Avid Trader Official Blog

Evening Update

noreply@blogger.com (Avid Trader) — Fri, 13 Nov 2009 23:38:00 +0000

Stocks Rise as Traders Look Past Economic Data

Stocks were higher again today, in spite of an unexpected fall in consumer sentiment. More positive earnings announcements helped build bullish sentiment as JC Penny added to its guidance and Walt Disney, Abercrombie & Fitch, and Agilent Technologies all had better-than-projected profits, although Nordstrom’s results fell just short of forecasts. In other economic news, the trade deficit grew by the largest amount in more than a decade, and import price increases remained subdued. Treasuries rose following the data.

The Dow Jones Industrial Average rose 73 points (0.7%) to close at 10,270, the S&P 500 Index gained 6 points (0.6%) to 1,093, and the Nasdaq Composite advanced 19 points (0.9%) to 2,168. In light volume, 985 million shares were traded on the NYSE and 1.9 billion shares were traded on the Nasdaq. Crude oil was $0.59 lower at $76.35 per barrel, while wholesale gasoline was down $0.02 to $1.92 per gallon, and the Bloomberg gold spot price added $14.80 to $1,118.60 per ounce. Elsewhere, the Dollar Index—a comparison of the US dollar to six major world currencies—was down 0.5% to 75.23. For the week, the DJIA gained 2.5%, the S&P 500 Index climbed 2.3%, and the Nasdaq Composite was up by 2.6%.

Dow member Walt Disney (DIS $30) reported 4Q EPS ex-items of $0.46, five cents above the expectations of Wall Street analysts, with revenues increasing 4% versus last year to $9.9 billion, above the $9.3 billion that the Street had forecasted. The parent of ABC and ESPN had a 14% increase in revenues at its media networks segment, which more than offset a 4% decline in revenues at its parks and resorts unit. DIS said growth at ESPN boosted its cable networks segment, due to higher affiliate revenue primarily driven by contractual rate increases, partially offset by decreased advertising revenue and higher programming costs. Meanwhile, its parks and resorts were impacted by decreased guest spending, principally at its domestic parks and resorts, due to lower average ticket prices, lower average daily hotel and room rates and decreased merchandise spending. Shares were higher.

JC Penney (JCP $31) was nicely higher after the department store increased its full-year EPS guidance from a range of $0.75-0.90, to $0.93-1.08, and boosted its full-year same-store sales outlook from a decrease of about 7-7.5%, to a decline between 6.5-7.0%. Analysts are expecting the company to report full-year EPS of $1.05. Additionally, JCP reported 3Q EPS of $0.30, excluding a $0.19 per share impact of a qualified pension plan expense, compared to the $0.12 that analysts had expected, which may not have included the aforementioned pension charge. Including the pension expense and excluding a $0.03 per share charge in real estate impairments, JCP’s EPS were $0.14. Revenues were down 3.2% versus last year to $4.2 billion, matching the Street’s expectations, with same-store sales falling 4.6%. The department store said its results came from better-than-expected improvement in gross margin as it maintained appropriate inventory levels and reduced both clearance selling and unprofitable discounting.

Fellow department store operator Nordstrom (JWN $34) was modestly lower after its 3Q earnings of $0.38 per share missed by one penny the average analyst estimate. Revenue of $1.9 billion – up 4% year-over-year – was better than the $1.8 billion expectation, however. Sales at stores open at least a year were lower by 1.2%. The company said its fixed costs in the quarter were lower than last year, but salary expenses were higher because the better-than-expected sales performance triggered more in performance-related compensation. For all of 2009, the retailer increased its EPS guidance from $1.50–$1.65 up to $1.83–$1.88, compared to the consensus analyst forecast, which calls for $1.81. However, the retailer also said it expects same-store sales for all of 2009 to decline by 6-7%, which disappointed some analysts. “The customer is continuing to have confidence issues, and there's no question that the economy and other key factors have had a dramatic impact. But what the customer is saying is if there is a compelling reason to shop and it's predominantly around fashion and great product, then they're responding. And so we're encouraged by that,” President and Director Blake Nordstrom said.

In related industry earnings news, shares of Abercrombie & Fitch (ANF $40) gained solid ground after the retailer posted 3Q EPS ex-items of $0.30, ten cents above the Street’s forecast. Revenues decreased 15% last year to $765 million, matching the consensus estimate of analysts, with same-store sales decreasing 22%. The company said it plans to react to the changing consumer environment by introducing some lower-priced items. "Domestically as you all know we are seeing that the customer is extremely deal-driven, price-conscious, and we are aware of that," CEO Mike Jeffries said. "We are aspirational brands for our customer, but are reacting to the current environment and trying to improve the domestic sales trend." Jeffries also said that the company felt its inventory levels were too low, an issue it is now working to correct. "We know that our stores have looked light during the past quarter, and we are working to correct this," he said.

Agilent Technologies (A $29) reported fiscal 4Q EPS ex-items of $0.32, well above the $0.23, that analysts had expected, with revenues of $1.2 billion, down 21% versus last year, but up 10% versus 3Q, and above the $1.1 billion that the Street had anticipated. The electronic equipment testing firm issued a 1Q 2010 outlook that topped analysts’ expectations. Shares were higher.

Sentiment surprisingly falls, trade gap widens, and import prices rise less than expected

The preliminary University of Michigan’s Consumer Sentiment Index (chart) unexpectedly declined from 70.6 in October to 66.0 in November, versus the Bloomberg forecast, which called for a slight increase to 71.0. The current conditions component of the report decreased from 73.7 in October to 69.6, and the expectations component also deteriorated from 68.6 to 63.7. Inflation expectations ticked lower with the one-year outlook slipping from 2.9 to 2.8, while the five-year expectation increased from 2.9 to 3.1. The University’s statement noted, “Confidence tumbled in early November due to the grim financial realities faced by consumers as well as weaker economic prospects for the year ahead—importantly, the decline in confidence was already in place before the announced increase in the unemployment rate to 10.2% on Nov. 6.”

Meanwhile, the trade deficit(chart) widened from a revised $30.8 billion in August to $36.5 billion in September, versus the Bloomberg estimate calling for the deficit to widen more modestly to $31.8 billion. That represented an 18.2% increase, the largest jump in more than a decade. Much of the increase was attributed to foreign oil, as prices of that commodity have now risen for seven-straight months, moving back toward their highest point in nearly a year. That offset a fifth-straight gain in US exports, which have benefitted from the weaker US dollar. Both US exports and imports had their best month since December 2008. So far this year, the trade deficit is running at an annual rate of $366 billion, about half of last year's $695.9 billion deficit.

Elsewhere, the Import Price Index (chart) rose 0.7% month-over-month for October, below the expected increase of 1.0% of economists surveyed by Bloomberg. Year-over-year, import prices are lower by 5.7%. Petroleum imports rose from -0.9% in September to a gain of 0.9% in October, and industrial supplies jumped by 1.8% from a 0.2% gain in September, to support the advance in the index, but food, feed, and drink prices deteriorated from a 0.5% increase in the previous month to a 0.1% rise. Excluding petroleum, import prices rose 0.7% in October.

Treasuries finished higher following the data. The yield on the 2-year was flat at 0.81%, the yield on the 10-year note inched 2 bps lower to 3.42%, and the yield on the 30-year bond fell 4 bps to 4.35%.

European GDP in focus

In international economic news, several major reports on GDP in the eurozone region were announced, all showing growth in 3Q but less than economists had expected. The European Union reported that the eurozone exited the recession, posting a 0.4% quarter-over-quarter (q/q) advance in 3Q GDP, compared to the 0.2% decline seen in 2Q, but the result was just shy of the 0.5% gain that economists had projected. Elsewhere, Germany’s 3Q GDP rose 0.7% q/q, compared to the consensus of economists that called for Europe’s largest economy to expand by 0.8%. Moreover, France’s 3Q GDP increased 0.3% q/q, but that was just half of the 0.6% advance that had been expected. Data for Italy was also released, and its 0.6% quarterly increase in GDP was short of the 0.7% consensus expectation to limit some of the enthusiasm that stemmed from the eurozone emerging from its deepest recession since World War II.

Meanwhile, a Chinese government economist reported that the country’s GDP growth could reach 10% in 4Q, which would bring the nation’s full-year expansion to about 8.3%. The official added that next year’s economic growth would very likely exceed 8%, with inflation unlikely to be a big problem. The consumer price index in China will probably rise about 2.5% next year, he said.

Stocks off to a strong start in November

After a pullback in equity markets in late October that had some traders concerned that stock valuations had more than priced in the recent stabilization in the economy, stocks have roared back in November with back-to-back weekly gains bringing the month-to-date rally above 5%.

Stocks started the week on a positive note as investors cheered a weekend meeting of G20 world finance leaders, where policymakers pledged to hold interest rates low and keep stimulating the economy until growth is assured. The economic calendar was otherwise notably light this week, with the only other report of significance being the Federal Reserve’s quarterly senior loan officer opinion survey, which showed that banks remain reluctant to lend, although conditions are not as dire as they were at the peak of the credit crunch.

Also of note this week were a host of earnings from the consumer sector. Wal-Mart (WMT $53), Kohl’s Corp (KSS $56), and Macy’s (M $18) all had better-than-expected results, although management comments about consumer spending and the important holiday shopping season which is rapidly approaching were generally cautious. Homebuilders also enjoyed support this week after solid results and more optimistic comments from Toll Brothers (TOL $21) and Beazer Homes (BZH $5).

Economic data to heat up next week

The week starts with advance retail sales for October, expected to rise 0.9% month-over-month (m/m), while sales ex-autos are forecasted to increase 0.4%. Later in the week, industrial production will be reported on Wednesday, anticipated to rise 0.4% m/m in October, after jumping 0.7% in September, while capacity utilization is expected to have risen to 70.8% from 70.5%. Last month’s reports on retail sales and industrial production showed consumers have started to increase spending on items not incented by government subsidies and that manufacturers may need to ramp-up production after allowing inventories to fall by record amounts.

On Wednesday, housing starts for October will be reported, expected to show a 1.7% m/m increase to an annual rate of 600,000 while building permits, one of the leading indicators tracked by the Conference Board, are forecasted to increase 0.9% m/m after declining 1.2% m/m in September. This report was one of several disappointing reports last month that had investors wondering if the recovery was stalling. Since this report, the first-time homebuyer tax credit was extended, so future reports on building permits may be given more attention than this report.

Several readings on inflation will be released with the Producer Price Index on Tuesday expected to show prices at the wholesale level were up 0.5% m/m in October, after falling 0.6% in September. While food and energy are the smallest components of the inflation indexes, the volatility of their prices tends to explain a large portion of m/m changes. The core rate, which excludes food and energy, is expected to rise 0.1% after falling 0.1% the prior month. The Consumer Price Index follows on Wednesday, anticipated to have risen 0.2% m/m in October, the same rate of increase reported for September. Ex-food and energy, the core rate is forecasted to have risen 0.1%, after a 0.2% increase in the prior month.

Other reports on the economic agenda next week include Empire Manufacturing, business inventories, the NAHB Housing Market Index, MBA Mortgage Applications, initial jobless claims, the Index of Leading Economic Indicators, and the Philadelphia Fed’s Business Activity Index.

Ford in High-Level Congestion

noreply@blogger.com (Avid Trader) — Fri, 13 Nov 2009 23:36:00 +0000

By Mike Paulenoff

All of the action in Ford (F) this week argues that the stock is carving out a high-level congestion pattern that should resolve to the upside in a thrust to 9.00/25 next. At this juncture, only a decline that breaks the recent pullback low at 8.17 will morph the congestion pattern into a deeper correction that projects to 7.85/75 prior to the emergence of another upleg.

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Morning Update

noreply@blogger.com (Avid Trader) — Fri, 13 Nov 2009 14:21:00 +0000

Favorable Early Move as Bulls Try to Get Back Into the Groove

Stocks are higher in early action following yesterday’s decline on weakness in gold and crude oil prices, which ended a multi-day winning streak. Earnings reports are in focus, with Dow member Walt Disney, JC Penney, and Agilent Technologies all posting better-than-expected profit reports. Also, stocks advanced despite a much larger increase in the trade gap, as import prices came in cooler than anticipated. Treasuries moved lower following the trade data, ahead of a key reading on consumer sentiment. Overseas, markets were mixed, with Europe digesting several major GDP reports in the eurozone region, and amid a major M&A announcement in the airline industry.

As of 8:50 a.m. ET, the December S&P 500 Index Globex future is 6 points above fair value, the DJIA is 46 points above fair value, and the Nasdaq 100 Index is 5 points above fair value. Crude oil is lower by $0.34 at $76.60 per barrel, and the Bloomberg gold spot price is up $4.18 at $1,107.97 per ounce. Elsewhere, the Dollar Index—a comparison of the US dollar to six major world currencies—is down 0.3% at 75.35.

Dow member Walt Disney (DIS $29) reported 4Q EPS ex-items of $0.46, five cents above the expectations of Wall Street analysts, with revenues increasing 4% versus last year to $9.9 billion, above the $9.3 billion that the Street had forecasted. The parent of ABC and ESPN had a 14% increase in revenues at its media networks segment, which more than offset a 4% decline in revenues at its parks and resorts unit. DIS said growth at ESPN boosted its cable networks segment, due to higher affiliate revenue primarily driven by contractual rate increases, partially offset by decreased advertising revenue and higher programming costs. Meanwhile, its parks and resorts were impacted by decreased guest spending, principally at its domestic parks and resorts, due to lower average ticket prices, lower average daily hotel and room rates and decreased merchandise spending.

JC Penney (JCP $29) reported adjusted 3Q EPS of $0.30, compared to the $0.12 that analysts had expected, with revenues down 3.2% versus last year to $4.2 billion, matching the Street’s expectations. The department store said its results came from better-than-expected improvement in gross margin as it maintained appropriate inventory levels and reduced both clearance selling and unprofitable discounting. JCP raised its full-year same-store sales and EPS guidance.

Agilent Technologies (A $27) reported fiscal 4Q EPS ex-items of $0.32, well above the $0.23, that analysts had expected, with revenues of $1.2 billion, down 21% versus last year, but up 10% versus 3Q, and above the $1.1 billion that the Street had anticipated. The electronic equipment testing firm issued a 1Q 2010 outlook that topped analysts’ expectations.

Trade gap widens, import prices rise less than expected

The trade deficit (chart) widened from an unfavorably revised $30.8 billion in August to $36.5 billion in September, versus the Bloomberg estimate calling for the deficit to widen to $31.8 billion.

Meanwhile, the Import Price Index (chart) rose 0.7% month-over-month for October, below the expected increase of 1.0% of economists surveyed by Bloomberg. Year-over-year, import prices are lower by 5.7%. Petroleum imports rose from -0.9% in September to a gain of 0.9% in October, and industrial supplies jumped by 1.8% from a 0.2% gain in September, to support the advance in the index, but food, feed, and drink prices deteriorated from a 0.5% increase in the previous month to a 0.1% rise. Excluding petroleum, import prices rose 0.7% in October. Treasuries are lower following the trade reports.

Later this morning, the economic calendar will yield the preliminary reading of the University of Michigan’s Consumer Sentiment Index, expected to improve slightly from 70.6 in October to 71.0.

Europe modestly higher amid mixed GDP reports and M&A

Stocks in Europe are higher in afternoon action as a major M&A announcement is helping soothe some of the concerns from a couple of key GDP reports in the eurozone region. British Airways (BAIRY $35) reported that it has agreed to a $7 billion merger with Spanish carrier Iberia Lineas Aereas de Espana (IBRLF $3), in which British Airways shareholders will own about 55% of the business, per Bloomberg.

Meanwhile, traders are mulling over a few major reports on GDP in the eurozone and two of Europe’s largest economies, Germany and France. The European Union reported that 3Q eurozone GDP exited the recession, after posting a 0.4% quarter-over-quarter (q/q) advance, compared to the 0.2% decline in 2Q, but just shy of the 0.5% gain that economists surveyed by Bloomberg had expected. However, Germany’s 3Q GDP rose 0.7% q/q, compared to the consensus of economists, which called for Europe’s largest economy to expand by 0.8%. Moreover, France’s 3Q GDP increased 0.3% q/q, short of the 0.6% advance that had been expected, to limit some of the enthusiasm that stemmed from the eurozone emerging from the recession. Basic materials and oil and gas issues are under some pressure following yesterday’s steep losses in crude oil and gold, also helping stunt some of today’s advance across the pond.

Asia mixed as China manages to post a gain

Stocks in Asia were mixed, with Japan’s Nikkei 225 Index declining 0.4% and Australia’s S&P/ASX 200 Index losing 0.9%, following the snapped winning streak in the US and as commodity prices fell, led by lower crude oil and gold, on the previous two days of strength in the US dollar, which weighed on mining and metals issues. The decline in Japan came despite some better-than-expected Japanese economic data, which showed September industrial production rose from a 1.4% gain in a preliminary report to a 2.1% advance, and Japanese consumer confidence rose more than economists surveyed by Bloomberg had expected. In equity news in Japan, Japan Airlines (JALSY $6) reported a first-half loss of 131 billion yen ($1.5 billion) and Asia’s largest carrier by sales withdrew its full-year guidance as the struggling airline is in heavy negotiations regarding restructuring to avoid bankruptcy. Elsewhere, South Korea’s Kospi Index declined modestly, dipping 0.1% to contribute to the decline in the Asia/Pacific region.

However, stocks in China managed to advance, with the Shanghai Composite Index gaining 0.5% and Hong Kong’s Hang Seng Index advancing 0.7% on optimism about the appreciation of the Chinese yuan, which offset a smaller-than-expected increase in Hong Kong’s 3Q GDP. The Asian nation’s output rose 0.4% quarter-over-quarter, following the previous quarters upwardly revised 3.5% gain, and below the 1.9% increase that economists had expected.

Sound Banking, A Capitalist Imperative

noreply@blogger.com (Avid Trader) — Fri, 13 Nov 2009 13:46:00 +0000

by Larry Levin

On the heels of new rules and regulations from the government that allow banks lie about their commercial real estate in more ways I thought I should send this today - Sound Banking from Karl Denninger. It is a way to stop the chicanery, obfuscation of the truth, and outright accounting deceit.

