Free Swing Trading and Day Trading Picks & Education

NYT: "Official" U.S. Jobless Rate Likely to Pass Europe's

2009-05-26T16:01:00.007-07:00

By Trader Mark
Please note the quotation marks I used above... long time readers will know how a series of very well followed US reports have been "adjusted" over the years to a more positive bias. In the corporate workplace we call this "garbage in, garbage out"; in government we call it "official facts". So the press runs with it; economists run with it - and we all smile... never questioning the situation. Well not "all" of us.

Specific to our unemployment rate and how it is skewed lower "officially" than the way it used to be measured, please go through and read this post [May 8, 2009: Real April Unemployment Rate Reaches 12.9%] So as you read this please understand that is measured like we did "in the old days" (pre early 90s) we'd be the 3rd worst in Europe after Spain & Lithuania. Already. And we're not done getting "worser!" (sic) So until the next bubble is created (green energy) or we return to inflating homes (fun!) so we can recreate a whole subindustry of jobs dependent on house building & equity withdrawalsredux) - this jobs thing is a 'minor' issue. (but not for the stock market) And let's put in the caveat I have no idea how all the countries below skew their measurements; they might all have adopted US style policies of "you can't handle the truth".

As always with these sort of articles, please read it - take this red pill, scoff at those losers on Main Street who seem to be affected by this thing that does not affect the market (i.e. the economy) and buy stock. Preferably with 2 fists and with glee while shouting "We're better than Lithuania!"

(click to enlarge)

Via New York Times:
(

FOR many years, unemployment in the United States was lower than in Western Europe, a fact often cited by people who argued that the flexibility inherent in the American system �" it is easier to both hire and fire workers than in many European countries �" produced more jobs. (I love dogma)
That is no longer the case. Unemployment in the United States has risen to European averages, and seems likely to pass them when international data for April is calculated.
“The current economic crisis,” wrote John Schmitt, Hye Jin Rho and Shawn Fremstad of the Center for Economic and Policy Research, a research organization in Washington, “has turned the case for the U.S. model almost entirely on its head.” (except in the United States of course ...)
In March, the American unemployment rate stood at 8.5 percent (wrong), the same as the average rate for the first 15 members of the European Union �" the countries that were part of the group before it began to expand into Eastern Europe.
Because countries calculate unemployment rates differently, the rates used in the accompanying graph are the harmonized rates calculated by Eurostat, the European Union’s statistical agency. Harmonization does not change the American rate, but does affect some other rates. (only a magic formula called "reality + truth" would change the US rate, so it won't be changed)
When the European figures are compiled, it seems likely that the American rate will be higher for the first time since Eurostat began compiling the numbers in 1993.
The tables show how rates compared in various countries in March �" or, in the case of some countries that are slower in compiling numbers, in the latest month available �" and three years earlier, in March 2006, as the American housing boom neared a peak and economic growth was strong. (which was in fact a mirage based on easy money, housing ATMs, and "shopping" based on the house & easy money - but yes other than that economic growth was strong. As long as you dismiss the fact median wages were flat for the decade while wealth concentration was a its highest since the late 1920s. So I suppose strong would depend where on the now heavily skewed US bell curve you sat - and how much your house appreciated by the month) Then, the United States had an unemployment rate of 4.7 percent, lower than all but three of the 15 European Union countries �" Denmark, the Netherlands and Ireland �" and equal to that of a fourth, Luxembourg.

So even with our "wrong" rate - how did we do?

As the graphic shows, the March rate for the United States was higher than the rates of 11 of the 15. The exceptions were Portugal, which has the same rate, and Spain, Ireland and France. Eight of the 15 European countries have rates that are lower than three years ago. (this is where those who preach dogma say European countries cannot fire their workers as quickly as American companies; but wait - that was the same excuse we used as to why European unemployment rates were higher in "boom times" ... )
How did that happen during a worldwide recession? First, it appears that the safety nets in many Western European economies made it easier for people to keep their jobs as the economy declined. (dogma dictates I say this causes inflexible economies that don't rebound as well as ours) In Germany, programs allow companies to get government help in paying workers, for example, keeping them employed.
Another factor may be the lack of an economic boom in many European countries, which has left them less vulnerable to recession-related cutbacks. (should of cut your interest rates to 1% and goad all Americans to enjoy adjustable rate mortgages, preferably of the option ARM kind - such as our central banker... this is why these "socialists" missed out on a great boom... great profits could be made by your CEOs in such times if you had simply had a complicit Federal Reserve. Clearly your economic systems are sorely lacking Euro folk - we call it this a "dynamic" economy here)

So what caused certain countries to have similar unemployment rates to us? Ah yes - they followed our "dynamic ways" to "create" false prosperity.

Spain and Ireland, two of the highest unemployment countries in Western Europe, suffered housing booms and busts that were comparable to the cycle in the United States.
Unemployment is also particularly high now in the Baltic states, Estonia, Latvia and Lithuania, which ran up large trade deficits during the good times and are suffering now that it is much harder for them to borrow money.

We combined the best of Spain/Ireland and the Baltic states - housing booms and large trade deficits. Because we're AAA rated, and the fallback currency for the world. Hence, we can do whatever we want with no fallout.

Now what are we doing this time to make sure we don't repeat the easy money flooding of the economy to create unnatural boom / busy cycles that only kick the can of our issues down the road?

Umm....

Well enough about that... green shoots. Green shoots.

US Dollar Index Completes Bear Flag as Expected

2009-05-26T16:01:00.005-07:00

By Corey Rosenbloom

The US Dollar Index completed its large-scale Bear Flag on the Daily Chart and I wanted to highlight this development to you and discuss what it might mean going forward.

The Flag began about the $89.00 level (coming off a long and short-term negative momentum divergence at the price highs) and led to the initial thrust lower (breaking EMA support), forming a 45 degree angle clean “abc” retracement (which actually breached the EMAs and violated the “Cradle Crossover” zone just slightly), and then we got the expected move down to fresh 2009 lows at the target area of $80.00.

A flag’s target is obtained by taking the high ($89.00), subtracting the low ($82.50) and then subtracting this value ($6.50) from the top of the flag once we get a breakdown from the rising trendline (at $87.00). This gave us a rough estimated target of $80.50 which was met and exceeded last week.

I mentioned this Bear Flag three times in the posts:

“Bear Flag Breakdown in the US Dollar?,”
“Cross-market Comparison of the Dollar, Gold, and Crude Oil - April 26,”
“US Dollar Continues its Slide in Bear Flag.”

I think a lot of people picked up on this pattern so it wasn’t a surprise.

Now that the pattern is complete, we have reached a “Technical Decision Node.” Often, the price projection point off a flag (once it completes) precedes a reversal (or retracement) in price (due to people covering their positions at the target) and so we could see some short-term demand coming back into the market at the $80.00 level.

In other words, it’s probably not the best idea to run out there and short the dollar at this juncture.

Other levels of possible support include the $78 level which was prior support in December, and the $76 level for the same reason. Unfortunately for bulls, we’ve broken the 61.2% Fibonacci retracement zones if drawn off the September and December lows to the recent March high.

Take a look at the weekly chart as well - we’ve fallen off a cliff and have broken the 50 week EMA recently in a stellar defeat to the dollar bulls.

Let’s keep watching this to see if we get at least a temporary retracement up off price target support perhaps to the $83 level at best, or if the dollar bears are just relentless in their selling pressure.

Corey Rosenbloom
Afraid to Trade.com

17 Week Cycle Observed in the S&P 500

2009-05-26T16:01:00.003-07:00

By Corey Rosenbloom

Is there a 17-week cycle operating in the S&P 500? Adam Hewison shares his insights in a recent video which was very interesting to me, as most traders don’t analyze cycles as easily as they do other technical indicators.

(Clicking on the chart opens the video page)

Entitled “Is there a 17-week Cycle in the S&P 500?” Adam shares his observations on the chart above that the S&P market tends to form a key bottom on average 17 weeks apart - a pattern which has held since the market top in 2007.

