Musings for a Sunday

Here are some of my random thoughts on things - some of which may actually translate into investment strategy.

First, gasoline around my house is no longer creeping higher. It has jumped higher with regular pushing 2.70 and premium at 2.97. Yes, three bucks for the picky eaters.

Oil went from an indicator of the health of the economy (weak demand for energy from a weak economy) and now that it is at 66 per barrel (from 35 just 12 or 14 weeks ago) I would say that it is starting to become a drag once again.

One more time = I say "there goes the deflation argument."

The next musing is about customer service. Have we not learned that the customer is precious at all times and in these times especially? I have no specific beef here so you can channel your own on the customer front. Although, I still wonder how big doctors' balls really are by the way they create a built in wait time.

Don't tell me it is because patients don't show. I know they don't. But how about a phone call to let us know how late they are running? For g-d's sake, the airlines do it and they deal with thousands of passengers every hour. Surely the solo doc can have his/her receptionist make the call. They already call they day before the appointment to confirm, don't they.

Finally, the way employers treat employees still gets me. With so many at risk for losing their jobs, employers might feel that they are in the driver's seat. Don't give me lip! Get back to work!

From what I've read, the truly enlightened companies are trying to keep their employees so that they will be ready to hit the ground running when the economy turns around. Cut back hours. Cut back hiring. But cutting an entire employee means the need to invest in retraining later.

Yes, I am out of my area on this economic stuff but it just boggles the mind how some employees can piss off their top producers with ancient management methods. This goes right back to the bottom line, doesn't it, when the top guns peddle their wares elsewhere.

My customers have my cell phone number and can count on personal service for questions and problems - period. I know who's boss.

Don't worry, still a bear

Don't let today's column fool you. I am still bearish but tunnel vision is a dangerous thing. Today I presented a few things that keep me on my toes. I won't rehash them here as feed readers of this blog can just visit www.barrons.com and click the link (my face). It's free!

Here are a few column follow-ups:

1- Restaurants - Panned them a week early it seems. Sector index now at big resistance and Mickey D's CEO said "bottom, what bottom?"
2- Retail - Flipped me the bird this week but I stand by my story that this sector is heading down

Shop Overseas Markets

Today's column was about keeping your interest in foreign stock markets. Indeed, many look a lot better than the USA and some were quite a surprise. Germany? France? Unbelievable.

We knew Asian and Latin markets were doing better.

And what's up with Australia? Looks the worst out of all the majors and don't blame deflation in a resource-based economy. Canada looks better than the US (yes, a heavy financial component but Loonies and Ozzies are considered to be resource countries).

Unfortunately for blog-ees, I cannot go into the broad market action with the Dow up 196 today. Gotta earn a living, you know, so it is reserved for the newsletter.

"Would a trial kill you?"
- Michael's mother

A safe holiday to all!

Thanks to the Memorial Day holiday, the markets will be closed here in the USA Monday and I may not post anything until after my Barron's Online column runs on Tuesday.

To all - have a safe long weekend!!!

It's too simple

I have now seen pure model driven technicians and technically inclined fundamentalists say that the market is tracing out an inverse head-and-shoulders Other than being anal enough to scream that it is "inverted," not "inverse," the real problem is that everyone seems to be assuming that the pattern - which even if valid is only 70% completed so how do we really know? - is going to be a simple classic h/s pattern.

Will a crash-like bear market really correct simply? Will it correct that quickly? After all, if we look for a h/s pattern we infer a certain time will pass as it completes.

My take is that it's not that simple and the market is not done fooling all of the people some of the time. Now, who knew Lincoln had his CMT?

Sovereign Debt, Not Credit Cards

I like how the next shoe - the economy is apparently a well haberdashered millipede - to drop is supposed to be credit cards. Or insurance in some form. Or business loans. Or, or, or.

Well, thanks to the UK, eyes have turned towards sovereign nations. Thanks to S&P, the UK has been put on credit watch with negative implications. Can a downgrade be far behind? And then can the USA be next? What about any other bailout nation (sorry Ritholtz)?

The bear market rally was fun, my friends, but reality bites.

Maybe Jim Sinclair is not such a kook (not that there's anything wrong with that)

So far still bearish

In today's column I point out a few things about the market that remain bearish as well as lay out a bullish scenario. The VIX dropping like a stone only gives me more reason to doubt the rally.

Also, the trendline from the low was tested from below today (it is not yet 3pm Eastern as I write this). If we get a weak close, resistance holds, momentum divergence and volume was up on a reversal day. If we get a strong close, we still wait as discussed in the column.

As for the reader poll, the results were not conclusive enough for mention in the column. We can keep the results among ourselves here and note that the majority look for declines from here. And half think it sets a new low.

