Stock Market Summary for February 13th 2008

 

 

NEW YORK (AP) — Wall Street moved sharply higher Wednesday after the Commerce Department reported an unexpected increase in retail sales last month and eased some concerns about consumers’ willingness to spend despite economic uncertainty…

Give me a freaking break… Give the press a piece of news and they jump all over it without understanding the real dynamics of the markets. As you read in my post early this morning regarding retail sales the change was minor and the trend of retail sales remains poor, at best.

The markets advanced 18 on the S&P, 178 on the DOW, and 54 on the Nasdaq. But the volume was weak on the advance. As we have been seeing since August of last year, the selling has been on higher volume than on the upward rallies. The recent few trading sessions are no exception. Volume has weakened as prices have moved up. In technical analysis this is always a sign of a direction change.

Over the weekend I posted a chart of the Dow Jones Industrials. And on that chart I highlighted certain support and resistance levels that we were going to watch closely to make an entry into the market by shorting the Dow. Today the Dow traded very close to the resistance level I discussed over the weekend. Today we took a position in symbol: DXD. This is the Ultrashort of the Dow. The volume today on the price advances was very weak and this built our confidence that this move up to resistance was likely going to be stopped. And it was, prices did not advance any further past the resistance level.

This type of trade offers us a good risk to reward profile. Because it offers to us a clear point at which to know if the trade is going against us and the potential reward is very good if the trade follows as the charts say it should. Now of course news can always throw a monkey wrench into the very best of trades, but at least as far as the chart is concerned this was a good opportunity to take a short position on the Dow.

We will know if the trade is going against us if it breaks upward through resistance, that resistance line is our ‘line in the sand’ and we will close out the trade and go short again on the next resistance level above. Should this be the start of the next leg down now we are protected in that our entry point should protect us from any small bounce from support (purple line - was resistance, now support). Should the Dow bounce from that level we still have our ‘line in the sand’ (which would now be resistance again and if it breaks upward we close the trade. So different possibilities in trading behavior in the Dow leaves us with a clear exit point. Should this be the start of the next leg down then I see the lows from the middle of January  coming back into play which will be a substantial gain for our short on the Dow.

The chart below is an updated chart from the one I posted over the weekend. Notice the trend line I applied to the RSI. Each rally attempt has been stopped by price resistance levels and RSI trend. The circle on the price is where we entered our short today. At the bottom of the chart you will see the volume, and a moving average (black line) has been superimposed over the volume levels. Notice how the volume has been drying up on the recent upward rally. This tells us the rally is losing momentum and conviction and that a fall in the Dow is near. Also note that volume has increased during times of selling and decreased on the buying rallies.

 

 

 

 

 

 

 

 

 

 

 

 

Tomorrow we get the weekly initial jobless claims and we have Ben Bernanke and Secretary Paulson testifying before the Senate Banking Committee on the state of the economy… oh boy, I can’t wait for that one. Better get the popcorn ready now. 

Should be an interesting day tomorrow for sure. On Friday night I will discuss the possibilities of a ’sucker rally’ which could draw in the bulls to only slaughter them later in the year. Film at 11.

Stocks Close Higher

Yep, it was just a buying frenzy this afternoon.  Or was it?  Bids rose quite fast on low volume, then some volume came in with uncommitted shorts covering.  OK, you don’t have to agree, but that is what I saw on the tape and the charts.  We told you we would test resistance levels and we are.  It is getting a little irksome that we are doing these “tests” in record fashion, but you play what you get!  Plenty of selling into this rally, so be careful.

Earnings reports have left NTGR (Netgear) down after hours, and NTAP (Network Appliance) and VCLK (Valueclick) have guided lower.  Most of the reports are unremarkable or inline with low expectations.  BIDU earnings are out and they are good enough: Q4 $.87 v $.72 expected, revenue $78.3M.  They guided Q1 lower to $73.1M-$75.1M versus the $77.1M expected.  So far after hours trading seems to favor the upside, but it’s touch and go.

