Daily Investment Interpretations Archive

January 1, 2009, to June 30, 2009

July 1, 2008, to December 31, 2008
May 7, 2008, to June 30, 2008

2009-6-30:  The indices fell somewhat today, and my normally optimistic advisory service was pretty pessimistic this morning. The principal news driving this seems to be the fact that consumer sentiment dropped below 50% this month, after rising above 50% last month. The continuing layoffs are spooking consumers.
    An updated jobs report will come on Thursday.
    The
NASDAQ Composite ended the day down 9.02 points (-0.42%) to 1,835.04, the Dow lost 82.38 points (-0.97%) to close at 8,447.00, and the S&P 500 divested itself of 7.91 points (-0.85) to end the day at 919.32  Oil fell  to $70.46 a barrel, while gold dropped $13 to 927. Apparently, the recovery is back on. the VIX added 1.00 to 26.35.
    Michael Ashbaugh writes, S&P reclaims 900 mark. He thinks Thursday's job report may set the tone. In the meantime, during a holiday-shortened week, there's not a lot going on.
Estimating the Market's Rise in an Anemic Recovery
    Supposing the economy recovers to a new, lower norm than its 2007 level. How high would that be from here?
    Presumably, GDP--and therefore, earnings--will be several percent lower than they were in 2007, at least until GDP growth can catch up with the 2007 levels. So presumably,  earnings, after correcting for inflation, will plateau several percent below their 2007 levels. But they won't settle at a level 40% below their 2007 measures. In fact, in a year or two, I would expect them to level out a few percent below their 2007 highs, rising to their 2007 values in another year or two. But this means that the stock market may approach 2007 levels within the next two to four years, doesn't it? 


2009-6-29:  The indices rose a little today. We're still in the last two days of the quarter, so that might have some impact upon what's happening. Wednesday will mark the beginning of a new quarter.
    The
NASDAQ Composite ended the day up 5.84 points (0.32%) to 1,844.06, the Dow added 90.99 points (1.08%) to close at 8,529.38, and the S&P 500 tacked oned 8.33 points (0.91%) to end the day at 927.23  Oil hopped up  to $71.50 a barrel, while gold was unchanged at 941. Apparently, the recovery is back on. the VIX shrank 0.58 to 25.35, which marks another "new" low.
    In the meantime, the news is lugubrious, ominous, and that's good news for the stock market (although the VIX isn't showing much concern). And here are gloomy stories calculated to cast fear into the marrow of the optimistic investor.
Why the Golden Cross May Not Be Golden

MV Weather Report: Does Golden Cross Mean Stormy Skies Ahead?
    :Golden Cross" refers to an intersection in which the 50-day moving average rises up across the 200-day moving average. This happened last Tuesday, June 23rd. The only problem is that the 200-day moving average is still declining, so it's not clear that this "Golden Cross" points to a new bull market, as opposed to a bear market rally followed by further downside.
    My normally optimistic investment advisory service warns that the S&P 500 may forming a "head-and-shoulders" pattern typical of market tops.


2009-6-26:  Yesterday's upwelling was triggered by end-of-the-quarter institutional window-dressing. (Institutional purchases have to be made at least three days before the end of the quarter.)
    The market indices remained near the flat-line today as the bulls hung on to their gains.
    The
NASDAQ Composite ended the day up 8.68 points (0.47%) to 1,838.22, the Dow lost 34.01 points (-0.4%) to close at 8,438.39, and the S&P 500 added 1.36 points (-0.15%) to end the day at 918.90  Oil dropped $1.07 to $69.44 a barrel, while gold climbed $2 to 941. Apparently, the recovery is back on. the VIX shrank 0.43 to 25.93. which marks another "new" low.
Later:  The China and Emerging Markets Report is reassured by the Halter Index' move above  its 50-day moving average, and is recommending a new stock for purchase. 
    Mark Hulbert notes that sentiment has shifted from bullish to moderately bearish: Contrarians starting to see green shoots., which, from a contrarian standpoint is bullish for the current market rally.


2009-6-25:  "Tomorrow" brought a surprise. The three major indices have jumped by a little more than 2%, putting them back above their 50-day and 200-day moving averages. I don't have access to the advance-decline numbers or breadth and volume numbers for the day, and I don't have time to search for them. Information concerning the significance of today's moves should be here before the markets open again in the morning. (Today's surprise move up probably triggered short covering.)
    The Cabot China and Emerging Markets Report should be hitting my inbox within the next hour or two.
    The
NASDAQ Composite ended the day up 37.2 points (2.08%) to 1,829.54, the Dow GAINED 172.54 points (2.08%) to close at 8,472.40, and the S&P 500 added 19.32 points (2.14%) to end the day at 920.26  Oil dropped a paltry $1.56 to $70.31 a barrel, while gold climbed $5 to 940. Apparently, the recovery is back on. the VIX shrank 2.69 to 296.36. which marks a "new" low.
Later:  The China and Emerging Markets Report is reassured by the Halter Index' move above its 50-day moving average, and is recommending a new stock for purchase. 


2009-6-24:  The markets moved up more or less today, but not with any conviction.
    The
NASDAQ Composite ended the day up 27.42 points (1.55%) to 1,792.34, the Dow lost 23.05 points (-0.28%) to close at 8,299.86, and the S&P 500 added 5.84 points (0.65%) to end the day at 900.94, minutely above its 50-day and 200-day moving averages  Oil dropped a paltry $0.21 to  $68.46 a barrel, while gold climbed $10 to 934. In other words, fear of a further economic decline slightly outweighed optimism, but the VIX shrank 1.53 to an optimistic 29.05.
    We'll see what tomorrow brings.


2009-6-23:  The markets moved sideways today, but yesterday was a 14:1 down day for the S&P 500, and the market outlook is grim.
    The
NASDAQ Composite ended the day down 1.27 points (-0.07%) to 1,764.92 (basically unchanged), the Dow lost 16.1 points (-0.19%) to close at 8,322.91, and the S&P 500 added 2.06 points (-3.06%) to end the day at 893.04 Oil rose $1.74 to  $68.63 a barrel, while gold climbed $3 to 924. The VIX shrank 0.59 to  30.58.
   
This is the second day the Dow and the S&P 500 have closed under their 50-day and 200-day moving averages, while the Nasdaq Composite has penetrated its 25-day average but is still above its 50-day average. The short-term (25-day) averages have topped and turned slightly down for the Dow and the S&P 500, while the 50-day averages have flattened. All three of my market timing advisors have turned cautious. The next major resistance comes at S&P = 880. If the bears break through there, it will probably be time for wholesale selling.
    Michael Ashbaugh's Tuesday technical analysis (Down time), reaffirms that the market broke down yesterday, and the most likely path is a move lower from here. He mentions that the VIX still signals remarkable complacency: Fear gauge is on the rise, but not fear itself
    Cabot's China and Emerging Markets Report has just recommended that we  subscribers sell a portion of our holdings.


2009-6-22:  The markets melted down today. The NASDAQ Composite backed up 61.38 points (-3.35%) to 1,766.19, the Dow lost 200.72 points (-2.35%) to close at 8,339.01, and the S&P 500 parted with 29.19 points (-3.06%) to end the day at 893.04 Oil fell $2.62 to  $67.06 a barrel, while gold dropped $15 to 921. The VIX climbed 3.18 to  31.17.
    Today's stock slide seems to have been driven by an updated forecast by the World Bank that the world's economies will contract 2.9% this year, up from a forecast three months of a world economic contraction of 1.7%. Even so, today's fall was eclipsed by a 46-point fall on April 20th.
    At 893, the S&P 500 is 7 points below its 50-day and 200-day moving averages.


2009-
6-22 (Noon):  Now that the S&P has fallen below 900, the next "line in the sand" is at 880.
    Cabot's advisory service still sees this as a cyclical bull market, destined to last some months.
    I sold my riskier, 2X and 3X positions this morning, because these are high-risk bets I made on the market. I'll buy them back, hopefully at lower levels than where I sold them. But I don't think that someone else who's holding unleveraged equities needs to sell at this point, since the intermediate market trend is still up. If the S&P 500 falls below the 900 level and stays there long enough to tilt the 50-day moving average downward, it may be time to sell, but that hasn't happened yet. So far, this decline falls within the envelope of typical bull market corrections. (The fluctuations are getting smaller, suggesting that this market is scraping along a bottom.)
  

2009-
6-22:  The S&P 500 is kissing its 50-day and its 200-day moving averages, currently sitting at S&P = 900. I have trimmed my riskier, more aggressive positions this morning. With the S&P 500 having touched 900 this morning, this pullback has reached significant proportions. My wonderful market advisory service is watching and waiting for a buying opportunity. 
    The market is meeting some resistance at the 900 level. So far, this pullback is no deeper than the pullback in May, nor have the 25-day and 50-day moving averages tilted downward. So far, the intermediate trend is still up.


2009-6-19:  The markets spent yet another day in the shallows, with the Nasdaq and the S&P up modestly, and the Dow down a little.
    The
NASDAQ Composite rose 19.75 points (1.09%) to 1,827.47, the Dow lost 15.87 points (-0.19%) to close at 8,539.73, and the S&P 500 crept up 2.83 points (0.31%) to end the day at 921.23 Oil fell $1.82 to  $69.40 a barrel, while gold added $2 to 936. The VIX fell 2.04 to  27.99.
    The stock market's relief rally is giving way to market action that focuses on second-quarter earnings, and on third and fourth quarter earnings forecasts. 


