Where's the Beef?

Who hasn't trotted out that old TV catch phrase?

Thursday, the market fell hard on light volume. Today is it rallying rather well on even worse volume. You tell me if this is good enough data to analyze or is it GIGO - garbage in, garbage out?

This is an odd chart - hourly bars of NYSE volume in histogram format - I use to see not only how much volume is happening but when. Match that up to price action and you know if the buying or selling was urgent.

What I see is confusion and lack of interest in the market.

Bears Win - or do they?

Today's column was very difficult to write and my Editors jumped on my "on the other hand" tone. One asked me to take one side or the other, which I found very unnerving. The evidence did not support taking one side and discarding the other. It is mixed - period.

But with support broken and a trendline broken things look dicey. More than the chart breaks, the government stepping in to ask a CEO to step down made a lot of the financial service community nervous. They were already coming after us with the transaction tax. What would be next? Would they force so much regulation on innocent traders - and yes they are the majority - that it would force them to revamp their entire business model?

Here is a quote from the esteemed John Bollinger from a chat room today:

"The current administration apparently knows no bounds and we are dead in its sights. The
environment we have known is history and the future is looking increasingly hostile. All of us, no matter how large or small, must prepare for the worst. I would suggest that each and every one of you consider what the impacts might be, how to resist and, if unsuccessful, how to survive; a transaction tax may be the least of the changes we face."

I do not take this as a political statement and in that chat room and this blog politics have no place. Rather, it is more of a military statement saying that rules of engagement are about to be changed.

Anyway, I digress. The point to be made is that Wall Street is under attack - some of it absolutely deserved - but much of it is not. And if this is the case then the financial sector remains doomed to comatose existence - and with it the market.

The late recovery Monday got me thinking this decline was a shakeout of weak hands. But the more I think about it the more I realize that we have slipped back into the highly volatile, highly emotional and highly fragile environment of a month ago.

That does not mean stocks won't go up a bit. But for swing traders like me, it is probably time to stay in any trade no more than a day or two.

It's getting fun again

No, not a bull market where every monkey with a dart can make money. Rather, it is the sparring between bulls and bears. Some are calling for a continuation to S&P 1000 before the bear market reasserts itself. Others say that the rally is already fading and indeed peaked Thursday.

Still others dragged out the 20% rally is a bull market nonsense - but they were media wonks. How about this one? A Fibonacci 38.2% of the entire bear market is roughly 1014. What do yo think? That is a lot more palatable for a bear market rally than calling it a 50% rally up from the low.

But back to the fun. I think everyone it wrong! How's that? I'll stick with 875.

Things are looking better

Just some quick stats today using two-day old data (I hate having to manually update a database)

101 of 155 Industry Monitors industry groups are above their 50-day averages.
8 were above their 200-day averages

591 of 4962 common stocks were above their 200-day averages

84 stocks out of 2730 trading above $5 and averaging 0ver 200,000 shares per day are above their 50-day average which in turn is above their 200-day average

I won't get delusional here but these stats shows a decent chunk of the market is actually doing more than bouncing in a bear market.

No Pain, No Gain

After the pain inflicted on my psyche today with the Dow up 200, down 100 and then up 89 at the close I am thinking a slogan like "no brain, no pain" would be a better mantra.

It is not the wide swings that got me. It was the market's usual habit of doing this stuff in between the time I write my Barron's Online column and it gets posted to the site. That's life in the deadline lane, I suppose.

But the bottom line is that support at 805 on the S&P 500 held at the close and the rising trendline from the March lows held intraday. Breadth was decent, too, so I remain positive on the market for a little while longer.

Inflation

I was caught between a rock and a hard place while writing today's column on the bond market. On the one hand, how can we not have inflation given the 25 hour per day printing of money by the government. But on the other had, the Fed buys billions of bucks worth of T-Bonds to reduce supply in an already over-demanded market.

The charts are not clear, either, as short- and long-term technicals still look pretty good - as long as you keep your time frame straight. Basically, that means the bond market can suffer a pretty hefty drop and still be considering in a long-term bull. Obviously, in a short-term frame of reference, prices would plummet and interest rates soar.

But on the third hand (don't worry, that's all the hands I'll borrow), inflation may be a relative term. If long rates go from under 4% today to 5% in a few months that would be a 25% increase in rates. Is that what everyone is talking about in terms of inflation? I see a 1% boost in rates and say - big deal. I paid 4 bucks for a gallon of gas last year and that was real inflation as far as my wallet was concerned.

