Interesting Read....

The next time you think YOU have had a bad year.........think again. Read this article and you will see some guys who REALLY had a bad year.

Gold....Dollar.....Transports......Banks..

1) Gold: Looks like a slide to the downside is about poised to continue.......

2) Dollar: Dollar posted a bullish hammer candle yesterday. Need to see if this is a short term bottom in the dollar.

3) Transports: STILL within its triangle. We should see it break up or down in coming days.

4) Banks: Banks have broken down through its triangle already.......and I expect this to continue as housing information continues to worsen, consumer credit worsens, and commercial real estate worsens.

5) Oil: I expect oil to continue south in the short term. At SOME POINT....it will push up through the defined channel.....but short term, if the dollar remains strong.....oil will head lower along with precious metals.

Couple Notes.....Monday 10:55 am

1) Market is too BULLISH.....has further to go on the downside. Put/call.......investors intelligence.......etc. Too bullish....which is bearish.

2) MSFT $15........GOOG $200ish........RIMM <$30ish.......CRM $10 - $20.....
3) Banks........I wouldn't invest in banks with Sarah Palin's money.......THAT's how bad banks look. Broke down out of its triangle a few days ago and continues its drift SOUTH. Citibank.....MS.....JPM.....all heading south.

4) Transports......STILL hanging on to the "triangle" by a fingernail.

5) Precious metals.......I'm still NOT buying the long side (yet). I expect further downside. Unless the Mideast REALLY "blows up".......I expect precious metals and oil to fall further in the near/intermediate term. I don't expect the Gaza skirmish to blow up.

6) This is the worst year since 1931. In 1932......the DOW dropped ANOTHER 45% from its abysmal 12/31/31 level until it bottomed on the last day of June 1932. From there...it rallied.

2009.....Lower, and here's why.......

1) First, the banking sector. Heading lower. Watch the triangles early in the year. Here's Meredith Whitney's take on the sector.

2) Second, housing is STILL a major concern. The housing sector STILL has quite a ways to go....and it's NOT "all in the market" at this point. Don't count on housing to bottom out till some time late in 2010.

3) Third......commercial real estate is going to be hit hard. I know....."they" (commercial real estate" don't think they "overbuilt" this time. WRONG. They did.....they are just now beginning to realize it. As the housing sector continues south........and consumer credit issues crop up even more, commercial real estate will get hard. More and more retailers are NOT going to make it. There were just TOO MANY OF THEM. Too many malls.......too many buildings......not enough consumers able and willing to do business. That spells trouble for the REIT's.

4) Here's a look at "institutional investors." As you can see from this post......they are "backing off" on their buying after the recent "mini rally" in the market over the past 4 weeks. They won't be back to buy till prices head lower. Any move up early in the year will be a time to short........or a time to sell long positions.

5) Hedge funds. They are going to have a rough year. More redemption's.........more blow ups.

6) Companies have STOPPED buying back their shares. THAT.....is not a good thing. They are "battening down the hatches."

All in all........going to be a bearish market for 6 - 12 months. There is BOUND to be a nice bear market rally.......likely in the late spring/summer.........but we're no where near "the bottom" yet. There has been a LOT of damage done to people who actually trusted their investment advisers, trusted investment banks (that's a laugh), trusted hedge funds, etc. And remember....there is STILL money being "held captive" by hedge funds that put up their "gates" in October/November. They will STILL need to liquidate those positions eventually.

Predictions For 2009.....CNBC

1) Larry "Lemming" Kudlow will STILL be hanging on to his "buy and hold" strategy in the fall of 2009 when the S&P is at or below 500.

2) Dennis Neil will STILL not have opened his 401(k) statement in the fall of 2009. It's probably a good thing for him......he will have lost about 70% from the top in October of 2007. And as long as Dennis hasn't "sold" his position in his mutual funds.....Dennis actually thinks he doesn't have a loss. Shhhhhhhhhhhhhhhhhhhhhhhh. Don't tell him either.......I want to see the look on his face when he actually opens his 401(k) statement!!!

For those of you who don't know, Dennis actually said ON AIR that (1) "you don't have a loss until you sell your shares", and (2) "I haven't opened my 401(k) statement because I don't want to see my balance." And CNBC has a guy like this reporting financial news? Next thing you know, Yahoo will have Henry Blodgett reporting financial news for Yahoo!!! Oh....wait....Blodgett IS reporting financial news for Yahoo. Think about that for a minute: Here's a guy who can't work in the brokerage industry because he lied about his analysis.....but now people are expected to trust him because he is "reporting" on an industry he helped to corrupt. I think Yahoo got EXACTLY what they deserved when they hired Henry.

3) Abby Joseph Cohen will actually be CALLING for a bottom in the fall/early winter of 2009. Of course....this will be AFTER the trading floor at Goldman Slacks has gone "all in" on the long side. There's no conflict of interest there.......right?...lol

4) Maria Bartaroma will STILL be throwing slow ball pitches to Abby on CNBC, instead of doing a REAL interview. Next..........maybe Abby will try "T Ball".

5) Charlie Gasparino will STILL not allow anyone to speak without stepping all over the interviewee's statements. I want one of Charlie's interviewees to tell him to shut up in 2009.

6) CNBC will still be looking for ratings rather than good reporting. As long as ratings are good.....that is all that matters.

NASDAQ...BKX....TRANSPORTS.....US Dollar...

All in all....things look very bearish. Everyone and their cat are calling for a bounce in January and February. They must have long positions they want to exit.........'cause everything I look at tells me the market is continuing lower. I turned short term bearish at NASDAQ 1,600....and now I'm MORE bearish short term.

You have hedge funds who want out of the market so bad they can taste it. You have companies cancelling their 401(k) matching portions. You have hedge fund investors that no longer trust their hedge funds. You have companies that continue to cancel their stock buy backs. And you have companies who continue to cut dividends. None of those things are good for the markets.

NASDAQ: Bearish wedge breaking down.

VIX: Possible Bullish Wedge on the VIX, which is BEARISH for the market. Watch this closely.

Apple: Bear flag breakdown. $80 looks like it is the next support area that will be breached to the down side. MSFT looks bad as well........looks like triangle breaking down.

BKX (Banking Index): Triangle breaking down.

Citigroup: $6 looks to be important support. Citi reports on January 22nd....I expect Citigroup to head near or below its earlier low of $3.

Goldman Sachs: Still in triangle.....but moving right out to the apex. I expect it to follow the BKX down.

Transports: Right out to the absolute apex of the traingle.

US Dollar: Watching this chart on the dollar. If it continues to rise UP in the "channel"....then commodities will likely continue their decline. The effect of the dollar on the overall market is NOT as clear......unless the dollar absolutely goes to hell in a hand basket and were to drop down significantly.

National Association Of Realtors Chart....

Here's a chart of home sales by region. It's a very informative chart......and shows monthly sales for the last year (and annual sales for prior years).

As you can see.......this month it fell off a cliff. Not surprising with everything that is going on......and the seasonality factor. But the numbers are pretty darn glum. Sales were down over 8% in just October alone.

The thing that pops out to me is the inventory. Even though sales are at multi-decade lows......inventory is STILL over 11 months. And almost 45% of sales NATIONALLY......are disctressed properties.

Obviously, there is more pain to endure in the economy........and specifically in housing. Over the last 5 months (since June of this year) the average sales price of a home has dropped from $215,100 to $181,300 (about 17%). I doubt that this steep of a decline could continue.....but IF it did.....we're talking about a drop of almost $7,000 per month in the average sales price PER MONTH over the last 5 months.
THAT.....is a nasty decline.

There are two problems embedded in this: (1) as prices continue to decline, more people are "under water" on their home and may "walk away", (2) unemployment will continue to rise....your guess is as good as mine.....but I have to think that we'll see 9 - 10%. THAT...will also lead to more foreclosures. I'm NOT calling for Armageddon......just pointing out the obvious.

Things To Watch Short Term....

1) BKX: Looks like this is just barely starting to "crack" its bottom trend line. I expect this to push through its bottom trend line and eventually get to new lows. But watch this CLOSELY. Citibank, Goldman, and Morgan Stanley are important pieces of this puzzle.

2) Transports: Still within its triangle. If you look at the railroad index and the trucking index, you'll see that they are also inside a triangle and almost at the "apex" (small end) of the triangle.....just as the transports are.

The fact that the transports are dropping.......especially the truckers......as the cost of oil is dropping, is certainly NOT a good thing. Other things being equal.....the drop in oil should be GREAT for the truckers.

3) NASDAQ: The NASDAQ daily chart is also in a bearish wedge.....just as the 60 minute chart is. On the daily chart.....it is just now pushing through the bottom of the wedge. If the 1,500 level on the NASDAQ breaks, that may bring in more "technical" sellers.

4) Volume: Expect volume to CONTINUE TO DRY UP. And this will go for 2009 as well. Volume will continue to dry up as more hedge funds go out of business.........and as de-leveraging continues. I certainly DON'T foresee many "high volume" days over the coming months. If the markets continue "south" (as I believe).....I think it will be on fairly light volume.

