Brazil and the Market

We talked about the Brazilian market a few days ago and if you had bought some of their stocks, you would have done quite well. Some examples include Gafisa and Sadia.

As for the general market, it looks like the minor correction could be over and the market could be on its way back up. The short term technicals did reverse down, and now we are just waiting for them to reverse back up. More on this over the weekend.

Brazil

In case you haven't heard, S&P upgraded Brazil's debt to investment grade. This was done a few weeks ago. Most all the stocks took off for great gains. This is because there are now a lot of institutions that can invest in Brazil that couldn't before. Many of the stocks have pulled back in this correction and are excellent buys. You need to find which ones and start investing in them. Brazil is one of the fastest growing economies in the world. Some of their companies are also growing at very high rates with technicals that look great. Need ideas? Email me.

Minor Correction

Well, the market has taken a turn for the worse this last week, with all the major averages turning down pretty significantly. But that is the first correction in the last 8 weeks and the market is due one of those. But all the long term technicals still point up, so don't fret. Keep your strong stocks, and sell any stocks that hit your stop points.

Other than that, enjoy your barbecue today.

Moodys

As if Moody's doesn't have enough problems with the their rating of the CDO's, CSO's, CMO's, SIV's, and having the SEC and the FINRA investigating them along with their stock price being cut more than half in price without the benefit of a 2 for 1 split. Now we find out there was a computer error that gave top rankings to securities that didn't deserve them. Even worse, Connecticuts Attorney General said yesterday he is investigating New York- based Moody's for potential fraud in connection with a possible ``cover-up'' of inaccurate ratings. More fraud is on the way.

I have said it numerous times before---don't believe anything you read or hear.

Analysts

Remember 2000 and the Internet bubble. There were some very famous analysts, (some now in jail) who were saying the most idiotic statements possible. They were talking about Yahoo hitting $1000 a share...Amazon $600 a share...Psinet $400 a share...and others. Yup...people listened to them and lost billions. Now we are listening to this analyst from Oppenheimer named Whitney. She makes one right call and now she is a genius.

Don't listen to her!

Listen to the market...listen to your common sense. One analyst VS the market. Please people..use your common sense.

And talk about common sense..the market down today because the PPI was up...yet the market was up big last week because the CPI was down. So what is the answer? Follow the technicals--that is the answer.

Them Analysts

Now believe me when I say, Goldman Sacs is a fine investment firm. But like every other firm, they make statements that are totally ridiculous and you as an investor must not be drawn in and believe these ridiculous statements.

This morning, G.S. put Amazon on their conviction list, which I suppose means they really like the company. Then they came out with the statement that the company can grow at the rate of 20% for at least the next 5-10 years. Holy COW?! You have got to be kidding me. No one knows that or even has an idea what any company can do for more than a year or two at the most and that is usually a guess at the best. But 5 or 10 years!!!

But even more important..remember...it's not what or how the company does that makes a stock move. It's how the market reacts to the stock that counts. Don't buy Amazon based on what one analyst says. Buy it based on supply and demand of the market.

The Market

The Market ended one of its strongest weeks in a year. All the averages were up and individual stocks outperformed the major averages...if you were in the right sectors. Remember, to outperform the market in general, you must be in strong relative strength sectors, and have stocks or ETF's that are also outperforming their peers. That means sectors like oil, oil service, machinery, and chemicals just to name a few. Then you need to pick stocks and Etf's in those sectors that are also outperforming. Do that, and your odds are better than average you will have a portfolio that will outperform the market.

But remember, even if everything looks perfect, the stock can go south. If it does, have your stop loss and get out of it before a small loss becomes a large loss.

Let your winners run-----cut your losses short.

Merrill Again

Now why would Merrill make their analysts put buy or sell signals on a certain percentage of stocks they cover. First of all, it makes no sense. During the height of the credit crises we just went through, there was no way a banking analyst could have had buy recommendations on 70 % of all the banks he covered. In the same sense, in a hot and growing sector like the agriculture sector maybe only 10% of stocks deserve to have a sell signal--yet now he must have 30% sell signals.

The word around the street is that by having more sell signals, it will cause more trading and therefore more commissions for Merrill and their brokers.

