Market Sells Off Even Though Bernanke Is Bullish

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.


Fed Chair Ben Bernanke stated last night that he is 'hopeful' the U.S. economy will not fall into a double dip recession. After a tremendous drubbing on Friday, stocks somehow managed to sell down to even lower levels yesterday. They are down again this morning following Bernanke's comments - a fitting response to his forecasting acumen.

Few people in the United States seem to be as oblivious to the condition of the American economy as is the guy who is in charge of the Federal Reserve. Bernanke notoriously stated that subprime borrowing wouldn't cause any problems only weeks before it blew up into the biggest financial crisis the world has ever seen. Following this, the Fed released a number of statements in the spring of 2008 about how it was hopeful that its policies would prevent the U.S. economy from falling into a recession. Unfortunately, the economy had already fallen into recession months before, but the Fed was blissfully unaware of this even though it has more access to economic data than anyone else. The buffoonish Bernanke has been beating the drum of economic recovery for a long time now, even though analysis of U.S. statistics indicates the private sector is still struggling. The only recovery that seems to have taken place is in increased government spending.

At the moment, the markets don't seem to share Bernanke's rosy view of the future. The Dow dropped 115 points (1.2%) yesterday and most of the selling took place around the close, as is typical in bear markets. The Dow's ending price of 9816 was well below the key 10,000 level. The S&P 500 fell 14 points (1.4%) and closed at a new low for 2010, as did the Dow. Selling was even more pronounced in the tech heavy Nasdaq and the small cap Russell 2000. The Nasdaq lost 45 points (2.0%) and the Russell 15 points (2.4%). As of today, the Dow and S&P 500 have spent 13 trading days below their simple 200-day moving averages, a bearish pattern. Selling was also widespread with market breadth close to three to one negative on the NYSE.

The only areas of the market that did well yesterday were utilities, gold/ gold miners, and treasuries - safe havens. Financials were hit hard with Goldman Sachs (GS) falling 2.5% and Bank of America (BAC) losing 3.4%. U.S. bank failures have reached 81 so far this year and look like they are going to handily exceed 2009's very high figure. Credit card debt has fallen for 19 months in a row and May's employment report indicated private sector hiring has disappeared. Once the 1.2 million temporary Census workers are dismissed, the U.S. unemployment rate should go above 10%. These are not signs of economic recovery and yet the Fed chair keeps spouting one cheerleading remark after another about how recovery is taking place. Herbert Hoover did the same thing in the early 1930s as the Great Depression was developing. Consequently, he is now treated as a historical laughingstock. History may take the same view of Ben Bernanke. 

Disclosure: None

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.

June Begins With Continued Market Weakness

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.


After a sharp drop on the open, U.S. stocks mounted a rally and remained positive for most of the day. Selling toward the close, a classic bear-trading pattern, clocked the rally however. Small caps were hit particularly hard.

Healthy markets are strong in the beginning of the month. Trading days before major holidays, like Memorial Day, also tend to be positive. Last Friday was a down day however as was the first of June. Bull markets also tend to be weaker in the morning and stronger at the close, when professionals control the market. The market's attempt to follow this pattern failed miserably yesterday. It was also not the first time lately that strong selling occurred toward the end of trading.

The Dow Jones Industrial Average dropped 1.1% or 113 points. It barely held the key 10,000 level, with the low of the day at 10,014. As of June 1st, the Dow has spent time below its 200-day simple moving average for eight days in a row, as has the S&P 500. The S&P was hit harder than the Dow, falling 1.8% or 19 points. Nasdaq, which tends to be more volatile, lost only 1.6% or 35 points. Nasdaq had been trading completely above its 200-day at the end of May, but closed a tinge below it yesterday (this can only be considered bearish). Small caps experienced the biggest damage by far though, with a loss of 3.2% or 21 points on the Russell 2000. Nevertheless, the Russell held above its 200-day line and is still technically in the best shape of all the major U.S. stock indices.

The euro (FXE), which has been the driver for market behavior for months now, moved mostly with the markets yesterday.  Sharp selling on the open and quick recovery just like stocks, but then a slow fade for the rest of the trading day. The euro's loss of momentum was an early warning that stocks would be doing the same later on. The euro closed at 122.03 with an intraday low of 121.51. Its low in the sell off so far has been 121.27. There is support around the 120 level. The trade-weighted U.S. dollar on the other hand has resistance around 88 and closed just above 86.75. During the 2008 Credit Crisis, the euro spent seven weeks around the 125 level and then had an explosive relief rally. We should be seeing just such a rally again sometime during the summer. It will likely fade right back to the low after a number of weeks, as was the case in early 2009. This time the euro may even go lower.

