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?

Retail Stampede, Retail Tragedy

This is not a post about how retail stocks are going to stampede higher based on the early indications of Black Friday sales. No, this is a much more somber post about a tragedy that occurred here on Long Island (NYC suburb) this morning.

Wal-Mart greeter killed by shopper stampede (Newsday)
A throng of shoppers physically broke down the doors and pushed their way into the store killing the 34-year old man at the Green Acres Mall in Valley Stream, Nassau police said.

Not only that, four shoppers, including a pregnant woman, were taken to the hospital for observation.

Is this what we are all about? When has going shopping for bargains at 4 am - yes four in the morning - turned into the national pastime? We all should be ashamed, especially since it was only hours earlier we celebrated a great tradition of cooperation (that's the real story behind Thanksgiving) and family.

My condolences to the man's family.

The Market Has Already Discounted It

They say that the stock market is a discounting mechanism and that means it falls well ahead of the bad news. I usually trot out my chart of Enron and point out that it dropped from 90 to 60 and then half of that before the first scandals were made public. The market knew something was wrong. No, not scandal but something. People were selling a bit more aggressively than they were buying and that was enough to send prices lower.

Here is a head line from recent news:

U.S. Pledges Top $7.7 Trillion to Ease Frozen Credit

That's not million with an M or billion with a B. That's trillion with a T. T as in toast. T as in tremendous. T as in how much gosh dang (this is a family blog) money can the government come up with before they need a bailout?

No wonder the inflationistas are singing. But that's not stock prices. Here is a counter argument made by Alan Newman of the Crosscurrents newsletter:

The crash we have already experienced discounted much of what you now believe is occurring.

Hmmmm. That's an argument that we will NOT be seeing Dow 6000. I have a different feeling about the stock market these days and while it probably won't last it does seem that we can, as I wrote in the newsletter this morning, make a little cash to spend on the holidays.

Just be ready for another bear slide just when everyone breathes that massive sigh of relief.

Misc.

Goldmember:

• "Gold, I love gold"

In the column today I noted that gold was firm despite the dollar being strong through last week. Something is up and perhaps it is the realization that trillions in bailout bucks cannot be good for the dollar. Or the yen. Or the pound. Or the YouRo. As gold bug Jim Sinclair says, gold is a currency, too.

Warren Buffett quote posted to a discussion board by John Bollinger:

• "Equities will almost certainly outperform cash over the next decade, probably by a substantial degree. Those investors who cling now to cash are betting they can efficiently time their move away from it later. In waiting for the comfort of good news, they are ignoring Wayne Gretzky's advice: "I skate to where the puck is going to be, not to where it has been."
  

A bit of chart analysis by blogger extraordinaire, Barry Ritholtz:

• The Dow scored a Wyckoff Spring last week by trading below its trading range and immediately trading back up within.

I call it a false breakdown and a somewhat bullish event. Why somewhat? The cheese (Dow) stands alone. No other major has the same formation.

Jerry Costello, a trader posting to a different chat board:

• Lining the Nasdaq of today up with the depression era Dow suggests that the market is not going to fall apart. The 1929 Dow peak lines up with the 2000 Nazzie peak. See comment number 2 in this blog post.

Rob Hanna in his Quantifiable Edges blog:

• There is no statistical proof of market strength Thankgiving week.
  

I say, let's be thankful that we are still standing after this bear market. Any day spent above ground is a great day. Happy Thanksgiving, everybody. While an official American celebration, we can all appreciate the concepts it is supposed to represent. And no, not a sale on autos and ab machines.

More Humor

Colleague Dave Steckler posted this list of funnies in several chat rooms yesterday. Where he got them I don't know.

1. What is the one thing Wall St and the Olympics have in common? Synchronized diving.

2. I went to buy a toaster and it came with a bank.

3. Overheard in a City bar: 'This credit crunch is worse than a divorce. I've lost half my net worth and I still have a wife.

4. What's the capital of Iceland? About $3.50.

5. What is the difference between an investment banker and a pigeon? A pigeon can still make a deposit on a BMW.

6. What is the difference between an investment banker and a large pizza? The pizza can still feed a family of four.

7. What's the definition of optimism? An investment banker who irons 5 shirts on a Sunday night.

8. I tried to make a withdrawal from an ATM and the machine said 'Insufficient Funds'. I wasn't sure if it meant for me or the bank.

