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Depression2.tv - Michael Nystrom

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Depression2.tv - Michael Nystrom Editor
APRIL OBSERVATIONS - FOOLS & FOLLY
4-29-2002What Kind of a Recovery is This?
5.8% Growth! How come the market didn't like it?

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Dow Erases 2002 Gains; Nasdaq @ 6 Month Low

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4-24-2002Merrill Rating Stock Rating System
1. Garbage
2. Horrible
3. POC
4. POS
5. Disaster


See page 13 of The NY State Lawsuit against Merrill
4-23-2002 Bad Moon Rising
Full Moon
Full Moon, Friday April 26.



Moon Phase Calendar
- Interesting Link -
4-17-2002Propaganda
"...The Bush administration also continued to press a deadlocked Congress, which has avoided an election-year vote to extend the government's authority to borrow, to act because the $5.95 trillion debt limit could be hit this summer..."

So says an article at the Washington Post, which can be found here: Income Taxes Help U.S. Treasury

But a quick check of the U.S. Treasury's own accounting of the public debt, shows that we are already well over the debt limit. As of today, the total reads $6,009,070,654,503.89. See for yourself here: Public Debt to the Penny

What gives? The article gives further clue:

"[Paul] O'Neill earlier this month moved federal retirement funds into a non-interest-bearing account to free room for more borrowing. The juggling of federal retirement accounts has been done before in standoffs with Congress and has no effect on employees' retirement funds.

"The money was moved back Tuesday and interest paid after income tax payments began flowing into Treasury coffers after Monday's tax deadline."

Oh, now it is clear. Funny accounting for the sake of positive propaganda! Reminds me of Enron!

Tip of the day: If you haven't begun to already, its time to ignore the propaganda in favor of the real numbers and prepare accordingly. This goes for the debt, the trade deficit, the price of the dollar and gold, as well as the strength of consumer spending. Homeowners are squeezing the last drops of equity out of their houses to buy more...crap. And once they're completely crapped out, that crap is going to hit the fan with vigor!
4-12-2002  Pill May Replace Exercise!


Pill

Strange world we live in, isn't it?
4-4-2002  Potential Head And Shoulders                            
As you know, I'm not expecting a cheery few weeks here during earnings season. For just a brief example of what I'm talking about, take a look at what happened to a few stocks that made negative preannouncements today: Bristol Myers Squibb (BMY) was down 15%; CompuWare (CPWR) down 25%; Planar Systems (PLNR) down 20%; InFocus (INFS) down 19%. Dial up bigcharts.com at take a look at the charts - they're brutal, choppy, with huge air pockets from the dramatic drops. The fact that there are these huge drops and the airpockets mean that investors were taken by surprise. Yesterday everything was fine; today you get a 20% haircut.

For complete warning updates: money.cnn.com/markets/IRC/warnings.html

Now I'd like to take a look at how all of this fits into the larger picture which is unfolding. Below is a five year weekly chart of the SPX, which is displaying a potentially huge topping pattern - a giant head and shoulders. If you recall the early 90's, the SPX traded between 400-500 for quite some time, then steadily rose until peaking at over 1500 in the 2000. It has been a grand run!

HS


Of course, winning streaks don't last forever. Just ask Michael Jordan (2 points in his last game of this season, now lost to injury), or the Michael Jordan-less Chicago Bulls (last place in the Central division, 17 wins, 57 losses, .230 pct and 27 1/2 games out of first place).

The measuring implications for H&S patterns are well known. The minimum decline once the neckline is broken is equal to the maximum height achieved above the neckline. In this case, with a slightly upward slope to the neckline at 950, from a high of 1550, we get 600 points. Subtract 600 from the neckline and we're looking at an eventual target of 350! Unbelievable, sickening, but true. I don't make the rules, I just call them like I see them. And this is just the minimum!

This is not to say that we'll see 350 this earnings period, or even this year. The head and shoulders is not, in fact, confirmed until the neckline is broken. The market took a long time to wind up to this point, and it will take a long time to wind down. But the general trend for the next few years will be down. No analyst is likely to tell you this, which is why it is ever more important to think for yourself.

