The DJIA (-37.47), S&P 500 (-6.49), and Nasdaq Composite (-9.06) dropped suddenly after rumors of further credit ratings cuts would hit the Collateralized Debt Obligation (CDO) market. A cut in ratings would lead to further asset write-downs by financial institutions and investors, probably leading to more lawsuits and regulatory investigations against the companies that packaged and sold these structured finance products.

Earlier in the day, the equity Bulls had been encouraged by the ADP employment report that forecasted 130,000 net new private sector jobs in the US, which was a much larger number than had been anticipated.

The US Commerce Department reported an advance 4Q GDP forecast that indicated the economy had fallen from an annualized growth rate of +4.9 pct in the 3Q to just +0.6 pct.

There are some important economic reports coming out of the US today and Friday. I recommend you click on the Econoday link below and from there to the individual reports.

On the earnings front, UBS AG (UBS) warned it would report steeper net losses due to an additional $4 billion in write-downs. Merck (MRK) swung to a 4Q loss of $1.63 billion, from a year-earlier profit of $473.9 million, due partly to a Vioxx lawsuit settlement. Later, it was speculated that Bristol Myers (BMY) will agree with prosecutors to a $1 billion fine related to one of its products.

For positive news, Amazon.com (AMZN) reported net income more than doubled to $207 million, from $98 million in the prior year. But margins have narrowed and guidance is lower, so the shares are trading down by almost -10 pct in trading early today on Frankfurt.

Crude Oil ($WTIC) fell back yesterday after it was reported there was a build in inventories this past week, but still managed to close at $92.33/bbl (+0.75 pct) on speculation of increased demand due to the US stimulus package.

The trade-weighted $USD dropped after the Fed easing, helping gold move to close to an all-time high. Silver hit a 27-year high.

Interest rates were lifted by the ADP report.

Yesterday, ahead of the FOMC announcement, Asia-Pacific equity markets closed down before European shares traded broadly lower; the FTSE 100 fell -0.81 pct and the DAX dropped -0.26 pct.

Early today, the picture is mixed to negative. Hong Kong (-0.84 pct), Shanghai (-0.78 pct) and the BSE 30 of India (-0.62 pct) were down whereas the Nikkei 225 (+1.85 pct), South Korea Kospi (+2.24 pct) and Aussie All-Ordinaries (+0.56 pct) closed up. Meanwhile, Europe seems to be doom and gloom over more possible credit market ratings downgrades, which will lead to further write-downs by the major Financial companies. The FTSE (-0.46 pct), DAX (-1.29 pct) and CAC (-0.56 pct) at 5:31am ET were down.

Early today, the March DJ futures are also down -25, indicating a lower open. The march Crude Oil is down -0.9 pct to 91.475 and the March Euro is trading at 1.4832, down -0.32 pct, so the USD is up.

Spot gold and silver at 5:41am ET is trading at 923.50 and 16.72 respectively. With a stronger $USD, the precious metals will be under pressure.

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Comments & Outlook

Yesterday at the open, there was obvious strength but I was not deterred. I wrote, “I see nothing on the horizon to stall the Bear. The pre-open markets appear to be softening.” Despite the FOMC rate cuts, the market later sold down.

Whether it is rating agency downgrades, additional write-downs by the Financials, data indicating a slowing economy, disappointing earning or guidance, it will be something that traders pick on to sell down this market.

What is happening is that risk is finally being priced into markets. Certainly, the central bank rate cuts and the economic stimuli by government will play their role to support and possibly grow the economy, and hence corporate earnings, in the future, but that process takes time. The fact is that HB&B is downgrading companies, ratings agencies are downgrading debt instruments, there are massive layoffs of high-paying jobs, energy costs are way too high, and there could be huge multi-billion dollar trading losses uncovered day to day.

In other words, traders are worried about the here and now, not looking to the blue sky promised tomorrow. Moreover, traders think the risks far outweigh the potential rewards, and are moving to protect those profits by selling. They know from experience in 2000-2002 that unrealized gains are not gains at all, and could easily be real losses.

