It was a wild week no doubt. The majority of this week and last was like listening to a multitude of bullish chorus resonating their crack induced message: THE BOTTOM IS IN! You could hear it in the tone of uber bull Mark Hulbert and Peter Brimlow of Marketwatch.com fame. You could feel the smug arrogance of the bottom fishers building. You could taste the abject fear of the bears who have not made much progress over the past three weeks and their second guessing: COULD THIS BE THE BOTTOM?
In this irrational market for which was like teflon for bad news, much of the activity was probably manipulated on low volume. You could feel the tension and the excitement at the same time. People like Doug Kass was practicing witch craft of buying the dips and selling the rips. His increasing bullishness short term was also an indication that perhaps this reflexive snap back rally that began on January 21, 2008 SocGen lows could possibly be nearing its climax.
Anyway you look at it, it appears the time is running out against the bullish thesis. Like many bear markets before this, I suspect that many bulls will be caught on the wrong end of the tape. Many bears will be too scared to reload at the inflection point. No kidding. Bear markets are especially cruel to traders: bears and bulls alike.
AIG, the insurance company that could do no wrong, despite recent rumors surrounding their increasing exposure to this credit mess, finally came clean on Thursday night claiming over $11 billion in write downs. Their pathetic efforts at trying to down play this significance of "buying out of the money puts" and implying that their liability may be less than stated on earnings has got to be the single most ludicrous statement of the year. These jerks finally got check mated with no where to hide their lies any longer. I suspect there will be more "unforeseen" write downs to be had in the near future. I am patiently awaiting Goldman Sachs (GS) to also come clean at least to some degree regarding their credit exposure. Despite the company's silence, I think the analysts and the market is on to them. They closed below $170 on Friday.
Wall Street Journal is also getting the message that the off balance BS of our financial institutions regarding subprime liabilities must be stopped and the best way to heal from these wound is to come clean and mark to market their liabilities. As Karl Denninger aptly says, "they must mark to market their liabilities, and, if today it is a $0, then it is a $0. Perhaps tomorrow it may be more, but today it is a $0". You can hear the transcript of his recent radio interview on KFYI AM 550 with Terry Gilberg by clicking here. Also, be sure to tune in on March 15, 2008 for a full 3 hour exclusive interview on Terry Gilberg show for more indepth expose.
We are on the verge of another market meltdown. No matter how much the markets may downplay the significance of the cancer that eats within our financial system, it is there and it is worse than anyone can imagine. This time, not even Charlie Gasparino pump will save the markets. It is time to reload the shorts. Take your pick but think about the stocks that have had the biggest pumps the past few days and that may be the best place to start.
I am short Google, BIDU, BAC, and SPY.
Until the crooks in the Wallstreet can be taught a lesson in humility, Mr. Market will continue to exert and dish out much pain. This isn't over. We are barely out of second inning. Buy only with caution and if you're on crack.
Saturday, March 01, 2008
Sunday, February 24, 2008
Prepare to Reload Your Shorts- Just Not Yet.
Here is a thought. I am fuming over what happened on Friday. The deceit and manipulation continues. CNBC once again was the mechanism of this deceit. In an age where fair and objective journalism has been replaced with sensationalism and yellow journalism, it is not then surprising to see CNBC, the world's most watched financial cable TV network, take center stage once again. Instead of me running around with my head cut off crying "where are the cops?", I choose to formulate a plan to fatten my account balance.
In this schizzophrenic market, where good news is good news and bad news is even better news, it stands to reason that the current pump will continue in the short term. I cannot tell you that even astute technical analysis will help in this regard as this market trades on the side of irrationality and rumors (unsubstantiated at that). Thus even with the week full of economic data releases including heavy weights such as the PPI, GDP, consumer spending, etc... you can pretty much count on the fact that the market in the current iteration does not function on the side of efficient markets theory nor even on rationality.
The market is a consortium of mass psychology speaking as one voice. No matter how crazy that may seem, the market is pinning its hope on the following:
1. Election year rarely has a down year.
2. Bernanke will save us with more rate cuts.
3. Government intervention and bailouts, even in the form of nationalization such as Northern Rock of the UK fame, is a good thing.
4. The problems inherent with the subprime mess will magically go away because the banks and the governments are working on it.
5. We are near the bottom and the money on the sidelines will rush in to save the market.
Despite these reasons, the market continues to fall deeper into the abyss and with each passing day, the market continues its inevitable march towards the point of no return. While the banks continue to lie and deceive with their off balance tactics, and despite the fact that last quarter's earnings release related write downs were kitchen sink (where they expose everything that they have on balance sheet), I suspect that majority if not all of the banks will play "oops, sorry, I forgot to write down these."
Don't believe me? How is it that Citibank (C) (shittibank?) all of a sudden has another hedge fund that is going under for $10 billion dollars that the Citibank now has to take onto the balance sheet? Could it be that this was engineered by Citibank? For that matter, how bankrupt is Citibank anyways? Where would they borrow the next "guido" loan this time? From the Taliban? al Quaida?
In this schizzophrenic market, where good news is good news and bad news is even better news, it stands to reason that the current pump will continue in the short term. I cannot tell you that even astute technical analysis will help in this regard as this market trades on the side of irrationality and rumors (unsubstantiated at that). Thus even with the week full of economic data releases including heavy weights such as the PPI, GDP, consumer spending, etc... you can pretty much count on the fact that the market in the current iteration does not function on the side of efficient markets theory nor even on rationality.
The market is a consortium of mass psychology speaking as one voice. No matter how crazy that may seem, the market is pinning its hope on the following:
1. Election year rarely has a down year.
2. Bernanke will save us with more rate cuts.
3. Government intervention and bailouts, even in the form of nationalization such as Northern Rock of the UK fame, is a good thing.
4. The problems inherent with the subprime mess will magically go away because the banks and the governments are working on it.
5. We are near the bottom and the money on the sidelines will rush in to save the market.
Despite these reasons, the market continues to fall deeper into the abyss and with each passing day, the market continues its inevitable march towards the point of no return. While the banks continue to lie and deceive with their off balance tactics, and despite the fact that last quarter's earnings release related write downs were kitchen sink (where they expose everything that they have on balance sheet), I suspect that majority if not all of the banks will play "oops, sorry, I forgot to write down these."
Don't believe me? How is it that Citibank (C) (shittibank?) all of a sudden has another hedge fund that is going under for $10 billion dollars that the Citibank now has to take onto the balance sheet? Could it be that this was engineered by Citibank? For that matter, how bankrupt is Citibank anyways? Where would they borrow the next "guido" loan this time? From the Taliban? al Quaida?
Saturday, February 23, 2008
Reevaluation of Our Current Economic Quagmire
One needs to only see the headlines this weekend. Marketwatch.com http://www.marketwatch.com/news/story/stocks-seek-light-end-tunnel/story.aspx?guid=%7BD30ADA20%2DF0E3%2D4DC4%2DB356%2D1197D16B5EB3%7D
The headline has already stated that the "The Stocks Shall Rise Again". So then, marketwatch.com has already declared that the stocks will rise next week. As if they have some form of power that can see into Monday's future. Perhaps they do. Certainly CNBC has the ability to help "stick save" the market that is acting according to the technical and fundamental economic conditions. It only took Charlie Gasparino to be used as an instrument of rumor mongering to save the market from the abyss.
So this is what has become of the markets. It is controlled by greedy wall street bankers and manipulators who would put Martha Stewart's "wrong doing" to shame by their blatant disregard for laws or ethics in order to pad up their wallets. It is neither rational nor fair but it has been that way since the market's inception. I would highly recommend the readers to read "Wall Street: A History From It's Beginnings To The Fall Of Enron" by Charles R. Geisst. The so called quant funds and computer programmed trades are another word for manipulation but it is accepted on Wall Street as business as usual.
