Dow -128.48 at 11100.54, Nasdaq
-18.77 at 2239.08, S&P -13.90 at 1239.49
Summer Shorts
Actually for the week the Russell 200 and the S&P 500 were up. There also
were many stocks that had significant gains as we have some of them in biotech
especially. But the biggest gainers were those that were sold short as the
general direction for the background market is still down so less resistance to
just follow the herd. The up tick
rule that put some restrictions on shorting stocks was removed this year and it
makes it much easier to drop stocks in a hurry. The purpose of the stock market
it to raise money for companies. When we short them it is usually a technical
situation when a stock breaks support and we cover when it gets to another
support or the buyers step in. We usually know it is not a permanent situation.
With the up tick rule you had to have a buyer bidding the price up a tick
in order to sell and this way it balanced the buyers and sellers so to speak.
With this rule removed it only takes the one with the most brute force so a
short can keep doing it harder and harder and force the price down. Sure seems
to remove the rule is against the purpose of raising money in the market. Some
of the declines we have had are profit taking and some are to preserve capital
and some are banks or corporations selling to raise funds or mutual fund
withdrawals and some are short sellers and we are among them.
Regardless of the cause, the markets are still pointing lower though even more
oversold than last week.
On Friday the market gapped down at the open. The
federal regulators shut
down IndyMac Bancorp IMB in California and it was one of thelargest bank
failures ever. A year ago that stock was $29 and it dosed Friday at $0.28.
It seems that no one knows how many banks will fail. My
bank is Wachovia Bank WB
and it is not looking good at all. It was $50 in October and now $11. Remember
about a year ago when the large estimate of how much the total "write down" of
banks may reach as much as
$400 billion and by December some thought it may reach
$800 million. Last week Bridgewater
Associates said they expect it to be over $1.6
trillion.
Bridgewater 13">
estimates that
about
$550 billion of the corporate losses
have yet to be written
off and
commercial loans
account for as much as $149 billion of that.
It is nice
though to go to the Federal Reserve website and see what they have written on
the main banner:
Safe and stable financial
system
Back in 1996 the then Fed chairman Alan Greenspan gave
his famous "Irrational
exuberance" speech in which he said, "...We
can see that in the inverse relationship exhibited by price/earnings ratios and
the rate of inflation in the past. But how do we know when irrational
exuberance has unduly escalated asset values, which then become subject to
unexpected and prolonged contractions as they have in Japan over the past
decade?" So at that time he could already see writing on the wall and even
though he admitted that he may not know when asset values had gone too high, it
seems that when company stock PEs were over 100 and some over 200 that at a
minimum they could have increased margin requirements. But the Fed failed to act
and billions were wiped out. They do state their aim on the masthead and they
flunked with a big F.
This time around the markets were long ago signally
loudly a housing bubble. Many started aggressively shorting housing stocks a
year two before they topped as they were so sure that they would pullback as
they have. People were flipping condos in Florida on the Internet sight unseen
and this time like the last, the Fed did nothing. Their aim is a safe and stable
monetary system and they did not drastically increase banking requirements for
mortgage institutions and let them instead do as they please it seems. Well the
now that is just water under the bridge but in Fed Chairman 20">Ben Bernanke's speech on Friday
he wants the Fed to be given even more power. Seems this makes about as much
sense as giving bonuses to the past heads of Fannie Mae and Freddie Mac I
and many many others think instead the Fed as it is stands should be abolished.
Anyway this is not a political comment just a market one as if banks had been
properly regulated and enforced there would not be the $1.6 trillion loss.
The good thing about this market going lower and a bear market in general is
they often overshoot when going down so at some point there will be some good
prices. If you have been following the basic rule of taking partial profits the
first day on break outs or break downs and using ETFs or futures as hedges or
just for profit then you are dong well and will have the cash to re deploy
longer term when a tradable rally comes and eventually when the bear market
ends.
Earning's season has started and one would expect some disappoints. Companies
had lowered expectations but still some may fail to meet them. GE announced and
met what was now expected and they may spin off their consumer and industrial
business. Over the next couple of weeks it will not be only the price of oil and
the banks crisis in focus but now earrings expectations and outlooks will rule.
This can make though for good trading.
What happens to all the profit the countries make from
the oil they sell?
"New
York's Chrysler Building, an Art Deco icon that helps
define the New York skyline, was bought by an Abu Dhabi
sovereign wealth fund, the second purchase of a
Manhattan landmark by Middle East investors in as many
months.
The skyscraper that was the world's
tallest building until 1931, was acquired Thursday by
the Abu Dhabi Investment Council for an undisclosed
price. Last month a Dubai fund, Boston Properties Inc.
and Goldman Sachs Group Inc. paid $2.8 billion for the
General Motors Building."
The USA gives money to them and they
give it back. But the USA ends up with smog from burned
up oil and they end up with valuable property. The USA
has no energy policy. Go figure.
I spoke of shorting and of course
there are many cases where the companies are just not
doing good business. This is to our short term benefit
as we have many open shorts at the moment. Two that have
made excellent gains are below.
