2-22-2012

The DOW broke 13,000 in early trading and the financial media outlets were all gushing with elation.  It was short lived though and the indices gave up their early gains finishing essentially flat at the close. The DOW and S&P just managed to remain in the green while the NASDAQ finished down marginally.

Up Volume was 51% on the NYSE but only 39% on the NASDAQ.  This would explain the virtual tie on the big board, but not the NASDAQ.  If you take a closer look, much of the NASDAQ gains were attributable to Apple (APPL).  Take out Apple, and the NASDAQ had a much weaker performance than the price indicates.  Again, this is why mega cap stocks can skew the indices.

Gold, silver, miners, and oil all had a big day and many commodities are coming alive again.  The exception being some of the soft commodities, but they will likely catch up as more easing by the money center banks kicks in.  The ECB and Chinese Central Bank are the primary culprits now, with Japan, England, and our FED taking a back seat for the moment.

Commodity prices rising with interest rates while bond prices fall makes sense if expectations forward are for inflation.  And bonds are beginning to come under pressure due to all the easing.  The ProShares UltraShort Treasuries (TBT) is beginning to break out (see graph).   But shorting treasuries is a tricky game because Benanke could come in at any moment stepping up treasury buying.  If you short TBT, be sure and use stop losses.

Yesterday I stated any new buying should be done with caution.  This holds true and you need either mental or hard stops to minimize losses.  You may even want to hold off on new buying and wait for a better entry point, or see if a rally attempt can produce more momentum to the upside.  Being patient is the hardest thing do, but sometimes it is the best thing to do.

In overnight trading (Tuesday 11:35 p.m. CST) most of the Asian equity markets are in the green.  Part of the reason is the weaker Yen.  The Yen weakened to 80 per US dollar for the first time since August.  Over a 1/4% loss against the dollar in one day.  The Euro is slightly weaker against the dollar, but the Pound is strengthening.  Gold, silver, and oil are giving back a small portion of their impressive gains from earlier in our trading session.

Our US equity futures are slightly in the green.  The DOW futures are up 16 points, the S&P futures are up 2 points, and the NASDAQ futures are up 5 points.

Today’s economic reports include Existing Home Sales, and MBA Mortgage Applications.  We have 15 companies reporting earnings on the S&P today over a broad spectrum of industries.  Notable companies include Dollar Tree (DLTR) before market, and Windstream (WIN), Washington Post (WPO), Analog Devices (ADI), and Fluor Corp (FLR) during the regular trading session.  After hours, companies reporting include Hewlett Packard (HPQ) and Limited Brands (LTD).

At the moment, things are slightly positive.  Let’s see if they hold.

Blackbaud (BLKB), Boston Beer (SAM), Concho Resources (CXO), Continental Resources (CLR), Hewlett-Packard (HPQ), Lithia Motors (LAD), Oasis Petroleum (OAS) and Yamana Gold (AUY) will report earnings Wednesday. Existing-home sales will be the main economic report out Wednesday.

2-21-2012

Although it was a 3 day weekend since the markets were opened, it seems like an eternity.  The Greek bailout talks over the weekend have gone from allowing Greece to default and kicked out of the EU to more conciliatory rhetoric yesterday.

The markets have been taking a breather lately moving sideways; probably waiting for some clarity.  The short term indicators have been losing some steam, but the longer term indicators remain bullish.  And by most short term technical measures, the markets are overbought.

Risk has been increasing as the markets never go straight up, but investors on the sidelines have been getting impatient.  They are now telling themselves ‘this time will be different.’

And money flows are pouring into equity mutual funds as of the last reading.  The most in almost a year.  Therefore, at this point, any pullback should be mild.  Unless of course we see a complete collapse in Europe.

Longer term investors should hold the positions they own, and any new positions should have an exit strategy in place.  I have added new positions on Friday for new accounts/clients who transferred in with too much cash.

I purchased the ProShares Ultra NASDAQ 100 (QLD) which moves 2 times the NASDAQ 100.  Again, I am using a broad ETF for easy, diversified exposure with a single trade.  If things reverse, I can exit with one trade and raise cash quickly.

Traders, especially those following the 14 day Stochastics, are getting buy signals.  If you are a seasoned trader following a momentum or trend strategy, you have (or should have) an exit strategy in place.

As I write this newsletter, it just came across the wire: the Greek bailout has been reached.  Greece will get their next tranche – 130 billion Euros.  One would think the markets would respond quickly and positively.  Thus far, the reaction has been muted but positive.

