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Monday Market Movement – Time to Climb?

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Monday Market Movement – Time to Climb?

Courtesy of Phil at Phil’s Stock World 

Levels%20Charts%2010 12 2012 Monday Market Movement – Time to Climb?Are we ready to rally?

We certainly built enough bricks into our wall of worry over the past week as the markets gave up ALL of the QInfnity gains from 9/13 but, so far, we’re holding those 50 dmas. Except on the APPLDaq, which has been shredded by the 10% decline in AAPL. That put a 2% additional drag on the index.  As our Big Chart shows, the Nasdaq is 1.5% below its 50 dma so it’s ALL APPL’s fault.

Other than the Nasdaq, we’re looking at 2.5% corrections (after a 13% run) in the S&P, NYSE and not even that much in the Dow (and that’s a 20% retrace for those playing at home), and a 5% drop on the more volatile Russell. That hasn’t stopped the TA fan-boys from declaring the World about to end – mostly because of the textbook “head and shoulders” pattern that seems to be forming on our indices.

I agree with the Rorschach fans – we all see what we want to see and there’s no denying that IF we fail the “neckline” – which is, effectively, the 50 dmas – THEN we do have serious problems. There’s no real support until we drop at least another 2.5% to our Must Hold lines and, in the case of the Dow – it has yet to beat its Must Hold line at 13,600 – the line that’s always kept us from getting too bullish.

Michigan consumer sentiment index Monday Market Movement – Time to Climb?I was extremely encouraged by Friday’s Consumer Sentiment Index. We’ll see if today’s Retail Sales Report gives us an upside surprise (+0.7% expected) to confirm that consumers are putting their money where their sentiment is. Since we are living in the Appleconomy, we have to consider that the IPhone 5 went on sale in the last week of September and 5-7M IPhones at $500 each was probably $3Bn worth of ADDITIONAL spending that last week. I doubt the people lining up for IPhones were saying “I’m going to eat mac and cheese for the rest of the year so I can afford this.”

So, unlike “leading economists”, I’ll say we hit 1% or so in this report and it will be nice to have an upside surprise, for a change, that ISN’T due to high gasoline prices.

We also get the Empire Manufacturing Index at 8:30 am this morning and that has deservedly low expectations of -2.8. Tomorrow we’ll see CPI, Industrial Production and Capacity Utilization but, don’t forget – consumers have to clear the shelves BEFORE the manufacturers get called upon to restock them, so we’re comparing leading to lagging indicators here.

ipcuyoy Monday Market Movement – Time to Climb?Industrial Production took a 1.1% dive in August and, while that’s not great for Corporate America, it’s great for American labor as it indicates that there are no more gains to be had from cutbacks and efficiency interests and it may be time to start hiring.

Of course, the Non-Farm Payroll Report for September already suggests that’s exactly what’s happening but it was immediately called a fraud by the Conservative Media so what would normally have been a very market-positive event had almost the opposite effect in the recent turmoil.

Notice on the chart that Capacity Utilization is rising steadily – that indicates more machines are turned on more often. Someone needs to be hired to push that button.  I’m willing to accept the possibility that our economy is actually improving in a fairly meaningful way.

image024 Monday Market Movement – Time to Climb?JP Morgan crushed earnings on Friday and the Financial sector dropped 2% despite Dimon’s bullish comments on housing. WFC was in-line and also participated in the drop.  

We mentioned the issue of charge-offs in Friday’s post and that’s keeping us cautious until we get past BAC and C’s earnings but, on the whole, I’m still enthusiastic about the Financials in general (Dave Fry’s chart left) – just as I was at the beginning of the year when we were shorting oil at $103 and long on XLF at $13.50. I suggested that there was no need to play the markets this year as simply playing BAC to win should give a nice total return without all the fuss. Our “One Trade” for 2012 was:

BAC is still $5.75 and you can buy the stock and sell the Jan 2013 $5 puts and calls for $2.55 for a net entry of $3.20/4.10. So putting $32,000 into 10,000 shares of BAC and selling 100 puts and calls can make a profit of $18,000 (56%) in 12 months if BAC holds $5 (13% down from here) through next January’s expiration.

image012 Monday Market Movement – Time to Climb?BAC is now $9.12 and the Jan $5 puts and calls are $4.13 for net $4.99 so just one penny under the full return already for a cash value on 10,000 of $49,990 off a $32,000 (56%) investment in 10 months.  We don’t do a “One Trade” every year – that one was just too good to pass up and, on Friday, we were once again naked and long on our “FAS Money” Financials play as we cashed out our short callers on the dip down to $15.80 on XLF. I couldn’t see selling anymore XLF calls until we hit goal at $16.50. If we get past C and BAC without too much drama – I may still raise that target.

