Investor Sentiment Remains Little Changed on the Week

Little changed over the last week as the AAII’s percentage of bullish investors ticked higher just slightly to a reading of 43.

As the economy recovers from its extreme lows and GDP growth turns positive I am seeing more and more similarities with debt burdened Japan. The credit crunch in small business, lending and consumer balance sheets continues unabated, but investors have grown quite confident regarding the longer-term outlook mainly due to the extraordinary government measures that have helped prop up national growth. As we transition from the panic phase of the credit crunch into the malaise phase of the credit crunch you just have to begin to wonder if we aren’t going to experience the same repercussions Japan suffered from throughout their battle with deflation – relatively strong GDP growth accompanied by a deleveraging consumer and a nearly non-existent lending market. All of which leads to a spectacular churn in the markets which essentially takes us nowhere.

$2 Trillion of Negative Real Estate Equity for U.S. Households by 2010

This Wall Street Journal article (http://online.wsj.com/article/SB126040517376983621.html)
gives us insight into the real estate market.

Many home-owners can no longer afford or want to afford their homes. Some are leaving behind their homes and mortgages right away, while others are simply halting payments until the bank kicks them out. That's freeing up cash to use in other ways.


Analysts at Deutsche Bank Securities expect 21 million U.S. households to end up owing more on their mortgages than their homes are worth by the end of 2010. If one in five of those households defaults, the losses to banks and investors could exceed $400 billion. As a proportion of the economy, that's roughly equivalent to the losses suffered in the savings-and-loan debacle of the late 1980s and early 1990s.

Anybody can make money in a bull market. The test of a good investor is ..

Anybody can make money in a bull market. The test of a good investor is how you perform during a correction and a bear market. It is not what you make but what you keep that is important !

It has been pretty easy to make money in the stock market over the past 7 or 8 months if you had the guts to entered a buy order this past spring. That is assuming you still had cash and were not getting ready to jump off a tall building. After witnessing the ugliest 7 or 8 months in the stock market previous to this spring, it took lost of 'guts' to hit the 'buy' switch.
You could have been the most savy investor in 2008 and you would have still lost alot of money in the subprime meltdown and market crash that followed. Everyone was selling and running for cover. Cash was the one asset that saved investors. There where a number of 'head fakes' to get investors to put the cash to work in 2008 but at the end it was a blood bath and not many investors made off with profits (except the hedge fund guys that shorted the subprime and stock market).
2009 has been a different story, basically straight up since late March (up 20% YTD after being down 30% Jan to Mar, a 50% swing). That is after a 43% peak to tough drop in 2008.  The DJIA looks like a "V".
Now the $1,000,000 question ... what is the market going to do now ???  Do you sell and go to cash or stay invested because the market is climbing the wall of worry.

trading volume

There are many questions out there about what is really driving the seven-month gain and how sustainable it really is. One of the big ones that keeps popping up is trading volume. Where is it?


The recent ups and downs have generally been defined by low volume on the up and higher volume on the down.



Gains have been exaggerated by light volume, Gluskin Sheff + Associates’ strategic guru David Rosenberg comments in his note Tuesday morning.



“Barely over a billion shares on the Big Board? Are you kidding? After a 16.6% plunge on Friday, volume in yesterday’s session was still far below normal and the second lowest in the past two weeks,” he says. “This is a sign that conviction over the current rally remains unusually light.”



It’s a good question and the bulls haven’t offered a convincing answer. Trading was light Tuesday morning, with U.S. markets giving back early gains and the Toronto Stock Exchange down 86 points to 11400, led by the energy sector.

S&P 500, a pause

The weak dollar was cited as reason for yesterday's rally, but there is more to it than that simple explanation. Slack  economic activity has prompted the Fed to keep short term rates low, and the money supply ample in hopes of causing increased economic activity. The cheap rates also provide funding for the carry trade. With the carry trade, speculators and entrepreneurs alike have funding to invest in the assets they choose. Recovery will take a very long time if we tax and regulate the job creating entrepreneurs.




So far today the stock market has paused. In the US the IBD/TIPP Economic Optimism report came in at less than expectations, 47.9 versus 53.1, and 52.5 in the previous period.

Head And Shoulders Pattern ????

What Does Head And Shoulders Pattern Mean?

A technical analysis term used to describe a chart formation in which a stock's price:



1. Rises to a peak and subsequently declines.

2. Then, the price rises above the former peak and again declines.

3. And finally, rises again, but not to the second peak, and declines once more.



The first and third peaks are shoulders, and the second peak forms the head.

S&P 500, breakdown from the ascending wedge pattern

Technically speaking, we do not yet have a down trend -- we need a lower high and a lower low.

Going against one of Gartman's Rules and I am averaging down.

One of Gartman's Rules is to never average down.
BUT I am averaging down. To be successful you must believe in your analysis and have conviction. There is no 'hold', a position is either a buy or a sell. I also do not believe the saying "Portfolio returns are based on time in the market not market timing". I believe it is good analyis, market timing and a lot of luck. I rather be lucky than smart with regards to the market.

Buying another unit of SKF‎ - ProShares UltraShort Financials (previous purchase $40.47 and today's purchase $26.75 = $30.61 Average)

Buying 1 unit of DXD‎ - ProShares UltraShort Dow30 to average my short Dow 30 (note DXD is 2 time levered and DOG is just the inverse of the Dow's daily move)

Short term warning signs. General comments

Bulls should be spooked by the fact that a blow-out GDP report, showing an economy with a HUGE turnaround and the President crowing on TV about how great things are going, could ONLY erase 1/2 the losses we suffered since last week.

Short term warning signs. S&P 500 weekly, noon Fri index is 1055 down 11

Wednesday's comments:
S&P Emini 500 Futures opened with a 2.50 point gap down this morning. The gap filled with a pierce through that level during the 9:50 a.m. 5 minute candlestick, but that proved to be the high for the day at 1060.25. From there, prices plunged on above average volume. There were a couple of brief retracement periods during the day, but for the most part, price action was steadily lower. Prices closed at the low end of today's trading at 1039.75. Volume was heavy at 2.8 million contracts traded. The day's range was over 20 points deep, the average true range is 18.38 points. This marks the fourth day of lower highs and lower lows on greater than average volume. A down trend line on the daily charts has formed, and it shows a break through the 50 day moving average. Tomorrow may see a bullish bounce after the 4 consecutive down days, but a close above the 1060 level on good volume would be a clue that support has been found. Meanwhile, we trade what we see, and we see a down trend. Today's action erased one more open gap. The October 7th close at 1053.25 filled during the morning, leaving two more unfilled gaps underneath at 972.25, and 902.00. The lowest of the two open gaps currently falls just below the 200 ma, and not far from supported price levels at 875.00 from this summer. It's possible that level might be a reasonable correction expectation.

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Are we taking out the 1053 Oct 7 close ? Market is now 1055 down 11

Leaving " two more unfilled gaps underneath at 972.25, and 902.00. "

YIKES !!!