Free Swing Trading and Day Trading Picks & Education

There might be a better entry point later, if the market stays strong for a few days, but this is shaping up as a terrific short with a target, I'd guess, of about $41.

USD/YEN technicals are warning me to stay long dollars via the PowerShares DB U.S. Dollar Bullish ETF (UUP) and the UltraShort Yen ProShares ETF (YCS). Apart from the very negative financial press lately concerning the worsening liquidity trap in Japan (fear of another bout of serious deflation within a 21 year balance sheet recession), my technical work is WARNING me that the Yen is about to decline significantly against a rising dollar, which actually will be a positive development for Japanese fundamentals. In the aftermath of the Nov.-Jan. upmove in USD/YEN, let's notice that the correction of that advance held BOTH in the vicinity of the up-slanted 50 DMA, and the 50% support leve of the prior upleg (89.30). The fact that USD/YEN has turned up in the last few sessions, and appears to be initiating a new advance argues strongly from a technical perspective that a powerful upside continuation is about to emerge that will head for 92.70/80 to re-assault the declining 200 DMA and the April-Feb. donw trendline. Usually, the second time the price structure rockets into key resistance after a significant low, price prevails. MJP 2/01/10 Noon ET (90.80)

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The U.S. dollar has had an incredible run over the past 2 months, leading many traders to wonder whether the dollar is overvalued. The answer is NO. Based upon purchasing power parity, all of the major currencies are still very overvalued against the U.S. dollar - particularly the Aussie.

What does this mean? From a valuation stand-point, the dollar still has room to rise.

• When is quarterly gross domestic product growth of almost 6 percent bad news? When it looks like what was reported last week.   U.S. GDP increased 5.7 percent at the end of last year, with more than half of that growth -- 3.4 percent -- attributable to changes in inventories. This astonishing impact of inventory has ample historical precedent, and the bottom line has terrible implications for 2010.
• Inventories are a remarkable corner of the economy. They are the goods and materials that companies keep on hand to make sure that their operations run smoothly. They are the boxes of food on shelves at the grocery store and the bins of metal parts sitting next to the assembly line in a manufacturing plant.
• Inventories were a big part of the story during the worst of this recession, and that is nothing new. In a landmark paper published in 1980, Princeton University economist Alan Blinder found that inventories, while accounting for less than 1 percentage point of national output, accounted for 37 percent of the fluctuations in output. (that's staggering)  Since Blinder’s paper came out, inventories have held onto their important role. Updating Blinder’s calculations through the fourth quarter of last year, inventories have accounted for about 34 percent of historical fluctuations in GDP since 1947.

• Inventories are even more important during recessions. In another paper, co-authored with Louis Maccini in 1991, Blinder found that 87 percent of the decline in GDP from the peak to the trough of the recession was attributable to inventories.

• Something that constitutes a small share of GDP can have a big impact on its overall volatility only if it is swinging about wildly. Inventories fluctuate so much for a simple reason: Predicting the future is really hard.   A firm tries to set its inventory level to match expected future sales. It must balance the financial cost of carrying inventoried items against the risk that customers might not find the product they are looking for.
• In good times, inventories are relatively easy to manage. Demand grows a little bit each quarter, and firms have a good idea what their future sales will be.   Around turning points, expectations can go horribly wrong, and inventories are often the first sign that firms are being surprised by their customers.

• Since 1970, there have been nine quarters, like the last one, when GDP grew by at least 3 percent and inventories accounted for at least half of that growth. The history of those quarters is hardly a favorable sign of what is in store.   Inventory spikes make for blowout quarters. In the nine quarters with such spikes, the average growth rate was 6.6 percent and the average inventory contribution was 4.4 percent, even higher than what was observed for last quarter.
• Spikes also produce hangovers. The average growth rate in the quarter after a spike was 0.9 percent, a whopping 5.7 percent lower. In the second quarter following a spike, the average growth rate is just 1.6 percent.

The December update on personal income and spending isn’t terribly informative. Disposable personal income rose 0.4% in December, modestly above the monthly average rise during 2009 (0.3%). Meanwhile, personal consumption expenditures increased 0.2% in December, or slightly below average based on the monthly average for last year (0.3%). It all rounds out to a yawn in terms of what one month's numbers tell us. Par for the course.

