This is a review of CAT- it’s a break out and if you want to hold over earnings, it could be a good move. CAT reports tomorrow.
July 22, 2011
by Patrick
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July 22, 2011
by Patrick
Comments Off on What’s priced in?
What’s priced in?
As the market approaches its 52 week high, we have to wonder: is a debt ceiling resolution already priced in? “Priced in” means every market participant that assumes a resolution will lead to upside has already bought all the stock they can, and there are no buyers left to push prices higher when a resolution does occur. Markets generally anticipate news, so when the news event occurs, it causes a “sell the news” reaction (kind of like a reverse self-fulfilling prophecy). I have got say that I think all the traders have positioned themselves for a resolution, but investors have not. I remember last year the budget/ government shut- down episode. Traders felt the news was already priced in, but a new wave of retail investor money came into the market after the budget extension was passed. Many stock subscription sites experienced new membership inflows around that time, so new money coming in pushed prices up further. I think the same thing could happen again. I know personally I am not fully invested and I assume not many traders nor retail investors are fully invested. So we could see a breakout to new highs once we get a resolution.
This is all purely technical, supply & demand of stocks as an asset class analysis and hypothesizing. There are serious fundamental concerns: labor and housing are among the main arguments for further upside on a fundamental basis. Jobless claims have been over 400k for 14 weeks now. Big companies like CSCO are cutting jobs. So far this has been a jobless recovery. Companies can do more with less. Many routine functions like accounting and finance can be outsourced to India. Companies like IBM even outsource sales functions like whitespace company research to India. Longer term this is a huge problem as the age of the workforce is getting near retirement age and companies will have a void of employees that possess the tribal knowledge that make up a company when baby-boomers retire. But Wall St. doesn’t care about long term fundamentals as long as this quarter is good, so neither do I. So let’s focus on what is working.
We still have themes that are working- high yielding utilities, REITs, and energy stocks are working. Even the financials have had a major reversal in the past week. Many of the leaders that started the move up a few weeks ago are now rolling over, so we have to avoid them and switch to what is. XOM is working, so is CVX. The lumber names, like WY are working- Japan is rebuilding- and we see steel stocks like NUE have bottomed. However, we have got to assume that we are range bound between 1250 and 1350 on the S&P. Until we break out of that range, we have to sell at the upper end of that range. We are at the upper end so we should be raising cash. This is what worries me- too many traders will have too much cash, and in the event of a decisive break above 1350, there will be plenty of fuel to add to the fire and we will get a major move up very quickly. The best thing investors can do is buy safety stocks- my favorites are NLY, WIN, KMP, SO, AGL, and LINE.
July 20, 2011
by Patrick
Comments Off on Putting your financial well being in the hands of Congress…
Putting your financial well being in the hands of Congress…
I think anyone buying up here is basically making a bet that Congress will get their act together to agree to something by this Friday, July 22. An agreement that cuts the deficit meaningfully over the long term while increasing the debt ceiling in the short term needs to be made by Friday in order for legislation to be written and voted on by August when we will hit the ceiling and have to decide who not to pay.
Tim Geithner kind of usurped a lot of power from Congress in his interview with Steve Liesman on CNBC this week. He took the legislative deal making function away from Congress on the debt issue when he publicly stated that there is no option other than to raise the ceiling. I’m willing to bet the majority leaders in the House have their sights set on Geithner now. It may be more important for them to re-assert their role as the deciders of policy than for them to come to an agreement on the debt issue.
I really can’t bring myself to place my financial well being in the hands of bickering children. The Weiner tweet incident was the final straw for me. I can’t trust a group of people that has this type of moron amongst their ranks. I’m reminded of John Kenneth Galbraith’s assertion that the fall of the monarchial system was brought about by the hereditary power structure- both political and military. The power to make political and military decisions was bestowed not on merit or accomplishment in the days of the great kingdoms of Europe. By the early 1900’s and during the two world wars that ensued for the next 50 years, it was evident that there was no one in power that had the qualities of a leader. The makers of policy had no credentials in history or economics or law. Winston Churchill liked the idea of the gold standard as it had a nostalgic quality. The ensuing revaluing of sterling made British exports massively more expensive for the foreign buyers and crushed the British manufacturing base further in a time of recession after WWI. The leaders of soldiers had no demonstrations of bravery on the battlefield or knowledge of modern warfare tactics. Russian generals (that inherited their rank from their fathers who inherited it from their fathers, etc.) favored the bayonet charge because of it’s classical appeal even through out WWII. It was disastrously unsuccessful against nerve gas and machine guns.
