S&P 500 Index and Crime

Below is an updated chart of the S&P 500. It looks like there was not a whole lot of interest above the 1571.44 target level. The market has been extremely strong given the news environment. With more and more companies reporting earnings over the next few weeks, this was a place to take profits. Also included below is a chart comparing the percentage of stocks trading above their 40 day moving average and a chart showing the divergence with the transportation index.

S&P 500 Index


S&P 500 Index w/% above 40day moving average


Dow Jones Transportation Index


The market seems to perform in a healthier fashion when the transportation index is above its 50day moving average(dark blue line).

Below are some companies that profit from the growing prison population. This might just not be a play on domestic prison growth, as some deal with countries all over the world. The Pew Charitable Trusts recently estimated that the U.S. prison population could grow at 13% per year. That is a staggering pace. The Pew report estimates that the growth in the prison population will produce a five-year cost to taxpayers of $27.5 billion.





CXW - Corrections Corp Of America


CXW - Corrections Corporation of America engages in the ownership and operation of privatized correctional and detention facilities in the United States. It owns, operates, and manages prisons, jails, and other correctional facilities, as well as provides inmate residential and prisoner transportation services for governmental agencies. The company's facilities offer various rehabilitation and educational programs, including basic education, religious services, life skills and employment training, and substance abuse treatment. It also provides healthcare services, including medical, dental, and psychiatric services; food services; and work and recreational programs. Corrections Corporation offers its services to federal, state, and local correctional and detention authorities. As of December 31, 2006, the company owned 43 correctional, detention, and juvenile facilities in 14 states and the District of Columbia, of which 3 were leased to third-party operators. It also managed 24 correctional and detention facilities owned by government agencies. The company was founded in 1983 and is based in Nashville, Tennessee.



CRN - Cornell Corrections Inc.


CRN - Cornell Companies, Inc. provides correction, detention, education, rehabilitation, and treatment services to adults and juveniles in federal, state, and government agencies in the United States. The company operates in three divisions: Adult Secure Institutions and Detention Centers; Juvenile Justice, Educational, and Treatment Programs; and Adult Community-Based Corrections and Treatment Programs. The Adult Secure Institutions and Detention Centers division offers security incarceration and detention; confinement of juveniles adjudicated as adults; facility design, construction, and operation; education courses; healthcare services; substance abuse counseling; life skills training; religious opportunities and culturally sensitive programs; food and laundry services; and recreational activities. The Juvenile Justice, Educational, and Treatment Programs division offers residential, detention, shelter care, and community-based services, as well as educational, rehabilitation, and treatment programs to juveniles between the ages of 10 and 17. The Adult Community-Based Corrections and Treatment Programs division provides community-based correction services, including temporary housing, employment assistance, anger management instruction, personal finance management training, academic opportunities, vocational training, and substance abuse or addiction counseling to parolees and probationers. This segment also offers community-based treatment services, such as short-term and long-term residential care, counseling, HIV services, DUI services, detoxification, and methadone maintenance. Cornell was founded in 1991 and is headquartered in Houston, Texas.


GEO - The Geo Group


GEO - The GEO Group, Inc. and its subsidiaries provide government-outsourced services in the management of correctional, detention, and mental health facilities in the United States, Australia, South Africa, the United Kingdom, and Canada. The company operates correctional and detention facilities, including maximum, medium, and minimum security prisons; immigration detention centers; minimum security detention centers; and mental health and residential treatment facilities. It offers correctional and detention management services, such as provision of security, administrative, rehabilitation, education, and health and food services, primarily at adult male correctional and detention facilities. The company's mental health and residential treatment services involve the delivery of care, programming, and active patient treatment, primarily at privatized state mental health. It also offers life skills and transition planning programs that provide inmates job search training and employment skills, anger management skills, health education, financial responsibility training, and parenting skills, as well as offer counseling, education, and treatment to inmates with alcohol and drug abuse problems. In addition, the company also develops new facilities based on contract awards, as well as provides consultation and management services relating to the design and construction of new correctional and detention facilities, and the redesign and renovation of older facilities. As of December 31, 2006, it operated approximately 62 correctional, detention, and mental health and residential treatment facilities, and had approximately 54,000 beds under management. The company was formerly known as Wackenhut Corrections Corporation and changed its name to The GEO Group, Inc. in 2003. The GEO Group, Inc. was founded in 1984 and is based in Boca Raton, Florida.

