Stock Tiger Stalking Stocks™

For Monday October 20, 2008

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Past 5 days

Dow

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Nasdaq

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Close Friday

Dow -127.04 at 8852.22, Nasdaq -6.42 at 1711.29, S&P -5.88 at 940.55

pile_of_money.gifMoney Pile  We learned this week that as part of the $850 billion of USA taxpayer's money the government plans to spend, where at least $250 billion will go. This money is intended to help mitigate some part of the worldwide financial damages caused by banks, brokers, insurance companies and others. So part of the solution, they tell us, it to buy stock in these same institutions that caused the problem so the government will own a good piece of what were public companies. This is what they do in Russian North Korea and Cuba. The Treasury will buy stakes in Bank of America, Wells Fargo, Citigroup, JPMorgan Chase, Goldman Sachs (the US Treasurer Henry Paulson was former CEO of Goldman Sachs so they get money of course), Morgan Stanley and Bank of New York, Mellon Corp., State Street Corp and Merrill Lynch will also receive a capital injection. Note that so far it seems they will let the smaller companies (who produce most new jobs) fend for themselves. President Bush said, "This is not intended to take over the free market but to preserve it." Six out of ten voters oppose the bail out. Quoting from one news article on this - Conservative economist Alan Reynolds, a senior fellow at the Cato Institute, was typical of those who disagree: "Public ownership of mortgage-backed bonds is merely an investment. Public ownership of equity is socialism."

On a person note maybe the plan is good but so far about 1 million jobs are gone and another million may be in the next year. It can take at least a couple of years or so to start getting jobs back - as long is there is no tax increase - so perhaps as the financial situation is so severe and unusual, the government could take a bit of the $850 billion and provide work for those who would accept the type offered. To employ 1 million people with $30,000 a year is $30 billion or only 12% of what they are giving the "banks". (not counting health care and administration)  The Works Progress Administration was started in in 1935 and you can Google it for the wikipedia link but it helped the county and its citizens greatly. Maybe that type of plan is not correct today but seems pretty logical that if people work they can pay their credit cards and house payments and this also helps the banks but at the same time helps retail and general life.

Well anyway, with this backdrop and high voter opposition to many of the government dealings, the deepening recession and unemployment rate, the upcoming election, that has many upset, we are experiencing the wildest market volatility ever. The top of this chart is the Dow over the last 28 years and the bottom portion is the Average True Range or the degree of price movement or volatility. You can see that from 1981 to 1986 the daily range was very tight but then burst up in 1988 and by the nineties it really became volatile into the Internet days. During our wonderful rally from 2003 to 2007 it was calm. On most days if you were trading futures and could get a 50 point movement it was a good day. Lately it is 10 to 20 times that. So this is really almost off the chart and at some point it will calm down again. The lower this indicator can go the better it will be for those thinking of longer term investments. Not too many would want to buy a stock that may run up or down 18%  the next day with no apparent rhyme or reason. As most here know - it is better to buy in quiet times. The government did not yet say when they would start giving the money to banks for shares or how long it would then take banks to put that money into the system but if it starts to ease market concerns and frees up money we should see lower volatility.

On Friday the Dow had an intraday swing of about 560 points, which, believe it or not, was the narrowest trading range all week.

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At the top of the home page there are quotes that appear in random fashion. I noticed this one recently: "I believe we are on an irreversible trend toward more freedom and democracy -- but that could change."-- Dan Quayle 

Speaking of freeing up money to loan of course the first thing is to decide that other than for some purposes as we stated last week, perhaps it is not such a good idea to encourage people to immediately take out even more loans. Encouraging savings will hurt all sales short term but could build a much more solid consumer base longer term.

We have been told that loans have dried up, have come to a stand sill. This graph is only year over year so not totally up to date but you see that even in 2008 the total loans and leases are at record highs. Of course the squeaky wheel gets the grease so it is for the bank's best interests to paint the worst case scenario to the government when asking for handouts.

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With not much surprise the University of Michigan consumer sentiment survey for October came in at 57.5, which is below the reading of 65.0 expected and down sharply from the prior month reading of 70.3.

