Friday, May 1, 2009

Commercial RE Showing Cracks

Finally after almost 2 months, the entire Commercial Real Estate sector is showing cracks. While SRS is not responding as positively as I would expect, the key is the entire CRE group is down significantly today. Sometimes SRS is a bit late to the game perhaps due to leveraging mechanisms so I expect to see SRS to perhaps have some sharp gains coming up.

This is the first day since mid-March that the entire sector showed weakness. Today's action on REITs has a similar look and feel to action we saw in February. The question is, will there be follow through?

Stops? We Don't Need No Stinken Stops!!!

This morning I had a tough decision. It appeared the market wanted to rocket directly to 950. I actually thought it would. I thought about selling some of my positions or adding to my hedges with some FAS calls. But I went back to one of my 10 Commandments of trading.

#7 - Before Panic Selling, ask yourself if you didn't currently have the position, would you buy at that price?

It was SDS. I was thinking of selling as the market was going to 882. Then I thought, if I had no positions in the market, would I be a buyer of SDS at S&P 882? The answer was a resounding yes. Maybe not a big purchase, but I would be getting my feet wet.

It is important not to fall into the trap of "sell your losers" or "always have a stop". I don't believe in these rules unless you are in a position where you are over extended and you have too much risk. I hear brokers say these things all the time but I think they are wrong in most cases. It depends on your situation.

I also thought of doubling up, buying some puts, buying calls, selling calls, blah blah blah. My head was spinning and I was lost as to what I should do and what the market was doing. Soon, it hit 885 and I knew I had to get away from the computer, leave and be patient. Had I not done this, I may have pulled a retail investor move, bought some long positions, and as soon as the market started going down, sell the long positions and double up short positions, then when it changed again....

You get the picture. This is exactly what the MM's want. They want to throw out head fakes to suck in longs and shorts and squish them both. You have to recognize this and not get caught into the trap. You know who you are and you probably did it today. Impulse buying, panic selling.

So, by heading out to my boat for a few hours, I saved a lot of stress and came home to a beautiful red board.

I currently do not have a clear signal on where the market goes on Friday. My instinct says it goes down as longs do not want to hold going into stress test results and a weekend where the flu pandemic can escalate. So it should be a winning day for bears. But technicals are not really supporting that. They are not supporting bullishness either. But the VIX is at a critical point and may cross the 20 dma. The SPX is not near a key resistance or support but it may break out one way or the other.

Again, as I have been saying, this bear market rally is not over until the SPX goes below the 20 dma for 2 days. They we are definitely headed to 790 or below. Until then, play the waves and don't get over extended because the MM's will make you pay.

Wednesday, April 29, 2009


It's what a good Army Field General would do. Retreat, regroup and wait for a better day. Today's show of strength against really poor GDP data can only be described as... scary. I have been looking forward to this GDP number because I had to believe we were going to be around -6% which would validate Q4 data which many said was a one-off. But despite the validation, the media and many analysts chose to focus on the 2.2% increase in consumer spending.

So how did they take this number and make it sound so strong? They compared it to last quarter which was 1.1% gain. And they took the 2.2% number relative to 1.1% and claimed that consumer spending growth doubled from the last quarter. Now that sounds huge. Doubled.

It is the media hype that is being created and I have to believe this is being directed by the gov't for the media to focus on good news in order to create optimism in the market. We know the gov't is controlling CNBC via GE. But it appears the rest of the mainstream media is joining in.

"Consumer Spending Growth Doubles", "Market Soars on Much Strong than Expected Consumer Spending". Those are powerful headlines. But did Consumer Spending really grow? Considering this year was a record year in tax returns and that consumer spending was so far down over the past 4-6 months, consumers had to spend something for basic necessities, including cars, new appliances, etc. and the impetus for the spending was most likely their tax returns.

I believe it is a one-off but we won't know until Q2 GDP comes out. In the mean time, this market is not showing confirmation of a reversal. dips are being bought and the weaker hand is clearly the bears.

So if you are trying to time the top, I certainly would not back up the truck here, nor would I double up. I nearly got stopped out on a couple of my positions, barely missing by pennies. In retrospect, it probably would not have been bad to get stopped out. But I do have opportunity to make a move if needed in the morning to create more protection.

The market is in dangerous territory for bears. It is at a key resistance level and todays action seemed to suggest if any real good news were to come out, the market could blow past 880 and to 900. So, I recommend caution.

At the same time, the market is obviously overbought. So technically it should go down from here. The average stock in the S&P is priced at 22x forward earnings. That is much higher than the normal 6x to 10x forward earnings. The market will eventually correct but right now it is being pumped.