Some of our nation's most creative CEOs now reside in prisons. That thought sure makes us feel better about this kind of investing.

Wanted: Prime Suspect of Housing Market Murder

By Susan C. Walker, Elliott Wave International
October 8, 2007

Helen Mirren accepted her Emmy award for best actress in the mini-series, "Prime Suspect" with elegance and grace. Just the opposite of the tough detective superintendent character she plays who tracks down murder suspects in England. Who would Jane Tennison pick out as the prime suspect for the murder of the U.S. housing market and the resulting gruesome credit crunch?

Suspect No. 1 – Phil Spector
No – sorry, wrong case, wrong suspect. Spector has been on trial for the murder of a guest at his home (the judge declared a mistrial this week), but Spector has nothing to do with the subprime mortgage fallout and ensuing credit crunch. O.J. Simpson, who stands accused of trying to "recover" his sports memorabilia, is not the prime suspect either. If the crime doesn't fit, you must acquit.

Suspect No. 2 – Alan Greenspan
Says that he didn't catch on for a few years that subprime mortgages could create a problem for the economy. As chairman of the Federal Reserve, he let easy credit ride, which facilitated the housing bubble and the subsequent implosion. Could liken his behavior to supplying the gun to a rampaging murderer. Guilty of aiding and abetting, but he's not necessarily the prime suspect.

Suspect No. 3 – Angelo Mozilo
Angelo Mozilo, CEO of Countrywide Financial (largest mortgage company in the United States), says he kept his staff writing subprime mortgages day and night, because if they didn't, then home purchasers would just find someone else to give them a low-quality mortgage. Company went from writing 4.6% of its overall mortgages as subprimes and low-documentation loans in 2004 to 8.7% in 2006. Guilty of greed and a poor business plan but not murder.

Suspect No. 4 – S. & P. and Moody's
Oh, whoops, say these rating agencies, we thought that once you sliced up a BBB security thinly enough and packaged it with other more desirable collateralized debt obligations that we could call it AAA. Did we mislead anybody? Again, aiding and abetting but not a prime suspect.

Suspect No. 5 – Goldman Sachs and other investment banks
Says that their investors wanted higher returns and that collateralized debt obligations spiced up with subprime mortgages served the purpose. And besides, they say, the rating agencies gave them an excellent rating. Guilty of acting like a fence but not the prime murder suspect.

The True Prime Suspect
All of these are worth a look as suspects, but the true prime suspect has neither a first name nor a last. It's known as "social mood," and its m.o. is "herding behavior." That's our real murderer, the one that quashed the hopes and dreams of those who believed that house prices would always go up. Social mood changed, and with it changed the idea of what were smart financing moves to purchase a house. Suddenly, as house prices began to fall and subprime mortgagees began to default on their loans, the stick house built on low-quality mortgages seemed like a really bad idea.

Who knew? When social mood was positive, mortgage writers pushed people who couldn't really afford a mortgage into believing they could. Then they sold the mortgages to eager investment bankers who sliced them up into small packages of risk and re-packaged them with less risky securities. Then the ratings agencies gave their stamp of approval: AA? Why not AAA? And eager investors who wanted higher returns bought them up.

But now the game is up. When social mood turns from positive to negative, fear replaces greed, and people begin to see the riskiness for what it is. When social mood changes from positive to negative, markets turn from bullish to bearish. And no one can stop it – not even the Fed.

This is how Bob Prechter, president of Elliott Wave International, describes the phenomenon:

"Like credit inflation, credit deflation is in fact an intricate, interwoven process, whose initial impetus is a change in social mood from optimism toward pessimism. If you are still on the fence about this idea, ask yourself: What changed in the so-called “fundamentals” between June and August? The answer is: absolutely nothing. Interest rates did not budge; there were no indications of recession; there were no changes in bank lending policies; there were no chilling government edicts.

