US - Market Direction 01 (May 08 - Jul 08)

[millionairemind]

W - I originally posted this in the US Economic News but decided to post this here too cos' it might impact the direction of the market more than we expect.

Get ready for Round 2 of thrashing... perhaps the SHORTISTS on NYSE know something we don't.

The one year credit default swap premiums for the investment banks are increasing very sharply in the last 3 weeks.... Buckle your seat belts for another wild ride..

http://www.economist.com/finance/displa ... d=11504792

Recovery? What recovery?
Jun 5th 2008
From The Economist print edition

The credit crunch looks far from over

Illustration by Satoshi KambayashiIN MAY many investors took comfort in the view that the worst of the credit crisis may be over. But, as in 1939-40, says one hedge-fund manager, it was just “the phoney war. The tanks are about to roll into France.”

The gunners have certainly had plenty to aim at this week. Whether it was the downgrading of investment-bank debt, the purging of top brass at Wachovia and Washington Mutual, two large American banks, or the reconfigured rights issue at Bradford & Bingley, a troubled British mortgage lender, the news on both sides of the Atlantic has been grim.

Many hoped that the Bear Stearns bail-out in mid-March would prove the climactic event of the subprime crisis. After all, it seemed to imply that the Federal Reserve was standing behind the banks to prevent any systemic collapse. The cost of insuring banks against credit defaults fell sharply. But that trend reached its limit in mid-May and since then, according to one index, the price of insuring against default has risen by more than a third.

In any case, stockmarket movements suggest that bank shareholders were far less enthused by the Bear Stearns news. That is partly because investors fear the banks will have to follow Bradford & Bingley and Royal Bank of Scotland, a big British bank, and tap shareholders for additional capital.

Another sign of strain is the gap between money-market rates and official rates, which is still much wider than the historical average. Matt King, a strategist at Citigroup, says that this is not so much the banks' fear for the health of their competitors, as their reluctance to lend altogether.

Ever since last summer, the cost of funding for banks in the bond market has been higher than the cost of borrowing by non-financial companies. That makes bank lending unprofitable. In addition, the breakdown of the securitisation market makes it hard to get rid of loans. Worst of all, a forthcoming accounting change known as FAS 140 may force banks to take previous securitisations back onto their books; Mr King reckons some $5 trillion of assets will return to banks' balance sheets.

There has been, as yet, not much sign of a slowdown in lending. But that is because borrowers are taking advantage of the loan commitments made by banks during the boom years; some $6 trillion of these are still to be drawn down, double the level of five years ago. When it comes to new loans, the trend is clear. Surveys in both Europe and America show that banks are tightening their standards. In Britain the number of home mortgages taken out in April was just 58,000, down from 73,000 at the start of the year; in the euro zone bank lending to households is rising at its slowest rate since 2001.

The squeeze comes at an awkward time for consumers, hit as they have been by rising food and fuel prices and by (in America, at least) a softening labour market. Measures of consumer confidence have fallen sharply, although actual spending has not yet weakened to the same extent.

But consumer-default rates have started to climb sharply, as Bradford & Bingley's results revealed. And there will be write-offs on business loans as the year goes on. This bad news may already be reflected in the general level of corporate-debt spreads. But specific failures will still come as a nasty surprise to investors and institutions, and add to the malaise.

Of enduring concern are the monoline insurers, the institutions that agreed to guarantee some classes of debt against default. On June 4th Moody's, a rating agency, said it was thinking again about downgrading the AAA ratings of MBIA and Ambac, two of the main monolines. The pessimists (who are betting on a further fall in the price of the shares) reckon their losses on subprime-related debt will turn out to be many times bigger than the monolines' present capital.

If the theme of last year was turmoil in financial services, then 2008 could be the year when financial stress goes on to harm the economy. And it is not too fanciful to imagine a vicious circle: as the economic downturn causes more financial pain, so confidence will crumble further.

It seems far too early to say the financial world has seen “the beginning of the end” of the credit crunch. Indeed, the rest of Winston Churchill's quote about the progress of the war may even be too optimistic. The world may not even have seen “the end of the beginning”.

