Look
at all the money.
The banks are reporting record earnings and profits.
Well, glad that the economic problems are over.
Seems if the government pumps enough
taxpayer money into banks and does away
with the mark-to-market accounting rule they
can paint a pretty picture. On top of that
it helps a lot that the banks can borrow funds
at record low interest rates and then have
their customers pay very high interest
rates. I read that GMCredit Card services
raised some card interest rates from
10.99% to 32.44% and some at Citi Bank
report rates from 5.99% going to
24.99%, Bank of America is raising rates on
4 million customers. All of these banks and
credit card companies attracted millions of
people by offering low interest rates and
large credit limits and all of this was just
fine by the government. Now that they have
locked in so many customers they pull the
second half of the bait and switch by
raising rates. This too is just fine by the
government in fact they now own shares in
many of these banks so it is as though they
are encouraging this activity. Meanwhile American
Express, who may raise rates at least did
give one alternative to some - $300 gift cards to some
people if they closed their account. Sure
does not sound much like an economic
recovery that is helping the banks but
taxpayer money, regulations and new usury
interest rates. I bet if they set rates too
high they will have many more who just stop
paying. So the government takes taxpayer
money to help the banks then allows the banks
to take even more. Nice to be a bank. Right
now in the USA 1 in every 159 homes is in
the process of foreclosure. This will add a
big supply of homes to the market so it is
good that new housing starts have fallen. Over 6 million
people receive unemployment checks and
610,000 new applicants filed this past week.
Interesting information on credit rates.
Yet this week continued strength in the
financial sector helped the market. This is
the nature of bear market rallies. You can make gains
that could take years in bull markets. A large number of
stocks have doubled and tripled in the last couple of
months and the PE of the S&P 500 is at very high levels
so when eventually this "B" wave up completes we can see
a dramatic and extended fall. We talked about the
expectation of seeing some of the small "unloved" low
priced stocks starting to make big moves and it is
happening. This is typical of bear market rallies also
as traders just look for stocks that have not moved much
in hopes that they can get some momentum going and often
it works. Use caution if trading these as when the
momentum dies there are many trying to get out at the
same time.
CAR is one we put on the watch list after
it had already run up 225% from its low in March. Our
buy was at $1.09 and it hit $2.05 in two days - an 88%
gain.
ENT was a buy at
$0.94 after it had doubled and it ran to
$1.31 in two days for a gain of 40%. These
type of moves can be caution flags for the
market. This environment may last a while
but at some point it will collapse. For now
we will keep looking for good entries on
stocks that look like they have some room to
run.
No inflation. Consumer price inflation report showed
that consumer prices fell 0.1% in March
following a 0.4% increase in February.
Core consumer prices, excluding food and
energy, rose 0.2%, the same pace as in
the previous month. Economists had
expected a 0.1% increase in both
consumer prices and core consumer prices.
The Fed does not like defilation - they hate
it with a passion and they will keep
printing money at least until they see some
inflation. Eventually this may lead to what
some call hyper inflation in which case some
commodity stocks my do very well.
.
The New York Fed’s survey
showed that manufacturing conditions in
New York deteriorated in April, but at a
much slower rate than in recent months.
The general business conditions index
climbed 24 points to –14.7 in April.
Economists expected a modest improvement
in the index to -35.
The
National Association of Homebuilders' is
scheduled to release the results of
their survey on homebuilders' confidence
at 1 PM ET. The housing market index
remained unchanged at 9 in March,
according to a report released by the
National Homebuilders Association. The
index was about 1 point above the record
low of 8 in December and January. The
index gauging current sales conditions
held steady at 7 and the index gauging
sales expectations in the next six
months also remained at a record low of
15. However, the index gauging traffic
of prospective buyers declined 2 points
to 9.
The Commerce Department
said housing starts fell 10.8%
month-over-month to a seasonally
adjusted annual rate of to 572,000 in
March. Economists estimated housing
starts of 540,000 for the month. On a
year-over-year basis, housing starts
declined 48.4%. Meanwhile, building
permits, an indicator for future housing
activity, fell 9% to a seasonally
adjusted annual rate of 513,000.
Annually, building permits were down
45%.
Initial jobless claims
fell to 610,000 for the week ended April
11th, down 53,000 from the previous
week's revised figure. The 4-week moving
average for initial claims, a statistic
that flattens out week-to-week
fluctuations in the data, dipped 8,500
to a level of 651,000. The number of
people receiving ongoing unemployment
help, a statistic known as continuing
claims, rose above 6 million for the
first time since the data have been
kept. Continuing claims for the week
ended April 4, the latest week for which
the government has data, climbed 172,000
to a level of 6.022 million.
