Knowing is worth Knowing

Material Added at end
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I know I know... no posts have come along in a long time. But... my friends... that is only because it has been a ripe time to dig deep, experiment, and really figure out how the market works... if that is possible... and never to post if I don't have anything meaningful to say or if, as is often the case, my non stock market life must come first. I am not a professional trader, as you know, and I hope you understand that in this economic environment the first priority is life itself. In fact, I would argue that the meaning of life is.... life!

But, I digress. Let me add some pieces now to the puzzle if you will... the puzzle in the making which in the end hopefully benefits us all.

I have learned that the way the market really works is entirely different, in fact intentionally so, from everything one learns in the media or in economics classes or just about anywhere else. The market is a business in which one group takes from the other... the educated/informed and skilled from the crowd. In order for the true pros to make their huge livings somebody has to pay their bills. Only in times of expanding economic growth or expanding credit can more money flow in from the sky in such a way that everyone can just put money in the market and watch it go up over time.

I believe that those days are over and that, in the same way that one who stares over the ocean's horizon comes to the conclusion that the world is flat so, too, would someone who has been involved in the markets since the 1940s or later think that the stock market has its ups and downs but generally goes up over time. No... the market is in fact a huge pyramid scheme and I have written a whole post on this which at some point deserves to be posted (I know it sounds like Yogi Berra)... but I am feeling a bit playfully enigmatic at the moment.

I can say that the multi-month rally in the early part of the year, mentioned/predicted several times on this blog from no genius of my own but from my increased learning and understanding, at least attempt of understanding, of the smart money in the market, has come to pass. Some of the potential gains since March have been staggering. And it caught most people by surprise... not that it went up, but how quickly and how persistently it has risen. That is by design.

So where do we go next? Well, I am no bearer of a crystal ball or a Philadelphia Experiment time machine but I can say that the market is a bit like science in that if one learns how to read the right tea leaves evidence of the most probable events can be at least hinted at. I like Elliott Wave Theory in this regard but it is only one piece of the puzzle. There are many many other components that are important to watch and try to understand. The more components that point in the same direction the more likely the move. I cannot say that I have hit the 'promised land' or if I ever will in the markets but I am hoping for incremental gains in understanding. Right now, I want to say that I personally believe the market is due for a fairly serious correction, after we get the bounce off of the 880 region on the SP (resistance turned support) that started today. I have no idea where that bounce will end, of course, but I can say that we should see some serious selling once we break the 880 region with conviction.

However, based on the sentiment of the crowd, based on the Elliott Wave patterns and other sentiment indicators, it is unlikely that the rally that started in March will end on the next major sell-off... no in fact there is still too much hesitation among the masses after the brutal sell-0ff since Oct 07. Remember the rally last March through May? In the beginning everybody and their pet iguana was short the market, they got relentlessly squeezed, and then by May some people started talking about the next bull market... right before the market began to tank in the summer and then REALLY tank in the fall?

People were shocked by the fall just as many have been surprised by the sharp upturn after the 800 on the SP was breached on the downside and the market was going to 500 or whatever. No... I read a investment broker guy (name not released)several months ago talk about 680 as the bottom weeks before the market bottomed at... a daily closing price of 676. Coincidence?

I believe that the market has much much further to fall but that we are very likely to, after certain pullbacks and sideways action, eventually see at least 950, more likely 1000 (the Obama Nov 4 rally... this is a very important line so please note this), and perhaps even higher in a rally that still has legs in the intermediate term and may last all year.

Why do I say this? Based on Elliott Wave patterns, historical price moves after the kind of selling we saw, and most importantly perhaps the continued pessimism in the markets among the masses. Ideally, we would see the markets peak and go back into the next leg of the bear market when the media starts talking about the 'new bull market' or the 'resumption of a normal market' or 'time to invest for retirement once again;... that kind of jargon. It will take a lot to shake the sell psychology after the brutal downturn since the market peaks but in all likelihood it will happen. Why do I say that this will not, in fact, be a return to a normal market? Well, we have baby boomers retiring, a country that has borrowed to the hilt and must pay back, and a society that is going to have to live with less money and less money to spend in the economy and in the markets.

People may want to buy stocks but if they don't have the means or the credit to do so, and if the enormous baby boom generation that pushed up the market for so many years starts making their huge withdrawals... you have to wonder how stock markets can 'just go up over time'.

That is not to say that one cannot be successful in the markets. It just won't likely be via buy and hold any time soon in my opinion. It will take a new set of tools... well... the tools that the smart money has always had to be honest, but tools that the ordinary 'beat inflation with your 401ks and let it sit over time' folks will have a hard time doing without.

Enough for now. I gotta go to bed. By the way... I have no affiliation with Stockcharts.com but more and more I begin to appreciate the services that they provide. I recently bought a financial book on their site, instead of on Amazon, to support them and encourage others to do the same, or get a subscription if you think it is worth it to you. This is just one of the many gold mines that they offer every day:



It is clear that to succeed, should one be one of the lucky ones, one has to learn to ignore 90% of what people think is important and examine indicators that really matter. What are these? Well... I am trying to figure that out. One of the indicators you just don't hear your friends talk about (unless they are in the biz) is the Mclellan Summation Index. There is one for the Naz and for the NYSE. It is not full proof but I can tell you one thing... take a look at the RSI moving up from below 30 and the RSI moving from above 70 down... take a look on longer time frames as well...

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Added:

I wanted to fill in some points that may be helpful.
First, on the direction of the markets from here:

Long Term (years)
Longer-term we are still in a bear market and what we are seeing now is almost certainly a counter-trend rally. Credit implosions are serious and, combined with other factors such as retiring baby boomers and government debt, as well as how quickly the stock markets have risen since 1982, there is the potential for considerably more downside in the markets. I mean... some smart people like Bob Prechter and EWI suggest we end in the low 1,000s (I can't be more specific than that)... or lower over several years. Brutal... and they have been wrong before (everyone has except J.C.... not talking about Cramer here ;))... but they have also been very right and are not the only ones to say this. That is the the big picture overview... and it certainly represents the worst case scenario for the market bulls. Regardless of where it ends it cannot be denied that we are in a long-term downtrend right now and that any reversal of this is guilty until proven innocent. However stock markets do not go down in a line and we have seen this since March. Below talks about what is almost certainly a counter-trend rally based on the fundamentals and technicals of the market right now.

Intermediate Term (months to year)
The highest probability outcome is that over the next few weeks/months we should at least see 950 on the SP, probably 1,000 ball bark, and perhaps higher. However it may go down significantly before that. This is based upon several factors. First, Elliott Wave Theory has typically been particularly accurate when it comes to 'impulse waves' such as the one we have been in since the market peaks. Withing such patterns we see a corrective '2nd' wave that retraces the first wave... typically, though not always , it retraces at least 33% or so of that move (according to Elliott Wave International... I believe I read that there but please don't quote me!) which it has not yet done (1576-666)*.33 = approx 300. 666 + 300 = 966. Note also the Fibonacci 38.2% and 50% levels from this move... these are areas I am certainly watching... in conjunction with the Nov 4 level... the smart money, I assure you, has a target on the upside just as they did on the downside. It is a good idea now to at least look for potential areas that these could be.

Of course retracement numbers are not exact but the ballpark of 950 at a minimum seems reasonable. Additionally, the length of the downturn, time wise, suggests a fairly extensive rally in time as well, even if this rally has quite a bit of sideways action in it. Thrildy, and importantly, the sentiment of the crowd, as measured on sentiment trader.com (great site) demonstrates that we are far from the optimism among the crowd that would give the big houses incentive to sell into the next wave down. Remember, positive sentiment means not only more retail players on the long side but also more people putting money back into mutual funds, etc.... so the amount of money involved with a return of sideline cash into stocks should sentiment among the masses really pick up is huge.

Short Term
Here is where the greatest uncertainly of the three lies, however there are some strong signs that the market is getting close to a serious downturn. In addition to the Mclellan Summation Index Chart, shown above, (also check out the one for the SP... they can both be found in the market summary link on stockcharts.com). is moving below RSI 70 at the moment, we also had the 'rabbit ears' RSI bounce at 70 (see chart below)... rabbit ears in stock price and RSI/other oscillators is one of the more reliable indicators from what I have seen... it is a quick double top that fails... essentially. We also had a clear breaking of the trendline in the markets from the beginning of the rally. Additionally the 20 Day MA, which is the middle of the Bollinger Band, was breached, as was the uptrending parabolic SAR, and the MACD turned bearish as well. Further... we have seasonality... sell in May and etc... it certainly happened last year... as did the rally occur in early Spring... just like last year. We also have the Chaikin Money Flow Index going from way above to around the zero line. Finally, sentiment indicators show that more and more come-lately's have been piling back into stocks.

The one thing that has not yet turned bearish is the overall RSI reading, which remains above 50 for the moment...

So... this is either a serious fake... which it could be... or we are on the brink of some serious selling in the near term. I personally am looking for a bit more of a rise off of the bounce from 880 up... and I am a bit concerned about the crowd's still fairly pessimistic view towards stocks right now (though more bullish than have been for a while... bullish enough for selling fo sho). Also, I am a bit concerned about a potential fake-out if/when we break 880 to the downside... we have seen many such events in which the smart money intentionally sells to draw in shorts and then reverses quickly for a squeeze. This happened most clearly when we broke 800 for the first time and then quickly shot up to 950... So... my actions right now have been to liquidate my long positions and initiate some small shorts... though I am certainly wary since we are in an intermediate term up trend at the moment. Beyond that I have to see what plays out... the set ups are there for sure...




A bit more on what I believe I have learned about how the markets work... which may be of benefit to you perhaps...

