Dan Stewart

Just What the Doctor Ordered - Market Ends Up On Friday

2010-07-09T15:42:00.000-07:00

The Markets ended up higher again today. The Dow was up +58 pts, the S&P +7, and the NASDAQ +21 and were up 3/4%, 1%, and 1% respectively. The volume was fairly light though. The NYSE traded 3.8 billion shares just before the market closed and the NASDAQ traded 1.5 billion shares. For a continued rally, we need increased buying ON expanding volume. Volume will be key next week so pay attention to volume.

From a technical perspective, many short term indicators have and are turning positive (these apply only to short term traders who watch the markets daily). The 14 Day Stochastic crossed above its 3 day moving average on both the NASDAQ and the NYSE.

Also, Selling Pressure is trending downward and the rate is increasing, while the Buying Power has remained somewhat strong as measured by Lowrys (see attached graph). The rate of change of the slope of the line (the 2nd derivative) is important. Notice Selling Pressure is going down at a steep angle while Buying Strength is turning upward also with a decent incline. These are both bullish signs. We need to pay close attention and watch for a reversal in the slopes of these lines. Selling Pressure and Buying Power are intermediate indicators measuring trends, and a change in directions of both Buying Strength and Selling Pressure will demonstrate the trend reversing and will give strong clues to the next bear market.

As I have stated before, earnings should be good, but after that, fundamentals of the global economy, deficits and debts of governments will begin to occupy peoples' minds. The US Congress is already talking about another stimulus plan (because the all the prior stimulus packages or bailouts worked so well). This will not bode well for longer term bonds but will be good for gold.

Have a good weekend and keep studying,
Dan Stewart CFA®

Finally, a Strong Rally on Good Volume - What To Do Next

2010-07-07T13:09:00.001-07:00

Yesterday, it looked like it was going to be a good day with a strong market. Then the market sold off late morning and was down for most of the remainder of the day. With less than an hour left in trading, it staged a small rally and the major indices ended up marginally positive.

Seemed to be a good day on the surface. However, looking underneath at the market internals, tells a different story. The NYSE had a 61% Up Volume day, NASDAQ actually had a 52% Down Volume day. So even though the NASDAQ was up marginally, more than 1/2 of the NASDAQ stocks were down.

The broader markets were, in fact, down. Both the S&P Small Cap Index and the Russell 2000 Index were down almost 1 1/2%. As of last week, of all the S&P Industry sectors, 96% were below their 26 week moving average. The markets are extremely oversold as can also be demonstrated by both the 14 Day and 14 Week Stochastic momentum indicator. These are just a few of the many indicators with oversold readings.

Does this mean we will get a bounce, or is it an inflection point and we are entering into a bear market?

Well, today, we finally got a strong rally a good volume. In fact the market trended upwards without much pause throughout the day, and with less than a half hour left, we are approaching 5 billion shares on the NYSE. We blew through the support level we broke through last week at 1040 on the S&P and around 9770 (9800 rounded). I have attached a one day chart (today) of the Dow just going into the close so you can see the strong trend.

Currently, just before the close, the Dow is up almost 275 points, the S&P up 32, and the NASDAQ up 65. This translates into about a 3% gain give or take for all the major indices. The reading and analysis provided early tomorrow morning by Lowrys Research will almost certainly show a 90% Up Volume day on both the Dow and the NASDAQ.

What does this mean. It means you need to watch closely over the next few days and see if we get some follow through. We got our strong demand today that we needed. We still need to see some increase in demand/buying coupled with some good economic date or earnings (I would count on the economic date, but I would count on the earnings).

We will also get a "short squeeze" where all of the shorts are scrambling to cover their positions. This happened some at the end of the day today. I believe that is why you didn't see the market trail off and pull back some late in the day.

The next few days might give you an opportunity to lighten up once the momentum loses steam. Again, I believe we will have a decent earnings season, but after that, most of data point in the negative direction.

You should be thinking about cash, short term bonds, or shorting. Get you plan of action ready in advance.

Keep studying,
Dan Stewart CFA®

Market Finished Up, But Narrowly

2010-07-06T15:43:00.000-07:00

The markets opened up strong with all three indices up strongly on good volume. Then late morning, two economic reports came out to dampen the early rally. The Institute of Supply Management (ISM) reported the service sector growth was slowing and Citi's revised negative outlook on the retail sector sent stocks lower, especially retail stocks.

The markets sold off hovering around the breakeven and then remained negative for most the afternoon. A late day rally salvaged the day with the Dow ending up +57, the S&P up +5 1/2, and the NASDAQ up +2 on overall, decent daily volume.

With more economic data coming out, it looks more and more as if the double dip recession is coming. In the short term, we still have earnings season. And remember, with taxes going up next year, companies will accelerate earnings into this year. Therefore, we will probably have one more good Quarterly earnings season before the slowing economy will affect the bottom line of most companies.

Keep a close eye on your stocks over the next few days. Likewise, it is a good time to lighten up if you are overweighed in stocks.

Also, for those of you who missed out on gold earlier or are looking to increase you exposure, you may find another entry point very soon. I have attached a graph of spot gold so you can see how it is hitting a bottom trend line.

These are my thoughts for today. Keep studying,
Dan Stewart CFA®

Are We Still Rolling Over or Getting a Repreive

2010-06-25T15:10:00.000-07:00

The markets yesterday finished down fairly significantly and it looked like they would qualify for a 90% Down Volume Day. However, both the NYSE and the NASDAQ fell just short with the NYSE at 89.3% and the NASDAQ at 89.1%.

The market breadth was also negative with the decliners outpacing advancers by approximately 3 to 1 on both the NYSE and the NASDAQ. Volume on the NYSE was 4.9 billion shares, well below its 30 day moving average of 5.8 billion. Likewise the NASDAQ was below its 30 DMA of 2.3 billion coming in at 2 billion shares traded.

This was the 4th straight down day and I am glad I am holding a lot of cash and bonds. Important to watch are selling pressure and buying strength. It looks like selling pressure is beginning to pick up momentum. If we don't get a offsetting increase in buying strength or selling keeps increasing, it would be bearish for the markets.

I have attached a graph of the proprietary chart from the technical analysis firm of Lowrys, the most respected and decorated technical firm in the world. They have many trademarked indicators and methodologies they use which are extremely reliable. Their Selling Pressure and Buying Power is one of their most reliable indicators I have yet found.

I will explain in a later blog the background math to this chart, but suffice it to say, it measures the supply and demand for stocks on the NYSE. See for yourself and see if you think buying strength is "rolling over" and/or selling pressure is "increasing." Both would be bearish signs.

You want the Selling Pressure to be sloping downward and the Buying Power to be sloping upward. The slope or direction is paramount, but also important is the "rate of change" of the slope of the line or how "vertical" the line is. The more vertical, the faster it is changing and the more you have to pay attention.

Today, the market reversed and ended on a positive note. The Dow was flat, and the S&P and NASDAQ were both up almost 1/3%. Volume, which has been very light compared to the 30 day moving average, increased significantly and was well above their 30 DMA on both the NYSE and the NASDAQ.

The revised GDP numbers came out during the day at 2.7%, below the 3% estimate. This put further doubts about the global recovery and Asia and Europe were both down. Our markets were also down but then our consumer confidence numbers came out positive and the markets turned around.

Investors are beginning to feel more trepidation about all the spending, debt, and economic problems the bailouts or stimulus didn't solve. On the commodity front, oil spiked because of bad weather and the threat of hurricanes in the Gulf is going to shut down all the rigs soon. There are still tension in the Middle East so keep an eye on the price of oil.

Keep studying,
Dan Stewart CFA®

Do Markets See Economic Slowdown and Contagion?

2010-06-24T15:28:00.000-07:00

As I stated yesterday, Tuesday's down market qualified for a 90% Down Volume day. Statistically, a 90% Down day is usually followed by a 2 to 7 day rally. This is usually due to bargain hunters entering the market, technical traders looking at oversold indicators, and short covering, However, yesterday, Wednesday, was essentially flat and Tuesday's selling wasn't enough to entice people pick up their buying.

Today, the Dow was down 145 points to 10,152, breaking through the important support level of 10,186. The S&P was down 18 points to 1073 also breaking through support of 1089. Additionally, the NASDAQ was down 36 to 2217 staying below its 200 day moving average.

The European markets were down significantly with Spain down over 3% and Italy & France down over 2%. The Asian markets were mixed, either marginally up or down. Shanghai was the worst down almost 1%.

The Fundamentals of our economy and the world economy is slowing. Therefore, the bailouts, excuse me, the stimulus didn't work and create a sustained growth economy. People are worried about economic contagion from Europe and China is having troubles of her own.

Tomorrow, I will be watching very diligently to see if selling accelerates and buying dries up, or we get a bounce. The fundamental shift I have been speaking and writing about may come sooner than we think.

I have attached a graph of the Baltic Dry Index, which is a very good indicator of global economic activity and a good indication of growth expectations going forward. I have attached a long term chart and a short term chart so you can overlay and compare to the indices. Notice the near vertical decline over the past month.

Again, the next few days will give us a very good indication of the trend to come. Until we get some better clarification, I will continue to hold a lot of bonds, cash, and some stocks. Incidentally, I am short European stocks.

Keep studying,
Dan Stewart CFA®

Resilience in the Face of Bad News

2010-06-23T13:57:00.001-07:00

Yesterday, the markets tried to respond to Monday's failed rally. But again, in the afternoon the markets sold off. Yesterday qualified for a 90% Down day on the NYSE with 90.7% Down Volume. The NASDAQ, however, did not qualify and Down Volume was only 70%. Overall volume on the NYSE was 4.6 billion shares, below the 30 DMA of 5.9 billion.

