Gap to fill at 938
1/28/09
First red flag today
Day traders might want to bail on any new high today where the RSI on the 15 min doesn't confirm... This is a great move, especially on the Financials, FAS +30% today!!
1/27/09
SPX Ranges for Wednesday
Daily Technicals are turning up nicely... A close above 840... 855 is the next hurdle
Another day, another headfake open
847 high on SPX now 835
840 is proving to be tough res and a falling macd on the daily isn't helping although the daily PPO has been and is trending up
Somethings gonna give here soon
840 is proving to be tough res and a falling macd on the daily isn't helping although the daily PPO has been and is trending up
Somethings gonna give here soon
Spx 845
Breaking above our triangle on the 15 min chart
The UK and Japan are up huge on currency and short covering so we'll see how over extended they get. Bottom wedge on the FTSE is around 4,000 if you are waiting for the signal.
846 now
The UK and Japan are up huge on currency and short covering so we'll see how over extended they get. Bottom wedge on the FTSE is around 4,000 if you are waiting for the signal.
846 now
1/26/09
USO giving back gains
up only .9% and turned back at the upper trend line...watching to see if that old res becomes good support around $32 ish
USO Looking great
Broke res today if it holds and near downtrend line and possible breakout
+5% today
The DOW Calculations...FYI ( http://www.marketoracle.co.uk/Article8450.html )
What does it mean for Citigroup to be at $3? As it turns out, it distorts the information we think we are getting from the Dow Jones Industrial Index. And more TARP money is surely in our future, and far more than anyone in authority is now suggesting. This week's letter will cover both topics and a little more. I think you will find it interesting.
Mister Softee is Only Worth 136 Dow Points
Off and on over the years I have written about the distortions that the Dow Jones Industrials creates by using a price-based index rather than a market cap index. As an example, if Microsoft with a market cap of $153 billion went to a price of zero, all the Dow would lose would be 136 points, or less than 2%. If IBM with a market cap of $120 billion went to zero, the Dow would lose over 700 points! But it gets worse. David Kotok forwarded this note to me from our mutual friend Jim Bianco (www.biancoresearch.com), which Jim graciously allowed me to reproduce for your edification (prices quoted below are from a few days ago):
"Comment - The Dow Jones Industrial Average (DJIA) is a price-weighted index. The divisor for the DJIA is 7.964782. That means that every $1 a DJIA stock loses, the index loses 7.96 points, regardless of the company's market capitalization.
"Dow Jones, the keeper of the DJIA, has an unwritten rule that any DJIA stock that gets below $10 gets tossed out. As of last night's close (January 20), The DJIA had the following stocks less than $10 ...
Citi (C) = $2.80
GM (GM) = $3.50
B of A (BAC) = $5.10
Alcoa (AA) = $8.35
"If all four of these stocks went to zero on today's open, the DJIA would lose only 157.3 points.
"The financials in the DJIA are ...
Citi (C) = $2.80
B of A (BAC) = $5.10
Amex (AXP) = 15.60
JP Morgan (JPM) = $18.09
"If every financial stock in the DJIA went to zero on today's open, it would only lose 331.25 points, less than it lost yesterday (332.13 points).
"If you want to add GE into the financial sector, a debatable proposition, then: GE (GE) = $12.93
"If the four financial stocks above and GE opened at zero today, the DJIA would only lose 434.24 points.
"The reason the DJIA is outperforming on the downside is the index committee is not doing its job and replacing sub-$10 stocks, and the financials are so beaten up that they cannot push the index much lower.
"So what is driving the index? The highest-priced stocks:
IBM (IBM) = $81.98
Exxon (XOM) = $76.29
Chevron (CHV) = $68.31
P&G (PG) = $57.34
McDonalds (MCD) = $57.07
J&J (JNJ) = $56.75
3M (MMM) = $53.92
Wal-Mart (WMT) = $50.56
"For instance, if all the sub-$10 stocks listed above, all the financials listed above, and GE opened at zero, the DJIA loses 528.63 points. To repeat if C, BAC, GM, AA, JPM, AXP and GE all open at zero, the DJIA loses 528.63 points.
"If IBM opens at zero, it loses 652.95 points [IBM has risen since then – JM]. So, the DJIA says that IBM has more influence on the index than all the financials, autos, GE, and Alcoa combined.
"The DJIA is not normal as the index committee is not doing their job during this crisis, possibly because to the political fallout of kicking out a Citi or GM. As a result, this index is now severely distorted as it has a tiny weighting in financials and autos."
