Red Flags or Green Flags? Part 2: Wall Street Sector Selector
Hi, Friends,
Is it red flags or green flags? Danger or all clear?
Hard to say with this week’s big sell off, the Fed cutting interest rates again but hinting this was it for awhile and the employment report on Friday. Cross currents and confusion seem to dominate with greed and fear tugging for control of the markets.
For us, it was a busy week with the portfolio rebalance, closing one trade and putting on two new positions for November. We closed out IEZ, U.S. Oil Services, which had been on since September for +4.09% gain in two months, but for new money added in October, IEZ gave up -2.86%. Earlier we were stopped out of Hong Kong Index, EWH, with a +8.6% gain for September trades and a -4.8% loss for trades put on in October.
These results reflect the choppy nature of the market we’re in and the weakness in October, but overall for October, even with the two losses, the system returned us gains of +5.93% compared to +0.15% for the S@P.
And for the first two days of November, we stand at -0.64% compared to -2.6% for the S@P.
The View from 35,000 Feet
The two big market movers this week were, of course, the Fed meeting and rate cut and the employment report on Friday. The Fed continues to catch up to the sub prime mess that we’ve been discussing for weeks, and almost daily, there’s another multi-billion dollar write off from a big financial. This week, Merrill Lynch was the big newsmaker with their CEO’s head rolling over their mounting sub prime losses and Citigroup’s CEO looks close behind with severely declining earnings for the quarter.
Of course, what’s making everyone really nervous is that no one knows for sure how big this is or what the losses on all of these derivatives are going to be, or when it’s going to be over.
I don’t have all the answers, either, but here are some things we do know:
--$800 Billion worth of sub prime loans will reset to higher rates between October, 2007, and December, 2008, and most of these homes were bought at market top.
--A Congressional Committee forecasts 2 million sub prime foreclosures in the next 18 months.
--Foreclosures compared to last year are up +201% in Arizona, +130% in Florida, +920% in Connecticut and +212% in Nevada with many other states in double or triple digit columns.
Beyond that, while the official Department of Labor jobs report showed a gain of 166,000 jobs, their informal telephone poll of households showed a net loss of 211,000 jobs and year over year job growth of just 0.7%.
What It All Means
What I wrote a couple of weeks ago appears to be unfolding:
“The economy is clearly slowing. The sub prime melt down is spreading past financials and since financials are widely represented on the S&P, that broad indicator will experience downward pressure. Oil and the high price of gasoline will act like a tax on the consumer and our petroleum based economy, and it’s hard to make a case for robust growth in the next few months.”
There are plenty of red flags and plenty of danger ahead with the credit crisis, oil heading for $100.bbl. and the consumer getting pinched as the value of his house continues its precipitous decline.
But there are plenty of green flags, as well, for each of these problems presents an opposite opportunity, and that’s what sector rotation is all about. Finding the opportunities that always exist, regardless of what’s happening around us.
The bottom line on all of this is that the probability of recession grows daily, stock prices look weaker in the short term and the Fed will continue lowering interest rates in the months ahead.
For November, I think we can expect a challenging month.
The Week Ahead
This week brings the Benny and the Feds show to Capitol Hill where Chairman Bernanke is scheduled to report to Congress; following Gentle Ben are the monthly retail sales report and the University of Michigan Consumer Confidence report.
Also, all eyes will be focused on Citicorp’s unfolding struggles and 50 more company earnings reports next week.
Sector Spotlight
Energy, international and precious metals remain the leaders. U.S. telecommunications, semi conductors and, of course, financials are the dogs, with real estate close at hand.
As I mentioned above, the short term looks decidedly weak with 75% of the sector ETFs I follow now flashing short term downward prices.
Wednesday was Halloween, and for the first time in many, many years, I didn’t go trick or treating with my kids. My big boy is in college down in Santa Barbara and my young son, now a freshman in high school, was buried in homework and too cool to go out. For all those years that have so swiftly passed, I’d dress like my kids for trick or treating. One year we were pirates, another we were Baby Darth Moll and Big Darth Moll, and my favorite was the old and young Phantom of the Opera, complete with musical score blasting from under my cape.
But my last Halloween is behind me now, and I have to say, it’s depressing. And it occurred to me on Wednesday night as the goblins came to my door, that we really should do everything in life as if it were for the first time or the last time. Because one day, it will be the last time and there’s no instant replay or another chance to go trick or treating next year.
Wishing you the best for a great autumn weekend and week ahead,
John
John Nyaradi
Publisher
Wall Street Sector Selector
http://www.wall-street-sector-selector.com
Friday, November 2, 2007
Red Flags or Green Flags
Hi, Friends,
So, are the warning flags out or is it clear ahead? Red flags flying or green flags with the all clear, pedal to the metal?
