The Decade Ahead

Perhaps Carl Swenlin and I think alike and I will take that as a compliment. This afternoon, he published one of his periodic articles on his site, the data packed DecisionPoint.com, showing his long, long-term historical view of the stock market and how we have to understand the big picture when acting in the hear and now.

This morning, some nine hours earlier, I referenced a chart I published back in 2002 for a Nightly Business Report interview. It was virtually the same chart! Both showed that we are in a secular bear market now and for several years to come (Swenlin said 10-15, I am much on the low side of that range). When you see the charts, you get a good idea of the big picture.

Will it change you attitudes towards the stock market? Only if you trade. If you are a buy and hope type of investor then your world - as you have already seen --- twice this decade ---- has been rocked. Your time horizon has been reduced from years to months and while that certainly is not close to day trading it is a switch. You will have to be an active investor whether you like it or not. No, not in and out every week but cognizant of the fact that at some point you will have to step away from the market.

Carl's chart with link to the full story - as always a very good read.

http://www.decisionpoint.com/ChartSpotliteFiles/081031_lt.html

My chart from 2002

FWIW - my chart was created with Athena Charting on a BridgeStation. Both gone like the dodo bird.

Fear Factor again

I keep coming back to this topic (not on the blog - yet) but gold coins are in short supply while the price of gold futures languishes. This seems too strange to be true but apparently it is. You can buy all the gold you want from your friendly neighborhood futures broker but I wonder how delivery is going. We won;t really know until December, won't we?

Anyway, here is a bullion dealers website as of Thursday (credit to Robert Minkowsky for finding it). It's web address is http://www.ajpm.com/htbin/gold.cgi

You may have to click on it to blow it up but check out the red letters - SOLD OUT. And it is the smaller coins that are gone, too. Is the little guy panicking? Hoarding gold because he does not believe that the bailout package will 1) work or 2) not cause inflation?

I don't know that answer so if there are any coin dealers reading this please comment.

OK conspiracy theorists, check out this video but go get a new pair of skivvies first.

http://video.google.com/videoplay?docid=1954933468700958565&hl=es

Nah, it's another bogus Internet tale but it does get you thinking about what if it really were true. I cannot imagine anyone in government making a decision like that not being impeached and then deported to Tora Bora to catch a bunker buster.

But that does not stop me from wanting to own more gold - real gold, not the paper stuff.

More on Churning

Say the word "churning" about a broker and we've got a crook on our hands. A broker churns an account to generate commissions and little else.

Put that same word in a different context, and not even the butter one, and it means something different - and more positive. When the market churns it is unsettled. Bulls and bears are giving their strategies workouts and both win for a while. And then both lose, of course not a the same time.

The current market is churning about as both sides latch on to any nugget of information that suits their cause. Bears are in "see, it's not over" mode while bulls are in that "this time its the bottom" mode. The funny part is that neither side has to be right. The market can just stop as people get fed up an walk away. You won;t find CNBC on the tube at the barbershop and ESPN resumes its rightful place in the man cave.

Market volatility tells us that the bears have competition unlike it was when the market was falling daily. Market volatility tells us that psychology is changing as people become unsettled with their own views. A psychology shift is necessary to change a major trend so this is a good thing.

It is impossible for swing traders to live here. Day traders, have a blast. I'll even recommend occasional day trades to customers when I think the risk/reward is compelling - very compelling, that is.

And as I have written in my column, long-term traders can take a nibble here and there. I know I personally will take another bite on the next dip. As to what I will buy, well, stay tuned.

Figure this one out.

Still in Palos Verdes listening to some really good market analysts and traders and trying to learn HGSI software. The latter is like a coconut - a formidable shell (interface) protecting the tasty morsels inside. And they are tasty indeed.

Here is the world as I see it:

- The economy is in turmoil
- But gold is tanking
- And falling gold and oil are supposed to be good for stocks
- But stocks are falling
- And everything falls in a deflationary environment

So why is it so hard to buy physical gold coins? (go check any coin dealer's website)
I'm just saying.