Way to go Merrill Lynch!

Good old Merrill

Merrill Lynch has done it again. They will now require all their analysis to rate at least 20% of the their companies they follow the equivalent of a sell recommendation. That is about four times the average. They will also limit the buy recommendations to 70% of the companies, while neutral rated stocks won't exceed 30%.

What if the stocks the analyst covers falls outside that guideline? Does the analyst then lie? Does he fudge the ratings? Why would Merrill do this? What is their underlying reason?

Tomorrow we will see.

Strong

Well, the end of the quarter is here. And now for the one dollar question. What was the strongest sector in the market during the quarter? Actually it was worth more than a dollar because if you invested in it, you made over 10%--in a market that was down over 10%?

The answer is the home building index. That's right. Those new home builders. Those guys that can't give away new homes. Now why is that? Tomorrow we will find out.

We will also find out the employment report. But what is important is not the report but how the market reacts to it.

Time To Invest

The bear market, which in my opinion started in May, according to my technicals is now over.
My technicals gave a major buy signal 4 days ago and now is the time for capital appreciation in your account. Hopefully you have been holding onto a lot of cash and have that ready to invest. Don't put it to work all at once, but be careful. Buy strong relative strength equities--no bottom fishing. If your a little hesitant, then buy strong ETF's.

Don't worry about the Dow or the major averages right now. They will catch up to the market.
Be careful and always have a stop loss for everything you buy.

Bear "not anymore " Stearns

Look at my blog on March 14. Wow! Now we find out that if the Fed didn't lend money to B.S., they would have gone bankrupt. Investors pulled out more than $17 billion in the last 2 days out of the company. How did that happen so fast? Was the rumor true or did the rumor cause the problem? And who started the rumor? And how about buying the company for 1/4 the value of the building they own in NYC.
This story is going to go on for awhile and we will learn more. The question arises...will we ever learn the whole truth?
Technically, no one reading this blog should have owned the stock. It was below its support line, and under performing its peers and the market long and short term. If you did own it, better read the blogs and start learning technical analysis, because where were the fundamental analysts when you needed them?

Volatility

And have we had it. There have been 51 trading days so far this year. 60% have seen moves of more than 100 Dow points either up or down. That, my friends, is unheard of. And why are we talking about that now? Because this week brings us this years first Quadruple Witching. And with QW comes extra amounts of volatility. So be very careful this week. Want to buy stocks? Maybe you want to put your order in a few points below the market. Want to sell. Try a few points above the market. Unless of course you must buy or sell. Then do it at the market.

Quadruple witching also brings with it other things...more on that next

2 days ago

2 days ago we talked about when the market made large percentage moves...where was the market at the time? High or low or midrange on a technical basis? It turns out that 23/30 times, when the S&P made its largest percentage move, the market on a technical basis was at a very low risk level but on a sell signal. So 75% of the time what has occurred in history, has occurred now.

In my opinion, this could be the start of a major bottoming process for the market. Remember, bottoms aren't made in a day or a week, but is a process that occurs over time and needs to be retested. That also may have just occurred.

We will talk about that next...and also the bullish percent

Liar, Liar, Pants On Fire

The Dow, S&P, RUT, and the Financial sectors in the markets took it on the chin today. Why? Because Bear Stearns, the 5th largest brokerage firm was bailed out by the NY Federal Reserve Bank and JP Morgan. After a week of denying the rumors that they were short of cash, this morning came the news that they were short of cash. So much so, that they would have had to shut down. That would have caused a disaster in the markets, and possibly a mini-crash. It would have left thousands of investors with their accounts frozen for weeks.

So like usual, the Federal government comes in with our tax money and makes everything OK again. Wall street does what they want, makes millions, then investors lose the millions and the government comes in and bails them out. Sounds like a familiar story.

Do Not Despair

There is always hope on the horizon. A few days ago we saw that tremendous 400 point move by the Dow. Remember, I told you that usually most of the biggest up moves in the market occurs in bear markets. Well, I did a little history to find out how accurate I was.

I used the S&P. I took the 30 largest percentage moves over the last 25 years, and looked to find where the market was technically when the move occurred.