Still, it’s a bit unnerving to learn that the pace of consumer spending growth in December is down substantially from the 0.6% and 0.7% levels for October and November, respectively. But that’s not terribly surprising, given the ongoing contraction in the labor market. Meantime, there's the general recognition that Joe Sixpack needs to save more than he has been doing over the past generation. That's not exactly an encouraging prescription for what ails the economy at the moment. But it is what it is. Balancing long-term needs with short-term fixes, it seems, is the general dilemma that await, and no one really has a persausive solution.

As for the statistic du jour, if we step back and look at the 12-month rolling change in personal income and spending, it appears that we’ve reached a critical point. As our chart below shows, the annual pace of change for income and spending has nearly returned to the levels that prevailed just before the onset of the recession in December 2007. There’s some debate as to how much of this rebound is due the liquidity injections of monetary policy vs. stimuluative fiscal policy vs. the natural recovery process endemic in the business cycle. Meantime, the pressing issue is whether the bounce in spending and income will continue to climb or at least remain stable at current levels.

Ultimately, the answer resides with the labor market. The next installment of insight on the jobs front arrives this Friday, when the update on nonfarm payrolls is released. From our vantage, the stakes look unusually high (even by recent standards) on the news of whether the labor market is growing or not. If nonfarm payrolls can’t at least show a small net increase at this point, well, let’s not even go there...yet. Suffice to repeat what we said about the trend in nonfarm payrolls: the hour is late.

I always like to point out simple trendline formations whenever possible, and it would appear we have one of those situations currently in the intraday S&P 500 and SPY charts.

Let’s take a quick look to see where price is likely to travel next if the trendline structure holds.

First, the SPY 30min chart (for the larger perspective):

Price is moving in a contained range as drawn above, between the lower trendline (blue) and 50 period EMA (and upper trendline - also blue).

That would put the next likely move - should the structure hold - to the $109.30 area as seen above.

As a note of trivia, we are also forming a positive momentum divergence in the 3/10 Oscillator - which is associated with a non-confirmation of lower prices (forecasting a potential reversal).

Next, a “zoomed in” view of the 5-min SP500:

This chart looks choppy - and certainly it is - but the main idea is that IF the trendline consolidation structure holds in place, THEN the next likely move (short-term) is to continue this swing back to the 1,093 area.

Be mindful for any deviation (change) in this structure, such as a sudden down-turn from here or a break under the lower trendline and prior swing low at the 1,070 level.

Corey Rosenbloom, CMT
Afraid to Trade.com

"One sector that is deeply intertwined with economic recovery is transportation," says fund expert Ron Rowland.

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In Money & Markets, he explains, "We live in a mobile society, even if we are in the internet age. Not only do we move ourselves around, we also depend on quick, efficient transport to sustain our advanced economy.

"Ever wonder how your neighborhood grocery store keeps fresh fruit and vegetables year-round?

"Transportation, that's how. Food doesn't just magically move itself from wherever it grows to wherever you are. Someone has to haul it �" by truck, railroad, ship, or airplane. And even when you shop online, those purchased products must be delivered.

"Watching transportation stocks is a good way to keep an eye on the overall health of the economy. When demand starts to pick up, transport companies have to get busy moving stuff around.

"Remember, a lot of stuff has to be moved before consumers actually buy it. That means the transportation companies are among the first to benefit from economic recovery. When the transports take off, there's a good chance the rest of the economy won't be far behind.

"It works the other way around, too. When business slows down, merchants cut back their orders. Next thing you know, ships are sitting idle in ports and trucks are driving around half-empty. This is often apparent long before manufacturers and distributors see their own volumes drop.

"So how can you play the transport sector? I have a suggestion for you ... Exchange-traded funds (ETFs) offer a quick and easy way to get exposure to most market sectors.

"Transports are, I must say, a little bit underserved. Currently U.S. investors have access to only one broad transport sector ETF, and three more specialized offerings.