While I don’t fear that we’ve gotten to the point where our leadership is so incompetent that the US’s fate is sealed to resemble that of the old kingdoms of Europe, there is no way I’m going to rely on these losers to come to an agreement by Friday. If I miss a couple of points of upside, so be it. It’s not worth the risk to take on new positions or add to existing ones. Now is a time to take profits and watch the power struggle in DC unfold. I hope my skepticism is unwarranted. But I prefer being in cash after a pretty good run with CRM, CRR, FFIV, BEXP, and recently PCX. Any more DE’s will undo all those gains so I prefer to sit on the sidelines expect for a few small trades like ESRX. It looks pretty good here at $52.
July 16, 2011
by Patrick
Comments Off on The Dope Sheets: handicapping leaders
The Dope Sheets: handicapping leaders
Stock picking. It’s working again… The market is fun again – not like last summer where every tick in the Euro made oil go up or down and there was mindless, algorithmic buying or selling. Let’s go over the weekly analysis of our Market Leaders so we can decide how to handicap the horses before the race:
(Stocks are sorted by Friday’s % change)
GOOG: I don’t care if Google Chrome does track my entire life. After all, they give me free access to the sum of all human knowledge. Let ’em learn the intimate details of my life. They deserve that right just so long as they stick with not being evil. Chrome seems to use RAM more efficiently than Safari while running Silverlight based stock charts on my desktop. My MacBook runs Silverlight fine in Safari. Look at the weekly. Is this something you want to sell right now? At resistance but showing no signs of a technical reversal as it closed out at the high. Looking in the journal for April 14, we see that we were very unassured by his lack of presence on the last call. At least this alleviates that. Don’t count GOOG out just yet. It’s not Microsoft (MSFT) or Yahoo! (YHOO). They are the ones that won the search battle after all. Maybe it’s time we start giving Google respect. When I was younger, I mouthed off to my broker about how he let some guy buy Google. I rattled off how there was no growth in search… Ha! Did you see that ARG? Sick. Old dog just did a backflip. Who needs F5 (FFIV) for growth if you’ve got something non-hardware like GOOG. Building all that equipment in China is so old school. See what happened to Oracle (ORCL)- making lower low after it purchased a hardware company. Polar opposite is IBM, who is shedding hardware and going services. But even one-time service revenue is looking like another tired tech business model in comparison to CRM’s recurring revenue model (that doesn’t have the upfront costs of licensing so it’s more appealing to customers).
CRM: Probable weekly expansion for Salesforce.com. No, I don’t want to sell all, but I wish I’d bought more at $150. It expensive. No doubt about it. Disruptive technology can be expensive if it is going to take market share from the big dogs in tech. It’s also more inherently risky so frame your expectations accordingly.
BHI: Same. Don’t want to sell. Do you want to sell before you see if it resolves to the upside out of this volatility squeeze on the weekly? Look at daily, and we see it re-established it’s long term trend line, and it’s general trend is up.
WYNN: No way. Not a seller. How many other stocks look this strong- breaking out of a flag above the 50dma? But if you’re buying up here you have a higher tolerance for risk or else you are not taking a meaningful starter position- both are OK if you’re speculating in accordance with Graham’s distinctions between investing and speculation on pages 57-68 in the classic 1940 second edition (Do the homework! Not thrilling like Reminiscences or Confessions of a Street Addict, but required reading as it will really give you an appreciation for what fundamental analysis is and learn why we have to rely so heavily on technical analysis).
HAL: No way. Not a seller. Broke above resistance and holding the breakout level. Every single water truck in Gasland was a red Haliburton water truck. Speaking of hydrofrac, take a look at Carbo (CRR) -sick.
