Are You Ready For War Tomorrow? —You Should Be!

There has never been, or ever will be, a sustainable rally in the market when financials, particularly banks, are falling in absolute terms. (I know, never say never). But clearly, take a look at this:

The banks will not have a sustained rally as long as RSI is below 50, either. Not happening!

Also, check out the PnF chart:

There will be a confirmed reversal of the recent uptrend on a print of 14.50 tomorrow. This doesn’t look like strength is coming into the banks to me. Again, there is weakness overall, and the market will continue to use that as an excuse to sell down stocks on the backs of the banks.

On what should be a continued note of concern for the stock bulls, gold is seeing a resurgence that will take it to new heights. With the exception of the Yen, gold is hitting at or near multi-year highs in all the major developed world currencies. Don’t kid yourself. People smarter than you or me are buying the shiny stuff.

  

   

 

Keep your eye on the major currencies, because they may hold the key as to the direction of the US stock market very soon. As these currencies fall, gold and the US dollar index will melt up.

 

 

………….and currently, both GLD and UUP are showing relative strength and are non-correlated to US stocks.

 

That is all.

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New breakouts today:

Most notably, IEF has given us a sell signal:

In addition, with gold up today, some of the miners like GFI, NGD, and UXG are breaking out.

Other than that, there are a lot fewer stocks showing new breaks today—a total of 38. Of that number, 22 stocks are breakdown sells, which include:

ATK, OSK, PPBI, AWI, NVR, HEW, IGTE, XPRT, EMS, ZMH, AFSI, WTM, HSC, LAYN, GGP, TCI, CTXS, and DT.

Yesterday, there were over 200 stocks exhibiting new breakouts up and down (96% were breaking down). Perhaps today is the calm before the storm.

That is all. Enjoy the rest of your afternoon.

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Listen up people, because I’m only going to say this once. The U.S. housing market is in a depression. Not a recession, a depression. That was communicated to me by Captain Obvious, obviously. 

Homebuilders, as represented by ITB, have gotten hammered (pardon the pun), dropping -75.30% from 1/26/07 through yesterday. The S&P is down -35.90% in the same time period.

Yeah, sure, existing home sales unexpectedly increased in December, but the recovery in housing, and demand for housing is still anemic, given the fact that people are losing jobs like pagan party planners who get religion. (Did that make sense?).

In addition, go visit with any of the CEOs at DHI, TOL, KBH, etc., and see if they’re remodeling THEIR offices (even though they could, at cost). After security handily whisks you out of the building, you will see that, no, the mood is somber, with a touch of desperation. Their businesses are eroding and overall, sentiment is very depressed. Like Christmas in Tehran.

Having said that, the housing market, and specifically the homebuilding stocks, should be watched closely for signs of a recovery. Homebuilders are “leading edge”, meaning they turn up well in advance—before the broader economy starts showing a pulse. One only need look at the performance of homebuilding stocks relative to the S&P. If you care to pull up the charts, you will see that most homebuilding stocks peaked mid-year 2005—well in advance of “the recession” we find ourselves in, and the October 2007 peak in stocks. Here’s one example…behold, I give you:

Through yesterday, DHI was up nicely from it’s 11/20/08 close of $4.34.

Additionally, if you look at the price performance of ITB vs. SPY more recently, you will see that ITB has actually outperformed SPY since the November 20, 2008 low, returning 36.11% vs. 16.77% for SPY. This is an interesting development. While it doesn’t signal that the housing market is recovering, it may be telling us that the market may be bottoming.

A bottom in homebuilder stocks is definitely something to keep an eye on, as it may signal that a bottom in the overall stock market might just be down the road. But just how far, is anybody’s guess right now.

Just saying……

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Today is most decidedly bullish, as 100 stocks are breaking, 93 of which are to the upside. Most notably, the banks, finance, brokers and REITs are thrashing the bears.

The only exception to that is LM, which is the only breakout stock out of the financials that is breaking down (last I checked). A testament to the money management skills of Bill Miller, no doubt.

As far as the ratio of stocks and ETFs breaking out vs. breaking down?

194 to 7.

Talk about opening up a can of whup-ass.

Btw, my hedges got axed this morning. I am now out of SRS, MZZ, SMN, DUG, and EEV—-with some minor cuts and bruises. Fortunately, they were hedges—designed to offset my long positions, not your garden variety roll-the-dice-let’s-see-how-much-coin-we-can-bank-shorting-the-market in positions of double death.

The only hedges I hold now are PST and TBT. I also hold GLD and UUP for the “alternative” flavor of my portfolio.

Currently, 28% cash, 22.5% fixed income (including hedges) and 49.5% equities.

I will not go long until I get a chance to review the numbers. I’m just not too excited about the long side yet, although I have gotten into RIMM, AAPL and CAF, recently.

That is all. Carry on.

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I was in meetings a good part of the afternoon, so I missed the close of trading, and I missed an opportunity to buy AAPL when it broke $91. No matter, it pulled back a little at the end, so I’ll take a look at it in the morning.

However, I did manage to pick up some CAF @ $24.02 on a $24 buy stop earlier in the day. CAF has broken out from a trading range, closing at a 4 week high for the second day in a row.

So, I bought some…in honor of honorable Chinese New Year.

What I avoided was buying FXI, an oft times disappointingly gay performer. 

That is all. Good night.

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AAPL is in la-la land, trading within a narrow range. Therefore, I’m looking for a break one way or the other. Yeah, I’m trading short-term for want of better things to do.

I will go long on a break above 91, or a pullback to 88.90 that holds. Otherwise, I’d initiate a short position below 88.10.

Anywhere in between is no-man’s land. Avoid the churn and just sit and watch.

That is all. Carry on.

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