by Tyler Durden

Summary from the CBO:

The Congressional Budget Office (CBO) estimates that the federal budget deficit for 2010 will exceed $1.3 trillion—$71 billion below last year’s total and $27 billion lower than the amount that CBO projected in March 2010, when it issued its previous estimate. Relative to the size of the economy, this year’s deficit is expected to be the second largest shortfall in the past 65 years: At 9.1 percent of gross domestic product (GDP), it is exceeded only by last year’s deficit of 9.9 percent of GDP. As was the case last year, this year’s deficit is attributable in large part to a combination of weak revenues and elevated spending associated with the economic downturn and the policies implemented in response to it.

And some optimism from the CBO:

The Budget Outlook

Fiscal year 2010 will mark a change in the recent trends that have prevailed for both revenues and outlays. After falling sharply during the recession, revenues are projected to increase (in nominal dollars) for the first time in three years, rising by $38 billion, or about 2 percent. Outlays, which have grown rapidly in recent years because of the recession, the turmoil in financial markets, and policies enacted in response to those events, are expected to decline by about 1 percent. On the basis of tax collections through July 2010, CBO expects federal revenues to total $2.1 trillion this fiscal year, or about 14.6 percent of GDP (see Summary Table 1). Gains in receipts in recent months indicate that federal revenues are beginning to recover from the recession.

In the period from October to December 2009, revenues were about 10 percent lower than in the same quarter a year earlier. But from January to July 2010, revenues were about 6 percent greater than in the comparable period of 2009.

Outlays are expected to total $3.5 trillion this year, or nearly 24 percent of GDP—a level slightly lower than the 25 percent share recorded last year but still much higher than the average level of roughly 21 percent of GDP over the past 40 years (see Summary Figure 1). Spending has dropped sharply this year for certain programs related to the federal government’s response to the turmoil in the housing and financial markets. For activities other than those programs, overall spending will rise by 10 percent in 2010, CBO estimates.

Over the next few years, federal budget deficits would decline markedly as a share of GDP if the current-law assumptions about fiscal policy in CBO’s baseline came to pass. Under those assumptions, the deficit would drop to 7.0 percent of GDP in 2011 and 4.2 percent in 2012 and then would reach a low of 2.5 percent of GDP in 2014. For the rest of the 10-year projection period, deficits would range between 2.6 percent and 3.0 percent of GDP, close to the average of 2.6 percent of GDP experienced over the past 40 years.

What a stunner – optimistic government projections… For exponential revenue hockeystick estimates, look no further than the chart below. Somehow we fail to see the 20% of unemployed (the real number, not the government’s) paying 50% more taxes.

Full budget update:

The Market Guardian

At Active Trading Partners, we take a different approach to trading than most online services in terms of advising our subscribers. Our methodology revolves around behavioral characteristics of the crowd, and taking advantage of the extremes in sentiment, whether bullish or bearish.

In the case of ETF trading, we often work with 3x Bull or Bear ETF’s like BGZ, ERY, ERX, TZA, TNA and so forth. Using a combination of Fibonacci re-tracements and Elliott Wave theory, we look for high probability set-ups and extreme overbought or oversold situations to trigger a trade recommendation. A most recent example with ETF’s was a short position we took against the rising energy stock index, the XLE. This index had become incredibly overbought in just a few weeks, and looking at prior topping indicators and fibonacci trading day cycles, we felt it was a “Low Risk” bet to short the rally. We recommended ERY at $45.40 as the XLE headed over $56 and was becoming overbought. Within 7 days we had a 15% plus gain by going against the crowd. I saw a 13 fibonacci day trading rally at extremes, so we used the XLE chart below, to identify the timing to enter into ERY.

We use the same approach when it comes to trading individual stocks. We look for “Waterfall decline” reversal patterns, which are somewhat proprietary for ATP and our methodology. This method reduces our entry risk because we are buying stocks that have already taken a recent short term multi-day or even multi-week hit as investors have exited the stock. Recent examples include buying DCTH, a former high flier that fell from $16 down to $5.80 when ATP advised purchase. Within days the stock bottomed and ran to as high as $9 within a few weeks for a 50% move. Another example is OREX, who took a hit in concert with VVUS several weeks ago. We felt the sell-off was overdone and recommended the stock at $4.01, after it dropped from $6. The stock ran back to $5.30 within 10 days for a 30% plus gain.

