The Race Is On

The political landscape is starting to get exciting again.  This will be a great race.  It’s like a great chess match.  As foreign tension picked up, Barack Obama picked an experienced Joe Biden as his VP.  Today, John McCain countered by picking Sarah Palin as his running mate.  A move obviously to grab the female vote and potentially grab the unhappy Clinton supporters.  He also timed it perfectly by doing it a day after the Democratic National Convention wrapped up.  Amazingly enough, this was kept under wraps quite well.  Nobody seemed to know this and it came out of left field.  But, how will it affect the stock market?  That’s what I get asked all the time. 

I don’t think the election will affect the market at all in the short run.  I think educated investors know that both candidates are saying and doing anything to get votes.  They’ve been flip flopping on several issues and saying what everyone wants hear.  I believe whoever gets into office might be paralyzed to get anything significant done.  Given this, I don’t think the market will move big in any direction based on the election.

The market is moving on fundamentals and temporarily on emotions.  This week, we saw low volume with some very volatile days which wasn’t a big surprise .  We could go up for a few days but I’ll be looking to short more if we do go up based on the weak internals I’m seeing. 

Since Tuesday, we have had over 30 pieces of economic data come out!  Some was good and some was bad.  What I took out of it was that personal spending was down (see Dell’s earnings) and personal saving was up.  So, it looks like maybe those stimulus checks which were supposed to get the economy going went into savings accounts.  So, we’ll continue to see weak economic data come out over the next few months.  Combine this with weak demand for stocks and I think stocks will continue to drift lower, potentially making new lows.

I hope you all have a great Labor Day!  I’ll be back Tuesday.

Owens Illinois (OI) & Economic Data

I mentioned Owens Illinois (OI) a couple of weeks ago.  It’s having a nice day today and I think it has a good chance of going to its 200-day moving average of around $50.  I don’t believe it’s too late if you don’t own this one to jump on. 

Overall, I’m expecting a few more days of rally but I’m more interested in shorting more on the way up (selling) than trying to ride up this very short rally.  Light volume and better than expected economic news has given the bulls a reason to buy.  I’d caution you on relying too much on these economic numbers that come out daily to trade on.  We’ve had almost 20 pieces of economic data come out in the last 3 days and some has been better than expected.  But, one month’s data does not make a trend.  I want the economic data to get better and I’m always pleased when it does come out better.  But look, we’ve had persistently weak economic data for several months.  It’s not turning the corner just yet.  Some on Wall Street are happy because the data is not as bad as they thought it would be.  It’s less worse.  That’s like saying your son is getting sentenced to 12 months instead of 14 months.  Yippee!  You still aren’t real proud of your son.  That’s our economy.  Eventually, it will be rehabilitated.  But, for now, it’s still in trouble.  Hence, more pressure on stocks.

From a trading perspective, I look at the pieces of economic data that correlate with equities.  GDP doesn’t correlate but the rate of growth does.  Also, consumer confidence correlates very well.  So, if you’re going to watch these daily numbers, know which ones matter and which ones don’t.  Most don’t matter from  a shorter-term perspective.

Through A Trader’s Eyes: The Course Debuts

Through a Trader’s Eyes
 

 ‘What to Buy and When to Sell’

A course by Karl Eggerss

I’m pleased to announce that this all-inclusive course is coming to Houston near the end of September (TBD).  It’s designed for investors at every level.  The focus is not only what and when to buy, but the more important analysis of  when to sell. The philosophy is designed to work with specific stocks, as well as bonds, real estate, precious metals… in fact, any investment. I’ll be teaching: 

1.)    How to study not only investments, but the investors as well.
2.)    How the Fed works, and the subsequent effects on your investments.
3.)    How to find the best indicators for each particular investment you own.
4.)    How to avoid wasting time seeking the WRONG information. 
5.)    Where to get the same tools professional traders use everyday.
6.)    How to identify investments previously available only to institutions.
7.)    Why most investors aren’t really diversified.

Here’s the deal.  Soon you’ll be hearing this same course information (valued at $750) being advertised as part of a Biz Radio Academy project . However, I’m going to extract my portion of that project and hold an independent all-day event on Saturday.  I wanted to give you, my loyal blog readers a chance to get in first, at a discounted price of $650.  And by the way, lunch is on me.

We’ll start at eight in the morning and work right through ‘til five Saturday afternoon.  Bring your specific questions – I’m going to limit the number of seats so you’ll have plenty of time to get your answers.  You’re about to learn how to establish, maintain, and grow a diversified portfolio that will outpace inflation over time.  I won’t hold back any secrets – I will truly be ‘opening up the vault’ on all the various indicators I watch on a day to day basis. 

If you’d like to participate, please contact my assistant Ella at 877-342-6999 (toll-free)

Still Liking Valero (VLO)

I’ve been mentioning Valero (VLO) lately as a nice trade.  It’s up about 5% this morning and I think it has more to go.  We may start to get some serious traction if it goes above its 50-day moving average which has basically been the place this year all rallies have stalled. 

My target would be somewhere between $40-$45 per share.  That would be the logical place for the rally to stop.  Also, we need some volume to come in similar to the May rally.

If hurricane Gustav really picks up steam and oil jumps $10 per barrel, that could delay Valero’s run.  But, for now, I’m holding mine.

Crazy Investor Indicator Update

We’re still not at any extremes I can see, especially when it comes to the fear confidence meter I watch.  As you can see below, we’re basically in the middle.  If we test the lows of July 15th which is possible, you’ll see that fear indicator spike.  Then we could have a nice sustainable rally for a while.  Until then, I’m still keeping it neutral. 