Unfortunately for most investors, it's hard to say.
But as I said last week, "the market action and talking heads' speculations are nothing more than background noise. And that's the terrific advantage of having a proven, non emotional trading plan in place that we can depend on in good times and bad."
And that's even more true today with all of the swirling cross currents we face.
How we're doing
The market rallied sharply last week, shaking off the Black Monday fears. But we did get stopped out of Hong Kong in the volatility. September Hong Kong trades made 8.6% while new positions in Oct. lost -4.8%. As the tables above indicate, both September and October trades continue to perform well.
However, in spite of last week's rally, change is in the air, and our indicators are flashing short term weakness. The action in Hong Kong, today's new stop loss points and next week's rebalance will reflect this rapidly changing environment.
Subscribers need to watch for your Stop Loss Update later today and have your stops in place before market open on Monday. The closer you are able to follow the system's entry and exit points, the more likely your chances of success.
The View from 35,000 Feet
A mixed bag to be sure. Here are some of the significant developments accompanying last week's rally:
Negative earnings growth so far for the S&P. With 218 companies reporting next week, this continued trend would result in first negative growth quarter in five years.
28 year high in gold hitting $787/oz.
Record low U.S. Dollar against the Euro.
Record high oil touching $92/bbl.
Home sales down 19% from one year ago
National Association of Homebuilders reports lowest index ever.
2 million home foreclosures forecast over next two years by Joint Economic Committee Chairman Senator Charles Schumer.
So, where did the fear go from last week, and why did it so swiftly depart? The answer, of course, lies with Benny and his Merry Band of Feds and their Halloween meeting this week.
The market has already priced in that it will be treat instead of trick and is planning on a 25 basis point rate cut in its candy bag. I wrote after last month's cut that more cuts would be coming and they will be, right or wrong, for the dollar and inflation.
The Week Ahead
Next week will have more than 200 companies reporting earnings with the possibility of the first negative earnings growth in five years.
We'll also see the October employment report on Wednesday and the 3rd Quarter GDP estimate.
And of course, the biggie is the two day Fed meeting ending Wednesday.
What It All Means
Cross currents and confusion. Volatility, too. And as I wrote last week, "a recession in 2008 is so politically unpalatable that we'll see plenty of Fed intervention in hopes of making the proverbial soft landing."
Interestingly, we'll be rebalancing the portolio right after the Fed meeting, so Thursday will be an important day.Sector Spotlight
The hot sectors this week were energy, commodities and gold with Real Estate, Financials and Home Construction being the bottom feeders.
Last Wednesday, I had elbow surgery for some "boomeritis" and I learned firsthand the truth in the old saying that "it's minor surgery unless it's on you."
My right arm looks like a bandged prop from a Frankenstein movie, and typing this report one handed has been a challenge. Definitely makes one appreciate full mobility.
Have a great weekend and Happy Halloween and be sure to watch for your stop loss update today and portfolio rebalance on Wednesday.
Your partner in prosperity,
John Nyaradi
Publisher
Wall Street Sector Selector
http://www.wall-street-sector-selector.com
So, are the warning flags out or is it clear ahead? Red flags flying or green flags with the all clear, pedal to the metal?
Unfortunately for most investors, it's hard to say.
But as I said last week, "the market action and talking heads' speculations are nothing more than background noise. And that's the terrific advantage of having a proven, non emotional trading plan in place that we can depend on in good times and bad."
And that's even more true today with all of the swirling cross currents we face.
How we're doing
The market rallied sharply last week, shaking off the Black Monday fears. But we did get stopped out of Hong Kong in the volatility. September Hong Kong trades made 8.6% while new positions in Oct. lost -4.8%. As the tables above indicate, both September and October trades continue to perform well.
However, in spite of last week's rally, change is in the air, and our indicators are flashing short term weakness. The action in Hong Kong, today's new stop loss points and next week's rebalance will reflect this rapidly changing environment.
Subscribers need to watch for your Stop Loss Update later today and have your stops in place before market open on Monday. The closer you are able to follow the system's entry and exit points, the more likely your chances of success.
The View from 35,000 Feet
A mixed bag to be sure. Here are some of the significant developments accompanying last week's rally:
Negative earnings growth so far for the S&P. With 218 companies reporting next week, this continued trend would result in first negative growth quarter in five years.
28 year high in gold hitting $787/oz.
Record low U.S. Dollar against the Euro.
Record high oil touching $92/bbl.
Home sales down 19% from one year ago
National Association of Homebuilders reports lowest index ever.
2 million home foreclosures forecast over next two years by Joint Economic Committee Chairman Senator Charles Schumer.
So, where did the fear go from last week, and why did it so swiftly depart? The answer, of course, lies with Benny and his Merry Band of Feds and their Halloween meeting this week.
