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Market Analysis for Early 2009: The Volume May Not Be There, But The Price Action Is Bullish

andy07cole@gmail.com — 2009-01-04T17:29:36-06:00

Last week was some of the most bullish trading we’ve seen in awhile. The data continues to be bad, but it looks as though we may see a short-term rally into the early stages of 2009. Let’s not get crazy though, the longer-term trend is still down:

We finally broke above the 50-day moving average on the /ES. Volume is still relatively weak across the board, so the true test will come on Monday when we see more market participation. That 1000 level looks to be within reach, though.

The XLF also seems to be breaking out of a longer-term downtrend that began in early October. Keep an eye on that 50-day.

Finally, we have Goldman Sachs, one of the most bullish looking individual stocks that we’ve seen in awhile. GS broke out of it’s ascending triangle last Friday, on somewhat weak volume. We’ll see what Monday brings, but based on price action alone, GS could easily see a move to $96.

Also, check out Apple. AAPL has been in the process of forming a descending triangle for the past three months. Now as a company, there are few that can beat AAPL with regards to product and overall excellence. However, there have been a lot of rumors swirling around the Steve Jobs and whether or not he will remain at the company and some analysts believe that his presence as CEO is worth a good $10 to the stock. Keep an eye on $93.15 for overhead resistance.

Good luck.

Another Worthless Day

andy07cole@gmail.com — 2008-12-29T17:52:35-06:00

Don’t expect any trend confirmations until the volume comes back into this market. Until then, it’s just chop.

Shocker! UAW Keeps $33 Million Lakeside Retreat Complete With $6 Million Designer Golf Course

andy07cole@gmail.com — 2008-12-27T15:37:02-06:00

As Taken From Fox News:

The United Auto Workers may be out of the hole now that President Bush has approved a $17 billion bailout of the U.S. auto industry, but the union isn't out of the bunker just yet. Even as the industry struggles with massive losses, the UAW brass continue to own and operate a $33 million lakeside retreat in Michigan, complete with a $6.4 million designer golf course. And it's costing them millions each year.

The UAW, known more for its strikes than its slices, hosts seminars and junkets at the Walter and May Reuther Family Education Center in Onaway, Mich., which is nestled on "1,000 heavily forested acres" on Michigan's Black Lake, according to its Web site. But the Black Lake club and retreat, which are among the union's biggest fixed assets, have lost $23 million in the past five years alone, a heavy albatross around the union's neck as it tries to manage a multibillion-dollar pension plan crisis.

Critics call it a resort for union leaders that wastes money from union dues.

"It's their members' money that they're spending on this thing," said Justin Wilson, managing director of the Center for Union Facts, a union watchdog group. "The union has bigger issues at hand than managing a golf course."

Managing the course may become a burden for the union. The UAW covers costs for the Reuther Center from the interest it earns on its strike fund, according to tax documents, but massive losses in the past five years have forced the union to make heavy loans to keep the center afloat. Critics call it a poor investment for a group with over $1.25 billion in assets. "Unions certainly have had real estate investments in the past, but investments are supposed to make money, not bleed money," said Wilson.

The UAW did not return calls from FOXNews.com, and a spokesman could not be reached for comment.

The Reuther Center is open 11 months of the year to offer courses on leadership, political action, civil rights and other topics; it hosts nearly 10,000 visitors annually. The UAW says it sends workers there to "learn, experience unionism (and) commit to labor's cause," according to their Web site. The center was purchased in 1967 and underwent massive renovations in the '90s under the careful watch of former UAW president Steve Yokich. "Today's Black Lake might not exist if not for Steve Yokich," said union member Bob Reidt, whom Yokich appointed as Black Lake's director. "Yokich is responsible for rebuilding Black Lake." The UAW erected a monument to its longtime president Walter Reuther — the center's namesake — which bears an inscription of his words: "There is no greater calling than to serve your brother. There is no greater satisfaction than to have done it well."

But Reuther, who died in a plane crash en route to the center in 1970, never knew the satisfaction of Black Lake's "well-groomed fairways," a course that Michigan Golf Magazine called a "stunning visual marvel." Union members can play golf at discounted rates on one of the country's top 100 courses, designed in 2000 by famed course architect Rees Jones at a cost of $6 million. The center has a storied history. Reuther had his ashes scattered at the site, and Lucille Ball and Desi Arnaz honeymooned there in 1940, well before it was bought by the UAW.

"It's funny that they call it an education center — it's a resort," said Wilson. "If I was a union member, I would prefer that they rented out a room at the Ramada Inn."

What a beautiful golf course. It’s too bad they can’t afford it anymore. Extraordinary times call for extraordinary measures and in this case, this “Taj Mahal” of a resort has to go. Just one more reason why GM needs to go bankrupt to have any chance of surviving this economic downturn.

Merry Christmas!! But Sadly, Market Indicies Looking Weak Going Into New Year

andy07cole@gmail.com — 2008-12-25T17:48:14-06:00

Last week may have been a low volume week, but that does not detract from the fact that the month-long uptrends on nearly all of the major indicies have been broken and as a result, things are looking somewhat dismal. Take a look:

The 50-day proved to be too much resistance for any more of a rally and we would not be surprised to see us continue lower here. Keep an eye on that 850 level for the remainder of the week.

With regards to the XLF, there is a possible head and shoulders forming. This coupled with the fact that the downtrend from October is still intact leaves us looking at a very bearish-looking chart. It is safe to say that we could retest those lows of November sooner rather than later. The financials have lead this market all year, and we would look for that to continue at least into the early stages of 2009.

The XHB looked as though it would break through the 50-day moving average during mid-december, but the sellers came out in force to protect that level. That month-long uptrend has been broken and we are looking for the XHB to retest the lows of November.

The fundamentals of this market continue to be terrible. Jobless claims are at 26-year highs, and we’ve seen nothing to suggest that number will not continue to rise into 2009:

And if Americans don’t have jobs, they won’t have income. Thus, they won’t be spending, meaning retailers will go out of business, automakers will go under, etc., etc. And it’s not as if Americans are willing to put anything else on credit these days. I think you get the picture. If you don’t, here’s the picture:

’

You get massive inventories of cars that won’t be sold like those in the picture above in Long Beach, CA. Earnings estimates for many of the companies on the S&P500 are still too high and the companies that managed to “beat” estimates this time around only beat because those estimates had been lowered in the first place. The economy continues to struggle, and we expect the market to reflect that going into the New Year.

Happy Holidays!

Rally or No Rally and The UAW Are A Pitiful Bunch Of Whiners

andy07cole@gmail.com — 2008-12-21T18:24:23-06:00

The market has been in a bit of a holding pattern as of late, no doubt waiting on the results of the “big three” bailout, as well as some earnings data and bits and peices of Obama’s grand rescue plan that is surely going to fix everything. We’ll see what happens going into the next week, but we continue to believe that this rally will not last and that the lows of November will be retested sooner rather than later.

We are still in a nice uptrend since those lows of November. However, until we break that 50-day with some convincing buying, we would not be putting any new long positions on the table. 900 has proven to be formidible resistance and that is the level we will be watching with interest next week. Also of note, we failed to make a higher-high last week, so could a lower-low follow?

The XLF has managed to stay within that 3-month long downtrend, as well as within that month-long uptrend. $13, as well as the 50-day, continue to provide solid resistance against any rally. Again, we failed to make a higher high last week. Something has to give here sooner or later. Until then, chop-chop.

And one could have predicted this, but the UAW are already complaining about the terms of their bailout package that eventually recieved last week. As taken from CNN Money:

"We're pleased that the Bush administration has acted today to provide urgently needed emergency bridge loans to America's auto companies and to pursue a process for restructuring outside of bankruptcy," said UAW President Ron Gettelfinger. "This will keep the doors of America's factories open, keep Americans working and prevent the devastating economic consequences for millions of Americans and thousands of businesses that would have resulted from a liquidation of operations by one or more auto companies."

The UAW, Gettelfinger said, is reviewing the documents released today. "All stakeholders -- management, directors, bondholders, suppliers, dealers, workers -- will have to participate in shared sacrifices to help the industry move forward," he said, noting that UAW members have already made substantial sacrifices to help make the domestic auto companies more competitive.

"While we appreciate that President Bush has taken the emergency action needed to help America's auto companies weather the current financial crisis, we are disappointed that he has added unfair conditions singling out workers," said Gettelfinger. "These conditions were not included in the bipartisan legislation endorsed by the White House, which passed the House of Representatives and which won support from a majority of senators.

"We will work with the Obama administration and the new Congress to ensure that these unfair conditions are removed," said Gettelfinger, "as we join in the coming months with all stakeholders to create a viable future for the U.S. auto industry."

Truly unbelievable.

Market Analysis: Busy Trading Week Ahead

andy07cole@gmail.com — 2008-12-14T21:27:46-06:00

We’ve got a lot to look forward to this week, including a Federal Reserve meeting, a revisit of the “big three” bailout, and earnings from Goldman Sachs, Morgan Stanley, Best Buy, and Oracle. It figures that most, if not all of the major averages are pinned at major resistance levels, so the news is sure to be market moving.

