Dollar Clears Resistance as Euro Falls Below Support

 

The 'Helicopter Economics Investing Guide' is meant to help educate people on how to make profitable investing choices in the current economic environment. We have coined this term to describe the current monetary and fiscal policies of the U.S. government, which involve unprecedented money printing. This is the official blog of the New York Investing meetup.

As the U.S. trade-weighted dollar (DXY) breaks out from a four month consolidation pattern, the euro (FXE) is falling below major support. The movements of these currencies have important implications for the rest of the market.

The dollar has been stuck trading roughly between 79 and 82 since January. There is strong chart resistance at these levels both from recent times and two decades ago. In the last couple of years, the dollar made a double top at just under 82 in late 2010 and early 2011. In the late 1980s and early 1990s the dollar made a triple bottom at three different points in this year's trading range. The dollar finally broke above 82 on May 23rd. While there is minor resistance just under 84, major resistance is from 88 to 89 — the highs during the Credit Crisis in late 2008 and early 2009 and in mid-2010 during the first phase of the Greek debt crisis. It should be assumed the dollar will get to that level again (and possibly higher). How long it takes to do so is still an open question.

As is almost always the case, the euro is moving opposite to the dollar. The euro has strong support at and just above 125. It made a double bottom at this level while the dollar was peaking during the Credit Crisis. Recently in January, it made another low at this level. There was a clear break below on May 24th. Next stop for the euro is the low around 119 established in June 2010 when the dollar was just above 88. If the euro breaks this support, it will try to head toward parity with the dollar. The powers that be will of course do everything possible to try to prevent this.

The commodity markets are heavily influenced by the dollar/euro price actions. All commodities are priced in dollars, so a rising dollar will lower commodity prices all else being equal. Oil (USO) and gold (GLD, IAU) are generally at the forefront of this price dampening. This is one reason spot gold was down 30% during the Credit Crisis, despite its safe-haven status. WTI Oil dropped almost 80% at the same time. Stocks of the commodity producers usually fall even more than the commodity itself. Multinational stocks in general are also negatively impacted by a rising dollar because their earnings are mostly made in other currencies.

Since large moves in major currencies are destabilizing, central bankers are always concerned when they happen. They will continue to do everything possible to prop up the euro, although the currency union cannot continue to exist in its current incarnation. There is a long history of governments trying to prop up weakened currencies however and while devaluations can be delayed, they can't be avoided altogether.  

Disclosure: None

Daryl Montgomery
Author: "Inflation Investing - A Guide for the 2010s"
Organizer, New York Investing meetup
http://investing.meetup.com/21


This posting is editorial opinion. There is no intention to endorse the purchase or sale of any security.

Silver Breaks Out of Trading Range

The 'Helicopter Economics Investing Guide' is meant to help educate people on how to make profitable investing choices in the current economic environment. We have coined this term to describe the current monetary and fiscal policies of the U.S. government, which involve unprecedented money printing. This is the official blog of the New York Investing meetup.

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Precious metals had a spectacular rally on Monday. While spot gold was up 1.9% on the day and hit another all time high at $1140.80, spot silver and palladium were the stars, rising 5.6% and 5.7% respectively (platinum was up 4.2%). At more than one point silver was up over a dollar and ended trading at 5:15PM New York time up 98 cents to close at $18.42. Silver has been stuck in a trading range between $16 and $18 since September and this was the first decisive break and first close above that range. Trading volume on the EFT SLV was approximately double normal levels and was highly supportive of the move up.

Now that silver has made its move higher, the spot price needs to stay above $17.70 (the low for the day) to maintain the breakout. The reason silver was stuck at the $16 to $18 level was because of a band of resistance at those prices established in March to July 2008. There is a further resistance point around $19.00 that still needs to be taken out. After that, a test of the 2008 high just under $21 will be possible. Some more consolidation should be expected around those levels and this is likely to take place in December. Silver and gold are seasonally strong in the early part of the year though and tend to form intermediate tops in March or April, so a move to the $25 area, long-term resistance from the late 1970s, is a target price for silver next spring.