Stock Pick Freebies

I am here in beautiful Palos Verdes, CA for the High Growth Stock Investor semi-annual seminar and we spent some time scanning the stock market using HGSI. The investment pickings were thin indeed. 

Without giving any recommendations or entry prices, here is the initial list.

CELG

GILD

AMGN

Disclaimer: I have mentioned at least one of these to subscribers. 

A Global Oops

As Monty Python said, "nobody expects the Spanish Inquisition." I don't want to make light of what was a historical abomination but nobody expected the already puked out market to spew some more. Retest - yes. But it is happening too soon to be valid.

The stock market barfed overnight and my view that good long-term values are to be had is going to take a beating today.

What I am reading now is talk that hyperinflation is now possible with the term "Wiemar" being tossed about. The Wiemar Republic was in Germany nearly a century ago and people were feeding their fireplaces with cash rather than the more expensive firewood.

Iceland, thanks to its financial crisis, just chopped its interest rate 2.3% to 12% and that means it is effectively giving up on fighting inflation. Hungary just raised its rate 3% to defend its currency. Clearly, the global economy is fighting for its life.

Can we have a recession here with inflation? Here is a quote from the biggest gold bug on the planet - James Sinclair.

"Yes, a planetary Weimar is on the menu. Russia, the Middle East and China may just be the top survivors. Africa might just come into its own in such a scenario due to the amount of raw material and gold resources they have."

I am hurting on my own gold investments now but it is a small price to pay - just in case.

Darkest Before The Dawn

I got this list from Barry Ritholtz's most excellent blog (http://bigpicture.typepad.com) .

The news is certainly as grim as ever:

Wachovia writes down $23.9. billion
Grim Earnings Weigh on Stocks
First Birthday for the Recession?
Kerkorian’s Ford Exit Sparks Fear of Failures at Big Three
California Home Sales Revive With Intense Pain
CDO Cuts Show $1 Trillion Corporate-Debt Bets Toxic
Mervyn King warns of Britain's 'long march' out of recession

What strikes me is that bear markets end when the news is seemingly at its worst because the market is a forward looking beast. It went down precisely because all of this news was coming.

No, it did not predict any individual bit of news but it knows when things look bad. Our job as market analysts is to read those signs of "bad" and get on the right side of the market. I don't know how long or how far. All I know is "be bearish" or "be bullish" or "be a spectator."

Psycho Killer

I cant seem to face up to the facts
I'm tense and nervous and I can't relax
I cant sleep cause my beds on fire
Don't touch me I'm a real live wire
- Talking Heads

These words meant little to me when the song first came out in 1977. The only time I could not sleep was when the room was spinning after a tad too much partying. But today, these words applied to the retail stock market investor about two weeks ago.

But the news, the water cooler chatter and the happy hour talk does not dwell on stocks anymore. We are numb to 230 point losses on the Dow. Why? Because they follow 413 point gains! 50% retracements are normal, right?

Here are some more lyrics from the song:

You start a conversation you cant even finish.
You're talking a lot, but you're not saying anything.
When I have nothing to say, my lips are sealed.
Say something once, why say it again?

Yep. I am not referring to The Talking Heads from vinyl but rather the talking heads on financial TV. Personally, I have nothing new to say about the market. I've made my points in my column and I've offered new trades in the newsletter. Nothing is new as we wait for the market to calm itself down and resume more normal ups and downs.

Is the bear gone? I think so but I am not going to be bold enough to say the bull is back. It is not.

But I've said something once (actually several times over the past two weeks) so it is time to honor the song and stop making the same case.

By the way, I have taken tiny bites in select areas this week. There, that is something new for ya (wink).

Psycho killer
Quest que cest?
Fa fa fa fa fa fa fa fa fa fa

Warren Buffett

Everyone else is writing about the Oracle of Omaha's op-ed piece today so I might as well join in.

Some have said that is Buffett is buying then it is good enough for them.

Others have a bit more jaded view and say that Buffett was sitting on some big Goldman and GE losses after getting his sweetheart deals there and is pumping up the market for his own benefit.

Well, not even Buffett can keep the market going singlehandedly so we'll set both of these aside. I am not going to get into whether he is right or wrong but rather talk about what the market did after he spoke.