He notes that we are roughly in week 12 of the cycle, and hints that we might have some downside ahead of us to mark that low.

Specifically, Adam writes:

“I was just looking at the S&P 500 and I noticed a very pronounced cycle in this market that I want to share with you.

In my new video I explain exactly what I’ve seen and what I expect will happen to this market if this cycle continues on track.”

Thank you as always to Adam for sharing this video (with permission). Market Club members receive all videos the moment they are released.

Corey Rosenbloom, CMT

Consumer Confidence outweighs Housing Prices as Markets Rally

2009-05-26T16:01:00.001-07:00

By Chris Krasowski
US Markets found themselves on the buy side up between 2 and 3% at the last hour of trading as stronger consumer confidence data triggered a surge of bids in morning trade. The Consumer Board's confidence index rose to 54.9 in May from a 40.8 reading in April and this jump was enough to get investors to shrug off another rather negative housing data point.

insert.a.chart.AAPL

An S&P Index of Housing prices reported a decline of 19%, details at CNBC (Link), which was the steepest drop in the reading's history. Foreclosures, economic woes, and increasing supply dampen prices all are contributing factors to the decline, however, as these prices bottom, investors clearly see a bottom forming with the terms "housing affordability" and the like being tossed around.

The increase in consumer confidence was a heavily watched metric that started the market's rally in the early hour. The forecast for confidence was pegged at around 42 and May's reported 54.9 mark handily trumped that, leading to a flurry of buying activity.

As for other market news, Technology was a main driver, primarily led by an upgrade of Apple (AAPL) shares. One of Apple's skeptical analysts, Katy Huberty has finally changed tunes, with an upgrade and a substantial price target raise from $105 to $180. The Morgan Stanley analyst has had an appalling record of late predicting Apple's quarterly results, at one point being rated the "worst" in terms of estimate accuracy in research amongst 8 top Apple analysts, which is why her bearish tone had attracted far more skepticism than that of RBC Capital Market's analyst Mike Abramsky (He too however recently changed his tone as fears of Steve Jobs' sabbatical lasting indefinitely have subsided for the time being).

The reason for the change of heart, that ever popular iPhone, which by all rumour accounts is due for an upgrade during the WWDC event the company will host in early June. While speculation runs rampent about just what features will be included in new iPhones the sheer numbers just dont lie. Over 30Million iPhone/iPod Touch buyers downloading 1Billion applications creating a massive, and massively sticky, software distribution and upgrade cycle.

Apple shares have double the Nasdaq advance rising over 6% in late trading.

Investing with the 'stars'

2009-05-26T09:01:00.007-07:00

By Steven Halpern

"Golf has Tiger Woods, novelists have Tom Clancy, and the investment community has stars such as Bruce Berkowitz, Bill Nygren, Charlie Dreifus, and Mario Gabelli," states Paul Tracy.

insert.a.chart.PFE

In his The Street Authority Market Advisor he suggests, "These money managers are at the pinnacle of their craft." Here, he takes a look at these "celebrities" and some of their current top stock holdings.

"These money managers have all amassed prodigious gains over the years for their shareholders.

"Over the past few months, these gurus have come out with ringing endorsements for certain stocks. This isn't empty talk -- they are putting their money where their mouth is.

"Thanks to regulatory filings, interviews and shareholder reports, we can look over their shoulders and see where these elite investors are currently finding the most promising opportunities.

"Bruce Berkowitz is the lead manager of the Fairholme Fund, which has delivered a cumulative gain of 150% since inception 9 years ago. By comparison, the S&P 500 has backtracked -28% over the same time frame.

"When asked recently to name the one key metric that he uses to evaluate investments, Berkowitz didn't hesitate to say 'it's all about the amount of cash a company generates that can be passed to owners in relationship to the price.'

"Lately, he has plowed more than 50% of his fund's assets into health-care (particularly big pharma), aerospace and defense.

"His rationale is that there is ultimately nothing more important than the health and well-being of our families, and defense and health-care spending eat up a large percentage of the federal budget.

"His largest portfolio holding is Pfizer (NYSE: PFE), and recent buys include Boeing (NYSE: BA), General Dynamics (NYSE: GD), and Northrop Grumman NOC). (NYSE:

"Bill Nygren is lead portfolio manager of the Oakmark Fund, which has racked up double-digit annualized gains for the past 18 years. Nygren is confident that, over time, undervalued stock prices will always rise to reflect the value of the underlying company.

"In general, he prizes excess cash flows and relies on discounted cash flow (DCF) modeling for valuation -- buying stocks trading below 60% of fair value and then selling once they reach 90%. Nygren runs highly concentrated portfolios, so only his best ideas make the cut.

"Several stocks have passed his meticulous screening process lately, including Illinois Tool Works (NYSE: ITW), Texas Instruments (NYSE: TI) and advertising giant Omnicom (NYSE: OMC). But perhaps most noteworthy is a new stake in Microsoft (NASDAQ: MSFT).

"Nygren explains that Microsoft has always been an excellent company, but this is the first time that it has slipped into value territory. Back in 1999, the firm churned out profits of $0.70 per share and the stock peaked above $60.

"Today, it earns more than twice that much and there are fewer shares outstanding, yet they trade at less than one-third the price. In addition, Microsoft has over $20 billion in cash and offers a yield above the 10-year Treasury.

"There's a good reason why Charlie Dreifus was just selected Morningstar's 'Domestic Stock Fund Manager of the Year.' He captured that prestigious award by losing less than -20% in a year when many other small-cap stock funds lost more than -40%.

"During the last bear market from 2000-2002, his shareholders enjoyed a +53% gain, while the Russell 2000 sank -41%. What would you expect from an investor who refers to margin of safety as "the central concept in investing."

"Dreifus avoids flashy 'growth-story' stocks and sticks to boring companies with unassailable balance sheets and lofty returns on capital -- not unlike Warren Buffet.

"Dreifus is drawn to cash-rich companies that are trading for less than liquidation value. And he fishes in the micro/small-cap waters, where such bargains are more plentiful.

"Lately, Dreifus has been focusing his efforts on consumer-oriented stocks like children's apparel retailer Gymboree (Nasdaq: GYMB).

"Mario Gabelli is yet another Buffett disciple whose value roots can be traced back to Ben Graham. He employs many of the same research-driven tactics -- from dissecting a company's filings to interviewing its managers.

"Gabelli has developed a proprietary methodology that evaluates the real-world value of a company's balance sheet assets and future cash flow stream to determine its 'Private Market Value' (PMV).

"Since the inception of his flagship Gabelli Value Fund in 1989, this approach has quadrupled a $10,000 investment into more than $45,000 today (or roughly $80,000 before this selloff.)

"And thanks to a recent Barron's Roundtable discussion, we know exactly what his sights are set on now.

"Gabelli points out that there are 240 million cars on the road, many of which have been in service longer than six years (the point that repairs and maintenance become inevitable).

"Because consumers are holding off on new vehicle purchases right now, auto parts distributors like O'Reilly Automotive (NASDAQ: ORLY) are looking interesting.

"Elsewhere, he likes Dr. Pepper Snapple Group (NYSE: DPS), which churns out frothy cash flows and could be a buyout candidate.

"Maine & Maritimes (NYSE: MAM) is another favorite. The electricity transmission/distribution company stands to benefit from investments in green power, and a new line carrying wind-generated electricity to the New England power grid will put a charge in earnings."

IS THE BOND MARKET TRYING TO TELL US SOMETHING?

2009-05-26T09:01:00.005-07:00

By James Picerno

In absolute numbers it's easy to shrug off, but the trend appears to have gained new momentum over the past week or so.

