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I found Craig’s remarks at the close of trading useful. Even though I don’t know much about TA, in this earnings season I will try to post some important info/news (or borrowed TA) after the close.
For the third day in a row S&P traded above its upper BB and closed a tad below it today. TA gurus consider this as very bearish. Last time it happened was in August.
After the close:
- Alcoa announced it will cut 13,500 (13%) jobs, take upto 900 mil charge. Stock down slightly.
- Bank of America warns of 2008 results, stops bonuses to the execs. Stock doesn’t react.
Mohan -
A number to use for SP500 PE should equal the one it from 7/31/74 to 12/31/82, where average P/E was just 9.17.
Right now the bottoms-up forward estimate for 2009 S&P earnings is $42.24.
The math, therefore, says the $SPX should trade at under $400 at some point.
That said, why are these analysts estimating far higher prices?
Firm Strategist Target %Change
Barclays Plc Barry Knapp 874 -3.2%
Citigroup Inc. Tobias Levkovich 1,000 11%
Credit Suisse Andrew Garthwaite 1,050 16%
Deutsche Bank Binky Chadha 1,140 26%
Goldman Sachs David Kostin 1,100 22%
HSBC Holdings Kevin Gardiner 1,000 11%
JPMorgan Chase Thomas Lee 1,100 22%
Merrill Lynch Richard Bernstein 975 7.9%
Morgan Stanley Abhijit Chakrabortti 975 7.9%
Strategas Research Jason Trennert 1,100 22%
UBS AG David Bianco 1,300 44%
January 6th, 2009 at 6:15 pm
Mohan, don’t forget that Goodies (a large NY retailer) announced BK and AA announced a layoff of 13,000+ employees just today.
I am not a sophisticated trader like most of you guys and I have been heavily short the market and the financials waiting for “the truth” to come out. Now I realize the joke is on me, even if the market is a joke. It really seems like nothing will turn the market back. Today, even Kenny said on his 1M SPX chart that he gives up on this “stupid market”.
I may very well sell my ETFS – SDS, FAZ and SKF at a large loss and just move on with my life. Someone said somewhere that the market can stay irrational longer than you can stay solvent. I should get that tatooed on my arm.
January 6th, 2009 at 6:33 pm
You can make your own decisions, but one of my rules is never sell when in a deep hole. What usually happens is that prices rebound almost immediately.
The markets are very overbought and these will be corrected.
The market is very efficient in taking the most money from the most people.
January 7th, 2009 at 8:38 am
Thanks for that bit of optimism for us in deep doo-doo with our shorts.
Would you still hold if you were heavily underwater an ultrashort ETF? I’m knee-deep in HJD (TSX equivalent of EEV.) I’m expecting commodities to lead the pull-back, which is a positive, but not sure the decay can be overcome.
January 6th, 2009 at 7:06 pm
shorts finishing wave 5 down coincides with $spx..tmo last up day
http://stockcharts.com/h-sc/ui?s=$SPX&p=15&yr=0&mn=0&dy=10&id=p65376137580&a=158310481&listNum=12
January 6th, 2009 at 8:02 pm
Look at what happened the last couple of times the s&p was spiking an almost horizontal upper BB at the top of a bear market rally:
http://social.stocktock.com/profiles/blog/show?id=2348194%3ABlogPost%3A11012&page=1#comment-2348194_Comment_11034
January 6th, 2009 at 8:26 pm
My sentiments exactly.
January 6th, 2009 at 10:33 pm
Regardless of what you do,, you have learned something that is making you better.. I would personally stick it out.. Nonetheless,, watch the first part of this video,, it talks about a similar situation alot of bears put themselves in,, and how much worse it got.
http://www.youtube.com/watch?v=6GBO7-7M5eQ&feature=PlayList&p=33D0C18CDEBF64B7&index=35
This is why I only use my margin for day trading. No over margin for over night. So if I get in a hole I can stick it out for over a year if I have to.
January 6th, 2009 at 7:16 pm
In general the theory is that when a cyclical sector is experiencing slowdown, you would want to buy the stocks at high PE (which indicates cycle low) and sell it when PE’s are high.
