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®

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®

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®

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 I 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®

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®

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.old.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®

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®

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 Friday, 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®

After yesterday’s big rally, I said we needed one more good day of follow through to demonstrate the resumption of the bull market after a 2 month sell off was continuing, and we weren’t rolling back over. We did bounce off resistance but we need the buying volume to continue increasing.

This has not been happening and stocks have been trading in a fairly narrow range this morning off of the news. Major indexes were lower after an unexpected drop in retail sales. Stocks then erased some of their early losses after University of Michigan consumer sentiment index said confidence grew to its highest level since January 2008

The U of Michigan Consumer Sentiment Index stated confidence grew to its highest levels since January of 2008, and well above forecasts. However, the Commerce Department said retail sales fell 1.2% in May. This was the 1st drop in 8 months and was way below economist forecast.

My question is, “How does consumers confidence get stronger if consumers aren’t returning to stores?” Just a thought. The important thing is to be able to distinguish the news from the noise. I personally put much more confidence (no pun intended) in the Retail Sales Report. It is more quantifiable and measurable based upon actual sales instead of feelings and emotions.

This is the 2nd straight Friday stocks stalled after weak economic news. Remember, a week ago we had a disappointing employment report. So the big question is whether the economy is continuing its slow growth recovery or if the growth is actually slowing or cooling more quickly that economist are stating/predicting.

This begs the questions, will we actually slow enough to have negative growth and/or deflation. I think it is important to analyze all the possibilities as that will determine the assets you will want to own.

From a technical standpoint, yesterday was a 90% Up Volume Day, meaning over 90% of the stock were up versus less than 10% were down. This was the 5th 90% (Up or Down) Day in the past 8 sessions. What does this mean. It means the Bulls and the Bears are fighting it out.

However, some of the Breadth and Momentum Indicators are becoming positive, especially for the NASDAQ. The percent of stocks above their 10 DMA & 30 DMA has been increasing.

What does all this mean in English. I still want to see a strong follow through day, which thus far, we are not getting. Therefore, I do not want to put additional capital to work, especially over a weekend where anything can happen.

I still have some US stocks, mostly NASDAQ stocks, a lot of cash, and bonds. I am patiently waiting for my entry point into stocks if we begin to see some additional strength in the markets.

I have attached an updated graph of the S&P 500 Bouncing Off Support (again today like yesterday) so you can see specifically what I am looking at. I do not usually include the same graphs twice in two days, but I want you to understand what I mean by follow through.

Keep studying,

Dan Stewart CFA®

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®