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Pre-Market Open News and Links for Friday

2009-11-20T05:30:00.005-07:00

Chart of The Day: "With a large majority of third-quarter earnings in the books (87% of S&P 500 companies have reported for Q3 2009), today's chart provides some long-term perspective to the current earnings environment by focusing on 12-month, as reported S&P 500 earnings. Today's chart illustrates how earnings declined over 92% from its Q3 2007 peak to its Q3 2009 trough, which makes it easily the largest decline on record (the data goes back to 1936). On the positive side, S&P 500 earnings bottomed and are moving up sharply." - chartoftheday.com

via chart of the day

Stocks fell across the globe as the US dollar rallied and concern spread regarding the underlying health of the economic recovery. Volume, a critical component of institutional demand, was higher than Wednesday's levels across the board which marked a distribution day for the major averages. Decliners trumped advancers by about a 4-to-1 ratio on the NYSE and Nasdaq exchange.
In terms of new leadership, it was encouraging to see new 52-week highs outnumber new 52-week lows on the NYSE and Nasdaq exchange.
The Oil Services Index ($OSX -3.49%) sank under its 50-day moving average line again after recently encountering resistance at its upward trendline connecting its July lows.
One of the largest reversals in earnings trends is for the S&P 500 itself, with earnings expected to jump 65% in the fourth quarter relative to last year's fourth quarter (up from a third-quarter year-over-year loss of 17%):

Other notable reversals are in the information technology sector and materials sector.

One clear theme among the sectors, industries and companies with the best earnings prospects is foreign-sourced revenues.

For large-cap companies in particular, foreign profit's weight climbed steadily from 2004 to 2008 before skyrocketing this year as more companies reported losses in their US operations. Even small-cap companies' foreign profit share spiked this year, after declining slightly during the prior five-year period.

The weak dollar has clearly been a contributor to better earnings for some companies. A weak dollar can boost profitability in two ways:

First, US-based multinationals' products are more competitively priced globally.
Second, sales in other currencies get translated at higher exchange rates when they're converted after the dollar declines.

Record-breaking productivity growth has also been a contributor as companies have kept unit labor (and other) costs in check as demand has begun to rise from the ashes.

However, Brazil, South Korea, Russia and other developing nations are now fighting a losing battle to mute gains in their currencies as a falling dollar and economic recovery create more demand for their assets than central banks can handle. South Korea Deputy Finance Minister Shin Je Yoon said… the country will leave the level of its currency to market forces after adding about $63 billion to its foreign exchange reserves this year. Chile Finance Minister Andres Velasco said… that lawmakers approved an increase in local debt sales to finance spending, a move that will allow the government to keep more of its dollar-based savings overseas and slow the peso’s rally. Governments are amassing record foreign-exchange reserves as they direct central banks to buy dollars in an attempt to stem the greenback’s slide. Continue to hold GOLD.

From 24/7 Wall St.:

From Trading Markets:

From MarketWatch:

Wall Street Breakfast - What you need to know in early trading today.

The public will believe anything, so long as it is not founded on truth. – Dame Edith Sitwell (1887 – 1964)

California October Home Sales

2009-11-20T05:11:00.005-07:00

An estimated 41,280 new and resale houses and condos were sold statewide last month. That was up 2.6 percent from 40,216 in September, and down 2.4 percent from 42,293 for October 2008. California sales for the month of October have varied from a low of 25,832 in 2007 to a peak of 70,152 in 2003, the average is 44,451... full story

Bay Area median price tops year-ago level for first time since '07 - The Bay Area’s housing market continued to ease back toward normalcy last month as fewer distressed properties sold and $500,000-plus sales accounted for a greater share of transactions than a year ago. The result: The nine-county region posted a modest year-over-year gain in its median sale price – the first in nearly two years... full story

Additional Reading:

San Francisco Home Prices Rise, First Time Since ‘07 (Bloomberg)
San Francisco Bay Area home prices inch toward stability (Los Angeles Times)
San Francisco area home prices perk up in October (Reuters)
Silicon Valley real estate turnaround? Prices, sales up in October (San Jose Mercury News)
California median home price rises (Associated Press)

Thursday Morning Market Comment and Links (for traders)

2009-11-19T07:00:00.002-07:00

Mild Distribution As Nasdaq's Loss Comes On Higher Volume-
The major averages closed lower after a series of mixed economic data was released. Volume, a critical component of institutional demand, was heavier than Tuesday's levels across the board which marked a distribution day for the Nasdaq Composite Index, but percentage-wise the losses were too small on NYSE indices to constitute a distribution day. Decliners led advancers by an 8-to-7 ratio on the NYSE and by a 3-to-2 ratio on the Nasdaq exchange. The Nasdaq Composite Index fell on higher volume and marked a distribution day for the tech-heavy index.

The key metric in the market since last week has been the breaching of the psychologically and technically significant 1,100 mark on the S&P 500 Index. The index managed to punch a hole in this ceiling on its way to a new, 52-week high.

As you can see by the chart below of SPX, this broad market index has been on a tear ever since March. That tear has been nearly uninterrupted since the index bounced off of its 200-day moving average in early July.

The S&P 500 now trades firmly above that long-term moving average, but it also now trades well above its short-term, 50-day moving average (blue line). This is clearly a bullish sign for SPX and, because of this, I do think it’s safe to put money to work in this market. But if you are going to do so, be certain you have a tight stop loss in place to protect your gains if the market comes rolling back.

The market is becoming narrower with some glaring divergences...namely the SMALL CAPS. While the DOW is at new highs, the RUSSELL 2000 and SMALL CAP 600 are still below the 50-day...amazingly so. This tells me that it is going to get tougher going forward and that one needs to concentrate on the larger names. This is the type of action that usually occurs at the latter part of a move...so be on guard. BIG CAP Growth Tech looks poised higher as the market gets narrower. Looks like they will attempt to move out of small ranges.

Now, one sector that hasn’t quite punched through that upper end of technical resistance is financials. If we look at the chart below of the Financial Select Sector SPDR (XLF), we see this fund is now trading right at its 50-day moving average.

