Intermediate Top Alert

Stock markets fell last week as concerns over a new virus swept the globe.  S&P 500 index fell nearly 70 points to close at 3,225.52.

Those who follow Elliott Wave counting have been looking for an end to the current wave up, so a down move has not surprised some.  For others, fear that the market's current stretch is overdone, has caused concern.

As the chart shows, price has dropped down to break through the stop-loss marker generated by the Wilder's Parabolic indicator.  a break below the stop loss indicator signals the investor to sell the position and reverse course, using a new stop indicator that begins to form stemming from the last high price.  A closer examination of this chart SPX Parabolic Chart shows that in sideways markets, it could cause one to sell at the bottom only to rebuy at the top.  

Looking at the daily chart, with a Bollinger Band, one can see that price has reached the bottom of the band, for some, that could indicate an oversold level and a buy.

When I look at such a situation, I begin tracking the standard deviation which can be seen in this chart on the indicator BBW.  This is the Bollinger Band Width.  As the Bollinger Band width increases, it tells me that volatility is increasing and I want to stay with the trend.

We can also see that the other times that price has hit this lower level of the bands, it rebounded and stocks continued along on their merry way, ever higher.  A difference that we may see now is that there has been real economic damage as a result of the virus.  China is being sealed off as neighboring countries close borders and airlines cancel flights to China.  The potential economic effects of the situation has not been lost on bonds which continue to rally towards the highs.

Bonds have been rip-roaring for the past two weeks and appears to be headed much higher.  That said, having a proper asset allocation in your investment portfolio should help you should stocks continue to fall.

Also, Gold has been a key performer.

And while I have been touting Gold and Silver for awhile now, few have gotten on board neither participating in normal market accounts through exchange traded funds such as GLD and SLV, or through outright physical purchases.  

Both bonds and precious metals have moved opposite of the market offering a balance in a diversified portfolio.

Lots more market action to come this next week.  How you want to position yourself depends upon your overall outlook.

Very Long Term Outlook SPX  This link takes you to my TradingView market charts page.  I encourage you to go there and follow my thoughts as we go through the market gyrations.  In this long term outlook, with prices going back beyond 1929's great depression, one might see that the market outlook appears to be on track to advance for decades to come.  

On the intermediate term however, the first SPX chart shows my expectations for the next week.  Prices should rally to test the weekly highs.  If we fail to exceed the highs, I expect that prices will fall back.  How deep the correction will be is hard to say but from past experiences with such tests of the high, a failure usually brings about a significant decline.  My first expectation is a move down to the 3100 level by March option expiration.  I will be planning to purchase put option spreads, through March expiration, to capture this expected move.  But as in the past, these setups have more often than not played out as events such as the Fed adding liquidity or the President pounding the table to buy have overshadowed normal expectations.

It's hard to imagine that the market will be able to get any traction on the downside, at least not until after the elections in November.  But considering that many investigations into Trump, culminating with an Impeachment trial have yet to get Trump out of office, perhaps the only way would be to destroy the economy so prevent his reelection.  

The president appears to be extremely vigilant though of this possibility and his immediate criticism of the Fed when they tried to raise rates shows that any actions by others to hurt the market are quickly addressed.  While this time may be different, I expect that news that an antidote for the virus has been found and off to all time highs - again.  

What do you think?  It will be an interesting week in the markets for sure.

Be sure to visit my Trading View site at https://www.tradingview.com/u/Glewis54/

Three Week Test of High Next Week

As expected, markets closed down again for the second week in a row, setting up an anticipated topping formation, a three week test of the recent highs.

Should we fail this test of the high, expect some Central Bank to come out and goose the markets again.

They'll do everything that they can to keep it going until the system collapses.

As the table shows, it appears that the world might be in line with this thought.  Silver and gold continue to be the big winners on the year.  Can you guess why?

The move to the precious metals is the obvious conclusion in the world of manipulated paper assets.
 

Market Tests Successful!!! Now What??

