What a save yesterday!
There we were, with just 30 minutes left to trade, down 2.5% on the S&P and all the other indexes when PRESTO, a buy program kicked in with a mania to cut half the day's losses. Even more amazingly, in pre-market trading this morning they cut the other half out as the S&P was taken right back to 940 as "THEY" just can't wait to BUYBUYBUY (as long as there are no sellers around and the volume is low). And so, here we are again, two weeks later – pretty much right where we were on "Double Top Tuesday," the 19th, when I said: "We’ll be watching the May highs (if we can get there at all), to see if we’re just making a double top for the month at Dow 8,657 (8th), Nas 1,773 (7th), S&P 930 (8th), NYSE 6,003 (8th) and Russell 512 (8th)."
While those were, indeed the highs for May and we did VERY well on the pullback but we did not flip bullish as we were waiting for a lower test than 8,200 so we went to cash, where we still wait. On June 1st, however, the market rocketed 2.5% higher on the Dow and now we sit at Dow 8,675, Nas 1,826, S&P 932, NYSE 6,034 and Russell 523. It's progress but not a lot. Under ordinary circumstances, I should be thrilled – I had predicted a return to Dow 8,650 at the end of May and after earnings WHILE WE WERE CRASHING IN MARCH. What I am not thrilled about is the way we got here. We have gone from 6,500 to 8,650, just about 50% up, without a significant pullback. Imagine building a 5 story building (10% per story) and adding another floor each time without testing to see if the previous floor can hold. Would you insure it? Would you move into the top floor? That's where we are as we look to move back over our 40% (off the 2007 highs) lines: Dow 8,413, Nasdaq 1,717, S&P 946, NYSE 6,232, Russell 514, SOX 329 and Transports 1,868. Obviously, we've crushed the Dow and Nasdaq numbers already but that's just 2 of 7 so we are no better off at all than we were 2 weeks ago when we last tested this set.
Unfortunately, the Dow and Nasdaq are the indexes we trust the least. Both can be manipulated by the movement of just a few stocks and anyone looking at AMZN (2.3% of the index) over the past few weeks, AAPL (11.8%), CSCO (3.2%), MSFT (5.1%), GOOG (4.6%) or QCOM (7%) may wonder if the average American comes home from losing his job and says "Hey honey, I lost my job – let's go online at Amazon and buy IPhones which we can run wirelessly off our home router so I can access those mighty fine Microsoft products while I use Google to search for a new job." Those 6 companies are each up 10% or more in the past 2 weeks and those 6 companies alone make up 34% of the Nasdaq 100 so why is the index up ONLY up 3% since May 19th, when it was our clear breakout leader?
I'll tell you why – BECAUSE THIS IS TOTAL BS! Keep in mind I am not one of the "perma-bears" who Jim Cramer whines are picking on him. I like to think I am a realist and I will call the market as I see it, even if what I see does change from time to time. What I see over the past two weeks is consitstent and blatant market manipulation led by the commodity pushers and the parade of fools on CNBC, who's CEO made his own "green shoots" speech back on May 28th in Tokyo and hasn't approved any negative commentary on his TV networks since.
GE/NBC/CNBC/MSNBC LOVES high oil prices. They love to finance oil projects, they love to sell wind turbines, they love to finance solar projects, they love to consult nations on their energy infrastructure and all of those things take on a sense of urgency with oil over $60 a barrel that they don't otherwise so it's no surprise that Jeff Immelt uses an oil can (and the power of his networks) to fertilize his little green shoots. Still, as powerful as GE is, they can't manipulate the markets all by themselves but don't worry – they have plenty of help. We talked about Goldman and other IBanks (or former IBanks) manipulating the commodity markets on Friday and we discussed JPM's blatant attempt to jack up the price of heating oil in yesterday's post and there are so many others you may start thinking I'm a conspiracy theorist if I keep going…
Commodities have led this rally with a 14% gain in DBC and a 12% gain in DBA pulling up the OIH and XLE around 10% for the month of May. Since the commodity pushers make up about 20% of the S&P, that's 2% of the S&P's 1.5% gains for the month right there! Add the 10% jump in the Nasdaq led by just 6 stocks and the rest of the market must REALLY SUCK for the S&P not to be up 5% at least. Don't worry though, there's more than one way to boost a market. In addition to buying long futures contracts which they never intend to take delivery of and renting tankers to store commodities off-short to create demand on one end without creating supply on the other (clever isn't it), our TARP recipients are also our "respected" financial institutions and those that don't control the media directly can still get plenty of press by UPGRADING the things they are blatantly manipulating. Today, despite yesterday's disappointing inventory report that showed US demand down 7% from last year and the worst manufacturing report in EU history – our friends at Goldman Sachs RAISED their forecast on oil for 2009 by 30%, from $65 to $85 for 2009.
Look, it's your money they're stealing – if you can't get motivated to write your Congressman and demand and investigation, they will just keep doing this until they make their next massive mistake and crash the markets and then GS and their pals will go back to the government and ask for more of your tax dollars to bail them out AGAIN. These crooks are using your tax money already to drive the price of oil back up to insane levels – effectively reaching into your wallet and doubling the cost of your energy and now they are saying they won't be satisfied until it is TRIPLED for the year (see yesterday's post for the math on that economic catastrophe). The same thing is happening in Europe as the Stoxx 600's rally has now pushed average valuations to 23.5 times – the highest level since 2004! This is insane but the beautiful sheeple just follow wherever the media and their analyst pals lead them, despite the fact that 10% of their neighbors are jobless and 3% are homeless.
