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MARKET DIRECTION CALLS
August 2 2011 - Selling Intensifies
August 1 2011 - Bear Returns
July 28 2011 - Before The Open
July 27 2011 - Down But Are We Out?
July 20 2011 - Stock Market Volatility
July 18 2011 - Investors' Nervousness
July 15 2011 - Earnings VS Bleak Data
July 14 2011 - Below 1310
July 13 2011 - Ugly Looking Chart
July 12 2011 - Razor's Edge
July 8 2011 - Nasdaq Leads The Way
July 5 2011 - Expected Weakness
July 1 2011 - Overbought
Jun 28 2011 - July Rally?
Jun 27 2011 - Mixed Signals 
Jun 21 2011 - Bottom Or Bounce?
Jun 16 2011 - Raising Cash
Jun 15 2011 - More Downside To Come?
Jun 14 2011 - Bounce or Bottom?
Jun 12 2011 - Batten Down The Hatches
Jun 6 2011 - Bounce Sometime Soon?
Jun 2 2011 - Sell Signals and Warnings Everywhere
Jun 1 2011 - How Bad Could The Selling Get
Jun 1 2011 - Tread Carefully - Markets Remains Overvalued
May 31 2011 - Success - 100 Day Moving Average Tested
May 17 2011 - Be Careful Out There
Apri 18 2011 - Two Bears Compared
Apr 13 2011 - Why I Bought Puts Today
Apr 4 2011 - Breaking The February Highs
Mar 16 2011 - The Art Of Being Wrong
Mar 15 2011 - Market Remains Resilient
Mar 11 2011 - Trend Is Down
Feb 25 2011 - Trend Turning Bearish
Feb 11 2011 - Still Up - But Watch For June
Jan 3 2011 - Trend Remains Positive
 

MARKET DIRECTION CALL S&P 500

June 6 2011 - Bounce Sometime Soon?

All indicators point to an oversold market with high bearish readings and if you study the Rydex Bull/Bear ratio, you can see that the bearish sentiment is definitely high. We should see a bounce any time soon, but the market is definitely in trouble even with a bounce. I will be shocked if the market can recover to a new high anytime during the summer and that is what it will take to return the market to a bull trend. The SPY has now fallen easily through the 100 day and with today's decline we are moving toward the March low of 1249. The problem with the low is that it will break through the 200 Exponential Moving Average which is not a good sign at all. If we can turn here and move higher than overall, the S&P has made a higher low within context of the past 12 months, which confirms that the bull market is not yet over, but it could take until the fall for the market to set a new high.

 

S&P500 for June 6 2011 - Bounce sometime soon?

 

BEAR MARKET IN FINANCIAL STOCKS

Here is the problem. Look at the bear market in the financials! This is truly shocking. This bear market in the financials is now going into its sixth month. The problem for the financials is the housing market. Without a real recovery in housing the financials cannot truly recover and investors know this. The problem with housing is unemployment. Without higher employment numbers, people cannot afford to be buying the glut of homes on the market. Everything the Federal Reserve has done to keep interest rates at or near zero, has failed to get mortgage rates down. Banks don't want to lend, but instead are rebuilding balance sheets with the Fed's money. Mortgage rates cannot fall further because no one is willing to lend at next to zero rates. Perhaps the Federal Reserve should have loaned directly to home buyers! Overall the quantitative easing has failed to create a next to zero interest rate environment and new jobs.

There can be no sustained recovery in the market with a bear market in financials. Look at these charts.

Below is Bank Of America, down 29% since January and today set a new 52 week low.

Bank Of America - down 29% since January 2011

 

Here is one of the stronger banks, Wells Fargo and it is down 23.85% since February.

Wells Fargo 23.8% Collapse Since Feb 2011

 

The next chart is truly shocking. Here is Citigroup. Down 26.4% even with the SPLIT. In fact look how the stock just "tanked" after the split occurred. Imagine a stock that goes through a consolidation, which in itself is a disastrous event and now it is in another bear market. What an unmitigated horrid investment Citigroup has been since 2007. I can only guess at the hundreds of millions of dollars lost by investors in this stock.

Citigroup down 26.4% since January 2011

 

Finally here is Goldman Sachs. It too is down 24%.

Goldman Sachs downs 24% since January

All of these financial stocks are warning that there is a serious problem with the economic situation.

SUMMARY

At some point financials will turn up or at least have a great tradable bounce. As I prefer selling options I will probably not participate, but for those with iron constitutions and capital to burn, they could probably buy calls and some day it may be worth a lot. However technically these stocks have been warning since the beginning of the year that the market is in trouble. Definitely since the market set a new high in Feb, the new bear market in financials is a definite warning that the bull market could be in trouble. Be careful out there. Stay cautious. Even when selling puts, remember that if you are not interested in owning the stock at the value you are selling, then DON'T SELL A PUT. Cash is way underrated as an investment, but there is no doubt that at times, cash is the best investment. Right now cash looks very promising. We should see a bounce soon, but just because a market is terribly oversold does not mean there has to be a bounce. Even if there is a bounce, I plan to close more puts but I will be waiting before placing my capital back into the market for more naked puts. I don't believe we have seen the bottom of this selling. It could be a wild summer..

 

Disclaimer: There are considerable risks involved in all investment strategies. Trade at your own risk.
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