I believe that the smart money... that is to say the big investment houses and well trained groups that take very little chances with their money and have the best and the brightest working for them. The kinds that have every statistic in the book to see where the market has gone historically and where it is likely to go next. This group also has the money to move the markets in the short term. Even Dow, he of Dow theory, admitted that markets can be manipulated in short to intermediate time frames. And so it is. However, Dow also state that markets cannot manipulated in the longer time frame. Also true... there is a tremendous amount of selling pressure that had to be squeezed out of the market thus far to account for all of the inflation of stock prices due to credit expansion, economic growth that is severely correcting, withdrawals from baby boomers, and many other factors. There is likely more selling that needs to be done in my opinion. The big houses cannot undo the underlying fundamentals for the long time frame. What they do want to do is time the market so that they have someone to sell to, someone to buy from when markets get oversold, etc.... they spend a lot of money, (I can't prove this but I find it highly likely) on statisticians, economists, mathematicians, etc. to determined what the sentiment of the crowd is and when, based on historical data and current feeling, is the best time to buy/sell.

This is not a game... it is a carefully orchestrated science with billions of dollars at stake and hence billions of dollars involved in protecting that business. They probably look for probability of highest and most opportune times to make moves just like we should be doing. The difference is that their moves can Make the Market, at least for the short to intermediate term. (We can't do that... hmmm I guess if you are going to go surfing you have to understand that you ride the wave... it doesn't ride you... well sometimes it does and BELIEVE ME that is not a good thing). Put another way... it is imperative to try to understand what these big guys are doing and make sure we are on the right team. This is easier said than done... but in every trade someone is right and someone is wrong... just something to think about...

Finally, I want to mention that the bullish percent indicators and other material on sectors an more in the market summary page of Stockcharts.com offers a lot of insight that can be very useful. I am still learning about this and am by no means an expert but there is a lot of potential here as well. Ultimately, it is the demand and supply of stocks that always matters... all other factors, such as fundamentals, news, FOMC meetings, etc... are contributors to this but the bottom line is always price.


Enjoy the rest of the weekend...











"The Yellow Rose Street Beat" is for informational purposes only. It does not give investment advice.

Many thoughts to share

I was gone until recently on a work related trip and have been quite busy.

Right now I just want to mention that in all likelihood, based on Elliott wave patterns, and technicals, and history, the next bear market rally has begun. That information is derived from the insights of the professionals at Elliott Wave International. I cannot give more detail as, mentioned before, this is a paid service. That being said we are short term oversold in a bear market. Either the pullback we saw at the end of the week was a healthy retrench and we go higher or, more likely, we get a major sell-off but do not hit new lows... and the major sell-off, when it comes to an end, will provide the largest buying opportunity we have seen since 07. If the markets rally above last weeks highs I personally may look to buy QLD conservatively with tight stops. Preferably, we go down hard and then I may examine the opportunity to start phasing in more aggressively on the long side, depending on conditions. I do not have time to add detail but at the very least right now it should be said that the bear market is due for a significant bear market rally, one that lasts for quite a while, and that ideally this would begin after a significant pullback from the recent rally from market lows.

The market tips its hand often as to where it will go next and the recent rally is the first major, consecutive day rally, in a long time... this bullishness should be considered as a potential sign of things to come... even if, and perhaps especially, the market sells off heavily from here.

With the charts below I would like to demonstrate the significance of technicals in demonstrating potential price movement and the potential for big gains. There are still people who don't believe in technical analysis... I don't know what cave they live in but I operate on the basis of scientific evidence... note that technical analysis is just one indicator to use... but a powerful one at that...


Trading is about probability... that is to say putting probability in your favor. The more indicators that favor a given move the more probable it is to occur. Let's look at Feb 9. According to Elliott Wave Theory the most probable move around February was a move to lower lows. One probability in our favor. Elliott wave does not predict exact time probabilities for moves with the kind of accuracy that it does actual price movements... that is to say that although it can give hints as to when a price movement may occur it is more accurate at indicating that the price movement itself is going to occur... which is big in itself and provides a framework... this allows for us to look for behavior consistent with this by using other indicators. On Feb 9 we had:

1. a candlestick doji after a big move (doji's that make price extreme's are reliable reversal patterns)
2. a price that was at/above the upper Bollinger Band (also reliable as prices tend to move towards their mean and hitting the Bollinger Band indicates that prices have gone two standard deviations from the 20 day moving average),
3. An overbought slow stochastic that was ripe for a turn back down
4. An overbought CCI which was also ripe for a turn back down... also the combination of an overbought CCI and a price extreme is a highly reliable indicator of a potential reversal pattern

Combining this with Elliott Wave Theory, or using it by itself if you are not a fan of Elliott Wave, either way this showed a powerful combination for a downside reversal of magnitude... especially in a primary bear market. Notice that in early January we had a very similar pattern... and also a big price move down... though we first had a gap up (which formed a beatiful island reversal pattern). In this case the Elliott wave pattern did not yet call for new lows as the highest probable event and we did not get them, instead bouncing off the lower Bollinger Band and moving back up... actually a nice trade on the long side if tight stops were used.

On March 10 we had the opposite synergy of technical indicators and had reached the new lows in the markets as predicted by Elliott Wave Theory. The result was a powerful move up to current levels in the markets.

In both cases, by looking at the combination of technical indicators, using predefined stop loss limits, and then using trailing stops when the price action went in the favorable direction, would all have provided the opportunity for nice gains with calculated risk.

That is the name of the game. Additionally, the follow through of such moves helped confirm big picture concepts of where the market might go next. I am a big picture person and for me, at least, I really like to see the forest from the trees and these kind of tools really help.


The SP shows very similar patterns. As has been the case throughout the market the Nasdaq has been the stongest market, followed by the SP, and then the Dow. As a kid I went to high school wrote in the school newspaper during my high school days: "I'll take my coffe de-Kafka"... I say I'll take my market "de-'mark to market'." Investors agree and hence the differences in the relative strengths of the indices.

Right now I want to point out that we again appear to have a similar synergy of technical indicators on both charts... again towards the downside. This could create a nice shorting opportunity as long as tight stops are used. Please note, though, that on a big picture basis, the recent rally is likely to be the beginning of a bigger move up... again as indicated by Elliott Waves... not 'the bottom' but the potential (based on probability) beginning of a bear market rally. There are many people who have become convinced now that to make money in this market going short is always the way to go... that is DANGEROUS after the kind of selling we have had and therefore, while I may short the market if it turns down and use tight stops... I am much LESS BEARISH than I have been in a long time for the intermediate term and mostly want to look to go long when the markets pull back and start to turn... nobody said this was easy... but it is what it is and if you know this you and I probably know more than most retail investors and have begun the move from 'dumb money' to 'smart money'?

On a closing note I recommend that you check out alphatrends.net (I have no affiliation). Brian is doing a market analysis for free tomorrow if you sign up on time. Also, check out 'The Technical Take"... the author has some very nice discussions about sentiment and 'smart' money and other meaninful topics... finally at a later point I would like, if possible, to revisit SIRI, HGSI, and some other individual stocks that were mentioned.


"The Yellow Rose Street Beat" is for informational purposes only. It does not give investment advice.

Weekend Update

Update
This site is a written account of my personal journey in learning the markets. If you gain from it all the better. I did want to say that, upon re-reading this post, it occured to me that it may have been construed as a bit offensive regarding terms such as 'novice' and 'good traders'.... I must have been a bit stressed out when I wrote that and apologize to anyone who was offended... many of the readers of this site have many years of experience in the markets... much more than I do as my background comes from chemistry, not from economics or the markets, though sometimes such a fresh perspective can be helpful. At any rate, have a great week.
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I wanted to clarify the market notes a bit for your benefit and also I cleaned up the last post as I did not have time to proofread it. Take a look again if interested. The important part is this:

As mentioned on the 'bull case' post when the markets were in a trading range we were either going to break 950 on the upside, with 880 a good stop point for bears, or break 800 on the downside and THEN reach new lows on all the major indices. This was according to the market patterns of Elliott Wave as described by Elliott Wave International. The more probable scenario unfolded and we have now seen new lows on the Dow and SP but not yet on the Naz. We are most likely to see the Naz too reach new lows. However, that being said, a major rally in the not too distant future is the highest probability event according to this theory. I cannot expound further as they offer a paid service for this information. What I do want to point to is the Vix, which everyone should check now and again, and daily sentiment indicators, which also requires a paid service but indicates a very low bull/bear ratio right now... and is a contraindicator. The Vix has bounced off of support at 40 and continues to rise. It is a good idea to watch this for a topping pattern and a move back down. This is a possible indicator for a market bottom... not the bottom... but a potential start to the next bear market rally.

Technical indicators such as a flattening of the five and ten day moving averages, a move above the 20 day moving average, as well as oscillators such as RSI, can also gleam very strong light into what may transpire. In this market I have learned that the toolbox needs to effective and efficient... the smart money knows what is going on and if we don't attempt to pay attention to broad indicators we don't have a chance.

I highly recommend that everyone check out alphatrends.net. This is a free blog with videos every day on the market action and is very insightful. The blog is at the bottom of 'blog sites'. I try to combine this with technical indicators and other tools mentioned... there are many more though I am not going to get into that at this time.

Right now I want to say the following concise points:
I am looking heavily to buy strong stocks on market selloffs. I covered my hedge on MOS on the its last major sell off last week and went net long MOS on the day of this post and would have covered the POT hedge as well but didn't want to be too aggressive. I am looking to cover it on the next sell off in this name, should it occur. Because there is still the potential for a big move down in the overall market my plan is to hedge the purchase of strong stocks with a little short exposure to the overall market... Strong stocks in this environment should outperform the overall market... especially after sell offs, going long these stocks and short the market is a hedge that takes advantage of this.

