Go With The Momentum Part I

Headlines in a Yahoo! Finance article on http://finance.yahoo.com/ stated that sluggish Economic Data and Financial woes were the reason the markets dramatically decline today. The DIJA itself was down (-1.06%) ending the trading at 12503.82. I just wanted to say that this is simply not accurate. Now, the financials are definitely one of the reasons the market was down today, notably the downgrades by Standard and Poors of behemoths like Lehman Brothers, Morgan Stanley, and Merril Lynch. The ISM numbers for the month of May were actually higher than estimates predicted, which was a very good thing! Now don't get me wrong, the numbers weren't great and technically they were in a range signaling a steady contraction but they were only off .04 from the comportable index value of 50. for manfacturing activity. The real story of the day was the positive export numbers reflected in the ISM numbers, which has consistently came many companies poised to take advantage in profitability and real GDP growth out of the negative territory for the past consecutive quarters. The obvious reason for this trend is clearly the weak U.S. dollar and what also brings me to a interesting mutual fund called the Fidelity Export and Multinational Fund ticker (FEXPX). Currently the mutual fund is down -4.74% YTD, however the list of its top 10 holdings provides a nice list of companies well positioned to do just what the doctor ordered. This post is Part I of III where we will talk about this very topic and follow these top ten holdings to see if there is any favorable trading opportunities in them. This list is as good as any and we are going to follow them for awhile to see if they turn out to be winners. One thing you have to do when trading is you have to develop your own list of stocks you follow whatever system you decide to use but just don't let it be a stock the financial media is recommending. We're going to go with these.

The Beginning of the Week is in Full Swing

Today is June 2nd and it is now 1:50 AM in the morning and also the morning the ISM manufacturing survey will open up as the first piece of economic data for the month. The reason this data is so important is it provides information from purchasing managers on manufacturing activity from the previous month and thus provides clues to whether the economy is healthy or teetering on depression. In light of last week's GDP numbers, which were revised upward to 0.9%, a positive ISM reading at 50 or slightly higher will really give this market the ability it needs to get over the hump. You should expect relatively flat trading until these numbers are published.

GDP Revisions

A Week Full of Economic Numbers

There're some key economic data coming out this week that warrants some mentioning and will definitely have impact on traders and investors this week. For all of those who think trading on economic news is hubris just ask our friends who didn't heed the Producer Price Index numbers or the Fed minutes last week. The DJIA closed 12601.19-227.49( -1.8%) off this news and higher oil prices last Wednesday. Ignoring these numbers last week cost a lot of heartache. So to prepare for this week we first focus on the important numbers Wednesday, the Durable goods orders which reflect the new orders placed with domestic manufacturers for immediate and future delivery of factory hard goods. It is a real good indicator for forecasting short term economic growth and is published monthly ahead of Factory Orders a week later. The consensus is Durable goods will be down -1.1%, so expect these numbers to have a big impact. Next on the weekly agenda is the preliminary 1 Qtr GDP numbers being released Thursday). The consensus is that the preliminary numbers will show 1.0% growth increase keeping us away from the technical definition of a recession. However, the Federal Resevere last week lowered its expectations for the economy because of the housing downturn,credit crunch, and rising fuel prices. So, it is hard to say how the investing community will react to this data. I would be looking at shorting the market with ETF's like Proshares products that offer over 32 different shorting opportunities. These our the most important things coming out this week and there implications can be severe. So watch out!!!

