(click on picture to enlarge)
CHART AU COURANT: How can I not talk Crude, with the hype around the landing of Gustav? Think back several months ago when I forecast that the manic spike toward the $140 area was a classic blowoff, that historically has ALWAYS ended in a dramatic, unexplained (except we did it in advance) reversal. Further, I said that gas prices would likely peak for the year by July 4th. In fact, that spike DID mark the top, so far, in price, and gas prices peaked a week or two after July 4th. In fact, AAA reported that gas prices fell EVERY day for the 40 days prior to Labor Day. I'll take that as a bullseye, thank you very much! Even better than using our system to make these forecasts, is being able to take advantage of these movements as I've narrated in these comments. I'm showing the weekly bar chart of Crude, with a now fully oversold stochastic analysis at the bottom of the window, meaning crude is as oversold, basis the stochastics, as its been since late September 2006. This alone doesn't guarantee a rally, in fact nothing every does, but it does tell us that selling has reached an extreme, which is usually hard to maintain without a period of relief. From its high to today's low, crude fell $43, or 29%, in two months. As I said then, when the hedgies and banks that were too leveraged "needed" so sell, due to capital calls on their assets that "have no liquid market", the price would plunge. Although a bounce is needed, the ultimate low has not likely been seen. I'm still targeting a much better low surrounding the $80 area. That said, I'll take and track a new trade here, buying on a break above $114 (adjusted to $108 on 9/3 at 8aPST, entered $108.01 at 8:16a PST. Placed trailing stop at breakeven on 9/8 when spiked to $110. Exited 108.01 on 9/8), will re-enter long on break above $105 (lowered from $110 on 9/10 at 8a PST) or on a break below $101. If the higher entry is filled, the $101 will be cancelled and visa versa, but a second entry will be taken around $88 no matter what. I expect to see a rally back up into the $122 to $132 range, where I'll exit and reverse directions with a short. The chart also shows Fibonacci support at $95 and again at $79, each in the vicinity of my entries. Isn't is interesting that the car companies are closing and selling product lines like Hummer "after" crude/gas prices peaked and have declined? The fact that the price of crude and gasoline are falling with a string of hurricanes lined up from Florida to Africa, tells us that the world is awash with oil, and the hedgies and banks are on the wrong side of the trade, and want OUT.
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MARKETS: First, like crude, our system has been very good at forecasting the movements of the Euro. Again, reviewing the blog in the past few months reveals several uncanny predictions, as well as trades that took advantage of the moves, with plenty of time in advance to take the positions. Per the last entry, we are looking for a long after a break of 1.4500, which we got today. However, the pattern doesn't quite look complete. I will enter a buy once the price moves back above 1.4550 (adjusted to above 1.4475 or below 1.4440 on 9/3 at 6a PST...entered 1.4439 @ 8a on 9/3 and will add between 1.4100 and 1.3700) I will exit above 1.5000. The weekly chart of the Euro (not shown) has a stochastic extreme similar to crude, but the Euro hasn't been this extremely oversold since October 2005. With price quickly approaching the lower standard deviation band at 1.4260, a bounce is imminent, but the final low has NOT been recorded. After an relief rally for a few weeks, probing the 1.30's is highly likely.
Stocks opened dramatically higher Tuesday on the relief of little damage from Gustav, but within hours, reversed into a steep slide, after the crowd realized that "things are amiss" with or without hurricane damage. I usually discuss the market in terms of the S&P 500 Index, but like recently, use others if their pattern appears more clear. CLARITY IS EVERYTHING in this business. In fact, I put on a bearish trade in the Russell 2000 inverse 200% tracking stock called TWM at 68.50. If the market falls, this stock will increase in value twice the percentage of the Index's decline. Yes, if wrong, it'll hurt twice as much.
Anyway, the S&P 500 is poised to begin the largest decline since the Dec/Jan slide of late last year. This one should be twice as nasty, so closer to 400 points, rather than 250 during the slide just mentioned. This would target the 850 area, give of take a few percent. Get ready. If wrong, the rally of the last week will extend and peak in mid September, then cascade into late Fall. Either way, there is serious potential for portfolio pain during the remaining months of 2008.