With the market in neutral territory right now, I’m not buying much.  I did buy some more Valero (VLO) a couple of weeks ago.  I think it’s on the verge of a breakout for a trade.  Looking at the company, I think they will remain under pressure as refining margins will remain low.  They are doing well with their refining on diesel products due to global demand.  But, overall, it’ll be challenging unless oil goes below $100 which I wouldn’t count on.  But, for a trade, I think it’s on the verge of a breakout.  I believe if it breaks out, we could see $40 per share which is its 75 day moving average.  It just hasn’t had the traction yet to get going.  It could start soon as it did in late May.

Hard Selling At Midday

Right now, the Dow Jones is down about 225 points, or almost 2%.

I mentioned Friday to keep your beta near 0.  I’m up slightly today with the positioning I have.  I mentioned also Friday that I’m not seeing any extremes.  My bias is to the downside as we have had weak internals on the way up during this rally since July 15th, low volume, an economy that is still weakening, and confidence building (a contrarian indicator based on my crazy investor indicator).  So, given this, being neutral to slightly net short is still the way to go.  If you buy some bargains like emerging markets, just keep it hedged.  Or, just hang out in cash.

Let’s see if this snowballs and we get one of those 90% down days where almost all the volume is down volume.  Right now, it’s about 85%.  Remember that a lot of people are on vacation on the floor so the volatility will remain high this week on weaker volume.  The sooner we get a few of those 90% down days, the sooner we can get a real rally.

What Goes Up Must Come Down

Good song, bad market.

Another ying yang day.  This is one of those days that doesn’t feel real.  It feels like Friday afternoon traders locking in gains from what worked this week.  Active traders made money on oil, drillers, copper, and being short financials.  So, they sell oil, drillers, copper, and cover their shorts on financials.  Up volume to down volume is very weak today and the overall volume is very low.  It may be the lowest volume since the end of May. 

Speaking of May, this market looks just like mid May.  We were heading up for 2 months, dropped sharply, then rallied for a couple of days on weak volume only to drop.  We’ve rallied hard since mid July, dropped sharply this week, then rallied today on very weak volume.  What happened at the end of May was the volume picked up and the selling intensified.  We’ll see if it plays out that way.

The best bargains I’m seeing are still in emerging markets and materials.  Don’t dive in though because the volatility is still high.

Keep your powder dry and I’d be selling positions if you haven’t already.  Continue to keep your beta as close to 0 as possible.  Still not at an extreme.

To Pay Off Your Mortgage Or Not

I have to vent some frustration even though this doesn’t have to do directly with the markets.  I was listening to a well-known talk show host that tells you to pay off all debt no matter what.  I respect him for providing something many Americans need, a swift kick in the butt and to tell them stop buying so much and save. 

But, I heard this lady call in and say should I pay off my $164,000 mortgage?  She had inherited $175,000 recently and had an income of $110,000 per year.  Without asking what she was currently doing with the money, he asked how much mortgage interest per year she was paying each year.  She said it was about $7,000.  He told her he would pay off the mortgage in a heartbeat.  She said what about my deduction?  He figured her deduction was about $2,500 per year.  He told her you’re going to pay the bank $7,000 per year in order to avoid paying the IRS $2,500 per year. 

Sounds logical right?  But, that assumes she is doing nothing with the money.  What if she was earning even $10,000 on her money (about 5.7%)?  Then she’d be getting $12,500 ($2,500 deduction + $10,000 earnings on $175,000) and only paying $7,000 to do it.  So, by having the mortgage, she would be making $5,500 per year.  Now should she pay it off?

I’m not saying she necessarily shouldn’t (although I wouldn’t) pay off the mortgage.  It might be the move she ends up doing.  The point is to at least ask her the question what is she doing with the money.  To not even address it is misleading.  The average person needs to have ALL the information in front of them, not just the convenient numbers to make the point.

2008 Is Back

Financials bad, commodities good.  That’s been the theme for 2008.  It was abandoned this quarter bit it appears to be back (for now).  It’s amazing how one week can change everything.  Commodities were dead a weak ago.  Now they love them.  Things aren’t that black and white.  I’ve been discussing whipsaw risk.  This is exactly what I mean.  If you were scared out of commodities and materials stocks the past couple of weeks, you’re missing a nice move.   In a week, it could be over.

I protected my materials stocks by purchasing SMN a while back, but sold it yesterday morning as it became evident the rally in commodities would continue.  The only way to play this market is to either stay out and wait because things are still bad or get in and trade.

I’m still hearing lots of good things about India.  The way to participate in that is INP.  Also, natural gas and copper look very good and I’ll be taking a look at those areas tomorrow.  I just don’t want too much exposure in any one area right now.

I’ll try to post my Crazy Investor Indicator picture tomorrow so you all can see where the fear-o-meter is.

Back The Other Way

The last few days underscore the problem with this market.  Now, everyone hates the financials and loves the materials stocks.  n, rotation, rotation.  No new money.  Taking profits from one sector and buy the beaten up areas.  The SKF position I have is doing nicely in the last few days as more concerns regarding Fannie & Freddie come out.  In addition, no panicking down near the lows for materials stocks has paid off as many were extended to the downside and we’re seeing a lot of upgrades for drillers and agribusiness. 

The last two days have been low volume but fairly strong to the downside.  We were overbought, the Russell 2000 had hit a double top on the charts and the internals on the way up were weak.  Not a surprise we are getting a pullback.  We just didn’t know when it would come.

The point is to sell stocks when they’ve had a nice run and buy the beaten up areas.  That’s working right now.