Bull Market for Dow Jones? Investors Aren't So Sure.

By David Berman

For a raging bull market, things sure are quiet out there.

The Dow Jones industrial average notched its fifth straight gain on Tuesday, re-conquering the 13,000-point level and hitting its highest level since December, 2007. The tech-heavy Nasdaq composite index blasted above 3,000 and is now at its highest level since 2000.

These are impressive milestones, to be sure. But a striking number of investors are giving the good times a wide berth.

According to Bloomberg News, recent U.S. stock trading volume has fallen to its lowest level since at least 2008, suggesting there might be a lack of conviction among many investors.

Daily moves within the market also seem muted by recent standards. Tuesday's 1.7-per-cent gain by the Dow represents its second-biggest jump of the year, but would hardly have caused eyebrows to flutter last year.

Meanwhile, the CBOE volatility index is reflecting a state of complacency. The so-called “fear gauge,” which tends to reflect investor anxiety, has pretty much fallen asleep. It fell below 14 early on Tuesday, close to a five-year low and a sharp dive from a level of 45 as recently as October.

If no one is fearful, few are excited either. Stock market strategists, normally a bullish breed, remain cautious in their targets for the S&P 500 and continue to recommend a relatively defensive asset mix, on average.

Many factors are driving stock market gains, including a rebound in financial stocks. U.S. banks jumped on Tuesday after JPMorgan Chase & Co. (JPM) and Bank of America Corp. (BAC) passed the Federal Reserve's stress tests of their ability to withstand financial shocks.

The economic backdrop also looks promising. U.S. retail sales rose 1.1 per cent in February, impressing observers who noted that it could drive first-quarter economic growth estimates higher.

“A pickup in ‘core' sales [that exclude things like cars and gasoline] would suggest that consumer spending growth is entering a more broad-based, self-sustainable phase of the recovery,” Chris Jones, an economist at Toronto-Dominion Bank, said in a note.

And on Friday, the Labor Department reported a solid gain in U.S. payrolls for February, which supported the view that the country's employment situation is also making headway.

The U.S. Federal Reserve Board acknowledged the improving economic conditions in its monetary policy statement on Tuesday, giving investors the best of both worlds: The economy is getting better but the central bank says it will continue to stimulate it anyway with ultra-low interest rates through 2014.

So why haven't markets been swept up in a wave of euphoria that would be reflected in rising trading volumes?

Bearish observers argue that U.S. economic improvements, while impressive, are lagging indicators that don't say much about what's coming. Lakshman Achuthan, co-founder of the Economic Cycle Research Institute in New York and one of the more accurate economic forecasters in recent years, is among the skeptics who argue that leading indicators continue to point to an oncoming recession.

As well, Europe remains a wild card, and not only because its own recession is looming.

Greece has secured another bailout and avoided a messy default on its debt obligations, but few observers believe that Europe's sovereign-debt crisis has been solved.

The yield on Spain's government bonds remains high, indicating continuing nervousness about the country's ability to rein in its deficits without sinking into a deeper economic hole.

As for the stock market's recent milestones, there's a catch: The S&P 500 doubled from its bear market lows in 2009 until last April, but has since gained a mere 3 per cent after overcoming last year's steep correction.

Low trading volumes suggest that many investors have concluded that while there's no reason to flee the market, there's no reason to embrace it either. They believe the market's big gains are in the past, not the future.

Microsoft, Nokia Have A Real Chance Of Disrupting The Smartphone Market

Any heavy smartphone user that has gone to one of the many providers in the US or the UK (AT&T (T), T-Mobile, Vodafone (VOD), etc.) has experienced the cost-benefit dilemma of setting up a new contract with a new phone. Three options usually emerge:

Get an iPhone
Get a Blackberry
Get an Android phone

I am about to explain to you why the rising option 4, get a Windows Phone, is going to become one hell of an option in 2012. In this post we will first look at the problems with options 1, 2, and 3. Then we will look at why option 4 will soon become very viable.

So for the problems with the first 3:

The iPhone. I can sum up this phone in three phrases: great software, great hardware, terrible cost. The price of the phone itself is already, well, let’s just say, high. To me that’s not the main problem. The cost of an iPhone contract that matches a heavy user’s needs is catastrophically high. Obviously a lot of individual users have gotten over this cost, as iPhones are selling like hotcakes, but for business users it’s a different story. Welcome to the worst rates for roaming data on the market, partnered with a phone that eats up data as soon as you turn on the “data roaming” slider to check a quick email or use iMessages. No phone has as many roaming costs horror stories as the iPhone does. No provider offers competitive roaming bundles. In comes the Blackberry.

