By Gareth Soloway on October 8th, 2010 1:27pm Eastern Time
Retail stocks have seen a mega surge in the past month on the back of hopes a domestic recovery is well underway. Fears of a double dip recession are a distant memory and back to school sales were solid. Just yesterday, retail sales were reported by many retailers with positive news across the board. Stocks like Abercrombie & Fitch Co. (NYSE:ANF), American Eagle Outfitters (NYSE:AEO), Macy's, Inc. (NYSE:M) and J.C. Penney Company, Inc. (NYSE:JCP) have all had meteoric rises. Just as an example, look at Macy's. On July 19th, 2010 the stock hit a low of $16.93. Today, the stock hit a high of $24.50, nearing the 52 week highs of $25.25. This is a 44.70% move. In addition, after word hit the streak that famous Bill Ackman of Pershing Square Capital was taking a 16% stake in JCP, the stock hit a high of $33.88. Just a little over a month ago, this stock was trading at $19.42. That is a meteoric rise of 74%.
Whether you understand how the market works or not, these stocks have had a run for the ages and are due for a short term pull back. In addition, always remember, stocks top on the best news and bottom on the worst news. Yesterdays retail sales and the Ackman news today would be considered the best of the best and comes when these stocks are hitting their highs. By the way folks, I hope no one is fooled thinking he bought yesterday or today. He loaded the boat a long time ago and could even be selling into this surge. To many amateurs get caught up in Wall Street shenanigans. Learn the tricks, do not be fooled and become the sheep. To gain more insight, find out what the pro's are swing trading and get proprietary education, join the Research Center.
Gareth Soloway
Chief Market Strategist
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By Nicholas Santiago on October 8th, 2010 3:55pm Eastern Time
The same game gets played again ahead of another long holiday weekend. The U.S Dollar Index drops and the stock market rejoices over losing 91,000 jobs in September. It is all about the U.S. Dollar as the dollar continues to decline on a daily basis. When the dollar declines the markets inflate and trade higher. When you see that most commodities and assets are denominated in the U.S. Dollar what have you really gained from this rally? Most retirees and people that are fed up with the stock market games have lost 12.0 percent of their purchasing power in the dollar. So once again this economy will suffer at the hands of the inflation creators. I've said it before and I shall say it again, this won't end pretty. Oh, I forgot the Dow Jones Industrial Average will trade above 11,000 again though. If that is any consolation.
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Alcoa Could Post 29% Earnings Drop Due to Higher Costs (Bloomberg)
According to a Bloomberg analyst survey, US aluminum giant Alcoa (AA) is expected to report earnings of 5 cents per share after the close today, down from 7 cents a year ago
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By Nicholas Santiago on October 7th, 2010 10:06am Eastern Time
Ever since the Federal Reserve Bank Chairman Ben Bernanke talked about quantitative easing part two the markets have been in full rally mode. Now, while this rally has occurred on some of the worst volume I have ever seen the point move higher cannot be denied. Since the August 25th low the S&P 500 is higher by nearly 12.00 percent. Ironically, this is almost the same amount of downside that the U.S. Dollar Index has declined since it topped out on June 7th, 2010. Today the U.S. Dollar has made a fresh new multi-month low at $76.90. The plan is to simply drop the U.S. Dollar against most other currencies and inflate the stock markets around the world. Can this type of action actually work?
Ben Bernanke has said that he will do whatever is necessary to get the market up and the economy going. As far as quantitative easing goes it looks as if it has been going on already. Just look at a chart of gold and you will see that gold began taking off on July 28th, 2010. Since that time gold has risen higher by 17.00 percent. Gold is the new way of reading the M3 money supply that the Federal Reserve no longer makes known to the public because it does not fit into their budget, if you can believe that. In fact, all commodities have soared higher. You can't tell me that high oil is good for the economy. High oil is an automatic tax on the public.
The Federal Reserve is now the largest owner of U.S. Treasuries with the exception of China. Now it is well known that the U.S. has some serious debt service to pay. However, is this the way it is going to play out? The Fed will just continue to drive the interest rates lower so the U.S. will just have to pay less interest. Something will eventually have to give. The Chinese and other countries that hold U.S. debt will eventually get tired of this action and not want to purchase any new bonds. That means that the Fed will eventually own all the debt of the United States. Is this possible?
