Rebel Traders – Analysis Without The Hype

What is Santa likely to be carrying on his sleigh this year? Once again utilizing Google’s search statistics we can track interest in certain products by looking at how often certain terms are searched for using Google.

The search statistics are provided by Google’s Insight service, data is narrowed down to the United States region only. Data is through December 13 2009.

I will check these search statistics again next week to see if there is any improvement or further deterioration.

(click any image for larger view)

New Cars

Toys

Womens Clothing

Mens Clothing

iPhone

DVD Player

iPod

Xbox 360

Nintendo Wii

Flat Screen TV

Observations from this data:

1. New cars have fallen off the cliff after the initial cash for clunker surge.

2. Toys are not being sought at the same rate as last year.

3. Women are always looking for clothes.

4. Men only get new clothes at Christmas.

5. Interest in iPhones has declined.

6. DVD players also weaker.

7. Weaker interest in iPods as well.

8. Video game consoles also showing some weakness in interest.

9. Flat screen TV’s doing fairly well.

A couple more items of interest:

Coupons

Shoppers looking for ‘coupons’ at a new high.

And lastly we take a peek inside the bedroom to see how the economy is impacting the ‘whoopee’ time.

Adult Sex Toys

Looks like less whoopee as a fairly steady downtrend has been in place throughout the recession. What states are still standing firm (no pun intended) with adult sex toy inquiries? The following list are the top 10 demographic regions (states) looking for adult sex toys:

1. Mississippi

2. Florida

3. Pennsylvania

4. Kentucky

5. Arkansas

6. Louisiana

7. Texas

8. Maine

9. Nevada

10. Idaho

Are there any major golf tournaments in those states? Just wondering.

We know that last years holiday shopping data was terrible after all the numbers were in. Now we get word that the retail foundation is predicting that this year will be even worse than last year.

(US) National Retail Federation (NRF): US consumers plan to spend 3.2% less on holiday shopping this year than a year ago (sales in 2008 declined by 3.4%). [This is 3.2% below last years decline of of 3.4%.. Back to back declines]

- This is the first time that consumer plans to spend less for the holidays since 2002.
- NRF said consumers remain concerned with the economy and unemployment.
- NRF said “American’s are not ready to declare an end to the recession”
- 2/3 of American’s said the economy will impact their holiday plans.
- 70.1% of holiday shoppers plan to shop at discount retailers and 55.8% plan to shop at dept stores.
- The poll included 8,431 respondents.

**Note: On 10/5, the National Retail Federation predicted that holiday retail sales would decline by 1% – USA Today
- If US holiday spending falls this year, it would be the first back-to-back decline since 1992 when the NRF started keeping records. (source: new wires)

(Hat tip Butch…)

NEW YORK (AP) – To gauge consumers’ strain, look no further than the rows and rows of plastic bags awaiting layaway payments at Kmart. They are filled with back-to-school basics – not just T-shirts and jeans but notebooks, magic markers and pencils.

It is unheard of for layaway rooms to be so packed at back-to-school time and for the packages to include relatively cheap school supplies.

A record number of shoppers, shut off from credit and short on cash, are relying on Kmart’s layaway program to pay for all of their kids’ school needs, said Tom Aiello, a spokesman for Kmart’s parent Sears Holdings Corp. Layaway allows shoppers to pay over time, interest- free, and pick up their merchandise when it’s paid in full.

“It’s a sight. In the past, we would see layaway start to pick up around Halloween” as people get a jump start for Christmas, said David Travis, manager of a Kmart store in Conover, N.C.

Burlington Coat Factory Warehouse Corp. said its layaway business is stronger than a year ago. And e-Layaway.com, which offers online layaway services for about 1,000 merchants, has seenits business double from the same time last year. Customers are setting aside even $25 calculators and $30 backpacks.

The word “layaway” had more than double the interest among U.S. searchers in August 2009 than it had in August 2008, according to Google Insights for Search.

Retailers that don’t offer layaway are seeing financially strapped shoppers keep buying smaller amounts and using more cash than credit to pay.

“It just tells you that consumers have no money – even that $30 backpack is something they can’t afford,” said C. Britt Beemer, chairman of America’s Research group.

Layaway has its roots in the Great Depression. It became passe in the past two decades with the rise of credit cards.

But the recession and financial crisis have caused banks to raise rates, pare credit limits and close accounts. For some consumers, layaway is the best option to budget for purchases.

Buying a little at a time and other signs of stress are casting a dark cloud over the holiday season, which accounts for as much as 40 percent of annual sales for many retailers.

In a surprise mid-day announcement Macy’s (M) has issued an earnings warning along with job cuts and the reduction of their dividend.