Support lines... it is almost never a bad idea to buy at or near support in a market that is this oversold and sell at resistance... if it goes against you the loss is minimal and the upside is large. When the market was complacent on the long side and the Vix was low buying didn't make much sense except for very short trades... however we are now approaching a fearful market that is much cheaper than it was last summer and ironically has more shorts now than it did when the prices were higher and people should have gone short (remember this post from May... Did you forget about the shorts?). Now perhaps we are getting close to... Did you forget about the longs? ;)? )... Good traders know that it is wise to go counter to popular sentiment... however not to be too aggressive until the momentum starts to shift because the last pop down or up can be a doozy...

Where will this support be? Since we are at lows on the SP and Dow it makes a lot of sense to check out the historical charts on Stockcharts.com for potential areas of support. We should all be aware of this right now. Good traders know their long-term support while novices often don't... again an edge that we need to have or to learn.

I also recommend that you at least become familiar with:
RSI
Bollinger Bands
Parabolic SAR
Stochastics (I like slow stochastics best myself)

There are many other great tools out there and like these are free at stockcharts.com.



Right now this is VERY important... please read... just as a test to share ideas and to take advantage of the online trading community that we are a part of I recently started a subsidiary site called 'Yellow Rose Ninja Trades'. The link can be found just above the Yahoo! search box on the right. The goal is to share ideas on possible trades and set-ups... Now is the time, as I mentioned a few posts ago, to really come up with good buys for when the market potentially takes off to the upside... and this is an opportunity for us all to share such ideas now.......

I will post there for myself for ideas to check out and would love for you ladies and guys (mostly guys... I know... I'm not trying to kid anybody here ;)) to post names or ideas that you really like for everyone to read. Unlike the 'Rose' it is unlikely for there to be much written explanation and in depth analysis... this is really just about quick ideas... it is still experimental at this time and I am not sure where it will go but lets check it out and see. Please take a look after reading this post.

On another note I will be very busy again and probably will not be able to post much on here for the next couple of weeks. I may but only if something is really worth noting. I will check 'Ninja Trades' a bit more for quick ideas... again I am interested to see where that goes... but I will be out of town next weekend and have a lot of preparation to do for that this week so that constrains my schedule... just a heads up and have a great week...



"The Yellow Rose Street Beat" is for informational purposes only. It does not give investment advice.

Biotech Corner HGSI CMED MYGN ALXN... plus market notes...

First a note on the markets: I want to be clear that the markets need to stabilize first but that once we rise up in the markets, we could easily get the opposite market reaction that we have now... that is to say that fear of losing on the long side could quickly turn to short-covering fear and fear of 'missing the rally'. While bull markets are often accompanied with greed and complacency bear markets are driven by fear BOTH when the market declines and when it goes up. Right now bulls are certainly scared and bears, while always worrying about a short-squeeze, may be getting complacent.

I used to try to fit the stock market into some kind of a scientific context based on fundamentals but I have learned in this market especially that you cannot underestimate sentiment. It is HUGE.

A stock may be cheap at 100 one day and expensive at 100 shortly thereafter. How does this work? The reason for this is that, as mentioned before, stocks value is comprised of two factors: intrinsic value and extrinsic value. Intrinsic value comprises of the dividend and recoverable book value. For most stocks this is close to zero. Extrinsic value is the value people are willing to pay because they think the stock will go up. This portion makes up the majority of stock price and is largely determined by sentiment. It is also determined by availability of money or in this case credit. I would really like to go into a very concise analogy of this on another post.

The point here is that once sentiment gets low enough and investors/traders keep taking long positions and getting stopped out people begin to believe that stocks won't appreciate. The extrinsic value drops... as does stock price...... until at one point the price drops so low that the extrinsic value, at least in the short-term, has nowhere to go but up. At that point any good news and reverse in sentiment drives up stocks because the extrinsic value has nowhere to go but up.

The way people feel right now I believe that we are nearing this situation. It is time to be on the lookout, in my opinion, for a turning point, for the market to rally on no news or poor news and sustain this for a bit, and to be ready to go with quality names and ideas for when a rally occurs. This is not to advocate buying early... but mostly staying neutral with ideas and cash ammo ready to go for when sentiment turns...

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Now for the original post..... HGSI CMED MYGN ALXN
HGSI
Just Reported earnings that beat expectations guided higher.
Upgraded by analysts
Yet the stock sold off with the medical names... overall market sentiment the key here

More on HGSI
Positives:
Gov contract for Abthrax
Exciting pipeline with phase III trials due this year for several of them
Partnerships with major Pharma
Reduction of Debt and increase in revenue
Low market cap for revenue potential

Negatives: Still has debt... normal for biotechs but an issue in this credit negative earnings but narrowing losses
High institutional ownership
Low inside ownership

Drugs:
Abthrax is better than a vaccine, which must be taken before exposure and requires booster shots or it will not protect. Better than antibiotics because antibiotics destroy the bacteria but once the toxin is in the blood it does no good. This is the first and only drug on the market that can defeat anthrax after the toxin is already in the body. Anthrax is lethal and a terrorist threat via inhalation. This drug uses antibodies (a type of protein) to block anthrax toxin's ability to destroy cells... hence saving lives... vaccines will also be used to prevent anthrax infection but only this drug can provide protection after exposure. Government contracts already signed.... helps with cash flow


Albuferon------- Hep C drug Albumin (protein) plus interferon (antiviral agent) combined . Goal is to attack chronic disease... HUGE global market for this. However, there is already a drug on the market that works differently and this may work better but the disadvantage is that interferon makes people feel terrible... is the drug more effective than current treatment and will it be adopted if it is? These are big questions but if the clinical trials prove very positive the drug could have a revenue base in the 750 to 800 million region according to analysts. Anticipation for the trials could be a catalyst in the proper market. Clinical phase III trial results due in March

Lymphostat B--------- Lupus drug Lupus is an autoimmune disorder. There is no viable treatment at the moment and the drug HGSI is presenting 'stops' -'stat' B lymphocytes (B cells). These produce antibodies (immune response). This drug specifically reduces the activity of B cells that create antibodies that attack the body (autoantibodies)... hence potentially reducing autoimmunity. Clinical Phase III trials are due in May and July (2 trials). Collaboration with Glaxosmithkline in place for distribution/marketing. 5 million people worldwide and 1.5 million in US could benefit if drug is safe/works Lymphostat B also being researched for other autoimmune disorders including Rheumatoid Arthritis Multiple Schlerosis
These trials are not as far along but have gone through phase 2... huge market

HGSETR1----------------------------- Apoptosis inducing anticancer drug HGSETR2----------------------------- Apoptosis inducing anticancer drug
Very exciting science... first one is in phase II clinical trials and second one in phase I ... uses the TRAIL antibody receptor pathway... Enormous potential... if work

Royalty payments from Glaxosmithkline Two drugs in Phase 3 clinical trials... if effective, royalty paid to HGSI

Darapladib---------------- Lipoprotein Associated Phospholipase 2 inhib... heart dz

Syncria------------------ Diabetes drug to control blood sugar and appetite. If effective reduces number of injections needed but would have to be substituted for current leader in the field (Byetta? )... not certain if this will happen but again clinical 3 trial data can always shake things up with stocks.

They have more drugs also under Glaxo but these are not at late stage clinical trials

Summary: We have a company with a market cap of 250 million with late stage clinical trial products that could yield revenue in the billions, or at least a billion, in the coming years if trials go well. The Abthrax provides guaranteed government spending. The company still has significant debt, though the numbers on yahoo are outdated, and is not generating positive cash flow at this time. Additionally, it is unclear whether the drugs in clinical trial will be effective and in some cases even if they are effective if they will supplant competitor's products. Still, with the kind of potential catalysts in place and the better balance sheet it has to be thought that the sell off to these levels was at least partly due to fear of insolvency (much less of a threat now than 6 months ago) and the overall market conditions. At these prices, an upturn in the market and/or any kind of positive news from the drugs could send these shares soaring.

Of course, any further talk of debt burden or major failure in clinical trials could hit this name... which is why it would be wise to book profits and use stop losses should you be in this stock and this name rise. Exciting co... and quite liquid... remember that this company has been around for a while by biotech standards and traded as high as 7 earlier this year and over 100 during the tech boom... biotech companies are probably the only ones that can have their stocks fall from 100 to 2 and still have tremendous prospects... please do your own DD if you are interested. I also want to disclose that I have a very small position long at this time and look to add more potentially

Additional Articles of Value
HGSI sees revenue surge and reduces cash burn
How Abthrax works video
Minyanv on the convertible bonds and the company
Syncria milestone pmnt
Novartis Hep C drug (designed by HGS) clears phase II clinical trials

CMED
I have been following this company for a long time. They sold HIFU and are now a pure diagnostics company. This is a very well run company with major ties to the best universities in China. They have always beat or matched earnings in the past and have had ridiculously good margins. The PEG is also unbelievable. Still the stock keeps getting sold off. Part of this is that many Chinese stocks have been sold. Another part may be that unlike medical care in the US many people pay out of pocket for care in China. Although the government is in the process of implementing broader health coverage it remains to be seen if the downturn in China will affect earnings of this company.

Long term this company, aong with Potash, Petrobras, Mastercard, and others remain among my favorites for secular growth. However, stocks are not companies and I do not advocate any long-term holds in this market... however... there may be some great short-term plays as long as earnings hold up and the market sentiment turns up... with CMED there may be a gem here but it may be a good idea to see how earnings look first.
Earnings are this Monday at 8am Eastern

MYGN
This Salt Lake City biotech company is acting like there is no recession. It keeps blowing away its earnings estimates and its stock has doubled over the past year. Like CMED it is a diagnostics company. It has some very important diagnostic tests and also has drugs in late stage clinical trials. The chart is starting to turn down from RSI 70 and may fill a gap... so it may be a good idea to wait for a better technical set up to go long here... actually from a purely technical standpoint it looks like a good short... though it is always risky and the best method may be to buy after pull back

ALXN
Nice revenue growth... worth a look... has only one major drug, Soliris, but that drug is the only one that is patented for PNH (as far as could be determined). I am not overly familiar with this company but I know a little bit about it. Good for future research.



