YAHOO BREAKOUT #1

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MARKET HITS FOR BLEIER:

Why has the stock market fallen and it can’t get up?

1. Pullback is a “P/E contracting event” as false and unrealistic growth disappears.
2. Not a fear market but a rational market, finally
3. Bank nightmare we cannot wake up from.
4. Government and consumer confidence is a “slave” to market action
5. Haven’t had a major Bear market since Paul Volker was FED Chairman. Gotta “eat our peas”. QE2’s gains will be erased.

How to “find your bottom” if you’re the stock market

Technically:
1. For over 2 decades, tops take forever to form and bottoms are found quickly. As the financial crisis works through the system, tops will happen quickly and bottoms will be a slow process.
2. Market leadership will finally get hammered as momentum works both ways.
3. The market has had low volume on up days and heavy volume on down days. That will reverse.
Fundamentally:
1. Bank and Sovereign debt must be restructured. Nicholas Brady anyone?
2. Interest rates must normalize, gold must drop and currencies must stabilize.
3. Rely less on the Magic Market Dust of liquidity and more on sector and company fundamentals

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Market Instability
P/E Contraction
No Free Money
Slow Motion Euro Meltdown
Earnings Peak
Political Freeze

Plus we’ve retraced a perfect 50% of the recent crashette.

Quantitative Easing is now been proven to be a dismal failure, yet the market waits for it. Boosting asset prices might have worked if they restructured the debt, but they did not. Now QE2 must be completely given back.

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I’ve got this nagging and uncomfortable feeling in the pit of my stomach today. Sure, I’ve been recommending and buying MMI since its break below 30. In fact, I bought it twice and lowered my average cost to the $26 area. Many of our subscribers have held the stock through its tumult, but I stopped out and some stopped out with me. And so now that Motorola goes to Google at a 55% markup, I feel a little sick. I followed my discipline and lost out. That happens sometimes.

Maybe that is why I am feeling suspicious of the markets sigh of relief and low volume recovery. The DXY is plunging today and we will have ZIRP forever, so banks and the entire market should bounce regardless of the flatness of the yield curve. Right? Right? Right?

My summertime target was a test of SPX 1200. We hit it and plunged 100 SPX points and then recovered most of that breakdown in less than an hour and a half. And just like that, the huge volume selling disappeared and is being called a selling climax. I disagree wholeheartedly.

We’ve made it back close to the SPX 1200 breakdown today and “everyone” is playing the snap back from one of the most oversold conditions in history. “Everyone” is happy to play the bounce, yet fully aware of the overhead resistance. “Everyone” is happy that markets appear to be back in the “Central Planned Computer Controlled Marketplace” headed by Dr. Bernanke.

But the warning cannon has been shot. Markets did not exhibit volatility, they exhibited instability. And that is a very dangerous phenomenon for markets. My suggestion is to be extraordinarily quick on the trigger if you are “playing the bounce” and watch the volume carefully. If it should appear to be heavy on the downside again, get out of Dodge quickly.

In hindsight, the S&P downgrade was clearly leaked well before the announcement. But nobody will go to jail. They will instead just re-buy what was sold at higher prices before the instability resumes. The race to the bottom of economic numbers is well underway and the march to Jackson Hole continues apace. If there is no QE3, I expect the lows of last week to be tested. In the meantime we could keep up the upward pressure into the SPX mid-1200’s.

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Impossibly tall and handsome. Dr. Fly & Mrs. Fly will eat your still beating heart as an appetizer should they be so inclined. At least one of their children is the Kwisatz Haderach:

Chess is the perfect gentleman in the old English sense. As we were whooping it up, he sat in the corner digesting the latest issue of “The Economist”. He sipped JW Blue Label.

Rajun Cajun is almost petite, yet a badass nonetheless. He drove on a vintage 1970’s Harley with his Pit Bull riding on the back. He hates having his picture taken.

Woodshedder is the the finest example of a Southern Gentlemen that you would ever meet. He is truly a Southern Man but he carries a Northern Brain. Here is is with his bro, Bo and his lovely wife:

Jeremy is a Programmers Programmer. He is being recruited by every internet company in NYC but Dr. Fly is holding his wife and kids hostage.

Cronkite is everything you’d expect a newsman to be. A hard-drinking, smoking, swearing WASP who doesn’t care how he gets the story.

ADDENDUM:

At the risk of revealing too much, let me set the record straight.

The Fly’s are perfect together. Young, genteel and elegant. NOT heart eating giants. She blushed when I said the word “Whole Foods”.

Chess is involved and passionate about what he does. He does though, read “The Economist”.

Rajun has a proper southern accent and is a huge man with broad market knowlege. We had to bring him four dinners.

Wood and his wife are about the nicest and loveliest people you would meet. Nothing redneck about them.

Jeremy really is a Programmer’s Programmer! I don’t know if he’s old enough to get a work permit.

Cronkite is as cool a dude as you’d ever meet and I didn’t hear one swear word…

Phil from StockTwits looks just like Chris Meloni in real life. He has certainly found his soulmate as far as I can tell.

And Chuck Bennet is a man of mystery. He knows everyone and has the city at his disposal. A good man to have on your side!

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After yesterday’s 72 minute 72 SPX point meltup, most investors breathed a huge sigh of relief. Doug Kass said that we’d seen the lows for the year and we all had a drink and a good nights sleep. But alas, relaxing was not meant to be for very long.

We came in today to see futures lower by a bit but as we got closer to the open, rumors of a French bank going under caused any bid to be withdrawn. We promptly, and to a good deal of surprise, gave back the entire 400 point gain in the first minutes of trading. We have not broken yesterday’s lows of DOW 10600, SPX 1101 and Nasdaq COMP 2333. But the drop is certainly disheartening.

We cointinue to bounce around, up 100, down 100, fueled by algo’s running wild. But on further and closer examination it appears now that we are past the “panic stage” stocks are walking themselves lower.

Our political unease, the worldwide banking crisis and the continuing weak economy are forcing equities through a “PE contracting event”. That simply means that every dollar of earnings is worth less to the earnings multiple. For example, if a stock should trade at a P/E of 12, after this adjustment, it will trade at a P/E of 10, with the exact same level of earnings. This is called a P/E contracting event and it happens when the growth environment come into question. It makes it hard to buy because nobody is yet sure what the “correct” multiple is for each dollar of earnings in this environment.

This is not a pleasant scenario for investors and it can be blamed on a variety of factors. But I’m not here to blame, rather to now help figure out when this phase ends. I know that we are all hoping for a return of the good times where everyone just bought the dip.  The bond market has already made its move to reflect this reality by taking interest rates to post-crash lows.  This is now a sea change of events for the stock market and is a difficult adjustment.

Look, reality is setting in quickly. Once QE2 is given back fully, the risk in the market will be lower. Until then we must continue to play defense.

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