The Pattern Trader

THE LIFE OF A PROFESSIONAL TRADER. HIS MOTIVES, INSPIRATION AND VISION.

Market Update: 8 February 2010 BMO

All it took was one massive down day to bear-down the whole week. What happened on Friday was freaky - we’ll be looking very closely at what happened on Friday after 1400 hours …

I would have preferred to have tanked instead of letting the PPT get back in the game.

Market Internals for Friday 5 February 2010 - 17:30

Leading Sectors: Financials (+1.22%), Tech (+1.10%), Telecom (+0.50%), Materials (+1.74%).
Leading Industries : Gold miners- GDX +5.4%, SPDRS metals/mining- XME +2.9%, Semis- SMH +2.5%, IGW +2.3%, nat gas- UNG +1.7%, iShares REITS & real estate- ICF +1.9%, IYR +1.9%, Basic materials- XLB +1.9%, IYM +1.25%, iShares US broker/dealers- IAI +1.8%.

Lagging Sectors: Health Care (-0.22%), Consumer Staples (-0.08%), Consumer Discretionary (-0.47%), Industrials (-0.56%), Energy (-0.12%),
Lagging Industries: RBOB gas- UGA -2.2%, Heating oil- UHN -2.2%, Commods- GSG -2.0%, Base metals- DBB -1.7%, Global shippers- SEA -1.5%, Crude/WTI oil- USO -1.7%, During OIL -1.7%, DBC -1.3%, India- INP -1.3%, iShares S Korea- EWY -1.2%.

NYSE :
Higher than avg volume @ 1562 vs closing avg of 1220
Decliners outpacing Advancers (adv/dec): 1326/1740
New highs outpacing new lows (hi/lo): 26/25

NASDAQ :
Higher than avg volume @ 2818 vs 2133
Advancers outpacing Decliners (adv/dec): 1433/1214
New lows outpacing new highs (hi/lo): 16/49

Other Market Moving Factors:
• Late day short-covering rally coincides with pullback in the dollar from 6-month highs
• January payrolls fall unexpectedly, but unemployment rate moves lower

COMMENTARY

I take that back … never underestimate the power of the dark side … er … I mean the PPT … waitaminit, they one in the same! 

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TECHNICAL UPDATE - MONDAY 08 FEBRUARY, 2010 - BMO

DOW JONES INDUSTRIAL AVERAGE ($INDU: CBOT)
10,012.23 +10.05 (+0.10%)
Volume: 308,320,075 (+1.34%)
Range: 9,835.09 – 10,031.96 (196.87 points)

The DOW and almost everything else in the U.S. market finished with impressive Hammers, implying an end to the downtrend and a strong possibility of a reversal on Monday. The DOW barely kept its head above 10,000 to give some hope to the purist technician. But it remains rooted below the 100DSMA for a second straight day.

NASDAQ COMPOSITE INDEX ($COMPQ.IDX: NASDAQ)
2,141.12 +15.69 (+0.74%)
Volume: 823,186,454 (+1.14%)
Range: 2,100.17 – 2,142.27

S&P 500 INDEX (SPX: CBOE)
1,066.19 +3.08 (+0.29%)
Volume: 5,400,868,400 (+5.21%)
Range: 1,044.50 – 1,067.13

I wrote that about the previous Friday’s (29 Jan) action. Last week, the Decliners swung into action at 1400 hours and drastically changed the numbers. Volumes picked up and prices tanked.

Last Friday, 5 February, it pretty much looked like a mirror. The Advancers swung into action by 1400 hours and changed the numbers while all the internals pointed to a bullish commitment by 1500 hours. The intraday recovery was an impressive 172 point rally.

The VIX dropped, total volumes (black) picked up, up volumes (blue) spiked and down (green) volumes stalled …

… the Tick and Trin reversed without any doubt … Just check out the swing on the internals in the last hour of trading …

Decliners outpaced Advancers by an average 1.07 to 1 on higher volumes (+30.63%) on Friday (avg +0.38%).

I just cannot be convinced that the market actually returned on its own merit. There is still something very wrong with this picture and I can’t put a finger on it. If you simply add up the hour-on-hour volumes, there is no way the last two hours of up volumes could outweigh the day’s down volumes between 0930 and 1400 hours.

In time, I guess we’ll find out.

COMMODITIES & BONDS - Summary for Monday 01 to Friday 05 February, 2010
Natural Gas Outperforms Commodity Complex; Precious Metals Worst Performers, While Ags Outperformed

Commodities were mixed this week, with metals turning out to be the worst performers and agriculture the best performers. Crude fell 2.3% on the week, while natural gas managed to gain 7.5%, while most other commodities were suffering. Silver was the worst performer with a loss of 8.1% on the week. Gold fell 2.8%. Copper futures posted a sizable loss of -6.4%, while the Baltic Dry Index fell 5.7%. The US Dollar Index was one of the largest contributors to weakness as it put in its highs for the week on Friday, after pushing into positive territory on Wednesday.