[winston]

Support and Resistance


NASDAQ: Closed at 2474.56


Resistance:
March 2008 trendline at 2476
2500 from interim August lows.
The 200 day SMA at 2514
2540 from November 2007 low
2552 is the May high
2576 represents a range of interim peaks and troughs from May 2007 into December 2007. At least 8 in that period.
2618 from a June 2207 peak.
2624 is an old trendline from summer 2004/summer 2005
2668 to 2673 from November/December 2007 interim peaks
2720 (July 2007 peak), 2724 (December 2007 peak) are key resistance points

Support:
2451 is the August closing low
The 50 day EMA at 2442
2419 is the January 2008 peak and the early February peak
2392 is the April 2008 peak
2386 is the August intraday low
2378 is the mid-February peak; 2379 from the October 2006 peak
2370 from the April 2006 peak
The 90 day SMA at 2367
2340 from the March 2007 low
2315 is the trendline from the summer 2004/July 2006 lows, Q4 2005 consolidation


S&P 500: Closed at 1360.68


Resistance:
1370 is the August 2007 intraday low
1374 is the March 2007 closing low
The 50 day EMA at 1385
1387 is the April 2008 intraday high
1396 is the February 2008 peak
1406 is the August and November 2007 closing low
The 200 day SMA at 1424
1432 is a longer term trendline from the August 2003/September 2004 lows
1433 from a pair of August 2007 lows and December mid-month intraday low
1446 from the December low
1460 is the February 2007 peak
1481 represents several peaks and lows ranging from April 2007

Support:
1340 is an ancient trendline
1324 is the April low
1317 from the February low
1270 is the January low
1257 is the March low


Dow: Closed at 12,209.81


Resistance:
12,250 from late March 2007 lows
12,518 is the August intraday low
The 90 day SMA at 12,522
12,573 is the mid-February high
The 50 day EMA at 12,640
12,743 is the November low
12,750 to 12,768 is the February 2008 peak and a series of lows and highs from August 2007
12,786 is the February 2007 peak
12,845 is the August closing low
The 200 day SMA at 12,970
13,092 is the December 2007 intraday low
13,133 is the May 2008 high
13,250 from price points in second half of 2007
13,563 is the late December peak
13,780 is the early December 2007 peak

Support:
12,070 from the early February 2008 lows
12,050 from the March 2007
11,731 is the March 2008 low
11,670 is the May 2006 intraday high; 11,642 closing
11,634 is the January intraday low

[winston]

MONDAY by Investment House

Black Monday? Give me a break. It will be what it will be, and you can bet oil will play the key role. We will watch this weekend to see what the geopolitical climate holds (Israel/Iran and whatever else arises) and what our fearless leaders in Congress, the administration, and the Fed say. Maybe some mitigation of the tensions that helped trigger the spike on Friday and the late panic selling in stocks. Maybe not.

Whatever the case, oil will have to drop a long way to make a difference. It has to get below 120, over 18 clicks from the Friday close. Not counting on that right away. We said two weeks back that either oil would go lower or the market. Oil started but it was just a feint, at least on this move. After a duck lower and the market's jump higher, they did their version of trading spaces and reversed roles.

Now it looks as if the market is going to head lower. The economy is already weak, and this is piling on. It simply cannot withstand this kind of surge in prices. Filled up all my fuel tanks after the close (vehicles, four wheelers, boat, Gator, all fuel tanks) and had to loan a neighbor $66 and change for 14 gallons of diesel (she forgot her purse). Prices are projected to rise 15 cents/gallon or so this weekend as a result of the Friday spike. More of that $150B in stimulus will be burned in the fuel tank. That is not going to create any jobs or jumpstart us out of recession.

Near term even a drop in price won't forestall near term pain. Oil was making the drop you wanted to see, but it held the trendline and surged with a vengeance. Now we can say this: as a trend ages, the moves become more volatile. Teach this all the time in my seminars. The first bounces after a breakout are nice and even and nice and orderly. As the run ages and starts to peak, however, the up and down moves get more volatile.

That is a sign the move needs to correct back, rest, and try to reload. This last move would certainly qualify as volatile. Violently so I would say. Still in a classic uptrend, but with the massive volume (and we thought the volume a week ago was massive) and ballistic trajectory of the move you have to be thinking about a blowoff top. The beauty of that is the fall can occur quite rapidly, and that is what the economy needs: rapid rise, then a stomach dropping plunge.