2009-6-18:  Cabot's China and Emerging Markets Report urges buying on this dip, as does my market technical analysis service. Cabot's position is that this dip is long overdue: Best-performing bull bellows bravely. Furthermore, there seems to be a lot more skepticism and pessimism than was present a few days ago, which seems to me to be a bullish sign.
    The
NASDAQ Composite slipped 0.34 points (-0.02%) to 1,807.72, the Dow added 58.42 points (0.69%) to 8,555.60, and the S&P 500 inched up 7.66 points (0.84%) to end the day at 918.37 Oil oozed up  $71.46 a barrel, while gold doffed $1 to 935. The VIX fell 0.33 to  31.21.
    I highly respect the opinions of Prieur du Plessis and Todd Harrison, who certainly knows inordinately more about the stock market than I do. At the same time, I have to choose among advisors with differing advice. My choice at the moment is slightly in favor of this pullback being a temporary correction, but the ultimate arbiter will be the actions of the market indices. The S&P 500 has closed for three days now below its 25-day moving average, but is still above its 50-day moving average, and is about 5 points above its 200-day moving average. The Chinese index FXI is right at its 25-day moving average, but it's about 6% above its 50-day moving average.
    The crucial point is that stock prices are still relatively cheap, with the S&P off 40% from its 2007 high, and we're no as longer worried about the world's economy collapsing.


2009-
6-18 (Afternoon):  The markets have risen modestly this morning. The cited reason is that continuing jobless claims have begun to decline (slightly) and the Philadelphia Industrial survey has shown the best levels since last September. At the same time, this good news hasn't caused the markets to go into orbit. Prieur du Plessis thinks the markets are topping, and will retreat 10% or more from here. (They might retest their March 9 lows.) My market timing advisory is calling for caution, but for buying on the dips.
    I'll hear from the Cabot China and Emerging Markets Report later today. (The Chinese index, FXI, is off about twice as much as the S&P 500, as is the emerging markets index, EEM. So much for the decoupling of markets!)


2009-6-17:  The markets appear to have bottomed today, at least enough to slow their rate of fall. (Tomorrow is a quadruple options expiration date, so that might have something to do with what's happening.)
    The
NASDAQ Composite added 11.88 points (0.66%) to 1,808.06, the Dow shaved 7.49 points (-0.09%) to 8,497.86, and the S&P 500 declined 1.26 points (-0.14%) to end the day at 910.82 As mentioned above, Oil ended at  $70.96 a barrel, while gold added $4 to 936. The VIX fell a 1.19 to  31.49.
    One factor that could have been weighing on the market is the government's just-announced new rules for the financial industry. Basically, though, it's probably time for a correction. This market has come a long way with no real pullbacks until now.


2009-6-16:  The markets fell again today on relatively low volume, though not as much as yesterday. The indices each lost roughly 1¼ %. The S&P 500 and the Dow both closed below their 25-day moving averages, with the S&P ending at its 200-day average, and the Dow closing below its 200-day average. The Nasdaq remained above both those benchmarks.
    The
NASDAQ Composite retreated 20.2 points (-1.11%) to 1,796.18, the Dow gave up 107.46 points (-1.25%) to 8,504.67, and the S&P 500 declined 11.75 points (-1.27%) to end the day at 923.72 As mentioned above, Oil ended at  $70.27 a barrel, while gold added $5 to 932. The VIX jumped 1.87 to  32.68.
    The market fell sharply in the last 15 minutes of trading, suggesting to me that investors waited to see whether the market would rise at the end. When it didn't they dumped stocks in anticipation of further losses to come. Of course, after losing 3¾ % in two days, the market will probably soon stage a "dead cat" bounce, but right now, its short-term trend is down. U.S. stocks forfeit rise; economy at issue
    This is the first two-day pullback since the end of March, and it's certainly overdue.
    As the market worsens, Paul Krugman's insights look better and better. In a set of three lectures that he gave last week in the UK, he explains that economists had thought until now that depressions couldn't happen here again. Economists had  learned their lessons, and by now, had everything under control. Monetary manipulation would always pull the economy out of a funk. Demand could be taken for granted; the limiting factor would always be monetary supply. It's intuitive that you can always get people to spend if you print enough money and make it easy enough to borrow.
    Until they don't.
    The key to this was what happened to Japan during its "lost decade". During the 90's, Japan printed money by the bushel basket, but it didn't pump up the economy, nor did it cause the inflation that everyone "knew" would have to happen. Instead, the money sat in bank vaults because (1) no one wanted to borrow money to expand their businesses because business wasn't that good, and (2) banks were afraid to loan money to most borrowers because they weren't sure that the borrowers could pay them back. The Japanese lowered their interest rates to zero, and nearly doubled their money supply and it did nothing. It generated no lending and no inflation. The Japanese economy continued to stagnate. And this flies in the face of all existing economic theory. All our economic texts will have to be rewritten. The models have failed.
    The bottom line: we're in unexplored territory, in a "liquidity trap". This is a situation in which the interest rates that banks have to pay to borrow money is zero. They can loan out this money at a 5% or 6% interest rate but (1) potential borrowers are too insecure about their own financial futures to want to borrow, (2) consumer demand has fallen off so companies are closing plants rather than building them, and (3) banks are afraid that borrowers won't be able to repay their loans,  understanding that it takes a lot of interest to make up for every defaulted loan. Consumer demand declines so companies lay off employees, resulting in further declines in demand.
    Breaking this vicious circle requires either waiting until durable goods wear out and must be replaced, forcing renewed production (as in the Panic of 1873), or the government steps in to become the employer of last resort. During the Great Depression, government intervention led to a dramatic rebound (the stock market quintupled) from January, 1933, through January, 1937, until President Roosevelt, in the wake of his 1936 re-election, gave in to the deficit hawks and cut back on the New Deal. It was too soon. The country plunged back into recession until World War II broke it up.
A Parenthetical Remark: It's a popular pastime to bemoan the money the government is borrowing as a debt that we'll pass on to future generations. In fact, about a third of the money that the government is borrowing for TARP and for the government's fiscal stimulus program will come back in the form of taxes as the money changes hands in the economy. Further, this money isn't being given away but is being loaned against tangible assets. Hopefully, part of the two-thirds of this money that doesn't return to the government through taxation should be recovered when the loans are repaid, as has happened in the past. Then, too, recessions and depressions reduce government tax receipts (currently about $3 trillion a year). Decreasing the lengths and depths of recessions may help offset the costs of stimulus programs. And finally, the infrastructure investments the U. S. government made at least during the Depression... roads, dams, power plants... were of lasting monetary value to the nation, and were purchased at rock-bottom prices.
   

2009-
6-16 (Afternoon):  The markets have continued to drop today, with the S&P 500 falling below its 25-day moving average. Its 25-day average is flattening out, but hasn't yet sloped downward. I have taken the precautionary step of selling my January, 2010, calls, and have sold some previously recommended, outperforming China stocks that are no longer followed by the Cabot China and Emerging Markets Report. Now, with the highest-risk stocks no longer in my portfolio, I'll wait to see what happens next. (This still leaves me 75% invested.)
    Note that the Chinese market index, FXI, is down 2½ % at the moment..
Flip-flopping moving averages point to momentum

See Michael Ashbaugh's Technical Indicator


2009-6-15:  The markets certainly took a drubbing today. The NASDAQ Composite retreated 42.42 points (-2.28%) to 1,816.38, the Dow gave up 187.13 points (-2.13%) to 8,612.13, and the S&P 500 declined 22.49 points (-2.38%) to end the day at 923.72 As mentioned above, Oil fell 0.45 to  $70.17 a barrel, while gold dropped $13 to 928. The VIX jumped 2.36 to  30.81.
    The S&P 500 is still above its 25-day moving average, but only just. And the 25-day moving average appears to be sloping over to form a short-term top. Ugly Day on Low Volume: More Froth To Be Wrung Out of Market? One factor to consider: Treasury Secretary Geithner set forth new reforms today: U.S. financial regulation reforms outlined, and warned that further travail lies ahead. (I note, though, that deficit hawks are calling for an end to fiscal stimulus and to zero interest rates because of the "threat" of inflation. Mr. Geithner's remarks could be aimed at the deficit hawks.)
    Paul Krugman has posted this tonight: Permanent Link to Unemployment claims and employment change.
    This is the long-awaited pullback: Funds look to pullback to get in stocks
    If the S&P 500 doesn't turn around and start back up tomorrow, I'll begin lightening up, based upon its 25-day moving average. I won't sell out unless its 50-day moving average turns down, but I'll trim my exposure in the riskier issues in my portfolio.
    Of course, what matters to me most is the Chinese marketplace, and there, things still seem to be moving up. But even there, FXI closed today at $38.23, and its 25-day moving average appears to be at just about that level (please see the FXI chart down below).


