The DOW broke 13,000 in early trading and the financial media outlets were all gushing with elation.  It was short lived though and the indices gave up their early gains finishing essentially flat at the close. The DOW and S&P just managed to remain in the green while the NASDAQ finished down marginally.

Up Volume was 51% on the NYSE but only 39% on the NASDAQ.  This would explain the virtual tie on the big board, but not the NASDAQ.  If you take a closer look, much of the NASDAQ gains were attributable to Apple (APPL).  Take out Apple, and the NASDAQ had a much weaker performance than the price indicates.  Again, this is why mega cap stocks can skew the indices.

Gold, silver, miners, and oil all had a big day and many commodities are coming alive again.  The exception being some of the soft commodities, but they will likely catch up as more easing by the money center banks kicks in.  The ECB and Chinese Central Bank are the primary culprits now, with Japan, England, and our FED taking a back seat for the moment.

Commodity prices rising with interest rates while bond prices fall makes sense if expectations forward are for inflation.  And bonds are beginning to come under pressure due to all the easing.  The ProShares UltraShort Treasuries (TBT) is beginning to break out (see graph).   But shorting treasuries is a tricky game because Benanke could come in at any moment stepping up treasury buying.  If you short TBT, be sure and use stop losses.

ProShrs Ultra Shrt Treas 20Yr M-T 9 Mo TBT 2 21 2012

In overnight trading (Tuesday 11:35 p.m. CST) most of the Asian equity markets are in the green.  Part of the reason is the weaker Yen.  The Yen weakened to 80 per US dollar for the first time since August.  Over a 1/4% loss against the dollar in one day.  The Euro is slightly weaker against the dollar, but the Pound is strengthening.  Gold, silver, and oil are giving back a small portion of their impressive gains from earlier in our trading session.

Our US equity futures are slightly in the green.  The DOW futures are up 16 points, the S&P futures are up 2 points, and the NASDAQ futures are up 5 points.

Today’s economic reports include Existing Home Sales, and MBA Mortgage Applications.  We have 15 companies reporting earnings on the S&P today over a broad spectrum of industries.  Notable companies include Dollar Tree (DLTR) before market, and Windstream (WIN), Washington Post (WPO), Analog Devices (ADI), and Fluor Corp (FLR) during the regular trading session.  After hours, companies reporting include Hewlett Packard (HPQ) and Limited Brands (LTD).

At the moment, things are slightly positive.  Let’s see if they hold.

Blackbaud (BLKB), Boston Beer (SAM), Concho Resources (CXO), Continental Resources (CLR), Hewlett-Packard (HPQ), Lithia Motors (LAD), Oasis Petroleum (OAS) and Yamana Gold (AUY) will report earnings Wednesday. Existing-home sales will be the main economic report out Wednesday.

Although it was a 3 day weekend since the markets were opened, it seems like an eternity.  The Greek bailout talks over the weekend have gone from allowing Greece to default and kicked out of the EU to more conciliatory rhetoric yesterday.

The markets have been taking a breather lately moving sideways; probably waiting for some clarity.  The short term indicators have been losing some steam, but the longer term indicators remain bullish.  And by most short term technical measures, the markets are overbought.

Risk has been increasing as the markets never go straight up, but investors on the sidelines have been getting impatient.  They are now telling themselves ‘this time will be different.’

And money flows are pouring into equity mutual funds as of the last reading.  The most in almost a year.  Therefore, at this point, any pullback should be mild.  Unless of course we see a complete collapse in Europe.

Longer term investors should hold the positions they own, and any new positions should have an exit strategy in place.  I have added new positions on Friday for new accounts/clients who transferred in with too much cash.

I purchased the ProShares Ultra NASDAQ 100 (QLD) which moves 2 times the NASDAQ 100.  Again, I am using a broad ETF for easy, diversified exposure with a single trade.  If things reverse, I can exit with one trade and raise cash quickly.

Traders, especially those following the 14 day Stochastics, are getting buy signals.  If you are a seasoned trader following a momentum or trend strategy, you have (or should have) an exit strategy in place.

As I write this newsletter, it just came across the wire: the Greek bailout has been reached.  Greece will get their next tranche – 130 billion Euros.  One would think the markets would respond quickly and positively.  Thus far, the reaction has been muted but positive.

In overnight trading (Monday 10:20 p.m. CST) most of the Asian markets are in the red but have come off their lows heading in the right direction.  The US dollar was strengthening against the other major currencies, especially the Euro.  The dollar was up over 1/4% against the Euro, a big move by currency standards.  But now, the dollar has reversed and is actually down against the Euro.  Another big move in a matter of minutes.

Gold and silver are up moderately, but oil is up $1.68 to almost $105/barrel.  This is over concerns about the Iranian embargo against Europe.  If oil continues to climb, it will put pressure on and even derail our recovery.

Our US equity futures are bucking the Asian trend and in positive territory.  The DOW futures were up 70 points, the S&P 7, and the NASDAQ 11 earlier.  But surprisingly, swooned down during the settlement announcement and then picked back up slightly.  The DOW futures are  up 52 points, and both the S&P and NASDAQ futures are up 5 points but seem to be gaining strength again.  Look for a solid day today.

Today the only major economic report we have out is the Chicago FED National Activity Index drawing on 85 economic indicators.  It includes everything from industrial production and capacity utilization to unemployment and manufacturing.  Below zero means we are “below trend growth” and inflation is easing.  It was negative in November but went positive in December.  January should be positive if the FED policies are working.

We have 15 companies reporting earnings on the S&P today.  They include Home Depot (HD), Wal-Mart (WMT), Macy’s (M), and Intuit (INTU) during market hours.  Then after hours, we have Chesapeake Energy (CHK), Dell (DELL), Nabors Industries (NBR), and Kraft (KFT).

In the broader market we have RadioShack (RSH – before market), Walter Energy (WLT – before market), and Clear Channel Outdoor Holdings (CCO).  Companies reporting after the bell include Community Health Systems (CYH), Brocade Communications (BRCD), and Forest Oil (FST).

About a month ago I wrote about Magic Jack (CALL).  Back in mid January, the stock was trading at roughly $13.50.  Since then shares of the Magic Jack maker leapt 48% to a high of almost $20.  I thought it would be a good time to revisit Magic Jack and explore where I see the stock headed now as it has settled down to the $17 level.

Obviously performance like this must be backed by fundamental data, which we are seeing.  On January 19th the company announced they sold over eight million MagicJacks and the Board has increased the company’s share repurchase program up to $55 Million in common stock.

They went on to say that the amount of options outstanding has decreased to less than 1% of shares outstanding and the company has successfully extinguished all of the preferred like equity on its balance sheet as of yearend 2011. They noted that the balance sheet will be more transparent in the 2012 and we expect relatively few options outstanding by the end of year. CALL does not currently have any secured debt on its books.

What we do have is Oppenheimer Securities not only initiated coverage on this small cap, but started it with an outperform rating, which is a big positive and can be viewed as bullish going into an earnings report even after a big run.  On top of that, Zacks Investment Research published a research report on February 1st, initiating the stock with an outperform recommendation and set a target of $20.30.

We do know that Magic Jack sold over 365,000 of its new MagicJack Plus devices between November 20th and December 20th.  They are estimating 4q sales to come in around 55-60 million units, which would make for a very strong quarter.  They also recently cancelled a secondary stock issue, which tends to be bullish as offerings dilute the existing shares.  In addition, MagicJack also recently announced a share buy-back program.

Volume remains on the low side, which creates added risk and liquidity issues.  Generally it’s a smart idea to scale back investments in any stock that trades volume below 500,000 shares per day on average. This stock certainly fits that description.

Company Description
MagicJack VocalTec Ltd. is a provider of carrier-class voice over Internet protocol (VoIP) and convergence solutions for fixed and wireless communication service providers. They are the makers of MagicJack and MagicJack Plus, which you may have seen advertised on TV.

Their latest product is a hit with both consumers and with investors in the stock. Shares have been trending higher for the past five months after consolidating around the $9.50-$10.00 level in late July, early August  2011.

Financial Profile & Earnings
MagicJack is trading at about 17 times forward earnings.  Last quarter, they generated 3.91 million in income and earned .17 per share.  Last quarter’s earnings surprised estimates by 13.33%.  They are expected to lose 11 cents this quarter, but swing back to strong earnings per share growth over the next year.

MagicJack ended the quarter with assets of $114 million against total liabilities of $106 million.

The financials are certainly not perfect, but with strong sales, supportive news and updates as well as a strong technical channel, CALL qualifies as a momentum stock and could see further upside.

Overbought at the Moment
A 48% leap in a month’s time is certain reason to exercise caution and the stock is no doubt volatile.  But for those with an appetite for a little more risk this may be a stock you can buy on the pullback down at the $15.00 level.
Jared Levy is the Co-Host of the Wall Street Shuffle every Monday, Wednesday & Friday. He is a managing partner at Belpointe Capital, LLC where he is Co-manager of the Alpha-T fund. He is also the Momentum Stock Strategist for Zacks.com, where he is the Editor in charge of the market-beating Zacks Whisper Trader Service. You can reach Jared via email: Jared@thewallstreetshuffle.com

The markets rebounded yesterday, but was it on strong economic data and earning? Yes and no.  The economic data was solid as Initial Jobless Claims came in at their lowest level in almost 4 years and manufacturing picked up steam.

But the main reason was the European Central Bank (ECB) agreed to “exchange” Greek bonds of 50 billion Euros for new Greek debt “with the same features” but significantly extending out the maturity (?).  As a result, when news spread of the Greek-ECB deal, stocks rallied into the close yesterday finishing near their highs of the session with solid gains.

The NASDAQ demonstrated the most strength of the major indices up 1.5%.  And this was with Amazon (AMZN) down 2 1/2% and mega cap Apple (APPL) up less than 1%.  Due to size, both of these would put a drag on the rest of the NASDAQ.  The good news is Apple was able to keep above the psychological $500 century mark.

The S&P 500 and Dow Jones were up slightly over 1% and 1% respectively.   But the mid and small caps really led the charge outperforming all the major indices.

Up Volume was 86% on the NYSE and 85% on the NASDAQ, but total volume decreased slightly from Wednesday’s levels on both exchanges.  This is good for the bulls because we don’t want to see a “blow off” top.

The markets are technically oversold but in a trending market they will continue to become more oversold.  Also, we have just barely broken through resistance on the DOW and S&P.  Their graphs are almost identical so I just included the DOW graph.  Are the DOW and S&P at a double top, or will they continue the next leg higher.  That is why you need to remain active and pay attention.

DOW Jan 2011 - Feb 16 2012 - Double Top or Breaking Through

On the NASDAQ, we have easily gapped above resistance (see graph) and you have to go back years to find the next resistance level.  I believe the NASDAQ is more susceptible to a larger pullback as it has gone too far too fast.

NASDAQ Jan 2011 - Feb 16 2012 - Above Resistance

For right now, I am going with the trend and did not cull my positions or raise cash.  The old adage “the trend is your friend” has never been more true.  That said, the trend can, and will, turn on you quickly.

Today we have the Consumer Price Index (CPI) and Leading Indicators which is a smorgasbord of different leading indicators by economists from manufacturing orders, building permits, average weekly initial jobless claims, stock prices, etc..

We have only 4 earnings release today on the S&P.  They are Ventas Inc (VTR) and Campbell Soup (CPB) both before market opens.  Then during the regular trading session, we have Heinz (HNZ) and Constellation Energy (CEG).  Other companies reporting include Digital Realty Trust (DLR), LifePoint Hospitals (LPNT), AMERIGROUP (AGP), and Hospitality Properties Trust (HPT).

In overnight trading (Thursday 9:20 p.m. CST) the Asian markets are mixed.  Gold, silver, and oil are marginally higher.  The US dollar is weaker against the Yen and Pound, but flat against the Euro.

Our US equity futures have reversed their earlier evening gains and are now all flat.  Again, give your positions room to breathe, but stay alert.  This market is overextended and due for a pullback.

On Friday, Campbell Soup (CPB) and Lincoln Electric (LECO) are among the companies expected to report quarterly results. The day’s economic news will include a new reading for the consumer price index.

In yesterday’s newsletter I said we would see just how resilient these markets really are.  The major indices all reversed Wednesday on rising volume.  The DOW reversed early.  Then  Apple (AAPL) reversed sharply at midday bringing down the NASDAQ and S&P with it.

Apple is the largest weighted component of both indices, and so the S&P and NASDAQ reversed midday ending near their lows of the day (see 1 Day Graphs).

DOW 1 Day - Opened at High, Sold Off Throughout the Day on 2-15-2012

S&P 1 Day Peaked at Noon, then Sold Off on 2-15-2012

NASDAQ 1 Day - Peaked at Noon, then Sold Off on 2-15-2012

The good news is that Down Volume was 65% of the NYSE and just 53% of the NASDAQ.  Therefore selling wasn’t as intense as the price action indicates.  And, if you take Apple out, the NASDAQ didn’t look nearly as weak.

The bad news is the higher overall volume could be a sign of institutional selling.  Total volume wasn’t spiking at panic levels though, and up till now, the markets had been shedding off the bad economic news continuing higher.  But now, the bad news seems to be piling on and may wear on investors psyche.

The EU is postponing their bailout to Greece and proposing a much smaller bridge loan until they get more concessions.  The FED’s FOMC (Federal Open Market Committee Meeting) minutes were released in the early afternoon.  There was dissention and subdued support for round three of quantitative easing (QE3).  Not what investors wanted to hear.

Late in the day you had Moody’s coming out threatening to downgrade 17 major international banks.  UBS, Credit Suisse, and Morgan Stanley by as much as 3 levels, and Goldman Sachs, Deutsche Bank, JPMorgan, and Citigroup by as much as 2 notches.  Thus investor sentiment maybe changing and becoming more defensive.  Gold and gold mining stocks were one of the few places to hide yesterday showing positive results.

Thus far this still may be a light pullback.  But we need to monitor the situation closely to see if it accelerates to the downside.  Definitely hold off on any new buying and stand ready to raise cash if necessary.

The old saying used to be “So goes GM, so goes the nation,” or market.  I believe you can now  replace GM with Apple.  It is one of the most widely institutionally held stocks.

Additionally, Apple just asked Amazon to pull all iPods for sale on Amazon’s website in Chinese markets over a trademark  dispute with a Chinese  Shenzhen-based company.  This should put further pressure on Apple stock.

Dr. Chris Katcher and Gil Morales pointed out even before the announcement that if Apple fails to hold to hold the 500 price level it could trigger the Livermore Century Mark Rule making the stock a short (of course using stop losses).  This strategy is only for active traders, not for investors.

For those of you who don’t know, Jesse Livermore was a very famous trader at turn of the last century (early 1900s).  In fact, many consider him to be the father of technical trading.

His century rule(s) is that when a stock breaks a century mark – 100, 200, etc.. – to the upside, it tends to continue the uptrend a while for psychological reasons.  Likewise, when a stocks breaks down below a century mark, it tends to continue to the downside.

These are not hard, fast rules, but may be a setup and opportunity to pay attention too.  The main  point is to use Apple as an one indicator for the market’s health.  When Apple succumbs, the markets will likely succumb.

Also pay attention to how the investors react to the negative news.  Many times, it is more about the investors than the investments.

Today the economic reports include the Producers Price Index (PPI), Initial Jobless Claims, Housing Starts, Building Permits, Mortgage Delinquencies and Foreclosures, and the Philly FED Business Outlook.  This is a broad, full day of economic data.

We have numerous companies reporting earnings today across multiple sectors.  We have 18 in the S&P alone.  Among them are Waste Management (WM), Health Care REIT (HCN), Duke Energy (DUK), Nordstrom (JWN), Apache (APA), Frontier Communications (FTR), DirecTV (DTV), and Applied Materials (AMAT).

On the broader markets, a few include Ultra Petroleum (UPL), Allscripts Healthcare Solutions (MDRX), Advanced Auto Parts (AAP), and Hyatt Hotels (H).  Oh yea, I almost forgot, General Motors (GM).  GM is not in the S&P anymore as it was removed when it filed for bankruptcy.

In overnight trading (Wednesday 10:42 p.m. CST) the Asian equity markets are firmly in the red.  Silver, gold, and oil are giving back some of their gains from our trading session.  The US dollar is up against the other major currencies, and up significantly against the Euro.

Our US equity futures are also in the red.  The DOW futures are down 51 points, the S&P futures are down 7 points, and the NASDAQ futures are down 13 points.  Looks like we might have another tough day.  Watch for acceleration.

The markets came off their lows yesterday to finish essentially flat.  At one point, the DOW was down almost 90 points but broke even, just like the both the S&P and NASDAQ.  The markets rallied hard in the last  just shows how resilient the markets have been (see 1 day DOW graph).

DOW 1 Day - Strong End of Day Rally to Breakeven on 2-14-2012

The internals are showing the uptrend is looking a little tired.  Up Volume was just 36% on the NYSE and breadth was negative with decliners beating advancers by almost 2 to 1.  The markets are becoming more selective, or narrow, in buying.

The midterm outlook for stocks is still bullish, but the short term is showing signs of fatigue.  The only thing I worry about is that sometimes short term pullbacks turn into a more severe correction as stop losses get triggered and computerized trading kicks in.

Then, about an hour before the close, the EU announced it would postpone the meeting in Brussels to give Greece their next bailout tranche.  They apparently want even more concessions.  One would think this would spook the markets and test just how resilient these markets are.  It has been a news driven market, and this news should be decidedly bad.

But the markets rallied strong into the close instead.  This tells me something is in the works behind the scenes and possibly the big, institutional money is taking advantage.

We are just under resistance (red line on graph), and if we do rollover, support (green line) is around 12,750.  But if we break through resistance, momentum traders will pile on and fuel the rally.  We are at a pivotal point here, and the next day or so will be key.

DOW 1 Yr At Resistance with Support at 12,750 on 2-14-2012

In overnight trading (Tuesday 10:00 p.m. CST) the Asian markets are in the green.  Gold, silver, and oil continue to rally.  The US dollar is stronger against the Yen on expectations of easing by the Japanese Central Bank, but weaker against the Pound and Euro.

Our US equity futures are in the green too.  The DOW futures are up 63 points, the S&P futures are up 7 points, and the NASDAQ futures are up 12 points.

Economic data out today include MBA Mortgage Applications, the NAHB Housing Index, Industrial Production, and Empire Manufacturing.  We also have revisions of the Producers Price Index (PPI), which should be interesting and often looked over and forgotten.

We also have 16 S&P companies reporting earnings.  Among them are Dean Foods (DF), Dr.Pepper Snapple (DPS), Devon Energy (DVN), Deere & Co (DE), Abercrombie & Fitch (ANF), NVIDIA (NVDA), Marriott (MAR), NetApp (NTAP), CF Industries (CF), and CBS (CBS).

It is a broad swath of industries and sectors providing solid clues as to how well the recovery is taking hold.  Watch for the revenue growth, not the actual earnings to determine the trend going forward.  But for right now at least, is seems the rally will continue.

We had a solid day yesterday on the heels of the Greek parliament passing the austerity measures required by the EU (and Germany).  And the internals weren’t too strong to worry about a “blow off” top.  Good news!

Why is this good news do you ask?  Because for the Greek austerity to be passed, one would think you would have a stronger Up Day.  But Up Volume was 77% on the NYSE and just 69% on the NASDAQ.  Total volume was down across the board.  So we did not get a “blow off” top.

Investors are probably still just waiting for the EU to formally pass the next tranche for Greece on Wednesday.  Also, there was hardly any economic data or earnings reports yesterday.

The markets continue to be “overbought” by most technical indicators.  We are, and have been, due for a pullback.  Any pullback will likely be shallow as the supply/demand picture is still positive for stocks.

Moody’s downgraded Spain and Portugal late in the afternoon yesterday, along with Slovakia, Slovenia, and Malta.  They went on to say that France and Britain may be stripped of their AAA ratings.

As a result, the Asian equity markets (Monday 10:20 p.m. CST) are down in overnight trading.  Silver, gold, and oil are also giving back some of their recent gains.  The US dollar is up against all 3 major currencies, the Yen, Pound, and Euro.

Our US equity futures are moderately in the red.  The DOW futures are down 15 points, and the NASDAQ and S&P futures are down 1 point each.

The economic data out today include the NFIB Small Business Optimism, the Import Price Index, and Retail Sales.  We have 11 companies reporting on the S&P today.  They include Goodyear (GT) and Watson Pharmaceuticals (WPI) in pre-market, and Host Hotels & Resorts (HST) and Avon (AVP) during market hours.  Finally, in after-hours, we have MetLife (MET).

In the broader market, we have Zebra Technologies (ZBRA) and Fossil (FOSL) in pre-market, and Weight Watchers (WTW) during the regular trading session.  After hours, American Capital (ACAS) and Arch Capital Group (ACGL) report earnings.

Again, it looks as if any pullback will be shallow.  And, I expect a resumption of the rally on Wednesday if they finalize the Greek deal.

The markets had their first major down day of the year Friday on concerns the Greek debt crisis deal was faltering.  Down Volume was 79% on the NYSE and breadth was negative with decliners beating advancers by over 3 to 1.

The good news is the markets came off their lows of the day recouping around 1/2 their losses on all the major indices with a late day rally.  At one point, the DOW was down well into the triple digits but closed down 89 points.  I provided a 1 day graph of the DOW and S&P for Friday.  The NASDAQ had a similar chart.  It just shows the resiliency of these markets thus far.

DOW 1 Day End of Day Rally Recouping Half Losses - 2/10/2012

S&P 500 1 End Day Rally Recouping Half Losses - 2/10/2012

Even better news for the markets is that Sunday the Greek parliament secured the necessary votes to pass the uncomfortable austerity measures amid rioting in the streets.  This will be bullish for the markets today and expect a rebound all else being equal.

Europe is putting a band aid over their problems and are content to print their way out of their debt crisis.  This will be bullish for commodities and stocks.

I hate to say I told you so, but now there is a bigger crisis looming far out on the horizon.  Japan’s economy contracted more than forecast amid an export slump.  Japan, the most indebted industrialized country in the world, is borrowing even more.

I stated a few months ago that all the attention focused on Europe, although well deserved, would be dwarfed by Japan.  Credit default swaps (CDS) on Japanese sovereign debt is on the rise by hedge funds.

I still believe the best place to be for stocks is the U.S. right now.  Especially on a risk adjusted basis.  You don’t have the foreign currency translation risk and, frankly, our markets are the most stable at this point.

The outlook for stocks is actually becoming more positive.  This bull market we have been in has been primarily lack of supply (selling), and not strong demand.  However, this may be changing. Demand has been picking up in volume and strength.

Part of the reason is investors are realizing bonds are becoming more risky and you aren’t being compensated for that risk.  Also, the yields are just not paying enough to entice new buying.

We will have increased volatility going forward and investors will have to learn to hedge the volatility, or learn to live with it.  Easier said than done.

Taken collectively, all this will be bullish for gold, silver and commodities in the long run. And for now, bullish for stocks too.  Gold and stocks will continue to be positively correlated.

In overnight trading (Sunday 9:15 p.m. CST) most of the Asian markets are in moderately positive territory.  Gold, silver, and oil are firmly in the green.  The US dollar is up against the Yen, but down against the Euro and Pound.

Our US equity futures are in the green too.  The DOW futures are up 50 points, the S&P futures are up 6 points, and the NASDAQ futures are up 11 points.

We have no major economic reports due out today,  and we only have 2 S&P companies reporting earnings, both after the bell.  They are Masco (MAS) and Fidelity National Information Services (FIS).  Rackspace (RAX) is also reporting in after the close tomorrow.  This is a widely followed growth stock, and will provide clues about the hosting and cloud computing space.

Selectivity continued in the markets yesterday with fewer stocks making gains.  Therefore, breath is narrowing.  This rally is aged and due for a pullback.  This hasn’t happened as of yet.  But, as I said in yesterday’s newsletter, stand ready to raise cash and cull your weakest positions if selling accelerates.  Hold off on new buying and look for a better entry point.

It seems to be a regular theme the past few days, the markets claw their way to modest gains by the end of the day.  Total volume was higher on the NASDAQ but relatively unchanged on the NYSE.  Up Volume were only 55% on the NYSE and was even worse on the NASDAQ, registering at just 45%.

Also, the NASDAQ was skewed by the mega cap performance of Apple (APPL).  Take out Apple, and the NASDAQ numbers don’t look nearly as positive.

We may be at a short-term inflection point on the major indices.  Although the NASDAQ has broken through resistance, both the DOW and S&P are sitting right at resistance.  These resistance levels are from spring and summer last year.  For the DOW, resistance is at 12,892 just below its close of 12,890.  For the S&P, resistance stands at 1356 below its close of 1352. These are represented by the red lines (resistance).

DOW 2011 to Date - At Resistance - 2/9/2012

The good news is we do have support fairly close below their current respective levels.  For the DOW, support is 12,766.  For the S&P, support is 1340.  These are represented by the green lines (support).

S&P 2011 to Date - At Resistance - 2/9/2012

For the NASDAQ, we have gapped up above resistance unless you go back years.  And, the NASDAQ is more susceptible to a stronger pullback.  Support for the NASDAQ is around 2853.

NASDAQ 2011 to Date - 2/9/2012

The markets have been going sideways for the past few days.  Whether this is accumulation and just a breather, or distribution with the beginning of increased selling remains to be seen.  It is better to be patient than guess which direction the markets intend to go.

Uncertainty over Greece remains as the pending agreement had a setback.  Therefore, the markets are getting skittish.  I am still bullish in the midterm.  First, low interest rates are pushing investors out of bonds, CDs, and money markets looking for yield.  Second, we have the “Bernanke Put.”  He stands ready to intervene if things erode.  Finally, I feel the Greek situation will get resolved.  The Germans and the EU are just holding out for the best possible concessions from Greece.

In overnight trading (Thursday 11:10 p.m. CST) the Asian equity markets are mixed.  Silver is down 5 cents and gold is up $1.69, therefore both relatively flat.  Oil is down 1/3% at $99.50/barrel.  The US dollar is flat against the Yen, but up against both the Euro and Pound.

Our US equity futures are in the red.  The DOW futures are down 46 points, the S&P futures are down 6 points, and the NASDAQ futures are down 8 points.

We have 5 companies reporting in the S&P today.  They include the NYSE Euronext (NYX), PPL Corp (PPL), and Sunoco (SUN).  Some other companies reporting are Arch Coal (ACI), Alliant Energy (LNT), and Calpine (CPN).

The markets finished higher with a mild rally in the afternoon after a choppy trading session.   Overall volume was higher across the board.  But, Up Volume was only in the mid 50% on the NYSE but only in the high 40s on the NASDAQ.  And breadth was barely positive with advancers just beating out decliners.

This means the markets are becoming more selective both in sectors and individual stocks.  This is what is known as a “narrow” rally, versus a broad based rally.

Supply is stable but demand is weakening.  This rally is becoming long in the tooth and we need an impetus for the markets to climb higher.  Investors are still waiting for some resolution from Greece, but it hasn’t happened yet.  And it looks like the talks may have stalled.  If this happens, it could change the market dynamic quickly.

It is not time to sell some positions and raise cash just yet, but you need to remain diligent.  Be ready to cull your weakest positions.  If we do get a pullback, you will have cash on hand to move into the sectors showing the most relative strength at that time.  The good news is that the midterm picture remains positive, we are just seeing some short term weakness.

In the bell, Groupon (GRPN) reported a loss for the last quarter despite revenues almost doubling.  They were crushed in afterhours trading down over 15%.  Just the opposite happened with Buffalo Wild Wings (BWLD) and Ralph Lauren (RL). They were both rewarded with surprises to the upside afterhours.  Cisco (CSCO) also beat estimates after the bell.  With its market cap, it will help to support the NASDAQ.

In overnight trading (Wednesday 11:10 p.m. CST) the Asian equity markets are mixed.  Gold, silver, and oil are in positive territory.  The US dollar is up against the Yen, but down against the Euro and Pound.  Our US equity futures are down marginally.

Economic reports out today include Initial Jobless Claims and Wholesale Inventories.  We have 14 S&P companies reporting earnings today. Those include Noble Energy (NBL), Lorillard (LO), Philip Morris (PM), PepsiCo (PEP), and Sealed Air (SEE). Other notable companies reporting are Expedia (EXPE) and Nuance Communications (NUAN).  Afterhours, we have Pitney Bowes (PBI) and Expedia (EXPE).

The markets were in the red most of the day yesterday.  Then, late afternoon rallied on hopes of a Greek solution.  The 3 major indices finished with modest gains.

Total volume was up across the board.  However, Up Volume was only 48% on the NYSE and only 53% on the NASDAQ.  Although this is not that strong, the markets were gaining momentum going into the close.

The S&P, DOW, and many other indices broke through their highs of mid 2011 (see S&P Graph).  In fact, the DOW is sitting right on top of its highs of last year.  Even though the markets have been moving sideways the last few days, I am optimistically bullish.

S&P 500 Breaking Through Mid Yr Highs of 2011 - 2/7/2012

The reason is it looks as though the Greek bailout may be at hand.  The EU and IMF were “forcing” banks to write down their Greek debt, but as of yet, wasn’t going to write down their own holdings.  Now it looks as though they have changed their minds.

And the Greek Prime Minister is now going to seek consensus among their Parliament.  If he can get it done, it will ignite a rally.

For this reason, I increased my equity exposure with the ProShares Ultra Russell 2000 ETF (UWM).  This will provide broad exposure with a single trade.  If the deal falls through or I become bearish, I can unwind with a single trade.  I did this after the markets reversed in the late morning/early afternoon.

ProShares Ultra Russell 2000 UWM - 2/7/2012

Hopes of a this solution has flowed over into Asia.  In overnight trading (Tuesday 11:00 p.m. CST) all of the Asian markets are in positive territory.  Oil is up at $98.81/barrel.  Silver is down slightly and gold is flat after their strong showing yesterday.

The US dollar is up against the other major currencies, especially the Yen.  Our US equity futures are in moderately positive territory.

Today the only major economic report out is the MBA Mortgage Applications.  We have 17 S&P companies reporting earnings today across many sectors.  Among them are Dean Foods (DF), Devon Energy (DVN), Abercrombie & Fitch (ANF), Deere & Co (DE), NVIDIA (NVDA), Marriott (MAR), NetApp (NTAP), CF Industries (CF), and CBS (CBS.

Other companies reporting today include Cisco Systems (CSCO), O’Reilly Automotive (ORLY), Ralph Lauren (RL), Visa (V) and Whole Foods Market (WFM).

It was the post Super Bowl Doldrums.  The markets opened Monday firmly in the red and then slowly came back to almost even.  All in all, it was a hugely boring day and we need to wait for more data.

Total volume was down over 20% on both the NYSE and the NASDAQ.  Down Volume won registering 52% on the NYSE and 55% on the NASDAQ.

The good news is that the markets appear to be in an accumulation phase and likely just taking a breather after a multi day rally.  And, they finished at the highs of the day, always a bullish sign (see S&P 1 Day Chart).  Look for the markets to have a mild pullback and continue to rally.

S&P 500 1 Day 2-6-2012

The bad news is investors are waiting for some type of resolution out of Europe over the Greek debt crisis.  Greece missed another deadline to answer bailout terms put forth by the IMF and the EU.

Concerns about a “disorderly” default (like there is such a thing as an orderly default) could spark selling over renewed fears of another global financial crisis.  Thus far the markets have been resilient to Greece, but this could change if they actually decide to go it alone and default.

In overnight trading (Monday 10:55 p.m. CST) the Euro is again under pressure over the EU debt crisis.  The Euro is down -.21% against the dollar, a fairly substantial move for currencies.  The Yen is also lower against the US dollar by -.2%.  The Pound is down slightly against the dollar so it appears to be a trifecta for the US dollar.  If the dollar strengthens, it could put pressure on stocks.

The Asian markets are mostly in the red.  Notably all the Chinese exchanges are down around -2%.  Silver is down slightly, and oil and gold are flat. Natural gas, however, is up .63%.  Our US equity futures are flat.

We have 12 companies reporting in the S&P today. They include Coca Cola (KO), Western Union (WU), Disney (DIS), Hartford Financial (HIG), and Life Technologies (LIFE).   On the broader market we have Netgear (NTGR), Buffalo Wild Wings (BWLD), Panera Bread (PNRA), Solar Winds (SWI), and Atmos Energy (ATO).    Economic reports out today include Consumer Credit and the JOLTs Job Openings.

Again, the markets remain bullish except for the EU situation.  You need to monitor this closely as it will have the biggest impact on our markets today.

Please say a prayer for our radio show producer, Shane Bell. He was in an motor vehicle accident last night.  He is in stable condition at a local area hospital but has some broken bones.

Stocks continued higher Friday, thanks to a “solid” January jobs report.  It doesn’t matter the numbers were mostly actuarial, the markets loved it.

The NASDAQ is at an 11 year high and showing the most relative strength compared to the S&P and DOW.  But the S&P 500 and Dow Jones both had strong gains as well over 1% each.

Boeing (BA), Caterpillar (CAT) and IBM (IBM) were among the biggest point gainers.  The small and mid cap sectors had the strongest showing and what you want to see.

Volume climbed on both major exchanges and above their respective 30 day moving averages.  More importantly, Up Volume was 86% on the NYSE and 83% on the NASDAQ.  As a result, interest rates rose and treasuries sold off as investors pulled money out of bonds and into stocks.

In fact, the ProShares UltraShort 20 Yr Treasury ETF (TBT) was up 4.22% Friday.  Treasuries have been in a long term bull market and TBT has been a losing proposition thanks to Bernanke.  TBT has been bouncing along the bottom since last September, but gapped up big on Friday (see graphs).

ProShrs Ultra Shrt Treas 20Yr 9 Mo TBT 2 5 2012

ProShrs Ultra Shrt Treas 20Yr 4 Mo CloseUp TBT 2 5 2012

Unless you are a short term trader, I would not recommend TBT as it is highly volatile, and if interest rates do continue to rise, you can bet Ben will step in and buy even more treasuries to again artificially suppress interest rates.  Long term, TBT will eventually win out as interest rates will rise.  It will be the right play, I just want to see the trend firmly established and the FED concerned about inflation, not trying to create it.

We are still in the primary uptrend of a bull market for stocks.  The equity markets are, however, oversold and due for a pullback.  But selling has not been increasing so any pullback should be mild.  The only caveat is Greece.

In overnight trading (Sunday 8:23 p.m. CST) the Asian equity markets are up on the heels of our jobs data.  Gold and silver are higher too. Oil is down at $97.24/ barrel.  The US dollar is slightly weaker against the Yen, but stronger against the Pound and Euro.

And, it is significantly higher against the Euro over Greek bailout concerns.  Our dollar is up over 1/2% against the Euro, and that is huge by currency standards.

Our US equity futures are in the moderately in the red.  The DOW futures are down 29 points, the S&P futures are down 4 points, and the NASDAQ futures are down 5 points.

There are no major economic reports out today, but 11 companies reporting earnings on the S&P.  Among them are  Sysco (SYY – before market), Loews (L), Humana (HUM, and Hasbro (HAS).  After the bell, we Anadarko Petroleum (APC) and Yum Brands (YUM).

Again, things are looking fairly solid for stocks, but Greek debt talks have been extended back until today and time is running out.  If things don’t get resolved, it could change the markets’ dynamics quickly.

With the exception of the DOW, the markets had positive results yesterday albeit muted.  Total volume decreased across the board by almost double digit.  Demand was weaker on the NYSE with Up Volume coming in just below 60%.  The NASDAQ was stronger with Up Volume registering 67%.

The good news is small and mid cap stocks had better gains than the overall market.  But the markets are nervous ahead of the Unemployment Report due out today.  Resistance levels are around 2% to 3% above current levels.

The big question is whether the market is losing steam or just taking a breather before climbing higher.  Supply, or selling, has not increased and this is bullish.  Any pullback will likely be shallow unless selling volume accelerates.  This will be important to monitor but thus far we are still in a bullish trend.  Pullbacks can sometimes turn into something much deeper, especially if sentiment changes.

China announced yesterday that is might be willing to assist in the EU bailout via the IMF.  I believe this is because they are finally feeling the whiplash of declining European sales.

In fact, most Asian markets are down in overnight trading (Thursday 8:06 p.m. CST) after Mazda and Nippon Sheet Glass increased loss forecast due the stronger Yen and the EU debt crisis hurt global sales.  This will likely be the trend.

Silver and gold are down slightly, but oil seems to be stabilizing at $96.44/barrel.  The US dollar is down against the Yen, but up against both the Pound and Euro.

Our US equity futures are essentially flat.  As I said, we have the Unemployment Rate out today along with Underemployment Rate, a better number but still understated.  We also have Average Hourly Earnings, Average Weekly Hours, and Factory Orders among other economic date.

We have 9 earnings reports due out on the S&P today. They include Tyson Foods (TSN), Simon Property Group (SPG), Weyerhaeuser (WY),  Estee Lauder (EL), Clorox (CLX), and Constellation Energy (CEG).  On the broader market companies I will be watching include Annaly Capital (NLY) and Southern Copper (SCCO).  I don’t own Southern Copper but copper companies are a good indicator of economic and industrial health.

The markets advanced solidly yesterday on strong volume.  Total volume increased double digit on both exchanges and was well above their respective 30 day moving averages (30 DMAs).   As I stated on air today, Up Volume was 85% on the NYSE and 87% on the NASDAQ.

We had a broad based rally with mid and small cap leading the way.  Industrials, Basic Materials, and Technology were among the best performing sectors.   We obviously had expanding demand and contracting supply.   All of these are bullish signs.

Although the markets did not finish at their highs of the day and pulled back in afternoon trading, this can actually be seen as positive.  If we had had a huge, 90% Up Volume day coupled with huge percentage gains, this could be viewed as a “blow off” top, at least in the short term.  Therefore, we have room for a further rally.

One bullish technical indicator being discussed on Wall Street  is the Golden Cross.  This is where the 50 DMA crosses over the 200 DMA when both are in an upward trend.  What this means in layman’s terms is that short term momentum is catching up and outpacing the long term trend and thus there is short term strength in the markets.

In most cases when this happens, the markets have strong positive results.  The opposite bearish indicator is the Iron Cross, or Death Cross.  This is when the 50 DMA goes below the 200 DMA when both moving averages are trending downward.  Conversely, this means short term selling is accelerating downward faster than the long term trend.

