today’s tape

I’ll be out of town this week…updates will resume on July 5th.

today’s tape

Economic growth is anemic; the housing and credit crises continue to worsen; consumer confidence is at a 16 year low; inflation is rampant, raising energy and food costs. These factors – and many more, mind you – have pushed the DOW to a 14.5% loss over the first half of 2008. For those scoring at home, that’s the 10th worst 6 month start in the history of the DOW. And yet, there are still “experts” desperately telling you things are all right.

Well things aren’t alright – at least for the parade of permabulls who never adjust their market sentiment. I hate to be the constant bearer of bad news, but I don’t see the catalyst that turns this bear market around. Though it’s true we’ve seen the market already recover twice this year after steep declines – once in January and the other in March – each rally was the result of government intervention. Unprecedented rate cuts and the bail out of Bear Sterns were needed to artificially boost the market. But as I posted on June 12, the FED’s hands are now tied:

The financials ended mostly higher even though KEY lost nearly 25% after announcing the company would cut its dividend. The XLF is still above the January low of $22.50, but this may not last. Here’s my reasoning.

In January and March of this year, short sellers had to be nimble to avoid the volatile squeezes after the FED cut interest rates. This in turn helped the overall market as a flurry of money would come in to bid up stocks. Everyone praised the FED for cutting rates – at times 75 basis points – and the market would recover, somewhat. Well, I have a news flash for you. The FED isn’t cutting rates anymore. In fact, the FED Funds futures are pricing in an increase before the year is out.

Though Paulson’s empty rhetoric of the administrations “strong dollar” policy is just that, Bernanke has recently made public comments making the case for a rising dollar. With commodity prices reaching new highs, the FED has signaled the greater risk to the US economy is inflation – not slowing growth. And that means the FED is hawkish.

This is probably why we haven’t seen the financials show any signs of life (yet, anyway) like we did in January and March when the FED cut rates aggressively. Rates aren’t going lower, and the FED’s position has now completely reversed on rates even as the banks and homebuilders and still getting killed. So what will be the catalyst that props up C and WB and LEH and MS? I have no idea.

Though the FED tried to sound tough against inflation on Thursday to help the weaning dollar, traders weren’t buying it. Gold has gained 5% the past two days as the Dollar continues to slide against the Euro. The FED can’t solve inflation or the credit/housing crisis because trying to remedy one will only worsen the other.

This should not discourage investors, however. Trading opportunities remain ample. Agriculture, coal and energy stocks are still reaching new highs. Financials, hotels, casinos, transports, are all easy shorts. There is no reason one cannot make money under the current market conditions. Just follow the trends.

today’s tape

There were many reasons for Thursday’s market collapse. Let’s take them one at a time.

The FED

Yesterday afternoon, Bernanke put an end to any remaining speculation that interest rates would be further cut. The newly hawkish FED is now more worried about inflation than slowing growth. And many are speculating this means rates are going to rise in the near future. With a housing market that is still depressing and a banking sector that may see a name like WM or WB go bust, higher rates are not going to be welcomed by investors.

The Dollar-Gold battle

With rates staying put – at least for a little while – the US dollar should continue to lose value against the Euro. The dollar has already lost about 22% against the Euro over the past 12 months, and continued weakness is only going to send investors flocking to commodities, such as gold. I’ve warned of one taking control of the other, and the price of gold broke out today advancing almost 4% after yesterday’s gains. The GLD is right on the $90 resistance level. If it breaks this level we may see another long term trend establish.

Energy Prices

The softening dollar continues to prop up prices of oil and natural gas. But more importantly – as I have posited many times before – these commodities are trading as a safe havens to store capital. Why would I buy the financials, retail, technology, airlines, autos, aerospace, healthcare…when I can own oil or natural gas?

Goldman Cuts the Banking Sector

How great is this? Over the past 12 months, BAC, C and WB have all lost 45% or more. And now Goldman says C is a “sell” this morning. Actually, you should sell the financials here. Of course, you shouldn’t have owned ANY bank over the last 12 months. Welcome to the party, Goldman.

RIMM Misses

This was the last technology name that was working. We saw a bunch of upgrades two weeks ago leading to the company’s earnings report, pushing the stock to a new 52 week high. RIMM came up a bit short yesterday, and the stock was murdered, as a result. The NASDAQ was trying to avoid a full collapse, but now, I cant find anything worth owning in the technology sector.

GDP

This was basically forgotten today, but growth was slightly higher than expected.

And there you have it. Add it all up and it’s easy to see why the market was down over 3%. But some stocks actually went up today. Of course, they were commodity names. HAL, ANR, PCX are just a few. You can also continue to own the DBA, UNG and USO as you short most other equities. The market may be bleeding red, but your portfolio can continue to perform as long as you stay with the trends.

today’s tape

A brief update today.

