Friday, May 15, 2009

AXP Breakdown

If you aren't watching, you are missing American Express in a technical breakdown. The stock fell below the 20 day MA and the 200 day MA all in one day. This is likely to result in a slide in AXP as the 20 day MA will move away from the 200 day MA and eventually cross the 50 day MA as a clear bearish confirmation ..

Thursday, May 14, 2009

Where Did All The Boats Go?

I have some thoughts on the market and if you want to skip a quick story, just jump down to "AND NOW BACK TO THE MARKET"

I went out to my boat today for the first time in May and what I saw was extremely surprising to me. The dock my slip is in has about 20 slips in the covered area and about 40 slips uncovered. Up until today, all 20 covered slips were full of boats and the uncovered slips varied on each trip due to they are used for boat sales, not really for leasing by individuals.

But today, the boats were gone. Of the 20 covered slips, only 7 were occupied. They were not out on the lake. They were gone. Boat slip leases end in April or September. I was told there were going to be many slips to choose from all around the lake after April, but I had no idea it was going to be like this.

The uncovered slips were about half full (15 boats) but upon further inspection, all but 3 of these boats appear to be part of an auction coming up. You see, the dock I am at is the local Sales Doc which means that is where dealers send their boats to be reviewed and test driven. But these boats were labelled with a number just like an auction.

Well, while cleaning up my boat, a number of people had come down at varying times to look at those boats. Obviously previewing them before the auction.

Anyways, it was a sign of the time. Boaters are avid about their boats and their slips. I really didn't think the down economy was effecting boaters much. To see so many slips empty and to see so many boats up for auction is disheartening. Scary and sad.


If it were not for the VIX insisting on staying below the 20 dma, I would be pounding the table that the market is about to slide. My instincts say the market is exhausted, fundamentals are poor and the economy is not yet in recovery, contrary to what some are saying.

But the VIX is telling me "not so fast, Brian".

There were a couple of things in today's "bounce" that would disturb me as a long. First, we had 3 down days and one pretty big down day the day before. Yet the rally today just could not get legs like it has the past 6-8 weeks where a down day like Wednesday would be followed by an equal and opposite up day the next day.

Also, the slide at the end of the day, yet again, is a signal the bulls do not want to be holding overnight. The fear factor.

I sense a lot of fear in this market right now. Bulls want to believe things are getting better but there is no confirmation in the numbers that are coming out. Unemployment higher than expected. Media says it is the Chrysler effect. Uh, no way Jose. Sure Chrysler may have some effect but not within a week. These numbers are real and the bulls better start believing them.

As real confirmation, retail numbers are down, house prices are down and consumer spending is down. What other info is needed for confirmation?

We are headed for a major move down in the market. The question is, when? I wish I can answer it but for now, I am positioned for a downward movement and plenty of cash on the side to capitalize once the VIX gives me technical confirmation.

The TA guys are saying that we will go higher and probably to 940. That we must touch the 200 dma. Well, to tell the truth, what I would like to see more than anything is to go up to about 925 or 930 and for the rally to fail. This would be confirmation that the rally has ended and we are headed for the correction that the markets fundamentals really need.

But I don't think we are headed up in the 930 range. I think this weeks action shows that the bulls have doubts and once the data continues in that shows things are not what they have been told they are, the fear will overwhelm the bulls and we will head down to test that 770 area again. I think this will happen fairly soon, as in before the end of June.

Wednesday, May 13, 2009

BAC - Three Days Late But Worth The Wait

A week ago, I stuck my neck out when BAC was at $14 and said, BAC will go to $11.... By the end of the week. I based this on fundamentals and nothing else.

It was three trading days late, but it was worth the wait. It went up to $15 and almost shook me out. But I held until yesterday when I covered my short position. But this morning, I can see that fear had truly entered financials so I put in a pre-open order on May 12.5 puts at .75. Even though BAC opened essentially under $12, the order was filled and I enjoyed the rest of the day.

It is not a good idea to play short term options like that. It is more gambling. But even when gambling, playing the odds will pay off more than it will hurt. I took a chance and it paid off.