Notice that we’ve drawn a new trendling on the S&P 500 dating back to early October. We will see if this trendline holds into the coming week. The current uptrend also remains intact and last Friday’s action certainly has to be regarded as bullish. The markets had every right to sell-off based on that bailout failure in the Senate, yet somehow the major indicies all finished the day positive. Keep an eye on that 50-day moving average, as that will also prove to be formidible resistance on any rally.

The XLF has already broken the current uptrend dating back from late November. Earnings from GS and MS are sure to be the movers of the financials this week. Again, $13 will be strong resistance for any rally.

As a final note, the economic news continues to be absolutely terrible and we will be expecting more of the same this next week. This recent rally has no fundamental base and we do not expect it to last for much longer. In closing, we leave you with a bit of crude “bailout” humor that we found in the trading chat-rooms last week.

Funny, but true sadly.

Bailout Dies In Senate, Asia/Europe Down Big, Oil Looking Bullish?

andy07cole@gmail.com — 2008-12-11T22:27:18-06:00

The auto-bailout failed to pass in the Senate. Expect some volatile trading tomorrow and a retest of the November lows within the next few weeks. Dead cat bounce you might be wondering??

Thanks to Guide Postings for that bit of humor.

And in an otherwise bear market, could oil be forming something of a bottom here? The volume recently has been very indicative of such. If anything, it’s something to keep an eye on.

Market Analysis and Why Chrysler Needs To Go Under Regardless

andy07cole@gmail.com — 2008-12-07T20:13:34-06:00

Last week’s rally was something that caught most people off guard, including ourselves. The jobs number was twice as bad as analysts were forecasting, and it’s not as if we’ve had any decent news lately. We think this current level of optimism is unwarranted, and like all bear market rallies, this one too will falter.

The S&P made a clean break through that month long trendline last Friday. What was interesting is the fact that the market opened down 200+ points after the job report and then managed to rally higher in the later stages of the day. At this point, the only thing that makes even a bit of sense is that maybe the jobs number was already priced into the market, but, honestly, who was expecting 533,000 jobs to be lost in November? I mean, we knew it was going to be bad, but not that bad. However, the charts don’t lie, and 900 could well be within reach this next week. Keep an eye on that 50-day moving average as well.

In order for us to see any sort of sustained rally over the next few weeks though, the financials need to participate. In other words, we need to see a break above $13, which is currently acting as some very serious resistance for the bulls. Volume last week was unimpressive and that monthlong trendline will also come into play here. Should we see a break of $13, the next target would be the 50-day moving average. Anything above that is being somewhat optimistic.

Next week will be an important one for sure. However, don’t let the current optimistic attitude in the markets take hold just yet because crisis is still far from over.

Written By Andy Cole

Most autos these days are reviewed on the premises of four key areas:

• Reliability
• Safety
• Quality
• Styling

Yes, I may have missed a few, but these are the one’s that most prospective buyers will consider when looking around for a car.

With regards to Chrysler, the cars that this company churns out year after year have just been horrendous on all accounts. I have to conclude that this is one auto company that must go under during this economic contraction. Let me explain.

First, the reliability is almost nonexistent. Don’t believe me? Check out this site or this one. I don’t think I’ve ever come across an auto company that has a site detailing the numerous problems related to their vehicles apart from this one. From steering problems, to broken transmissions, to defective seat-belts, if you want a car that is unreliable to nearly every extent possible, a Chrysler may just be the car for you.

And then we come to safety. Well, if you missed the defective seatbelt issue in the previous paragraph, then you may want to read that again. And then we have the reports of fire prone Chrysler minivans stemming from fuel leaks. While current Chrysler models have done well in government crash tests, the question still remains: Would you trust an unreliable car to protect YOU in the event of an accident? The answer is no and I’m sure that is an answer that would resound with mother’s everywhere.

When one thinks of the term quality in relation to an automobile, the first company that comes to mind is Toyota. Toyota have been the unequivocal leaders in quality for the average consumer. So what is quality defined as in a car? It means that when you walk out to the car, you can see that some thought and ingenuity was put into the car. It means that when you step inside the car, you can look at a nice dashboard layout with easy-to-read dials, and nicely appointed materials. The following comparison of the Chrysler Sebring and the Toyota Camry should be evidence enough of what I am referring to:

I honestly don’t even know where to start with this one. The jaunty angles for one are really a drawback on the overall flow. Also, notice the drab, tacky-looking plastic, which just seems to cover the interior of this car. It really gives off that sort of “blah” feeling, not exactly what you would want to start your day with.

Inside the Camry, however, it’s a totally different story: nice flowing lines, good looking materials, and a very comfortable looking steering wheel. I mean, it looks like a car someone might actually buy. Amazing!

Styling, believe it or not, does play a rather important role in the purchasing of an automobile. Think about it: at the end of the day, this is a car that you will have to live with everyday. Chrysler doesn’t seem to understand this:

As taken from the Chrysler site: “It’s look is undeniable with fluid lines and a striking chrome grill.” You have to wonder what they were smoking when they designed this horrific piece of garbage.

The difference is night and day really.

And the final kicker: the Toyota Camry starts at $19,145 and the Chrysler Sebring starts at $21,225 as taken from their websites.

Jeremy Clarkson over at Top Gear summed up the Chrysler Sebring convertible as the “worst car in the entire world.” I couldn’t agree more. You can read the article here.

How on earth can Chrysler possibly survive when they continue to produce such terrible cars? And to think that Congress is considering giving them a loan to stave off bankruptcy? This is one auto company that just needs to go away and justice will be done when it finally happens. The point is that the “so-called” American auto companies are not what they used to be. They have been producing a lot of garbage for years now and it is high time that they paid the consequences. I say no to any bailout of these companies, because at the end of the day, this recession will take its victims regardless of how much money we throw at them. And speaking of that, what happened to the $25 billion that was initially proposed? Or wait, is it now $35 billion? I can guarantee that the big three will be back begging for more money from Congress in 2009 and you can take that one to the bank.

Friday Could Get Interesting

andy07cole@gmail.com — 2008-12-04T18:14:11-06:00

Tomorrow could get very interesting for a number of reasons, first being the jobs number, and the second lying in the charts. The jobs number will be terrible. That’s already expected. What matters is how the market reacts to it:

This market is going to break either to the upside or the downside with some serious force in the near future. The path of least resistance remains lower, and based upon today’s action, there is a higher probability of it breaking to the downside than the upside. The daily charts are beginning to show some signs of a trend reversal to the negative and the fact that the trend-line from September to December has held consistently makes us bias-bearish going into tomorrow.

The XLF is in a similar position. There was a failure to make higher highs, a failure to break resistance at $13, and that last shooting start candle is just one more bearish indicator to add to the rest of them. The path of least resistance is lower. We’ll see what happens Friday.

We’ll be doing a post on why we believe Chrysler should fail later this weekend.

Good luck.

Rally Comes Out Of Nowhere, But The Trend Is Still Down

andy07cole@gmail.com — 2008-12-02T22:35:27-06:00

Today was a very interesting day. Anyone that was following the daily charts will know what we’re talking about. The rally came at a point where nearly every daily indicator was pointing down. What can we expect going into tomorrow? Well, the rally today came on relatively decent volume. 850 continues to be an area of resistance and while we could test 900 tomorrow, the short-term trend is continues to be down and we would look to short any rallies like the one we saw today.

Low Volume Rallies In Bear Markets Usually Don't Last

andy07cole@gmail.com — 2008-11-30T19:53:25-06:00

There are only two charts we are looking at going into the new week, the SPX and the XLF:

Last week’s 20% rally bottom to top really seems to be showing signs of some weakness here. The volume has all but dryed up (granted, it was a holiday) and we are coming close to being overbought. It might be a good idea to close any outstanding long positions.

The XLF continues to lead this market and unless something crazy happens, $13 will provide as firm resistance for the bulls. Similar to the S&P, the volume has been far from encouraging.

Market Analysis: Looking To The Week Ahead

andy07cole@gmail.com — 2008-11-23T16:20:01-06:00

Recapping last week:

• Citi plans on cutting 52,000 more jobs on top of the 23,000 they have already cut this year.
• Target is halting its stock buyback program and plans on cutting prices into the holiday season.
• Oil continues to decline, trading below $50/barrel. Deutsche Bank stated that prices could fall as low as $30-35/ barrel.
• HP topped Q4 estimates and lifted its outlook for the year, but its outlook was still well below Wall Street’s expectations.
• Producer costs fell a record 2.8% in October.
• Online sales up only 1% for October.
• The homebuilders index for November sank 5 points to its current level of 9. Anything below 50 is considered negative.
• Home Depot beat estimates with Q3 EPS falling 24%
• Saks missed estimates as discount pricing affected their bottom line.
• October consumer prices fell 1%, the biggest monthly decline in 61 years.
• Housing starts came in at 791,000 homes for October, the slowest rate since 1959.
• Chemical maker BSAF plans on closing 80 plants and cutting 21% of its workforce, citing massive drops in demand.
• Dell topped views by six cents thanks to effective cost cutting and job cuts.
• Fannie Mae and Freddie Mac said they’re halting foreclosures on 16,000 households from November to January in order to determine if borrowers qualify for a loan modification plan set into effect last week.
• Congress decided against an immediate loan for the automakers.

