Tuesday, November 22, 2011

Sector Comparison

Here's a comparison of two sectors that have high and low ticket items. Below is a chart of Ford, GM and a major auto supplier Lear.  Ford and GM are both down approximately - 40% and Lear is down around -18% this year alone. These are companies that sell high priced items to the consumer, or provide items to the auto industry as Lear does.
Copper a leading economical indicator is down - 27.63%, as shown by the the copper ETF (JJC). Copper is used in just about any large scale building including auto and homes.
Not to show just bearish looking charts, below is a nice looking chart of stocks that cater to people looking for low cost items and food.  McDonald's, Dollar General, Dollar Stores, and Walmart all fit this category and are all higher for the year with Dollar General up 28%.
So what we have is a tale of two industries.  Car manufacturers and anything heavy duty including copper has been sold off hard which is expected in a struggling economy. McDonald's, where you can feed a family of four for around $20.00 and the $1 dollar stores have seen their stocks appreciate this year.  

Bottom Line:  Monitoring charts like these can be helpful in determining the mindset of the consumer.  Is the consumer still pulling back and staying away from high priced ticket items and continuing their cost conscious ways by visiting the economical low cost stores, or have they opened up their wallets to higher ticket items that have a longer term obligation to pay off.  For now, the consumer is extremely risk averse with their purchasing habits.  I would expect those charts to reverse when the economy starts a recovery.  A potentially good trade would be to go long the autos manufacturers and sell short the low cost providers when the economy does rebound.
 

Wednesday, November 16, 2011

Market Recap - Wednesday November 16

Today is a perfect example of the kind of stock market we currently have been experiencing.  Today around 3:00 pm stocks started to sell off under heavy volume.  From what I can see the 3:00 pm reversal down was caused by three reasons. The price of oil breaking 102.00 per barrel to the upside, a stronger US Dollar Index, unsolved EU Debt Issues.
First let's take a look at a 5 minute one day chart of the S&P 500 (SPY).  Notice the 3:00 pm sell off on heavy volume.
Below, is a chart of oil breaking out above the 102.00 dollar range.  Expect higher gas at the pump soon.
Bottom Line:  What we have is a very fragile market that has been moving on headline news primarily about what's going on in Europe.  Couple that with high oil, and you have a market ripe for a sell off.  Those who are bullish, are expecting a Santa Claus rally into the new year.  I think the chances of such a rally are diminishing quickly.  The headwind of high oil alone is enough to keep the market from putting in a year end rally. Thank you for stopping by.

Tuesday, November 8, 2011

World Stock Market Performance

Stock indices around the world have been performing poorly on a relative basis to the US S&P 500 Index.  Part of the reason for that is because capital is coming out of Europe and into US stocks. Below is a chart showing the various country indexes from around the world.  They include Brazil, China, Germany, Japan and Hong Kong.
As you can view above, all the major indexes around the world are currently down double digits this year.  The best place to have placed your investments this year would be the S&P 500 and not on the other major indexes around the world.  Stocks as of late sure have a bullish tone to them, with every dip in the market being bought.  Thank you for reading.

Tuesday, November 1, 2011

US Dollar and Stocks

What's moving the stock market these days?  The answer is the strength or weakness of the US Dollar Index.I wrote about this phenomenon some time ago here U.S. Dollar Weakness and the Markets.  Below is a chart of the inverse correlation or non-correlation between the US Dollar and the S&P 500 Index. Notice when the dollar strengthens like today, and yesterday, the stock market moves lower.  Notice the chart of the non-correlation between the two.  US Dollar in red, S&P 500 in black.
Stocks like a weaker currency, because in general companies become more competitive selling their items world wide.  The dollar has gained strength for two reasons:  First Japan is actively intervening in their currency to drive it lower to become more competitive, and secondly, the debt problems in Europe have also led to a lower Euro vs. the Dollar.  
Bottom Line:  Monitoring currencies has become just as important as stock indexes around the world.  So for now if we keep experiencing dollar strength then I would continue to expect some weakness in stocks at the same time. Thank you for stopping by.