Let Me See If I Have This Straight...

Ummm, sanity check time... Today's announcement du jour from our wonderful federal gov't, in particular Hank Paulson was that the latest scam, I mean cash injection is for consumers. With 800 billion dollars of freshly printed cash that we don't have a way to back up, we're going to inject the consumer credit markets.

Here's the part I need help with... Wasn't it easy credit that got us into this giant mess to begin with??? Wasn't it easy credit with zero down on a car or even a house that let people that shouldn't have been approved to begin with end up with a car or house they couldn't afford?

So, what in the hell are they doing???????

Yes, credit has become difficult to get, BUT THAT'S THE WAY IT'S SUPPOSED TO BE! Sure it may be a little too tight right now, but it'll loosen up on it's own. It'll loosen to the point that you actually need 10% or 20% down to buy a car or a house. You have to prove that you have the means to pay off the balance.

I'm completely bumfuddled (high finance terminology). How many trillions of dollars are we going to throw around to get people to spend more money they don't have and go further into debt.

What we're going thru is painful. What we still have to go thru is going to be painful. But the bottom line is we have to go thru it.

Ugh. Rather than feeling good that we're a day closer to the end of all this, I feel worse because the fed and treasury makes yet another mind numbing announcement.

Lucy.... you got some 'splainin to do....

So, let's see, Citigroup is in serious trouble. So much so that they need more bailout money, more capital, more cash. And that's good news. Huh?

So, let's see... another bank, another problem. The auto industy is about to flop over and they "only" want 25 billion dollars, but they can't have it (I actually agree with the decision, but bear with me on this), yet, two days later, Citigroup, just a single company gets another 20 billion on top of the 25 billion or so they've already received.

So, let's see, housing prices plummeted again, 50% of refinancing attempts were rejected or failed, foreclosures are up. And the market rallies.

So, what's the explanation? Simple, people think stocks hit bargain prices. No basis for the reasoning, other than "hey, they look cheap". OK, well you can't fight the tape, you can't fight city hall and you certainly cant' fight Wall Street.

Bottom line, a 2nd day of big rallies. Two day move of about 12% up on the S&P. Now where?

Damned if I know. You can't reason with unreasonable people. That's one of my favorite sayings. So, the unreasonable people are in control right now. The fact that the markets tanked in the final 15 minutes could mean that we hit the peak. Or it could just mean that day traders were cashing in their profits.

Tomorrow is another day. We are either in wave 4 up or this was just a bounce in wave 3 down. Right now it looks like an up wave but we'll have to wait for confirmation. If this is wave 4 up, just be ready for the big ugly wave 5 down that is on the way.

I'm ready for things to calm down. These wild moves are crazy (and I can't trade them right to save my life. hahaha)

We'll wait and see how the rest of the holiday week plays out.

We had Thanksgiving yesterday so I'm going to eat some leftovers now.

Zooooooooooooom

It's similar to walking in for the 9th inning of a baseball game that's been tied at 0-0 thru 8 innings and then watching 10 homeruns. That's what Friday was like. Flatline most of the day and then the final hour was straight up. Why? Who knows... My personal thought is it was shorts covering after a very successful week. Pocket the profits and enjoy the weekend.

Sorry to say that the near term lows aren't in yet. Although it should happen next week, with Thanksgiving being a short week and most of the big boys on vacation I find it hard to believe it'll happen, but it could be that we read about it in the history books in 10 years as "The Turkey Crash of 2008".

Expect the unexpected next week... it should be exciting.

Yep, Thursday Ends in a "Y"

Another day, another 450 points on the Dow. How many times can I say WOW! I don't know. No bounces, no rallies, NOTHING. I kept guessing on when a bounce would be and would get burned. I learned my lesson and didn't even try today. Whew.

So, where is the bottom? When is the bottom? Well the REAL bottom won't be here until February or March and we'll rally til we start the next leg down. As to where this leg bottoms, I can't even guess. We blew through all of the support lines. I'm reading that somewhere in the 600's on the S&P is where we'll find it in the short term.

But here's my question to myself... what's going to be the catalyst for the rally? There has to be something. Technically yes, we'll have one, but what will trigger it to begin? The bailout of the automakers isn't going to happen, banking is going off a cliff, insurance companies and home builders are trying to get a handout from the government.

