Greg Sommer's Instablog Independent Stock/Options trader based in SF, CA. Greg Sommer http://seekingalpha.com Up, Down, Sideways? http://seekingalpha.com/instablog/793698-greg-sommer/860731-up-down-sideways?source=feed 860731 It has been a while since I have written an instablog post and the market has gone through some major changes. First a large sell off due to the European debt crisis, a weakening Euro and subsequent sell off. The market then experienced an incredible rally with some resolution to the European crisis but as it proved, European leaders just kicked the can down the road so to speak.

Now we are well off the highs of the rally due to economic uncertainty, political uncertainty in the U.S., re-emergence of European woes and slowing global growth. We have rebounded slightly after testing the 1275 breakout. Now we are trading sideways in a very wide upward channel. See below;

(click to enlarge)

There are really only two scenarios that can come out of this sideways choppy action. Option 1 entails some rebound in economic activity, an "end" to or at least some important steps in ending the European crisis. The Euro has taken a nose dive vs. every major currency which in turn will help boost European exports and hopefully support the Euro region. This is an excerpt from a WSJ article, "The Euro-zone trade surplus jumped to €6.9B in May from €3.7B in April, coming in higher than forecasts of €4B. Exports climbed 6% but imports stayed unchanged from a year earlier, indicating how domestic demand continues to be weak."

If we get better data and some clarity on the direction of the economy we could see a return to this years highs. Another consideration is where risks lie in asset allocation. Fixed income investments yield very little and the bonds are being refinanced at lower rates due to extended Fed Policy. If the market moves higher there is higher risk fund managers will miss or be chasing a move higher.

(click to enlarge)

The second option entails further deterioration in the economy both domestically and globally. China growth slowing and the European recession could have a larger impact on other economies than we realize. Economies around the world are more correlated than they were 30 years ago so recessions do have contagion effects. A second consideration is the looming 'fiscal cliff' at the beginning of next year. Approximately $560 billion in tax increases and spending cuts has the possible outcome of putting the U.S. back into recession. J.P. Morgan has estimated it could cut 3.5% of GDP out of the economy. The Obama administration and the house has repeatedly shown they are unable or inept at formulating sound policy for the U.S. people. U.S. government and political in-action probably plays one of the biggest roles in hindering growth and prosperity. I think this scenario plays out as a rounded top and we see the bottom of the up-channel. Most likely at that point the uptrend won't even act as support.

(click to enlarge)

The best thing to do in this environment is to stay liquid and be able to move into cash relatively quickly.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

]]> Tue, 17 Jul 2012 00:48:22 -0400 It has been a while since I have written an instablog post and the market has gone through some major changes. First a large sell off due to the European debt crisis, a weakening Euro and subsequent sell off. The market then experienced an incredible rally with some resolution to the European crisis but as it proved, European leaders just kicked the can down the road so to speak.

Now we are well off the highs of the rally due to economic uncertainty, political uncertainty in the U.S., re-emergence of European woes and slowing global growth. We have rebounded slightly after testing the 1275 breakout. Now we are trading sideways in a very wide upward channel. See below;

(click to enlarge)

There are really only two scenarios that can come out of this sideways choppy action. Option 1 entails some rebound in economic activity, an "end" to or at least some important steps in ending the European crisis. The Euro has taken a nose dive vs. every major currency which in turn will help boost European exports and hopefully support the Euro region. This is an excerpt from a WSJ article, "The Euro-zone trade surplus jumped to €6.9B in May from €3.7B in April, coming in higher than forecasts of €4B. Exports climbed 6% but imports stayed unchanged from a year earlier, indicating how domestic demand continues to be weak."

If we get better data and some clarity on the direction of the economy we could see a return to this years highs. Another consideration is where risks lie in asset allocation. Fixed income investments yield very little and the bonds are being refinanced at lower rates due to extended Fed Policy. If the market moves higher there is higher risk fund managers will miss or be chasing a move higher.

(click to enlarge)

The second option entails further deterioration in the economy both domestically and globally. China growth slowing and the European recession could have a larger impact on other economies than we realize. Economies around the world are more correlated than they were 30 years ago so recessions do have contagion effects. A second consideration is the looming 'fiscal cliff' at the beginning of next year. Approximately $560 billion in tax increases and spending cuts has the possible outcome of putting the U.S. back into recession. J.P. Morgan has estimated it could cut 3.5% of GDP out of the economy. The Obama administration and the house has repeatedly shown they are unable or inept at formulating sound policy for the U.S. people. U.S. government and political in-action probably plays one of the biggest roles in hindering growth and prosperity. I think this scenario plays out as a rounded top and we see the bottom of the up-channel. Most likely at that point the uptrend won't even act as support.

