I felt it necessary from a patriotic stand point to provide our premiere banker with a free subscription to The Contrarian Trader. I have no grievance with Jamie Diamon but they appear to need som help from a technical stand point. Since JPM wasn’t one of the pathetic bunch that neared collapse in the 2008-2009 correction then it stands to reason tht there are other banks out ther that might be in the same trade as well. As for the Rusell 200 or the IWM they are in correction mode and we are short of this market. How did we know to get short? We use weekly charts and they told us to get out of our long positons the first week of April.
How often do traders put themselves out there and hold themselves accountable to the visitors who were good enough to spend some time watching them? I do! Linked above you will find commentary I sent out to members on 04/01/12 and you can see how we called the top of the trading range.
This was commentary I sent out to members on 04/01/12. I cautioned then that there was churning and sector rotation.
Selling AAPL Short
In this same commentary I went over why we were short of AAPL and sure enough we nailed it. After Gene Munster made his $1000 call on AAPL we added to our AAPL short. Why was Gene so good as to provide such a valuable call on AAPL for free no less? Do you have an account with his firm? My guess is that Gene did some self serving work so that his Wall Street through buddies could rotate out into the one day surge.
Russell 2000 “Roll Over”
In the same video we called for the roll over in the Russell 2000 and sure enough we got it.
The growth in disability rolls has been growing since the 1990′s and not since President Ronald Reagan have we seen a drop in disability rolls. Reading in Monday’s edition of Investors Business Daily since Obama took office Disability Rolls have grown by 5.4 million. As each person joins the disability rolls that is one less person that needs a job. Therefore, no need to count them among the employable in the U.S. How very convenient for an administration who loves central planning. To illustrate just out of whack the growth in disability rolls has become here is the statistic that tells is all. Since 2009 Disability Rolls have grown by 4.7 million while Non Farm Payrolls have grown just 2.3 million. What is the common trait among new receipients? Many have been unemployed for more then 27 weeks and are seeking a new source of income. If President Obama and his merry band of liberal thugs in Congress would simply get out of way of business perhaps these people would find more gratification in being employed. Until then, we the tax payer continue to subsideze them and that is exactly what the Obama administration wants.
European Union Growth by Euro Collapse?
The inevitable solution for both the Euro Zone and the United State will be growth and the only way to realize growth is through the devaluation of the Euro. The U.S. has pursued this policy for a number of years though although it continues we continue to repeat our now ridiculous “strong dollar policy”. The European Union has refused to reduce interest rates for some time but with their economies in a downtrend they’ll soon have no alternative and when they do cut rates it will signal to the market that the devaluation of the Euro has begun. The U.S. stock market will get hammered because the result will be a stronger U.S. Dollar and the Federal Reserve has little to no room left to lower rates here to compete. My conclusion is this, we are only in the 5th inning of the financial crisis. Let’s just hope we don’t end up going into extra innings.
What we saw these past two weeks was in our opinion collusion among the so called Wall Street elite. Pete Najerian was good enough to point out the massive call option activity in the deep out of the money strike price(s) only two weeks ago. He swirled his eyes when asked what strike prices on Apple (AAPL) were most active. The stock then trading in the low $500 caused Pete to use non- verbal communication which I interpreted as being “ the fix is in”. Sure enough, we had our “event” being the “New IPAD” release and a number of brokerage houses tripping over themselves to upgrade AAPL. Coincidence or Collusion? You decide.
The Futures or the Bond Market
The financial media and brokerage house elite want you to watch the futures market so that they can get you excited and buy at the opening of trade. Why? It is because most are long only funds and cannot short stocks. So, to meet their quarterly numbers they must get you the little guy excited so that they can keep the bull market going. While you are buying they are selling.
Cabot Microelectronics (CCMP)- CCMP has been added to our oversold list of stocks to buy. You need to use caution here. The decline was a result of a $15.00 distribution. What we are hoping for here is that the short sellers will continue to drive the stock down and dividend capture traders exit the stock.
Build A Bear Workshop (BBW)- BBW Is now an oversold stock but to early in the correction to buy. I believe that there is further downside and we will look to buy BBW when we hit a good support level and our indicators give the green light.
Balchem Corp (BCPC)- BCPC is an oversold stock but as with BBW still in the early stages of its correction. The best thing to do is to watch and wait.
Apollo Group (APOL)- APOL and members of this industry continue to suffer in the era of Obama. We are watching the October 2011 lows but will probably get a rally before then. This stock is a secular loser so we’ll want to take profits quickly and move to the sidelines.
