Crash Market Stocks - Financial Tips On Making Money In The Stock Market

Thursday marked yet another day of strong selling as the Dow sold off almost 150 points by close. What really becomes surprising is that much of this was done in the midst of positive news. We've had a few strong earnings reports and yet investors are not feeling confident. I do feel tomorrow will be aggressively green as there should be some week end profit taking, so I picked up some longs before today's close.

With that being said, I think there are still a lot of downward pressures on the market. I wanted to share an article by Claus Vogt, an economic writer, in which he discusses some key things happening at this time which point to a longer recession. I've always been a believe in a probably double dip, and here are some good technical reaons why it will probably be the case:

There are two well-known and important leading economic indexes for the U.S. economy:

• The Conference Board’s Leading Economic Index (LEI), and

• The Weekly U.S. Leading Economic Index published by the Economic Cycle Research Institute.

I use them both in my analytical work to better understand the economy’s actual position in the business cycle. And in 2007, they gave me clear, recession warning signs.

So what are they saying now?

Leading Economic Index (LEI) Peaked in March

The LEI is published monthly. Historically its year-over-year percentage change has been one of the best recession forecasting tools available. Whenever it fell below the zero line for three months in a row, a recession followed. And it has never missed calling a recession since the 1960s.

The chart below shows you the history of this indicator. It looks like the LEI saw the high for the current business cycle in March 2010 when the year-over-year change shot up to 11.6 percent. In April it declined to 10.4 percent. And then last Thursday the May figure was released — a drop to 9.2 percent.

Source: Bloomberg

These are still high readings and far from the recession warning level. But what’s important is that the trend of this index has changed direction and is now heading down.

Also noteworthy is that the major positive contributors were the financial components. If you strip them out, the indicator’s recent readings were much worse …

Instead of plus 0.4 percent month-over-month in May, the reading comes in at minus 0.4 percent.

I think it makes a lot of sense to strip the financial components out since history shows that monetary policy looses much of its effects in a post-bubble economy. Hence it’s probable that the LEI is actually overestimating the outlook for the economy!

This apprehension is underlined by the behavior of the second leading economic index for the U.S. economy …

The ECRI Weekly U.S. Leading Economic Index Is Nearing Recession Levels

Last week the Economic Cycle Research Institute’s Leading Economic Index had its second negative reading when it fell to minus 5.7 percent from minus 3.5 percent. As you can see on the following chart, this indicator has been in a steep downtrend for many months and is now at its lowest reading in a year.

Source: Bloomberg

Historically, readings as low the current one have ushered in a recession 80 percent of the time. And readings below minus 8 percent have had a hit rate of 100 percent. So even though it’s not there yet, it’s getting dangerously close.

Lakshman Achuthan from ECRI said that it was premature to call a recession. The negative readings have “not persisted long enough.” I agree. And we’ll have to wait a little longer to know for sure.

Yet one thing is undeniably clear: The risk of a double-dip recession has grown considerably.

Best wishes,

Claus

Tuesday experienced the largest one day decline in the markets since February 4th, as the Dow closed down over 200 points. What was even more interesting than this, was that the volume was considerably higher during today's sell off, leading me to believe that indeed the many that have been on the sidelines are more bear than bull at this point.

The big selling day was mostly influenced by the downgrade from Standard & Poor's in regards to Greece's debt from BB+ to "junk" status. The news sent markets down rather quickly as well as gave some strength to gold and Treasuries. Of course, along with the problems in Greece are all the problems Wall Street is experiencing with our banks. Goldman Sachs continues to defend its position against fraud charges and the Senate is still pushing for votes to get the Bank Reform bill passed. However, it was voted against for the second time today...Back to the drawing board.

This was the first big down day we've had in a while and it was accompanied by volume. Close to 10% gains were found in some of the highly leveraged ETFs, which I'm sure is peaking interests at this point. However, I am not fully sold quite yet in a continual drop at this point. Today's sell off was an isolated sell off day, which means a surprise news event sparked the selling. It isn't a dragging economic variable or a factoring fundamental to our economy that will have effect for months. As such, these type of selling days have tendency for quick, strong rebounds. This is what makes Wednesday such a critical trading day, as it should better define today's retreat.

