Tuesday, January 09, 2007
Apple is having an amazing day up over $7 on over 110 million shares traded. Reminds me of the last time AAPL moved up big on huge volume, January 10 2006. Steve Jobs spoke at MacWorld and gave a rosy outlook on Apples future and AAPL was off to the races up from $76 to $81 and later peaking at $86.40 on January 12. AAPL was in the 50s by June. I think a short position over the next few days and holding it till the summer will be very rewarding.
The market appears to be gradually slipping away from the grasps of the bulls. The Nasdaq has failed to close at new new highs since November 24 which is over 6 weeks. While the Dow did close at new highs the week before New Years it was on very light volume.The S&P has failed to make new highs since mid December and appears to be topping. In these 3 indices there has been a noticable lack of volume on up swings while a surge of volume accompanies most down swings. To me the first trading day of the year was the most telling with the Dow advancing upwards to 12630 a gain of almost 170 points for the day before reversing, going negative for a while and than finally rallying enough to close up 13 points. The huge volume that day indicates that this could likely have been the peak of the current bull market.
Monday, January 08, 2007
ECONOMIC AND TECHNICAL INDICATORS.
Having spent the better part of the day, sifting through economic and technical data to give me a better idea of where we are headed, I just wanted to post the more relevant of these indicators.
The NYSE New High/ New Low ratio is currently at 89%. Any reading above 85% is bullish while a reading below 20% is bearish. A drop below 70% is considered bearish. We have had a bullish reading since mid October with the indicator rising to over 95% at times over the last few months . We have cooled off a little in recent weeks though we can still cool off a lot more. So while this indicator is very bullish for now, the better part of this rally could be behind us and we do need to keep an eye out especially for a drop below 70.
The NYSE 30 day advance/decline oscillator is currently at 165 having spent the better part of the fall in the 200+ territory indicating an overbought and therefore potentially bearish environment. Below negative 200 would be considered oversold and therefore bullish and we are not even close to those levels. Hence a sharp pullback in the market, may not be a bad thing to create an environment of oversold conditions and hence, a better risk to reward ratio going forward.
Now to one of my favorite indicators , the AAII sentiment index ratio. Many pundits are screaming that we are in times of extreme investor pessimism and others are calling it a time of extreme exhuberance. So you be the judge. The indicator is currently at 63% and though not at extreme bullish levels, we are more bullish than bearish as a whole. A reading above 70 indicates bullishness and below 30 is bearish. So we are a whole lot closer to bullish than bearish and this indicator has been moving upwards in recent months.
Mutual Fund cash levels are at historic lows of 4.4%. I hear a lot of commentators talking about all the excess cash sitting on the sidelines waiting to be deployed in the equity markets. This indicator however tells me that mutual funds are holding less cash than at any time since the 2000 market top. This indicator looks very bearish to me and I do think it is a fairly useful gauge of future market performance.
Can the market continue going higher ? It definately can. But I do feel we are at a level where the risk outweighs the reward. I do feel that cash sitting in a 5% money market account will outperform the indices this year.
The NYSE New High/ New Low ratio is currently at 89%. Any reading above 85% is bullish while a reading below 20% is bearish. A drop below 70% is considered bearish. We have had a bullish reading since mid October with the indicator rising to over 95% at times over the last few months . We have cooled off a little in recent weeks though we can still cool off a lot more. So while this indicator is very bullish for now, the better part of this rally could be behind us and we do need to keep an eye out especially for a drop below 70.
The NYSE 30 day advance/decline oscillator is currently at 165 having spent the better part of the fall in the 200+ territory indicating an overbought and therefore potentially bearish environment. Below negative 200 would be considered oversold and therefore bullish and we are not even close to those levels. Hence a sharp pullback in the market, may not be a bad thing to create an environment of oversold conditions and hence, a better risk to reward ratio going forward.