Abby Does Wall Street: Rated 6XX.......

....coming to a theatre near you!! No....this is NOT the sequel to "Debbie Does Dallas." This is the S&P heading to 6XX in the short/intermediate term.

I hope you DID read the article by Michael Lewis titled "The End" that I gave you the link to. It gives you more of an "inside view" of how Wall Street works. It is important to understand WHO gets their bread buttered and HOW it gets buttered.........and that Wall Street is VERY "conflicted" in the way that it does business. VERY CONFLICTED. If you understand that.....then you realize that you can't trust a WORD most of them say (there ARE token honest people.........one that I know personally.......but almost all of them are conflicted).

That's why I enjoy giving Abby such a bad time. I KNOW she is doing one of 3 things: (1) making absolutely idiotic market calls because she is ignorant, (2) she just blows a lot of calls, or (3) she is pumping the public in order to gain advantage for the trading desk of Goldman Slacks. I'll let YOU decide which one is more likely.

The sad fact is........Wall Street in it's current form.....does a HORRIBLE JOB of allocating capital. It doesn't have to be that way, but when a group of people are greedy......that's what usually happens. But as long as you KNOW how the game is played.....then you can protect yourself, and profit from the game. AND....you can also let OTHER PEOPLE know how the game is played.......AND......by giving other people an understanding........the rules of the game MAY be changed in the future (hey......it could happen:).......it's just going to take a while......and a lot more prison sentences:).

Do You Hear That "Cracking" Sound????

That is the market starting to crack.

DUG is continuing its move UP out of its BULLISH WEDGE (contra oil play). The NASDAQ is breaking DOWN through its BEARISH WEDGE. I expect the triangles in the transports and banks to break down as well.

And the best sign of all.......Larry "the idiot" Kudlow is bullish. STILL. He was bullish (and wrong) at DOW 14,000. He missed the housing market meltdown. He may as well be consistant and be wrong again. It's not like he is paid to be right (as in CORRECT). He would be broke if he was paid to be correct.

2009 Earnings Estimates...

They continue to come down. Analysts are now STARTING their "race to the bottom." I saw my first earnings estimate at $45 a share for the S&P in 2009. It's just a matter of time till the market heads for its next leg down. An earnings multiple of 10 on $45 gets you BELOW my initial target of 490 on the S&P. A multiple of 8 gets you to 360.

Toyota announced this weekend that it lowered its outlook for the second time in 7 weeks. Here's that link.

ABSOLUTE MUST READ......

As an investor.....this article I will link you to, is a MUST READ. If you read no other article the rest of your investing life.......READ THIS ONE. The article is a recent article (December of 2008....two weeks ago) by Michael Lewis, and one time analyst on Wall Street in the late 1980's.

But don't just "read it." Read it slowly. Absorb it. Live it. Understand it. Think about it as you read it. Prop your feet up and grab a glass of wine or a cup of hot chocolate.

Enjoy AND learn from this article.

Balance Sheet.....vs.....Income Statement

When you analyze a company.....you should always start with the balance sheet. If the balance sheet is good.....then you move on to analyze the income statement.

Fiasco's such as Worldcom, Enron, and others......were figured out by "those in the know" by looking at their balance sheet....and finding some shortcomings. You can hide things on the balance sheet for a while.......but eventually it has to be "flushed" through the income statement and then back to "retained earnings" on the balance sheet.

Citigroup.......continues to have balance sheet problems.....as do many other banks. Until those problems get flushed through the income statement........they will continue to be hindered.

The "balance sheet issue" is also why the American consumer is "tapped out." Too much debt.....in a time of declining asset prices. THAT....is not a good combination. The American consumer doesn't have the CAPACITY to spend. They are carrying too much debt on the individual balance sheet. That debt has to go away.......one way or the other. Some of that debt will continue to be wiped out as homes and other assets are foreclosed on. Some of that debt will be paid down. Just be aware that this is going to be a painful process that will likely take years to correct.

UGLY California Housing Numbers Getting WORSE

Here's some more ugly California housing numbers. A PART of it is likely seasonality....but part of it is not. Housing sales were down 24% in November..........compared to October. The freeze in the economy in September and October is coming home to roost in many ways.

Californian is really in a straight jacket. Their housing costs had really been ridiculous for many years.....if not decades. I always wondered how blue collar workers could afford a house in many parts of the state. What didn't seem reasonable to me........WASN'T REASONABLE. Many companies have moved out of the state over the years because of the high housing costs...and other reasons. Now those housing costs are correcting in a HUGE way.

Debt-To-Service Ratio...

Here's a scary look at the "debt to service" ratio since 1980. The household debt service ratio (DSR) is an estimate of the ratio of debt payments to disposable personal income. Debt payments consist of the estimated required payments on outstanding mortgage and consumer debt.

I think this chart shows you why any REAL long term improvement in the economy is quite a ways off. As you can see.......many people have dug a REAL hole for themselves using too much debt. This is likely to put the "kabash" on consumer spending for some time to come.

The debt to service ratio is 14 right now. In the early 80's.....it was about 10.5.......or about 30% less than it is now.

Next 5 - 10 Trading Days....

Here's what I am watching:

1) Banking Index (BKX):

Again....this looks to be a "bear flag" within a larger triangle. Respect both trend lines....but realize that triangles USUALLY are a continuation pattern.

Also.....as noted before.....Citigroup, Goldman, and Morgan Stanley's chart do NOT look healthy as well......especially Citigroup. Citigroup is $1 away from key support at $6.

Fundamentally......you had three significant items late in the week: (1) Treasury Secretary Paulson came out and said they would need to access the second tranche of the TARP money BEFORE Obama took office and use it for the banks. (2) Paulson said this a day AFTER former fed chief Greenspan came out and said the banks needed to be better capitalized. (3) the feds came out and said they would conduct CLOSER OVERSIGHT OF CITIGROUP. The "roach theory" says that Citigroup is still in trouble.

Reading between the lines: The banks are STILL IN TROUBLE. Citigroup is likely at the head of that list.

2) Transports: Here is the railroad index. Here is the trucking index. Here is the delivery service index (UPS...Fed Ex....etcs.). Here is a long term chart of the transports....which is my LONG TERM worry. It's oversold in the short term. But long term....it is NOT telling me a good story.

3) US Dollar: The equity market has NOT performed well when the dollar rose.....and commodities also tanked as well. Will be watching to see if the dollar takes a leg UP.......and commodities and the equities start another leg down.

I think the above 3 items are KEY in the short term.......the Dollar, Transports, and the Banks. If the transports and banks head south for another leg down.....then the market will follow. If they are able to break UP out of their triangles....then the market can rally some more.

Below is the post from ECRI's most recent weekly leading indicators released this am. Please note that the title and body are word for word......cut and paste. Here's the link.

It is important to note that ECRI is an ECONOMIC FORECASTING FIRM......NOT.....a STOCK MARKET FORECASTING FIRM. The stock market will likely start up, BEFORE ECRI's "leading indicators" bottom out. Having said that.....ECRI expects the downturn to get significantly worse. This shouldn't be a surprise to anyone. Lending is still anemic......credit is still tight.....and people are changing their buying habits. Throw in a stock scam or two, hedge fund redemption's continuing......and voila.....the market heads lower.

Just don't EVER get yourself into such a negative frame of mind about the economy......that it impacts your stock market decisions. Those are TWO VERY DIFFERENT ITEMS. You WANT TO BUY......when there is "blood in the streets." The question is: How much MORE BLOOD IS TO COME.

Here's a cut and paste of the whole article from ECRI.
=====================================================

U.S. Recession Set to Worsen Significantly
Reuters December 19, 2008

(Reuters) - A measure of future economic growth in the United States and its annualized growth rate inched up in the latest week, but are still showing a dark outlook for the U.S. economy, a research group said on Friday.

The Economic Cycle Research Institute, a New York-based independent forecasting group, said its Weekly Leading Index rose in the week ending December 12 to 106.2 from 105.6 in the previous week, which was revised from 106.9.The index rose due to higher stock prices and lower interest rates, and the gain was partly offset by weaker housing, according to ECRI data.The index's annualized growth rate edged up to negative 30 percent from an also revised minus 30.3 percent, initially reported at minus 29 percent.

"With WLI growth hovering near last week's all-time low, the U.S. recession is set to worsen significantly in the coming months," said Lakshman Achuthan, managing director at ECRI.

The Fat Lady Is Humming.....

She's warming up.....and has touched the lower trend line 4 times. Here's the 60 minute chart of the NASDAQ.

It's just a matter of time......and not much at that. I see that CNBC had on Barton Biggs yesterday, and he was "pounding the table" and claiming that the market was still in the midst of a 40% rally off the bottom. He must want out of his long positions.

Here's Morgan Stanley. Ready to roll over. Here's Goldman Sachs. Here's Citibank. Here's the banking index. Is it any wonder that the banking index looks weak? I expect all of these to break DOWN.

FIFO.....LIFO.....or.......FILO...

