Weekly Stock Market Review

U.S. Stocks finished lower for the second consecutive week on Friday, although Friday's losses were much more muted compared to Thursday. We received significant economic news this week, indicating that the recovery is at least experiencing a hiccup, if there is much of a recovery under way at all. Job losses in September amounted to 263,000, and the unemployment rate inched up to 9.8%. Total unemployment, when one considers workers that are underemployed, is about 17%. Data on manufacturing and durable good orders was also weak.

As a result, stocks have at least taken a breather. There is good support in most of the major averages just below the current levels. I suspect we may get a bounce from here, but I don't believe the market can head much higher unless we start getting better news on the employment front. Although it is traditionally viewed as a lagging economic indicator, unless there is actual job creation, consumers will not be much in a mood to spend.

As the 3rd quarter has drawn to a close, the beginning of earnings season is upon us. That will drive stock prices on an individual basis for a while. With that in mind, expect some of the better performers to hold up, but stocks that disappoint will likely get hammered!

Scott Cole
www.theultimatestocktradingsystem.com

True Selling Day

With all of the major averages down 2% or more today, it is classified as a True Selling Day, the first such trading day since early July. I also do not like the gap down through support in the Nasdaq.

The cause of today's concern was overnight trading in the China market, which was down sharply. If the Chinese economy slows, then one of the main leaders of the economic recovery will no longer be providing demand for U.S. products, and so much for U.S. economic recovery.

As a result of today's trading, it would be a good idea to take some money off of the table. This has been a big run up in the market since the March lows, and we are entering a seasonably weak period for the market. If there is another true selling day before a big buying day occurs, shorter term traders should pile into cash.

Scott Cole
www.theultimatestocktradingsystem.com

Stock Market Commentary

U.S. Stocks closed out the week with losses on Friday, and the market's 4 week winning streak was snapped. However, the overall pattern is quite solid and still points to higher prices ahead. The market is forming a small continuation pattern, and will head higher once it is broken to the upside.

Ultimately, though, the market is due for a correction. In a couple weeks we will also be heading into a seasonally weak period of the year, September and October. During that period, we will be getting an idea of what kind of legislation will be coming out of Washington in regard to health care and energy. If Congress passes legislation that is much more watered down, the market should react favorably. If, however, the Democrats push through a bill by the use of reconciliation, the market will definitely react negatively, as a sizable health care bill and cap and trade will be viewed as drags on the economy.

Stay Tuned!

Scott Cole
www.theultimatestocktradingsystem.com

What's Ahead for U.S. Stocks

Ok, a couple weeks into earnings season, and it is clear that many U.S. corporations and financial institutions are in a bit better shape than what the market thought in early March. That March low will not likely be tested, and it may be safe to assume that a new bull market for stocks has begun.

But, what does all that mean? I still think we are now in a similar period to the 1970's and early 1980's. The market will experience big moves up and down, but stay within a broad trading range of 15,000 on the Dow at the top to 6,500 at the bottom. I think this because of high overall commodity prices, huge government debt, high unemployment and an overexpanding government that will take jobs away from the private sector. Under the current administration, there is little incentive for corporations, businesses and wealthy individuals to be creative, since they will just pay more in taxes to the government to pay for all these new programs and the debt being run up in Washington and at the state level.

For now though, the market action in recent days has been impressive. A modest downside breakout has been followed by significant strength to new yearly highs in the Nasdaq averages. The only ominous sign I see in the averages is the lack of volume. There is not a huge commitment by instititutional traders yet. However, the trend is your friend, and general prices are going up. That means there have been nice trends in stocks, and those should continue.

Just be careful about making very long term bets at these levels. There are too many headwinds for the stock market going forward. I just don't see many people spending like that used to, and consumer spending is what ultimately drives corporate profits in the long run.

Stay Tuned!

Scott Cole
www.theultimatestocktradingsystem.com

Stocks Swoon as Treasury Market Tanks

The sell-off in U.S. Treasury securities appears to be finally weighing on the stock market. The prospect of higher interest rates may now be on the minds of stock traders and investors, as higher interest rates will stunt any U.S. recovery. The yield on the 10 Year Treasury Note is now over 3.7%, a full 120 basis points above the yield when the Fed announced its $300 billion Treasury purchase program in March.

Yesterday, I intentionally stayed quiet because I thought it was a bogus move, as the volume was a bit light for such a big move. Today, the market did not give back all of those gains, but there is an ominous formation that is potentially forming on the chart of the S&P 500 and the Dow. This is the Descending Triangle Top. If broken to the downside, it often leads to a sharp move down. That could be the final leg down in this Bear Market. Or, you could view it as the first correction in a new Bull Market. Either way, I think we are looking at a sluggish market going forward.

In my view, there seems to be too much bullish sentiment on Wall Street and now on Main Street, with these recent consumer confidence figures. Next week, we get another view of the employment situation, and that will likely be a market mover.

Stay Tuned!

Scott Cole
www.theultimatestocktradingsystem.com

Stocks end week Flat, Dollar sharply lower

U.S. stocks ended the week little changed from the previoius week, while the U.S. Dollar Index fell to fresh 2009 lows. One has to wonder why the greenback is so weak against the likes of the British Pound. Isn't the UK economy far worse than our own? Oh, maybe it is because we are printing all those dollars to pay for all of the government spending that will be coming down the line.

U.S. Treasuries do not paint a very bright picture either as the 10 Year Note was yielding 3.4% by the end of the week. This is going to start putting upward pressure on mortgage rates, which have held below 5% for a few months now. Unfortunately, many folks have not been able to refinance as they simply do not qualify to refinance.

Commodity prices are moving up in response to the weak Dollar and the prospect of a slower decline in the economy. Crude Oil closed above $60 for the first time since the first week of January. Coffee and Soybeans have moved sharply higher in recent weeks. Yet, for the most part, the Fed continues to focus on deflationary pressures. That may be the issue confronting us in the short term, but it seems painfully obvious we will have an inflation problem down the road. If not, it is only because interest rates have climbed high enough to shut off any economic recovery.

Nonetheless, there are some individual stocks that have been making some big moves into new high territory. Among these are a couple of coffee related businesses. Thus, there is still opportunity to make a buck even if this turns out to be a bear market rally.

Stay Tuned!

Scott Cole
www.theultimatestocktradingsystem.com

How High Can Stocks Fly?

U.S. Stocks ended the week with another bang this week, continuing the run that began in March. The S&P 500 is now 37% above its closing low in March, showing gains in just about every week since its Bear Market nadir.

On Friday, stocks managed to rally in spite of an employment report that showed another 500,000 jobs were lost in April, and that the previous two reports were revised to show additional losses of 66,000. The unemployment rate stands at 8.9%.

However, stocks have been buoyed by better than expected earnings reports, some better news on the economic front, and a ho hum report on the bank stress tests. The problem is that while stocks have been rallying off of this Bear Market bottom, sentiment has turned bullish, long term Treasury yields have shot up, and the Dollar is getting pounded in the Forex markets. Commodity prices have also been on the rise, particularly the oil complex and agricultural markets.

In the long run, rising interest rates will make it difficult for stocks to go much higher. The 10 Year Treasury Note is now yielding 3.3%, nearly 80 basis points above its March low when the prices spiked in response to the Fed's $300 billion purchase announcement. That was a perfect sell signal for foreign investors looking to get out our Treasuries in the face of huge government deficits for the next ten years.

Nonetheless, you have to stay with the trend, which is solidly to the upside at the present time. We had a true selling day a couple weeks ago that was quickly negated by significant strength soon afterward. This market continues to be a traders market, so tread carefully. Long term investors should not be chasing stocks at these levels.

Scott Cole
www.theultimatestocktradingsystem.com

Weekly Financial Market Review

After a weak start to the week, U.S. stocks clawed their way back to post another weekly gain, continuing the rally that started in March. Continuing to lead the way are the semiconductors, and some more economically sensitive groups, such as resorts and casinos, lodging, and even auto dealerships. Those groups have moved the most in the last seven weeks or so since the rally began.

Although we have seen some significant rallies in some individual stocks, there are not many that are trading at all time highs. Some are at 52 week highs, but still well below their peak prices seen in since the market topped out in late 2007.