The weekly unemployment report was released today, and no one knew quite what to make of it. Way higher than expected - 80,000 more than estimates - but they managed to explain it away and the market actually closed up. Tomorrow we get payrolls, the unemployment rate, AND consumer credit. Stay Alert!
4-3-2002  Commanding Heights /  What goes up must come down                          
Last night PBS aired the first episode of a six hour series titled "Commanding Heights: The Battle for the World Economy." Episode One, subtitled "The Battle of Ideas" covered just about all of last century, and did a wonderful job of showing how economic thought is subject to and governed by the fashion and fads of the times and places. The ideas that drifted in and out of fashion ranged from John Maynard Keynes's government intervention following the Great Depression, to Friedrich von Hayek's laissez faire ideals which finally gained favor in the late 20th Century under Ronald Reagan & Margaret Thatcher. Interludes include Hitler's Third Reich and Stalin's Soviet Union.

The bad news is the first episode is over. The good news is that you can watch the whole thing on the internet! Check this link for the details: http://www.pbs.org/wgbh/commandingheights/. Further good news: There are two more episodes coming! "The Agony of Reform", and "The New Rules of the Game." Check the same link for details.

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The Markets continued in their recent down ways today, with all the major averages falling another percent or so today. As you can see from the Dow daily chart below, the declines have not been dramatic, but they have been steady. Eight of the past 10 days have been down, shaving a good 500 points, roughly 5%, off the top.

The Nasdaq's decline has been in effect for the past 17 days, and that market has lost 8.5% from its March 11 high. I don't think there is any question that we're going to test the February lows, and if those fail to hold, there is not much support back down to the September lows. Scary. That makes a good 20% decline in store for the Dow and Nasdaq. Keep your eyes peeled and your powder dry.

DJIA 1


The chart below, from Signalwatch, shows a long term picture of the Dow, the resistance it is running into, and the channel it has been in for the past two years. As Dow Theory states, the trend is assumed to be in effect until proven otherwise. These blue chips have held up well considering what happened to the Nasdaq over the same period, but how long can this last?


Finally, the gold shares took it on the chin today. The XAU was down almost 3% today, even as gold maintained its perch above 300, though it did back off from its high. Well, what can you expect? The gold shares have had a nice run, and the chart was beginning to go vertical. We had about a 25% increase in just a few weeks. Its time for a breather. As far as we're concerned, they're still a buy, just wait for the dips. Buy & Hold is Back! at least regarding selected gold shares.


Thanks for tuning in to Depression TV!
4-3-2002  Sweeps Weeks Starting Up                            
By 'sweeps week', I mean earnings season. That's what we used to call it back in the days when I was a broker. Everyone is watching, and something exciting is bound to happen.

This round we'll see how the rubber meets the road in terms of how the economy is really doing. We've gotten the rosy government statistics, and we've seen the market rally nicely to date, but now we've seen things start to backpedal. Goldman Sachs lowered its earnings estimates for a bunch of enterprise hardware and software companies for the just-ended quarter, including IBM, Sun Micro, EMC, Microsoft, Siebel, Broadvision, and PeopleSoft. Yikes!

Regarding Microsoft, Goldman's Rick Sherlund said, "The macro economy in the U.S. is moving in the right direction, but it is taking longer to gain traction in the tech sector." He attributed the less optimistic earnings outlook in part to an expected slower ramp-up in capital spending by IT departments, and in part to the expectation that Microsoft's costs will rise during the year as management moves to fund strategic initiatives.

Microsoft took it on the chin, falling over 5% today

MSFT


Not a real pretty chart, and the decline is likely not over. Microsoft is due to release earnings on April 15th or thereabouts. If one were a betting man, one might consider the April 55 puts (MSQ PK) which closed asking a dollar. I'M NOT GIVING ADVICE HERE! Just harkening back to the old broker days of playing around in the volatile expiring earnings sweeps week options market. Lots of fun, but generally not good for the pocket book. Unless you see something real good and ripe for the taking...Microsoft broke to an intermediate term low today and is likely headed back to test the September lows. It is a member of the Dow, SPX and Nasdaq/NDX and is showing relative weakness vis-a-vis all three.

Meanwhile, is there any hope of a market rally during sweeps week? The world is going to hell in a hand basket, commodity prices are on the move, gold is back above $300, oil is at a 6 month high, interest rates are up, and they're really going at it in Israel. They say the market climbs a wall of worry, and there is plenty to worry about. But it also slides down the slope of hope, and plenty of peeps are hoping that the recession is over and good times are just around the corner.

Employment report this Friday! My prediction for the fight: PAIN!

Stay tuned.

Michael
4-1-2002  April Fools
MARKET HARD DOWN START NOW.
Check out the 2002 predictions & other articles in the archives
manystrom@depression2.tv
Rich!

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