StockTiger Stalking Stocks for Monday July 6, 2009 The leading stock market newsletter.

Stock Tiger Stalking Stocks™

For Monday July 6, 2009

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Past 5 days

Dow

Nasdaq

Close Friday

Dow -218.94 at 8285.12, Nasdaq -49.20 at 1796.52, S&P -26.18 at 897.15

July 4th - This is 1006 Supernova Remnant composite picture made July 4, 2008. This expanding debris cloud from a stellar explosion, found in the southerly constellation of Lupus, still puts on a cosmic light show across the electromagnetic spectrum. No need for fireworks there.

This week all the major indices lost ground as they have been in this trading range for some time now and getting tired. The media wanted to blame the jobs report for the Thursday decline but likely if not that there would be something else to blame. We have been talking about a minor wave b down in this major wave B up for a long time and hopefully it will pick up some traction in the next week or two to break us out of this range. There are some head and shoulder patterns and if and when they play out, our shorts will become longer term holds. Eventually the b down will end and a final bear rally c up will begin to end the rally. (at least that is our current scenario) and the start of the final major wave C down which could last quite some time. This week is historically an up week, though so was last's, and there will likely be an attempt to protect the lower support which may result in a rally. In time that will fail and within at least a couple of weeks we should be lower. The test of the March lows has not yet come about and when people start to feel that the test will occur they will want to hit the exits so things could drop fast at that time. However, the actual test may not get that far this time around as often a 38% or 50% retrace is sufficient for the shorter term. For the S&P that would mean 811 to 845. We have added several more short candidates to the watch last to have them ready when things do head south and we will keep an eye on the long sire too for any last attempt rallies.

For the 17th consecutive month, economic activity in manufacturing has failed to grow, according to the Institute for Supply Management. The ISM's June Purchasing Managers Index (PMI), on which the report is based, registered at 44.8%, compared with 42.8% in the previous month. A reading above 50% indicates that the manufacturing sector is growing; a reading below 50% indicates that it is generally contracting.

U.S. construction spending fell 0.9 percent in May to the lowest rate in more than five years. The drop was more than expected and April's spending was revised downward to an increase of 0.6 percent from March, compared to the 0.8 percent increase originally reported.

The number of Americans signing contracts to buy previously owned homes rose for a fourth consecutive month in May. The 0.1 percent gain in the index of signed purchase agreements, or pending home resales, followed a 7.1 percent rise the prior month that was bigger than previously estimated.

A report released by the Labor Department said initial claims for unemployment benefits declined 16,000 to 614,000 in the week ended June 27 from the upwardly revised reading of 630,000 for the previous week. Economists expected a decline in claims to 615,000 from the initially estimated figure 627,000 for the previous week. The 4-week moving average for initial claims, a statistic that flattens out week-to-week fluctuations in the data, declined 2,750 to 615,250. Continuing claims, which measure people receiving ongoing unemployment help, fell 53,000 in the week ended June 20th to 6.702 million.

The Labor Department said that the unemployment rate edged up slightly to 9.5% from 9.4% in May.

The Labor Department reported that nonfarm payrolls (jobs) decreased by 467,000 in June. The stock market declined sharply on the news. Today's chart puts that decline into perspective by comparing job losses during the current economic recession (solid red line) to that of the last recession (dashed gold line) and the average recession from 1954-2006 (dashed blue line). As today's chart illustrates, the current job market has suffered losses that are nearly three times as much as the average. In fact, if this were an average recession/job loss cycle, the number of jobs would have begun to increase three months ago.

This chart is of the average work week hours and it has been declining for many years. A company will cut back hours in an effort to slow lay offs but as the employment report shows this is only a temporary measure. The shaded areas are recessions. This shows continuing weakness and when any turn around starts we would expect too see work week hours grow first before companies begin to hire many more.

The Labor Department reported that nonfarm payrolls (jobs) decreased by 467,000 in June. This chart puts that decline into perspective by comparing job losses during the current economic recession (solid red line) to that of the last recession (dashed gold line) and the average recession from 1954-2006 (dashed blue line). The current job market has suffered losses that are nearly three times as much as the average. In fact, if this were an average recession/job loss cycle, the number of jobs would have begun to increase three months ago.

With the market decline on Thursday we were well prepared to use it to our advantage and had 5 shorts trigger and produce good gains. VCLK.

WMT

EOG

CHK

Mechanical trades also triggered such as SRS at about $20.10

and FAZ at just under $4.95 - both of those trades were exited at the end of day.

All major indices closed down for the week.