I do not believe this is a great time to begin a new investment campaign in stocks. When this rally started, the market had been plunging at a substantial rate of decline that was unsustainable for long. A trading rally was overdue, and that is what we have seen. Now, however, the rate of ascent has slowed a bit, and volatility has shrunk quite a bit as well. Once earnings season is over, we will likely see a pullback of sorts. At that time, it may provide a safer opportunity to begin investing in stocks again. Keep in mind though, market returns going forward can not be expected to match those seen in the 1980's and 1990's. You just need to have a look at what happened to Japan over the last 20 years to get an idea of what could happen in the U.S. Government spending and propping up banks and auto companies without letting market forces take care of that issue itself is what Japan did, and that economy has languished.

I believe we are heading toward a period of stagflation. A view of the Treasury markets indicates that the yield curve has steepened quite rapidly over the last couple weeks. Optimists will say that the bond market is pricing in a recovering economy. However, I believe these markets, along with the currency markets, are pricing in an inflation problem down the road.

Since the Fed announced its Treasury purchase program to keep interest rates low back on March 18th, the 30 Year Treasury Bond has actually sold off to new 5 month lows. 10 Year Treasury Note yields are now HIGHER than before program was announced. So much for seeing any profit from government action in the financial markets!

I would also note that the U.S. Dollar is approaching multi-month lows while the Canadian $ and Australian $ are approaching their highs for the year. It is clear that Forex traders are betting on higher commodity prices by buying currencies that stand to benefit most from these higher prices. The Yen has been tanking for months due to a languishing economy and since Japan is a huge importer of natural resources.

Going forward, investors should continue to consider investments in commodities and businesses that produce them.

Scott Cole
www.theultimatestocktradingsystem.com

Bears Growl as Bulls take day off

U.S. stocks had their worst trading day since the current rally began in March. Typically, this type of trading action signifies at least short term change of character for the market. The fact that this was the widest trading range in a month, and that the Dow and S&P 500 made one week lows just one trading day removed from making a new high for this rally suggests that the rally is probably over for now. Watch for a little more selling, then a possible re-test of the highs. If we see another day like today before we see an upside day like today, or before it makes new highs for the move, then you will know for sure that we are heading lower.

The driver of today's action was weakness in the financials, which have rallied dramatically. Bank of America indicated that earnings were better than expected, but that losses on the credit card side of the business will likely worsen in coming months.

There have also been reports that banks still are not lending, in spite of what they have been maintaining. At this point, it really makes no sense for them to lend money to anyone if their jobs are at risk. This looks like a vicious cycle to me. We need the banks to lend money so that businesses can get back on their feet, consumers start spending a little, and new homes can be built. But, on the flip side, we need stability in the job market to lessen the risk for the banks to make loans to individuals. With that in mind, maybe it IS indeed necessary for the government to grow and create new jobs in through government bureaucracies. Unfortunately, that kind of growth will result in higher taxes and interest rates down the road due to the debt being piled on.

Time will tell.

Scott Cole
www.theultimatestocktradingsystem.com

New Bull Market or Bear Market Rally?

I've been away for awhile. Sometimes it is good to just take a break from the markets to clear your head. Plus, I have been working on another business venture. Time to look at the markets again.

When this current move began last month, we were overdue for a rally. Sentiment was clearly too negative. Now, Wall Street sentiment seems to be a bit more positive. The question is, do we really have reason to be more positive?

Earnings reports out thus far have generally beaten expectations. But, these expectations were based upon a scenario where the economy was going to fall off a cliff. It has not done that, and I don't expect it to. All of the stimulus going into the economy will lead to some sort of recovery. It is the long run I am must concerned about.

I think it is irresponsible as hell for Mark Haines on CNBC to be calling this a Bull Market. He bases this on the fact that the market has rallied 20%. He feels that if a Bear Market is defined by a 20% decline, then a Bull Market should be defined as a rally of at least 20%. We are now up nearly 30% since the March lows, and this has been a big move. However, 30% of 683 on the S&P is a heck of a lot less than 20% of 1550! And the market came down over 50%!

Look at any major, multi-year Bear Market and you often have more than one rally of this magnitude during the declines. After the S&P peaked over 15oo in late 2000, there were two rallies of 20% or more, and another that carried about 18%, until the market finally found its bottom in 2003.

I like the double bottom formation in the Nasdaq, but when you look at a weekly chart, you see just how devastating this Bear Market has been. A lot of wealth destruction. Throw that in with the desctruction in wealth caused by the residential real estate market, and possibly more losses in commercial real estate, and the destruction of wealth is the greatest since the 1930's.

When the market was bottoming in 2003, we had low interest rates, an already strong real estate market, and tax cuts were in place. The federal budget deficit was large, but nowhere near the size of it now, and energy prices were significantly lower. Inflation was in check...the price of Gold was in the $400 to $500 range and Copper prices were way under $1.00. Furthermore, there were no huge job losses like what we've seen in the last 18 months.

Now, we have a government that is intent on spending even more money that it does not have. This will result in higher taxes down the road, and possibly higher inflation. It looks like the 1970's all over again. After the Dow Jones peaked at about 1,000 in 1966, it took the market 16 years before it reached the 1,100 level. In between FOUR Bear Markets resulting in losses of 20% or more...about 50% during the 1973-74 decline.

After such huge losses in income and assets, the psychology of consumers has changed. We will begin saving again, because we realize we no longer can depend upon the returns from our investments to provide for our retirement. In fact, a recent poll I saw on the news today indicated that 61% of Americans will save more, rather than go back to their old spending habits once the economy improves. That is just a poll, but I believe this will be the new American mindset.

This current rally may continue upward for awhile. It is forecasting a recovery by the 3rd Quarter, but it is also just an oversold rally. This may be a significant Bear Market bottom, but don't expect to see Dow 15,000 within a year. Some traders have been making good money during this rally...but they had their heads handed to them during the declines. Soon enough, the next dip they buy will result in losses. That will be the end of the Haines Bull Market.

Scott Cole
www.theultimatestocktradingsystem.com

Stocks make gains after lower open

U.S. stocks managed a nice rally on Wednesday, suggesting the current move from the lows may still be intact. We'll know more later in the week after the Friday jobs report is released by the government.

Stocks were set to open lower today after the release of the ADP private sector jobs report showed a loss of 742,000 jobs in March. Later in the morning, subsequent economic data showed some improvement in the housing market and manufacturing, and the market rallied on that news. I should indicate this data showed a SLIGHT improvement, but the market is looking for any excuse to rally, so it is best to go along for the ride!

As a result of the rally, we had some good moves in several of our stock picks in out Best Daytrading Stocks newsletter. For more info, check it out here!

In other markets, the Dollar was generally flat on the day, and traded within a narrow range, ahead of the G-20 summit in London. I don't expect much to come out of this meeting except some posturing rather than any strong policy. There was not much movement in Treasuries or commodities today either. Most of these markets are trading within consolidation patterns as we wait to see if and when the economy may recover.

Scott Cole
www.theultimatestocktradingsystem.com

Thoughts on the Weeks and Months Ahead

Today, Treasury Secretary Geithner made the rounds on the Sunday talk shows, and indicated that some banks still need substantial aid. It was also announced that the Obama administration has asked GM CEO Rick Wagoner to step down. So now we have the government running banks, insurance companies (AIG) and auto manufacturers. Soon, if Obama has his way, the government will have a much more significant presence in the health care industry and energy industries.

At the end of this past week, I visited with the property owner of an 8 unit apartment property I am appraising. The property is owned by a couple of reasonably successful realtors, has a very good location and a strong operating history. They are re-financing a loan since the original 5 year fixed term is expiring. They are getting their financing from a credit union at a rate of about 6.25% fixed for 5 or 7 years (he wasn't sure at the time). The small bank that holds the original mortgage was offering a rate of 7%. That is more than double the Prime Rate of 3.25% and over 200 basis points higher than the average rate for 30 year residential mortgages. And yet, even in the current economic environment, this property is probably as low of a risk as an investor can find besides a land lease to McDonald's!

Needless to say, I don't see much improvement in the credit markets when it comes to commercial lending. I've just received my copy of the Korpacz Real Estate Investment Survey, which is published quarterly. It indicates that overall capitalization rates for commercial and industrial real estate, a guage of expected returns, have risen by nearly 50 basis points in just the last quarter. This indicates the substantial tightening in the credit markets since last Fall.

