Thursday, January 31, 2008

Market Adds To Gains, Closes At Its Highs

The market shook off that early weakness and really built up a head of steam late in the day. Also, volume was very heavy today, marking a notable accumulation day to coincide with nice price gains.

Every sector was higher, led by homebuilders (+6.1%), retail (+4.4%), banks (+3.6%), and brokers (+3.3%).

Interestingly, the ISEE Sentiment Index was low all day, and finished at the depressed level of 88. This likely means that today's rally was met with skepticism, and that traders were quick to hedge their positions/exposure as people continue to worry about more downside.

Technically, the indexes still have a lot of work ahead of them, and a ton of overhead resistance to get through. But today's high volume rally is still a positive sign. What you want to see going forward (if you're a bull) is for pullbacks to come on light volume, and rallies to come on heavy volume.

Also, financials and retail were hit the hardest last year, so those have seen the biggest bounces so far this year. But I want to see other growth sectors join the party. It is not clear to me yet where new leadership is going to come from. And that could take a while since there aren't too many stocks populating the new highs list lately.

Homebuilders Lead The Rally

Talk about a reversal of a reversal. The Dow has surged roughly +350 points from its opening lows. This is a nice bounce, even as the media tries to downplay it as short-covering. Isn't that how all rallies start?

Homebuilders are the leading group today, +5.8%. Retails stocks are also up a lot, +4.6%. And financials and brokers are strong again also. The big lagging sector is energy.

Here are some stocks showing up on my screen of high-volume moves:

I have added a couple of long trading positions, but nothing major. I want to see a little more evidence that this rally won't evaporate as quickly as it has developed. But so far, so good.

net long AMZN

Market Opens Under Pressure After Yesterday's Giveback

A couple of economic reports weighed on the market in early trading. The Chicago PMI was weaker than exepcted, and the jobless claims came in higher than exepcted at 375,000 for the week.

This worried the market that the economy is still weakening, and led to a selloff in stocks and buying of bonds. The buying pressure in the latter pushed bond yields on the 10-year down to 3.61%. But the rate cuts and now positively sloping yield curve continues to help the financials, which are up so far despite the overall weakness.

Mastercard (MA) reported a strong quarter, and its stock spiked higher by $24. They are seeing increased credit card transactions, and do not issue any debt like Amex (AXP).

Asian markets were mixed overnight, as heavy snow in China weighed on some markets. The Yen is also higher, and its reversal higher yesterday likely exacerbated the selloff in our markets. Oil is down $2 this morning, and this is leading to heavy selling in the energy complex.

The weakness from the open is already fading, and I would not be surprised to see stocks finish higher today.

Wednesday, January 30, 2008

Market Rallies Briefly, But Fades Into The Close

The market rallied after the Fed cut, but sellers emerged and the market faded into the close.

I think this is a reasonable reaction given how many days the market had been rising prior to the announcement, and that fact that often traders take profits after a big anticipated news announcement comes out.

I think that the combined 125 basis points of rate cuts over the last 10 days should provide pretty good stimulus at some point. It certainly lessens the risk that some big financial institution continues to experience liquidity problems.

The mortgage insurers (ABK, MBI) are still the biggest worry out there. If one of them goes under, it would trigger a brutal selloff, in my opinion. And if this worry were not still out there, I think the market would already be much higher than it stands today.

That said, I will be looking to use upcoming weakness to add long exposure to the market. I don't see an imminent retest of the lows, and think that more rallies are in the cards. The S&P 500 should at least be able to get back above the 1400 level before running into resistance.

We may not be out of the woods yet, but these big rate cuts bring us closer. There may still be a retest in the cards in the near future, but that should mark the lows for the year, and would offer a great buying opportunity, imo.

Fed Steps Up To The Plate, Cuts Rates 0.50%

I admit I was nervous that the Fed would disappoint the market with a 25 bps cut. And I raised more cash ahead of the meeting to prepare for a market selloff. But the Fed came through with a 50 bps cut, and for the moment that markets are breathing a sigh of relief and rallying.

Here are some of the comments from the FOMC:
  • Fed says to continue to assess affects of financial, other developments, will act in a 'timely manner'
  • Fed says downside risks to growth remain, cumulative policy actions should promote growth, ease risks
  • Fed says expects inflation to moderate in coming quarters, will be necessary to monitor carefully
  • Fed says financial markets remain under considerable stress; business, household credit has tighten
  • Fed says actions to 'promote moderate growth over time'

FOMC meeting days make for volatile trading. I'm sure this nascent rally attempt today will be tested with some selling. So check back after the close for a roundup.

Hurry Up And Wait

The FOMC will announce their interest rate decision this morning, and it should be a big market mover either way. The fed funds futures were pricing in a 78% chance of a 50 basis point cut. It used to be that the Fed didn't want to upset the market when expectations were this high, but with Bernanke, I am not so sure.

4Q GDP came in below expectations at +0.6% (vs. +1.2% consensus), so this provides some support for the Fed to go 50 bps today, as this reading is pretty weak.

Conversely, the ADP payrolls report showed the private sector added 130,000 jobs, not the stuff recessions are made of. And several industrial companies' managements have said that they think Wall St. is crazy with all of this recession talk. So how's that for a mixed message?

Asian markets were lower overnight. Oil is up slightly, near $92, but most oil stocks are lower. The only group bucking this morning's weakness is the broker sector. The 10-year yield is higher at 3.70%, a nice recovery from last week's lows.