As the precious metals continue to rise, you will hear more and more talk about a bubble. Ignore it. One well-known market guru said gold was in a bubble just yesterday. While gold and silver will eventually be in a bubble, this is a long way off. They are in bull markets. The two should not be confused. The simplest way to distinguish the two is by the price patterns and extent of the rallies. Bubbles have spectacular price rises that have been preceded by long multi-year continual rallies. Silver had a price collapse from almost $21 to under $9 in 2008. It is rallying up from the bottom. This is not a bubble pattern. Gold is up 53% off of its bottom from last year. When it was in a bubble at the end of the 1970s, it went up 400% the last year. Silver was up 1000%. When you see price rises like those in a single year, that is when you need to worry about a bubble. Until then, the trend is your friend.

The other nonsense floating around the media concerning the precious metals is they are not at inflation-adjusted highs and this is somehow a negative. Is it really? The same could have been said about U.S. stocks in the 1980s. Stocks had a major rally from those levels until they reached their inflation adjusted highs in the 1990s. Then, stocks had an even bigger rally after they reached this level. When an asset isn't trading at its inflation-adjusted high, this is a reason to invest in it because it means big profits can be made. Gold and silver have been reminding us of this almost every day lately.

Disclosure: Long gold and silver.

NEXT: U.S. Inflation Reports - Contradictions and Absurdity

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 Rockets Higher

The 'Helicopter Economics Investing Guide' is meant to help educate people on how to make profitable investing choices in the current economic environment. We have coined this term to describe the current monetary and fiscal policies of the U.S. government, which involve unprecedented money printing. This is the official blog of the New York Investing meetup.

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In a bull market there is always a higher price down the road for those who wait for it. Gold amply demonstrated this concept by hitting a new all time high yesterday (and again this morning). Tuesday's move was sudden and vertical and it took place even though the U.S. dollar was rallying strongly and stocks were selling off. While investors constantly worry about sharp sell offs, they don't usually consider that sharp rallies are also possible for bullish assets. While gold led the way up, silver and then the miners started tagging along shortly thereafter. Eventually all of the inflation trade assets followed. Look for this pattern to repeat.

At the 5:15PM end of New York trading, spot gold closed at $1085.30 yesterday, up almost $25. This took out resistance around the $1070 level. Gold was in a trading range between approximately $1050 and $1070 for awhile before testing its $1025 breakout point. Spot gold has gotten as high as $1094.30 early this morning. This is important implied resistance at $1120. Spot silver closed yesterday at $17.20 up 73 cents. It was up almost a dollar at one point. The 200% leveraged gold ETF DGP was up 4.7% and the 200% silver ETF AGQ was up 10.4% yesterday. Some mining stocks did even better. Novagold (NG) was up 13.2% and Hecla (HL) was up 18%. The U.S. trade-weighted dollar, after rallying strongly in the morning, lost its momentum and essentially closed flat.

What seems to have caused yesterday's gold burst is a story of karma worthy of a Hindi movie. As reported in this blog early Tuesday morning, India bought 200 tonnes of IMF gold. The sale took place during a two-week period that ended on October 30th. This news was generally available in the evening New York time on Monday. Nevertheless, more the one U.S. media outlet reported that India would be or was buying 200 tonnes of gold during the trading day on Tuesday. Gold which had been meandering in price suddenly started moving straight up on the intraday charts blowing out the shorts along the way. The karmic element comes into the story if you know India's past with the IMF. In 1991, during a financial crisis, India had to borrow money from the IMF and was forced to ship its gold reserves to London as collateral. Now they are buying the IMF's gold! Will a future time come, when a Western country has to borrow money from India and in turn be forced to ship their gold to New Delhi?

The movements of gold and the U.S. dollar in the last few days are significant for another reason as well. Since the Credit Crisis began the dollar has rallied before Fed meetings, during the meeting and at least into the day after the meeting. Gold has sold off in response. Things have changed noticeably this time. The Fed met yesterday and is meeting today. The dollar had the usual pre-arranged rally before the meeting and gold was weak, but then things went screwy. Gold suddenly shot to news highs on a big rally and the dollar rally faded as the meeting began. The dollar is already selling off strongly today before the meeting has even ended. Perhaps gold is just too strong and the dollar is just too weak for this manipulaton game to go on any longer.

