Shot across the bow

No doubt, you've all read countless news and opinion stories about how Dubai does or does not matter to your portfolio. In today's column, I talk a bit about how it does matter but not quite now. Basically, I suggest that one more scare like this will put the market over the edge and send the bulls running for the exit doors - which are very small.

There are a few other articles on my beloved Barron's Online about this, too. One of them discusses the value of hedging. This is what we are doing in our fund (see info to the right -->) and I am doing personally. Don't worry, my personal moves were made after the fund moves.

A colleague, Scott Fullman, suggested "stock replacement therapy." That means selling a good portion of your stocks, booking your profits and then buying in the money options to stay long. Other people's money, as it were.

Personally, I own volatility.

Whatever method you choose, just keep in mind that we've been on this road before. However, it does seem to be different than it was in June/July. At least nobody was blowing up back then.

Dubai humor

It's started already. Just a little humor to start the week from the MarketWatch community boards:

From "Jofish"

"It's not all bad. I have a friend who sells DVDs in the Middle East. He says Flintstones titles are selling OK. The people in Dubai don't like the Flintstones but people in Abu Dhabi Do”

Dubai thoughts

We all know by now that the world did not end Friday when the USA reopened for trading. It seemed that Dubai was one of those "everyone knows it" news items and since there is still such a call for a correction it seemed to easy to call it to begin at that time.

Sure enough, the low was set near the cash market open. Gold was off 60 bucks and came back to a mere 13 buck loss. Volatility readings closed near the low end of the day's range. And no trendlines were broken.

I am not going to speculate on what will happen Monday and even so that has to be reserved for paying subscribers. But if we go by the sentiment angle, things are not so bad.

Monday, I will have an article in the monthly trading strategies section on www.marketwatch.com on the dollar. This is likely more of a factor than Dubai, at least on the US markets. Sucker banks who financed Dubai may be another story.

Trader Tax again

I have been reading the posts of others concerning the latest attempt from our leaders to tax financial markets transactions. Of course, everyone in this business is against it with the usual reasons that it will drive the business overseas and end up reducing revenues for the tax man.

On one forum, Ralph Vince said "The high frequency boys - the very ones who are the equivalent to 21st century market makers - provide more liquidity than the world has
ever seen. This benefits everyone."

This is something I said weeks ago although not quite so eloquently. Why do we need liquidity in the secondary market? So the primary market - where corporations raise capital - will be readily available at reasonable prices.

"But lets make Wall Street pay for fixing the economy they broke" say the leaders. Let's see, trading broke the economy? How about unregulated derivatives and foolish innovations such as CDOs, sub-prime and financial wizardry? And why did that arise? From the government's initial meddling to juice the housing market with low rates so all Americans can buy the American dream.

The cure is usually worse than the disease when the government steps in.

OK, rant over. Happy Thanksgiving to all!

Windows 7

When I knew I needed to replace my old Dell pc I had two choices - stick with the evil empire (microsoft) or try a Mac. My older kids have Macs and they love them so why not me? Yes, I knew some of my apps would not run but there were a few programs available to run windows on a mac and allow windows and mac apps to communicate, if crudely.

My macbook was hot. Things just worked and when I loaded Parallels, I could run windows in a window (yes, you have to buy windows all over again). But the data transfer between windows and mac did not handle charts. Since I do charts for a living it was a problem. And mac hardware is stupidly expensive. I never really let mac take over my setup.

But my old Dell was pushing eight years old and even though I run it clean (registry fixer, spyware killer, antivirus, cookie controls, etc..) it was feeling its age. Eight years may be 56 to a dog but to a pc it is probably more like 160.

Then there was Vista. You all know about Vista and most would agree with my NFW (no way) sentiment. I even got a low end pc for my youngest kid and "downgraded" it to windows XP from Vista. No wonder Microsoft stock was languishing. I was not alone and even Dell acknowledged the problem by allowing selected pcs to come with XP.

But again, old Delly was on its last legs. I bought an external hard drive just in case. And its a damn good thing I did because my hard drive crashed about a month ago. It was backed up minus about two weeks of documents but most were recoverable online and all of my applications were online, too.

Enter the new Windows 7 machine. Very sweet. Very powerful. A little confusing since it looks a lot like Vista but I'll consider that a learning curve to tackle.

Apps loaded themselves. The system went out to the web without me asking to find drivers. Things just worked. Sure they looked very mac-like but at this point that is not my problem.

So I am cruising along restoring everything and lo and behold the evil empire asserts itself. You may not run Outlook Express they said. You must run Windows Live and be part of our Matrix. We own you and your information.

Just the reason I wanted to move to mac. So I fire up Thunderbird, which is not as good as Outlook Express, in my view, and get back to work. But the backup files I made of my address book and all my emails are in Outlook format. All of these email programs want to import direct from the other app and not from a file you save somewhere. Please tell me if I am wrong.