SLB: Same.
VMW: Strong. Not a seller. Everybody’s a VMware reseller or partner. They’re sick. We gotta give them a bullish bias. Their ARG is in the same league as FFIV, CRM, and… now GOOG!?
FCX: In flag formation above 50dma. I want to see if it resolves to the upside. I’m not a seller until it doesn’t. Here is convincing information on the long term prospects for copper.
AAPL: Strong. Broke out off flag. But at resistance. Most disrupting, innovative company in the market. Look what it did to notebook sales and smart phones and see the ripples that sent through all of tech? It’s evident that innovation is by definition rendering something else obsolete. Very powerful secular trends to be aware of when framing world view. Take a look at CRUS by the way. Great house across the highway from public housing.
CLF: Looks strong. Trailing stop is keeping your profits running. Coal Age give you no real advantage to game the demand for iron ore or coal so we can only trust the market knows what it’s doing here. Joy Global (JOYG) did say good things and maybe CAT will say something about BUCY on Friday.
CAT: Want to see if it breaks out. Not a seller. Call on Friday. Go over the annual report for Dow components. It helps with forming our bias so we don’t have to resort to adopting group behavior by listening to talking heads in the new 6-square.
CVX: Trailing stop working while it’s in flag-like consolidation. I continue to believe that we are in the beginning stages of a rush to control natural resources the likes of which the world hasn’t seen since the international land-grab of the 1970’s.
NDX: Holding. That’s what it looks like it’s doing so sellers are probably loosing steam. Google is the lead dog of this sled.
LULU: No idea. Confuses me but looks strong. Not a buyer.
WLT: Assigning attribution theory, we can have a bullish bias. So it’s OK to speculate that this is the low and keep a tight stop beneath $109. Again, the stuff in Coal Age is all very upbeat industry stuff so we have to be aware of that and not totally buy in. China is exporting coal. That is different from before so we have to pay attention to the run it’s had instead of where it is going cause we don’t have an edge from fundamental homework. Rely on the technicals.
AMZN: Not a seller. I Want to see if it breaks out of flag so we are not sellers. I talked to a guy at Atkins Park about doing a discounted cash flow analysis of AMZN vs. WMT last weekend. You will get a compound return of 9% in 5 years using 30% CAGR for 5 years of free-cash flow on Amazon.
DECK: Looks like we have our definition of risk. Strong. Not a seller. I don’t know fashion so fundamental analysis is limited to accepting it’s low PE to growth ratio and make decisions on the technicals.
XOM: (Always thought of “Bessie” to remember XOM but that’s the defunct Bethlehem Steel’s ticker nick name!) Not a seller. Sold at $84 and wanting it back. Second stock I ever bought. It’s OK to attach emotion to some stocks. Cramer’s short XOM, long HES trade idea has been miserable to all but those on the other side (HES is high beta and firming up however. Take a look at BEXP if you want to see a Williston Basin name that doesn’t send you to drink).
ISRG: Holding 50dma. Not a seller. Once upon a time, PG bought Gillette .
IBM: iBeam flag. IBM’s salesforce is of a different breed. They don’t wear blue suits, white shirts, and wing tips any more but every guy that’s in charge of a territory created the new unspoken dress code. Never count out Big Blue. They already went through growing pains that Cisco (CSCO) is now experiencing. IBM will be around for a long time in more-or-less of the same business model. The same cannot be said for CSCO. New technologies like virtualization, network attached storage, hosting, and the move away from the sever-client model are disruptive to CSCO’s traditional switching business so we want to stay away from CSCO.
RUT-X: Selling pressure could be over. Bullish bias warranted.
SPX: It’s OK to be bullish.
D30: OK to be bullish.
CSX: Good definition of risk. Not a seller. All the rails are firming so we can assume it’s a sector thing and have more confidence in buying here, or adding to a position.
