Important Swine Flu Avoidance Tip {Funny}

Don't do this!

Middle East Countries Now Poor?

This was published the other day @ 24/7 Wall Street:

The recently rich nations of the Middle East and Russia are learning that having a lot of money is not all that it is cracked up to be, especially when the money goes away.
According to the AP, “Home prices in the once red-hot Middle East boomtown of Dubai plunged 41 percent in the first three months of 2009.” That makes owning real estate in America look attractive.
The news should raise some concern in countries that need outside investment, even the US. Sovereign funds and private money from overseas were part of the capital that built up the American private enterprise base from 2003 to 2006. There has been some hope that those funds would return as the GDP drop in the US, UK, and EU began to stabilize. Now, it looks like the countries that provided that capital may be worse off then the countries where the money was invested.
The sudden impoverishment of nations like Dubai is bad news for the American government. It gives the Fed and Treasury far fewer places to shop the equity stakes that they have taken in domestic companies. In other words. the US government may look like a mutual fund with stock holdings from economic sectors all over the nation. It may have to distribute shares in the “mutual fund” to taxpayers. At least they will have a certificate to hold in exchange for all the money that they sent the IRS.

http://247wallst.com/2009/04/28/dubai-and-other-rich-nations-hit-the-road-to-reality/#more-32358

an t Sionna 4.28.09: Bank Stocks

You are starting to see analysts become more positive on banks and financial institutions. While few of these fellows are willing to come right out and say buy these names, they are at least going from sell ratings to "market neutral" on many of them. I thought I would highlight three banking ETF's to see where they currently stand. I am judging them by the criteria I set out in our Crocus series from a few weeks back. For a overview of this (particularly in regards to my treatment of the moving averages and their crosses) read here: http://www.blogger.com/post-edit.g?blogID=9933558&postID=8243496324994711597 .

In a nut shell note on the charts above where these averages are in relation to their golden crosses (purple arrow). Like almost everything else, financials are currently overbought and they are all trading at the near the top of a trading range.

Irrespective of that, this is I think the most beaten down of all the major market sectors and it needs to be investigated and incorporated more fully in the Game Plan should these names take a breather. Remember stocks and indices can correct by time (i.e. spending a period going nowhere) or by price (declining). When that correction comes, and assuming there is no more bad news that the market's isn't already discounting these should make attractive investments.

Not advice for non-clients. You need to either do your own homework or talk with you own investment professional.

*Long UYG, XLF and KBE in certain client accounts.

**Please note that UYG is an Ultra fund that intraday is designed to move up to 2 times its underlying index either up or down. These funds therefore have different risk parameters than traditional ETFs. As such a prospectus for these funds should be read and these may not be suitable for all accounts. Here is a link to the ProShares Website where such a prospectus may be downloaded. http://www.proshares.com/ Also note that we are providing a link as a courtesy and our doing so should not be construed either positive or negative regarding the investment merits of these funds.

Doug Kass: The Death of Buy & Hold.

Here is an excerpt from a Real Money Silver Article published back at the end of March by Doug Kass. I've featured Kass before because he has been dead right on the market for the past two years. As usual excerpt, link and then my comments.

Kass: The Death of Buy and Hold?
Doug Kass
03/30/09 - 11:59 AM EDT

This blog post originally appeared on RealMoney Silver on March 30 at 7:50 a.m. EDT.
......I am now firmly in the camp that believes that the buy/hold strategy, which was almost universally accepted by the investment and academic community over the past several decades, is no longer the sole investment strategy to be employed in order to deliver superior investment returns. A more balanced strategy might now be on the menu. .......In the main, long-term (i.e., buy-and-hold) investors view opportunistic traders/investors as second-class citizens, at best, and as an expletive, at worst. This comes despite some of the most successful hedge-hoggers (e.g., SAC's Stevie Cohen, Michael Steinhardt and George Soros) having made billions of dollars by way of commodity, stock and futures trades.