The Blackberry. It’s too bad that Research in Motion (RIMM) can no longer make good mobile software or hardware, because their networking solutions are excellent. First you have BBM, a service that saw exceptional success for a long time. Then there are Blackberry’s servers and networks that allow carriers to allow unlimited data roaming plans for business users without too many costs. To a business user, being able to read emails, calendars, messages, and browse at all times anywhere completely trumps anything that an iPhone can do. It really is a huge, huge feature. To me this and their excellent security give Rimm the only perks that have allowed it to hold on to so many business users even though it is in decline.

The Android Phone. Some great phones, decent contracts, and good software. I know that there are cheap Android phones, but through what I’ve seen they’re not good phones. Because of the sheer amount of devices that run Android, pretty much any carrier can be used, and monthly costs are pretty good for contracts (see T-Mobile). However, for business users, there is no way of getting unlimited data roaming, so Android will not be stealing all of Rimm’s customers anytime soon. Add to that the fact that many people view the OS and ecosystem as lacking in security (since they are so open) and you have an OS that doesn’t suit everyone, especially not business users. Speaking of ecosystems, Android doesn’t really have one, it’s really just the phones. Google (GOOG) OSs are not popular for computers or tablets. An Android phone will never work as well with a Mac as iPhones do.

What we have then is a problem. There is no device right now that does it all: great cost, good contracts, great software, great security, a large ecosystem, and great hardware. In comes Microsoft (MSFT) with Windows Phone.

The ecosystem. Windows obviously has a HUGE ecosystem, and to its advantage, it pretty much has a monopoly on business users for a lot of computer software. With the release of Windows 8, I think that it will have a great OS for tablets, and it could expand that part of its ecosystem. From the Windows OS to Microsoft Office, this behemoth has it all. Syncing with business programs like Outlook and Office will be easier than on any other device.

The contracts. In this field I would consider Windows Phone to be in a similar place as Android: better than Apple’s (AAPL) iPhone, but worse than the Blackberry.

Software. Windows Phone 7 Mango has already gotten great reviews, and Windows 8 is supposed to be a large step forward when it comes out, so Windows definitely has the software. Add to that its productivity software, especially Microsoft Office, and you really have something great. Another thing that’s impressive is how different the Windows Phone OS is from the others. While Android and iOS are almost identical now, Windows has made an OS that truly simplifies tasks. Everything is reachable from the main UI, instead of having to be accessed through specific apps. One touch sends messages and updates everywhere, another searches for something everywhere, etc.

Security. Because it runs the most heavily virus targeted OS, Windows knows how to deal with malware. It has done it for years. Add in the fact that it runs a more closed ecosystem, more similarly to Apple’s than Google’s, and you have a platform that will be secure.

Hardware. So far this has been a big problem, as most manufacturers have been making sub-par devices for Windows. However, with Nokia’s (NOK) switch to Windows Phone 7, we are starting to see some beautiful, quality devices. See Nokia Lumia 900. That phone covers the high-end.

Low cost. What is truly special about Nokia is how well it delivers cheaper, low-end devices, which will be exclusive to Windows. The Nokia Lumia 710 is leaps better than any Android alternative at its price level (see a neutral review here). It really is a quality phone. No one makes inexpensive devices better than Nokia, and with a cheap Nokia Windows Phone, you are getting premium, unaltered software (many cheap android phones have awful custom and old versions of Android).

So Microsoft really has all of the things that it needs in order to become one of the top 3 players in smartphones. With the “cool factor” that surrounds iPhones and some Android phones fading, if it executes well, Microsoft has a real chance of disrupting the market and taking a large slice of it in the process. Its close ties with Nokia mean that if Microsoft succeeds with Windows Phone 7, so will Nokia, and vice-versa.

So there you have it. I see a “critical point,” or a turnaround, in 2012 for both Nokia and Microsoft, both riding on the success of Windows Phone 7 (although Microsoft’s stock price depends on many other factors). By the end of 2012 Windows Phone’s potential for success will be clear, especially after Windows 8 comes out, but by then it may be too late to grab either of those stocks at a low price. Right now I believe that with Nokia the risk is higher but the reward will be massive if a turnaround occurs, while with Microsoft there is fairly little risk but the reward will be smaller if Windows Phone succeeds, so it all depends on how much risk you’re willing to take.

