The past week the markets turned down for the first time in five weeks, but one stock shot straight up...
WALMART (WMT) ANNOUNCED EARNINGS THURSDAY DRIVING OUR SEPT 50 CALLS TO AN EYE-POPPING THREE-DAY ONE-HUNDRED-TWENTY-ONE PERCENT PROFIT!
Of course some of you made even more but this 'automatic' profit was still pretty sweet as the stock reversed after its initial jump higher stopping us out of the play. We were also stopped out of AutoNation at a much smaller loss as the stock dipped lower last Monday.
We seem to be at a turning point in the markets as they digest the past several weeks big gains--the question now is...
WHICH WAY IS THIS MARKET HEADED?
We are at a turning point in the markets--after trading sideways for the past two weeks the major indices either HAVE to trade higher or they will break their uptrend lines. Those uptrend lines are a technical indicator every trader can easily identify--so if uptrend support breaks expect some selling that could accelerate quickly.
That said this market has more lives than a basket of cats so don't count out the uptrend yet. Friday was the lightest day of the week for volume and the average for the week was just under 9 billion shares--so the sideways market is undecided both in direction and volume--but that is likely to change this coming week.
This big rebound needs a breather--small caps jumped 67% from the 343 close on the Russell-2000 on March 9th to the 575 close on Thursday. That was a gain of +232 points or 67.6%--all without a 10% correction along the way.
If you go back in history and chart recoveries out of recessions you will NOT find a single 50% rebound off a recession low in only five months except for the bear market rally in 1930, which was eventually erased with an further 82% drop in 1932.
Since 1950 the average length of time to achieve a 50% rebound is 18 months BUT those figures were only produced with real GDP growth of +4.5% from the bottom, an average of 850,000 jobs added to the economy, corporate profits jumping by more than 12% and bank lending increasing by more than 5%.
None of those events has occurred in this rebound.
We're likely to see another big plunge lower for one really big reason--the consumer which makes up between 60% and 70% of GDP--is NOT ABLE to spend enough money to fuel meaningful growth in GDP over the next several quarters.
The reason they are 'not able to' as opposed to 'not willing to' is because they are still in debt up to their eyeballs and pinching every penny.
On Thursday retail sales for July declined by -0.1% when analysts were expecting a gain of +0.7%. Core sales (ex-auto, ex-gas) fell for the fifth straight month and at -0.4% was the biggest decline since March. General merchandise stores fell -0.8% and have been averaging a -0.7% drop for the last five months.
JC Penny reported earnings on Friday that were breakeven and lowered guidance for Q3 saying they could lose up to a nickel a share citing a 'tough' environment.
Kohls also warned that the second half of 2009 would be worse than previously expected. Guidance was below Wall Street estimates and Kohls CEO warned that the coming holiday season could be nasty.
Even though we made a ton of money on Wal-Mart calls the company reported that same store sales fell -1.5% in Q2. They had previously forecast flat to +3%. The quarterly decline was the first ever for Wal-Mart. Wal-Mart said consumers were buying less expensive store brand products and buying smaller sizes. They were also paying cash instead of credit. Neither Wal-Mart or Kohl's sees a consumer rebound in our immediate future.
The consumer is maxed out and has no credit so where is this big economic recovery going to come from?
Eighteen months into a deep recession triggered by a credit bubble and consumers have made little progress shrinking a mountain of debt. Until they do, the economy will struggle to grow - likely for years.
Household debt peaked at $13.9 trillion in 2008, almost double the figure from 2000. Since then consumers have cut up credit cards, refinanced outsized mortgages and slashed spending- but they've barely made a dent with household debt currently at $13.8 trillion, according to the Federal Reserve.
"We really have a long way to go," says economist James Hamilton of the University of California-San Diego.
Until the fourth quarter of last year, American consumers had never reduced their total debt in the post-World War II era. Yet the payback or "deleveraging" since then represents a very small step along a very long road.
Household debt peaked at 133% of disposable income in 2007 vs. 65% in the mid-1980s. To pare it back to a sustainable level, consumers will have to pay off - or walk away from - roughly $5 trillion of the total debt outstanding, says David Rosenberg, chief economist of the investment firm Gluskin Sheff. That's more than China's total economic output.
Some debt will be erased through home foreclosures and credit card defaults. But the remainder must be painfully repaid, by consumers holding expenditures below earnings for years. Already, the savings rate, which fell into negative territory before the financial crisis, has jumped to 6.9%.