The market has been up for 4 of the last 5 days, so my inclination is that the market will selloff after the FOMC announcement. Buy the rumor, sell the news is an old mantra. And if they decide to only cut 25 bps, the selloff could be fairly pronounced.

Will Ben do the right thing, Mookie???

Tuesday, January 29, 2008

Is Deckers Ready to Run?

My trade idea of the day is Deckers Outdoor (DECK).

DECK is the maker of the popular Ugg boots, and also Teva sandals. The stock gapped higher back in October (see chart) after reporting a strong quarter. And lately I've been hearing a lot of chatter that the Ugg boots continue to sell like wildfire.

A salesperson at Nordstom (JWN) said that they simply can't keep the Ugg boots in stock, and that they are currently taking up more floor space than any other brand. I noticed this when I went to Nordstom's during the holidays to look for a pair for my daughter. Everyone was buying them, and they were sold out of her size.

Technically, the stock has come down well off its highs hit at year-end. It has pulled back almost -30%, and has filled that gap that I mentioned on the charts back from October. That should be a good place for the stock to find naturaly support.

And with the Fed cutting interest rates, retail stocks have started to show signs of life again. DECK has led the retail sector for years, and I think it still has some life left in it. The stock could be a good trading candidate for a bounce.

The stocks also looks like it is finding good support near its 200-day average. I want to watch the stock a bit to make sure these levels hold, but I am putting it on my radar to buy in the near future.

Consumer Confidence Low, As Expected

Yesterday, the market rallied nicely into the close. Today, the market got a small bounce at the open, but the Consumer Confidence report took some wind out of the market's sail. It was reported at 87.9, down from 90.6 in December.

There were some solid earnings reports last night and this morning from American Express, 3M, EMC , etc. The big disappointment was VMWare (VMW), which lowered guidance just a bit but its highflying stock got crushed.

The Fed is starting their 2-day meeting today, with the announcement on rates coming tomorrow. Currently, the fed funds futures imply a 76% chance of a 50 basis point cut, although that might have gone down after this morning's durable goods report, which was better than expected.

Asian markets bounced back overnight from their large losses on Monday. Bond yields are firm, with the 10-year yield up 7 basis points to 3.65%. Oil is flattish, just below $91, but the energy sectors is firm. Retail stocks are weakest so far, followed by semis.

Tech has lagged so far this year while last year's laggards, retail and financial, have been the strongest. Those sectors were certainly due for a bounce, but I am skeptical that they can continue to lead the market intermediate-term.

Monday, January 28, 2008

Monday Morning Musings

The market opened on a weaker note after substantial declines in Asia overnight. Japan fell -4.0%, Hong Kong -4.3%, and Shanghai -7.1%. This was a combination of profit taking from the recent bounce, coupled with fears that out Fed might not cut rates as much as it needs to.

Speaking of the Fed, they meet this week, and there is much angst about what they will do. Last week, the odds were still good that they would cut 50 bps, which they really need to. But we know that this Fed has been clueless, and I am worried that they will only go 25 bps at best.

New homes sales data was weak once again this morning, and the median sales price in December was -10.9% yr/yr, the largest drop in 4 decades. Does the Fed worry about the 'wealth effect'?

The market has since bounced back from its early declines. There were some solid earnings reports this morning from McDonalds (MCD), Corning (GLW), and Halliburton (HAL), although MCD stock is lower.

Oil is lower this morning, which was weighing on the energy stocks early on. The 10-year yield is flattish at 3.59%. Banks are again leading the market so far, with semis lagging.

Friday, January 25, 2008

Stocks Give Up The Ghost, Close Near Lows

A disappointing end to a truly volatile week. The market closed near its lows for the day, as sellers emerged and investors worried about more writedowns coming out of Europe and the possibility that a large hedge fund is liquidating.

The ARMS Index was high all day, as was the put/call ratio, but they didn't help much. Sentiment is still extremely bearish, in some cases the most since 1990, which is why I think the market should still work higher before any retest of the lows.

The big wildcard next week is the Fed. If these knuckleads screw up again, the market could express disappointment in a hurry. I hope that the Fed cuts another 50 basis points. I think the financial companies need it, and they can worry about taking the cuts back once we get past the hump.

Although the S&P 500 bounced ever so slightly for the week, the Nasdaq 100 had another terrible week, and has now been down for 6 straight weeks. I think that index is due for a sharp rebound rally.

Even the companies that reported strong earnings saw their stocks decline as the day wore on. I would keep a list of these stocks, as they should be nice bounce candidates if the overall tone of the market improves next week.

Thanks for reading, and have a great weekend--

Microsoft Puts A Bid Under Tech Stocks

The market got a strong boost at the open after a handful of strong earnings reports last night.

Microsoft beat expectations, and also raised its guidance for the full year. This helped the stock pop to $35 before pulling back. Broadcom (BRCM) and MEMC Electronic (WFR) also reported solid results, and their stocks are higher.

These earnings reports helped push the Nasdaq nicely higher at the open, but the sellers predictably emerged, and the market has given back all of its gains. Hopefully we can mount another push higher into the close.

Asian markets rose sharply for a 3rd straight day, with Japan up +4.1% and Hong Kong spiking another +6.7%. And the Yen is lower again, which is nice to see.

Oil is back up over $90 this morning, which is helping the energy stocks rally. And gold hit a new record high today at $924.

The 10-year yield had a huge rally yesterday, and is steady this morning at 3.63%.