They are applying (or want to apply) the same logic here. Buy when PE is high and sell when PE is low. But the fact is, you don’t apply that to severe bear markets in a credit implosion scenario. Even if you consider this as a “cycle” low for S&P, one cannot apply that logic. A 20 PE with earnings of 50 would put S&P at 1000. A PE of 20 even at cycle top was totally a “bubble.” They want the same PE at downturn? Very illogical.
I guess it will come to liquidity and leverage. I heard that Feds are blessing hedge funds to go on levered longs. The $200b “loans” to hedgies is to cover contingencies like redemptions. If Greenspan’s Fed raped the economies of this country and the world, Bernanke’s Fed is gang raping everybody tax payer, non-tax payer, new born and yet to be born. We are so f*cked!
The analysts are schills for banks and brokers. We can’t expect any better from them.
On a different note, I have a question about XLF. Do you see another push at the resistance (OH supply) at 13?
January 6th, 2009 at 7:35 pm
Doubtful imo.
January 6th, 2009 at 8:07 pm
I just looked at an hourly chart and saw six tries at the 50-day MA in the past day and a half, all being resisted. However, 13 is between the 50dMA and the upper BB, so if 50dMA fails, XLF could rise thru it to the BB, but I agree with Schwweizer that this is unlikely.
January 6th, 2009 at 9:35 pm
The SP at 400 based upon projected tops down earnings (the $42 number is a tops down projection. The bottoms up projection is about $82) and a trough PE multiple of 9 or lower makes for a good headline but further analysis reveals some issues. Perhaps that is why those Wall Street analysts have different targets?
Here are some issues:
1. SP has bottoms up and tops down estimates for earnings. $42 is the current tops down projection for 2009 SP 500 earnings, but $82 is the bottoms up version. Obviously using 9 as a trough multiple on earnings gets you SP fair value of 336 if you use tops down earnings, whereas using bottoms up earnings of $82 with the same 9 multiple gets you SP fair value of 738. Hmm. Does that number sound familiar? About where the market bottomed in November, huh.
If you want to read a discussion of the difference between tops down and bottoms up and reasons for using them, go here: http://www.comstockfunds.com/index.cfm?act=Newsletter.cfm&category=SpecialReport&newsletterid=1356&menugroup=Home
2. The actual market PE’s over the past 20 years during market peaks and troughs might surprise you. SP maintains a list of historical prices and market PE’s at their site. If you want to see the SP500 data unvarnished, with PE results for actual earnings tops up and bottoms down for the past 20 years, go here: http://74.125.45.132/search?q=cache:PkIPXrP7oLIJ:www2.standardandpoors.com/spf/xls/index/SP500EPSEST.XLS+2008+sp+earnings&hl=en&ct=clnk&cd=1&gl=us
3. Any chance the estimates are wrong? In March 2008, the tops down estimate for 2009 SP earnings was $84. Now it is half. At market tops bulls like to project historically unsustainable earnings growth far into the future to justify expansive multiples, and at market troughs bears like to project historically unsustainable earnings declines far into the future to justify contracting multiples. Perhaps the truth is somewhere in the middle?
4. Long term investors (yes they still exist) are buying not just 2009 earnings streams, but earning streams in 2010, 11, 12, etc, etc. If you have an investing horizon of that time line, a good argument can be made for equity investments at current prices.
5. If you want to know why the various analysts listed above have the SP targets they do for 2009, you can view this, or read the Barron’s article: http://guruideas.files.wordpress.com/2008/12/barrons_2009.pdf
There are always 2 sides to a coin, and it takes a buyer and a seller to make a market. A wise trader once observed that for every trade he made, someone else was on the other side of the trade, and he wondered “what does that person know that I don’t know? Why are they selling when I am buying?” A healthy level of personal skepticism and honest intellectual curiousness are good traits for a trader.
The market has moved 200 SP points off the Nov bottom, 85 points since Dec 29, and 40 points in the last 3 trading sessions. As a trader, do I argue against the moves or profit from them? Do I put my capital in harm’s way and go against the trend, or do I grow my capital with the trend? If I didn’t see the possibility of the move since the end of Nov., or its scope or duration, what in my analysis is missing? If the market crashes tomorrow, or next week or month, I am not vindicated for missing the 25% move in prices in the past 6 weeks. That was a missed opportunity, and I should re tool myself to be sure I catch it the next time. If my short term market radar is jammed, and I am having difficulty predicting market direction in either time or price, should I be entering any trades?