In accounting.....there are many different inventory valuation methods. Last-in-first-out is referred to as LIFO. First-in-first-out is referred to as FIFO.

Many "experts" (those people who are further than 100 miles from their home:) have said that the US will be the FIRST out of the recession........because we were the first in.

I have a different take on this. I happen to think that the US will be the LAST OUT......in other words.....FILO (first-in-last-out:).

There are THREE reasons for this:

1) We have the biggest piece of the mortgage mess. Other countries DO have their own mortgage issues (and yes....we shipped them SOME of our mess).....and housing bubbles......but ours was the largest, and we have more of the sub-prime mess right here at home, not to mention the "alt A" mess and "prime" mess that will be coming ashore in the coming years. The bubble we created will be with us for quite some time.

2) We have a larger portion of money tied up in hedge funds.....and they are going to continue to de-leverage, implode, and "go to hedge fund heaven."

3) More and more money will be heading to "emerging markets" over the coming years. These "emerging markets" have MUCH MORE GROWTH ahead of them than we have.

Triangles....And Jobless Report...

There are a LOT of "triangles" on the daily charts as of the close of trade yesterday. Today's news will likely push the markets out of those triangles.....and likely "set" the trading direction for the remaining two weeks of this year.

NASDAQ is still within its "bearish wedge" with support at 1,480ish today......and resistance at 1,680ish.

Everyone is looking for awful news these days.....so if jobless claims are CLOSE to expectations.....then the market could trade up in the short term. Of course, if it is ABSOLUTELY HORRIBLE....then it could break down. Respect BOTH trend lines on the triangles (BKX & Transports). MSFT is also setting up in a triangle and will break one way or the other.

RIMM reports today.

One thing I DON'T expect for the remainder of this month.....is a BIG BREAK in EITHER direction. If it breaks.....its probably a slow break. Trading is light...........

Economic Reminder....

Many people are comparing the current recession to the recession in the early 1980's which was the worst recession since WWII.

Keep in mind the following items:

1) Unemployment in the early '80's topped out at 10.8%, and GDP dropped 3.4%. Right now....we're only at 6.7% unemployment. Quite frankly....nobody knows where or when we will top out....but I have to believe it may be north of 12%.

2) According to the ECRI, the current drop-off in it's weekly leading indicators has been the steepest since it began in 1949. MUCH steeper than 1982.

3) In the early 1980's, the credit bubble WAS ONLY STARTING. Now....we're trying to unwind 25 years of that bubble.

4) In addition....we are also unwinding the housing bubble. We built enough homes in 2002 - 2006 for the next decade. Now....we need to sit by as prices continue to drop.

5) Even Abby Joseph Cohen......who has some of the rosiest glasses in town, thinks that earnings for the S&P 500 in 2009 will be $55. Put an 8 or 10 multiple on that.....and you get around 500 on the S&P. My earnings estimates for 2009 have been $60 for the past several months. But quite frankly....nobody knows....and they are likely to be lower, rather than higher.

I'm NOT trying to be a "half glass full" kind of guy......but just looking at the truth. Just keep those items in mind as we go forward.

But also remember that the market rises and falls based on MONEY MOVING INTO AND OUT OF THE MARKET......NOT the economic news.

Transports.....Same As Banking Index...

Here's the transports. Same as banking index. LIKELIHOOD is that these triangles break DOWN.

Watch the transports and banks CLOSELY. Obviously.....those two sectors are VERY IMPORTANT to the market. If jobless claims come in VERY WEAK.....these two could take the market down.

Here's The Banking Index....

Here's the BKX. Need to watch BOTH trend lines for a break.......SOON.

Negative Divergence Creeping In On 60 Min NASDAQ

Here's the 60 minute chart of the NAZ. Negative divergence looks to be creeping in on the SHORT TERM.

A Couple More Things To Note....

First.....NOBODY.......and I mean NOBODY....."knows" when a long term bottom is in (and that ABSOLUTELY includes me). NOBODY. The DOW was 1,000 in 1966........and it was 1,000 in 1982. How many "bottoms" do you think were called along the way?

Second....here is a chart of 2000 - 2003. How many "bottoms" do you think were called along the way?

Charts To Watch....

Here are some of the DAILY charts I am watching. These are also on the front page of my blog.....on the right hand side under "charts".

S&P The real "battlefield" is the 820 - 920 area. Note the bearish wedge. Also note that yesterdays high near the close.....could have been a "test" of the break DOWN of the bearish wedge. This is a critical chart to watch.....

NASDAQ The bearish wedge on the NASDAQ is somewhat different than on the S&P. There has been no break DOWN from the wedge on the NASDAQ as yet.....it is still operating WITHIN the wedge. The wedge is between 1,525 and 1,640 today. The 1,400ish level appears to be a "critical" level if the wedge gives way.

US Dollar The important thing to watch with the dollar over the coming weeks is this: Will it "hold up" and not......as they say in the mens locker room.....go in the "shitter". I am CERTAINLY no "forex" expert....AT ALL. But if the dollar heads to the basement (as some conclude it will).....then Houston.....we've got problems. I'm certainly NOT making a call one way or the other on the dollar. Long term....we have some issues with the dollar (social security.....our deficit are .....etc.). But if the dollar falls apart.....and heads to new "Armageddon like" outcomes such as $50 - $60.......then the equity market WILL have some real issues.

West Texas Crude Here's the oil chart. You can see a nice long channel that has been in place for the last few months. Also note that there is some strong positive divergence in place on both the MACD and RSI which may bode for crude breaking UP in the near term.

Silver Here's silver. You can see that it broke UP out of a consolidation pattern. Got to watch this closely along with the US Dollar. These two charts are CRUCIAL.

Rent Only.......

And I'm talking about stocks. This is NOT a time to "own" stocks for any length of time. If you want to "rent stocks" for a trade.....great. But NOT a time to own for any period of time.

Yesterday the markets "saved" themselves. The rest of the year the market could indeed float north.....but this is NOT a time to be in risky assets for a long period of time. The NASDAQ is within its bullish wedge.

The commodities trade may have some legs as long as the dollar drops. The concern: What happens if the dollar KEEPS on dropping. Something to watch. My "call" on the dollar was that it may find an intermediate bottom at the $80 - $82 level and then bounce for "leg 5". After the feds opened the helicopter doors today........that call doesn't look like it is going to happen.

I would truly HATE for Peter Schiff to be right about the outcome of "all of this." So far.....he has been right with the exception of gold pulling back. As some of you know.....he is calling for the dollar to head for the basement, as precious metals rise to new highs.

"60 Minutes" Piece On Housing Market (CBS)

Here's the link from last nights "60 Minutes" on CBS that discusses the housing market and a little bit of the commercial real estate market.

If you missed it last night.....this is definitely a "good watch."

Some Canary's In The Coal Mine.....

I've mentioned this before, but I like to watch for some "canary's in the coal mine." Not ALL stocks bottom at once...........whether we're talking about intermediate term bottoms....or long term bottoms. But "most" of the bottom AROUND the same time.

My "canary's" are still flying high.....and THAT is NOT a good thing if you are bullish.

Here are some of my canary's:

1) CRM....this is my favorite, because this is my "high flying canary." Down near $20 on the late November swoon (you did know that canary's swoon?)......this bird was able to pick itself up and gain some altitude. Earnings estimates have come down a little over 20% over the last 3 months.....but they have further to drop. Still selling at 60 times January 2010 earnings........this bird has further SOUTH to go before he gets down to his appropriate perch. As much as Benioff trys to "preach" his stock up......you can only sell so much snake oil. Looking for CRM to hit $15 before it hits $40. Currently it sits at $30ish.

2) MSFT.....Mr. Softy is approaching $17.50ish (again). He has some support at the $13 - $15ish area from most of 1997. How's THAT for a "lost decade?" Running a philanthropy is sounding better and better for Bill Gates. I do expect MSFT to at least hit $15ish before all is said and done.

3) RIMM.....big gap at $30 and I have no doubt that this will be filled. It IS in a nice BULLISH wedge......so there could be some upside EVENTUALLY.

4) YHOO.....this bad boy is being held "up" by a possible....if not probable....MSFT acquisition. It continues to lose altitude on every metric.........so MSFT better hurry up and buy it before it fades further. No longer much of a "canary" because of the potential acquisition.......this puppy hit the $8's back in November......and if MSFT doesn't do SOMETHING with this......it is likely headed further south.

5) AMZN......I like this bird......but not at this price. Currently still selling at 30 times NEXT years earnings (which are falling faster than a bird in a hail storm).......this could have a nasty fall if earnings miss. Now selling at $49ish.....this bird could see the low $30's VERY easily. $25 is support from 2006.

I expect the upcoming earnings season to be a wild one.

Keep Your Eyes Open.....testing support.....

Market is "cracking".....TESTING SUPPORT......keep your eyes on it....

DUG in a BULLISH WEDGE....

Here is DUG using its daily candles. It's in a BULLISH WEDGE which usually breaks UP.