"The Yellow Rose Street Beat" is for informational purposes only. It does not give investment advice.

Time to make a shopping list

The time for the market to rise significantly is near. We still probably have some more downside to go but we have seen significant price depreciation and markets do not go down in a straight line. It is high time to be ready with a shopping list of great stock buys. When the market makes its next move up I am currently watching in no particular order...

• ETFs

Double long ETFs or shorting double short ETFs. QLD, SSO, UWM, etc. These are for trades only (even if those trades last a while). For more on this check out the post on the ETFs as double edged samurai's to insure you understand some of the risks. Note that long ETFs do not have the 'price asymmetry' that I discuss on that post that occurs with inverse ones but the double ETFs still have the rebalancing issue so this is something to be aware of. That makes them great trading vehicles but some profits should be taken if they run too much.

• Commodities

Commodities and commodity stocks typically go up this time of year... there has been recent signs of fertilizers, coal (ANR), and some others doing well. Also we could look at sector ETFs like DIG and UYM and XLB

• Short Squeezes

Some sectors, like financials and real estate, may be good for some high risk, high reward squeezes. A short of SKF, for example, could yield nice results if there is strong risk management
Also... the dry bulks, they do have big problems but some of them like DSX are better than others and even the ones in the mire like DRYS may get a nice squeeze at these prices

• Strong Stocks with good earnings that have been held back by the market

This may be my favorite category. Stocks that have gapped up on a good earnings or have moved nicely when the market didn't sell off, have strong balance sheets, and generally look good but have sold off due to the market are likely to be some of the strongest performers in an extended rally in the markets.

• Cheap stocks with strong balance sheets.

Buy low and sell high. Hey this does work when everything's been sold off... as long as the company isn't in danger of bankruptcy or nationalization. I like to screen stocks in the $1 to $15 range with good fundamentals and a reason to move. We will get some doublings and even triplings in some names in a strong bear market rally. This is OPPORTUNITY with a capital O.

• Lottery picks

I generally stay away from these but every once in a while you get a penny stock that will either go bankrupt or double/triple and is worth a look. With the recent offer from Liberty SIRI is definitely worth a look for amounts that you can afford to lose... at .14 this may be appealing...

If you have anything you may like in these categories or other please post.
More on this another time perhaps. There are many smart and free-thinking individuals that read this blog and this a time where we can leverage that for everyone... Getting in early is a key to success... as I mentioned recently.......


"The Yellow Rose Street Beat" is for informational purposes only. It does not give investment advice.

Palpable Fear

... it was thick and heavy, permeating, and deep... omnipresent... like the unrelenting discomfort that fills the air on a humid New York summer's night.

This was not the selling of weak company stocks and the buying of good company stocks like we saw the last few months... this was indiscriminate selling... reminiscent of the fear among hedge funds and big boys that I have only seen a few times prior this bear market...

This is what I was looking for. We are not there yet but this is the kind of action it will take in my opinion. When it looks like October all over again, when it looks like the stock market will never go up again... that's when the smart money that runs the market shall swoop down on their prey like lions tearing into the flesh of the weakest prey on the plains of the Serengeti. That's when we go up again... that's when the next pyramid scheme on the long side shall rise up... until it too washes into the sea...

We did not push back up to over 800... though it is always important to be prepared for the lower probability unexpected events and have a plan in place. We moved the way we 'should' have and if this path continues the flushing of the last optimists could be steep and fast...

"The Yellow Rose Street Beat" is for informational purposes only. It does not give investment advice.

Stocks and Notes

I don't have much time to post this weekend but I wanted to add a few very quick notes. First, the buyers would love to break 800 on the SP to produce an enormous squeeze. If that happens, which I deem unlikely but possible, the resulting move could be a great shorting opportunity and should not be immediately looked at as evidence that the market has bottomed. This market can go a long ways up before it would be considered anywhere near overbought.

Second.... I again want to emphasize some biotech names I really like on an upward move in the markets. HGSI has debt but also has many catalysts. I really like this name and maintain that I would like to do a post on this. MYGN is a very strong stock... though I have not looked at it very recently. CMED represents a stellar company and is on the 'sell China' discount rack. It showed relative strenth earlier on the bounce from below 15 up. A move up in the FXI may be very good to CMED. APWR is not a biotech name but I also like this at current valuations if the market and FXI start to rebound... and I would also throw SOHU into this mix.

"The Yellow Rose Street Beat" is for informational purposes only. It does not give investment advice.

Citibank and Bank of America shares downgraded to ‘Yo Mama’ status

News Brief
Rudders News
New York, New York
2/20

UBS analysts downgraded Citibank and Bank of America shares on Friday from ‘hell no’ to ‘yo mama’, citing nationalization concerns. “Normally we try to be as opaque as possible”, the analyst said, “using terminology like ‘hold’, which means ‘sell’, ‘underweight’, ‘market underperform’, and other completely inconsistent and indefinable terminology. Since, fortunately, there is no third party impartiality requirement, we often provide recommendations for a given stock only after our bank or a related source has heavily accumulated or sold shares. In this case, we decided that no one would take our ‘strong buy’ recommendation seriously, and that ‘Yo mama’ was the only recommendation we could feel good about. In the future we may use various permutations such as ‘Yo mama so fat’, and ‘Yo mama so ugly’.

Sounding a slightly more positive tone, Citibank and Bank of America analysts maintained a ‘sector perform’ rating on the stocks, adding that the whole sector is worth about as much as Mozilo's and Lewis' reputation. "Ain't worth sh*t".

"The Yellow Rose Street Beat" is for informational purposes only. It does not give investment advice.

Brief Thoughts on Market Action and More

Edit-
"However, I did cover a good amount of my shorts around 800 to reduce risk."
This is a generalization... to be more specific and to demonstrate integrity, the shorts were covered between the the 815 and 825 region at the end of the prior week... I apologize for any confusion on this and should have been more specific.
----------------------------

A. The market overall
As we all know the market exited the trading range on the SP from 800 to 950 and did so in the manner most probable- by following the longer-term trend and moving towards potentially lower lows (already experienced on the Dow). Previously I mentioned the bear case but I also wanted to point out that the bull case could not be entirely discounted short-term and that, from my perspective at least, an defined exit strategy needed to be in place in case the bear bias was refuted. The 880 region on the SP held its ground, as did the corresponding levels on the SSO and QLD that I had mentioned as stop points. As a result my positions were never stopped out. Clearly, short exposure from those levels was beneficial. However, I did cover a good amount of my shorts around 800 to reduce risk. This conservative approach was the right one even though it translated into smaller gains than would have been achieved otherwise. I bring this up because it is relevant to what is important: where we may be likely to go next.

The break of major support levels on the indexes is consistent with the assertion that we have not yet seen the completion of Elliott Wave 5 down and that we are likely to see new lows in all of the indexes in the next few weeks or much sooner. Also, the support areas have become resistance and have been tested several times and failed. This also supports the bear. However, while it is most probable that we at least test lows, and probably break them, the sideways action we have seen recently after the major selling in the fall means that it is time to be much more bullish now than last May or October. That is to say, that while we may still go down considerably from here and I still hold short-exposure, it is time to more careful than on the bearish side than it was when the market seemed like it was just undergoing a minor correction or when it was in complete free-fall. My philosophy has been to short the market primarily when it has tested support turned resistance at the former support levels. This is the highest probability area for downward movement and allows for the smallest losses if the market is able to prove to us that it can overcome selling pressure. It is also important to be cognizant of the fact that the markets are short-term oversold and that at some point soon a squeeze is likely. That being said, once this market becomes less oversold short-term the bottom could really fall out in a 'flush out the remaining optimists' kind of way. In such a backdrop I personally do not yet feel comfortable gaining any significant long exposure.. though I may consider some small nibbling action on certain strong names.

This is just my take right now... we of course have to see how it plays out. As always please note that 'the Rose' provides one point of view only and that, while it tries to be informative, it must be always be integrated with multiple perspectives into your overall understanding of things.

B. Nationalize
I also wanted to mention that unlike the selling in the fall the action in the last few months has seen significant disparities between the fundamentally strong names and the weak ones. Financials, real estate, and regional banks in particular, have been hit while companies with strong balance sheets, like POT and MOS, and good earnings, have outperformed the market and in some cases shown considerable gains. One reason for the weakness in banks and other poor fundamental stories is the fear that the government will eventually nationalize banks to stabilize the system. A few posts ago it was mentioned that the 'bad bank' idea was probably a first step towards later doing what is more likely to work- nationalize. This may help the system but it wipes out shareholders and bondholders. Markets can be highly irrational and terrible fundamental stories can do quite well for long periods of time... that is until the word 'bankruptcy' or 'nationalize' comes into play. Traders have no control over the bottom falling out and in such cases must sell early if they perceive they could lose their entire investment.

This is where fundamentals do matter.... and likely always will.

Currently, while I remain short right now and have no net long positions, I am looking to go shopping for strong names for when the time is right. I still like POT, and to a lesser extent MOS, and also potentially MON, as well as CMED, MYGN and many others, especially tech names, that have proven with earnings and charts that they are as well positioned as any to weather this economy. Even if/when we do see a rally I continue to contend, as I did on the Christmas post, that it likely will be yet another bear market rally, even if lasts quite a long time in duration.

"The Yellow Rose Street Beat" is for informational purposes only. It does not give investment advice.

Witness!!!!!

My Brothers and Sisters, I have seen the invisible hand!!! ...
and it's middle finger...