Oil Speculator

The price of oil has been on a unfettered journey hitting unbelievable heights and psychological barriers along the way. I was just reading a piece published in the WSJ on Thursday, November 8, 2007 titled, " Why $100 Oil Can't Float". The article gave ten reasons, deeply grounded in supply and demand fundamentals on why oil wouldn't sustain this point if it came about. The main argument was based on the 4.2 billion barrels world reserves above ground at the end of June(2007) according to U.S. Energy Information Administration. However, even after all this good analysis the price of oil settled over $100 on January 1, 2008. The momentum came from hard to forecast variables like supply disruptions in Mexico, geopolitical trouble in Nigeria, speculation on further rate cuts by the Fed, and a decrease in reserves domestically. All of these reasons and in addition to speculators looking for any reason to reassert there propensity to push oil and other commodities higher was more than enough of a catalyst to get the job done. And, today the price of oil continued its rein, closing above a new high of $127. All of this suspense begs the question, when will the price of oil descend? The first step to answering this question is to agree on what is really causing oil's ascent. I firmly believe that most of the increases in the price of oil isn't based primarily on demand in China or India, but rather mere speculative investing through new innovative finanical products like index funds that makes it easier to participate in the commodity and future markets like never before. Some events that may trigger a more reasonable price for a barrel of oil is a cease in interest rate cuts by the Fed, a substantial decline in driving this summer by Americans on vacation, or a noticeable increase in the EIA's Petroleum status inventory reports, or a Global slow down. Any of these four events can trigger a run for the border from oil and other commodities. I think one or a combination of these events will occur a lot sooner than Goldman Sachs prediction of $200 barrell oil will occur. If your bearish on the price of oil there are two ways you can play this strategy. One is Proshares Ultra Short Oil and Gas ETF DUG and another is Deutsche Bank Double Short Commodities ETN DEE. Both, are down signficantly because of the price of oil and both will directly benefit if the price of oil begins to fall.

Visa Buy Entry

Visa, stock ticker (V) had a nice day the past 3 trading sessions but is heavily in the over bought range. You can see the retracement on Visa every time it broke past the upper bollinger band. I expect V to sell off over the next few tradings sessions ceteris paribas (all things considered equal) and see a more favorable buy point. Currently as of 11:54 est (V) is trading at 82.72 down -3.14%.

USO and UCR

The market is currently up ahead of the Fed decision and in light of recent market activity it is all but certain the Fed will lower the interest rates once again a .25 point. Last night I wrote on the blog talking about two Gold ETF's that can stand to profit and this morning I am writing about two Oil ETF's that can stand to profit. In the past two trading sessions oil has retraced a bit due to the surgence of the U.S. dollar. This trend may reverse to day if the FED does what just about everyone on Wall Street has priced in a 25 bps cut. I am using a limit order at 36.00 on UCR to buy on the dip from yesterday awaiting the FEDs decision.

GOLD PLAY FOR FED DAY II

Here is a 2-month chart time frame for DGP. As you can see yesterday on the 29th DGP dropped below the lower Bollinger Band which may be a buying opportunity. The voloume on DGP has been avg. over the past month just indicating casual selling and buying in the ETF. If the FED lowers the interest rate Wednesday, Gold may again may see some action, however it seems most speculators have abandoned gold to make the faster and easier money in Oil and other commodity Futures trading. We will see what happens. I put my money that Gold will move higher tommorrow.

GOLD PLAY FOR FED DAY

Tommorrow is a big day for the Fed and whether are not they we lower the Fed Funds rate. According to CME website under Fed Interest Rate Watch there is a 80% the interest rate will be dropped 25 bps. If the Fed does decide to lower interest this can increase the strain on the U.S. dollar and cause gold and oil to shoot up even higher. The chart above is a Gold ETF DGP with a 6 month time frame. As you can see Gold has been gettin hammered ever since there historic apex in mid March 2008. Yesterday DGP broke under its lower Bollinger Band indicating overselling. I have a limit order placed at 20.25 for tommorrow subject to adjusting depending on which the market is heading towards on the opening bell.