Recent academic studies, such as Dr. Lubos Pastor (University of Chicago) and Dr. Robert Stambaugh's (Wharton) "Are Stocks Really Less Volatile in the Long Run?" raise questions about the uncertainty of long-term stock market returns and how risky long-term investing might be in the future. A more violent and uneven corporate profit outlook, higher futures-implied market volatility and the instantaneous dissemination of news are changing the investment landscape and portfolio strategies......Market and economic conditions change, and the keys to prospering and delivering superior investment returns are, as always, based on the ability of a money manager to perceive transformative secular and cyclical developments in companies and industries as well as changes in the broader markets and economy.
More leverage equates to uneven profit growth and greater share price volatility. A more leveraged financial system, by definition, provides an increasingly volatile stream of corporate profits; it seems more likely that an era of higher implied market volatility is here to stay. It holds that change will be more rapid in the future than in the past and that those who adapt to that change most quickly will do better than those whose investment holding period is "forever" -- as .....Warren Buffett has learned from the flooded moats that he believed would protect {his} business franchises of depreciated stocks.....

.....An instantaneous dissemination of information spells trading opportunity. The delivery of news and information has also changed the market landscape. When I was a kid on Long Island, back when there was no business news on television, I purchased the New York Post's late edition to get stock prices. Today, Bloomberg, CNBC and Internet sites like this one provide instant information (news and stock prices) to market participants. In an instant-gratification world populated by more instant-gratification investors (both individual and institutional), a premium is put on quick reaction time. Not only are individual stock moves rapid as news is swiftly disseminated but so is industry share movement. Anticipating sector rotation has become a more important determinant of portfolio performance in recent years and will continue for some time to come......

.......A buy-and-hold strategy may not be dead, but a thoughtful balance between long-term investing and gaming short- to intermediate-term trades is likely the recipe for investment success in the years ahead. Investors, we are not in Kansas anymore.

Doug Kass writes daily for RealMoney Silver, a premium bundle service from TheStreet.com. For a free trial to RealMoney Silver and exclusive access to Mr. Kass's daily trading diary, please click here.

Link: http://www.thestreet.com/story/10479166/2/kass-the-death-of-buy-and-hold.html

My thoughts: Kass can always say it better than I can. This has been one of our periodic discussions with clients and is what helped us several years ago to develop the "Game Plan". Again this is a subject over which I will have a lot more to add in the future. While I do believe that investors can ride out investment cycles, the era of buying something and forgetting about it in a portfolio is over. I have clients who own stocks that they never want to discuss or sell. That is their privilege. They know my feelings about this sort of non-diversification of their assets. In the past 10 years this has been almost without exception a money losing strategy. Owning something just because it worked in the past without any regard for the future is going to continue to likely be a money losing strategy.

Bank of America Round One.

You may have noticed over the weekend that the CEO of Bank of America has claimed that former Treasury Secretary Hank Paulson and Federal Reserve Chairman Ben Bernanke forced Bank of America to go forward with their merger with Merrill Lynch even after it became apparent that Merrill was hemorrhaging cash. Now John Thain has entered the mix. Market Talk reports the following:

"The back-and-forth squabble between BofA CEO Ken Lewis and former Merrill Lynch chief John Thain has reached new - and rather immature -levels.
It started last week when WSJ reported that Lewis, under oath, said he was forced into making the Merrill acquisition. Now, Thain has fired back at BofA, saying the bank lied about its role in the huge bonuses and losses at Merrill.
Lewis’ comments see to be “utter and shameless nonsense, an attempt to worm out of responsibility,” FusionIQ CEO Barry Ritholtz writes on his blog, noting Lewis is only making excuses for a terrible acquisition. “Its the sort of weasely responsibility evading CEO speak we have come to expect these days.”
But just because Lewis’ comments might be outlandish doesn’t mean Thain’s a saint either. Quite the contrary, in fact, as his latest comments suggest he’s taking an immature path to defending himself.
Thain’s bad-mouthing of his former employer shows he’s making “the basic mistake of a snippy college kid” who got fired from his first job, Scott Reeves writesat Minyanville.
“Thain plays into the populist disdain by saying, in effect, ‘I didn’t do it, so don’t blame me,’” Reeves says.
Instead, Thain shouldn’t have commented at all on BofA. “If Thain is more or less right, the facts will speak for themselves and those who care about the issue will figure it out,” Reeves notes.
It’ll be interesting to see how all this plays out, but in the meantime, Ritholtz says this is all starting to look like a variation of the prisoners dilemma.
“Both parties would probably be better off if everyone kept quiet, but each individual party is better off confessing than remaining silent,” he says. “And both of these guys cannot be telling the truth.' ”

Link: http://markettalk.newswires-americas.com/?p=1371

I'm going to have more to say at a later date about this whole Bank of America debacle and how it relates to shareholder rights. None of it by the way is good for the likes of you and me. Somebody here isn't telling the truth. For his sake I hope it's not Lewis that's the liar.

