QE II OR THE TITANIC?:

The real question is, how effective will the forthcoming Fed easing be - the only tool they have left to stem the economic decline? The Fed buys Treasuries and MBS, which provides cash for banks, corporations and other institutions, hedgers and the public, who turn around with an interest rate carry trade and buy Treasuries (10 to 1 over stocks), or invest in other countries that are business-friendlier, or buy back stock and raise dividends.

In a Contrarian's Delight, several asset classes have been on a tear this Fall, with stocks ignoring the worst seasonal slumps (so far), the dollar crashing, bonds metals rising to record levels.

Was option expiry week the end of these moves or just a breather? We are also coming into the best seasonal 3-month period; pre-election (2011) year is the best of the 4-year cycle (per J.P.Morgan's quarterly report, year 3 has averaged 16.6% since 1940, with year 4 a distant second at 8.4%). And the upcoming election bodes well for stocks.

Morgan's report also states there is $9.4T in CASH (M1-2, Institutions, public) gathering zero interest as of August 2010. But Sentiment readings are not what Bull markets are made of:

The McClellan Summation is close to +1,000 and the Bullish % of stocks is over 70%; high numbers of outflows occurred in MMFs and equity mutual funds.

Corporate Insider Selling jumped last week to 93:1 over Buying - I know colleges are expensive but not that much (the usual suspect)!

After an enthusiastic reception to a talk on my DITM covered call strategy last week at the Silicon Valley Option Group in Santa Clara, I've decided to start a "sister" blog: http://ditmcalls.blogspot.com. I have posted my actual trading results and annualized returns from 2009, 2010 YTD, and will update as stocks are called away or sold. Although I hope for double-digit gains annualized ( since it also offers a very good safety net, cash is not an option), option volatility is touching a low 18, as measured by the VIX last week, versus a 95 during the 07-08 slump. Downturns in a stock or market will raise that considerably.

Even high single-digit returns with only a danger of a Bear market loss is certainly worth looking into:

Morgan's statistics show since 1990 - Inflation was 2.8%; average investor gains (mostly mutual funds) 2.3%; homes 3.2%; Gold 5.2%, bonds 7%; and S&P stocks 8.2%.

Here are last week's numbers:

MktSentiment	Last Week	Prev. Week	5 Yr HI	5 Yr LOW
DJIA:	11062	11006	14093	6626
Nasdaq:	2468	2401	2805	1114
S&P 500:	1176	1165	1561	683
CBOE Eq. put/call:	52	61	96-10/08	46-1/03
VIX:	19.0	20.7	90	8.8
McClellan Osc:	(1)	21	108	(123)
McClellan Sum:	952	866	1568	(1514)
Newsletter Surveys
InvestorsIntel.Bull:	47.2	45.6	63	22.21
InvestorsIntel.Bear:	24.7	28.3	54.4	16
AAII Bull:	47.1	49.0	n/a	n/a
AAII Bear:	26.8	27.7	n/a	n/a
US Equity-1 week lag	n/a	(5.6B)
Money Market Flows	(5.8B)	(.5B)
Baltic Dry Index:	2769	2696	11700	663
Bullish %:	71	68	88	2
Insider Corporate Sellers:	93:1	21:1	108:1	2.4:1

With record numbers of dollars coming out of Money Market Funds, mostly into the crowded trade of short term bonds, anyone who has a minimal knowledge of covered call options and/or an interest in hedging stock market exposure might want to check out: brentleonard.com for an alternative strategy that is low-risk as well as highly rewarding. For those of you wanting more details and actual trading results, a new book is available for $14.95 at Amazon.com: Zero (IN)Tolerance

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QE II OR THE TITANIC?:

WE'RE "IN-THE-MONEY":

The Post-Depression Song title also serves as the slogan for my favorite Investing Strategy for the Post-Recession era: the Deep-In-The Money covered call strategy that has been extensively tested over a year and a half to not only approach double-digit returns, but more importantly, is a defensive hedge against all but a severe Bear Market.

This coming Wednesday, Oct.13, I shall be giving a talk to the Silicon Valley Option Group at the Embassy Suites (near Great American Parkway) in San Jose, for those who are interested in learning more about it.

In an earlier blog I opined that too much media hype might reverse the Sept. jinx, although the reliable 4-year Kinchin/Presidential cycle bottom in October is still a possibility, before entering the positive year-end time of year. Providing further impetus is the large number of underperforming mutual funds and hedgehogs that need to catch up by year-end.

