Stock Market Summary for March 3rd 2008

Today’s market activity was essentially a "play day" of retail money. What I mean by this is that we did not see much evidence of any significant block trades or other high dollar value trades going through the tape. The commodity stocks brought retail money out of the woodwork as a way to get in on something that is going up. We can’t argue the fact that commodity prices are going up, it is what is partly responsible for our run away inflation now. But even with commodity prices rising there is still caution that is required. For a lot of the commodity stocks we have been watching we are seeing mostly retail money (by analyzing share lot sizes on the tape). Now of course there is some larger money in there as well taking positions but experience has shown us over the years that the larger trades are hedge funds and other large money players who are playing on the exuberance of the sector to only cash out once the ride is over then leaving the retail trader left with the bag.

For the most part those with the big money have already taken their position on the stock market playing field. They are either in cash, short the market, long the market, or (most likely) a combination of all three. Volume has been drying up somewhat lately from our analysis. This tells us that we are in a ‘quiet before the storm’. Time will tell, it all comes down to economic data now, FOMC actions, and major corporate events.

Today we actually did have some ominous events but for the most part the smart money is already expecting these events and are just riding out their positions. It is the surprise bad news that will bring volume levels back up and start the selling in force again. This morning we got the ISM Purchasing Managers Index data for February and it has contracted into the negative growth column. A reading below 50 is considered recessionary. The top line number was 48.3, employment showed a larger decline,  and new orders is also maintaining a down ward path.

The chart below is a 10 year chart of the ISM index. Observe the trend has been declining since 2003.

 

 

 

 

 

 

 

(ISM | Data Source Moody’s Economy.com)

Also of note today was the construction spending data issued by the U.S. Census Bureau. This is more alarming in that the trend reveals to us a very deep retraction in construction. This will come as no surprise to our long time readers as we have been discussing this index for many months. But with each passing month the trend reveals that conditions are indeed getting worse. The first chart below is construction spending as measured in US Dollars. The 15 year chart shows the recession in 2000 / 2001 with a leveling off of construction spending. And then in 2002 the spending started to increase again. But our current situation reveals an even more alarming pattern in that spending in contracting in a fashion not witnessed before.

 

 

 

 

 

 

 

(Construction Spending $US | Data source Moody’s Economy.com)

The next chart is also that of the construction spending data but presented in terms of year over year % change. This chart makes it even more clear just how much construction has contracted over the past 2 years.

 

 

 

 

 

 

 

(Construction Spending Y/Y% delta | Data source Moody’s Economy.com)

In the raw data we are able to see that non residential construction (commercial construction) is starting to show weakness. Commercial real estate and construction will be the next victim of the economy and credit implosion.

Last night I showed you a chart of the S&P 500 with our technical analysis applied. We pointed out the failure of the triangle pattern on the daily chart and some resistance directly below. Today the market traded in a narrow range just at the support line. We don’t see this support level being able to hold once selling volume resumes and is why we are still maintaining our short position on the market. An updated chart is shown below.

 

 

 

 

 

 

 

 

 

(S&P 500 Daily chart)

One the the weakest sectors today was technology. The Nasdaq was the weakest of the three major indices with such names as Apple (AAPL) and Research in Motion (RIMM) adding to the declines in the Nasdaq. Any stock with an elevated P/E ratio is being chopped down to size. Always remember that in a healthy bull market stocks can survive with elevated P/E ratios, but in times of economic trouble high P/E’s are a death sentence for a stock. This is why we were warning last year about our readers taking their profits out of Apple because we saw what was coming. History repeats itself over and over again when it comes to stocks that are bought up on hype, speculation, and hope. Apple (AAPL) was no different, it was a stock that ‘everybody’ had to own as everyone in the media hyped it as the best thing since the invention of bread. Stocks like that are great for a short ride, but not a long term investment. You have to know when to take your profit and move on for once a high P/E stock has been chopped down it usually never obtains those levels again. All one has to do for evidence of this is go back to the tech bubble of 1999 and 2000 to see that. There are still many stocks on the Nasdaq with high multiples and this adds to our concern of the Nasdaq bringing the markets down much further.

