When trading straight puts or calls you HAVE to consider relative strength or weakness...
Relative Strength Forces a Stock Higher--Even in a Flat Market!
Two weeks ago on September 8th, we featured PCP as the "long of the day" because the stock was trading higher while the SP-500 continued to move sideways--a classic sign of relative strength. Subscribers could have purchased the October $105.00 calls for $.80---yesterday, the calls traded as high as $2.70 launching an $800 trade into an eye-popping $2700. That's a 238% return in less than 2 weeks!
Finding a stock that continues to surge higher even when the rest of the market is flat is the kind of relative strength you should look for. Ditto for relative weakness on puts.
Subscribe to the Daily Report to take advantage of moves on both sides of the market and then use the automatic orders from the Trading Package to create your own personal money machine. To learn more about a research report that gives you a new long and a new short each day and the Package to trade them with click this link now.
Market Commentary - Yesterday, the market rallied after the FOMC maintained their current policy. They will continue to support low interest rates and they did not outline an exit strategy. This is good news for businesses and consumers. Unfortunately, bulls ran out of gas and by the close, the market staged a key reversal. Technicians watch this price action very closely and that set us up for weakness today.
Before the open, initial jobless claims fell 21,000 to a seasonally adjusted 530,000. That was better than analysts had expected and the four-week moving average dropped to 553,000, the lowest since January 24th. This shows gradual improvement in the unemployment scene and it sparked a small rally. Shortly after the open, the market erased those gains and it moved to the downside with ease.
The selling pressure had already shown itself but then existing home sales were released at 10:00 am ET. Home sales dropped 2.7% last month but analysts were expecting a much better number given that sales had increased the prior 3 months. The market decline gained momentum after the release and it looks like we are setting up for a big round of profit-taking.
Apart from profit taking, there really isn't much of a reason for the decline so don't read too much into it. The market has rallied dramatically in the last two months and it needs to take a breather. Last week, the quadruple witching rally felt fabricated (expiration buy programs) and it's not surprising to see those gains taken back.
Next week, consumer confidence, the ADP employment index, Q2 GDP, Chicago PMI, personal income, initial jobless claims, construction spending, ISM manufacturing, auto sales, factory orders and the Unemployment Report are scheduled. These are major economic releases and they will drive the market.
We'll likely see nervousness throughout this week, but the market should find support at SPY 100. The “less bad” theme will remain intact and this dip will set up a buying opportunity. After next week, Q3 earnings season will be upon us. This recession is more than a year old and the comps should be easy to beat. That means we will actually see earnings growth and by comparison, revenues will start to improve. Interest rates are low, economic conditions are improving and earnings will exceed expectations. These factors will drive a year-end rally and there will be plenty of money to be made.
However the market won't rally in a straight line. The easy money has been made and we can expect dips like this along the way. The pullbacks we saw in August and September were sharp and brief. Each led to a higher low and a new relative high. As long as SPY 100 holds, this same pattern is likely to repeat itself.
Asset Managers are fearful that they will miss a year-end rally and they are eager to put money to work. This low volume decline is nothing more than profit-taking and we are likely to see the big money bid up stocks before support is tested.
In this market, you have to buy the dips and sell the rips.
It would be smart to take profits on long positions now and go to cash. Wait for support to establish itself next week and buy stocks with relative strength. This rally is in the 7th inning and there is still more upside to come and we've got some incredible picks to profit from it--click here for full access to our new buy list.
Trade well,
Pete
Important Note: Options Success provides two high-probability stocks set-ups every day the market is open but DOES NOT provide specific buy or sell recommendations relating to the options on those stocks--the specific option, strike price, month of expiration and other decisions are made by each trader individually based on the strategies they've selected---customer feedback shows the most successful subscribers use the strategy guidelines suggested in our Options Success Trading Package.
If you have not already purchased the Options Success trading package and signed up for our daily stock picks we highly recommend you do so now (your options account will thank you!) Click on this link to get started
Showing posts with label Relative Strength and weakness. Show all posts
Showing posts with label Relative Strength and weakness. Show all posts
Friday, September 25, 2009
Monday, September 21, 2009
IN SPITE OF A BULLISH MARKET TOYOTA (TM) DIPPED WEDNESDAY DELIVERING A FOURTEEN PERCENT PROFIT ON OUR PUTS!
We had another good week in the markets with the indices continuing their seemingly never-ending climb higher...
IN SPITE OF A BULLISH MARKET TOYOTA (TM) DIPPED WEDNESDAY DELIVERING A FOURTEEN PERCENT PROFIT ON OUR PUTS!
PLUS CTRP JUMPED HIGHER LAUNCHING OUR NEW CALLS TO A QUICK TWO-DAY FORTY-TWO PERCENT PROFIT!
Those were some nice gains but we also got stopped out of Baxter (BAX) plus LMT and HOG expired on Friday.
The market continued to climb skyward but it's beginning to look ready for a pullback. To find out what we might be in store for and how to make money on it let's take a good look at...
WHICH WAY THIS MARKET IS HEADED
As you can both indices hit their uptrend resistance lines Friday and even though this bull run probably has more fuel over the next few weeks it wouldn't be surprising to see a pullback in the next few days--in fact it would be healthy.
Helped by consumer staples, the S&P finished Friday up 2.81 at 1068.30 tacking on 25.57 for the week.