"" Dow Theory "" Confirms Sell Signal.

If there were any doubts that stocks have entered corrective mode, the "Dow Theory" is now telling us the market is heading down.

The century-old Dow Theory, a way to analyze market trends and turning points, says both the Dow Jones Industrial Average and Dow Jones Transportation Average need to move in tandem to confirm the trend. On Tuesday, the Dow Theory officially gave a sell signal, as Dow industrials and Dow transports broke decisively through June lows, with the Dow transportation index hitting a 2011 low.

The selling comes as worries about the global economy have rippled through financial markets in recent weeks amid signs of further weakening.

The symbiotic relationship between the two indexes is a clear sign to Dow theorists that the economic message and the market outlook are moving in tandem. The idea is that making goods is one leg of the industrial economy and moving those goods around is the second leg, so their trends should be in sync.

Phil Roth, chief technical market analyst at Miller Tabak & Co., said in a Wednesday note that Dow theorists pointed to several divergent actions early last month. For example, the Dow transports hit an all-time high in early July, but the industrials weren't able to follow suit.

The actions were early indicators that the market's uptrend was due for a reversal, which consequently has taken place over the past few weeks. "A sell signal has been confirmed," Mr. Roth said.

The Dow Jones Industrial Average broke an eight-day skid Wednesday, rising 29.82 points, or 0.3%, to 11896.44. The Dow Jones Transportation Average — a 20-member index of airlines, railroads and trucking companies — turned positive in midafternoon trading, erasing a 1.9% loss, and finished up 0.5%, to 4967.18

Despite the intraday bounce, the index, which includes bellwethers FedEx and United Parcel Service Inc., remains firmly in correction territory, down 12% from its all-time closing high on July 7. For now, market technicians are adjusting their models to reflect the stock-market's swoon.

"New short-term oversold extremes mean probabilities are increasing for a short-term rebound, but a rebound is probably a reflex affair in a medium-term trend that just turned down," Mr. Roth said.

The Calm Before the Stock Market Storm

It was a relatively calm week as global stock markets for the most part flat-lined in the face of conflicting economic news and statements from the Federal Reserve.

The bulls and bears have largely been at a standoff since mid September, and while nobody can predict the future, I can tell you with some certainty that this stalemate will not continue.

In fact, the longer we remain in this sideways coiling process, the more powerful the breakout will eventually be, either up or down.

This coming week promises to add significant clarity to the future direction of the market and signal the end to the “calm before the stock market storm.”

Make no mistake, the storm is coming.

In the chart of the S&P 500 above we see a number of interesting items.

First off, notice the similarity of the patterns identified as #1 and #2. In July we can see the significant run up to the top circled in item #1, followed by a steep decline into late August, and it’s easy to notice the eerie similarity labeled item #2 with the run up in September to the top we’re currently in, followed by a dotted line indicating the next potential move down to the mid 1000 level or below on the index.

This move would be supported by RSI, labeled #3 and is currently overbought with this market condition confirmed by item #4, the Stochastic, also in overbought territory and looking much like its position in early August before the August decline that quickly dropped nearly 9% from the index’s value.

So it’s quite clear from a quick glance at just one chart that the next tradable move is most probably towards the down side.

The View from 35,000 Feet

The technical story is further confirmed by seasonality which points to October as the month most susceptible to steep declines and crashes while the fundamental picture is murkier.

And always present in today’s post crash world is the not so invisible hand of Dr. Bernanke and his colleagues in the equity and currency markets of the world.

Last week’s fundamental news was mixed with positive numbers coming from the Case/Shiller housing index showing a rise in home prices, a small improvement in the jobs outlook and improvements in the Chicago Purchasing Managers Index and the University of Michigan Consumer Sentiment Index.

On the negative side of the ledger we saw a conflicting drop in Consumer Confidence along with an ominous reading in the ISM report on Friday.

Just to take a closer look at the ISM report, it’s important to understand that it dropped to 54.4 from a previous reading of 56.3 and that readings above 50 indicated economic expansion. While seemingly not a huge decline, the internal components were significantly weaker with particular red lights flashing in the decline in new orders, a slowing of hiring and a significant rise in inventories, all of which precede a slowing economy and declining earnings.