The next section of tonight’s commentary deals with one stock. Converted Organics (COIN). One of our readers had asked for a chart analysis of this company and I decided to go a bit further and go into some of the fundamentals of this company as well. Converted Organics is a company that is still in it’s development stage. They have yet to show a profit and they are currently in a negative EPS situation. This company has caught some attention recently as there is some speculation that Dennis Gartman (a highly respected market analyst) has indicated that Converted Organics showed some promise (we have not seen proof of this claim). Aside from the speculation that Dennis Gartman either owns shares in this company, or merely mentioned it as a possible bright spot in the field of agriculture if it is true is not enough to justify the current price. What has driven up the price so much is that this company has been picked up by some stock picking web sites that specialize in ‘pumping’ stocks. There is an enormous amount of stock pumping taken place with this company at this time. And the share structure for COIN is such that it is a stock that can be easily manipulated.

 

 

 

 

 

 

 

 

(COIN - Share Structure)

Observe that COIN only has a share float of 4.2 million shares. This is a dangerously small amount, and the short interest is also rising. We can’t speculate on the claims of Dennis Gartman’s involvement (or non involvement) for we can not locate any proof to support either case. But regardless of that, one needs to exercise extreme caution on this stock and should be taking profits to be on the safe side. A stock with this small of a float can quickly lose 50% of its value in one day of trading. Also of note is that Converted Organics is late in filing their current quarter earnings which should have been released a few weeks ago. Not uncommon for small development stage companies to be late with earnings reports but it should always raise an eyebrow when they are not on time. We are not recommending this company for a buy or sell, we are simply pointing out the facts as they stand currently. We have no position in this company, long or short.

The chart below shows Converted Organics’s (COIN) earnings history

 

 

 

 

 

 

 

 

(COIN - Earnings history)

Stock Market Report - Pre Opening - February 7th 2008

Weakness in the market continues to be the theme. Last night’s Cisco (CSCO) numbers and weak guidance has the Nasdaq selling down significantly in pre market. Other companies that share the sector, and even some distant cousins of the sector are also being hit with people selling out. Apple extends their losses further this morning before the open and is now trading around $119. Hard to tell at this point if any bounce today in tech stocks will hold or not, but I have to say that trying to guess a bottom is nothing but asking for trouble. I am NOT a buyer of any tech related companies here.

The chart below is a weekly chart of the Nasdaq. Notice that we are very close to a significant trend support area. I expect to see some buyers of the Q’s (QQQQ) if the Nasdaq reaches the trend line. The question is if it will hold or not. If the Nasdaq were to close below the trend line I identified on the chart it will have significant bearish implications for the Nasdaq for it will have fallen out of a trend that was in place for 3 years.

 

 

 

 

 

 

 

 

 

(clicking on the chart will take you to a dynamic chart with 20 minute delayed data)

Retail sales have been pouring in this morning and the overall consensus has been weak sales growth. Wal-Mart (WMT) being the biggest this morning with lower sales (again). Some bright spots in the retail sales but the overall picture is weak. Macy’s (M) is laying off 2,300 employees.

The Bank of England lowered their interest rates by 25 basis points and the European Central Bank left theirs unchanged.

Initial jobless claims came in as well this morning and the continuing claims (the more important number) continues upward which presents us with further evidence of a deteriorating job market.

Requested Stock analysis

Over the past week we have received requests for some individual stock analysis. In tonight’s post I will address these individual stocks/ETF’ questions.

The first stock is that of Mattel, Inc. (MAT). And this analysis is based on a long term investment. As we all know the toy industry has had a rough patch of time with the Chinese toy recalls over the past year, Mattel has not escaped this problem and it is reflected in their stock price as Mattel has lost approximately 35% of it stock value from the recent high in April 2007. The chart analysis is a very interesting one, there are multiple scenarios at play and I will discuss each one.