Last week’s stock picks- Right, Wrong or Watching?
Almost Family (AFAM)- We were Right on AFAM. We called for a pull back on the stock and we got it.
Rex American Resources Corp (REX)- We were Right on REX. We mentioned this stock as a short and it did correct.
Cown Castle Intl. (CCI)- We called for a pull back on the stock which we did get however the stock did not behave the way we wanted it to . Although we did see a pull back I would feel more comfortable calling this stock a continued Watch as a short.
Dynamics Reseach Corp (DRCO) and Nuerometrix (NURO)- We called for a rally on both of these stocks and we did get an oversold rally but not at the risk to reward entry point that we wanted to these both remain oversold watch stocks.
Regeneron Pharmasuticals (REGN): Indisders dumping shares. Manipulation at hand?
Apparently Regeneron Pharmasutical’s management was advised of my commentary because I now have evidence that they have been frequent visitors on multiple occasions to this this blog. I will never have proof that they moved their earnings date up to create a short squeeze but if you give them the benefit of the doubt you have no business shorting stocks. Don’t get me wrong if I were dumping shares as insiders have been doing and saw huge short interest in the stock I to would make every effort to squeeze the short so I could sell more shares. Add to it the fact that a number of investment banking firms looking for business provided upgrade cover to sellers. Again, pure speculation on my part but I happen to be a successful speculator. Even after the shares were pumped higher we still made a profit.
Overbought / Oversold Stock Review from last week
In my The Week Ahead Commentary to members of The Contrarian Trader I analyzed the charts of the indexes and the major sectors and believe that the potential for a correction is likely.
Last week I mentioned U.S. Home Systems (USHS) of which we are short and have a profit. We’ll be looking to exit this position in the coming week.
Stocks that we discussed last week which remain on our radar screen are:
Companhia de Saneamento (SBS)- This stock consolidated and is a short term buy with but with an eye on getting short on a “key reversal”
Synnex (SNX)- This stock is also a short term buy with a longer term on getting short.
Plains All American Pipe (PAA)- Has also consolidated sideways setting up the opportunity for a brief rally but again, we want to look to get short.
Seagate Technologies (STX)- Remains a short opportunity but the risk to reward is not as favorable as last week. We’ll watch it though.
Marchex (MCHX) – We had been long of this stock but were stopped out with a small loss. However, we like the stock and it’s large short interest so we may just trade it long again.
Hot Stock Picks
Almost Family (AFAM)- Potential short after a strong move above all the major moving averages
Rex American Resources (REX)- This is one of my favorite shorts and will be watching it with great interest.
Crown Castle International (CCI)- Another great short candidate given its extreme overbought condition.
Dynamics Research Corp (DRCO)- DRCO is an oversold stock which is interesting given the fair amount of shorts that can fuel a short term rally.
Neurometrix Inc. (NURO)- This is an oversold penny stock which is interesting given that it trades at a discount to the pricing of a recent offering.
I will be tracking all of these stocks and alerts will be sent to members when we do enter and exit these trades. Take advantage of our 14 Day Free Trail Offer to receive these alerts as well as The Week Ahead Video Commentary which is sent out to members every Sunday.
Last week we reduced our exposure to Replegan Pharmaceuticals (REGN) because the risk to reward of being short
the stock was no longer in our favor. Lesson number one in stock trading is to have a reason why you are trading a stock and if you cannot articulate that strategy you should never have made the trade in the first place. In the case of REGN we entered the stock on the short side because it was at extreme overbought levels. An earnings announcement was weeks away and I had confidence that the stock would have corrected by then and we would be out of the trade. It appears though that management watched the charts and monitors the short interest. How do I know this? On Friday February 10th the stock closed below the lower band of its rising uptrend channel. That was a positive for us until management issued a press release after the close announcing that earnings had been moved up to the following Monday February 13th. I knew that we were about to get screwed. The lesson learned from this trade was to never ever underestimate how devious management can be when their stock is heavily shorted and never forget
how immoral bankers such as Bank of America and Deutche Bank can be by upgrading an extreme overbought stock in the hopes that they will get the dumb money off the bench and buy at the worst possible time for both longs and shorts. The other lesson learned is to never, ever react to a knee jerk reaction by the markets. We never forgot that the reasons why we shorted REGN in the first place were more present than ever and by the end of the week our $15.00 paper loss was reduced to $2.00 because we
had discipline and understood how the game is played.
