– Stock Market Companion – Current Holdings –

Nr.	Co.	Ticker	Action	Entry Date	Current Gain (Loss)
1	Gentiva Health	GTIV	Holding	11/15/2011	-9%

 

– 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	1,161.79	Index	DOWN = -26.25 points
DOW-30	11,257.55	Index	DOWN = -236.17 points
NASDAQ	2,460.08	Index	DOWN = -61.20 points

 

 

– Market Trends –

 

Trend	SP-500	DJ-30	NASDAQ
Short Term	Down	Down	Down
Intermediate	Flat	Flat	Flat
Long Term	Lateral	Lateral	Lateral

 

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

 

 

– Market Perspectives –

 

For your added perspective, we’ve included this chart of the broader market (Successful stock investors develop and start with a minds-eye view of the broader market and keep it clear) –

 

SMC SP-500 ETF Daily Chart

 

 

Please click on the chart to view it in a larger size.

 

 

 

– Today’s Highlights –

 

Friends, there isn’t just “goo on the Pennsylvania Turnpike” (Click here for short WStJournal Article).  There is a  “goo” problem  that runs through the halls of Congress and up through the house that sits at 1700 Pennsylvania Avenue.  Simply throwing some sand on it and plowing it to the side of the road isn’t going to clear the system.  We need a comprehensive plan that ultimately takes a real bite out of the (you are hopefully sitting down) projected $44 trillion that will be spent over the next decade by the U.S. government.

 

Without a comprehensive plan, this problem is going to inflict terrible pain on our economy.

 

For the markets to begin functioning, a real bite has been defined as approx. $1.4 trillion.  Unfortunately, the U.S. Congress hasn’t been able to step up and cut expenses.  This shows many who did not believe that we have a real problem, that we do.

 

Here is a simple and brief metaphor describing this problem – If you were coaching a family about their financial habits and they were unable to find a way to simply cut -3% from their expenditures, you would rapidly come to the conclusion that they are simply not motivated to solve the problem.

 

There is hope.  In the face of this habitual spending by the U.S. government, if the U.S. Congress and U.S. President agreed to firmly cut -5% from the budget AND somehow protect these cuts from being eroded by the next politicians, the markets would absolutely SOAR higher – with hope that the wealthiest and most successful country in the world was mending its bad habits.  But they haven’t been able to do it.

 

 

Institutional investors don’t like it.  They are pulling their money from equities (stocks) and putting their money into near term safe, liquid assets like U.S. Treasuries (this is a part a the whole paradox and shows how much clout the U.S. could have if we simply got our house in order).

 

 

How do you explain this to your young adult children?  It may go something like this –

 

This problem started a long time ago.  One of the  triggering events was the inception of both social security and unemployment insurance taxes that were automatically deducted from wages earned, and placed in the GENERAL FUND for government spending.  The money raised from these taxes should have been placed in a separate account at the U.S. government or adjusted DOWN to meet current needs for the purposes of the programs it was designed for, but instead was mixed into the U.S. Government General Fund.

 

Many politicians justified this unfortunate oversight by calling the system a “Pay as You Go” plan.   Most U.S. citizens thought they were paying into a “savings plan”.   The surpluses generated by this tax (there were many more workers vs. retirees for decades) expanded government expenditures and appetite for size.  The money was spent and the U.S. government wanted more.

 

When that money wasn’t enough, the U.S. Congress authorized the sale of trillions of U.S. Treasuries which helped fund more government.   This was all during a time of increasing U.S. productivity and the inception of innovative technologies that has created vast new industries like the computer industry, which generated huge revenue for the government through taxes.  During much of this time, the U.S. government should have been operating with a strong surplus, in order to be ready for leaner times as we have now.

