Saturday, May 23, 2009

Why I Would Sell Apple

I have held APPL long on and off over the past 10 years. I sold my shares that I had held for over a year back in March on its recent runup and missed out on some additional gains. I have been looking for a re-entry point but something happened this week that made me so mad at Apple that not only would I not buy APPL stock right now, I am thinking of shorting it.

In these economic times, people may be making purchases, but they are going to look for bargains. They are also going to keep monthly expenses at a minimum. Cut out the waste, keep the essentials.

Well, I was going to get my son an iPhone as a grade school graduation present. I actually went to order it. Had it picked out, entering all the paperwork, etc. But, the At&t rep dropped the bomb on me. He said we had to sign up for the non-optional $30/month data plan for the entire 2 year contract. Say what? This is on top of the $20/month unlimited texting plan. This is for a 14 year old???


I asked what we get for $30 and the key difference from that and the $10 data plan is the $30 plan includes enterprise email. My son doesn't even use email. It doesn't matter. Still costs $30 a month and it is not an option.

Fine, well, I do have an option. I just won't buy it. I bought an LG instead which is cooler than the iPhone and includes the touch screen and a slider keyboard and my son liked it better.

I have to believe this exclusive deal with At&t will really hurt Apple. The iPhone is a huge part of Apple's revenues. There are way too many options for people to choose from. The rep even said a lot of people are opting out of their iPhones now due to the $30/month and the iPhone really is not the best quality.

I think we will see Apple struggle in the upcoming quarters to meet revenue expectations based on the iPhone sales dropping, and I believe less people are willing to pay additional money for a Mac these days than they did even 3 months ago.

So, this is not based on fundamentals. It is based on market research, albeit a personal one.

Thursday, May 21, 2009

Communication Breakdown?

Looks like we have a breakdown in the market as the SPX goes below the 20 day MA for the first time since March 11th. This breaks a key resistance level but the market is not closed yet. A close below 885 and a confirmation on Friday would signal that it is safe to short again.

VIX is closing in on the 20 day MA also for the first time since mid-March. Fundamentals are overtaking hope.

Are You Ready?

Call me what you want. A perma-bear, a gloom-and-doomer, a realist. One thing I do practice is caution. I like to wait for some indications via TA that there is a clear direction for an equity or the market. We are not getting that right now. TA is not clearly telling us an up or down move. It is however leaning to a lower market in the near future. But it is not clear what happens given different circumstances.

When the market gets like this and TA and the VIX and other indicators are not telling us much, I revert back to fundamentals and instinct. And to this perma-bear, gloom-and-doomer, realist, we are on the verge of beginning a slide to not only test the lows, but go lower in a capitulative move. I base this on a slew of information.

  1. Unemployment is not slowing, at all. This is huge and something economists, the fed and the banks did not count on. A recovery was suppose to be starting but unemployment is not letting that happen and any recovery has to have a significant slowing unemployment number.
  2. Housing numbers as a whole, including new home starts, home sales, average home prices, are not improving. The entire plan by the fed was to get real estate prices to stabilize. It has not happened, mostly due to #1 above.
  3. The Fed came out and admitted we are heading to a deeper recession than first thought. This is not good news for the bank stress tests. Any company exposed to debt, including banks, credit cards, REITs are gonna be hurting in the next 6 months.
  4. The dollar is getting weaker every day. This works in a strong economy but it is very risky in a week economy, especially if the economy gets worse. It can cause a spiral effect of worsening economic conditions within the U.S.
  5. State governments are in deep trouble. The Fed is going to have to bail them out or millions of jobs will be lost and the recession will turn into a depression very quickly.
  6. World economies besides China are about to implode. China can be self-sufficient and have proven they can grow without relying on the world economy. But other countries can not. The IBF will have to focus on this disaster to avoid a world wide depression.

There are many more but I am tired and want to get to my dreams soon tonight hoping I am wrong and the economy will suddenly improve. But I don't see it.

I am sticking my neck out and saying the S&P will see 700 by Sept 1 and will test the lows by Nov 1. What I hope for is the market tests the lows and bounces off and the economy actually does pickup about that time. Then, you will see this realist be the biggest bull you have ever met. We need a double bottom and we need a true recovery to happen in order to justify investing anything in this market.

I have set out my strategy. I am and have been moving into china. ETF's and Mutual Funds focused on China growth and China banks. Why China and why play China long while going short the U.S. market? Well, it is sort of a hedge, but I believe China will go down much slower than U.S market and perhaps stay stable if U.S. market slides, but China will definitely go up much faster than U.S. market so in case I am wrong, China will save me.

