Monday Market Movement
by Phil - December 7th, 2009 7:57 am
Now what?
I wish I knew. As I said in the Weekly Wrap-Up, we’ve been stuck in a range - which has been fine for us as 60 of 80 trade ideas from the last 2 weeks were winners and will be more so if we flatline or head south from here, as that’s how we’ve been playing the market. It’s not that we WANT the market to fall, just like your doctor doesn’t WANT you to have the flu. But, when you show up at the office with a sore throat, headache, fever and congestion - he’s going to tell you you have the flu and write you a prescription to help you get better. That’s what we do! We analyze the market symptoms and determine a course of treatment. We don’t need to be bullish or bearish on any given day as it’s far, far more satisfying to be right.
In Member chat this morning, we were discussing leap strategies regarding entries on (in this example) KO and we looked at the benefits and pitfalls of trying to establish positions at the top of a big run. I mentioned that KO is not something I’d be looking at now as they are too near the highs and don’t have any particular near-term growth catalyst (and the strong dollar may hurt their earnings, which are more than 50% international).
In the Wrap-Up you’ll see that the kind of long plays we went for were more beaten-down stocks that we still like long-term like SPWRA, VLO, RMBS. WFR, PARD… Even in a great bull market like this one that may or may not be topping, there are still plenty of bargains to be had and, if we don’t see any good ones today, it’s still better to wait until earnings and bargain-hunt there rather than buy stocks just because your cash is burning a hole in your pocket (we went to mainly cash the last 2 weeks and many members are getting antsy already).
Actually, having cash in US Dollars may be an excellent investment at the moment as those dollars could gain 10% as the dollar bounces back. Commodities have certainly continued to fall over the weekend with gold at $1,141, oil at $74.71, siver back to $18 and copper $3.18 (our watch level was $3.20). Futures are pretty lame overall, down about 0.3% at 7:30 but we’re still above our levels so don’t get too excited if you are a bear just yet.
| Dow | S&P | Nasdaq | NYSE | Russell | Trans | HSI | Nikkei | FTSE | DAX | |
Fri… |
Email This Post
del.icio.us
Digg
Reddit
Stumble
Yahoo
Facebook
Twitter
Which Way Wednesday?
by Phil - December 2nd, 2009 8:23 am
Are we at the top of our range or about to break higher?
Our lower breakout on the Dow has been 10,250 and that has held up very well for the past few weeks so we have to respect that but, at the same time, we seem very overbought and just needing some sort of correction to help us confirm the bottom of the channel is still supporting us (see Fallond chart). The other levels we were looking for in Monday’s post were: S&P 1,100 (check), Nasdaq 2,187 (2,175), NYSE 7,200 (7,212) and Russell 600 (589).
As I said on Monday: "If we don’t get 3 of 5 of our indexes over, then there’s not going to be anything to get bullish about." Unfortunately, we didn’t like the way we got there yesterday so we stayed bearish (60%) into the close but we sure are ready to run with the bulls by slapping on a couple of DIA covers and using 10,500 as our on/off switch to play the upside (which should coincide with the Nas and Rut breakouts).
As I noted to Members in yesterday’s 9:43 Alert, our prior market tops were Dow 10,495, S&P 1,113, Nas 2,205, NYSE 7,266 and Russell 605 so there is no excuse for any of our indexes not to make the grade if we’re really heading higher. Today’s fly in the ointment may be oil inventories at 10:30, as holiday driving and flying numbers were not that great so the anticipated drawdown of about 2M barrels may turn out to be a build, especially in gasoline as many families had subdued Thanksgivings at home this year (thankful to be employed, thankful to have 70% of their IRA left, thankful their house only lost 20% of it’s value, thankful gas is still under $3…), which does not bode well for Christmas either.
Fundamentally, we think the economy still has serious issues and that the market is delusional at these levels but we don’t fight the Fed or the big technicals so IF we do make our levels, THEN we will be some very reluctant bulls but bulls we will be.
I have, for quite some time, been saying this is very much like 1999 and we do expect a big sell-off in the near future as reality begins to take it’s toll on the market but, in December of 1999, the Dow went from 11,000 to 11,500 on the 31st before giving it all back…
Email This Post
del.icio.us
Digg
Reddit
Stumble
Yahoo
Facebook
Twitter
Testy Tuesday Morning - Big Data Day
by Phil - November 24th, 2009 8:26 am
Busy, busy today with lots of data!