With that in mind, it is clear that commercial real estate may be the next shoe to drop. I have heard this from top investors over the last few months, but the evidence is becoming more clear. If we have a similar problem to what we had twenty years ago during the Savings and Loan crisis, then I do not see how this economy will be able to recover by the end of this year.

Just some food for thought. Forecasting the economy is never an easy undertaking. Pay close attention to the action of the market. That is the best forecasting tool we have.

Scott Cole
www.theultimatestocktradingsystem.com

Identifying the Next Stock Market Winners

Since the U.S. stock market hit its closing low on March 9th, it has rallied over 20%. Even prior to the Dow Jones Industrial Average’s 497 point advance on March 23rd, the market had shown significant signs that a nice rally was in force. Smart investors, who’ve been waiting for a decent opportunity to put some capital to work, have set their sights on the stocks that are showing significant strength compared to the rest of the market.

Picking the next big movers in the stock market can be a daunting task. But, many of today’s analytical programs make this task a little bit easier. I use a program called Telechart by Worden Brothers, and have been using this program for about ten years. However, many of the online brokerages offer good capabilities as well.

Here are a few tips to finding stocks that are ready to make nice moves over a couple month period:

1. Look for the stocks that are trading at or near new 52 week highs
2. Look for stocks that are trading further above their 52 week lows than other stocks
3. Look for stocks that have shown significant increases in volume over the last six months

Once you have identified a number of stocks that show these characteristics, look for stocks that have been consolidating for a couple weeks, and up to four or five weeks. We don’t want to enter a new position when a stock has been up 10 days in a row, so we look for those that have traded sideways for a bit within a nice uptrend. We then look to enter a trade when the stock breaks out above its recent consolidation pattern.

These are your high momentum stocks that, when market conditions are good, can give you a pop of 50% to over 100% in just a couple months. However, in the current market environment, it is a good idea to scale back expectations, and not to use any leverage. However, these stocks can provide you with decent short term returns. If it becomes clear that economic conditions are improving significantly, you can then be more aggressive.

Remember, there is no full proof trading strategy. This type of strategy will generally result in more losing trades than winning trades. However, if you use some common sense and manage your risk, you can enjoy decent returns, as a few good trades will more than make up for the small losing trades.

Scott Cole
www.theultimatestocktradingsystem.com

Stocks end week on down note

U.S. Stocks opened lower and never recovered, but traded in a narrow range today. This was a classic case of profit taking after a big up week for the major averages. Volume was very light today, and the averages generally closed near Thursday's lows.

With all this in mind, I suspect we will see some more selling next week. We will be getting another look at the jobs market next week, which will likely have a significant impact. Any sign of improvement could help the market rally. It is all about perception, however, so pay attention to Wall Street estimates to get a feel for what direction the market will head, based upon the number reported.

More to come over the weekend.

Scott Cole
www.theultimatestocktradingsystem.com

Stocks rise after whipsawing day

U.S. stocks closed higher after a late day rally concluded a whipsawing day. The market traded higher early in the morning on the heels of President Obama's prime time news conference last night. Later, on remarks regarding the status of the Dollar's role as the world's leading currency helped drive the market lower. However, late in the day, when Treasury Secretary Geithner indicated that a strong Dollar is the policy of the government, the market reacted positively and rallied.

What this all means is that the market is a bit confused at the moment. There was actually some positive news out this morning regarding the housing market and durable goods orders. I also had the chance to meet with a realtor this morning at a property I am appraising, and he indicated that the low mortgage rates along with the $8,000 tax credit for first time buyers is definitely providing a lift to the residential real estate market. However, the above $300,000 price range is still suffering from slow sales, as that was the sector that saw the most over building in our area.

In other markets, 10 Year Treasury Note yields rose for the 3rd day in a row, and 4 out of the last 5 days since the Fed's announcement that it will be buying up to $300 billion worth of Treasuries to keep yields low. In the UK, there was a very poor auction of securities in that country, as investors no longer seem to have the appetite for government debt in countries where spending is getting out of control.

At the end of the day, the Dollar Index was generally flat, but the price pattern on the daily chart seems to be pointing toward lower prices. Commodity prices were generally lower.

Scott Cole
www.theultimatestocktradingsystem.com

Stocks give back some of Monday's Gains

Well, considering that I was traveling both last Tuesday and yesterday while the market was making big gains, many people might wish that I had stayed on a plane today! After yesterday's nearly 500 point advance in the Dow, it gave back over 100 points today, and the other major averages were distinctly weaker. As Don Worden mentions in his TC2000 notes yesterday, the market rise actually occurred on volume that was lighter than last Friday. That is an indication that there was no major accumulation in yesterday's big rise.

Another ominous sign today was that the market sold off in the last hour. After opening lower, and staying down for the first half of the day, the Dow clawed its way back into positive territory. At about 3 pm, it was down only marginally, and Maria Bartiromo arrived with her pom poms on CNBC, ecstatic about the positive vibes on the floor at the NYSE.

I had no doubt a couple weeks ago that we were due for a nice rally, and we have already gotten it. Unfortunately, these are pretty common within Bear Markets. The 2000-2003 market shows many of these rallies, more so than the current Bear. But, there are far too many analysts willing to call this month's bottom THE BOTTOM, which suggests to me we may still have some pain to deal with. We may not make a new low, but we certainly will not be surpassing the 2007 highs any time soon.

Let's look at some long range issues. Our interest rates are being MANIPULATED by the Federal Reserve now at artificially low levels, while our government adds to our national debt at an alarming rate. Ultimately, this WILL result in significant inflationary problems as the Dollar will get pounded, and we will no doubt see higher personal and corporate taxes to pay for all this largesse.

Generally speaking, the current time period is more similar to the 1966-1982 period that involved an unpopular war, energy troubles, and rising debt. Until the Dow broke out above 1000 for good in 1982, it traded in a sideways pattern with several Bear markets in between. Unfortunately, our issues now seem to be worse.

Yes, we will likely see some recovery down the road, maybe even later this year. But, don't expect a raging bull market to be the result. What is going on in Washington right now will hamstring American business and the economy for years to come.

With all this in mind, stay nimble. There will be stocks that are capable of making nice moves in this environment, and we will keep you posted about those opportunities!

Scott Cole
www.theultimatestocktradingsystem.com

Stocks set for Sharp Rally at Open

U.S. stocks are set to rally sharply this morning after Treasury Secretary Geithner released more details regarding his plan to deal with the toxic asset issue. As I write this early Monday morning, S&P futures are up 20 points, or well over 2%.

Stay tuned!

Scott Cole
www.theultimatestocktradingsystem.com

The Week Ahead in Stocks

At the end of last week we had a modest pullback in the U.S. stock market after a couple weeks worth of big gains that saw the major averages rise over 15% from their recent lows. We saw the big follow through day we wanted to see that confirmed the recent rally may have some legs. This is no guarantee that the rally is sustainable, but major rallies do not start without that follow through day.

Now, we will see if the rally can hold. I suspect we will have a bit more pullback early this week, and then we'll if the market can break through last week's highs. A lot depends upon what comes out of Washington, as Congress begins debate on the Obama budget. Friday's release of the Congressional Budget Office's forecast of economic growth and budget deficits suggests that Obama's grand plans may need to be scaled back quite a bit, as moderate Democrats, particularly those elected in more conservative districts, worry about their re-election prospects in 2010. With that in mind, keep an eye on the rhetoric out of Washington, as it may have an impact on the markets.

The bottom line is that the markets were deeply oversold, and the market was way overdue for some kind of a rally. Short covering was clearly the primary driver in the market's rally over the last couple weeks, as there really has not been any very positive economic news. However, I think it is interesting that, since the Fed announced its plan to start buying hundreds of billions of dollars worth of Treasury securities in an effort to but a ceiling on interest rates, the market has traded lower. In my view, this is an artificial propping up of the Treasury markets, that, when combined with the incredible amount of fiscal spending and other Treasury spending in the last six months, can only lead to inflation down the road. Well, that is how the Dollar reacted anyway!