So, it looks like I'll have to find an XP machine, fire it up and somehow get it ready for Thunderbird. I am sure there is a way.

But let's bring this back to the markets. Is it any wonder why Microsoft is soaring? All of this pent up demand to be released. Windows 7 is pretty good, though.

Crowded Gold Trade

Just a quickie after hearing about this for the umpteenth (look it up) time on financial news. The fact that almost everyone is talking about how crowded the gold trade is makes me think it is not crowded at all. If you thought it were crowded and ready to correct would you still own it? Nope. There is your "cash on the sidelines."

Happy Anniversary Glass Steagall Repeal

I found this in a LinkedIn group posting by Derrick Bemis, Data Analyst at Bondtrac.

"10 years ago we repealed Glass Steagall Act of 1933. It was said that we learned from our mistakes. We were told we had figured it out and that the banks would adhere to, and do, what is in the best interest of the people. This best interest of the people would then make them money.

10 years ago one Senator fought against the repeal of Glass Steagall and tried to get his voice heard. Bloomberg News tore him down. That gentleman was Senator Byron Dorgan. Byron Dorgan stated on November 12, 1999 that, "those not of the past are doomed to repeat it"..."10 years from now, I believe we will look back and regret our decision today". Congratulations Mr. Dorgan, you were correct."

I poked around the web for all of two seconds to find scores of legit corroboration.

"Senator Byron Dorgan, Democrat of North Dakota, was one of eight senators who stood up to oppose the repeal of the Glass-Steagall act in 1999. That repeal, which was signed into law by President Clinton exactly 10 years ago today, broke down the barriers between commercial banking and investment banking, and led to the growth of behemoth financial firms that were able to take enormous risks with impunity, because they were "too big to fail."

So, Happy Anniversary to all those who thought banks and brokers could regulate themselves. I am not an enemy of the "uptick rule" but this granting of power to institutions that were backed by the giverment (that was a typo but in looking at it, it makes a ton of sense) we sealed our fate.

It's Time to Screw the Public Again

Yes, once again a private equity firm is ready to sell shares to the public. This time, it is the Apollo Group and I am not the only one to notice. Here is a chart to put things into perspective.

Everyone thinks that this marks the end of the rally because these guys are the smartest of tghe smart money. It is interesting, if not a viable timing tool.

This is why the market will eventually crash

OK, the headline is a bit sensational but the article cited below proves to me that investing as we know it is over. Remember, I blogged that stock trading jumped the shark a few months ago when football coach Jimmy Johnson was pushing a trading system. http://quicktakespro.blogspot.com/2009/08/stocks-have-jumped-shark.html. Now I know the world has ended because of this article about the launch of 100x leveraged ETFs on the Nasdaq. http://www.etfexpress.com/2009/11/17/kelly-capital-launches-100x-leveraged-etfs

Of course, it was not a real article but a bit of satire. http://www.istockanalyst.com/article/viewarticle/articleid/3646069. Author Jason Kelly points out that the trend towards leverage is still with us and I say it means we have not learned our lesson.

Kelly goes on to report about the mail he got over the piece, as follows:

"A full 65% of people expressed an interest in owning products that would "go bankrupt within the course of most trading days." A stunning 5% thought they already owned them. Only 30% of respondents got the humor."

PT Barnum was right. There really is a sucker born every minute. Lord help capitalism.

Wet Blanket

Some charts just speak for themselves and this one is the wet blanket on today's rally.

Yes, volume for the NYSE was stinky again - old news. This chart of the banking ETF shows money still fleeing, a broken trendline and former support now acting as resistance.

Note from AAII

I am still on the road but here are a few observations from the American Association of Individual Investors conference.

1- Lunch keynote Mike Santoli (Barrons) said the Fed's mission now is to dampen volatility, not keep rates low or anything else. High volatility makes long-term investment by companies (not talking about stock market investors) difficult.

2- Santoli - Madoff victims did not do their homework. This is NOT to blame the victims but those who were not hurt by him kicked the tires and found funky stuff.

3- The place was packed - thousands of investors

4- My presentation on charting drew the biggest crowd I have ever had. Kudos to the way they formatted the schedule to allow that to happen.

5- Demand for charting from people who have not yet exposed to it seems as if it would be quite high. Simple stuff but high.

6- Exhibit hall had plenty of charting software packages on display. A lot more than I would have thought,

Speaking in Orlando

Vacation is really a misnomer. This is more like a re-location but I'll be in Orlando starting this evening. Friday, I am speaking at the AAII conference and doing the requisite Barron's related schmoozing.

Otherwise, the family is coming with me to the House of Mouse for some time away. I'm still doing the newsletter but I've done it poolside at midnight many times before. Anything for the kindeleh.

Marketwise, liquidity is the rule. G-20 is promising it so the stock market has wings. Broken wings, but wings nonetheless. I just worry about what happens when the economy hints that it can handle a rate increase.

