Monday, September 28, 2015

Bears On The Prowl - $MOS $APD $BP $APA $LNG $WYNN $X $AA

Bears On The Prowl

The market crash that we suffered on August 24th should have served as a wake up call.  After that session we headed into a bearish scenario that has lasted 6 to 8 weeks. 

The Bears are out and about and prowling the market for their next opportunity. This was very evident once the price of oil began to plummet 10 months ago and gas prices in US began to slide down below $2.00 a gallon. Savings from the drop in oil never increased consumer or capital expenditures by businesses. Wages in US and the rest of the world have stagnated so we are now in a deflationary environment.

The largest manufacturer of mining equipment $CAT has lost 33% of its stock value within the last 12 months. On Thursday it gapped down over 6% with 4 times the average daily volume. $CAT is only reacting to what they see in all the countries that they do business in. This was a confirmation that the market is headed for a very bearish outcome in the next couple of weeks.  This subject actually came up for discussion at a private event I co-hosted with a colleague on Saturday and it led to a great conversation on global demand.

Nobody Is Producing!


$CAT is a multinational company and they have been giving low guidance for several quarters now. They've projected those sentiments all the way out to 2016, so they're telling us something - if we're willing to listen. This is not a caterpillar story. They are reacting to what they see as a lack of demand for raw materials all over the world. Major miners have not been buying or placing orders for new equipment because there aren't enough buyers out there for the raw minerals that go into our products.  

There is also a lack of demand for steel and other metals that go into the building industry. This in turn leads to commodity countries such as Canada, Brazil, South Africa and Australia suffering a loss of revenue from the lack of exports of their mined material.  

My Market Outlook


We will be heading into the "Earnings Confessional" in two weeks when $AA reports its earnings. Second quarter earnings was a disappointment and the market reacted negatively last quarter. Some traders made money trading $NKE but its success should not be extrapolated to reflect as a health of the economy or the market. Currently the  "Market is in Correction" and I project the major indices may be headed considerably lower in the next couple of weeks. My target for the major indices are:

$SPY ... 185
$QQQ ... 90
$DJX ... 15,400

Currently all the major sectors are trading below the 200 DMA (daily moving average) That in itself is a sign of a very poor health of the market. Europe and Asia markets were down by 3% last week and that will have a dampening effect on our US markets. The worst performing sectors are:

$XLB (materials)
$XLI (Industrials)
$XLE (energy)

Some of the stocks that are worthy of pursuing a bearish Option trades are:

$MOS
$APD
$BP
$APA
$LNG
$WYNN
$X
$AA

Most of them report their earnings in the last few days of October so if I'm planning a trade now, I'll be ready to harvest profit or cut my losses in week 3.

Happy Trading!







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