The market has already priced in that it will be treat instead of trick and is planning on a 25 basis point rate cut in its candy bag. I wrote after last month's cut that more cuts would be coming and they will be, right or wrong, for the dollar and inflation.
The Week Ahead
Next week will have more than 200 companies reporting earnings with the possibility of the first negative earnings growth in five years.
We'll also see the October employment report on Wednesday and the 3rd Quarter GDP estimate.
And of course, the biggie is the two day Fed meeting ending Wednesday.
What It All Means
Cross currents and confusion. Volatility, too. And as I wrote last week, "a recession in 2008 is so politically unpalatable that we'll see plenty of Fed intervention in hopes of making the proverbial soft landing."
Interestingly, we'll be rebalancing the portolio right after the Fed meeting, so Thursday will be an important day.Sector Spotlight
The hot sectors this week were energy, commodities and gold with Real Estate, Financials and Home Construction being the bottom feeders.
Last Wednesday, I had elbow surgery for some "boomeritis" and I learned firsthand the truth in the old saying that "it's minor surgery unless it's on you."
My right arm looks like a bandged prop from a Frankenstein movie, and typing this report one handed has been a challenge. Definitely makes one appreciate full mobility.
Have a great weekend and Happy Halloween and be sure to watch for your stop loss update today and portfolio rebalance on Wednesday.
Your partner in prosperity,
John Nyaradi
Publisher
Wall Street Sector Selector
http://www.wall-street-sector-selector.com
Prepping for Monday
Prepping for Monday
Hi, Friends,
Not a good week last week, made worse by the media’s incessant fear mongering about the 20th anniversary of Black Monday on October 19, 1987.
But, for us, the market action and talking heads’ speculations are nothing more than background noise. And that’s the terrific advantage of having a proven, non emotional trading plan in place that we can depend on in good times and bad.
Our indicators accurately called the beginning of this run, and now are flashing some short term weakness. The S&P looks decidedly high risk short term, and although most of our positions are not S&P components, in stressful times, all markets around the world move as one.
To respond, we’ll be tightening our stops for Monday morning. Subscribers need to watch for your Stop Loss Update later today and have your stops in place before market open on Monday. The closer you are able to follow the system’s entry and exit points, the more likely your chances of success.
In spite of the short term weakness, all up trends in our positions remain firmly in place.
The View from 35,000 Feet
This week’s sell off was prompted by the poor earnings reports from the financials and industrials. Everyone knew there were big hits coming due to the sub prime morass but the reality of billion dollar write offs was a staggering hit to the markets, sending the DOW down 360+ points on Friday and -2.64% for the day and -4% for the week. The S&P did no better, down -2.56% on the day and -3.9% for the week.
A strong whiff of fear was in the air as investors mulled over the weak earnings, the weaker dollar and oil breaking the $90/bbl. More and more the talk is of recession as the housing woes spill over into the general market. And this story isn’t over yet as most of the sub prime resets to higher interest rates is scheduled for first quarter next year.
Reflecting this reality, Fed Chairman Gentle Ben Bernanke on Monday said that the housing negative pull on the economy was getting worse and would hurt growth for the Fourth Quarter and into 2008.
As I wrote last week, Benny and his Merry Band of Feds are between a rock and a hard place, worrying about inflation while having to cut interest rates to prevent a recession in a Presidential Election year, and all indications point to the rock getting bigger and the hard place getting harder. As the bad news unfolded this week, the Fed meeting on Halloween looms bigger in the background.
The Week Ahead
Next week will have more than 160 companies reporting earnings. More than 120 have reported so far and earnings growth is in the negative column. Next week’s focus is on tech and health care as well as at lest six Dow companies reporting. Also, September Durable Goods, weekly jobless numbers and home sales reports will give investors plenty of data to chew on.
What It All Means
The economy is clearly slowing. The sub prime melt down is spreading past financials and since financials are widely represented on the S&P, that broad indicator will experience downward pressure. Oil and the high price of gasoline will act like a tax on the consumer and our petroleum based economy, and it’s hard to make a case for robust growth in the next few months.
All of this points to Benny and his Merry Band of Feds and their Halloween meeting. More bad news this week could easily lead to a rate cut and a month end rally. Will it be trick or treat? No one can make that call, but we’ll be ready for either eventuality.
My view is that a recession in 2008 is so politically unpalatable that we’ll see the Feds manipulating the markets and the economy in hopes of making the proverbial soft landing and easy money will lead to market gains leading into next year.
Sector Spotlight
This weekend we’re in Hood River, Oregon, for a swim meet with my young son and the Hood River Fall Festival. If you’ve never been here, Hood River is a quaint little town on the banks of the Columbia River with a rural valley setting known as “the fruit loop” to sightseers. The fall foliage brings a ton of “leaf peepers,” and from the valley you can see the snowy volcanic peaks of Mt. Hood to the south and Mt. Adams across the river to the north. Framed in brilliant yellows and reds, it’s truly a spectacular setting.