 

Instead, the money was spent.  But we still have the obligations to pay retirees and to pay back the countries who have purchased our debt.  It’s a big bill that has to be paid.   Over the last three years this bill has become significantly bigger because tax revenues (money inflows to the government) are at 60 year lows, and government expenditures were dramatically increased in an attempt to stimulate the economy (using old spending ideas) and to protect those adversely impacted by this economic downturn.

 

This year for the first time in modern times, the quality of U.S. debt as measured by debt ratings agencies, has been downgraded.  This means that there is increasing uncertainty as to whether the U.S. has the ability to honor its debt obligations.

 

There is hope.  Many U.S. citizens are seeing the problem for the first time and there are conservative politicians from both parties who see the problem and want to fix it.

 

Why is there room for economic hope?  Here are just a few reasons –

 

 

• Americans are problem solvers and hate being duped.
• The power of the U.S. economy is enormous.
• There are great savings that can be achieved and debt could be paid off – IF Congress could significantly cut expenses, simplify the tax code with low rates, close corporate tax loopholes and lower corporate taxes (and succeed at getting profitable companies like GOOGLE to pay lower U.S. corporate taxes), and reward U.S. companies for employing American’s in factories and operations here on-shore with tax incentives.
• Innovation is alive and well in America.
• U.S. citizens are seeing the problem clearly for the first time and putting pressure on politicians to make meaningful change.
• There is plenty of opportunity to make the U.S. competitive as a manufacturing and industrial nation again.

 

 

 

Today, a little bit more FEAR showed up in the markets.

 

There are several catalysts behind today’s CONTINUATION move DOWN (Courtesy of Reuters, Briefing.com, +) –

 

1. The U.S. Federal reserve EXPANDED its requirements for big U.S. banks to submit annual capital plans for review.  This expanded its list of financial companies required to do so to 31.  The 6 largest must undergo stress tests in 2012 that includes a “hypothetical global market shock”, which would include a -8% drop in quarterly U.S. GDP!  (Briefing.com).   Friends, the scope and wording of this announcement really scared some people in the market today.
2. Germany’s bond sales WEAKENED.  Germany wanted to raise 6 billion euros through these sales, but could only raise 3.64 billion.  Their yields increased to 2% (which isn’t bad, but it is demonstrating concern).  Whereas normally, 20% of the bonds remain unsold, today it was 40%.  This may be a seismic shift which will bring further negative consequences in Europe.
3. Italian bond yields again increased towards +7%.  SMC subscribers know that this is an important threshold
4. Data from two manufacturing indicators from China indicated that China’s manufacturing sector crossed into CONTRACTION in November.  Asian markets moved lower.
5. US durable goods orders fell in October.

 

 

 

– Story-Stock Investing –

Today the markets crossed DOWN through the -50% retracement level for the rally from October 4th through October 27th, which was approx. 118 on the SPY.   This three week+ rally was so strong, that it gave the market a lot of room to move around before finally getting down to its -50% retracement level.  Based on the market’s behavior, the rally already feels like it was eons ago, although we are still influenced by the abrupt strength that the markets demonstrated on October 4th.  The fact that the markets PLUNGED through this level (without looking back) today on the type of catalysts that we have identified above, should make everyone concerned that the markets may continue further south and ultimately test the October 4th lows.

Typically, a -50% retracement in a rally in a stock or ETF often offers a nice entry for a move higher within the trend.  Today was not the case.

There was very little bargain hunting taking place today.  The markets left a strong impression of disinterest, which quite possibly opens up the door to further downside. Because of today’s immediate proximity to Thanksgiving and this being a “holiday week”, volume was lower.  We did not see today the large volume as we experienced with some of the downward spikes earlier this month and in September / October.  This makes today’s move a bit inconclusive, although the price move was NOT inconclusive.

Black Friday will not offer us a statistically reliable event to gauge the market’s near term behavior.

The markets are closed tomorrow in honor of Thanksgiving Day.  The markets are open on Black Friday, but close early at 1:00 PM.

– Benchmarks “At a Glance” –

 

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