So there has been an attitude adjustment among those on the buy-side. With massive write-downs and lay-offs started, the sell-side seems to be waiting for other shoes to drop. Speaking from experience, it’s no fun working for HB&B during a Bear market. After the bonuses are paid, you have no friends ready to cover your back.

I was struck by one comment by the young SocGen trader who apparently was the source of the $7.14 billion trading loss taken by the bank. He said the bank commended him for taking the same risks when he and others were making billions using the same techniques. In other words the risk management systems were in place, and management simply ignored them during the good times. In other words he’s establishing precedent. Management permitted him to win and lose. Perhaps the only fraud committed then was by management who called him a con artist?

For about the same financial loss, the Amaranth firm went under at the hands of a sole trader, but at least those people did not, I recall, point to him as a rogue trader.

In retrospect, the cover-up is always as bad, or worse, than any crime. You recall that when this story first broke, I referred to it as a “so-called” fraud, and a “so-called” rogue trader. From the beginning, I laughingly suggested that the only thing missing from the management cries of foul was a call to Inspector Clouseau.

Clearly, SocGen lost immeasurable goodwill from the loss, and from the handling of it. I suspect there will be other banks in the same position before this Bear is done ripping up wealth from traders who don’t protect themselves and banks that pretend they have sophisticated risk management systems in place.

Bankers are now traders. They refer to clients as ATM machines. This distancing themselves from the human client has led to an even greater arrogance and now they find that there is a public blowback that will take years to recover from.

This Bear will likely not be over until several layers of HB&B management have joined the ranks of the unemployed. Sooner than later, we hope.

In the meantime, we need to gain a greater sophistication in the trading of gold, and of the shares of the micro and small cap industrial companies that will be creating real wealth throughout the next five or ten years regardless of economic environment. Some of us need to focus on earning income from the blue chip royalty and business income trusts, REITs, preferred shares, and the like.

We need to look to countries like Canada, Russia, Australia, and Brazil that have the natural resources to help build the economies of China and India.

We need to look at investment themes like alt energy, water, and so forth. These are the most desired commodities of the future.

We simply cannot remain stuck in the gutter with HB&B and the old economy of the US, Europe and Japan. Yes, there will be a Bull market at some point wherein those economies flourish once again, but now is not the time. Now is the time to discover new friends and ride on their coattails onwards and upwards.

Day traders can, of course, exploit periodic opportunities. In the past seven sessions, system-generated Buy Alerts for stocks in the Cara 100 Companies list have given some impressive gains. Brunswick Corp (BC) and Whirlpool (WHC) gained +18.69 pct and +15.32 pct respectively since the Alert. In addition, UBS AG (UBS) gained +6.14 pct in six sessions.

Unfortunately, the mood is turning sour in equity markets, and the Buy Alert on YHOO has been a loser. This is where smart traders learn to cut losses immediately, while letting the winners run a bit..

Since I can tell that the daily table of this simplistic trading system is helping educate many of you to my disciplined trading approach, I intend to spend more time developing more sophisticated models, and explaining them so that you can get control without ever having to feel this is some black box idiocy. Trust me; it’s simple arithmetic. Moreover, it is the general systems concept that is more important. Once you “get it”, you will become more patient in waiting for trading entry and exit points. You will see why I say that taking gains of +18.69 pct and +15.32 pct in seven sessions and banking the proceeds is what you need to do if you are ever going to manage your portfolio with confidence, with any hope of gaining those Warren Buffett-type +26 pct annual returns your Fund managers can’t seem to do for you.

Anything as good in life as learning to trade with confidence takes time to master. Give it time. Day by day, you will see the results.

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Links & Charts

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International Economics Review

US Economic Calendar.

