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Market Monitor shows good buying pressure

Posted on 10/30/2008
Wednesday was Fed interest rate decision day. The overseas market on Wednesday built on their Tuesday gains, however US futures were subdued early morning and in early trading stocks opened lower from the massive gains from earlier day. The market came off low by 10.30 and went sideways till Fed rate decision.

Fed cut rate by half a point. This news was priced in to the market. The rally on Tuesday was in anticipation of this cut. Initial reaction was negative. Then the market attempted a rally. It seemed like we will close positive and then things just went crazy. In 10-12 minutes the Index dropped 400 points.

Market Monitor 4% breakout ratio for the day is 758/235. Which indicates very good buying pressure. Unlike last bounce, this bounce has much better breadth. That is a encouraging sign. At this stage market is focused on beaten down stocks. Stocks from bottom twenty sector with more than 50% drop from six month high had some of the best moves today. The casino sector stocks like MGM,LVS, PNK , PENN, etc had very big one day moves.

Stocks moving on above average volume on Wednesday:
Apollo Group Inc Cl A,APOL (Google Yahoo Earnings Chart)
Aerovironment Inc,AVAV (Google Yahoo Earnings Chart)
Avalon Pharmaceuticals Inc,AVRX (Google Yahoo Earnings Chart)
Black Box Corp,BBOX (Google Yahoo Earnings Chart)
Chimera Investment,CIM (Google Yahoo Earnings Chart)
Carmike Cinemas,CKEC (Google Yahoo Earnings Chart)
Clearwire Corp Cl A,CLWR (Google Yahoo Earnings Chart)
Capital Trust Inc Md,CT (Google Yahoo Earnings Chart)
ProShares Ultra Oil & Gas ETF,DIG (Google Yahoo Earnings Chart)
Empire Resources,ERS (Google Yahoo Earnings Chart)
Fmc Corp,FMC (Google Yahoo Earnings Chart)
Homex Development Corp,HXM (Google Yahoo Earnings Chart)
Icon Plc Ads,ICLR (Google Yahoo Earnings Chart)
Idt Corp,IDT.C (Google Yahoo Earnings Chart)
Kendle Internat Inc,KNDL (Google Yahoo Earnings Chart)
Las Vegas Sands,LVS (Google Yahoo Earnings Chart)
Midway Gold Corp,MDW (Google Yahoo Earnings Chart)
MGM MIRAGE Inc,MGM (Google Yahoo Earnings Chart)
Mgic Investments Corp,MTG (Google Yahoo Earnings Chart)
Meritage Homes Corp,MTH (Google Yahoo Earnings Chart)
Newtek Business Services Inc,NEWT (Google Yahoo Earnings Chart)
New Gold Inc,NGD (Google Yahoo Earnings Chart)
Northwest Pipe Co,NWPX (Google Yahoo Earnings Chart)
Pmi Group Inc. The,PMI (Google Yahoo Earnings Chart)
Parexel Internat Cp,PRXL (Google Yahoo Earnings Chart)
Power-One Inc,PWER (Google Yahoo Earnings Chart)
Ritchie Bros Auctioneers,RBA (Google Yahoo Earnings Chart)
Royal Dutch Shell plc Class B ADR,RDS.B (Google Yahoo Earnings Chart)
Clamore/Raymond James SB-1 Equity Fund,RYJ (Google Yahoo Earnings Chart)
Spectrum Pharm Inc,SPPI (Google Yahoo Earnings Chart)
Seaspan Corp,SSW (Google Yahoo Earnings Chart)
Savient Pharmaceuticals Inc,SVNT (Google Yahoo Earnings Chart)
Tessera Technologies Inc,TSRA (Google Yahoo Earnings Chart)
Uranerz Energy Corp,URZ (Google Yahoo Earnings Chart)
ProShares Ultra Basic Materials ETF,UYM (Google Yahoo Earnings Chart)
Viacom Inc Class A,VIA (Google Yahoo Earnings Chart)
Wright Medical,WMGI (Google Yahoo Earnings Chart)
Widepoint Corp,WYY (Google Yahoo Earnings Chart)
Dentsply Internat Inc,XRAY (Google Yahoo Earnings Chart)

Fed cuts rate

Posted on 10/29/2008
The Fed statement:

Release Date: October 29, 2008

For immediate release

The Federal Open Market Committee decided today to lower its target for the federal funds rate 50 basis points to 1 percent.

