Happy Holidays Everyone

Well it was a pretty quite week on the street - which is to be expected at this time of year.

It was not without its share of continued bad news however. It is getting to be a bit of a broken record with continued layoffs, decreasing earnings or increasing losses, reduced spending, etc etc.
A GUYS GOT TO DO WHAT A GUYS GOT TO DO - did you see that Apple has caved and is now selling iPhones through Walmart. Now that is a sign of the times! It is easy to sell the latest and greatest technology at premium prices and through exclusive shops when the money is flowing, but competition has grabbed a chunk of share and Apple is going to try and get it back by selling out to Walmart. With the stock off over 50% in the last year they needed to do something. They are only allowing a 1% discount at the moment. I doubt this will hold for long.
My short picks from last week for the most part came off as expected and are now set up nicely to get on board with sell fractals in place for a lot of them. Here is the charts for Dupont (DD) as an example. We can look at shorting at the $24.25 area. The same setup exists for a number of the Dow stocks.
For those looking for something on the long side: GMCR, DLTR and EBS. That EBS just keeps on motoring. It helps to have a monopoly on an anthrax vacine.

Hopefully the volume will pick up a bit next week.

All the best

As Expected $17.4 Billion in Aid

Just in time for Christmas, GM and Chrysler get loans to bide some time. The dollars come from the TARP funds. I guess Bush didn't want to leave office with GM bankrupt. I am sure he must be ready for Obama to take over.

For those that like to bash the Big 3 for creating their own troubles please note that Toyota will be posting its first ever loss for the year ending Mar 09. The recession is hurting all companies.

I also noticed that Paulson has asked for the remaining $350 billion after already commiting the first $350 billion. A billion here and a billion there pretty soon we are taking some serious change. Those printing presses must be running full time!!

Similar to lkast week, this week the markets remained relatively flat. This is the calm before the storm as the bulls and bears continue to circle each other waiting to see who will make the first move. I assume we will probably see more of the same over the holidays with renewed activity in the new year. Still waiting for the indication of which way things will go before commiting serious funds to the markets.

In the mean time continue with straddles and playing a few nice set ups. Unlike the indices we have seen some nice rallies off the bottom on some individual stocks and there is more and more talk of a bottom in place. One of our picks a couple of weeks ago was RMBS. This is the type of rally you want to be on. (It would be nice if the market did that wouldn't it??)

One other thing I have noticed this week is people using the D word. The D word is the new R word. The fear mongers will use Depression shamelessly, but you can really hardly blame them can you. Every day we continue to hear of more and more layoffs. It is going to be a difficult Christmas for a lot of individuals. Below is the commodities index. It makes you realize why the D word has surfaced.

I have warned before about getting sucked into stocks for their high dividend yields. Those yields can't get trashed if dividends are cut. Case in point Weyerhaeuser (WY) cut its dividend by 58% this week. Things don't look so great any more.

For this week I will continue straddling with an expected move in the New Year. My gut is still saying new lows and I see a very common pattern that I will highlight this weeks in my list of potential shorts from the Dow:

DD, DIS, IBM, IP

Others outside the Dow:

APH, ARO, CVD, GES, AMAT, EBAY, HON.

Its Just a Matter of Time

The big news this week was the debate over automakers aid. Thursday's Senate stale followed by the White House on Friday signalling it will come to the rescue after all by maybe using the TARP program.

Lets face it this industry and its political position will get bailed out. There is just to much at risk. It sure is a hot button though and expect to see fireworks flying once the details are ironed out.

There is a lot of pent up anger out there just waiting to be released.

In the meantime ongoing reports of layoffs, earnings misses, foreclosures and bankrupcies. There is blood in the streets and it is getting worse by the day.

Just a few more weeks before the changing of the guard at the White House. People wanted change. I just hope they have a lot of patience. This is one pair of shoes I wouldn't want to be walking a mile in.
As far as the markets are concerned, as expected we had a gap open on Monday, but no follow through. In fact the rest of the week saw selling just to end the week with things looking a lot like it did last weekend.