Finally, and perhaps most importantly, the Federal Reserve has practically announced that they’re going to resume “quantitative easing” at the conclusion of their next meeting on November 3rd.

Chairman Bernanke, “Big Ben” as he is affectionately known in the blogosphere, telegraphed his intentions after their meeting on September 30th and this week William Dudley, the President of the New York Federal Reserve said, “Further action is likely to be warranted unless the economic outlook evolves in a way that makes me more confident that we will see better outcomes for both employment and inflation before too long.”

It seems safe to say now that the only questions are, “how much,” “how” and “will it work?” The consensus answers are $500 billion most likely distributed in smaller tranches rather than in the “shock and awe” fashion of last year.

Regarding “will it work?” the answer is “most likely not.”

A much bigger round of easing last year obviously didn’t work or they wouldn’t be starting off on another round now; it didn’t work in Japan and it didn’t work for FDR during The Great Depression. It’s quite likely that much of “QE2” is already priced into the market and that we would see a short term pop in asset values followed by more of the grinding market action we’ve seen all year.

What It All Means

In three words, “more pain ahead.”

We unfortunately have a long road ahead as a country and as investors and try as they might, the best the powers that be can hope to do is kick the can down the road, as the old saying goes.

Herbert Hoover, “the father” of the Great Depression learned this lesson and our current leaders should listen to his voice of experience: “Economic depression cannot be cured by legislative action or executive pronouncement. Economic wounds must be healed by the action of the cells of the economic body – the producers and consumers themselves.”

We will heal but it’s going to take some time and much more pain.

Over the last few weeks we’ve been in the “calm before the storm.” The storm is about to hit and will either take us to higher ground and safety or into a vortex of volatility and asset destruction. Wall Street Sector Selector remains in the “red flag” mode, expecting stormy weather and lower prices ahead.

The Week Ahead

It’s very likely that this week will be pivotal with large scale economic reports on the horizon and the official start of Q3 earnings season.

An Analysis Of The Death Cross Sell Signal

An Analysis of the Death Cross Sell Signal

Moving averages are used by many traders to identify trends as they smooth out price action and act as key support on the way up, and resistance on the way down. In fact, it is one of the most widely used technical indicators and extremely popular among high frequency traders because it is so clear cut and easy to program. It allows the trader to ride a trend higher and to cut losses short.

The death cross is a popular signal that when used properly can cut massive losses short. The death cross is also popular because many institutional investors use the 50 day moving average as a medium term average and the 200 day as the long term moving average. Basically, the crossover method signals a sell signal when the shorter term moving average crosses the longer term moving average to the downside. A buy signal is identified when the short term moving average crosses the long term average on the upside.

Crossover methods are easy to program into a computer. However, I must warn that one must use additional clues to create a sell signal. There are frequent whipsaws and failures when you use the crossover method in isolation.

Chart reading is an art that requires discipline, experience and study. Crossover methods used exclusively, such as by a computer program, will not produce the same results of an experienced technician who looks for other pieces of evidence to confirm the bearish crossover.

Similarly, back testing the results of the death cross using a computer program will not produce optimal results, since technicians look for additional signs of the breakdown than just the cross. I was recently interviewed by the Toronto Globe and Mail on this topic and explained that one must be aware of this crossover and its implications.

Some believe this signal is nonsense and show back-tested data with computer models. But they do not show the crossovers used in conjunction with other technical signals.

If the crossover signal is confirmed with a head and shoulders breakdown, a cross into new lows, and poor price volume action (which is occurring now), I will patiently wait on the sidelines. I will look for prudent short points when I see a price reversal and as the price comes up to certain resistance. If all these signs are coming together the probability of a whipsaw is significantly reduced.

It is also important to note that a death cross is further confirmed if the 200 day begins sloping downwards after the break. This will act as resistance on the way down.

A look at the death cross of the Dow in January of 2008 showed many of the signs of a market top and trend change. The 200 day which acted as previous support was violated on high volume and was followed by three failed railies at the 50 day moving average before crossing over. If not followed investors would have lost more than 60% of their portfolios.

Now is not the time to look for bargains but to protect your portfolio by selling on any bear rallies. I believe that this rally will be shortly coming to an end and we will continue to trend lower in equities. Use these rallies to prepare for shorting opportunities.