You could add Microsoft to the list Jim created and not be over where IBM is today in terms of the DJIA index.
Let's look at it another way. A 10% positive move for IBM would move the Dow up by over 60 points. A 10% move by Citigroup would increase the Dow by less than 3 points. Having stocks with low prices clearly prevents the Dow from declining as much as other market-cap-weighted indexes like the S&P 500.
Stocks for the Long Run and Other Myths
But there are other problems with using the Dow. Since 1871, real stock prices (after inflation) have grown at 2.48% while the economy grew at 3.45%. There is almost 1% of "slippage" between the growth of stocks and the economy. Bears could paint a bleaker picture by pointing out that much of the growth was from an increase in valuations. By that I mean, P/E ratios increased substantially. Investors were paying more for a dollar's worth of earnings. The market was valued at an average P/E of 12 (or 20 times dividends) for periods prior to the last bull market. The current valuation levels are still over 20, even after a nasty bear market. Almost 1% of the growth of the stock market over the past 130 years has been due to the recent bubble in prices.
Wait a minute, what about the studies which show the S&P 500 grew at almost 10% a year? Part of the answer is that these indexes include dividends, which averaged almost 5%. You also have inflation, which accounts for a great portion. And part of the answer is that the indexes do not reflect the actual results of the companies. If you measured the Dow or S&P by the companies that were in them in 1950, as an example, the growth would not have been as much. That is not to say the Dow should be fixed. They make the changes to reflect the broad economy, which is what the Dow and other indexes are supposed to do.
That is what makes index investing so attractive in bull markets, and why it is so hard for a mutual fund to beat an index. They keep adding fast-growing companies and getting rid of the dogs. As valuations increase, the funds become self-fulfilling prophecies. But they can have the opposite effect in a bear market, as we now experience.
Nash-Kelvinator, Studebaker, and Other US Giants
For instance, IBM and Coke were added to the Dow in 1932. Coke was dropped for National Steel three years later, and IBM was booted for United Aircraft in 1939. IBM was once again put in the Dow in 1979. Coke returned in 1987. National Steel has long since departed, as has Nash-Kelvinator, Studebaker (I learned to drive in a Studebaker), Woolworth's, and American Beet Sugar. Let's hear it for progress.
For those with no life, or the insatiably curious (I will leave it to you to decide in which category you and I are placed), you can go to http://www.djindexes.com.. and see the entire history of the Dow.
(As an aside, if anyone knows of a study which shows what $1,000 invested on October 1, 1928 [when the Dow was expanded to 30 stocks] on a buy and hold would have grown to by today, I would be interested in seeing the study.)
Clearly, buying the component stocks of the Dow and holding them for long periods would not have produced the same returns as the managed index. In fact, the returns would have been rather dismal.
I would invite readers to think about the implications of this for one moment. While today we might smirk at Nash-Kelvinator or Studebaker or American Beet Sugar, or any of the scores of firms that have been added and dropped from the Dow over the last 125 years, at one time they were considered worthy of inclusion in the most prestigious roll call of companies.
Proponents of buy and hold use indexes to support their claims of its effectiveness. Indexes, however, are not instruments of a strict buy and hold philosophy. They clearly buy and trade. For every GE – which was added to the Dow in 1896 and then dropped in 1898 for US Rubber, and added again in 1899, dropped in 1901, and added yet again in 1907 – there are scores of other firms which were once a part of the mighty Dow and have now faded into oblivion. None of the other companies from 1900 are names which are familiar to me, except as historical curiosities.
Fifteen of the Dow companies have been added since 1990. There are only six stocks still in the Dow that were there in 1940. IBM was dropped in 1939 and was not added back in until 1979. Many of the stocks that have been dropped have gone to zero. If I remember correctly, some 60% of the stocks in the S&P 500 have been replaced in a little over 30 years. In fact, many of the large market cap companies now in the index did not exist 30 years ago.
So, when you buy stocks "for the long run" you are buying stocks selected by a committee (the Dow) or because their market caps increased to a size where they were included (market-cap-weighted indexes). In a very real sense, the S&P 500 is a self-selective growth-stock index.
As an aside, Dow Jones & Co. has no plans to change the companies in its industrial average after four fell below $10 a share, said John Prestbo, executive director of indexes at the Wall Street Journal parent.
"Do I think the Dow is in need of adjustment? No, not at this moment," Prestbo said. "Those stocks have been in the Dow for a while, most of them, and I think changing horses right now would be the very distortion that some people complain about." (Bloomberg)
Prestbo has a tough job. As Jim notes, can you imagine the political fallout if the dropped Citigroup or GM right now?
