today’s tape

The markets ended the month of March recovering from the prior week’s sell-off, preventing a full reversal of the current up trend.  But a shift in market sentiment is still an all too real possibility, and one you should consider.  Let me be clear, I contend the price action over the next two weeks will determine the where this market trades over the summer.

You’ve read my rants on the battle between the US dollar and gold prices; and I still believe if gold can prevent a collapse below the $850 level this market will likely trade lower.  Taking a look at the GLD, the ETF is trading right its 30 day moving average.  And the one month performance of Gold is essentially flat, posting a 1%.  Yet, some gold stocks have taken off; AEM and AUY have risen 20% and 13%, respectively, during this same period.  Could some investors be anticipating another gold rush to the $1,000 mark?  Maybe.  To this point, neither gold nor the US dollar has gained control of the other.

The other premise that could derail the market is further weakness in the financials.  The XLF lost more ground to the rest of the market this past week, and this weakness prevented the DOW and S&P 500 from adding the gains seen on the NASDAQ.  LEH June Puts continue to trade like mad – over 7,000 of the $17.50 strike were swapped. on Friday, more than doubling the open interest.  AIG has lost another 12% since its disastrous quarter.  CIT was just downgraded by Moody’s on Friday.  And the homebuilders are trading as if a retracement back to their 52 week lows is inevitable.  If the financials cannot hold the low end of their current trading range (at the $24.50 mark) this market will turn lower.

This week also produced one of the biggest drops in crude oil prices we have seen in some time.  After the weekly inventory report was released, the initial reaction was a spike up by about $2.  But a large wave of selling soon pushed down oil prices by over $4 a barrel.  The price of crude is still in a bullish up trend, but we could see further declines all the way back to the $120 level (former resistance from the end of April), about a $7 loss from where it currently trades.  This remains one of the best sectors to own, and you should continue to own outperforming names like PBR, CHK, and COP.  Don’t go looking for XTO and XOM to play catch up.

But the best commodity groups are still steel and coal.  Look at the recent performances of ANR, WLT, MEE, X and SCHN.  These stocks are reaching new highs every week.

As I said above, the market may be transitioning if gold rallies and the financials can’t regroup.  It will be interesting to see what the outcome of the next two weeks will be.  As always, stay long strength and short weakness.

today’s tape

Today’s .9% GDP growth reading indicates the economy grew slightly ahead of last quarter’s pace.  A dip in oil prices is also cited as the catalyst for today’s move in equities.  Allow me (again) to dismiss this notion.  The S&P 500 has risen over 7.5% since the lows of March.  During this same period the price of oil has increased 25%. Let’s stop this nonsense about oil holding the market hostage.

No, it was the drop in gold prices – almost a 3% loss – that pushed equities higher.  As I have been writing, the price of gold has tried to reverse its down trend, and this pressured equities recently.  And as I wrote two days ago, gold will likely have to break below the $850 level again for the stock market to continue rallying.  If you want to know where stocks are moving watch gold, not oil.

But oil is affecting three groups right now more than the rest of the market.  Obviously the energy names and airlines, but retail has been able to gain when oil falls, and somehow hold steady when oil increases.  You can’t fight retail when names like RL jump 10% after their earnings are released.  Of course, JCG is down 18% in after hours trading.  So , who knows.  If you are going to be in this space, stay conservative with WMT or COST.

The financials behaved relatively well, but this is still the most dangerous group to own.  And if names like C, LEH and the XHB can rally back up to their 30 day moving average, i contend these would become great shorts, yet again.

The major indices gave up almost half of today’s gains because the US dollar and gold are still stuck in a relatively tight trading range.  For two months, the dollar and gold have traded jabs as one tries to gain control over the other.  I maintain whichever gains control will determine the fate of this market.  If it’s the Dollar you can stay net long.  If gold wins out it will be time to add to your shorts.

today’s tape

I spent the day watching the US-England Friendly; no update today.