I read that the delinquency rate on auto loans is 3.8%, up from 2.9% two years ago and consumer finance in general up to a very high 8.3%. Credit card delinquencies are 4.8%, rising from 4%.  Mortgage delinquencies have doubled from 2.5% to the current 5%. This is why the slowdown will continue quite a while. As delinquencies rise and more banks do not get their credit card payments there will be a lot more for them to write down. They are trying to foresee this by charging higher rates but it will not pay for the problem in full.

In September the  housing market index rose 2 points to 18, suggesting that the housing market may be nearing its bottom as shown on this chart however housing starts in September fell 6.3% to an annualized rate of 817,000 units. That was well below expectations and marked the lowest level since January 1991. Meanwhile, building permits dropped 8.3% to an annualized rate of 786,000. That number also matched a level also seen in January 1991.

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Retail sales fell 1.2% in September compared to the previous month. The previous month's sales were downwardly revised to show a 0.4% decline. Retail sales have fallen for the last three months. This is the first time sales have fallen in such a manner since the record keeping began. They are falling at an annual rate of 2%, which is unprecedented.

Auto sales are down big time with many auto company sales down more than 30% Volvo is down 50%. BTW U.S. consumer prices remained unchanged in September.

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During the bull market from 2003 the economy looked like it was growing - and it was. But not too much in reality. The consumer found a new source of income - mortgage equity withdrawal and that contributed over 3% to GDP growth in 2004 and 2005, and 2% in 2006. I read that without US homeowners using their homes as an ATM, the economy would have been averaging much less than 1% for the six years of the Bush presidency so withdrawals were important for his reelection. In 2005 there was almost $595 billion in mortgage extractions. In 2007 this fell to $470 billion and in the second quarter of 2008 it has fallen to $9.5 billion. Here is a graph of mortgage equity withdrawals.

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The only disagreement among economists about this recession is how long and deep will it be.  The number of individuals claiming unemployment benefits declined 16,000 in the week ended October 11th to 461,000. At the same time the less volatile four-week moving average rose to 483,250 from the previous week's revised average of 482,500. Continuing claims rose to 3.711 million bringing unemployment to 6.1%. California's unemployment rose to 7.7% and that may be the prediction for the rest of the country.

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The Chinese stock market has dropped as all the world markets but economically - read -

China's central bank announced that its foreign-exchange reserves rose to a record $1.905 trillion. China has the largest foreign reserves of any country in the history of the planet. Compare it to the USA which now has nearly $11.4 trillion in debts, not counting the contingent liabilities of the real estate crisis, Social Security or Medicare. You would think that everyone would want the Chinese yuan but the US dollar is still the currency of first choice and this week it rallied more.


Here are the major indices for the week as the stocks were up while oil and gold down.

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The top sector was the airlines as oil prices were down.

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Tope top and bottom industry groups.

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Most here know that you need to look at support and set stops in case it breaks (or use options or ETFs or other ways to protect profits and preserve capital). Unfortunately though a lot of people listed only to the media who's job it seems to be to sell stocks. They were selling the idea of buy and hold and you know their names. This has significantly hurt so many who have 401ks or other retirement accounts or who invested for education or homes. The administration even said to buy stocks and all would be great as you could do better than the Social Security system. Now there have been large redemptions of accounts as people do not want to see what is left disappear. That decision is based on a lot and time is a large factor. Whenever the market finds a bottom in 2009 or 2015 - it will find one and in between then and now we will have extended rallies. When those come some may want to hold stocks for some time longer than an hour or a couple of days but for right now is still looks like a better plan to only keep them for a short time and to book your profits as they come.

In the days and weeks ahead we could have large market declines. Being in cash is the easiest way to protect your assets but using options or ETFs can let you profit in both up and down markets. As the markets are so volatile now it seems good to concentrate only on one or a couple of trades so it is easy to watch and move in and out as needed.

Note:

This week on the site we added a Quick Blog. The idea is not to replace the message board but to add a place where people who cannot attend the chat room  may post information and ideas for the day. On Friday we posted several Dow charts during trading. The regular message board is better for posting about specific stocks and longer term picks as it is archived and has many topics that can be easily found. On the blog page you can also post a video comment if you have a camera on your computer or can use just audio only if you wish with a microphone. Right now you cannot post inline images so the message board it the best place for that.

