Trending123 Blog

Odds Favor The Sideways Pattern For Weeks Now Will Give Way To The Downside

2009-04-28T22:08:12Z

I know it seems like we haven't gone anywhere because we're still in the slow-moving expanding triangle pattern, which can be almost as frustrating as whip-saws. When we get into topping patterns like this, the movement is slower because they're the opposite of bottoming patterns, which are "V" shaped. As I tell you in today's video update, which should begin playing automatically at the bottom of the page, they take time and move in a "rounded" way -- it's not about instant gratification.

Going Down

But that's going to change very soon. My charts show that a channel has appeared that is very similar -- if not identical -- to what spurred the kind of market downturn that happened from February to the March lows.

I've gotten several e-mails about how long this takes to play out -- the longer that it takes for the market to top, the more bearish the scenario is. It's because we're going to travel through the channel. I think that by May 1, the S&P 500 (SPX) will be at 819.75. By May 8, it should be below 809, and by May 15, it should be below SPX 790.

The market's going to zig-zag a bit, but we're going to travel in the downward channel I've identified downward channel in about five weeks.

I've had to change my forecast from a bullish summer rally because, as I've said before, it all depends on the rate of speed of the downtrend.

You Can Bet on It

I've also been asked about my conviction level for this pattern. Many of you remember how strongly I pounded the table to get out of your shorts in March because I was convinced the market was moving up. Well, I believe that the coming downward movement is more reliable than the pattern that led me to cover our shorts.

This pattern has even higher odds and more reliability than the reversal I saw in March, but playing it is a real emotional roller-coaster. You need to keep yourself in check, and you do that through your position size.

When you're properly positioned, the market movement that makes you anxious. But, if you're not prepared for it, the fluctuation in your account makes you emotional. Your profit and loss (P and L) causes the emotional toll.

So, let's go over a few key sectors right now that support my conviction, and I'll check back with you later today and/or tomorrow about new trades that I'm watching.

Be Prepared

Starting today, we're going to get more aggressive. I want everyone to be on the same page about where we are in the pattern and how I expect it to play it. In addition to a look at our open positions, I expect to have our new plays together soon.

We're still in the very beginning stages, but the decline should accelerate rapidly in the coming days. It can be scary if you're not in position to profit from it, but you need not fear the market drop if you're in trades that will gain from it, like the ones I'm targeting.

Review Update Here

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We Have Confirmation ETFs Flying Fridays Highs Have Been Taken Out The Lows Held

2009-03-10T16:01:59Z

This Is Why We Covered All Our Shorts And Sold Our Puts Last Friday On The Lows And Then Went Long

As you saw in the video, the 1929-'32 bear market contained six legs down, with each followed by a rally to lower highs. When we stopped making lower highs, the bottom was finally in. And in the current downtrend, we've got another couple of lower highs to put in before the markets find their bottom.

So, why have we gone from a put-based portfolio to one chock-full of calls? You guessed it -- we're going into a rally phase. In fact, based on the NYSE's chart, we could have a 88% chance of making a 50% retracement. In other words, we won't reach the highs of two years ago, but we could get halfway there before the next upturn, well, turns around. (Review Of The Last $NYA Update)

I don't know about you, but I get way more upset if I miss a rally than if a stock goes down. Everyone buys stocks and sees them stumble -- strange as it seems, we can almost get accustomed to that. But we're also accustomed to making money during bull markets and rallies, and we're not willing to miss out on making some fast cash during a quick upswing. So, if you haven't gotten into our bullish positions already, there's no time like the present to initiate your positions!

Here Is The Latest Video On The "Call"

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Counter-Trend Swing Trading Ideas

2009-03-05T19:18:13Z

Here's what two said about a few ETFs that have held up better than the market but that they expect will catch up with the march south soon.

John Lansing, a technical analyst and founder of Trending123.com, recommends shorting three ETFs: John Lansing, a technical analyst and founder of Trending123.com, recommends shorting three ETFs:

Internet Holdrs (HHH) rebounded from the November sell-off on low volume. It hangs deep below its 40-week moving average and broke below its 10-week moving average last week. Lansing's downside target is 23.

The fund has held up better than most lately because of the strength in the two largest holdings: Amazon.com (AMZN) is weighted at 37% and Yahoo (YHOO) at 22%.

Amazon gapped up 18% on monster volume Jan. 30. It continued to climb the next week but on decreasing volume. It's hit resistance at its 40-week moving average. On a weekly chart, it has formed two lower highs and two lower lows since peaking in October 2007 at 101.09.

Since Nov. 20, Yahoo rallied off a five-year low of 8.94 on waning volume. It closed Wednesday at 13.16, above its 10-week average, but deep below the 40-week line.

iShares Nasdaq Biotechnology (IBB) is still above its November low of 57.14 after three days of heavy selling last week. It rose 2% Wednesday. Volume was above average but below the sell-off's level. Lansing expects the ETF to undercut=2 0its November low and head to the low 40s.

The ETF's two largest holdings among 136 are Amgen (AMGN), weighted 12.43%, and Gilead Sciences (GILD) at 11%. Both broke below their 40-week averages last week on large volume.

Teva Pharmaceutical (TEVA), the third largest holding, is struggling to hold above its 40-week line. It has formed two lower lows and lower highs on the weekly chart since the stock topped a year ago.

Retail Holdrs (RTH) appears to have found support at its November low of 60.63. But Lansing believes its next stop will be the low 40s. Trading volume on down days has swamped volume on up days for the past two months, indicating heavy institutional selling.

Its largest stock is Wal-Mart (WMT), weighted at 27%. It's formed a bearish head-and-shoulders top pattern after hitting a six-year peak of 63.85 in September. The stock has undercut its October low and trades below both the 40- and 10-week moving averages.

RTH's second-largest stock, Home Depot (HD), has trended below its 40-week average since July 2007. It reached a 12-year low of 17.05 in October.