*Long for 2 clients legacy positions in Bank of America.

Sell In May

This from Direxion Funds weekly wire entitled "By The Numbers":

SELL IN MAY? - In analyzing the S&P 500 for the years 1996-2008, the 6-months ending on April 30th have beaten the 6-months ending on October 31st in 10 of the 13 years. Collectively, the 6-months ending 4/30 are up +133% (total return) vs. an 11% loss for the 6-months ending 10/31. The S&P 500 is an unmanaged index of 500 widely held stocks that is generally considered representative of the US stock market (source: BTN Research).

*Long ETFs related to the S&P 500.

NBBT: Swine Flu

We've commented in the past on NBBT {Next Big Bad Thing}. Usually for us NBBT is an event or a series of events over which markets or governments focus which usually turns out to be less of a problem than first thought or a nonexistant issue. But Swine Flu could turn out to be the real thing in terms of the markets.

First though let's be clear about one thing. There is no indication at this point that swine flu is going to turn into a reprise of the 1919 flu pandemic that may have globally killed 20-40 million people. True over a hundred have died from this in Mexico. But there have been no other reported deaths in this country or in the other places so far where the flu has shown up. I'm no doctor {I don't even play one on TV!} but I think that the fact that the authorities have jumped on this quickly and the advances modern medicine has made when fighting pandemics means that this outbreak might be contained quicker than thought with less loss of life than feared.

However, it does have the capacity to throw a wrench in any nascent global economic recovery, especially if international travel and shipping becomes either delayed or comes to a halt. For that reason this is the kind of event that will need to be closely monitored. I said earlier this year that I thought we had seen the market and economic lows given what we knew at the time. I also said that unless something else comes over the gunnel's stocks had probably seen their lows for this cycle. This falls into the "something else coming over the gunnel category".

So far for me it is nothing more than a watching or worrisome event. But a significant change or spread of the disease might force us to become more defensive in the game plan. We are already more on alert given the market's rise these past seven weeks. This kind of thing causes us to ratchet up the defensive plan a bit more than we might have seen a week or so ago.

S&P 500 Current Trend

From Chart of the Day. {Link to their Web Site Chart of the Day Plus.}


For some perspective on the latest stock market action, today's chart presents the current trend of the S&P 500. As today's chart illustrates, following the October 2007 peak, the S&P 500 traded with in a relatively narrow downward sloping trend channel. That trend was interrupted by a historic financial meltdown. Since the meltdown, the S&P 500 has resumed trading within the confines of a trend channel (albeit in a volatile fashion) and is currently testing resistance.

Fortune 500 Worst Year.

The Fortune 500 posted its worst year ever last year. {Excerpt & link via CBS News.)

It was 1955, the year Disneyland opened and Ray Kroc sold his first hamburger. Bill Gates and Steve Jobs were born that year. And it was in 1955 that Fortune magazine published the very first Fortune 500 list. It's an annual compilation of America's 500 largest companies, its changing roster reflecting the current economic climate.....Since 1955, more than 2,000 companies have earned a spot on the list, but in 55 years only three have achieved the number one slot: General Motors, ExxonMobil and Wal-Mart.....

......2008 was the worst year in the history of the Fortune 500 for America's largest companies. {Some low lights!}

-From $645 billion in profits in 2007, profits dropped this year to just $98.9 billion - an 84.7 percent decline!

-Eleven of the top 25 largest corporate losses in list history took place last year.

-The biggest loser of them all: Insurance giant AIG.

-Thirty-eight companies disappeared from the list altogether. Bear Stearns and Lehman Brothers may be no surprise, but it was also "last call" for brewer Anheuser Busch. And the bubble burst for gum maker William Wrigley Jr. … Making room for fashionable newcomers like Polo Ralph Lauren. And (perhaps a sign of our need for retail therapy) Visa and Mastercard are also Fortune first-timers.

-Speaking of life at the top, 15 women ran Fortune 500 companies in 2008m an all-time high.

http://www.cbsnews.com/stories/2009/04/19/sunday/main4954725.shtml

New Section: Q & A

I'm beginning a new section here at Solas! and I'm going to call it Q & A. {Questions & Answers}. Some of these will be short answers to more frequently asked questions. Others might be longer particularly if there is a point I'm trying to stress. Here goes round one.

