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
Monday, April 20, 2009
Sunday, April 19, 2009
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
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
Wednesday, April 1, 2009
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
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
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