Review Of The Last 40 Years Six Presidents Every Crisis And What Happened To The Stock Market

2009-03-01T22:43:41Z

Review Of The Last 40 Years Six Presidents Every Crisis And What Happened To The Stock Market

Jimmy Carter (1977-1981)

In desperation, President Jimmy Carter (1977-1981) tried to combat economic weakness and unemployment by increasing government spending, and he established voluntary wage and price guidelines to control inflation. Both were largely unsuccessful. A perhaps more successful but less dramatic attack on inflation involved the "deregulation" of numerous industries, including airlines, trucking, and railroads.

In 1977 President Jimmy Carter signed the Community Redevelopment Act (or CRA) into law. As a result of "national grassroots pressure for affordable housing", it forced banks to underwrite risky mortgage loans in order to meet the needs of "the entire community."

Carter was unable to resolve the energy crisis as he had promised during his campaign in 1976. Carter's weak leadership drained American confidence and prestige, and his clumsy regulation of energy markets and dithering on inflation damaged the economy.

Ronald Reagan 1981-1989 (Watch The Video)

By 1982, “Reaganomics” had taken its toll as several banks failed, the stock market plummeted, and unemployment soared in the worst economic recession since the Great Depression.

A shaky stock market finally buckled on October 19, 1987, or Black Monday, when the Dow Jones Industrial Average lost nearly 23 percent of its value in a single day. $560 billion in paper assets disappeared. Reagan reassured the nation that the economy would remain stable and tried to help the economy by reducing some deficit spending and increasing some taxes. These measures could not prevent stock markets around the world from buckling.

He revived the theory of containment by declaring the U.S.S.R. an “evil empire” that had to be stopped. His Reagan Doctrine announced that the United States would take action to prevent communist insurgency abroad, effectively reversing the Nixon Doctrine of the early 1970s. His Strategic Defense Initiative, or “Star Wars” program, sought to outspend the Soviets and bring them to the negotiating table to prevent economic collapse.

He supported Gorbachev’s glasnost and perestroika reform initiatives. He met with Gorbachev at four different summits to discuss arms reduction. He signed the INF Treaty that removed all Soviet warheads aimed at Western Europe, effectively ending the Cold War.

Even though Reagan championed limited government, he spent more money than all previous presidents combined. He cut funding to most social welfare programs in favor of financing defense and military programs. He drastically slashed corporate taxes, hoping that the extra money would “trickle down” to the average worker. He deregulated the banking industry. His enormous deficit spending ensured that Congress would not be able to fund more social welfare programs for a very long time.

George H.W. Bush 1989-1993 (Watch The Video)

The savings and loan crisis of the 1980s and 1990s (commonly referred to as the S&L crisis) was the failure of 747 savings and loan associations (S&Ls) in the United States. The ultimate cost of the crisis is estimated to have totaled around $160.1 billion, about $124.6 billion of which was directly paid for by the U.S. government—that is, the U.S. taxpayer, either directly or through charges on their savings and loan accounts which contributed to the large budget deficits of the early 1990s.

As Commander-in-Chief, Bush oversaw two major U.S. military deployments. He ordered the invasion of Panama, which began just after midnight on December 20, 1989. It was the twelfth U.S. invasion of that country since 1903. The mission of U.S. forces was to depose long-time CIA asset General Manuel Noriega, an indicted drug trafficker. It was the largest airborne assault since World War II. Generally the Bush presidency is viewed as successful in foreign affairs but a disappointment in domestic affairs.His achievements in foreign policy were not enough to overshadow the economic recession, and in 1992.

His failure to decrease the national debt and the unemployment rate continued to worsen his approval rating while the Japanese were continuing to creep in on American business.

Bill Clinton 1993-2001 (Watch The Video)

In 1995 the Clinton administration strengthened the regulations of the Community Redevelopment Act. The CRA enabled consumers to secure mortgages with "no verification of income or assets; little consideration of the applicant's ability to make payments; and no down payment."

In 1998, Russia and Brazil saw their economies enter a free-fall, and international stock markets, from New York to Tokyo, hit record lows as investors' confidence was shaken by the volatility and unpredictability in the world's financial markets.

Clinton quietly used OPEC oil diplomacy to supply Russia increased energy profits. The influx of cash into Moscow was mainly obtained through Iraqi oil sold by the U.N. and distributed through Russian suppliers. The cash paid for the Russian war and a new round of rampant corruption, centered on the former Soviet GAZPROM state oil company. However, there were also unexpected results. The oil sales helped Saddam Hussein re-arm his military with a brand new Chinese-built air defense system. The move is also now seen as a major blunder that triggered the 2001 recession.

The "dot-com bubble" was a speculative bubble covering roughly 1995–2001 (with a climax on March 10, 2000 with the NASDAQ peaking at 5132.52) during which stock markets in Western nations saw their value increase rapidly from growth in the new Internet sector and related fields. The period was marked by the founding (and, in many cases, spectacular failure) of a group of new Internet-based companies commonly referred to as dot-coms. A combination of rapidly increasing stock prices, individual speculation in stocks, and widely available venture capital created an exuberant environment in which many of these businesses dismissed standard business models, focusing on increasing market share at the expense of the bottom line.

Over 1999 and early 2000, the Federal Reserve had increased interest rates six times, and the runaway economy was beginning to lose speed. The dot-com bubble burst, numerically, on March 10, 2000, when the technology heavy NASDAQ Composite index peaked at 5,048.62 (intra-day peak 5,132.52), more than double its value just a year before.

George W. Bush 2001-2009 (Watch The Video)

President Bush inherited an economic climate in which, due to regulatory missteps and an unnecessarily volatile monetary policy, a stock market bubble was in the midst of bursting.

On the morning of September 11, 2001, terrorists attacked our Nation. President Bush took unprecedentedsteps to protect our homeland and create a world free from terror. He was grateful for the service and sacrifice of our brave men and women in uniform and their families. The President believed that by helping build free and prosperous societies, our Nation and our friends and allies can succeed in making America more secure and the world more peaceful.

