May 10, 2010 - Issue #214

Mother of All Swings

Last week's letter was a master of understatement.

CNBC, to be fair, never had a chance to rebut. The market was down from the getgo and never looked back. Everyone was like a deer caught in a headlight. It was 'shock and awe' big time.

The lesson to be learned: Don't wait to buy Puts when you need them; Buy them when you can (when they're cheap).

Implied Volatility rocketed from 16 to 40.

The only way to have a parachute when you need it is to have a parachute before you need it.

Diversification didn't help. Stop loss orders don't always work the way one expects.

The only Dow component closing up was KFT. What did they do right?

Is the worst over? To be determined, but I doubt it.

Has the Greece problem been solved? Spain? California?

The American voter will solve the political problem come November, if they don't split the conservatives as did the British.

A lot of damage has been done. It will take time to repair. The market has spoken. Until proven otherwise, the line of least resistance appears to be down. Therefore, look for situations to sell into on rallies.

MCD?

Heads Up

W. D. Gann, a keen market observer, although not an astronomer, nevertheless, was fascinated by the apparent coincidence of important market 'pivot points' and astronomical dates. Theories exist for estimating time and price of important market turning points but astronomical occurrences are computed with mathematical certainty.

There is no logical reason why these occurrences should coincide yet, empirically, they have.

The 'Full Moon' and 'New Moon', among others, have been cited. Therefore, one might be well advised to be aware of their occurrence. Note: The first 5 business days of 2008 concluded on a 'New Moon' and we all know how that worked out. Coincidence?

5/13 Thursday - New Moon.

5/27 Thursday - Full Moon.

During the next two weeks, the following DJ-30 components report earnings. Keep a sharp eye out for possible price swings leading up to 'earnings day' (Subject to revision):

5/11 DIS.

5/12 CSCO.

5/18 HD, HPQ, WMT.

Dow score card for the week ending 5/7/10.

DJ-30: 10380.43 -628.18 -5.71%. The Real World (arithmetical) DJ-30: 45.78 -2.77 -5.71%.

UP: 1, Down: 29.

Trends (weekly charts): This is the subjective part.

Rising (Generally Higher Highs/Higher Lows) 0 (-2) 0%:

None.

Consolidating (Generally Lower Highs/Higher Lows) 1 (-16) 3%:

+*KFT.

Declining (Generally Lower Highs/Lower Lows) 29 (+18) 97%:

AA, -*AXP, -*BA, BAC, -*CAT, -*CSCO, -*CVX, -*DD, -*DIS, -*GE, -*HD, HPQ, -*IBM, -*INTC, JNJ, JPM, KO, -*MCD, -*MMM, -*MRK, -*MSFT, -*PFE, PG, -*T, TRV, -*UTX, VZ, WMT, -*XOM.

+/- denotes change of direction.

* denotes change of category.