In my last posting, I mentioned that the coming two Fridays would be "telling" in my world.  On Friday, January 29, we would be testing the August closing low on the monthly basis.  A successful monthly test of the lows is quite rare and could indicate a long-term basing formation.

The monthly line chart shows this successful test here.  The closing low for January was not below the August low.

What does this mean?  Simply this.  If you don't look at the market on a day-to-day basis, but only once a month, at the end of the month, it is my expectation that going forward, the market will be up.

While most seem to be guessing that the worst is still yet to come, I believe that there is a good shot for the Standard and Poor's 500 index and the accompanying Exchange Traded Fund (EFT), SPY, to go to new highs.  That surely would leave most scratching their heads.

The next important test was completed yesterday with the three week test of the low.

This, being a weekly indicator, in an intermediate-term signal, where the monthly test is a long-term signal.  I can recently remember that last year, we got a three month test of the HIGH, followed by a three week test of the high and then finally a three day test of the high before the market started going down.  It was as if the market just didn't want to go down and was trying every conceivable way to continue going up. 

This is the weekly line chart showing the recent test of the low.  If you look to the left, you can see that we previously had a similar formation, a three week test of the low that marked the bottom before a rally to the top of the range.

Of note, after the last three week test of the low, the market dropped significantly the following Monday but that was it.  The market then rallied for the next 6-7 weeks.

One must keep in mind but one important thing and that is that the weekly momentum is still increasing.

My general rule is that when the Volatility Levels are increasing, you need to stick with the trend. 

This chart is the 20 week volatility measurements.  It is at its highest point and expanding.  That is a troubling indicator.

But if I look at shorter time frames, volatility is decreasing.

This is the 20 day volatility level.  And even though it appears that market volatility has been high because of the large point moves, this can be deceiving.

How else can we look at this volatility level?

One way is by viewing a chart of the Bollinger Bands. 

Look at how these bands are moving together.  From this chart, we can expect that the daily fluctuations would range between 185 and 195 on SPY, translating to roughly 1850 and 1950 on the S&P 500 index.

The weekly volatility bands still reflect the extreme volatility level.

The weekly bands show that the realm of possibilities range from 185 (we are currently at 188) to a high of 216.

The all time weekly close high was 212.99 so there is some possibility that the market could go to all time highs here.  And if it did, it would happen in a hurry as the volatility levels are high. 

If we would see the market move higher at an orderly pace, then the volatility levels would diminish and the possibility of new highs would also diminish.

SO, I think that there are exciting times ahead.  Of course, I don't know and at this moment, I have positions both for the possibility that we experience a blood bath in the market.  But given the information that I just provided, there is the possibility that the market surges to the other extreme.

Many are saying that earnings are dismal, the Federal Reserve is no longer accommodative, etc.  But for the past couple of years, I have believed that the market would collapse because the reality of the market being an actual market has disappeared.  That reality has not returned.  The market is a casino, in my opinion, with the High Frequency Traders and institutions continually gaming the system.  Even Congress can trade based on secret information they receive.  Not too long ago, a vote came up to prohibit "insider trading for Congress" but that measure was soundly defeated.

You must realize that the cards are stacked against you if you wish to be involved in the markets.  You must buy low and sell high.  If you are not willing to be nimble, then I suggest that you shouldn't really be in the markets.

The risk of collapse is too great and when the collapse does happen, there will be no way for you to escape, unless you hedge your positions.

Think about it.  If you have other sources of wealth, do you not protect them with insurance?  Of course you do.  You determine a deductible that you can afford and protect the rest with insurance.  Your investments should be no different.  You can protect yourself.

Markets Have Weekend to Mull Over Paris

Markets around the globe sold off this week with the Dow and SPX averages losing around 3.6%, ending a strong winning streak of six weeks.

While the market has provided great short term trading opportunities, especially with this week's downside action, I have not seen any signals on my momentum indicators to get me too Bearish.  The Stochastics indicator on the weekly chart above, shows that it's prudent and at least be adding some put options to any rallies, just in case.