Contrarian focus stocks
Companhia de saneamento Basico (SBS)- This is an extreme overbought stock which we will be looking to short as a
swing trade.
Synnex Corp (SNX) – This is an extreme overbought stock which we will be looking to short as a swing trade.
US Home Systems Inc. (USHS) – We traded this stock short for a profit a couple of weeks ago and are now looking once
again to short. This is an extreme oversold stock which is very near to us pulling the trigger once again.
EchoStar Holdings (SATS) – I discussed (SATS) last week and like the way it is behaving. We will look to add
as a short in the coming week.
Cobalt International (CIE) – This is another stock that I discussed last week and monitored. I like this as a
trade and should be considered a top pick.
Plains All American Pipe (PAA) – This is new to our screener and looks very good as a swing trade short.
Holly Energy Partners (HEP) – This stock is another top pick as a swing trade to the short side.
Willis Group Holdings (WSH) – This is our only extreme oversold stock and the weekly and monthly charts will help
us determine if this will be a swing trade or a long term investment.
Please take advantage of our 14Day Free Trial Offer and receive every Sunday “ Contrarian Commentary, The Week
Ahead” video commentary on all stocks listed above.
We were trading Apple (AAPL) both long and short during the summer after Steve Jobs passed away. I identified a divergence in the Weekly RSI from the stock price which was making historic highs and at an “Extreme Overbought” condition.
Contrarian Trader Watch Stocks
EchoStar Holdings (SATS)- We are looking to short EchoStar due to it’s overbought condition
Regal-Beloit (RBC)- The chart indicates that although the stock is at extreme overbought levels there is a good possibility of the stock continuing it’s rally early this coming week. We will monitor it for topping action.
Cobal International Energy (CIE)- Another chart at extreme overbought levels which gaped higher on Friday. I am reluctant to chase this one down. I would prefer to ope a position on strength and average my basis cost.
Cedar Fair (FUN)- The $27.40 level appears to be resistance. Ideally we will see a rally through that level. If it does we’ll watch our indicators and volume to give us the green light to short this stock.
Apricus Bisciences (APRI)- This is our one stock that appears to be nearing a price point that I find attractive to get long of for a short term trade only.
For a full analysis of these stocks and the direction of the overall markets sign up for the 14 Day Free Trial
Hugoton Realty Trust (HGT): We sold the remainder of our trading position however, I did take some share and held them in our long term account due to the dividend yield and the future of natural gas in the United States. A truly great contrarian trade and congratulations to my members.
Texas Instruments (TXN): This wasn’t a Contrarian Trade but it was a continuation trade of a stock in an uptrend. We too profits on Friday after a very nice profit after 4 days. Swing trades like this TXN trade are some of or favorites.
Watch Stocks:
Dun and Bradstreet (DNB): This is an overbought stock ready to be shorted.
TZA- (TZA) is a leveraged 3x’s short the Russell 200 ETF that is very volatile but our favorite for shorting the entire maket.
Metro Bankcorp (METC)- This is an overbought bank stock which we would like to short.
Real Networks (RNWK)- This is an overbought technology stock that we would like to short
Regeneron Pharmasuticals (REGN)- This is one of our favorite short right now. Heavily shorted by amatuer shorts it’s ripe to fall
Sea Gate Technologies (STX)- This is an extreme overbought stock in the technology sector which we are looking to short
Repuplic Airways Holdings (RJET)- is an onther overbought stock ripe a sell off. We will be looking to short RJET
Tata Motors (TTM)- An Indian car maker ripe to fall for a trade only. This is an overbough stock which won’t be able to stand more upside.
US Airways (LCC)- This airline is simply another transportation stock among the cyclicals in rally mode but ripe to short after being sent to an overbought condition.
Zimmer Holdings (ZMH) This big cap stock is at a very overbought conditon and we will be looking to short it as well.
Hugoton Realty Trust (HGT)- This is a profitable trade. We took one third profits on the trade and will look take further profits at higher levels.
Broadvision (BVSN)- We took profits on this short trade. This is a tough stock to borrow so we took profits quickly once we so how few shares were available.
Michael Kors (KORS)- We took profits on this long trade and may look to get long once again.
Contrarian Watch Stocks
Colvis (CLVS)- Looking to eventually get short but may in fact get long first if we break out above $20.00 using a trading stop loss.
Inergy (NRGY)- This is an extreme oversold stock with more probable downside. We have a price target in mind which I have shared with members. I will send an alert when I begin accumulating.