In overnight trading (Monday 10:20 p.m. CST) most of the Asian markets are in the red but have come off their lows heading in the right direction.  The US dollar was strengthening against the other major currencies, especially the Euro.  The dollar was up over 1/4% against the Euro, a big move by currency standards.  But now, the dollar has reversed and is actually down against the Euro.  Another big move in a matter of minutes.

Gold and silver are up moderately, but oil is up $1.68 to almost $105/barrel.  This is over concerns about the Iranian embargo against Europe.  If oil continues to climb, it will put pressure on and even derail our recovery.

Our US equity futures are bucking the Asian trend and in positive territory.  The DOW futures were up 70 points, the S&P 7, and the NASDAQ 11 earlier.  But surprisingly, swooned down during the settlement announcement and then picked back up slightly.  The DOW futures are  up 52 points, and both the S&P and NASDAQ futures are up 5 points but seem to be gaining strength again.  Look for a solid day today.

Today the only major economic report we have out is the Chicago FED National Activity Index drawing on 85 economic indicators.  It includes everything from industrial production and capacity utilization to unemployment and manufacturing.  Below zero means we are “below trend growth” and inflation is easing.  It was negative in November but went positive in December.  January should be positive if the FED policies are working.

We have 15 companies reporting earnings on the S&P today.  They include Home Depot (HD), Wal-Mart (WMT), Macy’s (M), and Intuit (INTU) during market hours.  Then after hours, we have Chesapeake Energy (CHK), Dell (DELL), Nabors Industries (NBR), and Kraft (KFT).

In the broader market we have RadioShack (RSH – before market), Walter Energy (WLT – before market), and Clear Channel Outdoor Holdings (CCO).  Companies reporting after the bell include Community Health Systems (CYH), Brocade Communications (BRCD), and Forest Oil (FST).

2-17-2012

The markets rebounded yesterday, but was it on strong economic data and earning? Yes and no.  The economic data was solid as Initial Jobless Claims came in at their lowest level in almost 4 years and manufacturing picked up steam.

But the main reason was the European Central Bank (ECB) agreed to “exchange” Greek bonds of 50 billion Euros for new Greek debt “with the same features” but significantly extending out the maturity (?).  As a result, when news spread of the Greek-ECB deal, stocks rallied into the close yesterday finishing near their highs of the session with solid gains.

The NASDAQ demonstrated the most strength of the major indices up 1.5%.  And this was with Amazon (AMZN) down 2 1/2% and mega cap Apple (APPL) up less than 1%.  Due to size, both of these would put a drag on the rest of the NASDAQ.  The good news is Apple was able to keep above the psychological $500 century mark.

The S&P 500 and Dow Jones were up slightly over 1% and 1% respectively.   But the mid and small caps really led the charge outperforming all the major indices.

Up Volume was 86% on the NYSE and 85% on the NASDAQ, but total volume decreased slightly from Wednesday’s levels on both exchanges.  This is good for the bulls because we don’t want to see a “blow off” top.

The markets are technically oversold but in a trending market they will continue to become more oversold.  Also, we have just barely broken through resistance on the DOW and S&P.  Their graphs are almost identical so I just included the DOW graph.  Are the DOW and S&P at a double top, or will they continue the next leg higher.  That is why you need to remain active and pay attention.

On the NASDAQ, we have easily gapped above resistance (see graph) and you have to go back years to find the next resistance level.  I believe the NASDAQ is more susceptible to a larger pullback as it has gone too far too fast.

For right now, I am going with the trend and did not cull my positions or raise cash.  The old adage “the trend is your friend” has never been more true.  That said, the trend can, and will, turn on you quickly.

Today we have the Consumer Price Index (CPI) and Leading Indicators which is a smorgasbord of different leading indicators by economists from manufacturing orders, building permits, average weekly initial jobless claims, stock prices, etc..

We have only 4 earnings release today on the S&P.  They are Ventas Inc (VTR) and Campbell Soup (CPB) both before market opens.  Then during the regular trading session, we have Heinz (HNZ) and Constellation Energy (CEG).  Other companies reporting include Digital Realty Trust (DLR), LifePoint Hospitals (LPNT), AMERIGROUP (AGP), and Hospitality Properties Trust (HPT).

In overnight trading (Thursday 9:20 p.m. CST) the Asian markets are mixed.  Gold, silver, and oil are marginally higher.  The US dollar is weaker against the Yen and Pound, but flat against the Euro.

Our US equity futures have reversed their earlier evening gains and are now all flat.  Again, give your positions room to breathe, but stay alert.  This market is overextended and due for a pullback.

