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Saturday, October 31, 2009

Weekly Newsletter -- November 1, 2009
Always a Winner Strategies

                                                  

Economic & Stock Market Analysis for the Discerning Investor & Executivewww.peternavarro.com Read it and Reap!  America’s appetite for cheap Chinese goods is as strong as its political will is weak.” 
Week Ending Nov 6, 2009                                Volume15, Number 18               

 

This Week: Nailed It? Probably

Stock market trend: Likely market top reached

Market Pulse

For the past month, as both market technical indicators and macroeconomic fundamentals have deteriorated, I’ve been warning of a possible market top in my Always a Winner newsletter.  In preparation for that market top, I took my profits from the March run-up by closing almost all my long position.

I say “almost” because the only long positions I have maintained are a couple of penny biotech stocks that move largely outside the business cycle and a GE 2011 leap that I still like in that time frame. 

That said, even though I hung on to that GE 2011 leap, I fully hedged it by shorting actual GE shares.

Last week, I went from warning about a possible market top to calling an actual market top and bearish trend reversal.

Putting my money where my mouth is, I also went to a net short position by buying a significant holding of TWM, the ultrashort exchange traded fund for the Russell 2000.

While I may be wrong about this market top, I’m still amazed at the level of ignorance of many of the commentators I hear on my favorite financial network on which I myself am a contributor – CNBC.

In fact, some of my colleagues are insisting that market drop to end October was simply due to end of quarter profit-taking by mutual funds trying to put their best bottom line forward.

This seems like all so much nonsense when one looks soberly at both market technical indicators and macro fundamental.

Let’s start with the market technicals.  Both strength and momentum indicators for all major U.S. indices – the S&P 500, the Dow, the Nasdaq, and the Russell 2000 are negative.  In addition, key sectors ranging from financials and technology to real estate and communications are showing marked deterioration.

Note that this is a very, very different landscape from just a few months ago when virtually every major exchange traded fund for every major market index both within the United States and around the globe could be considered a strong buy.

As for the macroeconomic fundamentals, the scenario that I raised in an earlier video for the Street.com of consumers failing to follow through on what has been an investment led recovery seems to be coming to fruition. The central problem that consumers continue to face is a lethal combination of high unemployment, rising oil prices, falling home prices, and stagnant wages.

Looking ahead -- as the stock market almost always does -- it's becoming more and more difficult to envision a scenario in which strong robust economic growth in 2010 significantly reduces America's double digit unemployment rate. In addition, we are facing at least 10 more years of historically unprecedented budget deficits that are likely to turn today's dollar into a few pennies in value. That's a recipe for precisely the kind of bearish trend reversal I think we are about to be witness to.

Even though I have now called the definitive market top, for most traders, I don’t recommend going short. This is because stocks tend to fall a lot faster than they rise. What this means is that a trader has to pay even more attention to day-to-day, and even hour to hour, movements of the broad market indices.

That said, as I indicated earlier, my shorting instrument of choice is TWM, the ultrashort exchange traded fund for the Russell 2000. I like using the Russell 2000 because it generally has more volatility than the other major indices.

If you would prefer going short the other major market indices, here's how you can do it.  SH is the shorting ETF for the S&P 500 while SDS will take you ultrashort.  PSQ is the shorting ETF for the NASDAQ while QID will take you ultrashort.  Finally, DOG is the shorting ETF for the Dow while DXD will take you ultrashort

7:49 pm edt 

Monday, October 26, 2009

Weekly Newsletter -- Week Ending Oct. 30, 2009
Always a Winner Strategies

                                                  

Economic & Stock Market Analysis for the Discerning Investor & Executivewww.peternavarro.com Read it and Reap!  America’s appetite for cheap Chinese goods is as strong as its political will is weak.” 
Week Ending October 30, 2009                      Volume15, Number 17               

 

This Week: Calling a Market Top – Feldstein for Fed Chair

Stock market trend: Inflection Point – Likely Trend Reversal   

Market Pulse

It ain’t over til it’s over, but as a speculating man, I’ve been betting that we’ve reached a market top in the U.S. and that that top may well be signaling the onset of a double dip U.S. recession in one to two quarters. 

