Thursday, March 19, 2009

VIX Gives Clear Signal

Finally today the VIX gave a clear signal on market sentiment and the likelihood on the direction of the market. See my previous blog on the VIX pattern showing the signal.

Today was a confirmation day with the VIX rising to 43.79. Stocks that benefited the most from the recent bear rally will be hit the hardest. Namely, financials. It comes to reason that so much optimism and good news in the banks can soon fall apart with any sort of negative news around M2M, corruption, uptick, earnings, corruption. Did I mention corruption?

I don't wish ill-will on anyone. But Chris Dodd and Tim Geithner need to be thrown in jail. It will be difficult, if not impossible to indict Paulson and Obama in this AIG bailout scandel, but Dodd and Geithner are obvious caught with their hands in the cookie jar. Both should be out of the public sector within 2 months.

While todays move in the market seems minor compared to the recent runup, it was significant to draw the bear back into the game and move market sentiment back to bearishness. Bulls are doubting some of the recent news and have to take profits. I congrat the bulls on the recent run and holding on so long. But the odds are clearly showing that the bear should take over again at least for the short term. I am looking for a trace back to 750 and if that breaks, to 732. If that breaks, 680. More than likely, at 750, we get a bounce. For now, you should be accumulated on the financial shorts once again. Not all in! But you should have enough that you can sleep at night and enjoy the profits coming up.

That said, this is a news driven market. The fed has shot all of its bullets. FASB is trying to shoot a bullet but seems to have come to a gun fight with a knife. The treasury is really the only one loaded for bear right now. But does Geithner have the guts to pull the trigger? He reminds me of Barney Fife trying to load his one bullet into his gun as the robber is getting away.

Beautiful VIX pattern

As mentioned two days ago, the pattern in the VIX identifying the end of bear rallies showed up. Apparently yesterday may have just been a slight delay. Right now the VIX is at 43. The VIX also finished higher yesterday.

See chart above to show this remarkable pattern on the VIX and how todays action so far confirms we are in a market reversal which should be anywhere from 6% to %15 which would put the S&P at 750 - 680 when the reversal is complete. This is not confirmed yet, but if it can hold today, we have a very good confirmation that the bear market rally for now is over.

As mentioned last night, you should be accumulating short financial positions today. I hope you did that at the open. Don't get carried away. Accumulate means adding a little at a time and setting stops.

Wednesday, March 18, 2009

PAY ATTENTION! You Should Be Mad As Hell

I don't like to turn this blog into a political forum and it should be focused on the market. But we are now solidly in a political economy more run by the politicians rather than the private sector. The politicians are deciding who wins, who loses, how companies are run, who can get paid how much and what housing prices should be, among other things. Socialism at its finest.

You can no longer talk about wall street and the stock market without having a political discussion. No time in the history of the U.S. has the economy been run by the politicians like it has now. A very dangerous thing to have to say. Soon the gov't will decide what small companies can startup, which can survive, and which can be merged into larger companies. The private sector is getting expodentially smaller daily. And there is no slowing down of the political machine known as the Obama/Pelozi/Dodd/Franks regime.

Lets talk AIG. Not to beat a dead horse to death but this is a very important discussion everyone should be aware of.

How is it that bonuses were allowed in the first place after over $100 billion in bailouts and clear corruption of company management? Why are so many people concerned about this $160+ million, less than 1% of the total bailout of AIG? Because this could be the largest conspiricy of money laundering and government tampering in the history of the U.S. You don't beleive me? Look at the facts.

- On Tuesday, Senator Chris Dodd said he had no idea how the provision for bonuses got into the Obama stimulus bill. He claimed this was an oversight and he was not aware of it.

- On Wednesday, as pressure built on how this provision was introduced, Dodd fessed up that he wrote the provision himself. But he did so by direction of the "administration" (not specifying if that meant White House or Treasury).

- This provision was hidding in 111 pages of the pork-filled stimulus bill which was distributed at 11:30pm the night before it was to be voted on at 2:00pm the next day. Admittedly, no one read it.

- Can you guess the top two politicians who AIG contributed the most to their compaigns last year? Anyone? Anyone? Bueller?... The top two contributions from AIG to politicians last year were (drum roll please)... #1 Barrack Obama and.... (drum roll...) #2 Chris Dodd. That's right. Senator Chris Dodd "slipped" the bonus provision into the stimulus package at the last minute knowing no one would read it or question it. He did it apparently by orders of the "administration" (read, Barrack Obama). Politics as usual????? This should make your blood boil.