At the moment (8am), I only know that retail sales were flat to last week, which was 1% better than last year but this week is 3.3% better than last year because LAST YEAR TOTALLY SUCKED! That’s right, we are now comping to numbers that are so atrocious that in order to miss them we would have to all dig holes in our backyards, cover them with tarps (no, not the bailout package but a good conceptual image) and drink only rainwater and eat earthworms. Anything better than that will give us more economic activity than we had last November, when the market was completing a 50% dive off the previous year’s highs and we weren’t sure there was going to anything to be thankful for on November 27th.
Our market hit rock bottom on November 21st, the Friday before Thanksgiving (and an option expiration day) at about 7,500 on the Dow. People were generally shell-shocked but we did bounce back to 8,500 and drifted around there through Jan 1st (9,000) before plunging to 6,500 by March 9th. THAT my friends, is the period we are comping against! So beware "improvements" being sighted in the MSM as we are now comparing our weak recovery to a total train wreck and yes, it’s much better now, but better in the way that the Chicago Bears (4-6) are better than the Detroit Lions (2-8), not the way the Minnesota Vikings (9-1) are better than the Lions.
Later today we have an update (and downgrade) of our Q3 GDP followed by Redbook Chain Store Sales and Case-Shiller Home Prices at 9. At 10 we get Consumer Confidence (or lack thereof), the FHFA Housing Price Index, the Richmond Fed Report and State Street’s Investor Confidence Index. Later today we have the results of a massive $39Bn 3-year Note Auction, the Fed Minutes at 2pm along with Industry Charge-offs and, finally, at 5pm we get the ABC Consumer Confidence (if any) Index.
It’s a very brave bunch of bulls who have run the futures up half a point off their lows this morning with all that data coming up. When I say brave of course, I mean the disgustingly manipulative and should be thrown in jail kind of brave but, since none of our regulators seem to care about the nonsense that goes on every day at the commodity and futures exchanges - I guess they are not so brave after all…
Email This Post
del.icio.us
Digg
Reddit
Stumble
Yahoo
Facebook
Twitter
Manic Monday - Stuffing the Futures for Thanksgiving
by Phil - November 23rd, 2009 8:22 am
I noted in the Weekend Wrap-Up that 90% of our gains have come in one day each week.
I also pointed out that a vast majority of those gains occur in very thinly-traded futures, where unregulated (or jokingly regulated) traders can trade a few thousand index shares and move the US market values by Trillions of dollars. That’s why you often see the title "Just Another Manic Monday" starting my weeks, because it is often manic (as in upbeat for irrational reasons) and, as noted by Trader Mark in his post last night - it’s pretty darned ordinary at this point. In fact, anything less than a 1.28% gain on a Monday is below average.
So we are going to be back to testing our breakout levels early in the week and the volume should be low enough to allow a run back to last week’s highs. International traders took advantage of the Nikkei being closed and used the low Asian trading volume to make a statement on the Hang Seng, driving that market up over 200 points after lunch, improving on a 175-point gapped up open that has been flatlining until that final 90 minutes. It was another commodity-led rally as the dollar dove back to 88.5 Yen and right back to $1.4975 to the Euro (where we shorted the Euro last week) and $1.66 to the Pound. This led gold to fresh highs at $1,167 and copper touched $3.20 along with oil getting back to $78.50 - all tempting shorts but we’re happy to watch this nonsense from the sidelines after getting a bit more cashy ahead of the holiday.
The big market-moving news in Asia was a rumor that a researcher under China’s State Council reportedly said the Chinese economy was likely to expand more than 10% in the fourth quarter. That’s all it takes, you know - I know a guy who knows a guy who heard a guy who works in China said things are good there and BOOM - the Dow gains 100 points. Forget the fact that a 10% gain in China’s entire economy is just $400Bn US Dollars - see this excellent NYTimes China/US compariston chart to get a better picture of how the two nations stack up and also please read the excellent article from Marshall Auerback this weekend, "Should America Kowtow to China?" to get a great perspecitve on the money game.
"The market still has upward momentum as there’s expectation that Beijing won’t likely launch any monetary tightening measures by the year end,"…
Email This Post
del.icio.us
Digg
Reddit
Stumble
Yahoo
Facebook
Twitter
Friday: Dell Misses, Is Goldman Sachs Stupid or Evil?
by Phil - November 20th, 2009 8:18 am
How can a firm that never loses money be so totally wrong?
