Well, that didn’t take long.  After I knew President Obama was going to be our president, I changed my attitude and decided I’d give him the benefit of the doubt and maybe he’d bring some fresh ideas and turn this thing around.  I believed maybe once he sat in that very important chair and saw what was going on around him, he’d really do the right thing.  Wrong.  He’s actually initiating policy that I didn’t think he would do for a long time.  First, he is raising taxes on most of you and me and businesses at just the time we need tax breaks that could stimulate the economy.  We need incentives to get this economy turned around, not penalties.  He announced this huge budget yesterday that essentially will take money out of your pocket and spend it on a bunch of pork.  Hence, a market that continues to struggle.  At 1:30, the market’s basically flat after a horrible down opening.  I said on my show this morning there was no reason to buy stocks with horrible economic news, horrible policy and further pressure on bank stocks.  And that’s precisely why it may actually go up today.  So, we got the reversal, let’s see if it closes much higher.  That would be encouraging to see an up day with all the bad news.  Regardless of today, we’re still oversold and I expect a bounce.  It’s just taking a little longer than I thought it would.  Fortunately, I’m holding a bunch of cash.

In Obama’s budget, there is a ton of money spent on healthcare.  That should be good for the industry, right?  No.  I had to sell my Gilead Sciences (GILD).  Gilead is a manufacturer of various pharmaceutical drugs.  President Obama is promising more generics and healthcare for everyone.  That’s going to hurt many in the healthcare industry, especially the drug manufacturers.  Merck (MRK) and Abbott Labs (ABT) are among the worst performers today, both down over 5%.  With this attack on healthcare, there’s money moving out of healthcare today and going elsewhere.  Today, it’s moving into retail, especially Wal-Mart (WMT), Amazon (AMZN), Costco (COST), & Sears Holdings (SHLD).

Through A Trader’s Eyes

Just a quick note.  There will be some lineup changes on Monday on the Biz Radio Network.  My radio show will move to the 10:00 a.m time slot M-F.  Today was my last day on the 7:00 a.m. time slot.  Make sure you tune in everyday at 10:00 a.m. and give me a call at 877-777-7713.

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The last of the mohicans.  My remaining shorts were covered today.  What was my cue for covering the rest and locking in the profits?  Was it some moving average crossing another one?  Was it this level was broken or that support line held?  Was it some big news event?  What made me cover all my remaining shorts today?  Pretty simple actually.  Ben Bernanke was on television for a long time today and the market was up and stayed up.  It’s that simple.  That’s what an oversold market looks like.  What caused it to go down before is no longer working.  A week ago, Ben Bernanke on television along with all the politicians asking questions would have caused a 200 point drop.  Instead, we got a 200 point rise in the Dow Jones.  Amazing.

The part I don’t have an answer for is how long the rally will last.  I had a caller on my radio show today ask about his 401-k.  I told him this was a technical bounce and I wasn’t changing the 401-k allocations that I oversee.  They are still no equities and a little bonds but mostly cash.  This rally could last just a few days.  We don’t know.  But, I still see no panic out there that would cause me to get more bullish for an extended period of time.  I’d look at this as a 2nd chance if you didn’t sell in January.  I’d also look at this as an opportunity to buy some inverse ETFs at lower prices in the future.  That’s it.  I will however spend the rest of my day looking for more potential trades and pretty charts.

Television

I’ll be on the Fox Business Network tomorrow morning at 8:10 a.m. & 8:30 a.m.  Make sure you tune in.

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The more we fall, the more excited I am to cover more shorts.  When the market opened up this morning, it was a difficult decision to start covering more shorts but it didn’t take long for the gains to evaporate and the selling to pick up.  Within just a few minutes, all the green turned red and down we went.  At midday, I started covering more shorts and continued into the close.  You know it’s going to be a rough day when the financials are the leaders.

By the time it was all said and done, the Dow was down over 250 points, the S&P was down 27, and the Nasdaq was down almost 54.  All about 3.5%.  Where’s the bottom this go around?  I’m not sure but many of my oscillators are pretty close to where a rally should start.  The worse the news gets, the more doom & gloom there is, the closer we are to a rally point.  It’s very important you understand I’m not telling you to run out and buy stocks. Because I’m covering my shorts, I’m naturally get more long.  But, I still have a lot of cash and really don’t see a whole bunch of great looking charts.  There are some medical companies that look good (MYL, HMSY, GILD).  Outside of that area, not much happening.  Friday, I mentioned that FCX & RIG looked good for a trade IF they broke out.  They didn’t and that’s why sometimes it’s important in trading to buy at a higher price.  A breakout technically would have given me more confidence to buy those.  But, they failed just like everything else.  Back to the drawing board.