There was also talks yesterday about raising the conforming loan limits for Fannie and Freddie from its current $417,000 to as high as $725,000. The news helped the homebuilder stocks rally, and they are up again today. Look at a chart of the XHB to see what I'm talking about.

long WFR

Thursday, January 24, 2008

Market Adds To Yesterday's Rally In Early Trading

The market opened on a higher note this morning, following nice gains in Europe and Asia and several positive developments here in the U.S.

Jobless claims came in lower than expected at 301,000. This is well below the levels normally associated with a recession, which often run in excess of 450,000. Also, the White House confirmed its agreement on an economic stimulus plan that will provide between $300-$1200 to U.S. taxpayers.

The NYS Insurance Dept. said it is working on a plan to help out the ailing mortgage bond insurers.

China reported that its 4Q GDP growth was a strong +11.2%, calming fears of a global economic slowdown. This is helping boost those areas of the market tied to the global expansion. It is also helping oil, which is trading up to $88.

The 10-year yield is getting a huge boost this morning, rising 19 basis points to 3.61% as fears of an imminent recession subside (for the time being).

The Yen is down only slightly, and it would help this emerging rally if it continue to move lower. I suspect we have seen a pretty sharp unwinding of the global carry trade.

The bears are going to try to knock this market down at some point, so let's see if this rally can last into the close today. Also, it's time to start looking for stocks that have held up well during the decline, to see if we can identify which stocks might lead a further rally.

Wednesday, January 23, 2008

And On The 6th Day-- They Rallied

Nice finish to the market today. This morning, when the market was down -300 points, I pinged a trading buddy of mine and asked him if anyone thought that the market could actually finish higher today. He laughed.

But the market soon began to trade higher, as it looked like the sellers had finally exhausted themselves. The financials had been higher all day, and more stocks began to participate.

When the news came out that some NY regulators were looking to provide aid to the ailing mortgage insurers, the market took off. By the time the closing bell rang, the Dow had rallied a cool 600 points (from the lows) to close at its highs.

The bank index rocketed +8.0% on the day, while the brokers rose +6.9%. And the homebuilders spiked +9.5%. Wow. Volume was substantially higher today, which makes the reversal stand out more. This market has been very tenuous, but normally the strong volume would make me believe that the rally has some legs to it. We will see.

It would be nice if the ECB would get on board with their rate cuts. One can wish.

Also, the Yen hit new highs today before reversing lower. If we could see the Yen come down sharply, that would really add some fuel to the fire. The put/call ratio has been high for weeks now, so there is a lot of position unwinding that could exert upward pressure on the market. But don't expect the bears to give up easily, they still have a lot of firepower.

I'm off to a late meeting, have a great night--

Earnings Season Starts With Disappointing Guidance

The market is under pressure again this morning, although it has come well off its early lows. The main culprits were the earnings reports from Apple (AAPL) and Motorola (MOT). Both companies beat expectations, but offered guidance well below consensus, and that hit both stocks.

Also, the ECB President made it clear that he is still concerned with inflation, which basically takes an ECB rate cut off the table. That hit the European stock markets in a big way. I'm not sure what this guy is smoking?

Oil is trading down again, around $87.40 currently. Bond yields are lower again also, with the 10-year yield down to 3.35%, and approaching some of the 2003 lows. I expect some very good refi opportunities to begin to emerge. This should help those with teaser rates lock something in, assuming they can still get credit.

Bank stocks are really outperforming for the second straight day. Wells Fargo (WFC) was up +10% this morning, and the brokers are higher as well. Homebuilders are also bucking the overall weakness, and the XHB actually looks like its breaking out.

Asian markets soared overnight, after their recent drubbing. China rose +3.1%, India gained +6.6%, and Hong Kong surged +10.7%. Can you imagine? That would be the equivalent of the Dow gaining 1280 points in one day. LOL.

long AAPL, WFC

Tuesday, January 22, 2008

Are We Getting Closer To A Bottom?

The market opened sharply lower today, but quickly rebounded after the initial woosh down. Many talking heads were looking for signs of panic to signify a market bottom, and I think we saw some of that today.

Even in terrible markets like 2001-02, the market would get strong bounces after getting oversold. This year, trying to pick a bottom has been like trying to find a needle in a haystack. So while I do not want to sit here and say today was the bottom, I am seeing more and more signs that we should bottom soon. To wit:
  • The volatility index (VIX) hit its highest level today since October 2002
  • The 10-day ISE Sentiment Index hit a new record low on Friday
  • Only 16% of stocks are above their 200-day moving averages
  • There were more than 1100 new lows on the NYSE today
  • The Fed cut 75 basis points, and may cut more next week

Since we are not coming off a stock market bubble like 1999, I find it hard to believe that we will experience similar downside. More likely, this will be a run of the mill cyclical bear. As such, I think we have already experienced most of the pain (read: downside) associated with bear cycles.

So my game plan is to let the markets bounce, and use that strength to lighten up on stocks that lag. Then we will likely get some sort of retest to see if the lows hold.

AAPL reported disappointing guidance after the close, which is what they always do. This could weigh on the markets in the morning. But Asia should be higher tonight, so maybe some of that enthusiasm will act as an offset.

long AAPL

Fed Rate Cut: Too Little, Too Late?

Asian markets had been getting pummeled for 2 days coming into this morning. Our futures were pointing to a very weak open for stocks here in the U.S. The the Fed announced that they were cutting the fed funds rate by 75 basis points to 3.50%.

The Fed said that the cut was needed due to a "weakening economic outlook and increasing downside risks to growth"? Well, duh. But we knew all this last week, so why wait until now.