Yes indeed, it manifests itself in the form of a long green candlestick on the charts right around the 800 to 815 region on the SP. Is it Uncle Sam buying stocks, timely news releases, or just pure magic? You decide!

But if you were short the market hoping to come home from work having locked in gains on Thursday then you have witnessed the vanishing act for yourself. Since it is Saturday we might as well have some fun with it.

If you haven't heard of David Blaine he is either a very talented magician, a fraudster, or, as most believe, the devil incarnate. Whether you have never seen his acts or have been following him for years the videos below offer some pretty good entertainment. The first four are of David Blaine himself and the last one is an intelligently crafted spoof. Enjoy!

Dallas Cowboys




Brandy



Hand Through Glass




Chicken Head Trick





David Blaine Parody...





"The Yellow Rose Street Beat" is for informational purposes only. It does not give investment advice.

The significance of 800 as support and the bull case

A guaranteed way to lose in the stock market is to hold onto a bear or bull bias without always having an exit strategy in mind. On previous posts I have mentioned the number of potential ceilings that could serve as resistance in the SP. We are in a strong downtrend on the longer time frame, and a descending triangle in the short-term (last few weeks/months). We also have not completed the fifth wave down that is characteristic of Elliott Wave structure to end the downturn from all-time market highs. This implies that, based on historical data, we would see lower lows before we get a significant, multi-month, rally in the stock market. However, one cannot deny that the huge rally at the end of the week, in the face of horrendous data, strengthens the bull case for the near-term. It is also important to illustrate that we are just above a very significant long-term area of support at 800. Support is always innocent until proven guilty just like resistance is always innocent until proven guilty. Right now we are between 950 major upper resistance and then the enormous support at 800. Take a look at this long-term chart on the SP from Stockcharts.com.

Lot of people who bought around 800 after the dot com bust had very positive results. History of that magnitude cannot be ignored. Many sellers probably had an initial target of about 800 for shorts and buyers perhaps waited until we got to this region to buy. Also, it was a support after a pullback on the way up in 1997. The smart money that runs the market always wants to be a step ahead and perhaps the terrible unemployment data and fact that others are waiting for a rally allowed enough negativity for people to pause and give them an opportunity to get things started before others got in. Getting in early is a key to success... just like staying too long is a key to failure. That is for another time. Right now I just want to emphasize that there is a strong tug of war between the bear and the bull and there has been since we approached 800 on the SP in October. In the longer term the charts and fundamentals highly suggest that the bear will win. But in the near-term this is definitely a question mark. The strategy I am employing?

Nine hundred and fifty is a long way up and the 878 area proved to be very strong near-term resistance, is the 100% retracement of the recent downward move in the index , and about the 50% retracement from the move from 800 to 950. Also, as I mentioned, Elliott Wave Theory provides a probability science which gives direction as to when one is more likely to be right or wrong and hence continue the strategy or stop out. While 950 would be the maximum point of stop-loss under the guidelines form Elliott Wave International's wave count, a break of the 878 region would weaken the bear case substantially in the very near term... and provides a good place to stop out. Thus, I will cover my shorts this week if we strongly break to the 880-885 region with volume this week. This would represent a loss of less than 15% on the shorting of double longs for me (since I shorted more as we went higher and less, or not at all, as we got closer to 800). As a rule, I do not allow myself to lose more than 15% on any one position... so this all falls into line. At that time I will look for another opportunity to go short since the market is already overbought short-term.

Should we pull back and rally I would be more neutral and may look to go long with very tight stops... and be ready to stay neutral or go short or go long depending on the market action. In sideways moving markets like this one it can be very difficult to accurately determine market direction, and it makes a lot of sense to be neutral or tread lightly on either side here. In a different market I would worry much less about the overall market and probably would have held the strong stocks I like (like POT and HGSI as mentioned on the last post) but in this market the market direction so strongly affects almost all names that I feel compelled to work within the confines of what the overall market is doing. This week we should find out if the rally is for real or just another head fake. It really could go either way... which is why risk management, defined stops and price targets, and objectivity are so important. As an important reminder, and I certainly needed to be reminded of this also, it is always worth it to check out long-term charts now and again. Many of the online broker charts do not provide data needed for a long-term perspective.


Added
Additional Charts of Note.
SSO stop loss is 25 for me
QLD stop loss is 30.55 for me

• MOS is overextended near-term, as is EWZ, and many others.

• A pullback is expected soon based on Bollinger Bands Stochastics, and RSI.

• This pullback may lead to a sustained rally or a move back down...

"The Yellow Rose Street Beat" is for informational purposes only. It does not give investment advice.

Yet another picture to pay attention to

Ceilings Abound?


(Click to Enlarge)

840
845-846 region 50% retrace
853-854 region 61.8% retrace
856 region 20 Day SMA
878 region 100% retrace


Here we have a chart of the SP with Fibonacci retraces overlay of the move down from the recent high (above 878) and the recent low (around 812.) Most important are the 50% retracement, which we fell just short of on Tuesday, and the 61.8% retracement. The 61.8% retrace is of particular value as it also converges near the 20 day Moving Averagee.

On another totally different note I was planning a whole post on a biotech company I came across about a week ago... HGSI... one that has can neutralize Anthrax Toxin, not just provide a vaccine. HGSI also has other drugs of note. This company has guaranteed revenue from military spending... I have been in and out of this name but figured it would take a flush down in the market before I wanted to pick it up. Yesterday the company was broadcast on CNBC and the stock shot up over 30%... which frustrated me for sure... but it fell back today and I would not be surprised if it continues to pare some gains if the overall market breaks below heavy support at SP 800. Soon, I believe, most likely after one more flush down in the market to test the 750 lows and perhaps a bit lower, we may be set up for a very nice rally in the markets as we have been selling for too long now without a major bear rally. Perhaps it has already started.


However, as I mentioned on the last post, I am attempting to be nimbly short and use rallies as shorting opportunities. We either face a break of 950 on the upside, which would signify that a major rally is already in place and I would have to cover all my shorts, or we break below 800 and stay there for a while to hit or break new lows.From my research this seems the more likely of the two. Regardless, it is clear that the market is much more wishy-washy than it was in early fall and the charts are certainly making a case for bullishness on the horizon. It may a good time to make a buy list of strong stocks for when the time is ripe. HGSI is certainly on that list for me, as long as it moves back down from where it is now. POT is as well, as are many others potentially.......


"The Yellow Rose Street Beat" is for informational purposes only. It does not give investment advice.

A picture is worth more than 1,000

Oh yes it is. Stockcharts only allows for 3 horizontal lines on the non-paid service so perhaps I would put one at 840 and also at 820... perhaps 915 or so at the top... but these three on here are by far the most important.

I had a very nice short over the last few days on ESI (Trader Mark brought this to my attention) and EBS on Wed... but I have to say I have been fuming all day today because my SSO and QLD stops were taken out on the "Full of Mendacious Crap" meeting that is the only thing that could have risen high enough to take out my stops... then on Thursday I wasn't around to reset the shorts.... It's one thing to be wrong and take a hit and its another to have the Fed come in and ineffectively try to save us and just screw the market for everyone thats not a day-trader. Simply put Bad Bank is like Bad Santa which is to say it's cute but it can never work in reality. Most likely this is the first step towards an attempt to nationalize at least some banks... banks that are not so concerned about going under that they can actually lend to credit-worthy people. However, for the Obama administration to come in and in the first few weeks declare the need for Swedish-style national banks would have people across the country screaming 'socialist' or even 'communist'... even though the Swedish approach in the 90s is the most efffective ever on record... its amazing how much more acceptable socialism becomes when captitalism means losing people's jobs, savings, etc... just look at what's happened so far... but I rant...

For now, with the possible exception of some oversold conditions/day trades or on some stocks that are showing some real relative strenght I am only going short the market and IYR and adding more the higher up we go... and I'm raising my stop all the way to the 920 mark on the SP (equivalent on SSO and QLD)... even though I firmly think we see 750 before we see 900... the reason for this is that I do believe Elliott wave theory... though we must all admit it is not an exact science but a probability science.... and the greatest probability is that we go down significantly unless we break 950... and the downside is more likely. The other reasons are, as I mentioned in my posts last May just before the market collapsed back down, that the worst sectors usually lead the rest of the market and financials and banks and real estate have done this again recently. Additionally, whenever we go up we slam back down quickly and, moreover, all this tentative sideways action is not what historically leads to a sustained rally... first there has to be a serious flushing of the lingering optimists... once we have that and everyone is talking about how this market will never recover that is when I will start looking to buy...

In fact I am making a buy list right now but unless we flush down or break 950 with volume and hold it (which I deem much less likely) I do not plan to buy anything except for short-term trades and even then with caution. This is my take on the current market condition. I would like to talk about the Pyramid Scheme that is the market at another time and have started a post on this but it is not yet complete.

So my strategy is clear... short moderately at these levels... a bit less as we go down and a bit more as we go up... with a stop at 920 area at which point I would look to go short again as we approach 950 or slightly below... on the downside we may bounce one more time off of 800 but I think soon we go right through to test the lows around 750... that's where I plan to cover and reload on the short-side. Just my strategy for now. Thoughts? I am amenable to them. Just don't get me started on that BS bounce Wednesday at the FOMC... from now on I am covering all long and short positions in this market the day before the FOMC reports... Sheeesh!









"The Yellow Rose Street Beat" is for informational purposes only. It does not give investment advice.

EBS WATCH and more...

I do like to visit Trader Mark's site... (blog at right under 'blog sites' ) not just because he's good enough, smart enough, and Gosh Darnit people like him (the infamous words of Stuart Smalley... wait Al Franken.... wait the Senator from Minnesota... wait not the Senator from Minnesota... wait... what the heck is going on?... )

Anyway... I posted this on his comment box and thought I'd share it with everyone... and there is much much more that I would like to share time permitting... for now here it is...