We're talking here of the spread between the nominal 10-year Treasury Note and its inflation-indexed counterpart, a.k.a., the 10-year TIPS. The yield difference between these two securities is one of the more widely watched market-based forecasts of inflation. It's not infallible, but neither is it irrelevant. It does, however, offer a real-time measure of the crowd's outlook for inflation and as our chart below suggests, the market seems to be growing increasingly anxious.

In absolute terms, of course, it still looks trivial. The current 10-year inflation forecast of 1.73% is, by historical standards, quite low. And as the chart above reminds, we're still quite a ways from the 2.5% forecast that prevailed before all hell broke loose last September.

Nonetheless, strategic-minded investors should keep an eye on the trend, which at the moment is decidedly on the rise. Much of the increase in the inflation forecast comes from selling the nominal 10-year Note, which drives the yield higher. Last Friday, the conventional 10-year closed at 1.72%, up from less than 1% in mid-March.

The trend is hardly surprising. We've known all along that the Federal Reserve is intent on raising inflation to fend off the risk of deflation. That's been a wise policy, but it shouldn't be written in stone. The great question is when to turn off the liquidity machine? For the moment, the risk of acting too early and choking off any nascent recovery seem roughly balanced with the danger of letting inflation out of the bag by letting the liquidity injections run on too long. But balancing acts have a finite lifespan.

It's still too early to make definitive decisions, but the capital and commodity markets seem to be telling us that pricing pressure is no longer benign, as the buoyant markets so far this year in gold and TIPS suggest. If true, the next question: Are the so-called green shoots of economic recovery robust or simply a mirage? Unclear at the moment, and it's likely to stay that way for some time.

Definitive answers about the economic cycle are always ambiguous in real time. Normally, that's not a problem because the stakes aren't usually so high in managing the business cycle. But this time around, there's enormous pressure to jump start the economy after such a dramatic economic implosion and so the monetary and fiscal tools have been deployed to an extraordinary degree. The prospective risk of inflation, then, may be unusually high�"unless the central bank puts on the monetary brakes at the appropriate time. The trouble is that no one's really sure of timing. There's also some debate about whether the Fed will have the discipline to do the right thing when the time for action arrives.

Lots of questions, but at the moment bond traders don't appear willing to sit around and hope for the best.

Bookkeeping: Restarting James River Coal (JRCC)

2009-05-26T09:01:00.003-07:00

By Trader Mark
James River Coal (JRCC) is smaller than the "headline" coal stocks but is among the cheapest with a very surprising earnings report at the beginning of the month. In one of the worst trades of the year I closed out JRCC from the portfolio March 17th before "reflation" was cool at $11. [Mar 17: Bookkeeping - Closing James River Coal] The chart stunk as the stock was below all key moving averages...

(THEN)

Now however, the story is completely different as the stock is above all key moving averages.

(NOW)

And I missed a good 100% run. Within a few days of when I sold the stock jumped back over the 50 day moving average - then went sideways as the overall market screamed higher (which to me is "bearish") but then the earnings report seemed to surprise all observers. As always, technical analysis and price action is just a tool, not an all knowing provider of outcomes. In this case there was nothing in particular to let us know from $14s to $22s would happen within a handful of sessions.

We've been noting how coal is "hot" of late [May 20: Market Vectors Coal (KOL) Red Hot], and frankly JRCC is still dirt cheap compared to peers and always a candidate for a buyout offer. What I like about this technical set up is we are just above multiple support and if the thesis of the day turns away from "reflation" to whatever the next thesis is, we can cut back with a very defined spot.

I started a 1.9% stake here in the upper $20 range. Comparing earnings estimates is fraught with danger among coal companies because some rely on thermal coal, some metallurgical, some are heavily exposed to the spot market, and others have a lot of longer term contracts but JRCC is generally expected to print over $3 in earnings both in 09 and 10. Larger peers are generally trading (I am looking out to 2010 since 2009 estimates in flux) at about 11-12x 2010 estimates; obviously you can do the simple math and see if JRCC were valued the same it would be >50% upside. Being a smaller player I don't expect that gap to fill completely but if the variance closes there could be an opportunity there.

That said, as any reader of mine knows - when people yell fire and all commodities sell off none of this analytic talk will matters - the student body will run right, and all stocks in the commodity space will be sold off in the same direction. But I still like to pretend individual company metrics mean something rather than the only thing mattering being program trading by computers.

A quick look at earnings that helped to set the stock off (along with the recent love of all things commodities)

(May 1) James River Coal Co's (JRCC) quarterly profit beat expectations, boosted by a 73 percent jump in the average price of Central Appalachian coal (CAPP), but said it would cut production due to the softness in coal demand. The results pushed James River's shares up 26 percent.
CAPP average sales price rose to $90.91 per ton, compared with $52.56 per ton in the year-ago quarter, driven by new contracts signed by the company in 2008.
Revenue at the Richmond, Virginia-based coal producer rose 39 percent to $192.1 million.
In a conference call with analysts a company executive said James River cut production on Saturdays, stopped purchase of coal and idled most of its contract mines. It also plans to reduce capital expenditure as part of its cost-savings.
For 2009, the company has about 6.7 million tons of coal priced at $89 per ton. It lowered the price of a 700,000 ton contract to $70 from $108 and will re-adjust the amount for supplies in 2010-12. "The company... essentially gave up a little value on its 2009 contracts in order to get more value in 2010-2012. This is a strategy that we think makes a lot of sense for the company," said analyst Jeremy Sussman of NatixisBleichroeder.
"This should help discount any theory that James River is just a 'one-year wonder'," the analyst added, referring to the company's contract position for 2009 and 2010.
James River Coal, which operates in the Central Appalachian basin of the United States, mines and sells bituminous, steam and industrial-grade coal in Kentucky and Indiana.

Minimum Stop Loss

2009-05-26T09:01:00.001-07:00

By John Forman

A question came up on Trade2Win that I thought probably was of interest to readers here as well.

Hi, has anyone done a ’study’ on the minimum stop loss required for different times of the day, when trading eur/usd ? or is this even possible to determine ?

Minimum stop loss = least likelihood of being stopped out with the smallest monetary outlay.

Optimal stop levels are always on the mind of traders, especially those looking to develop systems. The problem is coming up with them is oftentimes a completely worthless exercise. I can tell you from experience that putting in some kind of fixed stop into many (most?) trading systems actually degrades the system’s performance, except in the case of very large stops meant to catch the largest of adverse movements.

All of this is why I constantly make the point that one should think not in strict “stop loss” terms, but rather in “trade exit” terms. By this I mean that the stop point should be placed in line with whatever the exit strategy of the system or method or whatever requires. If you’re trend trading then your stop should be at a point where indications would conclude the trend isn’t in play any longer. In a range trading system the stop would be at the point where it’s clear the range trade is no longer working.

A proper trading strategy has both a well thought out entry point and a well thought out exit point - be they systematically derived or discrectionary. The are each based on the intended focus of the strategy, not totally seperate approaches. If you attempt to mis-match entry and exit you end up with a system that is inefficient all the way around.

Where should I put my stop and take profit orders?

Approaches to exiting trades

Different types of stops

Picking apart more trading rules

Some Not-So-Great Tips for Using Stop Orders

MrSwing Lite - Swing Trading Picks - 05-26-2009

2009-05-26T06:01:00.001-07:00

By Larry Swing

Some Potential Swing Trading Opportunities for today...

These stocks will be monitored by you every day!!! Follow the master plan and you will be on your way to learn to trade stocks like a PRO... enjoy...

The results are generated by my stock scanner. Only the first 5 results are displayed here for every scan.

For full results, subscribe now to StockScanPRO for 30 days FREE, then only pay $9.99 a month!.

