The VRTrader.com VR Silver Newsletter - Monday11/5/2007
"Tools for the High Performance Trader"
Copyright ©2007, All rights reserved.
Redistribution in any form is strictly prohibited.
LEIBOVIT FILES | by Mark Leibovit
Monday, November 05, 2007
November Chop May Continue- But Look To Buy Big Sell-Offs
SPECIAL ANNOUNCEMENT:
As a reminder, once again (and since 1980) I will be Paul Kangas 'Market Monitor' gueston PBS' THE NIGHTLY BUSINESS REPORT this coming Friday evening, November 9. Please checklocal time in your area for the broadcast. If you miss the program, the video link will beposted on this website under Mark Leibovit Bio section a few days following the interview.
It should be a good interview. On the May 25th program I mentioned the following playson the long side (hopefully on dips): CAF, YUM, SNP, PHO, DIA and AAPL. In addition,reaffirming my bullish position in GERN, NGAS, USO and Golds and my upside targer for theDow Industrials (at that time) of 14,100.
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Economic Data and other events scheduled for November 5-9:
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MONDAY, November 5:
ISM Services Index for October (10 am ET)
Treasury auctions 3 & 6-month bills (1 pm ET)
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TUESDAY, November 6:
Weekly Chain Store Sales (8:55 am ET)
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WEDNESDAY, November 7:
Productivity Index for Q3 (8:30 am ET)
Wholesale Inventories for September (10 am ET)
EIA Petroleum Status Report (10:30 am ET)
Consumer Credit for September (3 pm ET)
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THURSDAY, November 8:
Weekly Initial Jobless Claims (8:30 am ET)
Weekly Money Supply (4:30 pm ET)
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FRIDAY, November 9:
Import/Export Prices for October (8:30 am ET)
International Trade for September (8:30 am ET)
Michigan Consumer Sentiment Index for Nov (10 am ET)
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Friday saw stocks (S&P 500, in particular) double-bottom against the October 22nd lowsin first appeared to be another rout in the market. Our friends at the Plunge ProtectionTeam (PPT) are not asleep at the wheel, that's for sure! I remain bullish, but am Iguaranteeing those lows will hold? No, but any weakness back into the mid-1400s or lowerin the SPX (which is a risk) is an additional buying opportunity. I see no reason to flasha TIMER DIGEST 'Sell' Signal when my cyclical work is positive into the end of the yearand, so far, into next year and, frankly, I see all the so-called 'negative news' as justanother example of the 'Wall of Worry' in action. We may take a little heat here and, yes,'THEY' may be trying to make me look bad, but when new record highs are posted in the nextcouple of months I will be vindicated.
As I told you, November could continue to be choppy, so you may wish to 'trade' theswings. I will, too, if I see a clear opportunity. Platinum subscribers know that Ipurchased the DXD on Thursday (the ETF that represents a 200% short position in the DowIndustrials), but I traded out of it Friday morning when it appeared the aforementioneddouble-bottom seemed to be in place. A weekly close below 13,400 signals would likelyprecipitate more selling and some bears would argue that would trigger the onset of a bearmarket, with the next downside target seen at 12,800. A weekly close below 12,800 sendsthe Dow Jones Industrials to 12,000. Likewise, a breakdown for the S&P 500 Index belowits key Inflection point signals a further slide to an initial downside target of 1,430. Iam not predicting this outcome, but it wise to acknowledge what others might be thinkingand at the same time be flexible should a trading opportunity (such as the DXD) againpresent itself.
What started as a positive session turned ugly only a few minutes in, before spending therest of the day trading in a sloppy, choppy fashion. Volume came in at a solid pace onceagain and breadth was negative.
In economic news, October nonfarm payrolls increased by 166,000, up from September'sreading of 96,000. Unemployment came in at 4.7%, hourly earnings increased by 0.2% and theaverage workweek was 33.8.
Whether we like it or not, there is still financial chicanery going on as Merrill Lynchattempted to transfer sub prime positions to hedge funds in an effort to get them off oftheir books. In return, they promised the hedge funds a guaranteed buyback price a yearfrom now, which in effect takes these positions off of their balance sheet and 'hides'them from the investing public. The uncertainty surrounding this whole mess has tradersstill a bit nervous, and we will see what effect it has over the near term.
Gold finally eclipsed $800/ounce as the December contract settled 14.80 higher at808.50. Crude oil pushed higher once again as the December contract settled 2.44 higher at95.93.
