At the top of the page in IBD it says "Friday’s stronger than expected jobs report show a recession is likely off the table, propelling stocks to record highs." Maybe it’s just me but how can any assumptions be made about a jobs report? Wasn’t it just one month ago after a horrible jobs report that recession talk was swirling in the air? Oh, right, that was a mistake. Actually, there was significant job growth in August. A revision upward and all is good… and that September report just confirms that the August jobs report was inaccurate. Rigghhhhtt. Don’t even get me started on inflation. Can’t we all just finally admit that the economic numbers released by the government are a bit of a joke at this point? To me there are really only two things that matter – company sales growth (not as easily manipulated as earnings) and supply and demand in the stock market. Since company sales growth is a LAGGING indicator (hey, sales growth is typically best at the TOP of the market and worst at the bottom), I’ll base my trading decisions on simple supply and demand of the stock market. For that I turn to the charts.
On Friday the S&P joined the Dow up in record high territory while the Nasdaq continues to push higher without pause. That big August capitulation day has proved to be a much stronger springboard than I ever imagined. If you told me a month ago that the market would shoot nearly straight up to record highs with little pause I wouldn’t have believed it. The fact that the market has busted through to new highs is in and of itself very bullish action and makes for headlines. This can bring in more retail money off the sidelines and push us higher. However, until the institutional money starts pouring in, this market rise remains a house of cards.
Notice how as the Dow pushes to record highs, but volume behind the move recedes. The market looks tired up here and at the very least needs to take a breather and spend some time sideways. At worst, this is the end of the road and marks a double top. I don’t think that will happen, but it’s something to keep in mind.
The S&P closed at a record high on Friday with volume higher than the day before. Yes, technically it was a day of accumulation. But again, look at the lack of institutional buying up here. Volume levels were well below average and have been for a few weeks. Throw in the steep rise over the past several weeks and I think you have a recipe for a significant pull back from here. This market needs a rest so that it can coil the spring for another leg up.
The volume levels in the Nasdaq are a bit better and the move on Friday was impressive but expect the Nasdaq to come back and test the new level of support at those July highs at some point before heading higher.
The bottom line right now is that this market has risen fast and furious off that capitulation day, but is looking increasingly tired up here. The market needs to rest and recoil the spring so that it can sustain another leg up. Until then, I’ll continue to sit on a sizable cash position and look to trade shorter time frames.
::: Model Portfolio Update :::
For a few months I hadn’t been playing too many of what I call QSP (quick strike profit) trades which are basically swing trades where I’m looking for big profits in momentum stocks in a very short time frame. However, while the market has gained strength over the past several weeks I’ve begun to play these quite a bit more and this week the strategy paid off in a big way. My strategy with them is to cut them loose at the first sign of stalling and/or weakness even if I have a gain in the stock. Case in point – my trades in SCON and KONG. Both stalled out after a breakout attempt so I dumped them for small gains of 3%. Another great example is a trade in Cardica (CRDC) which I’ll highlight in a case study in another post soon. CRDC is a stock I initiated a position in last Friday when it looked as if it was going to emerge from a very bullish looking triangle formation. When it stalled on Monday and Tuesday, I dumped it for a small 1% loss. If at first it doesn’t succeed.. TRY, TRY again. I tried again on Thursday when the stock began to show new signs of life late in the trading day. I initiated an entry at 10.17 and rode it up for much of the day on Friday and locked in a very quick 45% gain. My only regret is initiating such a small position 🙁 The KEY: cut your losses quickly in these volatile plays and eventually that one big run will wipe out a few small losses and really accelerate your returns. In addition to some nice gains in QSP trades recently, the portfolio continues to be led by Google (GOOG) a long term holding as well as IPO plays LULU and WX. For the week, the portfolio surged to a 4.3% gain bringing the YTD gain to 15.6%. Now that certainly isn’t world beating performance, but as I’ve said before, the market has been unusually difficult to read this year and I missed much of the move in the first half of the year. I feel like now I’m catching up and in great position to at least double the return of the S&P by the end of the year just as I did last year. I’m still carrying a decent cash position at 32% and probably won’t move too much more to the long side until we get some kind of pullback/consolidation.
::: Best/Worst Performers :::
– Top 10 Performing Industries For the Week –
1. Manufactured Housing: 12.55%
2. Residential Construction: 11.85%
3. Toy & Hobby Stores: 10.00%
4. Long Distance Carriers: 9.80%
5. REIT – Office: 9.20%
6. Recreational Vehicles: 8.90%
7. Marketing Services: 8.40%
8. Department Stores: 8.30%
9. Major Airlines: 8.15%
10. Water Utilities: 7.65%
– Top 10 Worst Performing Industries For the Week –
1. Drug Stores: -5.55%
2. Consumer Services: -5.40%
3. Information Technology: -4.70%
4. Semiconductor – Memory: -1.50%
5. Semiconductor – Broadline: -1.25%
6. Aerospace/Defense: -1.25%
7. Cigarettes: -1.15%
8. Printed Circuit Boards: -1.00%
9. Nonmetallic Mineral & Mining: -.85%
10. Paper & Paper Products: -.75%
– Top 5 Best Performing ETFs For the Week –
1. Ishares Home Construction (ITB) 14.65%
2. SPDR Homebuilders (XHB) 9.20%
3. Indonesia Fund (IF) 8.25%
4. Ishares South Africa (EZA) 7.60%
5. Ishares Cohen & Steers Realty (ICF) 6.75%
– Worst 5 Performing ETF’s –
1. PowerShares Agriculture (DBA) -3.65%
2. Thai Fund (TTF) -2.70%
3. Ishares Silver (SLV) -2.65%
4. Ishares Commodity (KRE) -1.45%
5. PowerShares Commodity (DBC) -1.30%
::: IPO’s Worth Watching for This Week :::
The highest profile company to go public this week is Virgin Mobile (VM), but this company has started bleeding red.. no gushing red is more like it. Just one compelling IPO this week. Compellent is fast growing but not yet profitable.
1. Compellant Technologies (CML): a leading provider of enterprise-class network storage solutions that are highly scalable, feature rich and designed to be easy to use and cost effective. Compellent’s Storage Center is a Storage Area Network (SAN) that is designed to significantly lower storage and infrastructure capital expenditures, reduce the skill level and number of personnel required to manage information and enable continuous data availability and storage virtualization. Trading set to begin on Thursday.
::: Upcoming Economic Reports (10/8/07 – 10/12/07) :::
Tuesday: FOMC Minutes
Wednesday: Wholesale Inventories, Crude Inventories
Thursday: Export/Import Prices, Initial Claims, Trade Balance
Friday: Retail Sales, PPI, Business Inventories
::: Upcoming Notable Earnings Reports :::
Wednesday: Lam Research (LRCX), Premier Exhibitions (PRXI)
Thursday: Fastenal (FAST)
Friday: HDFC Bank (HDB)
::: In Case You Missed It – SelfInvestors Blog Entries of the Past Week :::