To succeed in the markets, it is essential to make your own decisions. Numerous traders cited listening to others as their worst blunder. — Jack Schwager

As noted in the previous week, the major indexes encountered resistance at the 200-SMA (S&P500 between 1,060 and 1,100).

1. California faced a $19.1 billion state deficit and with no budget in place — Gov. Arnold Schwarzenegger reinstated furloughs for state workers in an executive order declaring a fiscal emergency Wednesday
2. Moody’s warns U.S. needs debt plan to maintain its triple-A credit rating — The U.S. government needs to lay out a credible plan to address its rising debt.
3. Beige Book shows economic fragility — U.S. economic activity continued to be “weak” in June and into July, the Federal Reserve said in its Beige Book report.
4. GDP 2Q slows to 2.4% — below the average 4.4% increase over the last six months.
5. U.S. consumer sentiment fell to 67.8 in late July from 76 in late June.
6. European Banks Stress Test — only 7 out of 91 banks needed to raise a total of €3.5 billion in additional capital; As a sign of easing risk concerns, the Markit iTraxx Senior Financials Index, which measures the cost of insuring debt issued by 25 European financial firms against default, has narrowed. The index was at 118 basis points Friday, according to Markit, down from 131 basis points at the end of last week

AAII and Investor’s Intelligence — Bullish sentiment is slowly making a comeback

The week ahead — earnings season continue:
1. 8/2 — Construction Spending; ISM Manuf Index
2. 8/3 — Factory Orders
3. 8/5 — Export Sales
4. 8/6 — Consumer Installment Credit

Buy when others are despondently selling and sell when others are greedily buying. — Mark Mobius

The major indexes remained trapped between the trading range (S&P500 between 1,060 and 1,100).
1. Europe Banks Stress Test — results will be disclosed after market close 7/23/2010
2. President Obama signed Financial Overhaul Regulations into law
3. Germany Business Sentiment rose sharply in July — improving outlook for Europe ‘s largest economy
4. Ratings agencies S&P, Moody’s and Fitch are refusing to let bond issuers use their ratings — new financial reform laws create too much risk for them; SEC will allow a six-month exemption
5. Obama signed a six-month extension of emergency jobless benefits — restores aid to nearly 3M people whose checks had been cut off since the program expired in early June
6. Hungary shuns IMF, ratings agencies poise to downgrade — Hungary’s prime minister Viktor Orban indicated he won’t renew a safety net with the IMF and will back out of a commitment to cut the budget deficit to EU-prescribed levels next year

Below are the daily charts of the major indexes.

Nasdaq — Daily Chart

Dow Jones — Daily Chart

S&P500 — Daily Chart

The week ahead — earnings season continue:
1. 7/26 — New Home Sales
2. 7/27 — Consumer Confidence; Adv Durable Goods
3. 7/29 — Export Sales
4. 7/20 — GDP Q2; Emp. Cost Index;

The major indices dropped sharply on Option Expiration Week and encountered resistance at the 200-SMA. Below are the major events which occurred this week.
1. BP temporarily sealed oil leak –BP reported a pay out of nearly $4 bil in claims.
2. Moody downgraded Ireland — noted Ireland ‘s government’s ongoing loss of financial strength and the country’s weakened growth prospects
3. IMF and EU withdrew $21bil from Hungary — Hungary must cut their budget
4. Citi Bank (C), Bank of America (BAC) — beat profit views on lower credit losses — shares fell on the banks inability to expand revenue.
5. GE recorded profit — revenue fell 4.3% to $37.4 bil, missing est of $38.4 bil
6. China cuts Treasury holdings by $32.5 bil in May to $867.7 bil; Japan also cuts 1.1% to $786.7 bil.
7. Elizabeth Warren (law professor) is candidate to lead the consumer watch-dog position — position created by the Financial overhaul legislation.