2009-
6-15 (Early Afternoon):  That sinking feeling!
    Today's falling markets are allegedly keying on a statement by International Monetary Fund chief Dominique Strauss-Kahn during a visit to Kazakhstan that, "
The large part of the worst is not yet behind us." However, the G8 ministers at the current IMF meeting concluded that most world economies have touched bottom. They also raised their GDP estimates slightly for the U. S. for 2009 and 2010. "Li Yang, a former adviser to the People's Bank of China, said he expected China's recovery to be 'W-shaped' — meaning growth will falter once fiscal and monetary stimulus wears off, before regaining momentum. Worst Yet to Come: IMF Chief.
    Another downer was that the New York "Empire State" manufacturing index, considered to be an industrial bellwether, fell a little more in June (
-9.41) than it had in May (-4.55).
    Note that this confirms the "W-shaped" recovery confirms the rumors that have been making the rounds the past few weeks. 
    925 is a support level for the S&P 500. A close today below 925 would be a warning sign. But for now, it would pay to simply watch and wait. The end of the quarter is coming up, and fund managers have incentives to dress up their portfolios. Jeff Saut: Why Shorting Stocks Now Could Be a Grave Mistake Is this the beginning of the long-awaited pullback? Will institutions view this dip as a buying opportunity, or is it the beginning of something more serious? Minyanville's Smita Sedana gives us, "Five Reasons to Be Cautious Now"
    Paul Krugman expresses his concerns about a long-term global recovery: Will Hutton. He is also hearing hints about a second round of fiscal stimulus.


2009-6-12:  Today was another tug-of-war day, with the markets marching in place.
     The
NASDAQ Composite retreated 4 points (-0.19%) to 1,858.80, the Dow rose 28.34 points (0.32%) to 8,799.26, and the S&P 500 increased 1.32 points (014%) to close at 946.21 As mentioned above, Oil fell 0.69 to  $71.35 a barrel, while gold dropped $21 to 941. The VIX was basically unchanged at  28.15.
    After breaking out on the upside toward the end of May, the market indices have traced out a rare plateau of closing prices, trading in an uncommonly narrow range since the 1st of June. 


2009-6-11:  Before the day was done, the S&P 500 reached an intra-day high of.956, then fell rapidly below 944, to rebound slightly with heavy buying in the last few minutes of the day. Oil rose above $73 a barrel but fell back at the close.
    I saw confirmed today the fact that the price of oil is rising, as are other commodity prices, in anticipation of a  global economic recovery. Of course, mild  inflation, which the World's central banks can control, is what they  are seeking as an antidote to deflation, which they can't control.
     The
NASDAQ Composite retreated 9.29 points (0.5%) to 1,862.37 , the Dow percolated up 31.9 points (0.37%) to 8,770.92, and the S&P 500 increased 5.74 points (0.61%) to close at 944.89 As mentioned above, Oil closed at  $72.24 a barrel, while gold rose $7 to 962. The VIX fell to a "new" low of 28.11.
    In short, the stock markets' general direction is still up. 
    

2009-
6-11 (Noon):  In case you were wondering, the stock market has quietly, sneakily reached a new post-March high of not-quite 954 so far today, topping its June 2nd and June 10th intra-day highs of not-quite 950
    Incidentally, there is alleged to be hidden resistance at S&P = 950, so clearing this hurdle should open the door to further advances.


2009-6-10:  Today, the indices dropped slightly. Oil added another $1 a barrel, and is approaching $72 a barrel. Interest rates on Treasury bonds rose to 3.99%. But as I said last night, higher oil and interest rates would be expected in anticipation of an economic recovery, and in fact, to me, signal a recovery.
     The
NASDAQ Composite retreated 7.05 points (-0.38%) to 1,853.08 , the Dow slid 24.04 points (-0.27%) to 8,739.02, and the S&P 500 jettisoned 3.28 points (-0.35%) to close at 939.15 As mentioned above, Oil hit $71.85 a barrel, while gold was unchanged at 955. The VIX was also unchanged at 28.27.


2009-6-9:  For a third day in a row, the indices have hugged the flat line. They started up this afternoon, but then fell in the last two hours of trading, perhaps because oil closed at $70.66 a barrel. (Of course, $70+ a barrel isn't that much different from $69+ a barrel, but psychologically, $70 a barrel underscores the potential headwind facing the economy that's presented by higher energy prices.) Higher interest rates are also a concern. (It seems to me that higher energy prices and higher interest rates would accompany any recovery, but of course, this time, the Fed isn't able to turn the economy back on by lowering interest rates the way it has in conventional recessions.
    The
NASDAQ Composite advanced 17.73 points (0.96%) to 1,860.13 (putting it up 46.5% since its March 9th low), the Dow slid 1.36 points (-0.02%) to 8,763.06, and the S&P 500 tacked on 3.29 points (0.35%) to close at 942.43 As mentioned above, Oil hit $70.66 a barrel, while gold added $2 to $955. The VIX exfoliated 1.5 to 28.27.
    In short, nothing happened again today.
    Last night, Mark Hulbert published an update on the sentiment indicators he follows: Commentary: Is irrational exuberance staging a revival?, and they're more bearish than ever. His short-term timing investment advisory newsletters have risen from a 57% rise in bullishness to a 60% rise in bullishness over the past week.
    Paul Krugman, Permanent Link to Dismal hours, links to a weblog piece by Harvard economist Jeffrey Frankel, who is a member of the National Bureau of Economic Research' Business Cycle Dating Committee. Dr. Frankel has discovered that when you look not at layoff numbers, which are improving, but at the weekly number of hours worked, they're falling at the same precipitous rate they were dropping last fall.
INSERT DESCRIPTION
    Meanwhile back at the bourses, Michael Ashbaugh observes, Profoundly moving, that "the U. S. markets' path of least resistance remains higher until proven otherwise."
    Juxtaposed against this is the Cabot Market Letter, which is unabashedly optimistic.
    A look at the two-year S&P 500 chart below shows that, had you bought it in April when its 50-day moving average turned up, it would already have gained almost 200 points. Since then, it has risen only about 85 points, and hasn't budged since June 1.
    My own personal investments are in alternative energy funds, and in China and Emerging Markets stocks recommended by the Cabot China and Emerging Markets Report, so I'm not entirely locked into the U. S. stock market.
    


2009-6-8:  The indices marched in place again today. After bursting out of their trading ranges last week, the indices have temporarily stalled just above the tops of their ranges. The immediate causes given for this behavior are rising interest rates and rising oil prices. However, the rumor that the Fed may start raising rates late this year suggests to me that the Fed feels assured that a recovery is in the works.
    The
NASDAQ Composite declined 7.02 points (-0.38%) to 1,842.40, the Dow added a negligible 1.36 points (0.02%) to 8,764.49, and the S&P 500 subtracted 0.95 points (-0.1%) to close at 939.14 Oil climbed a mite to $68.51 a barrel, while gold receded $10 to $953. The VIX minced up 0.15 to 29.77.
    In short, nothing happened today.
    In the meantime, the three major indices are significantly above their 200-day moving averages, and are continuing to work their way upward.
    I have prepared a recap of the super-bull/super-bear market pattern here for friends.


2009-6-5:   The markets were basically unchanged today. Everything I wrote yesterday still applies today, so I'll leave it where it is. 
    The
NASDAQ Composite gained 0.6 points (-0.03%) to 1,849.42, the Dow added a paltry 12.89 points (0.15%) to 8,763.13, and the S&P 500 added 2.37 points (-0.25%) to close at 940.09 Oil dropped a mite to $68.38 a barrel, while gold receded $20 to $963. The VIX slipped -0.56 to 29.62.
    There are expectations that the Fed will raise interest rates slightly toward the end of the year, based upon the recovery that seems to be underway. Meanwhile, inflation worries are returning. (The stock market has to worry.) This is the time to buy aggressively into the stock market. The safer investing in equities seems, the riskier it is.
    I've been much slower to invest during this cyclical bull market than I've been in the past for the simple reason that this time, the music threatened to stop. All the other recessions since World War II have been instigated by the Federal Reserve and have been under its control. But this time, the Fed fired its last bullet (cutting interest rates to 0%-to-0.25%), and the bear kept on charging. It took all the king's horses and all the king's men to stop
this bear.
    I'll continue to hold stocks until the 50-day moving average goes south, or until my advisory services recommend pulling the plug.


2009-6-4:   The indices rose about 1% today. The NASDAQ Composite gained 24.1 points (1.32%) to 1,850.02, the Dow annexed 74.96 points (0.86%) to 8,750.24, and the S&P 500 added 10.7 points (1.15%) to close at 942.46. Oil hit closer to $70 a barrel, at $68.90 a barrel, while gold rose $17 to $982. The VIX slipped -0.84 to 30.18.
    This market behavior is what one might expect from a market that has gone from the bottom of its short-term range to its break-out at the top of its range. There must now be a bevy of claims that the economy is getting ready to tank, and that the stock market is prepared to follow suit. Otherwise, the stock market wouldn't climb a wall of worry, but would immediately jump to its bull market peak. For whatever reasons, it doesn't normally work that way.
    Two ultra index funds that offer the prospect of doubled gains (and doubled losses) are the Proshares Ultra Emerging Markets, UUPIX, and the Proshares Ultra S&P 500 Exchange-Traded Fund, SSO. (I've had major reservations about the recent performance of UUPIX, but by now, it seems to have redeemed itself.)
    The charts below show UUPIX and SSO plotted together with their underlying averages.