Again, not really much new. The economy continues to struggle and the good news, if any, is few and far between.

Friday’s close was interesting to say the least. The volume certainly came in strong and the fact that we are overbought may lead us to a bit more upside. We would look at 850 as a possible area to initiate new short positions.

And for anyone that was watching Fast Money last Thursday, Peter Schiff came on the show to talk about where he sees the economy heading in the future. Very worth watching.

And based on gold’s bullish movement last week, he may have a point.

It's A Bloodbath On The Street

andy07cole@gmail.com — 2008-11-20T16:19:20-06:00

Well, we thought 800 would at least for a week or so, but that sure wasn’t the case today and it just sums up how crazy this market is at the moment. A picture is worth a thousand words:

At this point, there is absolutely no short-term bottom in sight that is worth playing. Investors are selling into any rallies, and at the end of the day, there is no point in trying to catch a falling knife. We plan on waiting this one out till we a massive short-covering rally on the S&P. We would look to start new short positions from there.

Also, just as a quick note, we did close below the 2003 lows. This in our view is extremely bearish and we could easily see levels on the S&P around 500 into the coming months. The news is still extrememly bad, and there are definitely going to be a few more shoes to drop before this crisis is resolved. Also, just look at that massive cliff of selling that has taken place this year. Definitely one of the most bearish looking charts we’ve seen in a long time.

Market Finally Breaks Down / "Big Three" CEO's Still Don't Get It

andy07cole@gmail.com — 2008-11-19T16:45:51-06:00

The market finally broke down today to new lows today. As was expected, we managed to close just above 800. Expect this level to be tested into the coming weeks. A quick note: 800 is a level that we have not seen since March of 2003. Should 800 fail to act as decent support, we will begin to see some really unbelievable selling into this market. S&P 650 sure isn’t out of the question, but that may be a few more months down the road.

And just as a follow up to that recent post on GM, it was reported today that Alan Mulally of Ford, Robert Nardelli of Chrysler, and Richard Wagoner of GM all flew into Washington DC in private planes to request a massive taxpayer bailout of their respective companies. This may be nit picky, but at the end of the day, it’s a slap in the face to taxpayers around the country. These CEO’s are asking US for money, and yet they have the ignorance and the arrogance to fly a 30 million dollar plane halfway across the country, as opposed to booking a first class flight like any other average person might have to do. Just another poor decision to add to the seemingly endless list of them, signing those contracts with the UAW, paying unnecessary dividends even as its pension and health care costs spiraled out of control, continuing to build gas-guzzling SUV’s, and just building really poor quality vehicles, among others.

Even if this bailout does pass, it will do nothing to stave off the what is surely coming to these automakers. The reality is that the world is knee-deep in what could be a really terrible recession, if not a depression. Consumers will not be looking to buy autos anytime soon, and on top of that, the market is already highly saturated with cars that have not even been sold. The United States has been living off of credit for years and now that the bubble has burst, there is simply no more money to be spent. The party is over.

At the end of this all, Ford probably has the best chance of surviving this mess. The cars they are currently selling in Europe offer much more in the way of good design and quality than anything currently selling here in the United States. They need to find ways to implement those cars here at home. Furthermore, Mullaly does have the track-record of a turnaround artist, but let’s be honest, he has a whole lot of work to do before Ford can even look to the future.

And in closing, we leave you with the 2007 compensation figures of the big three CEO’s:

Alan Mulally: $28,000,000 (*for only 4 months on the job)
Robert Nardelli: $1 a year with compensation based on performance (he hardly needs it though as he earned $38.1 million in 2006 with Home Depot, and then landed a $210 million dollar severance package on his way out)
Richard Wagoner: $15,700,000

There are so many problems with auto industry in the here in the United States that it is in the best interests of our country if the weaker ones fail entirely. Our country was built on innovation, and innovation will eventually lead us out of this mess. There is simply no point in subsidizing a lost cause with hard-earned taxpayer money.

850 On The S&P Is Our Line In The Sand / Our Views On GM

andy07cole@gmail.com — 2008-11-17T17:37:50-06:00

Similar to last Friday, we got a precipitous amount of selling going into the closing hour of trading, and at the end of the day, it has to be considered bearish. Volume was fairly light today, though, and the fact that we closed right at 850 leaves us cautiously optimistic going into tomorrow. That MACD crossover to the negative won’t help out the longer term trend, however.

That 850 level really needs to hold in order to see any sustainable rally into the next few days. From a broader perspective though, it would seem safe to say that this market has not bottomed by any means and longer term investments should be considered accordingly. The charts that we’re looking at continue to look extremely bearish and as crazy as this might sound, we could still see more downside.

And on a side-note, here’s GM’s plea to Americans to save them from the inevitable:

The dominant theme in this video is one of FEAR. And to that, we give the following comparison:

vs.

Why?

It really is shocking what our country is coming to. How can we possibly bailout such stupidity? Let’s face it, we are in a recession, and some companies, small and large, will not survive. Sadly enough, GM is one of those companies.

Market Analysis: What Happened On Friday?

andy07cole@gmail.com — 2008-11-16T18:00:42-06:00

Quickly recapping last weeks news:

• Circuit City filed for Chapter 11 bankruptcy on Monday.
• The Treasury boosted its aid for AIG to $150 billion after the insurance giant posted a $24.5 billion dollar loss in Q3.
• DHL is cutting 9,500 US jobs.
• Deutsche Bank cut its price target on GM to $0, which is probably the best piece of fundamental analysis on GM that we’ve seen in awhile.
• McDonald’s continues to outperform as same-store sales rose 8.2% from a year ago.
• The IBD/TIPP Consumer Confidence gauge was up 24% for the month of November. The presidential election, falling gas prices, and the so-called rescue plans are said to be the catalysts.
• Toll Brothers posted a 41% loss of revenue for Q4, above analyst extremely conservative estimates.
• Hank Paulson says the Treasury won’t buy banks bad mortgage assets, which contradicts pretty much everything he said about a month ago.
• Intel slashed its Q4 revenue target citing weaker demand. They also plan on cutting 1,800 jobs.
• Best Buy cut its full year sales and EPS saying that it’s the worst retail climate ever.
• The IDC cut its outlook on tech spending from 5.9% to 2.6%.
• Initial jobless claims rose 32,000 to 516,000, its worst reading since 1982.
• Walmart topped EPS estimates, but guided lower.
• Retail sales plunged 2.8% while J.C. Penny and Abercrombie and Fitch both cut holiday quarter guidance.
• Nokia cut its Q4 sales forecasts citing economic woes.
• Sun Microsystems is cutting 15-18% of its workforce.
• Citigroup is planning on cutting 10,000 members of its global workforce.
• Hartford Financial is asking for government aid.
• Freddie Mac lost $25.3 billion last quarter, necessitating an immediate $13.8 billion in loans from the Fed.

It’s pretty much more of the same from a fundamental view.

Last Friday’s trading was a bit unexpected to say the least, but you have to take what the market gives you, and in this case, we’ve been given quite a bit of uncertainty. The fundamentals have certainly not changed for the better, but from a technical standpoint, we are still somewhat bullish based on Thursday’s big volume day. We could still see a rally from here, but a close below 850, would be very bearish, so keep that in mind.

The XLF made new lows last week as we mentioned in the last post. Because the financials have lead the market over the past few months, this does leave us concerned about the short-term relative upside left in this market. However, the XLF is oversold and Thursday’s big volume day was bullish from a technical perspective, but we need to see a follow through to the upside on Monday.

The XHB is looking fairly similar to the XLF currently. Again, though, we need to see a bullish follow through on Monday. Otherwise, we may see more immediate downside.

Volume Confirms Trend Reversal

andy07cole@gmail.com — 2008-11-13T19:12:58-06:00

Well today looked scary at first, but we got what we were looking for in terms of a bounce. We could see some more upside here, and 1000 doesn’t look all that far away.

The longer term trend remains down though. Now may be the time to unload those unwanted long positions.

Important Next Couple Of Days

andy07cole@gmail.com — 2008-11-12T21:14:36-06:00

Well today we finally fell to and held the October lows on the S&P500. The next couple of days will be important in determining the intermediate direction of this market:

The battle for that 845-850 area should provide some great trading going into the next couple of days. The volatility is sure to increase, so expect massive price swings. However, the bias in this chart is definitely to the downside. Note the selling volume, as well as that MACD crossover looming. And when you couple the chart to the fact that we haven’t seen even one piece of decent economic data for weeks now, the picture looks pretty gloomy. That being said, we could very well bounce back off that 840 to retest 1000 again, but we wouldn’t say the bottom is in just yet. As always, volume will be the confirming factor.

