Stocks Look for Bottom, Oil Rallies

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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The market is going up and down like a yo-yo today, alternating between negative and positive. Stocks are trying to find a bottom and will probably do so soon. No matter how negative the outlook is for the economy and earnings, stocks can only go so low before having a rebound because the selling gets exhausted. At this point media reports have gotten about as gloomy as they can get, with each person making a more negative price low projection than the last (Everyone is always about as bullish as they can get at a top also). While stocks grope for a bottom, oil looks like it found one last month.

On Friday the Dow hit a new low of 6443 and the S&P500 hit a new low of 667. Nasdaq broke its November low of 1295 (the last index to do so) and traded down to 1269 at one point. The close wasn't as bad because heavy buying came in at the end of a day. Professionals tend to trade at the close and their willingness to load up on stocks on a Friday is a bullish sign that indicates they think the risk of an upside surprise is becoming bigger than the risk of a downside one.

Oil is behaving particularly bullish. The near term futures were up 4.4% on Friday despite the horrendous jobs reports. For months the media pundits have been telling you that oil can't go up until the economy shows signs of recovery. The New York Investing meetup has maintained this is not the case, but you should focus on the supply picture instead. Supply has been dropping and the economic news has only gotten worse. In the last few weeks, oil has rallied from the $33 a barrel range to over $48 this morning. New York Investing recommended DXO (200% long NYMEX light sweet crude) at one of its classes on the evening of Feb 17th. You could have picked it up the next day at the bottom (and some people did). The position has been profitable ever since (almost 50% at its best) despite the horrendous market sell off.

The stock indices are sitting above important support levels. The Dow has a band of support between 5600 and 6200. The S&P 500 has a band of support between 600 and 630 or so. Nasdaq has support at 1240. The Russell 2000 at 325 and 300. Even the upper end of these prices might be enough for a bottom at the moment since the market is itching to rally. At the very least you might want to start picking up some of the many bargain stocks out there when the indices fall to these levels.

NEXT: Stocks - the Good, the Bad and the Ugly

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.

Dow Breaks Key Support Indicating a Much Lower Low

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 Dow confirmed a break of major support on Monday. Yesterday's low just under 7106 was over one percent lower than the 7181 intraday low on October 10th, 2002. The index is now back to where it was in 1997. It should now be considered inevitable the the Dow will have to fall to the 5600/5800 range where the next strong chart support exists. Below that, support is around the 4000 level. Even at 4000, the Dow would be in much better shape than it was in the 1930s when it dropped 89%. As of yesterday, the index is down only 50% from its bull market high. When it would get to even 6000 is open to question as well. It still might take awhile.

The market is deteriorating at this point not because economic conditions are bad, but because it doesn't look like there is anybody in charge that will be making them better. While the market was falling apart last Friday, Treasury Secretary Geithner was MIA. Word was that he was on vacation. It is certainly understandable that after a whole four or five weeks in his new job where he managed to royally screw up in record time, that he would need some rest. Besides, he knew that president Obama would soon be busy announcing that he would be cutting the budget deficit in half by the end of his first term (Republicans were demanding attempts to get the budget under control, something they never did during the Bush administration). The level of economic obliviousness this indicates is simple off the charts. It's sort of like announcing your new snow removal policy while people are dropping dead in the streets from 135 degree heat... and it has never snowed at any point in history in your country. Some immediate action on the banking crisis should be agenda item number one, not that I am confident that this will be handled intelligently by the government. We are almost guaranteed that it won't be.

Wall Street is understandably upset about the confidence gap with the new administration. While many financials took a big hit as usual, Citigroup and Bank of America were actually up and are still holding above the penny stock level (a deal was being discussed to convert the preferred stock the government owns in Citi to its worthless common stock). Resource stocks were crushed. U.S. Steel feel 13% on Monday alone. It is almost 90% off of its yearly high and it has a P/E of 1. Aluminum producer Alcoa isn't doing much better, falling 8% on the day and is down around 85% on the year. Coal company ANR fell 8% and is also about 85% off of its high. If these stocks seem absurdly undervalued it is because they are, but that doesn't mean they will be going up tomorrow. In a major bear market, there is almost no limit to how cheap stocks with real value can get. It is of course important to differentiate them from stocks that become equally cheap and will remain so because they don't have any value (currently the financials).

The biggest drops frequently happen at the bottom of a move. The monthly charts indicate that the market is likely to bottom sometime during March at the latest. Short covering will propel the rally that follows. A sustainable long term rally is still somewhere in the distant future and is receding further because of the current drop. In the longer term, zero interest rates and the unending bailouts and spending plans will provide the market with the liquidity which is the fuel it uses for its rallies. They will also mean that you will be paying $50 for a cup of coffee at Starbucks.