I generally like to see three-period tests of tops and bottoms before I get secure in taking positions.  With that in mind, I would be looking for some opportunities to add call options to possibly test last week's closing price of 210.01 (SPY).

On the longer term, we can see that on the monthly chart, prices have come down to test the 20 month moving average.

Positive momentum still remains on the longer term so it will be interesting to see if this moving average holds.  One must be prepared for some kind of sell off to open the day Monday morning in light of the massacre that occurred in Paris. But more preferable would be a positive rally led by defense and bank stocks. 


As we look at the monthly chart, we can also see that there is a three period test of the low setup forming here as well.  September's close of 191.61 could be tested at the end of December, right in line with the execution of a Fed rate increase.

So my preferred scenario is that we moderate this coming week and make a push to take out the highs.  I had some short-term puts (11/13 and 11/20) that I closed out on Friday and started to nibble at some 12/4 SPY and IWM calls.  As mentioned last week, I will be looking for a higher level to make some longer term put and SDS/DXD positions.  If markets test the high on 11/27, and fail, then I would be more comfortable in loading up for Bear, establishing a position that would be closed out should we appear to be holding the 191 lows but also holding a longer dated put position targeting much lower price levels.

Current buy target, SPY 200 area.

Late Surge Pushes Markets to New Highs

Markets staged a late recovery Friday in light, pre-holiday volume to push SPY to a new high, beating the high of three days ago.  It appears that the market will make another leg higher, perhaps as high as 204-205.

Daily Size, a primary momentum indicator, also continues to expand with no signs of letting up. 

As long as my Size indicator continues to rise, one must stick with the trend.  When Size reverses, we will sell call premium above the market.

It's also possible that a topping formation, such as a failure of a test of the high, will present itself.  That would be an encouraging sell signal.  It would only mark a short term sell though as we would look for a rebound in price, in a new attempt to challenge the highs within a month.  Should a test occur and fail, At that point, we would enter into a short position in the S&P E-mini contract, expecting a sizable move down.  Until then, indicators show that there is still upside momentum that may take at least another week to resolve.

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For the week, Small Cap Growth (IWO) was the best performer, followed by Long Term Bonds (TLT) at 1.5%.  Brazil (EWZ) shot 6.5% higher.  The Brazilian Real currency (BZF) also showed strong gains,  gaining 1.7% on the week. 

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While I have started buying put spreads on SPY, and they are not faring so well at this point, my junior gold stock Allied Nevada Gold Corp (ANV) gained $0.41 to 3.82 this week, more than offsetting slippage in my put positions.

I'm wondering if hot money could be moving into the Junior Gold sector in anticipation of geopolitical turmoil.  So far, no news has been able to put a dent into the stock market but that could be because there do not appear to be ANY sellers.  There appears to be a widespread belief that should the stock market fall, the Federal Reserve will prop it up.  It's no secret that Central Banks have continued to print more money and buy stocks.  I suppose if I had a money making machine and was buying stocks, I would print more money and buy stocks on any dip. 

This could be extremely risky however as there is a general belief that if the assets held by the Federal Reserve were marked to market, it would be deemed insolvent!  One could only imagine if the Fed was buying huge amounts of securities and the market fell dramatically.  Well, I suppose that as long as we don't really know the truth, it probably doesn't matter.

But you know, the risks are pretty high.  The charade can't continue forever. 

LATE NOTE:  CENTRAL BANKS ARE BUYING SP FUTURES WITH INCENTIVES:
http://www.zerohedge.com/news/2014-08-30/its-settled-central-banks-trade-sp500-futures

SP Momentum Explodes

The statistical numbers have started to catch up with the SPY stock price movement.  While price has been drifting higher, my momentum indicator has taken off to new highs.

The rule states that as long as this indicator is rising, one must stick with the trend.  Once this indicator turns, my plan will be to sell calls/call spreads above the 200 level.

