Replies to post #16919 on OracleTrading

[Bull Trader]

STOCKS TO WATCH TODAY 2.22.08:

IVAN (1.47)


RMDX (1.63)


BLTA (.12)


NCOC (5.25)


MPET (1.19)


ITP (2.67)


EMIS (1.91)


BLTI (3.60)


NUVO (1.76)


MMG (2.10)

[Bull Trader]

OPTV (1.32) MONSTER GAPPER!! ~ CHART:

[Bull Trader]

What Goes Around Comes Around in the Equity Market
by: Bill Cara posted on: May 04, 2008

Home-owners in 2004 would not have been pushed into selling during those high-flying years just because they were alarmed at the expanding debt bubble that was hoisting real-estate prices to the moon. Neither should traders in 2Q08 want to sell stocks just because they worry that central bankers are out of control.

You may think this is a capitulation of sorts on my part, but it is not. A trader's level of concern may rise and fall, but that may not be a sufficient call to action. You see, we must trade prices, even when bankers manufacture them and manipulate them, and render them temporarily useless as a measure of economic value.

Regrettably, we are all now forced to be day-traders, and the new “Dow Theory Buy Signal” for many international markets, pointed out by Twiggs and I presume others, cannot be ignored. Smart traders take into consideration everything they can, and Dow Theory is one of the most important of the thousand points of light.

What does this introduction mean? It means simply that, due to the massive credit expansion that started with the JP Morgan (JPM) take-over of Bear Stearns (BSC), followed by the continued efforts by the Fed to flood new money into the banks, and by the Treasury Secretary to pander to Joe Public with 1-800-HELP telephone lines and instant tax rebates or money giveaways, that I anticipate seeing share prices rise for a bit longer, and the bullish Dow Theory signal will bring more bids to the market. Traders should not ignore that evidence.

But that does not mean you should assume the underlying value of the equity is rising; it is not. In fact, every argument that says new wealth is being created by governments, banks and, for the most part, the service sector, is flat-out wrong. Value creation through construction and manufacturing is clearly on a steep decline in America, and, to be frank, in too many other countries to ignore.

The sad reality is that all the free money being thrown around today is being done to save bankers from their own bankruptcy, a fact that will in time be recognized by your young children and their children.

The fact is that a price of a blue chip stock can be financially engineered just the same as a crooked stock promoter can do for a penny stock.

Do you recall the time I told you when a promoter from Vancouver came to see me when I was working for Canada’s 800-pound broker-dealer gorilla in the early 1980’s in Toronto? He was pushing penny stocks and I was one of the few who worked for a white-shoes firm in the city who would listen. I did ok by that practice, but that’s another story.

Anyway, this young man had been a practicing physician in Ontario who had been captured by the lure of record high prices of gold in 1980-81, so he quit his practice and moved to Vancouver to apprentice for a man who later became a friend of mine, a real scoundrel in the eyes of securities regulators but a person who in running the promotion for a stable of about 100 public companies raised incredible capital for natural resources company exploration.

So this ex-practicing physician and newly minted stock promoter came into my office with a story he wanted me to hear. “My stock is $1.00 today, but it’s going to be $1.50 on Monday. You need to jump in now.” So why, I asked. “Oh, do you want it to be $1.75?” he said.

…Absolutely a true story. I have seen it all.

Bernanke to Paulson, “So, Hank, when do you need the Dow at 14000?”

I cannot say the latter is a true story, but only because I wasn’t in the room. However, I am not an idiot; I don’t have to be in the room. The market tells me what’s going on.

I can see the desperation in the eyes of the Talking Heads on Financial Entertainment Television. There is no soul behind the words. These people are hurting. They have families who are in tears having lost their homes in the Hamptons. They are being ordered, under pressure of dismissal, to smile for the cameras.

For all I care, these people can do whatever they have to do to make a living, as long as it’s legal. They have careers and families to take care of. I cannot sit in moral judgment.

But I also don’t take the advice of desperate people, particularly sales people who, if they were in real estate, would be offering me swampland for beachfront property, or expensive Miami Brickell Avenue condos for what is really the unstated need to take over condo management costs since many of the buildings are empty.

What goes around comes around, and it will in the equity market too, especially when in too many cases the equity in stocks (like banks for example) is implied and not real.

So here we are, ready to buy stock prices higher just because they are going higher. The game of musical chairs has begun, with one difference: when the music stops, the Humungous Bankers and Brokers [HB&B] will have been tipped in advance and their chairs will have been assured by Prof. Bernanke… paid for in advance by our children and our children’s children.