That's a big change from the pre-crisis period when consumers fueled a consumption binge by borrowing against the bubble-inflated value of their homes.
But it's not enough.
The twin collapse of the housing and stock markets has destroyed more than $12 trillion in wealth since 2007. And wages now are flat-lining amid the recession even as interest charges continue adding to the debt tab.
So as you can see excessive debt will hold back the economy over the months and years ahead. And the recent government efforts are not helping the problem they are making it worse. The 'Cash for Clunkers' program is taking thousands of Americans from driving paid-for cars they can afford into new cars with auto loans creating even more potential bad debt in an unsustainable attempt to revive the auto industry.
The run-up in the stock market has been great for the bulls and a lot of money has been made over the past few month but to borrow an over-used term--is it sustainable?
Based on the facts--no it isn't--not anywhere close.
That being the case what we're mostly concerned about is what is going to happen this week--and funds continue to buy the dips--but at a slower pace.
Equity funds are still receiving money with $5.2 billion in inflows over the last week. However, bond funds saw $12.3 billion in new deposits according to TrimTabs.com. Vanguard confirmed the pattern for July saying $3.9 billion came into stock funds and $7.6 billion into their bond funds. Fund flows into stock funds are still way below the ten-year average of $7.8 billion a month so even though fund flows are below normal the market has continued to rise--and may breakout to the upside once again this week.
However, insider trading is not telling us it is time to buy. Last week there was 29 times more insider sales by dollar volume than buys by insiders. These are the people who should know when a company is doing good and when there is trouble ahead. Until that sales trend reverses it may be wise to hold off on those long term bullish bets.
This is the week we'll likely find out if this market still has the gas to go or will it fall from the sky--the question is...
HOW DO WE MAKE MONEY ON IT?
As we've seen so clearly over the past several weeks stocks with horrible earnings can really climb if the market is bullish--which tells us market sentiment is key. If the markets break down even the best stocks will fall and if they break higher the duds will likely go along for the ride--so what is a trader to do?
We've got two trades lined up this week set up to make us money no matter which way the market goes. They are on stocks with very narrow bid/ask spreads and penny priced options--so they are super efficient--and we're going to set our money traps to get in on the upside if they break higher--and get in on the downside if they break lower. Instead of anticipating market direction we're going to let it go the way it will--and profit handsomely when it does--automatically.
Once you see these two you are going to get as excited as I am so let's get started...
For more information on everything you receive with your Pearly Gates subscription click on www.cashflowheaven.com/pg
Monday, August 17, 2009
Tuesday, August 11, 2009
SEVENTEEN PERCENT IN JUST ONE DAY!
The market traded mostly flat last week but jumped big on Friday...
OUR NEW BULLISH TRADE ON AUTONATION (AN) JUMPED AS WELL ADDING SEVENTEEN PERCENT IN JUST ONE DAY!
That's great news and it looks like with the new funds appropriated by the Senate for the 'Cash for Clunkers' program AN will continue to rise making us some great profits on this new call position. Friday's gains were great but the big jump just brought back some of the value lost earlier in the week--but once again as the stock rises the profits on this one should mount up fast.
The rest of our plays continued to ride the bullish wave with just one exit on bearish position Goodrich (GR) as the stock climbed through our stop.
The markets continued their rise last week although the only real gains came on just one day--Friday. So what does that tell us about the strength of the overall market and how much longer might this rally last? To get a better idea and see where the opportunities may be hiding this week let's take a good look at...
WHICH WAY THIS MARKET IS HEADED
For four days last week the markets struggled to hold the 990 level only to see another short squeeze on Friday push the SPX over 1010. This has been the pattern for the past month with huge up-days on July 15, 23, 30 and then again this past Friday August 7. Unfortunately for the momentum players the big jumps are always followed by sideways trading.
The short squeeze generator for last week was the Non-Farm Payrolls report on Friday. The report showed the U.S. lost another -247,000 jobs in July but that was better than the consensus estimate of -320,000. It was also much better than the -467,000 jobs lost in June. The -467K June number was revised down to -433K in this report.
The really surprising news was the unemployment rate actually dropped to 9.4% from June's 27-year high of 9.5%--expectations were for a rise to 9.7% so the shorts instantly ran for cover--again.
Despite the market reaction to the report 247,000 people still lost their jobs. This was the 19th consecutive month of job losses but it was the smallest loss since August 2008--and that gave the markets one more lift over resistance.
