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Stock Tiger Stalking Stocks™
For Monday February 4, 2008
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Close Friday
Dow +92.83 at 12743.19, Nasdaq
+23.50 at 2413.36, S&P
+16.86 at 1395.41
 3
Percent The central bank lowered the federal funds overnight rate by 50 basis points
this week to 3%. The Fed has cut rates by 1.25 percentage points in eight
days, I think the most ever in such a short time.
After the market bubble popped in 2000 instead of letting the economy recover
over the next 5-8 years while people saved money, instead the housing bubble was
launched to put money into the hands of consumers again so they would consume. I
mean who needs real money when you can just loan it to them. Now that the
housing bubble popped and the market cannot be used to give wealth, the
government wants to just give it to people and the Fed wanted to help the stock
market (not at all their job) and lowered rates so people can borrow even more and yet again refinance their homes
(the ones that are not in foreclosure) this way people keep spending. Can you
imagine if you could not pay your credit card bill and the banks said - "No
problem we will loan you the money so you can pay" Well this is about the situation
now. For it to work of course the rates not only have to be attractive but the
banks have to be willing to loan money again.
I have read that some say that Ben Bernanke may be open to the
charge of creating a 'moral hazard.' The Fed in reality is rewarding all those who
were involved in reckless borrowing and lending.
The Fed I guess hopes that
these big rate cuts will help the economy get over the
period of weakness as if the falling home prices, credit
crisis, weaker consumer spending and diminishing employment
is a short term thing - a blip.
Here is the Fed funds rate
chart since late 2001.
In a statement, the Fed
said that downside risks to growth remain, and that it would
act in a timely manner to address them. There was one
dissenter: Dallas Fed President Richard Fisher said he
did not think that the Fed should have lowered rates at
all.
Well Texas has its oil.There was only a
passing reference to inflation. The Fed said that it
expects inflation to moderate in coming quarters, but
also said it would watch the situation carefully. With
the weakness of the dollar it means that all imports cost
more so how can inflation moderate?
The Fed has now cut
rates five times by a cumulative 2.25 percentage points.
Many Wall Street economists now think rates will have to
go to 2.5% by spring to stave off a potentially serious
recession. The next two formal FOMC meetings are
scheduled for March 18 and April 29 to 30.
Friday was a very good day with a 1.2% Dow gain and up 4.9% gain for the week.
We had 11 new
longs from the watch list trigger on Friday and many more continue to gain. That is 27 stocks that hit their buy point this week --
solid week. Often when we have such a big week it is followed shortly buy
much lower number of break outs. People is seems were encouraged that the stock market was able to
hold up even with a worse than expected jobs report. The
manufacturing index was up above the expected and the MSFT/YHOO
proposed purchase helped the mood.
Microsoft offered to buy
Yahoo! for $44.6 billion (may
seem like a lot but actually it is only about one year profit
for Exxon
Mobile - they made $40.6 billion in pure profit in the last year.
Now they are looking for more tax breaks.) The point is
that if MSFT is willing to pay such a high premium than they
have a long term bullish outlook.
Unemployment claims were sharply higher this
week. The Labor Department showed that jobless claims jumped
69,000 in the week ended January 26th to 375,000 from the
previous week's revised figure of 306,000. Economists had been
expecting jobless claims to jump to 320,000 from the 301,000
originally reported for the previous week.
Earlier in the day Friday, the Department of
Labor said that January nonfarm payrolls fell by 17,000, lower than
the 70,000 reading economists expected. In the last 12 months,
the economy has added 83,000 per month compared with a monthly
gain of 95,000 jobs in 2007 and 175,000 jobs in 2006.
The average hourly earnings rose
2.3% to $17.75 from the previous month.
This is not of course a real number as it
is adjusted and will change next month on a revision but still
it is tradable. To stay even on jobs there needs
to be at least 175,000 -200,000 new jobs as that is the number of
new seekers each month. This rate is the one reported:
The reported unemployment is 4.9% which
excludes many classes. The 9% unemployment is worded this way,
"Total unemployed, plus all marginally attached workers, plus
total employed part time for economic reasons, as a percent of
the civilian labor force plus all marginally attached workers"
Helping to offset the poor
jobs number, was a positive read on manufacturing. The ISM
Index, a national manufacturing survey, came in at 50.7, higher
than December's reading of 48.4. The consensus estimate called
for a lower reading of 47.3. This is good news for the economy.
Since the number is above 50, it indicates an expansion in
manufacturing.
Data released this week
shows home values are down almost
8% nationwide, with many areas in double digit declines. And it is
likely to get worse. 1.3 million homeowners are in some state of
foreclosure, or about 1% of homeowners nation wide, and the numbers
grows each month. Predictions of 2,000,000 homes in foreclosure are
made by some. We read that there are 2.18 million homes that were vacant and for
sale in the 4th quarter. That's 2.8% of all homes.
I found this chart
interesting as it highlights the significance of the economy's
growth due to borrowing on homes. You can see there would have been
two quarters of negative GDP if not for financings or refinancing. I
have not found a more recent chart but we can imagine it is now
negative if we take out home loans.
