Break-out or Fake-out?

Are we looking at a break-out or a fake-out today? Obviously earnings from the most important tech stock, Intel (INTC), and the most important “too big to fail” bank, JP Morgan (JPM), should be the catalyst for Dow 10,000 and break-outs for Comex copper and Nymex crude oil. Without a break-out there could be a fake-out on warnings found in the minutes from the September 22 / 23 FOMC meeting.

Intel beat earnings estimates and shares traded above my monthly risky level at $21.44. As I stated yesterday, Intel has a BUY rating according to ValuEngine with fair value at $26.81. I do not expect fair value to be challenged any time soon. We show risk to $19.14 over the next twelve months. The stock is below my monthly risky level at $21.44 so far today and a close below would indicate that the great earnings report was built into strength going into the earnings release.

JP Morgan also beat earnings estimates and traded to $47.50 pre-market this morning. Yesterday I stated that the big banks had the camouflage paint to cover up increasing bad real estate and consumer loans. I saw nothing in the JP Morgan report with regard to their industry-leading $70 trillion exposure to notional amount of derivative contracts held off balance sheet. ValuEngine rates JP Morgan a HOLD and the stock opened well above fair value at $40.84. The prior intraday high was $46.49 set on the first day of the September 22 / 23 FOMC meeting.

Bonuses on Wall Street will be a record in 2009 because of the Fed gift of a near zero cost of funds. Let’s get back to banking reality. FASB should bring back mark-to-market accounting in 2010, which banks should easily handle if you believe the hype from bank CEOs.

As I said on Monday, the Congressional Oversight Panel warns that the “too big to fail” banks are bigger, small banks will continue to fail, and troubled assets are more troubled today. The year-ago banking problems remain problems today.

The minutes from the September 22 / 23 FOMC meeting. The Fed will recognize that growth remains constrained by ongoing job losses, sluggish income growth, and tight credit. Businesses are still cutting back as evidenced in the rise is empty office space.

The Fed will indicate that policy actions in place will gradually contribute to a resumption of sustainable economic growth in a contest of price stability. The Fed will reiterate the need to leave the federal funds rate at zero to 0.25% for an extended period.

The quantitative easing in place will be allowed to sunset at the end of Q1 2010. The Fed is in the midst of purchasing up to $1.25 trillion of mortgage-backed securities and $200 billion of Fannie (FNM) and Freddie (FRE) debt.

So far the tally is $862 billion of MBS and $125 billion of agency debt. The purchase od US Treasurys will total $300 billion when this program ends at the end of October.

Comex copper and Nymex crude oil remain are at the cusp of 200-week simple moving averages. The 200-week simple moving average for Comex copper is 292.67. The September 28 high is 296.60.

The 200-week simple moving average at $75.16 for Nymex crude oil was tested this morning. A breakout above indicates strength to monthly and quarterly resistances at $82.98 and $83.16. Otherwise, look for a fake-out back to annual pivots at $68.81 and $66.51 once again.

The Dow opens at a new high for the year at 9,977.24 and within striking distance of 10,000. A fake-out would keep the Dow below weekly, daily and annual resistances at 9,967, 10,007 and 10,012.

Disclosure: I Hold No Positions in the Stocks I Cover.

Comments

[BIG-MONEY:]

THIS RALLY IS A FAKE OUT...Citibank will be taken out of the mix very soon as the Fed is being forced to reveal to the public the $500 BILLION GIFT LOAN THEY GAVE TO CITIBANK. CITIBANK HAS EXPOSURE TO $175 TRILLION and every thing CITIBANK SAYS IS GARBAGE. CITIBANK IS BROKE AND THEY CAN NOT BE SAVED. The stock will start to crumble until it is WORTHLESS. It may look good as WALLPAPER OR T PAPER.

Oct 14 02:12 PM

[Michael2343:]

where do you get your numbers from? specifically the fed gift loan?


