15/40 Weekly EMA Confirms Bearish Trend for the S&P 500

Renminbi or Renminbi Yuan

Monetary unit of China. The yuan is divided into 100 fen.  Banknotes are issued in denominations from 1 fen to 100 yuan.

You better get familiar with the currency of the People's Republic of China.  The reason is that a number of the world’s biggest banks have launched international roadshows promoting the use of the renminbi to corporate customers instead of the dollar for trade deals with China.  To assist you in this endeavor, the pronunciation for Renminbi is "ren-min-bee," and Yuan is "yoo-ahn."  Happy pronunciation!

One in Ten Mortgage Holders Faces Foreclosure

More bad news for the real estate market.  "One in 10 American households with a mortgage was at risk of foreclosure this summer as the government's efforts to help have had little impact stemming the housing crisis, which is according to MSNBC." 

Not One New Home Priced Over $750,000 Sold in July 2010

Folks, this is just not good news.  As a matter of fact, this is the second month in a row that no sales were recorded for homes in this price range.  The real estate bubble that caused home prices to double and triple from 2003 to 2007 will in all likelihood dissipate completely before this housing recession is over.  I don't care what your real estate agent is saying.  This housing recession, no housing depression, is not over.  


For the full article, read David Rosenberg by clicking here.

Exponential Moving Average Stategy

If the 15-week EMA stays less than the 40-week EMA on the S&P 500 by Friday's close, a major bearish signal will be given.  This is the same indicator that flashed a sell signal back in January 2008.  (I believe we all know the consequences of that superb sell signal on maintaining your financial health.)  Therefore, my strategy will be to use any market strength to add to my inverse ETFs, such as DXD, SDS, QID, and TWM.

Teaching Moment

This past market week I mentioned the utilization of three specific criteria that I use to make investment decisions.  These criteria were used to in analyzing UUP (Bullish Dollar Index).  They are as follows:

1. 3-day EMA > 10 day EMA
2. Percentage Price Oscillator (PPO) > 0 (positive) [Further from the "0" line the stronger and more significant the signal is.]
3. Williams %R > -.80.  

Specially, I use a daily chart to see if each criterion is in "sync (aligned)" with each other.  If each criterion is in sync, then I will consider making an investment.  See the following UUP chart:

As you can see, the criteria were met on August 9!  Do I immediate take a position when the criteria is met?  The answer is NO.  Why?  Because, before I take a position; I look at the "hourly" chart to see if it is currently overbought or oversold.  See the following hourly chart on UUP.  You will notice that on August 9, PPO just turned positive and the Williams %R was at least better than -.8.  Given those two conditions along with the hourly price on UUP was near the lower Bollinger Band, I did take a position.

Now, I want to add to my UUP position, but I will wait.  Why?  Look again at the hourly UUP chart.  Notice that the PPO has turned negative and the hourly readings for the Williams % R are in the overbought territory, which indicates to me that we should see some price softness near term.  I want to see UUP head into the oversold territory for PPO and Williams %R, which should correspond to the lower Bollinger Band.  If that occurs and the daily criteria are still in sync, I will add to my UUP position.

How long will I stay in my UUP position?  As long as the three criteria on the daily chart stay bullish.  If the 3-day EMA < 10-day EMA, PPO < 0, and the Williams %R turns down from above -.2, I will turn to the "hourly UUP chart" for the signal to sell.

Hopefully, this mini-lesson will assist you in your investment trading.

GM (Government Motors) Reports a $1.3 Billion Profit

General Motors Co. reported Thursday a $1.3 billion second-quarter profit, a stark contrast to a year ago when the auto maker lost nearly $13 billion as it slid into bankruptcy.  The reason, as stated, is as follows: "The auto maker is capitalizing on a leaner cost-structure created through last year's U.S. government-orchestrated bankruptcy in which the company has fewer brands, employees and factories and a fraction of the debt it once held.  Meanwhile, growing demand in markets around the world and vehicles that commanded higher prices for consumers in the U.S. are driving up revenue."

Now, the real reason behind the second-quarter profit is simply padding sales figures with fleet sales.  Automotive News reports that while GM's sales are up 13%, the majority of those increases have come courtesy of fleet sales.  GM's fleet sales are reportedly up 53 % to 400,000 units, while its retail sales are up by 1%.  For the rest of the year, GM is projecting about 25% of its sales going to fleets for the year. 

If I could get the government to wipe out a large part of my debt and subsidize the purchase of my products, my revenue and profit would soar as well.  Therefore, let's see what kind of encore GM will provide for the second half of the year.  I, for one, don't think it will be as good as the first half.

I Like the $ Because Everyone Hates It!

Criteria Met

My criteria that I mentioned yesterday evening for making additional purchases of DXD, QID, SDS, and TWM were met today.  For a review, the criteria were as follows:

1. 3-day EMA > 10-day EMA
2.  Willams%R -.79 or better
3.  PPO turns positive.

By the time that the criteria were met, the hourly charts for all four inverse indexes were already overbought.  (I use the hourly charts to time my purchases and sales, once a signal is given on the daily charts.)   However, I did take a position in UUP.  See the following chart:

For tomorrow, I would anticipate that early selling to continue (Futures as of 10 PM CST are down 25 points on the DJIA.)  Then, the market should be make an attempt to rally; and then sell off going into the close.  (Of course, that would be in a perfect world.)  In the rally attempt, I would like to see the four inverse indexes move from overbought to oversold on the hourly charts.  If that occurs, I would definitely add to my positions.  