The week ahead — 2Q earnings season continue:
1. Farnborough Internation Airshow — Europe collects to see the latest in airline production, including the Boeing 787.
2. IMF seeks another $250 bil to boost its lending capacity from $750 bil
3. 7/20 — Building permits; Housing Starts;
4. 7/22 — Existing home sales; Leading indicators;
5. 7/20 — EU Stress Test; Greece 1.5Bil Euro aunction

“A good trader has to accept three things: a chronic inability to accept things at face value, to feel continuously unsettled, and to have humility” Michael Steinhardt

The major indices bounced from 2010 lows after a 2-week sell-off. Below are the major events which occurred this week.
1. Central banks swap gold to IBS (Intl Bank Settlement) — 349 metric tons of gold and hope to buy back at a later date.
2. Europe’s bank stress test — schedule for this coming week.
3. Spain sold 8bil Euro in 10-year debt at the rate of 4.874% — 140 bps higher than Jan 2010.
4. China looks to tax resource companies (Coal, Oil and Gas) in Western China area.
5. Retail Sales so-so in June
6. Consumer credit fell sharply in May — 4th straight decline in borrowing
7. AAII shows the lowest decline in Bulls since march 9th, 2009 bottom in stocks. Below is the chart from AAII percent in Bulls.

The week ahead — official 2Q earnings season start:
1. Mon – 7/12 –> Alcoa (AA)
2. Tues – 7/13 –> Intel (INTC), Yum
3. Wed — 7/14 –> Retail Sales; Texas Inst (TXN)
4. Thurs — 7/15 –> PPI; Export Sales; Capacity Utilization; JP Morgan (JPM); Google (GOOG)
5. Fri — 7/16 –> CPI; Ford (F); Bank of America (BAC); CitiBank (C); GE

Doug Kass calls the market bottom on CNBC on July 7th, 2009.

Mr. Kass is a noted short-seller from SeaBreeze Partners and correctly called the market bottom on March 2009. However, he called the market top too soon (Sept 2009) as the market continued to move up to Feb 2009.

Here is the link to Yahoo – Interview with Doug Kass.
Yahoo – Doug Kass Interview

Here is the video of Mr. Kass courtesy from CNBC.
Doug Kass calls market bottom (7/7/2010)

Try to surround yourself with people who can give you a little happiness. Because you can only pass through this life once, Jack. You don’t come back for an encore”. Elvis Presley

The major indices continued to sell-off. Below are the major events which occurred this week.
1. European banks lobbied the ECB to cushion the impact of expiration of the 442 bil Euro ($543 bil) in 1-year loan. This represents approximately 50% of ECB’s liquidity operation. On June 29, the ECB allotted 131.9 bil EUR ($160.9 bil) in funds for a 90-day at a fix rate of 1% to 171 banks.
2. VIX (6/29) hits 34. Below the high of 48 (May 20).
3. China Conference Board cuts its forecast to 0.3% from 1.7%; Fear of China growth rate slowing.
4. China ‘s Manufacturing down in June to 52.1 from May 53.9; China’s factories reduced output prices the first time in 2010;
5. Automakers sales for June slipped from May; Ford down 13%; Toyota down 14%; General Motors down 13% and Chrysler down 12%;
6. Unemployment rate down to 9.5%; 600,000 unemployed workers gave up looking for work;
7. The SPX, DOW & NASDAQ slipped further from the 50-SMA AND 200-SMA;

Below are the charts of the major indices (S&P500, Dow Jones & Nasdaq)

NASDAQ — slipped furthur under the 200-SMA

S&P500 — slipped furthur under the 200-SMA

Dow Jones 30 — slipped furthur under the 200-SMA

Every mistake has a halfway moment, a split second when it can be recalled and perhaps remedied — Pearl Buck

We have changed our market outlook from bullish to cautious for a number of reasons:

The major indexes were rejected at the 50-SMA resistance. As of today’s close, all three indexes (S&P500, Dow Jones & NASDAQ) all closed at May & June ‘s lows.