TZA- TZA puts you 3x’s short of the Russell 2000 (IWM). I am looking to add TZA to the long side if they squeeze the shorts in IWM which won’t last very long. That will be our opportunity to add TZA at a good risk to reward level.
Apline Global Priemiere Properties Fund (AWP)- We are looking to short this fund due to the overbought condition.
Tronox Inc. (TROX)- We are looking to short TROX due to it’s overbought condition.
Please remember that the current $29.95 membership rate will be available for a limited time only. Please lock in this rate before it goes higher. Take advantage of the 14 Day Free Trial Offer.
We opened a position in Hutoton Royalty Trust (HGT) last week and plan on dobuling that position bringing our basis cost down. The stocks is being dominated by the break down of natural gas prices which appear to have bottomed in the short term anyway. I will sending out an alert to members when we do add to this position and when we take profits.
Watch Stocks:
Sears Holdings (SHLD)- We traded this stock long a couple of weeks ago for a large profit. The stock has continued to rally and appears to be topping out as it hit it’s 50 day moving average.
THQ Inc (THQI)- This is a penny stock which may provide some upside opportunity if it continues to consolidate.
(TZA)- TZA is a leveraged ETF which puts you 3x’s short of the Russell 2000. We are watching this ETF because although the Russell 2000 is in rally mode it is rallying on decling up volume. More details will be going out on my outlook for the markets to members in The Week Ahead Commentary.
Michael Kors (KORS)- This is a recent IPO which we are looking to short but not yet! This will be a short term trade to the downside.
Broad Vision (BVSN)- This is one that I have been watching for two weeks. Dicipline when approaching this short trade is essentail. We are near the point of where it is safe to open a position but not quite yet.
This week I discuss our trade of Sears Holdings (SHLD) which we took profits on last week. This contrarian trade made us a profit of 10% within a few trading days. I also discuss Hutoton Realty (HGT) which we are not trading to the long side. This is an extreme ovesold stock with and RSI in deep oversold territory and a double bottom stochastic.
Sears Holding is one of our classic contrarian trades which newcomers and non believers in contrarian trading think is nuts until they see the rally on massive volume. We screened SHLD and is very near a buy alert which will be sent to our subscribers. Take advanantage of our 14 day free trial to see where our price target is and to received our buy / sell alert.
How main stream RSI and Stocastics ruless would have made you poor
Were you not a student of contrarian trading you might have followed the foolish advice provided by the so called technical analysis gurus who make vague, overlysimplistic and worse dangerous statements on how to use the RSI and Stochastics. So I begin the video showing how using their buy sell rules would have ended in big losses if you did not use a stop loss order which most people do not. Don’t get me wrong, I love the RSI and the Stochastics just to name a few. However, if you fail to identify historic support levels, observe price and volume action and simply rely upon indicators and ocillators you can go broke.
These stocks represent future opportunities as we move into the new trading week. Winners from last week are PF Sweed and Advanced Battery.Although we remain bearish on the stock market we will remain net short but will look to hedge our short portfolio with stocks that look to be at oversold levels.
Europe and its impact
Europe will continue to discount the stock market causing traders to take profits quickly. When will Europe cease to be an issue? When we have a default of a bank or valuations of U.S. companies reach a level that will cause value managers to go shopping for bargains.
Alhough our trading portfolio is positioned to the short side we do like to take advantage of oversold stocks and short squeezes during stock market corrections. Oversold stocks include First Solar, Home Away, Sequans Communications and PF Sweed. The RSI indicators on nearing oversold levels but in the case of First Solar it has more further downside risk than the others. I will be sending out Buy Alerts to members.
Last week we again traded DMND for a profit on each trade.
Yes there are balance sheet issues and yes you had an auditor commit suicide
last week. But as contrarians we view the markets over reaction as an
opportunity to scalp a trade. Let me emphasize that DMND is not an investment
yet and until there is clarity in their accounting practices you should not
consider this stock as an investment. A short term trading vehicle is another
matter.
Economic Data
Economic data released last week showing that GDP coming in
at 2.0% versus 2.5% was no surprise to contrarians. It doesn’t take a Harvard
Business School degree to help you understand that a Europe entering recession
a slowing China and an over leveraged US
Consumer are nothing but head winds for economic growth.
