A new investment idea in the face of rising oil prices--Harley Davidson (HDI) trades for around $56.50. Harleys have growing popularity with yuppies, wannabes, white trash, and aging baby boomers going through a mid life crisis. Now they can use the better fuel economy arguement to justify their purchase of a new Harley which they have been putting off for whatever reason.

The Dow Transports did not confirm the sell signal. The lowest the Transports traded was 2785 and rallied each time. The transports failed to take out the March lows below 2750 on a closing basis. There is still hope on the upside. Things to look for next week, falling oil futures (which of course helps the transports) and GE closing above 31 a very key level.

Further anectodal evidence that the stock markets rally from Dow 7700 to Dow 10,500 this past winter is fizzing out---The news item about a wall street banker running up a $28,000 tab at Scores, a New York Strip Joint.
Three people ordered several bottles of a $3200 champagne, and spent $7000 on 350 lap dances at $20 per. Anybody with a clue knows that these stories don't come out at the bottom, but always at the top. I am still waiting for a story about Mexican cab drivers quitting thier jobs to become day traders!

Some special situations in this dreary market. LEXR just signed a deal with Kodak (EK) for digital memory. LEXR is very, very oversold and at a good value around $9. SGP is close to FDA approval on a cholestorol drug. SGP sells for $16.50 and could in the next 6 to 18 months trade in the high 20's or more. TWX is a classic beaten down, turnaround situation. At 16.30 TWX management will do something in the near future to enhance the stock price.

Short IGT, the slot machine company, one of the markets best performers over the past years is now on the verge of being a broken stock technically. Short it on any rally to the 40 area, add to your position, below 36. Cover your short for a loss above 43.25. The downside target is 24. I looked at this chart after reading a NY Times Magazine Cover Story about IGT and the slot machine craze last Sunday. Of course the article proclaimed IGT to be the "Microsoft" of slot machine technology. Of course this is a non-financial publication making a call on a national mania, well after the mania has been fully recognized by the stock market. They don't ring a bell at the top, but this article is as good as the December 1999 Time Man of the Year article on Jeff Bezos CEO of Amazon.com. At the time of that article AMZN was 116, it fell to 12 over the next 2 1/2 years. Need I say more?

Dow theorists now have half their sell signal, the Dow closed below 10,000 taking out its March closing low of 10,048. Now the transports must close below 2750 for a full blown sell signal. It closed slightly above 2800 today. I found some value today in MTF a large Japanese bank. It has fallen 30% since mid April. I believe in the turnaround in Japan after 23 years of malaise. Enough is enough already. Even though I feel good about buying the low on the opening today at $7.40, I will be wrong if MTF should close below $7.15. Always know where you are wrong when establishing any new positions.

Gasoline prices up 15% this week. A gallon of regular is now $2.20. 30 yr. fixed rate mortgages approaching 7%, Health Insurance, Car Insurance, Insurance rates in general up double digits, college tuitions increases out paced inflation, New lows on the NYSE and NASDAQ now dwarfing new highs, food prices in the supermarket (milk especially) going through the roof. Inflation is back witha vengence!!! And this cannot be good for the economy. So much is tied to the price of gas, so many home equity loans tied to the prime rate, so many families barely getting by under the old prices, how will they survive under the new higher price environment??

Phony mortgage default rates---The media and housing experts will trumpet how low the mortgage default rates are by historical standards. This is misleading. The refinancing boom has masked the true underlying trouble many borrowers are in. After all, when you refinance out of a loan in default, or sell a home with a mortgage in default, that defauted loan is removed from the statistics in favor of a new fresh up to date loan, and so on. This game of mortgage musical chairs will soon play itself out as climbing interest rates, slow down the mortgage origination process. When the music finally grinds to a halt, then people will actually have to keep their payments up to date with (here's a novel idea) "Their Own Money!!" Only then will we see historic high mortgage default rates.

Today, the NYSE had more 52 weeks lows than 52 week highs. I can't remember the last time this has happened. Gas prices are above $2 per gallon; 30 yr mortgage rates are at 6 months highs over 6% and Google has announced a $2.7 billion offering. All these factors weigh heavily on the market. The failure of the market to rally at the end of the month is further bad news. Today, fund managers who have to be invested were forced to hide in GE, while dumping all small cap and mid cap stocks.