    Both of these funds might be expected to quadruple if their underlying indices returned to their 2007 highs. I don't expect that to happen, but profitable moves from here look plausible. 
    I plan to sell when their 50-day moving averages turn down. 
    The two charts below show these funds' 25- and 50-day moving averages.



2009-6-4:   The indices rose about 1% today. The NASDAQ Composite gained 24.1 points (1.32%) to 1,850.02, the Dow annexed 74.96 points (0.86%) to 8,750.24, and the S&P 500 added 10.7 points (1.15%) to close at 942.46. Oil hit closer to $70 a barrel, at $68.90 a barrel, while gold rose $17 to $982. The VIX slipped -0.84 to 30.18.
    This market behavior is what one might expect from a market that has gone from the bottom of its short-term range to its break-out at the top of its range. There must now be a bevy of claims that the economy is getting ready to tank, and that the stock market is prepared to follow suit. Otherwise, the stock market wouldn't climb a wall of worry, but would immediately jump to its bull market peak. For whatever reasons, it doesn't normally work that way.
    Two ultra index funds that offer the prospect of doubled gains (and doubled losses) are the Proshares Ultra Emerging Markets, UUPIX, and the Proshares Ultra S&P 500 Exchange-Traded Fund, SSO. (I've had major reservations about the recent performance of UUPIX, but by now, it seems to have redeemed itself.)
    The charts below show UUPIX and SSO plotted together with their underlying averages.



    Both of these funds might be expected to quadruple if their underlying indices returned to their 2007 highs. I don't expect that to happen, but profitable moves from here look plausible. 
    I plan to sell when their 50-day moving averages turn down. 
    The two charts below show these funds' 25- and 50-day moving averages.



2009-6-3:   The indices fell about 1% today. The NASDAQ Composite lost 10.88 points (-0.59%) to 1,825.92, the Dow fell back 65.69 points (-0.75%) to 8,675.28, and the S&P 500 dropped 12.98 points (-1.37%) to close at 931.76. Oil retreated to $66.32 a barrel, while gold fell $19 to $966. The VIX slipped -0.41 to 29.63.
    The indices fell quite a bit lower, but then rose sharply at the end of the trading session. I don't know of any compelling reason or piece of news to account for the day's pullback. The problem is that stock markets have to climb a wall of worry. And the markets are bipolar. The fact that bond yields are rising, competing with stocks, could be playing a role. Also, rising mortgage rates could choke off the recovery. The ADP private jobs report came in at a better-than-expected 532,000. On the other hand, the second quarter usually has the smallest number of layoffs. Whatever the reasons, the indices fell back a bit today. 
    My advisory services are emphasizing that this is a strong bull market.


2009-6-2:   The indices rose slightly today, .. The NASDAQ Composite gained 8.12 points (0.44%) to 1,836.8, the Dow climbed 19.43 points (0.22%) to 8,740.8, and the S&P 500 rose 1.87 points (0.2%) to close at 944.74. Oil leaped to $68.22 a barrel, approaching the $70-a-barrel target that OPEC has sought, and that OPEC feels won't choke off a global recovery, while gold rose slightly to $984. The VIX slipped -0.41 to 29.63.
Michael Ashbaugh's Weekly Technical Analysis.
    Michael Ashbaugh has published, "S&P clears 200-day for first time in 18 months", observing that the S&P 500 has cleared its 200-day moving average for the first time in 18 months. "He observes, "First, the S&P 500 just broke sharply atop its 200-day moving average, virtually eliminating the bear case from a technical standpoint. And second, the break higher came on the first attempt - an unusual, and distinctly bullish event -- marking the S&P's first venture above the 200-day since December 2007."
Mark Hulbert's Sentiment Indicators
    Mark Hulbert has published, "Mark Hulbert asks: Whither the wall of worry?" and "Matriculants at the 'What, Me Worry?' school of investing". 
    The first article, published yesterday, points out that two of four sentiment indicators, the Hulbert Stock Newsletter Index (HSNI) and the Investors Intelligence index are twice as high 83 calendar days after the low as they've been in all but about 20% of previous bull markets. On the other hand, the other two indices, the AAII Investors Sentiment indicator and the VIX are about average. 
    The second article observes that the newsletter editor with the best track record since 1980, Dan Sullivan, editor of
The Chartist, switched last night from moderately bullish to aggressively bullish. Mr. Sullivan pulled his investors out of the market in January, 2008, and steered them back into the market in April, 2009. His investors missed most of the downside and got in on most of the upside.
What Should You Do Now?
    First, it seems to me that there's no one-size-fits-all answer to this. I promised when I began this "column" on April 5, 2008, that I would try to help anyone who sought this recoup their losses when the time came. The time has now come.  
    Second, I don't know where to invest with any degree of assurance. Mark Hulbert's best market timing newsletter when the market peaked in October, 2007, was Bob Brinker's Market Timing Newsletter. I followed Mark Hulbert and his leading market timers' timing advice all the way to the poorhouse. I don't think it was deliberate. Most of the best minds on Wall Street missed this monumental bear market. But the central fact is that they don't know and I don't know. This spring, I leaned toward the bearish camp exemplified by Todd Harrison, Paul Krugman, and John Kenneth Galbraith concerning what was going to happen near-term to the economy and to the stock markets. Granted, this has been a categorically different bear market environment than any other since the Great Depression, Nevertheless, they were wrong, and I was wrong. (The only thing that saved me was that, my biases to the contrary, I automatically invested part of my money based upon market levels.) The investments I'm now going to make will be riskier than I would suggest to anyone else. However, the indices are still far enough down (nearly 40%) that a good bounce can probably be expected. 
    I don't expect the market indices to recover their 2007 highs any time soon. Also setting as a goal the recovery of all the value that we've lost over the past 1 2/3rds years seems to me to be a wrong and dangerous objective. Our goal (in my opinion) should be to do as well as we can from here, given that we're where we are.
How I've Placed My Money So Far
    Having said that, here's how I've placed my own money so far.
    I still have about 15% of my portfolio invested in "legacy" mutual funds that I never sold. I also have about 6% of those mutual funds sitting in cash.
    In the alternative energy arena, I own 100 shares of Vestas Wind systems: VWSYF; 300 shares of the wind energy ETF: FAN; 400 shares of the Wilder Hill Clean Energy ETF: PBW; six December, 2009, $6 calls on PBW: PBWLE; 400 shares of Suntech (solar): STP; and 400 shares of the solar power ETF: TAN.
    I own the various stocks recommended by the Cabot China and Emerging Markets Report.
    I own 300 shares of the Ultra Basic Materials ETF.
    I own calls on the Brazilian index: EWZ, and on the Chinese index: FXI., and 100 shares of the very risky, triple-leveraged 3X fund: EDC, based upon the emerging markets index ETF: EEM. Add in other cash not reported above, and 2 options on Nuance, and that wraps it up.
    I intend to retune this as I go along, but that's its current disposition. Given that we seem to have a confirmed cyclical bull market, it may be time for a major reorientation of my funding with an eye on risk/reward ratios.
Conservative Opportunities
    Given the severe pullbacks still present among some fairly conservative mutual funds, it may be a good idea to invest in these funds and take whatever gains can be made until market timers warn that it's time to sell again. (I expect one or two more cyclical bull markets after this one before we enter upon a 16-or-so year, buy-and-hold super-bull market.)

2009-
6-2 (Mid-Afternoon Update):  The Dow Jones Industrial Average has just hit its 200-day moving average, strongly suggesting a new primary (cyclical) bull market.        
2009-6-2 (Mid-Day Update): 
    Everything I'm reading is pointing toward a rapidly rising stock market for the next few months. Long-term, the comments about buying and holding in this  super- bear market still hold, so at some point over the next year, it will be probably be necessary to sell. What should we use as a sell signal? When the stock or the S&P 500 falls below its 50-day moving average. When that time comes, I'll receive warnings from various sources, which I'll pass on here.
    What's notable (see the charts below) is that yesterday the S&P 500 rose above its 200-day moving average, joining the NASDAQ Composite, which crossed this threshold a month ago, and signaling that the long-term trend is up. The Dow has just reached its 200-day moving average, and should soon follow suit. So it's time to buy.
    What to buy?
    The Fidelity Group offers this bit of advice: Late to the rally? Bet on value stocks. I would suggest visiting this Fidelity Fund page and looking for a fund that is value-oriented and has dropped the most from its previous highs. One fund that did very well during bull markets was the Fidelity Leveraged Company Stock Fund., FLVCX. It was hit hard by this bear market so it's a fund that works best in rising markets. It's down by almost 50% over the past year.

     Another "fallen angel" is the Fidelity Growth and Income Portfolio, FGRIX. It's about half what it was at its October, 2007 peak. Why has a growth and income fund been hit so hard? I don't know. Possibly, it was heavily invested in financial stocks, but I don't actually know.