9. I lent my friend $20 last week and according to the market I qualify as the country's 4th largest lender.

10. Broker to Client: "I've got good news - you'll be paying 40% less in fees for the foreseeable future!"

11. I wrote a check for $100 to my friend but he never got it; the check was good, the bank bounced.

12. The crisis is so bad, Bank ATM's now have slot machines.

How to Spot a Bottom

I wrote an article for a magazine in August that was never published covering sector rotation at the bottom. It clearly did not anticipate the slow motion market crash that followed but some of the concepts in there might still be useful to investors.

Click here to read it. Again, a lot has changed - specifically a turn for the worse in the financial sector - so please bring your grain of salt and leave your tomatoes (for hurling at me) at home.

Double Top Spoos

In the last post, someone commented on the apparent huge double top in the S$P 500, affectionately known as "Spoos" for the September futures symbol SPU. I will resist digressing into some of the other tradable names I have used over my career.

Anyway, the jumbo pattern on monthly charts is clear.

First, this is not a double top pattern until it breaks the support level at 768. But let's say it does. Where would we measure the target? After all, targets are supposed to be the height of the pattern projected down from the break.

Do that here and get a negative 37. Someone in another blog commented that a negative price might actually be real given the mess our mortgage friends got us into but that is another topic.

Show of hands - can spoos go negative? Of course not. Absolute support is at zero and if we get there who will care about the financial system? I'll want my guns and bottled water and a fortified, self contained mountain top cabin.

When measuring downside targets, especially for large patterns, I switch to log scaled charts and project physical distance, not price, down from the break point.

This is still apocalyptic but at least it has a chance to be valid. A drop like this one would erase 21 years of gains and bring spoos to their August 1987 peak.

Show of hands - who believes that a breakdown below October lows would kick off such a plunge?

For those of you who raised your hands, go change your underwear, have a beer and think about limitations on how "macro" technical patterns can get. I am a hardcore technical analyst but even I would not think that we can actually measure a decade long pattern of that magnitude and get any sort of reliable pattern projection out of it. Short-term, this stuff works like a charm. Long, long-term? No way.

But for those who want some real refuting evidence, how about this - the S&P 500 is the only major index to sport a possible double top. So would it be possible for this index to plummet while the other have no standalone reason to do the same?

In the stock market, we are blessed with enough ways to slice and dice things to make our own infomercial. Buy it now! Only three easy payments of $19.99! But because we have so many indices we must - repeat must - look at more than one of them to make macro-sized forecasts. The Nasdaq has not even come close to its 2002 low. Neither has the Russell 2000 and for the latter there is huge support awaiting.

No, I am not saying anything about where the bottom may or may not be. I am just saying that measuring a possible double top pattern in the S&P 500 is the wrong move. Even if we see a new low, it will not be the end of world as we know it.

A Contrarian's Contrarian

It seems that everyone fancies him/herself as a contrarian these days. But what does that really mean?

Contrarian thinking doesn't just mean doing the opposite of the next guy (sorry, no more gender recognition). It means going against the crowd and that means that there actually has to be a crowd.

So is it contrarian to be bullish now? Not really as there are too many people thinking the bottom is in. But much to the chagrin of many, just because people think a bottom is in does NOT mean that it is NOT in. EVERYBODY would have to think that for a true contrarian to start selling the market.

So that is why I keep referencing basing process and not a trading range continuation pattern in a bear market. In today's column, I point out yet another sector with a lot of promise. In the newsletter I point out all of the positive technical evidence I see, despite only a few up-days in the last many. I even had a bunch of stocks this morning for the heck of it that looked rather good.

Of course, all of it depends on more normal market analysis and that is not quite the case in today's Abby Normal (Thanks, Eye-gor) market. But when it does start to calm, shouldn't you have a list of candidates to buy so you can get in a little earlier than the next guy?

Contrarian exercise - Which sector is getting the rottenest news right now? C'mon all you contrarians out there.