It looks like as rates get
lower that this method of getting money will not go away as people
will once again re finance to get lower rates and some cash if they
can. This will help and the $150 billion the government plans
to hand out in stimulus could add up to 1% of GDP later this year
(if the money is spent)
For the week, the Dow gained +4.39%, the S&P 500
+4.87%, Nasdaq +3.75%, and the Russell 2000 +6.08%. - Really big week.
The top and bottom sectors for the week:
The bulls have some momentum going now but we are moving toward resistance and
becoming a bit overbought. The benefit for the bull is that
shorts are being squeezed, and underinvested bulls are scrambling to
avoid being run over and that is keeping things going.
Despite the move we've had, the indices and
most stocks are still in technical downtrends. Use caution.
The Dow shows 1,100 point move from its
low in only 8 days. Actually the volume was pretty good the last two
days. 147 points below the 50-day EMA. Stochastics are at 80
but not over so it could run some more. The top Bollinger band
is near the 200-day EMA.
The longer term view shows RSI at a trend line and a break would be bullish.
The Dow monthly view is still not broken.
The transports did very well indeed from their lows. A break above the
trend would be quite bullish for the market.
Nasdaq weekly bounce at the trend then the 200-day EMA. If 200-50 pinball
is in play we will eventually see it at the 50-day EMA again. Watch the
stochastics as it could move back over 20 - bullish if so.
The BPCOMP bounced but still at historically oversold areas.
The semiconductor index has at least started a good bounce from support
and the stochastics are almost about to move back over 20 which would be at
least a short term buy signal. The EMAs crossed over recently and that is
bearish.
Nasdaq 100 proxy QQQQ monthly chart
shows a hint of a bounce but it may set up as a little bear
flag.
NYSE daily chart - it is nearing the 50-day EMA and the 32%
Fibonacci retrace resistance.
The number of stocks on the NYSE now trading above the 50-day averages is back
to 50%.
The S&P 500 weekly
in this we see the strong move up from the low on strong volume and
now back above the trend.
This monthly S&P 500 shows the bounce and an eventual move to the
20-month EMA near 1400 will likely be shortable.
The Value Line monthly RSI 50 bounce
Russell 2000 yikes - from the 650 low to 730 is $8,000 per single
future's contract and each contract on a day trade only ties up $500 with Global
Futures. In time, if it gets back to the 50-day EMA which is now at the trend
channel near 774 - it may become a short. The ProShares for this are:
Russell 2000: (UWM) [2x long]; (TWM)
[2x short] They trade like stocks.
Oil had run up in a bear flag and
started the drop on Friday . Looks like it will at least test the
200-day EMA at $82 in time.
The 10-year yield closed at $3.6%
The 30-year yield closed
at $4.3%
The Yen and associated carry trade seems
at the moment to no longer bother the US markets -
Gold began what may be a larger correction on
Friday. It ran up in the morning and as it wiped out its gains the
selling increased. We have had negative divergence for a while so
this is expected. Gold is in a long term uptrend but a good pullback
would set up better entries. MACD histogram also turned negative on
Friday.
On the weekly gold This looks like a typical
reversal candle and will be confirmed with a close under its low.
With the Fed lowering the interest rates it
will also get the longer term rates lower and this may make it
reasonable that global capital will move some of their money to
other countries to earn more interest. This
could mean appreciation of currencies across continents and
depreciation of the US dollar. As the dollar weakens, goods from other countries
cost more in the USA so causing inflation. The Fed though seems
to act as the protector of the stock market and that is not
their job at all. They should be more concerned with inflation
and the dollar. The Fed works for profit making banks so they do
want to bail out banks who caused the credit problem themselves
and now use the government to bail themselves out. We have seen
though that the weak dollar does help international sales for US
companies like IBM and MSFT. Just means that Americans have to
pay more for things.
The US dollar maybe a retest coming of the lows.
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Butch Cooley Market Comments
(Butch is founder of
Leg Up House
and the
Butch Cooley Worldwide
Hunting and Fishing . He has
been an active trader for decades.)
Week Ending February 1, 2008
No matter what you believe, whether you are a Bull or a
Bear at this point, I would think everyone could agree
that the majority of the market's problems center around
"liquidity". One definition of this refers to an
asset's ability to be easily converted through an act of
buying or selling without causing a significant movement
in the price and with minimum loss of value. I remember
this from college days. (I did pay attention
sometimes!!) But in terms of trading, we are all
liquid. Otherwise we could not continue to trade.
But I am currently referring to that quality of a
business which enables it to meet its loan obligations,
it's payments monthly, in terms of possessing sufficient
liquid assets. Money...cash...dabloons!!!
Much of our economic liquid comes from banks lending to
consumers, but mostly banks lending to banks and brokers
lending to brokers. And the Fed lending to other banks,
and so on and so forth. Liquid credit. If you lend it,
you make more than you gave out. If you borrow, you pay
more than you got. Nice way to keep money moving. And
that is just not happening right now. It is drying up.