Both of these makes sense because the longer term, 200 DMA takes more sequential up or down days to move the average.  The 50 DMA is more sensitive to shorter term trends and market movements.

I want to take it a step further by examining the slope or steepness of the line/average, especially the 50 DMA.  This actually measures the Rate of Change (ROC) of the moving average.

I have attached a longer term graph of the S&P 500 going back to 2002 to show you a few examples of both the Golden Cross and the Iron (Death) Cross.  Then I have broken up into 2 midterm segments so you can see a closer view and make it easier to visualize.

S&P 500 L-T 2002-2012 Golden Cross vs Iron Cross

S&P 500 M-T 2002-2007 Golden Cross vs Iron Cross

S&P 500 M-T End of 2007-Feb 1 2012 Golden Cross vs Iron Cross

The green arrows (bullish) mark the Golden Crosses, and the red arrows (bearish) mark the Iron Crosses.  The purple line is the 50 DMA and the yellow line is the 200 DMA.  There are a few times when the averages crossed one another in either direction but the slope was flat (more horizontal).  This is not nearly as conclusive.  And remember, they both have to be trending in the same direction.

However, when the slope was steep (more vertical) in either direction, it provides more convincing confirmation.   A negative slope from top left to bottom right is bearish, while a positive slope from bottom left to top right is bullish.  As you can see, it can help you make better decisions in marking trend reversals.  There is a lot to digest, so if you have any questions, please feel free to e-mail me at dstewart@noramassetmanagement.com.

In short, probabilities suggest this markets have further to climb.  Not only that, they actually may gain momentum.  Watching the slope of the line as it unfolds will help determine the conviction of buying, or lack thereof.

We have 38 companies reporting earnings from the S&P today covering a broad spectrum of industries.  Some notable companies include Gilead Sciences (GILD), MasterCard (MA), Goodrich (GR), PulteGroup (PHM), Cummins (CMI), International Paper (IP), CME Group (CME), Merck (MRK), Stericycle (SRCL), and Xcel Energy (XEL).

Today’s economic reports include Initial Jobless Claims, Productivity and Unit Labor Costs, and the ISM New York Purchasing Managers Index.

In overnight trading (Wednesday 10:43 p.m. CST) the Asian equity markets are firmly in the green. Gold and silver continue higher, but oil is flat.  The US dollar is weaker against the other major currencies.

Our US equity markets are also in the green.  The DOW futures are up 23 points, the S&P futures are up 3 points, and the NASDAQ futures are up 4 points.

The markets’ internals ended in a near tie yesterday.  Up Volume versus Down Volume was a virtual stalemate.  When the markets don’t give you clear signals or direction, sometimes doing nothing and waiting for more information is prudent.

The good news is technology heavy NASDAQ, small cap, and mid cap have been catching up and outperforming the S&P and DOW.  This is bullish for the markets.  We want small cap and mid caps to lead a rally.

Chinese manufacturing data expanded unexpectedly reversing losses in many Asian markets overnight.    And, South Korea just announced it would buy Chinese stocks and bonds for its foreign currency reserves.  This provided optimism at least for an Asian recovery.  The only downside is this doesn’t give the Chinese Central Bank more reason to ease monetary policy.

Additionally, there is talk a Greek debt deal is close at hand, although we have heard this before.  Bondholders are said to be willing to accept the lower coupons with a “sweetener” tied to Greek GDP.  If the Greek economy recovers, the bondholders would receive a higher coupon based upon growth.  I can only assume the bondholders feel this a better than nothing with a default.

The manufacturing data from China will add some boost to the markets, but a Greek deal would likely ignite a rally.  For this reason, I have exposure to a broad based S&P 500 using the ProShares Ultra S&P 500 ETF (SSO).  Getting ahead of the overseas news is nearly impossible, but you can have your sell trade ready just in case the Greek deal falls through and things get ugly.

I still hold core positions in silver and gold, and MLPs and utilities for income.  And I still have a healthy cash position ready for when opportunities arise.

We have 21 companies reporting earnings today.  Among them are Whirlpool (WHR), Aetna (AET), the NASDAQ Group (NDAQ), Chipotle (CMG), and Tesoro (TSO).

Economic data includes MBA Mortgage Applications, ADP Employment Changes, Construction Spending, ISM Manufacturing and Prices Paid, and Vehicle Sales.  Taken collectively, it will provide clues as to how well the US economy is weathering the European slowdown.

In overnight trading (Tuesday 9:50 p.m. CST) the Asian markets are now mixed.  Gold and silver continue their long term trend higher.  Oil is up at $98.69/barrel after its recent retreat.  The US dollar is down against the Yen, but up against the Euro and Pound.

Our US equity futures are in essentially flat with the exception of the NASDAQ. The DOW and S&P futures are both down 1 point, but the NASDAQ futures are down 7 points.  Much of this is due to Amazon disappointing after the bell yesterday and taking a beating in afterhours trading. Our futures were in the green earlier in the evening but have retreated.  Again, now is the time to be patient and wait for more clarity to whether we break out to the upside or the downside.

During early morning trading all 3 major indices were down significantly.  The DOW was down over 100 points and the NASDAQ was down well over 1%. But, late morning the markets staged an impressive reversal (see 1 Day Graphs of DOW, S&P, and NASDAQ).

DOW 1 Day Chart 1/30/2012

S&P 500 1 Day 1/30/2012

NASDAQ 1 Day Chart 1/30/2012

The DOW closed basically even and both the S&P and NASDAQ were down modestly.  This is why I stated in yesterday’s newsletter  to have liberal stops so as not to get stopped out by volatility.

The good news is the overall volume was down across the board.  More importantly, Down Volume was just in the 60s on both the NYSE and NASDAQ exchanges.

We have had a shallow pullback but the supply demand picture still looks positive.  The old adage “the market climbs the wall of worry” seems to be holding true.

Yesterday during the reversal I increased my exposure in 401k accounts.   I invested the mutual fund accounts in the broad based S&P 500 funds, a large cap growth & income fund, a NASDAQ fund, or a combination thereof.  For self directed brokerage 401ks that can own individual stocks and/or ETFs, I took a position in the SPDR S&P 500 ETF (SPY).

I still hold around 25% to 30% cash just in case we get a further pullback.  I am waiting for a solution out of Europe or the “Bernanke put” (stimulus) to spur a rally.

Stay diligent and monitor your positions.  In this environment, things could change quickly.  The economic reports out today include the S&P CaseShiller Price Index, the Chicago Purchasing Managers Index, and Consumer Confidence.

We also have 27 companies reporting earnings today. Among them are US Steel (X), Valero (VLO), Biogen (BIIB), ExxonMobil (XOM), Archer-Daniels-Midland (ADM), Pfizer (PFE), Entergy (ETR), and Amazon (AMZN – after market) just to name a few.

In overnight trading (Monday 10:16 p.m. CST) the Asian equity markets are mostly in positive territory.  Gold, silver, and oil are also in the green. The US dollar is down against the other major currencies.

Our US equity futures are in positive territory.  The DOW futures are  31 points, the S&P futures are 3 points, and the NASDAQ  futures are 8 points.  If this holds, look for a positive day.

The major indices were mixed Friday amid conflicting earnings and economic data.  The DOW was down over 1/2% while the NASDAQ was up almost 1/2%.  The S&P was down marginally.

All in all, it was a lackluster day with little conviction for the Bulls or the Bears.  The internals were somewhat mixed as well.  Total volume fell on both exchanges.  But the more important figure of Up versus Down Volume was a tie on both the NYSE and the NASDAQ registering around 50% on each exchange.  Breadth, surprisingly, was positive on both exchanges with advancers beating decliners by over 60% on each.

But talk about a news driven market!  Now, China is signaling it might not be easing monetary policy by reducing their banking reserve requirements as expected.  Most of Asian is down overnight on the news.

We are getting conflicting stories out of the EU as to whether the Greek debt deal is still in a stalemate or not.  However, according to Bloomberg, Greece and private creditors said they “expect to complete a debt-swap accord this week after bondholders signaled they would accept European government demands for lower interest rates.  Both sides are ‘close’ to a voluntary exchange within a framework outlined by Luxembourg Prime Minister Jean-Claude Juncker” said the Institute of International Finance (IIF) who is negotiating on behalf of private creditors.

Now the IIF is the group representing the private creditors (bondholders) who have to agree for a voluntary exchange to get done.  If a deal does get finalized this week, look for the markets to stage a relief rally.

And don’t forget our own FED Chairman  Ben.  He intends to make reflation a reality no matter the long run costs.  This is why gold and silver have both been on a tear.  This will be bullish for stocks too.  We will likely have a tough day Monday, but give your stops some wiggle room.

Also, as John Sheely pointed out, “crack spreads” are widening again making it more profitable for refiners like Valero (VLO) and Tesoro (TSO) and refiners are beginning to move again.

See the graph for Valero.  It has support around $23.20 (green line) and resistance around $25.64.  My client and I are long Valero.  The refiners may be an area you want to investigate.

Valero VLO 14 Mo - 1/29/2012

There are not a lot of companies reporting today, but the notable companies ones are Baidu (BIDU), Gannett (GCI), McKesson (MCK), and Plum Creek Timber (PCL – after market).   Economic data out today includes Personal Income and Spending and the Dallas FED Manufacturing Activity.

In overnight trading (Sunday 10:48 p.m. CST) as I already stated above, most of the Asian markets are down.  Gold and silver are giving back a little of their impressive gains, as is oil.  The US dollar is down slightly against the Yen, but up against the Euro and Pound.

Our US equity futures are in the red. The DOW futures are down 63 points, the S&P futures are down 7 points, and the NASDAQ futures are down 14 points.

The markets opened in positive territory yesterday, but the run finally came to an end with a reversal at 10:00 a.m. EST. All 3 major indices finished moderately lower. The DOW fared the best but was supported by Caterpillar (CAT) on strong earnings.

Although overall volume was strong and above its 30 day moving average on both the NYSE and the NASDAQ exchanges, the relationship between buying volume and selling volume wasn’t intense and is much more important than overall volume.

Down Volume was in the low 60s on both exchanges. Selling was not widespread either. Breadth was barely negative with decliners just edging out advancers on both exchanges. Utilities was the best performing sector, and technology, financials, and basic materials were the bottom performing sectors. Gold and silver had a solid day. It was a simple, defensive day.

The good news is the markets rallied going into the close with 1/2 hour left in trading. This is a positive sign that we didn’t close at the lows of the day, and this implies any pullback will likely be short lived. I have attached a 1 day S&P 500 graph with 1 minute ticks so you can visualize the market action.

S&P 500 1 Day 1 Minute Ticks - 1/26/2012

A pullback is healthy and it gives the markets a chance to consolidate. Therefore the relationship between buying and selling thus far is still bullish. That said, unless we get some positive news today, I would not deploy new cash going into the weekend, especially with the Greek overhang. Strange announcements have tended occur over the weekend as of late.

There are not many economic reports out today, but we do have the all important GDP. This could be that positive catalyst or could make the markets jittery. Although, if it is too weak, it will give Bernanke an excuse for stimulus in the weeks ahead.

We have 13 earnings announcement on the S&P 500 today. They include Honeywell (HON), Proctor & Gamble (PG), DR Horton (DHI), Ford (F), Altria (MO), Dominion Resources (D), and Chevron (CVX).

in overnight trading (Thursday 11:06 p.m. CST) the Asian  equity markets are in the green with the notable exception of Japan. China is still closed for the Lunar Holiday. Silver and oil are both up, but gold is down. The US dollar is down against the Yen, but up against the Euro and Pound.

Our US equity futures are in the red. The DOW futures are down 27 points, the S&P and NASDAQ futures are both down 4 points.

The markets were down during morning trading then they reversed around 11:30 a.m. CST, well ahead of Fed Chairman Bernanke’s FOMC speech.

After the reversal, stocks advanced on heavy volume on both exchanges.  Although the NASDAQ had a bigger percentage gain, the NYSE actually had stronger internals.  Up Volume was 78% on the NYSE but just broke the 70% on the NASDAQ.  Much of the strength of the NASDAQ can be attributed to Apple (APPL) whose mega cap size skewed the overall gains on the NASDAQ.  Apple is now worth more than any other company in the world, as measured by market capitalization.  Small and mid caps also participated in the gains.

Buying has been increasing and broadening over the past few days.  Both of these are bullish signs.  This is why I have become more bullish over the past few days and unwound my short a few days ago.  Bernanke said today that QEIII is still on the table so the odds are clearly in the bull’s favor.

For this reason, I took a position in the ProShares Ultra S&P 500 (SSO).  I had the trade loaded and ready before the market opened.  I just watched and waited for a reversal.

When I saw the sharp reversal on increasing volume, I waited for a lull and then an upward continuation.  I have attached a graph of the S&P 500 Index intraday chart with every “tick” representing 1 minute.  At exactly 11:38 a.m. CST, which is what the graph depicts on the NYSE, I pulled the trigger.

ProShares Ultra S&P SSO Purchase Midday b4 Benanke Speech 1/25/2012

The other sectors that did well were precious metals and commodities.  Gold was up almost $50/ounce and is back near $1,710.  Silver was up 4% and back over $33/ounce.  Copper and oil also had a strong showing.

All 3 major indexes are now close to their previous 2011 highs of last May.  The NASDAQ and the S&P are a few percent away from breaking through and the Dow is only 1% away.  The broader market is much further away.  This is why broader participation is so important.  A few mega cap stocks can fool investors into believing we are in a sustainable rally.

We may get a pullback, but Ben made it very clear yesterday that if things went south, he would step in to stop the bleeding.  This is what is known as the “Fed Put,” and it puts a floor under the market.  If a pullback turned into a deeper correction, Bernanke would almost certainly step in.

Today, we want to see a follow through day with solid volume.  Economic reports coming out include Initial Jobless Claims, Durable Goods Orders and the Chicago Fed National Activity Index.

We have another heavy day of earnings releases, 36 to be exact on the S&P.  Notable companies include AutoNation (“AN”) and Colgate-Palmolive (“CL”) in pre-market.  During regular hours we have Raytheon (“RTN”), Lockheed Martin (“LMT”), Caterpillar (“CAT”), 3M (“MMM”) and AT&T (“T”), just to name a few.  Finally, among stocks reporting in after-hours, we have Juniper Networks (“JNPR”), Amgen (“AMGN”) and Motorola Mobility Holdings (“MMI”).

In overnight trading (Wednesday 10:08 p.m. CST), most of the Asian markets are in positive territory, although Japan is down.  China is closed a holiday.  Silver is off slightly and gold is flat. Oil is up 1/2% to $100/barrel.  The US dollar flat against the other major currencies.

Our US equity futures are moderately in the red.  The DOW futures are down -10 points, the S&P and NASDAQ futures are both down -2 points.

Volume was down across the board yesterday and Up Volume was in the mid 50s on both exchanges. Breadth was also barely positive on both exchanges with advancers narrowly beating decliners. The NASDAQ and S&P finished relatively flat, but the DOW was down around -1/4%.

The markets are overextended and we have had a few weak days. And, although we are due for a pullback, demand seems to be gaining some momentum. Small and midcaps outperformed large caps, and this too, is a bullish sign. We may, therefore, be witnessing accumulation (breather then resumed buying) than distribution (breather then selling).

McDonalds sold off due to revenues coming in lower than expectations even though earnings beat to the upside. Exposure to Europe hurt revenues. This will be the theme for many multi-national companies with European exposure.  But then Apple came out after the bell crushing earnings and was up significantly in afterhours trading. This should provide a boost to the NASDAQ today.

Thus far earnings have been a mixed bag, but the trend is declining revenues. We have a huge day of earnings reports, 39 to be exact on the S&P. Almost all sectors will be covered from utilities, technology, and energy to industrial, pharmaceutical and defense. This will provide much more conclusive evidence as to just how strong the recovery is.

Companies reporting before the bell include Abbott Labs (ABT), Corning (GLW), and Automatic Data Processing (ADP). During market hours we have Southern Company (SO), Boeing (BA), ConocoPhillips (COC), Netflix (NFLX) and Textron (TXT).  After the bell, we have e*Trade (EFTC), Stanley Black & Decker (SWK), and LSI (LSI). And these are just a sample of companies reporting.

I even hate to bring this up, but Greece is still the spoiler. Take Greece out of the picture, and I am much more bullish. With the Greek overhang, I am skeptically optimistic.

I will likely add a position today if early earnings reports are positive. I will use a broad index ETF for immediate diversification and exposure, but can exit if a Black Swan out of Europe presents itself. Again. this is dependent upon early earnings and the market action in the morning.

In overnight trading (Tuesday 10:25 p.m. CST) the Asian markets are in positive territory. Silver is up 1/2% but gold is flat. Oil is up 1/4% to $99.19/barrel. The US dollar is up strongly against the Yen over +1/3%. That is a big move for currencies.  It is also up against the Euro and Pound.

Our US equity futures are also in the green on the heels of Apple, especially the NASDAQ futures. The DOW futures are up 24 points, the S&P futures are up 4 points, and the NASDAQ futures are up 24 (!) points.

The captain of the doomed Costa Concordia allegedly changed the cruise ship’s course to “show off” to a colleague and his family on shore. Francesco Schettino overrode the computer-programmed route then ignored warning alarms as the liner headed for disaster. The pictures below show the outcome of this terrible tragedy.

The markets finished virtually unchanged Monday on lower volume across the board. Up Volume was 61% on the NYSE but only 44% on the NASDAQ. Total volume was down across the board. Selling has increased over the past 2 days while buying has contracted. This likely is a short term top, but could develop into something more severe.

Investors are just waiting for more clarification from Europe over Greece restructuring. Yesterday, Greece rejected the offer from private bondholders and negotiations are back to the drawing board.

Eurozone finance ministers stated they have “reviewed the process” between the PSI (Private Sector Involvement), the Institute of International Finance (IIF) led bondholders, the troika (EU and IMF), and the Greek government. “We welcome the increased convergence and ask the Greek government to reach in the next few days a common understanding on the main terms and conditions of the PSI offer…” What!!

What kind of double speak is this?! When there is no agreement, the politicians and Central Bankers always use doublespeak. If there was an agreement, you would see headlines like ‘An Agreement Has Been Reached’ or ‘Greece Avoids Bankruptcy.’ But nothing yet so far.

This is why it is important to monitor. A failing here could cause a healthy, short term pullback into something deeper. You should hold off on new buying and be holding some cash.

For active traders, I would have 2 diametrically opposing trades ready though. One to go long quickly if an agreement is reached. The other, to go short if talks fall through. I would use an indexed ETF for both the long and short sides of the trade for broad, diversified exposure. Right now, it is mostly about the macro picture. For investors, I would hold off on new buying and preserve your cash.

There are a whole slew of earnings reports coming out today. They include Apple (AAPL), McDonald’s (MCD), Johnson & Johnson (JNJ), and du Pont (DD) just to name a few. Today’s economic reports are the Richmond FED Manufacturing Index and the first day of the two-day FED policy meeting. And don’t forget tonight, the State of the Union Address by our President. He will provide clues as to how he intends to stimulate the economy.

In overnight trading (Monday 11:57 p.m. CST) the Asian equity markets are in the green. Gold and silver are flat, but oil is up almost 1/3% to $99.86/barrel. The US dollar is up against the other major currencies.

Our futures are in the red over the Greek stalemate. The DOW  futures are down -29 points, the S&P futures are down -4 points, and the NASDAQ futures are down -6 points.

For the last several weeks, I had mentioned that the silver would not really have that explosive move unless prices had reached and exceeded the $31.00 level. There was a reason I mentioned this critical area in the charts. There are certain locations within prices that attract fund buying. Much of this depends upon the right weekly and daily combination, but last week had both situations primed for such an advance.

As prices reached above the $30 level, prices were approaching the 50 period simple moving averages and a break above the previous 20 days or four weeks. This is a zone in which buy stops may rest. When the $31.00 was reached, gold, copper, and a weak US dollar was confirming the bullish advance. The strong rally was a natural result and I hope my discussion of this possibility was a help to many of our listeners.

The markets showed real resistance Friday on the heels of Google’s miss. IBM, Microsoft, and Intel picked up the slack.

The markets have continued to climb higher albeit on fairly weak volume and narrow breadth. But this has been slowing changing over the past midweek. Breadth has been spreading out and volume has been increasing.

Friday the markets took a breather but this now is looking more like accumulation (buying) and not distribution (selling). The markets are still overbought by most technical measures, but in an uptrending market, the technical indicators will just continue to become more overbought.

The risk is still high for a pullback, so any new buying should be done with caution. Conservative investors should wait for a pullback for a better entry point.

But the real wildcard this week will be the negotiations over how to rollover Greek debt. Finance Minister Evangelos Venizelos said “On Monday, January 30, at the European Union summit, we must have definitive plans for the new loan program.”

Venizelos and Prime Minister Papademos met with the head of the Institute of International Finance (IIF), Charles Dallara, to try to finalize the agreement.

The new proposal provides for an average interest rate of 4.25 percent for the new bonds Greece will issue to replace the old ones, leading to 68 percent losses in net present value terms for bondholders according to the Greek newspaper Ekathimerini.

So private creditors are being asked to accept a loss of 65% to 70% percent, and that it be voluntary. Does anyone see a problem with this?

So the has IIF proposed a coupon of 3% for bonds maturing until 2014, 4%  from 2015 to 2020, and 4.5% after 2020. This is barely higher for many stable countries. But bondholders are asking for EU guarantees on the new bonds, and they should if they do accept the terms.

The big hurdle for any deal to be reached is for the International Monetary Fund, the Eurozone, and especially Germany to accept interest rates that can support the “voluntary character” of the agreement. Voluntary is key so as not to trigger the credit default swaps, or CDS.

The IMF is insisting the new bonds’ rate not exceed 3%, so that the losses can lead to a substantial reduction of Greece debt. But the IIF countered Sunday stating that creditors at limits of “voluntary” Greek deal. They can concede no more.

This puts the ball back squarely at the feet of the EU and the IMF. Time is ticking to avoid a default. Greece needs a deal quickly to cut 100 billion Euros from its debt of over 350 billion. They have a huge debt redemption due in March.

Our markets have ignored this problem thus far, but it could rear its ugly head again. Therefore, it will be important to monitor. If a settlement is reached, you will see a relief rally. Otherwise, all bets are off. Stay tuned.

Today we have CSX (CSX), Halliburton (HAL), Kansas City Southern (KSU), Texas Instruments (TXN), VMware (VMW) and Western Digital (WDC), and Zions Bancorporation (ZION) all reporting earnings. We have no major economic reports out today.

In overnight trading (Sunday 10:20 p.m. CST) the Asian equity markets are in the green with the exception of Australia. Gold and silver are also up, but oil is down hovering just above $98/barrel. The US dollar is up against the other major currencies, particularly the Euro, over Greek debt concerns.

Our US equity futures are moderately in the red. The DOW futures are down -20 points, the S&P futures are down -4 points, and the NASDAQ futures are down -5 points.

http://larouchepac.com/node/21250

For those of you that do not know who Lyndon LaRouche is you can read up on him at Wikipedia … now on to the really good part

—– Original Story from LarouchePac.com —–

Mitt Romney and The Wall Street Shuffle Versus LaRouche

January 19, 2012 • 8:05AM
by Jonathan Hoefle

Did Mitt Romney and company try to ambush Lyndon LaRouche? That is one of the questions posed by the effort to get LaRouche to appear on the Jan. 13 edition of “The Wall Street Shuffle,” a radio program aired on KFXR 1190 AM in Dallas. LaRouche had been invited to appear and the interview scheduled, but we caught onto the game and cancelled it.

The Wall Street Shuffle is one of those rabidly free-market programs that worships money, and has little regard for rules and regulations that inhibit its accumulation. The immoral nature of the show was on full display January 11, when the host, Dan Cofall, laughed about the suicides of workers at the Foxconn plant in China.

Said Cofall: “Whiners and complainers. If they just knew how happy they were making Americans like me in their shoddy little lives, dying here, dying there because they’re making Apple products. Are we really paid to care how Apple produces the product? Seriously? … I will say this. You look at some of the statistics coming out of Foxconn — You realize I’m being pokey and funny here — back in 2010, 18 workers — this is the statistic I love — 18 workers threw themselves from the top of the company building. But only 14 died. So the way I’m looking at it, 4 people managed to improve the quality of their lives by jumping out of the building. I’m sure they’re well taken care of, they’re fed, they’re gonna be nursed back to health, and the other 14 people, it’s natural selection. I don’t — and they’re getting paid for the process. I don’t seen understand what the problem is.”

KFXR is owned by Clear Channel Communications, a radio network based in Texas that was bought by Mitt Romney’s Bain Capital and Thomas H. Lee Partners in 2008. The Clear Channel board has seven members, of which three are from Bain Capital and three from Thomas H. Lee.

The Wall Street Shuffle is sponsored by NorAm Capital Holdings, of which Cofall is a director. Dallas-area-based NorAm Capital Holdings traces its roots to Formula 409 Inc., which was incorporated in Massachusetts in 1959. The company has gone through several reorganizations and appears to be shell company used as a mask of sorts. The current iteration specializes in debt collection and management. CEO Anthony Renteria formerly worked at HSBC Bank. Cofall is a member of the Ludwig von Mises Institute, which describes itself as “the world center of the Austrian School of economics and libertarian political and social theory.”

There are indications that we are looking at a wider network involving the Mormon Church, the Boston Vault, and organized crime, but that investigation is still underway.

—– End of Story from LarouchePac.com —–

Be sure to tune into the Wall Street Shuffle and visit the site for more updates on this story.

http://larouchepac.com/node/21250

For those of you that do not know who Lyndon LaRouche is you can read up on him at Wikipedia … now on to the really good part

—– Original Story from LarouchePac.com —–

Mitt Romney and The Wall Street Shuffle Versus LaRouche

January 19, 2012 • 8:05AM
by Jonathan Hoefle

Did Mitt Romney and company try to ambush Lyndon LaRouche? That is one of the questions posed by the effort to get LaRouche to appear on the Jan. 13 edition of “The Wall Street Shuffle,” a radio program aired on KFXR 1190 AM in Dallas. LaRouche had been invited to appear and the interview scheduled, but we caught onto the game and cancelled it.

The Wall Street Shuffle is one of those rabidly free-market programs that worships money, and has little regard for rules and regulations that inhibit its accumulation. The immoral nature of the show was on full display January 11, when the host, Dan Cofall, laughed about the suicides of workers at the Foxconn plant in China.

Said Cofall: “Whiners and complainers. If they just knew how happy they were making Americans like me in their shoddy little lives, dying here, dying there because they’re making Apple products. Are we really paid to care how Apple produces the product? Seriously? … I will say this. You look at some of the statistics coming out of Foxconn — You realize I’m being pokey and funny here — back in 2010, 18 workers — this is the statistic I love — 18 workers threw themselves from the top of the company building. But only 14 died. So the way I’m looking at it, 4 people managed to improve the quality of their lives by jumping out of the building. I’m sure they’re well taken care of, they’re fed, they’re gonna be nursed back to health, and the other 14 people, it’s natural selection. I don’t — and they’re getting paid for the process. I don’t seen understand what the problem is.”

KFXR is owned by Clear Channel Communications, a radio network based in Texas that was bought by Mitt Romney’s Bain Capital and Thomas H. Lee Partners in 2008. The Clear Channel board has seven members, of which three are from Bain Capital and three from Thomas H. Lee.

The Wall Street Shuffle is sponsored by NorAm Capital Holdings, of which Cofall is a director. Dallas-area-based NorAm Capital Holdings traces its roots to Formula 409 Inc., which was incorporated in Massachusetts in 1959. The company has gone through several reorganizations and appears to be shell company used as a mask of sorts. The current iteration specializes in debt collection and management. CEO Anthony Renteria formerly worked at HSBC Bank. Cofall is a member of the Ludwig von Mises Institute, which describes itself as “the world center of the Austrian School of economics and libertarian political and social theory.”

There are indications that we are looking at a wider network involving the Mormon Church, the Boston Vault, and organized crime, but that investigation is still underway.

—– End of Story from LarouchePac.com —–

Be sure to tune into the Wall Street Shuffle and visit the site for more updates on this story.

Although not nearly as strong as Wednesday, stocks closed higher yesterday on a mediocre rally. Up Volume was in the upper 60s on both the NYSE and the NASDAQ. Total volume was healthy on both exchanges, especially the NYSE.

Fueling the rally was a solid Initial Jobless Claims report coming in lower than expected, and some earnings in the financial sector that beat estimates. However, these estimates were previously revised downward.

The big news though came after the market close. Technology powerhouse Google missed revenue and earnings estimates after the bell. Google was down -9% in afterhours trading.

Google’s miss will test the resilience of the markets today. And by all technical, oscillating indicators the market is overbought and due for a pullback.

It will be important to monitor the first few hours of trading, and how the market performs going into the close. The market internals are fairly healthy. We would like to see stronger buying, but selling has been dissipating. And, investor sentiment is strong.

Any pullback would likely be short lived, but if we do get a pullback, let the market dictate how deep it intends to retreat. A pullback in this environment is actually healthy and is known as retrenchment.

After the market pullback, wait for the reversal to begin new buying. Never try to guess the bottom as sometimes the market will accelerate down triggering stop losses and/or profit taking. Especially when you have had a strong, short term run.

Google would be one growth stock to have on your buy list. Entry points are hard with a company like Google, but this is one of those times. Year over year (YoY), their revenues were up 27%, and if you exclude “certain items,” profits were up 20% YoY. Certain items are unusual or onetime events and not in the ordinary course of business.

I believe this is a much better story than the financials, which beat estimates that were previously revised downward. The banks’ revenues and earnings are heading significantly south reversing YoY, and even from the 3rd quarter to the 4th (reporting) quarter.

Call me crazy, but I would rather invest in a company after a selloff that “missed” expectations with increasing revenues and profits, than a company that “beat” expectations on significantly declining revenues and profits. Earnings estimates are “managed” and massaged, especially in the financial sector, to make their decline more palatable.

I have attached graphs of Google so you can visualize some targets. The graphs include the market close, which was $639.57, and not the close in afterhours trading close at $581.90, or down -9%. I did, however, put a marker where the afterhours close occurred. This is why the upper horizontal line at $617 is in red representing resistance. It was previously support, but Google broke through that support in the afterhours selloff. The next major level of support is around $559. Again, wait and watch the market action, and Google in particular, before investing.

Google GOOG L-T 6 Yrs B4 Afterhours Selloff 1/19/2012

Google GOOG M-T 2 Yrs 3 Mo B4 Afterhours Selloff 1/19/2012

And, as you can see, Google is not for the faint of heart. It has had many gap ups and gap downs over its history. But their technology is solid and they are stealing market share from competitors. Any portion of a portfolio allocated toward growth would be proud to own Google.

Today, we have General Electric (GE), Schlumberger (SLB), and the banks SunTrust (STI), Comerica (CMA),  Fifth Third Bancorp (FITB) all reporting earnings. The only major economic report is Existing Home Sales will be out Friday. I, personally, will be most interested in the banking results.

In overnight trading (Thursday 9:54 p.m. CST) all of the Asian markets with the exception of Jakarta are in the green. Gold, silver, and oil are relatively flat. The US dollar is down against the Yen, but up against the Pound and Euro.

Our US equity futures are in the mixed. The DOW futures are down -15 points, the S&P futures are down -3 points, but the NASDAQ futures are up 1 point.

During a recent program, I discussed a market rise that may have been created when “buy stops” were reached by a price rally. A buy stop is an order that one places with their broker or execution program that buys at market, once price trades at a selected price level. For example, the old high in October 2011 in the Nasdaq100 futures NQH12 was 2396.50. A trader who was betting that the Eurozone would cause prices to fall in the equity markets may have sold the Nasdaq futures short making a bet on such a call. However, this trader may have placed an order to get them out of the short position and take the loss, if prices set a new high. They may have placed a buy stop order at 2398.00 for example. If the March futures traded at that price or above, their order would buy at market at whatever the best asking price may be at that particular time. As you can tell, the best asking price may be well above 2398.00 by the time the order reaches the market. The price may “slip” away from the trader and the order may actually be filled at 2399.00 or even higher. This is what is meant by the term price slippage. The chart below illustrates the recent rally in the daily chart.

By the way, prices have had a very nice price run for the past few weeks. A correction in this trend should come at any time.

Buy stops can be a factor when trading intraday charts as well. Look at the 60 minute chart below.

The chart above is the recent price action. Now imagine traders who may have sold the Nasdaq futures short in the area represented by the rectangle. Now where do you imagine they would place a buy stop order to close any short position? Might they be thinking, “if the market sets a new high for the day, I will close out my short position and take the loss?”

Now here is what happens when a series of buy stops are “hit”. At a variety of prices within close proximity, the buy stops are hit and “go to market”. As you can imagine, an order to buy at whatever the best offer may be at the time can cause a swift rise in price. Traders around the globe are almost yelling at their monitors to “get them out” to stop the loss of dollars in their accounts. They made the wrong bet and now they are running for cover. This is what causes the large range in the bar chart.

What happens afterward when the eager buying is over? Once the buy stops have been executed, the market orders are gone. Many times, prices have reached a price level where there are not eager buyers, but thankful sellers. The traders who were long begin saying “Finally! It’s time to take my profits.” These traders then step over themselves selling the market quickly so their profits do not evaporate too quickly. When this happens, you get the price reversal that you see in the above chart.

This dance between the buyers and sellers, who are taking their losses or taking their profits, happens everyday. The idea is to try and make sure it is you who are taking profits more often then the guy who is taking the loss.

The market internals showed strength yesterday relative to the past week’s action. Up Volume was a healthy 85% on the NYSE and breadth was stronger too, with advancers beating decliners by 4 to 1.

Although the NASDAQ has had the strongest internals as of late, this was not the case yesterday. Percentagewise, the NASDAQ won, but Up Volume was in the mid 70s. Total volume was also strong and above their 30 day moving average on both exchanges. What all this means is we had a broader rally yesterday than the past week.

The big question is whether the market can continue to climb higher, or is it overextended. If yesterday’s action continues or even expands, this means the market is becoming more bullish.

The financial sector and housing sector both had impressive gains yesterday likely keying off of anticipated stimulus in an election year. If the market continues to demonstrate strength, I will quickly unwind my short position (partial hedge) I established a few days ago. It doesn’t matter what you believe should be happening, you need to react to what is happening in the market.

In yesterday’s newsletter, I talked about platinum, and how it very rarely falls below the price of gold. Only during times of extreme fear or economic downturn does this happen. I have included a graph going all the way back to the early 90s to show the correlation and then decoupling (fear).

Platinum vs Gold L-T 1/18/2012

Once platinum crossed over the price of gold in 1999, it only crossed below gold 3 times. Now is one of those times. If you believe we are in for a recovery, platinum will likely outperform gold due to its industrial uses (and not being a currency).

But then I had a listener in my office yesterday and was showing him these same graphs. He asked me what about the correlation between silver and platinum. Now I have done correlation studies between gold and platinum, and gold and silver, but never between silver and platinum.

So we created those graphs in real time to see what we would find. As expected, silver was in-between gold and platinum. Silver, like platinum, has industrial uses, but it is also a currency. So during times of economic downturn, it fell with platinum, but not as much and recovered more quickly.

Platinum vs Gold 6 Yr 1/18/2012

Platinum vs Silver 6 Yr 1/18/2012

The conclusion is that if we have a sustained real recovery, silver and platinum will outperform gold. If we have economic fear and downturn, gold will outperform the other two. This is especially true if it is countered with stimulus and inflation.

All should do well in an inflationary environment, but gold will be first, followed by silver, and then platinum. I am not smart enough to envision or know exactly just how far the politicians and Central Bankers are willing to go during campaigns. But I expect it will be as far as they think they can get away with and not get ostracized.

This is why  I would recommend owning some of each – gold, silver, and platinum – with the largest position in gold. I already own gold and silver, and will be looking for a good entry point for platinum.

An easy way to own platinum is the ETFS Physical Platinum ETF (PPLT). It has the highest volume of the platinum exchange traded vehicles and is not an ETN. The trust owns the physical bars, keeps them in a bank vault in London and Zurich, and each bar is numbered and reported on daily for those interested. It has risk, but in my opinion, is much less risky than an exchange traded note (ETN) which is just a promissory note from the issuer (credit risk) to pay the return of the platinum index. Pick your entry point, but if history repeats itself, platinum should be a good investment and hedge against inflation.

Today Google (GOOG), IBM (IBM), Intel (INTC), Intuitive Surgical (ISRG), Microsoft (MSFT), Morgan Stanley (MS), Unitedhealth Group (UNH), and Union Pacific (UNP) are among the major companies reporting earnings.

Economic data being released today include the Consumer Price Index, Jobless Claims, Housing Starts and Building Permits. Taken collectively, we can get a better gage of the recovery.

In overnight trading (Wednesday 10:06 p.m. CST) the Asian markets are solidly in the green. Gold, silver, and oil continues to rally. The US dollar is down slightly against the other major currencies.

Our US equity futures are up slightly. The DOW futures are up 10 points, the S&P futures are up 1 point, and the NASDAQ futures are up 3 points. Today will tell whether momentum is waning.

The markets rallied yesterday on economic data that wasn’t as weak as expected. Who knew not so bad could be good. China’s slowing growth was better than expected with expectations their Central Bank will now be accommodative. European bond auctions also came off without a hitch, whew! And, our US economic data was positive with the exception of Citigroup earnings.

This good news overseas before our market opened caused many technical traders’ “buy stop” orders to be filled at the open. These conditional orders are like the inverse of a stop loss order where you are trying to protect to the downside.

With a buy stop, you set the price above the market, and if the market/stock hits that price, it turns your conditional order into a market order. Technical traders set these orders to catch the rising momentum. In overnight trading as we hit the highs of last October where many of these orders were set, it caused a logjam of buying at the open.

Therefore, the markets opened with a bang, but ended with a fizzle. At one point the DOW was up almost 150 points, but closed up only 60 points. Although the major indices had reasonable gains between 1/3% to 2/3% with the NASDAQ showing the most relative strength, the internals were much weaker than the prices indicated.

Up Volume was a mere 54% on the NYSE. As expected, it was stronger on the NASDAQ registering 68%, but still not impressive. Breadth was also marginally positive with advancers just narrowly beating decliners. Therefore, the advance in prices was narrowly based.

