Pains, Trends, and Automobiles

retail salesAnother day of violent, volatile market movement. Day-traders are having a field day with this market, as the NYSE is looking more and more like the penny markets. In this waffling state of the market, I am being very careful of taking profits a bit more quickly when I have them, at least until some more consistency sets in either on the long or short side. Like I've said before, we are in a very critical point in this rally, where it looks like we are wanting to retrace a bit, however, with the low volume, bears are unable to make a firm move. Most stocks were down in early trading as more and more company stock offerings were announced. As I discussed yesterday, this should be a trend we continue to see from many companies, as there really is no other way to get capital at the moment, aside from The Fed. Wells Fargo, Morgan Stanley, KeyCorp and Capital Financial were just a few more of the companies that have decided to sell more stock.

After seeing most of the day trade in the red, especially with financials and real estate companies, once again we saw this continual "coincidental" end of day rally kick into gear, which at one point got the Dow up over 80 points, but closed just over 50 points. So, we witnessed yet another 100 point swing in a matter of minutes during the last hour of trading. I've harped on my suspicions of such activity in previous posts, so I will hold back, but what I will say is that I continue to be aware of the trend, especially as volume continues to be on the light side. Below, I have outlined this U trading trend that we have continued to see with the Dow recently, where we miraculously shoot up at the open, only to trade down for most of the day, then close with a violent jump. The fact is, whatever it is, we have to deal with it, and I have factored it in my trading strategies.

stock market manipulation
Tomorrow, the government will once again attempt to "control" the media tomorrow and set the mood for the day, as Secretary Geithner has scheduled a broadcast for 9:00 AM with the banks, conveniently to be following some retail sales numbers, as well as some earnings reports (Macy's and Dr. Pepper). It will be no surprise to me if we see retail numbers "better than expected", as we have been seeing a lot recently. It is no secret that March and April have had more encouraging data than January and February, in some departments. Sure, it has helped that the government dumped trillions of the dollars into the system, but even so such results are not unfamiliar in this type of environment.

In the graph below you will see the several strong, violent bear market rallies we experienced during The Great Depression from 1929 to 1932. In fact, you will notice the very aggressive 60% bear market rally directly following the initial 1929 crash. This rally lasted for 6 months! Here we are about two months into ours and look how many people are already planning for the good times to come back this year (Larry Kudlow). I can only imagine what some people were saying back then. The point is, it is normal for economic data to fluctuate in this type of environment. From the graph below, you can see the several different violent rallies, however, the frozen credit markets eventually took its toll, as the overall downward trend lasted for three years. This is why it is much too early to be making any sort of calls, especially considering that all of the data being released now until about October has a big asterisk next to it that says, "Including trillions of dollars from government spending factored in." So a slight increase in retail numbers will not take me by surprise, in fact I believe most are expecting it. However, in my opinion, fundamental data is still showing much more pain and problems heading our way, which I discuss more in today's premium podcast (subscribe here).

1929 bear market rallies
GM hit a 76 year low for their stock price as it flirted oh so close with that $1 mark. It is pretty evident that bankruptcy is in the near future for the auto giant, and I assume when it finally hits the headlines, we should see some adverse trading as a result. Not just factoring the jobless claims and pensions that will be hit as a result, but just the psychological fact that an All American company like GM is going bankrupt. It definitely refutes the old "buy and hold" strategy many live and die by. I think we will see many corporations follow GM to bankruptcy, especially in the end of 2009, early 2010 as these new bottoms and problems become established. I cannot stress enough the impact the trillions of dollars of government spending has had on the overall economy here in the short term. The problem is that it is unsustainable, and that the debt must be repaid.

So, tomorrow will be interesting. I expect to see markets shoot up right before opening, as the trend has been and possibly stay up a bit, slowly trading down throughout the day. However, the opening retail and earnings results should have a pretty big influence on morning trading, so if a worse than expected number takes us by surprise, watch out. I am sure Geithner will be singing his praises to banks, confirming that the worst is behind us. So it will be interesting to see if we can start bringing up the trading volume soon. The good news is, is that even in this volatile market, I am still enjoying my constant 10.5% return I am getting from my Lending Club investment, which acts as a good buffer, especially for some of my extra cash. I'll be on chat tomorrow and post some things on the message board tonight. Happy Trading.


  1. Anonymous Says:

    I bought some more in my IRA in today's pullback. We are jumping up and down around the bottom. I like pullbacks. FAZ is a good short if it goes up again tomorrow.