Must Read....ECRI

Take a look at the next-to-the-last graph on this link. This will give you an idea as to the DEPTH of current downturn as compared to other downturns since the early '70's. As you will see.....this is NO "garden variety" recession. Goldilox is on her back.

My real concern.....is that the "coincident indicators" on that graph (again....the graph that is second from the bottom of the page) has NOT moved down much. To me.....this means that it is going to get a LOT uglier in the months ahead as the "coincident indicators" catches up to the "leading indicators" on the chart. I don't believe the market is prepared....or priced....for the numbers ahead of us.

Unfortunately.....this goes along with what the charts LOOK to be "telling" me (this chart will likely only be available for 1 week from today through this link). Especially the monthly LONG TERM chart of the transports that I have shown several times (here it is again). NOT A BULLISH CHART. It "seems" to be telling me that transports are going to fall off a cliff. And this goes along with what commodities are telling us.

And this also goes along with what some of the "sentiment" is now showing. A market that is STILL MUCH TOO BULLISH........and THAT.....is very bearish. The intermediate term indicators that I monitor from Decisionpoint.com have turned too bullish.......and again that is a BEARISH indicator.

WATCH THE MARKETS CLOSELY. December is a time of LIGHT VOLUME and a lot of volatility. But the markets are LOOKING LIKE THEY ARE HANGING BY A THREAD.

US Dollar Chart...

Here's a 40 month daily chart of the US Dollar. Looks like we MIGHT be in leg 4 of 5. After this corrective leg down which might be close to ending, we may have one more leg up.

Note that lately the market has been WEAK when the dollar is rising, and the market has been stronger when the dollar has fallen.

Here's a chart of the NASDAQ on a daily basis. It could well have another leg up and could well go above 1,600.......and still be WITHIN a bearish wedge (on both the 60 minute charts and the daily charts like this). During December it is NOT uncommon to get a "light volume" updraft.

Economic Recessions Since 1948....

Here's a nice graph of recessions since 1948. If you click on the recession period (red bars).....you will notice each one has a "pop up box" that gives you some more information about that recession.

I will be putting something together later this weekend that "ties together" the recession vs the change in the stock market, and will make that available on my blog. But until then.....this is a good little chart.

60 Minute NASDAQ Chart....

Here is the chart of the NASDAQ using 60 minute candles. You can see that the NASDAQ is still "hanging in there" in its BEARISH wedge. The 1650ish level is now resistance.......and the 1,490ish is now support.

Watch the volume today for any "hints"....as well as watching the action during the last 2 hours.

Remember.....it's ALL about supply and demand for stock.....AND the "direction" of sentiment.

Do we have another bounce UP in the wedge BEFORE rolling over? Wish I had the answer to that one.....

ECRI Leading Indicators - Friday, Dec 12th

Here's this mornings ECRI weekly leading indicators. They should likely be renamed the "weakly" leading indicators instead of the "weekly" leading indicators.

They are at the cycle low.

Two Revealing Charts....

Couple revealing charts. NYSE Bullish Percent looks like it has put in a short term/intermediate term top. Treasuries.....the chart speaks for itself.


1) Treasuries:

2) NYSE Bullish Percent:

Gold.....Oil......US Dollar....

Looks like oils "bounce" is over. I expect oil AND the prescious metals to continue their decline.

Long term......here's a chart of gold. I think gold is heading lower over the intermediate term.

Long term......here's oil. Oil could also be heading lower if dollar rallies up towards $93ish.

Long term.......here's transports. This chart is the scarey one...

Long term.......here's the US Dollar. The dollar may still rally here...

Hedge Fund Collateral Damage....

I don't know how much, but the hedge funds are likely to receive some collateral damage from the blow up of the "Ponzi scheme" hedge fund.

Think about it: If you are an investor in hedge funds and you hear about the blow up in the hedge fund......you're going to be a little bit nervous.....and more likely to be asking for your money.

If you've already been "gated" by your hedge fund (or funds).....then you'll REALLY be nervous.

Going to be an interesting day........

Same Circus.....Different Clown:)

This is just what the market needed. The former head of the NASDAQ caught in a Ponzi scheme. This should help confidence in the markets:)

Dan Horwitz, Madoff's lawyer, told reporters outside a downtown Manhattan courtroom where he was charged, "Bernard Madoff is a longstanding leader in the financial services industry. We will fight to get through this unfortunate set of events." Do you think THAT is what his investors were saying? This was a $50 BILLION DOLLAR ponzi scheme.

A shaken Madoff stared at the ground as reporters peppered him with questions. He was released after posting a $10 million bond secured by his Manhattan apartment. All I have to say is he better get to trial SOON.....because the way housing prices are going, he' s going to have to pony up more money!!

Just think of all the people we could get together for a party in the same jail. Here are some of the other clowns in the circus:

1) Martha Stewart (she really should STILL be in prison)
2) Mark Cuban......it's just a matter of time.......see what too much ego does?
3) Dennis Koslowski (......WITHOUT the $600 shower curtain)....in prison
4) Bernie Madoff (former head of NASDAQ)....heading to prison
5) Bernie Ebbers (former head of Worldcom......"can you hear me now?")...in prison
6) Anthony Mazillo (former CEO of Countrywide)......but will he stay tan when he goes to prison?........heading to prison THAT IS FOR SURE.
7) Scott Sullivan (former CFO of Worldcom)....in prison
8) Richard Scrushy (former CEO of HealthSouth)....guilty in civil suit
9) The 5 Former CFO's of HealthSouth that testified against Scrushy (we wouldn't want Richard to get lonely:)....all of the 5 went to prison
10) Andy Fastow (Former Enron CFO)...in prison
11) Jeff Skilling (Former Enron CEO)....in prison
12) Sanjay Kumar (Former CEO of Computer Associates)....in prison....inventor of the 35 day month...
13) Greg Reyes (Former CEO of Brocade).....in prison
14) Albert Stanley (Former CEO of KBR Inc.....subsidiary of Halliburton)....in prison
15) Alfred Taubman (Former CEO of Sotheby's)....in prison
16) Joe Nacchio (Former Quest CEO)....in prison
17) Phillip Bennett (Former Refco CEO)....in prison
18) Kobi Alexander (Founder and former CEO of Comverse Technology)....fled the US with his whole family and his money to Namibia, Africa.
19) Bob Pittman (Former CEO of AOL)....should be in prison
20) Steve Case (Former CEO and founder of AOL)....likely should be in prison.....especially if you ask Ted Turner.

This is just the TIP OF THE ICEBERG. These are just some of the folks I was able to remember off the top of my head. A thorough listing would be incredibly long, and I have no doubt missed some of the "biggies." And just think.....this doesn't include MANY of the housing, mortgage, and finance CEO's who will be moving to "the big house" in the coming months and years (OK...so I jumped the gun on Anthony Mazillo........but I KNOW he's heading to the big house).

I'm so glad we have an "efficient market":)

Blagojevich And Ego.....

I have written a few times about ego and its effects on us.......from an investment standpoint, a business standpoint, a governmental standpoint, and a personal standpoint.

I think I can safely say, that Rod Blagojevich (the soon to be EX governor of Illinois) takes ego to a new high. Can you imagine.......here is a guy with a 12% approval rating in the state of Illinois for the poor job he has done as governor. TWELVE 12%. My dog could do better than that!!

So here's a guy with a 12% approval rating in his home state, and he ACTUALLY thinks that he can get Obama to appoint him to his cabinet......or as an ambassador.......AND......he also thinks he can run for president in 2016. What kind of weed did he smoke as a student? And is he STILL smoking it?

And what is it with our governors. I'm not exactly a big fan of Sarah Palin......in fact, I find it hard to imagine that anyone would vote for her. Can't we get better candidates for governor than someone like Blagojevich or Palin? Why can't we have a few more Arnold Schwarznager's in this country.

But getting back to Blagojevich......he went out of his way to "taunt" anyone who thought they might get him on tape saying something "illegal"........and he said "they can record all the conversations they want of me." And he said that.........the day BEFORE he was arrested. Ask....and you shall receive.

I mean.......talk about a case of "foot and mouth" disease. What a frigging idiot. But THAT is what ego can do to a person. Remember......we had a president who thought he could deny his way out of a "trist" with a young intern. Clinton thought that he could deny and lie his way out of it. Well........he DID get out of it, but certainly with a tarnished reputation.

Maybe Clinton's sucess at denying (remember.......he DIDN'T have sex with Monica.......he ONLY received a blow job:).......has created the "denial strategy" for ANYONE getting accused of anything. Just deny.......deny.......deny.

I have a feeling Blagojevich won't be so lucky.

The Hartford.....

This is what the CEO of The Hartford said this afternoon on CNBC:

"Even if the S&P were to go to 700....we would be very well capitalized."

Uh......Houston......I think we have a problem. What happens when the S&P goes towards 600? What happens if (I think WHEN) the S&P approaches 500 in 2009?

Houston.....I think they need to alter their re-entry path......or they will not make it through the atmosphere.

Watch The Bearish Wedge....