First of all, the NY Times website has the piece dated 10/16 so today's rally cannot be pinned on that. Thursday, maybe but the market dumped in this morning. No lasting effects there.

And if it was in the paper Friday (I don't read newspapers for news since I live online) then again, the market dumped in the morning.

And even if expanded coverage of the piece Friday mid-day was the culprit for the rally the whole thing faded in the afternoon.

No, ladies and gents, the market did not move on Buffett. He is not the first influential pundit to think the market is a long-term buy here. What moves the market is fear and greed as always and both are in long supply these days.

We understand the fear part. The greed part comes from fat juicy daytrading profits that are now possible. I've said it before - 500 points in a day (intraday) used to be a good year's work.

Me? I am still sitting it out. Sorry, but subscribers will find out before blog readers when I think it is time to nibble, bite or gorge and where to begin.

Another VIX record

In case you missed it, the CBOE volatility index, aka - the fear index - spike up over 81 this morning. O.M. G.!!!!! It looks like Main Street (I recall hearing something about that in the debates) is really worried - or was.

Check this chart:
A member of a chat room - sorry, can not recall the name - slapped some elliott waves on it when it was in the 60s and sure enough it worked! Time for some mean reversion.

The VIX has been trampling records for weeks but this time it seemed to be coupled with news that the economy is perceived to be heading into the toilet. One look at the loser board Wednesday bore that out:

$DJUSHV -16.12% DOW JONES US HEAVY CONSTRUCTION INDEX
$DJUSBS -16.69% DOW JONES US BASIC RESOURCES INDEX
$DJUSOQ -17.43% DOW JONES U.S. OIL EQUIPMENT, SVCS & DISTRIB INDEX
$DJUSPP -17.80% DOW JONES U.S. PAPER INDEX
$DJUSFR -17.80% DOW JONES U.S. FOR RY & PAPER INDEX
$DJUSOS -18.39% DOW JONES U.S. EXPLORATION & PRODUCTION INDEX
$DJUSNF -18.85% DOW JONES U.S. NONFERROUS METALS INDEX
$DJUSCL -19.29% DOW JONES US COAL INDEX
$DJUSST -19.34% DOW JONES U.S. IRON & STEEL INDEX

Yikes! This list was published in Thursday morning's newsletter and it cleraly shows panic in the economically sensitive sectors.

I am wondering - might we be seeing capitulation in the economy? Forget stock market capitulation. Everyone is looking for it.

Dude, where's my bounce?

Bounce over and it was fun while it lasted - for the 5 traders that were able to partake.

Volume during the 900 point day was merely above average. Volume the next day, when the market gapped up to its high before failing was higher. And now volume on a 733 point drop was the lowest of the three. Yawn city. Just look at yesterday's blog post for more on that.

I do believe the bear market - or this phase of it - ended last Friday but that does not mean there cannot be a lower low. Sounds counter intuitive, right? Well, yes, it does but if we differentiate between a bearish trend and the transition period from bear to bull we will understand.

In the transition period, or trading range, the market goes up and down. No news there. But as it goes up and down it may be prone to overshoots of developing support and resistance. Therefore, we may see a lower low even though the bulls and bears are on equal footing.

Perhaps the Elliott-heads out there can explain that Wave 2 can undercut the start of Wave 1. I know waves can be funky in corrections, too, but Elliott is not my main thing. As Dennis Miller might say, that's my opinion, I may be wrong.

Yawn

Is it just me or has everyone already adapted to the Dow moving 300 points in a day?

100 points? Was the market open?
200 points? Bo-ring.
400 points? Well, let's drag an analyst on the show to explain it
500 points? Getting warmer but wake me when MacGyver reruns come on
600 points? OK, now were talking. Did I own any ultra ETFs?
700 points? I hope my father in law does not call to ask about his portfolio
800 points? A few more of these, please!
900 points? Like the 2007 New England Patriots. Hot but not perfect.
1000 points? That's the way you do it! Money for nothin' and your chicks for free.

I've seen 50 point moves between raising my coffee mug to take a sip and putting it down again. Is it any wonder I am looking at my technical toolbox with a skeptical eye?

