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11.24.09
Thanksgiving Rally Continues

It does not pay to get bearish on this market. Not yet, anyway.

The Dow was down just 14 points on Friday, which set the stage for the surprise rally on Monday morning. The dollar weakened about half a percent over the weekend. Since U.S. equities are priced in dollars, the declining greenback creates buying pressure, since shares look cheaper to overseas buyers. We think this trend is likely to continue until the Dollar Index falls to its 2008 low, about 5% lower than Monday's close.

11.11.09
Pausing Near Highs

Yesterday, the Dow closed up for the 5th day in a row, but just barely. Basically, Tuesday was a consolidation day. Lately, such pauses have punctuated a series of strong advances.

News flow was also downbeat yesterday. Various Fed officials noted the weak employment picture and the increasing prospects for a jobless recovery. Dennis Lockhart, president of the Atlanta Fed, warned that non-performing commercial real estate loans will be affecting smaller banks. Consequently, these troubled banks will not be making loans to small businesses, thereby crimping the recovery. If you are a small business person you know this is already the case.

11.10.09
Full Speed Ahead

Yesterday we predicted that the Dow would move very quickly through the 10,000-10,300 zone and most likely overshoot to the upside. So far, so good. Monday’s 200-point move took the Dow up 2% to 10226, its highest finish of the year and its second 200-point up day in the last three trading days. This leaves the index just 28% below its all time high.

10.29.09
Not a Small Fact

During periods of extended market weakness, small caps tend to fare worse than large caps because they have less institutional sponsorship.  We can see this by comparing two ETFs, Direxion’s 3X Small Caps Bull (TNA) and Direxion’s 3X Large Cap Bull (BGU).  With the Dow down 1.21% on Wednesday, Direxion’s small cap ETF lost 9.74%, while the large cap ETF lost 6.09%.  That’s more than a 3.5 point  difference and means small caps lost about 60% more than large caps.  Volume was above average for both funds, with TNA trading 60% more shares than normal and BGU trading 25% more shares than normal.

10.22.09
Gap testing

The market was continuing merrily in its bullish ways through most of Wednesday until a respected analyst downgraded Wells Fargo to ‘sell.’ Then all hell broke loose, causing the Dow to plunge about 200 points in one hour. Although the venerable index closed down less than 100 points, the intraday swing was remarkably swift and certainly reminded traders of the adage that stocks fall much more quickly than they rise.

Wells Fargo “beat the Street,” earning $2.6 billion or 56 cents per share for the third quarter. Analysts forecast just 37 cents a share. Credit losses more than doubled to $5 billion year over year, but interest income rose 43% to $5.5 billion and non-interest income from mortgage banking more than tripled to $10.7 billion.

10.22.09
Goldilocks vs Chicken Little

To begin on a personal note, when your editor was a college student in the 60’s studying human biology (in classrooms, I might add), I was dismayed to find that the curriculum for such studies reduced virtually all my ‘wholes’ to ‘parts’ and all my living subjects to mathematical formulae. Having expressed a desire to study life, I was required to study numbers.

10.22.09
Wild, Wild Wall Street

On a wild day on Wall Street, the Dow was up for most of the day and even touched 10,100 before falling apart an hour before the closing bell. Earnings reports from Morgan Stanley and Wells Fargo helped boost the index, but an analyst’s recommendation to sell Wells Fargo late in the day started a selloff in financials. The Dow ended Wednesday down 92 points, bringing it below 10,000 once again. Oil on the other hand has once again surpassed the $80 threshold and gold continues to shine. A falling dollar helped push oil past $82 a barrel before settling at $80.84 for the day.

10.21.09
Moment of Decision

The market was continuing merrily in its bullish ways through most of Wednesday until a respected analyst downgraded Wells Fargo to ‘sell.’ Then all hell broke loose, causing the Dow to plunge about 200 points in one hour. Although the venerable index closed down less than 100 points, the intraday swing was remarkably swift and certainly reminded traders of the adage that stocks fall much more quickly than they rise.