All of the major indices are very close to support levels we must pay close attention too. For the Dow it is 10,186, the S&P 1089, & the NASDAQ 2242. Currently the Dow closed today at 10,298, the S&P 1092, & the NASDAQ 2254. The volume on the NYSE was 5.2 billion shares and picked up from the past few days.

The good news is the markets were resilient with the bad economic news coming out, namely the FED being cautious about the recovery and economic growth, and US home sales declining.

All of the technical indicators show the markets as being oversold and we should get a nice rally. However, the fundamentals are getting worse. Therefore, there is a tug of war and that is why I am holding some cash and not fully invested. Also, if I have to raise more cash, I will.

Now is the time to be diligent, watch closely, and let the markets show us which way the longer trend is going to be.

Keep studying,
Dan Stewart CFA®

Getting Close to Resistance Without a US Budget

2010-06-22T13:38:00.001-07:00

Yesterday, the initial rally wore off after the DOW was up 145 points and finished marginally down. The S&P and the NASDAQ were slightly worse. However, two positives came out of yesterday's market. First, the selling lacked intensity and Down Volume on the NYSE was 50%, and a little heavier on the NASDAQ at 60. Also, it was light volume on the NYSE with 4.5 billion shares traded well below the 6.1 billion 30 day moving average.

Another positive was there was little change in Selling Pressure and Buying Strength. In fact, Supply or Selling actually contracted a little bit. Thus even it is and has been a very choppy market, these positive trends are still in place.

However, we are getting close to the resistance levels after today's down markets and must remain diligent. The S&P closed at 1095 and just broke below its 200 DMA at 1110. The key resistance level to watch for on the S&P is 1089, so we are close. Virtually all of the short term technical indicators point to an overbought market and suggest a rally.

I am still bullish in the short term and the upward trend is still intact according to all the technical market internals and indicators. It is just choppy! The mid and long term is a different story. The Fundamentals are greatly in favor of a slowing economy, corporate profits squeezed, and higher interest rates (due to high debt loads & risk). This will be bad for US bonds, most stock sectors, and even $US cash if we devalue the dollar.

There will come a time in the not so distant future, we will have to make a fundamental shift into commodities and energy, more metals, and other currency based assets. I will be writing more about this in the weeks to come. But you will have to change your way of thinking as the $US is going to come under severe pressure. The inflation you remember in the 70s might even seem tame.

We will be talking about this extensively today on the radio from 4-6 p.m. on 1190 AM in DFWS, or you can listen live streaming at www.thewallstreetshuffle.com , or podcast later. We will be discussing Congress new decision NOT to issue a budget this year. No budget! Just spend! That will change your life more than you think unless you are proactive and awake.

Keep studying,
Dan Stewart CFA®

Important Update - No Congressional Budget This Year! Are you kidding me?

2010-06-22T12:50:00.000-07:00

Folks,

My Investor Daily Briefing will follow shortly, but this is an important article that should not be glossed over. I normally do not get too political in my blogs as I want to focus on investments. However, this will directly affect you investments in the midterm and long term.

The link is below, but please read carefully and pass onto your friends. It looks like Congress is NOT going to pass a budget this year. Instead, those in charge want to "adopt" a budget enforcement resolution to control spending. Are you kidding me!??!

What this means in English is they don't want to actually clarify just how much in the hole we are and how much the deficit is soaring. I thought Congress was required to pass an annual budget and they have never gone a year without a budget. However, a traditional budget would force the ruling party to lay out their fiscal policies over the next few years. It would expose them especially before the November elections.

Their reasoning is that they can't pass a realistic budget until the Bipartisan commission's Deficit Reduction Plan comes out conveniently expected in December AFTER the mid-term elections! Wouldn't a budget at least give you some guidelines even if you go over and surpass the budget like they already do virtually every year.

The difference, they are so FAR above their own numbers they have given the public, it is scary. Here is the link to read for yourself:

http://www.cbsnews.com/8301-503544_162-20008456-503544.html

What does this mean to an investor. Be ready over the midterm time frame to convert your $US cash and US government bonds (Treasuries) into gold & silver, stronger currencies (there are only a few), bonds from those same countries, and commodities.

At first and in the short term, Treasuries probably will rally because people out of instinct & fear will have a "flight to quality." As it becomes more and more apparent they intend to devalue the dollar, which is the only way to pay off our debts without sever, drastic cuts, people will start to slowly change their way of thinking. They will realize Treasuries are not longer safe, and it is about preservation of wealth first and making money second.

My second suggestion, vote all of these fiscally irresponsible bums, whether democrat or republican, out of office come November. Let them know you understand and see through their charade.

Dan Stewart CFA®

Yuan Led Rally Fades in the Afternoon

2010-06-21T13:56:00.001-07:00

The markets opened up strong and remained fairly strong throughout the morning. It was led by the news over the weekend the Chinese will let the Yuan float and therefore strengthen against the US dollar. Theoretically, this should make our products, good, and services "cheaper" over in Asia and give a boost to our companies.

The DOW was in the triple digits at the open, but ended up down 8 points or flat. The NASDAQ was down 20 points, and the S&P down 4.

The weaker dollar was good for commodity prices, oil, and pushed interest rates higher, therefore sending Treasury prices lower. Materials and energy stocks were markedly higher.

The stronger Yuan will help reduce inflation in China and the Chinese government may not have to raise rates soon. However, the Yuan story couldn't help allay fears about our own economy and the US consumer. Profit warnings sent retailers and restaurant chains negative. Watching the rates of growth will be important over the next few weeks. Also any Government "bailouts" regardless of what they call it will also be important.

Last week, I gave you 2 stocks, Clean Harbors (CLH) and Nalco Holding (NCL), to study. Both are environmental cleanup which should benefit from the Gulf Oil Spill. This last stock, The Shaw Group (SHAW) is also in the environmental cleanup space and has won contracts to take care of the Louisiana coastline.

I have attached a 2 charts to look at. The first is a longer term chart to get an idea where the stock has been, and where it could be headed. The second chart is a close up view of the stock. It has broken through resistance and is showing signs of strength. Even though it has already had a nice run, it really depends upon when you think they will cap this well. If it will be a while longer, they will have quite a bit more cleanup work.

Keep studying,
Dan Stewart CFA®

What's to Come, What You Need to Know, and What You Need To Do About It

2010-06-18T13:43:00.001-07:00

WHATS TO COME AND WHAT YOU NEED TO KNOW

Today's blog, at least the 1st Part, is going to be a philosophical discussion and may be the most important thing you hear or read this year. You need to think carefully about what we are saying and see if it matches up with your perception of what is happening. Dan Cofall and myself have been working out & studying what we believe has the highest likelihood of happening over the next months to a year. Don't panic, there is time to position yourselves properly, and you will be able to take advantage of midterm movements within the larger, long-term cycle, and most importantly, the long-term cycle itself.

Dan Cofall has been working on the "big picture," macroeconomic view, while I have been working on the mechanics of the investment side. What to do, when, how, and why. In a nutshell, the worldwide economies and their rates of growth are slowing. Some are even beginning to turn negative. The governments around the world have printed vast amounts of money and debt.

What does this mean. All the talking heads on TV are talking about the risk of deflation increasing and inflation decreasing. What we believe is most likely coming over the next year, especially if the governments don't stop borrowing and printing immediately, is Hyper-stagflation. Stagflation means fixed, stagnant wages due to lack of pricing power from globalization coupled with the devaluation of the dollar causing rising consumption and borrowing cost. In short, high inflation without a corresponding rise in wages to help offset the high inflation.

Remember the 70s, we had corresponding increases in our wages, so even though if felt like the government and prices were out of control, people actually did pretty well. This will not be the case this time, as your wages will not be rising with costs, and therefore, you will feel poorer.

The "missing link" that most people are missing is the disparity between the 2010 and 2011 US Budget: Actual vs Estimates. The Estimates for the deficit are $1.3 Trillion in 2010 in this "recovery" year and improvements in GDP. The Estimates for 2011 are even "loftier." If these estimates do not occur then the budget gap will widen, the dollar will devalue, and borrowing cost will increase. It is looking more and more each day like this is happening. This can be seen reflected in Gold Prices, which hit an all time high today.

The Federal Reserve will become the Lender of Last Resort. Until this happens, people will feel a little uneasy like the economy has quite turned the corner yet into a full recovery. The economy will feel sluggish and choppy for months. Sound familiar? Some days will be good, others will be bad. High unemployment rates will persist especially after government created, artificial temporary jobs are no longer. If the government

If the government continues with artificial employment, this will further balloon the deficits. Remember, it takes 5-8 private jobs (taxes paid) to pay for the salary of 1 government job. Therefore, as we continue to "create" jobs that are not private sector jobs, we (the US government and taxpayers) are just borrowing to pay the salaries of these workers.

New stimulus plans will add an additional burden. Next January, we, the taxpayer, will revert back to the pre-Bush tax cuts and the economy will experience a dramatic drop in disposable income and REAL stimulus for the economy.

We already have unsustainable debt levels at every level of government. Municipalities and States are bankrupt. The only reason our Federal Government is not bankrupt is they own the printing press. But the more they print, the more they devalue each dollar.

The overall result will be less private sector jobs, more healthcare costs being borne by our government, and state & local government bailouts by the federal government. Thus declining disposable income levels, increasing government debt, and the FED and Treasury without any tools left, all coupled with rising costs.