"The only thing that changed was people’s minds. One day sub-prime mortgages were a fine investment, and the next day they were toxic waste. There was no external cause of the change.… According to socionomic theory, the stock market is a sensitive indicator of such changes in mood. This is why The Elliott Wave Theorist has continually said that the financial structure will hold up as long as the stock market rises. A downturn occurred in mid-July, and its consequences in terms of negative social mood are becoming swiftly evident. Remember, C waves (see Elliott Wave Principle, Chapter 2) are when optimistic illusions finally disappear and fear takes over. Sounds like now." [Elliott Wave Theorist, September 2007]

How To Protect Yourself from the Prime Suspect Who is Still on the Loose

Social mood has turned ugly and is likely to continue its murderous rampage, leaving the policymakers helpless. As analysts Steve Hochberg and Pete Kendall write in The Elliott Wave Financial Forecast: "The Fed does not "inject" liquidity; it only offers it. If nobody wants it, the inflation game is over. The determinant of that matter is the market. When bull markets turn to bear, confidence turns to fear, and a fearful people do not lend or borrow at the same rates as confident ones. The ultimate drivers of inflation and deflation are human mental states that the Fed cannot manipulate."

What should you do to protect yourself in this time of falling home prices, a powerless Fed and a contracting economy? Bob Prechter wrote one of the best how-to books. It's his business best-seller, titled, Conquer the Crash, How To Survive and Prosper in a Deflationary Depression. You might want to start there.

Editor's Note: You can read a FREE 9-page chapter from Conquer the Crash –
You will learn the implications of the massive credit expansion, what triggers the change from boom times to recession, and more.

Susan C. Walker writes for Elliott Wave International, a market forecasting and technical analysis company. She has been an associate editor with Inc. magazine, a newspaper writer and editor, an investor relations executive and a speechwriter for the Federal Reserve Bank of Atlanta. Her columns also appear regularly on FoxNews.com.

Earnings Start With Lowered Expectations

It is the start of earnings season. With the market in rally mode after a half point rate cut and the correction in the jobs number, the market looks to get stronger and stronger. Below is an updated chart of the S&P 500 Index with the opening range levels marked in the red dashed lines. The top pane compares two sets of indicators which measure different time frames of money-flows. The market is in bullish mode when the indicators are above zero and the blue histogram bars are greater than the red line. The next new target is 1571.44.

S&P 500 Index


NDX Nasdaq 100 Index


The potential target for the NDX-Nasdaq 100 Index is the 2218 area. The money-flow comparing pivots and volume show pretty good strength. With earnings estimates being lowered, it should be interesting to see the reaction when companies miss or beat their earnings estimates. Will their growth rates maintain or will people just be happy that they beat or match want analysts project?

Below is the VIX index which shows some of the fear has left the market. This could be a bad thing!

VIX CBOE Volatility Index


Below is something to think about when comparing stocks with the lowered earnings expectations over the next few weeks. Avoid pigs with lipstick.

Lowered Expectations

The New Quarter S&P 500 Index

The chart below shows the S&P 500 and levels based from the opening range from back in January. This chart is meant to be a map of potential target levels and support. The sell off in August seems like such a distant memory as the market approaches new highs again. Applying this opening range technique can be applied to just about any time frame. The longer term chart below shows the entire year to date, while the second chart focuses on ranges established by the start of the third quarter.

S&P 500 Index Full Year Levels(click to enlarge)


S&P 500 Index 3rd Quarter Levels(click to enlarge)


Nasdaq 100 Index


The opening range established by the start of the 4th quarter could provide a great pivot point to base trades from for the rest of the year. As bullish as things seem with the Fed cutting rates, it is important to remember there are reasons that they are cutting rates. These reasons are real and there is a cost to cutting interest rates. The market is focusing on the positives for equities currently, but this bipolar marker will again focus on the risks, and this is where these range levels can provide support and stop areas to prevent large losses.

The next post will deal with combining these levels with volume and where the actual daily prices closes to determine hidden market strength and weakness.

Commodity Re-balancing

Crude Oil


GLD - Gold ETF


With the start of a the fourth quarter it is helpful to look back at some of the strong gainers in the third quarter. Two examples that were particularly strong and trading in an orderly trend were oil and gold. Both of these commodities are major components of many of the commodity index that various fund managers follow. After strong quarterly gains it is helpful to watch for re-balancing at the start of a new quarter. Oil had a gain of almost 16% for the quarter while gold had a gain of almost 14%. This means that the initial weighting of commodity indexes could be in need of re-adjustment. To do this there could be some selling in the commodities that were strong for the quarter and buying in some of the weaker index members. Keeping this in mind might help explain some selling that might not otherwise make sense. Any strength in the U.S.Dollar could also mask this rebalancing effect. Oil and Gold are both very sensitive to the dollar and at the present time seems to be benefiting from some short term oversold conditions.