US Stocks Close Sharply Lower; DJIA Ends Month Flat

NEW YORK (MarketWatch) -- U.S. stocks tumbled Friday, with Bank of America, JPMorgan Chase and Alcoa leading the Dow Jones Industrial Average's components lower as investors again grew concerned about the economy after the short-lived excitement over Thursday's good report on gross domestic product.

The Dow Friday posted its biggest one-day point drop since April 20, and ended October just 0.45 point above where it began. Other major measures, including the Standard & Poor's 500 and the Nasdaq Composite, ended the month in the red, marking their first monthly declines since February.

The Dow closed down 249.85 points, or 2.51%, at 9712.73, marking its 10th triple-digit movement this month. Five of them were down and five up, reflecting how volatile the market has gotten as investors try to get a handle on whether the 48% surge in the Dow since March can be justified by economic fundamentals. For the week, the Dow fell 259.45 points, or 2.6%, marking its second consecutive week in the red.

Among the Dow's big movers Friday, Bank of America tumbled 1.15, or 7.3%, to 14.58, while JPMorgan slid 2.58, or 5.8%, to 41.77, and Alcoa dropped 58 cents, or 4.5%, to 12.42.

Across other measures, the Nasdaq Composite fell 52.44, or 2.50%, to 2045.11. It was down 5.08% for the week, and 3.65% for the month.

The Standard & Poor's 500 dropped 29.93, or 2.81%, to 1036.18. For the week, it dropped 4.02%; it was down 1.98% for the month.

Friday's declines come as the latest measure of consumer spending came in weak, reflecting the biggest drop since December 2008, although it was in line with economists' expectations.

Still, investors are growing hungry for economic data to start showing improvement and strength, rather than simply being above or in line with expectations. In addition, they are starting to wonder how much of the economic growth that was reported Thursday would have been there if it weren't for all the government support through such programs as the "cash for clunkers" funding for automobile purchases.

Nonetheless, some market participants said Friday's decline was typical of a market in recovery, and therefore no major cause for concern.

"It's not unprecedented after having such a strong rally," said Mary Ann Bartels, head of U.S. technical and market analysis at Bank of America Merrill Lynch. "Markets need to consolidate in order to achieve new recovery highs, and a correction will broaden out the base-building process we've been in since last year," giving stocks more support for a move higher, she said.

Life insurers fell in an exaggeration of the declines across the market, as the sector is exposed to equities through its variable-annuity guarantees and other equity-linked retirement-income products. MetLife was among the decliners, slumping 2.81, or 7.6%, to 34.03, after it swung to a third-quarter loss on $1.4 billion in investment losses. The life insurer's stock had climbed 7.8% Wednesday ahead of the report.

McAfee declined 1.87, or 4.3%, to 41.88, after the security-software company said its third-quarter profit fell 25% as higher costs led to lower margins.

Stereo maker Harman International Industries was a bright spot, surging 4.61, or 14%, to 37.61, after the company reported fiscal first-quarter sales above Street expectations. The company said its markets are stabilizing and it is gaining market share.

Estee Lauder also rose, climbing 1.36, or 3.3%, to 42.50, after its fiscal first-quarter profit more than doubled as the beauty-products company posted higher earnings across all of its businesses. Goldman Sachs raised its investment rating on the stock to neutral from conviction sell.

ITT fell 3.66, or 6.7%, to 50.70, after the defense and industrial conglomerate reported a 73% drop in third-quarter profit, stemming from a $131 million charge for asbestos-liability claims.

Cummins was down 2.86, or 6.2%, to 43.06, after the engine maker reported its third-quarter earnings fell 59% from last year's record results as it struggles in the face of weak North American and European trucking and construction markets.

Beckman Coulter fell 2.73, or 4.1%, to 64.33. The maker of biomedical instrument systems and test equipment posted a 94% plunge in third-quarter earnings as restructuring and acquisition costs masked higher sales and margins.

Universal Health Services' latest quarterly earnings beat analysts' expectations, but its shares fell 5.07, or 8.4%, to 55.65, as investors focused on the hospital operator's growing bad debt, which climbed more than analysts had been expecting. The news weighed on Tenet Healthcare, which fell 37 cents, or 6.7%, to 5.12.

With Dow Near 10,000, Stocks Might Get Stuck

Some strategists say sell-off might be in the cards.