In the end only price pays. In the end, having an open mind about market direction allows for opportunities to be identified and profited from. Craig did a great job with his TA videos, and Brian Shannon has the same even handed treatment. At no time have I ever heard either of them complain about the market or its direction. The charts were the charts and there was no emotion about what the “market should do”. Just good entries and exits and risk management.
For what it is worth, Craig had this to say in his Jan 2nd post “Expect a Pullback, but don’t count the rally out”:
“Don’t confuse me as a bull. I fully acknowledge this is a bear market rally. But at least through the rest of wave 4, the trend is higher and I wouldn’t fight it. A sharp pullback from here wouldn’t surprise me. I’d view a 50% pullback as a buying opportunity.”
Trading involves a commitment of time and money. It doesn’t require us to be joyless, angry, upset or stressed. If a position is moving against you, cut it. If you are not predicting short term market moves accurately, re-tool, and cut your trading size. If we are to have long and successful careers as traders, our first step is to quit arguing with the market. Its capital is infinite, ours is finite. Besides, its much more fun to having winning positions, whether they are rational or not.
Mohan,
I’m think about FCSX after the pullback. Thought I would share it here for other analyst to comment on.
P/E Ratio (TTM)≤ 8
Price to Book (MRQ)<1
Debt to Capital (MRQ)0-50%
Current Price (Extended) 1,000,000
Bollinger BandsPrevious close above Line: Lower, Period: 20, Std. Deviations: 2 Directional Movement Indicator (DMI)Bullish – ADX above20
Price to Earnings Growth 0-2
Price to Sales (TTM)<2
Price to Cash Flow (TTM) 0-15
January 6th, 2009 at 6:54 pm
Whoops… Bad typing…volume over 1mill, not price.
The rest is just my range criteria.
January 6th, 2009 at 7:19 pm
It looks interesting. I don’t know anything about them. Stock seems to have based and ready to explode to the upside. Downside risk looks small.
All,
I occasionally check for stock ideas on StockCharts scans. I haven’t seen this many stocks above upper BB in a single day. (279 on Nasdaq and 342 on NYSE). If you hold long positions in any one of those, the downside risk is very high.
http://stockcharts.com/def/servlet/SC.scan
Here is a list of top traded NYSE stocks that are above upper BB.
IWM Russell 2000 iShares NYSE 50.820 51.910 50.382 51.250 69115904 50.995
EEM iShares MSCI Emerging Markets NYSE 26.890 27.280 26.700 27.100 67946197 26.907
EMC EMC Corp. NYSE 10.820 11.540 10.720 11.330 31765440 11.326
PBR Petroleo Brasileiro (Petrobras) NYSE 27.930 28.650 27.330 28.190 31230379 27.559
HPQ Hewlett-Packard Co. NYSE 37.080 39.530 36.990 39.310 30626427 37.859
HAL Halliburton Co. NYSE 20.310 21.150 20.250 20.910 30381231 20.156
FNM Federal National Mortgage NYSE 0.850 0.860 0.800 0.850 28761758 0.845
CHK Chesapeake Energy Corp. NYSE 19.050 19.780 18.750 19.090 24774175 18.465
HD Home Depot, Inc. NYSE 24.940 25.490 24.620 25.260 22859282 25.114
TWX Time Warner, Inc. NYSE 10.590 11.150 10.450 10.980 21741424 10.850
EWZ Brazil iShares NYSE 39.770 40.790 39.120 40.250 20866968 39.636
FRE Federal Home Loan Mortgage Corp. NYSE 0.860 0.860 0.790 0.860 18433241 0.850
HIG Hartford Financial Servic NYSE 17.560 19.910 17.510 19.680 17579811 18.726
OIH Oil Services Holders NYSE 84.750 88.150 84.750 86.710 17062200 85.170