The Nasdaq Composite gained 6.11 points to close at 2132.86 on Friday up 51.96 for the week.
The Nasdaq has been on a tear jumping higher eight out of the past 10 weeks.
There was some positive news this past week and that helped. Building Permits rose 2.7 percent with a seasonally adjusted 579,000 permits marking the highest number since last November.
But the big news was the Philly Fed Manufacturing report's jump to 14.1 that launched the markets to new relative highs on Thursday morning. The 14.1 increase beat expectations of 8% and produced the first two-month consecutive gains since the end of 2007. Inventories continued slipping, pointing to a need to gear up to replenish inventory.
Also Thursday morning the initial unemployment claims report dropped to 454,000, but the Department of Labor revised the previous week's numbers higher, to 557,000. The insured unemployment rate also inched higher to 4.7 percent from the previous 4.6 percent. Continuing unemployed rose by 129,000.
So even though the employment report was mixed the markets rallied Thursday morning on more 'less bad' news--then they pulled back and then jumped again on Friday.
Unfortunately an awful lot of this rally is on the assumption that the US Treasury will be able to sell its ever-increasing amounts of debt.
Wednesday's TIC Long-Term Purchases for July was a major disappointment, at $15.3 billion versus the expected $65.3 billion. In the past, this was a little-watched indicator but it's becoming increasingly important. This indicator measures the international demand for long-term U.S. financial assets. The net foreign buying of long-term securities for the prior month had been $90.2 billion. The report indicates that foreigners sold a net $97.5 billion of long-term and short-term securities. This is a huge turning point as foreigners have turned from buyers to sellers of US debt.
China and Russia have been threatening a boycott of US debt as the dollar continues to suffer under massive dilution. And now this TIC report indicates they are serious. On Friday, Russia's Prime Minister Vladimir Putin again called for other currencies besides the U.S. dollar to be added as global reserves, concerned about the U.S. "uncontrolled issue of dollars".
Dollar futures broke-down below the 77 level back on September 11, then produced a number of potential reversal signals before slipping lower again earlier in the week. On Thursday afternoon, dollar futures began a climb that approached the 77 level again before pulling back into a consolidation zone just below that level.
If the US can't sell its debt interest rates will have to rise and when they do it will be time to get short in a big way. The problem of course is debt--and the government has determined that the solution to too much debt is more debt--but it's piling it on top of a system already collapsing.
FDIC Chairman Sheila Bair admitted Friday that the increase in bank failures had significantly drained the agency's funds. Although in the past Bair had thought it unlikely that the agency would ever have to tap into its line of credit with the Treasury Department, she said when the agency met at the end of the month, that option would be explored as a means to rebuild the depleted funds.
Chairman Bair went beyond replenishing FDIC funds--she also said that she didn't believe that mark-to-market accounting for bank loans should be further extended or that large financial entities should be led to expect further government assistance if they experience problems.
Friday evening's closure of Irwin Union Bank, F.S.B., Louisville, KY and Irwin Union Bank and Trust Company, Columbus, IN added two more financial institutions to the previous 92 banks closed so far in 2009 bringing the total this year to 94--compared to 25 in all of 2008.
A year ago, the FDIC's insurance fund had $45 billion available, but that's now been diminished to $10.4 billion minus the $850 million blow the FDIC estimates that Friday's closures will cost the Deposit Insurance Fund. That fund can't stand too many more Fridays at this rate.
The point of all this is even though the markets continue to rally--and we should bet that trend--there are serious underlying problems that haven't gone away. If the Fed can't keep interest rates low traders will have to kiss the rally--and any economic recovery-- goodbye. But for right now the markets looks strong although bumping up against resistance--the question is...
HOW DO WE MAKE MONEY ON IT?
We've got two stocks lined up this week--one bullish and the other bearish.
Our bullish pick is on a stock whose earnings and chart are both rising in tandem as traders flock to the few winners in an otherwise hard-hit economy. We'll use any dip on Monday to jump aboard this climber for what looks to be some very nice upside profits.
Our next play is on a financial stock that has really taken a beating lately. In spite of a rising market this stock just keeps tracing lower highs and lower lows--the classic definition of a downtrend. Now the stock looks ready for another spike lower and we'll be there to catch it with some well-placed puts.
We've got two great set-ups this week so let's get going...
For more information on everything you receive with your Pearly Gates subscription click on http://cashflowheaven.com/pg
IN SPITE OF A BULLISH MARKET TOYOTA (TM) DIPPED WEDNESDAY DELIVERING A FOURTEEN PERCENT PROFIT ON OUR PUTS!
PLUS CTRP JUMPED HIGHER LAUNCHING OUR NEW CALLS TO A QUICK TWO-DAY FORTY-TWO PERCENT PROFIT!
Those were some nice gains but we also got stopped out of Baxter (BAX) plus LMT and HOG expired on Friday.
The market continued to climb skyward but it's beginning to look ready for a pullback. To find out what we might be in store for and how to make money on it let's take a good look at...
WHICH WAY THIS MARKET IS HEADED
As you can both indices hit their uptrend resistance lines Friday and even though this bull run probably has more fuel over the next few weeks it wouldn't be surprising to see a pullback in the next few days--in fact it would be healthy.