And what I found out was very interesting...and it may really give us insight to where the market may be going......tomorrow we shall we......

How The Might Has Fallen

As most of you are probably aware by now, Eliot Spitzer has stepped down as Governor of N.Y. He made his name years ago as Attorney General of N.Y., when he brought down the crooks, the liars, the cheats and the greed of wall street. Yup---brought them down to their knees. Now that same man is taken down down by his own hubris. Thought he was above the law.

And what is really sad about the whole thing...when he made resignation statement...there were cheers from the floor of the NY Stock Exchange. What a sick bunch of assholes...the whole bunch of them....from top to bottom....may they choke on their greed...

Up and Away--maybe

The market just had its biggest up move in almost 5 years. The dow was up 400 points, the S&P was up 3.7%. Everyone is happy, get ready for the next bull market. Whoa! Not so fast! Hold on a minute. First of all, most of the biggest one day up moves in the market occurs in down markets. Second of all, one day doesn't make a market. Third of all, the technicals still are bearish.

This doesn't mean that in a week or two of continued up markets, that the market can reverse up and we can become bullish. What it means is that don't become overly bullish now and start buying randomly, because if you do, there is a good chance you will get caught in a bear trap. And the market will hand your head to you on a platter.

It Has Been a While

It has been a while since my last post, and has the market changed. The technicals turned up on January 25, and just has reversed down 2 days ago. We are on defense people. You need to go through your portfolio and weed out the weak performing stocks and ETF's.

This has been the biggest market downturn since the 2000-2002 bear market. The market in down 20% on average. If you were doing as I have taught you at first, you would have had some oil stocks, steel stocks and commodity stocks to offset your other equities.

Historical Perspective

Like I explained yesterday, perspective is necessary when the market is behaving badly. As of yesterday, the S&P was down 15.9%, the RUT was down 21%, the NASDAQ was down 18.2%, and the Dow was down 14.8%. These are major numbers and we haven't seen anything like them since 2002.

But what does it mean historically when the S&P is down 15%?

It has occurred 24 times since 1965. The average downturn is 22%. From the time it hits 15% down, it takes an average of 35 days to hit its ultimate low. That's the bad news.

Now, the good news -- The average rally after this type of correction up to the next peak in the market is 44%! My goodness! That is good news!

Keeping Things in Perspective

Hopefully, you have been using some form of technical analysis and stop losses to avoid huge losses in your portfolio. You cannot avoid all losses. In a market like this, it is impossible to avoid losses. All accounts will fall in value. The question is -- how much and is it less than the market average?

Keep your losses to a minimum. As of today, the S&P is down 15.9%.

To put that in its proper historical perspective and find out what it means, stay tuned...

So... What's an Investor to Do?

So, we have the four basic ideas, but the Market has been a real roller coaster ride. What's an investor to do?

We need to become conservative. We need to raise cash levels. We need to raise stops. We need to buy strong stocks. We need to buy 1/2 positions. We need to buy ETF instead of stock. We need to put emotions in our back pockets and look at the supply and demand charts.

But, most of all -- if a stock hits a stop loss and there is a loss -- take it! You can make up a small loss much easier than a large one.

Discipline - The Last Necessity

However you buy and sell stocks--fundamentally or technically--over the long-term or short-term, you must have discipline. You have to decide on a course of action and stick to it. It will make you consistent and consistency will, in the long run, lead to profitability.

If you notice over time that your strategy or discipline isn't working for you, change your course, but never do so emotionally. Emotion has no place in a portfolio.

The Importance of Stop Loss

In this current thread, the third idea is having a stop loss... and using it.

Not every trade will work out. When it doesn't, selling your losing position while it is manageable is preferable to watching your stock tumble into the basement and being hit with a total loss.

Have a specific and reasonable stop loss. Use it! Don't hope for something to bounce back because it may not. Just sell the stock and move on.

Remember, most of the time, 80% of your profits come from 20% of your trades. If you let even one bad trade go down 50%, that means your next trade has to double just to break even.

Knowledge is Power

Idea number two for improving your ability to invest wisely is to remember that knowledge and information are not the same thing.