Mister Softee is Only Worth 136 Dow Points
Off and on over the years I have written about the distortions that the Dow Jones Industrials creates by using a price-based index rather than a market cap index. As an example, if Microsoft with a market cap of $153 billion went to a price of zero, all the Dow would lose would be 136 points, or less than 2%. If IBM with a market cap of $120 billion went to zero, the Dow would lose over 700 points! But it gets worse. David Kotok forwarded this note to me from our mutual friend Jim Bianco (www.biancoresearch.com), which Jim graciously allowed me to reproduce for your edification (prices quoted below are from a few days ago):
"Comment - The Dow Jones Industrial Average (DJIA) is a price-weighted index. The divisor for the DJIA is 7.964782. That means that every $1 a DJIA stock loses, the index loses 7.96 points, regardless of the company's market capitalization.
"Dow Jones, the keeper of the DJIA, has an unwritten rule that any DJIA stock that gets below $10 gets tossed out. As of last night's close (January 20), The DJIA had the following stocks less than $10 ...
Citi (C) = $2.80
GM (GM) = $3.50
B of A (BAC) = $5.10
Alcoa (AA) = $8.35
"If all four of these stocks went to zero on today's open, the DJIA would lose only 157.3 points.
"The financials in the DJIA are ...
Citi (C) = $2.80
B of A (BAC) = $5.10
Amex (AXP) = 15.60
JP Morgan (JPM) = $18.09
"If every financial stock in the DJIA went to zero on today's open, it would only lose 331.25 points, less than it lost yesterday (332.13 points).
"If you want to add GE into the financial sector, a debatable proposition, then: GE (GE) = $12.93
"If the four financial stocks above and GE opened at zero today, the DJIA would only lose 434.24 points.
"The reason the DJIA is outperforming on the downside is the index committee is not doing its job and replacing sub-$10 stocks, and the financials are so beaten up that they cannot push the index much lower.
"So what is driving the index? The highest-priced stocks:
IBM (IBM) = $81.98
Exxon (XOM) = $76.29
Chevron (CHV) = $68.31
P&G (PG) = $57.34
McDonalds (MCD) = $57.07
J&J (JNJ) = $56.75
3M (MMM) = $53.92
Wal-Mart (WMT) = $50.56
"For instance, if all the sub-$10 stocks listed above, all the financials listed above, and GE opened at zero, the DJIA loses 528.63 points. To repeat if C, BAC, GM, AA, JPM, AXP and GE all open at zero, the DJIA loses 528.63 points.
"If IBM opens at zero, it loses 652.95 points [IBM has risen since then – JM]. So, the DJIA says that IBM has more influence on the index than all the financials, autos, GE, and Alcoa combined.
"The DJIA is not normal as the index committee is not doing their job during this crisis, possibly because to the political fallout of kicking out a Citi or GM. As a result, this index is now severely distorted as it has a tiny weighting in financials and autos."
You could add Microsoft to the list Jim created and not be over where IBM is today in terms of the DJIA index.
Let's look at it another way. A 10% positive move for IBM would move the Dow up by over 60 points. A 10% move by Citigroup would increase the Dow by less than 3 points. Having stocks with low prices clearly prevents the Dow from declining as much as other market-cap-weighted indexes like the S&P 500.
Stocks for the Long Run and Other Myths
But there are other problems with using the Dow. Since 1871, real stock prices (after inflation) have grown at 2.48% while the economy grew at 3.45%. There is almost 1% of "slippage" between the growth of stocks and the economy. Bears could paint a bleaker picture by pointing out that much of the growth was from an increase in valuations. By that I mean, P/E ratios increased substantially. Investors were paying more for a dollar's worth of earnings. The market was valued at an average P/E of 12 (or 20 times dividends) for periods prior to the last bull market. The current valuation levels are still over 20, even after a nasty bear market. Almost 1% of the growth of the stock market over the past 130 years has been due to the recent bubble in prices.
Wait a minute, what about the studies which show the S&P 500 grew at almost 10% a year? Part of the answer is that these indexes include dividends, which averaged almost 5%. You also have inflation, which accounts for a great portion. And part of the answer is that the indexes do not reflect the actual results of the companies. If you measured the Dow or S&P by the companies that were in them in 1950, as an example, the growth would not have been as much. That is not to say the Dow should be fixed. They make the changes to reflect the broad economy, which is what the Dow and other indexes are supposed to do.