I'm sure something will come up, but until I see a reason for a rally I'm sitting on the sidelines. I'm ready to put my retirement back in for the 3 month move up at which time I'll yank it back out again.

I'll do my best to keep everyone up to speed on what all the geeks and gurus out there are saying. They've called things pretty well so far.

The service I paid for is paying off and is very informative. I'll continue with it.

One Of The Best

If you won't listen to me, maybe you'll take advice from one of the best. See the article below on Bloomberg speaking with the best ranked technical analyst the past 4 years.

http://www.bloomberg.com/apps/news?pid=20601087&sid=aN8bKWtFVGKk&refer=home

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Wow. Let me say that again... WOW. Well the drop I was expecting showed up early. Darnit. Threw off all my grand plans on getting rich off of it. ;-) I'll have to wait for the next one.

So, where to from here? Too many factors to begin to try to guess. Will there be some sort of a bailout for the Big Idiot 3? If so, will the stock market care either way? Are any of the big banks about to go belly up? Citigroup stock at $6 a share? Holy cow.

How low do we go in the short term? Hard to tell. Closing below 8000 was a big thing on the Dow. We stayed above 800 on the S&P however. It's very possible that a bounce is on the way. But until I see it I won't believe it. I'm tired of guessing and trying to pick the bounce point and being wrong with my stock purchases and subsequent sells.

S&P 400 is still the ultimate destination. Some time in 2009. But for now, 770 or 720 on the S&P is the likely target. A nice rally will follow for a couple of months.

We still haven't had a true "oh shit" day. Today was down 6% and sure it was noticable but still no panic, no major screaming... it's become uneventful. Go figure. A 2% move used to make news headlines.

Tomorrow should prove to be exciting once again.

Volatility? No Way

On days that don't end down, you can bet that it sure looked like a down day until the final hour came around. Yep, more volatility. As if we didn't have enough lately already, options expiration week has added a little extra kick to it.

There's simply no way to even guess what each day will bring. Are the waves down complete? Do we still have the final wave to go in this series? All depends on how you view the charts. I'm seeing and reading arguments both ways. I still think we have one more ugly move down in the near future. A rally to suck people in would make sense to me and then have the trap door spring open.

What's going to happen to the auto industry? Sure sounds like they're on their own at least until the new administration moves in. The republicans are dead set against bailing them out so nothing can get passed and we know Bush won't go along with anything.

Personally I'm on the fence. I don't think they should be bailed out. They have such horrible business models, why should they be salvaged? So they can continue to barely get by? Let me ask you something... A company the size of General Motors is having one bad year... yes ONE BAD YEAR and they're on the verge of bankruptcy??? How can you run a company that sized and be that close to devastation just because of ONE BAD YEAR??? It's not like they're saying "We'll be out of money a year or more from now". They're saying WE'RE OUT OF MONEY NOW!!!!

How may different models of cars do they need to produce? Why have Chevy, Pontiac, Buick, GMC, etc? Consolidate to just a few models. How many dealerships do you need??? Toyota and Honda have about 1200 each. GM has over 5000. This is why I think they should just go bankrupt. Ford and Chrysler aren't much better, but if one fails it'll strengthen the other two.

But on the other hand, many, many hundreds of thousands, even millions of jobs are dependent on the auto industry.

I don't envy the people having to make the decision on what to do.

We'll see what Wednesday holds for us. My call is for a rally on the S&P to 950 up until Thursday afternoon and then starting late Thursday or Friday the big drop begins. Target of 720-750 on the S&P very quickly.

Clarity - Time for a move

And since today was a day that ended in a "Y", that meant the stock market was down. Yep, pretty much a daily occurance now. Well the charts cleared up quite a bit with today's action. So here's the schedule.

A chance for a small move up. S&P is at 850 right now. It could approach 900 and then watch out. Seriously... the fall down to 700-750 is going to be swift. It will bottom next week before Thanksgiving. My guess is Tuesday.

