VIX Review

Gone but not Forgotten

2009-08-21T00:26:00.002-04:00

I apologize for slacking off on my writing time over the past two months but I went from no work to way too much work in a very short amount of time. Went from 10 hours a week of work to over 70 hours a week. While I do appreciate it, I do not have much time for the extra-curricular activities such as blogging. And even sadder, I have made 4 trades in the last 6 weeks. 4. That is less than the number of fingers on a hand. Sad, but at the same time, lost very little money to my broker. :)

Where are my thoughts these days? Still watching the VIX. While I can't see it ever getting back up in the 40-50 range in the next 6 or more years, I think we will be hover in the 25-30 range for a very long time which is a much higher number than historically it is used to. It means we should expect unexpected wild swings in the market coming up and it will all be news driven.

What was interesting about the fall in the market earlier this week is that there was not follow through. On Monday, I expected that perhaps some panic would hit the market and the fall under 990 would be followed soon by 980 and 970 rather quickly. Yet the market had a decent close on Monday considering the poor day and has been up 3 days straight since then. Resilient for sure.

I am bullish (yes, bullish) on energy. Energy stocks may be the leader for the next 12 months. Natural Gas is going to be one of the leaders in this sector long term. Probably right behind solar. I don't think Oil will be a leader due to reduced dependency on oil and less demand.

I think financials will be flat for the next 12 months at best. This should provide a very nice opportunity for traders to be short FAS and FAZ. Both should deteriorate over time and should provide pretty easy money.

Tech should outpace other industries which is not to say tech will be up, but it will be less down than other sectors.

As I told many for a long time, I think the presumption that the P2 wave was over or near over was just a wish and dream that was way too early. Primary waves take many many months if not years. a 6 month Primary wave was a total dream. That said, I still would not be long this market in general. But there are pockets out there to pick out.

I like Gold, Energy and I hate regional banks still (KRE). I think Tech will be dead money for awhile (until Holiday season).

OK, hopefully I will post more than once a month but I am seriously bogged down and haven't been keeping up with things lately.

SRS: Primed for a bounce

2009-08-06T12:58:00.002-04:00

I am not a big fan of SRS, especially for long term plays due to getting burned in the past but if there is ever a time to play SRS, now is it. The leveraging mechanisms for this ETF can cause a large percentage increase if there are any corrections in the market around REIT's and CRE exposed smaller financial institutions.

I have to pound the table on this one. SRS could see a 40% increase in the very short term. But don't hold it too long. You have to take your profits in these leveraged ETF's when you can. Don't get greedy.

The only leveraged ETF I can recommend that does not appear to have nearly the time decay as others is SDS. But again, not as a long term play.

Another great play right now would be to short or play puts on FAS. It has had quite a run up and any correction in financials will cause a pretty big correction in this triple leveraged ETF.

PULL!

2009-08-04T13:14:00.002-04:00

It's time. Finally a spot to pull the trigger on some short positions. I was stopped out early on shorting AmEx and KRE. Stayed out of the market other than playing TBT and UNG. But now is the time to enter short positions. I base this on technicals of charts as well as reality that the market is overbought in a difficult economy. I think we go back to test 930 before a bounce brings us back to the upper '900's. We will see.

On the positive front, I am running into people who are openly spending money. Installing a pool, buying cars, upgrading the house, etc. At the same time, many friends and family who have been out of work still are. Some have been out of work for more than 10 months. Sooner or later this will catch up the economy. I feel like this is a period of false hope and in the end, many will get burned by over spending or being complacent.

Tech is on fire. I won't touch it either way. It really needs to correct but I won't get in front of that train. You have to have some sort of inflation trade. TBT or GLD have got to be in your portfolio. I still like nat gas plays as a long term play but if you are not keeping up with what the gov't is trying to do with futures activity around energy, well, all I can say is playing UNG is risky at best since it may not be able to track to future prices anymore.

The Rumors of My Demise...

2009-07-29T11:11:00.002-04:00

No, I am not dead. Still hear, still kicking, but have been sitting and waiting, not chasing the run up and not trying to time the top. Instead, waiting for indications that the market is tiring or the market is clearly going higher.

I think we have had a decent signal over the last couple of days that the market is tired. Economists are coming out and saying, while beating earnings is good, top line numbers are not good and the potential for growth is low. We can not have a jobless recovery. Not only that, but the lack of growth in the U.S. will have adverse effects in emerging markets which has been the trendy thing to invest in and talk about.

The U.S. markets have always been the leading indicator of where things are headed in the short term. But perhaps that trend is changing. Last night, China's markets had a big correction. It was not due to the U.S. markets. It was due to China equities being over bought. The market corrected. And I have a feeling the U.S. markets will follow. Perhaps this is a new trend we will begin to see.

The other indicator is the SPX appears to show technical signs that a reversal is coming with a doji cross being formed yesterday. Well, not only that but it got way ahead of its 20 and 50 day ma's. We have to expect the SPX will touch the 20 day ma before it will bounce back and move higher so we are looking at an SPX in the 930 range then we will see what the bounce looks like.

The VIX is showing some strength albeit relative strength. It is still week and indicates that the market is settling down. Even the move up the last few days has been relative small, it is moving closer to its 20 and 50 day ma's which I expect it will pass without much resistance assuming there is a correction in the market.

The market is not only due for a move back, it is fundamentally necessary given the poor top line numbers in the earnings this quarter. Investors are betting on stocks which are showing negative growth but since they are beating the bottom line, I guess it gives them hope. We should see two more quarters of improved bottom line numbers only because last years numbers were so bad. But top line numbers have got to grow in order for stocks to justify their current lofty evaluations given the economic climate.

On the Bench

2009-07-23T11:37:00.003-04:00

You may have been wondering why I have not been posting much. Well, that is because I am basically on the sidelines waiting for the dust to settle. I do have a position in TBT, UNG and short KRE. Other than that, the waters are too dangerous here. Can't play short with the technicals clearly indicating a strong market right now. That will change, and soon, but we could see a 990 s&p before that happens.

May be time to move out some long positions from college funds and 401K's. Earnings reports are good on the bottom line but I am not impressed with top line numbers. Commercial RE will be the target after the dust settles. That means, short KRE, playing SRS on a trading basis, and trading some regional banks such as Regions, SunTrust, BB&T, etc.

VIX is very week, so another indication you can't put a lot on the short side right now. Too late to play long. good luck

The Spin on Dr. Death

2009-07-17T00:11:00.003-04:00

Did anyone catch the spin machines churning on the Nouriel Roubini comments today? I found it fascinating. Just before 2pm, CNBC reported that Roubini said the worst is behind us and we will have a recovery this year. The market clearly reacted to this news as it tracked up steadily into the close after the report.

And CNBC continued to bring up this news every 10 or 15 minutes. They could not let it go, using it as a catalyst for pumping the market.

But, around 5:20pm, CNBC had a breaking news story where they reported Roubini claims he did not say what was being reported and it was taken out of context. He continues to believe we will have a struggling economy and if there is a recovery, it will be slow and small.

What I found fascinating was all the CNBC talking heads who just a few minutes before were claiming how important Roubini's comments were, were now saying Roubini's comments/thoughts are insignificant. Kind of funny to watch the bulltard reporters back track everything they had said all day.

Now, to be fair, when Roubini's comments were reported just before 2pm, the bears were coming out and saying Roubini's comments were not important. And when the retractment report came out after 5pm, the bears came out in droves to say, Roubini really knows his stuff.

It's all a manipulation game and you have to expect the unexpected. The market will always lean toward optimism so spinning news to the optimistic side is an easy way to move the market up.

Notes:

And speaking of that, after the bell GOOG reported earnings and things were not as good as expected. But notice Jim Goldman's report on GOOG went through 4 minutes of positive comments and then mentioned in the last 10 seconds that they numbers were below expectation causing the stock to move down after hours. Goldman did his best being a spin master but it didn't work. Perhaps investors (even after-hours investors) are brighter than I give them.

AXP is defying gravity. I got stopped out early today and I was surprised it happened. But you gotta set stops and take your loses when you know you are beat.

I have not been reporting on the VIX lately because... well, not much to report other than it is retesting its recent lows. It could be a sign of stability in the market. I still think this is a head fake and when bulls start to really jump in, all hell will break loose.

Tech could save the day but eventually the housing price crash, commercial RE, unemployment and dismal retail will catch up and be reflected in stock prices across the board. Regional banks will crash before the end of the year. The big guys will survive due to gov't aid, but CIT Group shows us that the gov't is not interested in saving all of the banks.

Housing Costs are Higher???

2009-07-16T01:34:00.003-04:00

First, sorry for not posting as much. Very busy with projects at the house and determining my next career move which may be rejoining my old company who needs me back. A few options so its no sweat. I never even had to stand in an unemployment line.

Anyways, the market is really showing signs of strength based on earnings and ... economic data? Yes, it is gaining on economic data showing that the economy is improving, or so we are told. Lets take one piece of data. CPI. This gives an indication of weather we are moving into inflationary or deflationary territory or if things are stabilizing. This is a number that the government calculates based on a wide range of data points. One of them is housing or rent costs. Basically, how much does it cost you to live where you live. And according to the CPI data, housing costs went up in Q2 relative to Q2 2008??? Say what? Yep, even with house prices plummeting and everyone and their brothers are refi'ing, in order to reduce monthly payments, the government is telling us we are paying more for housing now than we were last year.

Talk about totally discrediting this once thought of important data point. This proves you can not trust any of the numbers coming from the government. This is nothing more than trying to stimulate the economy by cooking the books. It may work, but how can we trust anything that the government is telling us.

Another piece of data. The Fed released it's meeting notes and in them, it said they expect unemployment to reach 9.7% this year and 8.8% next year. Are they all living in a cave? we will hit 9.7% within a month and 10% by October. Next year, unemployment is not going down unless they stop counting those who have been unemployed for more than 6 months and are no longer eligible for unemployment.

So, let the market run. Tech is doing well and big banks should do well. Healthcare may do well. Outside of that, retail, real estate, consumer discretionary, are all going to get hit hard once the real data comes out. It may not be until August until that happens.

Remember, just a few days ago the market was in the 870 range and all the TV analysts who were targeting a move to 850 or lower are now saying 950 or higher. It all changes quickly in an environment like this. don't fall in love with a trend. In this market, the trend may be your enemy, not your friend.

Notes:

As pointed out TBT was a steal. Should continue to climb to the 55-56 range.

UNG is starting to look tasty again at these levels for a long term play. I like Oct and Dec calls. Nat Gas is at historic lows and could easily double by end of year.

I like AXP as a short position big time once this rally looses momentum. AXP is a dog and they can continue to cut jobs to offset loses and fool the investor but sooner or later, that will bite them.

Wow, look at SRS. I bought at 20.30, sold at 23.10 and bought back in today right at 19.00. Its a great play to swing with this one. Don't fall in love with it though as we have learned in the past. Take that 15% gain and be happy.

American Express Presents Opportunity

2009-07-14T11:03:00.002-04:00

I have not played AXP in awhile but was surprised to see yesterdays jump based on data/information that is, sketchy at best. AXP has presented a great opportunity here, technically, with the chart showing a clear sign that AXP needs to go down from here.

First, the 20 day MA is below the 50 day MA and the stock jumped past the 20 MA and touched the 50 MA. Stocks do not do this and maintain the gain. Especially stocks whose business relies on a sector that is unstable at best.

AXP should bounce off that 50 MA and back below the 20 MA within the next two days and continue its downward trend. In fact, it should steadily fall until it hits or goes below the lower Bollinger band line which is around 22 before it bounces back (if it does bounce back).

Bottom line... AXP. A great short right now.