The XLF has been a market leader for months now and the fact that it broke to new lows today leaves us slightly more bearish. We’ll see what happens later this week, but it should be interesting.

Edit: just noticed that Inel warned in afterhours of sharply lower earnings for this quarter. Tomorrow morning may get ugly.

Market Recap and Looking Ahead To This Week

andy07cole@gmail.com — 2008-11-09T11:54:03-06:00

Quickly recapping last week:

• The ISM Manufacturing index hit a 26-year low last week, dropping 4.6 points to 38.9, the lowest since September of 1982.
• Auto sales are now at 25-year lows. October sales for GM fell 45%, while Ford’s sales fell 30%. Toyota’s sales dropped 23%.
• Bankruptcies rose 13% from the month of September and 47% year over year. California bankruptcies rose 76% year over year.
• Circuit City is closing 155 stores in order to restore profitability to the company.
• September factory orders fell 2.5%, worse than expected.
• UBS, The Royal Bank of Scotland, and JP Morgan all warned of more troubles that would result from the current financial crisis.
• Cisco warned of a sharp contraction in business going into Q2.
• ArcelorMittal missed estimated and stated that they plan on cutting global output by 30%. Shares fell 21.5%.
• Jobless claims jumped 122,000 to 3.8 million, a level not seen since 1983.
• Same store sales fell .5% vs. the previous year. Wal-Mart beat expectations as consumers continued to look for bargains in food and other staples. Apparel chains suffered sharp declines.
• Toyota cut its outlook for 2009 in half.
• Qualcomm beats estimates but guided lower for the year as they see a possible drop in demand.
• Employers cut 240,000 jobs in October, bringing the jobless rate to 6.5% from 6.1%.
• Ford and GM both posted massive losses last quarter. GM burned through $6.9 billion in Q3 while Ford cruised through $7.7 billion. Both firms are planning job cuts. The bombshell, though, came from GM when they stated the need for government help to allow them to continue business into 2009.
• Berkshire Hathaway stated that Q3 EPS fell 19%.
• Pending home sales fell 4.6% in September.

Again, not really much can be said. The economy is in tough shape.

It’s a trader’s market out there for those that have the time to watch the market. If you don’t have the time, you can never go wrong with cash.

Going Into The Remainder Of The Week

andy07cole@gmail.com — 2008-11-04T08:29:16-06:00

Here’s what were looking at going into the remainder of the week:

And the presidential election tonight should be an interesting, if not historic one.

Out of Town

andy07cole@gmail.com — 2008-10-30T10:01:45-05:00

We will both be out of town this weekend. Look for normal posting to resume Tuesday.

Market Analysis: This Week Could Get Interesting

andy07cole@gmail.com — 2008-10-26T19:56:41-05:00

Recapping the events of last week:

• Texas Instruments posted a lower than expected profit and cut their outlook for the year.
• American Express blew out earnings. However, those estimates had already been lowered for the year.
• Yahoo matched estimates and announced plans to cut 10% of its workforce. Yahoo also reduced their revenue estimates for the year.
• DuPont beat and said they expected weakening demand in North American and Western markets for the remainder of the year.
• Fifth Third Bancorp badly missed estimates and stated that they are considering taking part in the Treasury’s plan of buying Tier 1 securities from banks.
• US Bancorp’s profit disappointed as they stated that future performance could further suffer due to market conditions. They also mentioned that they were not fully convinced that the Emergency Economic Stabilization Act of 2008 would be able to completely stabilize the financial system or other economic conditions.
• Blackrock profit fell prior to the previous year.
• Coach beat estimates by a penny citing strong demand in Asia. They also cut their sales outlook for the year, but kept the earnings outlook for the remainder of the year.
• Apple beat earnings, but gave a weak outlook for the year.
• Boeing profit fell sharply on concerns of the companies outlook going forward.
•AT&T missed expectations despite gaining subscribers.
• McDonalds beat expectations as consumers were looking for cheaper places to dine.
• Wachovia posted a $4.8 billion dollar loss.
• Kimberly Clark posted a lower quarterly profit and cut their full-year profit forecast.
• Conoco Philips beat earnings on higher oil prices.
• Lockheed Martin beat estimates and raised its full forecast for the year.
• Amazon cut revenue and income forecasts for the year saying the holiday quarter would fall short of analyst expectations.
• Microsoft records a rise in profit, but lowered its full year earnings forecasts.

and finally...

• Jobless claims rose to 478,000 as Friday’s gain of 15,000 claims was more than expected.
• And the FDIC says a bigger mortgage fix is needed because $750 billion was not enough.

There are a couple things we need to touch on here.

First, the overall theme for earnings thus far has been “lowered outlook” or “cut forecasts.” This leads us to believe that estimates for the remainder of the year are still too high. The same could be said going into 2009. Currently, the S&P trades at a P/E of around 24. That is a number that could easily fall into the next few months.

Secondly, there has been a lot of news over the past few weeks concerning the loss of jobs in the United States, with General Electric, Goldman Sachs, and Coca-Cola being the headliners. Current unemployment in the United States has been most recently figured at 6.1%. California’s most recent data came in at 7.7% and since California can tend to be a leading indicator of where the economy might be headed, we would look for that number to also rise into the remainder of the year.

Overall, the fundamentals are still deteriorating. There are some places of strength (bio-tech, agriculture, etc.), but for the most part, the trend is still down.

Only three charts to focus on today:

Friday’s action was very left us with a much more bearish bias going into this week. The fact that we closed below 900 on decent volume was definitely not what we were expecting going into Friday. In order to see any rally from here, we need to get back above 900 in a hurry. If we fail to do that, then the shorter-term trend is lower. The next support level on the S&P is at 855. 900, 960, and 1010 continue to provide resistance on the way up.

The financials came close to retesting the lows set a little earlier this month. Could we get a pop from here? Maybe, but seeing as how the S&P traded last Friday, don’t try to bottom pick around this one.

Back in early August, we noted that the XHB was trading at very high levels around that $20 area and in a little less than three months, the XHB has fallen about 40% from those levels. We also managed to form new lows over that period. $14.35 remains firm resistance and from there, the trade would be short. We would not be trying to pick any bottoms here, though, because it’s literally been straight selling for the past four weeks.

And that’s about it. Keep in mind that these are only our views on current market conditions, and they should be used only as that. Good luck.

Watch Out Today

andy07cole@gmail.com — 2008-10-24T08:27:04-05:00

It’s going to get real ugly today before it gets better. Don’t try to catch a falling knife. Global markets got crushed last night and honestly, support levels mean nothing on days like this. Also, this is the perfect example of why we haven’t been holding positions overnight. You can think you know where the market is headed, and then something like this will happen. Incredible.

-Andy and Sul

Looking Ahead To Friday

andy07cole@gmail.com — 2008-10-23T22:57:32-05:00

Another simply amazing week of trading action. The volatility has just been unreal. Today’s action was actually somewhat bullish from a charting perspective. Volume increased relative to the rest of the week and we managed to hold that 900 level for the forth time on the S&P. Looking into Friday, assuming we don’t get a terrible jobs number tomorrow, we could make a run for 960.

We’ve said it before though, and we’ll say it again. This market is purely a trader’s arena, and if you don’t have the time to follow the position, don’t even bother placing the trade. For those that are trading, we highly recommend trading the indexes, especially if you are playing the options. They are extremely liquid and the pricing action has been phenomenal.

And in case anyone missed it, Greenspan admitted today that he had no idea what was going on while he was running the show:

At least he is willing to admit it.

-Andy

Looks Choppy Heading Into This Week

andy07cole@gmail.com — 2008-10-19T21:49:25-05:00

Just a real quick technical analysis of a few indexes for the upcoming trading week:

Resistance: 1011
Pivot: 960
Support: 900

Resistance: $17.05
Pivot: $15.05
Support: $13.1

Oil’s been a shocking trade as of late. Anyone that buys gas would have noticed. Support around the $59 area dollars looks interesting for a bounce. OPEC is calling emergency meetings to discuss global oil prices as well. If you have a high risk tolerance, there may be a trade here.

And that’s about it. Expect more choppy sessions into this next week.

Good luck.

Edit:

Check out this article. It’s about Andrew Lahde, the manager of the Southern California hedge fund, Lahde Capital who returned 866% in the market last year betting against the sub-prime collapse. “Lambasting” I think is the correct term here.

Also, check out Marc Faber’s comments in this video. He really is spot on. Mish already posted it here, but it really is important to understand the root of this current financial crisis.

