November 19, 2008
Editor’s Note: On Nov. 19, 2008, the U.S. Labor Department reported a 1 percent drop in the consumer price index for October 2008. The drop marked the largest decline in 61 years, and it was the first decline in that measure in nearly a quarter of a century. The 1 percent drop was twice as large as many mainstream analysts had forecast. Such a large decline in consumer prices is forcing …

There has never been a correction that has not proven to be an investment opportunity. While everything is down in price, there is actually less to worry about than when prices are historically high. More money has been lost by people who bought into last year’s markets than by those who will buy into this one, at this stage of the correction. When the going gets tough, the tough go shopping.

Every correction is different, the result of various economic and/or political circumstances that create the need for adjustments in the financial markets. This correction is worse than most that I’ve experienced, but the doom and gloom scenarios many have been pushing are unlikely to come to fruition. Once the media elects a new president, they’ll just have to start reporting better news: 96% of all mortgages are current sounds a whole …

Last weekend, we noted that the next phase of this bear market will likely be driven not by U.S. financial companies or by energy prices per se, but rather by the effects of the American slowdown being felt by the rest of the world.  A front page story in the WSJ on Friday noted the falling Eurozone GDP as additional evidence of a global slowdown.

Looking forward, we expect continued bullishness in equities next week as the lack of major news and the seasonal drop in volume draws in more hopeful investors.  But we won’t be surprised if those same buyers are punished for their optimism as the bearish tendencies of September and October kick in.  Members can check out our proprietary market sentiment indicator in our weekend portfolio update.

Performance Comparison

Here’s how the major market indexes, the S&P

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So, uh, we have some LEAP options that are older than those Chinese gymnasts.  The word on the street is that they would’ve done even better this week, but some of them are still teething.

The NYSE $TRIN is around 1.30, a level we haven’t seen since July 29.  For context, TRIN readings of 2.00 (0.75) are generally considered to denote oversold (overbought) conditions.  TRIN pushed above 2.00 on that date back in July, and the markets moved significantly higher on that day and the day after.

ES futures are just now touching that rising trendline we started back on July 15.  These things often seem to play out with a fall below the “must hold” trendline or support level, only to vault back above.

Seriously, if this gymnastics stuff is legit, can we field a team of 8-year-olds for Olympic dodgeball?

Here are some data that have us thinking this afternoon: maybe the Nasdaq doesn’t resume its parabolic move from here.

There are certainly plenty of short term reasons for Nasdaq bulls to frown and doze off for awhile: the QQQQs are up over 7% in 7 days.  Money flow has been stagnant.  The ADX line is only barely ticking up, and RSI readings at various periods are all inching toward overbought.  The McClellan Oscillator (attached) may have peaked, and even if we only see a little downside price-wise, volatility may be a tad underpriced here.

The QQQQ Sep/Oct 48 put calendar, for example, costs about $0.53, will be profitable at September expiration if QQQQ is between 46 and 50,

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There are plenty of ways to put on option trades that have a neutral outlook: straddles, strangles, condors, etc.  Whereas stock and futures traders are limited to whatever price action the market gives you, options let you take a view on implied volatility (vega), the passage of time (theta), and the rate of change of the rate of change of the option per unit move in the underlying (gamma).  Okay, that last one isn’t so obvious, but the idea is to enter various spreads that can profit from changes in the non-delta greeks, such that success doesn’t depend solely, or even primarily, on what happens directionally in the underlying.

But being market neutral doesn’t mean being delta neutral.  For one thing, whether you typically trade in 1 or 10 or 100 lot positions, keeping your net beta-weighted deltas perpetually at

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The rally you saw last week was little more than a normal, bear-market bounce — predicated on the myth of government omnipotence ... spurred by the blind faith in fiat money ... and triggered by the official attacks on short-sellers. For investors who jump into financial and other vulnerable stocks now, it's a trap door. But for those who feel like they're still stuck in all the stocks we've been telling you to get rid of, it's an escape hatch. Use it as your selling opportunity. And don't look back. We spelled out the reasons in our Special Midyear Update. And behind me on my monitor is just one of them. I hope you were able to attend. But whether you did or not, this gala, double-length edition of Money and Markets ...

Editor’s Note: After stock prices surged strongly on Wednesday and Thursday, we decided to look to see if we could determine whether this was a bear-market trap, or the start of a new bull market rally. Our findings may surprise you. By Keith Fitz-Gerald Investment Director Money Morning/The Money Map Report “Put this bell on your pack.” The odd-sounding order came from my guide, a lifelong mountaineer and expert tracker who (and I’m not making this up) answered to the nickname, Buck. This took place several years ago, when I was hiking just outside Cody, WY. I’d been in the area several times, but my companions felt compelled to have me attach one of the little noisemakers to my backpack, and I obliged. Buck continued to speak, as we got ready to move out. “It helps to take precautions,” he said. “Also, make sure to carry pepper spray in case ...

Bernanke and Paulson's smoke, mirrors and hot air are temporarily buoying markets, luring gullible investors back into stocks! Meanwhile, Merrill Lynch just disclosed it was creamed by $40 billion in investment write-downs in the second quarter — $69 billion so far this year. Citigroup has revealed a $2.5 billion loss — and a decline in total assets of a staggering $99 billion so far this year. Plus, The U.S. Dollar Index is now within one penny of a new all-time low and a new plunge. I think this could be one of the most dangerous times imaginable for you — and for anyone else who owns vulnerable stocks or equity funds. With the mortgage crisis ...

By Keith Fitz-Gerald In a Money Morning commentary back in April, I suggested that while we’d hit a new market bottom, we almost certainly hadn’t hit the market bottom. So have we now? That’s tough to say, although three seemingly unrelated bits of data suggest the ultimate market bottom may be lower still, meaning investors aren’t out of the woods, yet. Let’s take a look: Since 1990, there have been 13 declines of 10% or more in the Standard & Poor’s 500 Index. And while each drop of this magnitude tends to precede a rally of six months or more, an ultimate market bottom typically hasn’t been established until we’ve seen an average reading of 36.3 in the Chicago Board Options Exchange Volatility Index - usually referred to as the VIX Index. Generally regarded as a ...