Joined Jan 1, 1970
509 Blog Posts

Comeback Time

In case you missed it, Red Sox Nation just witnessed one of the greatest comebacks in baseball post-season history as the Boston Red Sox came back from a 7 run deficit in three innings to beat the Tampa Gay Rays, 8 – 7. (Sorry Trader Caddy).

Talk about a shift in momentum.

Tomorrow, in honor of the “Sox comeback, I fully expect every Boston-based mutual fund manager to be buying stocks, thus instituting their own comeback in the market.

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A Puzzling Divergence

The S&P 500 is now down over 41% in the past 12 months, something that you’d expect from a bear market. But, with the housing market depressed, the nationalization of the mortgage market, the disappearance of the Wall Street titans and the insovlency of some of the largest banks, we are seeing anything but a typical bear market.

That said, the NYSE Bullish Percent is now at 18%! For those unfamiliar, the NYSE Bullish Percent is the measure of stocks trading on the NYSE that are on Point and Figure (PnF) buy signals.

Last Friday, it stood at 4%. No surprise, considering the market had sold off for eight straight days prior to.

It was at 12% after Monday’s close. Again, no big surprise. We had the highest single day point gain in the DJIA.

However, the sell off we saw on Wednesday didn’t disrupt the percentage of stocks that are on PnF buy signals to any significant extent. In fact, the Bullish Percent increased to 18%!

I would have thought that the reading would have come back down to below 10% again. This is an odd development and hard for me to grasp. In effect, a divergence.

Hmmmm……Food for thought. Perhaps it is time to expect the unexpected.

By the way, the following stocks had relative strength buy signals triggered on Wednesday:

General Mills, Inc. [[GIS]] , National City Corporation [[NCC]] , Regal Entertainment Group [[RGC]] , and Aqua America, Inc. [[WTR]] , in case you’re looking for long ideas in the midst of extreme weakness and negativity in the marketplace.

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Involuntary Liquidations

While the market decided to do it’s “cliff jumping thing” today, I spent this wonderful day on my 2007 income tax return. Former CPAs never, ever, file on time.

Just realize that we are seeing distressed selling, many times where whole portfolios of stocks and bonds are being liquidated to satisfy collateral provisions and capital commitments .

Blood is running in the streets. In effect, Americans are fast becoming indentured servants, complete with battle axes and maces.

When you have CEOs of companies having to sell their own company’s stock because of margin calls, then you know we have now come full circle in the world of financial fuckery.

This creates opportunity for those astute individuals with balls of steel (no offense to women), and deep pockets of cash. Is this the bottom? I don’t know. What I do know is that stocks have gotten cheaper than crippled monkey rentals at a circus. Yeah, it doesn’t make any sense, no?

Tomorrow, I will be nibbling, ever so slightly, again, on some blue chip names that are paying dividends.

General Electric Company [[GE]] , Intel Corporation [[INTC]] , [[MCD]] , Johnson & Johnson [[JNJ]] to be specific.

Christmas is approaching, so It’s also time to start compiling your wishlist of stocks. What is more fun than thinking about stocks that can go up, when you’re currently losing your ass in the market?

Given that we are in a recession that will only get worse, if you are one of the few that currently think that Hank and Ben have any idea of what they’re doing, and that things will get better, then start with the early cycle stocks in the technology and consumer sectors.

Granted, you will have lots of time to compile said list, since the economy, the market and corporate America is in a world of shit.

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Positive Divergences

Tonight, I’m focusing on some ETFs. The following are showing positive divergences that are worth noting. They either formed a higher bottom in October, than their July lows, or were just barely below the July lows.

These point out the areas where investors were reluctant to sell in a very bad washed-out market. The thought here is that these might be the sectors where investors return to with some confidence, in the future …..

Compare these charts to [[SPY]] , which far exceeded its July low :

All this coming from the most washed out market EVER since 1955, as measured by the NYSE Bullish Percent :

The reading hit a low of 4% bullish for one week, and actually had a 2.7% reading last Friday. Yes folks, the stock market almost went to zero.

Good night.

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Costanza Buy: URE @ $13.16 (14:48 ET)

I left the office earlier and just got back from an appointment. But before I left in such a hurry, my ADD kicked in, I got distracted, and I bought shares of [[URE]] , @ $13.16. Not a huge amount, but enough to matter (1%). I figure on holding it until things recover and the next sub-prime debacle rolls around, then sell it.

In my opinion, everything possible should be done to discourage people from using their homes as places of business, to ensure the survival of commercial real estate. Hopefully, commercial real estate won’t disappear off the face of the planet.

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Keep It Real

No doubt, yesterday’s rally was the result of an extremely OVERSOLD condition in the stock market. At one point, you could have taken your $3.99 Wal-Mart calculator and figured out that we were four standard deviations away from a median short-term price volatility. I had the luxury of having a research nerd do it for me, so don’t ask me about the calculation.

The market is damaged. I thought we would see a crash. Maybe we still may. Who knows.

However, if you were liquid on Friday or yesterday, you had to buy stocks at these levels, keeping in mind that buying stocks at these levels is a process, and not an event. Stocks are relatively attractive, and will be even more attractive if we dip down to 7300 Dow. Bear this in mind and don’t use up all your ammo here.

Currently, the NYSE Bullish Percent has now moved back up to over 12% from a low of 6% last week. In that respect, it appears that the sell-off has reversed for the moment.

If, you’re scared and thinking about getting out here because you already have taken 30% – 40% hits to your nether regions, it may be worth your time and money to stay with things over the near term, and ride this minor shift in sentiment, then get out once this faux rally fizzles out.

I’d view the current rally as a trader’s rally. I don’ see investors coming back in yet. They’re too scared, cowering in their corners, licking their wounds right now. Sitting in cash with 30% losses in one year makes them feel better, I guess.

The underlying fundamentals of the economy will continue to worsen. When the employment numbers and the ISM numbers stop going down, then the stage can be set for a sustained recovery in the market. (Remember, the consumer and his/her consumptive buying habits are over 70% of U.S. GDP). Until then, stay cautious and defensive.

Finally, the bullish analysts are still out there. Earnings growth expectations for 2009 are still in the double-digit range globally, except for the UK and Japan. Way too high still, imo. These eternal optimists need to be waylaid and put in the hospital to shut them up. They are not living in the real world.

Use this rally to do some trading / portfolio repair, but understand that the market is still in net redemption mode until expectations get lowered and the fundamentals of the global economy improve.

Let’s keep it real, people.

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