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Knobias Cara100 Tables

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Cara 100 Daily RSI-7 Charts

At least one RSI value >70:

Ticker	Last	RSI-7M	RSI-7W	RSI-7D	Zone
ABX	53.23	87.31	75.09	70.35	Distribution Zone (for 3 days)
GG	38.74	81.42	68.88	65.52
PBR	109.25	78.76	59.42	61.27
CHRW	53.95	62.27	59.96	72.53
BC	17.90	16.43	46.21	78.68	Buy alert (trig. 7 days ago [on 2008-01-22 at $15.30, +16.99% chg], after a 6 day AZ)

At least one RSI value <30:

Ticker	Last	RSI-7M	RSI-7W	RSI-7D	Zone
BC	17.90	16.43	46.21	78.68	Buy alert (trig. 7 days ago [on 2008-01-22 at $15.30, +16.99% chg], after a 6 day AZ)
SBUX	19.22	16.51	24.66	44.11
KSS	43.12	17.88	38.30	56.89
JCP	44.79	19.00	48.35	67.10
UBS	42.26	19.33	29.04	45.72	Buy alert (trig. 7 days ago [on 2008-01-22 at $40.56, +4.19% chg], after a 2 day AZ)
SNDK	25.15	22.10	15.56	27.83	Accumulation Zone (for 2 days)
WAG	34.32	25.64	35.90	47.09
DELL	20.43	25.84	24.99	41.45	Buy alert (trig. 5 days ago [on 2008-01-24 at $21.09, -3.13% chg], after a 2 day AZ)
DIS	29.41	27.61	29.18	50.13	Buy alert (trig. 6 days ago [on 2008-01-23 at $28.52, +3.12% chg], after a 2 day AZ)
HBC	75.33	28.17	19.53	39.92	Buy alert (trig. 6 days ago [on 2008-01-23 at $76.62, -1.68% chg], after a 4 day AZ)
KB	64.52	28.59	32.94	39.47
PAYX	32.96	29.72	20.33	41.89	Buy alert (trig. 6 days ago [on 2008-01-23 at $33.34, -1.14% chg], after a 1 day AZ)
LLTC	27.66	29.78	20.96	43.09	Buy alert (trig. 6 days ago [on 2008-01-23 at $28.05, -1.39% chg], after a 2 day AZ)
TM	104.72	29.94	44.97	64.88	Buy alert (trig. 6 days ago [on 2008-01-23 at $99.25, +5.51% chg], after a 1 day AZ)
BMY	23.26	31.08	24.27	33.48	Buy alert (trig. 3 days ago [on 2008-01-28 at $23.59, -1.40% chg], after a 4 day AZ)
GSK	46.77	31.86	30.03	21.57
DB	114.56	32.93	29.55	40.67
YHOO	19.05	33.87	18.57	26.84	Buy alert (trig. 8 days ago [on 2008-01-18 at $20.78, -8.33% chg], after a 1 day AZ)
CSCO	24.36	35.23	25.10	42.90
INTC	20.69	35.47	29.51	47.22
ERTS	47.23	35.67	25.27	36.07
GE	34.94	37.36	28.38	52.77
CCJ	34.15	37.65	28.98	29.45
JNJ	62.18	45.30	26.98	18.62
PTR	141.32	45.38	25.19	24.14
NTES	17.63	45.47	35.33	25.28
PG	65.09	46.89	21.15	24.55
GOOG	548.27	48.08	27.08	23.97
EXC	73.04	50.55	29.78	30.97
TEF	86.28	60.26	28.87	32.31
KO	57.77	61.28	32.98	29.03

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International Equity Markets Review

Europe

Here is the latest session data for the bourses of Europe.

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Here is the latest session data for the London stock exchange FTSE.

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Here is the latest session data for the German DAX.

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Here is the latest session data for the French CAC 40.

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Here is the latest session data for the Milan Italy stock exchange MIBTEL.

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Here is the latest session data for the Swiss market index.

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Asia-Pacific

Here is the latest session data for the Asia-Pacific stock exchanges.

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Here is the latest chart for the Japanese Nikkei 225 index.