Gold, silver, and oil had the biggest gains. Platinum, too, is showing strength. There are very few times the price of platinum is below gold. It is more industrial based than gold, and is not a currency. Therefore, if the recovery continues I would expect platinum to outperform gold. However, if we continue to slowdown, gold will outperform platinum.

I have attached a graphs of a Platinum ETF (PPLT) so you can see its recent strength. The first graph is from its inception in January of 2010, the second is YTD, and the third is a 5 month close-up. The reason I like the ETF versus an ETN is the ETF actually holds the physical metal versus a unsecured promissory note from the issuer. This ETF tracks the performance of the price of platinum well.

Platinum ETF Since Inception 1/1/2010 - 1/17/2012

Platinum ETF YTD from Jan 2010- 1/17/2012

With regard to the overall markets, you should hold the equity positions that you own, but hold off on any new buying. Look for a better entry point, or to see if we do get a strong follow through day with buying volume.

Today  we have a whole slew of financial companies reporting earnings, among them Charles Schwab (SCHW), US Bancorp (USB), State Street (STT), Northern Trust (NTRS), Bank of New York Mellon (BK), Goldman Sachs (GS). Additionally, we have F5 Networks (FFIV), Fastenal (FAST), and Xilinx (XLNX), and eBay (EBAY-after market).

We also have numerous economic reports coming out this morning. This includes MBA Mortgage Applications, the Producers Price Index, Industrial Production and Capacity Utilization, and the National Association of Home Builders Housing Market Index in that order.

In overnight trading (Tuesday 11:30 p.m. CST) the Asian equity markets are mixed. Gold, silver, and oil are continuing their climb higher. Platinum, however, is slightly off. The US dollar is down against the other major currencies.

Our US equity futures are in the green. The DOW futures are up 30 points, the S&P futures are up 4 points, and the NASDAQ futures are up 8 points.

If you have any questions, please feel free to contact me at dstewart@noramassetmanagement.com or call me at 214-708-4555.

The internals of the recent market rally have been weakening over the past week.  Up Volume has been declining and Down Volume won on Friday, thus breaking the winning streak.  By most technical measures, the markets are overbought.  Fundamentally, earnings reports are coming in below expectations with declining revenues and profits.

To add fuel to the fire, S&P just downgraded Europe’s rescue fund, the European Financial Stability Facility (“EFSF”), one notch to double-A-plus from triple-A.  This follows their decision, last Friday, to lower ratings on a number of European countries, including France.  S&P further said it could cut the EFSF’s rating further if member states’ creditworthiness continues to “erode amid the euro zone’s prolonged crisis.”

For this reason, I took a short position on the S&P 500 index Friday.  I used the ProShares UltraShort S&P ETF (“SDS”).  This will likely be a shorter-term trade, as I believe the central bankers and European leaders will announce some form of stimulus to the counter the slowing global economy.

On the Asian front Monday, China’s GDP came in weaker than expected for the 4th quarter of 2011 at 8.9%, down from 9.1% in the 3rd quarter.  Analysts were expecting 8.6%, so the markets may perceive this as good news.  However, China is dependent upon European imports that are in decline.

Without intervention, I am a bear.  With intervention, I am a bull.  This is why it is so important to closely monitor what the central bankers and politicians are doing in these news-driven markets.

Today we have the Empire Manufacturing Report and the World Bank releases its Global Growth Forecasts.  We also have Citibank and Wells Fargo reporting their earnings along with M&T Bank (before market), Forest Labs and Linear Technology.  The market will closely focus upon Citibank and Wells Fargo.

In overnight trading (Monday 9:21 p.m. CST) the Asian markets are up on speculation that China’s Central Bank will be more accommodative due to their GDP number.  Gold, silver and oil are also in positive territory.  The US dollar is down against the other major currencies.

Our US equity futures are in the green as well.  The DOW futures are up 48 points, the S&P futures are up 4 points and the NASDAQ futures are up 7 points.  At this point, it looks like the markets are keying on intervention due to the declining numbers.  Ironically, weak is now good.

If you have any questions, please feel free to contact me at dstewart@noramassetmanagement.com or call me at 214-708-4555.

MagicJack (CALL) sold over 365,000 of its new MagicJack Plus devices between November 20th and December 20th 2011.  They are estimating 4q sales to come in around 55-60 million units, which would make for a very strong quarter.  They also recently cancelled a secondary stock issue, which tends to be bullish as offerings dilute the existing shares.  In addition, MagicJack also recently announced a share buy-back program.

If you have an appetite for a more volatile stock, CALL may be one to look at.  Normally I would never bring a stock with low volume like this to the table. But sometimes it doesn’t hurt to catch stocks before they become popular.  Aside from the positive sales projections from the company, consumers these days are gravitating to technology that lowers costs such as their MagicJack Plus product.   This could prove to add a positive surprise to their results at the end of the month.

Volume is definitely on the low side, which creates added risk.  Generally it’s a smart idea to scale back investments in any stock that trades volume below 500,000 shares per day on average. This stock certainly fits that description.

While the company may be a one trick pony, investors seem to be riding this horse as of late, with momentum looking to continue into the earnings coming in late February-March (est).

Company Description

MagicJack VocalTec Ltd. is a provider of carrier-class voice over Internet protocol (VoIP) and convergence solutions for fixed and wireless communication service providers. They are the makers of MagicJack and MagicJack Plus, which you may have seen advertised on TV.

Their latest product is a hit with both consumers and with investors in the stock. Shares have been trending higher for the past five months after consolidating around the $9.50-$10.00 level in late July, early August.

Financial Profile & Earnings

MagicJack is trading at about 37 times earnings, with a forward p/e projection of 13.34 as sales are expected to grow.  Last quarter, they generated 3.91 million in income and earned .17 per share.  Last quarter’s earnings surprised estimates by 13.33%.  They are expected to lose .09 cents this quarter,  but swing back to strong earnings per share growth over the next year.

MagicJack ended the quarter with assets of $114 million against total liabilities of $106 million.

The financials are certainly not perfect, but with strong sales, supportive news and updates as well as a strong technical channel, CALL qualifies as a momentum stock and could see further upside.

Estimates

We did see a little bit of movement in estimates off the good quarter, with the current year adding 4 cents in the last few months to $1.64. The next-year estimate is up 3 cents in the same time to $1.83, a solid 12% growth projection.

Market Performance

Over the past 12 weeks, CALL has exceeded the S&P 500’s performance by 16% with a price jump of over 21%.  With a Beta of .99, it tends to be closely correlated with the market.  The fact that this stock has been breaking out of this correlation trend is a bullish sign and perhaps proves that smart money may be moving into CALL.

12-Month Chart

On the chart, shares have been rallying since rallying since August after bottoming out during the market downturn and before the release of their latest product.  The stock is no doubt volatile, but for those with an appetite for a little more risk, look for support around the 50 and 200 day moving averages of $12.20 and $11.20 respectively.

Jared Levy is the Co-Host of the Wall Street Shuffle every Monday, Wednesday & Friday. He is a managing partner at Belpointe Capital, LLC where he is Co-manager of the Alpha-T fund. He is also the Momentum Stock Strategist for Zacks.com, where he is the Editor in charge of the market-beating Zacks Whisper Trader Service. You can reach Jared via email: Jared@thewallstreetshuffle.com

(This is an update to my article earlier this morning, “All Eyes Will Be On JPMorgan Chase”)

JPMorgan Chase did not, in fact, beat estimates and only came in line with already downwardly revised analysts estimates. 4th Quarter Earnings were down 23% and Revenues were down.

The trade I had loaded in the shoot was not executed. Citigroup and Wells Fargo both report earnings on Tuesday. And if JPMorgan disappointed the markets, at least one, if not both, Citigroup or Wells Fargo will disappoint too.

Therefore, any trade you might have had ready to go should wait. However, if we get a big enough selloff in the banking sector over the next couple of trading days, then the trade may still be valid as the FED would up the ante will stimulus talk.

Another reason the markets are weak this morning is that S&P said numerous downgrades of European countries is “imminent.”

Keep your powder dry. If you have any questions, please feel free to contact me at dstewart@noramassetmanagement.com or call me at 214-708-4555.

Have a good weekend.

The markets shrugged off early losses yesterday after bad US economic news and trudged moderately higher. Higher Initial Jobless Claims and weak Retail Sales were trumped by Italian bond yields coming down significantly and the Spanish bond auction selling twice as many bonds as planned due to strong demand.

This gives fuel to the argument that our FED and/or the ECB is buying sovereign debt behind the scenes. It also implies the Central Banks are willing to step in to prevent Europe from falling off a cliff.

We have a had a multi day winning streak but demand has been consistently waning over the past few days. Up Volume has been declining and registered in the high 50s on the NYSE and the markets are technically oversold.

However, JPMorgan Chase reports earnings this morning and that could reinvigorate the markets. And the banking sector in particular.

The banking sector has been one of the worse performing sectors over the past year, but has come alive recently. JPMorgan has been acting like it will surprise to the upside. I have attached graphs -multi-year L-T, 1 Yr M-T, and a 6 Mo Close Up – so you can zero in on what I am seeing.

JPMorgan L-T B4 Earnings 1-12-2012

JPMorgan 1 Yr B4 Earnings 1-12-2012

JPMorgan 6 Mo CloseUp B4 Earnings 1-12-2012

Especially focus on the short term graph. JPMorgan has come off of a double bottom since early and late November. If it does, in fact, surprise to the upside, it could break through resistance at around $37.68.

An easy way to play this while getting some diversity is the SPDR Select Financial ETF (XLF). This has also been rallying as of late. This trade, however, is dependent positive perceived news from JPMorgan.

The banking sector does come with a high degree of risk, so limit your position size. You should also use either hard stops, probably around 3% below the market, or mental stops if you can monitor the position.

If you are more bullish over the midterm, you can buy a protective put, known as a “married put,” to put (no pun intended) a floor under you position. This will give you time to sleep at night and give you time to make adjustments as price moves over time. You only need to make adjustments if they are advantageous and you know you downside when you first initiate the joined trade.

As always, if you have any questions or need clarification, don’t hesitate to e-mail me at dstewart@noramassetmanagement.com or call me at 214-708-4555.

Today we have the Import Price Index to help gage inflation. But all eyes will be on JPMorgan’s earnings report. If it comes out positive, you will see banks rally.

In overnight trading (Thursday 11:22 p.m. CST) the Asian markets are mixed. Most notable is that China is down significantly. Gold and silver are giving back a some off their recent gains, and oil is almost back to $100/barrel after its selloff. The US dollar is flat against the Yen, and down against the Euro and Pound. Our US equity futures are flat across the board.

In the past few days, there has been an explosion of sorts in several solar stocks. Why? I have no idea. The point is several investors and large funds must have been attractive to the group, because several stocks have jumped very quickly from very low prices.

The chart of Hanwha SolarOne is just one example. Is this the start of a major new trend? Is this the last chance to buy a solar stock at such low prices? I am not sure of that, but as a speculative play take a look at these stocks over the coming weeks. If the next decline and correction in these stocks is small, in relationship to the large recent gains, instead of going to Vegas and going all in against Phil Ivy, consider a long term play in some of these stocks. Both are just as risky, but one may pay off in a surprise better than the other.

A long in these stocks is extremely risky, but this stock was at $8 in February of 2011. I normally do not look at trades of this nature, but the rally for the past few days has been interesting. There may be something behind the buying spree. I will follow these stocks over time and report on their progress.

The markets finished marginally mixed yesterday in a lackluster session. They have been going sideways for 2 days now. The big question is whether the markets are in an accumulation phase simply taking a breather, or in a distribution phase heading for a pullback. When you are unsure, it is best to wait for the markets to reestablish a trend.

The markets have had a solid first week, but now buying volume is waning. The probabilities suggest a near term pullback. Nothing is certain, but you probably want to hold off on taking on any new positions and can wait for a better entry point.

Gold and silver had been performing well. Most likely in anticipation of liberal policies by the FED, the ECB, and the Chinese Central Bank.

In fact, there are numerous Regional FED Presidents speeches over the next week. And Chicago FED President Charles Evans stated that the economy needs “substantial monetary stimulus.” And even more hawkish FED Presidents are softening their stance.

If Europe’s recession continues to deepen, you can bet our FED will take outright action in coordination with the ECB. The FED has already been stimulating behind the scenes.

Again, wait for a pullback, but have your list of equities ready to take advantage if stimulus is announced. I don’t expect it too soon, but one can never be too prepared. I would have a few individual names as well as a few broad based, indexed ETFs. This way you can get heavily invested quickly. And with the broad ETFs, you can also go the other way and quickly raise cash.

Today we have lots of reports coming out to provide clues as to the strength of the recovery. Among them are Retail Sales, Initial Jobless Claims, Revisions to the Philly FED Business Outlook, and the FED’s Monthly Budget Statement.

In overnight trading (Wednesday 9:57 p.m. CST) most of the Asian equity markets are in negative territory. Gold and silver are flat, but oil is up almost 1/2% to $101.31/barrel. The US dollar is flat against the Yen and Pound, but down against the Euro.

Our US equity futures are mildly down. The DOW futures are down -14 points, and both the S&P and NASDAQ futures are down -2 points. There are not any significant earnings reports coming out today to drive the markets, but JPMorgan reports on Friday. All eyes will be watching their earnings.

If you need any help, please feel free to contact me and I will be happy to explain my investment strategy and how I can help you in detail. You can call me at 214-708-4555 or e-mail me at dstewart@noramassetmanagement.com.

Good news yesterday, stocks rose on increasing volume. Total volume was above its 30 day moving average (30 DMA) on the NYSE and Up Volume was 79%. Total volume was not nearly as intense on the NASDAQ and Up Volume was in the low 70s.

Additionally, it was a broader rally as more sectors participated and small caps actually led the advance. That said, the markets are technically “oversold” and risk of a near term pullback is high. This is especially true with more and more companies cutting forecast of revenues and earnings going forward, and Europe’s crisis lurking in the background.

Either could change market sentiment. But for now, the markets keep trudging higher. So how can you participate and limit your downside risk?

You can get into the markets using a broad, index ETF like the SPDR S&P 500 (SPY) or the SPDR Dow Jones (DIA – “diamonds”) and monitor is closely or use trailing stop losses to limit your downside. Also, with just one trade, you get broad exposure and diversification and can easily get in and back out.

Another alternative is using a “married put” strategy. This is where you invest in either a stock or ETF and then buy a corresponding put option for protection. Right now with the bullish sentiment in the markets put protection is cheap.

Remember last week when I wrote about the “Unicorn Trade” where you buy Duke Energy and buy a put on Duke. A put is simply the right to sell at a predetermined price for a fee, or premium (think insurance). The downside risk in Duke was around 2% for a year when you take the dividend in consideration.

Well, the 2nd “Unicorn Trade” idea to research is another utility company, Southern Company (SO). I have owned this stock for clients for some time (without protection) and has done well. It pays a 4.2% dividend.

And depending upon the strike price you chose – again the price you can force the seller of the put to buy it from you – you can limit your downside to around 5%. With the 4.2% dividend, this substantially subsidizes the insurance cost of the put.

The strike I am researching is a January 2013 50 Strike. This means you can make someone buy it from you at $50. The current stock price is $44.79. Therefore, it is “in the money,” or above the current stock price, by around 11%.

The reason you usually want to purchase puts in the money is that they hold their value better when the price of the underlying stocks moves up. If it is out of the money, or below the current stock price, then you are only paying for time value. If the stock price moves up the put erodes quickly. You can also make positive adjustments more easily later as the stock price moves.

The main point here is that the dividend almost pays for the put protection for a whole year. So with around a 1% downside risk, you have the opportunity to wait for the stock to appreciate in value.

Another huge benefit is that although put protection does have a cost associated with it, you know your downside risk the moment you do the 2 simultaneous trades. This is not true with a stop loss.

With a stop loss, you set your “conditional” stop loss, at say, 3% below the current market so daily movement doesn’t turn your stop loss into a market order. However, if bad news comes out overnight when the markets are closed, the markets (or stock) could gap down significantly turning your stop loss into a market order at the prevailing level. So if the market gaps down 5%, you just lost 5%. Also, stop losses are cancelled twice per year by the exchanges and you have to remember to reset those stops.

With a put, you have more control and protection. And, as stated earlier, you can make positive adjustments if they arise and possibly work yourself into a riskless position.

Hopefully, you are becoming more familiar with a sound protection strategy so we will move on to the 3rd “Unicorn Trade” idea. This would be buying a broad based ETF on an index, either the DOW using DIA or the S&P 500 using SPY.

Both the DIA and the SPY are running around a 5% risk for a year. Using the DIA as an example, it pays a dividend of 2.4%, again subsidizing the cost of buying the insurance premium, or put.

I personally believe the reason for the low costs of insurance at the moment is the bullish sentiment in the markets. I believe investors, maybe rightfully so, are anticipating a big stimulus announcement.

Whatever the reason, this is a much lower risk strategy than simply buying stocks or indices long, especially in a slowing global economy.

It is true that if the markets simply go up, the cost of the puts will put a drag on performance and you will underperform the markets. However, you will still make money.

If the markets go down, you will definitely outperform the markets. The only investors that will perform better will be shorting the markets, and that is riskier than going long.

If the markets move in a volatile, up and down fashion, you will be able to sleep at night. And, if you make the correct adjustments during volatile, seesaw markets, you can make money with significantly less risk than trying to time the volatility short term. The only investors that will do better are short term traders who are consistently on the “right side” of the trade, long and then short etc..

This strategy is not nearly as complicated as it sounds, you just need to think about it and analyze a few examples. Once you go through a couple of examples, it becomes second nature. If you need any help, please feel free to contact me and I will be happy to explain the strategy in detail. You can call me at 214-708-4555 or e-mail me at dstewart@noramassetmanagement.com.

In overnight trading (Tuesday 9:30 p.m. CST) the Asian are mixed. Silver is flat, oil is down -1/2%, and gold is up 1/3%. The US dollar is stronger against the other major currencies.

Our US equity futures are in the red. The DOW futures are down -31 points, the S&P futures are down -4 points, and the NASDAQ futures are down -9 points.

Sometimes things are boring and not exciting at all. That was exactly yesterday’s market in a nutshell. All 3 indices eeked out gains after trading in a narrow range in a mild, seesaw day. And, volume was very light, especially on the NYSE.

At only 3.2 billion shares traded on the NYSE, it is not only light, but well below the 30 day moving average (30 DMA). The NASDAQ fared better with total volume just above its 30 DMA. But Up Volume was only in the mid 60s on both exchanges.

The NASDAQ was the worst performer, and much of this can be attributed the dismal performance of Google (GOOG). Motorola warned about its upcoming earnings (for the Holidays) and Google owns Motorola.

The whole point is there wasn’t much you could read into yesterday and with earnings season just beginning, it is best to let a few earnings be reported and get a feel whether companies are, in fact, continuing the upward trend, or reversing their revenue and earnings course.

Yesterday Alcoa (AA) began earning season after the bell reporting better than expected earnings (a loss of 200 million!) and revenue. However, they warned going forward it was going to be a difficult year. If we get other companies repeating this mantra, this could change investor sentiment fast.

This is why I think it is better to hold steady and give a few companies time to measure the earnings trend. You may be able to take advantage of a short term trade if the European meeting comes out positive.

In fact, in overnight trading (Monday 10:15 p.m. CST) the Asian markets are in positive territory ahead of the European meeting. Likewise, gold, silver, and oil are in positive territory. The US dollar is weaker against the other major currencies.

Our US equity futures are in moderately positive territory. The DOW futures are up 29 points, the S&P futures are up 4 points, and the NASDAQ futures are up 10 points.

Our markets are bumping up against their upper trading range hitting resistance (see S&P chart).

S&P 6 Mo - Upper Range - 1/9/2012

If the indices are able to break through, especially on strong volume, this would be bullish and we could see renewed life in the markets. Otherwise, probabilities suggest we will go lower.

Let’s examine the signals that might indicate that a sustainable rally is in place.  The markets may be sending those signals right now.

First, we need to see a broad based participation.  Stocks of different market capitalization – mega, large, mid, and small cap – rise simultaneously.  In most sustainable rallies, small and mid cap outperform the markets and are then followed by the large cap stocks.  You also need to see most all sectors rising.  This is the very definition of broad participation.

This, however, has not been happening.  Sector participation has been narrowing ever since the big, positive first day of the year.  Additionally, small and mid cap stocks have been struggling while the large and mega cap dividend paying stocks have been trending higher.

Defensive stocks, such as utilities, consumer non-cyclical, healthcare and master limited partnerships have been the strongest strength sectors. The other sectors have been struggling.

Next, look for buying on strong volume.  This hasn’t happened yet and selling volume has not yet begun to dissipate.  The good news is that selling has not spiked yet either.

The markets are at a crossroads.  Do they shrug off the bad global news and focus solely on our improving US data or do they stay focused on the downsides?  Though our economic data seem to be getting better, company revenues have generally been declining.  This is one time when you shouldn’t be playing the coin toss.

Now is the time to wait for the markets to give you confirming evidence before committing new capital. For the equities you do own, they should be large cap US stocks.  If they pay a strong dividend, that is icing on the cake.  Right now, defense is prudent.

In overnight trading (Sunday 10:14 p.m. CST), the Asian equity markets are mixed and the Euro is down before the meeting between French President Sarkozy and German Chancellor Merkel.  The US dollar is gaining strength against the other major currencies.  Gold and oil are down, but silver has reversed its earlier evening losses and is now in positive territory.

Our US equities are in negative territory.  The DOW futures are down 40 points, the S&P futures are down 6 points and the NASDAQ futures are down 8 points.

As always, you can reach me at dstewart@noramassetmanagement.com or at 214.798.4555.

We received good employment data yesterday, but our markets were down in early trading over renewed European fears.  The DOW was down well over 100 points.  However, our markets shrugged off international fears and began to focus on our own economic data.

With the exception of the DOW, that closed down marginally, the other indices finished in the green. Volume increased across the board but Up Volume was not impressive.

Two major questions remain.  Is the global recovery real and can the US withstand a global slowdown, especially in Europe?  Asia is slowing due to lackluster demand from the EU.

I have attached a long-term graph of the Baltic Dry Index versus our S&P 500.  The Baltic Dry Index measures bulk dry goods shipped via cargo ships over 26 routes around the world and is a good measures global demand.  You can see their long-term correlation.

Baltic Dry Index vs S&P 500 L-T Correlation, then Delinkage

When the Baltic Index picks up, more goods have been shipped resulting from an improving economy.  The world equity markets are generally in an upswing.  The Baltic Index goes down if world economies slow, and the equity markets are generally in decline.  This makes sense because if we encounter a slowdown, you generate lower sales and profits.

As you can see, this correlation held though the 2008 crisis.  Both indices recovered as the massive stimulus and bailout packages kicked in.

Note that during the middle of 2010, there was a “decoupling” of the two indices.  We have not seen a pickup in dry goods being shipped while the S&P has trudged higher.

Over the long term, these indices are very closely correlated.  Therefore, it stands to reason that either the equity markets need to correct to match the low level of economic activity or economic activity needs to pick up.

More importantly, look at the bottom right of the graph where the Baltic Index (red) turns down steeply.  I have attached a close-up graph so you can see it more clearly.  This diversion needs to be monitored closely.

Baltic Dry Index vs S&P 500 M-T CloseUp Correlation, then Delinkage

The confirming evidence is that positive earnings surprises in US earnings are only running at 50%.  The average is usually upwards of 70%.  This was the reversal in earnings that Dan Cofall and I have discussed on air over the past months.

Does this mean equities will go down?  We will see but should they take a turn for the worse, Fed Chairman Bernanke stands ready to announce truly massive stimulus plans.

This will be bad for bonds, but good for stocks, commodities and precious metals.  I think the markets are now beginning to telegraph this.  The strongest sectors over the past few days have been commodities, materials and precious metals even as the dollar has been getting stronger.

Usually, there is an inverse correlation between the dollar and commodities.  If further stimulus is  announced, the dollar will weaken but precious metals and commodities will likely soar.

Bernanke, a political animal, will wait as long as he can before announcing this stimulus, as he wants it to carry through the election.  You could see equities go lower at first and then rally on the announcement.

In overnight trading (Thursday 9:15 p.m. CST) the Asian markets are down on…you guessed it…European fears.  Silver and oil are giving back some of their recent gains but gold is positive.  The US dollar is up against the Yen but down against the Euro and Pound.  That said, the Euro is below 1.28 per dollar after gapping down yesterday.

US equity futures are mildly in the red.  Today, we have the Change in Payrolls report and the all-important Unemployment Rate.  If these reports come out positive, it could temper the European worries and the US may even rally against the trend.

The market had a lackluster performance yesterday without a follow through. There are telling signs investors maybe shifting back toward commodities, oil, and gold.

For the most part, these sectors performed well on heavy volume. The broader market, however, was essentially flat on low volume.

10 Year Treasuries are actually at 2%. 2% for 10 years of risk against rising interest rates. And, if you have a taxable account, the after tax yield is even lower.

Investors are beginning to become wise to this. To be honest, I thought interest rates would rise last year and underestimated FED Chairman Bernanke’s determination (and manipulation) at keeping interest rates artificially low this so long. In fact, I was wrong about the ProShares UltraShort Treasury ETF (TBT) last year as it went against me. I had to unwind this trade for a loss.

But, I would rather be early than late when the bond bubble burst. And it will burst. How do I know this. Because if we have a real recovery then you will have interest rates rise naturally as the demand for money by corporations increases. If we don’t have a recovery, Bernanke WILL step in with a huge stimulus package causing inflation.

Therefore, if you are a fairly conservative investor looking for income, what should you do? My choice is through Master Limited Partnerships (MLPs) and Utilities. I already own both and have for some time.

Both have pricing power against inflation and rising interest rates. MLPs can pass on their rising costs to the consumer because consumers must have natural gas and oil (gasoline). Utilities not only have regulated profits built in so if prices rise, they simply raise their prices, but consumers must have electricity too.

As their cash flow rises, so will their dividends they pay to the investor. Most bonds, on the other  hand, have a fixed, stated coupon. This is why bonds go down in value when interest rates rise as they become less valuable. Likewise, inflation makes your fixed interest payments less valuable as they buy less. You lose purchasing power and inflation is kryptonite to bonds.

Institutional investors know this and they will be the first ones heading for the exits. In fact, individual bonds will become less valuable as they become more illiquid as demand goes down and selling, or supply spikes.

If you must own bonds, use a bond ETF like the iShares Investment Grade Bond ETF (LQD) or the State Street SPDR Intermediate Term Bond ETF (ITR), and phase out of your individual bonds. This way, when you see interest rates really start to rise, you can get out of your bonds with just one or two trades.

Tomorrow, I will discuss whether the global recovery is real. I will show you a graph of the Baltic Dry Index which measures bulk dry shipments of huge container ships globally. I will explain why you need to stay on US shores at this time, and not venture to far abroad.

Today we have Initial Jobless Claims which the markets will focus on in early trading. In overnight trading (10:40 p.m. CST) most of the Asian equity markets are in the green. One notable exception is Japan. Gold and silver are both higher, but oil is giving back some of its earlier gains hovering at $103/barrel. The US dollar is flat against the Yen, but up against the Euro and Pound. Our US equity futures are down slightly.

Yesterday I spoke of a “Unicorn Trade” that unfortunately comes by only too rarely. But when it does, you need to take advantage. I took advantage of just such a trade yesterday for clients with options approval.

If you don’t understand options, they are probably worth learning about. Most people think options are risky. My answer is, it depends upon how you use them. Options can be used for increasing risk and possible return, or they can be used to reduce risk for a fee, just like insurance.

Therefore, it can reduce your return in exchange for significantly reducing your downside. And when the fee in unusually small minimizing your downside and leaving your upside open, that is what I call a “Unicorn Trade.”

The stock I purchased was the Duke Energy (DUK), a utility company. It currently pays a 4.6% dividend with a market capitalization of 29 billion. Duke is a major player in utilities in the Midwest and Carolinas.

It has a very low beta of .3, which means it is less than 1/3 as volatile as the S&P 500. For someone looking for income, this would be a good bet to migrate toward from bonds without the hedge. They have pricing power in that they are regulated a guaranteed profit. If their costs to produce energy goes up, so does your electric bill.

Now I believe this stock will rise over the year as more retired investors will look for income, and bond yields are so low. This, coupled with inflation fears, will drive utilities higher.

So the trade I did yesterday is as follow:

I purchased the stock for $21.60 after a big pullback yesterday and hitting a lower trendline (see chart).  I purchased a January 2013 22.50 Put for $2.50. This means I can “put it” to someone or make them buy it from me at $22.50. This means I have a total investment of $24.10, but have a guaranteed sell price of $22.50.

Duke Energy 6 Mo DUK 1 4 2012 Curr Yld 4.6%

Therefore, it would seem that the total I have at risk is 6.6% for a whole year ($24.10-$22.50/$24.10). However, don’t forget Duke pays a dividend of 4.6%. Therefore, your total at risk is 2% (6.6%-4.6%).

So you have until January of 2013 for the stock to go up in price. And, this doesn’t include any adjustments you can make during the year as the stock (and option) moves in price. Not to get too complicated, but you can “roll up” or “roll down” your put protection to gain (reduce) back some of your costs.

I am doing this for capital appreciation in Duke Energy using the dividend to subsidize my protection. If you are simply looking for income and can tolerate some mild volatility relative to the markets, you may simply want to invest in Duke Energy.

Getting to the overall markets, we began the year with a bang led by gold, gold miners, silver, and oil. This was on better than expected manufacturing numbers from both the US and China. Today we have MBA Mortgage Applications, Factory Orders, and Vehicle Sales reports to digest.

Currently in overnight trading (Tuesday 10:55 p.m. CST) the Asian equity markets are in positive territory on the coattails of our US manufacturing data. Gold, silver, and oil are giving back a modest amount of their earlier gains. The US dollar is down against the Yen, but up against the Euro and Pound. Our US equity futures are essentially flat.

During the last two weeks of the year, there was a hint in the price action of the US equity market that traders would let the bull out of the corral and let it loose. This lead to a 250 point gain in the Dow and a two percent rise in other major stock indexes.  Only time will tell, if this rally will turn into a stampede of investors chasing the market to get back into long positions in stocks and a variety of commodities.

However, the rally of today had a cumulative affect across many asset classes. The strong equity market assisted the crude oil market to move above the $102.00 level. This allows the crude oil market to begin to build a higher base above the $100 mark. This will be an important development to watch later this month. The buying interest was not only focused on the energy complex. Gold, silver, and platinum were higher as well. The buying enthusiasm spread to the grain complex, soft commodities, and most commodities in all sectors. Much of this may have been short covering from the bearish trends of December, but the rally was across the board.

All of this price action helped the US dollar move lower and there was buying interest in a variety of Forex currency pairs. The strongest of trends were found in the Australian and New Zealand dollar. Rather than appear as nothing but corrections in a bear trend, these pairs appear to have established noteworthy bullish trends. Traders may begin to view declines in prices in these pairs as buying opportunities.

The trends of the Euro and British Pound are not so certain. While this one-day rally is impressive in the EURUSD, a one day rally certainly is not sufficient to change a major trend. A higher equity market for the remainder of the week may help the Euro have a larger correction, but the rally has not reached levels of significance to suggest a change in trend has occurred. The rally in the GBPUSD has merely brought prices to the upper price range for the past 6 weeks.

The correction in the US dollar today also gave further evidence that a potential bearish trend is developing in the USDJPY and USDCAD.  Rallies later this week in those pairs may offer shorting opportunities, depending upon upcoming financial news, which may help many of the trends seen today continue later this month.

Many of the short-term charts are overbought or oversold relative to their trends and this may lead to a reversal of this one-day rally. However, the New Year has had a great start and we hope the trends continue.

Do you know what a “Unicorn Trade” is?  Well, you will when you read tomorrow’s newsletter.  How about a virtually risk-free trade with nearly a 5% dividend?   Now, for today’s newsletter.

For the most part, only bonds and the US dollar stayed in the green for the year.  However, bonds will come under pressure this year as the world’s largest economies must rollover $8 trillion in debt.  Japan and the US must rollover $3 trillion…each.  This will put pressure on interest rates…and the printing presses!

With the exception of the DOW, the US equity markets finished in the red for the year.  Commodities finished lower with the exception of gold, which was up almost 9%.  The overseas equity markets fared much worse.

Will we see the “January Effect” again this year with a positive start of 2012?  Historically, January is a solid month, following a usually decent performance during final 2 weeks in December.

Many technicians point to the fact that major market bottoms generally occur in the 4th quarter.  The markets would normally be oversold and poised for a good January performance.

However, one of the most reputable technical research firms, Lowry Research, points out that if you do not have a major market bottom in the final months of the previous year, “…the record of January as a strong month is mixed.”  Their research and records go back to the early ‘30s and really give you a statistical advantage.  I use them daily.

The reason I point this out is that the January Effect is not a given.  We did not get a bottoming in the final few months of the year.  Technically, the markets are overbought and demand is weak.

That said, we are entering into an election year.  Rest assured that Bernanke will do everything in his power to stimulate the economy.  Additionally, the US economy is the strongest economy in the world right now.  Institutional money looking for equity exposure will look first to the US, then elsewhere.

For this reason, I am bullish on the US equity markets over the course of this year.  I just don’t think we will sprint out of the gate.

The wildcard, once again, is Europe.  European manufacturing came out weak for the 5th straight month.  Asian manufacturing, namely South Korea and Taiwan, also came in weak, blaming sluggish European demand.  Whatever the real reasons, Asia is slowing.

The three assets I do think will come out of the gate early are gold, silver and oil.  One reason is that there was year-end tax selling and profit taking in gold and silver.  Investors will flock back into the precious metals as currencies continue to be devalued.  This should hold true for oil as well as the Middle East will probably heat up again, and soon.

The US dollar will also remain relatively strong over the course of the year over safety concerns.  It is weaker in overnight (Monday 9:02 p.m. CST) in Asian trading.  The Asian equity markets are in the green, silver is up over 1% and gold is up nearly 1%.  Oil is faring the best, up almost 1 1/2%.

Today, we have the Institute of Supply Management (“ISM”) Manufacturing and Prices Paid report and the Construction Spending Month over Month report.  The “biggy”, however, is the FED’s Federal Open Market Committee (“FOMC”) release of the minutes from their December 13th meeting.  This may give us clues as to what the Fed is thinking, and this could, possibly, spark a rally if the wording hints toward stimulus.

As always, if you have any questions or comments, please e-mail me at dstewart@noramassetmanagement.com or simply call me at 214-708-4555.

The most prolific sages and philosophers would find it almost impossible to predict the equity markets’ random walk over the next six months given the circumstances.  Unfortunately for them, they didn’t have access to modern research and tools…

I joke, but there is no doubt that taking an intermediate forward view of this market is a daunting task.

Professional investors have come to grips with the fact that there is no certainty, only probability.  The most practical way for the average investor to find direction is to organize and weigh out the forces that are pushing and pulling on this marketplace and find the most probable route that the markets will take and with that gauge risk and investment allocations accordingly.

The Big Picture

Global economic uncertainly is punctuated by the fragile state of the Euro-zone which I equate to a cancer that is metastasizing constantly.  New “tumors” are discovered regularly and the powers that be seem to be treating the symptoms as opposed to the cause and finding a cure.

The headlines that emerge on a daily basis are having profound effects on the equity markets, which I suspect will continue for the coming months.  While all seems to be copasetic at present, I think it would be prudent to expect further deterioration and contagion to spread.  Because of this, I would remain cautious to the upside and only buy on the short dips of three to five percent or more from current levels.

Economic data remains mixed here in the US and abroad and a still shaky consumer is saving less, spending more with incomes stagnant.  Some experts viewed this recent data as positive; to me this is a sign of inflationary pressures that are not being epitomized well in the numbers.  If you combine this with a lack of bullish price catalysts in the housing market, I think it’s safe to say that the consumer and their spending on non-discretionary items will remain muted for the next quarter or two.

What do you buy now?

With the  “January effect” knocking on our door, I would first focus on stocks that are fairly valued and cater to either the upper end consumer or provide basics to the masses at affordable prices.  Those are the two areas where we are seeing strength.

Global economies still face challenges and you can bet there will be “gotchas” from time to time.

Hopefully they won’t be on the scale of what we saw here in 08’ and 09’ but I wouldn’t rule that out.

This will be the final newsletter of the year and I want to wish everyone a Safe and Happy New Year before getting into the markets. I will be short and brief.

It has been an interesting year to say the least. Our FED as well as the ECB have been doing things unheard of before, and the Central Banks continue to monetize the debt and currencies on both sides of the Atlantic. My partner, Dan Cofall, will address this economic topic fully over the course of the next few weeks.

He found an old speech given by Bernanke before he became the FED Chairman. In this speech, he specifically addresses the “tools” the FED has in a zero interest rate environment to fight off and reverse deflation. Bernanke is approximately 1/3 through his game plan and has implemented some the ideas in his speech. Again, Cofall will address this at length as this in definitely in his “wheelhouse.”

Bernanke’s actions will be good for gold and silver longer term. Commodities will also make a strong comeback. Bonds will come under pressure, just not yet.

With regard to trading in the markets, unless you’re a trader watching carefully, be defensive until the New Year begins and we have real, actual volume in the markets to measure the trend.

The only trades I would be doing before the New Year are yearend tax planning trades. In overnight trading (Thursday 9:30 p.m. CST) most of the markets are in positive territory. Silver finally looks to be finding a base, and gold is up 2/3rd%. Oil is also in the green. The US dollar is down against the Yen but up against the Pound and Euro.

Our US equity futures are moderately in the red. The DOW futures are down 20 points, the S&P futures are down 3 points, and the NASDAQ futures are down one point. Not much to go on at this point in the evening.

The markets witnessed a rout yesterday will broad based selling across the board, albeit on very light Holiday volume. We easily registered a 90% Down Volume day on the NYSE coming strongly in the high 90s. The NASDAQ was just under 90%.

Breadth was also widespread with decliners beating advancers by almost 5 to 1 on the NYSE and 4 to 1 on the NASDAQ. Fears of the Europe Union collapsing are again surfacing. Banks in Europe are not lending.