The surprising drop in the unemployment rate and the better than expected job losses helped to fuel hopes that the recession is over--or at least the bottom is behind us. The administration was quick to take credit for the improvement in the economy but analysts point to the Fed's zero interest policy plus the various financial rescue programs implemented by the Fed and the Treasury.
The big driver over the past month has been earnings. With more than 450 of the S&P-500 stocks already reported there is little left to generate excitement although we do have a few stragglers turning in results this week--including AMAT, Wal-Mart and JC Penny (JCP).
The markets waited last week for Cisco (CSCO) to blow their results out of the water but boy were they disappointed. When the normally enthusiastic John Chambers did not confirm a recovery or even a bottom it really took the wind out of the tech sector. Cisco is now in 40 different product sectors other than just routers and switches--if they are not seeing an improvement in orders then maybe the Q2 bottom was just wishful thinking. In any case the markets were not impressed.
Traders have been listening to economists over the last several weeks thinking it's all up from here---then the earnings cycle showed 54% of companies missed their top line revenue growth and lowered guidance again for Q3. Finally the normally overly bullish Cisco CEO gives no visibility comments and double-talks his way around lower performance. It's those last two that have investors worried--lowered corporate guidance for Q3 and the big tech gorilla not willing to tell everyone the recession is over.
We're now in the second week of August on the eve of a Fed meeting, earnings are over and the Nasdaq can't get over long-term resistance at 2000. If you were advising someone in your family you would probably tell them to take profits right here--and you have to wonder how many traders are thinking that very thought this weekend. The key is to get out before the rush. Everyone figures it's coming--the only question is when will the big downdraft take place.
We're always on the lookout for clues that will telegraph the next market move. For example Friday was a big rally day--but Goldman Sachs lost $3 after being up several dollars in the morning. Same with Bank America, which closed negative after rolling over. Several energy stocks led the sector decline with sharp losses. Crude itself ended the day off -1.37 at $70.57. The Semiconductor Index or $SOX closed negative and dead on its critical support at 298. Tech stocks won't be rallying in August if the chips crumble.
Sam Stovall, chief investment strategist at S&P predicted on Wednesday that the S&P would stall in the 1007-1020 range. He said it was overbought for this cycle and an attempt to reach 1020 would represent a "topping phase."
Then Raymond James chief investment strategist Jeffrey Staut--who called the bottom back on March 2nd--said the correlation of cycles points to a peak in late July or early August. And then Hugh Johnston--CIS for Johnson Illington Advisors--claims the rally is overdone based on what we now know about earnings.
Of course for every strategist calling a top there are just as many laying out the bullish case. The truth is most analysts and fund managers are now convinced we'll close higher by the end of the year--they key is any pullback. Funds are waiting to allocate big dollars on the next dip so any pullback is liable to be shallow and temporary--but it can demolish short term call positions just the same.
At this point the uptrend on the major indices is still intact. The economic calendar next week is crowded with nothing really critical. The big news will be the FOMC meeting on Tue/Wed and their announcement on interest rates. They are not expected to make any changes but there is always the danger that they will modify their statement to include some indication of when they will start raising rates. The bond market is already pricing in higher rates with the 10-year note yield closing on Friday at 3.85% and the highest in nearly two months. The prospect of a rebounding economy is being felt in the bond market.
If the Fed wants to keep rates low to fuel the fledging rebound they will have to take further action. They'll probably come out with another strongly worded post meeting announcement saying again that rates will 'remain low for a considerable period'. On the other hand they may have to actually do something--like purchasing more debt on the open market in order to stop the four-week climb in bond yields.
Another reason to knock rates back down is the constant need for the Treasury to sell more debt to fund the deficit and the various bailout programs. Over $75 billion in debt will be sold this week and interest rates are rising. The Fed could help the Treasury by applying downward pressure to rates in order to make the auctions go more smoothly. Over the past few weeks the number of bidders has dwindled and the indirect bidders (foreign banks) have dropped sharply. Remember, if an auction fails the market will immediately go into free-fall.
The only thing that seems capable of ruining current market enthusiasm is the specter of sharply higher interest rates. One strategy to guard against a sudden downturn would be to have contingent orders already in place on the indices to buy puts if a critical support level is breached--it's free insurance because you don't have to spend a penny to place a contingent order--it only gets triggered if it's needed--and it all happens instantly whether you are watching the markets or not.