On Oct 14 02:12 PM BIG-MONEY wrote:

> THIS RALLY IS A FAKE OUT...Citibank will be taken out of the mix
> very soon as the Fed is being forced to reveal to the public the
> $500 BILLION GIFT LOAN THEY GAVE TO CITIBANK. CITIBANK HAS EXPOSURE
> TO $175 TRILLION and every thing CITIBANK SAYS IS GARBAGE. CITIBANK
> IS BROKE AND THEY CAN NOT BE SAVED. The stock will start to crumble
> until it is WORTHLESS. It may look good as WALLPAPER OR T PAPER.

Oct 14 02:20 PM

[market ace:]

The whole financial world and the US economy are riding the gov't and medias giant FAKE OUT

The FED is destroying interest earnings for millions of retirees and therefore destroying income necessary for recovery just so they can pimp for their failed banks. Bottom line: Right now, $1,000 invested in a 3-month Treasury bill yields a meager $1.20 in yearly interest. At that rate, just to match the 5 percent interest you could have earned on T-bills in early 2007, you’d have to leave your money sitting there for 42 years! U.S. savers are obviously getting shafted.

The U.S. Treasury Gobbling Up Available Credit, Crowding Out Nearly All U.S. Businesses!

Due to giant bailouts and out-of-control federal deficits, the U.S. Treasury is now borrowing money at the fastest rate of all time, hogging nearly all available supplies of credit. Meanwhile, American businesses and average consumers are getting shut out or even shoved out of the credit markets.

In the first half of this year, the Treasury has stepped up its pace of borrowing to annual rates of $1.4 trillion in the first quarter and $1.9 trillion in the second quarter. That’s 3.5 times and six times more than last year’s pace, respectively.

Meanwhile, businesses are getting crumbs: Last year, banks provided new credit at the annual pace of $472.4 billion in the first quarter and $86.7 billion in the second. This year, on a net basis, they’re not providing any credit whatsoever. In fact, they’re actually liquidating loans at the rate of $857.2 billion in the first quarter and $931.3 billion in the second.

Ditto for mortgages. Last year, mortgages were being created at the annual clip of $522.5 billion and $124 billion in the first and second quarters, respectively. This year, they’ve been liquidated at an annual pace of $39.3 billion in the first quarter and $239.5 billion in the second. WIth a foreclosure every 13 seconds this will only get much worse.

For consumers to borrow on credit cards and with other consumer loans is even tougher. Last year, people were able to add to their consumer credit at annual rates of $115 billion and $105 billion in the first two quarters. This year, in contrast, they’ve been forced to cut down their credit balances at annual rates of $95.3 billion in the first quarter and $166.8 billion in the second quarter.

Clearly, consumers, small businesses, and even larger businesses are also getting shafted.

But Wall Street Traders Reap Gigantic Rewards While Average Workers Face Worst U.S. Job Market Ever Recorded!

So it should come as no surprise that, with the U.S. Federal Reserve virtually guaranteeing a fantasy land financial environment for banks, GS has hit the jackpot this year: The bank has accumulated a bonus pool of an estimated $16 billion to dish out to an exclusive group of its heavy hitters as part of Wall Streets pool of an estimated $140 billion. That’s enough to cover a $50,000 bonus check for each and every household living in Los Angeles, Chicago, San Francisco, and Detroit.

Meanwhile, all across the USA, with small and medium-sized businesses unable to get credit or hire Long-term joblessness has hit the highest level in at least a half century: The share of the unemployed who were out of work for at least six months reached 35.6 percent in September, the most since the U.S. Labor Department began keeping statistics in 1948.

More than 5.4 million people have been unemployed for at least 27 weeks, with 1.3 million expected to exhaust their benefits by the end of this year. 15 million unemployed Americans are competing for 3 million available jobs, the worst on record, while 35 million remain on food stamps.

