Monday, October 29, 2012

Chart of the Day - Kroger (KR)

The "Chart of the Day" is Kroger (KR), which showed up on Thursday's Barchart "52-Week High" list. Kroger on Thursday posted a new 14-month high of $25.36 and closed +1.40%. TrendSpotter has been long since Sep 6 at $23.10. In recent news on the stock, Jefferies on Oct 16 upgraded Kroger to Buy from Hold and raised its target price to $30 from $25. Kroger on Oct 16 raised its long-term EPS growth target to 8-11% and approved a $500 million share repurchase program to replace the program than had $340 million of purchases remaining. Kroger, with a market cap of $13 billion, is one of the larger grocery retailers in the United States.


How to deal with trading losses

I’m not sure if you guys have discovered Gatis Roze, one of the newer bloggers over at I mentioned his new blog back in the Spring, and he certainly did not disappoint. He’s been pumping out blog post after blog post. And since I read a ton of technical work everyday, it’s nice to sometimes sit back and enjoy more of a philosophical discussion on trading and investing.

One of his recent posts at The Traders Journal“How I Deal With Trading Losses” is a must read. Here are a few things that stuck out to me:

As I see it, there are two types of losses.  The first type of loss is simply a result of the laws of probability and is to be expected if you follow your methodology.  I tell my classes that I lose about 4 out of every 10 trades.  The novices in the class react by asking themselves why they are taking an investment class from such a loser. The experienced investors nod their heads in approval.  The point is that when I lose, I cut my losses quickly to minimize the costs. When I have a winner, I let it run.  It works out to be a net positive as the winners more than compensate for the losers.  For you sports fans, another way to look at it might be to ask:  how much would a baseball team pay me if I hit only 6 out of 10 times at bat?  (more)

Red Hat, Inc. (NYSE: RHT)

Sometimes trading in the stock market can be complicated, and at times, confusing. However, there are some trading opportunities that are clear and somewhat obvious. One potentially simple trading opportunity would be for the stock of Red Hat, Inc.

Red Hat, Inc. provides open source software solutions to enterprise customers worldwide. The company also offers enterprise-ready open source operating system platforms. Its products include Red Hat Enterprise Linux, an operating system designed for enterprise computing; Red Hat JBoss Middleware, which offers a range of middleware offerings for developing, deploying, and managing applications, such as hotel and airline reservation systems, online banking, credit card processing, securities trading, healthcare systems, customer and partner portals, retail and point-of-sale systems, and telecommunications network infrastructure that are accessible through the Internet, corporate intranets, extranets, clouds, and virtual private networks; and Red Hat Virtualization, a virtualization solution for server and desktop computers that combines the kernel-based virtual machine hypervisor with the oVirt open source virtualization management system. In addition, the company offers other Red Hat enterprise technologies, including Red Hat Messaging, Real-time, and Grid that integrates open and scalable messaging; and Red Hat Directory Server that centralizes application settings, user profiles, group data, policies, and access control information into a network-based registry. Further, it provides various cloud, storage, and systems management offerings, as well as offers training, consulting, and support services.

Please take a look at the 1-year chart of RHT (Red Hat, Inc.) below with my added notations:

1-year chart of RHT (Red Hat, Inc.)

It's relatively straightforward. RHT has been holding a very important level of support at $50 (navy) for the last (8) months. No matter what the market has or has not done over that period of time, RHT has not broken below that area of support. If the market should move lower, RHT would most likely break that support and move lower from there.

Gold Cycle “Following The Script”

Again tonight yet another “following the script” report with regards to the Gold Cycle; it really has tracked our expectations well. Today Gold touched $1,698 and with that we witnessed a 14 day $100 decline. It helps with keeping expectations in line when you already expect a decline of this magnitude.
With today’s drop, we came very close to the 38.2% fib level of this entire IC, a point that I would normally consider the minimum expected retracement level for a final ICL. Technically we’re now seeing oversold levels which have qualified as ICL events in the past. Although Gold is still far from “extremely oversold” and it’s extremes that normally define ICL events. From a Cycles standpoint, we enter Day 21, now within the timing band for a Cycle Low and right on the average (in days) for 4th or 5th Daily Cycle’s.

As an update to the weekend report, I have provided you (below) with the past 4th and 5th final Daily Cycles, shown by percent decline over Cycle days. As you can see, we now have a Cycle that conforms perfectly to past final Daily Cycle that is also a part of similar dominant (C-Wave) Cycle. The key point is that in both duration and decline, this Cycle is now right on the average of this sample set.

The all-important sentiment towards Gold is also sharply contracting. Typically sentiment drops the most in the final weeks of an ICL move, and these sentiment readings do not take the past 2 days of declines into consideration. You will also notice that I highlighted past C-Wave sentiment decline levels on the chart below. It’s important to understand that sentiment within C-Waves do not decline to the levels as seen during both the recent D and B Wave lows.