Hide in Gold and Silver you say? Well, again, if you check the past blog entries, when Gold topped 1000, I said in these pages that the 800 level was the target for the next 'major' move, with 600 being the better longer term terminus of the imminent decline. If you didn't see, gold closed at 801 today! 700 should be seen in short order, and I'm saving some shekels for 600.
No sector will be untouched by the upcoming selling wave, but some are much closer to their final lows than others. Housing stocks are NOT one of the good sectors, with another round of serious liquidation by the end of the year. The semiconductors actually are shaping up for a serious rally in the next 3-18 months. You can place individual bets, or take them all by betting on the sector tracking stock, symbol SMH. More soon as this sector could still decline 20-30% by year end. If SMH rises above 26.5 (lowered from 28 on 9/10 at 7a PST) or falls under 25, I'll buy it and add under 21, using 43 as my initial exit.
Rates on the 30 year Treasury Bond have likely bottomed, so mortgages are unlikely to decline in rate anytime soon. Lock in those ARM's N O W under 6%, cause they could go much higher than you or your biased mortgage professional (and I use "professional" generously) can imagine. If you are looking for a house to buy to live in, there is still NO hurry, as the prices around the country are decline as the supply increases, and most sales are foreclosures, so under market.
Cash remains king, and t-bills or treasury-only money markets are the ONLY safe place (safe means without risk) to wait out the perfect storm that has just begun. The safest money market in the country remains the AMERICAN CENTURY CAPITAL PRESERVATION FUND 1 (http://www.americancentury.com/ or 800-345-2021). The expense ratio is extremely low at .48%, they don't use a custodial bank, which means they know where the money is at all times, and they ONLY buy treasuries! Remember, cash has outperformed stocks for the last eight years.
POPULAR STOCKS TO LIGHTEN UP ON OR SHORT SELL (this list is about to get very large): IBM above 130 or below 126 (entered 125.99 on 8/11), GE above 30 or below 27 (entered 30.18 on August 11), AMGN above 55 (entered 62.08 on July 28), RIMM above 130 or below 114 (entered 132 on August 11, exited 116.98 on Sept.2, +11.3%), AMZN above 90 (entered 90.18 on August 11), AAPL above 174 (entered 174.18 on August 11), CSCO above 24 or below 21 (entered 24.18 on August 11), INTC above 26 or below 24.19. As suggested above, "buy TWM at 68.50 or better" (entered 63.90 on 8/14) is a negative bet, or short side play, on the Russell. As the Russell falls, TWM's price will increase. Therefore, I'll track it here in the "sell or short" section.
INTERESTING STOCKS TO ACCUMULATE OR BUY (if you have to in a dangerous environment): See August 11 posting for profit taking on a lot of former trades. MSFT under 23, adding under 18, YHOO under 20 or above 22 and adding under 13 (entered 19.82 on August 11), GOOG on break back above 475 or under 461 (entered 460.99 at 9a on 9/3) and adding under 400, EBAY on break back above 25.50 or under 21 and adding under 18, SNDK under 12 or above 15 (entered 15.01 on 9/5), GRMN under 30 or above 36. Per last post, entered crude under $113 at $112.99 on Aug. 12, adding into $98 (we exited on a stop at 120.99 after crude spiked to $122 on Aug.21, +$8, or 7%). We'll buy again on move above 122 or back below 114 (re-entered 113.99 on 8/24 and stop raised to 117.99 on 8/27, exited 117.99 same day +$4, 3.5%). If stopped out, we'll buy again on a break above 122 for a Gustav pop toward 130. Our exit last week was precient, and we remain out. With Gustav over, and several more lined up, it's going to be wild for the rest of the year. We will buy any test of 100 +/-2 or a break above 112 now. Again, this bounce is a relief rally, and we see a certain test in the 80's coming in the coming 3-8 months. OPEC is warning that they'll cut production, so the rhetoric begins. Last issue we showed a long Euro "gamble" at 1.4680 or better. I took a fill at 1.4650 while using a stop at 1.4550. Any print above 1.5050 will cause us to cash out, perhaps lower, depending on the pattern. Exited 8/28 at 1.4784, +1.34 handles. Will re-enter on break above 1.4800 or under 1.4500, whichever comes first (entered 8am on 9/3 per updates at top of "markets" section at 1.4439 and will exit above 1.5100 or on 1.4100 stop.
For what it's worth,