“The steps Macy’s has taken today are a recognition by the company of how bad things are for the economy and for Macy’s,”

Macy’s guides 2009 $0.40-0.55 (EX RESTRUCTURING COSTS) V $1.21 Expected.

CUTS DIVIDEND TO $0.05 FROM $0.1325, CUTTING 2009 SALES EXPECTATIONS, CUTTING 7K JOBS (4% OF WORKFORCE)

- Guides SSS in 2009 to be -6% to -8%

 

JULY ADVANCE RETAIL SALES:

0.1% V -0.1%E; LESS AUTOS: 0.4% V 0.5%E

-  Prior Advance Retail Sales revised from 0.1% to 0.3%

-  Prior Less Autos revised from 0.8% to 0.9%

  

 (click on chart for larger image)

 

In my pre market report I discussed that the futures were up with no solid reason to substantiate the advance. And we expected to see the rally fade, and fade it did. The markets inability to hold on to gains reinforces the bear market mentally that is so prevalent in the market. In bear markets rallies are sold, in other words "sell on strength".

One of the reasons we saw the gap open higher this morning was on the thought that Wal-Marts earnings were perhaps showing that the consumer still had a pulse and was on the road to recovery (as how the media reported it). As I pointed out in my pre market report Wal-Marts earnings were nothing great, only in line with their already lowered forecast and they went as far as to provide forward guidance on the lower end of the scale of their previous guidance. Absolutely nothing to get excited about, however the media jumped all over it. The Associated Press reported:

Wal-Mart Expects More Profitable Year After Low-Price Focus Boosts 4th-Qtr Earnings

Defying the gloom that many retailers are feeling, Wal-Mart Stores Inc. expects a more profitable year selling to penny-pinching shoppers after its renewed focus on low prices paid off over the holidays with a 4 percent rise in fourth-quarter profit.

 

But when you dig into the numbers from this morning there was nothing to get excited about. Wal-Mart, just like so many other retailers that have been lowering their forward earnings guidance. So when Wal-Mart came in with earnings ‘in line’ people got excited over nothing more than a company confirming that earnings were just as bad as the company had predicted when they issued guidance last quarter. The media seems to have a very short memory. After the market opened the retail sector (RTH) gapped up at the same time the media was reporting that "all the bad news is now baked into the stocks". "Baked in", a common term you hear on Wall Street which simply means that the price of a stock is already priced at a worst case scenario and not even bad news can keep it down any longer. Well I guess someone took the pie out of the oven too soon because the retail stocks still went lower, even when everyone was saying it was done. The retail sector sold off throughout the day and ended down 1.2%. So much for all the bad news being baked in.. Whenever you hear someone tell you that you need to buy a stock because "the bad news is already baked into the price" you should run, and run fast in the other direction.

The chart below is an intra-day chart of the Retail Holders Index (RTH) for today.

Financial stocks are another sector that has been touted as having all the bad news baked into the prices now. But, just like the retail sector today the financial sector also sold off. I have become very displeased with CNBC for their blatant ‘pumping’ of stocks by bringing on people who have positions in various stocks and/or sectors and they say how great a bargain they are now. Then to only see them continue lower in the following weeks. Except for a few smart and intelligent reporters on CNBC they have turned into the TV version of the Yahoo message boards. CNBC… shame on you!

As I said this morning we are holding our short position on the Dow Jones Industrial Average and that has not changed. That trade has worked well and we are going to keep it until the price stops us out (at break even) or we reach the lows reached back in the middle of last month. If we reach those lows on the Dow we are likely to see a battle of greed and fear and thus we will form some support at that region which would be a great time for us to take our profits from the trade. At that time we will determine our next play on the market. But even if the Dow reaches those previous lows again and it bounces we will still be in a bear market. As a matter of fact until further notice… we are still in a bear market.

Oil hit $100 dollars again. It really does not matter if oil is at $85, $90, or if it surges past $100. What matters is the average cost of oil, and the average has been rising over the past year and it is the average that plays an impact on our gasoline costs and heating bills. The longer the average oil price remains high the greater the impact will be on inflationary data. And inflation is what will continue to weaken the US economy even further.

Tomorrow we will get the Consumer Price Index and the FOMC minutes from their last meeting on January 29-30. Both of these events will likely have some wild impacts on the market tomorrow. Everybody is back to talking about more rate cuts from the Feds, the increasing inflation data (which does not even include the recent rise in oil) is going to impact the Feds even further.

In the after hours trading on Hewlett-Packard (HPQ) I saw a lot of selling on the strength. If we see HPQ pull back after their good earnings report we will know that nothing matters at all, good or bad earnings people just want to cash out. We will watch to see how they trade tomorrow.

 

 

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.

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.

