– The Stock Market Companion –
15MinuteStocks
Market Update
May 18, 2010
——- Stock Market Investing since the 1980’s ——-
Published all Market Days
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 Today’s SMC Watchlist

– Executive Summary – 

The markets bounced, but the bounce was very brief.  This morning the futures were pointing up and the markets opened nicely higher following yesterday afternoon’s rally in the euro and subsequently in stocks.  Stocks launched higher for a full 15 minutes, and then everything turned to mush.  Here’s your SMC SP-500 ETF Daily Chart.

The euro edged up and then wilted.  Here’s your SMC Euro-Equivalent ETF Daily Chart. It edged up on news that 10 of the 16 nations whose fate are tied to the euro, sent bailout money to Greece.  It proceeded to wilt as German lawmakers began voicing interest in –

• Banning “naked” short selling (short selling occurs when investors borrow shares and sell them high in hopes of buying them back lower).  The term “naked” emphasizes the fact that the investor does not own the shares.
  
• Implementing a transaction tax on financial activity (This means levying a fee on each trade, in an attempt to discourage heavy trading and to take money from the markets for the government).

Here’s the rub – Markets hate uncertainty.  By its very nature, government intervention adds uncertainty to the environment.  Investors must weigh additional variables – Will the government act this way, or that way?  What are the government’s trying to “prevent”?  Healthy markets do not need government intervention.  Governments ban short selling when markets become – in their estimation – unstable.  Unfortunately, such actions generally lead to further near term instability.

Banning short selling reminds everyone of the market turmoil from late 2008 and early 2009.  This is not good.  The outcome may be in the short term very unpredictable.

Importantly, we know that the German parliament will possibly vote as soon as Friday on a $1 trillion rescue package for euro-zone nations on the brink of default.  Germany will be the largest contributor.  At the SMC we see this problem for the markets: Until it is absolutely clear that Germany will support this rescue package, and until it is clear what “strings” are attached (banning short selling, transaction tax…), the markets will behave unpredictably.  This week is also options expiration week in the US, which will contribute additional unpredictability.

The markets could really come unglued here.

It appears that the German government needs to find an additional scapegoat to pin this financial problem on.  It’s very convenient to blame it on “short sellers”.  The “transaction tax” tells their electorate that they are exacting a penalty from those naughty short sellers.  It helps them save face with their voters at a high cost for the markets.

(For our concise market assessments, market details, stock ideas, and SMC return on investments – see below)   

 

– Markets “At a Glance” –

(Please scroll down to the end of the report to see your favorite benchmarks – Dollar, Oil, Gold … closing prices and daily direction.)

Market	Price (Today’s Close)	Unit of Measure	Today’s Direction
SP-500	1,120.8	Index	Down = -16.14 points
DOW-30	10,510.95	Index	Down = -114.88 points
NASDAQ	2,317.26	Index	Down = -36.97 points
NASDAQ 100	1,887.06	Index	Down = -28.39 points

 

– Market Trends –

Trend	SP-500	DJ-30	NASDAQ	NASDAQ 100
Short Term	Down	Down	Down	Down
Intermediate	Down	Down	Down	Down
Long Term	DOWN	DOWN	DOWN	DOWN

*Summary of terms from Trader Vic II-Principles of Professional Speculation (pg. 140-141)
*_________* Represents a change in trend rating.

– Today’s Highlights –

Today, following a strong open, the euro dropped like a rock.  The U.S. dollar ripped higher.  All dollar denominated commodity stocks dropped hard.  Oil and steel stocks were particularly hammered.

The markets are pointing down now in after hours.

Hewlett-Packard Co. (Ticker: HPQ) reported excellent earnings after the close and guided higher for the year.  The stock is pointing 2% higher in after-hours markets (after hours markets are thinly traded).

Yesterday we wrote this summary, “While this is a bit of an over-simplification, the world’s stock markets have been held hostage recently by the developments in Europe and the perceived risks associated with European currency – the euro.  Greece, Ireland, Portugal, and Spain (and to a lesser extent Italy…) have large account deficits that need to be funded.  Funding has become prohibitively expensive for these countries as their costs of borrowing through the issuance of bonds has increased. 