NEW YORK (MarketWatch) -- With the Dow Jones Industrial Average fast approaching the 10,000 mark, more than a year after plummeting through it near the height of the financial crisis, market strategists believe passing the magic level convincingly might prove a sticky affair.

The blue-chip average holds a special place for the public. Reaching that level might therefore help soothe some of the trauma experienced when investors saw the Dow industrials sink more than 500 points on Oct. 7, 2008 -- the last day it traded above the 10,000 level.

"10,000 is such a big number," said Darin Newsom, senior analyst at Telvent DTN. "Reaching it the first time was a big deal and falling through it was a big deal."

But cheery media headlines and sighs of relief that 401ks have regained some ground might not be enough for the market, at least in the near term.

"For the market right now, it brings up the question of whether we're running out of gas," Newsom said. "Are we sizing up for a possible sell-off? These are some of the ramifications as we test this level."

Newsom thinks the Dow might be making a "last gasp" run at 10,000 for this year, as the market tends to reach highs in October. And reaching the number will raise questions as to what justifies further gains after the Dow's more-than-50% rally from its 2009 lows reached in March.

Overhead supply

"Being back closer to where we were before the disaster might signal it's time to get more cautious," said Marc Pado, market strategist at Cantor Fitzgerald.

A number of analysts, including Pado, believe the market is likely to run into so-called overhead supply below and above Dow 10,000. Overhead supply consists of a pool of willing sellers who had bought the market just before it went down and are keen to break even.

"The higher we go from here, the more supply we have," the analyst said.

The market has already shown signs of hesitations whenever the Dow has traded above 9,900. On Tuesday, the Dow industrials fell back 14.74 points, or 0.2%, to 9,871.06. The S&P 500 Index dropped 3 points, or 0.3%, at 1,073.18, while the Nasdaq Composite Index rose 0.75 points to 2,139.89.

Should the Dow break through 10,000 and hold above the mark against selling efforts, the level could then become support. Cantor's Pado still thinks the Dow will reach his price target of 10,500 before the end of the year. But not before a 7-10% sell-off in the market in the near term.

"We can continue to push higher but if companies reporting earnings only meet expectations, people will be disappointed and the 10,000 level will be the perfect excuse [for a sell-off]," he said.

Psychological factor

Retail investors have remained largely cautious since the March rally and Dow 10,000 might eventually do some work at restoring a certain level of confidence in the market, said Donald Selkin, chief market strategist at National Securities.

"Whenever it's a round number like that it's psychological," Selkin said. "A decisive break above that level, which would then be acting as a support on the downside, would in turn help investor psychology."

Selkin, however, also thinks that the market will first sell off upon reaching the level.

"We've been rallying into earnings and have had a relentless run to higher levels," he said. "We're very overbought."

Is October Correction Inevitable For The Dow Jones ?

In order to predict the future, one must consider the past and research similar market cycles to come up with a probable forecast for the future. After studying comparable periods to the one we are experiencing today, investors will realize that an October correction is not likely.

Consider the following:

We have not yet recovered fully from 2008. The market rebound after the crash of 1987 did not see a correction of 10% until 1990, which is more than two years later. Moreover, that correction was after "only" a 35% drop from top to bottom. At present, we are only six months removed from a 55% drop in the market.

October may be a negative month, but it's usually more in the range of 3% to 5%. The Octobers of 2008 and 1987 were the two biggest October sell-offs of the last 30 years, but each was preceded by a negative September. This year, September was positive.

During past October sell-offs, the month didn't represent the first wave of the attack. May and June often paved the way. October then stepped up to wipe out the survivors who believed the worst was over. Again, we did not see major selloffs in May or in June. In fact, this past June marked the fourth consecutive month of gains.

If we do sink lower in October, the catalyst can easily be the lack of top-line growth in earnings reports. However, if top-line growth is present, it can be another factor driving the market up in October.

To play devil's advocate, I must point out that six months after the market bottomed in 1987, the market was 21% higher. After the 2002 bottom, it was 24% higher. Today, we are 58% higher than we were in March. This is a significant jump.

To prepare investments for October, consider diversifying with a prudent amount of truly non-correlated asset classes like Treasury Inflation-Protected Securities (TIPS), commodities such as precious metals, managed futures and inverse funds.