That will mean a 20% drop in a week. When the bottom is found (somewhere around 720) we will see a very respectable move up over the next couple of months. But the overall downturn is not over. It'll just be on hold. Watch out for March timeframe. As that approaches I'll have a better idea of what's coming, but I do know that a low of around 400 is coming.

Much Reading and Studying

So, after much reading and studying this weekend I have come to the following conclusion regarding the markets, for the short term. Short term I mean the next week or so. So what did I finally decide?

That the markets will be up. Unless they go down.

Yep, the signals on the charts are unbelievably mixed. There are dozens of indicators out there. And depending on which ones are your personal favorites you could definitely build a case to be bullish or bearish for the short term.

My gut says down, which isn't good for me because I went long on Friday.

What I'm hoping for (and if you depend on "hope" when you're trading or investing, you're on the wrong side of things) is that the G20 have something positive to say (which is highly unlikely) or maybe GM will get salvation, or the CPI and PPI come in looking good due to commodity prices having dropped which will give a false send of glee.

I guess we'll be dependent on news items for right now. And options expiration is coming up on Friday which makes for a turbulent time. Maybe that's why the indicators are so mixed. Too much going on.

In any event, as always, we have to wait and see.

As far as the medium term, the next 3-4 months, I won't be surprised by a rally. One of those rallies I've been talking about that happen and will be impressive. Here's my theory as to why...

This past Thursday was a major flushing out of people that had been watching the 840 level on the S&P. Breaking below it, ever so briefly shook a lot of folks out and it caused a lot of automatic sells. The rally could have sucked some folks back in but then late Friday the freefall should have scared people out. Now the time is ripe for a sizable rally. People won't believe it for a while, won't get in. When it keeps running, people will pile in... and then yes, the evil market will reverse itself.

Conspiracy theories, right? :-)

Nah, just the way the market plays the game.

How's this for a case of deja-vu... In October 1929 amidst the declining stock market, John Rockefeller announces that he is buying up blue chip stocks in large quantities based on their attractive pricing. The Dow at that time was at 195. The Dow bottomed in 1932 at 42.

How's this for a case of deja-vu... In October 1929 amidst the declining stock market, John Rockefeller announces that he is buying up blue chip stocks in large quantities based on their attractive pricing. The Dow at that time was at 195. The Dow bottomed in 1932 at 42.

Sound familiar to what our modern day Rockefeller, Mr. Warren Buffett said last month?

Quote Of The Day

The second paragraph is excellent.

"The book value of the DJIA is almost 3 while history says that 1.5 is a typical valuation. We should expect it to drop substantially below that during times of recession or depression.

It is important, if you wish to get through this period without losing everything you have, to deal with facts beyond those we have been brainwashed to believe by analysts on CNBC and a two decade bull market.

Almost any valuation, properly done, leads us to the conclusion that the market is headed substantially lower, assuming you believe we are in a true secular bear market."


Most people are using the last 20 years as a reference in which we've had a couple of blips (recessions) that quickly resolved themselves within a year or so and then it was back to normal, a bull market that went straight up. Don't expect the same this time around is what I'm trying to relay to those that are interested.

Well things looked good at 3:00

So, the big rally off of a major support line yesterday lasted all of one day. Today we started out weak, sank down, hit a bottom, rallied nicely until 3 gongs on the clock. The final hour wasn't good. The markets ended down about 4%.

So, is this it? Is the bottom about to fall out? The next stop is Dow 7200, S&P 770 when the time comes. Or do we have one more rally in us? My feeling is there's one last rally and it could be impressive. But it's only purpose will be to suck people back in thinking the worst is over... and then the rug will be pulled out.

In case you weren't aware, the market does have a personality, it does have a soul (an evil one) and it can be manipulated to accomplish certain things. Yesterday being a prime example. Technical analysis widely known and used showed 840 on the S&P as a very major support line. So, what do a lot of money managers do? They set stop loss orders near that line so that if it crosses it's assumed to be a bad sign and it sells their holdings. The markets knew this and purposely went below 840 to 819 to wipe out all of those stops and force selling and then immediately rallied huge. During the ensuing rally a lot of buying took place roaring up all afternoon sucking people in with cash on the sidelines.

Usually the rally will last a few days. But we're in unusual times and the evil ones decided to toy with us today. Down at the open, down until noon, then the rally and then failure.