BAC has fallen about 30% from its recent high. But is the fall over? BAC has a major problem in front of them. They were planning on raising about $7B in capital via a secondary offering. But they blew the timing. They could have easily done this last Friday or even Monday but they put it off. With their stock price now lower, their secondary price will have to be lower which means more shares will have to be offered, thus creating dilution and most likely driving the price even lower.

BAC would now have to price their secondary offering around $9 or lower. The longer they wait, the lower the price. The result will be a fall in the stock price much lower than anticipated.

I look for BAC to see $7.50 before the end of the month. Based on fundamentals, their exposure to credit cards and first tier residential loans, and their need to raise capital via a secondary offering.


The VIX was up today almost 2 points but it is still 2 points from the 20 dma. This has me concerned that this pull back is not for real. I want to see the VIX above the 20 dma before I think it is worth adding more to my short positions. Until then, I will watch and wait.

This could just be a healthy pullback. TA is not telling me that it will go lower than 878 but fundamentals say this market is way overbought and the economy is not in recovery, but instead, at a bottom. Until we really start to see recovery in the way of increased job openings and more new jobs than lost jobs, we are not in recovery.

The Forgotten Lost Income

Unemployment is up and more so than the media and government are telling you. The unemployment number of 8.9% does not include those who no longer qualify for unemployment benefits and do not include the under employed (those working part time or low wage jobs to get by).

But there is another group of workers who are basically under employed if not drawing no income and thus, may as well be unemployed.

There are 10's of thousands of salesmen out there working on a commission basis who are bringing in no income. They are not counted in any government reports. They basically are not counted. Yet, they are in a very distressed situation making 50% or less than what they have in previous years. This sales workforce is fighting against the economy to get by and are losing. They are slowly adding to the loan default problem and their numbers are increasing exponentially. The under-commissioned salesmen are going to become a major problem for the economy. It will result in much more unemployment in the near future, lower GDP, higher foreclosure rates, higher defaults.

We talk about the next shoe to drop, but has anyone thought about the impact due to the lost income for commission based salesmen?

No Need To Wait

I said the last two days to wait for a close below 895 for confirmation. No need to wait. The 895 close number was the first clue. But with retail numbers coming in lower than expected, that is the #4 confirmation clue (that I did not include in the list, but mentioned) and with that confirmation, I am good with re-entering short positions as confirmation of the down move.

You may want to wait for the bulls to try to buy into this dip. Perhaps the market gets back up to 895 before heading down again, but we should open around 890.

Tuesday, May 12, 2009

The Cyclical Weak Link

I really don't have much to add from last nights post. Pretty much the same applies after today. No winners today although it felt a bit more bearish than bullish today and another semi-sell-off at the close. It does feel like the bull has run out of steam but we need confirmation as mentioned last night. First, 895 has to be broken. Then the VIX has to cross the 20 day MA which makes sense because the VIX is just a confirmation indicator, not a leading indicator.

What is interesting about the market is the cyclical nature of it and certain sectors are driving it up or down. When financials lead the market, the market makes its largest moves up. When technicals lead the market, the market makes nice advances but not like when financials lead it. When health care or energy lead it, as they are now, the market tends to stay flat.

If you noticed today, financials really wanted to pull the market down but the market held it up. I find that interesting and not sure how long that can last. It goes to show the financials need some sort of catalyst to move up via news, government programs or false earnings reports in order to advance. Without either, financials head down. It shows the health of financials.

I took some profits today mid day but reducing some short positions. I want to see confirmation of the move down before I add them back. I may miss a little, but I have reduced my risk in case of a surge up to the 200 dma.

I added a position today in CAF which is a China Financial ETF. If I am going to be long, it won't be on U.S. stocks. I believe CAF will fall if the U.S. market falls but it will fall less and will likely move up higher than U.S. financials if there is a move up. It is also a great long term play.

Monday, May 11, 2009

Do You Feel It?

Last night, I wrote about fear. About how fear can overtake a fearless person very quickly, but getting rid of the fear takes a very long time. When a fearful event happens in someones life, the internal fear stays with the person for a very long time, if it ever goes away.