This is not normal and I am getting a bad feeling. I hope I am wrong and all this volatility actually does mean a bottom is in progress.

Was the market strong or not?

More stuff I'm just saying:

1. A lot of the market scored what looks to be morning star candle patterns (assuming no sell off from now 2:25 to the close).
2. Volume is pacing the quiet week before last week's crash.
3. Leaders are the dead cats from the bear market
   

Draw your own conclusions.

As I wrote in the column, I would rather own the stocks that resisted the decline than the ones that got crushed. If I were a day trader, I would have gone long the disasters Friday (like GM, WB). As an investor, well, it was in the column.

Fool talking heads once, shame on you

Fool talking heads every single time the market takes a header, shame on them.

And shame on everyone who thinks they know where the market will bottom, when the market will bottom and how it will bottom. Nobody knows, not even - shudder - technical analysts.

Let me explain something about our tea leaf reading, head bump feeling, chicken entrails waving, crystal ball fondling chart guys (and ladies). Nobody knows what the market will do. But what the good technicians can do better than anyone else is assess market risk and market reward and take a position - figuratively or literally.

I don't mean bet the farm on every trade. And in today's market, Larry Williams said it best that the best risk control is in position size. That means, a toe in the water, not your whole body.

If it is wrong, they stop out for a limited loss. If it is right, they add to the winner and ride it until it no longer has a good risk/reward profile.

But the point is that it is time to stop listening to the talking heads - meaning what they say. What you should do now is listen to how they say it. Are they visibly shaken by the decline? Are they spouting nonsense about riding it out with a smug face or deer in the headlights look?

Is the theme of the interview or presentation - how to identify bottoms or how to survive the bear?

I think we switched from looking for the bottom to talking about how fearful everyone is and that is the first sign of a bottom. I DID NOT SAY WE HIT THE BOTTOM (or that we did not hit the bottom) and I certainly will not say it in a free blog. But look at everyone's face this weekend and ask them about the stock market. How much panic will you see/hear?

Capitulation or Decapitation?

I'll be honest right here - blog readers are not going to get my conclusions after today's huge percentage loss (number 11 all-time) and point loss (number 3 all-time). This is where the rubber meets the road for paid subscribers. I will apologize to those reading this now but I am sure you can understand.

Just some observations:

• Fox business news anchors (who have been around) were visibly shaken and panicky
• Interviewed guests - the "pros" - were citing how we should ride it out if we don't need the money right away
• Volume was heavy but not panicky at all. The tape seemed rather orderly.
• VIX at 64
• Dow dropped 100 points AFTER the closing bell (order imbalances)
• Comparisons to 1929 are coming out the wazoo
• Predictions that hedge funds will blow up and junk bonds will default have started
• Every find company has sent out "letters from the manager (or CEO) trying to soothe frayed nerves

Some of these are capitulation. Some are bulls just licking their chops to buy bargains.

But as I wrote in Barron's Online yesterday, no analyses are working the way that we expect them to be working. A reader wrote in to chastise me for saying they don't work but that is not what I said. What I said was they don't work the way we expect in this environment. It is that reason that I am sitting it out and not because I have lost my way.

Would you put real money to work - long or short - if your tools were acting weird?

Would you drive your car on the freeway if the engine light were on, your gas gauge read more than full and the speedometer were reading negative?

...and Bagels Still Cost a Buck

Go down to your local bagel shop and ask them why they still charge a buck for a bagel. I understood why they raised it but its about time they cut it back down. Sooner or later, customers will flock to the first guy to make the cut - and advertise it.

And don't let your service and delivery people get away with that "fuel surcharge" any more with gasoline and diesel giving back nearly all their 2007-2008 gains.


Check out this three year chart of wheat. This pattern should go in a textbook.

Better than kryptonite - just for fun

I found this on the MarketWatch chat boards today from a poster with the handle dio2. This is priceless and a good way to think of something else besides your IRA evaporating into five more years of working.

---

We have discovered the heaviest element yet known to science.

The new element, Governmentium (Gv), has one neutron, 25 assistant neutrons, 88 deputy neutrons, and 198 assistant deputy neutrons, giving it an atomic mass of 312.

