Saturday, April 13, 2013

Weekend Trading Notes On April 13, 2013

Let's have some laughs! For it is impossible to stay completely serious about this market.

What is happening with the retail sector? I expected that payroll tax increase would be slowly absorbed by resilient consumers, who would adjust their other expenses in order to continue shopping like drunken sailors. Not so, according to March retail sales report (released yesterday). This news came after big employment cuts by retailers were reported in March NFP last Friday. And to top all of this off, UoM Consumer Sentiment came in worse than expected yesterday as well (I would not put too much weight on this one though). So why the heck is XRT not responding negatively to all of this news? If you can answer this question without mentioning the Fed in the same sentence, I am ready to listen. I am not a big fan of the Fed, as I have no sympathy for their current policy. This said, it looks like consumers are finally getting rewarded by ZIRP (zero interest rate policy), for a change. To the dismay of all those who claim that consumers have been deleveraging since GFC (Great Financial Crisis), consumer credit expanded by a whopping $18.1B in February, as reported last Friday. It also comes contrary to the belief that credit has been tight. Looks like smaller paycheck was balanced by heavy borrowing at very low interest rates, hence consumers may come back to shopping centers after all. Could this be what the market thinks here? You see, I told you it is all about the Fed... LOL
On a serious note. Even though the MoM drop in retail sales is disconcerting, the YoY growth is still in positive territory, although in low single digits currently. It seems that every year retail sales growth drops off somewhat towards the summer, only to pick up later in the year. So let's zoom out a bit... Currently, retail sales growth rate is oscillating towards the bottom of the well-established long-term range. March employment cuts in the sector look like a blip on the long-term chart. Staying with the theme, one has to zoom out in order to realize how resilient the consumer has been. Consumer spending is at all-time high, despite consumer confidence tracking much lower than pre-recession levels. As the matter of fact, with every recession it seems that consumers are less confident during the rebound. Market is well-aware of the non-correlation at this point. And this is probably why XRT hit an all-time high on Thursday.
So I would like to make another one of my outlandish predictions. XRT will end the year at around $80, a gain of 9.5% from here. I built a fib structure which shows a possible short-term top developing between right here to around 73.80 (cluster resistance), followed by a 6.2% correction (as a part of the summer swoon scenario for the fourth year in a row), and after that a 15.5% rally into the end of the year. It so happens that SPX has been a carbon copy of XRT since the bottom in March of 2009. Do you get my idea?
Let's see how all of the above looks on charts.

click on charts to enlarge 

It was a fun-filled trading week, that is if you were long S&P 500 and short gold. I hear a lot of nonsensical hoopla from some traders who like to brag about buying gold in one or another weak currency, mostly in Yen lately. I am sorry, but this just cracks me up! How about selling gold outright? Yellow metal is in a bear market territory now. Why complicate things and use weak currencies to buy it, when you can just sell all rallies in it in dollar terms? I just don't get it...
Better yet, I have an interesting suggestion. I was waiting for Friday's close to show a chart below. It is a weekly-on-close comparison of continuous gold futures over S&P 500. I call this chart "Solar Eclipse". The last time the two intersected was in April of 2010 - exactly three years ago. You could show my chart to your friends at a cocktail party and say that you are short GC in SPX terms... LOL
On a serious note, there was a laminate support of a horizontal and lower trendline of the channel at 1490ish. After the pit closed yesterday, the price hit an air pocket and blew right through that in Globex trading, dipping down to $1476 (on June contract) in stops-hunting exercise. It is probably not the best idea to short here, maybe one should wait for a bounce to just around $1500. It may sound crazy, but there is another 10% below here to shoot for, all the way down to 1340.
I will get some angry comments from gold bugs now... LOL

Happy trading next week!

click on chart to enlarge

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