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Dallas, TX
December 10, 2009, 08:00 EST |
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Dr. Joe Duarte's Market I.Q. |
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The Internet's Intelligence Digest
Intelligence, Market Timing, And Trading Strategy For Traders and Investors
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No Worries In The Land Of Deadbeats
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What's Hot Today: |
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U.S. stock index futures were pointing to a slightly higher
open for the U.S. market. Overnight markets were mixed. 1100 on the S & P
500 remains formidable resistance.
Today's Economic Calendar:
- MBA Purchase Applications 7:00 AM ET International Trade 8:30 AM ET
- Jobless Claims 8:30 AM ET
- RBC CASH Index 9:00 AM ET
- Quarterly Services Survey 10:00 AM ET
- EIA Natural Gas Report 10:30 AM ET
- 3-Month Bill Announcement 11:00 AM ET
- 6-Month Bill Announcement 11:00 AM ET
- 52-Week Bill Announcement 11:00 AM ET
- 30-Yr Bond Auction 1:00 PM ET
- Treasury Budget 2:00 PM ET
- Fed Balance Sheet 4:30 PM ET
- Money Supply 4:30 PM ET
News For Thought
Medicare expansion for younger age group promises to be mixed. The new
centerpiece of the health care "reform" package seems to be the expansion of
Medicare to those aged 55. And while it would benefit some, the premiums, according
to The Wall Street Journal may run as high as over $600 or more per month. In
comparison, current Medicare enrollees pay around $100 per month.
House bill flips new taxes for tax breaks. According to The Washington
Post: "The House voted Wednesday to extend $31 billion in popular tax breaks,
including an income tax deduction for sales and property taxes, to be financed
with a tax increase on investment fund managers and a crackdown on international
tax cheats. The 45 tax deductions and credits for businesses and individuals
are scheduled to expire at year's end. The House voted 241-181 to extend them
for a year, with only two Republicans voting in favor. The bill now goes to the
Senate, which has rejected the tax increase on investment managers in the past."
FBI man makes it personal. According to Reuters: "Addressing businessmen
in Florida, where financial fraud cases jumped by 42 percent in the last year,
FBI Miami Division Special Agent in Charge John Gillies said failures in personal
ethics and integrity sowed the initial poisonous seeds of corruption in a society.
Gillies said transgressions by high-profile public servants and even perceived
social role models, like top golfer Tiger Woods, currently embroiled in allegations
that he had extramarital affairs, sent the signal to young Americans that cheating
and stealing were acceptable."
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No Worries In The Land Of Deadbeats
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How To Make Money By Defaulting On Your Mortgage
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Aside from the political uncertainties of the moment, and the
potential for higher taxes in the years ahead, businesses now have to contend
with thrifty consumers, yet another reason to temper expectations.
We hear a lot about the "new normal" these days. But few people are actually
describing what that means. Is it doom and gloom? Or is it ongoing uncertainty?
Maybe it's just a return to different times when people actually tried to live
within their means.
No matter what, at the center of whatever the "new normal" is, will be how much
money people spend on things, and how that affects the way companies do business,
including how many people they hire.
So here are a few things that we've noted about the "new normal."
We see fewer people driving on the roads every morning as we head off to work.
Somedays it's a bit more than others. Mondays seem to be more crowded, but by
Wednesday the roads seem to have gotten a whole lot less busy.
There has been a foreclosed house about a block away from our house that isn't
getting any real traffic. Zillow.com has its estimated sale price at about one
third of the average price for the neighborhood, but it's not moving. Elsewhere
in our neighborhood, there are still about four of five Mc Mansions that were
built near the top that are still empty. And there are a couple of very well
remodeled homes that are for sale that are also not moving.
Last week we drove by a neighborhood, which is traditionally fairly well to do,
and there were seven houses for sale in a row, all on the same block.
For the first time in a very long time, when we went into the neighborhood 7-Eleven,
at about 8:00 A.M., yesterday, which is usually peak time, it was empty. There
is usually a line of construction and repair guys there getting their morning
jolts, burritos and energy drinks. It was cold, so maybe it was weather related.