Question: Who do you write for at Solas! ?

Answer: I write for only one audience and that is the clients, friends and prospects of Lumen Capital Management, LLC. It is a way for me to communicate in a more rapid manner my thoughts and a way for me to broadly outline what I'm thinking and/or doing for them at any given point of time. In that sense this blog is their blog. Everybody else is along for the ride. My original thoughts or ideas are usually brought forth in section pieces such as with our "an tSionna" series for money flow analysis or in our "Game Plan" articles. Since I don't pretend to have a lock on every original idea out there, I also often copy articles that I find on the web that I think might be of interest to my audience. You will know these pieces because they are usually excerpted and linked to their original source. Occasionally I will throw a commentary at the end of these articles. Finally I try to find some light hearted material every once and awhile and put it out there as well. Rarely I'll include something about me, but not all that often. I'm just not that interesting! :-)

24/7 On Geithner

24/7 Wall Street is out with an interesting comment on Treasury Secretary Geithner. Excerpt with link and commentary to follow:.

The Treasury Secretary Thumbs His Nose At Congress

Tim Geithner, the Secretary of the Treasury, spent some of the early parts of his {new} career {at the Treasury} being attacked by Congress. Legislators were not happy that he could not come up with details about the Administration’s stimulus program and plans to buy bad assets from banks by recruiting shrewd investors from Wall St. and giving them access to taxpayer cash.
Geithner.....has learned his lesson, and he has learned the secrets of dissembling and being reticent on important issues.
Congress will push the issue of public discussion of sensitive government information, but usually only so far. Geither’s brilliance has led him to change the perception of banks from being “too big to fail” into being “too big to be discussed in public.” His most impressive statement at yesterday’s Oversight Panel cross examination was that the “vast majority” of American banks are well-capitalized. He neglected to mention which financial firms are in trouble.....Since Geithner did say that only about $110 billion of the TARP was left in reserve, the water is inching toward the top of the levy. He did not refer to the new IMF data which came out just before his testimony. It said that worldwide banks were facing more severe write-offs. That fact was conveniently left outside the door.....
....What the Secretary avoided in his comments regarding why the banks are not increasing lending is that he has information about bank “stress tests” that Congress does not. Geithner knows that some of the financial firms are not robust. But, it is too dangerous for him to name them into an open microphone. It could cause a panic, and drive the stocks of major banks down and cause depositors unnecessary worry. What he would say is that if some of the banks did not pass their tests, the federal government stands ready to help them if private investors are not. At this point in the history of American financial markets that means that the government will be stuck with the check......Geithner says that he has the money left in the TARP to cover such a contingency......In the Secretary’s eyes, that means the TARP has worked because it has been well-run due to superior government intelligence and judicious use of the money
.....{Geithner has} learned the lesson that transparency only leads to a call for more transparency......What Geithner has found out, most of all, is that he has his interrogators cornered. Each and every one of them knows that the banking system cannot be allowed to fail and that no one is certain how to fix it. Too much criticism could lead to public anxiety about the entire set of programs meant to repair the broken financial and credit markets and suddenly there may be much more to fear than fear itself.
Geithner has finished answering questions. He has gained the leverage to keep secret.

Link: http://247wallst.com/2009/04/22/the-treasury-secretary-thumbs-his-nose-at-congress/#more-31570

My comments: Geithner got off to a rough start and his speech or rather non speech in early February regarding the bank bailout sent stocks into their final tailspin. Since then he seems to have found his footing. It's a big, complex and expensive job for the country to fix. However I think a strong argument can be made that the early results are positive. Wall Street at this point would probably prefer that both he and the President step away from the limelight on banking and just get on with the job of fixing the system.

Crocuses-Final Thoughts.

If you looked at all the charts we posted over the weekend you would have come away understanding our opinions in almost each case.

1. Stocks and indices are just beginning to show the first traces of what might eventually become a change in market trend.

2. Stocks and indices are for the most part trading at the higher end of the trading ranges established after last Autumn's melt down.

3. Most stocks and indices are currently overbought and currently vulnerable to some kind of correction.

We'll learn quite a bit on how the market responds over the next several weeks. Seemingly on cue, stocks sold off on average at around a 3% clip yesterday and followed through with that decline at today's open. But then the buyers came in with stocks stronger in the last hour of trading. In essence stocks retraced their losses from yesterday but did not for the most part erase the gap from yesterday's open. Meaning that stocks are still trading at levels where they opened Monday morning but have rallied back up through the past two day's lows.