Looking more closely at energy, February crude oil futures extended last week’s loss of 1.8% by losing another 2.3% this week to close at $71.19 per barrel. Crude traded in positive territory for the first half of the week, hitting highs overnight on Wednesday and then showing a muted reaction to Wednesday’s inventory data (build of 2317K vs. consensus of a build of 400K). However, crude began to fall sharply ahead of the open of floor trading on Thursday, losing over $3 and pushing crude back to the unchanged line. In trading on Friday, losses extended and crude actually fell sharply for over $3 again, hitting a low not seen since Dec. 15, 2009. To end the week, crude closes just above its low for the week.

Natural gas was choppy all week but managed to stay in positive territory, despite late-week strength in the dollar. Inventory data (draw 115 bcf vs. consensus of a draw of 121 bcf) pushed natural gas to its lowest levels of the week on Thursday of around $5.273. However, natural gas bounced off that low to put in session highs on Friday around $5.60, closing just under those levels on the week.

Precious metals were pretty flat for the first half of the week, with only one volatile trading session, which occurred on Thursday when gold and silver fell sharply and into negative territory. Both precious metals extended losses on Friday and put in fresh lows for the week (Gold $1044.50, silver 14.65).

In industrial metals, March copper lost 6.4% the week to $2.86, while aluminum prices lost 1.7% to $2055.25/ton, now well under its recently hit 15-month high of $2370.50/ton hit on December 6.

Ag commodities outperformed the overall commodity complex, excluding natural gas futures. Wheat and soybeans were flat this week, while corn futures fell 1.4% primarily on strength in the dollar. The ag market is currently waiting to see how the South American soybean harvest ends up because it will have a large affect on corn and soybeans futures. For now, the next notable catalyst driving the ag market is the next USDA supply/demand report released on Feb. 9.

The dry bulk shipping sector, the Baltic Dry Index (the cost of renting ships) fell 11.1% to 3204, as indicated by the benchmark Baltic Dry Index (BDI).

Treasuries finished the week on a high note with the market getting back the past couple weeks in fairly dramatic fashion as stocks crashed, concern over the European situation and general uncertainty in increasingly volatile markets. The day’s payrolls report was still given much currency, but the sovereign debt risk issues weighing on the continent continue to suck out riskier business as the flight-to-quality trade rules. The possibility that some jitters will be soothed along with likely corrective action could add drag come Monday (as well as the end of a potentially tumultuous weekend).

The week ahead has a light calendar with the bonds big events being the $40B 3-yrs Tuesday, $25B 10-yrs Wednesday and $16B 30-yrs Thursday. There will also be the mid-week circus of Bernanke’s testimony on unwinding all the bailout schemes without blowing up the markets. Could be interesting, but the players should choose their words very carefully and Bernanke likely to do some fancy dancing to avoid being painted in to a policy or concrete plan corner. The curve was worked flatter in the late session with the 2-10-yr yield spread running 279.5.

The dollar was backed off its best levels late but the index is holding near July levels, the yen near its year’s best on the euro which was just whacked down generally, holding near its worst level since May on the buck.

Treasury Yields :

• 2 Year Note 0.76% -0.04
• 5 Year Note 2.23% -0.07
• 10 Year Note 3.56% -0.04
• 30 Year Bond 4.52% -0.02
2/30 Spread : 376bps (+2) … 2/10 Spread : 280bps (unch)

Two straight days of massive running into bonds as the dollar-equity carry trade becomes more apparent.

Gold (CMX ) April 10 ($US per Troy oz.) : 1,053.50 ( -9.50 )
Light Crude (NYM ) March 10 ($US per bbl.) : 71.19 ( -2.94 )

Earnings Highlights for week Monday 08 to Friday 12 February 2010
Monday:
BWP, CVS, ERTS, ESLR, FWRD, LNC, and TWTC.
Tuesday:
BIIB, BJS, KO, CTSH, CVH, TAP, NYX, WMG, NTGR, and DIS.
Wednesday:
MT, CCE, DF, DISCA, ELN, ICE, LVLT, S, WYN, ALL, BSX, PL, PRU, and SWIR.
Thursday:
ALU, EXPE, FLIR, JASO, MAR, PEP, PM, STRA, VIA.B, ACL, AB, BJRI, NILE, BWLD, CEPH, CAKE, CMG, CSTR, MFE, and PNRA.
Friday:
ALE, HCP, PAS, and UPL.

Events for week Monday 08 to Friday 12 February 2010
Monday:
None
Tuesday:
10:00 am Wholesale Inventories
Wednesday:
08:30 am Trade Balance
10:30 am Crude Inventories
14:00 am Treasury Budget
Thursday:
08:30 am Initial Claims
08:30 am ContinuingClaims
08:30 am Retail Sales Jan
08:30 am Retail Sales ex-auto
10:00 am Business Inventories
10:30 am Natural Gas Inventories
Friday:
09:55 am Mich Sentiment