    Mercifully, the markets are off today because banks are selling beaucoup stock in an effort to recapitalize, thereby diluting the value of their existing stock.
    I'm not intentionally flogging Fidelity products... it's just that I'm more familiar with them, and I know how to screen them better than I do other fund families. But the Vanguard Group and T. Rowe Price funds are excellent. I would look for funds that have fallen the most in this bear market because I'd expect them to have the greatest potential for a rebound. 


2009-6-1:  The indices vaulted out of their trading ranges today, ostensibly on advancing commodity prices, with most of the day's gains coming in the first hour of trading.. The NASDAQ Composite gained 54.35 points (3.06%) to 1,828.68, the Dow climbed 221.11 points (2.6%) to 8,721.44, and the S&P 500 rose 23.73 points (2.58%) to close at 942.87. Oil leaped to $68.35 a barrel, approaching the $70-a-barrel target that OPEC has sought, and that OPEC feels won't choke off a global recovery, while gold was unchanged for the day at $980. The VIX came back up to 30 (29.99).
    So what to do now?
    It was important to see whether today's gains would be retained at the markets' close. They were. Now there are two choices: buy into the rally, or wait for a (modest) pullback. What to buy? I bought 100 shares of the solar power ETF TAN today, and 100 shares of the wind power ETF FAN. I'm hoping for a modest pullback, at which time I'll add to my positions. I'll also expand my ownership of the Powershares Wilderhill Green Energy ETF, PBW. In addition, I think that it's time to for some risk-taking, betting on a market that treads higher.
    It's important to repeat: we're in a secular bear market. In general, a buy-and-hold strategy won't work (although I think you can profitably buy and hold alternate energy and global warming beneficiaries).. The S&P is still down 40% from its October, 2007, high, so buying now is still a good bet.


2009-5-31:  It's interesting to note that only the NASDAQ Composite has surmounted its 200-day moving average. The Dow and the S&P 500 indices have approached their 200-day moving averages and have bounced downward off them. The technical advisory service to which I subscribe, normally optimistic, is in a wait-and-see mode right now, waiting to determine which way the markets are going to go when they break out of their present trading range.
    Long-term, the U. S. stock market appears attractively priced.
    Paul Krugman, Permanent Link to What you don’t know …, has cited a Friday Wall Street Journal that again raises the question: Are the Chinese leaders "cooking the books"? The article observes that Chinese growth in GDP has moved in lockstep with rising electricity consumption. Recently, though, electricity consumption has fallen while GDP (officially) continues to advance. Now, China's electric power producers have stopped publishing power generation data.
    The article, Does China need green shoots?, notes that the flood of liquidity provided by the world's governments, rather than being loaned out by banks, is finding its way into emerging markets, not because the economies in these countries have improved, but because there's so much money looking for a place to invest. Fund managers are experiencing performance anxiety.
    On the other hand, this article, China factories still strong, suggests that the Chinese recovery remains on track.


2009-5-29:  The indices climbed again today, ostensibly on advancing commodity prices, with most of the day's gains coming in the last half hour of trading.. The NASDAQ Composite gained 22.54 points (1.29%) to 1,774.33, the Dow climbed 96.53 points (1.15%) to 8,500.33, and the S&P 500 rose 12.31 points (1.36%) to close at 919.14. Oil leaped to $66.31 a barrel, approaching the $70-a-barrel target that OPEC has sought, and that OPEC feels won't choke off a global recovery, while gold was vaulted to $980. The VIX dropped below 30 to 28.92.
    I updated the Alternative Energy Investments section yesterday. 
    
    Right now, the bulls and the bears are duking it out to see which will win out when this market breaks out of its trading range. The markets have worked their way out of their overbought status and even sentiment, while bullish, isn't at the extremes it was at a month ago. In an interview today, mutual fund impresario Mario Gabelli expressed his belief that the markets will rise into next year: Mario Gabelli takes the long-term view. He observed that there are several worrisome financial conditions that will permit the indices to climb "a wall of worry" over the next year. And here are interesting quantitative articles from Minyanville's James Kostohryz: Countertrend rally can't be stopped, and Your S&P Roadmap. He concludes that 1,100 is probably the upper turning point for this countertrend rally, although, under certain circumstances, it could reach the 1,350 upper bound of its trend channel. Since it has closed at about 919 tonight, that would give it an appreciation potential of about 20% more from here. However, the greater part of its move (from 667 to 919) has already taken place.


2009-5-28:  The indices climbed today as GM spiraled toward bankruptcy and the Treasury had to pay higher interest rates to sell its bonds. Apparently, Wall Street has decided that higher interest rates aren't the bugbear they were thought to be yesterday. Also, initial jobless claims came in lower and durable goods orders higher than expected.  The NASDAQ Composite added 20.71 points (1.2%) to 1,751.79, the Dow swelled 103.78 points (1.25%) to 8,403.80, and the S&P 500 annexed 13.77 points (1.54%) to close at 906.83. Oil rose slightly to $62.95 a barrel, while gold was unchanged at $953. The VIX rose 1.74 to 32.36.
    I've updated the Alternative Energy Investments section today. 


2009-5-27:  The indices fell back today as GM spiraled toward bankruptcy and the Treasury had to pay higher interest rates to sell its bonds.Wall Street was not amused. The NASDAQ Composite lost 19.35 points (-1.13%) to 1,731.06, the Dow divested itself of 173.47 points (-2.05%) to 8,300.02, and the S&P 500 sacrificed 17.27 points (-1.9%) to close at 893.06. Oil rose to a new high of $64.81 a barrel after broaching $65 a barrel, while gold advanced to $963. The VIX dropped 0.69 to 31.67.
    My technical advice also suggests that the markets appear to be digesting their gains... prefatory to another leg up.
    Busy days! I hope to have more time to write tomorrow or Friday. 


2009-5-26:  Consumer confidence jumped up today and so did the market indices. The NASDAQ Composite ratcheted up 58.42 points (3.45%) to 1,750.43, the Dow advanced 196.17 points (2.37%) to 8,473.49, and the S&P 500 added 23.33 points (2.63%) to close at 910.33. Oil rose slightly to $62.46 a barrel, while gold ended the day at $953. The VIX fell 2.01 to 30.62.
    The markets appear to be digesting their gains... prefatory to another leg up? 


2009-5-25:  Today, I'm catching up from the high school graduation festivities. World economy stabilizing, says Krugman  


2009-5-22:  The market indices dropped about 0.15% today, basically treading water on light volume before the holiday weekend. Action will pick up on Tuesday. We're off to Atlanta over the weekend for two more graduations, so I'm placing both Saturday's and Sunday's Science News links on the Index page.


2009-5-21:  The NASDAQ Composite dove 32.59 points (-1.89%) to 1,695.25, the Dow declined 129.911 points (-1.54%) to 8,292.13, and the S&P 500 doffed 15.14 points (-1.68%) to close at 888.33. Oil slipped slightly to $61.56 a barrel, while gold added another $14 an ounce to $951. Of course, rising oil prices bring the threat of stagflation, while boosting the prospects for alternative energy. OPEC has been pushing for $70-a-barrel oil 
   .The VIX
jumped 2.15 to 31.35.
    Alack and alas! I did some homework this morning on alternate energy investing but I wasn't able to finish it. Today is high school graduation day (from 7:30 to 9:30 tonight), and I haven't been able to attend to other matters. What I'm trying to work out is some estimate of how much growth potential exists for alternate energy investments, along with some general sort of timetable.
    I'm leaving yesterday's discussion below, until I can complete this topic and set it up in the sidebar.


2009-5-20: Once again, the indices rose smartly, only to fall back later in the day when the minutes of the last Fed meeting revealed that the Fed governors don't see a full recovery, with five years or more before unemployment falls below 5%. Federal Open Market Committee members aren't worried about inflation or deflation. They're still forecasting a weak rebound in the latter half of 2009. 
    The
NASDAQ Composite climbed 6.17 points (-0.39%) to 1,727.84, the Dow slid 52.81 points (-0.62%) to 8,422.04, and the S&P 500 doffed 4.66 points (-0.51%) to close at 903.47. Oil hit a six-month high of $62.10 a barrel, while gold climbed $11 an ounce to $937. Of course, rising oil prices bring the threat of stagflation, while boosting the prospects for alternative energy. OPEC has been pushing for $70-a-barrel oil 
   .The VIX
rose slightly to 29.03.
    I've become uneasy lately regarding emerging markets, and particularly, the Chinese marketplace. Their indices have risen a long way since last October. They're still only about halfway back to their 2007 highs, but the Chinese market was in bubble territory in the summer of 2007. Chinese investors were arguing that the Chinese government wouldn't permit the Chinese stock markets to tumble before the Beijing Olympic games in July, 2008, but they tumbled, anyway. The Chinese markets have not-quite doubled since last October's lows. (FXI fell from a dividend-adjusted high of $68 a share on October 31, 2007, to a low of $19 a share on October 27, 2008.) There have been articles this past week about the heavy cash inflows to the Chinese and emerging markets. Usually, when you begin to read about heavy cash inflows to a marketplace, it's a signal that a top is at hand. And it's not as though we didn't have other compelling choices. The recession, coupled with the fall in the price of oil, has adversely impacted alternative energy stocks, giving us an opportunity to stock up on such stocks. What's intriguing about alternative energy is that it has room to romp. Alternative energy sources account for only a fraction of a percent of all energy sources. Meanwhile, alternative energy sources are only getting cheaper and better. Sometime soon, these stocks will take off again. (Over the last two years, Suntech--STP-- has hit a high of $90 a share and a low of $5.09 a share. It's currently trading at around $16 a share.)  I'm more comfortable buying alternative energy index funds than I am individual stocks because I could imagine it being hard to know which companies will survive shakeouts and which areas of green energy will show the biggest profits. For example, in addition to a number of competing technologies such as solar thermal, smart power grids, energy conservation, and saltwater algae-based biodiesel, there are uncertainties over which companies will actually survive various shakeouts. For example, once a sizable market develops for alternate energy, companies like GE and BP might muscle into the marketplace and stomp pioneers like Q-Cell and Vestas, or at least, runners-up like Suntech and Gamesys. Consequently, I'm inclined toward such ETF's as the PowerShares Wilderhill Green Energy Technology Fund, PBW,
Chart for PBW
 the Claymore/MAC Global Solar Energy Index ETF, TAN,
Chart for TAN
and the First Trust ISE Global Wind Energy Fund, FAN.
Chart for FAN
    All three of these funds have plenty of headroom.
    More about this tomorrow.