If this pullback is the beginning of something more sustaining on the upside, then stocks should only retrace a portion of the last six week's rally. Anything beyond the markets retracing about 1/2 of its recent gains would suggest that what we have been experiencing is nothing more than a bear market rally. That's why the next couple of weeks could be important in trying to figure out where we are in terms of overall market structure. It will be important to see if any further correction is orderly and controlled or if market participants panic leading to a more volatile sell-off.

There is an old market saw that the market teaches you a lesson time after time until you learn it; then it changes the lesson. As the market has moved up in these last few weeks we have felt it prudent in appropriate accounts to take just a small amount of certain positions off the table. In most of our accounts this has simply meant in going from absurdly low levels of cash to just low levels of cash. This is cash we would like to redeploy if we do get some sort of correction. If stocks continue to rally we have in appropriate accounts a sufficient amount of exposure in order to participate in any further advance.

But stocks have rallied from each correction in the past month making sellers at least in the short run leave some money on the table. Again where we have done this it has been very small amounts and has been meant to lower our risk exposure. The point though is that buyers are becoming conditioned to buy market dips. At some point that strategy will not work and buyers will not be rewarded for taking on these trades. The market's actions these next several weeks could tell us when this might be.

Crocuses Industrials {XLI}

Continuing our "Crocuses" Study from last week. One more day of looking at sectors. For a more thorough discussion of some of these terms see our Thursday Posting regarding the SPY.

1. This chart looks more like the Dow Jones Index {DIA}. In fact its "Cross" may not yet be complete and it is also coming up against a major level of resistance between 22 & 23.

2. Same trading range that we've seen in almost everything else we've looked at.

3. ETF is also overbought.

*Long XLI in select client accounts. Long SPY and DIA in client accounts.

Crocuses-Basic Materials {IYM

1. Golden Cross is more pronounced-Materials stocks have been doing better on a relative basis over the past 2 -3 months. Note that it also is bumping up against major resistance.

2. Trading range past 6 months. A break out here would be considered more bullish for these stocks.

3. Index and ETF is overbought.

*Long IYM in select client accounts.

Crocuses Financials {KBE}

We conclude our "Crocus" Series by taking a look at the financials. This is perhaps the most important chart of all. Banks led us into this disaster and arguably no bull market will have legs unless the financials come along for the ride.

1. Financial firms are just beginning to turn the corner. We see the beginnings of a "Golden Cross" here. This trend is fragile and could turn around or pause {just like the rest of the market right now}. Resistance lies not so far above at around 20.

2. Same trading range as most other indices.

3. Overbought.

One final note on the financials. Much of why stocks have rallied these past 6 weeks has to do with the belief that the worst is over for this sector. In fact the market has been taken heart to better than expected earnings from some high profile firms in this sector last week. However, our recession is not over and for individuals it might still get worse before it gets better. We have to be on guard for the possibility that the banks could see more bad news during the rest of the year. Also some sort of rest or profit taking is likely at some point here as some of these firms have advanced almost 100% {though off of very low bases}. Again for emphasis it is unlikely that stocks can sustain much of any further advance unless the financials come along for the ride. That is why we monitor their progress closely on a day to day basis.

*Long KBE in certain client accounts.

Crocuses Technology {IGM}

I thought I'd continue our "Crocus Series" by showing you a few sectors that have many of the same characteristics as the major market indices. For a more complete explanation of some of these terms please see Thursday's SPY posting.

1. Technology has acted better than certain other sectors of the market for awhile. Notice it's uptrend is more pronounced and it has been making positive advances longer than some of the other sectors we've looked at. It too is bumping up against major resistance. Probability suggests that these stocks could either pause here or have some sort of a shorter term pull back. These stocks have also advance 5 of the last 6 weeks also making them vulnerable to some profit taking in the coming weeks.

2. Same trading range.

3. Sector is also overbought.

*Long IGM in various client accounts.

Crocuses-Energy {IXC}

Energy is another sector that has started to show some life.

1. Golden Cross and the sector is bumping up against a longer term downward sloping trendline.

2. Same defined trading range as we've seen in most other indices or averages.

3. Same overbought state.

*Long IXC in various client accounts.

Crocuses XLV-still dormant.