Here is the blog link.

We are also happy that Butch Cooley has made some market comments for us this week a bit later on in the newsletter.

On the multi chart this week all indices are above their lower Bollinger band and below the center one. They are very similar and cannot find an edge. Historically this week is down a bit ojn election years.

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Starting with the Dow monthly see it has closed back above the 200-month EMA. RSI is under 30 lower than at the bottom in 2002. No positive divergence yet however.

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The Dow weekly and we do not know yet if X marks the spot for the low of the year. If we do get the 200 point drop or a 50% drop it obviously will not. A move of RSI back over 30 and stochastics over 20 and MACD turn could take it back to the broken trend near 10,000.

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If you have looked at several  financial blogs you have undoubtedly read the predictions of doom or rally. Everyone wants to say that they told you so and since the market is so volatile that is not possible they instead give several scenarios so at least one may be correct and they can claim the prize. So not to be outdone we see that if the 200-month does not hold, nor the recent low that there is possible support at the 2002 low. Lower than that the 62% retrace is at 6419. Terry Laundry's 40 year cycle targets a Dow  low near 4300 in 2010. (actually that does correspond with what can happen on a major drop in a stock and that is they fall by about 40% or so  and in time do it again)  So a major drop may be days away or months away and by March we may have tested the underside of the 200-month at 11,000 area but at the moment there is not enough clarity to bother with such predictions as they are not tradable with any degree of accuracy. That is why we keep looking at the chart as one day they will give better mid term guidance.

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A peak at the 27 year Dow chart shows that a drop even to the 4300 area if it comes to that, would not be as bad on the real long term chart as it does close up.

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Short term we can use the charts and this is the Dow 60-minute and the triangle defines the range. On Friday in the chat room we were trading the Dow futures and using a 3-min chart. The Dow dropped to the Pivot and rallied to the Resistance 1. A move of 500 points and then as it could not break resistance it went down 400 points. The media will tell you it was redemptions and forced sales. Right. And I suppose they just happed to do that as the freedemo-200w.gifDow hit S1 and this top trend line? You can look at some of the intraday charts of the Dow futures on the Friday  blog page. If you would like to try out futures trading it is free to open a simulated account which uses its included live streaming quotes.

We will expect a larger move if this breaks above the top or below the bottom trend line. The date of the Apex is also one to watch as it can many times predict larger moves as well. Buy support on bounces and RSI/stochastics signals and sell resistance until broken.

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The Nasdaq weekly tells  us little other than it is oversold and indecisive, but we do see the 1900 resistance and the gap just over.

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The longer term of the same chart shows the 1542 support area and the Fibonacci lines.

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The NASI hitting the all time extreems along with the VIX as we look for a bullish crossover.

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The McClellan Oscillator improved a lot from last week so now not actually in the normal place to start a rally unless it turns out that we already did.

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The VIX shows some negative divergence and that could signal  decreased volatility ahead which would be bullish as talked of earlier. The TRIX is confirmatory in natures when it crosses but gives a slower response but can show a more major trend change.

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The Qs - similar to the Nasdaq as this is the top 100 - showing it for those who trade it and to show the very good volume on the last week's rally of 3%.

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Here the actual Nasdaq 100 weekly and the corresponding Fibonacci levels. One week we will be able to bullishly report an upturn of it and the RSI but not this week.

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The Nasdaq 100 / S&P 500 ratio chart dipped but then rallied back part way. We want to see this move up and the Nasdaq to outperform the S&P 500 as this often signals a start of an improved market.

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The S&P 500 monthly closed again under its 200-month EMA very bearish.

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The weekly S&P 500 - also no positive divergence present yet.

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Like the starting Dow chart today - this S&P 500 also has an average true range indicator that is over 70.

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The daily NYSE we all wonder if this was a test of the bottom or if it will come this week.

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This week there were fewer new lows on the NYSE and the advance decline issues held at support.

