Free Swing Trading and Day Trading Picks & Education

Energy sector expert Elliott Gue turns to Weatherford International (NYSE: WFT) as his top pick for the coming year.

insert.a.chart.WTF

In his The Energy Strategist, he explains, "As with most oil services firms, Weatherford's North American business has been hit hard and the stock now trades at a deeply discounted valuation."

"Weatherford is perhaps best known as an expert provider of services related to mature oilfields. 

"Traditionally, Weatherford has had a strong presence in North America, which has been a proving ground for all sorts of technologies that squeeze oil from older fields. 

"An example is underbalanced drilling, a technique that prevents damage to mature fields. Weatherford's genius in recent years has been to take homegrown North American technologies and sell them internationally. 

"The firm has gradually lessened its exposure to North America and forged into international markets where profit margins are higher and profitability cycles less severe.

"It also wins points for expanding its business in Russia, a key market for both oil and natural gas production. Specifically, Weatherford purchased the oil services business of TNK-BP, BP's joint venture in Russia. 

"Weatherford’s stock has significantly underperformed the rest of the oil services industry since October, primarily due to concerns about Weatherford's Chicontepec contract in Mexico. 

"Chicontepec is a heavy oilfield that is the centerpiece of Petroleos Mexicanos’ (PEMEX) strategy to stabilize and grow oil production.

"The problem PEMEX faces is that production from its largest field, the offshore Cantarell oilfield, has fallen off rapidly in recent years to the point that Mexico's oil exports have tumbled. 

"Accordingly, PEMEX has decided to reexamine its development plans for Chicontepec and has cut investment in the field 22%. Because Weatherford is a big player in Chicontepec, its stock has fallen.

"Although PEMEX’s recent announcements caught the market by surprise and are bad news for companies with significant exposure to Mexico, the selloff that’s hit Weatherford's shares is overdone.

"Mexican oil production is falling fast; the country will have no choice but to bump up spending on Chicontepec. 

"Finally, Weatherford is trading at less than 17 times 2010 earnings estimates. This compares favorably to Schlumberger’s stock, which trades at 22.5 times 2010 earnings estimates. Shares of Halliburton and Baker Hughes (NYSE: BHI) trade at 21 times 2010 earnings. 

"Weatherford's deeply discounted valuation more than prices in all the bad news surrounding Mexico and Chicontepec. Take advantage of the recent decline to buy Weatherford International under 26."

As we usher in the New Year the filthy rich are counting their blessings and must be very appreciative of the massive bailouts that protected their wealth.  The top one percent of this country control 42 percent of all financial wealth so it shouldn’t come as any surprise that most of the bailouts went to Wall Street and those that are tethered to it for income.  As the stock market continues to rally Americans collecting food stamps stands at the highest number ever at 37 million.  We also have 27 million Americans looking for work or are simply stringing a few hours together to keep some sort of paycheck coming in.  The vast majority of Americans are simply exhaling a sigh of relief that the 2000s are now a thing of the past.  Yet if something isn’t changed radically in our system we are bound to enter another financial shock in the near term.

First, the S&P 500 is down a stunning 24.1 percent since the start of the decade.  Yet Goldman Sachs managed to pull off almost an 80 percent gain during the same time:

So for the poor average American who simply dollar cost averaged into the stock market as every good corporatocracy banker would tell them, they would have fallen behind someone who simply dollar cost averaged into their mattress.  Yet if you happened to dump your money with the government sponsored and back stopped Goldman Sachs you would have done much better.  Ironically these bankers are the same people who created the financial instruments that sent our economy into a tailspin.

The average American is finally realizing that much of the corporate power in Washington is doing very little for them and doing more and more for Wall Street.  So the stock market over the decade brought negative returns to Americans.  How did the housing market do?

The median U.S. home price in November of 1999 came in at $137,600 and ended November 2009 at $172,600.  This 25 percent gain is wiped out once we factor in the Federal Reserve inflating away the U.S. Dollar.  Housing over the decade is actually down 3 percent.  This is where the largest store of the average American wealth is stashed and it went negative for the decade.  Yet somehow the ultra rich seemed to make out like bandits with all the bailouts even though are economy was still fizzling out from two mega bubbles.  There is a reason they call it a golden parachute.