These are the stocks that appeared on our screener as providing
the best opportunity for short term profits. These are not investments but
short term trades only. ANF,TPX and OPEN
were once Investor’s Business Daily darlings and remain great companies but
there is a lot of healing to do. They are part of the Retail Sector which as
viewed by the RTH are weak and will probably get weaker. My analysis over the
years has proven that oversold stocks have a tendency to rally off of oversold
levels only to break down to new lows only days to weeks after their counter
trend rally. My point to investors is that there is no rush here.
We opened our short position in Apple on November 9ths and took half profits on November 11th and then on November 17th we covered our short closing out the trade when APPL hit the lower band of it’s rising uptrend ling.
Diamond Foods (DMND)Oversold Long Trade
We bought shares of DMND on November 15th and took profits on November 16th. We expect the stock to continue remain weak. DMND it remains on our buy watch list. I will be send out trade alerts to members when we pull the trigger.
Direxion Russell 2000 Short ETF (TZA) Long Trade
We went long of TZA on November 11th and were stopped out on November 15th. We went bought shares of TZA again on November 16th and took profits on November 17th.
We added (DMND) earlier in the week and doubled the positon early this morning on the big pull back. I do not like the way this market is selling off. We also closed out (KBH) which we bough last week and scalped a profit. I wanted to add to both of these posititon but market conditons being what they are make it criminal to allow profits to turn into losses. This pull back is no surprise to Contrarians as the recent rally has only been on very light volume
Other reasons for concern it Italy’s bond yield skyrocketing and our own 10 Year Treasury auction being poorly received.
Looking to short (AAPL) and(TZA) again. Alerts will be sent to members.
Does the Hoopla Surrounding the Euro Make it a Good Contrarian’s Bet?
It has been nearly eighteen months since the European debt crisis burst upon the scene as the next impending disaster facing our global financial markets. Government officials seem unable to create a solution that the market will accept since unanimous consent within the Eurozone is a more foreboding task than busting a filibuster in our Senate. The press has had a field day lambasting each superficial attempt to reach some accord, and this uncertainty has driven our trading markets to new heights of volatility. The Euro has been front and center in this debate, and most investors have avoided the currency as if it were infected with the Black Plague of old.
The often-heard mantra of contrarian traders is that the time to buy something is when no one else wants it. Does this rule of the road apply to the Euro in these troubled times? The answer to this question depends on your individual tolerance for risk and whether you are adroit enough to handle the “whipsaw” machinations of our forex market. Despite the hoopla that has been created by the talking heads on our financial news channels, the Euro has actually performed as most experienced traders would have expected under the circumstances, yielding excellent opportunities for gain if you understand how to profit from volatile swings in the currency markets.
Stock investors may have shunned currency ETF’s for the time being, but charts from this medium do illustrate a few valid fundamental points that suggest that technical trading with prudent use of leverage can be a good profit angle for the knowledgeable and experienced forex traders among us. Here is one example worth a review:
The diagram above depicts the changes in value over the past twelve months for the Euro, the Canadian Dollar, Oil, and the S&P 500 Index. Pricing data from popular ETF funds have been used to construct this chart. “FXE” represents the Euro, and “FXC” is a substitute for the “USD CAD” currency pair, reversed to resemble share value criteria. Data from forex brokers would closely resemble these ETF results.
Several conclusions can be drawn from this representation:
The Euro has actually behaved in a very predictable wavelike pattern over the period, ending the year at roughly the same value as when it started;
The Canadian Dollar, known as a “commodity” currency due to the large oil reserves that fuel exports for Canada, is also seen to correlate very closely with the price of oil, although at a less volatile pace;
The Euro, as a rule this year, has correlated more closely with the S&P 500 Index, an indication that Europe will benefit if U.S. companies recover and post positive earning reports. Most experts would claim that, after the first few months of the period, the S&P 500 Index has actually been buffeted by the trends of the Euro, which have ebbed and flowed based on the latest bit of Eurozone news, whether favorable or unfavorable as to resolution of the present debt crisis;
Currencies are actually less volatile than stocks, which “vibrate” at amplitudes some 2 to 3 times greater than for either the Euro or the Loonie.
Should a contrarian investor look to the Euro as an opportunity? “Buy-and-Hold” strategies rarely apply in the currency world. Position trading with manageable leverage is the strategy recommended by most forex traders. Profits are derived from speculation as the market continually seeks a new equilibrium, based on the relative economic considerations of each currency pair. The concept of “intrinsic value” does not exist.