During the first nine months of 2008, federal officials sought to support an increasingly shaky banking system one crisis at a time. But since the collapse of Lehman Brothers in September sent shocks around the global financial system and brought down giants like the American Insurance Group and Washington Mutual. Lending the money proved no problem. Paying it back is, as we have seen, a different story. The credit watchdog agencies Moody's, Standard and Poor's, and Fitch Ratings gave glowing recommendations to substandard real estate lenders like Countrywide Financial, overlooking in their reviews the inherent risks. From the fees it extracted, Moody's enjoyed profit margins that were higher than the richest Fortune 500 companies, including Exxon and Microsoft.

Over the past eight years, we’ve suffered calamities that were bound to damage the nation deeply: two recessions, the most lethal terrorist attacks ever on U.S. soil, the invasion of Iraq on dubious grounds, the near destruction of one of our most storied cities, and finally, the Wall Street meltdown.

January 12th 2009 I inherited a recession, I’m ending on a recession,” he noted at his press conference on January 12th. He wasn’t asking for pity, only to be judged on what happened in between. Unfortunately, that economic legacy is littered with wasted opportunity, bad judgments and politicised policy. The budget surplus he inherited is now a deficit, the fiscal hole in America’s retiree programmes is bigger than ever, the tax system is an unstable, patched-up mess. Banks have been nationalized; the auto industry may not survive. Consumer confidence, and the purchasing power it generates, is in the tank.

January 16th 2009 Troubles continued in the financial sector -- both Citigroup and the Bank of America needed second rounds of capital infusions, and federal guarantees against losses totalling tens of billions more -- while Ben S. Bernanke, the Federal Reserve chairman, warned that more capital injections might be needed to further stabilize the financial system. On Jan. 16, the Senate voted 52-42 to release the second round of funds.

President Barack Obama 2009-?

He was elected the 44th President of the United States on November 4, 2008, and sworn in on January 20, 2009.

On Feb. 10, Mr. Geither presented the rough outlines of the Obama administration's plan. A central piece of the proposal would create one or more so-called bad banks that would rely on taxpayer and private money to purchase and hold banks' bad assets.

In his first address to a joint session of Congress, Obama mixed an acknowledgment of the depth of the economic problems with a Reaganesque exhortation to American resilience and an expansive agenda with a pledge to begin paring down a soaring budget deficit. "While our economy may be weakened and our confidence shaken, though we are living through difficult and uncertain times, tonight I want every American to know this," Obama said. "We will rebuild, we will recover, and the United States of America will emerge stronger than before."

Bailout: Obama said bank rescue would likely cost will more than the $700 billion allocated and that money deposited in banks is safe.

Obama Memorabilia is right now Obama-Mania.........What's up with all the plates and coins?

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Watch The Video

The Rules To Trading A Bear Market

2009-02-28T18:15:36Z

A Bear-Market Rally is Not a Bull Market

In general, we all want to be bullish, and are eager to see any upward market movement as a rally, even when it's not.

Simultaneously, after a volatile beginning for the year, we are all somewhat gun-shy right now -- especially in the face of mixed economic messages.

Regardless of your current opinion, you are better-served by feeling with your heart, while investing with your head. Are fear and greed driving your investment decisions right now, or are you in control of your emotions? If you're not sure, I'd recommend taking a step back and looking at the market from a different angle ... an unemotional one.

I think it's important to bring up a few rules that I often talk about on a weekly basis when we are in a bear market, like we are now.

You may want to print out this list of 20 bear-market rules and attach it to your trading screen. I recommend pausing to read it every single time you want to make a trade!

1. Good news in a bear market is like smoke in the breeze (i.e., soon dispersed). Don't buy into upgrades or analyst recommendations. Analyst "upgrades" or recommendations can kill you.

Every person reading this has access to some kind of trading platform, trading tools or systems that afford instant access to the financial markets. Good news like upgrades in bear markets typically has about five minutes of fame.

2. Bear markets are not a time to learn how to "day trade" in an effort to recoup losses (no matter how many times you hear that "this is a traders' market").

3. Accumulation days (there may be three or more in a row) are shorting opportunities, but resist being aggressive until the S&P 500 shows a 3- and 5-day moving average bearish cross. (Remember that it's 50% market, 25% sector and 25% stock as far as direction, but some could argue in markets it's 75% index, 15% sector and 10% stock.)

4. Chart patterns (unlike ice cream) come in just two flavors: continuations and reversals. Reversal patterns mostly form in weak trends. If the trend that the market or stock you are watching has been strong, then chances are that any pause is just a consolidation before the next leg down.

5. There is no such thing as "safe sectors." Sure, each bear market brings sector rotation. But make sure if you are playing this game that you don't have the flexibility of wood. And when the music stops, quickly find a chair!

That is, you must keep a flexible mindset so that you are able to change with the markets. The best traders are those who are nimble and approach the markets without bias.

6. Your stop-losses are YOUR stop-losses. The pain of being down 8% in a bull market is no different than being 8% wrong in a bear. If your risk tolerance requires you stopping out at 8%, then be consistent in any market you trade, but trade "with the primary trend."

It takes greater emotional balance to trade a bear than a bull. So, always manage your risk -- just remember that, in the markets, your money is always at risk.

Great traders manage emotions and risk. This makes them great. YOU know your risk tolerance and YOU control what happens between the "keyboard and chair."

7. Bear markets are generally slow-moving affairs. However, stocks in bear markets can move much faster than you think (hence the reason that volatility rises drastically). But the "time" we spend in a bear is what everyone needs to keep in perspective. Bear markets last much longer than most are willing to wait.

8. Market Capitulation -- more a state of mind than a specific set of market conditions -- is very difficult to measure; hence the market maxim, "Bear markets end when the last bull throws in the towel, not when bears turn bullish."

9. Bear markets drain emotional capital much faster than bull markets. Bear-market volatility will suck your energy at twice the rate of a bull. Rule: Take twice as many breaks from trading the bear as from trading the bull.