The Boat is Listing

Contrarians tell us that when everybody piles on to one side of a trade it is time to go the other way. The "boat" of the market listed way to the bearish side yesterday morning and it was no wonder - the news was absolutely horrible. Intel troubles, GM failing, economy faltering, credit crisis, bailouts, housing crisis, worse than expected retail sales, worse than expected job losses, and on and on.

Stocks undercut their October lows and it looked like the bottom had fallen out.

Yet in the early afternoon things suddenly turned around. Off the races! Was it short covering? A rebound after running stops?

Look at this screen capture from MarketWatch.com from this morning's newsletter. You'll prbably have to click it to read the little headlines.


I did not circle everything as I did in the newsletter but if you have a moment and some strong reading glasses peruse the entire page. Every single bit of news was bad except for the headline. Everything. OMG, the end of civilization as we know it.

And then the Dow rallies 900 points.

When everybody is on one side of the boat, go to the other side. It is a lot drier and you can see better, too.

Please be Wrong

I really hope my colleague David Waggoner is wrong but so far his Elliott Wave mapping of the stock market has been spot on. Here is an excerpt from his current report sent to his subscribers at The Market Detective.

What I hope you can see, and you might need to click on the chart to blow it up to a more readable size, is a Wave 4 triangle in a bear market trend. Holy #$%^ Michael, speak English.

Elliott Wave theory says that primary trends move in 5 waves. A corrective trend moves in 3 waves. The primary trend now is down so there should be 5 of them - three down and two corrective. I am not going to get into an argument over whether the current bear is a 3-wave of 5-wave affair but Elliotticians say that in either case a corrective wave against the trend comes between two waves in the direction of the trend.

The pattern seen in the chart is a triangle pattern and accordingly that would be a correction in an ongoing bear market. In other words, there is more downside ahead.

Fortunately, this analysis give us one more little rally before the day of reckoning.

Do I believe this? I won't say here or my subscribers would have a cow. But if this pattern does break down it would not be a good thing.

Perspective

In today's regular Friday morning investment meeting, my mutual fund management partners and I discussed how to educate long-term investors and manage expectations (www.EASfunds.com). How many of you, before the tech wreck, were investing before 1980? My guess is not many, either because of your youthful age or the fact that stock ownership back then was nothing like it is today.

What that means is that most of us believe that the stock market is the best place to invest if you have a long-term horizon. Well, there is long and there is long.

Last week, I posted two charts showing multi-decade trends in the market (The Decade Ahead). Looking at a century of data is nothing new for analysts but my fellow fund manager Rob Isbitts (Worth Magazine top 100 investment advisers several years running, by the way) had us look at it in chunks using Stockcharts.com.

When we do it that way in two decade chunks, the message becomes crystal clear. The 1980s-1990s were an anomaly and since most of us cut our teeth in this business at that time it is no surprise we think that 5-10 year time horizons returning 10% (not even the 20% of the bubble) is a gimme. We expect to make that return if we are patient.

Of course, think again. It depends on when you do it. Right now, expect very little unless you are willing to trade the market with a time horizon of months, not years.

Here is the link to one of the charts, starting in the 1980-2000 time frame.
http://stockcharts.com/charts/historical/djia19802000.html

The chart itself is too big to display nicely in this blog. Go visit it and then click on the "previous" link at the bottom, going back in time to the start of the last century. When viewed in these chunks the message is clear. The stock market moves in secular rallies and non-rallies. This decade, and possibly the next, is a non-rally period from the long-term perspective.

Managing your portfolio - not day trading it - is paramount now and should remain that way for many years to come. We just had a cyclical bear market. I cannot wait for the next cyclical bull market to begin a la 1975.

Let's not argue in the blog post over when that rally will actually begin.

Pass the Salt

Once again, I am in the uncomfortable position of having my latest column written before the stock market tumbled this morning and published after the afternoon wipeout. Not only that, the editing process missed some of the qualifiers I added to recognize that my thesis was more than dinged.

The bottom line is that I stand by my conclusions. The problem is that Wednesday's late smooshing threw a giant monkey wrench, make than monkey poo, into the mix.

To me, the evidence is still on the side of the short-term bulls. No, the market is not ready to launch a sustainable bull market but with everything outside the market looking so durn (decorum prohibits other terms) rotten - from job losses to foreclosures to loan officers and their tight sphincters, anyone calling me a whack job for even thinking about stocks has a case.