Right now, you need to remain extremely defensive. If you are an aggressive trader, you could short, otherwise, stay in cash with the exception of your core holdings.

In overnight trading (Thursday 12:18 a.m. CST) the Asian equity markets are mixed. Gold and silver are down, but oil is finding a base. The US dollar is down against the Yen, but up against the Pound and Euro.

Our US equity futures are in positive territory. The DOW futures are up 40 points, the S&P futures are up 7 points, and the NASDAQ futures are up 8 points. Again, until we get regular trading with real volume, it is difficult to ascertain the direction of the markets. Right now, they look to be in a corrective mode.

SP500

SP500 - SPY

For most money managers, 2011 is a year they would like to forget. Only the active trader, with years of experience, would have been able to extract some profits out of these short-lived bullish and bearish trends. For many months, I have advised that long-term investors stay on the sidelines, because there was nothing in the weekly price action that suggested a true return of the bull trend. This is still the case. This is where the investor point of view (weekly trend) can differ from the viewpoint of the active trader (daily trends). Any time I refer to the investor, I am referring to the long-term trends expressed in the weekly charts. Until prices break above the highs of the past three months, stay on the sidelines.

QQQ

Nasdaq 100 - QQQ

The Nasdaq 100, as a broad index, has been an even greater challenge for the investor wishing to ride this index for return. As Betty Davis may have said, “It was a bumpy ride.” Expect this roller coaster to continue in 2012.

Gold

Gold - Continuous Futures

Gold was indeed higher for the year, however silver was not. I have warned our listeners to hold off from buying silver, as a speculative investment, for months now. I still believe silver can approach the $25 level rather easily, if the US dollar continues to be stronger early in 2012.

Is gold vulnerable to further decline? The answer is yes. You may have noticed that gold has just begun to break below a simple moving average that can be used as a guide to the general trend. If prices break below the lows of September 2011 in a convincing manner, you can expect further pain to the gold bugs.

Oil

Crude Oil - Continuous Futures

You can see that crude oil has had quite a wild ride, both up and down, in 2011. I expect much the same for 2012. However, if the stock indexes can find a base early in 2012, I expect higher prices in oil, as a beneficiary to higher industrial demand. As you can imagine, a conflict in the gulf (Wag the Dog?) with Iran, would take prices well beyond the highs of 2011. We are heading into 2012 with relatively low crude and heating oil inventories. Any threat in supply would not help the situation.

US Dollar Index

US Dollar Index - Continuous Futures

The first 7 months of 2011 saw a serious decline in the value of the US dollar. You can see the story has changed significantly, as we head into 2012. I expect this trend to continue, if not even accelerate in 2012. If the US dollar index can climb to above 90 in 2010, when the Euro fundamentals were not as bad as they now appear, why can’t the US dollar index not move there again in 2012, when the Euro truly looks on the ropes? Traders stay in the UUP and the EUO!

Our plans for 2012

I first wish to offer my appreciation to those who have offered such kind words of appreciation for our market commentaries and forecasts. I have received so many emails and requests for more information, as to how our audience can learn how to make the same kind of market forecast, while only using technical analysis. Our plans for 2012 is to develop a new advisory newsletter and website that will be dedicated to just that.  Stay tuned as we have great plans for next year.

It was a dull day yesterday on little volume. This is to be expected during the Holiday Season. But without any clear direction, you should remain neutral.

Both the S&P and DOW were flat, and the NASDAQ was up moderately. However, Down Volume won on both the NYSE and the NASDAQ, but breath was mixed on the exchanges. And, even though the NASDAQ had a positive day, breadth was negative with more decliners than advancers.

Utilities remain strong and the financials weak. This is what I have been saying all along now for months. I believe this will continue to be the trend. As far as managing risk, is it definitely the trend. Financials are just too risky for my blood, and the utilities seem to offer the best risk/reward profile.

On an alarming note, the European Central Bank’s (ECB) overnight deposits have hit a new, all time high on Monday to 412 billion Euros. This is well over 1/2 trillion US dollars.  This means large banks in Europe, rather than lending to each other and financial institutions at a higher interest rate, they would rather “park” their money virtually interest free. This means they are seeking safety rather than return. This is very telling and they are showing their hand.

This is another reason I would sit this one out. When you are unsure, it is better to be caught out than in. Without clear direction, low volume, and banks in Europe pulling in the reins, I just prefer to sit this one out.

There are too many times when it is fairly easy to make money. Now is not one of those times. I want to keep my powder dry until we get better volume to give us better clues as to what the markets intend to do.

In overnight trading (Tuesday 11:12 p.m. CST) the Asian markets are down. Silver, gold, and oil are all down marginally. The US dollar is up against the other major currencies.

Our US equity futures are down too. The DOW futures are down 16 points, the S&P futures are down 3 points, and the NASDAQ futures are down 5 points. Expect more weakness, or at least listlessness. I would sit it out.

Yesterday I suggested that you focus on the utility sector, as it remains one of the strongest sectors. Companies such as Southern Company (“SO”), Consolidated Edison (“ED”), and Dominion Resources (“D”) are among the largest companies in the sector.  They have current dividends of 4.1%, 3.9%, and 3.7% respectively.

For smaller accounts, you can hold the SPDR Select Utility ETF (“XLU”) with a current dividend of 3.8%. This ETF holds the underlying utility companies including those mentioned above and I have attached their graphs so you can see the strength in this sector.  Holding an ETF also allows you to be nimble if things head south.

SPDR Select Utility ETF XLU L-T 12-27-2011 Curr Yld 3.9%

SPDR Select Utility ETF XLU M-T 2 Yr 12-27-2011 Curr Yld 3.9%

I also stated that buying has yet to be robust even though we have had a small rally.  But selling remains stout and any bad news out of Europe could turn the markets in the other direction.

Our economic data has been getting stronger and we appear to be the strongest major economy in the world right now.  Keep your equity exposure on our shores.

The S&P CaseShiller Home Price index, Consumer Confidence and the Richmond and Dallas FED Manufacturing Activity all come out today.  With the exception of utilities, if you are planning to take on more equity exposure this week, I suggest a broad ETF like the SPDR S&P 500 (“SPY”).  With this move, you can get diversity with one trade.  If the markets begin to accelerate downward, you can be out with one trade.  I would, however, wait to see confirmation of a continued move higher before taking more exposure.

The markets are on rocky ground right now.  Volume should be very light over the holidays.  This makes it difficult to read anything into the markets until 2012.  Conservative investors may just wait.

China is slowing.  The Australian market is down due to their slowing economy.  In overnight trading (Monday 10:15 p.m. CST), the Asian equity markets are in the red.  The US dollar is up against the Pound, but down marginally against the Euro and Yen.  Gold and silver are down, but oil is holding its own.

Many of these moves may be due to Iran holding war games in the Straits of Hormuz.  If political tensions heat up, expect oil to rally.

Wait until you see confirmation of a continuation before you take on more equity positions.  As always, if you have any questions, please feel free to e-mail me at dstewart@noramcapital.com or call me at 214-708-4555.

Smaller is better…really…

I promised I would be brief over the Holiday, and I will. Santa gave the markets a pre-Christmas bounce and a mild rally. But, the jury is still out whether we have bottomed and the rally will continue into the New Year. Sellers could easily reenter the market quickly, especially on any negative European news.

Unless we see increased buying volume, which will be unlikely until after the New Year when the traders and brokers are back, you probably want to stay fairly conservative.

Our economic data is slowly improving however, and you will want to begin taking on more exposure to individual equities soon if the data continues to be positive.

For the time being though, use broad based ETFs that own the underlying stocks, like the SPDR S&P 500 (SPY) for example, so you can easily get exposure to stocks, or unwind easily if you wish to move to cash.

Utilities have been the strongest (and safest) sector. Hold onto your utilities. Also hold on to any midterm investment grade corporate bonds or investment grade corporate bond ETFs you own. This will provide income and a surrogate for money markets and cash in the short term and probably even the midterm as interest rates are not going to rise too quickly.

In overnight trading (Sunday 9:12 p.m. CST) most of the Asian equity markets are in positive territory. The US dollar is down against the other major currencies. This should be good for our equity markets today. The US dollar is still in a bullish trend going into the new year.

I hope everyone had a Merry Christmas or Happy Hanukah. As always, if you have any questions, you can e-mail me at dstewart@noramassetmanagement.com  or call me at 214-708-4555.

Christmas is almost here, and thus far the “Santa Claus rally” has been fairly muted with the exception of Tuesday’s big day. We did have a positive day yesterday with the major indices up between 1/2% to a little over 3/4% on very light volume.

Although Up Volume was healthy coming in around 80% on both the NYSE and the NASDAQ, the light volume is troubling. Although the DOW has been outperforming, it was the weak link yesterday.

The S&P, however, is still below its 200 day moving average (200 DMA) and resistance. The NASDAQ has fared even worse. With such light volume, any negative news could be a catalyst for a pullback.

Our GDP number came in lower than expected, but Initial Jobless Claims came out better than expected. Today we have New Home Sales, Personal Income & Spending, and Durable Goods Orders.

We have to wait till January before any more earnings releases are reported. Things will go likely go quiet through the end of the year unless some extraordinary news develops. Traders and brokers are all headed for vacation, and, with the exception of some year-end tax planning, trading will be very light.

Hold your core positions but hold off on new buying unless something big develops. In overnight trading (Thursday 9:40 p.m. CST) the Asian markets are all in positive territory except for Japan. Gold and silver are both rebounding, and oil is again positive. The US dollar is down against the other major currencies.

Our  US equity futures are again positive. The DOW futures are up 49 points, the S&P futures are up 6 points, and the NASDAQ futures are up 11 points.

My newsletters over the next week will be very brief and to the point. Now is the time to take a breather, relax, and enjoy your family. Have a Very Merry Christmas! Happy Hanukkah to our Jewish readers. It is time to give thanks for our many Blessings.

The markets actually showed some resilience yesterday after being significantly down is early trading. Although the NASDAQ was down well over -2%, it closed down -1%. Oracle’s missed earnings put pressure on the NASDAQ and contributed significantly to the index’s decline.

The DOW, being down over -100 points, and S&P both actually clawed their way back closing just barely positive. And the DOW would have actually performed better if you took out IBM, which was down over -3%.

On the negative side, overall volume decreased across the board. There are still many uncertainties, mostly out of Europe, which is why you need some income producing assets (which attracts investors) WITH pricing power. These would include Utilities and Master Limited Partnerships.

Utilities and Energy have shown the most strength over the past few days. This will likely continue, but the high dividends help to offset fluctuations even though these two sectors, Utilities and MLPs, are much less volatile than the overall market.

For new money and for clients who don’t already own utilities, I purchased the SPDR Select Utilities ETF (XLU) which owns a basket of utility stocks. It pays a dividend of 3.9% and volume has been increasing. I have attached 3 graphs of XLU – Long Term, 2 Year, and YTD – so you can see what I am studying.

SPDR Select Utility ETF XLU L-T 12 21 2011 Curr Yld 3.9%

SPDR Select Utility ETF XLU 2 Yr 12 21 2011 Curr Yld 3.9%

SPDR Select Utility ETF XLU YTD 12 21 2011 Curr Yld 3.9%

For larger accounts that want to hold individual stocks, you can investigate Southern Company (SO), Dominion Resources (D), and Exelon (EXC). These are 3 of the biggest players in this sector and are, by the way, the 3 top holdings of XLU. If you decide to go the individual stock route, be sure to invest in at least 2 or 3. This will somewhat mitigate bad company specific news or surprises.

With regard to Master Limited Partnerships, my clients and I already own Kinder Morgan (KMP), which pays a 5.8% dividend (actually a distribution so somewhat tax sheltered). It is one of the biggest players in the sector and very diversified in this space.

One of the more common ways investors invest in a basket of MLPs is through Exchange Traded Notes, or ETNs. This is due to tax advantages an ETN has the Master Limited Partnership space.  The most common on JP Morgan MLP ETN. The problem is an ETN is only backed by the credit of the issuer and in an Unsecured Senior Note (debt).

In fact, on JP Morgan’s own Investment Summary they state “the investment seeks to replicate, net of expenses, the Alerian MLP Index. The index tracks the performance of midstream energy Master Limited Partnerships. They do this through the use of swaps or other esoteric derivatives. Personally, I don’t think the tax advantages are worth the risk of NOT owning the underlying securities, but simply backed by the promise of a bank.

One solution is through the use of an Exchange Traded Fund, or ETF.  But with the proliferation and explosion of new ETFs, you cannot lump all ETFs in the same risk category. Many of the newer ETFs also use swaps and other exotic derivatives to achieve their stated objectives/returns.

You want to be sure the ETFs you own invest in the actual underlying securities unless you are simply trading them over a short time period for swing trading (tactical allocation) or hedging, and not holding as a longer term investment (strategic allocation).

One such fund is the Alerian MLP ETF (AMLP). This fund invests at least 90% of total assets in securities that comprise the index (or depositary receipts based on such securities). It has a current dividend of 6.26%. For you history buffs, Alerian was the company that created and tracks the “Alerian Index, then decided to create a fund of their own.

Kayne Anderson MLP Investment C (KYN) is a closed ended equity mutual fund launched and managed by KA Fund Advisors, LLC formed on September 28, 2004. It, like Kinder Morgan, is also based in Houston and “invests in the public equity of the US in stocks in the energy sector.” With a closed end fund, the manager invest a fixed amount of cash a basket of underlying securities raised at the initial public offering. Therefore, with minor exceptions, it is a set number of shares issued and outstanding and behaves much more like a stock. This is a good alternative if you shy away from both ETNs and even ETFs.

Maingate MLP Fund Class A (AMLPX) and the Maingate MLP Fund Class I (IMLPX) is a new mutual MLP fund I just found when investigating other MLP alternatives. Its inception date is on Feb 17, 2011. I will want to track and watch this fund to see if its tracks the underlying index well. The only difference is the way the fund charges and minimum investment. The first is for retail investors and is front end loaded, and the second is the institutional version. The fund “invests at least 80% of the net assets in MLP interest under normal market conditions. The fund normally concentrates its investments in MLPs in energy sector that derive their revenues primarily from energy infrastructure assets or energy-related assets or activities.”

This should give you plenty of ideas to begin your research. Your personal situation should guide you to the right alternative. I personally avoid ETNs (unless very short term) and many ETFs. There are, however, many good ETFs with solid management, you just have to do the research.

I know this is all very confusing, so if you need more clarification, please do not hesitate to call me at 214-708-4555 or email me at dstewart@noramassetmanagement.com and I would be happy to answer your questions. In fact, I intend to discuss the differences between ETFs, ETNs, Closed End Fund, and mutual fund including their issuance and redemption today at 5:00 p.m. CST on the WallStreet Shuffle radio show on  1190 AM in DFW, or you can go to www.thewallstreetshuffle.com and listen live via streaming the show on iHeartRadio.

For today, we have the Initial Jobless Claims and GDP. GDP especially could have an effect on the market. In overnight trading (Wednesday 10:35 p.m. CST) Asian stocks are in the red on renewed European fears. Gold and silver are down, but oil is holding steady. The US dollar is gaining ground against most currencies, especially the Euro.

Our US stock futures are moderately negative. The DOW futures are down -14 points, the S&P futures are down -2 points, and the NASDAQ futures are down -1 point.

I remember it like it was yesterday, September, 1998 just after my birthday and the dot-com bubble was in full inflation mode.  Stocks were going public left and right. Many of them had never made a penny of profit and yet drew millions from investors.  Bubbles were nothing new to the markets, but when we are in one, many seem to forget the past.  Boy did they miss this one!

Late that month, a relatively new online auction company called eBay was coming to market and investors foaming at the mouth to get a piece of it.

During the height of the new “internet era”, where anything ending with “.com” was getting bought up by every sucker and supposed professional alike.  Even with the meteoric rise of so many worthless companies, caution was thrown to the wind and traders continued to buy worthless companies right up into the new millennium.

I remember the first day of trading for eBay.  The stock rose by nearly 300 percent and its market cap on that day was close to 2 billion,  almost 6 times what its closest competitor Onsale.com was worth.   It was an unbelievable showing and that was only the beginning for the fledgling online retailer.

For the record, I was a believer in eBay’s business.  I thought their idea and website was pure genius, but I was extremely skeptical of the insane valuations that the market was willing to give them, so I didn’t buy in.

Starting with their debut on the NASDAQ, eBay proceeded to go straight up until about May of 1999, at which point they had a price to earnings ratio (P/E) of over 1000!  In the months that followed, even with a drop in stock price, the price to earnings ration or P/E (which is a common way to measure a stock’s value) had risen to over 1600 at one point, before dropping back to a more realistic level as the company began to make real money.

The average P/E range of stocks in the S&P 500 index is somewhere between 14 and 18. So a reading of 1600 is rather insane, but sometimes justified if the company is expected to growth earnings at an exponential rate.

EPS, P/E and Price chart of eBay since its IPO

I bring up eBay, because they are not only survivors, but a success story among many of the very sad endings to dot-com era stories.  eBay has continued to thrive and remains one of the top online retailers in the world today.

Unfortunately, this was not the case for most of the companies that came to market in the late 90’s and used the dot-com craze to get Wall Street to give them money.  According to CNET, about 800 internet companies failed in 2000 and 2001, many more in the years to follow.

Try to recall how many dot-com boom companies are still in existence (and thriving) today…

You can’t use Google, Microsoft, Apple, Qualcomm, Baidu, Cisco, Intel or even America Online, as none of them were dot-com boom companies. America Online actually went public in 1992!

I believe that most of you would be hard pressed to recall more than a handful of dot-com boomers that are thriving in today’s market and yet today we are entering into another bubble, one that I call dot-com 2.0!  There are companies coming to market right now that are barely making a penny in profits and yet commanding huge demand and prices from investors.

Whenever you have a major social, financial, technological or resource driven catalyst that creates a craze or causes crowds to panic, you have the making of a bubble.  Bubbles have been caused by everything from ultra-low interest rates to the internet and even by tulip bulbs (Google that one if you are not familiar).

The recent craze is the rise of a new kind of human interaction.  One that we’ve never seen or perhaps imagined.

After the craze dies down, there will be a handful of companies that not only make it through, but will thrive for years to come.  It is our job to narrow the playing field and find the true diamonds amidst the masses of worthless zirconium out here.

Social Media, Dot-com 2.0

I guess I am most afraid now because even professional traders and money managers remember the flops and yet they are at it again.  Perhaps because the premise is exciting in a time when the word really has nothing to be excited about .

It’s seems that this new sector has been drenched in love potion number 9 and no one is immune to the effects.  This time the obsession is with everything surrounding “social media.”  Social media being a broad reference to any business that is able to profit from the way we interact and market with one another as consumers and friends on the internet.

Social media’s guiding precepts are trust and viral networking.  This is based off the idea that you will generally trust your inner circle of friends, family and acquaintances more so than some strange company that is marketing to you.

Social media also merges our day to day tasks and tools with subtle advertisements that “nudge” us to buy products when we are motivated.   Social media websites like Facebook, Zynga and LinkedIn know what you do for a living, where you went to school, how old you are, the foods and cars you like and even what you like to do for fun, so they can customize ads and offer suggestions and ideas that you are extremely likely to respond to.  This knowledge is extremely lucrative to a company that is trying to sell you something.

The truth is that no one has truly figured out just how big the social media revolution will be and therefore just about every company that labels themselves a “social media company” is commanding outlandish valuations in the stock market, but many are just pigs with serious lipstick on.

You’ll see below that the social media revolution can be extremely powerful (and intrusive).  If exploited in the right way, companies can make millions from the information they gather.  The question is both who will be able to do it right and how long will we let them?

Social Media Principles and Strategies:

• YOU TRUST YOUR “FRIENDS”, SO THEY BECOME THE EXPERTS RECOMMENDING GOODS AND SERVICES AS OPPOSED TO A COMPANY TELLING YOU WHAT YOU NEED.  THE SOCIAL MEDIA SITE LINKS YOU AND YOUR “FRIENDS” TOGETHER ALLOWING YOU TO SHARE YOUR EXPERIENCES.

(ex. Yelp, Facebook, Angie’s list, LinkedIn, Groupon, Google)

How it works:

It used to be that a company would advertise their goods and/or services through traditional outlets like print, TV and radio and the consumer would buy based on their ads.

As the internet brings manufacturers and consumers from all around the world closer together with many more products and services, it becomes harder to decide which company you want to do business with and to find the best deals.  Social media gives you access to a circle of “friends” that you can ask for information immediately or see what products and services they are buying and why.

You can also see reviews of products and services from people around the world in your same demographic, which may help you decide if you’re making the right decision. 

I believe that this aspect of social media is helpful, but only to an extent.  Shills and emotional, unchecked  opinions  can skew results.

There will be a couple companies that are able to distill opinions and experiences into a useful medium.

• SOCIAL MEDIA WEBSITES, GAMES AND APPLICATIONS (APPS) GAIN INTIMATE KNOWLEDGE ABOUT YOU AND YOUR BEHAVIOR. THAT INFORMATION IS THEN USED TO SELL YOU SPECIFIC GOODS AND SERVICES OR TO IMPROVE YOUR USER EXPERIENCE ON THE NET OR IN OTHER ENVIRONMENTS.

(ex. Facebook, Zynga, Groupon, LinkedIn, Myspace, Friendster)

How it works:

Imagine that you just got done watching the movie “bullet” on your iPad.  (If you haven’t seen it,  Steve McQueen races his 1968 Mustang through the streets of San Francisco and is renowned as one of the best chase scenes ever).

Well, Apple knows that you have watched the movie and how many times you watched it.  If you are on Facebook, they know how old you are, about how much money you make and might even know if you are looking to buy a car because last week you posted on your page that your car had been stolen. Maybe over the course of the past year you happened to click “like” on the Ford Mustang.  Chances are Ford and Facebook would be showing you ads for a great deal on the new Ford Mustang.  You might just even buy it…

I believe that this is the most powerful aspect of social media and the one that will bring the most spoils to the company(s) that can perfect it. 

• YOU THE CONSUMER EXPLOIT THE SOCIAL MEDIA SITE TO GAIN EXPOSURE OR GATHER “FRIENDS” WITH SIMILAR INTERESTS SO THAT YOU CAN IN TURN SELL THEM GOODS AND SERVICES OR BUILD YOUR BRAND.

(ex. Twitter, Facebook, Friendster, YouTube, Google+)

How it works:

You are a financial advisor selling your services online.  You open a twitter account and being posting random information on the stock market on a daily basis.  Over time, you build a following of “friends” that enjoy your commentary.  Without spending a dime, you now have a captive audience of which to market your services.

 Movie stars and other famous  people actually get paid as a shill to tweet!  Kim Kardasian was making up to $10,000 per tweet that she sent out!  The sad part is that her list of followers grows every day.

 This side of social media is more beneficial to the consumer or company selling the goods, not necessarily to the social media company.   Twitter is the most popular of these type of companies, but I still can’t quite figure out how twitter is going to make big money unless they start charging per tweet J 

 I can see Twitter using algorithms similar to Facebook to track exactly what you are thinking at any given moment based on your tweets and selling that information to others.  For now, I think Facebook still has the best of all worlds.

* The word “friend” is in parenthesis because social media outlets like Twitter, Facebook and others have purposely blurred the true definition of a friend to include just about  anyone who is remotely connected to another.  By doing this, they offer both parties a sense of trust and camaraderie that allows better bonding even if you never even met any of your “friends” or “followers.”  This translates to a broader network for individuals and allows them to reach even deeper into your life.

-We are slowly become a society of what I call “friend gathers” where young people are judged by the size and scope of their “networks” even if they have no real relationships with these people.       Having never interacted with many of their friends in person, communication styles are evolving.  The rise of “Texting ” versus talking is a perfect example of this.  Of course, for friends in far off lands before the age of the telephone, the only means to communicate was through the mail.  But why would anyone want to go backwards? 

Anecdotally, I have noticed that young people seem to be more disconnected to others on a real, personal level.  This lack of intimacy and verbal communication could be an extreme detriment to the future of cultures around the world. 

Finding Value in your Personal Data

Aside from the change in our communication habits, we have only seen the tip of the iceberg when it comes to exploitation and monetization of your personal data.  Since people don’t seem to just talk anymore, there is a plethora of information that is sent via smartphones, computers and other web based devices.  Just about everything you do online, on your mobile phone and in the cloud is tracked to some extent allowing companies like Facebook, Apple, Google and others to know more about you than your spouse in many cases, I’m dead serious.

As scary as that sounds, think about the value that information and the precision marketing that can come from it.  Better yet, think about you knowing exactly what your customers are thinking and wanting at that very second and being able to offer them a solution when they need it most…

To put it in a different context, think back to when you were dating (or even in your married life).  Ever wonder what the love of your life was thinking?  What if at every second you knew exactly what was going through their mind?  What if they wrote a detailed diary of every last thought and action in their lives and offered you a copy? Do you think that would give you an unfair advantage?  Would you be able to exploit that information?  Would you feel right reading that diary?

I wouldn’t want to, but that’s just me.

Companies like Facebook can read and distill every message, post, picture, search result and more using their algorithms and have your very personal diary at their disposal and not only will they use it, but they will make billions of dollars from the information contained within it!

Certainly there are privacy and trust issues surrounding all this, but the reality is that greed, popularity, interaction with others and the human desire to be heard, loved and even to eavesdrop all force us into playing the social media game.

 Twitter alone allows just about anyone to gain popularity and a stage in front of millions without ever leaving your desk or doing anything significant, ask Paris Hilton who has millions of followers.

A Plethora of Players

Unless you have been living under a rock, you probably know that Facebook is the 800 pound gorilla in the room.  Its website and services encompass just about every facet of what we call social media and they are the most widely used platform giving them the most information and control next to Google in my opinion.

Google can also be thought of as a quazi-Facebook and believe it or not, might be the sleeper sensation of the sector next to Facebook.

Many of the other companies in the space are just hangers-on, using the Facebooks of the world to gain advantage.  Worse yet, there are companies that have services that can be easily re-produced or that are not even really viable to begin with (think Groupon or Shutterfly).  At best many “social media” companies such as LinkedIn should be trading at values closer to their real peers like Monster Wordwide (MWW : NYSE)

Social media companies like Zynga find out about you and your behavior through online games where they study your habits, friends and interactions.  Not only does Zynga sell you “stuff” directly, but they use your game playing time to weave in deals and suggestions for you to buy products from all different kinds of companies.

Some companies use all sorts of sneaky tactics to get inside your life.  Even Alec Baldwin’s plane incident was a shill and  turned into an international stage for Zynga’s game “words with friends.”

At this point, it’s becoming clearer which companies are actually viable and have staying power and which are destined to fail, although anything can happen.

Zynga was the largest Internet IPO since Google and coincidentally looks the best financially so far.  Yet on its first day of trading, the stock actually moved 10% lower from its $10.00 IPO price.  Perhaps investors are already getting wise to the game and seeing the cracks in social media wall.

I saw these cracks early with LinkedIn, just after its IPO. It’s stock was trading around $100 back in June of 2011 as seen in the chart above.  Observing  the hidden flaws in the company and in its astronomical valuation, I suggested that we buy puts on the stock immediately.  Over the course of the next couple months, the stock dropped over 40% down to a low below $60.  We took some nice profits in the stock and by the way, the selling is not over in LNKD.

LNKD Daily Chart

While I don’t think this company will fail, they have no business commanding such a high price to earnings multiple.  Even at $70, they are grossly overpriced.    In early December I decided to short the stock again when it bounced to $77 and sure enough, it continues to fall.

Who Will Win?

Myspace, Friendster and many others have flopped, even when some of them seemed destined for greatness.  This is proof that the game can and will change quickly.

From my perspective, Facebook is the real true social media giant, who has woven its tentacles into not only our lives, but into the veins of traditional media.  Just about every commercial I watch, the advertiser wants me to “like” their product (you can click like on Facebook).

Since they have just about everyone in their pocket and because their users are motivated by inherent, natural human tendencies, I believe they will thrive for a long time.  Twitter will most likely be bought by them or someone else, which would be my only impetus to buy them when they begin trading publicly.

For most of the other publicly traded public companies, I think their stock would be better used as wall paper than assets in my account.  As more and more of these companies come to market, my service Option Strategies Weekly as more and more opportunities to take advantage of!   I will bring you the trades as they arise!

For now, while we wait for options to be listed on Groupon, I suggest…Continue Reading

It was a big day on Wall Street yesterday – finally! Overall volume did increase, but not as much as you would expect given the percentage gains.

Abroad, the German Business sentiment surprisingly came out very upbeat baffling expectations and Spain had a successful debt auction, also surprising. At home, our Housing Starts and Building Permits beat estimates.

We easily qualified for a 90% Up Volume day on the NYSE but just missed on the NASDAQ. More importantly, strength in buying increased dramatically. This is key for a sustainable rally. A follow through will be key for more investors to gain interest back in the markets and participate.

There is still a lot of risk in Europe so you should remain cautious. It looks more likely that the politicians in Europe are becoming convince that printing Euros will be the solution.

If you have not bought your gold and silver yet, I wouldn’t wait much longer. We have gotten a healthy pullback in a long term bull market.

I have been following gold closely since 2007 and have attached 3 graphs of Spot Gold. The 1st is a long term view showing the support & resistance lines since 2007 and the upper and lower trend lines. The 2nd zooms in the get a midterm view, and the 3rd is a close-up YTD look. Almost every time gold hits the lower trend line it bounces off and resume higher.

Gold L-T Bouncing Off a Trend Line 12 20 2011

Gold 2 Yr Bouncing Off a Trend Line 12 20 2011

Gold YTD CloseUp Bouncing Off a Trend Line 12 20 2011

Additionally, I believe the Gold Miners, who have also experienced a pullback and normally lag gold, are poised to breakout. They were one of the best performers yesterday. I have also attached a graph of the Market Vectors Gold Miners ETF (GDX) which owns a basket of individual mining companies.

Gold Miners GDX L-T Bouncing Off Support 12 20 2011

On a side note, Oracle reported disappointing earnings after the bell yesterday and could put some pressure on the NASDAQ at the open, but will likely be overlooked if the Holiday Spirit continues.

Today we have Existing Home Sales and MBA Mortgage Applications out. With the positive Housing Starts yesterday I now believe this will come out positive. I know I did my part this month by purchasing a home.

We also have CarMax reporting pre-market, then Walgreen and Bed Bath and Beyond reporting during open market, then Micron Technology after the bell. Maybe they will provide some additional Christmas cheer.

In overnight trading (Tuesday 10:10 p.m. CST) all of the Asian equity markets are in positive territory on our coattails. Silver is flat and gold is up around 1/2%, but both have come off their earlier highs in the Asian markets. Oil is up strong and maybe worth watching for continued breakout. The US dollar is down against the other major currencies.

Our US equity futures are in barely in the green. The DOW futures are up 4 points, the S&P futures are flat, and the NASDAQ futures are up 3 points.

The markets continued with their usual pattern of opening positive attempting a rally in the first hour of trading, only to selloff and close in the red. With the exception of 1 day, the markets have repeated this pattern for over a week now.

However, yesterday selling was more intense and we qualified for a 90% Down Volume day on the NYSE. On the NASDAQ, selling was less intense with Down Volume in the mid 70s. Over the course of this bear market though, the NASDAQ has fared the worst of the major 3 indices.

Europe is once again front and center and there is increasing talk of the EU breaking apart. England is making contingency plans for just such an event.

The financial sector is taking it on the chin. Bank of America closed down below $5/share for the first time since March of 2009. I have repeatedly said stay away from the financials, there is simply too much risk. Only a large bailout/stimulus package could change my mind.

The markets are technically oversold but as I have said, these “oscillating” indicators work in market trading within a range, and not a trending market.

We are in a trending market – trending down. These indicators will simply become more oversold. A much better indicator to use during these trending market is Relative Strength. And, Volume Studies always help to determine the most likely direction of the markets.

Right now, selling has been increasing in strength and buying has been weakening. Hold your cash! Keep your bullish US dollar trade(UUP) and the short Euro trade (EUO). Both are still firmly intact.

Volume will become lighter as we head into the holidays, especially Christmas Eve through the New Year. In overnight trading (Monday 10:35 p.m. CST) the Asian markets are up moderately. Gold, silver, and oil are also slightly in the green. The US dollar is giving back some of its gains against the other major currencies.

Our US equity futures are also in the green. The DOW futures are up 45 points, the S&P futures are up 6 points, and the NASDAQ futures are up 11 points. Don’t be fooled or try to guess the bottom though, the markets never go straight up or straight down. For now, the trend is down. Until we get some positive answer out of Europe, we will not see a sustainable rally in the markets.

The markets sputtered out in the afternoon on Friday on heavy volume. The increased volume was primarily due to quadruple witching – options expirations on futures and equity contracts on both indices and individual securities.

The markets tried to rebound from the 3 day selloff, but has yet to show any significant strength. In fact. supply (selling) has been expanding while demand (buying) has contracted. Going back decades, the market has never had a sustainable rally under these conditions.

I have stated in recent newsletters that most of the relative strength has been in the mega cap stocks, and not in small and mid cap issues. Additionally, overseas markets are very weak. Both are characteristic of bear markets. The big question is whether the mega cap stocks will succumb, and, if so,  how soon, or will more stimulus/bailouts ignite a rally.

Europe still looms in the background with Moody’s cutting Belgium by 2 notches. Many other countries are under scrutiny by all of the rating agencies, even AAA rated countries like France. There is an emergency meeting in Brussels today to find yet another solutions and an additional 200 billion Euros.

Today we have the National Association of Home Builders (NAHB) Housing Market Index, Housing Starts, and Building Permits to provide clues about the housing market. Are we actually bottoming out and beginning to recover, or do we have another leg down? My vote is for the latter. Either way, it will not be a sharp recovery but will take years as many foreclosed homes are coming to market off of the bank’s balance sheets.

Speaking of real estate, China’s November Home Prices came out the weak and much lower than expectations. The Chinese and Hong Kong equity markets (Sunday 10:35 p.m. CST) are showing their displeasure and both down by almost 3%.

In fact, in overnight trading all of the Asian markets are all in the red. Gold, silver, and oil are also down.  The US dollar is stronger against all the major currencies.

Our US equity futures are also in the red. The DOW futures are down -61points, the S&P futures are down -6 points, and the NASDAQ futures are down -11 points. The fear trade is back on as investors are flocking to the US dollar.

Non-US banks’ liquidity is drying up fast. This is why Bernanke is extending over 1 Trillion dollar line of credit overseas.

A Santa Claus rally is beginning to look less and less likely. Even if we do get a bounce, the midterm picture is weak. Remain defensive. Hold off on any new buying and keep your powder dry.

This would be especially true for 401ks and 403b where you have less active control unless you have a segregated, full brokerage account option. Very few retirement plans offer this extra choice, but if yours does, take advantage immediately and transfer as much as you can from your regular retirement account into the full brokerage option.

This way, you could invest in a strong dollar ETF, gold, or many other options not available in your regular retirement plan. If you have any questions, you can call me at 214-708-4555 or e-mail me at dstewart@noramassetmanagement.com.

If you don’t have these options, and you most likely don’t, you should have at least 60% to 70% in cash (money market) and any equities should only be in US large cap dividend & income fund or S&P 500 fund.

The markets were up on lower volume yesterday. They did, however, give back 2/3rds of their gains of the morning.  Statistically, this looks to more of an “oversold” bounce than anything sustainable without a major announcement.

This is exactly why I was stating in my previous newsletter, be careful with your stop losses on your short positions and give them a little room to “breath” with the markets. Until we get a big announcement, the trend is still down with the midterm supply/demand picture weak.

Up days, like today, are on lower overall volume and lower, or weaker, % Up Volume itself. Down days are on higher overall volume and higher, or stronger, % Down Volume. This is not a bullish sign.

It was a weak, anemic day at best. Up Volume was in the 60s on the NYSE and only in the low 50s on the NASDAQ. Again, this is why you need to have room for your stops to work. You should adjust your stops on your short positions upward if the market move down and therefore your short positions go up in value.

Thus you should keep your “adjusted” stop loss level consistent as your position moves up in price. But if the markets move up and our positions come down in value, then leave your stops where they are currently set to protect your positions/profits.

Today volume will be unusually affected by quadruple witching: expirations for index and stock futures, and index and stock options. Additionally, Adobe Systems came out after the bell beating estimates and this should help the NASDAQ at the open.

Bernanke told Congress in a closed door meeting yesterday that there would be no “direct” bailouts to Europe. However, he did say he might extend swap lines to the Central Banks of Europe in excess of 1 Trillion dollars. These Central Banks, would in turn, lend to their local lenders/banks. This is an indirect way of printing and it looks like the Central Bankers may be warming up the presses.

Gold was down almost 1/2% & oil was down -1 3/4%. However, in overnight trading (Thursday 10:40 p.m. CST) both gold and oil, as well as silver, are all firming up nicely. Gold is up $19/ounce, or over 1%. Silver is also up over 1% currently.

Oil is where I think you might get a real opportunity within a few weeks to a month as things seem to be heating up in the Middle East. Iranian war games & posturing is making Israel impatient.

The US dollar is up against the Yen, but giving back some gains against both the Euro and Pound. This will also be bullish for stocks if it holds. The Asian equity markets are in the green.

So are our US equity futures. The DOW futures are up 45 points, the S&P futures are up 4 points, and the NASDAQ futures are up 2 points. It looks like we may get a short term bounce, so keep your stop losses set and ready.

I am not trying to be indecisive, but in the very short term a bounce is likely, but the midterm remains weak without stimulus. Thus the reason for the stop losses.

The last time I was on the airwaves I mentioned that silver was subject to the potential of a drop in price, because of “fund selling”. Sometimes we get it right on the Wall Street Shuffle. However, this forecast was not that difficult, considering the circumstances. The US dollar was very strong the past few days and current price was very close to the lows made in late November. If prices could fall below those lows, by just the right amount, large funds would begin to sell some of their long holdings in the silver commodity. Short-term speculators would also have to “give it up”, as the losses would be just too large for many of them to take in their overly leveraged accounts.

Silver March 2012 Contract

On Tuesday, prices were just so close to the lows, it would have been very easy for prices to set off sell-stops, in the silver contract. Think of it. Any short-term trader, who bought silver in November, would be losing money. They may have bought because of greed; they sold because of fear – of losing money.