Sound Banking: A Capitalist Imperative

It is time to "clear the decks" and talk about exactly what a sound banking system is - and is not.

It is time to identify that which is an exercise in capitalism, and that which is an exercise in fraud.

It is time to strip back the mask of the so-called "moneychangers" and lay bare for all to see exactly what has been going on for the last two decades, and more importantly, to identify whether or not there is a kernel of respectability contained therein.

And finally, it is time to dispense with many of the calls from all corners for "hard money" and the demise of fractional lending as nothing more than an interesting philosophical exercise masquerading as an intentional (or horribly-misguided) misdirection.

Let's first define a few terms; these should be familiar:

Principal: The amount of money you borrow for a given term of time.
Interest: The amount of money you pay, usually expressed as a percentage, to cover three risks and costs - the risk you will not be able to pay the principal, the risk of currency devaluation and the demanded profit on the loan by the lender.
Collateral: The item or items you post with the lender to secure your indebtedness. While "collateral" in the broadest sense includes anything that could be seized after a judgment should you fail to pay (including your labor at subsequent points in time), for the purpose of this discussion we will limit the term "collateral" only to that specific physical, tangible property you post to secure a specific loan, explicitly excluding anything of a speculative nature (such as your ability to earn money in the future.)
Monetary Base: The monetary base of all credit-based monetary systems is the sum total of all unencumbered assets against which one is both able and willing to borrow. (No, it is not "M1", "M'" or any such nonsense.) If you run into a so-called "Economist" who claims to have letters after his name yet makes the argument that "base money" (or any such thing) is the monetary base in a debt-based system find out where he got those letters from and petition them to revoke his degree; he fails at the fundamental skill of logic and deduction, yet it is a near-certainty that he carries proof that his claimed position is wrong in his wallet (a credit card, which spends identically to the dead president it resides next to.)
Ok, having settled on definitions, we will now turn to the fundamental reality of fractional reserve banking. Many people claim that banks "create money" or "print money." This is not true; a bank recycles money, that is, it increases the velocity of a given amount of money in circulation, but an ordinary bank (not a Central Bank) never creates new money.

We'll start with our hypothetical bank that has no assets and no deposits, and a 10% fractional reserve requirement. Joe walks in and deposits $10,000 and leaves. The bank now has $10,000 in assets (cash) and $10,000 in liabilities (a book entry that says it owes Joe that $10,000 on his demand.)

Jane now walks in and wants to borrow money to buy a car. She borrows $9,000 from the bank and posts as security the title for the car she purchased. The bank now has exchanged $9,000 of the cash asset that it had for a piece of paper (the title to a car and a promissory note.) Let's, for the sake of argument, agree that Jane paid half cash for the car and that it is worth far more than the $9,000 she borrowed (this becomes important in a minute.)

Now the car dealer comes in and deposits the $9,000 that Jane spent. The books look like this:

Asset
Liability

Assets
Amount
(Amount)
Liabilities

Cash (from Joe)
$1,000
($10,000)
Joe (Chk Acct)

Promissory/Title (Jane)
$9,000

Cash (Car Dealer)
$9,000
($9,000)
Car Dealer (Chk Acct)

This is where the complaint that the bank is "printing money" comes from; notice that there was only $10,000 in the beginning, but there is now suddenly $19,000 worth of both assets and liabilities.

The "purists" will argue that both the car dealer and Joe can't come in and demand their money - its not there (only $10,000 is, not $19,000.)

This is false: The bank holds a piece of paper worth at least $9,000 and can sell it immediately into the market if necessary. As such it CAN pay both the car dealer and Joe should they both demand their money by disposing of the asset it holds in lieu of the other $9,000 - Jane's loan.

This also looks ok from an accounting perspective - both sides of the ledger balance. Let's keep going.

Steve now comes into the bank and opens a credit card account with a $8,100 credit line. He immediately blows the entire line on an exotic cruise vacation. The cruise line deposits the funds. This is what we've got now (note that the $8,100 he borrowed was 90% of the deposit from the car dealer; I have grouped the transactions to make it simpler to follow.)

Asset
Liability

Assets
Amount
(Amount)
Liabilities

Cash (from Joe)
$1,000
($10,000)
Joe (Chk Acct)

Promissory/Title (Jane)
$9,000

Cash (Car Dealer)
$900
($9,000)
Car Dealer (Chk Acct)

Credit Card (Steve)
$8,100

Cash (Cruise Line)
$8,100
($8,100)
Cruise Line (Chk Acct)

Now we have a problem. See, the "Credit Card" loan that Steve took out is unsecured. That is, it is nothing more than a raw promise to pay in the future, backed by nothing other than Steve's word, and what's worse, Steve immediately consumed the entire $8,100 - it's gone.

So now if the cruise line, car dealer and Joe all come into the bank and demand their money the bank has a very high probability of not being able to pay. It may be able to sell Steve's paper (the card account) for $8,100, but that line, being unsecured, is likely going to be subject to some sort of haircut in the market - maybe a big one. The particular "haircut" is entirely dependent on the exact state of the economy at any given point in time, along with Steve's personal financial situation.

The important point is that the asset that the bank holds from Steve is nothing more than a signature and promise.

This is unacceptable and in fact is the cause of every economic Depression featuring a deflationary credit collapse over time, as defaults begat more defaults and those defaults, uncovered with capital, cascade through the system instead of being isolated to the failed institution. All of them. 1873, 1929 and the present mess were all caused by systemic and pernicious violation of the most fundamental rule of sound banking: One must never lend out more unsecured than one has in excess capital.

So how could the bank have avoided this? Simple. Let's say that the bank had taken in capital in the form of stock issued to the public; it thus might have a balance sheet that looks like this:

Asset
Liability

Assets
Amount
(Amount)
Liabilities

Paid In Capital
$10,000
($10,000)
Shareholder Equity

Cash (from Joe)
$1,000
($10,000)
Joe (Chk Acct)

Promissory/Title (Jane)
$9,000

Cash (Car Dealer)
$900
($9,000)
Car Dealer (Chk Acct)

Credit Card (Steve)
$8,100

Cash (Cruise Line)
$8,100
($8,100)
Cruise Line (Chk Acct)

Now everything is fine. Why? Because the shareholder equity can get whacked as required. Let's assume Steve defaults; we now have:

Asset
Liability

Assets
Amount
(Amount)
Liabilities

Paid In Capital
$10,000
($1,900)
Shareholder Equity

Cash (from Joe)
$1,000
($10,000)
Joe (Chk Acct)

Promissory/Title (Jane)
$9,000

Cash (Car Dealer)
$900
($9,000)
Car Dealer (Chk Acct)

Credit Card (Steve)
$8,100
($8,100)
Defaulted (Steve)

Cash (Cruise Line)
$8,100
($8,100)
Cruise Line (Chk Acct)

Assets and Liabilites
$37,100
($37,100)

Notice that the books balance, but the loss was taken out of the shareholder's hide.

"Paid in Capital" is one of several types of "excess capital" that a bank can hold. A bank could also issue bonds and it can retain earnings; all three are actual hard cash.

Therefore, the fundamental rule is this:

No bank may be permitted, under any circumstances, to have outstanding more in unsecured lending than it has in actual excess capital.

So long as this rule is adhered to there is never a risk of depositor loss and "deposit insurance" such as the FDIC is irrelevant. Indeed, the FDIC should exist only to cover the malfeasance of government officials who have failed in their essential task - that is, guaranteeing that the banks under its supervision never exceed their excess capital in unsecured lending.

The counter-argument - that one cannot quantify asset prices accurately and thus incursion of this rule will occur "accidentally" - is often raised. This is a chimera - the standard is that it may never happen, and it is the responsibility of bank management to decide how close they want to fly to the Sun! That is, the more leverage they take on, the lower the down payments they permit for their asset-based lending and the closer they run in today's market prices for the assets they hold to their excess capital the greater the risk that an economic dislocation of some sort will render them instantly insolvent and closed, wiping out the entirety of their unsecured bond and stockholders.

In point of fact any bank which has outstanding more in unsecured lending than it has in excess capital is at that moment insolvent, in that it has no security against the amount outstanding in loans that exceed excess capital.

Note that this has exactly nothing to do with whether you are on a Gold Standard nor does it have anything to do with fractional reserve lending. In fact the Depressions of both 1873 and the 1929/1930s occurred while on "hard money". A gold standard (or any other "hard" currency) will do nothing to stop this, because the problem has never been the fiat nature of currency - it is the fact that credit is being extended without collateral beyond the actual cash reserves of the institution in question.

Now here's the nasty: It is illegal in many states for a bank to accept a deposit while in this condition. As just one of many examples (Nevada):

1. It is unlawful for a president, director, manager, cashier or other officer or employee of any bank to permit the bank to remain open for business, or to assent to the reception of deposits or the creation of debts by the banking institution, after he has knowledge of the fact that it is insolvent or in failing circumstances. An officer, director, manager or agent of a bank shall examine the affairs of the bank and shall know its condition. Upon the failure of any such person to discharge his duty of examination, he must be held, for the purpose of this title, to have had knowledge of the insolvency of the bank, or that it was in failing circumstances, and shall be deemed to have assented to the receipt of deposits while the bank was insolvent or in failing circumstances. A person who violates the provisions of this subsection is individually responsible for deposits so received, and all such debts so contracted, but any director who has paid more than his share of such liabilities has a remedy at law against other persons who have not paid their full share of such liabilities for contribution.
....

3. A person who violates the provisions of this section, or who is an accessory to, or permits or connives at, the receiving or accepting of any such deposits, or the giving of such preferences, is guilty of a category D felony and shall be punished as provided in NRS 193.130.

Each and every bank officer and manager is not only civilly liable for any loss suffered (e.g. balances beyond insured limits) but is also CRIMINALLY liable for the acceptance of deposits while the bank they work for is factually insolvent in many of these states, including Nevada.

If The Federal Government will not close these institutions and will not act in this fashion then we must insist that the STATES do so in accordance with their legal code.

These laws exist for a simple reason: When you walk into a bank and deposit money you have a contractual understanding that it will be returned to you either immediately on demand or in a relatively short period of time (effectively on demand.) This is even true for so-called "time deposits"; you will forfeit some amount of interest (sometimes all of it!) but if you cash a CD early they are still required to hand over your money.

If the bank does not have it nor can they raise it immediately as a consequence of lending out money unsecured in amounts that exceed their excess capital then they have committed the common-law crime of fraud; they have induced you to lend them money with a promise to repay that they know is entirely speculative in terms of their capacity to perform. Unless that is disclosed to you before you tender your funds to them they have committed fraud by concealing the speculative nature of their ability to return your funds on demand. It is that simple and a number of states recognize this as a formal section of their legal code.

IF THE FEDERAL GOVERNMENT WILL NOT DO ITS JOB THEN IT IS TIME FOR WE THE PEOPLE TO DEMAND THAT THE STATE GOVERNMENTS DO SO FOR THEM!

Previous Day's Trading Room Results:

Trade Date: 11/12/09

E-Mini S&P Trades*
(before fees and commissions):

1) VA buy @ 8:33am at 1093.50 = +1.00 (1 lot)

2) IDVA buy @ 11:23am at 1090.25 = b/e (1 lot)

3) Algorithm positions (4)

4) "Reading the Tape" positions (19) ...combined Secret's, Algo, & "Reading the Tape" total...+14.00

Sign up as an AvidTrader Member to receive "The Technician" Value Area's each day. The market then has an 80% chance of filling the Value Area. Many traders familiar with the Value Area and the techniques that go along with it use it to help them decide what trades to do each day. Join and see how this technique can help you trade more successfully!

Reversal Session?

noreply@blogger.com (Avid Trader) — Fri, 13 Nov 2009 00:42:00 +0000

By Harry Boxer, The Technical Trader

The indices finally backed off as profit taking finally set in, but they started with a bang to the upside early on and hit nominal new 2009 highs before they began to back off in the morning.

At that point they began to stair-step lower in a nice orderly down-channel all day. I’m not sure if that means we’re getting the start of a significant down move just yet, but we’ll see if they can at least get downside follow-through in the next day or two.

Net on the day the Dow was down 93.79 at 10197.47, the S&P 500 11.27 at 1087.24, and the Nasdaq 100 down 9.81 at 1773.14. All those were higher in the morning, so we had a reversal day today, with the indices closing near the rising moving averages on their hourly charts.

Advance-declines were decidedly negative by 4 to 1 on New York and 3 to 1 on Nasdaq. Up/down volume was about 6 to 1 negative on New York on total volume of just over 1 billion. Nasdaq traded just under 2.2 billion and had a 2 to 1 negative volume ratio.

TheTechTrader.com board was mostly negative, but there were plenty of gainers. On the plus side, Advanced Micro Devices (AMD) on a settlment with Intel (INTC) jumped 1.16 on 162 million shares to close at 6.48.

China Automotive (CAAS) on strong earnings gained 1.63 to 16.25, but traded more than a point higher earlier in the session.

Nanometrics (NANO) continued its recent run, following through to yesterday’s breakout, up 1 to 9.86 on 1.6 million traded.

Those were the only point-plus gainers on our board.

Among the fractional gainers, Sinovac (SVA) in the junior biotech group was up 73 cents to 9.59 on 5 1/4 million Revlon (REV) gyrated but closed up 59 cents to 15.10.

Genco (GNK) jumped 34 cents to 24.10, but traded as high as 25 earlier in the session, in a generally firm shipping group after the Baltic Dry Index advanced for the 10th consecutive session.

The Direxion Small Cap 3x Bear (TZA) added 70 cents to 12.76 and the Direxion Large Cap Bear 3X Shares (BGZ) up 58 cents to 19.03.

On the downside, the Direxion Daily Small Cap Bull 3x Shares (TNA) was down 2.31 at 39.46. and Direxion Large Cap Bull 3X Shares (BGU) 1.17 to 54.77.

Goldman Sachs (GS) lost 1.37 to 178.48, Apple (AAPL) 1.26 to 201.99, and Protalix (PLX) 1.08 to 10.25.

Kongzhong Corp. (KONG) gave back 1.06 to 14.07, and the U.S. Oil Fund ETF (USO) 1.04 to 39.51 as oil weakened today.

Stepping back and reviewing the hourly chart patterns, the indices were up early but down for the rest of the session in stair-step fashion, took out initial minor support, but held near secondary and more key price and moving average support. Important test tomorrow to see if they can hold or not.

Good trading!

Harry

Free 15-Day Trial to Harry Boxer's Real-Time Technical Trading Diary

Evening Update

noreply@blogger.com (Avid Trader) — Fri, 13 Nov 2009 00:38:00 +0000

Rally Loses Steam

Stocks flirted with gains in morning trading thanks to a larger-than-expected decline in jobless claims and a better-than-expected EPS figure from the world’s largest retailer Wal-Mart. Those gains were later lost though as stocks succumbed to profit-taking pressure, ending a multi-day winning streak on Wall Street as the S&P 500 failed to breach the 1,100 level. Trading volume was light again today. In other equity news, Activision Blizzard announced record initial sales of one of its video games, Applied Materials and Kohl’s both beat analyst EPS forecasts, HP announced solid preliminary earnings and said it will acquire networking firm 3Com, GE sold its security business to United Technologies, and Intel settled its legal disputes with AMD. Other economic news today showed a rise in mortgage applications. Treasuries were higher as bond traders returned from yesterday’s holiday.

The Dow Jones Industrial Average fell 94 points (0.9%) to close at 10,197, the S&P 500 Index was down 11 points (1.0%) at 1,087, and the Nasdaq Composite lost 18 points (0.8%) to 2,149. In light volume, 1.0 billion shares were traded on the NYSE and 2.2 billion shares were traded on the Nasdaq. Crude oil was $2.34 lower at $76.94 per barrel, while wholesale gasoline fell $0.05 to $1.94 per gallon, and the Bloomberg gold spot price dropped $13.30 to $1,104.10 per ounce. Elsewhere, the Dollar Index—a comparison of the US dollar to six major world currencies—was up 0.7% at 75.69.

Dow member and the world’s largest retailer Wal-Mart (WMT $53) was modestly higher after reporting 3Q EPS of $0.84, three cents above the consensus estimate of Wall Street analysts, with revenues increasing 1.1% versus last year to $98.7 billion, falling short of the $99.9 billion that the Street had forecasted. 3Q same-store sales at the company fell 0.4%, excluding fuel, and dropped 0.8% including the impact of fuel sales. The same-store sales trend was “driven by price deflation that was well beyond what we had expected, across many food categories, as well as electronics.” That decline was offset by higher customer traffic as the lower prices attracted shoppers. The company said 4Q same-store sales are expected to be flat, plus or minus 1%, adding that the sales environment has been difficult, but customer traffic is up throughout the company, and it gained market share, especially in the US, UK and Mexico. Looking ahead, WMT said it continues to operate in a very challenging economy and it believes it is positioned better than any other retailer to succeed with customers this holiday season. The company raised its full-year EPS outlook and said 4Q EPS are expected to be between $1.08-1.12, compared to the Street’s forecast of $1.12.

Fellow retailer Kohl’s Corp (KSS $55) reported 3Q EPS of $0.63, two cents above the Street’s forecast, with revenues increasing 6.5% to $4.1 billion, topping the $4.0 billion analyst estimate, as same-store sales rose 2.4%. KSS issued 4Q EPS guidance that missed forecasts, while it raised its full-year EPS outlook. The department store chain also raised its full-year EPS guidance from $2.59–$2.70 up to $2.98–$3.08, compared to the $3.02 that analysts expect. Shares were unchanged.

In M&A news, fellow Dow component Hewlett-Packard (HPQ $50) announced that it will acquire networking firm 3Com (COMS $7) for $7.90 per share in cash – a 39% premium to its previous price and valuing the firm at approximately $2.7 billion. 3Com – whose shares briefly topped $100 in 2000 but have since fallen below $5, is a manufacturer of computer networking equipment such as switches and routers that direct internet and other data traffic. The acquisition is expected to help HPQ more effectively compete in that market. “What we’ve been missing is networking for the core of the data center,” an HPQ executive said. “That’s where Cisco (CSCO $23) is strong, and before, H.P. couldn’t attack that.” Meanwhile, HPQ also today reported preliminary 4Q EPS ex-items were $1.14, two pennies above the Street’s forecast and revenues were down 8% versus last year to $30.8 billion, above the $29.8 billion that analysts had expected. HPQ noted that its 4Q results were “fueled by significant growth in China.” The company also increased its full-year 2010 EPS and revenue outlook. HPQ was modestly lower, as was CSCO, while COMS was sharply higher.