The shorts keep
giving - LEN made a new low on Friday.
The short on LEH was
at $35 and if you are still holding some you have gained
over 58% but it is interesting that long
positions make more profit for the same distance move.
If you shorted this at $35 and covered at $17.50 you
could have made 50%. However if you bought at $17.50 and
it went back to $35 you would have made 100%. This is a
good thing to remember.
The weekly major indices results with the Russell 2000 and S&P 500 actually
making gains this past week.
The top and bottom sectors - what got into toys up 25%?
These the best and worst
performance of industries for the week but using these
numbers only does not tell the whole story as some are
only oversold bounces. Later we will talk about sectors.
On this chart the jobless claims
dropped to 346,000 for the week ended July 5. This was down 58,000 from the
previous week's revised figure. Continuing
claims, were up 91,000 to a level of 3.2 million.
Unemployment is
reported at 5%, but that is not the real number as it does not include the
huge increase in the number of people working "part-time for economic reasons"
and a large number of people who are discouraged and not looking for a job but
would like one. These two categories are not counted as unemployed. If you add
them into the equation, the unemployment or underemployment number goes to
10.3%!
This chart from
Moore Research Center shows the Weekly Dow from April 1982 to July 1984 in green
and the Dow April 2006 to the present in black. There have been close
similarities but since May the current Dow has diverged again. In the past you
see that it has rallied back up to meet the 1980s line so if that were to
happened again we would be in for a major rally to 13,500. That is hard to
imagine at the moment as even banks are selling stocks now and the sideline
money is decreasing as people use it to live and fill their SUVs.
This multi-chart of the major indexes is just for a quick scan to show the
relationship between them and their to the Bollinger bands and Fibonacci lines.
The Nasdaq 100 is still the leader and next the S&P 400 midcaps. We know that
there are too may chart this week but we do have a scroll bar to go tot the ones
of interest.
The weekly Dow now is well below the 5-year trend line. The Fibonacci 50%
retrace of the rally since 2003 is at 10,799. No positive divergence is yet to
be seen on any of the indicators.
The longer term view on the monthly chart from 1981 shows a turquoise trend line
close. Below that are the 38% retrace and then the 200-month at 8914. Stronger
support is at the 50% at about 7450. Stochastics are already oversold but RSI on
this chart has only once touched 30 and that in the decline to 2002.
100 points below the top chart's 50% line at 10,799 is this low of 10,682. Maybe
it cannot reach it in one continuous go but it sure looks like a target at some
point.
The Dow renko partway under the Bollinger band still and a stochastics
move over 20 or CCI move over -100 would give a buy signal.
The Dow Bullish Percentage chart closed at 16.57. This means that on the
Point & Figure charts of the 30 Dow stocks, 16.57% of them still had bullish
patterns while 83.43% had bearish patterns. You can check each stock to see
which ones were bullish (5 of the 30)
The Dow Jones Transports were up 2% for the week and near the 62% retrace
again.
Nasdaq stayed in its general consolidation area
with stochastics still under 20.
The weekly Nasdaq shows the gray
line support - the stochastics are oversold but not yet
the RSI.
This yearly NASI chart has made a new low and a buy would signal on a
crossing of the lines.
The NAMO is higher than last week but it does fluctuate a bit. It now
only shows a Nasdaq not quite as oversold even though the price is about the
same as last week.
The Nasdaq Bullish Percent has again been going lower and closed at 26%
of all Nasdaq stocks bullish.
Everyone has been wondering why the VIX has stayed so low on this decline
but now it is picking up speed as it broke back over its trend line. Only 4
points away from 31, the number that has signaled some previous rallies.
The Nasdaq 100 closed almost flat for the week. The gap was filled a week
ago and the 1776 April low not yet been tested.
Nasdaq 100 proxy QQQQ monthly still above the former support line.
The ProShares short for the QQQQ - QID had a rally almost to our second
target at 48 but a bit short of it so far.
Semi-conductor index SOX almost back to its low for the year. Stochastics
on the weekly not yet totally oversold.
The S&P 500 weekly deepening its decline but this does not match with the
data above that showed a tiny gain for the S&P 500.
The weekly S&P 500 more clearly shows its current position compared to
the last 4 years.
No positive divergence seen yet on the daily S&P 500.
The 60-minute S&P 500 though did give a short term buy via stochastics on
Friday.
The S&P 500 Bullish Percent now at 27. That is 135 stocks bullish out of
500.
The NYSE made a new low since 2006 but closed just above the yearly low.
NYSE stocks now trading over their 50-day average is at 14%.
The NYSE advance decline issues closed a bit under the channel pattern
and that is bearish unless it can quickly recover the lost support.
The value line long term now at 38% retrace from start of rally in 2002.
The S&P 500 Mid Caps trying to bounce at the RSI 30 territory.
The
Russell 2000 weekly bounced near support and put in a indecisive candle.
It did pretty well on Friday's sell off compared to other indices.
The closer view of the Russell weekly.