The answer of course, is that the Fed wanted to head off a true panic in the markets. But they still show that they remain behind the curve. The market wanted 75 basis points weeks ago. The muted reaction in stocks today shows that if the Fed wanted to now get ahead of the curve, then they probably should have gone 100 basis points.

Oil and gold are lower today, and the 10-year yield has dropped to 3.55%. The volatility index topped 37.5, its highest level since October 2002, the nadir of the bear market.

The markets are bouncing as I write this, but there is still a lot of time left. I can't believe how negative CNBC is. They keep talking about how today's declines weren't "enough" to wash out all of the weak holders of stocks. Please. We have seen extreme bearishness here, and I hope the market surges and hurts any short sellers who are being greedy.

The mortgage insurers, ABK & MBI, are trading up big, which should be a good sign. The bank index (BKX), the retail index (RLX), and homebuilders are all in positive territory now.

Friday, January 18, 2008

Market Bounces Ahead of President's Speech

Now you know why I don't like strong market opens. Again today, the market opened on a very strong note, but it has since faded. This erodes confidence. Of course, we have the President speaking today, where he will announce his fiscal stimulus package. Let's hope it's something substantial.

I still hold that the Fed could have avoided the need for a big fiscal stimulus package if they had just acted sooner with bigger rate cuts. And you don't have to e-mail me and tell me that that would have spurred more inflation and a weaker dollar. I'm sure the hundreds of thousands of people that have or will lose their job would take that tradeoff.

GE reported solid earnings this morning, and that is what really helped boost the market. IBM also saw a nice reaction to its earnings, even though it already told us they would be good.

Asian markets also bounced overnight. The 10-year yield is steady at the low level of 3.64%. And oil is a bit higher this morning, which is helping some energy stocks.

C'mon, Bushy, say something good for once...

long GE

Thursday, January 17, 2008

Memo To Bernanke: Stop Talking

It seems that all of these Fed-heads, including Bernanke, keep making endless comments, and it just helps to drive stocks lower. They should all just stop talking. Silly Fed.

The market closed near its lows again today, although there were a handful of tech and biotech stocks that bucked the weakness.

Also, many fear guages really spiked today. And I mean really.
  • The ISEE hit a new record (intraday) low of 23
  • The CBOE put/call closed at 1.48, near panic levels
  • The volatility index (VIX) spiked +17% today

These are the types of readings that we have typically seen near prior market bottoms. Before you ask, "So is this THE bottom?", let me just say that pinpointing the exact day of the bottom is difficult.

But if you go back and look at every single market bottom during corrections over the last 5 years, you will see the same pattern repeat itself. And that pattern is that once the pain becomes unbearable to the majority of people, they all rush to sell, and that is how the market bottoms.

Look at each of these market bottoms and you will see the same indicators: a spike in the VIX, extreme high readings in the put/call ratios, rising bearishness in the investor surveys, a sharp rise in stocks making new lows, and of course that pit in your stomach that stocks will never rise again.

No one ever made a dime panicing. I am sure the market will get a nice bounce in the near-future, and that will be a better opportunity to lighten up if you need to.

Bernanke Speaks, Market Declines...go figure

The market was getting a bounce at the open, but two events hit it and caused it to quickly go back into the red.

The first was the Philly Fed survey, which hit its lowest number since October 2001. That's a pretty weak reading, related to manufacturing.

The other factor was that Bernanke began his speech. I have commented on my dislike for this Chairman, and the fact that the market seems to go down nearly every time he opens his mouth tells me I'm not the only one that feels this way.

He didn't really say anything new, other than the economic outlook has deteriorated and that downside risks to growth are now more pronounced. But we knew that. And one of the main reasons is his policy.

Merrill (MER) reported a larger than expected loss, and had a $11.5 billion write-down for subprime and CDO exposure. That's a pretty big loss, and the stock is lower.

Asian markets bounced back overnight, as buyers stepped in to buy the pullback. Oil is flat this morning, but the energy stocks are down again, likely on economic concerns.

The NDX is the only major index in positive territory, but biotechs are leading the way today.

long QQQQ

Wednesday, January 16, 2008

Beige Book Shows What We Already Knew

The market is well off its lows from this morning, and is on the fringe of going positive for the session. This would make for a nice turnaround day on a day when we broke below the August lows in the morning.

The Fed's Beige Book was just released, which gives a snapshot of economic activity among the various Fed districts. I didn't say anything we didn't already know. But here are the highlights:
  • Reports from the twelve Federal Reserve Districts suggest that economic activity increased modestly during the survey period of mid-November through December, but at a slower pace compared with the previous survey period.
  • Among Districts, seven reported a slight increase in activity, two reported mixed conditions, and activity in three Districts was described as slowing.
  • Most reports on retail activity indicated subdued holiday spending and further weakness in auto sales. However, most reports on tourism spending were positive.
  • Residential real estate conditions continued to be quite weak in all Districts. Reports on commercial real estate activity varied, with some reports noting signs of softening demand.
  • Manufacturing reports varied across industries, with pronounced weakness noted in housing-related industries as well as the automobile industry. Strong export orders and increased demand in industries whose products compete against imports was reported by some Districts.

It's good to see financials leading the way today. Retail stocks are bouncing back from their drubbing also. Anything that is related to the global economy, such as commodities, materials, industrials, energy, etc. is getting hit today.

Intel Report Drags Down Nasdaq

Disappointing guidance from INTC last night is weighing on stocks. As of last night, it looked like the market would be weak this morning, but when I got in the market was actually higher.

