Dragging Economic Indicators Bring Down Trading

manufacturing lossTrading shot downward right out of the gates on Thursday, as continually dragging economic indicators brought nerves back into investors. Currently, we are in one big tug-of-war. It seems like one day investors feel that the recovery is strengthening, so buy buy buy! Then the next day, we receive weakening data results and investors run for the hills. Somethings gotta give, and usually in these scenarios, it is the selling that wins out.

New orders for manufactured goods (excluding transportation), fell for the month of January, which was surprising to analysts. Orders fell .6% after a 2% increase in December. Analysts were expecting a 1% rise, but instead saw a negative number come across their desk. If that wasn't enough to disappoint them, jobless claims also rose this week, which was another thing they did not expect to see. Initial claims rose 22,000 to 496,000 last week, which was a big chunk greater than the expected 455,000.

What this is showing us is that, in reality, no one really knows what is happening with our economy. And how could we? The degree of measurability was thrown out the door as soon as the government shoved their trillions of dollars into the economy as well as participated, in what I believe, to be some strong market manipulation. So it is no wonder to me why economists can't figure out whats happening month to month. What we do know, is that anyone who thought this was going to be a quick turnaround, think again. In response to the weakening data announced today, Chris Low, a chief economist at FTN Financial in New York, said the following, "We can hope this is a temporary setback but it certainly looks as though in the first quarter...the economy is retrenching." That could be the understatement of this year.

Gold is benefiting greatly from today's uncertainty. Even with today's successes for gold, I do still feel it is much too early to benefit from inflationary measures. In fact, I feel that here in the short term, gold will continue to show weakness.

There is only so much pushing and pulling bull investors can take. Every time a day like today happens, it slowly begins to drain consumer confidence. This is evident in seeing that our most recent consumer confidence number was the worst in 10 months. Consumers are the number one drive for pushing this economy back up, and with weakening confidence, I do not see how that is possible at this point. Our president is much too concerned with his own agenda and that of getting a health care bill passed, which if he's not careful, could see this economy slip away from him once again. At any rate, not much movement from me at this point. Happy Trading

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New Hedge Fund Positions

hedge funds buyingAfter a green Monday to open up the week, currently, we are seeing the Dow trading down almost 100 points to open up Tuesday's trading. Weakening economic data is frustrating impatient investors who continue to hope to see increasingly better data. However, like I have been constantly saying, that road back up will be a long, steep one.

Consumer confidence saw its worst number in 10 months in February as the dragging economy is starting to take its toll on optimistic consumers. Indeed we have seen rates of decline decrease greatly, however, usually it is the slow, dragged out bleeding process which can really devastate an economy in the long run. During the Great Depression, it was the latter 2 years that consumers suffered most, as their resources became completely depleted and were left with nothing. Hopefully, we can see a quicker turn around.

It is clear that despite continuing concerns that linger in trading markets, hedge funds will continue to move on. Investment banks cannot afford another year of waiting. Their clients are getting anxious and are starting to consider other means of investment that may payoff higher dividends. We should see more and more hedge funds begin to wedge their way in. So where are they looking? A recent survey showed a strong interest in distressed debt. The markets of banking, energy, health care are very much on hedge fund's radar. The survey showed a 53%, increase, from the prior year in the amount of investing being done in distressed debt investments. Many of the funds feel that the risk of bankruptcy is much less at this point as it was in 2009. Although this may be the case for some companies, this content feeling could come back to bite them if the economy continues to struggle. However, the hedge funds are tired of waiting around and so are their clients.

The degree of these downturn head fakes are very unorthodox. Much like a wave, trading needs a gush of momentum to get a good rally or pullback. Recent trends suggest that no such gush exists on the buy side, as many investors are feeling we are very overbought at the moment. When the gushes do appear on the selling side, the momentum gets quickly eaten up by low volume buying. At any rate, volume is ticking up and up and market moving will become more difficult to accomplish. Happy Trading.

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Ups and Downs Keep Market Neutral

fed rate increaseIt most scenarios, a week like the one we experienced (in regards to earnings), would usually yield strong gains in equity markets. Most all of earning reports were far better than expectations, as well as pretty decent guidance numbers. So far, it is estimated that 72% of the companies from the S&P 500 that have reported 4th quarter earnings exceeded expectations. However, even with what looks to be decent earnings, the markets are still at odds with each other.

Markets were a little uneasy after the Fed's announcement that it will be raising interest rates. It will be very interesting to see how the economy responds to a bit of pressure being put on government bailouts. After markets dashed down this morning following the announcement, it quickly regained its strength and stayed in the green most of the day. We also saw a "very convenient" rally to pull the market out of the red right before close, which was a very sharp turn around.