IF it breaks.....then its a slick ride south...... Here's the wedge again. We could also get a BOUNCE off of the bottom trend line which right now is about 1,480ish - 1,490ish. Intermediate term....this puppy is going to head SOUTH.

Rydex investors are WAY TOO BULLISH.......and that is BEARISH.

You can see the big caps implode today.......RIMM.....GOOG....etc.

So much for a "quiet remainder to the year." What kind of idiot would think we would have a quiet remainder of the year?....lol

Remainder Of The Year....

I wouldn't expect any major moves the rest of the year. It is much more likely that we are "rangebound" until the new year. This doesn't mean that individual stocks won't move......but rather I don't expect the overall market to move much in EITHER direction.

The three major indexes are WITHIN a "bearish wedge" that has formed over the past few weeks.....and I would not be surprised to see it stay WITHIN that wedge over the coming couple of weeks. This could also entail a slight up move. As of today, support on the bearish wedge is about 1,480ish......and resistance is 1,625ish. Here is the 60 minute NASDAQ chart.

Housing Information....

Here's another article regarding housing foreclosures. Foreclosures are down in the most recent month....but this is very likely the calm before the storm.

There are a couple reasons that foreclosures have slowed. First, Fannie Mae and Freddie Mac have implemented a recent "foreclosure moratoriums". This will, unfortunately, only delay the ultimate result. Also, California has implemented a moratorium on foreclosures as well. Again...delaying the ultimate outcome.

With unemployment on the rise.....foreclosures will continue up....likely into the summer.

Here's the article.

US Dollar Appears Key In Short Term....

1) Looks like the US Dollar is going to be the main driver of the market in the short term. During the last couple weeks, the dollar has weakened as the market AND oils/precious metals have strengthened.

We should find out in the short term whether this was just a pull back in the Dollar....or if it is heading lower.

2) Precious metals.....both gold and silver......have formed some "triangles" over the past several months. Triangles are USUALLY a continuation formation.....which would mean they would break to the downside. This would agree with some longer term charts which show that a move down to $500ish is POSSIBLE. BUT....watch the charts to tell you which way this is going to break.

3) It is interesting to note that the credit default swaps of Campbell Soup are rated ABOVE those of the US Treasury notes. THAT.....is just another "chink in the armor" of the US Dollar for the long term. Long term.....I see the dollar as heading lower EVENTUALLY. Short term and intermediate term it may head higher.....but EVENTUALLY.....I believe it WILL head lower. At that point.....precious metals will likely head higher.

Watch Weekly Jobless Claims....China Exports

1) Each Thursday morning (tomorrow).....the weekly jobless claims are announced. I don't even know WHY some people watch for the monthly number. They are based on DIFFERENT underlying data, but I know that Pimco's Paul McCulley watches the weekly number and ignores the monthly number. If that is good enough for him.......it is CERTAINLY good enough for me.

These will be "the numbers" that will eventually bring the market further south.

2) China exports decline month-over-month for first time since February of 2002. Also note, imports declined 17.9% from last year. Here's the link.

Bulls vs Bears.........

Here's a few BULLISH vs BEARISH items:

BULLISH:

1) Only 1 IPO since mid August. When "supply" comes onto the market, that is bearish.....so only having 1 IPO is a "good" thing if you are bullish.

2) We have come down a long way since October 2007. What can you say about this one? Well.....would you rather fall off of a balance beam that is 14 feet off the ground....OR....9 feet off the ground? Right now....we are 9 feet off the ground. The bad news........we still have 9 feet that we could fall.

3) Investors Sentiment Survey: There are only .47 bulls vs every 1.0 bear. In "normal times" this is VERY BULLISH. During a BULL market, a low of .47 would be a screaming buy opportunity. These.....are NOT normal times. Buyers are NOT pushing there way into this market. Right now.....we seem to have a lack of heavy selling....but no big buyers moving into this market right now.

BEARISH:

1) Credit markets: Still frozen up. I trust the credit markets WAY MORE than I trust the stock market. The credit markets have been right......the stock market was NOT right.

2) Rydex Cash Flow Ratio: They (individual investors) are STILL hanging on to their shares per the Rydex Cash Flow Ratio.

3) Intermediate term indicators that I monitor on Decisionpoint.com are turning bearish again.

4) Mortgage Applications: They fell more than 7% over the past week. New home mortgages fell more than 17%. Credit is tightening. Home prices have 10% - 20% more to fall over the coming year as unemployment rises.

5) Consumer loans/credit cards: Credit lines on consumers are being tightened. This tightening will continue to hit consumers....and ultimately, business.

6) Hedge Funds: Many hedge funds have "slowed" the redemption process by putting up "gates". This only slows the process.....they will ultimately have to cash out those redemption requests. I expect this to continue through Q1 of 2009 at least.

7) Earnings: Earnings expectations continue to slide south. Many months ago I said that earnings for 2009 would be approximately $60 for the S&P 500. More and more expectations are coming back towards the $60 area. They still have a ways to go....but they are getting there.

8) Deleveraging: Deleveraging continues......and this will pull asset prices south.....including housing.

Again.....I look for any rise in the markets over coming days/weeks to provide more shorting opportunities.

EWZ Forming Continuation Triangle....

EWZ (Brazil ETF) is forming a continuation triangle on the daily charts over the past month or so. Note.....oil (Petrobraus) comprises a large part of EWZ.....and I expect oil to go LOWER, and take EWZ with it. Silver and gold also continue south.

Also note, I think Doug Kass will be wheeled out in a wheel barrow before this bear market is over. Remember.....bad bear markets don't end when the bulls give up.........they end when the BEARS have gone bullish (too early).....and THEY get wheeled out.

Third World Country.....

Did you hear about the third world country in the news? Incredible stuff.......this is a list of some of the things that happened over the past few years in this poor, beleaguered, backwards country:

1) They had a politician that was "on the take" and he was caught with $90,000 of money in his freezer. The amazing part.........is that even though he had ALREADY BEEN INDICTED.....he ran for public office and received 47% of the vote. He BARELY LOST....even though he had been indited.

2) Another politician in the third world country without ethics, apparently had more than $200,000 of work done on his house.........that he didn't pay for. Oooooopppps. That politician was also indited BEFORE he ran for office, and even though he had been indited......he BARELY LOST.

3) The Secretary Of The Treasury of this small third world country, BEFORE he became secretary, was the head of an investment banking company. It turns out.....he was able to talk the SEC into allowing investment banks to leverage their money 40:1...........up from 12:1.

Well....that bet didn't pay off too well (except for the fact that when this guy was a CEO at the investment bank.....he received mega bonuses). The really funny part, is that the government of this country was sooooooo stupid, that the government hired him away from the investment bank in order to be the Secretary of the Treasury for this poor....stupid....third world country.

4) This country is SO STUPID......that they are even considering bailing out some car companies they have. These car companies are SOOOOO bad.....they are selling at ALL TIME LOWS that were set in the 1940's and 1950's. These car companies haven't been competitive from a cost standpoint for.............ever. But......just like the chip company that loses money on each chip.....I guess they think they can make it up in volume:)

5) Yet ANOTHER politician was just caught trying to "sell" a political seat for money. It turns out, the president-elect of this country had to vacate his senate seat because he was going to assume the office of president of this small, ignorant, backward country in a couple of months. The governor of one of the states.......since he was going to be the person who would appoint the replacement.........thought he should receive something for this......so he tried to bribe people for taking the Senate seat.

Of course......this small, backwards, ignorant country..........is us. Maybe its always been like this and I was too busy working and didn't see what was happening. Maybe......a lot this has ALWAYS been around, only we haven't been aware of it. But we have set a "bar" for politicians, business, and ourselves.................that is INCREDIBLY LOW............and many times we're STILL NOT ABLE TO GET OVER THE BAR. INCREDIBLE........

So the next time you hear the "risk" that is inherint in "emerging markets"...........DON'T BUY WHAT THEY ARE SELLING. The US has as much, if not more risk, than some of the "emerging markets."

NASDAQ 60 Minute Charts....Bearish Wedge

Watch the 60 minute charts on the NASDAQ. Looks like we have a possible BEARISH wedge. Resistance would be 1,600......support is 1,450 as of now. Keep in mind that both upper and lower trend lines are trending higher, so the market could push above 1,600 without "violating" the wedge. Watch it to see what develops.

Watch the US Dollar.....and oil as well. And keep in mind that in this "light trading".......the black box traders are the ones ruling the playing field.

Short term indicators are in the overbought area.......and more "intermediate term indicators" are moving towards the overbought area.

I changed the SHORT TERM outlook BACK to Bearish. I expect the bearish wedge to "give way" to lower prices.

Elliot Wave.....

There was an "Elliot Wave" guy on CNBC this morning. Now.....I'm NOT a "big" Elliot Wave guy by any means, even though I DO believe that ALL things in the world do ebb and flow in "cycles"....or waves (as did Fibonacci). That is pretty evident.

But the guy that was on CNBC was calling for the DOW to hit......3,000 at some point (I caught the interview after it started). But BEFORE you dismiss any talk of 3,000.......you need to think about what I had mentioned to you in a post several days ago about the Nikkei: The Japan Nikkei has dropped 80% from its record high WITHOUT GOING INTO A DEPRESSION.