Conferences and Shareholder/Analyst Meetings of Interest
for week Monday 08 to Friday 12 February 2010
Monday:
- WAG, HUM, UAM, WLP at UBS Global Healthcare Services Conference
- $24 bln 3-month and $27 bln 6-month Treasury Bills Auctions
- LINC, FFIV, PENN, RAX at Deutsche Bank Securities Small and Mid Cap Conference
Tuesday:
- ODSY, MHS, AET, SUNH at UBS Global Healthcare Services Conference
- RHT, SAP, ADBE, ENTR at Thomas Weisel Technology & Telecom Conference
- $40 bln 3-yr Treasury Notes Auction
Wednesday:
- AMTD, BAC, COF, WFC at Credit Suisse Financial Services Conference
- AMSC, FLO, FMC, POWI at Deutsche Bank Securities Small and Mid Cap Conference
- Fed’s Tarullo
Thursday:
- ZION Analyst Meeting
- AMP, LNC, MET, NYX at Credit Suisse Financial Services Conference
- $16 bln 30-yr Treasury Bond Auction
Friday:
- AXAS at NAPE Expo 2010

NOTE: Monday 15 February 2010 is President’s Day. The markets will be closed.
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SUMMARY
This week is going to be tough to call as the second week of February is always never consistent. It should be a fairly bullish week considering we have the eve of a three-day weekend on Friday and two of the most historically bullish February days within the week.

Technicals and the psychological 10,000 should also provide some upside impetus as the market takes a breather from too much tanking over the last three weeks. Upside should be limited to 10,300 while 10,000 should continue to provide some form of support.

However, if I get it wrong, we’re getting down to those 9,730 and 9,620 levels in a hurry and if we do, this will be a catalyst for worst things to come.

Upcoming Workshops

Credit - Then And Now

Back in 1992, having Gold Cards from AMEX, MC and VISA was a big deal. This was because you REALLY had to qualify for it by having an obscene income that was validated by your income tax statement. The qualifying factor for Gold was an income above S$48.000 annually in a time when average pay was $2,500.

When you pulled out those cards to pay for something, it told people that you had arrived. It was a badge of wealth. You would get looks of envy, jealousy and respect. In those days, membership had its privileges and they were proud to sign for it.

In those days, the only person frowning at your card was the sales person who had to execute the transaction with a franking machine and a whole lot more extra work because they preferred the easier transaction; cash.

The gold card - everybody wanted it, few could have it.

Fast forward >>> 2010.

Today, those who don’t have credit cards carry cash. This is a time when having such liberties is a big deal. This is because you REALLY have it and can pay for anything and still have a handsome balance in your bank. The qualifying factor for Cash is to physically have it and have it in abundance.

When you pull out cash to pay for something today, it tells people that you have arrived. It is a sign of REAL wealth. You will get looks of surprise, envy, jealousy and respect. Today, membership is a liability and it gets embarrassing and stressful to have to sign for anything.

Today, the only person frowning at your cash is the sales person who has to count the change with a brain which is a serious challenge because they prefer the easier transaction; credit cards.

Cold hard cash - everybody wants it, few really have enough of it.

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20 years ago, loans were a heaven-sent for people who needed it for basic things like homes, business and education. Rates were affordable as loans were designed to help the ordinary middle class family to achieve progress in their lives.

Banks did not like dealing in loans as they were a liability and took a lot of work to qualify a borrower. They took risks to lend out this money but default rates were low relative to today’s rate of defaults. Not that many people became bankrupts as a result of bad debts as few could qualify for those loans and you could only get one loan at a time from any one bank.

Back then, it was shameful to let anyone know you had to take a loan.

Fast forward >>> 2010.

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In 1988, people saved like mad to buy a VCR, a Sony Walkman and the Motorola Tai-Kor-Tai.

Month on month, little by little, the savings grew and soon, that person was wearing a badge of wealth by flaunting those precious, hard-earned discretionary products.

Fast forward >>> 2010.

Today, people rush out to buy state-of-the-art Blue-Ray players and laptops, iPods and smart phones which costs more than half of their monthly income, if not all of it.

Month by month, bit by bit, the credit card debt grows and soon, that person is wearing a frown of stress from increasing interest payments by flaunting those extravagant and sometimes, unnecessary spoils.

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Back in the 80s, buying a car was really difficult. Car loans were hard to get. You needed 30% of the entire sale as a down payment and loans were to be repaid as quickly as possible. Finance companies would happily repossess your car if you failed to meet your payments.

Roads then were kept free of traffic jams with the use of deterrent systems such as car pooling, CBD charges and high road tax charges. Cars were also made less affordable with the introduction of COEs by car size. Only those who really needed a car and could afford maintaining one would buy one. And they could sell it quite easily for a good second-hand price to a ready market.

Fast forward >>> 2010.

Today, buying a car is really easy. Car loans are easy to get. You don’t need the 30% down payment anymore and loans can be stretched out over 10 years. Finance companies hate to repossess your car because they can’t sell it high enough to recoup their losses, if they are able to sell it at all.

Roads today are heavy with traffic as cars become more affordable and the ERP is a big money machine while barely keeping traffic volume in check. Anyone can own a car or two cars without being able to afford maintaining it.  And these owners who can’t afford to top up their loans, won’t be able to sell off the liability when they can’t afford it. And the market is not interested in second-hand cars when new ones are so affordable.