Loyal readers will know that I took most of my profits off the table some weeks ago and went to a cash and hedged strategy.   In this next phase, I will hold my long positions in my cycle-resistant biotechs but I am moving cautiously and in small steps towards a net short position on the broad U.S. market to try to capture some of what I believe will be a downward move (TWM is my favorite shorting tool for the broad market). 

That said, I don’t recommend this strategy for newbies – instead, newbies may want to consider simply a cash portfolio until this latest bump in the road sorts itself out.

My bigger fear beyond a new bear market now is a double dip recession.  Increasingly, I believe that the consumer won’t follow through on our investment-led recovery.  I also think that Bernanke’s easy money policy is going to start a round of competitive devaluations globally that will be very destructive.  Already the weak dollar is hurting countries throughout Asia and Latin America, from Columbia and Peru to South Korea and Taiwan – and the central banks in those countries are trying to prevent the dollar from eroding their competitive advantage.

In the old days, Fed interest rate cuts simply stimulated domestic investment and had little ripple effect on the U.S. currency and U.S. exports.  Today, with domestic business investment in the GDP equation increasingly offshored, interest rate cuts do little to stimulate that investment.  Instead, modern Fed policy operates as a U.S. “beggar thy neighbor” policy via the declining greenback.  To reiterate, that beggar thy neighbor policy is inflicting considerable harm in both Europe and Latin America.

If the U.S. falls into a double dip recession – or even continues with very slow growth for another year (or more), that puts a very different spin on a lot of things, including the reappointment of Ben Bernanke.

For the record, reappointing Bernanke is asinine.  He helped create the original financial crisis with loose money. He has mismanaged the recovery.  The “recovery” really isn’t going to be a recovery.

Where’s Martin Feldstein when you need him?  He’s the only economist I know who could assume the reins at the Fed and steer this sinking ship through the dangerous waters we are in.

Memo to Congress: Don’t give the captain of the Titanic another term.

12:37 pm edt 

Saturday, October 17, 2009

Weekly Newsletter: Market Top?
Always a Winner Strategies

                                                  

Economic & Stock Market Analysis for the Discerning Investor & Executivewww.peternavarro.com Read it and Reap!  America’s appetite for cheap Chinese goods is as strong as its political will is weak.” 
Week Ending October 22, 2009                      Volume15, Number 16               
Note: If you want a trade with virtually no downside risk and an almost certain strong upward move over the longer term, check out my latest contribution to theStreet.com. It offers up a way to speculate on the eventual decoupling of the Chinese yuan from the US dollar.  Click here.

This Week: Market Top?

Stock market trend: Up, Strong Risk of Pullback or Trend Reversal   

Market Pulse

For the last month, I’ve been warning about the possibility of a either a market pullback or bearish trend reversal.  During this time, I’ve moved much of my own portfolio into cash while hedging my long term long holdings (primarily GE leaps).  While the US stock markets have continued to rise, albeit at a slowing pace, technical analysis continues to indicate an ongoing deterioration. As Market Edge writes in this week's Market Letter:

“The technical condition of the market deteriorated once again last week as the Momentum Index remained in negative territory while the Strength Indexes fell further into bearish ground. While the DJIA was posting new recovery highs last week, negative divergences continued to develop suggesting that the move may be suspect. The 14-day RSI, which is a short-term momentum indicator, failed again to confirm the DJIA's recent high. Also, the Up/Down Volume Ratio for most of the major averages continues to lose ground. This indicator, which is a measurement of accumulation and distribution, typically tops out prior to a significant decline. Finally, the market is in a very overbought condition as evidenced by very high stochastic readings and the near record high level of stocks above their respective 50 and 200 day moving averages.”

