Consolidation of Western markets continues, as the rally builds strength

Pro shares and other clever financial gimmicks are now as vulnerable as the phony mortgage derivatives were. They worked only in one way markets. But the stock market is now reversing direction and this is when their infallible gimmicks break down.

Yesterday the market hung on to most of Monday's large gains. It was another opportunity to pick up high dividend stocks with cash and low debt. Today futures indicate a good start for the day.

Asian markets show a much clearer bottom than Western markets and Asian markets were up several percent again as was the norm in the good old days (last year). Asian markets have large domestic consumer bases that will allow them to grow faster than the West for some time.

Shanghai Composite 2.0%, Hang Seng 5.6%, BSE 5.4%, Jakarta Composite 3.9%, Nikkei 3.2%, Straits Times 3.8%, Seoul Composite 3.6%, Taiwan Weighted 4.2%.

European markets are mixed and waiting for the American engine of innovation to resume the advance. The velocity of money refers to the rate at which money flows from hand to hand in an economy and is what results in the monetary multiplier effect. Much of the money injected into the banks was consumed covering bad debts instead of being loaned out. Money is plentiful but is still being hoarded at this time based on the advice of the same predators on Wall Street that have shorted the begesus out of banking and other targeted equities. The short sellers such as Goldman Sachs have already begun racking up losses because they are now highly vulnerable. Perhaps you have heard of naked shorting where more shares of a stock are shorted than exist? It is still being done even though it is not legal because the monitoring of the market is, gently speaking, in chaos. A short covering panic is brewing and some stocks will be bid up tremendously because there are too many naked shorts. As the velocity of money increases back to normal the short side of the Hedge Funds will devastate many funds and portfolios.

Hedge funds that are not prepared for this upturn (that can already be clearly seen in Asian markets) will be forced into liquidation as their short holdings rack up loses. You will see the Pro shares and other short side financial gimmicks are no safer no than the phony mortgage derivatives were. We would get out ASAP because that is how the small investors help the predator short sellers cover and transfer their losses to Joe Investor.

People are so cautious now they are buying US Treasuries that bear no interest at all. That is extremely unwise since printing money is the way governments get rid of their Treasury IOUs. Any government will jump at the opportunity to print as much money as possible as long as it is not inflationary. The turn around in the market will bring those Treasury investors back into the stock market.

Wall Street no longer publishes real market volumes. If you look at Yahoo and others you see the volume is fiction because the DJI, NYSE, and S&P have been fabricate since January 2005. If you go directly to the NYSE and look up April 10, 2007 as the market was rallying it said the volume was 2,510,110,000. If you look up Monday's rally the NYSE said 5,692,796,000 or more than twice the volume. Yet CNBC's totally obtuse Fast Money commentators said the volume is too low to rally. Mad Money and FOX were correct and said the volume is high. The volume is enormous as short sellers are doing their best to sow ignorance and fear because generally ignorance and fear works for them. Fear is flooding the Treasury market with buyers but during this consolidation fear is losing and a short covering panic is looming as a storm on unwise investors that have been lured into the dark side, the short side, of the market. For certain the funds will see the little Joe short sellers eaten alive before they take their fund loses.

We were warning investors last year to get out of stocks before the collapse but Bob Brinker and CNBC advised investors to stay invested. Now they both are saying stay out of equities as we slowly pass a market low. Anyone who would buy and hold should stay out of equities all together because investors should be aware that 60 to 90 days is the longest horizon they should ever consider before re-considering their holdings. Investors should always be prepared to re-allocate and should never intend to hold forever because when they lose 90% of their 401 retirement plans people unfortunately do not have a stomach to continue to hold. Buy and hold psychologically is impossible for most people and the people with the least savvy and will-power are usually the ones who follow the buy and hold philosophy. But Warren Buffet and Jimmy Rogers are continually buying and selling and they see this relative low we are passing through as the buying opportunity of a lifetime. So do we.

We examined the market volume for the last 15 days… and 10 of the 15 had higher volume than average on market advances and lower volume than average on declines showing that buying pressure has been dominating in the last three weeks.