Big Gains Following Through to Asia

Posted by Ray on October 28, 2008 under Main | Be the First to Comment

Today Wall Street saw its second best point gain in history. The positive news carried over into Asia with their markets up pretty substantially for the second day in a row. Is this the end of the bear market? Not by a long shot.

While we were happy to see the almost an 11% gain in equities we were not pleased with how it happened. Just like on 10/13/08 we saw significant gains in equities, but the volume was so weak. The market rallied for a few specific reasons.

1. Mutual funds making year end trades, a very big deal.
2. Traders foresee an interest rate cut, which they will get, but they are expecting a .75 – 1% cut, some see a 1.25% cut. That speculation is being priced into equities today, it is clearly buy on the rumor sell on the news. We will see a .50 to maybe a .75% rate cut with the former more likely.
3. Short covering. When the market was up 600+ points with 15 minutes left to go the shorts started covering their positions. This creates liquidity and up tick volume – shorts don’t destroy markets crappy management does.
4. A typical bear market rally. During periods excessive downturns in the market we not only see wild volatility, but also dramatic rallies and selloffs. This was one of those rallies.

However, we did cross a couple of important bench marks today. The market crashed through the 8,500 and 9,000 mark. These levels are technically important, but they are also physiologically important as well. The important day will be tomorrow and whether the markets can hold these levels.

We expect to see some profit taking in the morning and wild swings throughout the day, yeah, we know really going out on a limb there. We fully expect to see a selloff tomorrow afternoon, but with the Fed meeting it could be another very good day. If they deliver a .50% cut then the market will selloff. If it is a .75% the market will probably stay flat to up.

There will not be any cut greater than .75% and it is entirely likely that we will only see a .25% cut at the end of the day which will send the markets into a free fall. This is all speculation at this point as futures are thinly traded at night and there are so many variables in the overnight markets.

We may have indeed hit the bottom, but the next couple of days will confirm that.

This is What We Were looking For

Posted by Ray on under Main | Be the First to Comment

It looked as though the market was going to have yet another day of a downward spiral, but our prediction of a rally came to fruition after all. Yes, we were thinking the rally would not hold unless we had significant buying power enter the market, but the buying did come in after all.

The Dow broke through the 8,500 mark and it needs to close above this mark. It is physiologically important, but also technically important. While the long awaited rally is here we still have an hour and a half before the closing and anything can happen.

This would be an opportunity to sell some loosing positions, but wait before you start to buy randomly. This rally is just a short reprieve from further declines and may not even hold through the close of the day.

We do expect to see a nice close today, for a change.

Can’t hold a Rally

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This is not a good sign. Even though consumer confidence is low, really does this actually surprise people, there is no real reason to sell stocks right now. Yes, technical analysis says to sell, but the fundamentals are OK, relatively speaking.

We are heading back to the lows set on 10/10/08 at 7,800. The late morning selloff confirms this unless we get a strong, very strong rally by the end of the day. The market has not been able to begin and maintain any type of rally, so we are not hopeful this will happen.

The transports are down, which will drag the Dow lower, and the Russell 2000 is down as well. Both of these are indicators that there is significant weakness today in the market. While we hold out hope for a late day rally it seems unlikely as of right now.

They Just Don’t Get It…

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Nope, they have not and they will not understand the benefits of variable annuities. This market which has devastated retirement savings has had nothing that has gone up. Even gold has now declined in value, bonds are a no go, especially corporate bonds and stocks have been horrible.

However, a variable annuity with a living benefit has done something that no other investment has done, guaranteed retirement income without annuitization. All the financial writers in the world tell you to buy index funds and to stay away from those bad variable annuities. If you listened to them you would be sucking wind in the S&P 500 with 24% or more exposure to financial stocks – pre-market meltdown – and another 20% or so in technology which as also suffered badly.

Even with reality hitting them right in the face they still deny variable annuities their rightful place as a good investment alternative. They, the financial guru’s, just don’t get it. They do not understand that the Democrats will more than likely take the Whitehouse and Congress which will ultimately raise taxes, specifically the capital gains tax.

A complete Republican controlled government did not do well, spending went through the roof along with other questionable behavior, what makes them think that Democrats will do any better when they have a much stronger history of raising taxes. Actually Obama is the only political candidate that we have ever known to be, possibly, elected on the premise that he is actually going to raise taxes.

Your political affiliation does not matter, all you need to know is what we have been saying about the 15% capital gains tax is correct, it’s going higher. Regardless of who would have been elected taxes would need to be increased given the massive debt the US has, we just never had such stark honesty from a politician who is advocating higher taxes.

So, income taxes will go up for those “wealthy” Americans, we will see what the term wealthy means after the election, and capital gains taxes will go up. This means that all distributions from mutual funds will be taxed higher and it blows the argument right out of the water for the Suze’s, Liz Pullman’s and Scott Burn’s of the world.

Oh, did we mention your retirement income is also guaranteed?

Asian Markets

Posted by Ray on October 27, 2008 under Main | Be the First to Comment

Currently the Asian markets are mixed with no real direction. Of course, they were trading flat last night as well with a surprise decline before trading ended. The US futures are trading higher at the moment, but as stated last night, that does not mean anything until they firm up in the morning.

We did see significant strength in the US markets today, but had selling at the end of the day. We predicted, the night before, that there would be a rally in the US markets, but changed our course by early morning. We were correct in both moves, a positive rally with a negative closing, or as close to correct as possible.

What happened today is not a good sign for forming a bottom. We are getting closer, day-by-day, to the lows of 10/10/08, 7,800 on the Dow, which will be the test of the lows. The Dow is in a definite downtrend at the moment making lower highs and lower lows. This is a sign that the decline is far form over and it is technical at this stage of the game.

We believe that the selloff is now way overblown, but it is not over by any means. After all the entire banking system almost went bankrupt this was kind of a big deal. We are seeing more bank mergers which is not surprising given the weakness in the sector and the abundance of government cash injected into the largest banks.

Consolidation will continue over the next few months to strengthen the banking system and end the blanket Fed guarantees, which they could not actually pay for if they had to. Inflation is not a concern as energy prices, which was the major cause of inflation, have subsided with some estimates of the price of crude dropping to $20 a barrel, unlikely, but we can hope.

This will lead the Fed to cut interest rates as other countries have already done. a 50 basis point cut is definitely in the works, possibly 75 or 100, but 50 basis point is a certainty. This needs to be done and we thought it would have happened a couple of weeks ago, but the Fed decided to guarantee the banking system instead.

We expect to see the markets open higher in the morning based on what we see tonight, but the end of the day close is unknown, obviously. We expect to see the same volatility tomorrow as we have seen over the past few weeks. Right now fund managers, hedge funds and pension managers are still building cash positions for redemptions that are still coming.

There is still a 15 to 20% decline coming as the technical indicators are still pointing in that direction. Caution is important for those looking to buy stocks right now.