"One reason for this is that stocks don't always fit into neat categories. Consider Boeing (BA). They make airplanes that are used by transportation companies. But Boeing's biggest customer, by far, is the U.S. government along with foreign military forces. So is Boeing a transport stock, a defense stock, or both? It's not easy to say.

"Most index providers classify the transports as a subset of the "industrial" sector. If you buy SPDR S&P Industrials (XLI), for example, you'll have a piece of conglomerates like General Electric (GE) as well as transport stocks like FedEx (FDX) and Union Pacific (UNP). (You'll have Boeing, too.)

"If you want to zero in specifically on the transportation stocks, the best choice is iShares Dow Jones Transportation Average Index Fund (IYT). This is an ETF that follows the venerable Dow Transports index, which includes 20 of the top U.S. railroads, truckers, delivery services, airlines, and shipping companies.
In addition to IYT, there are three ETFs that cover more specific niches within the transportation sector:

 • Claymore/NYSE Arca Airline ETF (NYSE: FAA) holds airline stocks. This is a particularly volatile niche. Airlines regularly face vicious competition, rising fuel costs, and labor unrest. Yet these stocks can truly fly when conditions are right. Since its inception on January 26, 2009, FAA has lagged IYT, but it has started to come on strong the past six months.

 • Claymore Delta Global Shipping Index ETF (NYSE: SEA) holds stocks from around the world that are involved in maritime freight transportation. SEA outperformed both FAA and IYT the past year and has been surging the last few weeks, but it is still far below its 2008 peak.

 • PowerShares Global Progressive Transportation Portfolio (NASDAQ: PTRP) holds stocks that are involved in the quest for environmentally-friendly means of transportation. This excludes most of the large, well-known industry players. PTRP had the misfortune to be launched in late 2008 just as financial markets began to crater. But it has since recovered nicely.

"Should you buy any of the transport ETFs right now? That's for you to decide. But under the right circumstances, this sector can give you amazing results. So keep your eye on the transports."

January was a rough month for risky assets. For the first time since the financial crisis raged in late-2008, the red ink that spilled was broad and deep across the broad asset classes on a calendar-month basis. Bonds generally held their own in January, but stocks, REITs and commodities suffered sizable retreats.

It was an orderly bout of selling, at least compared to what prevailed a year ago. The bigger question is whether the reversal of January is a sign that the great reflation in the capital and commodity markets in 2009 is over. The answer is probably “yes.” Does that mean that a new bear market is upon us? No, or at least we don’t expect one. But it’s time to anticipate something other than strong, sustained rallies in everything. The money game now appears destined for a more complicated era.

If the intense wave of selling in late-2008 and early 2009 was the perfect storm, the past year or so has been the perfect rebound. After selling off deeply, risky assets were priced for a world of economic collapse. By the spring of 2009, it became clear that the world would survive, which triggered a wave of buying to return the price of risk to something closer to normal. That process is probably complete. If so, the future will bring more months like January, where a mix of results prevails.

Of course, we've been anticipating no less. Back on October 1, for instance, we wrote that "correlations among the various subgroups of stocks, bonds, REITs and commodities are destined for a wider divergence. Designing and managing portfolios, as a result, will become more challenging in the years ahead." And so it has, at least for January. The complication, we think, has legs.

Indeed, the economic outlook is now more complicated, which has spilled over into asset pricing. Absolutes, for good and ill, have dominated in the recent past. Goodbye to all that. The age of nuance has only just begun.

Weekly Market Commentary- (Jan 25-Jan 29)

DJIA Industrial Average

Open: 10175.10

High: 10323.00

Low: 10,014.35

Close: 10,067.33

Change: -107.77 (-1.0%)  

RSI: 27.19

MACD:  -32.29

Strategy: The stock indices have been showing signs of tiring out and are showing a sell off on all negative reports. Traders should wait for lower levels of a double bottom around 10000 before re-entering the markets.

Highlights of week:

·        U.S. stocks declined for a third week, sending the Standard & Poor’s 500 Index down the most for any month since February, as technology companies missed earnings estimates. Compared to a 1.6% fall on S&P 500 index, even the Dow Index also fell by around 1.0% or 107 points to levels close to 10075 points. However, the Nasdaq Composite took a harder knock following a strong sell off following the results disappointment in many stocks like Qualcomm, Motorola, and some uncertainty in Apple Inc and Yahoo etc.

