before issuing our longer term analysis. 08/01/08
It has broken nicely past 321 but it now needs to stay above 330 days for 6- 9 days to be in position to re test the 360 ranges. Risk takers can open up new positions on a test of 321 and close these out in the 336-342 ranges. 6th Feb 2008
It’s now within striking distance of our second target and it looks like it might spike to the 900 level and then mount a correction. Depending on the currency markets this correction could be mild or a bit stronger. In any event all pull backs will provide Gold bullion traders with bonus long term entry points. 08/01/08
Gold spiked past the 900 mark; it actually traded all the way up to 930 before pulling back. It now needs to remain above 900; a break below this level could take it down to the 846-870 ranges. Consequently a break past 930 for 9 days could take it to the 990-1020 ranges. 6th Feb 2008
No new trades. 6th Feb 2008
No new trades. 6th Feb 2008
It never did pull back to the 1960 level; hence we would wait for it to pull back to the 1920-1960 levels before opening up long positions. As it has moved up quite a bit it appears there is a good chance that it will mount some sort of correction. Place a stop at 1800. 08/01/08
No new trades. 6th Feb 2008
It’s still attempting to trade past 90.90 and as it has taken longer than anticipated for it to do this; it will need to trade past this mark for 11 days now to be in a position to put in a series of new 52 week highs. 08/01/08
It was able to trade past 90.90 and in doing so it surged to 93 to put in another multi year high before pulling back. The pattern has slightly changed and it now needs to trade past 92 for 9 days in a row and if this is done it should be in a position to test 93.70-94.20 before pulling back. 6th Feb 2008