Three-card Monte… A favorite game among con artists. Try and guess which card is the ‘money card’.

In our current banking and financial institution situation everybody is playing the "three-card monte" and the con artists are the companies who are trying to keep moving around the losses.

Today we learned that the auditors would not sign off on American International Group’s (AIG) financial statements. The auditors discovered "material weakness" in how it reported the value of certain credit default swaps. This all comes back to the issue we brought to our readers attention back in December. We said back then that auditors were likely to not sign off on the books if they saw anything questionable in how a company was coming up with values for certain assets. For our long time readers you will recall our many discussions on the "level 3" assets. Those assets for which a value can not be obtained by a mark-to-market or a mark-to-model system of asset valuation. Level 3 is known on Wall Street as mark-to-wild ass guess. Companies who have already suffered losses (or who don’t want to reveal losses) will place as much questionable assets into the category of level 3 assets and then calculate their value by using a system which does not tie in directly to any current market value. And this was going to lead to trouble later, and later has arrived.

When we discussed back in December the possibility that auditors were going to be digging through these assets very carefully it was because the entire independent auditing business got burned with Enron. When Enron imploded it took their auditors with them because the auditors were just as guilty as the company for moving assets around so that the losses would not show on the books. When Enron was found guilty of fraud and deceptive accounting, the auditing firm of Arthur Anderson was viewed as an accomplice and it destroyed that auditing firm which had been in business since 1913.

The current situation with collateralized debt obligations (CDO’s), structured investment vehicles (SIV’s), and other forms of ‘packaged loans’ which have been harder to unload than trying to sell sun tan lotion to an Eskimo are littering the books of many companies. And these companies are trying to find ways to place a value on them that will not reveal their true worth, or at least hide them until they are worth more. And the auditing firms are blowing the whistle and calling ‘foul’. In the case of AIG it would seem that this may have been the case. The auditors don’t like how the company was deriving value for some of their assets and now it appears that AIG will have to restate prior earnings. Whenever a company has to restate earnings it is bad news. We expect to see more companies in the future who will have their accounting firms blowing the whistle.

Today’s trading in the markets was lack luster. As Lisa stated in an earlier post the retail sector (RTH) has been seeing some interest as speculators are betting that all of the bad news is "baked in" the share prices. If your a gambler and like taking on high risk trades then I guess you can jump in with the other high risk players. But smart traders wait it out, wait to see if retail sales begin to flatten out and then start an upward trend. Those who are jumping into the financial and retail sectors are betting the worst is over. This is a bet we are not willing to take with our money yet. Some may look at a chart of the retail sector and say "the bottom is in.. time to jump in" for fear of letting some large gains slip by. Fear of missing that "big trade" is what has led to many investors ending up in the soup lines at the local homeless shelter. Betting on a bottom and waiting for a "confirmed" bottom are two different things. Waiting for signs of stability and a new up trend is the smart way to trade. Do you think that by waiting for better risk to reward profiles to present themselves to us will evaporate all of the gains to be had in the markets? Of course not, the stock markets have been around for a long time, there is lots of money to be made when the time is right. The smartest traders are like tigers, always stalking and waiting for their prey to be in just the right spot before striking. And it is those who wait and know when the time is right to strike that take home the prize to the family more times than the ones who chase everything that moves.

Talking heads are claiming that a bottom has been established in the markets now, wait a second… I have lost count of how many times I heard someone say "the bottom is in" since August of last year. We are still in a bear trend, and until we see a healthy bull trend redevelop we are waiting and stalking… We still feel that there are more lows to come.

A few months ago the US Government established the "hope now" effort to assist home owners with their mortgage if they were on the brink of foreclosure. Tomorrow we are going to get another Government program called "project lifeline". This one now goes another step in actually stopping foreclosure on a home until the banks can work out new terms. I don’t know how this can be accomplished without some rules being broken somewhere. Contracts and bank lending laws are all of a sudden going to be ignored?  Three months ago is was "hope now"… now things have deteriorated so much that we have gone from having "hope" to now needing a "lifeline" … sounds rather ominous to me. What is next… "project abandon ship" ?

Tomorrow morning I will post the retail sector chart and where that stands currently.

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.

I’ve been having a little trouble getting posts written lately, and I realize now it’s because all the news is so depressing.  My friends in law enforcement (I was a police dispatcher for awhile) have often talked about the difficulty of maintaining a positive attitude, since the majority of their time is spent dealing with the ugly side of society.  I share this with you, because I want you to know it brings me no joy to make not-so-glowing reports on our economy.  Please remember that the only agenda Chuck and I have is to help people make better trading decisions by looking at the big picture.  These are troubled times, and we can’t ignore that fact.