The Dollar Index crashed to two month lows before rallying modestly on Friday. It was pointed out by an analyst on Bloomberg that the currencies in countries where quantitative easing has been utilized to help stimulate economic recovery have been the currencies being sold. This includes the Dollar, Swiss Franc and British Pound. Currencies such as the Euro and Australian Dollar have benefited as a result. As a result, both of those currencies made solid breakouts in the last few days. However, overall, I am not yet convinced these currencies have much greater upside potential in the near term. They likely need to consolidate a bit at these current levels.

We also noted a rise in commodity prices this week, as traders are betting on a combination of economic recovery, inflationary risks, and adjustments in the supply of these commodities to match up with current demand. Commodity prices were another bubble that burst last year, and their declines have in many cases been steeper than the stock market declines. Now, however, we have seen some of these commodities form a nice base and begin to rally. Crude Oil and Copper come to mind. Some agricultural markets, such as Corn and Soybeans, have also staged nice rallies in the last couple weeks. These markets will not shoot straight up like they have in recent years, but could provide nice, tradable rallies in the coming months.

Scott Cole
www.theultimatestocktradingsystem.com

Stocks decline after big 2 day rally

U.S. stocks pulled back after two days of big gains, as traders booked some profits in a market that had risen 17% in just a couple of weeks. Although there may have been some skepticism today regarding the Fed's plan to buy Treasuries, the bottom line is that the market is due for a break and there is a good bit of overhead resistance above 800 on the S&P 500.

In my view, the plan may help with some of the liquidity issues in the credit markets, but with a weak jobs market, I don't expect a big rally in the housing market any time soon. This mess will take time to solve, and Washington seems reluctant to do anything but throw money at lousy bank, insurance and auto businesses. Dealing with the bad mortgage securities will also help allow the banks to lend money again, which could help small businesses. Still, with such huge job losses in the last year, and more likely to come, this economy will not be turning quickly.

Yesterday, I commented on how Gold had closed below $900...however in the electronic session shortly after the Fed announcement, Gold surged, and today closed up over $950. This was clearly in response to the announcement and the perception that it has inflationary repercussions down the road. The Dollar response was a further sharp sell off today, while Treasuries held relatively steady.

Scott Cole
www.theultimatestocktradingsystem.com

Fed Plan Boosts Stocks

Ben Bernanke and the Federal Reserve announced a more aggressive plan to buy Treasury securities and mortgages, sending stock prices up yesterday afternoon, and putting a short-term top in interest rates. This announcement came after a solid up day in stocks the day before, which was the follow through day we had been looking for, signifying this could be a sizable Bear Market rally at the least.

While stocks and Treasuries rallied on the news, the U.S. Dollar plunged, as it is clear the Fed will be running the printing presses at high capacity to pay for its Treasury purchases. Combined with the Obama administrations aggressive budget plans, the long term outlook for U.S. assets may be shaky. For now however, the direction in stocks appears to be to the upside. With that in mind, we will begin to focus attention on the stock market leaders for potential momentum trades. Our Ultimate Stock Trading System has been 100% in cash since October.

In other markets, commodity prices were mixed on the session. It was notable that Gold prices dropped substantially yesterday after the Fed announcement. Gold closed at its lowest price since late January. A head and shoulders top pattern was broken to the downside, and targets a price of under $800 for the precious metal in the next few weeks.

Scott Cole
www.theultimatestocktradingsystem.com

Stocks end week on positive note

U.S. stocks closed modestly higher on Friday, ending with weekly gains not seen since last November. In all of the major averages, we managed to close above last week's high as well, a very positive sign. Another very positive sign is the formation I see on the weekly charts of the Nasdaq and Nasdaq 100 indexes, which suggest a successful test of the November lows may have occurred. We won't know if that is the case until the January highs are taken out, but the price pattern is very attractive. The only problem I see is that volume tailed off this week compared to last week. Therefore, if prices are to go higher, we need to see more volume.

More to come!

Scott Cole
www.theultimatestocktradingsystem.com

Positive Economic and Market Data Boosts Stocks

U.S. stocks rallied nicely today on the back of retail sales data for February was not as bad as expected; GE's credit rating was cut less than expected; Bank of America indicates it has been profitable so far this year; and GM said it does not need an extra $2 billion loan it thought it may need in March. The result was a big rally on volume that was greater than Wednesday's but less than Tuesday's.

We are now sitting right at some resistance levels in the S&P 500, and it will not surprise me to see the market trade lower on Friday ahead of the weekend, as traders look to book some nice profits for the week. However, it is nice to see some follow through, which suggests this rally has at least some short-term legs. To convince me that this will be a stronger Bear Market rally, we'll need to see another big up day next week.

Scott Cole
www.theultimatestocktradingsystem.com

We Were Due!

We finally got that overdue stock rally we've been looking for! The question now is, will it last? I can tell you with some confidence that Friday's low will hold for a while. Whether this turns out to be just a Bear Market rally, or the beginning of a new Bull Market, only time will tell. In either case, for a significant rally to occur from here, we need to see a nice follow through day in the next week or so. And, we certainly do not want to see a 100+ point down day tomorrow.

Today's rally was sparked by a memo sent out to Citigroup employees that indicated the bank is on pace to make a profit in the current quarter, for the first time since 2007. The market viewed that very positively, as the financials opened strongly to the upside. Later in the day Barney Frank suggested that the uptick rule may be back in place in the near future. I really don't know if that will have much impact or not, but the market seemed to take it as an extra positive.

In any event, the S&P 500 closed up well over 700 today, which was a supposed magic number on the downside. The first area of resistance is in the 740-745 range, which marks the November low. Beyond that, 775-800 will provide significant resistance.

Today's rally in stocks essentially marked the end of the recent uptrend in Gold and Silver, and I am not sure these markets will test their February highs any time soon. Elsewhere, commodities were mixed, with some in agriculture and copper, but crude oil was lower, which was a bit surprising. The Dollar was flat, while Treasuries were a little lower.

Scott Cole
www.theultimatestocktradingsystem.com

Stocks Continue Swoon

U.S. Stocks chopped around for most of the session, before late in the day they once again decided that the path of least resistance was to the downside. Except for the $41 billion merger between Merck and Schering Plough, there was no other news able to support the market.

One disturbing trend I have noticed in recent trading sessions is that the Nasdaq stocks are selling off harder than the Dow and S&P 500. I guess this just could be due to the fact that the financials have gone about as low as they can go. The big bellweather tech stocks, ie, GOOG, AAPL and RIMM are leading the way down, especially Google.

As I mentioned yesterday, I think we are due for a solid bounce, or at least a couple months where the averages trend sideways. With today's down market, the readings on the ADX climbed again, and it will continue to do so, even if the market heads a little higher from here over the next few days. Furthermore, the sentiment is overwhelmingly negative, as another pundit suggested that 600 is the next target level for the S&P 500 and beyond that, 500. 500? Wow, I can remember the first time it broke above that level in 1995! Well, we have quite a ways to go to get down there, although at the rate we are going, and with the continued blundering in Washington, maybe it won't be long until we get down there.

Still, even though we are over due for a bounce, don't run out and buy any stocks yet! You don't have to pick tops and bottoms to make good money. It is the meat in the middle of a trend that will line your pockets, and the trend remains down until further notice.

Elsewhere today, the Dollar made strong gains again, mainly against the British Pound, but all of the major currencies were lower against the Dollar today. Commodities were generally lower today, lead down by Gold, as traders took the opportunity to book some profits after the bounce in the metal at the end of last week. Treasuries were modestly weaker on the session.

Scott Cole
www.theultimatestocktradingsystem.com

Stocks End Week on Down Note, Gold Surges

U.S. stocks closed lower on Friday in a relatively volatile session as traders expressed little confidence in the Obama administrations current plans to turn around the economy, financial system and real estate market. In the afternoon, the Dow was down over 200 points shortly after Senator Dodd suggested that some banks may face nationalization. A while later, the administration indicated that this is not on the table presently, and this sparked a rally that allowed the Dow to crawl all the way back to breakeven. However, the weight of the market fell on itself in the last hour, and the Dow closed lower by 100 points.

The Dow and the Russell 2000 were the weakest of the major averages I follow. The Nasdaq 100, lead by big cap tech stocks, actually finished higher. In the face of recent leg down, I've been impressed by the ability of Google and a few other tech stocks to hold up during the current downtrend.