If you have already pulled significant assets out of the market and are sitting on the sidelines, get back in but not all at once. Dollar-cost-average back into a diversified portfolio in order to avoid buying in on the worst day of the year, and consider tactical asset allocation programs for a small percentage of your portfolio.

On the fixed income side, TIPS is a good way to get some income and inflation protection. The Fidelity Floating Rate Bond Fund still looks attractive. Blackrock Global Allocation is a wonderful fund with multiple asset classes.

For equities, Tom Soviero and some of the rest of the folks over at Fidelity Leveraged Company Stock Fund, are some of the best in the business, as is the team running the Kinetics Paradigm Fund.

In conclusion, it is inevitable that a correction will occur in the market at some point, but research shows that an October correction is unlikely. A 3% to 5% pullback is conceivable for October, but do not prepare investments for a major selloff. You will regret it.

Stocks Bull Market Signals September Opportunity for the Bears

Dear Reader

The Stocks bull market continued to forge ahead with the Dow closing at 9544, after hitting a high of 9630 during the week, which is a stones throw from the target of 9,750, having advanced 3,280 points and more than 50% in less than 6 months, now it will be interesting to see how the market behaves as it enters the target zone for the termination of this phase of the bull run of between 9750 to 10,000, as my analysis of 5 weeks ago (updated this week) called for a more significant correction to follow than that which transpired during June to July, perhaps just about the time when many of the public bears throw in the towel and the not so smart money starts to pile in as greed replaces fear?

The perma bears having missed the whole bull market as each minor dip was THE end of the mistakenly labeled "bear market rally" for the rules are clear, pick up any reputable technical analysis book and you will read that a bull market is confirmed when an stock indices rallies by 20%, similarly a bear market is confirmed when an indices falls by 20% from a high, therefore regardless of the perma views of this being a bear market rally, whilst under the basis of technical analysis this rally has long since been confirmed as a bull market more than 30% ago! So much for the claims of following the basic tenants of Dow theory!

The stock market's powerful advance of 50%+ may soon give an opportunity for the perma bears to crow loudly as the market heads into the seasonally weakest period of the year i.e. Sept to October, especially as an technically overbought rally is well primed to achieve the anticipated 'significant' correction, perhaps even a crashette, where readers need to remember that the bull market would still remain intact as long as the Dow does not fall by more than 20% from the peak.

Rules exist for a reason, and that is to arrive at a FIRM TRADEABLE CONCLUSION, rather the deluded fixation that is indicative of a perma attitude that are perpetually fixated to one side regardless of the actual price action i.e. the whole rally has been supported by the crash is coming mantra for the past 6 months! A totally useless repetitive statement when it comes to the monetizing of analysis. There is no point in catching a say 15% drop if one fought against the 50% rally, as the net position is still for a 35% LOSS!

The target for the rally from 6470 has been for a move to 9750 to 10,000, at this point in time I continue to favour a price slightly north of 10,000 which would be enough to sucker early bears into losing positions, and as I voiced in this weeks update, the market's strong advance now points to an earlier peak.

Meanwhile the US Dollar continued to play out a double bottom pattern which is potentially bearish for gold, which in itself has traded in a tightening range that is likely to resolve soon, which again perma gold bugs hope will be to the upside though as my dollar analysis suggests it is more probably likely to be to the down side. I will cover Gold's probable trend in an in depth analysis next week as the existing analysis / forecast of January 2009 has expired.

On the topic of stock market plunges, Robert Prechter's latest 10 page Elliott Wave Theorist Newsletter, within which he states that the financial crisis is NOT over and gives a warning he's never had to include in 30 years of analysis.

Its Free, so grab it while you can !

Your stock index trading analyst.

By Nadeem Walayat

NEoWave Warns Stock Market Has Peaked for 2009

NEoWave Institute's Glenn Neely is forecasting the largest vertical drop of the decade for the S&P 500. Neely predicts the stock market will decline 50% in the next 6 months.

Glenn Neely, founder of NEoWave Institute and prominent Elliott Wave analyst, today announces a startling prediction: The S&P 500 is forming a major top in June, which will be followed by a large decline, eventually pushing the stock market to record lows for the decade.

"Technically speaking, according to NEoWave a correction began at last October's low; the March-June rally is the final leg of that correction," Neely explains. "The March-June rally is now ending, allowing the bear market to resume. During the next six months, the S&P will decline 50% or more, breaking well below 500!" Currently, the S&P is hovering around 900.

