Tag Archives: CNBC

Go away and sell in May? Not so fast!

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I saw an article in Yahoo Finance about the old adage, “Sell in May and Go Away“. In the article the focus is on the period between May and October. But, does this mean May is a month to avoid? Hardly. Instead, our Chief Market Strategist Tom Bowley makes the opposite case as he laid out in his marketFORWARD section of our our most recent marketPULSE newsletter. Here’s a few nuggets of information you might want to consider:

1-On the S&P 500, May ranks 7th out of the 12 months in terms of performance since 1950
2-The past four decades have shown May gaining on average 7.83% on an annualized basis
3-Prior to 2010, the S&P had gains in 20 out of the previous 25 years
4-The Russell 2000 has finished higher than it began in May 16 of the past 24 years with an average annualized return of 17.96%

This year May looks like it could be setting up for higher prices as well. Today alone the Dow hit fresh four year highs, the VIX is showing signs of weakening, and the S&P is closing in on fresh 52 week highs..

So, the bottom line is that it makes no sense to just blindly bail out of the market in May; it’s a myth. And, in today’s fast pace market, active traders aren’t likely to hold positions for 6 months anyways, hoping that the market performs well. Instead, it makes more sense to analyze the market “in the moment”, letting history serve as a guide, not letting it be the last word.

(If you don’t already subscribe to our free newsletter here’s Tom’s latest article for everyone to enjoy!)

marketFORWARD – Published Sunday, April 29, 2012 by Tom Bowley

Monday marks the end of April with May right around the corner. Of course we all know that famous Wall Street adage “Go away in May!” Will it ring true again this year? The temptation to walk away from the stock market will definitely be there after the drubbing that U.S. equities have taken the past two years. But history doesn’t really support the argument to sell equities now. We don’t care what the parade of “experts” on CNBC say.

Rather than pay attention to the rhetoric, let’s discuss the ACTUAL numbers, shall we? On the S&P 500, May ranks 7th out of the 12 calendar months in terms of annualized performance since 1950. May has produced gains in 35 of 62 years during that span. While May’s annualized return of 2.79% trails the S&P 500′s average annualized return of approximately 8.5%, the last four decades have proven to be much closer to the norm, gaining 7.83% on an annualized basis — and this number includes the horrendous May 2010 and May 2011 results, where the S&P 500 fell 8.20% and 1.35%, respectively. The 2011 performance was aided by a strong finish during the last four days of May where the S&P 500 regained close to three full percentage points. The stock market really struggled throughout May in both of the last two years.

What you won’t hear on CNBC, however, is that the S&P 500 — prior to 2010 — had gained ground during the month of May in 20 of the previous 25 years. Does that sound like a bearish period to you? Furthermore, the Russell 2000 shows a VERY strong historical bias to the upside during May. In fact, the Russell 2000 has finished May higher than it began in 16 of the last 24 years, producing an annualized return of 17.96%. May trails only the months of December and April as the best performing month for small cap stocks.

Again, I’ll ask the question. Is May when you really want to go away? We don’t think so.

In fact, we’re of the opinion that the stock market is likely to break to fresh 52 week highs during May. There are some truly bullish signs that continue to emerge. Consumer discretionary stocks broke to a new relative high vs. consumer staples. That generally does not happen just prior to a market selloff. If anything, this type of relative behavior tells us that the 2012 rally is not over — that it is quite sustainable indeed. Check out the relative breakout in the consumer discretionary space:

The time to be concerned about a stock market advance is when money is moving on a relative basis towards the more defensive consumer staples sector. When this ratio is moving higher, as it is now, it’s an indication that investors are willing to commit to the higher risk consumer discretionary sector. In a bull market, you ALWAYS want to see investors scooping up the riskier areas of the market. So far, so good.

We mentioned the historical component of the market as we approach May, but it’s also important to note that the first week of May tends to be its best. For whatever reason, traders tend to have a bullish mindset as we usher in the month of May. Earnings will begin to slow down. There are still plenty of companies that will be reporting this week, but the most of the bigger names have already released their quarterly results. Still, it would be smart to check your companies for earnings dates to avoid the “big surprise”.