On days like today, I like to open up positions right before close on both sides of the market (bull and bear). I then place very strict stop losses on both of them, as to minimize my losses. Tomorrow, I am expecting another lopsided victory, either for bull or bear. If bulls come out tomorrow, I expect a significant amount of today's losses to be given back. If the bears come out fighting once more, this could spur another strong round of selling and even more volume. I believe it will be either or. One side of my position should strongly outperform the other tomorrow. So we'll see. Other than that, it looks that some force is returning back to markets. Happy Trading.

After today's green trading, indexes have reached new highs for 2009. Both the S&P and Dow were able to reach new tops since last October. If you were to tell someone back in March of this year that we would be at these current levels by October they would have most likely laughed at you. Wall Street has been running on a mind of its own the past few months, but unfortunately, businesses and the economy can't quite keep up, even with it being a "forward looking" indicator.

Home foreclosures for August came in at record numbers at over 18%. Over 300,000 homes filed for foreclosure just in the month of August. Such news causes frustration for those hoping for a beginning of a recovery in the housing market. As bank owned houses continue to dominate home sales, owners will find it harder and harder to sell their house at levels allowing them to get equity out.

Today, we saw yet another step down from a corporate CEO. John Mack, CEO of Morgan Stanley, plans to step down and give the reigns to Co-President James Gorman. At this point, many of the banks are looking for new beginnings going ahead and looking for places to put the blame on mistakes of the past. Thus, the easiest thing to do is to start fresh from the top. Banks will have their hands full well into 2012, especially as commercial real estate really becomes a problem for them. Leasing activity has picked up a bit, but new office leases are being dominated by credit repair services businesses and debt collection. Bad credit is at record numbers and millions are looking to improve credit. As a result, these businesses are thriving.

As for moves, Oil and the US dollar have been catching my eye. In my opinion, oil is nearing the end of its run and has seen its highs for quite sometime now. I am looking to pull some puts on DIG at this point to take advantage. Also, as of late, the dollar has been hammered. I see a lot of opportunity to long the dollar as I do feel there is a severe risk of deflation at the gates. UUP is one I plan to pull the trigger on very shortly as I believe the dollar should soon begin to gain some ground. Happy Trading.

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It seems that we have entered back into the low volume, slightly green trading trend that we found ourselves about a month ago. Today's volume was particularly light, which concerns me to wonder who on earth is playing this market. As of now, I am holding on to my current positions until once again we see a return of fundamentals back to the market. As I said in a few posts back, commodities seem to be the only play that makes sense at this point, as most everything else has some serious risk, on both sides.

For most of the day, trading remained rather flat. However, as we became closer to the bell, buying slowly crept in and eventually closed all of the indexes in the green. At this point my IRA has been enjoying life, but the bulk of my Zecco.com account has not. There is still far too much depressing data to even be close to considering this a rebound, so I guess it is just a waiting game at this point. Like I said yesterday, I believe our current earnings valuation will soon blow up in our face.

Apple announced earnings after the close today, which as expected, crushed expectations. This is a legitimate strong earnings report in a recession that deserves a reaction. However, it is one of few. This was to be expected, especially as they have just released their newest Iphone 3GS and sales are going through the roof. Like I said yesterday, I expect a pull back either tomorrow or Thursday, and it could have some force behind it. There has been too much buying with no dips that the profit takers will be coming in. It's a great time to pick up some quick profits.