BSX Boston Scientific Corp. NYSE 7.590 8.100 7.590 7.990 13191062 7.978
DDR Developers Diversified Re NYSE 5.930 8.280 5.750 7.750 12590596 7.034
PBR/A Petroleo Brasileiro Sa NYSE 23.050 23.550 22.580 23.250 12038409 22.757
SMH Semiconductor Holders NYSE 18.490 19.365 18.470 19.160 11757970 18.976
PRU Prudential Financial Inc. NYSE 31.060 35.950 31.060 35.110 11739263 33.073
DYN Dynegy, Inc. NYSE 2.400 2.750 2.370 2.630 10815532 2.441
MT ArcelorMittal SA NYSE 27.950 30.000 27.810 29.430 10415874 27.686
ITU Banco Itau S.A. NYSE 13.170 13.960 12.990 13.880 10215473 13.696
WFR MEMC Electronic Materials NYSE 15.310 17.809 14.770 17.690 9744314 17.443
BBD Banco Bradesco NYSE 11.260 11.740 11.100 11.660 9708746 11.628
IBM International Business Machines NYSE 87.110 90.410 86.370 89.230 9647451 88.450
UYM ProShares Ultra Basic Materials NYSE 16.560 17.540 16.270 17.280 9582993 16.818
WU Western Union Co. NYSE 14.730 15.990 14.710 15.760 9537361 15.203
BBY Best Buy Co, Inc. NYSE 30.780 31.730 30.510 31.250 9276712 31.026
AMR AMR Corp. NYSE 11.110 11.770 11.100 11.740 9074154 11.577
LEN Lennar Corp. NYSE 10.370 11.270 10.310 11.170 8721286 10.845
BHP BHP Billiton Ltd. NYSE 47.910 48.760 47.110 48.000 8598853 46.906
BTU Peabody Energy Corp. NYSE 27.740 29.000 27.290 28.450 8498825 27.745
PHM Pulte Homes Inc. NYSE 12.230 12.900 12.180 12.830 8458403 12.441
XLK Technology Select Sector SPDR NYSE 16.120 16.450 16.040 16.310 8426825 16.222
PCS MetroPCS Communications, Inc. NYSE 16.150 17.000 15.750 16.960 8283287 16.455
WDC Western Digital Corp. NYSE 12.210 14.450 12.090 14.320 8248556 13.682
V Visa Inc. NYSE 54.500 57.980 54.500 57.610 8123129 56.706
KIM Kimco Realty Corp. NYSE 19.230 20.880 18.880 20.450 8037277 20.355
VTI Total Market VIPERs NYSE 46.500 46.860 46.010 46.400 7688351 46.395
XLY Consumer Discretionary Select Sector SPDR NYSE 22.730 23.100 22.580 22.930 7135295 22.899
AEO American Eagle Outfitters, Inc. NYSE 10.250 10.980 10.250 10.820 6910309 10.671
USG USG Corp. NYSE 9.480 12.470 9.480 11.470 6865717 10.442
EMR Emerson Electric Co. NYSE 37.640 39.480 37.450 39.100 6787315 38.579
CNB Colonial Bancgroup, Inc. NYSE 2.100 2.510 2.080 2.430 6639751 2.424
CBG CB Richard Ellis Group, Inc. NYSE 4.430 5.110 4.290 5.000 6462882 4.823
SLE Sara Lee Corp. NYSE 10.130 10.580 10.120 10.490 6290632 10.243
FIG Fortress Investment Group LLC NYSE 2.050 2.100 1.620 2.020 6087667 1.993
ADP Automatic Data Processing, Inc. NYSE 40.240 40.990 39.620 40.810 5968757 40.499
LCC US Airways Group Inc. NYSE 8.150 9.210 8.130 9.060 5731091 8.699
ADI Analog Devices, Inc. NYSE 19.570 20.600 19.560 20.520 5711746 20.461
TJX TJX Cos., Inc. NYSE 21.620 21.950 21.050 21.710 5674757 21.692
GCI Gannett Co, Inc. NYSE 8.980 9.410 8.920 9.300 5514939 9.102
CAR Avis Budget Group, Inc. NYSE 0.830 1.200 0.800 0.960 5326549 0.882
ARO Aeropostale Inc. NYSE 18.630 19.790 18.440 19.330 4616068 19.014
QI Qimonda AG NYSE 0.550 0.570 0.450 0.550 4563745 0.532
UFS Domtar Corp. NYSE 1.880 2.110 1.830 2.100 4476290 1.989
STT State Street Corp. NYSE 42.720 44.750 41.650 44.270 4463577 44.195
HRP Hrpt Properties Trust NYSE 3.460 3.740 3.320 3.680 4365972 3.624
MA Mastercard NYSE 156.260 165.000 155.290 162.020 4332365 157.160
MTW Manitowoc Co, Inc. NYSE 10.220 10.490 9.920 10.190 4274530 10.104
ILF Latin America 40 Index iShares NYSE 28.690 29.020 28.200 28.900 4167663 28.362
AMB AMB Property Corp. NYSE 22.940 26.030 22.940 25.890 4004153 25.737