Again, I am not a "perma-bear," I am simply looking at the fundamentals in the face of a 100% commodity rally and a 30% market rally that is led by those commodities and it looks more to me like the very thin green shoots we see are going to be trampled (valuation wise) by a market that is far too eager to take the field and stomp the life out of all that brand new grass before it has time to take root. There's a reason they make "keep off the grass" signs – it is not healthy for the grass (our green shoot economy) to be overused before it has a chance to take root. Valuing the EU market at 23.5 times earnings and then having our market go up because the EU market is going up is just stupid – the same kind of stupid that has our TARP team upgrading commodity pushers, runaway Nasdaq players and themselves despite some pretty poor fundamentals in the economy.
8:30 Update: Today's data shows initial Jobless claims for the last week in May were 621,000, about in-line with expectations and no different from last month so still a rate of over 3M job losses a year. Q1 Productivity came in a little better than expected at 1.6% but Unit Labor Costs, as we expected also came in higher, up 3%. Oil shot up to $68 on the releas of this data (where we are shorting the futures again) despite Retail Sales reports coming in 5-10% lower in many stores including COST (-7%, 50% worse than expected), TGT (-6%, 10% worse than expected), ANF (-28%, 20% worse than expected) and PLCE (-9%, 1,000% worse than expected). The sector is very likely "saved" by the fact that WMT is no longer providing montly data so analysts can pretend shoppers went there even though COST usually does as well as WMT when people run for bargains.
As Germany's PM Merkel said yesterday, people are being forced to chose food (and other necessities) or fuel and families simply can't cut back on fuel fast enough (you must heat homes, you need to drive to work) to offset the rising costs so they are forced to simply consume less of everything else (deflation). Here's your recovery America – thank you Goldman, thank you JP Morgan, thanks CitiGroup, Morgan Stanley and BankAmerica… We're so glad we helped you in your time of need when the last commodity bubble you made crashed at your feet that we are now going to celebrate it when you create another one just 6 months later. Other than Ms. Merkel, world leaders seem to have the attention span of a 2-year old and less of a memory as they are willing to get burned by the same trick over and over again! Come on folks, do the math – wages are up 3% for the month and commodities are up 10% and retail sales are off 7% – Duh!
Consumers are at the end of a rope and there is a noose tied to that end (see Friday's lead image)! Oh well, if we do make our breakout levels we're going to BUYBUYBUY with the sheeple until the party's over – it's not that we don't know how to play that game, we've just been holding onto our cash until GS and company can prove to us that they can take out technical levels no matter how bad the actual data is and today will be an excellent opportunity to show us. Back on May 19th I issued the same challenge and we had the same pre-market run-up, all the way to 8,600 but 48 hours later we were down 400 points. MS raised ADBE this morning, C raised GOOG, someone raised AAPL and someone raised AMZN – these are NOT coincidences, they rally the Nasdaq and hammer the dollar and upgrade commodities so they can herd the sheep into everything they need to dump in case the technicals fail so excuse us for watching from the sidelines for now.
Asia was not in a buying mood this morning despite the Baltic Dry Index flying up another 4% as more and more tankers are being taken off-line to store commodities in order to simulate demand. Korea led the decliners with a 2.6% drop and Australia pulled back 1.9% as their currency got a little too strong for traders' taste. The Nikkei fell 0.75% and both the Shanghai and Hang Seng dropped about half a point despite a 350-point stick save on the Hang Seng into their close. Shippers led Asia lower as well as commodity stocks on yesterday's very mild pullback – probably what led Goldman to attempt to prop up the sector by suddenly upgrading their outlook on oil by 30% – they can't dump their positions if you don't buy them you know…
The ECB held rates steady at 1%, the BOE held rates at 0.5% and Obama's first appearance in Egypt went much better than Anwar Sadat's last one did so that's a relief and, as one of our members mentioned this morning, usually the easing of tensions in the Middle East would be an event you could trade off in the energy markets and, as I said, we're heavy short on the futures at $68 a barrel and will be heavier at $70 so bring it on boys. Oil stocks are leading what little gains there are in Europe this morning as those markets are fairly flat despite our manic moves in the US futures. In yet another example of every country in the world hoping every other country will turn around and help bail them out of the crisis, Italy initiated a $2.3Bn program to stimulate tourism in hopes that other people have money they can come over and spend because Italians are also at the end of their economic rope (and "The Good, the Bad and The Ugly" was a Spaghetti Western so our week comes full circle!).
It's going to be another day of mostly sidelined viewing. I reviewed our $106,191 Virtual Portfolio Tuesday night and there was little to do then and there is little to do now other than probably day-trade some short plays again because, even if we do hit our levels – are we really going to trust them over the weekend? Volume is still very low and we're pretty far away from taking out our May highs so it's going to be one of those days – again!
Just be careful out there, we're going to be…
