Stock Tiger Stalking Stocks™ For Monday March 30, 2009 You may subscribe to this newsletter free - subscribe Past 5 days Dow Nasdaq Close Friday Dow -148.38  at 7776.18, Nasdaq -41.80 at 1545.20, S&P -16.92 at 815.94 Sweetheart ....deal. Billed as a Public-Private Investment Partnership, the Geithner plan to buy toxic mortgage-backed assets from impaired banks puts the majority of the risk with the US taxpayer and a disproportionate amount of any reward with the banks or others who participate. It is a complex plan with more than one part but to give a basic and incomplete example as I read it. Not exact but the general idea. --- If $1,000 worth of  toxic assets are to be bought the government (FDIC actually)  will put up about 85% of the money as they will loan money (at 2% interest) of the purchase price to the partner while the "Private" partner plus the government puts up 15%. Risk in this  case is $850 for the taxpayer and $150 for the partner. Let's suppose that the value of this toxic asset later can be sold at a 20% higher price to someone who is not allowed to buy now. In this case the profit would be $200 so the taxpayer gets $100 on its $850 investment or a return of 12%. The private partner also gets $100 but on their $150 investment the return is 66%.  The banks would be smiling all the way to the bank. This of course depends on the ability to find a buyer at some point in the future who is willing to pay more. If that does not happen, well the taxpayer can make up for the loss. There are a lot of banks that were not involved in these "toxic" deals and are still dong fine. It is a shame that their good decisions and solid business practices are not being rewarded by loaning them the money to expand and take over for the banks and brokerages that created this situation. Meanwhile Bloomberg news reports: Bank of America, which has received $45 billion of taxpayers’ money, may raise the annual base pay for some managing directors to about $300,000 from $180,000. Salaries for less-senior directors would climb to about $250,000 from $150,000, and vice presidents would get $200,000, up from about $125,000. Yup, in these trouble times it would be hard to get by on $150,000 to $180,000 so with that $45 billion,  B of A can afford to help their people out a bit. I read on a non related topic that the USA now would not even be eligible to enter the European Union if it wanted to because of its debt levels as it requires a budget deficit to be less than three percent and  a national debt beneath 60 percent of Gross Domestic Product. With this backdrop the bear market rally continues this week and at the high of the week the Dow was up 21% from the March low while the Russell 2000 was up 29.7%, the S&P 500 up 23.1% and the Nasdaq up 25.1%. We expect that a larger pullback will start this week even with a mark-to-market elimination. It will be the end of widow dressing time. For this to be confirmed of course we need to set eh support tend lines break. Earning season will soon start so much can happened and there are a lot of items on the economic calendar this week. New orders for durable goods orders rose 3.4% to $165.6 billion in February. The increase followed six consecutive month of declines. Economists looked forward to a 2.5% decline in the durable goods orders for February. The February increase was mainly due to a 13.5% surge in machinery orders. However, shipment of durable goods fell 0.5%, while unfilled orders declined by 1.3%. Inventories also moved to the downside, edging down 0.9%. Non-defense capital goods orders, excluding aircraft orders, rose 6.6% following a 11.3% decline in the previous month.   Existing-home sales increased in February, reversing losses in January. Even so, sales activity remains relatively soft, reflecting additional layoffs and buyers waiting for housing provisions in the economic stimulus package to take effect, according to the National Association of Realtors. Existing-home sales -- including single-family, townhomes, condominiums and co-ops -- rose 5.1 percent to a seasonally adjusted annual rate of 4.72 million units in February from a pace of 4.49 million units in January, but are 4.6 percent below the 4.95 million-unit level in February 2008. The national median existing-home price for all housing types was $165,400 in February, down 15.5 percent from a year ago when the median was $195,800.   The U.S. GDP shrank at an upwardly revised pace of 6.3% in the fourth quarter compared to a 0.5% real GDP decline in the third quarter. The contraction was not as worse as the 6.6% decline expected by economists. On a year-over-year basis, fourth quarter GDP declined by 0.8% compared to 0.7% growth in the third quarter. The decline in fourth quarter GDP compared to the previous quarter reflected negative contributions from personal consumption expenditures, exports, equipment and software and residential fixed investment that were offset to some extent by positive contributions from federal government spending.   