Stock Rally Continues

Equity markets paid little attention to the Central Banker's pow wow in Jackson Hole this week and pushed ahead higher all week, with a slight decline showing up at week's end.  The mid-cap growth sector led the way with a 2.1% increase.  The Dow Industrials, as measured by DIA, also rose 2.1% while SPY, an ETF proxy for the SP500 rose 1.8%.  Taiwan (EWT) rose the most in my ETF universe, rising 2.4% to increase it's year's advance to more than 13% thus far.  Thailand (THD) still tops my list for the year, having risen 20% thus far.

Viewing the price action on SPY on the weekly chart, we can see that it totally blew through resistance and appears positioned to power higher.  One would normally expect some sort of test of the resistance level before continuing higher.  I estimate that 197 would be the support level.

A weekly close at 197 though would raise a red flag on my momentum indicator.  And that is the question that I have about the current market is that despite the rapid advance to the highs, my momentum indicators both on the daily and weekly levels are not powering forward. 

This daily chart might express this best.  One can see that the 20 day moving average has flat-lined here and as volatility diminishes, I would expect SPY to trade within the 200 to 190 range for some time. 

 

Daily momentum continues to advance, albeit rather slightly, and is close to the last volatility spike that occurred in early June.  The last volatility reversal resulted in the lengthly drifting period that lasted until the recent sell off three weeks ago.

 

SIGNALS I WILL BE WATCHING FOR

 

1.  Reversal in volatility.  Should the market begin to drift, I will be selling call credit spreads above the market.

 

2.  Three-day-test-of-the-high.  Often works as a good sell signal on any time frame:  hourly, daily, weekly, monthly.   This test should occur on Tuesday. 

 

Elliott Wave bloggers I have been reading are looking for some kind of short term selloff, that they will label wave 4.  With the short term momentum still rising though, we could just as easily see a resumption of the up move on Monday as traders try to push the SP index above 2000 and the Dow Jones Industrials to record high.

 

If nothing else, the trading week should be entertaining and exciting.

 

Don't forget the many downside triggers that the market has not reacted to.  Ukraine, ISIS, Ferguson MO, Ebola, Janet Yellen, world de-dollarization, etc.  If you are still in a bull mode, it doesn't hurt to buy a little put insurance just to be safe.  For those of us who have been around long enough, we could quickly see a sudden move from the top of the Bollinger Band at 200 (SPY) back down to 190, just like that. 

 

 

 

 

SP Marks All Time Highs

After dramatically selling off several weeks ago, the equity markets have come storming back with a vengeance.  Nearly non-stop, the S&P 500 index has rallied some 90 points without barely taking a breath.  But now that we are at new highs, where are we in the cycle?  Some had expected a test of the low at the 1900 SP level.  This never happened.

I have been watching Elliott Wave technicians during this move and have found that there isn't too much agreement.  One chartist that I like is Daneric's Elliott Waves  http://danericselliottwaves.blogspot.com/.  In his post today, he shows that he expects that we are at a top for this current move up.

After a move down to iv on the chart, the SP will make one final move up to 5, marking the end of the cycle move.

Others feel that after hitting the little v mark, the market will fall back but not as far as Daneric is calling for.  They feel that there will be one more leg up taking the SP close to 2100 and then the big move down.

What most seem to agree on is that we are midway through or completing a wave iii and that there are at least two more moves coming, one down move to iv and a move up to new highs v.

My analysis is less complicated.  Last week, I was watching to see if the market would make a three week test of the high.  Although the market soared from the lows, it was far shy of the high mark.  Sometimes the three week test can turn into a four week test, so I allowed it some room to run.

Should the SP sell off tomorrow and close below 1978, some 14 points lower than today's close, that would be my sell signal. 

It's hard to say what the market will do though.  Once upon a time, there was a limit to money and credit to drive markets higher.  Now there is no limit.  On top of all the cash that the Central Banks are manufacturing, $100s of trillions of derivatives also drive the market.  That makes it hard to understand how the wave theory could really affect market movements, that is, unless everyone is watching it and making decisions based on the wave patterns they are seeing.  But the truth is, there doesn't seem to be a lot of agreement at this point of where we are in the cycle.