(click to enlarge)

The best thing to do in this environment is to stay liquid and be able to move into cash relatively quickly.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

]]> Technical patterns macro-economics More lows for the SPY? http://seekingalpha.com/instablog/793698-greg-sommer/215574-more-lows-for-the-spy?source=feed 215574 Link to article) Low and behold the pattern materialized and the market tanked.  Luckily I was in cash when this selling really took hold and took some selective shorts when the opportunity presented itself. 

Now we have been chopping around in a very wide range in the S&P 500, approximately 1120 to 1220.  With the VIX at levels above 30 the daily moves in the market have been large and unpredictable.  With the headwinds in the world, both economically and politically, it's no surprise traders are hitting sell.  The European debt crisis is unresolved, the U.S. was downgraded from AAA for the first time, U.S. banks under extreme regulation, unemployment at 9.1% (and in some cases much higher depending on where you live), the U.S. has wars on three fronts now including Libya, turmoil in the middle east, natural disasters destroying infrastructure in the U.S. and Japan, the list can go on and on. 

Now back to the charts, the SPY has been trading in an upward sloping channel for the past couple weeks and Friday we closed at the bottom of the channel. 



Considering the extreme down move and the continued weakness in major names, I am looking for another move down below the channel.  Either we will retest the low of $110 made on Aug. 9th or we will make another low possibly down to the $108 to $106 level.  I am inclined to buy these new lows where you can get great value in some companies like Apple. Other companies I like and have been following include GMCR, LULU, HANS, UTLA, WFC,...

Here are some fun facts about the state of our country.

- U.S. Sovereign debt downgrade; first in American history
- Federal Spending (25% of GDP); highest since WWII.
- Budget Deficit (10% of GDP); highest since WWII.
- Federal Debt (67% of GDP); highest since post WWII.
- Employment (58.1% of population working); lowest since 1983.
- Increase in nonfarm payroll employment (0.5%) since recovery began 26 months ago; slowest recovery from severe recession since WWII.
- Home-ownership rate (59.7%); lowest since 1965.
- Percentage of taxpayers paying income tax (49%); lowest in modern era.
- Government dependency (47%), defined as the percentage of persons receiving one or more federal benefit payments; highest in American history. 
- Obama administration that flip flops on policies including environmental regulations, how to reduce the deficit and how to spur the economy/reduce unemployment. Yeah Check. 

One thing is for sure, things need to change in this country fast. 



]]> Sun, 11 Sep 2011 21:23:29 -0400 Link to article) Low and behold the pattern materialized and the market tanked.  Luckily I was in cash when this selling really took hold and took some selective shorts when the opportunity presented itself. 

Now we have been chopping around in a very wide range in the S&P 500, approximately 1120 to 1220.  With the VIX at levels above 30 the daily moves in the market have been large and unpredictable.  With the headwinds in the world, both economically and politically, it's no surprise traders are hitting sell.  The European debt crisis is unresolved, the U.S. was downgraded from AAA for the first time, U.S. banks under extreme regulation, unemployment at 9.1% (and in some cases much higher depending on where you live), the U.S. has wars on three fronts now including Libya, turmoil in the middle east, natural disasters destroying infrastructure in the U.S. and Japan, the list can go on and on. 

Now back to the charts, the SPY has been trading in an upward sloping channel for the past couple weeks and Friday we closed at the bottom of the channel. 



Considering the extreme down move and the continued weakness in major names, I am looking for another move down below the channel.  Either we will retest the low of $110 made on Aug. 9th or we will make another low possibly down to the $108 to $106 level.  I am inclined to buy these new lows where you can get great value in some companies like Apple. Other companies I like and have been following include GMCR, LULU, HANS, UTLA, WFC,...

Here are some fun facts about the state of our country.

- U.S. Sovereign debt downgrade; first in American history
- Federal Spending (25% of GDP); highest since WWII.
- Budget Deficit (10% of GDP); highest since WWII.
- Federal Debt (67% of GDP); highest since post WWII.
- Employment (58.1% of population working); lowest since 1983.
- Increase in nonfarm payroll employment (0.5%) since recovery began 26 months ago; slowest recovery from severe recession since WWII.
- Home-ownership rate (59.7%); lowest since 1965.
- Percentage of taxpayers paying income tax (49%); lowest in modern era.
- Government dependency (47%), defined as the percentage of persons receiving one or more federal benefit payments; highest in American history. 
- Obama administration that flip flops on policies including environmental regulations, how to reduce the deficit and how to spur the economy/reduce unemployment. Yeah Check. 