Are we to be faded? As I said, the percentages were not conclusive and our sample size was small. However, blog readers are typically more sophistacted in the markets than folks who just hand their cash over to advisors. I'd say we - and I mean you - do not represent the public and may be closer to smart money.

Be careful fading anything. It really has to be something quite lopsided for true contrarianism.

Thanks for Polling

It was a quick poll and you can see the results to the right. Clearly, it was not a huge sample size so don't read too much into it.

However, it does look like a big percentage of poll-ees think we are going down. How does that jive (jibe?) with the media's fascination with the VIX closing under 30? You make the call. Neither is an extreme for sentiment analysis purposes.

Smoked TARP on a bagel

Is it weird that so many of the distressed financial institutions are ready and willing to repay the government's money so soon? I am not going to get into the debate over who needed the money and who didn't but clearly many of them do not need it now. Amazing how things magically turned around!

Just what did they do with the money, anyway? From what we read, they certainly have not lent it out to kick-start the economy. We read about boosting their balance sheets and other activities - anything as long as it gives them a better return - including not getting their credit ratings lowered or going under - than lend it out.

And the top banks come out stronger then before or so it seems. Meanwhile AMEX lays off 4000 workers.

I am no economist but to me it seems as if the government spent billions on PR, not economic kick-starts. My idea of the United States Bank funded with the hundreds of billions given to the banks and empowered to lend to businesses and consumers directly still looks pretty good to me. Let the esteemed managers who got us into this mess fall on their swords so the smaller, well-run financial institutions can take their place.

Bottom line - Don't be fooled by a bear market rally. The economy ain't healed yet - although a lot of banks seem to be fat and happy again.

Reader Poll

Take it ------->

The time frame for the poll is tight as I want to have something for Wednesday's column, if there is something of significance to report.

Journalists, oy! - redux

I remember seeing somewhere a spoof of the NY Times slogan "all the news that's fit to print." It read, "all the news that fits the print." Note the movement of one letter takes it from printing all the news to only the stuff they have room to print that day.

I'll digress to the Daily Show and one of their ads that said, "More people get their news from the Daily Show.........than probably should."

Does anyone disagree that news shows are there to sell ad space and not champion the public and their right to know? Jon Stewart skewered CNBC for that very idea. Which brings me to my own rant about those who cover the stock market.

This is an excerpt from a financial news story this morning:

Quote Contrarian indicators reach new extremes - The VIX, an index of expected volatility on the S&P 500, has sunk to about its level when Lehman Bros. declared bankruptcy. If it falls much more, some analysts say they will be on guard that the market is getting ahead of itself.

"The VIX being at this low level is a sign that investors have become somewhat complacent about the current economic problems," said [name withheld], portfolio manager with [name withheld], which manages exchange-traded funds and index funds.In an email interview, [name withheld] said that at current levels in the VIX, one could "make an argument the market is overbought." End quote.

(with apologies for the two typos in the chart)

First, let’s start with complacency levels on the VIX. They would be extreme lows – not just lows for a short period. Complacency kicks in with the VIX in the teens so a VIX in the upper 30s is far from complacent. These sorts of readings were considered extreme highs – and fear – before the financial crisis began. End of rant. I feel like Jon Stewart - only not as funny.

Volume

Just a quickie follow up to today's column. Volume did kick in for many ETFs and the NYSE. Nasdaq volume did not.

But if you wait for the perfect setup you end up with none. That's why they invented stops.

Quiet Again - deja vu

Yes, it does feel like we've been through today already. Price action is tight. Really good headlines are scarce - unless it is MarketWatch's yucky redesign that is hiding them. OK, General Motors sunk to its lowest level since 1933. Big whoop - it's going bankrupt.

Pfizer is up sharply on big volume and Coke doesn't look too shabby. And Mr. Softee, with its billions in cash reserve, hit the credit markets for its first even bond offering. Many speculate an acquisition is in the offing - Yahoo perhaps? Or are they just being smart little corporate managers and taking advantage of low interest rates? Only Steve Ballmer's hairdresser knows for sure.

In yesterday's Barron's Online column, I expanded on Saturday's blog. The offense/defense ratio is starting to turn from offense to defense. That explains Coke and Pfizer - both defensive names (consumer staples and healthcare, respectively).

Next, in this morning's newsletter, I took a look at the Bullish Percent Index. Plenty of areas of the market are set up for a top. What is missing is the trigger, which I will have to withhold here out of respect to subscribers. Let's just say it is close - very close.

Finally, as I started to work my way through the cyberclutter to get to this post, the Dow was negative. Everything was indeed quiet and now with the Dow up 50 the old saw once again proves true - never short a dull market.