Indicators I am looking for as indicators that the down leg is here is 2 straight days of solid down days on good volume. Also, a close below the 20 day MA, which is currently just below 850. So it won't take much but I am going to be cautious until we see those signals.

If you feel the need to be long, I recommend EEM for sure. TBT has had a good run but is likely to fall back a bit. Energy and healthcare are the only industries I think may be undervalued relative to their forward looking P/E.

Why CNBC Pumps the Market

A lot of you wonder why CNBC "appears" to pump up the market, shrug off bad news, and spins bad news into good news. It seems much more apparent lately than 3 months ago.

The answer is quite easy actually. Call it a conspiracy theory but her is how it goes...

Back in January, CNBC had some pretty negative comments and would invite some pretty prominent perma-bears on their shows. It created negative sentiment in the market and some say it helped propel the market lower.

In very late February, you notice the Obama administration started a campaign of positive news. About at this time, you saw that CNBC stopped inviting prominent bear economists and analysts during the trading day, and only invited a few of them very early in the morning, well before the market opened. You also noticed that Charlie Gasperino (sp?) faded away as did some other "reporters" with negative views. At the same time, Donnie Deotch (sp?) comes onto the scene and the entire crew appears very positive about the market. Rick Santelli stops bashing Washington.

Quite a contrast. Well, something appears to have happened. And the clues are not hard to figure out.

CNBC is owned by GE and it is not a secret that GE execs had meetings with Obama about his energy plans. GE has a very good chance of landing a good portion of those contracts. It doesn't take much of a stretch of imagination to see Mr. Obama asking GE to tone down CNBC and help promote the market and the economy in general in return for getting those contracts.

Take it as you might, but these seems like politics as usual.

The Pump Still Has Air

Looks like the pump is still pumping hot air into the balloon. GDP numbers were horrible. HORRIBLE! There is no positive out of a GDP number of more that -6% for two straight quarters. Its the worst streak since the 1950's. Let Pisani and his pals spin it as they wish, but all it is doing is pumping more hot air into a balloon ready to burst at the seams.

Expect the Fed to continue to sugar coat the economic conditions to further pump up banks so they can raise capital via secondary markets. Look for a BAC secondary offering before the end of the week so they can raise capital before the stess test results are announced on Monday.

If you have been sitting on the sidelines, this appears to be a good entry point for short positions. The market is rising on unsubstantiated data, or even worse, rising on bad data. Its 1999 all over again. Once the pump stops working, its an ugly slide down. The question is, are you positioned to withstand the government PPT?

Tuesday, April 28, 2009

If You Believe The Housing Data, I have a Bridge...

The housing data came in today and it was GREAT!!! Well, if you consider an 18.6% decrease in homes sales as a positive from last March and a 35% price decrease in homes in Phoenix, a 32% decrease in home prices in Las Vegas, and a 31% decrease in San Fran.

But it was spun as positive news, avoiding what should be a larger collapse in the real estate, credit and financial markets. But it is just delaying the inevitable.

I am not hoping for a financial collapse and a housing collapse. It is just going to happen and who am I to stand in the way. All I can do is get my hedge positions in place to offset my home property losses, and my potential job loss by playing the market short. If I keep my job and my home property stays the same, I can live with that. But I would be living in unrealistic hope.

show me when unemployment stops climbing. Not that we only lose 500K jobs a month. Tell me when the losses stop. Until then, home prices will continue to go down, home sales will continue to go down and the economy will continue to enter a depression.

The market is incredibly overpriced right now. The average stock price is 22x forward earnings. Typically the average stock price is 6-10x forward earnings. That is right. we are about 3x over valued on what typical forward earnings are. That means the S&P at 300 would be fair value compared to historical numbers.

As unemployment rises, more companies will go out of business, causing more layoffs, causing more foreclosures, causing lower housing prices and the cycle continues until things get so bad that they truly do hit rock bottom and naturally reverse. The gov't continues to try to intervene in this natural process which is only causing it to last longer and will cause tax and deficit nightmares for the next 20 years.

Hotel properties are about to hit the fan. Over the last 10 years, the U.S. has totally overbuilt in the hotel arena. These properties are heavily leveraged and heavily debted. The collapse will hit hard and there will be no bailout.

OK, enough gloom and doom, but y'all need a reality check. How many of you know people that have been laid off in the last 6 months? OK, everyone. Now, how many of these people do you know that have landed a job in the last 6 months. A job that was close to what they previously had. I am sure there are a few that would say yes. But 90% of you would say no.

Don't let the Pisani's and Cramer's and Kudlow's fool you. The economy is not getting better. It is getting worse.

