“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
.

“It was never my thinking that made me the big money. It was always my sitting tight. ” — Jesse Livermore

The major indices undercut its recent lows and bounced up for the week. Below are the major events which occurred this past week.

1. VIX — hits the high of 48 around the week of May 20th, 2010.
2. Bull/Bear from AAII Survey — Bullish 34.5%; Bearish 43.1%; Long-term averages:
Bullish: 39%
Neutral: 31%
Bearish: 30%
3. BP — oil spill now worse than expected; The company mulls dividends cut as Congress and President Obama continued to put pressure on BP.
4. Retail Sales — felled 1.2% for the month of May. However, ex-gas & auto, it was up by 0.1%.
5. Euro Zones — Greece, Portugal, Spain announced austerity measures to reduce debts.
6. Euro Currency — hits support around 1.197.

The week ahead:
1. Tues 6/15 — BBY 2qtr
2. Wed 6/16 — Housing Starts (May 2010); PPI; Capacity Utilization;
FDX 2qtr;
3. Thurs 6/17 — CPI; Leading Indicators;
SJM; KR 2qtr
4. Option Expiration — Quad. Expiration

We believe the market is oversold and expecting a bounce for the next couple of weeks; We are watching the DOW and S&P500 for immediate resistance at the 200-SMA;

Below are a number of charts to consider:

USD — Weekly Chart

S&P500 — 200-sma resistance at 1,109

Dow Jones — 200-sma resistance at 10,317

We are back after 2 weeks of R&R.

“Bull markets are born on pessimism, grow on skepticism, mature on optimism, and die on euphoria” — Sir John Templeton

The major indices continued to sell-off after a 2-day bounce. Below are the major events which occurred this week.
1. Jobs, Jobs, Jobs — reported numbers came in at 431,000 jobs; However 90% were census workers.
2. Hungary — in “grave situation”; Spokesman Peter Szijjarto for PM Viktor Orban said “default is not out of the question. Hungary ‘s problem came out of no-where to compound to the PIIGS problem.
3. Euro Currency — dropped to a low of 1.19 – a 4-year low. Major support for the the Euro is around 1.15 or 1.16 area.
4. Oil Spill Continues — BP tried to cap the well; However, oil is now spreading to Northern FL;
5. M3 Growth Collapsed — M3 measures bank lendings. As noted in the chart below, the M3 dropped since 11/09 as banks raise capital asset ratios and reduce their lendings.
6. S&P lowered Spain’s Credit Rating to AA+ from AAA (May 28) — Spain is the EU’s 4th largest economy.

The week ahead:
1. Treasury Dept $36 Bil 3-year note auction — Tues 6/9
2. Fed ‘s Beige Book & Bernanke & Lacker speak — Wed 6/10;
Treasury Dept $21 Bil 10-year note auction — Wed 6/10;
3. Trade Deficit (April) — Thurs 6/11
Treasury Dept $13 Bil 30-year bond auction
4. May Retail Sales & Prelim Consumer Confidence — Fri 6/11

We remain cautious since Apr 23, 2010 posting; Going forward, we believe the next shoe to drop will be the pension funding and retiree healthcare problems to surface as a result of lower tax revenues from home sales, sales taxes and lower income taxes.

M3 — Money Supply

NASDAQ — support at 200-SMA

DOW JONES — broke support at 200-SMA

S&P500 — broke support at 200-SMA

Based on the latest update as of March 31st, 2010 of Berkshire Hathaway, below lists his top holdings and the most recent update on his positions:

These positions may represent a buying opportunity as this market correction has made these stocks substantially cheaper. The research and blessing of Berkshire Hathaway takes away the majority of the risk.

TOP 15 HOLDINGS — As of Mar 31st, 2010 ($50.9 Billions)

Company Name Symbol Percent Comments
Coca Cola KO 21.6 No Change
Wells Fargo WFC 19.56 No Change
American Express AXP 12.28 No Change
Proctor & Gamble PG 9.83 Sold 8,406,627 shares during first quarter, reducing stake by 9.6 percent.  Berkshire had sold 8,812,599 shares (-9.1%) during the fourth quarter
Kraft food KFT 6.34 Reduced by 22.8%
Wesco Financial WSC 4.32
Walmart WMT 4.26 No Change
US Bankcorp USB 3.51 No Change
Conoco Phillips COP 3.43 Sold 3,532,081 shares during first quarter, reducing stake by 9.4 percent.  Berkshire had cut its holdings by 19.7 million shares (-34.3%) during the fourth quarter.
Johnson & Johnson JNJ 3.06 Sold 3,241,019 shares during first quarter, reducing stake by 11.9 percent.  Berkshire had cut its holdings by 9,782,166 shares (-26.5%) during the fourth quarter
Moody MCO 1.8 Sold 1,030,734 shares during first quarter, reducing stake by 3.2 percent, as previously reported.  Berkshire had cut its stake by 7,404,702 shares (-18.9%) during the fourth quarter
Washington Post WPO 1.51 No Change
Nike NKE 1.1 No Change
M&T Bank MTB 0.87 Sold 1,151,779 shares during first quarter, reducing stake by 17.2 percent.  No sales during fourth quarter
Republic Services RSG 0.62 Bought 2,537,200 shares during first quarter, increasing stake by 30.6 percent.  Berkshire had bought 4,665,500 shares (+128.7%) during the fourth quarter

Positions Berkshire Has Sold Out of Completely – Positions to avoid
SunTrust Bank STI
Travelers TRV
UnitedHealth UNH
Wellpoint WLP

Reduced Positions
Gannett GCI Reduced by 20.98%
Costco COST Reduced by 17.5%
CarMax KMX Reduced by 3.43%
Moody’s (MCO): Reduced by 3% (we detailed these sales back when they occurred)

Other Positions With No Change
Bank of America BAC
Comcast CMCSA
Comdisco Holdings CDCO.OB
Exxon Mobil XOM
General Electric GE
GlaxoSmithKline GSK
Home Depot HD
Ingersoll-Rand IR
Lowe’s LOW
Nalco Holding NLC
Nestle NSRGY.PK
Sanofi Aventis SNY
Tiffany & Co TIF
Torchmark TMK
USG USG
United Parcel Service UPS