All these things together will form a vicious cycle. Not to mention, WHEN (not IF) interest rates rise, this will add additional 100s of billions of interest expense onto our deficit each year.

Alan Greenspan, who caused much of this problem, even came out & said today that the US is at her spending limit and we have to stop discretionary spending immediately. I always love someone who comes late to the party and then acts like an expert! At least this Keynesian, spend to stimulate economist is finally getting it.

Any benefits the government does pay will be in devalued dollars, meaning your dollars will buy you less things you need. The government must figure out what and whom to cut. Dan Cofall's blog has more about the political side, whose benefits will be cut, etc. I want to focus on the investment side & what you need to do about it.

WHAT YOU NEED TO DO ABOUT IT

Remember, the dollar and US Treasuries are now going to be risky. Maybe not in the short term, and especially during upheavals like Europe or the Middle East, as there will be a flight to "perceived" quality.

However, once rates start to rise and countries begin to stop buying our debt, our only choice - devalue our currency, monetize the debt, print money - they all mean the same thing. It will make you poorer in real terms or purchasing power.

The Key: Focus on assets not linked directly to the dollar. Only a few countries have been fiscally responsible relatively speaking. The Australian dollar, the Canadian dollar, and the Swiss Franc are currencies to look at. You must be careful and pay attention because Canada is somewhat linked to the US and may have problems. The Australian economy is linked to China, and China is currently facing their own banking & real estate crisis. The Swiss economy is somewhat dependent upon the other European countries and therefore fragile.

Some Gold and Silver are a must for this current environment. Commodities will be another asset class you must have. Therefore, if prices do go up, your portfolio will go up. You must focus on purchasing power and wealth preservation. If everything goes down, & you go down less, you win! Paper assets will be the most at risk.

Going to cash, including non-TIP Treasuries, will be your first instinct. That will be the trap the governments hopes you will go to. You are assured of losing purchasing power is we are having rising prices and inflation. Going to non-US related cash and cash equivalents will be key.

Therefore, your cash portion should consist of only the most solid countries. In addition, you should have gold, silver and commodities including oil. You can also take advantage and make money by shorting Treasuries and shorting the stock markets.

All of this will take place in stages and convulsions, then is will begin to become clearer to the majority, that is when the longer term trend will set in, and the volatile gyrations will cease, and a steady decline will begin. That is when you can have a more stable portfolio, but on the short side, not the long side!

This is all food for thought and just wanted to get you to start thinking of a strategy because all of this will begin before you think.

TODAY'S MARKETS

OK, enough of the macroeconomic cycle to come, lets quickly talk about the markets today.

All 3 major indices ended positive today bouncing around the breakeven line. Thursday's (yesterday) volume was light with choppy price action. The market internals were mixed. Up volume was 34% on the NYSE and 55% on the NASDQ. Advancers beat Decliners by a slight margin on the NASDQ, while the reverse was true for the NYSE.

Volume on the NYSW yesterday was 4.7 Billion shares, down 8% from Wednesday, a negative sign. Today is was 5.35 BN, which is a good sign as volume is picking up. Bottom line, short term conditions point to consolidation or even a short term pullback. But the supply & demand picture for stocks look good. Technically, it would indicate we have established a short term bottom. However, it is the fundamentals I am worried about, not the technicals for the reasons stated above.

This is why it is not a buy and hold market like the 90s or 2003-2007, you will have to be diligent and pay attention.

Now for another stock to look at - Clean Harbors "CLH," - which does environmental cleanup, treatment, and disposal on an emergency response basis. They are one of the big players in the Gulf Spill Cleanup. It has already had a run, but might have some room to go as long as that oil keep coming out of that hole and they don't get it plugged anytime soon. Unfortunately, that is the way it is looking now.Also, a hurricane will spread the need for cleanup over a much wider area.

It has blown through resistance and has strong momentum. This is a stock you need to keep in your arsenal when bad environmental events happen.

Keep studying,
Dan Stewart CFA®

Markets Resiience in Spite of Bad News AND Some Oil Cleanup Ideas (with more to come)

2010-06-17T13:44:00.001-07:00

Well, it was an up down up down up down up day, what can I say. The markets opened positive then shortly sold off after the rose and some economic news was also negative. Initial Jobless Claims rose by 12,000 when analyst expected them to fall by 6,000. In addition, The Philly Fed's June index of Business Activity for factories fell by over 13 points to 8 from 21.4. Analyst expected a reading of 21, so this was way off. It also demonstrates how regional the recovery is. Lastly, the Conference Board's Index of Leading Indicators was slightly off with a .4% increase rather than expectations of a .6% increase. At least that was still positive.

In any event, this set the tone for this morning's markets. During the afternoon, the markets oscillated below breakeven, then at 1:00 CST, it got to even, then immediately sold off. Finally, the last 1/2 hour of the day, it rallied.

All 3 major indices ended positive. This is resilience in the face of bad economic news. During the day, the indices tested those resistance levels, now hopefully support levels, and bounced off of the repeatedly. From a technical standpoint, this is all good news. Once again, the main thing we need now is volume to increase. Volume on the NYSE was 5.2 Billion shares, still below its current 6.4 billion 30 day moving average.

Some decent even marginally positive economic news and the markets could go higher. However, with the bad economic fundamentals, this should be only considered a short to midterm rally. The problem, growth is slowing and our US budgets are based upon growth. That means the deficits will mushroom unless we get growth.

Over the next few days, I will give you some stocks to study that might take advantage of the Oil Spill Disaster in the Gulf. These are all clean up companies that specialize in oil & environmental cleanup. The one for today is Nalco Holdings NLC, which specialize in oil dispersants to "treat" the oil. I believe their demand will continue to go up and they have recently come off a trend line. Therefore, this is one of the timelier stocks out of the bunch in my opinion. I have attached both a long term chart, and a short term chart for you to get a clearer picture of what is recent and relevant.

Well, I don't have any more time today, but we will be discussing all of these on the show today at 4-6 p.m. CST on 1190 AM in DFW, or you can listen streaming via our website.

Thanks, and keep studying,
Dan Stewart CFA®

Rally after 10 and Bottom Fishing

2010-06-16T13:37:00.001-07:00

The Markets were pretty much flat today, and rather boring. They opened & sold off in early morning trading after a horrible housing starts number. Housing starts were down 10% and estimate were at 3.7%, therefore, the number came out much worse than expected. The market acted pretty resilient and was not down much through this new, then came back and rallied at 10:30 a.m. CST. Most of the strength again was in NASDAQ stocks.

The good news is that yesterday's rally brought the DOW & the S&P 500 above their 200 Day Moving Average, broke through resistance, and are at the top of their month long trading ranges. In addition, it was another 90% Up Day on the NYSE, with 95% Up Volume. The NASDAQ, however, did not quite make it and had 87% Up Volume. The breadth of the markets were good with a 5 to 1 advance decline ratio on the NYSE and 4 to 1 on the NASDAQ. These are all bullish signs.

On the negative side, although volume was up over 4% from Monday's down day, it registered 4.7 billion shares traded and was well below its 30 day moving average of 6.4 billion. This is not bullish as you want increasing volume as buying spreads out in a bull market rally.

I actually "nibbled" into the market and committed 5% in S&P 500 stocks right at 10:40 this morning. This was after a down open, slight increase, then a "double bottom" at 10:30 a.m. CST after very negative economic news. When the market started to rally, that's when I made my purchase.

Toward the end of the day, the markets gradually drifted back toward even. We need to stay diligent and watch over the next few days to see how the market respond to new economic news. When investors feel bad, the market sell off with good economic news. When investors feel good, the market will rally even with bad economic news. The best is obviously good news with good feelings. If we get some decent economic news over the next few days, the market is poised for a broad based rally. The wildcard, once again, is Europe, especially Spain and her behind the scenes bailout.

Switching gears, I have been getting a lot of questions about "bottom fishing" and buying BP. I feel there is WAY too much uncertainty around this stock and now our US government is asking for 2 pounds of flesh (and probably rightly so). We are actually going to do a whole segment on the theWallStreetShuffle Radio Show about this at 4 to 6 p.m. on 1190 a.m. in DFW. You can listen to it streaming by going to either www.noramassetmanagement.com or www.thewallstreetshuffle.com and listen to it streaming on your computer, or listen to the archived broadcast/podcast later.

Bottom line, sometimes there is a reason a stock is so low. You are not bottom fishing, and the stock going lower, and possibly bankrupt. BP has gone from over $62 to $30 in a little over a month. They just suspended their dividend and today acquiesced to US government demands of the 20 billion escrow account. I have attached a graph for you to see the vertical, sheer drop this company has taken in a month. The past few days, it has gone down 10% per day. This stock is NOT without risk. When you bottom fish, you may lose all your principal. Doesn't mean you won't hit a home run, but you may strike out too.

Food for thought. Keep studying,
Dan Stewart CFA®

Finally, a Follow Through Day - Just What the Doctor Ordered

2010-06-15T13:24:00.000-07:00

Today, the markets started up, continued climbing, and never looked back. This is just what we needed and just what the doctor ordered.

Yesterday the markets looked like they were going to post their 1st 3-day gain in 2 months. The DOW was up almost 120 points and the S&P 15. However, sellers emerged and all the gains disappeared. Only the NASDAQ managed to stay marginally positive, less than 1 point.

Hitting these resistance levels coupled with "overhead supply" is a test for the markets. This is magnified by the fact that the DOW and the S&P are both attempting to cross above their 200 day moving average.