Some major shareholders are upset about the Countrywide/Bank of America (CFC/BAC) deal.  They don’t think Bank of America is paying enough for CFC.  I think they’ve already paid too much and the deal isn’t anywhere close to being closed.  But, nobody asked me.

I’m really tired of hearing how the market will climb the “wall of worry”.  I’m sure there was plenty of worry from 1929 to 1932, so check out how well that climb went.  Maybe the market just didn’t have the best belayer!  It remains to be seen if we have one now.

Stock Market Struggles

The market is struggling to push above (and stay above) that 12500 mark.  The afternoon trading into the close will tell us more about the strength of the rally.  President Bush is signing the stimulus package.  He’s on TV now talking about all the ‘Hope’ they have created and telling us all to not overreact to bad news. 

Business and Energy Inventories

DOE CRUDE: +1.07M  V +2.5ME;  GASOLINE:   +1.75M V +1.6ME; DISTILLATES:  -166K V -1.5ME;  UTILIZATION:   85.1% V 84.3%E

December Business Inventories:  0.6% V 0.5% expected
- no revision to prior 0.4%

The market’s reaction to these numbers has been fairly muted.   Maybe everyone is too busy watching the Congressional hearings on steroid use in baseball.  We’re not a political blog, but Congress has bigger problems to deal with and should get their nose out of my favorite sport.

Retail Sales Data - February 13th 2008

This morning we received the monthly sales data from the US Government. The headline was that retail sales were up 0.3% where the expectations were for a negative 0.3%. The media says that retails are better than expected and is making a big deal about the surprise upside to the top line number we received this morning. There were some this morning that attempted to argue that the economy is strong and that the data we received shows that the "consumer shows great ability to bounce back". For those that know how we operate here we are NOT impressed with snapshots of data, we want to see the trend.

So lets take a look… the chart below is what the media is getting excited about. It is the top line (headline) retail sales data. The chart has been updated to reflect this mornings new data. This is a 2 year chart of top line retail sales data, kind of all over the map and difficult to determine any meaningful trend. The media is making a big deal that today’s data was better than expected, and what they are excited about is the difference between the two red arrows (last month and this month).

The purpose of showing this chart is to highlight that it is difficult to see any long term trend. 

 

 

 

 

 

 

 

 

(Retail sales data, raw data as provided by US Census Dept, chart source: Economy.com… edited by rebeltraders.net)

Now lets look deep inside the retail sales data, the data that no one seems to ever talk about in the media. The next chart is retail sales growth as measured in year over year net changes. Now trends become clearly visible.

This 20 year chart shows that the long term trend has been down for a long period of time. Technical analysis is not just for stock charts, it can be applied to many forms of data, especially when the data pertains to the actions of people. Just as in the stock charts we have certain patterns that we use to gauge the most likely path of prices. In this case we can use those same trend lines and patterns to provide an in depth view of this data and give us clues to the outcome.

On the chart below I have identified a very classic "bear flag" pattern which in price forecasting tells us that the probability of further declines is likely. I have indicated with a red arrow where retail spending is likely to go.

 

 

 

 

 

 

 

 

(Retail sales data, year over year, chart source: Economy.com… edited by rebeltraders.net)

The headline chart may be exciting for the media, but the long term trend chart is what we want to see.

 

PreMarket Retail Sales Numbers

January Retail Sales numbers are out.  They are better than expected, but they are weak. 0.3% V -0.3%expected; Less Autos: 0.3% V 0.2%expected.  Prior number, less autos has been revised from-0.4% to -0.3%.  Futures spiked on this news, but have since pulled back a little.   The market may continue this weak rally, and it may push to that resistance level of 12500 on the Dow again, not quite getting there yesterday.  Gold and oil are down a bit, but solar plays have legs.  First Solar (FSLR) reported good earnings and spiked over 20%.  FSLR and SPWR have a very low float and tend to have dramatic moves.  Business Inventories are due out at 10amET.