2009-5-19:  The indices rose smartly today, only to give it all back in the last half hour of trading. The NASDAQ Composite climbed 2.18 points (0.13%) to 1,734.54, the Dow skidded 29.23 points (-0.34%) to 8,474.85, and the S&P 500 doffed 1.58 points (-0.17%) to close at 908.13. Oil rose slightly to $59.65. Gold took back $5 to close at $927, while the VIX sank 1.44 to 28.80... a "new" low.


2009-5-18:  Well whadd'ya know?  The indices rocketed upward by about 3% today, bringing them more than halfway back to their May 8th highs. So much for pre-market indicators! The NASDAQ Composite climbed 52.22 points (3.11%) to 1,732.36, the Dow skidded 235.44 points (2.85%) to 8,504.08, and the S&P 500 relinquished 26.83 points (3.04%) to close at 909.71. Oil rose to $59.25. Gold declined $10 to close at $922, while the VIX sank 2.88 to 30.24... a "new" low.


2009-5-17:  Pre-market market indicators are pointing toward a lower Monday morning opening, with the S&P 500 off more than 7 points and the Dow down about 89 points. Of course, this is very preliminary, but -7 points takes the S&P 500 down close to its 875 support level. 
    My investment advisory service is speculating that the economy is either bottoming now or will bottom this summer. At the same time, they're not at all claiming certainty regarding what's coming next.


2009-5-15:  Stocks slid this day, with a selling surge at the end. The NASDAQ Composite lost 9.07 points (-0.54%) to 1,680.14, the Dow skidded 62.88 points (-0.75%) to 8,268.84, and the S&P 500 relinquished 10.19 points (-1.14%) to close at 882.88. Oil dropped $0.60 to $56.34. Gold added $3 to close at $931, while the VIX increased 1.75 to 33.12.
    The crucial story in these numbers is that the Dow and the S&P 500 have continued to slowly retreat toward their support levels (875 for the S&P 500), so for them, the pullback is still in play. The NASDAQ Composite bottomed on Wednesday at 1,664.19. and closed today about
16 points or (1%) above Wednesday's low.
    What should we do? My opinion is that it makes sense to wait and see how much farther this pullback will go.
    Mark Hulbert has published, An encouraging straw in the wind, in which he observes that greed has finally lost out to fear, at least as evidenced by a majority of "
investment gurus" who "devoted their talks and workshops to managing risk and avoiding further losses rather than how to make a killing." He notes that newsletter publishers "are incredibly sensitive to which way the wind is blowing among individual investors". From a contrarian viewpoint, this is bullish.
    My excellent investment advisory newsletter ponders the fact that most professional investors are expecting a shallow pullback. From a contrarian standpoint, could that mean that this dip will go deeper than the bulk of the "smart money" expects?
    As of Thursday, the Cabot China and Emerging Markets Report was still  recommending increased exposure to Chinese stocks.


2009-5-14 (Mid-Afternoon):  The markets gradually worked their way higher all day, with a buying spree in the closing minutes. The gains ranged from 1½ % for the NASDAQ Composite to roughly ½ % for the Dow. The NASDAQ Composite moved up 25.02 points (1.5%), the Dow advanced 46.43 points (0.56%) to 8,331.32, and the S&P 500 gained 9.13 points (1.03%) to close at 883.92. Oil dropped $0.60 to $58.51. Gold added $3 to close at $928, while the VIX dropped 2.29 to 31.4.
   
'Sell in May' reveals flipside, Stocks may be losing steam
    In the meantime, the financial news has suddenly gone from bubbly to dire. If I didn't know better, I might think that billionaire newsmen like Rupert Murdoch, who now owns the Wall Street Journal and Marketwatch, are manipulating the stock market by manipulating the news.... which brings me to the subject of conspiracy theories. (There's a large contingent of savvy investors who believe that the U. S. government is manipulating the U. S. stock market as part of our government's efforts to re-inflate the economy.)
Conspiracy Theories
    In my view, politics is one big stew-kettle of what you might call "conspiracies". Back-room deals and trades would seem to me to be necessary to reconcile local needs with national needs. Also, compromises and tit-for-tat deals are the very currency of Congressional politics. And in a sense, I suppose you could call these everyday realities of political life "conspiracies". However, I've come across several publicly apparent "conspiracies" that are easily verified with searches, and yet, are unknown to virtually to everyone I've asked about them. I've put quotes around "conspiracies" because I'm not sure that you can properly call activities by organized lobbies "conspiracies", especially when the news is published if you know where to look. Still, some of the most crucial happenings since World War II seem to me to have taken place below the U. S. public's radar.
    As a physicist, I subscribe to Carl Sagan's dictum that "Extraordinary claims require extraordinary proofs." My purpose in presenting what follows is to support the idea that "conspiracies" do happen, although from my perspective, the evidence for stock market manipulation is nebulous.
    At the beginning of World War II, Stalin thought that the U. S. S. R. should stay out of the war and let the Western powers eat each other up, but Germany's unprovoked invasion of the U. S. S. R. became Stalin's rude awakening. After the war, the U. S. S. R. grabbed off and colonized Eastern Europe. Then China, North Korea, and Cuba went communist, with France and Italy teetering on the edge. The long-awaited revolution of the proletariat seemed to be coming to fruition. Europe was in rags and tatters, and vulnerable to communist ideology, or communist political and military muscle. The poverty-stricken countries of South America seemed a tinderbox waiting only for a spark. The United States became the one remaining major power qualified to stem the tide.
    Thus began the Cold war. 
    Throughout the Cold War, there were über-hawks such as General Curtis Lemay, who advocated a pre-emptive nuclear war... a sneak attack... against the Soviet Union. 
    Several of our presidents, such as JFK and Richard Nixon, took hair-raising gambles, risking an all-out nuclear exchange in secret moves of which we, the public, were unaware. (These maneuvers were top-secret until the 1995 Freedom of Information Act forced their declassification and release.) For example, a year before the Cuban Missile Crisis (Cuban Missile Crisis - Wikipedia, the free encyclopedia), President Kennedy authorized the top secret installation of 15 thermonuclear Intermediate-Range Ballistic Missiles on Turkish soil with the capability of hitting Moscow, Stalingrad, and other Soviet cities. Kruschchev's attempt to place Soviet IRBM's in Cuba was a direct response to President Kennedy's gambit of locating thermonuclear missiles in Turkey. Officially, Kruschchev blinked, but unofficially, Kennedy agreed to withdraw the U. S. Thor missiles from Turkey... i. e., it was we who blinked.
    Fidel Castro wanted the U. S. S. R. to engage in an all-out nuclear war with the U. S. even though he must have known that Cuba would be fried. (Of course, these top dogs could be confidant of being safely in the air, or dug into deep bunkers when the balloon went up.)
    For President Nixon, run a search on "Operation Giant Lance". The Wired news article, Wired: The Nukes of October, gives a readable presentation of this "
highly secretive military operation by the United States during the Cold War."
    With the internal collapse of the Soviet Union in 1989, the United States emerged as the sole remaining superpower. A gradual military drawdown began, leading to a budgetary "peace dividend". However, not everyone was happy with the United States beating its swords into plowshares. If you were the president of a major U.S. military corporation and your multi-million dollar annual bonus depended upon your bringing in ever more money for the company, you might have some incentives for keeping the money flowing. Furthermore, if your business were military weapons, you might honestly see everything in terms of military solutions. ("If your only tool is a hammer, everything looks like a nail.")
    In the meantime, a group of hawkish ex-liberals who called themselves "neo-conservatives" had gained influence in the Department of Defense and in other branches of government.
"As they did in the 1970s, the neoconservatives were instrumental in the late 1990s in helping to fuse diverse elements of the right into a unified force based on a new agenda of U.S. supremacy." They included Paul Wolfowitz, I. Lewis ("Scooter") Libby, Norman Podhoretz, Richard Perle, William Kristol, Elliot Abrams (Norman Podhoretz son-in-law), and Douglas Feith, Rupert Murdoch, Karl Rove, and Jeanne Kirkpatrick
    This neo-conservative agenda is embodied in Paul Wolfowitz' and I. Lewis "Scooter" Libby's
Defense Policy Guidance draft prepared in 1992 for Defense Secretary Dick Cheney. (I have just read that other members of the first Bush administration nicknamed Defense Secretary Dick Cheney "Genghis Khan".) This document set forth a plan for imposing a "Pax Americana" for the 21st century in which U. S. world dominance would be institutionalized. The wording in the plan that raised the hackles of leading Bush, the Elder, Republicans was phraseology that the U. S. would never again permit any other country or group of countries (viz.: the European Union?) to challenge the U. S. politically, economically, or militarily. We would knock them down before they got too big. A copy of this draft plan was leaked to the New York Times (probably by an appalled staffer). When Senator Joe Biden heard about it, he apparently  joined forces with National Security Advisor Brent Scowcroft and White House Chief of Staff James Baker in persuading Secretary Cheney to withdraw the plan. Their concern was apparently the same as mine: this document would openly and brazenly throw down the gauntlet to the other nations of the world, including the other nuclear superpower, Russia. Even if the U. S. privately endorsed such a policy, it seemed highly hubristic and imprudent to me to announce to the world that we're morally superior, and that we intend to control the world (not to mention being hugely out of touch with reality). Apparently, his fellow administrators saw it in a similar light.
The Babylonian captivity of the Republican Party?
    Nevertheless, by 2000, the neo-conservatives had gained a controlling influence within the Republican party. In the fall of 2000, they released a plan that is available on the web under the auspices of the Project for the New American Century. It endorses pre-emptive wars like the Roman policy of "
divisa et impera" and the British doctrine of "balance of powers". The United States would adopt the strategies of the Roman and British Empires (Lord Curzon's 'Great Game'), and would function as a de facto empire... something we'd more or less been doing throughout the Cold War.
    "
Nebraska Republican U.S. Senator Chuck Hagel, who has been critical of the Bush Administration's adoption of neoconservative ideology in his book America: Our Next Chapter, writes, 'So why did we invade Iraq? I believe it was the triumph of the so-called neo-conservative ideology, as well as Bush administration arrogance and incompetence that took America into this war of choice ... They obviously made a convincing case to a president with very limited national security and foreign policy experience, who keenly felt the burden of leading the nation in the wake of the deadliest terrorist attack ever on American soil.'"
    The point I'm trying to make isn't whether or not the neo-conservative agenda is right or wrong, but the fact that most Americans don't know what's happened. And yet, this idea of invading countries because we think they might pose a threat was the basis for the Bush Doctrine, enunciated in President Bush' 2002 State-of-the- Union address to Congress. and it lay behind our invasion of Iraq and our war-like stance vis-a-vis Iran and Syria. 
    How much else is being done in our names of which we're unaware? And why  haven't U. S. media made everyone aware of what has been happening behind the scenes?
    