Just this Monday, Goldman Sachs helped to gap the markets higher at the open in low-volume futures trading with the following pronouncement: "Goldman Sachs resumes coverage on Dell Inc. (NASDAQ: DELL) and gave DELL a Buy rating at a 12-month price target of $19. Goldman believes that DELL will benefit from a corporate PC refresh cycle and will show better earnings as DELL is trying to optimize its cost structure. Goldman believes Dell will report better than expected earnings and beat analysts’ expectations. Goldman expects DELL to report earnings of $1.09 for CY2009 and $1.37 for CY2010 from their previous estimates of $1.07 for CY2009 and $1.35 for CY2010." Fact is, they missed by a mile.
That report took Dell up 2% for the day and the Dow gained 150 points and we were dumbfounded by the move, both in DELL, who were swallowing a difficult acquisition of Perot Systems and of the market, which acted like $31Bn DELL is the same kind of bellwether that $120Bn HPQ is, even if Goldman’s report had been even close to accurate. As it was, they couldn’t have been more wrong if they were playing "opposite day." How is it that a firm that has only 3 losing trading days in 6 months can be this amazingly wrong on crucial analysis?
So is Goldman actually stupid and, as many have implied, simply cheating to rack up their amazing market gains or are they intentionally manipulating the markets. Former GS-employee Jim Cramer jumped right on the bandwagon on Monday afternoon and told viewers that "obviously," since DELL is going to do so well (because GS says so) that INTC and MSFT must be buys too.
This is how manipulative stock pumping works - start a rumor, push it out through the media, extrapolate the rumor out to affect market-moving stocks that don’t even have upcoming news events and then tell people they are missing an opportunity, even after the train has left the station (by Cramer’s 2:30 spot on Monday, the Nasdaq had already hit the high for the week, peaking out exactly at the moment Cramer told his retail investors to pile into the market).
Were the beautiful sheeple only buying what Cramer’s buddies were selling? Is that how GS makes their money, buying low on Friday, making an upgrade on Monday, getting their pals to sucker people into the "rally" and then dumping into the retail…
Email This Post
del.icio.us
Digg
Reddit
Stumble
Yahoo
Facebook
Twitter
Thrill Ride Thursday - CRE Crash?
by Phil - November 19th, 2009 8:12 am
What a nice day we had yesterday!
I led off my morning post saying it was time to short the Dow, Copper, Oil and the Euro and anyone playing those futures bets off my 8:27 post made out like a bandit. I even posted a nice little DIA play FOR FREE (for those of you who can’t be bothered to subscribe yet), picking the DIA $104 puts at .55. It only took 45 minutes for those puts to shoot up to .85 and I warned our Members to take it off the table on the way up and, since it was my free trade of the week, I also posted it over at Stock Talk on Seeking Alpha. This is a great way to follow-up on some of our trades and is also the back-up for our member chat whenever we have server issues so do make sure you are signed up to follow me there (just click on my picture).
Yes, I know that so many newsletter writers give you free trade ideas that make 54% in 45 minutes that it’s hard to keep track so only do it if you REALLY want to. The futures, of course, make TONS more than that as they are heavily leveraged, As I said in yesterday’s post, we have been trying to get more bullish but sometimes we just have to put our bearish foot down. In Member Chat we also took bullish pokes at EDZ, SRS, DIA $103 puts and ERY early in the morning and then we were able to just sit back and watch the dip. I was a penny early calling a bottom on copper at $3.12 but .05 on the futures contracts is a huge win and we are very nervous bears, especially on low volume days, and we take our profits quickly.
At 1:40, I said to members: "DIA - Well mission accomplished on the $103 puts and now we see what Mr. Stick can accomplish for the day. Without the RUT over 600 I have no desire to cover the March puts" and we even decided to go with the DIA $104 CALLS at 3:20 to protect us against the anticipated stick save. Those went from .65 to to .80 into the close, another very quick 20%. We don’t do this all the time, these plays are fun to make during expiration week as the premiums are low and there are huge short-term rewards for good market timing. Our longer-term short play for…
Email This Post
del.icio.us
Digg
Reddit
Stumble
Yahoo
Facebook
Twitter
Will We Hold It Wednesday - 10,500 or Bust!
by Phil - November 18th, 2009 8:27 am
We like going short on oil today.