Trading in a volatile market means you need to be patient, discerning, and wait sometimes for an oversold or overbought condition before you act. Sometimes acting early can cause you to get spooked out of positions that end up being profitable, but only after you panic sell out at a loss. At ATP, we use a “tranche buying” methodology which tries to help with the emotional side of entering or exiting a trade. We recommend 1/3 or 1/2 positions at a time, even if we are really confident in our entry point. This way just in case you mis-timed the bottom of your target by one or two days, which often happens, you reserve some powder to add additional capital into the trade to work your way in over several days. We also advise that our partners enter into these tranches over 24 hours of trading time, perhaps buying 3-4 times into our position especially on minor pullbacks. How many times have you bought into a trade entry at say $5.00 a share, and two days later the position bottomed at $4.50, you close it for a loss, and then it runs to $6? Using a tranche buying methodology keeps your emotions in check and you actually look for a bit further dip as a benefit, not a detriment to your trading.

We also adjust our stops as the stock or ETF moves after we have completed our entry. The main goal as a trader or investor is to book profits and limit losses when you are wrong. Since our ego is often our worst enemy, adjusting your stops as the trade moves in your favored direction keeps you from gettting too giddy and letting a profit slip away. In addition, a reasonable stop prevents you from being over-confident and letting a small loss turn into a larger one. Another recent sample at ATP was buying into VITA, which was very oversold at $1.76-$1.80 ranges. We also though advised our partners take profits at $1.92-$1.97, with a nice and tidy 6-10% gain over 7-8 days of hold period. The stock then fell hard just a few days later to $1.64. Not taking profits would have meant wiping out all of your hard work and watching your paper profits turn into a “hoping for a rebound” position.

In volatile markets, don’t get off your game plan and try to keep your ego in check. Enter into your trades no matter how confident you are, slowly and over 24 -48 hours of trade time. Adjust your stops and prevent yourself from getting too greedy or giving away profits. Take your time, wait for set-ups, and also take a break every now and then…nobody needs to trade everyday.

Come check us out at www.ActiveTradingPartner.com and join us and/or sign up for our free weekly reports!

Courtesy of Mish

A new Gallup Poll shows Spending Slumps Even With Back-to-School Underway

Americans’ self-reported spending in stores, restaurants, gas stations, and online averaged $62 per day during the week ending Aug. 8. Early August consumer spending trends trail 2009 and will need to surge to match last year’s anemic back-to-school results.

Gallup’s weekly spending measure for the first week of August shows no improvement over that of the last week in July or that of the same week a year ago. In turn, this suggests that back-to-school sales are unlikely to substantially exceed last year’s depressed levels. In fact, this week’s comparable of a year ago was a big spending week, making for challenging sales comparables for many retailers this year.

Corporate Spending Slowdown

Bloomberg reports Cisco, IBM Sales May Signal Slowdown in U.S. Corporate Spending

Weaker-than-forecast sales at Cisco Systems Inc. and International Business Machines Corp. may signal a slowdown in the corporate spending that has led the U.S. recovery.

“It’s been business investment, particularly technology, that’s been in the driver’s seat,” said Stuart Hoffman, chief economist at PNC Financial Services in Pittsburgh. Should equipment spending slow significantly, “unless something else picks up the pace, it means the outlook for the economy is going to be that much dimmer.”

Corporate investment is among the few remaining sources of economic growth as the effects of government stimulus measures wane and unemployment remains stuck near a 26-year high. Economists this week cut their forecasts for the second half of the year as the more than 8 million jobs lost during the recession hamstring consumer spending.

San Jose, California-based Cisco yesterday said revenue in the current quarter will be $10.64 billion to $10.83 billion, compared with a $10.95 billion median estimate in a Bloomberg survey. The stock fell as much as 12 percent in intraday Nasdaq trading today

IBM, the world’s biggest computer-services company, last month reported revenue that missed analysts’ estimates, citing a decline in services-contract signings. Signings fell 12 percent to $12.3 billion, the second straight quarterly drop in contracts for services, which make up more than half of IBM’s total revenue.

GDP is increasingly likely to be negative at least one quarter in the second half yet few economists even discuss the possibility.

Mike “Mish” Shedlock

ETF Trading Signals – Low Risk Entries for ETF Funds HERE

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Stock Market Newz