Let us recap.  The stock market brought negative returns both nominally and in real terms for the decade and housing is actually down in real terms.  So how did Americans do over the decade in the employment front?

The unemployment rate is the highest it has been since the early 1980s.  If we look at the employment population ratio we will see that our economy is still trending to the downside.  Yet the corporatocracy is happy to feed the propaganda line that the average American is better off.  Really?  How so?  Once the bubble decade wealth imploded the typical American is now in a worse position.  The national debt also exploded during this decade.  So housing values cratered, the stock market is still massively down, and employment is still in shambles.  Yet we are to believe things are just fine.  People are now finally waking up to the reality that the current system is designed to rip them off and steal from them at every point in the road.

Take credit cards and bailouts for example.  Some credit card companies are hiking fees up on customers before new regulations hit this year.  These are the same companies that benefitted handsomely from the corporatocracy bailouts.  This money came from the average American yet they are sticking it to them each and every other way.  For example, last month I was stuck by a “savings withdrawal fee” from Chase.  I never saw this before.  So I called up the bank and asked them what this was.  It amounted to a $12 fee for each transaction.  As it turns out, the wonderful Federal Reserve through Regulation D yanks money out for people making more than 6 ACH transfers per month from savings accounts.  So if you wanted to move your money from say your toxic too big to fail bank to say a local community bank, make sure you don’t do more than 6 transfers for the month or you are going to be hit with a $12 fee for this.  Insane policies like this make me realize that something is going to give in this decade.

But over the decade our U.S. dollar must have gone up right?  Let us take a look:

The U.S. dollar is down 23.5 percent for the decade.  So if any of you actually left the country and spent abroad you would quickly realize how weak the dollar has gotten.  This has to do with the massive government spending over the decade.  Over the holiday Congress voted to up the debt ceiling since we are breaking through every imaginable barrier possible.  Take a look at this below chart:

We went from $5.7 trillion to over $12 trillion in Federal government public debt in 10 years.  And what did we really get?  We just went through countless data points and where are we better off?  The reality is the money is being dumped into the vortex of the banking and corporate interest that run this country.  It is amazing that even with unemployment claims the media is championing this as a good sign yet they don’t even bother to look at emergency unemployment claims that are flying off the chart!  That is, they are focusing once again on the wrong data.

So it is going to be a challenging decade for average Americans.  The economy flew off the cliff and instead of reforming the system things are back to normal and the corporatocracy keeps on stealing from the population.  The mega wealthy are doing fine and the gap between rich and poor is the largest it has been since the Great Depression.  Welcome to the new gilded age.  Our lost decade is now in the bag.  Are we up for another one?  Let us hope not.

Twenty-Ten has arrived, and of course I wish all Slopers a Happy New Year. I had a pleasant - although typically quite tame - celebration, and I'm going to spend the day packing up and taking the long drive home.

If there's one graph that, in a nutshell, captures the essence of 2009 for me, it is the one below. It's nothing fancy - just the UCPIX mutual fund, based on the double-inverse of the Russell 2000. It nicely expresses how 2009 was a fantastic, virtually uninterrupted, bull run.

But there's another graph with meaning for me. Yesterday, when I was involved with something else, I glanced across the room and happened to glance on my big screen a graph of DIA (the Dow 30 ETF). It was almost like a cheesy romantic moment ("across the room, their eyes met.......") because I was absolutely struck at what a marvelous graph it was. More on this in a moment.

OK, the moment has passed, so I'll continue: if I had been simply dropped into January 1, 2010, having missed 2009 altogether, I would look at a graph like the above and start doing handsprings. I'm a chartist. I rely on them for my decisions. And a chart like the one above is a slam-dunk, jumping up-and-down, scream it from the rooftops short.

Now, since I did not in fact give 2009 a miss, it's a little awkward expressing these sentiments, because just about every bearish notion and postulate in 2009 led to little more than looking and feeling foolish. But, even with all the ruckus last year, I am trying to see things clearly. And I really, really like what I see.

Added to which, it agrees quite nicely with my long-term chicken-scratch about the market, which has been spot-on since I scribbled it together 20 months ago (newer readers, please note the date axis is meaningless). I am entering the new year with 50'% of my capital committed, virtually all of it to bearish positions. I intend to augment the positions that do well as time goes on.

