The Commentary       Today's date March 30, 2009
Good day, here you will find the e-mail that is sent out to subscribers and hedge fund clients during the trading week. It is being put on the website sporadically this year because Ken is busy trading during the day. This is only the e-mail part of the commentary as information about current trades are only sent out to subscribers and Hedge Fund clients.  Hope you  enjoy reading the following commentaries and have a great day and Good trading!!

Monday, March 30, 2009 4:03 p.m est.

The market fell on Friday on profit taking after a huge week but the selling continued today on worries that the government would soon have enough power to tell who was going to work for whom when. Scary that’s all I have to say. It was no wonder the market was down after it was announced over the weekend that the government was firing Rick Wagoner the CEO of GM. Yes he may deserve it but shouldn’t that be left to their board to decide or even better yet, let the natural process occur, if they don’t make money, down they go to start over! I think its time to start learning Russian in case they walk in and tell me who's running my business! Oops I forgot, I live in Canada, were only socialist here, haha which actually isn't true by the way! I never thought I would say this because I know I'm about to get phone calls from friends, but I'm actually glad I live here now! Corporate taxes are only 16%, moving down to 15% and if I get mangled in a car accident it will only cost my entire family $108.00 per month and the banks weren't greedy enough to squeeze the last penny out of the mortgages on our igloo's we live in so their still flush with cash to buy their broken down American counterparts!

Anyhow, to confirm that America is headed towards everyone being equal it was also announced over the weekend that tax hikes were on their way for New York. Could this be what the entire country is going to look like? The tax hike on earners that make $250,000 or more, proposed by President Obama has caused an outpouring of rage. The New York state is getting ready to raise taxes on those who make $300,00 or more. According to The New York Times, the new tax "would affect those with incomes starting at $300,000, who would be taxed at a rate of 7.85%. The highest bracket would carry a tax rate of 8.97%, the same as New Jersey’s current highest rate," and would be levied on those who earn $500,000 or more. Interestingly, the tax would be accompanied by "significant spending cuts in areas like health care and education." But don’t worry comrade the government is sure to keep the bread lines short!!!

The market saw lows midday with the Dow off -340.00 points, S&P 500 -36.00 points and the Nasdaq Composite -65.00 points. At the close the Dow was down by -254.00 points to about 7522, S&P 500 +28.00 points to about 788.00, S&P 100 -13.00 points to 373.00 and the Nasdaq Composite -43.00 points to 1502.00. Oil closed down on all of this news -$3.97 closing around $48.50.

The market had a huge rally last week out of a strongly oversold condition. As a matter of fact it was one of the biggest rallies in the shortest amount of time, in quite awhile, +23% in 13 trading days last seen in 1938, 71 years ago actually. The sharpest gains were in those stock groups most damaged in the preceding declines which were likely the most heavily shorted, as well. This makes the pullback today not that surprising considering so you would think the rally will continue but it appears that people are getting worried about who’s next on the chopping block, which company is the government going to go after next etc etc. Treasury Secretary Geightner himself stated that even companies that haven’t received any Tarp money are going to be investigated to see if they need any government help in management! This tells me at the least that the market will likely work towards getting itself into an oversold condition before moving up once again.

Thursday, March 26, 2009 4:03 p.m est.

The market continued higher today as there was no reason to go down the Dow seeing highs of +180.00 points, S&P 500 +19.00 points and the Nasdaq Composite +60.00 points after todays auction of treasuries turned out okay for the most part.

At the close the Dow was up by +175.00 points to about 7924, S&P 500 +19.00 points to about 833.00, S&P 100 +8.00 points to 393.00 and the Nasdaq Composite +58.00 points to 1587.00. Oil closed up basically what it gave up yesterday, +$1.29 closing around $54.00.

The fall that we saw midday yesterday and the snapback rally told me a couple of things. One thing was that you have to be really quick to get any downside trades on and that it looks like the market will likely remain stable at higher prices for this expiration cycle. I think the odds are favoring more and more that we’ll see an up cycle. The market however remains quite overbought and needs to pullback because it can’t continue to move up at this breakneck speed, otherwise we’d be back to new highs in the market in a matter of weeks! When the correction comes I will be looking for some decent downside trades but its looking more and more like the downside will be limited to old lows and maybe not even get back to last Fridays close unless of course a surprise comes which is always possible. We are still in a very wide downward sloping trading range with the ceiling around the 840 level on the S&P 500 and the downside 675 so we’ll keep watching....

There is great news for us in the future coming though and that is according to Reuters: “In a bid to quash Wall Street excesses that nearly caused the collapse of the U.S. financial system, the Obama administration will propose tough restrictions on financial firms, hedge funds and derivatives markets. The Treasury will work with Congress to form a powerful systemic risk regulator with the authority to look deep into financial firms other than banks, such as hedge funds and private equity companies, administration officials said, speaking on condition of anonymity.” This means that flatness will likely come to the market which will be great for our type of trading. Similar to the situation we had from 2003-2007.

The economy experienced its most violent pullback in a generation during the fourth quarter, with real Gross Domestic Product basically crashing at a -6.3% annualized seasonally adjusted rate in the third estimate of quarterly growth. The pullback in the economy was broad based, with declines in every major sector except the federal government. Corporate profits fell at the fastest pace since 1953! Final sales to domestic purchasers, domestic demand, fell at a -5.8% annual rate, the biggest drop since 1980! The big revision came from inventories, where a small increase in stockpiles that was originally reported turned into a small decline in the final revision.

The number of continuing claims has reached yet another new record, jumping +122,000 to a seasonally adjusted 5.56 million last week. The four-week average of these claims rose +123,750 to 5.33 million, also a new record so things aren’t turning around very quick. Jobless Claims rose +8,000 to 652,000, a level that is 78% higher than the same period in the prior year while the four-week average fell -1,000 to 649,000.

Wednesday, March 25, 2009 4:03 p.m est.

Yesterday the market pulled back a bit at the close which wasn’t surprising considering how big the rally was on Monday but the market bounced back to previous highs early on today. The Dow saw highs of +210.00 points, S&P 500 +21.00 points and the Nasdaq Composite +45.00 points but after an auction for 5-year treasuries started pointing to much higher yields needed to pay for all of this money the government is borrowing because no one was interested in the low rates, the market started to sell off. The Dow saw lows of -120.00 points, S&P 500 -15.00 points and the Nasdaq Composite -35.00 points. Of course by the close those losses were made up because it couldn’t possibly be true that all of this borrowing will cause interest rates to go up!! (cough, cough mumble mumble 1980’s) Recently, the Chinese government has spoken publicly about its worries about the U.S. dollar and Treasury bonds because of the financial crisis, and the resulting government spending. Of course the Treasury Department and Fed argue that hundreds of billions of expenditure on economic stimulus and bank stabilization is the only way to get the economy straightened out.

At the close the Dow was up by +90.00 points to about 7750, S&P 500 +8.00 points to about 814.00, S&P 100 +4.00 points to 385.00 and the Nasdaq Composite +13.00 points to 1529.00. Oil closed down -$1.21 closing around $52.67 after poor inventory data came out.

I found this to be an interesting report this morning that came out on housing as IBD had an interesting article out yesterday. It was reported that New Home Sales were up rose +4.7% in February, the first increase since last July. The increase in new-home sales to a seasonally adjusted annual rate of 337,000 was well above the +323,000 pace expected by economists. New-home sales in January were revised worse though to a 322,000 level compared with the previous estimate of 309,000. They are still down -41.1% compared with a year ago and the supply of homes on the market fell slightly to 12.2 months from 12.9 months in January which is still not a good sign. This is still well above the 9.7 month supply in February 2008. Median sales prices have fallen -18.1% in the past year to $200,900.

The housing market has reportedly been showing improvement lately but one source says that the worst may be yet to come, as foreclosures that are not being counted in government statistics are much more prevalent than being reported, and are likely to lead to yet another leg of problems for the economy. According to Investor's Business Daily there may be as many as 600-700,000 foreclosed homes that are not listed on the multiple listing service (MLS). These houses are not being counted in the government statistics and in the general awareness of the public as of yet. The problem is that when this huge inventory eventually hits the mainstream it will create significant consequences. IBD says that “This shadow supply isn’t counted as part of the housing inventory. There were 3.8 million existing homes on the market in February, equal to 9.7 months worth at the current sales pace. Add in the shadow supply and selling all the available homes will take even longer, and that suggests prices have even further to fall."

In other words, the good news is being reported, especially three major stories: "February existing-home sales rose +5.1%, the best monthly gain in years. Housing starts shot up +22.2% from a record low." and "Low mortgage rates and falling prices have made homes more affordable." Yet, what is not being told is the facts: “foreclosure activity has been artificially suppressed,” while “Mortgage delinquency rates have continued to soar in the last several months even as the new foreclosure rate has held steady.” The reason is that “government moratoriums or voluntary lender halts,” have just stalled the inevitable crash. Yet, according to IBD “most experts say eventually most of those homes will be foreclosed!” Besides that, the fact that “Lenders also may be understating the impact foreclosures will have on their balance sheets. And the shadow is likely to grow as more homeowners default.” According to IBD, the recent improvement in housing statistics is just considered “window dressing.” For this reason its hard to say its all over so we’ll have to wait another 6-months to see what really happens.

Instead of selling houses and reworking loans Jim Richman, president and founder of Richman & Associates, a real estate and debt restructuring firm in Glendale, California, told IBD that “Lenders aren’t doing anything” and that “they’re waiting to see if the government will bail them out.” Moe Bedard, president of Loan Safe Solutions, a Corona, Calif.-based firm that does mortgage auditing for attorneys, told IBD, “Everybody is stalled 100%; the lenders aren’t doing anything.” There may be even more to it because Richman is a former banker and former Housing and Urban Development commissioner. He also believes lenders “are illegally operating under current federal rules,” by not writing down their foreclosures adequately. “Lenders are doing everything they can to stay in business, but it’s against all the rules,” said Richman. “(Regulators) are afraid to enforce the rules because if they do the banks will fail, and the feds will have to bail them out.” According to the report, lenders are dragging their feet on foreclosures and write downs, as they wait for the next government program to come out and change the rules, while giving them access to more money.

The best way to sum it all up is: “What the banks can buy with time (holding foreclosures and not listing them for sale) is the tooth fairy,” said Thomas Barrack Jr., founder, chairman and CEO of Colony Capital, a Los Angeles-based private equity firm specializing in real estate. “The government has shown that if you wait long enough, it will come out with a new program to modify the obligations of the bank and borrower. Pixie dust comes every week.”

Durable goods orders were up +3.4% and was unexpected. This was the first increase after six-straight-monthly drops, an indication that domestic demand may have bottomed but who really knows as these numbers can be very volatile. Economists had been looking for total orders to fall -1.2%. Machinery orders rose +13.5% in February, the biggest gain in just under five years. The sector, which includes construction equipment, turbines, industrial machinery and oil-drilling equipment, was down -26% in the past year. Transportation orders rose a surprising +2.0% which follows an -11.9% drop in the previous month. The sector was helped by a sharp increase in defense aircraft. Orders for autos and commercial airliners were down sharply. Excluding transportation goods, February's orders rose +3.9%, the most since August 2005 while electronics orders rose +1.6%. Semiconductors fell -21% while capital equipment, that is, non-defense, non-aircraft capital equipment was up rose +6.6%.

Monday, March 23, 2009 4:03 p.m est.

The market was up strongly first thing this morning after the plan by Treasury Secretary Timothy Geithner released some details over the weekend about the plan to get private companies to partner with the government and buy the so-called toxic assets from banks' books. The department said that a new public-private partnership could purchase $1 trillion in poor assets from banks, which would allow them to renew lending. Taxpayers will stand to see gains alongside investors such as hedge funds and private-equity firms if the investments prove profitable. Hmmm, government intervention is always profitable right!!! Anyhow the Dow saw highs at the close of +505.00 points, S&P 500 +55.00 points and the Nasdaq Composite +100.00 points.

At the close the Dow was up by +500.00 points to about 7778, S&P 500 +55.00 points to about 823.00, S&P 100 +26.00 points to 389.00 and the Nasdaq Composite +99.00 points to 1556.00. Oil closed up +$1.73 closing around $53.79.

Last week saw a gain of +1.5% even though the market was much stronger at the start of the week. I was expecting an up week though because it was a quadruple witching expiration because they are generally more up than down. What’s interesting is what happens the week following though as witches do seem to appear. For example, the S&P 500 has advanced only 17% of the time in the week following triple expiration since 2006. If you go back to 2000, the week following triple witching is also bearish. During 36 such weeks, the market has been higher in this period only 28% of the time, with an average loss of -.57%. This is interesting considering we have started the week so strongly. After seeing nice fills for upside trades now maybe we’ll see nice ones for the downside also if we pull back a bit!

Sales of Existing Home Sales rose +5.1% to a seasonally adjusted annual rate of 4.72 million in February, increased by "deep price discounts," the National Association of Realtors reported and was the largest percentage gain since July 2003. Sales are down -4.6% in the past year but increased in all four regions. Sales of foreclosed properties or short sales accounted for about 45% of sales. Economists were expecting a decline to a 4.45 million from January's 4.49 million annual rate. The median sales price dropped -15.5% in the past year to $165,400 and is the second largest year-over-year price decline on record, after January's -17.5% drop. Inventories of unsold homes on the market rose by +5.2% to 3.80 million, a 9.7 month supply at the February sales pace however which isn’t good news. Sales of single-family homes rose +4.4% while condo sales increased +11.4%. Sales of single-family homes and condos increased +15.6% in the Northeast, +1% in the Midwest, +6.1% in the South and +2.6% in the West. Sales in the West are up +30% compared with February 2008.

Thursday, March 19, 2009 4:03 p.m est.

The market pulled back today as financials fell after seeing an almost +50% gain in the past week. At its lows the Dow saw -120.00 points, S&P 500 -13.00 points and the Nasdaq Composite -20.00 points. The market continues to get more and more overbought but the question now is if the pullback will just be a normal correction in an ongoing rally or is the rally finished for a continuation of the bearish downtrend. I’m thinking we’ll see the rally continue or at the least the bottom is in for at least a couple of months because the government is throwing everything possible at the economy to help keep it alive! We could see a bit more downside to establish a rising trend channel and get the market back into neutral technical territory, but it will be easier to tell that after expiration is finished tomorrow. I’ll have something out over the weekend on the upcoming expiration cycle....

At the close the Dow was down by -86.00 points to about 7401, S&P 500 -10.00 points to about 784.00, S&P 100 -6.00 points to 370.00 and the Nasdaq Composite -8.00 points to 1484.00. Oil closed up strongly, around +$3.50 closing around $51.30.

Continuing Jobless Claims jumped by +185,000 to a record seasonally adjusted 5.47 million last week while new claims fell by -12,000 to 646,000. The +185,000 weekly increase in continuing claims was the second largest in the past year and indicates that job destruction continues to outpace any semblance of job creation. The initial claims figure covers the same week that the government surveyed hundreds of thousands of businesses and households to collect information for the March unemployment report.
The four-week average of new claims rose by +3,750 to 654,750, the highest level in 26 years while the four-week average of continuing claims rose by +118,750 to 5.25 million, also a record high.

Factory activity in the Philadelphia region bounced off the lowest level in 16 years during March, but details of the Fed’s Reserve Bank of Philadelphia's report suggests that manufacturing activity still is falling at a rapid pace. The Philly Fed's business outlook survey rose to negative -35% from negative -41.3% in February, which was the lowest reading since the summer of 1980, the data showed. Meanwhile, details contained in the March report remained quite weak. Employment losses were substantial, with more than 50% of the surveyed firms reporting declines, and indexes tracking new orders and shipments also came in significantly negative. All the same, the degree of the gain in the general activity index surprised analysts. Economists had been looking for a reading of negative -39%. The shipments index rose to negative -26.5% from negative -32.4% while the employment index fell to negative -52% from negative -45.8%. Prices declined for a fifth straight month, with the prices paid index dropping to negative -31.3% from -13.7% and the prices received index falling to negative -32.6% from -27.8%. However, manufacturing firms in the Philadelphia area were optimistic about the next six months as the expectations index fell to -14.5% from -15.9%. The Philly Fed index is closely watched by economists and traders for clues it might give about the status of the manufacturing sector nationwide.

Wednesday, March 18, 2009 4:03 p.m est.

The market was correcting first thing this morning as it is getting quite overbought now, but as the anticipation of what the Fed would reveal after its two day meeting it cut losses substantially. At its lows the Dow saw -125.00 points, S&P 500 -12.00 points and the Nasdaq Composite -15.00 points. After they announced that rates were being left unchanged the market started to rally. As traders absorbed the fact that they are going to start buying treasuries the market really took off with the Dow seeing highs of +175.00 points, S&P 500 +26.00 points and the Nasdaq Composite +50.00 points. The market pulled back a bit in the final hour as it touched the +20% level in only eight trading days now.

At the close the Dow was up by +90.88 points to about 7487, S&P 500 +16.00 points to about 794.00, S&P 100 +6.00 points to 376.00 and the Nasdaq Composite +29.00 points to 1491.00. Oil closed down about -$1.00 closing around $48.00 as inventories were much bigger than expected.

The Fed surprised markets after they said they were committing to buy $300 billion in longer-term Treasury’s to help the economy recover. They also tweaked other credit-easing programs by committing to buy more mortgage-backed securities and agency debt and include more asset-backed securities under a new credit facility starting this week. Most analysts had thought that the Fed would keep the weapon of buying Treasury’s in reserve only in case of a crisis but I guess this means that the crisis is here! “To provide greater support to mortgage lending and housing markets,” the Fed said it would purchase an additional $750 billion of agency mortgage-backed securities. This brings the total amount of agency mortgage-backed securities to $1.25 trillion. The Fed said it would double its purchase of agency debt to $200 billion. “Moreover, to help improve conditions in private credit markets, the FOMC decided to purchase up to $300 billion of longer-term Treasury securities over the next six months,” the statement said.
In addition, many unspecified types of assets will be included in the newest Fed credit facility, the Term Asset-Banked securities. All of these purchases will increase the size of the Fed's balance sheet as it has already doubled the size of it to just below $2 trillion.

