Hamptons Down!

Oh no!

I just read a news report that the average price of a house in Long Island's tony Hamptons resort area has finally started to fall. While the "average" price really does not reflect the higher end of this mostly high end playground, it did finally move lower.

No, 500K to 490K is no big deal in this price range but what is a big deal is that it fell at all. Perhaps all those layoffs on Wall Street are finally having an affect. Too bad a lot of those jobs are on the lower end of the pay scale (clerical, administrative and assorted staffers) and the Hamptons indicator (I just made that up) does not reflect the real economy made up of "regular" people.

Retail

Yesterday's column was on certain sub-sectors of the retail sector. The conclusion was that there were a few looking strong but in need of pullbacks and a few with potential breakouts pending. I couldn't really piece together a theme - such as big boxes or department stores and had to settle for big chains.

That sort of got these two sub-sectors plus some drugstores but again, so what? Most listed retails companies are chains. I mean I like food retailer Stew Leonard but with only four stores in the northern NYC suburbs it just does not merit a listing on the NYSE. (Awesome stores that they are!).

So how did I even come to find any retail stocks that looked decent? A screen of technicals and even some fundamentals turned them up and they are really just one-off picks. There is no compelling sub-sector theme and that is worrisome. Sectors returns are a huge chunk of individual stock returns and I am not so sure that even the picks in the column are going to be performers for the long-haul.

Make no mistake, I would buy them if I were a full time trader. There is no take-back on the positive write-up. It's just that staying power is questionable. Big gasoline prices are not going away and consumers are still getting pinched.

$4 gas is here already

With apologies to the Europeans who were paying $6 for petrol last year, I can now whine about paying $4 for gas here. My next fill-up in my premium gas fired sedan will likely be at $4.09 per gallon, which is actually a bit better than some other local stations here in suburban NY. Regular is at 3.79 and up.

The real shocker was seeing diesel between 4.59 and 4.79! Now, I don't drive a truck or a bus but a lot of people make their livings doing just that, whether it be transportation or simply doing a job that requires hauling of stuff. Where do you think that cost is going to be passed? That's right - back to me and everyone else around here who eats, travels, hires construction and buys products that are shipped in. In other words, everyone.

What would rah, rah American capitalists say now? We can grow our way out of this mess?

Now, I am an American capitalist myself but I am also a realist. There are times when the cheer leading and meddling has to stop as we let the capitalist system correct itself. And it will. And it will come out even better on the other side.

It's about time....

For those of you pop culture junkies, the headline is the short-version of today's message. Who knows this open from a 1960 TV show theme? (post your knowledge here)

It's about time, it's about space,
About two men in the strangest place.

Well, today's column was about time. Today's blog is about space. Men in strange places are up to you.

The market is now knocking on the ceiling for a breakout and that ceiling is fairly close to a 38.2% Fibo retracement of the decline. Something about the decline itself looks rather Elliott-esque.

All of you Elliott wave propeller heads out there need to cut me some slack on this one. But I see a nice 3 waves down from the top in a 5-3-5 pattern. I know the breakdown is not right for an overall wave A down but the spirit of the pattern is on my side.

Next, the whole trading range smells of a corrective pause after the decline that will culminate into a vicious major C wave down from there.

Not going to speculate where that C begins - here or 5% higher. Can't give the store away on a blog.

So there you have it - time and space. If only we had smell-o-vision. Wouldn't it be great to be able to smell a sweet or stinky market?

The Global Build

In today's column I covered a few heavy construction stocks with nice bullish patterns. Rather than think about buying them as anything more than bear market rally plays, let's think about what that might mean for the long-term.

Specifically, if the global build is for real and the fundamentalists and economists think it is a secular trend then we need to own global markets for the long-term. We have to be able to ride out volatility and be willing to take some drawdowns but we Americans must think outside the border. As long as the dollar doesn't go from 100 to 200 yen anytime soon (or back below par in the euro) then we should still see the rest of the world buying American - products, services, companies, real estate, you name it.

Sigh. I can make money but probably have to learn another language before I retire.

Bear Eggs

Actually, it is egg on the faces of the bears. And EVERYONE seems to be talking about the Dow Theory buy signal. I'll add that EVERYONE knows the Dow broke out from its 2008 trading range.

As I and many others say, what everyone knows is not worth knowing. What a chance for a colossal fake out! What is the weekend press going to say? Buy! CNBC sure featured it Friday afternoon.

Carl Swenlin of Decisionpoint.com observed that both Wednesday and Friday the market had "suspicious" gaps up at the open, supposedly as hinge buys came into the futures market under the cover of any convenient news story (Citi didn't collapse as much as we thought Yay!). Bears were forced to cover and retail fell for the chase. Yet volume was just fair.