There are a lot of people out there saying that a bottom is in place now, but there is just as many not willing to put their money, (or what is left of their money) where there mouth is. The bulls and bears are circling each other with no winner yet. Without a trend in place we continue to play with only a small portion of our funds.

It looks like we may see some upside on Monday for those that want to test the waters again. Otherwise trading the hourlies.

Be careful.

1 in 10

Well as expected there was more bad news last week, ending with Friday's announcement of the worst employment data in 30 years. Oil maked new lows with the inevitable reduction in demand from the continued recession.

One statistic I read however really put this crisis into perspective and keeps me bearish long term. 1 in 10 American housholds with a mortgage is over due on payments or in foreclosure. For subprime loans 1 in 3!!!

BUT the market shrugged it off with a rally at the close. In fact when we reviewed the charts we can't help but feel we are in for some positive action (in the short term).

The Q's made a bullish divergent bar a couple of weeks ago and it looks like there will be a continued up move here. I believe, from an Elliott wave perspective, that we saw the completion of the major 3rd wave at that time and are now in the 1st move of the major 4th wave. Given the volitility this is one 4th wave that we may be able to play in, although cautiously.

Fridays rally has created a number of bullish set ups to test the waters with.

Even the financials XLF.

So for Monday consider:
DIA
QQQQ
XLY
XLF
XLV
XLI
XLB
XLK

Still short the commodities. GSG

Be careful out there. These are definately counter trend trades. (We are in a BEAR market)

Black Friday

It was a relatively quiet week with the US Thanksgiving celebrations.

After a big meal the shoppers were out in force, but most were out looking for bargains and bargains is what they got with huge discounts offered by a number of retailers.

Coming into Friday they new that consumer spending was already down, there were job losses everywhere, tighter credit and the already reduced home values and stock portfolios from this crisis. Discounts are what were needed to get these wallets opened.

Keep tuned for the results, but the feeling is that retail spending if growing at all will be at significantly off.

Although volume was light the markets did have the best week in 2008 with the NYSE +12.9%, S&P + 12% and the Nasdaq + 10.9%. Of course for November we still have NYSE - 7.6%, S&P -7.5% and the Nasdaq -10.8%.

Although I still do not think the bottom is in place yet we cannot ignore the nice set ups in a number of stocks and following the rules take a stab at some of these rallies.

For bottom pickers we have DIS, DD, C, BA, AA, MRK, INTC, IBM, GM, and GE to name some of the Dow stocks that have had KRD's at the low and have begun to rally off.

For continuation trades try PETS, AFAM, EBS, or THOR.

All these look good if there is any follow through after this weekend.

I am still holding a number of puts but am willing to hedge with some longs depending on how things open on Monday.

You cannot forget that the market is a leading indicator and will turn before all the bad news is in place. This week we will find out how the sales were as well as a number of other significant indicators.

Let’s see how the market reacts!!!

And the Shock Waves have continued

Last week we continued to hear about the after shocks....and then Thursday the market made new lows.

Jobless claims, factory activity and a number of leading economic indicators showed worse then expected results. Claims for unemployment benefits jumped to a 26 year high!!

The money ran for the hills - treasury bills and money market that is, with 2 year treasury yields dipping below 1%. That is still a lot better then exposing your money to the risks this market holds.

Fannie Mae and Freddie Mac trying to figure out what to do about all these bad mortgages decided to halt foreclosures on 16,000 until Jan 19. They want to work out terms with the homeowners that they can afford. Get in line they are also busy paying off credit card debt and are in line for unemployment benefits. (Let’s see if they can finally figure out that age old question - how do you get blood from a stone???)

As far as companies go we saw a continued slew of earnings miss. Those that didn't miss seem to be decreasing their outlooks for the future. Either way the stocks were pounded. Look at Dell although sales are declining they were able to have better then expected Q3 earnings by cutting expenses. Of course once you cut to the bone and sales continue to decline earnings inevitably follow suit. Dell closed Friday under $10.