More than 7.2 million jobs have been lost in the past 21 months. In contrast, in the 30 months of the past recession, only 2.7 million jobs were lost. The official unemployment rate, at 9.8 percent, is just the tip of the iceberg. The true unemployment rate, including part-time workers who can’t find full-time jobs and workers who have given up looking, is 17 percent according to the U.S. Labor Department and 21.4 percent according to Shadow Government Statistics.

Anyone thinking that this Stock Market miracle reaching over 10,000 today while the US dollar is getting crushed is not a head fake will soon learn a lot ablout false hope.

Oct 14 04:27 PM

[housaf:]

Haven't the rules all changed? Aren't traditional valuations essentially meaningless? All the financials are now allowed to mark asset values to whatever they fell like. So....when Goldman shows earnings that are 5,6,7...dollars per quarter because nobody knows how they are valuing anything...it essentially becomes impossible to calculate S and P earnings ever again. I think at one time financials constituted about 20% of the S and P earnings. When Goldman puts up a 30 dollars a year earnings wont they then single handedly constitute 1/2 of the whole S and P earnings? The market is a sham. Before we know it a handful of companies will constitute most of the S and P earnings and then what will do they do to mark to market? The market will be priced at whatever the financials choose to price it at. S and P 2000...to 5000? Who knows. The rules have changed and I do not know how any of you all can hope to "value" the market. Whatever integrity this market ever had was lost when FASB suspended the rules.

Oct 14 04:55 PM

[Big Bubbette:]

Articulate and thoughtful response. San Francisco just reported unemployment at 10.1%. It is likely California has crossed over 20% unemployment. Stroll through any town in the Bay Area and notice the empty commercial spaces. Local family run companies that have been here for years are closing. The economic engine that was California is out of gas and the green technology being forced down everyone's throat in the stimulus as the panacea is not going to pull it out. The importance of a robust economy here to the recovery of the Country should not be overlooked. California is teetering on the edge of bankruptcy.


On Oct 14 04:27 PM market ace wrote:

> The whole financial world and the US economy are riding the gov't
> and medias giant FAKE OUT
>
> The FED is destroying interest earnings for millions of retirees
> and therefore destroying income necessary for recovery just so they
> can pimp for their failed banks. Bottom line: Right now, $1,000 invested
> in a 3-month Treasury bill yields a meager $1.20 in yearly interest.
> At that rate, just to match the 5 percent interest you could have
> earned on T-bills in early 2007, you’d have to leave your money sitting
> there for 42 years! U.S. savers are obviously getting shafted. <br/>
>
> The U.S. Treasury Gobbling Up Available Credit, Crowding Out Nearly
> All U.S. Businesses!
>
> Due to giant bailouts and out-of-control federal deficits, the U.S.
> Treasury is now borrowing money at the fastest rate of all time,
> hogging nearly all available supplies of credit. Meanwhile, American
> businesses and average consumers are getting shut out or even shoved
> out of the credit markets.
>
> In the first half of this year, the Treasury has stepped up its pace
> of borrowing to annual rates of $1.4 trillion in the first quarter
> and $1.9 trillion in the second quarter. That’s 3.5 times and six
> times more than last year’s pace, respectively.
>
> Meanwhile, businesses are getting crumbs: Last year, banks provided
> new credit at the annual pace of $472.4 billion in the first quarter
> and $86.7 billion in the second. This year, on a net basis, they’re
> not providing any credit whatsoever. In fact, they’re actually liquidating
> loans at the rate of $857.2 billion in the first quarter and $931.3
> billion in the second.
>
> Ditto for mortgages. Last year, mortgages were being created at the
> annual clip of $522.5 billion and $124 billion in the first and second
> quarters, respectively. This year, they’ve been liquidated at an
> annual pace of $39.3 billion in the first quarter and $239.5 billion
> in the second. WIth a foreclosure every 13 seconds this will only
> get much worse.
>
> For consumers to borrow on credit cards and with other consumer loans
> is even tougher. Last year, people were able to add to their consumer
> credit at annual rates of $115 billion and $105 billion in the first
> two quarters. This year, in contrast, they’ve been forced to cut
> down their credit balances at annual rates of $95.3 billion in the
> first quarter and $166.8 billion in the second quarter.
>
> Clearly, consumers, small businesses, and even larger businesses
> are also getting shafted.
>
> But Wall Street Traders Reap Gigantic Rewards While Average Workers
> Face Worst U.S. Job Market Ever Recorded!
>
> So it should come as no surprise that, with the U.S. Federal Reserve
> virtually guaranteeing a fantasy land financial environment for banks,
> GS has hit the jackpot this year: The bank has accumulated a bonus
> pool of an estimated $16 billion to dish out to an exclusive group
> of its heavy hitters as part of Wall Streets pool of an estimated
> $140 billion. That’s enough to cover a $50,000 bonus check for each
> and every household living in Los Angeles, Chicago, San Francisco,
> and Detroit.
>
> Meanwhile, all across the USA, with small and medium-sized businesses
> unable to get credit or hire Long-term joblessness has hit the highest
> level in at least a half century: The share of the unemployed who
> were out of work for at least six months reached 35.6 percent in
> September, the most since the U.S. Labor Department began keeping
> statistics in 1948.
>
> More than 5.4 million people have been unemployed for at least 27
> weeks, with 1.3 million expected to exhaust their benefits by the
> end of this year. 15 million unemployed Americans are competing for
> 3 million available jobs, the worst on record, while 35 million remain
> on food stamps.
>
> More than 7.2 million jobs have been lost in the past 21 months.
> In contrast, in the 30 months of the past recession, only 2.7 million
> jobs were lost. The official unemployment rate, at 9.8 percent, is
> just the tip of the iceberg. The true unemployment rate, including
> part-time workers who can’t find full-time jobs and workers who have
> given up looking, is 17 percent according to the U.S. Labor Department
> and 21.4 percent according to Shadow Government Statistics.
>
> Anyone thinking that this Stock Market miracle reaching over 10,000
> today while the US dollar is getting crushed is not a head fake will
> soon learn a lot ablout false hope.

Oct 14 05:03 PM

[Dean M:]

I guess you missed the runup completely. I jumped in the market when the length of this rally exceeded 106 days (the length of the 1929 bear market rally). You think the market rally is happening in spite of the dollar collapse? That is the cause.


On Oct 14 04:27 PM market ace wrote:

> The whole financial world and the US economy are riding the gov't
> and medias giant FAKE OUT
>
> The FED is destroying interest earnings for millions of retirees
> and therefore destroying income necessary for recovery just so they
> can pimp for their failed banks. Bottom line: Right now, $1,000 invested
> in a 3-month Treasury bill yields a meager $1.20 in yearly interest.
> At that rate, just to match the 5 percent interest you could have
> earned on T-bills in early 2007, you’d have to leave your money sitting
> there for 42 years! U.S. savers are obviously getting shafted. <br/>
>
> The U.S. Treasury Gobbling Up Available Credit, Crowding Out Nearly
> All U.S. Businesses!
>
> Due to giant bailouts and out-of-control federal deficits, the U.S.
> Treasury is now borrowing money at the fastest rate of all time,
> hogging nearly all available supplies of credit. Meanwhile, American
> businesses and average consumers are getting shut out or even shoved
> out of the credit markets.
>
> In the first half of this year, the Treasury has stepped up its pace
> of borrowing to annual rates of $1.4 trillion in the first quarter
> and $1.9 trillion in the second quarter. That’s 3.5 times and six
> times more than last year’s pace, respectively.
>
> Meanwhile, businesses are getting crumbs: Last year, banks provided
> new credit at the annual pace of $472.4 billion in the first quarter
> and $86.7 billion in the second. This year, on a net basis, they’re
> not providing any credit whatsoever. In fact, they’re actually liquidating
> loans at the rate of $857.2 billion in the first quarter and $931.3
> billion in the second.
>
> Ditto for mortgages. Last year, mortgages were being created at the
> annual clip of $522.5 billion and $124 billion in the first and second
> quarters, respectively. This year, they’ve been liquidated at an
> annual pace of $39.3 billion in the first quarter and $239.5 billion
> in the second. WIth a foreclosure every 13 seconds this will only
> get much worse.
>
> For consumers to borrow on credit cards and with other consumer loans
> is even tougher. Last year, people were able to add to their consumer
> credit at annual rates of $115 billion and $105 billion in the first
> two quarters. This year, in contrast, they’ve been forced to cut
> down their credit balances at annual rates of $95.3 billion in the
> first quarter and $166.8 billion in the second quarter.
>
> Clearly, consumers, small businesses, and even larger businesses
> are also getting shafted.
>
> But Wall Street Traders Reap Gigantic Rewards While Average Workers
> Face Worst U.S. Job Market Ever Recorded!
>
> So it should come as no surprise that, with the U.S. Federal Reserve
> virtually guaranteeing a fantasy land financial environment for banks,
> GS has hit the jackpot this year: The bank has accumulated a bonus
> pool of an estimated $16 billion to dish out to an exclusive group
> of its heavy hitters as part of Wall Streets pool of an estimated
> $140 billion. That’s enough to cover a $50,000 bonus check for each
> and every household living in Los Angeles, Chicago, San Francisco,
> and Detroit.
>
> Meanwhile, all across the USA, with small and medium-sized businesses
> unable to get credit or hire Long-term joblessness has hit the highest
> level in at least a half century: The share of the unemployed who
> were out of work for at least six months reached 35.6 percent in
> September, the most since the U.S. Labor Department began keeping
> statistics in 1948.
>
> More than 5.4 million people have been unemployed for at least 27
> weeks, with 1.3 million expected to exhaust their benefits by the
> end of this year. 15 million unemployed Americans are competing for
> 3 million available jobs, the worst on record, while 35 million remain
> on food stamps.
>
> More than 7.2 million jobs have been lost in the past 21 months.
> In contrast, in the 30 months of the past recession, only 2.7 million
> jobs were lost. The official unemployment rate, at 9.8 percent, is
> just the tip of the iceberg. The true unemployment rate, including
> part-time workers who can’t find full-time jobs and workers who have
> given up looking, is 17 percent according to the U.S. Labor Department
> and 21.4 percent according to Shadow Government Statistics.
>
> Anyone thinking that this Stock Market miracle reaching over 10,000
> today while the US dollar is getting crushed is not a head fake will
> soon learn a lot ablout false hope.

Oct 14 05:08 PM

[mouth:]

WOW. Sounds like a few people missed the rally. I remember reading the NO LOAD X newsletter this spring and it felt that the bottom was reached. Of course the blood was running in the streets and I thought that it was mine and I did not buy at that time. The same newsletter is still positve. As far as the Fed, they are doing what they think is correct. I am sure that they have their fingers crossed and privately they probably even pray for positive results. As bad as it all souds, unemployment, no credit etc, The Wall of Worry is a positive

Oct 15 10:35 AM

[oldman:]

the wall of worry is high and we may have reached the top. I never excited the market so now that I have recovered, I am thinking of selling most everything as I am 75 and retired. I think selling at over some percent above the 200 day MA makes sense.What percent is the question? I'm looking at some history.


On Oct 15 10:35 AM mouth wrote:

> WOW. Sounds like a few people missed the rally. I remember reading
> the NO LOAD X newsletter this spring and it felt that the bottom
> was reached. Of course the blood was running in the streets and I
> thought that it was mine and I did not buy at that time. The same
> newsletter is still positve. As far as the Fed, they are doing what
> they think is correct. I am sure that they have their fingers crossed
> and privately they probably even pray for positive results. As bad
> as it all souds, unemployment, no credit etc, The Wall of Worry is
> a positive

Oct 15 11:39 AM