The Chart

Below is a monthly chart of RBOB Gasoline dating back to late 2005. I have a few technical lines drawn. First let’s take a look at the two horizontal lines. We have major support (green line) at ~$2.50 and heavy resistance (red line) at ~$3.40. Next you will see two teal (light blue) diagonal lines. As you see, there is a symmetrical triangle formed here.

What we should watch for is a break (and close) above either side. I think we can see some heavy momentum if we break to one side AND especially if we take out the respective support or resistance. If we were to break-out, I’d be expecting a test of the 2008 highs of ~3.60. If we broke down, I’d look at the 1.80-2.00 range for support.

One other thing to watch for is oil (both brent and crude) for a signal.  Personally, I have a feeling we can see a break to the downside because:

A) A better argument can be made for (either good and/or bad) deflation rather than inflation.

B) The Potential Head & Shoulders Pattern that has formed.

Tags: $RB_F $UGA $USO $CL_F $QU_F

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So is there any hope for Facebook (and all those people holding stock from higher levels)? While I am sure there are over hundreds of fundamental arguments, there can only be on chart. So let’s dive into some Technical Analysis.

The Chart

$FB Weekly Chart

I have marked several levels below. For the past few months, Facebook has traded in the range between ~25 (bright green line) and ~29 (white line). I like a break below or above these levels will determine where $FB goes in the following months. There is a significant pivot level of about ~24 right below, but  it is not support unless it hold (previous resistance COULD be support, not WILL be).

If $FB breaks back above ~28.75-29, I can see it rallying to 32, where it was met with heavy resistance. A break above that (and 33.50) and I think the “return to IPO prices” party could start. We could see prices rally all the way to the mid 36s or even 40.

So for now, Facebook looks neutral as it sits pretty much in the middle of its 1-yearl range right above the 50 week moving average (the dark blue short line).

Tags: $FB $QQQ 

The post One Year After Its IPO, Is Facebook Finally a Buy? appeared first on TheArmoTrader.

I’m currently looking for the 435 ish (433-437) area to hold to get long. Why that area? It’s not only where the 50 day sits, but also previous support AND the 38.2 Fib retracement. Putting these factors together, I think a decent trade exists here by getting long against that possible support (I’d like to see it hold or shoot below and quickly back above) with a definte stop-out below 425.

Personally I’d like to see it hold 430 but knowing the algos that exist in AAPL, it will likely not be that clean/easy. A break below 425 is more than a 50% retracement, and looks more like a sell-off  rather than a pullback. A 10 point risk, ~50 point reward trade yields a 1:5 risk/reward ratio, which is more than good for me.

$AAPL Daily Chart

Tags: $AAPL $VXAPL $QQQ $COMPQ $STUDY

The post What I’m Looking For In Apple appeared first on TheArmoTrader.

The Charts

Before we get into the nitty-gritty, let’s take a look at the daily 1 year chart for Nat Gas. As you see below, the trend is still up. The 50 & 200 day moving averages are still trending up.  And we still have a series of higher highs and higher lows. Hard to be a full on bear here. Chart still says up.

However, by definition, a top is made when the chart looks the best (and vice-versa for bottoms). However, we have no idea when that top comes. It could have happened already or is yet to happen. As traders (and investors), our jobs are to take trades in which the risk:reward ratio is favorable for us.

Below is a 5 hour chart of Natural Gas (each candle equals 5 hours). As you see, back in April we had a test of the ~4.40 area (specifically $4.42).  It initially failed and retraced. On the 2nd try, it spiked right above this 4.40 area but immediately turned back south. This my friends is what you call a double-top in the making. Now, like I said, the daily chart still looks strong. So any bet to the downside is going counter-trend. However, I think there is a decent risk:reward trade here.

I like that fact that it has gotten tight (consolidation) right under the $4.00 level. I think a trade up against $4.00 with a stop above $4.20 has the potential to work, with downside targets of the 200 day moving average and $3.10 (The Risk:Reward ratio works out to be about 1:3). Preferably your stop would be above the highs with a bigger target, but since the volatility is not that great (I mean, the thing has been stuck basically in a $3 range), the trade, in my opinion, has to be a bit tighter.

That being said, a little caveat: Be cautious of the vehicle you use to trade Natural Gas. Unless you trade futures, the ETFs for natural gas tend to not be the best structured vehicles.