- And lets not forget Timmy Geithner. He orchastrated the bailout of AIG. He also knew of this provision but claims he was not aware. How can the person in charge of the bailout not know what was in it????

- Don't get me started on the AIG money that went to Goldman. Sure it was owed but Goldman has their own piece of TARP. Why are they also getting indirect TARP money???? Could it have anything to do with Hank Paulson???

What will occur here is an investigation started by the republican party to determine the extent of the corruption. This seamingly minor part of the bailout will perhaps become a bigger story than Watergate.

- Chris Dodd should be impeached for corruption and abuse of power for adding the provision as pay back for the contributions to his campaign.

- President Obama won't be impeached and there will be such a huge cover up there is no way he is touchable, but his involvement in this should be investigated.

- Geithner should be removed from office. He has done nothing and is not in control of the treasury. He organized the entire AIG bailout and has no idea what was in it and did not define how the money should be used.

We are in a dangerous point in our history. We are on the road to destruction of American capitalism. We are headed to the destruction of the private sector. We are headed to socialism and thus the contraction of the economy for many years to come.

What Makes Sense?

You have to ask yourself, does the Fed move today to buy up to $300B worth of long term gov't debt and to purchase more mortgage backed securities make sense? Wall Street took it as all problems are solved with financials. But why is the Fed doing this? All the major banks have been pounding the table that they have all the money they need. They all say they are profitable. They all say they are solvent. They all say their capital is good. All say they don't need any more government.


Oh really? If this were all true, would Uncle Ben step to the microphone and make statements such as "we are in a major crisis", "we have to do this to avoid a major recession", "this is necessary in an attempt to get credit markets moving again".

If the banks are all in as good a shape they have all claimed to be in over the last 3 weeks, why does the Fed have to step in again? Shouldn't the Fed be raising rates in anticipation of the banks reporting good earnings and saying that credit is flowing?

Obviously the b.s. they were feeding us last week is totally untrue. Banks are not solvent, banks are not profitable, banks are not well capitalized, banks WILL NOT PASS STRESS TESTS!

The Fed is stepping up because things are much worse than anyone is telling you. The banks are on verge of collapse as is the economy. Was this move necessary by the Fed? Yes. Because without it, all banks would be nationalized and Uncle Ben wants to keep to his word that nationalization will not happen. So he will take your tax money and your kids tax money to risk long term hyper-inflation in the interest of short term avoidance of nationalization of banks.

Its a long term disaster if this does not work. It will take 10-12 years to recover from this mess if these programs do not solve the problem. Is the risk worth it?

OK, back to the market. The VIX amazingly stayed above 40. I have no idea how. But it stays in a range that can result in a reversal. As I stated the other day, financials are not a good place to short as a whole. Are they now? Yes they are, but not all in. I think they are a good short right now to get your feet wet. If market continues to climb, add more. They are totally overbought. Citi is now above $3. This is a company owned by the gov't. AIG has tripled. Also owned by the gov't. These are both going to go very close to $0. Maybe not this week. Maybe not this month. But they will get there. The gov't can not give AIG any more money without civil unrest occuring. The bailout of AIG is done. And AIG has already spent the billions already given to them. They are toast.

I believe tech may be the best short out there for the long term, not the short term. Short term, it is very dangerous. But if you have patience, and can withstand potentially losing 25% of your initial investment before things turn around, now is the time to start building short positions in financials.

The Fed said it will buy up to $300 billion worth of longer-term U.S. government debt over the next six months and expand purchases of mortgage-related debt to help ease credit market conditions in its latest action to lower borrowing costs.

Tuesday, March 17, 2009

Twin Bottoms on VIX/PCR Signals Reversal

I found this pattern very interesting as I reviewed the VIX chart. Notice the 5 correlations of blue circle pairs. All represent a short term bottom for the VIX and the VIX PCR. All 4 previous times this has happened in 2009, the market and the VIX have made swift and significant reversals.

The dates and values of what the S&P did the previous 4 times are below.