Normally, I would say that the end of the day's pullback is a negative sign and we are, in all probability, headed lower. However, there were some positives. The Up Volume on the NYSE was 53% and was 67% on the NASDAQ. Also, the breadth was positive with 732 more advancers than decliners on the NYSE and 413 more on the NASDAQ.

Also, supply or selling volume did not increase, it stayed the same, while demand or buying volume actually increase. Both of these are bullish signs. In addition, large small & mid caps held up better than the large caps and all 3 major indices, which are based on large caps. In fact, the small and mid cap indices had decent gains yesterday.

But again, all 3 indices needed to break above their resistance levels. These important levels are:

10,315 on the DOW 1105 for the S&P 500 2305 for the NASDAQ

Being patient and giving it one more day may have paid off. All 3 major indices broke through their resistance levels on expanding volume today. Just what the doctor ordered!

Today, toward the end of the day, I increased 401k assets into more US equities as you only get the end of the day NAV. With the more nimble accounts, I will be watching carefully tomorrow morning for a good entry point and more exposure to US stocks if things continue to be positive.

For those of you who love graph, I have attached the Russell Mid Cap Index so you can see that is was actually positive yesterday. Also, it has broken through resistance, just like the other indices, but also, it is breaking through a lower trend line which is a positive sign.

If we start on a positive note tomorrow, I believe we will be due for a nice rally. A lot of cash on the sidelines will begin to enter the market.

These are my thoughts. Keep studying,
Dan Stewart CFA®

Insufficient Evidence

2010-06-14T12:49:00.001-07:00

European output (industrial production) was slightly higher than expected and the markets in Europe & the US started out their respective sessions strong. Earlier overnight Asia was strong with our better than expected US consumer sentiment, which is paramount to them as we buy their products/output.

However, the "robustness" wore off and our markets are flat going into the close with 15 minutes left. The NASDAQ is still marginally up. The European markets trimmed some of their gains as well, but were positive.

And true to form and always ahead of the game (sarcasm), Moody's downgrades Greece to junk status. Don't they read the newspapers or do any kind of due diligence at all? Why do people and institutions pay them? Oh well, back to the markets.

As I talked about yesterday, we have had five 90% Days - 2 90% Down Days (Junes 1st & 4th) and 3 90% Up Days (May 27th, June 2nd & 10th). Statistically, 90% Down Days are much more significant because historically it will be followed by a 2 to 7 day rally & generally marks, at the very least, a short term bottom.

Additionally, we want to see Buying Power (Demand) increase and expand, with a corresponding decrease or contraction in Selling Pressure (Supply). This has happened very modestly and without any conviction, which is vital for a sustainable rally. This is why we are still holding some cash. Fortunately, the largest percentage of our equity exposure is in NASDAQ stocks, which have shown the greatest strength.

Remember I also said sometimes doing nothing (being in the money market) is doing something and is the best, most appropriate place to be when you are unsure. This is a time to be patient and let the market show you which way it intends to go. It will break out one way or the other, we just need to be ready to take advantage when that time happens.

I hate to sound somewhat redundant, but we are in a "trading range" and need to "break out" one way or the other. For this very reason and because it is NOT definitive yet, we are in a holding pattern. I do not want to guess which way it will go, but want some clarification.

I have attached a close up Graph of the DOW right at critical support/resistance at 10,200. This will be key over the next few days to see which way the "breakout" will be. As I said, there is some "supply overhang" we must breakthrough for a rally.

If any of you reading this newsletter are Short Term Traders (which I am not), a short term buy was registered Thursday June 10th by a 14 day Stochastic moving above its 3 day moving average.

The bottom line, right now we have to be patient and wait for further evidence. Otherwise, we will just be guessing.

Keep studying,
Dan Stewart CFA®

Follow Through? Not Yet

2010-06-11T09:40:00.000-07:00

Yesterday I told you that follow through would be key. The markets failed to follow through. They were up in the morning, then around mid-day then turned around, sold off, and ended up down.

Down volume was 55% on the NYSE and 60% on the NASDAQ, both on light volume below their 30 Day Moving Average. All of the markets are moving above key support levels right into Overhead Supply. This is why we need a strong, triple digit day to break through.

Therefore, today would be especially key for the markets to be able to bounce off this recent 2 month pullback and key support levels, and resume the rally. Today, thus far, we are getting it (I have attached an S&P graph to illustrate this for those of you who like to study technical analysis).

The markets are all up between 1 1/2% to 2%, and the DOW is currently well into the triple digits up just at 200 points to 10,098. Slightly better than expected jobs numbers came out in the US and very positive trade growth in China are labeled as the culprits.

Personally, I do not believe the jobs data was all that positive when you read between the lines, but the China news was positive. In any event, it worked and that is all that counts.

More good news is that buying strength is increasing and selling pressure is dissipating. I still have some cash on the sidelines, but will not chase the market into the close. I would like to see the open indications tomorrow and see another positive day before I put additional capital to work.

This is not about guessing the bottom, it is about managing the risk. Our economic data and Asia's economic date are good, it is Europe that is the wildcard, and we are not out of the woods just yet. These are my thoughts for the day.

Keep studying,
Dan Stewart CFA®

2010-06-10T10:52:00.000-07:00

Will the Markets Hold or Roll Over?

2010-06-09T13:10:00.000-07:00

Will the market hold, or will it roll over. The markets made a comeback during the last hour of trading, with the DOW making the biggest reversal. Mega caps outperformed the broader stocks and the DOW ended up 1.26%, and the S&P ended up 1.1%

All three indices bounced off the support levels of May 25th, with the DOW bouncing off 9800, but the quality of the rebound was mixed. Volume on both the NASDAQ and the NYSE increased, which is a positive sign. You always want expanding volume in a "recovery rally." Volume on the NYSE was up 13% and the NASDAQ was up 20% from Monday.

Internally demand on the NYSE was stronger with 74% Up Volume and breadth 1.5 to 1 positive. On the NASDAQ, however, Down Volume was 65% and breadth was 1.5 to 1 negative. Therefore, we got somewhat mixed signals and we usually get a more definitive "bounce" off a sustainable rally.

There is even speculation that the President's Working Group on Financial Markets, established by executive order by Ronald Reagan, better known as the "Plunge Protection Team," may have had a hand in the turnaround. This is because of the unusual volume and strong reversal and subsequent rally in the last hour of the day WITHOUT any positive news. If true, it was done at the end of the day, right at a support level for maximum effect and to make people take notice.

Bottom line, whatever the reason for the increase in buying, prices dropped enough to generate interest. What does this mean for you as an investor? Watch for the ability for the markets to follow through on the advance yesterday. Especially with the markets move up and bump up against overhead supply.

This would be 9950 to 10,000 on the DOW, 2190-2220 for the NASDAQ, and 1065-1070 on the S&P. If we break through these resistance levels, it means demand is strong and this rally is for real. I have attached a graph of the DOW for you to look at and see if you can see what I am talking about.

What am I doing. I have some US equity, but have a lot of cash. I am being more conservative for the moment until the market gives more clarity. Sometimes, when you are unsure, doing nothing (sitting in the money market) is the best thing, and is actually doing something, preserving principle.

I have some US equity and a lot of cash, and am waiting until the market gives up a little more clarity as to the direction it decides to take.

Keep studying,
Dan Stewart CFA®

Euro Reveral?

2010-06-08T11:06:00.001-07:00

Last night European countries announce last night (on 6/7/2010) they would actually began implementing austerity measures (cuts). Germany, England, and even France,

European growth is going to be hurt significantly, but this should defend the Euro from further decline. The problem, if the Euro gets stronger relative to other currencies, it will hurt their exports and worldwide demand for their products.

The EU is collectively the biggest market in the world, slightly bigger than the US economy. This will effect growth worldwide, both is Asia and the US. In fact, 30-40% of the earnings of many S&P companies are derived from Europe.Therefore the risk of deflation has increased somewhat if the European governments continue to follow through with their statements. But they are doing the right thing. They are causing short term pain for hopefully long term gain.

The Germans knew what the end game would be if they simply kept printing money and borrowing. They remember the Weimar Republic with hyperinflation that crushed their economy. They finally stood up and said no more. All the other European union countries followed suit.

Geithner and the US government was opposed. Why? Because now we are virtually the only country who is continuing this "spend your way to economic growth." Before, when everyone was doing it, they could focus the attention on Greece, or Europe, or even blend in with the crowd. Now we stick out like a sore thumb.

I believe even the mainstream media will now start picking up on this and pick on our enormous spending.

Enough politics, now to investments. What does this mean. It means the Euro should reverse and start to stabilize. At least the risk of the Euro increasing relative to the dollar has increased significantly.

Therefore, early today, I unwound my double short Euro trade for a handsome profit. The charts I have attached shows how the Euro looks to be bottoming and could be a reversal. Even if it doesn't, that's ok, the fundamental risk profile has changed. I will take my money and walk away.

I am, however, still short European stocks, and they should still be in for a really tough road. They were down again today and the trend should continue. E-mail me if you have any questions.

Keep studying,
Dan Stewart CFA®

2010-06-08T08:45:00.000-07:00

Someone sent me this e-mail this yesterday evening asking me this question. I am posting the e-mail and my response so you can get a feel for the environment & how to navigate your investments.

Hello again Dan,

Its been quite an interesting few weeks lately and the shows have been great too. I had a quick question that related to your latest blog on European stocks.I'm currently holding shares of ArcelorMittal (symbol: MT) stock I had accumulated since around March of 2009 and actually added a slight bit about three weeks ago.

