Hey guys,
Today my friend traders and I tried to review the charts from scratch and see if the same patterns emerged, and we continue to think that we are on the right track. The S&P futures bounced off of the channel support early in the morning, as bad news from BAC and C kept the market down all night. The cash index almost tested the support yet again, and then rallied strongly only to lose momentum before strong resistance was hit. I told people to take off some of their positions at the open, no matter if they were losing or profiting positions. I took some off myself, only to put more SPY puts on later at 86.30$. The weakness in the rally today on great news from consumer confidence could be what the bears needed to tip the iceberg. There is a potential for a gap lower below the S&P channel in futures trading, and a retest of the support as resistance when the cash indexes open to confirm a head and shoulders on the 60 minute S&P charts. Once the support breaks (it should next time, after it was tested 3 times in less than a week) the sellers should finally pile in, and we should be on the road to 7540 on the Dow Jones. In this video I also focus on SPY,GS, XLF, SRS, $TNX, $VIX.
Idan:
How do you interpret this?
http://zerohedge.blogspot.com/2009/04/faz-fas-0.html
What does the author trying to demonstrate?
Thanks
He is saying basically that compared to the respective vwaps FAZ has been overpriced where as FAS is priced just about right. Yet to me this looks highly insignificant… I think the fact that there is stabilization between the price differences of FAS and FAZ could mean that these two could both start increasing in value despite what happens in the markets. In the past they both were subject to great volatility, especially FAZ due to fear, now that both of them have despreciated and stabilized, we could maybe see them reflecting the RIFIN much better and potentially go up more than they go down.
Thanks.
It’s one reason to play FAS puts or short FAS instead of FAZ. Either way, I would not be in either of these now more than a couple days due to time deterioration.
GDP better or not, the rally can’t sustain. The media tried to use Case Shiller and Consumer Confidence to build on today and it went nowhere. When can we say this rally is over?
I hate to go against you Idan because you are very good, but in this case I see a gap up tomorrow perhaps to 86.20
Not debating the rest, just the gap.
Good luck everyone.
you might be right, but i’m banking on really bad GDP numbers..
Interesting read ….
Is the Market Run-up Real, a Covering or a Cover-up?
Monday, April 20, 2009 | Barbara Cohen
Rating: Economists tell us that the stock market is a leading indicator to the economic market. That is, the stock market will run up first and the economy, lagging behind, will eventually catch up. Financial, energy, construction and industrial stocks must lead the way before consumer-based stocks can take hold.
The $64 million question, therefore, is whether this is the truth, a half-truth or if there’s no truth to it at all.
Let’s take a look at last week’s economic data and see what the truth really is.
On Tuesday, the Retail Sales report was released. I told you in my last article to expect this to be a bad report, and it lived up to those low expectations. Analysts had forecast a 0.3% increase in retail sales, but sales ended up being down 1.1%. Autos, electronics, apparel and restaurants led the decline. I could have told them not to forecast so outlandishly when I saw the same-store sales reports from the chains the week earlier!
What does this report really show us? That the consumer has not been part of the market recovery at all. Moreover, this is probably not the best time to buy retail stocks. (For the year, retail stocks are down 21.3% overall.)
That wasn’t the only economic landmine on the field last week.
Springing Forward, Falling Behind
This past Wednesday, we saw what the market considers to be an inconsequential report, released at at time (9:15 a.m. Eastern) when traders are probably drinking coffee. CNBC ran an ad during the release, showing us what they thought of the news.
What was this report? None other than the Federal Reserve’s Industrial Production and Capacity Utilization report. In March, industrial production fell 1.5% following a similar decrease in February. For Q1, output dropped at an annual rate of 20%.
Get this … industrial production has not been this low since World War II. Franklin D. Roosevelt and “The New Deal’s” Works Progress Administration (WPA), where are you?
On Thursday, the weekly initial claims were released. Employment numbers are one week behind, and the previous week was shortened by Good Friday. Even given the shortened workweek, the following states reported an increase in layoffs across many sectors over the previous week. Imagine if it had not been an abbreviated workweek:
Minnesota
Tennessee (manufacturing)
Washington (manufacturing)
Colorado
Arizona
Illinois (construction and manufacturing)
Louisiana (auto)
Arizona (manufacturing)
Georgia (manufacturing)
North Carolina (textiles, transportation, electronics)
Pennsylvania (construction)
New Jersey (construction, manufacturing)
Missouri (manufacturing)
Michigan (auto)
Texas also reported significant layoffs in the finance, information, trade, service and manufacturing industries and, this week, that state announced that it wants to secede from the Union. (Of course, only after it receives its share of the federal government’s stimulus money!)
So much for the industrial sector being a leading indicator.
Is Oil Worth Our Investing Energy?
Take a look at the energy sector. Shouldn’t this be a leading indicator as well? Well, here’s a chart for the last month of trading for the AMEX Oil Index (XOI).
While the index had come off February’s lows, since then it has been treading water, very much trading-range-bound.
Being range-bound has been true for the price of gasoline as well. In the last month, prices have fluctuated less than 20 cents, up or down.
And while no one is talking about this, the oil industry has been quietly laying off its labor force. The Houston Chronicle reported a 5% cut in North American jobs due to reductions in the level of activity within the oil field sector.
Housing: Due for a Run-up, or is it Better to Run Away?
What about the housing industry? Surely that sector is enjoying some part of the stock market run-up, right?