Meanwhile, the M&A theme continued for the Dow Jones Industrials with member General Electric (GE $16 ¹) announcing that it signed a definitive agreement with fellow Dow component United Technologies Corp. (UTX $67) for UTX to acquire GE’s security business for $1.8 billion. GE said the security business required significant investment to better serve the security industry and the security unit is a more natural fit for UTX. Both stocks were slightly lower.

Applied Materials (AMAT $13) reported fiscal 4Q EPS ex-items of $0.13, compared to the $0.03 that the Street had forecasted, with revenues rising from $1.1 billion last quarter to $1.5 billion, above the $1.3 billion that analysts had anticipated. The chip equipment maker issued full-year 2010 revenue guidance above the Street’s forecast, saying it expects net sales growth of 30%, and announced that it will slash up to 1,500 jobs, or 12% of its workforce to reduce costs. The job cuts and other cost-saving measures are expected to save the company about $450 million when completed. Shares were under pressure.

In related industry news, Dow member Intel (INTC $20) and fellow chipmaker Advanced Micro Devices (AMD $7) announced a comprehensive agreement to end all outstanding legal disputes between the two companies, including antitrust litigation and patent cross-license disputes. Under the terms of the agreement, AMD and INTC obtain patent rights from a new 5-year cross-license agreement, and INTC will pay AMD $1.25 billion. “While the relationship between the two companies has been difficult in the past, this agreement ends the legal disputes and enables the companies to focus all of our efforts on product innovation and development,” the two firms said in a joint statement. AMD was over 20% higher, while INTC was modestly lower.

Elsewhere, Activision Blizzard (ATVI $11) was higher after the first day sales of its “Call of Duty: Modern Warfare 2” game broke records. Sales totaled an estimated $310 million in North America and the UK alone – the only two markets ATVI provided figures for, although the video game went on sale all over the world. The company estimated that it sold around 4.7 million copies of the game, at an average price of approximately $60 each, within the first 24 hours in those two markets. Analysts had predicted that ATVI’s launch-day sales would range between $300– $340 million. That made it the largest-selling launch in the history of entertainment, including video games as well as other types of media. The previous record was held by "Grand Theft Auto IV," a video game from Take-Two Interactive Software (TTWO $12), which sold 3.6 million units and brought in $310 million worldwide – a level that ATVI reached in just two markets. Last year's opening weekend for the Batman movie "The Dark Knight," which brought in $155 million, was the largest movie release on record, according to the Associated Press. The record-breaking results show “the power of video games as an entertainment medium," CEO Mike Griffith said.

Following yesterday’s report that American International Group’s (AIG $36) CEO Robert Benmosche was contemplating stepping down after three months, the Wall Street Journal reported that the company’s chief executive told employees in an internal memo that he “remains totally committed” to leading AIG. In the memo, Benmosche said he and the government-controlled company’s board “are indeed frustrated” over pay oversight matters being negotiated with the Obama administration’s pay czar, Kenneth Feinberg, and the issue is a “barrier” that “stands in the way of restoring AIG’s value” and paying back government aid, which amounts to about $90 billion, per the Wall Street Journal. AIG said it does not comment on board activities and a Treasury spokesperson declined to comment. AIG traded lower.

Jobless claims fall more than expected, mortgage applications increase

Weekly initial jobless claims fell by 12,000 to 502,000 from a revised 514,000 the previous week. Economists had expected claims would dip slightly from the initially reported 512,000 to 510,000. This continues a steady decline of new claims for jobless benefits from a high of 674,000 in late March. Meanwhile, the four-week moving average, considered a smoother look at the trend in claims, declined by 4,500 to 519,750. That continues a steady downward trend since August, bringing the average to its lowest level since last November. Continuing claims – the number of workers still collecting benefits beyond their initial week – also fell sharply again, dropping 139,000 to 5,631,000, versus the forecast of 5,700,000. Elsewhere, President Obama today announced that the White House will hold a forum on job growth in December to explore ways to “encourage and accelerate job creation in this country.”

Treasuries were higher following the jobless report. The yield on the 2-year note inched down 2 bps to 0.81%, the yield on the 10-year note dipped 4 bps to 3.44%, while the yield on the 30-year bond was down 2 bps to 4.40%.

In other economic news, the US MBA Mortgage Application Index rose 3.2% last week, after the index, which can be quite volatile on a week-to-week basis, advanced 8.2% in the previous week. The increase was attributed to a 7 basis-point decline in the average 30-year mortgage rate to 4.90% versus the previous week, and the Refinance Index, which rose 11.3%. However, the Purchase Index fell 11.7% to limit the advance. The average 30-year mortgage rate remains above the record low of 4.61% that was reached at the end of March.

Looking ahead to Friday, the economic calendar includes the import price index, a preliminary reading for November in the University of Michigan Consumer Sentiment Index, and a report on the nation’s trade balance.

Busy day on international economic calendar yields mostly positive results

Economic data was mixed across the pond as a report showed eurozone industrial production rose less than expected month-over-month in September, but the year-over-year decline fell less than economists had projected. The 0.3% rise in production in September made it the fifth month in a row of positive figures, although it fell short of the 0.5% growth forecast. On a year-over-year basis, output fell 12.9% whereas economists had predicted a 14.1% decline.

Spanish GDP data was also released today, showing a 0.3% decline from the previous three months. That was better than the 0.4% contraction economists had projected. On a year-over-year basis, the economy shrank at a 4% pace. Spain’s Finance Minister today repeated the government’s forecast that the economy will shrink 3.6% this year. The country currently has the highest unemployment rate in the eurozone region at 19.3%.

Meanwhile, Russia said today that its GDP contracted 8.9% in 3Q on a year-over-year basis, better than the record-large 10.9% drop suffered in 2Q. On a quarter-over-quarter basis, economic output expanded a non-seasonally adjusted 13.9%. Earlier this month the World Bank said it expects the Russian economy will grow 3.2% in 2010 after tumbling 8.7% this year. That would represent a larger turnaround than Russia achieved after its 1998 crisis that was marred by a debt default and currency devaluation.

Australian labor market data surprised on the upside for the second-consecutive month as 24,500 jobs were created in October, and employment is now up 64,300 in the past two months. Economists had expected employment to decline by 10,000 in October. However, the jobless rate ticked up slightly from 5.7% to 5.8% in October, inline with expectations, as more people entered the workforce. The government this month reduced its outlook for the jobless rate significantly, forecasting a peak of 6.75% compared to the previous view of 8.5%.

In Japan, wholesale deflation – as measured by the corporate goods price index (CGPI) – showed that prices were 6.7% lower in the year to October. That price decline was slightly higher than the 6% fall that economists expected, although it represented a moderation of the trend from the 8% deflation seen in the year to September and the record-high level of 8.5% seen in the prior two months. On a month-over-month basis, prices were 0.7% lower in October from September. The Bank of Japan has forecasted deflationary conditions to remain through at least the next three years.

The Bank of Korea announced today that it decided to keep its key interest rate unchanged at a record-low 2.0% - inline with where it has been for nine-straight months now. The central bank lowered rates by a total of 3.25 percentage points over a four month span starting last fall. A Reuters poll this week showed 13 out of 14 analysts believed rates would remain on hold at this meeting, although most forecast one or two rate hikes.

Moment of Truth for Crude Oil & USO

noreply@blogger.com (Avid Trader) — Fri, 13 Nov 2009 00:36:00 +0000

By Mike Paulenoff

The moment of truth for nearby crude oil now that the latest inventory data shows building supplies. Into the data and in reaction to worse than expected data, prices are under pressure as they revisit critical near-term support at 77.00-76.55, which must contain the weakness to avert additional weakness into the $74.00 area next. The equivalent support zone for the US Oil Trust ETF (NYSE: USO) is 39.30-38.90. If nearby crude breaks key support, the high-level consolidation pattern carved out off of the 10/21 high will be invalidated.

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Morning Update

noreply@blogger.com (Avid Trader) — Thu, 12 Nov 2009 14:04:00 +0000

Under Pressure Despite Favorable Jobless Claims Data

Stocks are under pressure in morning action as traders are shrugging off a larger-than-expected drop in weekly initial jobless claims and a better-than-expected earnings report from Dow member Wal-Mart. Not even a favorable 4Q earnings and revenue report and $2.7 billion acquisition of 3Com from fellow Dow component Hewlett-Packard are helping push stocks into the green in early action. Treasuries are nearly unchanged after erasing gains following the jobless claims report. In other equity news Kohl's and Applied Materials both exceeded analysts' earnings expectations. Overseas, Asia finished lower, while Europe is flat.

As of 8:52 a.m. ET, the December S&P 500 Index Globex future is 3 points below fair value, the DJIA is 43 points below fair value, and the Nasdaq 100 Index is 1point below fair value. Crude oil is lower by $0.75 at $78.53 per barrel, and the Bloomberg gold spot price is down $3.00 at $1,114.41 per ounce. Elsewhere, the Dollar Index-a comparison of the US dollar to six major world currencies-is up 0.2% at 75.30.

Dow member and the world's largest retailer Wal-Mart (WMT $53) reported 3Q EPS of $0.84, three cents above the consensus estimate of Wall Street analysts, with revenues increasing 1.1% versus last year to $98.7 billion, falling short of the $99.9 billion that the Street had forecasted. The company said increased productivity and improved inventory management contributed to its strong financial performance. 3Q same-store sales at the company fell 0.4%, excluding fuel, and dropped 0.8% including the impact of fuel sales. The company said 4Q same-store sales are expected to be flat, plus or minus 1%. WMT added that the sales environment continued to be difficult, but customer traffic is up throughout the company, and it gained market share, especially in the US, UK and Mexico. Looking ahead, WMT said it continues to operate in a very challenging economy and it believes it is positioned better than any other retailer to succeed with customers this holiday season. The company raised its full-year EPS outlook and said 4Q EPS are expected to be between $1.08-1.12, compared to the Street's forecast of $1.12.

In M&A news, fellow Dow component Hewlett-Packard (HPQ $50) announced that it will acquire networking firm 3Com (COMS $6) for $7.90 per share in cash, valued at approximately $2.7 billion. Also, HPQ reported preliminary 4Q EPS ex-items were $1.14, two pennies above the Street's forecast and revenues were down 8% versus last year to $30.8 billion, above the $29.8 billion that analysts had expected. The company also increased its full-year EPS and revenue outlook.

Kohl's Corp (KSS $55) reported 3Q EPS of $0.63, two cents above the Street's forecast, with revenues increasing 6.5% to $4.1 billion, topping the $4.0 billion analyst estimate, as same-store sales rose 2.4%. KSS issued 4Q EPS guidance that missed forecasts, while it raised its full-year EPS outlook.

Applied Materials (AMAT $13) reported fiscal 4Q EPS ex-items of $0.13, compared to the $0.03 that the Street had forecasted, with revenues rising from $1.1 billion last quarter to $1.5 billion, above the $1.3 billion that analysts had anticipated. The chip equipment maker issued full-year 2010 revenue guidance above the Street's forecast, and it said it will slash up to 1,500 jobs, or 12% of its workforce.

Jobless claims fall more than expected

Weekly initial jobless claims fell by 12,000 to 502,000, versus last week's figure that was upwardly revised by 2,000 to 514,000. The Bloomberg consensus called for claims to dip to 510,000. The four-week moving average, considered a smoother look at the trend in claims, declined by 4,500 to 519,750. Continuing claims also fell sharply again, dropping 139,000 to 5,631,000, versus the forecast of 5,700,000. Treasuries erased modest gains and are nearly unchanged following the jobs data.

In other economic news, the US MBA Mortgage Application Index rose 3.2% last week, after the index, which can be quite volatile on a week-to-week basis, advanced 8.2% in the previous week. The increase was attributed to a 7 basis-point decline in the average 30-year mortgage rate to 4.90% versus the previous week, and the Refinance Index, which rose 11.3%. However, to the Purchase Index fell 11.7% to limit the advance. The average 30-year mortgage rate remains above the record low of 4.61% that was reached at the end of March.

Europe flat as traders mull mixed reports

Stocks in Europe are nearly unchanged in afternoon action amid some mixed news from both the equity and economic fronts. Telecommunications issues are nicely higher to lead advancers, as shares of BT Group (BT $23) are solidly higher after the UK's largest fixed-line phone company raised its full-year outlook and its dividend after posting better-than-expected 2Q earnings. Also, shares of Peugeot (PEUGY $36) are moving higher to help lend support to automakers and the broad market after the company increased its profit forecast as the recovery in the region's auto market accelerated faster than expected. However, the aforementioned favorable reports are being offset by a solid decline in shares of A.P. Moeller-Maersk (AMKBF $7,250) after the parent of the world's largest container shipper posted a larger-than-expected loss, while Anheuser-Busch InBev (BUD $49) is also down to weigh on eurozone trading, after the world's largest brewer reported a worse-than-expected 3Q revenue on sluggish volumes.

Economic data was also mixed across the pond to add to the lackluster action, as a report showed eurozone industrial production rose less than expected month-over-month in September, but the year-over-year decline fell less than economists surveyed by Bloomberg had expected.

Asia slumps after giving up early gains

Stocks in Asia looked like they would move higher in early action, continuing the upward momentum of the US markets, but the major indices gave up early gains and finished lower in a late-day slide. South Korea's Kospi and Hong Kong's Hang Seng Indexes both fell over 1% to pace the decrease in the Asia/Pacific region, while China's Shanghai Composite Index posted a modest 0.1% decline. Meanwhile, Japan's Nikkei 225 Index dropped 0.7%, led by losses in shares of Asia's largest drugmaker, Takeda Pharmaceutical (TKPHY $20), after Japan's Government Revitalization Unit, a committee in charge of cutting down the national budget, recommended lowering drug expenses. Also, shares of Nippon Yusen (NPNYY $7) were lower to weigh on Japanese trading after the shipping company announced that it will raise up to $1.6 billion in a stock offering.

In economic news, South Korea's government left its key lending rate unchanged at 2.0%, inline with expectations, as the nation's central bank is looking for more signs that the economic recovery is gaining traction. Elsewhere, Australia's S&P/ASX 200 Index declined 0.2% despite the nation's employment change unexpectedly increased. Also, an inflation reading in Japan fell more than expected, exacerbating some deflation fears, adding to the negative movement in Japanese and Asian trading.

Numbers Racket, Part 2

noreply@blogger.com (Avid Trader) — Thu, 12 Nov 2009 14:00:00 +0000

by Larry Levin

In my last update I shared with you how the government has been lying to you about economic statistics. In a moment you will read Part II of that article, but before that I thought I would share with you how the government continues to lie to you today - in new ways.

As you know, commercial real estate is blowing up. So what do regulators do? Oh come on, you know the answer - play "kick the can." The regulators think it's a great idea to disregard reality, come up with new rules & regulations, and then allow banks to ignore losses. Some are calling it "extend and pretend."

According to the Wall Street Journal Online...

Federal bank regulators issued guidelines allowing banks to keep loans on their books as "performing" even if the value of the underlying properties have fallen below the loan amount...The new guidelines are targeted primarily at the hundreds of billions of dollars worth of loans that are coming due that can't be refinanced largely because the value of the properties have fallen below the loan amount... Critics say the new rules are yet another example of a head-in-the-sand approach by regulators, pointing to the relaxed accounting standards last year that enabled banks to avoid marking the value of the loans down. This is doing long-term damage to the economy, they say, because it ties up bank capital, preventing them from resuming lending.

So the game goes on. Rather than being truthful, the government not only allows big companies to LIE ABOUT THEIR FINANCIAL HEALTH, but it encourages the fabrication by making the very laws that allow the BS to continue!

Numbers Racket: Why The Economy Is Worse Than We know.

By Kevin P. Phillips, on Harper's Magazine online.

It was left to the Clinton Administration to implement these convoluted CPI measurements, which were reiterated in 1996 through a commission headed by Boskin and promoted by Federal Reserve Chairman Alan Greenspan. The Clintonites also extended the Pollyanna Creep of the nation's employment figures. Although expunged from the ranks of the unemployed, discouraged workers had nevertheless been counted in the larger workforce. But in 1994, the Bureau of Labor Statistics redefined the workforce to include only that small percentage of the discouraged who had been seeking work for less than a year. The longer-term discouraged-some 4 million U.S. adults-fell out of the main monthly tally. Some now call them the "hidden unemployed." For its last four years, the Clinton Administration also thinned the monthly household economic sampling by one sixth, from 60,000 to 50,000, and a disproportionate number of the dropped households were in the inner cities; the reduced sample (and a new adjustment formula) is believed to have reduced black unemployment estimates and eased worsening poverty figures.

The present Bush Administration has yet to match its predecessor in economic revisions. In 2002, the administration did, however, for two months fail to publish the Mass Layoff Statistics report, because of its embarrassing nature after the 2001 recession had supposedly ended; it introduced, that same year, an "experimental" new CPI calculation (the C-CPI-U), which shaved another 0.3 percent off the official CPI; and since 2006 it has stopped publishing the M-3 money supply numbers, which captured rising inflationary impetus from bank credit activity. In 2005, Bush proposed, but Congress shunned, a new, narrower historical wage basis for calculating future retiree Social Security benefits.

By late last year, the Gallup Poll reported that public faith in the federal government had sunk below even post-Watergate levels. Whether statistical deceit played any direct role is unclear, but it does seem that citizens have got the right general idea. After forty years of manipulation, more than a few measurements of the U.S. economy have been distorted beyond recognition.

America's "opacity" crisis
Last year, the word "opacity," hitherto reserved for Scrabble games, became a mainstay of the financial press. A credit market panic had been triggered by something called collateralized debt obligations (CDOs), which in some cases were too complicated to be fathomed even by experts. The packagers and marketers of CDOs were forced to acknowledge that their hyper-technical securities were fraught with "opacity"-a convenient, ethically and legally judgment-free word for lack of honest labeling. And far from being rare, opacity is commonplace in contemporary finance. Intricacy has become a conduit for deception.

