The Insightful Trader

Market Commentary

Two Sectors Worth Watching

by on Mar.14, 2011, under Market Commentary

One of my favorite activities when I’m doing analysis is to track various sectors, and the stocks within, as I start to see movement in their relative strength. Although I have many tools to set up watch lists, Finviz Elite has become one of my favorites due to intraday pricing and quick pop up charts. I can set up an unlimited number of portfolios that I can quickly scan during the day.

Two groups that have seen exceptional movement in the past several weeks have been the solar stocks and natural gas stocks. Although energy stocks have been one of the strongest sectors in the market this year, even allowing for the sharp sell-off the past week, solar stocks which tend to generally follow to some degree, have been getting annihilated. Natural gas stocks have performed very well considering natural gas itself has been relatively flat the past month.

Solar stocks have recently been hurt somewhat by certain legislation and changes in reimbursement policies in certain European countries. Because of that, certain companies have lowered guidance in the near term. However, it’s hard to believe that legislation in a couple of countries has accounted for the drastic sell-off we’ve seen across the board. As you can see from the chart below a portfolio of most the well known stocks is down nearly 19% in less than 30 days.

For a larger image – http://screencast.com/t/wbmEvfduohBt.

My thoughts on this sector are several: What’s causing this extreme dichotomy in this sector versus energy stocks in general; Some of these stocks are nearing or are at intermediate support levels; With potential nuclear problems being manifested in Japan at the moment, will this help revive interest in this sector. Therefore is it time to be doing some selective buying in this sector for a potential bounce or are solar stocks just the leading sector in a potential correction in the entire energy sector.

One sector that has been improving in the energy sector is natural gas stocks. Just a few of many that I’ve been following are below:

Click here for larger image – http://screencast.com/t/qK6PSOO1JNlh 

As you can see this portfolio was created on the same date as that of the solar sector above, but with drastically different results. Even thought the SPX is down approximately 3% this sector has risen nearly 6% in the past several weeks.

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Higher Move in Interest Rates Not Necessarily Bad for Market

by on Mar.29, 2010, under Market Commentary

The stock market, as we all know, has made one of its quickest and largest recoveries ever in history, over the past year. This move has been aided in great part, by an abundance of cheap money. Since the Fed and the Treasury have turned on the spigots, standing in front of this uptrend in hopes of a reversal back to newer and lower lows, has been an exercise in futility.

As we close in on the important 62% Fib level on the S&P, as well as several key resistance areas on the DJI, we are starting to see signs that the market has become over bought in the near term from a technical perspective. After a brief respite from it’s climb in January, the market has resumed it’s recovery with a vengeance, now having gone nearly 30 days without even a 1% pullback, much less a more serious correction. And it has done this with declining volume throughout the entire move up for the past year. So caution has become the new watchword as traders and investors wait for the so-far, never coming pullback.

The end result is you have three groups of participants in the game now: those who bought into the move in the early phase and are extremely happy, those who have missed a large part of the move up are but are now eagerly awaiting a pullback so that they can get into the game and thirdly, those who think the whole move up is simply a correction in a major new downtrend and can’t wait to pounce once selling begins, hopefully soon, since some are probably already underwater on short positions. Of these three groups, 2 of the 3 are eagerly looking for topping signs or if not finding many lately, reasons why it should be topping soon.

One of the more prevalent reasons I’ve heard lately, besides certain overbought indicators, has been the recent climb in interest rates to a small degree and the expected greater increase as governments all over the world, but especially ours, have a lot of refinancing to do, as well as plenty of new, in our case. So the pervasive argument is that as rates move higher, this will make stocks less attractive. There is no doubt  that we could be close to breaking a 20-30 year general down trend in interest rates, but I think a look at the charts below may surprise you.

US Treasury 20 Year

Click Here for a larger image

As you can see in the chart above I’ve highlighted the areas where the 20 year rates were moving up. You can also see the SPX in the top of the chart and it’s performance while rates were moving up. I can see no correlation in the past 20 years that rising rates had a negative effect on the market. Now obviously at some point, if we reached rates like in the late 70s and early 80s with rates above 10%, then it may become a different story.