10. Have sufficient, liquid funds. Over-leveraged and under-capitalized traders are also called "bear food." Make sure you're not edible.

11. The market going up on bad news, is not a sign of the bottom, in bear markets it's always bad news and due to the fact the stock market isn't at zero it is bound to eventually go up on bad news before the primary trend continues. (Learn to manage your expectations. The higher your expectations, the more you are setting yourself up for a fall. Trading is a marathon, not a sprint.)

12. Know what you own in a bear market, We are always advised to “know what we own in a bear market” but that doesn’t mean it will go in the direction we expected when we bought it. Losing 40% in a stock that “you know” is the same as losing 40% in a stock that you bought by accident. In fact it likely feels worse because you actually had to spend time researching the darn thing. (When you are wrong, admit you are wrong and get out quickly. Do not hold and hope, as this is a sure recipe for disaster.)

13. Diversify—>For what? To insure that each stock get’s equally hit and your portfolio goes down orderly? In bear markets bull market rules are tossed out the window, when you get sell signals on everything (index, sector, stock) then sell. Many investors will justify this method by saying to themselves “well if I sell and it goes up, I’m going to be upset”. Well another way to look at it is, if you sell and it goes down you will have more money. Are you in the market to make money or be right? No place in bear markets for “Ego’s” (Let go of your ego and your need to be right. Ego has absolutely no place in trading.)

14. I often hear news letter writer “so and so” is great in a bull market………”Who isn’t?” In bull markets everyone is brilliant; it’s only in bear markets that this “unusual and impressive intellectual acuteness” turns into financial ruin. (Study the habits of winning traders, because there are certain common denominators that winners have.) Remember the only reason we are in the markets is to make profits. So is everyone else, and someone has to win and someone has to lose. However bear markets have the unique ability to create more losers than winners. That would have to do with the inability to hide bad habits that are often disguised in bull markets.

15. Former leaders are not where traders should look for safety, remember in a bear market all is fair game for the woodshed.

16. If you don’t understand it, Don’t Do It!

17. There is always one more imbecile than you counted on calling a bottom.

18. Don’t fall into buying stocks because of “perceived value” especially with over touted value plays which pay high dividends. Stocks that drop 40% in a matter of months that pay a high dividend are still stocks getting “splits” without the burden of extra shares. Lastly can anyone guarantee the dividend won’t get cut?

19. No one get’s rich in bear markets, it is often said we typically just have degrees of losers. Bottom line, try to lose less than the guy next to you.

20. Short into accumulation days typically 3 or more but never aggressive until you have a bearish cross of the 3 and 5 day moving averages in the SP500 (Remember the it's 50% market, 25% sector and 25% stock as far as direction but some could argue in markets it's 75% index, 15% sector and 10% stock.)

Next week we will go over the next 20 rules

ETF Advisers: Sell Into Market's Rally

2009-02-26T16:06:40Z

ETF Advisers: Sell Into Market's Rally

New Lows Anticipated

After revisiting the November lows, the market will likely rally and take another leg down, says John Lansing, a technical analyst and founder of Trending123.com.

He projects the S&P 500 will hit 640, down 16% from its current level, by April. He sets his sights on the Dow at 6500, down 12.3%, and NASDAQ below 1100, or 29.6% south of Wednesday's level, roughly equal to the 2002 lows. Lansing bases his projections on an uptrend line on the NYSE composite index going back 40 years.

From its new April low, the S&P is likely to rally through the summer up to 1100, about 80% off its bottom, Lansing forecasts. "It will be the mother of all rallies like nobody has seen before," Lansing said. "All anybody has to do is keep their wits about them between now and April."

He recommended on Wednesday that his subscribers buy small positions in inverse ETFs, ProShares UltraShort MidCap400 (MZZ) and ProShares UltraShort QQQ (QID) and hold them just over the next couple of weeks.

"The QQQQs should start underperforming the Dow. And the small- and mid-caps have yet to take out their November lows, but they will," Lansing said.

Leveraged and inverse ETFs are short-term plays only

2009-02-22T18:34:58Z

BOSTON (MarketWatch) -- The market rout in 2008 has exposed the dangers of leveraged and leveraged inverse exchange-traded funds, designed to capture two or three times the movement in a particular stock index or provide 100% opposite results, as investors learned the hard way about the tax and performance distortions inherent in the funds.

These relatively new financial products are "among the fastest growing segments of the U.S.-listed ETF market" with $21.6 billion in assets and $17.4 billion in average daily trading volume, Morgan Stanley analysts led by Dominic Maister wrote in a research note last week.

Leveraged and inverse ETFs are "appropriate tools for some investors looking to make short-term tactical trades if they perceive a high likelihood of a strong market move occurring in a relatively short time period," said Maister.

In other words, traders and speculators can get more bang for their buck if they're trying to exploit quick market swings. Of course, losses are also magnified when markets move against the trade.

However, the effects of compounding "and the daily re-levering or de-levering that occurs within leveraged and leveraged inverse ETFs can lead to unexpected results over the long-term," Maister said. Investors probably don't want to hold leveraged and inverse ETFs more than a few days, experts warn.

The key point is that these ETFs provide leverage on a daily basis. Simply, investors are mistaken if they think they can buy a twice-leveraged ETF, hold it for a year, and end up with double the market's return.

"We cannot stress enough that these aggressively leveraged products are not suitable as long-term investments," said John Gabriel, ETF analyst at Morningstar.

Understanding performance

Market volatility can also play havoc with performance over longer periods. Some analysts have seized on the performance of leveraged ETFs tracking energy stocks during a wild 2008. The sector rose early in the year but corrected hard during the back half.

ProShares Ultra Oil & Gas lost 72% in 2008, according to ProShares. The bearish leveraged version, ProShares UltraShort Oil & Gas, also lost money last year, shedding nearly 11%. Yet on a daily basis, the ETFs delivered their targeted leverage like clockwork, so they behaved exactly as they should have.

In fairness, the providers of leveraged and inverse ETFs are upfront about the performance issues over the long term on their Web sites and in the prospectus.