Exotic derivative instruments with alphabet-soup initials command notional values in the hundreds of trillions of dollars, but nobody knows what they are really worth. Some days, half of the trades on major stock exchanges come from so-called black boxes programmed with everything from binomial trees to algorithms; most federal securities regulators couldn't explain them, much less monitor them.

Transparency is the hallmark of democracy, but we now find ourselves with economic statistics every bit as opaque-and as vulnerable to double- dealing-as a subprime CDO. Of the "big three" statistics, let us start with unemployment. Most of the people tired of looking for work, as mentioned above, are no longer counted in the workforce, though they do still show up in one of the auxiliary unemployment numbers. The BLS has six different regular jobless measurements-U-1, U-2, U-3 (the one routinely cited), U-4, U-5, and U-6. In January 2008, the U-4 to U-6 series produced unemployment numbers ranging from 5.2 percent to 9.0 percent, all above the "official" number. The series nearest to real-world conditions is, not surprisingly, the highest: U-6, which includes part-timers looking for full-time employment as well as other members of the "marginally attached," a new catchall meaning those not looking for a job but who say they want one. Yet this does not even include the Americans who (as Austan Goolsbee puts it) have been "bought off the unemployment rolls" by government programs such as Social Security disability, whose recipients are classified as outside the labor force.

Second is the Gross Domestic Product, which in itself represents something of a fudge: federal economists used the Gross National Product until 1991, when rising U.S. international debt costs made the narrower GDP assessment more palatable. The GDP has been subject to many further fiddles, the most manipulatable of which are the adjustments made for the presumed starting up and ending of businesses (the "birth/death of businesses" equation) and the amounts that the Bureau of Economic Analysis "imputes" to nationwide personal income data (known as phantom income boosters, or imputations; for example, the imputed income from living in one's own home, or the benefit one receives from a free checking account, or the value of employer-paid health- and life-insurance premiums). During 2007, believe it or not, imputed income accounted for some 15 percent of GDP. John Williams, the economic statistician, is briskly contemptuous of GDP numbers over the past quarter century. "Upward growth biases built into GDP modeling since the early 1980s have rendered this important series nearly worthless," he wrote in 2004. "[T]he recessions of 1990/1991 and 2001 were much longer and deeper than currently reported [and] lesser downturns in 1986 and 1995 were missed completely."

Nothing, however, can match the tortured evolution of the third key number, the somewhat misnamed Consumer Price Index. Government economists themselves admit that the revisions during the Clinton years worked to reduce the current inflation figures by more than a percentage point, but the overall distortion has been considerably more severe. Just the 1983 manipulation, which substituted "owner equivalent rent" for home-ownership costs, served to understate or reduce inflation during the recent housing boom by 3 to 4 percentage points. Moreover, since the 1990s, the CPI has been subjected to three other adjustments, all downward and all dubious: product substitution (if flank steak gets too expensive, people are assumed to shift to hamburger, but nobody is assumed to move up to filet mignon), geometric weighting (goods and services in which costs are rising most rapidly get a lower weighting for a presumed reduction in consumption), and, most bizarrely, hedonic adjustment, an unusual computation by which additional quality is attributed to a product or service.

The hedonic adjustment, in particular, is as hard to estimate as it is to take seriously. No small part of the condemnation must lie in the timing. If quality improvements are to be counted, that count should have begun in the 1950s and 1960s, when such products and services as air-conditioning, air travel, and automatic transmissions-and these are just the A's!-improved consumer satisfaction to a comparable or greater degree than have more recent innovations. That the change was made only in the late Nineties shrieks of politics and opportunism, not integrity of measurement. Most of the time, hedonic adjustment is used to reduce the effective cost of goods, which in turn reduces the stated rate of inflation. Reversing the theory, however, the declining quality of goods or services should adjust effective prices and thereby add to inflation, but that side of the equation generally goes missing. "All in all," Williams points out, "if you were to peel back changes that were made in the CPI going back to the Carter years, you'd see that the CPI would now be 3.5 percent to 4 percent higher"-meaning that, because of lost CPI increases, Social Security checks would be 70 percent greater than they currently are.

Furthermore, when discussing price pressure, government officials invariably bring up "core" inflation, which excludes precisely the two categories-food and energy-now verging on another 1970s-style price surge. This year we have already seen major U.S. food and grocery companies, among them Kellogg and Kraft, report sharp declines in earnings caused by rising grain and dairy prices. Central banks from Europe to Japan worry that the biggest inflation jumps in ten to fifteen years could get in the way of reducing interest rates to cope with weakening economies. Even the U.S. Labor Department acknowledged that in January, the price of imported goods had increased 13.7 percent compared with a year earlier, the biggest surge since record-keeping began in 1982. From Maine to Australia, from Alaska to the Middle East, a hydra-headed inflation is on the loose, unleashed by the many years of rapid growth in the supply of money from the world's central banks (not least the U.S. Federal Reserve), as well as by massive public and private debt creation.

The U.S. economy ex-distortion

The real numbers, to most economically minded Americans, would be a face full of cold water. Based on the criteria in place a quarter century ago, today's U.S. unemployment rate is somewhere between 9 percent and 12 percent; the inflation rate is as high as 7 or even 10 percent; economic growth since the recession of 2001 has been mediocre, despite a huge surge in the wealth and incomes of the superrich, and we are falling back into recession. If what we have been sold in recent years has been delusional "Pollyanna Creep," what we really need today is a picture of our economy ex-distortion. For what it would reveal is a nation in deep difficulty not just domestically but globally.

Undermeasurement of inflation, in particular, hangs over our heads like a guillotine. To acknowledge it would send interest rates climbing, and thereby would endanger the viability of the massive buildup of public and private debt (from less than $11 trillion in 1987 to $49 trillion last year) that props up the American economy. Moreover, the rising cost of pensions, benefits, borrowing, and interest payments-all indexed or related to inflation-could join with the cost of financial bailouts to overwhelm the federal budget. As inflation and interest rates have been kept artificially suppressed, the United States has been indentured to its volatile financial sector, with its predilection for leverage and risky buccaneering.

Arguably, the unraveling has already begun. As Robert Hardaway, a professor at the University of Denver, pointed out last September, the subprime lending crisis "can be directly traced back to the [1983] BLS decision to exclude the price of housing from the CPI. . . .. With the illusion of low inflation inducing lenders to offer 6 percent loans, not only has speculation run rampant on the expectations of ever-rising home prices, but home buyers by the millions have been tricked into buying homes even though they only qualified for the teaser rates." Were mainstream interest rates to jump into the 7 to 9 percent range-which could happen if inflation were to spur new concern-both Washington and Wall Street would be walking in quicksand. The make-believe economy of the past two decades, with its asset bubbles, massive borrowing, and rampant data distortion, would be in serious jeopardy. The U.S. dollar, off more than 40 percent against the euro since 2002, could slip down an even rockier slope.

The credit markets are fearful, and the financial markets are nervous. If gloom continues, our humbugged nation may truly regret losing sight of history, risk, and common sense.

Previous Day's Trading Room Results:

Trade Date: 11/11/09

E-Mini S&P Trades*
(before fees and commissions):

1) OTF sell @ 10:36am at 1095.50 = -.25 (1 lot)

2) Algorithm positions (12)

3) "Reading the Tape" positions (9) ...combined Secret's, Algo, & "Reading the Tape" total...+10.75

Sign up as an AvidTrader Member to receive "The Technician" Value Area's each day. The market then has an 80% chance of filling the Value Area. Many traders familiar with the Value Area and the techniques that go along with it use it to help them decide what trades to do each day. Join and see how this technique can help you trade more successfully!

Support Holds as Indices Eek Out More Gains

noreply@blogger.com (Avid Trader) — Thu, 12 Nov 2009 01:54:00 +0000

By Harry Boxer, The Technical Trader

The markets managed to eek out another gain today, although they had a rough road. Despite the early big gap-up and strong surge that took them to new 2009 highs, taking out the October highs on both indices, they reversed sharply lower, bounced and then came down and made lower lows, but only slightly, and couldn’t follow-through to the downside in mid-afternoon when they hit their session lows. Then an afternoon 3-wave rally brought them back towards intraday resistance but closed them right there.

Net on the day the Dow was up 44.29 to 10291.26, the S&P 500 up 5.50 at 1098.51, and the Nasdaq 100 up 9.78 to 1782.95.

Advance-declines were positive by 3 to 2 on New York and a like amount on Nasdaq. Up/down volume was a little less than 2 to 1 positive on New York on total volume of just about a billion on a light Veterans Day. Nasdaq traded 1.85 billion and had an almost 3 to 1 positive volume ratio.

TheTechTrader.com board was mostly higher with some fractional gainers and losers. Shippers were strong, with DryShips (DRYS) up 53 cents to 6.77 on 30 million shares. Genco (GNK) up 3.04 to 23.76 on more than 5 million today. Also in that group, Excel Maritime (EXM) was up 70 cents, or 12%, to 6.59, closing at the high for the day. These gains came as a result of the Baltic Dry Index moving up for the 10th consecutive session and other improving shipping conditions.

Goldman Sachs (GS) led the firm financial group, up 3.34 to 179.85. Wells Fargo (WFC) gained 70 cents to 28.80 and JP Morgan (JPM) up 15 cents, a small fraction, 44.32.

Other point-plus gainers included RINO International (RINO) up 1.25 to 23.21, Sonic Solutions (SNIC) up 1.38 to 9.13, a big percentage gain there, and the Direxion Financial Bull 3x Shares (FAS) up 2.76 to 80.57.

The Direxion Large Cap Bull 3X Shares (BGU) was up 86 cents at 56.48, and the Direxion Daily Small Cap Bull 3x Shares (TNA) also up 86 cents to 41.77.

China Automotive (CAAS) advanced 78 cents to 14.62, and China TransInfo (CTFO) 77 cents to 9.34.

Revlon (REV) snapped back 81 cents to 14.51, and Westport Innovations (WPRT) was up 41 cents to 11.62.

On the downside, there were no losses of as much as a point, although American International Group (AIG) lost 84 cents to 36.75, Direxion Financial Bear 3x Shares (FAZ) 70 cents to 18.79, and Protalix (PLX) 60 cents to 11.33.

Stepping back and reviewing the hourly chart patterns, they were up sharply in the morning, down sharply late morning, and then backing and filling for most of the rest of the session, but failing to decisively take out support and closing firm, with gains on the session.

Good trading!

Harry

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Evening Update

noreply@blogger.com (Avid Trader) — Wed, 11 Nov 2009 21:52:00 +0000

Dow Extends Streak to Six

Stocks rose again today as the Dow extended its winning streak to six consecutive sessions and the S&P 500 was higher for the seventh day in the last eight. Economic news in the US was absent today and bond traders had the day off in observance of the Veteran’s Day holiday. There was ample economic data on the international front though and the generally better-than-expected reports from China, which included a 19-month high in industrial production growth, added to the bullish sentiment. In US equity news, Macy’s had better-than-expected quarterly earnings, although the retailer came under pressure after issuing disappointing guidance, while luxury homebuilder Toll Brothers reported much-better-than-expected preliminary 4Q data and UPS said it intends to raise shipping rates next year as the market continues to improve. Elsewhere, the Obama administration’s pay restrictions were in focus after AIG’s CEO reportedly threatened to quit, and General Motors also complained that the pay limits are impeding its efforts to turn the company around.

The Dow Jones Industrial Average rose 44 points (0.4%) to close at 10,291, the S&P 500 Index was up 6 points (0.5%) at 1,099, and the Nasdaq Composite gained 16 points (0.7%) to 2,167. In light volume, 1.0 billion shares were traded on the NYSE and 1.8 billion shares were traded on the Nasdaq. Crude oil was $0.23 higher at $79.28 per barrel, while wholesale gasoline rose $0.02 to $2.00 per gallon, and the Bloomberg gold spot price added $12.55 to $1,118.35 per ounce. Elsewhere, the Dollar Index—a comparison of the US dollar to six major world currencies—was up 0.1% at 75.11.

Macy’s (M $18) announced that excluding restructuring costs, the department store posted a loss of $0.03 per share, narrower than the $0.07 loss that Wall Street analysts had forecast, with revenues down 3.9% versus last year to $5.3 billion, which was inline with the Street’s expectation. The company posted a same-store sales decline of 3.6% versus the same period a year ago and said that its results benefitted from strong sales performance at Bloomingdale’s and outstanding growth in its internet businesses. The company said it is entering the holiday season “confident,” and it currently expects 4Q same-store sales to decline between 1-2%, resulting in a second-half same-store sales decline of 2.1-2.6%, compared to its previous guidance of a 5-6% drop. However, shares were under pressure as the company issued 4Q and full-year EPS guidance that missed analysts’ estimates.

Toll Brothers (TOL $21) was sharply higher after the luxury homebuilder reported preliminary 4Q results showing total homebuilding revenue is expected to be about $487 million, compared to the $386 million that was forecasted by analysts. TOL said its net signed contracts of about 765 units and $431 million were up 42% and 62%, respectively, despite having fewer selling communities. The company added that its contract cancellation rate—cancellations divided by signed contracts—was at 6.9% for the quarter, which was inline with its pre-downturn historical averages. TOL commented, “Home buyers began to emerge from their bunkers in late March 2009 and the market continued to gain momentum up to Labor Day. Since then demand has been volatile: This may be due in part to typical seasonality, but the more likely cause is concern about unemployment and the overall economy.” The company is expected to release its final 4Q report with EPS data on December 3rd.

American International Group (AIG $37) was under some pressure after the Wall Street Journal reported that CEO Robert Benmosche told the company’s board last week that he was ”done” after just three months on the job, according to people familiar with matter, although he is reportedly reconsidering his stance in the face of the board's dismay. A new CEO would be AIG’s third since the bailout in September 2008 and the fifth in less than 18 months. The report said the insurer’s chief, who was formerly the CEO of MetLife (MET $36), is unhappy with constraints imposed by the US government, which owns about 80% of AIG, particularly a recent compensation review by the Obama administration’s pay czar Kenneth Feinberg. AIG is one of seven firms the Treasury has ordered to reduce top executives' salary and bonuses. Under the plan, cash salaries for the top 25 highest-paid executives will in most cases be capped to $500,000 and perks in most cases will be limited to $25,000, although the package approved for the AIG CEO will grant him compensation of approximately $10.5 million – the largest under the program. The struggling insurer reported last week that it was profitable for the second-straight quarter and its core insurance operations continue to stabilize, while the amount of its government financial assistance fell by 4% during the period. AIG did not comment on the report.

In related news, General Motors’ new chairman Ed Whitacre said that pay restrictions from the government could hurt the company, making it more difficult to recruit and retain talented employees. Under the plan the Treasury Department approved for GM, cash salaries for the top 25 executives were cut by 31% and only one unnamed executive besides CEO Fritz Henderson will be paid more than $500,000 for 2009. "To find top-level people where you need them, that's a more difficult thing to do at that salary level," Whitacre said.

Elsewhere, United Parcel Service (UPS $58 ¹) was higher after announcing that it will raise shipping rates next year, as it expects volume growth in 2010 amid a gradual economic recovery. The rate hike follows a similar move by rival Fedex (FDX $83), and UPS said it will announce the size of the increase later this month. With regards to the economy, CEO Scott Davis said "I believe the recovery is real, but it is gradual. It is sustainable but vulnerable." In terms of the upcoming holiday season, Davis said "We talked to our customers in recent months, mainly our retail and technology customers, and many of them are quite bullish on this Christmas season while others are pretty cautious." Davis added that "Most people, the consensus, are saying it is going to be a pretty flat holiday in the U.S. I think it will be slightly better than that."

Adobe Systems (ADBE $36) announced that it plans to eliminate approximately 680 full-time positions worldwide, resulting in an aggregate pre-tax restructuring charge of $65-71 million. The software maker said the workforce reduction is aimed at aligning its costs with its 2010 operating plan and the reduction relates to only those employees and facilities that were associated with ADBE prior to its acquisition of Omniture, Inc. Shares were lower.

Bond markets closed for Veterans Day

Today’s US economic calendar was quiet and bond markets were closed in observance of the Veteran’s Day holiday. Weekly data on mortgage applications and crude inventories, typically released on Wednesdays, were postponed until tomorrow as a result of the holiday. Tomorrow’s calendar also holds a report on weekly initial jobless claims.

There was some news of note on the currency front though, with US Treasury Secretary Timothy Geithner saying on his Asian trip that, “I believe deeply that it’s very important to the United States, to the economic health of the United States, that we maintain a strong dollar.” The dollar was up slightly versus most major global currencies after his comments. Elsewhere, the British pound came under pressure after Bank of England Governor Mervyn King said, “The depreciation of sterling should lead to a recovery in economic activity.” The BoE governor added that, “We have a completely open mind as to whether to do more asset purchases or not.” The comments followed the BoE’s quarterly inflation report, where it said after rising sharply in the near term, inflation is likely to fall back below the target of 2%, as the impact of past depreciation of sterling fades and as the margin of spare capacity pushes down CPI inflation. Elsewhere, the Chinese central bank made a change in language with regard to their yuan peg to the US dollar.

China changes yuan policy language in light of strong economic growth and strengthened surplus

The Chinese central bank, the Bank of China, said that policymakers would set the yuan rate in a “proactive, controlled and gradual manner and based in international capital flows and movements in major currencies,” prompting speculation it will allow the yuan to strengthen, as prior language used to describe yuan policy said it aimed to keep the yuan “stable.” While maintaining “moderately loose” monetary policy, the central bank said that policymakers should consider “broad” measures of price stability, rather than just consumer prices, in a nod to rising concerns about the potential for asset bubbles. The yuan’s peg to the dollar has not changed since July 2008, and today’s report that the trade surplus nearly doubled in October versus September, to $24 billion from $12.9 billion in September will likely increase calls for the country to allow a more flexible currency policy.

In international economic news, data poured in from China today, as the world’s third-largest economy released a host of reports. China’s industrial production increased at a 16.1% pace in October, a 19-month high. That was up from the 13.9% growth seen in September and handily beat the estimate of 15.5% from economists. However, a slowdown in new loans to 253 billion yuan in October from 516.7 billion in September tempered enthusiasm somewhat. Lending activity typically slows in the fourth quarter, but the result still sparked debate as to whether the largely government-controlled banking sector was reining in new loans as policymakers attempt to stave off inflation. Economists had expected a more modest slowdown to 370 billion yuan in new loans.