As for my positions, I took profits on SPY calls yesterday and missed some of yesterday's and today's move.  I have been buying put spreads since the 195 level on SPY and have been adding more each two SPY points up.  Should we rally above 200 on SPY, I will be adding still more.  That being said, I am a fan of Daneric's count, looking for a sell off to capitalize on my puts and reenter October calls. 

At the end of that rally, I hope to position myself well with longer term puts in anticipation for a larger move down. 

Test of the Highs Fails

What was expected to be an “anything goes” week turned out to be just that.  After rallying close to a strong resistance area of 167, unsubstantiated reports that Ukraine held off a Russian invasion slammed the market down hard.  As future reports indicated that if there was any such attack, Ukraine in fact destroyed their own vehicles.  The markets firmed up but could not provide enough power to push it beyond 167 to test the highs of three weeks ago.

Traditionally, a failure of the three week test of the high has been the key intermediate-term sell signal.  One might expect to see the market still try to take out the high and succeed.  Other indicators provide additional information that show that momentum may be slowing and that the market will soon sell off.

Hard to say what will happen as market participants have been well-trained to BTFD, or "buy the f...ing Dip!"  And that's exactly what happened.  Some curious notes of interest mentioned how it was puzzling that the market did not react negatively to an apparent recession occurring in Europe (as this was expected anyway), but when a news report mentioned that a Russian convoy was attacked in Ukraine, the market was roiled (as that was unexpected).  But as an earlier post mentioned, this news was out there even before the market opened.  It could be that just simply, the market hit the resistance and sold off, as many wave counters have pointed out.

 

I also like how it was pointed out that the rebound took shape in a typical Elliott Wave five wave move up.  Perhaps some downward pressure will resume.

 

One rule of thumb that I developed in Grad School was in an up market, if the market is up on Friday, buy the open on Monday and sell the close.  It generally seems to work.  However, if the market is a down market, this rule does not work.  I will be watching how the market reacts Monday morning.  Perhaps this will give me an indication as to whether we are in an UP MARKET and the market could be expected to go to new highs, or if we need to see another attack at the 190 (SPY) level.

ON THE BORDER

My morning commentary discussed how a 62% Fibonacci retracement would bring SPY to 195.48.  For most of the day, SPY attacked this level, often falling back.  In the end though, the Bulls managed to push SPY through that level, closing at 195.55.  But then as soon as the closing bell rang, after hours trading pushed SPY up.  No telling what news could have added more impetus to the already overbought market.

The next solid resistance comes just slightly above 196.00.  As we see, the level has been attacked (in after hours trading) but thus far, appears to be holding.

If you click on the chart to enlarge it, you will see that I added some small Roman numerals to indicate what some believe the current wave count is.  This move would be wave (iii) of Wave 5, the final wave, of this Bull Market move.  Estimates of the ultimate high (wave v of Major Wave 5) come in anywhere from 200 to 220.  To see some well done wave counts, I refer you to http://caldaro.wordpress.com/ or http://danericselliottwaves.blogspot.com/.

As the Stochastics indicator on the bottom of the chart shows, price action has been very strong and has been trying to roll over and fall.  If the wave count is correct, the fall will be very minor and will be a mere pause in wave (iii).  A breakout above the solid overhead line will probably mean that the market will test the highs and most likely continue moving much higher.

Part of the news today driving the markets was economic weakness in Europe.  There is no growth happening in Europe despite negative interest rates in Germany.  China's economy is also exhibiting weakness.  Based on this news, US interest rates fell dramatically today, indicating that the world will continue to be awash with cheap money.  Despite any perceived strength in the US economy, the Federal Reserve will be cautious to raise interest rates any time soon. 

The stock market is built on cheap credit and the cheap credit will be continuing indefinitely.  So hold on tight and make sure that you have some calls or other bullish position in your portfolio to take advantage of what is sure to be a quick move to new highs. 

That being said, keep a few puts on hand as well.  There are still a few in the camp that this current move is a mere part of the consolidation of the recent selloff and that the selloff will soon resume.

Good luck!

