Thursday, June 11, 2009

Surf's Up!!!!

Here we are at a point in the market which is very telling. We are riding a wave so don't try to swim out of it.

Given today's action, it is clear the market wants to go higher and will go higher if only because no one is willing to make it go down. We are hitting a breakout level on the S&P with the 20 day SMA passing the 200 day. Very bullish and confirms the recent move of the SPX above the 200 day. You can't be short here except for small positions on select items. The bulls have taken over and will likely cause a nice run. No need to get in the way.

I continue to play the market in a way that I am not exposed to U.S. individual companies. TBT, UNG, EEM and CAF are my primary holdings. I have not been able to get into a short position on KRE as my brokerage firm has none available. Lucky me. KRE should even have a run here which will present a better shorting opportunity.

The VIX is dropping below key resistance and thus, I have to believe will go lower, perhaps to 24 or 25. This opens the door for an S&P above 980. At that point, I will have to move to the sidelines on emerging markets EEM and CAF by buying puts on them in a defensive move. I will continue to hold TBT and UNG for a longer period and think they are great plays for the long haul.

As we approach 980, it is time to look for the really overvalued stuff. I think RIMM is overvalued now but I won't fight the tape. I want to see a peak of the market around 980 or more and then wait for technicals to start breaking down. When they do, it will probably break down fast. If you miss it, don't sweat it, there will be plenty of time to ride the slide down. Don't try to time to the top. Technicals will give clear indication of when it is time.

Even AXP which is down over a point today in a surging market is staying in a bullish technical pattern. AXP will see 15 by end of September but I will wait until this little run is over before re-entering a short position. I got out at 24 since it did not technically break down. AXP could see 30 before it breaks down but I suspect it will stay in the 25 range for the next two weeks even if the market surges.

Good luck and enjoy this wave up. It is a good opportunity to make money on the way up and will provide big opportunities to ride the wave down. Make sure you don't get caught in the under-current.

Tuesday, June 9, 2009

The Demise of Commercial Real Estate - How to Play it

The demise of commercial real estate will be slow, painful and certain. And many of us have played and/or held SRS, to a fault, anticipating this event. We all know it is coming, but we jumped in too early and held too long if you did not get out before early March. After the crash in October, commercial real estate has had a bumpy ride but IYR and the regional bank ETF, KRE have had a nice move up, while SRS has slowly and steadily fallen since early March, party due to decay.

BTW, the picture above was taken by me (sorry for the blurriness of my camera phone). Click on it to get a really good view of where commercial real estate is headed. I was driving down one of the busier roads in a city nearby and this strip mall caught my eye. It is completely empty. Nothing but weeds growing in the parking lot. Not even a For Lease sign in the front. All hope was given up on this little piece of commercial real estate. It has been there for 1 1/2 years and never had a single tenant.

OK, back to the purpose of this article. SRS may turn out to be a good play but as we all know, holding it long term in its depressed state will just lead to decay until it eventually does turn around.

Another way, and clearly a less risky way to play commercial real estate is to short the IYR ETF. This is obvious for anyone understanding ETF's and I won't go into a long explanation on why this is a safer play. But the problem is, technically, IYR does not appear to be a good short. See the chart below and notice that the 20 day MA is still well above the 50 day MA and the stock price is above the 20 day MA. Therefore, it is in a bullish trend. It may be peaking here, but too many traders have lost a lot of money trying to time the top. So you really need to wait for the technical indicators of first, the price go below the 20 day MA, and second, the 20 day MA crossing the 50 day MA.

So, for now, IYR is not a good short candidate.

But, I found this gem the other day and have been watching it and reading about it and thought, well dagammit (that's southern for, "gee wiz"), this may be a darn good way to play commercial real estate short. And tonight while listening to Bloomberg, an analyst described why this gem is a great way to short commercial real estate and as he described exactly what I had been pondering, it gave me goose bumps.

The play is to short KRE. KRE is the regional bank ETF and there is nothing with more exposure to commercial real estate as a percentage of their business than regional banks. The big banks have a lot of exposure to commercial real estate but they also have a wide variety of money making businesses to offset their CRE losses. But regionals do not. Some regionals were built on CRE. And as CRE crumbles, so will these regional banks. We have already seen this over the past couple of months but there will be more to come in the next 12-18 months.

Look at the chart below. KRE is already met my two criteria for clear indication of a short play. It crossed the 20 day MA and the 20 day MA has crossed the 50 day MA. A very very bearish indicator.

So rather than dealing with decay and time constraints, if you want a really good long term play to short CRE, short KRE or play some long term puts. Shorting IYR will be next but I will wait for technical signals before jumping on that.

VIX - The Story Teller

Once again the VIX bounced off of the 20 dma from last week and slid lower. I know you are tired of hearing it but clearly this is a key resistance and until it breaks this trend, the market will continue to edge higher. Yesterday and today both provided opportunity to shorts to get out of their positions and the VIX clearly showed that the market is settling in at current levels with very little selling pressure.

We should see the SPX move higher from here. Any move down is probably a head fake unless the VIX can pass the 31 mark. I don't think that will happen. You have to avoid being overly short here and you have to consider commodities and emerging markets right now as really good plays at least for the short term.

I think we are creating quite a powder keg. Once the VIX does pass the 20 dma, I think we will see a significant downward move in the market which may last a couple of months. Until then, you need to avoid over extending short positions. This may coincide with the EWT'ers who are pronouncing a P3 wave coming up and perhaps it is but the difference between what I am saying and what EWT'ers are saying is, I think this will be a move down based on fundamentals and technicals in an overpriced market. I also think we are currently in a very long term P3 wave that started in 2007 so I am looking at EWT as a much longer term wave structure as in years, rather than months.

I am keeping a close eye on Natural Gas. The chart is very interesting and it appears ready for a breakout to the up side but it needs an impetus. Why would natural gas go up when demand is low and supply is high? Well, that would be a great questions and fundamentals would say it should be low. But it is already low. So my view is that natural gas is the forgotten commodity that has some catching up to do.

Monday, June 8, 2009

VIX breakout?

VIX is currently at 31.86 which is well over its 20 dma which is 31.04. It has not closed over its 20 dma since March 30th. Is this just longs buying protection, or will this signify a breakout.

I would not draw to conclusions yet. I want to see it close above the 20 dma two days straight. Notice how it did indeed fend off the 28.80 resistance the other day and appears to be more than a dead cat bounce today. But have to watch into the close.