Who knows what to expect for Monday. My best guess is that unless GM announces bankruptcy this weekend we'll have an up day. I won't be holding my breath, but I'll be hopeful.

As I've mentioned, I do a lot of reading and have found some people very knowledgable on the web and there is one guy who is amazingly accurate with short term predictions. He also provides long term prognostications and his anticipated bottom is 400 on the S&P, another 50% decline from where we are today. That's in line with other estimates I've seen. The eye opening part of this prediction is he says it will happen 12 weeks after we dip below 720. Other predictions I've seen have said we wouldn't bottom until the first quarter of the year 2010. I actually prefer this 12 week prediction in that means it'll happen sooner and we can be done with it. Rip the band-aid off.

Honest, I'm not a doom and gloom guy, but I absolutely believe that the true devastation of what we're about to go thru hasn't been recognized by the majority of people. This is bad folks. Real bad. 75% or more decline from the peaks is actually possible.


The government hasn't been throwing around 3 trillion dollars so far just for kicks. They know what's hiding under the surface and they've tried everything they could to try to slow down or stop what could be a major economic disaster.

Enjoy the weekend and let's hope the G20 can come up with a magic pill for the world.

No Virginia There Isn't a Santa Claus

My post from last night some how froze up the blog... so I had to repost it this morning.

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And no, yesterday didn't mark THE BOTTOM of the bear market. Another one of those incredible bear market rallies I keep talking about. They will amaze you and daze you won't they? From the bottom today, the Dow went up 800 points to close 550 points above yesterday. Amazing. It really is. Even more amazing is the techinal analysis tool I'm learning about hit it right on. That's why I bought long yesterday. I was a day early, hey, I'm still learning. So, what's next? Well we'll go up to about 9200 on the Dow and then it's back down again. That's how I see it right now. There is a chance of a Santa Claus rally. It's pretty much an annual event. But with today's environment I wouldn't bet on it. What caused todays rally? Nothing but pure technicals. There was no good news, there was more bad news but that doesn't matter. When the S&P tripped below 840 today, that kicked in trading programs to start buying and covering shorts. The next few days will be up and down as the traders go back to their usual ways, and then we'll see if Santa is coming to visit or if the Grinch will take us down to around 7200 on the Dow. I'm betting on the Grinch. Here is something I just read that confirms what I'm seeing (not that I know the system well enough yet). ===
The price action also coughed up more juicy bit of info. For example, we posted new SPX lows below 10/10, but on poor volume, followed by a spike on big buying volume. That more or less proves that 10/10 was NOT a capitulation bottom, and so it naturally follows that new lows are to be expected in the longer term. This adds further support to the notion that we are now in a C wave of a flat.This C wave will be vicious and swift. It will probably terminate around opEx next week (a number of others I respect e.g. Atilla, are of the same view even though they are not into EW).There will be some scary reversals... into which I will be buying.But what I'm most looking forward to is shorting this sucker towards the end. Target SPX <>
===
I'm going to start putting the closing prices on the Dow, S&P and Nasdaq each day. I'm going this because I'm going to start reporting things based on the S&P 500. It's the most widely used for technical analysis.
Dow 8835 +552
S&P 911 +59
Nasdaq 1596 +97
So, as the info I copied and pasted above, we're looking for a rally in this last leg up, but then things begin to crumble and based on technical analysis, the lows put in so far aren't THE lows. I can't improve on that so I'll leave you for the evening.

Another Day - Another 400 Point Drop

Just when you thought it was safe to go outside... Well folks we're back down to 8300 on the Dow. The good news is that the closing low was 8175 so we haven't gotten back to that point yet. The bad news is this is looking like October all over again. Day after day of drops. It's only been 3 days this time and today was the biggest.

There are some technical points showing that we could have a move up in the next week or two. But it would require the stars aligning just right because the break point on the S&P is just a couple of points where it closed today. Tomorrow could be interesting.

I of course went long today in anticipation of a turnaround, so I'm caught up in this mess for now. Just small dollar playing around money, but frustrating none the less.

There isn't a lot of good news out there obviously. So it'll have to be a technical support that props things up.