Helped by consumer staples, the S&P finished Friday up 2.81 at 1068.30 tacking on 25.57 for the week.
The Nasdaq Composite gained 6.11 points to close at 2132.86 on Friday up 51.96 for the week.
The Nasdaq has been on a tear jumping higher eight out of the past 10 weeks.
There was some positive news this past week and that helped. Building Permits rose 2.7 percent with a seasonally adjusted 579,000 permits marking the highest number since last November.
But the big news was the Philly Fed Manufacturing report's jump to 14.1 that launched the markets to new relative highs on Thursday morning. The 14.1 increase beat expectations of 8% and produced the first two-month consecutive gains since the end of 2007. Inventories continued slipping, pointing to a need to gear up to replenish inventory.
Also Thursday morning the initial unemployment claims report dropped to 454,000, but the Department of Labor revised the previous week's numbers higher, to 557,000. The insured unemployment rate also inched higher to 4.7 percent from the previous 4.6 percent. Continuing unemployed rose by 129,000.
So even though the employment report was mixed the markets rallied Thursday morning on more 'less bad' news--then they pulled back and then jumped again on Friday.
Unfortunately an awful lot of this rally is on the assumption that the US Treasury will be able to sell its ever-increasing amounts of debt.
Wednesday's TIC Long-Term Purchases for July was a major disappointment, at $15.3 billion versus the expected $65.3 billion. In the past, this was a little-watched indicator but it's becoming increasingly important. This indicator measures the international demand for long-term U.S. financial assets. The net foreign buying of long-term securities for the prior month had been $90.2 billion. The report indicates that foreigners sold a net $97.5 billion of long-term and short-term securities. This is a huge turning point as foreigners have turned from buyers to sellers of US debt.
China and Russia have been threatening a boycott of US debt as the dollar continues to suffer under massive dilution. And now this TIC report indicates they are serious. On Friday, Russia's Prime Minister Vladimir Putin again called for other currencies besides the U.S. dollar to be added as global reserves, concerned about the U.S. "uncontrolled issue of dollars".
Dollar futures broke-down below the 77 level back on September 11, then produced a number of potential reversal signals before slipping lower again earlier in the week. On Thursday afternoon, dollar futures began a climb that approached the 77 level again before pulling back into a consolidation zone just below that level.
If the US can't sell its debt interest rates will have to rise and when they do it will be time to get short in a big way. The problem of course is debt--and the government has determined that the solution to too much debt is more debt--but it's piling it on top of a system already collapsing.
FDIC Chairman Sheila Bair admitted Friday that the increase in bank failures had significantly drained the agency's funds. Although in the past Bair had thought it unlikely that the agency would ever have to tap into its line of credit with the Treasury Department, she said when the agency met at the end of the month, that option would be explored as a means to rebuild the depleted funds.
Chairman Bair went beyond replenishing FDIC funds--she also said that she didn't believe that mark-to-market accounting for bank loans should be further extended or that large financial entities should be led to expect further government assistance if they experience problems.
Friday evening's closure of Irwin Union Bank, F.S.B., Louisville, KY and Irwin Union Bank and Trust Company, Columbus, IN added two more financial institutions to the previous 92 banks closed so far in 2009 bringing the total this year to 94--compared to 25 in all of 2008.
A year ago, the FDIC's insurance fund had $45 billion available, but that's now been diminished to $10.4 billion minus the $850 million blow the FDIC estimates that Friday's closures will cost the Deposit Insurance Fund. That fund can't stand too many more Fridays at this rate.
The point of all this is even though the markets continue to rally--and we should bet that trend--there are serious underlying problems that haven't gone away. If the Fed can't keep interest rates low traders will have to kiss the rally--and any economic recovery-- goodbye. But for right now the markets looks strong although bumping up against resistance--the question is...
HOW DO WE MAKE MONEY ON IT?
We've got two stocks lined up this week--one bullish and the other bearish.
Our bullish pick is on a stock whose earnings and chart are both rising in tandem as traders flock to the few winners in an otherwise hard-hit economy. We'll use any dip on Monday to jump aboard this climber for what looks to be some very nice upside profits.
Our next play is on a financial stock that has really taken a beating lately. In spite of a rising market this stock just keeps tracing lower highs and lower lows--the classic definition of a downtrend. Now the stock looks ready for another spike lower and we'll be there to catch it with some well-placed puts.
We've got two great set-ups this week so let's get going...
For more information on everything you receive with your Pearly Gates subscription click on http://cashflowheaven.com/pg
Friday, September 18, 2009
1000% Profit in One Week--Relative Strength is Like Money in the Bank...
Combine a bull market with relative strength and the options profits can be huge...
1000% Profit in One Week--Relative Strength is Like Money in the Bank...
Last Thursday we featured Anadarko Petroleum (APC) as the "long of the day" for one reason--relative strength. Back then we wrote: "...natural gas jumped and that has this stock moving. It is strong relative to oil and it is breaking out to a new 52-week high. The dollar is also getting crushed and that is helping oil move higher."
Plus the chart looked great. Subscribers could have purchased the September $60.00 calls for just $.55 cents. Today those calls traded as high as $6.10. You could have had your own gusher by launching a $550 trade into a whopping $6,100 in just one week!
Subscribers are making a killing as the bullish stocks on our Watch List are absolutely rocketing higher---APC is just one example.
