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Paying attention to the mood and behavior of the overall market is as important as the ability to recognize a simple stock pattern, if not more so. Let’s forget the politics, unemployment and GDP for the time being. Rather let’s look at investor sentiment because this alone is a huge contrary indicator of a market. Point in fact is this weeks AAII Investors Sentiment Survey which revealed those responding were 42.1% Bullish [relatively unchanged], 28.4% Bearish [down 6.9%] and 29.5% Neutral [up 7.5%]. According to TradersNarrative ”the last time we saw a similar lack of bearishness was in April 2008 and September 2007. Both were tops before another leg down.” While I do not subscribe to AAII and therefore do not have access to these statistics, I do respect the work done on the tradersnarrative site and have to take it to heart. It is, afterall, when the most are Bullish, that markets correct. When they’re at their most Bearish, they pivot and turn higher [plowing over the Bears as fuel] so I remain cautious and Bearish at this point. Selling/fading market highs with close overhead stops and waiting. Somethings going to snap and it appears we’re going to make another run to the highs next week. If the Bulls can’t find enough buyers at years’ end with these extended valuations, I highly doubt SPX will rise above $1122. My stop tolerance @ $1130. Our Santa Claus rally may have been the rally we’ve had off the March lows; and that’s a helluva rally initself.
Tomorrow is D-Day for Dubai’s $3.52 million Bond repayment which will definitely move the market for better or worse, at least for the near term. While they’ve been extremely hush-hush on their plans, latest speculation is that they will repay 70cents on the dollar and issue new debt for the remainder; basically buying themselves time. Even with no repayment tomorrow however, they will still have another two weeks as a sort of “grace period” before Nakheel will be considered to have fully defaulted so while you’re team is down and it’s the bottom of the 9th, don’t leave the ball park just yet. Expect extra innings before this credit game is truly over.
Such is the time of year when volumes begin to slow as Fund and Money Managers prepare for their Winter vacations and for me, cold weather illnesses combined with holiday shopping slow my postings as well [wish I were they]. Flu and cold season has especially hit us hard this year as evidenced by my lack of recent posts so bear with me. When time [and Dr. visits] permit, I will make every effort to post long and short ideas as well as those merely for safe haven or risk aversion so that there’ll be something for everyone; dependent on the mood of the market. The most important economic event next week [in my mind] is the release of FOMC minutes on Wednesday. Any change in wording from “extended period of time” will prompt further short covering in the USD and push it higher. Maybe not on the initial reaction [as most often the first reaction is the wrong one] but any hint that the Fed will raise rates sooner than 3Q 2010 will prompt further risk aversion to safer havens, USD continue to head 
higher and equities, lower. I personally continue shorting morning rallies at resistance [right] with tight stops which, with the exception of yesterdays range bound action, has worked out extremely well. I fully expect the Bulls to continue to press higher but with the FOMC looming, I still expect a failure until it’s release. If the Feds wording does not change and we push higher with higher volume, I will be stopped out with little capital loss and flip to the long side – again only if volume and the other indices confirm such a move. My favorite risk aversion plays right now are utilities and airlines although others exist and will be posted. Best of luck in your shopping this holiday season and may you have a little *jingle* be it at the Mall or in the stock market.
Solar still sucks in my opinion as evidenced by not only their huge and ongoing distribution, but also the lack of shares available to short [any ticker] and their failure to hold their recent pop higher. I hesitate to ponder the *why* but will trade them on the short side; especially when they break lower of their rising wedge such as LDK has. Target between $6.60-7.75 One might have success obtaining shares to short premarket. Move your stop as you go.
Falling crude prices make airlines especially nice for a short squeeze as evidenced by Delta Airlines [DAL]. It broke out of an eight-month long channel on substantially higher volume and with crude expected by many to go even lower, this could churn considerably over the next few months. While not a sexy, fast-moving trade, one could see $13-16 into 2010 until actual demand for crude begins to return. Take off profit as it progresses. Initial stop below channel support moving up as price increases. [Full disclosure: Long position in LCC since November 25th]
Hospital owner CYH broke out higher of a falling wedge but note that volume didn’t knock my socks off so I would say target of $33-34 but without an increase in volume, I don’t hold out hope for much more than that.