Or never, day trade short a dull market.

Offense/Defense ratio

As promised, here is a chart and caption lifted from Friday's Quick Takes Pro. You can take it from here.

Offense/defense ratio – This is tech and cyclicals over health and staples. A possible change in trend here and that implies a change in market trend, too. Note how it was falling during the bear and rising since March.

Data as of Thursday's close. The ratio was lower a tad on Friday.

Deflation

I am still surprised to hear the deflation argument these days. Is it because commodities are quite firm? Or the dollar is sagging? Or bonds are rising?

The only thing that goes up during deflation is cash and cash is sinking ('cuz everything else is rising).

No, the real surprise is people are still talking about deflation as Ben and the other helicopter pilots are saying that the economy has bottomed. Wasn't the prevailing wisdom (term used loosely) that we are in a 1930's style economy and bear market?

All of these reasons are why you should not listen to talking heads, market gurus or government officials. Subscribe to the information source of your choice - my own newsletter come to mind :-) - and let someone point out things you might not have seen. But in the end, nobody really knows what the market or economy will do. All we can control what we do about it all.

Tomorrow, if I am not schlepping my kids around the globe to their activities, I will post a chart from this morning's newsletter where I simply point out a possible shift in the offense/defense indicator.

Have a good weekend.

Here Comes the Bull

That was the original title for today's column but they changed it so it would not be like
Here Comes the Bride. I had Here Comes the Judge a la Laugh-In in mind but even more importantly it was a play on words. No, I have not turned bullish. But since my 875 target was blown out I have stepped aside to rethink and figure out the market's real message here.

It's not "if" the market will correct but "when" and from how high up. I thought 875 was the place but clearly it was too low.

Before you call me the permabear that blew it, keep in mind I set the 875 target in March the day after the big 6% rally. The S&P was barely above 700.

So JPMorgan does not need more capital. B of A does - but is that the real news? It seems like everyone has jumped on the bandwagon of the return to a healthy financial system already and have forgotten that toxic assets and home inventories are still problems.

History tells us that bear markets do not turn on a dime. Is it different this time? It is never different. People will get overly enthused too early and get slammed as the first correction sets in. Then we can finally see the decks cleared - and for the sign of the times - delevered.

Vive la short squeeze!

Quiet again

Is it me or was Tuesday even quieter than the day of my "Vewy Qwiet" post last week? Few chat room emails. No news. A dull market (following a big a** rally). It seems that a breakout through 875 on the S&P 500 should have generated a bit more excitement.

What will fake out the most people? Not a run to 940 or a test of 875. How about an instant failure at 875?

Not a prediction. Expect the unexpected.

OK, You Got Me

Yes, the market got me. It finally blew through 875 on the S&P 500 and merely average volume be damned. Embrace the good news (housing) and ignore the bad (swine flu, banks needing more capital). Let's go Joe Investor, time to back up the truck.

There comes a point where any analyst worth anything has to admit defeat. I promptly switched from bear to bull on March 10, the day after the lowest close and the home of that humongous rally that kicked off the bull run. But I got spooked March 30 when the market did its one day crack and fought the rally the rest of the way to 875.

Yes, there were a few profitable trades along the way but I was mostly out of stocks for a good chunk of the time of the rally. The missed price advance of the rally was not really that bad compared to the captured price advance.

In my defense, I wrote last week in the newsletter that the longer the market stayed just under resistance the better the odds it was going to break out to the upside. Sure enough, it did. Don;t worry, I am not patting myself on the back.

So here we are with yet another new rally high on yet another day of rather ho-hum volume. Why does it still feel like a head fake? Why does it matter that the Nasdaq just ran into its 200-day average? Or that the trannies were up 6.8% on a day when oil was quite strong? Or that homebuilders soared (see today's Barron's Online column)? Or that commodities related stocks are firmly in the lead? Or that the ultra poison 3x short financials ETF was down 27% and the banks were up 15%?

You know, sometimes I just don't get it. Now is one of those times. I can's wait to see what I put in tomorrow's newsletter.

Be Vewy Qwiet!

Is it me or is it very quiet out there today? This was a feeling I got just looking at price action and now that I have looked at volume I can confirm it. Amazing how all you REALLY need is the tape. Everything else just makes the tape easier.

Now, as a technical analyst, I don't care why but "why is it so slow?" May Day? Can't be. Maybe everyone is in Omaha listening to Uncle Warren.

If a bear gowls on CNBC....

...are you just dreaming?

I am not alone in noticing that there is an awful lot of bullish chatter about the bottom and how much longer the current rally can last. Managers are scaling in. And it seems that the media is once again anti-bear.

FWIW