I am also banking on natural gas to have a significant move up based on alternative fuels coming to the forefront and nat gas to be a backup to things like solar, water, wind energy and perhaps even where Detroit will go with the new line of cars in 3-4 years. Nat gas has taken a big hit this past year and it is cyclically ready to move back.

I will be playing certain leveraged long ETF's short via puts. I will also be playing some short ETFs and double leveraged short etf's with hedges via long term puts.

I will be betting against the dollar and betting on gold.

I will not be betting against treasuries as I have been. TBT has been very good to me but is a bit pricey right now and treasuries may make a bit of a comeback short term.

But, I will do this slowly and have already started, until I see some technical indicators validate what I believe we are about to see. You can call it P3 or whatever, but I call it, fundamentals and reality.

Wednesday, May 20, 2009

Break On Through To The Other Side

AXP has broken through resistance on the low said and through the 20 day MA. For you TA'ers, the 50 day MA is converging with the 20 day MA. Looks like a really good short opportunity hear and if the 20 day MA can fall through the 50, could hit my 17 target by mid-June.

Tuesday, May 19, 2009

Why NOT to Invest in Individual Stocks

I don't want to make it sound like you should never invest in an individual equity but doing so puts the odds against you. A stock can be manipulated so easily in this market. Sometimes legally, sometimes illegally. Rumors can make a stock rise or fall and you can get stuck in the middle. ETF's, Mutual Funds, even stocks which have a broader reach like CME or ICE is a better choice than an individual stock with limited breath.

I want to use Banks of America as the example for this particular article. While many traders and investors are buying, selling and shorting BAC stock, little did they know millions of shares were being created out of thin air, with no public knowledge, in order to generate "capital". They are allowed to do this due to their status as a retail bank covered by TARP. So the gov't gives them the green light to dilute shares without investor knowledge. To raise "capital".

Lets put yourself in 3 different situations. Lets say you are a long term investor in BAC. You are basing your investment on your belief BAC will return to profitability and return to levels BAC was before the Lehman collapse. You base your investment on valuation, meaning, P/E, and balance sheet. Then, you find out that millions of shares were flooding the market while you have ridden the stock down from 15 to 11, not knowing anything about the dilution. How does that make you feel? Well, too freaking bad sucker. You just got screwed and their ain't a damn thing you can do about it.

Now lets say you are a short term investor/trader and you bought BAC on May 10th around $13.50 and planned on selling it around $15 for a quick hit, but got stopped out at $12 a share because a week later you find out they were diluting your shares behind your back. How does that make you feel? Well too freaking bad dumb ass. You just got bitch-slapped by the gov't and the BAC BOD and their ain't nothin' you can do about it but take it on the chin and move on.

Now lets say you are day trader and you just sold 2000 shares of BAC short middle of the day today and after the close, you find out BAC has been raising $18B in "capital" behind your BAC and the market likes that causing BAC to gap up $2.50 in the morning causing you to get squeezed out. How does that make you feel? Well get with the program loser. You just got a financial wedgie and you are just gonna have to enjoy the feeling of cloth being rammed up your crack.

It happens all the time. The little guy will get screwed trading individual stocks. Don't bother. I can come up with dozens of stories like this. The game is being played on a field you are not invited to. You are an observer, not a player. So just observe.

A Day Full of Bad News

The day was riddled with bad news but the market with stood it all until the end. Housing data is bad, really bad. For it to go down after last months signals that it was turning around takes the wind completely out of the sales of the bulls. The market did not react, but it will. Home builders will be taking a dive soon. XHB and ITB are good shorts right now and are about to cross the 50 dma. You may have to stand inline though to get your short shares.

To top off the day, HP's numbers were not good. Just as the optimism for housing numbers were spoiled to open the day, HP's numbers were certain to beat expectations according to pretty much every analyst you heard from the last 2 days. Yet, they blew it. This will have rippling effects on the NASDAQ and will cause the DOW to surely shed a good amount tomorrow since HPQ is a Dow component.

AXP is another great short right now. Their announcement of 4000 more layoffs was attempted to be spun as good news by the media but the attempt failed and AXP is now about to fall below the 20 dma and its 20 and 50 dma's are starting to converge. I see AXP at around 17 in the not-so-distant future.

All this said, it is not time to throw all your chips into the short pot. The VIX remains well below the 20 dma with no signs of life. Until the S&P goes under 875 and the VIX goes above 35, caution and trading should prevail.

Housing Starts

Housing starts were lower than expected and let me tell you, many experts felt absolutely sure the number would blow away expectations.

But watch the market media ppt spin it that this was good because it means inventory is going lower. So let the market run on bad news again. We all know what that results in. If there is a gap up, time to short.