One thing is for sure, things need to change in this country fast. 



]]> spy aapl gmcr lulu mnst ulta wfc Economy technical pattern trading strategy SPY showing signs of more downside? http://seekingalpha.com/instablog/793698-greg-sommer/199619-spy-showing-signs-of-more-downside?source=feed 199619
This problem has been in the making for a very long period of time.  Government spending has been on the rise for years with no regard for the gap in receipts.  It is a common theme now of only dealing with our problems when we are on the verge of catastrophe.  It happened with housing boom and bust and now with our ballooning national debt.  Unfortunately politicians in this country want their respective political parties to "win" instead of doing what is right for the American people.  The recession only worsened the financial situation in this country and now we need to take steps to correct and reverse the biggest problem our country is facing.  If the U.S. did not have the largest economy in the world we would be treated more like Greece or Ireland.  This is not a path we should go down and politicians are doing the American people a diservice by putting our AAA rating in jeopardy.  Not to mention the extra cost of servicing our debt if investors require a higher return on borrowed funds.  

The smart move is to be very cautious in this market and for good reason.  Looking at the S&P 500 or the SPY there is a potential bearish head and shoulders pattern developing.  



If the U.S. does default and we get more downside in the markets we could see this pattern materialize.  The neck line of the pattern is at approximately $126 with downside potential to $122 or even as far as $118 if things get real bad.  One thing to keep in mind is the 200-day moving average where we saw a bounce before. 

The market has been in a range for months now and the only way to make money is to be a stock picker.  Long the stocks reporting outstanding earnings like LULU, AMZN, AAPL and GMCR and short the stocks that are struggling with the economy such as Ford or financial stocks.  If this pattern materializes and we do have more downside, it could be the opportunity to get into these high flyers.  
 


Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
]]> Thu, 28 Jul 2011 17:37:00 -0400
This problem has been in the making for a very long period of time.  Government spending has been on the rise for years with no regard for the gap in receipts.  It is a common theme now of only dealing with our problems when we are on the verge of catastrophe.  It happened with housing boom and bust and now with our ballooning national debt.  Unfortunately politicians in this country want their respective political parties to "win" instead of doing what is right for the American people.  The recession only worsened the financial situation in this country and now we need to take steps to correct and reverse the biggest problem our country is facing.  If the U.S. did not have the largest economy in the world we would be treated more like Greece or Ireland.  This is not a path we should go down and politicians are doing the American people a diservice by putting our AAA rating in jeopardy.  Not to mention the extra cost of servicing our debt if investors require a higher return on borrowed funds.  

The smart move is to be very cautious in this market and for good reason.  Looking at the S&P 500 or the SPY there is a potential bearish head and shoulders pattern developing.  



If the U.S. does default and we get more downside in the markets we could see this pattern materialize.  The neck line of the pattern is at approximately $126 with downside potential to $122 or even as far as $118 if things get real bad.  One thing to keep in mind is the 200-day moving average where we saw a bounce before. 

The market has been in a range for months now and the only way to make money is to be a stock picker.  Long the stocks reporting outstanding earnings like LULU, AMZN, AAPL and GMCR and short the stocks that are struggling with the economy such as Ford or financial stocks.  If this pattern materializes and we do have more downside, it could be the opportunity to get into these high flyers.  
 


Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
]]> spy lulu gmcr amzn aapl f S P 500 Debt Crisis Goldman Sachs, Time to Buy?? http://seekingalpha.com/instablog/793698-greg-sommer/180990-goldman-sachs-time-to-buy?source=feed 180990
1. You own Goldman Sachs. Yes that's right. If you invest in a 401k, large mutual funds or you just own a S&P 500 fund, then you are sure to be invested in Goldman Sachs.  Sorry to break it to you but if you want your 401k to do well, then you want Goldman and other major banks to do well.  (The same goes for oil companies for all of you that hate big oil but that's a separate debate. 