The market seems to be building up its resiliency to bad news again. Last week, we had the GDP shortfall, an S&P downgrade of Spain debt, the Netherlands unable to reach compromise on their budget issues, weak manufacturing data from China, Germany and France, political instability in France and another poor initial claims report. All of those bearish reports did nothing to slow down the bulls as technical buyers began buying right where they needed to. Price support on the S&P 500 was at 1357 and that index bounced at 1358. Take a look:

We’re expecting the market to add to last week’s gains. It’s hard to believe but another round of critical employment reports hit the Street this week as the ADP Employment Change report is released on Wednesday, initial claims will be out on Thursday and the biggie, the government’s Nonfarm Payrolls report is due out on Friday. All of these reports will be out during pre-market action so make sure you tune in. So long as the BIG intermediate-term price support levels aren’t lost, we remain clearly in a bull market. The levels to watch to the downside include the following:

S&P 500: 1340
NASDAQ: 2881
Russell 2000: 773

Happy trading!

A perplexing jobs picture

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Downtown DetroitAs a native Detroiter, I keep a close eye on what’s happening in the Motor City and I like what I’ve seen lately. There’s been quite a renaissance in the downtown and midtown sections of the city where old buildings (the ones I used to courier between as a young man) are being bought and renovated by successful businessmen like Quicken Loan‘s Dan Gilbert, the owner of the Cleveland Cavaliers who is one of Detroit’s biggest cheerleaders.

One of the reasons Detroit is coming alive is the auto sector has picked up big time, and when cars are selling, suppliers and dealers get busy as well. Now I’m seeing stories that some manufacturers and suppliers are having a difficult time finding qualified workers to fill skilled positions, which tells me the economy is on the mend.

I just read an article by Phil LeBeau, CNBC’s auto and airline industry reporter that is titled, “Manufacturers pay a bounty for skilled workers.” In his article, LeBeau points to several companies having a difficult time finding employees to fill important positions, a far cry from the scene a few years ago when no on wanted to hire anyone. In fact, LeBeau points to a company in Kentucky that is willing to pay a $2500 signing bonus for welders, something rare in blue collar land.

I’ve seen a lot of evidence lately pointing to a shortage of skilled workers because new hires are required to have education/experience not previously required. For example, in the past, almost anyone could stand in an assembly line doing routine tasks, but now many of those tasks require computer skills that older workers are lacking. Thus, many companies are having to provide specialized education or are steering prospective workers to classes that will teach them the skills they need to fill new jobs.

I’ve got a good friend in a management level position at a company that provides project management services to clinicians and scientists, so a very specialized field, and she tells me it is extremely difficult finding qualified professionals. This pretty much tracks what I’ve been reading lately in other specialized fields as well.

At the same time, while the auto companies themselves have announced new hiring initiatives, the numbers they are talking about are small compared to the massive layoffs we saw back in 2008/2009. And, they are in no hurry to add one additional body unless absolutely necessary; they’ve gotten lean and mean.

Point being, there are a ton of job openings out there that cannot be filled, an ironic twist when you think about it. The unemployment rate, though coming down lately, remains at 8.3%, making it difficult for the economy to crank up big time. So we’ve got this bifurcated situation of a great demand for specific jobs and many unemployed individuals who would love to work but lack the skills. I guess it beats a few years back when absolutely no one wanted to talk about hiring, but a bit perplexing when trying to figure out the magic formula that will get people back to work and get the economy humming.

Bove baffles again

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In what has become an almost laughable reoccurance, CNBC once again paraded Rochdale Securities Richard Bove to try to explain why US banks shouldn’t be pounded every time something in Europe erupts. His logic this time is that US banks will benefit from Europe’s woes and Fitch Ratings’ downgrade of the sector as depositors from across the world turn to US banks for safety. That idea strikes me as quite absurd since no one seems to really knows what exposure US banks have to Europe or other types of loans on their books.

Bove’s argument is that US banks have stabilized and as European banks continue to stumble that banks in the US will be able to pick up the pieces. He sees no connection between what is going on over there and what is going on in the US.

Unfortunately for Bove, investors haven’t agreed with him for a very long time; why should they? He continues to make the same arguments over and over, yet the banking sector lags the overall market on a consistent basis.

Of course Bove has to go to bat for the banks; it’s how he makes his living. And, by regularly pounding the gavel, he hopes that at some point his prognostications will turn out to be correct. But I have to say I haven’t seen many analysts be wrong so many times for so long as Bove; it’s almost uncanny.

What Bove should really do is focus on what the market is telling him; they completely disagree. All he has to do is look at a chart of the bank index, the BKX. It’s struggled all year long and now is once again in danger of losing technical support, a sure sign of weakness.

Bank Index One Year Chart

Obviously, everyone is entitled to their opinion, but why does CNBC continue to showcase someone who has been wrong so often? I can’t tell if Rochdale is one of their sponsors or if there’s some type of special friendship between Bove and someone at CNBC that gets him exposure on such a regular basis, but it really reduces their credibility. Can’t they at least throw up on the screen when he’s on air a summary of his predictions and which ones turned out right or wrong? At least this would give viewers the opportunity to decide if what he has to say carries any weight.

Corzine’s failure may not get the scrutiny it deserves

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MF Global‘s sudden meltdown is a story in and of itself. But, an even bigger story is the failure was led by former Goldman head and governor of New Jersey, Jon Corzine.

Corzine was looking to make MF Global a powerhouse in the investment banking space but the firm made some bad Euro related bets; enough to take the company down. So, a highly seasoned market veteran took the reigns of a struggling company. but was not able to turn it around.

To me the big story is how the press covers Corzine. So far in the early stages of coverage he seems to have escaped any scathing commentary. Yes, it’s being labeled as an embarrassment, but his frequent presence on CNBC and the fact that he was governor of New Jersey seem to shield him unnecessarily from well deserved criticism.

Any way you cut it, Corzine was the man in charge; and thus must bear the responsibility for the company’s failure. Any reference to the fact that he assumed control of a company needing new leadership should be secondary; he was there almost one and one half years, plenty of time to get the company in good shape. Instead, the company made bad bets under his direction, pure and simple.

Of course, Corzine’s role at Goldman and its climb to prominence gives him significant status. But let’s not forget that he lost his re-election bid last year to be governor of New Jersey, so some might argue two strikes against him in a row.

This gets me to asking the question; how does such a prominent individual as Corzine, who is supposed to be both financially and politically savvy, manage to make such bad bets? Is it cockiness, thinking everyone else is betting on the wrong side of the trade? Was it because a big bet that worked out could have given MF Global the financial independence it was looking for, sort of like an “all in” bet? Whatever the case, Corzine simply didn’t get the job done, and now a lot of investors will lose a lot of money.

Perhaps in the scheme of things MF Global’s demise won’t mean much in the world of investment banking. They never got big enough to fall into the “too big to fail” category. Still, it will be interesting to see if Corzine comes out of this just nicked up, or if his 15 minutes of fame is finally over.

GE’s Immelt – An opportunity to actually make a difference

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I read a story today where GE’s Jeff Immelt was quoted as saying about the nation, “We’re not trying that hard; We haven’t really tried as hard as we can to compete, educate, and sell our products around the world and I think we can do better.”

Now, on the surface, this sounds reasonable; how can we sell more US products abroad, and in the process, create more jobs? But, I remain skeptical about Immelt’s motives, especially considering that GE, under his leadership, and like many other large corporations, have shed thousands of jobs rather than look for creative ways to utilize displaced employees and help address the current unemployment picture.

Immelt tries to assuage the overall feeling of frustration and anger by many US citizens by saying, “It is natural to assume that people are angry and I think we have to be empathetic and understand people are not feeling great.”

OK, great again, but there are probably many former GE employees who would prefer a paycheck over empathy.

Immelt does acknowledge there might be something to the notion that there’s a huge discrepancy between an average worker’s pay and that of CEO’s by saying, “The discrepancy (the gap between the pay of CEO’s and average Americans) is certainly one of the problems today, in terms of why people feel the system is unfair.” But, he then downplays what most feel today by saying, “It is a symptom but it is not the problem.”

It’s also revealed in the article that GE expects to generate more than 60% of its revenue outside the US this year. So, why wouldn’t Immelt want all of us to “try harder” to sell more products across the globe?

Finally, Immelt say, in response to criticism that he (as a republican) is working in concert with President Obama, “People need to try; I’d rather be in the arena trying than not doing what I can to help.”