I would also anticipate that the so-called "Plunge Protection Team (PPT)" to be very active if the market gets out of control on the downside tomorrow.  As I have mentioned previously, never underestimate the power of the FED.  By the way, the Fed announced after the market closed that it will buy about $18 billion of Treasury debt in nine operations from August 17 through September 13.  Folks, that is nothing more than monetarizing the debt, which is something that Bernanke said the Fed would never do!  You just can not believe anything this guy says.  This is the same Bernanke that said the subprime problem was will contained.  For those of you that forgot what he said, listen and watch the following YouTube video: 

Just in Time for the Fall Elections

"Washington (AP) -- The Obama administration is providing $3 billion to unemployed homeowners facing foreclosure in the nation's toughest job markets.  The Treasury Department says it will send $2 billion to 17 states (I bet they are all BLUE states!) that have unemployment rates higher than the national average for a year. They will use the money for programs to aid unemployed homeowners. Some of those states have already designed such programs.  Another $1 billion will go to a new program being run by the Department of Housing and Urban Development. It will provide homeowners with emergency zero-interest rate loans of up to $50,000 for up to two years."

So far this week, we have $3 billion going to distressed homeowners and $26.1 billion to state education, mainly to satisfy and save the teacher union jobs.  (Mr. Obama quotes the union figure of 160,000 potential saved teacher jobs, those don't have to come out of the classroom.  According to research by Eric Hanushek of Stanford University, student enrollment grew by 22% from 1990 to 2007, but teacher employment grew by 41%. Since 2000, enrollment has grown by 5% but teacher employment by 10%.  In addition, the National Right to Work Committee estimates that two of every three teachers belong to unions.)

The today's Opinion section of the "Wall Street Journal" opines that the unions themselves could have prevented some layoffs had they been willing to adjust their rich benefits.  "In Milwaukee, for example, nearly all of the 500 teacher layoffs announced earlier this year could have been avoided if the unions had agreed to change health plans that cost $23,000 per teacher per year for family coverage.  They could have accepted a still-rich $17,000 plan. The unions chose the layoffs, betting (correctly) that Democrats in Washington would come to their rescue. This is the same union that decided to keep its Viagra, which would have saved $750,000 a year, instead of its teachers."

At a time when private sector workers' pay and benefits have stagnated, federal employees' average compensation has grown to more than double what private sector workers earn, a USA TODAY analysis finds.  The compensation gap between federal and private workers has doubled in the past decade.  Federal civil servants earned average pay and benefits of $123,049 in 2009 while private workers made $61,051 in total compensation, according to the Bureau of Economic Analysis.

I ask you, where is the outrage?

GM-AmeriCredit Deal

General Motors have complained for months that they are losing business, because many customers can not qualify (Poor Credit) to get loans.  GM's solution was to purchase the "subprime lender, AmeriCredit," for $3.5 billion of your money (GM is 61% owned by the American taxpayer.) to boost sales by making loans to buyers that it currently had to turn away.  (Buyers with shaky FICO scores of 300 to 600–are what AmeriCredit specializes in.) Isn't this what got us into the financial fiasco in the first place?  That is, providing loans for the purchase of cars and homes to individuals that really do not have the financial wherewithal to pay those loans back.  But then again, it's a typical government solution to simply throw more taxpayers money at a problem with the hope that such profligacy will fix the problem.

Current Positions and the Dollar

The following four charts are currently of deep interest to me.  I have positions in the following four inverse ETFs: DXD, SDS, QID, and TWM.  I will increase my current portfolio allocation from 26% to 50% when the following criteria are met:

1. 3-day EMA > 10-day EMA
2. Willams%R -.79 or better
3. PPO turns positive.

I have also included a chart on the dollar (UUP), which appears ready to rally from its current level.  Such a dollar move would be negative for the overall market.

FED to Downgrade Outlook for U.S. Economy

The Financial Times of London reports in its Monday's edition that "The Federal Reserve is set to downgrade its assessment of U.S. economic prospects when it meets on Tuesday.  Faced with weak economic data and rising fears of a double-dip recession, the Federal Open Market Committee (FOMC) is likely to ensure its policy is not constraining growth and to use its statement to signal greater concern about the economy. It is, however, unlikely to agree big new steps to boost growth."

Now What?

What a week! Bearish turning dates, so far August 2-10, have been a non-event.  Bummer! (Because I am in a bearish mode.) Even though we still have a couple of more trading dates to go.  The 13(15)-week EMA is now back above the 34-week EMA. (See details in the following S&P 500 weekly chart.   All of this reminds me of an old Chinese proverb (I think it's Chinese.): "Those who do not have patience will be taught patience."  Boy, do I hate patience!  Overall, I am still content with my investment positions (26% Inverse Index ETFs and 73% Money Market Funds).

Ouch! Not What I Expected

Well, today was definitely not what I had in mine for the market (DJIA +208, S&P 500 +24).  Given my key bearish dates between August 2 and 10, I was surprise my today's market action.  The only solace for me was the market continues to rally without expanding volume.  However, we are still within that window of opportunity for a major turn in the market.

S&P 500 Weekly Update for July 30, 2010

The EMA investment strategy continues to signal a bearish trend is in place.  Why?  The 13-week EMA < 34-week EMA.  For the "Bears," the next 7 trading days (August 2-10) will be watched very closely.  As of now, my portfolio is 27% bearish and 73% in cash (Money Market Funds).  Per my last post, I am watching UUP very closely and will use this investment vehicle as a substitute for part of my cash holdings when its 3-day EMA > 10-day EMA.