SECRETS TO GREAT RESULTS:
CONFIDENCE - PATIENCE- FOCUS - DISCIPLINE

Long Swings

AGO	NYSE	Assured Guaranty Ltd	5/25/2009
BA	NYSE	Boeing Co	5/25/2009
CTL	NYSE	Centurytel Inc	5/25/2009
CVC	NYSE	Cablevision Sys Corp Cl A Ny Cablvs	5/25/2009
EQ	NYSE	Embarq Corp Com	5/25/2009

Results for NSDQ

5 results:

ATVI	NSDQ	Activision Inc New Com New	5/25/2009
CERN	NSDQ	Cerner Corp	5/25/2009
HLTH	NSDQ	Emdeon Corp	5/25/2009
JRCC	NSDQ	James River Coal Co Com New	5/25/2009
ZWZZT	NSDQ	Nq Test Code	5/25/2009

HIBB

NSDQ

Hibbett Sports Inc

5/25/2009

Short Swings

0 results:

Results for NYSE

1 results:

RDY

NYSE

Dr Reddys Labs Ltd ADR

5/25/2009

Results for NSDQ

2 results:

ADSK	NSDQ	Autodesk Inc	5/25/2009
NDSN	NSDQ	Nordson Corp	5/25/2009

Lessons and Analysis on India’s Nifty Index May 25

2009-05-26T02:01:00.007-07:00

By Corey Rosenbloom

Along with many other traders, I have been impressed with the strong action in India’s “Nifty 50″ Stock Market Index lately. Let’s take a look at the daily and weekly chart to see the structure and learn some valuable quick lessons.

I have highlighted the ‘rectangle consolidation’ numerous times in past posts on the Nifty index, applying simple, classical Technical Analysis by saying:

“In my experience, it’s best not to get fancy inside a lengthy flat consolidation - your best odds come from waiting for a break-out from consolidation before getting involved with a trade. [T]he structure is clearly defined and the implication is that once price breaks out of the rectangle (be it on the upside or the downside), then odds favor a trend (or momentum) move to carry in that direction for some time. Until then, odds favor waiting for the break or risk getting chopped around too much in your trading.”

We got that breakout - to the upside - in April and sure enough, price has ejected upwards (out of a demand/supply imbalance) in a momentum move that has surprised many investors.

I prefer to enter breakouts when price pulls back (retraces) to test the breakout zone which didn’t really happen, though we did get a slight pullback before price began the second phase of upward momentum in May.

India’s Nifty Index has been showing relative strength to the S&P 500 ever since the October lows and - with the exception of the rectangle - hasn’t looked back since.

We’ve made two new momentum highs on the 3/10 Oscillator which hints that higher prices are perhaps more likely yet to come, but we’re due a pullback to retrace part of the massive gain that arose from the recent election gains.

Let’s step up our time horizon to see the weekly chart and trend structure (continue reading).

Observing the Fibonacci grid from the 2008 price high at 6,250 to the key support low at 2,570, we see that price retraced cleanly to the 50% Fibonacci retracement at roughly 4,470 which was also prior support on the March lows (and resistance at the July 2009 highs and July 2008 highs as well). Thus, the 4,470 level holds key significance to the market in terms of likely overhead resistance that must be cleared.

Notice that, surprisingly with the recent strength, the 3/10 Oscillator failed to achieve a new momentum high (it did not surpass the 500 level hit in October 2007) though it has made a new weekly momentum high not seen in almost two years.

The moving average structure - which always lags price - is still in the most bearish orientation possible (20 under the 50 which is under the 200) though we’re seeing the 20 EMA race up to break above the 50 EMA soon, provided that price holds above the 50 EMA over the next few weeks.

The fact that price broke so strongly above the 50 week EMA is significant - I figured we’d get at least a pullback off this level to retest the 20 EMA, given there was a red doji at this level last month that I highlighted in a post. That serves as a reminder that we deal in probabilities, never certainties, and that markets are governed by supply and demand, not magic technical indicators.

Let’s keep watching this powerful index to see if we can sustain these higher prices (which now seems likely) and note how far sellers bring the index down on any sort of expected pullback.

Corey Rosenbloom
Afraid to Trade.com

A Simple & Powerful Timing Indicator

2009-05-26T02:01:00.005-07:00

By Rob Hanna
Today I am going to discuss a slight twist on an intermediate-term indicator that I’ve discussed before. The idea comes from Gerald Appel’s book “Technical Analysis �" Power Tools For Active Investors”. In it he discusses a relative strength measure of the NYSE vs. the Nasdaq looked at on a weekly chart. The premise behind the indicator is that the market tends to perform better when the appetite for Nasdaq stocks is greater than the appetite for NYSE stocks.Part of this is due to the higher volatility of the Nasdaq, and part of it is due to investors willingness to speculate more aggressively when their outlook is positive. Critics of the indicator suggest the reason it works is largely due to the higher beta of the Nasdaq. That may be part of it, but it doesn’t mean the indicator is without value. In fact, whatever the reasons behind it, the indicator has been an excellent barometer over the years. In the book, Mr. Appel suggests using a 10-week relative strength indicator to measure this phenomenon.

Since I normally trade the S&P 500 and not the NYSE Composite, I applied the indicator to the S&P 500. Doing so, I found the results to be even better. The indicator is shown in the chart below.

The two lines on the bottom panel are the relative strength indicator. When the solid line closes above the dotted line that means the Nasdaq is leading the S&P. When it closes below the dotted line, that means it is lagging the S&P. To make it even easier to view I’ve made the line green when the Nasdaq is leading and red when the Nasdaq is lagging. As you can see, the Nasdaq is currently lagging.

The performance can be evaluated a number of ways. This first equity graph (courtesy of Tradestation) shows the points gained in the S&P 500 since June 30, 1972 �" May 15, 2009.

As you can see, over the time period measured the S&P gained 1,341.27 points when the Nasdaq was leading. Meanwhile, the total points gained by the S&P over the period was 775.74. The Nasdaq held a leadership position just slightly more than ½ the time during the period. So almost twice the gains (points-wise) were achieved in nearly half the time. Not bad.

What if you started with a $100,000 portfolio and compared buy and hold to only holding when the Nasdaq led?

I decided to show these results in Excel.

These results represent returns from 4/19/1971 �" 5/22/2009. They do not include dividends. The pink line is the growth of $100k in the S&P 500. The blue line shows the results of investing in the S&P only when the Nasdaq is in a leadership position and earning 0% interest otherwise. The yellow line shows results if instead of earning 0% interest, you managed to earn a steady 2.5% interest on your cash balance while not in the market. While 2.5% isn’t easily doable today, over most of the time period it was extremely low.

It appears the only period where the Nasdaq/S&P Relative Strength Indicator didn’t provide an edge was during the 1995-2000 boom market when you would have wanted to be invested basically the whole time.

The ending value differences are striking. By sitting out of the market when the Nasdaq is lagging and earning a minimal interest rate on your cash, returns more than tripled. Nearly $2,000,000 more would have been earned on an investment of $100,000.

The Nasdaq/S&P relative strength indicator is well worth keeping and eye on and is a useful tool for measuring the health of the market. I’ve recently added it as one of the weekly charts I track on the Quantifiable Edges members charts page.

I’ve also posted a few files on the free downloads section of the website that may be downloaded.

1) The 1st file is the Excel worksheet that shows exactly how the model was built and the returns calculated. It also includes the chart shown above. Anyone interested in using Excel for historical backtesting or modeling, or who would like to see exactly how the relative strength indicator was calculated, may find it useful.

2) The 2nd file is a zip file for Tradestation users. In the zip file is an eld with the indicator that you may apply to your charts and a strategy that will allow you to run your own tests. Also included in the zip file is a worksheet that has everything all set up. It was created in Tradestation 8.5 (build 2289). My understanding is that if you are using an older version of Tradestation the .eld should import fine, but the worksheet may not open properly. Therefore, after importing the .eld file you’ll need to set up your own chart to apply the indicator and strategy.

Anyone who is a subscriber, or has taken a free trial of Quantifiable Edges in the past, or has registered prior to downloading the Daily Trading Coach Historical Patterns Sample Spreadsheet is already registered to access the free downloads section. If you don’t recall or don’t have a password, just enter your email address and click on the “Don’t know your password?” line below the login box and it will be immediately emailed to you.