The other reason that I even listened to this guy is also something I have mentioned a few times: The long term chart (monthly candles) of the transports LOOKS AWFUL and is in a HUGE BEARISH WEDGE that started in 1987. This is the one chart, as I have mentioned before......that sends chills up my spine. The "implications" of such a large wedge breaking down AND playing out.....are significant.

Again.....history teaches us that every 25 years or so the market HAS gotten "unrealistically" bearish in the extreme....and that is why PE ratios of 6 - 10 times have occur ed. That is NOT out of reach for this market.......even if we DON'T have a depression.

Psychology is a huge part of the market.......and just like it got WAY out of whack in 2000.....it can get way out of whack on the downside as well.

Just to be clear....I am NOT calling for Dow 3,000. I look for INTERMEDIATE TERM cycles....so looking out to Dow 3,000 is like looking to Dow 36,000 in 1999.

Just be aware.....for the long term......that markets can get pretty crazy. Just as we used to finance cars over 3 - 4 years.......and put 20% down on a house........we can return to those times, and it will be a painful adjustment for some.

Chip Bubble Keeps On Bursting.....

How big do you think the bubble in chips really was?



Intel chart



Texas Instruments



And just think........we're not even done bursting the chip bubble yet.........



YIIIIIIKKKKKKEEEEEEESSSSSSSSSS........

Gappy NASDAQ......

Here's the NASDAQ daily chart. You can see there are two rather nice "gaps" already during this rally. The market was very oversold....so it could still rally more. But intermediate term......I believe the market will be heading lower EVENTUALLY as the earnings outlook for 2009 will surprise many to the DOWN SIDE. More and more estimates are mentioning $50 - $60 as likely for the S&P 500.

Federal Express lowered their guidance for 2009 a bunch.....and Texas Instruments did the same. Watch the weekly jobless reports each Thursday morning over the coming weeks. I know.......some people are saying "the market is rising on bad news." BUNK. The market was rising because it ran out of sellers for the time being. After the market rises a little more.....then gets more bad news, then we'll see what the market is made of.

US Dollar: In a DEFLATIONARY environment, the US Dollar will remain strong........while commodities will drop.....along with equities. So keep your eyes peeled on the dollar.

Robert Shiller of Yale says that the housing market has another 10% - 20% to correct. That will, of course, be lousy for the housing market......and lousy for earnings......and keep us in this deflationary funk for a while. It won't help the banks any either.

You can't FORCE people to buy "things".....and that is the problem we are having to confront. Housing prices will continue to drop........so "I'll" wait. Big screen..........jobs are tight so "I'll" wait. New car? People are waiting there too.

Housing Information.....Good Read

Here's a great link to some timely and relevant information regarding housing as well as employment. There are some GREAT graphs of information that will "visually" give you a good information as to where we are right now......and where we might be going.

Not ALL the information is "bad." For instance.....affordability is rising.......as it should when prices drop. But I think affordability has a ways to "run" before it "bottoms out".

You can see by looking at the unemployment chart.....just how steep and QUICKLY unemployment has spiked. It is now higher than at the peak in 2003. I expect this to push up towards 9% by the end of 2009. Of course.....the equity market will move BEFORE employment improves.

If you want to compare that information with earlier quarters.....here's a couple reports from earlier in 2008....and one quarter in 2007.

Here's the same information for Q2 2008.

Here's the same information for Q 4 2007.

Short Term....Int Term.....Long Term...

Short Term: Neutral

Watch the 60 minute charts on the major indexes. The major indexes have nudged SLIGHTLY above their resistance trend lines on the bullish wedges. Keep in mind that we are in a SEVERE BEAR MARKET. This is NOT 1980 -1982. This is not the early '70's. A move up through the bullish wedge is NOT the same as a move through a bullish wedge in a BULL MARKET. The likelihood is GREAT that any breakout above the wedge....will ultimately fail....and fail in the not so distant future.......weeks, not months.

I'm changing to SHORT TERM NEUTRAL.....from BEARISH. I wouldn't read much into a rally from here....except that it sets up a better opportunity to short the market.

Here's a post from the ECRI regarding its most recent Weekly Leading Indicators released Friday. It did increase slightly for the first time since mid September, but I wouldn't give that much significance, as the move up was largely the result of a "bounce" in the stock market. Overall, the plunge continues in the economy, led by job losses and the floor falling out of the commodities market.

Intermediate Term & Long Term: BEARISH still....

A) CRB: Commodities CONTINUE their plunge. The CRB closed right near its low on Friday, continuing a PLUNGE for the last 6 months.

B) WTIC: West Texas Intermediate Crude continues its plunge as well. A sharp drop in both the Indian and China economies is playing havoc with lack of oil demand. Crude oil is down 25% in the first week of December ALONE. The $40 dollar level that I have talked about for many months is now upon us (MUCH earlier than I thought would happen). A break through $40 may ultimately lead to.......$20 in the months ahead. Remember.....oil was just over $10 in the late 1998.

C) Silver & Gold: I expect them to continue their journey south over both the intermediate and long term. The charts don't look good over those time frames. They will no doubt go the opposite direction of the US Dollar.

D) US Dollar: Got to continue to watch the dollar. I think everyone and their cat thinks the dollar will ultimate fall........which may be exactly WHY the dollar remains storong: Everyone who thinks the dollar is going to fall.....HAS ALREADY SOLD THEIR DOLLAR POSITION. If the dollar continues higher over the next few months......oil and other commodities are likely to continue their march south.

E) Don't look to 1987....or any other "recent period" for comparison on the "fundamental" front. In 1987.......in the early 1980's....and the early 1970's......we had MUCH HIGHER INTEREST RATES. We could pull interest rates down quite a bit to prime the pumps of business back then. Right now.....we don't have that luxury......we're getting close to the bottom. Remember....Japan has had interest rates as low as .5% (which is virtually zero) and they STILL can't get out of their own way.

As well......the early 1980's was THE START OF THE LEVERAGE BOOM. Now, we're on the "other side of the mountain" of the leverage cycle....and we will likely be de-leveraging for years. That the leverage boom AND the start of 401(k)'s kicked started the biggest super bull cycle in stocks in 80 years...should not be a surprise. Now we have to deal with being on the other side of that mountain........and ajusting to new realities......before we even think about another bull market starting.

In the intermediate term, I would look to January earnings announcements to be predictably poor with earnings guidance continuing to come down for the rest of 2009. That early-to-mid January period may push start the next leg down in the market. EVENTUALLY enough "down side" will be priced in........and it will be priced in months ahead of FUNDAMENTAL IMPROVEMENT. But I don't believe we are there yet.

Next Week.....

One way or the other......this market looks poised to break HARD. Watch BOTH support AND resistance.....and don't fight the tape.

Couple Things To Watch...

1) First.....all major indexes are STILL within their downward sloping "bullish wedges" on the 60 minute charts.

2) On the NASDAQ, WITHIN that bullish wedge......there is a "triangle" with "lower highs".....and "higher lows" on the 60 minute charts going back to November 21st low.
The trading range on the NASDAQ is now narrowed to between 1,400 support.....and 1,500 resistance. Triangles are generally CONTINUATION patterns, so the LIKLIHOOD is that it will break DOWN.

3) Volume today: ABSOLUTELY ABYSMAL. Outside of the 1/2 day on the last day of November.....this looks to be the LIGHTEST VOLUME DAY on the NASDAQ this year. There are still 2 hours left.....so anything could happen, but right now it is DEAD.

There are two possible "reads" from the lack of volume: (1) there aren't a lot of sellers.....so that could be bullish, (2) there aren't a lot of buyers and they are on the sidelines with their hands in their pockets.....which is bearish because if the market breaks DOWN.....there is no support.

The last hour should be fun. Let's see what the professional traders do during the last hour....

China Growth....

Here's an article regarding the slowdown in economic growth in China. So much for the "de-linking" myth. And here's just one key paragraph from that article:

The remarks came after officials in Shenzhen, one of China's largest manufacturing cities, admitted that 50,000 jobs had been destroyed and 682 factories shut this year. The actual figure is likely to be far higher. In the nearby city of Dongguan, local party boss Liu Zhigeng earlier last month accused the media of "exaggerating" the scale of business failures. On November 25, however, 500 laid-off workers from a toy firm in Dongguan owned by the Hong Kong-based Kader Group smashed windows and computers at the offices and clashed with 1,000 police officers.

This could REALLY push commodities further south. You'll want to watch commodities CLOSELY over the coming months. Commodities will be the FIRST to hit bottom and turn around because they are so PRICE SENSITIVE. It is also why I believe you should be watching silver closely over the coming weeks and months. EVENTUALLY......the cure for DEFLATION.....will be inflation.

CNBC Updated Bio's...

Larry Kudlow: Here's the latest picture we have of Larry.