The only thing I’ll say is that equities still managed to climb even as crude oil put in a huge reversal today – from trading down $2 to finishing today near $131.  But look what gold did; it was still down on the day.  Gold is the commodity that may break the market, not oil.

today’s tape

A combination of better than expected home sales data and lower oil prices overshadowed the weakest consumer confidence in 16 years, allowing the market to find its footing and end Tuesday’s session with strong gains. Again, I assert that it’s not a rise in crude oil that may eventually derail this market – it’s the price of gold. Thus, when Gold lost over 2% today as the dollar gained ground against most major currencies, it pushed equities higher. But unlike oil, gold did not any lose ground when the equity market was open – it lost 2% in premarket trading. If the price of gold rallies again before it hits the $850 level, it will start to form a series of higher lows and higher highs. This will not be bullish for equities.

The NASDAQ continues to lead most rallies, and it’s the same handful of technology stocks that must be owned. AAPL, RIMM, GOOG, INTC – they bounced right off their 30 day moving averages. I have become more cautious in my intermediate term outlook on the market (1-4 months), but these stocks should continue to outperform even if the DOW and S&P 500 begin to decline. But if/when we see a name like APPL start to trade lower, it will mean that almost nothing can be owned. Just look back to January of this year. APPL went from a $200 stock to $130 in three weeks. This just happens coincide with the worst monthly performance of the S&P 500 in many years.

Most commodity names underperformed today, but we aren’t seeing the panic selling that disrupted the trends of the OIH, XLB and XME in January or March of this year. In the long term, these are still groups to own. Steel and coal names are still trading stronger than most other groups.

In the financial arena, investors paid no attention to a 6% drop in UBS on huge volume. LEH – the one finance stock you should monitor right now – jumped off the $35 level, brief support in late March after the stock’s crushing blow from the BSC fallout. Tens of thousands of June out of the money puts traded hands again today. Further, the $17.50 and $20 strike puts gained value as the stock added over 3% today. You should not go anywhere near this group.

Outside of price, I rarely use other parameters to influence my market sentiment. The one exception is volume. When the market was thrashed on May 21, trading volume was the highest since the major indices bottomed in mid March. For reference, the SPY traded over 250 million shares that day; today it traded 175 million. The QQQQ nearly reached 200 million shares on the 21st; today the number was 123 million and change. The market is still trending higher, but cracks are starting to emerge. Position yourselves accordingly.

today’s tape

The stock market is in serious trouble. Yes, again. I warned of a sustained drop in equity prices on Wednesday, and, to these eyes, the price action indicates we may be headed back to the January 52-week lows.

First, energy prices are hitting new highs everyday. So far, we have only seen record oil crush the airlines. You should always – always - be short somewhere, and shorting the airlines has turned out to be the best oil trade of them all. We are also seeing strong deterioration in the car manufacturers. GM and F have lost about 15% over the past 10 trading sessions.

This market has been able to shrug off oil at $100, $110 and $120. But oil above $130 is really starting to drag on the US economy. It will soon cost over $100 to fill your car will gasoline. Airlines are charging extra fees to check one bag on flights. The high price of oil is going to hamper other parts of the economy soon. We’ve already seen the airlines and car manufacturers get taken down. Next up, it’s retail.

I had been somewhat impressed by the price action in retail names like COH, KSS, and the RTH in general, but we are starting to see this group turn over. Most notably, the bears are trying to end the run of WMT. If WMT can’t perform given the current state of the US economy, when every shopper is likely flocking to their stores, no retailer will.

Restaurant stocks were thrashed this week, and we saw dramatic drops in casual dinning eateries CAKE and PFCB. But we also saw 5% drops in fast food chains. Again, if MCD and YUM – two of the cheaper places you can eat outside of your home – are rolling over, you can’t expect the sector to do well.

Although high energy costs will pressure the market, it won’t cause a full on panic like a potential financial crisis. Here, of course, I’m speaking of another Bear Sterns. And on that note, let’s take look at LEH. The stock has given up 17% in 5 days. Almost as compelling is the heavy short term put buying. Over 17,000 puts at the June $22.50 strike (priced at 55 cents) traded hands today. From the stock’s current price of $36.11, there is heavy speculation that LEH could drop 37% in a few weeks. This is exactly the type of price action that happened before BSC went under. I’m just saying.

