S&P/TSX Composite drops below 8,000

It's been 5-years since the S&P/TSX Composite Index scaled the 8,000 level. Today it dipped to sub-8,000, a mark that tells us a bottom has not been found yet. We may be at risk for another 20% slide to the 2002 low. Worse, bullish stocks on the TSX now only number about 5% of trending stocks. This brings us back to the bearish depths of the previous commodity stock bottom in 1998.

NT, meet GM

It cannot be a surprise to investors to wake up to reports of impending bankruptcy. It has been a predominant theme in the last quarter. Adding Nortel Networks (TSX:NT, NYSE:NT) to the list is hardly newsworthy...but here it is: a fresh report.

Beat the odds, standing still

Are you a deer caught in the headlights? Maybe its not such a bad idea in a bear market to embrace your inactivity. Here's an article that reviews the results of a study of the action bias of elite soccer goalkeepers. There is something to be said for standing still when everyone else is running about in a panic.

GM a lost cause

Trend traders should have bailed on General Motors (NYSE:GM) long ago. Stock Trends dropped this stock with its Bearish Crossover at the end of 2007. With today's announced 3rd quarter loss of $2.5-billion the future of GM is as dark as ever.

The energy lunacy cycle begins

Investors and energy consumers should take full notice of this in the new Obama/Biden plan for "revitalizing the economy":

Enact a Windfall Profits Tax to Provide a $1,000 Emergency Energy Rebate to American Families:Barack Obama and Joe Biden will enact a windfall profits tax on excessive oil company profits to give American families an immediate $1,000 emergency energy rebate to help families pay rising bills. This relief would be a down payment on the Obama-Biden long-term plan to provide middle-class families with at least $1,000 per year in permanent tax relief.

A tax of this proportion practically wipes out three quarters of the total profits of the U.S. energy sector - profits that go back into developing new energy reserves. The end result of this lunacy is higher energy prices and a crippled economy.

The more things change...

...the more things stay the same. Just another 5% drop in U.S. stocks - but the biggest post-election day dip in history.

The markets await ...

There are many core principles of economics that escape the understanding of the electorate. In part, we can be forgiven for the lack of economic literacy - human nature is a fickle and powerful force. Even economists have trouble dealing with it. But the birth of an administration with left-leaning impulses and a Congress that fuels social change through the heavy-handed modus of big government makes it imperative that investors be alert for the destructive potential of unintended consequences.

"The road to hell is paved with good intentions."

Gird yourself, investor.

Trend cuffs

The stock market has been in dire straits for months now. Stock Trends gave investors a Bearish marker over a year ago when the Stock Trends Bull/Bear Ratio turned sour for North American stocks. Since then the stock picking vitality of Stock Trends has been sedated. The growing number of bearish stocks has been the prevailing current. Presently, 82% of North American stocks are categorized as Stock Trends (strong) Bearish. Until the market bottoms and starts to generate a shift in intermediate-term trends, there will be a bias in the Stock Trends analysis to stand clear of the volatility and wait for for improved sentiment. This approach keeps investors from benefiting from gains achieved by successful bottom-pickers, but minimizes the risk in making such a call. Trend followers cannot take aggressive stances against a prevailing trend - it is antithetical. Still, technical traders make money and names for themselves when they can pick a market bottom. The pattern showing in recent weeks shows stratospheric volatility slowly giving way to a more shapely consolidating figure. If the SPDR (AMEX:SPY) maintains the $84 support level over an extended period there is hope for a rally for short-term traders. For the bulk of investors, though, SPY will have to scale past $115 before they come out of hibernation.

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.