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The percentage of stocks on the NYSE now trading over their 50-day EMA improved up to 3% from 1% the week before. The norm is more than 20% at least. We added the TRIX indicator also to this chart to look for a crossover.

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The S&P 400 midcaps dropped below their measured move last week and are not giving any good clues of direction.

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If things got worse the dotted line below is next support if the lows do not hold.

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The Russell 2000 weekly as you know reached its measured move a week ago and closed right at its 62% retrace.

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On the monthly R2K again you see the 62% close.

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The banks index for the month down 15%.

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The commodities ETF GSG weekly is under the 6-year trend line. They may get a bounce as coal did last week.

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Oil monthly continues its decline this week and for the month down 27%. The RSI and stochatics still have room to drop to get to oversold and the trend line is just over $60. The market ran very well for 5 years at this moved up but now they also go down together.

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USO US oil fund monthly short still working but near the trend line. If oil gets to its trend line this will break and the lower support is near $45 and the 2007 lows.

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Some in the chat room trade natural gas and this week the XNG index  had an 18% rally from its oversold conditions but note that the RSI is only now at 30.

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Gold lost 8% this week. We were not to keen on it at week and had shorts ready for DZZ double gold short and GDX. Be prepared for a bounce at some point this week.

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Shorter time frame - if a test of the 730s happens it will likely make another bounce or it could form where it is now.

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The gold bugs HUI dropped 17% this week and you can imagine as all the longs tried to fit thought the narrow door. This is not a big market compared to the major stock market and there was an underlying idea of gold bugs that if the market crashed that al countries and people in them would run to gold. Not this week as they sold gold and its stocks and bought the dollar. There are going to be some nice bounces in oversold gold stocks but on a case by case basis and not any yet are set up with any better than average set up but we will watch this week to see if we can find any for a bounce play. On the lower portion of this chart are the gold prices so you can compare the HUI price to those of gold historically.

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The GDX 60-minute renko gave a sell a few days back and has produced several dollars in gains.

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Silver lost 12% this week and is below $10.00. This may or may not be an attractive price but as $10 was broken this current technical level is not particularity supportive other than the June 2006 low. It may build a little base here and that would be helpful.

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Longer term the $8.00 to $8.50 looks more attractive.

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The US dollar is back under the 200-week EMA a bit. A dollar in the summer could only buy 23 rubles and not it can buy 27. That is a 17% move. We would not be surprised by a pullback this week.

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Monthly USD has not been able to rise over the 50-month EMA at 83.59.

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Butch Cooley Market 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 October 18, 2008


In the last two weeks, I have received more emails than I normally get a year.  All of them are from worried, confused and panic stricken investors.  They vary  from novice traders to experienced, young and retired.  And they all want to know what should they do, and where is the market going.   I'm not sure, but my guess would be down???   Some are independent traders, and others trade with fund management companies and investment firms and brokerages.  I have heard some real horror stories this past two weeks  But one thing is very clear.  Emotions are running high.  And when emotions are high in the stock markets, stupid things happen.  And when stupid things happen, we can make money.  I'm an optimist.  But I am also a realist, and things are not good.  They have changed.  They are bad, very bad, and they are going to get much worse.  I'm sorry, but that is the way I see things.  And it's also the way I choose to invest right now.

I want to take a moment to share with you just how badly some people think they have been hurt.  There is Phillipino gal I know living in LA that used to go to sea with me before I retired from the Merchant Marine.  She was a ship's cook.  In 1990 she started buying stocks, and WM was one that she really liked.  She bought $15,000 worth of stock at $2.50 in 1990.  By the peak of the dot.com era, her stock was trading around $45 a share, and she was counting on $270,000 to help in her retirement.  She did retire in 2002, and from 2002 to 2007, WM was fairly flat. 3 weeks ago, she emailed me asking for my advice.  I don't give advice, I just don't do that.  I have never been comfortable with that.  I will tell you what I'm doing, what I own and what I might do in a particular set of circumstances.  I'm not broker.  I am an investor.  And I am wrong sometimes, and don't want to be wrong with your money.  But, there was no advice to give her.  It was too late.  In all the years she was invested, had she sold 3 weeks ago, she would have made .50 a share.  She is in trouble. 