Tags: $UNG $GAZ $NG_F $UNL

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So, what can we do to close this output gap? Some argue the Federal Reserve ($FED) should do more, some argue it should do less. Some argue we need fiscal stimulus spending, and some argue that we need to get government out of the way. While I am on the side of more fiscal stimulus with some monetary easing, I think I have a compromise that all sides can agree to.

The $FED should just print money and send it to people. Yes, I know this sounds crazy, and it probably is, but as they say: “It’s so crazy that it just might work”. This thought popped into my head after reading this Bloomberg piece that suggested we mail everybody gift cards. While I like that idea as well, I see printing money and mailing it to people as a better alternative (true helicopter monetary policy). Now, before you stop reading here, hear me out.

Just because the $FED prints money, it does not mean inflation, or let alone, hyperinflation. If it were to print $1 and send it to everybody, would you predict doom for the dollar? No you wouldn’t because the amount being added to the money supply is trivial. So you need to stop equating money printing automatically with inflation, because there are other factors (supply/demand) that come into play.

Now my proposal would be to send $200 (or more?) of freshly printed cash money to every household. There are about 115 million US households. This would amount to $23 billion of new currency in circulation. Now, this sounds like a lot, but it really isn’t. To illustrate this, take a look at the chart below. It shows the actual Currency in Circulation (red) vs potential in blue (had we printed the $23 Billion on January 1 of this year). As you see, there is a jump, but it isn’t very major. This isn’t going to cause a major jump in inflation (if any), but it will help the economy.

We could even adjust the plan and amount (maybe even up to $1000-which will match the amount lost to the payroll tax cut expiration) to make it more efficient & progressive. For example, I don’t think the higher marginal tax brackets are strapped for cash. We could make the plan so that the lower tax brackets receive the bigger chunk of the cash. And no, this isn’t class warfare because everybody will benefit from this plan. Let me expand & explain below.

1) Those receiving the cash will do 3 of the following things: Spend, Save, or Pay down debt.   

• If they spend it, that’s great, it increases aggregate demand, sales pick up, more people will be needed for hire, unemployment falls down and the people who get the $200 consume good and services that they     likely wouldn’t otherwise.
  
• If they save it (or invest it), that’s great too. Who wouldn’t want other people to have more savings and/or investments? At worst, if they keep it as cash, it could be used as a fallback option in the future if a family needed money for an emergency. This saving option is great too because it would not effect inflation a lot since there is no “money velocity” but it would provide families a much needed increase in wealth.
• If they pay down debt, this is great too because it will allow otherwise indebted people to either spend or save/invest.

2) Now what about that pesky inflation problem? Well for one, it will likely be a benign jump if anything. But here are the reasons to not worry about inflation.

• If inflation picks up, guess what the $FED is likely to do? Raise rates. For one, that would cool inflation. But more importantly it will cause the rates in fixed income investments (CDs, Bonds, etc) to go up as well. So savers would not get “screwed” here.
• Inflation erodes debt. This will not only help the US national debt (by lowering debt:GDP), but also consumers still stuck in private debt (be it mortgage, student, etc).
• Inflation expectations will pick up. Companies & investors alike would expect higher inflation thus will be pressed to invest now rather than later.
• Even if inflation remained stubbornly high(er), but unemployment fell down, this would be an OK trade-off than what we have now. Why? Because unemployment makes us more miserable.
• A pickup in inflation could be met with a faster pickup in wages. This is good for the long-term because it makes things actually more affordable.

3) Other benefits await as well.

•  Consumer confidence is likely to pickup as unemployment falls down & retail sales pickup.
• It would not add to the national debt (not like that is a major worry).
• It wouldn’t put so much focus/pressure on monetary policy, which some believe is going too far.
• Stocks are likely to benefit from a stronger recovery.
• This is NOT a bailout! For one, the government is not picking winners and losers. Everybody, progressively, will get cash. Yes, the lower income brackets will likely benefit more, but given that stocks are likely to benefit as well more than makes up for that (the “top 1-5%” own most of the stocks in America). Also, it will naturally clear out those who are “immoral”. For example, if someone who was heavily in debt, instead used the money to spend rather than on debt repayments, than that person will eventually go bankrupt. A “moral” person will look out for his/her best interest. A “moral” person who has everything he/she needs can instead donate the money to charity. I don’t see any bailout/moral issue coming into play here.

There are only a few cons that I see.

1) We cannot get too reliant on this policy. Even though the government always “prints” new financial assets (be it cash, or bonds), constantly printing huge new amounts of cash is not sustainable.