This failure to trade at new highs along with the SPX is significant, because financial stocks were the ones that led this rally back from the March brink. Bargain buying in the severely battered sector helped the wider markets recover and, if we see this sector start to lag, it could be an indication that the remarkable 2009 bull run finally is losing steam.

The Trend Trader for Thursday, November 19th

Wall Street Breakfast What you need to know in early trading today.

Media Digest 11/19/2009 Reuters, WSJ, NYTimes, Barron's 24/7 Wall St.

7 Stocks for Thursday by Trading Markets

Stocks in focus for Thursday.- MarketWatch

Bloomberg Futures

Unemployment sucks in Europe

2009-11-19T06:54:00.011-07:00

Affordable Prices Draw Investors to Real Estate: Nationwide survey found 12% of people responding plan to buy a home as an investment, twice the share (5.6%) expressing such interest in March.

The survey by the online property listing service Move.com said the lure of lower prices and foreclosure bargains were chief reasons for the growing interest.

The survey by Move.com also found:

Of those expressing interest in investing in homes, 25.3% were interested in buying foreclosed homes.
42% of potential foreclosure buyers are looking for an investment, while 57.6% are looking for a home to live in.
Of those planning to buy a home in the near future, 48.3% are first-time buyers.
Of the foreclosure investors, 13.2% intend to rent the home out; 11.3% plan to fix them up for resale; while 17.4% plan to have relatives live in the home until it can be sold at a profit.
58% of foreclosure buyers expect to find a home at no more than 20% below market value; 38.5% expect a discount of 25% or more.
73% expect properties to appreciate by 10% or more in five years; 28% believe values will go up 20% or more.
48.2% expressed dissatisfaction with the federal government’s efforts to stabilize the housing market in October vs. 42.2% in March.

The poll was Move.com’s fifth quarterly Homeownership Survey. The latest sampling resulted from 1,002 interviews from Oct. 16-18. The poll has a margin of error of +/- 3%. Move Inc. operates several online real estate listing services, include the National Association of Realtors’ Realtor.com. Chief Revenue Officer Errol Samuelson said the survey …

“… validates what many had hoped to see in the housing markets — affordable prices and ample inventories are restoring the appeal of real estate to investors while providing opportunities for first-time homebuyers to enter the market.”

Four Years and Running

2009-11-18T06:28:00.010-07:00

Clusterstock: We've seen this over and over again.

"While Americans seem to recognize that there's been this thing called the housing crash, they don't believe it's happened to them, or at least a lot don't.

Zillow: However, the third quarter of 2009 is a different story in both market behavior and homeowner perception. As individual markets behaved very differently (some improving, some flat, many still continuing to decline), homeowner perception was literally all over the map. And for the first time, one sector of homeowners — those in the Northeast — was overly cynical about home values. Meanwhile in the hardest-hit region of the country, the Western states, homeowners continued to be overly optimistic when evaluating the value of their own homes.

Nationwide, when asked about their own home’s value over the past year:

• 25% think their home’s value has increased
• 26% think their home’s value has stayed the same
• 49% think their home’s value has decreased

In reality, 72 percent of U.S. homes lost value over the past year, and 22 percent of homes increased in value. That’s fewer homes declining versus Q2(83%), and a smaller Misperception Index of 10 (vs. 13 in Q2 and 17 in Q3 2008). A Misperception Index of zero would mean homeowners’ perceptions were in line with actual values."

Housing Bubble Hits Four Year Anniversary: This month marks the fourth year since the discovery of what turned out to be the latest housing slump — the one that triggered the worst recession since the Great Depression.

October 2005 was the first month when total homes sold in California fell from year-before levels. Similar annual sales drops continued month-in, month-out for the next 2 3/4 years locally.

The Great Recession that followed reads like a slow-moving catastrophe: Subprime lenders collapsed as defaults and foreclosures soared, followed by the global credit crunch, the collapse of Wall Street mortgage traders and hedge funds, the federal takeover of government-sponsored lending agencies and finally massive layoffs and the stock market crash.

Many economists now say that the slump has ended and recovery has begun. Some Realtors, commentators and many readers on this blog say pronouncements of the slump’s demise are premature.

There have been three major housing slumps since the early 1980s. An analysis of California housing data back to 1979 shows that each major slump is spaced roughly five to 10 years apart.

This latest slump turned out to be the most severe and shortest of modern slumps on record. It hit swiftly, lasted just three years, induced the steepest price drop in 30 years of housing data, then — some say — began a slow turnaround early this year.

It took 21 months for price drops to take hold after sales first slumped. Such denial is typical of recent slumps. It took three years for the first annual price drop to appear in California after sales slumped in January 1980. It took a year in the early ’90s

Based on monthly housing data from the California Association of Realtors and MDA DataQuick, here’s a synopsis of key milestones from the last three major housing slumps: the early 1980s, the early 1990s and the Great Recession:

Early 1980s: Jan. 1980 to June 1985:

Duration of sales slump: 5 1/2 years
Months w/annual sales drops: 34
Consecutive months w/sales drops: 19
1st sales drop to 1st price drop: 3 years
Price drop, peak to trough: -3.9%

Early 1990s: April 1989 to Sept. 1995:

Duration of sales slump: 6 1/2 years
Total months with annual sales drops: 50
Consecutive mos. w/sales drops: 25
1st sales drop to 1st price drop: 1 year
Price drop, peak to trough: -19%

Latest slump: Oct. 2005 to Feb. 2009:

Duration of sales slump: 2 1/2 years
Total months with annual sales drops: 30
Consecutive months w/sales drops: 30
1st sales drop to 1st price drop: 2 years
Price drop, peak to trough: -57.9%

TOADY'S OPEN: FLAT

2009-11-17T05:19:00.010-07:00

U.S. stock futures weaken with housing in focus-
"S&P 500 futures fell 1.9 points to 1,104.40 and Nasdaq 100 futures fell 2 points to 1,801.50. Futures on the Dow Jones Industrial Average fell 12 points, after markets registered advances in nine of the last 11 sessions, with the housing market returning to the spotlight as Home Depot said there are some signs of stabilization with a house builder confidence gauge due for release."

