Hello from a sunny but cold Alabama. We have a beautiful day here although slightly on the chilly side with clear blue skies as the temperatures remain in the 30’s. A nice day to sit near the window taking in the sun and reading a book while staying warm inside. I am beginning a new book called the “The Power of Less” and I will report back once I have completed the read. I have always been a fan of Maximize with the minimum. A motto I have tried to subscribe to in my business operations. In the trading world it is very important we maximize with the minimum. Many times our tools and indicators will say very little or nothing at all. We as humans will attempt to extract information out of them when there is nothing to extract. We forget there is certain randomness to the markets and there are times when there is nothing to game. Recently we mentioned the indicator McClellan Oscillator. Like another tool this indicator many times tells us nothing and at times speaks loudly. The McClellan Oscillator a market breadth indicator that is based on the difference between the number of advancing and declining issues on the NYSE. It is primarily used for short and intermediate term trading. To calculate subtract a 39 day EMA (of advancing issues – declining issues) from a 19 day EMA (of advancing issues – declining issues). Friday this indicator hit the -300 level. (Depending on your data provider) We mentioned in Fridays NH_NL report that this has only occurred 8 times.
The group ended the week in positive territory while the DOW saw new multi year lows. Colin, Henry and Bob all had double digit gains this week. All three spikers were short this week. Colin took the GOLD with a 14.70% winner, Henry grabbed the Silver earning 12.96% and Bob had to settle for Bronze with a 12.55% gain. The other area of interest was the risk management of the group. In a week that saw heavy selling and big gaps in the markets, all but one pick saw losses less than 3%. Managing risk in this game is priority number one!Congrats to all the winners this week.
Most sectors were in the red except for the oil service companies, retail was slightly green but all others were bleeding red. Market breadth was 2:1 negative and the DOW took out its November lows.The market wants clarity and for now it only sees a foggy horizon. The number one job during a bear market is protecting capital. In a deflationary market, cash is king. Your cash today can buy more of the same than a year ago. Anyone that held onto to cash is ahead of the game. There is so much uncertainty, can the markets initiate a bounce in oversold conditions. We hit a -250 on the McClellan Oscillator today. (Chart below) This level has been hit 7 times since this bear market began. 5 out of 7 times the market began to bounce within 2 days and rally back to its moving average. The Obama administration was looked upon to bring hope and direction, now the Secretary of Treasury has gone missing. The one speech he gave had no meat to the details and the market is signaling the banks are headed for nationalization. Until this fog can clear and some clarity is seen, we’ll have to see if the oversold technical’s can ignite a bounce in this market. A bear market rally can be fierce and powerful. These rallies are more powerful than bull market rallies, so if one ignites make sure your shorts are not exposed.
Housing starts continued to slide as the number is the lowest on record, which began in 1959. Industrial Production came in worse than estimates, falling -1.8% for the month. Overall capacity utilization came in less than estimated. Year on year industrial production was down 10%. President Obama announced a $275 billion program to assist homeowners. Yesterday he signed the $800 billion bailout package. Geithner briefly outlined a Treasury rescue program to bail out banks last week. The government continues to react to the economic recession that started last year. However, much of it is meaningless until the markets can act in a positive way. We need to see improvement of willing buyers to bid up for stocks. Only a very small selection of stocks is holding any kind of supports and buyers willing to bid for their shares. Most markets are range bound or can only put in a day or two bounce.
More bad news hit the headlines as the markets reopened after a 3 day weekend. The Empire State manufacturing index fell to a -34.7, much poorer than the consensus -22. Importantly, the index signaled an important shift to a much greater pessimism for the coming six months. The administration is now indicating to tax payers that their election motto that "hope is coming" will be replaced by patience, sacrifice and having a determined willingness to hang in there. The only sector that was green today was Gold. Most all other sectors were down over 2%, the weakest was Banks and Oil Services.
Market waits for Congress passage of stimulus packageThe group ended slightly down as the markets traded mostly to the downside other than Thursday’s afternoon spike reversal.Grant won GOLD, Deb took the Silver and Bob grabs the Bronze. Spike Member Steve M wins a 20 dollar credit with an impressive gain of 16.95% and Ian W also wins a 20 dollar credit for is outperformance of the Bronze medalist. Congrats to this week’s winners!This seems to be a market of spiking on every word that comes out of Washington and then go nowhere. The news today was a mortgage bailout plan that is supposed to be announced Wednesday. Let’s hope it has more beef in it than Geitner’s speech this week. It appears we only have this market reacting to government announcements and Day Traders playing the ranges. There are a few stocks that are trending, but mostly choppiness prevails. Chasing stocks here has not been a profitable strategy and most breakouts are failing.The markets are closed Monday so picks are due by 3:00pm NY time on Monday. I look forward to receiving everyone’s picks.Video Vault News:I attempted to record some day trading activity today as I was trading the DOW futures; I hope to have this video posted this weekend for those interested in day trading.
The market shot up in a late afternoon surge. Will we see some upside tomorrow as end the week?The economic news continues to be bad and will be for some time. Unemployment rose again this week setting another record. The markets continue to focus on the lack of details from Treasury Secretary Geithner. Geithner’s statements that it was better to get it right left investors wondering if he has a plan. If there is a lack of confidence on the part of investors in Geithner’s ability to put together a good plan, it will be difficult for the markets to make much headway. The Index Put Call ratio dipped below 1.0 level again today chiming in at .93, this is a fall from 1.22 yesterday. I suspect we will again see it sit below 1.0 for a day or two as we have seen in recent weeks. The markets are looking for any excuse to rally, it simply needs some substance so investors will be willing to bid up for stocks. Investors and traders want a solution and they want it now. We know that many are anxious for this bear market to end or at least to provide us with a good bear rally to profit from.
The $789 billion stimulus bill with hopes that the final package would be fully approved by the weekend was the news of the day. The bounce was very weak at best and mostly choppy trading. The strongest sector was Gold and Airlines, Natural Gas and Transports were the weak movers.The Put Call Ratio we have been mentioning on several occasions shot up to 1.22 today. This indicates more folks are fearful of further weakness. A move above 1.30 would likely set us up for a bounce.The 800 level is in sight again and I would be suprised if this level is not tested.
The Put/Call Index ratio, mentioned here several times last week, gave us ample warning that a big down day was coming! The market disliked not hearing any details of the plans by Treasury’s Geitner. What is really bad about this action is that we have had many government plans to "fix the economy" – and investors show no confidence in their verbiage.
Market was choppy and range bound today as Banks were the leading sector as Gold/Silver were the weakest mover.Short term we were inching into some ovebought readings and the PutCall ratio is under 1 for the third day in a row. I do not recall seeing the PutCall ratio under 1 this many times within a 2 week span. Since we have no record of this ever occuring I am not sure what to make of this action. I am sure we will see soon.