So--we've got a market struggling to maintain its gains but still pointing higher, an unemployment report that was better than expected, a Fed meeting coming up mid-week and more debt coming to auction--the question is...
HOW DO WE MAKE MONEY ON IT?
We've got two plays lined up this week--and they are both BULLISH.
After reading all those cautious comments above you might be surprised to see two bullish plays--but these stocks both have strong reasons for rising and as we've seen the market has been popping higher regardless of any temporary downturns.
Our first plays is a giant in their industry and they have some big stock moving news coming up this week. The chart shows a bullish flag pattern and it looks like the stock is coiling for a fast move to the upside. Fortunately a great call position on this stock is cheap--right around a dollar--a position we'll be jumping on first thing Monday morning.
Our next play is on a stock with huge name recognition that just announced some very bullish news this past week--and the stock shot straight up--but as is often the case it's been floating back to earth on very low volume--a bullish sign. Now the stock is coming close to its uptrend support line and will likely bounce strongly higher off of it--a move we'll be positioning ourselves for with some well-placed calls this week.
We've got two great plays lined up and a powerful market to play them--so let's get going...
For more information on everything you receive with your Pearly Gates subscription click on http://www.cashflowheaven.com/pg
OUR NEW BULLISH TRADE ON AUTONATION (AN) JUMPED AS WELL ADDING SEVENTEEN PERCENT IN JUST ONE DAY!
That's great news and it looks like with the new funds appropriated by the Senate for the 'Cash for Clunkers' program AN will continue to rise making us some great profits on this new call position. Friday's gains were great but the big jump just brought back some of the value lost earlier in the week--but once again as the stock rises the profits on this one should mount up fast.
The rest of our plays continued to ride the bullish wave with just one exit on bearish position Goodrich (GR) as the stock climbed through our stop.
The markets continued their rise last week although the only real gains came on just one day--Friday. So what does that tell us about the strength of the overall market and how much longer might this rally last? To get a better idea and see where the opportunities may be hiding this week let's take a good look at...
WHICH WAY THIS MARKET IS HEADED
For four days last week the markets struggled to hold the 990 level only to see another short squeeze on Friday push the SPX over 1010. This has been the pattern for the past month with huge up-days on July 15, 23, 30 and then again this past Friday August 7. Unfortunately for the momentum players the big jumps are always followed by sideways trading.
The short squeeze generator for last week was the Non-Farm Payrolls report on Friday. The report showed the U.S. lost another -247,000 jobs in July but that was better than the consensus estimate of -320,000. It was also much better than the -467,000 jobs lost in June. The -467K June number was revised down to -433K in this report.
The really surprising news was the unemployment rate actually dropped to 9.4% from June's 27-year high of 9.5%--expectations were for a rise to 9.7% so the shorts instantly ran for cover--again.
Despite the market reaction to the report 247,000 people still lost their jobs. This was the 19th consecutive month of job losses but it was the smallest loss since August 2008--and that gave the markets one more lift over resistance.
The surprising drop in the unemployment rate and the better than expected job losses helped to fuel hopes that the recession is over--or at least the bottom is behind us. The administration was quick to take credit for the improvement in the economy but analysts point to the Fed's zero interest policy plus the various financial rescue programs implemented by the Fed and the Treasury.
The big driver over the past month has been earnings. With more than 450 of the S&P-500 stocks already reported there is little left to generate excitement although we do have a few stragglers turning in results this week--including AMAT, Wal-Mart and JC Penny (JCP).
The markets waited last week for Cisco (CSCO) to blow their results out of the water but boy were they disappointed. When the normally enthusiastic John Chambers did not confirm a recovery or even a bottom it really took the wind out of the tech sector. Cisco is now in 40 different product sectors other than just routers and switches--if they are not seeing an improvement in orders then maybe the Q2 bottom was just wishful thinking. In any case the markets were not impressed.
Traders have been listening to economists over the last several weeks thinking it's all up from here---then the earnings cycle showed 54% of companies missed their top line revenue growth and lowered guidance again for Q3. Finally the normally overly bullish Cisco CEO gives no visibility comments and double-talks his way around lower performance. It's those last two that have investors worried--lowered corporate guidance for Q3 and the big tech gorilla not willing to tell everyone the recession is over.