For those of you who consider technical analysis to be some kind of "voodoo," my view is that there is almost always an underlying fundamental analysis explanation for technical phenomena. The big picture here is that the underlying US economy along with Europe, Canada, Mexico, and numerous other weak spots continue to grapple with high rates of unemployment and the high likelihood of growth rates well below potential output. The latest earnings reports have been mixed at best and have therefore not provided the necessary fuel for a strong breakout above current market resistance levels. The fact that the Dow broke through 10,000 and then fell back last week should at least be a mild warning sign to anyone who thinks this bull market may not be at risk.My broader philosophy here is that it's better to protect the large gains many of us made since the March lows than to give back a significant chunk of that profit by engaging in unprotected trading during a period of high uncertainty when the risk of a pullback or Trend reversal is at least as high as a follow-through on the current bull market.Last take: Check out the biotech penny stock DUSA.  It just broke through a major level of resistance and is poised for a possible upward move. Trading the Dollar/Yuan PairIf you want a trade with virtually no downside risk and an almost certain strong upward move over the longer term, check out my latest contribution to theStreet.com. It offers up a way to speculate on the eventual decoupling of the Chinese yuan from the US dollar.  Click here.
12:21 pm edt 

Sunday, October 11, 2009

Australia -- China's "Commodity Colony"

Stock market trend: Up, Seeking to Break Through Key Resistance Levels 

Market Pulse

Last week, my market pessimism got run over by an Australian rate hike as the U.S. stock market shook off a two week slide and powered up another notch.  Once again, the key resistance level of 10,000 on the Dow is in sight with the Dow’s 4% gain last week.

Since Australia’s rate hike was such a catalyst for that mini-bull run last week, it’s worth understanding the bullish logic behind.  The logic hinges on the argument of Australia as a bellwether of recovery and reflation in the broader global economy.   To put this in more concrete terms, if Australia needs to raise interest rates, it must be growing robustly and if its growing robustly, other countries in the region must be growing as well.  It follows that if Asia is growing, the rest of the world must follow.  Ergo, global markets shall boom.

Let’s try on the bearish counterargument, however, for size and see whether the bullish or bearish shoe fits.

In truth, Australia has become one of China’s most important “commodity colonies.”  Down under is merely as extraction pit for the coal, ore, and other raw materials needed to fuel China’s factory floor.  Since China has undertaken the most massive and effective fiscal stimulus of any major economy and since its growth has been well above projections, it’s no wonder that one of its most commodity colonies is booming too.  However, it doesn’t necessarily follow at all that the rest of the world, or even the rest of Asia, will be booming as well any time soon.  In fact, the big danger is a collapse in what some are describing as an emerging bubble in China.  Ergo, global financial markets won’t be booming anytime soon.

Perhaps the best argument for the longer term bearish interpretation of Australia’s “canary in a China coal mine” moment on the world financial stage is this observation from Market Edge about last week’s allegedly bullish move:

“The technical condition of the market deteriorated once again last week as the CTI lost another point, the Momentum Index, which gained some ground, remains in negative territory and the Strength Indexes fell into bearish ground.   Despite last week's broad based advance, the negatives still outweigh the positives at this juncture suggesting that the market is vulnerable for a setback.”

I remain primarily in cash with a hedge on my long positions to see how the “Pisani Paradox” is ultimately resolved.  Only when we break through key resistance levels and the fundamentals improve will I try to leverage the current up trend.The next few weeks will help clarify the picture as its “earnings season” once again.  Just remember here to ignore actual earnings and focus primarily on how companies are “guiding” for the next few quarters.
11:19 am edt 

Saturday, October 3, 2009

This Week: The Bear Cometh Biden, Pelosi Must Go (October 9, 2009)
Always a Winner Strategies

                                                  

Economic & Stock Market Analysis for the Discerning Investor & Executivewww.peternavarro.com Read it and Reap!  
Week Ending October 9, 2009                        Volume15, Number 15               

 

 

Stock market trend: Topping 

Market Pulse

Last week, I indicated that moving to cash or fully hedging your long positions was an appropriate strategy until resolution of what I referred to as the Pisani Paradox. That paradox refers to the bearish sentiments of many Wall Street traders who, despite those sentiments, had remained long to take advantage of an upward trend they really didn't trust.