That is what makes index investing so attractive in bull markets, and why it is so hard for a mutual fund to beat an index. They keep adding fast-growing companies and getting rid of the dogs. As valuations increase, the funds become self-fulfilling prophecies. But they can have the opposite effect in a bear market, as we now experience.
Nash-Kelvinator, Studebaker, and Other US Giants
For instance, IBM and Coke were added to the Dow in 1932. Coke was dropped for National Steel three years later, and IBM was booted for United Aircraft in 1939. IBM was once again put in the Dow in 1979. Coke returned in 1987. National Steel has long since departed, as has Nash-Kelvinator, Studebaker (I learned to drive in a Studebaker), Woolworth's, and American Beet Sugar. Let's hear it for progress.
For those with no life, or the insatiably curious (I will leave it to you to decide in which category you and I are placed), you can go to http://www.djindexes.com.. and see the entire history of the Dow.
(As an aside, if anyone knows of a study which shows what $1,000 invested on October 1, 1928 [when the Dow was expanded to 30 stocks] on a buy and hold would have grown to by today, I would be interested in seeing the study.)
Clearly, buying the component stocks of the Dow and holding them for long periods would not have produced the same returns as the managed index. In fact, the returns would have been rather dismal.
I would invite readers to think about the implications of this for one moment. While today we might smirk at Nash-Kelvinator or Studebaker or American Beet Sugar, or any of the scores of firms that have been added and dropped from the Dow over the last 125 years, at one time they were considered worthy of inclusion in the most prestigious roll call of companies.
Proponents of buy and hold use indexes to support their claims of its effectiveness. Indexes, however, are not instruments of a strict buy and hold philosophy. They clearly buy and trade. For every GE – which was added to the Dow in 1896 and then dropped in 1898 for US Rubber, and added again in 1899, dropped in 1901, and added yet again in 1907 – there are scores of other firms which were once a part of the mighty Dow and have now faded into oblivion. None of the other companies from 1900 are names which are familiar to me, except as historical curiosities.
Fifteen of the Dow companies have been added since 1990. There are only six stocks still in the Dow that were there in 1940. IBM was dropped in 1939 and was not added back in until 1979. Many of the stocks that have been dropped have gone to zero. If I remember correctly, some 60% of the stocks in the S&P 500 have been replaced in a little over 30 years. In fact, many of the large market cap companies now in the index did not exist 30 years ago.
So, when you buy stocks "for the long run" you are buying stocks selected by a committee (the Dow) or because their market caps increased to a size where they were included (market-cap-weighted indexes). In a very real sense, the S&P 500 is a self-selective growth-stock index.
As an aside, Dow Jones & Co. has no plans to change the companies in its industrial average after four fell below $10 a share, said John Prestbo, executive director of indexes at the Wall Street Journal parent.
"Do I think the Dow is in need of adjustment? No, not at this moment," Prestbo said. "Those stocks have been in the Dow for a while, most of them, and I think changing horses right now would be the very distortion that some people complain about." (Bloomberg)
Prestbo has a tough job. As Jim notes, can you imagine the political fallout if the dropped Citigroup or GM right now?
1/24/09
Alert on a Japan Crash Set up: Rev to world crash set up after looking at the major world indexes today...and looking forward to going long when / if
I will post the chart Monday AM.
Other watch. UNG falling knife, DOW TRANS new 52 week low and RSI non confirm watch, XLF for bottom watch, USO bottom watch, PFF preferred ETF bottom watch, GLD breakout as well
Other watch. UNG falling knife, DOW TRANS new 52 week low and RSI non confirm watch, XLF for bottom watch, USO bottom watch, PFF preferred ETF bottom watch, GLD breakout as well
1/23/09
SPX Ranges for Monday
SPX 840 is still tough resistance
Nice up day for sectors XLK +1.4% XLF +3% XLE +2.8% XLB +1.8%
Naz +.8% and the DOW -.6% on UTX, CAT and GE drops
SPX 839 here Critical test to see if this rally can continue
Morning headfake down....afternoon headfake up? looking that way
SPX Daily
Keep your eyes peeled for this STO on the daily closing above 20. 840 is res that needs to be broken but it's a positive if the STO can close today above 20
If we get below 815 - 820 look for another 250 drop in the DOW
NAZ is up 5 pts here DOW (mainly GE's help) - 106 and SPX -3 or .3%
Russell 1,000 Stocks With The Highest and Lowest Short Interest
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Finally! Now Get our Money Back Obama!