• The monthly chart for Mattel shows a nice symmetrical triangle pattern in development since 2000. Symmetrical patterns can resolve to either side over time, it is essentially a 50/50 chance of a failure of the pattern and a drop below, and a roughly equal chance of an upside resolution. Examine the chart shown below, notice the triangle pattern as shown with the black lines drawn below and above price patterns. Also notice the blue box drawn in the center of this triangle, this is a strong support zone. At this time Mattel is trading right at that price support zone. To use this current support as an entry for a long term investment has the risk of failing this support zone and falling to the lower triangle support. So buying at this price is technically a sound idea with the caveat that it could still go lower to the lower support line. And because this is a symmetrical triangle one has to keep in mind that it could fail the lower line, and if that happens then Mattel will be on a new downward path for a long time. Entering at this current price level offers a good price entry with higher risks involved.
• The second investing scenario would be to wait and see if Mattel does pull back further to the lower support line, and then if it consolidates at that price region then that would be a lower risk entry. Why lower risk? Because the lower triangle support line provides an excellent stop loss point to use as exit criteria, for if the price fails the lower line then it will be a significant trend change for the worse and you would want to exit the trade. It also offers the best reward potential as the entry would be on the lower support price level.
• The third and last scenario for considering Mattel as a long term investment would be to wait for an upside resolution to this triangle pattern. If the price breaks above the pattern that has been developing over the past almost 8 years, that would signal a new shift in investor psychology on Mattel and would be the start of a new up side pattern development. The risk of entering this stock on the upside break out of the triangle pattern is lower but the reward is also lowered due to the higher price entry.

 

Now when you add in the current economic conditions, we would tend to think that there is a higher chance of this stock failing the support price range it is currently trading at. Any more news of toy recalls, decreased sales (especially this Christmas), or more general economic data showing a slowing economy would impact Mattel. So there is the potential for Mattel to fail the current support zone and head down to the lower triangle price support. If it were not for the current economic conditions, I would use this current support pattern to scale into Mattel, but the economy and the declining retail sector concerns me. My risk tolerance would have me wait for a pullback to the lower triangle line or the break above the upper triangle line for a long term investment entry.

The next stock is CountryWide Financial (CFC). Someone asked if this would be an opportunity to get in cheaply. Lisa and I discussed this and we both share the same view, and that is the risk is too high. The sell off in CountryWide stock is not due to normal seasonal conditions, or a slight miss on earnings, or a slightly soft housing market. The sell off has been unprecedented in terms of volume and intensity. We feel Countrywide (CFC) offers day trading opportunities only at this time, over the longer term there is still a high risk of CFC shares going lower still. There is still speculation by well respected analysts that CFC could end up out of business in the future. So with CFC we say "no" to a long term investment, the reward potential is high, but the risk is even higher.

Next question was on ETF’s (IAK) and (PEY). IAK is a fund that seeks investment results that correspond generally to the price and yield performance, before fees and expenses, of the Dow Jones U.S. Insurance Index. The Index measures the performance of the insurance sector of the U.S. equity market. This fund became active in early 2003 so there is not much in the way of long term price history to draw any conclusions from. However, based on the insurance sector stocks themselves, there has been a general down trend since the middle of last year. We don’t recommend this ETF for a long term investment.

PEY is a fund that seeks investment results that correspond to the price and yield of a index called the Dividend Achievers(TM) 50 Index. The Fund seeks to achieve this by investing at least 90% of its total assets in stocks selected on the basis of dividend yield and consistent growth in dividends. While we like the investment strategy that the fund manager has chosen, we are again left with little price history from which to work with, this fund became active in late 2004. With the little price history there is, the current pattern looks bad. In general, Lisa and I do not favor ETF’s as long term investments due to the fees involved. We do like them for short term trades to capture some large moves in a relativity short period of time, for example, our play on the GOLD price tracking ETF (GLD). That play yielded us a 20% profit in 3 months.

In summary, we would prefer selecting individual stocks from each of the sectors that the ETF’s track for long term investments, and not an ETF itself. For the insurance industry, we don’t like this sector for the short or long term as this point. As for stocks with consistent growth, many of which reside on the S&P 500, we want to wait until the current economic conditions and credit crisis is behind us before getting to heavily invested in companies for a long term investment. Many prices ‘look’ cheap right now, but they could easily become even cheaper later.