Jobless claims unexpectedly increased by a little more than what economists had predicted in the week ended March 21st compared to a downwardly revised reading for the previous week. The report showed that jobless claims rose to 652,000 from the previous week's revised figure of 644,000. Economists had been expecting claims to edge up to 650,000 from the 646,000 originally reported for the previous month.   For some perspective into the all-important US real estate market, this chart illustrates the US median price of a single-family home over the past 39 years. Not only did housing prices increase at a rapid rate from 1991 to 2005, the rate at which housing prices increased – increased. This chart shows how housing prices have dropped 33% from the 2005 peak. In fact, a home buyer who bought the median priced single-family home at the 1979 peak has actually seen that home lose value (1.6% loss). Not an impressive performance considering that nearly three decades have passed. It is worth noting that the median priced home has moved back to the top of a trading range that existed from the late 1970s into the mid-1990s. The past week's major indices The top and bottom sectors for the week The best and worst industries last week   Major index chart and the resistance above at the next trend lines. Nasdaq and the Nasdaq 100 made it to a horizontal resistance and could break out but the move in this rally has been fast and steep so a deeper pullback is expected before or after such a move. There has been no overwhelming volume on the move up so an eventual test of the lows is likely. Dow weekly with a 9088 resistance. Over time it would be quite normal for a bear market rally to retrace 38.2% to 50% of the drop which would be to 10,000 and 10,800 areas. At the moment there is negative divergence in RSI and MACD so a pullback will come though the timing is not exact. Transports ran to resistance and closed at the 50-day EMA.  RSI is not overbought. Utility index may have put in a reversal candle this past week but if so it does not suggest an end to the uptrend but only a pullback. Nasdaq broke over the trend line and is near the horizontal resistance as shown on the multi chart above. If it break out there the next level would be 1665 and that would make for a triple-top heavy resistance. McClellan oscillator has dropped close to the 50 line which helps relieve some overbought condition. The NASI has yet to crossover but is nearing the levels where it has done so in the past. The VIX  still holding over 40 so no lack of fear. QQQQ 60-min for the Nasdaq 100 and the steep rise and negative divergence on RSI and MACD. A break here will likely be shorted. SOX ran to horizontal resistance. RSI is not overbought and it it can make another move. Its trend line, 200-day EMA and the 38% retrace are above which will be very strong resistance. The current double top may be enough for it to pull back. Nasdaq to S&P 500 ratio shows the the Nasdaq is no longer greatly outperforming the S&P 500 but is above this support. A drop below now would be bearish as it would signify that speculation in tech is subsiding and that is a driving force in rallies. S&P 500 monthly with the blue Fibonacci lines showing the 38.2% is at 1018 or a typical eventual retrace point for a bear market rally. S&P 500 weekly  so far continues on its B wave. S&P 500 daily with resistance points above. The 797 50-day EMA may be  significant level. NYSE similar to the S&P. Percentage of stocks on the NYSE trading over their 50-day moving average is now at 61% and close to past areas when pullbacks took place. S&P 400 mid caps above the trend line and no negative divergence showing so far. Russell 2000 the trend line above it also at the horizontal resistance. Value Line would be nice it it could continue a move higher to the 200-day and horizontal resistance before a larger pullback. Financial sector XLF a the trend line. Maybe the elimination of the mark-to-market rule will spark at least a short term rally. Bank index BKX 60-min chart shows a break out point over 31. Home builders XHB weekly had a big lift on strong volume though probably wishful thinking, technically it is a nice move. London FTSE is stuck under the 50-day EMA.   China  FXI looks like it is headed for the 200-day EMA.   