The North American Forums
    There have been several North American Forums attended by leading officials from the United States, Canada, and Mexico. What's noteworthy about them is (1) the political celebrities who have attended them and (2) the fact that efforts have been made to keep everything about them secret. The keynote speaker at the September 12 to September 14, 2006, Second North American Forum held at the Banff Springs Hotel was the commanding general in Baghdad at the time, General Peter Pace, replacing Defense Secretary Donald Rumsfeld. Defense Secretary Robert Gates was a speaker at the 2008 North American Forum held in Washington, D. C., June 16, 2008.
    These North American Forums may be the greatest thing since fuzzy tennis balls. The problem is that it's happening in secrecy and below the public radar, and it again raises questions, at least in my mind, about the media.
    Another blatantly obvious happening is the way U. S. children are being taught Spanish on the sly. Since the entire Western hemisphere south of the Rio Grande is Spanish-speaking, this may be another good idea. The problem is that I've arrived at this through observation. I've never seen it mentioned in print.
    I think one has to be very careful with conspiracy theories. I know only one side of these questions. It may be that if I knew the other side, I would think differently about them. Still, I do have questions regarding the lack of publicity and public attention they've received.

2009-5-14 (Mid-Afternoon):  The markets seem to want to go up, but I think more time is required to determine whether this is a trend or just a bounce on the way down. If the indices rise 2% or more, then maybe it will be time to buy on this dip, but if not, it's probably smart to wait to see what tomorrow brings.
    Although Todd Harrison has predicted a "W-shaped market for 2009, I incorrectly described it as an "M"-shaped profile last night, thinking that an "M"-shaped market pattern better fit the case. But it doesn't. Todd has been interviewed on TV this morning (Toddo On TV: The Storm Before a Calm?) and is calling for a decline from the current "widow's peak" to a retest of the March lows, followed by a year-end rally. (What happens after the rally isn't mentioned.) He has updated his views in The Moment of Truth. and Randoms: Respect, Don't Defer.
    Paul Krugman has been traveling in Asia for the past week and hasn't posted anything since May 5th. 
    This article, "The End of American Financial Dominance?", discusses, among other things, American economist Mancur Olson's speculation (The Rise and Decline of Nations) that over time, a "waxy buildup" of special interest groups in Western nations (U. S., U. K., etc.) gain the influence necessary to feather their own nests at the expense of their electorates. In the United States, this includes the military-industrial complex, and the "finance-government complex" (dubbed "Government Sachs" by its critics). The author speculates that this might well unhorse the dollar as the world's reserve currency and United States as the world's most influential neighbor. 


2009-5-13:  The markets gradually worked their way lower all day, with the tussle between buyers and sellers continuing until the very end. The NASDAQ Composite fell 51.73 points (-3.01%) to 1,664.19, the Dow lopped off 184.22 points (-2.18%) to end the day at 8,319.45 , and the S&P 500 shed 24.43 points (-2.69%) to close at 883.92. Oil dropped $0.83 to $57.97... basically, $60 a barrel. Gold added $2 to close at $926, while the VIX rose 1.85 to 33.65. All's Right with the VIX predicts smooth sailing going forward. The explanation given for this laggardly performance is that retail sales have fallen slightly for two months in a row, instead of rising slightly.
    The first support level for the S&P, closing tonight at 884, is around 878: S&P Watch: Prepare for Profit-Taking.
    On March 12, after the markets had leaped 4%-5%, I wrote,
   
Since "everyone knows" that this rally isn't a true market turning point but is only a bear market rally, the upturn will probably have longer legs than most professionals anticipate. It will probably continue until the bears capitulate, and a number of pundits are calling it the new bull market. Then it will do the maximum possible amount of damage by turning around and falling further than ever, thus capturing part of the remaining $$$ of investors who have decided that they'd better get invested before it's too late. To put it another way, the day that you and I decide that this rally really is the beginning of a new bull market, and we reinvest sizable chunks of our cash in stocks to avoid being left behind--that, in retrospect, will be the day when this market rally tops, and begins bobbing a little lower and a little lower until one fine day, it begins a free-fall to new lows.
    T'was ever thus.

    Last Friday, on May 9, I titled the day's investment discussion, "The Capitulation of the Bears", and wrote,
   
Well, here we are, with a recovery in sight, with green shoots sprouting all over, and with the stock market continuing to rise. Now what?
    With the contrarian perversity for which the stock market is justly notorious, the markets have responded by plunging for the intervening three days. After peaking at 930 last Thursday on May 8, the S&P 500 has now fallen 46 points or about 5% from last Thursday's high. This presents a 'buying-on-the-dips" opportunity. The only question is: is this the bottom? If this is the second down-slope of the "W"-shaped market that Todd Harrison has been predicting for this year, then the indices will retest their previous lows. For the S&P 500, that's the 667 that it hit on March 6. Undoubtedly, the news that would accompany such a retest would once again drip with gloom and doom and with talk of Depression 2.0 again rearing its ugly head. In this scenario, the indices might have to fall until the bulls capitulated. Then when I and other investors were convinced that no one in their right minds should expect the stock market to rise, it would turn around and start up again. Of course, it's far too early to whether this is only the pause that refreshes, or whether it portends retests of the March lows.
    If the indices
do retest their March lows, can I be sure that the indices wouldn't fail their tests and plunge to new lows? And the answer is: no, I can't, but perhaps Todd Harrison can. After calling the bull market rise in early March when it seemed absurd, and predicting this pullback when it didn't seem as though it were about to happen, I'm developing even greater respect for Todd Harrison's investment acumen.
    What should we do now? For my part, I'll wait to see if this pullback deepens.
    I've thought about putting a collar on my portfolio by either buying an inverse ultra fund or by buying puts. The problem is that I could lose several thousand dollars in potential gains once the markets start back up unless I'm very disciplined and sell my inverse funds/puts the moment the indices climb back up to their present value.


2009-5-12:  The markets fell until afternoon, dropping below the key 900 level. Then buying interest picked up, and they rallied into positive territory, falling again to a break-even point in the last half-hour of trading. The NASDAQ Composite fell 15.32 points (-0.88%), the Dow added 50.34 points (0.6%) 0.6%) , and the S&P 500 slipped 0.89 points (-0.1%). Oil rose $0.86 to $59.71... basically, $60 a barrel. Gold added $10 to close at $924, while the VIX moved down a point to 31.80.
    It remains to be seen whether this is an end to the pullback or the beginning of something more serious. Michael Ashbaugh wrote today: Technical battle lines drawn on the S&P 500.