The lows of September may hold this decline, but that depends upon the future price movement of the US dollar. As a speculative trade, I still advise traders to wait before jumping into a long position.

The markets had their 3rd day on decline on increasing volume yesterday. Commodities, gold, silver, and oil also experienced a hard selloff. Many leveraged traders got margin calls and had to liquidate positions. This, in turn, cause stop losses to be triggered.

The only positions that did well were a strong dollar fund like PowerShares US Dollar Bullish Fund (UUP) or the ProShares UltraShort Euro Fund (EUO), and US treasuries. It was a flight to perceived quality.

But was this selloff enough to entice buyers to enter the markets? Many of the technical indicators are “oversold,” implying a rebound. The problem is many of these indicators work very well in a “range bound” market, or channel. In fact, these indicators are specifically geared toward measuring tops and bottoms within a range.

But when the markets are trending in one direction or another, these technical indicators continue to become even more “overbought” (in an upward trending market) or more “oversold” (in a downward trending market. Right now, we are in a downward trending market and these indicators will continue to become more oversold. So turn the “oscillator” technical indicators off as they will likely do you more harm than good right now in this environment.

You always need to determine which type of market you are in, then use the appropriate indicators for that market. There is no magic indicator, or black box, that will work in all markets.

Fundamentally, the news is not good. The Euro fell below 1.30 against the US dollar for the first time since January. European bond yields are spiking. This is turn is causing European banks to pull in their talons and lending to emerging markets is drying up fast. Stay away from emerging markets, and overseas altogether.

To add insult to injury, our FED withheld stimulus 2 days ago at the FOMC announcement. Lastly, China is slowing quickly. All this taken together has reignited the fear trade. The only place you should own equities at this time, and this assumes being hedged, is in the US. We are currently the strongest economy in the world.

I would also confine any equity exposure to large cap stocks as they are demonstrating the most relative strength. This means that when measured against small and mid cap stocks, they are performing better due to being perceived safer to investors. Those will be the last stocks investors will sell and will signal we are close to a final capitulation.

In short, what does all this mean to you. It means the markets are still in a downward trend. The supply and demand picture for stocks is getting weaker, with supply (selling) rising while demand (buying) is falling.

If you took my advice and took some short positions during the FED announcement 2 days ago, you have done well, or hedged well, whatever may be the case. Now what to do?

It is true we may get a bounce due to traders seeing the technical indicators registering oversold conditions. You will also have the “bottom fishing” mentality (very dangerous).

But, as stated above, both the fundamentals and the technical supply/demand picture for stocks argues for even lower prices. Therefore, you want to protect profits but do not want to give up opportunity especially when probabilities suggest a downward trend.

Until we get a big stimulus/bailout announcement, I believe the trend will continue lower. This is why if you can’t actively watch the markets during the day, you should employ a stop loss. This is where you put a stop-loss order, a type of conditional order, below the current price.

Therefore, if you use a 2% stop, if the price drops by 2%, it turns the conditional order into a market order and you are sold out of your position at the next trade/price. But how do you protect against getting “wiggled out” of the trade primarily by daily fluctuations if you feel the trend is lower, but are also worried about an announcement, or are simply wrong and the market rallies?

This is where you would use a “beta adjusted” stop loss. Beta is a measure of the asset/stock against the appropriate index. It is usually the S&P 500 for a large cap traditional stock or ETF, or the NASDAQ for a technology stock or ETF.

In very simple terms, beta is a measure of how closely correlated, on average, a stock moves relative to the index. If the stock has a beta of 1, then on average, it moves fairly up and down in tandem with the market/index.

A stock can actually have a beta near zero, and still be quite volatile, but virtually uncorrelated to the market. A negative beta would imply that the assets moves inversely with the market/index.

An S&P 500 ETF should have a beta of 1 against the S&P 500 Index itself. Likewise, an unleveraged, inverse (short) S&P 500 ETF should have a beta of -1 against the S&P 500 Index. A 2x leveraged S&P 500 ETF should have a beta of 2, and the 2x leveraged, inverse should have a beta of -2.

I think you get the picture, but let’s not miss the forest for the trees. The point is if you have an unleveraged position you want to protect profits, you want the stop loss around 3% below the market.

If it is a 2x leverage fund, then the stop loss should be around 6% below the market, again so daily fluctuations don’t wiggle you out of the trade. This will protect you from a surprise announcement or surprise rally.

This is similar to using a stop loss based upon a stock/ETF’s average true range (ATR). The ATR is the daily average range from the average daily high to the daily low over a specific time period, usually the past 30 days.

This measures how much percentage movement, on average, a stock/ETF exhibits during the day. Therefore, you could put a stop loss outside the ATR by some measured amount, maybe an extra 1%.

Both of these “adjusted” stop loss measures helps to adjust or customize the stop loss for each stock/ETF’s individual movement, rather than having a standard stop loss across the board for all securities.

I hope this helps you think outside the box and adequately protect profitable positions, or any positions without giving up additional profits you would otherwise miss.

In overnight trading (Wednesday 11:35 CST) all of the Asian equity markets are in the red. Oil is firming up, but gold and silver are slightly down. The US dollar is up against the other major currencies with the exception of the Yen. Our US equity futures are moderately in the red.

Yesterday the rally faded midday. First on the negative European news, but was then exacerbated with the lackluster report by the FED. If you had your trades ready as suggested in yesterday’s newsletter patiently waiting with an S&P short and a Basic Materials short right at the FED announcement, you did very well.

In particular, the ProShares UltraShort S&P (SDS) ETF was up over 2% from that point, and the ProShares UltraShort Basic Materials (SMN) ETF was up over 3%. These are the 2 funds I used.

The question now becomes how to manage your trades from here. To help answer that, let’s look at the technicals of the market.

The markets sold off on heavier volume from Monday, and volume accelerated in the afternoon with selling. The DOW is still above both its 50 day moving average (50 DMA) and its 200 DMA. But the NASDAQ and the NYSE Composite moved under their 50 DMA, and the S&P 500 is resting on its 50 DMA.

S&P 500 YTD Sitting of Support Forming Inverted Cup & Handle 12-13-2011

All 3 of these last indices were already below their 200 DMAs. This is the reason I chose to short the S&P rather than the DOW.  Although the DOW is showing weakness too, it is showing the most relative strength.

Down Volume on the NYSE was 80% and about 70% on the NASDAQ. Watch in the morning for increased weakness on volume. The S&P is sitting on support and forming an inverted Cup & Handle. If we break through support, we could have a long way down to go.

The only wildcards are a surprise stimulus announcement from our FED and a bailout announcement coming out of Europe. A FED announcement is unlikely over the next few days as Bernanke had his opportunity yesterday. A European announcement is much more likely.

If you cannot monitor your trades during the day, then use a stop loss under your positions. Unleveraged positions should be 2% below your short position. A leveraged position should be between 3% to 5% so you don’t get wiggled out of your trade in market fluctuations. The hard part is being patient.

In overnight trading (Tuesday 10:55 p.m. CST) most of the Asian equity markets are in the red. Gold and silver are rebounding, and oil is flat right around $100/barrel. The US dollar is down against the Yen and Pound, but up against the Euro. Our US equity futures are moderately positive.

The definition of “pump and dump” is very negative and is against SEC regulations and illegal. It is where a sell side analyst or manager is trying to “pump up” the stock by going to the media & embellishing a stock’s story saying really good things about the stock that sometimes aren’t even true. Then selling the stock just as the story makes the stock “pop.”

Well, our politicians and Central Bankers, as well as those in Europe, have been doing the same “pumping” trying to keep stock and bond prices from falling. They are trying to alleviate our fears talking about various solutions, but there is nothing behind the words.

The markets feel good for a day, maybe two, then digest and analyze the news, and then the markets sell back off. This cycle has been repeated numerous times over the past few weeks.

This can be seen over the past 2 days. Friday, we had a 90% Up Volume day on the NYSE, and then yesterday, had a 90% Down Volume day. The volatility has been nerve-racking for many investors.

Sometimes the Politicians and Central Bankers do it overnight afterhours so it is already baked into the futures before the open. This makes it too hard to play, therefore, you should remain in cash.

But sometimes, it happens during market hours and you may be able to take advantage if you are prepared. This doesn’t come without risk, but if you manage the risk, it may be worth your while.

Today maybe such a day and provide you with an opportunity. Bernanke speaks at 1:15 CST. Again, if you ready and watching, you may be able to take advantage.

It may even happen slightly before for those black helicopter theorist. If the story is leaked just before Bernanke speaks, the market may begin to move before his formal announcement.

What will you know what to do? Watch the Financials as they will move 1st. The ProShares Ultra Financials (UYG) ETF will be one of the first, and fastest movers with positive news. Likewise, the ProShares UltraShort Financials (SKF) ETF will be one the first to move if the news if positive.

I do not usually take a position in either of these as they are simply too volatile for most of my clients, but they are good early indicators.

If the news is positive, I would go long the ProShares Ultra S&P 500 (SSO) ETF because of its liquidity and broad use. If the news is negative, I would take the inverse fund, the ProShares UltraShort S&P 500 (SDS) ETF.

The individual sector I like due to stimulus and printing, or lack thereof (announcement), is commodities. On the long side you have the ProShares Ultra Basic Material (UYM) ETF. And on the short side, you have the ProShares UltraShort Basic Materials (SMN).

I hate to sound like a broken record using the same funds, but sometimes it is better to keep it simple rather than trying to be too sophisticated.

You can play the news, get in long or short quickly, then get out quickly as the momentum fades. This is known as “buying the rumor and selling the news” and is akin to “pump and dump,” and legal. This is what I mean when I say you need a “pump and dump” attitude. Especially in this market.

Right now the markets and too volatile and possibly too painful to go long or short term over the long term.  The markets, in my opinion, are simply too manipulated right and you should only be in a few sectors with a “buy and hold” mentality. I will discuss those sectors in future newsletters.

Therefore, stay in a heavy amount of cash & pick your battles. You will get your opportunities. One will likely come today!

In overnight trading (Monday 10:38 p.m. CST) the Asian equity markets are all in negative territory. The US dollar is down against the other major currencies and maybe telegraphing stimulus by our FED. Silver and gold are both down, but oil is up. If gold and silver firm up overnight, that would be further confirmation of stimulus.

Our US equity futures are moderately in the green. Remember, keep an eye open around 12:30 to 1:15 CST.

Stocks rallied on Friday as the European Union, with the exception of the UK,  agreed to a fiscal union under the overall control of the EU. Even with opposition from the U.K., the 17 Eurozone countries formally agreed to minimal budget deficits in the future, and allows the European Court of Justice the power to veto any national laws that aren’t fiscally responsible. This is the largest transfer national sovereignty to the EU since its inception in 1960.

Sunday, Germany’s Central Bank (the Bundesbank) President Weidmann, stated that although the new accord made some progress, it was up to the sovereign governments rather than the ECB to resolve the crisis. Thus is remains to be seen whether the ECB will, in fact, announce a big bailout of debt buying or just provide their financial “guarantees.” European sovereign bonds yields have not come down as much as hoped. Unfortunately, Europe’s crisis is far from over.

Foreign exchange managers are reducing their estimates for the Euro. Consensus is that the Euro will continue to weaken. The long dollar trade as well as the short Euro trade remains intact.

Getting to the equity markets, even with the positive point gain, total volume fell across the board Friday and was below its 30 day moving averages. We did just qualify for a 90% Up Volume day on the NYSE, but was in the mid 80s on the NASDAQ. And, although demand (buying) has been increasing in the short term, so has supply (selling). This is not conducive for a longer term rally in stocks and is more characteristic of a bear market rally. In a sustainable bull market, you need to see falling supply coupled with rising demand.

This is why I took profits on the ProShares Ultra S&P ETF (SSO) on Friday after holding it only 1 day. I normally don’t trade this short term, but did not want to hold a large, aggressive position over the weekend. Today I will reevaluate to see if we get a follow through day.

FED Chairman Bernanke speaks on Tuesday with his FOMC Rate Decision. If he hints at QE3 or some type of economic stimulus, he could ignite a continuation of this short term rally. If he disappoints, you could see the market selloff.

Just as with the European crisis trades last week, I would have some trades ready and loaded to take advantage of either direction. You can use those same 4 ETFs or something similar.

Again, use the ProShares Ultra Financials (UYG) and its inverse sibling, the ProShares UltraShort Financials (SKF) as an early indicator for reversals in the markets. Institutional money uses these particular funds for quick and easy exposure either way, and these funds will be quick and early to respond.

I don’t usually use these funds for an investment as they are extremely volatile. I usually use them as an early indicator and to follow the big, institutional money.

For positive news, you can go broad with the ProShares Ultra S&P 500 (SSO) and the ProShares Ultra NASDAQ 100 (QLD). You could also go with sectors, especially commodities (due to printing and inflation) with the ProShares Ultra Basic Materials (UYM).

If the news is negative and no hint of US stimulus and you want to short the equity markets, you can use the ProShares UltraShort S&P 500 (SDS) and the ProShares UltraShort NASDAQ 100 (QID). The ProShares UltraShort Basic Materials (SMN) would be my sector play.

I am currently using ETFs as it is an easy way to get exposure with one or two trades, and the ability to quickly unwind just the same. We are, unfortunately, still in a traders market.

I am, however, still methodically building a longer term portfolio of individual stocks. I am focusing on the utility sector as well as Master Limited Partnerships, or MLPs, in the energy transportation and storage sector. Both of these sectors pay a high dividend that helps offset the recent volatility.

In overnight trading (Sunday 10:15 p.m. CST) most of the Asian equity markets are in the green. Gold, silver, and oil are in the red. The US dollar is up against the other major currencies and will likely continue its bullish rally. Our US equity futures are slightly in the red.

There are no major economic reports coming out today. Without a surprise out of Europe, it may be a relatively mild day with investors waiting for Bernanke’s remarks on Tuesday.

Investors

While being on the airwaves, I often speak of individual trades versus investments. It is a fair question to ask what is the difference. There are many differences, but let us focus on possibly two. The first is that investments are most often long-term in nature. Essentially positions are held for many weeks, if not years. The second difference is that investments follow the stratagem buy low and sell high. The investor buys an asset class when they think the asset represents “real value” and that, if the asset is held long enough, the price of the asset will rise creating a profit for the investor.

SPY SP 500 (Chart Provided by Trade Station)

Because investments will often be a long-term position, it is suggested that the analysis of price of the investments should also be longer-term in nature. This is why investors should focus on weekly trends rather than daily trends. Some six weeks ago, I suggested that investors stay on the sidelines before adding new long positions in their stock allocations. This is because the weekly chart was not indicating that the longer-term bull market was quite ready to renew the rally that started earlier in the year. This may be changing soon, depending upon the resolution of the Eurozone financial bailouts and new releases of our own economic data. You can see that we are now trading near the upper price zones of the past 6 weeks. Until we break out of this range, investors should look for individual stocks or commodities for investment, rather than a broad index.

No stop loss?

Hewlett Packard (Chart Provided by Trade Station)

Every advisor and trader gets it wrong from time to time. You show me an advisor who does not have a stop loss for their positions and I will show you an advisor either who does not manage money or whose funds rise and fall much like the SP500. This is why so many managers cannot even beat the SP500 average in their own performance.

An example is a bet in either Dell or HPQ. If I think that HPQ is going to rise, where will I admit that I was wrong in that investment. If I answer with nowhere, does that mean I will hold that investment to zero? Is that manager still in financial stocks at near record lows, Netflix, Bank of America, or some other investment that has dropped by 50 percent or more? In the chart above, am I willing to watch HPQ drop to 20, 15, 10 or less? Even if the stock does not go up, but sits sideways for 6 months or more, is that a wise investment?

This stock, as well as many others that our guests suggests, may indeed go up. However, the reason I ask our guests where would they admit that they were wrong in that investment is because, even an investor must be a money manager who must manage their losing trades and investments. If I have, two or three investment picks that drop significantly in value and I just ride them to the floor, this style of investment drags down the overall performance. This is why so many managers either barely beat the SP500 or fall short of that average.

Netflix (Chart Provided by Trade Station)

The chart of Netflix is a good example of what I am discussing. If you have a manager who has ridden this stock down from $300 to $70, then I suggest you dump them immediately. In my opinion, there is no excuse for not abandoning this position long ago. Look at your portfolio or managers. If they hold positions through a decline of this nature, they are merely cashing in on your fees and apparently using very little judgment. Find someone who adjusts their portfolio and uses some sound money management principles. If your portfolio dropped by 40% or more in 2008, you do not have such a manager.

 Traders

Traders traditionally have a much shorter-term horizon for their speculative positions. This is why the price action of the daily chart is most often used for their analysis for their trades. Positions are often held for a matter of days or a few weeks. Traders many times relay upon technical analysis for the timing of their positions, while investments often rely upon fundamental analysis of supply and demand.

Let me illustrate an example of a trade in HPQ, based upon technical analysis.

Hewlett Packard - JS Max Correction Indicator (Chart Provided by Trade Station)

Decades ago, I created an indicator that allows a trader to determine if a price reversal against the trend is a correction or a change in trend. As prices began to rise in October, that indicator (JS MCI) suggested that the odds were shifting that prices were creating a new bullish trend. As a trader, there were several opportunities to buy corrections within that new bull market and sell rallies to make a profit. [Indicator above is a tool to analyze price reversals in a bearish trend. The indicator has no relevance in a bullish trend. Other indicators are used to measure price reversals in a bull market.]

As a trader, I like this stock. Obviously, prices must move above the very real resistance overhead before this stock can generate the gains that bullish traders are seeking. However, as much as I may like this stock, I must have a price point where I would have to admit that my analysis of a bull market was wrong. While I have created technical indicators that assist me in that process, there must also be a price point that I would stop out my long positions, take my loss, and move on to the next trade.

This is the main different between a trader and an investor. As a trader, I dump my losing or underperforming positions and move on to new trade ideas that offer more promise. Why in the world would I hold a stock that either drops in value by 20 percent or more or hold a stock that generates no return for me for six months or more? I admit this does require some experience and some skill sets, but the Wall Street Shuffle will be making every effort in the New Year to bring those skills to our loyal listeners.

Immediately after I read my acceptance letter to Syracuse University in the spring of 2007, I e-mailed its basketball program.

I told them about my experience playing and working in basketball, from coaching at The Village School (currently ranked as a top three private school basketball program in the Houston, Texas area) to earning season tickets from head coach Jeff Van Gundy as a Houston Rockets Red Rowdy to helping the Rockets front office prepare for the NBA Draft.

I contacted assistant coaches at other schools where I was accepted and never heard back from them.

I thought the same would happen at Syracuse.

But I was wrong.

Assistant coach Bernie Fine responded promptly:

Naresh,

When you get to Syracuse stop by the basketball office and we can talk. My phone number is xxx-xxx-xxxx. Please tell Coach Van Gundy that I said hello when you see him.

Coach Fine

The College Experience

I set foot on the Syracuse campus eager to transform from boy to man. I embarked on my college journey with three clear goals in mind: 1) gain valuable experience as a sports broadcaster, 2) learn the fundamentals of business, and 3) serve as manager to the Syracuse Orange basketball team.

My end game was to become a graduate assistant and then find my way to a head coaching or management gig collegiately or professionally. The backup was to broadcast for ESPN – an employer known to recruit SU graduates like Mike Tirico, Sean McDonough, Jayson Stark, David Amber, and Steve Bunin.

After I settled down in my new surroundings, the first person I called was Coach Fine. He was incredibly caring and told me to get in touch with the lead student manager, who assigned me a role and responsibilities. Nevertheless, a few days before I was to begin my first task as a manager for Syracuse Orange basketball, I threw in the towel before I ever picked one up – wisely deciding to focus on my heavy academic load… so I could graduate on time.

That was the end of my tenure with SU basketball.

Building Relationships: Fine’s Student Manager

By my junior year, I had earned a column with the school newspaper, The Daily Orange. My position with the paper allowed me access to underclassmen who wanted to get to where I was. I was also put in a position of power, at least in the eyes of staff who wanted me to “give back” to younger students.

For three years, I worked fervently as a peer advisor/mentor to incoming freshmen at the S.I. Newhouse School of Public Communications, helping them adapt to their classes and the college life.

Zach Settembre was one of my advisees. In August of ’09, Settembre came in to our first meeting with a five-year plan in hand. Like me, he wanted to take a heavy course load and be manager of the SU basketball team.

I discouraged him, saying I tried to go that route and didn’t even make it to the first practice. Fortunately for Settembre, he didn’t take my advice.

Settembre was manager for two seasons, frequently helping assistant coach Bernie Fine. Settembre’s experience as manager helped him land a position as Director of Player Personnel at the Upstate New York AAU Basketball Club. He will graduate a year early this May.

“Coach Fine has always given me first class treatment,” Settembre said. “He’s really helped me a lot as a young and aspiring coach.”

Building Relationships II: Chancellor Nancy Cantor

Every semester, Chancellor Nancy Cantor held private lunches with students so she could answer questions and hear comments about the school. It was during a September ’09 lunch where I voiced my concerns regarding the University’s diversity in faculty and paramount racial segregation among students.

Cantor played an instrumental role in the University of Michigan affirmative action cases, so racial and gender equality was very high up on her initiatives. It bothered her that Princeton Review ranked Syracuse as one of the most segregated campuses in the country, and I could tell that she tried hard to stop that.

My criticisms prompted Cantor to invite me as her special guest to a town hall meeting with Vice President Joe Biden, Treasury Secretary Timothy Geithner and Secretary of Education Arne Duncan. After the once-in-a-lifetime experience, I started following Cantor’s moves.

Why the Chancellor could be on the Hot Seat

Earlier this year, Syracuse University slipped seven spots to number 62 in the annual U.S. News and World Report. In response to the drop, The Chronicle of Higher Education published a report criticizing Cantor for focusing too much on improving the city of Syracuse and not enough on refining Syracuse University.

The piece garnered national attention, and SU alumni and professors even called for her dismissal. Current students have complained about the fall in rankings, saying their degree will be devalued.

Now with the Fine scandal, Cantor is under the microscope. A hiccup would give her detractors a clear opportunity to call for her exit.

Whether Cantor is right or wrong in having SU benefit “the public good,” I respect and admire how she has taken an unpopular position and stood by it. Despite the calls for her to be ousted, she continues to show toughness and fight for what she believes.

This quality clearly stands out in her handling of the Fine situation. I have no doubt that she won’t be a source of cover-ups and will comply with authorities. Furthermore, she will take proper action against anyone who does not represent the ideals Syracuse University espouses.

When the University investigated Fine in 2005, Cantor and athletic director Daryl Gross had only been in their jobs for a few months. Positions as complex as theirs require at least a year of acclimation. If there was any potential cover-up, it would start with head basketball coach Jim Boeheim.

The Future of Jim Boeheim

Like former Penn State coach Joe Paterno, the end of the 67-year-old Boeheim could be sooner than expected. Boeheim has already named assistant coach Mike Hopkins as his successor. Earlier this year, Boeheim even spoke of possible retirement.

“I’m getting close, I really feel that way,” Boeheim told ESPNNewYork.com in March. “This league has gotten awfully tough. It’s a real grind out there.”

If Boeheim thought the Big East was tough, then he’d probably think joining the ACC is even more arduous. Syracuse, along with Pittsburgh, is set to join the conference in the future, competing with powerhouses like Duke and North Carolina. Boeheim was not a fan of the switch.

The night the Bernie Fine story broke, I thought Boeheim should have been suspended a game after his ignorant and insensitive remarks toward sexually abused victims.

“He [Bobby Davis] supplied four names to the university that would corroborate his story,” Boeheim told the New York Times. “None of them did … there is only one side to this story. He is lying. Why wouldn’t he come to the police? Why would he go to ESPN? What are people looking for here? I believe they are looking for money. I believe they saw what happened at Penn State and they are using ESPN to get money. That is what I believe. You want to put that on the air? Put that on the air.”

Boeheim’s comments were hurtful and intimidating to voiceless victims of sexual abuse, said Bob Hoatson, the founder of “Road to Recovery,” an advocacy group for victims of sexual abuse that has been calling for Boeheim’s dismissal.

Boeheim also spoke without knowing logical details. Davis’ statute of limitations expired nearly two decades ago. If he were looking for money, than he would have come out before it did.

Davis, like his stepbrother Mike Lang, has made it clear he went public to protect other victims. For a school that produces some of the top public relations professionals in the world, I was surprised that school administrators let Boeheim communicate so freely.

After Syracuse fired Fine, Boeheim took back his initial remarks.

“I believe I misspoke very badly in my response to the allegations that have been made,” an emotional Boeheim said in a press conference after playing Florida last week. “I shouldn’t have questioned what the accusers expressed or their motives. I am really sorry that I did that, and I regret any harm that I caused.”

Rather than rile up public support to get Boeheim fired, Hoatson should instead work with Boeheim to educate the public about sexual abuse and its implications. Boeheim’s apology was the first step in making amends. Now, he can redeem himself by learning more about child molestation and sharing the harsh truth with the public.

“I’m going to do everything I can to do that,” Boeheim said. “I’ve always been committed to kids. There’s no question in my mind the issue of abuse is the number one thing we should all be concerned about in this community.”

Boeheim’s Lack of Character Development

Duke University basketball head coach Mike Krzyzewski recently became the all-time winning coach in NCAA history. Despite his accolades, which include four NCAA titles and an Olympic gold medal, Coach K takes pride in the impact he has made in people’s lives. Not just his players, but also the common person.

Enter Duke’s Basketball Museum & Sports Hall of Fame, and you’ll see, in very large lettering, one of Coach K’s most famous quotes:

“I don’t look at myself as a basketball coach. I look at myself as a leader who happens to coach basketball.”

“[Jim Boeheim] is probably my best friend in coaching, and I support his comments the last couple of days,” Coack K recently said.

Unlike Krzyewski, however, Boeheim doesn’t bother to delve into the lives of his colleagues and players. He vehemently disagreed with Secretary of Education Arne Duncan’s proposal to eliminate teams with less than a 50 percent graduation rate from the NCAA tournament.

Maybe Boeheim’s management style has restricted the maturation of current and former players. Going all the way back to 1990, Syracuse basketball players had been receiving cash from Boeheim’s best friend, Bill Rapp Jr., a local car dealer.

In early 2008, a cousin of Scoop Jardine (a current fifth year senior) stole another student’s school ID and bought more than $100 worth of food on it. Jardine knew of his cousin’s behavior but didn’t prevent him from buying food.

In late 2008, guard Eric Devendorf was suspended for an entire academic term after he punched a female student (the suspension was appealed and Devendorf ended up missing only a few games).

Police arrested current sophomore Fab Melo earlier this year because his ex-girlfriend said he physically beat her.

And now, there are Bernie Fine’s child abuse allegations.

Does Boeheim have a strong track record of building character? Not really. But that’s not at the top of his to-do list. “I think that you have to understand as a basketball coach, I don’t get involved in that stuff,” Boeheim recently told ESPN’s Andy Katz. “That’s not something I should be involved in.”

Boeheim likely had no clue about Fine’s escapades, and that’s a problem, considering Boeheim was aware of allegations in 2005. If you were the CEO of a company, and your CFO was accused of violating the law two different times, wouldn’t you be suspicious? I know I wouldn’t feel comfortable working with such an individual.

Why didn’t Boeheim conduct his own investigation or have a heart-to-heart conversation with Fine? Office politics are everywhere. Don’t tell me they’re not within the Syracuse University athletic department. If it does come out that Bernie Fine did molest young boys, then Boeheim should be fired for gross negligence. Not knowing (or not wanting to know) can be just as bad as knowing and not reporting to police.

Boeheim’s age, mixed with the latest allegations, give him reason to call it quits after the season, and I think he will do that. Still, the question has to be asked: As Penn State did to Paterno, will Syracuse University fire Boeheim before he makes that decision?

Despite Chancellor Cantor’s recent vote of confidence, SU should get rid of Boeheim if 1) evidence shows he ignored Fine’s relationship with minors, or 2) authorities file charges against Fine. Right now, there’s only speculation. That could change in a month though.

A Closer Look into Child Molestation

The other day, I heard a classmate say, “All these old guys molesting kids. What is this world coming to?”

The world actually isn’t coming to anything. Months before the Penn State and Syracuse scandals hit the media airwaves, I wrote a story about child abuse victims coming to terms with their haunted pasts in college.

Through time and maturity, I have found that sexual abuse is a silent yet rampant problem. Statistics show that 20 million American males were abused as children. The numbers are even more startling for females.

Some people think the latest scandals are so terrible that they refuse to watch coverage or discuss the topics with their children.

“What’s happening is rare and doesn’t represent the real world,” one adult told me. She is shielding her high school kids from exposure to the Syracuse and Penn State cases.

Rather than cringe at the latest scandals, we should look at the positives. Now is a perfect time to understand abuse and to take cautious approaches in protecting our children. In response to the pervasive publicity about child molestation, states are working to implement mandatory reporting laws.

A snippet from Dr. Walter Afield, founder and President of the Neuropsychiatric Institute and former head of John Hopkins’ child psychiatry department:

“It’s in every religious and social order. It’s in every place you can think of: boys and girls in schools, homes, prisons, places of worship. It’s happening today, and it happened in the prehistoric times. Some cultures feel this is a normal way of growing and relating. Areas such as Uganda, Rwanda and the Middle East – some guys are busy raping people to show their control and power.”

Personal injury attorney Joseph Klest has stood up for more than 500 victims of sexual abuse over his 29-year career. In May, he represented the plaintiff in Snyder v. Kenny, in which the $28 million case settlement represents the largest single-victim, civil sexual abuse verdict in history.

“There are very few false allegations of abuse because it’s a very embarrassing issue for the victim,” Klest said. “Victims will be surprised at how society will rally behind them. It’s never too late to share the truth.”

Boeheim’s initial comments on the first two accusers showed his lack of knowledge on the subject.

Predictions:

I contacted several individuals who know Bernie Fine to comment for this story. Most people didn’t return e-mails or phone calls. Van Gundy called the situation “a real tragedy” and declined to elaborate further.

Given my work with sexual abuse, I have a hard time believing all three of the alleged victims in the Bernie Fine case are lying. . Because of statutory limitations, I don’t know if Fine will be charged, but I think evidence will show his illegal activity with kids.

And Central New York’s most exalted basketball coach for the past 35 years will disappear into retirement.

Naresh Vissa is a graduate student at Duke University and serves as Senior Producer and Special Correspondent for “The Wall Street Shuffle Show” on CNN Radio, Dallas/Forth Worth. Follow him on Twitter.

The NYSE easily qualified for a 90% Down Volume day yesterday. The NASDAQ was in the mid 80s. Selling was widespread and breath was sharply negative with decliners beating advancers handily.

Unfortunately, it was again about Europe overshadowing our positive economic data, namely a Jobless Claims number beating expectations. European Central Bank (ECB) President Draghi dashed hopes of a bond buying program to rollover distressed sovereign debt. Then Germany rejected the European Union (EU) draft of bailout provisions.

Since the European Union leaders failed to achieve consensus between the bloc’s 27 members to back a change to the EU treaty, the 17 member Eurozone countries that use the Euro as their currency are now trying to reach their own accord.

The market internals are weak and getting weaker. Today is the big day for a solution announcement from the EU or the Eurozone. Without one, we will see continued selling.

If this happens, you should cull your weakest stocks and raise cash. I would not want to be holding a large basket of stocks over the weekend without any solution announcement in Europe. Even with an announcement, I would want some cash and a strong dollar fund as any agreement could easily fall apart.

A strong US dollar will continue either way. One way to do this is the PowerShares Bullish Dollar ETF (UUP). Another, possibly more profitable way to do this is ProShares UltraShort Euro ETF (EUO). I have attached a graph of both of these ETFs so you can see their upward trend which is likely to continue over the midterm whatever the outcome.

PowerShares US Dollar Bullish UUP 8 Mo - 12 8 2011

ProShares UltraShort Euro EUO 8 Mo - 12 8 2010

There are numerous, broad short selling ETFs, 2 of which I listed in yesterday’s newsletter. You could also go to narrow sectors which would be especially hurt by negative news. One such ETF is the ProShares UltraShort Basic Materials (SMN).

Another more aggressive approach is the ProShares UltraShort Financials (SKF). This one is particularly volatile and the Central Banks could bailout their cartel of member banks at a moment’s notice. You would have to pay particularly close attention to this ETF. But reversals in this ETF is a good early indicator as to changes in institutional sentiment.

If we do get good news, you could take the opposite positions on these trades with the exception of the strong dollar trade. And unless the bailout announcement isn’t significant in magnitude, I would still be nervous about holding bullish leveraged ETFs over the weekend. Therefore, you may want to wait until after the weekend and see how things play out.

In overnight trading (Thursday 11:28 p.m. CST) the Asian equity markets are in the red but have come off their lows. Silver and gold are both up slightly, but oil is still coming under pressure. With the exception of the Yen, the US dollar is up against the other major currencies.

Our US equity futures are essentially flat and have also come off lower values earlier in the evening. It will be an interesting day.

The markets continue to drift aimlessly awaiting some catalyst, good or bad, to provide direction. Yesterday afternoon a report came across the wire that the Group of 20 (largest 20 industrialized nations) would give the International Monetary Fund (IMF) 600 billion to lend assumedly for Europe.

The DOW immediately jumped well over 100 points in the last half hour of trading. As has been the norm lately, it quickly reversed and finished up only 42 points. And, as also has been the recent norm, the other major indices failed to do the same.

The report was later denied and demonstrates the politicians and Central Bankers will do anything to “talk up” the markets trying to buy time before they announce their imminent solution for Europe. Failure will be disastrous and they are running out of time for stalling. They know this too.

That is why Chancellor Merkel of Germany issued an ultimatum for all the 17 Eurozone*countries using the Euro at the European Union** (EU) Summit today and Friday. If all the countries agree, they are giving up much of their national sovereignty and control of their fiscal policy. The EU would dictate budgets, debt levels etc..

This will be a tough uphill battle but we could get an announcement either today or Friday. The later it goes on, the more likely the outcome will be negative.

Have trades ready for either alternative. If we get positive news, you could go broad with the ProShares Ultra S&P 500 (SSO) and the ProShares Ultra NASDAQ 100 (QLD), or the ProShares Ultra Europe (UPV). You could also go with sectors that will benefit like the financials (due to the bailouts) using the ProShares Ultra Financials (UYG) or commodities (due to printing and inflation) with the ProShares Ultra Basic Materials (UYM).

If the news is negative and no deal gets done, then you want to short the equity markets and have a flight to safety. You can use the ProShares UltraShort S&P 500 (SDS), the ProShares UltraShort NASDAQ 100 (QID), and the ProShares UltraShort Europe (EPV).

Additionally, you will want to go long the US dollar and short the Euro. This can be done with the PowerShares US Bullish Dollar Index (UUP) and the ProShares UltraShort Euro (EUO). You can also invest in the iShares 20 Yr Treasury Bond (TLT).

You may get clues before the actual news is announced as the big institutional money following the politics in Europe closely will get in very early. If you see the markets begin to move in a big way, you may want to “shadow” the institutional money.

All of this should be done using exchange traded funds (ETFs) so you can unwind quickly if things change. Either the announced deal falls apart a few days later, or an announced solution comes days after initial failure.

Either way it should be a volatile next few days. In overnight trading (Wednesday 10:05 p.m. CST) all of the Asian markets are in the red with the exception of China. Silver is up 1/3% but gold and oil are both down marginally. The US dollar is flat against the Yen and Pound, but up against the Euro. The US equity futures are flat, just awaiting the news.

** EU – 27 Independent Member States mostly Europe (Maasstricht Treaty)- share free movement goods/services, people, & capital in a  Single Market under standardized commerce laws.

*Eurozone – 17 Member States in a Monetary Union sharing the Euro. Therefore, the Eurozone is part of the EU that uses the Euro. There are a few small satellite states use Euro but not official members, like Vatican City etc

The main difference is some countries are part of EU but don’t use the Euro (i.e. UK & Denmark).  No country is thinking of leaving the EU, only the Eurozone (i.e. Greece).

T he markets had a lackluster day yesterday but in the afternoon put together a nice rally after news the EU was proposing doubling the size of the bailout fund. But as seems to be the norm the past couple of days, sold off going into the close.

The indices appeared to be mixed. The NASDAQ finished negative, the S&P marginally higher, but the DOW finished up almost 1/2%. However, virtually all the gains in the small universe of 30 stocks can be attributable to 3 stocks.

Chevron, a huge market cap stock, was up 1 1/2%. Pfizer was up 2% and Intel was up 1 1/3%, both significantly large in their own right. These 3 stocks skewed the index higher than it normally would have been if it had been equally weighted, and not weighted by market cap.

This is why professional investors and traders look to the S&P 500, the NASDAQ, or one of the Russell indices (1000, 2000, or 3000 etc). They cannot be skewed by just a few stocks and give false clues as to the underlying strength, or internals, of the markets.

You may have heard in the media the markets were up yesterday, but this was not generally true. By the broadest measure, the majority of stocks were actually in the red or at least flat yesterday. Therefore, as of yet, the markets are still not showing strength.

And, I do not believe we will see a sustainable rally until we get some clarity out of Europe, which is supposed to happen on Friday. Friday is supposedly the deadline for all the countries to agree to commit to turning over their sovereign fiscal control over to the dominance of the EU. It will be interesting to watch the events play out over the next few days.

I received 3 charts from a listener yesterday showing  all 3 major indices – the DOW, the S&P, and the NASDAQ – represented by their most common exchange traded funds (ETFs). They are the SPDR Dow Jones (DIA), the SPDR S&P 500 (SPY), and the PowerShares NASDAQ 100 (QQQ).

I will put listeners or newsletter subscribers graphs/charts in my newsletter IF I agree with the most of their conclusions. His comments in the e-mail are as follows:

“12.06.11 Four reasons why I think this rally may be coming to a short term end from a technical perspective.

1. Lower Highs & Lower Lows on QQQ

2. Failure to Make Higher High on SPY

3. Supply Zone on DIA

4. It’s 2:52 pm central time and the good news rally is fading.

As we all know we’re in a manic depressant, worry about Europe market right now so anything goes overnight.  But I’m not sure now is the time to run out and get long in my humble opinion. I actually have a short QID in right now.”