Anyone who has been sucked into entering the market for the high dividend yields can now expect these dividends to decrease. Look at KEYCORP as an example. It dropped its dividend by 67%. Be careful with this latest strategy!!

Another approach some are being sucked into is buying (supposedly) good companies at these (supposedly) cheap prices. How can you not be tempted by the likes of AIG at $1.60, FNM at $0.30 and CROX at $1.04? These are all off >90% from their highs and surely have only one way to go. Well there are a lot of companies that will end up at $0. High risk speculation at best.

As you know I have been waiting for this 4th wave to end and a resumption of the down trend. This happened Thursday with a new low made. Of course we did a nice rally Friday. Is this a sign the bottom?Personally I am not banking on it and in fact added puts this week. So far the Dow if off approx 40% from its high. When the Dow bottomed in 1932 it was off 88% from its high. I say this just to show the potential and why I refuse to pick bottoms. I think some people got excited about Obama polishing the new car, but just remember it is out of gas...

For those of you expecting a bounce Monday given the KRD I have a few picks for you to buy above Fridays high: BA, RY, SWY and UTX.

For those expecting a continued down move a couple of shorts NBL and NXY and of course the Q's DIA, SPY etc....

Be careful out there...

The Shock Waves Have Begun

We continued to trade in this 4th wave pattern last week with some wild swings. (Drifting lower until Wed, hitting the bottom of the channel Thursday morning, with a strong rally at the end of the day. Any excitment was squashed Friday before close.)

Anyone who is hoping for a reversal here had their dreams shattered Friday as more and more shock waves hit the news:

Retail sales plunge 2.8% (with more to come - Abercrombie and Fitch expecting same store sales to crash 28%)

Nokia cuts industry sales targets - will have ripple effects throughout the industry with suppliers like Qualcom, Texas Instruments and Broadcom to name a few beginning to feel the pain.

Sun Microsystems cutting 6,000 jobs

Citicorp cuts 10,000 jobs - and to help finances have raised interest rates on credit cards by 3%.

It amazes me that the government on one hand is helping bail out banks who are lowering mortgage rates and offering longer terms to those holding risky mortgages, but letting them screw their customers on the other hand by raising interest rates on credit cards. Is it just me or do those handfull of banks seem to be getting the best deal in town.

And the poor NYSE has been forced to lower their standards in order to keep business. They have decided to ban the penny stock restriction. Otherwise they would be loosing the likes of Fannie Mae and Freedie Mac, and for us Canadians gasp Northern Telecom which closed at $0.56 on Friday. (Some were laughing at me for suggesting shorting Thurday at $0.75 - not a bad return for a days work!!!)

The next big decision will be what to do with the auto sector - bailout or bankruptcy. Suffice it to say they may be joining the penny stock status soon!!!

As far as trading, the Alligator is sleeping and it is still best to stand aside. Personally continue to straddle with some short positions as I expect new lows before the dust settles. (The shock waves have only just begun)

And The Winner Is

Obama made history last week and has been elected the 44th President of the United States.

The markets reacted with a two day drop of 9.7% the biggest 2 day drop since the market crash of October 1987.

The week has seen joblessness hit a 14 year high at 6.5% and confirmation that the auto sector is bleeding dry.

Obama has stated that he will confront this economic crisis head-on after becoming President. Yah think!!!!

Robin Hood to the rescue. The only difference is that all will be paying for this crisis.

Having said that I still think we are in the wave 4 with almost all charts still looking the same.

We took a stab at SLV last week with a small gain but like most breakouts are not following through.

Anyone buying must be willing to cut losses short and focus only on strong fundementals.

We have been following AFAM and even it is looking over extended now. (Maybe time to short soon)


Although this is the Q's almost all charts look identical.

My advise is that cash is still king but if you are in a position to day or swing trade lets short Thursdays low (but be ready for the buy fractal just in case the market rallies from her.)