JPMorgan's earnings weren't that bad, and its write-down was relatively small, which helped this stock bounce. Also, Wells Fargo (WFC) reported in-line earnings and said it is finding more acquisition opportunities. The combination of these two reports has the bank index bucking the weakness in the market and trading higher.

Oil inventories hurt crude prices, and drove oil down to the $90 level. This is hurting the energy stocks, including solar, and weighing on the market as well.

Asian stocks got clobbered last night, with Hong Kong falling more than -5%. And the Yen is back at new highs.

The Nasdaq is the weakest so far, due to INTC, and has broken below its August lows. Until this downtrend reverses, I continue to stay on the defensive, and use rallies to exit underperforming positions.

long WFC

Tuesday, January 15, 2008

No Intraday Rallies, Market Closes At Its Lows

Nice day in the market, huh? The market really never lifted, and closed at its lows.

After hours, Intel (INTC) reported disappointing earnings, and the stock was down a lot. That should make for a weak open tomorrow morning, which will surely mean that we break below the August lows.

This marks a change in character for the market, which has not made a lower low in the charts for a few years. I have been lightening up and getting more defensive because of this possibility.

I have seen more and more indicators this week that lead me to raise the odds of recession materially. But just because we may have a mild recession, does not mean we will have a down year for stocks. I think stocks will begin to discount a reaccelertion of growth in 2009 around mid-year or so, and finish the year strong.

Fear was palpable today, with the CBOE put/call closing at 1.25 and the ARMS Index hitting 4.37 at the close. Those are extreme levels, and I think the rubberband is getting stretched extremely tight.

I am hearing rumors that the Fed might step in and cut this week. I have little faith in this Fed, but if it is true, this market would fly.

Rest up, tomorrow should be another fun day.

Market Has Poor Reaction to Citi's Earnings

If everyone and their mother knew that Citi's earnings were going to be bad, and that they would take a huge writedown, then why is it hurting the market so much?

Citi (C) reported a larger EPS loss than expected, and took an $18.1 billion write-down on subprime and fixed income. They also had a $4.1 billion increase in credit costs due to estimated losses on consumer loans. Citi also cut its dividend by 40%, to save capital, and will sell $2 billion in securities to raise money.

The comments on their consumer loans is hurting retail stocks, as it increases the worry about the consumer. The 10-year yield is also reflecting more economic concerns, as it breaks to a new low at 3.71%. Again I ask you, where is the Fed?

Asian markets were down across the board overnight, on concerns about U.S. economic growth. And my public enemy #1, the Yen, is up more than 1.25% today. The FXY (Yen etf) is breaking to a new high. This trend needs to reverse for the U.S. markets to rally.

Also, oil is down below $92 this morning, and this is weighing on the energy stocks. As these stocks have been market leaders, their weakness weighs on the overall market. But financials are down the most so far.

Investor anxiety is high, with a put/call over 1.0 and an ARMS Index over 2.10. This should help at some point. The recent Market Vane survey showed bulls the lowest in 4 years. And the market is still above the lows from August.

Monday, January 14, 2008

Surprising Strength At IBM Boosts Market

I don't like to see these big up opens in the market, but I did like the news out of IBM. The company said that results would top expectations, with earnings rising +24%. The firms said strength was driven by Asia, Europe, and Emerging Markets.

This helped give a boost to the tech market, with the Nazz leading the way so far today. Ag stocks are also on fire.

The market is pricing in bigger rate cuts, and this is driving the dollar lower today. I admit I was worried when I saw the Yen up, but I think today its being driven interest rates here in the U.S.

The weakness in the dollar is pushing commodities higher, with gold hitting new highs and oil up to $93.75. This is helping give the energy stocks a boost.

Although we hear about the rate cuts last week, the fed funds futures are now pricing in a 42% chance of a 75 basis point cut. That would be huge.

The bond market doesn't seem too fazed, with the 10-year yield down a touch to 3.79%. We need some stimulus in a hurry.

Friday, January 11, 2008

Morning Look: Financials Trading Higher

It looks like the vote is skewing towards the 'end of day' preference. That's fine, I just wanted to get an idea of what is more helpful. I will still post morning comments frequently as well.

This morning, the market is opening on a down note, although the market has recovered from early losses the last couple of days. Consumer worries are weighing on the market after American Express (AXP) warned about increasing consumer defaults. This follows yesterday's cautious comments from Capital One (COF).

But the financials are trading higher today, after rumors swirl that WaMu (WM) could be in merger talks with JP Morgan (JPM). This follows confirmation that Bank of America (BAC) is buying Countrywide (CFC) for $4 billion, a fairly low price tag. The brokers are also trading higher.

Asian markets were mostly lower overnight. Oil is flattish around $93.50, while gold touched $900 this morning. The Yen is higher, which is likely also pressuring stocks. I want to see that uptrend halted soon. And the 10-yr yield is still languishing at low levels of 3.84%.

The market breathed a sigh of relief on Bernanke's comments yesterday, hoping that he finally "gets it". But the rate cuts can't come soon enough, imo.

Thursday, January 10, 2008

Reader Poll

Question: Given the choice between an opening commentary on the market, or one at the close, which would you prefer:

An opening look at early trading in the market?
An end of day wrap up on the market action? free polls

Bernanke To The Rescue?

Bernanke spoke this morning, and for a while it really looked like he came to the rescue. The market surged over 150 points, but it has since faded as sellers reemerged.

I think what the market is saying is that if Bernanke is willing to admit that the economy needs further cuts and much more stimulus, why wait 3 weeks?!? Give us the cut now! The financials need it now. Consumers need it now. Get going.