One thing to be careful about is when you’re looking for the next trade, don’t assume when the market turns around, the stocks that held up the most during the past couple of weeks will be the winners.  Often times the weakest stocks will have the biggest comeback.  Yes, that includes financial stocks.  

What is income?

After the bell tonight, JP Morgan cut their dividend.  As much as this gets bad press, I continue to believe they’ll be rewarded.  FCX cut it’s dividend a couple of months ago.  I think GE should do the same.  I know they want to seem loyal to shareholders, but cannibalizing the company by paying dividends doesn’t help anybody.  Save the money, reinvent the company, and consider a dividend at some point in the future.  

The JP Morgan dividend cut does show why income investing isn’t just about dividends.  You have to incorporate bonds.  If you’re not doing that, you run the risk of your income being cut by some management team.  Bonds don’t do that.  What’s stated doesn’t change in most cases.  It’s a pre-determined deal.  You know the deal when you buy the bond.  Not so with dividend paying stocks.  

Time for profits on gold

With fear picking up and inflation talk all around us, it’s no wonder why gold is trying to break to new highs.  But, if I’m long gold, I start taking some off the table.  Many technicians will look for technical patterns.  And, the chatter I’m hearing is double top.  I don’t need to explain that to you.  It’s just what is sounds like.  Gold made a high about a year ago and is now testing it once again.  There’s not a whole bunch to complain about in the picture.  But, there are some oscillators that aren’t as high now as they were when gold made its high almost a year ago.  So, that’s a negative divergence.  I’d like to see gold break through the old highs pull back and see if the old ceiling becomes the floor.  If that happens, then I’ll jump on board.  Another reason I’d like to take profits on gold with fear picking up, we could see a temporary jump in equities.  If that happens, you might see gold used as a source of funds by traders.  Be on the lookout for that over the next few trading days.  If it can’t go up on a day where the Dow falls 250, it may be losing some steam.  At least for now.

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As I watched the market down 200 this morning, all I could hope for was an even bigger sell off.  Remember, being short means we make money when things are lousy.  And, boy have they been lousy and yes, we’ve been making money.  Having the market go down 300, 400, or 500 makes covering shorts easier.  But, we finished with a mild sell off today.  So, what do you do with with mild sell offs?  You scale out.  In other words, cover your shorts gradually.  In my case, that mean taking some profits on the Ultrashort S&P 5oo ETF (SDS).  If you don’t start covering your shorts at some point, when will you ever cover them?  Many of my shorter-term oscillators are getting oversold and I think we’re setting up for a rally, even if it only lasts two weeks.  But, I’m not so confident in the market that I covered all my shorts.  I covered about 1/4 of them today locking in some gains.  

We’ll probably bounce off the November lows and all the “professional” traders will be saying, “see, we held the November low and successfully tested it.”  And, maybe we will for a while, but I’m not seeing anything fundamentally or technically that makes me share that thought at this moment.  I think we’ll eventually break through the old November lows and make fresh new lows.  Things can always change and I certainly want to be bullish.  But, it’s very difficult right now to do that.  We have a stimulus package that seems too back end loaded.  We have the average investor feeling as if they can’t trust anybody with the Madoff & Stanford situations.  We have building fear of future inflation.  We have the threat of nationalization hanging over the banks.  Is that a good backdrop for risking your capital?  Not really.  Therefore, we are left with good old fashioned trading.  Buying low and selling high on a shorter-term basis.  

If we’re left with just trading, then we need to find some stocks we can trades.  Both Transocean, Inc. (RIG) and Freeport McMoran (FCX) look good to me.  All I’m waiting for is a breakout from either one of them, or both.  I wrote about FCX a few weeks ago and said it needs to break above $30.  It hasn’t done that and has struggled but I think it’s setting up for a breakout and will soon, especially if money keeps pouring into gold.  As far as RIG, it would certainly have an easier time breaking out if oil would start heading north.  So far, no dice.  But, keep an eye on both of these for possible trades.

Have a nice weekend.

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It was just a few weeks ago there was chatter that the Dow wouldn’t go down as much as other indices for a few reasons.  First, the Dow contains all really big companies that could withstand economic downturns.  After all, they have cash, their established companies, and they can go several quarters with losses.  Small companies can’t survive in that environment, can they?  Secondly, the Dow, unlike the S&P 500, is weighted by points, not market cap.  Each component drop of a dollar is worth roughly 7 Dow points.  Therefore, when stocks get to $10 or so, how much lower can they go?  That was the theory.  Well, for 2009,  the Dow is the worst performing index of the big three, down almost 15% year to date.  Why?  Because, many of the struggling financials are in the Dow and with financials hitting new lows, down goes the Dow.  Citigroup, Bank Of America, American Express, JP Morgan, & General Electric are all part of the Dow Jones. 