Another retired friend called me about his retirement account, particularly about WB.  Now he needs the money, the cash, for his retirement.  He bought $25,000 worth of WB in 1991 at about $8 a share.  At it's peak, WB was trading at about $60, so he had done really well.  He wanted me to tell him if WB would come "back".  Back to what was my question?  $60 a share?  Probably not this week!!  I suggested this.  We take cash and we buy stock.  Once we buy the stock, it's paper, it's not real money, and won't be until we sell and transfer the paper back to cash.  That's the name of the game.  It doesn't matter if it was $60 a share.  It isn't now. $60 was a fair market estimate of value.  It was not money, and would not be money, until you sold it.  As you can't sell it for $60 now, it's not worth what you think it was.  As it turns out, WB ran up the next day, he sold into strength at $23 and claimed he lost $115,625.  I disagree.  I say he made a profit of $15 a share.  He bought at $8, sold at $23, and he owned 3125 shares.  He did well.  He couldn't get that, and he felt abused by "Wall Street".  I don't understand why he thinks Wall Street screwed him when he made a profit!!???  He screwed himself, because he assumed WB would always be worth more and more and more.  Well, things change.  Now, he may be in trouble, but more than likely he just thinks he's in trouble. 

What I've come to realize these past few weeks is how few people actually take responsibility for their own investments, their own money.  Trading is a learning process that never ends. The major problem with learning to trade is the process involves loss.  Real time loss equals money lost.   Everyday is different.  Eventually, if we do learn, we gain.  This is one of the reasons I was a big supporter of ST starting stocktiger.com .  It opened up communication lines between independent traders.  It gave me a place to go and visit and learn.  Prior to that we had nothing but a lot of alone time. Then we had Yahoo Messenger for about 12 of us for a couple years.  And I think this site is probably the best forum out there.  You can learn to make money.  And if you already know what you are doing, then the site can help you make more money.  I have increased my gains in the last 4 years by over 165% and I attribute most of that to the charts here.  I'm not pumping the site....after all, it's free.  There is nothing to pump.  It works, and if I had to pay, I'd pay.  I pay for other advice.  I pay accountants, I pay attorneys, I pay doctors.  I pay for insurance.  I spent most of my life paying brokers for advice that was not always very good.  It was good for the broker, always, but not always for me.  I don't pay brokers anymore.  Times have changed. 

I lived through 5 serious down turns in the stock market.  This is definitely the worst I have ever seen.  I am on uncharted ground, everyday.  I know where we are, I am not certain where we are going.  What a challenge!!  And yet, in the worst market of my life time, I have made money.  Because times have changed.  In the dot.com era, nothing made sense, but we all made money.  Go back and look at JDSU, one of those stocks I made a lot money on.  I had bought into a number of tech stocks back in 1995.  Techs were new.  Things were changing, and they were changing fast.  The internet was new.  I had no idea what a micro chip was back then.  I am still not sure I know what it is, but I know what it does now!!  I bought thousands of share of a little known stock called JDSU.  Wow!!!  I sold half in 2000 at $1,200 a share and the other half in 2003 at $820 a share.  Cash to paper to cash!!!  But, the Nasdaq never recovered from those days.  And JDSU as been in a downtrend since 2003.  Things change.  But I also knew the dot.com era had to bust, and I was out before it did. 

One thing we had in 2000 to 2003 was an up turn in the housing markets.  So a lot of smart money jumped ship and went into real estate.  I did.  I didn't trade in the markets for over a year.  I remember the first time I heard of an Adjustable Rate Mortgage.  I didn't understand it.  I wasn't interested in this "vehicle".  But obviously many were.  I witnessed people buying houses in Seattle that were built in 1945, on 120 foot x 120 ft sq lots.  3 Bedrooms, one bath and pay as high as $880,000, then tear them down, and build a $2.6 mill house in it's place.  And they did this with "interest only" loans.  US Bank, Wachovia and Washington Mutual were leading the way with these bogus loans.  I knew back then there was good money to be made, but it would not last.  It had to bust.  Well, it did.  Things change. 