We'll see what tomorrow and Friday has in store for us.

Oh, and of course on CNBC.COM website this morning one of their headlines said PROS SAY S&P TO RALLY THRU MARCH 2009... gotta love it.

Where to today?

Quick post this morning. Read this article this morning and thought it was a good one. And the article below is one I came across this afternoon. Very good discussion about the bailouts. I'll post more this evening.

http://www.cnbc.com/id/27653888

http://www.minyanville.com/articles/AXP-fre-fnm-aig-gm-fannie/index/a/19940

And how about some interesting tidbits of information that I stole from an article:

Is it safe to assume the current recession "officially" started in the fourth quarter of 2007?

The thirteen recessions since 1929 lasted on average ten months?

The longest recession ever—The Depression—lasted 44 months?

The second longest recessions—1973-1975 and 1981-1982—lasted 16 months each?

In the thirteen recessions dating back to 1929, the median S&P bottom occurred 58% of the way through the recession?

The average return from the recessions' closing low to the end of the recession was 20.3% while the average return for the year following the recession was 15.9%?

If our current conundrum is on par with The Great Depression in terms of duration (44 months) and we apply the median S&P bottom (58%) while assuming it started in the fourth quarter of last year, can we extrapolate that THE bottom will arrive in the first quarter of 2010?

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OK, settled into the hotel for the evening... now time for me to get on my soapbox for a little bit... When are the bailouts going to stop? Where are they going to stop? At what point do you let free markets operate as they're supposed to.

First it was the investment banks, then the regular banks, then the insurers, next are the automakers, bailout homeowners that got in over their heads...

The Fannie and Freddie bailout plan came out today. The markets spiked up on the release... until people started reading the fine print. It's insane and it's not going to save many homeowners at all (which is fine by me). The rules that are in place for people to qualify for this latest attempt at help will rule out 99% of people because you have to have 10% equity in the home at it's present value. Well guess what, nobody has 10% equity in a home they bought in the last 4 years with no money down and home prices having dropped 30%.

I know the gov't has good intentions, but it's time to let things work themselves out. Let failures happen. Stop trying to save everyone from themselves. If GM and Ford had run their businesses properly they wouldn't be in trouble right now. If the banks made too many stupid loans, too bad.

The article I posted above on Minyanville touches on all of this as well. We can fight like hell and try to stop the inevitable from happening, thereby dragging it out for many years, or just rip the band-aid off and let it happen. This reminds me of the giant sandbags being put in front of beach homes. Folks, the ocean will win. This problem we're in is the same thing... the natural order of things will win. There are boom times and then there are down times. This down time is long over due and is going to be painful for everyone, but lets get it over with as soon as we can.

Keep an eye on Citigroup... stock price is under $11 a share... something is wrong within their kingdom.

Markets to Decline 20-25% or 70% Chance of a Massive Rally

Literally two different headlines could be found on CNBC.COM at the same time today:
- Markets to decline 20%-25% from here
- 70% chance of a MASSIVE rally

What?!?!?! How can there be such opposing thoughts? Amazing isn't it? CNBC tends to pump up stocks and the markets. They're in the entertainment business and they bring guests on that are typically from brokerage houses, are agents, etc and their jobs are to get people to buy. They're salesmen.

What you have to do though is get beyond the sales pitch and get to some number crunching. Look, I know that most people are adverse to doing their due diligence and that most people don't enjoy reading endless articles about economic history, etc. I personally enjoy it and I also enjoy trying to find patterns within all the chaos. There are a number of theories and patterns and charting techniques that will show trends, historical happenings and you can then extrapolate that information and try to forcast the future. None of it is perfect, otherwise there would be chaos in that the markets had been figured out.

Here's my advice... take everything you hear and read, throw in a little common sense, open your eyes to what you see around you and decide what you think is likely to occur in the future.

Personally, what I'm seeing isn't good, and it isn't getting any better as each day passes. Sure, we'll find the bottom of this recession, but the question is when.

My research and homework over the weekend is in line with news headline 1 above. We're coming up on a 20% downdraft. Soon. As in Dow 7200 by the end of November or first week of December. There, I said it, that's my prediction. We'll peak sometime over the next week and then the slide will begin.

