Housing starts rose 6.8 percent in May to a seasonally adjusted annual rate of 914,000 units, missing expectations for a 950,000-unit rate.

Consumer prices edged up 0.1 percent in May, according to the Labor Department. Consumer prices outside of food and energy rose 0.2 percent last month, just above the pace clocked in April.

Turning to the indexes we finally have seen the breakouts that have been lacking in the S&P 500, NASDAQ, and Russell 2000.  Of course we can ALWAYS have a fakeout where we breakout and immediately fail.  But thus far in 2013 that has not been the case.  The timing is not ideal ahead of the FOMC press conference tomorrow because "taper or no taper" talk will most likely move markets strongly in one direction or the other.  But we'll assess that tomorrow.

The S&P 500 broke above its 20 day moving average, and more importantly printed a new high versus a week ago Monday's high which creates the first "higher high" in a while.

The McClellan Oscillator is back to neutral territory - a more healthy market will start to see positive readings but of course bulls don't want to see extremes.  If this continues to stick in the negative range it means a lack of health in the underlying market.

I've highlighted the 3 top sectors which broke out first - they are industrials, consumer discretionary, and technology.  This is a solid group if they can continue to lead; note the exact same breakout we noted in the indexes.  Now they must hold with Bernanke in the batting box.

Original post: STTG Market Recap June 18, 2013

Homebuilder sentiment jumped, with the NAHB/Wells Fargo Housing index soaring to 52 in June from 44 in May. It was the first time the index rose above 50 for the first time since April 2006. Reading above 50 signal that more builders view market conditions a favorable than poor.

Here is today's wild intraday action:

On the daily chart we are looking for a clear breakout out of this channel.  It was looking far more promising at 1:30 PM than at 2:30 PM.  The S&P 500 was really the only index to break out but by the end of the day it had done so just barely.  It finished below the 20 day moving average and below last Monday's highs - bulls would like to see both of those surpassed.

The NASDAQ and small cap oriented Russell 2000 both did not break out of their channels so we still are in a bit of flux heading to the Federal Reserve announcement and press conference Wednesday.

There was some rotation under the surface today as we saw weakness in groups that had been leaders earlier in the year - both the biotechs and transports had poor days relative to the indexes.

On the plus side we did see some nice individual breakouts - Netflix (NFLX) had a very strong day as the company announced a deal with DreamWorks for original content.   This helped the stock breakout above its descending channel, something we want to see on the indexes.

Netflix announced a deal on Monday to air television programming from Dreamworks Animation in what the company described as its biggest transaction ever for original first-run content.  Though financial details were not disclosed, Netflix Inc. said the agreement includes more than 300 hours of new TV episodes in a multi-year deal starting in 2014.  The transaction is a major coup for both companies. It helps Netflix compete with pay TV channels such as HBO and Showtime, and it gives Dreamworks a potentially lucrative outlet for its shows as it tries to shed its reliance on two or three big-budget movies each year.

Overall, today was looking like a major win for the bulls until 2 PM but that headline caused some issues technically.  With only one day before the FOMC meeting it would seem unlikely a slew of buyers show up before what is certain to be a very volatile Wednesday!

We are always looking at relative strength during selloffs under the guise that the stocks that have held up the best when the market is selling traditionally outperform during the next upswing.  To that end, Bespoke has a list of best performing S&P 500 stocks since this month long correction began.

Original post: STTG Market Recap June 17, 2013

The S&P 500 came up to its 20 day moving average and was firmly rejected today.  The index has closed below this moving average 14 of the past 16 sessions so it's an easily observable line in the sand.  A close above it for more than one session could help mark a change in tone.  But larger picture as we have been saying the past few weeks, until this channel is broken to the upside, one can try to make quick trades in and out within the channel or just sit it out.  We never know if these are 3%, 5%, 10%, or 20% type of corrections - in the meantime they tend to wear on the psyche so there is no harm in large cash positions during these periods.  And with only 2 more sessions until Wednesday's Fed announcement and press conference it seems likely we'll just flop around in this channel until that catalyst hits.

Showing exactly that type of frustrating action, yesterday we mentioned the "hammer" (a large reversal where the index closes near or at highs) that had potentially formed on the emerging markets ETF (EEM).  Well...that lasted all of one session.