Look out Below!!! We are heading into the mean season, the historically week period for stock prices (May to October). All the last minute IRA deposits have been sucked up by the funds. Where will the money come from for the new IPO's???? With interest rates trending up, oil prices trending up and an uncertain outcome of the Presidential election in November, the market is dazed and confused as it should be.

If you don't think the real estate market is not at the top and at the verge of a long term decline, just notice the popularity of Donald Trump. He is everywhere and the media profiles are so out there you would have to be in a cave not to notice. Does the media flock to Trump at the bottom of the real estate market? No! It all comes out at the top!!

Everything is rallying, the Dow and S&P are at 2 year highs, there were over 300 new highs on the NYSE and 2 new lows--MAT and KSS, 2 stocks you definitely do not want to own. Although some moron will go on CNBC soon and tell you what a great retail stock KSS is---Wall Street has been touting Kohls for years, never a negative thing said....What crap analysts are!

Its the last month of an up year, the first up year in three. Money managers want their bonuses. So December is playing out this way--The biggest winners of the year, are getting hammered with profit taking. Look at the Chinese stocks (CYD for example) also stocks like, SNDK, LEXR, CECO, UPOX are getting slammed while the losers and small stocks are rallying. Sort of the "January effect" in December this year. Sell the winners and pick up some dreck like AWE, AETC, for last few weeks of the year.

$32 Billion flowed into equity mutual funds in the past 15 days, the greatest increase since February 2000, one month prior to the all time high of the stock market. Flow of funds are always the largest at the end of the move. Be very, very careful.

The next big mania in stocks—China. In the next few years, hundreds if not thousands of new IPO’s will come to the market as Chinese ADR’s. At first, the supply of available companies will be small, causing the stocks to shoot straight up. Mutual funds that invest in China will become the hot funds. Chinese stocks will have internet like valuations as analysts try to justify the run-up using “new era” analysis.

Then sometime in late 2006 Time Magazine will declare some Chinese entrepreneur as its Person of the Year. Months later the bubble will burst when the greedy discover that the “emperor has no clothes”; that the valuations were based upon fuzzy Chinese accounting; that there really weren’t any earnings. Sound familiar? The more things change, the more they stay the same

The risk reward ratio for Eastman Kodak (EK) is now 6 to 1 in favor of those willing to go long. In the next 18-36 months there is 5 to 6 points risk on the downside, and the potential of up to 30 points or more on the upside. I believe this is a risk well taken. And the stock still pays a 2% dividend.

9000 on the Dow is the last important support area, if this level is breached on a closing basis, Look out below! Interest rate update---- the 10 yr. bond yield has gone to 4.5% since our last commentary in July when it was 4.17%. The rate trend has reversed from down to up. Obviously the rate has gone up too much too fast, but the on balance trend in interest rates is now up. Homebuyers beware.

We landed on S&P 965 yesterday! This is support. But we got there on just the third trading day of the month. Therefore, one can only conclude, there is no juice in this market. The players are at the beach and they have taken their money with them. Be very careful. You can cover some of your shorts here and nibble on the long side, but doing nothing is probably the best advice in the month of August.

Follow up on COCO- we never got our short off as the stock never did break down at 44. It is still on our short radar list, but we do not invent trades! We let the market come to us. Not trading is a decision too, just as buy and sell are.

The mortgage refinance boom is over. If you did not refinance your mortgage its too late. The housing and mortgage companies will start to roll over and die. Look out below! Since our lst post on this subject on June 21, the 10 T-Bill (which mortgage rates are based) has gone up over 1% from a low of 3.09 to over 4.17% today. This is a tremendous move in a one month period of time. People dont even realize this and they will be shocked when they find out they did not lock in the rate at the time of their application.

Back to the stock market correction---Key support on the S&P exists in the 965 to 975 area. The Nasdaq can fall to 1600. Once we are there it will be the moment of truth, ie. is this a pullback with a great buying opportunity, or is it the next leg of the bear market. We are watching this very closely and once the evidence points overwhelmingly to one side of this argument, we will let everyone know.