The good news is it'll be quick (band aid being ripped off as opposed to pulled off slowly as we went through in October).

The better news is we'll see a very nice rebound when it happens. I wouldn't be surprised to see us bottom around 7200 and bounce back to 9400 within a couple of months.

Where to from there? I dunno. That's too far out for my shiney new crystal ball that I'm still trying to learn how to use.

We'll see how I do on this prediction before I make any others. I'm ready to play the upcoming swings both ways and make a little money. I'll also put my retirement money back in for the bounce after we hit the upcoming new temporary bottom. Yes, it's still a temporary bottom. We have a long span of time and possible a long way down to go before this bear goes back into the woods.

Weekend Musings

Been doing a LOT of reading this weekend. Trying to get an idea of what to expect next week. I feel like I'm teetering on the roof of a house not sure which way I'll slide. I haven't come to any real conclusions other than the downward spiral is far from over. The next two weeks may be the next leg down.

I have found some fascinating material about Elliott Waves and believe it or not I even subscirbed to a service for weekly and monthly updates. For those of you that know me, I'm a tightwad and for me to pay for a service means it had to really impress me and it did. I stumbled across a video of a presentation done at a conference held in October 2007 and was amazed how accurately they predicted what has happened. I'll keep you posted on how they do over the coming couple of months. If they don't do well I can cancel my subscription at any time.

So, back to what we're actually facing. Unemployment of course getting worse as expected (peaking at 9 or 10%), automakers facing dire times, financial institutions still on shifting sands, the gov't throwing the kitchen sink at things and still not doing much good. The automakers are the new ones with their hands out looking for loans. Insurance companies, home builders, credit card companies, homeowners, towns, cities and states also in line hoping for bailout, oh I mean "rescue". When will it end? I want to know where my handout is. Oh wait, I bought a house I could afford even after being told I could afford something twice as much. I bought a car I could afford that I paid off early... I guess I won't get any free money.

Here are a couple of things to think about as the end of 2008 rolls around... I've mentioned something about hedge funds having to liquidate some holdings by Nov 15 due to a rule of some sort about having to do so 45 days before the end of the year. Here's something else I read about today in the paper... retired folks over age 70 1/2 are required to cash in a portion of their retirement accounts every year based on value, age and other factors. Many wait until Nov or Dec to do this, so another wave of selling may be on the way at the same time. We could very well be in for a major move down over the next 6 weeks. I won't even get into the discussion of people over age 70 even being that heavily into stocks to begin with.

Now the good news. When the next leg down does occur we're due for an impressive rally. I estimate the Dow down to the 7800 range and then we could see it rebound to near 9400 before settling into a range for a while. I'll refrain from talking about where the true bottom could be eventually. There are some amazing and compelling theories and charts that I'm seeing. But until I learn more about them I don't want to discuss them in case they're just a bunch of crackpots ;-) I'll just throw a term out there... we know we're in a bear market, but I'm learning about a new term... Grand Supercycle Bear... a bit scary actually.

An Up Day On Horrible News

Unemployment worse than expected, GM and Ford earnings far worse than expected. So what should happen... markets move up sharply... Go figure. But hey, you have to play the markets game by its rules. The problem is, the rules change constantly.

I read a lot of bewilderment and whining on message boards when days like Friday come around "The news is horrible, why are the markets going up?" Or when times are good "The news was fantastic, why are the markets going down?"

Simple, the markets had already taken into account whatever news had been released that morning. "Buy the rumor, sell the news" or in Friday's case "Sell the rumor, buy the news".

That's right, the markets had already anticipated worse than expected unemployment by dropping 900 points the previous two days. So when the number came in "as expected" and not any worse, it was a relief and the markets moved up.

I know, you can't keep score because you don't know the players. But that's why we don't day trade or trade in general for a living.

Yet people that try gripe and complain about it not making sense, it not being right, it not being fair. Well, you either play by the markets rules or you get out of the game. You can't fight it, you can't change it.

This is why the general consensus is to not try to time the market. You can't reason with unreasonable actions, therefore it's almost impossible to time things.