GE Executive CompensationSo, to all of this I say; how about GE trying harder to put more people back to work? For once, instead of waiting for the economy to try to miraculously recover on its own, how about Immelt and other top level CEO’s around the country stop the lip service and actually do something creative and different that might actually work? For example, I just looked at GE’s profile at the Yahoo Finance site and saw that the top 5 executives listed had combined compensation of $27.5 million for 2010, or an average of $5.5 million each. At the head of the pack? Immelt who brought in roughly $7.7 million, with no stock options showing as exercised during the year.

Let’s say, for example, that the 5 top execs at GE agreed to put 25% of their earnings into a pool so they could bring some employees back to work. At an average of $50,000 per employee, they could rehire 137 people. And, they could do it without spending one more dime. Now, this would mean that each of the top five execs would “only” end up taking home an average of $4.1 million, but come on; they could survive.

Now, imagine if this were to happen at the top 100 companies in the US, and assuming similar figures. Then we would see an additional 13,700 people back on the payroll instead of having to collect unemployment checks and draining the US financial system.

Before anyone gets riled up let me be clear; I’m all for hard work, ample reward and letting the market dictate the value of the work force. I started working when I was 13, I work as hard as any other guy out there and I’m always happy when my hard work pays off. But, this doesn’t mean that there isn’t a place for creativity from those who have blessed to be at the top of the economic food chain to help jump start our moribund economy.

Immelt talks a lot, and maybe he thinks that his words are soothing to those who find themselves on the flip side of the economic equation. But, I can tell you from the perspective of someone who’s much closer to the average man on the street than in the proverbial ivory tower, his words ring rather hollow.

Oh, and by the way; I just realized that I forgot to mention that GE got billions of dollars in taxpayer backed TARP funds..Sorry about that!

Betting on GOOG ahead of its earnings is a crap shoot at best

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UPDATE: Be sure to scroll to the bottom and cast your vote!

I see where BCG analyst and “Fast Money Friend” Collin Gillis told CNBC “we’d be buyers of Google in front of their earnings.” I always find these types of calls ahead of earnings to be like a crap shoot, with a 50-50 chance of being correct, and this is why we always avoid laying out stock trading candidates that are ready to report earnings whenever possible.

Let’s take a look at Google to “pretend” we were making a call on the stock – i.e., whether or not to be long, short or on the sidelines.

First, the stock has already moved up over 15% in about 5 trading days, so expectations of strong earnings may already be built into the stock. In addition, this quick move to the upside has made the stock look stretched.

Next, from a technical perspective, the stock is now pressing up against its 200 day moving average, an area it hasn’t been above in over two months. Additionally, the volume on the way up hasn’t matched the volume on the way down when big selling occurred in August, so this makes me a bit leery.

On the plus side, the stock made a monster move after its last earnings report, up 80 points over just a few trading days. But, all of those points and plenty more disappeared as the stock started making its descent starting the end of July. Now, the stock is nowhere near its lofty levels it achieved just a few months back, and just when the overall market may have made a near term top.

So, as you can see, there are arguments on both side of the fence, and hence, the problem. If there was a clear cut picture that rated a booming buy or sell, that would be one thing. But, from what I can see on the charts, this stock could make a big move either way once earnings are announced, so the odds of being correct are 50-50 at best. No thanks.

What Do You think GOOG is going to do?

Banks revenues in the tank

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I just read an article from CNBC titled, “US Banks Face Worst Revenue Decade Since Great Depression“.

In this article, CSLA’s Mike Mayo explains, “This is going to be the worst revenue growth year since 1938. And in fact, this decade for U.S. banks will be the worst revenue decade since the decade of the Great Depression.”

Of course, none of this should come as a big surprise to anyone, but still, when you see someone like Mike Mayo laying it on the line, it goes a long way to substantiating what many of us have believed for some time now.

And, what do I say to this? I say Karma is a bitch; yes, when you engage in practices like many of the big banks have for quite a while now, when you engage in wholesale foreclosure practices in spite of shoddy lending programs, when you choke off small businesses while hoarding cash that you’ve managed to accumulate thanks to the good graces of taxpayers, this is your reward. Too bad.

Honestly, bankers today are more despised than just about any other profession, perhaps right up there with politicians. And, why not? To this day, they have spent millions of dollars in legal fees trying to put a lid on what it should cost them because of the carnage they created because of their mortgage lending practices, instead of just coming out and admitting what they did was both illegal and immoral. And, the fact is, the only way this ends in any positive way is if the banks just finally cave in and become better citizens.