I thought I'd conclude today's sector review by showing you something that is not working. That lagging sector is healthcare. This is largely due to words and actions emanating from Washington regarding a restructuring of our healthcare system and is also influenced by major drugs coming off patent over the next couple of years that is currently perceived to have a large impact on some of our largest pharmaceutical companies.

1. Notice there is nothing yet resembling a "Golden Cross"-the green line is not close to crossing over the red.
2. Unlike the other indices or sectors we've reviewed XLV is nowhere near a major resistance point. In fact it is chugging along one of its major support lines.
3. Index and ETF is not as overbought. This also suggests that it and it's underlying stocks are lagging other areas of the market.

*Long XLV in certain client accounts.

Crocuses Dow Jones Industrial Averages {DIA}

I thought I'd continue our "Crocus Series" by showing you some more major averages. For a more thorough explanation please see Friday's post regarding the S&P 500.

1. The Dow is just eking over what I call our "Golden Cross". In fact its performance here almost doesn't qualify as an actual "Cross". We'll have to see how it behaves over the next week or so.



2. One of the reasons the Dow may be having trouble making the Cross is that it has been eating through a major level of resistance that was established over many months. This is taking considerable effort by the underlying stocks in this index and could lead to a pause in its advance or a possible retracement of some of its recent gains.



3. Index and ETF shows a very overbought state.



A note. The S&P 500 the Nasdaq and the Dow have all been up now for six straight weeks. This makes them more vulnerable to a correction at some point. A correction here wouldn't necessarily be a bad thing as it would give stocks a chance to pause and regroup for possible further advancement later this year.



*Long ETF's representing the Dow Jones Industrial Average, the S&P 500 and the Nasdaq in client accounts.

Crocuses Mid-Cap Stocks {IWR}

We'll conclude our look at major American indicies by reviewing the Russell Mid-cap index.

1. Golden Cross and notice how it is right against a major level of resistance dating back to early October.

2. Trading range established last fall.

3. Index and ETF shows a very overbought state.

*Long IWR in client accounts.

Crocuses International Stocks. {EFA}

Even international stocks are participating.

1. Golden Cross and getting close to a major downward trend line that probability suggests should be a major resistance hurdle. This would suggest that this index should either retreat or pause at this level.

2. Trading range established last fall.

3. Index and ETF shows a very overbought state.

*Long EFA in certain client accounts.

Crocuses-Small Cap Stocks {IWM}

Similar set ups from yesterday.

1. Golden Cross of our proprietary moving average. {See yesterday's post for an explanation of this.}

2. Same well defined trading ranger since the Autumn.

3. Index and ETF is very overbought.

*Long IWM for various client accounts.

Crocuses In The Spring!

Like crocuses peaking through a late season snow, stocks are just beginning to exhibit certain traits that indicate a slow position from a bear market to bull market phase. It is early and while stocks have had great rallies from their March bottoms, I don't expect them to travel straight up between now and year end. Irregardless of what happens the next couple of weeks though the money flow picture into stocks has improved. What follows are some examples of what I'm looking for and what I'm seeing.

Crocuses-SPY

Here is the S&P 500 ETF {SPY}.

2. Shows the trading range we have been talking about for what seems like an eternity. We are still stuck in it albeit closer to the top than its bottom.

1. Shows that we have decisively broken through the market's downtrend line from last fall. More importantly is the crossing of two moving averages (green over red lines). We cover 3 different moving average comparisons. We refer to them as our canaries. They give us early warnings about a change in trend. These moving average shown here are proprietary. That is it is a back tested comparison of different averages that our research indicates as a fairly reliable indicator of a change in trend. We have back tested these moving averages in some cases as far back as the 1920's. One of our other moving averages which we follow is the widely well known crossing of the 50 day over or under the 200 day moving average. Since a 50/200 cross is much more of a lagging indicator we use it as a confirmation of what we are currently seeing in our other proprietary averages. A "cross" of the green line (a shorter term moving average) over the dark red line (a longer term moving average) is called a "Golden Cross" and is considered a bullish development. The inverse of that (red over green) is known as a "Death Cross" and is considered bearish. These averages are subject to fluctuation as the trend changes so it is possible that these lines could move back and forth for awhile. However, it is the first inklings of a possible change in investment trend and one that most be closely monitored. A change in the market's investment posture would definitively switch the game plan from defensive positioning to an offensive profile.

