Decipher, Understand and Profit

Monday’s OEX alert commentary sums up the market well:

Last week we saw the market move from lows of 9850 to highs of 10,300. As you review our Dow projections note we believe we are still in the same Dow cycle.

Our projections list the lows and highs of last week. Profits were possible each day of the week on the massive whipsaws, and the light two way trades that occurred like clockwork as the market would struggle to make "good" of news, and interpret the woes of an island (Greece) that are making the EU think on how to "save" a country.

Mixed signals as to economic recovery vs. economic unemployment woes are woefully explained, and we as a people expect the impossible.

From Floydian logic, when there is a severe recession there are massive layoffs. All the credit given explodes. The economy implodes. Businesses are slow to rehire, as they cannot get credit, and fewer buy from them because they are not working. It is a circle that can only be broken by massive exuberance (we are far from this), easy money at low interest rates (how we got in this place), or time, as the recession slowly leads to inflation.

Thinking Obama is to blame for high unemployment is stupid. Of course the economy is to blame, and the economy will decide how it will react----the will of the people in the breathing of the market.

We saw a clear and severe near 10% drop as we hit Fibonacci highs in the past two weeks, and whipsaw could continue, but longer term (two weeks) we are slightly bullish.

_______________________________________________________________

Gann believed in a peaking 10 year cycle, and there are a whole segment of market numerologists that note historical peaks occur just after a year ending in “9”.

If the market becomes truly bearish each sector must break down, slowly but surely, so that there is no safe sector.

We have partly been led up by near zero interest rate environments, although no new loans have been available, but allowed true market speculators to borrow against margin for virtually nothing and invest in the run up. We have “fed ourselves” perhaps and not realized someone must gain the food to really feed us.

Our reality is that many states cannot make payroll, or have adjusted budgets to make things “unreal” so that they could continue, and this is not from “Obama the socialist but an historic attack on the money blunder we’ve created worldwide for 20 plus years while our environment burned up and few really got rich”.

This is important. In the past 20 years few people really got rich. Did you? Taking out what has “influenced your life” what is different in the “winners” from 20 years ago, and the losers.

There is a large market appetite for municipal bonds. Some believe this is a contrary indicator, as there will surely be defaults in these optimistic bonds in a few years. Remember the public is the magnetic opposite of what the market will attract, buying real estate to the top, and I think now bonds.

We will continue to see the USD, Euro, and Commodities whipsaw around world events, and interpretations.

It will be a year of market choices, with enough risk and we suggest specific market moves in April, Sept and November. Some of the best money to be made will be in protecting core assets alone.

Outside of U.S. Treasuries it’s interesting to look at some of the top holdings China has in the market:

Teck Resources-3.5 billion

Morgan Stanley -1.8 billion (actually more in subsidiaries)

Blackrock-713.8 million

Share S & P Global Materials ETF-254 million

IShares MSCI EAFE Index 207.4 million

Vale-498.00 million

AIG-14.3 million

News Corp-4.1 million

Apple-6.3 million

Now, look at the top 10 “respected companies” in the world, according to Barron’s:

1. Apple

2. Johnson and Johnson

3. Proctor and Gamble

4. IBM

5. Berkshire Hathaway

6. Toyota

7. McDonalds

8. Google

9. Cisco Systems

10. Amazon.com

If the Euro continues to decline, and it’s likely, many “international divisions of large companies and Europe in general could suffer more economic decline.

Here are a few stocks in the S&P500 that make a bunch of cash overseas, and could be short or put trades if the Euro continues its decline. Keep your eyes on:

1. Philip Morris PM

2. Qualcomm NEM

3. Texas Instruments TXN

4. Nvidia NVDA

5. Schlumberger SLB

Each of these companies had 86% or more of their income outside of the U.S.

We all clearly know what Bernanke will do: increase the difference between the discount rate and federal-funds rate. “At some point the Fed will increase short-term rates and drain some of the money it had pumped into the economy during the recession”. No such move is imminent. Geithner also stood by the solidity of the U.S. Treasury and assured all we will not lose A bond ratings.

This is a complicated and silly mess, and both these guys did inherit it.

As a businessman I know that near zero rates is right, but money must flow.

I am lost at the “lock” on Washington by what appear bipartisan games that stop anything from happening.

How sad. And who to blame?

As a liberal, conspiracist, provocateur and cynic ( my best qualities) I see that the GREED and the 540 (those in the House and Congress) makes real action in our hallowed halls unable to execute.

We are a country unable to execute a plan.

“Debt to GDP ratios over 90% significant impact on the pace of economic growth.”

“The President’s economists peg long-run growth at 2.5% a year, implying per capital growth at 1.7% “ Boskin, in the Wall Street Journal, write When Deficits Become Dangerous

From my perspective we are creating too much debt, yet we have no choice, and there will be no choice but higher taxes over 10 years.

Of course I am troubled by this, as I am troubled by the lead up to the fiscal and moral edges we allowed ourselves to cross, and the world is vastly changing; most of these debts, of these “social programs”, may be the necessary change in consciousness that must take place in our country.

“If China is the engine of growth, a Chinese tightening will slow world growth and hurt countries that need to increase revenue”-James Bianca, Bianco Research

And from this you wish to decipher, to understand, and to profit.

Getting Past What We Think Will Occur

Last week in the market was an argument between optimism, pessimism, oversold, overbought, supply and demand, and cause and effect all in one.

Friday showed how VIX, and the complacency the market had felt, was far from true; instead, a pent up consolidation continued to erupt.

The market hit theoretical Dow lows Friday of 9797, only to close at 10,012, or 10,042 on the theoretical. For months Floyd has provided projections, and discussed what is called a Fibonacci retracement. This ancient mathematician used his numerology analysis to predict that from the "lowest low" of something it will rise 38 and then 63%. The market did just that and we predicted hesitancy and confusion at 10,746. We've been doing so for months. As the market reached this, and a slight step above it, we began to see the faltering. Fibonacci and chartists typically see a 10 to 20% pullback from the new 63% highest high. This would put the Dow at 9671. Friday we came very close to this bottom before ending the day, psychologically important, 10,000 mark.

“We are not human beings going through a spiritual experience. We are spiritual beings going through a temporary human experience.”

This great quote came from subscriber Johnny K, our trader with a life threatening brain tumor that speaks with me daily.

We must learn this experience as we trade. Trading is a human art, and a form of discipline.

Many of us are on a search for God; others of us believe we are spiritual beings going through this temporary human experience when we only “know what we know” and often think "that is everything.”

As traders much of our experience must be getting past what we think will occur.

Or, more importantly, what we are “theorized” is the issue.

Here’s an example:

The world now thinks Paulson’s 585 billion first bail out while the Cowboy and the War Monger were still in office was a fraud…. but when one reads what Immelt, CEO of GE, told Paulson during this time we can see his concerns of a “total monetary breakdown from the insurance derivative betting” a whole new picture begins to arise.