Subscribe to the Daily Report to take advantage of this amazing rally and get the Trading Package for maximum 'hands-free' profitability. To access an entire list of the kind of potential you see below Click Here Now.
Market Commentary - Last week we suspected that quadruple witching could play an important role this week. Once the upward momentum established itself, option expiration fueled the rally. The market convincingly made a new high for the year and prices closed right on their high of the day Wednesday. Option volume was very heavy and there is a speculative feel to the price action.
Many traders have been looking for seasonal weakness in September and they have been left behind. Likewise, Asset Managers who are under allocated have been scrambling to place money. They are getting more and more aggressive and that is why the two small dips in the last two months have been shallow and brief.
The market has all the ammunition it needs to move higher. Earnings beat expectations by a large margin last quarter and we are likely to see earnings growth in Q3 due to easy comparisons from a year ago. This alone could fuel a year-end rally if the market does not get ahead of itself. Interest rates have been drifting lower and the massive bond auctions have gone well. The Fed is also committed to keeping rates low. Inflation is not putting upward pressure on yields and this week the CPI and PPI were tame. Economic statistics continue to show gradual improvement and the numbers are “less bad”.
This morning, initial jobless claims were 545,000 and that was better than expected. The week-to-week numbers fluctuate and most analysts follow the four-week moving average. That average fell by 8700 this week and it now stands at 563,000. Housing starts rose 1.5% and building permits climbed 2.7%. The deep trough in the housing cycle may have hit bottom.
The economic releases next week include LEI, initial jobless claims, durable goods, existing home sales and consumer sentiment. All have shown gradual improvement in recent months. Durable goods orders should increase because of cash for clunkers, but traders will see through that temporary spike. The FOMC will also meet next week. Their comments have not changed much in the last few months and their policy should remain bullish as they are likely to keep rates low.
The option expiration rally this week is starting to feel a bit frothy. Prices are likely to move higher right into the close on Friday. However, if we rally another 30 S&P 500 points, we are likely to hit resistance and we could see a pullback early next week. This market has tremendous upside momentum and it would be wise to avoid trying to pick a top. If you have bullish positions, set targets and scale out on strength. Be patient and wait for a pullback to reenter. This strategy has worked very well since May.
Expect choppy trading with a bullish bias the rest of the week. The momentum is strong and the volume is returning. This will be an exciting fall season!
Trade well,
Pete
1000% Profit in One Week--Relative Strength is Like Money in the Bank...
Last Thursday we featured Anadarko Petroleum (APC) as the "long of the day" for one reason--relative strength. Back then we wrote: "...natural gas jumped and that has this stock moving. It is strong relative to oil and it is breaking out to a new 52-week high. The dollar is also getting crushed and that is helping oil move higher."
Plus the chart looked great. Subscribers could have purchased the September $60.00 calls for just $.55 cents. Today those calls traded as high as $6.10. You could have had your own gusher by launching a $550 trade into a whopping $6,100 in just one week!
Subscribers are making a killing as the bullish stocks on our Watch List are absolutely rocketing higher---APC is just one example.
Subscribe to the Daily Report to take advantage of this amazing rally and get the Trading Package for maximum 'hands-free' profitability. To access an entire list of the kind of potential you see below Click Here Now.
Market Commentary - Last week we suspected that quadruple witching could play an important role this week. Once the upward momentum established itself, option expiration fueled the rally. The market convincingly made a new high for the year and prices closed right on their high of the day Wednesday. Option volume was very heavy and there is a speculative feel to the price action.
Many traders have been looking for seasonal weakness in September and they have been left behind. Likewise, Asset Managers who are under allocated have been scrambling to place money. They are getting more and more aggressive and that is why the two small dips in the last two months have been shallow and brief.
The market has all the ammunition it needs to move higher. Earnings beat expectations by a large margin last quarter and we are likely to see earnings growth in Q3 due to easy comparisons from a year ago. This alone could fuel a year-end rally if the market does not get ahead of itself. Interest rates have been drifting lower and the massive bond auctions have gone well. The Fed is also committed to keeping rates low. Inflation is not putting upward pressure on yields and this week the CPI and PPI were tame. Economic statistics continue to show gradual improvement and the numbers are “less bad”.
This morning, initial jobless claims were 545,000 and that was better than expected. The week-to-week numbers fluctuate and most analysts follow the four-week moving average. That average fell by 8700 this week and it now stands at 563,000. Housing starts rose 1.5% and building permits climbed 2.7%. The deep trough in the housing cycle may have hit bottom.
The economic releases next week include LEI, initial jobless claims, durable goods, existing home sales and consumer sentiment. All have shown gradual improvement in recent months. Durable goods orders should increase because of cash for clunkers, but traders will see through that temporary spike. The FOMC will also meet next week. Their comments have not changed much in the last few months and their policy should remain bullish as they are likely to keep rates low.
The option expiration rally this week is starting to feel a bit frothy. Prices are likely to move higher right into the close on Friday. However, if we rally another 30 S&P 500 points, we are likely to hit resistance and we could see a pullback early next week. This market has tremendous upside momentum and it would be wise to avoid trying to pick a top. If you have bullish positions, set targets and scale out on strength. Be patient and wait for a pullback to reenter. This strategy has worked very well since May.