3. Irregardless of these events the market is currently very overbought and it is possible that some kind of correction could unfold over the next couple of weeks. Note however that markets can correct by price (a decline) or by time (a market that trends listlessly nowhere for a certain period of time).

*Long SPY in client accounts.

Crocuses-QQQQ

Same set up as the post of SPY.

1. Shows the trading range with different levels that this ETF has been in since last fall.

2. Golden Cross of our proprietary moving average {see previous post for an explanation of this}. QQQQ is in a much more pronounced uptrend.

3. QQQQ is butting up against resistance from last fall. Probability would indicate that this index should pause or retrace some of its prior gains at this point. A failure to take that expected course could be construed as a very bullish event.

4. Same levels of this ETF being over bought.

*Long QQQQ in various client accounts.

Silly Season

The end of tax season is silly season for me. I'm up to my eyeballs with helping clients get last minute information and a few other matters like the markets. Posting will be nonexistent for the next couple of days.

Happy Easter Everybody!

Coming Soon.

Here's what to expect coming up @ Solas! over the next few weeks.

-an tSionna pieces on the state of the market.

-A game plan article taking stock of where we are and what we are going to look for in the coming months.

-Strategies and tactics for the Spring and Summer months.

-Also I'm setting up lunches with the Consigliere and the Patrician. I'm also breaking bread soon with the Bondman. I'll report back on what I find out.

-Lumen Capital Management's latest quarterly letter.

-As well as the occasional tidbit or piece I find interesting on the net.

Good Friday

Good Friday. No posts today and through the rest of Holy Week.

Happy Passover

Happy Passover to all of its celebrants. May the season find you with deep happiness and peace.

S&P Earnings Decline

The folks at chart of the day have an interesting visual on the impact of the S&P 500's earnings decline. "For some perspective into the current earnings environment, today's chart compares S&P 500 earnings performance during the current economic recession (solid red line) to that of the last recession (dashed gold line) and the average recession from 1936-2006 (dashed blue line). As today's chart illustrates, the current decline in earnings is several orders of magnitude greater than the average decline during a recession. The current decline is also more severe than what was the most severe earnings decline on record – the decline that began in 2001 (gold dashed line)."

Source: Chart of the Day. {Subscription Service. Link to their public site: https://www.chartoftheday.com/ }

My perspective: Judging by this chart we should now be at the point where we are seeing the trough in earnings decline. This may be why stocks are acting better. If this is the worst quarter for earnings than expect this rally to have legs or at least to not completely retrace the decline of last Winter.

*Long ETFs related to the S&P 500.

6 Straight Losing Quarters.

With a decline of 11.7% during the first quarter the S&P 500 ended the quarter lower for the 6th straight time. This is only the 2nd time in history of the index that it has declined for 6 straight down quarters. Based on Friday's close the S&P 500 has lost 47.7% of its value during its current losing streak. To make matters worse for investors, the bear market grew fiercer as time progressed. As shown below the last two quarters have also been the weakest of the losing streak:

12.31.07.........-3.8% decline
3.31.08...........-9.9% decline
6.30.08..........-3.2% decline
9.30.08..........-8.9% decline
12.31.08........-22.6% decline
3.31.09..........-11.7% decline

Source: B.I.G Tips, BeSpoke Investments, 4.3.09

*Long ETFs related to the S&P 500.

Happy Birthday Dad.

Happy Birthday Dad. We'll break bread together again someday!

A Shout Out.

We never discuss our clients and unpaid employees here at Lumen Capital. Today I will make an exception. Here's a big shout out to one of our favorite clients, Mary Kathryn English who turned 16 today! A bit of a lead foot as she learns to drive a car but otherwise not a bad kid. Congrats! Your boss is very proud of you!

Jim Cramer: Five Sectors

From Jim Cramer's Stay Mad For Life.

There are five sectors that I think will be great, not for just a year, but for many years to come. They are:

1) aerospace and defense

2) agriculture

3) oil and oil service

4) minerals and mining

5) infrastructure

My Comment: I would add technology and certain sectors in healthcare such as biotechnology to this list.

*Long various ETFs that either incorporated these sectors or are based completely on these sectors. Since this list is very large I will be happy to supply it upon request.

They're Playing Baseball Today!

"The one constant through all the years Ray has been baseball. America has rolled by like an army of steamrollers. It's been erased like a blackboard, rebuilt and erased again, but baseball has marked the time. This field, this game is a part of our past Ray. It reminds us of all once was good and could be again."-James Earl Jones as Terence Mann in "Field of Dreams."