-Andy and Sul

Friday Preview: Options Expiration

andy07cole@gmail.com — 2008-10-15T21:01:13-05:00

We’ve got options expiration tomorrow, not to mention some better than expected GOOG earnings to trade on. Judging by the trading that’s gone on over the course of this week, it looks like we may be forming a new trading range on the S&P500:

That 900 level has now been tested twice now and has held up considerably well both times. We would look for that to be the new short-term floor. The area around 1060 looks to be the area of new resistance. However, we’ve only tested it once so far, so we’d like to confirm that with a second test. We are using that 960 level as a pivot point to enter and exit positions as they come. Take note that volume increased today, as well as the fact that we failed to make lower lows, which actually leaves us with a bit of a bullish bias going into Friday. Who knows though. Whatever the result, it’s sure to be another crazy session.

On another note, has anyone been day-trading this market? I don’t know about you all, but these past few days have been a day-traders paradise. We’ve put together a few good trades ourselves that we’ll post up in the portfolio performance this weekend.

-Andy and Sul

Big Day, Weak Volume

andy07cole@gmail.com — 2008-10-13T19:11:23-05:00

Well, we’ve been talking about it for a few posts now, and indeed, we got finally got that massive rally as the S&P climbed 104 points or 11.5%. The volume across the indexes today was pretty weak though, so we’re not really looking into it all that much. But we did break 960 on the S&P and we are expecting a bit more of a rally here. More specifically, we are looking at 1060 on the S&P as the next level of resistance. From there, it’s anyone’s guess. The long-term trend is still down though, as if that was much of a surprise.

-Andy

Market Analysis: What Does This Market Have In Store For Us Now?

andy07cole@gmail.com — 2008-10-12T17:57:04-05:00

Quickly recapping last week:

• The Dow lost 16%, the Nasdaq fell 13%, and the S&P dropped 16% in what was a history making week on Wall Street.
• Ford and GM shares both fell to all-time lows as the S&P placed both of the automakers on watch for credit downgrades. GM’s stock fell to as low as $4.00 before rallying to $4.89 last week and Ford is now trading at $2.00.
• Regional bank National City is putting itself up for sale after the sub-prime woes have taken its toll on the institution. National City is down 80% for the year.
• Iceland is on the verge of a financial collapse as the government took control of the nation’s largest bank.
• The oil trade broke down last week as concerns of a global recession remained intact. Oil is now trading at $80 a barrel.
• Nancy Pelosi wants to bring lawmakers back to Capitol Hill, as she seeks a second $150 billion economic relief plan for Americans.
• Treasury Secretary Hank Paulson is actively considering buying troubled shares of troubled banks in an attempt to shore up the financial system. If that doesn’t constitute socialism, then we don’t really know what does.

Again, nothing has changed fundamentally with regards to the economy and technically, things continue to look just terrible. However, we’ve been saying for the last few posts that we are expecting some sort of snap-back rally into the next few days, as we are terribly oversold, and we still believe that to be the case into the coming week. Let’s take a look:

Friday was an interesting day, as we saw heavy volume and wild swings on throughout the indexes. Could 840 be a short-term bottom? Only time will tell, but the fact remains that the bottoming out process of an index will take months to properly form. So, if we missed this bottom, the odds are that we will likely be able to enter at these levels again sometime in the not too distant future. In our view, though, we could still see some selling into the later stages of this week. Ideally, we’d like to see a test of 800 on the S&P before we get long with any conviction.

The Nasdaq has been by far the most interesting index as of late. We’ve seen some pretty noticeable strength among tech giants such as Apple, Google, and Research in Motion. If we are in the early stages of forming a bottom here, big-cap technology definitely looks appealing. Again, though, you have to trade around this market and put risk-management first.

The XLF got crushed last week as the short-selling ban was repealed. However, we saw quite a bounce off of $13 to the current price of $15 on nice volume. If we ever reach that $17 level, the trade short without question. Let’s hope the government doesn’t reinstate that short-selling ban though.

This GLD chart has been unbelievably choppy as of late. That $82 level looks to be a nice entry point to the long side. However, there are definitely other charts we’d rather be trading.

Apple has been trading very well given current market conditions. There are a lot of buyers coming in at these levels and if we are reaching something of a bottom here, Apple is priced at a 19 P/E, which is almost unheard of if you have been following this company for the past few years. Furthermore, Apple has almost $20 billion in cash on their balance sheet, a huge plus in these tight credit markets. This is definitely a stock to keep an eye on.

That’s about it from here. We are getting closer to a short-term bottom. If it turns out that Friday was the low for the next few weeks, don’t get too anxious to buy in because bottoms take months to form and often will provide for multiple points of entry. Our focus for this week, though, is 800 on the S&P. We’d really like to see a test of that level before we start calling bottoms anywhere.

-Andy and Sul

Another Shocking Day, But We're Getting Close...

andy07cole@gmail.com — 2008-10-09T15:37:15-05:00

It was a really shocking last hour of trading today. We just saw a cascade of selling and finished at the absolute lows of the day. It’s depressing, it’s bloody, and it’s definitely not fun to watch. A lot of people are hurting out there, that’s for sure. That being said, we don’t think the selling is over:

In the first nine days of October, we’ve already seen a 200 point loss on the S&P. We mentioned that 960 was the level we would be heading to a couple posts down and indeed, we got that and more. The really crazy thing is that 20-year, 960 level of support provided little or no support at all. In fact, we just plowed right through it on the way to 900. And even more shocking, the fact that the volume isn’t supporting this selling, meaning that the volume is not high enough to constiute a possible reverse in trend to the upside. Yes, we are unbelievably oversold, but it looks as though we may see even more selling before we find a rally.

The Nasdaq is in a similar situation: down almost 500 points since October 1st. The volume here is more appealing that the S&P relatively speaking, but still nothing we would put money on. If anything, though, the Nasdaq might be finding a bottom quicker than the other indexes. The trading on AAPL, GOOG, and RIMM was exceptional today given market conditions, so that may be something to keep an eye on. Big-cap tech do have the balance sheets that a lot of these other companies do not, so that may be an area to nibbling at.

Well the XLF has been really crushed here over the past week or so. Again, oversold, but the volume just doesn’t support a bottom. Just look at the volume on the 18th of September: almost twice the volume. And the same goes with the lows of July. We could see more selling here.

And wow, talk about a trade. We pointed this one out numerous times over the past month so hopefully you caught it. When the XHB was trading at that 200-day moving average, surely, something was not right and the market soon corrected itself. We’ve gone from $20 to $15 in less than two week. Unreal. We’ll see if that support level at $14.4 holds. If the other indexes are any indicator, this support level probably won’t last long either.

It’s just a crazy market. That’s all that can be said. You have to trade your way around it. Nothing can be considered a buy and hold and any position must be watched closely. We are looking for something of a massive rally into the coming days, but only after we see a true volume-confirming washout.

Good luck.

-Andy and Sul

Sidenote: we are trading again and the portfolio performance will start getting updated as we go. However, many of our current trades have been very short day-trading positions due to the volatility of the market, so we haven’t really been able to post our live entry and exit points. Hopefully we can get back to doing that here in the next few weeks.

Capitulation Needed For Market Rally

andy07cole@gmail.com — 2008-10-07T16:16:03-05:00

Basically, it all comes down to this: we need a precipitous, high-volume day in order to see any sort of short-term trend reversal. It looked at though we might have had one yesterday, but we lacked the follow through today. We’ll see what happens tomorrow, but closing below yesterday’s lows leaves us hesitant to put any money to work, especially on the long side. We are very oversold and we are expecting a fairly decent rally here sometime soon. But again, volume remains key, and we just haven’t seen it yet.

-Andy

Market Analysis: Bailout Passes, Market Still Sees Recession On The Horizon

andy07cole@gmail.com — 2008-10-05T19:28:27-05:00

Quickly recapping last week:

• The bailout was signed into law last week. However, the markets sold off almost 4% from the highs as investors realized that this bailout plan will not prevent the deep recession we will most likely see over the course of the next few years.
• The U.S. economy lost 159,000 jobs in September and unemployment remained at 6.1%. We haven’t seen this level of unemployment since ’03.
• Wells Fargo and Citi are battling it out for what’s left of Wachovia.
• California is seeking $7 billion of short term financing from the Treasury because they can’t meet state payroll obligations.
• Berkshire Hathaway bought a 3 billion dollar stake in GE. GE’s stock fell 10% last Thursday.
• Auto sales tumbled in September. Ford sales dropped 34%, GM’s dropped 16%, Toyota’s dropped 32%, and Honda’s dropped 24%.
• AIG has already used up $61 billion of that $85 billion loan they got only two weeks ago.

Again, we saw absolutely no good news last week. That jobs loss in September was the ninth straight month of consecutive job loss, not to mention the biggest monthly loss of jobs since March ’03, and with the way things are going at the moment, those numbers are only going to get worse. Only a few charts on tap for today:

The next area of resistance is at the 1060 level, which isn’t shown on the chart. We haven’t seen the type of capitulation that we’d like to see when picking a short-term bottom. However, we are approaching oversold and that 1060 level could bring in a few buyers. If we ever reach that 50-day again, the trade would be short from there. Honestly, though, that probably won’t happen for the foreseable future.

