…TB thought that was banned again? Yet that is what the markets have been doing to us now since that nice May 4 rally. While the S&P 500 and Dow 30 don’t show it as much the Dow Transports, Nasdaq 100, Russell 2000, and especially the Sox have been producing some lower lows…three straight lower lows on Transports and FIVE straight lower highs. It is the lower highs that are telling the story though as all indices managed slightly higher lows yesterday. All other indices put in their fourth straight lower high –except the SOX which bounced but the 200 day is now at 249 and the 40 day is just 3 points lower so it is the canary in the coal mine.
Financials are troubled again – as if they looked down and started getting shaky. Take Wells Fargo for instance. On that May 4 rally it rose from $20 to $24.25 – just below the 200 day m/a. then it swing in a 4-1/2 point range for four days peaking at $28.34, it has since had three straight ‘slight’ lower lows centered around the 200 day moving average. Yesterday on a ‘key reversal’ it closed up at $25.69 but reversals have been head fakes lately for stocks. IF it fails today it could be back at $20 …a classic ‘head and shoulders’ pattern…and that is the most impressive of the bank stocks! USB is fighting to stay above the lower 40 day moving average while even the venerable JPM is looking ‘heady’ and had a low of $33.82 yesterday while the 200 day is at $32.38 and the 40 day $31.34 so you have major support and boy will they jump on it if it breaches the 200 day.
The Dow needs a 250 point rally today to avoid a down week to avoid having the first down week in 10, other than a couple of minor slips that should be viewed as flat. The S&P 500 needs a 37 point rally to avoid the first real drop in 11 weeks…that is NOT going to happen. It will take nearly 40 for the NDQ 100 to break a 10 week string, 22 points for the Russell 2000 for an 11 week continuation, and an incredible 315 points for the Dow Transports to make it 11 which set the Dow theorists all atwitter as having the steepest run. The Philly Semiconductor Index (SOX) had it’s run stop at 11 a week ago and needs a 5 point rally just to stay flat and that would be 9 points below the May 1 close. On the May 4 rally it gained 14 points to a high of 272. With the bad news on Intel this week with the record fine from the EU that appears highly unlikely.
TB has been calling your attention to the continued drop in Libor – especially 3 month which fell below 1% for the first time on May 4th (not coincidentally the day of that big up move in stocks), and is now down to 0.83%! In addition, overnight, the TED spread (bills to Libor) is at the narrowest since the global financial crisis began in August 2007. But as stated yesterday this is not due to an increased willingness of bankers to lend but a n increase of nearly $400 million in deposits driving both Libor and T-Bill yields lower. All of you ‘green shoots’ fans – this is not money sitting on the sidelines itching to be invested, lent, or spent!
Late yesterday we learned that it is now the insurers who need help. Big ones like Allstate (the good hands folks), Prudential, the Hartford, and Lincoln National as well as some smaller ones. Hartford will get $3.4 billion in TARP money, Lincoln $2.5 billion. Are we covering all the bases yet? Brokers, banks, casualty (AIG), and now life, what is left. Why the life insurers? They are having trouble covering annuities! You didn’t want to hear that if you are retired and living on one but not to worry…Geithner is here! Throw a TARP over it…but the stink is still there…is this the catalyst for another stock market drop?
Gold is getting toppy, but unlike Crude has built some rather strong support here. Even if it were to decline so long as it doesn’t break the $899-901 band it is fine. But Crude looks like it had a false rally. Note that last trade on June Crude ($57.86) is May 19, and July ($58.57) now has twice the open interest of June. What is of interest here is unwinding of hedges as the contango (where price is higher on longer contracts than on the front end) has narrowed to $19.33 for Dec 2015…at the peak this more than $32!
A big warning flag went up yesterday when Wal-Mart had earning right on the consensus. That suggests squeezing out every drop and doesn’t bode well going forward. Nordstrom’s earnings fell by 40%. Tiffany broke thru the 200 day and closed on the 40 day in just two sessions although that is a difference of about a dollar ($26-25). Even the hot and overpriced Blue Nile (NILE) after gapping up on May 8, closed it the very next day and plunged from a high of $51.23 to $42.38 yesterday. But it is WMT that worries TB. Like Chrysler shutting down a quarter of its dealers and inflicting great pain on small towns across the country, Wal-Mart who has displaced thousands of mom and pop businesses is cutting back in those very towns adding to unemployment…ain’t that great? Not only that but Wal-Mart brought us ‘just in time’ inventories, and even those aren’t low enough now. Green shoots turning into weeds?
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Yesterday, TB snuck up to the wine country…Dry Creek Valley, with a recently retired friend to pick up some wine at Montemaggiore and cult zin winemaker Rafanelli (www.arafanelliwinery.com) It was a beautiful day and not much was missed in the market, except the doldrums. Also made a stop at Ridge. All of these wines are in the $30-40 range and not seeing much of a decline in sales, unlike the high end wineries. Montemaggiore is a very small, beautiful, boutique winery in the hills on the south side of the valley. One thing they do that is unique. When you are a member of their wine club you can pick the wines you want including from their library which goes back to 2002…at the same price! All of these wines have never left their temperature controlled storage room and are tasting great. Vince and Lise Colini are wonderful people and making small lots of great wine at a reasonable price…check out their website www.montemaggiore.com.
In the Napa Valley, high atop Howell Mountain is another winery of a friend whose father was well-known for making exceptional zins, Lamborn Family Wines. While Mike has continued the tradition of his dad, Bob, he is now making a beautiful cab, thanks to winemaker Heidi Barrett Peterson who made the famous Screaming Eagle. If you are interested in more information go to their website at www.lamborn.com.
TB isn’t receiving any compensation for mentioning these fine wineries, only introducing you to some great wines at fair prices….let’s do what we can for this industry too. How about a TARP (Taste A Reasonably Priced wine) program for them too?
TB meant to mention the passing of former FDIC Chairman Bill Seidman who was largely responsible for the S&L bailout and the Resolution Trust Company (RTC) to dispose of bad assets…he favored doing similar with the banks as recently as a week ago before his unexpected death at 88…TB would never have guessed.
Have a great weekend. Drink some wine, save a winemaker!
TB
Trader Bill thinks it is clear to anyone reading these missives that they are merely commentaries…as he sees it…and do not necessarily reflect the views of anyone other than his own. Information is gathered from sources he has found reliable, but no guarantees of accuracy are implied. These are merely observations of events in the marketplace offering in an attempt to offer a non-mainstream viewpoint. Hope you find it useful. Copyright TBD Capital LLC, May 15, 2009.
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