Recap: It was another tumultuous market today with a lot of economic reports and stock news creating the volatility. Ford (F), General Motors and Chrysler, formerly the big three and currently the Detroit three, have been basically begging the House Financial Services Committee last night and today for federal assistance to keep their operations going. GM’s CEO told CNBC that the company is doing everything possible to avoid filing for Chapter 11. He worries that at the current trend that restructuring would eventually result in a Chapter 7 (liquidation filing). Toyota (TM) reported that they will cut North American production by closing its plants for two days. I am no auto analyst, but the best thing for the U.S. seems to be a closely monitored and government supported Chapter 11 filing by GM and F. Reorganization may allow these companies to become leaner with revised labor contracts and sales agreements. Then again, capitalism is based upon competitive markets. Allowing the government to intervene and aid corporations that have mismanaged funds and contracts treads near state run entities. It is a tough argument because aiding the company means aiding the employment figures. The Congress and Senate have a difficult decision to make whether to provide aid now or later by means of unemployment and other social programs. This is all a mess. The other automakers like TM and Honda Motors (HMC) closed down 3.49 to $59.76 and $1.48 to $19.89, respectively.
The Asian Markets only declined a little with the Nikkei falling 55.2 points to 8273.22 or -0.70%. The Hang Seng closed at 12815.80, which was down -100.10. The European Markets Closed down sharply with the FTSE closing down 205.5 to 4003.0, the DAX closing down 236.9 to 4342.6 and the French CAC closing down 129.5 or 4% at 3087.9.
News from Boeing (BA) and Citigroup (C) is also aiding in the decline today. Citigroup declined 22% to close at $6.45/share on news it will buy $17.4 billion in SIV assets it advised. In addition, Citi is liquidating a hedge fund, which managed $4.2 billion at its peak, after it lost 53% of its value BA is down on news that the company will have to delay the delivery on its jetliners as much as 10 weeks to its original delivery date for all jetliners in its backlog as it recovers from its machinists strike. Microsoft's (MSFT), another Dow Jones component, CEO said the company is no longer interested in acquiring Yahoo, but is open to looking into a possible search collaboration. MSFT closed down $1.33 to 18.29 while YHOO declined $2.41 to $9.14.
A ray of hope shone from General Mills (GIS) when the company reaffirmed its fiscal year 2009 guidance of earnings between $3.81 and $3.85 per share, which is short of the $3.90 consensus estimate. Back to the gloom, Best Buy (BBY) had its credit rating downgraded to BBB- from BBB at Standard & Poor's. The ratings company cited its belief that Best Buy will be more challenged than previously expected due to the weak economic environment.
At 8:30 a slew of economic figures were reported including October CPI and Core CPI. CPI fell 1.0% month-over-month, which was a larger-than-expected decrease compared to consensus estimate of -0.8%. While the Core CPI, which excludes food and energy, fell 0.1%, versus the expected increase of 0.1%. Compared to last year, CPI is up 3.7% and core CPI is up 2.2%. Housing starts were also released today which showed that 791,000 houses started. The results were better than the expected reading of 780,000. There were 708,000 building permits, which fell well short of the consensus estimate of 774,000.
At 10:30, the Department of Energy said that crude inventories increased by 1.6 million barrels during the week ended November 14, which was more than the expected increase of 1 million barrels. Gasoline inventories rose by 539,000 barrels. Oil prices were up 1.2% to $55.05 per barrel just prior to the announcement but closed down at about $54.10.
At 2 PM the FOMC minutes were released. In summary, some of the FOMC members saw potential for further rate cuts, with some predicting the economy will shrink through mid-2009. The Fed does not expect normal growth until 2011 and expects the economy to grow from 0.0% to 0.3% in 2008. The Fed’s previous forecast was 1.0% to 1.6% growth for 2008. For 2009, the Fed forecast GDP growth will range from -0.2% to 1.1%, down from its previous guidance of 2.0% to 2.8%.
The market is expecting a reduction in initial claims for last week versus the prior week. Leading indicators are expected to decline 1% to 0.70%.