2009-5-12 (Noon):
    The market indices are off a little more than 3%, and the long-awaited pullback is upon us. The question is: how far will the markets regress? After a morning-long tussle between the buyers and the sellers, the buyers are probably waiting to see how far down the markets will go before they begin buying on the dip. My advisory service is taking a "wait-and-see" position. They will be buyers if the S&P drops below 900.


2009-5-11:  Whoa! Hold the phone! Both the Proshares Ultra Emerging Markets Fund, UUPIX, and the Proshares UltraChina Fund, UGPIX, are designed to generate twice the daily gains and losses of their underlying indices. (See the April 16th installment for a discussion of the failure of these ultra funds to deliver twice the returns of their underlying indices.)  That innocent-sounding word "daily" doesn't sound important but it turns out that it is. Proshares warns against buying and holding their Ultra funds for extended periods of time. The Ultra funds are designed for short-term traders. Long-term, the Ultra funds don't at all appear to deliver twice the gains and losses of their underlying indices. Let's take a look at the numbers.
The Proshares Ultra Emerging Markets Fund, UUPIX
    The Ultra Emerging Markets Fund UUPIX bottomed at $4.26 a share, and is running around $10 a share today. This gives it a current-price-to-valley ratio of $10/$4.26 =
2.35. EEM hit bottom at about $18.25 last November 20th, and has spiked as high as $32 a share on May 4th, yielding a ratio of $32/$18.25 = 1.75. This means that UUPIX is delivering a "performance ratio" of only about 2.35/1.75 = 1.34, which is a long way from the 2:1 ratio it's supposed to be providing. While UUPIX would have to more than quintuple to reach its October, 2007, peak, simple extrapolation would see it failing to recover more than about half its former ($54) peak, delivering only another  2.35 boost and topping out at $23.50.
    It's important to note that the emerging markets have already risen about 75% above their bear-market bottoms, and would only need to rise another 75% to reach their previous bull-market peaks. In other words, they're about halfway back to their October, 2007, tops.
The Proshares UltraChina Fund, UGPIX
    UGPIX bottomed at $3.18 on March 2nd and peaked on Friday at $7.75, so it's risen by a factor of  $7.75/$3.18 or
2.43. The iShares TR FTSE (China) Index FXI isn't exactly identical to the index UGPIX uses, but it's close enough. It has gone up from about $19 a share last October to about $38 a share last week, so it's up by a factor of about 2. This means that UGPIX has delivered only a little more than owning the FXI index itself when I would have expected it to have delivered twice FXI's gain .. to have 4-folded.
    The China Index is also somewhere in the neighborhood of halfway back to its 2007 peak, and might be expected to rise about 100% from where it closed tonight (at $34.36 a share) to about $70 a share. 
Obtaining Ultra Fund Performance Using Call Options
    Fortunately, there are alternatives to these ultra funds, one of which is the use of LEAPS (Long-term Equity Anticipation Securities). And for this, based upon several years of sometimes-painful experience, I'm looking now at the $20, January, 2011, FXI call (VHFAT) and the $35 January, 2011, FXI call, VHFAI. The strategy involved goes like this.
The First Case: The $35 January, 2011, FXI call, VHFAI
    The
$35 January, 2011, FXI call, VHFAI sells at this moment for $6.90 bid, $7.10 asked. OK. Let's say we pay $7.00 for one option (which is really $700 for an option on 100 shares of FXI, since options are sold in 100-share lots). Our option gives us the right to buy 100 shares of FXI for the next 20 months (until January, 2011) for exactly the $35 price for which FXI is selling today. So the $7 is the fee we pay to purchase this 20-month option. Obviously, if FXI is still selling for $35 a share in January, 2011, when the option expires, we'll have paid $42 a share for a $35 ETF, and have lost $7 a share. But if FXI doubles to $70 a share, (which I think may happen), then our option would jump by $35 a share - $7 a share for the option cost... in other words, by $28 a share on an option for which we paid $7. In other words, we would be able to sell our $7 option for $7 + $28 = $35 a share, 5-folding our money. I'm oversimplifying this a little, but this is probably pretty close to what will happen. (I'll defer an explanation of how, and how much I'm oversimplifying this until I discuss the second case (below).
The Second Case: The $20 January, 2011, FXI call, VHFAT
    
The $20 January, 2011, FXI call, VHFAT sells for $15.40 bid, $15.70 asked. OK. Let's say we pay $15.50 for one option. Our option gives us the right to buy 100 shares of FXI for the next 20 months (until January, 2011) by paying an additional $20 a share. In other words, we've already partially purchased our shares of FXI by paying roughly $15 a share right now. FXI is selling at this moment for $34.63, and we're going to pay $15.50 a share plus another $20 a share if we actually decide to buy our 100 shares, or $35.50 a share. Then the options cost going this route drops from $7.00 a share to $35.50 - $34.63 a share, or $0.87 a share. Wow! That's quite a price drop! If we cost-share by putting up $15 of the $35 cost for the stock, we can cut the option fee from $7.00 to $0.87! So what will happen if FXI rises another $35 a share to $70 a share? We paid $15.50 a share. We'll pretty well lose our $0.87 a share options fee, so our shares will rise $35 - $0.87 = $34.13 a share, bringing them to $15.50 + $34.13 = $49.63 a share on options which we bought for $15.50. Our gain factor will be $49.63/$15.50 = 3.17... not as good as the 5-folding that we got buying the $35 January, 2011, FXI call, VHFAI, but still respectable.
What Happens If FXI Goes Down in Price?
    Now let's look at what happens if a year from today, FXI drops in price  from about $35 a share to about $20 a share.
    Our $7.00 call option will be worth about $0.75 a share, while our $15.50 call option will be worth about $4.50 a share. Neither outcome looks terribly attractive, but with the $35 "at-the-money" call, you'll retain about 1/9th of your original value, whereas with the $20 "deep-in-the-money" call you'll salvage a little less than 1/3rd of your original investment.
    When this happens, you can, if you wish, sell your options for whatever paltry price they'll bring and then buy calls a year farther out (January, 2012). (These 2012 calls aren't available today.)
Managing Risk
    Because gains can be so large using these call options, one way to play this is to invest only a small fraction of your money in these aggressive calls, keeping the remainder in very conservative investments such as money market funds or very conservative dividend-paying stocks. For example, suppose you invested 25% of your portfolio in the $35, VHFAI calls described above, with the other 75% in money market funds or in conservative dividend-paying mutual funds. If FXI doubled, you would double the value of your portfolio. If FXI collapsed, the most you could lose would be 25% of your portfolio.
   
In other words, you would be weighing what I would consider a high likelihood of a 100% gain against, at most, a 25% loss.
   
If you wanted to double your portfolio using the more-conservative $20 VHFAT calls I've described above, you would have to invest 40% of your portfolio in VHFAT to double your portfolio.
    This is only one high potential-return tactic. As time permits, I'll add others. (This is a labor-intensive process.)


2009-5-9:  The Capitulation of the Bears
    Well, here we are, with a recovery in sight, with green shoots sprouting all over, and with the stock market continuing to rise. Now what? (
Please note the updates in the column on the right.)
    Don't look now but the price of gasoline at the pump has been rising. And the reason it's been rising is because the price of oil has been rising along with the prices of other commodities. And the reason commodity prices have been rising is because (1) the commodity markets are anticipating a recovery, and (2) the Chinese have been using their dollar reserves to buy up commodities at fire sale prices to take advantage of commodities bargains while simultaneously protecting their foreign reserves from inflation.  Or at least, that's my guess. (The Reuters CRB commodity price index (see below) has fallen from a high of, maybe 472, last July to 200 in March to 243.23 at yesterday's close (5/8/2009).)

    Now the question is: what's going to happen to our economic recovery if prices of food, raw materials, and energy start to rise as wages fall? Will this dampen down (stretch out) the recovery?
    Alternate energy projects, derailed by plummeting oil prices and scarce venture capital, may now take off, particularly as the alternative-energy incentive programs enacted by the U. S. and Chinese governments take hold.
    The dollar may fall again.
    The long-awaited market pullback may occur as pundits question whether this economic recovery is durable or is a false dawn.
    In the meantime, it's time to get serious about restoring the investment capital some of us have lost during this economic debacle.
    As a possible investment vehicle, I mentioned the Proshares Ultra Basic Materials ETF.UYM. Here's its chart:
Chart for UYM
       The chart for the Proshares Ultra Real Estate ETF URE looks like this:
Chart for URE.
    There's no telling how long it will take real estate to recover, or how far it will come when it does, but there's a lot of ceiling space available for this ETF when it finally does happen. 
    For more discussion of what to do next (or at least, what I plan to do next), please check
How might I realign my investments to recoup my losses now that the markets are starting to recover.


2009-5-8:  The stock market staged another "upside breakout" today.. The NASDAQ Composite gained 22.76 (1.33%) to 1,739, the Dow added 164.80 (1.96%) to end the day at 8,575