Finally, the four days of consecutive buying was snapped today as the Dow spent pretty much the whole day in the red. For most of the day, it was trading down between 90 and 130 points. However, once again the market "conveniently" rallied right before close, leaving the Dow to close just down 65 points. Although at this point it seems as though manipulation will always be found in this market, that is not the case. You can remember back just to fall of 2008 and earlier this year, due to the large amount of trading volume, manipulation was ineffective and not relative. However, PPT can have its way on low volume trading days, which is what we've mostly seen the past month or so. Eventually, more "forced selling" will have to occur, especially as we start to see the economic data continue to get worse. At that point, volume should not be an issue and once again manipulation will be minimal. Until then, it's always something to be aware of and something I factor into my trading.

In today's post I wanted to address the arguments I hear a lot, especially on CNBC, in which many believe that due to the recent slightly better data we have seen in certain economic sectors, we are nearing a bottom. Such a belief is a dangerous one to have, especially when studying bear markets of the past. Here are three quick reasons I'm not jumping on the bull train:

Tis The Season
Historically, the stock market has some of its best performing months in the spring. January and February usually suffer due to their close proximity to holiday months, in which people are usually all shopped out. However, as it begins to warm up, a new rejuvenation is usually brought to consumers, which gets them out shopping for the upcoming Summer season. All you have to do is look back at the history of the markets and see the usually green spring we see. So after such a devastating fall and late winter, a good Spring is no big surprise.

Help From Uncle Sam
There is no question that the government has been very active in attempting to prop up markets and bring back consumer confidence. Sure, publicly, we see the TARP funds, corporate bailouts, tax incentives, FASB accounting changes, Fed rate cuts, etc. However, there is much more "behind the scenes" in which the government can get involved. It is pretty evident that they've got money in the stock market, behind the scenes bailouts, and other "private practices" that never do hit headlines. As a result, we have seen TRILLIONS and TRILLIONS spent just these past few months in the attempt to bolster up confidence in the market.

As a result, the Treasuries and the dollar have taken a toll, but so far, they've accomplished much of their goal: To fabricate the market and economy in a way that makes investors confident again. The only problem with this is that, in most cases, it is unsustainable. Much of the goal was accomplished to get markets up to decent levels so that many companies and banks could do share offerings at somewhat reasonable stock prices to pay off debts and build up reserves, but this is only useful if we are at the upswing. That's a big IF.

So to see a minor slowing of negative data is expected when you consider the trillions which have been flushed into the economy in a matter of months. The big question is how it becomes sustainable.

Recessions of the Past
It is very common in past bear markets to see varying data throughout different quarters in the market. This was very common during the Great Depression. In fact, just shortly after the 1929 crash, certain economic indicators showed improvement, which in turn brought up the markets to a pretty significant rebound. However, worsening data later settled in as seasons changed, which caused the bear market to continue another two years and reach much worse levels. You better believe there were many at that time who thought the worst was over in the beginning of 1930. These same trends have been found in prior recessions, of course with much less emphasis. The point is, to assume that we are bottoming just from a few economic indicators we have seen a slight improvement in is silly. Especially when you consider that other very important economic conditions continue to get worse, like unemployment and new home sales. I mean how long can we afford to lose 500-700,000 jobs a month? It's important to learn from the past.

These and several other reasons are why I have chosen not to jump on the bull train. The rebound we have experienced is almost a perfect Fibonacci rebound, which in turn would suggest a new pullback. Even though we saw a slightly better PPI and CPI report last month, it still does not rule out the very real and likely possibility of a deflationary down spiral in the near term. We've just seen a big balloon in commodities and energy, which has been a big reason for the recent rallying. However, I think we could see a big pullback in both gold and oil.

So until we steer clear from this bobbling stage, I'm remaining very cautious with my current holdings. I still remain mostly in cash, but have some good short positions that I believe will do well for me here shortly. Tomorrow I will give an update of what exactly I am holding currently on the premium podcast (subscribe here). On the good side, my IRA has been doing very well (which if you haven't opened one, you may want to consider it with stocks at low levels, open a free one here: Get an E*TRADE IRA. No-fee, no minimums. Get 100 Commission-free Trades.). As I begin to see more trends come into the market, I will post it on here. Happy Trading.