Todays Market Commentary

Discussion in 'Trading' started by Brandonf, Aug 23, 2005.

  1. Brandonf

    Brandonf ET Sponsor

    Sometimes a setup will look so perfect that nothing good is likely to come of it. I think that is the case right now with the homebuilders. There is a compelling case in higher interest rates, bubble etc for them to be moving lower. Technically the entire group is forming a very nice avalanche. Because of this I went ahead and looked at all 27 homebuilders to find the best two or three to short, and I was suprised by what I found. On the daily charts the individual stocks all look great to short, however on the weekly charts all of them are only a point, two, maybe three away from major support. Just enough that the daily can sucker everyone in and then reverse back up with your money. Sometimes the market truely is as Theresa Lo says diabolical and you have to look for the easiest way for the most number of people to get screwed in order to make money yourself. I think that with the homebuilders you would be better right now to focus on some of the strong names like WLS and BHS on breakouts to the long side while the crowd is looking short.

    One other stock I really like here, AMR. Everyone is of course very bearish on the airlines. This and CAL are the only majors holding up at all recently, and they are doing so nicely. Not reported too much is the fact that AMR reported its first profit in a long while last qtr, this while the rest of the stocks in the group are losing money money faster even that I could as a new trader. Additionally positive, IMHO, is the fact that insiders are buying the stock near highs. Insiders buy stock for the same reason the rest of us do, they want to make money, and I have found it to be a great indicator of strength any time a stock is near new highs and insiders are buying.

    Brandon
     
  2. Dont buy the airlines, they are crappy, plus oil is heading higher and there profits can easily be wiped out.

    Plus labor issues, ie nwac and bab.
     
  3. Brandonf

    Brandonf ET Sponsor

    Ok :)
     
  4. Brandonf

    Brandonf ET Sponsor

    Yesterday we finally saw a day of very obvious accumulation in the stock market. NYSE volume was up 24%, and the highest since June 24th while Nasdaq volume was up 15%. All of the indexes rallied sharply, with the leading small cap indexes up over 2% on the day. All of this has occured in the face of "very bad news" which is a great sign going forward for the upside.

    Even though gas prices are likely to be uncertain, and probably go up in the short term (there are no gas stations where I am at that have any gas since yesterday early afternoon) the sheer size of the problem on the Gulf Coast almost assures us that interest rate hikes are finished. This is a good sign for stocks and for the housing market. You can by looking at the TLT that bond prices are again near new highs.

    Whenever the market enters a period of weakness you want to be watching the names and groups that hold up. Over the last several weeks that has been the semi's and biotechs. Focus your buying on names like DNA, KLAC, GNSS, MRVL, AMGN, FLSH etc. My current open trades are in MO, DNA, SMBI, TAXI, TNB and LIFC. I still also have XOM short, but one or two more strong days in that stock will have me getting out.

    Brandon
     
  5. Brandonf

    Brandonf ET Sponsor

  6. Short TXN. It is heavily manipulated. Compare it with INTC. It will go down at least to 28 soon. Not today. Be patient.
     
