Market comments for Aug. 19th, 2011: Options Expiration for August

It looks like another leg down at the open today as European markets are down 1-2% at this hour. Important day today as it is Options Expiration for August. Volume today should exceed yesterday's high volume. No other financial news here to announce this morning with the exception of J.P. Morgan's prediction lower growth of GDP in the 4th quarter of 2011 and first quarter of 2012. To quote Bloomberg news: "The U.S. economy may expand less than previously thought in the next two quarters as consumer sentiment drops and the housing market fails to gain momentum, JPMorgan Chase & Co. wrote in a report.

Gross domestic product will grow 1 percent in the fourth quarter rather than the 2.5 percent previously forecast and 0.5 percent in the first quarter of 2012 instead of 1.5 percent, Michael Feroli, JPMorgan’s chief U.S. economist in New York, said in an e-mailed note to clients today."

I have included 4 charts this morning. Three of these 3 month charts are as follows: One of the Dow, one of the S&P 500, one of the German DAX Index. The other chart is of Germany's DAX Index over a 5 year period. In this last chart I have drawn several support levels which are now possible given the recent downward trend. This chart is very similar to our Dow chart for the same period, which I did not include. But the lows happened at the same time. Our low hit 6,400 before it finally turned up again. I believe we will ultimately have to test that level on the Dow, because the economic news looking forward does not look bright for all of 2012, not only for the US but for Germany as well and much of Europe. I wish I could tell you something else, but I don't believe a different scenario will occur. Let's just get through today and see where we are. next week, but at the first signs of a further new low in the Dow or S&P, consider the probability higher for this major decline to continue for the foreseeable future.




Come back over the weekend so I can show you some charts on the Dow/Gold ratio and where Gold may be headed. And also some data on the Gold/Silver Index.

Foreclosures rise as banks make huge profits. What's wrong with this picture?

Here's several related stories which should cause great concern:
• "Foreclosures rise 15 percent in first half of 2009" versus then next two stories
• "JPMorgan Chase posts 2Q profit, surpasses Street"
• "Goldman Sachs sees record profit"

You see both JP Morgan and Goldman Sachs received significant Tarp money to ease the Credit crisis in the Mortgage industry to prevent foreclosures. In this earnings report, JP Morgan also said they had paid back all $25 Billion in TARP funds to the Government. Here's more details on the Mortgage article that should cause concern.

"The data show that, despite the Obama administration's plan to encourage the lending industry to prevent foreclosures by handing out $50 billion in subsidies, the nation's housing woes continue to spread. Experts don't expect foreclosures to peak until the middle of next year.
Foreclosure filings rose more than 33 percent in June compared with the same month last year and were up nearly 5 percent from May, RealtyTrac said.
"Despite all the efforts to date, we clearly haven't got a handle on how to address the situation," said Rick Sharga, RealtyTrac's senior vice president for marketing."

So despite the earnings looking very god in the banking and financial industry, things are not getting better. Compare that to the rising tolls of the unemployed, now expected to go as high as 13% by some estimates, and you have a recipe for a calamity ahead of us. This must affect the stock market negatively if the stock market is truly free of manipulation. But we know it isn't, don't we. My friends, it used to be one could generally predict market direction based on certain outcomes in the economy and based upon data which supports future predictions. The truth is I can't any more and I doubt any one else can as well. That should be the biggest concern of all. When the stock market becomes unpredictable, it is time to consider ending the trust placed in the system and cash in. There is an expression made famous by the man who was shown by the psychologist a series of ink blot charts. Evert time the man was shown a chart and asked what he saw, the man would say, "people naked". The psychologist turned to the man and asked him, Why do you keep seeing naked women. The man replied, it's not my fault, you're the one with the pictures! I see the same thing in the stock market right now, reason to give great pause as to the integrity of the entire system. Just because we are on a slower decline than we were before, we are still in decline with much more expected over the next several years with more people losing jobs begetting more foreclosures and less disposable income to prop up corporate profits and so the cycle continues. Help me see something differently here.

Pre-market outlook Jan. 15th 2009: Market Indexes will drop again today

Lots of news this morning and I will try to state major items of interest affecting your portfolio. The net effect of the news is that today will be another down day for U.S. markets. Here's the summary:

- Jamie Dimon of JP Morgan says worst is yet to come in the financial crisis
- Microsoft is seriously considering layoffs
- Motorola is looking at more cost cuts in 2009 including cutting 4,000 jobs
- The Eu Central Bank has lowered interest rates 50 basis points to a rate of 2%
- Russia has devalued its currency for the 4th time in 5 days.
- Nissan to reduce US Mfg. Plants to a 4 day work week

You can do a search on any of these items today and get the detailed news story.

I looked for some good news today but couldn't find any. The effect on the stock market futures is predictable with Dow Futures dropping over the past hour and the Nasdaq Futures were hit by the Apple news as well as the fact that Microsoft considering layoffs.

I would still hold on to the ETF Ultra Shorts SDS and TZA but by tomorrow the market may be down enough that selling some of your shares from your positions could be warranted. Currently SDS is at $81.30 in pre-market and TZA is currently at $61.49. I am still thinking these shares will rise substantially. If they don't rise enough by tomorrow I will still hold all shares. The reasoning there is that on the day of Barack Obama's Inauguration the markets may rise from the optimism of a new President and it may linger some days next week. However when reality sets in we are headed down to retest the lows and that is where you will want to sell these two ETF's.

Depending on the severity of the drop in Apple stock, symbol AAPL, I may add to my position again in the coming days.