In announcing its decision to lower the fed funds rate a quarter-point to 4.50% onOctober 31st, the Fed said its actions should put the economy on better footing and helpit weather a housing slump and a related meltdown in sub-prime mortgage debt. However, theFed was forced to acknowledge that "recent increases in energy and commodity prices,among other factors, may put renewed upward pressure on inflation. In this context, theFed judges that some inflation risks remain." Since the Bernanke Fed shocked theglobal markets by lowering its discount rate to major US banks by a half-point on August18th, the US Dollar Index has lost 6% of its value, tumbling to 20-year lows, which inturn, ignited a $25 barrel rally for US light crude oil to an all-time high of $96.25barrel. In a strange twist, the crude oil market has become an "Enforcer"imposing stiff penalties on the Fed, - any hint of rate cuts or a cheaper US Dollar,quickly triggers sharply higher oil prices.
The Fed is still under tremendous pressure to continue lowering short-term rates, toease the plight of sub-prime borrowers, and cushion the decline in US home prices, whichon average are 5% lower than a year ago. A double-digit slide in home prices into 2008threatens to topple the US economy into recession. The "Plunge Protection Team"is working overtime, to prevent a devastating crash in the Dow Jones Industrials. The Fedinjected $41 billion into the banking system on Nov 1st, the biggest single day ofinjections since September 2001, to help improve market "Psychology," but forsome reason could not or would not prevent a 24-hour, 500-point crash in the Dow JonesIndustrials to 13,445, over renewed fears focusing on the meltdown of sub-prime debt.
The Fed conducted $8 billion of 14-day repos, $21 billion of 7-day repos and $12 billionof overnight repos. The PPT intervened heavily in Dow Jones Industrial futures on Nov 2nd,rescuing the market from a major panic crash. The Fed also injected $38 billion on Sept27. But so far, the Fed's rate cuts, and the daily jigging of the Dow Jones Industrialfutures market, have failed to turn bearish sentiment in the US home builder sector. TheDow Jones Home Builder Index is 70% lower from its peak in August 2005, and finished atits lowest level in 5-years. The two-year slump in the US housing market, has weighedheavily on financial lenders, investment brokers, and banks. It appears US home priceshave further to drop as builders become increasingly concerned about turning over theirinventory, said former Fed chief Al Greenspan on Oct 30th. "We've got this hugeoverhang of newly constructed homes, which are vacant and deteriorating. You cannot keep avery large inventory of single homes for sale because their value declines. There is veryconsiderable pressure for home builders to unload these on the market and they're startingto do that. Housing prices will be the key to whether the economy begins to contract. Whenyou get house prices flattening out, you begin to get pressures on consumption,"Greenspan said.
Complicating matters for the PPT is the emergence of the "crude oilvigilantes" who are enforcing discipline upon the Federal Reserve, by jacking up oilprices roughly $5 per barrel, for every quarter-point Fed rate cut. Since the Fed loweredits discount rate on Aug 18th, crude oil has climbed by $25 per barrel. A $15 /barrelincrease is attributed to Fed rate cuts and a weaker US dollar, and the other $10 perbarrel increase is linked to the "Iranian War" premium. Thus, Bernanke doesn'thave an open check book to print money. He is checkmated by the "crude oilvigilantes". What about the infamous "yen carry" trade, which hasmushroomed to over $1 trillion dollars, and is artificially pumping up stock marketsworldwide, by 10% to 15%?
With the Fed lowering the fed funds rate, and the US economy sliding towards recession,the dollar is sliding against all major foreign currencies, except one - the Japanese yen.Tokyo's ministry of finance is "closely watching" the dollar/yen, aiming for atrading range of 114-yen to 116.50-yen. If the dollar should break down below horizontalsupport at 114-yen, it could trigger panic sales to the 112-yen level, and in turn, leadto further unwinding of "yen carry" trades, and liquidation of US stocks. Whatwe have observed over the past several months, is that the Dow Jones Industrials rally hasbeen artificially inflated by Fed money injections and the endless flow of cheap capitalfrom Japan via the "yen carry" trade, even as the Japanese and US economiesslide towards recession. The odds of another Fed rate cut on Dec 5th, has risen to 84%,according the Fed Funds futures traders.