"A common misconception is that ProShares should also provide 200%, -200% or -100% of index performance over longer periods, such as a week, month or year," ProShares says on its site. "However, ProShares' returns may be greater than -- or less than -- what you'd expect over longer periods."

Therefore, if investors do stay in leveraged funds for any extended period of time, they should consider rebalancing frequently and keep a close eye on performance.

ProShares Chief Executive Michael Sapir said the firm wants all its investors to understand the math of compounding returns and how it affects its leveraged financial products.

"We think we've done a good job in trying to disclose the information," Sapir said in an interview. "We welcome every opportunity to get the word out."

ETFs on steroids

ProShares is one of a trio of investment managers overseeing leveraged and inverse ETFs that also includes Rydex Investments and Direxion Funds.

Leveraged ETFs managed by ProShares and Rydex are designed to provide 200% of the daily performance of their targeted indexes. Their inverse ETFs shoot for 100% of the inverse, or opposite, daily return, so they can be used to bet against markets or hedge.

Leveraged inverse ETFs aim for negative 200% returns on a daily basis. So if the target benchmark fell 2% in a trading session, these leveraged inverse ETFs are geared to rise about 4%, minus fees and transaction costs.

More recently, Direxion Funds has launched ETFs to provide even more leverage, at 300%, of daily index returns in both directions. The funds have gotten off to a strong start in terms of attracting assets and trading volume.

Some traders like juiced-up ETFs because the funds allow them to get leveraged exposure to the market or individual sectors in liquid vehicles that can be bought and sold during the day. Investors don't have to open up a margin account to tap leverage.

Meanwhile, inverse ETFs let investors profit from market declines or hedge their long positions.

Why taxes work differently from 'vanilla' ETFs

The tax efficiency associated with plain-vanilla ETFs that track stock indexes is a result of the specialized way in which shares are created and redeemed. Although the "in-kind" creation and redemption process is complex, these stock ETFs can protect against the potential tax hits often seen in mutual funds when managers are forced to sell stock and raise cash to meet shareholder redemptions.

However, leveraged and inverse ETFs keep their assets in a pool of cash and use swaps and derivatives to deliver performance -- a key difference.

"If the fund goes into net redemptions and starts to shrink in assets, the managers must sell some of the derivatives they used to replicate their benchmark instead of passing them off to the authorized participants," wrote Morningstar's Gabriel in a recent report.

Authorized participants are institutional traders responsible for keeping orderly markets in ETFs by creating and redeeming shares based on demand.

Leveraged funds typically use daily swaps to gain their exposure, and these contracts are always settled in the short term, added Paul Justice, an ETF strategist at Morningstar.

"Most of the ETF assets are held in Treasury accounts, but the leveraged performance is generated by using short-term swaps and futures contracts. Those funds that performed well accumulated large capital gains when the funds spiked in October," he said.

"But when many shareholders liquidated their positions, those taxable gains were later split amongst fewer shareholders," Justice said. "Unfortunately, some investors that hung on too long are in for an unpleasant tax surprise."

In late December, for instance, ProShares announced capital gains distributions for 35 of its 76 leveraged and inverse ETFs. At Rydex, the Rydex Inverse 2X S&P Select Sector Energy ETF paid out capital gains of more than 70% of net asset value, according to investment researcher Morningstar Inc. Those gains caught some investors off guard.

However, the analysts said the distributions aren't grounds to avoid short and leveraged ETFs, just a reason for caution.

"These funds still have the trading advantages of liquidity, timeliness, and low commissions just like every other ETF. They still provide hedging and speculative opportunities that are otherwise inaccessible to the individual investor," Gabriel said. "They do not possess the impressive tax advantages of most ETFs, but they should still perform no worse than a similarly structured traditional open-end mutual fund on this point."

The old saw merits repeating here -- investors should always consult with a tax adviser.

Credit to this article click here

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Stock Market New 52 Week Lows DOW Theory Confirmed

2009-02-20T00:17:08Z

Stock Market New 52 Week Lows DOW Theory Confirmed

The Dow theory has been around for almost 100 years, yet even in today's volatile and technology-driven markets, the basic components of Dow theory still remain valid. Developed by Charles Dow, refined by William Hamilton and articulated by Robert Rhea, the Dow theory addresses not only technical analysis and price action, but also market philosophy. Many of the ideas and comments put forth by Dow and Hamilton became axioms of Wall Street. While there are those who may think that it is different this time, a read through The Dow Theory will attest that the stock market behaves the same today as it did almost 100 years ago.

Video Update

Chart Patterns--What The Current Stock Market Is In Right Now!

2009-02-16T21:49:25Z

Stock Chart Pattern--What The Current Stock Market Is In Right Now!

Current Chart

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Stock Chart Pattern

Rectangles are sometimes referred to as downside breaks, upside breaks, slim jims, trading ranges, consolidation zones or congestion areas.

Trend

1. 96% of the time, they break in the direction of the primary trend.

2. To qualify as a continuation pattern, a prior trend should exist.

3. The longer the rectangle takes place (sometimes referred to as trading ranges, consolidation zones, downside breakout or slim jims,) the larger to move to be expected.

4. In the rectangles that I have studied, these typically are the highest probability pattern (keeping in mind we have identified over 4 million-chart patterns.)

Volume

(i) Sometimes volume will decline as the pattern develops. Other times volume will gyrate as the prices bounce between support and resistance.

(ii) A strong volume spike on the day of the pattern confirmation is a strong indicator in support of the potential for this pattern. The volume spike should be significantly above the average of the volume for the duration of the pattern. In addition, the volume during the duration of the pattern should be declining on average.

Duration

Rectangles can extend for a few weeks, months and even years.

1. Short Term Traders (1-3 Months)—Look on daily charts for these patterns.

2. Intermediate Term Traders (3-12 Months)—Look on mostly on weekly charts for these patterns.

3. Investors (12 months or longer)—Look on monthly and weekly charts for these patterns.

Breakout/Breakdown Expectations

(i) The longer the pattern, the more significant the breakout.