Another question is on Apple (AAPL) and our thoughts on earnings in January 2008. It is our current believe that Apple is over valued and the price momentum has been largely a result of the large popularity of this company. The expectations of the iPhone and their iMac sales are hugely over rated when compared to the PC sales from such names as Dell and HP who have a much higher market share. When a stock becomes a ‘momentum’ stock, it is bid up much higher than reality would normally dictate. Apple has a P/E of 42.25 (at the current price level), where the industry that Apple trades in has a P/E ratio average of 34.94. This would put Apple higher than it’s peers, of course some of the higher price is based on a very well run company, which Apple is. But the price of the stock does not always track the performance of the company financial’s, instead they follow the hype and growth expectations (even if they are over inflated). When the Nasdaq took the hit over the past two weeks Apple has pulled back and so far is hesitant about being bid up anymore. The projections of a subdued retail sales season would have a substantial impact on Apple if their reported sales takes even a minor hit. The expectations of Apple’s performance are being held too high. And if the projections of a bad Christmas shopping season materialize it would be reflected in their next earnings period and the stock would most likely suffer severely. We would be inclined to wait out any retail stock (even though Apple is a technology industry company, their sales are mostly retail dependent) as the economy and falling retail sector stocks are not showing a reversal yet.

The next question is a broader question, it pertains to the price of oil. Some would say that oil has reached a top while others say there is still more room to move up. When gauging commodities prices, some analysts use inflation adjusted data for determining the current value of a commodity. While that analysis methodology is useful from a point of reference (i.e. historical value), it serves no purpose on the actual technical analysis of the charts and the potential of upward or downward potential. We view oil in a healthy up trend that has been in force close to 9 years. The only way we would claim oil was going to be in trouble (speaking of the trend) is if we saw a trend break. Currently, crude oil has a strong support zone in the $75 to $85 range. If oil remains above that price support, then the up trend of oil remains in tact. The fact that we have pulled back slightly from the near $100 price level is of little significance to us. Oil remains on an upward price trend, and only a break below $75 would we see the potential for a shift in that trend.

 

 

 

 

 

Another question is concerning buying ‘puts’  (options trading) on some sectors by buying options in ETF’s. First, not all ETF’s are able to be "optioned", and those that are it is our opinion that trying to capitalize on the current volatility in the financial and retail sectors, and their impact on the overall markets is too risky. The chances of gap ups and gap downs within these sectors could be too costly for an options holder. Lisa and I are not day to day options traders, we prefer the stocks over the options, less risk. We will use options in complex trade scenarios where we want to balance our risks on long term investments. But we need to say that absolutely no one should play with options at all unless they have already obtained a steady profit from swing trading over time. If you are struggling with your stock trades, do NOT think that options will be your savior. On the contrary, options more often wipe out the equity of traders who are not already taking profits out of stocks. Stick with the stocks, taste great, less risk. And 4 out of 5 dentists recommend stocks over options.  :)  Ok, a little humor.

Another question is on Garmin (GRMN). The market would not have liked it if Garmin acquired Tel Atlas because the price was too high. The view is the acquisition would have diluted GRMN earnings too much for years to come. The stock price of GRMN gapped up on some upgrades on Friday morning and due to the upgrades the shorts in the stock had to cover. This sent the price up substantially on Friday in pre market, but the upward price gap provided additional opportunities for more people to sell out. In the first 1/2 hour of trading GRMN sold off on high volume. This shows that there were more people wanting to get out then wanting to get in. the chart shown below is an intra day chart of GRMN from Friday (November 16th). Notice the intense selling out in the first 1/2 hour and then throughout the remainder of the day the money flow continued to weaken. This chart patterns reveals the real dynamics of the stock where the gap up was a short covering rally and once the market was open the smart money was cashing out. If there was a genuine belief that GRMN would go higher then we would not have witnessed so much selling immediately after the market opened. Garmin, like many stocks trading on the NasDaq or otherwise considered a "tech" stock are off limits for now. Too much uncertainty surrounding the roll over we saw in many of the momentum stocks. Garmin has been one of those highly speculative momentum stocks. If you are considering Garmin as a long term investment we would prefer waiting for the price to drop to trend support ($70.00). That would provide a lower risk entry for a long term play on Garmin. Grabbing share at this time is too high of a risk to reward ratio.