The pace of economic activity appears to have slowed markedly, owing importantly to a decline in consumer expenditures. Business equipment spending and industrial production have weakened in recent months, and slowing economic activity in many foreign economies is damping the prospects for U.S. exports. Moreover, the intensification of financial market turmoil is likely to exert additional restraint on spending, partly by further reducing the ability of households and businesses to obtain credit.

In light of the declines in the prices of energy and other commodities and the weaker prospects for economic activity, the Committee expects inflation to moderate in coming quarters to levels consistent with price stability.

Recent policy actions, including today’s rate reduction, coordinated interest rate cuts by central banks, extraordinary liquidity measures, and official steps to strengthen financial systems, should help over time to improve credit conditions and promote a return to moderate economic growth. Nevertheless, downside risks to growth remain. The Committee will monitor economic and financial developments carefully and will act as needed to promote sustainable economic growth and price stability.

Voting for the FOMC monetary policy action were: Ben S. Bernanke, Chairman; Timothy F. Geithner, Vice Chairman; Elizabeth A. Duke; Richard W. Fisher; Donald L. Kohn; Randall S. Kroszner; Sandra Pianalto; Charles I. Plosser; Gary H. Stern; and Kevin M. Warsh.

In a related action, the Board of Governors unanimously approved a 50-basis-point decrease in the discount rate to 1-1/4 percent. In taking this action, the Board approved the requests submitted by the Boards of Directors of the Federal Reserve Banks of Boston, New York, Cleveland, and San Francisco.

A big bounce.....

  • It had breadth and Market Monitor numbers show 2000 plus breakouts. However volume was not as massive as the point or % move. We have only 48 EP and only 7 of them were on 10 times volume.
  • Overnight markets were very strong yesterday. Many of these markets had several days of selloff before that.
  • US futures were strong and a gap up was indicated, setting us up for a big up day.
  • Market opened strong, but gave up the gains after the consumer sentiment data came out. However it never looked in trouble.
  • Slowly it started rebounding from the lows and steadily built a up move. The move accelerated post 2 pm.
  • At this stage we do not know whether this is bottom. My expectation was only for a big 1-2 days up move of 10%. That has happened and most of the gains also happened yesterday.
  • What the move tells us is a possible double bottom is in the process.

A buy day

Posted on 10/28/2008
  • What started as a good day ended badly yesterday.
  • There was major weakness in overseas market prior to our market opening. However buyers were active and we were not affected by the weakness.
  • Initial bout of buying looked to set up the market for a good day. Fear of missing out on a rally had traders buying the midday strength.
  • However the strength proved illusive and sellers resurfaced in last few hours and the close was ugly.
  • While the action continues to be negative , the Market Monitor readings have not reached extreme. The reversal in MM readings seen on 9th October still holds.
  • The world markets coming in to open are today in reversal mode and we are likely to see some buying interest at open.
  • For us Indians today is a must buy day. It is Diwali day. Traditionally Indians buy stocks, gold, or land on Diwali day. So I am a buyer today. At least a token buy is must today in the spirit of Diwali for us.

Another triple-digit loss on Friday is no longer news

Posted on 10/27/2008

Friday, Asian and European markets plunged. Early morning on Friday it looked ugly for our market. How ugly , futures were limit down and electronic future market was closed. Sentiments were so negative that , to calm investors, the New York Stock Exchange had to confirm in the morning that it would open as usual. There were lot of rumors of 1000 point plus drop in the morning session, triggering circuit breakers, closing the market for some time and so on.

At the opening, the market plunged by around 550 points. What everyone anticipated did not materialize. So the market spent rest of the day going sideways and in final hours putting together a small rally to end down around 300 point. For some reason, people did not panic, and the Dow bounced off its early-morning lows. Another triple-digit loss on Friday is no longer news in these volatile times.

In the United States, where the crisis began, investors were less alarmed than elsewhere. A rout in Asian and European stock markets sent the Dow Jones industrial average swooning by more than 500 points in early trading in New York, but trading recovered enough ground through the day to leave the Dow down 312.30 points, or 3.6 percent.

Just a year ago, a drop of that size would have been considered a black day in the markets, but in these days of routine triple-digit declines, it offered a modicum of relief to traumatized investors.

Today again we are looking at a ugly action in overseas market. Let us see what happens after the open.

Market panics and bounces

Posted on 10/24/2008
Bottom 20 ETF
Some of the most spectacular bounces happen when market panics. So if you want to look at playing one of those bounces, look at the ETFs most likely to revert.

And always remember the quote from a classic Wall Street book .....