To be practical, if you want to join the rush into stocks, and I hope not because RSI and Stochastics are too high at this point, why not look at the recent Accumulation Zone stocks of the Cara 100. At least these have some upside potential because they have been recently oversold. Starbucks (SBUX) for one is not a broken company. Their offering is not a place for discretionary purchases of over-priced coffee; it’s a lifestyle-oriented Internet café, which in a high-pressure world is, in my eyes, a staple. If the $USD continues to rally, the cost of coffee beans is likely to come down, as will oil prices, and so the customers are more likely to have a couple extra bucks to pay for that $4 peach- or double-chocko flavored latte.

Just remember that, in my view, this “rush into stocks” is merely a Bear market rally, but one that (with good timing) maybe should not be missed on account of the central bankers of the world being ready, willing and able to work with a lame-duck Treasury Secretary who just might be intent to take the DJIA to 18,000, even if he has to bankrupt America to get it there.

If you do consider following a prices-chasing strategy, for whatever your reasoning, please don’t think your stop loss orders will help much. The reason is simple: your broker-dealer is part of the central bank-HB&B network. They know your orders, they know your financial resources; they know your trading style; and, sadly, they – your trusted advisors – trade against you. They continuously create bursts of volatility to shake out stop positions. They do it to take your money to put into their pockets.

Is this knowledge such a bad thing? Well, we have to deal with reality, so let’s start creating mental stops, or paper stops, followed by market orders when those levels have been violated. There is no reason to hand the time float to the enemy. That’s like going into battle with cap guns and baseball caps. Little Jane and Johnny will get obliterated, real quick. You have to smart – the enemy is using your Assets Under Administration/Management to finance the recruitment of the smartest financial minds in the world to work for them, not you. So deal with it.

The enemy does not like Market Orders – trust me – particularly if they get hit with many at once.

There are times – like this – where day trading and Market Orders are necessary. I wish it were not so.

One final point is that I have not yet recommended (for intermediate- or long-term oriented traders) buying gold because that is a USD hedge play, and the Fed needs the $USD to stay as strong as possible while they buy time (time is their enemy) while they feed short-term money to commercial and investment bankers, hoping to stave a major recession/depression while long-term credit market excesses are corrected.

The Fed needs foreign currencies to flow into the US to buy stocks and bonds, or else the Fed is in trouble. Prof. Bernanke doesn’t have much of a balance sheet left to deal with for monetary policy purposes, and the banks that own him are sick, having too much trouble these days recapitalizing their own balance sheets. But, if bond prices, stock prices and the $USD don’t move up here (as they are), then interest rates will soar because inflation is soaring, and that will force more damage in the housing market crisis, which will cause the credit markets to seize up again. As I say, the Fed is at the end of their rope. The commercial and investment banks need time to raise more capital before we get hit with the next round of the credit market fiasco.

So, as long as I see the $USD strong, and oil and other commodity prices falling, I must believe that the Fed and other central bankers will do what they can to knock down the price of gold. How long and how far they can is the issue. I suspect the answer has a lot to do with how high the bond market goes before supposedly smart long-term oriented fixed income (bond) investors decide to say “no mas, no mas!!” That point will be reached when Americans admit they cannot or will not take any more inflation, and pull out of the stores and shopping malls. So, the Consumer Discretionary sector (XLY) and in particular the US Retailer industry [$RLX] is going to be a bellwether.

Here’s my recommendation. Insert the following string of ticker symbols into a new portfolio monitor using Google Finance -- the best free stuff available to traders. It is an outstanding tool.

Here is the link to the Google Finance, followed by the string of symbols you need to insert into the window that facilitates setting up a new portfolio. For your information, I glance at this page every day.

Link to Google Finance Portfolio.

56 US-based Retailers:
AMZN,ANF,ANN,BBBY,BBY,BEBE,BJ,BKE,BKS,BONT,CACH,CC,COST,CVS,
CWTR,DBRN,DDS,DLTR,EBAY,ETH,FDO,FRED,GES,GPS,HD,HOTT,IBI,JCP,
JWN,KR,KSS,LOW,LTD,M,NDN,PIR,PSS,PSUN,RAD,ROST,RSH,SBUX,
SHLD,SKS,SWY,TGT,TIF,TJX,TLB,TWB,URBN,WAG,WFMI,WMAR,WMT,WSM

Enjoy.

At the point I think the “Trade of the Generation” is ready to enter – sometime in the next two quarters – I will advise you. That trade (when it comes) will be to sell US Treasury Bonds and to buy Gold in the spot and futures markets.
http://seekingalpha.com/article/75557-what-goes-around-comes-around-in-the-equity-market

[Bull Trader]

**pre-market movers** IVAN(3.20) CPST(3.87) QTWW(2.47) FRPT(4.60)


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