 

 

 

 

 

 

 

 

 

 

Another question was on SalesForce (CRM). Last week CRM issued quarterly earnings, they beat the current quarter estimated revenues and issued an "in line" forward guidance for FY2008, for FY2009 they lowered their revenue expectations. Heading into the earnings announcement CRM had a large short interest as the expectations among the street was for a worse than expected quarter. With the beat on current revenues expectations and an "in line" FY ‘08 the shorts had to cover (the majority of shorts on any stock are short term trades) and propelled the share price up almost 13% on Friday. But it stopped right at resistance. We would expect to see CRM trade lower in the coming days, a good entry on CRM would be on the ‘break’ above resistance. CRM is a difficult trade with the lower FY2009 revenue expectations that the company announced. Lowering forward guidance a year or two ahead shows that the company has reached "saturation" within it business space. I would be willing to say that CRM will trade sideways or down over the coming months.

Well, that wraps up the questions we have received over the past few days. We hope we have not missed any. What I decided to do is set up a new email address that both Lisa and I will be able to access. And the email address will be for asking questions on stocks, sectors, etc.. That new email address is: questions@rebeltraders.net

Once the full RebelTraders web site is operational there will be a message forum where anyone will be able to post questions and even discuss among yourselves your trading ideas and get to know the other readers and subscribers of our service!

Cisco pushes “tech” over the cliff

Cisco (CSCO) reported earnings and had a conference call Nov. 7th, 2007.  Their total revenues increased 17% yoy, (very nice!) and they believe they are in a leadership position for technological advances.  I don’t disagree with them.  On the conference call, they were very upbeat about their business and the growth they see in emerging markets.  So why in the world did CSCO sell-off?  Was it just because they said the U.S. market was soft?  No, it was more than that.  CSCO admits that their business will grow at a decent clip, as long as the global economy remains strong.  Well, what if the global economy isn’t so hot?  They said they saw “pretty dramatic year-over-year decreases” in orders from large financial institutions.  Of course, in their conference call they say they don’t see a connection between a global slowdown and a U.S. slowdown.  They think emerging markets are going to continue to do just fine.  They certainly aren’t the first people to claim, in essence, that the U.S. just doesn’t matter very much.  It’s interesting to us, that the same people who claim we have this great, interconnected global economy, are the same ones who insist the U.S. is irrelevant to the big picture. 

Why did CSCO lead a sell-off in all things deemed “tech”?  CSCO is a leader, and people are finally starting to connect the dots that we connected months ago.  Without a healthy economy, people will not continue to buy technology at the same pace.  Oil and food prices are rising at an alarming rate and this affects everyone, everywhere. Whether it is an individual consumer or a business, cutbacks will happen.  When money is tight, you will make do with what you have.   Businesses are facing rising costs and pass them on to the consumer, a consumer who is not wanting to spend what little he has left of his shrinking paycheck, and then business doesn’t see as much profit and doesn’t increase capital expenditures (technology upgrades) and round and round it goes. 

AAPL, RIMM, GOOG, GRMN, VMW, et al., may be fine companies with a bright future, but traders were buying these stocks up, raising their market caps to “fantasy” levels, in the hope that they would somehow be insulated from a market downturn.  I can’t even follow that irrational thinking without getting dizzy.  After CSCO’s report, it seemed some common sense came into play and investors started taking profits from the now “not-so-safe” tech sector.

The financial problems, the credit crunch, the subprime mess:  whatever name one wishes to place on the current woes in the marketplace, there’s one thing we need to remember here, and that is the consequences are global.  Not only has the U.S. been hit with housing and inflation problems, slowing our economy, but other countries are experiencing their own housing and inflation problems.  U.S. banks and other financial institutions are seeing huge losses because of the housing bust, due to the creative investment vehicles they created involving mortgages (1st and 2nd liens).  Financial institutions in other countries are tied up in the same mess!  We are not isolated here!

The devaluation of the dollar is a huge problem, as well.  A weak dollar may increase our exports, but we are importing less (we aren’t buying as much, as that cost increases).  As the currency discrepancy widens, there are some claiming the U.S. could be at risk of starting a trade war.  If other countries see the U.S. as having all the advantage in trade, then a trade war is not unlikely.  Earlier this year, the U.S. saw China as having the advantages and asked the Chinese to strengthen the yuan, to no avail.  Now the Chinese government is contemplating selling the dollar from their currency reserve and buying a stronger currency.    They hold over one trillion dollars worth!  No small potatoes.  The Yen is gaining against the dollar, which causes the carry trade to unwind, signaling less of a willingness to expose oneself to high risk in the marketplace.