The one problem is that they seemed to be more pessimistic about the economic outlook as they removed language saying they expected the economy to recover later this year and repeated that deflation was a risk to the economy. They said the economy was “weak” and the latest information only showed further contraction. There was no mention of any “green shoots” of recovery that Fed chief Ben Bernanke mentioned seeing in his interview on Sunday with 60 minutes. Economists expect that the economy is shrinking at a -4.8% annual rate in the first three months of this year. Growth fell -6.2% in the fourth quarter of 2008. The Fed said that it still believed that the programs that it has put in place, combined with fiscal stimulus, would be able to pull the economy out of the ditch. The vote on the statement was unanimous. Experts said the Fed would likely concentrate its Treasury purchases in the 3-to 10-year range which would help to lower credit spreads on other loans which would be good to get mortgage rates lower and this is why the stock market likely took off.

With energy prices rising at the fastest rate in seven months, Consumer Prices increased a seasonally adjusted +0.4%. The gain in the consumer price index was the second increase in a row and the largest since July! Doesn’t look like deflation to me! In January, the CPI rose +0.3%. Energy prices increased +3.3% including an +8.3% gain in gas prices. Food prices fell -0.1%, the first decline in nearly three years. Excluding food and energy prices, the core CPI increased +0.2% for the second month in a row, because of higher prices for new cars, clothes and cigarettes. Shelter prices, the biggest monthly expense for consumers, was unchanged. Actually, over the longer term all of this massive fiscal and monetary stimulus being pumped into the economy threatens to unleash inflation so we’ll see how stable it remains. The government will have to be quick to remove the stimulus at the right time but for now, getting the economy growing again is the only job that matters.

The volume of mortgage applications filed last week rose a seasonally adjusted +21.2% compared with the week before, driven by a surge in refinancing activity, the Mortgage Bankers Association said. Lower interest rates on fixed- and adjustable-rate mortgages attracted home owners as well as people seeking to buy homes. Application volume for the week ended March 13th was up an unadjusted +31.2% from the same week in 2008, the Washington-based MBA said. Its weekly survey covers about half of all retail residential mortgage applications. On a week-to-week basis, applications for mortgages to buy homes rose a seasonally adjusted +1.5%, while filings to refinance existing home loans increased +29.6%. Rates on 30-year fixed-rate mortgages averaged 4.89% last week, down from 4.96% the week before, while the average rate on 15-year fixed-rate mortgages eased to 4.52%, down from 4.54% and the rate on one-year ARMs averaged 6.20%, down from 6.21%. Re-financings made up 72.9% of last week's mortgage applications, up from 67.9% the week before. ARMs accounted for 2% of applications, down from 2.3%. Now that the Fed is buying up bonds we should see rates go even lower.

Tuesday, March 17, 2009 4:03 p.m est.

Yesterday the market started the day on the upside and made some strong gains early on but lost them to profit taking to end the day sightly off of the unchanged level which wasn’t surprising considering how much the market has moved in a short amount of time. Today it looked like it would continue lower with the Dow seeing lows of -50.00 points, S&P 500 -5.00 points and the Nasdaq Composite -5.00 points but as tech was extra weak yesterday it was strong today so the market turned around. Because selling wasn’t that bad, financials rallied pulling the entire market up in the final hour with the Dow seeing highs of +180.00 points, S&P 500 +25.00 points and the Nasdaq Composite +60.00 points.

At the close the Dow was up by +179.00 points to about 7396, S&P 500 +24.00 points to about 778.00, S&P 100 +11.00 points to 369.00 and the Nasdaq Composite +58.00 points to 1462.00. Oil closed up about +$2.00 closing around $49.00.

This is an expiration traded week and the last couple of years we have seen strength but this is a special expiration being a quadruple witch as all contracts are going off the board as we end the quarter and move forward to the June number. Every March, June, September, and December, option expiration coincides with the expiration of stock index futures. Anyhow, six of the past seven triple-witching expiration weeks have been positive. One thing that could skew this weeks trading though is that last week was a huge week, as the market gained more than +10%. Since 2006, no weeks prior to these expiration weeks came close to matching the return we just saw. In fact, the preceding week has shown only a gain of about +1% only twice during this time frame. The first was in March 2007, when the week prior to expiration gained +1.13%, which was followed by a -1.13% loss during the following expiration week. The next was September 2007, when the market gained +2.11% in the week before expiration. This time, the market was up +2.80% during the following expiration week. Because of this it is hard to see what last week’s big return means for this expiration. It’s obvious that expiration weeks have generally been positive though so the one thing we hopefully shouldn’t have to worry about is that we’ll give up all of the gains.

Because of an +82% increase in construction of apartment buildings, Housing Starts surged +22% in February to a seasonally adjusted annual rate of 583,000. This was the largest percentage gain in 19 years and was the first increase in eight months in the sector that was at ground zero in the global economic recession. The housing data in winter months are especially volatile because of the weather. Building permits, which are less volatile than the starts data, rose +3% in February to a 547,000 annual rate. Permits for single-family units rose +11% to a 373,000 rate, the largest percentage gain in 18 years. Construction of new housing units had fallen a huge -38% in the previous three months before this jump. Economists had forecast a further drop to 456,000, despite an expected surge in multifamily construction. Starts are still down -47% from a year ago, and are down -74% from the peak in early 2006 while permits are down -44% in the past year. Builders are still trying to reduce their inventories of unsold homes as they face relentless competition from older homes thrown on the market by foreclosures or short-sales. This is a good sign but it can take four months for a new trend in housing starts to emerge from the data. In the past four months, housing starts have averaged 568,000 annualized, down from 614,000 in the four months ending in January.
February’s housing start rate of 583,000 was the highest since November while January's starts were revised higher to a 477,000 pace, a record low dating back to the 1940’s! Completions of housing units rose +2.3% to a seasonally adjusted annual rate of 785,000 while completions of single-family homes fell -8.2% to a record-low 505,000.
The number of units under construction fell -2.7% to a 762,000 annual rate. Single-family homes under construction dropped -3.4% to 370,000, the lowest in 38 years.
Starts rose +89% in the Northeast, +58% in the Midwest, +30% in the South and fell -25% in the West.

Yesterday it was reported that Industrial Production dropped -1.4% in February. Production has now been down for four straight months, in five of the past six months and in 10 of the past 12 months. Capacity utilization fell to 70.9% from 71.9% in the previous month and matches the lowest level on record, set in December 1982! The drop in production was larger than expected as economists had been anticipating that February's production would fall -0.9%. Industrial production was down -11.2% over the past year. Declines in output were widespread in February but one sector that showed strength was autos, where production rose +8.5%. The Fed said the gain was due to restarting plants after extended shutdowns in January. Autos are not an area of strength as production is -35% below year-ago levels. The output of consumer goods fell -0.7% in February. The production of consumer durables rose +1.6% on autos, while the index for non-durables fell -1.2%. The index for business equipment fell -1.3%. The gain in vehicle production was offset by weaker production of information-processing and industrial equipment. Construction output fell -2.2% after a -4.2% decline in January. The sector has fallen more than -18% over the past year.

Also out was that the Empire State manufacturing survey fell -4 points in March to -38.2%, a fresh record low, the Fed Bank of New York said. Just 10% of respondents reported that conditions had improved over the month, while 48% reported that conditions had worsened.

Friday, March 13, 2009 4:03 p.m est.

The market kept going up this morning on no real news but as the day wore on profits started to be taken. The Dow saw highs of +75.00 points, S&P 500 +8.00 points and the Nasdaq Composite +10.00 points but when the selling came in the Dow saw lows of -60.00 points, S&P 500 -7.00 points and the Nasdaq Composite -20.00 points. The final hour saw a return near highs. If you can believe it that’s four days in a row which hasn’t been done in months! Actually the market has been cycling up and down since the bear market started, up for two months and then down two. This could mean that were now in the up cycle time but the more that becomes known the less it’s likely to happen. So far were up about 15% and each move has seen an average of +20% so we could be getting close to the end already. One thing I know for sure is that we’re not going to go up +10% every week so next week will likely be a little more volatile especially since the market is a bit overbought now and its an expiration traded week!

At the close the Dow was up by +54.00 points to about 7225, S&P 500 +6.00 points to about 757.00, S&P 100 +3.00 points to 360.00 and the Nasdaq Composite +5.00 points to 1431.00. Oil closed down about -$1.00 closing around $46.00.

Consumer sentiment was up in early March to 56.6% from 56.3% in February, but remains at relatively low levels amid mounting job losses, according to a media report of a survey released by the University of Michigan and Reuters. Analysts were looking for a reading of 55%. With sentiment remaining near historically low levels, it's clear that the widespread economic weakness is hurting consumers despite Washington's massive stimulus plan to create jobs.

The trade deficit narrowed by -9.7% in January to $36.0 billion, the lowest monthly gap since October 2002. The trade deficit was below economists thought of a deficit of $36.0 billion. This is the sixth consecutive decline in the trade balance, the first since the new data series was started in 1992. Both imports and exports declined in January. The petroleum deficit shrank to $14.7 billion in January, the lowest since September 2004. The trade deficit with China widened to $20.57 billion in compared with $20.31 billion in the same month last year.

Adding to deflationary pressures in the economy, prices of imported goods fell -0.2% in February, the seventh straight decline. Import prices are down -12.8% in the past year, the largest year-over-year decline in the 26-year history of the index. The -0.2% decline in February was the smallest decline since July, as imported oil prices increased +3.9%, the first increase in seven months. Economists were expecting a larger decline of -0.7%. Prices received by exporters fell -0.1% in February, the sixth decline in the past seven months.

Thursday, March 12, 2009 4:03 p.m est.

Yesterday the market was basically flat but it was interesting to watch the battle between the bulls and bears for control. This is when I’m glad we do what we do because it just means option premium is going to dry up more and more! Today the market bounced strangely on news that GE’s credit was being downgraded to double AA from triplei but maybe people thought they were going to get downgraded to triple FFF! Everyone knew it was going to happen but it may have also been because no one respects S&P anymore because of the housing debacle. It then continued up because treasury secretary Geithner didn’t shock anyone with his comments to congress and the FASB announced new Mark to Market guidelines by April 1st. The Dow saw highs of +260.00 points, S&P 500 +32.00 points and the Nasdaq Composite +60.00 points in the final hour. It’s nice to see a third day of gains, wow!

At the close the Dow was up by +240.00 points to about 7170, S&P 500 +29.00 points to about 751.00, S&P 100 +14.00 points to 357.00 and the Nasdaq Composite +55.00 points to 1426.00. Oil was up today pretty strongly +$4.70 closing around $46.75.

There are some interesting things happening that may be at least indicating that this short term rally could last a few more months. Shares of CME Group are challenging important resistance while the Intercontinental Exchange shares have also moved higher of late. This means that a move above key resistance points in these stocks could be a bullish move for the financial markets. CME stock has lost over -70% of its value indicating that economic growth also took huge hits, so it could at the least be bottoming for a while. CME has been moving sideways for several months now, as commodities have been forming a base, and now stocks may have hit bottom. IE, for its own account, has recently been cleared by the SEC as a clearinghouse for credit default swaps, a key set of financial derivatives that are central to the current credit crisis and economic downturn and this is huge, since it means that a new level of transparency is about to enter the financial information system. More important, the fact that financial exchange shares are starting to show improvement which may mean that investor confidence is improving, as these institutions are central to the financial markets and the economy. At the least because these two stocks seem to have stopped falling is a big positive for the overall action in the markets.

A rally may not be too strong though once we get out of this oversold condition as people were hit with a double whammy of declining home prices and a falling stock market last year. It was reported this morning that households saw their net worth fall by $11.2 trillion, or -18%, to $51.5 trillion at the end of 2008, wiping out five years of gains, the Fed said this morning. In the fourth quarter alone, household net worth fell by -$5.1 trillion, a record 31% annualized decline. Consumers lost $937 billion on the value of their real estate and their direct holdings of corporate equity dropped by $1.68 trillion, while holdings in pension and life insurance reserve dropped by $1.46 trillion. Mutual fund holdings fell by $730 billion. Net worth has fallen for six straight quarters since peaking at $64.4 trillion in the second quarter of 2007. At the end of the year, households owned $9.9 trillion in equity shares outside of pension plans, less than the $11.3 trillion they owned in 1998! At the end of 2008, assets fell by -$11.3 trillion to $65.7 trillion. Liabilities fell -$87 billion to $14.2 trillion. At the same time their assets were falling, households were taking on less debt, adjusting their balance sheets after five years of double-digit growth in debt. In the fourth quarter, households paid off more debt than they took on for the first time since at least 1952, when the Fed began reporting the information in its quarterly Flow of Funds report. Household debts fell at a -2% annual rate in the quarter, including a -1.6% decline in mortgage debt and a -3.2% decline in consumer credit, including credit cards and auto loans. For all of 2008, household debt rose just +0.4%. Since the early 1950s, debt had never risen less than +5% in a year. Maybe a change in values is coming faster than we think . Businesses also took on less debt as their total debt grew +4.8% in the corporate sector after a +13.4% gain in 2007. In the fourth quarter, corporate debt increased at a +2.2% annualized rate, the slowest since early 2004. The government made up for the adjusting by families and businesses, however as their debt increased +24% in 2008 and rose at +37% annual rate in the fourth quarter.

Signaling persistent labor market weakness, the number of workers filing Jobless Claims rose +9,000 to 654,000 last week. The four week average rose +6,750 to 650,000, the highest level since October 1982. Continuing claims rose +193,000 to a record 5.32 million. The four-week average of these ongoing claims increased +124,250 to 5.14 million, also a record high level.

Retail Sales began the year much stronger than expected after a disastrous holiday shopping season as they dropped -0.1% on a seasonally adjusted basis in February, better than the -0.4% decline expected by economists. January’s sales gain was revised much higher, to a +1.8% gain from the +1% increase estimated a month ago. Sales are down 8.6% in the past year and had declined for a record six straight months before January's surprising gain. Sales had fallen -3.1% in December. Auto sales sank -4.3% in February, after automakers reported their worst sales month in a generation. Excluding autos, retail sales rose +0.7% after an upwardly revised +1.6% gain in January. Economists expected sales excluding autos to rise +0.2%. Inflation accounted for some of the strength of sales in February, as the sales figures are not adjusted for price changes. Gasoline station sales rose +3.4% on a +7% increase in retail gasoline prices. Sales excluding both gasoline and autos rose +0.5% in February after a +1.4% gain in January. Retail sales account for about a third of final demand in the economy.

The surprising gain in retail sales in the first two months of the year could force economists to rethink their estimates of how fast the economy is contracting. Currently, the median forecast for gross domestic product in the first quarter is for a -5.2% annualized decline after a -6.2% drop in the fourth quarter. Real consumer spending has fallen at an annual rate of more than -3.5% for each of the past two quarters. Consumers are facing severe budget constraints, with their wealth declining rapidly and credit increasingly harder to get. Poor job prospects are holding back consumers from buying durable goods, such as autos or furniture. Retail sales are down -10.3% compared with the first two months of 2009.

Tuesday, March 10, 2009 4:03 p.m est.

And there was the pop!! The market jumped higher this morning on the news that Citigroup actually said they made money the past couple of months. Their stock jumped more than +15% ahead of the opening and continued higher afterward along with the financial sector up over +14%. Chief Executive Vikram Pandit also said its capital position is "strong." He also said in a memo to employees: "Our stock price is not an indication of our financial strength." After that the market popped higher and then when it was announced that the uptick rule may be put back into effect in a month, shorts were forced to cover and the Dow shot up +380.00 points, S&P 500 +44.00 points and the Nasdaq Composite +95.00 points in the final hour.

At the close the Dow was up by +380.00 points to about 6926, S&P 500 +43.00 points to about 720, S&P 100 +20.00 points to 342.00 and the Nasdaq Composite +90.00 points to 1358.00. Strangely oil sold off today even though the market was up so much closing down about -$1.40 closing around $45.60.

The Citi news today lifted an incredible fog over the market as it gave people a needed light to see some possible hope! Sure its only a small thing but its nice to hear that a stock that has been crushed from a high flyer to penny status in the blink of an eye, actually shows a profit indicating that it may actually be able to pay back some of the debt it has created. The rally today is also a good indication that we could see it continue as the recent low last week saw 40% of the stocks in the S&P 500 higher than in the November low. This means a divergence is occurring and so this could be the barn burster of a rally I have been waiting for. We’ll know more by the end of the week if it actually holds.

Monday, March 9, 2009 4:03 p.m est.

Well it was an interesting day in the market today. So far it hit lows in the morning to then turn around with the Dow up +90.00 points, S&P 500 +13.00 points and the Nasdaq Composite +25.00 points before making new lows with the Dow seeing new lows in the final hour off -110.00, S&P 500 -11.00 points and the Nasdaq Composite -30.00 points. Since then it has moved back to the unchanged level. As I said on Friday that Obama’s approval rating was going to drop, according to data from Rasmussen Reports.com, President Obama’s approval rating has fallen from a +16 on 3/4/09 to +8 on 3/8/09. You could just feel it in the air as the market tanked! Obama’s approval ratings have fallen from a +21 on inauguration day 1/21/09 to the current low of +8.

I was going to write about a bunch of things today but the flatness of the market has me a little stuck for words or it could just be this hilarious video I saw over the weekend about the financial media and how accurate they really are on timing. Take a look: http://www.thecomedynetwork.ca/shows/showdetails.aspx?sid=3350 Scroll down and click on the clip from 3/4/09 1 of 4. The one thing that it confirmed to me was what I was thinking over the weekend, we’re getting too overexposed to the media in every way. Especially when we start believing everything they say!! When I first started trading my program in 1988 all I did was follow my Program Numbers no matter what happened or what anyone said. Back then you were fortunate to get any information about the market with only nightly programs to watch being Wall Street Week and the Nightly Business Network. Back then CNBC was the only network around during the day with the name FNN but they basically just told you what was going on that day and seemed to be far off from the trading floor. Anyhow, to keep our sanity in this market the above video is hilarious and makes it very clear that no one really knows the exact direction the market is headed.

By the way I received a lot of e-mails about my Obama comments that he is sending us into a depression. First off please don’t take every word so literal, it was just a comment, even though his ideas are starting to scare me to the point that the end of the world may be truly coming, haha!! Secondly, I’m not a Republican or a Democrat, I would be deemed a conservative I suppose but I don’t really care who’s in office as long as they do the job they promised to do. For me it was when Bush said that another 9/11 attack wouldn’t happen on his watch and it didn’t! The Presidency shouldn’t be all about how much money they are going to help you get you know! The main reason why I am trying to point out his misgivings is because of the god like character that everyone has put upon on him to fix everything! Everyone figured that after he won the election he was going to fix everything within weeks but now that its been a couple months it appears we need to extend that to somewhere around 2050, haha! Considering the impossible budget of $3.6 trillion with over 9000 earmarks he introduced it may take that long to change its ramifications! You see, just another cynical comment although he himself said he wouldn’t allow any earmarks when he was running for office!!! Anyhow, according to Rasmussen: "Forty-one percent (41%) of voters nationwide have a favorable opinion of the $3.6-trillion budget proposed by President Obama in the latest Rasmussen Reports national telephone survey but 46% hold an unfavorable view, and 13% are not sure."