(ii) The "narrowness" of the trading range can also be used to gauge the breakout. To determine the narrowness of the trading range compare the upper boundary with the lower boundary of the trading range. If the trading range has a large difference between the upper and lower boundary (making it wide) then the breakout is considered weaker and less reliable.

(iii) A 3-month pattern might be expected to fulfill its breakout projection.

(iv) However, a 6-month pattern might be expected to exceed its breakout target.

(v) 12 months or more of this consolidation can lead to major longer lasting bull and bear markets within stocks, sectors, currencies, commodities and any type of index.

Breakout Direction: The direction of the next significant move can only be determined after the breakout has occurred. Volume patterns can sometimes offer clues, but there is no confirmation until an actual break above resistance or break below support.

Things To Consider Before You Trade

Consider keeping trading light in these patterns because they form in four different type of overlapping wave structures

3 wave structures (common for this pattern if duration is less than 3 weeks)

5 wave structures (common for this pattern if duration is less than 5 months)

7 wave structures (common for this pattern if duration is less than 12 months)

13 wave structures (once in a lifetime rectangle rarely seen.) but when you do you won’t believe your eyes at what actually happens (birth of major bull and bear markets.) I call these the “parents.” Goes without saying “strict parents” in the case of the bear “no curfew” parents in the case of the bull.

Back Test And Targets

They never fail to always do a back test. Or what we call a “Return to Breakout/Breakdown.” A return to or near the original breakout level can offer a second chance to participate.

The estimated move is found by measuring the height of the rectangle and applying it to the breakout/breakdown and applying the 1L, 2L, 3L, and 4L method.

1L (3 wave structures common for this pattern if duration is less than 3 weeks will typically breakout/breakdown by measuring the height of the pattern from top to bottom and then applying that distance to the move in which it broke.)

2L (5 wave structures common for this pattern if duration is less than 5 months will typically breakout/breakdown by measuring the height of the pattern from top to bottom and then applying that distance to the move “Times Two” (X2) in which it broke.)

3L (7 wave structures common for this pattern if duration is less than 12 months will typically breakout/breakdown by measuring the height of the pattern from top to bottom and then applying that distance to the move “Times Three” (X3) in which it broke.)

4L (13 wave structures (once in a lifetime rectangle rarely seen) for this pattern if duration is more than 10 years will typically breakout/breakdown by measuring the height of the pattern from top to bottom and then applying that distance to the move “Times Four” (X4) in which it broke.)

During Our Next Weekly Update We Will Review How To Profit From These Upcoming Parabolic Moves

Former Bernanke Home In Foreclosure

2009-02-16T21:00:00Z

Former Bernanke Home In Foreclosure

A couple of stories that provide some personal perspective on the scope of the current problems.

From the Wall Street Journal:

Travis Jackson walks through his modest ranch house, admiring the kitchen's built-in spice rack and the red-oak floors. He draws back the curtains, and sunlight illuminates the pride on his face.

The young banker just bought Federal Reserve Chairman Ben Bernanke's childhood home at a foreclosure sale....

Mr. Bernanke's family sold the property more than a decade ago. It ended up on the block late last year after its former owners fell behind on their mortgage payments.

Though some may read cosmic significance in that story, for me it's just a vivid personal illustration of how widespread this phenomenon has become. Also along those lines, the San Diego Union-Tribune reports that 28% of homeowners in San Diego County owe more on their mortgage than the house is worth; statewide, the number is 26%. The median home in San Diego last year sold for 45% (or $160,000) less than the same house had previously sold for. If you live in the area, here's their map of how that breaks down geographically:

View image

Source: San Diego Union Tribune.

G-7 Says 'Severe' Downturn to Persist

2009-02-16T17:42:54Z

G-7 Says 'Severe' Downturn to Persist

Feb. 15 (Bloomberg) -- Group of Seven finance chiefs vowed to tackle a "severe" economic downturn that will persist for most of 2009 without spelling out new steps to do so.

The G-7's finance ministers and central bankers said in a statement released after talks in Rome yesterday that they were working to restore confidence in markets and revive the world economy. They predicted the full effect of individual rescue packages will "build over time."

"We reaffirm our commitment to act together using the full range of policy tools to support growth and employment and strengthen the financial sector," the statement said. "The stabilization of the global economy and financial markets remains our highest priority."

The policy makers met after reports this week showed Germany's economy contracted the most in 22 years in the fourth quarter and U.S. consumer confidence neared its lowest since 1981. With the worst global slump since World War II battering state finances, International Monetary Fund Managing Director Dominique Strauss-Kahn said he expects more countries to need emergency aid.

That's putting governments and central banks under greater pressure to end the malaise. U.S. Treasury Secretary Timothy Geithner urged initiatives that are "forceful and sustained for a period that matches the likely duration of the crisis" and noted a "a much greater scale of urgency and commitment" within the G-7.

At a Loss

The authorities are still at a loss on the best course of action 18 months after the credit crisis broke out. That's left them pursuing a disjointed approach as the global economy deteriorates further and companies from Microsoft Corp. to Nissan Motor Co. cut jobs.

U.S. stocks fell the most this week since November, extending the Dow Jones Industrial Average index's decline since the start of the year to 11 percent.

"The statement ticks all the right boxes, but as expected does not go beyond generic statements of principle and commitments that we have heard before," said Marco Annunziata, chief economist at Unicredit MIB in London. "The commitment to act in a coordinated way flies in the face of the rather uncoordinated approach that followed similar commitments last October."

Geithner, a former Treasury undersecretary in the Clinton administration, returned to the G-7 stage after a week in which investors complained his $2 trillion plan to revive lending lacked detail. His colleagues yesterday urged him to push ahead.

"On paper it looks great and the principles are certainly very good," said French Finance Minister Christine Lagarde. "The essential thing is now to implement it."

Execution

"It is a comprehensive plan, the intent is there, the will is there," Bank of Canada Governor Mark Carney told reporters in Rome. "The question is implementation and execution."