The most interesting part about the components is the fact that theoretically the Dow Jones isn’t supposed to have stocks in it less than $10.  Right now, there are four stocks under $10.  General Motors, Citigroup, Bank of America, & Alcoa.  General Electric is at $10.03.  So, why haven’t they replace them?  My theory is the following.  Citigroup can only fall $2.  That’s only 14 Dow points.  What if they replaced Citigroup with a $100 stock?  If it fell to zero, that would be 700 Dow points.  You think they’ll run that risk right now of the Dow falling to 6000, 5000, etc.?  So, the components remain the same.  It’s probably time though for a fresh new look for the Dow Jones.  There are changes every few years and I think it’s time.  the Dow Jones is really supposed to reflect our economy.  Where’s Google?  Where’s Apple? 

Just like dividend paying stocks aren’t as safe as they appear, neither is the Dow Jones.  Heck, the scary tech laden risky Nasdaq is only down 7% for the year.

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There’s been a lot of talk lately surrounding the currencies of the United States & Europe.  We had the Euro doing so well that models were changing their contracts to get paid in Euros.  That was the sell sign from God.  This was at the time when the dollar was just completely getting trashed.  Then, last summer, the dollar reversed and started going up at the same time commodities started getting whacked.  But, we haven’t heard a lot about the Yen.  Most traders watch the yen and trade the yen through the exchange traded fund CurrencyShares Japanese Yen Trust (FXY).  It’s now breaking some technical levels and I think it has further downside.

Looking at the chart below of FXY, you can see there were some early warning signs.  In mid January, FXY was testing its old highs from just a month previous.  However, the relative strength index at the top was making lower highs.  That was the first negative divergence we had seen.  As you know from reading my columns, when any chart looks like this and makes a run straight up in such a short time frame, it’s normal for that investment to give back half of the gains.  Going from $90 to $114, means that FXY could fall $12 from the high which would be around $102 or so.  I’ve circled the area I think it can ultimately bottom.  Somewhere in the $100-$102 range.  The $100 level is the 200-day moving average.  The fall of the Yen doesn’t necessarily mean anything for our U.S. stock market.  What’s more correlated is the euro/yen relationship.  The stronger the euro is vs. the yen, the stronger our market is.  That relationship has held up for some time.  So, perhaps the Yen falling so fast could mean better days ahead for our markets.  But, I’m not buying yet.

I’ll be doing two live television hits tomorrow morning on Fox Business.  One will be at 8:10 and one at 8:30 a.m. CST.  Make sure to tune in.

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It looks like no matter what news has come out today or what has crossed the bloomberg, the market’s ignored it and we’ve stayed in this tight range.  It’s been down around 80 or so on the Dow but nothing substantial.  The volume is very low compared to yesterday.  After this volatile week, it looks like traders have left for the 3 day weekend.  The fact that we’re getting no follow through after yesterday’s big reversal tells me that yesterday was just short covering “just in case”.  We don’t know any details of anything yet so when there’s news crossing that says the administration is considering….you have to cover shorts “just in case”.  One of these rallies will stick.  But, I’m happy staying slightly net short right now.

I’ve written about TBT (or any other short treasury vehicle) for a few weeks and it held the technical area I thought it might.  Therefore, if you want to go short treasuries, I think this is a good level.

Have a nice weekend.

Yesterday’s big sell off caught some people by surprise.  Obviously, if you’ve been following my work on my radio show or on this blog, you know we’ve been prepared for a sell off.  Actually, since we were shorting on the way up the past couple of weeks, we were up about 1% yesterday on our equity portfolio.  But, others weren’t as fortunate.  Equities sold off over 5% and the fear trade seems to be back on.  So, up goes bonds and down come rates.  Many of you have been short treasuries as I have for various reasons.  Maybe you’re scared of the government printing too much money, maybe you think treasuries are a bubble.  Whatever the reason, it’s been a good trade.  About a week ago, I suggested taking profits on TBT (the ultrashort treasuries ETF).  I told you I was going to keep my short treasuries trade on for a while for other reasons but if I was trading it, I’d be looking to lock in profits.  The reason why was purely technical.  Well, we’ve had a pullback the last two days as investors have run from equities and gone into treasuries.  Feels like the fall/winter of 2008 all over again, doesn’t it?

But, now what?  Will this trend continue?  I think TBT is technically at a place we should see a further rally meaning rates will go up.  Here’s my reasoning.  We have TBT sitting on its 20-day moving average.  In early January, TBT investors took some profits, it pulled back to the 20-day moving average, and it was up again.  We’re there again.  Secondly, $45 is a key technical level for TBT and it should hold there.  If it breaks this level, then it is more than likely heading lower.  So, were at a critical fork in the road for TBT & interest rates.