What is immensely interesting is that the "Bail" out news of Ambac and other monoline bond insurers is nothing new and has been ongoing for a while now. But because of the nature in which it was presented on Friday, it gave the impetus for "squeezing" the shorts and paved the way for a monumental manipulation by the quant funds. The news that saved the market or shall we say, the news that manipulated the markets is old news and only gives a faint glimmer of hope to the economy and the stock market that is faltering-FAST! It gave an engineered respite at least for one more day. The main stream media is now calling for bottoms and rallies. Of course all of the credit related problems and recessionary pressures mysteriously disappear in this misguided euphoria.
What no one wants to talk about is how the economy got into this mess in the first place. It is because the smart money decided that it was a good idea to lie to the public and manipulate the credit markets. They created these incredibly complex vehicles of credit default swaps, CDO's, SIV's, and many more alphabetically designated acronyms that stands for one thing: FRAUD.
The irony now is that the whole culture of investment banking and banks in general have shunned government intervention in favor of free markets. But now that their "asses" are in the grinder, they are crying for government bailout. As if their actions that lead to the current dangerous dilemma has somehow blindsided these fine folks. The fact is, in the go go days of easy credit and Easy Al, it was the government, the banks, the stock market, and the world financial institutions that perpetuated the demand for these little known credit vehicles because it was "easy money". They blatantly encouraged easy credit to those that couldn't qualify for a Sears Credit Card. It is this credit demand that expanded the subprime cancer and anyone who could "lie" and is deemed "cerebrally functional" on the credit application was awarded homes, cars, and never ending stream of money thanks to the home ATM's. Many low level workers were instantly transformed into housing investors and just about everyone was goin to be millionaires investing in homes they knew they could not afford. But it was okay because the greedy mortgage brokers colluding with banks kept pushing more and more esoteric and poorly understood home loans with teaser interest rates and other dangerous back ended deals. Thus feeding these sheeples and naive minds the notion that if they didn't buy a home now, they would be left out of the American dream forever. So this went on and now we are finding that these actions threaten our economy in the form of credit collapse. The banks won't and can't lend to each other because they don't trust each other. Fitting.
So what did the monolines have to do with subprime? To make the long story short, there was no regulation of these businesses and those that ran these companies mislead the investors of its own companies by taking on these little known subprime credit vehicles by insuring them. The short end of the story is that they are on the hook for insuring over $500 billion dollars worth of loans that the banks made which are now worthless. Should the monolines go bankrupt (psst...they are already but the rating agencies such as MOODY'S, FITCH, STANDARD AND POOR'S, will not do the right thing by doing their jobs ethically and legally and proclaim them as such. This exposes the long standing conflict of interest that exists between the banks, insurers, and the ratings agencies. They are fed by these very people for their livelihood and they dare not now trigger anything that will lead to continued worsening of credit situation. I just want to know that if AMBAC, MBIA, FGIC, cannot continue operations without outside bailout via capital infusions and maintenance of the AAA ratings so that they can obtain more credit to stay afloat, then how are they even credit worthy? They are not. The whole aspect of monoline bailout by the bankrupt banks such as Citibank (C), UBS (UBS), and other banks that have the most to lose if these monlines fail to get the AAA credit ratings, then these banks and many other banks will have to come clean with more off balance worthless debt onto their balance sheet. The last company that did these end games relating to off balance shenanigans was Enron. We all know what happened to them.
Karl Denninger, a well known blogger who has outlined this issue extensively has been asking the same thing "where are the cops?" and has started a grass roots movement to petition the government to end the corruption and force the banks to mark to market all of their off balance losses so that the economy can move ahead to recovery. Until this happens, we will continue to see our future destroyed by these few greedy bankers, insurers, and financial institutions.
A link to the petition is here and I would whole heartedly encourage anyone reading this blog to sign and spread the word. While you're at the Market Ticker Forums, why not sign up and get involved in the discussions? It's free and it's a whole hell of a lot more educational than CNBC or any other financial sites that won't tell you the truth.
In conclusion, it is sad to see the relentless spin put on by the financial media, the companies involved, and the relative impotence of our regulatory agencies and governmental leaders who continue to look the other way. Since Ben Bernanke's famous speech last year in February when he declared that the "effects of the subprime loans are largely contained", how exactly has our economy and for that matter for the rest of the world fared? So as you rush ahead to believe that all is well and that a "bail out" is in the offing, please understand this, it is worse than you think and that our government is incapable of telling the truth or it is incapable of grasping the concept that a deteriorating credit condition and loss of credit liquidity is what lead to the last deflationary collapse of the economy. Think 1929.
We are indeed in a economic quagmire and those that lead you to think that the economy will rebound, or the recession will be mild (now more people are talking about it), DO NOT BELIEVE THEM!
By the way, here are the charts of S&P 500, does that look good to you? The manipulation on Friday managed to stick save this index.
click the image to view larger and clearer image.
Have a good weekend.
The headline has already stated that the "The Stocks Shall Rise Again". So then, marketwatch.com has already declared that the stocks will rise next week. As if they have some form of power that can see into Monday's future. Perhaps they do. Certainly CNBC has the ability to help "stick save" the market that is acting according to the technical and fundamental economic conditions. It only took Charlie Gasparino to be used as an instrument of rumor mongering to save the market from the abyss.
So this is what has become of the markets. It is controlled by greedy wall street bankers and manipulators who would put Martha Stewart's "wrong doing" to shame by their blatant disregard for laws or ethics in order to pad up their wallets. It is neither rational nor fair but it has been that way since the market's inception. I would highly recommend the readers to read "Wall Street: A History From It's Beginnings To The Fall Of Enron" by Charles R. Geisst. The so called quant funds and computer programmed trades are another word for manipulation but it is accepted on Wall Street as business as usual.
What is immensely interesting is that the "Bail" out news of Ambac and other monoline bond insurers is nothing new and has been ongoing for a while now. But because of the nature in which it was presented on Friday, it gave the impetus for "squeezing" the shorts and paved the way for a monumental manipulation by the quant funds. The news that saved the market or shall we say, the news that manipulated the markets is old news and only gives a faint glimmer of hope to the economy and the stock market that is faltering-FAST! It gave an engineered respite at least for one more day. The main stream media is now calling for bottoms and rallies. Of course all of the credit related problems and recessionary pressures mysteriously disappear in this misguided euphoria.
What no one wants to talk about is how the economy got into this mess in the first place. It is because the smart money decided that it was a good idea to lie to the public and manipulate the credit markets. They created these incredibly complex vehicles of credit default swaps, CDO's, SIV's, and many more alphabetically designated acronyms that stands for one thing: FRAUD.
The irony now is that the whole culture of investment banking and banks in general have shunned government intervention in favor of free markets. But now that their "asses" are in the grinder, they are crying for government bailout. As if their actions that lead to the current dangerous dilemma has somehow blindsided these fine folks. The fact is, in the go go days of easy credit and Easy Al, it was the government, the banks, the stock market, and the world financial institutions that perpetuated the demand for these little known credit vehicles because it was "easy money". They blatantly encouraged easy credit to those that couldn't qualify for a Sears Credit Card. It is this credit demand that expanded the subprime cancer and anyone who could "lie" and is deemed "cerebrally functional" on the credit application was awarded homes, cars, and never ending stream of money thanks to the home ATM's. Many low level workers were instantly transformed into housing investors and just about everyone was goin to be millionaires investing in homes they knew they could not afford. But it was okay because the greedy mortgage brokers colluding with banks kept pushing more and more esoteric and poorly understood home loans with teaser interest rates and other dangerous back ended deals. Thus feeding these sheeples and naive minds the notion that if they didn't buy a home now, they would be left out of the American dream forever. So this went on and now we are finding that these actions threaten our economy in the form of credit collapse. The banks won't and can't lend to each other because they don't trust each other. Fitting.
So what did the monolines have to do with subprime? To make the long story short, there was no regulation of these businesses and those that ran these companies mislead the investors of its own companies by taking on these little known subprime credit vehicles by insuring them. The short end of the story is that they are on the hook for insuring over $500 billion dollars worth of loans that the banks made which are now worthless. Should the monolines go bankrupt (psst...they are already but the rating agencies such as MOODY'S, FITCH, STANDARD AND POOR'S, will not do the right thing by doing their jobs ethically and legally and proclaim them as such. This exposes the long standing conflict of interest that exists between the banks, insurers, and the ratings agencies. They are fed by these very people for their livelihood and they dare not now trigger anything that will lead to continued worsening of credit situation. I just want to know that if AMBAC, MBIA, FGIC, cannot continue operations without outside bailout via capital infusions and maintenance of the AAA ratings so that they can obtain more credit to stay afloat, then how are they even credit worthy? They are not. The whole aspect of monoline bailout by the bankrupt banks such as Citibank (C), UBS (UBS), and other banks that have the most to lose if these monlines fail to get the AAA credit ratings, then these banks and many other banks will have to come clean with more off balance worthless debt onto their balance sheet. The last company that did these end games relating to off balance shenanigans was Enron. We all know what happened to them.
Karl Denninger, a well known blogger who has outlined this issue extensively has been asking the same thing "where are the cops?" and has started a grass roots movement to petition the government to end the corruption and force the banks to mark to market all of their off balance losses so that the economy can move ahead to recovery. Until this happens, we will continue to see our future destroyed by these few greedy bankers, insurers, and financial institutions.
A link to the petition is here and I would whole heartedly encourage anyone reading this blog to sign and spread the word. While you're at the Market Ticker Forums, why not sign up and get involved in the discussions? It's free and it's a whole hell of a lot more educational than CNBC or any other financial sites that won't tell you the truth.
In conclusion, it is sad to see the relentless spin put on by the financial media, the companies involved, and the relative impotence of our regulatory agencies and governmental leaders who continue to look the other way. Since Ben Bernanke's famous speech last year in February when he declared that the "effects of the subprime loans are largely contained", how exactly has our economy and for that matter for the rest of the world fared? So as you rush ahead to believe that all is well and that a "bail out" is in the offing, please understand this, it is worse than you think and that our government is incapable of telling the truth or it is incapable of grasping the concept that a deteriorating credit condition and loss of credit liquidity is what lead to the last deflationary collapse of the economy. Think 1929.
We are indeed in a economic quagmire and those that lead you to think that the economy will rebound, or the recession will be mild (now more people are talking about it), DO NOT BELIEVE THEM!
By the way, here are the charts of S&P 500, does that look good to you? The manipulation on Friday managed to stick save this index.
click the image to view larger and clearer image.
Have a good weekend.
Sunday, February 17, 2008
It's Decision Time for the Markets
So the time has come for the market to make up its mind. I don't think it will be in the upward direction. The market rallied furiously off the SocGen lows of January 21st. Many market pundits constantly call for continued rally and many are speculating on market bottoms. Behind the back drop of the continuing deterioration of the credit markets which now include bond insurers and municipal bonds, the "subprime" contagion is not only NOT contained but has grown like a terminal cancer.
The amusing thing about the bond insurers and the rating agencies are that the very function of the rating agency's job is to "rate" the health of the companies. In the case of AMBAC, MBIA, FCIG, etc... they are insolvent. That is why there is continued speculation of failed capital infusions and talks of splitting up the company into "good" company and "bad" company. Is this even fair or logical? I think we are in the precipice of another shoe dropping.
The market has thus far factored in that perhaps the worst is over and that the subprime write downs and constant issues associated with it has been past. But that is not the case as everyone who is remotely conscious will tell you. And those that constantly wax optimism about the economy and the stock market have sinister ulterior motives.
The market has sold down every rallies. Those who proclaim that this may be the most important buying opportunity are misleading the sheeples that choose to listen to them.
Northern Rock just got taken over by the government. This is not a good news. This proves the menacing tentacles of subprime that is now only rearing its ugly head. We are in for a deep recession with much pain. I believe we are setting up for another leg of the market plunge and I feel sorry for those who bought on the advices of mad men such as Cramer, Kudlow, and many other analysts who are always wrong.
Take caution. We are just beginning.
The amusing thing about the bond insurers and the rating agencies are that the very function of the rating agency's job is to "rate" the health of the companies. In the case of AMBAC, MBIA, FCIG, etc... they are insolvent. That is why there is continued speculation of failed capital infusions and talks of splitting up the company into "good" company and "bad" company. Is this even fair or logical? I think we are in the precipice of another shoe dropping.
The market has thus far factored in that perhaps the worst is over and that the subprime write downs and constant issues associated with it has been past. But that is not the case as everyone who is remotely conscious will tell you. And those that constantly wax optimism about the economy and the stock market have sinister ulterior motives.
The market has sold down every rallies. Those who proclaim that this may be the most important buying opportunity are misleading the sheeples that choose to listen to them.
Northern Rock just got taken over by the government. This is not a good news. This proves the menacing tentacles of subprime that is now only rearing its ugly head. We are in for a deep recession with much pain. I believe we are setting up for another leg of the market plunge and I feel sorry for those who bought on the advices of mad men such as Cramer, Kudlow, and many other analysts who are always wrong.
Take caution. We are just beginning.
Thursday, January 31, 2008
Cramer Just Shut Up!
Has anyone heard this schizzoid moron, mad money clown on TV these days, once again calling bottoms in midst of the developing bear market? Bipolar mania is back and this guy is in full force. One day it is buy tech, oh no wait...sell tech, then more flip flops.
Taken as a whole his words of "wisdom" on thestreet.com is nothing more than a lunatic man spewing none sense because no one on the website has the guts to call him out and tell him that his best years are past. He IS LOSING people money! Yet there are almost a cult status with his show Mad Money... I just don't understand.
So this clown is now out calling for the bull market when clearly, things aren't anywhere near close to that. I am sure when the market rolls over again under the overwhelming stressors in the financial system he will claim that he has always been prudent and bearish. But the fact that he can get away time and time again without any sort of repurcussions on his horrific calls and that the media hails him as a "guru" is beyond me. Perhaps that is what this whole thing is about.
It is about cleansing the obviously corrupt, unjust, and inefficient financial systems in the good old USA
Friday, January 04, 2008
Markets Due for A Bounce
So, the market is finally realizing the futility of its situation. We are now mired in an environment where the market participants view the glass as empty. That is, good news is bad news and bad news is well, BAD!
Recent "dovish" FOMC minutes revealed that the powers that be are very concerned about continued deterioration of the economy related to the credit crisis and recession is at the forefront of their radar. However, instead of calming the markets, the FOMC minutes seemed to have a negligible effect on the market sentiment. That is, no one trusts this market right now. Technology (save for some solar stocks and agriculture plays), retail, and just about anything related to the stock market has been aggressively sold the past few days of the new trading year. Market participants cannot sustain nor are they willing to attempt to initiate a new rally. Most bounces are being sold into or shorted.
But, we are headed into the "over sold" territory. It is not the type that will initiate an aggressive snap back rally that we experienced after things got really out of control in early November 2007 but a reflexive dead cat bounce is in order. The market has failed to take out the 1445 level on the S&P 500 level on more than 4 occasions now and many stocks seemed to be holding their 50 day moving averages quite aggressively: Google, BIDU for example.
The market has all but discounted the effectiveness of the FED as having the ability nor the desire to help rejuvenate the markets in the same way that Alan Greenspan FED did in 2001 to stimulate the economy. We are in a different environment now and the FED does not have the same flexibility to exert stimulus via rate cuts in the same way that Greenspan's FED did. For too long the market participants have been calling for an aggressive FED cuts (Cramer, Kudlow, and other permabulls) but the target EFF (Effective FED Funds) prevents the FED with wiggle room. This is why at the last FED meeting they were only able to cut 25 basis points on the FED Funds and 25 basis points at the discount window. All of this lead to the current market sentiment which is obsessed with a recession- and for good reason.
I hear a lot of pundits who wax optimism that we will not enter into a recession in 2008. That we will miss it "barely" and that growth will resume. Can that happen? Perhaps, but not likely. The recent contraction in the ISM Manufacturing data coupled with ADP jobs data shows that we are in a recessionary environment. With housing still mired in the quagmire and real wealth being depleted as a result, straining the consumers, our economy may already be in a recession. Just look at the results posted by Bed Bath and Beyond (BBBY) yesterday. Granted, BBBY is not the vanguard of economic prognostication. However, their bleak 2008 outlook and guidance further adds credence that the consumers are quickly fading away. I shudder to think about the report next week on Holdiay sales in the retail environment, from which I gather, was one of the worst in recent memory.
One of the big mysteries out there recently is the sudden rise of Amazon (AMZN) on an upgrade by UBS on Wednesday. From my metrics and studying released data on online spending, it appears that Amazon (AMZN) may miss their already guided down estimates for Q4. This bears watching because if true, AMZN will take a beating when it reports earnings on January 30th.
Having said that, the markets have been in a foul mood lately for the past 5 days. If today's much anticipated jobs number is indeed bad, that may cause a wave of selling that might set this market up for a temporary bounce. My job is to anticipate but not get in front of that move until it confirms itself. In that case, I might be tempted to take Google calls for a short ride, as it found support definitively at 50 day moving average. I also might be tempted to take a stake in Apple calls ahead of Mac World.
Be careful out there! We are in a bear market.
Recent "dovish" FOMC minutes revealed that the powers that be are very concerned about continued deterioration of the economy related to the credit crisis and recession is at the forefront of their radar. However, instead of calming the markets, the FOMC minutes seemed to have a negligible effect on the market sentiment. That is, no one trusts this market right now. Technology (save for some solar stocks and agriculture plays), retail, and just about anything related to the stock market has been aggressively sold the past few days of the new trading year. Market participants cannot sustain nor are they willing to attempt to initiate a new rally. Most bounces are being sold into or shorted.
But, we are headed into the "over sold" territory. It is not the type that will initiate an aggressive snap back rally that we experienced after things got really out of control in early November 2007 but a reflexive dead cat bounce is in order. The market has failed to take out the 1445 level on the S&P 500 level on more than 4 occasions now and many stocks seemed to be holding their 50 day moving averages quite aggressively: Google, BIDU for example.
The market has all but discounted the effectiveness of the FED as having the ability nor the desire to help rejuvenate the markets in the same way that Alan Greenspan FED did in 2001 to stimulate the economy. We are in a different environment now and the FED does not have the same flexibility to exert stimulus via rate cuts in the same way that Greenspan's FED did. For too long the market participants have been calling for an aggressive FED cuts (Cramer, Kudlow, and other permabulls) but the target EFF (Effective FED Funds) prevents the FED with wiggle room. This is why at the last FED meeting they were only able to cut 25 basis points on the FED Funds and 25 basis points at the discount window. All of this lead to the current market sentiment which is obsessed with a recession- and for good reason.
I hear a lot of pundits who wax optimism that we will not enter into a recession in 2008. That we will miss it "barely" and that growth will resume. Can that happen? Perhaps, but not likely. The recent contraction in the ISM Manufacturing data coupled with ADP jobs data shows that we are in a recessionary environment. With housing still mired in the quagmire and real wealth being depleted as a result, straining the consumers, our economy may already be in a recession. Just look at the results posted by Bed Bath and Beyond (BBBY) yesterday. Granted, BBBY is not the vanguard of economic prognostication. However, their bleak 2008 outlook and guidance further adds credence that the consumers are quickly fading away. I shudder to think about the report next week on Holdiay sales in the retail environment, from which I gather, was one of the worst in recent memory.
One of the big mysteries out there recently is the sudden rise of Amazon (AMZN) on an upgrade by UBS on Wednesday. From my metrics and studying released data on online spending, it appears that Amazon (AMZN) may miss their already guided down estimates for Q4. This bears watching because if true, AMZN will take a beating when it reports earnings on January 30th.
Having said that, the markets have been in a foul mood lately for the past 5 days. If today's much anticipated jobs number is indeed bad, that may cause a wave of selling that might set this market up for a temporary bounce. My job is to anticipate but not get in front of that move until it confirms itself. In that case, I might be tempted to take Google calls for a short ride, as it found support definitively at 50 day moving average. I also might be tempted to take a stake in Apple calls ahead of Mac World.
Be careful out there! We are in a bear market.
Monday, December 17, 2007
No Hope, No Spin, Only Reality.
For a long time, the market was delusional with hope. Hope that Goldilocks is alive. Hope that somehow, Ben Bernanke and company could salvage the obviously crumbling economic fundamentals. Hope that somehow, the past excesses from housing boom and all the garbage that emanated from it will go quietly.
It was clear from last week's CPI and PPI numbers, and FED's "disappointing" 25 basis point cuts in the fed funds rate and the discount rate, that further rate cuts could and will not alleviate the problems that ails our economy. And, the dangers of permabulls including Kudlow and others who continue to pontificate on the virtues of the US economy while ignoring the problems at hand as a nuisance has lesser influence on covering up the inherent problems of our economy.
The general investment public has now come to realize or are rapidly realizing that we are in fact headed, if not already, for a recession and rising inflation- STAGFLATION.
Today's action is a warning sign that the snap back rally is over and that we are about to embark on another down leg in the stock market.
Either go short or stay in cash please.
It was clear from last week's CPI and PPI numbers, and FED's "disappointing" 25 basis point cuts in the fed funds rate and the discount rate, that further rate cuts could and will not alleviate the problems that ails our economy. And, the dangers of permabulls including Kudlow and others who continue to pontificate on the virtues of the US economy while ignoring the problems at hand as a nuisance has lesser influence on covering up the inherent problems of our economy.
The general investment public has now come to realize or are rapidly realizing that we are in fact headed, if not already, for a recession and rising inflation- STAGFLATION.
Today's action is a warning sign that the snap back rally is over and that we are about to embark on another down leg in the stock market.
Either go short or stay in cash please.
Tuesday, December 11, 2007
Bear Strikes Back and He Means Business
On 12/10/2007, I liquidated mom’s positions in Google GOOAD January $720 positions in anticipation of the FED announcement, for a nice profit of $3000. I also liquidated all of her positions in CROX, GME, CPLA, CDS, for a profit of $535 which brought mom’s account from $195,000 level to $198,000.
On 12/11/2007, I was growing especially wary of the market’s advance, especially because it was driven by the hope that the FED would cut 50 basis points off the FED FUNDS, which I thought was unrealistic. The market was running on hope and the fundamental macroeconomic conditions have not improved since the snap back rally happened. I reasoned that a 25 basis point cut would be disastrous for the market that has priced in a 50 basis point cut, and hence we got a total sell off today in the markets today, which essentially kills the current rally. I believe we have more downside to come and this next leg down will be more ferocious than the previous one.
I astutely bought mom TWM (Proshares Ultra short Russell 2000 short ETF) for 300 shares at average cost of $69.1399. I probably should have bought more, but I didn’t want to be a pig and I will allow this position to prove itself before I commit more money to this name.
I also bought BIDU January $370 put contracts for a total of 20 contracts at an average price of $20.80. I believe that BIDU is frothy at this level and will not be supported in the economic environment that US is heading into. At best, this stock is a $75 stock trading at the level of $380 level. Additionally, BIDU has a history of seasonal weakness from December through end of February and early March. I anticipate that we will at least test the lows of $298 level before the contract expires. I use options in this instance because the shorting endeavor is risky and the downside is defined in put options whereas if I shorted the common shares, my risk is infinite.
My current positions are:
TWM 300 $69.1399 $70.87 $21,261.00 +$1371.00 (6.89%)
BPJMN 20 $20.80 $25.00 +$5000 (11.11%)
cash: $136,431.06
My plan is to slowly add to the TWM if this break down in the market gains legs. Also, I may want to add an additional 10 contracts to BPJMN if BIDU makes a recovery attempt tomorrow.
We do have positive seasonality of Santa Rally this time of the year so I have to keep my eyes open. However, just like the Turkey rally, I think Santa is not coming to town this year.
On 12/11/2007, I was growing especially wary of the market’s advance, especially because it was driven by the hope that the FED would cut 50 basis points off the FED FUNDS, which I thought was unrealistic. The market was running on hope and the fundamental macroeconomic conditions have not improved since the snap back rally happened. I reasoned that a 25 basis point cut would be disastrous for the market that has priced in a 50 basis point cut, and hence we got a total sell off today in the markets today, which essentially kills the current rally. I believe we have more downside to come and this next leg down will be more ferocious than the previous one.
I astutely bought mom TWM (Proshares Ultra short Russell 2000 short ETF) for 300 shares at average cost of $69.1399. I probably should have bought more, but I didn’t want to be a pig and I will allow this position to prove itself before I commit more money to this name.
I also bought BIDU January $370 put contracts for a total of 20 contracts at an average price of $20.80. I believe that BIDU is frothy at this level and will not be supported in the economic environment that US is heading into. At best, this stock is a $75 stock trading at the level of $380 level. Additionally, BIDU has a history of seasonal weakness from December through end of February and early March. I anticipate that we will at least test the lows of $298 level before the contract expires. I use options in this instance because the shorting endeavor is risky and the downside is defined in put options whereas if I shorted the common shares, my risk is infinite.
My current positions are:
TWM 300 $69.1399 $70.87 $21,261.00 +$1371.00 (6.89%)
BPJMN 20 $20.80 $25.00 +$5000 (11.11%)
cash: $136,431.06
My plan is to slowly add to the TWM if this break down in the market gains legs. Also, I may want to add an additional 10 contracts to BPJMN if BIDU makes a recovery attempt tomorrow.
We do have positive seasonality of Santa Rally this time of the year so I have to keep my eyes open. However, just like the Turkey rally, I think Santa is not coming to town this year.
Saturday, December 08, 2007
Mom's rollover IRA trades
I took control of my mother's roll over IRA which contained just over $193,0000 when I took over the daily trades of this account. Since then I am at $198,733.56 in just over 1 week of trading.
My current positions include:
1. Google January $720 option contracts (10)
2. Crox 200 shares
3. CDS 1000 shares
4. Capella Education CPLA 200 shares
5. GME 200 shares
Capella caught a less than stellar analyst opinion on Friday and it proceeded to correct, but I think that is just a temporary pull back. I am worried about CDS in its recent decline but I will keep a tight stop on that. Game stop appears to be headed higher and Crox has too much growth for it to languish in the sub $50 area.
I am looking to see Google appreciate to $740's range within this month, especially if the FED rate cuts are favorable and we do not have anymore side effects from the subprime mess, though, I still remain bearish, I will not fight the market direction, that is a losing proposition.
Gamestop is a play on multiyear growth in gaming industry and their business model cannot be beat. I look for them to have a stellar Holiday sales season, while the rest of the retail languishes. I may consider taking profits in mid January for a trade but if the stock behaves well, I will let it run with a trailing stop loss order.
Capella is a play on our economy slowing down and possible overtures of recession in the near future. The laid off work force will most likely be looking for ways to enhance their employability and I suspect that online degree granting businesses will thrive for the next two to three years. The full value of Capella has not been takn into consideration and they are one of very few institutions that grant advanced degrees. This will be a core holding of which I will plan on adding shares as this stock traverses higher. I will allow the stop loss to take me out of this position, currently at $69.58.
On my watch list are Liquidity services (LQDT), Sigma Designs (SIGM), Pharmanet Development (PDGI), and Cybersource (CYBS).
I like the chart patteron of Liquidty services (LQDT), Cybersource (CYBS), and Aerovironment (AVAV-which I will buy if it goes above $27 and stays there).
My current positions include:
1. Google January $720 option contracts (10)
2. Crox 200 shares
3. CDS 1000 shares
4. Capella Education CPLA 200 shares
5. GME 200 shares
Capella caught a less than stellar analyst opinion on Friday and it proceeded to correct, but I think that is just a temporary pull back. I am worried about CDS in its recent decline but I will keep a tight stop on that. Game stop appears to be headed higher and Crox has too much growth for it to languish in the sub $50 area.
I am looking to see Google appreciate to $740's range within this month, especially if the FED rate cuts are favorable and we do not have anymore side effects from the subprime mess, though, I still remain bearish, I will not fight the market direction, that is a losing proposition.
Gamestop is a play on multiyear growth in gaming industry and their business model cannot be beat. I look for them to have a stellar Holiday sales season, while the rest of the retail languishes. I may consider taking profits in mid January for a trade but if the stock behaves well, I will let it run with a trailing stop loss order.
Capella is a play on our economy slowing down and possible overtures of recession in the near future. The laid off work force will most likely be looking for ways to enhance their employability and I suspect that online degree granting businesses will thrive for the next two to three years. The full value of Capella has not been takn into consideration and they are one of very few institutions that grant advanced degrees. This will be a core holding of which I will plan on adding shares as this stock traverses higher. I will allow the stop loss to take me out of this position, currently at $69.58.
On my watch list are Liquidity services (LQDT), Sigma Designs (SIGM), Pharmanet Development (PDGI), and Cybersource (CYBS).
I like the chart patteron of Liquidty services (LQDT), Cybersource (CYBS), and Aerovironment (AVAV-which I will buy if it goes above $27 and stays there).
Wednesday, December 05, 2007
IBD follow through on NASDAQ
Don't read too much into the rally, but IBD one of the most respected financial journal out there, has declared a follow through day on the NASDAQ, which usually but not always, portends a new uptrend and an end to the correction. We will see.
Sunday, December 02, 2007
So What Now?
This coming week will be filled with many unknowns. The markets last week had a tremendous run, consistent with Bear Market snap back rallies. The intensity and ferocity has surprised me a bit as the indexes and stocks recovered parabolically. This violent price swings only happen in bear market environments so don't read too much into the main stream media's proclamation that a new rally has started. Before you jump onto that band wagon consider these points:
1. We are in the 5th year of the bull market run started in late 2002. Most bear markets average 3 to 4 years, so we are extended and due for one.
2. Continued signal by the 10 year Treasury that all is not well, currently at 3.908%. If all was well, shouldn't the yield rise, especially since if everyone is jumping onto this renewed market vigor?
3. Continuing deterioration of credit liquidity, and the very real possiblity of government intervention in our supposedly "Free Market System?"
4. The last 2 rate cuts culminating in 75 basis point reduction has yet to slow the downward deflationary spiral.
5. Inflation fight is abandoned by the FED, why? Because we are facing a more deflationary problems with growth implosion of GDP, personal spending declination, Wage deflation, Credit quality issues, and the very real contemplation by the FED that we may in fact already be in a recession. Not maybe, ABSOLUTELY!
6. Pundits and investors alike are still drinking from the "hope" koolaid. The sentiment is still cautiously bullish.
7. put to call ratio is at its lowest levels in 1 month! This is a contrarian indicator and while the reading is bullish, it is too skewed to one side and the possiblity for the market to react in the opposite grows.
8. Consumers are dead. If you don't believe me, just go check out your neighborhood Target, Walmart, mall, and casual dining establishments.
9. LBO is now coming front and center as a possible next shoe to drop that the markets haven't even considered.
There are many more reasons but 9 reasons should suffice. Never the less, markets are irrational over the short term. So be careful with your money. If the market continues to remain bullish despite the obvious, don't fight the tape but keep a modicum of common sense about you.
I am still short but ready to bail if market doesn't turn down ward.
1. We are in the 5th year of the bull market run started in late 2002. Most bear markets average 3 to 4 years, so we are extended and due for one.
2. Continued signal by the 10 year Treasury that all is not well, currently at 3.908%. If all was well, shouldn't the yield rise, especially since if everyone is jumping onto this renewed market vigor?
3. Continuing deterioration of credit liquidity, and the very real possiblity of government intervention in our supposedly "Free Market System?"
4. The last 2 rate cuts culminating in 75 basis point reduction has yet to slow the downward deflationary spiral.
5. Inflation fight is abandoned by the FED, why? Because we are facing a more deflationary problems with growth implosion of GDP, personal spending declination, Wage deflation, Credit quality issues, and the very real contemplation by the FED that we may in fact already be in a recession. Not maybe, ABSOLUTELY!
6. Pundits and investors alike are still drinking from the "hope" koolaid. The sentiment is still cautiously bullish.
7. put to call ratio is at its lowest levels in 1 month! This is a contrarian indicator and while the reading is bullish, it is too skewed to one side and the possiblity for the market to react in the opposite grows.
8. Consumers are dead. If you don't believe me, just go check out your neighborhood Target, Walmart, mall, and casual dining establishments.
9. LBO is now coming front and center as a possible next shoe to drop that the markets haven't even considered.
There are many more reasons but 9 reasons should suffice. Never the less, markets are irrational over the short term. So be careful with your money. If the market continues to remain bullish despite the obvious, don't fight the tape but keep a modicum of common sense about you.
I am still short but ready to bail if market doesn't turn down ward.
Friday, November 30, 2007
NASDAQ Rolling Over
Yes, you heard me right. Nasdaq composite has began to roll over today. You don't belive me? Look at all the momentum stocks that comprised the recent snap back rally: RIMM, BIDU, GOOG, AAPL, ISRG, CMG, FSLR, MA, ETC... All of these stocks ran up in the early morning and gave back all of their gains and then some by the close today.
Nasdaq also diverged from the Dow Jones Industrials and the S&P 500 Index today. But even in those indices, you will see that there was distribution going on all day. In fact a good 30% of the afternoon was spent in deep red for all three major indices.
Many in the main stream media are calling for a year end Santa rally to happen. Some even proclaim that it has already happened. I would like to be able to answer that with, nope! It aint gonna happen. These types of reversals in a healthy economy might be given some serious consideration, but when you consider the macro economic picture of today's market, you will soon realize (hopefully with some capital intact if you are long) that it was merely a dead cat bounce. It was the rally that needed to be sold.
Ben Bernake spoke yesterday hinting at a generous rate cut on their December 11th meeting. This garnered an enthusiastic futures action and robust pre market activity. Yet, if this news was so positive, then why did we not rally like we did on Monday? What has changed since then? Well... HOPE is fading and traders are once again forced to face reality and it aint good. What good will the FED cut really do in this deflationary environment? Will it solve our credit liquidity issues? Nope. Unless the major financial instiutitons stop playing games and disclose the exact amount of the write downs and come clean with the bad loan exposures, this market will continue to be on a down trend. Spin can only go on for so long you know.
What good will at 25,50,75, or even a 100 basis point cut do for our economy right now? Will it bail out the homeowners with bad adjustable loans? Will it spur on economic growth? Will it somehow magically produce a pancea for what ails our financial market? No. Truth is, I think Mr. Bernake knows this all too well. But he is obligated by the tenets of the Federal Reserve, to do something. A rate cut is a gesture nothing more. Last rate cut lead to a broad market sell off that landed us into a correction.
I believe that will probably happen by December 11th when everyone who was cheering the rate cut possibility will look at each other, shrug their shoulders, and face reality once again. But I don't think it will take until December 11th to do that. Just look at the screaming NASDAQ action today. The reality is that the market probably has began its next leg down, and this one will be sharper than the previous one. So becareful out there. Stay in cash or start building your short positions.
Tuesday, November 27, 2007
Corrective Bounce at 1410 on SPX
The old pump and dump game continues today. As I posted yesterday, I expected a strong corrective bounce at 1410 support level. Well we got a belated bounce today, which was a day late, but not too surprising. This bounce does not change anything from the technical perspective, though, psychologically it can play some games.
The bounce came as a way to defend the support level generated from August 18th bounce, which marked the short term bottom from that terrible month. This time, that support level proved to be formidable. But I don't think it is insurmountable. You cannot discount the fact that on the daily chart, the SPX sits firmly below the 200 day moving average, and that the 50 day moving average is getting closer to the 200 day moving average, in what will eventually form the "death cross". The volume was just slightly greater than the previous day's volume, which was not impressive.
The real truth will be told when traders return tomorrow to digest the current events. Many would argue that this environment is ripe for the "Santa Rally". However, we are dealing with many harsh economic issues that was not in play in prior "Santa Rallies". Many pundits have called this the temporary bottom, but it is difficult to tell as no one really knows what the stock will do, other than to know that the trend is firmly negative to the down side.
If SPX within the next few days test and hold below the 1410 level, then the test of 1380 level will be in order. Can that happen? Yes, but equally so, the counter view point that the market may have hit temporary bottom must also be heeded. Given the current economic climate, I would bank on the fact that the selling will continue.
You see, today's bounce across the board had that feel of an artificial pump. But a key thing to remember is that despite the impressive run up today, it still failed to erase the damage done on Monday and we still sit firmly in "corrective" environment. As many know, I subscribe to the fact that we ARE IN BEAR MARKET NOW!
Bear markets can be very volatile with huge price swings. As stated before, unless you are nimble it doesn't matter if you are long or short, it is best to stay in cash. Otherwise, buying shares of QID (Ultrashort QQQQ) is recommended, and add to these shares as markets rally.
It is extremely important to realize that today's bounce was corrective and is engineered to be sold into the rallies. We still have severe economic cross currents and I would not jump the gun and start buying right now. When the time is right, I will change my bearish stance and go bullish. But right now is simply not the time. Anything other than an intra day trades is not recommended. Keep tight mental stops and take small losses whenever possible and do not be a pig. The market gods are out in full force and it is even more critical to know the bigger picture of where our market and economy is headed.
So many believe that Citibank (C) caused the rally today. At least that is what the mainstream media would lead you to believe. But when was the last time you saw any entity whether it be a human or an organization, that takes out this type of a "loan" with 11% interest just so that it can save the dividend? Did that even make sense? Are these people nuts? The action today in Citibank (C) was not a positive one. It is akin to someone taking out a payday loan knowing that they can't really pay that back so they get caught in a vicious cycle of debt. That is exactly what Citibank (C) did today. Trust me. If they had other viable options, they would not have taken these "loan shark" of a deal with the Arabs. What is this company thinking? Beneath all the hype, it reveals desperation. It doesn't signal a bottom but rather worsening of our financial system. This is not a positive event. It is further proof that Citibank's situation is more dire than usual and that the management is clueless. At least Freddie Mac (FRE) did the sensible thing and cut dividends by 50%. I just cannot stand the fact that Citibank is still concerned about the stock share price. That is why they did what they did. But I could see this stock going to the teens by next year.
Are we at the bottom? No, we are nowhere near the bottom. But enjoy the bounce, for those who are so inclined, and ride it only for a short time, lest you get whipsawed into a frenzy. The markets these days have a way of bitch slapping you in the face, just as you feel smug.
Tread carefully out there.
Monday, November 26, 2007
Something Ominous This Way Comes
Please look at this chart of SPX. Pay close attention to what this chart is telling you. We are in at least a Bear Market territory now. CNBC was touting this as an "official" correction, but the truth be told, we are in a Bear Market. The 1410 support level on the SPX, which many, including myself, thought would put up quite a fight in breaching that technically important level, did so without nary a fight. It was like knife cutting through warm butter. That in of itself should tell you about the dire situation of our markets today.
On the daily chart, the SPX has formed and broken down from the head and shoulders pattern and it continues to get ugly. I will go out on a limb and say that within the next 3 weeks, we may see the breach of the August 2008 lows of 1380 in short order. Beyond that, it is anyone's guess but I would not rule out a full blown recession to a depression. We are in a deflationary environment, NOW! Forget about all the mumbo jumbo about inflation. If you don't believe me check out the TNX (10 year treasury yield).
No, the FED will not and should not intervene. FED is too late to the party and cannot help us now. We must go through this the old fashioned way and "purge" the system for all its fraud, smoke and mirrors, and greed. I anticipate that we will see at least one major bank fail. Could it be Citibank (C)? Could it be Wamu? Or better yet, and for those who read my blogs, know that I am rooting for the evil empire that is Country Wide (or Country Schnide) (CFC). I fully expect Angelo Mozillo to be in jail within the next two years. Greed at its best.
It is likely that the markets from this point on will get very volatile and only the most nimble and experienced traders should attempt to play in this market. Unless you are prepared to take 100% losses and perhaps more if you use margin, you should not play with fire.
All I can say is that the subprime related issues have not even touched the surface. We still have issues far beyond that in our financial system that will have global consequences. The credit market is contracting and breaking down, as evidenced by the emergency liquidity injection that seems to go on daily. http://www.tickerforum.org/cgi-ticker/akcs-www?post=17141.
It is also rumored that CFC (Country Fried) also borrowed heavily from Atlanta FED today to stave off the inevital but keep its sorry organization in business. Is it to prop up this stock so that Mozillo can continue to sell his 70,000 shares every two days? What happened to their cash reserves?
Things will get worse and possibly this economy may take years to recover. But at this juncture, we are definitely headed in a collision course with financial disaster.
By the way, the retailer's pump did not work today. It is because everyone can see through the hype and understand that when there is a record shoppers but they are buying 3.9% less than they did a year ago, that signals that the consumers are not able to prop up this market.
See you at SPX 1380.
Monday, November 19, 2007
Recession is Not Necessarily a Bad Thing.
We are over due for a recession in the US. Generally, recession and expansion in the economy is a cyclical thing. One which is necessary for the dynamics of the economy to function properly. For too long, our economy was "tampered" by Alan Greenspan and to a lesser extent, Ben Bernake. The theory of "New World" Economy is passe to say the least and as we are finding out, detrimental to the long term health of the economy, both domestically and globally.
We have traded the dot com bubble excess for the housing bubble. And now we are faced with the prospects of credit bubble created largely in part by the excessive expansion in the US housing market.
In the US equity markets, for too long, we have been dominated and "manipulated" by the hedge funds, quant funds, and private equity firms that drove the valuations of stocks to stratospheric and unsustainable levels. It is no coincidence then that there have been much abuse of the financial systems by these entities and being done blatantly. SEC lacks the ability to enforce these issues and so we need a recession to purge the financial system so that we can start a new. Sure, down the road, the markets will figure out a way to continue to scam the retail public but at least with the recession, everyone can at least have a better chance at a legitimately functioning financial markets.
One more thing, Goldman Sachs is the biggest offender in this area and they will serve as the fuel for further declines when it is revealed that they have been lying about most of their CDO and subprime losses. If you don't believe me, check out that their alpha fund (hedge fund) is down over 60% and will lose more than $6 billion. How much of that loss was due to subprime? Hmmm...
Any ways, let's embrace this recession, as best as we can. We are in one, like it or not. But the end result will be a fairer system with hopefully some real reforms in our equity and financial markets.
Check out this article from marketwatch.com: http://www.marketwatch.com/news/story/seventeen-reasons-america-actually-needs/story.aspx?guid=%7B08D803FF%2D60CE%2D4868%2DBDB8%2DD0CFFE9851B0%7D
We have traded the dot com bubble excess for the housing bubble. And now we are faced with the prospects of credit bubble created largely in part by the excessive expansion in the US housing market.
In the US equity markets, for too long, we have been dominated and "manipulated" by the hedge funds, quant funds, and private equity firms that drove the valuations of stocks to stratospheric and unsustainable levels. It is no coincidence then that there have been much abuse of the financial systems by these entities and being done blatantly. SEC lacks the ability to enforce these issues and so we need a recession to purge the financial system so that we can start a new. Sure, down the road, the markets will figure out a way to continue to scam the retail public but at least with the recession, everyone can at least have a better chance at a legitimately functioning financial markets.
One more thing, Goldman Sachs is the biggest offender in this area and they will serve as the fuel for further declines when it is revealed that they have been lying about most of their CDO and subprime losses. If you don't believe me, check out that their alpha fund (hedge fund) is down over 60% and will lose more than $6 billion. How much of that loss was due to subprime? Hmmm...
Any ways, let's embrace this recession, as best as we can. We are in one, like it or not. But the end result will be a fairer system with hopefully some real reforms in our equity and financial markets.
Check out this article from marketwatch.com: http://www.marketwatch.com/news/story/seventeen-reasons-america-actually-needs/story.aspx?guid=%7B08D803FF%2D60CE%2D4868%2DBDB8%2DD0CFFE9851B0%7D
Friday, November 16, 2007
BIDU HORROR SHOW
Welcome to the Baidu (BIDU) horror show. Those of you who bought the false rally on Tuesday are really hurting today. Hopefully, you had the sense to at least sell as the stock went up. The corrective bounce or dead cat bounce was expected and was a shorting opportunity, not a buying opportunity.
Let's forget about the past. Baidu is no longer a leading stock. Heck in a market correction, no stocks are leading, that is if you don't count the way down. As above chart shows, on a daily scale, you will notice that for the past two days, the stock sold off hard into the close only to show buying activity the last 30 minutes. Do not mistake this as a harbinger for a rally. It is a set up for further short. True, if you bought the close today, and if you sell quickly in the morning, the likelihood of a profit is there, but why chance it. (I am asking myself that question right now as well.)
Overall, Baidu failed and sliced through the $334 support level which now presents a formidable resistance. I believe Baidu may make a gallant attempt at $334 but will ultimately fail to hold that level. This means that it may also retest the lows of the day tomorrow at $315.57. It appears that the market makers will try to pin this around $320 tomorrow at OPEX.
If this stock breaks $315.57, look out! It will retest the $297 level.
Overall, horrible looking chart, unless you are a short. In that case, sweet dreams!
Thursday, November 15, 2007
SPX 1450 Must Be Defended or Else...
Another tough day for the market today. The relentless selling has not lost steam. What is worse, the SPX has breached for the good part of the day, the support level at 1450. The only meager solace in this action is that SPX ended the day above 1451.15 on a last minute surge in buying. There is nothing bullish about this action. Furthermore, the bulls need to pray that this level of support holds, else we may retest the 1430 level, which, if broken, is considered a bear market signal.
Who are we kidding? All the leading momentum stocks have rolled over and are falling faster than a knife through hot butter. Google (GOOG), Bidu (BIDU), Research in Motion (RIMM), Apple (AAPL), and many more have fallen by the way side.
Don't listen to the so called market experts who are calling for a "Turkey Rally". As I said before, the turkey has already been killed and the carcass is rotting. This is not the time to be picking at the bottom, as we have not yet found any bottom support. Stay in cash or go short if you are inclined to do so, but under no circumstances listen to the market gurus such as Jim Cramer. They are all confused and scared.
SPX would be a great short if it stays below 1450 on heavy volume. I am currently flat today. I sold out of my BIDU short term puts but am holding the January 195 puts (190 contracts- which I will add to on any rally attempt tomorrow). I am expecting an early morning dead cat bounce which I have positioned 15 contracts of December $330 BIDU contract, which I will sell into strength.
In this market, watch the key support and resistance levels on the S&P 500 and trade accordingly. It is treacherous out there with a lot of head fakes and noise from the market pundits. Unless proven otherwise, assume that the Santa rally and the turkey rally is dead. Period. Don't fight the tape here. Cash is king.
Tuesday, November 13, 2007
Goldman Sachs the Next Shoe to Drop
For weeks now, Goldman Sachs (GS) has categorically denied that it will be writing down huge sums of bad debt related to subprime mortgage market. It is a fact that Goldman Sachs is exposed to one of the largest positions of the risky mortgage debt obligations or CDOs. Goldman has stated previously that it would stand behind its valuation of $50 billion dollars of risky mortgage debt obligations. Goldman continues to reaffirm that it has somehow avoided the disasters that its competitors have gotten themselves into.
A lead article on the marketwatch.com is helpful here: http://www.marketwatch.com/news/story/goldman-ceo-sees-no-big/story.aspx?guid=%7B4AF9FAF2%2DB0E2%2D4ACA%2D8134%2D5BBD5FCACFD6%7D
Also, please see Herb Greenberg's blog in response to this: http://blogs.marketwatch.com/greenberg/2007/11/goldmans-shorting-of-subprime/
I believe Goldman is not completely forthcoming about their exposure. Dick Bove from Punk Ziegel & Co stated that "The risk-management systems at this company appears to have been effective in allowing Goldman to avoid the worst of the write-downs that others are announcing." But how are they doing that? Are their risk management so good that Goldman's competitors are not privy to? Are they that much smarter than the rest? I don't think so. Do they have some algorithms of computerized mathetmatical formulation that is out of this world? This is in fact what Goldman is contending.
And now this. It's been shorting subprime to avoid losses. But how do you short something that has no clear cut intrinsic valuation or less than transparent pricing? Review what Herb Greenberg is saying in his blog. It makes no sense.
In the end, the truth will have to come out, and Goldman Sachs, like Countrywide Financial (CFC) before it, will have to pay the piper. For those who buy into the Goldman Sachs (GS) BS, they too will feel the pain that Countrywide share holders feel.
If Goldman Sachs is forced to be more transparent and that leads to more write downs, this market will fall into a frenzied free fall. They know that and are painting the rosiest picture it possibly can. That will be the next shoe to drop and it will affect this market in a dire way because all the hopes are being placed on the fact that we finally have some grasp of the magnitude of the subprime mortgage mess and that it is under control. I don't think it is possible for this naive assumption to last forever.
Once the truth comes out, look out.
A lead article on the marketwatch.com is helpful here: http://www.marketwatch.com/news/story/goldman-ceo-sees-no-big/story.aspx?guid=%7B4AF9FAF2%2DB0E2%2D4ACA%2D8134%2D5BBD5FCACFD6%7D
Also, please see Herb Greenberg's blog in response to this: http://blogs.marketwatch.com/greenberg/2007/11/goldmans-shorting-of-subprime/
I believe Goldman is not completely forthcoming about their exposure. Dick Bove from Punk Ziegel & Co stated that "The risk-management systems at this company appears to have been effective in allowing Goldman to avoid the worst of the write-downs that others are announcing." But how are they doing that? Are their risk management so good that Goldman's competitors are not privy to? Are they that much smarter than the rest? I don't think so. Do they have some algorithms of computerized mathetmatical formulation that is out of this world? This is in fact what Goldman is contending.
And now this. It's been shorting subprime to avoid losses. But how do you short something that has no clear cut intrinsic valuation or less than transparent pricing? Review what Herb Greenberg is saying in his blog. It makes no sense.
In the end, the truth will have to come out, and Goldman Sachs, like Countrywide Financial (CFC) before it, will have to pay the piper. For those who buy into the Goldman Sachs (GS) BS, they too will feel the pain that Countrywide share holders feel.
If Goldman Sachs is forced to be more transparent and that leads to more write downs, this market will fall into a frenzied free fall. They know that and are painting the rosiest picture it possibly can. That will be the next shoe to drop and it will affect this market in a dire way because all the hopes are being placed on the fact that we finally have some grasp of the magnitude of the subprime mortgage mess and that it is under control. I don't think it is possible for this naive assumption to last forever.
Once the truth comes out, look out.
This is Only a Snap Back Rally from Over Sold Condition
Before all of you get excited about today's rally, please realize that this is a technical event that was all too expected. One day doesn't resume the bullish rally. Please know the context of this rally: within a bearish down trend in all of the major indices. What today accomplished was to pull in the unsuspecting retail investors to buy while the institutions continue to dump their shares. Also, it took out the technically "oversold" market. Underneath all of this action, when you look at the SPX (Standard and Poor's 500 Index), there were 20 new highs and 180 new lows.
Look at the SPX today:
click for larger imageWhat you will see is that the SPX has formed a head and shoulder a while back. But notice that the 200 SDMA stopped this advance dead on its track. Additionally, it couldn't reclaim the neck line of the head and shoulders fall. The volume was also slightly lesser than the previous day negating some of the effects here. The bottom line is that when you consider mid August when the index tried to rally, it did have a 3 day rally which pittered out severely to retest the lows and then some near the 1300 mark. Just be careful before you get overly exuberant.
On the NASDAQ:
click for larger viewThis weekly will also show you that today's action in the whole context of things was nothing more than a snap back relief rally that was purely technical. Only time will tell, but I am not yet excited about this chart. Again look at the MACD which still maintains the weekly death cross as well as the lack of volume in this advance.
Lastly look at BIDU, my favorite Momentum stock currently that can be traded to the upside and the downside. But clearly, while the $40+ point advance was breath taking, it merely reset the damage done to it yesterday. Even so, it clearly remains in a major down trend.
Bidu (BIDU) is my favorite stock. It is a high momentum stock that can give both on the way up and on the way down. It is a speculative stock and carries with it immense volatility and huge price fire power. What it did do today was to test the 50 SDMA and bounced hard from that area. The volume was merely average and the MACD still remains in a down trend. It couldn't break above the $355 resistance level, and tomorrow will be a key tell on what this stock will do. Again, I believe that today's action was technical more so than the character change of the market. No down trend goes in a straight line and I believe I will find that this stock will roll over from here within a few days and resume the down trend. That doesn't mean I am not taking advantage of the upside, which is great. I just adjusted my position size to 25 contracts of the December $330 contract and will "bail" on a moment's notice. But I will ride this out, though, I must admit, I felt like I should have liquidated this position today prior to close. A good short point would be to wait and see what it does to the overhead resistance line at or near $355 and if it retraces on strong volume, that would be a good time to short. Conversely, you can also try to short this when it breaches the support at $300. I think it will take a stab down there in short time.
Over all this market is treacherous and I do not think we are done going down. But I will not argue with the market and play the side of the strength whether that would be up or down. In the mean time, do not chalk today's action as some sort of confirming trend. IT IS NOT.
Sunday, November 11, 2007
Sympathetic Selling in Asian Markets
Hold on to your hats folks, we are in for continued spread of fear and panic when US markets open in just over 13 hours. Nikkei is down 2.4% and the remainder of the Asian indices are following suit. Yen continues to gain on the dollar destroying the "Yen Carry Trade". Will the US market bounce or continue to go down parabolically as it had done the other way for the past 2 months? I continue to bet a market melt down. There is nothing that can stop the recent downward trend.
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