Monday Play Book

The weekend is usually a time I catch up on my research and try to get a feel on how the U.S. markets will open Monday morning 9:30 est to start the week off( although a debatable issue it can be argued that Monday sets the tone for the rest of the week on how the market will perform). If you've been reading my last few posts you would know on how important this week will be with the Fed's FOMC meetings and other important economic news coming out. I have been analyzing different ways to play the market this week around these events. Two things I have my eyes on are energy and gold. For energy I am looking at USO, DUG(contrarian energy plays to one another), DZZ, DGP( contrarian gold plays). Both of these plays will be effected by the monetary policy decisions that will come out this week. According to CBOT, traders are expecting a 75% chance of a 25 basis point cut by the Fed to 2.00 Fed fund rate. However, there is a possiblity some economist say that the Fed will do nothing. I happen to be one of those economist. A newswire from Bloomberg published today 04/28/2008 commenting on the rise of financials about the believe the worst of the U.S. financials credit problems are over. If this belief is confirmed in market data our central bank analyzes, there may very well be a pause in interest cuts to see how the market reacts and a refocus on inflationary concerns which can bring the rise in oil prices and gold to a halt and possibly some retracement. I will be keeping in eye on CBOT reporting up to the minute to better gauge the possiblity of either event occuring but altogether what ever happens its going to effect the markets until the Feds next FOMC meeting later on this Summer.

A Week Full of Economic Numbers

This week we have a plethora of economic data coming out that will definitely keep the markets on top of their toes, including the two day FOMC meetings which may or may not end with another interest rate cut. Fed Chairman Ben Bernanke and the crew have a pretty nice conundrum with increasing inflation on one hand and providing relief to the financial markets in a credit crunch that hasn't abated yet. By far the most important number coming out this week will be Wednesday's 1st Quarter GDP numbers. 4th Quarters numbers calmed some recessionary fears on a technical basis since a recession is defined as two consecutive quarters of negative GDP growth and this week's numbers would be serving the same purpose for all concerned parties. The concensus growth estimate is an unimpressive 0.3 and depending on rather the actual numbers are on the high or low mark of this estimate can be a major catalyst for "volatility and profits"... we will definitely keep our eyes focus on what happens and act accordingly!

FRE to the rescue

I bought FRE on 04/03/2008 and 04/10/2008 at 27.72 and 24.80, respectively the stock closed friday at 27.94 up 7.38% from Thursday. I am writing this blog because of Friday's run up in the stock due to there March monthly portfolio holding, the government-sponsored enterprise said it entered contracts to buy $43.5 billion in loans last month, sharply up from $14.8 billion on February and the most since July 2003. I am concerned however with its rising delinquencies in single family homes. FHLMC or Freddy Mac delinqencies increased to 0.74 percent of the loans in February, the most since November 2004, from 0.43 percent a year earlier. On the other hand, FRE make has been trading predicably between its upper and lower bollinger bands( a common overbought or oversold indicator). Next week investors will be watching the GDP, Consumer Confidence, ISM Mfg. Index, Factory-Orders very closely to gain confidence going forward. FRE make will be at the whip of these numbers next week to see if it can hold on to this gains. I imagine the slightest negative news will automatically induce some profit taking. I will be watching the Dow and S&P Futures and have my finger at the trigger gauging if I will place stop limit orders on FRE and other postions.

The Game Plan

Macroeconomic investing stratgies (sector and seasonality rotation analysis, technical analysis, and a tad bit of financial analysis to determine entry and exit points to profit from short-term market opportunites is really the focus and scope of this blog. Personally, I feel ETF's are the most efficient way to accomplish this task. Therefore, although I will talk about individual stocks on occasion, its not really my focus to do alot of analysis of individual stocks although it can be helpful when you want to go for broke by investing in the top 10 in leading sector ETF's or there distant cousins, Mutual Funds. I am a Economist by training and so I use more of an economic approach by looking at economic buisness cycles, trends, and data to determine which way my when is blowing. Speaking of which, literally ten minutes ago I just finished reviewing the final revisions of the 4th quarter GDP on http://www.bea.gov/ and let me tell you it was a doozy. It was mostly bad news and not much variation from the preliminary release as for most of us who watch buisness news or read the buisness section in our local newspapers would know. One thing that was very interesting was the numbers on growth from foreign economies relative to the United States and the premonitions ( I drew) of possibly worser things to come with a potential substantial decrease in imports from goods abroad. Last quarter real imports of goods and services decreased 1.4 percent How well will the rest of the world continue to hold up or deteriote if United States real imports falls substantially more, especially considering slow downs we are already seeing in China and other parts of the world, things can get real ugly. I will continue to watch this trend as there are vast implications and opportunities to profit.

