TDIMG Inside Edition – 9/20/2011: Priceline (PCLN) Short Setup, China Economics and The Luxury Boom

September 20, 2011 9:15 am

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2011-09-20

There is still a great deal of tightening that looks to continue in China. India once again increased their key rate by 0.25% as inflationary pressures keep building. But the problem with rising housing costs in China are a serious concern to the government who has tried to cool off the overheating market with little luck.

China’s new-home prices rose in August in all 70 cities monitored by policy makers, challenging the government’s efforts this year to control property prices.

Prices in Beijing rose 1.9 percent from a year ago, while those in Shanghai, the nation’s financial center, increased 2.8 percent, the statistics bureau said on its website today.

Below is the full series of economic indicators that we track on China.

China Economics 09192011

Here is something that makes you say…HMMMMM

Investors have pulled more money from U.S. equity funds since the end of April than in the five months after the collapse of Lehman Brothers Holdings Inc., adding to the $2.1 trillion rout in American stocks. About $75 billion was withdrawn from funds that focus on shares during the past four months, according to data compiled by Bloomberg from the Investment Company Institute, a Washington-based trade group, and EPFR Global, a research firm in Cambridge, Massachusetts. Outflows totaled $72.8 billion from October 2008 through February 2009, following Lehman’s bankruptcy, the data show.

About $177.7 billion has been removed during the past 30 months from mutual and exchange-traded funds that invest in U.S. shares as the benchmark gauge for American equity rallied as much as 102 percent, before falling 17.9 percent through Aug. 8. Investors pumped in $18.7 billion during the first four months of 2011, before removing about four times that amount since, according to the average of data from EPFR and ICI, the money managers’ trade group. The August estimate doesn’t include ETF data from ICI.

Obviously there is a good amount of pessimism out there. The withdrawals have found homes in bond funds and opted to keep a cash pile, even though they are earning under 0.5% on deposits.

We are watching Priceline (PCLN) for a potential short entry. The level for alerting us to initiate is just below $500 and that provides some downside toward $467. At that point there is a point of support, if it fails, will see a potential move to $418. With the addition of Google’s new Google Flights site, this could be a problem as Google also owns some of the back-end administration systems that many of the other carriers use.

Even though Google Flights only provides discounted domestic ticketing right now, there is a good chance that they will eventually creep into that area in the future. (Don’t forget about cruises and car rentals…)

The last point is that Priceline has shown that it has a series of lower highs and is now below the 10 WMA, a sign that institutional support may be waning.

UPDATE: Priceline bounced off of its 10 WMA and ended the session at $530, right on a restance point. Patience may payoff if the short entry pattern emerges.

How did the day go overall on Monday? If you saw only the morning action, you would have concluded that it was a really bad day. If you only looked at the end of day results, there was much less damage than appeared.Most of the losses were centered around the financial and materials sectors. Technology shares did well and interestingly the Consumer Discretionary sector was on fire.

As counter-intuitive as it may seem, there was some upbeat commentary from some of the high end retailers. Prada was out with earnings that were impressive. The company posted a net profit of 180m euros ($245.5m; £157m) in the six months to July. That compares to 103m euros a year ago.

Prada, which had an initial public offering in Hong Kong in June, plans to open 80 new stores this year. The Asian market, and especially China have become increasingly important to luxury goods companies. Of the 80 new stores Prada plans to open this year, 25 will be in the Asia Pacific region, according to the company.

A few restaurant chains also came out with some good commentary and this is reviving the thought that “the consumer is not dead”, yet. But, there is an important theme that is running throughout management’s comments with regard to their retail sales. Many are seeing record results from their Asian and Emerging Markets operations, while their Developed market business is slowing. Tiffany’s, Apple, Coach, LVMH, Burberry and other high end establishment are actually seeing a boom outside of Developed Nations. That makes sense as austerity measures are implemented and the unemployment rate is high, holding back the consumer.

The lesson from this is that there needs to be care taken when focusing on U.S. and European economic data. These are important, but companies may still be able to turn a substantial profit from customers outside their home country.

Of course the daily, “well-timed” announcements started at just about 3pm. While there was no official report, the Greek headlines were stating that the Troika was close to providing the next tranche of money. What a bunch of Malarkey! There is no way that any credible source will allow for that kind of information out before the deal was done. So either the deal is done and Greece has once again gotten away with murder or the desire to keep up spirits for one more day, bide time and hope that the longer that it takes, the less anyone will notice.

Frankly, the entire situation stinks! Take a look at how fast the Euro reacted….

In that same 30 minute period, the S&P 500 rocketed higher by 1.24%. The low volume coming into the afternoon helped to provide a short-squeeze condition that was fed on with the vague announcement from Greece. At this point, it is hard to believe anything that is coming put of Europe as most news items are contradicted within hours.

TDIMG portfolios had a good day (translation: profited on the day) due to the Short European and Short Silver positions. Our Long positions also behaved well. The standout being Lululemon (LULU) which was up over 5% on the day. Again, the upbeat comments from other high-end retail establishments lit a fire on many of the luxury names.

Lulu broke out above resistance with heavy volume. After tapping the 50 DMA, support came in and the stock was moving higher throughout the day. This has been volatile of late, but this move may attract more buyers if market cooperate.

After the close, S&P downgraded Italy’s credit rating. It was just a matter of time as their finances are in disarray. Italy holds a massive amount of debt as compared to the size of their economy. As they have been reducing growth estimates and imposing austerity measures, there is a very real concern that they will be then next blowup in Europe. The longer that the Greece charade continues, the greater the likelihood that collateral damage will intensify.

On the news, the Euro dropped from close to $1.37 to $1.36 and futures on the S&P 500 lost almost 1%. Unless European leaders figure out a way to lead and bring back confidence, this crisis will worsen by the day.

We know that liquidity has been absent as many counties have stopped loaning money to institutions within the EuroZone. Now China is getting in on the action. Tuesday morning headline:

Bank of China Halts Forex Swaps With Europe Banks

Not a pretty picture at all.

Over the next two days, there will continue to be an undertone of optimism that the FED will come out with a miracle of sorts that will rescue the U.S. economy. There are several measures that are being highlighted as strong possibilities, although we do not have a high level of confidence that any will move the needle. The right mixture of fiscal and monetary policy is what is needed. One side alone cannot fix this mess. Unfortunately, the Job Plan that the White house is offering is a high expense proposition with little benefit. (Keep a watch as we will dissect this and provide comments over the next few days)

Latest Podcast Episode: TDI Podcast: Shorting Europe, The Mystery Broker, Market Rally Almost Done (#230)
Guest(s): Mike Santoli, Barron’s

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