Similar to the S&P, we are approaching oversold levels here. 1900 looks to be a nice area of support on the Nasdaq and we would use that area as a long entry point. We would not initiate any new short positions here.

The trade on the XLF has been to get short at the 50-day (yes, we know you can’t short, but buy puts, etc.) If the XLF reaches that $18.5 level, that might be a nice risk/reward entry point to the long side. Stop losses are necessary in this environment, however, and volume is key in determining any short-term reversal.

The USO is coming back to nice levels again here. That $72.5 level is multi-year support and could make a nice trade to the long side. Again, stops are a must.

And that’s about it from here.

-Andy and Sul

Bailout Vote Tomorrow

andy07cole@gmail.com — 2008-10-02T17:20:27-05:00

The only market moving news on the agenda tomorrow will be whether or not the House passes that bailout plan.

Here’s a chart of the S&P with marked resistance levels:

If things get really hectic tomorrow, there a 965 support level on the S&P around, which, we might be buyers. On the upside resistance, we have 1175, 1220, and 1270 to break through. If we make the 50-day, we’d be looking to get short for a bounce back down, as there have been a lot of sellers there for the past three months.

And that’s it for today. Check out that Palin/Biden debate tonight. Could be interesting.

Andy and Sul

Ron Paul On The Bailout Plan

andy07cole@gmail.com — 2008-09-30T23:25:11-05:00

Quality.

-Andy and Sul

Bailout Fails, Markets React, and Nanci Pelosi Lacks Intelligence

andy07cole@gmail.com — 2008-09-29T16:19:39-05:00

What an unbelievable day. Here are the final numbers:

DJI: -6.98%
COMPX: -9.14%
SPX: -8.81%

Again, as if this even needs repeating, the longer-term trend is down. And just a side note: this economy really looks scary at the moment. The fundamentals are deteriorating very quickly and it seems more and more likely that this economic slowdown could evolve into a full blown recession. That being said, however, the failure of the this bailout to pass is a step in the right direction. This legislation was too quickly thrown together with the hope of somehow saving this economy at the expense of the taxpayers. Something does need to be done to unfreeze the credit markets, but let’s make it sure it’s legislation that has been properly thought out.

From a technical perspective, there was some serious damage done to the indicies today. The S&P is headed to 960 without question. This is a 20-year technical level, so we don’t even have a chart to show this. The VIX roared up as the fear started becoming really apparent. Let’s take a look:

The VIX has been making considerable strides to the 50 level and that 50-day/200-day crossover will be some cause for concern. 30 is now the new support level. Should we see any more heavy volume selling into the later stages of this week, it could turn into a very short-term buying opportunity across the major averages. Definitely not a trade for the faint hearted.

Well, we mentioned last night that the fundamentals didn’t support the XLF trading above the 50-day moving average, and well, that was certainly taken care of today. $19.75 is the new resistance level. Volume increased quite a bit from last week, although, relatively speaking, over the course of the month, volume today was nothing special, meaning that we have yet to see any capitulation from the financials. Maybe that short-selling ban is keeping this ETF afloat? Most likely.

As the market cratered, the GLD took off trading all the way to $92 before closing at $89.57. The close was above that 200-day moving average on good volume, which is fairly bullish. We’ll see if that holds into the remainder of the week.

That short-covering rally that we noted yesterday sure didn’t last very long. Note that upcoming 50-day/200-day crossover. Support remains at that $72.5 level.

On another subject, anyone that was watching the voting take place today would have oberved Nanci Pelosi’s speech before the House:

This woman has no concept of “bi-partisan” legislation whatsoever. For her to give such a ridiculous speech attacking Republicans for their “anything goes” economic policy is not only ignorant, but just plain stupid. She is too busy running her own political agenda to give a crap about what is actually going on in the economy. Worthless.

-Andy

Market Analysis: And Then There Were None

andy07cole@gmail.com — 2008-09-27T14:50:58-05:00

In a matter of less than two weeks, four of the biggest investment banking institutions in the United States now cease to exist, with the most recent additions to this list being Goldman Sachs and Morgan Stanley. These two are now considered to be “bank holding companies.” That was probably the biggest news to come out of last week, but let’s quickly recap the rest of it:

• New home sales at a 17-year low. The number of new homes for sale fell 4.4% while the median price fell 6.2% vs August of 2007.
• Durable goods orders fell 4.5% as businesses and consumers are cutting spending.
• Jobless claims rose by 32,000 last week to 493,000.
• Research in Motion posted earnings below analysts expectations and forecasted a weaker than expected third quarter.
• Washington Mutual was seized by the Federal Government with JP Morgan buying up the assets. Washington Mutual stock now trades at .16 a share.

And in more recent news:
• Citi is in talks to buy Wachovia, the latter who will most likely be the next big bank failure of the year.
• Q2 GDP grew at 2.8% in the most recent quarter, below the prior estimate of 3.3%.
• Bailout talks are still ongoing. At this point, it’s impossible to tell how the markets will react until a settlement has been reached.

Clearly, there isn’t much good news out there. The charts tell the same story:

The area of heavy resistance on the S&P500 remains at that 1220 area. The 50-day average has also provided as solid defense for the bears. In fact, a trade that really seems to be working here is to get short of the index as soon as the 50-day average has been tested. Note that possible MACD crossover, as any positive reaction to this bailout could lead us to a big rally, especially with that no shorting rule still in effect. We’ll see what happens this week. Longer-term, though, this market looks weak, and any long trades should be only considered as such.

RIM’s poor earnings/outlook last week is helping the Nasdaq to make newer lows here. Positive reaction from that bailout again could lead to a fairly large market rally though. Whereas the trade on the S&P500 has been to get short the index at the 50-day moving average, the trade on the Nasdaq has been to get short from the 200-day moving average. If the Nasdaq ever makes it back to that level, that is definitely a trade to look at, because RIM pretty much affirmed that the fundamentals are deteriorating in tech just like they are everywhere else.

$23.5 continues to be the level of heavy resistance. The 50-day moving average is actually turning positive over the past few days. We’ll see if that holds. The fundamental sure don’t support that trade at all, unless this bailout magically fixes everyone’s problems, which rest assured, it will not.

The USO got a nice short-covering pop these past few weeks, but there is heavy technical resistance at that $90 price level, which incidentally is also about the 200-day moving average. We’re looking for oil to form a new trading range here between $70 and 90. Oil is short-term overbought, and could see some downside here.

The GLD has a very interesting chart for us today. After the huge flight to quality that has taken place these past few weeks, the GLD has been finding a lot of sellers at the 200-day moving average. Also note that extended MACD. Will that $86 level hold as support? Possibly. If not, there is multi-year support at that $72.5 area, which should make for a nice entry point to the long side.

Again, it’s a trader’s market. Take profits where you can and cut losses when you need to. Risk management really needs to come first here as we’ve seen that this market can move thousands of points up or down in any given week.

Also, we added the “Seeking Alpha” section, where we will post any articles that we submit to Seeking Alpha in a blog style format.

-Andy and Sul

Market Analysis: And Then There Were Two

andy07cole@gmail.com — 2008-09-21T15:24:43-05:00

What a history making week we were witness to last week. Not only did we see the two the biggest investment banking institutions in the United States go underwater, but we also saw the worlds largest insurer get bailed out by our own Federal Reserve. We saw the stock shorting ban of what the Federal Reserve considered to be a list of purposefully targeted banks by short sellers, which, honestly, is noting more than socialism at its finest if you ask us. And even as we begin to write this, the Bush administration is proposing a $700 billion dollar bailout deal to Congress that would basically buy up distressed assets from banks. Well, we’ve seen every other bailout plan get passed through Congress this past month, so it won’t really be much of a surprise when this one goes through as well. Such a plan could send the market higher in the short-term as a result. From a longer-term perspective, however, nothing has changed: banks still have terrible looking balance sheets, liquidity is still an issue, and the fundamentals of this overall economy are still terrible.

The charts tell only half the story:

If one had not actually followed the markets last week, you probably would notice that not much has changed, as the market pretty much finished where it started off on Monday. As if you haven’t noticed. this market has been trading on purely the news. The technical levels are marked, but at this point, there are just too many economic changes occurring to use the technical levels efficiently. Of note, we did make new lows on the S&P, and usually lower trading ranges follow lower lows. Let’s see what happens this week.

The XLF really threatened to take off on Friday. It managed to to even kiss that 200-day moving average before selling off hard, incidentally right below that $22.5 area that we’ve been talking about for months now. It doesn’t really matter how hard the Federal Reserve works to try to correct this problem, because at the end of the day, the markets will correctly price the stocks/sectors as they see fit, and in this case, the markets are seeing no bottom as of yet. For any rally here to be sustainable, we must have a better volume follow through (or a $700-billion bailout).