In Friday’s chat we also added aggressive longs on TNA (ultra-long Russell) over the weekend but we conservatively covered our AAPL calls as that stock faltered at our critical $633 line.  Generally, we’ve been more interested in bargain hunting and that remains true as long as those 50 dmas hold up. We’ll have to see what news the morning data brings…

8:30 am Update:  No surprises in the data release (leading economists – on the other hand – are dazed and confused) as the NY Manufacturing Index (lagging) is at -6.2 (but better than -10.4 in September). The Retail Sales Report came in at a very healthy 1.1%. The Ex-Transport, Ex-Gasoline number was up 0.9% vs 0.4% expected so, as we figured – stuff is selling again.

C reported a big 88% drop in profits this morning but mainly as a result of a $4.7Bn write-down against it’s stake in MS as well as the charge-offs we expected.  Even so, they made $468M for the quarter or .15 per $35 share. Excluding the one-time charges, revenue was actually up 26% on Investment Banking, up 63% on Fixed Income and up 76% on Equity Markets Revenue for $5.136Bn in profits – even better than JPM!  Needless to say, many savvy investors are peering past the headlines and taking C up 2.5% pre-market.

We’ll be watching earnings closely this week to see which companies are doing well but we’re guessing the game plan will be to stick with the companies that do most of their business in the US, Canada and Mexico. North America seems to be the best area of the World economically at the moment.  Europe is still a total mess and, if it melt-downs – it won’t matter how good you feel about the US economy – we’ll go down with them. I think China is ready to support its economy at all costs – even going into debt for it.

Gee, maybe China is getting to be a little more like us every day…

Try out Phil’s Stock World here. 

 

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Mon, 10/15/2012 - 22:23 | 2892910 LongSoupLine
LongSoupLine's picture

WTF kind of analysis is this?  It reads like a CNBS piece.

Mon, 10/15/2012 - 22:22 | 2892907 disabledvet
disabledvet's picture

obviously there hasn't been any "snap back rally" in the economy unlike say...equities....let alone debt markets which have rallied FURIOUSLY every time the Chairman opens his mouth. is there a solution to the energy mess? yep. is the DOE acting on it? yep. will the deficit become a surplus? not anytime soon...but clearly the United States can become a net exporter of electricity anytime it wants..and in all directions. we're fast becoming a net exporter of energy in general...petro dollars are a thing of the past...but not "petro wars." Syria is a big deal..."that's our exit strategy"...which is how retreats work folks. China and Russia have made a HUGE blunder supporting Assad. Those refugees simply are not being welcomed by their host countries...there is the possibility of an actual front emerging...but right now it doesn't appear that way. Saudi Arabia and Israel both appear to have bankrupted themselves in the process of prosecution as well i might add. the industrial might of the USA is truly massive...and with GM now owned by you and me the taxpayer i expect some pretty amazing things to be rolling off the Assembly line destined for "points east." who know's what are Government is up to given how much it can borrow "for free." obviously if you can borrow 100 billion dollars in a week...why not start buying all the gold in the world with it right? and of course the answer is obvious...

Mon, 10/15/2012 - 22:29 | 2892927 Oldwood
Oldwood's picture

Are we going to start selling Chevy Volts to China with a $20k US taxpayer rebate?

Mon, 10/15/2012 - 20:41 | 2892625 Robslob
Robslob's picture

This article was meant to be posted on all MSM stations and websites and not for general consumption by realists.

Sincere Apologies,
The Management

Mon, 10/15/2012 - 18:31 | 2892367 fuu
fuu's picture

"Industrial Production took a 1.1% dive in August and, while that’s not great for Corporate America, it’s great for American labor as it indicates that there are no more gains to be had from cutbacks and efficiency interests and it may be time to start hiring. Of course, the Non-Farm Payroll Report for September already suggests that’s exactly what’s happening"

Brusca is that you?!?

Mon, 10/15/2012 - 16:31 | 2891822 Schmuck Raker
Schmuck Raker's picture

"Notice on the chart that Capacity Utilization is rising steadily –"

Well, no...it isn't. About to roll over, Maybe.

Mon, 10/15/2012 - 18:22 | 2892346 jcaz
jcaz's picture

What the hell chare are YOU looking at, Phil?    What- did your data not fit your conclusion, so you're back-tracking until it does?    That's a drop in CU about to occur, dude.....