GS: Maybe it could bounce with support estimated at $129-$130. We all have skeletons in the closet. Everybody everywhere has one of these in some scale in their portfolio but nobody’s stupid enough to go back for more now. Throw in an element of a spirit of contrarianism in for good mesure and we can give in to our masochistic tendencies and not sell. It could be worse: we could be buying CSCO. Keep your mistakes small in magnitude. $130 looks to be significant support so we don’t have to through in the towel as long as a loss on one of the dogs is manageable by being small in magnitude.
CMI: Don’t you want to see if it has an upside resolution to a flag consolidation at 50dma? I bet it will. Building a starter is OK if you haven’t any industrials. But that island reversal scares me so I’m sticking with DE as I’ve been following it for a long time and am OK making a more trusting commitment to this American company that has lasted, thrived, through two, multi-century cycles. DE still has more than half it’s sales in the US but it is bringing production on line overseas and collaborating overseas on functions like R&D which should lead to further efficiencies.
NFLX: People ragging on Netflix for its content costs, pricing changes, and valuation is akin to old-school record company guys that snuffed iTunes. Old dudes don’t get it. I’m sick of Herb Greenberg and his smirk when he raggs on NFLX. That smirk is his tell. Imagine sitting across from that smirk if you’re holding a pair of 10s on a big pot. You’d raise. I’m a buyer at the 50dma. Gotta love that’s it’s holding break out above $250.
UNP: Looks good. Holding $100. Again, like CSX. A sector wide thing. Get some rails. I have a piece coming up that breaks out all the different lines and their operators from Trains magazine.
CMG: Not buying but nobody looks to be selling. So why should you if you’re long. I thought YUM was tapped out and that turns out to be way, way off base. Their business is strong and CMG has barely expanded to Europe. They could make their way East before the next major correction comes. Why not keep some 1/4 position on the table?
DJ20: Holding break out above previous down trend. Bullish signal so I’m interpreting it as bullish.
ABT: Glad to see this one being checked. It forming a lower resistance level than it’s previous at $54. More inclined to be a seller so when we look at PFE later we’ll see that we kind of want this “leader” to cool down.
WFC: Don’t want to touch it. Learned our lesson on these dogs. Bearish bias.
BMY: not looking like it wants to break out of resistance like most of those flag patterns do at the top of the leader board. Again, we can have a bullish bias by this cooling.
HUM: Same.
BAC: Skip it. It blows.
PFE: Sold it in long term account. Collected dividend for a long time and profitable. But don’t like companies that have a “shrink to grow” strategy (although COP holder are benefiting well from their’s).
JPM: Skip. They had a good quarter and nobody cares. Just like AA. Even if we like these we can’t bet on them. Pick another horse.
ESRX: Questioning abandoning it as a leader. This is similar to what has become of TEVA- great story, and there’s no reason it should trade this low for so long but it does. Copaxone is an old story. But look what happened to Forest Labs (FRX). We gave up on that (as our leaps have long expired!) a long time ago, and that was wrong. We didn’t have enough conviction (aka patience) on Forest or Teva. FRX, like Atlantis, took off on it’s final launch into orbit. That’s where the analogy ends as I don’t think FRX comes back down as a publicly traded stock. Maybe same will be true for TEVA and ESRX. But no way around it- this looks ugly.
WLP: Glad it’s going down. Maybe we can infer that budget cuts will lead to less elderly able to pay for as many visits? My grandfather goes to the doctor all the time. I’m like, he’s 88. What’s the point of going to the dermatologist? I’m glad he moved in. I’ve been more grounded. I haven’t ever had time to spend with the grandparents I had a better connection with because they lived in India. I’m glad I at least get to spend time with one of the ones I didn’t.
And that rounds out the leader board. It’s OK to be bullish. Look at who’s on top and bottom. This is a good sign and we’ve got to be positioning for it. We can build positions in good stocks within uptrends and possessing sound fundamentals. Maybe it’s OK to let hope be part of the equation some times. Maybe it’s OK, like in The Beatles Blue Album, to hope that you don’t get let down. If you’ve done the home work and you’ve been following the fundamentals of the big Dow components and YUM and GOOG you can form a bullish bias even though there are obvious macro concerns. That just means we have to temper our bullishness and in so doing, take smaller positions or tighter stops to control risk. Let’s not be spectators. We get paid to play so we gotta play smart.
