Happy New Year

There will be no more blog posts from me in 2008 as I am just plain tired of the year. Here's to a better 2009 for all of us!

I'll see you all back here Friday although I will be writing my final Barron's Online column Wednesday, Dec 31.

Get that champagne a-chillin!

Notable Quotables

Some wisdom from around the technical analysis and related world.

When is comes to securities, volatility in the divisor is a time bomb.
---John Bollinger, CFA, CMT

Indicator drift is just part of the problem we have been faced with 'market transformation' in the last few years...different trading hours, expirations, substitute or competing contracts ( mainly in stock futures) so much from the old pit sessions is not as valid as it once was as markets have become relatively seamless from closes to opens and electronic markets have developed.

Seasonals are now different as large crops are produced above and below the equator with 2 different harvests, etc.

Darwin said it best..."It is not the strongest or brightest of the species that survives; it is the one that adapts the best"
---Larry Williams, trader (and teacher) extraordinaire

“If you are ready and able to give up everything else, to study the whole history and background of the market and all the principal companies whose stocks are on the board as carefully as a medical student studies anatomy, to glue your nose at the tape at the opening of every day of the year and never take it off till night. If you can do all that and in addition you have the cool nerves of a great gambler, the sixth sense of a kind of clairvoyant, and the courage of a lion,” then you’ve got a chance.
---Bernard Baruch (found by Prof. William Voelker (U Illinois Champaign.Urbana in the NY Times)

Back to Normal

No, not the stock market although by every measure I use it is indeed calming. What is back to normal - if such a thing exists - are prices of the things I use. Gasoline on Long Island, where I live, is supposed to be the highest in the country yet a gallon of regular is $1.83 at the local Hess station. Bagels are back to 90 cents from a buck, which does not sound big but percentage-wise it is nice.

Pizza seems to be clinging on to its increased price levels but everyone, from the landscaper to the water delivery truck, has dropped those fuel surcharges. How 'bout it, airlines? You can drop the baggage fees now.

A talking head said that since the peak there has been a trillion dollar tax cut on the public in the form of reduced gasoline prices. A bit dramatic since that "tax" did not even cover the entire year. I view things as having a new tax repealed rather than a real cut and in that cynical light there is no net advantage to the consumer.

So, are we ready to rally? I think it is rather widely known that I am looking for a multi-week move higher to the neighborhood of Dow 10K. Most blog readers come here via Barron's so you've seen the column but if you haven't read it please take a visit - it's free, by the way.

But after that, I see it coming back down - but in a more normal way. A declining market, not a crash. A Vix in the 30s, not the 80s. A couple hundred new 52-week lows, not fully half the exchange. You get the point - weaker bearish internals.

That's it for this holiday week. It's time to go over the river and through the wood to Grandma's house. Next year in Aruba (please).

Funny

Just some misc stuff to brighten a dreary market day:

Investors now have a 201K plan - Len Smith

The best commentary I've heard lately was on TV where the guy said he was diversifying: he's putting half his money under his mattress and the other half in a can buried in the back yard. - MarketWatch comment poster unclejohn

Banking problem explained (from rightontheright.com)

Young Chuck moved to Texas and bought a donkey from a farmer for $100.00. The farmer agreed to deliver the donkey the next day.

The next day he drove up and said, 'Sorry son, but I have some bad news, the donkey
died.'

Chuck replied, 'Well, then just give me my money back.'

The farmer said, 'Can't do that. I went and spent it already.'

Chuck said, 'OK, then,just bring me the dead donkey.'

The farmer asked, 'What ya gonna do with him?

Chuck said, 'I'm going to raffle him off.'

The farmer said 'You can't raffle off a dead donkey!'

Chuck said, 'Sure I can Watch me. I just won't tell anybody he's dead.'

A month later, the farmer met up with Chuck and asked, 'What happened with that dead
donkey?'

Chuck said, 'I raffled him off. I sold 500 tickets at two dollars apiece and made a profit
of $898.00.'

The farmer said, 'Didn't anyone complain?'

Chuck said, 'Just the guy who won. So I gave him his two dollars back.'

Chuck now works for Goldman Sachs.