Expect choppy trading with a bullish bias the rest of the week. The momentum is strong and the volume is returning. This will be an exciting fall season!
Trade well,
Pete
Monday, September 7, 2009
SHANDA INTERACTIVE (SNDA) CLIMBED ALL THE WAY TO EARNINGS BAGGING US A SWEET FOUR DAY SEVENTY-PERCENT PROFIT!
Greetings Options Winners, Trade Spinners and Profit Getters,
This past Tuesday the markets fell out of bed but managed to climb most of the way back by the end of the week. All that volatility added up to some great profits...
SHANDA INTERACTIVE (SNDA) CLIMBED ALL THE WAY TO EARNINGS BAGGING US A SWEET FOUR DAY SEVENTY-PERCENT PROFIT!
We took half our position off the table the day before the announcement and the other half off the next morning for some excellent over-all profits. The stock reversed its initial spike higher Friday morning but with a 61% earnings increase SNDA is likely to keep climbing.
Meanwhile our two older put plays continue to trade sideways as the market swings both ways looking for direction. To try and determine the course over the next week let's take a good look at...
WHICH WAY THIS MARKET IS HEADED
The SPX is still trending higher and dip buyers showed up exactly where you would have expected on the uptrend line at 992. That gives us a clear exit point for longs if that 992 level breaks. Resistance is at 1040--a failure there would trace an ominous 'double top' and of course a break higher is bullish. If the SPX can't break through resistance this week the incentive increases for funds to lock in profits. It is not impossible to have a bullish September but it's extremely rare.
The Nasdaq dipped to support on Wednesday before bouncing higher back into its uptrending channel. With chip stocks upgrading guidance almost daily you would expect the Nasdaq to start showing a trend higher but the month-long move has been sideways.
The big news last week was the Non-Farm Payrolls for August showing a loss of 216,000 jobs---slightly better than the -225,000 consensus estimate. However the two prior months were revised lower to show a loss of an additional 49,000 jobs which makes you wonder what the revised number for August will eventually be.
Even though the markets celebrated the number as being 'less bad' the report still has some worrisome undertones. All sectors lost jobs except for education and healthcare. Last month's losses jumped the unemployment rate from 9.4% in July to 9.7%--the highest unemployment rate since 1983.
Nearly 7 million people have lost their jobs since the start of 2008. A total of 15 million are officially unemployed. Temp agencies, usually the first to hire when recovery begins, cut 6,500 jobs.
After shrinking two months in a row, the number of "underemployed workers" rose 278,000, to 9.1 million. 'Underemployed' is what the government calls people forced into part-time work because they can't find a full-time job.
Then there are "marginally attached workers" - the unemployed who have given up looking for work but still want a job--that number now exceeds 2.3 million.
Put the officially unemployed, the "underemployed" and the "marginally attached" together and you get what the government calls the U6 measure of unemployment. That number jumped a whole half a percentage point in August, to 16.8% which many consider to be the real unemployment rate.
It's hard to imagine the economy staging the recovery the stock market is envisioning with that level of unemployment and a consumer saving every penny they can--which makes one wonder how long this current rally can last.
The economic calendar for this week is light with almost nothing of importance in the normal reports. The Fed Beige Book is the only event that may be of interest to the market. Everything else is either a weekly report where surprises are negligible or a lagging report for July. That makes the Treasury auctions for $128 billion in bills, notes and bonds a likely focal point. The auctions will start on Tuesday and go for three days.
For the entire week there will be $38 billion in three-year notes, $20 billion in ten-year notes, $12B in thirty-year bonds, $29B in 13-week bills and $29B in 26-week bills. Almost every auction week we are seeing a new record in new debt and it's surprising rates haven't increased. Talk of a double dip recession is growing and that is keeping auction interest high and yields low. Plus with the Fed continuing to take up any excess by buying the Treasuries bonds, rates will continue to be suppressed. How long rates can stay low however remains in question.
Just a few days ago, the U.S. Treasury Department revealed that China actually reduced its note and bond holdings by $25 billion in June. Although China did not sell shorter-term Treasury bills - and isn't expected to - it's still the largest amount of Treasuries China has ever sold in a single month. This news was ignored in the media but it's a huge development.
In 2006, China and Hong Kong accounted for more than 50 percent of the increase in the amount of Treasury debt sold to the public. Then in 2008 China's share fell to 22 percent as the U.S. government increased its public debt by a record $1.2 trillion.
Then in the first half of this year, China and Hong Kong acquired only 9 percent of the more than $800 billion worth of new Treasury bonds that were sold - and now in June, China became a net seller of U.S. Treasury notes and bonds.
This is a really big deal because Washington's most dependable source of loans to finance our out-of-control deficits is drying up, which means demand for longer-term Treasuries is softening--a fact you can see in the bump higher in the TBT last week.
Which means we can count on much higher interest rates in 2010 and beyond. The problem is rising interest rates make borrowing more expensive curtailing both business financing and retail consumption--in fact higher rates will crush any chance of a vigorous recovery. Rising rates will also reverse rapidly rising stock prices the instant the market becomes aware of them.
For now however traders are pretty content with what is perceived as bullish economic indicators and market uptrends are still intact--just not quite as powerfully as they have been--the question is...
HOW DO WE MAKE MONEY ON IT?