Keep your stops tight.

Peter

The Calm Before the Storm

This is the week we have all been waiting for.

When the US decides on the next Leader of the Free World.

Change is the Battle Cry, but sometimes you should be careful what you wish for. I have a feeling that the changes we will see in the next term will not be pretty. If the market is a leading indicator we know what it thinks.

October was the worst month in the last 21 years with the damage taking place in the first week of trading. Since then we have seen continued volitility as I believe a 4th wave has begun.

For those of you who have been day trading, (the only relatively safe alternative in this environment), we have seen a nice bounce off the bottom as shorts cover and a few bargain hunters start picking up percieved value).

Whether a sucker rally or a true bottom only time will tell.

We have seen the same action in the commodities side with small rallies in coffee, sugar, cattle, beans, silver, copper and crude.

However, you still can't ignore the $9.2 billion removed from mutual funds last week. Sure it is a lot less then the $43.3 billion removed from funds 3 weeks ago, but we will need to see inflows to have a sustained rally in my view.

Have you been watching those earnings announcements - not a pretty picture.

Be careful out there.

Global Bear Continues to Maul

What a time for a Traders Boot Camp which was held this weekend in Halifax.

Thanks again for hosting this great event!

We reiterated the fundemental rules of trading - trade with the trend, cut loses short and let profits ride as well as reviewed key market sectors and numerous stocks and ETF's to figure out where we are and what is the best approach in this environment.

From last week those that took Warrens advise are kicking themselves now. The Dow futures were trading limit down at one point Friday as Global market continue to collapse and experience levels of volitility the likes of which have never been seen in history.

The Dow broke the wedge we were looking at last week, not a good sign for the future.

Our take away for the most part is stay away until things calm down. For those that can handle the wild volitility, stick to the short side with puts, ultra short index ETF's, or just plain shorting.

In case you haven't noticed this is a BEAR market. Although Q3 earnings are now coming out with some dissapointments the recession has really only just begun. Wait until the Q4 earnings hit the fan.

Although the majorty of stocks are well off their highs the same things could have been said a few weeks ago and the market has continued to make new lows.

Buffet says "BUY"

That is easy for him to say but who the hell has any money left to buy with?

The average person has just seen their life savings wiped out.

The rest were already so far in debt they are busy filling out forms at the bankruptcy offices.

Hey I just had a great idea!!

Why doesn't the government get the remaining banks to lend everyone money (maybe no interest for 2 years) so they can buy stocks. Then we could all live happily ever after.

Oh sorry they already thought of that before and it really didn't work out did it.

As expected the markets although remaining volatile really didn't do much this week. In fact they appear to be forming a bear flag.


If this breaks we may see 7,000 in the future. I guess we will just have to keep our fingers crossed hoping Buffet can shift perception enough to avoid another trouncing.

Peter

The Market is the Great Equalizer

Did you see Bush's speech Friday urging America to resist feelings of "uncertainty and fear" in the economic crisis.
Now there is a plan!!!
It sure didn't help in the first place telling America that is was going to hell in a hand basket in his previous speeches.
Ultimately the market is the great equalizer and will do what it has to do to put things in their proper perspective. No amount of political rhetoric will change that.

WHAT A WEEK




I was looking for 8,000 on the Dow but I didn't think it would happen in 1 week.
The real question now is has the market found a bottom???



Well here is the chart of the Dow for the last 10 years and it sure aint pretty. Five years of gains gone in the 12 months. There is not only blood in these streets but the carcasses are pilling high!!
I have had a number of traders tell me they are looking at selling naked puts after the bounce Friday afternoon. All I can say is they have bigger Kahunas then I do.
Grant it the premiums are huge but it is in no way a guarantee. My advise maybe consider a calendar spread sell the short term puts but buy some longer term one for a little protection.