Date ......... S&P 1 ...end of wave ..% drop ...Preceding rally
---------- ----- ------- ------------- --------- ---------------
Jan 6th: ....934 ...906 ....871 (5 days) ....6.7% .........7.6%
Jan 13th: ..871 ...842 .....805 (4 days) ...7.6% .........n/a
Jan 28rd: ..874 ..845 .....825 (2 days) ...5.6% .........8.6%
Feb 12th: ..835 ..825 .....773 (6 days) ...7.5% .........5.3%
Mar 17th: ..778 ...? ..........? .....................? ..........15.1%

If the pattern holds form, we can expect a drop in the S&P by about 6-7%. Filling in the numbers, we could project that within a week, the S&P would be 731-723. But since all the other gains in the rallies were all but wiped out, perhaps the reversal is closer to getting back to 676

Additionally, what is interesting is, all of the dates listed above were preceded by a six day rally in the market (Jan 6th and 13th were back to back after 6 day rally into Jan 6th). We are currently in a 6 day rally. All 3 previous 6 day rallies in the s&p had similar VIX/PCR readings and all 3 lost all of their gains.

Does the trend continue?

What a bunch of BS

Well, that went well. I had to travel today and in meetings and no chance to watch the market. I got somewhat lucky as I sold my March calls on VIX and my March puts on GS right after the open before I jumped on the plane. A nice two day profit (on those at least) Right after I sold, I saw both move up and figured I was going to miss a killer day. But, it ended up being a good move. Unfortunately my GOOG and RIMM puts didn't fair too well but those are April and June puts. I got lots of time. And SRS.... well, again, its my core position and not going anywhere.

As I said yesterday and the day before, until there are clear signals, don't invest too much into this market. I stayed with options keeping me mostly in cash. The VIX slid to the 200dma. Very interesting here as indications say the market is short-term overbought. Yet TA says we broke a key resistance and we should fill the gap to 800 or so.

The media hope-hype will go away as soon as some bad news hits. For whatever reason, the media is jumping all over the housing starts data as though that signifies the end of the recession. Give me a break. The housing numbers were so low in Jan, they had no place to go but up. As someone on Bloomberg said this afternoon, "all it takes is 3 apartment buildings to go up and it will cause an increase in the numbers".

So, don't put too much into the housing numbers. Housing is not improving. It is all media hype and I am starting to believe it is a bigger scam than any of us could imagine. It doesn't take much imagination in believing the White House is calling for all financial media to spin news as upbeat. They are trying to prop up the market with optimism and hide the pesimism.

Notice that CNBC had Meridith Whitney on well before the opening bell. She had nothing good to say about financials or the economy. The market reflected her statements early but as the media disregarded this and instead focused on the housing hype, market rose. If Whitney had been on cnbc at 11am, imagine the damage.

We are still in a down trend, bear market, obviously. Is this a bear market rally? i think so. I am pretty damn sure of it. In fact, after hours I did short financials. This move is too big and prices in a lot of optimism. Just one piece of bad news in financials will have them all tumbling down. The VIX is getting stressed as it isnow 15% from its 20dma. It should recover soon.

Trying to time this market is very tough. If you really want to be in stocks and ETFs, and you are certain where the market is going to be in a month or two from now, play a core position toward that goal. And hold it. maybe 25% of your portfolio. Then use another 25% to do some swing trades on the other side if you feel certain short term moves are coming. As a simple example, lets say you have $100K in your portfolio and you are sure S&P is headed to 600 in 2 months. Put $25K into SDS and forget about it. If you feel the market is about to go up, perhaps play FAS or SPY calls as a daytrade. Keep your core position. If market goes up to a point you think it is overbought, perhaps buy more SDS or some other short position as a swing short term trade.

That way, you keep your core position and core investment toward your target without overextending, and also keeping cash on the side for those times when the market gets overbought or oversold. And don't be afraid to use covered calls if your core position grows so you can protect those profits.

I will not get overextended given what TA is showing us. The VIX says we are overbought, and I do believe within a week or two, we will have a significant downturn. So staying patient and avoiding getting all my cash get caught up in this. I am playing it so that if there is a big downturn, should have a nice windfall. But if not, I will stay patient with my holdings.

OH AND DON'T FORGET!!!! VIX options expire on Wednesday. Don't get caught holding the bag.

Monday, March 16, 2009

The Bull is Tired

Imagine, if you will, a 4000 lb four legged animal that ran at top speed for 4.5 miles. A sprint for 4.5 miles. Imagine how tired that animal would be. That animal would need to stop and rest to catch its breath, otherwise, it would die. That is what the bull has done here. It sprinted somewhat downhill for 4.5 straight days before running out of steam. The bull that brought the VIX down from 50 to 41.5 has nothing left in him. He needs a rest.

The VIX was impressive in the past 2 trading days never going into the red for two trading periods were the market was up solidly. It showed that fear was entering the market again. Even though there were buyers coming in, there were a lot of holders taking profits and getting out, knowing it can't last, no matter how much suspect good news was being thrown at them. The savvy investor has seen this movie before and knows the outcome. The unsuspecting investor wants to ride the trend and may have got into the game late. They will be the last to leave and will take the losses.