2. Why would you want a leading company in the U.S. to be operating under extreme constraints when global competition is increasing.  Although there are fewer large financial firms left, market share for derivatives and commodities businesses can easily be taken away if companies cannot provide clients, usually end users like WalMart or Apple, with the solutions they need to run their business efficiently. Companies like Glencore, based in Switzerland, are operating under less regulation than Goldman and the numbers tell the story. Glencore's return on equity is over 30%, where Goldman averages about 12%.  The Dodd-Frank act is not helping either, putting constraints on margin. The funny thing is that we (the U.S.) are responsible for the creation of Glencore charging one of the former executives, Marc Rich, with tax-evasion and trading with Iran.  He fled the country and formed a company that became Glencore, which just IPOed. Bill Clinton pardoned him in 2001 and what do you know, Glencore was sold and is now a major foreign competitor. 

3. Now that everyone thinks Goldman is unethical for operating in the shadows, using connections like Henry Paulson and profiting during uncertain times, let's look at the bigger picture.  Everyone, and I do mean everyone uses their connections to get what they want.  From big oil, wall street to public employee unions, lobbyists march on Washington promising money and campaign support in return for votes when policy is decided.  Wall street has profited from such actions and the same goes for employee unions.  Realize that public pensions, many which are on a course to go broke, were never renegotiated in most cases (Wisconsin is an example of drastic steps being taken) during the recession and people still have guaranteed salaries for life.  Meanwhile private sector employees with 401k's have seen there investments deteriorate with the economy. How is it fair that private employees get to pay the bill for pensions and have less money themselves in retirement?  If you ask me the unions are just trying to get their slice of the pie under the pretense they are working class.  We all go to work and bust our ass last time i checked. 

So back to investing in Goldman.  They still foster a culture that brings the best and the brightest to work for them.  That said, I think even with the pressure from government they will outperform their peers and make money no matter what.  Looking at the chart there seems to be support around the $130 area.  I will be looking to get in here for a bounce.



Looking at it longer term the weekly chart tells a different story.  Since its highs in 2007, the stock has never fully recovered.  It is easy to see the downtrend that has developed. 



If the $130 level does not hold as support there could be some serious downside for the stock.  Being optimistic by nature, this is not something I want to see happen. I am hoping something will change either with the earnings picture or environment for big financial firms.  Overall I think it's good for a trade but one must be cautious with this type of trade. If things start going south it's better to take a small loss before your account really starts to bleed.  Best scenario, it gets back to the downtrend line around 160ish.  

Good Luck


]]> Tue, 24 May 2011 14:53:58 -0400
1. You own Goldman Sachs. Yes that's right. If you invest in a 401k, large mutual funds or you just own a S&P 500 fund, then you are sure to be invested in Goldman Sachs.  Sorry to break it to you but if you want your 401k to do well, then you want Goldman and other major banks to do well.  (The same goes for oil companies for all of you that hate big oil but that's a separate debate. 

2. Why would you want a leading company in the U.S. to be operating under extreme constraints when global competition is increasing.  Although there are fewer large financial firms left, market share for derivatives and commodities businesses can easily be taken away if companies cannot provide clients, usually end users like WalMart or Apple, with the solutions they need to run their business efficiently. Companies like Glencore, based in Switzerland, are operating under less regulation than Goldman and the numbers tell the story. Glencore's return on equity is over 30%, where Goldman averages about 12%.  The Dodd-Frank act is not helping either, putting constraints on margin. The funny thing is that we (the U.S.) are responsible for the creation of Glencore charging one of the former executives, Marc Rich, with tax-evasion and trading with Iran.  He fled the country and formed a company that became Glencore, which just IPOed. Bill Clinton pardoned him in 2001 and what do you know, Glencore was sold and is now a major foreign competitor. 

3. Now that everyone thinks Goldman is unethical for operating in the shadows, using connections like Henry Paulson and profiting during uncertain times, let's look at the bigger picture.  Everyone, and I do mean everyone uses their connections to get what they want.  From big oil, wall street to public employee unions, lobbyists march on Washington promising money and campaign support in return for votes when policy is decided.  Wall street has profited from such actions and the same goes for employee unions.  Realize that public pensions, many which are on a course to go broke, were never renegotiated in most cases (Wisconsin is an example of drastic steps being taken) during the recession and people still have guaranteed salaries for life.  Meanwhile private sector employees with 401k's have seen there investments deteriorate with the economy. How is it fair that private employees get to pay the bill for pensions and have less money themselves in retirement?  If you ask me the unions are just trying to get their slice of the pie under the pretense they are working class.  We all go to work and bust our ass last time i checked. 

So back to investing in Goldman.  They still foster a culture that brings the best and the brightest to work for them.  That said, I think even with the pressure from government they will outperform their peers and make money no matter what.  Looking at the chart there seems to be support around the $130 area.  I will be looking to get in here for a bounce.