No one is in a position to trust anyone else, because
most financial companies are hurting within their own
organizations and don't want to admit how badly they
are. So there is no way they are going to trust the
other guy. And those that have cash to lend, well,
might be better to hold it themselves right now. And so
the economy starts to stagnate. Once money movement is
missing, everything slows down. Fish line companies
don't want to get stuck with too much fish line on the
shelf, so they cut back on product. That means they buy
less materials. They lay off, they don't hire. They
use less coffee at the coffee pot. The companies that
make cans for Bush Bean's stop buying so many tin
products. They don't buy new machinery to make cans.
Etc etc etc. So it really doesn't matter just where the
lending rate is at, because no one is lending, and there
are less people borrowing. And less people that can
borrow.
Slow down...recession...depression. All words for what
is actually happening in the economy. Not what is going
to happen. And it's difficult to understand. Ever see
two economist who had the same opinion?? I'm older, and
the Fed was the group of guru's that kept the economy
"safe", and they kept inflation in check. Inflation is
part of an economic process. It's not inflation that in
itself is bad. It's the length of time that the
inflation goes on. Left unchecked, it can lead to
depressions, or hyperinflation and economic collapse. I
am not saying that is what is going to happen. But if
it waddles, has feathers and quacks, let's all call it a
"duck".
And imo, this is the duck: Housing, regardless of
interest rates, is in trouble. There are too many
houses for the demand. Price will have to fall. That's
economics. Supply and demand. so part of the pricing
in our economy is deflating. But at the same time, the
dollar is falling, oil is going up, food is going up etc
etc. We have some costs increasing sharpely. This is
different recipe. Stagflation. This is the job of the
Fed, to attempt to head this type of problem off. Too
date, I am not convinced they have control of the
situation. And I am convinced the market is not in tune
at all with the situation. Should ABK or MBI loose AAA
status, the markets will not do well. And I don't see
how this can be avoided at this point. A few bond
insurers have already gone under. A number of them have
been reduced to A status. This is not good news.
My grandfather used to quote Sidney Harris, a newspaper
man who wrote for the Chicago Sun back in the 30's I
believe it was: "A recession is when your neighbor is
out of work, a depression is when you are out of work".
Well, my neighbors are out of work!!
New England 28 ----NYG 20 Deal with it.
BC |
Economic calendar from briefing.com
(Saturday the groundhog Punxsutawney Phil emerged
from his burrow and saw his shadow, predicting six more weeks of
winter in 2008)
If you love the Fed, you are going to really love next week. Every
single day, a member of the Fed is scheduled to speak. Along with
that to look forward to, we have reports on factory orders, ISM
non-manufacturing survey, productivity and costs, chain store sales,
and pending
home sales. And .... a lot of earnings are still ahead.
Palladium stock SWC was on the watch list for the bull flag
break out and the top break. If you missed the buy of the flag you
could have bought the Friday move but it was a gap up so more risk
as to where to put your stop. This was a good example of the 15-min
gap rule as we have covered many times but not in several months.
To use this rule you look at a 5-min chart of a gapping stock and make note of or draw
a line at the bottom of the first 3 candles (15-min for 3) and a
line at the top of the 3. If it breaks the bottom line you can go
short with a tight stop (though this is better for experienced
traders) or you go long on the break above the top line. You can see
that the top line was at about $11.35 area and it triggered a buy and
the 4th candle pulled back below it for only pennies. The gain was from that $11.35 to the high of $13.00. You can keep moving up
your stops or take partial profits as the trade goes your way. This
works on gap downs also for shorts. It is not 100% but it lets you
see exactly where to buy and when not to bother.
NNRI is still range bound near the lows but had the second
higher volume in a month on a nice move Thursday. This chart is
looking much more positive - not only me talking - look at all the
indicators. Larger resistance is at $1.28 50-day EMA.
SIPC still low volume - expecting the SEC filing pretty
soon. Most trades still in our range $1.10 - $1.25 buy area
averaging in on weakness as float is not large - stop under $1.00.
PYR.v - look forward to listing on Toronto - vastly under
priced for the amount of cash flow and positive net earnings.
PLTG - may be cash flow plosive this month.
GWDC been pretty stable in the 40 cent range probably will
move up as we get closer to earnings.
New additions to the watch list:
INCY Over $12.72
SNN On a pullback to first or
second line $62.00 to $63.50 area
PBR Over $118.80 - a foreign stock so
often gaps open.
SYMC Right in here or a break of $19.00 as it
hit our first entry point on Friday - hopefully will consolidate a
bit
APOL Over $81.68
TMA Over $12.00
VIV Over $6.10
GBM Over $20.26
JOYG Back over $65.00
MLNM Over $33.90 - $34.00
CALM Over $31.45 but careful as may be
short term short instead a short at a double top
IAG Gold Short
below $7.64
HP Over $40.35 but want high volume
again
Today's images from
c-man they are a treat
for the eye - in infrared
That's a full lid for today - will see you all during the week.
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