For some perspective into stock market
performance during a recessionary
period, this chart illustrates the
average performance (since 1945) of the
S&P 500 following the beginning of a
recession (blue line). For comparison,
the chart also presents the performance
of the S&P 500 following the beginning
of the last recession (which began March
2001 – gold line) and following the
current recession (which began December
2007 – red line). As the chart shows,
the stock market has tended to decline
for several months preceding and six
months following the beginning of a
recession. Stock market performance
following the commencement of the last
two recessions has been much more severe
than average both in magnitude and
duration.
The past week major indices.
Top and bottom sectors
for the week.
Best and worst industries last
week
The multi index chart shows all the
indices near the top Bollinger bands but
none above them.
On the Dow monthly we see that even with
the large market gains since teh March
low it
is still in 2002 levels. The 200-months
EMA is at 8667
The weekly Dow shows the close
resistance overhead. A failure of a
break out there and a retreat and a
second try, if successful, could take it
to the first Fibonacci level at 9395.
The transports have risen 45% since the
March low when the RSI and stochastics
buy signal was given.
The Utility index remains weak
The Nasdaq monthly chart shows that it is back over the long term trend
line with the 200-month EMA at 1773
This weekly Nasdaq shows we are now at resistance and the dotted line is
not only the broken support - now resistance, but also the first Fibonacci level
shown from the Autumn 2002 low and it is also the 50-week EMA so an eventual
target.
The daily Nasdaq is over the horizontal level by 10 points and the
200-day and further resistance are overhead at 1745 and 1785.
Semiconductor index SOX with the trend line and 200-day EMA close by
which gives added resistance.
The VIX "fear index" continues its drop after breaking below its support a
week ago.
This Nasdaq 100 chart means little in itself but only point it out. When you have a
significant triangle you can extend it so the apex of the triangle is shown. It
often happens that a significant move takes place near the apex as it has done
here on the Nasdaq 100.
The Nasdaq summation index NASI continues its steep move higher.
The Nasdaq 100 to S&P 500 ratio chart shows that the Nasdaq 100 is no longer so
greatly outperforming the S&P. This may mean a short term pullback for the
Nasdaq is to come.
S&P 500 weekly long term chart. The lowest Fibonacci line at 1015 may
be a target for the bear market rally.
S&P 500 monthly and RSI has just broken over 30.
This S&P 500 weekly is a possible way it could play out. We believe that
it is now in a minor wave "a" up and we expect a "b" down followed by a final
"c" up to complete the major wave "B".
S&P 500 daily is now at the 38% (shown as 62%) retracement from the
November 2008 high. Statistically a break over would have a chance of
going to the top line.
The Value Line Arithmetic has broken over its 200-day EMA. This
collection of about 1700 stocks was the strongest from the start of the rally
in 2002 and it is so again on this rally.
The NYSE has broken above its trend line.
The percentage of stocks on the NYSE that now trade over their 50-day EMA
is 88%. This is a very high level and a chance of a pullback is increased. Note
the TRIX in the lower panel and a possible crossover soon.
The NYSE advance decline ratio chart is now back to
the 50-day MA and near the broken trend line. This retesting broken support is
also a sign of likely pullback.
The S&P 400 mid cap nearing the center horizontal resistance.
The Russell 2000 monthly is back over its 200-month EMA.
The daily Russell 2000 over the horizontal resistance and close to the
top Bollinger band. The four buy signals triggered almost exactly at the bottom
in March.
The financial ETF XLF is in an island with resistance closer to $13 but
think the gap below will fill once we get a pullback.
BKX 60-min chart shows a pullback to
the 50-period then it ran to new highs.
The London FTSE and a bit of a break above the trend line.
China ETF FXI hit a low last November and has
rallied 73% (Dow would be 11,193 - S&P
1,152)
The Russian RTSI is now up over 69% from its low. If
the S&P 500 had done as well it would now be
at 1130 and the Dow at 10,934.
The commodities index
CRB has been pulling back as there is
little interest at the moment as deflation
is present.
Crude Oil has pulled back but a
move back over the resistance could be
tradable short term.
Gold closed at possible support though MACD or RSI show no signs yet of a
reversal. This may be a head and shoulders as shown on the GLD chart below.
GLD ETF and a possible head and shoulders. If it plays out that way the
dotted line is a measured move.
The GDX Renko
60-min mechanical trading system switched
back to a short this week and has added nice
gains.
The GDX chart in top part shows the
break below the trend line and the bottom
section shows the crossover of the moving
averages which is bearish.
Gold and Silver index XAU
is near possible support but if broken the
lower trend line may hold and give a bounce
to gold stocks also.
Silver is nearing support as RSI is at 35. If support breaks the 62%
retrace is at $10.75
The US dollar is a bit above the
trend line but has horizontal resistance so
could fail here and pull back to the lower
trend again. If it does weaken this may be
good for stocks.
|
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.)