Right now It's currently down about 6% as of the end of Monday. I feel like an idiot for not selling when it was up huge, but I made the ultimate mistake and just stopped following my investments. I'm not overallocated in this stock, it's about 7 or so percent of my total portfolio. So I'm not freaking out or anything.

Also my time horizon for needing this money will probably be around 4-6 years.But with your bearish call on Euro stocks I did get a little worried. Should I cut my losses and just sit on the cash until a better opportunity arises? Because I would assume ArcelorMittal, as the global leader in steel, would still be able to make a profit if other parts of the world see growth, even if Europe stagnates.

What do you think? Thanks again,

Thanks for listening,

ArcelorMittal (MT) is a great company when steel is the right play. However, with Europe actually implementing austerity measures (cuts) which were announce last night (on 6/7/2010) in Germany, England, and I think even France, European growth is going to be hurt significantly.

They are collectively the biggest market in the world, slightly bigger than the US economy. This will effect growth worldwide, both is Asia and the US. In fact, 30-40% of the earnings of many S&P companies are derived from Europe.

Therefore the risk of deflation has increased somewhat if the Europe governments continue to follow through with their statements. Materials/industrial commodities dependent upon growth will be hard pressed until the rate of growth reverses (increases) or we have inflationary worries. Therefore, in my opinion, steel is not the place to be right now.

That is the technical answer about steel and your stock. Now for some philosophical answers to some of your points. You stated you were not overallocated (which is good) and your time horizon was 4-6 years.

Always remember, when it is time to buy it is time to buy and when it is time to sell it is time to sell, regardless of whether you have a gain or loss in that particular trade/investment. Also, I do not put much value in "time horizon" or "your risk tolerance." Those are Modern Portfolio Theory terms, which I do not put much stock in, no pun intended.

If it is a good idea and the time is right to invest, then is should be a good idea regardless of your age or time horizon assuming you don't put all your eggs in one basket and overallocate in one stock.

Therefore, your time horizon of 4-6 years is meaningless to me. Is it a good time for steel or not? The one thing I do agree with in modern portfolio theory is that you do have various investments and do not go overboard in any one investment because you will be wrong sometimes. You did that correctly, and that is how you manage risk.

In short, trade/invest in different things you think will have a good outlook going forward from today. As new information comes out about the economy, individual sector or stock, etc. make adjustments as necessary. Let the winners run but be careful to protect profits as they "roll over" and minimize losses on the ones that don't work out.

I have said it time and again, it is all about overall portfolio construction and managing risk. It is hard to give advice when you don't see the whole picture and don't know how the individual stock relates to the whole portfolio. However, until some things change, the demand and prospects for steel is not good.

Hope this helps,

Dan Stewart CFA®

2010-06-07T12:42:00.000-07:00

Over the weekend, the G-20 Nations got together to discuss the world financial situation. All the European Union countries made 180 degree about face! They said they were all going to collectively start cutting drastically implementing austerity plans.

Among the 4 disagreeing were the United States and Great Britain. This really flushes us out in the open and shows our true colors. We do not want to cause pain and make the tough decisions needed for our future generations and our economy as a whole over the next decade.

However, this is not a political tirade, this is about how to make money or avoid losing it. What does this mean for Europe and her companies. Well, all this cutting will slow their growth significantly. Also, their cutting spending should be bullish for the Euro, which will make their exports more expensive. This is also a bearish sign for her stocks.

Therefore, due to the increased risk over in Europe, I would stay away completely away from investing in Europe at all, unless your short, I am. I believe the risk of deflation has just increase some, especially in the shorter term.

For those of you who love technical analysis and graph, I have attached a chart of the EuroStocks 50 Index, a large cap group of big European companies.

As you can see, it broke through a trend line around 1/22/10 and had a significant pullback. It rallied back to its former 2010 highs and peaked out and closed just below 2950 on 4/16/2010. You can see it made a double top, then quickly sold off and is currently breaking through a support line. If it breaks through support, all bets are off.

Therefore, from a fundamental analysis, Europe is slowing already and is now going to have drastic cuts to further slow their growth. In fact, they are heading for a double dip recession quickly.

From a technical standpoint, it doesn't look good either. In fact, I could have added another long term bear trendline from the top left from the May 08 top down toward today and you could argue that this was an intense rally in a secular long term bear market.

I do not know which way exactly it will play out. I just know when I measure what is happening while it is happening, and get confirmation, then make adjustments accordingly, I am much better off. I will not be right on every trade/investment, but from a risk/reward profile, I am way ahead of the game. It is also a lot less painful not having these wild, wild swings in your portfolio.

In short, for Europe, the risk don't merit possible gains you might get. My advice, hold a lot of cash, bonds, and a few American stocks till we get some more clarity, or get a significant selloff that makes prices much more attractive and the risk profile more palatable.

These are my thoughts for the day. Let me know yours.

Keep studying,
Dan Stewart CFA®

2010-06-03T12:56:00.001-07:00

Oil ETFs versus ETNs - They are Different, and even Different Amongst Themselves

I just wanted to clarify a few things for those of you who are interested in price oil, whether long or short. First of all, at the top level you have ETFs (exchange traded funds) and ETNs (exchange traded notes). They are both meant to replicate an index, sector, or price of an asset or commodity. In this case, I am talking about the price of oil, a commodity.

The main difference between them is their tax structure. Oil ETNs are taxed like a stock, where the holding period determines short-term or long-term capital gain tax treatment. You, as an investor, can control the holding period for preferential tax treatment if you still think there is upside. But remember, when it is time to sell, it is time to sell, regardless of the taxes, whether you have a gain or loss in that particular trade, etc.. When it is time to sell, it is time to sell, regardless!!

Oil ETFs, on the other hand, are set up as a partnership and issue K-1s. Gains are taxed at 60% long-term and 40% short-term regardless of how long you held the fund. It is based on the gains & losses of the underlying futures contracts. That means you might be liable for taxes even if you have not sold the fund.

Therefore, it would seem that ETNs would be better, right. Well, not necessarily. The other difference is that an ETN is a note, issued and backed by a company. The credit worthiness of the company can and probably will affect the price (and the ability to pay it back). Even though they are traded in the open market, the issuing company's financial strength can be an issue.

Conversely, oil ETFs are backed by the underlying futures contracts (the securities held inside the ETF). They are bought and sold in the open market, or can be "redeemed" by the "Authorized Participant" (like a market maker) of the Issuer. This is meant to keep them in line with their "NAV."

Now down to the investment in the commodity price of oil itself. Because they are based upon monthly futures contracts, your intentions are important and will help determine the vehicle you choose. Namely, the time frame you think you will be investing will determine which ETF or ETN to use.

Hopefully without getting to complicated, futures contracts are rolled forward each month, and due to supply and demand expectations, will either have "contango" or normal "backwardation," technical terms that determine whether expected future prices will go up or down. In the futures markets, you can either buy/long or sell/short a contract 1 month out and keep "rolling" contract forward, or go out months in advance to hopefully pick the most advantageous contract to minimize contango or maximize backwardation. There are proprietary yield indexes to help find the "best" contract.

If you believe the price of oil will go up, then you want to go "long" oil. If you are looking at the short-term or trading, there are two funds available. The first is "OIL," the iPath S&P Crude Oil Total Return Index, which is an ETN backed by Barclays. The second is "USO," United States Oil Fund LP, an ETF. Both are meant to track the spot (current) price of oil closely.

For longer-term investors, "DBO," the Powershares DB Oil ETF is worth looking at, another is "OLO," Powershares DB Crude Oil ETN backed by Deutsche Bank. They both employ the Deutsche Bank Optimum Yield Index to select the best contract. Lastly, "USL," United States Oil Fund LP, an ETF, also employs a monthly roll strategy but it holds all the contracts for the next 12 months. All 3 of these funds will not be quite as correlated to the spot price of oil, and theoretically, will be a little "smoother."

If you think oil is going to go down, then you want to "short' oil. This can be done with "SZO." the Powershares DB Crude Oil Short ETN, or the "DNO," the United States Oil Fund, LP ETF, both attempt to move inversely 1 to 1 with the price of oil.

For a double inverse, you have the "DTO," Powershares DB Crude Oil Double Short ETN or the "SCO," Proshares UltraShort DJ-UBS Crude Oil. DTO resets monthly just like all the Powershares, but SCO resets daily. Therefore, for a very short-term trader, SCO might be more appropriate. Someone wanting to hedge may consider DTO.

Volume is always a consideration for any ETF or ETN you invest in, so always make sure there is enough liquidity for you. I know this was long winded, but to many people think all ETFs (or ETNs) are the same. That is almost like saying all stocks are the same. I think this is enough to think about for today.

I have attached a graph of the iPath S&P GSCI Oil Trust Index ETN. As you can see, it bounce off it lower support level and is currently breaking through the next level of support (which can become resistance). Oil looks very bullish at the moment. Well, those are my thoughts for the day.

Keep studying,
Dan Stewart CFA®

2010-06-02T13:02:00.000-07:00

Watching Oil (Sitting on the Dock of the Bay)

Today I have been very busy watching the markets all day. Began up on high volume, then quickly sold off and seesawed its way up throughout the day. I was getting a block trade ready for Oil, but just as I getting ready to pull the trigger at 1:30 our time, the markets took off led by, you guessed it, Energy. And Financials.