We like going short on the Dow here, as close to 10,500 as we can until "they" prove they can hold it and not just spike us over the line. Copper is also a great short at $3.17 this morning as that is just ridiculous too. We can use 10,500 as a stop on Dow shorts and $80 as a stop for oil shorts and $3.18 as a stop for copper so it’s not like we have to bet the house but, COME ON, this is just getting stupid! Oh, sorry - missed one, also short on the Euro at $1.4975 with a stop at $1.5025…
I know I am trying to be more bullish, we have plenty of bullish plays this week and just yesterday I was warning people to avoid the ultra-shorts, which can still get crushed but, I am sorry, THESE levels are ridiculous given the current environment. Oil may be up at $80 for now and we will get a draw in today’s crude inventories but only because Tropical Storm Ida gave Gulf energy producers an excuse to shut down 43% of production last week and the port at Louisiana was closed for 3.5 days, stalling imports. Gasoline consumption will be up with the holiday last week so they couldn’t have timed this better and, if you look at NYMEX trading yesterday, you’ll see a quick spike from $79.36 to $80.06 at about 2pm, painting a top for the day they are now struggling to match in the futures.
Despite analysts official expectations of a 300,000 build in crude (which was never adjusted to take the above 2 major factors into account), the oil traders will be very disappointed with anything less than a 2.5Mb net draw so that’s what we’ll be looking for at 10:30. If we do get a good spike over $80, we’ll be shorting into next week’s report instead. Another report we’re looking at is the latest from Cambridge Energy, which projects growth in oil production capacity through 2030 with "no peak evident," something I’ve been saying for years. As you can see from the chart - it’s not peak oil they should be worried about, it’s peak demand!
Keep in mind that we still think the dollar is about to wake up and rally off the 75 mark, although every possible effort is being made to push it lower. At this point,…
Email This Post
del.icio.us
Digg
Reddit
Stumble
Yahoo
Facebook
Twitter
Wild Weekly Wrap-Up, Topping or Popping?
by Phil - November 14th, 2009 12:02 pm
This was an annoying week for bulls and bears alike.
We had a very exciting day on Monday, topping out at 10,248 but I didn’t like the way we got there (low-volume, commodity rally, as noted in David Fry’s chart) and, when pressed for a prediction on TV that evening, I had to say that I felt that we were more likely to be down by Thanksgiving than up with a possible Santa Claus bounce into Christmas. What we did get for the remainder of the week was very choppy action on even lower volume.
I had mentioned in last week’s "Wrong-Way Weekly Wrap-Up" that we were partying like it’s 1999 as we broke through Dow 10,000 and S&P 1,080, despite rapidly deteriorating fundamentals. Stocks are being bought because they are going up in price (much like commodities), not because there is any actual demand for them and that is very clear from the rapidly declining index volume as we run back into resistance at S&P 1,100.
Since early September our upside targets for the indexes have been: Dow 10,087, S&P 1,096, Nasdaq 2,173, NYSE 7,204 and Russell 623 and nothing has happened to change our fundamental outlook for the better so the closer we get to those levels, the LESS comfortable we are taking bullish positions. In fact, yesterday as we got our mid-day spike to 10,300, I told members that it was sorely tempting to just cash out all bullish positions and take 20% of the portfolio 100% bearish with a 10% stop. Rather than mess around with a mix of positions, going fully bearish can allow for some spectacular gains if we crash and stopping out with a 50% loss would suck - but a breakout like that, well above Dow 11,000 and S&P 1,200 would certainly give us reason to be more bullish.
As I concluded last week: "We’re generally not happy until we see Russell 600 and the Dow Transports over 4,000 (now 3,852) and we took a 55% bearish stance into the weekend because we’ll feel a lot less silly being burned by a move up than we would if we weren’t bearish enough for a move down. It would be nice to be able to make more of a commitment but the bulls clearly have the bears cowering in fear so we’ll just patiently wait and see how far they can play things out." Not much has changed since then and we are still waiting to confirm…
Email This Post
del.icio.us
Digg
Reddit
Stumble
Yahoo
Facebook
Twitter
Friday - Will We Finish the Week Over Our Target Levels?
by Phil - November 13th, 2009 8:23 am
Here is a great metaphor for the emptiness of the global recovery:
An entire city in China, tens of billions of dollars in construction, sits empty. They also built the World’s biggest shopping mall, also empty. As they say in the video, people can’t move in because there is no economy. Yet the building of the city of Ordos and the Utopia mall have allowed China to hit their 8% GDP growth target because it doesn’t matter whether you build something worthwhile - as long as you build SOMETHING, it’s going to count as part of your GDP. It’s ironic that this country still hasn’t bothered rebuilding New Orleans, which was once a healthy, vibrant city and we are letting Detroit die a little more every day when it’s ideally situated to attract (comparatively) wealthy Canadian tourists but China is willing to build entire cities from scratch.