Averages' Rally on Higher Volume Indicates Accumulation-
The major averages rallied smartly on Monday which sent the benchmark Standard & Poor's 500 Index above resistance and to a fresh 2009 high! Volume, a critical component of institutional demand, was higher than Friday's levels on the Nasdaq exchange and the NYSE which signaled large institutions were accumulating stocks. Advancers trumped decliners by over a 4-to-1 ratio on the NYSE and by over a 3-to-1 ratio on the Nasdaq exchange.

PICTURED ABOVE: The Nasdaq Composite Index (QQQQ) rallied to a new 2009 high with better volume behind its gain.

Bespoke Investment Group: "One would think that in a year where the average stock in the S&P 500 is outperforming the index by a wide margin (40.3% vs 22.9%), that most sectors would also be outperforming the overall index. Yet with the S&P 500 trading to a new high for the year, only three out of ten sectors are actually outperforming the index in 2009. Through this morning, Technology (55.1%), Materials (43.5%), and Consumer Discretionary (36.5%) are the three best performing sectors this year, while Telecom Services (-4.1%), Utilities (1.6%), and Consumer Staples (12.7%) have lagged the most."

It’s the “easy button” for politicians and monetary authorities. The pressure is impossible for them to resist. Kick the can down the road as we’ve been doing for the past few decades since the political fortitude to do the right thing just isn’t there. What we’re witnessing is the birth of another (inflation) bubble caused by easy money and easy choices.

While the resulting credit crunch was ongoing, the Fed "convinced" Congress to allow them to pay interest on member bank reserves held by the Fed. Credit, at near zero rates, is now being extended by the Fed to its "anointed" in exchange for their toxic waste as collateral, which proceeds are then being deposited with the Fed as reserves at a 3% rate of interest instead of being re-loaned, and we'll give you three guesses as to who gets to pay for this interest on reserves. That is a very profitable and risk free spread, but only for the "anointed," as the Fed can open and shut its discount loan window to whomever it darn well pleases, being a privately owned bank. The small fry can go scratch, and many have already succumbed. This will continue until the number of banks in our banking system is cut in half. The FDIC is beyond broke. They don't even have enough to cover but a tiny fraction of potential losses, much less to cover the losses from the failure of half of the banks in the entire system. Either the claims for lost deposits will not be paid, or so much money will be printed to pay those claims that the money received in payment will be virtually worthless, along with any and all remaining dollar-denominated assets. This is going to become a very big problem indeed in the not-too-distant future.

Everything's Being Driven By The Dollar

2009-11-17T05:05:00.002-07:00

(Via Clusterstock) Some good insight from David P. Goldman:

There is a pretty close inverse correlation between the 10-year yield and the S&P. What could account for this? NOT economic recovery, in which real interest rates rise. And not expectations of lower inflation–the spread between coupons and TIPS continues to widen and commodity prices are soaring.

Eliminate the impossible, and what remains, however improbable, must be true, as Sherlock Holmes liked to say. BOTH bond and stock prices are driven by the dollar. 17.5% unemployment by the broad measure keeps wages down and keeps the CPI low, despite the surge in commodity prices, while the cheap dollar makes US assets a bargain. Well, not exactly: the enormous reserve growth on the part of Asian central banks means that the Treasury’s debt-buying program has been outsourced to America’s Asian trading partners! No-one dares pop the bubble. It’s like what Woody Allen said about death. He wasn’t afraid of it; he just didn’t want to be there when it happened. Read the whole thing>

click to enlarge

Monday Morning Market Comments and Links (for traders)

2009-11-16T05:29:00.017-07:00

MORNING MARKET COMMENTARY
for Monday, November 16, 2009

Confirmed New Rally Producing Very Few Buy Candidates-
The major averages confirmed a new rally attempt and ended higher last week as investors digested the latest round of earnings and economic data. Volume, a critical component of institutional demand, was lower on the Nasdaq exchange and the NYSE compared to Thursday's levels. Advancers trumped decliners by about a 3-to-1 ratio on the NYSE and by over a 2-to-1 ratio on the Nasdaq exchange.

Stocks shook off negative news regarding consumer sentiment and ended higher on Friday. So far, over 80% of S&P 500 companies that reported Q3 results have topped estimates which has helped the market hold up rather well considering that profits were negative for a record ninth consecutive quarter. What does all this mean for growth investors? Be patient and continue to watch for leading stocks to breakout of sound bases. Do not force a trade and let the market come to you; i.e. do not chase. It is also important to remain cognizant of what is working in this environment: mainly very liquid large cap leaders as they bounce off their 50-day moving average line or breakout of sound bases. Some of those leaders include: Apple Computer (AAPL +1.22%), Amazon (AMZN +1.87%), Priceline.com (PCLN +2.42%), Google (GOOG -+0.74%), and Baidu Inc. (BIDU +1.25%). The action in these names have served as a great proxy for the overall rally which began in March.

Since 2002, GOLD prices have peaked at new highs early in the even numbered years - in 2004 at $425, in 2006 at $725, and, most recently, in 2008 at $1,035.

In many ways, recent events are shaping up to be a repeat of this pattern which, based on the previous peak-to-peak gains would imply a gold price somewhere north of $1,300 early next year.

Of course, any sharp rebound in the dollar (which some are still loudly predicting) would reverse this trend very quickly.

Bloomberg Futures

How Different Investments Performed Last Week

Media Digest 11/16/2009 Reuters, WSJ, NYTimes, Barron's 24/7 Wall St.

The Trend Trader for Monday, November 16th

Sector Update for November 16th from Dr. Brett

Wall Street Breakfast What you need to know in early trading today.