Glenn Neely is providing this information not as a specific trade recommendation but as a general public service announcement. A prominent Elliott Wave analyst, Neely was recently recognized in Timer Digest's May issue as the #1 stock market timer for the past 12 months.

About Glenn Neely and NEoWave Institute:Glenn Neely, who is internationally regarded as the premier Elliott Wave analyst, founded the Elliott Wave Institute in 1983. In 1990, Neely published his advanced Wave analysis process in his now-classic book, Mastering Elliott Wave. In 2000, Neely changed the name of his research and advisory firm to NEoWave Institute to differentiate his scientific Wave analysis technology from orthodox, subjective Elliott Wave analysis, which is frequently nebulous, inaccurate, and constantly fluid.

This article appear on 16 June 2009.

This is Not a Bull Market: Stocks Are Not Up, and They’re Headed Even Lower

How do you measure wealth generation?

1) Average annual gains?
2) Gains relative to an underlying index (the S&P 500)?
3) Gains relative to inflation?

Of these three, the last is the only real means of gauging wealth creation or destruction. Commentators have been going bananas over the fact that stocks are up 20%+ since their bottom of 666. No one mentions that this rally may actually be induced by the Federal Reserve pumping trillions of dollars into the financial system.

Similarly, no one mentions that adjusted for inflation, stocks are still WAY down from their peak during the Tech bubble. As you can see, stocks entered a bear market in earnest following the Tech Crash. Yes, in number or nominal terms, the Dow has risen. But you have to remember the dollar lost roughly a third of its value from 2001 to today.

Measuring stocks or anything in dollars between now and then was like measuring with a ruler that was continually shrinking. Also, bear in mind that the above chart is using the Government’s phony measure of inflation: the Consumer Price Index [CPI] which DOESN’T include food or energy prices. Using accurate inflationary data, stocks are down even more in real terms.

My main point is this: inflation is an ever-present reality in the post WWII era. Investors need to be protecting themselves from this beast at all costs. You can do this by:

• Buying gold
  
• Buying commodities or real assets
  
• Buying companies that can offset inflationary costs by raising the price of their products

I suggest having some money in all three. It’s the only certain way to protect your wealth from inflation. The Feds are cooking up an inflationary storm of epic proportions, pumping TRILLIONS of dollars into the financial system. Stocks may rally like a rocket-ship from here. But in real terms they’re still tanking. After all, if the Dow hits 30,000, but you’re celebrating by drinking a $150.00 coke… are you really any richer?

Article from Seeking Alpha.com (Sorry for not posting it so many days. Having holiday in China)

Is It Time to Sell in May and Come Back Another Day?

Warning shots are being fired.

For the first time in many weeks one of our indicators has delivered a sell signal. Our market leadership model needle is pointed at sell. We also noticed the breakdown on the charts as the NASDAQ crossed under the S&P 500 in terms of performance. The NASDAQ has led the way during this rally up, pay close attention to the lead dog. If it stops pulling the sled, eventually the sled stops moving in that direction.

Despite the markets' continued push upwards, our momentum models lost traction for the 3rd week in a row. For now it is still in buy territory, but one or two soft days and it will be in real danger of pointing at sell too.

Our real fear is that the indexes trade in what we call a triangle pattern (see chart below). We saw this same pattern in our Stock Market Report on June 12th of 2008 and warned investors to get out when the DOW Jones Industrials were at 12,200.

Our call comes a lot earlier in the chart pattern this time which leaves us some wiggle room. We would be very careful in the days ahead and think about pulling some profits off the table.

Investors might be wise to hedge against any fall in stock prices by putting some dollars to work in a reverse ETF. ProShares Short QQQ (PSQ) will return the opposite of the daily performance of the NASDAQ-100 Index®. If the index goes down PSQ goes up. For more excitement, ProShares Ultra Short QQQ (QID) doubles the fun.

A more market neutral trading strategy or hedge would be to buy the ProShares Short QQQ (PSQ) (shorting the NASDAQ) and buying SPDR S&P 500 ETF (SPY) (long the S&P 500). If the market falls and the NASDAQ falls faster than the S&P 500, you will profit. If the markets rise and the S&P 500 outperforms the NASDAQ, you will profit. Earlier we noted that the NASDAQ crossed under the S&P 500 performance wise.

Remember the old saying “go away in May and come back October’s last trading day.” The dog days of summer are here.