One more thing - did it bother anyone that the solar stocks - MARKET LEADERS - were beaten up with both fists? Market leaders are supposed to lead and when they don't the market falls. Yes, things could have rotated into another group but that's not really how that happens. Leader 1 slows down and leader 2 accelerates until the switch places. Solars bonked! And tech took over? C'mon. Tech was up poo poo creek until Intel. You don't go from basement to penthouse in a day.

Rant over. Quick Takes readers, more in the next edition.

A good weekend to all!

More on Cycles

Today's Barron's Online column made a case for a long-term bottom in stocks later this year, for bond yields right now and a top in commodities next year. All of this was thanks to the folks at the Foundation for the Study of Cycles so click on the link after you read my missive for more info. I cannot post hot links within my column to anything other than my own work.

It must be stressed over and over that cycle projections not specific turning points to be traded without question. Cycles, or shall I say market action, can expand or contract based on whatever is happening in the world at the time so use them as guides. If you think a market, any market, is going to bottom in six months and you get a marginal technical breakout on the charts today, chances are you should not bet the farm. Play the short-term swing but unless the evidence is overwhelming for a bottom, it might be best to play it more conservatively.

I think we are in a bear market so seeing many months of decline in the cycle makes me feel more confident.

I think bond yields have bottomed so the cycle makes me want to short bonds aggressively.

Jim Rogers thinks commodities have a long way to go to the upside and cycles keeps me believing him, at least for another year.

Not in the column today was the US dollar cycle which has the dollar bottoming right now. Cycles maven Steve Briese, whom many may know for his commitments of traders (COT) work, is looking for a bottom in August. After such a dollar bear market, the difference is not that big.

Again, these are likely bottoms and tops in terms of time. They say nothing about the magnitude of the trends that end there so the stock market could just trade to the bottom of its trading range by then and that could be a bottom. Not much damage from here yet it could be a bottom.

Elsewhere in this blog, I ran a short-term cycles chart of the Dow that called for the bear market months ago. Sorry, but I'll leave the searching to you. We'll probably run an updated chart soon in the Quick Takes Pro newsletter.

Food Shortages

I'm not going to go doomsday on you but here is a post from a chat room that got me thinking more about gold, and in turn, stocks. I was not able to verify the fact this person put forth so I will leave his/her name off it for now. As follows:

"""""Potash Corp. announced today that it is raising its prices for all potash grades in the U.S. market by $150 to $175 per ton, for all shipments made beginning June 1 through August 31. The previous price increase of $80 per ton was implemented in March.

This is an unconfirmed report but if true then Potash will now be $110 per ton higher than last March. Food inflation follows. Keep your eyes on food riots as food basics exceed the ability to pay in poor countries causing further instability in the world."""""

As soon as I read the word "instability" you know which yellow haven starts to look nice. And if poverty leads to war as it usually does, and I am not talking about WWIII, somehow oil is going to get involved.

Bull market in stocks? Seems like a long shot.

When you Ass-u-me....

You know the old saying about what happens when you assume. You make and a** out of you and me. Yeah, yeah, I put asterisks in there for decorum's sake (or were they assterisks?). Here is a chat room post stolen verbatim without the knowledge of the poster, Ron Davis. Ah, the joys of the digital age!

As follows:

The market meltdown of 1987 had as a major contributor the failure of "market insurance." Market insurance was based on the assumption of continuity of price which can also be seen as liquidity at each step, up or down, of price. We all recall that the assumed continuity evaporated.

LTCM, in addition to having Godzilla-like leveraging, assumed within their models continuity of liquidity.

Bear Stearns had pretty much the same model and assumption set, nearly as I can tell, as LTCM, just a different marketplace.

The rather large swap market appears to have much of the assumption of continuity built into the risk analysis.

VAR assumes continuity.

Implicit in the above, the Black-Scholes-Merton model assumes continuity, as well as constant price variance (risk in that view) and independence of markets, regardless of situation.

While I understand and can agree with the "let's assume continuity for our model" (if one's model requires that assumption), I urge members of this list to go back at least once a month and ask selves "what happens if there is a sizable hop (discontinuity)."

It's me again - well, what are you assuming about the market today? All of these ultra short and even ultra long ETFs, and the gold and oil ETFs for that matter, scare the pants off me because no matter what lab testing the sponsors have done, none of them have ever been testing in real life in a real melt-up or melt down.

Missed it by that much

For those of you old enough to remember or pop culture savvy enough to have ordered the DVD series, you can almost hear Maxwell Smart reciting this blog post's title. The stock market just missed breaking down today and the way things have been going, it will just be another good ole- fakeout before the real deal.

