Daily Research Newsletter from Phil Flynn

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Market General

I feel something changing in the air and it's not the seasons. What I'm talking about is Market Sentiment. I know many have been waiting for a long time for change, some longer than others; however I now feel the time has come. I believe the stock market seems to be entering into a downward bearish cycle. Maybe it had something to do with Obama's speech last week and investors feeling he is anti-business. But we all know the stock market had an unprecedented run in 2009 on very low volume and in my experience the market will not go up forever.

With the job picture as bleak as it is and has been I've wondered how the market went up for so long. I did some checking and found the U-6 which is a broader measurement of unemployment to be at 17.3% nationally. A year ago this number was 10.5%. An incredible statistic as it has almost doubled in twelve months! So, when you hear the word recovery what do they mean? Some of the other reports I'm reading is that real unemployment is at 21%. I find it ironic how the government has continued to change the rules gauging unemployment. Until the job picture changes, I really don't see any sign of recovery. I heard something on the radio just a few days ago, that California is a welfare state and I immediately thought America is becoming a welfare country.

Until we have more jobs we will see more forecloses and property values decrease. Foreclosures are continuing to climb and 2009 was a record with 2.9 million households receiving foreclosure notices. Each state is seeing significant increases thus reducing property taxes for each state. I believe each state in the union will become more and more insolvent just as California already has. So, be prepared for higher taxes from a state level.

One technical indicator I've noticed a change in is the Volatility Index (VIX) which has an inverse relationship to the indexes. This indicator had a substantial jump in the last week and may be trying for a breakout from its long downtrend pattern. Thus, in my opinion we have another signal of a possible top in the major indexes.

Another indicator I'm watching is the GDP. We have seen some unexpected increases and I believe this isn't sustainable. As the housing, motor vehicle, and manufacturing sector will probably see future declines. The last GDP report looks more like deflation as companies are just trying to reduce their inventories and not actually purchasing new goods. So while this contraction in business is taking place I'm not seeing a recovery. If a recovery starts it will probably be a slow one.

On another note, I'm seeing the government trying to spend their way out of this mess. There used to be three ways that the government monitors money supply. The first is the M1 which is the actual cash in hands of the general public. This includes checking account and travelers checks, not corporations. The second is M2 which includes M1, savings deposits, retail money funds, and small denomination time deposits The third is M3 which was all money including corporations which ironically in 2006 they stopped publishing. So what is the government hiding? Probably a lot, so be on the lookout for an additional tax in the coming years; called inflation. Thank Uncle Sam for this one.

Based on the political system I'm seeing a redistribution of wealth, higher taxes, and anti-business semantics. I don't think this is a republican or democrats issue rather an American one. I feel the finger pointing needs to change. We need to make some compromises be realistic & work our way out.

The worse thing I'm seeing right now is scared money, which could compound the situation. There has never been a better time to talk with a professional and put together a plan. Be honest about your intentions and be willing to do something if it is appropriate for you. In my opinion, the dollars you're holding have been a losing investment for the last eight years and expect this to continue for some time.

My professional recommendation would be to invest in gold or similar hard asset. Understand leverage plus the positive and negatives uses as it pertains to your long-term plan. One of the biggest pit-falls I see in the everyday trader is they have no concept of leverage or what a contract value really is. They just see the minimum margin requirements and max out their account, giving themselves limited opportunities in the long run.

I don't think we will see the big drops as we did in 2009 but a more methodical one. As I feel the government has stepped in making sure it happens this way. But until the job situation, foreclosure, and personal spending improve, it's inevitable the market will come down over time.

Regarding a recovery, I haven't seen any indication of one, rather just a lot of smoke in the air and convoluted reports spun to the general public.

Your Education Starts Here!

Learn how to trade stock index futures with Trade Center's COMPLIMENTARY, easy-to-follow information package and tutorials. Futures trading can be complex. These tutorials are meant to enlighten and empower you to make informed decisions. Sign up now and also receive the 106 page Stock Index Futures guide from the Chicago Mercantile Exchange.