Below we have similar results looking at yields on the 10yr notes.

US Treasury 10 year

Click Here for larger image

The net result that  is that those thinking a move up in rates will be  the trigger for a pullback they’ve been looking for may be disappointed. We may certainly get a correction soon, but I don’t believe it will be because of interest rates. Now there are always those that may argue that traditionally when rates move up it’s because the economy is growing.  Therefore it’s normal that the market moves up then also but that this time it’s for a different reason that rates are moving up, more supply than demand. I think we’ll know soon enough.

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Energy Prices Continue to Pressure Consumers

by on Jan.07, 2010, under Editorials, Market Commentary

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.

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Gold Soars to Record Highs – Is it Time for a Pullback

by on Nov.24, 2009, under Market Commentary

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.

Gold 4hr 112309

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.

Gold 1hr 112309

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Retailers Upgraded – Are They Really a Buy?

by on Nov.10, 2009, under Market Commentary

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.

RLX 11709

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.

TGT 5yr 11709

TGT 1yr 11909

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.

WMT 10yr 11909

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Gold Bugs Rejoicing – Is This Breakout for Real?

by on Sep.08, 2009, under Market Commentary

With the recent breakout of gold on the daily chart, gold bugs are ecstatic, as they can now point their fingers and say “We told you so” and indeed gold has had a remarkable run over the past number of years as seen by the chart below.
$GOLD weekly 90809

I have to admit to being somewhat of a precious metals advocate myself, but probably more of a silver fan and not obsessively so at that. One of those things that I think everyone should have some of in their portfolio. But is the overwhelmingly bullish stance on gold justified?

I don’t know about you, but I get awfully nervous when nearly everyone lines up on one side of a trade. Since there seems to be as much, if not more concern about deflation, than inflation among the world’s central bankers including a newly released UN report calling for continued loose money, then perhaps what we’re seeing is a longer term hedge. But according to a recent report from John Mauldin, gold hasn’t had a good correlation with inflation for nearly 30 years. So if that’s the case, what’s that do to the price movement based on future inflation concerns. Is there some other catastrophe lurking out there unforeseen by the rest of us mere mortals?

What of the dollars resilience in all of this? Although hit some the past several days again, it’s stubbornly refusing to make a swan dive, though short term we could see some further weakness technically.
$USD 90809

You can see from the attached chart where our next support levels are, with fairly significant support at the 76 range, and then at 74.50 we have have the 78% fib retracement range.

So let’s look at the gold charts again here. As seen below, we broke above our down trend line on the daily.

$GOLD 1yr daily 90809

Looking at the daily, we see that although we’ve broken the line, we still need to get a close above 1007 to confirm. Now looking at the weekly chart, it gets a little more interesting.

$GOLD 2 year weekly 90809

Though an attractive potential  inverse head and shoulders formation, as you can see, we’re not out of the woods yet. And even if gold can close above 1007 on a weekly candle, we’ve still got potentially strong resistance back into the 1030 level.

So, in summation, don’t put your blinders on just yet. Though gold is definitely looking strong, and the momentum traders are frothing at the bit, the potential for large and or quick gains from this point may be more daunting than most realize. And if you take comfort from the fact that everyone else you know and read are as bullish as you may be, then take a minute and think about what the the least popular trade you could possibly make is.

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Time to Tighten Stops

by on Aug.31, 2009, under Market Commentary

I think it’s getting time for everyone to tighten their stops on any intermediate swing trades. Though I feel we could have another little push up here, our rally is getting a little long in the tooth. Back in early March, I stated that we seemed to be hunting for a bottom. Now I think we’re hunting for a top.