July 13, 2011
by Patrick
Comments Off on Trannies, Banks, & Chips
Trannies, Banks, & Chips
We have a good definition of risk in the major indices and the three major barometers flashing buy signals. Transports broke above the downtrend line and are holding. The theory behind transports being a market tell is that if transports are going up, it indicates goods are being shipped so there is demand for freight in the end markets.
The KBW Bank Index is similar. Technical analysis theory for a breakout above a down trend line goes something like this: when stocks go down, a resistance line is created as longs wish they had sold the day before and potential shorts have regret for not shorting. Both groups of traders would be willing to sell stock if prices get back to where they were the day before. This resistance line is valid after 3 tags. After enough selling has taken place and enough time has passed, the selling will be complete as anyone who wanted to sell, already has. The buying pressure is greater than the selling pressure and the stock may break out above the down trend line. This is our signal that the selling is complete. Now the reverse psychology takes hold: traders that sold wish they hadn’t, and potential buyers wish they had bought. Both groups would be willing to buy if the stock returns to the levels it was the day before. This creates a support line. When resistance is broken, by definition, and by demonstration of the psychology of traders, that line becomes support. We can see this graphically in the KRE:
The theory behind banks and semiconductors being barometers is that a growing economy needs banks lending and semis, the commodity of technology, to be selling. The SMH represents a basket of semiconductor stocks. We can see it is holding the previous intraday low, which is also a higher low from June. We can infer from this that sellers have exerted their maximum selling pressure yesterday, and this was less than the maximum selling pressure from the previous low in the middle of June. We have a good indication that the selling pressure has subsided and any good catalyst will create buyers. The white box shows the higher low.
With the Transports, the Banks, and the Semiconductors all showing signs of going higher, we can be a bit more bullish and take on some risk if our risk profile allows for additional risk. If any of these fail to hold, or the major indices start to break down, our thesis is in jeopardy and we should change course.
July 12, 2011
by Patrick
2 Comments
YUM! Brands Earnings Preview: It’s Gonna Have to Be a Big One
YUM is next up to report. I’d sell this thing before it reports tonight. Here’s why: it’s got a 13% growth rate and sells at almost 20x. They have 37,000 restaurants, mixed between franchises and company owned. That makes YUM the largest Quick Serve Restaurant in the world measured by restaurant count (not revenue). For all these locations, the are doing about $2.5B in revenue in a normal quarter and $3.5B in the Christmas season. It yields 1.8%.
Let’s compare that with MCD (which has been on fire for 6 months). It’s got a 9% growth rate and sells for about 17x. MCD has 32,500 restaurants and generates about $6B in revenue every quarter. That also makes MCD the largest Quick Serve Restaurant in the world measured by revenue (not restaurant count). That is about double the revenue per location that YUM has. MCD yields about 2.8%.
The growth rates are similar. The P/Es are similar. The yields are not. I would sell YUM before the quarter as it will have to be a good quarter and really beat expectations of $0.61 eps on $2.7B revenue. The estimates have been coming down in the past 90 days, but the stock has not. It’s just off a 52 week high. The estimates for AA came down a couple cents in the days before it reported, but the stock had been down a lot, so lowered expectations were met, and it’s stabilizing now. YUM does not have the same tailwind going for it. I don’t know where YUM falls in to the QSR group, if I want growth, I’ve got CMG. If I want steady dividend, I’ve got MCD. I have no idea what YUM is because it’s somewhere in between.
