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I can smell the downgrades being written as I type after sales numbers were released today from Black Friday and folks, it ain’t pretty. A miniscule increase of 0.5% vs. 3.0% in 2008 and 8.3% in 2007. OUCH! If that’s not proof that while the Bernanke states the recession is over, the consumer is just now beginning to show just how cashstrapped his/she truly is. Looking closer at the retail ETF, XRT, it has retraced over 61.8% from the ’07 high and is sitting pretty in a triangle. Daring traders will just try to short it premarket on Monday while others [more prudent] will wait for a break below the triangle on higher volume before jumping in; thus increasing the 
volume selloff. I just don’t see how any pundits or tv news personalities will be able to spin this in a Bullish manner, other than to say “it’ll improve by Christmas”. Come on. What a joke. Here are six retailers that have already broken down or are near breaking. The recession may be over for the banks but for the consumer, it’s down into the firey pit of unemployment Hell. Let’s at least take the retailers down there with us. Downgrade ‘em…………..downgrade ‘em now boys.
This filed under the heading of “I’ll believe it when I see it”. The Obama administration plans to announce a campaign on Monday to publicly name banks who are not doing enough to lower payments for troubled homeowners.
“Washington would try to shame the lenders by publicly naming institutions that fail to move quickly enough to lower mortgage payments permanently. The Treasury Department also will not pay the lenders promised cash incentives until the payment cuts become permanent, he added. “They’re not getting a penny from the federal government until they move forward,”
Yep, sure. And that’ll really do anything? Not. As far as I know, pigs haven’t learned to fly. Mr. Obama, you’re in way over your head dude.
I do like VRTX for a possible bounce long next week as it broke out of its trading range and has now come back to re-test that support. If the Dubai news was overblown last week, risk appetite in equities should return and VRTX benefit and head higher.
Crude
? Although I’m sure not the most popular opinion but I’m expecting choppy action and NOT for oil to surge higher or the huge selloff move that many are talking about. Why?
- First let’s look at the crude futures chart. That area highlighted took months to punch through and trade above. Barring any unforeseen event such as War, embargo or a pipeline explosion, it should take quite sometime to get sell
through those shares as well. Not as long [selling moves faster down than buying moves up] but it still won’t be done in a week. - Now a look at USD/CAD. It broke through 1st support but as you can see, 2nd support is much stronger and again, will take longer to work through shares before CAD brings this currency pair down lower – and this is a WEEKLY chart, not Daily.
- Then there’s COT [Commitment of Traders] chart. You will see that large traders are still net long by a huge margin vs. Commercials. Now one could argue that large traders are possibly wrong in their position and will lose but……..that typically doesn’t happen.
- Lastly, remember those tankers filled with crude floating around the Gulf of Mexico? AH!!! You forgot! Well, just check out this article in Bloomberg on the # of tankers in the North Sea and how capacity since 4/09 has expanded five fold. Now even a simpleton such as myself can understand why would anyone still be storing crude in tankers and expanding their storage if crude prices were going to plummet?
My guess is that equities [companies themselves] may selloff but crude will chop around as some exit their positions during any news-driven event or USD strength. Think of it as shaking out “the weak”. Ultimately I believe large traders will be buying these crude dips and it’ll be held above $65/brl in the weeks, even months to come before heading higher. It’s that or Santa’s going to deliver the black stuff in large traders stockings this Christmas and I find that highly doubtful.
Small caps and financials began selling off earlier as investors took profits on some of their riskier positions and now the selling is expanding to other areas of risk. My favorite areas right now to look for weakness are Casinos and REITs. Casinos are now forecasting only a 1% growth rate in 2010 [whooppee] and REITs, at least those managing strip and shopping malls, are a ticking timebomb waiting to default. Looking at the REIT charts, you’ll notice many have already begun to form triangles and there are two that are not selling off. A healthcare REIT and the other industrial. This is to demonstrate obviously that not all REITs are created equal and it’s prudent to do your homework.
Short at upper resistance with a stop above to limit your risk or wait for a break of support and place your stop above support. If you’re unable to get shares during normal trading hours, try premarket but these will go like solar [which I've been Bearish on since October]; once support is broken selling will accelerate and shares will go quickly. No, this does not mean we’re revisiting the bottom; we’re merely going to retrace the entire rally in my opinion rather than just the last leg up but take your profits or hedge your longs. I’m not too thrilled on inverse ETFs at this juncture because its my belief that *fear* is really required to get any good momentum on them but as a day trade, yes, they’ll work too. Only day trade the inverse however, do not hold overnight unless you have a strong stomach. I hope these charts give you a few ideas. Best of luck-
Japans currency has been the *in thing* in the carry trade for years but that’s changed now thanks to Uncle Ben’s massive printing leaving the USD in the weakest position on the face of the earth. I’m not saying it it was done unnecessarily; that’s an argument for another day but it is what it is so we must adjust our mindsets accordingly when it comes to investments. To that end, Ashraf Laidi has been pointing out the strength in the Japanese Yen over the USD and the fact that their market [Nikkkei] began a series of lower lows in September; ahead of the Dow or S&P. Today we examine just how much ground the Nikkei has lost; retracing almost 50% of this years rally and Ashraf’s opinion that we are on tract to follow in its footsteps. If you’ve been monitoring this meager blog at all, you know I’ve been prettymuch short for the last three weeks – and very profitably so.