So far, it is clear that traders and investors are not convinced that the Obama stimulus plan, the Obama housing plan, and the Geithner TARP plan will lead to a rebound in the economy anytime soon. Most traders, particularly those in the bond pits, revile the current plans as hints of socialism. No one is confident in the governments ability to run a bank, since our government (and most for that matter) is incapable of balancing its own check book. Traders also do not like the idea of limited pay for executives in banks that receive TARP money. The premise there being that such a bank will be unable to attract top talent, talent needed to turn around a bank in financial difficulty.

So, we head into another week with Main Street sentiment quite low, and Wall Street sentiment still anticipating that a sharp rally is imminent. As such, it is my view that until we start seeing some positive news, or less negative news, the market will continue to leak oil, SLOWLY. The trend is down, so if you are short the market, stay that way until the market tells you that the path of least resistance is no longer to the downside.

In other markets, Gold and Silver once again surged to new highs, as these are basically the two new world currencies. These markets are both extended, and a few people are calling for much higher prices down the road, but these views are balanced out by those that feel the stock market is due for a rally. Most other commodities were flat to lower on Friday. Treasuries managed to rally in the face of a weak stock market. There was some volatility in the Forex markets in the afternoon, reflecting the Dodd comments and the White House comments. Overall, the Dollar was lower on the day.

Look for more announcements out of Washington over the weekend or early next week as the government attempts to calm fears. At the moment though, unless something big comes out of DC, the market will continue to head lower.

Scott Cole

New Bear Market Lows for Dow 30 Stocks

Well, the market did not have a wild ride today. There were no sirens going off when the Dow penetrated the November lows, and closed at a new closing low for this Bear Market. This is not the kind of successful test you typically see when a market wants to reverse a downtrend. The analysts on CNBC are convinced you should be buying stocks at these levels (except for Art Cashin). They all talk about dollar cost averaging, and that missing the first big rally of a new bull market will cost you 30%. Utter nonsense. Most people don't invest in the averages and such. Successful traders and investors will trade individual stocks, and they know it is smart to stay patient.

The stock market is leaking oil, slowly. These are the kind of trends that tend to persist a while, and they will kill those traders that keep trying to pick a bottom, even when prices seem low. Richard Dennis once said he lost more money trying to buy Sugar when it was trading under 5 cents than he did on lots of other trades.

A long time ago, in my first foray into futures trading, utilizing the Turtle system, I had shorted cattle and hogs. Normally, these are not the best trending markets. But, I got lucky, and shorted a couple downside breakouts in these markets. After they had gone my way for a week or so, my broker called me up, since I was basically a newbie, and said I should cover, and go long, since both were now cheap. Fortunately, I didn't listen, and those markets kept declining. Finally, they accelerated to the downside, then spiked up and that was the end of the downtrend. I made $6,000 on those positions with a $10,000 account.

The point is, the market is still in a downtrend, and volatility has shrunk quite a bit. Until it tells me otherwise, the direction will continue to be down. The first sign that the market will stop going down and try to turn higher is when we have a big day to the upside on heavy volume, or a big key reversal day. Within a week after that day, we will need to see a big follow through day to the upside. The market has attempted this scenario, and failed, but a new bull market will not start without this occurring.

Scott Cole

Stock Market Vote on Stimulus Package is NO!

U.S. Stock market traders voiced their opinion on the stimulus package signed by President Obama today, and that answer was a resounding NO! The major averages dropped about 4% today, and it was notable that the Dow Jones Transports broke through their November lows. The Dow Industrials barely closed above its November closing low, and it hovers just over 1% above its intraday lows. The other major averages, due to the outperformance of tech and biotech stocks in the last couple months, remain a bit above their November lows, but have broken through support levels that should at least carry them down to the November lows.

As stocks continued to trend lower, their was a flight to quality into Gold, Treasuries and the Dollar. 10 Year Treasury yields were down to 2.65%, down about 30 basis points from their recent highs. I have also noted that the spread between the 10 Year Note and 30 Year Mortgage rates has narrowed to about 200 basis points. This may help to put a floor under real estate prices. However, we still need to end the job losses if we want to see a recovery in real estate.

Aside from Gold and Silver, commodities were sharply lower today, as economic weakness becomes the focus of trading again. Energy prices lead the way lower, and Copper and agricultural commodities were also quite weak.

Tomorrow, Obama is set to unveil is plan to deal with the mortgage issue, and Thursday, Tim Geithner will apparently provide more details regarding the TARP and the banks.

Stay Tuned!

Scott Cole
www.theultimatestocktradingsystem.com
www.kungfutrader.com

You Call This Stimulus?

We now have a few more details regarding the stimulus package that passed through the House and Senate on Friday. After reading some of the general details regarding the package, I am left scratching my head. Where is the stimulus?

Let's start from the top...tax cuts. Whoopdedo! $400 tax credit for individuals and $800 for couples. Wow, that will get me to go right out and buy a new...um, mini-cam? In 2010, it looks like this tax credit may be spread out through the entire year. That will be $7.70 per week. Yay, I can buy a few more beers each week!

The $1,000 child tax credit will be extended to folks that pay no income taxes. In other words, have some free money! First time home buyers get an $8,000 tax credit, and people buying new cars can write off the sales taxes. Ummmm...when we are losing 500,000 jobs each month, who is going to be buying a new house or car?

A good bit of the stimulus will be going to schools and education. Ok, that will help some teachers keep their jobs, and help some students go to college. How exactly does that stimulate the economy and create NEW jobs?

About $38 billion will go to improving our infrastructure. Here in PA, we could probably use that entire figure to fix our crappy highways. Nonetheless, this is the first item that helps create some jobs, but it is a drop in the bucket. Consider this....when you lose 500,000 jobs each month, and each of those jobs pays an average of $30,000, that is a loss of $15 billion in annual income. Unfortunately, most of the jobs being lost are paying a lot more than $30,000!

$42 billion in energy related investments....some of this goes to creating new energy sources, such as wind turbines and next generation batteries. Alot goes to providing a 30% tax credit to homeowners who will upgrade their energy systems at home, up to $1,500. Ok, the problem is, most homeowners are leaking red ink all over the place, and simply can not afford more improvements to their home.

Elsewhere, the bill helps the unemployed and poor pay for health insurance and more food stamps.

What I did not see in the bill was any incentives for businesses or individuals who want to create new businesses. And, the bottom line is that there will be tax INCREASES in the years ahead to pay for this spending bill. We also still need to deal with the real estate and financial system issues. Yet, we have a Treasury Secretary that has not offered up a clear cut plan to spend the remaining $350 billion in the TARP to deal with these issues.

The bottom line is that I do not see how this plan provides any renewed confidence that will lead us out of this deep recession. I suspect that the stock market will weigh in with its vote fairly shortly.

Scott Cole
www.theultimatestocktradingsystem.com
www.kungfutrader.com

Jobs Report Indicates More Steep Losses

The January U.S. Employment Report indicated 598,000 jobs were lost in January, with the unemployment rate rising to 7.6%. This was slightly weaker than expected. The December revisisions also came in weaker. Stock index futures are actually bumping up on the news, as there will be more pressure on the government to have a stimulus package ready by early next week.

As I right this, I am noticing that Silver has popped above $13, and Gold is up a little as well. The Dollar is holding steady, and energy prices are weaker. Things can obviously change throughout the day, but all eyes will turn to Washington as Congress continues to debate and craft a stimulus package.

Stay Tuned!

Scott Cole
www.theultimatestocktradingsystem.com

Stocks Rally Ahead of Friday Employment Report

U.S. Stocks bounced to the upside on Thursday, and with a little bit of extra volume. A diverse group of industries lead the way higher, as it appears traders and fund managers are doing some bottom picking. Resorts and Casinos was the big mover of the day, followed by Northeast Regional Banks and Apparel Stores.

However, ahead of Friday's employment report, I would not want to take any significant long positions. Today's jobless claims figures leaped to over 600,000 new claims for the latest week, a sign that job losses may even be accelerating in February.

I think traders were betting that the Senate is close to some sort of deal on the stimulus package. That all depends on whether the Democrats want to pass a bill with help from the Republicans, and how much Republicans are willing to compromise. To me, it does not sound like there is enough cutting of the pork in the bill sent up from the House. From what I have heard so far, the bill in its current form probably won't create enough jobs to offset three months worth of declines at the rate we are going presently.