On Friday, Campbell Soup (CPB) and Lincoln Electric (LECO) are among the companies expected to report quarterly results. The day’s economic news will include a new reading for the consumer price index.

2-16-2012

In yesterday’s newsletter I said we would see just how resilient these markets really are.  The major indices all reversed Wednesday on rising volume.  The DOW reversed early.  Then  Apple (AAPL) reversed sharply at midday bringing down the NASDAQ and S&P with it.

Apple is the largest weighted component of both indices, and so the S&P and NASDAQ reversed midday ending near their lows of the day (see 1 Day Graphs).

The good news is that Down Volume was 65% of the NYSE and just 53% of the NASDAQ.  Therefore selling wasn’t as intense as the price action indicates.  And, if you take Apple out, the NASDAQ didn’t look nearly as weak.

The bad news is the higher overall volume could be a sign of institutional selling.  Total volume wasn’t spiking at panic levels though, and up till now, the markets had been shedding off the bad economic news continuing higher.  But now, the bad news seems to be piling on and may wear on investors psyche.

The EU is postponing their bailout to Greece and proposing a much smaller bridge loan until they get more concessions.  The FED’s FOMC (Federal Open Market Committee Meeting) minutes were released in the early afternoon.  There was dissention and subdued support for round three of quantitative easing (QE3).  Not what investors wanted to hear.

Late in the day you had Moody’s coming out threatening to downgrade 17 major international banks.  UBS, Credit Suisse, and Morgan Stanley by as much as 3 levels, and Goldman Sachs, Deutsche Bank, JPMorgan, and Citigroup by as much as 2 notches.  Thus investor sentiment maybe changing and becoming more defensive.  Gold and gold mining stocks were one of the few places to hide yesterday showing positive results.

Thus far this still may be a light pullback.  But we need to monitor the situation closely to see if it accelerates to the downside.  Definitely hold off on any new buying and stand ready to raise cash if necessary.

The old saying used to be “So goes GM, so goes the nation,” or market.  I believe you can now  replace GM with Apple.  It is one of the most widely institutionally held stocks.

Additionally, Apple just asked Amazon to pull all iPods for sale on Amazon’s website in Chinese markets over a trademark  dispute with a Chinese  Shenzhen-based company.  This should put further pressure on Apple stock.

Dr. Chris Katcher and Gil Morales pointed out even before the announcement that if Apple fails to hold to hold the 500 price level it could trigger the Livermore Century Mark Rule making the stock a short (of course using stop losses).  This strategy is only for active traders, not for investors.

For those of you who don’t know, Jesse Livermore was a very famous trader at turn of the last century (early 1900s).  In fact, many consider him to be the father of technical trading.

His century rule(s) is that when a stock breaks a century mark – 100, 200, etc.. – to the upside, it tends to continue the uptrend a while for psychological reasons.  Likewise, when a stocks breaks down below a century mark, it tends to continue to the downside.

These are not hard, fast rules, but may be a setup and opportunity to pay attention too.  The main  point is to use Apple as an one indicator for the market’s health.  When Apple succumbs, the markets will likely succumb.

Also pay attention to how the investors react to the negative news.  Many times, it is more about the investors than the investments.

Today the economic reports include the Producers Price Index (PPI), Initial Jobless Claims, Housing Starts, Building Permits, Mortgage Delinquencies and Foreclosures, and the Philly FED Business Outlook.  This is a broad, full day of economic data.

We have numerous companies reporting earnings today across multiple sectors.  We have 18 in the S&P alone.  Among them are Waste Management (WM), Health Care REIT (HCN), Duke Energy (DUK), Nordstrom (JWN), Apache (APA), Frontier Communications (FTR), DirecTV (DTV), and Applied Materials (AMAT).

On the broader markets, a few include Ultra Petroleum (UPL), Allscripts Healthcare Solutions (MDRX), Advanced Auto Parts (AAP), and Hyatt Hotels (H).  Oh yea, I almost forgot, General Motors (GM).  GM is not in the S&P anymore as it was removed when it filed for bankruptcy.

In overnight trading (Wednesday 10:42 p.m. CST) the Asian equity markets are firmly in the red.  Silver, gold, and oil are giving back some of their gains from our trading session.  The US dollar is up against the other major currencies, and up significantly against the Euro.

Our US equity futures are also in the red.  The DOW futures are down 51 points, the S&P futures are down 7 points, and the NASDAQ futures are down 13 points.  Looks like we might have another tough day.  Watch for acceleration.