July 12, 2011
by Patrick
Comments Off on Alcoa Earnings Summary: Earnings Season off to a Good Start
Alcoa Earnings Summary: Earnings Season off to a Good Start
After listening to the conference call last night and seeing the market’s reaction this AM, a few takeaways are clear: Alcoa is firing on all cylinders, but they are still in the paddock while their competitors are out on the racetrack. Listen, no matter what headlines come out about EPS misses or revenue beats, you have to listen to the call to understand that this was a great quarter for Alcoa. This company is turning around and meeting or exceeding their challenging goals. However, meeting their goals only gets them to be a not-so-bad company. They are doing a great job of lowering their cost structure and planning ahead to take on commodity costs and allow for flexibility when natural disasters strike like the Japanese earthquake (I was especially surprised how management shrewdly got raw materials from the West to operations in the Pacific before the supply chain tightened so they wouldn’t have to pay for higher caustic after the earthquake). This is a great American company and a great turnaround story. The long term fundamentals for the aluminum industry are clearly stated by Klaus Kleinfeld, and I think he’s right to bullish. But turnaround stories take a long time. I consider AA uninvestable for myself, as my personal investing goals won’t allow for the amount of time it could take for AA to turn around, nor would my patience. With that said, not only is there nothing wrong with AA, but it’s a great company and getting better. At $15, it’s a buy if you’ve got patience.
July 8, 2011
by Patrick
Comments Off on Island reversal
Island reversal
The market MUST rally today and fill the gap. As of right now, a little before 1pm, I think it’s likely. It hasn’t fallen apart yet after the abysmal Non-Farm Payroll release. A completed island reversal would be extraordinarily bad, as it would occur right at resistance, and would open the door to the formation of the potential right shoulder of a head & shoulder top. I think a rally into the close is likely, as I don’t think the market has topped out yet. the next 3 hours are make or break, literally, for the market. You can see the “island reversal” in the chart below. It’s created after a gap up like the green candle did from yesterday, then a gap down open below the intraday low like the red candle did today. It creates the so-called “island top”, an isolated candle that signifies a climax in buying power. This is one of the strongest patterns in Japanese candlestick analysis. It is very reliable. We must fill the gap this afternoon. Prices must be accepted in yesterday’s range or else the topping pattern will be too great for chartests to ignore (even fundamental guys give credence to the island reversal).
July 8, 2011
by Patrick
Comments Off on Today’s Assessment: High Levels of Caution and Cash Warranted
Today’s Assessment: High Levels of Caution and Cash Warranted
All the major indices and sector ETFs had a break away gap up today. Oddly, retail and oil names both led the pack. This is counterintuitive as higher oil should mitigate any tailwinds the retail sector has. However, higher oil is consistent with my previous analysis on oil prices. While the major indices sustained their gains, most of the market leaders showed signs of slowing momentum and most have formed potential reversal patterns and/or are headed into major resistance. At the top of my leader list was FCX- gapped up, on large volume. FCX bucks the trend of most other leaders. This one remains strong. However, next on the leader board was DECK. It gapped up but hit major resistance at $96. While it’s not a prominent reversal pattern, there is evidence of selling into strength around $96 that should be noted. Next up is HAL- no signs of slowing momentum here. This is in blue sky territory. Again, HAL bucks the trend. WYNN is next on the leader board. Same story as HAL. Next up on the leader board is GOOG. This stock is obeying resistance at $550. GOOG is showing signs of slowing momentum. Selling this name is a safe bet. Next on the leader board is CLF. This gapped up and traded higher, but higher prices were rejected at $98. Selling this name is also a good idea. Next up is WFC- similar pattern as CLF, a gravestone doji. The interpretation of this pattern is that traders were selling into strength and buying pressure was not sufficient to keep prices near the higher end of the intraday range. Again, selling WFC is a good idea. Next up is CMI- while this did hold the gap up, prices closed where they opened but traded higher than the open, so anyone that bought today is a loser. Selling this name after it’s monster run is a good idea. Next up is JPM- again gravestone doji, but no real uptrend to reverse, so there is less risk here. There’s just not a lot of potential for an up or down move in JPM. Selling here isn’t prudent, neither is buying. Just watch this one for now. The next best performer was BHI- this is the opposite of a grave stone doji, a