The past week sectors:

In our multi-index charts we see the Dow over the last two weeks trading below its broken trend line and center Bollinger band, the 20 day EMA. It had bounced from the lower band and made it to the center band on Wednesday before pulling back again Thursday. It is now very near possible support so a bounce early in the week would be expected. The S&P 500 is also nearing the lower band with stronger support at the red line. The NASDAQ and NASDAQ 100 are still above their lower bands as is the Russell 2000.

The monthly chart of the Dow shows the June break above the 200-day EMA reversal candle and the continuation so far this month.

the weekly chart shows its inability to break above the 50 week EMA and this fourth week of decline still held above descending trendline.

We have shown this Dow daily renko chart before and the sell signal from June 22. The similar charts of the S&P 500 and the Russell 2002 do not yet show a sell signal. These are long term signals and we have not done an extensive back testing but share them for your further research.

On the 15 minute Dow chart we see possible support nearby at 8260.

Dow Jones utility average after breaking above the shown resistance briefly pulled back slightly on Thursday on lower volume. It still make make a run into the channel above.

The Dow Jones transportation average lost over 3.5% on Thursday, closing just under the 50 day EMA.

The NASDAQ had its 200 day EMA cross below its 50 day EMA and when that happens there are often wider swings. Those moving averages should now provide support for a small bounce.

Last week we commented on the fact that the NASI was still on a sell signal even though at the time the NASDAQ had rallied. This indicator as it turns out, was correct during this time..

The volatility index VIX has rallied back up to the underside of the small broken red line and as may at first stall at the descending trendline. Once it does break above this trendline and over 30 this may be the start of a larger pullback in the markets. Watch this for a stronger market pullback indicator.

The top 100 market cap stocks in the NASDAQ make up the NASDAQ 100 and this 60 minute chart shows yet another break below a triangle. The previous gap up bottom shown as a turquoise line and the previous low at 1413 may both be support levels.

The semiconductor index SOX dropped only 1% on Thursday and closed still above both of its major moving averages.

The S&P 500 daily chart had a close below the 50-day EMA yet still above support as shown. If there is a break below this level the next level of support is between 846 and 850. This could be a head and shoulders pattern and if it played out with major down to around the 50% retracement area.

The S&P 500 five minute chart shows the short at the break of the lower trendline and also how it on Thursday closed right at support around 896.

The NYSE also closed at its 50 day EMA and shorts will be looking to enter on a drop below the recent lows.

The percentage of stocks on the NYSE now trading below their 50 day moving average is still slightly higher than a week ago coming in at 47%. He TRIX is under the zero line which is bearish.

The Russell 2000 also closed above its lower Bollinger band and its 50-day EMA. The daily chart at least is not yet oversold so a break below the support line will also attract shorts.

The Russell 2000 60-minute chart shows the wide open Bollinger bands and the next possible support levels in the shorter term timeframe.

The 15-minute Russell 2000 is however in oversold territory suggesting at least a short-term bounce coming soon.

The retail holders ETF RTH broke below its support line near $75.50 on Thursday. This strongly suggests that this ETF and the retail group will have much further to fall either now or after a bounce.

The Russian trading system RTSI for the month is down over 3% and maybe consolidating for a further decline.

The commodities index CRB is at support and the 50-day EMA. Like so many other charts everyone will be watching this significant area for a bounce or breach.

The crude oil daily chart is moving towards the 50 and 200 day EMAs as they themselves are converging. It is likely we will see a test of the trendline shown here in red.

The ultra oil and gas ETF DIG tested its 50-day EMA on Wednesday in what appeared to be a bearish flag formation and confirmed that when it dropped on Thursday.

The ultrashort crude oil SCO is once again near a horizontal resistance at $18.75.

Gold is again at the lower longer-term trend line and below it a secondary trendline, the 200-day EMA and the Fibonacci 38% retracement fall in the 890 area.

In this tighter view of gold we see that a break of the trend line will have the first target at the 200-day EMA and then the 860 test of the April low. If the US dollar rallies there is a chance at some point that gold may surprise and rally along with. If however, gold acts like it has in the past, if the US dollar rallies strongly than gold could pull back significantly over that period.

The gold ETF GLD with a similar trend line to gold itself showing the $88 200-day EMA and the $85 April low.

The gold miners ETF renko chart of GDX created a whipsaw this week as they CCI briefly moved over the 100 line and the parabolic SAR went over the pattern. From time to time this can happen and it may be a bit frustrating but long term this mechanical system has produced excellent returns despite these occasional whips office

The GDX to GLD ratio chart is somewhat directionless at the moment as it hugs the 50-day EMA and the trendline.