John Thain Called Out By The President
We're not sure how John Thain is feeling about being called out by the President this morning. For some background, most readers are aware of yesterday's report from CNBC's Charlie Gasparino on how Mr. Thain spent $1.2 million to renovate his office at Merrill Lynch last year. This came during a time when the firm was already on the skids and laying off employees. It appears as though President Obama saw the story too, because in comments this morning, he basically said that it is unacceptable for companies receiving government aid to be renovating 'offices and bathrooms.' President Obama must be even more surprised with the fact that he paid the same designer eight times less for his work on the White House ($100K) than Thain paid him to do his office ($837K). Since when does the government get better deals than the private sector?
John Thain could be thinking he must be pretty important if even the President of the United States is talking about him. But most likely, Mr. Thain is shaking in his boots. When the President of the United States calls out your actions as a symbol of greed and what's wrong with Wall Street, you may want to think twice about taking the Bentley when you go out 'antiquing' this weekend.
Who would have thought that Merrill Lynch would already have an ex-CEO that is less popular than Stan O'Neal? Somewhere out there, Mr. O'Neal is saying, "Thank God for John Thain!"
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We're not sure how John Thain is feeling about being called out by the President this morning. For some background, most readers are aware of yesterday's report from CNBC's Charlie Gasparino on how Mr. Thain spent $1.2 million to renovate his office at Merrill Lynch last year. This came during a time when the firm was already on the skids and laying off employees. It appears as though President Obama saw the story too, because in comments this morning, he basically said that it is unacceptable for companies receiving government aid to be renovating 'offices and bathrooms.' President Obama must be even more surprised with the fact that he paid the same designer eight times less for his work on the White House ($100K) than Thain paid him to do his office ($837K). Since when does the government get better deals than the private sector?
John Thain could be thinking he must be pretty important if even the President of the United States is talking about him. But most likely, Mr. Thain is shaking in his boots. When the President of the United States calls out your actions as a symbol of greed and what's wrong with Wall Street, you may want to think twice about taking the Bentley when you go out 'antiquing' this weekend.
Who would have thought that Merrill Lynch would already have an ex-CEO that is less popular than Stan O'Neal? Somewhere out there, Mr. O'Neal is saying, "Thank God for John Thain!"
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Fed’s Agency MBS Purchases Total $52.6 Billion(housingwire.com)
The Federal Reserve purchased more than $19 billion in agency mortgage-backed securities from government-sponsored entities Freddie Mac (FRE: 0.6544 -0.85%), Fannie Mae (FNM: 0.65 -1.52%) and Ginnie Mae in the week ending Jan. 21. The latest installment brings total agency MBS purchases to $52.6 billion, little more than a tenth of the Fed’s $500 billion purchasing power under the program, which was announced Nov. 25, 2008."
1/22/09
SPX and OBV
The last OBV uptrend breakdown saw a huge drop in the market. Although a break is not quite at hand, we should watch for this new SPX OBV uptrend for signs of weakness...
Two swing trades today...going for the third
830 is trying to hold..DOW -114 after basically getting back to unch...lots of land mines
75% Of Latest Bank Of America Bailout Used To Pay Merrill Lynch Bonuses (BAC)
75% Of Latest Bank Of America Bailout Used To Pay Merrill Lynch Bonuses (BAC)
Henry Blodget | Jan 22, 09 6:22 AM
Remember the latest Bank of America (BAC) bailout, the one we were all so steamed about last week? (The $20 billion of cash and $100+ billion of trash-asset guarantees that absolutely had to be given or else Bank of America shareholders might have lost everything?)
Yes, well, you probably thought that that cash would be used to bolster the bank's capital or something. (We know you weren't dumb enough to think it might have been used to make loans).
Alas, it wasn't used for that. It was used to pay Merrill Lynch executives the huge bonuses they deserved for unloading their balance sheet on for-some-reason-not-yet-fired Bank of America CEO Ken Lewis.*
Has change really come to America? We'll believe it when we see it.
Henry Blodget | Jan 22, 09 6:22 AM
Remember the latest Bank of America (BAC) bailout, the one we were all so steamed about last week? (The $20 billion of cash and $100+ billion of trash-asset guarantees that absolutely had to be given or else Bank of America shareholders might have lost everything?)
Yes, well, you probably thought that that cash would be used to bolster the bank's capital or something. (We know you weren't dumb enough to think it might have been used to make loans).
Alas, it wasn't used for that. It was used to pay Merrill Lynch executives the huge bonuses they deserved for unloading their balance sheet on for-some-reason-not-yet-fired Bank of America CEO Ken Lewis.*
Has change really come to America? We'll believe it when we see it.
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