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In the 70s and 80s, housing loans were for people who genuinely needed a place to stay and own. They could afford the down payment and had to qualify for the loan with a respectable annual income. Their income dictated the size of the home loan and thus, the size of the home they lived in. Government loan rates were made affordable so that everyone could own a home.

Fast forward >>> 2010.

Today, housing loans are for people who want to own more than they can afford. They only need to afford the down payment because they don’t need to pay up the rest of the loan by the time they flip the property for a quick gain. Their income is not an issue relative to the size and number of loans and thus, the size and number of the properties they flip. The government now qualifies buyers and shoves the over-qualified buyers to private banks to get their loans. (See second story.)

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In the 80s and 90s, trading and investing was only for the wealthy who could afford it and were part of an exclusive community. Anyone else wanting a piece of that action paid a hefty price for the privilege.

You needed to have cash to invest. There was no other way. No money, no talk - this was something straight out of the stock market then.

There has only been one constant throughout time and the only way that people lived their lives without debt and interests. It is also the only way the future debt-free people will live.

CASH IS KING! CASH IS CLASS!

• If you don’t have it, start earning it before thinking about luxuries and fun.
• If you don’t have it, start making it before spending what you don’t have.
• If you don’t have it, save up what you can instead of borrowing.
• If you don’t have it, don’t sign cheques that your body can’t cash.
• If you don’t have it, don’t hope to get it quickly - it will go just as quickly.
• If you don’t have it, you don’t have problems yet. Wait till you have it then you can complain.
• If you don’t have it, be humble and live within your means. You’ll be happier.

The only reason you won’t agree to the above statements is because you already have financial problems and stress as a result of one or more of the Then-And-Now stories mentioned above.

There is a solution but it won’t be an easy task; stop spending, cut down and swallow your pride. The only reason you can’t do these things is probably because of your pride.

But there are a few of you unfortunate ones who have legitimate financial burdens as a result of health, parental maintenance or inherited debt. To you I say;

Chin up. There is a lot to be thankful for because financial problems are only temporary. There will be troubles in life that money can’t save you from. And when you are in that position, you can only be brave and put your chin up anyway.

So, chin up, smile and turn that adversity into an advantage.

January 2010 In Review - February Preview

Apart from starting a new batch in January, there isn’t much else to review for the month of January. About the only thing worth talking about is how the market went from bull to bear in a matter of a week and changed the entire complexion of what was supposed to be a great start to the year. Another ominous start to the year was the tragic 12 January 7.0 Magnitude earthquake in Haiti that took 170,000 lives. Pray for their souls.

One of the things I did in January was to attend Joey Yap’s one day seminar at Raffles City with my wife. If you’re into Fengshui, then you might want to know that Dragons are expected to have a great year but we have to mind our health. Joey had nothing but bad news for Snakes and Tigers but saved the worse for Rats - the Rats have it real bad for the year of the Metal Tiger. The same thing was confirmed by Fengshui Master and friend, Andrew Tan during our Christmas Gathering in December.

Also related to the year of the Tiger is the probability of war and conflict. Through the ages, some of the fiercest conflicts occurred in Tiger years. What are the chances that it will happen again?

Apart from all that, January has been a non-event and I like it that way.

Now we go into February and the Year of the Metal Tiger.

As far as the market goes, January started up but quickly became a downer and closed with a Bearish January Barometer, indicating a choppy and volatile year ahead. Considering the prevailing conditions, I’m not surprised. I just finished writing a piece for Invest Magazine where I sounded out my thoughts about the coming year and amongst the things I mentioned were the current economic situation in the U.S.;

• unemployment has not bottomed out and it doesn’t seem to want to stop plummeting,
• the ever continuing problem with foreclosures,
• increasing mall vacancies and the growing stockpile of existing homes,
• high commodity prices as a result of cheap money
• a national debt that is growing at parabolic and exponential rate

The global economic health is also far from the recovery picture that was being painted just two months ago by many economists and analysts;

• the ever growing concerns over China’s monetary policies,
• the debt drag on Greece with Spain, Portugal and Italy,
• America’s continued persistence with cheap money and the repercussions of its effect on global asset bubbles,
• Dubai’s long term debt and its effect on the Arab community
• the failure amongst the bankers and policy makers in Davos to reach any conclusion about coordinated global regulation.

Grab your copy when it hits the news stands to find out how to balance your portfolio if the market turns choppy and volatile.

February is going to be a short month with only 19 trading days in the U.S. and even less in Singapore because of the long break for Chinese New Year. In recent years, February has been more bearish than bullish … we haven’t had a positive February since 2006. It should start the week on a bullish note, albeit modestly.

February is known as “the weakest link” in the best six months on the DOW and S&P500 between end October and mid May. The most bearish part of the month is the last two weeks of this short month. As previously mentioned, there are only 19 trading days in February with Monday 15 February being President’s Day when the markets will be closed. February Expiration Friday has been down on the DOW 7 out of the last 10 years.