What would make everything tie up in a neat - yet unfortunate - bundle would be a break below the 124 level on bond futures and then drop to the long-term trendline in the 115 area. Let it futz around a bit and then break down again. Then everyone gets their wish - economic recovery, soaring inflation as we print money like Zimbabwe and the charts would match the fundamentals.

Bottoms Up?

Here is a chart and some comments from this morning's Quick Takes Pro newsletter.

NYSE Composite – This is what we think the market will look like over the next near. We can see the possibility of a “regular” inverted head-and-shoulders pattern but the double shoulder version fits in better with one of our other scenarios. That scenario has the oscillations damping down until the volatility drops and nobody cares about stocks any more.

Mission Accomplished

Sorry for not posting since Monday but sometimes real life gets in the way.

Anyway, today's post title is probably the most annoying catch phrase since yada yada yada - not that there's anything wrong with that. But indeed the S&P 500 did accomplish its first mission of reaching 805 (actually 803, but that is close enough). Now we have to see what happens here.

Will it back down as everyone realizes that this was just a dead elephant bounce (cats are too small to matter in this market)?

Or will it rest for a bit, defying the nattering nabobs, before marching on its next mission higher?

No, I am not calling for a bull market but these little bear rallies are fun. At least they get my relatives off my back clamoring to "get me out!"

Here's my take on the relatives and this can be extrapolated to the public in general:

My father-in-law called me to sell all his mutual fund holdings on October 10, November 21 and March 6. (I already sold half his stuff many, many months earlier). Notice anything about those dates? Yep - exactly the major lows in the market.

I finally acquiesced to his panic on March 6 because he was really serious - and really scared - that day. After all, it is his money. But the technician in me was screaming and I only sold a few percent. Of course, that was the low and the Dow rallied almost 400 the next day.

Nothing we have not heard before. But the very next day he calls with a "you just can't win" tone of defeat thinking that he made a major mistake and sold out at the absolute bottom. You could feel his elation when I told him that I only sold a little.

So what was his next question? You guessed it! "Should I buy something?"

I reached through the phone and smacked him in the back of his head.

Anyway, multiply that several thousand fold and conclude that there is another round of scaring the pants off everyone coming before this bear market is over. But as I wrote in Barron's Online, I don't think it will set a new low.

The Cutting Room Floor

If I can remember, whenever I post a followup to my current column on Barron's Online I'll use this title - The Cutting Room Floor. Here is today's.

Some will wonder why I did not use the XLF financial SPDR ETF as an example of something to use to play the sector. I know my editors will. The reason is that the chart simply did not look as good as some of the others I offered.

The ETF is still rather heavily weighted in toxic banks and even though there are more than just banks there and more than just the pig head greedy CDO types of banks the pig heads are still a factor.

Well, now you know.

Its the end of the world as we know it...

....and I feel fine.
------REM

For those of you not getting the reference, that's a song by the group REM.

The end of the world as we know it means that the investing landscape has changed forever. Make that until the next bubble comes along, whether it is in stocks, cotton or tulip bulbs. The public was lulled into believing not that returns would be 10% in stocks - many of us doubted that a long time ago - but rather in the idea that you can give your money to the market - any market - and expect to get more back later. Key word - expect.

Unbelievable, I have to quote Jon Stewart, fresh from tearing Mr. Cramer a new one. Paraphrasing - "this country was built on work." Real wealth, not pipe dream wealth, came from people building things. Whether it be Microsoft or housing communities or blockbuster movies, those people who created stuff still have their stuff. Those who believed that paper assets or commodities speculation were lasting wealth got a rude awakening last year.

Gurus are dead. And for many years, stock and bond investing is likely dead, too. Not that bull markets won't return but getting retail participation back will be a challenge. To me, retail is the control rod in the nuclear reactor of the market. Without it, trends can change on a whim and volatility will probably stay with us for a while.

That makes my damn job a lot harder because not only do I have to be right but I have to convince people that despite the loss of trust in the markets, money can still be made. We just have to remember that stocks, bonds, mutual funds and maybe even the GLD gold ETF it seems are all just a bunch of promises.

Not so terrible

So far, so good for the bear market rally. There were so many doubters out there boldly declaring that the were going to short the market Tuesday that the market had to go higher just to knock them down a few pegs. I wonder how that money manager on Fox Business during Tuesday's premarket is doing?

