Black Tuesday's anniversary

The unwieldy gyrations of the market is making investors evermore uncertain. Perhaps it is time to cue up this quaint historical picture of the great stock market catastrophe of 1929. Today marks the 79th anniversary of Black Tuesday. Sit back, relax, and enjoy:

Gratuitous income redistribution

A story making the rounds as found on Donald Luskin's blog:

Today on my way to lunch I passed a homeless guy with a sign that read "Vote Obama, I need the money." I laughed.
Once in the restaurant my server had on an "Obama 08" tie, again I laughed as he had given away his political preference--just imagine the coincidence.

When the bill came I decided not to tip the server and explained to him that I was exploring the Obama redistribution of wealth concept. He stood there in disbelief while I told him that I was going to redistribute his tip to someone who I deemed more in need--the homeless guy outside. The server angrily stormed from my sight.

I went outside, gave the homeless guy $10 and told him to thank the server inside as I've decided he could use the money more. The homeless guy was grateful.

At the end of my rather unscientific redistribution experiment I realized the homeless guy was grateful for the money he did not earn, but the waiter was pretty angry that I gave away the money he did earn, even though the actual recipient deserved money more.

I guess redistribution of wealth is an easier thing to swallow in concept than in practical application.

Somebody wants to spread our wealth, traders. In the markets profits are NOT a dirty word. It is the result of hard work - something that is especially true in a tough bear market.

UnBearable

The breadth of the bearish sentiment on the TSX now matches that of October 1998 - precisely 10-years ago. The Stock Trends TSX Bull/Bear Ratio has been published since 1993 and is represented in the graph below:

Leftovers for TUP

Markets are plainly volatile, so its hard to get truly excited about the movement of stocks. The dark cloud of recession hangs heavy - always a signal to investors to take cover. Perhaps some are putting their cold hard cash in Tupperware containers - Tupperware Brands(NYSE:TUP) is up a tidy 14% today. Is this a place to keep your investments fresh in a bear market? The current Stock Trends Bearish indicator suggests TUP is not such an air-tight place to put your money.

Sign of the times

Today's Wall Street Journal features an article about an investment club, showing how this tough market has affected typical small retail investors. The inertia that has gripped many investors reflects the fear that has mounted the prevailing sentiment. Record high volatility comes with this terrain.

Dow wow!

The market has been nothing short of violent this week. The Dow Jones Industrial Index has ridden wild gyrations of 20% - from a high of 9924 on Tuesday to today's low of 8197 - measured against the index opening on Monday. That range was 25% last week! The last time it had that kind of movement was the week of Black Monday in October of 1987. Prior to that the great moments of market volatility were in mid-July 1933 (after the Dow had rallied famously off its July 1932 bottom, recording a record 154% annual return, before stagnating for years with the consequences of the National Industrial Recovery Act of June 16, 1933) and the October 1929 crash. Indeed, this is another epic moment for the stock market, which is again teetering on the powerful whims of government intervention.

Ode to Joe

Markets are about freedom and wealth creation. In a world where the political landscape often threatens the sanctity of exchange with creeping socialist ideals of redistribution, it is refreshing to hear a vote of commitment to the American Dream come from the aspiring working class. Investors should hail the dreamer!

Last night's U.S. Presidential debate brought one to the foreground, where he belongs. Meet Joe the Plumber - a man that strives to be successful and loathes the thought of a society that will punish him for his success. Joe has a lot in common with traders and investors alike. The spectre of big government, of higher taxes, of wealth redistribution, kills the spirit of budding wealth creators like Joe as much as it drives the markets into the ground. God Bless Joe!

In crude oil's HOD

Crude oil is now 50% off its peak level, falling to $71 in trading today. Traders who took the short side of oil over the past quarter played their cards right. Traders in the Horizons BetaPro NYMEX Crude Oil Bear Plus Fund (TSX:HOD) took an aggressive stance in Q2 when trading volume in the Bear play accelerated as crude hit new highs above $140. This leveraged instrument gives aggressive investors a chance to score big on crude oil's downward slide. Today's move adds another 13% gain for HOD traders.

Pizza and beer capitulation

When markets are gripped by fear the rendering of men and women to headless chickens is a painful sight to behold. As the stock market reels the inevitable capitulation spawns a new day. From those ashes a new bull market grows.

After the market's slide toward 5-year lows and perhaps threatening negative returns on the decade before all is said and done, investors are left looking for signs of complete capitulation. A broker friend tells me a key signal is post-work day alcohol consumption by brokers at their local watering hole. When the days are at their darkest expect the libations to flow freely. An even more telling signal is when branch managers start bringing in pizza and beer to the offices. In any case, according to this grizzled veteran, if either of these signals is flaring in your parts, it's time to check your gonads and buy, buy, buy.

Safety on the sidelines

Trend trading implies waiting for the market to signal entry. When a trend is identified and supporting technical triggers are met the investor exposes capital to the market. When the market turns south this strategy sends the investor to the sidelines. Stock Trends TSX Portfolio has been on the sideline for much of the past year. The number of trades over the past 12-months is about a half of its annual average - its recent dormancy an indictment of the weak foundation of the market. During the period the TSX at times outperformed the return on investment of the ST TSX Portfolio. But now that the bear has a stranglehold on the market the divergence of returns falls in ST Portfolio's favour. The S&P/TSX Composite is now down almost 30% over the past 12-months: the Stock Trends TSX Portfolio one-year return on investment is -14.5%

Turning the bear upside down with HXD

Stock markets around the globe are tumbling again today. Investors have lost confidence in the global economy and are heading for the exits. The Toronto Stock Exchange has been hit hard - dropping 11% last week and suffering another 6% shaving today. The Horizons BetaPro TSX 60 Bear Plus Fund (TSX:HXD) is up 11% in early trading. Nimble traders looking for relief from the downpour can turn to these leveraged shorting instruments.