NEXT: Inflation Trade Picks Up

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.

A Rally Frothing at the Mouth

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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Volume was relatively high on Nasdaq yesterday, but the price action went nowhere. Churning action like this is not a good sign and indicates lots of people are selling as other people are buying. As soon as the buyers get less enthusiastic, the selling pressure will drive the market down. This is only one of many hints that the current rally is heading for some trouble. The other obvious ones are the put/call ratio, overextended stocks, gaps, and resistance. There is also plenty of bad economic and corporate news waiting to be released and although the market has been ignoring it lately, at some point it will start paying attention to it again.

The put/call ratio is a contrary indicator and is only significant at extremes. It has fallen into the 0.5's range, not too far above the low for the last year, which is above 0.4. This level of put/calls indicates an excess of bullish enthusiasm and that traders are taking on too much risk. Still it is not impossible for the put/call level to hit a new low for the year and even if it that occurs, it doesn't indicate that the market rally ends the next day. It does mean the rally is getting long in the tooth however.

The market is also full of overextended stocks and there is extensive gapping going on. Once a stock starts to rally (let's define a rally as beginning with the 10-day moving average crossing the 50-day and staying above it), it is important that the price doesn't get too far above the 10-day moving average, nor the 10-day moving average gets too far above the 20-day (after it too has moved above the 50-day). The statistical phenomenon known as reversion to the mean is likely to kick into action when this occurs. The stock price will want to go back to the 10-day or even 20-day moving average (see a 3-month daily chart of HWD for a good example of this). The situation becomes ever more precarious if the stock gaps up while it is becoming overextended. This has happened not just once, but two or three times for some stocks lately. The market likes filling gaps and this adds another impetus for driving a stock's price down.

You need to keep an eye on major resistance areas. The Nasdaq is having trouble going higher because it is stuck at its 200-day moving average for the moment. The Dow and S&P 500 still have a way to go to get to theirs (currently around 9000 and 950 respectively). When they do, the entire market could start having trouble moving up. At the very least choppy action is likely to follow, if not an outright drop in the market (if it doesn't happen sooner, it will happen later).

If you have been in the market for the last month or more, you should have some nice profits. Don't let them disappear. Put stops below your positions or sell them if they have been going up too far, too fast and you have large profits.

NEXT: U.S. Unemployment 15.8%; Grade Inflation on Bank Stress Test

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 Getting Frothy; Meeting tonight for New York Investing

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 stock market indices were all up over 2% yesterday. Nasdaq crossed its 200-day moving average and closed 13 points above it. We are now at the point where many stocks have had substantial rallies and are moving up sharply. Watch out when this happens! While the average person wants to buy when this occurs, unless you are a short-term trader, selling is the more appropriate reaction. Stocks that are floating 20% or more above their 10-day moving averages should be considered particularly worrisome if the stock has been in rally mode for some time (if it is moving sideways in a base that's another story).

A good general rule of thumb is to sell at least half of your position when you have 100% profits. That way you can't lose. If the stock is also around an important resistance point and the technicals are at overbought levels, you probably wish to sell all of it. Sometimes for severely oversold stocks, especially low-priced ones, the stock can move up 100% and still be in a base and in this case you should NOT be selling (DXO and HWD would be examples of this). The sell rule is only valid for a stock that has been rallying. A lot of money is lost in the market because profits are not taken. Many sell offs take place gradually, so any given trading day doesn't raise an alarm bell. Taking profits is tricky and there is a tendency to sell much too early or much too late. However, don't aim for perfection - this leads to trouble. Your goal should not be to make the maximum amount of profit possible, but a reasonable amount. What is reasonable depends on your time frame. A couple of percent is good for a day trader, but meaningless for Warren Buffett.