Today's action seems to have re-ignited the fear in the bulls. Not only what happened in the market, but also some of the news coming out and some of the doubt analysts are having in the government generated profits by the banks. The bulls are no longer screaming for Dow 10,000. They are no longer screaming for financials to double. Well, OK, Bob Pisani is still saying the banks can triple to get back to where they were, but does he count?

The fear is lingering. You saw it in the action at the end of the day. In previous down days, the market would rebound at the end of the day as shorts would take profits and longs will buy on the dip. Not today.

I am not saying the rally is over. But today may have been a day which told us that the rally is running out of steam. We need confirmation though. Here is what I am looking for...

  1. The SPX closing below 900. That would be big. If it closed below 895, that is a clear signal the bulls have temporarily lost control.
  2. The VIX crossing the 20 day MA. This means a VIX at or above 36. That would be a heck of a move.
  3. Banks raising capital through secondary offerings close at or below their secondary offering price. That would tell us the market has lost confidence in the bank valuations and reality has set in.

Without at least 2 of these happening, we are just looking at a short term correction. If the market closes below 895, we are definitely headed to 875. But if none of the other 2 items happen, it will bounce right back.

I have held, at a fault, AXP and BAC short positions perhaps too long. And the trader in me said I should have covered today. But the action at the end of the day said it is too early to cover. Financials should continue their slide at least through tomorrow. The question is, will the market follow and thus feed more selling in the financials as fear returns?

When Fear Goes Away

Fear is one of the most interesting psychological phenomenas. Many things cause fear. Sometimes these are real events, sometimes they are imagined or dreamed or made up.

A normally happy person who is optimistic and willing to try anything has very little fear. It may have taken the person many years to get as happy and optimistic as they are. They may have never experience true fear so there is nothing to really fear in their lives.

But, present this person with a horrific event, and those years of optimism can come crashing down. This person may become fearful, unhappy, pessimistic. And it happens very quickly.

For that person is probably not likely to ever be as happy-go-lucky as they were before the event. In fact, it will take years for them to even come close. Take the 9/11 terror attacks. People in New York city, or any other major city in the U.S., would enter their high-rise office buildings with no fear for years and years. One horrific event caused 10's of thousands of people to fear entering tall buildings, or even the fear of flying.

There is still fear today and you see that in every large edifice with clearer and larger signs for exits, better backup emergency lighting, better escape plans. Airlines and airports have fear all over them with much higher security such as bullet proof doors on the cockpit, no liquids, x-ray'ed shoes, etc.

It has been 8 years.

The point is, fear causes normal people to behave differently very quickly and very violently. Just as it does in the market, the largest moves down come from sudden fear. The return back up takes many many years.

But on top of that, the fear never goes away. It is always in the backs of peoples mind. Like the Air force One fly-by in New York city caused everyone to briefly remember the fear of 9/11.

Many people have been telling me to just play the trend. Go long. I do to some degree, but I am still a bear. And the main reason I am a bear is because I do not believe what I am hearing. I fear that the balloon will bust at any moment. If it does, it will be vicious, sudden and cause widespread panic. If you are on the wrong side of it, you can get crushed.

I do believe the fear will come back. For now, optimism reigns. Even this weekend you could see more people shopping. Not buying big ticket items, but more out there. People still fear for their jobs. So the pocket books are not opened wide up yet.

The optimism comes from media and government reports that things are getting "less worse". This information is based on adjusted and very pessimistic analyst estimates on earnings, job numbers, GDP, etc. It was very easy for companies to beat their numbers and very easy for unemployment numbers to be less than what was projected.

But what happens if retail numbers get worse than last month. Or unemployment goes up. Or GDP continues to stay in the -6% range? Fear will return and it will happen quickly, swiftly and violently.

Lets hope it doesn't happen but we are in an environment where it easily could.


As for the VIX, there are no signs that the market will turn around soon. It stays solidly below and away from the 20 day MA. Again, until it passes that, there is no reason to stick your neck out too far on the short side. So you have to stay low, buy on dips, sell on rises, and keep your head on a swivel.