But isn't that the best time to be buying? When eveyone hates stocks and ridicules the messengers who say there is value to be had?

Look, we had a stinko day but after the buy the rumor rally on Election Day, a sell the news decline seemed inevitable. And we got it in earnest. Futures are lower in early evening trading so I won't be sleeping well tonight. But then again, it was a wise trader who said that when a trade makes him sick enough to throw up he knows its right.

So, pass the salt. I have to deal with the egg on my face tonight but a single day - one with rather low volume - does not erase all the other evidence backing a short-term - repeat - short-term bull case.

Did you get the color I sent?

Back in the 80s, I found a casual/beach clothing line called Maui and Son. Every piece they sold had the phrase - in a cartoon strip style dialog bubble - "Did you get the color I sent?" I suppose it was to get someone to ask what it meant and get a conversation going.

No soap, radio. I am sure a lot of you remember that jabberwocky of a non-joke, too.

That brings me to today's "I can't believe people pay for this advice" entry. The proprietary indicator name has been changed to protect the guilty.

And I quote:

"The daily <> gave us a "sell strength" signal Thursday and we have a "best fade" sell signal implying weakness by Tuesday. The thing is, we have a new buy signal from the <> . The chop we got really doesn't fulfill the predicted move and we could still have some weakness on Monday, since there are profits to take. I'm not expecting too much downside, however. Too much skepticism, thank goodness.

Endquote.

First, WTF did it mean? and WTF is he/she suggesting his/her subscribers do about it? Excuse the language but this is why investors and the media look down on market analysts.

Explain what you are looking at and why. Have conviction with your opinions. Give your subscribers a clear idea of what to do. And then say what has to happen to prove you wrong.

Thank you. This has been a public service announcement.

Finally, it's here

No, I am not talking about November and the start of the seasonal sweet spot for equities. Although, selling in May and going away - far away - sure would have been the right move.

I am talking about the election. And the two-year buildup where we spent - some might say wasted - so much mental capital that we are collectively exhausted. Just over one day from when I am writing this, we will know who will be the new patsy, er, commander in chief who is charged with getting this economy back on track. I am glad it will not be me but then again, if you just let nature take run its course the economy would do the job all by itself.

How's that 700 billion dollar handout, er, bailout, er, rescue package doing? Ask bank shareholders who just got paid their dividends and they will say, "just fine." Ask AIG's travel agent and you'll get the same answer. I am actually wondering if I will be able to lease a new car when my current lease expires in a few months so don't ask me how its going. Don't ask homeowners or business owners, either. Yes, I know it is too soon to see real effects but we need it now, not later.

Meddling in the free market always backfires, no matter how good your intentions may be.

But back to the election. Why am I glad it is just about over? Because the market hates uncertainty and it does funky things when it is unsure. When we know who will be President and his Veep, no matter who wins, everybody can start to accept it and move on to their own little worlds - of business, spending and saving. And the market can get its act together.

Yes, there are other issues in this election but from the standpoint of this blog its the economy, smarty (I won't call my readers stupid).

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.

Short sellers

An interesting point raised on at least two business shows today.

We all know that the market tanked even though short selling on some 1000 stocks was not allowed. Aside from proving the idea that shorts kill the market to be a crock, here is something that was missed on the upside. There was little pressure on the market to rebound on short covering. Imagine what could have been this morning if there were hoards of short sellers scrambling to buy back shares!

Let the free market be free!

More Banks

Today's Barron's Online column was written before the bailout bill was rejected but the thesis remained intact. Some banks are not going to implode over the current conditions and some are. Check out this list of the PHLX bank index (BKX) as of about 2:50 this afternoon.

Of course, WaMu (WM) is no longer trading but the rest can tell us who is good and who is bad just by their percent changes on the day. The stock on top of the list are probably going to be fine and may make good investments if the market stops its free fall.

Tomorrow, I am going to publish another banks list in the newsletter (sorry, tire kickers) where each one passed a simple technical and fundamental screen. There are 14 names in the list (JPM, WFC and USB all mentioned in the column are included) and the day's losses, as of about 3pm range from 1.3% to 10.68%, the bad one happens to be BAC. That is a whole lot better than the average seen in the BKX index above.