Here’s a link to the free downloads page:

http://www.quantifiableedges.com/members/freedownload.php

Analysis of the MCF Trade - Part 3 - Neural Nets and Statistical Analysis

2009-05-26T02:01:00.003-07:00

By David Buffalo

For previous parts of this discussion, click on Part 1 and Part 2.

And now onto perhaps the most controversial and yet most satisfying thing that I do, (in terms of maintaining trade plan performance), which is to analyze the patterns in terms of their viablility as profitable trades. I use a piece of software called NeuroShell Day Trader Professional from Ward Systems, Inc. The major reasons I use the software are:

1) It is relatively easy to use.

2) The product is very flexible in terms of ways in which neural nets and price/indicator/data can be used together to produce outputs.

3) The company, though not the first to offer neural nets, has been offering its product longer than anyone else. Steve Ward, Marge Sherald, and the entire staff are dedicated to advancing the technology as computers and software evolve. They really care about their product.

I know that there are tons of other products out there, but I choose to stand behind this product as it has served me well now for the better part of a decade. I am upgrading my computer systems to better utilize the next generation of this software which is coming out soon.

What I am attempting to do with the neural nets are to identify the strength of pattern retracements that look like the patterns I described in Part 2. As I stated prevoiusly, the typical inputs the nexts factor most are the 0.618 retracement and the momentum reversal.

Because that is generally the case, he is what you see when you analyze the patterns with the boolean algebra expression for the pattern discussed in Part 2.

What I attempt to do first is to find a period time prior to the present that has similar patterns in price. It just so happened that the period from 08/16/2001 to 8/13/2004 worked well, when prices on $MCF were basing and attempting to rally. Take a quick look at the picture as shown from the software. What? You think I made that up? Here is a look at the same chart with E-Signal to give it some definition.

Two quick points on the chart generated by the software (and this is where I might be criticized both by mathematicians and the builders of the software). The light gray bars are the sample set from which inputs are taken to build the neural nets that are used to generate the signals on the green bars which are the out of sample set. Those signals generated on the green bars are generated without ever having seen the data before. It is an example of walk-forward testing. So what is so controversial about that. Well, depending on how you approach the theory, there should be a period of data in which the nets are allowed to adapt to the new data before making predictions on its own. What I have found in the last 9 years of doing this is that for patterns, the adaptation period does not improve the results very much. I may change my opinion about that when I begin to use the new software, but I am merely reporting what my experieince has been.

Another important point to add to that last statement is that many times I will not just look for a opening price prediction 1 day in the future, I have some very successful models (mainly with large cap stocks with huge histories) that accureately predict price movements 500 or more days in the future. Why is that? One technique I use is to measure the low to low distance in time between the first low measured and the 0.618 retracement value. I have found that there are cycles associated with these retracements that will repeat very many times before some disruption changes them. When that disruption hits, I simply retrain the nets to provide the outputs.

What do I get for all this manipulation. Well, here is an aggregate output of data for the trading model. I want to emphasize a few things here:

1) As was discussed in a previous part, I want to be able at a minimum of $1.60 profit to 1 dollar loss as a profit to loss ratio of the model, based on a 5-day hold of the position (that is defined by the model also). At the same time, I require that a minimum of 60% of those trades are winners from the output of the model.

2) One other thing you might not realize is that this model will generate buy signals that are not exactly at perfect retracement points, which can be winners also. I have found, however, that if I remove those signals from the model, the model performance increases dramatically. Because of that, I only thake signals that are generated AFTER the momentum reversal and the bullish bar have appeared. One reason I am shifting to the new software and computer set up is to take advantage of the fact that I can harvest these signals directly without having to access each chart individually. That is so time consuming in the old set-up that I could only access them as I screened for them. There was a previous limit of 180 signals that could be extracted in an 8 hour period using a spreadsheet and keyboard macro program. That was so inferior that I complained about it and apparently Ward Systems has designed a new model to allow me to grab them. If that is true, then I can have many more opportunities to trade positions daily. We will see how that goes.

3) Just because this net model generates profits of decent expectancy, it does not mean these models will not draw down occasionally. That is the nature of the beast. What most novice traders do not realize in trading a model is that even though a model does well over a long period of time, one might begin trading that fantastic model during a period of drawdown. That is why it is essential to have enough capital in your trading account to withstand those drawdown periods. If you do not understand that very important concept, you should probably not trade until you really do.

It is the nature of the beast to have drawdowns. All businesses, trading businesses, restaurants, grocery stores, or other enterprises GENERATE LOSSES. It is what you do to mitigate and manage those losses that will determine your success in business. And you guessed it, trading IS AN BUSINESS. If it is not a business for you, then head to your local convenience store and go buy a bunch of Powerball tickets. At the time of this writing, the big payoff was 222 million US dollars. You will likely do just as well as trading if you do not understand loss mitigation.

In the next segment, I will show you the most recent outputs of the model, show you the daily entry and then show you how one can improve the daily entry beyond buying at the open. There are some critical intraday rules about price action that will aid you not only as a swing trader but as an intraday trader as well.

More is coming. I have a tremendous amount of technical issues with the network, software, and new equipment to install. Be patient and I will make it worth your while. I really appreciate that the readership of this blog has increased markedly despite some very obvious archiving flaws and problems building outbound links. I also hate the fact that comments are sent by a coded archive via e-mail. I hope to rectify that soon.

I am going to call a local web consultant this week to figure out how to fix it in the short run and then to convert to Wordpress. I definintely need a clone, but such is life. I love trading and it keeps me off the streets. I will strive to improve the output over time. Even though I am a one-man shop, I think I can fine tune what is being written to satisfy readers and people who want to learn about trading.

How I'm Playing This Setup on the Hourly Chart

2009-05-26T02:01:00.001-07:00

By John F. Carter

Market commentary for 05/26/2009

2009-05-25T13:01:00.001-07:00

By Ivica Juracic

Market commentary for 05/26/2009

Good day,

Friday was in line with expectation. Volume was very light and we saw choppy market action. Usually I will say that is worthless market action, and since it was Friday before long weekend it was great chance to close day earlier. Now let’s see what charts suggest. First I will start with 60 min charts. Friday action was needed for low risk continuation possibility. The DIA and the SPY still have 200sma as strong support and it won’t be bad if they will stay in range at Tuesday. That will decline trading risk. I draw equal move (blue lines) and you will see on daily and weekly chart that indices have room for that scenario. In breakdown case we will must pay attention on pace and that will tell us what target we can expect and we can follow that in the live trading room.

On the daily charts indices made lower high after strong start. The SPY and the DIA closed week under daily 20sma after long time what suggest that daily/weekly resistance will hold for some time. I know that everyone expect weekly correction (including myself) but daily charts suggest for now that wont be easy. Reason for that is first bounce from 20sma and back to lower low. Pace of that bounce was very strong, much stronger then we want see for reversal pattern (avalanche) and that action increase odds for daily range or rounding top action. Whatever will be, for now daily charts suggest that we won’t see clear trend down right at start. Of course that can change in day or two, but right now charts suggest that. Strong down, strong up, strong down result usually with range. It can be base, but also can be channel down, we will see. Next week will give us answer because if 60 min scenario will go with strong pace then daily range scenario will decrease.

On the weekly charts we can see that buying pressure lost steam but first support area (10sma) is close and that support commentary about daily charts. After 10sma there is price and finally 20sma support area. We can’t know which support will hold because daily action not helping us. I will little back on bounce pace at daily charts. In case that was weak (avalanche) then I will look for stronger reversal on weekly charts, but right at start, with close support and odds for daily range, I will expect that risk will be high for swing trades. For longer correction we must follow weekly charts and 20sma as main support area. Hope that I explained successfully what I see and what expect from next week. First I want see if can indices made new low on daily charts. That will give us answer about range or new trend down (lower high-lower low) and answer on that we will see first on 60 min charts.
I invite you all to join us for very popular price and it is open only next week. After that price will be increase. Wish you all good trading next week.