Now that the January Barometer has been confirmed as bearish, we will have to keep a close watch on that December low of 10,235.63 over the next two months. Failure to break above that level by the end of Q1 will send the bears out in full force for the rest of the year assuming the hidden hand of the PPT doesn’t repeat their performance of 2009.

Before I sign off, here are several pictures of a memorable dinner I had with some of my traders on 8 January 2010.

And after finding some time to do this, I’ve finally managed to upload my Japan Holiday pictures. Here are some of my favorites.

Yup, we had a good time. And talk about being blessed … if you didn’t know, Mt Fuji is a shy mountain and to get a super clear day like the one we got is so rare. One hour after that picture as we emerged from lunch, the mountain went into hiding again and never emerged even when we left Japan four days later.

Looking at my kids today and reflecting on everything that has happened since they were born, I am indeed a happy puppy and a very contented father who could ask for little more.

Life is too short and worries are too many. I prefer to look at the great things that life has to offer, be thankful for what life has already granted and not dwell on the negatives at all. I guess that’s the attitude that got me to where I stand today.

As we go into a brand new Chinese New Year, I’d like to wish all my readers, traders and friends;

A Very Prosperous and
Most Happy Lunar New Year
And may all your dreams materialize
That you may enjoy life for what it truly is -
AWESOME!

Market Update

Just looking at those charts should make you nervous. If you weren’t in the market yesterday, you missed out on what it is really like to be in a nervy market where doubt and confusion rules and nothing makes sense. One thing was clear though … it was not a good day nor a good sign for the bulls.

The market went into the trading day very nervous about China’s concerns over inflation and tightening credit, the BOJ’s non-event on rates (unchanged at 0.1%), America’s silent but growing concerns with ever increasing commercial real estate defaults, another poor return on housing numbers and the CBO’s (Congressional Budget Office) estimates, including for the fiscal 2010 deficit.

In spite of the divergence between NASDAQ and NYSE, the market had one agenda and the closing price is evidence of that agenda. For two straight days, the market was unable to keep its gains, losing everything in the last hour. This is a familiar pattern to which, in the past, there was only one outcome … and it doesn’t favor the bulls at all.

Advancers outpaced Deciners by an average 1.16 to 1 on lower volumes (-1.30%) on Tuesday (avg -0.26%).

How do you summarize such divergent internals? Let’s see if this makes sense … In spite of having a little more advancers than decliners, the market still lost a little bit on a day when volumes down quite a bit.

Thus, this market can rally all it wants because it only takes a few bears to bring down all those bulls.

DOW JONES INDUSTRIAL AVERAGE ($INDU: CBOT)
10,194.29 -2.57 (-0.03%)
Volume: 217,297,012 (+0.91%)
Range: 110,155.60 – 10,285.13 (129.53 points)

In spite of a triple digit day, DOW failed to keep its gains and fell into neutral in the last two hours. This is going to be a major hurdle for all three indices without the help of some really REAL good economic news. Earnings is now not going to be enough to help keep this market’s head above water hereon.

NASDAQ COMPOSITE INDEX ($COMPQ.IDX: NASDAQ)
2,203.73 -7.07 (-0.32%)
Volume: 675,475,645 (-23.21%)
Range: 2,195.44 – 2,227.89

S&P 500 INDEX (SPX: CBOE)
1,092.17 -4.61 (-0.42%)
Volume: 4,205,862,400 (+8.65%)
Range: 1,089.86 – 1,103.69

Wednesday is going to be big on earnings and news with three DOW components (BA, CAT and UTX) on the line along with some of the biggest names in their respective industries. Add to that mix the Fed’s FOMC announcement, more housing data (New Home Sales) and Obama’s State of the Union address and you have what is potentially the most volatile day for the week and possibly, the month.

With only three days left for this month including today, the DOW needs to recover  more than 236.40 points to close positive - that works out to three consecutive days of 78.80 point gains. The S&P500 has to recover 24.39 (8.13 daily) and the NASDAQ needs a massive 90.68 (30.23 daily). In terms of percentages, the benchmarks needs to average more than 2.32% gains over the next three days, starting today.

This is the day that will shade the color of January’s Barometer.

Ready, Beary, … Go?

DOW JONES INDUSTRIAL AVERAGE ($INDU: CBOT)
10,389.88 -213.27 (-2.01%)
Volume: 304,288,874(? +49.69%)
Range: 10,374.69 – 10,614.94 (240.25 points)

Apparently, the PPT went missing yesterday.

NASDAQ COMPOSITE INDEX ($COMPQ.IDX: NASDAQ)
2,265.70 -25.55 (-1.12%)
Volume: 791,888,266 (? +20.07%)
Range: 2,259.82 – 2,308.98

S&P 500 INDEX (SPX: CBOE)
1,116.48 -21.56 (-1.89%)
Volume: 6,059,780,000 (? +48.11%)
Range: 1,114.84 – 1,141.58

A lot of technical levels were busted yesterday to bring on all that fear … the DOW broke the psychological 10,500, sliced through the 20 and 50DSMA all in one session, it failed to break above the technical XOP at 10,731 after 4 attempts and has completed the second candle of a Three Identical Crows reversal pattern, the S&P500 is now wearing a 3 Inside Down reversal pattern and the DOW has formed an Evening Star on weekly candles and looks set to extend those losses.