Why Stocks Can Go Higher Still

 

SPX 1,838.70

Stocks have continued to advance, virtually uninterrupted from the 2009 lows.  This rise continues despite the fact that the real world economy continues to look bleak.  While we receive data streams hinting that the economy is beginning to recover, many doubt that government numbers reflect the true picture.  There is little argument that "Main Street" continues to suffer while "Wall Street" flourishes.

Why are markets rising?  Most of us believe that the only reason is because the Federal Reserve has continued to add tremendous amounts of cash into the system.

Fortunately for us, The Federal Reserve does provide data showing us how much cash they are putting into the system.  Where does all this money go?  Much of it goes to the Federal Government through the Fed's monthly bond purchase program.  Even more goes to the banks.  Money is cheap.  One way that banks can use this money is to provide loans to businesses and individuals.  Unfortunately, with overall interest rates so low, why should banks risk capital.  Another use of Fed money is investing in markets.  We have seen this throughout most markets as cash has to be deployed - always. 

But are banks doing all that they can do with cash?

It certainly doesn't appear to be the case.  Fortunately for banks, the Federal Reserve Bank allows member banks to borrow cash and interest rates close to 0% and deposit it back at the Fed for a guaranteed return. 

It appears that the Fed has given banks the opportunity to write down their bad investments over the past few years and shore up bank capital.  I.e., continued "bail out."  It's quite possible that the banks still have devastating losses held in separate entities that aren't listed on their balance sheets.  The Federal Reserve Bank allowed banks to hold separate entities off their balance sheets. 

Recently however, there is talk that the Fed might stop paying interest on these excess reserves.  The banks warn that if this is the case, banks may start taking excess reserves held at the Fed and putting them into equities.  How high is high? 

Expect interesting times as the new Fed Chairman takes her seat at the end of the month.

Mother of ALL Head and Shoulders

Predicting that the market could fall to 7,000 a few years ago was not that much of a challenge. Anytime you get a well-formed shoulder, as happened from 1998 to 2003, and the market then takes out the high level for that period (12,000), one has got to start thinking of the head and shoulders formation. While it is often difficult to time the market top, one can remain confident in the notion that the market will eventually fall.

And fall it did. My biggest surprise was when prices continued to run through this neckline. Now, the runup we have witnessed seems incredible for many but if we view things in the context of the head and shoulders formation, it shouldn't have been improbable that the market could climb as high as 12,000. Even now, with the Dow average breaking below 10,000, if we view the trading action that occurred between 1999 and 2000, we can see that there was a relatively long-term trade range between the 10,000 level and above 11,000 almost touching 12,000.

Normally we see the right shoulder reflects the activity of the left shoulder. This means that this market formation is usually very symmetrical. Chances are we are going to see another market meltdown with the Dow average dropping down to 7,000 or lower. But an important thing to remember is that it could take three or four years for this to occur!. In the meantime, there will be great profit opportunities. But as markets again test high levels, you might want to establish short positions in equities, and perhaps selling long term puts or buying long term calls, at the bottoms. But only be selling puts against stocks that you are short.

Normally, we project the downside target of a head and shoulders formation by measuring the neckline to the peak of the head. Since this is a symmetrical formation, we can expect the price to fall by a similar amount. Notice though that the neckline to peak is 7,000 points (from 7,000 to 14,000). A 7,000 point retracement would bring the Dow to 0! Ouch. A look at a log chart though shows a price target down below the 4,000 level.

It's always good to have a long term philosophy in the overall market when positioning your trades. We will be looking or a bottom in this market move and provide some buying ideas both for individual stocks as well as for diversified portfolios. If you have a special interest in following our ideas, be sure to contact me at gary@assetdesigncenter.com to be sure that you receive all updates and ideas.

Will S&P Hold 1075?

Markets continue to drop instilling fear into all, but is this the end? Last week, I reported how the daily SP data has broken through the Parabolic Stop and Reverse (SAR) signal. It appears that today, SP weekly data is now breaking through the Parabolic SAR as well. When I view the SP data in my own market analysis system, I see indications of a continuation to the decline - accelerating momentum to the downside, increasing volatility, etc. But before I scream sell, I am going to look for some support at the 1075 level and a mild rebound to the 1110 level. At that point, should the market stall, I would guess that I will be pulling the plug and looking for additional downside opportunitites.