Keep an eye on BAC

20 day MA is at 8.41. If BAC closes below that and confirms tomorrow, this stock is in for a wild ride down. There is a lot of smoke around BAC and where there is this much smoke, there has to be fire.

Consumer Confidence Trap

The Consumer Confidence index for April came in and was much higher than "expectations". Well, why did the "experts" who set the expectations think that the number was going to be low when the stock market had gone up 30%?

The Consumer Confidence Index is a trailing indicator, not a leader. It follows what the market does. It created a good bounce for longs but don't get caught up into it. If We go above 875 it is time to worry. Until then, we have to fill some gaps during retracement.

I told you all last night that the MM's will cause panic buying and selling and the retail traders will lose. Be careful you don't get caught in the hype.

Swine Analysis

You can call it what you want, but if the bulls want to blame today's down day on the markets on the Swine Flu "outbreak", to me that is just poor analysis. SPG didn't go down 10% because of a virus. Cummins didn't go down 5% because of 20 people in the U.S. had the strand.

The market went down today because we are in a TA cycle where the next leg is down. Period. We will have a retracement down below 800 and perhaps all the way to 760. It won't be a straight line. There is some strength on the bullish side that will buy on dips. But we are headed below 800 before we get above 870. It appears to be a double top and if we can break below 840, I think the run to 800 will meet less resistance. The up moves will be caused by buying on dips and MM's trying to shake out shorts and/or suck in longs. Everyone will lose. At least that's the plan for the MM's.

So you have to recognize what is happening hear. The retail investor will get hit hard as they panic-sell on moves down and panic-buy on moves up, being wrong on both ends.

To me, SDS is the play here or going short SSO. That is really all you need to know. We all know REITs are a scam right now, but the powers that be are in control and while SRS can bring some explosive moves, the game is being played and you have to use SRS as a trade and a trade only. You have to take profits as you can and not worry about missing the big moves up.

I continue to be short AXP and not feeling great about it despite today's move. I have a stop put in at 26. If it goes above 25 again, it is probably not a good position for shorts as the next resistance is not until 30. I have to believe the reality sets in and it corrects back down to the 20 dma.

The SPX appears to be at the top of a downward moving curve via the 20 dma. The VIX is right at the 20 dma and appears to be ready for a breakout. 34 days at or below the 20 dma is enough and the last time it did that was from July 18 thru August 28th. The next two months were the crash triggered by the Lehman collapse. Lets hope the same does not happen but if the VIX closes above 40, I think we have confirmation we are entering a retracement period.

Energy is not a good play right now and I think Gold is dead money for awhile. I still am skittish about banks in general but if I had to play anything, I would play BAC short. Oh, never mind, I already am.

Monday, April 27, 2009

VIX testing the 20 dma

The VIX has be straddling the 20 day MA all morning. It is quite a battle. Depending on the move today, it could be a tell whether market is headed higher or lower from here. As long as the VIX does not come off the of the 20 dma to a level close to the open, I think that is a bearish signal that we could cross the 20 dma and hold. I want to see the VIX close 2 days in a row above the 20 dma before making a decision though.

Sunday, April 26, 2009

I Told You...

That is what I will be saying this week if the market has a down week. Of course, I have been saying it for 3 weeks, but the market has to have a correction here. OK, we did have a correction early last week and was quick enough to take some profits. But this week, it really looks like a correction is in order that sticks a bit.

There are a few reasons I say this. First, the action on the VIX late last week looked similar to action we had in Jan/Feb when the market would have a little run but the VIX would not move. The VIX held steady late in the week even during some good runs in the market. I think the sentiment is loosing its luster, finally.

Second, just look at the SPX 6 month chart. I am not talking about Bollinger bands, or moving averages. I am talking about the "head" shape it is beginning to make. A downward sloped curve is being formed and seldom does this reverse direction once the curve begins. Perhaps the halfway point of a head and shoulders.

And of course third, the economy sucks. I splurged this week to do my best to help the economy. Spent Sunday on my boat with a friend of mine who is unemployed and has been for 6 months. Had his whole family with us and we just showed them a great time. Felt good that he was able to forget his problems a bit and his family have such a good time. Ended with a really great dinner and the beer and wine flowed all day and all night. It was very gratifying. But it doesn't help his employment opportunities. Which continues to make me sad.

Another close friend of mine lost his job last Thursday after 14 years at the same company. He has about 6 months of reserves which includes about 4 months of severance. 4 months of severance for 14 years of dedication??? Whatever.

My neighborhood will be filled with foreclosures if some of these people do not find jobs in the next 6-10 months. The cancer is spreading. The patient seems to feel fine, but has no idea of the consequences coming.