The Weekly Cycle has hugged the trend-line I drew 3 weeks ago and now we’re seeing the expected 3 Weekly declining candles.  The foundations for an ICL are now just about in place.  Just like the Daily Cycle, the Investor Cycle has essentially now flashed the “all clear” ICL sign.  This simply means that although we’re not at extreme ICL levels, we have for the most part fulfilled a very wide range of conditions which are present during all other ICL’s.  Any speculation on further price declines from this point forward are simply just a matter of opinion, the evidence comfortably supports a Cycle Low between this point or up to 5 days out and $60 lower.  The point is from a Cycles standpoint, we have entered the “sweat spot”, further declines are possible, but very far from assured.  So as to my personal opinion, I think we have one more 1-3 day drop with gold, most of it being intra-day action that touches as low as the $1,665 level.

How Far Will Apple Fall?: AAPL

Apple (NASDAQ:AAPL) — On Oct. 3, I suggested three possibilities for the future direction of AAPL, and on Oct. 9, at $638, I concluded that a head-and-shoulders top had occurred. I wrote:
“On Monday, the third option, a head-and-shoulders breakdown, occurred following more production problems with the new iPhone 5. Despite reduced trading volume due to Columbus Day, enough sellers surfaced to drive the stock’s price through the neckline at $655 on a breakaway gap.

“This is a classic breakdown — it just doesn’t get any clearer than this. However, a fall to $605 would not change the long-term direction of the stock (which is still up) and could present a good buying opportunity. I’ll review it when it gets there.

Thursday’s low was $605.55. After the close, Apple missed its earnings target, reporting Q4 2012 earnings of $8.67 versus an expected $8.75. The company also said it sees Q1 2013 earnings per share of $11.75 versus a prior estimate of $15.43.

Those who shorted the stock may want to take profits this morning if it opens lower. However, the stock may head even lower with its next target the 200-day moving average line at $587.
Trade of the Day – Apple (NASDAQ:AAPL)
Click to Enlarge

Why a "bond investor slaughter" could be unavoidable now

I'm going to say this here and now for posterity and I hope you bookmark it:
There's going to be such a brutal bond investor slaughter at some point over the next decade that the streets of Boston's mutual fund district will run red with blood, the skies will be shot through with the lightning and thunder of unexpected capital losses and those who manage to survive will envy the dead.
Now a slaughter in bonds will not look like an equity market crash, the volatility characteristics are different and bonds eventually mature. But in some ways it will feel much worse than a stock crash because the money parked in bonds is thought of as low or no-risk.
The fixed income guys know what's going to happen, too. Why do you think the Bond Kings at PIMCO and DoubleLine are pushing into equity funds? They're getting three-year track records under their belts for when the big switch comes.
And it will come.
You know how I know this? Because you lunatics are plowing money into fixed income at all-time low interest rates during the parabolic final phase of a 30-year bond market rally. You are going limit-up long into one of the most obvious blow-off tops in the history of investing. And you're doing this with almost guaranteed inflation ahead of us and only the prospects of negative real rates of return on your T-bills.  (more)

Marc Faber Sees 20% Decline For Dow, S&P

Marc Faber, editor and publisher of the Gloom Boom & Doom Report, sees a 20% decline ahead for the Dow and S&P 500 from their recent highs. Here's what a 20% decline in the S&P 500 ($SPX) would look like. He was featured on CNBC in Europe on 10/23/2012.

US Weekly Economic Calendar

time (et) report period Actual forecast previous
MONDAY, Oct. 29
8:30 am Personal income Sept.   0.4% 0.1%
8:30 am Consumer spending Sept.   0.7% 0.5%
TUESDAY, Oct. 30
9 am S&P Case-Shiller home prices Aug.   -- 1.6%
10 am Consumer confidence Oct.   74.0 70.3
8:30 am Employment cost index 3Q   -- 0.5%
9;45 am Chicago PMI Oct.   -- 49.7
8:15 am ADP employment report Oct.   -- 88,200
8:30 am Weekly jobless claims 10-27
367,000 369,000
8:30 am Productivity 3Q   1.8% 2.5%
9 am Markit PMI Oct.   -- 51.3
10 am ISM Oct.   51.0 51.5
10 am Construction spending Sept.
0.7% -0.6%
TBA Motor vehicle sales Oct.   15.0 mln 14.9 mln
8:30 am Nonfarm payrolls Oct.
120,000 114,000
8:30 am Unemployment rate Oct.   7.9% 7.8%
10 am Factory orders Sept.   4.5% -5.2%