Late flash - BBT cratered into the close and closing numbers all around were a little more in the red.

Sunday night funnies

If you're not laughin' you're not livin'
- Carlos Mencia

Just two items, one new and one from a few months ago. You'll get the dated-ness of the second post when you see the company name.

1) A credit crisis is never pleasant. It's kind of like having a national root canal.
- Matt Blackman in his current weekly newsletter

2) The SocGen risk management dept return to work

See, it's dated but you can change the name to any of the current name institutions. Another goodie from my favorite market comedian (and real trader) Alex Spiroglou.

My Bank has a First Name, It's M.U.D.

My bologna has a first name, it's O.S.C.A.R.
My bologna has a second name, it's M.A.Y.E.R.
Oh, I love to eat it every day
and if you ask me why I'll saaaaay......
- Oscar Mayer bologna commercial jingle

If ever you could apply food songs to the financial market it is now. My bank is Washington Mutual and it's first name is mud. And its management is clearly full of baloney.

Last week, I spoke to one of the tellers at my bank and she said the employees don't know a thing about what is going on. They know it is not good but it seems that all they got was a pep talk recently.

And last night before the news broke, I said to myself that I should probably talk a few hundred, not thousand, bucks out in cash - just in case. After all, just because my bank folds does not mean I won't have to buy food and heat. What will happen to my merchant account as all the money from my newsletter business goes into my WaMu business account?

Well, its not that bad as Super Bank JP Morgan Chase Manny Hanny Bear Stearns is swooping in to buy up the branches and deposits. They must gird up to do battle with Bank of America Countrywide Merrill Lynch!

Not to mention that I owe WaMu a lot more money (mortgage) than they owe me (bank accounts). Go ahead - fold the bank! Cancel my mortgage and give me the same relief that Fannie Freddie Chrysler Airlines is getting.

But let's get back to the point about taking money out - just in case. It is no secret that the FDIC is woefully unprepared for a financial meltdown. Rumor has it that China is not letting their banks lend to US banks and even stopped ATM withdrawals from US bank accounts. I don't know if that is true but it all plays to fear and fear is what sparks runs of banks.

Lehman's sponsored ETNs (exchange traded notes that everyone thinks are just like ETFs) went belly up. So, if I buy gold ETFs is that the same as gold bricks in my vault. Maybe not. Maybe Jim Sinclair has it right - get all your hard assets in physical form.

Well, I am not going to panic here. Just like driving a car despite the potential for accident, I am going to live my life and not be an ostrich with my head in the sand. But I sure as heck will buckle my seatbelt and keep my tank full.

Rally Time before the Next Plunge?

In January, I ran a chart from the Foundation for the Study of Cycles that predicted where the Dow would go in the first and second quarter. They were pretty much spot on. Here is their latest:

The Dow dropped right into the center trough, bottoming about two trading days early. Anyway, they call for a rally from here but only back to August high levels. That's not that much, is it.

The email this came in was entitled "Election Day Dow and Inaugural Day Crash?" suggesting that the market was not going to do well over the winter months - totally bucking the seasonal tendency.

If they nail it, I guess I am going to have to pick up their software at www.techsignal.com. (I have no connection to them, their product or anyone working there)

Click here for the January blog post.

Utility stocks - down and forgotten

This post is for those of you who appreciate charts and need little explanation.

With all the fuss over financials, here is a sector with a clear head-and-shoudlers top, including falling RSI (momentum) and a small bounce just before the breakdown. I wrote this one up August 25 for Barron's Online with the title, "Utility Stocks Face Possible Meltdown."

The lower line is the first downside target for the pattern breakdown.

Who Remembers Crazy Eddie?

Maybe you had to be in the NYC metro area in the 1970s to have seen the first in-your-face TV ads for a local electronics retailer (who later went to the pokey on fraud charges) but that is the vision that comes to me now.

Crazy Sam's - His bailout prices are in-saaaaaaaane!!