dragonfly doji, and selling this name is not prudent. Further upside is probable. BAC is next. It did nothing. Stochastics are rolling over so there is no reason to be buying or selling this name. AAPL is the next best performer. This is showing no signs of slowing down yet. Selling this name is not prudent. Further upside is possible. RUT-X, the Russell 2000, was the next best performer. This index is strong, but resistance is right over head. Buying in the small caps is a good indication of appetite for risk. I wouldn’t sell yet. SLB is next. This looks strong. No need to sell. NAZ, the Nasdaq 100 index, was next. This looks strong, but is right at resistance. I wouldn’t be surprised to see a reversal pattern tomorrow. CVX was next. Looks similar to the NAZ, strong, but resistance right overhead. I wouldn’t be surprised to see this one come back to test this gap in the next few days. CAT was next- this is showing signs of a reversal as it formed a gravestone doji right at resistance at $113 and 3/4. Selling this is a good idea. WLT is next- held the 200dma. Not strong, but it’s closer to support than resistance. This is one stock that should be bought as it is right next to support. ESRX is next. This is similar to WLT. It can also be bought as it looks to be regaining the 200dma and has clear support at at $52 1/2. AMZN is next up- blue sky territory, but the gap up didn’t go anywhere and it was on below average volume. This name should be sold. CRM is up next- gravestone. Sell it. CSX is next- this actually looks really good as a break out candidate. But this means keeping a short time frame. CSX can be bought here but with a very tight stop. CMG looks good- blue sky. I wouldn’t sell this yet. S&P 500 is next. This looks like a great break out if you ignore resistance above 1350. I think ignoring the daily candle stick analysis is the safe approach. Focus on resistance. Sell it. XOM broke out. It can be bought. DJ-20 is next. Clean break out. It can be held, but not safe to buy. GS is next- looks ugly. Stay away from this. DJ-30 is next. It continues to expand upward, but resistance is right over head. I’d sell this and take profits. BMY is next. It looks strong. No need to sell this. I hate seeing defensive names like BMY look so strong while names like CAT look like sells. NFLX totally lost momentum. Sell it. ABT- again a defensive name that looks strong. I like the stock, I don’t like what it signifies. LULU is next. Exhibiting small reversal pattern as the close was lower than the open. UNP- reversal pattern potential. It didn’t make a lower low than yesterday, but gapped up, and sold off, closed lower than yesterday and on high volume. Sell it. IBM’s momentum got checked by a down grade. Sell it. VMW- gapped up and closed lower. Sell it. WLP- looks ugly. Obeying resistance. Sell it. HUM- see WLP. PFE- looks really ugly, but too late to sell. Sell it if it breaks $20. ISRG= U-G-L-Y. It should have been sold yesterday as it formed a clear reversal pattern. It was also one of the first stocks I follow to start breaking out. It was the first to reverse yesterday so I think that’s telling. Momentum is slowing. Time to take profits. High levels of cash and caution are warranted. However, a strong Non Farm Payroll tomorrow could render all this analysis useless, but with the 12 weeks in a row of 400K+ readings on weekly jobless claims, I doubt we’ll see a good number. It’s been a good run. I’ve raised a lot of cash and I will wait for new set up to deploy it.
July 6, 2011
by Patrick
Comments Off on Today’s Assessment: Look Out Above
Today’s Assessment: Look Out Above
If you would have told me two weeks ago that we would be +8 on the S&P oscillator (+5 is considered overbought) and the Chinese were about to increase benchmark rates, I would told you that the market was going down 100 points and CAT, DE, and CMI would lead the way. Today, we had those conditions and the market shrugged it off and closed higher.
Copper continues to expand out of a volatility squeeze and the Chinese tightening couldn’t even make the JJC breach yesterday’s intraday low. Dr. Copper, Phd. says China is engineering a soft landing and their tightening is almost done. The FXI is holding its long term uptrend which provides support for the soft landing thesis.
The lumber names, LUK, WY, and PCL say Japan is coming back on line, even though last week’s BOJ Tankan survey showed the miserable outlook of both big and small manufacturers. The Tankan survey is just a sentiment or confidence survey of business people’s outlook on the future and not an actual data point like bookings or order shipments. I’m looking at the EWJ to see what Japan is doing, not what it’s saying. It’s holding $10 and moving higher. Stocks move higher when things are getting better, not worse.
We’ve got a bull market on our hands. The same one since March 2009. The same one that doesn’t need the big banks or good employment numbers to go higher. This market, as all are, is driven by earnings. The stocks say their company’s earnings are going higher. Look out above- higher prices await.