An important part of the art of selling is to have a good idea of overall market conditions. We are still in a rally. Currently, there are reasons to think this rally will continue into June. After that, the probabilities are likely to turn against the market. When the market turns down, most stocks will go with it. Oil might last a little longer because of its seasonal trading pattern. There are a few things, like natural gas (UNG), that are still bottoming and haven't rallied yet at all. Gold (GLD) and silver (SLV) frequently trade counter to the market and should be rallying while most stocks are selling off. There are always opportunities in the market.

Tonight, May 5th, is the monthly meeting of the New York Investing meetup. I will be interviewing William Cohan about his latest best seller, "House of Cards". Cohan will be signing his book after the interview. There will also be a talk on the state of the market. The meeting starts at 6:45PM and will be held at PS 41, 116 West 11th Street.

NEXT: NYIM May 5th Meeting; Oil Report; Swine Flu Update

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 At Key Resistance; Scamdemic 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:

While it looks like Chrysler declaring bankruptcy weighed on the market yesterday, the selling from the intraday highs has a technical explanation. During the day, the Nasdaq reached 1753, almost hitting its 200-day moving average of 1756. This is always an important resistance point in any bear market rally. The Dow itself traded as high as 8307, a price where there is significant chart resistance. While some selling should be expected soon because the market usually can't just break through strong resistance immediately, I think the Nasdaq will manage to break above its 200-day after awhile and the current rally will last until the Dow and S&P 500 reach theirs. As of today, the Dow's 200-day is at 9077 and the S&P 500's is at 964 (the S&P's high yesterday was 889). All the 200-day's are falling, so you need to check where they are every now and then.

One thing that has not made the market go down, to its credit, is the mainstream media misinformation campaign about the current swine flu outbreak. While any rational assessment indicates that this is much ado about nothing and this version of flu is probably the least serious that ever existed, health care officials from WHO, the U.S. Health and Human Services, the CDC and the New York Health Department have done everything possible to fan the flames of hysteria and engender panic among the global populace. The media has been a more than willing accomplice in this endeavor. Moreover, this is not the first time this has happened. There was also a major swine flu scare in 1976 created by the U.S. government. That epidemic never materialized.

Having much experience deconstructing investing news for its intent to mislead the reader, it was easy to see immediately that the supposed dire situation with the current swine flu outbreak was all a bunch of hype. Let's examine the actual facts of what is taking place:

1. No one outside of Mexico has died from this disease. The one case of a death reported in the U.S. was for a toddler who was a resident of Mexico City and was brought to the U.S. Furthermore, he had other significant underlying health problems that the medical authorities refuse to reveal. Did he die from those instead of the flu? Quite possibly.
2. As for the supposed deaths in Mexico from swine flu, which is the basis for the pandemic panic, the evidence doesn't support media reporting. Almost from the beginning, the media reported 160 'suspected' deaths (sometimes the word suspected got left out). The figures as of this morning indicate that only 300 cases of swine flu have been confirmed by viral typing in Mexico (less than half of suspected cases turned out to be swine flu). Of these, only 7 people have died. What other medical conditions these seven had that might have contributed to their deaths is unknown and probably will remain so.
3. The danger of contagion seems to be minimal as well. Mexican health workers have so far found only 2 cases of family members of suspected and actual swine flu sufferers who have tested positive for type A influenza (this doesn't mean they have swine flu, but they could).
4. As of yesterday, the CDC had confirmed only 109 cases of swine flu in the U.S. The number of cases plateaued fairly quickly. The average sufferer has had relatively mild symptoms for a case of the flu and has recovered quickly.
5. The U.S. government has committed $1.5 billion of taxpayer money to handle this 'dire' emergency. So someone's getting rich off of it.
6. Based on the actual evidence (not supposition) so far, it looks like you are more likely to be hit by a bus than to get swine flu. Even if you got swine flu, it seems much less risky that the usual varieties of flu that we are exposed to on a regular basis.

While a certain percentage of the public has panicked over swine flu, most people have ignored the hysteria the government officials and the mainstream media are trying to foment. The credibility of both continue to sink - as they should. Perhaps the public is more worried about the gross mishandling of the economy by the powers that be and refuses to be distracted. Unlike swine flu, that's a problem that's not going to go away.

NEXT: Swine Flu Update - Government Scamdemic and the Credit Crisis

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.