The transparency of earnings reports is the reason why investors are no longer cheering for better than expected reports. First of all, now we are comparing numbers to a very dismal 2009, which if companies were to do just as bad in 2010, would most likely result in a bankruptcy. Also, many companies are still adjusting 2010 forecasts (decreasing expectations), even when prior estimates had been made not more than a month ago. Companies are seeing that even with the existence of upward trending earnings, a sluggish 2010 is in our near future. My belief is that best case scenario, we are about as stable as we are now.

The rally which we saw at the end of 2009, in my opinion, was bolstered up to higher levels due to too much optimism. It is very easy to get caught up in the notion of a swift recovery, especially after experiencing one of the worst down turns in 70 years. However, with too much optimism, came buying at unhealthy levels and has now left us with a top heavy market. Now, we find us in a position where we don't really know where we are, we just hope that it gets better. If the government continues to slow the bailouts, we will begin to see just how sluggish this economy really is. As a result, Treasuries are rebounding as investors or steering clear of riskier investment vehicles at this point.

CPI data remained rather flat, which shows just how much deflation is taking place, when you consider all of the government spending and extra printing of currency, a flat CPI number shows the offset with deflationary indicators. No, we are not out of the woods for deflation. I expect to see a more aggressive week next week...investor's money is getting itchy. Happy Trading.

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Critical Support Levels

hp earnings reportThank you for your patience as I have been out this past week, due to the new baby to the family. Although the stock market has not been nearly as exciting as my personal life, we are at some pretty critical support levels, that if broken, could mean some more heart ache for markets.

Hewlett-Packard announced earnings today, which was favorable when compared to prior earnings reports. The computer company saw a 25% increase in profits for the last quarter. In addition to the increased profits, they also raised their earnings outlook for 2010, which is something analysts love seeing at this point. So far, the trend for most companies has been to cut annual estimates, as economic indicators continue to weaken.

HP's favorable report, as well as Wal-Mart's will most likely set the pace for tomorrow's trading trends. One important thing to note is tomorrow's PPI numbers which will be reported, as well as CPI numbers that will be reported on Friday. From a data stand point, deflationary indicators still remain all around us. The value of the dollar has been growing stronger, commodities are continuing to weaken, housing prices continue to fall, and discretionary income is still shrinking. Thus far, the mass government stimulus has helped disguise the deflationary spiral, for the time being, into what many feel is just a "blip" in downward trending prices. More and more as the prior trillions of spending continue to be dissolved in our economy, in my opinion, deflation will more and more show its ugly face.

Notes from last week's FOMC meeting were released today, which caused for some negative trading in the bond markets. It is clear that it is the Fed's near intention to raise the discount rate, which is something banks and the economy as a whole does not really want to see. We have almost forgotten that we have been borrowing money from the Fed for essentially 0% interest for over a year now, which could be a crutch now when those privileges are removed.

We are hovering around some very critical support levels. The recent 9% correction was quick and aggressive and in my opinion, was just a teaser. However, if markets can hold above a 1053 S&P, I think we could see a 4-5% rebound before the next leg. If we indeed see us head and stay below these levels, then I foresee another 7-10% drop before the next support levels. Whatever the case may be, the fact is that many funds are on the sidelines right now, as to not want to risk losing equity in a swift drop in markets. Things should be getting real interesting real soon. Happy Trading.

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Baby Delay

I apologize for my brief leave of absence from Crashmarketstocks.com. My wife delivered our baby on Tuesday, which has made it a very busy week, in addition to the movements of the stock market. Things are beginning to settle down, so a return to regular postings is near. I hope trading is going well for you all. The fact that markets have remained rather dismal despite the somewhat "favorable" employment report last Friday, shows that most likely these markets are well overbought. I expect to see this market continue to go lower, especially as we are sustained below 10000. Happy Trading.

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Dow May Being Seeing the Last of 10,000 For a While

Dow 10000The Dow saw its biggest single day drop on Thursday (down 268 points) since April of 2009, which has cause for concern for many investors, especially heading into Friday's employment numbers. A discouraging employment number would be sure to stick another dagger in the heart of the economy and could very well send us far below 10,000. If there was a good time for the government to smudge the numbers, it would be on tomorrow's employment data. If such things did actually take place, I would not be surprised.

Turmoil in Wall Street was do to the great deal of uncertainty taking place overseas in Europe and with the eurozone members. Many countries announced their struggles with cutting deficits as well as selling Treasuries. The Euro took a beating today as investors are wondering if the currency is sustainable. As a result, we saw some strong gains in the dollar, which weathers well for my portfolio. EEV, the emerging markets short ETF, also surged with the news.

Gold suffered big losses in markets today, sending GDX down over 5%. GDX puts were on fire today, as investors scrambled to sell their shares. Options should start paying out some very good dividends shortly (if you're on the right side), as the VIX jumped 20% just today! Today felt a lot like early 2009. For many, today's huge losses are a surprise, however, for us that have been tracking the fundamental data, it is no eye opener. The fact is, global economies remain weakened, as consumers struggle to find any extra money to spend these days. Export nations are especially seeing hard days ahead, as countries are doing all that they can to keep production, supplies, and resources domestic.