The way the market, retail and housing sales have fallen it does look like were falling into a depression though when you compare to the 1930’s! You’ll note that under Obama, the market started falling last June, about six months before he won the Presidency and then it tanked again just before it was clear he was going to win. WELL here we are about six months later and the market is still moving down over -50%, which seems to be confirming the awful budget he is trying to pass. The only thing I’m hoping for is that we truly have been selling ahead of the news so a bottom will be found soon because really, how worse could he make things, haha! By the way just so everyone knows the truth, it wasn’t the Bush administration that caused the housing bubble, it was Clinton and Greenspan that put it in progress after the tech bubble burst just before the Bush administration took office. Of course they didn’t help it and could have maybe slowed it down but then the Democrats took control of congress once again with Pelosi and Franks making sure it was going to continue into implosion!

At the close the Dow was down by -80.00 points to about 6546, S&P 500 -7.00 points to about 677, S&P 100 -3.00 points to 322.00 and the Nasdaq Composite -25.00 points to 1269.00. Oil rallied hard today over +$1.55 closing around $47.00.

Friday, March 6, 2009 4:03 p.m est.

I have a prediction to make now that the end of the week is finally over thankfully! I predict that the market overall will be just above the 0 line, thats zero,,, around the middle of April! I’m basing this on the way this market is moving and everyone is saying its only going to go to 6000 on the Dow and 650 on the S&P 500! Note those nice round numbers! I know that sounds a little extreme but heh I want to be on the bearish boat just like everyone else and actually have a different outlook! This week was either a capitulation type move at least for the short term or just another drip drip drip lower scenario on our way to that zero line, thank you President Obama. I continue to see many positive signs but as I have noted sentiment is abysmal and until there is one teeny tiny little thing for the market to hang its hat on, this drip process isn’t going to end! I do know that if you have a longer term outlook, like five years, it’s a great time to be buying stocks. I’m saying five years because by then Obama will be out of office and we should be coming out of the depression he is slowly putting us in. I know that sounds incredibly cynical but I’ve been around a lot of years and through a lot of stock market crashes and he is the winner for picking the wrong people and planning the wrong way to fix things! I have one hopeful thought and that is that his approval rating is going to absolutely plummet this weekend and maybe then he’ll do something to lift it up.

Yesterday Citibank was a an actual penny stock for a brief time when the market sold off along with many other previous supposed Blue Chip companies. As I looked around there were many banking and financial stocks in low triple digit numbers after being darlings just a year ago. People wonder why the volatility index is so low but its obvious, stocks are so cheap that it’s easier to just buy the stock because they’re getting so close to zero you don’t need protection. The banking index is now trading around 18, now -85% from its high! Strangely, this morning Wells Fargo came out with decent earnings and even said that “business was good.” H&R Block had great earnings and Morgan Stanley is advertising about having FDIC insurance for deposits of up to one to one hundred million for more business. Two banks have also announced that they are giving back their tarp funds! Even GE, the worlds largest business closed at $6.69 yesterday. How much lower can it get!

Technically wise the market is now over -34% below its 200-day moving average which is usually when you see some type of a bounce, smart money is still buying and I would even suggest that the fall this week qualifies as capitulation quality selling pressure. The S&P 500 has lost around -24% in only 18 days. This decline is now longer than the November decline, which saw it lose around -25% in 13 days. Picking the exact spot for such a reversal is hard but I still think at least for the short term we’re getting closer to the turn.

After the market decided that the employment report wasn’t that bad it rallied with the Dow up +165.00 points, S&P 500 +18.00 points and the Nasdaq Composite +20.00 points before being crushed to see the Dow see new lows in the final hour of -130.00, S&P 500 -16.00 points and the Nasdaq Composite -35.00 points which by the way is the only index that hasn’t broken its November lows. This is a good sign because it should be the tech stocks that lead us out of this mess!

Going into the close the Dow actually saw a +160.00 point turn around turning positive with highs of up +50.00 points, S&P 500 +3.00 points and the Nasdaq cut its losses. At the close the Dow was up by +33.00 points to about 6627, S&P 500 +.83 points to about 684, S&P 100 +.87 points to 325.00 and the Nasdaq Composite -6.00 points to 1293.00. Interestingly Oil rallied hard today over +$2.00 closing around $45.50.

The labor market continued to weaken at an alarming rate as employment fell by -651,000 in February, quite close to the 600,000 decline expected by economists. Looking further in though the report was even weaker as revised data from the last two months showed another -161,000 more job losses than previously estimated. The unemployment rate moving to 8.1% from 7.6% in the previous month. Economists had forecast the unemployment rate to rise to 8.0% and is the highest rate since December 1983. Average hourly earnings interestingly increased +3 cents, or +0.2% to $18.47. Economists had been expecting a +0.2% gain. Earnings are up +3.6% in the past year while the average workweek held steady at 33.3 hours. Job losses were widespread across all industries except education and health services. The economy has lost -4.4 million jobs since the recession began in December 2007 but as I mentioned yesterday, in one of the hardest hit areas there are still line ups for coffee in Florida etc so jobs mustn’t be that bad. According to the survey of households, employment fell by -351,000 in February while unemployment rose by +851,000.

Friday, February 20, 2009 4:03 p.m est.

What an exciting way to end an expiration and week. Once again it looked like the end was near as financials were being crushed this morning as everyone worried that all of the banks in America would be nationalized and that Hugo Chavez was going to replace Obama as leader of the free world! Okay, maybe that’s not true about Chavez but I thought this would be a good place to start a rumor! The market was looking lower at the start of the day but after Senate Banking Committee Chairman Christopher Dodd said a nationalization of some banks may be needed “at least for a short time,” the market started down hard. At its lows the Dow saw -220.00 points, S&P 500 -25.00 points but the Nasdaq Composite was only off -25.00 points. As soon as the Obama administration deflected the nationalization talk, banks came back pulling the market along. The White House said it wishes to see major banks remain in private hands.
The Dow peeked into positive territory up +15.00 points, S&P 500 +.50 and the Nasdaq Composite +15.00 points. Of course there was too much time left for traders so the final hour saw selling come in once again.

At the close the Dow was down by -100.00 points to about 7365, S&P 500 -9.00 points to about 770, S&P 100 -5.00 points to 364.00 and the Nasdaq Composite -2.00 points to 1441.00. Oil closed down a bit by -$.58 to about $38.94.

It sure looks like the Obama party is completely gone now as people just aren’t liking his ideas to save America and the main thing is that no one actually believes anything his administration says now for any longer than an hour. They really need to have a full time guy that all he does is watch CNBC and FOX and if rumors start flying, he comes out a half hour before the close to dissolve them or change any stupid comments, so it can at least close up! I know, it sounds to simple....

One thing for sure is that if we do hold these lows we could see a barn burner of a rally of a minimum of +20%. I know that is hard to believe right now as sentiment is so poor but just like you saw the turnaround today it could take one match to light it up for an entire week or so. I’m not saying that this will be the end of the problem but even bear markets have rallies and when they do they come fast and furious and since we only look at trades one month at a time, its important to look at.

I also don’t think that if we break the lows the market will utterly collapse because sentiment has now gotten so extreme with everyone looking for that fall and it is so oversold and low I think it will be tough to push it down. Besides that there is barely any numbers left in the banking sector to sell! When you look at the volume you also see that people aren’t really selling they’re just not doing anything. The only buying that is being done is by the Smart Money and those guys are loading up huge. I don’t think I have ever seen the index so high. SO here we are back to the match. One strike, no spark, second strike, a little spark, third strike, a spark etc etc until whoosh.....

It was reported this morning that with energy prices falling -20%, Consumer Prices were unchanged over the past 12 months, the lowest 12-month inflation rate since 1955. In January, the consumer price index rose +0.3% seasonally adjusted as expected, with energy prices up +1.7%, the first increase since July. The core CPI which takes out food and energy prices to get a better handle on underlying inflation trends rose +0.2% seasonally adjusted in January compared with the +0.1% gain expected by economists. Over the past 12 months, the core CPI is up +1.7%, the lowest inflation since mid-2004.

Thursday, February 19, 2009 4:03 p.m est.

It looked like the market was going to have a decent day as everyone was forgetting about what’s going on but as time went on the gains were taken away. The Dow had seen highs of +60.00 points but lows were seen in the final hour down -110.00 points, S&P 500 +9.00 and -12.00 points and the Nasdaq Composite +20.00 and -30.00 points.

At the close the Dow was down by -90.00 points to about 7466, S&P 500 -10.00 points to about 779, S&P 100 -4.00 points to 369.00 and the Nasdaq Composite -25.00 points to 1443.00. Oil rallied strongly today as inventories actually contracted for once closing higher by +$4.86 to about $39.00.

The market continues its battle to hold its ground as more and more bankers, money managers, politicians, city accountants etc etc are being charged with embezzling billions of dollars to help continue to fund their assorted dream worlds! Reading the economic data below you continue to hear about how suddenly the economic tap has been shut off. It’s quite amazing how I have seen and read that manufacturing companies who were going full steam not even six months ago have basically stopped producing in seconds! Besides that you have California almost going under now and I hear that Kansas is almost bankrupt. The question of course is who could be next? It’s no wonder that it’s hard right now for money managers to get people to invest in mutual funds etc which at the current time is near lows seen near market bottoms. Of course that is very appealing to want to jump in because sentiment is also so negative but the same people are still holding onto the fact that the market will start higher before the economy which means that maybe they aren’t outright bearish! This all tells me that we’ll likely continue to plod along in our current range for some time to come. Expiration is tomorrow so we could see an up day though as the market has gotten extremely oversold short term. One thing for sure, this is setting up for some interesting trading for March as everyone is now calling for a break of the November bottom and much lower levels to come.

Producer Prices were up +0.8% in January, marking the first rise since July. Energy prices rose by +3.7%. The core PPI, which takes out food and energy prices, rose by +0.4%. Economists were expecting producer prices to climb by +0.4% and the core PPI would rise by +0.1%.

Jobless claims were unchanged at 627,000 for last week while the four-week average rose by +10,500 to 619,000. Continuing claims rose by +170,000 to 4.98 million to a 27-year high while the four-week average climbed by +92,500, to 4.83 million, also a 27-year high.
The only good news is that the index of Leading economic indicators gained +0.4% in January for the first time in months, following a downwardly revised -0.2% in December. The recent gains are due, in part, to the Fed’s huge injections of cash into the money supply. Despite the rise in January, widespread weakness remains as the troubled job and housing markets continue to take their toll so were still likely to see little growth until well into 2010.

Factories in the Philadelphia region reported declining business in February for the 14th month in the past 15, the Fed’s Bank of Philadelphia reported. The Philly Fed index dropped to negative -41.3% from negative -24.3% in January. This is the lowest since October 1990! Readings below zero show that more manufacturing firms reported worsening conditions than reported improvements. The new orders index fell to negative -30.3% from negative -22.3% in January. The shipments index fell to an all-time low of negative -32.4%.

Wednesday, February 18, 2009 3:30 p.m est.

The market was all over the place today moving in and out of negative territory all day. The Dow saw lows of -75.00 points and highs of +70.00 points, S&P 500 -10.00 and +6.00 points and the Nasdaq Composite -20.00 and +20.00 points. The final hour saw the market go positive once again mostly led by tech stocks as oil closed down on the day again putting it just below the $35 level. As we go into the final thirty minutes of trading the market is remaining near the unchanged level.

Construction on New Housing fell -16.8% in January to a seasonally adjusted annual rate of 466,000, far below the weakest levels of the post-World War II era. Housing starts have dropped at double-digit rates for three straight months so at this rate they will fall to zero by the end of the year. Starts are down a record -56% in the past year and are down -79% from the peak three years ago. Starts were much worse than expected. Building permits, less volatile than the housing starts data, fell -4.8% to a seasonally adjusted annual rate of 521,000, also a record low which means more downside to come.

The decline in output at the nation's factories continued in January, led by a fall in auto production. Industrial production dropped -1.8% in January and has fallen in five of the past six months. Capacity utilization fell to 72% from 73.3% and is the lowest level since February 1983! Capacity utilization in the factory sector alone fell to 68% in January, a record low for the index that goes back to 1948! The drop in production was roughly in line with estimates of economists. Industrial production was down -10% over the past year.

Tuesday, February 17, 2009 4:03 p.m est.

The market continued lower today approaching old lows after closing down on Friday. It appears that the Obama stimulus plan isn’t being taken seriously and why should it when over 3/4 of everyone hasn’t even read the 1200 page bill that is filled with so much pork that it makes a pig look skinny! Something tells me that we may see another one next year in the end. The Dow saw lows of -300.00 points, S&P 500 -38.00 points and the Nasdaq Composite -70.00 points in the first few minutes of trading and after the market bounced a little in the final hour we saw it move to lows once again to finish the day.

At the close the Dow was down by -298.00 points to about 7552, S&P 500 -38.00 points to about 789, S&P 100 -17.00 points to 373 and the Nasdaq Composite -64.00 points to 1471.00. Oil continues to get hammered down -$2.58 to about $35.00.

Last week was pretty bad as the market fell about -5% and is getting close to old lows in November. Does this mean that we could see an up expiration week because of this. They had been more positive than negative before the market started its sell off last fall but since then they have become mixed again. If we look at the bigger picture we see that looking at S&P 500 returns since 2000 when the index was off more than -3% in the week prior to expiration it indicated that this could also be a down week but the average is only about -1%. At the lows today we saw the higher end of the worst weeks so it will be interesting to see how it turns out in the end. There are good reasons for a bounce though as volume remains incredibly low and Smart Money is buying strongly and the market is getting quite oversold.

One of the reasons for the further fall this morning came from the Fed’s New York area as it contracted at a record pace in February. The bank’s Empire State Manufacturing index fell to negative -34.7% from negative -22.2% in January. While 16% of respondents said conditions had improved, 51% said that they had worsened. New orders also fell to a record low while shipments improved to negative -8.1% from a negative -13.1%. The Empire State index is relatively new, having started in 2001. The index is of interest to investors and economists primarily because it's seen as an early indicator of what the Institute for Supply Management's February national factory survey due out in two weeks may show. In January, the ISM manufacturing index rose slightly to 35.6%, raising hope that worst of the decline in manufacturing was over.

It also looks like the consumer is getting more negative now that the sentiment index fell in early February to 56.2% from 61.2% in January, according to the University of Michigan and Reuters. Analysts were looking for a reading of 61%. With sentiment remaining near historically low levels, it's clear that the widespread economic weakness is weighing down consumers even as Obama continues to tell us that things will work out but then reminds us that maybe it won’t work because there may be some setbacks.

Thursday, February 12, 2009 4:03 p.m est.

The market tanked once again today with the market testing levels last seen in December before the Obama administration was in control. The market is seeing the same old, same old ways of government once again and its making people pay for it! The Dow saw lows of -250.00 points, S&P 500 -27.00 points and the Nasdaq Composite -35.00 points going into the final hour. When it was announced that the Obama administration was close to creating a program to subsidize mortgage payments for at-risk homeowners, the market screamed back with the Dow up +5.00 points, S&P 500 +2.00 points and the Nasdaq Composite +15.00 points. In other words it will be the tax payers who pay for those poor homeowners who happened to accidently have too big of a mortgage. You wouldn’t want poor little Sammy to be foreclosed on would you! You know the famous Obama saying, “spread the wealth,” well its coming home to roost now! What it means is that that those who have worked hard for their money are going to save the day for the morons who bought too much house. It’s not rocket science to know that if you only make $2000 per month and that eventually your mortgage is going to be $2000 that it may be a little hard to pay for it. You know its true, the odds of winning a lottery are a lot lower now a-days!! Sure the banks are to blame for causing this mess but it all started with the person who was stupid enough to sign for it even though they knew they couldn’t afford it! Then again, I suppose its not their fault for having such low intelligence levels because our society has turned many people into a group of people who automatically figure that if you dangle candy over a cliff they’ll still jump for it because they “feel owed” that the government will have put out a safety cushion! Sorry for being so soft spoken but I wouldn’t be able to print what I’m really feeling!

At the close the Dow was down by -7.00 points to about 7933, S&P 500 +2.00 points to about 835, S&P 100 +.20 points to 394 and the Nasdaq Composite -11.00 points to 1542.00. Oil continues to sell off down -$1.96 to about $34.00.

Jobless Claims fell in the latest week while continuing claims reached a record high. Claims fell -8,000 to 623,000, a level that is 84% higher than the same period in the prior year. The four-week average rose +24,000 to 607,500, the highest level since November 1982 and up 76% from the prior year. Continuing claims rose +11,000 to a record 4.81 million while the four-week moving average of continuing claims also reached a record, rising +73,750 to 4.75 million.

Retailer sales actually rose the past month after six straight months of sharp declines. Retail sales increased +1% on a seasonally adjusted basis in January, the first increase since June and the largest percentage increase since November 2007. The gain was unexpected, with economists looking for a decline of -0.4%. Sales fell -3% in December and -2.4% in November. The figures are adjusted for seasonal factors but not for price changes. They are down -9.7% in the past year. The bad news is that it was rising gas prices that increased sales which is likely why the market didn’t react positively to the report. Gas stations saw a rise of about +2.6%. Total retail sales excluding gasoline rose +0.9%. Besides that, the report is at odds with reports from retail chain stores and from automakers, which reported weak sales in January. Retail sales account for about half of consumer spending, which has fallen sharply in the past two quarters.

Sales of durable goods were mixed as auto sales rose +1.6% in December after falling -2% in December. Automakers had reported their worst sales month in decades, but much of the decline came from fleet sales, which are not included in the government's retail sales report. Sales at furniture stores fell -1.3%, building materials stores dropped -3.2% but interestingly. sales at electronics stores rose +2.6%. Sales at general merchandise stores rose +1.1%, despite a -0.3% decline at department stores. Sales at apparel stores increased +1.6% while food stores rose +2.1% but we do have to eat! It was the biggest increase in more than two years. Sales at restaurants surprisingly increased +0.8% while health and personal care stores were flat. Sales at non-store retailers, such as catalogs and online stores, rose +2.7%.