Lowe's: Inside the Numbers and Other Market Drivers

What happened today? Some say it was Lowe's numbers. I say that is BS. What happened today was Warren Buffet. The retail investor trusts everything he says and will throw money at anything he says. But before we get into that, lets look at Lowe's numbers.

More than 20% lower revenues. Yikes. But they beat earnings. Yay. But look at what they said. Lower numbers from contractors. Higher numbers from individuals. But those individuals buying lots of little things, like a gallon of paint, some lumber, garden items. Not major items. Home owners are doing their own work now. Not hiring contractors. Yet the market considers that good news. Good luck with that.

The numbers from Lowe's confirms the mess we are in. Less jobs, saving money by doing minor repairs yourself. Not good for the economy.

Then we have Mr. Buffet. News was he invested more in Wells and also more into S&P derivatives, meaning he is selling long term puts on the s&p index. Great move as long as market goes up from here for the next 15 years. but if the market crashes, Mr. Buffet may be putting his company and his reputation on the line. Very risky move and even he admitted years ago that derivatives are just too risky to use as an investment.

But the man knows what he is doing. So he doubled up on Wells when the stock was down. And now he is selling puts on the S&P. That does not mean the economy has recovered.

Today's action will probably be followed up by a move higher in the morning. May be a great opportunity to take profits and/or get some short positions.

Sunday, May 17, 2009

The Spiral Effect

I am sometimes accused of not listening or being absent minded. This is according to my friends and loved ones. They may say something to me and five minutes later, I will say something that clearly shows I did not hear them even though I was alert and even answered them back as though I heard them.

We all do it, but I know I do it, a lot. It was about 6 years ago that I analyzed why I do this and when. And I have reasoned that people that do this are not necessarily A.D.D., but instead A.E.D. Instead of Attention Deficit Disorder, for me it is Attention Excessive Disorder. I tend to see something or hear something and focus on that one thing and analyze as I continue to watch and observe, totally focused on the event in my sight. It may be two people arguing, a person walking a dog, or a person shopping.

This weekend, I found myself focusing on shoppers, and what they were shopping for and what was in their cart. I went to an electronics store and a clothing store for something I needed. I hate shopping and usually know exactly what I am looking for, grab it, and cash out. But I ended up spending hours shopping. Not just at these stores but other stores in the strip mall.

What I found was consistent and repeatable at every store except the book store. Any displays marked clearance or had big sales, there were many shoppers carefully going through it. Displays with no signs stood vacant.

What was in the shopping cards were small tickets items, necessities, and sale items. There was one exception and that was entertainment items. Movies, books, CD's. This is why the book store was different. There are plenty of clearance racks, but shoppers tended to purchase and shop for whatever books they were needing/wanting. Same with the other stores, movies, CD's, small TV's, video games, even video game hand-helds and consoles were selling. People will continue to spend money on entertainment.

OK, enough of this beating around the bush. My point is, the appetite for the retail buyer is no longer retail. It is wholesale. Shoppers are expecting to find bargains and since stores are offering merchandise at 50% or less, shoppers are expecting it now. Retail has gone out of style. And this will not turn around anytime soon. Retail shops are going to have to play cut throat and try to make sales anyway they can and that means going lower than the next shop. And shoppers will expect even lower prices. When price cutting stops, shoppers will stop buying except for necessities and entertainment.

This is not good for the economy.

The other thing I observed this weekend are neighbors helping neighbors. While more than 85% of workers are employed, many are helping their neighbors, family and friends financially to try to help them avoid losing their homes or just paying bills. This is putting more strain on the financially strong households by saving more of their money to help others rather than spending. This is also becoming a spiral effect that will result in lower retail sales and even more job losses.

This is not good for the economy.

We have to get out of this cycle. I don't have the answers. But the bottom line is unemployment and until the government focuses on unemployment stops focusing on housing prices and bank losses, the economy will continue to get worse. We are wasting trillions of dollars in areas that will not result in more jobs. It will take years for the government to figure it out the way they are handling the current crisis. Its a shame but it is true.


The fear has re-entered the market. I can feel it, you can feel it. But why is the VIX staying so low? I think the answer to that is, bulls seem to accept that we are going to have a "correction" so they are OK with the fall we are entering. Bears seem to be expecting it so they, of course, are fine.

The VIX will go up when the current retreat goes lower than bulls are expecting. That could happen when/if we go down below 875. I think bulls are expecting support at this level and going lower could result in a panic sell situation causing the market to run down to 820 with very little resistance.

But, since the VIX is still low, you still have to exercise caution. The market could reverse here and cause a short squeeze. I remain mostly short with plenty of cash on the side and waiting for the market to dip below 875 and the VIX to go above 36 to really jump on it. I will exit if the market advances above 900. But do your own DD and don't get over extended.