Clarity Clouded by Caution

2009-07-13T10:34:00.002-04:00

As noted the last couple of weeks, this drop in the market is as expected, is needed and makes perfect fundamentally as well as technical sense. There is a breakdown in technicals which clearly show the market has a fault line which could crack at any moment. Even if it doesn't, the market should see the lower 800's soon enough.

Sure it all seems clear when you look at the charts for SPX, NYSE, SSO, SKF, SRS, etc. etc. etc. But whenever things become complacent and seems too easy, you should be cautious. This is a game and the game makers always try to make it as difficult as possible. So we may see a bit of a jump in the market coming up especially this week with bank earnings coming out this week and next. Good reports from banks could lift the market (a.k.a. prop it up again) with false hope. This could cause a short squeeze and thus a higher market going into August.

So use some caution here. I have to stay leaning short but with plenty of leverage and money on the side to take advantage of any significant move up. We will see the low 800's but it is up to the game makers and PPT to decide how long they can keep things propped up.

Some Thoughts....

GOOG could be a great short if the market makes another grand move up. Keep an eye on it. More competition coming into the search and online ad business.

BTW, has anyone noticed TBT? Wow. Go figure. Talk about a great buy for a longer term hold (3 months).

I did my part this week in helping the economy. I went to Best Buy to price out some home theater equipment. These on-floor sales guys are hurting. They really are becoming aggressive. Once I told them I would not be buying today, they tried to get me to talk with their manager. Sorry guys. First, this is not a car dealership. Second, I don't buy retail. I just shop at retail locations and then find it online for a lot less.

Anyway, after leaving, I did my online shopping and found a couple of killer deals on a Yamaha receiver and on some Klipsch speakers. Well, I thought I would go back to Best Buy and give them one shot at matching these deals. After about 10-15 minutes and some time from the manager, they not only met the prices, the slightly beat them. Their point... They have to move inventory and they want me and my friends coming back.

So, kudos to the bad economy in letting me get the home theater sound system I wanted for a lot less than I thought. Everyone should be looking for killer deals right now, not only to benefit themselves, but to help jump-start the economy because God only knows Obama's stimulus is not going to do it.

If This is a Head Fake, Call Me Fooled

2009-07-10T10:42:00.002-04:00

As I have been writing, technicals are clearly breaking down across the board. Things like Simon Property Group (SPG), American Express (AXP), KRE, SPX, you name it, all are showing signs of breakdown.

On the flip side, the short and ultrashort ETF technicals are showing clear signs of breaking out. That includes SKF, SDS, SRS, SZK, even the emerging markets ultrashort ETF, EEV. Analysts have been jumping all over the trendy emerging markets plays but they are getting beat up pretty good and that may very well continue.

All technicals for most equities and long etf's are showing clear signs of a breakdown. If this is a head fake, I am one of the fooled. This will not be a straight move down but a long zig zag move steadily down near 800. As we get closer to 800, I think we will see more volatility and depending on the economic conditions at that time, we could go down further or retrace most, if not all of the losses.

Technicals Continue to Fall Apart

2009-07-08T12:38:00.002-04:00

All the stars are aligning and pointing to a potential market collapse. I find it interesting the timing of these technical breakdowns happening just before earnings season hits full stride. I have to believe that it is a sign of things to come.

The VIX is going through the 20 day ma with no problems. Today it broke through the 50 day ma without flinching. A clear bearish signal that this is not just protection by bulls, but purchases of options at higher premiums, thus indicating some rough rodes ahead.
The SPX fell through all moving averages including the 200 day ma.
The SPX 20 day ma is crossing the 50 day ma and the 200 day ma
For you SRS fans, SRS has broken through the 50 day ma with conviction today. Not only that, SPG has had a severe technical breakdown crossing all ma's and looks like the 20 and 50 day ma's are breaking through the 200 day ma. All very bearish for SPG which is the only REIT that may be standing in 12 months.

We have so much confirmation now that we are entering the next leg of the bear market, that any moves up in the market will be short lived. We are headed to the low 800's for sure. The question is, will financials lead, follow or not participate? Will energy and tech and retail lead us down?

shorting SDS is probably the safest play here but SRS sure looks good and SKF may be worth a look for a short term trade here and there. Energy will rebound but not until technicals give a better picture. Tech will be the first to rebound from this next leg down and will probably outperform other areas rather easily. I would rather be overweight in tech than in financials for sure. Therefore, if I were to short, it has to be the overall market (SDS) or financials (SKF, SRS, short KRE)

On the Verge of a Major Breakdown

2009-07-07T12:52:00.003-04:00

I know I am seen as a perma-bear and perhaps I tend to lean to the bearish side when looking at charts and options actions but looking at all the key indicators, it sure does look like we are on the verge of a major breakdown in the market.

The VIX has shown recently it is no longer afraid of the 20 day MA and crosses that residence like it is no resistance at all.
The VIX is now starting to sniff the 50 day MA and appears to be building strength to cross that resistance in the not so distant future.
The S&P has bounced off of the 887 key resistance yesterday and is now messing with it again. I suspect 887 will hold once again and bounce but the next time it will not. The next stop after 887 is around 850 but that resistance is not strong and the gap to 810 should get filled.

Also looking at SRS, it appears to be in ready for a breakout. This bodes well for shorting KRE and IYR.

UNG (along with oil) had a technical breakdown late last week. Better days will come for UNG but not today. Not until it can break back through the 20 day MA which may not be until late July. Even so, I will hold onto my Oct. options since they are quite cheap at this time.

I think the two key areas to be effected by the breakdown of the market will be financials and tech. Both have had great runs this year but now they have to show true earnings and not beating watered down earnings. I think they will struggle in this regard and will lead the market down to 810 or lower.

The credit crunch is starting to take effect. Credit defaults are rising much faster than anticipated. In fact, many experts had been expecting not only a slow down, but a reversal in credit defaults in Q3. Now we are seeing that there is no reversal in sight. For this, I think AmEx is going to be a great short again, just on the heals of yesterdays upgrade. BAC will also get hit hard by the credit crunch. Should also be a good short over the next few months.

And for those of you fortunate enough to be employed, get back to work and be productive to help get this economy going again. Its slackers like you who read financial blogs during the day which drag down the economy. :) Well, OK, maybe it has something to do with the mortgage crisis, credit defaults and unemployment. But you get the picture.

Rested and Relaxed

2009-07-06T00:23:00.004-04:00

After a few days away from the real world and coming back to focus on the market, I find the charts rather interesting and seemingly on the verge of a technical breakdown. The S&P crossed the 50 day MA and it appears imminent that the 20 ma will soon cross the 50 ma on the down side which could signify a major downturn in the market.

887 is the key support level that must hold. The VIX is showing weakness for the most part but it has made a nice run since the 25 area and is only a point from crossing the 20 ma. So I want to see that cross and see 887 be broken before feeling more comfortable with short positions.

I feel strongly that regional banks are going to roll over. Shorting KRE just seems like a no brainer here which probably means I am dead wrong. It just seems too easy. SRS may be a good short term play here as well but not as solid as shorting KRE. But it has more potential for larger gains while shorting KRE has limited opportunities.

That's all for now. I am still in vacation mode so can't spend too much time on free thoughts. :)

Vacation Time

2009-06-30T11:09:00.003-04:00

Sorry I have not had much time to post here. Two reasons though. One, on vacation. Second, there is not really any news around the market to report and the status quo stands... We are in a trading range until we hit the meat of earnings season. We are in a topping process that will eventually give away to bears but when that happens is hard to say. The easiest thing to say is when market gets in the 925 range, it is time to sell or go short. When it gets in the 900 range, cover or perhaps buy a few things but remember, we are topping out so you don't want too many eggs in the long basket.

Good luck. Headed out to the boat now. I will look for a job later. My mind is not into it yet.

Zig When They Zag

2009-06-26T00:16:00.002-04:00

If you sit and listen to financial radio, or watch the talking heads on TV, when the market has a down day, they all say we are headed lower and you should be taking profits. When the market goes higher they all pound the table saying the market is going to explode. What would be fun is to tape their shows and play them back the next day instead of watching/listening the live shows for that day. They might get it right.

We are in a trading range and nothing else and you have to play it that way. Like the Stooges, you have to Zig when they Zag and you have to Zag when they Zig. It is hard to stay disciplined and do it but that is how the market is being run.

Today should be an opportunity to sell into strength. when we get back down to 895, an opportunity to cover shorts or buy into weekness. This will continue until we get seriously into earnings season and that will dictate which direction we go.

Why Some Technicians Are Confused

2009-06-24T23:14:00.002-04:00

I am a bit surprised by the confusion I see some of the market technicians having. Both professional and amateur. They are tending to change their predicted direction of the market daily and getting it wrong almost every day. Not all of them, but quite a few.

What I find is, we are seeing the market becoming more of a short term play by retail and professional investors and thus, technicians are using hourly and even minute charts to track out their trend lines and waves and analysis.

I am not a professional, but stick an hourly chart in front of me and you may as well give me a fork to eat tomato soup. Its a tool, but it isn't really helpful.

Looking at any daily or weekly chart, there is enough evidence that the market is exhausted. But it does not mean we are headed down from here. What it means is, on every move up, it just creates a better shorting opportunity. You have to sell on any strength and we are probably going to stay in a 890-925 range until earnings season so don't expect a big move before then.

The VIX is bouncing above and below the 20 ma and I think think is signaling that the mountain is going to blow but when? Wouldn't we all like to know...

We Won't Be Fooled Again

2009-06-23T00:49:00.004-04:00

Don't assume this is a big move down. This is a perfect scenario for the market makers to pull in bears who think this is going to be a big move down. We are at some key resistance/support levels on the market and in key sectors. The market can go either way. Better off waiting for more data and more confirmation.

I believe we are in a trading range which has just widened and you have to play the market that way. Buy on big dips, sell on big moves up. Could be a fun time ahead for traders.

Whiplash

2009-06-22T00:54:00.002-04:00

The VIX seemed to be on its way for a nice run above the 20 dma mid last week as it vaulted and confirmed the move on Tuesday. But a slide Wednesday thru Friday put it right back to its lower resistance line of 28. A break of this line would appear to tell us the market is stabalizing or going higher, not lower.

It is very difficult to determine the direction of this market right now so caution has to be taken. I continue to stay away from U.S. securities. I like emergining markets very much and I really like Nat Gas via UNG for a longer term play.

TBT seems like a nice buying opportunity here. There is plenty of support at the 51-52 level so downward risk is very low and upward potential is very good.

KRE has a pretty clear bearish looking chart. I am playing it short but with stops at 21. If it were to hit that number, the 20 dma may re-cross the 50 dma and i don't want to play that game. But I suspect KRE is a pretty good short here but maybe stabalize in the short term. 3 months it should see 15 or lower.

If you want to believe the hype of the smart phones, go right ahead. I really wanted to short RIMM last week due to its incredible run creating a bubble. But I just did not have the guts since it is a risky play to get in the way of a runaway train. I think RIMM and APPL are both headed for a correction. Apple wants you to believe there is a mad rush for the 3Gs and there is good sales, but it is not in the order of magnitude that the stock price would indicate. I went to an AT&T store today about upgrading one of our phones. I asked about the iPhone sales and they said they are good but it is not nearly as powerful as the intro of the 3G. Just one data point but I have heard the same about other stores.

Watch the dollar. The dollar and energy will drive this market one way or the other. I believe a weeker dollar will be good for TBT and UNG and perhaps not so good for the market.

Happy Fathers day and good luck in this very difficult market.

Don't Light That Match!

2009-06-17T10:36:00.002-04:00

WARNING!!! FLAMMABLE MATERIAL BEING TRANSPORTED!