NEXT: State of the Nation - Denial

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.

Dow Testing Low, Gold Testing High

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:

So far today the Dow has fallen as low as 7553 and is closing in on its November low just under 7400. It is inevitable that it will test it and possibly the slightly lower 7200 area, which was the bottom in 2002/2003. Financial stocks are the culprits that are tanking the market today, with the sell off starting in Europe because of weakness in Eastern European banks. The tech heavy Nasdaq is still well above its November bottom. Gold has hit a 7-month high and oil looks like it has made a double bottom.

The U.S. stock market was actually in very good shape technically and breakouts were taking place until Treasury Secretary Geithner gave his talk on how he plans to deal with the ailing American banking system. The talk came across as Geithner fiddling around while the U.S financial system burned. Wall Street reacted with a sharp sell off and the incipient rally turned into a route for stocks. With friends like Geithner, the American investor doesn't need enemies.

While stocks are falling apart, gold and silver are breaking out through one point of resistance after another. Gold so far today has reached as high as 970 in futures trading and is closing in on its all time high in the 1000 area. Silver has broken above its 200-day moving average, but still needs to do some more work before it establishes a solid bullish pattern. Meanwhile, oil looks like it made a double bottom last Thursday when in fell into the 33's, just as it did on December 19th. Press stories about excessive supplies of oil are greatly exaggerated and are being generated by the big money interests that are short the market - don't believe them.

Problems with the global banking system are serious and are not likely to be solved for years to come. The market shouldn't be surprised by this anymore, but it is and will continue to be. The solution for all the major players will be money printing, more money printing and more money printing. Commodities will be the beneficiaries, while stocks decline or languish.

NEXT: SEC Discovers Fraud Exists/Smart Money Buys Gold

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.

Market Must Hold in Here

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 major U.S. stock indices hit five year lows yesterday. The Dow and the S&P 500 are now going to test their 2002 lows, also the 1998 low in the case of the Dow, around 7200 and 775 respectively (mentioned many times in this blog as the target price to look out for). Nasdaq is heading toward a support level in the 1250 to 1300 range, the shoulder area of the reverse head and shoulder pattern that it made in 2002 to 2003. Its stronger support is around 1100. This would be the next place to look for a market sell off to stop. The Dow, and even more likely the S&P, would be below their 2002 lows if this happened. The charts offer little guidance for any significant breaks of the 2002 lows, since there is no significant support until much, much lower levels.

Once again yesterday was a crash day, with all the major U.S. indices closing down 5% or more. I have lost count how many times this has happened in the last three months. The gains from last Thursday's mystery rally were completely dissipated in four trading days. The Dow held up the best with only a 5.1% drop, but closed at 7997, the first close below 8000 since 2003. Small caps were the hardest hit, with the Russell 2000 falling 7.9%. The S&P 500 and Nasdaq were in between with 6.1% and 6.5% drops respectively. Financial stocks had the biggest losses, with Citibank leading the way down with a 23% loss (the New York Investing meetup has been saying since fall of 2007 that Citi is insolvent and the market is now realizing it). Bank America, JP Morgan, Wells Fargo, and Goldman Sachs all had 10% or greater drops. GE, the next major bailout prospect, fell 10%. Autos of course were also hit hard, with GM falling 10% and Ford 25%. Ford barely remained above penny stock levels.

What is currently roiling the market, other than the usual unrelentingly bad economic news, was that the bailout prospects for the auto industry fell apart on Capitol Hill yesterday. Members of congress grilled the auto chieftains on their extravagant spending, including the private jet trips they took to the hearings. While there is certainly profligacy in auto company spending, it can't compare to Wall Street. The TARP legislation failed to eliminate multi-million (or even deca-million) bonuses given to Wall Street management, their high salaries, lavish executive perks as was revealed recently with AIG, nor the dividends they are paying to their shareholders with government bailout money. Suddenly Congress has discovered that taxpayer money shouldn't be wasted irresponsibly with auto companies (whose political contributions can't match Wall Street's). While overall this is certainly a good thing, the economic impact of all the major U.S. auto companies going into bankruptcy should not be underestimated. Market action yesterday made that very clear.

Having a policy of selective government bailouts is the worse of all choices. A government can bail out no company if it wants to maintain a free market system or it can bailout every company if it doesn't. The government certainly shouldn't do bailouts based on political favoritism. At hit or miss bailout policy also is likely to insure the least results for the most money spent -. something the U.S. government has proven particularly adept at in the last several years.

NEXT: Five Year Lows are Bad, Eleven Year Lows are Worse

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.