I do want to point out oil however - it finally broke this 5 month downtrend of lower highs.  If this can sustain early next week we might have the potential for the first sustained move up in a long time.

As for precious metals they remain in the same area they have been for many months - no man's land.

It is very difficult to find long ideas that sustain in this sort of market, but the sort of reversal pattern LinkedIn (LNKD) put in Friday would normally be a very enticing one.  We see it broke out of its 6 week descending channel on a big jump in volume; in a healthy market this is an excellent place for an entry (one can stop out of the position if it falls back into the channel as that would mean it is "not ready").  However in this sort of market the chances of this sustaining are not quite so great.

Original post: STTG Market Recap June 14, 2013

Thursday saw very similar action to the previous Thursday.  A quick dip down at the open followed by a reversal, and big move up with a close near the highs of the day.  Often these type of days mark a bottom of a correction so we have to watch to see if that was it as it is too soon to tell.  But bulls made some nice progress.  Economic news was ok as weekly jobless claims fell again and  retail sales climbed 0.6 percent in May, topping expectations for a gain of 0.4 percent.  However near the end of the day the Wall Street Journal reported that an adjustment in the Federal Reserve's bond-buying program did not mean that the central bank would end "all at once" or that the Fed was "anywhere near raising short-term interest rates."  Investors took this as an "all signals go" on the punch bowl being provided by the Fed and stocks rocketed upward immediately.  The S&P 500 added 1.48% and the NASDAQ 1.32%  Let's take a look at what signs to look for, to see if this was a lasting bottom technically.

The S&P 500 fell to its 50 day moving average in the morning but as you can see did not make a lower low versus the low it made last week.  It bounced all the way from that 50 day moving average to the top of the descending channel.  The coast is not yet clear but another significant rally could put a nail into the 3+ week correction - that would be a close over Monday's highs, creating a higher high (to go with the higher low put in today), along with taking the index outside the upper end of this channel.  Of course that is only helpful, if the index does not immediately roll over but this is the thing technicians will want to watch.

The NASDAQ is in a similar situation.

The WSJ comments helped rally bonds, which lowered yields, as it means less chance of QE going away anytime soon.

Perhaps any new leg up (if that is the next step in the market) would be accompanied by a breakout by oil, which remains stuck in this 5 month range.  Each time it gets close to breaking out it reverses - a tease indeed.

Emerging markets - while broken technically as a chart - put in a sharp reversal; this type of pattern today is called a hammer and often can mark some sort of short or intermediate term bottom.  This is another area we can watch to see if there can be some constructive action.

Remember last Thursday we had a furious day and a half rally off a key reversal pattern but things fell apart right after.  So bulls are not out of the woods - often the most sharp rallies come within the context of corrections.   So the next handful of days should reveal a lot.

Original post: STTG Market Recap June 13, 2013

The S&P 500 remains in this descending channel and came to nearly test the top of it on the morning gap up.  We are again reaching near term oversold status but in these types of markets preserving capital is job one.  The oversold rallies are vicious as we saw last Thursday and Friday but we have now erased all that very quickly.   A retest of last week's lows of the 1597 area seem very likely.   This is now the second major break of the uptrend line (in purple) from November; the one in April lasted a handful of sessions before a rip roaring rally.... this one is more lasting and looks to be putting an end to that trend.

Breadth was very poor again today and we can see the past few weeks a series of reading below -1500.

We will post the NASDAQ McClellan Oscillator as it seems to be acting more typical rather than the NYSE version we usually look at which remains at extreme readings (nearly -100)

Usually bonds would rally during a selloff but the bond selloff (and increase in rates) is in part the reason for the selloff so it's currently not a good hiding place.

As for individual stories there are some individual stocks which go up during these selloffs but it is like picking a needle out of a haystack.  Generally 70%+ of stocks tend to move with the market direction and it's been even more extreme during this selloff so discerning much from which stocks go up any one day is not helpful as they then tend to fall the next day.

Here are 4 sector ETFs - among the strongest, and they all essentially mimic the indexes - so we don't really have any outperformers anymore.  The same story holds technically for them all; when they can pop over the top line of their descending channels and hold that level, we have a change in character.  Until then they will travel from the top to bottom of these channels.