EK Eastman Kodak Co. NYSE 7.160 7.530 7.000 7.440 3742915 7.401
KBR KBR Inc. NYSE 16.190 16.930 16.160 16.490 3602507 16.255
FST Forest Oil Corp. NYSE 20.660 21.790 20.400 21.330 3583545 20.939
TS Tenaris S.A. NYSE 23.160 24.450 22.940 24.290 3489852 23.273
CY Cypress Semiconductor NYSE 4.670 5.120 4.670 5.050 3467957 4.972
JEC Jacobs Engineering Group Inc. NYSE 52.030 54.710 51.660 54.020 3437238 53.876
TIN Temple Inland, Inc. NYSE 5.010 5.710 5.000 5.530 3395256 5.391
PIR Pier 1 Imports, Inc. NYSE 0.450 0.770 0.440 0.690 3308367 0.607
CBL CBL and Associates Proper NYSE 7.690 8.900 7.410 8.700 3239464 8.611
PFG Principal Financial Group NYSE 23.400 24.800 22.970 24.480 3214955 24.065
and there are a lot more..
[My favorite short from this list: Best Buy]
January 6th, 2009 at 8:29 pm
What is BB?
January 6th, 2009 at 8:43 pm
Bollinger Band
January 6th, 2009 at 11:40 pm
PIR looks good all the way to BK. Thanks for the list…good to see the potential sector shorting ideas.
closing above the bollinger band for three days is not bearish per se. If anything, it shows the strength of the trend. Overbought != bearish is my point.
January 6th, 2009 at 7:52 pm
I am re-learning what I learned several years ago. I am saying some of them are good for trades (as you said, overbought ones)
With that caveat, I want to say.. some of them are BK candidates
January 6th, 2009 at 8:16 pm
The big deal for me is that $SPX has been ABOVE the upper BB eight times in the past couple of days, and has fallen back below it every time, and not closed above it. Looks very bearish to me.
Remember also that people are rebuying stuff sold a bit over 30 days ago for tax loss purposes (gotta not own it for 30 days or no tax loss on the “wash sale). Also people are loading up IRA’s some with the CNBC duds saying happy days are here again and isn’t it nice how cheap the stocks are. Just wait me hearties — stocks will get a lot cheaper.
January 6th, 2009 at 8:27 pm
No mate, I don’t interpret BB in that way. If an when the index falls below the center of the BB, that is when it is bearish. overbought is not bearish.
speaking of bankrupt candidates, RSX the russian ETF looks like a very nice long trade. Waiting for pullbacks.
Yes I do have bear positions, but they are far off in time. We could keep rallying into february in the worst case. I am still seeing many stocks which have not fulfilled their targets. Definitely we will pullbacks along the way, but this is not time to short but to get long etc. We have some more ways to go, timewise at least.
January 6th, 2009 at 9:23 pm
Mav,
There is nothing Russia has that China is not better at. I know what you are thinking but you might what to consider it further. For example, MTL should be flying high…keep an eye on that to see if I am wrong with in the next couple weeks. I would buy MTL if it were in China.
Russia needs to sell to China, but China will say, “no thanks”.
Russia is doomed.
January 6th, 2009 at 11:57 pm
It may be, I cover the label of the stock and trade. Only when I place an order I uncover it.
January 6th, 2009 at 8:35 pm
SPX did close above upped BB on Jan 2nd.
http://stockcharts.com/h-sc/ui?s=$spx&p=D&b=5&g=0&id=p55030556115
Nonfarm payrolls come out this Friday. Consensus is for a loss of 500K jobs. Many are expecting as much as 600K.
This can’t be good for the stock market. I’ve been on the sidelines the last few weeks. But if S+P is above 940 by Thursday, then you can bet I’ll be short going into the number.