If you are feeling a bit exhausted and whipsawed as of late, you are not alone. Thank goodness for the weekend! We had an impressive week that saw the Dow rise 5%, the S&P 500 lift 6% and the Nasdaq gain 7.6%, but the solid showing does not feel all that great when we have had so many wildly up and wildly down days and weeks over the past two months. A 5% daily gain loses its luster quickly when the market is down 4.5% the next. It seems as though the stock market is driven only by fear, reassurance, fear, denial, fear, and finally a whole lot of positive-sounding press releases from Central banks all over the world.
This strange scenario becomes even stranger when you try to really figure out just who is bailing out whom over in the EU. There are “official” economic charts and graphs available online that attempt to describe the complexities in Europe, and then there are lampoon-style sites that have charts that look similar, but still make some serious fun of how crazily complicated it is over there. How can any EU banker or politician ever make sense of anything when the parodies of a bad situation seem as real as the “real” situation?
So, what is “real” right now is hard to decipher. The reason for all of the stock market gyrations we have had over the past couple months is because “the market” knows things are really bad, but it is unable to figure out how the longer-term variables play out. This leads to the day-to-day overreactions. It is a day-to-day battle between the Central banks and the “reality” they seem to ignore, postpone, and never confront. That is why the “can gets kicked down the road” endlessly. Politicians and Central bankers are far different than entrepreneurs, who actually CREATE jobs, and we are now painfully learning that we need a whole lot more entrepreneurs than bureaucrats if we are to get out of this mess.
On a different and technical note, the S&P 500 put in a loose, double top pattern in July around 1350, before that fade late in the month, which led to the plunge downward into early August. Since bottoming around 1120 several times in early August we have had nothing but wild rollercoaster rides up and down ever since. Amazingly enough, the S&P 500 closed out at a two-month high Friday, and it had many of the exhausted bulls thinking that maybe, just maybe, this could be a great time for a final turn from what has been a high-speed, 20% bear market decline.
It would definitely be a great time for a larger, upside run, but we historically hear of rallies from October lows, not rallies off October highs. Many strategists are still scratching their heads over the recent strength in stocks, but then again, there are quite a few market “seers” saying that fear levels and pessimism had become so high that a change was definitely in the air. Again, the supposed pros are still divided on the intermediate market environment, and the broader investor world is divided as well. The volatility we have seen shows that it is a tough and important juncture for stocks, so we will just have to wait and see what unfolds.
Meanwhile, across the pond, Germany and France had said that the end of the month was their deadline for coming to some sort of agreement on the Greek bailout, but we all know how that can be “extended and pretended” at a moment’s notice. Look for any “real” reform to likely be pushed into 2012 or later, after the current politicians are retired, reelected, or lobbyists or some sort of a combination of the three. The Greek card is the Joker Card right now, and it will be interesting to see how this EU deal concludes. The longer they wait, (the buzz goes) the more painful the Day of Reckoning will be, and the worse the situation gets, the less politicians want to address it. And, that is worrisome!
On Monday we took part of our FXP profits off of the table as it gpped above it’s upper band of it’s rising uptrend line. The FXP puts you short of China. If you are disciplined follower of technical analysis you know that a disciplined and consistent rule for selling some of your position is critical. We remain short of FXP and fully expect it to head into what I classify as “Extreme Overbought” levels. It is a that point where we will sell more.
Besides China we remain short of the DJIA using the DXD and the S&P 500 using the SDS. I expect that we will be taking some profits on this in the coming days to weeks. The goal here is to either A) build cash to add back to these short ETFs on a pullback to support B)build cash to take advantage fo some bargain that are appearing on our stock charts using a “Weekly Screen’ of the stock market, not a “Daily Screen” as it is way to short term.
For shorter term day trades we will be using the TNA which puts you 3Xs long of the Russell 2000. It is very volatile so if you are risk averse it is not for you.
I want to set our members up to enjoy a great Santa Claus rally to as contrarian investors intra highly bearish environment and in fact near bear market territory we want to begin looking for bargains to get long of. I will be sending out my Weekly Screen of stocks to members this evening and each week thereafter.
If you are not a member and would like to receive our Weekly Screen our Buy/Sell Alerts and Stock Market Commentary take advantage of our 14 Day Free Trial Offer.
As a contrarian I take note of when the stock market sells off on better then expected economic data. That sell off is in of itself a contrarian indicator because the market is telling you that the better economic news is being overshadowed by some other problem which overshadows the news. The problem that the market is concerned about is the impact on US bank exposure to Europe. Did anyone happen to see what happened to Morgan Stanley (MS) today? The rumor being shopped is that they are overexposed to France.