As they say in the bond biz, all of this product (stocks) has not been put away (sold to the final retail buyer). That leaves it is very big, fast acting hands and facing a crowded exit door.

Greenback is Whack

NEW YORK (MarketWatch) -- The dollar weakened Monday, pushing an index of the greenback to the lowest in 15 months, after a weekend meeting of Group of 20 policy makers offered no support for the U.S. unit.

Why would other countries support a strong (insert your own currency here) policy? Nobody wants their own currency to soar. Of course, unless you have your eye on buying chunks of your neighbor instead of selling them things.

Let me offer a different spin on why the dollar plunged to open the week - healthcare reform passed the House. Spend, spend, spend.

The Senate has vowed to kill it so let's see if the dollar reverses course at that time.

In the meantime, gold....... If you have not already seen it, take a look at our Chart of the Day at QuickTakesPro.com.

Classic pattern?

This is a chart we've been watching in Quick Takes Pro. If you have any faith left in technical analysis than a channel breakdown with falling-volume retracement should mean something.

chart printed at 1pm NYT Friday.

Solar Winds are Blowing

There was an interesting discussion this week in a technical analysis chat room. First, read this quote from a post by Philip J. McDonnell.

"There is a large hole in the Sun's Corona which is emitting solar wind in our general direction. It should reach Earth on Friday Nov. 6. The chance of geomagnetic storm activity is now at 30% in high latitudes and 15% at mid latitudes."

This is not fiction but real science. What may be construed as fiction, although it is not, is the connection it has to the stock market. McDonnell then posted an abstract to the Atlanta Fed's study on this topic. I have excerpted it here.

Playing the Field: Geomagnetic Storms and the Stock Market
Anna Krivelyova, Boston College
Cesare Robotti, Federal Reserve Bank of Atlanta

A large body of psychological research has shown that geomagnetic storms have a profound effect on people's moods, and, in turn, people's moods have been found to be related to human behavior, judgments and decisions about risk. An important finding of this literature is that people often attribute their feelings and emotions to the wrong source, leading to incorrect judgments. Specifically, people affected by geomagnetic storms may be more inclined to sell stocks on stormy days because they incorrectly attribute their bad mood to negative economic prospects rather than bad environmental conditions.

This paper provides evidence of substantially higher returns around the world during periods of quiet geomagnetic activity.

Interesting. The conclusion is that you might want to take a little off the table today.

Ben'd Over Greenback

The dollar has actually had a trendline breakout in recent days and after pausing for a bit it had its rally cap on Tuesday. It did not last. And today when Ben and Co. said they were going to hold rates for the next 137 years (or until Chase refunds my fees) the dollar just simply tanked.

What is more fun is that gold is soaring while silver, though up, is far from new highs. Ditto platinum and copper.

Me thinks the market does not like the Fed's attitude.

When the chips are down buy a railroad

This chart really does not need much in the way of captions.

The key semiconductor index has very clearly broken down and is underperforming in a down market. That means it is falling more than the S&P 500 and that is not what happens in a bull market. So what does the Oracle do?

Why he plays monopoly and buys himself a railroad! You can make your own comments on why today and not a few months ago when he first started to talk up the economy. I smell Goldman Sachs.

The media made a big deal out of Buffet going "all in" on the economy with this move at this time at this price. Again, why wait until now when he was "all in" months ago? Is it really a bet on the economy? Maybe it was a patriotic move so that a key cog in the infrastructure does not fall into foreign hands thanks to the dollar.

Or was it financial engineering as he buys now and pays later with depreciated currency or assets? That's not a bet on the economy is it?

Who am I to question the wisdom of this move. He is the man, not me. What I question is the nonsense that he is betting on the economy. He is betting on Warren Buffet (I would too) and nothing more.

Crash!

No, not the stock market but my computer. Old Bucket O'Bolts finally keeled over and I had to run backups today. Most of my stuff was already backed up to an external drive so inconvenience, not catastrophe. By the way, it was a Dell I bought in 2001 or 2002, complete with Word 2000. Can't say the same about Mac hardware from Macs down to iPods. Too bad Dells have to come with Evil Empire software. At least I won't have to get Vista.

As for the market, another day, another rejection. Last week, we had a little bit of panic and the next day it zoomed higher. Ditto for Friday and today. While I make my case for a negative market in my column today one thing I can say in favor of the bulls is that the market did not crash today. Given what happened last week, the extent of the rally on lousy fundie outlook and crap-o volume it was rather comforting from a citizen's point of view to see China rebounding higher overnight and premarket futures a bit higher than flatline.

So, the rally is over. That does not mean the next stop is major lows but for now it is time to enjoy the profits you made. My regret is getting whippy dipped (that's atechnical term) out of my long in the GDX gold miners ETF. We bought the open Thursday and had to stop out Friday.