US Treasury chief Henry Paulson is trying hard to keep the broader S&P 500 Indexnear historic highs, to help offset lower home prices, thus keeping the US economy on aneven keel. Paulson decided on a cheap dollar policy in mid-August, to boost S&P 500earnings. Nearly 44% of S&P 500 revenues are earned from overseas in foreigncurrencies, mostly in the Euro. A weaker dollar can also boost US exports, which hit arecord high of $136 billion in August, up 6% from a year earlier. Now that 307, or 61% ofS&P 500 companies, have reported earnings this quarter, eight of the 10 sectors posted8% or greater earnings growth; five were in the double
digits, helped in part, by foreign currency profits from a weaker dollar. However, hugewrite downs at financial companies, and big losses for homebuilders, overshadowed thesegains, and have led to aggregate losses of -5.3% for the S&P 500 Index from a yearago, the worst performance since the fourth quarter of 2001. Yet the "PlungeProtection Team" has been able to keep the S&P 500 afloat, above its keyInflection point of 1,490, with money injections, Fed rate cuts, and of course, theendless flow of cheap capital from Japan, via the "yen carry" trade. How muchlonger can the PPT keep the market up, in the face of negative fundamentals, such asdecelerating earnings, big bank write downs of bad debt, and weaker home prices?
We are positioned in Precious metal, Stock Index, Uranium, Commodity and Currency ETFsin our Platinum 'Current Portfolio'.
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TSE and TSE Venture Commentary for our Canadian Clients updated for Monday, November 5:
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TIMER DIGEST has named Mark Leibovit of VRTrader.com 'TIMER OF THE YEAR' for 2006. TIMERDIGEST also ranks Mark as the #1 Intermediate Market Timer for the 10 year period endingin 2006! Currently in the #1 spot for 2007!
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VR TRADER.COM WATCHLISTS:
Please note: The VR Watchlist is currently now only available via the VRTrader.comwebsite accessed via your assigned username and password. Please email mark@vrsurvey.comif you misplaced that information.
Editors note: As you may have noticed, we have been posting our daily VR list for bothSilver and Platinum subscribers. Silver subscribers who find this useful should upgrade toPlatinum where you can pull down VR charts for many securities and watch the patternsunfold for yourself.
I've extended posting this information on a complimentary basis to Silver subscribersfor the time being. There is no technical service on the planet that posts Positive andNegative VR! Why? Because they are proprietary to VRTrader.com! And, Platinum subscriberscan pull up VR Charts on just about any stock from the home page of my website.
A Volume Reversal ™ is change from a Rally day to a Reaction day accompanied by anincrease of volume or a change from a Reaction day to Rally day accompanied by an increasein volume. Volume Reversals ™ coming off intermediate lows or highs have greatersignificance in helping to define those lows or highs and important pivot points in themarketplace.
How do you use this list? VRs are buy and sell triggers and are particularly useful indefining lows or highs in stocks and stock indexes. Traders find them particularly useful,especially coming off market extremes as an indication of a change of direction. Use theVRs in conjunction with your other technical indicators and you've added a uniquetechnical tool to your arsenal.
List of Volume Reversals 11/02/07 - Sectors
*** Sectors Positive Volume Reversals ***
Manufacturing - Diversified Machinery
ATU - Actuant Corporation
FLS - Flowserve Corp
RBN - Robbins & Myers Inc
Metals & Mining - Gold
ABX - Barrick Gold Corp
ANV - Allied Nevada Gold Corp
EGI - Entree Gold Inc
GG - Goldcorp Inc
MGH - Minco Gold Corp
Metals & Mining - Silver
EXK - Endeavour Silver Corp
PAAS - Pan Amer Silver Corp
SLW - Silver Wheaton Corp
Specialty Retail - Sporting Goods Stores
BGFV - Big 5 Sporting Goods Corp
Telecommunications - Diversified Communications
TI - Telecom Italia SPA ADS
*** Sectors Negative Volume Reversals ***
Health Services - Health Care Plans
CI - Cigna Corp
CVH - Coventry Health Care Inc
MDF - Metropolitan Health Networks
Suggestions? Comments? on the newsletter service. We would like to hear from each andeveryone of our subscribers. Our email is mark@vrsurvey.com.
DISCLAIMER
This newsletter is a publication dedicated to the education of stock traders. Thenewsletter is an information service only. The information provided herein is not to beconstrued as an offer to buy or sell securities of any kind. The newsletter picks are notto be considered a recommendation of any stock but an information resource to aid theinvestor in making an informed decision regarding trading in stocks. It is possible atthis or some subsequent date, the editors and staff of VRTrader.com may own, buy or sellsecurities presented. All investors should consult a qualified professional before tradingin any security. The information provided has been obtained from sources deemed reliablebut is not guaranteed as to accuracy or completeness. VRTrader.com staff makes everyeffort to provide timely information to its subscribers but cannot guarantee specificdelivery times due to factors beyond our control.
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Do not duplicate or redistribute in any form