Henry Clews wrote in Twenty-Eight Years in Wall Street (1887):
But few gain sufficient experience in Wall Street to command success until they reach that period of life in which they have one foot in the grave. When this time comes, these old veterans of the Street usually spend long intervals of repose at their comfortable homes, and in times of panic, which recur sometimes oftener than once a year, these old fellows will be seen in Wall Street, hobbling down on their canes to their brokers’ offices.

Then they always buy good stocks to the extent of their bank balances, which they have been permitted to accumulate for just such an emergency. The panic usually rages until enough of these cash purchases of stock is made to afford a big “rake in.” When the panic has spent its force, these old fellows, who have been resting judiciously on their oars in expectation of the inevitable event, which usually returns with the regularity of the seasons, quickly realize, deposit their profits with their bankers, or the overplus thereof, after purchasing more real estate that is on the up grade, for permanent investment, and retire for another season to the quietude of their splendid homes and the bosoms of their happy families.

The definitive look at Wall Street in the 19th Century
Perhaps the 19th century's best book on Wall Street, Fifty Years in Wall Street provides a fascinating look at the financial markets during a period of rapid economic expansion. Henry Clews was a giant figure in finance at that time, and his firsthand account brings this colorful era to life like never before. He reveals shocking stories of political and economic manipulation and how he helped bring down the mighty Boss Tweed. He writes eloquently about the madness of the markets and how the era's greatest speculators amassed their fortunes. This book provides an expansive view of Wall Street in an era of little regulation, rampant political corruption, and rapid financial change.
Henry Clews was born in England in 1836 and emigrated to the United States in 1850. In 1859, he cofounded what became the second largest marketer of federal bonds during the Civil War. Later, he organized the "Committee of 70," which deposed the corrupt Tweed Ring in New York City, and served as an economic consultant to President Ulysses Grant.

From the Back Cover
Author Henry Clews was a giant figure in finance during the late nineteenth century, and his firsthand account brings this colorful era to life like never before. This abridged version of an investment classic touches on a wide range of important financial issues, including:
  • The causes and consequences of Wall Street panics
  • The influence of Wall Street on national politics
  • How individuals like Jay Gould, Daniel Drew, and Commodore Vanderbilt made their fortunes
  • The characteristics of winning and losing speculators
  • How operators attempted to corner the markets for individual stocks

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Everyone is staring at their screens in disbelief

We are headed for a bad opening going by the futures. As of 6 AM all three indexes are showing 6% plus down move. We are now in really unknown territory. Just hold on to your nerves and wallet.

S&P 500 futures dropped 60 points to 855.20 and Nasdaq 100 futures fell 81.5 points to 1,172.00. Dow industrial futures fell 538 points.
The drop on the S&P 500 contract was so much that it triggered a halt in electronic trading.
Thursday's session for U.S. stocks was erratic but generally positive, with the Dow Jones Industrial Average closing 172 points higher and the S&P 500 rising 11 points, though the Nasdaq Composite slipped 11 points.
But that wasn't the case in Asia, where the Nikkei 225 tumbled 9.6% in Tokyo as Japanese traders got their first chance to react to Sony's profit warning, and the Kospi plunged 10.6% in South Korea. Europe stocks also were crushed, with the Dow Jones Stoxx 600 losing 6.6%.
"Everyone is staring at their screens in disbelief," said Tom Hougaard, a strategist at City Index in London.

It depends on your style

Posted on 10/23/2008
After a major reversal few week ago, market went up some 14% in few hours on low volume, since then it has been tough going for the market. In 9 days since then it had 3 up days and 6 down days on Market Monitor. At this stage it is still a more retest of that low 9 days ago.
How you look at this market is a function of what is your style of investing or trading. Market consists of various players with various motivation and holding period. The contrarians like to play opposite of prevalent pubic opinion. Value investors look for bargains. That is why Buffett was excited about this market. Technical traders look for levels, trend lines, patterns and so on. Quants would look for mean reversion in this market. Growth investors look for rapidly growing companies and they may not find much in these environment. The momentum traders look for established trend or momentum before committing.
At this stage barring few sectors and stocks, there is no momentum on long side. As a result you would not find many opportunities if you are primarily momentum trader.

Momentum yet to build on long side

Posted on 10/20/2008
The market has been volatile as of now. Which has been the story for sometime. If you are using a momentum strategy, what you are essentially doing is betting on a winning horse once race is halfway through and you can with reasonable confidence figure out laggards and likely winners. Currently we are in a market where momentum was on negative side, for it to turn positive, it will take some time.
Lot of the breakouts showing up in scans are from the laggard kind of stocks which are oversold. Such stocks have low probability of making big moves over a longer time horizon. They are good just for a few days bounce play.

