Eat it (click to play)
One group that has been outperforming lately is the casual dining/restaurants. Ironically, this group is risky when the consumer gets buried...and hasn't that been happening over and over? Stocks in the group have fallen hard since April as the market was pricing in a potential double dip recession. Some data now seems to point to this not being the case so money has been flowing to these names. Some of the better ideas include CMG, DRI, EAT, YUM, PFCB, CAKE, CPKI, RRGB and BWLD. The latter is my one favorite of them all. It certainly didn't hurt to see BKC receive a strong buyout offer from private equity, which helped boost share prices of JACK, MCD, and WEN. If it's true that the consumer still has some $$$ left to spend then these names have a long way to go....higher!
Bulls cutting it up Footloose (click to play)
What number do you think will be significant tomorrow? You know, the jobs report. Estimates are far and wide - from a minus 160K to a positive 100K - certainly the real number lies somewhere in between. The bigger question is whether the market has discounted a bad number, and if not will that put yesterday's rally in jeopardy. The market has been moving on sentiment lately, and we couldn't have seen much more bearishness earlier this week. In fact, some sentiment numbers showed as much/more bearishness than at the market's bottom in March 2009. Is it warranted? Certainly players have been removing $$$ from the equity markets and plowing it into bonds - yields are still low at 2.6% - but when the 'risk on' trade is back for longer than a day or see we could see some nice trending action. Perhaps tomorrow's job report is the first day of it.
Today it looks as if we're backing off from this level yet again. However, given the strength in Percent R and the steady uptrend in place for a month now, I would anticipate that we would hold on a pullback around the Middle Band (yellow line) and 20 day Exponential Moving Averages (red line). Twice in August we pulled back to here before rallying higher. In that case, one should look at a pullback to the 120 or 119 area as a good entry point to bank on a possible bounce in GLD.
GLD Daily Chart
[Todd Rundgren - Bang on the Drum ]
Just a couple of more bad news items on Friday to pile on from earlier in the week, but enough was enough for the bulls as testing an old support/resistance level at 1040 got buyers engaged. More so, the bears were leaning too heavily in the downward direction, and why not? Markets had been down 5/6 days and when it seemed like it would be a rout after the Intel warning, well...that was fuel to reverse. I spoke yesterday in the charting session about some dreadful looking charts...not just the indices but most stocks. Oh, there are some with good patterns such as MELI, CRM, VMW and a handful of others..but only a handful. Today probably sets up more stocks to retest their bear trends next week if they haven't already done so.
I'll respect the oversold rally for now but clearly the markets won't be making too much upward progress past 1085 on SPX and then 1100 after that. The VIX is still elevated even though it had a big plunge. With next week all about jobs and then a long weekend to boot there could be some good activity.
The article details the Omen, as well as other looming concerns for the markets. As contrarians, we generally would view such panicky type exposure for a potential market crash as a potential bullish sign. However, the overwhelming technical case at this point is negative, so be cautious when adding long positions.
Here's a link to the full article.
No denying it, the market is reacting now to subpar economic data. We shouldn't be surprised, though. Are buyers supposed to step up and buy stocks when it appears the economy is falling backwards? Of course not. In fact the course of action is to sell/short the rallies, which we've been doing lately. As the market heads for an intermediate oversold signal (which means bearish action to come), we also have that Hindenberg to deal with. Exhaustive selling is highly probable at any point (and might have occurred on Wednesday) as we correct off the negative condition. Jobless claims, revised GDP and then some job numbers next week may put a lid on any rally. This week's housing data, far worse than expected...and weaker durable goods may have cemented this quarter into a negative number. Support on the SPX lies about 4% below, or the July lows at 1010. If that is a firm bottom it needs to be tested.
Dollar/Yen and Dollar/Euro Chart
First, you can see that the decline of Dollar and Euro vis-a-vis Yen has basically been in tandem -- indicating a clear safety preference for the Asian currency. Also note the big decline in late '08/early '09 -- this was in line market weakness -- however, there was not a corresponding selloff in March '09 when the market panic bottom of SPX 666 occurred. This was a sign that the stock selloff was overdone.
Another factor to consider is that Euro and Dollar have actually breached to new lows below the 2008/09 levels ... meanwhile the stock market is far above those levels -- even if you throw out the 666 bottom, we're still fairly high above the 800/900 SPX levels reached in late 2008/early 2009. If the market follows suit, keep an eye if SPX 1000 is breached in the coming days, we may then go as low as SPX 900 (881 is also a Fibonacci level) in September. At that point, we may then see a strong market rally as mid-term elections approach/occur -- but that's for another article.
The CBOE Equity Put/Call Ratio hit the lower extreme on Monday, which means there were an extreme number of calls purchased relative to puts. Based on the contrarian viewpoint this is a strong sell signal on the markets. In my view, I’ve found the Equity Put/Call Ratio (EPCR) extremely valuable in helping define short-term tops and bottoms.
Of all put/call ratios the EPCR is the best to use because it only looks at equities and excludes options traded on indices and ETFs (including inverse)—this provides a direct look into what market participants are thinking.
The CBOE provides this info for free on their website but the hard part is tracking this on a daily basis and defining the upper and lower extremes. I use Bollinger Bands to define the extremes. It’s simple a spike above the upper band is extreme fear (market bottom) and a spike below the lower extreme signals complacency (market top).
Here’s yesterday’s chart – you can see that complacency was reached with a reading of 39%! Historically, any level under 55% is considered complacent. The last time the EPCR was recorded at this level was on April 15, 2010 and that was an excellent short signal (on chart below).
CBOE Equity Put/Call Ratio (click to enlarge)
Trade well,
Andrew Hart - ETFTRADR
Disclosure: no positions
It's (AAP), Advance Auto Parts. Take a look at the long-term monthly chart of the stock below:
AAP Monthly Chart
You can see the shares were roughly in a 30 to 45 trading range for several years, but have broken out of this range in 2010. Just goes to show, there's always something in a bull market (and bear market), no matter what the broad markets are doing.
What are the fundamental reasons for the strength in the stock? Well, we are technical and sentiment traders, not fundamental analysts. But one can ascertain that the company is well run, and that in hard economic times consumers are putting money into fixing up their used cars, rather than buying new ones. And doing more of the work themselves, rather than going to mechanics.
What's the short-term outlook for AAP? Well, our short-term trade recommendations are only for our real-time premium recommendation service subscribers (call 1-800-244-8736 for information).