With the light holiday trading coming to a close we find ourselves in no man’s land but with the lines in the sand drawn. I’m still in vacation mode and refreshing the batteries for 08 so will keep the analysis short tonight and move right into the charts.
What you’ll see in both the Dow and S&P is channel trading over the past few weeks with price getting squeezed to a narrower point (which could eventually carve out a triangle formation). With this formation, we have firm areas of resistance and support setting up with a breakout above or a breach below revealing much about this market. I would guess that we’ll continue to trade fairly directionless for a couple more weeks until earnings start ramping up again.
Note the Dow bounced off support of this trianlge formation on Friday so the odds are good for a bit of a push up this week.
You’ll see a similar formation in the S&P with price getting squeezed around 1480. Eventually, the build in pressure must release and the it’s still up to the bulls to prove themselves. The prevailing trend is still down, so odds are in favor of a break below out of this triangle. Time will tell.
In the Nasdaq, current support and resistance levels are better defined within a channel with the upper bound around 2725 (an area it’s had trouble clearing) and the lower bound of support around 2550 (an area it has bounced from on 2 occassions in November and again here in December. The market probably won’t make any significant moves out of this channel until normal trading levels resume and the earnings season begins in the 3rd week of January. Until then, I continue to tread lightly, not making large bets on either side.
::: Recommended Reading :::
This is a new section that will appear in the Weekly Report for some time but will probably be moved to separate post at some point. Usually my responsibilities in running SelfInvestors.com prevents me from doing much reading during the trading week but if you do get a chance to read some good articles from other blogs or news outlets send them my way and I’ll post them here. Send to support at selfinvestors.com
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Marc Faber in an article at Daily Reckoning discusses the credit crisis and inflation. He says, "Will rate cuts be of much help to the asset markets and the economy? I believe we are in a war between two major adversaries. On the one side we have the Fed (and other central banks) pumping liquidity into the system in a desperate attempt to support the asset markets and the economy. On the other side we have the private sector, which, as Hatzius explained, is being forced to curtail lending due to heavy losses in the credit market and to fight the Fed’s reflation efforts by widening credit spreads. Complicating matters is the fact that both adversaries have powerful allies."Will rate cuts be of much help to the asset markets and the economy? I believe we are in a war between two major adversaries. On the one side we have the Fed (and other central banks) pumping liquidity into the system in a desperate attempt to support the asset markets and the economy. On the other side we have the private sector, which, as Hatzius explained, is being forced to curtail lending due to heavy losses in the credit market and to fight the Fed’s reflation efforts by widening credit spreads. Complicating matters is the fact that both adversaries have powerful allies."
Is Starbucks a good barometer of the economy?
Pressure on revenues and cost increases contributed to the dismal performance of earnings in the third quarter of 2007. For example, Starbucks (SBUX) increased prices by an average of 9 cents a cup in July. However, customer visits to US stores fell 1% for the quarter ended September 30. Starbucks’ CFO noted that a "similar decline may occur in the fourth quarter although they will be positive for the full year". (This would seem to indicate that the economy slowed down considerably in the second half.) According to him, "unbeknownst to us, we saw economic headwinds that quite frankly came up probably stronger than I thought." Earlier, Starbucks’ CEO had remarked: "The consumer is being faced with rising costs in every sector of their lives, and so part of that is reflecting on us." An informed friend of ours suggested that declining traffic at Starbucks stores in the US is of particular concern, since Starbucks serves all income levels.
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Bill Bonner of Daily Reckoning puts China in perspective.
"Per-capita income in China is less than 1/10 of America’s and its per-capita greenhouse gas emission is less than 1/5 of ours. But if 1.3 billion Chinese were to consume at the level Americans do, we’d need several more Earths.
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Jim Cramer has evolved but continues his flip flopping ways.
Cramer says, "trying to game short-term movements in stocks (is) almost impossible," Oh really? I think many, including myself can prove him wrong on this point.
On the much publicized Fed rant: "I’m very proud of that call," Cramer says, saying the Fed really had no idea of the severity of the crisis. Arguably, Cramer was proved right by the market turmoil that followed. "I subsequently heard from people at the Fed that it had an impact," he says. The Fed listens to you? In your dreams.
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Tom Lydon of ETF Trends reviews his ETF predictions for 2007 and makes some new ones for 2008.
1. Global markets will no longer be in sync with the U.S. market, and ETFs are the way to take advantage of global growth.
2. Actively managed ETFs fail to generate excitement.
3. ETFs hit $1 trillion in assets.
4. More ETFs will appear on global exchanges.
5. Bigger players will enter the market.
6. Commodity ETFs will continue their expansion and gain even more popularity.
7. Fixed-income assets will grow.
8. U.S. investors will begin realizing that they can look abroad for their investments.
9. Individual investors will start asking their financial advisors why ETFs aren’t part of their portfolios.
10. An ETF of ETFs will finally hit the U.S. market.
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Really there is inflation.. really there is.