If you watch the beginning of a Marathon, you would see many amateurs burst out in first few minutes with great speed while the real pros pace themselves. Similar things are happening currently. Low quality is bouncing , but they have low probability of making enduring rallies.

Constructive day

Posted on 10/17/2008
It was a constructive day. First 1000 plus breakout day since the MM turned bullish. However it is just one step towards tradable bottom formation. In the first phase of this turn the focus is on beaten down stocks and sectors. A typical mean reversion kind of play is happening. Stocks which had sharp down moves in last 2 months are attempting to reverse.

It is likely that we will see more attempts at testing the low of last Friday. It will take some time for the next set of leaders to emerge.

At this stage stocks are reversing from low.This list is full of such stocks for those looking to play reversals:

Apple Inc,AAPL (Google Yahoo Earnings Chart)
Ak Steel Holding Corp,AKS (Google Yahoo Earnings Chart)
American Tower Corp,AMT (Google Yahoo Earnings Chart)
Avalonbay Communities,AVB (Google Yahoo Earnings Chart)
Baker Hughes Inc,BHI (Google Yahoo Earnings Chart)
Peabody Energy,BTU (Google Yahoo Earnings Chart)
Boston Properties Inc,BXP (Google Yahoo Earnings Chart)
C.H. Robinson Worldwide,CHRW (Google Yahoo Earnings Chart)
Clorox Co,CLX (Google Yahoo Earnings Chart)
Cms Energy Corp,CMS (Google Yahoo Earnings Chart)
Centerpoint Energy Inc,CNP (Google Yahoo Earnings Chart)
Chevron Corp,CVX (Google Yahoo Earnings Chart)
Dominion Resources Inc,D (Google Yahoo Earnings Chart)
E. I. du Pont de Nemours and Company,DD (Google Yahoo Earnings Chart)
Danaher Corp,DHR (Google Yahoo Earnings Chart)
Dow Chemical Co,DOW (Google Yahoo Earnings Chart)
Ecolab Inc,ECL (Google Yahoo Earnings Chart)
Equity Residential,EQR (Google Yahoo Earnings Chart)
Fluor Corp (New),FLR (Google Yahoo Earnings Chart)
Google,GOOG (Google Yahoo Earnings Chart)
Genuine Parts Co,GPC (Google Yahoo Earnings Chart)
Harley-Davidson Inc,HOG (Google Yahoo Earnings Chart)
International Flavors & Fragrances Inc. ,IFF (Google Yahoo Earnings Chart)
Intuitive Surgical Inc,ISRG (Google Yahoo Earnings Chart)
Johnson & Johnson,JNJ (Google Yahoo Earnings Chart)
Kimberly Clark Corp,KMB (Google Yahoo Earnings Chart)
Liz Claiborne Inc,LIZ (Google Yahoo Earnings Chart)
Macy's Inc,M (Google Yahoo Earnings Chart)
Altria Group Inc,MO (Google Yahoo Earnings Chart)
Microsoft Corp,MSFT (Google Yahoo Earnings Chart)
Noble Corp,NE (Google Yahoo Earnings Chart)
Nisource Inc,NI (Google Yahoo Earnings Chart)
Nucor Corp,NUE (Google Yahoo Earnings Chart)
Ppg Industries Inc,PPG (Google Yahoo Earnings Chart)
Sherwin-Williams Co,SHW (Google Yahoo Earnings Chart)
Slm Corp,SLM (Google Yahoo Earnings Chart)
Simon Property Group,SPG (Google Yahoo Earnings Chart)
Steel Dynamics Inc,STLD (Google Yahoo Earnings Chart)
Questar Corp,STR (Google Yahoo Earnings Chart)
Teradata Corporation,TDC (Google Yahoo Earnings Chart)
Thermo Fisher Scientific Inc,TMO (Google Yahoo Earnings Chart)
United Technologies Corp,UTX (Google Yahoo Earnings Chart)
Vf Corp,VFC (Google Yahoo Earnings Chart)
Vornado Realty Trust,VNO (Google Yahoo Earnings Chart)
Walgreen Co,WAG (Google Yahoo Earnings Chart)
Wal-Mart Stores Inc,WMT (Google Yahoo Earnings Chart)
US Steel Corp,X (Google Yahoo Earnings Chart)
Exxon Mobil Corporation,XOM (Google Yahoo Earnings Chart)
Xerox Corp,XRX (Google Yahoo Earnings Chart)
Yahoo! Inc,YHOO (Google Yahoo Earnings Chart)