What he is trying to say is the markets seem to be losing steam, and on a technical basis we are making lower highs and lower lows. Also, on the DOW we are hitting “supply” or selling. This is what is known as resistance. All of these bearish technical indicators.

I agree with his assessment except for being short the ProShares UltraShort NASDAQ 100 (QID). This is only due to the fact that a positive announcement could come out of Europe at amy moment and you could see a huge up day.

Conversely, bad news out of Europe and you could see a huge down day. There is just too much volatility and risk right now and my clients don’t pay me to gamble with their savings.

Right now it is prudent to be holding a large cash position. That said, have your trades preloaded and ready so you can immediately pull the trigger and go long or short at a moment’s notice.

In overnight trading (Tuesday 10:27 p.m. CST) the Asian equity markets are in positive territory ahead of the European Summit. Silver is down 1/2%. Both gold and oil are up slightly. The US dollar is up against the Yen, but down against the Pound and Euro.

Our US equity futures are in positive territory. The DOW futures are up 54 points, the S&P futures are up 6 points, and the NASDAQ futures are up 10 points. This suggests, at least at this point overnight, the markets are feeling OK about Europe. Have your trades ready.

The markets opened with a bang on renewed hopes a European solution was at hand. Then, just like Friday, sold off in early afternoon after S&P placed 15 Euro-zone countries on a negative credit watch.

S&P has been warning they would do this if the European community didn’t get act in unison toward a solution. That is why decisions over the next week will be some of the biggest decisions of the year.

Yesterday France and Germany issued an ultimatum to all 27 EU nations stating they must decide by week’s end whether to accept greater central (EU) control over their own national budgets thus ceding much of their fiscal sovereignty.

Last week investors were tricked into believing the EU debt crisis was closed to being solved. Six central banks, led by our FED made it cheaper for foreign banks to borrow dollars.

Stocks, commodities, and precious metals rallied and the U.S. dollar fell. Investors believed the FED was committing to purchasing huge quantities of European debt. All this liquidity was symbolic but lacked substance for the sovereign debt crisis itself.

Making dollars less expensive to borrow across the globe does nothing except help the EU banks from a liquidity crunch. That is why the Central Banks injected liquidity; to save the European banks. It DOES NOT lower debt service expense or reduce the debt levels of troubled (bankrupt) nations.

This week could be the most important and volatile week of 2011. The ECB will most likely, or so they say,  make a crucial decision whether or not to monetize massive quantities of insolvent European sovereign debt.

If the European Summit meeting next week gains acceptance to broad-based austerity measures, the ECB may finally acquiesce to purchasing ‘PIGS’ debt in unlimited quantities and duration.

That action will temporarily send sovereign debt yields lower and the Euro higher due to a relief rally. The Euro will then go lower as the printing presses warm up. The major equity indices will also rally as will commodities and precious metals.

However, if the ECB refuses to monetize distressed debt and doesn’t play ball, the crisis will intensify greatly. European Bank failures will follow and the Euro will plunge. Commodities prices, precious metals, and equity prices will fall across the globe. A prolonged recession would result from the eventual default of over 2 trillion Euros in sovereign debt.

In contrast, a sharp recession is the most ethical and best option. It would allow insolvent debt to finally be written down. A straight forward, traditional default on debt is much better than defaulting through inflation. It would allow the ECB to keep a stable Euro, and banks and EU nations would be able to slowly recover after a painful period.

Sadly, ECB intervention is more likely as the leaders and Central Bankers covet their jobs. The central banks cannot solve the insolvency of Europe by printing money. You cannot solve debt with more debt.

This will create huge inflation and will devastate GDP growth. Interest rates will soon spike upwards further slowing any growth.

Why are these two scenarios so important? Because the portfolios you would want to own are diametrically opposite.

I believe the much more likely scenario is the printing and inflation scenario. If this plays out, investors must have inflation hedge portfolios. Bonds will come under pressure, first in Europe, then in the US as we will be perceived as safer at first. This will not last long as inflation rises.

The scenario where the ECB backs off and doesn’t bailout countries is less likely. The problem is you must get 27 Euro-zone countries in agreement. You are dealing with cultural differences and egos, any misstep could derail the process.

This is why you need to pay close attention to Europe over the next week. There are many meetings scheduled and politicking over this next week. You may need to make some changes and switch gears very quickly.

In overnight trading (Monday 9:38 p.m. CST) all of the Asian equity markets are in the red. Gold, silver, and oil are also down. The US dollar is flat against the Yen, but up against the Euro and the Pound.

Our US equity futures are in the red, but not by much. It seems the S&P downgrade news has rattled the market. But again, the big news will come out of Europe over the next week.

A fleet of high-performance cars, including eight Ferraris, has been involved in one of the most expensive accidents in history after an astonishing multi-car pile-up in Japan.

Click Here for a Video More Images and the Original Story

The markets Gapped Up strong at the open Friday with the DOW over 100 points, then sold off throughout the day (see graph). In fact, all the major indices were in strong positive territory but reversed at 10:30 a.m. finishing flat for the day.

DOW 1 Day - Gap Up at Open, Closing at the Lows for the Day 12-1-2011

Most of the stocks pundits on TV have been saying a new bull market is beginning after the Central Banks began flooding the global markets with money and the huge day in stocks after the announcement this past Wednesday. The 2 days following, however, were been tepid and weak.

The market internals are showing weakness, not strength. I told you in my newsletters after the announcement that I would be quick to protect profits. I did just that Friday morning. I unwound my 2 double longs; the ProShares Ultra S&P (SSO) & the ProShares Ultra NASDAQ (QLD).

I now have a large cash position along with positions in gold, silver, miners, and utilities. Until we get better internals, namely buying on increasing volume, I think it prudent to be defensive.

In overnight trading (Sunday 10:10 p.m. CST) the Asian equity markets are mixed. China, notably, is in the red. Silver and oil are both up around 1/2%. Gold is flat. The US dollar is flat against the Yen and Pound, but weaker against the Euro.

The US equity futures are in the green. The DOW futures are up 79 points, the S&P futures are up 8 points, and the NASDAQ futures are up 12 points.

The markets had a boring, sideways day yesterday essentially ending flat. Total volume was down across the board and below the 30 day moving average on both exchanges.

The markets never go straight up or straight down, but is the market just taking a breather and poised for the next leg up, or getting ready to roll over for the next leg down? Was it a consolidation (buying) day or a distribution (selling) day yesterday.

To help determine the answer, you need to look underneath the prices at the market internals. Breadth was negative with decliners beating advancer on both exchanges, even though the NASDAQ finished slightly positive. And, although the S&P was barely down on the day, Down Volume was almost 60%.

So even though it appeared to be a wash, the markets were actually tilted toward selling yesterday. With the massive injection of liquidity by the major Central Banks of the world on Tuesday, one would expect a multi day rally. Remember QE and QE2.

We did, however, get a huge one day rally. The markets are now in overbought territory just after 2 big days this week.

This tells me investors are scared, but not yet ready to sell. They simply don’t want to miss out just in case the market goes up. This greed can be dangerous.

The news and data could easily tilt the market either direction today. And speaking of data, we have the Unemployment Rate and Change in Payrolls being reported at the opening bell. A positive report could spark a rally. Bad news, which I personally doubt as our US numbers have been improving, and the markets roll over, and hard. But Europe is always the wildcard.

Stepping back from this week and taking a longer term view, we are still in a bear market. Some of the biggest point days and short term rallies are actually in bear markets, not bull markets. Be quick to take profits using either hard stops or mental stops keeping a close eye.

I had a listener during my regular 5:00 segment on theWallStreetShuffle radio show send me a chart of the SPY (the first ever ETF replicating the S&P 500). He asked me, “doesn’t it look like an upside down ‘cup and handle,’ and would that be bearish if a traditional cup and handle is bullish.

I told him it is, in fact, an upside down cup and handle although the handle is a little immature and not fully formed. Many technical traders use an inverted cup & handle to short, or at least look for weakness and raise cash.

I have attached his chart and comment so you can see for yourself. I know him well & know he won’t mind. He loves sharing ideas as I do because it is all about education. This is exactly what a coffee cup would look like if you turned it upside down.

His Question: Inverted Coffee Cup Handle???

Additionally, I have attached a Bloomberg chart of the S&P Index itself showing the inverted cup & potential forming handle. Again, it is a little too early to tell if the handle will in fact form, but if it does, look out. Also notice the downward trendline. The whole point is we may have a little more upside, but we are in a dangerous market, and you need to be careful.

S&P 500 YTD Potentially Forming Inverted Cup & Handle 12-1-2011

Go along with the market if it continues higher, but sell on weakness. In overnight trading (Thursday 11:27 p.m. CST) the Asian markets are mixed. Silver and oil are both up, but this time gold is taking a breather. The US dollar is stronger against the other major currencies.

Our US equity futures are in the green and have been getting gradually stronger as I have been writing this newsletter. The DOW futures are up 41 points, the S&P futures are up 5 points, and the NASDAQ futures are up 12 points.

Again, we likely have a little further to go, but the momentum is weakening.

The economic data came in strong yesterday, but that wasn’t the real story.  The major central banks of the world colluded to spike the punchbowl to keep the Ponzi Scheme alive and well in an vain attempt to prop up Europe.

Our FED, the European Central Bank and the Central Banks of Canada, Britain, Switzerland and Japan acted in unison to increase liquidity.  You see, liquidity was drying up fast in Europe and lending was grinding to a halt.

Their timing was perfect as they made the announcement after the Asian markets closed and just as the European markets were set to open. Hardly a coincidence.  It was designed to help the Europeans feel good.

Our stock market showed its gratitude with huge gains.  Stocks opened way up at the open and rallied into the close, with the DOW up almost 500 points.  All of the indices were in the green by over 4% on huge total volume.  We very easily qualified for a 90% Up Volume day across the board.

Not to toot my own horn, but it feels good to be double long on 20% of the portfolio.  I unwound my double shorts – 10% the ProShare UltraShort S&P (SDS) and 10% the ProShares UltraShort NASDAQ 100 (QID), and went double long – 10% the ProShares Ultra S&P (SSO) and 10% the ProShares Ultra NASDAQ (QLD) Monday morning in a simultaneous (quad) trade.  I actually got a little nervous Tuesday that maybe I had misread the situation or was a little too early as Tuesday the market was weak.

Gold, silver and commodities all did well too.  This will continue as long as the central banks continue to stimulate and print.

For bonds it will be a different story.  This is the shot across the bow we have been waiting for!  Get out of longer term bonds with long maturities.  Get out of munis and long-term treasuries.

If you must own bonds, move to investment grade midterm corporate bonds.  Use a bond exchange traded fund like the iShares Investment Grade Corporate bond ETF (LQD). It was actually up yesterday 45 basis points as bond investors were moving closer in, or shorter, on the yield curve.  You don’t want to be further out on the yield curve with longer maturities as interest rates rise.

You also want the liquidity of a bond ETF, and not the illiquidity individual bonds can display when there is a rush for the exits.  With a bond ETF, you can simply sell immediately.

Be ready to take profits if the market begins to weaken as we are technically oversold and have come far very quickly just this week.  Make no mistake, we are still in a trading market and this is no time to “buy and hold” stocks.  The exception remains precious metals as central banks continue to devalue currencies worldwide.

In overnight trading (Wednesday 10:42 p.m. CST) the Asian equity markets are in strong positive territory following our lead. The US dollar is stronger against the Yen and Pound, but weaker against the Euro.  Gold is flat, silver is taking a breather, and oil is over $100/barrel.

Our US equity futures are in positive territory and have firmed up from earlier this evening. The DOW futures are up 30 points, the S&P futures are up 2 points, and the NASDAQ futures are up 10 points. Again, ride the trend but monitor the market for any weakness.

Stocks tapered off early gains and closing mixed yesterday. Both the DOW and S&P finished positive but the NASDAQ closed in the red. All 3 indices sold off going into the close, never a good sign. We did not get a strong follow through day we were hoping for. Retailers continued to lead as Consumer Confidence came out strong.

Up Volume was barely positive on the NYSE and was slightly negative for the NASDAQ. Total volume fell on the NYSE but was slightly up on the NASDAQ but still light across the board. Breadth was negative with decliners beating advancers on both exchanges.

Investors are still nervous about the European debt crisis. This was demonstrated by the defensive sectors like utilities and consumer staples being the best performers.

After the market’s close, Standard & Poor’s downgraded several big banks in the US and Europe, including JPMorgan Chase, Goldman Sachs, and Bank of America in the US, and UBS in Europe. This will likely put pressure on the big cap indices tomorrow at the open. This is also why I have been saying stay away from the banking sector, simply too much risk.

We have several economic reports are due today, including the ADP Employment report, the Challenger Job Cuts report, the Chicago Purchasing Managers index and Pending Home Sales. But without some positive impetus a spark a rally, the market is likely headed lower.

In overnight trading (Tuesday 11:23 p.m. CST) most of the Asian equity markets are in the red. The US dollar is flat against the other major currencies. Gold is in positive territory and silver is flat.

The US equity futures are down.  The DOW futures are down 44 points, the S&P futures are down 5 points, and the NASDAQ futures are down 6 points. The futures have, however, come off their lows earlier and continue to firm up going into late evening.

Watch for a lower open, and if selling accelerates, sell your weakest positions and raise cash. A defensive posture until we get more clarity out of Europe. Be ready, though, for any good news out of Europe as it will spark a rally.

I would use exchange traded funds (ETFs) in this environment so you can be nimble. You can get broad exposure one way or the other with just one or two trades, and unwind the position quickly as things change. And they will change.

I have discussed several times whether gold or silver would be appropriate investments for your portfolio. First, the answer is easy. I have no idea. Always seek the council of those you trust whether the purchase of gold bullion, gold shares or ETF, or commodities is right for your financial circumstances. Our next discussion proceeds assuming you think that gold or silver may possibly be right for your individual circumstances.

Insurance against disaster

One of the reasons that some suggest that gold be a part of an investor’s portfolio is what I call the disaster scenario. If the oceans rise, storms rise, governments default, and paper money become worthless, what is one asset that may rise in value versus everything else? Some believe that last remaining asset will be gold.

If an investor invests in gold for this reason, they should not buy the metal with margin or leverage. Buy gold coins or other easily liquid and convertible form of gold or silver. If you buy the gold as insurance do not watch price closely.  Actually, the investor hopes that gold is never worth $3,000, $5,000, or $10,000 an ounce. Why? Because if gold is that high, everything else the investor may hold (stocks, bonds, real estate) has most likely collapsed in value. Like other forms of insurance, you hope that your gold insurance is something you never really have to use. But like insurance, if the worst happens, at least you hold some insurance and have some gold in your possession.

Gold and Silver as an investment

When I see an individual say they want to buy gold as an investment, I see an individual who wants to buy low and sell high. They can make money as an investor if they know when to buy and when to sell. As many of you know by now, buying is the easy part. It is knowing when to sell that is the key. The Wall Street Shuffle will try to help with that, so keep listening.

If you want to speculate in gold and silver then you must do it the right way. You must pick an entry price and you must pick a stop loss- a price point where you will admit that you were wrong and stop the loss of holding the long position in the gold and silver. You do not have unlimited funds and, if you are a speculator, you must trade like a professional and manage your funds.

Gold Stocks, ETF, and Futures

Gold Futures Contract: Margin for one contract about $12,000

Gold ETF GLD: Non margin account 1,000 shares at $170 a share = $170,000 ($85,000 margin)

If you want to speculate in gold, you can see in the two charts above the advantage of futures versus gold stocks. The amount of deposit necessary to have one open contract in the 100-ounce gold contract is approximately $12,000 – the original margin for gold. To make the same amount of money in an advance in the gold price while placing a position in the gold ETF GLD, you would need a deposit of $170,000 for a non-margin account or $85,000 for a margin account. If you are really speculating in gold and want the ability to move in and out quickly, please consider a commodity account. This will soon be the year 2012. Learn to trade not only gold and silver, but also currencies and the stock indexes. With a deposit of $50,000 in a commodity account, you can trade all of these futures contracts and not only make money in gold, but also protect your equity holdings by selling the e-mini stock index futures.

When to Buy and When to Sell

In the days and weeks ahead and in our new focus for 2012, Dan and I will make every effort to not only advise our audience when are the best time to make these investment moves, but hopefully teach along the way so that everyone can become better traders and investors. In my next update, I will talk about where to buy the gold and silver as a speculative position. For now, I do not advise an entry into silver. This may change later this week, but for now, I think there is still a chance prices may decline in the short term. For gold, I may be ready to suggest a new long position at our next update. Gold has acted extremely well above $1,700. If gold holds for another day, it may be building a base from which it can run to higher prices. I will update this potential later this week.

The  markets had a big day yesterday on the belief that liberal stimulus and bailouts are on the way. The fact the markets were technically extremely “oversold” didn’t hurt either.

We qualified for a 90% Up Volume day on both exchanges, and particularly strong Up Volume on the NYSE. The only problem was total volume was light and well below the 30 day moving average (30 DMA).

Indirect evidence of looming bailouts was the banking sector performance yesterday. With all that sector’s problems and risk, many of the banks were up 6% to 8%. But until we get confirmation of said bailouts, I would not venture into that sector, the risk is simply too high.

Global leaders are stepping up pressure on the EU and ECB to come up with a solution fast. There is even talk of the ECB putting caps, or ceilings, on European sovereign debt interest rates/yields just like our FED did during WWII in 1942.

If this doesn’t cause inflation, I don’t know what will. If Europe follows through with this idea, look for gold and commodity prices to rise quickly.

Today, watch for volume in the markets, especially if we are in positive territory. This will be the key if the rally is sustainable, or is just a rebound rally.

In overnight trading (Monday 11:28 p.m. CST) the Asian markets are in positive territory. Gold, silver, and oil are giving back a little of yesterday’s impressive gains. The US dollar is up against the Yen, but down against the Euro and Pound. This bodes well for the equity markets.

Our US equity futures were hovering around the flat line earlier in the evening, but have now turn positive. The DOW futures are up 60 points, the S&P futures are up 7 points, and the NASDAQ futures are up 13 points.

Long the US Dollar with the ETF: UUP

Long the US Dollar with the ETF - UUP

Many of our listeners were told of the potential for the US dollar gaining strength over other currencies. One of the ways they could have speculated in a long US dollar position is to buy the ETF for the US Dollar bull UUP. Traders should take profits for at least ½ of their position in this trade. Use a breakeven stop loss below 22 for the balance and hold onto the long position for the chance a much bigger advance occurs in the future.

Long crude oil through ETF: USO

Several weeks ago, we mentioned that, in spite of an apparent decline in overseas growth, the energy complex was showing very positive relative strength. One way to play this trend was to buy the ETF for WTI crude oil USO. As always, we suggested that those in this position take partial profits during the rise. This is how the active trader maintains consistency. It is possible that the current decline has reached its limits within this bull market, but prices will need to move up immediately to keep the bullish trend in place. Continue breakeven stops for open positions. If the equity market recovers, look for USO to respond positively and move up as well.

Long crude oil through ETF - USO

Gold and Silver

Gold and Silver

I have not advised buying gold or silver for a trading position, because the bearish trend was very solid in the silver and the gold bullish trend has not been impressive. I would want to see silver above 35 and gold above 1750 before suggesting a new speculative long position. If prices move lower from present levels, we may begin to build a longer- term long position, but not until we see many sell stops drive the two lower.

Stock Indexes

Dow Weekly

For quite some time, we have suggested to our audience that the stock market was not indicating that investors should be fully committed to stocks in their portfolio. The decline for the past two weeks has illustrated the concern we had for this investment sector.

I have drawn out two scenarios that long-term investors do not want to see over the coming weeks. First, we do not want to see another hard down week as we head into December. This will drive prices new the lows made earlier in the year. We do not want to see prices near the lows as we head into next year.

SP500 SPY

SP500 SPY

I expect the stock indexes to have a short covering rally soon, assuming the Eurozone is not a complete collapse. You want to see a nice recovery this week. We do not want to see a weak rally followed by a return to lower prices. This can set up even lower prices early in December. A close above 122 gives us good clearance from those old lows.

The markets reversed their modest gains in the abbreviated trading session on Friday and closed in the red.  More importantly, the indices closed at their lows of the day.  In the last hour of trading, S&P downgraded Belgium’s debt.

This is just one more European country to be downgraded and the wave continues.  You need to have formulated an exit strategy for your bonds.  You will need this strategy sooner rather than later.  Virtually any move the Fed makes will weaken the bond markets and drive yields higher.

Rising rates will come to our shores, and when this happens, there will be a rush to the exits.  I can’t stress how important this will become; especially once more stimulus is announced.  Rates will rise quickly, as the US debt load will become the preeminent financial topic, just as the debt crisis in the EU has dominated the financial news.

One domestic indicator that is alarming is the “TED” spread.  This is the difference between the interest rates on interbank loans based upon the London Interbank Offered Rate (“LIBOR”) and short term, 3 month US government debt (“T-bills”).

TED is an acronym formed from T-Bill and ED, the ticker symbol for the Eurodollar futures contract.  The TED spread is an indicator of perceived credit risk in the economy.

T-bills are considered risk-free (and wrongly so) but LIBOR reflects the credit risk of lending to commercial banks.  When the TED spread increases, it is a sign lenders believe the risk of default on interbank loans, or counterparty risk, is increasing.

TED Spread (Year to Date) 11-27-2011

If risk is increasing, interbank lenders demand a higher rate of interest or else they will simply accept lower returns on “safe investments”, specifically T-bills.  Conversely, when institutional investors believe the risk of bank defaults is decreasing, the TED spread decreases.

The fact that the TED spread is increasing, and quickly, implies institutional investors fear that counterparty risk is increasing and banks, especially European banks, are in serious trouble.  The TED spread is not at 2008-2009 levels yet, but it has increased beyond its normal range and it continues to climb (see graph).  Asian and American banks are reducing lending to their European counterparts, and liquidity is drying up fast for the vast majority of European banks.

Specifically regarding equities, when the TED spread increases, it is a precursor of a decline in equities as liquidity is being withdrawn from the markets.  In fact, the TED spread increased significantly just before the market’s collapse in 2008.

This may be why the International Monetary Fund (“IMF”) is providing a 600 billion Euro loan to failing EU countries.  The IMF did not, however, disclose where the money came from (maybe our FED?).   The ECB is running out of money fast.

There are even pleas from some economist for an outright bailout from the FED to either buy all European sovereign bonds from US financial institutions, or give the money to the EU or ECB directly. There is an article in the Financial Times on Sunday discussing the pros and cons of such a dangerous game.  I have linked the article for those interested at www.thewallstreetshuffle.com/research.

What does this mean for the investor or trader?  If you have been short the market as I have been, be ready for a bold announcement from our FED, the ECB or the IMF.  It may happen as you read this.  This would reverse the markets quickly and you need to be ready to unwind your shorts and go long.

An easy way to do this is using an exchange-traded fund (“ETF”) so that with just one or two trades, you can get broad exposure and reverse your positions quickly.  Two such funds are the ProShares Ultra QQQ NASDAQ 100 (“QLD”) and the ProShares Ultra S&P 500 (“SSO”).  Both ETFs are broad based and give you 2 times the exposure using leverage.

Additionally, commodities, including gold and silver, will be back in favor and you can use sector ETFs like SPDR Gold Shares (“GLD”), iShares Silver Trust (“SLV”) or United States Oil Fund (“USO”).

ETFs allow you to quickly reverse your position once investor confidence reverses.  With one or two trades, you can exit the position and quickly be in cash.

In overnight trading (Sunday 10:23 p.m. CST) the markets seem to be pricing in this probable outcome. The Asian equity markets are solidly in the green and so are gold, silver and oil.  The US dollar is weaker against the other major currencies.

Our US equity futures are also in the green. The DOW futures are up 159 points, the S&P futures are up 21 points, and the NASDAQ futures are up 39 points.  It appears for now that the risk trade is back on.

Chinese manufacturing was weak as was US economic data. But the real clincher was that the German bond auction was not fully subscribed. The EU debt crisis now affects the strongest economy in Europe, and even Germany is having trouble raising capital. Fitch just downgraded Portugal to junk status, Moody’s downgraded Hungary to junk status, and Standard & Poor’s hints that it may downgrade Japanese public debt soon.

This is exactly what I feared and wrote about in my last column;  the bond bubble is beginning to pop. The US is still OK, as there is a flight to perceived quality.  But make no mistake; we will get our turn soon.  Right now, investors are focusing on everyone else.  Do not get caught in the “Bond Trap”.

Our equity markets showed their distain and fear the day before Thanksgiving with a broad based selloff.  Market breadth was decidedly negative with decliners beating advancers by 7 to 1 on the NYSE and 6 to 1 on the NASDAQ.  We easily qualified for a 90% Down Volume day on both exchanges.  The US dollar gained strength against all major currencies, especially the Euro.  This trend should continue.

There will be no economic reports out today and the stock market will close at 12:00 p.m. CST.  We may get an “oversold” bounce over the next few days, but don’t get sucked in as the markets are continuing to weaken.  Hold onto your cash and wait for more clarity.

We are in a bear market and, without stimulus to prop up the markets, the trend is down.  The global economy is slowing quickly and investors are pulling in their talons.  There continue to be net outflows of riskier assets into cash.

The European markets were down Thursday.  Last night in overnight trading (Thursday 7:17 p.m. CST) the Asian markets were, also and again, in the red.  Our US equity futures are also in the red.  The US dollar continues to gain strength against the other major currencies.

Have a good holiday weekend.

The Commerce Department revised our US 3rd quarter GDP downward to 2% from a previously reported 2.5%, off by 20%. The DOW ended lower for the 5th day in a row. Total volume was down across the board as expected due to the holiday week.

The flight from riskier assets into bonds and money markets continues. However, how long will this last? My bet is until Bernanke formally announces more stimulus and Europe comes up with their solution.

I know investors, especially older investors, are looking for income. But going forward bonds will not be the right answer.

At the risk of stating the obvious, I want to be sure readers understand the inverse relationship between bonds and their respective interest rates, or yields. As interest rates go up, the prices of bonds go down. Conversely, as interest rates go down, the prices of bonds go up.

Thanks to our Federal Reserve, interest rates are close to historic lows. The long term (dropping) interest rate cycle that began in 1981 is coming to an end. Over the longer term, interest rates have nowhere to go but up.

There are two main driver of interest rates; inflation and risk. If inflation rises, investors demand a higher coupon to offset inflation. This is known as the inflation premium.

Risk also drives interest rates. If investors perceive higher risk, they demand a higher coupon to offset the risk. That is why “junk” bonds pay a higher premium than investment grade bonds and this is known as the risk premium. Taken collectively, these premiums will determine the interest rate for a given bond.

Deflation is normally good for bonds as it makes your interest payments and principal payments hold or even increase purchasing power. As other asset prices are going down, you payments can buy more stuff. The question I have is will this common knowledge during these uncharted times hold true, especially for sovereign and government bonds.

As the global economy slows, tax revenue will decline greatly diminishing the ability for governments to pay back their immense debt loads. This is what the debt crisis is all about. Governments have been covering as well as they can, but the dam is about to break.

There are only two solutions; spend and print (increase debt even more) or drastically cut spending. The solution most governments and central banks will take is to try to spend and print their way out, causing massive inflation. This, in turn, will cause interest rates to rise naturally and be bearish for bonds.

If governments take the honorable way out cutting their budgets, they will slow their economies even more to such a degree that their tax revenue will go way down. Then they will be unable to service their debt making their bonds much riskier to hold. This, too, will cause interest rates to rise as investors demand a higher coupon and many will sell their bonds altogether.

This is the Hobson’s Choice we have been talking about. The next bubble to burst will be the bond bubble. Do not get caught in this Bond Trap. Do you want to be early or late?

If you own individual bonds, you need to begin phasing out of them before there is a rush for the exits. Once it becomes apparent interest rates are rising (and it will happen quickly) there will be a dash for the exits. Individual bonds will be harder to sell and become more illiquid. I would rather be early than late.

If you own bond mutual funds or bond exchange traded funds (ETFs) it will be much easier to exit. You can simply sell the fund as you see interest rates beginning to rise. That said, some bond sectors are already coming under pressure.

Emerging market bonds, high yield (or junk) bonds, and many regional bonds like European bonds (except German bonds) are already selling off in a flight to other bond sectors or cash. This is a “flight to quality” to what investors perceive as safer bonds. The risk premium is driving up interest rates in the above mentioned sectors and their prices are coming down.

But this will happen across all bond sectors once interest rates rise in the overall economy. That is why you need to plan ahead, before it happens.

If you are looking for income, but with protection against inflation, you need to begin looking elsewhere. Your bonds have served you well over the past few years but the party is coming to an end. Yesterday’s newsletter mentioned Master Limited Partnerships (MLPs) which is one alternative. Another alternative is utilities.

The main thing is you need an exit strategy in advance before interest rates begin to rise quickly. Again, the 30 year bull market in bonds will come to an end, probably sooner rather than later.

In overnight trading (Tuesday 9:45 p.m. CST) the Asian equity markets are in the red. Gold is up as in the US dollar against the other major currencies. The US equity futures are also down, and fairly significantly. Concerns over the global slowdown are taking root, let the bailouts begin.

The markets tumbled yesterday, as the Supercommittee couldn’t come to an agreement.  Even though Wednesday afternoon is supposed to be the deadline, our sources have told us the politicians have already gone home for the holiday.  The deal is dead and there is no hope for an agreement and the markets showed their distain.

There is no deal in Europe either and Asia is slowing.  It was a negative trifecta and no sector was left unscathed.  Virtually all of the technical indicators are bearish and we easily qualified for a 90% Down Volume day on the NYSE.

We could get a weak bounce over the next few days.  Due to the Thanksgiving Holiday and the shortened workweek, we will have only 3 1/2 trading days.  Therefore, the volume will be very light.   You will not be able to put too much weight into the price movement.

But rest assured, without some type a bailout/stimulus announcement, we have further down to go. An elevator shaft comes to mind.

You should look to enter and hold (if don’t already own) gold, silver, miners, utilities and Master Limited Partnerships (MLPs).  When stimulus announced, you will want to enter commodity ETFs and commodity related companies.  In fact, you may want to begin slowly building the commodity portion of your portfolio.

Regarding Master Limited Partnerships (MLPs), they are a few ways to own them.  MLPs deal with oil & natural gas pipelines and other forms of energy storage and transmission.  They pay out most of their revenue to the investor.  The cash flow ranges from the 5% range up to even 8% for some of the individual partnerships.  They also a good hedge against inflation.

For smaller accounts, you can either buy an exchange-traded fund (ETF) or an exchange traded note (ETN), but you need to be aware of the difference.  The ETN is backed by the issuing party, normally a bank, and is a senior, unsecured note.  This is counter-party risk at its highest level.  Much of the income is sheltered as it is taxed like a partnership, just like individual MLPs. Therefore, you will receive a K-1.

The ALPS Alerian ETF (AMLP) is an ETF and invests directly in the underlying MLPs (see graph).  It is set up as a corporation and the cash flow is a dividend.  The income is not sheltered but you own a pro rata share of the underlying master limited partnerships.

Larger accounts can own the Master Limited Partnerships directly but you should spread your investment over a few different partnerships for diversification purposes.  The individual securities are more volatile (see graph of Kinder Morgan KMP) than a broader ETF or ETN and that is why you need several in order to diversify risk.

Smaller accounts need to utilize ETNs or ETFs for diversification purposes.  I would own the ETF even if I had to give up some yield so I had a claim on the underlying securities and not merely a promise from a bank.

Below is a list of the Master Limited Partnerships owned by the ALPS Alerian ETF (AMLP).  They are in order of percentage ownership and their individual tickers are in the 2nd column. It is also a great list to begin your research on individual MLPs.

Dan Stewart is a CFA® (Chartered Financial Analyst Designation®) and is the President of Noram Asset Management, Inc. For more information on his work please visit www.noramassetmanagement.com or email him at dstewart@noramassetmanagement.com

Jared shared a story of a situation that could have ended up with the tragic death of an innocent life but instead became the start of a beautiful friendship. This morning while riding his bike Jared he had to stop abruptly to avoid hitting the little critter pictured above. As Jared mentioned on the show today, he was so fast that this squirrel didn’t even see him coming. Luckily, Jared WAS paying attention and stopped right in time to avoid a tragedy and snap this pic. Apparently the squirrel was so startled by Jared that he dropped the nuts he was carrying.

As you know we here at the Wall Street Shuffle are big rodent advocates (click here for some of the best of Richard the Mole) so the squirrel should not have worried, but let this be a valuable learning experience to always remember to look twice before you corss the street otherwise you might lose your nuts.

The markets are still showing weakness so hold your ground and your cash.  Volume will likely be light this week due to the Thanksgiving Holiday.

Over the past few weeks, our equity markets have been making lower highs and lower lows. Additionally, during up days, the markets have been rising on light volume, and, on down days, have been falling on heavier volume.  This is a bearish indicator.

The 50-day moving averages (“50 DMA”) are below their 200 DMAs on the major indices, also a bearish indicator.  The volatility index (VIX) has also been rising and the US dollar index has been getting stronger.  All of these are bearish for equities.

One of the concerning indicators to watch are the high yields of “junk bonds” relative to the yields of other asset classes.  The first divergence is in difference in prices between junk bonds and equities.  Junk bond prices usually trade in tandem with equities…when investors are confident.  Recently, junk bonds have been losing much more in price than equities have and yield spreads have been increasing.

The second divergence is the widening spread in interest rates between junk bonds and high grade, investment bonds.  Investors have been selling high yield bonds and moving to investment grade bonds…a flight to quality.

This implies concern that banks will reduce lending and may even cut off financing to all but the highest credit quality companies.  This is a bearish sign, not only for high yield bonds but also for equities.

One of the few bullish signs is investor sentiment, which has been rising.  Although sentiment has been rising, net money flows have been exiting equity mutual funds and exchange-traded funds (ETFs).  Many professionals use this as a contra-indicator and its peaking often marks a short term market top.  The bottom line is most of the signs show investors are taking a conservative posture and not an aggressive one.

In overnight trading (Sunday 10:35 p.m. CST) the Asian equity markets are in negative territory.  Silver and gold are both down and oil is flat.  The US dollar is down against the Yen, but up against the Euro and Pound.

Our US equity futures are in the red.  The DOW futures are down -68 points, the S&P futures are down -9 points, and the NASDAQ futures are down -14 points.

I know the title sounds like an old song from a traveling evangelical church, but I am actually talking about the leaders of the Eurozone. You and I wish it was just their problem, but it is unfortunately very much our problem as well. The price action in the Euro is suggesting we may be in the process of initiating a serious bearish trend. The problem is not just a concern that the Euro would lose value relative to other currencies. The problem is that the fundamental cause of the decline in the Euro would be systematic of a much larger problem that could affect economies across the globe.

EURUSD (Euro/US Dollar) Forex Currency

The chart is above is the Eurodollar Forex currency. We are in the early stages of a new bearish trend. If the news continues to get worse, expect the decline to get more severe.

Let us look at how a trader can take advantage of a bearish trend in the Euro or related currencies.

EUO Inverse Euro ETF

If a trader wanted to trade the Euro directly, they could buy the ETF that will rise in the event that the Euro declines in value. On the Wall Street Shuffle, we mentioned this ETF when it was trading at 18.50. A trader can use a $1.00 stop loss for this trade. If the Euro is going to fall significantly, it will most likely occur soon. Based upon the reasons for entering into this trade, this ETF has no business getting back to $17.50 under this environment. If you do trade this ETF, hang on tight. This is one volatile stock.

UUP US Dollar Bull ETF

We mentioned another possible trade to take advantage of the strength of the US dollar and this was the ETF for the US dollar bull UUP. This stock should hold above 21.50.

SP 500 SPY

I drew an extra bar in this weekly chart of the SP 500. We do not want to see a large range decline next week. Such a decline will begin to confirm the bearish trend we have in place in the weekly chart for the SP500. I do not know if we are going to have such a decline, but it follows that, if the Eurozone news is bad, the Euro will begin to fall. The concerns over its impact on the world economies will pressure stocks. If you add the additional concern that our too big to fail banks will be holding destructive derivatives that they cannot honor or pay, you could have such a week as I illustrated. I hope not, but we are traders and we follow the trends. We do not fight them.

Although most of the economic data out yesterday beat analyst expectations, the markets sold off anyway. Europe crumbling to pieces is overwhelming the equity markets globally. This is a very dangerous time and parallels of 2008 come to mind. You should be holding significant cash and/or be short the market.

All of the major indices sold off yesterday on increasing total volume. We qualified for a 90% Down Volume day on the NYSE and breadth was negative with decliners beating advancers by 4 to 1. The internals were lighter on the NASDAQ but selling was intense nevertheless.

The problems in Europe are so big and sovereign bond yields are rising fast. I fully expect a huge bailout announcement soon. Be ready to unwind your short positions and go long quickly. But make no mistake, it would be a short to midterm trade and not a long term investment.

Bailouts and stimulus won’t work in the long run, but would support both equities and commodities. It will also be very bullish for gold and silver as currencies are devalued. The race to zero is alive and well.

The few places to invest are utilities and master limited partnerships (MLPs). They will provide income to protect against the downside and pricing power against inflation.

In overnight trading (Thursday 10:42 p.m. CST) the Asian equity markets are all in the red. Silver and oil are both down, but gold is up .18%. The US dollar is down against the other major currencies.

Our US equity futures are moderately in the red. DOW futures are down -8 points, the S&P futures are down -1 point, and the NASDAQ futures are down -2 points.

It was a rollercoaster yesterday with the markets finishing near their lows of the day.  The major indices opened firmly in the red and then clawed their way back into positive territory.  But late in the day, Moody’s rating agency warned about the worsening European debt crisis and the markets quickly rolled over and never looked back.

The DOW closed down almost 200 points, but the NASDAQ declined more by percentage.  Down Volume was in the mid 80s on the NYSE and high 60s on the NASDAQ.  Total volume increased by double digits on both exchanges but was still light.

Selling has been stronger on the down days than buying has been on the up days.  This implies the markets are weakening.  Look for continued weakness unless and until a bailout announcement comes out of Europe.  Either way, the Euro will continue to come under pressure.  The US dollar continues to gain strength and the inverse correlation between stocks and the dollar remains intact.