Blow off tops, by the way, can result in a 50% reduction in price. Wouldn't that be sweet? Too good to be true, but while exploring a possibility let's take one to the extreme and smile for a minute. A blow off could produce that fall below 120, however, and that would put oil looking at a test of 100. That would be nirvana compared to where it is now.

The weekend could make a bit of difference as noted. The SPRO could be opened, providing a temporary respite, a bit of a rah-rah, B-12 injection to confidence. If there is no change to how things were left Friday, then Monday could very likely start downside once more as more try to get out of positions given that there was no weekend change. Unless there is a reversal and relatively quick collapse in oil prices, however, we fear there is a lot more downside driven by oil prices that finally hit the choke point for the economy.

That means if we do get a respite to start the week we will look at using that to lighten some upside positions and prepare to play some downside as SP500 and DJ30 reach up toward the breakdown point in a relief bounce. Many of our positions held up quite well Friday considering the bloodletting in the market, though in one day they are down to testing support, not the kind of orderly pullback you like to see.

Nonetheless, if they were holding support we left them alone for the most part as there was some fear selling in the afternoon. If they were breaking support we sold them; may rebound but with the floor broken out and a lot of downside momentum we did not want to ride them lower.

The character with respect to the growth indices that were performing well started to change Friday. They did not break down but a breakout was derailed and they are now in position of needing to prove once more they can rally. With oil spiking that is going to be a heavy burden and thus we have to protect positions that are unable to hold support.

If there is a gap lower Monday it is best to let the initial drop run its course and see if there is a concerted effort to buy the dip. If so, those stocks that held near support and remain in solid patterns are potential upside buys for the bounce move. Those that break down are potential downside plays as they bounce and stall at resistance.

If our positions do the same that is when it is time to close them. Unless oil breaks down after this spike we are assuming the character changed with respect to most of the market though we will watch the growth indices closely to see if they hold up and shake off the Friday blitzkrieg. The action was not good Friday and we have a suspicion oil has choked off the economic recovery attempt, but the market tells the final tale, so we will see how the growth indices hold up as the trades start this week.

[winston]

Bulls versus Bears:

This is a reading of the number of bullish investment advisors versus bearish advisors. The reason you look at this is that it gives you an idea of how bullish investors are. If they are too bullish then everyone is in the market and it is heading for a top: if everyone wants to be in the market then all the money is in and there is no more new cash to drive it higher.

On the other side of the spectrum if there are a lot of bears then there is a lot of cash on the sideline, and as the market rallies it drags that cash in as the bears give in. That cash provides the market the fuel to move higher. If bears are low it is the same as a lot of bulls: everyone is in and the market doesn't have the cash to drive it higher.

Bulls: 44.8%. Despite the prior week's selling and the weak rebound, bulls surged higher from 37.9%. that quick drop lower from 47.3% the prior week seems to have evaporated. Did its job, however, as the market broke sharply higher. That quick decline occurred after a string of steady gains: 44.4%, 40.9%, 39.1% and 37.8% where it held for a few weeks.

Fell to 30.9% in mid-March as the low. The indicator did its job with the dive below 35% and the crossover with the bears. The bulls and bears were eye to eye in mid-February and have crossed. A move into the lower 40's is a decline of significance. A move to 35% is a bullish indicator. This is smashing that. For reference it bottomed in the summer 2006, the last major round of selling ahead of this 2007 top, near 36%, and 35% is considered bullish.

Bears: 31.1%. Bears fell but not nearly as dramatically as bulls (32.2% the prior week). This after a couple of weeks of surprising gains as the market bounced. Up from 30.8% the week before and 29.9% the prior week. During that strong three of four weeks saw bears rise. As with the bulls the jump in bears did its job after hitting 44.7% in the third week of March that was up from an already freakishly strong 43.3% the week before. That was a surge from an already high 36.6% the prior week. Up sharply from a low of 19.6% on the last rally.

It is over 30% and indeed over 35% the prior week, meaning it has blown past the range that means business. Big move after falling to a low of 19.6% on this round. Bearishness peaked at 37.4% in September 2007. It topped the June 2006 peak (36%) on that run. That June peak eclipsed the March 2006 high (33%) and well above the 2005 highs that spawned new rallies (30% in May 2005, 29.2% in October 2005). This is a huge turn, unlike any seen in recent history.