In particular, the S&P500 drops to fourth test of 1,040 support; If the S&P500 breaks support at 1,040, it may follow to the 1,007 area, matching a 38% retracement of the rally from the 2009 low; Also, the Dow Jones must hold support at 9,818; A break below this level will trigger the “sell signal” according to the Dow Theory where the primary trend is now down!
Below is a chart of the S&P500 courtesy from Reuters.

Furthermore, the S&P500 & Dow Jones are showing an ominous head-and-shoulder pattern & potential “death-cross” where the 50-sma crosses below the 200-sma.

An interesting article from Jeff Saut, Investment Strategist from Raymond James “suggested the equity markets were likely going to be in a trading range pattern similar to the 1966 – 1982 affair. Clearly, that is what has occurred over the last 10 years. Most recently, the 54% slide from The Dow’s October 2007 peak into its March 2009 low has been followed by a 70%+ rally that ended in April of this year. Subsequently, the senior index experienced it first double-digit decline since the March 2009 bottom, ushering in cries of “the bear market rally is over!” To me, however, all that’s transpired is another decline within the context of the broad trading range the Dow has been in since the turn of the century“; Below is a chart from Jeff Saut showing 13 rallies/declines of more than 20% from 1966 – 1982.

Below are the charts for the DJIA, SPX & NASDAQ.

SPX — prior support at 1,040

DJIA — prior support at 9,760

“As for it being different this time, it is different every time. The question is in what way, and to what extend ” — Tom McClellan

The major indices encountered resistance at the 50SMA and closed down about 3% for the week. Below are the major events which occurred this week.
1. UK adminstration announced $59 billion in spending cuts and raised taxes by 20%.
2. Financial Legislation Overhaul passed the House & Senate — Fannie Mae & Freddie Mac were left out of the overhaul.
3. 1Q GDP 2.7% versus estimate 3%
4. New Home Sales dropped sharply after home-stimulus expired
5. President Obama fired Gen. McChrystal after a negative article in the RollingStone magazine — replaced by Gen. Patraeus.
6. G-20 Meeting in Canada — no major results were accomplished. Global recovery is “Uneven & Fragile”.
7. FOMC meeting — rate to remain “low for an extended period”

The week ahead:
1. Greece looks to financial market to raise $4.9 billion in July.
2. Tues 6/29 — Consumer Confidence; 2Q earnings -> GIS

“A Bull Market tends to bail you out of all your mistakes. Conversely, Bear Markets make you PAY for your mistakes. ” — Richard Russell

As expected, the major indices bounced up 2% for the week and re-took the 200SMA. Below are the major events which occurred this past week.
1. IBIS — reported French & German banks hold approximately $958 Bil. in debt from Spain, Portugal, Greece & Ireland;
2. Spain Debt Sale — sold $3.8 bil 10-year bonds at 223 bps higher than the German’s bond on 6/16/2010. Spain’s bond spread is the highest since 1999.
3. Congress mulls extending off-shore drilling ban (from 6-month hold).
4. BP — as expected, BP suspended dividends and set aside $20 billion for damages.
5. UK moved forward with bank bonus tax.
6. China ‘s Central Bank moved to make its exchange rate more flexible –this move could eventually boost the spending power of the country’s consumers, lift its investors’ expectations for global growth.
7. TED Spread — creeps higher as the TED spread (the difference between the interest rates on interbank loans and short-term US government T-Bill.

The week ahead:
1. G-20 Meeting — 6/25 & 6/26 in Canada;
2. Tues 6/22 — Existing Home Sales; 2Q earnings -> ADBE, CCL, WAG
3. Wed 6/23 — New Home Sales; FOMC Mtg; 2Q earnings ->RAD, NKE, BBBY
4. Thurs 6/24 — Initial Unemployment Claims; Durable Goods Orders; ORCL, PALM, RIMM, LEN

TED Spread Chart

We are flipping bullish and starting to nibble on the long side. Multiple bullish indicators are in-play.

1. Bearish Magazine cover — Bloomberg magazine cover

2. Put/Call Ration approaching extreme — investors display extreme fear by purchasing protection at/near short-term extreme. Here is the link to Barron’s article for more details
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