Tuesday, January 15, 2008

Stocks: DOWN volume was 92.5% of up

You hear a lot of arguments about whether the great American consumer is going to continue consuming. Last night I went through the daily charts of about 25 leading retailers. If consumers are still flocking into the stores, it seems to me it should show in the retailers. It hasn't. In fact, just the opposite is true. Even in the "better" stores such as Coach or Tiffany where the wealthier clients are supposed to "keep on buying, regardless of the economy" the indications are strongly negative.

Is Tiffany the place where wealthy people go to buy diamonds? It once was, but not any more. Tiffany is now just a better-class chain store, catering to a somewhat "better-off public." It doesn't seem to matter. These days the direction of Tiffany's stock is down, down, discouragingly down.

Ironically, diamond prices have been heading heavenward. The latest cover of Rapaport magazine (the bible of the diamond business) shows a large arrow pointing north. Within the arrow you read, "Diamond Prices 2007, Up, Up and Away. " Sorry Tiffany, when you decided to go for the middle class buyers and volume, I think you lost the really big spenders. But your stock -- what a waterfall.

Ralph Lauren, he's of the fancy Polo Brand. You too? Ralphie has made multi-millions with his concept of dressing Americans to look like retired millionaires or at least like Harvard preppies. He's done an excellent job of it, and now he sells everything from luxury towels to men's ties to women's evening gowns. The stock hasn't paid attention, at least not recently.

Coach brought in some really good designers, and the stock took off like a rocket on the upside. It was as though Coach had become a whole new company. But something awful has happened to Coach's stock. What ever it is, it hardly looks like a prediction of growing sales.

Whole Foods has been a winner, at least, up to recently. The food is good, the prices are high, and now competition is coming in from some of the huge food chains such as Ralph's and Safeway. At any rate, the stock has been whacked. People looking for lower-priced food? Could be.

What's wrong with three-dollar coffee? Nothing, except you can make a good cup of coffee with the new Nestle machine and those little capsules that cost about a half a buck each. And think of the money they save if they drink two cups every morning at the office instead of buying their coffee at Starbucks. You know the old joke, there are just too many Starbucks. You're in a Starbucks, you go to the bathroom and there's another Starbucks in the bathroom. Whatever, the stock has been on a downside tear.

I really like the Target stores. They offer great value in their merchandise. I think the Target stores are superior to Wal-Mart stores. But that hasn't helped Target's stocks, which has done the equivalent of a swan dive. What you see on this chart can't be good for retailing -- or am I missing something?

So in answer to the question, "Will consumers cut back on their spending in the weeks and months ahead," my answer is "Judging from the retail charts, I think they will cut back, if they haven't already."

And are the high-end people holding up their spending? My answer is, "If they are, I don't see it."

The Fed must have received a hint of something very unpleasant, because the latest rumor is that a Fed Funds cut of maybe .75% is coming at the end of the month. That would be a shocker. Well, the charts above are sort of a shocker, and the way the stock market is going, it may be "shock time" all around!.

So far, I haven't changed by recommendation. Gold and cash, cash and gold. And the oft-recommended utility stocks have really held up remarkably well, at least so far.

To repeat, I don't like the stock actions above, I don't like them at all. Remember, roughly 70% of the Gross Domestic Product of the US comes from consumer buying. Roughly 19% of the world's GDP comes from the buying of American consumers. It's not a very appetizing picture. Maybe it's time to climb down into the storm cellar. I hope I'm wrong, but I'm thinking that a large economic storm is building, and it's aiming to hit hard in the weeks and months ahead.

There were 811 advances on the NYSE and 2524 declines. DOWN volume was 92.5% of up + down volume -- almost surely a 90% down-day, which is a panic down-day, and a very bearish indication.

There's something very wrong occurring in the US and throughout the world. I'm convinced that it has to do with the whole sick banking system. It was hard to find anything that was up today.

It's a dash was for cash. But how safe is fiat paper?

Expect to see the central banks of the world set forth an avalanche of fiat currency -- the idea will be to get cash into the hands of consumers. But what if consumers are afraid to spend the cash -- instead they want to save it? Ah, then we have that rarity -- it's called "pushing on a string."

Overseas markets are getting killed. Hang Seng Down 1,232.7 or Down 4.77%

From: dowtheory


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6:37 PM  
Anonymous Anonymous said...

There's something very wrong occurring in the US and throughout the world. I'm convinced that it has to do with the whole sick banking system. It was hard to find anything that was up today.

This is the real reason behind the sell-off. Recession fears? The market's down 20%, is US and world GDP going to drop 20%? Of course not. So that's a red herring.

The real reason for the panic is the downgrade of Ambac to AA late Friday. MBIA is still under a similar threat. And once the downgrades start, they tend to keep coming, so drops from AA to A, or BBB, or even lower could happen. Why should anyone care? It's because these undercapitalised companies insure $2.4 trillion in muni bonds and in toxic CDO tranches, and once they're stripped of their AAA ratings, the banks that bought the insurance will be forced to write down the securities big-time, possibly triggering some bankruptcies. Some very big banks like Citi and Merrill are heavily exposed. Should one large bank go down, it will trigger a cascade of downgrades as every other bank that hedged their own CDOs with Credit-Default Swaps (CDS) will now have to write those assets down as well. It is not clear which banks would be left standing after such a meltdown. The big interest-rate cut we got yesterday is helpful, but doesn't directly address the bond insurer and CDS issues. It helps indirectly because banks can now project lower losses on toxic ARMS due to reset over the next 3 years, since they'll reset at rates that more people will be able to pay. But what the market really needed was an RTC-like government bailout for the bond insurers to prevent a chain-reaction failure of all these hedges.

7:50 AM  

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