The bond insurers are racing back to their 52 week lows. I don’t know why many on TV had said the catalyst for shorting these stocks, the banks and brokerage houses is gone. As far as I can tell the price keeps declining; that’s all the catalyst I need.

To be sure, there are still pockets of strength to be long; and you should always be invested in equities that  outperform.  The DOW and S&P 500 were taken down by the financials last week, but the NASDAQ is holding above its 30 day moving average.  Technology  stocks like AAPL, RIMM and INTC are still right to own.  Coal and steel withstood a rough week to remain in prolonged up trends.   And if you could only invest in one country right now, it should be Brazil.  I wrote about the country’s market on May 15th.

With such a robust uptrend in place, the key is now finding the best of the best in the market. And for that you need to invest south, in Bazil. Look at where PBR, RIO and SID are trading. This is why the EWZ (Brazilian ETF) is one of the few international markets at a 52 week high. Don’t go looking for other countries trying to play catch up. Stay with the leader.

Shorting the S&P 500 and staying long the EWZ should be profitable for the next few months.

Any bounce we may see in the financials next week should be sold (shorted).  The credit crunch may not have swallowed its only victim; the dollar is weakening again, causing gold to rally; and the economy is only getting weaker.

today’s tape

I’ve managed to find a few minutes to break my hiatus and warn about the current state of the market.

Everyone is fixated on this morning’s CNBC T. Boone Pickens’ interview. He said oil is going to $150 a barrel and blah, blah, blah. I don’t care about predictions. I’m bullish on crude oil because the price is rising. But the price of oil isn’t the problem. Instead I’ll refer you to the end of my May 10th Post.

Beyond more earnings being released and the performance of crude oil, I’ll be monitoring the price of gold next week. After a big drop on Wednesday, gold gapped higher from the open by 2% on Thursday and still added to their session gains. On Friday, the commodity dropped about 2% in the first hour of trading, yet ended the day with a slight gain. Gold’s performance, teamed with a positive reaction to the earnings from AUY, lifted the entire group 4% this week.

Since the BSC bailout, the S&P 500 and gold have been mirror opposites of each other. The S&P 500 bottomed in mid March, exactly when gold reached its apex. Naturally, as equities fell this week, gold rallied. If we see a long term reversal in gold, this market may falter.

The (still) weakening dollar is propping gold, and the precious metal is reversing its down trend. As a result, the S&P 500 is starting to fall, once again being dragged down by the financials. I wrote abut the rollover in the XHB last week, and the now the XLF is bailing on the broader market up trend. You should always be short somewhere; and names like C, CTX, PRU, MBI and others are perfect candidates.

today’s tape

Here’s how strong the market is behaving – everything was up today. Technology, the investment banks (despite an analyst lowering earnings estimates on MS and GS), energy, mining, biotech, retail, gold, crude oil, silver, copper. All prices moved higher. With such a robust uptrend in place, the key is now finding the best of the best in the market. And for that you need to invest south, in Bazil. Look at where PBR, RIO and SID are trading. This is why the EWZ (Brazilian ETF) is one of the few international markets at a 52 week high. Don’t go looking for other countries trying to play catch up. Stay with the leader.

I’ll be out of town town for the next 2 weeks. I’ll be back with regular updates on June 3rd.

today’s tape

It appeared the major indices, keen on resuming their uptrends after a few negative sessions, would continue rallying into Thursday’s close.  But the market spiraled out of control during the final 2 hours, leaving most investors puzzled by the sudden drop.  Most compelling about the late day swoon was which stocks led the market lower.  First, it was the NDX (the best performer since the recent market bottom) that took the biggest hit of all the major indices, dropping 30 points in the final 90 minutes of trading.  The current rally has been led by technology, but we finally saw some profit taking in names like AAPL and RIMM today.