Natural Gas is about to explode. Demand is low, supplies are high, so why would nat gas go higher? Two things. The dollar and money coming out of the market as it goes down may move to commodities and energy as an inflation play. It makes no fundamental sense, but it makes perfect technical sense. Also making perfect technical sense is the chart on UNG. It has clearly shown a bottoming pattern and the beginning of an upward curve. It also has passed key resistance and is bound for the 200 dma.

KRE is doing what it should be doing in times of higher interest rates. But this should just be the beginning. Interest rates have been rising for weeks but KRE is just now hitting the tip of the iceberg. KRE will be at 15 before the end of July if not sooner. Sept 15 puts look really good here.

SRS is starting to look really good again. Breaking the 20 dma resistance and onward to the 50 dma which is running close with the 20 dma. we should see a cross of the 50 dma by the 20 dma which could mean a move to the 200 dma soon after. but I still hesitate to move anything more into SRS since shorting KRE seems to be a better and safer play.

The VIX has confirmed it wants to stay above the 20 dma. I hesitate to say it but this sure does feel like a real reversal to me, not a fake one. So many technical indicators are screaming that the bull run is over. How far do you want to take it so early? Thats up to you.

The One Thing Obama Could Not Control

2009-06-16T12:52:00.002-04:00

The Obama administration has done a noble job of trying to control the market via trying to show that the economy was getting better with marginal data. They are hiding the mess of the banking disaster, they are trying to make it sound like unemployment is under control, they are pumping money all over wall street. And all have worked in propping up the market.

The one thing Obama does not have control over is oil. And that is what is taking the wind out of any sails the economy has. With oil and gas prices up, it leads to less spending by individuals and inflation. The combination of the too can create a devastating consequence on the market and on the economy.

People will still buy their iPhones and Blackberry's because communication is still the essential means of growth, relationships and even survival. But outside of that and some entertainment, individuals are not going to be spending much for the remainder of the year until inflation is in check and unemployment reverses direction.

And oil has a lot to do with all of it, unfortunately.

Could It Be?

2009-06-16T12:46:00.002-04:00

It may very well could be. The VIX closed above the 20 dma yesterday and today there is a very good chance of it confirming a change in market sentiment if it can have an up day. This, along with the SPX chart showing a breakdown by breaking through the 20 dma and the 200 dma just 6 pts away. A break of 909 could signify a major retracement.

But this could also be a head fake trying to luer the bears back in as it marches up. If not, then I find it interesting the rally came to a fizzle instead of a bang, much like the drop to 666 where everyone expected a big bang to signify the end of the downward movement. to me, that is just telling us that this is indeed a bear market and the lows will be tested and probably broken this year.

But lets wait and see before we get carried away. I am still playing it cautious with things like TBT, EEM and CAF, with just a little bit of SRS. I am short KRE and AXP.

Watch the dollar. I have to believe on any significant move down in the market, it is probably just following the dollar moving down and oil moving up

Unemployment? Count Me In!!!

2009-06-14T22:25:00.002-04:00

So I hear the unemployment numbers are looking good. Only lost about 400K more jobs. Only at 9.4% unemployment. Things are looking better. I heard it from CNBC, I read it on the Internet, and Mr. Obama even said it.

Well, as far as the unemployment number goes, count me in. I was just notified this weekend that our company is going to do a re-organization and unfortunately, as a senior level person, I am the odd man out due to seniority in the company. Yep, the unemployment bug got me. Bitter? Maybe. Surprised? Not really.

You see, Mr. Obama has virtually put a halt to our business. With his threats of health care insurance reform and nationalizing health care and health care insurance, our business fell off the face of the earth. Thank you Mr. Obama for this wonderful job creation stimulus package. I feel so lucky to have you as our president, creating jobs. I guess it doesn't apply to everyone, including the 15 million unemployed and underemployed. But for the 400K jobs he is going to create, I am sure they are right around the corner.

Well, I guess it gives me more time to write blogs. I will keep you all posted on my progress and how long the lines are once severance is over. In the mean time, keep believing what you want to believe about green shoots and a new bull market. For this bear, it is back to pounding the concrete in search of the next great adventure.

Surf's Up!!!!

2009-06-11T15:08:00.004-04:00

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.

The Demise of Commercial Real Estate - How to Play it

2009-06-09T23:20:00.009-04:00

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

2009-06-09T19:47:00.003-04:00

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.

VIX breakout?

2009-06-08T12:41:00.002-04:00

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.

SRS vs. Long Term Rates

2009-06-05T13:13:00.002-04:00

I wanted to overlay long term interest rates with SRS. You can see that SRS tends to react to interest rates when interest rates make a significant move. June shows a big spike in rates. Will SRS follow?

Lets Talk SRS

2009-06-05T11:39:00.003-04:00

I have not really discussed SRS much since technicals really are not giving us any indication that it has life. But, I think now is the time to start putting a bit into the long term portfolio, despite the so-called decay syndrome.

It may not do much for the next month or two or three, but there is a big red flag out there right now that may be a leading indicator that REITs are headed for troubled waters.

Interest rates. Interest rates are rising quickly and to the point that refinancing and getting loans in general are less attractive. REITs had their day with the fed's move of purchasing treasuries and driving down long term rates to a very attractive and affordable 4.50% range. Now they are well above 5.50% and pushing 5.75%.

I believe the drop in interest rates to 4.50% gave REITs and commercial real estate some hope. But as I always mention, every action has an equal and opposite reaction and with rates now back to more reasonable levels, the reaction may be that REITs really struggle in the months to come.

That said, the gov't is standing by to try to help bailout CRE if necessary. So far it has not been necessary because of low interest rates. And they can't ask congress for another trillion dollars to bail them out. So they have to wait to really insure banks are stable before offering help in CRE. Therefore, before jumping "all-in" on SRS, always keep that in mind.

My suggestion is, wait until SRS crosses its 20 day moving average before jumping in much. Whether you hit the bottom at 17 or at 20 really won't matter much if SRS gets back to more historical levels of 75-120. Notice the chart above. Decay really is not as big of a factor with SRS. It is being impacted dramatically by low Q1 interest rates which are now gone. I suspect we will re-enter the 75-120 range by end of Q3 as 5.75% interest rates take effect.

SRS is not dead, it is just hibernating and interest rates may be the ticket for its return. The CRE market is totally irrational now but it has been hiding behind the low interest rates as its safe haven. It can't do that any longer and thus cash flows will be shrinking, and quickly once the **it hits the fan.

A VIX Chart Of Interest

2009-06-04T17:49:00.002-04:00

As I have mentioned many times, I am not a chartists but I do watch charts closely. I found this interesting and hacked it up to show what I am seeing.

If the VIX just completed a 5 wave move down, then resistance at 28.80 will hold and the upper trend line will be broken soon, followed by the 20 dma. I would be surprised if the 28.80 resistance is broken. If it is, the SPX will see 1000. Otherwise, we may be in for a correction that so many have been looking for.

The VIX Pattern Continues... Or Does It?

2009-06-04T17:23:00.002-04:00

As expected, the VIX continued its pattern of bouncing off of the 20 dma as the market has rebounded each and every time an attempt at the VIX 20 dma has happened since March 9th. Typically, after the VIX touches the 20 dma, within a few days the VIX hits another new 3 month low.

I don't expect that trend to stop here. I think the VIX is primed to dip below the 28.80 mark perhaps as early as tomorrow since the VIX is typically week on Fridays especially in a market rally.

But, if the VIX can hold 28.80 and make another run at the 20 dma, I think it will finally cross it and perhaps signal the end of the 3 month bear market rally. But until that happens, I will not make a play anticipating it.

I continue to stay heavy on energy, china and gold. Also going to run with TBT as a long term play. I really really really want to short something but until the VIX gives a signal or until the SPX gives a signal with a convergence of its 20 and 50 dma, I will continue to stay out of general U.S. company equities.

Dead Cats and Such

2009-06-03T18:27:00.002-04:00

If you are thinking this is the beginning of a big decline, guess again. This is not it. Today's action was clearly just a normal pull back (reverse dead cat bounce) to an otherwise upward market. The VIX continues to bounce off of the continuing declining 20 dma just as it did today. The VIX at least touched it but bounced right off telling us the market is still not ready for a significant correction.

The SPX also is technically not showing signs it is totally exhausted. So you can be locked and loaded for bear here. You have to let the market continue its strength until the technicals clearly tell us a sell off is here

I hope you all were able to scalp off 10% on SKF or SRS today from Mondays prices where I mentioned a 10% gain was there for you. I took mine as soon as the VIX bounced off the 20dma and knew it was time to take profits.

UNG slide today which presented an interesting opportunity on July and Oct calls. I like the July 15's and the Oct 20's. I think UNG is going to be stellar this summer lets see.

Beware the VIX

2009-06-03T12:20:00.004-04:00

The VIX is once again kissing the 20 dma. Every time it has done this in the current 3 month rally, it has fallen back. Nothing feels different right now than it has for 3 months so you have to expect the same will happen. Keep an eye on 31.60 for the VIX, if we don't pass this by end of day, you have to assume the VIX will bounce back down. If we do pass this above 32, perhaps this is the signal.

And isn't it interesting to see the terrible numbers on mortgages and the media spins it as though, we really should have known this was coming so it should not be a surprise. Well, guess what, it is a surprise and it will be damaging to banks. Refi's are way down but so are approved mortgages on houses. Thus, we will see continued declines in home prices, more foreclosures and less new homes being built.

Green shoot my ass.

The Pinnacle of Technicals

2009-06-03T00:33:00.002-04:00

I am not a chartist in that I don't create charts and I don't have any fancy subscriptions to create charts. But I do pay very close attention to charts.

What I am seeing for so many indices, stocks, ETFs is that they appear to be on the verge of a technical reversal. The SPX has the 20 and 50 day MA's converging and the SPX itself, on any down move, will likely fall below the 20 dma and soon after the 50 dma. It may not happen in the next week or so, but it is close.

Look at SRS and SKF. All are tracking with the 20 dma and on any moves up, will cross and likely cause the 20 dma's to cross the 50 dma's.

Look at UNG. It is my current favorite because it has already crossed critical technical indicators. The price has crossed both the 20 and 50 dma's, and the 20 dma has crossed the 50 dma.

The VIX is just tracking below the 20 dma with the 50 not too far away. A cross the of the 20dma will be followed by the cross of the 50, yada yada yada...

And my other favorite is AXP. It is trying hard to break through its 20 dma and soon after the 50 dma, along with the same crossing of the 20 and 60 dma's.

Is this coincidence? Or are all of these on the verge of a reversal? Don't jump too soon because this trend could continue in a consolidation phase for awhile longer before the technicals show a clear breakout.

Simon Property Group (SPG) : The next WorldCom?

2009-06-02T14:22:00.003-04:00

This may be a conspiracy theory but the more I read about Simon Property Group, the more things do not add up. As a REIT, they base their earnings on Funds From Operations (FFO) such as rental income, royalties, sale of properties, etc., rather than earnings per share.

As you look at SPG's earnings reports and history, it is quite amazing how their FFO grows rather dramatically each quarter despite other REIT's struggling to stay in business. SPG's business model is not much different. They own similar properties, particularly malls and super-malls. They are exposed to the same toxic assets as the others. They have similar short and long term debt issues as the others.

Yet, their FFO grows while others fall. General Growth Properties (GGP) went bankrupt in April as it was obvious they could not keep up with upcoming debt maturities. there were no lines of credit available to them to refinance their debt. There was not enough equity to sell more shares to generate capital to pay off the debt.