7 Stocks You Need to Know for Monday TradingMarkets.com

Stocks in focus for Monday Marketwatch

Put your cash in a Safe Place

International real-time economic calendar

I don't make jokes. I just watch the government and report the facts. -- Will Rogers

Recent Articles on Gold and Silver

2009-11-15T10:26:00.006-07:00

Pre-Market Open News and Links for Friday

2009-11-13T05:07:00.004-07:00

Chart of The Day: "The Dow made another record high Wednesday as it moved further above the 10,000 level. To provide some perspective to the current Dow rally that began back in March, all major market rallies of the last 109 years are plotted on today's chart. Each dot represents a major stock market rally as measured by the Dow. As today's chart illustrates, the Dow has begun a major rally 27 times over the past 109 years which equates to an average of one rally every four years. Also, most major rallies (73%) resulted in a gain of between 30% and 150% (29.8% to 150.5% to be exact) and lasted between 200 and 800 trading days (9.5 months to 3.2 years) -- highlighted in today's chart with a light blue shaded box. As it stands right now, the current Dow rally (hollow blue dot labeled you are here) would be classified as both short in duration and below average in magnitude." - chartoftheday.com

via chart of the day

The major averages ended lower as the US dollar surged on Thursday. Volume, a critical component of institutional demand, was higher on the Nasdaq exchange and near the prior session total on the NYSE. Decliners trumped advancers by about a 4-to-1 ratio on the NYSE and by about a 3-to-1 ratio on the Nasdaq exchange.
In terms of new leadership, it was encouraging to see new 52-week highs outnumber new 52-week lows on the NYSE and Nasdaq exchange.
The Networking Index ($NWX +0.60%) was Thursday's only positive index among those regularly followed in this IGW section. Intra-day it traded above its 50-day moving average line but it closed below that important short-term average.
The S&P 500 (SPY Below) continues to show growing weakness, enough to get short at 1091.50 during the day. Tuesday's small range was a red flag, a note of caution because buyers were so spent they could not extend the range higher, and at an important point of resistance.
What we know is that the trend is weak. The daily trend is sideways, as I have identified previously.The weekly trend remains up, but depending on where price closes on Friday, that trend has weakened, as well.
Bulls got the news they wanted from better than expected Jobless Claims but in the end unemployment was still viewed negatively which finally makes some sense. Also earnings news is just about done for this quarter.

By the way, when is GS going to pay back the tens of billions that were given to AIG by taxpayers so that Goldman would not go under as the insured counterparty to credit default swaps guaranteed by AIG that had gone sour? They have a lot of nerve issuing bonuses when they still owe the government big-time from the AIG bailout! And they would not have been able to pay the bailout money back if their totally bogus mark-to-model balance sheets were to show true mark-to-market figures. They are just as bankrupt as all the rest of the "anointed" legacy banks and investment banks, with a lot of their toxic waste still off balance sheet and offshore in SIV's, structured investment vehicles, in VIE's, variable interest entities, and in OTC derivatives, which taken together expose them to tens of billions in losses if not hundreds of billions.

From 24/7 Wall St.:

From Trading Markets:

From MarketWatch:

Wall Street Breakfast - What you need to know in early trading today.

The public will believe anything, so long as it is not founded on truth. – Dame Edith Sitwell (1887 – 1964)

Gold: Never below $1000 Again, Going to $5000?

2009-11-13T04:32:00.006-07:00

Gold Price Won’t Drop Below $1,000 an Ounce Again, Marc Faber Says

But Faber Is Conflicted About the Price of Gold

The pattern in GLD that built up over multiple months, as it made new highs, is a powerful base that could propel the precious metal to their price short-term target of around $1,250-1,300.

However, Gold formed a key reversal top last night after making a new high. That could be a warning for a sell-off. Bear in mind the near term projection on the daily chart was met and exceeded - suggesting an over bought market. Also, the last four sell-offs all occurred after a new high was made followed by a key reversal top the same day. There is not any real support in this market until 1065.00.

GOLD $5000+ 11/11/09

Appeals flood county assessor's office

2009-11-12T17:05:00.043-07:00

Realty is on mend, slowly, fed exec says - Janet Yellen, president of the Federal Reserve Bank of San Francisco, spoke before a group of the Valley's leading real-estate and banking executives. "Things are beginning to look up in Arizona, as they are for the nation. Still, the Phoenix housing market is nowhere near a return to health." Here are some key points from Yellen's speech: 1) Metropolitan Phoenix's home prices are now above their lows; 2) Homebuilding in the Valley will increase in 2010; 3) The area's mortgage delinquency is three times the nation's median; and 4) Write-offs on land loans in Arizona will continue, and more community banks will fail.

Expansion of Tax Credit - Here's something in the expanded program that hasn't gotten much attention: The new $6,500 federal tax credit for so-called "move up" buyers took effect immediately upon enactment. That means that potentially hundreds of thousands of Americans who fit the key ownership and income criteria for the new credit are eligible for it … right now. What are those tests? 1) You have to have owned and used your current home as your principal residence for five consecutive years out the past eight; 2) Your adjusted household annual income cannot exceed $125,000 if you file taxes as a single, or $225,000 if you are married filing jointly. To qualify, you must sign a contract to purchase a replacement residence before next April 30, and go to closing on it by June 30, 2010. Although the $6,500 feature has been labeled the "move up” credit, there is nothing in the law forcing anybody to buy a bigger or costlier house. You can downsize or upsize and still get the credit.

Appeals flood Maricopa County assessor's office - While appeals have been growing for the past five years, they have leaped by nearly 50% in the past two years alone. In 2005, when property prices were rising rapidly and assessments had not caught up to market values, total appeals were nearly half of what they are today. This year's valuations were established in January and mailed to owners in February. But the taxes based on those valuations aren't due to be paid until the fall of 2010, an 18-month lag that creates a disconnect between the value the county puts on a property and what an owner considers its value in today's market. Valuation notices indicate both a "full cash value" and a "limited property value," the two categories by which various property taxes are determined. The full cash value, which is intended to closely resemble market value, can be appealed. If you don't think you could have sold your home on Jan. 1 for the full cash value listed on the valuation, you may want to consider an appeal. The final deadline to appeal your property valuation this year is Dec. 15.

Cutting Back on U.S. Large Cap Stocks

2009-11-12T05:00:00.028-07:00

Clusterstock: "Investors have been pouring into Exchange Traded Funds (ETFs) this year. $108 billion flowed into ETFs year to date, $24 billion of which came during the last three months.