First of all, as you can see from the chart below on the SPX daily, we’re banging our heads against the upper TL. This chart is representative of most of the major indexes. Though many Elliot Wave theorists feel that we could have another push slightly higher in a 5th wave extension and a slightly higher move puts us in a thin  area of resistance that could carry us to the 1100 range I believe it’s time to be extremely cautious here. Nearly every major sentiment indicator is screaming over-bought and though this alone is not reason enough to sell, history has proven that it is definitely a red flag. We’re over the critical 38% fib retracement, about 40% now and though the 50% has a nice ring to it, are too many people anticipating it?
$SPX daily 83109
 
Additionally, the dollar seems to be hunting for it’s bottom in the near term if it hasn’t already found it and gold seems to be acting toppyas well. And though it’s hard to think of selling when the Fed has an open purse policy, are we running out of arrows in that quiver. With the clunker rebate winding up last week and many of the other programs winding down, have the give-aways started to cease?

Also, see the chart below. The Chinese market has been on fire this year until the past few weeks. In fact, it looks as though it’s forming a nice bear flag at the moment. Since the Chinese have been leading the recovery, especially in certain commodities, cracks are starting to once again appear in their economy. This can’t be good for the resource stocks, even though the impending threat of inflation at some point may keep a floor under some of them.

$SSEC 83109

One further note, I’ve started posting some of my trades and other info on my twitter account. Be aware however that these may not be suitable for everyone, use your own judgement and analysis.

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Call in CSI – Stocks Found Murdered on Wall St.

by on Jun.22, 2009, under Market Commentary

What an ugly day. No one was spared today. The only winners today were the inverse funds and the VXX.

The financials were the leaders down today as the Dow dropped 200 points and closed at its low of the day and the SPX lost 3% to drop 28.19 points as well as  closing back under it’s critical 200ma. But nearly every group participated in the downside. The BKX dropped nearly 7%. The exchange stocks got hit with CME down 24 pts andICE down nearly 10 points. Energy stocks were not far behind with most being down anywhere from 5-9% as oil sold off $2.49 to close at $67.06. Oils and oil service stocks were not the only losers as the coals and solars got hit also, with most the major coal related stocks down in excess of 10%. Solar stocks were right there with them with FSLR dropping a whopping 11+ points.

Not to be spared, other glamour stocks such as RIMM, -$4.67 and BIDU, -$19.58 shared in the joy as Techs came under fire after staging a nice rally over the past few months. AAPL was the best performer, only dropping a couple of points.

The carnage started during the night as gold, which has been weak, started dropping about 3am before finally recovering some to close at 922ish. But gold was simply a reflection of the entire commodity trade. Everything and anything commodity related was hit. Potash, the golden child of the commodity stocks, after staging a huge rally from the 50 range back to 120 the past few months has now dropped 30 points in the past week.

So where to from here? As you can see, though we’re oversold on some of the short term indicators, we’re not really close to any major support area until we get down to the 880 area.spx-60min-62209

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Market Goes from Twilight Zone to the Danger Zone

by on Jun.18, 2009, under Market Commentary

It looks like the euphoria has finally started to wear off the past several days as continuing unfavorable fundamental data has started to catch up with our counter trend rally. All the talk of green shoots, upon closer examination, turns out to be just wild onions. Though we are short term slightly oversold after the past several days and could see a relatively small bounce over the next few days, many are starting to look at the market with a little more jaundiced outlook after a strong three month rally.

The fact that some stocks were able to beat their greatly revised  outlooks during earnings season is behind us now. Though there is still a lot of money sitting on the sidelines  and I’m sure nervous about missing any further upside moves, I believe the awareness is slowly sinking in that the hangover from the SEC’s neglect and the Feds multi-year loose money binge for the greater part of this decade, has not even really begun to subside. Have another bloody mary and make it a double this time. It’s got to feel better at some point. So the realization is, or at least should be, sinking in that there’s probably no rush.

Though a technical trader by trade, I’m a fundamentalist atheart and the fundamentals are nowhere close to giving me a warm and fuzzy feeling. The Fed continues to paint themselves into a corner. At what point do they cry uncle. Trillions spent in bailouts have done little if any to reduce the pain for the overwhelming amount of the so called ‘middle class’ citizenry. Mortgage rates have started back up, though for all practical purposes are still at multi-year lows. Hundreds of thousands have been laid off in just the financial sectors, the primary beneficiaries of the government largess. Seventy million plus baby boomers are looking at a whole new meaning to the word ‘retirement’ due to the decimation of their retirement funds and of course their favorite backstop, their home equity which has been vaporized. And of course, several new studies released this past week show that we’re still not at the bottom in housing yet. This doesn’t count probably hundreds of thousands of people sitting on homes trying to weather the storm who will promptly put their homes on the market at the first glimmer of a rebound, much as a novice trader will do who didn’t keep his stop and watch his stock fall 50% will sell at the first little bounce trying to preserve some equity.