Russian RTSI up now 32% for the month. Commodity iShares GSG has a decent base but at the moment is pulling back. CRB index will see if 50-day provides support as if it does commodities may spark again . Crude oil monthly with a 15% move in March and stochastics has not even moved back over 20. Its move was helped by the pullback in the dollar but if it does continue you can see that the Fibonacci level and the broken trend line is at about 60.   Crude oil daily shows the move to about the late November highs so a pullback instead could take place any time. US oil fund USO also ran to resistance so watch stochastics for a drop under 80 as a warning of a further pullback. Gold weekly put in a bearish engulfing this past week. This has not actually been a very good predictor of the future but stochastics has crossed under 80 and RSI was not even above to reach 70 on the run over 1000 so this may be a double top. If it does run again it would likely be sold into. Gold cloud has reached the first support at the top of the cloud and this continues until about 900. It is in a bearish pullback since the crossover a while back. Gold ETF  GLD was not able to break out so needs to hold the 50-day to remain in an uptrend. GDX Renko 60-min chart has not yet given a short sell signal which it would do when CCI drops under 100 and the Parabolic SAR goes over the pattern. GDX chart with only EMAs is still in a bullish configuration with the 7-day EMA over the 21-day. Gold and silver index XAU barley moved over the resistance as there is not strong interest in buying gold stocks even though there were so many in a perfect break out set up. The moving averages though are getting closer and a crossover would be bullish. Silver   holding over the 50-day but with resistance at the trend line. US dollar   bounced at the trend line and 200-day EMA. RSI went from under 30 to over 30 and stochastics back over 20. Resistance now is the 50-day and then the broken red trend line near 88. If this rises it pressures 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 I had a few emails mid week regarding last week's Comments where I was bearish and holding DXD ETF's.  They were all kind remarks, but questioned my motivation to stay in DXD.  Well, I was wrong.  And I got caught on Monday.  However, I did fail to say I was not day trading this ETF, or any of the others.  I was prepared for a little bit longer trade.  I was watching a 3 month chart, and as of last Friday, the Dow had recorded two down days in a row, had not been able to break above the 50 day, slow sto was indicating a down turn as was the RSI and there was significant selling.  But it was early to be in DXD. I admit that. I have a habit of jumping into a stock early.  I figured I was ok, as I was hedged with several gold stocks, and that helped out for the week.  But I was also prepared to buy on the way down as the price was getting better.   So I bought at $66, $61 and $58 range.  I am right about 40% of the time.  By that I mean if I buy 10 stocks, 4 will go up, and 6 will down, or not perform as I wanted.  I sell the losers and let the winners run.  I beat those numbers occasionally, but that is my yearly average.  Even when I am wrong, there are ways to salvage a potential loss.  Sometimes, that is simply riding the curve. And it is not a loss until I sell.  I am again bringing all of this up as it will make better sense at the end of this weeks Comments.  I am a very hard liner that bottom is never bottom until it has been tested and confirmed.  And the 6470 bottom made in early March has not been tested and therefore is not confirmed.  I also believe we will never go up and set new highs until we know where bottom is.  And no one ever knows ahead of time where bottom really is.  And I still think this DXD buy will turn and become profitable.  So even a week later, I'm still very bearish on this current rally.  But it was a nice rally wasn't it!! Housing definitely propelled the markets early this week.  I get a lot of email when I criticize the National Association of Realtors and their monthly reports.  But I have thick skin.  It is an organization that's purpose is to promote itself.  And I have never accepted their numbers.  For instance, a foreclosure is a sale to them if a realtor was involved.  And many of these distressed sales don't involve a bank.  What is important in making money is knowing the herd does jump on this sort of thing.  A lot of this week's move up was that very same herd afraid of being left behind on a market going up.  And there was certainly a lot of what I call smiley face news.  A lot of talk about bank stability.  In fact, I can't count how many times I heard someone say the word "stability" this week.  And housing prices are down no doubt.  That makes them attractive to those in need right right, and also investors.  