I try to never chase a trade, and put in a limit order at the lower/bid price. It didn't take, and the market moved away from me and went up a penny. So I moved my trade up another penny with another limit order.

Even though pennies don't seem to count for a lot, on a lower priced ETF that is a leveraged ETF, or double the movement, it does count. Besides, if you don't have discipline, you are a white belt playing with black belts, and you might as well go to Las Vegas and at least have some fun. I do this for a living and I do not gamble.

I will regroup tomorrow and see where the various energy prices, crude prices, etc. are, and then see if I want to execute the trade or let it come to me. I definitely prefer the latter. The graph today is an updated graph on the price of Crude, and it has bounced right off the green support line I drew.

Oh well, at least my QQQQ Nasdaq 100 trade worked out well today.

Keep studying,
Dan Stewart CFA®

2010-06-01T13:16:00.000-07:00

The Price of Oil - A Political Perspective

I am keeping an eye out for the price of oil spiking up. Not because of anything to do with the Gulf oil spill & BP. It has nothing to do with the supply & demand for oil. In fact, there is plenty of oil above and below ground. There is plenty of supply, especially with economies slowing down in most regions of the world and using less.

This is about politics. If you have been paying attention, the Israelis commandos boarded a flotilla headed to Gaza with "relief supplies" and killed approximately 10 activist

The problem is the Israelis already allow supplies (everything except terrorist & guns) to enter Gaza. So does Egypt. So why was the flotilla needed by Arab pro-Gaza activist trying to help the Palestinians in the first place? Also, the commandos actually had paintball rifles plus real sidearms and were just trying to intimidate the convoy.

Some of the activist grabbed some of the Israeli soldiers and shot them. That is when the Israelis soldiers opened fire & defended themselves. You DON'T hear that part on the mainstream media. Our military sources tell us that is exactly what happened.Now, pro-Palestinian activists said they would test Israel's blockade of the Gaza Strip with another ship.

This coupled with the Iranian nuclear program makes the Middle East a very dangerous place. Iran's program is coming to fruition and they will have nuclear capability along with the delivery system SOON. No one is stopping them, leaving the Israelis isolated and alone. We are sure not defending our most loyal allies.

My personal belief is that they will defend themselves and even make a proactive, pre-emptive strike against Iran. Israel has done this numerous times in the past and every time they were threatened seriously by any of the Arab countries.

If this happens, it will probably cause the Straits of Hormuz, in which 90% of the world's oil passes & shipped through, to close down. If this happens, oil will skyrocket.

To make matters worse, Obama just announced today that he is closing ALL offshore drilling projects. All this seems to be a "perfect storm" for oil.

From a technical standpoint, oil is back where it was in 2008, in the midst of the financial crisis. I am not saying this will happen, but it is quite likely. Therefore, you should have a trade "in the shoot" ready to execute in case this scenario plays out as I have described.

Keep studying,
Dan Stewart CFA®

2010-05-28T09:15:00.000-07:00

As I stated yesterday, what the markets are doing and how they are acting is more important than what you think they should be doing. I also stated that as they go down, correlations get closer together and the benefits of diversification go away. Simply put, they go down together. So just when you need "diversification" it is not there to save you. Therefore, it is more about when to be in and when to be out, than what to be in. Especially in the mid to short term. This is difficult task, even for professionals.

We have had a over a 10% correction (the definition of a correction), and yesterday showed some signs of resumed optimism. Most of the economic data is still positive, especially the earnings. Technically, we had a 90% Upside Day on both exchanges with 96% Up Volume on the NYSE, and 93% Up Volume on the NASDAQ. Also, the "breadth of the market" was strong with Advancers over Decliners of 11 to 1 on the NYSE, and 7 to 1 on the NASDAQ. The only negative was that volume was below its 30 day moving average. All of the short term indicators are "oversold" and are currently turning positive.

Remember, when it is time to buy, it won't feel right and you will be scared. But again, the short term indicators have turned positive, and yesterday Jim Cramer said he "doubted this rally" which makes me want to buy even more. Usually, he is a great contra indicator.

I have been holding a lot of cash and bonds along with US stocks. Today, I have deployed 5% of our cash into equities, namely Nasdaq stocks. What do we need for the market to resume its uptrend? An increase in volume coupled with expanding demand would be nice. This is why I am only deploying 5% of clients (and my own) money.

I want to monitor the follow through early next week, and would make changes if necessary. I have attached a graph of all 3 major indices, the DOW (Yellow), the S&P 500 (White), & the Nasdaq (Red) overlaid so you can see how correlated they are. I Also, you can see the early reversal at the current time (right end).

You will never be right all the time or even close, but if you can statistically stack the odds in your favor, you will be right far more than you are wrong. More importantly, this is the best way I know how to manage risk.

Keep studying,
Dan Stewart CFA®

2010-05-27T13:16:00.000-07:00

Today I am looking at the broad indices. As I told listeners over 3-4 weeks ago, we were due for a pullback, but most of the economic data was still positive in the U.S. The wildcard was, and still is, Europe, with Japan a little further down the road.

In any event, we had our over 10% pullback (actually 12-14% depending upon the index), which is the definition of a "correction" or "retrenchment" as professionals like to call it. I call it going down.

However, thus far we are still in a secular bull market and I would like to see some follow through tomorrow to confirm what I think is true, before I commit more capital as I had some assets on the sidelines in cash.

It doesn't matter what I think, it is more important what the market it telling me. Moreover, the market doesn't care what I think, I wish it did. So I have to measure what is actually happening in the markets to determine risk.

Today, I will not be as long winded as yesterday, but all three major indices are showing resilience, and the Nasdaq is showing the most strength. It broke through a bottom trend line a few days ago but is almost back to it. It is currently bouncing off a support line with increasing buying volume on a wide array of stocks or sectors ("breadth of the market") which is a very positive sign. Again, I want to see some follow through tomorrow.

Keep studying,
Dan Stewart CFA®

2010-05-26T10:21:00.000-07:00

For my blog today, I thought I would post a response to an e-mail I received from a loyal listener. Below are his questions, then my response.

Hi Dan,I have a question about the reliability of the ETF SLV. I have been wanting to add Silver plays into my portfolio and I hear you mention SLV on your show. However, the more I research it, it sounds like there is a sizeable crowd out there that warns against SLV (and GLD) because their reasoning says its not a "real" play on Silver, rather a play on a bunch of paper that does not really guarantee the ETF holds the actual commodity of silver. I'm confused and to the point to where I don't know who to believe.Also I heard you mention CEF on the show as a quick Gold + Silver play for those who own neither. That would be me. But in researching that I am seeing that it's a tax-nightmare for taxable trading accounts and best for a tax-deferred account. I want to get into both Gold and Silver soon, but I'm not sure I want to be in for a tax debacle of my own creation by buying CEF.What are your thoughts? Anything you can say would be greatly appreciated.

Both SLV and GLD are supposed to be backed by the actual commodity/metal. As more people invest, they have to go out & buy and store the physical metal. Can there be a "squeeze" and the fund not be able to buy and take delivery of the metal due to too much leverage worldwide of paper assets backed by gold/silver and a shortage of the physical metal, probably. But that is another reason to be bullish.

This doesn't mean the price of the ETFs won't go up. When you think there will be problems with delivery, that is when you might consider selling your "paper" gold & silver, and keep the physical metal you own. Another alternative is to buy the mining shares, GDX, but again, that is "paper" backed by the assets of mining companies just like any stock or ETF, and most companies use leverage or borrow.

The point I am trying to make is that with any stock or ETF ("paper" equity), you are buying part ownership of the assets of the company. The stock certificate is simply the contract and evidence of ownership of the buildings & assets of the company, just like the physical metals are the assets backing these ETFs. Could management of the companies mismanage the assets they are charged to operate, sure.

You have this risk with ANY stock or bond that you own, bonds are just more senior in pecking order in the event of bankruptcy. Only when you hold the physical asset yourself do you not have to worry about mismanagement. But then you have to worry about holding & storage cost (hiding it), insurance cost, theft, high spread when bought and sold etc..

This is why it is not about any one investment, because there is not one perfect investment. It is about overall portfolio construction and how the entire portfolio correlates and interacts with all the other assets in the portfolio. Therefore, you do not want to be too heavy in any one asset. Every person I know that is over worried about an individual stock has too much. You should never invest/purchase more that 6-8% in any one stock period, or 15-20% of an ETF.

This way you will only have "systematic" or market risk and can diversify away from "unsystematic" or company specific risk. Now the question becomes, how do you handle systematic or overall market risk.

That is why 1/2 my research is not about the fundamentals of the companies or sectors (the other 1/2 is), but what the investors are doing, the demand and supply of stocks. Even though Modern Portfolio Theory tells you it is all about your risk tolerance, I disagree. It is HOW MUCH RISK IS IN THE MARKET! When the market has a lot of risk, I want to be out or hedged. When the market is relatively safe, that is when I want to "take risk" or own equities.

Every asset can have only 2 of 3 qualities - growth, safety, & liquidity. You want all 3, but there is not a public investment that has all 3. That is why it is important to have different assets, some that have high growth potential & liquid, but has risk and doesn't have guarantees/safety (stock).

Then you can have an asset that has a high degree of safety and the potential for growth, but is not liquid and you lock your money up for a time period (structured notes & bonds). Lastly, you can have an asset with safety & liquidity, but without growth potential (money markets & short term notes).

Therefore, you want various assets so you have the enough safety, you have enough growth, and you have enough liquidity when you need it.

Sorry about the long winded response, but I though it important for you to understand. It is NOT about any individual investment, but the overall portfolio.