  7. Brandonf

    Brandonf ET Sponsor

    I have a couple of things to go over today. I want to talk about the market of course, that is why you put up with my obnoxious and eractic self in the first place. I realize I am not always easy to put up with, heck just ask Toni, so I try to make what I say count. I think what I have to say today will. In fact I think what I have to say about the market right now is the most important thing I have had to say about the market since I told everyone to get out of equities in Febuary of 2000.
    But first I want to use my little soap box to talk about something even more important. I hope you will take the time to read it because it is more meaningful than anything I will ever have to say about the stock market.
    Help Mississippi and help New Orleans. I mention Mississippi first because it is being over looked and they need help every bit as badly as New Orleans does. Just because the media is not there covering it 24/7 does not mean it is not happening. In Mississippi people are without houses, without food, water, medicine. Their economic base has been whiped out and things are going to be difficult there for some time. New Orleans needs us, but please don't forget the people in Mississippi.
    I have heard a lot of people asking "Why didnt they just leave? Are they stupid?". I want to address that as best I can because it is a legitmate question. I suspect most stayed because they could not leave. The Gulf Coast is poor. People work hard there but it is a place that getting ahead in life is not that easy. This storm struck on the 28th of August. Most poor people have money for the four or five days after the 1st and the 15th of every month. Katrina did not have the common courtesy to wait four more days to strike so that some of those poor would have the means to leave. And what would it take to leave? Certainly they could get on the bus? Well for $30 yes they could have. But then you also have to find someplace to stay, maybe a flea bag motel and that will set you back at least another $30 per day. You would also like to eat, and since you wont be cooking from home you have to eat out, that will cost you another $30 to $40 per day. If your a family of four you end up having to spend at least $500 to be out of the area for three days. Five hundred dollars is an amount that to many of us is nothing, especially when it is the difference between being safe and facing the potential danger of a hurricane. But when you are poor its not that easy. I know something about being poor. Shortly after I was born the monkey who's sperm helped create me left her, but not before running up as many bills in her name as he could. I never heard from him until a few years ago when he found out that I have some money and he thought it would be a good idea to call me up, introduce himself at long last and ask for some of it. My mom never finished high school and she got real lucky and came down with an illness that lasted for some time. My grandparants tried to help us as much as they could, but my grandpa was dying of cancer and was uninsured. Until I was 6 and she married the man I consider to be my father things sucked. We had a bicycle to get around on and enough money to eat two times a day most days. I don't tell this bit about my life to many people, and I don't relate it here to say anything about myself. I'm doing just fine now. But, I hope it gives you an idea that there are poor people out there. Some of them are even smart, hard working and worth saving if you have the chance. Certainly their children are!
    It is what you do for those who will never be able to do anything for you in return except be greatful that truely measures the person you are. Please dontate to the American Red Cross, the Salvation Army, the Baton Rouge Foodbank or any other group that is helping to aid the victims of this storm. The victims of this storm are poor and powerless, but we are not.
    Now to the stock market, the other woman in my life.
    I have never seen the sentiment of casual market observers and wrong way traders so extreme as it is right now. Not even the bullishness of the New Economy was as strong as the bearishness that seems to be right now. And, when you look at it that makes sense. Record high prices at the pumps, raising intrest rates (though unless Greenspan is the old fool I have often accused him of being I think we are done with that for the time being) and now the catastrophic damage of Hurricane Katrina which seems to have made it all worse.
    Since Tuesday Joe Sixpack and idiot momentum fund managers have been gobbling up oil stocks with both hands. Some of the refiners like Valero (VLO) gained 25% or more at their highs this week. But what did the price of oil do? Well this chart of the November Oil Futures contract shows very clearly what oil did. http://www.futuresource.com/charts/charts.jsp?s=CLX05 It spiked a bit and then did nothing until Friday. On Friday it sold off, and what is not shown on the chart is that it got hammered after hours. Also, if you look at gasoline futures prices the levels we are seeing on the fronths are indeed scary, but the back months are still much lower. This shows that there is no expectation if higher prices going forward. Keep a few things in mind. First, risk is always the highest when you are with a crowd. Do you want an example of this? Think back to when you were in High School, bear with me while we do this. You have a night of drinking and general hell raising planned for Friday night. You could go to two parties, one will have several hundred people, and the other will be made up of six or seven of your friends. Assuming you don't want to be arrested, which party do you attend?
    Everyone claims to be very bullish on energy stocks right now, but let me tell you a little secret: They are closet bears, each and every one of them. Why do I say this? Because they have fully commited to the long side and they have no more money left to put there. The only thing left for them to do now is wonder every day when prices go up if this is the last day they are going to go up, and every day that prices go down if this is the beginning of the end. In short, they are looking for an excuse to sell even as they put on a nice bullish game face. This is why its so dangerous at extreme points in the market.
    The crowd has also become very bearish on the market overall, as I said much more so than I have ever seen. I can't even count anymore the number of traders who have told me this move up is "stupid". Whenever I start to see the true fool is always turned out in the end, and its rarely the market. The market has in fact been very resilient the last several months. First we had London, now we have Katrina and our equities market for the most part have just gone sideways to up. Now, for the first time as i scan my IBD industry groups I am starting to see a lot more potential breakouts in sectors than anything else. The most important indicator in the market is the number of good setups out there. If you see an abundance of breakouts and potential breakouts, the market is ripe for the buying. If you see an abundance of breakdowns and potential breakdowns at the very least you do not want to be long. Seeing so many wonderful buy setups in conjunction with so much of the wrong way crowd pilled onto the bearish side of the room makes me feel very optomistic about the stock market going forward here.
    Area's that look especially attractive include Industrial Machinery, Building and Heavy Contruction, Specialty Steel Alloys, Storage Leasing, Invment Banks, Wireless, Computer Software, Medical Products, Mining and Contruction Machinery, Commercial Services, Cement and Concrete, Computer Manufacturers, Healthcare, Life Insurance, Health Insurance. This list goes on and on, but all of these have particularly attractive chart patterns at this point. Some of them have "setup" due to the momentum that Hurricane Katrina caused to their particular group and it will be interesting to see what kind of follow through they get, however many of these groups have absolutly nothing to do with the storm. They are just acting well. This is not what we typically see in front of a market that is ready to decline.

    So, at this point I would urge you to hold off on being short. The most important indicator of all is the market itself, and right now it is acting fairly strong, regardless of what you or I may think is the "rational" reply. I would caution you to stay away from retail and resturaunts as they continue to look ugly.
     
  8. Brandonf

    Brandonf ET Sponsor

  9. Brandonf

    Brandonf ET Sponsor

    I am watching FLSH above 27.50. Stops will be under 27.30. I want to see if I can get a nice swingtrade off this daytrade setup .
     
  10. Brandonf

    Brandonf ET Sponsor

    I am short BEBE from 17.95. Stop over 18.60. I will do a video later.
     
    #10     Sep 6, 2005