The key to making money in a market like this one is to trade relative strength and weakness--in other words go long on the strongest stocks and short the weakest. It's also wise to maintain tight stops in case of any sudden reversals.
Fortunately we've got two plays this week--one bullish and the other bearish--with VERY attractive charts and fundamentals pointing in their respective directions.
Our first play is bullish and it's on a company that sells products people HAVE to have--and they do it better than anyone else in their sector. Instead of besting super low estimates like many other companies--when this company reported they actually turned in a profit increase over last year--enough to get investors flocking to the stock. The chart looks great on this one and so do the facts for what look to be some outstanding upside profits!
Our next play is bearish and it's on a stock in an industry that is absolutely floundering. Fortunately for us the stock bumped higher last week providing a great entry point in what looks to be a fabulous put play!
We've got two great set-ups on a market ready to move so let's get going...
For more information on everything you receive with your Pearly Gates subscription click on http://rs6.net/tn.jsp?et=1102695591280&s=19347&e=001oO2n45LvpFQfVblv1SebD_FlDwHQY6q32VScTa2QN0VjNWUNMgMXOLGhMgh9g1FAC6l0oTZmoSMFTvaA96B0sHuGKBFwV-7_GepMOyDlAYf1xOQszxKUvBA0Qf0VvrEF
This past Tuesday the markets fell out of bed but managed to climb most of the way back by the end of the week. All that volatility added up to some great profits...
SHANDA INTERACTIVE (SNDA) CLIMBED ALL THE WAY TO EARNINGS BAGGING US A SWEET FOUR DAY SEVENTY-PERCENT PROFIT!
We took half our position off the table the day before the announcement and the other half off the next morning for some excellent over-all profits. The stock reversed its initial spike higher Friday morning but with a 61% earnings increase SNDA is likely to keep climbing.
Meanwhile our two older put plays continue to trade sideways as the market swings both ways looking for direction. To try and determine the course over the next week let's take a good look at...
WHICH WAY THIS MARKET IS HEADED
The SPX is still trending higher and dip buyers showed up exactly where you would have expected on the uptrend line at 992. That gives us a clear exit point for longs if that 992 level breaks. Resistance is at 1040--a failure there would trace an ominous 'double top' and of course a break higher is bullish. If the SPX can't break through resistance this week the incentive increases for funds to lock in profits. It is not impossible to have a bullish September but it's extremely rare.
The Nasdaq dipped to support on Wednesday before bouncing higher back into its uptrending channel. With chip stocks upgrading guidance almost daily you would expect the Nasdaq to start showing a trend higher but the month-long move has been sideways.
The big news last week was the Non-Farm Payrolls for August showing a loss of 216,000 jobs---slightly better than the -225,000 consensus estimate. However the two prior months were revised lower to show a loss of an additional 49,000 jobs which makes you wonder what the revised number for August will eventually be.
Even though the markets celebrated the number as being 'less bad' the report still has some worrisome undertones. All sectors lost jobs except for education and healthcare. Last month's losses jumped the unemployment rate from 9.4% in July to 9.7%--the highest unemployment rate since 1983.
Nearly 7 million people have lost their jobs since the start of 2008. A total of 15 million are officially unemployed. Temp agencies, usually the first to hire when recovery begins, cut 6,500 jobs.
After shrinking two months in a row, the number of "underemployed workers" rose 278,000, to 9.1 million. 'Underemployed' is what the government calls people forced into part-time work because they can't find a full-time job.
Then there are "marginally attached workers" - the unemployed who have given up looking for work but still want a job--that number now exceeds 2.3 million.
Put the officially unemployed, the "underemployed" and the "marginally attached" together and you get what the government calls the U6 measure of unemployment. That number jumped a whole half a percentage point in August, to 16.8% which many consider to be the real unemployment rate.
It's hard to imagine the economy staging the recovery the stock market is envisioning with that level of unemployment and a consumer saving every penny they can--which makes one wonder how long this current rally can last.
The economic calendar for this week is light with almost nothing of importance in the normal reports. The Fed Beige Book is the only event that may be of interest to the market. Everything else is either a weekly report where surprises are negligible or a lagging report for July. That makes the Treasury auctions for $128 billion in bills, notes and bonds a likely focal point. The auctions will start on Tuesday and go for three days.
For the entire week there will be $38 billion in three-year notes, $20 billion in ten-year notes, $12B in thirty-year bonds, $29B in 13-week bills and $29B in 26-week bills. Almost every auction week we are seeing a new record in new debt and it's surprising rates haven't increased. Talk of a double dip recession is growing and that is keeping auction interest high and yields low. Plus with the Fed continuing to take up any excess by buying the Treasuries bonds, rates will continue to be suppressed. How long rates can stay low however remains in question.
Just a few days ago, the U.S. Treasury Department revealed that China actually reduced its note and bond holdings by $25 billion in June. Although China did not sell shorter-term Treasury bills - and isn't expected to - it's still the largest amount of Treasuries China has ever sold in a single month. This news was ignored in the media but it's a huge development.
In 2006, China and Hong Kong accounted for more than 50 percent of the increase in the amount of Treasury debt sold to the public. Then in 2008 China's share fell to 22 percent as the U.S. government increased its public debt by a record $1.2 trillion.