As if we didn’t have enough headlines last week, but a major story that could be redeveloping is that oil chart. That $77 level has acted as quite a backstop for the oil bulls, sending the USO all the way to the $82 price area. From a charting perspective, though, this rally doesn’t seem like it has any legs. It may see a bit more upside, but volume has been drying up unbelievably fast, and that 50-day/200-day moving average crossover looms in the horizon. Oil could be an interesting short here at that $85 level, and if it ever makes it to the 200-day, we think it’s safe to say that the oil bears would come in to defend that level with some force.

The GLD chart was another interesting chart last week. It looked as though we might break through that $85 support level with ease as investors were willing to pay for quality last week. Will buyers be able to break that level? Possibly, but that 50-day/200-day crossover will provide for some serious resistance into the coming weeks. The low volume follow through off that $85 level, not too mention the soon oversold stochastic reading, will both also be cause for concern. However, as this market continues to deteriorate, gold may become much more interesting on the long side. Volume, as always, will be key.

And finally, we have the homebuilders index, which has seen some pretty remarkable performance as of late given current economic conditions. However, that $23 area has been acting as significant resistance for awhile, leading us to believe that the XHB might see some downside here, especially since this sector really hasn’t given us credible evidence to get long. On the flip side, this $700-billion bailout might do the trick for the bulls. Who knows. We don’t have a capitalist system anymore so it’s difficult to say.

The key thing about this market analysis is that much of what we write here in this post may become completely irrelevant based on actions that our government does, or does not put into action. The technical levels that we have marked should be used only to initiate positions based upon the most recent occurrences within the markets. Any quick profits should be taken off the table. If you do decide to trade, stop losses and coffee are a must.

-Andy and Sul

A Day Of Reckoning

andy07cole@gmail.com — 2008-09-17T19:42:43-05:00

“You can rail against it all you want, but in my expierience, fighting a fixed game is something to be done at carnivals, not stock markets.” - Jeff Macke over at Minyanville/ contributor to Fast Money

We couldn’t agree more.

These are scary markets out there, and it might be a VERY good idea to sit on the sidelines. We’ll have an in-depth market analysis for you this weekend.

-Andy and Sul

It's A Bloodbath On Wallstreet

andy07cole@gmail.com — 2008-09-15T23:37:50-05:00

What a day of trading we turned in today. We opened 300 points lower to start the session and managed to close 504 points in the red. A day like this was bound to happen. We’ve been saying for months now that we have yet to see a bottom in the financials, and as a result, we really are not too surprised. Let’s recall the most recent occurences surrounding the financial sector:

• A few weeks ago, Fannie Mae and Freddie Mac got one of the largest bailouts in history. The respective stocks are now worth $.60 and $.40 a share respectively.
• Lehman Brothers files for Chapter 11 bankruptcy. The most recent trade on that stock was $.17 a share.
• Bank of America acquires Merrill Lynch for 50 billion.
• Washington Mutual may have to raise capital. No surprise there. The stock has fallen over 33% from the July lows.
• AIG needs a $20 billion loan of extra liquidity to stave off a credit ratings downgrade, which ultimately, will happen anyway. The stock has fallen over 50% just today.

Let’s take a look at the charts:

Well today, we had a clean break to new monthly lows. Again, this drop should come as no surprise. That 50-day moving average has been providing as hefty support against the buyers for about two months now and that 1300 level has been tested numerous times. This market had every opportunity to go higher, especially given the government bailouts of Fanne Mae and Freddie Mac. The path of least resistance has been reaffirmed to the downside with that 1220 area acting as new resistance.

The Nasdaq has has also closed at a new monthly low, although it has failed to make a new intraday low. Tech has been looking really weak as of late, and we suspect that the Nasdaq will follow the S&P5000 to the downside with that 2200 area acting as new resistance.

The financials broke through that support area that it had been holding at that $19.75 level, which will now provide as the new resistance area. Look for the XLF to move back to those July lows.

The XHB is by far the most interesting chart we will analyze today for one reason: this chart has seen upside in a market which has sold off just about everything else. Furthermore, this sector has been one of the worst performing sectors all year. And it is not as if anything has changed on the fundamental side of this trade to justify the XHB trading above that 200-day moving average. We believe that the housing sector will see further downside here, especially after that high wave candle that we noted in the last post.

And how ‘bout oil? Unbelievble price action over the last week or so. Again, we have a support level coming up at around the $77 area. Will this level hold? It is difficult to say, but in all honesty, OPEC must be seeing this remarkable drop in oil prices as a very good reason to cut off supply. However, this slowing global economy will worry any traders in taking long positions. Again, this is a difficult chart to trade at the moment and it might be a good idea to sit this one out.

And just one quick update, thought this one might be amusing. As they say, a picture tells a thousand words. This is my trading window as things stood at the end of the day:

Truly unbelievable.

- Andy and Sul

Taxpayers Bail Out Freddie and Fannie / GM, Ford and Chrysler Lookin' For Handouts As Well

andy07cole@gmail.com — 2008-09-08T13:16:56-05:00

I don’t usually give my personal views of what our government should or should not be doing, but in this case, their most recent actions are simply appalling.

Last Friday, we were witness to one of the biggest economic bailouts in United States history, a bailout that at the end of the day, could total $200 billion. We’ll spare you with the details, but the fact remains that it is more thank likely that we, the taxpayers of this country, will be the one’s bailing out these two institutions. What a terrible precedent to set. What’s to stop any of this from happening in the same manner that it happened this time around? Hey, I mean, if you have the backing of the Federal Government, why not right?

And how about that $50 billion dollar request from U.S. auto makers to the government to help them build more fuel efficient cars? You can almost be certain that request will be granted based on this most recent decision. I’ve written two articles covering the U.S. automakers and their repeat failures over at Seeking Alpha, both of which were met with considerable opposition. The point of both of those articles came down to the following: “U.S. auto companies were not prepared to meet the ever changing needs of a dynamic new world economy,” and it is more than fair to say that the stock prices have reflected that. Poor build quality, combined with poor management at the top, as well as the high oil prices left them doomed for failure years ago. Ford and GM do not deserve any funding from the taxpayers of this country, as it was their own poor decsions that left them in their current situation. I applaud Toyota and Honda for being ahead of the curve.

Conclusion: Our founding fathers must be turning over in their graves. What ever happened to free-market capitalism? Thank you Greenspan for all those great years of unsustainably low interest rates. I sincerely hope they were worth it.

For more excellent coverage on this subject, I highly reccomend Mish’s Global Economic Trend Analysis.

Enough with that, though, because in the end, our goal is to be on the right side of the trade, regardless of whether or not we agree with the shocking actions of our government.

Let’s take a look at the charts:

The S&P500 managed to close right below that 50-day moving average on very good volume. It also managed to close below that 1275 resistance area. Unless we see a follow through in these next few days to the upside, this market could be headed lower. There is a real battle developing around that 50-day moving average and so far, the bulls have had little success. The path of least resistance remains lower.

What a ride we got on the financials today. We opened at $23.5, sold off to that $22 level, only to close at $22.7, below that $23 resistance level. Volume was exceptional, although it came in as selling volume. Could this have been another short-term top today? Possibly. That $23 level has provided as very strong support and I highly doubt we get any decent news out of the financials this week. Lehman Brothers confirmed this today as the reduced estimates and downgrades rolled in from the analysts. Again, the trade continues to be short at that $23 level.

The GLD looks to be forming a little base around that $78.5 area. The trade looks to be long here with a potential bounce to the $82-84 level. The options market seems to be supporting this trade as well. The GLD is approaching oversold conditions here and could be a nice trade to the long side. The longer-term trend, however, remains lower, confirmed by that 50-day/200-day moving average crossover.

The XHB rallied over 9% today on strong buying volume. However, one thing to take note of is that high wave candle that formed today. This formation represents doubt and confusion in the direction of the market, or in this case, the homebuilder’s ETF. I’d be wary of this one here, as it is quite obvious that the bottom in the housing market has yet to finally appear, and while this bailout may be a “step in the right direction” (sure, whatever), the fundamentals just don’t support this trade at all. Take note of that overbought RSI reading. Let’s see what happens with this one later in the week.

-Andy

Global Slowdown Theory Intact

andy07cole@gmail.com — 2008-09-04T16:02:59-05:00

Well, it became apparent today that lower oil does not equal a stock market rally. Rather, it equals a global slowdown, which we believe to be very intact. Liquidity issues remain a concern, as was noted by PIMCO’s Bill Gross. Retails sales number were terrible, but in all honesty, that was probably expected. Unemployment claims jumped unexpectedly today, and analysts are expecting just as poor of a jobs number tomorrow.

Only two charts of real interest today:

That 50-day moving average seems to have actually held back the bulls here, not to mention that 1300 area which is proving to be a formidible level of technical resistance. This market really needs to retest the lows set in mid-July. From there, we will have a much clearer picture of where we can expect the market to trade over the next month. The trend continues to be down as volume finally comes back into this market. We’ve said it before, and we’ll say it again, sometimes the best trade one can make is no trade at all. However, a retest of the July lows could prove to be a short-term entry point on the long side. We’ll see what happens ‘til then.

