Monday, November 2, 2009

Futures Point to Higher Open

At 7:15 am eastern, the futures are pointing to a higher open. Will I take criticism if the markets rally today? You bet---but part of being a successful trader is being able to accept being wrong. You just have to live to trade another day. I am not giving up on my thesis, and am still expecting us to end the week lower than we were on Friday.

Ford is out this morning with "blowout numbers" and will open much higher. While I admit that the team at Ford has done a better job than the competition during the economic downturn, I can't get excited about any numbers driven by government stimulus (Cash for Clunkers) created demand.

Why do I feel so strongly that these markets are headed down?

1. The deficit is overwhelming---enough said.
2. The falling dollar contributed to both the top line and bottom line to many companies last quarter. We are past the point of diminishing return.
3. The jobless rate is getting worse.
4. The money multiplier is in NEGATIVE TERRITORY
5. The next government stimulus (if there is one---will send the markets down as the markets have already told us that we are at the breaking point on debt)
6. Banks are failing every week.
7. Valuation got ahead of itself, money has been made and many are going to be willing to bail out of the markets with their profits.
8. The worst is yet to come for commercial real estate.
9. GDP across the globe is improving and we could find ourselves redefining stagflation.

Sound simple? If the above list seems to simple, then go take a look at how many stocks have recently violated their 200-day moving average. From a technical perspective what happens after that all important line is violated?

I will be watching volumes early this morning. Friday had some high volumes late in the day, but you have to remember that many mutual funds ended their fiscal year on Friday.

I consider the biggest risk to my thesis to be the potential that the dollar falls faster than expected. Jim Rogers has made the point on our show that if the dollar falls fast enough, the major averages can go up while you lose "real" wealth. Marc Faber has called cash a risky asset for that very reason.

I think we see 9000 before we see 10,200.

I bought FAZ on Friday (not one for the faint of heart). I am holding FCX as my inflation play. Otherwise, I am watching and waiting.

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