This goes hand-in-hand with the first idea: educating yourself.

There is so much information out there, but you have to sort it out and learn from it. You don't need to read every news service, every magazine, every newsletter to become educated in the markets. Study the markets first and foremost, then read material that supplements your goals.

Tomorrow... idea three!

An Educated Investor is a Smart Investor

Now that we're into a new year, Portfolio Bunny would like to give you some basic ideas about investing and trading that you should know, especially now that the market is in a defensive mode and you should be preserving cash.

Idea #1 - Become Educated

This doesn't mean more student loans, late night studying, and pop quizzes. It means learning how to invest by yourself using technical analysis layered over fundamental analysis. It means learning to find a registered investment advisor. It means keeping abreast of the markets and their trends.

Just like back in school, you have to ask questions. Question your advisor. Get to know your portfolio well, not just the bottom line.

If you do your own investing, ask yourself what you would do if you were using someone else's money? Would the next trade you have in mind be something you'd feel comfortable offering to a business associate or loved one?

Above all else, though, never forget to keep emotion out of your equations.

For more ideas... stay tuned.

The Stock Market Will Self-Destruct In...

Alright, it isn't quite that bad... yet.

But last week's market performance was amazing. Technically, it was destructive. Psychologically, it was a disaster. Even the major averages were a disaster. The S&P lost 4.4%. The NASDAQ lost 6.4%. The biggest loser, the Russell 2000 (RUT) lost 6.7%. There were more than 500 new weekly lows last week.

Some people on CNBC were saying it was the worst week since 2002!

Ah, but they are wrong. They are misleading you. They are making things seem worse than they really are. You only need to glance at August 2007 to see the reading was at 1100 new weekly lows.

Remember, don't believe everything you read or hear from those talking heads.

As for our headline... well... made you look! ;)

Crystal Balls and Other Such Nonsense

Well, the crystal balls are dusted off and on the table. All the talking heads are making predictions. According to Bloomberg News, Byron Wien said the US economy will fall into recession in 2008 and stocks will tumble before rallying in the second half. He said the S&P will post a 10% drop.

And how effective is Mr. Wien's fortune telling? According to the same Bloomberg article, he has been totally wrong the past two years. And Wien himself admits his predictions have at least a 50% chance of coming true (or failing, depending upon your perspective).

Actually, flipping a coin is just as effective and takes less time to read.

So much for predictions...

Oil - For Whom the Bell Tolls

We can see the United States is a large oil producer. But we can also see the US is also a gross over-consumer of oil. We use 2.5 times more oil than we produce. We almost use triple the amount of oil any other nation consumes.

At this time, there is little excess oil being produced globally. Any increase in usage or major cuts in production will lead to a shortage.

We, as a people and a country, must either produce more oil or become more efficient in our consumption of oil and oil-based products. Our failure to do either or both will result in our future generations' suffering.

Oil Supplies - The Final Link in the Chain

Once again, courtesy of the NY Times, here are the countries supplying oil to the United States on a daily basis:

United States - 8.3 million barrels
Canada - 2.4 million barrels
Mexico - 1.7 million barrels
Saudi Arabia - 1.5 million barrels
Venezuela - 1.4 million barrels
Nigeria - 1.1 million barrels
Algeria - 0.7 million barrels
Iraq - 0.6 million barrels
Angola - 0.5 million barrels
Russia - 0.4 million barrels

As you can see, we are, of course, our number one supplier. Canada and Mexico easily hold the second and third positions.

Tomorrow... what it all means.

Oil Consumption: A Continuing Analysis

Again, as extracted from the NY Times, here is a chart of the leading oil-consuming nations. Note that these are barrels USED EVERY DAY:

United States - 20.6 million barrels
China - 7.3 million barrels
Japan - 5.2 million barrels
Russia - 2.9 million barrels
Germany - 2.7 million barrels
India - 2.5 million barrels
Brazil - 2.3 million barrels
Canada - 2.2 million barrels
South Korea - 2.2 million barrels
Saudi Arabia - 2.1 million barrels

As you can clearly see, we are by far the number one consumer of oil in the world.

Tomorrow, we'll see who supplies all that oil to the United States...