As I indicated last week, and it is well worth repeating, the problem facing our economy and financial markets is that we are in the midst of a recovery being propelled artificially by a massive and unsustainable fiscal and monetary stimulus.  Yet, despite the current upward trajectory, even the best projections show very high employments rates through the end of next year.  In addition, most economies around the world will remain below potential output through 2010 while racking up massive budget deficits and inevitably contain the seeds of economic destruction.

Well, so far so good on my call to cash/hedging as the markets clearly had a tough week. During that week, my preferred hedge, the UltraShort Russell 2000 ProShares exchange-traded fund, rose by nearly 10%.

 As I indicated last week, and this, too, is worth repeating, I like using TWM because it has more volatility the instruments one might use to short the Dow or S&P 500.  I also like using the UltraShort feature because I can buy fewer shares to achieve my desired hedge.

Now that I'm in the green on this trade, I have put a trailing stop in place to make sure I don't give it all back. Of course, I would refer that the market remain in an upward bullish trend. It's a lot easier to make money in that environment, as evidenced by the last six months. However, if you follow this column, you are macro trader, and you know that you must simply take what the market gives you -- or the market will be taking what you give it.

Anyway, it may as yet be premature to write off the 2009 bull market. However, the technicals of this market are clearly deteriorating in the face of fundamental realities. In this regard, one of my favorite informal stock market indicators of a topping trend is the number of upgrades on the Market Edge website. On Friday, that number was less than 20 when it is often 50 or more daily during a bullish move.

Now for a few short takes:

First, Barack Obama should've known better than to put his capital on the line pimping Chicago as an Olympic site. Many of the people of Chicago didn't want it anymore than the Olympic Committee. More to the point, as a poker player, Obama should've clearly understood that the smart money was on Rio de Janeiro for two reasons. One is that South America had never hosted the games. Two is that there still is plenty of animosity towards the US and picking the giant behemoth over emerging Brazil was unlikely. He just looked weak and stupid and air again all the same time -- positively Bush-like his naïveté.

Second, and speaking of weak and stupid, Obama's shredding of his presidency early in his term by mishandling his healthcare initiative tops even the Clinton debacle that led to the rise of Newt Gingrich and his "Contract with America." The Democrats better hope that 2010 doesn't shred their majority in both houses of Congress. Even in the best case scenario, by 2010, the Democrats will not be holding a 60 seat supermajority in the Senate. (I like Nancy Pelosi is a person but as a House Majority leader she's been a total disaster. She needs to be replaced by a tough talking, middle-of-the-road pragmatist like the guy she beat out -- Steny Hoyer.)

In this regard, these observations are not partisan in any way shape or form. Bush left this country with the worst economy and largest trade deficit in our history. People on both sides of the aisle expected better from Obama. Instead, he is likely to leave us with the largest budget deficits in our history without solving our economic problems. If he has any sense, he will drop everything on his legislative agenda that doesn't pertain to the short and longer-term recovery of our economy. Talk less, do more, please get off the tube for a while. (Joe Biden needs to go is his vice president as well. What a freaking disaster.)Navarro on TheStreet.com
11:35 am edt 


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DISCLAIMER: This newsletter is written for educational purposes only.  By no means do any of its contents recommend, advocate or urge the buying, selling, or holding of any financial instrument whatsoever.  Trading and investing involves high levels of risk.  The authors express personal opinions and will not assume any responsibility whatsoever for the actions of the reader.  The authors may or may not have positions in the financial instruments discussed in this newsletter.  Future results can be dramatically different from the opinions expressed herein.  Past performance does not guarantee future performance.







DISCLAIMER: The newsletters and blogging on this page are written for educational purposes only.  By no means do any of its contents recommend, advocate or urge the buying, selling, or holding of any financial instrument whatsoever.  Trading and investing involves high levels of risk.  The authors express personal opinions and will not assume any responsibility whatsoever for the actions of the reader.  The authors may or may not have positions in the financial instruments discussed in this newsletter.  Future results can be dramatically different from the opinions expressed herein.  Past performance does not guarantee future performance.

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