Wish you all good trading!!!

Kind regards.
Danded2005@inet.hr
Ivica

Gold & Silver stocks

2009-05-25T12:01:00.003-07:00

By All Allan
Last week I suggested AUY was breaking out on a very strong chart pattern. Yesterday's post on Platinum made similar observations. Today I'm looking at the Philadelphia Gold & Silver Sector Index.

XAU

The big picture Weekly chart looks to be breaking out above 150 with an initial target of 225:

This is confirmed in the 120 minute shorter-term chart, suggesting about a 10 point risk (Blue Wave stop level) for about a 75 point gain:

The individual stock components of the XAU:

A weak dollar, geopolitical concerns and the potential flight to safety in the next down leg of the global financial markets all contribute to fundamentals underlying the bullish chart patterns.

Odds & Ends

Insider Buying

I received some requests recently to be added to the Insider-buying mailing list, "Sally." Unfortunately, we discontinued the list late last year, due to some time constraints as well as the drying up of quality insider buying. For an excellent summary of what we were doing and what has been happening recently in this area, I recommend the following article by two of the original members of our insider buying project: Insider Buys - Methods and Strategy.

Moderation

Having to moderate comments is a pain and I have temporarily removed moderation to make my work easier and to promote a free and open discussion of topics covered here. The two biggest no-no's are personal attacks and distortion of the truth. If they emerge again, either moderation goes back on, or comments will be disabled completely. There is virtually nothing that can't be said in response to blogs or other comments that can't be written without resorting to personal attacks or misrepresentations. In other words, be engaging without being destructive. The collective ideas and thoughts of the followers of this blog are highly valued by me and would be a terrible loss if a few mudslingers were to ruin it for all.

NNVC

I met with Dr. Eugene Seymour, CEO of NanoViricides a couple of weeks ago. Although we have spoken many times on the phone and through email, this was our first face to face meeting. We talked for about two hours, although Dr. Seymour did most of the talking. Hearing him embrace the company's potential was in a word, breathtaking. My five-year target for NNVC's stock price remains in the triple digits. If anything, it may be at the lower end of ultimate appreciation.

Richard Fisher Speaks Sense

2009-05-25T12:01:00.001-07:00

By Trader Mark
A quite impressive interview with Richard Fisher, President of the Dallas Fed, in the Wall Street Journal. After reading through this I see there is no chance on Earth he will ever replace Ben Bernanke as he is not a political puppet; he reminds me of a Paul Volcker (who appears to be a mentor of sorts) rather than a Greenspan/Bernanke. In fact if you don't want to read the whole piece let me leave you with 2 scary items.

In a speech at the Kennedy School of Government in February, he wrung his hands about "the very deep hole [our political leaders] have dug in incurring unfunded liabilities of retirement and health-care obligations" that "we at the Dallas Fed believe total over $99 trillion." (think about that number for a moment - it is hard to comprehend. Our entire economy is $13-14T and we owe $11T per official national debt. Then think of $99 Trillion of obligations... however long it is spread out over)
Voices like Mr. Fisher's can be a problem for the politicians, which may be why recently there have been rumblings in Washington about revoking the automatic FOMC membership that comes with being a regional bank president. (and that pretty much sums up the context of our problems - if truthful information is "troublesome" eliminate the source of that information and speak happy talk)

If you prefer the non Cliff Notes version of the type of person who should be head of the (cough) "independent Federal Reserve" go onward past this point...

From his perch high atop the palatial Dallas Federal Reserve Bank... Richard Fisher says he is always on the lookout for rising prices. But that's not what's worrying the bank's president right now. His bigger concern these days would seem to be what he calls "the perception of risk" that has been created by the Fed's purchases of Treasury bonds, mortgage-backed securities and Fannie Mae paper. (moral hazard, the Fed put, whatever you want to call it - backstop nation)
Mr. Fisher acknowledges that events in the financial markets last year required some unusual Fed action in the commercial lending market. But he says the longer-term debt, particularly the Treasurys, is making investors nervous. The looming challenge, he says, is to reassure markets that the Fed is not going to be "the handmaiden" to fiscal profligacy. "I think the trick here is to assist the functioning of the private markets without signaling in any way, shape or form that the Federal Reserve will be party to monetizing fiscal largess, deficits or the stimulus program."
The very fact that a Fed regional bank president has to raise this issue is not very comforting. It conjures up images of Argentina. And as Mr. Fisher explains, he's not the only one worrying about it.
He has just returned from a trip to China, where "senior officials of the Chinese government grill[ed] me about whether or not we are going to monetize the actions of our legislature." He adds, "I must have been asked about that a hundred times in China." [May 21, 2009: China Becoming More Picky About Debt]
Mr. Fisher was educated at Harvard, Oxford and Stanford. He spent his earliest days in government at Jimmy Carter's Treasury. He says that taught him a life-long lesson about inflation. It was "inflation that destroyed that presidency," he says. He adds that he learned a lot from then Fed Chairman Paul Volcker, who had to "break [inflation's] back."
Mr. Fisher has led the Dallas Fed since 2005 and has developed a reputation as the Federal Open Market Committee's (FOMC) lead inflation worrywart.
In September he told a New York audience that "rates held too low, for too long during the previous Fed regime were an accomplice to [the] reckless behavior" that brought about the economic troubles we are now living through. (speaks the truth)
He also warned that the Treasury's $700 billion plan to buy toxic assets from financial institutions would be "one more straw on the back of the frightfully encumbered camel that is the federal government ledger." (more truth, someone stop this man)
In a speech at the Kennedy School of Government in February, he wrung his hands about "the very deep hole [our political leaders] have dug in incurring unfunded liabilities of retirement and health-care obligations" that "we at the Dallas Fed believe total over $99 trillion."
In March, he is believed to have vociferously objected in closed-door FOMC meetings to the proposal to buy U.S. Treasury bonds. (wait, I thought this was a new open and transparent Fed? Would of loved to be a fly on that wall)
So with long-term Treasury yields moving up sharply despite Fed intentions to bring down mortgage rates, I've flown to Dallas to see what he's thinking now.
Regarding what caused the credit bubble, he repeats his assertion about the Fed's role: "It is human instinct when rates are low and the yield curve is flat to reach for greater risk and enhanced yield and returns." (Later, he adds that this is not to cast aspersions on former Fed Chairman Alan Greenspan and reminds me that these decisions are made by the FOMC.)
"The second thing is that the regulators didn't do their job, including the Federal Reserve. (solutions we are offering? Give Federal Reserve more power)
And finally, he says, there was the 'mathematization' of risk." Institutions were "building risk models" and relying heavily on "quant jocks" when "in the end there can be no substitute for good judgment."
What about another group of alleged culprits: the government-anointed rating agencies? Mr. Fisher doesn't mince words. "I served on corporate boards. The way rating agencies worked is that they were paid by the people they rated. I saw that from the inside." He says he also saw this "inherent conflict of interest" as a fund manager. "I never paid attention to the rating agencies. If you relied on them you got . . . you know," he says, sparing me the gory details
That's a bit disconcerting since the Fed still uses these same agencies in managing its own portfolio.