2) If inflation picks up hard, it could hurt any benefits we gain from this. I don’t think this is likely, and any pickup in inflation is likely to be transitory IF this is a one-time thing.

3) Of course, political constraints. This is likely a political non-starter.

4) It is illegal! The $FED has specific powers granted to it and it cannot just mail people cash. Yes, this is hard to believe I know! (Sarcasm)

Conclusion

So in conclusion, everybody pretty much is set to win. Consumers, Investors, savers, spenders, & debtors all look to benefit from this. The only group that I could see not benefiting from this are creditors, but even then, they are not likely to be harmed to a high degree. I would argue that the increased risk of default by debtors is worse than a little erosion in the debt payments. We would finally see GDP growth pickup and our biggest crisis, unemployment, come down. And most importantly, living standards would be raised.

Tags: $MACRO $FED $SPY

The post The Fed Should Just Print Money & Send It To People appeared first on TheArmoTrader.

For example, only 18.6% of the holdings are in ‘commercial banks’ while 26.7% are in ‘diversified financial services’. Combing those two (assuming there is some type of ‘bank’ quality for all names), you only get 45.3% of the ETF that’s influenced by banks (and that is being generous). The rest (54.7%) are other financial names, which means a great deal of influence comes from those names.If you were to look at ETFs that concentrated either more or strictly on banks (like $GS $JPM $BAC), then you would see the underperfomance (relative to the market) by them.

The Chart

Below is a performance chart of $SPY (green/red line) vs various financial ETFs. They are: $XLF (Salmon Pink), $KBE (White), $RKH (yellow), $KRE (turquoise), $KBWB (dark blue). As you see, XLF is outperforming the market, however, most other bank-heavy ETFs are underperforming so far year-to-date.

While this wasn’t the case earlier in Q1, this clearly is the case now as banks are acting as laggards. Is this just a lagging industry or is this an internal that is forecasting future weakness? Given that the market gaped up to new all-time highs on a solid jobs report, I wouldn’t be too worried about the weakness in this sector. However, it should be something to monitor going forward especially if we start showing any weakness.

(And if you don’t know why the financial sector/banks matter, read this)

Tags: $SPY $XLF $KBE $KRE $RKH $KBWB $GS $JPM $BAC

The post Banks Are Underperforming The Market appeared first on TheArmoTrader.

Least Important

A lot of people are obsessed with the number when its released. There are those who love to break it down and rip it inside out (either for a bullish or bearish spin). However, those who magnify the job report as the be-all & end-all of economic indicators are not doing everyone else justice. While the jobs report is important (will talk about this later), there are many reasons to not get sucked into the hype on one month’s data.

1. The number gets revised! The number we hear tomorrow is very likely not going to be the final number we hear for April 2 months for now. I like to point to August 2011 when it was first reported that ZERO jobs were created. After 2 revisions, we saw that not only was that wrong, but it was totally off and we had actually created 132,000 jobs! I have been on “Team Revisions” for as long as I can remember (as in I care about revisions more than headline number).
2. The number is likely inaccurate! The sampling error for a 90% confidence interval is +/- 100K.
3. One month does not a trend make! This month might be super high or low, but what it is not is a trend. Until I do not see 3-4 consecutive (revised) months headed in the same way (improving/deteriorating/stabilizing/etc)
4. It’s just one data-point! We get a ton of other data on the other days of the month. Even if this number is bad, it doesn’t mean the $MACRO outlook is bad.
5. It doesn’t really mark major market turning points. The market trades at the levels of “NFP day” in the near/intermediate future. Just take a look at a chart of $SPY. Would you be able to tell which days the jobs report was released (without seeing the dates)? I marked them down in the chart below.

$SPY Daily

Most Important

Here’s why it can be the most important data release we have.

1. The $FED is likely tracking job growth. So if they see tepid growth (or in good times, strong growth), they might be tempted to act. And it’s not that I believe the market is based only on the $FED, however, their decision still has an impact on markets.
2. It could affect the economy. Given this is the headline number and probably the only economic number Americans hear/know about, so it could effect consumer/investor confidence. I don’t think this is too significant, but on the margin it could make a difference.
3. Coinciding with other data. For example, ADP (the private payroll data) and NFP track each-other pretty well long-term. If they were to diverge, which would we think is correct? It would be hard to forecast data if other things didn’t confirm it. You would not expect 7% GDP growth if NFP was to average 125K/per month for the year. Again, this might not have a direct effect on markets, but it would make reading the economy harder just because jobs are such a big part of it. Any major divergence in the data could make forecasting hard.
4. It moves markets! Contrary to point #5 above, NFP truly is a market mover. Here is an awesome chart from Jared Bernstein. As you see below, NFP, compared to other data releases, really moves the market short term. So if you are a shorter-term trader, you need to be aware of the importance of this release.