Europe is only one area of concern for this market. The slowdown in China and the impact of a slowing Europe and United States on the Chinese economy. Doubt that? Take a look on US Steel (X), Freeport McMoran (FCX) and Crude Oil (USO). They are getting clubbed like baby seals becuase the slowdown in China is for real and it is impacting commodities.
As I type this I am watching Larry Kudlow and he is reasonably concerned. However he has talking heads coming on telling people to buy stocks. And, if we don’t we will regret it. Are these guys on CNBC nuts? I have been telling members for months that certain sectors like the banks, commodities and housing will retest their 2009 lows. The break that we saw today in the stock market is only the beginning if the Europeans do not act and show a willingness to protect their banks.
I went into this in my Contrarain Trader, The Week Ahead Commentary- Members Edition last night. Today was no surprise.
Bulls had been hoping that we would somehow get one of those late-session rallies on Friday, which would magically makes all of the bad go away. Instead, we got a late-session selloff that raised a lot of questions about next week. Not only did the late-day fade raise questions about next week, but it also raised questions about October. A late-day fade to close out a very turbulent quarter is not exactly the type of thing the bullish camp wanted to see on Friday, especially heading into the historically tough month of October. Friday’s fade left the major indices down 2.2% to 2.5% each, and while it was not that bad, it did not make the quarterly or monthly losses look any better.
Financial headlines touted the fact that this was the worst quarterly performance since the financial crisis of nearly three years ago, when stocks bottomed in March of 2009. Monthly losses for this September were 6% for the Dow, 6.4% for the Nasdaq and 7.2% for the S&P 500 (thanks to many financial stocks that were hit hard). The quarterly numbers were equally painful, as we saw three-month declines of 12% for the Dow, 13% for the Nasdaq and 14% for the S&P 500. This might still be in what technicians consider 10% correction territory, but it certainly feels a whole lot more like a rapid-fire bear market with a textbook 20% decline.
The big concern all week was, of course, how the Greek Tragedy and the fate of the rest of the EU will finally play out on the global financial stage. There is so much posturing and pandering going on that it is difficult to gauge just what will happen. Most of the countries’ banks are loaded to the gills on every other country’s debt, so it really does seem like a house of cards if one country like Greece defaults, and essentially pulls out one of the lower cards from what is apparently a BIG house of cards. Critics of the ongoing EU “song and dance” say that the faster Greece defaults, the better, and the longer they wait, the worse the problem becomes. It is a tough call, and probably especially tough to be a politician in the EU.
While all of the focus in Europe is on whether Greece will default or not, there are definitely other worries there as well. Bloomberg reported that inflation picked up a bit last month, rising from a 2.5% rate, to a 3% rate in August. It could be the result of commodity prices rising, but it also could be a sign that all of the bailout money that keeps slushing around might be starting to put upward pressure on prices. The last thing Europe needs right now is rekindled inflation just when so many governments are running out of money. Bad economies are destroying tax revenues, and yet, these governments keep going deeper into debt. This is a game of chicken that might not end well.
Increasing inflationary pressures in Europe might ultimately be the direction the U.S. takes, especially since it has also flooded the economy with cash in order to keep the financial markets afloat. The problem is that most of the bailout money went to the banks, and they are still simply not lending to anyone or lending for anything. That money is still there, though, and it can be very tricky for the Fed to reel the trillions back in if those trillions do start to seep into the economy and fuel inflation. Oil and commodity prices have been hit hard lately, though, and that is helping keep the lid on inflationary pressure at least for the time being, but the concern about inflation remains on most economy watchers’ minds. China’s economy has cooled down a bit, and has also eased inflation worries, but we all know that China could easily kick back into overdrive in a blink, and their inflation issues would be back as well.
Another issue that has the market feeling insecure is the state of the “Too-Big-To-Fail” banks that the Fed seems to have grown to love so much and that the general population has grown to “not love” so much. Bank of America (BAC) has dipped to nearly $6 per share as lawsuits over its Merrill Lynch acquisition, as well as a lawsuit over its selling of apparently toxic mortgages, weighed heavily on the bank’s stock price this week. You need only look at the two or five-year charts on the big banks like BofA, JP Morgan (JPM) or Citigroup (C) to see why the broader market is reeling and looking a bit seasick. The fact that behemoth banks are looking so comatose three years after the biggest bailout in history is heartbreaking. Imagine if those banks were allowed to fail and all of that money was just sent to every household in the country.