The VIX finished up over a point after bouncing off the lower trend line on Friday and avoided the 200dma. It is now approaching the 20dma once again.

BUT DON'T GET CARRIED AWAY!!!! If the VIX does not get to the 20dma tomorrow, I have to suspect that there is a chance the pullback will not be very large. Perhaps an S&P in the 730-735 may be all we get. But if the VIX can reach, 45.5 or higher tomorrow, I suspect we are looking to retrace back to 700 and could possibly signify a new low is coming soon.

I am still avoiding financials as a whole (no faz, fas, skf, uyg). I am pretty heavy on GS puts and I think if financials pull back, GS will lead the way with a target of 82. I think tech for whatever reason, has gotten ahead of itself. Big names like RIMM, AAPL, GOOG are headed into earning season with some high expectations due to recent hype. I think all 3 will disappoint. So tech seems to be a good short area to look at. Not all tech, but certainly GOOG and RIMM. I decided to jump into April and June puts on GOOG with strike prices as low as 200. RIMM I am also very bearish on. You can't have aapl and palm announcing new products in an already overcrowded arena in a bad economy without having some effect on bottom line.

OK, back to VIX. I love the action we are seeing, but it is not complete. If VIX does not advance from here without conviction, we are not heading back very far. The bears have to show strength and they will do so in the form of a higher VIX early tomorrow. If the market goes down and VIX stays flat, it may be time to play swings again. VIX passing 45.5 will be a trigger.

I know I am probably too in love with SRS, but damn, I can not see any positives coming out of real estate in the next 6-12 months. I don't care if they throw m2m out the window, commercial RE is about to hit rock bottom. The next strip mall you drive by and see all the empty spaces, you may want to consider contacting the owning bank and making a cash offer. Cash out of your wallet, that is. that may be all it will take to get it.

Sunday, March 15, 2009

AIG and Goldman Sachs in Bed Together

I just read this article from Reuters about $12.9 billion in bailout money targeted to AIG got funneled to Goldman Sachs. And many more billions were transferred to other banks, including European banks.

This, people, is a scandal. This is the gov't and banks playing with your tax payer money and throwing billions and billions into pockets of bank execs and politicians and using the economic crisis as cover for hiding the transactions. I will be extremely disappointed if Hank Paulson, along with a series of execs from Goldman and AIG are not indicted for these actions. They are no less guilty than Bernie Madoff. They are moving bailout money from bank to bank and into banks that say they don't need it. The banks may not need it, but they are taking it. We are not talking about millions, or hundreds of millions. We are talking billions. $12.9 billion may not seem like a lot in the scheme of trillions of bailout money, but we are talking about $12,900 Million dollars. Lets but it into a different perspective. Why not break that up and give 1,290,000 american households a check for $10,000 to help get the economy going again.

Instead, this money is going to end up in a handful of hands of bank execs to pay for their vacation homes in St. Lucia, the Bahamas, or any other Carribean island that they are going to hide at when the banks all fall apart.

You should be as mad as hell about this America! This is an outrage. And i bet 10-1 odds Cramer doesn't even mention it. I bet CNBC ignores it and tells you all about Obama's plan to help small companies get loans. This won't be mentioned, yet, it may be the most important piece of news you all should know about, read about, and get off of your computers and go out of your front doors and yell, "I AM MAD AS HELL AND I AM NOT GOING TO PUT UP WITH THIS S**T ANYMORE!!!!"

I hope Goldman and AIG execs get what they deserve with news like this. I am personally tired of the greed that has overcome the american banks. In an economic crisis, they abuse taxpayers in total disregard for the average american trying to survive. I would say it is unimaginable but it isn't these days. And perhaps that is the sadest statement of all.

Short the hell out of Goldman Sachs, all banks in general, and buy the hell out of SKF, and FAZ. Piss the hell out of Cramer and run these freaking bank equities into the ground so these bank execs loose billions in wealth in their equity holdings. We can fight back. The banks are not helping you, they are hurting you. It is about time people learn that the bailouts are not in our interest. The money is not being used to save banks and the execs are using it for their own good and nothing else, perhaps in anticipation of their equity going to $0.

Nationalize the banks now. Socialism is better than the corruption going on today. We are no longer in a capitalist banking system. It is all about corruption and it is about billions in corruption, not millions. Nationalize now. It is the only way I will trust the banks again.