As expected the FED held rates even today.  Stocks were given an initial lift to increase their gains but fell back towards the end of the session.  Take a look at the one day charts of some financials (FRE, MER, WB) and commodity related names (X, CLF, MOS).  Notice which lost gains and which recovered their losses this afternoon.

Brazilian stocks were given a much needed boost.  With rates staying where they are, it will be difficult for the dollar to rally and reduce commodity costs.  (Notice the dollar was crushed against the Euro, and the GLD rallied over 1.5% from its lows.)  Brazil is so dependent on strong commodities, and today the EWZ was able to reclaim the $90 support as PBR (oil) SID (steel) and RIO (mining) moved higher on heavy volume.

I don’t think anything has changed.  Stay long the commodities and avoid the financials.

today’s tape

The markets were under early selling pressure led by the financials this morning; but when the DOW reached the 11,750 level – the lows of the March bottom – the major indices stalled for about 45 minutes before reversing course and rallying higher.  The XLF and most financials helped lead the mid day advance, but the market couldn’t hold the gains ahead of tomorrow’s FED rate decision.

I don’t expect the FED to move rates – hardly anyone does, actually – so the key will be whether Bernanke et all are more worried about receding growth or rising inflation.  I have no clue what matters more to this market – and pay no mind to anyone that claims such clairvoyance.  Financial companies are still being ravaged by the housing market and credit crisis, and the consumer is disappearing with rising energy and food prices.  This double edged sword has locked the FED in a box there is no key for.  Oh, well.

With the financial names surging today, the commodity related names began to fall.  The agriculture, coal, oil and natural gas names were all much lower today.  Now, this has been the trade right before, during and immediately after many of the FED rate decisions from 2008.  The financials put in short term bottoms and the commodity names reach short term tops as we reach the FED meetings.  It appears this may be occurring again; but never lose sight of the longer term trends of this market.  The financials are not to be owned.  Stay long with what’s working.

This morning’s consumer confidence number was terrible, but the retail sectors was battered the past week and the RTH can’t go down every day.  In fact the retail ETF may have hit a short term bottom at $90 – the support from November and February.  And with the DOW testing and holding its support at 11,750 we could see broad market rallies in the very near future (assuming investors don’t freak out tomorrow at 2:17 pm).

Technology has finally lost its bullish bias, and the Russell 2000 was the last major index to break down today.  Long term I think this gives the advantage to the bears.  But we may see some short rallies now that each major index – and most sectors – have turned lower.

The DOW has fallen 1,200 points in about 5-6 weeks without much of a rebound. As the index now trades near the 52 week low that was support in March, we could see a Fed inspired rally begin tomorrow.  But a few days later you’ll likely want to be net short again.  Stay with the trend.

today’s tape

no update today…i’ll be back tomorrow.

today’s tape

Don’t say that the signals weren’t there; that the sudden drop in equities caught you completely by surprise, shrinking your portfolio.  But, even if you did miss the signals,  that’s why I’m here.  To wade through the usual Wall Street jargon that conveniently ascribes causes to market movements only in perfect hindsight.

The market began to deteriorate 4 weeks ago back on May 24.  As I noted in my opening paragraph:

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.

And three days earlier I warned that the financials were trying their to best to start another crash in the S&P 500.

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.

One month later, the S&P 500 is trading 5% lower from that May 21 post.  But the 4 stocks I introduced as prime shorts, C (large bank), CTX (homebuilder), PRU (insurance) and MBI (mortgage insurance) are trading 8%, 25%, 8% and 32% lower, respectively.

You can listen to conference calls, study balance sheets, anticipate what the next batch of economic data will be…but nothing will tell you how to trade a stock like price action.  Everything else, as loud as it may be, is just noise.

Oil prices recovered about half of their losses from Thursday, but the real culprits for pushing the market lower were the dollar, gold and the financial stocks.  The dollar was crushed against the Euro yesterday and this helped prop up the price of gold.  The FXE and GLD now have upward momentum and could be on the verge of busting through their resistance levels ($158 and $92, respectively).

Now, there has been a lot of talk from Paulson and, somewhat surprisingly, Bernanke about raising the value of the dollar.  Some have even speculated that the FED is keen to raise rates soon.  But given the current state of the economy and banking sector, I just don’t see it.  Raising interest rates would kill some homebuilders and banks – and Bernanke (probably) doesn’t want to do that.  The European Central Bank is more likely to raise rates before the FED, which would lower the value of the dollar still more.  This should continue to inflate commodity prices.