A little further out, you can look for another stimulus package in the US.  Treasury Secretary Geithner has already been touting the need for another round.  An announcement from either the EU or the US will cause gold and silver to spike and resume their bullish trend.  If you do not currently own the precious metals, have your trade ready for either announcement.

Today, Dollar Tree, Intuit, Sears, Ross Stores, Gamestop, Gap, Salesforce and JM Smucker are among the companies report earnings.  Economic news include Housing Starts, Building Permits, Mortgage Foreclosures, Initial Jobless Claims and the Philly Fed Manufacturing survey.  I wish I could say our economic data would suffice, but the markets will again hang on news coming out of Europe.

In overnight trading (Wednesday 10:00 p.m. CST) most of the Asian equity markets are mixed.  Silver is up, but gold and oil are down.  The US dollar is flat against the other major currencies.

Our US equity futures are in positive territory. The DOW futures are up 44 points, the S&P futures are up 4 points, and the NASDAQ futures are up 8 points.

Members of Congress disclose their assets and liabilities in broad ranges. The estimated net worth is the middle of that range, as reported on their 2010 disclosure forms. Net worth does not include primary residence or other personal property.

Click Here for the FULL STORY By Gregory Korte and Fredreka Schouten, USA TODAY

Once again we had a light volume day yesterday, although better than Monday’s volume. Both major indices are well below their 30 day moving averages (30 DMA). And, once again, the markets were all over the place, but finished moderately positive on headline hopes of an new Italian government (I promise I won’t speak of Europe again).

Up Volume was in the low 60s on the NYSE and mid 60s on the NASDAQ. We are just below the 200 DMA on the S&P and resting on the 200 DMA on the NASDAQ and seem to be in a sideways consolidation pattern.

However, they are both making lower highs on low volume (see graphs), and the underlying supply/demand picture for stocks is weak. Unless we see buying on a strong pick up in volume, a breakout and sustainable rally is unlikely.

S&P 500 7 Mo Making Lower Highs 11-15-2011

Dell reported late in the day and disappointed, and was down -1 1/2% in afterhours trading. This will likely put pressure on the NASDAQ in early trading.

Today we have Tyco, Target, Applied Materials, Abercrombie & Fitch, NetApp Inc., and Ltd Brands all reporting. We also have MBA Mortgage Applications, NAHB Housing Market Index, Consumer Price Index, and Industrial Production reports today. Hopefully our earnings and economic data will dictate our markets.

In overnight trading (Tuesday 9:30 p.m.) the Asian equity markets are in negative territory. Silver, gold, and oil also down. The US dollar is up against the other major currencies.

Our US equity futures are in red. The DOW futures are down -87 points, the S&P futures are down -10 points, and the NASDAQ futures are down -13 points.

The markets sold off yesterday on renewed European fears and Europe is deteriorating with no real solution in sight.  Germany has proposed a way for countries to exit the EU.  There was no economic data released on which to focus.

Today will be a different story.  The Producer Price Index, Retail Sales, Empire Manufacturing and Business Inventories all come out today.  More companies report today including Staples, Wal-Mart, Home Depot, Agilent Technologies and Dell.

The selloff was broad based.  Down Volume was in the mid 80s on the NYSE, but not as strong on the NASDAQ, registering in the low 70s.  The good news is that total volume was extremely light, even lighter than Friday’s anemic Veteran’s Day volume.  Less than 3 billion shares traded on the NYSE and only 1.4 billion on the NASDAQ.

We are again below the 200-day moving average on both the S&P and the NASDAQ.  We are also making lower highs during rallies.  The short term is not that weak but the midterm picture shows weakness. Demand for stocks is slowly declining while supply increasing.

We are still in a trader’s market.  If you have a longer-term outlook, you should either be hedged or have a large cash position.  In limited 401k’s, a large cash (money market) position is prudent.  Your equity positions should be in large cap US stocks and not in foreign stocks.

Confirming this was an economic report just released from the San Francisco FED that there is a greater than a 50% chance we will slide into “another” recession early in 2012, due to Europe.  Much of Europe is already in recession and Asia is slowing.  Therefore, stocks are not cheap based upon historical standards.

In overnight trading (Monday 10:37 p.m. CST) the Asian equity markets are in the red.  Gold, silver, and oil are also in the red.  The US dollar is stronger against the other major currencies again confirming the inverse correlation between stocks and the US dollar.

Our US equity markets are negative.  The DOW futures are down -31 points, the S&P futures are down -5 points, and the NASDAQ futures are down -10 points.

The bond market was closed on Friday due to Veteran’s Day.  The European news was positive with old governments replaced with new ones, but the problems still remain.  It is still just talk.

Stocks were the only game in town, and they staged a rally.  Total volume was extremely weak so you can’t read too much into the numbers.  Last week was gut wrenching with the markets up only a total of 1% but the range and volatility was scary.

The markets are beginning to focus on our US deficit cutting bipartisan “Super Committee”.  If no agreement is reached, drastic cuts, especially in the military, will take effect.  If you own defense related stocks, be wary.  But the cuts will affect (and scare) the markets as a whole.

Don’t take your eye off of Europe.  You should avoid Europe altogether unless you are a short-term trader.  Growth in Europe is slowing fast and this will have an effect on emerging markets.

Any equities you own should be US equities.  Strong sectors currently are gold and utilities and this should continue.  One easy way to participate in utilities is the SPDR Select Utilities ETF (XLU).  I already own this ETF and have for some time.  It has a current yield of 3.88% and has been rising steadily (see graph).  The best thing about utilities is their volatility (“beta”) is much lower than the overall market, making it much easier on the psyche.

The three companies reporting today in the S&P are Lowes, JC Penney and Urban Outfitters. There are no US economic reports due out today.  Without much financial and economic data, the markets today will fixate on Europe and our deficit cuts.

In overnight trading (Sunday 11:20 p.m. CST) the Asian equity markets are in positive territory.  Gold, silver and oil are all positive.  The US dollar is down against the Yen and Euro, but up against the Pound.

Our US equity futures are in positive territory. The DOW futures are up 56 points, the S&P futures are up 5 points and the NASDAQ futures are up 7 points.

Italian bond yields actually came down just below 7% at their auction yesterday, a good sign. Looks like the European Central Bank (ECB) was buying. However, now French yields are rising almost vertical (see French Yield graph). Ouch, another nail in the coffin. And their economy is even bigger than Italy’s.

French 10 Year Zero Cpn Bond Yield on 11-10-2011

Treasury Secretary Geithner state the EU must “move quickly” to bring stability. Now Japan, China, and other exporting countries are worried about weak demand from Europe as the European Commission just cut its 2012 euro-area growth forecast by more than half and said risk of a prolonged recession are high. Double ouch!

All these taken together demonstrate a significant global slowdown, especially Europe and right in the middle of austerity cuts. We are emerging as the strongest of the weak. Go figure.

I hate to harp on Europe and am getting sick of it, but it is all important. You see, as of late there has been a strong positive correlation between the Euro and our stock market, and an inverse correlation with our US dollar and our stock market.

So when the Euro strengthens relative to the dollar, our markets rally. When our dollar strengthens relative to the Euro, our markets selloff. This is what happened on Wednesday with the strong selloff in stocks as our dollar soared and the Euro plummeted. Yesterday, the Euro strengthened moderately against our dollar and see what happened.

Our markets did get a bounce today as I expected, but the internals were weak. Up Volume was only in the mid 60s on both exchanges. Breadth was also moderately positive with advancers beating decliners by 2 to1 on the NYSE. Total volume was down across the board by double digit yesterday on exchanges and well below their 30 day moving averages (30 DMA).

Thus yesterday’s rally was weak and did not show much conviction at all. We have risen above the 2 month long trading range, but if we go back below it, active traders will begin selling on a technical basis. It will be important for the S&P 500 to remain above 1,220 (see graph).

S&P 500 (4 Month) Just Above Trading Range on 11-10-2011

The markets never go straight up or straight down, so daily moves are difficult to determine, especially in a news driven market. But, we are literally seeing Europe come apart as we speak. The politicians can talk up the market by discussing solutions and bailouts, but when push comes to shove, no one is really willing to commit yet.

Watch the Euro. The Euro is your clue to our markets. If the Euro begins to actually collapse further, watch out. In the short run, it might go higher although its accent will be limited. Over the longer term, the Euro is going down. Our markets will follow.

Our dollar will strengthen, but over time it, too,  will weaken. As this happens, it will be time to move into even more gold and silver, and commodities.

In overnight trading (Thursday 10:27 p.m. CST) most of the Asian markets are positive territory. The notable exception being India. Silver is flat, but gold and oil are both in positive territory. The US dollar is down against the Yen and Euro, but up against the Pound.

Our US equity futures are in positive territory. The DOW futures are up 67 points, the S&P futures are up 8 points, and the NASDAQ futures are up 18 points.  See how that correlation is working in overnight trading.

Stocks got crushed yesterday on strong overall volume. Reality is sinking in over in Europe. Italian bond yields soared well over 7%. Even their short term 2 year bonds are at 7% (see Italian yield graph). This is unsustainable for Italy and will cost the Italians over 50 billion Euros more per year in extra interest expense if their yields don’t come down.

Greece is in chaos, and yields are beginning to climb in France. And so the story goes. The debt crisis in Europe is coming to a climax quickly and European leaders actually admitted today they had no solution for Italy. It is simply too big.

Our markets responded with a strong, broad based selloff. The DOW was down almost -400 points and the NASDAQ down over -100 points. Breadth was negative to say the least with decliners beating advancers by 8 to 1 on the NYSE and 7 to 1 on the NASDAQ. Down volume was over 95% on the NYSE and in the mid 90s on the NASDAQ. Both the NASDAQ and the S&P 500 finished below their 200 day moving average (200 DMA) and are now both negative for the year.

Even if we get a bounce, the supply/demand picture for stocks doesn’t look positive. You need to remain cautious and in cash or short term treasuries till the dust settles or a massive stimulus is announced. Even then, it will be short to midterm trade as the law of diminishing returns applies to stimulus.

The dollar will remain strong and the Euro will remain weak. One possibility is the PowerShares US Dollar Bullish ETF (UUP). Another is the ProShares UltraShort Euro (EUO).

Gold and silver will still be strong for the longer term but may pullback with other assets. At some point, investors will lose confidence in almost all major currencies. Then you will really see gold and silver rally.

We have Initial Jobless Claims, the Import Price Index, and the FED’s Monthly Budget Statement coming out today. Companies reporting earnings include Kohl’s, Nordstrom, Viacom, Walt Disney, and NVIDIA. We need some good news to support the markets. Otherwise, you will see selling accelerate quickly.

In overnight trading (Wednesday 10:50 p.m. CST) all of the Asian equity markets are in the red. Hong Kong’s Hang Seng is down -4 1/2%. Gold, silver, and oil are also in the red, but by less than -1/2% each. The US dollar is flat against the Yen, but up against the Euro and Pound.

Our US equity futures are mixed. The DOW futures are down -6 points, the S&P futures are up 1 point, and the NASDAQ futures are up 3 points. Our futures were down more earlier in the evening, but have just firmed up to being essentially flat.

On Monday November 7, I last discussed a possible long position in FCX, as a possible speculative trade for those seeking to place a position in the developing bull market in copper prices. I mentioned copper futures, but prices had to rally to trigger that trade and they have not made such an advance. However, FCX did make an advance that triggered a potential long entry at 40.75. Let us look at this stock and discuss how the active trader takes advantage of the higher move today.

Trading is not just about profits. Trading is about risk reduction. When prices gapped up higher on the 8’th, a trader should have seriously considered taking partial profits for the position. TRADING DOES NOT HAVE TO BE LIKE A LIGHT SWITCH!  Trading does not have to be all on or all off. By selling ¼ of the position up $1, you not only are sticking some profits back into the account, but you are reducing your risk of the open position. If the market continues higher, the trader still has ¾ of the position still open riding that continuation of the bull market, if it occurs. If the stock begins to move lower and the trade hits a subsequent stop loss, at least the trader sold something while prices were higher.

Continue to hold balance of position with a stop loss now raised to 37.90. Stock indexes had a nice price rise today. This rally needs to keep going for this stock to continue in its bullish trend.

The markets reversed their morning losses yesterday for the 2nd day in a row once Italian Prime Minister Berlusconi promised to resign after the new austerity measures are passed.  Prime Ministers in Europe are dropping like flies, but the markets seem to like. The problem is sovereign bonds yields in Europe are rising fast.

Europe is on tenuous ground. International Monetary Fund (IMF) Director Christine Lagarde stated that the world may face a “Lost Decade” and the world needs to act together. Translation, more bailouts and debt to solve the current problem of too much debt. Go figure.

In our equity markets, breadth was more positive than Monday, and this time small and mid caps participated. Total volume, although better than Monday, was still anemic across the board. Up Volume also fared better than Monday. Thus the internals improved from Monday but was due to lack of selling, not strong demand.

The S&P did close above its 200 day moving average (200 DMA). The next resistance level on the S&P is at 1287 (see S&P graph).

But, until we get buying accompanied with volume, it is still a dangerous market. Probabilities still favor a pullback. We especially need to monitor event is Europe as this unfortunately is still a news driven market. You should remain cautious until we get stronger volume.

Companies reporting earnings today include Cisco, Macys, and Silver Wheaton. As far as economic reports, we also have the MBA Mortgage Applications and Wholesale Inventories coming out today.

In overnight trading (Tuesday 9:58 p.m. CST) the Asian equity markets are mixed. Gold, silver, and oil are continuing their uptrend. The US dollar is down against the Yen and Pound, but up against the Euro.

Our US equity futures are in the red. The DOW futures are down -24 points, the S&P and the NASDAQ futures are both down -3 points.

I am tired of discussing all of the EU problems and waffling back and forth, and earnings season is winding down. Therefore, today I will discuss yesterday’s market action and the internals.

The markets were all over the place yesterday and were in the red the majority of the day. The DOW was down over 100 points in the early afternoon. But the major indices staged a reversal the last 2 hours of trading finishing in moderately positive territory.  However, it was on very low total volume and weak buying.

Small and mid caps were not so fortunate and the rally was not broad based. On the NYSE, breadth was barely positive with advancers beating decliners by only a few hundred shares. On the NASDAQ, it was actually negative.

More importantly, the sectors showing strength were defensive in nature. Health Care, Big Pharmaceuticals, and Consumer Staples were the best performers, not Cyclical stocks. In the Materials and Commodities area, it was gold and silver leading the way in strong fashion, not the Industrial (except maybe silver) or the Energy sector.

All this taken together implies a defensive posture and a “risk off” stance. A “risk on” posture would favor increasing volume into the Industrial and Cyclical sectors. As far as market capitalization, you would see small and mid cap participation, even leading the way.

The clues point the probabilities to a pullback over the next few days to a week, not a move higher to the upside. Hold the cash you have and put off any new buying. You may want to cull any aggressive, high beta stocks you own, especially if you are over allocated in those areas. Look for the US dollar to remain strong.

In overnight trading (Tuesday 10:45 p.m. CST) the Asian markets are mixed. Gold, silver, and oil are giving a little back from our market gains. The US dollar is up against the other major currencies.

Our US equity futures are in the red. The DOW futures are down -23 points, the S&P futures are down -4 points, and the NASDAQ futures are down -5 points.

There has been a considerable amount of discussion regarding the bullish potential of the copper market recently by many analysts. You can see in the chart of March 2012 copper futures above that prices have had an impressive rally from the lows in October.  However, to steal some words of Gordon Gekko to Bud Fox, “You’ve done good, but you have to keep doing good”. The same is true for the potential bull market in copper prices.

While I am beginning to turn a favorable eye to copper as a potential speculative position, you have to admit the price action of last week was not that impressive. If this is to turn into a bull market, prices need to begin to move higher almost immediately. Not only must the lows of last week hold any price decline to keep the bull market alive, prices must absolutely hold the 3.40 level in the short term to keep the bullish momentum in place. If the 3.40 level is broken, wait until later in the month before committing to the bull market trade.

For short-term traders, buy above the 3.71 levels on a buy stop and stop the trade out at 3.39. Is this a higher risk trade? Are you kidding me! With the uncertainties of Greece, this is super higher risk as we wait for more news regarding the Eurozone and its impact on the equity markets. I will discuss that in a few moments.

I know there are not that many futures traders out there, so let us look at another way to speculate in the potential for a rise in copper prices. Many investors interested in this sector take a position in FCX. If prices break above the 40.75 level, I do think a small long position would be worthwhile. However, the stop loss would need to be below the 36.00 level. One of the reasons for the large risk of 4.75 in the trade is because of the daily volatility of this stock. The average daily range (ATR) is over 2.00 a day. This means that lately this stock has an average daily movement of over 5 percent of its value every day. This is twice that of an average stock and even more volatile than most commodities! This is not the stock for the faint at heart.

However, the advances from the lows have been impressive. As far as a play for the potential of an improvement in the US and world economies, this stock does offer an excellent way to potentially capture such a bull market play.

But! Don’t you hate it when there is always a “but” in a forecast? In this circumstance, it cannot be avoided. If the stock markets begin to decline from current levels, whether due to bad news from Greece or Italy or other country whose only wealth is unfunded social programs or bad news from our own economy, the copper prices will decline with the stock market and bring the futures market and FCX down with it. As much as I like the potential in copper prices, any long position in either the futures or FCX is really a leveraged bet on where the stock market is going. Because of this reality, either wait for the highly charged news situation to pass in a few weeks before jumping in these highly volatile markets or come in with a small position now and add to the position after much of this Euro nonsense is behind us.

The European condition continues to scare the global markets. Last night, Greek Prime Minister Papandreou was prepared to step down in order for Greece to force a coalition government. He narrowly survived a confidence vote at 10 p.m. late last night.

Will he form a coalition government and secure the necessary EU (and international) financing so Greece  won’t default in early December. There is by no means a “done deal” and the recent market volatility reflects this.

However, even if Greece again buys a little time, attention will turn to other EU countries in crisis, especially Italy. In fact, Italy has a key vote today in their parliament and concerns that Prime Minister Berlusconi will be unable to achieve a majority. Italy is the real Black Swan.

Enough about Europe, I am sick of it as I am sure you are too. The problem is Europe has been the primary driver of our markets lately, so we will need to continue to monitor the EU.

And, there are only 3 companies reporting  in the S&P 500 today – Rockwell Automation, International Flavors & Fragrances, and International Game Technology; not widely followed stocks by the average investor. The only economic report coming out is Consumer Credit. Thus, without much happening in the US, the focus unfortunately will remain on the EU today.

Speaking of the US, the economic data has come out lukewarm. Earnings have been for the most part positive, but earnings announcements are always managed.  Thus far, of the 408 companies in the S&P 500, 72.5% have surprised to the upside. This percentage is, however, down from the previous quarter. Berkshire Hathaway surprised the street with earnings coming in well below estimates, 24% below.

But the real news and clues came from the CME Group (Chicago Mercantile Exchange) and our FED. The CME, which controls most of the futures contracts, announced initial margin requirements will be the same as maintenance (minimum) margin requirements for ALL types of contracts across the board. This is not only unusual, but unheard of.

Normally, initial margins are much higher than maintenance margins, and should be. Then if the trade goes against you significantly and your equity is reduced to the maintenance margin level , you will be required to post additional capital or be sold out of your position. This is for protection of the system and the CME exchange itself.

This probably means the CME is worried about “margin calls” on commodity positions across the board due to MF Global bankruptcy as well as other firms in trouble. It also means many investors and traders holding futures contracts will have “extra” margin flexibility, or leverage.

The CME did not specify how long this policy will last and it will be interesting to see how it will affect the commodity markets over the few days. Will speculation be increased? Is the intent to inflate or increase asset prices and soothe investors? Or to protect against a wave a margin calls? Lots of questions but no answers yet.

Watch the commodity markets and their response today. Be careful and don’t get sucked in without paying close attention standing ready to unwind any trade.

The other big news was the FED. According to Lee Adler of the Wall Street Examiner, the FED had the largest one day withdrawal (83 billion) not associated with quarterly tax payments this past Wednesday.

Contrary to Bernanke’s statements and wishes, the FED was forced to sell treasuries, and to borrow from foreign central banks. None of this was disclosed and their transparency policy was completely thrown out the window. Thank you to Lee Adler for piecing the facts together and holding the FED’s feet to the fire.

But don’t miss the forest for the trees. The bigger picture implies that something big is happening behind the scenes. Liquidity is in question and this week will be interesting.

In overnight trading (Sunday 9:54 p.m. CST) the Asian equity markets are in the red. The US dollar is up against the other major currencies. Gold and silver are up around 1%.

Our US equity futures, after being positive earlier in the evening, have turned negative. The DOW futures are down  -10 points, the S&P futures are down -2 points, and the NASDAQ futures are down -1 point.

We had a relief rally as it seems the Greeks are backing away from their referendum vote on whether to accept the EU conditions. The problems still exist, and if Greece does accept the EU terms, it will simply be a Band-Aid to buy time before the inevitable. Yields on Greek debt indicate default, and rightly so.

Thus the volatility continues with 2 solid price up days after 2 days of selloff. Total volume was mild yesterday. Up Volume registered in the low 80s on the NYSE but only in the mid 70s on the NASDAQ.

Breadth was 3 to 1 on the NYSE and less on the NASDAQ. It appears demand wasn’t really all that strong, sellers simply went away. We need demand to pick up for a truly sustainable rally from here.

Today we have the Unemployment Rate, Change in Payrolls, Average Hourly Earnings, and Average Weekly Hours to indicate how strong the recovery is regarding employment and the consumer. We also have 11 S&P companies reporting today including PepsiCo and Berkshire Hathaway.

If you are looking for somewhere to invest your money, one area for research is utilities. An easy way to do this is the SPDR Select Utility ETF, ticker XLU (see graphs).

SPDR Select Utility ETF XLU (Long Term) 11-3-2011 - Curr Yld 4.02%

SPDR Select Utility ETF XLU (Year to Date) 11-3-2011 Curr Yld 4.02%

I have owned for quite some time, but would buy for new money on a market pullback.
It has a current yield of just over 4%. More importantly, it has pricing power if inflation rises and lower beta (volatility) than almost all other equities. It is an area with lower risk and has a nice dividend while you wait for price appreciation. This would be part of your strategic, or longer term allocation versus your tactical, or shorter term, allocation.

In overnight trading (Thursday 10:06 p.m. CST) the Asian markets are in the green snapping a 4 day losing streak. Gold, silver, and oil are all moderately down. The US dollar is down against the Yen, but up against the Euro and Pound.

Our US equity futures are in the red. The DOW futures are down -33 points, the S&P futures are down -4 points, and the NASDAQ futures are down -4 points.

Our markets finished in positive territory yesterday breaking the losing streak on hopes the European Union would solve their problems and that Bernanke would provide more stimulus.  But, there are still a lot of uncertainties and risk remains high.

Last night the European Union gave Greece the ultimatum…decide whether to stay in the euro-based EU and accept the prescribed austerity cuts or go it alone.

Without aid, Greece will default before the end of the year.  Greek Prime Minister Papandreou said they could not vote on the referendum until the 4th of December.  Talk about a game of chicken!  I don’t think the Greek people have any concept of what will happen if they exit the euro, but they just do not want more spending cuts.

Record unemployment and spiking bond yields may derail efforts to reduce deficits.

Additionally, FED Chairman Bernanke did not provide any new stimulus but he said the FED stands ready to act, if necessary.  The question is whether this stimulus is for Europe or the US.  The good news is our economic data is coming in relatively stronger than both Europe and Asia, if you believe anydata anymore.

Euros may come to our shores seeking better opportunities.  This could provide a boost to our markets and you could see a divergence betweenEuropean and American equities.  But, equities will come under pressure if the Greeks opt out of the EU.  All eyes are still on Europe.

In overnight trading (Wednesday 9:12 p.m. CST) most of the Asian equity markets are in the red.  Gold, silver and oil are giving back some of their gains.  The US dollar is up against the other major currencies.

Our US equity futures are down significantly.  The DOW futures are down -131 points, the S&P futures are down -15 points, and the NASDAQ futures are down -18 points.  If this holds overnight, it looks like the “risk off” trade is back on.  Remain cautious and hold cash.

Recently I discussed the potential for traders to take advantage of a possible price rise in several oil stocks, including VLO, TSO, XOM, and the exchange traded fund XLE. I advised that a long position in the oil sector looked advisable.

All Charts Courtesy of Trade Station

However, late last week I advised the audience to take profits in one-half of the position. Some of our audience members may have been surprised that I would make such a recommendation, especially considering the fact that the oil stocks “looked so good” on Thursday. Why did I suggest such an action as a trader?

XLE Daily ARCX S&P

Because this can happen to you! As a trader and yes as an investor, you are always balancing risk and reward. There is always a potential news story that can cause a reversal within a trend. What started as a short-term trade is suddenly an “investment”.

Take partial profits while prices are running in your favor. Do not use a trailing stop loss. Sell into the strong rally. By putting some profits into your account when you have a winning trade, you are putting yourself into that happy place. If the market continues higher, you still have some remaining stock in your portfolio to ride the trend for a greater profit. If prices decline back to your entry level, then at least you made something out of the trade, because you banked the partial profits. If you take this action, you will not only smooth out your equity curve as a trader, you will reduce your overall risk of a sudden loss. Greed may be good for Gordon Gekko, but it is not good for your account.

It looks like yesterday was a trick and not a treat. Greece threw a wrench in the European rescue plan with their referendum to reject austerity cuts.

European leaders were holding an emergency meeting last night before their G-20 Summit meeting today. Italy also convened an emergency meeting last night regarding their budget cutting plans. Things are falling apart rapidly in Europe and sovereign bond yields are spiking.

This has pushed stock correlations to an all time high (see Implied S&P 500 Stock Correlation graph), even with some earnings coming in strong. This means stock prices are all moving together regardless of their specific situation, and “diversification” isn’t working. It is more about when to be in, and when to be out (or hedged) of stocks.

Stock Correlations Hitting All Time High 11-1-2011

Right now, it is time to be out. This could change quickly if Bernanke announces a big stimulus package following or during the FOMC rate meeting today. Many thought he would not announce a major stimulus package, but now he may be forced to if the markets go into a freefall.

Yesterday both the NYSE and the NASDAQ qualified for a 90% Down Volume day on heavy total volume. We have just broken through support. It will be important to recover above support. Otherwise, many technical traders will short the markets forcing downward pressure on stocks.

In overnight trading (Tuesday 9:10 p.m. CST) all of the Asian equity markets are in the red. The US dollar is moderately down against the Yen and Pound and flat against the Euro. This is after significant strength over the past few days. Gold and silver are both in positive territory, but oil continues to fall.

Our US equity markets are moderately mixed. The DOW futures are down -1 point, the S&P futures are down -.25 points, and the NASDAQ futures are up 3.75. Today will be an interesting day to say the least. The politicians will say and do everything possible to support the markets.

Stocks had a major selloff on Halloween finishing at their lows of the day. All 3 major indices closed below their 200 day moving averages (200 DMA). This is an important measure for longer term investors.

Breadth was negative with decliners beating advancers by 4 to 1 on the NYSE and over 3 to 1 on the NASDAQ. Our US dollar had solid gains against all the other major currencies, especially the Yen. This put pressure on commodities and commodity stocks as they are inversely correlated to the dollar. Utilities were the strongest sector, giving up the least ground.

Our economic data came out mixed and earnings were weak, but most of the losses were attributable to renewed worries over Europe.

Selling wasn’t that intense, yet. Thus far, it may just be consolidation and a mild pullback. However, after the recent gains, watch for selling to accelerate if traders look to protect profits. If selling does accelerate, we could quickly resume the primary bear market trend, especially if the dollar keeps gaining ground. The dollar will be the key. So will events unfolding in Europe.

In overnight trading (Monday 9:52 p.m. CST) most of Asian equity markets are in the red. The notable exception is China, which is somewhat surprising, as China’s manufacturing index dropped to it’s lowest level in almost 3 years. The US dollar is flat against the Yen, and up against the Euro and Pound. Gold and silver are both in positive territory.

Our US equity futures are slightly in the red. The DOW futures are down -13 points, the S&P futures are down -6 points, and the NASDAQ futures are down -7 points.

We had some big news late Friday and over the weekend. The day after the European Union announced its intention for a big bailout, Italy sovereign bond yields spiked to Euro era highs as their economy is slowing more than expected and their deficits are widening.

Italian 10 Year Bond Yields Spiking - 10-30-2011

Additionally, the Financial Times (London) reported that “Further doubts over the Eurozone’s proposed rescue fund were raised in Berlin when Germany’s powerful constitutional court issued an injunction that would require the full German Bundestag to approve any urgent bond-buying operations by the European financial stability facility.”

The European Union is desperately trying to get support from both China and Japan.  China is asking for specific details but it’s really just calculating the “pound of flesh” that it will exact. The Euro is selling off against our dollar.

And speaking of Japan, they just announced Sunday night they would intervene in currency markets to weaken the Yen.  As a result, the yen is being weakened relative to the dollar.  The Japanese economy is slowing and they are once again using monetary policy to jumpstart their economy.

All these events are coming in front of our FED’s FOMC meeting on Wednesday.  We have an interesting week ahead with countries trying to keep their economies above recession levels while cutting budgets and laying off government workers.

Our dollar is strengthening and will put pressure on both stocks and commodities.  Watch for a strong US dollar over the next few days until Wednesday’s FED meeting.  Then, depending upon what Bernanke does, things could change quickly.  If he announces some type of stimulus, the dollar will likely reverse.  If no stimulus is announced, the dollar will likely continue to rise against the other currencies.

In overnight trading (Sunday 9:33 p.m. CST) most the Asian equity markets are down with the notable exception of Japan.  The US dollar is stronger against the other major currencies.  The dollar is up over 4% against the Yen.  Gold, silver and oil are all in the red against the strength of the dollar.

Our US equity futures are in also in the red. The DOW futures are down -58 points, the S&P futures are down -7 points, and the NASDAQ futures are down -14 points.

One of the biggest mistakes that traders make is to become too greedy. I mentioned two weeks ago that the energy sector looked very attractive from three standpoints. First, the US dollar looked like it was going to weaken against many other currencies. Second, the stock market looked like it was itching to run higher. Third, the energy inventories were under last year levels and this would help the sector. We have had a great run for the past two weeks, but let us not get too greedy.

While I think the energy complex can indeed move much higher later this year, there are always surprises in the marketplace. For those that bought the energy stocks that were mentioned, I suggest talking profits in one-half of the position. Place a breakeven stop on the balance and ride the balance for a much longer-term trade. In the case of Exxon, lets sell the last half of the position at 84.75.

I mentioned Valero and Tesoro as possible trades (VLO and TSO). For those that favored an ETF, we discussed XLE.  Take the same actions. Sell one-half and place a break-even stop for the second half. This helps insure that you make something from the trade idea of being long the energy sector. This is how you make consistent returns during the year.

Have questions? Email John at john@thewallstreetshuffle.com

The European debt deal calls for a bailout of over 1 trillion euros and the apparent aid of China.  No details will be given until November.  Our economic data, namely our GDP, came in strong, registering 2.5%.

In response, all the major indices had a big day on huge overall volume creating a “short squeeze.”  Both the S&P and the NASDAQ closed above their 200-day moving averages.  Up Volume was in the mid 90s on the NYSE, but surprisingly, only in the mid 80s on the NASDAQ.

The rally was broad based.  Advancers beat decliners by 6 to 1 on the NYSE and by close to 5 to 1 on the NASDAQ, exhibiting strong positive breadth.

Silver, copper and oil all had a big day as did virtually all the commodities.  The only laggard was gold only up over 1%.  Treasuries came under pressure and interest rates rose.  It was undoubtedly the “risk on” trade yesterday as investors were moving into stocks and commodities and out of bonds.

The big question is can the rally continue now that the good news (and relief) on Europe is out, or will investors begin to focus on the actual details?  Usually, after a spike like yesterday, you will get at least a breather for a day or two.  If that happens, some investors will be quick to take profits and selling may accelerate, creating a bear trap.

The news in Europe is done for about a week.  Earnings will be the catalyst for tomorrow.  We have 18 companies reporting on the S&P, among them are Biogen, Chevron, Goodyear, Merck and Whirlpool.

In overnight trading (Thursday 10:23 p.m. CST) the Asian equity markets are following both Europe and the US’s lead, although not nearly as strong.  Most of their markets are up between 1% to 2%.  Silver is up, gold is flat and oil is giving back some of its gains.  The US dollar is stronger against the other major currencies.

Our US stock futures are in the red.  The DOW futures are down -43 points, the S&P futures are down -5, and the NASDAQ futures are down -6.

The markets were erratic yesterday.  After European hopes for a solution to the Greek debt crisis peaked and coupled with hints the Chinese would assist in the European bailout fund, the markets rallied into the close.

Tonight (Wednesday 10:00 p.m. CST) European leaders just announced they have “secured” a deal to reduce Greece’s debt.  Private banks have agreed to a “voluntary” 50% haircut.  This write-down had to be voluntary so as not to trigger the credit default swaps that many of the banks had written.

The EU has expanded the European Financial Stability Facility (“EFSF”) to provide guarantees for between 800 billion to 1.3 trillion Euros for bonds issued by Greece, Portugal and/or Spain.  Asian stocks like the news and our US futures have climbed higher overnight.  This is what gold and silver have been telegraphing.

Yesterday, the DOW finished particularly strong with good earnings from Boeing and Chevron.  The DOW is only 30 stocks and doesn’t represent the market as a whole.  More often, professionals look at the S&P 500, the Russell 5000 (very broad) or the NASDAQ as confirmation of a broad-based rally.  The broader markets weren’t as strong as the DOW meaning that most companies did not share in the percentage gains.

Total volume increased across the board from Tuesday’s selloff but buying was not as intense.  Up Volume was in the mid 70s on the NYSE and only in the low 60s on the NASDAQ.  Selling has been more intense on the down days than buying has been on the up days.

We are still hovering just above support levels and the technical indicators are still showing overbought levels. The European news may change the landscape in the short term to the upside but this is only a short-term solution to a long-term debt problem.

We have 62 companies in the S&P reporting earnings today including Aetna, Baidu, Colgate-Palmolive, ExxonMobil, Goodrich, Las Vegas Sands, Moody’s and Pulte, just to name a few.

Gold and silver had a strong day and are breaking out to the upside.  There are many economic reports coming out this week including GDP, Initial Jobless Claims, the Kansas City FED Manufacturing Activity and Pending Home Sales.  Also keys are economic reports coming out of China.  Inflation is a real problem in China.  It is very important to see how China reacts to these inflation reports.  Do they tamp down growth or continue to stoke the fires?

On a separate note, I purchased Valero (“VLO”) yesterday afternoon, for the larger stock accounts (thanks to our new “Snatch and Grab It” Investor Intel (no, not the stock) service, more on this on the show this week…listen in!) on a heavy volume breakout for an average price of $24.36. It closed at $25.15, and in after hours trading finished at $25.36.  There is much speculation that Valero is a takeover target by Shell or an Indian refinery group.  Regardless, the refining sector should see increasing strength. See the graphs of Valero for YTD and the past 6 months close-up.  It might be a stock you will want to research.

Valero VLO 6 Mo - 10-26-2011

Valero VLO YTD - 10-26-2011

Also from “Snatch and Grab It” comes First Solar (“FSLR”) but not as a buy!  Listen to our show Thursday for the full story.

In overnight trading (Wednesday 10:20 p.m. CST) the Asian equity markets are in positive territory. Silver and oil are going higher and gold is flat. The US dollar is down against the other major currencies.

Our US equity futures are in positive territory. The DOW futures are up 110 points, the S&P futures are up 13 points and the NASDAQ futures are up 24 points.

Not only did the European leaders not come to an agreement yesterday, they cancelled the Summit meeting scheduled for today, Wednesday the 26th. I said they were playing a game of political chicken and any misstep could spell disaster in Europe.

At least they waited until their markets were closing before making the announcement. Their markets were down over -1% on average due to the fact the meetings weren’t going well.

Our markets were already down due to some negative economic data and mixed earnings. Once the European news was released in the afternoon, selling accelerated going into the close. All the indices closed at their lows of the day, not a good sign.

After the close, Amazon came in below expectations and got crushed in afterhours trading. This will put pressure on the NASDAQ in the morning.

It will be interesting to see how investors digest the news of no solution from the European Union. As soon as it came over the wire, I took 2 broad short positions, one on the NASDAQ and one on the S&P 500.

Down Volume was in the 80s on both the NYSE and the NASDAQ and selling was broad based.  The good news is total volume wasn’t heavy. Today, you need to monitor the relationship between selling and volume.

We just broke through the upper edge of the trading range and are likely to break back below it today if selling continues. I have the support level (formerly resistance) on the S&P 500 is 1229 (see graphs), right where it closed. The technical indicators are still at overbought levels.

S&P 500 1 Yr Resting on Support 10-25-2011

S&P 500 4 Month CloseUp Resting on Support at 1229 on 10-25-2011

Only solid earnings from more than a few companies or a bailout announcement from the FED can fuel a rally. We have 51 earnings reports today on the S&P 500. Sealed Air, ADS, Sprint, Ford, Boeing, Southern Company, ConocoPhillips are just a few companies reporting. We also have many defense contractors reporting today. Our own Fort Worth based Lockheed Martin, Northrop Grumman, and General Dynamics all report today.

In overnight trading (Tuesday 10:47 p.m. CST) most of the Asian equity markets are in the red. Silver and oil are both down, but gold is heading higher. The US dollar is down against the other major currencies.

England’s equity futures are in the red. Our US equity futures are surprisingly in the green. The DOW futures are up 40 points, the S&P futures are up 4.60 points, and the NASDAQ futures are up 9.50 points.

In spite of the European overhang, our markets continued rallying yesterday on lukewarm volume. Most earnings were positive and a few provided positive outlooks. Also, heavy Mergers and Acquisition (“M&A”) activity is driving the market. Netflix reported after the bell and significantly disappointed the market. It was down -$33/share or 28% in afterhours trading.

Tuesday, Texas Instruments, Amazon, UPS, Peabody Energy, Cummins, du Pont and US Steel all report earnings. We have 43 companies in the S&P reporting today so it will be busy. We have 51 companies in the S&P reporting on Wednesday and 62 on Thursday.