Then in the first half of this year, China and Hong Kong acquired only 9 percent of the more than $800 billion worth of new Treasury bonds that were sold - and now in June, China became a net seller of U.S. Treasury notes and bonds.
This is a really big deal because Washington's most dependable source of loans to finance our out-of-control deficits is drying up, which means demand for longer-term Treasuries is softening--a fact you can see in the bump higher in the TBT last week.
Which means we can count on much higher interest rates in 2010 and beyond. The problem is rising interest rates make borrowing more expensive curtailing both business financing and retail consumption--in fact higher rates will crush any chance of a vigorous recovery. Rising rates will also reverse rapidly rising stock prices the instant the market becomes aware of them.
For now however traders are pretty content with what is perceived as bullish economic indicators and market uptrends are still intact--just not quite as powerfully as they have been--the question is...
HOW DO WE MAKE MONEY ON IT?
The key to making money in a market like this one is to trade relative strength and weakness--in other words go long on the strongest stocks and short the weakest. It's also wise to maintain tight stops in case of any sudden reversals.
Fortunately we've got two plays this week--one bullish and the other bearish--with VERY attractive charts and fundamentals pointing in their respective directions.
Our first play is bullish and it's on a company that sells products people HAVE to have--and they do it better than anyone else in their sector. Instead of besting super low estimates like many other companies--when this company reported they actually turned in a profit increase over last year--enough to get investors flocking to the stock. The chart looks great on this one and so do the facts for what look to be some outstanding upside profits!
Our next play is bearish and it's on a stock in an industry that is absolutely floundering. Fortunately for us the stock bumped higher last week providing a great entry point in what looks to be a fabulous put play!
We've got two great set-ups on a market ready to move so let's get going...
For more information on everything you receive with your Pearly Gates subscription click on http://rs6.net/tn.jsp?et=1102695591280&s=19347&e=001oO2n45LvpFQfVblv1SebD_FlDwHQY6q32VScTa2QN0VjNWUNMgMXOLGhMgh9g1FAC6l0oTZmoSMFTvaA96B0sHuGKBFwV-7_GepMOyDlAYf1xOQszxKUvBA0Qf0VvrEF
Friday, September 4, 2009
This Regional Bank's Stock Could Drop to Zero...
Everyone is clinking champagne glasses that 'the worst is behind us'--but all those folks could be in for a rude surprise as the next wave of bank failures hits...
This Regional Bank's Stock Could Drop to Zero...
Last Friday three more regional banks went bankrupt--and if you were holding puts on those banks you made a fortune. Last Friday we zeroed in on another bank that might not make it and even in this bull market the thing has been trading straight down. When we featured the trade subscribers could have purchased the September $35.00 puts for $1.75. Yesterday, those puts traded as high as $4.60 catapulting a $1,750 trade into $4,600 in just 4 days!
The thing is--by the looks of the chart this stock could go to zero turning even a modest investment into a fortune on the right puts.
After the kind of profits we've seen in just the past four days we'd normally give out the name of this stock so you could check it out for yourself--but the potential profits on this one are just too big and it would be a disservice to you to not encourage you to get ALL of our picks. If you got into this stock last Friday you could have made an easy $2,850--an amount that could have paid for your subscription for over three years if you got the Options Success Trading Package with your subscription.
Current banking analyst estimates are for 200 to 300 regional banks to fail within the next 12 months and when they do put buyers are going to rack up some outrageous gains--and you can start right here with the stock you see below. Heck the thing even popped higher today giving you a chance to get in for a song if you get in right away. Subscribe to the Daily Report, get the Package and get started shorting this bank teetering on a major meltdown. And the really inspiring news is--there are plenty more trades with this kind of potential where this one came from.
Market Commentary - The market feels like it’s running out of steam and we saw signs of that last week. Ben Bernanke was reappointed as the Fed Chairman and that should have provided a big boost to the market. Durable goods orders rose 2.4% (much better than expected) and Q2 GDP came in at -1% (better than expected). Dell posted better-than-expected earnings and Intel substantially raised guidance. With all of the positive news, the market was barely able to tread water.
Tuesday, ISM manufacturing increased more than expected to 52.9. That indicates economic expansion. Construction spending came in below estimates, but residential building was better-than-expected. Pending home sales rose 3.2% and that was also ahead of estimates. After an initial rally, the market quickly reversed. The market slipped into a nasty decline and by the close the S&P 500 futures were down 25 points. In the process, we fell below the breakout at SPY 101.
Unemployment is the focal point this week and nervousness ahead of tomorrow’s number sparked profit-taking on Tuesday. Initial jobless claims have been struggling the last four weeks and there is a chance that tomorrow’s number will disappoint. Today, jobless claims came in at 570,000 (560,000 were expected). The four-week average is a good indicator for the unemployment trend and 4000 jobs were shed from that calculation this week. Continuing claims rose 90,000 and it stands at 6.23 million. Yesterday, the ADP employment index showed that 298,000 jobs were lost in August. While that is a big improvement from the 360,000 jobs that were lost in July, analysts were looking for a much better number. I suspect that the unemployment rate will rise tomorrow and the number will be worse than expected. However, after Tuesday’s decline, much of the bad news might already be factored in.
This morning, retailers reported mixed results. Deep discounters fared the best as consumers continue to hunt for bargains. Overall, same-store sales dropped 2.9% in August.