Woo-hoo! That’s what I call volatility! Just check out the VIX … it punched through the 20 and 50DSMA in one session and is back above 20points again.

The DOW, NASDAQ and S&P500 are now trading in the red for 2010 with only 6 trading days left for January’s Barometer indication.

Decliners outpaced advancers by an average 3.3 to 1 on higher volumes (+49.69%) on Thursday (-213pts).

And the selling pressure increases. For the year, selling has outweighed buying pressure in spite of only having only 5 down-days compared to 8 up-days. Thursday was not a case of “preferring” to sell … it was a case of “must” and “should”.

Treasury Yields :

2 Year Note 0.82% -0.06 • 5 Year Note 2.34% -0.07
10 Year Note 3.59% -0.06 • 30 Year Bond 4.49% -0.04
2/30 Spread = 367bps (+2) … 2/10 Spread = 277bps (unch)

Buying was rife in the bond market Thursday as investors obviously ran their monies out of equities and into bonds. Interest in buying was high across the board especially amongst the 5 and 10. The 30yr yield has fallen back below 4.50% indicating serious doubts amongst investors about the state of this so-called recovery.

Gold (CMX ) Feb 10 ($US per Troy oz.) : 1,103.00 ( -9.60 )
Light Crude (NYM ) March 10 ($US per bbl.) : 76.20 ( -1.54 )

SUMMARY

There are times in this business that I hate being right. The bad news is that we still have today, Friday, yet to come. And looking at the way things went after the close on Thursday, the bulls will be damn worried.

Did that.
I had to make some massive cuts to most of my long positions when DOW hit 10,560 for a total realized loss of about $500. The drop below 10,500 on the DOW was not something I wanted to take lightly. Furthermore, I wasn’t going to wait for it to break below that 50DSMA either.

Thank goodness I made those cuts. If I hadn’t, I’d be looking at losses now close to $4,000 on those few positions. The last few days saw the market wipe out most of my profits on those positions and I wasn’t keen on making more losses than profits.

And that’s why it is always a good idea to have an opinion … especially when you get it wrong.

Well, don’t let the market get you down … there’s lots of fast money to be made if this tank persists. Will this tank persist? And for how long?

Truth is, I don’t know. But I do know that the Green Shoots are dying and dying fast. These are the latest updated and confirmed economic indicators:

• Nonfarm payrolls down 85k in December.
• Manufacturing production fell 0.1% in December.
• Retail sales fell 0.3% in December.
• Housing starts collapsed 4% in December.
• The trade deficit widened 10% in November.
• The NAHB index slipped to 15 in January from 16 in December.

Allow me to quote Jay Shartsis:

… the 21 day market-wide dollar weighted put/call ratio is now flashing bright red. At the Grand Stock Market Top recorded in Oct 2007, the gauge reflected only 58 cents traded in puts for every $1.00 in calls. That was a lot of option trader optimism. And now? A few days ago, this gauge reached 50 cents in puts for every $1.00 in calls - even more optimism than that seen in 2007! This extreme optimism seems even more worrisome, given the fact that stock prices are well below the peaks seen in the fall of 2007. I would rate this as a serious sell signal. Get out of the way.

Do your best to have a pleasant weekend and treasure what you still have.

Safe Trading and Happy Hunting always!

A Bullish Down Day?

It’s not so bad … it’s only the worst day of the year and the biggest ranging day since 27 November 2009. Can’t say that it wasn’t expected. Also can’t say I’m not expecting worse. It has to happen some time. In fact, I think the bulls got lucky with the 100 point recovery in the afternoon. I wanna see how long this Plunge Protection Team can keep this up.

Leading Sectors: None.
Leading Industries : Commercial banks- KBE +1.3%, Reg Bank RKH +1.3%, US Dollar index- UUP +1.2%

Lagging Sectors: Financials (-0.13%), Tech (-1.46%), Health Care (-0.53%), Consumer Staples (-0.99%), Consumer Discretionary (-1.17%), Industrials (-1.25%), Energy (-1.74%), Telecom (-1.42%), Materials (-1.51%), Utilities (-1.05%)
Lagging Industries: Silver- SLV -4.8%, Gold Miners GDX -4.1%, TAN -4.0%, Solar - KWT -3.9%, China 25- FXI -3.8%, SLX -3.1%, SLX -2.9%, iShares Brazil- EWZ -2.9%, Coal KOL -2.9%, Base metals- DBB -2.8%, SPDRS metals/mining- XME -2.8%, Crude/WTI oil- USO -2.7%, OIL -2.7%, Gold- GLD -2.3%, Oil Service OIH -2.3%, Shipping SEA -2.2%… Nat gas- UNG +1.5%, US Dollar index- UUP +0.6%, US bonds- TLT +0.6%

NYSE :
Lower than avg volume @ 1055 vs closing avg of 1212
Decliners outpacing Advancers (adv/dec): 787/2249
New highs outpacing new lows (hi/lo): 168/2

NASDAQ :
Higher than avg volume @ 2357 vs 1984
Decliners outpacing Advancers (adv/dec): 729/1968
New highs outpacing new lows (hi/lo): 82/9

DOW JONES INDUSTRIAL AVERAGE ($INDU: CBOT)
10,603.15 -122.28 (-1.14%)
Volume: 203,272,322 (+5.79%)
Range: 10,517.30 – 10,719.92 (202.62 points)

People have asked me if this rally since Mar last year is sustainable and I have said no, it is not. But the market rallied anyway.