Stocks

Suffice it to say our strategy of cash with some shorts has worked out well. (I only wish I was even more aggressive on the shorts but hindsight is 20/20.)
The question is what do we do now. Well as always discipline and patience are key. We need to wait for the proper signals and even then at least until things settle down keep our positions small and our stops in place.
You will notice a number of key reversal days Friday and a number of opportuniites on Monday to buy Fridays high as a test of a rally.
Personally I am still straddling the market. I have been able to roll this over a number of times in the last month with gains on every position. However the premiums are swelling now and the success of this strategy may be limited now.

ETFs

XLY - KRD
XLP- KRD
XLF - KRD
XLK - KRD

I think what we have seen is the end of the 3rd wave in most things and that we will be entering a time of contemplation. A 4th wave that will last for some time.
But remember anything can happen.

Peter

Rescue Bill Passes, but Stocks Sell Off as Economy Slows

That really does sum up this weeks action as headlined this weekend in IBD.
Rescue Bill was signed but US cuts 159,000 jobs in Sep.
The US economy is in trouble and we know how to profit from that!!
Of course we also no that this has been a reality for some time now. It was a year ago that the Dow topped out and has been deteriorating ever since.
Friday saw new lows with little support in the near term.


IBD 100
Even the IBD 100 stocks took a shit kicking last week and the over all quality of these best picks is no longer what you would call superior.
It is like picking from your cleanest dirty shirts instead of a new clean one.
Looking over the 100 stocks there even appears to be some great short candidates. Now that is bad.
ETF"s
The ultra shorts were obviously the big winners this week with most earning 20-30% returns in one week!!!!
Commodities
It is not only the financials taking a hit here. The commodities peaked a few months ago. (Remember when oil and gas were going to keep going up for ever)
New lows in Coffee, corn, cattle, copper heating oil, soybeans, cocoa, wheat, lumber, orange juice, cotton, platinum and natural gas.
Wachovia
You have got to love Citigroup sulking over losing that battle. You just know that the Wachovia shareholders are getting Royally reamed and the Fargo team is laughing all the way to the bank. (They will now be able to get a bigger piece of that bailout windfall no doubt)
This week
Again you just got to be riding the short side until there is any sign of a bottom here.
Still straddling the market for short term spike from the idiots willing to buy into this charade.
Watching gold closely for resumption of up move.
A COUPLE OF SHORTS FOR THIS WEEK:
THOR
ENER


Peter

Don't yank all your money out

CNN does it again with this brilliant headline.
Of course they have been saying the same thing for the last year every time the market has a really bad day.
Yeah wouldn't have wanted to pull your money out a year ago and miss this great action.
( -20% on the blue chips!!)
They also say that it is these times when buying opportunities arise. They don't explain how to take advantage of these opportunities if you hadn't yanked your money out in the first place.

We saw it coming and went to cash long ago.
Anyway it was a very exciting day today. Once again you guys are getting the crash course these last few months. (Pun intended).
Puts are working out beautifully. Took some profits today but looks like there is still some room to go here.
Sure you buy when there is blood in the streets, but this is still a time where cash is king. Leave the falling knives alone, you will get cut. We will know when it is time to buy and your patience will be rewarded.
In the meantime stay short if at all. Limit exposure. Remember our motto "Want what the market wants"

Peter

The Great Debate

Anyone looking for answers as to how this bailout will work didn't get any during the debate.
There was some finger pointing though..
IBD this weekend also points some big fingers under Uncommon Knowledge title -
"Fannie and Freddie were created by Democrats, regulated by Democrats largely run by Democrats and protected by Democrats"
Anyway it was so much easier for the Presidential candidates to debate about Iraq, Iran and Pakistan then to offer any real solutions for what ails the good ole United States of America.
Of course part of the reason is that no one has a clue yet. My bet is they will throw money at the problem, inflation will raise values and other bubbles will be formed. (Alternative energy is my bet)
The goal is to still come up with something before the markets open on Monday. Lets see.
Again I have been recommending cash at this time, It is just to much of a gamble. (although I am still holding some short positions not confident that this is going to work out any time soon)
Suffice it to say whoever takes over the reins from dubya sure has their hands full.
Speaking of bubbles.
If you recall we were looking at shorting RIMM in July when the MACD divergence occurred. This is one stock we will be reviewing at the next Boot Camp. In the meantime spend some time thinking about this one knowing that there are more out there and we know how to find them…(and why day traders miss all the fun)


Stocks:
Here is a long candidate for Monday for those that want to play. A breakout above $60.