Now to one of my favorite indicators , the AAII sentiment index ratio. Many pundits are screaming that we are in times of extreme investor pessimism and others are calling it a time of extreme exhuberance. So you be the judge. The indicator is currently at 63% and though not at extreme bullish levels, we are more bullish than bearish as a whole. A reading above 70 indicates bullishness and below 30 is bearish. So we are a whole lot closer to bullish than bearish and this indicator has been moving upwards in recent months.
Mutual Fund cash levels are at historic lows of 4.4%. I hear a lot of commentators talking about all the excess cash sitting on the sidelines waiting to be deployed in the equity markets. This indicator however tells me that mutual funds are holding less cash than at any time since the 2000 market top. This indicator looks very bearish to me and I do think it is a fairly useful gauge of future market performance.
Can the market continue going higher ? It definately can. But I do feel we are at a level where the risk outweighs the reward. I do feel that cash sitting in a 5% money market account will outperform the indices this year.
Friday, January 05, 2007
WEEK 1 2007
1 week down (almost) 51 to go. Where does this put us ? What strategy does one pursue in the coming weeks ? How does one preserve capital yet maximize gains and etch out absolute returns in the double digits ? If I were not looking for double digit returns I would not hesitate to switch to the money markets at 5%. Iceland is offering me 13% for my money. The Chinese Yuan is a safe bet assuming the continuation of appreciation vs the US Dollar. The Euro has broken overhead resisitance in recent months and is heading for all time highs vs the USD. It looks to be a good safe haven for capital. I like Gold too in the form of Goldtrust Shares as it settles along support.
Job growth rose unexpectedly which has dampened investors expecting a Fed rate cut.If the economy continues to show strength , a rate raise would not surprise me. When was the last time the Fed lowered rates into a rising stock market ? I don't know but all I do know is that when the Fed does decide to cut rates, it will be to the backdrop of investors fleeing the US equity markets.
Job growth rose unexpectedly which has dampened investors expecting a Fed rate cut.If the economy continues to show strength , a rate raise would not surprise me. When was the last time the Fed lowered rates into a rising stock market ? I don't know but all I do know is that when the Fed does decide to cut rates, it will be to the backdrop of investors fleeing the US equity markets.
Wednesday, January 03, 2007
BULLS, BEARS AND BOB (Nardelli)
According to this study the 2006 shopping seaon was unimpressive and yet the markets are in bull mode due to CEO Bob Nardelli resigning from Home Depot and Walmart seeing better than expected December sales after reducing forecast the previous month. So in essence Walmart set the bar so low that they had to beat it no matter what. Add in a better than expected manufacturing index ISM number of 51.4 and a less than expected 0.2 fall in construction.
So lets examine all this. Could Nardelli have resigned because he sees a slowdown in HDs earnings ? He gets out before the shit hits the fan with a fat severance package. I'd be shorting this surge in HDs stock price in the coming days. I seriously doubt Nardelli would have quit if he saw good prospects down the line.
Walmart had already lowered its outlook for December after a drop in same store sales for the first time in 10 years in November. The fact they beat December estimates is nothing to cheer about. The question is how did all the other retailers do ? We will find out tomorrow.
On to the ISM manufacturing report. Up 51.4 from the Novembers 49.5. FYI Below 50 indicates a contraction in the manufacturing economy and above 50 correlates to expansion. A rise looks great but lets look at the history of the ISM for the last 8 years. Sure looks to me that the index peaked in 2004 and is showing a slowdown. It is highly likely we could see numbers below 50 in the coming months signalling a recession. One item to notice is that last time round the markets peaked in January of 2000 yet the index was positive and only started signalling a recession in August.