But it wasn’t just technology.  All of the other momentum stocks (mostly, anything related to commodities) traded in similar patterns.  Names like ANR, RIO, CLF, CHK, X – they all reached new 52 week highs before giving back their early gains and ending lower.  With the OIH and XLE still struggling to break their respective resistance levels, the energy and commodity names may retreat in the near term (quick sidebar: i realize I warn about sudden drops in these sectors quite often, but it’s only to help the reader recognize how these stocks usually trade.)

Strength in FRE and FNM and positive comments from an analyst at Wachovia suggesting homebuilder share prices already reflect the dismal housing market (priceless commentary) didn’t spread to the broader financial sector.  The banks and brokerage houses were were little changed on the day.  Just move along, there’s nothing to own here.

Strong earnings in the solar names have sent many alternative energy stocks skyrocketing the past few weeks.  I mentioned the renewed strength in this group back on May 6.

With the price of oil reaching for the clouds, the solar names are back in favor. YGE, JASO and CSIQ are just a few names that spiked about 10% today. We’ve seen volatility dissipate over the past few weeks, and this should make owning one of the solar stocks easy to tolerate.

The three names mentioned above have gained 20%, 10% and 50%, respectively, over the past five days.

Retail socks are still strong despite the weak economy.  The RTH is performing better than most ETFS; and to see the real strength in retail you need only to look at WMT.  The company easily rebounded today, gaining almost 2% after yesterday’s negative reaction to the company’s earnings release.

This afternoon’s steep sell off should make trading for the rest of the week an interesting one.  Stay tuned.

today’s tape

No time for an update today. Instead I’ll share provide my most fundamental rationale for trading.

Try as I might, I can’t escape the daily proclamations from the talking heads on CNBC suggesting the price of oil is overvalued. These “experts” maintain the fundamentals imply a price of about $75 to $80 a barrel. That’s all well and good, but the price is $126. And why is the price $126; because people are valuing a barrel of crude oil at this price. If they did not value oil at $126, it would be trading at some other price.

The point that everyone seems to miss is that the price of oil, gold, any equity, the NASDAQ index, a 2 year T-Bill – whatever – is ALWAYS properly valued. Whenever a security or commodity is exchanged for money that is the value of said commodity or security.

today’s tape

Since the current rally began, I have pounded the keyboard that technology stocks are the driving force behind the new bull market. Now RIMM and AAPL – the best technology has to offer – will always outperform, even when the broader market falters. This is why confirmation of a true reversal in the NASDAQ required full reversals in the SOX and other names that have filled this space over the past few weeks (BCSI, SNDK, EMC, NVDA, VMW, NIHD, AMD(!) to name a few). With the financials still struggling to sustain their advances and the commodity names keen to volatile swings, I stand by this statement from the weekend:

The tech sector will likely continue their role as the market leader; and they also don’t carry as much downside risk as the commodity names.

Oil prices dipped today, preventing the energy sector from breaking out to new highs. You should continue to monitor the resistance on the XLE ($95) and OIH ($206) in the coming days. If crude follows the same pattern during its recent run up, we could see consecutive session losses (meaning 3 to 4 days) before investors step back in to build their bullish positions. You should also keep an eye on the strength in the US dollar to see if it begins to shrink the price of oil. So far, this has not been the case.

Though I (and to be fair, most) now believe the prospect of a lengthy, deep economic recession has replaced the credit crisis as the market’s main hurdle, the retail sector continues to advance. Yes, consumers are spending less, but that does not preclude KSS, JCP and other retail stores from moving higher. WMT (which reports earnings tomorrow) is apparently immune to such economic fears. The stock began its current 30% run once the talk of a possible recession entered the public discourse. Fundamentals be dammed; follow the price. If you want to pair a long retail trade with a short, look to UA.

Other areas of the stock market that keep rising are the dry bulk shippers (DRYS, TBSI and EXM) and Chinese technology names (BIDU, SOHO and SINA). Remember, these momentum stocks reached new highs back in 2007 when the overall market was healthy. And once again they signal the major indices are heading higher.