Wednesday, February 11, 2009 4:03 p.m est.

The market popped out of the gate this morning with the Dow seeing highs of +90.00 points, S&P 500 +11.00 points and the Nasdaq Composite +20.00 points but after Geightner started to talk once again without anymore detail it started to pull back once again actually touching negative territory. It popped higher after all of the bank CEO’s spoke before the Financial Services Committee and actually made things sound kind of positive! Lets see if it can hold higher into the close.

Yesterday I heard an interesting description of how much this trillion dollar plus spending spree really is going to look like! Did you know that since the birth of Christ there have been about 733,000 days and if you spent a million dollars every day since the day he was born you still wouldn’t have reached a trillion dollars! Something to think about!

Oh oh I have a feeling that sentiment amongst people is about to crash even lower than it already is. I knew the party was coming to an end as I have seen tidbits of negativity but a headline I saw last night said it all. “Has Barack Obama’s Presidency already failed?” The eye catching header came from news source Drudge and was linked to an article in the Financial Times. It read; “In normal times, this would be a ludicrous question. But these are not normal times. They are times of great danger. Today, the new U.S administration can disown responsibility for its inheritance; tomorrow, it will own it. Today, it can offer solutions; tomorrow it will have become the problem. Today, it is in control of events; tomorrow, events will take control of it. Doing too little is now far riskier than doing too much. If he fails to act decisively, the president risks being overwhelmed, like his predecessor. The costs to the US and the world of another failed presidency do not bear contemplating."

What I find interesting about this and all of the other pointed shots I have heard since Obama took control, is how rapidly this has all happened. This tells me that everyone is getting more and more cynical and hard hearted which is always hard to break. The times is not alone as another Drudge link led me to Camille Paglia's column who was a major left believer before but even she has turned against the Obama administration. Here's what she wrote in her column in reference to the recent interaction between the White House and Congress: "President Obama was ill-served by his advisors (shall we thump that checkered piñata, Rahm Emanuel?), who evidently did not help him to produce a strong, focused, coherent bill that he could have explained and defended to the nation before it was set upon by partisan wolves. To defer to the House of Representatives and let the bill be thrown together by cacophonous mob rule made the president seem passive and behind the curve." It definitely was behind the curve, incompetent, and inexperienced, raising the ghosts of all the campaign jabs from the McCain camp about Mr. Obama's only work experience being as a “community organizer.”

As I have said we are still in wait mode to see what happens but it seems that negativity is definitely taking control and that is usually when market bottoms are made but this still does feel different as I am told that the only parking lots that are full in cities are the Walmarts! There have been many downturns in the economy before, and things have felt bad at times but you could always see the end of the tunnel but for me it seems that the light is almost out! The problem is that our supposed great leaders, unfortunately, don't seem to be up to the task at hand. It seems they have no ability, understanding, or whatever to deliver anything but banter on television, the Internet, and the daily papers on a daily basis. Every word is now being amplified, analyzed, and interpreted by pundits, analysts, and traders in a negative tone. The net effect is a paralysis that is slowly bringing down the country. Those who still have jobs don’t dare to spend money right now as they worry about whether their jobs are safe and I’m told that those who are out of work seem to have stopped looking. Emotionally it seems the country is already in a depression and its only been a year since this all started! As I have said this could be a good time for a rally to start so we’ll see but even if it does I’m not hopeful that it will last!

Tuesday, February 10, 2009 4:03 p.m est.

Yesterday the market was pretty flat and finished the day mixed. Today was more pronounced though as it appeared we are back to the old ways of the market falling just like the last eight times it did when the government released its ideas to curb the crisis, that began in October 2007. I actually thought that there was a strong possibility that it could actually have a positive result but it looks like its the same old rhetoric spewing out! After treasury Secretary Tim Geithner announced this morning that the government will use mostly private money to create a fund of at least $500 billion to recapitalize banks and another fund of $1 trillion to support consumer and business lending but wasn’t really sure on how it would all work out, the market revealed that it didn’t like that whatsoever! It started to fall right then and there with the Dow seeing lows while Ben Bernanke gave his speech to congress. It bounced a little until Mr. Geithner spoke again in the final hour to Congress. The Dow saw lows of -420.00 points, S&P 500 -47.00 points and the Nasdaq Composite -75.00 points.

At the close the Dow was down by -382.00 points to about 7889, S&P 500 -43.00 points to about 827, S&P 100 -20.00 points to 390 and the Nasdaq Composite -67.00 points to 1525.00. Oil sold off closing down -$2.01 to about $37.96.

A lot of the focus this week will be in the direction of the government's economic stimulus package and I read some data over the weekend that was very interesting about the time period were in. The National Debt was $930 billion in 1980, or 33% of GDP and today it is $10.7 trillion, or 76% of GDP. The National Debt has grown by 1,150% in 28 years. Now if we look at the proposed stimulus package that will tax future generations to death by the way, the National Debt will reach 100% of GDP during the Obama administration. Interestingly, when Argentina's economy collapsed in 1998, their National Debt as a percentage of GDP was 65% but I’m told that we’re not Argentina though because the U.S. dollar is the reserve currency of the world. Still, this is like jumping off a 20-story building and as you pass the 10th floor someone asks how you are doing and your answer is that so far things seem okay!

Every day does seem to get worse than the last for the economy and now it seems the market is reacting the same as it did before as President Obama is now being introduced to how the real world works! It appears that people have had enough with the smooth talking as the swooning seems to now be under control. Interestingly, his approval rating continues to fall every week! Things are ugly as there are five hundred thousand people getting laid off each month, the banking system is on life support, retailers are going bankrupt in record numbers, the stock market is flat, home prices continue to fall and home foreclosures keep growing as the next round of interest only loans come to pass. All the while consumer confidence is near record lows. This sounds like a great time for the market to actually start a rally but the question now is will it!!! If anything I would think we are nearing a time for at least a bear market rally!

As I have mentioned before this seems more and more like a rerun of Japan of what happened two decades ago. They have been stuck in nowhere land since then and our downturn has a high likelihood of turning out to be the same as there are many similarities and in many areas the U.S. has even worse problems!

Our National Debt has grown more than twice as fast as GDP and is turning into an unsustainable trend. This economic disaster took 28 years to create and will not be fixed in a year or two as everyone is talking about. The middle class used to live a good casual lifestyle but the past twenty years have seen the same people feel that they can live just like the rich because credit has been easy to get. Total consumer debt in 1980 was $352 billion while today it’s $2.6 trillion and consumers have increased their total debt level by 738% in 28 years. Revolving credit increased from $56 billion in 1980 to $982 billion today, an 1,750% increase!

The real median household income was $41,258 in 1980 while the real median household income in 2007 was $50,233. That’s not really that much of an increase, only 22% over the course of 28 years. The personal savings rate was 12% in the early 1980’s and reached negative -1% during the Bush administration. It has inched above 2% in the last few months which is good news but still has a ways to go. Based on the previous data, it is not surprising that the savings rate dropped below zero though. With virtually no income growth in three decades, consumers have lived hand to mouth and utilized easy debt to maintain their desired lifestyle and as they were encouraged by government, banks, big media, corporate America and the advertising industry so please don’t insult my intelligence on trying to blame all of this on it all happening in the past two years of the Bush administration. It all started with Clinton and Greenspan and the Bush administrations mistake was that they didn’t put on the safety rope fast enough to help to slow anyone down while they went over the cliff!

The only logical way to resolve this problem is to reduce spending, pay down the debt, and increase savings and this is what consumers have begun to do. The problem is that with consumer spending accounting for 72% of GDP, we are experiencing a serious recession due to the decrease in consumer spending. The government and Fed have already committed $8 trillion of taxpayer funds to bailing out criminally negligent insolvent banks and now the Obama administration is going to spend in excess of $1 trillion in an effort to stimulate the economy but I think that because everyone is hurting so bad that its going to be a much slower recovery than they expect it to be. More like 10-years, especially considering that they haven’t really thought this out, been deliberative, and make sure it will be effective! Listening to Geightner today saying that it “could be” or “we don’t have an exact time,” tells me it could take way longer than they are expecting!

Don’t forget every single dime of the next $1 trillion will be borrowed from foreign countries and then handed out to the banks to hopefully see people resume borrowing and spending. Basically the idea is to borrow and spend our way out of the largest debt bubble in history which just doesn’t make sense. Consumers and companies are acting rationally and trying to get rid of debt but its almost like the government doesn’t want that to happen because it would mean a long term slowdown in the economy, not just the one year time table they are dreaming about! They figure another massive additional dose of leverage will revive the patient. The definition of insanity is doing the same thing over and over, expecting a different result!
On December 29th, 1989 the Japanese Nikkei Index reached 38,957. Today, the Nikkei Index stands at 8,106, an -80% fall over the course of two decades. It was at this same level in 1983, twenty six years ago and that my friends is a real bear market similar to our 1929 to 1937 time period. Of course they experienced three bear market rallies of +60% and one rally of +140%, but always pulled back again, still down about 80% from its peak. This is what I think were looking at here with this current porked stimulus package, a rerun of Japan’s lost decade but only time will tell......

The Bank of Japan cut its discount rate from 9% in 1980 to 4.5% by 1986. They then further reduced the discount rate to 2.5%. This lax monetary policy created a bubble in the stock market and the real estate market. The monetary supply grew at a +9% rate for the entire 1980’s so the stock market jumped from 15,000 to 39,000 in the space of three years, a 160% gain as a speculative frenzy took hold of the Japanese public. Sounds similar to now with our interest rates near zero but the only difference is we didn’t see that much of a gain in our stock market but we have seen tons of stock offerings.

With interest rates at historic lows, Japanese banks provided cheap and easy credit to companies and consumers. Consumer debt grew 700% from 1980 to 1990 while corporations took advantage of the high stock market to raise $638 billion through stock offerings. Consumers and corporations were sucked in by the low rates to take on more risk to get a positive return. This easy money policy, along with deregulation, tax incentives, and zoning regulations, led to the biggest real estate bubble in history just like ours today. Everyone just like today thought that real estate could only go up. Prices reached such heights that intergenerational mortgage loans were required to buy a home and although were not there we’re getting close!
When it became clear that there was an out-of-control speculative frenzy, the Bank of Japan raised rates to 6% in five steps from 1989 into 1990. This is given as the cause for the collapse of the stock and real estate bubbles. Just like ours, the scary part of the Japanese experience is that their government did not just sit there. They used all the tools at their disposal lending money and it made conditions much worse just like we have been doing, giving the banks more and more money and they do little with it. So far the cumulative losses in the Japanese stock market and by landowners total $15 trillion since 1990. As I mentioned a few weeks ago, a friend of mine just sold his house in Japan for about half of what it was worth.
When you listen to the Obama marketing team selling their $1 trillion stimulus package, they say we must avoid the disastrous course of Japan but it’s sounding very similar to me. The thing is that when you look at them you find that they never did go into a depression as they still remain as they have retained their position as the 2nd largest economy on the planet! However, after growing at a +3.9% annual rate during the 1980’s, Japan’s GDP grew at only an annual rate of 1.1% between 1991 and 2003. The lack of demand from consumers has been a function of people being burned in the dual bubble collapse and an aging, declining Japanese population which were not in yet but our boomers are now starting to retire. Japanese consumers have rationally paid down debt and increased savings and that is what I think just may save the day here. People just need to understand and get used to not living high off the hog! The actions of the Japanese government were not rational or intelligent and were now seeing a replay of these mistakes taking place in the U.S today.

The Japanese government prolonged its downturn for an additional decade by not allowing bankrupt banks and corporations to liquidate and that is happening again here. They hoarded all of the money provided by the government and our banks are doing the same now. The Japanese tried every trick possible with zero interest rates, public works projects tax rebates and tax decreases, the government built thousands of bridges and roads, driving up government debt to enormous levels just like now. Between 1990 and 2000, the Japanese government instituted 10 fiscal stimulus programs totaling $1 trillion and none of these programs worked so the question is, why do we think it will work here!

Clearly, the Japanese government created the enormous stock market and real estate bubble through its loose monetary policies in the 1980’s just like we did with Clinton and Greenspan. No matter how much money the Japanese government threw at the problem, they could not convince consumers or companies to borrow and spend and that may be the difference here as I’m not sure it will be that hard to convince people to spend but Americans enter this economic downturn as the most indebted people on earth. The materialistic dream world of the last two decades has left the consumer carrying a $2.6 trillion of credit card and car loan debt! The Japanese consumer entered their lost decade with personal savings rates of 12% annually so they were able to pay down their debt throughout the 1990’s. The American savings rate, which was 12% in 1980, fell below zero in 2006 and as I said has just moved up to 2% in recent months.

There are more than 300 million credit cards in use today. The average American with a credit card is carrying a debt of $16,635, according to statistics. With unemployment skyrocketing, wage growth stagnant, and home equity prices falling its hard to believe that consumers will be able to pay down their debt in a year! The American public has been traumatized over the last year. They have been misled by the government, lied to by Wall Street, and now they are losing their jobs by the millions. Their homes are worth 20-50% less while their retirement funds are worth -30 to -50% less. As I have said for the umpteenth time, consumer spending has made up 72% of GDP for the last few years so it looks like there won’t be any spending for quite sometime! People lived on the dream that that home price appreciation could fund their retirement and stocks would go up +10% every year and since that is now dead and gone, they have wisely begun to pay down debt for the first time in years so lets see how we look next year. Maybe just maybe, the Obama administration will get something going to help at least form a bottom so we can start to rebuild...

Friday, February 6, 2009 4:03 p.m est.

The market popped higher today even though the employment report had no good news in it. It seemed to focus more on the settlement of the new stimulus plan that looks to be on its way to passage next week. Another interesting note is that the market has risen with the dollar falling and more importantly bonds selling off with the 10-year bond seeing 3% once again! This indicates that people are pulling money out of their safety cushions to risk it with some stocks. The Dow saw highs of +250.00 points, S&P 500 +26.00 points and the Nasdaq Composite +55.00 points.

At the close the Dow was up by +218.00 points to about 8281, S&P 500 +23.00 points to about 869, S&P 100 +11.00 points to 410 and the Nasdaq Composite +46.00 points to 1592.00. Oil was blow $40 early on but then rallied to catch up with the April contract at $45, but then sold off closing down -$1.00 to about $40.28.

The recession seems to be intensifying as the unemployment rate jumped to 7.6% while employment fell by the largest amount in 34 years, down -598,000 in January after a revised loss of -577,000 in December. This is the largest loss since December 1974! Payrolls also fell by -597,000 in November. Economists were looking for job losses of -525,000 and an unemployment rate of 7.5%. About -3.6 million jobs have been lost since the recession began just over a year ago with about half of them being lost in the past three months alone following the collapse of Lehman Bros. Total hours worked in the economy fell by -0.7% in January and were down -4.6% from a year earlier while the average workweek was steady at a record-low 33.3 hours. Average hourly earnings rose by +5 cents to $18.46, or +0.3%. In the past year, average earnings are up +3.9%, while prices fell about -0.7%.

Meanwhile, a separate survey of households showed 11.6 million people were unemployed and looking for work, totaling 7.6% of the workforce, compared with 7.2% in December and is the highest unemployment rate since September 1992. After adding in those who are too discouraged to look for work and those who are forced to cut back their hours to part-time, the alternative unemployment rate rose to 13.9% from 13.5%. The employment-population ratio fell to 60.5%, down from 62.7% at the beginning of the recession, and the lowest since 1986. Job losses in all of 2008 were also larger than previously reported at 3 million.

Job losses were widespread across industries as the goods-producing industries lost -319,000 jobs, the most since 1975. Manufacturing fell by -207,000, the most since 1982. Manufacturing employment has fallen by -1.1 million since the recession began in December 2007. Of 83 manufacturing industries, just 8% were hiring in January, the lowest percentage on record dating back to 1991! Construction fell by -111,000 and is down -781,000 since the recession began. Services-producing industries cut employment by -279,000 in January, including -76,000 temp jobs, -45,000 in retail, -44,000 in transportation, and -42,000 in financials. Health care actually added +19,000 jobs.

Thursday, February 5, 2009 4:03 p.m est.

Yesterday the market was down once again but the bears couldn’t cause that much damage and even though they tried it again today taking the Dow down into the triple digits, midday it bounced back with the Dow seeing highs of +150.00 points, S&P 500 +19.00 points and the Nasdaq Composite off +40.00 points. It was surprising to see the market up so much considering that the all important Employment comes out tomorrow and is expected to match levels not seen since 1974!

At the close the Dow was up by +106.00 points to about 8063, S&P 500 +14.00 points to about 846, S&P 100 +6.00 points to 399 and the Nasdaq Composite +31.00 points to 1546.00. Oil closed up +$.85 to about $41.17.

Jobless Claims this morning surged to the highest level in over 26 years, up +35,000 to 626,000. This is the highest level since October 30th, 1982. The forecast was for claims to be relatively steady around 580,000. Claims in the previous week were revised to an increase of +6,000 to 591,000 compared with the initial estimate of a rise of +3,000 to 588,000. The four-week average rose +39,000 to 582,250. Continuing claims rose +20,000 to a record 4.79 million while the four-week moving average rose +44,000 to 4.67 million.

Yesterday it was reported that private-sector companies lost a seasonally adjusted -522,000 jobs in January, according to the ADP employment index, pointing to another hefty month of job losses when the Employment numbers come out tomorrow. The ADP index, compiled from anonymous payroll data, showed the goods-producing industries lost -243,000 jobs, while the service-producing industries lost -279,000 jobs.

Large firms cut -92,000 jobs, medium-sized firms lost -255,000 jobs and small firms reduced by -175,000 jobs. December's job loss, according to ADP, was revised up to a loss of -659,000 from -693,000. By contrast, the government data showed private-sector job losses of -531,000 in December. Economists now expect payrolls to fall by -525,000, which would be the fifth straight month of at least -400,000 jobs lost. The index is computed by Macroeconomic Advisers provides payroll and human-resources services to about one in every six workers, serving more than 500 companies.

Productivity of the business sector expanded at a +3.2% annual rate in the fourth quarter. Economists were expecting productivity to rise +2.1% in the fourth quarter. Both output and hours worked fell in the fourth quarter. Real hourly compensation rose a record +15.6% as inflation fell. For all of 2008, productivity expanded at a +2.8% pace, the fastest since 2003.