No Barron's column today

The evil virus that has been going around suburban NY got me and I am unable to write my column today. Look for it Tuesday

Perspective

Today's blog post is actually more blog-like than offering market observations. So if you are looking for what's hot and what's not go ahead and flip over the Cramer.

When out with friends and they talk a bit about their careers I always reply that if all of us were marooned on a desert island that I would be the first one to be eaten. Why? What do I really offer to society?

I don't cure the sick.
I don't build the shelter.
I don't grow the crops.
I don't fix the plumbing.
I don't even sweep up the mess.

I write about the financial and commodity markets. Big whoop. They don't even have a buttonwood tree on a desert island let alone futures and options.

OK, I'll concede I do help people with their financial lives. Many a reader has written in to thank me for getting them out of the market many months ago. It's actually been a lot more than those writing in to gently disagree with my work. Of course, by gently I mean following me around cyberspace with torches and pitchforks.

So in this holiday season, when so many are losing their jobs and their homes, I suppose the only thing I can contribute is hope. No, not the hope that the market will miraculously return to its lofty highs but the hope that there are those of us out there than truly want to do right by the client. I remember who pays the bills (customers) and try never phone it in when things are getting rough.

The arrogance of those companies who thought they were above common sense and fiduciary responsibility, from subprime to CDOs to Bernie "Ponzi" Madoff, was shameful. But we are not all like that and by "we" I mean 99% of the rest of us.

So Happy/Merry/Joyful/Peaceful/Green (fill in your holiday) to everyone. Do what I do before I go to bed at night and spend a few moments looking at your kids - even if it is just your teenager's back as he/she is talking on iChat. Maybe raising them right is my real desert island purpose.

Divergence Wars

When indicators and prices diverge, usually it is price that concedes and moves in the direction of the indicator. What happens when a commodity and its related stock sector diverge?

Again, it is usually price that gives up. This chart does not believe oil is going to 25 bucks per barrel.

The Final Bullet

So the Fed cut to zee roe point two five and the stock market took off. Who knows if it will last?

I want to point out something I wrote here yesterday. No, I am no genius but with the market shrugging off all sorts of bad news over the past week it was not really a surpriose to see a big old rally today - again, if it lasts as I am writing this at 2:50 NYT.

From yesterday's post:

"My feeling is that I want to be ready when this market surprises the heck out of us with another monster rally. That's a lot better than throwing a shoe at it as I chase it higher."

I think surprises will now come to the upside. How much worse can the news get? Barring - heaven forbid - an attack on our soil or major global leaders.

Personal Capitulation?

They say that bear markets end when everyone is sick of stocks and would rather go to the dentist than their broker. By then, the bears have ground everyone down and portfolios lay decimated in the financial waste that once was a bull market.

Here is a twist. As a financial markets journalist, I am getting a tad sick of things now.

What's that, Mikey, you don't like your job?

Far from it. Writing about the markets and panning for golden nuggets of insight from the river of data is still fascinating. What is getting to be old hat is coming up with the same conclusions.

Yes, its a crappy market.
No, our tools still don't work the way we are used to them working.
Yes, I see a bear market rally forming.
No, that does not mean it is entirely safe to play in the market.
Yes, interest rates that are near zero - and below zero at one point last week - tell us things are as far from normal as anyone alive today, er, anyone under 100, has ever seen.

and on and on and on....

How many times can I say the same thing? How many times can you the reader read the same thing? That's why I am trying to find stocks that are diamonds in the rough that is today's market. Today's column was on biotech but while there were some candidates looking ripe there were many more that looked sad. But how many do we need to make this holiday season a little brighter? One or two works for me.

Making hay when the sun shines. Lemonade from lemons. Yadda yadda.

My feeling is that I want to be ready when this market surprises the heck out of us with another monster rally. That's a lot better than throwing a shoe at it as I chase it higher.

What happens in nine months?

No, not that.

I was at a party tonight and met a securities lawyer. He said something that could be scary or could be nothing at all. It seems that the lag time for lawsuits brought by brokerage and hedge fund customers is about nine months and from what he is seeing now in his practice it is going to be a very active time starting next September.

Hurry up and get your law degrees. There should be plenty of business for you.

As for what that means for the markets, let's hear what you all think. I'll throw one out there - the public disgust for stocks will be great and that is what happens at a major bottom.