For SPG, they were able to tap into more credit lines and also offer a secondary offering on the market due to the stock price so high based on FFO performance.

But is SPG really performing? Are they really generating higher rental income in the worst recession we have seen in our lifetime? Are they somehow able to reduce operation costs that much to offset lower rental income? Are their commercial properties really not losing value?

This goes against not only what experts are saying about commercial real estate, but also against the actions of SPG itself.

They issued a secondary offering which diluted their shares by close to 20% in order to raise enough cash to pay off some due short term debt.
They reduced their dividends from .90 to .60. But not only that, it is also no longer a cash dividend but a dividend in mostly stock but a little bit of cash, further diluting their shares by adding to the float.
Yet despite these actions, they claim to have record FFO and earnings.

Why does a company have to dilute stock if they have record growth in earnings? It is because their debt far outweighs their capital. SPG will have to have blow out earnings for many quarters to come in order to manage the growing debt and reduced values of properties. To do this, they have to show they are reducing costs and growing revenues from rents. And you can't tell me they are increasing rent growth.

This smells very much like a cooking of the books. I suspect SPG, if they continue to show 10% growth in FFO each quarter, has to be a red flag to the SEC. I am not long or short SPG although I do trade SRS once in awhile but I think SPG is a stock to keep your eye on for a possible WorldCom type collapse in not so distant future.

The other issue with SPG is by reducing the dividend and moving it mostly to stock, it may create a bubble for SPG. As the stock goes up more investors may be diving in buying SPG wanting the stock dividend. This may be what we are seeing today. At the same time, insiders will be selling their shares to the company perhaps to payout the stock dividends. But in months to come, if SPG even falls 10% or more, it can create a spiral effect as investors heavy in SPG may opt out since their stock dividends are getting smaller and more risky. A stock like this will fall very quickly without regard to resistance levels.

SRS and SKF a Good Short Term Play?

2009-06-02T09:10:00.002-04:00

First, the VIX continues its trend of teasing the 20 dma and then bouncing off. Today it opens less than 2 pts from the 20 dma and would seem primed to cross it as the market is clearly overbought. But the bulls seem to be clearly in control or bears just don't have it in them. You have to continue to play that trend and I think the VIX will likely move up close to a point today or tomorrow to once again sniff the 20 dma and then drop off once again.

So, from that, I think SRS and SKF could be good short term 10% plays today/tomorrow. But you can't play them longer term than that until the VIX does cross the 20 dma (yeah you are sick of me saying that but its just the way it is).

I took profits yesterday on UNG but plan a re-entry today. UNG may be technically breaking out and you really need to look at this ETF. It broke the 20 dma yesterday and the 20 dma broke the 50 dma late last week. Two very bullish indicators.

China and emerging markets continue to roll and if you missed it, you didn't miss it. These are good longer term plays that you have to have somewhere in your long term portfolio. The hell with the U.S. equities. They will underperform emerging markets and especially China.

I think Gold is due for a pullback here but not a big one. Perhaps fill a gap to 940 but for those playing GLL expecting a collapse in Gold, you are swimming upstream.

Bad data will come out today in the form of housing data and auto data. The question isn't whether the data is bad. The question is, how bad and how will the media spin it and how will market react. I will buy SRS at the open and watch for SRS to spike after 10am and if it does, it would be a good selling point or a point to hedge with puts or covered calls.

Why Not to Read Too Much Into VIX on Big Market Up Day

2009-06-01T11:13:00.003-04:00

Today the market is making a pretty significant move, yet the VIX is up. Many will read that as a sign the move is a fake move and thus, it is time to move heavy into shorting stocks.

Don't read too much into the VIX moving up on a Monday when the market is moving up. The VIX is just showing that there is instability in the market making such a quick move and will probably have some sort of correction soon. The problem is, that correction could be small.

I do agree that longs should sell into this strength and the VIX is indicating this. But it does not mean it is time to short stocks or take a full bear stance. As I have been pounding and pounding, DO NOT take a big short stance until the VIX crosses the 20 dma. I can't stress this enough and so many people have been going all in on the short side expecting the market has topped. It is fine to play some on the short side and I have been all along but until the VIX gives a clear indicator that the sentiment has changed, you just can't over extend.

2 key indicators that the market is going to take a lot of the gains back...

1. The VIX passes the 20 dma for 2 days straight
2. the SPX 20 dma passes the 50 dma on the negative side.

Those two are sure TA signs that the market sentiment has changed. Until then, you have to sell into rallies and buy on dips.

For me, I am selling the small long positions I have as I write and also buying SDS looking for a 10% gain and then exit.

Hitting the Ceiling?

2009-06-01T09:00:00.002-04:00

Here we are. The day we knew would come eventually and the day many have said the S&P was magnetized to. We will hit the 200 day MA today on the S&P. Theoretically, and the odds are that it will bounce off this number at least the first time since a 200 day MA is a strong resistance especially when it has been below the 200 dma for so long.

But the VIX remains solidly below it's 20 dma which would indicate the market is still not ready for a real correction.

So, we stay in a trading market where longs have to take profits on moves up and shorts have to take profits on moves down and I will continue to do this until the VIX breaks its 20 dma.

I have really moved mostly out of the U.S. equities and focused on energy, nat. gas, gold, china, and emerging markets. I exited my TBT positions early last week and looking to re-enter those this week at 52 or even lower.

Financials continue to be way to volatile and a completely unknown commodity. Some experts say the banks will have record earnings, others say the toxic assets (that no one is talking about) will eat them from within.

Long term, the market will have a huge correction and I still believe it will be this summer, starting in June. Unless you believe markets go straight up with unemployment at record levels, you can't bet on the markets continuing their march.

Nat Gas And Other Ways To Play a Neutral Market

2009-05-28T19:46:00.003-04:00

While I do believe we are at the cusp of a large move down in the market over the next 4 months, there is no guarantees on where the market is headed. Playing sectors is basically playing the market and playing individual stocks can be frustrating.

But there are some plays I have been pointing out that really should be considered. First and foremost is Natural Gas. UNG is a really good way to play it and it just seems like it is time for Natural Gas. If you are a chartist, you have to absolutely love UNG's chart. The 20 day and 50 day MA's are running in parallel and the price of UNG is at the cusp (I have used cusp twice now) of crossing both at the same time which would represent a very bullish trend and likely to head to the 200 day MA from there.

Also notice how UNG does not follow the market so if you are not sure where the market is going, UNG is a great play both for long term and for day trading. UNG has lagged OIL and other energy components and historically lags. So I am loving UNG right now especially if it can get above 15.

Another play as I mentioned over the last few weeks is TBT which is the short treasury ETF. As I mentioned just the other day, TBT should be exhausted right now and treasuries will probably level out for awhile so TBT is probably not a great play at current levels. A good entry is probably around 51 which is going to be a key resistance.

GLD of course is a good market neutral play and is more of an inflation and anti-dollar play. I think GLD is a bit pricey right now and no sense chasing. Look for a pull back of about 5% for a re-entry. Gold at 900/oz is going to be a good entry for buying bullion and GLD. I have been selling some of my bullion on ebay recently. It has been perhaps one of my best investments since January.

Two other ETF's which should move regardless of the market are EEM and CAF. EEM is an emerging markets ETF and has performed extremely well for me in my trading account as well as my college accounts and 401K. It should continue its steady climb and is a great anti-dollar trade as well.

CAF is a bit more risky but you have to believe China banks are in better shape with the slide of the dollar and the fact China stayed away from the toxic debt other countries seemed to race each other to get into. China must, and will lead the world economy out of the mess we are in and the China banks will be at the forefront.

The VIX stayed within range of the 20 dma and perhaps is finally primed to cross it. Todays bounce in the market did not erase yesterdays losses so I expect the market to move lower on Friday and follow up on Monday. I believe on Monday the VIX finally crosses the 20 dma and we begin in earnest the move below 875.

Knock, Knock, Knockin' on Heavens Door

2009-05-27T21:43:00.003-04:00

Here we are. At the door step of the correction we have been expecting and waiting for. SPX is near many technical indicators and support levels. VIX is knocking at the door of the 20 dma. If the SPX can fall to 875 or lower, and the VIX break through that elusive 20 dma, we are headed for a fall to the 820 or lower area.

But every time we have come to this place, the market has rebounded. So until it happens, I am not convinced we are going lower. How many times can the market bounce off of this? Lets see over the next couple of days. I suspect we fall through tomorrow based on housing, unemployment data and treasury auctions. I think the house of cards is about to fall and it will fall first in financials.

If support holds, financials will rebound hard so that is why financials are so risky here. Better stay nimble but I would not set stops very close because it will be quite a battle and stops will be knocked out too soon.

Post Op Analysis

2009-05-27T09:06:00.002-04:00

Sorry I have not been posting much. Busy weekend and I had surgery on my elbow yesterday so I was pretty much out of it all day and night.

The VIX had some wild swings yesterday which at least shows it has life and will cross the 20 dma once the s&p falls below the 875 resistance. Those 2 things should happen in unison.

Today, TA tells us we may go to 914 before this run by the bulls ends and we head back down. The real data (unemployment, housing, credit debt) still shows we are not recovering. Consumer confidence says we are. Consumer confidence, unfortunately, does not pay the bills.

If we go below 900, we are entering that area between 875-900 which is proving so far to be an opportunity to go long for the rebound. Again, until we break 875 and the VIX 20 dma which is around 34 now, this will remain to be a trading bound market. I don't see breaking 925.

China had a big night last night. TBT may have exhausted itself. And REITs continue to be resilient in an absolute abysmal market. Go figure.

Why I Would Buy Apple

2009-05-24T14:32:00.002-04:00

Sounds contrarian after my last blog, but this is what makes markets and what cause stocks to spike. Apple's sales of iPhones are not increasing as they would like especially with the introduction of selling via Walmart stores. This is mostly due to the exclusive contract with AT&T and the fees AT&T are charging for the iPhone service. iPhones are targeted toward the casual user, not the business user. These casual users want the iPhone for texting, music/videos, and surfing the web. Not necessarily for email.

Yet for a casual user of the iPhone, even with a small data plan of, say, 500 minutes, they will get charged $40 for the plan, $20 for unlimited texting and $30 for data. Only the $20 for texting is optional. That would be a $70 minimal plan and if you add more minutes or texting, you are talking $100.

Many casual iPhone users are not going to pay that in this economy when they can find a phone as good or better for a lower rate, especially for data usage.

But, this is old news. What if AT&T came out with an exclusive iPhone package which included unlimited texting and data at $30 plus whatever phone plan you choose? That is a $20 per month reduction. I think that would draw in a lot of potential iPhone buyers and boost Apple's sales of iPhones dramatically, including at Walmart. Yours truly included.

AT&T have already been discussing this and are working with Apple on a suitable plan to meet both companies needs. If AT&T came out with such a package, hoards of buyers would come in, and thus, the stock of Apple would have a quick spike up.

So, in this scenario, I would be a buyer of AAPL. I sure would not be short APPL with news like this a possibility.

OK, all of that said, personally I would not own AAPL right now because it will be driven by news or lack of news.

Why I Would Sell Apple

2009-05-23T11:22:00.002-04:00

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???

Not!

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.

Communication Breakdown?

2009-05-21T15:25:00.003-04:00

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?

2009-05-21T00:41:00.004-04:00

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.

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.
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.
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.
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.
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.
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.

Break On Through To The Other Side

2009-05-20T13:23:00.003-04:00

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.

Why NOT to Invest in Individual Stocks

2009-05-19T20:56:00.002-04:00

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

2009-05-19T17:18:00.004-04:00

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

2009-05-19T09:03:00.002-04:00

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

2009-05-19T00:35:00.003-04:00

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.