Yet while investors have been pouring into commodity, fixed income, and global equity ETFs, one very important category has remained a complete pariah -- U.S. Stocks.

Despite the stock market rally we've witnessed during the last three months, money has continued to flow out of U.S. equity ETFs. Thus while some might be able to argue that the crowd has jumped into commodities, fixed income, and global equities, it's pretty hard to say that investors are in love with stocks again.

ETF investors continue to flee American stocks, which suggests we are nowhere near a new 'bubble' for U.S. equities."

This market once again has proven that it's in full bull mode, with the S&P 500 (SPY) hitting yet another 52-week high. To say that this has been an impressive run higher since we hit the March lows would be the understatement of the year. A better way to describe this market recovery is just downright amazing. Now, however, we are faced with the task of trying to determine what's next.

If we look at the chart below of SPY, we can see that it's trading firmly above its short-term, 50-day moving average (blue line), as well as its long-term, 200-day moving average (red line).

The fact that the S&P bounced off of its 50-day moving average in early October, and then again in early November, tells me there is a really big appetite for large-cap stocks anytime the market even hints at pulling back. In this kind of market environment, you want to be long in large-cap stocks.

One area of this market that's been a little less resilient of late is small-cap stocks. As you can see by the chart below of the iShares Russell 2000 (IWM), a fund that represents the small-cap segment of the market, these stocks have yet to break above their 50-day average.

Small caps haven't yet climbed back to their October high. I think we need to see this segment of the market confirm the large-cap segment's breakout before you put any money to work in smaller stocks. Mid Caps have led the way in 2009.

I do think there is opportunity here, especially as the market prepares for what I think could be a strong year-end rally. However, when it comes to small caps, they are usually much more volatile than large caps, and that means if you are going to venture into small-cap waters, be sure you protect yourself with strict stop losses.

DO YOU HAVE TOO MUCH IN LARGE CAP?
According to the Investment Company Institute, 41% of all ETF money is in large cap sectors and 7% of all ETF money is in small cap sectors! What that tells us is that investors are not taking full advantage of the opportunity to diversify by using ETFs and that performance may suffer as a result. It also suggests that lack of better diversification, with so much in large caps, may wind up actually hurting investors as it did in 2001-2003 and 2008-09.

Here are some fascinating statistics that can help one asset allocate by style:
Small Cap Value returns from 1927-2004: 14.7%
Micro Cap returns from 1927-2004: 13.0%
Large Cap Value returns from 1927-2004 : 11.7%
Large Cap Growth returns from 1927-2004: 9.5%

This tell us that Large Cap Growth companies are too large and too mature. Next, the risk premiums, over the long term, to achieve a better rate of return, goes down when you invest in value funds within the Small Cap Sectors. Next, a portfolio of 60% S&P 500 index and 40% Lehman Bond index from 1973-2004 will return an annual return of 10.4%. If you change the mix to 30% S&P 500 index, 40% Short-term Bonds and 30% US Micro Cap the return goes up to 11.8% per year. Now, if you further diversify into 30% to International (small and large and emerging), and 30% into US (small value and large value and S&P 500) the return goes to 13.1% per year with less risk than the first two portfolios.

Silver as a Hidden Bull?

2009-11-11T05:16:00.016-07:00

Gold has been in the spotlight, but silver has been a hidden bull, and investors familiar with the sector are used to seeing a pattern in each short-term rally. Silver begins these rallies especially undervalued versus gold, then gains back much of its lost ground by outperforming gold for the duration of the rally. Traders who are leery of buying gold at record-high prices might consider a silver play. The long-term chart for silver looks chaotic compared to that for gold, not helped by the violent plunge last year which saw it drop from a high near $21 to a mere $8.50 at the low. On the 3-year chart (below) you can see the action last year and this year in more detail.

The daily chart (below) of the March COMEX silver contract shows the 50-day moving average in blue. We can see how the market has bounced off these supports. The 200-day moving average is in green. This chart shows an increase between the 50- and 200-day moving averages. There is an increase in the distance between these moving averages, indicating an increase in momentum, and in new buying coming in. The differential suggests increasing strength and increasing buying. We haven’t broken resistance at $18, but if this trend continues, look for a breakout in the next few days. The 50-day moving average, near $16.92, is holding as support and looks like a great place to establish a long position.

The 50-day moving average is showing strong buying coming in, and the 200-week average shows a smoother line. A $2 move in silver would give a target of $19.50, also a strong resistance level. If gold continues higher, look for even higher prices ahead for silver. Learn how to buy physical gold and silver HERE

FDR’s Second Bill of Rights

2009-11-10T19:01:00.000-07:00

TODAY'S OPEN: FLAT

2009-11-10T04:21:00.017-07:00

U.S. stock futures edge back after rally-
"S&P 500 futures fell 2 points to 1,089.70 and Nasdaq 100 futures fell 2 points to 1,764.50. Futures on the Dow Jones Industrial Average slipped 11 points, after a rally that has pushed equities higher for six straight sessions on the prospect that cheap money will remain in place for some time."

Follow-Through Gains, Leadership Expansion Confirm Rally-
The major averages scored a follow-through day (FTD) after the Group of 20 largest industrial nations agreed to maintain their economic stimulus package as the global economy continues to recover. This sent the US dollar tumbling and a slew of stocks and commodities higher. Volume, a critical component of institutional demand, was higher than Friday's levels as the major averages rallied. Advancers trumped decliners by over a 5-to-1 ratio on the NYSE and by over a 2-to-1 ratio on the Nasdaq exchange.

Letting the dollar fall is a policy and it means multinational firms doing business overseas will earn more when converting profits to dollars. This is the so-called dollar “carry trade” at work as commodities, gold and stocks are bid higher. It’s the result of the political will to “inflate or die” as evidenced by the Fed and the G-20.

PICTURED ABOVE: The Bank Index ($BKX +3.55%) rallied back above its September-October lows, which is an encouraging sign that bank stocks are showing resilience. The gain yesterday also put it in positive territory for 2009.