The G-7 called the steps its members have taken to fight the turmoil "exceptional," noting they ranged from spurring liquidity in markets and bolstering capital in banks to slashing interest rates and easing fiscal policy.

Amid signs some are attempting to shield domestic companies and workers from the fallout, the G-7 said it "remains committed to avoiding protectionist measures, which risks exacerbating the downturn."

A $787 billion package of tax cuts and spending increases passed two nights ago by the U.S. Congress encourages companies to "Buy American." France is demanding carmakers keep production at home in return for aid.

"We must be vigilant on creeping protectionism whether it is intentional or unintentional," U.K. Chancellor of the Exchequer Alistair Darling said.

Yuan Gains

The G-7 officials tempered past criticisms of Chinese currency policy, saying they welcomed the country's bid to invigorate its economy. The nation's commitment to a more flexible yuan should lead "to continued appreciation" in the exchange rate. Geithner, who last month accused China of "manipulating" its currency, also welcomed China's efforts.

"The G-7 has realised that China needs to be brought into the fold of the global financial system rather than be treated as a pariah just because of yuan inflexibility," said Geoffrey Yu, a London-based foreign-exchange strategist at UBS AG in London. "This statement will be welcomed in Beijing and help defuse the recent tension between China and the U.S."

The group repeated its traditional message that "excess volatility" and "disorderly movements" in exchange rates must be avoided.

'Second Wave'

The omission of any G-7 currency from the communiqué meant "there's likely to be only a muted reaction" in markets, said Brian Dolan, chief currency strategist at FOREX.com, a unit of online currency trading firm Gain Capital in Bedminster, New Jersey.

As he predicted a "second wave" of countries seeking assistance, the IMF's Strauss-Kahn signed a deal with Japan to give the lender access to an extra $100 billion after it issued loans from Iceland to Pakistan to Hungary.

The G-7 officials also probed ways of strengthening oversight of markets before they convene next month in the U.K. with colleagues from the broader Group of 20 nations. The scope of regulation, compensation packages and risk management are all under review, their statement said.

The G-7 oversees about two-thirds of the world economy and is composed of the U.S., Japan, Germany, U.K., Italy, Canada and France.

Nokia's Ollila sees recession lasting 2-3 years

2009-02-15T23:19:44Z

Nokia's Ollila sees recession lasting 2-3 years

HELSINKI (Reuters) - The global economic downturn will last some two to three years, and top mobile-phone maker Nokia may cut more jobs if conditions worsen, Board Chairman Jorma Ollila said on Sunday.

Nokia on Wednesday said it would cut production at its Salo plant in Finland as demand for cell phones has dropped, and close a research site in the Finnish town of Jyvaskyla. It said 410 jobs in the company would go.

Asked by Finnish broadcaster YLE if Nokia planned additional temporary or permanent layoffs, especially in Finland, Ollila said: "Now we have to see ... and if the situation gets clearly worse, it could very well be that we take more actions."

"It's a very difficult situation, this coming recession is far more difficult than how it looked a few months ago," Ollila added.

When asked how long he thought the recession would last, Ollila said: "Two to three years."

Cell-phone sales are set to drop this year, hit by consumers' reluctance to spend on new gadgets in the midst of the economic recession and large inventories built up by phone sellers at the end of last year.

GE chief warns on US depression threat

2009-02-06T11:34:30Z

GE chief warns on US depression threat (February 6, 2009)

(The following article originally appeared in the Financial Times. At the end, we'll take a look at a chart of GE.)

The US economy is suffering its steepest downturn since at least the 1970s and could descend into a depression, Jeff Immelt, General Electric's chief executive, warned on Thursday.

He said businesses and consumers alike were struggling to contend with tumultuous markets and a financial-services industry under siege.

In depth: Global financial crisis - Feb-04 GE chief attacks remuneration cap - Feb-06 "Unlike the other downturns that I've been a part of, this one is faced with limited liquidity," Mr Immelt, GE's chief since 2001 told a conference. "Once you break through '74-'75, you don't stop 'til you get to 1929."

When asked whether he would call the current slowdown a recession or a depression, Mr Immelt joked that he would need to refer to his college economics text book for a precise answer but said "it is one of those".

He contended that governments were "firing as many bullets" as they could to stimulate economic growth and stabilise the credit markets. Those measures, he said, should begin to take hold by early next year.

"Governments are all in," he said. "And in my view, government always wins."

GE remains one of the world's largest and most-profitable companies, with operations in dozens of countries and an array of businesses that range from aircraft engines and medical-imaging equipment to cable television and lightbulbs. Yet the unfolding credit crisis has crimped profit at GE's own financial services business, raising concerns for the company's strategy and once-unquestioned financial strength.

GE has responded to the crisis with steps to shrink the finance arm, GE Capital, and its funding needs. But unlike GE's response to the early 1990s downturn, Mr Immelt said the company would not rebuild GE Capital through a spate of acquisitions of distressed assets. Any likely acquisition targets would instead augment GE's industrial businesses.

At the discussion, which was hosted by the Wall Street Journal, Boston Consulting Group and IESE Business School, Mr Immelt reiterated that he would not cut GE's stock dividend or veer away from a plan to run GE as a company with a triple A credit grade, even if ratings firms eventually opt to lower its debt.

Stock Market Has The Worst January Ever

2009-02-01T15:36:05Z

Stock Market Has The Worst January Ever

Stocks closed out their worst January ever with another slide on Friday after data showed the economy contracted at the fastest pace in nearly 27 years in the fourth quarter.

Uncertainty about the fate of a plan by the Obama administration to relieve banks of money-losing assets added to the bearish tone, with Citigroup (C) plunging 9 percent and Bank of America (BAC) dropping 3 percent.

Procter & Gamble Co (PG), the maker of Pampers diapers, Gillette razors and Tide laundry detergent, was the Dow's top drag, sliding 6.4 percent, after its quarterly profit missed expectations. P&G also added its name to a growing list of companies cutting outlooks.