The Spiral Effect

2009-05-17T22:32:00.002-04:00

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.

ABOUT THE MARKET

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.

AXP Breakdown

2009-05-15T14:56:00.003-04:00

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 ..

Where Did All The Boats Go?

2009-05-14T22:00:00.004-04:00

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.

AND NOW BACK TO THE MARKET

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.

BAC - Three Days Late But Worth The Wait

2009-05-13T22:26:00.003-04:00

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.

IS THE BAC FALL OVER?

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

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

2009-05-13T18:09:00.002-04:00

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

2009-05-13T09:21:00.004-04:00

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.

The Cyclical Weak Link

2009-05-12T21:16:00.003-04:00

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.

Do You Feel It?

2009-05-11T23:02:00.003-04:00

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...

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.
The VIX crossing the 20 day MA. This means a VIX at or above 36. That would be a heck of a move.
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

2009-05-11T00:30:00.004-04:00

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.

THE VIX

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.

The Clear Signal To Go Long

2009-05-08T11:11:00.002-04:00

No, not right now. I have been thinking of when is the clear signal to go long. It certainly is not now, even though we may go higher from hear.

The clear signal is if the S&P goes down to the 680 level within the next few months, that is the signal to go long and not worry about it. I want to see the double bottom so many bear markets end with. I don't see this bear market ending with a single bottom and then a V recovery. Show me a W and I will be the bullest of the bulls. The tech bubble bottomed with a double bottom as did the bear market of the 80's. Who are we to say this one won't end with a double bottom?

Until then, I will play this market very tentatively short term. I want to ride the slide down for sure but until the VIX shows life and until the SPX's 20 day MA starts to move toward the 50 day MA, I will stay cautious. The signal to go more aggressively short is when the 20 and 50 day MA's start to converge. This may not happen until the 200 MA is touched or sniffed.

Dillution is Good

2009-05-07T21:14:00.002-04:00

Don't ask me why, but many analysts will claim dilution is good on the banks because it raises capital and thus strengthens the bank. Therefore, you should be investing in these troubled banks now. You just go right ahead. Party on, Garth!

I just watched Lou Dobbs say, "New jobless claims dropped dramatically to 600,000 down 34,000 from the previous month, signaling the end of the recession." Any idea how much he was paid by the gov't to say that? There is no way a reporter like Lou Dobbs says something like that from his own mouth without either a gun to his head or serious money under the table.

Do any of these guys have any idea the impact of 600,000 more unemployed workers in this economy? It's like the 34,000 fewer unemployed have a bigger impact than the 600,000 who are unemployed. Insane.

The banks all went up after hours, no matter how bad of shape they are in. AXP had the highest debt exposure. BAC has the highest potential losses. But what is really amazing is, all the banks are allowed to move on. None are insolvent!

OK, right. They are solvent only because their toxic assets are not being accounted for correctly. If they were, many banks would be insolvent and there would need to be mergers and acquisitions. But that would create banks bigger than too big to fail. And that can't happen. The reason all banks had to pass the test was to avoid creating even bigger banks. So this is no surprise.

The banks are a mess. A former Fed Chairman said on CNBC today that he has no idea why anyone would be investing in banks after this. Someone, who finally knows what they are talking about.

In the mean time, banks stock prices will probably go higher for no other reason than adrenaline by bulls trying to hold onto the bull market. That's fine. There will be plenty of opportunity.

The unemployment number doesn't matter tomorrow. Whether it is 450K, 600K or 650K it will be spun such that it is a good number even though any 6 digit number is very very bad.

I Was Starting To Feel Good About the Economy

2009-05-07T11:06:00.006-04:00

I really was starting to feel good about the economy until I saw the NFP job losses today. I actually believed the ADP numbers posted yesterday of 451K was a sign that unemployment was going to settle down faster than I thought. Instead, today the number of non-farm payroll filed unemployment insurance claims remains over 600K for the month. Yes it is dropping, but at such a a slow pace that it is insignificant.

At the pace we are on, if the NFP number drops, lets say, 10K each week for the next year, we will have unemployment at or near 12%. 12%!!!! Stick that into your stress test numbers and smoke it. What happens to our financials, to our retail, to house pricing if unemployment hits 12%?

Look at the chart below. There is no give in the unemployment numbers. This chart alone should have you scared to death.

OK, if that doesn't have you scared to death. How about the following chart which takes the current data and extrapolates out with new NFP numbers dropping by 40K per month for the next 12 months. And that is conservative. Economists say starting this month, the number needs to go down 30K per month.

What this shows is that by September of 2009, we will hit the 10.5% unemployment number economists are predicting to be the peak. And this is the number the gov't used for stress tests on banks.

What happens when, if we go to 11.8%? What does that do to the banks? Do they need more capital? If so, where does that come from?

I don't have answers to these questions but I find these charts interesting and even more interesting how the media portrays the jobs number as positive.

The Cause of the Run will Cause the Pullback

2009-05-07T10:45:00.003-04:00

First, I gotta point out a headline that just shocked me today...

"New jobless claims unexpectedly plunge to 601,000"

Yeah, thats great. Only 600K more people out of work. Great freaking news!!! This after ADP reported *only 451K lost their jobs. The runup in the market yesterday was fueled by the ADP numbers which proved once again to be inaccurate. Even so, with 150K more than the ADP number, 600K in job losses is seen as great news. We are all doomed.

The main reason for the recent run is lower earnings estimates, higher unemployment estimates, lower expectations in general. In fact, expectations were so grim, we would truly need to be in a near depression state not to meet or exceed them. Thus a jobless rate of 600K new unemployed workers is seen as positive and a sign of the bottom. Go figure. Unemployment insurance claims is now at 9% not including those who no longer unqualified for unemployment insurance and those working part time or low paying jobs while they look for other work. So we are approaching a 18% rate overall of unemployment.

But again, estimates were so dire, that there was no where to go but up. So, does the market just march on? It does if estimates stay so grim that they are just too easy to beat. If estimates start to move up, I think that will create a catalyst for a market correction. If the estimate for unemployment insurance filers falls to 550K, for example, I think we are setup to miss. If earnings estimates for banks go more inline with what was done in Q1, I think most miss in Q2.

This would setup the fall that many are watching out for. But if estimates remain at rock bottom lows, the market can continue to run. Makes you wonder if the analysts doing the estimates run the market or if fundamentals of companies do.

Sticking My Neck Out

2009-05-07T00:16:00.002-04:00

I don't know where the market is going, I don't know where financials are going. But I am going to stick my neck out and say BAC will close below $11 this week.

Bank it, book it, ship it. The technicals nor the fundamentals support its current level. Not to mention dilution. Someone is going to throw cold water on the face of the bull and wake it up with regard to BAC.

A Bullish Chart Worth Considering

2009-05-06T23:23:00.003-04:00

OK, last post of the night.

I have been watching Sirius/XM for about 6 months now. I bought into it about 5 months ago on a speculative play. Percentage wise, it has been my biggest gainer. But I invested very little and never added to it.

One thing I have been waiting for is a convergence of the 20, 50 and 200 day ma's. Today, SIRI hit the 200 day ma and the 20 day ma is converging on the 200 day ma.

This appears to be a very bullish chart and a breakout is imminent. Lets see if we get confirmation in the next few days. I believe SIRI reports earnings on Thursday.

The End of Wave P2

2009-05-06T22:47:00.004-04:00

Many people are contemplating this. When is the end of wave P2. As though this is predictable and something to plan for.

The truth is, no one knows. And is P2 even real? Even if it is, are we even in P2? I offer an alternative here.

First, so many people are assuming primary wave 1 ended in early march at 666 and that we are in primary wave 2. Who is to say when P1 even started? Many say P1 started in Oct 2007 and ended in March 2009. A year and a half. So why do we think P2 will only last 3 months?

But again, is this P2? Was Oct 2007 thru March 2009 P1? By rights, a primary wave should end (it doesn't have to, but it should) in a double top or bottom. If that rule were strict and we used weekly charts, what if I said we are in the bottoming phase of P3? Not only are we not in P2 but we are in the downward bottoming of P3.

Take a look at the chart below. If EWT is moved out to years instead of months, perhaps this bear market started in August of 2000. P1 ended in a double bottom in October of 2002. P2 ended with a double top in October of 2007 and we are in the most destructive wave of all in P3 right now, but have not double bottomed.

Its a potential macro-level alternative primary wave count. I am not saying it is real but with wave theory, you really don't know what wave you are in until you are past the wave. You can't get 5 EW guys in a room and agree on all the primary, minor, secondary, mini waves.

More on B of A

2009-05-06T22:17:00.003-04:00

I am still trying to figure out how B of A stock surged on the report they need $34 billion in equity capital, knowing this means at least 20% stock dilution if not 33%. I read a good blog on the reason for it based on gov't preferred shares being converted so shares had to be bought today to offset it, or something like that.

Whatever.

I found this article on business week which really says it all.

"BofA is poised to top the list of banks that need the most capital, at near $35 billion, because of its huge exposure to the consumer lending business, home mortgages, and credit cards, according to reports in The Wall Street Journal and elsewhere. The bank also has a portfolio of construction and commercial real estate loans that trumps those of JPMorgan Chase (JPM) and Citi. Still, despite the need for more capital, equity investors seemed to heave a sigh of relief on the eve of the announcement as the numbers appear below analysts' worst fears: New York bond shop CreditSights, for instance, had pegged the worst-case number for BofA at $39 billion. BofA's stock price closed up 17%, at 12.69. "

So Business Week claims the move up was due to the news being better than expected by $5B. Yeah, OK. Whatever.

Someday we will all look back at this and either laugh or say "what were we thinking?" Until then, BAC appears to be headed to its 200 day MA. I don't get it. Never will. I will stick with my pile of June puts and see where the chips fall.

Where Did All The Toxic Assets Go?

2009-05-06T17:20:00.004-04:00

Has anyone stepped back and thought about all the toxic assets the banks have on their books and how they seem to have mysteriously and magically gone away?

They haven't. They are still there but no one is talking about them. PPIP is suppose to take care of them but that plan is failing miserably as there are not enough takers and no banks want to participate. If they did participate, they can prove to be insolvent.

Notice the local and regional banks going under. Do you know why? Toxic assets. Defaults on loans. Defaults on credit cards. All the things that caused the big banks to crash hard after Lehman.

Yet, suddenly, the banks are massively profitable and everyone is acting like there are no problems. The reason this is, is because we have lost visibility into the banks. Will the stress tests show us that visibility? Does the stress test take into account higher defaults, lower asset values, higher foreclosures?

The gov't did a great job of hiding reality with plan after plan after plan. M2M changes, uptick rules changes, PPIP, stress tests. They averted the focus from the real problem and it is working. Everyone has forgotten about it.

So when does it rear its ugly head again? It's hard to say. Probably when home sales numbers go down, or when consumer confidence goes down or when someone actually realizes that some of the regionals have to collapse. One regional bank collapsing will probably trigger reality again. Until that happens, you can't bet against financials. That said, you have to be semi-insane to bet on financials.

It's Like a Bad 1950's Horror Movie

2009-05-06T13:02:00.003-04:00

You know the ones. Where everyone in the town become zombies or all become possessed, slowly but surely, and you don't know if your friends are one of them or not. Terrible movies but classic nonetheless.

That is what today feels like (along with the last 2 months) as news that B of A has to raise $34B in capital, meaning there tangible common equity is way too low if the economy goes to the lows it is expected to go.

B of A market cap is $70B. They are short $34B in capital. they are not insolvent but if asset values continue to fall, credit card and loan defaults rise, they are not far away from insolvency.

