Monday, February 23, 2009

Time for a Reversal!!!!!

It’s is interesting to notice the Chinese market is up 25% for the year while our markets are nearly down that much as both countries have huge stimulus packages. The pessimism in our country is at levels not seen since the 1973-4 recession. Can our markets get past the first 100 days of the Obama Administration without losing another 50%? The market will bottom this week. Dow 7145, Comp 1398 and SPX 741 will hold on a closing basis or may slightly be violated (3-5%). Next support is DOW 6,000 level, COMP 1295 and SPX 682. The ensuing rally could be up between 30-50% depending on the shorting and negativism at the higher levels. Longer term the market and our economic system are heading toward a disaster.

Our government wants to raise the value of housing in order to save the major asset of the people. Unfortunately in the long run housing could bring down the whole system if the government tries to manipulate it. Lower housing prices in free markets bring in new buyers that couldn’t afford the high prices. Higher housing prices forced by the government subsidies will keep housing prices stagnate for decades. It will cause the younger generation’s entry into a house harder to obtain. Even with lower house prices the affordability index is still 20-30% above its norm. As with most markets they tend to overshoot and undershoot when they crash. Housing will be no different.

There will be many stocks that go from $3 or $4 to $10-12 in the coming 3-5 months. It’s not saying much as they have come from the $30-$50 level. What makes me so bullish is not what’s happened but what’s going to happen in the coming months. The cost of money is zero to negative adjusted for inflation. Trillions of dollars around the world will hit the streets in the next few months. I wouldn’t be surprised to see the government buy S&P futures although they will never state they did buy or sell. The drop in oil prices will help stimulate the economy. The stock market looks forward not backward. Once the money grab peaks later in the year the realization of whom and how are we going to pay for it will mark the next leg of the secular bear market. The government will talk about fiscal responsibility on one side of their mouth while signing the check with the other. For now enjoy the rally. The old rule of never fight the FED still exists until proven otherwise. Look out your window not for Santa Claus, but Helicopter Ben Bernanke sending your tax dollars and future tax dollars floating in the air. The piƱata has been broken in Washington. Just be careful with the person holding the bat.

This rally will be broad based. Stick with ETF’s or a basket of 9-12 stocks. Keep your stops 15% below the market. Insurers will bounce back sharply as their balance sheet is full of financial assets. Retailers, healthcare, materials and infrastructure stocks should outperform.

Tuesday, February 17, 2009

Will The Retest of the Market Hold???

The market action since the November lows has been as boring as the government stimulus plan. Both lack substance. Seems that the government will take over the public‘s lack of using their credit cards by using the US treasury’s credit card. With the public now interested in something they haven’t done in years that is save(nothing wrong with that), our government has decided to do the opposite and will borrow a vast amount of money. Unfortunately, the government is the public so indirectly not only is the public borrowing more with Uncle Sam as the chief card holder, in the end we the public will end up paying for it. Who has a more efficient way of spending money, the individual or the government?

Not since the 1981-2 recession has the economy been so depressed. Downturns in the economy are healthy for the long run however the actions of our government have delayed the inevitable. WE need companies to file for chapter 11. The government has thrown billions of dollars to bail out companies that will fail. Citicorp and Bank of America are both insolvent if they had to market their portfolios to current market conditions. General Motors is another zero as their pension liability and cost structure point to an inevitable bankruptcy. If these companies would file as companies have done in other downturns the stock market would takeoff like a rocket. Right now none of these companies can find private capital as they worry about the chance of bankruptcy or the government diluting their equity. Once they file, private capital will enter the market. Private capital will be able to measure their risk of the new capital formation.

Signs of a temporary market bottom aren’t totally in place. Fundamentally the government needs to finalize the rules. Right now they keep changing the rules or have no plan. In the next few weeks details of the plan should emerge as well as the budget due on February 26th. It doesn’t matter if the plan doesn’t work in the long run. It’s amazing how the Obama administration is setting up the public by stating the economy will be much worse in the upcoming months and years. How about the current administration lowering expectations and killing economic sentiment while feeding the wave of negativism to the public as a dire consequence of the Bush administration’s policies of the past 8 years? Even in the depression our government didn’t talk this negative to the people. The action of a plan is what is missing. Once a plan of what the Obama administration entails on housing, autos and banking, companies can then plan their next move whether it’s pro or anti-growth. One thing for sure is Uncle Sam’s credit card will be very close to being maxed out in the next few years.

This economic downturn is not an ordinary one as will be this bear market. The market will have a strong bear market rally off this upcoming low that will last 3-5 months. Longer term there are too many negatives- aging work population, pension liability, budget deficit, government red tape and public debt that will keep this bear alive for years to come.

Technically, the Dow is knocking on the door at the lows set this past November. The S&P is farther away than the DOW, but the Nasdaq Composite is the farthest. The November lows intraday are DOW 7449, SPX 741 and Nasdaq 1295. Next support is 7150 from 1997 then around 6,000 and finally 5072 which I think will be the bear market low sometime in the next 12-18 months. The SPX has support once 741 is broken at 682 then 602 and finally the 500 area. The COMP is 1108 then 830 and finally 700 level.

A close above 8200 would be a bullish signal but the current decline might start from 7200 then run to 8200 before backing off. Most trades this year will be short term plays. Scale buy and scale sell keeping a rising stop.

Buy AKS $6-7.25 stop $4.75 target 10-12
ACH buy 10 ½ - 11 ¾ stop 9 ¾ target 16-18
DRYS buy $3.-4.50 stop $2.45 target $7-9
X buy 24-27 stop 21 target 35-38
AA buy $6.50-7.50 stop $4.75 target 9 ½-11
RVBD buy 8-9 ½ stop 7.30 target 12.75-14
FDX buy 48-51 stop 44 target 62-65
FWLT buy 19-21 stop 16.75 target 24-26
MA- buy 140-145 stop 125 target 165-175
V buy 48-51 stop 42 target 60-62
GOOG buy 320-332 stop 290 target 400
AAPL buy 80-82 stop 78 target 101
GS buy 72-76 stop 68 target 95-100
MS buy 17-19 stop 14.70 target 28-30
AXP buy 13-15 stop 11.75 target 18-20
TGT buy 28-30 stop 24 target 40-42
YRCW buy 2.80-3.50 stop 1.90 target 4.75-6
AMR buy 4.50-5 stop 3.75 target 7-9
GE buy 9-10 stop 8 target 12-13

The markets will bounce in the short term 3-5 months once clarity arrives in the banking, housing and auto sector. This could take a few weeks. If we get a bunch of bankruptcies along with a corporate tax cut the market will moon shot and the big bad bear market will end. Chances of this are slim as Obama is just redistributing the wealth from one hand to the other without adding much long term growth and investment. Review my last article about not letting anyone fail. The next big shoe to drop will be the dollar but not this quarter. Uncle Sam’s credit card will come due later in the year and next. The government can do any combination of 3 ways to pay off the credit cards - print more money, borrow the money or raise taxes. None of them are pro-growth or pro-bull market.