These 312 particles are held together by forces called mo-rons, which are surrounded by vast quantities of lepton-like particles called peons.

Since Governmentium has no electrons, it is inert; however, it can be detected, because it impedes every reaction with which it comes into contact. A tiny amount of Governmentium can cause a reaction that would normally take less than a second, to take from 4 days to 4 years to complete.

Governmentium has a normal half-life of 2- 6 years. It does not decay, but instead undergoes a reorganization in which a portion of the assistant neutrons and deputy neutrons exchange places.

In fact, Governmentium's mass will actually increase over time, since each reorganization will cause more mo-rons to become neutrons, forming isodopes.

This characteristic of mo-rons promotion leads some scientists to believe that Governmentium is formed whenever mo-rons reach a critical concentration. This hypothetical quantity is referred to as critical morass.

When catalyzed with money, Governmentium becomes Administratium, an element that radiates just as much energy as Governmentium since it has half as many peons but twice as many mo-rons.

---

As a former physics major (college was so long ago), I am especially tickled. - mk

We're Number 1!

What was that Rodney Dangerfield line? The sewer truck with a sign that read, "We're number one in the number two business."

As I write this and the Dow is down 437, on top of yesterday's 370, on top of last week's 800, everyone is wondering why the dollar is not tanking, too. After all, the government is buying or guarantying everything there is, including the medical bills for Misty May-Treanor (Dancing with the Stars).

Well, as deep in number two are we are, it seems that that the poop on the rest of the world is just as bad. And they cannot seem to coordinate any sort of meaningful bailout. What did the UK kick in - 80 bil? And they said that the US plan of 800 bil was too little. Maybe if they add a little pork they can kick it up a notch. A bridge to Ireland?

In other words, they are going down faster than we are and the rate cutting has already started. The Aussies cut a full point yesterday and that currency had pluh-met-ted!

Excerpt from a chat list:
There is not a rush but a stampede from the Euro into the US dollar.
---- And this is coming from someone living and trading on that side of the pond.

More:
Talk is that Russians they are quickly converting to the dollar

Is this not amazing? Less than three months ago - you remember when the first bit of good news came from the banking sector here? - THE WORLD HATED THE US DOLLAR. Nobody wanted to be paid in it. Nobody wanted to sell their goods in it. Nobody wanted it to be the world's reserve currency.

Suckas!

We're number one again but it is too bad we had nothing to do with it. The others guys are just worse.

Which stock market do you think will recover first, by the way? Hint - it's not them

Reasons for a Bottom, part 3

OK, this is one of my more obscure pop culture references and marginally recognizable at best. Ian Dury, singer with the Brit-new wave group the Blockheads had a tune called "Reasons to be cheerful, part 3." Perhaps having my head spin around on my neck (like a record, baby - oh damn, I did it again. This time 80s dance new wave.) watching the stock market trade in a normal daily rhythm but magnified literally 10 times.

Down 200
Down 150
Down 500
Down 300
Down 500
Down 800 - O.M.G.!!!
Down 500
Down 350
Down 450
Down 370 at the close

It would have been a lot more normal at down 20, down 50, down 80, down 37, wouldn't it? You betcha, Sarah!

Today's Barron's Online piece discussed the VIX and how it may not be signaling a bottom despite riding a rocket to uncharted heights. Of course, after I wrote it - at about 12:30 pm ET, the VIX kept going to even higher levels before the stock market rallied some 430 points - a melt-up in normal times. It looked like the VIX was indeed starting to signal something. Oh the joy of being an analyst with a deadline.

Check out the stats for the day - more than half of the NYSE hit 52-week lows. Although the AMEX and Nazzie fared a bit better, according to Rob Hanna posting on a markets chat list, the last time that happened was - drum roll - October 19 and 20, 1987.

While the market has not crashed in the traditional sense, if there is such a thing, many now believe that it has been crashing piece by piece for months. Has anyone checked out steel stocks? How about fertilizer stocks? Base metals miners? And this does not include banks, brokers, insurance and homebuilders that we all know got flushed down the bowl.