They call it Earl

My colleague Dave Steckler likes to flaunt his New York heritage even though he's been living and working in the central part of the country for more than the decade I've known him. When he jokes about earl he means oil.

I admit to blowing the call on oil a few times on the way down. Fortunately, there was very little in the way of trading in that regard so my investment dollar tank remains full. But here are some of the things that have happened or where offered in the past week.

• 12/4 - ExxonMobil was setting up for a breakout despite oil's continued weakness. This suggests something positive for black gold
• 12/4 - Chatter and the Gulf Oil CEO were looking for oil to fall to $20. Remember what happened when they started to talk 200 and oil was only at 147? Yep, the trend changed.
• 12/5 - In the newsletter, I offered a seasonal chart of crude oil which showed a late December bottom. The rally, again, the seasonal average, lasts until September. Chart credit to Johannes Kirchmeir, an analyst in Germany
  
• 12/10 - Also offered a ratio chart of oil stocks to the commodity that was heading straight up. Although the data are few, the last time that happened oil rallied.
• 12/11 - keeping our position in Arena Resources (ARD) even though it has already hit the top of its trading range. Oil and stocks are firm so let's let it ride (up 22.4% since we bought it Monday morning)
  

What's the point? Everyone was whining that demand for oil was so low that it will never recover to its old highs. Perhaps. That was indeed speculation driven, but oil prices - and forget what OPEC does - are hinting that there is life left in the old economy yet.

And from a purely technical point of view, the pendulum of fear and greed was way over towards greed last summer. It swung way over to extreme fear this month and it is time for a little mean reversion.

Short-term vs. Long-term

Today's column was about a rally within an overall decline. The two time frames - long and short- are not in agreement so right away pundits tell us that following one violates the rules of the other. It makes sense if all we do is one time frame. After all, long-term investors should not be touching a bear market, no matter what is happening.

But who is a pure long-term investor? I personally have 401K money that I rarely touch (I was heavy into cash this year, thank you, but not all cash) and I have some trading money. While I cannot trade a lot because I have to remain unemotional and objective I do like to keep some skin in the game so I stay current on market nuances.

Anyway, I am very willing to get in there and buy some stuff now, knowing that I'll be selling it before spring comes back to NY. And that is why I can be bullish when I am on record as saying there will be no true bull market for many months to come.

I'm bullish and flat. Some might say the flat counts as bearish since it is a trading range that caps off the bear market. Semantics. The point is that I have a short-term and a long-term opinion.

To read the comments in various websites following my Dow 10,000 call you would think I am evil incarnate and lobotomized at the same time. Yes, I know the economy is stinko. Yes, I know there will be more bailouts.

But guess what? The market moves to extremes in BOTH directions and the current rally is working off the extreme decline. I fully expect to be able to buy at today's prices or even lower in a few months.

C'mon, Dow! Daddy needs to buy some holiday presents.

Link Fixed

Thanks to a reader for pointing out the bad link at the right for three-month gift subscriptions. It is now fixed. Ho Ho Ho.

Up, Up and Away! (sort of)

With no apologies to Superman, this rally is giving us that up, up and away feeling but with a kryptonite chaser. In other words, I am FAR from complacent despite my view that Dow 10, 000 is coming. And if we get there then I'll be cashing in the longs and putting on the shorts.

Contrarian contrarians - those who look at all the other contrarians and take the opposite view - which ends up being the view of the masses, think there are too many people looking for that rally so it won't happen. The masses look at the news and say the economy is going to hell in a handbasket.

1-Show me a majority of people/analysts/newsletter writers that are looking for a rally. Only then will I agree to fade them. Right now, the latest AAII survey has about 47% bears. Some majority of bulls, right?

2- The news is already baked into the market. Why else would a record number of job losses - a surprisingly high number, at that - result in a market rally? Trade the news and you are trading what the market did nine months ago.

So, the market can rally. This is not a bottom call - although I do think we've had it - but rather a call to make some cash before the opportunity dries up. But don't be a pig. Sell too early rather than too late.

Bad News - Nine Months Ago.