That's true on a daily basis, but when looking at the big picture I do believe you can time things. When things look like they've gone too far to the upside, get out. Once they've revalued to where they should be, get back in. Times like that aren't on a monthly basis, sometimes not even on a yearly basis. Bull runs last a few years, then they fall back and then they run again. Usually. We'll see what happens this time around.

Expect the makets to go up for a few days. A turnaround will come next Thursday or Friday. Hedge funds have to liquidate to meet their customer demands of cashing out by the end of the year. I think this could be interesting.

I really enjoy reading all of what I can find where technical analysts (chartists) explain what they're seeing with Elliott Waves in particular. I'm seeing powerful evidence that we may see a small rally early next week and then the bottom will fall out. Dow 7800. I'll be ready to play it if it materializes. If It does play out I'll move my retirement back in at that point for a 20% rally and then reassess.

Enjoy the weekend. Fall has arrived in Raleigh, the leaves are starting to pile up.

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An article I just read is below along with an excerpt from it:

Does this mean that the market has become impervious to positive divergences? No, at some point the pressure will become too much, and oversold/undervalued conditions will re-establish an equilibrium level. Such an event will be a retracement, and readjustment to parity, but more than likely ... not the end of the Bear Market. On the plus side, there will more than likely be at least two rallies that will last at least one month before this is over.

http://www.stocktiming.com/Friday-DailyMarketUpdate.htm

2 Day Thrashing

Another day, another 5% drop. So after a very nice bear rally to end October, we've had the majority of it wiped out in 2 days. Dow back down to 8700. More importantly, S&P is at 900, a major support line. Will it hold tomorrow?

Unemployment numbers are to be released in the morning and they're expected to be very bad. BUT, I think that's why we've had the 2 brutal days here. Instead of crashing tomorrow, I think we've gone thru the majority of the pain already. I feel so strongly about it I closed my short position today for a small loss. I didn't want to watch another rally and have to wait for it to come back.

Where to from here? I'm completely on the fence. Half of me sees another possible bear market rally while the other half sees us testing the 8200 on the Dow. We have to test 8200 eventually, but will it be in the next week or 4 months from now? We'll have to see.

In the meantime the bad news keeps rolling in. Even Disney reported disappointing earnings after the bell today. Sure, it could have been expected, but they don't usually miss by much.

Until 2009 earnings expectations get down to where they need to be, people think that the P/E ratios look good right now. I read one persons expectations and according to his numbers the S&P could go down to 450. That would be 50% from here!

I'm in no rush to put my retirement back in to the markets.

A piece of advice... if we do rally soon and it'll be an even more impressive rally than this last one, GET OUT. Don't trust it, don't believe it, it's only temporary before the big fall. I hate when I hear people comparing to "The Great Depression", but in this case, a long term bear takes time to work itself out. As in 2 or 3 years. We may not see the true bottom until 2010. I see one scenario where we could go up to 1170 on the S&P during a sustained rally over the next couple of months before falling off to the new lows slowly over the next year.

If we continue to drift down from here, it'll continue to be slow and painful.

We've gotten spoiled by quick little recessions and turnarounds and this isn't going to be that way.

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Speaking of 2009 P/E's, here is a piece of an article written today by Nouriel Roubini a well respected economist that saw this coming as far back as 2006.

For 2009 the consensus estimates for earnings are delusional: current consensus estimates are that S&P 500 earnings per share (EPS) will be $90 in 2009 up 15% from 2008. Such estimates are outright silly and delusional. If EPS fall – as most likely – to a level of $60 then with a multiple (P/E ratio) of 12 the S&P500 index could fall to 720, i.e. 20% below current levels; if the P/E falls to 10 – as possible in a severe recession, the S&P could be down to 600 or 35% below current levels. And in a very severe recession one cannot exclude that the EPS could fall as low as $50 in 2009 dragging the S&P500 index to as low as 500. So, even based on fundamentals and valuations, there are significant downside risks to U.S. equities.

Quick Post Election Update

The election is over... no more political ads, no more robo-calls... thank goodness. Now, back to the markets. I think this was a case of "buy the rumor, sell the news". The rally the past week was nothing more than a bear market rally which I've been saying would come and would look impressive. But now reality is back in the picture. Unemployment numbers coming out Friday, more bad news has been coming out all week but the markets still rallied. It can't last. We'll see the next wave down soon.