Other figures released in China showed a slight slowdown in the pace of fixed asset investment as year-to-date investment in assets such as roads and factories rose at a 33.1% pace in the first 10 months of the year, slightly below the 33.5% that economists had expected. Elsewhere, retail sales growth came in at 16.2% in October – well above the 13.9% increase in September and also ahead of the 15.7% growth that economists had predicted. Finally, data released today showed that the decline in exports slowed to a 13.8% annual pace in October. At its peak in May, exports were declining at a 26.4% rate and last month’s report showed a 15.2% fall for the month of September.

Meanwhile, South Korea’s unemployment rate declined from 3.6% in September to 3.4% in October, the lowest level in nine months. The report showed that the number of people self-employed or working in the public service sector rose 5.6%, while employees in the manufacturing sector declined 2.2% and jobs at retailers, hotels, and restaurants were down 3.1%.

Rounding out the Asian data, Japan’s machine orders showed a jump of 10.5% month-over-month in September, after rising 0.5% in August and compared to the 4.1% that economists had expected. On a year-over-year basis, orders were 22% below the same period in 2008.

In European economic news, the UK reported that its jobless claims increased by 12,900 in October—the slowest pace in 18 months–after increasing by 20,600 in September. That was better than the 20,000 increase that economists had anticipated. The unemployment rate in the UK currently sits at 7.8%, below the 10.2% rate in the US and the 9.7% rate for the 16 nations using the euro as a currency.

S&P Approaching Key Support

noreply@blogger.com (Avid Trader) — Wed, 11 Nov 2009 20:23:00 +0000

By Mike Paulenoff

The tension in the market today is palpable, isn’t it? The dollar goes down, and stocks, metals and commodities go up. The dollar rallies off of oversold, and stocks, metals and commodities pull back. That said, however, let’s notice on the hourly chart of the S&P 500 emini futures contract that after making yet another new recovery high this morning at 1103.25, the emini S&P has sold off to nearly unchanged and more importantly is approaching an important test of key near-term support at 1093-1090. If violated and sustained, then the price structure should press lower to more important support at 1086.75 -- and its related ETF, the S&P 500 Depository Receipts (AMEX: SPY), along with it -- in what will begin to look like the initiation of a significant correction of the near-vertical November upleg.

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Morning Update

noreply@blogger.com (Avid Trader) — Wed, 11 Nov 2009 14:51:00 +0000

Global Economic Optimism Boosts Sentiment on the Street

Stocks are nicely higher in morning action as traders digest several key economic reports outside the US that are supporting the view that the global economic recovery continues to gain traction. However, the US bond markets are closed in observance of Veterans Day, and trading may be lighter than usual and moves may be exaggerated. In equity news, Macy's exceeded the Street's earnings expectations, but offered disappointing guidance, Toll Brothers offered better-than-expected revenue, while Adobe announced a workforce reduction. Overseas, markets are mostly higher following some upbeat economic data, highlighted by industrial production and export reports in China.

As of 8:52 a.m. ET, the December S&P 500 Index Globex future is 8 points above fair value, the DJIA is 53 points above fair value, and the Nasdaq 100 Index is 14 points above fair value. Crude oil is higher by $0.59 at $79.64 per barrel, and the Bloomberg gold spot price is up $9.70 at $1,115.49 per ounce. Elsewhere, the Dollar Index-a comparison of the US dollar to six major world currencies-is down 0.1% at 74.95.

Macy's (M $19) announced that excluding restructuring costs, the department store posted a loss of $0.03 per share, narrower than the $0.07 loss that Wall Street analysts had forecast, with revenues down 3.9% versus last year to $5.3 billion, inline with the Street's expectation. The company posted a same-store sales decline of 3.6% versus the same period a year ago. Macy's said that its results benefitted from strong sales performance at Bloomingdale's and outstanding growth in its internet businesses. The company said it is entering the holiday season "confident," and it currently expects 4Q same-store sales to decline between 1-2%, resulting in a second-half same-store sales decline of 2.1-2.6%, compared to its previous guidance of a 5-6% drop. However, shares are under pressure as the company issued 4Q and full-year EPS guidance that missed analysts' estimates.

Toll Brothers (TOL $18) reported preliminary 4Q results, in which the luxury homebuilder said its total homebuilding revenue is expected to be about $487 million, compared to the $386 million that was forecasted by analysts. TOL said its net signed contracts of about 765 units and $431 million were up 42% and 62%, respectively, despite having fewer selling communities. The company added that its contract cancellation rate-cancellations divided by signed contracts-was at 6.9% for the quarter, which was inline with its pre-downturn historical averages. TOL added that, "Home buyers began to emerge from their bunkers in late March 2009 and the market continued to gain momentum up to Labor Day. Since then demand has been volatile: This may be due in part to typical seasonality, but the more likely cause is concern about unemployment and the overall economy." Shares are higher.

Adobe Systems (ADBE $37) announced that it plans to eliminate approximately 680 full-time positions worldwide, resulting in an aggregate pre-tax restructuring charge of $65-71 million. The software maker said the workforce reduction is aimed at aligning its costs in connection with its 2010 operating plan and the reduction relates to only those employees and facilities that were associated with ADBE prior to its acquisition of Omniture, Inc.

Bond markets closed for Veterans Day

Although there are plenty of economic reports out of Europe and Asia, today's US economic calendar will be quiet as there are no major economic releases to be reported. Also, trading activity in the US will be lighter than usual, with the bond markets closed today in observance of the Veterans Day holiday.

In global currency news, US Treasury Secretary Timothy Geithner said in Tokyo that, "I believe deeply that it's very important to the United States, to the economic health of the United States, that we maintain a strong dollar." Nonetheless the dollar is down slightly versus most major global currencies.

UK jobless data and financial earnings boost Europe

Stocks in Europe are nicely higher in afternoon action, led by basic materials on favorable industrial production and export data out of China, while a better-than-expected employment report from the UK is helping aid the economic recovery backdrop. The UK reported that its jobless claims increased by 12,900-the slowest pace in 18 months per Bloomberg-after increasing by 20,600 in September, and fewer than the 20,000 increase that economists surveyed by Bloomberg had anticipated. Financials are also among the leading sectors on a couple of upbeat earnings reports in the eurozone. Shares of Credit Agricole (CRARY $11) are up over 5% after France's third-largest bank by market value reported a smaller-than-expected drop in 3Q profits, while ING Groep (ING $15) is up almost 7% after the Dutch financial firm posted a profit in 3Q compared to a loss last year, and it said it has received strong interest in its insurance operations.

Outside of the financial equity news, shares of Holcim (HCMLY $14)-the world's number-two cement maker-are up solidly after the company reported earnings that exceeded analysts' estimates. Elsewhere, J Sainsbury (JSAIY $22) is gaining ground after the UK's third-biggest supermarket owner reported a 48% increase in first-half profits and excluding items, its earnings exceeded analysts' forecasts.

Economic data dominates the spotlight in Asia

Stocks in Asia were mostly higher outside of China and Japan, as a plethora of upbeat economic data from the two nations helped boost sentiment in the Asia/Pacific region. Japan's machine orders jumped 10.5% month-over-month in September, after rising 0.5% in August and compared to the 4.1% that economists surveyed by Bloomberg had expected. However, strength in the yen versus the dollar weighed on export issues in Japan as the stronger Asian currency dampened the outlook for profits of companies that rely heavily on sales in the US, offsetting the upbeat machine orders report, and the Nikkei 225 Index finished flat. Meanwhile, the Shanghai Composite Index declined 0.1% despite some upbeat data, which showed the year-over-year (y/y) pace of the decline in exports slowed, while industrial production and retail sales rose more than expected y/y. However, the full slate of Chinese economic data revealed that new loans and fixed asset investment both increased by a lesser amount than anticipated, which may have limited sentiment in China.

Despite the lackluster performance from the Shanghai Composite and the Nikkei 225 index's, other action in Asia was favorable, with Hong Kong's Hang Seng Index leading the way, after climbing 1.6%. Elsewhere, Australia's S&P/ASX 200 Index rose 0.5% as the aforementioned upbeat economic data helped boost global recovery optimism, which helped mining issues lead the way, offsetting a report that showed Australian consumer confidence unexpectedly declined. Meanwhile, South Korea's Kospi Index gained 0.8%, aided by a report that showed South Korea's unemployment rate declined from 3.6% in September to 3.4% in October.

Numbers Racket, Part 1

noreply@blogger.com (Avid Trader) — Wed, 11 Nov 2009 14:37:00 +0000

by Larry Levin

Today's market was as dead as a doornail with the same type of volume: lifeless. Although today's volume was 20% LESS than yesterday's, the markets were able to make higher highs yet again. It can only happen for this length of time in a rigged game, which is exactly what we have today.

I received quite a few responses to yesterday's blog. Thank you for the kind words. Some folks were surprised to hear about the different administrations changing long held data collection and reporting procedures for their own political gain. These folks are sadly still living within the confines of The Financial Matrix. Perhaps this blog and the following will help them.

One responder had a great idea: repost a prior lengthy article that details the exact political mischief behind the odd data we receive. After you read "Numbers Racket, Part I & II" you will have a better understanding of what is really happening when the government says there is no inflation, for example, yet your costs keep going up. Enjoy.

Numbers Racket: Why The Economy Is Worse Than We know.

By Kevin P. Phillips, on Harper's Magazine online.

Almost four decades have passed since the United States scrapped its last currency ties to precious metals. Our copper and nickel coinage still retains some metallic value, but not nearly enough for the purpose of currency tampering-the historic temptation of inflation-plagued or otherwise wayward governments, including, at times, our own. Instead, since the 1960s, Washington has been forced to gull its citizens and creditors by debasing official statistics: the vital instruments with which the vigor and muscle of the American economy are measured. The effect, over the past twenty-five years, has been to create a false sense of economic achievement and rectitude, allowing us to maintain artificially low interest rates, massive government borrowing, and a dangerous reliance on mortgage and financial debt even as real economic growth has been slower than claimed. If Washington's harping on weapons of mass destruction was essential to buoy public support for the invasion of Iraq, the use of deceptive statistics has played its own vital role in convincing many Americans that the U.S. economy is stronger, fairer, more productive, more dominant, and richer with opportunity than it actually is.

The corruption has tainted the very measures that most shape public perception of the economy-the monthly Consumer Price Index (CPI), which serves as the chief bellwether of inflation; the quarterly Gross Domestic Product (GDP), which tracks the U.S. economy's overall growth; and the monthly unemployment figure, which for the general public is perhaps the most vivid indicator of economic health or infirmity. Not only do governments, businesses, and individuals use these yardsticks in their decision-making but minor revisions in the data can mean major changes in household circumstances-inflation measurements help determine interest rates, federal interest payments on the national debt, and cost-of-living increases for wages, pensions, and Social Security benefits. And, of course, our statistics have political consequences too. An administration is helped when it can mouth banalities about price levels being "anchored" as food and energy costs begin to soar.

The truth, though it would not exactly set Americans free, would at least open a window to wider economic and political understanding. Readers should ask themselves how much angrier the electorate might be if the media, over the past five years, had been citing 8 percent unemployment (instead of 5 percent), 5 percent inflation (instead of 2 percent), and average annual growth in the 1 percent range (instead of the 3-4 percent range). We might ponder as well who profits from a low-growth U.S. economy hidden under statistical camouflage. Might it be Washington politicos and affluent elites, anxious to mislead voters, coddle the financial markets, and tamp down expensive cost-of-living increases for wages and pensions?

Let me stipulate: the deception arose gradually, at no stage stemming from any concerted or cynical scheme. There was no grand conspiracy, just accumulating opportunisms. As we will see, the political blame for the slow, piecemeal distortion is bipartisan-both Democratic and Republican administrations had a hand in the abetting of political dishonesty, reckless debt, and a casino-like financial sector. To see how, we must revisit forty years of economic and statistical dissembling.

A short history of Pollyanna creep
This apt phrase originated with John Williams, a California-based economic analyst and statistician who "shadows," as he puts it, the official Washington numbers. In a 2006 interview, Williams noted that although few Americans ever see the fine print, the government always footnotes the changes and provides all the fine detail. Nonetheless, some of the changes are nothing short of remarkable, and the pattern over time is what I call Pollyanna Creep. Williams is one of the small groups of economists and analysts who have paid any attention to the phenomenon. A few have pointed out the understatement of the Consumer Price Index-the billionaire bond manager Bill Gross has described it as an haute con job, and Bloomberg columnist John Wasik has dismissed it as a testament to the art of spin" In 2003, a University of Chicago economist named Austan Goolsbee (now a senior economic adviser to Barack Obama's presidential campaign) published an op-ed in the New York Times pointing out how the government had minimized the depth of the 2001-2002 U.S. recession, having cooked the books to misstate and minimize the unemployment numbers. Unfortunately, the critics have tended to train their axes on a single abuse, missing the broad forest of statistical misinformation that has grown up over the past four decades.

The story starts after the inauguration of John F. Kennedy in 1961, when high jobless numbers marred the image of Camelot-on-the-Potomac and the new administration appointed a committee to weigh changes. The result, implemented a few years later, was that out-of-work Americans who had stopped looking for jobs-even if this was because none could be found-were labeled discouraged workers and excluded from the ranks of the unemployed, where many, if not most, of them had been previously classified. Lyndon Johnson, for his part, was widely rumored to have personally scrutinized and sometimes tweaked Gross National Product numbers before their release; and by the 1969 fiscal year, Johnson had orchestrated a unified budget that combined Social Security with the rest of the federal outlays. This innovation allowed the surplus receipts in the former to mask the emerging deficit in the latter.

Richard Nixon, besides continuing the unified budget, developed his own taste for statistical improvement. He proposed-albeit unsuccessfully-that the Labor Department, which prepared both seasonally adjusted and non-adjusted unemployment numbers, should just publish whichever number was lower. In a more consequential move, he asked his second Federal Reserve chairman, Arthur Burns, to develop what became an ultimately famous division between core inflation and headline inflation. If the Consumer Price Index was calculated by tracking a bundle of prices, so-called core inflation would simply exclude, because of volatility, categories that happened to be troublesome: at that time, food and energy. Core inflation could be spotlighted when the headline number was embarrassing, as it was in 1973 and 1974.

In 1983, under the Reagan Administration, inflation was further finagled when the Bureau of Labor Statistics decided that housing, too, was overstating the Consumer Price Index; the BLS substituted an entirely different Owner Equivalent Rent measurement, based on what a homeowner might get for renting his or her house. This methodology, controversial at the time but still in place today, simply sidestepped what was happening in the real world of homeowner costs. Because low inflation encourages low interest rates, which in turn make it much easier to borrow money, the BLS's decision no doubt encouraged, during the late 1980s, the large and often speculative expansion in private debt-much of which involved real estate, and some of which went spectacularly bad between 1989 and 1992 in the savings-and-loan, real estate, and junk-bond scandals. Also, on the unemployment front, as Austan Goolsbee pointed out in his New York Times op-ed, the Reagan Administration further trimmed the number by reclassifying members of the military as employed instead of outside the labor force.

The distortional inclinations of the next president, George H.W. Bush, came into focus in 1990, when Michael Boskin, the chairman of his Council of Economic Advisers, proposed to reorient U.S. economic statistics principally to reduce the measured rate of inflation. His stated grand ambition was to move the calculus away from old industrial-era methodologies toward the emerging services economy and the expanding retail and financial sectors. Skeptics, however, countered that the underlying goal, driven by worry over federal budget deficits, was to reduce the inflation rate in order to reduce federal payments-from interest on the national debt to cost-of-living outlays for government employees, retirees, and Social Security recipients.

The balance tomorrow!

Previous Day's Trading Room Results:

Trade Date: 11/10/09

E-Mini S&P Trades*
(before fees and commissions):

1) VA sell @ 8:32am at 1089.25 = -1.50 (1 lot)

2) 80% sell @ 10:04am at 1089.50 = +2.50 (1 lot)

3) Algorithm positions (8)

4) "Reading the Tape" positions (4) ...combined Secret's, Algo, & "Reading the Tape" total...+1.25

Sign up as an AvidTrader Member to receive "The Technician" Value Area's each day. The market then has an 80% chance of filling the Value Area. Many traders familiar with the Value Area and the techniques that go along with it use it to help them decide what trades to do each day. Join and see how this technique can help you trade more successfully!

Evening Update

noreply@blogger.com (Avid Trader) — Tue, 10 Nov 2009 23:36:00 +0000

Stocks Seesaw in Bid to Extend Rally

Stocks had an up and down day before finishing essentially where they started as the S&P 500 came up just short in its bid for a seventh-straight day of gains and the Dow managed only a small advance following two 200-point upsurges in the last three sessions. In equity news, Electronic Arts narrowly missed the Street’s 2Q expectations and announced an acquisition of a computer game maker, while Priceline.com comfortably exceeded earnings forecasts, Oracle announced that the European Commission has objected to its acquisition of Sun Microsystems, Beazer Homes posted an unexpected profit, and bond insurer MBIA saw its loss widen in 3Q. Meanwhile, Treasuries ended mixed after several Fed officials delivered speeches today, confirming the Fed’s view that the economic recovery is expected to be somewhat slow, the unemployment rate will likely continue to rise in the near-term, and some financial reforms are needed to avoid a repeat of the credit crisis and problems with “too-big-to-fail” financial institutions. The economic calendar was otherwise empty and will be so again tomorrow. Bond markets will be closed tomorrow in observance of the Veteran’s Day holiday.

The Dow Jones Industrial Average rose 20 points (0.2%) to close at 10,247, the S&P 500 Index was flat at 1,093, and the Nasdaq Composite dropped 3 points (0.1%) to 2,151. In light volume, 1.1 billion shares were traded on the NYSE and 2.0 billion shares were traded on the Nasdaq. Crude oil was $0.38 lower at $79.05 per barrel, while wholesale gasoline was unchanged at $1.98 per gallon, and the Bloomberg gold spot price added $1.30 to $1,105.10 per ounce. Elsewhere, the Dollar Index—a comparison of the US dollar to six major world currencies—was up less than 0.1% at 75.05.