Larry is a respected economist by.........let's see.......respected by........I'm sure he's got to be respected by somebody.............I know.....by Art Laffer. For those who actually INVEST based on Larry's economic forecasts.......here is where they can be found. Six feet under.

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Don Luskin: Here's the latest picture of Don Luskin. Yea....he's a "looker".

Don suffers from a SEVERE case of "foot and mouth disease" that he acquired when he had NO CLUE about the housing crisis........and NO CLUE that the economy was heading for the abyss. I just love the way he dismisses Peter Shiff in this clip from July 2007. Don is such an idiot.....and a pompous idiot to boot. His foot and mouth disease got so bad, they had to post this sign outside of Don's house. I know that Don is only a "contributor".....and does not work for CNBC. But he is wrong so much of the time.....I'm sure he has a future with them at some point.

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Bob Pasani: Here's Bob with the producers of CNBC as they try to schedule their next guest CEO at the top of their stock run. Let's see......we got Dryships pumping at the top......PMCS we nailed at the top......Arch Coal we got at the top.......Velaro we pumped at the top...... Who else can we get now?

Bob.....forever the optimist......is in this clip from February 2007. One minute and fifty-nine seconds into the clip, Bob shows a slide that has the following information:

THE GLOBAL BOGEYMAN

1) The meltdown in emerging markets
2) Derivatives collapse
3) Bursting of real estate bubble

Bob explains that the BEARS have been wrong on all three items. Oh Bob........open mouth......insert foot. In fact.....I think Bob inserted his whole body into his mouth on this one. He was OH so wrong. YIIIKKKKKKKKKKKEEEEEESSSSSSS.

What is even worse....is that Bob goes out of his way to point out the 3 things that we don't have in the housing market is: (a) the economy falls apart, (b) liquidity is withdrawn, (c) supply overwhelms demand. None.....he states.....has happened yet. Oh Bob.......oh Bob.......the kiss of death.

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What Financial Bubble?

Bubble? What bubble?

Citibank

Goldman Sacks

Bank Of America

More Wedgies.....For The Hedgies......

The hedge funds CONTINUE to have their panties in a wad. More and more of them are "postponing redemptions" because they are being overwhelmed by requests in this market.

Here are some links:

Fortress

Tudor Investment

Unfortunately, they will continue. This is much like the housing industry. In the housing industry, there are a lot of things that are being attempted in order to slow foreclosures. But the "wave" just keeps coming. In hedge fund land, it is somewhat the same thing. The hedge funds are trying to SLOW the redemption wave.......but any time the market rises.....hedge funds are taking chips off the table.

Going to be a rough month for anyone on the long side......

Deflation Clip.....

I've written about the deflation issue for a while now. Here is a clip from Nouriel Rabinni that discusses deflation.

The problem with deflation is that, it can......just like inflation, get in the "psyche" of individuals and they CONTINUE to "expect" lower and lower prices. So they keep waiting.....and waiting....
and waiting to buy "things." As they wait....the economy gets worse, and the prices drop more......so they wait some more.

Like all things in our economy....it ALWAYS comes back to supply and demand. The psychology affects the demand side of the equation.

Rydex Cash Flow Index: DEATH GRIP

Apparently the BULLS investing at Rydex (in their BULLISH funds) did NOT get the memo that economy is slowing down. They are STILL TOO BULLISH. They are going to take their BULLISH Rydex shares to their graves with them.

I have never seen anything like it. It appears that it will have to end in "puke" fashion. They just REFUSE to "let go."

Although....after the last 20 minutes......they may be getting clued in.

Remember the two signs of a bottom:

1) Maria Bartoromo starts talking like a chipmunk
2) You see bodies flying out of skyscrapers (those will be the Rydex Bulls)

NOTE: A WEEKLY CLOSE BELOW 8.000 on the DOW could "accelerate" the decline.

Just kidding about the two signs........kind of. Maria WILL be talking like a chipmunk when we get there:)

Brazil Information.....

Here's some information on Brazil that I came across recently. I've been looking at Brazil for possible future investments.....and this is just a starting point for some research. I am a strong believer that growth in Asia and South America will be significantly greater than in the US and Western Europe over the coming years and decades.

I don't know if I will be making any future investment in 3 weeks.....3 months....or 3 years. But this is just a starting point if you have some interest. Also note, that EWZ is an ETF way to play Brazil. It has been ABSOLUTELY HAMMERED over the past 5 months as commodities have been shredded. Commodities are an important EXPORT of Brazil.....but they have been increasing their manufacturing capabilities over the past several years.

There are several points of interest about Brazil as a future investment opportunity:

1) 5th largest country in the world on a land mass basis.
2) 5th largest country in the world on a population basis.
3) The difference between richest and poorest.....has been SHRINKING over recent years. THAT is a sign of an economy, and a country, that is growing in a healthy way.
4) They are self sufficient with their own oil. Petrobras is one of the largest oil companies in the world.....and they have significant new "finds" that are some of the largest EVER. They also produce a lot of Ethanol from sugar cane (NOTE: sugar cane ethanol is 7 times more efficient than corn ethanol......perhaps due to the sugar content).

Here's the link to a "slide show" that was dated as October, 2008. I do NOT know the person who prepared the slide show. Enjoy....

Also....here is a recent post about Brazil's slowing economy. It is NOT exempt from the slide............ Here's the link.

One Other Thing To Watch....

Watch the VIX. It has set up in a triangle. You have a HORIZONTAL LINE of resistance at 80.0ish. You have an UPWARD SLOPING support trend line that has support TODAY of 57ish.

There is a LOT of room between those two areas of support and resistance.

So.....two things I am watching closely today:

1) The bullish wedges in the NASDAQ, DOW, and S&P

2) VIX

If the markets move UP out of the wedges.....then I will turn neutral to SHORT TERM bullish.

Remember.....you HAVE TO UNDERSTAND that the SHORT TERM is being pushed by the "quant traders". So you CAN'T trade AGAINST that....you have to trade with it. And you have to understand that they are SHORT TERM TRADERS. WATCH 60 MINUTE CHARTS or shorter term charts and watch your bollinger bands......anything that pushes through your 60 minute bollinger bands needs to be closed out.

NASDAQ, DOW, and S&P Still Within Wedges...

Note.....the NASDAQ, S&P, and Dow Jones are STILL within their "bullish wedges" on their 60 minute candlestick charts over the past month.

Yesterday.....all of them closed JUST UNDER the downward sloping trend line.

Resistance (today):

NASDAQ 1,510ish
DOW 8,650ish
S&P 875ish

Support (today):

NASDAQ 1,250ish
DOW 7,300ish
S&P 710ish

Again.....I expect the S&P 500 to sell DOWN and into the 6XX's on the S&P before it finds a "hard bottom" to get a "real" bear market rally.

What Does PMCS, CSCO, Hovnanian, & Freeport......

.....have in common?

The CEO's had ABSOLUTELY NO IDEA that they were at a "top"....and heading down a long slide. ABSOLUTELY NONE.

In the case of Hovnanian.....he felt the home builders should be given a "20 PE" instead of a PE of 8. WRONG.

In the case of CSCO......John Chambers said in mid 2000 that he foresaw "40% annual growth" in the years ahead. WRONG.

In the case of Freeport McMoran (copper and gold), the CEO said 6 months ago that the demand from China and other emerging markets was as strong as ever. WRONG.

When you invest......you ABSOLUTELY CAN NOT LISTEN TO CEO's.......ANALYSTS.....and ECONOMISTS. You have to do your OWN legwork.....and let the technicals AND sentiment help you.

Remember the economist Brian Wesbury that CNBC used to trot out all the time? Back in February of this year he was saying that the Feds would soon have to RAISE interest rates because of the high growth he expected in the last part of 2008. WRONG. Here's a quote from his Wikipedia entry:

Brian Wesbury's optimism has been recorded through countless interviews and publishings, as in February of 2008, he stated in Human Events the country is not in a recession and people should be buying stocks because "the market basically today is priced for almost the end of the world."

They must have put Wesbury into quaranteen......because I haven't seen him on CNBC for at least a few months. Boy was he ABSOLUTELY WRONG.

And of course.....one of my favorite economists......Larry "Goldilox" Kudlow.....who was also bullish earlier this year. He, of course, missed BOTH recessions. He was bullish in 2000......and he was bullish in early 2008. ABSOLUTELY CLUELESS.

The market is heading lower. And the bozo's that CNBC parades out every day......with a very few exceptions (such as Nouriel Rabinni) are wrong.

The whiplashes in the market are caused by the "blackbox traders" at the "quant funds." You have to understand that they are trading ONLY off of VERY SHORT TERM supply/demand of the equity market.

CRM: Benioff Says "Merry Christmas To Me"

Benioff, CEO of CRM, should be giving the CRM investors a hearty "Merry Christmas" after 2 years of fleecing.

As I have said before, CRM has been one of my "canary's in the coal mine" during this bear market. It has been one of the most overpriced equity's in the market for quite some time. Partly....that is because it has a blowhard CEO that takes every opportunity to pump its stock. I think he must have gotten that trait from Larry Ellison from when Benioff worked for Oracle.

