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Trading the Market 2-17-2009

admin on 02 17, 2009

This is a return of sorts as the writer, and his entire family, had to contend with a very nasty flu bug throughout last week.

It appears as though the flu has spread to the markets here on Tuesday morning.  The futures are looking down to the tune of nearly 250 DOW points.  The reasons are many.  While the US markets were closed for President’s day the Japanese markets were dealing with the worst fourth quarter GDP report since 1974.  The world’s second largest economy registering a number like that should give you an idea how dire things are around the world at the moment.  When we take into consideration that Japan’s been struggling mightily for nearly two decades since their real estate bubble burst the GDP number becomes even more serious.  Europe’s been under assault now for two consecutive days.  The grinding to a halt nature of the macro numbers are partially the reason for their troubles but ratings services announcing that they may downgrade Western European banks because of their exposure in Eastern Europe has as much if not more to do with the selling from our perspective.  The fear is ratcheting up again.  Gold is jamming higher and closing in on $1000 per ounce and the VIX is back on the upswing heading towards 50.  Treasuries are finding a bid too so the flight to safety and protection is in full flight.

Tech is under pressure here in the US as is the entire market.  The economic numbers have seen to that repeatedly but the delays with regards to the details of the banking plan have really hurt the psychology of investors.  It was reported that Rahm Emanuel has made it known that the White House isn’t concerned with market reactions.  If this is true someone needs to tap Rahm on the shoulder and explain a few things to him.  The stock market isn’t entirely comprised of Wall St. scammers.  Millions of investors around the world have their retirement funds tied to the stock market.  The stock market is also a key barometer for psychology.  Psychology is very important at all times but at times like this even more so.  Taking a “damn the stock market” approach is exactly what isn’t needed right now.  That will only make digging out of this hole even more difficult.  The White House needs to recognize how important psychology is and how it factors into solutions etc.  News like this isn’t going to raise anyone’s spirits:

NEW YORK (Reuters) – Factory activity in New York State fell to a record low in February with new orders and employment falling sharply as the U.S. recession deepened, according to a survey on Tuesday from the regional central bank.

The New York Federal Reserve’s Empire State factory index fell to minus 34.65 — the lowest in the history of the index, which dates back to July 2001. It was down from January’s already contractionary reading of minus 22.20.

“The Empire State Manufacturing Survey indicates that conditions for New York manufacturers deteriorated significantly in February,” the report said.

GM and Chrysler will add to negative psychology this week as millions of Americans will hear that they are back for more bailout money to stay afloat or they’ll effectively be bankrupt if they are sent home without any proceeds.

The “stimulus” package will be signed today but to call it a disappointment is an understatement.  Investors are very disappointed by this legislation and with good reason.  We won’t go into them all but even something as basic as the structure of the plan is severely flawed.  Much of the spending is scheduled to be spent years out from now which obviously does little good in the here, which is everyone else’s concern at the moment.  No one really knows how things will look in two or three or four years so that spending might not even be appropriate at those times.  More than likely this will be the first of many of these types of bills so it makes little practical sense to alienate so many people when our leaders will likely need support for similar measures many times over.

The one positive that we can find is that the gap can often reverse itself and in a way be therapeutic for the markets.  We’re hoping that this is the case again but obviously the balance of the week will produce more market moving news that will dictate the outcome more so than the gap effect.

The Technical Picture:

We’ve decided to go with the Dow Jones Industrials for this week’s chart because the index is ever so close to new lows.  At 1 we can see that the cumulative Adv/Decl line has already broken down through the support line we’ve drawn.  That’s an ominous sign.  To us this suggests that as a whole the market has begun to “throw in the towel” on prospects of higher prices for the moment.  There’s no way around it.  Many investors feel let down by the lack of banking plan details and the dubious stimulus bill.  Those developments worsened the technicals in real time.  At 2 we highlight the key price lows of NOW and back in November.  Our 3s all show the same story.  The market breadth oscillators all show a “rollover” to the downside.  Put another way, we view this as a failure of positive momentum and/or an intensifying of negative or downside momentum.

Our parting comment is this:  Will someone please get Paul Volcker and Larry Summers in front of the cameras instead of Nancy Pelosis, Harry Reid, Tim Geithner and Rahm Emanuel?  This is a time for serious business not politics.  Both major parties playing politics for the last two decades has only contributed to this problem.  Stop digging the hole please.  It’s sufficiently deep enough.

Earnings Highlights & Economic Releases for the week:

Feb. 17 – WMT – Wal-Mart Stores, Inc. operates retail stores in various formats worldwide.  As with most stocks balancing on the edge of the abyss, WMT is no different.  It recently made a new low at $46.25.  This was several weeks after the stock gapped down from $55 to $52.  This environment is tough, but Walmart is one of the most efficient retailers out there.   Weak earnings or poor guidance will most likely break the short term support.  Major support comes in around the mid $42s.

Feb. 18 – CMCSA – Comcast Corporation, together with its subsidiaries, operates as a cable operator in the United States. It offers various consumer entertainment and communication products and services.  If they can manage to hold the support of $12.5 and the market can stabilize, then there is a shot for a triple bounce.  There are a lot of what “ifs” in that statement.  The next major supporting low is $11.37 and that comes from 10/2002.  Let’s hope it does not break that level!

Feb. 19 – GG – Goldcorp, Inc., together with its subsidiaries, engages in the acquisition, exploration, development, and operation of precious metal properties in Canada, the United States, Mexico, and central and South America.  The 52 week high is $52.65 and the low is $13.84.  Needless to say that is quite a range.  Gold has been very volatile and has helped GG regain its current price of $32.36.  If gold stays on its pace then GG should have a strong year.  It is forming a nice triangle so look for good earnings to give it a nice pop.

Feb. 20 – LOW – Lowe’s Companies, Inc. and its subsidiaries operate as a home improvement retailer in the United States and Canada. The company provides a range of products and services for home decoration, maintenance, repair, remodeling, and property maintenance. The lowest low back in 10/10/08 was $15.76.  Housing does not seem to be picking up and the economy is not doing any better.  If earnings are weak, based on guidance and the current market outlook, then look for it to test the October low, then possibly the $12.50 level.