Today, if they ask me the same question, I’ll have a different answer;

Any attempt to sell off this market is unsustainable.

Just looking at the massive 200 point sell down yesterday and that very impressive 100 point rally after lunch convinced me that if you short this market, you’re likely to get slaughtered every time. EVERY TIME! There is something very bullish about this market and it’s just not right. And as long as I see these kind of attitudes, I’m staying long because the risk of shorting this market is just too much to take right now.

Decliners outpaced advancers by an average 2.8 to 1 on slightly higher volumes (+5.79%) on Wednesday (-122pts).

There is no denying that the market prefers to sell than buy. But just look at the afternoon NYSE internals according to Briefing.com …

Look at the spreads between the Up and Down Volumes and the Adv/Dec … there was a steady increase in Up Volumes between 12;00 (20% up) and the close (53%) hour on hour, while Down Volumes were up 19% (hour on hour) at noon and decreased to 13% by 15:00 and closed at 37%.

The Decliners also fell off in the afternoon while the advancers picked up the pace the whole afternoon. Even the TRIN fell from 1.87 from 11:00 to 1.24 by the close, in a steady retreat.

Although this was a down day, it was actually more bullish than it appeared to be. It is going to be hard to keep this market down.

Treasury Yields :

2 Year Note 0.88% -0.01 • 5 Year Note 2.41% -0.03
10 Year Note 3.65% -0.04 • 30 Year Bond 4.53% -0.05
2/30 Spread = 365bps (-4) … 2/10 Spread = 277bps (-3)

The curve continues to flatten. But unlike Tuesday’s lack of interest in selling 30s and 10s, Wednesday’s buying of those longer term bonds confirmed the lack of confidence in the short-term market.

Judging by the way the market refuses to go down, one has to wonder what it will take to get a 30% to 40% correction if the market continues to be this greedy. A technical thing like a breach of the 10,500 support? Or maybe a break below the 50DSMA (which is creeping up steadily), or both? … I don’t know … but I do know that when it happens, we will understand the true meaning of “capitulation“.

You Want Charts?

In many of my posts last year, I ranted about how the market was “rallying on empty“, meaning that there was little or no fundamental basis for the market to be reaching such heady levels. Today, I feel no different but I won’t deny that the trend has been very profitable regardless of what the fundamentalists think.

I will remain cautiously optimistic … until this bubble bursts.

What bubble? Some call it an Asset bubble, others see a bubble in an artificially inflated market and fewer others call it a Hype bubble, referring to investors who have bought into “value” stocks based on the aforementioned artificially inflated market.

What artificial inflation? In spite of its “conspiracy theorist” theme, you have to check out this video as this is something we have been ranting about all of last year; the possible reason for an empty rally and probable existence of the plunge protection team.

Now onto those charts …

Although some of these charts are 6 months old, there is little doubt that the situation has improved since. I could not find the latest charts for some of these illustrations but the monthly economic data (revisions and all) have not indicated any improvement to the U.S. economy at all.

Let’s begin with the mother of all reasons why the U.S. economy is not on the road to recovery …

It is obvious that employment is in its worst state since WWII and although it looks like bottoming, is still on a downtrend and far from recovering. Analysts would have you believe that employment is a lagging indicator as the economy usually recovers before employment does. But this chart puts to rest any debate that the economy is recovering because if it was, the next few charts will tell you otherwise and correlate to this employment situation …

With the Consumer Price Index (CPI) at record high levels, how is an economy with more than 10% unemployed able to keep up with rising costs?

Obviously, businesses are unable to keep up as indicated by the chart above. This comes as no surprise because there is no way businesses can tough out a weak economy without help from the banks and the banks are not lending!

As a result, businesses close and mall occupancies fall …

As businesses suffer, more people lose their jobs …

As more people lose their jobs and stay unemployed, foreclosures continue to rise …

… and as more people lose their homes, property prices continue to fall and the demand for homes falter …

The lack of spending power amongst Americans is also evident through their consumption habits …

So what are the chances that this could be a “Jobless Recovery”?

Any recovery, it would seem from the chart above, has only just started - unlike what the government was saying six months ago - and is still a long way from being a REAL recovery.

Let’s look at where all this hype in the market is coming from …

S&P500’s earnings are back to post WWII levels which means that companies having been beating earnings on massively revised down estimates while the PE Ratio remains relatively high …

So what “valuations” are we looking at? Low valuations relative to an inflated 2000 and 1929? or High valuations relative to the historical average?