We're now in the second week of August on the eve of a Fed meeting, earnings are over and the Nasdaq can't get over long-term resistance at 2000. If you were advising someone in your family you would probably tell them to take profits right here--and you have to wonder how many traders are thinking that very thought this weekend. The key is to get out before the rush. Everyone figures it's coming--the only question is when will the big downdraft take place.
We're always on the lookout for clues that will telegraph the next market move. For example Friday was a big rally day--but Goldman Sachs lost $3 after being up several dollars in the morning. Same with Bank America, which closed negative after rolling over. Several energy stocks led the sector decline with sharp losses. Crude itself ended the day off -1.37 at $70.57. The Semiconductor Index or $SOX closed negative and dead on its critical support at 298. Tech stocks won't be rallying in August if the chips crumble.
Sam Stovall, chief investment strategist at S&P predicted on Wednesday that the S&P would stall in the 1007-1020 range. He said it was overbought for this cycle and an attempt to reach 1020 would represent a "topping phase."
Then Raymond James chief investment strategist Jeffrey Staut--who called the bottom back on March 2nd--said the correlation of cycles points to a peak in late July or early August. And then Hugh Johnston--CIS for Johnson Illington Advisors--claims the rally is overdone based on what we now know about earnings.
Of course for every strategist calling a top there are just as many laying out the bullish case. The truth is most analysts and fund managers are now convinced we'll close higher by the end of the year--they key is any pullback. Funds are waiting to allocate big dollars on the next dip so any pullback is liable to be shallow and temporary--but it can demolish short term call positions just the same.
At this point the uptrend on the major indices is still intact. The economic calendar next week is crowded with nothing really critical. The big news will be the FOMC meeting on Tue/Wed and their announcement on interest rates. They are not expected to make any changes but there is always the danger that they will modify their statement to include some indication of when they will start raising rates. The bond market is already pricing in higher rates with the 10-year note yield closing on Friday at 3.85% and the highest in nearly two months. The prospect of a rebounding economy is being felt in the bond market.
If the Fed wants to keep rates low to fuel the fledging rebound they will have to take further action. They'll probably come out with another strongly worded post meeting announcement saying again that rates will 'remain low for a considerable period'. On the other hand they may have to actually do something--like purchasing more debt on the open market in order to stop the four-week climb in bond yields.
Another reason to knock rates back down is the constant need for the Treasury to sell more debt to fund the deficit and the various bailout programs. Over $75 billion in debt will be sold this week and interest rates are rising. The Fed could help the Treasury by applying downward pressure to rates in order to make the auctions go more smoothly. Over the past few weeks the number of bidders has dwindled and the indirect bidders (foreign banks) have dropped sharply. Remember, if an auction fails the market will immediately go into free-fall.
The only thing that seems capable of ruining current market enthusiasm is the specter of sharply higher interest rates. One strategy to guard against a sudden downturn would be to have contingent orders already in place on the indices to buy puts if a critical support level is breached--it's free insurance because you don't have to spend a penny to place a contingent order--it only gets triggered if it's needed--and it all happens instantly whether you are watching the markets or not.
So--we've got a market struggling to maintain its gains but still pointing higher, an unemployment report that was better than expected, a Fed meeting coming up mid-week and more debt coming to auction--the question is...
HOW DO WE MAKE MONEY ON IT?
We've got two plays lined up this week--and they are both BULLISH.
After reading all those cautious comments above you might be surprised to see two bullish plays--but these stocks both have strong reasons for rising and as we've seen the market has been popping higher regardless of any temporary downturns.
Our first plays is a giant in their industry and they have some big stock moving news coming up this week. The chart shows a bullish flag pattern and it looks like the stock is coiling for a fast move to the upside. Fortunately a great call position on this stock is cheap--right around a dollar--a position we'll be jumping on first thing Monday morning.
Our next play is on a stock with huge name recognition that just announced some very bullish news this past week--and the stock shot straight up--but as is often the case it's been floating back to earth on very low volume--a bullish sign. Now the stock is coming close to its uptrend support line and will likely bounce strongly higher off of it--a move we'll be positioning ourselves for with some well-placed calls this week.
We've got two great plays lined up and a powerful market to play them--so let's get going...
For more information on everything you receive with your Pearly Gates subscription click on http://www.cashflowheaven.com/pg
Wednesday, August 5, 2009
This Chinese Education Company Just Grew Earnings a Whopping 35%!
You can make money on stocks with great earnings and you can make money on stocks with a great chart--but when you get BOTH watch the profits roll in...
This Chinese Education Company Just Grew Earnings a Whopping 35%!