2-15-2012

The markets came off their lows yesterday to finish essentially flat.  At one point, the DOW was down almost 90 points but broke even, just like the both the S&P and NASDAQ.  The markets rallied hard in the last  just shows how resilient the markets have been (see 1 day DOW graph).

The internals are showing the uptrend is looking a little tired.  Up Volume was just 36% on the NYSE and breadth was negative with decliners beating advancers by almost 2 to 1.  The markets are becoming more selective, or narrow, in buying.

The midterm outlook for stocks is still bullish, but the short term is showing signs of fatigue.  The only thing I worry about is that sometimes short term pullbacks turn into a more severe correction as stop losses get triggered and computerized trading kicks in.

Then, about an hour before the close, the EU announced it would postpone the meeting in Brussels to give Greece their next bailout tranche.  They apparently want even more concessions.  One would think this would spook the markets and test just how resilient these markets are.  It has been a news driven market, and this news should be decidedly bad.

But the markets rallied strong into the close instead.  This tells me something is in the works behind the scenes and possibly the big, institutional money is taking advantage.

We are just under resistance (red line on graph), and if we do rollover, support (green line) is around 12,750.  But if we break through resistance, momentum traders will pile on and fuel the rally.  We are at a pivotal point here, and the next day or so will be key.

In overnight trading (Tuesday 10:00 p.m. CST) the Asian markets are in the green.  Gold, silver, and oil continue to rally.  The US dollar is stronger against the Yen on expectations of easing by the Japanese Central Bank, but weaker against the Pound and Euro.

Our US equity futures are in the green too.  The DOW futures are up 63 points, the S&P futures are up 7 points, and the NASDAQ futures are up 12 points.

Economic data out today include MBA Mortgage Applications, the NAHB Housing Index, Industrial Production, and Empire Manufacturing.  We also have revisions of the Producers Price Index (PPI), which should be interesting and often looked over and forgotten.

We also have 16 S&P companies reporting earnings.  Among them are Dean Foods (DF), Dr.Pepper Snapple (DPS), Devon Energy (DVN), Deere & Co (DE), Abercrombie & Fitch (ANF), NVIDIA (NVDA), Marriott (MAR), NetApp (NTAP), CF Industries (CF), and CBS (CBS).

It is a broad swath of industries and sectors providing solid clues as to how well the recovery is taking hold.  Watch for the revenue growth, not the actual earnings to determine the trend going forward.  But for right now at least, is seems the rally will continue.

2-14-2012

We had a solid day yesterday on the heels of the Greek parliament passing the austerity measures required by the EU (and Germany).  And the internals weren’t too strong to worry about a “blow off” top.  Good news!

Why is this good news do you ask?  Because for the Greek austerity to be passed, one would think you would have a stronger Up Day.  But Up Volume was 77% on the NYSE and just 69% on the NASDAQ.  Total volume was down across the board.  So we did not get a “blow off” top.

Investors are probably still just waiting for the EU to formally pass the next tranche for Greece on Wednesday.  Also, there was hardly any economic data or earnings reports yesterday.

The markets continue to be “overbought” by most technical indicators.  We are, and have been, due for a pullback.  Any pullback will likely be shallow as the supply/demand picture is still positive for stocks.

Moody’s downgraded Spain and Portugal late in the afternoon yesterday, along with Slovakia, Slovenia, and Malta.  They went on to say that France and Britain may be stripped of their AAA ratings.

As a result, the Asian equity markets (Monday 10:20 p.m. CST) are down in overnight trading.  Silver, gold, and oil are also giving back some of their recent gains.  The US dollar is up against all 3 major currencies, the Yen, Pound, and Euro.

Our US equity futures are moderately in the red.  The DOW futures are down 15 points, and the NASDAQ and S&P futures are down 1 point each.

The economic data out today include the NFIB Small Business Optimism, the Import Price Index, and Retail Sales.  We have 11 companies reporting on the S&P today.  They include Goodyear (GT) and Watson Pharmaceuticals (WPI) in pre-market, and Host Hotels & Resorts (HST) and Avon (AVP) during market hours.  Finally, in after-hours, we have MetLife (MET).

In the broader market, we have Zebra Technologies (ZBRA) and Fossil (FOSL) in pre-market, and Weight Watchers (WTW) during the regular trading session.  After hours, American Capital (ACAS) and Arch Capital Group (ACGL) report earnings.

Again, it looks as if any pullback will be shallow.  And, I expect a resumption of the rally on Wednesday if they finalize the Greek deal.