I don’t know know what to make of the recent rally. Maybe year end buying, or optimistic going into the new year. 401K money or year end bonus money making it’s way into the market as well.
Pete
January 6th, 2009 at 9:33 pm
I think more than the number, the market reaction would depend on where the market closes on Thursday.
One indicator I look at if the market is bearish or bullish is base metal prices. Most good analysts will tell you that base metals have a PhD in economics. When the market was near its top, copper price was $4 / lb. Few weeks back, it fell to $1.25 / lb. Today, it has climbed to $1.55 / lb. Other base metal prices have also increased by 15% in the last few weeks. They have done so inspite of base metals inventories have continuing to climb. This is a very bullish indicator.
I am not sure if base metal prices will hold. The Baltic Dry Index which shows the volume of dry goods shipped is at a all time low. You can see it at http://www.investmenttools.com/futures/bdi_baltic_dry_index.htm
January 6th, 2009 at 8:28 pm
Fully agree, these have lot more ways to go. Most of the industrial companies have lot more gas in them.
January 6th, 2009 at 9:18 pm
If you are bullish on this, consider TCK. I will buy this after a tiny pullback. Mid term ride to $12, maybe.
Lots of people on the blogs popping up tonight and saying “buy anything”. Should be interesting action over the next few days. Absolutely no fear of anything right now. No fear of any fundamental news at the moment. Clearly this rally has lasted much longer then I thought so I am no longer making predictions about the turn. Only taking noted for future trading,
All,
If you thought you have seen the ultimate height of opportunism by irresponsible lenders/borrowers who are big enough to screw the system, be ready to be surprised in reading this:
http://bloomberg.com/apps/news?pid=20601087&sid=aMjCHzL0Bun4&refer=home
Businesses Seek Tax Break on Canceled Debt Like Homeowners Got
By Ryan J. Donmoyer
Jan. 6 (Bloomberg) — Commercial real estate companies, the U.S. Chamber of Commerce and other business groups are pushing Congress for a temporary tax break on forgiven debt similar to relief given in 2007 to homeowners facing foreclosure.
The provision would let solvent businesses negotiate new terms with lenders, lowering the amounts they owe, without being required to pay taxes on the forgiven portions of the loans. The proposal may emerge as a priority among Republicans for inclusion in a stimulus package that President-elect Barack Obama seeks to pass with bipartisan support.
—————
Un-friggin believable. The congress and the Treasury dept may let them have their way. This broken capitalistic system protects the irresponsible and the greedy at the expense of savers, and those who live by the rules.
January 6th, 2009 at 9:31 pm
If a business requires to negotiate for loan forgiveness how can it be SOLVENT?
January 6th, 2009 at 10:31 pm
Hey Mohan, Perhaps it is all about the amount of jobs that will be lost if your business fails – that is it.
Separately, I becoming less and less of a Mav fan. Mav, the Bollingerbands are excellent technical indicators for oversold/overbought. To say that a bullish/bearish idicator is when they cross the middle is to say the same thing, meaning that you agree to close out your holdings when the BB reached the extreme. Otherwise, you would never accomplish anything.
The only true unknown is how long the price can remain in the upper or lower BB.
http://www.investopedia.com/terms/b/bollingerbands.asp
While I agree with bearish bias for the short-term, I wouldn’t necessarily conclude that today’s SPX close under the BB is “very” bearish.
1. The Nas and Russell 2K actually closed ABOVE their respective BB’s, albeit marginally. Since these indeces generally entail more volatility, their recent outperformance suggests a growing appetite for risk – i.e., less fear of being trapped in a major sell-off.
2. While a major down-leg ensued in Aug as you indicated, the weekly MACD (12,26,9) was not positive as it is today.
That said, I’m looking for a pullback to SPX 890-910 to get long/cover shorts. I see the SPX eclipsing 1000 (based on convergence of fib /reverse H&S / moving avg. targets) before thinking this bear market rally might be over.
The fundamentals remain negative as you steadfastly point out, but I believe most buyers already recognize this and are playing a trade. I suspect the true downside will occur once the economic data/consensus opinions become alligned in the bullish camp. This will be the time when permabears really question their bias and capitulate, which will spark a final squeeze to get Joe Retailer back into the market.