Mon, 10/15/2012 - 14:42 | 2891523 Clowns on Acid
Clowns on Acid's picture

To the Author:

Yo dipshit Phil

" of course, the Non-Farm Payroll Report for September already suggests that’s exactly what’s happening but it was immediately called a fraud by the Conservative Media so what would normally have been a very market-positive event had almost the opposite effect in the recent turmoil."

There is no "Conservative media". There are just some that are less left wing, facsist than others. So your reasons for the sell off are complete bullshit ! Asshole.

You are an apparent Obama shill. I do agree that the ES could yet again defy the realities and rally from here, however it has everthing to do with traders betting that the Fed will buy the ES futures and the Obama Admin will skew the reported economic numbers, nothing to do with socio-economic reality.

You really are a lightweight piece of MSM dung.

 

Mon, 10/15/2012 - 14:56 | 2891561 Lost Wages
Lost Wages's picture

I disagree about the media being left wing. I believe they are mainly right wing. The liberals are fake-liberal cryptoconservative shills who serve only to provide an illusion of choice. I believe the same thing about Obama, Jon Stewart, whomever. There used to be a liberal release valve on the right wing march toward death, but by and large the right wing paradigm owns the left.

As for this dude's article, I tend to agree with him. "Everyone" is saying the stock market is going to drop, but an emotionless analysis will say it could still go either way.

Mon, 10/15/2012 - 15:19 | 2891642 Shizzmoney
Shizzmoney's picture

The MSM is only in favor of one thing: The Neo-Feudalist Agenda.  The whole left-right thing is just there to rile people up.  When youdig DEEP into it, it's pretty clear what they are pushing on people.

North America seems to be the best area of the World economically at the moment.

Just because you are the best looking turd in the manure pile, doesn't still mean that you're not still......a piece of shit.

Mon, 10/15/2012 - 16:19 | 2891771 Lost Wages
Lost Wages's picture

But see... that's what some of you don't understand. You're so religious about your bearishness, you don't realize that a piece of shit can still float and stocks can continue to rise. If the market perceives North America as better (or central banks pad the market), then asset values will rise... for now. I'm finding a lot of so-called doomers are just disenchanted "conservatives" who are pissed that a Democrat (or a black man) is in the white house, so they WANT everything to fall. The market has been bullshit for at least 40 years, so why have you only been pissed-off since Obama was elected? ;)

Tue, 10/16/2012 - 09:28 | 2894063 fuu
fuu's picture

" The market has been bullshit for at least 40 years, so why have you only been pissed-off since Obama was elected? "

Some of us have been pissed for far longer than that. Some of us have been pissed since Nixon, Carter, Ford, Reagan, Bush, Clinton, Bush, and Obama. Just because you just started paying attention doesn;t mean others weren't.

Tue, 10/16/2012 - 16:02 | 2895991 Lost Wages
Lost Wages's picture

Ahhh. Huffing and puffing and stamping your feet for four generations now. Congratuations!

Mon, 10/15/2012 - 22:24 | 2892916 Oldwood
Oldwood's picture

So why were we racist conservatives so compliant for our first black president Bill Clinton? You leftists just can't have it both ways. Either we are greedy capitalists, willing to sell our mothers for a buck or we are willing to bring the whole thing down for our ideological beliefs. And only a leftist would consider facism conservative or right leaning.

Tue, 10/16/2012 - 16:21 | 2895983 Lost Wages
Lost Wages's picture

Actually it has always been considered that at the far right was Fascism, at the far left is Anarchy. In fact, "Libertarian" was originally a leftist term that the right-wing misappropriated. The Libertarian Book Club in New York was founded years ago by Anarchists and Communists from the labor movement. (Anarchists fought for fewer hours. Communists fought for higher pay.) Now a few billionaires dance Joe the Plumber in front of you and try to convince you Libertarianism is a right wing Ayn Randian survival of the fittest death to the environment kind of thing. Well it's fucking not. Freedom and Liberty means less government and it also means more of the wealth goes to the people who actually do the work. Not to the fat cat who "owns" them. Now that the right has purchased and misappropriated the term, "Libertarian," the original libertarians refer to themselves as Left-Libertarians and comprise Anarcho-Communist, Anarcho-Socialist, Post-Left Anarchism and whatever other branch of leftist, anti-government, anti-authoritarian thought you can think of. The right wing requires more government to enforce the will of the businessmen on the people and to breed efficiency, whereas the left is more concerned with freeing oneself from the business cycle and having a life.

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