Nasdaq Confirms Double Bottom - 200 Day MA Next

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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On Friday Nasdaq confirmed it made a double bottom in November and March. While this doesn't mean that we are out of the woods yet, it is another positive sign for continual bullish market action for the next several weeks. The other market indices have not created any recognizable bottoming pattern, although it looks like reverse head and shoulders patterns are in formation. Look for the market indices to go to their 200 day moving average, always a major area of resistance in a bear market rally. A move down when that point is reached is almost inevitable, although some minor piercing on the upside is possible.

Nasdaq's high after the November sell off was 1666. This is the neckline for a possible double bottom. Nasdaq then hit a slightly lower low in early March than it had in November (a double bottom with the second bottom lower is a more bullish pattern). Its high on Friday was 1682, above the neckline. No matter how visible the double bottom is on a chart, the pattern isn't completed until the neckline is broken. This is a buy signal. You would now like to see prices higher than 1682 being reached in the next several days for more confirmation.

The 200-day moving averages should now act as magnets for the market indices. For Nasdaq, the 200-day is currently 1780, less than 100 points higher. For the Dow, it is 9210 and for the S&P 500, 980. All of the 200-day moving averages are falling, so keep this in mind. My current guess is that they will all have to be hit. If this is the case, the Nasdaq is likely to go above its 200-day, while waiting for the more laggardly Dow and S&P 500 to catch up. The tech heavy Nasdaq has been leading the market on the upside for sometime now. If you look at charts for individual tech stocks, you will see many bottomed in November and didn't come close to making a new low in March.

At the moment, the stock charts are much more bullish than the picture being painted by the financial media. The charts tell you what people are actually doing in the markets, while the mainstream media usually tells you fanciful stories of what it thinks is happening, and even then it's mostly only half the story. Most people let the media guide their investing decisions, either consciously or unconsciously - and most people never make any money in the markets. The two are not unrelated.

NEXT: Look for the Gaps

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.

In the Eye of the Financial Hurricane

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:

There is some effort to talk down the current rally by the media today (assume the shorts have planted the stories). This doesn't mean the rally is going to end at the moment however. The momentum is very strong and doesn't seem to be have been dissipated yet, so no need to rush out and sell anything. The rally will end however and be followed by a sharp drop, possibly to lower lows. The current rally is very much a Bear Market rally and these differ in a number of ways from the beginning of a new Bull Market.

The money has been very easy in this rally and that is a common marker of Bear Market rallies. Prices move up very fast and seemingly without restraint. In contrast, beginnings of new Bull Markets are usually a struggle. It took about 10 months to put in the base at the bottom in 2002 and 2003 (the current bottom has had about a 5 month base put in so far). The market did not just shoot straight up out of that base. The bulls and bears battled for control on almost a daily basis with the bulls being able to only gradually move the market up. That type of constant give and take allows rallies to last a long time - about 10 months in 2003/2004. The current move up is almost effortless and because of that it can burn itself out pretty quickly.

The current rally has also been led by the biggest losers of the downturn - the financials. This is typical of bear market rallies, which are mostly short covering affairs. Once enough of the shorts close out and prices rise a lot, new short positions are put on that drive prices back down. The only thing that has made the financials more valuable is that the government is willing to put more taxpayer money into their coffers. Their value is no longer determined by economic forces, but corporate welfare payments. Not exactly an enticing long term economic model for investors.

There are three things for the current rally that need to be watched closely - resistance, earnings season, and April 15th. All the major indices are about to enter a strong band of resistance. For the Nasdaq, this starts at 1600 and goes to around 1650. The Dow has strong resistance at 8300, with with more resistance around 9000. For the S&P 500, there is resistance between 870 to 940. These are levels where the rally is likely to run out of steam. Another limiting factor to the rally is that first quarter earnings season starts around April 7th. Rallies into earnings usually mean a sell off after - and sometimes even during. As for April 15th, people frequently sell investments to pay their taxes and the market tends to dip then for that reason (although the dip can be temporary). So in figuring out when to sell, watch resistance and watch the calendar.

NEXT:

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.