Volume remains week, as does the VIX, now just above 20; breadth remains very strong - breaking my cumulative A/D total every week. This allows put buyers to hedge more cheaply, as the put/call ratio is now high at 61. Both the Bullish% and newsletter surveys are showing complacency.

Here are last weeks numbers:

MktSentiment	Last Week	Prev. Week	5 Yr HI	5 Yr LOW
DJIA:	11006	10829	14093	6626
Nasdaq:	2401	2370	2805	1114
S&P 500:	1165	1146	1561	683
CBOE Eq. put/call:	61	57	96-10/08	46-1/03
VIX:	20.7	22.5	90	8.8
McClellan Osc:	21	21	108	(123)
McClellan Sum:	866	n/a	1568	(1514)
Newsletter Surveys
InvestorsIntel.Bull:	45.6	43.3	63	22.21
InvestorsIntel.Bear:	28.3	27.8	54.4	16
AAII Bull:	49.0	42.5	n/a	n/a
AAII Bear:	27.7	31.6	n/a	n/a
US Equity-1 week lag	n/a	(4.1B)
Money Market Flows	(.5B)	n/a
Baltic Dry Index:	2696	n/a	11700	663
Bullish %:	68	n/a	88	2
Insider Corporate Sellers:	21:1	n/a	108:1	2.4:1

With record numbers of dollars coming out of Money Market Funds, mostly into the crowded trade of short term bonds, anyone who has a minimal knowledge of covered call options and/or an interest in hedging stock market exposure might want to check out: brentleonard.com for an alternative strategy that is low-risk as well as highly rewarding. For those of you wanting more details and actual trading results, a new book is available for $14.95 at Amazon.com: Zero (IN)Tolerance

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WE'RE "IN-THE-MONEY":

EARLY EDITION:

Since I am leaving for a two-week vacation tomorrow, Sentiment results are effective Thursday (as if Friday were a Holiday).Still complacent, but backing off a bit, the AAII Bull/Bear numbers (out on Wednesdays of each week) were 45 to 25.4%; the Inv.Intell., out on Tues.., were not updated yet.
Thursday closes were slightly higher than the week before.
Mutual funds flows were still Outflows - $3.6B with a week lag of data. Bullish % climbed to 62%, getting a bit overbought.

With record numbers of dollars coming out of Money Market Funds, mostly into the crowded trade of short term bonds, anyone who has a minimal knowledge of covered call options and/or an interest in hedging stock market exposure might want to check out: brentleonard.com for an alternative strategy that is low-risk as well as highly rewarding. For those of you wanting more details and actual trading results, a new book is available for $14.95 at Amazon.com: Zero (IN)Tolerance

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EARLY EDITION:

DANCING WITH THE TSARS:

DIS-Appointment?: Apparently recent Presidents believe that they can bypass Congress by setting up unvoted-on offices, such as Liz Warren's new position. Although she may be a brilliant and dedicated person, the idea of more gov't is grist for the Constitutionalists' Mill.
Autumn leaves may turn to Tea leaves in November.
Meanwhile, nothing upsets the market's proclivity to undermine the September curse (so far) - October may be a different animal. Volume, which, for some reason is never tracked on CNBC,Bloomie, got back to normal last week, thanks to option expiry, which is also rarely mentioned as having an effect on markets.
Most Sentiment Indicators were benign, with the exception of the AAII Bull/Bear ratio, which comes out on Wednesdays - it flashed a 50.9% Bulls, which is getting complacent - while the complementary Bears dropped 7% to 24.3.
Corporate (legal) Insider Selling jumped by a factor of 6 times the total of 2 weeks ago. MMF flows also leapt from $10B Inflow to a negative $25B outflow - most likely to Emerging markets and fixed income.
Here are the numbers:

MktSentiment	Last Week	Prev. Week	5 Yr HI	5 Yr LOW
DJIA:	10607	10462	14093	6626
Nasdaq:	2315	2242	2805	1114
S&P 500:	1125	1109	1561	683
CBOE Eq. put/call:	57	61	96-10/08	46-1/03
VIX:	22.0	22.0	90	8.8
McClellan Osc:	25	43	108	(123)
McClellan Sum:	695	502	1568	(1514)
Newsletter Surveys
InvestorsIntel.Bull:	36.7	33.3	63	22.21
InvestorsIntel.Bear:	31.1	32.2	54.4	16
AAII Bull:	50.9	43.9	n/a	n/a
AAII Bear:	24.3	31.6	n/a	n/a
Nova/Ursa Mutual Funds:	n/a	n/a	2.2	0.56
US Equity-1 week lag	n/a	(2.2B)
Money Market Flows	(24.6B)	10.6B
ETF equity:Monthly Totals	n/a	n/a	n/a
Baltic Dry Index:	2737	2995	11700	663
Bullish %:	57	52	88	2
Insider Corporate Sellers:	32:1	21:1	108:1	2.4:1