Now, I don't get real hung up on any kind of magical meaning to the new year. Those people that pledge to lose weight? Most of them will stay fat. Those folks who want to kick smoking? Most of them will keep puffing away. Personalities, habits, and dispositions are difficult to change, and human nature isn't known for its strength and determination in the face of inertia.

Likewise, just because 2009 was brutal for the bears doesn't mean that 2010 is destined to be great for them. But I'm cautiously optimistic, and if I may offer my own attempt at a resolution - in spite of my cynicism about the tenacity of such things in general - it is to more fully accept responsibility for my trading successes and failures. I think I've been pretty good about this, but I could definitely do better, and I think such a frame of mind is healthy for a trader.

So with that, I will commence a long day of packing and driving. Enjoy the long weekend, and I'll be back on the blog first thing Saturday morning.

The chart above shows annual, inflation-adjusted real returns for the Dow Jones Industrial Average (DJIA) over the last sixty years from 1950 to 2009 (data here and here). Some highlights:

1. The real return on the DJIA for 2009 was 20.62%, ranking #12 for annual returns over the last sixty years.

2. The 2009 return was the highest in five years, and the second highest over the last ten years behind the 23.02% real return in 2003.

3. The DJIA return in 2009 was almost 16% above the average real return over the last sixty years of 4.77%.

What makes the 2009 bull market even more interesting is that it seems to somewhat contradict all of the ongoing reports during 2009 about how we were in the "worst economy since ______" (fill in the blank) and many reports suggested we were almost on the verge of slipping into Great Depression II, etc.

Interestingly, if you do a Google search over the past year in the U.S., you'll find far more results for the term "2009 bear market" (11,800) than for "2009 bull market" (only 355); that's a bear to bull ratio of 33.2 to 1, despite the fact that 2009 obviously now qualifies as a bull market.

Likewise, the Google Trends chart below for the last year shows that the search volume for "bear market" in the United States was higher than the search volume for "bull market."

Bottom Line:

Dow Industrial Average

Key Statistics: Dec 31

Open: 10548.51

High: 10551.01

Low:  10435.45

Close: 10436.44

Change: -120.46 (1.15%)

RSI: 52.60

MACD: 67.91

Snapshot:

·        After three successive sessions of flat and listless trading, bears dominated the Thursday’s proceeding. Dow ended the last day of 2009 with losses of 120.46 points, or nearly 1.15%, to close the year at 10436.45 points, near the day’s low. The movement on NASDAQ Composite also ended with losses of 22.13 points, or 0.96%, to close the year at 2271.34 points. The broad based S&P 500 shed 11.32 points, to settle at 1116.03 points, with losses of 1% in the session.

·        The initial jobless claims for the week lowered down to 4,32,000 by 22,000. The layoff was much lower than anticipated by analysts, and is slowly petering out. The initial jobless claims was at a 16 months low. Even the continuing jobless claims came at a lower number of 4,98,000.

·        During the Thursday’s session, as many as 29 stocks from Dow participants shed some gains, while JP Morgan Chase was the sole Dow participant to have moved up marginally.

·        All the ten sectors from Dow participants closed with losses, with utilities recording losses of 1.5%, industrials and materials paring 1.3% each and healthcare sector also shedding 1.2% in the session.

·        US Dollar Index moved up nominally to a level above 78.5 yet again after recording gains against Japanese yen and Euro.

·        Crude oil remained higher around $79.26 per barrel, following the crude inventory weekly report and cold weather conditions.

·        Gold moved up marginally on Thursday, to $1095.2 per ounce level.

Strategy

Traders and investors should remain cautious at this stage, as markets are taking lot of efforts to mop up further gains. Gains are shrinking session by session and chances are high that markets may slip in near future. Traders should exit for entry at lower levels.

 Market Commentary

After three continuous days flat trading with listless volumes in the last week of the year, stocks lost considerable grounds on Thursday in the last session of year, as Dow shrugged 120 points on fears of interest rate hike at an early stage.

The initial jobless claims for the week failed to check the last hour sell-off in the equities, despite the fact that the same was pegged at a lower number of 4,32,000 claims, which was the lowest in the past 16 months. The continuing claims also slipped to 4.98 million, which has also come below 5 million after a long gap.