Looking at it longer term the weekly chart tells a different story.  Since its highs in 2007, the stock has never fully recovered.  It is easy to see the downtrend that has developed. 



If the $130 level does not hold as support there could be some serious downside for the stock.  Being optimistic by nature, this is not something I want to see happen. I am hoping something will change either with the earnings picture or environment for big financial firms.  Overall I think it's good for a trade but one must be cautious with this type of trade. If things start going south it's better to take a small loss before your account really starts to bleed.  Best scenario, it gets back to the downtrend line around 160ish.  

Good Luck


]]> gs Financial banks regulation 401k LULU; Relative strength is your friend http://seekingalpha.com/instablog/793698-greg-sommer/180951-lulu-relative-strength-is-your-friend?source=feed 180951
The company has been experiencing strong growth in a market segment that is not overly sensitive to price changes. They charge north of $100 for jackets, $100 for pants, and $50 for bras.  The company is marketing to the male demographic as well and that fad is starting to catch on as well. (Mainly because I have been seeing guys in Lulu apparel more often) The people buying their products tend to be from higher tax brackets and are less sensitive when it comes to price. 

The company reported EPS of $0.64 per share last quarter, representing a 60% increase in profit over the same quarter in the prior year.  Sales rose 53% to $245.4 million.  Strong numbers but the growth is expected to slow in the coming year.  Analysts polled expect sales growth to come in at around 30%.  

The real problem with the company is that they are not keeping up with demand.  Very unfortunate if you are a large shareholder of the company.  Management said inventories will be constrained for some time.  It is hard to predict what growth would look like without this problem but none the less there is strong demand for the brand. 

Now to the technical picture.  

No one is selling Lulu. The past few months in the market have been extremely hard to predict and filled with volatile and weak performance.  During the same time Lulu is trading in an uptrend and tends to trade sideways when the market has been selling off. 




Resistance levels are becoming support and corrections are shallow. Currently the stock is forming a wedge pattern while the S&P 500 has sold off almost 55 points. If the market turns around and makes another run at previous highs, Lulu could really take off.  The down days have lower than average volume and on many of the worst days in the market, Lulu has been slightly negative to sometimes positive bucking the trend. I am looking to go long this stock if it breaks to the upside on good volume. Either buying the stock outright or buying July $105 calls currently selling for approximately $3.40 in anticipation of new highs.  The call strategy carries more risk. 



]]> Tue, 24 May 2011 12:29:43 -0400
The company has been experiencing strong growth in a market segment that is not overly sensitive to price changes. They charge north of $100 for jackets, $100 for pants, and $50 for bras.  The company is marketing to the male demographic as well and that fad is starting to catch on as well. (Mainly because I have been seeing guys in Lulu apparel more often) The people buying their products tend to be from higher tax brackets and are less sensitive when it comes to price. 

The company reported EPS of $0.64 per share last quarter, representing a 60% increase in profit over the same quarter in the prior year.  Sales rose 53% to $245.4 million.  Strong numbers but the growth is expected to slow in the coming year.  Analysts polled expect sales growth to come in at around 30%.  

The real problem with the company is that they are not keeping up with demand.  Very unfortunate if you are a large shareholder of the company.  Management said inventories will be constrained for some time.  It is hard to predict what growth would look like without this problem but none the less there is strong demand for the brand. 

Now to the technical picture.  

No one is selling Lulu. The past few months in the market have been extremely hard to predict and filled with volatile and weak performance.  During the same time Lulu is trading in an uptrend and tends to trade sideways when the market has been selling off. 




Resistance levels are becoming support and corrections are shallow. Currently the stock is forming a wedge pattern while the S&P 500 has sold off almost 55 points. If the market turns around and makes another run at previous highs, Lulu could really take off.  The down days have lower than average volume and on many of the worst days in the market, Lulu has been slightly negative to sometimes positive bucking the trend. I am looking to go long this stock if it breaks to the upside on good volume. Either buying the stock outright or buying July $105 calls currently selling for approximately $3.40 in anticipation of new highs.  The call strategy carries more risk. 



]]> lulu Apparel consumer goods high growth Aruba; Strong earnings, Technical sell off http://seekingalpha.com/instablog/793698-greg-sommer/180124-aruba-strong-earnings-technical-sell-off?source=feed 180124
Click here for full article







Disclosure: I am long ARUN.
]]> Fri, 20 May 2011 16:51:13 -0400
Click here for full article







Disclosure: I am long ARUN.
]]> arun technical patterns earnings technology networking and communication