Of course we do have underperformers - utilities for example have been very weak.

Original post: STTG Market Recap June 12, 2013

Citigroup could lose as much as $7 billion on currency swings if Charles Peabody is right, putting the analyst at odds with peers who say the stock will be the best performer among big U.S. banks in the year ahead.   He estimates the bank may lose $5 billion to $7 billion in regulatory capital this year if the dollar gains against the yen, euro and currencies in emerging markets, which provide about half the firm’s profit. That would be its worst translation loss in five years, exceeding the $3.5 billion deficit in 2011.

The S&P 500 remains in this downward channel; it appears yesterday morning perhaps it was ready to break over it but selling quickly followed.  Now the index is essentially back in the middle of its descending channel, so near term it can go either way.  Until this range is broken to the upside it remains a corrective pattern.  If this selloff continues in the coming days, last Thursday's lows will be very important to watch.

The NASDAQ is very similar.

Breadth was horrible today - at the open the advance decline measure showed -2500 which is the worst of the entire rally.  Even with some gains later in the day this was still an extremely poor reading near -2300, and follows a lot of bad ones the previous two weeks.

The yen made another strong move today, and that is considered a "risk off" situation - but anytime a currency moves 3% it is quite rare.  But it has now happened twice in about a week with the yen.

Emerging markets (i.e. Brazil, Russia, et al)  have been very weak for much of the past few months but lately have fallen off a cliff.  Frankly the markets supported by QE are the main ones in the world doing ok - a lot of other markets have had a rough year.  Here is the ETF for the group.

Other than some medium and small cap type biotechs there were not many places to hide as the advance decline index shows us.  Even worse, areas that showed relative strength yesterday (we mentioned solar stocks) fell hard today, which means we have no continuation day to day.  Not a healthy sign.  For example, First Solar was up 6% yesterday but today down 7%.

Original post: STTG Market Recap June 11, 2013

The S&P has stalled exactly where expected for now - a few days of sideways action to build strength for a new leg up would be how it typically works but in the QE world these rallies tend to be sharp and fast.  Of course the bear case still remains where "that was it" and the market has its very true rollover of the year.  Right now we are at inflection point awaiting more data for both the NASDAQ and S&P 500.

Lululemon (LULU) the hot yoga brand announced guidance and their CEO's departure after the close - the stock has been rocked to the tune of 12% in the aftermarket, down to the $72 area.

The yoga clothing company that made headlines earlier this year for its see-through pants snafu said Monday that CEO Christine Day will step down as head of the company after a successor is named. Day has held the CEO spot for more than five years.  The Canadian company made the announcement as it reported a slight increase in its fiscal first-quarter profit on higher revenue.  Lululemon earned $47.3 million, or 32 cents per share, for the quarter that ended May 5. That's compared with $46.6 million, or 32 cents per share, in the first quarter last year.  Revenue increased 21 percent to $345.8 million from 285.7 million.  That beat market expectations for the quarter. Analysts, on average, were anticipating earnings of 30 cents per share on revenue of $341.4 million, according to FactSet.   Its revenue from stores open at least a year increased 7 percent.

Facebook (FB) finally is showing some life the past few days, and today benefited from an upgrade.   This is the first visit above the 6 week downtrend channel it has been stuck in; let's see if it holds.

Facebook could be one of the "most compelling investments in the Internet sector right now," according to Stifel Nicolaus analyst Jordan Rohan, who sparked a rally in the company's shares on Monday by raising his rating from "hold" to "buy."  Rohan spoke to CNBC's "Squawk on the Street" about his call, which includes a price target of $29.  The bears on the stock either believe Facebook ads don't work or that engagement is declining as younger demographic is leaving the service, Rohan said. However, he believes several catalysts in the next 12 months will create a situation where investors will "have to buy the shares."  These negatives have already been factored into the share price while the positives have been ignored, he said.

Solar stocks were back in the market's graces today, and generally held up well during the correction - here we see First Solar (FSLR) held its 20 day moving average.  Sunpower (SPWR) - with less institutional support than First Solar - broke its 20 day only slightly.

Housing stocks on the other hand continue to have a rough go of it - after a dead cat bounce the previous two sessions, they continued their downward path.  Perhaps people fear rising mortgage rates will take steam out of the housing market, even though traditionally a 4% mortgage would be considered rock bottom.