Disclosure: None

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.

Stocks Rally in Short Term Reversal

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.


After hitting a lower low on the open, U.S. stocks reversed their sharp downturn in late afternoon trade yesterday. The rally so far is an expected oversold bounce.  There is no reason yet to think that it will turn into something more significant.

Technicals, not fundamentals are driving stocks at the moment. Tuesday's action was an attempt to resolve an oversold condition from Friday the 14th. Seven trading days later, the major indices - the Dow Jones Industrial Average, the S&P 500, the Nasdaq and the Russell 2000 were all substantially lower. They were also well above their respective 200-day moving averages on the 14th, but all were below their 200-days yesterday.

The 200-day is the key dividing line between bullish and bearish behavior. With the exception of the small cap Russell 2000 (which is holding up best in the sell off), the major indices have violated their support at the 200-day twice in the recent sell off. The first time was during the odd crash on May 6th. Many considered the intra-day drop below the 200-day then to be a mere fluke. In the last five trading days though, the Dow, S&P, and Nasdaq have again traded below the key 200-day line at least part of the day. 

Stocks are also trading to try to fill gaps (a price range where no trading took place) in the charts. This usually occurs within a few days, although weeks and even months are possible time frames. There was a large down gap in trading on May 20th and another one before that on May 14th. The market will want to rise in the near term to at least fill the gap on the 20th. Yesterday's gap down was a short-term exhaustion gap (a gap after many down days or up days) and the markets moved up to trade into the empty space that had been left on the charts.

Technical factors are moving the market up at the moment, but once they get resolved, stocks are likely to head down again. The fundamental problems that emanate from the eurozone have not been fixed. For a major bottom to be put in, some dramatic event like a Greek default or Greece being removed from the euro currency union would be a good signal for a bigger rally. A much larger bailout, such as $5 trillion instead of a mere $1 trillion would pump up stocks as well. This is what reversed the markets during the Credit Crisis and the central bankers and treasury departments of the world will almost certainly attempt their tried and true money printing solution again. The only question is when they will do it.

Disclosure: No positions

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 a Key Juncture

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 finally pierced and closed above its 200-day moving average yesterday, the last of the major indices to do so. This could be a possible end to the rally that began in early March, but we don't know for sure yet. The trade-weighted U.S. dollar hit major long-term support overnight and has so far managed to bounce off of it. Gold reached as high as 990, once again bumping up against its major resistance at a 1000. Oil has traded well above 68 and is close to important resistance at 70. At least a short term reversal of trends is possible for all of these markets. It will take awhile though to determine if this will turn into something bigger.

In many ways the dollar is key to all the other markets. The trade-weighted dollar fell as low as 78.40 last night and made a double bottom on the short term charts. Major support is at 78.33, which was the low point of a large reverse head and shoulder bottom pattern made between 1991 and 1993. This support was broken in 2007 and the dollar then fell to around the 72 area. The dollar traded as low as 79 at the end of last year before recovering. What saved the dollar from the precipice last night was 'unnamed sources' telling Reuters that "a downgrade in the U.S. sovereign credit rating would not discourage Asian central banks from buying U.S. treasuries." Now I wonder who could have planted that story at such a convenient time? You should also be wondering are these Asian central bankers really that dumb or should they be suing Reuters for libel?

The short term key to whether or not stocks can hold their gains and go higher is whether or not the Nasdaq can hold above its 200-day moving average. Nasdaq was the first to break through this key resistance and has been leading the market up since the bottom. The Dow is the market laggard, although its position might improve in a few days when major losers GM and Citigroup are removed from the index and replaced by Cisco and Travelers. The Nasdaq 200 line is currently at 1684 and still falling. Nasdaq is holding above 1800 this morning.

At this point, whether or not gold can finally make the break above the magic 1000 level will be determined by how the dollar holds up. If the dollar breaks below 78, gold will be breaking above a 1000 and will rally until the dollar fall is broken. Expect major government manipulation behind the scenes to try to prevent this scenario. If they fail here, they will try for a reversal lower down. A weak dollar will also boost oil to higher levels, although a good hurricane could do the same.

NEXT: Dollar Sage Continues; Commodities Take a Hit

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.

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.

Our Video Related to this Blog:

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.