Rebel Traders – Analysis Without The Hype

With respect to the S&P 500 futures the key number right now is 800.

S&P 500 E-Mini Futures - Hourly Chart

S&P 500 (SPX) Index - Daily Chart

Dow Jones Industrial Average - Daily Chart

Dow Jones Industrial Average - Daily Chart #2

Financial Sector (XLF) - Daily Chart

Bank Index (BKX) - Daily Chart

The XLF has gaped above its downward channel. Price resistance levels currently keeping a lid on the XLF… for now.

XLF Chart

Apple (AAPL) reported this afternoon that their earnings for the quarter that just ended beat Wall Street estimates by a large margin. I’m going to do some ‘digging’ into the numbers reported by Apple in the near future to get at the heart of their numbers.

Unemployment is rising by the day, people are losing their homes more and more to foreclosure, retail sales are down by record amounts, retail establishments are closing their doors, and Apple has their best quarter ever? Wow, I guess every man, woman, and child is spending every penny left in the piggy bank on iPods even as they lose their home and job.

The earnings from Apple create a disturbing scenario, we have Apple at one extreme of the retail spectrum, and the rest of retail at the other end. On paper it looks like an over stretched rubber band. If I were to place bets here I would put my money on Apple reaching an over extended quarter to only see retrenchment in quarters to come.

I know, Apple lovers out there will crucify me nine ways to Sunday. But, I keep my eyes open and don’t see how this earnings growth can be maintained in the grand scheme of the economy with the rest of the retail sector continuing to deteriorate.

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Growing losses among banks in the United States, and worldwide, is raising the concern that banks will eventually be pushed into being nationalized. The banking system continues to deteriorate by the day as every effort by the U.S. Government to keep pushing capital into their veins continues to fail. And it is no surprise that these efforts are failing as many of my long time readers understand.

As I and many others have written in recent months the only way to solve this growing problem is to force the banks and other institutions to fully realize their holdings, price them to market values, and default on the debt. Every effort being made by the Government is simply life support and not a cure. The banks don’t want the cure because it would expose that they are truly insolvent for all intents and purposes.

The creation of a ‘bad bank’ sponsored by the U.S. Government to absorb the bad assets of the banks simply moves the problem onto the tax payer and to the balance sheet of the nation. Doing that would put the cancer right into the circulatory system of this nation and there it will spread to all other parts of the economy. That would place the ability of the U.S. to pay its own debt at risk. And we are already seeing some signs that the risk of the U.S. defaulting on its own debt is rising with credit default swaps hitting a record high early this morning.

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Citigroup Chart

Sell! -  that is what traders and investors were doing with shares of Citigroup (C) today on two items of concern. The first is the speculation that Citigroup’s earnings report (currently scheduled for January 22nd before market open) will be one of the worst ever for the institution. The second item sending shares of Citigroup tumbling today was the pending deal to sell a controlling stake of its brokerage unit to Morgan Stanley (MS). The deal would leave Citigroup with a hole in its future balance sheet as the brokerage arm was one of the few remaining money making units for the institution.

Citigroup ended the day at $5.60, down 17%.

Now for the broader market…

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Where to begin…

First I will discuss some of today’s economic events then I’ll dive into the charts.

This morning we received additional confirmations that the housing market is still declining. The Case-Shiller 20-city price index dropped an additional 2.2% from the previous month, and is now down nearly 25% from the peak 2 years ago. No bottom is in sight yet, but the Government is trying to put in a temporary floor by throwing (our) money at it like mad.

Then came the consumer confidence reading of 38, and that was another record low. The monthly consumer confidence data comes from “The Conference Board” and has been used as a gauge of ‘real world’ economic conditions for many decades.

The Consumer Confidence Survey measures the level of confidence individual households have in the performance of the economy. Survey asks a nationwide representative sample of 5,000 households, of which approximately 3,500 respond. Households are asked five questions that include (1) a rating of business conditions in the household’s area, (2) a rating of business conditions in six months, (3) job availability in the area, (4) job availability in six months, and (5) family income in six months. The responses are seasonally adjusted. An index is constructed for each response and then a composite index is fashioned based on the responses. Two other indexes, one for an assessment of the present situation and one for expectations about the future, are also constructed. Expectations account for 60% of the index, while the current situation is responsible for the remaining 40%. In addition, indexes for the present and future economic situations are calculated for each of the nine Census divisions. In the base year, 1985, the value of the index was 100.

And just hours after GMAC was provided $5 Billion tax payer dollars they came out screaming loudly about how fast they will begin making new loans this morning. The fact that tax payer dollars are going to be used to backstop new car loans for GM car shoppers is bad enough. But what is even more disturbing is how GMAC plans to make new loans.

[...]The company will modify its credit criteria to include retail financing for customers with a credit bureau score of 621 or above, a significant expansion of credit compared to the 700 minimum score put in place two months ago. [...]

A credit score of 621 is just one point above the classification of ’sub prime borrowers’. GM will begin aggressively selling cars and trucks to people who are just an inch away from being sub prime quality borrowers. This in the face of rising unemployment and a deteriorating economy. This is set to be another round of defaults in the coming years and this time the damage from the resulting bad loans will be taken out of the tax payers pockets.

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The XLF has failed it’s important support level of $21.00.

 

  

 

 

 

 

Latest chart of the XLF…

What I’m watching on the XLF

5 minute chart:

This is the first in a series of charts that I will be posting this weekend.

The following two charts are for the financial sector (XLF). The first is a longer term weekly chart and the second is a closer look at the past 8 months on a daily chart. Each chart shows resistance levels that we are watching.

I removed the moving averages on these charts to improve clarity of the charts. Short term moving averages are only useful in healthy trending markets. When volatility is high as we have now, moving averages become secondary to price support/resistance and pattern analysis.

(XLF – Weekly Chart)

(XLF – Daily Chart)

It was pretty much a down trend day that accelerated downward until the last hour.  Short covering and perhaps a silly buyer or two contributed to the very anemic “rally” at the close.  Rumors of Countrywide’s possible bankruptcy (lending to the downside) was denied by the company.  As for the action on the ticker today…..I’ve seen this movie before!  Bids are up, sellers step in, and on and on all day.  Watching the ticker on JWN today, I could imagine a scene where sellers were throwing their shares into a pit, just watching would-be buyers scrambling for them.  It’s painful to watch sometimes.

We’ll have more to say about support/resistance levels later, but the XLF (financial ETF) managed to find a new low today.  Now if it could just find some buyers for those pesky CDO’s that nobody really has on their books, we’d be great!

Yes, I’m a bit snippy here.  Have a Texas-sized headache.  Thought it was the market action, but must finally admit I just need glasses.  I’m also more than perturbed by hearing talking heads or other traders talking about how the housing market isn’t as bad as it seems.  Or better yet, that another rate cut is the panacea for all our economic woes and will help the retail sector have a better Christmas.  OK, I may not be the brightest crayon in the box, but how in the world does a nearly worthless dollar make one buy more goods?  We’re already spending more and more of them for groceries and gasoline.  We’re not getting 20% raises every other month, so our income isn’t growing.  Maybe someone can explain to me how that is supposed to work, but I don’t think there is a rational explanation. 

There are some earnings reports tonight, so we’ll post those later.  In spite of Hewlitt-Packards (HPQ)  nice earnings report, they just couldn’t get out of the gate today.  There really isn’t any reason to get too excited about “blow-out” earnings right now for that very reason.  When money wants out of the market they will exit stocks regardless of how great the earnings may be. 

More later!