Retail earnings are being reported from some apparel and technology companies tomorrow. The consumer is said to be saving rather than shopping. I would be surprised to see much decline in sales from PLCE because parents, I mean my wife, still shops like crazy for my two sons. GME might be a good play going into the holidays because rather than buying gaming systems people may stock up on games as a way to ignore the negative sentiment. Dell may surprise everyone tomorrow afternoon by reported decent numbers for last quarter but cautioning investors, since it’s the responsible thing to do, about potential slowing. I am beginning to think that all of the negative news releases are an attempt to get all of the necessary disclosures out so that next years numbers will look that much better.
The S&P 500 (SPX) broke below last Thursday's intraday low to close at 806.58, just above the day's low of 806.18. The SPX closed down 52.54 points after gapping down and attempting to go positive early in the session. As the chart below shows, the trend is downward. There is a bearish price objective to about 745 - 750 from an extension lower to the downtrend line. It should be noted that the RSI and Slow Stochastics are both in oversold territory yet still indicating downward momentum. The SPX has failed time and time again to break above the 21 day Exponential Moving Average (EMA), except for 11/4, and hold for more than one day. The 8 day EMA continues to be the short term short entry level with the 21 day EMA the short term risk management. Moving averages are dynamic and therefore provide ever changing adjustments to risk management and price objective levels. I had someone ask me today whether or not I thought that technical analysis still works in an environment that very little does. The one thing that has worked is the long term short trade and the oversold bounce/re-emergence trade to the 8 day EMA.SPX Daily Chart
The chart below shows that there is long term support down around 768 -770 from the October 2002 lows. The difference from the March 2000 high to the October 2002 low is 790 points. The difference between the October 2007 highs and today's close is about 770 points. Maybe that means that there is only 20 more points left to decline. I don't think it is likely there is an end in sight until after Thanksgiving. One last point is that the monthly Stochastics and RSI are grossly oversold. Obviously, the weekly chart is also oversold.SPX Monthly Chart
The chart below shows a micro view of the last five days. I drew the Fibonacci Retracement from Thursday's low of 818 to Friday's high of 917. The 127.2% Extension level is about 20 points lower at $791. Therefore, you may want to short any price advances to the 818 level and cover at about 791 - 793. Set a stop, for instance, at a 15 minute break and close above Tuesday's low of 827. You can use a variety of instruments to accomplish these trades. Since this is an options newsletter, you may choose to use SPY Long Puts or Short Calls to establish a negative delta position. Selling premium at high premium allows you to short volatility while also leaning toward the downside. You could use SSO short calls or long puts to accomplish the same trade. It all depends upon your risk tolerance.SPX 15 Minute Chart
The Ten Year Treasury Yield I realize bonds are boring but they give some insight into some interesting trends that help equity traders determine extremes. Furthermore, while there are options on the TNX and the TLT (iShares 20+ Year), the interesting investment in the the currency shares. For instance, a low in the TNX may signal that bonds that have been bought up from foreigners financing our continuation of the American Dream have begun to subside. Therefore, the long dollar trade may be a good dollar short. The TNX chart is near the yearly lows of a 3.4% yield.TNX Daily Chart
In Play Updates and Reviews
Play Editor's Note: The market's sell-off is picking up speed and there is a growing camp of investors and analysts that do not believe the October lows will hold this time. While we agree with this view we would use today's decline as an opportunity to start taking profits in our bearish plays. Several are getting very close to our targets. We have tighten stops on all of our remaining short plays.
Molson Coors Brewing - TAP - close: 43.76 change: +0.73 stop: 40.65
TAP continues to show relative strength. The stock broke out over resistance and hit our trigger to get long at $43.55. Even more impressive the stock actually closed with a gain. While we are encouraged by this show of strength we would hesitate to open bullish positions in this market environment but if we had to this would be a good candidate. We still suggest readers trade small.
Our target is the $49.50 mark. However, we have to point out that the 100-dma and the exponential 200-dma could be overhead resistance. Currently the Point & Figure chart is bullish with a $56.00 target.
Chemed Corp. - CHE - close: 38.07 change: -1.86 stop: 41.75 *new*
CHE broke down under its remaining moving averages and closed on its lows of the day with a 4.6% loss. We don't see any changes from our previous comments except for a new stop loss at $41.75.