Remember to that last point, the Fed is only buying "highest quality AAA paper!" to spare taxpayers risk! hah

I wonder whether the same bubble-producing Fed errors aren't being repeated now as Washington scrambles to avoid a sustained economic downturn. He surprises me by siding with the deflation hawks. "I don't think that's the risk right now." Why? One factor influencing his view is the Dallas Fed's "trim mean calculation," which looks at price changes of more than 180 items and excludes the extremes. Dallas researchers have found that "the price increases are less and less. Ex-energy, ex-food, ex-tobacco you've got some mild deflation here and no inflation in the [broader] headline index."
Mr. Fisher says he also has a group of about 50 CEOs around the U.S. and the world that he calls on, all off the record, before almost every FOMC meeting. "I don't impart any information, I just listen carefully to what they are seeing through their own eyes. And that gives me a sense of what's happening on the ground, you might say on Main Street as opposed to Wall Street." (so talking to a group of bankers in NYC - and Charlotte - does not give you a clear world view? Hmm, might want to tell Ben)
"Throughout history," he says, "what the political class has done is they have turned to the central bank to print their way out of an unfunded liability. We can't let that happen. That's when you open the floodgates. So I hope and I pray that our political leaders will just have to take this bull by the horns at some point. You can't run away from it."
Voices like Mr. Fisher's can be a problem for the politicians, which may be why recently there have been rumblings in Washington about revoking the automatic FOMC membership that comes with being a regional bank president. Does Mr. Fisher have any thoughts about that?
This is nothing new, he points out, briefly reviewing the history of the political struggle over monetary policy in the U.S. "The reason why the banks were put in the mix by [President Woodrow] Wilson in 1913, the reason it was structured the way it was structured, was so that you could offset the political power of Washington and the money center in New York with the regional banks. They represented Main Street. "Now we have this great populist fervor and the banks are arguing for Main Street, largely. I have heard these arguments before and studied the history. I am not losing a lot of sleep over it," he says with a defiant Texas twang that I had not previously detected. "I don't think that it'd be the best signal to send to the market right now that you want to totally politicize the process."
Speaking of which, Texas bankers don't have much good to say about the Troubled Asset Relief Program (TARP), according to Mr. Fisher. "Its been complicated by the politics because you have a special investigator, special prosecutor, and all I can tell you is that in my district here most of the people who wanted in on the TARP no longer want in on the TARP."
At heart, Mr. Fisher says he is an advocate for letting markets clear on their own. "You know that I am a big believer in Schumpeter's creative destruction," he says referring to the term coined by the late Austrian economist. "The destructive part is always painful, politically messy, it hurts like hell but you hopefully will allow the adjustments to be made so that the creative part can take place."

NoVA Home Sales Increase for 13th Straight Month

2009-05-25T07:01:00.001-07:00

By Dr. Mark J. Perry

The Northern Virginia Association of Realtors reports that:

The number of Greater Northern Virginia region homes sold in April was 2,904, a 5.75% increase from April 2008’s total of 2,746 sales. This marks the thirteenth consecutive month of increased year-over-year sales totals for Greater Northern Virginia. The average sales price of $331,600 in April 2009 continues to lag behind the 2008 average by 18.6%. The April 2008 average sales price was $407,500 (see chart above).

Across Greater Northern Virginia, the number of listings showed a decrease from 2008 numbers, with 15,683 listings active, which is 33.2% less than this time last year, when 23,471 homes were available. The average number of days on the market (DOM) for a home sold in April 2009 was 89 compared with last year’s 112 DOM, a decrease of 20.5%.

MP: Although the average sales price in April ($331,600) was down from a year ago by 18.6%, it was up from the average price in March ($317,158) by 4.55%, which was above February's average price of $305,000. The $303,000 average price in January 2009 appears to mark the bottom of the market for Northern Virginia, followed by 3 months of increasing average prices. Now with both unit sales (13 consecutive months) and average home prices increasing (three consecutive months), along with reduced marketing time by 23 days, we can probably conclude that the real estate market in Northern Virginia reached a bottom in January 2009 and is now coming back.

For some perspective, consider that in April of 2006, the average sales price was $507,585, or 53% above the April 2009 average price.

Markets in Everything: Tata's $8,000 Condos

2009-05-25T06:01:00.001-07:00

By Dr. Mark J. Perry
BUSINESS WEEK -- Tata, the Indian company that made worldwide headlines with its $2,000 Nano car, now plans to build 1,000 tiny apartments outside Mumbai that will sell for $7,800 to $13,400 each. The company plans to roll out low-cost projects outside other major cities.

Tata’s housing division is targeting a segment of the market that was largely overlooked during the housing boom. India’s builders were concentrating on building shiny new high rises and mansions on golf courses. Builders were after profits, but they were also trying to justify their fast-accelerating land costs, especially in and around Mumbai (formerly known as Bombay) and other major cities.

But some business consultants (most prominently, C.K. Prahalad) were arguing that companies would profit handsomely if they target the “bottom of the pyramid” where the bulk of consumers are. It looks like Tata is taking that advice.

HT: Freakonomics

Chart of the Week: Commodities and the Dollar

2009-05-25T01:01:00.001-07:00

By Bill Luby

One of the market-moving stories of the week was a decision by Standard & Poor’s to lower their outlook for AAA-rated sovereign debt of the United Kingdom from stable to negative. This action caused ripples in the currency dollar coming under pressure after investors such as Bill Gross of PIMCO expressed concerns about the mounting U.S. deficit and potential future risk to the AAA credit rating for U.S. debt. markets, with the

By the end of the week the dollar was at a four month low against the euro and commodities were up sharply, partly because commodities are seen as an effective hedge against inflation.
In the chart of the week below, I have captured a chart of the Rogers International Commodity Total Return Index ETF (RJI) versus the U.S. dollar. The chart shows that the dollar peaked in mid-December and has declined steadily to a current level that is comparable to where the dollar was trading in mid-September.

The drop in the dollar has helped to lift prices of dollar-denominated commodities and provided some assistance to commodities as they formed a bottom in mid-February. During the course of the past three months, commodities have had two up trending periods, each of which was followed by a consolidation period. With the dollar breaking down and falling below support at the end of the week, commodities could be preparing for another upward leg soon.

[source: StockCharts]

SP500 Consolidates in Tight Range

2009-05-24T15:01:00.001-07:00

By Corey Rosenbloom

After an amazing run-up off the early March lows, the S&P 500 is finally pausing to consolidate some of those gains. Let’s take a look at the current triangle consolidation forming and note key levels of support and resistance going forward.

As I mentioned recently, the S&P 500 has (at least) three levels of confluence resistance at the 940 level via the falling 200 day SMA, top of the Bollinger Band, and the January highs. These levels are still holding a lid on price as bulls bump against this area.

However, there now has developed a level of key support about the 880 level, coming from the February highs, May lows (resistance once broken becomes support) and the 20 day EMA.

There is also a rising trendline that can be drawn under the steady uptrend since March, but if you look very closely, price has just nipped beneath this established trendline in what might be an early sign of weakness - 45 degree angular trendlines are never eternally sustainable, especially on broad indexes.

A doji has formed on the support of the 20 EMA at the 880 level.

Look closely also to see that - currently - a descending triangle may be forming on the daily chart - if so, this has bearish implications. Notice the contraction in price swings that will soon lead to an apex and breakout of the minor converging trendlines.

As it stands now, 940 will be powerful resistance to break and if price fails to hold 880 as support, then it will set-up a sudden “magnet trade” to test the rising 50 day EMA at 860 and if that is broken, then we will have to look to Fibonacci retracements (drawn from the March low to the May high) for additional levels of possible support.

As I suggested previously, it’s probably better for most people to wait until we break above 940 or beneath 860 or 880 instead of trying to play Price Ping-Pong between these key levels.

Corey Rosenbloom, CMT
Afraid to Trade.com

Here in my CAR

2009-05-24T11:01:00.001-07:00

By Tim Knight

Happy Memorial Day weekend, everyone. I've got a house to clean up after a big get-together we had on Saturday, so I'll make this brief. Look at this chart of CAR, which is Avis, the big auto rental firm:

Now, I did all right with my "lottery picks" from mid-March until now. I made 100% in some cases, and nearly 200% here and there. I certainly didn't capture all - or even most - of the rise, but in the account where I allowed myself these battered picks, I did pretty well.

I pick CAR as an example of why I think the easy money has been made in lottery-land. This stock had gone from about thirty dollars to thirty cents in the course of eighteen months, but from March 3rd to May 20, it went up well over 1,000%. I did not participate in this move, but it stands out as one of the more extraordinary lottery stocks I pick.