The Dollar Index also gained marginally in the session after the US $ remained strong against Euro and Japanese Yen. The Dow index has already soared by 18.8% in 2009, while Nasdaq Composite has turned out be an outperformer, by gaining close to 44% in the same year.

The volumes for trading continued to light on Thursday also, as many participants were off for holidays.

Crude oil edged up marginally on Thursday and ended up the session at $79.26.

Gold also gained marginally on Thursday for February delivery, and ended the day over $1095 per ounce.

All the10 sectors forming part of the Dow components ended the day in negative.

Even the individual stocks forming part of the Dow could not perform too well, and as many as 29 stocks out of 30 stocks ended the last day of year with some losses. JP Morgan Chase was the only exception, and gained 0.34% in the session.

Amongst the losers, Hewlett Packard with 2.68%, Caterpillar Inc with 1.83%, 3M with 1.48%, Boeing with 1.51% ended the session with high losses.

The Day Ahead

Construction spending for November would be released on Monday.

ISM Manufacturing Index for December to be released on Monday.

Stock Pick of the Day

Caterpillar Inc. (NYSE:CAT)

Stock Price: $56.99

RSI: 50.47

MACD: 0.11

insert.a.chart.CAT

Caterpillar Inc. (CAT) has shown a reversal from higher level over the past three days. Caterpillar has already breached below its 20 day moving average on Thursday, when it shed 1.83%, and could confirm a bearish trend on chart, once it slips below its 50 day moving average of $56.86. One could short the stock below $56.75.

Key Market Internal signals flashed negative divergences and non-confirmations of recent S&P 500 and SPY 2009 price highs, setting up the high probability for a reversal to the downside.

I wanted to highlight a chart I’ve been showing to members of the daily Idealized Trades Reports since Wednesday evening - we’re now seeing the downward action forecast by the plunge in Market Internals.  Let’s take a look at the updated chart.

(Click for full-size image)

The chart is understandably overwhelming at first - let’s take it level by level.

Using TradeStation, I’ve created a chart of the SPY (which could easily be the S&P 500 Index instead of the ETF) showing the 20 and 50 period EMA on the 20-minute chart (which, also, could just as easily be a 30 min or 15 min chart - we’re more interested in comparing price swing highs to internals/indicator swing highs to see if they are in alignment… they’re not).

In the first panel under price, we see the Breadth (NYSE Advancers minus Decliners) on the day as a number (line) tabulated for each 20-minute period.

The line peaked on December 21st, suggesting internal strength and higher prices yet to come.  The line retested the highs (1,500 net advancing stocks) a second time on December 23 and 24th, but then began a steady and obvious decline from there.

On each graph, I’m using the “new high or low for the day” dot indicator - red for new intraday low and green for new intraday high.  This helps me see readings quicker without having to squint.

Breadth made a new swing low under 1,000 on Wednesday, forecasting lower index prices ahead.

The second panel shows the TICK, which is shown as a bar graph instead of a clean line graph.  It’s not as easy to read, but the intraday high levels of the TICK began to form lower successive peaks as time progressed.

Finally, the third panel shows the $VOLD or “Volume Difference,” which refers to the VOLUME flowing into advancing stocks on the day minus the volume flowing into declining stocks on the day (similar to the TRIN in a way).

I’ve been showing in the intraday reports how the $VOLD indicator has given ‘heads up’ on certain days, as on December 28th.

The $VOLD also peaked on the open of December 21st (like Breadth) which forecast higher index prices yet to come in a classic internal “sign of strength.”

However, as price rallied from that point, the $VOLD formed lower highs and lower lows all the way to today, when price literally fell off the mountain with 30 minutes left to trade in 2009.

I had previously been highlighting the potential for a “Rounded Reversal” structure to form at the highs - it appears the pattern is completing now.

A few years ago, I used to give very little attention to key market internals - now I place them in the forefront of making most trading decisions when it comes to market structure and potential pathways ahead.

Take the time and energy to get acquainted with market internals if you haven’t done so already.

Oh, and have a Happy New Year everyone!

Corey Rosenbloom
Afraid to Trade.com