No doubt tomorrow's unemployment will dictate the markets. If hammered by a sore number, we could definitely see another big down day. However, if surprised by a strong number (which I don't see how that could happen), watch out for a strong, aggressive rebound. Either way, my best play is to wait close with my hand on the trigger, waiting for the news. There should still be time to buy into the direction right after the numbers are announced. At this point, all the old inverse ETFS, are coming to the front of my mind. Happy Trading.

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To Stay or Walk Away

home defaultsMarkets finished down on Wednesday after starting off the week on two good feet. As we step closer and closer to Friday's unemployment numbers, you can sense the nerves in daily trading. Bull investors are hoping for strengthening numbers, however, there are many out there (including me) that feel that we have a ways to go. At any rate, even when we do start the hike back up, we sure have a lot of ground to cover to get back to 2 year's ago numbers.

Massive home devaluation is something that is plaguing millions of Americans across the country. The question, "when do I walk away?," sits heavily on many of their minds. No doubt family memories and emotional connections have been created at their homes, but those can become dulled if sitting on an asset that you are losing money in. The percentage of people who have no equity in their house is amazing and now, for many, walking away from their house, even with the funds to afford the mortgage, makes more sense.

Think about it, why stay paying into house that is worth much lower than your loan amount, when you can give back the house and rent a place bigger and better for half the price. Sure, a foreclosure on your credit isn't ideal, but there are ways to work around that and come out OK. Owners of recently purchased condos are handcuffed, with not only paying off a huge mortgage, but most likely paying ridiculous monthly HOA fees. With this becoming a very real decision for many home owners, it creates a rather dangerous scenario for the housing market.

First American estimated that it would cost approximately $745 billion to restore homeowner borrowers to a point where they are breaking even. Although such a scenario seems illogical for the government to consider, I would not rule it out yet and if such things do finally happen, watch out. All hell will break lose, beginning World War III for the economy. Whatever it may be, the housing problem is an important factor sill lingering, that must be worked out before we progress much further.

Big money has mostly been sidelined recently, as many of the big money managers feel that the market is too unstable to invest at this point. Cash holdings are at record highs and volume still remains low. Slowly, the idleness is priming the market for a big let down, one of which could get out of control if we're not careful. For me, I'm sticking with longing the dollar and shorting commodities. We'll see how it goes. Happy Trading.

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New FHA Regulations - Stocks Rise

fha loan approvalStocks got a good start for February on Monday as the Dow closed over 100 points. This is following one of the worst weeks the markets have seen in quite some time, so it's refreshing for bulls to see the small climb. A favorable January for factory production helped spark the rally in early trading. Bulls are hoping that this will be the first of many "positive" reports to come forth in February.

Other big news hitting headlines were the changes that were made to FHA loans. It was announced that after today, home flippers will now be eligible for FHA loans. Up until now, buyers were required to hold the property for 90 days before issuing it to market. Considering that much of the inventory being sold (especially foreclosed inventory) is to investment buyers, many have not been eligible for FHA. Well, now the game has changed.

There are some restrictions that come with the new policy change (if you can call them that!). First, buyers can't earn more than a 20% profit in most cases, which I believe most buyers won't have a problem with. Also, transactions must take place an arms length away from each other. That way, prices are not artificially driven up to coerce buyers into paying false market prices.

In addition to new changes to FHA, Fannie announced some more incentives they are now offering. Buyers of Fannie's HomePath properties are eligible for a 3.5% assistance fee if owners close before May 1st. The fee itself can be used for anything to improve the property. Whether its closing costs or adding new appliances. It amazes me how much money the government is putting back into the realms of the economy that got us here in the first place!

To some, this may just seem like everyday news, nothing big. To me, it exposes just how bad the residential market remains and the pessimistic outlook the government continues to have regarding home prices. If housing prices were naturally "bottoming", like many economists are claiming, then there would be not much need for such changes. Demand would take care of itself. However, it is clear that incentives are what is keeping the market stabilized, and even the current ones are running out of steam. When you evaluate just how many homes are and will be on the chopping block this year (foreclosed homes!), it is very clear that the government will need all the buyers they can round up, including all of those old mortgage brokers who are now engaged in flipping homes.

Although it seems that the government has no choice, heading down this path could lead us right where we were before. The government is incentivizing people who already have no business buying a home, to now be able to flip them. I am sure most of you can think of that kooky neighbor who is already signing the loan papers, hoping he'll make a fortune. Eventually, this residential crisis will once again be in the headlines. Despite the gains today, I don't see much longevity in a rally. Happy Trading.

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