I know of several people looking and buying in Florida, fairly new homes, swimming pool, on a canal, under $70,000.  The point is, there is buying going on.  But more importantly  has the housing market reached a bottom, and I think not.  Not even close.  Also a lot of talk about the stimulus plans are starting to work.  Well, I'm not sure about that either.  The payroll deduction stimulus is in effect.  My business partner has told me he is getting $8 a week more in his take home pay.  I know he is excited about that!  I just think it is too early to know for sure if any of this stimulus is having any effect at the moment.  All of this cash coming into the economy has got to help.  But the jury is still out as too how much it will help.  We don't know, we just haven't got enough data to know.  We have never done what we are doing right now.  All new and uncharted ground.  But it was warm and fuzzy, full of goodness news.  And the markets needed a boost.  Traders have been in the dark for months, and some light felt good.  Secretary Geithner was in the news a good part of the week.  He did launch his  toxic asset buying plan.  It seems somewhat similar to the RTC days during the Savings and Loan failures.  The RTCs had equity partnerships, similar to what Secretary Geithner is calling for now.  These were formed from the private sector and the government.  This was also an evolved process.  Initially the RTCs didn't include the private investor partners, did bulk sales of illiquid assets and it didn't work well.  The investors discounted  a lot due to the fact there were many unknowns in the assets they were buying.  And I do see that as a similar issue now and a problem currently.  If the partnerships come in at 30% and the banks want 70% of the asset value, well, this will not work well at all.  This could also be one of the reasons President Obama had 15 bank CEOs at the White House on Friday.  But I don't know that for certain.  That's one of my big problems, I know nothing about these banks for certain.  I also got a number of emails this week from other analysts as to why they don't think this toxic asset auction will work, regardless of who runs the show.  The major obstacle is pricing the junk.  There are probably a lot of investors interested in buying these assets at say the 30% I mentioned earlier.  But the banks can't let the valuation go that low.  They would be forced to rebalance their books and most likely that would lead to bankruptcy.  And we can't have that.  The government has made it clear, certain financial institutions are simply to big to fail.  The other  issue is just getting the losses off the banks books and into someone else's hands.  Well, the way this looks to be setting up is the private investor, with nearly no money down and therefore, no risk, gets the bulk of the profit if these assets do pay off in time.  But if not, then the taxpayer is taking the risk and holding all the downside.  But the toxic junk is no longer in the banks.  And it appears that the investment is in the hands of the private sector.  The problem is the toxic assets.  From my view point, our economy does not need fixing.  Our banking system needs regulating.  Wall Street has been blamed over and over for their greed in this mess we are in.  But the blame is not on the investor, not really.  It's the banking industry, or better yet, the financial industry of banking.  And you have to look at the money and where it is all coming from.  Secretary Geithner has maybe $300 billion of the original TARP money left.  And another $120 billion of the FDIC portion of the toxic asset plan.  I mentioned last week this is a three part plan.  The remainder of the money comes from part 2 and 3 of that plan.  This includes matched money with a few securities firms and also includes money from the Fed on their expanded lending.  The total here is about $800 billion or more coming from the FDIC. Added to the Fed's $1.2 trillion announced last week, and we are looking at $2 trillion dollars here people.  That is a lot of money! Now last week we saw the deficit go to about $1.8 trillion.  But that number is nowhere near accurate.  It's at least $10 trillion that our government has committed to.  I also believe that eventually these so called toxic assets, over time, will go back up.  But it is these bad notes, this junk, that put us in the mess we are in.  I have no idea how long it will take for values on these assets to improve.  Most of them being related to the housing industry, why would they not improve in time?  Housing will not continue downward to zero.  The values were just too high.  Like buying at the top and selling at the bottom.  You get burned.  But the stock value continues to go up and down.  