Stock Market Comments
So, is our economy finally starting
to heal? Is the worst of this mess we have been in for
nearly 18 months over now? No, it's not that easy. I
think the danger of any large banks or brokerage houses
collapsing has passed. The Fed and the Treasury have
made it clear, certain banks are "too big to fail", and
they are not going to let them fail. Chairman Bernanke,
a scholar of the Great Depression, can't afford to have
a Depression on his watch. He would look like a fool.
No, they will print and pump as long as they need to.
So "bomb blast" type news is probably gone now. But
these same banks, reporting this week, are simply not
healthy, and are not lending yet. They certainly are not
as healthy as they say they are. Goldman has a $1
billion floating, not accounted for in 2008 and not in
2009. What is that all about people?? Do you really
believe Citibank made a profit?? And that Wells Fargo
had their best profit ever?? Bear in mind, the FASB
changed the rules (mark to market) and that is
retroactive to the entire first quarter. So our big
banks are reporting earnings based on deflated toxic
assets. Nothing has changed except how they do their
accounting. I am of the group of investors, analysts
and writers who believe that the Fed and the Treasury
failed to really recapitalize the banks. Maybe we did
recapitalized the debts? I don't know for certain yet.
Oh we put tons of money into them, no doubt, but they
can't lend freely, would be the way I want to say it.
And my guess is they are hanging on to every penny they
can get that comes into their banks. And that is why I
still feel the PIPP and TARP are destined to fail. So
this current rally in the market, albeit good, is also
destined to fail. When is anyone's guess. It may
actually be running out of steam now. But it's nearing
a break out again, and we could go higher. I simply
don't know. I look at a lot of charts.
I want to touch on a few things this week as to why I
think the way I do. I am not a doomsayer. I am not a
cynic. I see what I see, the way I think it is, if that
makes sense? Math is an exact science, which is why I
like it. It either adds or it is wrong. Simple
enough. I got a number of really good questions this
last week from StockTiger readers. Why do I think the
TARP plan will fail and why won't PIPP work? I'm 60
years old. I have been trading actively since I was 14
years. I lost money in my first stock trade, and it
taught me a valuable lesson. Investing is not assured a
profit!! So in those 46 years, I've lived through a
number of so called bad times. Go back just to last
fall, when Secretary Paulson and Chairman Bernanke
shocked America and the world with news that our
financial system was in crisis. It was. It still is.
It's a broken system. What is broken? We have tons of
debt that are worthless. It doesn't matter anymore if
they are carried on a balance sheet or pushed onto an
off balance sheet. It has stagnated the entire banking
system worldwide. Banks started this problem and they
sold it to Wall Street, and Wall Street sold it to the
world. So what has to be repaired? Debt has to be
written off. Losses have to be taken. Then we can
begin to fix the system. I don't think Paulson and
Bernanke knew just how bad it was last year. That's an
opinion. The original plan was to buy up the toxic
waste. But we didn't do that. Why? I don't know, but
suspect someone smart said look, the government is just
becoming another speculator. Why let Lehman fail and no
one else? I still don't get that one, not really. I
think it was a mistake. An honest mistake. The people
running the money didn't fully understand how bad off
everything was going to get. By purchasing debt from
these banks, we simply become another "off balance"
sheet. The debt still exists. Unrealized losses must
become realized loss. Back in the early 1990's, we were
faced with another recession, only much smaller scale.
But it was bad. Japan was in a real mess, and it went
on for 10 years plus. Sweden also had a similar
financial mess with it's banks. The Swedish government
then forced it's banks to take the write downs, to
declare the losses, full transparency. Once that was
accomplished, the government injected money into the
banks and they took a "position" in those banks, which
in fact, over time became profitable. It was a good
deal, and it worked. Japan on the other hand did not
respond this way. They did not force the debt
disclosure and write downs. Instead, they moved the
debt. They brokered deals where the smaller and damaged
banks were bought by the larger and also damaged banks.
This did not work. They lowered interest rates to 0%.
It didn't help. The debt still existed. It was just in
a different place.