All of these issues are connected and cannot be isolated.  One cannot say that a weak dollar is great for our exports, while completely ignoring the negative consequences of higher commodity prices.  Our economic growth is slowing and inflation is rising.  These are the facts.  When the Fed’s meet in December, will they cut interest rates again, as many market participants believe?  What are the possible consequences of their actions?  If they cut interest rates, they further erode the value of the dollar.  This makes one’s paycheck worth less, the cost of living increases, and consumer spending decreases.  It may finally spur the Chinese to sell the dollar, and incite that trade war.  If they don’t cut interest rates, the market will sell-off.  This will also upset the public, lowering confidence as retirement accounts take a hit, and consumer spending decreases.  Pretty much a “damned if you do, damned if you don’t” scenario.

Market close

Indices managed to close off their lows, but the danger signs are still in place.  The little rally at the end was a combination of a technical bounce from oversold conditions, along with some short covering.  AAPL, GOOG and RIMM had a bad day. Deep pullbacks on these stocks were not unexpected. I’m sure there are traders that did some buying thinking two down days is an “over-reaction” and it’s on to blue sky from here.  Short attention spans or short memories add to an interesting market, and many traders are unable to see past the ends of their noses.  We’re glad you are not one of those traders!

In the wrap-up tonight, we will look at where we are from a technical standpoint.  We’ll discuss our open trades, as well.

After Hours

Wow, what a day.  Trades were all over the place.  A lot of selling going on this morning, short covering into the afternoon.  So much “up and down”, it was like I was back on the LCM’s in the Atlantic.  And what a feeding frenzy with RIMM, AMZN, AAPL, BIDU and GRMN.  Dry shippers were up into the close.  The Q’s hit a new high, but promptly came down after hours when Amazon’s earnings came out.  They did OK, and guided higher, but it wasn’t enough for some traders.  After reaching the $100 mark, it is now trading at $92.44.  The conference call is going on now, so no telling what the final price will be.

TIF hit our entry price today, so take a look at the Swing Trade section.  We’ll be back later tonight with the wrap-up for the day.

The Day that Was - October 22nd 2007

We had a technical bounce right where we identified major support would be on the S&P 500. From a technical stand point, today could have been a text book page on what a technical bounce is. The S&P 500 low of the day was 1490.40. Does this mean everything is all OK now? No, unfortunately not. A technical bounce is just that, it is not on fundamentals changing, just oversold conditions and short covering. We are likely to see a continued upward advance,albeit on light volume until the next downward leg sets in.

On the DOW, the closing price was right under the 50 day moving average on the daily chart. That is not a strong resistance point, but it did provide resistance during the trading today and will likely be easily overcome in the next few sessions. But we still have a general market that is ‘trendless’. A market that is unsure of what direction to go makes swing trading very tough. Because within a trend-less market the various sectors are also all over the map. In a healthy bull market when a sector makes an advance out of consolidation it is, more often than not, a buy signal for equities within that sector. The problem we are facing is that sectors are making wild swings, what is a buy signal one day becomes a sell signal only a few days later. And it is not just the big cap stocks and sectors. This is occurring on every major index (Russel 2K, Wilshire 500, small caps, mid caps, etc). During a normal market, swing trading is our primary money maker. And while no trade is ever ‘easy’ (meaning that all trades require work to manage them properly) it is difficult in a trend-less market to grab something that will offer the best reward profile. Last night we presented some stocks in a sector that recently displayed signs of further weakness, and within that sector we chose some stocks that are prone to succumb to that weakness. Today the retail sector was up on the technical bounce, but we still see continued weakness for that sector. So while we may present you wi th trade ideas it will not automatically mean they will trigger the next day, they have to be watched for the conditions to present themselves and then we jump on board.

But I will tell you this, our markets currently are as fragile as the lead-up to the tech bubble burst in 2001. We have not seen this much uncertainty in the markets in a very long time. This uncertainty in the trading can be seen in the tape, it is almost frightening to see some of the things crossing the tape. Until the market makes a decisive move one direction or the other we are going to remain in this state of trend-less back and for th ranging action. A swing traders nightmare. We are still working on the new web site with live interaction capability so that we can present daytrading ideas for those who day trade.  A blog is not the forum on which to present day trades. I’m am very confident you will like the full site when it is introduced. The more I work on it the more excited I am to introduce it.