"Rolling the dice"

Today's Wall Street Journal serves up a few juicy quotes from Congressional speeches regarding oversight of Fannie Mae and Freddie Mac, like this one:

House Financial Services Committee hearing, Sept. 25, 2003:

Rep. Barney Frank (D., Mass.): I do think I do not want the same kind of focus on safety and soundness that we have in OCC [Office of the Comptroller of the Currency] and OTS [Office of Thrift Supervision]. I want to roll the dice a little bit more in this situation towards subsidized housing. . . .

Seems Congress rolled snake eyes.

POT prices drop

The pullback in shares of agchem stocks extended today, dropping Potash Corp (TSX:POT, NYSE:POT) 20% in early morning trading. The market reaction to Mosaic Co. (NYSE:MOS) first quarter profits - which were up almost 300% - showed just how high expections were, and how the market views the global economy going forward. MOS dropped over 33% in morning trading. MOS is a current Stock Trends Bearish Crossover stock, while POT is most defintitely on the verge of the same. No mystery here - these stocks are in a bear trend, no matter how "undervalued" global boom bulls would have us believe.

TSX Bearish breadth grows

The Stock Trends TSX Bull/Bear Ratio is now 0.3, with over 78% of stock in a bearish trend. Things have not been this grim for the TSX since the sad autumn days of 1998, a decade ago. Only 9% of stocks are Stock Trends Bullish. Clearly, the commodity bull market is no more...at least for now. The last quarter was particularly brutal for materials (down 29%) and energy (down 24%) stocks, the bread and butter of the TSX.

U.S. stocks still the place... for now

Global stock markets have been on a skid - some dropping as much as 37% in the third quarter. Emerging markets, resource dependent markets like Australia and Canada, Asia and Europe - all dropping amid a slowdown in the global economy. America caught a chill, and the rest of the world has fallen ill. So much for decoupling theories. Notable in the fallout is the fact that the American stock market, on a U.S. dollar basis sits atop the 13-week performance ranking of global indices. Actually, the Philippines scores higher, outperforming the S&P 500 by 6%, but the relative performance of U.S. stocks is substantially better than all the major markets. The future of the U.S. dollar, though, has to be a concern going forward. The commitment of public finance to shore up the balance sheets of financial institutions is bound to stoke inflationary fears. We'll see how U.S. stocks hold out in the coming months.

Spent piston at SPX

SPX Corp. (NYSE:SPW) is not officially at the end of its Stock Trends Bullish run, but it's days are numbered: two more. SPW has the current distinction of holding on the longest to its Stock Trends Bullish designation - a full 193 weeks - but the psi has really fizzled on the stock of a company formerly known as Piston Ring Co. SPW had dropped 37% in the last quarter - and that was before the $10 drop in the stock so far this week. The Bearish Crossover is baked in here. Hopefully, investors will have pulled out already. The Stock Trends Weak Bullish indicator flagged SPW at the $120 level at the end of July. SPW closed today at $71.88.

JPM hitting $50 ceiling again

If one thing is certain about the fallout from the current credit crisis, it is that there will be a select few institutions coming out on top. We pretty well know which ones those are. Count JP Morgan Chase (NYSE:JPM) as the biggest winner in that group. From a technical viewpoint the picture is starting to gel as the stock verges on an important resistance level. Should JPM manage to drive clear ahead of $50, a stalling point in today's trading, the bullish crowd will saddle up on this horse. The Senate vote this evening will dictate tomorrow's move, but with a "yea" expect a handsome advance.

Buffett's buffet

Warren Buffett is showing value leadership again, making a $3-billion deal with General Electric (NYSE:GE) for preferred stock.

"GE announced that it has reached agreement to sell $3 billion of perpetual preferred stock in a private offering to Berkshire Hathaway, Inc. The perpetual preferred stock has a dividend of 10% and is callable after three years at a 10% premium. In conjunction with this offering, Berkshire Hathaway will also receive warrants to purchase $3 billion of common stock with a strike price of $22.25 per share, which is exercisable at any time for a five-year term.

Berkshire Hathaway Chairman and CEO Warren Buffett said, "GE is the symbol of American business to the world. I have been a friend and admirer of GE and its leaders for decades. They have strong global brands and businesses with which I am quite familiar. I am confident that GE will continue to be successful in the years to come."

This deal, as well as Buffett's earlier deal with Goldman Sachs (NYSE:GS), is dependant on the Treasury bailout of the financial system. Nevertheless, investor confidence in these stocks is buoyed by the Oracle of Omaha's blessings. Trend traders, though, should stand clear. Both GE and GS are Stock Trends Bearish.

VIX-en

Market volatility is obviously heightened. Investors are totally wigged out. A measure of that volatility is the Volatility Index (VIX). It is now trading at 40, a level that approaches other seminal moments in the last 15 years - the market bottom of 2002, post-9/11, the LTCM collapse, and the Asian Currency Crisis. This is either a moment of great opportunity...or tragedy. We will see.

The root of the credit crisis

At last, a voice (WSJ opinion piece - Judy Shelton: Loose money and the roots of the crisis) that clearly states the source of the credit crisis. Instead of vilifying market participants and regulators, Ms. Shelton directs blame on the compromising dual mandate of the Federal Reserve - its monetary fine-tuning of economic output at the expense of its core responsibility of protecting the value of the currency. Such an incompatible mandate is untenable over the long-term. Cheap money is the fertile soil of credit abuse. We should not be surprised that both financial institutions and borrowers abused a fiat money system that makes it so easy to lose sight of fiduciary responsibility and financial discipline.