I'm not going to pontificate on the extreme nature of the current Federal intervention into the capitalist system. I won't call this country the USSA as one message board poster did (Get it? A play on USSR and the socialists). I won't blame Bernanke or Greenspan or Paulson or Cox or Bush or .......

I also won't extol the virtues of our current Treasury Secy for being the only one who understands the problem and takes action.

What I will rage against, besides the machine, is that current meddling - necessary or not - has rendered the free market obsolete. How am I supposed to measure supply and demand when a source of supply has been outlawed? When all of the sudden money market funds are on par with treasury bills in terms of safety? When someone has the power to pick and choose which companies he will save and which he will let slide into oblivion?

Where's the level playing field on which capitalism is based?

The environment is insane. None of us have the proper tools to tell us whether to buy or sell at this point.

Thanks a lot, Uncle Sam. Your efforts to calm things down just created a bigger mess. Mark your calendars to October 2 - the day the short sale rule expires.

Astounding!

As we know, 3-month Treasury bill rates went to practically zero this week as people panicked. Check out the gains in interest rates today. Absolutely amazing!

That is an 1100 percent gain in the short rate!

Crisis over! Yay!! :-)

Humor

My previous post left me feeling queasy so here is something lighter.

• From my new favorite market humorist - market technician Alex Spiriglou:

"I heard that a lot of the Lehman guys who got bonuses from the last several years

invested them back into Lehman stocks, and then borrowed against it - probably to buy real estate."

• From the "they are out to screw the little guy" department:

I tried to enter a trade to buy 100 shares of an ETF this morning with Fidelity. Trade entered at 9:34. Trade executed at 9:49 - and for 2 full points more.

Mind you this was a market order for one round lot of a very active ETF. It wasn't an order so big it had to be worked and it wasn't an odd amount. A market order for something that trades several million shares per day. I am seriously considering moving from Fidelity as it was not the first time.

• From the "wah?" department:

Kraft Foods to replace AIG in the Dow Jones Industrial Average. At least they did not replace an actual industrial stock this time.

• From a talking head on CNBC:

"Well, at least the USA now has a sovereign fund" - referring to the fact that the US government now owns tons of mortgage backs assets, guarantees money market funds and owns a giant insurance company.

Let's get this straight - EVERY politician and businessman and investor says that people are better at managing their own money than the government is yet all of the sudden the government is running the world's biggest hedge fund. Would you invest with them?

Lehman was bad, AIG would have been worse

This is a list of the biggest corporate bankruptcies according to the Associated Press. Is it any wonder that the market tanked this week?

For starters, Lehman was six times bigger than the second biggest filing and 10 times bigger than the third. AIG was 60% bigger than Lehman, according to the June 2008 balance sheet on MarketWatch.com.

The amounts are not adjusted for inflation.

1. AIG - $1.04 trillion (if the Feds had let it go)
   
2. Lehman Brothers Holdings Inc., Sept. 15, 2008, $639 billion
3. WorldCom Inc., July 21, 2002, $103.91 billion
4. Enron Corp., Dec. 2, 2001, $63.39 billion
5. Conseco Inc., Dec. 18, 2002, $61.39 billion
6. Texaco Inc., April 12, 1987, $35.89 billion
7. Financial Corp. of America, Sept. 9, 1988, $33.86 billion
8. Refco Inc., Oct. 17, 2005, $33.33 billion
9. Global Crossing Ltd., Jan. 28, 2002, $30.19 billion
10. Pacific Gas and Electric Co., April 6, 2001, $29.77 billion
11. UAL Corp., Dec. 9, 2002, $25.2 billion
12. Delta Air Lines Inc., Sept. 14, 2005, $21.8 billion
13. Adelphia Communications, June 25, 2002, $21.5 billion
14. Mcorp, March 31, 1989, $20.23 billion
15. Mirant Corp., July 14, 2003, $19.42 billion
16. Delphi Corp., Oct. 8, 2005, $16.59 billion

Too big too fail? Is the USA Treasury big enough to do anything about it? I hope to (insert deity) that it is.

Morgan Plays the blame game

Here is something I lifted from the Barron's site and later confirmed on Fox Business News.

In a memo to employees, Morgan Stanley CEO John Mack, asserting that the plunge in Morgan stock (down as much as 39% today) is “irrational” and driven by short-sellers.