TM,
Nice charts. Just like I gave you a hard time for only looking at EMA I now need to remind myself to double check my SMA charts with EMA...

Regarding EBS I really recommend everyone watch this closely because the 20 and 50 are converging... a decision must be made soon: up or down. I admit I have a bearish bias but that has not yet been confirmed by the market. I have also been very careful about head fakes as the smart guys love to move in one direction, let people pile in, and then reverse course. A perfect example of this was the SP 800 to 750 break... the big guys (= wise guys... who like with the Mafia... is the side you always want to be on)... opened up a very nice bear trap and caused a vicious squeeze. This is on a lot of minnows minds I am sure and also the big money is once again playing games... no one wants to be suckered twice... but see that's how the market works... the wise guys are always looking to be a step ahead (note how many people were short in March 08... then were completely flushed out in the bear market rally in the Spring only to be caught long again in May/June...) Eventually we going to go to 750 (this time or the next) in my opinion and the sheep will want to buy and that's when the Wise guys just flush the toilet... of course the market must confirm this but I am looking at what I have seen so far/watchout

Figure out who is who and what is what... sometimes it feels like one of my favorite Floyd Songs... US and Them "Black and blue And who knows which is which and who is who. Up and down. But in the end it's only round and round. "











"The Yellow Rose Street Beat" is for informational purposes only. It does not give investment advice.

How to Quickly and Easily Find A Safe Bank

Out here in California another bank went down. Somewhere in the inland empire (east Orange County). Hundreds of banks will go under and it is not at all clear that the FDIC can cover a systematic meltdown. In fact, the Yale graduate Bob Prechter, among others, specifically believes that at some point the FDIC will not be able to return all money to depositors. Even if he is wrong my viewpoint is not to take any chances. The bank rating site is the best one I could find for getting information on the best and worst banks in your area. Just go to tab that says 'Banks and Thrifts' and then enter in your state.


Here are the ratings for the major banks... you know the bastion of financial strength that is buying troubled businesses like Merill Lynch, Countrywide, Wachovia... In a word: scary... that is until you see all the D/D- and E/E- (yikes) banks on the list...

Major Bank Ratings
JPM: C+
BAC: B-
WFC: C+
C: C-


Here are some of the best in Cali:
First Security, Orange A+

Interins Exch of the Automobile Club: A+

Silicon Valley Bank: A/A+

California Pacific Bank: A

Farmers and Merchants Bank: A


While we wish to learn about the markets this should be done with a healthy amount of backup cash in case this does turn out to be the Great Depression 2... or even worse... I really think the risk of this ocurring is very very real... and it scares the sh*t out of me.

I am an optimist but also a realist. Please be smart and don't forget to guard your flanks with cash.

"In times like this, when it comes to savings, far more important than return on capital is return of capital".
-------------
Edit: BTW here are the worst banks in Cali on the list...

1st Centennial Bank, Redlands, CA E

Alliance Bank, Culver City, CA E-

County Bank, Merced, CA E-

Pacific Coast National Bank, San Clemente, CA E+

Vineyard Bank, Rancho Cucamong, CA E+

Actually the first one on the list is now F as in FDIC controlled.




"The Yellow Rose Street Beat" is for informational purposes only. It does not give investment advice.

D.C. without Dick Cheney

The main mastermind behind the worst presidency in the history of the United States is about to be shown the door today. All I can say is: it feels really good to get rid of this Dick.

Normally I stay away from political commentary on this blog but in this case the damage done to America, including its economy, is of such enormous proportion that to not comment would be uncivilized. Please realize that this issue is not a Republican, Democratic, Green, or Libertarian one... this truly is an American one. The remaining parts of this post contain certain facts that are also interspersed with my personal opinions. I generally consider myself an independent with a somewhat liberal bias. I make a point to vote for the candidate that I think is best, not because of party affiliation. Feel free to agree or disagree... with that here it goes:

Some people have suggested that Dick and his cohorts should be put on trial in the Hague for war crimes. Were he the leader of all but a few select countries in the world he would be up for serious consideration. Regardless of your feeling on this matter it is important to never forget what he and those around him have done to this country for the last eight years. We, as Americans, will be paying for it for a long, long time to come. This presidency, especially instigated by Dick Cheney and his determination to override congress with the never seen before use of "executive privilege", did more than any presidency in history to try to undermine the checks and balances set forth by our Founding Fathers. As things get worse economically more and more anger will be directed to the administration that did not cause the credit crisis but certainly did nothing to try to stop it and, worse, engendered an environment in which white-collar crooks felt that they could operate with impunity. The word here is "exacerbate" to the nth degree.

Although George Bush has made a fair number of independent decisions, I have never considered the outgoing administration to be the Bush Presidency. After the Clinton years the super rich and elite in our country were willing to go to all ends to gain a firmer grasp on American power. Bush, who represents one of the richest families on this planet, ironically holds the type of 'beer buddy' persona that appealed to the voters that this administration needed to have a chance to win. A former statistics professor of mine at UCLA confirmed that the Florida election results in 2000, particularly the large number of votes for Pat Buchanan in the largely Jewish neighborhoods, presented statistical anomalies that almost certainly suggest electoral manipulation. At any rate, Bush became President, but the real devious, calculated, manipulative force behind the Presidency came from the likes of Cheney primarily, as well as from Rumsfeld, Rice, and many others.

I have always sardonically referred to this presidency as the Cheney administration but probably more accurate would be "Cheney and Associates, Inc." Bush will take the majority of the flak for this presidency, and, while he is certainly not innocent, history will reveal that he was the fall guy for the evil deeds of the super elite. While it is clear that Bush feels a certain degree of remorse for the enormous mistakes and suffering that occurred under this administration it is clear that Cheney carried out his plans more or less as intended. In his recent interview on the News Hour with Jim Lehrer he showed no regret and no remorse. Why should he? America is arguably stronger for America Inc. (aka the very elite) than it was when he took office. Mission Accomplished.



"The Evil That Men Do"- MAIDEN






Here is a litany of wrongs that still provides just a taste of what Cheney Inc. has done to America and the world in support of propagating its own aims:

• Bring shame to the American name by openly bringing torture to America in Guantanamo Bay and by conducting even more Draconian forms of torture around the world in foreign, clandestine, bases
• Constantly employ the psychology of fear in their speeches and mannerisms to control and manipulate the American Masses for their own ends
• Use loopholes/false pretenses such as "executive privilege" and the Patriot Act to try to circumvent the democratic principles developed by America's Founding Fathers
• Alienate America from the rest of the world, including some of its strongest allies, by acting unilaterally, arrogantly, and disrespectfully
• Inspire a milieu in which big business crooks Anthony Mozilo at Countrywide, and Kerry Killinger at Washington Mutual, felt that they could plunder the country at will.
• Start an unprovoked war in Iraq that had been planned well before the administration ever took office. In addition, they used 911 and the threat of calling congress 'unpatriotic' to force through a funding bill for the war. They also tried to confuse the American people by blending the lines between the war on Al -Qaeda and the war they started in Iraq... even though Saddam Hussein posed very little threat to the world because he was under constant UN monitoring, had no proven weapons of mass destruction, nor ties to Al Qaeda.
• Disregarded the advice of top military command when they told the administration that the war to secure the peace in Iraq would be much more difficult and expensive than the overthrow of Saddam Hussein
• Showed utter disrespect and distaste for the lives of the great soldiers of our nation by failing to provide them with properly armed humvees and protective equipment. Please not that there are very few soldiers from middle class, let alone elite class, in the war... creating a classic case of those who have the least sacrificing for those who have the most
• Ironically claiming to spread 'freedom' around the world while using the Patriot Act and other means to clamp down on freedom here in the US
• Making America less safe in the battle against Al Qaeda. It is true that there have been no major attacks on US soil since 9/11 and the administration deserves some credit for this. However, by allowing the infrastructure and economy to collapse, while spending billions on military projects (many of which were contracted out to companies such as Haliburton), America becomes riper each and every day for the next major attack. No power in history has been able to sustain itself when its economy collapsed. The economic woes are likely to cause anger and chaos among angry American residents, provide less funding for police and other protective agencies, force America to suck up to countries like China and Saudi Arabia (lest they pull their dollars out of our Treasury and cause a complete economic collapse... without foreign aid the US government is broke and everything falls apart immediately). As David Walker, the former comptroller of the US said, to paraphrase, "the greatest danger to America is not someone hiding in a cave somewhere but in the threat of our own economic collapse." Additionally, the current administration has played right into Al-Qaeda's hands by generating global hate and distrust towards America... the kind that makes it easy to recruit new members around the world.
• Exacerbating tensions in the world's most dangerous place, the middle east, by refusing to hold dialogue with allies and enemies alike to at least attempt to find proper solutions
• Do I really need to continue further? There have been great US Presidents from both parties and also some from independent parties. America has seen the likes of Lincoln, Washington, and FDR. Some feel that Reagan was a great President and while I would not put him in the same category as those above I can say that he genuinely cared for and fought for America and its people. I can see why people like him so much. At the same time America has also had to deal with Presidents such as Harding, Taft, and Hoover. However, I assert unequivocally that history will look back upon "Cheney Inc." as the very very worst. America may never recover. Let's hope the damage of the last 25 years, culminating in the passage of the Gramm-Leachy-Bliley Act in the 1990s and now most destructive regime in American history, can still be undone for the US of A. There is too much hope pinned on Barack Obama... he is a step in the right direction but if I know the American people they may expect too much too quickly... this will not occur overnight.

This song will be offensive to some but I just can't resist. Please don't view this if you are not comfortable... you have been forewarned.

We will now return to our regularly scheduled programming.............

"The Yellow Rose Street Beat" is for informational purposes only. It does not give investment advice.