This UltraShort small caps fund UCPIX can only be traded one time a
day and orders go in one day to be filled the next. It is again at its trend
line and above the 50-week EMA. If it can go over those and the horizontal
resistance it could begin a long term rally which would signal the bear to last
much longer. This would have to clime 1000% to reach its 1998 high.
The Wilshire 5000 made new lows this week.
The London FTSE index can be watched as the London market opens hours
before the USA does and a big move there would likely carry over to the USA. It
broke down again on Friday. The histogram is showing positive divergence but the
MACD now has uncrossed itself.
This commodity share fund GSG
tried for a new high on Friday but fell short. It is
again at the top Bollinger band.
USO the US oil fund made new
highs on Friday. Many are hoping this it the 5th wave up
which completes a move but if it is a 5th they can go a
long time and with Elliot wave it is common to just
renumber if the count does now work as planned. However
the RSI, MCAD and Stochastics all show negative
divergence at this time.
This chart also shows the parabolic steepness of the move in oil this year.
The monthly oil chart and our target at the top channel.
While oil is going up and the Iran war worries grow we see the Exxon Mobile
stock, in orange. break below its trend line. Perhaps it is because demand is
slowing so people expect less sales and profits regardless of price - and/or
they expect the price to fall. The Olympic Games in China are in September and
China has been subsidizing the price of oil to keep all looking good for the
world show. It is possible that they will not continue this or to the same
extend after the games are completed. If this happens demand will lesson and
demand-destruction could develop more.
Long term gold view. We will review all god stock and add ones tat have
good set ups this week
Gold made an almost 3% gain this week closing above the 960 top from late
March.
The gold cloud chart shows it now clearly above the resistance cloud as
was signaled in late June by the Kijun-Sen crossover.
The GDX Vectors Gold Miners renko 60-minure
chart signaled a buy, this time not via the CCI but by
the parabolic SAR moving back under the pattern. This
did not get you out of the short with the maximum gain
but still worked well for an automatic system.
Gold and Silver index XAU ran back over the triangle line for an
additional buy using the strongest gold stocks. Our ABX was added only
Thursday and it gapped up Friday. We had mentioned TRE last week as
rumors again were of a big discovery to come. It did gain 10% for the week and
on Friday just over its trend line and 50-day at $5.21. They did issue news but
most of the run it seems was with the group as a whole.
$18.77 was the top of the trading range for silver and it ran to $18.89 on
Friday.
The Euro:Yen ratio chart back to its resistance
The Yen
itself at just under the 38% retrace and the trend line.
The US Dollar dropped back to its May lows as RSI points lower.
Weekly economic calendar form briefing,com
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News on stocks of interest:
NNRI
NNRF, Inc. Announces Washington
D.C. Office
NNRF announced
that tthey re opening an office in Washington DC. The US
govern agencies who can use the services of NNRF are
there and NNRF wants to promote more effectively the
array of products and services the Company and its
affiliates in Russia and Germany offer to the nuclear
industry.
Because out biotech sector stock shave done
so well I looked at the 90 Dow Sector charts to see if there
were some other with promise.
The FXI China shares looked like it could break out of this
downtrend so I looked over about 100 Chinese stocks that trade in the USA but
did not yet see any good looking charts. This could though break out on short
covering or rallies of weak charts but unless they set up better that is not a
good risk/reward buy.
The Bank Index BKX fell now to the low in 1998. Yet the Fed wants even
more power. Instead I think someone out to be shown to the door. Not only the
Fed but bank executive that let this happen.
As you know we have head excellent gains in biotech stocks in the last month
with many still going up and looking good. Here is that Dow Jones Index of
Biotech.
We looked of those 0 Dow Jones sector charts there are not many that look too
interesting. The medical equipment chart looked ok and the 200-day is
still under the 50-day so this may have some select stocks to come.
The household products sector may also have a few.
However, the sector that seemed to have the most
stocks that have decent charts at the moment is
the food producers sector. We looked at the about 110
stocks in this group and put several on the watch list
and will monitor a couple others to see if any start to
go. This chart of course looked much nicer when we saw
it on Thursday but so far it is still a positive chart
if the 184 are holds.
We already had FLO on the
watch list from this sector. Others you will see on the
watch list additions below.
New additions to our
watch list.
Remember that we add many stocks to it each trading day.
HNZ Over $50.44 Food Producer
OFI Over $8.45 Food Producer
SLE Over 50-day EMA at $13.03 on good
volume Food Producer
SFD Over $20.00 Food Producer
IPSU Sugar over trend line and $16.54
Food Producer
GIS Over $63.51 or top at $64.00
Food Producer
AITP Over $12.55 or $12.00 Food
Producer
CPX Over $37.84 - big mover this year
ASA Metals investments gold palladium etc-
Over $86.00
AEM Gold over $77.30
SLXP Into gap over 200-day - $8.40
WMT Short
under $55.60 or $56.00 or long over $60.00
(from Sydney31268)
Photograph by
Andrey Jitkov
Photograph by
Sveta Kozhe
Photograph by
Nik Zolot
That's a full lid for today - will see you all during the week.
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