So did the market finally capitulate? Gotta save something for the paying folk but check out this link to a story released before today's open: Jim Cramer: Time to get out of the stock market

I'm just sayin'

Mikey's Believe It or Not

Here is something I stole, er, borrowed from an email sent out by Arch Crawford of the Crawford Perspectives. I have not verified it so it may or may not actually be true. But no matter, true or false it is a hoot.

=====================================

Here is the quote of the day:

...we and other global firms have, for many years, urged the SEC to reform its net capital rule to allow for more efficient use of capital. This is the single most important factor in driving significant parts of our business offshore, so that our firms can remain competitive with our foreign competitors risk-based capital standards must become the norm. The SEC has made it clear that risk-based capital rules can be implemented only when the Commission is confident that firms employing value-at-risk models have robust credit and risk management policies in place.

Translated into English, this testimony from back in 2000 was from someone asking that major brokerage firms be permitted to increase leverage subject to oversight of their wondrous mathematical risk models. The request was agreed to four years later, in 2004, and it helped lead to the meltdown in independent brokers this year.

The speaker? Some guy named Henry Paulson, the then-CEO of Goldman Sachs. I wonder what happened to him.

Hidden Panic

If you had asked any chartist what it meant when the VIX topped 40 he/she would have said - panic in the market and probably a washout event had just occurred.

Now ask him/her what it means today when the VIX spends five straight days over 40 (give or take a dime) and you might get a different response. Armageddon? or the Mother of all Bottoms? (For the guys - a J Lo)

Let's look at this from the contrarian point of view. The bailout plan was turned down by the house a week ago and the economy did not crash. Stocks tanked but reversed the next day.

Then the bill was passed by the Senate a few days later and stocks fell. The House passed the new version and the market fell again.

No matter what happens, stocks go down. Given that the economy is still standing, the market is telling us that the bailout bill stinks. Shouldn't a rescue be met with cheer?

As John Belushi would say, "but nooooooooooooo"

The market is panicking without it showing up in the indicators. I don't think I want to own stocks when the next bit of bad news hits. And I don't mean the latest jobs report, which really was not surprise at all.

Citi failing? A major regional failing to tap the FDIC for a few bil?

How about Treasury Secretary Pat Paulson (any Laugh-In fans out there?) saying that 700 billion was a little off the mark and hereally needs a tril? A trillion! Hhumans really have no concept of just how big that number is.

Autumn Panics

Chris Carolan published an award winning paper on Autumn Panics (visit www.mta.org to see it) in which he outlined the probabilities for major, major breaks in the stock market in autumn - but based on the lunar calendar. This is not astrology but observed cycles.

I have been asking him if he sees one this year and did not get a satisfying answer. It was more of a "didn't check" type of response. Considering how important his work is, if anyone can convince him for an update, please do. Chris? Are you reading this?

We havenot seen a huge Sep-Oct debacle in a long time and I get a lay feeling that we are due. Chris' blog said recently that evidence for a bottom is building so I am conflicted. Chris or Chris?

Time to stop speaking for him. From my own work I am just plain worried.

More tomorrow.

Folow up to Hard Assets for Hard Times in MarketWatch

I wrote a piece for MarketWatch.com saying that the pendulum was about to swing back to hard assets - commodities - after their plunge this year. Of course, I wrote it last week before all heck broke loose Monday and oil collapsed. Boy, was I expecting to get seriously flamed on the message boards.

But lo and behold, I did not. Most commenters agreed and while I am less sanguine about oil, gold looks to be getting quite perky. And this, while the dollar is rallying.

Inflation is not showing up in the CRB index or bond yields but yet everyone is talking about the coming collapse of the dollar thanks to the bailout bill and all its predecessors. I try to listen only to the charts but something is not quite right here.

Could it be 3-month T-bills paying less than 1% with a spike down near zero? Forget after tax and inflation - what little there is at the moment - return.

How about the VIX spiking up to extremes?

You know, with all the government meddling lately I am not so sure technical analysis as we know it is working properly. TA demands a free market where the ebb and flow of public emotion are manfested in price action. When the debate rages over fixing the problem and letting the market do it - and the former is winning - I get very worried.