It's important to note that asset classes across the board are going down. There is little place to hide. If you want to have some safety, you need to understand the various risk management tools that are available. You must remember that in this liquidity driven rally, everything went up and money has been plentiful. When the fed pulls the plug and starts draining liquidity, probably every asset class is going to decline. This is no place for amateurs to be messing around. Those who dont utilize a competent money manager that has a command of all of the risk management tools available may find themselves again with huge losses. But for those who are paying attention, big gains are possible despite the market's direction.

Stock markets closed lower after rallying for most of the day. It might have been predictable that the market would grow weak at the end of the day as robust rallies continued to fade throughout the day. Markets moved into negative territory after Elliot Wave guru, Robert Prector, predicted that this is our last chance to sell with the Dow above 10,000. Bear Market & Beyond

Analysts with bullish views countered that China's rapid growth and recent moves to slow it prove that the market has further to run. But having rallied virtually straight up since March, Prector stresses that the indicators he follows show that we are in a position similar to recent market tops and that the next leg down may be dramatic.

Although the stock markets overall are down only slightly this year, it hasn't been a pretty sight for metals and other basic material stocks that rallied hard last year. In just the past two weeks, we have seen dramatic moves to the downside in many stocks. It certainly does look as if the liquidation has begun.

Euro Collapse, China Tightening Adds to Market Fears

A sharply declining Euro currency added to an announcement by the Chinese government that they would be slowing credit activity to slow their rapidly surging economy. The combination led to stock market declines across the world with US investments in foreign markets getting hit the worst.

While a losing day is never pleasant for anyone, as the table above illustrates, the US did the best ending the day just down under 1%. Keep in mind that the instruments reflected in the tables are country ETFs, priced in dollars. Normal market losses are compounded by the strengthening of the US dollar. Most invest in international stocks to protect against a falling dollar. The US dollar however, has appeared to have reached a base and as illustrated earlier today, is showing a strong move up. One must always be careful about being too heavily invested in foreign stocks, gold and other hard assets as the US Dollar always shines in the time of any world crisis. The potential for a bankrupcy in Greece appears to have started such a move to safety.

SOME WINNERS

Despite a down day, a number of stocks showed pretty good strength included State Street Corp, discussed earlier today. Archer Daniels Midland, coming in at #9 today, was upgraded by Citigroup with a new target price of $37.

Market Rumbles, Is This "THE BIG ONE?"

As Earthquakes continue to rattle the Carribean region this morning, shaky bank earnings, rising rates in China and continued weakness in the EuroFX all shook the US markets this morning. Can this be the start of "THE BIG ONE?" You know what I mean. The equity markets have been running higher and higher, non-stop since last March. Just notice how far the SP Index has run in just a couple of months? If you believe that this is normal, the you may be seriously mistaken. We have been running on fumes for a very long time; or more government stimulus and promises of eternal low interest rates. Notice though that today's market move brings the price level down to a dotted line indicating the Wilder Parabolic mark.

WILDER'S PARABOLIC

This indicator signifies trend changes. Once the price crosses through the dotted line, the follower needs to Stop-and-Reverse, meaning, sell your position and take a short position. Notice how well this indicator has worked during the two major trends in this chart. The indicator does not work well in sideways markets though. Bollinger Bands are the preferred tool in consolidating markets. Following the Wilder Parabolic would cause you to constantly be buying the high and selling the low. Thus it's important to use other tools to help you navigate the market. Still, one needs to be looking at everything and knowing the implications of various indicators.

I don't mean to be crying wolf. After all, I got out of the market in June last year and now am just utilizing interest rate and currency trades, totally avoiding the stocks. As I mentioned yesterday, my year end studies showed me nothing but overvalued stocks. I had seen this before, most notably in 1987 when I sold out and went to the Carribean for three months. My guess was correct as shortly after I left, the market crashed hard. My only exposure was to the gold market (ABX) as I thought it could be a banking crisis that would be the market meltdown catalyst.