Electronic Arts (ERTS $18) reported 2Q EPS ex-items of $0.06, narrowly missing the $0.07 expectation of Wall Street analysts. Revenues at the video game publisher rose 2% versus last year to $1.1 billion, which matched the Street’s expectations as sales were driven by launches of sports game franchises “FIFA 10” and “Madden NFL 10,” along with the release of “The Beatles: Rock Band.” Additionally, the company announced a significant cut in its operating expenses, which will include a headcount reduction of approximately 1,500 positions – amounting to about 17% of the company's current workforce. The cost-cutting plan is expected to result in annual cost savings of at least $100 million and restructuring charges of $130 to $150 million. The company also said that it will acquire computer game maker Playfish Limited for about $275 million in cash and $25 million in equity retention arrangements. ERTS issued full-year guidance for diluted EPS of between $0.70-$1.00, compared to the $0.89 that analysts expect. Shares were under pressure.

Oracle(ORCL $22) announced that it has received a Statement of Objections from the European Commission pertaining to its $7 billion proposed acquisition of Sun Microsystems (JAVA $8). The Commission noted that Sun’s MySQL database product combined with Oracle’s product line-up could hamper competition in the database market. ORCL said it plans to vigorously oppose the Commission’s Statement of Objections as the evidence against the Commission’s objection "reveals a profound misunderstanding of both database competition and open source dynamics." The company explained "It is well understood by those knowledgeable about open source software that because MySQL is open source, it cannot be controlled by anyone. That is the whole point of open source." ORCL was little changed, and JAVA was lower.

Priceline.com (PCLN $204) was sharply higher after the online travel booking firm reported adjusted 3Q EPS of $3.45, above the $2.88 that analysts had anticipated, with revenues jumping 30% compared to last year to $731 million, topping the $686 million that the Street had forecasted. PCLN said its gross travel bookings—total dollar value of all travel services purchased by consumers, including taxes and fees—increased 33% over a year ago to $2.7 billion, as the summer travel season turned out to be an “exceptionally strong” one for PCLN. The company said its international operations contributed $317 million in revenue, which was a 42% increase compared to last year. The company said, “The online travel industry achieved improved year-over-year growth in 3Q as we comped against weakening demand in the prior-year period and received a boost from industry-wide fee reductions and supplier discounting and promotions.” The company offered 4Q EPS guidance that exceeded analysts’ forecasts.

Beazer Homes(BZH $5) was up almost 10% after the homebuilder reported a 4Q EPS gain of $0.87, compared to the Street’s expectation of a $1.24 per share loss, but BZH’s results include impairment charges and a gain on the early extinguishment of debt, which may not be factored into the Street’s forecast. Revenues fell from $650 million last year to $376 million, which was above the $338 million that analysts had anticipated. BZH said new orders rose 2.4% year-over-year, and the cancelation rate improved to 34.7% from 46.3% in the same period last year, while home closings decreased 24.3% year-over-year. "We've got a six-month runway here of a tax credit, great affordability and great mortgage rates," Beazer's CEO proclaimed, stating that he expects market conditions to “modestly improve in 2010.”

MBIA Inc. (MBI $4) was down more than 25% after its 3Q earnings showed a larger loss. The bond insurer lost $728 million, or $3.50 per share – almost 10% more than the $807 million loss it suffered in the same period a year ago. “The third quarter’s loss is a reminder that the impact of this recession continues to be felt throughout the economy,” said President and CFO Chuck Chaplin. “Incurred losses in our insurance business were above expectations and the same housing-related performance trends drove our asset losses and impairments, but those losses were partially offset by gains on debt repurchases in the quarter,” Chaplin explained.

Empty economic calendar, but plenty of Fed commentary to consider

Treasuries finished mixed as there were no major economic reports scheduled for release today. The yield on the 2-year note inched down 2 bps to 0.83%, the yield on the 10-year note dipped 1 bp to 3.47%, while the yield on the 30-year bond was up 1 bp to 4.41%.

Although the economic calendar was empty, traders have had several speeches from Fed members to consider. San Francisco Fed President Janet Yellen, Atlanta Fed President Dennis Lockhart, and Fed Governor Daniel Tarullo all spoke at conferences today. Yellen said she envisions the economic recovery could resemble the shape of an “L” with a gradual upward tilt of the base. "With such a slow rebound, unemployment could well stay high for several years to come," Yellen said. "It may take quite a while for financial institutions to heal to the point that normal credit flows are restored. The credit crunch hasn't entirely gone away," she added.

For Lockhart’s part, he foresees "very slow net job gains" beginning "sometime next year." Small businesses in particular could be a weak spot in the economy, according to Lockhart. Those smaller companies held up reasonably well in the 2001 recession but have not fared so well this time – accounting for about 45% of net job losses. Going forward, it is unlikely that small businesses can provide the typical one-third of net job growth that they did in the past two recessions. That is because small businesses generally rely on smaller banks for financing and those banks are troubled because of soured commercial real estate loans. "As the recovery develops, the (commercial real estate) problem will be a headwind, but not a show stopper, in my view," he said.

Meanwhile, Tarullo gave a speech on proposed financial regulation. According to Tarullo, “in many respects, this crisis was the culmination of changes in both the organization and regulation of financial markets that began in the 1970s.” To prevent a repeat of these problems, Tarullo endorsed the idea of requiring large banks to hold more capital in reserve, and also put forth the idea that the size of some banks should be limited to avoid potential problems with “too-big-to-fail” institutions. “Another approach is to attack the bigness problem head-on by limiting the size of financial institutions,” he said. In related news, Senate Banking Committee Chairman Christopher Dodd unveiled an official proposal for financial reforms. A draft of the bill obtained by Reuters contains plans for a government financial stability agency to identify risks in the US financial system, as well as a consumer financial protection agency.

Looking ahead to Wednesday, the economic calendar is expected to be quiet again, with no scheduled economic reports, and bond markets will be closed in observance of the Veteran’s Day Holiday.

German economic sentiment disappoints, European debt levels in focus

Stocks in Europe were slightly lower after relinquishing an early advance due to a larger-than-expected deterioration in a key gauge of economic sentiment in Germany—Europe’s largest economy. The German ZEW Survey of economic sentiment – an index of investor and analyst expectations – fell from 56.0 in October to 51.1 in November, versus the consensus of economists which called for the measure to dip to 55.0. "The upward trend of the economic expectations is interrupted for the time being. The surveyed financial market experts signal that they do not count on a strong boost for economic growth in the next year. It rather seems that economic recovery will proceed in small steps," ZEW said. The German government, which is spending 85 billion euros ($127 billion) to revive the economy, last month upped its expectations for the economy. It is now forecasting growth of about 1.2% in 2010, following the 5% contraction expected this year.

Elsewhere, Fitch Ratings warned that out of all four countries with its top AAA rating, the UK is most at risk of a downgrade. "It's clear that the UK's ability to sustain large public fiscal deficits and a level of public debt without driving up interest rates and without putting sterling under significant pressure is much less than in the case of the U.S," David Riley, Fitch's co-head of global sovereign ratings, said in an interview. The other AAA-rated countries besides the UK are the US, Germany and France. Fitch also said that Japan’s AA- rating could be at risk as the country plans to issue 44 trillion yen ($490 billion) in debt this year. "To be frank, at this point it is quite hard to see how they are going to maintain the 44 trillion yen," Riley said. On the other hand, Germany appears to be in a relatively more sound position in Fitch’s view. "The country that is so far looking the most secure in terms of triple-A status is Germany. Germany has the least fiscal adjustment needed to stabilize the debt."

In related news, European Union officials emerged from a two-day meeting with a renewed commitment to limit budget deficits to the EU limit of 3% of GDP, although it will take time to reach that goal as the members said economic stimulus remains necessary for the time being. “We will accept the targets laid down in the deficit procedure and bring our general deficit back below 3 percent” in 2013, Germany’s Finance Minister announced. The process is expected to take longer in France, as French Finance Minister Christine Lagarde said “it will be very difficult” for France to cut its deficit to 3% of GDP by 2013, and achieving the target by 2014 “will already be a nice effort.” Germany’s budget deficit is forecasted to peak at 5% of GDP next year, while that of France could hit 8.3% percent this year, according to the European Commission. That compares to the eurozone average forecasted deficit of a record high 6.9% of GDP in 2010. All 16 eurozone countries are expected to breach the EU limit, the European Commission forecasts.

Eye on Silver

noreply@blogger.com (Avid Trader) — Tue, 10 Nov 2009 23:26:00 +0000

By Mike Paulenoff

It should come as no surprise to anyone who trades or who has traded silver that it is much more volatile than gold. In fact, since yesterday's highs in the iShares Silver Trust (NYSE: SLV) and the SPDR Gold Shares (NYSE: GLD), the SLV has had a 3% correction whereas the GLD has had a sparse 1.2% pullback. Something we are going to have to get accustomed to in order to get the benefit of the approaching "silver catch-up" rally. My near- and intermediate-term work continues to warn me to expect a powerful upmove in silver prices. The trick for me will be to "be there" when it arrives-- and to survive the whipsaws. Spot silver prices are set up technically for upside acceleration towards a test of its long-term resistance line, now at $20.10, which if hurdled should unleash a powerful catch-up advance that propels silver towards its 1980 area near $50.00.

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Morning Update

noreply@blogger.com (Avid Trader) — Tue, 10 Nov 2009 14:23:00 +0000

Profit Taking Weighs on Equities

Stocks are lower in morning action, following yesterday’s rally on steep gains in commodity prices such as gold and crude oil, which came amid optimism regarding the global economic recovery as the G20 group of world finance leaders vowed to keep stimulus efforts intact until recovery is assured. Traders may be taking the time to book some profits in the equity markets, which have seen the S&P 500 Index post six-consecutive sessions in the green and advances of 2% in two of the past three trading days. Treasuries are higher amid the weakness in the equity markets and as there are no major economic releases scheduled for today. In equity news, Electronic Arts matched the Street’s profit projection, and Oracle announced that it received a Statement of Objections letter from the European Commission regarding its $7 billion proposal to acquire Sun Microsystems. Overseas, Asia was higher, while Europe has moved into negative territory in afternoon action.

As of 8:50 a.m. ET, the December S&P 500 Index Globex future is 3 points below fair value, the DJIA is 25 points below fair value, and the Nasdaq 100 Index is 2 points below fair value. Crude oil is higher by $0.19 at $79.62 per barrel, and the Bloomberg gold spot price is down $0.50 at $1,103.30 per ounce. Elsewhere, the Dollar Index—a comparison of the US dollar to six major world currencies—is up 0.1% at 75.13.

Electronic Arts (ERTS $20) reported that it swung from a $0.06 per share loss in the same period a year ago to earnings ex-items of $0.06 per share for fiscal 2Q, inline with the expectation of Wall Street analysts. Revenues at the video game publisher rose 2% versus last year to $1.1 billion, which also matched the Street’s expectations as sales were driven by launches of sports game franchises “FIFA 10” and “Madden NFL 10,” along with the release of “The Beatles: Rock Band.” Additionally, the company announced a significant cut in its operating expenses, and that it will acquire computer game maker Playfish Limited for about $275 million in cash and $25 million in equity retention arrangements. ERTS issued full-year guidance that is roughly inline with the Street’s forecast and said it expects to be profitable in both 3Q and 4Q.

Oracle (ORCL $22) announced that it has received a Statement of Objections from the European Commission pertaining to its $7 billion proposed acquisition of Sun Microsystems (JAVA $8). ORCL said the Commission noted that JAVA’s MySQL database product combined with ORCL’s product line-up could hamper competition in the database market. ORCL said it plans to vigorously oppose the Commission’s Statement of Objections as the evidence against the Commission’s position is overwhelming.

Bonds finding some support as equities give back some gains

Treasuries are moving higher in morning action as there are no major economic reports scheduled for release today and as the equity markets are under some pressure following yesterday’s steep gains in the US markets. Yesterday’s advance came as commodity prices surged, led by gains in crude oil and a record high in gold prices, which sit above $1,100 per ounce, boosted by the weekend pledge of G20 world finance leaders to keep stimulus efforts deployed until economic recovery is assured.

Europe lower as banking shares are in focus and German economic sentiment disappoints

Stocks in Europe are under pressure in afternoon action after relinquishing an early advance following a larger deterioration in a key gauge if economic sentiment in Germany—Europe’s largest economy. The German ZEW Survey of economic sentiment fell from 56.0 in October to 51.1 in November, versus the consensus of economists surveyed by Bloomberg, which called for the measure to dip to 55.0. Meanwhile, financials are dominating the headlines and the news is mixed, with shares of HSBC (HBC $58) moving higher after Europe’s largest bank said 3Q profits were “significantly” higher than a year ago and loan losses declined, while shares of Barclays (BCS $23) are declining after reporting 3Q net income fell over 50% and after saying its nine-month impairment charges were “significantly above” the same period a year ago. Moreover, Lloyds Banking Group (LYG $6) announced that it will cut about 5,000 jobs, but shares are nearly unchanged in afternoon trading. Outside of equity news in the financial arena, Vodafone (VOD $23) is under pressure as the world’s largest mobile-phone service provider matched analysts’ profit expectations and said it will accelerate cost cutting efforts.

Asia spends day in the green

Stocks in Asia were mostly higher, led for a second-straight session by Australia’s S&P/ASX 200 Index, which gained 1.3% on yesterday’s solid gains in commodity prices that led the rally in the US. Financial shares in Japan helped the Nikkei 225 Index rise 0.6% after the nation’s financial services minister said the government may not punish domestic banks if their tier-1 capital ratio—a key measure of capital adequacy—falls below the 4% level required for banks in Japan on a temporary basis. Meanwhile, South Korea’s Kospi Index gained 0.4% after coming well off the best levels of the day on reports that North and South Korean navies exchanged gunfire. Taiwan’s Taiex Index rose 0.8% to contribute to today’s advance in Asia, after an economic report showed the pace of the decline in the nation’s exports improved, falling 4.7% on a year-over-year basis in October, versus the 7.2% drop that had been forecasted by economists surveyed by Bloomberg and after declining 12.7% the previous month. Elsewhere, Hong Kong’s Hang Seng Index rose 0.3%, while China’s Shanghai Composite Index eked out a 0.1% gain.

Volume? Who Needs It?

noreply@blogger.com (Avid Trader) — Tue, 10 Nov 2009 14:02:00 +0000

by Larry Levin

I used to think that the markets were bigger than the Federal Reserve. Oh sure, the Fed can move markets, but in the end I thought the market would get it right. Said another way, the scams pulled by central banks would be short lived. I am seriously considering changing my opinion now. The Federal Reserve is clearly above the law and without reproach; nobody but us bloggers will criticize the Fed. Congress is incapable of it. As I recently reported, the "Audit the Fed" bill was gutted by a gutless scumbag in Congress so that the financial game of "kick the can" will continue.

Today we found out that volume is no longer needed for a market rally. Actually this has been going on since the Fed rigged this rally, but it hasn't been more apparent than over the past few days. In just 3-days the market has rallied about 4.5% and in this time we have had the lowest volume days of the previous three WEEKS. Moreover, today's Dow explosion came with new daily, weekly, monthly, and yearly highs...with poor volume! This is NOT NORMAL. This is very, VERY, abnormal and is courtesy of the Federal Reserve.

Volume? Who needs it?

Come to think of it, the market doesn't need a lot of things any more. Here is a quick list I thought of...

? Jobs! Just last Friday we learned that 17.5% of average Americans are unemployed or severely underemployed. That number, however, is the data used since the Clinton administration molested the data to make its administration look as good as possible. If one simply used the same metric used just a few years ago, the unemployment rate is actually 22%! By the way, nearly all administrations have done this, both the left and the right, starting with JFK. Politicians don't give a damn about the truth - just whatever makes them look good. Job? Who needs them?

? Banks! Banks are "put down" via lethal FDIC injections every Friday. Banks? Who needs them?

? FDIC! Speaking of the FDIC, it is INSOLVENT, as admitted by its Chairwoman Sheila Bair herself. FDIC? Who needs the FDIC?

? Accounting! Insane valuations can only be given to terribly run companies via dodgy accounting standards. Proper truthful accounting? Who needs good accounting standards?

? Housing! Housing values have dropped and are only coming back slightly thanks to more government handouts; therefore, I can argue that the so-called bottom in housing is a mirage: when it's gone, so is the bottom. Housing? Who needs a healthy housing market devoid of real estate hustlers, appraisal pimps, and CDO salesmen/whores?

? Commercial real estate! Got CMBS? No? Good for you! Commercial real estate values have dropped...and are going to fall a lot further. The government cheese hasn't been handed out yet in this sector - but it will be. Commercial real estate? Who needs a healthy commercial real estate market devoid of real estate hustlers, appraisal pimps, and CMBS salesmen/whores?

? Congressional ethics! Uh-huh, who needs that?

? Fiscal sanity! This goes hand in hand with the low-life clown-posse selling you, your kids, and your grandkids down the river. Including unfunded federal pensions, social security, Medicare, and Medicaid the debt of the USA is $111,000,000,000,000.00. That would be $111-TRILLION! Fiscal sanity in Washington DC? Who needs that?

? A strong currency! The US dollar is getting destroyed on the open market at the direction of the White House, Treasury, Congress, and of course the Federal Reserve. Every day that the dollar declines you LOSE PURCHASING POWER! A strong currency? Who needs a strong currency?

? Volume! Finally I touch on volume again. Volume is like the strong foundation on which a well built home or sound fundamentals of a strong economy rests. Without a strong foundation, you have an edifice that can be blown down by the gas emanating from the clown-posse in D.C. *** Over my entire career trading stocks and futures I have never before seen a market rally on nearly a daily basis on such fetid volume. Volume? Who needs it? The market certainly doesn't need volume or anything above to rally but the Fed & Treasury.

What we have learned since March is that the Federal Reserve may in fact be bigger than the markets. The rally is rigged, but it is what it is - and it is certainly going up.