Oh, and guess which sector is right in there in the hunt? What if you guessed retail? You'd be right! And the MVR index actually kissed its 50-day average today. I'm not saying it is going through but the S&P 500 can't say the same thing, can it?

Sideways

While I did enjoy the movie of the same name, mostly because I am a wine snob in training, this post is about the healing range in the stock market that may have transitioned to the calmer, flat part. I will say it everywhere that I am not calling for a bull market any time soon but as today's column pointed out, a rally to S&P 500 805 would be proof enough that the bear is mortally wounded.

The following Nasdaq chart was left on the cutting room floor.

I wanted to make the point that Nasdaq leadership was a good thing and that it may already be in that sideways range. But I tend to cram too much into my writing and just left it out.

A pundit today said that all major bears end with a retest of the low, referring to the Dow and S&P 500. This Nasdaq chart already fits that description.

But again, I do not see this healing ending until much later this year. Did Chairmen Ben read my newsletter before making his end of recession speech yesterday?

Buy and Hold is Back!

Well, not yet. Buy and hold was debunked as a viable investment strategy after the 2000 peak. Technical analysts have been touting its demise and, to quote the Market Technicians Association, the dawn of a new age for technical analysis has begun. Certainly, technicals as simple as trend following worked last year while fundamentally cheap stocks got cheaper, waiting for the fundamentals to catch up - or down, in this case.

But now that everybody knows that buy and hope does not work, the contrarian deep within thinks it is time to think about its return. Advisor Perspective Magazine even acknowledged this recently and their clientele - Registered Investment Advisors - is not exactly a market timing type of crew.

An advisor friend, who also happens to be a technical analyst, told me that the Journal of Financial Planning is talking down modern portfolio theory. If anyone has proof of that please let me know.

But the point is that buy and hold may just be back soon. Of course, the dang market has to stop falling, first!

Commodities follow-up

In today's column, I took a look at commodities in general and saw one undeniable fact in the charts - the long-term bull market in commodities was ended, or shall I say obliterated, in October 2008.

I have been bullish on gold for a long time, through both of its forays into $1000 territory and still own a GLD position I bought back in 2006 when the metal corrected to 570. Before I break my arm patting myself on the back, the fact that I still write 9 or 10 columns per month, 5 newsletters per week, countless articles and this blog tells you I do not own very much of it. I suppose I need a real job but thanks for letting me vent.

But looking at the old CRB chart - the one that mattered before Reuters bought it from a bankrupt Bridge Information Systems (yeah, thanks for that one management - love an employee [me]) the bull market is clearly over. The question is how long it will take for such a decline to be consolidated to allow any sort of rally to commence?

So, is gold so special that it will buck this trend? Believe it or not, deflation-istas, unlike the CRB (either version) the bull market trend here is still intact. I'll let you all draw your own chart.

As for oil, I think the column says it all.

We hit a nerve

Monday's Barron's Online column must have hit a nerve around the blogosphere as plenty of folks quoted it with a link back over the past two days. Thank you one and all. The idea of slow motion capitulation, or as some have called it "death by a thousand cuts" seems to fit the current market better than traditional selling panics or double bottoms.

Of course, the latter pattern was shattered when the market cracked support this week. But so what? How can we categorize an economic crisis market using "regular" market terms and indicators? As I have been asking, "The tools are not working so how can we take any action?"

Quick Takes Pro is comfortably in cash and a few precious metals ETFs. Yes, we missed a 9% drop this week but again, so what? We could have loaded up in Citigroup puts (do they have strikes at this at penny increments?) but at what risk? Wasn't C up something like 20% one day? You get the point. The risk of an explosive upside reaction in the stock market is pretty high and getting squeezed by the shorts is not our idea of a good time. Even if the market continues lower afterward!

But back to capitulation. I say it will be a process this time rather than an event. Some may accuse me of calling a bottom with a 2000 Dow point range but that is not true. I am not calling a bottom at any price. What I am doing is outlining what I think is happening in the market, not forecasting what will happen anytime soon. We have to start somewhere.

More on Sentiment Tools Not Working

Just a few observations from one of the chat rooms I follow.

Bill Volker posted this put/call chart and noted that for a new low in a raging bear market, nobody seems to be buying puts. I added the 10-day average.