Despite the Feds continuing spending, the average consumer remains ravaged. What token tax credits and/or cuts given are now being sucked up by basic necessities like food, credit card rates approaching 30% and now fuel prices which have increased nearly $1 per gallon in the past  several months. For the average family, the fuel price increase alone will suck up $1000 year. The recent drop in the dollar will only increase inflationary pressures. Let’s not even talk about how much extra the upward move in interest rates will cost our government, uh, that be you and I. 

It seems to me that our government’s whole attack on our problems have been to stimulate consumer spending, in other words, more of the same that got us into this situation. Has anyone besides me ever stopped to think that maybe all of us in the baby boomer generation, besides being spent out, just don’t want anymore ‘stuff’. I mean think about it, in our 30s and early 40s many of us were on a buying binge. Remember all the T-shirts with “He with the most toys wins”. Now in my 50’s I’ve got way too much ‘stuff’. We’ve had our Mcmansions. I don’t need or want anything else. In fact wish I could easily get rid of a lot of the ‘stuff’ I have already. The older we get, the more we realize that none or at least very littleof it, matters and it’s a chore keeping it up ar storing it. Plus many of us in this generation are now faced with taking care of elderly parents and relatives. Ferrari’s and Lexus’s don’t handle hospital and nursing home parking lots well. The net result is that probably 70% of the purchasing power that still remains in this country could care less about buying more ‘stuff’ that our government believes will save our economy. Frugal is the newest hip word.

The absolute worse thing about the whole situation is the legacy we’re leaving our children. I think in the recent downturn, many of the older ones have seen some of the pitfalls and are more frugal than we were at their age. But they’re now facing decades of paying for our mistakes withhigher taxes for their lifetimes because our healthcare and retirement systems were so mismanaged and misallocated.

 Reading a report from Tom Dyson of the Stansberry group yesterday, Tom, who likes to visit rail yards and even occasionally hop a train, to get a feel for economic conditions reports that rail traffic remains anemic and there are thousands of railcars sitting, rusting in storage. So no early signs of pickup from that perspective. So for those of you who missed the rally, I say sit back and relax, you’ll get another shot, unfortunately maybe at even better prices.

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Market Explodes Upward as Buyers Panic

by on May.04, 2009, under Market Commentary

The market exploded upward today as buyers, worried about missing the rally, came in strong today. After a gap up this morning, and only a minor pullback at lunch, the market surged upward during the afternoon, led by of all groups, the financials to close at the highest level since mid January. We’re now positive on the  year.

Much as I was worried about several weeks ago, as the market has slowly churned higher the past week or so, seems as if money of the sideline got real nervous that we may not actually get a pullback to make their buys. So when in doubt, chase.  The Dow closed up 214 while the SPX added nearly 30 points to close at 907.24. Nearly everything was strong today including all the energy related sector including solar, Semis and Ag. But the star of the day was the financials with the BKX tacking on a whopping 15% today. The reason was that the small uptick in housing stats led many to believe that the banks are now out of trouble. Good luck. Guess these are the same banks who had to connive and use every trick in the book just a week ago to show any earnings. Even the report leaked that WFC would have to raise additional capital could not dent the enthusiasm. The top performers were JPM, WFC and AXP, up anywhere from 10-24%. Just amazing.

In other markets, gold barely finished on the positive side after being up big early in the day and silver finished in the red after being up early. The dollar was down just slightly.

I’m enclosing two charts tonight, the 5min showing the break to the upside today and the 60min SPX showing we’re not quite out of the woods yet.

spx-5min-050409

spx-050409-60min

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