Short term, the markets have been showing strength. Up Volume was in the high 80s on the NYSE. On the NASDAQ, it was in the low 90s and qualified for a 90% Up Volume day. All of the technical indicators are showing overbought readings. This means that a short-term pullback is likely. It will depend upon earnings and Europe.

If selling accelerates on high volume, this would be bearish. However, if we get a weak pullback on light volume, this would be bullish and a good entry point. Midterm, we are still in a downtrend and selling has not gone away, even with this rally.

The European rescue is heating up quickly. The banks are fighting back against the European leaders on the size and scope of losses they will agree to incur. European leaders are still trying to figure out how to avoid triggering the credit default swaps (“CDS”). This was the same scenario that caused the banking crisis of 2008 and the collapse of Lehman.

Additionally, Spain is now reporting that it will struggle to meet its deficit reduction targets for the year as their economy slows. This further threatens contagion on the continent.

In overnight trading (Monday 9:58 p.m. CST), the Asian equity markets are mixed with Japan and China both in negative territory. The US dollar is up against other major currencies. Gold is flat and oil and silver are both down marginally, partially due to the stronger dollar.

Our US equity markets are down. The DOW futures are down -29 points, the S&P futures are down -4 points, and the NASDAQ futures are down -7 points.

Go Rangers!!!

Our markets had a strong day Friday on increasing volume on hopes of a European debt solution being reached this weekend. But Sunday, no solution was reached. European leaders stated they were making progress and promised to continue to work toward a solution.

Merkel stated after the meeting “Today, we will not undertake any decisions, but will undertake preparatory work.” Translation…no agreement could be reached.

The fight is over what writedowns the EU banks and private institutions should take on Greek debt and how to recapitalize the banks quickly. Now that the Greek economy has become even worse, Germany wants larger writedowns and more private sector responsibility.

The European leaders said they have ruled out tapping the European Central Bank (ECB) to increase the rescue fund. If they hold this stance, this is not good for the Euro or the European markets. After the Greek banks, many French banks (ex. BNP Paribas and Societe General) and the German banks (ex. Deutsch Bank) have significant exposure (see chart) to Greek sovereign debt.  The 2nd Summit is on Wednesday.

Greek Bank Bondholders

In response, the Euro is weaker against the other major currencies. Our equity futures are down.

I hate to say our markets are dependent on a European solution, but they are, especially the financials. This is probably why the FED is throwing around another stimulus plan even though some of the economic indicators are slowly recovering.

Even though the strong showing Friday may lead investors to believe we have bottomed out, the internals tell a different story. Selling has not abated, and has remained strong throughout this rally along with the increase in buying. In fact, over the past few weeks investors have pulled billions out of equity mutual funds. This demonstrates distribution (selling) rather than accumulation (buying).

You should remain cautious and any buying should be selective. In lieu of a stimulus announcement by our FED, earnings are the only thing that could drive our markets higher. Thus far, they have been mixed. Among the companies reporting earnings today are Caterpillar, Texas Instruments and Netflix.

In overnight trading (Sunday 9:00 p.m. CST) the Asian equity markets are in the green. The US dollar is up against the other major currencies. Silver and oil are both up marginally, and gold is down marginally.

Our US equity markets are in the red. The DOW futures are down -35 points, the S&P futures are down -5 points and the NASDAQ futures are down -8 points.

Investors around the world are waiting on an EU decision. The Asian and European markets sold off yesterday as fears about a solution were put on hold. Our markets were all over the place but were more fortunate than the foreign markets.

The good news is our markets came off their lows of the day and closed near their highs of the day. The DOW and S&P finished in positive territory, but the NASDAQ closed in the red. Our markets are trying to find direction, but very time they try to rally, new sellers enter the markets.

Up Volume was in the mid 60s on the NYSE, but Down Volume barely won on the NASDAQ registering in the low 50s. Total volume was unimpressive on both exchanges. Compared to the recent volatility, it was a dull day.

The internals of the markets are weak right now after bumping up against the upper trading range. Until we get buying with an increase in volume, a sustainable rally is unlikely. However, this could happen if Europe agrees on a fix (even though it won’t work in the long run).

If the markets do rally, energy stocks should do well. On the radio show today, John Sheely, a commodities and forex trader, was talking about the high profit margins with the “crack” spread by refiners. Companies like Tesoro and Valero are worth examining.

But again, unless there is an agreement in Europe, the markets will struggle to go higher. In fact, they will likely go lower and selling could accelerate. Pay close attention to volume, that will be the key.

In overnight trading (Thursday 9:20 p.m. CST) the Asian markets are mixed. Gold, silver, and oil are all in positive territory. The US dollar is flat against the Euro the Yen , but down against Pound.

With the exception of the London exchange, the European futures are in negative territory. Our US futures are in positive territory. The DOW futures are up 29 points, the S&P futures are up 3.2 points, and the NASDAQ futures are up 6.75 points.

I had been constructive to the stock market recently. I thought that the market participants were looking for any excuse to buy. The Nasdaq 100 had shot straight threw the September highs and the SP500 was at least trading very close to its high and looked ready to go through that heavy resistance level as well, but then there was Apple.

All charts from TradeStation the flagship product of TradeStation Technologies, Inc.

The decline of Apple (AAPL) below 400.00 is disappointing, especially for those who just bought at 425 betting that it would go to 500.  I am not sure if this sell off is the start of something serious or just a one day decline that will quickly run into new buyers. Considering it is Apple, buyers may come in quickly in the 380-390 area.

This means the stock market may find a base in the next few days and begin to move higher again next week. If the SPY closes below 117 this would cancel my viewpoint. I do not think we would go into an enormous bearish trend, if we break 117 in the short term. I think such a disappointing close would tell us we have a very wide trading range that would last several more months. However, my bet is still that we have the potential for higher prices later this month.

Gold Update

All charts from TradeStation the flagship product of TradeStation Technologies, Inc.

I had mentioned last week that the gold market would try another bear run later in the month of October. We are in that run now. Bulls have their fingers crossed that the 1,575 level will hold. It may, but we have a new bearish trend in place and such a market will most likely test the 1,500 level, if we break below 1,575. This is why I advised our listeners who were in gold to reduce their long positions. There are new risks entering this asset class and we must accept this new reality.

YCS Update

All charts from TradeStation the flagship product of TradeStation Technologies, Inc.

I was dead wrong on betting that the Japanese Yen would decline in value and send this inverse ETF higher. We did get a one-day pop out of it and the active trader could have taken partial profits, but the investor would have held the position. As you can see, prices fell back to hit the breakeven stop I advised so no harm no foul, but no gain either. It is on to the next trade idea.

Have questions? Email John at john@thewallstreetshuffle.com

When push came to shove, Germany and France just didn’t quite see eye to eye and walked away from the table. Germany feels the private sector, the banks and institutional investors (pension funds etc.), should accept bigger losses. The French don’t want bigger losses for the private sector as their banks have bigger exposure to Greece. Either way, taxpayers will ultimately have to “recapitalize” the European banks in the form of bailouts.

Our markets didn’t like the news. With the exception of the NASDAQ being down all day due to Apple missing earnings estimates, the DOW and S&P were in positive territory until afternoon trading. When all was said and done, all 3 indices closed near their lows of the day… not a good sign.

Down Volume was in the low 80s on the NYSE and in the high 70s on the NASDAQ. Total volume was down on the NYSE, but up significantly on the NASDAQ. Therefore, it was a “distribution” day on the NASDAQ.

Amid stocks giving disappointing news on either earnings or forward guidance were American Express and EBay. The overall tone of this earnings season thus far is one of a slowdown and downward revisions going forward.

I stated in my newsletter yesterday that I purchased the ProShares Ultra NASDAQ 100 (QLD) because of the news of a big European bailout and expectations of good news from Apple. Once Apple disappointed, I stated I would reverse the trade (cover and move to cash) if the market showed weakness today.

That is exactly what I did. The NASDAQ opened down around -17 points, but then drifted higher in the morning as the overall market was gaining strength, and at one point was down only around -5 points. Then in early afternoon, selling on heavier volume began to enter the markets and I quickly covered (sold) my position in QLD. The NASDAQ finished down over -53 points, or -2% so it turned out to be the right move.

There are a lot of undercurrents for the weak markets. Inflation is coming in hot and company news is coming in weak. Mortgage applications were down -15% from last week. But the real wildcard is Europe. Until Europe formalizes a plan, the markets will continue to sell off.

In overnight trading (Wednesday 10:55 p.m. CST) all the Asian equity markets are in the red. Gold, silver, and oil are all in negative territory. The US dollar is flat against the Yen, but up against the Euro and Pound.

Our US equity futures are in the red. The DOW futures are down -6 points, the S&P futures are down .25 points, and the NASDAQ futures are down 1.50 points. On the brighter side, they have recovered from earlier levels.

The Producers Price Index (PPI) came out hot indicating there is in fact inflation coming through the system. The markets began on a sour note yesterday and looked to be a follow through down day. We had a mixed bag of earnings. Even though a few banks had some good news, it was primarily due to accounting gains. Goldman Sachs actually had a loss.

Technology was also mixed. Yahoo’s profit came down but still beat estimates as did their revenue. Intel beat forecast and guided higher going forward. But Apple surprised everyone, including myself, by missing earnings and revenue expectations.

But buying entered the market as the European meetings went on throughout the day. Late yesterday afternoon with an hour left in trading, France and Germany are “ready to agree on a 2 trillion Euro rescue fund” according to the Guardian (London) as part of a “comprehensive plan” to solve the debt crisis. This comes as rating agency Moody’s warned it might review France’s AAA rating.

France’s sovereign debt yields have been rising quickly so Germany and France had to move quickly. The problem is Moody’s is reviewing France due to their rising cost of bailing out other Eurozone countries and its own banks.

Overall volume increased by double digits from Monday’s selloff on both exchanges. The NYSE qualified for a 90% Up Volume day, and Up Volume on the NASDAQ was in the mid 70s. The NASDAQ, has however, broken through its 2 month trading range and resistance (see charts). The DOW and S&P still have yet to break out of their trading range, but are fast approaching that level.

NASDAQ (Year to Date) Breaking Through Resistance on 10-18-2011

NASDAQ (2 Month Trading Range) Breaking thru Resistance on news of the $2 Trillon EU Bailout 10-18-2011

Make no mistake, this is due to stimulus and bailouts, not to economic strength which is reversing. Once the 2 trillion European bailout trial balloon was announced, the market began going higher into the close on increasing volume.

In response to  the European bailout and because of my (incorrect) expectations of Apple beating estimates after the bell, I purchased the ProShares Ultra NASDAQ  100 (QLD) just before the close.  I had a profit 10 minutes later at the close, but it went against me in afterhours trading.

It is a trade, nothing more. If we don’t have a positive, follow through day in the morning, I will quickly unwind this trade. Cash is still king due to the all uncertainty and I still hold a lot of cash.

In overnight trading (Tuesday 9:38 p.m. CST) the Asian equity markets are mixed. The US dollar is down against the Yen, and essentially flat against the Euro and Pound. Gold is in positive territory, but silver and oil are down.

Our US equity futures are also down. The DOW futures are down 37 points, the S&P futures are down 6.25 points, and the NASDAQ futures are down 21.75 points. If things hold overnight, I will likely be unwinding my trade quickly.

The initial euphoria of the European bailout party is now coming to an end with the realization that the EU is in serious trouble. It is the morning after hangover. The EU is talking about 30% to 50% haircuts for the banks and institutional investors holding Greek bonds.

German Chancellor Merkel and Finance Minister Schaueble  stated there wouldn’t be a complete solution by the end of the Summit and implied the crisis could go well into next year. In fact, Merkel’s office dashed what it called “dreams” that the October 23 Summit would be the final word and solution to the crisis. The European markets didn’t like the news one bit and quickly reversed.  Merkel and French President Sarkozy are supposed to provide specific details of a solution by this coming Sunday.

In the US, earnings reports came out today also disappointing investors. Wells Fargo earnings were weak and even though Citibank’s earnings beat estimates, if you take out a onetime accounting gain, their earnings were weak as well. IBM came out after the bell missing their 3rd quarter revenue numbers. This will likely not bode well for the technology sector at the open. Thus far with a few exceptions, earnings and revenue have been going in the wrong direction. Additionally, the Empire Manufacturing number came in below expectations also confirming a slowing economy.

In response, our markets had an ugly performance yesterday with all the major indices down about -2%. Breadth was widespread with decliners beating advancers by 4 to 1 on both the NYSE and the NASDAQ. Down Volume was in the low 80s on the NASDAQ and in the high 80s on the NYSE. Therefore, selling was widespread. The only good news was total volume was light.

We have come quickly to the top of our 2 month trading range and are reversing at resistance. The internals of the market are much weaker than the price advance indicates.

Coca Cola, Bank of America, Johnson & Johnson, and Goldman Sachs are among companies that all report today either before or during market hours. Intel and Apple report after market hours. This is a broader spectrum of companies reporting and will provide better clues as to whether earnings and revenue are, in fact, reversing the upward trend.

We also have the National Association of Home Builders (NAHB) Housing Market Index that will likely confirm the housing market is still weak. The Producers Price Index (PPI) also comes out providing clues on inflation.

Without evidence to the contrary, not only is our US economy, but the global economy slowing. China just reported their GDP number and it came out slightly below expectations at 9.1%. Other emerging market economies are slowing at a faster pace. We cannot rely on emerging market economies bailing out industrialized countries.

What does all this mean to you? It means we probably have lower to go. Holding cash and utilities (low beta stocks with high dividends) is prudent. In addition to cash and utilities, I also own a bullish US dollar ETF (UUP), and gold and silver as I expect more bailouts/stimulus in the near future.

Does it seem contradictory to own a strong dollar fund and gold and silver at the same time? In the short term, maybe. But in the midterm especially as Europe deteriorates, there will be a flight to quality and the fear trade will be back on. I believe you will see investors rush into both the US dollar and gold and silver. During times of crisis, they tend to be positively correlated.

In overnight trading (Monday 10:30 p.m. CST) all the Asian equity markets are in the red. Gold is up, but both silver and oil are continuing to pullback. The US dollar flat against the Yen, and down against the Euro and Pound.

Our US equity futures are mostly down. The DOW futures are down 28 points, the S&P futures are down 1.75 points, but the NASDAQ futures are up .50 points. We may get a bounce after yesterday’s selloff, but without a stimulus announcement, the market will have difficulty climbing significantly higher despite what pundits are saying about cheap valuations.

A momentum indicator that attempts to gauge supply and demand by determining whether investors are generally “accumulating” (buying) or “distributing” (selling) a certain stock by identifying divergences between stock price and volume flow. It is calculated using the following formula:

Acc/Dist = ((Close – Low) – (High – Close)) / (High – Low) * Period’s volume

Investopedia explains Accumulation/Distribution:
For example, many up days occurring with high volume in a downtrend could signal that the demand for the underlying is starting to increase. In practice, this indicator is used to find situations in which the indicator is heading in the opposite direction as the price. Once this divergence has been identified, the trader will wait to confirm the reversal and make his or her transaction decisions using other technical indicators.

Read more: http://www.investopedia.com/terms/a/accumulationdistribution.asp#ixzz1b01AlikP

The G-20 finance ministers just warned the European Union to fix their crisis fast or endanger the world economy. They have been given 1 week to fix their debt crisis.

The big banks, primarily European banks, are balking at accepting bigger losses on Greek debt suggested by the EU as part of the solution. The banks want more bailouts (by taxpayers) and the EU wants investors and banks to accept more losses.

Things are coming to a head quickly and it will be an interesting week to say the least. Asian stocks are currently up in overnight Sunday trading as hints of a EU solution are hitting the news wires. Namely, a 50% write down on Greek debt and significant bailout money. The problem is, any solution thus far isn’t be nearly big enough without even more major losses and write-downs, or major printing. Nevertheless, the markets seem to like it.

Getting to our markets, Friday retail sales came out ahead of estimates, which trumped Spain’s downgrade by S&P. Our indices had a strong day on Friday, but again volume was light. The below average volume registered at 3.6 billion shares traded on the NYSE composite.

And while it is true the markets have rallied strong the past 2 weeks from their low on October 3rd, volume throughout this rally has been lacking. Light volume rallies imply lack of conviction or participation, especially with investors. Most of the volume is represented by institutional traders.

When comparing the markets after the correction in 2010 to our recent correction, there are marked differences. We witnessed accumulation (buying) after the 2010 correction, but during and after this recent correction, it thus far has been distribution (selling). Remember, some of the strongest rallies are during bear markets. We are thus far still in a bear market.

The accumulation/distribution measure is looking for the supply and demand to determine whether investors are accumulating (buying) or distributing (selling) stocks/indices. In particular, we are looking for a divergence in the price versus the volume. When you get divergences, reversals are much more likely.

Right now, our indices have been demonstrating distribution even though prices on the indices have been going higher. This doesn’t mean prices won’t go higher, just that the risk is elevated. For those of you interested in the technical aspect of accumulation versus distribution, I have attached the simplest technical definition and formula by Investopedia, (Click Here).

In overnight trading (Sunday 9:50 p.m. CST) the Asian equity markets are in positive territory. Silver and gold are essentially flat, but oil continues to go higher. The US dollar in up against the other major currencies.

Our US equity futures are in the green. The DOW futures are up 58 points, the S&P futures are up 6.50 points, and the NASDAQ futures are up 9.25 points. We will likely go higher but momentum is waning.

If you intend to go long, be sure it is a momentum or trend trade, and be ready with an exit strategy. Either a stop loss or protective put would be my recommendation. Until we see volume enter the market with buying, the internals remains weak.

S&P just downgraded Spain’s debt putting pressure on the Euro. Good news if you are short the Euro, but bad news for European stocks.  Additionally, Singapore cut its growth forecast putting pressure on the Asian stock markets and ending their 6 day winning streak.

Our markets had a choppy day yesterday finishing with mixed results. Both the DOW and S&P were down, but the NASDAQ finished positive. However, breadth was negative on both the NYSE and the NASDAQ, and the NASDAQ was skewed by a few large stocks, namely Google and Apple.

The good news is the indices came off their lows of the day staging a rally in the afternoon. The bad news is more signs of a global slowdown is becoming evident. Besides the eroding fundamentals, our markets are technically oversold.

The banks had an especially tough day with Bank of America down -6% and JPMorgan Chase losing -5%. The banking sectors in both Europe and America are in trouble. Historically, the banks lead or at least participate in any sustainable rally.

With the exception of some technology stocks like Google, earnings and revenue are reversing the trend and are slowing. I would expect to see a further pullback in our markets. Also expect to see the US dollar strengthen.

This will put pressure on commodities. But it will also put pressure on the Central Banks of the World to do what they do best, print.

In overnight trading (Thursday 9:43 p.m. CST) the Asian equity markets are in negative territory. The US dollar is flat against the Yen, but up against the Euro and Pound. Silver is down and gold is flat.

Our US equity futures are in negative territory. The DOW futures are down -16 points, the S&P futures are down -2.60 points, and the NASDAQ futures are down -.75 points.

Famous economist Nouriel Roubini came out yesterday and said “the question is not whether or if there is going to be a double dip (recession), but whether it’s going to be mild or severe with another financial crisis.” He went on to say the 440 billion Euro bailout isn’t nearly big enough. He said the European bailout will have to be in the neighborhood of 2 trillion Euros (2.7 trillion $US).

The European countries had enough problems just getting the 440 through, and are still waiting on Slovakia’s 2nd vote for approval. The European people are getting tired of bailing out financial institutions and spendthrift countries. More bailouts will be much more difficult to pass. Therefore, over the next few months, watch for problems in Europe to continue finally coming to a head.

The markets, however, liked the fact that the Slovakian government said they will likely pass the increased bailout on their 2nd vote. The European markets were up solidly yesterday, and our markets followed suit.

It was a broad based rally with solid breadth with advancers beating decliners by 4 to 1 on the NYSE Up Volume in the high 80s. Breadth was less than 3 to 1 on the NASDAQ and Up Volume was barely in the 80s. The NASDAQ therefore demonstrated the most weakness.

Even with the gains our markets did, however, sell off in the last hour of trading (see DOW 1 Day Chart). We climbed to the top of the trading range established over the past 2 months, and after hitting resistance (see DOW 2 Month Chart), reversed course with the DOW giving back over 100 points.

DOW 1 Day - Reversal Last Hour 10-12-2011

DOW 2 Month Trading Range Hitting Resistance 10-12-2011

I agree with John Sheeley, we are likely to pullback over the next few days. Only if we get strong buying volume and break through resistance would I change my posture. Hold off on any buying until we either get a solid pullback, or break out to the upside of this trading range. The wildcard is obviously the FED.

In overnight trading (Wednesday 11:03 p.m. CST) the Asian equity markets are in positive territory. The US dollar is down against the Yen, up against the Pound and Euro. Gold is in positive territory, but silver is down marginally.

Our US equity futures are essentially flat. The DOW futures are up 5 points, the S&P futures are down -.25 points, and the NASDAQ futures are up 1.50.

In the last market review, I wrote that it appeared the odds were increasing for the chance of a short covering rally in the stock indexes and that we would be testing the September highs relatively soon. There is a joke about a blind hog somewhere in the Texas lexicon, but in this case, the market did make such a move. The title of this article asks the important question. Now what?

All charts are from TradeStation, the flagship product of TradeStation Technologies, Inc.

This is a chart of what you do not want to see over the next 3-5 trading sessions. A correction of the recent advance should occur soon, unless there is a big news surprise that is very positive for the economy. After this correction, the market will make another run to test the September highs. If we are unable to break above this level, then watch out if near-term support is broken. This could create another sell wave to break below the 1,150 area in the SP500 indexes.

All charts are from TradeStation, the flagship product of TradeStation Technologies, Inc.

Let us think happier thoughts. The run from the lows was so strong it appears the market is looking for any excuse to rally above the overhead highs. After a small set back, look for a real test and break through the 1,230 level. This will potentially cause a very nice short covering rally. That is my preferred bet for the next two weeks, but Washington may throw in a surprise.

Out of the Box

All charts are from TradeStation, the flagship product of TradeStation Technologies, Inc.

This is an inverse ETF for the Japanese Yen. If the Japanese Yen loses value, this ETF will rise. That is exactly what I think it will do over the coming two weeks. Intervention was at the wrong time in August. If there is an effort to intervene and weaken the currency this time, the major quantitative funds will be buying and this will send this ET much higher. A move below 13.50 cancels this viewpoint.

Have questions? Email John at john@thewallstreetshuffle.com

All European Union countries must vote and give approval to expand the European Financial Stability Facility bailout to 440 billion Euros. The last country to vote and give approval, however, voted down the proposal. Slovakia voted against the expansion of the EFSF, which will hold up the next tranche of Greek bailout money.

The reason, the bill was tied to a confidence vote of the ruling coalition, and the junior coalition party voted down the bill. It is expected there will be a 2nd vote to pass at the end of this week. But political jockeying is the problem. Any misstep in individual country politics, or the European Union itself, could spell disaster.

If you are a short term trader, the banking sector should get a short term “pop” once/if Slovakia passes the bill. This trade carries risk, however, as The Telegraph (UK) is reporting that Germany is pushing for a Greek “hard” default behind the scenes. This means banks and pension funds could take losses up to 60%. If this gets momentum, the trade would be to short the financial sector.

In the long run, the EU will have to let Greece default. Again, they are just buying time to try to shore up the banks. This is why I am staying away from the financial sector all together (unless FED Chairman Bernanke announces some type of bailout). In short, there are a lot of Black Swans flying around at the moment and there is no room for political miscalculation or mistakes. Now, to the markets themselves.

Alcoa led off earnings season with disappointing news. Although profits were up from a year ago, both revenue and earnings were down from the 2nd quarter. I have said many times, both on air and in these newsletters, that this quarter would likely see a reversal in the earnings trend.

You hear all these pundits on financial TV saying how “cheap” stocks are based upon fundamentals and P/Es. However, maybe there is a reason they are so “cheap” as the market may be discounting future growth, or more accurately, the reversal thereof.

We need to pay close attention to earnings coming out because if it becomes apparent that there is, in fact, a reversal in the earnings trend, investor expectations could change quickly. JPMorgan Chase reports on Thursday. Next Tuesday will be the first big major day of reporting. We have Coca Cola, Johnson & Johnson, Intel, IBM, and Bank of America all reporting.

Technically, the markets displayed a lackluster day yesterday on light overall volume well below their 30 day moving averages (30 DMA). Total volume was slightly above Monday, but Monday was unusually light due to the Columbus day holiday in the bond market. There was no follow through day after Monday’s gains in the equity markets.

The DOW ended in negative territory and the S&P was flat. Only the NASDAQ finished in positive territory, but this was due to a few NASDAQ mega caps skewing the index. Apple, Amazon, and Baidu all helped the NASDAQ. Without Apple and Amazon, the NASDAQ likely would have been in negative territory too.

The markets are “overbought” and are in need of a breather. Probabilities suggest a pullback, but with all current political uncertainty, we need to watch for an acceleration in selling. Earnings will also either boost or retard the markets.

In overnight trading (Tuesday 9:57 p.m. CST) the Asian equity markets are mixed. The US dollar is up against the other major currencies. Gold and silver are both up, but oil is down.

Our US equity futures are down. The DOW futures are down -39 points, the S&P futures are down -5 points, and the NASDAQ futures are down -6 points.

All the market indices ended much higher in Monday’s trading on the promises of a European debt crisis solution by France and Germany. No details were given but German Chancellor Merkel and French President Sarkozy said they were unified and would provide details early next month. Gold, silver, and oil all followed suit and had a big day as well.

Although Up Volume was right at 90% on the NYSE, the only problem was low total volume. Total volume was down by almost 30% on the NASDAQ and over 25% on the NYSE. This is known as price/volume divergence. It is where prices of stocks go up but volume is weak.

I said in yesterday’s newsletter that today, Tuesday, or even Wednesday would be key in determining the sustainability of the rally. Demand has definitely been increasing, but supply, or selling, has not dropped off dramatically. You want to see supply shrink in order for the next leg up in a sustainable rally. Over the next few days you need to monitor selling to see if it continues to contract or begins expanding.

Luckily the bond market was closed due to the Columbus Day holiday. If the bond market was open, treasuries would have gotten hit hard with such a strong rally in stocks. It will be interesting to see how treasuries respond today.

In overnight trading (Monday 10:00 p.m. CST) the Asian equity markets are in strong positive territory. The US dollar is flat against the Yen but stronger against the Euro and Pound. Gold and silver are continuing to rally, but oil if off marginally.

Our US equity futures are in negative territory. The DOW futures are down 33 points, the S&P futures are down 4.25 points, and the NASDAQ futures are down 7 points.

The markets ended their 3 day winning streak on Friday. The S&P and NASDAQ were down -.82% and -1.1% respectively, and the DOW was down only marginally. The DOW’s smaller decline can be explained by a few mega stocks, namely Intel and Wal-Mart, up strong and therefore skewing the index.

However, we will likely get a strong bounce at the open today as Germany and France have both agreed to “recapitalize” the European banks. German Chancellor Angela Merkel joined French President Nicolas Sarkozy to persuade investors they can stop the European debt crisis from roiling global markets.

Merkel said European leaders will do “everything necessary” to ensure their banks have adequate capital. Both set a deadline of the November 3rd Group of 20 Summit meeting to provide details to address the crisis and “the structural defects in the 17-nation euro area.”

“By the end of the month, we will have responded to the crisis issue and to the vision issue,” Sarkozy said. Merkel said, “We’re determined to do everything necessary to ensure the recapitalization of our banks.”

I have only 3 questions. Although Germany has enough capital to help, what will their people say about the move? Second, where is France going to get the money? Lastly, how long will it be before there is more infighting once the details are released and countries are asked to provide capital.

This is another example of news driving the markets in the short term. The politicians are trying to “talk up” the markets, but in the long term, nothing has changed.

On a negative note, short selling has been increasing worldwide to the highest levels since 2006. According to Data Explorers, a London-based research firm compiling data for Bloomberg, short selling “climbed to 11.6% last month from 9.5% in July.”

This may actually be good news for bulls though as with any bounce, you will get a “short squeeze.” This is where short sellers have to cover their shorts thereby accelerating any rally.

Either way, it will be an interesting week. Even though we are in a bear market, you can have strong bull rallies within a bear market. Tuesday and Wednesday will determine whether this is a longer rally within a bear market, or simply a bounce that has lost its steam.

In overnight trading (Sunday 9:40 p.m. CST) the Asian equity markets are mixed. The US dollar is up against the Yen, but down against the Euro and the Pound. Gold, silver, and oil are all in positive territory in Asian trading.

Our US equity futures are in positive territory. The DOW futures are up 103 points, the S&P futures are up 10.70, and the NASDAQ futures are up 23.75 points.

We have now had a very impressive three-day rally from the lows made early this week. The question now is whether we have moved high enough to avoid an immediate re-test of the lows or have we started a price run that may actually last into the month of October? Unless we have dramatic bearish news, I feel we may have survived a severe sell off and we may actually see a short covering rally into next week.

Chart provided by TradeStation, the flagship product of TradeStation Technologies, Inc.

We very well may have a few down days to add some spice to the trade, but I believe we have enough clearance from the lows that a little selling pressure will not turn into a waterfall. For this scenario to have a better chance of being correct, the 10,700 level needs to hold.

However, do not get too bullish quite yet. We have to clear the very heavy resistance of the past 4 weeks before we can start to recheck our 401k statements.

Chart provided by TradeStation, the flagship product of TradeStation Technologies, Inc.

A rally in the stock market later this month may help the US dollar correct its recent bullish advance, but any decline in the US dollar should be viewed as a correction in a bull market at this time.

Chart provided by TradeStation, the flagship product of TradeStation Technologies, Inc.

Finally, we have gold. You can see how well gold has found support along this moving average channel in the weekly chart. Will it hold again? It has so far, but do not think the bulls are in the clear. We probably will see the market take another test of the 1,500 level later this month.

Have questions? Email John at john@thewallstreetshuffle.com

The markets continued their rally yesterday for the 3rd day after the brutal selloff. Advancers beat decliners by 5 to 1 on the NYSE and 3 to 1 on the NASDAQ. Total volume was down from Wednesday but still healthy.

We just qualified for a 90% Up Volume day on the NYSE and registered in the high 80s on the NASDAQ. Although the percent gains were slightly higher on the NASDAQ, the internals were actually weaker.

Demand has been strengthening but supply has not been weakening. The the rally is likely to be short term in nature. If demand slows at all, you will see a reversal in the markets. The spread between demand and supply has to widen for a sustainable rally.

Fundamentally, this rally has been based upon a “solution” in Europe. Their recent solution is for each country to guarantee each the other’s sovereign debt. Italy would back Portugal, Spain would back Ireland, etc. The problem is all of these countries are struggling with their own debt. It would be like a bankrupt company cosigning a loan for another troubled company. This is what the European finance ministers are actually proposing.

One big problem is that Germany hasn’t committed to this. Germany is the only economy with enough strength to make a difference. Without Germany, these are hollow promises.

Instead, Germany and the International Monetary Fund (IMF) have proposed that the IMF buy sovereign debt from countries. Yet the IMF gets their money primarily from the European nations and from the United States. This is circular reasoning. This is a way for the FED to come in through the backdoor via the IMF and bailout Europe, putting taxpayers at risk, but not formally bailing out Europe. It is simply providing capital to the IMF.

This means there will be more printing by the European Central Bank (ECB) and our FED. England has already started by announcing a stimulus package of 75 billion pounds (115 billion $US).

This will only be bullish for gold and silver and both had positive day on the news. Precious metals will remain in a primary uptrend rather than just a rally.

Back to our equity markets, earnings estimates of companies are already being massaged downward for most sectors. Day to day, there is not much correlation between stocks and earnings. It is primarily news driven. But longer term, there is a strong correlation between earnings and stock prices.

The bottom line… expect more bailouts and stimulus from both the US and Europe. Expect volatility to continue in the short term with swings, and big up and down days. The short term will tilt toward a rally if Bernanke announces a stimulus package. If not, the trend after this short-term rally is down.

In overnight trading (Thursday 9:50 p.m. CST) the Asian equity markets are in positive territory. Gold and silver are also in positive territory. The US dollar is weaker against the Yen and Pound, but stronger against the Euro. Expect the Euro to continue to come under pressure. Even ECB President Trichet said “the Euro will be around in 10 years” trying to talk up and bolster confidence in the Euro.

Our US equity markets are down modestly. The DOW futures are down -16 points, the S&P futures and NASDAQ futures are both flat.

The European markets all had a big day yesterday. Their rallies were based upon European leaders agreeing to recapitalize their banks. It is not about Greece at all, but the banks.

European leaders are trying to buy time with Greece so they can strengthen the banks. Once this is accomplished, Greece will be allowed to go bankrupt. Bankruptcy is imminent for Greece, just the timing that is in question.

Although not nearly as strong as the European markets, our market followed suit posting solid gains with a positive follow through day after Tuesday. The NASDAQ displayed the strongest gains well over 2% with Up Volume in the high 80s. The NYSE gains were in the neighborhood of 1 3/4% with Up Volume in the high 70s.

Breadth was positive with advancers beating decliners by 5 to 2 on the NYSE, but surprisingly, only by 2 to 1 on the NASDAQ. Total volume decreased significantly from Tuesday, but this is not alarming as Tuesday’s volume was unusually heavy. Total volume was still above its 30 day moving average (30 DMA).

There is not any significant resistance for at least a few 100 points on the DOW, so we may have legs to this rally. You still need to remain cautious, though, as the economic data is weak and getting worse. This likely will be a short term rally in a bear market. Remember, the strongest rallies actually occur in bear markets.

This rally is based upon bailouts to the European banks and the belief that more stimulus in the US is on the way, and not because of a strong recovery and expanding demand. Initial Jobless Claims and the US ICSC (International Council of Shopping Centers) Chain Store Sales come out today and will provide clues as to which way the recovery is trending.

In overnight trading (Wednesday 9:04 p.m. CST) all of the Asian equity markets are in strong positive territory (Chinese markets are still closed due to holiday). Gold, silver, and oil are all flat. The US dollar is down marginally against Yen, but up against the Euro and Pound.

Our US equity futures are in the red. The DOW futures are down 16 points, the S&P futures are down 2.25, and the NASDAQ futures are down 15.

The markets started the day on a very negative note and the DOW was down 250 points but regained some of the losses during the early afternoon. Then sold off again, but had a strong reversal  in the last hour of trading.

The near vertical ascent saw the DOW close up 153 points (see graph). The range was over 400 points, but the reversal was not on any substantive news, just rumors of a European agreement to bailout their banks.

DOW 1 Day - Reversal Last Hour 10-4-2011

All of major indices displayed this similar pattern with the NASDAQ being the strongest. Down Volume was the victor throughout the day until the final hour. Up Volume quickly won with the reversal. Up Volume was in the mid 80s on the NASDAQ and almost 90% on the NASDAQ. The small and mid cap indices displayed even more impressive gains.

Total volume increased across the board with over 6.7 billion shares traded on the NYSE and almost 3 billion shares traded on the NASDAQ. This is an increase of almost 20% on the NYSE and over 20% on the NASDAQ.

During the morning trading, the DOW blew through 2 levels of support – 10,575 and 10,440. The reversal not only brought the DOW above both of these important levels, but brought it back above the lower support of the trading range it has be locked in over the past 2 months.

The real question is whether this reversal is sustainable. The answer will lie in any follow through on strong volume. The absence of strong volume to the upside would indicate we are headed lower in a continuation of the bear market.

If we get strong buying volume, this would indicate we have established a short term bottom. If you are an active trader, you will be able to take advantage of a short term move to the upside. Longer term investors still need to remain cautious.

We are entering earnings season, and in my opinion, earnings are going to come out weaker than the previous quarter in most sectors. Without more stimulus, the economy will fall back into recession.

You should remain defensive. Utilities remain one of the strongest overall sectors while the banking sector remains the most uncertain and risky. This is due to pending lawsuits by states over the subprime mortgages and exposure to Europe.

In overnight trading (Tuesday 10:10 p.m. CST) most of the major Asian equity markets are in the red (China is closed due to holiday). The US dollar is down against the Yen, but up against the Euro and Pound. Gold and oil are both up, but silver is down 1/4%.

Our US equity futures are in the red. The DOW futures are down 24 points, the S&P futures are down 2.50 points, and the NASDAQ futures are down 3.50 points.

It was a rout yesterday on heavy volume and selling was widespread. Breadth was extremely negative with decliners beating advancers by 9 to 1 on the NYSE and over 8 to 1 on the NASDAQ. Once again the only place for cover was the US dollar and gold. This time silver was in the green as well.

It is unusual for gold and the US dollar to go up in tandem, but the fear trade is back on in force. Problems in Europe and a slowing Chinese economy are weighing on the markets.

We qualified for a 90% Down Volume day with Down Volume over 95% on the NYSE and in the mid 90s on the NASDAQ. We broke through support levels on all 3 major indices, and broke through the trading range we have been in the past 2 months.

Whenever you break through support, it is important to rise back above support quickly on strong volume. Otherwise, it usually means we have further down to go.

The next support level is around 1040 to 1050 on the S&P and 10,575 on the DOW both going back to August of 2010. After that, the next support on the DOW is 10,440. I have attached charts of both the S&P 500 and the DOW so you can visualize the support levels. I also attached close-ups so you can see both indices just breaking through their 2 month trading ranges.

S&P 500 (14 Month) Breaking Through Support and Trading Range 10-3-2011

S&P 500 (3 Month Closeup) Breaking Through Support and Trading Range 10-3-2011

DOW (14 Month) Breaking Through Support and Trading Range 10-3-2011

DOW (3 Month Closeup) Breaking Through Support and Trading Range 10-3-2011

In overnight trading (Tuesday 12:20 a.m. CST) the Asian equity markets are again in the red. Gold and silver are both up, and oil continues to sell off. The US dollar is up against the Yen, but down marginally against the Euro and Pound.

Our US equity futures are mixed. The DOW futures are down -26 points, the S&P futures are up 4 points, and the NASDAQ futures are up 5.25 points.  Again, if we do get a bounce, it needs to be on heavy volume to be sustainable.

On a side note, the CME just raised margin requirements on both copper and platinum. Look for both metals to come under even more pressure today.

A great illustration on how corporations take control of countries, and how capitalism drives the expansion of the Military Industrial Complex.