Stock Market Turns Ugly

The 'Helicopter Economics Investing Guide' is meant to help educate people on how to make profitable investing choices in the current economic environment. In addition to the term helicopter economics, we have also coined the term, helicopternomics, to describe the current monetary and fiscal policies of the U.S. government and to update the old-fashioned term wheelbarrow economics.

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This blog advised getting out of the market early last week. Those who sold were quite happy they did yesterday. The main U.S. indices were down between 2.4% and 3.9%. Europe and Asia got hit as well, but were down somewhat less than the U.S. The media is sighting a World Bank report forecasting that the global economy would shrink 2.9% this year instead of the 1.7% they had previously predicted (who woke them up?). The markets were technically weak and were set up for a fall no matter what happened though.

The Dow, although the weakest of the U.S indices, had the smallest drop of 2.4%. The Dow had closed below its 200-day moving average all five days last week and then demonstrated further weakness by closing below its 50-day moving average yesterday. The 50-day is below the 200-day in a typical bear market pattern. The Nasdaq on the other hand has the 50-day above the 200-day in a typical bull market pattern and is the strongest of the major indices by far. It dropped 3.3% yesterday, but closed above its 50-day and 200-day, still a healthy picture in contrast to the sickly looking Dow.

The S&P 500 and the small cap Russell 2000 have a different picture altogether. Both have the 50-day close to the 200-day and are trying to change from a bear market to bull market pattern. The 50-day crossing the 200-day from below is usually considered a buy signal, but it is not working out in this case because the technical indicators are turning down. The 50-day had already slightly crossed the 200-day for the Russell 2000 and they are touching each other for the S&P. The Russell had the biggest drop yesterday, falling 3.9%. It closed below the 50-day and right on its 200-day. The S&P dropped 3.1% and closed just below the strong support offered by the joined 50-day, 200-day. Breaking strong support is never a good sign technically.

One of the worst hit groups yesterday was oil drillers. Take a look at PDS, often mentioned in this blog. The triple leveraged ETF for oil companies, ERX also had a large drop yesterday after already selling down for the previous seven days. Light sweet crude closed at 67.50 yesterday, but was as low as 66.37 in Asian trading last night. I am looking for oil to hit support in the 58-62 range. Oil companies started selling off before oil did and in all likelihood they will be rallying before oil hits bottom.

I will be briefly discussing the current state of the market at the Fundamental Class tonight. See our webite for details.

NEXT: Technical Damage Continues; Fed Decision Today

Daryl Montgomery
Organizer,New York Investing meetup
http://investing.meetup.com/21


This posting is editorial opinion. Like all other postings for this blog, there is no intention to endorse the purchase or sale of any security.

Gold, Oil, Dollar and Market Update

The 'Helicopter Economics Investing Guide' is meant to help educate people on how to make profitable investing choices in the current economic environment. In addition to the term helicopter economics, we have also coined the term, helicopternomics, to describe the current monetary and fiscal policies of the U.S. government and to update the old-fashioned term wheelbarrow economics.

Our Video Related to this Blog:

Gold and silver had sharp sell offs this morning, while the dollar rallied. If you believe the press reports (and in general, you shouldn't), gold and silver sold off because the dollar was rallying. The dollar was supposedly rallying because of bad figures on Eurozone industrial production. Are they likely to be worse than the U.S. production figures after GM's bankruptcy (production is being closed down during the summer)? Probably not. If you look, you will see despite the screaming headlines the dollar was not up that much. As of now, the trade-weighted dollar is trading at 80.07, up from yesterday's close of 79.36. The breakdown point is 78.33.

The drop in gold and silver is more than overdone. Gold closed strongly yesterday at $962. Optimism for the U.S. dollar is also being fueled because the treasury auction went well this week and there was supposedly heavy demand for long-term U.S. treasuries from foreign buyers (I had difficulty not laughing as I wrote that last statement). What outrageous claims will the government make next? For those not paying attention, interest rates on the 10-year bond hit 4% yesterday, double the low of 2%. Not exactly and indication that these bonds are experiencing increasing demand relative to supply (interest rates would be falling if this was true, looks to me like they doubled).

Oil was over 73 yesterday and I began taking some profits in ERX and to a lesser extent DXO. The oil rally has been going on four months now and seems to be losing steam as we approach major resistance around 77. Stocks are likely to get into trouble when the S&P gets to 1000. Resistance is very strong at that point. When you have large profits, its always a good idea to take some money off the table.