Inverse ETFs: The Double Edged Samurai Swords

Edit- I was still working on this and published it to view it so a few of the numbers were not correct on the first publish and I moved around some of the links to make it easier to see. Please re-read this if you read it before 12:30 EST (9:30 PST) on the 14th.
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First I want to mention that all ETFs tend to underperform their ideal goal. For example, a single long ETF will often underperform the index it tracks, double long ETFs will tend to perform below 2x the index they track, and so on. The risks that all ETFs face can be found in the Proshares prospectus and include, most notably correlation risk (the risk that the ETF does not perfectly match the index), and counterparty risk, which is the risk that the party Proshares (or other ETF companies) do business with default on their payments. For example, if an ETF uses put options as a proxy for an index and the counterparty cannot pay as originally agreed the index may go down but the ETF loses the money on the puts. Similarly, if the ETF invests cash and interest is not paid as planned the ETF loses this amount. In normal markets such counterparty risk would seem remote but not in this market. In addition to risks, the ETFs companies charge fees. Without going into too much detail (again see the prospectus for more) these fees are taken out of the price of the ETF. To summarize all ETFs face the following notable costs/risks:

• Correlation Risk

• Counterparty Risk

• Fees

There are others too but these are the biggest ones. The key to note with all ETFs is that they are designed to track an index or inverse index on a given day ONLY. When held for more than one day they do a poorer job… and the fees compound as well.

In addition, distributions, and rebalancing, can have affects. It is important to know when an ETF plans to pay out distributions (the result is a lowering of the ETF price on that day I believe). Please read a bit more about this if interested. Now I want to specifically point out why inverse ETFs have additional risks, depending on market conditions.

To understand what is going on let's start with this table of a hypothetical index and the inverse and double inverse ETFs that would track it.

Notice how the hypothetical index goes from 100 to 90 and then back to 100. The net affect is no change. So the inverse ETF should end up even as well right? Wrong. Even without fees and the risks mentioned above the inverse ETF loses even though the index returns to its starting price. This is true of both single and leveraged (2x) ETFs… though it is even more pronounced with leveraged ETFs because the affect is multiplied by rebalancing. Two things here: my understanding of why this is the case and what this means in terms of how to handle these things…

First, the reason for this. It occurs because of the fact that the ETFs reflect the percentage change of the index they track on a one-day basis only. On any given day the an inverse ETF should go up about 10% if the index goes down 10% and the double inverse should go up about 20%. However, when held for more than one day things get more complicated. It comes down to what I call “percentage asymmetry”. If an index goes from 100 to 90 it goes down 10%. So a single inverse ETF would go up 10%. So far so good. However, if the next day that index goes from 90 back to 100 it goes back up 10/90 or 11.1%. Since ETFs are calculated daily, this means that the inverse ETF goes down 11.1%… but it goes down 11.1% from 110… which is a loss of 12.2… not a return to 100 but a move to 97.8 (110-12.2). The point is that 11.1% loss from a higher number (110) loses more than 11.1% gain from a lower number (90) gains. On the flip side… if an index goes from 100 to 110 and then falls back to 100 the hypothetical inverse ETF would go from 100 to 90… then from 90 only back to 98.2 because 110/10 is a loss of 9.09% and a gain of 9.09% from 90 is 98.2 (after rounding).

Second: what this means. Essentially, inverse and double inverse ETFs do well in trending markets but the more volatile the market is the more they underpeform. The more volatility the more “percentage asymmetry” affects you get. Go to this official site and turn to page 20 to see a chart that shows this precisely. It means that inverse ETFs are absolutely NOT buy and hold vehicles except for periods when the market trends sharply down… and should be sold on any large daily or weekly move up. Please note that because the ETFs reflect inverse daily moves a move in the index from 100 to 75 in one day would cause the inverse 2X ETF to go up 50% (2x 25%)… but that a move from 75 back to 100 would then cause the 2x ETF, held more than one day, to go down 2x (25/75) or about 67%… from a higher level (a double ETF starting at 100 would move to 150 and then on the way back 150 x (1-2/3) = 50! You would lose 50% before fees and other risks on the double inverse ETF when the index ended flat! This is an extreme example but you get the point. Think about an ETF that has gone from 100 to 20 in this market… If you held the double inverse ETF from when it was at 100 and did not sell a simple 20 point move in the index from 20 to 30 in one day (or in a short number of days) would have a devastating affect on the inverse ETF and the further down an index has gone the smaller the absolute move needs to be to ravage the inverse ETF. Think about for eg UYG going from 5 to 7 in a few days… that’s a 40% move and can be close to a 80% move (it is if it happened on one day ... a bit less if it happened over several days) down in a double inverse ETF! The overwhelming point: short squeezes wreck these things, and highly volatile periods in the markets also pose financial problems to these things for those long the inverse ETFs.

So how to win here? Essentially here is my short list:

First of all, I much prefer to short the long ETFs generally speaking but there are exceptions that make inverse ETFs good plays for short trades (days to weeks).

Best times to buy short leveraged ETFs:

• Day trades that have significant downward movement
  
• Sharply down trends in the market, preferably after bull runs start to turn down. For example, May/June 08 after the Spring bear rally was a great time to use these. So was September/October 08. Double inverse ETFs compound so the ETF automatically buys more leveraged shares as it goes up... as long as the market continues down in a fairly straight line this compounds gains

Best times to stay away from inverse ETFs:

• Buy and hold in volatile markets. These are not designed for this due to the fact that they are based on daily opposite percentage moves in indexes. Better hedges are shorting long ETFs and/or using put options
• Oversold markets! Short squeezes crush these things
• Highly volatile, sideways trending markets, such as the ascending triangle we have seen

Best times to short inverse ETFs: Note these can be very very profitable but of course there is risk because we are in a bear market so this is also for short-term trades

• After oversold conditions, ie large dowtrends, when the market starts turning back up. SRS was at 240 or so not too long ago... a short squeeze or even sideways action made for a very nice short from that level.
• Upward trending markets
  
• Day Trades
  

Please note that I always like to limit how much I commit, especially to leveraged ETFs. Risk is high and prices can move very quickly.A major rule for me is not to let a winner turn into a loser.
Others may have different takes on this and feel free to comment if you have any similar or alternative perceptions of this. As I mentioned I am not an expert on this... I just see these things as tremendously powerful tools that are worth a deeper look. Definitely a bit of mixed Bizness...

Here are some good article references... particularly the investopedia article.

Seeking Alpha Leveraged ETF Value Traps
Investopedia ETFs


Also when buying an ETF it is nice to know what the intrinsic intraday value is.
Finding Intraday Values on ETFs


Best,
J

Here's another sweet song from from Beck.
Like Mixed Bizness it can't be embedded (copy write reasons perhaps) only the link...




"The Yellow Rose Street Beat" is for informational purposes only. It does not give investment advice.

Biotech Corner: Interesting Article on Seeking Alpha

Biotech Corner... for now some companies I like (the stocks have to be analyzed still for some) are the companies of the following stocks:
CEPH NKTR BIIB EBS SQNM GILD CMED MYGN. I hope to look at these further in the future.

Here is an article on four biotech stocks trading above their 200 and 50 day moving averages.
AMGN APPY CYPB BSDI FRX.

On the long side healthcare still offers some of the best prospects. Caution is paramount of course.

Added: Here is a good article on CEPH in IBD
Best,
j

"The Yellow Rose Street Beat" is for informational purposes only. It does not give investment advice.

Deflation/Inflation From Bob Prechter (2003)

This is exactly the scenario I came across in my recent research on the markets. This is what we face.

Anyway... just thought Id post... 4:00 on the West Coast and time to get ready for New Year's!
Happy New Year's...

Q: Will we have hyperinflation after deflation?
Responder: Bob Prechter	Date: 12/16/2008
This is what Bob Prechter told Jim Puplava, the host of Financial Sense Newshour, in January 2003. Jim Puplava: What are the possibilities that somehow they really get this wrong and we have hyperinflation? Do you think it is deflation first, then hyperinflation after that? Is there a possibility that we head straight to hyperinflation? In other words, if we look at Germany in the 1920s, did they experience deflation first, then hyperinflation after that? Bob Prechter: What the German government was doing was printing bank notes, actual cash. What the Fed typically tries to do is to get people to borrow. I don’t think there is any chance that it is going to get people to borrow enough to overwhelm the deflationary forces. Borrowing is the problem, and credit is what is about to deflate. If they started printing bank notes, I think it would panic the credit markets. So I think we will get a deflation first. I think we will have a hyperinflation after the deflation, but that is not a monetary or market analytical conclusion. It is based on what I think is likely in politics... Our last national crisis, unlike Germany’s, was not inflation but deflation. The people who are running the Federal Reserve System are definitely afraid of deflation, because that is what brought on our Great Depression. It is very likely that they will turn on the monetary spigots and try like crazy to reverse the deflationary forces."

"The Yellow Rose Street Beat" is for informational purposes only. It does not give investment advice.

MERRY CHRISTMAS From 'The Rose'

Added at bottom: POT discussion and More
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Happy Holidays Everyone.
Thanks for reading the Street Beat thus far. I hope it has been entertaining and helpful to you.

As we look at the year in review in the markets we can say that for even the best and most experienced investors/traders such as Buffett, Soros, Danoff, Rogers this market has lead many to, to paraphrase Bill Clinton, question what the meaning of 'is' is.

Many things people once thought they knew have been tried and tested. That is largely because the US has enjoyed a bull market in stocks since the 1940s with only a few hiccups along the way. It is hard to fathom that as recently as 1982 the Dow traded under 1,000. In 1942, the Dow traded around 100. That is to say in 25 years (82 to 07) the Dow went up 14 times, or more on a percentage basis, than it had in the prior 40 years. Those 40 years, additionally, include some of the most robust economic growth of any civilization, ever. Please think about that, and then consider how much of the most recent market rise was fueled by credit rather than true economic expansion. Then you may have some perspective on how low this market may go.