Ironically, Louisiana is one of 8 US states that export more than $2Bn worth of goods to China, who is, by far, our fastest growing trading partner. We get trade data later today and hopefully, at least one benefit of the week dollar will be to help boost our balance of trade but we’re a very, very long way away from balance and, as I pointed out last month, almost all of our gains are coming from lowered US consumption, not a real increase in exports.
Speaking of lowered US consumption, just as we predicted, crude oil fell to the lowest in a month yesterday as the inventory report showed inventories in the
“The
Email This Post
del.icio.us
Digg
Reddit
Stumble
Yahoo
Facebook
Twitter
Jobless Thursday - Get Ready for the Next Million Layoffs
by Phil - November 12th, 2009 8:21 am
"California tumbles into the sea."
Yes, Steely Dan predicted it in 1973, when Ronald Reagan was still Governor but we thought they were talking about earthquakes at the time. This year it’s clearly California’s 49.3% budget gap and 16.2% drop in state revenue that has them leading a list of lemming states to their doom. Over 1M state and municipal employees may be getting their last checks this Christmas as 9 states face budget issues on par with California.
According to The Atlantic: Nine more states are "barreling toward an economic disaster" according to a new Pew poll that sees deep service cuts and temporary tax hikes to avoid fiscal calamity. Some of these states will be familiar to Atlantic Business readers. I’ve been leading the funeral cry for the united states of MichiCaliFlAriVada (that’s Michigan, California, Florida, Arizona and Nevada), and all five states are on Pew’s list. Rounding out the ten are Illinois, New Jersey, Oregon, Rhode Island and Wisconsin. Here’s the graph from the Pew Center on the States:
| Six Factors | Revenue change | Budget gap | Unemployment rate change | Foreclosure rate | Need supermajority? | GPP "money" grade | Score | ||||||||
| United States | -11.70% | 17.7%5 | 4.4 | 1.37% | 17 yes, 33 no | B- 5 | 17 | ||||||||
| California | -16.20% | 49.30% | 4.6 | 2.02% | Yes | D+ | 30 | ||||||||
| Arizona | -16.50% | 41.10% | 3 | 2.42% | Yes | C+ | 28 | ||||||||
| Rhode Island | -12.50% | 19.20% | 4.5 | 1.50% | Yes | D+ | 28 | ||||||||
| Michigan | -16.50% | 12.00% | 6 | 1.47% | Yes | C+ | 27 | ||||||||
| Oregon | -19.00% | 14.50% | 6.4 | 0.86% | Yes | C+ | 26 | ||||||||
| Nevada | 1.50% | 37.80% | 5.2 | 3.12% | Yes | C+ | 26 | ||||||||
| Florida | -11.50% | 22.80% | 4.4 | 2.72% | Yes | B- | 25 | ||||||||
| New Jersey | -15.80% | 29.90% | 3.7 | 1.18% | No | C- | 23 | ||||||||
| Illinois | -10.90% | 47.30% | 3.5 | 1.44% | No | C- | 22 | ||||||||
| Wisconsin | -11.20% | 23.20% | 4.4 | 0.96% | No | C+ | 22 |
This horrible news only underscores the fact that even though 70% of stimulus spending has gone to fill in Medicaid and state budget holes, our states are still in dire straits because state tax revenue is collapsing across the country. Unlike the federal government, states cannot run deficits, which means cascading revenue becomes cascading services and many, many cut state jobs. For those who resist another state bailout-type stimulus bill, they must recognize what that entails: hundreds of thousands of state employees joining the ranks of unemployment, and unemployment benefits. Q3 was great, but this thing isn’t close to being over. The Center on Budget and Policy Priorities reports that states could cut almost a Million jobs without US aid because of budget shortfalls.
A Million jobs!?! That can’t be good, right? Of course, as Jim Cramer told us on Friday: "The bears were right, unemployment is awful but no one seems to care." So far this week, Jim is right and I am wrong - we’ve gone up another 100 points since I made my top of the market call on Monday night so I tip my cap to Jim, who seems to be able to switch off his brain and go with the flow a lot better than I can. My call yesterday morning, was to take advantage of the futures pop at…
Email This Post
del.icio.us
Digg
Reddit
Stumble
Yahoo
Facebook
Twitter
German
Spanish
French
Italian
Portuguese
Japanese
Korean
Russian
Chinese
Philip R. Davis is a founder Phil's Stock World, a stock and options trading site that teaches the art of options trading to newcomers and devises advanced strategies for expert traders...
Ilene is editor and affiliate program
coordinator for PSW. She manages the Favorites backup site
(