Play by Play Action

The Play by Play Action is where I disclose trades I have made during this terrible market we our experiencing as of late. It is a mental note to myself and all the world of my skill or lack there of in the game I like the call the market matrix, which I define as all the variables that go into making a intelligent decisions in investing As my debut I discuss one trade I made on 2/15/2008 when I bought the ETF Ultra Short Basic Materials at 41.80. The reason was based primarily on technical analysis indicators not fundamental analysis and I totally missed the boat on this trade with it plummeting almost 21% at one point. Now alot of pundits would say never hold on to a stock or ETF for that matter if it drops more than 8% but I think this rule needs to be put into context because to blindly sell off all positions just because it falls 8% is a bit too systematic. It is a perfect thing to do if you don't know anything about whats going on with the company and you are simply using filters or some investment firm to make your decisions for you because you want have a feel for the company and know its elasticities towards certain events like when big economic data numbers comes out or analysts upgrades and down grades in the industry, and so forth. I think there are few things you can quantify with rules like that when you know what your doing. So, needless to say I hold it and it turns around just this week jumping up 7% on 3/10/2008 and I just wanted to sell and get out of the thing but I decided to just put in a limit to sell order at different prices adjusting constantly upward as the ETF went up and up because I didn't want to put a market order and miss out on any upside. As of to day, the ETF opened significantly lower than 3/10/2008 close and my limit to sell order did not get filled but I am happy with my ability to stay the course, however will I look at this post a few months from now and feel the same way well thats what the market matrix is all about ......This is play by play action where I disclose the good the bad and the ugly of trading the street. Stay tune and feel free to post your good, bad, and ugly....ciao

The most efficient way to play the Oil Futures game

One of the most efficient ways I like to play the Oil futures game, has nothing to do with future contracts at all. It is with Oil focused ETF's like USO. ETF's in my opinion our greatest financial product to be engineered and the past quarter century. They have proliferated as of late and the market is growing an ever increasing appetite for these products. Well, now that I got all that of the way. Tell me what you think of this chart and the oscillation on USO. It doesn't seem to be able to rally above its 10 week high and sustain. This may mean trouble in the week to come or maybe not. What do you think?

Disney Chart

I was looking at one of my favorite stocks in the entertainment business today because my wife's nephews love this Hanna Montana and High School Musical stuff. And apparently it has been a real winner for Disney according to there recent earnings release statement that suggests great promise from these two brands and there ESPN.com brand. However, as a short-term trader I think Disney is in for a slight correction according to the standard MACD indicator prompted by a run up since its close at 28.12 on Jan. 17, 2007. I think anyone looking for an entry point should what for a slight sell off before buying back in to Disney. Just to get a little bit of a discount. Tell me what you think?

The Market Matrix

Right Now it is 1:01 CST in Texas and I am currently prowling a plethora of analyst reports and finance newspapers to see how I will play the market matrix tomorrow. I sense the market will begin the day higher tomorrow, especially if the Asian markets can muster up a reason to rally after the dismal performance of the markets last week. It has truly been a volatile ride. Some stocks I am looking at are Alliance Data Systems (ADS), Jackson Hewitt (JTX), and Well Care Health, Plans (WCG). Alliance Data Systems is very attractive because the stock was oversold following the Black Stone deal not falling through. The stock has since bounced back nearly 40% of its 52 week low. So my feelings about this stock is based more on a technical argument rather than financial fundamentals. Jackson Hewitt is attractive in my opinion because it too was sold off irrationally because of fears investors had about the IRS reigning in on there beloved anticipation loan business which has rendered the like of them and HR Block millions in revenue. Well Care is another one of those oversold stocks late last year following an investigation by the FBI and the Attorney Generals office in Florida for Medicaid fraud. The stock has since bounced back as those fears of Wellcare losing substantial contracts and facing possible bankruptcy has faltered some what( however it still remains uncertain what will happen).