For example, Greece went to investors to sell a 7 year, 5 billion euro bond at the end of March 2010.  In order to attract buyers, Greece had to offer a yield of 6%.  That is twice as much as what Germany must offer to sell its bonds.  These borrowing costs and the uncertainty of finding interested investors has caused the financial community of large currency investors (sovereign nations and funds) to begin strongly discounting the value of the euro against the U.S. dollar. 

The financial community’s reasoning is straight forward.  If one of these nations default on their debt, then the resulting strain on the euro would be very significant.  In fact, the euro has never been tested to this degree.  The uncertainty gets very large as these types of questions move from the realm of theory and become real ones, which demand hard answers and ACTION –

– Will European citizens from wealthier European nations (Germany…) agree to lend Greece and other nations money, when the financial community deems it too risky?

– Are European politicians strong enough to convince their electorates that the survival of the Euro is really in their best interest?

– Will Greece and the other heavily indebted nations accept austerity measures that they have previously rejected?  If they don’t accept such measures from their own politicians and institutions, how will they accept such measures imposed on them from external institutions such as the European Central Bank or the IMF?

– If $140 billion is needed for Greece alone, how much more will be needed for the others?  Where will the money come from?

– Is the euro really a necessity for these nations?  Most importantly, do their citizen’s think so?  Or has the euro been more or less imposed on them by visionary politicians who are no longer present?

– Do European bureaucrats really have the strength to identify the key actions necessary to be taken, and make these hard decisions?  (Friends, there is a reason why the war in the Balkans (Serbia / Kosovo…) in the 1990’s was finally resolved by a “Dayton” agreement – hammered out in Dayton, Ohio under immense pressure from the U.S.) 

As real and perceived risk increases, investors move their money QUICKLY from riskier, liquid, growth environments (stocks) to less liquid, lower risk (lower yielding) investments (U.S. Treasuries or gold).  This is why the yield on U.S. Treasuries has been dropping hard.  U.S. Treasuries have been going up in price as investors seek refuge there.   There is a silver lining in all of this.   As U.S. Treasury yields drop, so too do the 30 year fixed mortgage rates in America – which aids the selling prices of homes in America.  Home values are by far the most important asset for many Americans.“

Today we are getting a clearer understanding of what German lawmakers may impose on the markets as a requirement for their vote to fund bail-out money to Greece and other heavily indebted euro-zone nations – banning short selling and a transaction tax.  This government intervention will have unintended consequences.

– Stock Investing Specifics and Strategies –

Yesterday we wrote, “At the SMC – pending any significant overnight event that could further derail the markets – we are expecting a bounce in the markets here.”    The markets did NOT experience any negative overnight event and the markets bounced higher.  Instead of an overnight event, we had one during the day from German lawmakers.  The euro tanked and took stocks down with it.  Investors sought safety in the U.S. dollar.  Gold was flat to slightly down today.

Yesterday we wrote, “AK Steel Holdings Inc. (Ticker: AKS).  AKS had excellent earnings but have been pounded down approximately -41% on concerns surrounding the trade weighted cost of steel in an international environment where the U.S. dollar is on a tear…  For those of you interested in something like AKS, we suggest placing a stop just below today’s low of $14.26.  At the SMC, we have not yet put money to work with AKS.  We may tomorrow.”  We also wrote, “These are not your typical, high probability, “fairway shot” investments.  These investments (INTC or AKS) would be for nimble investors looking to take advantage of an oversold condition in the market.”

By “nimble”, we did not mean 15 minutes!

Today, AK Steel Holding Corp. was +4% higher shortly into the open.  Things looked good.  It then was annihilated with all of the other steel stocks as the Greenback roared higher.  The $14.26/share stop that we identified above has not yet been reached, but it is just a hair’s-breadth away.  The SMC is not making any investments in this environment.