ISM services came in at 48.4 today and that was better than expected. A number above 50 indicates economic expansion and we are close to seeing that. Almost 80% of our workforce is tied to services and this is a very important number. The market has had a decent reaction and stock prices are stable.
Overnight, the ECB said that it is seeing signs of an economic recovery. Their overall activity only dropped .1% in Q2. Next year, they project a .2% growth rate.
Light holiday trading has set in and we can expect that to continue into next week. Initial claims and consumer sentiment are the primary economic releases next week and they are not major market movers. The Treasury will hold 3-year, 10-year and 30-year bond auctions next week. Interest rates have been declining and the demand should be good. All in all, we are setting up for quiet trading.
September is the weakest month of the year and we saw some profit-taking this week. The news has generally been good and there is no other explanation for the decline. The path of least resistance is up and I suspect that we will see a pullback and a very sharp snap back rally. As long as SPY 96 holds maintain a bullish bias. We just posted two brand new trades designed to take advantage of this market choose your Package and Subscription term here.
Trade well,
Pete
This Regional Bank's Stock Could Drop to Zero...
Last Friday three more regional banks went bankrupt--and if you were holding puts on those banks you made a fortune. Last Friday we zeroed in on another bank that might not make it and even in this bull market the thing has been trading straight down. When we featured the trade subscribers could have purchased the September $35.00 puts for $1.75. Yesterday, those puts traded as high as $4.60 catapulting a $1,750 trade into $4,600 in just 4 days!
The thing is--by the looks of the chart this stock could go to zero turning even a modest investment into a fortune on the right puts.
After the kind of profits we've seen in just the past four days we'd normally give out the name of this stock so you could check it out for yourself--but the potential profits on this one are just too big and it would be a disservice to you to not encourage you to get ALL of our picks. If you got into this stock last Friday you could have made an easy $2,850--an amount that could have paid for your subscription for over three years if you got the Options Success Trading Package with your subscription.
Current banking analyst estimates are for 200 to 300 regional banks to fail within the next 12 months and when they do put buyers are going to rack up some outrageous gains--and you can start right here with the stock you see below. Heck the thing even popped higher today giving you a chance to get in for a song if you get in right away. Subscribe to the Daily Report, get the Package and get started shorting this bank teetering on a major meltdown. And the really inspiring news is--there are plenty more trades with this kind of potential where this one came from.
Market Commentary - The market feels like it’s running out of steam and we saw signs of that last week. Ben Bernanke was reappointed as the Fed Chairman and that should have provided a big boost to the market. Durable goods orders rose 2.4% (much better than expected) and Q2 GDP came in at -1% (better than expected). Dell posted better-than-expected earnings and Intel substantially raised guidance. With all of the positive news, the market was barely able to tread water.
Tuesday, ISM manufacturing increased more than expected to 52.9. That indicates economic expansion. Construction spending came in below estimates, but residential building was better-than-expected. Pending home sales rose 3.2% and that was also ahead of estimates. After an initial rally, the market quickly reversed. The market slipped into a nasty decline and by the close the S&P 500 futures were down 25 points. In the process, we fell below the breakout at SPY 101.
Unemployment is the focal point this week and nervousness ahead of tomorrow’s number sparked profit-taking on Tuesday. Initial jobless claims have been struggling the last four weeks and there is a chance that tomorrow’s number will disappoint. Today, jobless claims came in at 570,000 (560,000 were expected). The four-week average is a good indicator for the unemployment trend and 4000 jobs were shed from that calculation this week. Continuing claims rose 90,000 and it stands at 6.23 million. Yesterday, the ADP employment index showed that 298,000 jobs were lost in August. While that is a big improvement from the 360,000 jobs that were lost in July, analysts were looking for a much better number. I suspect that the unemployment rate will rise tomorrow and the number will be worse than expected. However, after Tuesday’s decline, much of the bad news might already be factored in.
This morning, retailers reported mixed results. Deep discounters fared the best as consumers continue to hunt for bargains. Overall, same-store sales dropped 2.9% in August.
ISM services came in at 48.4 today and that was better than expected. A number above 50 indicates economic expansion and we are close to seeing that. Almost 80% of our workforce is tied to services and this is a very important number. The market has had a decent reaction and stock prices are stable.
Overnight, the ECB said that it is seeing signs of an economic recovery. Their overall activity only dropped .1% in Q2. Next year, they project a .2% growth rate.
Light holiday trading has set in and we can expect that to continue into next week. Initial claims and consumer sentiment are the primary economic releases next week and they are not major market movers. The Treasury will hold 3-year, 10-year and 30-year bond auctions next week. Interest rates have been declining and the demand should be good. All in all, we are setting up for quiet trading.
September is the weakest month of the year and we saw some profit-taking this week. The news has generally been good and there is no other explanation for the decline. The path of least resistance is up and I suspect that we will see a pullback and a very sharp snap back rally. As long as SPY 96 holds maintain a bullish bias. We just posted two brand new trades designed to take advantage of this market choose your Package and Subscription term here.
Trade well,
Pete
Monday, August 17, 2009
WALMART (WMT) ANNOUNCED EARNINGS THURSDAY DRIVING OUR SEPT 50 CALLS TO AN EYE-POPPING THREE-DAY ONE-HUNDRED-TWENTY-ONE PERCENT PROFIT!
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
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
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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