Buffett Is Bullish but Unemployment Is High: Where Are We Headed?

We remain in the "Red Flag" mode, expecting lower prices ahead, although that could change at any time in today's crazy world.

We still have “sell” signals on most of our major indicators as we oscillate in a relatively narrow trading range.

Here’s a picture of what the last month has looked like:

chart courtesy stockcharts.com

If a downtrend is confirmed, we’ll look for opportunities with inverse ETFs which are most effective in a trend, since they track daily moves and significant tracking, and compounding errors can develop over time in a sideways market or in a trend that is moving against you. If a new uptrend is formed, we will look for opportunities in the sectors that have the strongest upside potential.

The interesting thing about this most recent move back to 10,000 on the Dow is that the last time the DJIA closed above 10,000 before last week was on October 22nd at 10,081 or approximately -0.6% below Friday’s close.

However, the S&P 500 close on Friday was -2.1% below its level of October 22nd, the Russell 2000 close on Friday was -5.4% below its closing level on October 22nd and the NASDAQ is -1.9% below its close on October 22nd.

So you can see that while the Dow has recovered nearly all of its downside from the recent correction, the other major indexes have not.

Dow 10,000 makes great headlines, but since the other major indexes have not retraced their losses, this is clearly indicative of a narrow rally. Furthermore, small caps represented by the Russell 2000 typically lead the way in solid advances and so the performance of that index is particularly troubling.

Also, we currently see just 51% of all stocks above their 50 Day Moving Average which is widely regarded as demonstrating short term strength while on October 22nd we saw approximately 80% above this important level.

So overall, things don’t look that strong to me, and we’re facing serious overhead resistance just ahead at 1080-1100 on the S&P and 10,000-10,100 on the Dow.

I am working very hard not to be a bear or a bull, but rather just use tunnel vision to focus on and follow my indicators because if you let a bias one way or other creep into your thinking, it invariably leads to trouble.

As always, discipline and patience, in my opinion, are the keys to long term success.

The View from 35,000 Feet

Lots of news lately, with the biggest being the employment report on Friday.

For the first time in 26 years, and only the second time since World War II, the official unemployment rate went over 10%, to 10.2% to be exact.

This came in as an unexpectedly high number, especially after the largest stimulus package anyone has ever seen that was supposed to stop unemployment at 8.5%.

So far, 7.3 million jobs have been lost in The Great Recession; we’ve just seen our 22nd straight month of losses and “total unemployment” which includes unemployed, discouraged workers and those forced to part-time status now stands at 17.5%, which means that approximately one out of seven Americans is either not working or working less than they want to, a record high.

The “Establishment Survey” said that 190,000 jobs were lost last month, but the “household survey” said that unemployment went up by over 550,000 to a total of 15.7 million. The difference in the “establishment” and “household" is that the establishment is focused on big businesses while the household includes smaller businesses, and people who are self-employed, consultants, part-timers and working out of their homes by polling through phone calls to directly to home telephone numbers.

For my weekly "Friday Afternoon Bank Failure Report," five more banks went under to bring the total to 120 for the year and an additional $1.5 Billion hit to the FDIC. At least the banks are staying open, because without the FDIC, this would truly be a Depression, in my opinion.

On the positive side of the ledger, Warren Buffett went after Burlington Northern (BNI) in an “all in wager” on the future of the economy, and the Fed said they’d keep rates near zero for “an extended period of time.” Also earnings continue to largely come in better-than-expected and are now running only -15% behind last year’s levels, largely due to cost cutting rather than seeing any year over year top line revenue growth.

The Week Ahead

A quiet week for economic reports ahead but with a couple of notable earnings reports due from Disney (DIS), Wal-Mart (WMT) and J.C. Penney (JCP) which should offer further insight into the health of the all important consumer.

Thursday: Weekly Jobless Initial and Continuing Claims

Friday: November Michigan Consumer Sentiment

I truly hope that the recession is over, that Warren Buffett is right about the future of the American economy, that employment will soon turn around and that we will have a blistering “V” shaped recovery. There has been too much pain already as we approach the end of the second year of this financial calamity. But if it isn’t and we face a “W” or “L” shaped or “jobless recovery,” we will continue looking for opportunities wherever they may surface during these troubled times.

Disclosure: None

Comments

[dingding:]

17.5% translates into one out of six, which is even worse than one in seven.

Nov 09 08:57 AM

[jack dee:]

more double triple post spam from MAd Hedge F....

Nov 09 04:35 PM