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Understanding the Rally… – Voice of the People
Stock markets continue to rejoice on hopes and dreams of a path through the European mess. Italian yields dropped sharply today after major austerity measures were pushed through. The SPDR S&P 500 ETF (SPY) is trading at $126.80, +1.94 (+1.55%). In addition to optimism about Europe, economic data in the United States continues to be strong. Most amateur traders are looking to buy the market into the end of the year, expecting a Santa Claus rally to continue, but extreme caution must be used.
First, traders and investors alike must recognize that the Dow Jones Industrial Average is up approximately one-thousand points in the last week. Buying now is paying a premium on the market that is not needed. Second, remember this market is bipolar. One week the savior is born and the markets will never go down, while the next the world is doomed due to Europe and the crisis. Paying up for anything is a fool’s game as the pro traders take money from the weak minded.
Projections for 2012 are grim. While we may float and limp into the end of 2011, next year will be another rough one with a fair amount of downside and wild swings.
Looking at positives and negatives are always important. The positive for the rally today is easy to spot. The financial sector is rocking. Stocks like JPMorgan Chase & Co. (JPM) are having a monster day. The banks are leaders in the market and their strength confirms that the rally will hold today. JPMorgan is trading at $33.83, +1.50 (+4.64%).
Commodities are weak today. Everything from oil to gold, silver and natural gas seem to be left out of the rally. This may be a signal dumb money is chasing the rally and jumping out of commodities. The SPDR Gold Trust (ETF) (GLD) is trading at $168.44, -1.48 (-0.87%).
Again, the key as a trader is to avoid the emotional decision. Investors chasing the rally now are falling into emotion and that is why they always lose money. Stay patient and follow the charts. They will tell you the truth.
Gareth Soloway
Agriculture Stocks Still Stuck in the Mud – Voice of the People
This morning, all of the major stock market indexes are trading sharply higher. For the most part, the rally is broad based as most important stock sectors are climbing. The one sector that is struggling and continuing to show weak relative strength is the agriculture sector. Many of the leading stocks in this sector are actually trading lower as the major stock indexes climb.
Potash Corp (POT) is considered the leading agriculture stock in the market. POT stock is trading lower by 0.74 cents to $40.18 a share. The stock has some short term intra-day support around the $39.65 area which is a double bottom support area on the daily chart. Should this level fail to hold up the stock is vulnerable to further declines. The daily chart should have very good support around the $36.00 level on the daily chart.
Other leading agriculture stocks that are not participating in today’s early morning stock rally are Mosaic Co (MOS), Agrium Inc (AGU) and CF Industries Holdings Inc (CF). All of these agricultural leading stocks still remain weak on the daily charts. These stocks are all trading below the important daily chart 50, and 200 moving averages which put these stocks in a weak technical position. Traders should wait for a better daily chart pattern before committing to these names.
Nicholas Santiago
Is Halliburton Overhyped for 2012?
As this MarketWatch column points out, now is the time of year when Wall Street analysts offer their two cents on the best stocks to buy for the year ahead. However, after running the numbers, columnist Brett Arends cautioned that if history is any indicator, investors may be better off coming to their own conclusions for 2012.
Specifically, if you’d invested $10,000 in each of the 10 most beloved stocks (as measured by their number of “buy” or better ratings) on the S&P 500 Index (SPX) last year, “you’d be down 3.5%, even before trading costs and taxes,” says Arends. Furthermore, “Six of the ‘top 10 stocks’ actually lost you double digits,” while five of the 10 least-loved stocks (as measured by “sell” or worse ratings) actually rose year-over-year, outperforming a flat SPX.
That said, the author — with help from Thomson Reuters — listed Wall Street’s “top picks” of 2012, which included commodity titan Halliburton (HAL).
Contrarian Takeaway:
According to Zacks, HAL is, in fact, adored among the brokerage bunch, garnering a whopping 22 “strong buys” and three “buy” endorsements. For comparison, just two analysts offer up a lukewarm “hold” rating, and not one rates the stock a “sell” or worse. In the same vein, Thomson Reuters pegs the consensus 12-month price target on the equity at $53.83 — representing a steep premium of 53% to HAL’s closing price of $35.12 on Jan. 4.
Elsewhere, the options crowd is also optimistically aligned toward HAL. The security’s Schaeffer’s put/call open interest ratio (SOIR) of 0.66 indicates that calls comfortably outnumber puts among options slated to expire within three months. Plus, this ratio registers in just the second percentile of its annual range, suggesting that short-term options traders have rarely been more call-heavy on HAL during the past year.
From a fundamental and technical standpoint, though, the abundance of bullish bets seems somewhat out of place. For instance, HAL could be on the hook to cover the cost of cleaning up the 2010 Gulf of Mexico oil spill, if BP plc (BP) has anything to say about it. Technically, meanwhile, HAL has surrendered roughly 40% since peaking at $57.77 in July, ushered lower beneath its 10-week and 20-week moving averages.
From a contrarian perspective, the optimism surrounding HAL could leave the equity vulnerable in 2012. Should the stock continue to struggle on and/or off the charts, a mass exodus of bulls — in the form of downgrades, price-target cuts, or a reversal in sentiment in the options pits — could exacerbate the shares’ recent slide.
Andrea Kramer (akramer@sir-inc.com)
Stocks, Forex and Gold 