JAN FEB MAR APR MAY JUN JUL AUG SEP OCT NOV DEC
2006 54.8 56.7 55.2 57.3 54.4 53.8 54.7 54.5 52.9 51.2 49.5 51.4
2005 56.3 55.6 55.3 53.8 51.8 54.0 56.4 53.5 58.0 58.1 57.3 55.6
2004 62.9 62.2 62.3 63.0 62.9 61.5 61.5 59.6 58.0 56.8 56.9 58.6
2003 52.8 49.9 46.4 46.5 50.0 50.5 52.3 55.5 54.4 57.2 60.6 63.2
2002 49.1 53.2 55.0 54.4 55.2 55.8 51.2 50.9 51.3 50.0 49.2 53.1
2001 41.4 41.1 42.6 43.1 41.9 43.9 44.7 48.3 47.7 40.5 45.0 46.7
2000 56.7 55.8 54.9 54.7 53.2 51.4 52.5 49.9 49.7 48.7 48.5 43.9
1999 50.6 51.7 52.4 52.3 54.3 55.8 53.6 54.8 57.0 57.2 58.1 57.8
Constrution has pretty much been covered by all segments of the media. By now we all now that housing construction is down , sales are down, price appreciation has turned into depreciation and huge inventories of unsold homes glut the market. What does a less than expected fall in contruction mean ? That the housing market has bottomed out ? Highly unlikely with all the inventory glut. Real estate is a cycle like another other commodity or market for that matter. In real estate its usually the 15 year cycle where the market peaked in 1990, fell through the early 90s before bottoming around 1994-95 and then based till 1997-98 before rising and peaking in 2005.So its highly unlikely we will bottom in real estate especially after such a fantastic runup of 100-200% in many parts if the country. I would not expect a bottom till 2008-09 at the earliest. So much for new home construction and the home builders for now.
So lets examine all this. Could Nardelli have resigned because he sees a slowdown in HDs earnings ? He gets out before the shit hits the fan with a fat severance package. I'd be shorting this surge in HDs stock price in the coming days. I seriously doubt Nardelli would have quit if he saw good prospects down the line.
Walmart had already lowered its outlook for December after a drop in same store sales for the first time in 10 years in November. The fact they beat December estimates is nothing to cheer about. The question is how did all the other retailers do ? We will find out tomorrow.
On to the ISM manufacturing report. Up 51.4 from the Novembers 49.5. FYI Below 50 indicates a contraction in the manufacturing economy and above 50 correlates to expansion. A rise looks great but lets look at the history of the ISM for the last 8 years. Sure looks to me that the index peaked in 2004 and is showing a slowdown. It is highly likely we could see numbers below 50 in the coming months signalling a recession. One item to notice is that last time round the markets peaked in January of 2000 yet the index was positive and only started signalling a recession in August.
JAN FEB MAR APR MAY JUN JUL AUG SEP OCT NOV DEC
2006 54.8 56.7 55.2 57.3 54.4 53.8 54.7 54.5 52.9 51.2 49.5 51.4
2005 56.3 55.6 55.3 53.8 51.8 54.0 56.4 53.5 58.0 58.1 57.3 55.6
2004 62.9 62.2 62.3 63.0 62.9 61.5 61.5 59.6 58.0 56.8 56.9 58.6
2003 52.8 49.9 46.4 46.5 50.0 50.5 52.3 55.5 54.4 57.2 60.6 63.2
2002 49.1 53.2 55.0 54.4 55.2 55.8 51.2 50.9 51.3 50.0 49.2 53.1
2001 41.4 41.1 42.6 43.1 41.9 43.9 44.7 48.3 47.7 40.5 45.0 46.7
2000 56.7 55.8 54.9 54.7 53.2 51.4 52.5 49.9 49.7 48.7 48.5 43.9
1999 50.6 51.7 52.4 52.3 54.3 55.8 53.6 54.8 57.0 57.2 58.1 57.8
Constrution has pretty much been covered by all segments of the media. By now we all now that housing construction is down , sales are down, price appreciation has turned into depreciation and huge inventories of unsold homes glut the market. What does a less than expected fall in contruction mean ? That the housing market has bottomed out ? Highly unlikely with all the inventory glut. Real estate is a cycle like another other commodity or market for that matter. In real estate its usually the 15 year cycle where the market peaked in 1990, fell through the early 90s before bottoming around 1994-95 and then based till 1997-98 before rising and peaking in 2005.So its highly unlikely we will bottom in real estate especially after such a fantastic runup of 100-200% in many parts if the country. I would not expect a bottom till 2008-09 at the earliest. So much for new home construction and the home builders for now.