Silver is still in its trading channel at the lower line and 200 day EMA. As a note, from the October low to the June high the Fibonacci retracement levels are at $12.24 for 38% and $11.49 for 50%.

The US dollar has been in a tight trading range for several weeks with the MACD still showing positive divergence and stochastics which could make a positive crossover soon. However, a break below 79 will most certainly mean a retest of the June lows.

Butch Cooley Comments (Butch is founder of Leg Up House and the Butch Cooley Worldwide Hunting and Fishing . He has been an active trader for decades.)

Market Comments

The Financial and Market Collapse of 2007/2008: A Recap: Part 2

Ok, it's July 2, 2008. That's just a little bit over one year ago. The Dow was trading around the 11,400 point range. Secretary Paulson was in England, and delivering a speech about global markets. I recalled this quote: "For market discipline to be effective, it is imperative that market participants not have the expectation that lending from the Fed, or any other government support, is readily available. For market discipline to constrain risk effectively, financial institutions must be allowed to fail." Well, he would soon change his mind regarding letting institutions fail.

By mid July, the housing crisis was very real. Freddie Mac and Fannie May were in serious trouble. The Dow was still holding the 11,000 range, but Freddie and Fannie had fallen some 60%. And when you consider that most of the mortgages in the US originate with these two financial institutions, something had to be done, right now! So Secretary Paulson went before Congress to get control of both institutions. The selling point many may remember. He didn't really want to take them over, he just wanted a bazooka. You didn't have to shoot anyone, they just had to know you had one. It was cute, and it worked. But taking them over was just around the corner.

On September 5th, Secretary Paulson calls the CEO's of both Freddie and Fannie, along with a few other officers, to meetings in his office. Also present was James Lockhart, who was the chief regulator of these companies. Paulson tells them the US government is taking an 80% ownership stake in both organizations, and giving them access to $200 billion dollars, and oh....by the way, both CEOs will be replaced. And the Dow was still above 11,000.

On September 9th, CNBC breaks a news story that Lehman Brothers is in serious trouble. The stock falls 45%. The story goes that JPM had demanded about $5 billion in capital to handle Lehman's clients investments. That always means your credit is in serious jeopardy. It's later reported the Dick Fuld, CEO. had tried a number of loan attempts, through Barclay's China, the Middle East, even Warren Buffet. Basically anyone who had money. And he was turned down. This was becoming a very desperate time. And the Dow was still holding above 11,000 points. But that too was about to change.

The next day, September 10th, Lehman holds a conference call with investors about a week earlier than earnings call, that they will be taking almost a $4 billion write down for the quarter. They layout a restructuring plan, asset sales, but fail to let investors know that they will need another $5 billion by early 2009. This is not good news. And the next day, JPM wants another $5 billion to continue to trade. It starts an outpouring of cash away from Lehman Brothers, and the end is now very near. And the Dow will close out the week just above 11,400.

That weekend, starting on Friday night, and running through Sunday, Sept 14th, a lot is happening in NYC. Bernanke and Paulson call all the heads of the US biggest banks to a meeting at the NY Fed Bank. Secretary Paulson makes it clear that the government will not bail anyone else out, mostly due to “moral hazard”. Bernanke makes it clear that Lehman does not have the necessary collateral for a bailout, and the Fed strongly suggests a sale of Lehman Bros. Throughout the weekend, they work on this as a solution, with the final candidates being Bank of America and Barclays. But in the end, BAC will decide to go with Merrill Lynch, and Barclay's will simply walk away. And Lehman Bros will be allowed to sink into bankruptcy.

There has been a lot of conjecture as to why Bear Stearns was saved and why Lehman Brother's was allowed to fail. Some camps say it was personal, between Paulson and Fuld, years of being competitors when Paulson was at Goldman Sachs. But that's kind of silly to me. Hey, maybe they didn't like each other but these decisions were being made to keep the financial systems that we all operate with from folding and becoming a thing of the past. I strongly believe that Bear Stearns was simply illiquid. Many assets, but cash poor. Been there myself a couple of times. Lehman Bros was totally insolvent. They simply had no money, and they didn't have the assets. In fact, they simply had too much debt. The kind of debt that just doesn't get paid off, ever

Lehman Bros failure hits the stock markets fairly hard. The Dow will close on Sept 16th below 11,000, make a small rebound, but it will set a trend that will pull the markets down to panic levels shortly.