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Here is the latest chart for the Singapore index .

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Here is the latest chart for the Shanghai Composite index .

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Here is the latest chart for the Hong Kong Hang Seng index .

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Here is the latest chart for the India BSE 30 index .

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Here is the latest chart for the Australian All Ordinaries index .

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US Equity Markets Review

DJIA (interactive) chart

NASDAQ Composite (interactive) chart

Table: Dow 30 List

Sorted by 1-Week Price Performance

Symbol	Close	1Day Change	1Day %Change	1W %Change	2W %Change	4W %Change	YTD %Change	3M %Change	6M %Change	12M %Change
AA	32.70	0.04	0.12%	12.02%	4.84%	-10.53%	-9.49%	-16.94%	-14.51%	1.21%
BA	82.92	1.96	2.42%	8.29%	6.50%	-5.19%	-4.27%	-14.81%	-21.43%	-3.58%
GM	27.46	0.25	0.92%	6.85%	23.25%	10.33%	12.49%	-28.15%	-15.79%	-15.82%
C	27.83	-0.08	-0.29%	5.58%	3.30%	-5.47%	-3.77%	-33.91%	-41.03%	-48.72%
CAT	68.44	-0.55	-0.80%	5.16%	4.65%	-5.68%	-3.10%	-6.83%	-11.16%	8.84%
MO	76.58	0.46	0.60%	5.12%	-2.37%	1.32%	2.20%	5.25%	16.42%	16.56%
JPM	47.35	-0.10	-0.21%	3.57%	20.88%	8.48%	12.28%	1.70%	5.81%	-5.64%
INTC	20.69	0.19	0.93%	3.55%	-8.81%	-22.39%	-18.38%	-21.24%	-13.25%	-1.15%
DIS	29.41	0.61	2.12%	3.12%	-1.47%	-8.89%	-7.63%	-14.23%	-13.53%	-16.07%
HON	58.16	-0.28	-0.47%	2.94%	2.87%	-5.53%	-2.90%	-2.92%	-2.15%	28.85%
MMM	78.22	0.20	0.26%	2.79%	1.35%	-7.23%	-5.43%	-8.82%	-13.26%	4.71%
UTX	72.75	-0.43	-0.59%	2.49%	1.95%	-4.95%	-3.27%	-4.05%	-1.20%	8.66%
AXP	47.34	-0.46	-0.96%	2.45%	10.69%	-9.00%	-7.25%	-21.49%	-21.28%	-18.39%
XOM	85.28	0.20	0.24%	2.19%	-4.20%	-8.98%	-8.80%	-6.43%	-0.85%	14.64%
T	37.35	-0.54	-1.43%	1.80%	-0.74%	-10.13%	-8.90%	-9.80%	-6.08%	0.70%
PFE	23.10	-0.08	-0.35%	1.05%	-2.08%	1.63%	0.83%	-5.52%	-2.78%	-11.49%
GE	34.94	0.18	0.51%	1.00%	1.18%	-5.76%	-4.96%	-13.70%	-11.04%	-3.04%
MSFT	32.20	-0.40	-1.23%	0.85%	-5.29%	-9.55%	-8.57%	-9.47%	9.52%	5.64%
HPQ	43.54	0.16	0.37%	0.81%	-3.35%	-13.75%	-12.59%	-15.60%	-5.64%	1.00%
VZ	38.24	-0.47	-1.21%	0.45%	-9.32%	-12.47%	-11.50%	-15.70%	-7.88%	-0.88%
IBM	105.65	-0.45	-0.42%	-0.42%	3.75%	-2.27%	0.92%	-7.42%	-7.75%	6.32%
AIG	54.37	-2.36	-4.16%	-0.80%	-6.03%	-6.74%	-3.43%	-13.44%	-16.62%	-20.28%
PG	65.09	0.41	0.63%	-1.74%	-6.61%	-11.35%	-9.98%	-5.60%	2.88%	0.77%
DD	44.56	-0.59