Over the course of the bear market, we've seen a number of these sweeps upward on battered issues, although this one is by far the most dramatic. But the cold fact of the matter is that (a) there was a reason the stock lost 99% in the first place; (b) 1000%+ moves are not sustainable; (c) the amount of overhead supply at these levels is staggering.

But here's the more important point of all - - -the nature of percentages can wreak havoc on a portfolio at levels like this. If you bought in at 40 cents, you're sitting pretty, and you could be greedy and see if this thing manages to get to five, six, or seven bucks. But a person who bought on, say, Wednesday, is already looking at a 20% loss, because there is hardly anything holding prices up after such a swift mood.

Bottom line for me is that I'm less and less inclined to add lottery picks, and I'll be making my stops on the ones I do have increasing unforgiving.

CashBurnBook, I Mean FaceBook

2009-05-24T10:01:00.003-07:00

By Kenn Registe
I was listening to NewsCorp's dismal earnings report last week, in which operating income declined 47% YoY due to weakness at all divisions except Cable, and in which CEO Rupert Murdoch declared that the worst of the economic decline is over. FIM revenues, where MySpace's numbers are reported, declined 11% YoY due to 16% lower advertising revenues, due to a reduction of branded and performance based advertising at MySpace.

I have long held that social networking sites will be a challenge to monetize and then a greater challenge to drive to significant profitability. In my NewsCorp model, I have MySpace generating about $630 million in revenues for the year, about half of that comes from Google's disappointing search deal. Most reports have FaceBook generating about $300 million in revenues in 2008. My quick slight of hand calculations, so to speak, has FaceBook's revenues growing about 50% in 2009 to about $440 million.

According to the Compete data graphed below, FaceBook's domestic unique visitor traffic has been on a tier, jumping 250% in April 2009, while MySpace's domestic traffic declined 9% YoY and has declined every month for the past year. My guess is that MySpace's enormous traffic is shifting to FaceBook.

That's all good news for FaceBook. As shown by the following graph, FaceBook's page views have grown enormously, as everyone and their daddy, is now on FaceBook. My 70 year old dad recently requested that I add him as a friend.

But all that glitter isn't necessarily gold. My back of the envelope analysis shows that those billions of page views are digging FaceBook into a big hole and they will likely have to raise a significant amount of capital this year. My calculations show that FaceBook will burn through approximately $250 million in cash in 2009.

Good luck to FaceBook, but those numbers will make it difficult for them to go public in 2010 and they will have to sell out to Microsoft, in my less than humble view.

Tool Time with Lowe's & Home Depot

2009-05-24T10:01:00.001-07:00

By Chris Krasowski
The markets had a strong start to the week, led mainly by Bank stocks and the Tech sector. However, the two biggest names in Home Improvement were also on tap to deliver results. Lowe's (LOW) delivered Monday with bigger brother & competitor Home Depot (HD) coming in on Tuesday.

During Monday's bullish day, Lowe's was able to capitalize on results that beat expectations and climb 7% utilizing its first-reporter advantage. Now although profits fell 22% year over year, expectations were for a more severe drop. Income came in at $476Million vs $607Million in the year ago quarter ($0.32/share), while on the top line, Revenue was $11.83Billion vs $12.01Billion, a drop of 2%.

Compared to expectations of $11.63Billion in Revenue and $0.25/share in Income, it would appear that Lowe's is holding onto business at a better than expected clip. However, talk from traders, and what was wildly reported by the Investment media was that the expectation beating results were driven primarily by cost-cutting, as top line Revenue numbers were rather muted.

Lowe's did its best to try and appease Investors by guiding higher for next quarter with a range of profits from $0.51 to $0.55 per share, compared to Wall Street's numbers of $0.50 per share in earnings. Lowe's continues to pay its quarterly dividend, with a yield standing at about 1.7%.

Housing data coming out Tuesday morning along with results from Home Depot were worrisome to Investors at the start of trading. Housing starts, which is a big part of the Home Depot and Lowe's business models fell 13% to a record low in April, according to the latest figures. These headlines took much steam of out of a pretty good Home Depot report which largely mirrored Lowe's from the day before. Once investors digested the news, there was a few points that could act as silver linings for bullish traders. First off, the number was actually better than the forecast by economists (485000 vs 525000 expected), and second, a majority of the drop off was due to condos and related living fixtures. An area of the Home Improvement sector generally not suited to the repeat home renovation business that both Lowe's and Home Depot rely heavily on. Case in point, the number of new pure housing starts actually rose by nearly 3% in April, which provided some good news in this sector, hence the rebound in Lowe's stock to near break even territory.

The Home Depot stock story today, is unfortunately not as rosy, as many buyers of the stock yesterday retreated today, selling on the expected earnings news. Nearly a 10% drop in Revenue to $16.2Billion was met with mixed reaction even though profits were above expectations, mainly due to cost cutting. Ex-items Home Depot earned $0.35/share versus analyst expectations of $0.29/share, which had been baked into the stock already given Lowe's nearly identical performance just a day ago. Home Depot lost around 4% this morning and hasn't seen the same uptick as its smaller competitor after the housing report had been looked over. Home Depot has the added benefit of a dividend yield, twice the size of Lowe's for those keeping score.

These stocks will largely trade in tandem, as the economy recovers as both are similarly priced to earnings and both have the cushion of a dividend yield for the more conservative Investor. With foreclosures still likely to rise in the near future and the unemployment number still showing no signs of turning back around for now the time to invest in these names will still present itself later in the year. You can only go so far on cost cutting alone, and Wall Street will only celebrate this type of approach for a few quarters before some real questions have to be answered on the conference calls. For now both should be a Hold, but as economic indicators improve and the work force stabilizes and begins to grow again, there will be a surge of pent-up Home Improvement demand going into 2010. There will still be time to own these names, but for a longer term play LEAPS should be in the investment cards for some potential high-powered Tim Taylor style returns.

Disclosure: Author holds no position in HD, LOW

SwingTracker's TrendCatcher Video

2009-05-24T09:01:00.001-07:00

By Shane Hurren

Here is a quick video lesson….

It’s about using the TrendCatcher overlay in SwingTracker to help you identify trends…

Remember, you can try SwingTracker out for a complimentary

30-day trial! For a complete rundown of all the features or to get started with your trial go here:

http://blog.swingtracker.com/

Good trading,

Shane Hurren
MrSwing Senior Swing Trader
support023@mrswing.com
+1 (360) 566-2281

Real Estate Market is Booming in Phoenix: What A National Housing Recovery Could Look Like

2009-05-24T02:01:00.003-07:00

By Dr. Mark J. Perry

LA TIMES -- More Phoenix homes are selling than at any time since 2006. Prices are slowly stabilizing. Buyers find themselves in bidding wars over low-end properties. It's what a national housing recovery could look like.

Mike Orr, a Phoenix real estate analyst, thinks the market already has hit bottom. Among the signs: As recently as January, a year's worth of homes sat on the market; in March, that dropped to seven months' worth of inventory."It's a dramatic change in just three months," he said. "I never imagined it'd get this crazy this quickly."

In a throwback to the boom, real estate agents and investors are swapping stories of brutal competition for bottom-end homes. Orr called on one property to find it had already received 14 bids. Realtor David Thomas recalled getting a client in a $60,000 foreclosed home in the suburb of Avondale, on a street lined with vacant properties. He recently returned to find almost all the for-sale signs gone.

NY TIMES -- The low end of the Phoenix real estate market �" and in some equally hard-hit places like inland California and coastal Florida �" is becoming as wild as anything during the boom.

One real estate agent was showing a foreclosed house to a prospective client when a passer-by saw the open door, came in and snapped up the property. Another agent says she was having the lock changed on a bank-owned home when a man happened by, found out from the locksmith that it was available, and immediately bought it. Bidding wars are routine.

HT: Calculated Risk