My next pivotal target date is Nov 15. That's when hedge funds have to make certain adjustments to their portfolios for year end. (45 days prior to the end of the year). Could be interesting thru next week.

That's all for now. Enjoy your day.

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Well this morning I said we'd see a wave down soon, but I didn't expect it to be today quite honesetly. Being short the market I was very glad to see it since I'd been getting clobbered the past week.

But will it continue on Thursday? Cisco released poor earnings and guidance after the bell so things are not looking good. But there are guesses that there may be some rate cuts in Europe and/or Asia that could provide a pop.

I'm sorry, but I simply don't see anything that will turn the markets up any time soon. We will bounce around, it won't be straight down. One analyst that I read actually said the next bounce up could be very impressive before the bigger wave down comes. I don't know about that. But as I've said, I read anything and everything I can and then I make my own guesses, estimates, determinations. I'll continue playing the down swings by being short.

I have to make up for my bonehead move last week when that huge one day rally hit and I didn't sell when I should have. I won't do that again, I promise you.

A couple of items to keep an eye out for. Treasuries have been on a tear lately and the markets haven't been reacting to it, which is odd and not good. Watch out for the unemployment rate being announced on Friday. My guess is it's going to be worse than expected and treasuries took it into account. If I'm right, watch out, Friday could be pretty bad.

I'm keeping myself prepared for rallies mixed in with the down turns. My retirement money will be sitting for a while. I can't play it that quickly. These massive 1 day swings that should happen over a week or two are too sharp and too fast.

I'm still convinced we'll see Dow down to around 7000 or 6500 as the bottom. These rallies we get keep people thinking that things are coming back and all will be fine and they stay in. "I'm already down 35%, it can't go down much further." But another 30% from here will be painful.

Good luck to all tomorrow.

Election Boredom

With the election upon us, the stock market seems to have decided to take a nap. Today was BORING. The indices all closed near where they closed on Friday.

So what's next? I'm glad you asked. But you won't like the answer. There is a 20% chance we move up from here. That means an 80% chance of lower. We'll likely test the lows again and then we'll either break down even further, or we'll see one more bounce (which will be a smaller bounce than the one we just saw) before we truly fall off a cliff.

Oh, while I'm thinking about it, watch Goldman Sachs and watch Citigroup. They're both looking very odd, strange, weak. If one or both of them fails, imagine the carnage.

Speaking of carnage, how about the automakers???!!! Now, think about the ripple effects of the auto industry tanking and being hurt. How many hundreds or thousands of suppliers rely on the auto industry? How many medium and small companies will be crippled, shut down, bankrupted due to the slowdown in autos? Scary to think about actually.

So, why only a 20% chance of going up? Well let me ask you a question, what's out there to cause the markets to go up? What is out there over the horizon that says "Things are going to be fine in 6 months"... I don't see anything. I see things getting worse. The govt is running out of bullets, they're running out of kitchen sinks.

How long will stocks stay down? 2 years, 3 years, 5 years, longer? I'm not doom and gloom, I'm simply looking around me when I drive around, when I turn on the news, when I read news stories. We're in trouble folks.

OK, I'm hungry, time to make a hamburger. Back in a bit.

Quick Tidbits

With the election coming, no telling what will happen Monday and Tuesday, so we'll all just go along for the ride.

Here's a story I just started reading. It's fascinating and sobering. The full story link is below. Be sure to look at the graph on page two showing household debt compared to savings percentages.

Here is just one paragraph:

It’s clear that all Baby Boomers are not created equal. Based on calculations made by the Federal Reserve, at least 50% of Boomers won’t have a happy retirement. The bottom 30% will reach the age of 65 with a net worth of less than $100,000. They will try to subsist in poverty, dependent upon Social Security and part time Wal-Mart jobs until they die peniless. The top 30% will retire to lives of luxury and leisure. The middle 40% will muddle through with on Social Security payments - the only thing keeping them from an old age in poverty.

http://www.minyanville.com/articles/WMT-HD-YUM-bbi-GDP-SHLD/index/a/19789