Although Benioff has been pumping his company.....he has been selling shares like a drunken sailor.......hand over fist. He has sold at least $301,729,488 worth of shares while pumping his company......from December 2006 - August of 2008.

So Benioff has sold almost $302,000,000 which is about 8 - 9% of the current market value of CRM ($3.5 billion as of today). That $302 million will likely be about 25% of the value of CRM when the stock bases at $10.

Here's a spreadsheet that shows Benioff's stock sales.

I expect CRM to sell down to the $10 - $15 level. It really is no more than a $10 stock. But Benioff has sold his shares anywhere from the high $30's to the low $70's. Good work if you can con unsuspecting investors into it.

It's NON-GAAP earnings over the last 4 quarters are (most recent quarter first): 8 cents, 8 cents, 8 cents, and 6 cents. Its analyst expectations are for 7 cents this quarter.....down from 8 cents last quarter.

So the growth over the last 3 quarters has been............ZIPPO. Hmmmmmmmmm.....that appears to be a problem with the stock selling for $29 and its GAAP earnings of 30 cents a share over the past year. That makes the PE ratio of almost 100 on trailing 1 year earnings.

Hmmmmmmmm......Houston......I think we have a problem. Now you know why this stock is heading towards $10.

Merry Christmas to all the long holders of CRM.

Silver & Nikkei

1) Silver: If you look at a LONG TERM MONTHLY CANDLESTICK chart of silver......it looks like the $5 - $6ish area MAY provide "support" for silver in the long term (going back to 1980).
It is forming a VERY LARGE BOWL over that time period. It is actually working on the right side of the "bowl".

2) Nikkei: The Nikkei has now retraced it bullish move from 1982 when it was at 7,500 up to its high of 39,000. It's low back in 1980 was 6,500ish. THAT would likely wash out any hope of ANY EQUITY HOLDER of Japanese equity's. And THAT.....is what you want to start a bull market.

Of course there is NEVER any way of "knowing" where the exact bottom will ACTUALLY be.......except for time and hindsight.

I would encourage you to take a look at BOTH of these LONG TERM MONTHLY charts going back to 1980.

Heading Towards 6XX's On S&P.....

More downside ahead in the SHORT TERM. Commodities heading lower........silver and oil included.

NO SIGNIFICANT PURCHASING IN THE EQUITY MARKET RIGHT NOW. Big boys are watching from the sidelines.

I expect the S&P to get INTO the 6XX's on our current move down. THAT.....should create a nice INTERMEDIATE TERM MOVE UP AFTER WE GET THERE.

Anyone who is looking for a LONGER TERM PLAY with what "I view" as a likely good entry point would be the following two areas:

1) Silver
2) Asian markets (via ETF's or ADR's)

Why?

1) Silver: A few reasons.....(a) They stopped making precious metals millions of years ago, (b) inflation will be the NEXT BATTLE.....after they slay deflation, (c) If gold and silver go up as I suspect they will.....silver will likely go up MORE than gold because right now silver is historically "cheap" relative to gold. If gold and silver move up, there will be more people who will "switch" to silver because gold is "too expensive" (ie silver jewelry instead of gold) as the price of all precious metals move up.

I was watching CNBC this morning (every once in a while they actually have guests that KNOW something instead of "pushing their book"). Jim Grant was on.....and he is CERTAINLY someone to listen to. His thesis is that cash and treasury's are quickly becoming the place NOT TO BE. In other words......there will be significant "risk" in cash and treasury's.

I agree. In the not-so-distant future......hard assets will be a MUCH better place to be invested.

2) Asia: Again......Asia will provide us with the most upside in equity's because of the law of large numbers. We in the US and Western Europe have already had our "hey day". The future in capitalism is in Asia and other emerging markets. The key is getting in at a good entry point.

No Volume.......

No volume in the markets. No conviction. No REAL buyers on the long side.......

Things To Note......

Keep these things "in mind" over the intermediate term and long term:

1) We WILL eventually get to a "significant intermediate term bottom" that we will bounce off of. Eventually. Trust me (said the blind man to his deaf son:).

2) At the "bottom" in late 2002 - March 2003 (double bottom).....don't forget that we had a couple of things that helped us off of that bottom: (a) We had the investment banks that TRIPLED their leverage (thanks to Hank Paulson and his other buddies at the investment banks), (b) We had the parabolic growth of money moving INTO hedge funds....at the big investment banks as well as other hedge funds (c) We had a housing bubble that went parabolic during 2002 - 2006 that artificially inflated the economy.

We don't have those three things working for us this time around. We're in a deleveraging environment. Now.....don't get me wrong.....the market WILL come back (at some point).....it just won't have "the juice" to punch up as high.....and as quickly.....as it did from early 2003 to late 2007.

3) Keeping my eyes on Asia. Long term.....Asia is where growth will occur. The Nikkei is in a "triangle" right now.....and may break down further from that triangle......but at SOME POINT it will be "washed out" for the long term.

At some point.....North Korea will crater......and the "walls" will come down. This would be good for both Japan AND South Korea (the Kospi).

Remember.......you want to buy things on the long side when things are REALLY.....REALLY....bad. So keep your eyes on the Asian markets over the coming weeks and months.......

Earnings Pre-announcements Already Starting.....

Earnings pre-announcements are getting an early start. SWKS (chip company) already announced tonight after the bell, lowering their guidance for their fourth quarter which doesn't end until December 31st. Expect to hear MORE pre-announcements, or "guiding down" of estimates over the remainder of this month. I believe some of the bigger banks have a "get together" of sorts in the next week or so.......I would expect them to guide down (GS, JPM, C, etc).

Silver is now in a very defined DOWNWARD SLOPING CHANNEL. Support trend line will be at about 7.50ish tomorrow.....and resistance at $10.20ish. Expect it to continue south as most asset classes continue to get beaten like a rented mule.

Intel is quickly closing in on its 2002 low of $12 (it also touched the low $12's last month). If that goes........next support isn't until $8ish which was its high back in...............1995. I DON'T expect that to happen......but in this market, anything is possible.

MSFT has its next support at $17ish......which was its low back in late 2000. After that....$15 is support.

GOOG.....continues its march down to $200. It looks to have a magnet on it.

With markets still weak.........year end tax loss selling may continue for 2 - 3 weeks. You have to be nimble in this market.

Transports....and Wedges

A) Many months ago.......perhaps almost a year ago, I posted regarding the "transportation average." The monthly chart has looked "ominous" for a very long time. It is a BEARISH WEDGE going back to 1987.

A little over a week ago, the DOW transportation average traded BELOW its "bottom rising trend line" in the bearish wedge. It pulled ABOVE IT before November ended.....but I don't think it will hold in the LONG TERM. Right now.....support is at about 3,100 - 3,150ish (depending on how THICK you draw your trend lines:).

Right now.....the transports are trading at 3,184.

B) The NASDAQ, S&P, and Dow Jones are ALL still WITHIN their "Bullish Wedges" that have formed over the past several months on their DAILY charts.

The bottom trend line of the bullish wedges are as follows (as of today):

1) NASDAQ: 1,250ish
2) S&P: 720ish
3) DOW: 7,300ish

C) Obviously, if the transports DO continue "south".....and STAY under its trend line......the major averages are LIKELY to follow. As well........IF the transports are able to rally....then the major averages could break UP through their bullish wedges in the INTERMEDIATE TERM.

Right now.....of course.....I am BEARISH on all three time frames (short, intermediate, and long).
When I see ENOUGH NEGATIVE SENTIMENT, then I'll turn bullish for the short and intermediate term......but NOT the long term.

Couple Notes.....Monday 9:05 am..

1) First, it looks like precious metals and oil are indeed dropping this am. So this will "allow" oil to "chase" the $40ish range, and for silver/gold to head back down.

2) Remember.....we STILL have a lot of "de-leveraging" to go. With de-leveraging.....comes deflation (or at least "disinflation"/dropping prices).

I am NOT a trained economist by any stretch of the imagination.....and when I use "deflation"....my definition is this: "Prices are falling BECAUSE of the continued EXPECTATION that GENERAL PRICES will continue to drop".

Note.....price DROPS are NOT necessarily deflation. Price drops can be a good thing that was caused by increased productivity. It is when the "public" KEEPS EXPECTING prices to drop.....and drop......and drop.......that we get into a deflationary spiral. In housing......that is part of the current reason for the drop in prices (imho). When house prices were going up in 2003 - 2006, everybody EXPECTED them to continue up.

3) I know that a lot of people are STILL expecting a "Santa Claus Rally".......and maybe we WILL get one. BUT....I DON'T think we will. I look for the NASDAQ to be weaker relative to the DOW and S&P over the coming weeks. The NASDAQ "MAY" head to new lows BEFORE year end. I don't expect the DOW and S&P to get to new lows, however....but they will definitely be lower.

4) Rydex Cash Flow Ratio is STILL not to "bearish" levels (this is a CONTRA indicator which means that when it gets REALLY BEARISH.....that is actually BULLISH........because the market has run out of sellers).