On the sentiment front, I am seeing too many analysts on CNBC come on and say we were in a bottoming process. I hardly hear anyone say we will see another leg down in this market. The CNBC crew was pointing out a steepening in the yield curve, as if that is a sign the economy is ready to bounce. Seems to me, it just may be that China may be selling our debt at a huge profit. Otherwise, there is virtually no reason for the credit markets to indicate that the economy is going to strengthen any time soon.

In the Forex markets today, the Japanese Yen took it on the chin. The Yen is now trading at a three week low against the Dollar. The Dollar also gained a bit against the Euro. The Australian Dollar jumped up against the Dollar today, while the Pound appears to be continuing to stabilize.

Commodity prices were on the rise today across the board. Energies, precious metals and many of the agricultural markets were up today.

Keep an eye on the Employment report Friday!

Scott Cole

Stocks Enjoy Nice Gains on Tuesday

The U.S. Stock Market got a boost from some decent housing data this morning. As a result, it was able to maintain a decent uptrend for much of the day into the close. New building permits and mortgage applications showed a nice rise in the latest month. We've now seen a couple different data series showing some positive signs in the latest reporting period for housing. If we can maintain this current trend, it should ultimately help the stocks market.

Not surprisingly, residential construction was among the top performing industry groups today. The leading group was Toys and Hobby stores, which has been a strong performer of late. Industrial cyclicals such as copper, aluminum, railroads and freight also enjoyed nice gains today.

We've got some stocks making new highs today after breaking out from lengthy bases in the last month or so. Education related stocks such as ESI and COCO are among these. A couple other stocks in other industries are doing well also. We still need some confirmation from the overall market before considering it a safe time to buy any high momentum stocks.

While some money found its way into the stock market, it continues to flow out of Treasuries. Yields on 10 Year Notes traded over 2.8% today, and it was also notable that yields on short term Treasury Bills have also popped up a bit this week. Now we will have to see how much mortgage rates go up. If they can hold steady, it may signal that banks are more willing to lend.

The Dollar lost ground against most major currencies today, although it held relatively steady against the Yen. The Euro and Australian Dollar were among the big winners today. As money flowed out of the Dollar, it also flowed out of Gold today, which was down sharply. Silver did not drop as much, since it has some industrial usage. Other commodities were flat to lower today.

Scott Cole
www.theultimatestocktradingsystem.com
www.kungfutrader.com

Stocks end January on Down Note

Stocks closed lower on Friday as traders were disappointed over the governments apparent confusion on how to deal with the ongoing banking crisis. The 4th quarter GDP figures came in slightly better than expected, but that was likely due to a build in inventories rather than consumption. Ultimately, the Dow Jones Industrial Average closed nearly 10% below its close at the end of December, making this one of the worst Januarys on record. A weak January tends to indicate that the remainder of the year will be weak, but of course that is not set in stone.

Bottom line is that until we see improvement in the jobs figures and real estate, the economy will be weak, and I can't see the stock market moving very high from here. At best, we are stuck in a between 7,500 and 9,100 on the Dow, and at worst, we begin a new, painful leg down.

One thing worth mentioning is that I am noting more commercial and investment real estate being assigned to the "special assets" division of some of the banks I deal with. This means that the banks are trying to figure out how to deal with an underperforming property, and typically, that means foreclosure. That is somewhat interesting since as of late, the REITs have been among the best performing industry groups when the market manages to move higher.

More to come on the weekend.

Scott Cole
www.theultimatestocktradingsystem.com
www.kungfutrader.com

Stocks Give Back Yesterday's Gains

U.S. Stocks closed below Wednesday's lows today as traders appear to have rejected the House Democrats' stimulus package. Some weak economic data also contributed to the decline. Overall, it was just a weak day, and all one can do is chalk it up to the Bear Market. Tomorrow's GDP report may not have much affect on the market tomorrow, since earnings reports are already reflecting what happened in the 4th quarter. Next week's employment report will have a much greater impact on the market going forward. The bottom line is that it is still all about jobs and real estate.

Market leaders on the upside today were the precious metals, as money flowed back into gold and silver out of the Euro. The Dollar Index was up on the day, with most of its strength coming against the Euro. It looks like the British Pound is trying hard to stabilize at these levels, but it may need to re-test its recent lows before attempting any move higher from here.

Treasuries weakened considerably again today, as yields rose across the entire curve. I had heard it mentioned on CNBC that this would be a positive sign for the stock market. But, with weak Treasury prices and weak stocks, the best place to be appears to be gold and silver. Since governments and financial institutions can't seem to get their act together, the precious metals appear to be the safest bet for now.

I will say that if interest rates are unable to stabilize soon, the real estate market will be unable to recover. I had a conversation with a client over the weekend. They were desperate to lock in a previously negotiated interest rate for a commercial loan and had a deadline to meet early this week. If they could not meet the deadline, the rates had gone up too much to keep the deal together.

Over the last several weeks, interest rates on 10 Year Treasuries have risen about 70 basis points. Mortgages are tied closely to these rates, but the spreads are currently historically wide. As a result, even though these Treasury yields are quite low, the mortgage rates are nowhere near as low as they would have been a few years ago with these same rates. Investors and home buyers will continue to put off purchases as long as financing remains difficult.

Scott Cole
www.theultimatestocktradingsystem.com
www.kungfutrader.com

Stock Market Rally May Have Legs

Today's rally in the stock market was quite impressive. All the major averages were up over 3%, and they all broke through some initial resistance levels. Volume increased significantly over the last few trading days, and the breadth readings were very strong. Considering that the market was set up perfectly to go lower after some weak rallies, today's price action was quite impressive.

Leading the way in today's rally was the banking sector. President Obama's plan to potentially allow the FDIC to deal with the bad assets in the banks was clearly met with a positive response from traders. REIT's popped up on the list again as top performing industry groups. I am also impressed by the recent performance in Google shares, which broke out to two month highs today.

In other markets, commodities were generally mixed, Treasuries pulled back, and the Yen was clobbered.

Keep an eye out for that GDP report on Friday before the open!

Scott Cole
www.theultimatestocktradingsystem.com
www.kungfutrader.com

Stocks Post Modest Gains on Light Volume

U.S. Stocks posted modest gains today on lighter volume and within a narrow trading range. Most of the major averages are bumping up against one of my moving averages, and they appear to be setting up for a quick move to the downside. A broad range of industry groups posted gains today, but none of the biggest winners today are among the groups that have performed the best in recent weeks. In fact, it looked like some light bottom fishing in some retail and financial stocks today, but their price patterns look ominous.

At the present time, there is only one stock that meets all of our selection criteria, and that stock is AIPC. If market conditions improve, this will be the first stock we look to buy, if these criteria remain in place.

Scott Cole
www.theultimatestocktradingsystem.com
www.kungfutrader.com

Stocks Make Modest Gains in Light Trading

U.S. Stocks closed modestly higher on Monday on light trade. Trading was a bit of a disappointment today since there was some positive economic news on housing and the Leading Economic Indicators. The LEI actually rose in December, while existing home sales were up over 6% in December, and the supply of homes fell dramatically to just over a 9 month supply from over an 11 month supply. Furthermore, it was reported that Pfizer is acquiring Wyeth in a deal among drug makers.

Early in the day, the Dow was up well over 100 points and the S&P 500 was up over 20 points. Unfortunately, these levels could hold. Furthermore, volume contracted, which is not a good sign for an up day. Now, the price charts show an ominous pattern, one that I love for daytrading, and the market direction appears to be pointing downward for Tuesday. Other news could certainly allow the market to move higher, but this is one set up I like to see on the charts for a nice 1 to 3 day directional move.

In other markets, the Dollar was pounded today as the Euro and British Pound made huge gains against the greenback, recouping some of their losses over the last week. The Dollar held steady against the Yen. Treasuries were basically unchanged to slightly lower in price today, resulting in modestly higher yields. Commodity prices were mixed today, with some strength in metals and soft commodities, while energies stalled out.