Bank of America was caught in the cross hairs this week not only by the lawsuit news, but also by the fact that they want to charge $5 per month to account holders who use debit cards. This did not play well in the Heartland, especially since a debit card is used to access one’s OWN MONEY. It is not a credit card, and it is in place of a check, but for the negative vibe this sent out from a “Too-Big-To-Fail” bank, it had bank watcher’s scratching their heads at the timing of such an announcement, especially during what are still rough economic times for a lot of people that use debit cards instead of cash or checks. Again, this was one of the Big Banks that received white-glove treatment from the Fed and the Treasury three years ago, so you have to wonder who is driving the boat when they slam a $5 monthly fee on a debit card. Unbelievable!
I prepared The Week Ahead Commentary – Members version which has been sent to members. The 35 minute video deals with the technical analysis of the stock market using charts. To receivie the commentary which is prepared for members each week take advantage or our 14 Day Free Trial.
Sure NFLX is oversold but it is about to get even more oversold. On both Monday and Tuesday morning of this week I sent out alerts to my membes not to get to excited about any stock, especially NFLX which has had stiff resistance at the $130 level. I warned that the longs were squeezing the shorts off of the 1100 level on the S&P 500. Sure enough we saw a close well off the highs of the day Tuesday. What were we doing on Tuesday when the market was pushing higer? We added to short positions when the risk to reward using technical analysis was in our favor. Use caution folks please! Don’t get suckered into buying into a stock market which is spiked higher at the open just because the jolly talking heads on CNBC report the news to fit the futures. Learn to use stock charts to determine your best entry and exist points.
As CNBC and Bloomberg get negative on the stock market I become more positive on the stock market including Banking stocks such as Bank of America, the Housing Sector and Commodity Stocks but not yet!
For those visitors who are not yet members use the 14 Day Free Trial to receive his 35 minute video commentary of my anaylsis of the stock market using charts and headline news out of Europe and Washington D.C. Contrarian trading is the only way to trade this market right now. Stock charts and technical analysis is essential to timing the stock market correctly.
China’s stock market correction is a bubble that is bursting and I discuss the (FXI) and the (FXP) which puts you 3x’s short of the (FXI)
So let’s begin with toady’s scalp of Netflix (NFLX). We opened the position on Wednesday as I saw NFLX begin to break through it’s down trend line on a 30 minute chart. This break out is generally a good one but when the market is begining to fall apart your risk rises considerably. With the benefit of hindsight the “day trade” or “scalp” of NFLX was not worth the small profit we gained. It could have easily turned into a fast loss which is why I rarely day trade and like to wait for stocks to hit historic support levels. We have identified two key support levels on NFLX which I have shared with my members and we are not there yet.
As I watched the S&P futures on Thursday morning I was happy to see NFLX up. Now, some might say that it was a showing “relative strength” and should be bought. I didn’t believe that for a moment. As a contraian investor I know that weak stocks generally tend to continue to disappoint longs and to ignore it means your trading account will soon. This is especially true when you see the overall stock market breaking the lower bands of pennant formations. Yes, NFLX closed a 3 cents higher on the day but well off it’s highs. Can NFLX rally on Friday? My guess it yes due to short covering Friday but any rally should be sold until it hits support.
How can a profit be bad you might say? It is bad when the risk to reward is not in your favor. Conditions for this day trade were not right and we will wait for lower levels to get long. Stay risk averse folks, we are heading lower.
I will be sending out my Contrarian Commentary to members tonight. We will again touch on Open Table (OPEN), Russell 2000 (IWM) and the US Dollar (UUP)
All one needs to do is to take a look at the chart of the Russell 2000. The IWM which is an ETF that tracks the Russell 2000 was unable last week to break out above the upper band of it’s pennant formation which the DJIA was able to do. Today we closed below the lower band of the pennant formation. What makes Wednesday’s sell off so bad is that it came on rising down volume. This is a clear indication that institutions are selling into strength. There are opportunities in this market but they are not all to the long side. I see some good stocks that are becoming very attractive such as Open Table (OPEN) and Netflix (NFLX). NFLX has already been added to our Extreme Oversold Watch List and OPEN is on it’s way to making the cut as well.
To members of The Contrarian Trader I will be sending out detailed commentary on this technical breakdown this evening. Topics this evening will be the TZA which puts you 3xs short of the Russell 2000, Retail Holders (RTH) and the US Dollar.