All of this and B of A is up sharply. Obviously investors have turned into zombies like in the old movies. They are not themselves but they are just drawn to buy BAC no matter how bad the news is. And more and more are popping up. Soon it will be you that turns into the zombie!

It all ends when the hero figures out what is happening and either destroys the entire town or finds the anecdote to cure everyone from this dreadful problem.

In the end, BAC will have to dilute their common shares by anywhere from 20-34%. That would tell us that their stock should be down, oh, 20%. but instead it is up 10% as the town zombies take over.

The Market Will Reverse When...

2009-05-06T00:55:00.003-04:00

Everyone wants to know the answer. Wouldn't it be great to have a crystal ball just for a day and know exactly what the market is going to do. Easy money right? But, short of that, you are stuck using scientific wild-ass guesses based on what you read, hear and feel.

No one knows for sure where the market is going tomorrow, a month from now or a year from now. There are a lot of predictions and one person may get it right once in awhile but never consistently.

An excellent analyst will get it right 60% of the time. That's right. 60%. A good analyst may get it right 52% of the time. It may not seem like much but the difference between getting it right 60% and 52% of the time is huge. A normal person who is going alone and basing everything on their own beliefs may get it right 30% of the time. If you are reading this, you are likely in that category.

What's my point? My point is, the odds of you predicting where the market is going tomorrow or especially, hour to hour is very poor. And what the average person will do is play one side and put too much money on that side. No hedges, no protection. And since they get it wrong more than get it right, they slowly lose their money.

I don't advocate paying a professional to manage your money, although doing so may relieve a lot of stress and they are likely to get you better long term returns than you can do on your own. What I am suggesting is, you always always always have to be prepared to get it wrong. First, don't get over extended. Second, know what your short term and long term goals are. If you are buying AAPL, you are not buying it to sell it tomorrow on a 2 point gain. You have a long term plan. So don't buy it and sell it 3 days later because it is down 5 points.

If you are playing 2x and 3x ETFs, your goals should be much shorter and you have to be prepared to move quick and you HAVE TO, HAVE TO, HAVE TO, have a hedge unless you just like to gamble.

Third, always hedge your risky plays or set stops about 6% less than what you bought at if you are not comfortable. Speculative plays are small investments in risky plays so no need for a hedge. But if you are putting 20% of your money into a single 2x ETF, you better be playing some puts or covered calls. So many people loose so much money playing these etf's without a hedge. I have been guilty with SRS at times and most times I go without a hedge, I get burned.

OK, that was a bit of a rant, but something that was on my mind. Back to the title. When do we know the market will reverse. As I mentioned, no one really knows. Well, almost no one does. There are some people that know where it is going in the next hour or the next day. These people are the market makers. They decide what trades get executed, what bids and asks go by the board, and even will hold stock themselves and sell later in order to manipulate price movements.

You can't beat these guys day trading. You can have victories, but sooner or later, you will get beat. They know where the market is going. But, they will tell us some things based on market moves.

The market will reverse when there is enough volume on dips that will buy into any weakness causing the market to bounce off of any dips. When that happens and the market rewards these buyers consistently, it is time to destroy these buyers. Why do they do this? Simple.

The market maker, as mentioned before, may hold stock themselves and sell later. Or it may sell stock on loan and buy back later. So as markets pull back and buyers get in, they can sell stock to these buyers that are not actually there right now, but later in the day, buy that stock at a lower price as they drive down the price by manipulating bids and what orders get processed.

The market maker wants your money. They will get most peoples money because they will fall into the trap. I am guilty of falling into the trap in April of insisting the market must go down. I was shorting on moves up and the stocks just kept moving up so I then got stooped out. The market maker bought my short stock at $10 and sold it back to me at $12. There were so many shorts doing this it was easy money. Thus, a short squeeze.

The reason this happened was there were not enough buyers in the market to make the market move on its own. So they fed off of the shorts. When buyers hit the market in stride, then you will start to initially see dips being bought in earnest. I think we are starting to see that. And then shortly after, the MM's will make these buyers pay buy letting the market slide as they keep buying, stopping out, buying again, etc.

The VIX is down today and is a signal that the market is not ready to reverse. No need to stick your neck out. I have a play I put together that I am liking very much. I own a block of SKF but had covered calls on it for protection. As SKF went down, I bought the covered calls back for a 60% gain on the calls. I lost on the stock, but as soon as I buy the covered calls, I buy out of the money puts for a small amount. If SKF goes up, I sell more covered calls and sell the puts at a 50% loss at the most.

I know this is not going to make me rich but it is basically using SKF as a vehicle to scalp via the options market. I am not making or losing anything on the stock but using it as a tool to trade and profit on options. So the SKF shares are actually a hedge against my options even though the investment is much higher.

OK, enough typing for one night. Watch out for a 890 head fake this week. If it breaks 890, I will be more bearish. Until then, I will actually buy on gaps down. With stops, of course.

Change of Heart

2009-05-04T23:24:00.002-04:00

After today's avoidance of disaster via key hedges, I am probably not going to re-enter new short positions tomorrow. I will stick with my current holdings but will sell off the calls and puts that did so well for me today as hedges, then just sit tight with what I have in SRS and SDS and EEM. I want to see if this momentum can cause a capitulation and run every short of of town.

Or, I want to see if we get confirmation that a reversal is in order. I will take today's action as a blessing and play even safer than I have been. April was a brutal month for me and even though I had hedges, they were not near what I needed to cover my losses. I am sure many of you are the same.

There is potential of a capitulative move up to the 950 area and I am not getting in the way. If the market gets to 930, I will be jumping in with short positions. But until then, I am staying somewhat neutral. The key right now is shorts are getting fearful which is a sign the end of the run is near. But I want to see the fear of God in the bears and then it is a sign that the run is truly over.

I expect a head fake in the next couple of days though. Perhaps a dip down to 890 which could suck some bears in. Max pain is what the MM's are looking for. I am not going to be part of that pain.

How a Bear Makes Money On a Day Like Today

2009-05-04T20:12:00.002-04:00

It was unintentional and not what I wanted to happen but it goes to show that a good hedge position and strategic stops can result in a bear making money on a day like today.

First, while I am short BAC and AXP, I also have May calls on both. Both of my short positions got stopped out early even though I thought they were safe. And the calls did very well. My covered calls on SDS and on SRS both helped tremendously to cushion the blow. But they key hit were the puts on SKF. Not a big position, but a position just in case a day like today happens and a position that paid off. EEM was also a good hit as was calls on AAI that I played at the open as a speculative play.

I plan on reentering short positions sometime tomorrow. This market is crazy and I will not be over extended. You have to have hedges set up in case of a big move the wrong way.

That all being said, this market did what I thought it would not do. It went up on a Monday. I am not sure when the last time it did that. The VIX stayed pretty healthy though and Gold went up. Also, volume was low again on the market. I missed it today for sure. I got lucky in that all my hedges did very well and eeked out a very slight gain for the day. But it was bloody and if someone told me financials would do what they did, and if someone told me BAC and AXP would make jumps like they did, I would have told that person they are insane. I was wrong.

Where have the bears gone? They have gone where the MM's want them to go. Far away, taking losses. All the while, the MM's suck in the longs in a setup to crush them.

Be careful. Do not jump all in if the market pulls back to 890. A reversal does not happen all of the sudden and right away. The MM's will play you until your last penny is gone if you try to play against them. Expect the unexpected.

We are at a key support level. If it breaks, we go higher, perhaps to 930. If it fails, we probably see 890 again but not sure what happens from there.

I will post later on some potential good plays for tomorrow.

LET THEM PUMP IT! YEAH!

2009-05-04T10:05:00.003-04:00

New home sales up 3.2%. Media is pumping it as great news and that recession is close to over.

Let them pump it. They have no idea what is about to hit them. Unemployment continues to rise, these houses are selling and depressed prices, just lowering the avg house price. We have a looooooooooong way to go before the housing crisis is over. We are just in the beginning of it. Unemployment will destroy the housing market further.

This, my friends, is becoming a HUGE short opportunity. Don't fight it right now. Let them pump it up higher and higher. By June or July, reality will set in that this was all a mirage for the bulls. It may be painful for the bears at times but the bulls will get hurt much worse.

I do hope the market goes up to the 950 level as many are proclaiming. The higher it goes, the farther it will fall. A run like that may very well shake out bears and suck in bulls, just what the doctor ordered.

The Analysis of a Failed Bank

2009-05-03T17:47:00.003-04:00

As many of you already know if you follow me on the Yahoo message board, a good friend of mine who was an executive at Silverton Bank based in Atlanta, told me a bit about the bank failure and how the FDIC came in and took control with no warning.

This one hits home a little hard for me since he and his family are very close. My son grew up with his son, my wife plays tennis with his wife, his daughter baby sat my daughter, he was the one that got me into boating. I know how dedicated he was to making the bank as successful as possible.

To hear his voice in total defeat and in a state of shock was difficult for me. But I wanted to know how something like this could happen if banks are truly getting healthier as we have been hearing. This information could be considered inside information before the collapse but now that the collapse has happened, it is public knowledge.

His bank, like many others of the same size, just flat ran out of money. How does a bank run out of money? Basically, the losses out weigh the gains for so long that the amount of capital remaining is much lower than the paper losses on the books. For Silverton, they had some profitable divisions, much like B of A, JP Morgan, Wells Fargo, etc. These are the divisions that deal with everyday activities such as short term loans (less than a month), capital investments, and capital management (services). All were doing very well.

But the profits from these divisions, while at record levels, were far less than the paper losses with regard to defaulted loans and other bad assets. In fact, it isn't even close. I don't know the numbers but it sounds like the loan losses were so huge, the capitalization of the bank eroded very quickly. Basically, the bank become insolvent due to paper losses exceeding capitalization. The profitable divisions were helping the capitalization, but it was like using a garden hose to fill a lake which had a broken dame.

So the FDIC came in with suits, briefcases and weapons to take over the bank quickly, swiftly and with no doubt who was now in control. The FDIC agents work side by side with the bank workers to go through every account, go through every balance sheet, figure out how much liquid assets the bank has, transfer accounts to other banks, and all the bad loans end up with the FDIC for a total loss to the taxpayers of $1.3 billion.

The bankers in general did not see it coming. They knew they were in trouble. They tried to move the bad loans for months but there were no takers. They tried to get loans themselves to help with capitalization but there was no credit lines open. They were insolvent and the FDIC did what it had to do to protect the clients. They have to make the transition in 3 days so both the FDIC agents and the bankers work all weekend to move accounts and close up shop.

I want to make this clear, I know probably about 1% of what actually happened. So this is not gospel. But, this sure does sound, and feel like what the state is of many of the major banks. B of A, JP Morgan, Morgan Stanley, all reporting record earnings. But we don't know what is on their books. The Fed knows. The FDIC knows. And some day, we may know.

The FDIC can easily take over a small to medium sized bank. But taking over a major bank like B of A would be substantial and would take months, not a weekend. So the Fed and FDIC want to make sure these banks do not go under, even if they are insolvent. Bad assets need to move off of the books from these banks as soon as possible to avoid collapse via a run on the banks. You can be assured that your money in the bank has been loaned out many times over. The FDIC will continue to insure it as long as they have money to insure it.

But how deep are the FDIC pockets? Can they continue to take on these bad loans and pay out billions each week on bank collapses?

I think we will be getting more clarity in the situation as the weeks and months unfold. Commercial real estate loans are unravelling. Talking with a commercial real estate officer in my neighborhood, he said what you will find out there is the really good real estate is bringing in money still. What is collapsing right now are the strip malls that are not in prime locations. They are losing money at an accelerated pace. This is causing renegotiation's on leases for restaurants, hotels, retail shops, malls. He said they are very busy but a lot of the work revolves around renegotiating leases and moving retail shops out of poor locations and into better locations.

