Monday, September 29, 2008

Stock Market Set to Open Lower Monday

The U.S. Stock market is set to open much weaker Monday morning in spite of the fact that Congress appears set to pass the Bush/Paulson financial bail out plan, althought it may be a close vote in the House of Representatives. News that Wachovia is being bought out by Citigroup is pressuring the market, along with concern that the bail out package may not pass in its current form.

Nasdaq stocks are being pressured by some downgrades to Apple as consumer spending is likely to slow in the coming months.

In the face of the forecast economic weakness, Crude Oil is dropping sharply this morning, and the Dollar is rallying as a result.

Stay Tuned!

Scott Cole
www.bestdaytradingstocks.com
www.kungfutrader.com

Saturday, September 27, 2008

Weekly Stock Market Re-cap

The U.S. Stock Market ended a tumultuous week on an up note, in spite of the fact that Congress did not pass the Bush Administration’s financial bailout plan. The Dow finished with a triple digit gain, although the Nasdaq indexes finished modestly lower.

In consideration of the bad news that came out on Friday, the market’s performance was nothing short of miraculous. Overnight Thursday, the government forced a buyout of Washington Mutual, the largest bank failure in U.S. history. J.P. Morgan ended up buying the bank for a mere $1.9 billion. It was also reported the 2nd Quarter GDP was actually a bit weaker than the 3.3% growth originally reported. Also, housing data came in very weak for the month of August. And finally, Research in Motion (RIMM), came out with an earnings forecast well below market expectations, which sent the share tumbling nearly 30%, weighing down the tech sector.

Incredibly, the Dow Jones Industrial Average and S&P 500 managed to post decent gains on Friday, while the Nasdaq tried hard to claw its way back to breakeven, falling a little short. Does this mean we no longer need the Bush bailout plan? The public remains skeptical, and we continue to hear both sides of the argument. Credit markets have clearly frozen up, so some sort of plan is required. The question is, does it need to be this big government bailout, or is it something the private sector can fix with some creative solutions? And, does it really need to happen this quickly in order to avoid Armageddon in the financial markets on Monday?

The end result of the week is that the major averages closed lower than the previous week, but still well above last week’s lows. The trend is down, but we could possibly be set up for a test of last week’s lows and a rally from there. A number of indicators suggest there is some divergence at last week’s low. A re-test and bounce off of that low will confirm that.

In other markets, Treasury futures prices managed to rally a bit on Friday due to the weak economic data. The Dollar managed to hold relatively steady on Friday, as it was generally mixed against the major currencies. In the energy markets, the focus seems to be returning to global economic weakness as the driving force behind price direction. Crude oil closed down a bit over a dollar, while Natural Gas appears to be resuming its downtrend.

Gold and Silver prices were up modestly on Friday, but were up significantly for the week. These markets are in neutral after significant rallies off of their lows in the last couple of weeks due to this current financial crisis. A big bail out plan that suggests inflation is in our future down the road will move these markets higher.

In the grain markets, it appears that Corn, Soybeans and Wheat are all ready to resume their downtrends as it appears that the current crop situations, and supply and demand factors indicate that lower prices are in order. Most other commodity prices appear to be heading lower as well, with the exception of Cocoa and Sugar.

Stay flexible!

Scott Cole
www.bestdaytradingstocks.com
www.kungfutrader.com

Tuesday, September 23, 2008

Stock Market Slide Continues

The U.S. Stock Market continued its downward slide today as Congress is not yet ready to sign off of Treasury Secretary Paulson’s $700 billion plan to shore up the U.S. financial system. It is no surprise that there is a bit of a rebellion against the plan due to the sheer cost. The debate is of course the lesser of two evils…take your chances and see how things end up, or spend the money and hope the plan works, knowing that it will cost the taxpayers dearly.

I don’t envy the position our politicians find themselves in, but the fact is, many of them are part of the problem. And now, we are watching them all point the finger at everyone else but themselves. Par for the course in Washington, D.C.

As I have stated over the last week, traders simply need to stay cautious until the markets settle down. You don’t need to trade! All of the rules in the playbook have been thrown out in recent weeks and months, so the best thing to do is wait for a return to normalcy. Even if you are simply a daytrader, the whipsaws in the market have been enough to cost you big time, so you at least need to scale back your trading size.

Sooner or later, the markets will settle down, and whichever trend emerges, be prepared to hop on. In spite of the volatility in the markets in recent days, and some big moves in commodities and currencies, I still see many of the underlying trends have remained in place. Keep that in mind when you decide to plunge back in!

Good Trading!

Scott Cole
www.bestdaytradingstocks.com
www.kungfutrader.com

Monday, September 22, 2008

Monday Blues - Stock Market Tanks

The U.S. Stock Market plunged about 4% across the board today as worries continue to mount regarding the crisis in the financial sector. Over the weekend, the government asked Congress for $700 billion for the bailout plan. That sent the Dollar into a tailspin as it is clear that U.S. government debt will rise at an unprecedented pace.

Whether or not this bailout plan is needed or not is not the issue. The financial markets are in a tailspin, and going forward, it is clear that the U.S. economy, and likely the global economy, will be weak in 2009. The next U.S. administration, whether it is Obama or McCain, will have its hands full, and you can pretty much forget about any kind of tax break next year.