[kennynah]

i quite like this article....tks w

[kennynah]

CRITICAL DJIA SUPPORT not too far off current level

let's start off this week, by having a quick review of the DJIA.... a quick recap of how major indexes performed last Fri, see this hyperlink... viewtopic.php?f=11&t=46&st=0&sk=t&sd=a&start=130

All these while, we have been discussing (or rather, feels like i lohso-ing ) the rather micro-gyrations on a daily basis.

This below chart should offer a borader perspective of DJIA's current position vis-a-vis 1.5 years of Weekly Data....

In particular, I like to highlight where I think a major SUPPORT line maybe... (i am not qualified CFA, CPF, CDE, CTH, CBD, CCB, or anything like that...), so, please perform your due diligence... I merely wanted to highlight and hopefully get your inputs..on whether i am way off any sense, or we concur...just like that....ok?

[millionairemind]

We all have to make our own individual decisions about our portfolio.

If the trend is whipsawing, one might consider to stay in full cash first..

Buy Stocks as Investors 'Misread' Jobs, JPMorgan Says
By Michael Patterson

June 6 (Bloomberg) -- The biggest rise in the unemployment rate since 1986 is an "aberration'' and investors who sold equities today are "completely misreading'' the outlook for economic growth, according to JPMorgan Chase & Co.

The Dow Jones Industrial Average fell as much as 412 points today after the Labor Department said the jobless rate increased by half a percentage point to 5.5 percent, the highest since October 2004, as an influx of students into the workforce drove the biggest jump in teenage unemployment since at least 1948.

"The surge in unemployment is probably an aberration,'' Thomas J. Lee, the New York-based chief U.S. equity strategist at JPMorgan, said in an interview. "It's not because there were fewer jobs, it's because there were more people looking for jobs. Stocks are completely misreading the situation.''

Lee, 39, wrote in an e-mail that "stocks should be up'' after the report, which also showed payrolls fell by 49,000 in May, a smaller decline than economists surveyed by Bloomberg News had forecast. The strategist said the Dow industrials posted a 30 percent average gain in the 12 months following a jump in the unemployment rate by half a point or more since 1950. A rise in joblessness of that magnitude has occurred 16 times during that period, he said.

"Surges in unemployment happen at the end of the cycle,'' Lee said. "This is showing you what happened in May, it's not telling you what's going to happen in the next 12 months. Unfortunately a lot of economic data is backward looking.''

Lee expects the Standard & Poor's 500 Index to climb to 1,450 by the end of this year, according to a Bloomberg News survey on June 2. The S&P 500 dropped 3.1 percent to close at 1,360.68 today, while the Dow average fell 3.1 percent to 12,209.81, the steepest slide in 15 months. Crude oil rose almost $11 to settle at $138.54 a barrel.

"At the end of the day we still have things overhanging on stocks, we still have high oil prices and we still have the credit cycle we're going through,'' Lee said. "But ultimately the economic data is showing the economy is pretty resilient.''

[winston]

BTW, Helicopter is also speaking tonight

[millionairemind]

BTW, Helicopter is also speaking tonight

Wah... like this must definitely go buy some PUTS...

Just TOL here, as long as Nasdaq does not undercut 2450, the rally attempt is still intact. Lets see how the mkt takes it.

A couple of factors IMO is detrimental after I had some time to think about it over the weekend.

1. Credit defaults swaps premium increasing rapidly in last 3 weeks... this coincidentally matches the very high NYSE short ratio. This one slipped my mind to check it periodically until I read it in my latest copy of The Economist.

2. High oil prices

3. Nasdaq is only 25pts away from the recent low of 2450 in this correction. If it just breaks this in the next couple of days, all bets all off.

The +ve side is Nasdaq has been able to singlehandedly pull the other 3 indices along in the last couple of weeks to prevent a broadbase sell off (not considering last Friday's action).

The follow thro' on March 20 was done by Ah Dow... after the S&P and Nasdaq both undercut their lows.. Will we see a reverse this time? With Nasdaq having a follow thro' and pulling the comatosed DOW, S&P and NYSE with it?

Let's find out.. in the meantime, get our can of coke and popcorn out and watch the show. When unsure like I am now, I go FULL CASH till the mkt shows hand and tells me what to do.

[kennynah]

hahaha...i oso scared when helicopter speaks...most times, terrible effects on the market sentiments..

i guess, and hopefully, tonight, he speaks about USD ....although that is not his purview...