The Insightful Trader

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The recent winter blast across much of the country will only continue the recent trend in energy prices that are putting pressure on an already squeezed American consumer. After dropping dramatically in the latter half of 2008, energy prices, led by oil have, have rebounded significantly aided by a weak dollar.

The increases have been significant, and perhaps more so now than in 2008, in regards to the impact on discretionary consumer spending. Let’s look at recent moves in the past year. Oil, which bottomed at $35 in December of 2008, has now, without much fanfare from the administration or the talking heads on TV, climbed to over $80 per barrel. Crude oil imports averaged about 8.5 million barrels per day in the latter half of 2009.

The result has been that gas prices have made a huge move upward to nearly $2.20 per gallon wholesale in the past year from a low of $.82 a year ago. This is closing in on a 200% increase in just over a year. According to the EIA, we use about 380 million gallons/day in gasoline. Just in direct costs to the consumer, that’s a huge cost increase in the past year when many are already stressed financially. That’s $456,000,000 per day increase out of the US consumers pockets. That’s a lot of discretionary income up in smoke daily. This doesn’t include indirect costs for food products, transportation costs of products, electricity, etc.

Natural gas prices, which were the lone bright star in energy costs through the end of summer have spiked from a low of $2.65 in September to close at nearly $6 yesterday. Though at least our supply situation is much better in nat gas, as more users switch, primarily many of the utilities and recent winter weather, have caused a serious spike in prices in just the past 30 days. So when you factor in that many of the newer homes built in the past decade use natural gas for heating, that’s another hit to the consumer as well as those who use other forms.

Increasing energy prices are one of the most regressive taxes on consumers, affecting those who can least afford them the most significantly, yet not a peep out of anyone in the current administration, who have purposely pursued a weak dollar policy in order to cover our growing indebtedness. We’ve seen a definite move upwards in longer term interest rates the past 30 days which have a direct effect on mortgage rates.

So my question is, who and what is going to lead this economy out of recession, as unemployment remains high, foreclosure levels are at record highs and will probably continue, see here, and now a further squeeze as energy prices are once again seriously affecting consumers pocketbooks. Yet no one is even talking about the effect that these energy prices are actually having on the consumers. The Fed, led by Ben, says they’re keeping an eye out for inflation. I suggest they go to the grocery store and stop on the way home for a fill-up at their local gas station.

http://www.youtube.com/watch?v=2wvt1vSzcrg

We’re trying a new format here to help expedite making more posts to our Trade of the Day area to give you more examples of current trades to help you in looking for different signals that we watch. We hope that this will help you in your trading.

We’re using Jing Pro to record short videos of actual called trades so that we can quickly post these on a much more frequent basis. Enjoy and please feel free to leave comments or suggestions that we may do to help you in your trading.

http://www.youtube.com/watch?v=RYuPZh0Eabk

As most of you know by now, gold has had a meteoric rise since breaking over the key $1000 level in the middle of September. After a slight back test, since the 1st of October, gold has climbed to it’s peak this morning of 1172. That’s a huge move, basically uninterrupted of 17% in 7 weeks.

It then spent the rest of the day selling off slightly to the 1158 area and currently trades about 1166. So the question is, where do we go from here? Just using my simple trendlines which are pretty steep, it looks like we could easily pull back to the 1148 area which also coincides with the 100ma on the hourly chart. Below is a 4hr chart with the Fibs drawn in from the 10/28 pullback. As you can see there is a cluster of support at just below the 1150 mark.

As we can see below on the hourly chart below that a fib taken from the November 20th low, shows that a 62% pullback puts it right at 1148 which also lines up with the high cluster from 11/18. Notice that it just bounced off the 38% fib just a few hours ago. As strong as it’s been, that may be all we get for the moment, but I think not. But be wary of standing in front of locomotives, lots of big, hot money jumping onto the gold bandwagon. Every slight pullback has been met with a new wave of buying so far, so if you’re looking to play the pullback, be nimble and watch your stops. Or you can just sit back and watch the show if you feel like you’re too late to join the party on the long side.

I’ve had some inquiries about private coaching. This is a service that I am going to start offering on a very limited basis.

This will entail setting up your charts correctly with the indicators that I use, the mental aspects of trading, position sizing, picking and executing trades, and spending the day looking over my shoulder and vice-versa as we do actual trades. This can be accomplished quite easily with Go-to-Meeting, which I will provide, which will enable you to watch over my shoulder and I yours during the trading day. If you’re new to trading or experienced, whether a day trader or swing trader, this service should get you on track to help make consistent profits.

The cost for this service is not cheap but not prohibitively expensive as I tried to make it affordable to newer traders as well as experienced. Cost for a full trading day is $500.00 or for 1/2 day – $300. However,  you may be able to recover the majority of this during the trading day, depending upon market conditions and your risk tolerance.