Now, for your Central Fund of Canada "CEF" question. Yes the accounting is slightly different and you will get the proper forms after year end by the company. My taxes are already a "nightmare," so one additional minor thing is not going to sway me away from a good investment.

The one good thing I like is that it is Canadian, therefore, outside the jurisdiction of the US regulators. It might actually provide some diversity within the Gold & Silver sector. Therefore, you could have some GLD, SLV, and CEF, as well as some mining shares and GDX Gold Miners ETF.

Good questions, and keep studying,
Dan Stewart CFA®

2010-05-25T09:47:00.001-07:00

Today folks, I am looking at the Central Fund of Canada, ticker CEF, a closed end (commodity) fund that invest primarily in Gold & Silver. In fact, the fund has to be invested 90% of its net assets in gold & silver, and at least 85% must be in the form of gold & silver physical bullion. This is one great way to get exposure to a combination of Gold & Silver that is backed by the actual bullion without you actually having to store it.

In my opinion, Gold has established a new support level at $1165 per ounce, and is currently at $1197.5 per ounce. Silver has support at 17.67 per ounce, which is where Silver is currently. It is also bouncing off a trend line which is what I like to see. I like to see a support line in very close proximity to a bottom trend line.

I have been looking for a good entry point for Silver but it got away from me and went well into the $19s. I do not chase an investment if it gets away from me. I will get my chance again if I am patient. Silver has pulled back while Gold held up because it is an industrial metal as well as a currency, so it sold off with these fears of a global slowdown. I agree with the global slowdown, but do not agree with the corresponding percentage pullback in Silver.

Here is my thinking. First, as an industrial metal, they are using up silver as fast as they can pull it out of the ground. There are no significant stockpiles anywhere. Second, as an safe, non-fiat currency store of value, people around the world will start purchasing silver as gold becomes more expensive per ounce. This is especially true for small investors who cannot afford to buy ounces at a time and the spreads to purchase become wider the smaller increments you purchase.

In addition, the "average historical ratio" between Gold & Silver over time has been 15 to 1. Why, because they mine and pull out of the ground 15 times more silver than gold. Simple supply and demand. However, at current relative prices, that ratio is over 67 to 1.

Therefore, on a relative basis, Silver is "cheaper." In any event, I have already blogger about SLV, the Silver ETF, which is a pure silver play. It may be a better investment for you if you already own gold, but do not own silver.

CEF is a simple, broad way to get exposure to both Gold and Silver if you currently have neither. Technically, it bounced hard off a support and a bottom trend line at $14.07 and is currently at $14.74 (see graphs). Also, volume has been increasing, which is also a good sign in an uptrend. It means more buyers are coming into the security.

This is what I think, let me know what you think. Keep studying,
Dan Stewart CFA®

2010-05-19T09:12:00.000-07:00

I am slowly, over the next few months going to convert some assets & investments currently in bonds into commodity related investments that governments cannot print or manipulate. Right now in the short term, interest rates are going down as the fear a global double dip recession is looming more and more. The main stream media is finally actually talking about it.

This will give us a golden opportunity to sell some of our bonds at a handsome profit, and gradually shift more into commodities while there is blood in the streets (in commodities). The governments around the world have given no indication yet that they are going to be fiscally responsible and will print even more money if necessary.

Therefore, we will have this debt collision Dan Cofall and I have been talking about for 2 years. It will make currency (paper money) less valuable. Therefore regular, fixed coupon bonds will be less valuable as you get paid back in paper money which will be less valuable. Again, it is all about purchasing power, NOT absolute dollars!

In the short term, we will probably have deflation, then high inflation as governments try to save their economies and re-inflate asset prices. This allocation shift will be a gradual process until I am convinced we will have inflation, not deflation. Bonds are a negotiated market, and trades are not instantaneous like the stock markets. Therefore, I want to start getting ahead of the curve and do this carefully and gradually until better information comes out and it is more obvious which way it will actually play out, deflation or inflation.

In short, you want to sell when people are bragging on the golf course how much money they made (even though they haven't sold yet), and buy when there is blood in the streets.

There is still pulling back in virtually all commodities and they are going down significantly as fear of global demand shrinking is spreading. Global deleveraging because of the debt crisis and the China slowdown will certainly have a negative effect on commodities and specifically miners. This is being priced in as we speak. Again, this will give us an opportunity even though it won't feel right when we do it.

In particular, I will be looking for a good entry point in Silver. Another related area will be the miners, both for precious metals and broader metals. An easy way to play this, again, is the SPDR Metals and Mining (XME) and the Market Vectors Gold Miners (GDX). Two individual stocks which support the miners with large, equipment in Joy Global (JOYG) and Bucyrus International (BUCY). I WOULD NOT PURCHASE YET, WATCH AND KEEP AN EYE ON!

These sectors are going through almost a near vertical downward correction. I have attached a graph of Joy Global (JOYG) for you to study. It blew through the trend line and is quickly coming to a support line. It will be worth watching if it breaks through support.

I do not know the exact timing of this fundamental shift, but you need to be preparing to make this shift in case it starts to unfold more quickly than people realize. We can always put our plans on hold if need be, but we want to have a plan in action already just in case it happens sooner. You do not want to be reacting under fire on adrenaline. You want a predetermined plan of action - actually a few different plans of action for different scenarios - so as it unfolds you are ready with a well thought out, logical plan.

Keep studying,
Dan Stewart CFA®

2010-05-18T12:00:00.001-07:00

Yesterday, on our website www.thewallstreetshuffle.com , I told you about a graph I posted for the SPDR Metals & Mining EFT (XME). However, I actually posted a more specific, narrow Gold Miners ETF (GDX) inadvertantly as I was looking at both. GDX is now coming down just as XME already did.

So I took GDX off our website and posted XME, the Metals and Miners. It is hitting off of a bottom trend line and off of a support line at the same time. If it breaks through support, then all bets are off. But if it bounces off support, then it could be a good entry point.

The only wildcard it that Australia just imposed a 40% excise tax on the miners. Other countries could follow suit. It that happens, I believe the miners and in for a tough road and their profits will be cut.

For one of the best technical analyst in the world without a doubt, listen today on 1190 at 5:00 p.m. CST or stream live at www.thewallstreetshuffle.com for Paul Desmond of Lowrys Research. HIs company invented the 90% Upside Volume or 90% Downside Volume, Buying Strength and Selling Pressure, as well many other proprietary indicators.

I believe his firm is the oldest Technical Analysis Firm in our country. In any event, it will be a pleasure having him on and picking his brain.

Keep studying,
Dan Stewart CFA®

2010-05-17T13:07:00.001-07:00

Currently, the gold & other metals are pulling back. Copper is especially down probably due to its industrial uses and people are concerned about this recovery for the longer term. In the short to midterm, the US recovery seems to be in place, and currently the only "reasonably" safe place to invest right now.

However, there are some "chinks in the armor" and some of these reports coming out over the next few days and weeks will give us more pertinent clues as to how real this recovery is, or whether we are going into a double dip recession. Much of the data is starting to point to the latter, especially in certain sectors.

I have included a chart of the SPDR Trust Metals & Mining ETF, which is an ETF that invest strictly in mining companies. As you can see, just a few days ago it hit the top end of its range and is pulling back fairly significantly. If this continues for a few days, we may find a good entry point. Technical analysis helps to find a good entry (or exit) point once you find a stock or sector you want to own. This is a diversified way to be in the commodity sector in addition to owning the metals directly.

I am still bullish in the mid and long term on metals, especially if the governments around the world keep printing. Now I am looking for more good entry points. I did this exact same analysis to find my entry point on GLD (Gold) a few months ago. I am looking for more commodity exposure & less exposure to bonds over the next 6 months or so, as interest rates are very likely to rise.

Keep studying,
Dan Stewart CFA®

2010-05-14T12:56:00.001-07:00

I had a guy e-mail me last night about how to play the US dollar if I thought it was going to continue to strengthen over the next 4-5 months. He also asked me what I thought about China, emerging markets, oil, and specifically Petrobras (PBR).

As I have been so busy today tracking the market and have gotten so many e-mail similar to his regarding the US dollar versus overseas, and also commodities and inflation, I decided to post my response to him as my blog today. It tells you where I stand fundamentally, and is technical enough for the traders to follow. So, without further adieu, here is my response.

The Powershares US Dollar Bullish ETF, ticker "UUP," would be one way to profit if the dollar rises. My clients and I are actually double short the EURO, "EUO," which is another way to play it. I was fairly sure the Euro would go down, and I have been perfect on that trade. I wish every trade worked out that well for me, and I would rather be lucky than good any day.

It may be a little late in that trade now. Whenever you are between buy and sell signals, it is much more difficult and the probabilities of being wrong are higher. However, if you feel the European Union is going to break apart (possible, but not sure), then there is still time.

China is putting on the brakes and slowing down AND their economic numbers are massaged anyway. Oil demand was just revised downward two days ago. Therefore, because of this and Europe, I am avoiding all emerging markets right now, not because they may go up, but the risk is extremely elevated. My clients don't pay me to try and hit home runs, although that occasionally happens like the Euro short. They expect me to take risk when the risks are lower and I am much more confident and statistically have better odds.

Petrobras is a wonderful company, and I have owned it in the past, and I do like the commodities play and am long some commodities besides gold. Over the next months I will be looking to enter more commodities based companies. However, it is more about the overall market conditions and which direction the market is heading than how good a company is. Good companies go down in a down market, and bad companies go up in a good market. "All boats float with the tide" and momentum. Right now, technically, we are hitting resistance and volume is decelerating. Not bullish in the short term.