Showing persistent troubles for the manufacturing sector, new orders for manufactured goods fell -3.9% in December for the fifth consecutive month of declines, the longest downward streak since comparable data was first published in 1992. Economists were looking for a fall of -3.3%. New orders for durable goods fell a revised -3%, compared with a prior estimate of a -2.6% decline. New orders for durable goods also reached five consecutive months of declines for the longest streak since comparable data has been published. Inventories fell -1.4%, the largest decline since it has been published.

Tuesday, February 3, 2009 4:03 p.m est.

Yesterday the market was all over the place but in the end didn’t move much from the unchanged level. Today was basically the same until the final hour and it took off with the Dow seeing highs of +180.00 points, S&P 500 +18.00 points and the Nasdaq Composite off +30.00 points. At the close the Dow was up by +142.00 points to about 8078, S&P 500 +13.00 points to about 838, S&P 100 +6.00 points to 397 and the Nasdaq Composite +22.00 points to 1516.00. Oil was almost below $40 once again in the morning but closed up +$.70 to about $40.86.

After month end it looks like we have a huge discrepancy in the works in the direction of the market this year. As I mentioned last week that for the month, the market was off about -9%, its worst January in 113 years. They say on Wall Street as January goes, so goes the year, so you would expect it to be down because since 1950 if January was down, 92% of the time so was the market for the year. But,,,,, because the Super Bowl indicator now says we’re in for a stock market rally we have a problem. Between 1967 and 1997, this indicator was correct 28 out of 31 times, a 90% success rate. Of course that was way back in the 1900’s anyhow as it hasn’t been that correct since. Anyhow, because it was an incredibly close game won in the final seconds maybe it means that we’ll just see a flat year which would be perfect for us!!! Nonetheless it was a great game and one of the best I’ve seen in years!

When you look at past November to January trading months whenever the market has been down the following three months, the entire year overall has been relatively flat compared to when it has been positive so it does make the case for more flatness to come especially if we see a repeat of February 2008. Last year we saw short term swings with very little net movement from the beginning of the month to the end of the month. During the past 100 years, the average return on the market is -0.8%, with positive returns 51% of the time. February is 1 of only 2 months with average returns that are negative so lets hope that that slight downside pressure helps to keep volatility premiums high!

In the end no one really knows but the market is oversold once again and on Thursday we saw another wash-out day as downside volume accounted for 91% of total volume and the Dow has now fell for five consecutive months so a technical rally is therefore long overdue so it wouldn’t be surprising to see an up week by the close on Friday.

Today it was reported that the number of New Sales contracts on existing homes jumped a seasonally adjusted +6.3% in December as buyers took advantage of lower mortgage rates and falling prices. The pending home sales index rose +6.3% in December and is now up +2.1% compared with a year earlier, the National Association of Realtors said. The increase points to a healthy gain in existing-home sales in January and February. The index is based on signed sales contracts, which usually occur a month or two before the sale is closed, when sales are reported in the NAR's existing-home sales report.

Yesterday one of the things that pulled the market lower was that real consumer spending fell in December for the sixth time in seven months as people saved what they gained from falling energy prices. Nominal spending fell -1%, marking the sixth straight decline and was in line with expectations of economists. Adjusting for a -0.5% decline in oil prices, real consumer spending fell -0.5% in December, a reversal following a +0.3% increase in November. It was the sixth decline in real spending in the past seven months. Nominal incomes fell -0.2% in December. With spending falling faster than incomes, the personal savings rate rose to +3.6% in December, the highest since May which in the end is great news. People have reduced their spending by about $400 billion from what it would be with a zero savings rate.

The nation's manufacturing sector contracted again in January, but at a less rapid pace than the prior two months, the Institute for Supply Management said. The ISM manufacturing index inched higher to 35.6% in January from 32.9% in December and was unexpected as economists thought it would fall to 32.8%. The January index is the highest since November. Readings below 50 indicate contraction and it has been below 50 since January.

Friday, January 30, 2009 4:03 p.m est.

The market started higher this morning but started to lose it after President Obama was being very vocal about his disappointment in the banking sector so their stocks sold off and saying “buy America” and that he was going to focus on the “middle class” seemed to upset traders also. It also didn’t help that more companies reported disappointing earnings and the economy contracted at the fastest pace in 26-years. The Dow saw lows of -200.00 points, S&P 500 -23.00 points and the Nasdaq Composite off -45.00 points in the final hour.

At the close the Dow was down by -149.00 points to about 8000, S&P 500 -19.00 points to about 826, S&P 100 -8.00 points to 391 and the Nasdaq Composite -31.00 points to 1476.00. I’m noticing that my readings on the price of oil for some reason is all over the place. It may have something to do with the futures market roll over of contract months, I’m not sure but for the day oil was up +$.24 to about $41.62.

The S&P 500 finished the month down -8.6%, passing the -7.6% drop at the start of 1970 and adding to last year’s -38% massive selling. Profits fell -38% for the 208 companies in the S&P 500 that released fourth-quarter results since January 12th. Last quarter is projected to mark the sixth- straight period of decreasing profits, the longest streak on record! Now that January has finished lower, the “January Barometer” says that this will signal a loss for 2009 overall. The indicator was developed by Yale Hirsch, chairman and founder of the Stock Traders Almanac, and built on the theory that the S&P 500’s first-month performance sets its course for the year. Since 1950, the indicator has been about 80% accurate. One of the exceptions occurred in 1978, when the index rebounded from a January drop of -6.2% to close +1.1% higher the next month. Something to watch...
The economy fell at a -3.8% annualized rate in the fourth quarter but the decline would have been worse except that the government counts the buildup of goods on store shelves as growth. A clearer picture excludes the inventory buildup which means that it would have contracted at a -5.1% pace, the weakest in 28 years! Still, the growth rate is the worst since 1982! Today's report also confirms that the economy has entered new territory with a stunning record drop in headline inflation. The core price index (excluding food and energy) fell to a -0.6% annual rate from 2.4% in the third, leaving the annual rate at a +2.2% gain. But headline consumer inflation fell at a -5.5% annual rate, the biggest drop on record.

The drop in growth was above economists expectations that it would shrink at a -5.5% annual rate but again if you look at it without inventories they were right. This could also mean that things will be bad this quarter as the data shows output is likely to be cut aggressively. Weakness in the fourth quarter was widespread as declines in consumer and business spending were offset by inventories and government spending. The trade sector made a small positive contribution to growth as a sharp drop in imports was larger than the decline in exports.

Consumer sentiment rose in January to a final reading of 61.2% from 60.1% in late December, according to the University of Michigan and Reuters. Analysts were looking for a January result of 61.5%. While sentiment remains at relatively low levels, lower prices have provided some relief, even as worry persists over income and ongoing job losses.

Thursday, January 29, 2009 4:03 p.m est.

The market was down today after the party ended yesterday after the stimulus plan was released and the Fed kept rates near zero. One of the reasons that the market was hurting was because in the first four days of this week there have been -70,000 lay off notices sent out to people. The big thing is that they are not just from the financial sector but are getting wide spread across the entire economy as it slows. The Dow saw lows of -250.00 points, S&P 500 -31.00 points and the Nasdaq Composite off -55.00 points.

At the close the Dow was down by -227.00 points to about 8149, S&P 500 -29.00 points to about 845, S&P 100 -13.00 points to 400 and the Nasdaq Composite +50.00 points to 1508.00. I’m noticing that my readings on the price of oil for some reason is all over the place. It may have something to do with the futures market roll over of contract months, I’m not sure but for the day oil was down -$.72 to about $41.66.

There are things to worry about such as global troubles continuing as Brazil and Argentina are increasing their protectionism issues and in the U.S. the next problem could be on its way from jumbo mortgages. Default rates for jumbo mortgages are on the rise, suggesting that even high end consumers are starting to feel the current financial meltdown. According to The Wall Street Journal: "About 6.9% of prime "jumbo" loans (averaging $750,000, but ranging as high as $5 million) were at least 90 days delinquent in December, according to LPS Applied Analytics, a mortgage-data research firm. The rate was up sharply from 2.6% a year earlier. In comparison, delinquencies of non-jumbo prime loans that qualify for backing by government agencies climbed to 2.1% from 0.8% in December 2007. The reason is because of a rise in layoffs at the upper end of the employment area, noting that "the Labor Department reported that the jobless rate rose in December in all 50 states, hitting at least 10% in Michigan and Rhode Island. The States that suffered the biggest jumps in unemployment in the past year include California and Florida, where the largest number of jumbo loans were made." This could be interesting because the recent job cuts do seem to be on the rise and corporations scaling back expansions and actually contracting, makes it seem logical to expect further problems ahead on the employment front thus jumbo mortgages getting squeezed more. Something to watch...

Things are looking ugly and this weeks unemployment lines were at their worst on record, a sign that the labor market continues to worsen. Jobless Claims were up +3,000 to a seasonally adjusted 588,000 putting the number just 1,000 below the 26-year high set a month ago. Meanwhile, the four-week average rose by +24,250 to 542,500 and draws the attention of economists and investors because it smoothes out distortions caused by bad weather, strikes or the timing of holidays. Continuing jobless claims rose by +159,000 to a seasonally adjusted 4.78 million, the most since the government's records begin in 1967! Initial claims represent job destruction, while the level of continuing claims indicates how hard or easy it is for workers to find new employment. The claims data show that businesses are laying off workers at a rapid pace and that finding a replacement job is proving ever harder for those who've lost work. As I mentioned above, compared with the same week a year ago, claims are up about 63%, while continuing claims are up 71%.

There is no help in the New Home area either as sales fell -14.7% in December to the lowest level on record. The decline in new-home sales to a seasonally adjusted annual rate of 331,000 was far below the 390,000 pace expected by economists. New-home sales in November were revised to a 388,000 level compared with the previous estimate of 407,000. There were 482,000 new homes sold in 2008, down a record -37.9% from 776,000 sold in 2007 and is the lowest since 1982. The months supply of homes on the market rose to 12.9 months in December from 12.5 months in November which isn’t good news as we need to see it go down. Median sales prices have fallen -9.3% in the past year to $206,500.

Orders for Durable Goods fell -2.6% in December on weaker demand for almost all products except defense. Orders have fallen for fifth straight month and the drop in the fourth quarter has been pronounced. Excluding the +0.6% increase in transportation goods, orders fell -3.6%. Without the pickup in defense orders, durable-goods orders fell -4.9%. The decline in December exceeded the expected -2.0% fall forecast by economists.

Wednesday, January 28, 2009 3:03 p.m est.

The market popped this morning after it was announced after the close yesterday that President Obama was nearing a "bad bank" plan and that the Federal Deposit Insurance Corp. may manage the plan. Some estimates are that the government could take on $1 trillion of bad assets yeah! .The Dow saw quick highs five minutes into trading up +160.00 points, S&P 500 +21.00 points and the Nasdaq +40.00 points. ts always interesting how the market pops after these deals are set up such as the “tarp plan”. Banks were up huge on the news and the fact that Wells Fargo’s earnings weren’t to bad in the end helped to hold the market up. It then made new highs just before the Fed made their announcement about interest rates. After it was announced that they would keep rates unchanged from the 0 to .25% level the Dow saw new highs of +240.00 points, S&P 500 +33.00 points and the Nasdaq +60.00 points. Going into the final hour it has started to fall back but I think we’ll see little selling going into the close.

The Fed said it was prepared to buy Treasury’s if warranted and that the economy was weakening, but that it still expected a recovery in the second half. They are also worried about deflation now but would continue to pump money into the various credit channels. Richmond Fed president Jeffrey Lacker dissented as he felt they should buy Treasury’s instead of other assets.

Tuesday, January 27, 2009 4:03 p.m est.

The market was flat but volatility remained even though the range was small. It started up though with the Dow seeing highs of +115.00 points, S&P 500 +14.00 points and the Nasdaq +25.00 points. When the selling occurred the Dow saw lows of -40.00 points, S&P 500 -4.00 points and the Nasdaq Composite off -10.00 points.

At the close the Dow was up by +59.00 points to about 8175, S&P 500 +9.00 points to about 846, S&P 100 +4.00 points to 400 and the Nasdaq Composite +15.00 points to 1505.00. Oil was down pretty hard all day seeing -$4.15 to about $42.01.

Home values in 20 major cities fell a record -18.2% in the 12 months ending in November, Standard & Poor’s reported this morning. The Case-Shiller 20-city home price index fell -2.2% in November, with home values in all 20 cities falling at least -1%. Prices in the original 10-city index fell a record -19.1% over the year. Prices are down -25% from the peak in mid-2006, according to Case-Shiller. In the past year, prices were down -33% in Phoenix, -32% in Las Vegas, and -31% in San Francisco. The best performance over the past year came in Dallas, where prices fell only -3.3%. Prices fell -3.4% in Phoenix and -3.3% in Las Vegas in November.

A similar index from the Federal Housing Finance Agency released last week found prices fell -1.8% in November and -8.7% in the previous 12 months. The FHFA index tracks the whole country, but relies on data from Fannie Mae and Freddie Mac, so it missed most of purchases financed by sub-prime loans earlier in the decade. Falling home values have helped to plunge the global financial system into chaos because of mortgage-backed securities. Home owners have lost trillions of dollars of wealth as it has fallen by some -$380 billion per month, or about -$370 per adult per week.
Consumer confidence hit a record low in January, according to the monthly Conference Board, as worries worsened about future income. The January consumer confidence index fell to 37.7% from an upwardly revised 38.6% in December. Economists had expected a January reading of 38%. It looks like people have begun the new year with the same degree of pessimism that they exhibited in the final months of 2008.

Monday, January 26, 2009 4:03 p.m est.

The market is getting flatter and flatter as we go along as it started the day strongly and then really bounced after home sales came in better than expected. It was also surprising to see the market start the day higher after Caterpillar had some pretty poor earnings. The Dow was able to see highs of +160.00 points, S&P 500 +21.00 points and the Nasdaq +45.00 points. Selling took hold once again however with the Dow seeing lows of -40.00 points, S&P 500 -3.00 points but the Nasdaq Composite off -10.00 points came back pretty quick helping to lead the rest of the market in the final hour. Selling took hold in the final thirty minutes but the market was able to hold up.

At the close the Dow was up by +38.00 points to about 8116, S&P 500 +5.00 points to about 837, S&P 100 +2.00 points to 397 and the Nasdaq Composite +12.00 points to 1489.00. Oil closed down -$.74 to $45.74.

For the third straight week, the market moved lower but even though the bears tried the whole week to take out the November lows they couldn’t do it. All you hear about now is people talking about specific dates and quarters when things will turn in the economy. Most of the supposed experts tell us that it will take at least six months until things get better and the market will go up again but I believe that nobody can possibly know when things will turn, because this market is certainly unique. Nobody has seen this type of price action in their lifetimes and nobody knows what is next.
As you know I’m hoping that flatness will continue and some indicators are at least helping to support the market on the downside. One for example, is the Smart Money Guys accumulating stocks strongly since the lows have been hit . Another is that whenever the bears took the Dow below 8000 it bounced back strongly each time especially last Wednesday. This was very impressive as the Dow jumped +279 points from 7949 to 8228, a day after suffering its worst loss on the first day of the new Obama administration took over seeing a -323 point loss. It did provide another wash-out day though, when downside volume accounted for 97% of total NYSE volume. Such a 97% selling climax occurred already three trading days before on January 14th. In recent decades, two 90% down days meant a low was at hand, if not a bottom.

We could see some volatility this week though as the market will have to deal with more than 1100 earnings reports and the Fed meets Tuesday and Wednesday. They are expected to leave the fed funds rate alone though. I mean how much lower can it go, they pay us, as the rate is now basically 0 to .25%. Like I say were mimicking Japan but the question is for how long and will the public follow along or increase their debt levels once again!
Sales of Existing Homes were up +6.5% in December to a seasonally adjusted annualized rate of 4.74 million as prices continued to plunge at a record pace, the National Association of Realtors reported. Sales in December were down -3.5% from the previous December. For 2008 as a whole, sales fell -13.1% to 4.91 million. The median sales price fell to $175,400 down a record -15.3% compared with a year earlier. For all of 2008, median prices dropped -9.3% to the lowest level since 2004. Sales in December were stronger than the 4.36 million expected.

An “intense recession” is likely through the spring, the Conference Board said as their index of Leading Economic Indicators rose +0.3% in December, mainly due to the “continued and very large” contribution from the real money supply, while weakness in building permits and elsewhere persisted, according to the Conference Board. “Expect declines in output and employment over the next several quarters, with unemployment possibly rising to 9%.” In November, the index fell -0.4%.

Friday, January 23, 2009 4:03 p.m est.

The market fell out of bed this morning on worries about what the Obama administration is going to do with the current economic situation. It fell hard with the Dow seeing early lows of -215.00 points, S&P 500 -22.00 points and the Nasdaq Composite -40.00 points but after some encouraging words from members of congress the market started to turn around. Then again it also may have been the buying in tech stocks that started as they weren’t hurt as bad. The Dow was able to see highs of +15.00 points, S&P 500 +11.00 points and the Nasdaq +30.00 points. Going into the final hour selling took hold once again however by the close the market was mixed.

At the close the Dow was down by -46.00 points to about 8077, S&P 500 +5.00 points to about 832, S&P 100 +2.00 points to 395 and the Nasdaq Composite +12.00 points to 1477.00. Oil closed up +$2.80 to $45.82.

As I mentioned the other day, financial stocks peaked in 2007 and since then have dropped about -80%, slightly less than the -82% that technology stocks fell in the 2000-2002 bear market. So far January has been looking rough with the S&P 500 closing about -9% lower than the December 31st close so its not looking to good to get a decent January indication of a rising market this year. One good point however is that the S&P is undergoing extensive rebalancing. At the height of the “bank bubble” financials held roughly 22% of the S&P. Today it is only around 10% and technology sector is once again the biggest sector in the S&P. Tech stocks have been having a much better time of it than the S&P so far in January as the index is only off -7% for the year. The rotation out of banks and the strength we have seen in tech stocks and may make it possible for a decent rally into months end so we could still save the January effect so to speak. Of course I’m hoping for an unchanged month as that could mean an unchanged year!!!
I’m keeping my eye on geo political events so I wanted to leave you with an interesting note as I believe it will become market news in months to come as President Obama pulls troops out of the middle east. Iran has just said that 100,000 people have signed up to become potential suicide bombers. According to Stratfor.com: “Approximately 100,000 students have joined an organization, whose members are purportedly willing to carry out “martyrdom seeking operations,” the Indo-Asian News Service said. Something to keep an eye on....