Last Thursday on July 27th we featured New Oriental Education (EDU) as the "long of the day" because they just posted blowout earnings--up 35% for the quarter plus revenue rocketed an amazing 48%--right in the middle of a global slowdown! Plus the chart shows a strong uptrend that began way back in the middle of March. This powerful combination of great fundamentals and a bullish chart are exactly what we look for--and it's a combination that can make you a fortune.
After we recommended the stock subscribers could have purchased the EDU August $75.00 calls for just $.85 cents. Yesterday, the calls traded as high as $1.85 catapulting a modest $850 trade into $1,850---that's a 118% profit in just 5 days!
The really great news is this ride looks like it still has room to run so there could be a lot more profit where that came from. EDU provides private education to the Chinese from ages five to adulthood--everything from English classes to vocational training--and the Chinese take education VERY seriously. Any company that can grow earnings this radically in a down economy deserves a look.
These are the kind of great stocks we add to our bullish watch list EVERY DAY. And our bearish picks are on the opposite end--bad fundamentals and terrible charts equal great put profits. It's as easy as going to the Live Update table at the beginning of the day where you'll see an automatically updated ranking of the stocks on both our bullish and bearish watch lists. Focus on the ones that rise to the top and trade with confidence knowing each stock has been carefully researched in advance.
Subscribe to the Daily Report to take advantage of big moves like the one you see below--and sign up for the Options Success Trading Package for hands-free profits! For more information and to get started click here.
Market Commentary - The market continues to move higher and the bears are on the defensive. Now they have to prove their case. Asset Managers are scrambling to put money to work and those who are under-allocated are getting more aggressive as they buy every little pullback. Each day, the market opens on its low and it closes near its high of the day--extremely bullish price action.
We have broken out above the neckline of an inverted head and shoulders formation (one-year chart), and have rallied above a one-year down trend line plus the 200-day moving average was successfully tested. The momentum clearly favors the bulls and in quiet trading, the path of least resistance is higher. Bears have been declawed and they won't dare stand in front of this freight train.
By the end of the week, 85% of the companies in the S&P 500 will have reported earnings with almost 3/4 of them beating estimates. Analysts were expecting profits to decline by 35% and they are only down 29%--a big improvement when everything was looking bleak. As the year progresses, the comparatives will be easier to beat and in Q4, we are likely to see a massive earnings increase. Corporations have been quick to trim expenses and any uptick in demand will go right to the bottom line.
Economic news has been well received and even when it misses estimates, bulls have been able to find the silver lining driving the errant stock higher. Conditions don’t even have to improve--they just need to deteriorate at a slower pace to preserve investor confidence. Many economic indicators are bouncing off of the lowest levels we have seen in decades.
Today, factory orders rose more than expected and ISM services declined more than expected. The difference in both cases was minimal. The ADP employment index showed that employers cut 371,000 jobs last month. That would normally seem bearish, but it is an improvement from the 463,000 jobs that were cut in June. Initial jobless claims have been improving over the course of the last month and I believe Friday’s Unemployment Report will be well received. The consensus is for a drop of 328,000 jobs. Last month, 460,000 jobs were lost. Even if nonfarm payrolls drop by a worse than expected 370,000 the market will likely look past the miss and focus on the “less bad” aspect of the number.
Next week, the economic numbers are rather dull and trading should start slowing down. Retail sales will be released on Thursday and they will be the highlight. Retail numbers will be light as consumers are not ready to open up their wallets yet. The market has been able to shrug off weak retail in the past and is likely to do so again with the notion that conditions are improving. The only “fly in the ointment” is interest rates and the Treasury will be issuing longer-term bonds throughout the week. These have not attracted the same demand as shorter-term maturities and we could see interest rates tick higher. That would not be good for the market.
Even though some economic reports have improved and the market has traded almost straight up it's difficult to be a long-term bull. Excessive debt levels span from the government, to the states, to municipalities, to individuals. The government has infused massive amounts of capital into the banking system and economy to keep it treading water. When the stimulus ends the upside catalyst will be gone. Until then, follow the momentum and trade from the long side – with good trailing stops.
We've currently got a great list of solid companies that have reported good earnings and top line growth. As long as the SPY stays above 96, we will maintain a bullish trading approach. Many sectors are just starting to recover and there are great opportunities--to access our entire watch list plus two new trade per day click here.
