How to Trade for the Rest of the Year
Monday, July 6, 2009 | Barbara CohenRating:
Half the trading year is over, so it's a great time to stop and do a reality check on what's working (and what isn't) in your individual account. The broader markets have been in a trading range since March. It is now July. You might be asking yourself, if you trade or invest in stocks, whether you should continue to buy-and-hold.
You might also be wondering whether to add shorter-term positions to your trading rotation. (There are some great opportunities for daytraders out there. Check out last week's article here for two trading ideas.)
There's a lot of money to be made in the markets, and six months left in 2009 in which to do it. As we kick off the third quarter, what can we expect going forward for the remainder of the year?
What Do You Do When the Market's Taking a Breather?
Right now we are in the summer doldrums -- just look at the trading volumes. In March, the New York Stock Exchange was seeing daily volumes in the range of 8 billion to 9 billion shares. Now, we are barely seeing half that number, with trading volume in the 4 billion to 5 billion range.
In March, the trend was nearly vertical, with the Dow Industrials (INDU) regaining 1,500 points. But since March, the Dow has not moved -- and it's almost where it was at the beginning of April.
The question on many minds right now is, "Can we expect the Dow to rise again?"
Let's compare to 2008, when there was a very troubled economy and the Dow had collapsed. In the summer of 2008, the volume was around 4 billion shares daily. But in September-to-October, volume picked up again, back in the 8 billion to 9 billion range.
Don't Wait Till Wall Street Returns to its Trading Desks
We know that the market picks up after the Labor Day weekend -- things heat up when the weather starts to cool down.
But Labor Day is not until the beginning of September, and it is only July 6. What do we do until then?
With a flat market, it seems unreasonable to put your money in a buy-and-hold stock that probably isn't going anywhere. The answer: Find something to trade that is moving for the next two months ... daytrade futures. (Here are my top 3 tips to trading futures.)
Something on the near horizon is earnings season, which kicks off this week. On July 8, Alcoa (AA) is the first to report. It is always the first to report each quarter. And for the coming two weeks, we get earnings reports from all the major players, including Google (GOOG), Apple (AAPL), IBM (IBM), the banks, etc.
When these companies report, we are given great trading opportunities. These are trades whose average duration is probably 30 to 60 seconds. All it requires is that you be around when the news comes out.
That pretty much takes care of this month. So, while we are waiting for the market action to resume in earnest this September, we have lots to trade in July.
Also in the Markets This Week ...
By the way, expect today (Monday) to be a big trading day because last week, many institutional players were on vacation.
Trading volumes were very low during the shortened holiday week ... except in the futures markets, where traders who traded the unemployment news last Thursday (which was a great 30-second trade). Other than that, it seemed, no one else really traded.
On Thursday before the holiday, the market went down over 200 points. The Dow is back in the 8,200 range, so we can expect the market to try and put some of those points back on the board this week to remain flat.
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Barbara Cohen
Contributing Editor
The Tycoon Report
Economic Calendar for the Week of July 6-10
MONDAY, JULY 6
10 a.m., Non-Manufacturing ISM: Institute for Supply Management
* Importance (A-F): This release merits an improved B-.
* Source: Institute for Supply Management
* Release Time: 10 a.m. Eastern on the third business day of the month for the prior month.
* Raw Data Available At: http://www.napm.org
The Non-Manufacturing ISM index (sometimes refered to as the ISM Service index) is the result of a monthly survey of over 370 companies. The survey queries respondents on a number of monthly indicators, including orders, employment, inventories, supplier delivery times, prices paid, order backlogs, export orders and import orders. Respondents are asked to characterize each indicator as higher, lower or unchanged for the month (or faster/slower in the case of delivery times). They are not asked for specific numbers -- only a thumbs-up or -down.
Highlights
* The ISM Services Index for May checked in at 44.0%, which was shy of the 45.0% consensus estimate. It was up slightly, however, from the 43.7% April reading, which suggests the non-manufacturing services sector was contracting in May, but at a slower pace than before.
* The component indexes were on the mixed side, led by the disappointment of new orders slipping to 44.0% from 47.0% in April, but offset somewhat by a pickup in employment to 39.0% from 37.0%.
* According to the Institute for Supply Management Non-Manufacturing Business Survey Committee, the remaining component indexes broke down as follows for May: supplier deliveries 50.0% (vs. 45.5% in April); inventories 47.0% (vs. 43.0%); prices 46.9% (vs. 40.0%); backlog of orders 40.0% (vs. 44.0%); new export orders 47.0% (vs. 48.5%); imports 46.0% (vs. 48.5%); and inventory sentiment (62.5% (vs. 62.5%).
Key Factors
* At the risk of sounding like a broken record, the overall ISM Services report fits the bill of being less bad than before, but is still shy of signaling actual growth.
THURSDAY, JULY 9
8:30 a.m., Initial Claims
* Importance (A-F): This release merits a C .
* Source: The Employment and Training Administration of the Department of Labor.
* Release Time: 8:30 Eastern each Thursday (data for week ended prior Saturday).
* Raw Data Available At: http://www.dol.gov/opa/media/press/eta/main.htm
Initial jobless claims measure the number of filings for state jobless benefits. This report provides a timely, but often misleading, indicator of the direction of the economy, with increases (decreases) in claims potential signalling slowing (accelerating) job growth. On a week-to-week basis, claims are quite volatile, and many analysts therefore track a four-week moving average to get a better sense of the underlying trend. It typically takes a sustained move of at least 30,000 in claims to signal a meaningful change in job growth.
Highlights
* Initial unemployment claims for the week ended June 27 came in at 614,000, while the prior week was revised up to 630,000 from 627,000.
* The latest number was basically in-line with the consensus estimate of 615,000.
* Continuing claims fell to 6.702 million from 6.738 million the prior week.
Key Factors
* The prevailing message remains that the labor market is weak and that's not a great portent for consumer spending or the housing recovery.
Big Picture
* New claims for unemployment are at recessionary levels, as the financial crisis on Wall Street spilled over to Main Street in noticeable fashion with the seizing up of the credit markets in late summer/early fall 2008.
FRIDAY, JULY 10
9:55 a.m., University of Michigan Consumer Sentiment Index
* Importance (A-F): This release merits a B-.
* Source: The University of Michigan.
* Release Time: Preliminary: 10 a.m. Eastern on the second Friday of the month (data for current month); Final: 10 a.m. Eastern on the fourth Friday of the month (data for current month).
The Michigan index is almost identical to the Conference Board Consumer Confidence index, though there are two monthly releases, a preliminary and final reading. Like the Conference Board index, it has two subindexes -- expectations and current conditions. The expectations index is a component of the Conference Board's Leading Indicators index.
Big Picture
* Sentiment readings are a reflection of a variety of events rather than an accurate tool for forecasting consumer spending. Gas prices and political events can have an outsized impact on sentiment. In general, these data are of very little economic value.
