Professor Elam

Markets
101

Following financial markets may or may not have
been your hobby when oil was $145. Now that oil is $40 and stocks are down 50%,
perhaps this has past time has gained in appeal. So what does one need to know
in the big picture of things.

Perhaps the most important concept to grasp is
that the news is extraneous to what is happening. The news usually simply
verifies or justifies what has already happened or is happening in the
market.  Reading such a statement
in a NEWS paper may seem odd. However Andrews County News provides unique
information not found anywhere else. National and international news sites all
follow politicians and other celebrities.

The job of the financial markets is to predict
what is going to happen. Hence, the best of all world was seen in March 2000
and July 2007. The worst was seen after the 9/11 attack. That was a market buy
but of course no one bought there. 
The best of all worlds for oil was at $145. This column reported last
summer that oil had completed price patterns on the monthly chart and therefore
was due for a fall.  The news of
course was that various economists were predicting $200, which, ahem, turned
out to be a bad bet.

Okay in the here and now, what is a person to
do?  The answer is to ignore what
people say and like that old maxim, watch what the markets do. Here are some
specifics. Amidst the oil price collapse, OPEC announces production cutbacks.  A reading of history reveals that OPEC
has never successfully cut production, once the price starts to fall. Cutbacks
were the rule from 1982 to 1986 as price fell every year. All the member states
cheated of course price finally crashed. So never mind what OPEC says.  Instead focus on a continuation chart for
West Texas Intermediate ($WTIC at scockcharts.com).  Right now we need 
a close over $46 on the daily chart and $50 would be even better. Until
that happens, OPEC can talk all it wants.

XES is the Energy Service Exchange Traded Fund.
It actually has closed over its 50 day moving average. So despite all the doom
and gloom you HEAR on the news, 
the market is seeing something positive. For Andrews the Energy Serivce
Industry index is more important than energy itself.  Energy Services usually lead the energy market.

Bear markets are characterized by lower lows and
lower highs. Recoveries or bull market require higher highs and higher lows. So
in stocks we need a definite close in the Dow Industrials above 9,000, for
starters. As I write we are at 8234.

All the King’s Horses and all the King’s Men
have done everything to put Humpty Dumpty back together again, this would be
the banking system. Money has been showered on AIG, CITI, etc.  The LIBOR London Interbank Offered Rate
of Interest has fallen as well as other spreads but lending and bank stock
prices are still in the tank. The banks are still saddled with trillions (not a
misprint) of dollars of derivatives and other exotic stuff that they are unable
to price, much less identify. The Good Ship Bad Bank which is proposed to take
all this stuff has yet to sail but this is the proposed solution. That buoyed
bank stocks from their absolute dead lows this past week. But the XLF of bank
stocks trades at a mere $10. We really need a close over $12 to suggest something
positive is happening. The waves of selling have subsided, where are the
buyers?

As 
for the bailout stimulus package, look to the markets not the
politicians. Clearly this is a chance to wildly expand government intervention
in every aspect of the economy. The Government effectively controls Bank of
America and Citicorp.  One can add
GM and Chrysler to the mix.  The
bailout is all about increasing government control (hello France) rather than
getting something done right now. Something right now might include a social
security tax holiday for three months, heck the fund is broke anyway.  That would give everyone more money to
spend. And frankly, until we all go investing again, nothing much is going to happen.  And that is the real news.