PICTURED 2: The Broker/Dealer Index ($XBD +2.68%) rallied to a close back above its 50-day moving average line, an impressive sign of strength after recent deterioration below that important short-term average had raised concerns.

New High for December Gold Futures

2009-11-09T17:35:00.007-07:00

Gold for December delivery, the most active contract, climbed $5.7, or 0.5%, to $1,101.40 an ounce by the close of floor trading on the New York Mercantile Exchange's Comex division.

Fundamentally, COMEX GOLD continues to be the leader on the board making new RECORD highs on a regular basis. With the U.S. Dollar continuing to plummet I expect COMEX GOLD to rally for several days and weeks to come. To me, this is clearly a decent opportunity to get on board. Technically, COMEX GOLD is giving a very strong buy signal. See daily chart below.

Barrick and Newmont Mining Turn Up...With gold hitting new record highs each day, gold stocks are starting to play catch-up. Two of the biggest are at or very close to hitting new 52-week highs. Chart 1 shows Barrick Gold closing at a new 52-week high today. The gray line is the ABX/SPX ratio which has been dropping since February and just starting to rally. Chart 2 shows Newmont Mining closing at a new 52-week high as well. Its relative strength ratio (gray line) is turning up as well. According to John Murphy, what the two RS lines tell us is both big gold stocks are pretty good values relative to the rest of the market and are starting to show upside leadership for the first time in eight months.

Today I bought ABX from the sale of GSS.

Monday Morning Market Comments and Links (for traders)

2009-11-09T05:06:00.001-07:00

MORNING MARKET COMMENTARY
for Monday, November 9, 2009
Light Volume Totals Underscore Market's Half-Hearted New Rally Attempt-

The market ended higher on Friday and higher for the week as investors digested the latest round of economic and earnings data. The market remains in a correction which began on October 28, 2009, having just completed Day 5 of its new rally attempt. Advancers narrowly led decliners on the NYSE while the opposite was true on the Nasdaq exchange.

PICTURED BELOW: The Gold & Silver Index ($XAU +1.83%) has posted 5 consecutive gains, rallying above its 50-day moving average (DMA) line toward prior chart highs:

What’s taking place in currency markets is a mystery but in short order we’ll know the situation. Perhaps there is some central bank intervention in the works to prop the dollar. It doesn’t work long-term but in the short-term it definitely hurts those leaning the wrong way.

Chart of The Day: "Today, the Labor Department reported that the unemployment rate increased to 10.2% -- a 26-year high. For some perspective on the current state of the labor market, today's chart illustrates the unemployment rate since 1948. As today's chart illustrates, today's move above the 10% threshold marks only the second time such a move has occurred during the post-World War II era. It is also worth noting that the unemployment rate has tended to peak shortly after the end of the recession. Following the previous two recessions, however, the unemployment rate kept rising for many months following the beginning of an economic "expansion." - chartoftheday.com

via chart of the day

RBS economist Stephen Stanley wrote Friday’s employment report was “a mild disappointment”. It’s easy to say with his firm and others, plied with cheap money from a generous Fed. And, that’s really the issue. The liquidity bubble for Da Boyz is creating a stock bubble. Like all bubbles it will have an ugly end. But with cash and bond yields low, going for higher returns in equities is an easier; “make hay while the sun shines” choice.

Bloomberg Futures

How Different Investments Performed Last Week

Media Digest 11/9/2009 Reuters, WSJ, NYTimes, Barron's 24/7 Wall St.

The Trend Trader for Monday, November 9th

Sector Update for November 9th from Dr. Brett

Wall Street Breakfast What you need to know in early trading today.

7 Stocks You Need to Know for Monday TradingMarkets.com

Stocks in focus for Monday Marketwatch

Put your cash in a Safe Place

International real-time economic calendar

I don't make jokes. I just watch the government and report the facts. -- Will Rogers

Gold Has its Place

2009-11-08T06:26:00.011-07:00

Investing in coins. I bet you can make a fortune in gold, palladium, silver and other coins -- if you know what you're doing. I don't. I smell a world full of scheisters, crooks and semi-honest dealers preying on investor desperation.. I figure a several year learning curve. It seems there are two types of coins -- bullion coins where their value is the metal -- and numismatic coins which get their value from their rarity. South African Nelson Mandela coins are popular because Mandela will be remembered as a notable statesman ad is old now at 91. Also these coins are the official South African issued ones.

This is gold over the past five years:

It's done very well and is at a high. There are many people who believe it's going to $2,000 as the U.S. dollar weakens further and people flee it to gold.

I don't believe this is a slam dunk. The dollar will recover as our economy recovers, which it clearly is.

You can smell what's happening here. Yesterday I received a sales call from a firm peddling gold coins. I was offered a one-ounce gold coin for $2,800 -- nearly three times what an ounce of gold is selling at. When I questioned that, I was told it was the "condition" of the gold coin that made it so valuable. It was clean, pure, not scratched and neatly packaged. If I bought it and had to sell it back the next day to them, how much would I lose? About 15% was the answer.

This image is from AmericanBullion. I like the slogan.

This is from their site:

I would not buy gold coins. But, if you do, read HERE. I would not put my entire meager money into gold. But I do believe it has a place. I continue to like the GLD.

Courtesy of the NYT, here's a peak at gold's inflation adjusted performance over the years.

Free Credit Report...for a fee

2009-11-08T05:52:00.007-07:00

Another scam: By law, each of us is entitled to a free credit report from each of the three big credit reporting agencies. Personally I've never been able to get mine. Every time I try to sign up, they try to snag my credit card. And I know they'll then charge me $14.95 a month forever. It's a scam. Of course, most of us are on top of our bills and don't really need our credit report. The New York Times did an investigative piece on this unsavory, misleading business. Click here.

Do not use www.freecreditreport.com. Those guys are not free. They're crooks.

Want a free credit report, go to annualcreditreport.com. You'll get your credit report from each of the big three -- Equifax, TransUnion and Experian. And you won't have to give them your credit card and sign up for anything. It's totally free.