If you’re interested, please contact me at trader1@theinsightfultrader.com

The past ten days have seen a spate of upgrades in the retail sector by some of the biggest firms on the street. First there was Citicorp’s upgrade of Target two weeks ago and of course, not to be outdone, Barclays, J.P.Morgan  and Credit Suisse all jumped on the wagon with their favorites, including M and ANF. Retailers did report some surprising increases in sales last week on a year over year basis,albeit still down, just better than expected and which many attributed to a brief cold snap in parts of the country. Is this a classic example of the institutions calling the top in the market?

My first question is ‘What are they going to sell?’ Most have come out and said they’re ordering substantially less for the holiday season. West Coast ports are reporting significantly less traffic and incoming freight. Stansberry Research’s Tom Dyson, who likes to follow rail traffic as an economic indicator and has even been known to hop a ride occasionally, reports that it’s anemic and that boxcars are stacked up everywhere. They sure are not trucking in much merchandise, based earnings reports and the outlooks from truckers in the past weeks, which were pathetic.  Perhaps the retailers have come up with just in time manufacturing, set up in the empty space seen in many malls these days, with much more to come probably after the first of the year I’m afraid.

My second queston is ‘Who’s buying?’. Obviously, there are plenty of people that still have money, but with frugality being the new watchword are even they going to be spending as in the past? And what about our 10.2% official unemployment rate which many experts claim is closer to 17%, and the expectations are for it to continue to rise for the foreseeable future. Most of those aren’t going to be doing any lavish spending. To top it off, I thought it was ironic that Citicorp upgrades Target only a couple of weeks after they created a national uproar by raising their credit card rates 8-9% to almost 30% across the board just in time for the Christmas season. Glad to see that they’re passing on our taxpayer money to help the economy and the consumer. With the very real possibility of a double dip recession come next Spring, I just don’t see being a buyer of retail stocks at these levels.

So we’ve looked at a few of the fundamentals, let’s take a look at the price action. First the RLX, the S&P Retail Index, has basically doubled this year, more than three times the percentage gain seen in the Dow Jones.

As you can see in the 20 month chart below, we’ve retraced nearly 100% in the past year and although in an up trend still, we face major resistance within the near price frame at about the 415-425 range, both from a strong horizontal line as well as the 200ma on the 5yr weekly(not shown). Notice the negative divergence on the MACD.

Now looking at a 5yr chart of TGT below, whom I feel is one of the better positioned retailers out there, if there is one, you can see that the price has doubled since the first of the year, and we are real close to the 62% fibonnaci which comes in at approximately 52. We also have  the critical 200ma on the weekly chart, in addition to a ton of horizontal resistance going back 5 years. As you can see on the one year chart below this one, that we’ve got a well defined wedge setting up.

So my question is, despite the pronouncements of numerous institutional analysts, is now the right time to be moving into retail stocks. Based on the fundamentals of our economy that I see and the technical picture, I think I’ll have to pass. What do you think? Please comment below.

Speaking of retail stocks, we’re constantly bombarded that everyone needs some Walmart in their portfolio by the talking heads on TV. Now we’ll all admit at WMT is an excellently run company and is one of the pre-eminent retailers in the world as well as paying a 2% dividend. However, take a look at the 10 year chart. Making money on WMT would have been a challenge for even the most nimble of traders and if you were a buy and hold investor you’ve gone nowhere for TEN years.

Those of us in the investment world, even if you’re relatively new, have always been taught that you should have a thorough knowledge of any investment you make. Though this may be true of any investments that you plan to hold for any amount of time, for short term traders I ‘d like to put forth the proposition that this may be hazardous to your short term fiscal health.

As a trading coach and a long time trader I’ve seen it many times, heck I’ve even done it myself, where your familiarity with a given stock or group of stocks leads to poor trade management. Whereas if you just happen upon a trade or a stock that perhaps someone else mentioned, then you’re much more likely to follow your signals and maintain your stops without any preconceived notion or expectations of the outcome. If the trade works, fine, if it doesn’t then that’s ok too. You followed your rules.

This first came to my attention several years ago when I started noticing certain traders who regularly traded the same given group of stocks would tend to be more lax and give a given stock more leeway or have higher expectations of the results than the trade setup suggested. Say for example Trader A likes to trade the oil stocks and he just knows oil is going up, thereby his stock should be up that day too irregardless that it’s beenup 5 days in a row, is right at a major resistance point etc. you get the picture. If you had never traded that stock in your life or could care less about the price of oil, then your expectations of a given outcome are going to be completely different and probably more objective than trader As.

I recently made the same mistake when the financials had all made a 200% move thinking there was no way they could continue. What started out as what I felt was a fairly conservative contra play using an inverse ETF and options, relatively quickly went from being a  short swing trade into a long term holding. Conviction in the market can be a killer if you’re not careful.

We all hear it and say the words, but as we all know the psychological part of trading is often more important than the actual skill set in many cases. Just remember to set up your trade parameters for whatever time frame and be adamant about following,  BEFORE you make  the trade and especially so if it’s one of your favorites.