On Thursday, along with the unemployment news, The U.S. Census Bureau’s Building Permits and Housing Starts reports were released. Again, outlandish forecasts were made, as 560,000 housing starts were projected and only 510,000 were realized. There were 545,000 building permits forecast with only 513,000 actual. This is an 11% drop, along with a revised downward estimate for February.
Construction firms are consolidating. Those that still have cash are consuming the smaller firms (i.e., Pulte Homes bought Centex).
This week, RealtyTrac announced that foreclosure filings (default notices, auction sale notices and bank repossessions) for U.S. properties reached 341,180 in March, a 17% increase over February. It would appear that construction is not a leading indicator.
The Treasury Report Tells All
Which brings us to the financials. Last week, I told you we would walk line-by-line through the report that I consider to be the most important that’s issued each month.
This report is so critical that the Feds only release it two months in the rears, fearing what economists would say if it were current information. (Most other reports are just one month behind.)
This is the Treasury International Capital (TIC) report that came out last Wednesday. It tells us how much money is flowing into the country and how much is flowing out.
Hold on to your horses. …
The report compares February ’08 with February ’09 (yearly difference) as well as showing January ’09 for a one-month comparison. There is a summary version as well as detail by international regions (Asia, Europe, Middle East, etc.). We’ll cover some of the more-important data points below.
This report is the truth. If money is not flowing into the United States, there can be no recovery.
Domestic Securities Purchased (in billions)
Feb 08 — 937.3 Feb 09 — 280.8
Foreign Securities Purchased (by U.S. residents)
Feb 08 — -233.5 Feb 09 — 113.8
Net Foreign Acquisition of Long-Term Securities
Feb 08 — 472.1 Feb 09 — 199.2
U.S. Treasury Bills Foreign Holdings
Feb 08 — 210.9 Feb 09 — 262.3
Private Net Tic Flows
Feb 08 — 182.0 Feb 09 — 190.5
Foreign Government Net Tic Flows
Feb 08 — 304.4 Feb 09 — 124.2
What can we tell by this? Foreign governments (Europe, Japan, China, Arab Nations) have cut their purchasing of U.S. stocks and bonds by two-thirds.
Let’s look at whose buying U.S. Treasury bonds in the report by continent (in millions):
Europe — Only Poland (536) and Turkey (585) bought U.S. Treasuries
Canada — Bought (1,259)
Latin America — Mexico (483)
Caribbean — 334
Asia — South Korea (2,072) Japan (25,855) Hong Kong (3,348) Philippines (650)
Want to know who really owns this country? Look at how many bonds Japan bought!!!
After adjustments for repayments of debt, the total was -1,952 (that’s right, minus).
If we combine all instruments — Treasuries, corporate bonds, etc. — we come up with -9,407 for all foreign official institution holdings for February.
Houston, We Have a Problem …
More money is flowing out of America than in. New Treasuries are created and are bought monthly, but the revenue from the sales just goes to repay existing debt. It’s no different than if you or I had thousands in credit card debt. All our monthly payments would go toward paying the interest, and we could never get out from under.
So while the PPT (look at the end of last week’s article for who they are) has kept the market propped up for the last few weeks above 8,000, is it a truth that the market is a leading indicator in advance of a recovering economy, a half-truth or no truth at all?
In other words, is it a Cover-ING or a Cover-UP?
You make the call.
This Week’s Economic Calendar
This week is relatively light on economic data. The market (as represented by the Dow Industrials) will probably remain propped up above 8,000, so stay long. Be careful shorting against a market that is being propped up.
On Monday, we have Leading Indicators. Another outlandish prediction has been made for these, so anything that comes close will be considered a good report.
On Wednesday, the existing home sales report comes out. I love this report. It has a margin of error of about 30%. That’s right, 30%. Think that might be a good report?
The key to this particular report is not the current data, but instead last month’s revision number (if you really want to know the truth). But the market only trades the current number; it really don’t look at the revision. The other important element of this report is to determine what percent of the existing homes that were sold were foreclosures or short sales. For the last several months, foreclosures have been upward of 50% of all sales.
On Friday, we’ll see Durable Goods orders. I can almost guarantee you that this will be a positive report. The outlandish expectations are -1.2% when last month was 3.9%. Come on, who are they kidding? If the report comes in flat at 0, the market will go up.
The last report for the week is the New Home Sales report. Watch Wednesday’s existing home sales report for a clue on what will happen with this report on Friday … generally, they are both either positive or negative. Rarely is one a good report and the other a bad report. And, again, this report has a margin of error of 30% as well.
Makes you wonder why they bother to release these reports in the first place, but we’ll keep reviewing them here so that you know what to expect, what to believe and how (or how not) to play them in the markets!
Anjali,
thanks for this post. an excellent read. also thanks for saving my azz in the LIFE trade. at the close the volume was monstrous at the key level of $32 so i decided to cover all but 200 shares. of course now i wish i just covered the whole position. but i can swallow the pain of losing $4 on 200 shares but to lose that on a 1,000 share position would have hurt.
thanks a million and im glad to belong to such a group. trading alone in a market like this would be tough.
ps. listened to the earnings call and watched the after hours price action. the price action got the biggest lift when they talked about how much $$ they are expecting in government funding through the stimulus package. wow! to think that people are buying and selling equities based on some one-time tax payer funded plan is enough to make you want to barf.
Richard, thank you for helping others too. Frankly, I don’t know what I’d do without this board…
Found this out there in blog land
http://www.screencast.com/users/Keirsten/folders/Jing/media/181a8a1c-7ca6-445f-9781-532c4c8abeb6