Too Much Regulation

Obama Bank RegulationThe Dow Jones closed in the red for the third straight session, which isn't something we've seen for quite some time now. After, much back and forth trading, the Dow and the S&P managed to close slightly down, while the NASDAQ remained in the green. At this point it is hard for me to argue that indeed a pullback is here, and could be with us for quite some time, which I will show some data why later in the post. From the CPI data today, we're seeing that we are very close to dangerous deflationary signals, but still not quite there. Increasing oil prices helped to slightly bring up the cost of goods, however, you will notice the downward trend from the previous month's number, showing that there is no definite reversal or bottom in the trend.

President Obama's plan for stricter regulation for the banks have many investors concerned of what effects such restrictions placed on the banks will have on their bottom line. Much of the success of many of the financial institutions have come from their freedom and ease to lend money. Sure, we can blame a lot of our current bank problems on the fact that underwriting got far to loose and sloppy, but I'm not sure that placing cuffs on these banks is the answer. The ultimate goal is to get banks lending responsibly again, but most of all lending. With new plans coming from the Obama administration, we could see back and forth arguments lasting for several years. In addition to that, companies like GE and Prudential, who have their private lending sector, could suffer the worst from such regulations. The last thing we need at this point is interference clogging the main arteries of lending any more than they already are.

As a result, Standard & Poor downgraded 18 major financial institutions, which caused for a very dismal day of trading for financials. Of course, this is something we have been expecting and waiting to happen, as the recent huge gains we've seen in financials was mostly due to fundamental accounting changes and government stimulus. The distressed assets and increasingly delinquent properties still exist and aren't shrinking thus far. I believe this is just the beginning of the pullback for the lending institutions.

In addition to financials, commodities are continuing to struggle. Potash (POT) took a rather strong beating today as sales have become significantly slow. Gold also continues to struggle. These are signs supporting the notion of nearing strong deflationary levels. I would expect to continue to see declining commodities as demand continues to struggle.

On top of the looming data, technicals are painting a different picture these days. I've talked before about using a variety of moving average charts to show the changes in momentum. With the recent pull back from the last couple of days, we have seen some pretty significant levels breached with the S&P that shows that a rather strong pull back could be in our near future. This and some other significant data was a big reason I decided to load up quite a bit on SDS. Click here to see the Market Trend Technical Video, a very good look at the trend.

FAZ and SRS performed quite well today, mostly due to the weakness in the financial sector. With continuing doubts effecting the banks, there could definitely be some strong opportunities once again for the two recent dogs. I would not be surprised to see a bit of a rally tomorrow as some bears may take profits. However, we are definitely seeing a different trading atmosphere as volume is increasing as well as weighted selling. I expect to see some strong moves in the coming weeks, especially if more investors come back to trading. Also, remember for those wanting to start an IRA, ETrade will give you 100 free trades, click here: Get 100 Commission Free Trades in an E*TRADE IRA. No-fee, no minimums. Happy Trading.


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