Of course, a put/call ratio depends on calls, too, and we can also comment that nobody is buying calls. Or EVERYBODY is buying puts AND calls. Basically, the chart is not terribly meaningful since we don't know if both sides have given up or both sides are vigorously making their cases.

But regardless of what the neutral read is, it still is interesting how there is no panic in this indicator.

Chris Carolan countered with:
1- Nobody has any money
2- People are hedging using other methods.

Mike Moody added that VIX futures are a better hedge than options.

So, we can probably toss options based indicators into the "maybe" bucket with everything else.

Sentiment-al Journey

Today's column on Barron's Online is about sentiment but not the traditional kind using the VIX, put/call ratios and the like. In keeping with the theme of "technical tools are not working as we expect" (and reminding that fundamental tools are not working either) the piece talked about conversations with money managers and results from surveys. It also talked about the magazine cover indicator, although it did not mention it by name.

The point was that we have to look at non-traditional measures of sentiment. And as the column's title was saying, capitulation is different too. No, not its different this time. That is an attempt to ignore the indicator. I am saying that we have to adapt the indicator to the environment.

Read the column, if you have not already.

Here is an excerpt from this morning's Quick Takes Pro newsletter:

"Another morning rally and another afternoon decline. That’s been as good as it has gotten in
the stock market lately so what’s another day of heartbreak for the bulls? But actually, it feels more like the bulls have accepted this sort of behavior and while it does not seem like it, this is a form of capitulation.

We are not putting too much weight on it, however, as all technicals are now overwhelmed by the credit crisis. But there will be a point where sentiment is so negative and the market is so oversold that even the hint of good news lights a fire for a rally.

Looking on the bright side, we’ve identified tech as the potential leader. And we still like Mosaic (MOS).

This suggests trimming short positions if you have them to at least avoid being squeezed. Going long at this point seems to be an exercise in falling knife science (bottom picking in a really bad market)."

Not so terrible. But there is more:

What if this bear market ends when everyone stops thinking about stocks? Corrections end with fear spikes.Real bear markets end when nobody cares any more.

Misc stuff

I warned about Facebook and putting too much info online. Here is an item from the local newspaper: Oceanside teen sues Facebook Online taunting spilled into bullying at school.

I have some business colleagues that wanted to "friend" me on Facebook and I was hesitant to co- mingle them with my colleges buds. You never know what people from the young and foolish past might post.

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Something from James Grant, Interest Rate Observer:
Citizen asks: "When will the pain of the bear market be over?"
Answer: "When you give up asking"

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Something from Alex Spiroglou in a chat room:
Whenever a market slide has become subject to a downside target auction, a bottom is usually very near. (commenting on the number of posts this group of professional market technicians concerning where the market will eventually bottom - majority say 620 on the S&P 500)

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Here is some viral (non) video making the rounds explaining TARP.
http://www.calculatedriskblog.com/2009/02/tarp-visualized.html

Like pouring water on sand. No matter how much water you pour on it, you still just have sand.

Maybe we can get some of Jack Black's "Va-Poo-Rizer" and just spray it all away!

The Great Investment Rethink

Long before stocks and bonds were a significant part of the individual's portfolio, returns were in single digits and a big day on the Dow was 40 points in either direction. And I am not talking about the 1940s. I remember working on the trading desk (muni bonds) and the Dow never hit 100 points of change in the mid-1980s. Of course, that was pre-crash.

But I am getting off topic. The point is that nobody expected those 10% per year returns let alone the insane returns of the 1990s. Oil chugged along at some low range. Gold was back down to "normal" levels after the inflationary spiral of the Carter years. You get the point. We did not expect huge returns and people got along just fine.

Then we got the tech bubble. Boom! What happened to my Pacific Century Cyberworks? My Ventro corp B to B? Sock puppet-led Pets.com? But the groundwork was laid and appetites whetted such that low interest rates made the next bubble possible.

Real Estate. Then commodities just last year. We are conditioned to expect to make insane returns somewhere and when we cannot find them in legitimate arenas we make them up. Weapons of financial mass destruction indeed.

My point is that the stock market can be facing years of nothingness now. Our expectations have been shattered and so has the ability for the geniuses on Wall Street to create new "products." The entitlement well has dried up, friends, and we are going to have to figure out how to make a living. Working seems like a plan.

For investors, while I do think years from now we'll look back at bargains today, we probably do not have to rush back to get them.