Tonight, Apple released earnings and they were good, a surprise upside. A bit over the top in our opinion on their forward guidance.  Based on previous revenue growth reported by Apple, we can’t see how they will be able to manage that much of an increase with the retail sector showing a reduction in spending. Expensive toys (iPods, iMacs, and such) take a back seat to food, gas, clothes, and other living expenses. All of which are costing more and will likely go up even more this winter.

After hours tonight, Target (TGT), a bell weather for retail spending, issued a warning on their sales. They have reduced their same-store sales estimates by a substantial margin. They cut their sales growth in half. What was going to be a 3-5% growth has been cut down to 2-4%. This is no small event, this is one more knife in the retail sector back. This is what we mean by having 20/20 vision.  One has to keep the headlights on to see what lies ahead down the road. But, regardless of what is likely to happen and what is happening currently, many traders don’t associate them. They wait for danger to fall in their lap before they worry about it, and even once danger has fallen in their lap and they get burned, they forget about it very quickly and are prone to make another dangerous choice again later. We think Apple is a wonderful company.  Do we think the price is over extended, you bet we do. Going back to the slot machine metaphor I used last night… this machine is going to run dry and stop hitting soon, and someone is going to be left holding a large empty bag, for all the quarters will have been taken by someone else.

Texas Instruments released earnings today and they were not so great. The tech sector will likely be impacted by this. The extent and duration remains to be seen. After hours Thornburg Mortgage (TMA) announced that their chief lending officer was going to retire (that is a nice way of saying he was fired). I guess things are still not going so well at Thornburg

 Events on the calendar for the rest of this week:

Economic:

Wednesday, October 24th- 10am: Existing Home Sales; 10:30am: Crude Inventories

Thursday, October 25th- 8:30am: Durable Orders, Initial Claims; 10am: New Home Sales

Friday, October 26th: 10am: Michigan Sentiment

Speakers:

Tuesday- 8:30am:U.S. Treasury’s Paulson speaks about China-U.S. relations

Wednesday-U.S. Treasury’s Paulson speeks on India’s economy

Thursday- 9am: Fed’s Consumer Advisory Council to discuss mortgage rules

Friday- 4:15pm:Fed Governor Mishkin speeks on financial instability

Apple gets eaten by the worm

Today Apple made some announcements and none of them were received well by the investors. There were some new iPod products announced but nothing earth moving. What has caused Apple to rot today was the news that they are slashing the price of the iPhone. And doing away with the lower 4Gb model. This is saying that Apple is NOT selling the iPhones as well as they had hoped. The hype had worn out and they were no longer moving. why else would a company slash prices on their product after only being on the market for a matter of weeks!

When a company releases a new product and the demand is high then there is no reason at all to cut the prices. So Apple coming out and announcing that they are discontinuing one of the units and slashing the price on the other says things are not going well for the iPhone.

I said back in May that it was time to get out of Apple, the hype had run it’s course and that would be all there was going to be. Apple shares tried to get back above the trend line but failed, now the news of the iPhone will likely send Apple packing for some time.

After the Bell

Novastar Financial (NFI) has just announced it is suspending wholesale loan activity. Stock is selling off in after hours.

Apple (AAPL) is being sued over the iPhone for patent violations by SP Technologies.

Another "one of those days"

I was anticipating a pullback once we reached resistance levels which we hit this morning. But the sell off and the now lower close than last Friday confirms my fears that we are far from out of the woods. The fact that the S&P 500 closed lower than last weeks big decline is sending confirmation signals that the markets are still too weak to overcome the declines. And the declines may still have more to go.

And Apple today sold off rather substantially. And it closed below its 20 day moving average which is a bearish signal for the stock, at least for the short term. A couple weeks ago I was predicting that Apple was topping out at the $140 range. It did not happen overnight but now less than two weeks later that prediction from the charts became reality. The Apple run is over. One day Apple will resume an uptrend but the recent run has been exhausted. In hard market sell offs the ones to fall the hardest are the ones that are too over bought, which Apple was. One web site I saw kept saying it was healthy and was going to keep going up. Unfortunately that web site author was too caught up in the hype I suspect and missed the clues.

A full market analysis later tonight.

Have a good evening Rebels.. I will post the market charts tonight.

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