Well, my fingers are tired and I will close on my disclosure. I am short AXP, BAC and I feel good about both. I am looking at attacking REITs with puts but I do continue to hold SRS and feel decent about this but the market seems to be manipulated. I do believe we may have some run up on the market this week perhaps but I am not over extended so I can take the punishment so I also own SDS with covered calls.

If the SPX gets under 850, I will add to my short positions. Otherwise, I will hold and wait for the MM's to shake out more shorts before the big leg down starts. Good luck, and this is no position to get over extended on the short or long side.

ADDENDUM:

I wanted to point out a few points about Silverton's collapse

1. They felt like they were capitalized enough. The FDIC shutdown was a surprise.
2. They were having record earnings in others parts of the business. Loans is what dragged them down.
3. They were not able to move any of the loans and were not able to raise capital on their own.

Does this sound similar to any other banks you know of?

Commercial RE Showing Cracks

2009-05-01T12:11:00.002-04:00

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!!!

2009-05-01T00:47:00.002-04:00

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.

Retreat!

2009-04-29T20:56:00.002-04:00

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

2009-04-29T11:24:00.002-04:00

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

2009-04-29T10:35:00.002-04:00

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?

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

2009-04-28T23:00:00.003-04:00

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

2009-04-28T11:56:00.002-04:00

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

2009-04-28T10:55:00.002-04:00

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

2009-04-28T00:38:00.003-04:00

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.

VIX testing the 20 dma

2009-04-27T10:30:00.002-04:00

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.

I Told You...

2009-04-26T23:41:00.003-04:00

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.

Re-analyzing American Express

2009-04-25T23:52:00.002-04:00

I was indeed on the wrong side of the AXP trade on Thursday and Friday. I wanted until the last minute on Thursday to pull the trigger on an options strangle position and felt extremely confident. The numbers came in and I thought I was gold. But the information was spun in such a way that investors flocked to the buy window. The headlines read "American Express Blows Away Expectations".

Did they really? Well, if the stock move on Friday was any indication, they sure did.

What AmEx has going for them is excellent business management. They recognized the problems early on and made a significant cut in their work force and cut other key spending measures. They knew the numbers would be bad so they set analysts expectations extremely low while kicking the people that got them record earnings last year, out of the back door.

Lets look at the numbers a little closer.

Revenues down 18% from the previous quarter
Net Income (at .31/shr) down 64% from last year
Excluding one time revenues from MC and Visa, net income was .20/shr, down about 80% from last year.
Transaction volume down a massive 16% from last year
Charge offs (defaulted payments) were 8.5% which is 100% higher than last year. AmEx itself believes this number will go up to 10% by next quarter results.

But, AmEx management pulled the rabbit out of the hat. AmEx has tremendous brand name and they are just trying to survive this recession by cutting jobs. Good management, right?

Well, it is except AmEx is shooting themselves in the foot. The main reason for the massive decreases in transaction volume, net income and revenues is .... unemployment. As it goes higher, AmEx's numbers go lower. As AmEx's numbers go lower, they lay off more people helping to increase unemployment.

AmEx is feeding the monster which is cutting into their earnings. Yet, the stock rises 20% on the "good news" of its quarterly report.

Sure the company made money but growth is no longer in the picture. The numbers will continue to decline and no matter how low the analysts can take estimates, the picture is not rosy for AmEx.

Double Top???

2009-04-24T23:49:00.003-04:00

The market continues to stay resilient based on hope and based on the belief that the economic data is showing a possible bottom. Maybe it is. Who am I to say? Well, I am not to say but there are plenty economists out there who are saying there is still a lot of pain ahead of us and it isn't hard for me to read the data and see that things are not getting better.

Take the housing number. If that number came out 6 months ago, the market would crash. The number is really horrific given that the average home price fell yet again and interest rates are at all time lows. Given the interest rates and the avg house price, housing should double! Yet, it only barely beats estimates. And the media jumps on it as great news. The housing dilemma is over. Everything is fine.

Take the unemployment number. 640K more. Yet the media pundants praise it as a sign of the bottom. 640K new workers unemployed is good???? I am so sick and tired of hearing this.

Look, I am not a bear just to be a bear. I am a bear because I see the reality. And I post this blog mostly for my own sake, but also for yours. If you want to go long, go ahead. If you want to put all of your 401K money back into large cap growth companies, go for it. But don't come crying to me in 3 months when we have tested the bottom again and you lost.

Longs should consider taking profits or protecting their profits via hedges. As a short, if I had not played hedge positions at every corner, I would be crushed right now. Instead, I have helped limit my paper losses, taken profits on some big hits I made and I am quite comfortable in my current short positions.

Now, if the market goes to 1000, well then I will be hurting. Lets see what happens.

AMX is going to correct. As are some of the banks (not all). The VIX barely moved today and is actually getting closer to the 20 dma, rather than farther away. But it still hasn't crossed it so until it does so and we get a 2-3 day decline in the market, there is no evidence the bear market rally is over. TA says it should be. Today represents a double top situation. If the market can top 880, we are headed higher. If it can not penetrate 875, we are headed lower.

Lets see and please, learn to take profits when you can and make sure you have strategic hedge positions whether you are long or short.

End o' Week Wrap Up

2009-04-24T00:10:00.002-04:00

I don't have any clever quips or stories or antidotes tonight. I am so sure of where the market is going, I am starting to doubt myself. It just seems very clear that the market will zig zag to the southeast for the next couple of weeks as all the good news is out and now reality sets in waiting for the next earnings season, just as it did in Q1.

But now everyone is saying it so I am doubting it a bit. Still playing it but thinking i need more hedge positions. I won't make that move tomorrow. I want to see what the volume looks like. And the VIX is usually down on Friday unless it gaps up in the morning.

Financials are still dangerous as a whole. There are still pockets out there to pick off. AXP went up after hours even though their earnings and forward looking statements were questionable. I have to believe the A/H action was retail investors thinking they stock will rise on the news. I think there may be downgrades in the morning. How does a company lose 50% of their rev's, say forward looking there are a lot of risk with defaults, and if necessary, they will just lay off more people in order to meet earnings, yet the stock goes up???

AXP is on life support and are living off of "reengineering" their resources which means cutting more jobs. Cutting more jobs is not an act of growth but an act of desperation to maintain short term profits. I feel pretty good about my AXP position.

I think tech is starting to form a bubble. Tech can not be an island in a sea of a poor economy. It will eventually be pulled down as well.

Commodities and metals will be the play again in the next couple of weeks as we head toward 760.

The Play of the Day

2009-04-23T11:27:00.004-04:00

I am not really a daytrader in the sense of getting in and out of stocks or options within a span of a day to do scalping and such. But sometimes a stock will present an incredible opportunity to make a trade intended for no more than a day.

Today, I see that opportunity with AXP (American Express). They report earnings after the bell and are sitting near the upper Bollinger Band line at $20. But that is not what is so enticing.

Look at the analyst estimates for AXP. There are 19 analysts with an average estimate of .12/shr profit. But look at the low and high estimates. The low estimate is a .19 loss and the high estimate is a .34 profit. That is a HUGE relative span. You are talking about 200% in either direction.

That tells me that perhaps someone knows something that other analysts don't. It would be great to see the entire list of estimates so a more relative computational method can be used to determine how wide the differences are using standard deviations and such. But a 200% swing in either direction?

That could present an opportunity. I can't say for certain if AXP will miss big or hit big. But this could be a great straddle play if the price is right. With the estimates having a deviation of 200% in both directions, it would seem a straddle is a good play but it could be a suckers bet. The May 20 calls and puts are both right around $2. A 10% premium. This means for a straddle to pay out, you really need at least a 15% move in AXP to really make any money on the straddle.

A butterfly spread would be the another option if you think the deviations in the estimates is a red herring. It is a safer play but why make such a safe play on a volcano which can explode at anytime? And you will lose if it hits or misses big.

I want to bet on volatility here and a straddle is a good way. But an ATM straddle seems pricey to me at a 10% premium. So a Strangle has to be considered which would be OTM calls and puts. I will put less money into the bet but have more potential for higher gain. I also have more potential to lose all of the money I put in if the stock does not move.

But, I want to lean on the side that AXP will miss earnings and guidance will be bad. The current price of the stock has it meeting earnings. I have to believe that will be very hard to do. So, I don't want to get carried away and just buy puts. I know, if anything, AXP is not going to skyrocket. So I feel safe selling May 20 calls. At the same time, I will buy a bit of the May 21 calls as protection. And then I will also buy May 19 puts. So my bet is for it to go lower but just in case it goes higher, I have some protection. And if it happens to remain the same, I limited my losses by selling the May 20's.

The breakdown of how much I would invest in this relatively would be $1000 for the May 19 puts, $2000 selling the may 20 calls and $1000 on May 21 calls so my initial investment is $0. I only make money on a large move down. I can only lose money on a large move up. I like my odds.

Who Has The Wheel?

2009-04-23T01:14:00.003-04:00

Imagine a car that has two steering wheels. They used to make this for drivers education but they no longer do. You may find one out there built 10, 15 or 20 years ago, but they no longer make them. They don't make them for a number of reasons, not the least of which is, having two people steering really made no sense.

The same goes for the stock market. Having both sides steering makes little sense. So who is driving right now? For 6 weeks the bulls have obviously held the wheel. But it is hard to say who has it right now.

To me it "feels" like the bears have the wheel. But that is just a gut feeling. Looking at the VIX chart, it is not obvious at all one side or the other has the wheel. The VIX is getting very close to a break out to the upper trend area but I have to see 3 straight days of closing above the 20 dma to be convinced. Right now, it is below that line.

But the compelling chart to me is the SPX chart. if you chart it out with a 20 dma, it is obvious the 20 dma is curving down and heading back down toward the 50 dma. The SPX seldom reverses a down curve of the 20 dma without first crossing the 50 dma. So this alone gives me confidence that the bears seem to have control of the wheel.

A lot of data coming out. I think the housing numbers are going to be much worse than expected. Unemployment will continue to be bad and now some of the healthy companies are now announcing layoffs in anticipation of slowing down and keeping profits up.

It may not be too late to get into short positions of the largest credit card debt holders such as AXP, DFS, BAC and C. VMW is probably too late to get into a short position since it will probably steady at 27.

Too bad their is not a Credit Card ETF. It would be gold right now. Tech has been a big leader in the recent rally so you have to expect there is some pullback. I think the next cyclical to drive the market forward will be energy since it has been neutral for so long. But that won't happen until we hit around 800 and a mini rally occurs.

We are headed to 760 as I have been saying. Still 2 weeks away, but we are headed there.

The Next Potential Catastrophe

2009-04-22T14:22:00.003-04:00

I know I sound like a gloom and doomer, but there are so many problems with the economy that it is really hard to ignore. On Sunday I pointed out the credit card market and why the problems there will escalate. Today, I want to point out the next potential catastrophe on the horizon.

Chrysler. Chrysler is in negotiations with their lenders to take 15 cents on the dollar for their loans. The banks are not even remotely interested and want the full 100 cents on the dollar via cash and preferred equity in the company. Apparently the banks loaning to Chrysler don't get it.

These banks have no reason to take the Chrysler offer of .15 on the dollar because they have TARP money to replace the lost Chrysler money. It is simple to say no to such an offer. The banks want close to .70 on the dollar in cash and the rest in guarantees of future payments or company equity.