Oh, and btw, no that’s not me at the top of the post [I wish]. Google Carmen Electra you dope *lol*
I began writing a blip last night about how the market *could* rebound higher if USD/CAD worked its way through the shares at support and broke its triangle to the downside, thus giving crude a huge boost. Unfortunately however life intervened as my daughter called suffering from a kidney stone [Mom to the rescue!] so my post sat until I returned in the wee hours of the morning. Now as the sun rises all bets are off as McDonald’s [MCD] missed almost every estimate possible in their earnings release; then followed by a 3M [MMM] guidance miss and you had immediate shock by investors and causing a new round of risk aversion. Good thing Bernanke says they recession is over, huh? Chump. The USD jumped, and I mean jumped big time as investors sought a safer haven in lower-yielding currencies. I mean MCD has weathered this entire recession as the champion its known to be so a miss was bound to slap many investors into reality. Then to make matters worse, you turn on your TV and see Meredith “The Annihilator” Whitney as guest host on CNBC and you just know it’s going to be a red day.
ES futures broke down out of its rising wedge and the USD [via DXY] jumped up to $62.11 resistance. Once the normal trading session opens I expect ES_F to [at some point] rise up and backtest that breakdown resistance [yes, I'll be shorting it further there]. If it does not hold, watch out below, expect a correction over the next week……………and blame that damn MCD clown. We could still see a Santa Claud rally but clowns are creepy anyway and this is just gives one another reason to hate ‘em 
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.
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.
Occassionally when trading you’ll stumble across a “spike” on your chart which very often skews or distorts the picture. Generally these are either out-of-sequence trades [oops, I forgot to enter that one] or an ISO – Intermarket Sweep Order. The easiest way to determine which is to judge by the volume of shares traded and before you begin screaming “dark pools”, ISOs are totally legal and needed each day to add liquidity across the markets; especially in tickers trading at high volumes such as SPY. The easiest way to understand them is let’s pretend that Chicago is running low on shares of SPY but Philadelphia has a boatload. They negotiate the trading of shares at an offmarket price and the limit order will temporarily be reflected on the chart.
**If** your broker is doing his job, these “spikes” are generally removed from the charts within the hour OR whenever possible, the sweeps are performed after trading hours and then removed so as not to disrupt things but on high volume days, you’ll see them. Hopefully your broker has a way for you to remove it from your chart; otherwise you may have to wait, email or call them to do so.
One bummer about them – they can and do trigger stops and can cause your trade to exit prematurely. Whenever I’ve brought this up to traders they raise their eyebrows and scoff but I cannot tell you how many times I’ve caught that it’s happened to me. Maybe it’s because [at times] I will day trade quite a bit and I see what’s 
happening. Occassionally I’ve 
had luck complaining to my broker and they’ve replaced my shares. Other times I let it go because [as it turned out] I would’ve been stopped out anyway. The biggest reason I’m writing this post today is not only to explain what they are, but if you ever see someone on twitter or another social network telling you that the “spikes” are an indication of what direction the stock is going………….block the blockhead! If you’re subscribing to the guy and actually paying him a fee, block yourself. They have absolutely no bearing on the direction of a stock as you can see from these charts. The dude is totally clueless and you’re bound to end up just like him if you follow like a lemming. You should at least do your own research at the SEC website or via the web and don’t trust your money with some “schmo” who trades based on spike direction.
[edited 11/13/09 to add content on ASP]
I had to laugh today watching Bob Toll declaring that everything is coming up rosey now for home builders. This from a man who has continually sold and not bought shares of his own company throughout 2009 which is obviously not a testament of a man who has faith in the future or stability of his firm. They may tell stories of fewer cancellations, but do they talk about their existing homes sitting unsold? Homes which sitting idle, are draining their cash reserves as they pay the bank each month on their credit line? Do they emphasize that their ASP [average selling price] is $600,000 so obviously they’re clientele is not being laid off, but doing the laying off. Sure they can afford a new home but Bob Toll isn’t going to point that out now, will he? I don’t think so. [shakes head]
Having a 25 year mortgage lending and new construction background, I am one of the many that feel there is much more pressure to come on builder margins and profitability with a huge glut of home inventory to come in 2010. An excellent piece of research in this area was recently done by T2 Partners which I would strongly recommend anyone peruse if they’re interested in the subject. While I have no short position at this time, I do intend on getting very short the sector via IYR in the months to come; most likely in February 2010. A word to the wise, however. If you believe builders are fine now as an investment, then maybe you’ll believe me when I state I’m a natural blonde and I have a bridge in Brooklyn to sell you as well.