Anyway, here are the highlights of his comments:
  • Bernanke says additional policy easing may well be necessary
  • Bernanke says Fed stands ready to take "substantive additional action" to support growth
  • Bernanke prepared to act in a decisive and timely manner
  • Bernanke says December job data 'disappointing'
  • Bernanke says Fed paying particular attention to housing
  • Bernanke says 2008 outlook worsended, risks 'more pronounced'
  • Oil prices, lower equities, housing likely to weigh on 2008 consumer spending, says Bernanke
  • Bernanke says T.A.F. auctions to continue as long as necessary
  • Bernanke says Fed sees "considerable evidence" bank lending to firms, households now more restrictive
  • Bernanke says despite impact of write downs on bank profits, share prices, banking system sound

More Signs Of The Negativity Bubble

In case you didn't see the AAII survey today, allow me to relay:

The percentage of bulls dropped to 19.6% this week, from 25.7% last week. The percentage of bears rose to a whopping 58.9%, from 55.2% last week.

This level of bears has not been seen since October 1990, after Iraq invaded Kuwait and the US was gearing up for 'Desert Strom'.

I continue to see many signs of a negativity bubble, this survey among them. I also believe that investor sentiment is sufficiently negative to prevent a damaging bear market from ensuing, despite the prospects of recession.

I don't think I'm being pollyannish. I acknowledge that the market is in a rough patch currently, and it could take many months to break out from it.

But with valuations at reasonable levels, trillions of dollars on the sidelines, bearish sentiment spiking, and monetargy growth accelerating, I think the downside risk is limited.

Opening Look: Stocks Open Lower For Once

The market opened under some selling pressure, but is well off its worst levels in early trading. This is a change in character from all of the previous up opens in the market, that got sold off as the day wore on. Maybe today we will see the opposite?

Bernanke will speak today on the economic outlook, but I doubt he will say anything that will please the markets. I am quickly losing confidence in Uncle Ben.

Oil is down $2, falling to $93.65 today. While lower oil prices are good in the long-run, today they are taking down energy stocks which is weighing on the overall market.

Asian markets fell overnight amid worries about Japan's weakening economy. But with China and India firing on all cylanders, I think that the region is still in good shape.

There were lots of weak reports last night among retailiers, but Costco (COST) and Wal-Mart (WMT) bucked the trend, and those stocks are higher.

Capital One (COF) warned that its earnings would fall short, and its stock is hitting new lows. That's hurting the financial sector, although the brokers are trading higher, along with the exchange stocks.

Wednesday, January 09, 2008

Was That The Bottom?

Today we finally got some constructive action in the market. Actually, today had many of the same characteristics of the August 16th market bottom.

Today was a high-volume reversal. The market was down big intraday, but reversed higher to close at the highs of the day. And volume rose on the session.

If you look at the chart above, you can see just what I am referring to. The action in the charts today is what trades call "long tails". That means that the market moved substantially lower, but reversed and closed at the top of today's range. This leaves behind what looks like a long tail on today's bar in the chart. It is very similar to the daily bar on Aug. 16th.

As such, I believe that we put in a short-term bottom today. I don't know if it will have the sustainability of the August bottom, but that's getting ahead of ourselves. The market had gotten deeply oversold, at the same time the sentiment indicators were flashing extreme bearish readings.

The naysayers will say that today was just a short-covering rally. Don't listen to them. Every market bottom starts with short-covering. The shorts have been riding their stocks down, and watching their profits grow. So the fact that they ring the register on a day like today is not surprising. And longs who have been waiting and waiting to see how low prices would get do not want to miss out on this sales. So they will likey move quickly to put money to work.

The S&P held at the 1400 level, around the same levels it found support back in August. So we didn't take out the August lows, which is another net positive. Also, there were 725 new lows on the NYSE, a very high figure. This also happened in August, when there were over 1000 new lows.

One difference now is that we are just beginning earnings season, so these reports have the ability to color any given day's action in the market. But hopefully expectations are low enough that most companies that report solid earnings will see their stocks rally.

When Will The Pattern Be Broken?

I hate to see the market down, but I also am tired of all of these strong opens that fade into the close. Yesterday's late day selloff was very disheartening for the bulls. Maybe we can break the trend today, and have one day where the market closes higher.

Goldman Sachs (GS) made comments this morning that they think the trend in jobs mean a recession is likely. This Goldman economist has been on the bandwagon for a little while, so these comments are not really new.

More Fed-head speak, as St. Louis President Poole said U.S. fundamentals remain strong. I wouldn't expect him to say otherwise, but the Fed needs to cut far more and quicker than they have been. They are so clueless its painful.

Asian markets closed higher across the board overnight, a good sign. And the Yen is lower today. Oil is higher, back at $97. And the 10-year yield is down to new multi-year lows at 3.80%. Does the Fed think they know more than the bond market?

Earnings season starts tonight, and that means the usual swings around conference calls. More importantly, investors will be listening to hear what CEOs are saying about the current environment and what kind of guidance they are comfortable with.

long GS

Tuesday, January 08, 2008

Nasdaq Makes It Eight In A Row

Talk about going down in a straight line? I can't remember the last time I saw the Nazz down this many days in a row.

The market was actually looking very nice with a couple hours to go, but then the comments by the CEO of AT&T, and the trading in Countrywide (CFC) and others proved to be too worrisome, and investors sold stocks into the close.

A reader asked me if I see any silver linings? Sure. I know it's hard to remain constructive during these corrections, but if you go back and look at all the big corrections we've had since this bull market began, you'll find many similarities. It never feels good, which is why so many people bail at the bottom, usually just as the market is ready to bounce.