Downgrades of a different kind dropped MBI, ABK (credit), FRE and FNM (earnings estimates) Friday.  This weakness spilled over to the broader financials, pushing the XLF below the $22.50 level on strong volume.  And I suspect there is still more room to the downside.  Many financial names that have yet to reach new 52 week lows will probably do so.  Watch for MER, C, JPM and WFC.

You can also expect the agriculture, coal, natural gas and oil stocks to make new highs week if we see any market rebound.  Owning these names has been the play since the credit crises began and should continue to be the play for the next 6 months.

The technology sector is simply following the lead from the broader market.  On Thursday the major indices advanced and technology rallied higher.  Friday, tech fell with the rest of the terrible market.  Outside of RIMM, I not sure any name can be owned at this point.  GOOG and AAPL are trying to hold on, but no stock’s price action is as bullish as RIMM’s.  This is why I recommended owning RIMM and shorting SNDK – down nearly 10% Friday – in my last post.

today’s tape

A short update today…

The market ended a choppy session with slight gains as energy prices mostly finished lower on the day.  Oil dropped nearly $5 today, no doubt sparking the latest cries for a top in crude.  Natural gas was also crushed, but gold and most other precious metals ended higher.  Again, gold is the commodity to watch, and it continues to be squeezed as its trading range tightens (as does the dollar, too).  I still think the winner between the gold-dollar battle takes control of this market.

The financials were in real trouble today as the XLF traded 2% below the $22.50 level, but we saw the banks rally well off their lows (especially the regional names that have been absolutely killed).  In fact, the XLF traded higher by 1% today.  You still don’t want to own any names in this space.  Really?  Really.

Technology may be the sector that determines whether the market moves higher or lower.  It’s mostly immune to the credit crunch and rising commodity prices, and the NASDAQ was the index leader climbing out from the lows of March.  I’m still wary about AAPL and GOOG as they been stagnant for two months.  The semis surged back today and is now swinging wildly in a tight channel.  The best name to own in technology is RIMM.  The stock price has surged 14% in 5 days.  Owing RIMM and shorting SNDK would be an interesting pair trade.

today’s tape

The major indices dropped for a second straight day, but this time the market wasn’t done in by the financials.  In fact, we saw the complete opposite from yesterday’s trading.  On Tuesday, the immediate boost from GS’ earnings was followed by intense selling throughout the session.  Today, after MS released earnings, the stock opened about 7% in the red, but quickly climbed higher with most other financials.

But the commodity sectors also gained as oil prices and gold (remember, this is the one to watch) had strong days.  It’s rare that both the financials and commodity sectors both advance, but that’s mostly what happened today.  So why did the DOW market lose 1% today?

A few weeks ago I posted a comment regarding the negative correlation between crude oil prices and retail stocks.  May 24:

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.

Names like JCP, M, HOG, JWN, KSS, UA and COH were crushed today.  The RTH ended the day right near its current support (about $93).  We’ve seen retail stocks recover many times the last few months, but today’s price action was particularly discouraging to the bulls.

In addition to retail, technology is starting to become a problem.  The SOX has already given back impressive substantial gains from last Friday and Monday.  The NDX is still better than the DOW and S&P 500, but technology many stocks are already breaking lower.  Continue to watch the action in AAPL and GOOG (RIMM is basically immune to any setbacks in technology right now) for tells as to where the NASDAQ trades from here.

today’s tape

The market exhibited early strength as GS beat expectations, but the financials quickly gave up their gains and finished well into the red, dragging the major indices lower. The XLF dropped almost 3% and is retreating to the support of $22.50 once more. With still more earnings to come from the investment banking sectors this week we could see this level break if MS, for example, unveils some terrible numbers. Today was your opportunity to short this space again.

Commodities didn’t move much and the dollar lost more ground to most major currencies. But the soft commodity ETF, the DBA, continues to run higher (1.5% today). And the agriculture stocks have become some of the best trades, as they were for most of 2007. MOS, POT, TRA, CF and others surged to new highs against a terrible tape today. Coal, steel, oil and other commodity stocks also moved higher.

Technology held firm as the selling was mostly contained to the financials. RIMM was trading higher by $5 early today, AAPL was up almost $5, and the XLK dropped just .4%. But be careful here; as momentum begins to swing negative again the financials may start to crush the rest of the market, eventually pulling technology, and everything else, lower.

And that has been the trade for over a year now. Short the financials, be long commodities and be selective of your longs and shorts in tech. It really is that simple. Don’t out think the market by trying to find a top in oil or a bottom in the financials. Investors have been wrong for a year. Don’t be one of them.