Thursday, January 22, 2009 4:03 p.m est.

With all of the hope for President Obama’s saving the world and stating himself today about his #1 job being the protection of Americans, I just wanted to thank President Bush once again as he leaves office as I believe he fulfilled his most important promise in not allowing another 9/11 to happen on our soil! That to me will always be the most important thing to do because its hard to make money or support a family if your dead! Bush was inaugurated in the midst of a tough down-cycle in the economy, and then 9 months later 9/11 happened. He then had to get rid of the Taliban’s reign in Afghanistan, the War with Iraq, the worst Hurricane hitting New Orleans in 100 years, Alan Greenspan and Bill Clinton’s setting up the current housing melt down, and finally the Republican and now Democratic Congress that has thought of nothing else but getting themselves re-elected instead of what the public really wants. Tuesday he left the White House, ready for a rest. I thank you President Bush for your patriotism and hard work in one of the most difficult times in history, and I thank you Barack Obama for exciting a nation to be kinder and gentler and more responsible and I pray you protect it as well as President Bush did.

Yesterday almost saw the market make back all of the losses made on Tuesday but today saw selling come back in once again. Maybe it was because the press has already started to turn on Obama. The New York Times says he has no plan to turn the economy around, and has “no quick fix for banks,” adding that despite recent hype about hitting the ground running, the truth is that “they are not yet prepared to address,” the crisis. This could be the case because today it was all about getting Guantanamo closed because terrorists have rights too you know. That is of course as long as they aren’t released in my area. I get a kick out of all of the countries that are rallying to get it closed but won’t accept any of the prisoners! Anyhow, you would think it would be more important to concentrate on financial matters from the way the market is reacting.

It made things worse after microsoft reported poor earnings early and that they would have job cuts for the first time ever just before the bell. Interestingly after Apple reported great earnings last night, Globex futures rallied! The Dow saw early lows of -280.00 points, S&P 500 -30.00 points and the Nasdaq Composite -70.00 points. Volatility is strong right now but the market doesn’t really go anywhere. The good news is that it is very oversold, volume seems to only come in on the upside and bearishness is moving into the extreme level also.

At the close the Dow was down by -105.00 points to about 8123, S&P 500 -13.00 points to about 828, S&P 100 -5.00 points to 393 and the Nasdaq Composite -42.00 points to 1465.00. Oil closed down -$.17 to $43.38.

It doesn’t look like President Obama is the “best President ever” yet as Jobless Claims rose +62,000 to a seasonally adjusted 589,000 last week. The level of initial claims is up 82% from the same period in the prior year, and the last time the level was higher was in November 1982. The four-week average was unchanged at 519,250. Continuing claims rose +97,000 to 4.61 million, a level that is 72% higher than in the prior year. The four-week average of continuing claims rose +58,750 to 4.56 million, the highest level since November 1982.

Construction on new homes took another turn for the worse in December, falling more than -15% to a seasonally adjusted annual rate of 550,000, the lowest on record. Permits to build single-family homes fell -12.3% to a record-low 363,000 in December, while total permits including apartments dropped -10.7% to a 549,000 annual rate, also a record low. Building permits are considered a more reliable guide to the state of the housing market, because they are less affected by weather conditions than the housing starts figures. The report was much worse than expected for the second consecutive month as economists were looking for a smaller drop to an annual rate of about 600,000, thinking that November's -15% decline in starts wouldn't be repeated. Since June, starts have fallen a hefty -49%. For all of 2008, housing starts fell -33% to 904,000, the lowest pace of new construction since the government began keeping records in 1959. In all of 2007, 1.355 million homes were started while building permits fell -36% in 2008 to 892,500. Similar but not identical government data show construction in 2008 was at the lowest level since World War II which is good however as inventories remain so high! The large declines in the past few months could be good news for the economy, on the principle that when you are in a hole, the first thing to do is to stop digging which will reduce inventories thus limiting the ultimate drop in home prices which has been a big reason for the financial crisis.

Builders are working to reduce the inventory of unsold homes as housing completions fell -5.2% to an annual rate of 1.02 million. For all of 2008, completions dropped -26% to the 1.12 million, the lowest total in 17 years. The National Association of Home Builders reported that its sentiment index fell to a record-low 8 in January. Home prices fell -1.8% in November, the largest monthly decline ever recorded by the Federal Housing Finance Agency. In the past year, home prices are down a record -8.7%, compared with a -7.5% drop through October. Since the peak in early 2007, home prices are down -10.5%, FHFA said. In November, the largest declines were seen in the West North Central states -2.7% and in the Mountain states -2.4%. They fell in all nine regions in November, and are down in all nine regions over the past year. Prices have fallen -22% in the Pacific region in the past year. The FHFA index measures the difference in sales prices for the same properties over time.

Tuesday, January 20, 2009 4:03 p.m est.

Well it looks like the party is over for President Elect Obama as the market really tanked today. After Obama gave his inaugural address the market started to sell off and the final hour saw lows with the Dow seeing -350.00 points, S&P 500 -46.00 points and the Nasdaq Composite -90.00 points. It was mainly bank stocks that pulled the market down with the main contributor being State Street down over -50% on concerns the company may have to bring some of those “bad investments” onto its balance sheet, a move that could force it to raise capital and potentially dilute shareholders. The financial-services firm reported sharply lower fourth-quarter earnings and updated its risk factor disclosures in a regulatory filing.

At the close the Dow was down by -332.00 points to about 7949, S&P 500 -45.00 points to about 805, S&P 100 -20.00 points to 381 and the Nasdaq Composite -89.00 points to 1441.00. Oil closed up +$2.34 to $38.85.

This was a pretty bad day for the market but historically it is down 72% of the time so its not surprising. It was down pretty hard though but volume was incredibly low which is good news. The banking sector was off -20% today alone at new lows and -80% off of 2007 highs. This could be the capitulation in this sector everyone has been waiting for because the index is getting close to 0 now. It has moved all of the way from 121 to 25.00. It will be interesting to see how the week will turn out.

One of the reasons that the market may have been down today was now that President Obama has taken the oath of office, everything will change physically in the Whitehouse, but it may also mean that things will more than likely stay the same, if history is any guide. When you look through the current news, it's hard to see how even the well intentioned new president will be able to make inroads into the selfish agenda driven place that Washington has become.

Obama seems to be trying a different approach giving Congress more leeway in constructing legislation than his predecessor, who would put together a detailed plan and then send it to Congress where modification and arguments would start. According to The Wall Street Journal, Obama, contrary to Bush, speaks of what he wants in a bill, broadly, without providing details, and lets Congress fill in the blanks, giving those who put together the legislation ownership of what comes out. Yet, that approach, according to the Journal can backfire, so he may still lose control of the process and end up with stuff that is larger and harder to work with than he wanted.

There is also the problem for example that House Speaker Pelosi and Senate Majority Leader Reid, both Democrats, and both heavy supporters of Obama on the campaign trail, have voiced their opposition to Obama’s reversal on taxes as well as other policies. Reid told one Sunday talk show that he doesn't work for Obama, while Pelosi hinted disapproval of what she referred to as broken campaign promises from Obama with regard to raising taxes.

This means that Obama will have to deal with his own party's agenda, led by Pelosi, Reid, and other powerful well entrenched special interest groups in Washington, plus dealing with the collapsing economy, plus on the outside is that Russia and Iran are moving into Europe, the Middle East, and Asia quickly. On this side of the water Mexico has the threat of lawlessness, murder, and disorder and is one or two events away from moving into America. As I have said in the past, I don’t think its going to be an easy four year term for anyone so good luck to you President Obama!

Friday, January 16, 2009 4:03 p.m est.

It was a pretty quiet expiration where we saw full profits on all January trades. The market started strong with the Dow up +140.00 points, S&P 500 +15.00 points and the Nasdaq actually up a strong +30.00 points but as the day wore on and worries about President Elect Obama’s plan to save the universe and banking problems came into sight, the market pulled back. The Dow saw lows of -100.00 points, S&P 500 -13.00 points and the Nasdaq Composite -25.00 points. The final hour saw another surge up and at the close the market had made up decent ground.

At the close the Dow was up by +69.00 points to about 8281, S&P 500 +6.00 points to about 850, S&P 100 +2.00 points to 401 and the Nasdaq Composite +18.00 points to 1529.00. Oil closed up +$1.11 to $36.51.

In another sign of how bad the depth of the economic slowdown is, Consumer prices increased just +0.1% in 2008, the smallest increase in 54 years! The consumer price index fell -0.7% in December, the third decline in a row, led by an -8.3% drop in energy prices and a -0.1% drop in food prices. This of course needs to be taken with a grain of salt as oil was so high. Economists had given an average expectation for a +0.8% fall.
Core prices, which exclude food and energy prices were flat for the second straight month, as expected.

A separate CPI for urban workers showed prices fell -0.5% in 2008, the biggest decline since 1949. The CPI-W is used for many cost-of-living adjustments. With prices for urban workers down -0.9% in December and average weekly earnings down -0.3%, real weekly earnings, those adjusted for inflation rose -0.6%. For all of 2008, real earnings were up +2.9%. Falling prices have been a boon for consumers, but have devastated corporate profit margins, leading to even more layoffs and production cutbacks. Most economists expect inflation to ease for much of this year as global demand weakens. Fed officials say they aren't especially concerned about deflation taking hold, and insist that they are ready to shrink the money supply once the economy begins to recover in order to prevent a bout of inflation next year.

Consumer sentiment rose in early January to a reading of 61.9% from 60.1% in late December, according to the University of Michigan and Reuters. Analysts were looking for a result of 59% so it was good news to hear. While sentiment remains at relatively low levels, lower prices have provided some relief, even as worry persists over ongoing job losses.

Industrial production dropped -2% after a revised -1.3% drop in the previous month. Production is now down in four of the past five months. Production fell at an astonishing -11.5% rate in the fourth quarter and is the biggest quarterly drop since 1980. Factory output fell -1.8% in 2008, the first annual decline since 2002. The drop in production in December was larger than expected. Economists had been anticipating that December's production would fall -1.2%. Capacity utilization fell to 73.6% in December from 75.2% in the previous month and is the lowest level since December 2001.

Thursday, January 15, 2009 4:03 p.m est.

It was very interesting this morning as the market sold off once again with the Dow seeing lows of -210.00 points, S&P 500 -26.00 points and the Nasdaq Composite -40.00 points on incredibly low volume. When the market hit the one hour mark it had only hit volume levels seen in the first fifteen minutes of trading in a normal trading day. This isn’t a market that is being sold, its a buying strike which is telling me that were more likely to remain in this massive trading range from about 800 on the downside and 1000 for the upside on the S&P 500. The market started to bounce back after it was announced that hamas has agreed to a one year break in lobbing rockets into Israel and it looked like there was going to be more Tarp money dolled out to the Bank of America. This morning JP Morgan reported earnings that were better than expected which was a surprise and made it appear that the market was going to start up right away but worries about the future once again took hold. The market has no direction whatsoever which is perfect for us! The Dow rocketed higher to +90.00 points, S&P 500 +10.00 points and the Nasdaq actually up a strong +40.00 points.

At the close the Dow was up by +12.00 points to about 8212, S&P 500 +1.00 points to about 844, S&P 100 -2.00 points to 399 and the Nasdaq Composite +22.00 points to 1512.00. Oil continues to sell off as it was reported yesterday that inventories were much stronger than expected and there is a record amount of ships on the high seas loaded with oil right now. It closed down -$2.14 to $35.14.

Inflation at the wholesale level fell in December for the fifth consecutive month, down -1.9%, driven by a -9.3% drop in energy prices, and a -1.5% decline for foods. In November, the PPI fell -2.2%. The core PPI, which excludes food and energy costs, rose +0.2%, compared with a +0.1% gain in November. Economists were expecting the to fall -2.2%, and for the core to show no growth.

Jobless Claims rose +54,000 to 524,000 last week. The four-week average fell -8,000 to 518,500, a level that is 55% higher than the average during the same period in the prior year. Meanwhile, continuing claims fell -115,000 to 4.5 million, a level that is +64% higher than the prior year. The four-week average of continuing claims rose +27,500 to 4.5 million, the highest level since December 1982. The insured unemployment rate remained at 3.4%.

Wednesday, January 14, 2009 4:01 p.m est.

The market continued to sell off today as economic data wasn’t great with lows seen mid-morning and then again in the final hour. The Dow saw lows of -310.00 points, S&P 500 -36.00 points and the Nasdaq Composite -65.00 points.

At the close the Dow was down by -250.00 points to about 8200, S&P 500 -29.00 points to about 843, S&P 100 -13.00 points to 401 and the Nasdaq Composite -55.00 points to 1492.00. Oil was flat once again closing down -$.38 to $37.40.

It’s looking like the market is going to be lower for this expiration week but it is now incredibly oversold so we could see the final two days of this week see a bit of leveling off. An interesting pattern that is emerging is an upside down head and shoulders pattern which could be interesting if it actually plays out, otherwise I think we’ll remain in this massive trading range that has been seen since the November lows.

Stung by weak demand and falling prices, seasonally adjusted retail sales fell -2.7% in December, a string six negative numbers, the largest on record and not seen since 1967! Sales in October and November were revised lower. Excluding the -0.7% decline in auto sales, retail sales also recorded their biggest drop since record-keeping began in the early 1990s, falling -3.1%. Excluding gas and autos, sales fell -1.5%, the largest drop since September 2001. Chain stores have reported further weakening in early January as the recession began its second year. December's sales were down a record -9.8% compared with the previous December and sales excluding autos were down a record -6.7% in the past year. For all of 2008, sales fell -0.1% compared with 2007, the first decline in annual sales since 1992.

Falling gas prices pushed sales at gas stations down -15.9% after November's -18.3% decline. Sales at general merchandise stores fell -1.3%, including a -2.3% drop at department stores, the biggest drop in nearly five years. Sales at clothing stores fell -2.5%. Sales at sporting goods and other stores catering to leisure-time activities fell -0.4%. Auto dealers fell -0.7% and are down -22.4% in the past year while furniture stores dropped -1.8%. Sales at hardware and garden stores fell -2.9% while electronics and appliance stores fell -1%. Sales at food and beverage stores fell -1.4%, the biggest drop in nearly eight years while restaurants and bars dropped -2.2%, the biggest drop since September 2001. Sales at health and personal care stores rose -0.4% while non-store outlets, such as catalogs and online stores, fell -1.9%.

Tuesday, January 13, 2009 4:03 p.m est.

The market started the day lower but turned higher early on with the Dow seeing highs of +50.00 points, S&P 500 +8.00 points and the Nasdaq Composite +25.00 points. As earning worries mainly in the financial sector started to take hold, the market started to move lower and at its lows the Dow saw -100.00 points, S&P 500 -9.00 points and the Nasdaq Composite -15.00 points in the final hour.

At the close the Dow was down by -25.00 points to about 8448, S&P 500 +1.50 points to about 872, S&P 100 +1.00 points to 414 and the Nasdaq Composite +8.00 points to 1547.00. Oil was flat closing up +$.19 to $38.47.

This is the fifth day in a row the Dow has been down except the S&P 500 squeaking into positive territory the other day and today. Although this week doesn’t look positive, since 2006, there is a much higher probability than normal for the market to close higher during expiration weeks. When the bears do come out during these weeks, they usually come out in force which makes a negative week much larger than those outside of expiration weeks. During 2008, the effects of expiration week became even stronger as 9 of 12 expiration weeks finished higher, with an average return of +2.4% and an average negative return of -5.63%. During January 2008’s expiration week, the market was down by -5.4%. So far the market is off about -2.5% this week. It is getting oversold now so the downside shouldn’t be as high as the average so for the week were likely to see the market remain mostly sideways.

The trade balance with the rest of the world fell -29% to $40.4 billion in November on a record decline in oil prices and much weaker demand for imports. Imports fell a record -12% to $183.2 billion, the lowest level in two and a half years, as the average price of imported petroleum dropped by $25.30 a barrel to $66.72. Exports fell -5.8% to $142.8 billion, led by weakening foreign demand for industrial supplies and capital goods. The nominal trade deficit was much lower than the $50 billion expected by economists surveyed by MarketWatch. October's trade gap was revised lower to $56.7 billion from $57.2 billion.

Monday, January 12, 2009 4:03 p.m est.

The market got up on the wrong side of the bed today as it started selling off and continued that way all day as people were worried about earnings. Alcoa reports its earnings after the market closes today, with analysts expecting a loss of 10 cents a share. Oil stocks were no help either as oil has pulled back into the $30 range once again. At its lows the Dow saw -180.00 points, S&P 500 -25.00 points and the Nasdaq Composite -45.00 points.
At the close the Dow was down by -125.00 points to about 8474, S&P 500 -20.00 points to about 870, S&P 100 -8.00 points to 413 and the Nasdaq Composite -33.00 points to 1539.00. Oil also fell, closing down -$3.24 to $37.87.

The market started the week poorly as it works off its overbought condition but it did it on low volume which indicates that there are just no buyers out there. It is an expiration traded week so I’m thinking it will likely turn out to be flat in the end but earnings are also going to start coming out so it may be an uphill battle.

Friday, January 9, 2009 4:03 p.m est.

The market was looking to be up this morning after the dismal employment report came out as Globex futures rose but after the open traders realized that it was actually bad for the economy if people lost their jobs so it quickly turned lower. The Dow saw lows of -150.00 points, S&P 500 -19.00 points and the Nasdaq Composite -45.00 points. Since then it turned into drift mode until the final fifteen minutes of trading where it broke to new lows and closed around that level.

At the close the Dow was down by -145.00 points to about 8597, S&P 500 -20.00 points to about 890, S&P 100 -9.00 points to 421 and the Nasdaq Composite -45.00 points to 1572. Oil also fell, closing down -$.87 to $40.83.

The economy lost -524,000 jobs in December, closing out the worst year for job losses since World War II! Nearly -2.6 million jobs were lost in 2008, with -1.9 million gone in just the past four months, according to a survey. It's the biggest job loss in any calendar year since 1945, when 2.75 million jobs were lost as the wartime economy ended. The unemployment rate rose to 7.2%, the highest in 16 years. Economists expected payrolls to fall by -500,000 and for the unemployment rate to rise to 7.1%. Average hourly earnings increased by +5 cents, or +0.3%, to $18.36 an hour. Hourly pay rose 3.7% in 2008, outpacing the +0.6% increase in the consumer price index through November. Unemployment increased by +632,000 to 11.1 million, according to the survey of households. That same survey showed employment falling by -806,000 in December. In 2008, the unemployment rate rose by +2.3% and unemployment increased by 3.6 million. The report was worse than expected, with October and November numbers revised lower by a total of -157,000 jobs. Total hours worked fell -1.1%, with the average workweek falling to the shortest ever. The factory workweek plunged below 40 hours to a record low 39.9 hours, and average overtime fell to just 3 hours. Of 84 manufacturing industries, just 11% were hiring. An alternative measure of unemployment that includes workers too discouraged to look for a job rose to 13.5% from 12.6% in November, the highest in the 13 years since those data have been kept.