Lehman's failure sets off a bunch of stuff around the world. Credit markets cease to function worldwide. The LIBOR goes from about 3.1 to about 6.4. Money just grinds to a stop. The Primary Reserve Fund drops to $1. There is estimated to be about $800 billion in this Fund, mostly commercial paper issued by Lehman Bros. Lehman's funds are frozen worldwide. But it gets worse. The same day, AIG stock falls 60%. They have invested tons of money into credit default swaps, betting that companies like Bear Stearns and Lehman and Merrill would never go bankrupt. Well, they were wrong. And now they need cash badly. And the credit markets aren't functioning. There is no money to borrow. So the Fed has to step up to the plate this time. And they take a stake of 80% ownership in AIG, and lend (the first of many loans) $80 billion plus for a 2 year period. Big day in America's financial history!! The beginning of too big to fail, and the end of “risk constraints”. Failing in a free enterprise system just became difficult. So much for moral hazard. This is truly the week that America's economy almost ceased to be.

September 17th is a really bad day. The markets close down almost 450 points, Money is pouring out of equities, bonds, and funds, and all being parked in Treasuries. Bernanke tells Paulson, it's time to be thinking about an over all bail out. And for reasons of “democratic legitimacy”, they need to get Congress to take over the situation. Pretty cool huh??? So on September 18th, a Thursday, Bernanke and Paulson go before Congress and let them know that “things” are really bad. But they have come up with a “rescue plan”, and in a day that plan will come out in 3 pages. There are two quotes I found during this time that were worth remembering. Senator Dodd: "There was literally a pause in that room where the oxygen left....” The other was from Bernanke: "If we don't do this, we may not have an economy on Monday....” Coming from the Chairman of the Federal Reserve Bank....THE BANK....that's kind of scary stuff!! And oh yeah, they will need about $800 billion dollars!! And I guess they would like full control of it too. Wow...this is really becoming cool!! They want to buy “toxic assets” (I have always loved that saying...beats sludge!!) Well, I'm betting Congress is going to just jump on this one!!! Remember democratic legitimacy?? Fancy words for get Congress involved and we will run the boat!!!

But Congress doesn't just hand over a vote and $800 billion to these guys. And actually, there is a huge fight coming in this nation. Wall Street is now up against Main Street.

Part 3 and final part, next week.

Ben Bernanke

Here is a list of stocks reporting earnings on Monday before the open. Check the updated Earnings Calendar

Weekly economic calendar from briefing.com.

To try futures trading you may sign up for a free simulated account that uses live streaming data. Futures can be volatile so great opportunities for wide swings.

When any of you sign up for a new stockcharts.com accounts there is a space to put in a referral name on that form. If you enter stocktiger@stocktiger.com they give us credit. Thanks!

Featured Company News

ERFW ERF Wireless - This stock has continued to move up the last few weeks and it rallied strongly on Thursday to the 50-day EMA though the volume was light. The indicators are still positive with the trendline and upper Bollinger bands near $0.40. Once this area is cleared this may begin a longer-term uptrend. This is again back up about 50% from our original buy price.

Remember to check the blog as information is posted many times each day - please post your own comments and charts. In case you do not know, on the blog topic or any topic on the message center, if you click on the Notify button as shown above, you will be sent an email when new posts are made to that topic.

If you trade ETFs our large list of them is here http://stocktiger.com/etf/etflist.php

Note on the site pages on the top menu we now have Live Charts. These update themselves and we have several of the popular Ninja Trading mechanical trades that many have used over the years. We also have FAZ and FAS in 15, 5 and 1 minute variations as well as The Dow and others. They do dot yet all fit on the menu so look on the SRS 15-min chart on the top right menu. We have also added free image hosting to the Extras menu.

New additions to our watch list We add many stocks to it each trading day.

CNO Over $2.55

SPWRA Short under $25.82

ROC Short continuation here at $13.37

SUSO Short continuation under $4.49 or could bounce soon.

DLX Short under $12.46

WCG Short under $16.80 - it is at the 50-day so could bounce

FBN Short under $2.84

IVN Continue to $7.42 then break out maybe (from sdmooks)

For your eyes....... green for summer

Photograph by iluha

Photograph by Andrea Borisov

Andrea Borisov.jpeg

Photograph by Roma Degtyarov

Roma Degtyarov.jpg

That's a full lid for today - have a great week.

Check the Earnings Calendar on all overnight holds.

Check the current message center also for other good stock candidates as there are several there right now.

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I am not a broker so cannot give financial advice. This notice is for informational purposes. Please do your own DD and refer to our Disclaimer on the Website.

(Note - We have no position in AWSR or ERFW or SHHD at the moment. We may receive stock from a third party and if so it would be 144 restricted stock which could not be sold until after 6-months from the time of issue. I own shares in PYR that I bought on the open market.)