For those who don't want to hold U.S. dollars, there are a lot more options in ETFs than there used to be. While we have mentioned FXA and FXC (the Australian and Canadian dollar ETFs) previously, you can now buy New Zealand (BNZ) dollars as well. You can even buy emerging market currencies such as the Brazilian Real (BZF). For a more complex trade, you can consider DBV. This ETF is double long the three G20 currencies with the highest interest rate and simultaneously short the three currencies with the lowest interest rate.

NEXT: G8 Hot Air Inflates Dollar

Daryl Montgomery
Organizer,New York Investing meetup
http://investing.meetup.com/21


This posting is editorial opinion. Like all other postings for this blog, there is no intention to endorse the purchase or sale of any security.

So Far This Doesn't Look Like a Top

The 'Helicopter Economics Investing Guide' is meant to help educate people on how to make profitable investing choices in the current economic environment. In addition to the term helicopter economics, we have also coined the term, helicopternomics, to describe the current monetary and fiscal policies of the U.S. government and to update the old-fashioned term wheelbarrow economics.

Our Video Related to this Blog:

The S&P 500 broke through its 200-day moving average yesterday following the Nasdaq's successful breakout last week. The Dow only managed to pierce this line and then it bounced down. If all the averages can break through and hold above the 200, this rally will continue to have legs. The next key test will be if the 50-day moving averages can cross the 200 days. This is the classical confirmation that a bull market has begun. This is at least a couple of weeks off. A failed cross of the 50-day is not out of the question, so we will have to wait and see. Oil continued its impressive rally yesterday, rising for the 6th day in the row. Rallies like the one we are currently seeing should make you start to think of selling if you got in at the bottom. It all depends on the technical picture of course and your investing time horizon.

I sold Nova Gold (NG) this morning because it had gone up too far, too fast. The price was way above the 10-day moving average (use 20% above as a rule of thumb for overextension) and the RSI had gone above 80 on the daily charts and had stayed at the level for several days (this is mega-bullish blow off behavior and is not sustainable). On the other hand, Harry Winston (HWD) just broke and closed above its 200-day moving average yesterday, which indicates a likely continuation of its bullish pattern. It is not overextended from its 10-day, so I am willing to keep it for the moment.

Many oil stocks are getting overdone however. The rally which has taken place since the beginning of last week has taken oil up quite a bit in a short period of time. At this point, it looks like the resistance around 70 could cause a temporary sell off before a further rise to the 75-78 area. I might be taking some profits today or Wednesday morning with the intention of buying back lower. For investors who can't pay attention to the market closely, it is best to leave well enough alone until oil gets into the mid 70s. Even then, I think higher highs will be in store for oil during the summer.

One thing I have been accumulating is Natural Gas (UNG). Gas can rally into the October/ November time frame and there is potentially a lot of profit to be made there, since it is barely off of its bottom. I have held onto all of my silver, which is around its resistance of 16 today. Gold is pushing for the key 1000 level. I have no intention of selling any of it until the breakout and move up to around 1200 level. Watch the trade-weighted dollar. It is in the high 78's right now and a breakdown below 78 will be bullish for all commodities and will definitely set off the gold rally.

NEXT: Market at Key Juncture

Daryl Montgomery
Organizer,New York Investing meetup
http://investing.meetup.com/21

This posting is editorial opinion. Like all other postings for this blog, there is no intention to endorse the purchase or sale of any security.

Silver, Oil, Gold - Market Screams Inflation is Coming

The 'Helicopter Economics Investing Guide' is meant to help educate people on how to make profitable investing choices in the current economic environment. In addition to the term helicopter economics, we have also coined the term, helicopternomics, to describe the current monetary and fiscal policies of the U.S. government and to update the old-fashioned term wheelbarrow economics.

Our Video Related to this Blog:

Silver is having its best month in 22 years. It was up to 15.49 in overnight trading, getting close to important resistance around 16.00. Gold traded as high as 974 before the U.S. markets opened, inching closer and closer to that key 1000 level. Light sweet crude was trading at 66.18 at 8:00 AM New York time. It's next resistance is in the 67 area and then 70 after that. Resource stocks were up significantly in Asian trading last night. Expect gaps up in SLV, GLD, DXO, and ERX when the U.S. market opens. Keep in mind that at some point those gaps will have to be filled.

Markets tend to be bullish at the beginning of a month, so early next week is a favorable period. While it may not happen today, silver, oil and gold will become too extended from their 10-day moving averages and will have to come back down to that line. Traders with a shorter term horizon need to take this into account. If you have a longer term perspective, you can wait until key resistance is reached. Oil is heading toward the 75-78 price level. While it may not finally peak this summer until it gets to around 100, profits should be taken in the mid-70s and oil should be swing traded shorter term at that point. You don't have to worry about gold until 1200 and silver until it reaches 21. They haven't even begun their rallies yet.

