I suspect that the media and the market will get a real warm and fuzzy feeling tomorrow morning with the stronger than expected black Friday sales and the prospect of a Santa Claus rally from support. The market is sure to open broadly higher and I think there is a decent chance of the dow reaching that resistance area just above in the next few days, which would be a very safe entry or add point for shorts.
On the other hand I could be dead wrong about a rally early next week since there is an overwhelming number of reasons why the stock market should be dropping here. To worsen the prospect of a nice entry on shorts, the higher total retail sales masked a disturbing trend for post-Thanksgiving shopping. According to bloomberg,
"U.S. consumers spent an average of 3.5 percent less during the post-Thanksgiving Day holiday weekend than a year earlier as retailers slashed prices to lure customers grappling with higher food and energy costs. ... Store visits increased 4.8 percent.
Sales on Nov. 23, called Black Friday because it was the day that retailers traditionally turn a profit for the year, rose 8.3 percent from a year earlier to $10.3 billion, Chicago- based research firm ShopperTrak RCT Corp. said.
Combined sales for both Black Friday and yesterday rose 7.2 percent to $16.4 billion, the firm said today.
ShopperTrak measures foot traffic in shopping centers and malls using more than 50,000 video devices. BIGresearch, based in Worthington, Ohio, polled 2,395 consumers on Nov. 22-24."
There is a debate going on about whether or not we are in a recession right now, which is really silly to me because is seems pretty obvious that we are already in one. The homebuilding sector is clearly recession, no need for me to explain right. The financial sector showed a 21.8% year over year decline in earnings last quarter, no doubts there. So how about overall? From Barron's,
"In a piece [Merrill Lynch's David Rosenberg] put out Friday, he says unequivocally that if you're looking for the earnings recession, you need look no more -- it's here. ...
With the tally now encompassing 90% of the companies reporting, third-quarter earnings per share dropped 8.5% from the third quarter last year. ...
David stresses that profits drive the business cycle -- capital spending and employment feed off them. And he sighs: "It has always been thus." Hence, he's ineluctably forced to the conclusion that a recession in the economy "is either here or no more than two quarters away.""
But ok, I'm willing to throw the bulls a bone. They seem to be convinced that stocks are historically cheap here and the collapsing dollar means that all dollar priced asset classes should be lifted, especially as exports become stronger. Plus, this time of year is seasonally strong and I love Christmas just as much as everyone else. So lets see what the bulls can do with this 8.3% headline, I will be watching the current market leaders for guidance.
The current king of the crop is GOOG (or BIDU), which led the recent tech rally then led the most recent reversal. As you can see from the chart below, GOOG has retraced almost 50 % of the pullback from all time highs and is poised to possibly test the 61.8% fib retrace just under $700 or if it breaks that level GOOG could head back into new high territory:
AAPL looks about the same except that it has already completed a 61.8% retrace of the initial decline. It currently seems to be hugging on to its 50 dma as it forms a bear flag. Any move over $177.61 though and I think AAPL could make a new high.
I almost did an entire post on GS this weekend as that stock has been on my mind for weeks. Anyhow, it is clearly the strongest wallstreet bank/broker, by a long shot, and it certainly leads the rest of the market. GS recently formed a triple top or head and shoulders top as seen below. If this pattern completes by roughly closing below it's 200 dma aroudn $210, then the price objective is $170 which coincides with strong support from August.
If US stocks are going to plunge into a full on bear market then these stocks are going to need to take a dive on big volume, and soon. While many market leaders have pulled back on above average volume, most remain in healthy uptrends above or near their rising 50 day moving averages. I think next week is really the pivot point where they need to either blast higher through resistance or rollover and make the next leg down, the latter would drag us into a bear market.
Will the bears go into hibernation as usual this Winter, or will they grab a sniper rifle and get busy?
Disclosure: I own GS puts
1 comment:
good post agree with most of your analysis but on GS I think your puts could have tough go.
They seem to be able to control there stock price through buybacks and favorable news releases. And the chart also shows an inverted head and holders with a BO at 230.
Wish you luck.
Tom
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