Scott Cole
www.theultimatestocktradingsystem.com
www.kungfutrader.com

Stocks Rally on IBM Earnings Report

U.S. Stocks were given a lift by IBM today, which reported earnings after the close yesterday that were $.25 above estimates for the 4th quarter. IBM also suggested a rosier outlook for 2009. Stocks were called to open a bit higher on the news, but the initial rally began to fade later in the morning. Ultimately, as the Geithner nomination hearing wore on, traders began to feel a bit better, and the market rallied strongly into the close. Financial stocks lead the way, with big gains in Morgan Stanely, JP Morgan and Goldman Sachs. Banks and REITs were among the best performing industry groups today.

The rally in stocks resulted in higher Treasury yields today across the entire curve, as traders further unwound long positions. 30 Year Treasury Bonds closed at one month low prices resulting in the highest yields in a month, over 3%. The Dollar made small gains today, but eased off its highs against the Euro and the British Pound later in the day. The Yen had made new contract highs in the March contract, but pulled well back off its highs by the close of trading.

Commodity prices were mixed today. Energies managed to make modest gains, while lumber prices continued to sink on the back of a report that homebuilders remain very pessimistic about future prospects.

Although it was a good day for stocks, there is much more work to be done before I will be convinced that this rally has any legs. The market still closed below yesterday's highs, and that is the first level of resistance. The market will then need to burst through the early January highs. As we are in earning season, key earnings reports will drive the market until the next big economic reports next month.

Scott Cole
www.theultimatestocktradingsystem.com
www.kungfutrader.com

Stocks Plunge on Obama's Inauguration Day

U.S. stocks followed other markets today, dropping substantially on weak earnings reports coming out of financial companies. An unfortunate start to the Obama presidency, but one clearly out of his control.

A number of statistics were reported on Bloomberg today that clearly point to the underlying problem of this financial mess we are in....it's all about residential real estate. Until the residential real estate market finds stability, these problems will remain. Shoring up the banks with capital from the TARP has proven fruitless. Neil Cavuto reported on FOX that the big banks that have received money from the TARP are worth less now than the money they have received!

And, the fact is, the big banks are not willing to lend on any residential real estate projects. I spoke with a banker today that said his bank wants nothing to do with any residential subdivisions, anywhere. That is probably a sure sign of a bottom in that market. This is the point in time when someone needs to step up and take a risk. As such, I can see that anyone with money to spend at this point in time is looking for opportunities in these markets. Unfortunately, they won't get much financing from the banks.

The mess we are in started with real estate, and will not end until those issues are resolved. Hopefully, the Obama administration will realize that, and some courageous entrepreneurs will begin taking the risks necessary to step into this market.

More to come later.

Scott Cole
www.theultimatestocktradingsystem.com
www.kungfutrader.com

Risk Management - The Key to Profitable Trading

After reading and participating in the investing and trading forums on the internet over the years, I have come to the conclusion that the vast majority of beginning and intermediate investors and traders fail to realize the important role that risk management plays in successful trading.

What I have found over the years is that most questions posed by these new investors and traders are focused on stock selection, stock tips, trading system selection, etc. They are all hoping to catch a few big winners just by scouring the internet for some hot tips. Or, they think there may be a hot trading system out there that will make them a millionaire in no time. Or, if they are focused on short-term trading, they are hoping to learn that one trading system that will give them 90% winners, and profits month after month.

As a result, the financial industry is perfectly willing to capitalize on these attitudes with an endless array of trading systems and books that cater to these desires. The brokerage houses want you to open an account so they can sell you the latest and greatest ideas in the stock market, while padding their accounts with your commissions. The discount brokers will sell you on the idea that you can make big profits just by using their trading platforms and using a couple technical indicators.

And, of course, the biggest fraud is put on by professional money managers, who promise consistent profits to unaware investors. We have just realized the biggest fraud of all, with a potential $50 billion Ponzi scheme run by formerly reputable money manager Bernie Madoff.

Due to his long running reputation on Wall Street, all Madoff had to do was tell his investors it was possible to generate consistent monthly profits and annual returns of 12% without ever suffering through a drawdown. All the while, he was simply soliciting new money to pay off the original and oldest investors. There have been plenty of examples like this, but the Madoff scam is clearly the biggest fraud of all time.

The bottom line is, there is no such thing as the Holy Grail of trading! There is no one trading method or system that will generate huge returns for anyone, year after year. History is wrought with hundreds of examples of trading legends who made it big, then crashed and burned.

The best traders go through periods of underperformance, and they accept this, because they know, that in the long run, their trading methods will provide strong returns. However, they don’t expect to make 100% on their money every year, and they don’t expect to make money every day, every week, or even every month. Very few are capable of such returns, and those that are, will not share their strategies with the public!

Professional traders are also not worried about having a trading system that is right 100% of the time. They know that this is impossible. All they are concerned with is finding an EDGE that, over time, will be profitable. On the other hand, most amateur traders are worried about being RIGHT all the time, rather than being profitable. They can’t stand the thought of having a losing trade. Professional traders know that losing trades are part of the game.

One thing all of the best traders DO have in common, however, is that they know how to manage risk! Because they know that the markets can turn on them at any time, they are more focused on managing the risk in their portfolios, rather than on specific entries and exits in their trading models.

Most amateur traders can not seem to get past the idea that the initial trade entry, or stock selection, is the NOT the most important part of any trading model. It is what you do AFTER you enter a trade that is more important. And even more important than knowing when to exit a position is learning how to manage your risk.

One popular concept in the trading world is the idea of minimizing your risk to 1% or 2% of the equity in your account on any given trade. For example, if you have $100,000 in your account, then you would only risk $1,000 or $2,000 on any particular trade. If you want to buy XYZ stock at $20, and you have determined that you will exit the trade if it goes down to $19, then you will trade no more than 2,000 shares.

This is a good start, but is not the end of managing your risk. You can limit your risk to 1% if you like, but if you do not have the discipline to stick to your trading rules, and you take trades that you should not, you will still lose, and lose quickly! That is just one example of not controlling your risk. The following is a list of do’s and don’ts when it comes to managing risk.

1. Do not over trade. This can mean risking too much on any one position, or trading too much, simply for the thrill. With that in mind, once you have developed the entry and exit rules for your system, STICK to them! Don’t take trades that are not signaled just because you feel the need to trade!

2. Don’t trade markets that are highly correlated at the same time, unless you are doing some sort of spread trade by buying one market and shorting the other. Also beware of markets that are inversely correlated. For instance, if the Japanese Yen is going up while the Nikkei index is going down, don’t buy the Yen and short the Nikkei! You are simply doubling your bet!

3. Don’t add to positions when the markets become more volatile! Some trading systems look to capitalize on long term trends and will pyramid positions to achieve greater profits. Only the skilled trader should attempt this, because normally when trends are in place for a while, the volatility tends to increase.

4. If the volatility in your trading position increases dramatically, consider exiting some of your position.

5. Don’t begin hoping that one position will turn into a big winner. You must check your emotions at the door when you enter your trading room. Never marry yourself to a position. If you have a profitable strategy, it is many trades over time that will bring those profits, not one big winner.

6. Absolutely, positively know where you will exit a position BEFORE you enter a new trade!

7. Absolutely, positively know how you will trail your stops on your positions!

8. If you are having a bad trading day, trading week, or trading month, TAKE A BREAK! When have not taken a break for a long time, our trading judgment can become clouded, and we begin to break Rule #1. Once you find yourself breaking that rule, it is time to step away from the trading desk for a while.

9. If you are on a losing streak, and your equity has declined, reduce your risk!

10. Finally, when you do take some profits, take them out of your trading account and diversify your investments! Even though you may have a diversified portfolio traded by your trading system, you still should invest in completely different markets, such as real estate, bonds, art, commodities, or even another business.

If you can learn how to manage risk properly, you will be on your way to becoming a successful trader and investor.

Scott Cole
www.theultimatestocktradingsystem.com
www.kungfutrader.com

Stock decline steepens on weak economic data

U.S. stocks experienced sharp losses on Wednesday on the back of weak December retail sales data, which suggests that corporate earnings will continue to be downgraded. The major averages all broke through their December lows, and appear to be on their way back down to the November lows. Since it has been a couple of months since those lows were made, the market could be setting up for a more reasonable attempt at a successful re-test. However, that is if the re-test occurs relatively soon. If it takes time to get down to those lows, there would likely be a dead cat bounce, and then a new leg down would surely unfold. At this point, all we can do is wait and see.