I want to own good companies in an up market, and be hedged, out, or net short in a bad market. Our positions right now are: we are long US stocks (less than 50%) with lots of cash, I am long gold (another easy one), short the Euro, and short the European stock market.

The long US/short Europe markets will act as a hedge if they both go down. However, I believe Europe will go down more and my clients and myself will make money. If both markets go up, we will make less than the overall market, but with significantly less risk. If they diverge, and the US goes up and Europe goes down (a perfect world), then my clients and I will make lots of money. It is all about risk management, not one individual stock or investment. It is about portfolio construction & how all the working parts interact with each other, known technically as "correlation."

The hard part is correlations change over time, and when things are good, they do diverge and you get the benefits of "diversification." However, when things are bad, correlations INCREASE across certain sectors (small, mid, large etc) and across borders (Asia, Europe, & US). Right now I believe the US is the "strongest of the weak," and am out of Asia and short Europe.

I know this is long winded, but I didn't want to give you a trite answer. You can go to www.thewallstreetshuffle.com and see the blogs I post every day. I hope this helps and keep studying,

2010-05-13T12:26:00.000-07:00

Today, I want to speak a little bit about Japan, as they have some of the same systemic problems Europe has, only worse. Namely, way too much debt to GDP. Japan is #2 in the world, only behind Zimbabwe. Their debt to GDP is 192%, a 2009 statistic and getting worse!

Additionally, they have an aging workforce that is shrinking. They have a very homogeneous society with very little immegration. Therefore, Japan will be hard pressed to replace its aging workforce. Therefore, their tax base will be getting smaller to service this debt.

Luckily, when it is the right time to invest in Asia, you can find ETFs that are "ex-Japan." Therefore, you can get exposure to Asia but exclude Japan. This is important especially if you are a "long term" investor and do not make many changes. There are also ETFs that specifically short Japan. Japan, the 2nd largest economy in the world but soon to be 3rd, in my opinion, is in the most trouble of any industrialized nation!

Enough about Japan, now back to Europe, As I stated over the past few days, Europe has some serious, serious problems. In fact, we are having an expert today from IBISWorld today on theWallStreetShuffle at 5:20 CST on the European debt crisis. I know this seems like beating a dead horse, but it is so important to your investments.

Do you know how much S&P earnings come from Europe? As we stated on the radio a few weeks ago, McDonald's 40%, GM 25%, Ford 32%, and DuPont 28% just to name a few. When you convert these Euro sales back into US dollars, you have a translation loss that reduces your profit due to the weak Euro.

Additionally, if they do their manufacturing in the US, witht the strong dollar, it makes their products even more expensive. This is why it is so important to know where the companies revenues and expenses come from and orginate from. This is why thinking global is so important. Even if you have just US stocks (normally a mistake, although currently smart due to the risk), they are very affected by factors outside our borders.

Food for thought. Oh, one last thing, this expert has IBISWorld's new quarterly updated Gold & Silver Ore Mining Report. If you would like a complimentary copy, e-mail me at dstewart@noramassetmanagement.com and I will send you a copy. These reports are ususally quite pricey.

Good studying,
Dan Stewart CFA®

2010-05-12T15:07:00.000-07:00

If you are under allocated in stocks, is it too late to catch the "dip". I think there is still some room for US stocks if you are watching it diligently . It is breaking through a trend line and may have some legs (see chart).

However, I would stay away from European and Japanese stocks as they have bad systemic problems. They may get a relief rally, but they have serious, serious problems the governments are trying to gloss over. Now, even the mainstream media is coming around and talking about it.

On another note, I just sold a convertible bond today, Sandisk due 2013, for a profit. We purchased a lot of convertible bonds, and other bonds, after the "big scare" and "sky is falling" 2008. The spreads between Treasuries versus corporate & munis was huge, and everyone believed Yankee doodle was dead, and we were doomed. We purchased many bonds at discounts, and are now much higher.

Interest rates came from 20% in 1981 down to historical lows, and the long term cycle on dropping interest rates is over. The long term trend is up, so I am slowly over the next 2-4 months, moving out of bonds and toward commodities. I think the risk in bonds is increasing every day, especially with the printing presses in overdrive.

Therefore, a fundamental shift away from bonds is in order. Food for thought.

Keep studying,
Dan Stewart CFA®

2010-05-11T11:19:00.000-07:00

I would rather be lucky than good any day. Today is a good, no, a great day so far. The European markets are down, the Euro is down, US Treasuries are down, and the US equity markets are up. I am short European stocks, short the Euro, short Treasuries, and long US stocks. I am hitting on all cylinders today.

Obviously, I do not get this lucky every day. However, my logic is sound and my economic assessment good. Even though I am currently bullish on US stocks, if all the markets go down in the short term, European stocks will act as hedge against the US stocks. In fact, they will probably go down more and we will make money.

If all the markets go up, I believe the US stocks will go up more as the financial and economic data is much better in the US. Therefore, I believe the portfolio will still go up, just not as much. However, it is significantly less risky as being 100% long in stocks.

What I actually anticipate, is for Europe to be in more trouble, and the US to continue to recover in the midterm. In the short term, it is so volatile right now, it is anybody's guess. Short term traders, both day/momentum and swing traders are having a very difficult go of it. Position traders may be having better luck, but at the expense of severe ulcers.

Today, in these volatile markets, you need sound fundamental analysis, not so much of individual companies, but the countries and regional economies of the world. The way I am playing it for my clients reduces their volatility and ulcers, and give them the potential for nice returns, especially on a risk adjusted basis. If I am partially right, I believe we will make decent money. If I am mostly right, we will make lots of money. More importantly, you can sleep at night.

One last thing, the iShares Silver Trust (SLV) looks very interesting. I have included a chart for you to learn about. Tomorrow, I will include a broad based S&P chart for you to continue educating yourself. Keep studying.

Dan Stewart CFA®

2010-05-10T11:32:00.000-07:00

A Trillion Dollar bailout for Europe! Really! The media today is finally starting to ask reasonable questions like "Where are they getting all the money?" and "You mean they are PRINTING a Trillion Dollars (worth of Euros) to buy a Trillion Dollars worth of bad bonds and loans?? Doesn't that feel like a ponzi scheme? I am ashamed to say they got is straight our of our (the Fed & Treasury) playbook.

I beleive the governments and central banks waited until the weekend to announce so the bailout would have a much bigger effect, a bigger punch. I also beleive these powers started buying to begin a frenzie and to force short covering.

They are trying to support the Euro, and it rallied this morning. However, it reversed and is now lower. Can this one day European stock rally continue on false financial data and monetizing the debt (jsut printing money).

They had no money last week, where did they come up with a Trillion. Even the mainstream media is starting to catch on. So what to do.

I would stay out of, or short, Europe. I would be short the Euro, I am. I would be in American equities right now as our economic date is coming out fairly strong even with "massaged" numbers and earnings are still accelerating. I would see if Asia is going to continue to tighten or whether they are going to be more accomodative.

I would also be looking to transition out of bonds over the next 3-6 months as interest rates are ending their 30+ yr downtrend and interest rates are going to rise. Remember, you were told that stocks always outperform bonds over any 10 yr period, right. Wrong, that is a bold face lie! Bonds have outperfomed stocks the last 20 yrs, BUT that is about to reverse and bonds are becoming much more risky. You must be very selective going forward, and be looking to prune weaker investments in your bond portfolio, or even make a fundamental shift. I am.

I hope this was some good food for thought and stimulated you into thinking about these things. Good luck, and pay attention. It is your money.

Dan Stewart CFA®

Positioning the Portfolio - Important Changes

2010-05-07T09:41:00.000-07:00

This is my first blog, so I will bring you up to date. I will be posting a blog every work day going forward.

In addition to physical Gold I have been recommending for a long time, I purchased Gold (GLD) approximately a month ago. I shorted 20 year Treasuries (TBT) a few weeks ago, which may have been a little early in hindsight now that Europe is falling apart. There has been a flight to quality into Gold and Treasuries (if you can call Treasuries quality).

We have made a lot of money so far on Gold and have a long way to go I believe. Even though we are down on the Treasury short, I still think we will make money on it due to the fact of the US montetary policy of the non-stop printing money, and people are now starting to compare our debt levels and problems with Europe.

Early this week, I sold all overseas stock/equity investments, and am holding a lot of cash (money market) and bonds. Today, early this morning I shorted the EURO and the European stock markets. I think Europe has a long way to go and difficult problems. In fact, it is possible they break apart.

The European short will act as a hedge for the small portion of US domestic equity I own, and I think we will profit handsomely from it. In fact, it is possible that the US "decouples" from the overseas markets and recovers and goes up while the worldwide markets go down, especially Europe.

My timing doesn't have to be perfect as long as most of my macroeconomic indications are correct, and we (Dan Cofall and myself) have been extremely accurate over the past few years. In short (no pun intended), I currently own some US equity, some bonds, a lot of cash, and am short the Euro, European equity, and US Treasuries.

You can listen to our investment ideas on 1190 A.M. in DFW form 4-6 p.m. M-F on the WallStreetShuffle or you can listen to us streaming by going to our website the www.thewallstreetshuffle.com. In addition, I will be posting a daily "Chart of the Day" on our website.

Hope you find this entertaining, and better yet, I hope you learn something and can make some money from it, and more importantly, avoid losing it.

Have a good weekend, Dan Stewart CFA