Right now, I see the sentiment indicators getting very spiky again, meaning they are flashing extreme levels of pessimism:
  • The VIX spiked +7% today to 25.4; but it hit 30 in November
  • The CBOE put/call ratio closed at 1.20, a very high reading
  • The ISEE closed at a very depressed level of 86
  • The ARMS Index has been high all week (closed at 2.14)

The market is getting oversold, and will surely bounce. I don't know if it will bottom tomorrow, the next day, or next week. I wish I did. But I know that I have never made money selling after this type of big decline. Rather, if you feel like lightening up, wait for the rally.

We could be in for a multi-month trading range market. If that is the case, then a good strategy will be selling rallies, and buying big selloffs. Small incremental gains will beat the market, until it is ready to take off again.

That is my game plan for the near-term. I am still bullish overall, but would like to wait for the market to prove itself. As I have said before, the character of this bull market will likely not show itself in these declines, but in its ability (or inability) to rally back.

Another Early Market Bounce

The market got a strong bounce in early trading, but seems to be giving most of it back at the moment. This is exactly what happened on Monday, and is one of the reasons you always hear me say that I don't like strong opens in the market. I would much prefer early weakness, and then have the market rally into the close. Maybe that can still happen today.

The Yen peaked on Friday, and is down today for the 2nd day in a row. I don't want to see the FXY take out its November high. A lower high on the charts would be better.

Sentiment remains highly negative. The bull/bear spread in the AAII survey last week hit -30, the lowest reading since July 2006. Today, the ISE Sentiment Index hit 46, not far from a record low. So the negativity bubble is alive and well, which should help the market bottom soon.

Philly Fed President Plosser made some comments this morning about inflation that the market didn't really like. I wish all of these difference Fed heads would just keep quiet. They don't seem to be helping much, so let's just hear from them when the FOMC meets.

Google (GOOG) took more market share from MSN again in December, and this morning Microsofit (MSFT) made a $1.2 billion bid for Norwegian search engine Fast Search & Transfer.

Financials are really lagging today. Energy is up the most, as oil is up nearly $2 ($97). And tech is mixed. Let's hope this is Turnaround Tuesday.

long GOOG

Sunday, January 06, 2008

Weekly Wrap

Last week was a tough week in the market. Here is's weekly recap:

U.S. stocks began the week on shaky ground, trading lower on Monday – the last day of 2007 – amid ongoing concerns about the fallout in the housing and credit markets, yet the market still managed to post a modest gain for the year as strength in the technology sector offset declines in financials and consumer-related stocks.

For 2007, the tech-heavy Nasdaq Composite index gained 9.8%, outpacing the broad S&P 500 and blue-chip Dow Jones Industrials, which were up 3.5% and 6.4%, respectively. All three major indices posted a loss for the fourth quarter, however.

After returning from the New Year break on Wednesday, investors pressured stocks further due to a surprise contraction in manufacturing activity and surging oil prices, which hit $100 per barrel. The Dow Jones Industrials plunged more than 220 points during the session, dashing any hope for a New Year's rally.

According to the Institute for Supply Management, national manufacturing activity shrank unexpectedly in December, fueling concerns about the spillover effect of the subprime crisis leading to an economic recession. Specifically, the ISM Index fell to 47.7 from 50.8 in November - a reading below 50 indicates a contraction in manufacturing activity.

Also during the session, the Fed released the minutes from its December 11 FOMC meeting, but the report offered little insight for the market and failed to calm jittery investors.

Despite some mildly positive initial claims and factory orders data, the market extended its losses on Thursday as overarching concerns about the economy continued to weigh on investor sentiment.

The Labor Department showed new claims for unemployment for the week ended Dec. 29 fell to 336,000, from 357,000 in the previous week.

Meanwhile, the November factory orders report rose a surprisingly strong 1.5%. That marked the third straight month of an increase and is good news for the economy. Durable goods new orders for the month were previously announced as up 0.1%, but were revised with the latest report to -0.1%. Non-durables orders were up 3.0%.

In corporate news, drug stores, including Rite Aid (RAD), CVS Caremark (CVS), Walgreen (WAG) and Longs Drug Stores (LDG), reported weak same store sales in December, as a milder flu season and increased sales of generic drugs weighed on results.

The Labor Dept.'s much anticipated employment report on Friday, which showed weaker than expected job growth and a rise in the unemployment rate, compounded the market's slide in the shortened week as all three major indices posted sharp declines on the news.

Non-farm payrolls rose 18,000 in December, well below the 70,000 increase analysts were expecting. The November payroll gain, meanwhile, was revised to show an increase of 115,000 from a previously reported 94,000 increase.

The report also showed unemployment increased to 5% last month from 4.7% in November. While 5% unemployment is still considered good, the increase from the prior month was discouraging for some investors as it fed concerns about the economy possibly slipping into a consumer-led recession.

Separately, the ISM index of non-manufacturing activity showed the nation's services sector grew at a slightly slower pace in December than in the previous month. The index slipped to 53.9 from 54.1 in November, yet was slightly ahead of analysts' forecast of 53.5.

On the corporate front, it didn't help the market on Friday either that JP Morgan lowered its rating on Dow component Intel Corp. (INTC) to Neutral from Overweight, and removed General Motors (GM) from its Focus List.

Friday, January 04, 2008

The Silver Lining On This Morning's Jobs Report

The market is getting hit on this morning's weak jobs report. December payrolls grew just 18k (vs. +70k consensus), although last month's figures were revised higher. But these figures are volatile from month-to-month, so extapolating today's figures into the future could be a mistake.