As I was going over the edit of today's column, which was based on the idea that the market was still in a stalemate, the Dow started to head for a triple digit loss after the first time in more than a week it was not spending the day flatlining. In other words, the short-term breakdown was upon us and once again conditions were going to change between the writing of my column and its publication on the Barron's site just after the close.

Fortunately for the journalist, the Dow recovered into the close for just a modest loss and no breakdown. If there is one thing anyone on a deadline hates is the need for a total rewrite with no time left on the clock.

But now that the bulls feel vindicated, I have a feeling the bears were just playing around. Oil is at a new record. Gold is bouncing back in a hurry. Bonds are starting to suck wind. And even the Fed is talking about inflation. All things I have talked about in the column in recent weeks.

Forget stagflation. Let's coin a new term - recessflation. I don't think we'll get near depressflation. Where is Jerry Ford when we need him? WIN!

Market Psychology

No, this is not a dissertation on sentiment or similar things but a diary entry about how I felt today. And no, it's not about my cat (which I don't have) or a bad trade. Today, my column was on chemicals stocks with a hint that it was really about all basic materials stocks. As I wrote, the chemicals were rallying nicely and then the market as a whole started to climb. Happily, I submitted the piece for editing and then chemicals started to fade.

Not so happily, I watched this and by the time the charts had to be copied and submitted most of the rally was gone. Uh oh, reversal? Breakout failures? Usually this stuff is reserved for when I write on a Fed interest rate decision day and it really mucks up my conclusions. But no, it was on a sector piece day to make me look bad on a micro level instead of the usual macro level.

Don't get me wrong, the conclusions were the same reversal or not. These stocks are beating the market and if the whole thing fades then they should fade less. That's the nature of relative performers.

But as a friend and money manager says, everyone wants relative performance on the way up and absolute performance on the way down. Here, Marie, have some cake.

And what did happen today, anyway? I won't go to deep into it out of respect for paying subscribers (Quick Takes Pro newsletter) but as the Dow was edging ever closer to 12,750 - a major breakout level - you could see the giddiness on Bob Pisani's face. I happen to like Bob and think he knows his stuff but it was almost as if he and everyone else was willing the market to rally.

There's some market psychology for you. Who said everyone is bearish?

But as I said in a previous blog post, the market had been speaking and it was positive. Bad news did not matter. Breadth was getting a lot better and the dead cats were certainly bouncing. That was then. Today, maybe not so much.

Again, I have to reserve the rest for the customers but here is some advice from me to you. If anybody tells you the bottom is definitely in or the Dow is heading back to 9000 and you believe either of them then call your broker and put your money into beer. At least at the end you'll be guaranteed to have good memories and the bottle deposits.

Someone may be indeed right but having such conviction in the face of such huge conflicts on the charts and in the economy is more hope than analysis.

Call the crash of '87 and make a name for yourself. Call direction today for the same result. You may even be right.

It must be a bull market

The title is written both with amazement and doubt. Lehman begs for more money and the market goes up. Merrill says we don't need no stinkin' money and the market goes up. And now Fitch downgrades MBIA and the market did not react.

Lest we forget, MBIA is one of those bond insurers that is in the middle of the CDO/subprime/credit crisis and lives and dies on its ability to bestow upon customers the umbrella of its own AAA rating. Now that is gone by the number 3 ratings agency.

The stock fell on the news, which came out about 2:30 Friday (NYT). The market softened but essentially ended at the flatline. Volume for both was rather boring, save for one spike at news time on the stock. Its price dipped and recovered immediately but ended up sliding from there anyway as the day winded down.

I'm not sure what to make of that. Initially, the news was shrugged off but then calmer head prevailed and it slid. So was it actually shrugged off?

I care less about the stock than the market at this point and the market yawned. We must be in a bull - a glorious bull market where life is beautiful and nothing can stop us now.

Oh wait, the economy. Now it is true that the stock market looks 9 month out and will, not can, but will start to rally before the economy rebounds. So if all news is good news, as it is in a bull market, then we have to assume that the economy will be hunky dory *whatever that means) by November.

Your call.

More on inflation

There was a lot more John Kosar gave me today that could not be squeezed into a single column. For starters, the Univ of Mich survey has spiked to the upper limits of its range to suggest people are expecting serious inflation - as if gas, food and import prices were news to us today.

The TIPS spread may have calmed down to the bottom of its range but if I am right about gold and the rest of the planet is right about expecting inflation then it can easily spike up to the top of the range and beyond. If that happens and the spread has a technical breakout, do you think the Fed is going to notice? Kosar says yes. I say yes. And talk that the Fed may actually raise rates will not be so outrageous.

C'mon rest of the world - time to pay up and raise your own rates. At least the dollar won't disappear and there will be at lest a drag on rising inflation here.