·        Federal Reserve chairman Ben Bernanke finally won the confirmation for a second term after a lot of debate, leading to some comfort in the market for a short time in the week.

·        US GDP clocked an initial estimate of 5.7% GDP growth, much higher than expected.

·         In all, the Dow Industrial Average ended up the entire week with losses of 435.39 points or 4.2%.

·        After touching $82 earlier, crude oil, retraced to nearly $73 per barrel in the futures.

·        The Dollar Index remained strong for a major part of the week, and the same ended the week at a level of around 79, due to strengthening of US $ against Euro.

·        Gold continued to slip for a major part of the week due to strong US $, dragging it to a level below $1075 at one stage during the week.

·        After the tightening of monetary policy by China, India also followed the same by raising the CRR by 75 bps in two trenches over the next one month.

·        China clocked a GDP growth rate of 10.7% for last December.

·        Commodities continued to remain weak including most of the non-ferrous metals like copper and aluminum.

·        US Present announced some additional tax credits of $22 billion to create more jobs, as the unemployment rate has shot up beyond 10% in the country.

The Weekly Commentary

The DJIA retraced by 1.0% to 10067.33 points, or 107 points, which was largely led by some correction in some of the technology stocks, whose results failed to subsequently cheer the markets. A weak sentiment prevailed even in the financial stocks like Bank of America, Amex, JP Morgan Chase and a Citigroup Inc barring the last couple of sessions.

Amongst the non index stocks, Berkshire Hathway and Eastman Kodak got into focus, as the former gained a place in S&P 500 and Eastman Kodak earnings beat the street expectations by a wide margin. However, Qualcomm and Motorola Inc. remained subdued after the earnings, and even the Microsoft did not gain after the earnings, due to possibilities that it may not grow in near future due to slow recovery in US. Apple remained volatile after the launch of its ipad, due to mixed reactions on account of success of product due to pricing issue.  

Amongst the basic material stocks, U.S. Steel fell the most in the S&P 500, dropping 19 percent to $44.43. Fitch Ratings slashed its senior unsecured notes to below investment grade as the company struggles to return to profitability.

Meanwhile, the only positive economic indicator was that the US GDP growth for Q4 came at 5.7% compared to an expected 4.8%.

The precious metal continued to show a correction during the week following the strength in the US $, and retraced to almost $1075 per ounce.

Meanwhile, the Dollar Index continued to strengthen throughout the week, mainly due to the US $ gains against Euro. The Dollar Index ended around 79.

Crude also slipped during the week, which was around $73 at the end of Friday.

A lot of index companies from Dow components are releasing their earnings in next week. These include Telecom major Cisco Systems Inc.,  Exxon Mobil Corp., UPS Inc., Time Warner Inc., and Pfizer Inc.

The Week Ahead

Monday: Construction spending for December

ISM Manufacturing Index

Tuesday: ICSC-Goldman Sachs Retail Stores Sales

Wednesday: ADP will release its January employment data.

ISM services report for January.

Weekly crude inventories report

Thursday: The Labor Department's weekly jobless claims report

Friday: U.S. non-farm-payrolls data

Latest reading on the unemployment rate.

Stock Pick of the Day

Computer Program & Services Inc. (NASDAQ: CPSI)

Closing Price: $37.63

RSI: 18.29

MACD: -1.01

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Computer Program & Services Inc. (NASDAQ: CPSI) breached below its long term support level of 200 day moving average for the first time after a gap of ten months by mid-day trading on Friday. Computer Program & Services Inc. (CPSI) plunged by close to 15% with heavy volumes following dismal earnings it posted in Q4. These are  clear indicators of a bearish trend which may follow in the stock.

Computer Program & Services Inc. (CPSI) mopped up profits which were almost 25.8% lower than comparable quarter’s earnings for comparable quarter of previous year. Computer Program & Services Inc. (CPSI) is likely to search for lower levels following the gap-down opening on Friday.