Dallas, TX
July 21, 2010, 08:00 EST		 Dr. Joe Duarte's Market I.Q.


The Internet's Intelligence Digest
Intelligence, Market Timing, And Trading Strategy For Traders and Investors

Can The Big Names Carry This Market?
What's Hot Today:

U.S. stock index futures were slightly higher on Wednesday. The market recovered from the early swoon on Tuesday. Watch the Euro carefully, as it may have topped out.

Today's Economic Calendar



News For Thought

Mass exodus from Obama mortgage program may be setting stage for foreclosure explosion ahead. Even the lucky few who have made it through the Home Affordable Modification Program (HAMP) are having trouble making their restructured payments. That means that the program, despite its $50 billion price tag has essentially failed. According to AP: "The number of borrowers dropping out of a government program to help struggling homeowners rework their mortgage grew in June at almost twice the pace of those getting a permanent modification, the Treasury Department said on Tuesday."

And the numbers are staggering. Of the $50 billion set aside for the program, only $200 million have been spent. Meanwhile, the actual numbers of those enrolled in, and having been processed are fairly small. According to AP: "About 91,000 borrowers dropped out of the program in June, putting the total number of dropouts at 530,000. At the same time, about 49,000 borrowers received a permanent modification in June, bringing the number of total active permanent modifications to 389,000."

The final analysis is that the program is a big miss, as the drop out rate, and the success rate are both way off the mark. AP reported that "more than 40 percent of the roughly 1.3 million borrowers who have started in the program since its March 2009 inception have since dropped out, while just over 30 percent have received permanent new terms for their loan."

When you set aside $50 billion for something, and only use $200 million of it a year and a half into the program, something's not right. And when nearly half of the potential participants can't even make it through the program, that's another bad sign. Finally, if you only help one third of your target audience then your program is flawed, in design, in expectations, and clearly in execution.

The real question is whether there are any plans to improve the program, or whether it will be scrapped. And if it's scrapped, it would be nice to know where the unspent portion of the $50 billion would go. It would be nice to see it used to actually create jobs in one way or another.

Trial balloon: France and Germany consider "fiscal" alignment of economies. According to Stratfor.com: "French President Nicolas Sarkozy has proposed that the French and German fiscal systems align and face joint audits to further economic integration and to bring down the weight of expenditures on the countries’ budgets, without resorting to tax increases, Le Monde reported July 21, without citing sources. Sarkozy spoke during a Cabinet meeting that German Finance Minister Wolfgang Schaeuble attended. Sarkozy reportedly said combining the countries’ fiscal systems was essential to economic integration." Why would Germany do something like this? Sounds like a trial balloon.

Can The Big Names Carry This Market?
Tuesday's Turn Around Left Plenty Of Questions Unanswered About The Market's Trend


Chart Courtesy of StockCharts.com

Both Apple Inc. (Nasdaq: AAPL) and Goldman Sachs (NYSE: GS) proved that they still have some pull with traders on Tuesday.



Chart Courtesy of StockCharts.com


If you shorted the market at the open on Tuesday, and went to play golf, by the time you finished 18 holes at a leisurely pace, you might have lost a fair amount of money. That’s because Apple and Goldman turned around during the day and dragged the market higher. Apple continued its romp in the after hours session after a well received earnings report.

Yet, away from these two story stocks, there is still a bit of a two-tiered market. There is the New York Stock Exchange, where the advance decline line, the difference between advancing and declining stocks, plotted on a daily basis, has recovered nicely over the last few days. And then there is the same metric in the Nasdaq, where there is little recovery. That means that the advance in the Nasdaq remains narrow, while on the NYSE, there are more stocks participating in days where the market rallies.



Chart Courtesy of StockCharts.com


That’s an important bit of information because there are more preferred stocks, exchange traded mutual funds, and other instruments that act like bonds on the New York Stock Exchange than on the Nasdaq, where the advance decline line is a much more pure measure of the activity in stocks.



Chart Courtesy of StockCharts.com


Another way of looking at this is the action in the Russell 2000 Index (RUT) of small stocks. The chart of this index looks worse than the chart of the S & P 500 (SPX), which measures blue chip stocks.



Chart Courtesy of StockCharts.com


Also consider the fact that the 50-day moving average on the S & P 500 has crossed below the 200-day moving average, giving the chart a bearish look. Also negative is the fact that both the S & P 500 and the Russell 2000 are below their 50 and 200-day moving averages, and that the 50-day moving averages for both indexes are heading lower. That means that the intermeidate term trend is down at the same time that both indexes are in long term down trends.

Thus, from a technical standpoint, this market is not out of the woods, although Tuesday's turn around is not something that should be ignored.

Conclusion

The message is fairly clear. Large stocks are more attractive to traders these days than small stocks, or even growth stocks, such as the ones featured in the Nasdaq. More important, there is still a fair amount of daily volatility in this market, which makes any kind of long term thinking difficult.

Applying this information to a well-honed trading plan leaves you with one conclusion. If you’re going to trade, take small positions and look toward larger stocks for now. More important, be prepared for all kinds of volatility and the potential for disappointment, and yes, losses.

This is something that all investors should keep in mind.

We'll be on Twitter some time today before the market closes with some updated comments.

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.

 

Market Moves - Stock Of The Day
U.S. Dollar Bull ETF (NYSE: UUP) Makes A Stand
The Euro looks to be running out of gas, which means that it's time to evaluate re-entry into the U.S. Dollar Bull ETF (NYSE: UUP).



Chart Courtesy of StockCharts.com


The rally in the Euro may have run its course, which means that money is likely to start moving back toward the dollar. To be sure, this could be a volatile trade in the short term, but the charts are sending a message.

UUP rallied big at the beginning of year and has pulled back lately. But the ETF seems to have successfully tested the support of its 200-day moving average, which is bullish, barring a reversal of this event in the next few days.

The dollar is now very oversold and due for a bounce, and the fact that the 200-day moving average has held up is very bullish at this stage of the game given the negativity associated with the dollar at this point.

Visit our currency trading section for details.

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