Instead of looking at areas of support to *buy the dip*, I’ve adjusted my mindset to look for areas of upper resistance where I’m shorting stock. Once you view the Nikkei and checkout the S&P, you may want to adjust your mindset as well and short any pops here rather than buying the dips.
Found this interesting from Gary Vaynerchuk in his blog at the WSJ pointing out that while bank lending has been plummetting, the banks purchase of US debt continues to soar. This has left many scratching their head but having a 25 year mortgage banking background myself, it’s not that difficult to analyze. Number one: What’s the incentive to lend when unemployment is 10% and heading higher? You’re just asking for further defaults. Number two: You have billions in Commercial real estate loans coming due soon; loans you need to refinance. You’ll use those saved up pennies to refi. the CRE because if you don’t, you’re sitting with empty strip malls on your books; almost impossible to dump down the road especially given the huge supply and a loooong economic recovery ahead. It’s more important to keep those commercial loans afloat and forget the single family homes. Push ‘em to the side. Your plan would be to make some half-hearted attempts at loan modifications. You pick through the good ones, selecting the cream of the crop first. Of the remainder, at least 50% can easily be denied right off the bat by merely pointing a finger at lack of job stability, undocumentable income or excessive debt-to-income ratios. After all, there’s no incentive to help those homeowners when you’ve got accounting rules on your side and let’s face it – people will always need a place to live [they don't always need a strip mall]. f.y.i. That *is* a long chanted catchphrase in the business ‘people will always need a place to live’. Let them default – time is on your side. Then in six or 12 months once the foreclosure process is over, you take the home back but wait, yes…….the homes value was increasing throughout the process so you’ll end up writing off less of a loss than you would have. The gov’t can’t make you lend. There’s a million excuses to use so that’s a no brainer. Now buying US debt? Oh hell yes, that’s something you can really sink your teeth into. That’s a win/win propsition and why not? You’ll be guaranteed a long term profit off of the investment, even if it’s small and what better insurance could you ask for? After all if you own a ton of Uncle Sam’s debt – they can’t let you fail now, can they? Banks; the original shell game.
Be certain to have stops in place today ahead of tomorrows GDP release at 8:30am EST as this sucker can dramatically move a market. GDP is the all-inclusive measure of economic activity and followed closely by investors to track the economy because it usually dictates how investments will perform. It’s our most comprehensive economic scorecard. The advance 3Q estimate came in at a very bullish 3.5% with the help of the cash-for-klunkers program however, analysts are now expecting a downward revision on that number which could really hurt the market since we’re near the top end of the trading range [many would say a downward revision is not "baked in"]. Concensus for GDP now stands at 2.8% [estimates range 2.5$ to 3.4%]. To understand why investors care about GDP, CLICK HERE.
When the pundits came out two weeks ago stating that the easy money [trade] had been made; they weren’t candy coating it. The Feds program of purchasing its own debt had ended and while they continue to purchase MBS, the hard-core selling of the US Dollar had come to an end. That doesn’t mean that the greenback skyrockets. No way. It’s still enormously weak and the amount of debt now owed will take years to be repaid but by the same token, they can’t allow it to plummet being sold by other soverign nations either. For one, it must be somewhat propped up to appease China [our largest buyer]. It’s selloff has also inflated other countries currencies to the point where they need to somewhat deflate their own currency a tad. [There've been a few articles in WSJ and Bloomberg to this which I will hunt down and add here]
Aaaaannnnyway, while there are many more crosscurrents involved, it’s all adding up to some short term strength [chop] in the USD which is putting pressure on the market. I’ve adapted my trading style here to buy equities at the USD top of the channel and sell equities at USD bottom for as long as this pattern holds. Who knows how it will continue. Could be a day or two. Could be longer. In the meantime, I’m playing the pattern until it’s not anymore; then I’ll get long for one last leg up.
*If* investors are taking profits on their riskier positions, I’d think anything in the shaky auto industry will be one of them. Ryder [R] broke down out of symetrical triangle Friday on high-than-normal volume and now poses a low capital risk short opportunity. While I will short this Monday morning for a one-three day swing, I wouldn’t be surprised to see it come back up and re-test that breakdown resistance; at which point I will add to my position. Risk appetite and the uncertain mood of the market adds to the probablility of success in this type of trade. While I have a box highlighted for a potential target, beware that it *could* bounce and reverse off its 200d EMA. After all, the holidays are coming and Fund Managers aren’t selling yet since they came late to the [rally] party. This increases the possibility of a Santa Claus rally so I would not be surprised to see buyers lingering there, a bounce and surge back higher to at least the 50% retracement level; possibly up to 61.8% before any major profit taking.