Banks provide an important function in our economic system, but when they try to avoid the inevitable by digging in their heels, they end up on the wrong side of the popularity meter.

Trading in line with the market?

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My last week observation on the chart of UUP: how to explain technical alignment of the chart of UUP with what politicians in Europe were discussing or the progress of financial challenges in Europe?

Look at the 1 year daily chart of UUP.

You may also revisit my blog from June 27th “Is dollar alive”. The resistance of $22 was very well established already. Over the summer turmoil in Europe it looks like we are back toward $22 questioning the resistance.

What happened on September 12, 2011 to stop the UUP from going over $22? Look at the intraday hourly chart of UUP for that day action.

You may notice a push toward $22 on September 12 up to $22.05 followed by a reversal and a long selloff candle on significant volume with MACD reversing as well.

That Monday, September 12, there was a lot of “bad” news. Check at least this video to refresh your memory of what the media was presenting to us:

Why the dollar didn’t break above $22 if Euro was so much in trouble? Who and why was selling it? Was it just temporary? Or there is just something outside Euro and dollar that is changing?

You may also check the longer term chart of the dollar: 5 year weekly chart shows a very strong resistance at $22.

Eva

If things weren’t so serious Bove would be a joke

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Here’s the latest take on things by banking analyst and “guru” Dick Bove of Rochdale Securities. To paraphrase, if the government continues on a path of holding banks accountable for their deplorable actions, the US will go into recession. In other words, give the banks a break.

Hold on now. Let’s take a little stroll down memory lane here.

First, banks have always had favored institution status, given that the money they take in from depositors (you and me) are backed up by the government (you and me).

Next, no one put a gun to the heads of bank executives when they happily raked in fees from bogus mortgages and collateralized mortgages sold to unsuspecting investors.

Next, the banks didn’t turn down the $700 billion in TARP funds that kept the bulk of them from going under while the average person on the street was left to fend for him/herself.

So, Bove saying that the government will be responsible for putting the US back into recession because they are forcing them to pay up for their mistakes, well, that sounds more like an analyst that made a bad bet on banks.

In fact, as I’ve stated before, Bove has been all over the map. In many ways, he represents the market, trying to find some footing, reaching for solutions that simply aren’t there, and hoping that one of his calls actually comes true.

Yes, if a few more banks go under, it’s going to likely cause a ripple effect, but at least we’ll end up weeding up the ones who shouldn’t be around anymore. Hell, the banks didn’t seem to have any problem at all foreclosing on millions of homeowners – many who should never have received loans in the first place – and upending their lives. So, perhaps it is fitting that these same banks suffer similar consequences. I promise, it won’t take long for most of us to forget about them.

Fear or greed?

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Or maybe both? In this bipolar market both feelings are quite powerful. Even a fear of missing the market move is a power by itself.

One day the headlines read: “Market tanked on economy”. Few days later:”The market rallied on economy”. Really!?

On days when the moves exceed 2% seems that there is barely anybody on the “other” side of the trade. Where is everybody? Be very careful either you are short or long. Do not overstay your welcome. If your trade was only for a quick gain – take it.

I haven’t seen enough fear in this market yet. The faces on CNBC, Bloomberg and alike are quite sad. But there are no big headlines yet about the end of the market. That indicates that many traders are still holding on to their positions – this phase is still full of hope.

The worst for the market would be a slow drifting down with diminishing interest from traders. Not enough motivated buyers or sellers and no quick resolution.

I would be very interested in adding to my long positions in major market ETFs on a day of a panic selling when traders are giving up the rest of their long positions. On days like that a reversal is quite possible. Trading the reversal is typically impossible to execute well, so I will be looking into entering some trades just after a huge drop with a plan. There is a very high probability of short covering after a huge drop. That will either develop into a reversal or at least a bounce. One way of trading that is to take quick profits on a bounce with 50% of the position and use the technique of moving up stops on the other 50% of the position while implementing a mandatory exit if the price drops below the low of the day or below your entry point (if low of the day is too far).

The above trade is not my standard way of trading but the market is not “standard” recently either.

Once we find a bottom, remember about the resistance levels, which were confirmed on the way down.

Possible pattern on SPY 5 years weekly is a H&S completing the H now – possible test of $95-$100 zone to finalize the “neck”.

SPY 5 Year Weekly Chart

Eva