In fact, the US dollar decline is what the Federal Reserve has purposely engineered in order to manipulate the stock market higher. The Fed knew that after the Japanese Yen carry trade had unwound, if it kept interest rates at ZERO (for the anointed few only) for a long time it would wheedle the risk crowd to start a new "carry trade." They are now doing it in massive quantities: borrowing then selling US dollars and using the proceeds to buy stocks - pocketing the interest rate differential. When it ends, it will be a catastrophe. The Fed is just blowing more bubbles.

When the Japanese did this they were straight forward about it: Japan wanted a weaker Yen. Ask anyone in the Fed, Treasury, or White House and every lying scumbag asked will lie to your face saying: We want a strong dollar. However, 100% of their actions argue otherwise. At least the Japanese have character - something severely lacking in D.C.

In the end, the Fed doesn't give a damn about you. The White House doesn't give a damn about you. Congress doesn't give a damn about you...or your kids/grandkids. All they care about are reelections and the banking sector; no matter if it is achieved through your lower standard of living, a lack of ethics, insolvency, no jobs, and no savings rates paid at banks - nothing.

Truth, sound fundamentals, strong/real currency are pass? - all which matters is rigging equities higher - the free market be damned.

Just keep electing them and they'll keep pissing down your leg and tell you it's raining...and you will continue to believe it.

Previous Day's Trading Room Results:

Trade Date: 11/9/09

E-Mini S&P Trades*
(before fees and commissions):

1) No SOT trades were filled today.

2) Algorithm positions (1)

3) "Reading the Tape" positions (0) ...combined Secret's, Algo, & "Reading the Tape" total...-1.00

Sign up as an AvidTrader Member to receive "The Technician" Value Area's each day. The market then has an 80% chance of filling the Value Area. Many traders familiar with the Value Area and the techniques that go along with it use it to help them decide what trades to do each day. Join and see how this technique can help you trade more successfully!

Bulls Can't Ask for More

noreply@blogger.com (Avid Trader) — Tue, 10 Nov 2009 01:28:00 +0000

By Harry Boxer, The Technical Trader

The indices had a huge rally today, gapping up sharply at the opening, running hard in the morning, and then working their way steadily higher in a rising channel all session. Then in the last 15minutes they exploded into the close, closing at the highs for the day going away. The bulls couldn’t ask for more.

Net on the day the Dow was up 203.52 at 10,226.94, just 2 points off its high. The S&P 500 gained 23.78 to 1093.08, just pennies from its high, and the Nasdaq 100 was up 37.64 to 1768.40, 1 cent off its high.

Advance-declines were better than 5 to 1 positive on New York but only 2 1/2 to 1 positive on Nasdaq. Up/down volume was about 19 to 1 positive on New York on light total volume of under 1 1/4 billion. Nasdaq traded just over 1.9 billion and had about a 4 to 1 positive volume ratio.

TheTechTrader.com board was chiefly higher, except for some ultrashorts and a few scattered small fractional losses.

Leading the way on the plus side today, Revlon (REV) leapt 4.01 or 37% to 14.79. Fuel System Solutions (FSYS) rose 2.98 to 47.57 and Rambus (RMBS) 1.50 to 18.11.

Financials were strong, with Goldman Sachs (GS) up 4.79 to 176.57, Wells Fargo (WFC) 1.28 to 28.40, and JP Morgan (JPM) 87 cents to 44.35.

The Direxion Financial Bull 3x Shares (FAS) gained 7.41 to 78.56, Direxion Large Cap Bull 3X Shares (BGU) 3.57 to 55.63, and the Direxion Daily Small Cap Bull 3x Shares (TNA) 2.36 to 41.80.

The U.S. Oil Fund ETF (USO) jumped 80 cents to 40.50 as crude oil firmed. American International Group (AIG) added 70 cents to 36.18, and China Automotive (CAAS) 81 cents to 13.30.

Sourcefire (FIRE) advanced 76 cents to 22.06, Human Genome Sciences (HGSI) 71 cents to 28.30, and Protalix BioTherapeutics (PLX) 42 cents to 12.14.

Sonic Solutions (SNIC) was up 29 cents to 7.88 reaching as high as 8.11, and Westport Innovations (WPRT) 76 cents to 10.94.

Stepping back and reviewing the hourly chart patterns, you couldn’t ask for a more orderly advance today, with a gap up, strong run, and then a shallower but steady angle of ascent that repeatedly and successfully tested the intraday moving averages without penetrating them.

The indices are now very close to their 2009 highs in the 1780-81 zone on the NDX, today closing at 1768. The SPX closed at 1093 with its 2009 high near 1101. So we may get a test of those highs as early as tomorrow morning.

Good trading!

Harry

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Evening Update

noreply@blogger.com (Avid Trader) — Tue, 10 Nov 2009 01:26:00 +0000

Large Rally Sends Dow to New 2009 High

Renewed economic optimism sent the Dow soaring more than 200 points higher to a new yearly high. The source of the optimism appeared to stem from a weekend meeting of G20 world finance leaders, which reassured investors that economic stimulus measures and low interest rates will be kept in place. Commodity prices also benefitted, and basic materials stocks were the strongest portion of the market, with gold making a new all time high above $1,100 per ounce and the dollar under heavy pressure. In equity news, McDonald’s reported a rise in monthly same-store sales, RadioShack said it will begin selling the iPhone, Dish Network announced a special dividend that offset its weak earnings report, and Freddie Mac said its quarterly loss narrowed. Elsewhere, Kraft Foods formalized its takeover offer for Cadbury, while Comcast and General Electric reportedly agreed to a method of valuing NBC Universal, clearing the way for another potential M&A transaction. Meanwhile, Treasuries ended the day mixed following the rally in stock markets and a report from the Federal Reserve that showed bank lending remains tight, although significantly better than during the worst periods of last year’s financial crisis.

The Dow Jones Industrial Average jumped 204 points (2.0%) to close at 10,227, the S&P 500 Index gained 24 points (2.2%) to 1,093, and the Nasdaq Composite advanced 42 points (2.0%) to 2,154. In light volume, 1.2 billion shares were traded on the NYSE and 2.0 billion shares were traded on the Nasdaq. Crude oil was $2.00 higher at $79.43 per barrel, while wholesale gasoline was up $0.06 to $1.98 per gallon, and the Bloomberg gold spot price added $8.55 to $1,103.65 per ounce. Elsewhere, the Dollar Index—a comparison of the US dollar to six major world currencies—was down 1.0% to 75.08.

Dow member McDonald’s (MCD $63) was higher after it reported that global comparable store sales—sales at all restaurants in operation at least thirteen months—for October rose 3.3%. The world’s largest fast food chain said its US comparable sales slipped 0.1%, Europe’s sales jumped 6.4%, and sales from its Asia/Pacific, Middle East and Africa segment gained 4.7%. McDonald’s noted that its US market performance matched its forecast last month predicting that year-over-year results in October would be flat to slightly down, as a result of a difficult comparison basis with the year ago period, and the company still gained market share in the US quick-service restaurant sector.

Meanwhile, fellow Dow component Kraft Foods (KFT $27) formalized its 9.8 billion British pound ($16 billion) hostile takeover offer for UK confectionary firm Cadbury (CBY $51). Today’s proposal remained unchanged from its September bid, which offered shareholders 300 pence in cash and 0.2589 new KFT shares for each share of CBY. Due to stock value fluctuations since the original offer, today’s deal is below the bid of 10.2 billion pounds that Cadbury rejected two months ago. CBY again rejected KFT’s bid, labeling it a “derisory offer.” Besides the lower offer price, CBY noted the “unattractive prospect of the absorption of Cadbury into a low-growth conglomerate business model" as reason for rejecting the proposal. After Cadbury shareholders receive the official offer documents, they will have 60 days to decide whether or not to accept the offer. KFT was lower, while CBY was modestly higher.

In other deal related news, Comcast (CMCSA $15) and General Electric (GE $16 ¹) were both higher after the two companies reportedly agreed on a method of valuing NBC Universal – putting the price of the entertainment group “in the neighborhood of $30 billion,” clearing an obstacle in a potential M&A transaction, according to the Wall Street Journal, citing people familiar with the matter. The report stated that the two companies are now ironing out the final details of an agreement, and an announcement could come as early as next week. Neither company commented.

RadioShack (RSH $20) was almost 15% higher after the electronics retailer announced that as part of its ongoing mobility strategy, it will sell Apple’s (AAPL $201) iPhone 3G and 3GS in a limited number of company-owned stores in Dallas-Fort Worth and the New York City metropolitan area beginning later this month. RSH said that it expects to introduce the iPhone in stores nationwide in 2010.

Dish Network (DISH $20) was nicely higher after the satellite TV firm reported that it will pay out a one-time dividend of $2.00 per share on outstanding Class A and Class B common stock. Also, DISH reported 3Q EPS excluding the impact of the TiVo litigation of $0.42, two cents below the $0.44 that Wall Street analysts had forecasted, with revenues decreasing 1.5% versus last year to $2.9 billion, inline with expectations. The company did report that it added approximately 241,000 net subscribers during the quarter, which was better than some on the Street had expected.

Freddie Mac (FRE $1 ¹) was moderately lower after announcing that its 3Q loss narrowed to $6.3 billion, or $1.94 per share. In 3Q last year the struggling mortgage lender lost $25.3 billion, or $19.44 per share. Approximately 3.3% of Freddie Mac's borrowers are at least three months behind on their mortgage payments, more than double the rate last year. “We continued to see some positive housing market developments, including higher volumes of home sales and modest increases in house prices in certain areas of the country," the company's new CEO Charles Haldeman said. On the other hand, ongoing problems with rising delinquencies and unemployment levels, as well as excess inventory are expected to encumber the recovery “for some time" and push house prices lower, the company warned.

Fed says bank lending still tight

The Federal Reserve issued its quarterly senior loan officer opinion survey midday, which is based on responses from 53 domestic banks and 23 U.S. branches of foreign banks. The October survey showed that banks continued to tighten lending standards over the past three months on all major types of loans to both businesses and households. However, the net percentages of banks that tightened standards continued to decline from the peaks reached late last year.

About 15% of banks reported tightening credit terms for commercial and industrial loans – about half as much as reported during the July survey and substantially below the peak near 80% from October 2008. Reasons cited for the stricter standards were the same as those reported in the previous three surveys, namely a reduced tolerance for risk, followed by an economic outlook that was less favorable, and a worsening of industry-specific problems. With regards to residential real estate lending, about 25% of banks reported that they had tightened standards on prime loans – slightly higher than seen in the July survey, but significantly below the peak of near 75% that was reported in July 2008. Meanwhile, between 30-40% of banks said they continued to tighten conditions for credit card loans. Furthermore, in response to a special question in the survey with regards to the pending credit card legislation passed in May, most banks indicated they expected to tighten many of the terms and conditions of credit card loans as a result of the legislation

Treasuries finished mixed and little-changed following the data. The yield on the 2-year note inched up 1 bp to 0.85%, while the yield on the 10-year note dipped 3 bps to 3.47%, and the yield on the 30-year bond slipped 1 bp to 4.39%.

In other economic news, the G20 group of finance ministers and central banks from the world’s 20 leading economies met and over the weekend decided that although there have been signs of recovery, they will keep stimulus measures in tact to ensure a global recovery takes hold. "The classic mistake in past crises was to put on the brakes too quickly," US Treasury Secretary Timothy Geithner said. "But we all recognize that confidence in our ability to reduce future deficits and to exit from the extraordinary monetary policy and financial emergency measures is very important to confidence in the sustainability of recovery." In one potentially surprising development, the UK's Prime Minister Gordon Brown lent his support to a proposal that would tax financial transactions between banks, with the idea of using those funds to pay for future bank bailouts. Geithner said the US would not support such a tax on banks, although he agreed that taxpayers should not be responsible for footing the bill for a financial crisis. Also discussed during the meetings was the issue of climate change finance, but no agreement was reached on that matter.

China rating upgraded, German industrial production gains

Moody's announced today that it has upgraded its outlook for both China and Hong Kong's credit ratings to “positive” from “stable.” "The Chinese authorities are successfully steering the economy through the turbulence of the global financial crisis and recession, and furthermore, they seem likely to remain vigilant to protect systemic stability from future threats and challenges," Moody’s said. Furthermore, in spite of the 4 trillion yuan ($586 billion) stimulus package that the government is implementing to prop up economic growth, China’s public finances are still in relatively good shape. The government expects to keep its budget deficit below 3% of GDP this year, with a goal of maintaining total government debt to below 20% of GDP. Among the risks that Moody’s mentioned was the potential that the stimulus program could lead to destabilizing asset bubbles. Today’s announcement from Moody’s is in contrast to rival ratings agency Fitch though, which said last week that surging property values and deteriorating asset quality in the Chinese banking system could be potential areas of concern for the country’s debt rating. "The China property issue raises some concerns with respect to asset quality in the banks. The banking system is a sovereign rating weakness. Clearly banks in any country with a property bubble would be affected, but banks in China are, as noted, already a weakness," Fitch said.

On the European economic front, a report showed industrial production in Germany—Europe’s largest economy—rose 2.7% in September, above the revised 1.8% gain seen in August and easily exceeding the 1.0% advance that economists had anticipated. On a year-over-year basis, manufacturing output is still down 12.9%. Meanwhile, German exports rose 3.8% in September from August, the government said today, also exceeding economists’ estimates. “With increasing manufacturing orders, particularly for basic and investment goods, the recovery in industrial production should continue in the fourth quarter,” Germany’s Economy Ministry said in a statement.

Oil in Bullish Pattern, though Comparison to Dollar Warrants Caution

noreply@blogger.com (Avid Trader) — Mon, 09 Nov 2009 22:54:00 +0000

By Mike Paulenoff

Although oil prices are up about $1/bbl this morning, given the juxtaposition of the dollar index pressing against its October low (see our comparison chart of oil and the dollar), a holder of long positions in oil and the US Oil Fund ETF (NYSE: USO) could be disappointed. That said, I am also mindful of the fact that Friday's weakness can be construed as a successful test of critical support at $76.55, and as long as $76.55 contains any forthcoming weakness, the near-term pattern in oil argues that a three-week bull flag should thrust to the upside in the upcoming sessions – towards a target of $86-$88

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Morning Update

noreply@blogger.com (Avid Trader) — Mon, 09 Nov 2009 14:54:00 +0000

Kicking Off the Week in the Green

Stocks are solidly higher in morning action following Friday's resiliency in the face of a disappointing October labor report, and after the G20 group of world finance leaders met and pledged to keep stimulus efforts deployed until economic recovery is assured. Treasuries are nearly unchanged as the economic calendar is void of any major releases today, and will remain relatively light for the week. A couple of Dow members are dominating the equity headlines, with McDonald's reporting October comparable store sales gained ground, and Kraft Foods formalizing its hostile bid for UK confectionary firm Cadbury, which it left unchanged. Overseas, markets are mostly higher, as the rally in gold continues to lift mining and metals issues.

As of 8:51 a.m. ET, the December S&P 500 Index Globex future is 9 points above fair value, the DJIA is 73 points above fair value, and the Nasdaq 100 Index is 15 points above fair value. Crude oil is higher by $1.03 at $78.646 per barrel, and the Bloomberg gold spot price is up $13.08 at $1,108.18 per ounce. Elsewhere, the Dollar Index-a comparison of the US dollar to six major world currencies-is down 1.0% at 75.06.

Dow member McDonald's (MCD $62) is higher after it reported that global comparable store sales-sales at all restaurants in operation at least thirteen months-for October rose 3.3%. The world's largest fast food chain said its US comparable sales were relatively flat, Europe's sales jumped 6.4%, and sales from its Asia/Pacific, Middle East and Africa segment gained 4.7%.

Meanwhile, fellow Dow component Kraft Foods (KFT $27) formalized its 9.8 British pound ($16 billion) hostile takeover offer for UK confectionary firm Cadbury (CBY $51). Today's proposal remained unchanged from its September bid, which offered shareholders 300 pence in cash and 0.2589 new KFT shares for each share of CBY. Due to stock value fluctuations since the original offer, today's deal is below the 10.2 billion pounds that KFT's bid had valued the company at. KFT said that no other potential suitor has publicly declared its interest in acquiring CBY. CBY has rejected KFT's formal offer as it said it is worse than the previous bid.

All may be quiet on the economic front

Treasuries are flat in morning action as equities open higher and as there are no major reports on today's economic calendar to possibly influence trading in the bond markets. In fact, this week will be relatively light in terms of economic reports, with this week's key releases being MBA Mortgage Applications, initial jobless claims, and the Treasury's monthly budget statement being released on Thursday, while Friday will yield the trade balance, the Import Price Index and the University of Michigan consumer sentiment survey. Also note that the bond market will be closed on Wednesday in observance of the Veteran's Day holiday.

In economic news over the weekend, the G20 group of finance ministers and central banks from the world's 20 leading economies met and decided that although their have been signs of recovery, they will keep stimulus measures in tact to ensure a global recovery takes hold. "Economic and financial conditions have improved following our coordinated response to the crisis," the G20 statement said. The group added that, "However, the recovery is uneven and remains dependant on policy support, and high unemployment is a major concern. To restore the global economic and financial system to health, we agree to maintain support for the recovery until it is assured."

Europe advances on earnings and economic data

Stocks in Europe are broadly higher on the heels of the weekend pledge by the G20 group. Financials are among the best performers in Europe, helping markets across the pond advance for a fourth-straight session, supported by a 5% increase in shares of Allianz (AZSEY $12) after Europe's largest insurer reported better-than-expected 3Q profits, on strength in its life-health insurance and financial services business. Meanwhile, the economic front is aiding the advance in the eurozone, with a report showing industrial production in Germany-Europe's largest economy-rose 2.7% in September, easily exceeding the 1.0% advance that economists surveyed by Bloomberg had anticipated. Adding to the upbeat economic backdrop, a separate report showed French business sentiment rose for an eighth-consecutive month. Also, steep gains in gold prices and strength in crude oil are helping boost oil and gas and basic materials issues to support the European advance. In other equity news, Nokia Corp. (NOK $13) announced that it will replace 14 million cellphone chargers manufactured by China's BYD Co. (BYDDY $92) as the devices could fall apart and expose consumers to risk of electrical shock. A spokesman at NOK said, "We are undertaking this exchange program as a proactive, precautionary measure," adding that the company is not aware of any incidents or injuries relating to these chargers.