With record numbers of dollars coming out of Money Market Funds, mostly into the crowded trade of short term bonds, anyone who has a minimal knowledge of covered call options and/or an interest in hedging stock market exposure might want to check out: brentleonard.com for an alternative strategy that is low-risk as well as highly rewarding. For those of you wanting more details and actual trading results, a new book is available for $14.95 at Amazon.com: Zero (IN)Tolerance

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DANCING WITH THE TSARS:

Thank Goodness It's Fall!:

Contrarian's Delight - Media hype is that September (and October) are the worst times for stocks. So far...so good. On the worst Volume and smallest indices moves in awhile - Sentiment Indicators were jumping all around last week, as we approached the top of the 1025-1125 S&P500 Trading Range.
Thanks to Labor Day and Rosh Hashana, trading was weak, but mostly positive.
My cumulative A/D went to another new high, as did NYSE new highs - much of which are bond-like securities (Pfds, CEFs, ETFs); but the Nasdaq new hi's/lo's inverted positive.
Newsletter surveys went Bearish FOR the market, especially the AAII ratio.
And CEO Insider Selling quadrupled to 21:1, but exchanges Short Interest shot up @5%.
The BDI, or Baltic Dry Index, a proxy for the global economy, hit a 3-month high, as did the WIP, the World Inflation Index.
Finally, large numbers of $$ flowed out of domestic equity mutual funds and into MMFs.

After next week I shall be vacationing with family in SoCal, so the blog will be temporarily interrupted.
When returning, I have been invited to speak to the Silicon Valley Option Group on Oct.13, at the San Jose Embassy Suites, and also a Marin investor group.
Topic will be my DITM, or Deep-In-The-Money option strategy which has performed very well in this economy - I shall also be starting a new blog citing the actual trading results since its inception in 2009: very close to the historic 100-year stock market average of 10%, when markets are now still at 1998 levels!
Here are a couple of recent results with opening date, Symbol and Total Net Return :
7/14/2010 PFE 19.07%
10/29/09 DD 8.70%
2/26/10 MRK 11.4%

And here are the Sentiment Indicators:

MktSentiment	Last Week	Prev. Week	5 Yr HI	5 Yr LOW
DJIA:	10462	10447	14093	6626
Nasdaq:	2242	2133	2805	1114
S&P 500:	1109	1104	1561	683
CBOE Eq. put/call:	61	58	96-10/08	46-1/03
VIX:	22.0	21.3	90	8.8
McClellan Osc:	43	48	108	(123)
McClellan Sum:	502	376	1568	(1514)
Newsletter Surveys
InvestorsIntel.Bull:	33.3	29.4	63	22.21
InvestorsIntel.Bear:	32.2	37.7	54.4	16
AAII Bull:	43.9	30.8	n/a	n/a
AAII Bear:	31.6	42.2	n/a	n/a
Nova/Ursa Mutual Funds:	n/a	n/a	2.2	0.56
US Equity-1 week lag	n/a	(7.6B)
Money Market Flows	10.6B	(6.2B)
ETF equity:Monthly Totals	n/a	n/a	n/a
Baltic Dry Index:	2995	2835	11700	663
Bullish %:	52	49	88	2
Insider Corporate Sellers:	21:1	5:1	108:1	2.4:1

With record numbers of dollars coming out of Money Market Funds, mostly into the crowded trade of short term bonds, anyone who has a minimal knowledge of covered call options and/or an interest in hedging stock market exposure might want to check out: brentleonard.com for an alternative strategy that is low-risk as well as highly rewarding. For those of you wanting more details and actual trading results, a new book is available for $14.95 at Amazon.com: Zero (IN)Tolerance

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Thank Goodness It's Fall!:

NONLABOR DAY:

With investors not yet back to work (those that still have jobs), no pattern is yet visible for the future - as we continue in the bounded Trading Range. Volume is still low, mostly from HFTs (high frequency traders) who never vacation.
My cumulative A/D total hit a record high, but as the disputers of the Hindenburg Omen state, much of the NYSE Advance/Decline total is comprised of bond-like Pfds, CEFs and ETFs - the Nasdaq New Highs to New Lows remains negative.
Both Bull/Bear surveys remain Bullishly inverted, although with the Inv.Intell., which comes out on Tuesdays, Bulls fell 4 points to 29.4 - the AAII survey, which comes out on Wednesdays, saw the Bulls number rise a full 10 points to 30.8.
Money left MMFs for the first time in a couple months, but probably is going into Fixed Income, as the 1-week lagging Equity number remains negative.
Key officers' Insider Selling is 1/10 of what it was earlier in the Summer.
Finally, a short term negative: the McClellan Oscillator (ratio adjusted) reached my top zone of 48 .
Here are the numbers:

MktSentiment	Last Week	Prev. Week	5 Yr HI	5 Yr LOW
DJIA:	10447	10150	14093	6626
Nasdaq:	2233	2153	2805	1114
S&P 500:	1104	1064	1561	683
CBOE Eq. put/call:	58	58	96-10/08	46-1/03
VIX:	21.3	24.4	90	8.8
McClellan Osc:	48	(15)	108	(123)
McClellan Sum:	376	371	1568	(1514)
Newsletter Surveys
InvestorsIntel.Bull:	29.4	33.3	63	22.21
InvestorsIntel.Bear:	37.7	31.2	54.4	16
AAII Bull:	30.8	20.7	n/a	n/a
AAII Bear:	42.2	49.5	n/a	n/a
Nova/Ursa Mutual Funds:	n/a	n/a	2.2	0.56
US Equity-1 week lag	n/a	(4.3B)
Money Market Flows	(6.2B)	3.7BB
ETF equity:Monthly Totals	n/a	n/a	n/a
Baltic Dry Index:	2835	2703	11700	663
Bullish %:	49	44	88	2
Insider Corporate Sellers:	5:1	8:1	108:1	2.4:1

With record numbers of dollars coming out of Money Market Funds, mostly into the crowded trade of short term bonds, anyone who has a minimal knowledge of covered call options and/or an interest in hedging stock market exposure might want to check out: brentleonard.com for an alternative strategy that is low-risk as well as highly rewarding. For those of you wanting more details and actual trading results, a new book is available for $14.95 at Amazon.com: Zero (IN)Tolerance

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NONLABOR DAY:

STOCKS VS. BONDS:

In the forthcoming TSAA Review there is an article by GGU Adjunct Prof. Nolan Olhausen which reopened my eyes to a tight inverse correlation between stocks and bonds, primarily Treasuries. Since 2007 there has been a mirror image of these, as shown by comparing the TLT to the SPY on a daily basis - almost as though it were a zero sum game.

Another tight correlation, also coincident, is one I've espied for years in the IBD (Investors' Daily), on the chart page, between the DJIA and put/call trading Volume below it - also inverse.

Although coincident may be too late to act, being in the neighborhood can be an eventual and cautionary alert.

Last week's drowsy mean-seeking numbers gave little indications, save for the AAII Bull/Bear readings - a very reliable one: they jumped from 30/42 to 20/49, which is cause for an imminent rally, possibly after Labor Day - a usually bullish time, before the Sept./Oct. onslaught.

MktSentiment	Last Week	Prev. Week	5 Yr HI	5 Yr LOW
DJIA:	10150	10213	14093	6626
Nasdaq:	2153	2179	2805	1114
S&P 500:	1064	1071	1561	683
CBOE Eq. put/call:	70	66	96-10/08	46-1/03
VIX:	24.4	25.5	90	8.8
McClellan Osc:	-15	-34	108	-123
McClellan Sum:	371	607	1568	-1514
Newsletter Surveys
InvestorsIntel.Bull:	33.3	36.7	63	22.21
InvestorsIntel.Bear:	31.2	31.1	54.4	16
AAII Bull:	20.7	30.1	n/a	n/a
AAII Bear:	49.5	42.5	n/a	n/a
Nova/Ursa Mutual Funds:	n/a	n/a	2.2	0.56
US Equity-1 week lag	n/a	(2.7B)
Money Market Flows	3.7B	4.1B
ETF equity:Monthly Totals	Apr.831B	Mar.805B	n/a
Baltic Dry Index:	2703	2756	11700	663
Bullish %:	44	54	88	2
Insider Corporate Sellers:	18:1	14:1	108:1	2.4:1

With record numbers of dollars coming out of Money Market Funds, mostly into the crowded trade of short term bonds, anyone who has a minimal knowledge of covered call options and/or an interest in hedging stock market exposure might want to check out: brentleonard.com for an alternative strategy that is low-risk as well as highly rewarding. For those of you wanting more details and actual trading results, a new book is available for $14.95 at Amazon.com: Zero (IN)Tolerance

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STOCKS VS. BONDS: