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December 4, 2009, 08:00 EST

Dr. Joe Duarte's Market I.Q.

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Intelligence, Market Timing, And Trading Strategy For Traders and Investors

The Return Of Barter: Is It A Permanent Change?

What's Hot Today:

U.S. stock index futures were flat before the employment report. We would not be surprised to see the jobs lost number climb back above 200,000.

Today's Economic Calendar:

Employment Situation 8:30 AM ET
Factory Orders 10:00 AM ET

News For Thought

Familiar trend develops in wake of Recession. As in other recessions, those out of work often look to retrain in new areas. According to CNBC.com, it's happening again as "Many of America's 17-plus million jobless are going back to school to learn new skills and improve their chances of rejoining the workforce when the economy rebounds." Among the most popular trades include plumbing, and hair styling.

Climate Gate university to be investigated. According to The New York Times: "The University of East Anglia in Britain has named Sir Muir Russell, who has held various academic posts in Scotland, to lead an independent inquiry into allegations about the quality of research and data-keeping at the university’s Climatic Research Unit and the conduct of some scientists there. The hacking and subsequent release of thousands of e-mail messages and documents generated by climate researchers from a university computer server have set off an international dispute over the quality of research on global warming just as negotiators from 190-plus nations prepare to gather for talks in Copenhagen next week on a potential treaty to limit greenhouse gases."

Report: Iran funds Taliban. According to Stratfor.com: "A provincial administrator in Afghanistan’s western Nimroz Province said elements within Iran are providing the Taliban with funding and weapons, Radio Free Afghanistan reported Dec. 3. Asadullah Haqdost told Radio Free Afghanistan that security officials have “reliable” evidence that support from Iran is going to Taliban fighters in western Afghanistan. He said there is a training camp in Iran where some fighters were trained and equipped before being sent to Afghanistan to attack Afghans and foreign troops."

Notice to subscribers. Starting December 2, we are introducing a rating system for individual stocks and ETFs. Visit our health and biotech as well as our energy and S & P 500 sections for more information and ratings.

The Return Of Barter: Is It A Permanent Change?

Hard Times Lead Businesses To Look To Past Practices

As investors wait for the employment report, it's important to consider that many businesses are starting to return to a more traditional method of commerce, barter.

This is particularly evident in the restaurant sector where, according to The Wall Street Journal: "restaurants are swapping food for services like oven-hood cleaning and pest control." And in many cases the method is working as "Bartering helps restaurants fill seats, reassuring prospective customers who might be turned off by the sight of a vacant eatery. It also attracts new customers when tradespeople bring friends along, reduces some costs, and helps retain employees who can't scoop tips off empty tables."

To be sure, it's not likely to be a long term fix. But it is evident of where we are in this economy. For one thing, bartering doesn't deliver cash, which restaurants need to pay their bills. But "bartering is an especially useful tool for independent restaurants that, unlike some chains, lack access to corporate credit lines or cash."

And it's becoming a more sophisticated endeavor as bartering exchanges are appearing on the landscape. According to The Journal bartering exchanges track the transactions which "count as taxable income and must be recorded for tax purposes. Rather than traditional bartering, in which services are swapped directly between vendors, most barter exchanges use a "round robin" approach that offers flexibility for both restaurants and service people."

Here's how it works: "a plumber uses trade credits accumulated at an exchange to pay for a restaurant meal. The restaurant owner can use the credits spent by the plumber to "purchase" a variety of services offered by appliance repairmen, electricians and other exchange clients. The exchange acts as a bank, keeping track of credits and collecting fees on each transaction."

According to The Journal, some businesses are deriving significant benefits from this kind of activity. One restaurant in Arizona "where business is off 40% from three years ago, joined the Arizona Trade Exchange in October. Since joining the exchange, he says he's been averaging $2,000 per week in trade credits from tradespeople, which has allowed him to pay for almost all of his monthly expenses—from laundry to fire-extinguisher maintenance—without writing a check." And the tradespeople "tip well" which "keeps his wait staff happy."

The Restaurant owner told the Journal that "his traffic has increased 10% in the last month," and that barter exchange clients "also have led to catering jobs."

And as we have noted here, in our Tales from the Road segments, home owned restaurants have fared better than chain owned restaurants. According to the Journal, sales have fallen 9% for the former, while they have fallen nearly 10% for the latter. The barter exchanges are showing an improvement in business. According to The Journal: "Rob Miller, president of the Arizona Trade Exchange, says he now has more than 30 restaurants involved in his exchange, up 20% from a year ago. The exchange charges a one-time $495 membership fee as well as a $12.50 monthly fee, and takes a 12% cut of each transaction from the person making the trade purchase."