The day after Thanksgiving is called Black Friday because it is theoretically the day most retailers go “in the black”, or make a profit, for the year.  Here is sampling of some of the headlines so far, with an excerpt of the articles:

U.S. Sales Rose 8.3% Day After Thanksgiving, ShopperTrak Says By Mary Jane Credeur and Kelly Riddell

Nov. 25 (Bloomberg) — U.S. consumers spent $10.3 billion on holiday purchases the day after Thanksgiving, 8.3 percent more than a year earlier, as retailers promoted toys and electronics to lure shoppers.

Consumers remained resilient and proved they were willing to spend even with oil prices rising and other economic pressures, ShopperTrak RCT Corp. said yesterday in a statement. The day after Thanksgiving, dubbed Black Friday, typically accounts for between 4.5 percent and 5 percent of all holiday sales, the company said.

Holiday sales will increase 3.6 percent this year, the Chicago-based research firm estimates, trailing a 4.8 percent gain last year. Retailers have responded to the anticipated drop by offering discounts on flat-panel TVs and diamond necklaces to lure shoppers.

“It’s an extraordinary number, beyond what we anticipated,” Bill Martin, co-founder of ShopperTrak, said in an interview. “I think there was pent-up demand given the slow sales in October and November because of unseasonably warm weather, and people want to find value for their dollar and reacted to the specials.”

U.S. Consumers Spent 3.5% Less on Holiday Shopping (Update3)

By Cotten Timberlake and Tiffany Kary

Nov. 25 (Bloomberg) — U.S. consumers spent 3.5 percent less during the post-Thanksgiving Day holiday weekend than a year earlier as retailers slashed prices to lure customers grappling with higher food and energy costs.

Shoppers spent an average of $347.44 on purchases from Nov. 22 through today, choosing to buy less-expensive digital- photo frames and cashmere sweaters, the National Retail Federation said today in a statement. Store visits increased 4.8 percent.

Customers have cut back on spending in the face of increased costs for milk and gasoline and the worst housing slump in 16 years. Wal-Mart Stores Inc. responded by offering holiday discounts more than two weeks earlier than last year while Macy’s Inc. and J.C. Penney Co. reduced clothing prices by as much as 60 percent.

“The sense we have this year is that shoppers are very mission-focused,” said Fred Crawford, managing director for consulting and advisory firm AlixPartners LLP. “They know who is carrying what, and at what price point.”   

Retail traffic up with spending down in holiday start

By Martinne Geller

NEW YORK (Reuters) – Deep discounts and extended hours drew more than 147 million shoppers to U.S. stores over the four-day Thanksgiving holiday shopping period, but average consumer spending fell, a retailers’ group said on Sunday.

The results from the National Retail Federation’s 2007 Black Friday Weekend Survey were attributed to the economic uncertainty facing consumers and tough comparisons with last year.

Black Friday is the day retailers try to lure consumers to start their holiday shopping with eye-popping discounts and early-bird specials. It once marked the day retailers turned a profit, or went into the black, for the year.

The survey, which included data from Thursday to Saturday and projections for Sunday, showed customers spent an average of $347.44, down 3.5 percent from $360.15 last year.

After reading numerous other reports, the consensus seems to be that more people turned out for bargains, but spent less.  We don’t see anything encouraging about the reports of large crowds for several reasons.  Stores have been practically begging the consumer to spend on Christmas gifts, with major discount/promotional sales stunts since Halloween.  Many stores opened on Thanksgiving this year and/or opened earlier Friday than they did last year, some with “midnight  madness” sales.  Retailers have been marking down promotional items by over 50%.  Great for those few shoppers who could get those prices, not so great for the retailers’ bottom line.  The fact that so many were looking for deep discounts, with little interest in buying other things, is concerning.  In many places around the country, mall traffic was down and after the bargain shoppers cleared out in the morning, parking lots weren’t filling up again, even at the “discount” stores.  One report stated that higher-end retailers were only seeing normal traffic, but the reporter said that was because the retailers weren’t offering any big discounts yet.  So even the “high-end consumer” is waiting for bargains? 

 We would like to see a robust economy and healthy consumer spending.  But, at present, that is not the reality.  Consumers have billions of dollars in credit card debt and having some room on their cards doesn’t mean they will use it for Christmas, since more people are using credit for food and gas purchases.  Those who follow retail statistics often say that a strong start to the Christmas shopping season bodes well for the rest of the month.  It hasn’t been a stellar start, regardless of a few headlines to the contrary.  Consumers turned out in droves for bargains.  If retailers do not continue to provide huge bargains the rest of the month, consumers will not turn up in the stores.  If retailers do continue the huge discounts, in part to clear out inventory, then it’s going to hurt profitability.