Some others:
Longs - SNE and UTX
Shorts - CEPH COCO GIS and WMT (Also ready now to short KFT after riding the 5th wave up)
ETF's
XLE - stopped out with profit. Still looking to go long again.
GSG - nice divergence waiting for daily fractal This is looking great and will rise with rescue..
GLD- quite after run up last week still looks like good long
SLV- quite after run up last week still looks like good long
USO- quite after run up last week still looks like good long
QQQQ- straddling can't wait for Monday

Peter

"STOCKS BUY INTO RESCUE PLAN"

This was the weekend's IBD headline. (and check out that font)
Then below that in smaller font the real issue - Questions abound over bailout.
What really caused the spike on Friday? With what appears to be an imminent economic meltdown are the pros really buying up stock or where the shorts scrambling to cover scared of what more craziness this government might do to calm the countries fears.
First they took away the up tick rule and then eliminated shorting in the financial sector. Talk about party poopers..

The shorts had quite a ride with Citicorp!!
Don't you just love dubya's quote "There will be plenty of time to debate the origins of this problem. Now is time to solve it."
The solution: buy up all the crap mortgages from the failing financial institutions. That’s hundreds of billions of $$$ by the way. Whoever said there is no such thing as a free lunch was obviously not a CEO. Of course one mans free lunch is another billions peoples burden.
As far as debate the origins of the problem - well that really won't be much of a debate the answers are obvious. The finger pointing and excuses however will offer some great reading. All the hearings will also give George something to do in his retirement.
And finally that issue of question abound over bailout. Like most great solution the devil is in the details.
As an example: I am a mortgage officer who needs to get his numbers up, you come to me wanting a mortgage, well I have a deal for you we are offering $0 down and 0% interest for 5 years. My appraiser also tends to be Liberal on his estimates and the fact that you work in the American auto industry doesn't really concern me. Outcome you have a mortgage of 110% of the value of your house and can just barely cover the monthly payments. The extra $ you got went to buy new car, big screen TV, iPods for the family, trip to Bahamas etc. No savings. Fast forward - real estate values have dropped, auto industry layoffs, and interest payments now due.
Ant they wonder why no one has been able to sell these mortgages. Talk about your hot potato!!!
Now if the banks had to value these mortgages correctly they would be bankrupt, so the government will pay face value save the banks and then have to come up with a way that people don't walk away from there homes and cause a continued downward spiral in the real estate markets. Sounds like its not only the CEO's that are going to get a free lunch….
Some possible solutions: discount the principal so people can stay and pay something or reduce interest rates or …..
In the meantime what do us traders do?
This last week has been a day traders dream. But not for the faint of heart. There is excitement and then there is craziness. I suggested small positions if at all and that Cash is King.
Still am not to anxious to trade until the dust settles a little more.
For the more conservative of us swing traders I suggested moving to ETF's where the dogs were not so crazy. We got nicked into the XLE on Thursday at $66.50 seeing it get as high as $78.10 on Friday and close at $71.25. Not a bad move for 2 days. But again insane action best left to the pros..
For ETF's:

XLE - still long. Unless you took advantage of Fridays craziness. Stop $69.
XLV - crazy open. This is why we wait to see open and/or use limit orders. wait
XLB - same as above
XLK - same as above
XLU - same as above
GSG - nice divergence waiting for daily fractal
GLD- still for day trading only
SLV- still for day trading only
USO- nice divergence waiting for daily fractal
QQQQ- flat waiting

As far as stocks:
As you would expect we had some nice breakouts, but pullbacks into the afternoon similar to the etf's.

Peter