Consumer sentiment at an all-time low, job losses that have exceeded the total number of job losses in the '81-'82 recession, we're 13 months into the latest recession.

The Dow Jones industrial average (.DJI) fell 148.15 points, or 1.82 percent, to 8,000.86.

The Standard & Poor's 500 Index (.SPX) slid 19.26 points, or 2.28 percent, to 825.88.

The Nasdaq Composite Index (.IXIC) tumbled 31.42 points, or 2.08 percent, to 1,476.42.

DOW, S&P OFF OVER 8 PERCENT IN JANUARY

Both the Dow and the benchmark S&P 500 (.SPX) suffered their worst January ever, with the Dow down 8.8 percent and the S&P down 8.6 percent. The Nasdaq dropped 6.4 percent in January.

January performance traditionally serves as a harbinger for stocks for the rest of the year.

For the week, the Dow declined 0.95 percent, while the S&P 500 dropped 0.73 percent, and the Nasdaq edged down 0.06 percent.

P&G, CITIGROUP AND APPLE FALL

In Friday's session, Procter & Gamble Co (PG) tumbled $3.72 to $54.50 on the New York Stock Exchange.

Kraft Foods Inc (KFT) slid 4.2 percent to $28.05, making the food maker the third worst drag on the Dow, behind 3M Co (MMM) , a diversified manufacturer.

3M shares fell almost 5 percent to $53.79 after Barclays and JPMorgan analysts cut their price targets, a day after the company posted a drop in fourth-quarter profit and sales.

Among financial stocks, shares of Citigroup (C) slid 9 percent to $3.55, while shares of Bank of America (BAC) dropped 3 percent to $6.58. The S&P financial index (.GSPF) fell 2.5 percent, capping its 6th straight monthly slide.

U.S. policy-makers have yet to reach a consensus on how a U.S. government-run bad bank would work and the idea may not move forward, CNBC television reported, citing unnamed sources.

The Nasdaq's decline was led by a 3.1 percent slide in Apple (AAPL) shares to $90.13, and was only partly offset by a jump of 17.6 percent in Amazon.com (AMZN) to $58.82, following the online retailer's rosy outlook and holiday sales.

Another standout loser was Juniper Networks (JNPR), down more than 16 percent at $14.16, after the network equipment provider warned its first-quarter revenue and profit would fall far short of Wall Street's expectations.

Companies in the basic materials sector also sold off, sparking a 3.7 percent slide in the S&P materials index (.GSPM). Aluminum producer Alcoa Inc (AA) shed 7.7 percent to $7.79.

Volume was active on the New York Stock Exchange, where about 1.51 billion shares changed hands, above last year's estimated daily average volume of 1.49 billion shares, while on the Nasdaq, about 2.14 billion shares traded, below last year's daily average of 2.28 billion.

Decliners outnumbered gainers on the NYSE by a ratio of about 3 to 1, while on the Nasdaq, about nine stocks fell for every four that rose.

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The founder of Apollo Group and his son sold $71 million in stock.

2009-01-28T05:34:36Z

The founder of Apollo Group and his son sold $71 million in stock.

THE FOUNDER AND CHAIRMAN of Apollo Group (ticker: APOL), which runs the for-profit University of Phoenix, has been selling large blocks of shares in the past two weeks as the company's shares soared.

Chairman John Sperling and his son Peter have sold $71 million in Apollo stock from Jan. 15 to 22. The father and son have also relinquished another $89 million in shares this month under a prior agreement. Over that time period John Sperling has sold 500,000 shares for $44 million in January, at an average per-share price of $88.05. Peter Sperling sold 301,179 shares for $27 million, at an average price of $88.72 per share.

The Sperlings have sold large blocks of shares in the past -- John Sperling even sold more than $50 million in shares in January 2008. But the recent sales, along with a trend of insiders exercising large blocks of shares and selling them, constitutes what InsiderScore.com calls an "aggressive selling trend" at the company. John Sperling continues to own about 19 million class A shares, accounting for about 12% of the outstanding shares. Peter Sperling, who is also a vice chairman, now owns about 9 million class A shares, or about 5.5% of the shares.

The Sperlings control the voting power in the company through their ownership of all of the class B shares, which do not trade publicly. Class A shareholders cannot vote.

Their timing, looking at the stock's short-term performance, was excellent. Since peaking at $90 during intraday trading last Thursday, shares have fallen, hitting $82.46 at the end of the day Monday.

Apollo didn't return a phone call seeking comment.

Notwithstanding the recent dip, Apollo, like other for-profit education companies, has soared. Shares have risen 56% in the past three months.

Even as investors flee blue-chip companies in virtually every other sector, they have flocked to for-profit education companies, some of which have been reporting higher enrollment. University of Phoenix, which accounts for the vast majority of Apollo's profits, reported on Jan. 9 that it saw enrollment grow 18% year-over-year in the fiscal first quarter of 2009.

Apollo, which reported declining margins in the past few years as students shifted into its lower-cost associate's degree programs, has since expanded those margins by raising its tuition. The federal government, in addition, has made subsidized Stafford loans more available to students, and rates on those loans are expected to decline to 3.4% by 2011 from their current rate of 6.1%, wrote GARP Research and Securities analyst George Sakellaris, who rates the stock at Buy.

Some analysts also expect rising unemployment to help the company as laid-off workers go back to school. The company's marketing looks to capitalize on that trend: "If you are in an industry hit hard by the economy, now is the time to consider a curriculum in a growing and more stable area such as education or nursing," University of Phoenix president William J. Pepicello wrote in a letter posted on the school's Web site. The University of Phoenix, which offers classes online, caters particularly to older students who may be looking for more training or a new degree.

But could the sales by the Sperlings indicate that investors have been a bit too bullish, pushing price-to-earnings multiples past reasonable levels? Barron's associate editor Michael Santoli recently wrote that "maybe a dose of skepticism is warranted for this over-liked sector." (See Streetwise, Jan. 26, 2009)