All the while, the government’s own internal “health” is poorer than ever before …

This was the state of the American Debt-to-GDP last year …

and this is the 10 year CBO projection …

And all the while, they keep printing more money …

… causing the Dollar to fall to record low levels.

It will take a brave man to tell Bond traders that the U.S. economy is on the mend …

… especially when the stock market is yielding more than Treasury Bonds …

What I will be doing is keeping a keen eye out on the latest economic numbers to see if there are any improvements to the last quarter (Q4 2009) to indicate a real sort of recovery. Earnings Season now will be my first indication of companies’ attitudes toward the current economic situation. These are numbers that don’t lie and (I hope) are not cooked by the government.

To wrap it all up, read this item on “After the Stimulus Binge, a Debt Hangover“. If memory serves me, it wasn’t that long ago that another kind of debt problem send this market into the Netherworld.

Happy Trading!

Post your comments here: http://www.conradalvinlim.com/?p=2081#respond

Where’s The War?

On 27 April 2009, in “What Now Brown Cow? … Bull Run or Bull S**T?”, I wrote:

Didn’t I write somewhere on this blog that three things normally accompany a recession?

1. Pandemic
2. Natural Disasters on a national/international scale
3. War

Well, one down, two to go.

That was in April last year at the end of the H1N1 scare. Since then, we’ve gone through massive floods, multiple earthquakes on a weekly basis, unusually heavy weather and cyclonic storms. Some deaths were reported and destruction was massive as were the financial losses.

Two down, one to go.

In my Monthly Report on the Defense sector back in May 2009, I listed in detail, all the times the market went into distress and war led it out into recovery.

So if this recovery is to be complete and if patterns are to repeat themselves, where is the war and how likely is it to be this year, 2010, that it happens?

In an interesting conversation with a Fengshui practitioner, I discovered another “statistic” that support the possibility of war, conflict or unrest in 2010, the year of the Tiger. I went to the Times of Fengshui and picked up a brochure on the Flying Stars Chart for the Year of the Metal Tiger and found this …

Looking back in history, the Korean War and the US and Soviet Union’s race to build the first nuclear bombs in 1950, Cuba’s Missile Crisis and the Chinese-Indian border war in 1962, Turkey’s invasion of Cyprus in 1974, the Soviet Union’s Chernobyl accident in 1986, US and UK’s bombing of Iraq in 1998 …

… all conflicts and unrest that came with the Tiger year.

Tension is building in several hot-spots and history has proven time and again that war happens where you least expect it. The current obvious candidates are Iran, Afghanistan, Pakistan and North Korea. Unlikely places that could reach boiling point are Myanmar, Somalia (again) and Nigeria.

Where ever it happens, we know one thing for a fact … war is good business and America, being the world’s superpower, stands to make the most money from war.

I have said that America used to be a great economy when they were building stuff, innovating, manufacturing and producing world class products for the world. Today they don’t make anything anymore (save AAPL, MSFT, etc) but they are still the world’s premier producers of war and all that supports this business, mechanically, logistically and administratively. There is no doubt that the biggest producer of war technology and ordnance will stand to make great gains from conflict and war.

And right now, America could use a healthy boost in the business of making  money from production instead of the sickeningly tired Wall Street way of making a (dirty) buck.

Definitely a sector to watch in the Year of the Metal Tiger.

Assess Youself

I thought I’d take a different spin on posting today and provide you statistical junkies with all sorts of on-line assessments so that you can “find” yourself and maybe help some of you with your … um … issues!

No mumbo-jumo this week so let’s just cut to the chase and let’s have ourselves some fun!! Remember, it’s all about having fun and being able to laugh at ourselves.

Let’s start with your BMTI by using the Jung Typology Test™.  This test will help you find:

• Your type formula according to Carl Jung and Isabel Myers-Briggs typology along with the strengths of the preferences
• The description of your personality type
• The list of occupations and educational institutions where you can get relevant degree or training, most suitable for your personality type

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Now let’s move on to your Big Five Personality Test.   This test measures what many psychologists consider to be the five fundamental dimensions of personality.

You can even make a comparison Personality test by comparing yourself with say, your mom, brother, sister, etc by taking the Twins Interactive Personality Test.

Or maybe you’d like something more lighthearted and amazingly spot on - The Personality DNA Test

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Now for everybody’s most quizzed test - The IQ Test.

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If the test above was not your cup of tea, then the Am I Dumb? Common Sense Test should suit you better!

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How about a Fear/Phobia Test? Or are too scared to take this one?

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Love anyone? Check out Gary Chapman’s test for the 5 Languages of Love with his;

Personal Profiling and 30 Second Quizzes

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Test the strength of your Marriage with the Marriage Assessment: How Strong Is Your Marriage?

Or take the Marriage Compatibility Test And Evaluation

And if you’re not married and wondering if it will work out, do the Marriage Readiness Test to see if you and your partner are up for it yet.

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Are you an Alpha Male/Female? I think this one speaks for itself.

This is my favorite - What kind of Trader are you? Find out your Trading Personality with this wonderfully (and eerily) accurate test.

Well I hope you had fun!  Feel free to feedback your results by sharing your comments here.

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