The Carry Trade

2009-11-07T05:05:00.002-07:00

How is Wall Street able to make so much money and pay such huge bonuses this year? IPOs aren't hot. Investment banking is slow. Managing rich people's money is less profitable, as rich people are less rich. So where are the profits coming from?

It's coming from The Carry Trade. Before you dismiss this as self-evident, bear with me for a moment.

The Fed has reduced interest rates to basically nothing. It is making money cheap so that businesses will borrow, build factories, employ people and get the economy going again. At least that's its theory. Here's the chart:

But, no one can borrow at these bargain rates. Why the pretty chart?

Wrong, someone can. They're called banks and investment banks. They can go to the Fed and borrow Fed money at basically nothing -- maybe 0.025% a year. Now what to do with the money? The theory is they'll lend it to businesses to employ people. That's hard work. The easiest thing to do is to buy government and high quality bonds paying between 4% and 7%.

Figure it. Borrow a million at 0.025% a year. That will cost you the grand sum of $2,500 for a year. Now, let's say you buy a corporate bond yielding 7%. You've earned $70,000. But you have interest expenses of $2,500. That gives you a net profit of $67,500 for doing basically nothing. Borrow a billion, and you've just made $67.5 million.

That's a simple trade. This can get much more "interesting" if you're an aggressive, arrogant bond trader. Let's say you borrow the money from the Fed and buy Australian dollars and Aussie bonds. You earn a nice return on Australian bonds (Australia keeps raising its interest rates) plus you get the appreciation of the Australian dollar (also called the depreciation of the American dollar). This transaction is more typical of what we know as The Carry Trade. For a good explanation of it, there's a really good video from the Financial Times.

But, there's got to be a limit to this. The banks can't just keep on borrowing forever. True, because all the big investment banks are now banks and hence "regulated," they can't borrow more than a certain amount of their own capital. In the old days when we had serious regulation, the banks couldn't borrow more than 12 times their own capital. But that rule disappeared (after heavy lobbying in Washington a few years ago). The figure presently appears to be anywhere from 30 to 40 times their capital. (This, of course, was the leverage that brought Lehman Brothers down and nearly killed Wall Street.) Nothing has changed in regulation since. Heavy lobbying accomplished that. All those investment bankers relocating to run Washington financial institutions, like the Fed and the Treasury, helped, too.

Anybody who's been reading this blog knows I don't counsel investors to finance their investments with OPM -- other people's money. Things go awry. You get margin calls. They're always at the worst possible time. And you get wiped out.

But this is different. First of all, our Government doesn't make margin calls. Better yet, it saves banks by giving them more money to mess around with. Second, the Fed has said it's keeping interest rates ultra-low for a long, long time. (It said that earlier this week.) So, one risk is removed. Your costs of borrowing won't rise. They're staying ultra-low. The only thing you got to do is not to be too greedy and use this borrowed money to make ultra-risky bets -- like speculating in the equities of emerging countries. I mean, it isn't as though the temptation isn't there.

Let's say you've borrowed a billion. Your emerging equities rise 50% . You've just made $499,975,000 without using one penny of your own money. Heck, this is better than working for a living.

The downside to this is your bet is wrong and emerging equities drop. So what. You're not in trouble. The bank that lent you the money is in trouble. Would it want to look really stupid that taxpayer money is being used to gamble? Can it afford another financial crisis? Would it bail you out? Heck yes. It owns a printing press. Just print more and more of it.

The BIG article of this week is Nouriel Roubini's opinion piece in the Financial Times (the pink paper): "Mother of all carry trades faces an inevitable bust" is here. It also explains how the carry trade works. Related HERE

Pre-Market Open News and Links for Friday

2009-11-06T05:46:00.004-07:00

Chart of The Day: "For some perspective on the current stock market rally and how it compares the 1929-1932 bear market (which also included bank failures, bankruptcies, severe stock market declines, etc.), today's chart illustrates the duration (calendar days) and magnitude (percent gain) of all significant Dow rallies that occurred during the 1929-1932 bear market (solid blue dots). For example, the bear market rally that began in November 1929 lasted 155 calendar days and resulted in a gain of 48%. As today's chart illustrates, the duration and magnitude of the current Dow rally (hollow blue dot labeled you are here) is greater than any that occurred during the 1929-1932 bear market." - chartoftheday.com

via chart of the day

The major averages did not produce a sound follow-through day (FTD) because volume totals behind Thursday's gains were reported slightly lower than the prior session on both major exchanges. This marked Day 4 of the current rally attempt, which means as long as Monday's lows are not breached a new FTD could emerge if one or more of the major averages rallies at least 1.7% on heavier volume than the prior session. The market remains in a technical "correction" until a proper FTD emerges, which argues against new buying efforts. Advancers easily trumped decliners by a 4-to-1 ratio on the NYSE and by over a 3-to-1 ratio on the Nasdaq exchange.
The Integrated Oil Index ($XOI +1.58%) found support near 50-day moving average line during recent consolidations.
The Nasdaq Composite Index rallied +2.42% but failed to produce a proper FTD because volume was lighter than Wednesday's already light levels:
Once again shorts are squeezed and this two-way action is difficult for most investors to either trade or comprehend. The action yesterday was based on “better than expected” lousy numbers from CSCO and lower Jobless Claims (which, by the way, are still high).
Just when you think markets are starting in one direction we reverse course. Clearly, after a 50-60% gain from March lows, consolidation is not unexpected. Be careful of January since bulls may prop things up artificially through the holidays.

Writing earlier this week Nouriel Roubini wrote:

Since March (2009) here has been a massive rally in all sorts of risky assets – equities, oil, energy and commodity prices – a narrowing of high-yield and high-grade credit spreads, and an even bigger rally in emerging market asset classes (their stocks, bonds and currencies). At the same time, the dollar has weakened sharply

Guess what's causing the rally? Fed Government money financing The Carry Trade. Roubini argues eventually prices will unravel. Says Roubini,

"The Fed and other policymakers seem unaware of the monster bubble they are creating. The longer they remain blind, the harder the markets will fall."