As a result of the Dollar weakness, and the fact that the Treasury will be printing dollars at a fast pace in the near future, commodity prices took off to the upside today. The October Crude Oil contract, which expires this week, was up over $21 per barrel at one point. Gold rose back above $900 per ounce. Treasury yields jumped significantly. Can you say STAGFLATION!? With oil prices appearing set to test $150 again in the foreseeable future, there is no way the global economy has any expansion. A colder than normal winter will send heating costs soaring, and as a result, the holiday spending season will likely be weaker than normal.

I am not in the business of forecasting stock market prices or even direction. But, it doesn’t take a genius to figure out that with the current conditions in place, it will be difficult for the market to go up. Just last week I wrote that the underlying fundamentals suggested the economy and the stock market could get through this current crisis and set up a rally into the end of the year. However, with the Dollar pulling back sharply, Treasury yields rising and Oil prices ready to soar again, it looks like those positive fundamentals were fleeting.

Today is just one trading day, and you can’t really forecast direction with one day. But, alot of other negative things have occurred in the last few days that suggest this market has a lot to overcome.

For you daytraders, keep your trading size small during this period of extreme volatility! The intraday swings will wipe you out if you have not adjusted your trading size.

Stay Cautious!

Scott Cole
www.bestdaytradingstocks.com
www.kungfutrader.com

Sunday, September 21, 2008

Weekly Stock Market Re-Cap

The funny thing about the stock market this week is that it ended the week virtually unchanged. Of course, it happened to be an incredibly volatile week as well. Historically though, we have seen higher volatility, and we have seen worse down markets.

So what does this all mean going forward. Well, over the weekend, it was reported that the cost of this mortgage bailout is going to be at least $700 billion. Hmmm…do you think there are going to be any tax cuts next year, no matter who is president? If anything, we can probably expect a tax increase before any tax cuts.

Over the next few days and in coming weeks, the market will digest the impact of this past week’s events on the economy. Based upon the reported cost of cleaning up this mess, it is quite possible the impact will be deemed as somewhat negative. What we will need to see is a return to normal trading in terms of volatility and volume, and then ultimately, the market will show its hand in terms of which direction it wants to go.

Pay close attention to the performance of the Dollar and interest rates going forward. If the Dollar can stay within its current uptrend, while interest rates remain favorable, there may be a chance for the economy to still recover. Again, after the election, we enter a seasonably favorable period for the stock market. For now, caution should rule the day.

Good Trading!

Scott Cole
www.bestdaytradingstocks.com
www.kungfutrader.com

Friday, September 19, 2008

Government Intervention to Boost Stocks

The Federal Government has taken more steps to boost confidence in the financial markets, and this is sparking a huge rally in futures ahead of the open. The Dow futures are set to open up 400 points this morning on the back of this news, which includes banning short selling on some financial stocks. The government is also providing a back stop to the money market funds.

Investors are piling into the market as a result, however I still believe traders should use some caution here. An important bottom has likely been put in at yesterday’s lows, but it is important to let things shake out for a while. Once the markets have calmed down, traders and investors can resume using their normal methodologies for picking stocks.

Enjoy the weekend!

Scott Cole
www.bestdaytradingstocks.com
www.kungfutrader.com

Thursday, September 11, 2008

Stocks Stage Late Day Rally

After charging lower early in the session, the U.S. Stock Market staged a late day rally that carried it to over 1% gains nearly across the board. The lone exception was the Russell 2000, which ended with a far more modest gain.

The main focus early in the session was the continued problems faced by Lehman Brothers, which lost another 40% in value today, and is now over 90% below its 2007 highs. Later in the day it was reported that top executives at the firm are considering the sale of the entire company, rather than just pieces. Wall Street seemed to like that news, and that allowed the market to rally.

It is worth noting that the major averages are in the process of testing significant lows. Today could be a short term bottom, but there still does not appear to be the type of capitulation we would like to see to market a longer term bottom. Although the Dow was down as much as 150 points earlier in the day, we probably need to see it down at least 300 points, and then see a reversal that carries it up a few hundred points of that session low. Another issue is that the VIX closed at under 25 today. This indicator needs to rise to over 35 in order to mark a significant bottom.

In the future markets, commodities were generally lower again, led downward by Gold and Silver. Crude Oil was also lower, but due to the impending impact of Hurricane Ike on the Houston area refineries, gasoline was up a bit today. Crude Oil is getting perilously close to the $100 level, trading as low as $100.10 on the October contract, before closing just under $101. This is in the face of OPEC indicating a 500,000 barrel per day cut in production. I guess those folks have no interest in maintaining a strong global economy! Fortunately for us, most of the producers have no other source of income so they will likely produce above the quota in order to maintain their cash flow.

The Dollar continued its rise against most major currencies today, and Treasuries were steady to higher today, as yields dropped modestly.

Although I continue to believe that the foundation is being laid for a new bull market, as I have said before, some sort of major capitulation is likely needed before we can see the beginning of a new bull move. However, it is possible that a meandering bottom can be put in without this capitulation, but the new bull move should begin with a violent move to the upside.

Stay with the trends!

Scott Cole

www.bestdaytradingstocks.com
www.kungfutrader.com