But that's unusual.
The Wall Street Journal headlines are also thought provoking. For example, this
morning's WSJ.com, had a story about how the "new American dream" has two components,
the mortgage default, and moving onto a rental. It's not all bad. Those folks
are actually trading up, as they can now rent distressed luxury homes for a fraction
of what their former mortgage cost them.
You bet. The same folks that didn't read the fine print and thought that they
could get something for nothing are at it again. To be sure, there is no sympathy
for the banks and mortgage lenders and their friends in Congress who concocted
the bullcorn based mortgages and the derivatives that led to the implosion of
the credit markets. Our point is that all of the things that have happened haven't
really done anything to change the behavior of people who will do anything to
cheat the system at the expense of others, with the aid of the government and
its unwillingness to allow consequences of bad behavior to serve as lessons that
will eventually improve the way people live their lives.
According to The Journal: "Thanks to a rare confluence of factors -- mortgages
that far exceed home values and bargain-basement rents -- a growing number of
families are concluding that the new American dream home is a rental. Some are
leaving behind their homes and mortgages right away, while others are simply
halting payments until the bank kicks them out. That's freeing up cash to use
in other ways."
And wouldn't you know it? There is a name for this new trend. It's called the "strategic
default," as it makes more sense to walk away from the ridiculous mortgage and
to trade up to a luxury rental in order to have more money to live it up.
Yet, the trend is growing. According to The Journal: "The U.S home-ownership
rate has charted its biggest decline in more than two decades, falling to 67.6%
as of September from a peak of 69.2% in 2004. And more renters are on the way:
Credit firm Experian and consulting firm Oliver Wyman forecast that "strategic
defaults" by homeowners who can afford to pay are likely to exceed one million
in 2009, more than four times 2007's level."
Now consider this. There could be consequences for those who actually pay their
bills, live within their means, and pay taxes. As the Journal points out: "Stiffing
the bank is bad for peoples' credit, and bad for banks. Swelling defaults could
also mean more losses for taxpayers through bank bailouts."
How bad is this? According to The Journal: "Analysts at Deutsche Bank Securities
expect 21 million U.S. households to end up owing more on their mortgages than
their homes are worth by the end of 2010. If one in five of those households
defaults, the losses to banks and investors could exceed $400 billion. As a proportion
of the economy, that's roughly equivalent to the losses suffered in the savings-and-loan
debacle of the late 1980s and early 1990s."
And how does it end? This is the way to recovery? In a perverse way, it could
be. According to The Journal: "For the 4.8 million U.S. households that data
provider LPS Applied Analytics estimates haven't paid their mortgages in at least
three months, the added cash flow could amount to about $5 billion a month --
an injection that in the long term could be worth more than the tax breaks in
the Obama administration's economic-stimulus package."
Conclusion
Wow!! The deadbeats are going to light the way to the recovery by using the money
that they would have had to pay on their mortgage to go on cruises, and take
their friends out to dinner, two of the ways that the Journal thinks that this
new trend will lead to an economic recovery.
Don't get us wrong. We're for good things happening to folks. It's just that
just once, we'd like to see the good guys win, even if just a little.
Sure, in a perverse way the banks that made the bad loans deserve getting stiffed.
And yes, some of the folks who bought well above their means are nice people
who made a mistake. Yet, at the end, the only thing that's been accomplished
is that the day of reckoning has been postponed, and the huge government deficits
have been enlarged. And those of us who pay taxes are going to foot the bill.
Meanwhile, Mr. and Mrs. Default have figured out another angle and have actually
improved their lifestyle. They still eat out and travel and enjoy life for now.
Yet, at some point, they'll have to face their credit score.
At the same time those who played by the rules are footing the bill. For the
banks and Congress, it's just another opportunity to seize on a potential economic
recovery, or at least statistical improvement as a reason to get re-elected or
raise fees and figure out the next way they will work responsible folk into paying
the bill for bad policy and personal irresponsibility.