Job losses were widespread as only 25% of 274 industries were hiring in December. Goods-producing industries cut -251,000 jobs in December, including -149,000 in manufacturing. Services-producing industries cut -273,000 jobs in December, including -67,000 in retail trade and -113,000 in business services. Temporary-help jobs fell by -81,000 while Health-care industries added +32,000 workers.

It is said that a penny saved is a penny earned but it is also a penny not spent and in a recessionary period like today, economists say that more pennies need to be spent to help hold up the economy. This means that the recovery could take much longer than expected especially when you compare it to what happened in the depression. What it means is that we need less saving in down times and during prosperous times, saving pennies could help increase the amount of money that could ultimately be invested in a slow period. The unfortunate thing is that no one did that before the downfall started and because the savings rate was basically zero they have no money to invest.The annual personal saving rate (effectively, income minus spending) averaged around +10% during the early 1980s, when the economy was in a severe double-dip recession. It then began to fall steadily, even as the economy weathered two more recessions, averaging about +7% around the time of the 1990-91 recession, then falling below +2% for the first time in 2001. It then averaged a poor +0.6% from 2004-07 and for a few months was even negative for a time. The only other time the annual savings rate went negative was way back in 1932 and 33 with rates of -0.9% and -1.5% respectively. Since the early 1980s, as falling saving rates seemed to defy logic, economists have tried to determine just how dangerously low and negative saving rates are to the economy.

It was difficult to get people to save money the old-fashioned way in recent years as real estate assets and other financial investments were generating booming returns but now that has ended, people may be forced to save. If it rises as much as some are predicting around +5% to +10%, it will be the dawn of a new era but unfortunately it also means that at the time economy needs dollars the most it won’t get it. This means that something will have to take the consumer’s place as the engine of economic growth and unfortunately, government spending is about to roar to life so the end isn’t looking great. Something to think about...

Thursday, January 8, 2009 4:03 p.m est.

Sorry I didn’t report about yesterday’s big downturn but on Tuesday we are at a Funeral out of town and when we were trying to come back highways were closed down due to mud slides so we got back pretty late. It's great to have internet through cellular networks! The market was down on some poor economic news that tomorrows employment report could be much worse than expected and Intel lowered earnings forecasts. After closing down over -3% the market continued lower this morning after a bunch of retailers revealed poor sales, even Walmart!!! The Dow saw lows right out of the gate of -130.00 points, S&P 500 -10.00 points and the Nasdaq Composite -15.00 points. The market made several attempts at a rally with the S&P and Nasdaq Composite actually getting into positive territory closing near highs at the close.

At the close the Dow was down by -27.00 points to about 8743, S&P 500 +3.00 points to about 910, S&P 100 +.50 points to 430 and the Nasdaq Composite +18.00 points to 1617. Oil has been pulling back the past couple days also as indications of a slower economy means less driving, closing down -$.53 to $42.10.

The S&P 500 remains very overbought here and has gained nearly +25% since bottoming in late November. The fact that the rally has happened in about six weeks is impressive, but not surprising considering how oversold the market was. The last little year end rally of +7% was partially attributed to the start of the year and start of the new month pension money stops coming into the market. As the holiday cheer now goes away and the bad news continues to trickle in such as jobs and retail sales, I would expect the market to pull back at least a bit. That will depend of course on what the employment number is like tomorrow but after he initial rush the market should return to rationality anyhow. The bigger picture of course looks more and more like we’ll be in this bottoming trading range for awhile until we finally start to see some progress in the economy.

This morning it was reported that Continuing claims remained at their highest level since 1982! Analysts doubt that recent drops in initial claims are a good sign, and said the declines are likely due to a technical issue with seasonally adjusting the data around the holidays. Initial jobless claims fell -24,000 to a seasonally adjusted 467,000 last week, 42% higher than the year-earlier period. The four-week average fell -27,000 to 525,750, and is up 53% from the prior year. Continuing claims rose +101,000 to 4.61 million, the highest level since November 1982. The four-week average of continuing claims rose +45,000 to 4.47 million, the highest level since December 1982. Tomorrow we get Employment for December, and economists are looking for another month of major losses. Analysts expect a drop of -500,000 jobs, with an unemployment rate of 7.1%. For November, it was reported there was a loss of -533,000 jobs and an unemployment rate of 6.7%.

What hit the market yesterday was that private-sector firms lost -693,000 jobs in December, far worse than expected, according to the ADP employment index. The report paints an incredibly weak picture of the labor market. The labor market is on track for the largest quarterly decline since 1945. Sharply falling employment for medium and small businesses clearly indicates that the recession has now spread well beyond manufacturing and housing-related activities. The methodology for the ADP index has been revised with the aim of making it a better fit with pivotal government figures to be released tomorrow.

Private employment in the services sector fell by -473,000 last month, while employment in the goods-producing sectors fell by -220,000. Large firms cut -91,000 jobs, medium-sized companies -321,000 jobs and small firms -281,000 jobs. The ADP index covers only private-sector payrolls. Assuming government payrolls expand by +20,000 jobs or so, the ADP index implies an estimated -675,000 fall in employment for December.

Santa Claus was amazingly generous this year, giving us a +7.4% gain before the pullback we have seen the past few days. This is defined in the Stock Trader's Almanac, as it says the propensity for the S&P to rally the last five trading days of December and the first two of January provides the supposed Santa Claus rally. The lack of a rally has often been a preliminary indicator of tough times to come. That was exactly the case the last three times Santa delivered coal to the market. In 1999-2000 the SCR was down -4.0% and then the Tech Bubble popped. The 2000-2001 Bear Market drove the Dow down -29.7%, S&P 500 -36.8% and the Nasdaq, -71.8%. In 2004-2005 the SCR was down -1.8% and 2005 was the first down "fifth" year since 1875. 2005 was a flat weak year with the narrowest Dow range on record. In 2007-2008 SCR was down -2.5% and we had the fifth worst Bear Market on record.

This was the best SCR since 1974-75 just after the 1973-74 bear market ended. This was the last time the Dow and S&P 500 suffered bear market losses greater than 40%. The only greater SCR came in 1932-33 at 7.5%, and 1933 was the best year for the S&P. Of course it all sounds great but is never perfect and I think needs to be taken with a grain of salt as there have been several times in which a positive SCR preceded bad years of markets. But then again its all awash now that the first five days of trading indicator ending today was basically flat, haha!!!!

Tuesday, January 6, 2009 11:30 a.m est.

The market started the day higher once again even though it was moving up in an incredibly overbought condition and on pathetic volume. This makes sense though as it is the start of the year so the hopefuls are pushing for the first five day indicator to be positive so there is a better chance for an up year. The Dow saw highs of +140.00 points, S&P 500 +18.00 points and the Nasdaq Composite +30.00 points but after economic data came out at 10:00 a.m that was negative, the market has moved back near the unchanged level. It’s looking like it will be a flat day.
Non-manufacturing sectors contracted at a slower pace in December, according to a the Institute for Supply Management as the ISM non-manufacturing index rose to 40.6% in December from a record low of 37.3% in November. Economists were looking for 37%. The business activity index rose to 39.6% from 33%, new orders rose to 39.9% from 35.4% and the employment index roe to 34.7% from 31.3%. This is all good but it is still negative.

In a sign that further weakening may be in store for the housing market, an index of sales contracts on existing homes fell -4% in November, the National Association of Realtors said. The index, which is considered a leading indicator of existing home sales, was down -5.3% from the prior year. Pending sales fell in all four regions, with declines of -7.2% in the Northeast, -6.7% in the Midwest, -2.4% in the West and -2.2% in the South. The October pending home sales index was revised to a decline of -4.2% from a prior estimate of a -0.7% drop which makes things look bleak.
Pushed lower by weak demand and falling prices, shipments from factories fell a record -5.3% in November. Orders for factory made goods fell -4.6% in the month, more than twice as much as the expected -2.2% decline. The figures are not adjusted for price changes. Orders and shipments of nondurable goods dropped a record -7.4% in November, led by a -22% drop in shipments from petroleum refineries. Oil and gasoline prices fell about -20% during the month. Orders and shipments for most categories of nondurable goods fell sharply in November, in line with falling commodity prices.
Orders for durable goods fell -1.5%, revised from the -1% drop reported two weeks ago. Factory orders have fallen four months in a row and were down -15.2% compared with the previous November.

Monday, January 5, 2009 4:03 p.m est.

Hope you had a great Christmas and New Year! The market started the New Year with a bang on Friday moving up around +3% but with volume non existent it was hard to take it seriously. Volume today was still pretty weak considering it was the first real trading day of the year. The market started the day lower and although it attempted to go positive with the S&P 500 moving into the green by a few points midday, selling took hold in the final hour moving it back near lows. By the close it made another attempt at another try at a rally.

The Dow saw -140.00 points, S&P 500 -13.00 points and the Nasdaq Composite -30.00 points in the final hour. At the close the Dow was down by -81.80 points to about 8952, S&P 500 -4.00 points to about 927, S&P 100 -4.00 points to 441 and the Nasdaq Composite -4.00 points to 1628. Oil was up once again as the Gaza strike continues and Russia is threatening to cut off gas supplies to Ukraine which could cut the Natural Gas supply to Britain. Oil closed up +$2.47 to $48.53.

Construction spending fell by a seasonally adjusted annual rate of -0.6% in November after an upwardly revised drop of -0.4% in October. Spending on residential projects fell -4.1%, while spending on private-sector nonresidential construction rose +0.7%. Total outlays are down -3.3% in the past year while private residential construction fell -4.2%, reaching the lowest level since August 1999.
The Coming year

I like the sound of 2009 because it has that nice ring to it so does that mean that the market should have a nice ring to it also! One could think that it would be up strongly because it was off so much last year, -39% on average, plus the fact that so many people are predicting anywhere from a +20% to a +60% gain. I’m not so sure those big gains will happen in the end though as traders are still scared right now as the crash still feels like it happened yesterday. We could just go sideways for the entire year which makes more sense looking at history. This gives time for all of the stimulus plans to get working and see if they will actually do anything and companies to regroup before attempting to grow once again.

Don’t forget that as we enter the New Year American consumer household income to debt stands at a record 140%! With the result of the market crash and the current unprecedented credit contraction more and more consumers and market traders are feeling pretty negative right now in a way as never seen before. People are starting to face reality as the change in psychology is spreading even to the baby boomers who have seen there median baby boomer income grow steadily over the past two decades, from $36,000 in 1989 to $149,500 in 2006. Boomers are heading into retirement, and a portion of their retirement plan, rising home prices have been wiped out and likely won’t come back to previous levels for at least another 5-years. Another portion of boomer retirement plans have been wiped out in the stock market crash so they will be doing less spending and more saving for sure. Overall, people are deciding to cut consumption, pay down debt, asset liquidation and increase savings bit by bit. This is going to take much longer than just a few months to work out unfortunately especially because no one seemed to really acknowledge it until after the crash in October. It was credit that got us into this problem and the government is trying to fix the problem by providing even cheaper credit which I think in the end is just creating a bigger problem.

The big question of course is if we are going to follow in Japan’s footsteps or not, or fall into a depression. I don’t think we’ll see a depression unless China calls back its trillions of dollar loans as that would kill them also so it seems that we could possibly follow Japan’s example. They had the exact same realty boom and then a banking crisis that is still causing them much grief. Japan’s bubble popped in December-1989 and didn’t bottom till August- 2002, some -60% below its highs and with the world crash in October put it near lows once again. Right now all world economies are in recession, and all asset classes are declining so I think that it would be crazy to believe that only 14-months out from the world market highs that this whole thing is over. History says that isn’t the case in the best of times so why would it be in one of the worst of times! Then of course there is the possibility that we actually do see a rally this year. One thing to note on that is that even if the S&P 500 rallied +20% to end the year, it would still be in a long term downtrend! One thing for sure is that it will be interesting in the end that’s for sure.

One thing that is certain for 2009 is that geopolitical problems will rise. These will be related to jihadists, organized crimes, and governments such as Russia, China, Venezuela, and Iran. As the U.S. pulls out of Iraq there will likely be a reaction from jihadists and governments throughout the world, with the potential for conflict likely to rise along many borders. Already, the attacks in Mumbai, and the surge in the Israel, Hamas conflicts are starting the year up with a bang literally! Yet, an even more troubling, and thus far largely ignored aspect of the problem, is the apparent increase in cooperation between jihadist groups around the world. Iran funds all of these groups globally in this respect,, for example Hezbollah which has now gained a foothold in Lebanon and Syria. Then you hear reports that Hezbollah has been aiding Hamas, financially, and with the training of soldiers. This creates an increase in rally cries from jihadists around the world with regard to the situation in Gaza, as several groups in other countries outside of the Middle East. According to Israe's Haaretz Iranian clerics were calling for volunteers to go to Gaza, while demonstrations supporting Hamaz popped up recently in front of many Israeli embassy’s around the world. With the U.S. out of Iraq, expect jihadist marketing and propaganda to portray that as a victory, and to use it as a method to increase recruits.

Also important, especially with regard to the U.S. will be what happens with Mexico's drug war. Both the level of violence, and the frequency of events in this arena are on the rise. There were about 80 people attacked and taken back into Mexico last year in Texas. From an economic point of view, the rise in crime and violence in Mexico will be a significant problem for the U.S., whose southern border fence is useless as an effective deterrent to illegal crossings.

You also have Russia's death grip on Europe's energy supply as another important thing in the geopolitical machine, as are China's internal problems and the potential there for social unrest as a result of the global recession. Finally, as the price of oil has collapsed, countries such as Venezuela have felt the pain on their political agendas as Hugo Chavez is increasingly unpopular in Venezuela, as a result of his social agenda getting squeezed, and the potential for problems there is also on the rise.

January 2, 2008

What a great start to the year!! The market tanked today as some traders returned from holidays after a poor reading on manufacturing came out and oil closed in on the $100 level. The market had been a little higher early on but after it was reported that the ISM manufacturing index came in below 50%, indicating contraction, the market pulled back to see triple digit losses. After an attempted bounce after the Fed’s minutes came out midday basically saying nothing new, it fell back to lows with the Dow seeing -275.00 points, S&P 500 -28.00 points and the Nasdaq Composite -60.00 points. At the close the Dow was down by -220.86 points to 13043.96, S&P 500 -21.18 points to 1447.18, S&P 100 -9.70 points to 675.95, and the Nasdaq Composite -42.65 to 2609.63. Oil closed with huge gains up +$3.64 to $99.62.

Volume remains pathetic so it is really hard to judge what the market is really thinking but one thing for sure is that it is getting quite oversold before some very important economic data. This may be a sell on the rumor, buy on the fact, type of move. I’m still analyzing what I think is going to happen for the overall year but I’ll let you know as soon as I’m done.

Factory activity contracted in December to its weakest level since April 2003. The Institute for Supply Management said its index of national factory activity fell to 47.7% in December from 50.8% in November, below economists median forecast for a reading of 50.4%. A reading below 50 also indicates contraction in the sector. Seven of 18 industries were expanding in December, led by apparel, petroleum and food. The new-orders index fell to 45.7% from 52.6%, the lowest since October 2001 during the last recession. The production index fell to 47.3% from 51.9%., the lowest since March 2003. The employment index rose marginally to 48% from 47.8% though but remains below 50% indicating that people are still losing jobs.
Spending on construction projects hit a two-month high in November, rising by +0.1% on strong outlays for public, state and local construction projects. Spending on home construction, meanwhile, continued to fall by -2.5% following a drop of -2.3% in October and is now the 21st consecutive decline. The overall number was a surprise though as economists were expecting a fall of -0.5% in November. Year over year, spending is down by -0.1%.

8/9/07 4:15 p.m. est.
The market was ugly today as overnight it was reported that French banking group BNP Paribas said it has suspended three funds with exposure to the U.S. credit markets as it has become impossible to accurately value them after “the complete evaporation of liquidity.” The market opened ugly and after cutting losses in half it made new lows right at the close with the Dow off -390.00 points, S&P 500 -45.00 points and the Nasdaq Composite -57.00 points. At the close though the Dow was down by -387.18 points to 13270.68, S&P 100 -22.12 points to 676.02, S&P 500 -44.40 points to 1453.09 and the Nasdaq Composite -56.49 to 2556.49. That’s what you call volatility! Oil closed a little lower by -$.54 to $71.61.

The market was volatile once again today with 10 of the last 13 sessions seeing triple digits on the Dow. It seems that even Fed fund futures are getting in on the act as they are now pricing in a 100% probability of a rate cut in September. It may have done this because the Fed added about $12 billion in temporary reserves to the banking system through 14-day repurchases, double the amount added the prior week. It is still within the norm however so I wouldn’t get to excited about a coming rate hike just yet. Fed funds were only showing a possibility of 25%yesterday. I have never seen them move around like this in all of my years of trading but I am also not seeing the level of paranoia out there either. Even the risk management people at futures firms are telling me that they are fearful of big moves in the market. The only good thing is that they say the same thing about a move in the market on the upside. The other thing I’m seeing is that in just about every major technical indicator I’m seeing the market as oversold as if it was down -15 to -20% so sentiment is unbelievably negative!

We are definitely in an interesting period in time but one thing that all of these credit surprises from the U.S, Australia and now France are indicating to me is that this crisis with the entire mortgage thing is much bigger than we think. At the beginning of the year I was saying that things could be interesting this year because of all the mortgages that needed to be reset this year. There is about $3 billion worth of them happening and $300 million worth of defaults expected. Unfortunately we are already over that level and I am sending a chart in the e-mail to show you where we were now at to give you an idea of what we could see. The chart shows June as current but were now a month ahead of that. The point is if you take a look at what is coming up you can see that we could have a real mess on our hands and with mortgages so high now I can see why there would be a problem.