“What’s happening out there?” the memo runs. “It’s very clear to me - we’re in the midst of a market controlled by fear and rumors, (Quick Takes Pro adds - duh!) and short sellers are driving our stock down.”

I love when the good old boys talk about stock and market analysis they all pride themselves on the fundamentals. We look at earnings and sales and competition and market share. We don't look at that technical voodoo.

Oh really? Short sellers are as technical as they come. They hop on a trend and ride the heck out of it but let's assume that Wall Street fat cats really do operate on fundamentals. Why was there a declining trend in the first place? Could it be that the fundamentals were lousy and getting worse?

No, it's the short sellers.

Mack goes on to assure employees that he’s not only been personally reassuring Morgan shareholders, but has spoken with Treasury Secretary Henry Paulson and to the Securities & Exchange Commission about the stock’s decline.

Blah, blah, blahdy blah. That didn't work for Bear and Fannie and Freddie and Lehman and AIG and............

'You cannot jawbone up the price of a stock. Be a man and take the blame. Don;t worry about it because I am sure you'll get a severance package that would make a small country envious. Under your stewardship, the company fell apart. And now thousands of clerks, secretaries and other support staff are facing possible unemployment.

But it's the short sellers!

Reptilian Fear

First, let me start by apologizing. My website was partially down so the shopping cart was not working. It is working properly now.

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This morning in the newsletter I used that term "reptilian fear" to describe what many of us that had been around in 1987 were feeling Monday. In my head, sure, I knew that the Dow dropped 4.5% and while big it is not the end of the world. But say 500 points and I recall vividly watching the market fall on my Tradecenter tick chart. (If any of you were Tradecenter customers or employees, let me know).

As a wet-behind-the-ears product manager I was in awe of what was happening. Now, I just kick myself for not being short this market enough. Talk about a paradigm shift.

Here's where I am going with this. Back then, I left my office in lower New York City with my tie loosened and coat over my shoulder. After leaving the subway, I walked in to the local dry cleaner to pick up my suits and said something to the effect that the day was a disaster.

The dry cleaner, and I want to say his name was Morty but is was not, blasted me. Apparently, Wall Street was not Main Street and the world was just fine. It was just Wall Street that was fubar (not his word).

Me, being so green in the business, thought about it and he was right. The pizza shop sold pizza. The Chinese food delivery guys were all over the place bringing meals to yuppies and real people alike. Shirts got pressed and garbage was picked up from the side of the street. Although my industry was reeling, life picked itself up and marched on.

But can we truly say that today? The latest Wall Street debacle has left thousands upon thousands of people out of jobs, out of homes and just plain out of luck. And I am not just talking about high priced white collar buckets of greed who cooked up derivatives and subprime and CEO rewards for effing it all up. Yes, prices in the Hamptons have backed down so Muffy will have to eat her caviar at home.

Remember back to the late 1990s when everything was just wonderful? Then a little thing like the Russian Debt Crisis comes around to spank the markets a bit. Well, check out this pic of the Russian market (ETF) today, keeping in mind that they were raking in the rubles thanks to being a major oil exporter for a long, long time.

If you think the credit crisis is over or nearly over, Mr. Paulson and all you financial company CEOs, think again. Russia is in a free fall - again.

And don't think China is going to pull as all out of it.

This is a weekly chart of the Shanghai market (not the FXI ETF which is more like Hong Kong) and it shows more than a 2/3 loss of value over the past year. My view is that the symmetry of the rise and fall takes it down to 1800.

So, when I see a 500 point drop in the Dow I put it into real world terms. Sure, it was not a big percentage deal but it underscores the real problems we have out there. And for those of you who still think the economy is OK, the stock market has not turned up yet so any recovery in the economy is at least nine months away (the market anticipates the economy by that much)

What a feeling of helplessness for most of us who own a house knowing that if we had to sell we couldn't. I am fortunate not to have a single boss (I have many in the form of customers) so at least I don't fear that my company is going out of business or I'll get laid off.

Now, to do something about the heating bill, the electric bill, the phone bill, the tax bill, the mortgage bill, the auto lease bill, the cable bill, the gasoline bill, the tuition bill, the ..............