So today baseball begins again. For one day perhaps all is right with the world! Everybody who follows the sport has the same record today. Everybody has a shot at the World Series. For the record I'm picking the Cubs and the Yankees to square off in October! Couldn't pass up the day without a few clips.

"Bull Durham": Two clips. {May be language inappropriate}.

http://www.youtube.com/watch?v=wDGQbLB-trM&feature=related

http://www.youtube.com/watch?v=20NEbFeXU7w&feature=related

"The Natural", Final Home Run Scene:

http://www.youtube.com/watch?v=54-6yimtjtA

"League of Their Own": "There's No Crying In Baseball." {Language}

http://www.youtube.com/watch?v=54-6yimtjtA

"Pride of The Yankees" Lou Gehrig's Fair Well Speech.

http://www.blogger.com/post-create.g?blogID=9933558

Finally for us Chicagoites. Harry Carey singing "Take Me Out To The Ballgame".

http://www.youtube.com/watch?v=Fo9fEADUqPs

And for what it's worth the 1975-76 Cincinnati Reds were the best baseball team of all time.

Some Market Characteristics

An interesting read by Mebane Faber over at World Beta. He discusses certain characteristics of Bull & Bear Markets. In particular I summarize a post called "Where The Black Swans Lie": {Linked @ the end} I summarize this because his work highlights some of what our own research into markets tells us. In summary Faber notes:

1. The market goes up two-thirds of the time.
2. All of the stock market return occurs when the market is already uptrending.
3. The volatility is 80% higher when the market is declining.
4. Roughly 75% of all of the best AND worst days occur when the market is already declining. Reason: see #3.
5. The reason markets are more volatile when declining is because investors use a different part of their brain when losing money.

This sort of work is very important in understanding modern markets and how they trade and it is another of our themes we will come back to over the rest of the year.

Link: http://www.mebanefaber.com/2009/04/03/where-the-black-swans-lie/

an tSionna 4.5.09 Close up.

Here is a closer view of yesterday's chart mostly showing the stock price action in yesterday's red circle. I think this is a clearer way for me to show some of the points I was talking about then. {Double click on the chart to expand it.}

*Long ETF's related to the S&P 500.

An tSionna 4.5.09 Taking Stock.

I'm back and taking stock of the market after being gone for most of last week. Lots of good things are happening under the surface with the market right now. While it is to soon to say that the bear market is definitely over, I'm beginning to think that it is. I am in the camp of others such as Doug Kass who thinks we have seen the lows for this cycle. Kass goes so far as to say that he thinks we've seen generational lows. {See Seven Thoughts Of Doug Kass: http://lumencapital.blogspot.com/2009/03/seven-thoughts-from-doug-kass.html}

1. The first thing I look at is the most recent price action. Here we can see a market that has been in the process of consolidating its price move off of its March 10 lows. It has regained the secular lows of the past bear market {horizontal red Line} which had the potential of becoming overhead resistance {a barrier for upward price movement) and is trading above it's 50 day moving average {dark green line}. It is also trading above the downward sloping trendlines it established respectively back in the spring and summer of last year. While some end of the month window dressing might be involved in last week's trading, the whole tone of prices and market movements sure feels more positive right now.

2. We are also in the process of forming an upward sloping trend line {pink dotted line}. This is also a necessary precursor for upward price movement longer term. I say in the process of forming such a line because we need three data points for reference and right now we really only have two. Again this is a potentially positive development.

3. One slight negative that might lead to some short term selling is that many of the indicators we follow such as this Relative Market Strength indicator are registering short-term oversold. This means there is the potential for a shorter term correction in the next week to ten days. While nothing is certain the probability is higher right now that this could occur. A small retracement into profit taking would actually be healthy for the market about now.

4. The final interesting point is that for all of our price movements over the past 6 months we are now higher than the lows tested back last November and have formed one massive trading range between roughly 660-960 on the S&P 500. That is one volatile trading range! IT is in keeping with the spike of volatility that we've seen during this troubling time. That may be with us for some time and may become a fact of life given how stocks trade at this time.

At any rate a better feel. I expect some short term weakness coming but other than that I think stocks are in for generally a more positive period going forward unless something comes along that we are currently not looking out for.

*Long ETF's related to the S&P 500.