This is the problem.  Our solution therefore is to print huge sums of money and dump it into these assets, and get the credit markets working again.  But has anyone made mention of regulating our so called "too big to fail" financial corporations?  Can we afford banks and brokerage houses and investment security firms to be under the same corporation name?  Should we allow banks "too big to fail" to even exist?  This is all about corporate greed, not a failing of the US economy.  I still maintain, the problem is not being addressed.  A few people, at the head of these organizations are suppose to taking illiquid assets and making them liquid.  In reality, the failed miserably, and turned everything into junk.  I see this move as the last step before the government is forced into nationalizing the banks.  After all, they are too big to fail.  If you look at the Geithner plan, the government is putting up 97% of loan money, and the private sector is putting up 3%.  I guess if they required 10%, no one would be interested.  We are as close to buying all the assets for the taxpayers as there is.  No risk on the private investor.  All the risks is on the taxpayer.  I didn't sell DXD last week.  I didn't have to.  But my on balance sheet diminished somewhat, offset by a hedge in gold stocks.  It looks a little better this week.  My point is, I have all the risk, and therefore if I gain, I will get all the profit.  That is the way it should be.  I didn't loose anything, as it's all paper.  I put up real money for these buys, but no loss yet.  Is this a toxic asset?  Not at all.  But if DXD goes to $20 and I don't sell, and gold drops and I loose my hedge, it's pretty toxic then!!  But over some specified period of time, this investment could be profitable again, even if it went to $20 a share.  Now, I would never let it go that low and still own it.  My balance sheet would be terrible.  Well, that's where the banks are.  Their balance sheets remain unknowns to all of us.  But now, they will be forced into price disclosure of some sort if they choose to sell these assets.  I am betting if the asked price is too low, the banks will just not sell and the plan will not work.  There are also those who believe the banks will sell good assets before the sell toxic assets and there is sound reasoning behind that.  One last item this week I found interesting and disturbing.  If my numbers are correct, and Secretary Geithner has got $2 trillion to work with here between all of the parts of this program, he got it all without going before Congress.  That's amazing.  BC   Here is a list of stocks reporting earnings on Monday. Check the updated Earnings Calendar on all overnight holds. 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 have been very volatile so great opportunities right now 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 Stocks One  Featured Company ERF Wireless, Inc. ERFW  http://www.erfwireless.com/ Gave a conference call and slide presentation recently and if you did not participate and want to view it we have it available. Recording of the March 4 ERFW conference call There  was news this week. ERF Wireless Deploys Wireless Network for West Texas State Bank They announced the installation of their encrypted enterprise-class wireless banking network for West Texas State Bank and five of its branch offices. The part I love is "The network is comprised of FCC-licensed frequencies creating a 165Mbps backbone, delivering speeds in excess of 40Mbps to each bank location." 40Mbps  is blistering speed - would you love the on your wireless. The company keeps doing what it says it will and this is another example of a milestone reached. America West Resources  http://www.americacoal.com/ AWSR  Coal. The stock price still consolidating at the same level for a month or so and we feel it a very good value here. New Blog - Message center upgrade In our News feed section we have several financial news feeds so convenient for daily articles. We also have a Gizmodo feed with all the fun and interesting tech gadgets each day. 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 New additions to our watch list. Remember that we add many stocks to it each trading d   TSS Over $14.00 YZC  Coal over $7.81 PX  Over $70.07 DLTR  Over $44.32 LEG  Over $14.22 - this tried to break out and pulled back on lighter volume so maybe on the next try. ANV  Over $5.25 then $5.45 MU Over $4.40 FLEX  Back over $3.06 then $3.26 - Friday high was $3.10 CREE  Over $24.60 or $24.95   For your viewing - Photographer unknown   Photograph by Irusick    Photograph by Oleg That's a full lid for today - will see you during the week. 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