Again, go back to that day when Congress didn't vote in
favor of the $700 billion TARP money. The images on
CNBC and Bloomberg of the brokers and brown shoes coming
out of the NYSE at the close of the day resembled a
funeral. Well, it almost was. Congress had to come
back, and eventually passed a bill that allowed this
money to be pumped into our banking system. And
remember how much money $700 billion sounded like. It
was staggering. And it wasn't enough as we soon found
out. Now we are up in the trillions, and it's not
enough. To fix the problem, the debt needs to be
declared a loss. And "someone", maybe everyone involved
does not want anyone to know how much debt there really
is. There is no transparency. We need to open the
books on these banks regarding Level 3 "Assets" and see
how much there is, and how they are really accounting
for them. Ok, that's not happening. So instead of the
government stepping in and brokering deals between the
banks and other speculators, they become the speculator,
they shoulder the monkey on their own backs, without any
disclosure of amounts, and the American taxpayer goes on
the hook for tons of money, for years to come. This
really isn't a political issue. This is not a question
of one political party has a better idea than the
other. This is about money. It doesn't care about
politics. And moreover, it's about losses. Huge
losses. Remember Einstein's line, you can't fix a
problem with the mentality it took to create it. The
very same people, who watched all of this mess unfold,
and either didn't see it coming, or couldn't stop it,
are the ones who have the solutions. That's scary.
Look at AIG and how we are handling that group. It's
different than how we are handling the banks. Or GM and
Chrysler for that matter. We are "forcing" AIG to break
up and sell off. That's the simple version. I have no
doubt that GM will end up in a government sponsored and
controlled bankruptcy. But not the banks. The thought
process here is we "must" save the banks. And I don't
see that we can do that on the path we currently have
gone down. We simply delay the process of debt
realization. And quite possibly, that IS the plan.
Delay, write down, pump money, delay. We hear all kinds
of talk, that one day, down the road, sunnier skies,
these debts, assets, whatever...they will be valuable
again. Well, I'm never going to bet on that. It is a
very complicated dilemma. And I do not believe for one
moment that Sec Geither or Chairman Bernanke or
Secretary Paulson are doing something they believe is
wrong. Any more than those involved in 1930 did what
they thought was wrong. Everyone is doing what the
believe to be right. But I also believe they are
attempting to do something that is impossible. And that
is to make debt vanish.
Another good question is why am I a bear in an obvious
bull market and why I believe gold is a great place to
put money, when it's falling? Well, we are not in a
bull market or a bull rally. Maybe on a one minute
chart you could make that argument. We are in a bear
rally. Period. We may rally like this for months. We
may go into a trading range. And we could go back down
and test those lows. But we definitely are in a
worldwide financial mess. These unemployment figures of
650,000 a week are real. These are real jobs being
lost, by real people, who can't find another job in this
economy, and have real problems in front of them. This
has to effect the GDP negatively for some time to come.
In fact, I told a friend this week that the Gross
Domestic Product is becoming the Domestic Product that
is Gross. The foreclosure rate is real. The
devaluation of homes is real. Personal debt is real.
The Dow is really at 8100 points. Our government is
really committed to some $13 trillion of bailout
capital, that it doesn't have. China really may not buy
any more of our Treasuries shortly. We really may not
be able to afford what we are currently proposing to
do. Really!! And we are printing money, and we are
increasing debt, and one day, all of this capital that
is injected now, has to come out of the system. We are
inflating at a rate I have never seen in my lifetime.
This is all new ground. Hey, I don't have a chart for
this, but I can assure you we have started one now. We
are in a financial crisis that is as bad, if not worse
than the 1930s. And even in the 30s, we had bear
rallies in the market. And then we went lower. I do
have that chart. Do I think this will happen this time
around? People we bet our savings on these charts.
It's really how we make or lose our money here. Yes, I
think we will repeat what is on those historical
charts. I believe in technical analysis. But more
importantly, I make money based on it. And I loose money
based on them. Fear and Greed move the markets. News
is part of the game. News can make or break us. I
bought and held DNDN after it's last rally to the
$20ish range. This week, news paid off. It could have
been really bad news. News counts. News creates fear
and greed. Yes, gold prices are down. I can't see how
they will stay there. When we do turn the corner on
this mess we are in, this injected capital has to be
removed. Who does that? The Fed. They are assuring
us, it will be done timely, and inflation will not be a
problem. I don't believe that. I think, per usual, the
Fed will act too late, and inflation will be a huge
problem, and it will stop a recovery dead in it's
tracks. I would rather have money in gold right now,
than in the bond market. I think the bond market will
become a bust. Where do I think gold will go? Depends
on the Fed, but it will go over $1000 and it could go
over $1,500. Some people I talk with think it will
exceed $2,000. I don't know. But it's a good risk in
my opinion, and right now, it's low. I like to buy
low. I really like to buy at the bottom. I just
never really know where that is.
So I am not really a doomsayer. I really want things to
be better. But I am pragmatic. And they are not better
yet. And I am not always right. I messed up with DXD a
month ago. In the end, even with some good hedges, I
lost money. That is part of trading. I also want to
thank those of you who email me with your comments.
About 90% of you have really good questions and you get
me to thinking. That's good, because that is why I
started writing this column to begin with. I simply
wanted to give people other ideas, other opinions, and
give you something to think about. And I hope I
accomplish that.
Sunrise at the farm - BC
|
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