Marc Faber, a very well-known market investing advisor and market commentator that appears in Barron's annual roundtable has come out with a report stating hyperinflation in the U.S. is inevitable. While, I would certainly agree that lots of inflation here is inevitable, I don't yet think the 50% a month inflation rate needed for hyperinflation is a done deal. It is certainly a possibility though. To get to that point will take incredibly inept government policy and oblivious monetary authorities. You would practically have to have a central banker throw money out of a helicopter! By the way, the Fed is still currently worried about deflation, while printing money Zimbabwe style.

The market for all commodities is bullish going forward, but that doesn't mean there aren't going to be tradeable pull backs. Which ones you pay attention to depends on how short term your trading perspective is. Other than too much extension above the 10-day moving average, you need to be aware of the 200-day moving average - HWD (Harry Winston) is caught there at the moment, but it has a textbook perfect bullish chart - and the 38% Fibonacci retracements. If you sell with a short term perspective, you must be willing to buy back with a short term perspective as well. If you can not do this, and most people can't, wait until major resistance is hit before pulling the trigger.

NEXT: How Susan Boyle Provides a Lesson for Stock Investing

Daryl Montgomery
Organizer,New York Investing meetup
http://investing.meetup.com/21


This posting is editorial opinion. Like all other postings for this blog, there is no intention to endorse the purchase or sale of any security.

Oil Takes Gas, Silver's Shining Moment, GM Watch

The 'Helicopter Economics Investing Guide' is meant to help educate people on how to make profitable investing choices in the current economic environment. In addition to the term helicopter economics, we have also coined the term, helicopternomics, to describe the current monetary and fiscal policies of the U.S. government and to update the old-fashioned term wheelbarrow economics.

Our Video Related to this Blog:

The oil inventory report was delayed this week and it was bullish big time for the third week in a row. The natural gas report was just better than expectations, but even this minimal accomplishment proved a combustible mix that caused UNG (the natural gas ETF) to shoot upward. SLV (the silver ETF) traded over 15.00 this morning, removing all doubt that a breakout has taken place from strong resistance around 14.50. News reports are indicating that some progress is being made with GM bondholders in a last minute effort to avert the largest industrial bankruptcy in the history of the United States.

Analysts expected that U.S. oil inventories would rise 1.8 million barrels last week. Boy did they get a surprise! Inventories fell by 5.4 million barrels. Gasoline, the major use for oil during the summer months, had 600,000 less barrels in storage. Year over year U.S. gasoline demand is down only 1.2% despite the troubled economy, yet oil is still 47% off of last year's high. Despite dropping supply and the barely lower demand for gasoline compared to the much lower price of oil, you can still find bearish comments on oil in media coverage. Our favorite oil ETF, DXO, has continually told an opposite tale however - and when in doubt, the market is always right. DXO broke above 4.00 today and should be heading higher until light sweet crude reaches at least $75 a barrel. Triple leveraged energy company ETF, ERX, is having an even better day after consolidation around support between 29 and 30 level.

While oil may have only a month or so left of its rally (frequently when the most money is made), natural gas is still putting in its bottom and I have been accumulating UNG since it fell back to the low 14's. Unlike oil, the fundamentals of natural gas are indeed negative and have been for a long time. Moreover, the favorable seasonal for natural gas can begin as late as July as opposed to February for oil. The peak is most likely in late October, early November, while oil statistically peaks in early August. This week, analysts expected U.S. storage of natural gas to increase 111 bcfs (billion cubic feet), but the increase came in at only 106 bcfs. In a heavily shorted market, that was enough to generate a big move up.

In the precious metals, SLV trading above 15.00 today was quite impressive. At the moment silver is doing better than gold, but it has a lot of catch up to do. Gold is only 4% off its recent highs of 1000, while silver is about 30% lower than it previous high around 21. SLV has another point of resistance at 16. After that, SLV testing 21 is almost certain.

Some progress seems to have been made with GM bondholders this morning. It is still too early to tell if this will come to fruition. Whether or not GM declares bankruptcy (allowing this to happen will be one of the biggest economic mistakes that the U.S. government has ever made) is obviously going to go down to the wire. The stock has not fallen below a $1.00 today however and is actually up 10% at the moment. When the market thinks a company is going bankrupt, it pushes its price into the penny level. Watch to see if this happens. While a GM bankruptcy will weigh on the market, the avoidance of bankruptcy would cause a big rally next week.

NEXT: Silver, Oil , Gold - Market Screams Inflation

Daryl Montgomery
Organizer,New York Investing meetup
http://investing.meetup.com/21

This posting is editorial opinion. Like all other postings for this blog, there is no intention to endorse the purchase or sale of any security.