The news today is bad, bad, bad on all fronts. Here are some real headlines:

• Corporate layoffs near 7-year high,
• Job losses may hit 30-year high
• Services contract at worst pace ever
• Bernanke says efforts so far have failed to slow the foreclosure rate
• New orders for manufactured goods falls 5.1% in October, the biggest decline since 2000
• Plunging orders for durable goods
• OJ gets 15 years

OK, that last one if for comic relief. But hasn't the market already discounted this? After all it already crashed in September and October. The market saw it coming, didn't it?

And the risk now is for some sort of positive surprise. OK again, today's jobs numbers were not positive - at all - but "darkest before the dawn" and all that. When was the last time job loss resulted in a recession? It is always the other way around. Business gets stinky and they lay off workers - in that order.

Look at retail. Lousy news Thursday and the sector closed up while the market closed down. And as I write this after lunch Friday it is up again (the Dow is down 100).

The market did indeed sell off this morning on the jobs report but it has come back significantly. Premature to declare victory but this market is getting stronger, not weaker. No, not a bull market but a tradable rally. I fully expect another bearish few weeks after that.

Bear Market Rally Framework

A reader pointed out a pattern that is not readily visible on the normal bar charts most of us use. Using a close-only chart, a megaphone or expanding triangle pattern appears and it has one interesting implication. Check this:

Is it possible to see Dow 10K in the next few weeks to months? It sure looks that way.

This pattern is usually analyzed as a topping pattern so I am not so sure that the reverse is true as a bottoming pattern. But it does give us some sort of structure to follow.

How about this? After reaching 10K it forms a regular triangle on the back side - creating a diamond pattern. Again, diamonds are thought to be tops so who knows what it might really mean? But then again, who ever expected the VIX to hit 89!

The old rules are up for rewriting.

Take that!

Take that; all you people looking for a bear market rally. While I could not have expected that kind of decline Monday it was rather obvious - well, as obvious as it gets in the stock market - that some pullback was needed after last week's record run.

I put to you that it was a rather mild decline technically.

From a sentiment angle, however, it was scary as H E double hockey sticks (Thanks Sherman T Potter). The market opens down and quickly goes down 200 Dow points. Then it futzes around for a few hours before starting a slow sag.

Then the geniuses at NBER come out with the Earth shaking news that the US has been in recession since December 2007. I guess that is what they mean by "close enough for government work."

After months of comical denial, then silence, the head dismal scientist finally conceded what the stock market knew was coming back in October 2007. But the acknowledgment from the cheering squad got the seller to get more active and the Dow sank to down 700. Breadth was quite negative.

So, when we mop up the bathwater we find the baby. Or should I say diamond in the rough that is the market. Well, maybe diamond is too strong. How about a nice cubic?

Make your list of stocks to trade. I know I am. And I know that I'll be flipping them for some short ETFs after a few weeks.

Our Hero

The Donald is at it again. How does a guy so obviously business smart default on his debts - again? Or is he crazy like a fox and using this to his advantage? My guess is the latter.

Let's review current news:

1. The lead lender on the City's Trump International Hotel & Tower, is suing him, trying to collect a $40-million personal guarantee he made to help get financing for the 92-story high-rise.
2. Trump Entertainment Resorts will have to skip a $53.1 million interest payment scheduled for Monday on its 8.5% senior secured notes due 2015 in order to maintain sufficient liquidity.

And now let's go back in time:

1. Trump Hotels and Casinos (former symbol DJT) not to be confused with the current Trump Entertainment (symbol TRMP) goes bust.
   
2. Trump Airlines goes bust.
   
3. and his well documented ride to the edge of bankruptcy decades ago, spawning his book "the art of the comeback."
   

"The Apprentice" is gone ( at least from prime time). Whatever happened to the Martha Stewart version of that show?

He started a real estate investor institute last year, if I recall correctly, right at the peak.

It seems the guy is Midas in Reverse (remember that Hollies tune?). Yet he continues to be one of the wealthiest men in the country, lives the high life and has a name to lend to designer clothing and water and is surrounded by beautiful women.

Here is someone who knows how to use the system. Don't bet against him because in the end, even if lenders and shareholders get the short end of the deal, he gets wealthier. But is it yet another sign that capitalism ran amok - like the banks? Do we have to wait for the Donald to de-lever, too?