Hence, why I'm feeling very very cautious at the present time. This asset bubble can't last.

From 24/7 Wall St.:

From Trading Markets:

From MarketWatch:

Wall Street Breakfast - What you need to know in early trading today.

The public will believe anything, so long as it is not founded on truth. – Dame Edith Sitwell (1887 – 1964)

Thursday Morning Market Comment and Links (for traders)

2009-11-05T04:25:00.009-07:00

New Rally Attempt Awaits Follow-Through-
The major averages experienced another see-saw session after the latest round of economic data was released and the Federal Reserve decided to keep rates near historic lows. Volume picked up in the final hour and was reported higher on the Nasdaq exchange while NYSE volume was reported near but just under the prior session total. Advancers led decliners by an 8-to-7 ratio on the NYSE, but decliners outnumbered advancers by a 3-to-2 ratio on the Nasdaq exchange.

PICTURED ABOVE: The Healthcare Index ($HMO +4.65%) was a standout gainer as it posted a large gain and rallied back above its 50-day moving average (DMA) line.

The Retail Index ($RLX -0.40%) has been making a stand at its 50 DMA line again. It held up at that important short-term average in early October. Over the last couple of weeks, stocks have come way off their highs.

Last week the major averages fell below their short-term, 50-day moving average. We can see this trend in the chart below of the S&P 500 (SPY), which fell below its 50-day moving average (blue line) last week.

The Fed just green-lighted a continued fall in the dollar and rise in commodity prices, and worse, they don’t seem to care. They talk a good game regarding “tame inflation” but markets know better. Commodity price increases such as we’ve seen are heralding massive future inflation and a declining dollar while the Fed turns a blind eye.

What you must do is make sure you don’t let a further pullback eat away at your gains. Set a stop loss (8-15%) on all of your invested positions, that way you can protect your gains. Hey, you can always go back into equities if this selling proves temporary.

The Trend Trader for Thursday, November 5th

Wall Street Breakfast What you need to know in early trading today.

Media Digest 11/5/2009 Reuters, WSJ, NYTimes, Barron's 24/7 Wall St.

7 Stocks for Thursday by Trading Markets

Stocks in focus for Thursday.- MarketWatch

Bloomberg Futures

Congress giving homebuyers a $6,500 tax break

2009-11-04T21:11:00.004-07:00

Real estate industry got an early holiday gift: Senate passage late today of extended and expanded tax credits for homebuyers:

Says the LA Times:

The Senate today voted to extend and expand a tax credit for home buyers as an added boost for the recovering real estate market, and also approved a provision to continue giving aid to the long-term unemployed. The measure, adopted on a strong bipartisan vote of 98-0, also would extend and expand a tax benefit for businesses with losses. The House is expected to follow suit within days, and President Obama is expected to sign it into law.

Details, from Reuters:

Extends an existing $8,000 tax credit for first-time homebuyers until April 30, 2010.
That credit, which was due to expire on November 30, has helped the housing industry recover from the worst recession since the Great Depression of the 1930s.
Homebuyers who already own a home and have lived there for at least five years would be eligible for a $6,500 tax credit.
More affluent buyers would be eligible for the credit, as it would be phased out for individuals who earn more than $125,000 or families that earn more than $225,000. The current credit is phased out for individuals who earn more than $75,000 and families that earn more than $150,00.
Home purchases under contract as of April 30, 2010, would have to close within 60 days to be eligible for the credit.
The credit only applies to the purchase of principal residences that cost $800,000 or less.
Would cost $10.8 billion over 10 years.

More stimulus is needed. Our fiscal deficits are not caused by excessive government spending, nor has government spending caused a cutback in private sector spending. But faux stimulus of the sort included in the unemployment extension bill, coupled with fiscal austerity hysteria, mean that additional stimulus is unlikely. Our politicians are fooling us with legislation that looks like stimulus, but sure doesn't quack like one.

Americans are deeply in debt and it will be a long time before those who still have jobs to extricate themselves. Savings at the last look were increasing at a 4% rate, which is certainly much better than minus ½%, two years ago. At this stage the problem of saving means less consumption at a time when buying is badly needed. The country needs double that amount of savings and it would have to be put into government debt, which loses buying power almost every day as the dollar falls in value. A lose, lose proposition for the saver. This is why the government stopped guaranteeing money market funds a month ago, they need the savings to fund government debt. The public sees that and thus government debt is not adequately being funded. As a result the Fed is having to buy that debt with money created out of thin air, which is monetization, which is inflationary. As a result before next year is history real interest rates will rise. Real inflation rates based on the 1980 formula are currently 6-1/8% and have nowhere to go but up.

Gold Futures Spike To New Record High

2009-11-04T05:34:00.007-07:00

Still a good time to loosen up your equities. ETF GLD (below) is above its 50-day moving average. Most stocks have fallen below their 50-day moving average. On the whole, Gold looks to recapture the 1,070.37 level, having bounced and rallied off the 1,030.85 support level, continuing its correlation with stocks, and pushing past $1090 this morning. At this rate, it could easily pass $1100 today.

PICTURED BELOW: The Gold & Silver Index ($XAU +6.38%) was a standout gainer yesterday. The big gain helped it rally back above its 50-day moving average line for the first time in a week.

Bespoke: "The price of gold has broken out to another new high this morning following news that India's Central Bank purchased 200 tons of the metal from the IMF. Previously, the IMF had announced that it would sell around 400 tons, raising speculation that the planned sale would cause a glut of gold in the market. Based on India's $6.7 billion 200-ton purchase, the market may have an easier time digesting the increased supply than previously thought. The average price per ounce for the Indian Central Bank's purchase works out to around $1,045. With gold now trading at $1,079, they have already made $218 million (3.25%). Not bad for a few days work!"

Gold prices are poised to move higher over the next several months, for several reasons. If the data hints the economy is starting to recover, we could see an inflationary impact. And, the dollar is expected to move sideways to lower, and dollar weakness has been supportive of commodities. Some could argue gold prices are overbought. We are at contract highs; but that doesn’t mean it can’t move higher. And I think it will.