On the non-restaurant side of the equation, barter also has its benefits. According to The Journal: "Cody Smith, owner of Dynamic Pest Control in Mesa, Ariz., has been cashing in his trade credits at restaurants more frequently in the past six months." Mr. Smith has seen his sales up 15% this year, partially from business influenced by his barter activities.

Conclusion

Barter is not new for the restaurant industry. But its use is increasing, and it seems to be gaining strength as the poor economy drags on.

It's will be interesting to see whether this trend starts to take hold in other areas of the economy, such as professional services and retail.

What's interesting is that as the Journal points out "restaurants increasingly use barter for routine maintenance costs." In the past "restaurant owners would use barter to upgrade their lifestyle, like to go on vacation or buy jewelry, but because of the economy, now they're using it to pay for their business expenses."

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Market Moves - Stock Of The Day

Google (Nasdaq: GOOG) Rocks As Goldman Sachs (NYSE: GS) Sags

Shares of Google (Nasdaq: GOOG) are near their 52-week highs, while shares of Goldman Sachs (NYSE: GS) are mired in a nagging down trend.

Chart Courtesy of StockCharts.com

At an important market juncture, it's important to see what the market bellwethers are telling us, as much for their trading worthiness as for the overall message they are sending. And if you own Google, you're doing fine. Yet, the usally 5-star shares of Goldman Sachs have fallen into 2-star territory over the last few weeks.

It's not that Goldman doesn't make money, or that it still owes TARP money that's making shares fall. It's the fact that the company has become the poster child for a Wall Street that has fallen way out of favor. So, you have to wonder if the decline in Goldman is because of poor PR, or because the next few quarters aren't going to be so good and the big money guys are getting out while the getting is good.

It's that latter possibility that should be of concern to investors as Goldman has been an excellent bellwether for the markets for some time. For example, Goldman shares took a big hit in the spring of 2007, just a few months before the subprime mortgage crisis broke. And on the flip side, Goldman shares bottomed out in November 2008, a good four months before the S & P hit bottom and started its 60% plus rally in 2009.

Google, on the other hand, continues to move higher because it's Google. It owns the search market and has leveraged it into huge profits and sales, even during very difficult times.

In other words, Google has now become Microsoft, the most influential technology company of its time.

So the way to look at this may be that Goldman is sending out a warning signal. If history holds up, Goldman is a few months ahead of the game. When Google starts to struggle, it may be time to consider heading for the exits.

Technical Look at the Market

Still Flirting With 1100 - SPY ETF Coverage Started at 4-stars

The S & P 500 fell just below 1100 on Thursday. But really all bets are off until the employment numbers are released on Friday. The pre-employment data was clearly no barnburner, which sets the market up for a potential disappointment, especially if the payroll numbers come in above 200-210,000, which is possible, although hard to handicap.

The good news for the S & P 500 is that at least as of Thursday, the 20-day moving average again provided support for the index and that means that this may be another opportunity to buy on the dips, barring a major break in the market.

So the real question is whether this market is worth trading at all. And the answer lies in how well you may have done for the year. If you've done well, you can consider taking the rest of the year off, barring some really aggressive up side action starting in the next few days.

This is still a good time to reassess any positions that aren't working, especially as the market's advance has become narrower over the last few weeks.

Raising cash, along with sector and individual stock selection are still the most important aspect of trading this market. With an employment report due out on Friday, anything is possible.

We are adapting our star based rating system to the S & P SPDR ETF (NYSE: SPY). In this section a 5-star rating for SPY is a signal that down side risk is very low and that the chances of a further rise in prices are greater than those of a fall. A 4-star rating Means that the risk is less attractive but that the odds of a rise in SPY still outweigh the risks of a fall.

A 3-stars rating on SPY suggests that the odds of a rise and a fall are even. 2-stars and 1-stars suggest that down side risk is on the rise.

In no way is this star rating system intended as a series of buy and sell recommendations. The system is intended as a guide to the general trend of the market and the S & P SPDR ETF.

Star ratings can change rapidly based on the market's action. Followers of the ratings should review them on a daily basis.

Star Ratings for S & P SPDR ETF (NYSE: SPY) - updated 12-2-09

S & P SPDR ETF (NYSE: SPY), 4 stars on 12-1-09 - closing price 111.30. Closing price on 12-3-09 110.38. Short term support is at 109.57. Resistance is at 111.74. A move above 111.74 would raise the rating to 5-stars.

Chart Courtesy of StockCharts.com

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