For ten years we’ve come here, watching the kids swim and stopping at Rasmussen’s Farm for pumpkins, caramel apples, boxes of pears and apples, and spruce cider, a local “delicacy.” It’s always a fun time, and as the leaves blow across the wet ground, the salmon return home to their spawning grounds in Hood River and goblins start showing up on front lawns, one knows that deep autumn and harvest time are here.
Wishing you the best for a great autumn weekend and week ahead,
Your Partner in Prosperity,
John Nyaradi
Publisher
Wall Street Sector Selector
http://www.wall-street-sector-selector.com
Hi, Friends,
Not a good week last week, made worse by the media’s incessant fear mongering about the 20th anniversary of Black Monday on October 19, 1987.
But, for us, the market action and talking heads’ speculations are nothing more than background noise. And that’s the terrific advantage of having a proven, non emotional trading plan in place that we can depend on in good times and bad.
Our indicators accurately called the beginning of this run, and now are flashing some short term weakness. The S&P looks decidedly high risk short term, and although most of our positions are not S&P components, in stressful times, all markets around the world move as one.
To respond, we’ll be tightening our stops for Monday morning. Subscribers need to watch for your Stop Loss Update later today and have your stops in place before market open on Monday. The closer you are able to follow the system’s entry and exit points, the more likely your chances of success.
In spite of the short term weakness, all up trends in our positions remain firmly in place.
The View from 35,000 Feet
This week’s sell off was prompted by the poor earnings reports from the financials and industrials. Everyone knew there were big hits coming due to the sub prime morass but the reality of billion dollar write offs was a staggering hit to the markets, sending the DOW down 360+ points on Friday and -2.64% for the day and -4% for the week. The S&P did no better, down -2.56% on the day and -3.9% for the week.
A strong whiff of fear was in the air as investors mulled over the weak earnings, the weaker dollar and oil breaking the $90/bbl. More and more the talk is of recession as the housing woes spill over into the general market. And this story isn’t over yet as most of the sub prime resets to higher interest rates is scheduled for first quarter next year.
Reflecting this reality, Fed Chairman Gentle Ben Bernanke on Monday said that the housing negative pull on the economy was getting worse and would hurt growth for the Fourth Quarter and into 2008.
As I wrote last week, Benny and his Merry Band of Feds are between a rock and a hard place, worrying about inflation while having to cut interest rates to prevent a recession in a Presidential Election year, and all indications point to the rock getting bigger and the hard place getting harder. As the bad news unfolded this week, the Fed meeting on Halloween looms bigger in the background.
The Week Ahead
Next week will have more than 160 companies reporting earnings. More than 120 have reported so far and earnings growth is in the negative column. Next week’s focus is on tech and health care as well as at lest six Dow companies reporting. Also, September Durable Goods, weekly jobless numbers and home sales reports will give investors plenty of data to chew on.
What It All Means
The economy is clearly slowing. The sub prime melt down is spreading past financials and since financials are widely represented on the S&P, that broad indicator will experience downward pressure. Oil and the high price of gasoline will act like a tax on the consumer and our petroleum based economy, and it’s hard to make a case for robust growth in the next few months.
All of this points to Benny and his Merry Band of Feds and their Halloween meeting. More bad news this week could easily lead to a rate cut and a month end rally. Will it be trick or treat? No one can make that call, but we’ll be ready for either eventuality.
My view is that a recession in 2008 is so politically unpalatable that we’ll see the Feds manipulating the markets and the economy in hopes of making the proverbial soft landing and easy money will lead to market gains leading into next year.
Sector Spotlight
This weekend we’re in Hood River, Oregon, for a swim meet with my young son and the Hood River Fall Festival. If you’ve never been here, Hood River is a quaint little town on the banks of the Columbia River with a rural valley setting known as “the fruit loop” to sightseers. The fall foliage brings a ton of “leaf peepers,” and from the valley you can see the snowy volcanic peaks of Mt. Hood to the south and Mt. Adams across the river to the north. Framed in brilliant yellows and reds, it’s truly a spectacular setting.
For ten years we’ve come here, watching the kids swim and stopping at Rasmussen’s Farm for pumpkins, caramel apples, boxes of pears and apples, and spruce cider, a local “delicacy.” It’s always a fun time, and as the leaves blow across the wet ground, the salmon return home to their spawning grounds in Hood River and goblins start showing up on front lawns, one knows that deep autumn and harvest time are here.
Wishing you the best for a great autumn weekend and week ahead,
Your Partner in Prosperity,
John Nyaradi
Publisher
Wall Street Sector Selector
http://www.wall-street-sector-selector.com
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