We have two targets. Our first target is $35.25. Our second target is $31.50.
FYI: It is important for traders to note that CHE's short interest is about 9.5% of the 21.4 million-share float. That is a relatively high amount of interest and a very small float. Together they raise the risk of a short squeeze. Consider this a higher-risk play.
iShares Germany - EWG - close: 15.15 change: -1.25 stop: 17.01 *new*
The German market ETF lost 7.6% and is very close to our target at $15.05. Close enough that we would start exiting the position now. We're adjusting the stop loss to $17.01. We would not open new positions.
The October low was $14.75. We're aiming for $15.05. More aggressive traders may want to aim lower.
iShares S&P SmallCap 600 - IJR - close: 36.70 chg: -3.23 stop: 40.55*new*
The small cap stocks continue to under perform the rest of the market. The IJR lost more than 8% to close at new multi-year lows. We are adjusting the stop loss to $40.55. Readers will want to seriously consider some profit taking right here. We're not suggesting new shorts.
Our target is $35.50. The Point & Figure chart is bearish with a $17.00 target.
J.C.Penney - JCP - close: 15.21 change: -1.25 stop: 18.25*new*
JCP lost more than 7.5% today and shares are down more than 10% from our picked price. The retailers continue to get crushed as investors worry about how severe the recession will be. We are dropping our stop loss to $18.25. At this time we strongly suggest readers start taking some money off the table. We're not suggesting new positions.
We have two targets. Our first target is $15.05 since the $15.00 mark might offer some psychological support. Our second, much more aggressive target is $11.00. Again, the $10.00 level could offer round-number support. The weekly chart suggests some support near $14.00-14.50. The Point & Figure chart is bearish and forecasting an $8.00 target.
Juniper Networks - JNPR - close: 14.04 change: -0.62 stop: 15.75 *new*
JNPR wasn't hammered as hard as the NASDAQ or the NWX networking index but the trend was definitely bearish. Traders quickly sold the late afternoon bounce and JNPR closed on its lows. We are adjusting our stop loss to $15.75. We would not open new positions at this time. Our target is only $11.00. The P&F chart is forecasting a drop toward $10.00.
Northrop Grumman - NOC - close: 36.80 change: -2.31 stop: 41.01 *new*
The DFI defense sector index sank to new multi-year lows. Shares of NOC were helping lead the sector lower. NOC lost 5.9% and closed under its October intraday low. The sell-off is definitely picking up speed. Please note that we're adjusting the stop loss to $41.01. We're not suggesting new positions at this time. Our target is $35.50. More aggressive traders may want to aim lower.
Pitney Bowes Inc. - PBI - close: 22.72 change: -0.86 stop: 24.25 *new*
The sell-off in PBI seemed a little bit more orderly than the movement witnessed in the indices. The trend remains unchanged. We're adjusting our stop loss to $24.25. Unlike most of the stocks on the newsletter tonight we would still consider new shorts here. The Point & Figure chart is extremely bearish with a $6.00 target.
Our first target is $21.00 and we suggest that readers exit the majority of their position here. We are setting an aggressive, secondary target at $18.00.
Market Vectors Steel ETF- SLX - cls: 23.37 change: -2.71 stop: 27.05*new*
The SLX steel sector ETF lost more than 10% and closed at new all-time lows. We are adjusting the stop loss to $27.05. We are strongly suggesting that readers start taking profits here immediately. Don't wait for the SLX to hit our target at $21.00. The P&F chart is bearish with an $18.00 target.
Staples Inc. - SPLS - close: 15.26 change: -1.68 stop: 17.75*new*
The sell-off in SPLS is definitely picking up speed. The MACD on its daily chart produced a new sell signal following today's 9.9% decline. We're moving our stop loss down to $17.75. Our target is $14.00. The October lows were near $13.60.
UnitedHealth Group - UNH - close: 17.73 change: -1.30 stop: 20.51*new*
There was a little bit of follow through on yesterday's afternoon bounce but the rally attempt stalled out near the $19.50 zone. Shares eventually closed under short-term support at $18.00. We are adjusting the stop loss to $20.51. Our target is the $15.15 mark. The October low was $14.51 and the $15.00 level might offer some support.
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