The corrective phase has begun and requires that the everyday trader/investor gain a whole new set of tools. In some ways, this is a great time to learn about the markets because investors today have an understanding of how markets operate in bull markets and now are learning in a hurry how to complete their understanding of how the market works in protracted bear markets (I do not consider the dot com bubble to be anywhere near what we face now). Even though I have been very bearish on the market going back to last year and was very nimble with most stocks as a result, I certainly have made some mistakes this year, particularly with POT (and to a lesser extent MOS)... and the results have been to force me to expand my entire thinking on how the stock market works. When I got into POT and MOS I wrote on here that I was going to throw my best pitch based on my understanding of the markets and what had worked in the past. Namely, a great company with tremendous long term prospects, good management, a product that is in short supply and cannot be substituted, in one of the safest countries in the world, and a product that takes advantage of the secular trends in global constraint on food supply.... and all at a PE that by all metrics measured in previous markets was quite cheap relative to growth over time.

Well, when you throw your 95mph heater and it gets slammed over the fence you have to figure out what you missed and what needs improvement. That is exactly what I have attempted to do. Before the year started I put much less emphasis on charts and more on fundamentals than I do now, was much more accustomed to the 'Buy and Hold' culture that we had been trained to follow, and knew nothing about Elliott Wave Theory. I also had not yet ascertained how inflation, deflation, the yen, the dollar, commodities, etc. all fit into the bigger picture. While I do not claim to now all of a sudden know all the answers I do feel that I have found where some of these pieces may fit together and the import of all of this. At another time I hope to share the thoughts that I have generated over the past months and the knowledge that I have surmised. For now I want to mention that I am not ducking POT. Yes they guided lower and this needs to be discussed. The company is still in very good shape for the long term but a global depression, as we are likely to face, is nothing to laugh at and has taken its rightful toll on the stock of this company. Even more importantly, the whole concept of linking stocks to corporate performance and using buy and hold as a vehicle for growing assets over time may be challenged here.

This is much deeper than still most of us realize. We are still very early in this bear market in my opinion even though we are set up nicely for a major rally sometime early next year.

As the credit crunch deepens.... stay tuned... we, as investors and as citizens, are likely to change our assumptions, approach, and attitude in many many ways. If ever there was a time to seek ideas that stray from the mainstream media that time is now. The truth, and the success that this knowledge can engender, is afterall what we seek...

But these topics are all for another time.

For now, I want to leave you with a clip from Bad Santa. No matter how much we learn and keep an open mind sometimes it feels like the market is just laughing at us. Oh well, sometimes you gotta jus' roll with the punches .

Best wishes this holiday season.






PS: On the long side the two best charts I could find right now? FXY (as long as it stays above the 20 Day Moving Average and EBS (ditto on the 20 Day MA). Check them out if you haven't yet. Also, as you may know, I have a background in biochemistry and am always looking for exciting biotechs. That is, when the market allows for any trades that are long stocks and the charts support an upward move.
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Added
POT and more
I discuss POT a great deal because this company and stock, more than any other ever, has inspired me to question everything I thought I knew and seek new knowledge... seek to understand how the markets really work. PE ratios, DCF models, cash flow statements, etc. are nice but what really matters is demand for stocks and it is imperative to realize that these indicators are just part of the story. Perhaps I can discuss this in much more detail another time. It is very important in my opinion if one wants to succeed. For now let me turn to POT and its recent lowering of earnings guidance. Here are some salient points on fundamentals:

• POT guided lower, citing that it has also been affected by the credit crisis
• Bill Doyle was certain that potash demand destruction was not in sight several months ago. According to him corn would have to go to $2 (as an indicator for also grains as well) to see demand destruction. Yet, corn is now at $4 and we have seen demand destruction for not just phosphate and nitrogen but also for potash. It is important to note that potash companies, including Potash, are reducing volumes rather than accepting significant price cuts. This implies that they believe that the tight supply of potash and the return of demand to grow food makes potash too valuable to sell at low prices. It is true that while other commodities do not need to be used in a recession food production cannot just stop or people starve and riots break out. No government wants this. This is a major reason that I stayed away from all other commodity stocks... I felt that food would be the only commodity to weather the storm. However, as bearish as I was on the global economy I still may not have been bearish enough when I bought in here. We will see going forward if potash volume sales increase in the near to intermediate term.
  
• The lack of credit may be responsible for demand destruction on potash. Perhaps farmers want potash but just can't get the credit right now to buy it. Farmers are among the lowest risk lenders there are and governments are likely to ensure that food production continues. Thus any easing of lending by governments or otherwise directly to farmers may help here
• Potash Corp noted on their press release that the credit crisis makes it more difficult for competitors to develop new mines. Potash has the world's largest reserves and has cash. Thus if it does build out, as it plans, when the credit crisis ends there is likely to be a major major supply squeeze for potash, other competitors will not have built out, and Potash Corp will be by far the best company to take advantage of this... remember that even without credit constraints it takes at least 5 years and a lot of $ to build a new mine (very high barrier to entry).
  
• Important note: only about 1/3 of Potash's revenue currently comes from potash. Phosphate and nitrogen also equal about 1/3 each... and both of these have seen BOTH volume decrease and price decline. Eventually Potash will likely generate a higher proportion of revenue from potash but until then, even if potash demand stays high, the business is likely to feel affects from the other businesses... For companies like MOS and even more CF these factors are likely to create bigger drags on earnings
• The biggest threat to potash fundamentals is a decrease in the demand for meat and better food as the citizens of developing nations like China move back to their old towns and resume their old eating habits. While in the long term I strongly believe that the genie is out of the bottle and developing nations will demand to eat better and more this credit crisis is so deep that the secular trend towards more and better food may be delayed for quite a while.
  
• Overall... fundamentally the POT story is still in very good shape for the long term. That is to say after the credit crisis turns around... which could be years and years... In the meantime the credit crunch will affect business and it still remains to be seen how much and for how long. If someone is going to be in any commodity food is still probably the best from a pure fundamental perspective. Of the fertilizers POT is by far the strongest company. Companies that mine potash are still likely in better shape than companies that do not at all. MOS>CF

Ok... so I have been saying that fundamentals are only a part of the story and this is very very true. So now some points about how I feel regarding the stock POT and others in this space

• Lesson 1: CEOs do not determine stock price... investors/traders do. I have learned that one has to be wary of any CEO that is too bullish... even a seasoned CEO like Doyle. With many companies (outside perhaps technology/biotech) the big houses may know more about short term fundamentals/likely stock movement than the management. Note that the CEO of CHK was so bullish that he bought lots of his own stock on margin and then faced margin calls and losses when natural gas prices fell and the stock went with it.
• This credit crunch causes people to hoard cash. Even if fundamentals improve substantially for fertilizer companies there is no rule that says stock prices have to go up. Without credit and leverage stocks of any company may stay subdued. However... and this is a very important point... with so many shorts out there and so much volatility in the market there are likely to be major short squeezes and short term rallies in these stocks (and many others). Going long makes sense... but primarily for trades... the more a stock goes up the more we need to look at selling and/or going short. This is especially true when we hit major resistance areas.
  
• Fertilizer stocks tend to trade together... so those who hold MOS, CF, etc. should look at POT because it is the sector leader. Commodities trade together but may diverge as oil has from some other ones recently. It is still always important to know what Oil is doing and what commodities in general are doing. Also, I like to look at DBA... the Ag commities futures... it has gone up recently...
  
• The market and sector must be taken into account at all times. We are currently in an ascending triangle in the markets (corrective intermediate wave 4 in Elliott Wave jargon).....this enables some stocks to go up or go sideways... in a declining period most stocks are unlikely to go up... opposite is true for a major bear rally
  
• The recent major rise in POT and MOS (they nearly doubled from lows before falling back) has been a great opportunity to lock in gains. It was fueled in part by a major short squeeze (I tried to short shares of both as a test and could not find shares to short until recently.... in such a scenario a move up is likely). However, there is major resistance in most stocks when they reach their November 10th highs (around 85 for POT and 40 for MOS in this case). Please note that if the market overall gets this high this should offer serious resistance as well. November 4... the Obama election rally, would offer even more resistance if the market/stocks go there. It is important to study major points of support and resistance. I have come to realize that when stocks hit major resistance areas and fail... as POT and MOS did, it makes sense to sell (in my case I sold short along with the longs... I do this for bookkeeping purposes) and ask questions later. Let the market prove that it can overcome resistance. If it does we can always buy back a little bit higher... and prevent the risk of losing major gains. Currently I am fully hedged in MOS and POT... we are at RSI 50 and teasing the upper Bollinger so I really feel these stocks could go either way right now short-term. We still have to break major resistance before I would cover and let the longs run.

OVERALL, in sum, regardless of the stocks you own or are short it is imperative to pay very scrupulous attention in this market. Until proven otherwise every rally needs to be looked at skeptically. I think we go much much lower before we bottom... perhaps under Dow 1,000... in a long and severe stock market downturn that could last half a decade or more. It is time to throw out prior tools in the market that don't work now and always try to learn more... I really wish that I could be more optimistic and I am not by any means a nihilist... and I can say that in the next months I am optimistic about a nice rally... However... I am a realist and everything I have seen so far makes me contend that we have a long way to go here on the downside. I guess it does make me quite optimistic... about going short once we've had a nice rally up... A lot of other ideas are in my mind as I continue to learn and develop in this new market... I hope to share them, time permitting, as time goes on.

Here is a really good article entitled:Don't Believe the Hype that I recently came across...

My feeling is: be smart but don't forget to still cherish the Holidays... there is still good out there...



Let's Do it Again...





"The Yellow Rose Street Beat" is for informational purposes only. It does not give investment advice.