US Retail Sales - August 13, 2008

 

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)

 

Stock Market Summary for February 19th 2008

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.

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.

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.

 

Retail Sector (RTH) Technical Analysis

Stock Market Summary for February 11th 2008

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.

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.

Retail’s Black Friday-Boom or Bust?

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. 

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!

The Day that Was - October 23rd 2007

Wow, how about that Amazon run in the last 90 minutes today. If you ever want to see what an emotional buying frenzy looks like all you have to do is look at the chart for Amazon today. The expectations going into earnings today were being set very high, and people who have been playing the momentum stocks (Apple, RIMM, etc) just piled on to Amazon expecting the same kind of momentum to continue. Unfortunately for all those who were buying in the last 90 minutes have now all taken a big loss. Amazon is down 10% already in after hours as their earnings were not a blow out as everyone was expecting. The momentum buyers are now sitting in shock and saying to themselves “what happened?”. What has happened is people get caught up in the emotions and they don’t want to be left out, and so they buy into the emotional rush. Lisa and I have talked about keeping emotions out of your trading many times, and what happened with Amazon is the perfect example of how emotions get you burnt. When you sit at your computer and you see something running up fast and furious does not mean it is OK to follow them. Just because someone else is buying something does not mean they are right. And buying something right before earnings is nothing more than a bet in my view, it is just like placing a bet on a roulette table, and today the house won.

Today’s market action was schizophrenic, wild swings in the broad indices today. That type of movement shows complete indecision, and yet once again, smart money was cashing out on price advances. That is what brought our markets down in the first couple of hours after the gap up open. The remainder of the day continued with incredible swings in some sectors, and it was incredible to watch the extreme indecision levels that were also evident today. Lisa and I discussed that some of these momentum stocks may be at capitulation levels now. If you are in them, please keep a tight grip on them and get out of their way if they start selling off. Capitulation means that a top has been reached and you may not see these levels again for some time. Capitulation is difficult to pin point with absolute accuracy, but what you look for is extreme price movements (up or down) with very high volume. 

As Lisa stated earlier, our swing trade on Tiffany Company (TIF) hit the trigger price and the confirmation price all within today’s trading.  RebelTraders has entered a swing trade (SHORT) at $53.00 (actually my fill was at $53.03), but what is 3 cents among friends :)  The reason we chose Tiffany for a short swing trade candidate is because it has been trading below a trend line, which had been in force since April of last year. In July of this year Tiffany broke below the trend line and has since that time been trying to reclaim it. But other technical indications have been indicating weakness the closer it got to that trend line. And with the retail sector weakness, this was why we chose Tiffany as a short swing trade. Normally we don’t see the trigger and the confirmation to take place in the same day. But that is OK, you can still enter this trade when it crosses below the confirmation price again. After hitting the confirmation price there was some light volume buying, this does not concern us here. It still looks weak and with the continuing bad news coming in from the retail sector participants we see this as a good short. In this schizophrenic market anything can happen, but we still like this sector for its continued weakness.

After the market closed today we had a flood of earnings, a higher percentage of them were on the bad side. In after hours there is more downward selling than buying. A quick view of some of the more notable after hours trading from earnings:

Trading Up:  PFWD +7.1%; ACE +4.3%; CEPH +2.7%; STKR +2.4%; CTX +2.3%; CAKE +1.9%

Trading Down:  RVBD -22.4%; ANAD -19.8%; EFII -17.5%; CTHR -14.9%; BRCM -12.3%; ALTR -12.1%; SVVS -11.6%; WIRE -11.5%; TRMB -10.6%; SUPX -9.7%; AMZN -9.2%; INFN -9.0%; PNRA -8.8%; JNPR -7.1%; BTUI -6.5%; RFMD -6.4%; ILMN -6.2%; SSTI -5.7%; PLT -5.2%; EPIC -4.2%; HLIT -3.6%; VOCS -3.2%; CLMS -3.0%; NARA -2.7%; DDUP -2.2%; HOKU -2.2%; SEAB -2.1%; CHRW -2.1%; NBR -1.9%; CLZR -1.8%; BCR -1.8%; YDNT -1.4%; FLEX -1.4%; ACTL -1.3%; AFL -1.2%; ORLY -1.2%; CNW -1.1%; CB -1.0%; PTP -1.0%

Back on the retail story, Wal-Mart has announced huge cuts in their plans to build new stores, reduced sales forecast, and this was bad news for the retail sector. Yesterday we had news from Target in which they cut their forecast as well. Retail is not healthy and if we use that to gauge the economic outlook, it is not adding any confidence that the economy will be good. On the coming FOMC meeting, the chances of another rate cut, based on the Fed Funds Futures have dropped some. A see-saw action for sure, next week will be wild for sure when the FOMC announces their decision.

Have a great evening and we will see you in the morning…

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