Yesterday we wrote, “VVUS – from our SMC Watchlist – had a strong day today.  It is now at 52 week highs.  Pretty good.  They have a weight loss drug pending FDA approval and other drugs in the pipeline, and have received recent broker upgrades with targets in the mid-teens.  VVUS closed today at $12.47.  The SMC may take a small position tomorrow”.

Today, VVUS roared higher.  It has very wide swings.  The SMC is not making any such investment at this time.  Our opinion may change should something significantly favorably happen with the markets tomorrow.  We would like a stock like this to consolidate its recent advance and build a nice base from which to build further stock appreciation.

Our SMC indicators and research for good stocks are working fine, but this market environment is not suitable for low risk, high probability investing.

Please remember – at the Stock Market Companion we do not and cannot give individual investment advice. According to the State of Washington RCW 21.20.005 the Stock Market Companion is not a Registered Financial Advisor and we do not render any advice on the basis of the specific investment situation of a particular individual. This information is for a wide readership and is not intended for any particular individual,  and under no circumstances should our SMC Intraday Update, SMC 15MinuteStocks Market Update or Watchlist be considered an investment recommendation or plan for any specific individual.  By accessing this material, you agree that the Stock Market Companion will not be held liable for any actions taken by a subscriber or other parties.  Please seek the council of a broker or other licensed investment professional for accurate pricing and concerning the suitability of all investments that you may be considering. Disclosure : Please understand that the Stock Market Companion may hold positions in the above mentioned securities.  Based on market related or personal events these positions may change without notice.           

– Stock Market Companion – Current Holdings –

Nr.	Co.	Ticker	Action	Entry Date	Current Gain (Loss)

If there was a company with a ticker labeled “100% CASH”, we would have to report our holdings in the above table.

– Stock Market Companion – Performance –

Please click on this chart to see the Stock Market Companion 15MinuteStocks stock performance verses the SP-500.

* Gains (losses) do not include brokerage fees

– Benchmarks “At a Glance” –

US Dollar	1.2184USD = 1 Euro	USD / EUR	Dollar = UP BIG
Gold	$1,225.00	Ounce	Gold = Flat
Oil	$68.28	Barrel (West Texas Crude)	Oil = Down Big
30 Yr. Fixed Mortgage	4.94	Percent	Down (just below 5%)
30 Yr. Bond Yield	4.254	Percent	Down
1 Yr. CD	1.38	Percent	Flat

(Data Source : Finviz.com Financial Visualizations)
 

We wish you all a fine evening.

Remember to invest on your own, but not alone.

Signing off for today, your –

Stock Market Companion

** Stock Market Companion Disclaimer **

The Stock Market Companion (SMC) Market Update and Watchlist are published documents to subscribers that show how we (SMC) are viewing the markets and what we are watching, investing in or selling today.  This information is for a wide readership and is not intended for any particular individual,  and under no circumstances should this Market Update or Watchlist be considered an investment recommendation or plan for any specific individual.  By accessing this material, you agree that the Stock Market Companion will not be held liable for any actions taken by a subscriber or other parties.  You understand that the Stock Market Companion holds positions in the above mentioned securities.  Based on market related or personal events these positions may change without notice.

Furthermore, the Stock Market Companion, Inc. is a content provider and publisher and not a registered broker-dealer or licensed investment professional.  Our intent is to publish very accurate market information for an audience of subscribers (1000+ subscribers).  By accessing the Stock Market Companion website and/or using the Stock Market Companion products and services such as this Market Update and accompanying Watchlist, you understand and agree that the material provided in the Stock Market Companion products and services is for informational and educational purposes only, and that no mention of a particular security in a Stock Market Companion product or service constitutes a recommendation to buy, sell, or hold that or any other security, or that any particular security, portfolio of securities, transaction or investment strategy is suitable for any specific person.  To the extent any of the information contained in any Stock Market Companion product or service may be deemed to be investment advice, such information is impersonal and not tailored to the investment needs of any specific person.  Before selling or buying any stock or other investment you should consult with a qualified broker or other financial professional to verify pricing information and to solicit advice as to the appropriateness of a given transaction or investment.<

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