I doubt that gold would serve as a safety trade. Again, the world flocks to the dollar.



Is it already happening? With Greece's bankrupcy threat weighing on the Euro, and perhaps other events that remain hidden, has the flight to the dollar already begun? Interest rates also are down sharply this morning translating to rising bond prices. Strong dollar? Strong bonds? Weak market? I think that the ground is starting to shake. CAN YOU FEEL IT?

Dollar Gains Highlight Week's Trading

Stocks continued trading sideways for the fifth straight week. Strength in the dollar was the main attraction but gold managed to hold it's own.

Dollar Rebounds - Weekly Market Wrap

The US Dollar posted strong gains this week perhaps reflecting optimism in the economy. Or is it that the dollar had just gotten oversold and other asset classes such as gold - overbought? Or did rising interest rates cause a move back into the dollar.



Utility stocks moved higher, with the index being the star performer of the week, gaining close to 4%.

Major US stock indices closed slightly higher, maintaining the year's. Foreign stocks, hard assets and bonds moved lower.



WINNERS AND LOSERS FOR THE WEEK

Is This The End??

Dollar gains limited asset gains today as the SP fails against strong resistance. Declines in foreign currencies and gold were supported by continued global economic weakness. This again sent the pack running for the safety of the dollar and Treasuries, which rallied today.

The SP weekly chart above shows pretty heavy resistance at current levels. We looked at this last week and compared the SP with interest rates, noting the correlations. If the charts mean anything, this could be the time when equities and rates begin to fall precipitously. Despite the claims by the government that we are now on an uptick, the truth is that much of the gains, especially in the financial sector, has been engineered by the government. Federal Reserve Chairman Bernanke commented yesterday that interest rates will remain at current low levels indefinitely. This totally snuffed out any breakout efforts for interest rates.

As I mentioned many times, the government cannot, will not allow interest rates to rise if they can help it. A sudden surge in interest rates, although inevitable, will most likely doom the US economy. They are totally out of tools here.

I can only laugh as President Obama today stated that we must spend our way to prosperity. OMG! Can he mean it? I had always had a somewhat open-minded point of view and many have even called me liberal. But I never totally believed that Democrats were totally "TAX AND SPEND." Well, my best experience was Bill Clinton under whose tenure I had the most prosperity in my life. I even worked at the government during his tenure and was happy to see the ranks of government workers and federal deficits melt away. But now I know what "TAX AND SPEND" really means. I never, in my wildest dreams, ever expected that this is what the Democrats were all about. Spend spend spend.

I am finding it difficult to hire workers. When I contacted my Congressman about what I can do when people prefer to take unemployment rather than accept a job, I have gotten no response, despite several attempts to contact him. Ummmmm, surely I digress.

Well, it's beyond me how a socialist state can see a 30% stock market gain. What do the experts see that I don't? I've been a bit fearful of the markets since 2005 and my attitude is no different. 0% interest rates going on indefinitely can only have one end effect, another market meltdown. I see that things never happen in the time frame that you expect. I am so thankful for the invention of 2x and 3x short ETFs. It's impossible to be short, difficult to buy puts and certainly, the futures are too short termed to play this concept out for the long term. Despite some of the hard knocks the ultra short ETFs have recently received, I continue to add on. Eventually, everthing is going to collapse. My only concern is that when it does, will the dollars that I win be worth anything.

Small Caps Lead Market Higher - December 4, 2009

Small cap stocks (as measured by the Russell 2000 ETF) outperformed other capitalizations this week. The markets again posted across the board gains except for bonds and gold. Small cap stocks generally lead the market higher in the initial stages of an economic recovery however restricted credit has limited growth in this area thus far.

Utilities posted strong gains reflecting hopeful economic data.



Airlines shined in recent days as traffic numbers were improved and again, signs of an improving economy and lower oil prices resulted in double digit gains for AMR and Southwest Airlines (LUV)