Original post: STTG Market Recap June 10, 2013

Trade Your Way to Financial Freedom
Author: Tharp, Van
Price: $18.26

Van Tharp is well-known for his teaching on trading systems, and this book is a classic. His work has had an impact on my own personal trading, and perhaps the most valuable information is on the concept of calculating risk, "R", and learning to think and track trades via risk multiples. in Dr. Tharp's eyes, successful trading involves a dose of psychology, risk management, understanding "R", and trading for expectancy with proper position sizing. This book is a classic and a must read for anyone who trades for a living or desires to do so in their lifetime.

Hedge Fund Market Wizards
Author: Schwager, Jack D.
Price: $22.00

Jack Schwager's series of Market Wizard books are well known and for good reason; the interviews are immensely valuable, inspiring, and just plain fascinating. Some of the books in the series have certainly been better than others, and Hedge Fund Market Wizards is now my favorite next to the original. I couldn't set this book down and was enthralled in the stories of these trading gurus. I loved the variety of investors. Having a glimpse of their lives, careers, and lessons learned along the way was raw and invaluable. In fact, I enjoyed the book so much that I have already purchased a few copies for friends.

Trade Like a Stock Market Wizard
Author: Minervini, Mark
Price: $12.99

Mark is a US Investing Champion and in this book he shares a start to finish guide on how he trades, which I found myself constantly comparing to Bill O'Neil's CANSLIM strategy and perhaps my favorite stock book of all-time How to Make Money in Stocks. Trade Like a Stock Market Wizard is certainly no Bill O'Neil masterpiece, however it is packed full of trading tips, insight, and strategy. The book should not be read just once, and is probably best suited for those who already have atleast some experience with the market. I'd be very surprised if I do not touch up on several chapters again down the road.

There are several drawbacks to note. With such an exorbitant amount of information, quick summaries at the end of each chapter would be extremely helpful for newer investors. Secondly, I felt the book did not get into position management enough, ie what to do once you have a winner, when to take profits, etc. which I feel is a notable asset of O'Neil's classic.

BULLSH*T FREE GUIDE TO IRON CONDORS
Author: McMaster, Gavin
Price: $2.99

Those that know me know I am not a big options trader. However, I found this quick read guide very helpful in understanding iron condors and the strategy behind using them effectively. Dozens of trade examples are presented throughout with by P&L graphs and notes, even going into specific situations and trading individual securities, indices, the VIX, etc. Since the guide does go quite in depth, having previous knowledge on the subject is highly recommended to maximize its value. Even if you've never traded iron condors though, the guide has something to offer. For the price, it's an easy winner.

Chart Your Way to Profits, 2nd Edition
Author: Tim Knight
Price: $42.75

This book had promise, and while it did have some valuable chapters on technical analysis including patterns and examples of success, the book is mostly a guide to ProphetCharts. ProphetCharts is the charting software created by Tim Knight which was acquired by Investools (became the backbone of the educational service), then Investools was acquired by TD Ameritrade, and now ProphetCharts is offered through the thinkorswim platform owned by TD Ameritrade. Tim Knight blogs through Slope of Hope, is a great trader, and is well respected, however Chart Your Way to Profits is unfortunately not worth the high price tag.

Trading Beyond the Matrix: The Red Pill for Traders and Investors
Author: Tharp, Van
Price: $19.99

I read Trading Behind the Matrix based solely on the reputation of Dr. Van Tharp and his work with his classic Trade Your Way to Financial Freedom (see above). While Van Tharp is a master of trading systems, this book was a complete let down. The vast majority of the book is focused on stories from Van Tharp students, telling their own tales and sharing their stories alongside what they've learned. Furthermore, the book is littered with endless plugs of Van Tharp's seminars, products, services, etc which got old fast. Finally, the book dives deep into psychology and at times strays away from the market. All in all, save your time and money and stick with Van Tharp's classic in leiu of this followup failure.

What investing books have you read recently?

See Also:

• 20 Must Read Investment Books
• 60 Stock Tips for Investment Success
• 25 Essential Bear Market Stock Tips For Investors

Original post: 6 Investing / Trading Book Reviews