Tuesday, January 02, 2007
CONTEMPLATIONS, REFLECTIONS AND CLAIRVOYANCE
Looking at the past year, we've experienced ups and downs in the market. We started off strong, stunmbled in May recovered in August and had a very strong rally into the close of the year. With the Dow hitting all time highs and the S&P 500 not too far behind , 2006 was a great year for those long the equity indices. In individual sectors and stocks we have had a mix of good and bad.
First with the good. RIMM had an exceptional year. A nice 100% gain though one could have made more if they traded it through highs and lows. CRS was positively on fire through the early part of the year and one of my big winners (until I was stopped out). TIE was another rocket in the same group as CRS and I sort of regret passing TIE over for CRS. It was a toss up between TIE, ATI and CRS and I choose the slowest horse. Oh well, a 70% gain isn't so bad though I missed out on a 150% plus on the other 2. Speaking off ATI. The chart says it all. How could I have missed it ? What a Monster !! Speaking of monster the energy drink, here is a chart of HANS. I got stopped out early in the year with a small profit. I hated what happened next though I did manage to get short in the $180-200 range and ride it down to $120-130 pre-split . NTRI rocketed upwards with no stopping it till May and than recovered nicely for another big run which ended in what looks like a double top as evident from the charts ( May and December peaks). ZOLT was one hell off a stock and though it closed the year badly, it made a lot of people very rich. ERS could well have been the stock off the year if people had been smart enough to get off in early May. 600% gain in 5 months . Spectacular !! Than another huge potential gain for anyone going short. WOW !! Just look at the charts.
Now to the not so good. Does anyone think GOOG's best days are behind it ? This is one stock that is all over the place. How is someone supposed to stay long or short a stock like this ? AAPL another totally unpredictable stock. Great for trading though. Look how RACK got decimated midyear though it pulled through at the end. NETL was downright ugly. Look at this crazy stock IFON . Jan though April downtrend, huge spike in April till early June and than total collapse through July before a couple of run ups and than a reversal to a downtrend. Great for trading by the seat of your pants. A killer in most ways though. This was a pretty crapy year for EBAY till the lows in June July. YHOO had a pretty terrible year. It was a year that had it all. The good, the bad and the ugly.
First with the good. RIMM had an exceptional year. A nice 100% gain though one could have made more if they traded it through highs and lows. CRS was positively on fire through the early part of the year and one of my big winners (until I was stopped out). TIE was another rocket in the same group as CRS and I sort of regret passing TIE over for CRS. It was a toss up between TIE, ATI and CRS and I choose the slowest horse. Oh well, a 70% gain isn't so bad though I missed out on a 150% plus on the other 2. Speaking off ATI. The chart says it all. How could I have missed it ? What a Monster !! Speaking of monster the energy drink, here is a chart of HANS. I got stopped out early in the year with a small profit. I hated what happened next though I did manage to get short in the $180-200 range and ride it down to $120-130 pre-split . NTRI rocketed upwards with no stopping it till May and than recovered nicely for another big run which ended in what looks like a double top as evident from the charts ( May and December peaks). ZOLT was one hell off a stock and though it closed the year badly, it made a lot of people very rich. ERS could well have been the stock off the year if people had been smart enough to get off in early May. 600% gain in 5 months . Spectacular !! Than another huge potential gain for anyone going short. WOW !! Just look at the charts.
Now to the not so good. Does anyone think GOOG's best days are behind it ? This is one stock that is all over the place. How is someone supposed to stay long or short a stock like this ? AAPL another totally unpredictable stock. Great for trading though. Look how RACK got decimated midyear though it pulled through at the end. NETL was downright ugly. Look at this crazy stock IFON . Jan though April downtrend, huge spike in April till early June and than total collapse through July before a couple of run ups and than a reversal to a downtrend. Great for trading by the seat of your pants. A killer in most ways though. This was a pretty crapy year for EBAY till the lows in June July. YHOO had a pretty terrible year. It was a year that had it all. The good, the bad and the ugly.
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