Another result of today's release of weak economic data was a rally in the Treasury markets. Five year notes actually made new highs today, while the 10 year notes and 30 year bonds also rallied nicely.

Surprisingly, the Dollar held its own today in spite of the weak data. Commodities also managed to hold their own as well.

Next week may be the day of reckoning for this market as Obama takes office. No matter what though, it will take an awful lot to get this economy headed in the other direction. A lot of money has been lost by both individuals and corporations, and it will take a long time to restructure. In the meantime, it will be the government that needs to step in and provide new jobs, as the corporations and small businesses scale back.

Scott Cole
www.theultimatestocktradingsystem.com
www.kungfutrader.com

Stocks Higher in Quiet Trade

U.S. Stocks closed modestly higher Tuesday in a quiet trading day as traders found little reason to push the market very far in either direction. REIT's were the leaders to the upside today, showing 4% plus gains in this industry group.

The Dollar traded higher across the board today, with most strength against the British Pound, due to some weak economic reports in the UK. The Dollar is attracting more capital as traders continue to bet that economic recovery will come to the U.S. more quickly than elsewhere. The Yen, however, has been the strongest currency due to the higher savings rate in Japan.

Commodity prices were mixed today. Crude oil recovered from weak trading overnight, as gasoline and heating oil traded strongly upward today. Traders are betting that the weekly supply statistics will show drawdowns in these products, particularly in heating oil due to the cold weather hitting the Midwest, and set to hit the east later this week.

If you are a daytrader, the odds are that the market should trade a bit to the upside on Wednesday based upon the 3 to 5 day cycle. However, don't be surprised if the recent weakness reasserts itself after a pause today. With that in mind, use tape indicators to support your trading decision no matter which direction you favor.

Scott Cole
www.theultimatestocktradingsystem.com
www.kungfutrader.com

Stocks and Commodities Slide, Dollar rallies

U.S. stocks continued their early 2009 weakness as prospects for an economic recovery in the first half of the year remain bleak. Traders continued to place bets to the downside as commodities were weak, Treasuries were strong, and the Yen continues to be the strongest currency. It appears as if the markets are setting up for a new leg in the direction of the trends that occurred from September to December.

With this in mind, traders should be very cautious in considering any new long positions in stocks at this point. The market may be due for a slight rally in the next couple of days. After that, watch for a test of the December lows, as it appears that the breakout above the December highs has failed. A break below the December lows will likely result in a new test of the November lows.

In the currency markets, all of the major currencies are within trading ranges against the Dollar. However, a little bit more consolidation should likely be followed by a new breakout to the downside for the Euro, Pound and Swiss Franc. The Yen should test its recent highs against the Dollar, but likely needs more consolidation before a new leg up can begin in earnest.

Commodity markets seem to be renewing their downtrends, lead lower once again by Crude Oil. Not one major commodity posted a worthwhile gain today and many were down sharply.

Scott Cole
www.theultimatestocktradingsystem.com
www.kungfutrader.com

Stocks Tumble on ADP Jobs Report

U.S. Stocks tumbled as the spectre of a deepening recession returned to the economic forefront today, in the form of a weaker than expected ADP jobs report. This report, combined with bearish supply data, also sent the energy markets tumbling, as crude oil tumbled over 10% today. Commodity prices were also weak today, and the Dollar tailed off against the major currencies.

The markets are now worried about the government jobs report due out on Friday. Some economists suggest potential job losses of 750,000 or more for December. However, after today's trading, that figure may already be priced into the market. Any number under 500,000 may actually spark a decent rally.

Yesterday I mentioned that one stock that has the characteristics defined by our Ultimate Stock Trading System broke out to new highs yesterday. We also mentioned that this is a time to be very cautious, and today's market confirmed that. This particular stock sold off significantly today, and would have caused initial stop losses to be triggered.

This brings up an issue with timing when it comes to trading high momentum stocks. We are clearly entrenched in a market that still can be characterized as a bear market. With that in mind, the best time to buy a stock that may try to break out to new highs is AFTER the overall market has pulled back. In the last couple weeks, the market has had an upward bias, and was likely due for a pull back. This will then provide a better opportunity to purchase an Ultimate Stock.

Scott Cole
www.theultimatestocktradingsystem.com

Stocks Stage Modest Rally

U.S. stocks managed solid gains today, lead higher by the Nasdaq as far as the major averages are concerned. In regard to industry groups, the REITS and commodities showed significant strength today.

We also had our first breakout in months in a legitimate Ultimate Stock, but there are no other stocks that have the characteristics required by our Ultimate Stock Trading System at this time. At this time, followers of our system are advised to trade very cautiously, as we still must characterize this existing rally as a bear market rally.

For those traders that are seeking daytrades to the long side, the market is presenting much better opportunities to trade strategies that capitalize on large daily directional moves. Our daytrading system trades an opening range breakout type of strategy. A couple of today's big winners included WBD and WDC.

In other markets, the Dollar continued to make gains against the Euro and Yen, while the Pound seems to be putting in a solid bottom against most currencies. The Aussie$ and Canadian $ also showed more strength today.

Most commodities showed strength today as well. This likely explains the strength in the Canadian$ and Aussie$ today, and in the last month. It is interesting to see commodities and the Dollar rally in tandem, along with the stock market. Although many analysts appearing on CNBC do not see immediate economic recovery, the markets seem to be indicating a recovery appearing earlier in 2009.

Stay tuned!

Scott Cole
www.theultimatestocktradingsystem.com

Stocks Decline in Dull Trade, Dollar Rallies

U.S. Stocks fell modestly in a slow trading day on Monday, the first "normal" trading day of 2009. Today's trading range in all of the averages was very narrow as volatility continues to contract.

Today's trading activity suggested a hint at a more positive outlook on the economy by some traders. The Dollar rallied sharply against the Euro as Treasury prices plunged. The 10 Year Treasury yield has jumped from a recent low of under 2.1% to the 2.5% level. This has buoyed the Dollar against the Euro and the Yen, which have also weakened against the Canadian $, Aussie $ and the British Pound as of late. The Pound continues to be the weakest currency of the major currencies, but may be putting in a solid bottom at current levels against the Dollar.

The other indicators suggesting a more positive outlook on the economy is in the sector analysis. The strongest industry group today was the resorts and casinos group, up over 10% on the day. Residential construction was also up sharply today, and, in spite of the strength in the Dollar, the energy sector continued to rally. Crude Oil prices approached $50 again today, and held above a recently penetrated downtrend line, dating back to early November. If it is able to penetrate the December 10 high, watch for a rally up to the $60 level.

Ahead this week is the release of the December Employment Report. Any sort of improvement in the data will be very welcome news. After the release of the November report, the market managed to hold its lows and has traded a bit higher since.

In regard to our Ultimate Stock Trading System, the list of potential high momentum stock trades remains small, as the market will need to make a bit of progress to the upside, or at least continue to consolidate above the lows for a few more months before many stocks will be capable of producing big gains to the upside. We are noticing some nice breakouts to the upside in a number of stocks, however, most of these can not be deemed new bull moves in these issues since they are so far below their 52 week highs.

Stay Tuned!

Scott Cole
www.theultimatestocktradingsystem.com

Stock Market Off To Good Start For 2009

The stock market enjoyed a nice rally on the first trading of 2009 Friday. The Dow closed above 9000 for the first time since December 8th, and has broken out to a six week high. In fact, all of the major averages closed at new highs since the late November lows. The only negative to Friday's trading was the light volume, which was to be expected. We'll need to see some follow through next week on heavier volume to get more confidence in this rally.

In other markets, Treasury prices sold off sharply on Friday, breaking some minor technical levels. It appears that at the very least, a near term top is in for these markets, as yields have dropped to unattractive levels compared to equities.

Some of the money flowing out of Treasuries also appears to have found its way back into commodities as of late, especially the energies. The February crude oil contract has rallied over $10 in the last week of trading. Precious metals and some agricultural contracts have also managed to rally in the last week. Watch for continued strength in commodities and weakness in Treasuries if the stock market continues to rally.

Scott Cole
www.theultimatestocktradingsystem.com