The 10-year yield plunged on the news, taking out recent lows and hitting 3.83%. So the concern about the economy is elevated. I think the silver lining of today's data is that it should get the Fed to act quicker and stronger than before. If they think job growth is at risk, they should step up their efforts.

They need to stop worrying so much about inflation. Slower economic growth combined with a credit crunch are both deflationary events.

Asian markets were up across the board overnight, except for Japan which tumbled -4.0% on its own economic worries. I'm sure the BoJ doesn't want the Yen to appreciate anymore, and could intervene.

Investor anxiety is spiking this morning as well. The ARMS Index hit an extreme reading of 3.00, and the CBOE put/call ratio opened at 1.78. Those figures are likely signs that pessimism has peaked in the short-term, and should help the market find a bottom shortly.

I will be looking to put some money to work today or Monday, as I think a bounce is in the cards. For now, I want to buy weakness and sell strength until the market can prove that it has the strength to break out of this multi-month trading range.

Thursday, January 03, 2008

Ag Play Is Still Working

The bull market in agriculture is still kicking. Today, Monsanto (MON) reported great earnings and the stock gapped higher. It gained more than $9 on the session, and rose to new highs on a huge surge in volume (see graph above). This is all bullish.

The way we are playing this bull market at our shop is via the Ag ETF - MOO (see 2nd chart).

MOO is made up of many of the top stocks in the agriculture and mining space. It has been a top performing ETF since its inception last fall.

Today, MOO also rose to a new high on exploding volume. Among the many, many ETFs I follow, MOO has among the highest relative strength rating.

Sometimes these high volume breakouts after a long uptrend has been in place mark buying exhaustions, where the buying power simply runs out and leaves the stock or ETF vulnerable. It's hard to say if this is the case here or not.

MOO still looks solid to me. I probably would not chase it higher if I didn't already have positions in it, but I would be comfortable adding exposure to it on pullbacks or at support.

long MOO

Blog Poll Winners

Each year I take a poll of professional investors of their forecasts for the year ahead.

The winner of last year's poll was Jerry Byrne, who forecast the S&P 500 Index would finish 2007 at 1465 (it closed at 1468). Nice job.

Doug Kass came the closest on the 10-yr yield forecast, with a prediciton of 3.99% (vs. 4.03%).

I am in the midst of compiling the forecasts for 2008. I will post an update of what the average forecast is when I have them.

The average forecast for 2007 was for the SPX to gain +6.8% (it only gained +3.5%).

Happy New Year!!

Oil Still Below $100, Despite Drop In Inventories

The government reported a big drop in crude oil inventories, but oil still hasn't managed to break above the psychological $100 level. It is currently a tad lower at $99.35. This is a small positive.

The ADP employment report was a little stronger than expected, and this is helping the overall market as well as bond yields. The 10-year yield is up to 3.93%.

The semis are still the weakest group after yesterday's downgrade by Banc of America (BAC). Overall, tech is also struggling a bit.

Asian markets were lower across the board overnight, following our lead yesterday. The Yen is flat today, after yesterday's huge spike.

Retail stocks are also weak this morning amid lingering concerns about the consumer.

Wednesday, January 02, 2008

A New Year For Trading

In lieu of posting my New Year's resolutions, I thought I would revisit my Top 10 Trading Commandments. I like reading this list every so often, because it is when we lose focus of these principles that we make mistakes, costly mistakes.

So here they are:

1. Discipline trumps conviction. Don't let your bad trades turn into investments.

2. Perception is reality in the market. Adapt your style to the market; and learn to accept the market as it is, not how you wish it was.

3. Play great defense, not great offense. Opportunities are made up easier than losses.

4. Don’t confine your thinking in terms of boundaries. Expect the extreme, and don’t miss major profit opportunities.

5. Know your companies; Hold your stock as long as it is performing properly; cut your losses fast, and don’t "hope" for a rebound.

6. Risk control is important; always quantify your risk going into a trade.

7. Be diligent and thorough in your research; Do your homework, recap each day, and learn from your mistakes.

8. Don’t get caught in a situation in which you could lose a great deal of money for reasons you don’t understand.

9. Respect the price action but never defer to it. When unsure, trade "in between."

10. Emotion is the enemy when trading. Be greedy when others are fearful, and fearful when others are greedy.

Not Much To Like Today

The market is having a rough go in the first hours of trading for 2008. As you can see in the first chart above, the Nasdaq is struggling to stay above its 200-day moving average.

Remember what my public enemy #1 has been? The Yen. And the yen is spiking +2% today (see the Yen ETF chart #2 above). The market has simply been uable to rally on big up days for the Yen. So this is something we need to watch.

Also, a weak economic report has the bond market again worried about recession. The yield on the 10-year Treasury (chart #3) has broken back below the psychological 4.00% level. This is kind of a confidence indicator, and I like to see it stay above 4% to keep the recession mongers at bay.

On the plus side, measures of investor anxiety that I montior are very elevated today, which should help to put a floor under stocks at some point.
  • The ARMS Index exceeded 2.50 this morning, one of the highest readings in months;
  • The CBOE put/call ratio hit 1.34 today, a highly elevated level;
  • The ISEE Sentiment Index opened at an extreme depressed reading of 68

I am not going to let one day color my outlook. The bears can have the day, although it's not over yet. But I still think the market is mired in a near-term trading range, and that at some point in 2008 we will break out of that range on the upside.