So here we are, probably in the biggest financial mess I've ever seen.  And we don't have the real estate market this time to go to.  In fact, it really is the catalyst that caused a lot of the troubles we are having.  Wall Street did this?  No, banks did this!!  And greed.  Greed always plays in to the equation.  But we do have a new vehicle we didn't have in the dot.com era.  ETF's.  I have to tell you, I am in love with ETF's.  There are so many, and so many ways to invest in them.  You can hedge in them, you can go "all in" and still be able to get out if things don't go right.  I have become very good with the QID and DXD, but there are so many more out there.  From Oct 2007, the DXD has been up over 100%.  That's an amazing claim for one year!!!  By comparison I just looked at a Vanguard Capital Fund and in the same year it's down 46%.  I'm an optimist, and things change all the time.  And we can make money, even in bad times.


BC

Remember that we are in earnings season to Check the Earnings Calendar on all overnight holds.

Weekly economic calendar from briefing.com. The smlalles we have seen.

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

From last week:

In this market where sometimes you need to take profits in a few hours instead of days it was interesting that a break out buy for Monday CLMT continued to gain all week. From the $9.00 buy price to the high Friday of $13.28 - almost 50% in a week like this - great.

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The Double gold short ETF  DZZ was also timely as it triggered the day after we added it to the list

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We have not put any new additions on the watch list today. So many subscribers are doing very well with the ETF while we wait for more stocks to set up that we only review a few of teh ETFs here. We will add stocks to the list during the week as usual when we find attractive setups. There is a listing of many popular ETFs in the June 23 Newsletter.

Note: There is a cycle from the Foundation For the Study of Cycles that is expecting a large market decline to last into January. Another model that has not been so good suggests a flat market until the end of the month then a 50% decline and another Fibonacci time model suggesting a 2,000 point Dow drop this week. While it is interesting to read it does not do a lot of good as the reliability is in question. It seems more appropriate to trade what is happening now and be prepared if a major drop comes.

DDM is to go long the Dow when it moves up. The Friday sell off from the resistance had high volume and that is not bullish. It was however options' expiration so we need Monday to judge.

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We will show the 30-minute charts of the pairs of major index ETFs so you have a reference to go long or short. You will note that on these charts the bears have the advantage at the moment. They are all in triangles so the chances of a break is high in the next couple of days but it could be a break down or a break up. Pay attention to the bottom trend lines on the "long" charts to go long if they hold and short if they fail. That is a general statement but of course you would wish the indicators to also agree on the trade as we have spoken about so many times.

DDM Dow long now has a a triangle to play off of. Note that stochastics dropped under 80 giving a sell signal short term.

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DXD is to short the Dow as it moves down.

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The 30-min DXD shows it gave a stochastics buy when it moved above 20 and now it is in the triangle. If it moves to the top but does not break out it would be wise to sell and check the DDM for a possible buy.

The rest of the charts would have very similar commentary so we need to repeat it over and over.

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SSO for long the S&P 500

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30-min SSO

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SDS to short the S&P 500

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SDS 30-minute chart

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UWM to go long the Russell 2000

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UWM 30-minute chart

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TWM 30-min to short the Russell 2000

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UYG is to go long financials

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UYG 30-minute chart

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DIG 30-min chart  to go long oil and gas

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DUG 30-minute to short oil and gas

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SMN 30-minute to short basic materials

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USD is to go long the semiconductors

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USD 30-minute

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SSG 30-minute to short the semiconductors

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Mezz mentioned EGHT as one lower volume stock that has had a good week. We are not setting any break out buy price but pass it along for those who like lower priced stocks even with its low volume. Years ago this stock was an on and off good one to trade. Note all the indicators have turned up.

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Gold stocks have a really bad day on Friday and many charts are a sad sight but DROOY still in its channel and not a lot of volume Friday so may be one that will move when gold stocks move up.

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Don't forget the new blog page.

 

Feed the Eyes

 

Photograph of an orange autumn night

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Photograph by Fly35

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Walking on the street

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Today's newsletter is also available as a PDF file.

That's a full lid for today - will see you during the week.

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Check the Earnings Calendar on all overnight holds.

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

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The Financial Ad Trader
The Financial Ad Trader