At These Levels

A Japanese friend of mine kept me on the phone for an hour from Tokyo, so the time I had planned for a blog post was allocated to remembering old stories form school. Still, even though I thought the situation has changed a lot for the better, he reminded me that the Japanese don’t really like PM Koisumi and his reformist agenda. My friend works for Yomiuri, a large Japanese newspaper.

I heard that you can still get a life-time mortgage that you cannot pay off, which your unborn children will take over after you die. This is amazing stuff. 14 years of falling real estate prices and they are sill not exactly affordable.

There is a very interesting book about such matters, which has a story about Japan and the most spectacular real estate bubble we have seen in modern times. You can read that story here, by clicking on ‘next page” on the top right of the site several times and reading pages 1-4 ("The Beginning of the End, The Richest Place on Earth"). We have not gotten quite that far with our own real estate bubble here, so I guess there is room for improvement.

I'll be in Washington, DC this morning, but I plan to post something tonight.

There's a top here somewhere (after having turned short-term negative on stocks in the 1,200 to 1,220 S&P 500 range). That hasn't materialized yet, so I've chosen to stay on the sidelines.

Those of you who can play the move to the upside are urged to do so, I'm just telling you what I see here and I don't like it. Dogmatism doesn't work in the market and no one is right all the time, but the divergences that I see with breadth are too large to ignore (for me anyway).

Good luck with the rally.

Always good, here's Bill Gross' latest commentary.

<b>Citigroup</b> (NYSE: C) just closed on increasing volume to its lowest level since last November and the S&P and the Nasdaq just hit new highs for the move. I'd rather be watching on the sidelines than to be an aggressive buyer here. I could be wrong, but I don't think so.

My sources say that the oil numbers don’t add up. The price has risen in anticipation of a major supply disruption due to the fact that Saudi Arabia’s reserves and ability to increase output are just a chimera. So far, those sources have been righter than right.

An old timer in the brokerage world who I like for his common-sense analysis always says "Look at techs and financials if you want to know where the market is going." If those groups are acting OK, the market is fine.

That was a fair question to yesterday’s post on the extended level of many emerging markets, but as I said it the answer to the comment I cannot recommend any short sales here, nor can I recommend buys. This blog aims to give people insight into how markets work, and trading advice is not my goal here.

Elections in my native Bulgaria produced no clear winner and the growing potential for a parliamentary crisis. The outgoing government has the best track record of any government in the last 15 years. Too bad they couldn't get another mandate.

The dead-in-the-tracks price performance of the major indexes continues and the action is primarily related to individual stocks with earnings. There will be a catalyst for the next big move, it's just not here yet. Based on proprietary and not so proprietary indicators, the move will be lower. But no support level has been violated yet, so for all practical purposes that's only a hypothesis.

The S&P 500 managed a marginal new high again, but the margin was small. There seems to be no urgency to sell or buy them here, which is a typical summer trading pattern. The action remains in the individual stocks, not the indexes.

A major selloff is about to hit the tape, according to my research. Looking at setups during the past 18 months suggests a move anywhere between 700 and 1,000 Dow Jones Industrial Average points (70 to 100 S&P 500 points).

I have no idea whether 1,140 on the S&P 500 will hold or break. Breaking that level won't necessarily be detrimental, as we made marginal new lows two times in 2004 and still made a higher high for the year in the fall. You can never be sure about these things in advance, though. We’ll have to consider the situation if/when the market trades lower at that level.

This Chinese revaluation of 2.1 percent and a continued peg to basket of currencies (we still don’t know what that is) is the olive branch that the Chinese president brings to Washington in his September visit. It does very little to the trade deficit with the US, as you will find out in the months ahead. The Asian currencies went crazy appreciating by a similar 2 percent (yen, Singapore dollar, Korean won, etc.)..

I'm hearing cracks in the thin ice this morning, caused by a heard of bulls running for the hills. There are also cracking sounds coming from some broken, newly grown horns the bulls had grown during the past week.

I'm not looking for the end of the world, but do expect the same type of action we saw off the March top--there are a lot of similarities here. Whether it will be more than that is impossible to know at this point. Every breakout has been a fakeout during the past 18 months, with some going a little further than others but unlimitedly failing. There's no reason to think that the same wouldn't happen here. The same is true for the breakdowns. Are there any puppet masters behind the scenes pulling strings (see weekly commentary) via aggressive monetary policy tools?

There was an impressive turnaround this morning after Federal Reserve Chairman Greenspan testified. And to my dismay, I heard the following words depart the dear Chairman’s mouth: “Central banking has learned the dangers of fiat money…,” and it has operated (I assume he meant responsibly) “as if on a gold standard.”

This is the biggest misrepresentation of facts ever issued in Mr. Greenspan’s distinguished career. Stocks rallied on those reassuring words, as well as the $1.50 drop in oil. The Dow Jones Transportation Index, which had been falling apart at the seams in the last couple of months-- looks especially perky. The line in the sand is 3,400.

Do you know how hard it is to move Intel (NSDQ: INTC) $2 in one day? I see a lot of block trades and they all are for sale this morning. In the first 20 minutes of trading the biggest semiconductor company in the world has done 25 million shares. It generally trades 50 million to 60 million shares for the whole day. I guess we can say when money talks, @#!% walks.

I have to take on the burdensome task of participating in the company’s golf tournament today. Burdensome because Northern Virginia traffic is terrible, you can swim in the humidity in the air this time of the year. I'd rather do my research and have a few more posts in an air-conditioned office than play golf, but, alas I could not say no to the powers that be. We have to move this tournament to early spring or late fall (or so we say every year and it always falls through the cracks).

I'll try to post something later tonight. The weekly commentary that I was working on yesterday contains an intriguing link from the Cunning Realist, which you should read.