Know when to sell and how to make money when the market falls. Get a detailed
trading plan in your pocket. Read Dr. Duarte's All NEW Books "Market Timing For Dummies." and "Trading Futures For Dummies." The Trading Manuals for
All Seasons. Also Available As Kindle Books. |
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Market Moves - Stock Of The Day
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S & P 500 SPDR ETF (NYSE: SPY) Tests Key Support And Resistance
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The S & P
500 SPDR ETF (NYSE: SPY) is in the middle of a critical
trading range. And the way it breaks will likely set the
tone for the next move in the market.
Chart Courtesy of StockCharts.com
There are four chart points that will decide the direction of the market in the
next few days. They are the 20 and 50-day moving averages on the S & P 500,
and the upper and lower volatility bands, otherwise known as Bollinger bands.
These bands are plotted two standard deviations above and below the 20-day moving
average on a daily basis and form envelopes around prices.
When the bands constrict, it means that volatility is shrinking and that some
kind of a move lies ahead. That's what's happening now, the bands are shrinking.
The upper band is at 111.48 and the lower band is at 108.48 on SPY. That corresponds
to roughly the 1114 and 1084 chart points on the S & P 500.
The 20-day moving average is at 109.98 and the 50-day moving average is at 108.10.
That defines the key trading range, with major support and resistance levels
for SPY, and if you muliply the numbers by 10, you get the key figures for the
S & P 500.
That means that the fate of the market is down to what happens over the next
30 to 40 S & P 500 points.
What's likely to happen? No one really knows, no matter what they say. But there
are some clues. For one thing the 20 and 50-day moving averages and the lower
Bollinger band have been excellent support since the market bottomed in March.
If they hold, that would reinforce their standing as important support and buy
on the dip points.
If they fail, it would also be important, as very reliable support has given
way, a sign that the market has weakened significantly and that investors have
to start looking at things differently.
Otherwise, a move above 1100 that sticks, would be very bullish, at least in
the short term.
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Technical
Look at the Market |
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Guessing Game On S & P 500 Stays On - SPY ETF Remains at 4-stars
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The S & P
500 failed to hold above 1100 on 12-8, and bounced back
on 12-9, but only to close below 1100 and the 20-day
moving average. That means that there are two important
support levels that are now holding the bulls back.
The flip side is that if the S & P 500 can move above these two short term
levels, the odds of higher prices would increase. Still, this is more of a guessing
game than a market at the moment, and is better left to those who can move quickly.
Much of what's going on now is technical and depends to a large degree on which
way the majority of traders that are still working at this time of the year decide
to go. If they decide to go with the season, the trend is up. If they decide
to go with the economic news, then things may be volatile.
The bottom line is that it pays to be careful.
We are adapting our star based rating system to the S & P SPDR ETF (NYSE:
SPY). In this section a 5-star rating for SPY is a signal that down side risk
is very low and that the chances of a further rise in prices are greater than
those of a fall. A 4-star rating Means that the risk is less attractive but that
the odds of a rise in SPY still outweigh the risks of a fall.
A 3-stars rating on SPY suggests that the odds of a rise and a fall are even.
2-stars and 1-stars suggest that down side risk is on the rise.
In no way is this star rating system intended as a series of buy and sell recommendations.
The system is intended as a guide to the general trend of the market and the
S & P SPDR ETF.
Star ratings can change rapidly based on the market's action. Followers of the
ratings should review them on a daily basis.
Star Ratings for S & P SPDR ETF (NYSE: SPY) - updated 12-8-09
S & P SPDR ETF (NYSE: SPY), 4 stars on 12-1-09 - closing price 110.84. Closing
price on 12-10-09 110.02. Short term support is at 109.57. Resistance is at 111.74.
A move above 111.74 would raise the rating to 5-stars. A move below 109 would
drop the rating to 3-stars.
Chart Courtesy of StockCharts.com
Chart Courtesy of StockCharts.com
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