Even with gasoline prices soaring, milk still tops gas prices. The nationwide average for a gallon of whole milk is $3.80, according to the U.S. Department of Agriculture. That dwarfs the nationwide average of $2.99 for a gallon of unleaded, according to AAA.
"A lot of basic foodstuffs seem to be going up and dairy products are going through the roof," said Norris of Oakworth Capital.
It’s not just milk-drinking kids – coffee drinkers are taking a hit from higher dairy prices as well. Back in August, Starbucks Corp. (SBUX, Fortune 500) chief executive Jim Donald blamed "rising expenses, particularly higher dairy costs" for a 9-cent rise in the price of coffee drinks. For the first time in three years, Starbucks reported a 1 percent drop in customer visits to their stores, even as the value per transaction increased 5 percent.
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Hugo Chavez is proving yet again that socialism doesn’t work.
The strength of the Venezuelan economy has long been a key factor in the popularity of President Hugo Chávez. With oil prices surging and government coffers bulging, Chávez has been able to offer generous social programs and price controls to keep basics affordable for all. But now the first cracks in the economic boom are starting to show. Inflation is surging, shortages of certain products are spreading, and the value of the bolivar, the local currency, is sliding, at least on the black market.
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Did Bear Stearns (BSC) provide the spark that kicked off the credit crisis?
It’s too soon to tell whether authorities will find any wrongdoing. But a BusinessWeek analysis of confidential hedge fund reports and interviews with lawyers, investors, and securities experts reveals just how pivotal a role Cioffi’s funds played in the mortgage market’s dramatic rise, dizzying peak, and disastrous fall.
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Ah, when to sell your stock? That’s the million dollar question and the most difficult part of trading. I would argue that it’s more art than science. Chris Perruna provides key points from a book by Justin Mamis called appropriately "When To Sell"
A few examples include:
1. Rule One of the professional trader is: When a stock doesn’t do what you expect it to do, sell it.
2. Stocks are bought not in fear but in hope. They are typically sold out of fear.
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Will joint ventures bury the homebuilders? Lennar (LEN) has the most exposure here.
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Zach provides some excellent analysis of Wuxi Pharma Tech (WX) and Interactive Brokers (IBKR)
::: Self Investors Model Portfolio :::
** This section will now appear as a separate report to be published on Wednesdays.
Would you like to receive buy and sell alerts within minutes of each transaction of the Model Portfolio? You can receive these along with ALL of the tracking tools and reports with the very popular Gold membership. Don’t delay, get started today and join me for many more highly profitable months here at SelfInvestors.com.
::: Best/Worst Performers :::
– Top 10 Performing Industries For the Week –
1. Silver: 12.05%
2. Gold: 9.70%
3. Computer Peripherals: 7.50%
4. Nonmetallic Mineral Mining: 5.65%
5. Oil & Gas Refining & Marketing: 5.45%
6. Oil & Gas Drilling & Exploratoin: 5.20%
7. Telecom Services – Domestic: 5.10%
8. Agricultural Chemicals: 5.00%
9. Oil & Gas Equipment & Services: 4.80%
10. Packaging & Containers: 4.65%
– Top 10 Worst Performing Industries For the Week –
1. Semiconductor – Memory Chips: -6.30%
2. REIT – Hotel/Motel: -5.50%
3. Electronic Stores: -4.30%
4. Water Utilities: -4.05%
5. REIT – Office: -3.95%
6. Toy & Hobby Stores: -3.90%
7. Broadcasting – Radio: -3.50%
8. Savings & Loans: -3.45%
9. Recreational Goods: -3.40%
10. Sporting Goods: -3.35%
– Top 5 Best Performing ETFs For the Week –
1. ASA Gold (ASA) 13.30%
2. iPath India (INP) 13.25%
3. Morgan Stanley India (IIF) 10.60%
4. Latin America Discovery (LDF) 10.20%
5. Market Vectors Gold Miners (GDX) 8.75%
– Worst 5 Performing ETF’s –
1.
2. Japan Small Cap (JOF) -7.85%
3. Chile Fund (CH) -3.00%
4. Ishares
5.
::: IPO’s Worth Watching for This Week :::
This section will now appear as a separate report on Mondays.
Note: there are no IPO’s scheduled for the next few weeks, so you won’t see IPO posts on Mondays for awhile
::: Upcoming Economic Reports (
Monday: None
Tuesday: Holiday
Wednesday: FOMC Minutes, ISM Index, Construction Spending
Thursday: Auto/Truck Sales, Initial Claims, Factory Orders
Friday: Nonfarm Payrolls, Unemployment Rate, Hourly Earnings, ISM Services
::: Upcoming Notable Earnings Reports :::
None
::: In Case You Missed It – SelfInvestors Blog Entries of the Past Week :::
1. Solar Stocks Still Energized – Solarfun (SOLF) Pennant Breakout
On the Fed listening to Jim Cramer “in your Dreams.”
In Cramer’s dreams, he is a butterfly flapping his wings over the ocean! HA HA HA HA!
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