This really looks like a last ditch effort to inflate this economy back to health. The last time former Federal Reserve bank Chairman Alan Greenspan did this in 2002 it created the largest credit bubble that the world has ever seen. At that time the market and the economy was suffering from the tech bubble and a new housing bubble was formed to take its place. People from all walks of life rushed in to buy homes with little or no money down and a construction boom was formed. This time around, bank lending rates are at historic lows and people don't want to buy anything. Banks are selling more houses than home-builders. Foreclosed properties are growing by the minute. However, the central bank for the United States is looking to flood the system with more money.
This story cannot have a pretty ending. If a drug addict is just given more drugs he will eventually overdose or take a heart attack. Unfortunately, the stock market does not see it like that at the moment, however, it may be left no choice. Inflate, inflate, inflate, until it is too late. Deflation is much like a black hole. It will suck everything right in. Unless capitalism is allowed to resume and work the way it was designed to work by letting things fail this economy is doomed.
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By Gareth Soloway on October 7th, 2010 11:41am Eastern Time
The markets opened higher today, only to reverse to the negative side. The reason for the gap up? The U.S. Dollar again fell sharply pre market, propping the markets up. The PowerShares DB US Dollar Index Bullish (NYSE:UUP) hit a low pre market of $22.32. By mid morning, the UUP had reversed to the positive side, trading as high as $22.47. This is a rare reversal and may dictate a swing in the short term to a stronger Dollar and weaker Euro. The CurrencyShares Euro Trust (NYSE:FXE) hit a high today of $139.43 only to reverse and go negative, now trading at $138.80., -0.03.
Even with this crazy swing in the markets based off the Dollar, I expect the markets to remain flat in anticipation of the Unemployment Report and Non Farm Payrolls tomorrow morning. This is the market moving force Wall Street has been waiting for all week.
Gold is tumbling today, with the SPDR Gold Trust (ETF) (NYSE:GLD) $130.32, -1.49 (-1.13%). Gold started sharply higher again today but this massive reversal may signal a short term top. The daily chart is extremely extended and a retrace to the 20 moving average on the daily chart is highly likely in the next week after today’s move. Oil also saw a gap higher today, reversal just like gold but to a lesser extent. The United States Oil Fund LP (ETF) (NYSE:USO) is trading at $36.07, -0.21 (-0.58%) on the day. Take a look at the daily USO chart. You will see it jumped higher into the 200 moving average on the daily chart, a good indicator of a short term pull back as well.
Commodities and commodity stocks have soared in recent weeks. The signals today may spell a short term pull back. To gain more insight, swing trades, guidance and education, join the Research Center.
Gareth Soloway
Chief Market Strategist
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By Gareth Soloway on October 7th, 2010 12:05pm Eastern Time
With the minor Dollar reversal today, one has to wonder if the U.S. Dollar has bottomed in the short term. It is very oversold at these levels. If this is the case, there are many stocks that should fall back down after meteoric runs. A stronger Dollar means in general, stock prices will fall lower. Remember, anytime the Dollar weakens, equity prices must move higher to maintain their real value. Technically speaking, a 10% drop in the Dollar should result in a 10% move higher in the equity markets. If this occurs, in real Dollars, nothing has changed.
When the Dollar falls, commodity prices also move higher. This is why many copper, gold and oil stocks have outperformed other sectors. If the Dollar starts to gain in the short term, many of these stocks may come back to earth. I will mention a few.
Chevron Corporation (NYSE:CVX) is the first one that comes to mind because it is a leading indicator for the markets and has had an unbelievable run in the last month. Chevron has gone from a price of $72.56 on August 25th, 2010 to $84.50, the high today. This was also a new 52 week high. A move higher of $11.94 may not seem amazingly significant, but when we are talking about one of the biggest companies in the world, it is. In addition, yesterday a key double top was breached. Today, there is a reversal and engulfing candle present on the daily chart. This is a very bearish signal.
The next stock that looks like a possible pull back candidate is Southern Copper Corporation (USA) (NYSE:SCCO). This stock has soared over 40%, going from $27.61 to the high today at $38.84. This has all happened in approximately six weeks. In addition, the market cap of this copper stock sits at $33 billion while 2011 revenues are expected to be in the range of $6.57 billion. Earnings are expected to be around $2.68 for 2011. With earnings of $2.68 per share, the current P/E for 2011 sits at 15. Slightly expensive in my book.
Another company that may see a pull back because of a rising Dollar and a drop in commodities would be Freeport-McMoRan Copper & Gold Inc. (NYSE:FCX). Alcoa Inc. (NYSE:AA) reports earnings today as well. These earnings will give the commodity stocks some direction as well. To gain more insight, analysis, guidance, swing trades and education, join the Research Center.
Gareth Soloway
Chief Market Strategist
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