The VIX made a 12% move today, breaking above that 200-day moving average. If history is any indication, that 30 level should be within reach in the next few weeks. A move to the 30 level, coupled with a market move lower to the 1220 level on the S&P 500 could provide us with a nice risk/reward entry point into this market on the long side. Until then, it might be a good idea to keep any trades on the short side.

- Andy and Sul

Market Analysis: Economy Indicators Clear As Mud / Gustav Threatens Oil / Site Updates

andy07cole@gmail.com — 2008-08-30T18:28:58-05:00

This market has been quite uneventful as of late except for that much better than expected GDP number, which does deserve some notice. August is historically a low volume month, although this August will go down in the books as one of the lightest volume months in years. That just goes to show how unguided this market is. Hopefully we will see some traders come back into the market this next month.

With regards to the charts, well, there’s really not much to say. Let’s see what last week brought us:

The resistance continues to be at that 11,650-11750 level. Until we see a convincing move above that area with good buying volume, we simply do not believe this market has significant upside. That being said, however, we have tested that resistance level more than five times in the past month, not to mention we finally broke above that 50-day moving average and closed above it last Friday. Could this market actually move higher? Possibly. Again, the volume is an issue, but that 200-day moving average could be within reach in the next few weeks. We will let you know if that change in trend occurs. Until that happens, though, the trend is down.

For the Nasdaq, the picture is pretty clear: that 200-day moving average is providing hefty resistance and based on Dell’s earnings last week, we continue to believe the trend is lower. However, we do believe that 2200 will continue to provide as support for the next few weeks.

Similar to the DJIA, the SPX has been rangebound for the past month or so and from a technical perspective, we would not be surprised to see a small rally higher. That being said, however, there is very little fundamental evidence to support a big move higher, apart from that better than expected GDP number, which was fueled to some degree by the “stimulus checks” of our very generous government. However, Hurricane Gustav may be enough to send oil skyrocketing again, leading to a lower stock market this week.

The economic indicators are all very contrarian at the moment, making it very difficult to trade effectively. We really need the big money to come back into play to give us a better idea of where the markets may trade in the next few weeks. And really, until that happens, we will be reluctant to make any trades in this market.

The financials were one bright area last week. That $19.75 area that we mentioned last week held beautifully as support. The XLF actually managed to close above that 50-day moving average, which is actually fairly bullish. And as if that wasn’t enough, the volume over the last week was actually just as bullish, especially in the options markets. Option activity swelled last week as over 935,000 call contracts (twice the norm) and 213,000 put were traded. A break above $23 on good volume leads us to believe that the 200-day moving average is very reachable, but not breakable. The financials have been leading this market as of late, and we look for that scenario to continue. As a trade, however, we will wait for this confirmation of short term trend change in order to be able to put our money on something more definite.

Well if you believe that the US Dollar is finally breaking out of that three-year long downtrend, which we do, then the fundamental trade on gold is lower without question. Technically, Gold has been rallying from that $77 level on very low volume (bearish), not to mention that the resistance level at $83.5 has already been tested once in a failed break through attempt. Ideally, we would initiate a short trade at $83.5 on the GLD chart and look to test that $77 support level.

The XHB Homebuilder’s Index has been battling that 200-day moving average for about three weeks now without any success. Also, there is clear technical resistance at that $19.5 area. Unless we see a break above that area on heavy volume, the trade is lower.

And finally, we have the oil chart. Lot’s of interesting stuff going on with this one. That year-long trend live remains in tact and now we must look at shorter term support/resistance levels to get an idea of where oil is headed in the next few weeks. Currently, we believe that $100 level is definitely within reach, especially as this hurricane makes its way towards Louisiana. Should Gustav seriously impact Gulf Coast oil operations, the USO could easily see that 107 level as the next price target in the coming weeks.

The point is that we really want to see some big players come back into the market before we can start placing trades again. There are simply too many indicators are contradicting each other at the moment and too many factors could send the market up or down triple digits. Once we see something to confirm the short term direction of this market, we will updated you all with that information as it becomes available. Remember, sometimes the best trade you can make is no trade at all.

Now, onto other news. Many of you may be familiar with the stock market website, UpDown. They recently held a three month long summer trading competition, which we took part in. Out of 6,149 contestants, we finished in 14th spot with a 55.02% gain. Our username is andy07cole and you can check out the contest here: http://www.updown.com:80/contest-home.do?id=3

On another note, we will now begin updating the portfolio performance page as the trades happen. The format will be similar to the way it was over at So-Cal Options Trader in that we will post on the trading desk immediately following the opening or closing of a position. Once the gain/loss is realized, we will update the portfolio performance page in a nice table friendly format so that our results are easily accessible to everyone. This was a very popular feature over at So-Cal Options Trader and we hope you’ll find it helpful and informative to your trading.

Enjoy your Labor Day holiday.

-Andy and Sul

Market Analysis: Haven’t We Seen This Before?

andy07cole@gmail.com — 2008-08-24T11:13:06-05:00

Again, it’s been choppy, unguided trading, as these markets continue to look for some sort of direction. However, the resistance levels on the major indicies remain intact, and we’ve had no real fundamental occurences within the economy that lead us to believe these resistance levels will be broken. For those that have executed trades at or near these resistance levels, there has definitely been money to be made on the short side. The charts tell the story fairly clearly:

Resistance at that 11,650-11,750 area that we’ve been talking about for the past month. Unless something crazy happens this week, look for that resistance level to hold. There is also a short term support level forming at the 11,300 level if you are gutsy enough to play it as one. We are not.

That 200-day moviing average provided some hefty resistance for the Nasdaq bulls last week. We mentioned in our previous post that low volume rallies testing 200-day moving averages often end to the downside, and we believe that the trend for the Nasdaq will indeed be lower into next week.

With regards to the financials, nothing new here. Ressistance at the $22-23 area and it looks as thoguh a short term support area may be forming at the $19.7-$20 area. Again, this is not a trade for the faint hearted.

With regards to the homebuilders, frankly, we see absolutely no evidence, fundamental or technical, to lead us to believe that the bottom is in. The 200-day average is providing as excellent resistance and just above that, there is another resistance level at around $19.8-20. The path of least resistance for the homebuilders is clearly down.

And what a response we got from the bulls last week as buyers came in to defend that trendline. We said there would be a battle last week, and that’s exactly what we got. Also of note, Goldman Sachs put a price target on oil for $149 by the end of the year and we think they may be on to something here.

And how ‘bout that GLD chart. We got that last resistance “kiss” before moving dramatically lower. Look for a much weaker GLD chart into the next few months.

And that’s about it from here. As a sidenote, we’ve added to the links section in the website. We’ve found Mish’s Global Economic Trend Analysis to be especially excellent, a site based on hard facts rather than the CNBC permabull nonsense that so often floods that channel.

-Andy and Sul

Market Analysis: Riding A Wave Of Worry

andy07cole@gmail.com — 2008-08-17T13:04:15-05:00

Again, it’s really been a trader’s market as of late. For the trades that have been made, they’ve been quick and dirty, in and out, simply because it seems like every day brings some new data or news that force the markets in a different direction. Let’s look at where we stand going into next week:

Resistance on the DJIA continues to be at that 11,750 area. We actually managed to break above that level a few times last week, only to be held back by the 50-day moving average. Volume was pretty pitiful last week, but that was sort of expected really, as this market looks for some sort of direction. Unless some really excellent economic data comes out next week, the trend is lower.

The Nasdaq has been the strongest index of the past few weeks. In fact, it has actually managed to close above its 200-day moving average, which is somewhat bullish. That being said, however, volume last week was languishing and often, as history shows, these low volume rallies often end to the downside. The index is currently overbought and this may be an interesting short trade into next week.

The XLF continues to have strong resistance at the $22-23 level. If you were able to catch this trade last week, you definitely made a nice return. Volume towards the end of the week was pitiful as the XLF attempted to rally aboe the 50-day moving average. We continue to believe that the trend on the XLF is down.

Well, we said there would be a battle for direction on the oil chart last weekend, and indeed, that was exactly what we got last week. Inventories came in below estimates last Wednesday, providing at least a short-term case for the bulls and we expect this battle to continue on into next week. That 200-day moving average has not been violated in over a year and that will provide a strong defense for the bulls. However, if it is broken on strong volume, there could easily be a very strong selloff. This chart is not for the faint hearted and stop losses are a must.

Gold finally broke what had been a year-long support area last week on the basis that the US dollar is broadly being accepted as having bottomed. Volume confirmed this support break. We would not be surprised to see gold come back up to kiss what is now considered to be resistance, before heading lower again. Ideally, a short position would be initiated at that resistance “kiss.”

-Andy and Sul