Conclusion

The Jobs report can be both important and inconsequential. Just like most things in life, we need to “moderate” our ‘intake’ of the importance of NFP. Yes, it’s important, but its not really the ultimate hay-maker for the markets. It’s best to pay attention to it, but not overplay the number (be it good or bad). And yes, I know that’s tough to do!

Tags: $MACRO $SPY $DJIA $SPX $DIA $IWM $FED

The post Why The Jobs Report Is The Most & Least Important Economic Data Release appeared first on TheArmoTrader.

But now that AAPL got its bounce, what now? Has the stock been acting constructive long-term? I think so, and here’s why.

The Chart

Below is a weekly chart of AAPL. After topping in September of last year, the stock has shown nothing but weakness and ‘sell the rip’ characteristics. However, recent price action has been bullish. What happens this week will be very important. First, I’d want to see a close over 420, which is a huge level on the daily. However, more importantly, I want a close above the weekly down-trend line. A close over this line signals a possible trend reversal. The first target (resistance) to the upside would be $500 (although the 475 ish area could provide some resistance as well). Above that, I’d be looking for that all-important 50 week moving average  which has proven in the past to provide support (would be possible resistance this time). Anything above that would likely take time (and frankly, I’d be surprised if we saw +540 anytime soon).

$AAPL – Apple Inc.

(Disclousre: Long AAPL)

Tags: $AAPL $QQQ $VXAPL $COMPQ

The post Apple Got Its Bounce….Now What? appeared first on TheArmoTrader.

I’m going to be blunt here. The hyperinflation (in the United States of America) bet never made sense.

Here’s Why.

1) Lets say you even believed that all fiat currency was doomed. Why would the US dollar ($USDX) go first? You would think the US dollar being the reserve currency and the currency of the biggest economy in the world,  it would be harmed last. Don’t take my word, listen to what Mish says (this interview was actually good).

2) Now, lets say you’re not a fiat-doomer, but were worried about the expanding money supply. But ask yourself this, why would all that “money” go into the economy right away? People assume just because the $FED “prints”, it means more dollars/money ($UUP) automatically in the economy. This is not true. You need LOAN demand to get those dollars into the economy; that’s just the way our system is structured. And given that we have been in a balance-sheet recession since late 2008, loan-demand increasing too quickly should’ve been the last thing on your mind.

By the way, in point #2 I assumed you believed the Money Multiplier, which leads me into point #3.

3) The money multiplier is a myth! Bank-lending is not reserve-constraint, but instead is capital-constraint (among other things). We are always at risk of loan-demand picking up too fast, but these risks are managed by regulatory (Higher Capital requirements, stricter lending requisites, etc) and monetary (‘tighter money’) policy. So the likelihood of ‘loan-demand’ getting out of hand and those reserves escaping to the economy is nonsense.

4) Lastly, Hyperinflation is not only rare, but is highly exogenous & usually politically driven. It is caused by exceptional & extraordinary events or actions, like having your whole productive base destroyed in a war, or having debt-denominated in foreign currency. More on that here (here & here as well).

I’m not saying that it is never a possibility for the US (that doesn’t mean I think it’s going to happen either), but if you are betting on it year after year, you are going to lose money. Heck, we could barely generate mild inflation!

Tags: $UUP $USDX $EUO $MACRO $FED $ECB

The post The Hyperinflation Bet Never Made Sense appeared first on TheArmoTrader.

The Chart

After breaking below the triangle, copper sold off on heavy volume. However, the sell-off has stalled in this $3.00-3.10 area. While most things on this chart scream ‘bearish’, the RSI is indicating “oversold” conditions. Not that I do not think it can’t go lower, but if I had a position on, I think it’d be prudent to take off at least half near this support. A break below 3.00 would trigger the next leg down to the ~2.75 area (2010 low).

Paging Dr. Copper….the patient looks sick.

$HG_F Weekly chart

Tags: $HG_F $JJC $QC_F $FCX $SCCO $CLF $COPX $CU

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