Asia advances led by Australia

Stocks in Asia were mostly higher, led by a 1.8% advance in Australia's S&P/ASX 200 Index on some M&A news and better-than expected earnings from the financial sector. Shares of AXA Asia Pacific Holdings (AXAPF $4) jumped 33% after the Australian insurer rejected a $10 billion takeover offer from rival AMP Ltd. (AMLTY $21) and its parent company AXA SA (AXA $25), making it the largest takeover offer in Asia this year, per Bloomberg news. Additional support for trading in Australia, shares of Commonwealth Bank of Australia (CBAUF $47) rose about 5% after the lender reported strong 1Q profits after reporting a positive trading update. Additionally, the G20 members' economic recovery pledge supported sentiment in Asia, while metals and mining firms gained ground to help the advance as gold prices continued to rally. Elsewhere, Japan's Nikkei 225 Index increase 0.2% and China's Shanghai Composite Index increased 0.4%, while Hong Kong's Hang Seng Index advanced 1.7%, after Moody's Investor Services increased its credit ratings outlook on China and boosted Hong Kong's outlook to positive from stable. Meanwhile, South Korea's Kospi Index rose 0.3%.

Two More Bailouts and More!

noreply@blogger.com (Avid Trader) — Mon, 09 Nov 2009 14:51:00 +0000

by Larry Levin

There are a few different issues to discuss today so I'll be covering them in bullet form.

Fannie Mae is insolvent - a zombie banking institution - but it is being bailed out again. It recently asked for, and will surely receive, another $15 billion.

Due to bailout fatigue and the righteous anger of US taxpayers, the White House is now funding bailouts inside of other bills that Congress passes. President Obama just signed a $45 billion plan to expand a tax credit for first-time homebuyers and extend jobless benefits...again. Surely you heard this on the news. What the lame-stream media failed to tell you however, is that the bill also provides MASSIVE tax refunds to money-losing companies. The majority of this money, $33 billion, is a BAILOUT disguised as a tax credit for the very homebuilders that helped fuel the nonsensical housing bubble in the first place. But since it wasn't heralded as a bailout, the lame-stream media have ignored the very reason this bill was written. The lame-stream media have instead focused its attention on the extension of unemployment benefits, which amounts to just $2.4 billion of the $45 billion fleecing of the US taxpayer.

Unemployment is bad and not improving. Friday's data was worse than expected with 190,000 more folks receiving pink slips marking the 22nd consecutive month of job losses.

The official unemployment rate spiked from 9.8% to 10.2%.

The unofficial unemployment rate, which is more accurate, now stands at 17.5%.

The numbers are actually worse; the Bureau of Labor and Statistics (BLS) claims via its "black box guessing model" that new businesses have miraculously opened for NINE consecutive months, thus birthing massive employment for NINE consecutive months. Of course, this allows the BLS to reduce the overall horrendously bad news coming from the real employment picture in the US. It's safe to say that the BLS is full of BS.

The Federal Reserve is considering reverse-repo's with the major banks to reduce its massive extra liquidity in the system. The banks essentially said "no problem, as long as you reduce our Tier 1 capital requirements." It has been reported that the Fed will say yes. In other words, the banks want to RE-LEVERAGE their assets like they did over the last several years. Umm, how'd that work out again? Said yet another way - the very banks that are already insolvent want to become even more insolvent. And why not roll the dice they're thinking; they own the clown-posse in Congress. They'll get another bailout whenever they want.

Five more banks were "put down" Friday by the FDIC.

One of the newly shuttered banks was San Francisco's United Commercial Bank. A year ago the federal government invested $299 million in bailout funds in the bank in exchange for preferred stock, which was made worthless by the failure. "Aaaand it's gone." Moreover, the FDIC said the collapse would cost the federal deposit insurance fund an estimated $1.4 billion. "Aaaand it's GONE!"

Previous Day's Trading Room Results:

Trade Date: 11/6/09

E-Mini S&P Trades*
(before fees and commissions):

1) 80% sell @ 9:55am at 1062.25 = b/e (1 lot)

2) OTF buy @ 12:04pm at 1064.25 = b/e & +2.00 (2 lot)

3) Algorithm positions (2)

4) "Reading the Tape" positions (8) ...combined Secret's, Algo, & "Reading the Tape" total...-2.50

Sign up as an AvidTrader Member to receive "The Technician" Value Area's each day. The market then has an 80% chance of filling the Value Area. Many traders familiar with the Value Area and the techniques that go along with it use it to help them decide what trades to do each day. Join and see how this technique can help you trade more successfully!

Familiar Feel to S&P 500 Strength

noreply@blogger.com (Avid Trader) — Sun, 08 Nov 2009 18:22:00 +0000

By Mike Paulenoff

The strength of this week¹s up move in the S&P 500 had a "familiar feel" to it. Why? After such a nasty close last Friday, prices managed to avert a plunge on Monday morning, turned up, and (perhaps with a nudge from Warren Buffet on Tuesday morning) did not look back. Friday's "bad news is good news" reaction to the Employment Report turned out to extend, perhaps fuel, additional strength for a fourth up-day this week.

Actually, we have seen consecutive up-days in the post-March bull phase, haven't we? Off of the July, September and October pullback lows notice the powerful vertical assault and the overwhelmingly high percentage of up-days. It just so happens that since the July low, a 21-day cycle low seems to coincide with the start of most of the significant up moves and also seems
to be associated with the initiation of a consecutive number and/or high percentage of up days.

Let's notice that this week's strength started at the projected low of the 21-day cycle another 8%, 21-cycle advance, which projects next to the 1111 target zone.

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Evening Update

noreply@blogger.com (Avid Trader) — Fri, 06 Nov 2009 23:40:00 +0000

Stocks Finish in the Green Despite Weak Labor Data

Stocks opened lower after a weaker-than-expected labor report – which included an unemployment rate above 10% for the first time in over 20 years – spooked investors. Markets showed some late-day resiliency though and stocks finished slightly higher, led by gains in the industrial sector. Other economic data today included the 14th-straight drop in wholesale inventories and a larger-than-expected fall in consumer credit. Treasuries finished the day slightly higher following the reports. In equity news, a string of companies including Starbucks, AIG, CBS, Nvidia, VeriSign, and Activision Blizzard all showed quarterly profits inline or ahead of forecasts. Elsewhere, government-controlled mortgage lender Fannie Mae came under pressure after it posted another quarterly loss and turned to the Treasury Department for $15 billion in additional capital.

The Dow Jones Industrial Average rose 17 points (0.2%) to close at 10,023, the S&P 500 Index gained 3 points (0.3%) to 1,069, and the Nasdaq Composite advanced 7 points (0.3%) to 2,112. In light volume, 1.1 billion shares were traded on the NYSE and 1.8 billion shares were traded on the Nasdaq. Crude oil was $2.19 lower at $77.43 per barrel, while wholesale gasoline was down $0.07 to $1.92 per gallon, and the Bloomberg gold spot price added $5.20 to $1,095.50 per ounce. Elsewhere, the Dollar Index—a comparison of the US dollar to six major world currencies—was up 0.1% to 75.78. For the week, the DJIA gained 3.2%, the S&P 500 Index also climbed 3.2%, and the Nasdaq Composite was up by 3.3%.

Starbucks Corp. (SBUX $21) reported fiscal 4Q EPS ex-items of $0.24, three cents above the consensus estimate of Wall Street analysts, with revenues falling 4% versus last year to $2.4 billion, roughly inline with the Street’s expectations. The coffee company said same-store sales trends improved in its US and international segments, on both sequential quarter-over-quarter and year-over-year basis. The company said its performance was favorably impacted from permanent changes to its cost structure, adding that it is seeing broad-based improvement across its global business, and it is “cautiously optimistic” about the upcoming holiday period. SBUX also raised its full-year 2010 EPS outlook and shares were higher.

Activision Blizzard (ATVI $11) reported 3Q EPS ex-items of $0.04, matching the consensus estimate of analysts, with revenues of $755 million topping the Street’s forecast of $722 million. The video game publisher said it benefitted from positive audience responses to its “Guitar Hero,” “Call of Duty,” and “World of Warcraft” game franchises. The company’s CEO said, “We believe we have the industry’s strongest holiday release schedule,” and its “Call of Duty: Modern Warfare 2” “has the potential to be the biggest entertainment launch and not just of a video game.” ATVI kept its full-year outlook calling for EPS of $0.63 unchanged. Analysts have predicted 2009 EPS of $0.64. Shares were higher.

CBS (CBS $13) reported 3Q EPS ex-items of $0.25, two cents above the Street’s forecast, with revenues of $3.4 billion topping analysts’ forecasts, as the company said lower advertising sales were largely offset by higher syndication sales. CBS’ CEO said the operating environment for its businesses continues to improve and it is finishing the year with strong momentum. "The light at the end of the tunnel continues each day to get brighter," the company said. "As the economy recovers, CBS will be a leading beneficiary in the upturn." The company also maintained its full-year earnings outlook. On a conference call with investors, management addressed rumors that Oprah Winfrey’s talk show may leave broadcast television to her own cable channel, The Oprah Winfrey Network, which has yet to launch. CEO Leslie Moonves said talks were under way to keep her show from leaving. In a statement yesterday, Winfrey's production company said "she has not made a decision yet" on a move to cable but will make one before the end of the year. Shares were lower.

Former Dow member and government bailed out insurance group American International Group (AIG $36) reported adjusted 3Q EPS of $2.85, topping the $1.98 that the Street had anticipated. AIG said its profit during the quarter resulted from certain businesses continuing to stabilize, as pricing in its commercial property casualty business has been stable. In addition to the improved market performance, the company said the application of new accounting standards for impaired investments also positively contributed to the results. Looking forward, the company said it expects “continued volatility in reported results,” and a $5 billion charge is expected in 4Q as a result of the company’s special purpose vehicles. Shares were under heavy pressure.

Nvidia (NVDA $13) reported 3Q EPS ex-items of $0.19, above the $0.10 that analysts had been expecting, with $903 million in revenues growing 16% versus the previous quarter and slightly higher than a year ago, topping the $837 million forecast of the Street. The graphics chipmaker said its revenues increased from a year ago with improvement in each of its PC, professional solutions and consumer businesses. NVDA issued 4Q revenue guidance that topped the Street’s forecast. Shares were higher.

VeriSign (VRSN $23) reported 3Q ex-items of $0.33, one penny ahead of analysts’ estimates, with revenues growing 5% versus last year to $258 million, roughly inline with analysts’ expectations. However, shares were solidly lower after the internet infrastructure services firm issued a 4Q forecast that missed the Street’s expectations.

Government-controlled mortgage lender Fannie Mae (FNM $1) reported a 3Q loss of $18.9 billion, or $3.47 per share. That is 35% less than the loss suffered in 3Q last year but significantly above the $14.8 billion loss from 2Q. Revenues were 47% higher year-over-year at $6.0 billion. As a result of the heavy losses, the company announced that it has requested an additional $15 billion in funding from the Treasury Department in order to keep operating. Fannie has already received assistance totaling $44.9 billion. The company attributed the losses to “"the increasing number of loans that were acquired from mortgage-backed securities trusts in order to pursue loan modifications." Fannie Mae also reported that its assistance to struggling homeowners "could adversely affect our economic returns, possibly significantly." The bank’s loans at least three months past due rose from 3.9% to 4.7% of total loans outstanding. Looking ahead, Fannie lowered its forecasted drop in 2009 home prices to 6% from an earlier outlook of 7-12%. Shares were solidly lower.

Unemployment rate at 10.2%, but prior months revised positively

Nonfarm payrolls fell 190,000 in October, more than the Bloomberg estimate that called for a 175,000 decline. However, September was favorably revised to -219,000 from -263,000, and August was also upwardly adjusted to -154,000 from -201,000, for a combined positive revision of 91,000. The unemployment rate rose to 10.2% from 9.8%, above the consensus forecast calling for the rate to increase to 9.9%. Average hourly earnings increased 0.3%, versus the Street's forecast of 0.1%, and the average workweek remained flat at 33.0 hours, versus the estimate of an increase to 33.1.

Treasuries wobbled but eventually finished slightly higher following the data. The yield on the 2-year note dipped 2 bps to 0.85%, the yield on the 10-year note inched 2 bps lower to 3.50%, and the yield on the 30-year bond was unchanged at 4.40%.

In the most recent 3 months, job losses have averaged 188,000 per month, compared with losses averaging 357,000 during the prior 3 months. In contrast, losses averaged 645,000 per month from November 2008 to April 2009. The largest losses in October were in construction, manufacturing and retail trade, while health care and education continued to be areas of strength. Since the start of the recession, health care has added 597,000 jobs.

There were indicators that future reports will show further improvement, despite the negative headline of an unemployment rate above 10%. There was little change in the number of people who are working part-time for economic reasons, those who would like to work full-time but are unable to. Temporary help services added 34,000 in the month, and including upward revisions to prior months, has added 44,000 jobs in the past 3 months. Employers will likely first make adjustments to their workforce by adding temporary positions and by shifting part-time workers to full-time.

Elsewhere, the US Department of Commerce said that wholesale inventories fell 0.9% in September, a smaller decline than the Bloomberg consensus, which called for a 1.0% drop, and August’s 1.3% decline was left unrevised. Wholesalers’ stockpiles in durable goods, particularly in machinery, led the decline, more than offsetting a solid rise in computer equipment. Total sales rose 0.7%—the fifth-straight increase—boosted by machinery sales, which explain the group’s aforementioned depletion in stockpiles, resulting in the inventory-to-sales ratio—the amount of time it would take to deplete inventories at the current sales pace—dropping from 1.20 months in August to 1.18 in September. The decline in inventories at the wholesale level was the 13th-straight monthly decline and inventories sit at the lowest level since May 2006.

Elsewhere, a report from the Federal Reserve showed that US lenders reduced consumer credit for the eighth-consecutive month in September. That is the longest string since records began in 1943. Total consumer debt outstanding was reduced by $14.8 billion – a 7% annual rate, which was more than the $10 billion that economists had forecast. Meanwhile, data for August was revised from the previously announced drop of $12 billion to $9.9 billion. Examining the report in detail, most of the decline was attributed to credit cards and other revolving debt – which fell $9.9 billion or 13%, while auto loans and other non-revolving debt dropped just $4.9 billion, or 4%. The Fed’s report doesn’t cover lending secured by real estate.

In a light week, the economic calendar next week includes MBA Mortgage Applications, initial jobless claims, the Treasury’s monthly budget statement, the trade balance, the import price index and the University of Michigan consumer sentiment survey. Also note that the bond market will be closed on Wednesday in observance of the Veteran’s Day holiday.

Bumpy ride for stocks as markets claw back last week’s losses

It was a volatile week on Wall Street with markets reversing course several times in intraday trading, although stocks managed to finish the week with nice gains. The unpredictable trading followed large losses last week that caused the S&P 500 to suffer its first monthly loss since February as traders attempted to determine if the economic recovery is real, and how much of the improved economic outlook is already reflected in stocks following the almost 60% rally off of the March lows.

3Q earnings season delivered more positive results this week, and according to data compiled by Bloomberg, 83% of S&P 500 companies that have reported so far have exceeded the average analyst earnings estimate. That would make it the best quarter since records began being kept in 1993. Cisco Systems (CSCO $24), Ford (F $8), Toyota Motor Corp. (TM $81), Clorox (CLX $59), and Viacom (VIAB $29) were among the companies benefiting from strong results this week.

M&A activity was also back in the spotlight this week, with no announcement bigger than the $34 billion deal announced by billionaire investor Warren Buffett when his firm Berkshire Hathaway (BRKA $100,450) bought railroad Burlington Northern Santa Fe (BNI $98) in the biggest investment of Buffett’s career. A $4.5 billion tie-up between tool makers Stanley Works (SWK $47) and Black & Decker Corp. (BDK $62), and a $4.5 billion merger in the oil & gas sector between Denbury Resources (DNR $13) and Encore Acquisition (EAC $45) also fanned the flames of a recently revitalized M&A sector.

On the economic front, the Federal Open Market Committee (FOMC) headlined the week’s announcements when it kept interest rates on hold, as widely expected, and decrease its agency debt purchase program to $175 billion from $200 billion, citing a lack of supply of the bonds in the market for it to buy. The Fed statement also highlighted several areas of improvement within the economy, such as the housing market and an uptick in household spending, although ongoing challenges remain evident, the Fed said. Also announced this week were separate reports showing a positive surprise in manufacturing sector growth, and another indication of growth in the services sector, although at a slower pace than economists had anticipated.

Australian growth forecast upgraded, while Canada labor report disappoints

Australia’s S&P/ASX 200 Index jumped almost 2% after the Reserve Bank of Australia boosted its economic growth forecast. The RBA said given the resiliency of the economy, its GDP is expected to increase by a little more than 2% over the year to mid 2010, “a considerably better outcome than thought likely earlier in the year,” with the economy expected to expand by 3.25% over the year to mid 2011. The RBA added that growth in business investment and exports is expected to be strong, underpinned by the ongoing expansion of the resources sector. The RBA—which has increased its main lending rate twice in the past month and became the first G20 central bank to do so—suggested that more tightening may be in the offing after it said, “The cash rate remains at a low level, and a further gradual lessening of monetary stimulus is likely to be required over time if the economy evolves broadly as expected.”

Elsewhere, the Canadian government reported that its unemployment rate rose to a level higher than expected, after its net change in employment unexpectedly fell. Canada's economy shed more than 43,200 jobs last month, confounding the consensus of economists that had called for a gain of 10,000 jobs, pushing the unemployment rate up from 8.4% to 8.6%. Total jobs lost since last October now total 400,000, or 2.3% of the labor force, Statistics Canada said. "Since October 2008, employment has fallen in most industries, with the steepest declines in manufacturing (-11 per cent), natural resources (-11 per cent), construction (-5.8 per cent), and transportation and warehousing (-5.8 per cent)," the agency added.

In economic news in the eurozone, German factory orders rose slightly less than expected. It was the seventh-consecutive month of rising orders, this time by 0.9% over August, when they gained a revised 2.1%. That narrowly missed the expectation of analysts for a 1% gain in September. The monthly improvement in orders was driven by a 3.7% increase in foreign demand, which was tempered as domestic orders fell 2.3%.Overall orders were still 13.1% lower than a year earlier.