One Mortgage broker business that I have heard of says that it is very difficult to fund a new mortgage if your credit score is below 660 now even with a decent down payment. Before your credit score only had to be 600 to get a new mortgage with zero down! Besides that though these huge loans over $400,000 have an interest rate of 8% due to the size of the loan. This could really be a problem for the higher priced real estate markets like in California where highly leveraged loan markets once thrived. The problem though is that practically everyone is dependent on high leveraged loans right now around the world because of how high mortgages are.

1/3/06 4:10 p.m. est.
The market started the new year on a strong note with the Dow up +45.00 points, S&P 500 +6.00 points and the Nasdaq Composite +13.00 points for no real reason except that it was the new year. When some poor economic data came out and oil spiked higher by over +$2.00 per barrel due to a reported conflict between Russia and the Ukraine over Natural Gas the Dow hit lows of -40.00 points, S&P 500 -3.00 points and the Nasdaq Composite -20.00 points. After this though the market was able to turnaround a bit and when the Fed released their minutes the market took off to new heights on dreams of an end to rate increases. The funny thing is that everything they said has been said before and they even made it seem more confusing not knowing what they’re going to do. Such as, they said the number of additional rate hikes needed “probably would not be large” based on economic data on hand, according to the minutes yet they also mentioned that the economy is strong suggesting resource markets could tighten further and price pressures could build, according to the minutes. The Dow saw highs of +150.00 points, S&P 500 +22.00 points and the Nasdaq Composite +40.00 points in the final hour. The Dow closed at 10847.41 up +129.91 points, S&P 100 +9.25 points to 579.25, S&P 500 +20.51 points to 1268.80 and the Nasdaq Composite +38.42 points to 2243.74. Oil closed up by a strong +2.10 cents to $63.14.

If you look at the first five trading days of the year the odds of a decent prediction for an upside move is pretty good, looking at the last 35 years. If we see the first five days of trading on the upside there is a 85.7% chance that it will be an up year. If they are down we get more of a mixed picture with about a 50% chance of being higher and 50% being lower for the year. One of the most interesting stats was that if December was down January was up 76% of the time since the market has been running. Since 1950, January has predicted the full year performance 78.5% of the time and a down January has preceded a new bear market or at the least a flat year. Of course no one really knows what is going to happen but I’m suspecting that in the end we’ll see another up year by say 11.8% but most of it will be lackluster. We could see a bit more volatility however which I think will be great for us in our style of trading.

2004

12/31/04 4:20 p.m est.
And there the year goes with a whimper. Every year I always love to hear all the media analysts attempt to blow up the fact that the market is going to explode going into year end and every year it closes quietly. All of the year end positioning was done a couple of weeks ago my friends not on the last days of the year!
     

                                            2004             2005          Change       Percent   
Dow                                10453.92        10783.01    +329.09        +3.1%
S&P 100                             550.78            575.29      +24.51        +4.5%
S&P 500                           1111.92          1211.92    +100.00        +9.0%
S&P 500 Jan. Futures     1110.60          1211.20    +100.60         +9.0%
Nasdaq Composite          2003.37          2175.44    +172.07         +9.0%
Russell 2000                      556.91            651.56       +94.65         +17%
5 Year Bond                           3.22%            3.22%
10 Year Bond                         4.25%            4.25%
Volatility                    18.31, 17.51    13.54, 13.02

Since its the end of the year it looks like its time to start talking about what may happen next year and so far to me it appears that there will be little difference from last year, slow steady growth economically and for the market. In the end the market will likely see gains of about +10% but we could see some interesting volatility on its way there on the downside. There are lots of factors that are going to come into play for the market next year that could possibly affect it if they get worse, such as, oil prices, terrorism, the deficit, the economy, company earnings, technicals, sentiment etc. You could almost name it at this point because the market has had a very good run the past few months so anything negative could cause a quick retreat.

When the market peaked out back in 2000 I knew we were going to see a huge correction as the Nasdaq Composite barreled over the 5000 level in its blow off rally and at the bottom I declared a snapback rally but then at least 5 years of mostly sideways to higher action. So far that has come to pass but because there is still really “no new thing to move the market,” I remain with the declaration of slow steady growth ahead. I always think back to the time of 1965 to 1982 as the market barely moved and the period were in now is exactly the same. Sure we may see new highs on the Dow but it has been five years and that index is price weighted so it moves different than other big cap indexes such as the S&P 500, which is far away from its all time high.

On the positive side though, many analysts are saying that 2005 has to be an up year because all years ending in 5 have all seen strong gains since 1885, without exception. First off, to me this indicates more of a possibility of this being the first down year just because everyone is talking about it now and secondly if you look closely you can see that not all years were really strong. The two times we saw small gains were in 1895 and 1965, while every other year ending in five has seen a gain of more than 20% with six of those years coming in at 30% and over. Of course the 1895 +1.7% gain may have been small just because of the fact that it was the first year the Dow index was established but I think the 1965 number is the key one to look at coming in with only a +10.9% gain. Don’t forget the 1965 to 1982 period I mentioned above...

1885 1.7%
1995 36%
1985 28.2%
1975 43%
1965 10.9% ****
1955 44%
1945 29%
1935 42.7%
1925 32.3%
1915 80.5%
1905 38.7%
1805 1.7%

Average gain
38.5%

This is a pretty good track record, I must say.  Maybe it’s just a coincidence that they are all up or perhaps a self-fulfilling prophecy, as everyone bought stocks in anticipation of another great “5” year.  The one thing I know for sure is that although every year ending in five was a good year it tells us absolutely nothing about what may happen in 2005! I mean really, although it sounds like a sure thing, there was also an over 95% probability of President Bush losing the election race according to a bunch of supposed historical indicators so I like to think there is more to the market than just a bunch of probabilities!
Another thing that people have looked at is that almost all of these "5" years has registered its low for the year in the month of January.

1995
January 30th was the low, yearly high +36%

1985
January 4th was the low, yearly high +28.2%

1975
January 2nd was the low, yearly high +43%

1965
January 4th was the low, yearly high +10.9%
There were five days in June seeing slightly lower closes and it indicates how the year overall was mostly flat.

1955
January 18th was the low, yearly high +44%

1945
January 24th was the low, yearly high +29%

1935
January 15th was the low, yearly high +42.7%
Nine days in March closed lower also but then the market went straight up.

1925
March 30th was the low, yearly high +32.3%
This was the only exception of it not being in January.

1915
January 2nd was the low, yearly high +80.5%
February 24th closed less than -1.0% lower.

1905

January 25th was the low, yearly high +38.7%

On average, the low for the year was around January 22nd, but you can see by a few of those years that it always didn’t go straight up from there. There's no denying that history looks pretty good for the “5” year of each decade for the past century but there lies part of the problem for the year 2005. Stock market Cycles began publicizing the mystique of the “5” year 20 years ago when very few people were aware of what happened. In 1994, awareness was quite apparent and as we approach 2005, I believe the publicity concerning the phenomenon will increase dramatically.
An interesting factor was that at the end of 1974, 1984, and 1994, adviser sentiment had been bearish for a significant percentage of the calendar year.

Unfortunately, we are facing an almost exact opposite sentiment picture as we are seeing bullishness that hasn’t been seen for years which will likely see even bigger bullishness by the promises of another great “5” year. Overall there has been a mindset of steadfast bullishness for well over two years. The average level of weekly bulls over bears since March 2003 has been a huge 31.4%. To put this data in perspective, there has been only seven full calendar years in the history of Investors Intelligence data (since March 1964) where bullishness has been so strong they have escaped without seeing even one week with bears over bulls and only one other consecutive two-year grouping such as we are seeing in 2003-2004. The other consecutive years occurred in 1999-2000. The other years were 1972, 1976, and 1983. So far, each and every year that has failed to see even one weekly reading with bears leading has been followed by a down year!

So there we have it, two historical indicators that have so far been 100% correct however that can’t happen this year so one of them has to break, the question is which one! This also means that even a 100% correct statistic won’t be correct forever so it looks more like the odds for this year really are 50/50 it’s going to be an up year and 50/50 its going to be a down year! Which brings me to my final point and that is to remind you that no one really knows what the direction will be no matter how good the statistics are and is one of the biggest reasons why we trade the way we do, we don’t want to try to time the market! One factor I believe that seems to portray little upside though is that volatility continues to move lower such as last weeks light trading bringing in readings below 12 and it hitting its lowest reading since December 1995 so it has little room to go on the downside. One thing for sure though is it should be another great year of trading!

We hope you have a great end to this year and a blessed and profitable next year! We’ll see you back at our regular time on Monday!

2003

1/5/04 1:30 p.m est.
Well it feels good to be back and all rested from a great Christmas vacation. Christmas was loads of fun and a surprise decision to do a quick road trip on New years Eve to see one of our family members who couldn’t make it down for Christmas capped it all off. The markets continued to celebrate also with a gap up open on Friday morning on extremely thin volume. This however was met with selling and the market today did the same thing with a gap up open causing the Dow to see early highs of +90.00 points, S&P 500 +10.00 points and the Nasdaq Composite +30.00 points. After this however the market pulled back and flattened out until midday when the Dow made slightly higher highs of +105.00 points, and the Nasdaq Composite +35.00 points and the S&P 500 back to old highs of +10.00 points. The final hour saw more sideways action until a program buy came in the last fifteen minutes taking the market up to close at its highs with the Dow up +134.22 points to 10,544.07, S&P 500 +13.74 points to 1122.22, S&P 100 +7.32 points to 557.31 and the Nasdaq Composite +40.68 points to 2047.36.

This morning it was reported that Construction Spending was up +1.2% to a seasonally adjusted annual rate of $934.5 billion following a revised gain of +1.1% in October. Economists had only expected a +0.5% increase. November was the fifth straight month that the annual rate set a record, reflecting a building boom that has been generated by the lowest interest rates in more than four decades. Economists are looking for construction activity to remain strong in the coming year because they believe the Federal Reserve will keep its target for the fed funds rate at a 45-year low at least until midyear to keep the current recovery going.

Residential construction advanced +1.9% in November to a seasonally adjusted annual rate of $501.6 billion, after a +2.1% gain in the prior month. Outlays on offices advanced +1.3%, while construction spending on highways and streets climbed +4.1%. Health care construction fell -1.7% however. Private spending on homes was up +2.0% from October, but a huge +14.1% from a year earlier. Spending on office buildings was up +2.5% from October, but was down -6.6% from a year earlier. Spending on factories was down -1.6% from October but down even further -5.8% from last year.
For the rest of the week, tomorrow has the Challenger Layoff Survey and the December ISM Non-Manufacturing Business Index and finally Factory Orders. Thursday has Jobless Claims and Wholesale Trade while Friday has the monthly employment report. This is the most important report of the week and month for that matter and so far economists are expecting an increase of about +125,000 jobs created. Expectations are high so if traders are disappointed the market won’t react well. Another thing to keep note of is that on Thursday, Dow component Alcoa will kick off this earnings season with its fourth-quarter earnings report.

This year turned out to be a great year for trading with credit spreads seeing regular trades have a +152% gain, conservative +118%. S&P 500 futures options E-mini outright sells saw regular trades see gains of +133% and 103% for conservative trades. The coming year should be as exciting as this years trading and we here at Agora Outlook are all looking forward to it!

I must say I’m disappointed with the end of the year trading though as the market tacked on about an extra +4.0% this past month which I believe could have been better used by traders this month. Nonetheless that’s not really my concern but if they’re trying to look good it is going to take a lot more work now to match this years performance. Last year at this time I figured the market would be up about +10% by year end even though it ended the year on strong selling but if there were no terrorist attacks the market may have even be higher. The S&P 500 finished the year up about +25% which I believe beat everyone's forecasts and lets me say once again that making yearly forecasts is actually quite stupid because so many things can change over an entire year! I think its great to see the strong gains but with the market now as overvalued on a fundamental basis as it was in 1999 once again and overbought on a longer term basis, I can’t see the heady gains coming in that many people are expecting.

Then again if we continue higher like we did today the market will be up over +400% by year end! I was going to call for another +10% to +15% gain for the year but with the strong year end finish I’m going to reduce it to +5.0% and maybe +10% if we see a deep enough correction midyear. The upside for the market should also be limited because the economy can’t sustain +8.0% growth so it will likely fall into a normal range once again which means that earnings for companies are also going to flatten out. If there are any major terrorist attacks I would then have to join the bears though and expect a down year as it would hurt consumer sentiment immensely as there has been no attacks in North America since 9/11. Although I believe that the terrorism threat is actually getting less and less, when a cat is backed into a corner it will do anything to save itself so you never know what will happen!

For me, yearly estimates mean nothing anyhow as every expiration cycle is new. The only pressure we saw all year was one cycle this past summer so we finished the year with great gains and considering how high the market moved this year that’s great. Volatility overall has been lower and I think that next year will remain about the same, maybe even lower as long as there are no surprises and the dollar doesn’t crash. A lower dollar is fine but it is getting a bit low considering the need for foreign money to support the deficit.

For the start of the year there is a strong possibility of some profit taking as traders held onto the gains they have made since August and so it is better to take profits in 2004 so taxes won’t need to be paid for a year and a half. Last year the market sold strongly into year end and then rallied at the start of 2003 and since this year ended with a bang I think we’ll likely see some selling start anytime now as the market is extremely overbought and sentiment is also unbelievably bullish. For example the past two weeks has seen equity option activity indicating strong bullishness. The 21-day moving average has dropped to its lowest level of 2003 at .54 which is flashing a warning sign for a possible reversal. The prior low was achieved in mid-June and after it was hit the S&P 500 fell over -5.0% over the next 10 trading days. Last weeks close also saw the S&P 500 up for a sixth straight week, the longest streak since 1998.

2002

The market ended the year on the downside with the Dow down 5 of the last six days of the year and the overall market ending 2002 lower for the third consecutive year.  This was the first time this has happened since 1941 and has only happened three times in 107 years!  It was also the worst month of trading for a December since 1931!  There surely was no "Santa Claus rally" this year as many had expected but it wasn't that surprising to see the selling as it was looking like it was going to be a down year anyhow a month ago.  Why not do some tax loss selling right at the end of the year to make it easier to see an up year next year.

 
Of course everyone is already talking about how we’ll see an up year  now as you never see a fourth down year but that’s what everyone was saying last year!  Well guess what, there has been one other fourth down year and it was from 1929 to 1932.  Only one in the past does improve the odds that it won’t happen again this time around but its always best to keep it in the back of your mind.  It is kind of deceiving as the slide started with the October 1929 crash making it the first down year and the bull market didn’t get going until July 1932 so if you actually calculate out the entire down period you only get a total of 35 months.  If we stay above last years July lows we’ll still be okay which placed the bottom at 30 months and if we were to fall below that level and then start a rally it would make it a 35 month bear at this stage.  The longest bear ever was 42 months so maybe we could see a new bottom in July which is another thing to keep in the back of your mind.  One thing it does say though is that the more something is expected to happen, the less likely it will so it may be better to stick with the possibility of a July low and then a rally starting.

Here’s another reason for a possible up year though as it is a pre-presidential election year and in the last 25 since 1903, stocks have risen 20 times and fallen only five.  This is much better than its total track record during this period of 64 up years and 36 declines.  Even more interesting is the fact that the Dow has risen in every year before a presidential election since 1943. What’s more, 11 of these 15 years saw the Dow post a double-digit gain.  History certainly tells us that thing should be good for the market this year so if we follow the seasonal November to April tendencies, coupled with the third year of the Presidential election cycle, which has never produced a down year in the last 50 years we should see an up year overall!

Other factors that should help are low interest rates, economic stimulus, rising earnings and an accommodating Fed.  This means the only fundamental problem that may be out there is that if a new bull market were to develop, it would be the first time in history that it occurred before price/earnings ratios fell to or below current long term averages.  Right now, they are roughly twice as high as usual.  “Current” P/E ratios in general are higher than historical averages but from another viewpoint, P/E ratios are really only meaningful within the context of interest rates because interest rates influence both corporate earnings and price-earnings ratios.  Right now the five-year bond is at its lowest yield since 1962, and so P/E ratios should be even higher, at extremes actually but they're not. To be at the 40-year average the price of the S&P 500 should be at least 20% higher than it is currently.  If you look at the 10-year bond the market is over 30% undervalued.

Assuming no new terrorist attacks or corporate problems pop up, the economy should grow in 2003 at about a 3.0% rate with just a bit more inflation.  The ISM reports are a confirmation of that, and I expect that to only get better as we go along.  All of the stimulus coming in should help at least a little bit.  So far the consumer, with improving real wages and low interest rates, have kept the economy going. That is not about to stop as they have been increasing their savings rate and now have $2.8 trillion in savings accounts alone.  Businesses are also getting in on the act as they are showing some increases in capital expenditures and it is time for some inventory replenishment so it should enhance the next phase of the economic recovery.

 
There are a lot of positive correlation's pointing to when we came out of the 1990-1991 recession with economic strength leading the way.  This is all great news however the biggest problem  is still out there and that is negative psychology as many investors and institutions have been burned badly the past three years.  People are also still worried about another major terrorist attack even though the odds of it happening become less and less by the day.  To me psychology is the biggest mover in the market and that is what I think will keep the market in check every time it attempts to scream higher as profit taking sets in.  This means there will be volatility but it will probably get lower and lower as time goes by along with gains and losses.  In the end the market may be up 10% unless of course terrorism is stopped completely but I think that will take a few more years to complete.  Of course I don’t really care if the market is up or down for the year but just how much it moves within every expiration cycle.  This is why I think it will be most important to continue to watch weekly moves this year as we’ll probably see them mostly flat with decent swings in-between.

                                             Yearly Change
Index                                   12/31/01         12/31/02       Change      Percent
Dow Jones Average          10021.57           8341.63     -1679.94        -16.7                   
S&P 500                              1148.08             879.82       -268.26         -23.3
S&P 500 Futures Dec.        1149.20             878.90       -270.30         -23.5     
S&P 100                                584.28             444.75       -139.53         -23.8
Nasdaq Composite              1950.42           1335.50       -614.92         -31.5
Russell 2000                          488.50             383.10       -105.40         -21.5
5-year bond                              4.34%               2.72%
10-year bond                            5.03%                3.82%

Copyright c 1996,1997,1998,1999, 2000,2001,2002, 2003, 2004, 2005. All rights reserved. The information contained in the AGORA OUTLOOK NEWSLETTER is based upon data that is believed to be accurate, but is not guaranteed, and subject to change without notice. All projections, forecasts, opinions, and track records cannot be guaranteed to equal our past performance. Persons reading this newsletter are responsible for their actions. Officers and employees of this publication may at times have a position in the securities mentioned, or related services