Trade well,
Pete
This Chinese Education Company Just Grew Earnings a Whopping 35%!
Last Thursday on July 27th we featured New Oriental Education (EDU) as the "long of the day" because they just posted blowout earnings--up 35% for the quarter plus revenue rocketed an amazing 48%--right in the middle of a global slowdown! Plus the chart shows a strong uptrend that began way back in the middle of March. This powerful combination of great fundamentals and a bullish chart are exactly what we look for--and it's a combination that can make you a fortune.
After we recommended the stock subscribers could have purchased the EDU August $75.00 calls for just $.85 cents. Yesterday, the calls traded as high as $1.85 catapulting a modest $850 trade into $1,850---that's a 118% profit in just 5 days!
The really great news is this ride looks like it still has room to run so there could be a lot more profit where that came from. EDU provides private education to the Chinese from ages five to adulthood--everything from English classes to vocational training--and the Chinese take education VERY seriously. Any company that can grow earnings this radically in a down economy deserves a look.
These are the kind of great stocks we add to our bullish watch list EVERY DAY. And our bearish picks are on the opposite end--bad fundamentals and terrible charts equal great put profits. It's as easy as going to the Live Update table at the beginning of the day where you'll see an automatically updated ranking of the stocks on both our bullish and bearish watch lists. Focus on the ones that rise to the top and trade with confidence knowing each stock has been carefully researched in advance.
Subscribe to the Daily Report to take advantage of big moves like the one you see below--and sign up for the Options Success Trading Package for hands-free profits! For more information and to get started click here.
Market Commentary - The market continues to move higher and the bears are on the defensive. Now they have to prove their case. Asset Managers are scrambling to put money to work and those who are under-allocated are getting more aggressive as they buy every little pullback. Each day, the market opens on its low and it closes near its high of the day--extremely bullish price action.
We have broken out above the neckline of an inverted head and shoulders formation (one-year chart), and have rallied above a one-year down trend line plus the 200-day moving average was successfully tested. The momentum clearly favors the bulls and in quiet trading, the path of least resistance is higher. Bears have been declawed and they won't dare stand in front of this freight train.
By the end of the week, 85% of the companies in the S&P 500 will have reported earnings with almost 3/4 of them beating estimates. Analysts were expecting profits to decline by 35% and they are only down 29%--a big improvement when everything was looking bleak. As the year progresses, the comparatives will be easier to beat and in Q4, we are likely to see a massive earnings increase. Corporations have been quick to trim expenses and any uptick in demand will go right to the bottom line.
Economic news has been well received and even when it misses estimates, bulls have been able to find the silver lining driving the errant stock higher. Conditions don’t even have to improve--they just need to deteriorate at a slower pace to preserve investor confidence. Many economic indicators are bouncing off of the lowest levels we have seen in decades.
Today, factory orders rose more than expected and ISM services declined more than expected. The difference in both cases was minimal. The ADP employment index showed that employers cut 371,000 jobs last month. That would normally seem bearish, but it is an improvement from the 463,000 jobs that were cut in June. Initial jobless claims have been improving over the course of the last month and I believe Friday’s Unemployment Report will be well received. The consensus is for a drop of 328,000 jobs. Last month, 460,000 jobs were lost. Even if nonfarm payrolls drop by a worse than expected 370,000 the market will likely look past the miss and focus on the “less bad” aspect of the number.
Next week, the economic numbers are rather dull and trading should start slowing down. Retail sales will be released on Thursday and they will be the highlight. Retail numbers will be light as consumers are not ready to open up their wallets yet. The market has been able to shrug off weak retail in the past and is likely to do so again with the notion that conditions are improving. The only “fly in the ointment” is interest rates and the Treasury will be issuing longer-term bonds throughout the week. These have not attracted the same demand as shorter-term maturities and we could see interest rates tick higher. That would not be good for the market.
Even though some economic reports have improved and the market has traded almost straight up it's difficult to be a long-term bull. Excessive debt levels span from the government, to the states, to municipalities, to individuals. The government has infused massive amounts of capital into the banking system and economy to keep it treading water. When the stimulus ends the upside catalyst will be gone. Until then, follow the momentum and trade from the long side – with good trailing stops.
We've currently got a great list of solid companies that have reported good earnings and top line growth. As long as the SPY stays above 96, we will maintain a bullish trading approach. Many sectors are just starting to recover and there are great opportunities--to access our entire watch list plus two new trade per day click here.
Trade well,
Pete
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