Weekly Wrapup - Stock Market - November 13, 2009

Mexico's a Better Bet?

It might not surprise you that the Mexican stock market, as measured by the exchange traded fund tracking the Mexican market (EWW). After all, Mexico is still considered a developing economy where stronger growth is expected. Many of us know however that Mexico's troubles are probably worse that those of the US so one might shun investing there.

I always operated under the assumption that those in Mexico would be better off changing their pesos to dollars and investing in the US. The Mexican Peso dropped some 30% against the dollar last year and with this in mind, I thought that it would be a "no-brainer" for Mexicans to keep their money up here. But surprise surprise!

Over the past three years, holding Mexican Pesos has proven to be a better strategy than investing in the SP500! Not only that, but peso accounts generally pay a much greater rate of interest than dollar investments. The Mexican Peso Exchange Traded Fund (FXM) currently offers a 3.5% dividend.

Who could have guessed???

New Highs Possible is 2010?

With most analysts now expecting the market to continue higher throughout the fourth quarter of 2009 and the first quarter of 2010, will there be any resistance left? The Fed has been said to be on hold to raise interest rates "for years".

A breakout above the trend line shown in the chart will certainly bring in a whole new batch of money. Will there ever be any resistance? Is there just too many dollars out there looking for a home? Or is the US really in great shape?

Don't Panic Yet...

Markets are beginning to fall, just as I thought they might. October can often be a fun month for Bears in the stock market and it never hurts to have some PUT positions established to take advantage of any significant downdrafts that might occur.

The market broke down yesterday but tried hard to get back to even. In the end, it couldn't hold positive territory. Today, the S&P is down 20 points to the 1037 level. A few weeks ago, we sold 1050 calls through the end of the year feeling that the 1050-1100 level is as high as we might go before running into a significant downtrend line. It's not surprising that the market should be weak. 10 year interest rates are down below 3.20% this morning and getting to 3%, also suggested a month ago, could be in the cards. Let's face it, only the bankers are making money these days, benefitting from the billions and trillions of tax payer dollars being funneled to them. Auto sales continue to be dismal, consumer confidence is dwindling, Nero whoops, I mean Obama, is fiddling in Copenhagen while the US economy burns. Is there any doubt that we could set new market lows?

But expect one last rally up next week. Remember the old, tried-and-true, three-period test. After a down week last week, and what looks like it could be a down week this week, watch for the markets to try to take out previous highs. If they can't, ummm, get ready for October to live up to its reputation.

S&P Triggering Sell Signal??

Some techicians like to watch the Wilder's Parabolic stop and reverse indicator. The indicator provides a trailing stop (as reflected by the dotted line in the chart). When price moves through the dotted line, one closes out (in this case) their long position and takes a short position.

I have found that this indicator works very well in trending markets however, in sideways markets, it can mark a top or bottom and result in one selling the bottom or buying the top.

Seems that everyone on tv these days is so bullish. Few are calling for a test of the March lows. Many state that there is no possibility that this could happen. But not I. I'm sad to say that I have become totally cynical about the government and our financial markets. We have been lied to and deceived so often that you really have to close your ears to the noise and just look at the technicals.

I have been suggesting that you buy DXD or SDS positions as the market has been rising. These ETFs provide you with protection against a downdraft in the market. Also, I have discussed long-term put positions on Boeing and JB Hunt. These are just fun plays however as I was happy to get a 15% market gain in June. Realizing the fiction that we call the market, I was thrilled to get 15% in a market that may well again wind up providing negative returns.

The problem with most people though is that they cannot be satisfied with a 10% to 15% annual gain, especially when they see the market rallying sharply. But you must understand that rising prices acts as a magnet, sucking in more money as greed sets in. Without a discipline these days, you are going to get creamed and wind up broke.

Unless you are a banker and going to receive your millions in bonuses, I insist that you figure out what annual return you need to achieve your goals, dip your foot in the very volatile market, get your goal, and move to safety.

I'D BE WILLING TO BET

Yup, all of these banks paying off the TARP money, it's all a sham I think. They want to get their bonuses. Obama's Pay Czar will probably let them have it too. Then watch, these banks will be back begging for more bail out money. I'll bet you on this. There should have been some provisions, just like in a personal bankrupcy, that if you pay off the TARP, you can't come back for seven years. Nope, watch, these guys (and gals) are going to get their millions in bonuses and then BAM!, back to "bail us out or the economy and the entire free world will collapse."

If our politicians allow this again, then I totally give up.

Market Indices Power Ahead In July

Market indices surged forward in July pushing the S&P index ahead more than 68 points or 7.4% while the industrials sported a gain of 724 points or 8.6%. Leading the surge were material stocks. The Basic Materials SPDR XLB) rose nearly 13% in the month. Every sector gained. How can any doubt that we are in a bull market?

Still however, I recommend caution. Using our methods, we exited the market in June having already earned 15%+ on our stocks and double that in our futures. We are now poised though to have some fun using options to minimize our risk but to potentially take advantage of any continued rally that is to come.

CONCERNED ABOUT SIZE

While the market forges ahead, there is no follow through with the size, or increasing volatility. Without this increase in size, I cannot be convinced that the market should continue on much longer. Of course, we are looking at monthly data so this data does not take into account the day-to-day euphoria that comes and goes. In the end, I am tactically playing for some continued rally but as the SP500 approaches 1030, I expect to be selling.