It really makes me sick to my stomach. Chrysler, on May 1, will file for bankruptcy due to the banks not playing the game. The banks will get about .10 on the dollar via bankruptcy so the gap is very small. But the jobs that will be lost are enormous, not to mention pension programs, insurance benefits and the massive increase in unemployment and GDP this will cause. The banks do not care. They will get money from Timmy and Ben no matter what.

If you have not read up on the Chrysler situation, you really need to. They are too big to fail unfortunately but they will and I think they need to. Even so, the way the banks are handling this is very much un-american. Apparently the gov't is good at giving out money to banks so they can pay big bonuses but the gov't is not good at making these same banks help bailout the auto industry.

May 1. Put it on your calendar. It could be the beginning of a very ugly cycle in the economy.

I Leave For A Day and...

2009-04-22T00:36:00.002-04:00

Looks like the bulls jumped back in today in the face of market weekness. It really was not a surprise at all and I told you last night that if you didn't take profits from Monday, you were a greedy pig.

You have got to take profits after days like Monday if you are a bear. You can't ride it out unless you are ok with loosing some of it back in anticipation of a further downward move. But when things like SRS, are up 20%, SKF up 17%, you got to take your profits and wait for a new entry point. Don't get greedy! We are still in a bear market rally so a big pull back is going to be met with resistance and a bounce.

I think todays action was healthy. It could be healthy for the bulls that it bounced back but it could also be a healthy correction for bears.

I think we broke a key trading range and we are headed for a correction. I know Waxie is going to the bullish side, but I am betting against him. I have done this 3 other times with him being right once and me being right twice.

I think we are on a trail to 760 which will take a couple of weeks to play out. More clarity will come out about the banks and once that is out, the market will start behaving based on fundamentals again, which are negative. The market is riding the financial wave right now but once the visibility on banks are clear, the focus will move back to unemployment, retail, RE.

The VIX was down slightly today and I think that is a sign of potential bearishness coming up. But it is not a clear signal at all. In fact, we have to consider the VIX as a bullish indicator right now until it can go above the 20 day MA and close there.

So, tomorrow I am re-entering short positions that I sold off on Monday. I am attacking DFS and AXP. Going to buy back the SRS I sold and be very happy about it. Any move up in SRS and I am going to sell covered calls on them for protection and generating some cash.

A somewhat bullish-ish play I am making is to short or buy puts on EEV (ultrashort emerging markets). It is primed to go down or stay level but with decay, should be a pretty good bet for May and July puts.

VIX Update

2009-04-21T00:27:00.003-04:00

I guess I should comment on the VIX. It has spent the better part of the last 29 days under the 20 day MA. It happens that the same happened in December thru early Jan for 29 days.

Also, the VIX is now slightly below the 20 day MA right now and likely to cross it soon. Until the VIX gets back above 42, I can't say that this is going to be a major correction. But, that said, I think this is going to be a major correction (down to 760 at least). :)

I am travelling most of the day tomorrow so I won't be watching the market. Which is probably a good thing because many investors make the biggest mistakes the day after a big move.

What Did Today Tell Us?

2009-04-20T18:20:00.002-04:00

First, we knocked it out of the park today. From BAC to SRS to SDS to DFS to AXP. Just a solid day all the way around. I hope some of you were able to get into short positions on DFS and AXP before the open or soon after. Unfortunately for me, was too busy this morning to hit the trading desk so I missed out on the early move on DFS and AXP and decided not to chase just yet. I do appreciate the donations from those of you who did cash in. There will be more of it but not sure it now is a good time to chase.

For bears, today was a big day. A solid correction which was very much anticipated by many (other than CNBC analysts). Did you notice the Fast Money guys all saying this was expected??? Did you hear them all late last week saying banks are safe???

So, what does today mean? Well, first, on a macro level, we are in a bear market. We know that because the 200 day MA on the SPX is still on the down trend and neither the 20 or 50 day MA's are even close to it.

On a micro level, we are still in a bear market rally and today was a correction. So don't expect the entire bear market rally to be wiped out this week or even next week. It will take time.

You should have taken some profits today. If you didn't, you are a greedy pig and you deserve to lose some of it. You don't have to sell your ETFs or cover your shorts to take profit. Use options to protect profits by buying puts or selling calls. Its a great way to generate some cash and protect profits.

I think we have a bit of a bounce here but we are clearly headed to the 760 level or so. It may take a couple of weeks but we are headed there. From there, it will test how strong the bulls are. With key earnings already out, there is not much to rally on unless unemployment and retail numbers improve, which is highly unlikely.

Stress tests are meaningless now. If all banks pass with no problems, it was a waste of time and a farce. If some of them fail and need recapitalization, we already knew that but will be a wash because the strong banks will outperform the weaker ones equally.

What stress tests hopefully will do is give some transparency. And I have to believe transparency will be negative. Did you hear Ken Lewis today? How many times did he use the word "hope" when describing future earnings and revenues?

Hope is all BAC has. Hope that credit debt will improve even though it is clearly declining. BAC is screwed. They will be injected with more gov't money, dilute the common shares, and sell off some key banking units in order to survive. I have been telling you for weeks that BAC May puts are the play. And what an opportunity last week gave us. $11.56???? Are you kidding me??? Wow. I wish I had timed it right but I bought into the May puts when BAC was around $10. I never sweated it though. And now it is my time to relish the glory on BAC's slide back down to sub $5.

But keep your donations coming. :) Only if this helps you though. Google wiped out my account so all AdSense earnings are gone. Screw Google. I am shorting them now. :)

Unemployments Unexpected Consequences on Credit Debt

2009-04-19T20:30:00.004-04:00

I have been pounding the table that unemployment is not a trailing indicator, but a leading indicator of a recovery. It is not *the* leading indicator but it certainly is not a trailing indicator. Unemployment has to be reduced (not just slowed down) in order to have any sort of sustained economic recovery.

On a large notepad, I have two tree diagrams. One is diagramming the positive side of the economy and one diagrams the negatives of the economy. On the positive side, the roots of the tree are the Fed and Treasury programs/bailouts and government stimulus programs. On the negative side, unemployment and toxic assets are the roots.

Without going into too much detail on the resulting effects, on the positive side, most of the leaves end with job creation which re-feeds the entire tree. On the negative side, the effects result in growing unemployment.

So I see unemployment as the key indicator for the economic recovery or for the continued recession/depression.

But this is not the point of this blog. While putting this tree together, something stood out to me that I hadn't really thought about but I think is a reality that will play out. Debt is what got us into the current economic decline. And while most consumers are cutting down on debt, I found an interesting possibility of a class of consumer which may actually increase debt which will cause a windfall of problems for the economy.

The unemployed, in order to avoid losing their home, and making sure they can afford the essentials, are likely to use credit cards to their limits to protect their cash as long as they can. In fact, financial advisers will tell you it is better to make sure you have money for your home and worry about paying off your credit cards later. You can always file for bankruptcy protection from creditors while still saving your home.

My point is, many credit card companies are reporting a higher rate of defaults. Many due to unemployment. But not only are the number of defaults growing, the size of the defaults are growing. Meaning, not only are people not paying off their debt, they are growing it first, before defaulting.

This is bad news for the credit card companies and it is why many are being aggressive about reducing limits and increasing interest rates, to try to avoid overuse of credit lines.

I think this spells a lot of trouble for certain credit card companies. Particularly Discover Card (DFS) and American Express (AXP). Many banks will be hit too but banks are well diversified enough not for this to cause a big impact. For these credit card companies, it could have huge ramifications.

Both DFS and AXP have had big run ups lately due to banks and other financial stocks going higher. Do not mistake DFS and AXP as the same business structure as Visa and MasterCard. Visa and MasterCard make their money on service and fees, not on credit. They have very little if any credit/debt exposure. Discover and AmEx both have heavy exposure to credit.

I think now may be a great time to look at short positions in these two companies.

Unabated Irrational Exuberance

2009-04-17T23:15:00.002-04:00

The title says it all. Listening to the pundants, is there any chance this market will ever go down ever again? All you hear from this high school-ish reports from the so called experts is this market will continue to go up, banks are not only solvent but highly profitable. Copper will never ever go down and will pass Gold in price and as the international standard. OK, I am kidding about the last comment, but come on, listen to these people. This sounds like the Internet bubble all over again. Calling for higher highs, huge advances and telling shorts to get out of the way.

When everyone gets greedy, you get fearful. Everyone is greedy right now. The shorts are being squeezed and all the media is now a perma-bull.

So, what to do. First, use experience. Markets don't go straight up or down. While the market does show strength, moving heavy onto the long side is a retail investor mistake. I think the play right now is to sit out or lean to the short side. For me, I am leaning on the short side with SDS. I won't touch financials right now other than some select puts but it appears a nice hot-air bubble is being created.

What amazes me the most are the pundants who are completely convinced the banks are not only profitable, but grossly profitable. That their troubles are all behind them and no gov't help is needed. The toxic assets are completely gone. Just vanished into thin air.

Believe it if you want. But I am telling you that until unemployment slows dramatically, there is no turn around. 610K more jobs lost in the last report. That is HUGE people! I don't care if it is less than expected. It is huge. Many say unemployment is a trailing indicator. Bulls**t! (excuse the snap language). Unemployment is very much a leading indicator in a recession period. Every job lost means future less retail spending, more credit defaults, potential foreclosures, more gov't spending, and less taxes being collected by local gov'ts.

Did I mention local governments? State governments are headed for bankruptcy. This is the next shoe to drop. The Fed will need to focus on bailing out states. There is no way states like Florida, California, Arizona can withstand the unemployment numbers and the losses that come with less income taxes, less property taxes, and less sales tax. It will result in job cuts within the gov't itself causing a faster rate of unemployment.

I am very comfortable with my positions right now. I made no trades today (I avoid trades on OPEX) and very few this week. I am not willing to play the financials as a whole. I have some BAC puts but that is it. Financials are creating quite a bubble and it is probably a great gamble play for some of you but there can be huge gains or losses along the way.

TA clearly shows we have hit the upper trend line and 3 things can happen.

We can break through and the market has a free ride to about the 950 range
We can fall back to the lower trend line and break through looking for at least a 30% retrace
We can continue in the narrowing range.

I don't think #1 will happen although it if does, it is not entirely surprising. #3 is highly unlikely because the narrowing range has gotten extremely narrow and it has to break through. So my odds on favorite is #2 and I am playing it that way by playing SDS and SRS and also puts on FAS. I am well hedged in case of a sudden burst upward. I am also being somewhat defensive with holdings in GLL, TBT and EEM (OK, not defensive, but somewhat safe and diversified a bit).

One thing to note, a lot of stocks and indices are moving very close to their 200 day MA. This may be significant. They can bounce off or they can break through. A breakthrough would likely destroy any remaining shorts. I bounce off could result in some consolidation in a sideways move or could run the recent longs out via profit taking.

Bank Profits. The Good, The Bad and The Ugly

2009-04-17T14:31:00.002-04:00

I just closed on a refinance today. Great rate (4.375), saves a lot of money short term and long term. Good for me. Good for the lawyer and... good for the mortgage company? Really?

So now the mortgage company is getting $380 less per month in interest payments. So how can this be good? So I had to pick the brains of the loan officer and the lawyer to understand what is going on here.

THE GOOD

This is good for the mortgage company because they really don't "hold" the loan. Yes I make payments to them but they actually sell off the loan to a loan holding company, usually overseas, usually china, and the mortgage company basically collects fees for the mortgage closing and for mortgage payments. So, the mortgage company basically makes money on the closing itself.

The mortgage company is thrilled with the new rates being offered since it has caused on explosion in refi's. They are making good money on these refi's and actually is creating jobs. The lawyer said he had to hire two additional assistants due to the load of work.

The loan holding company may make less but they reduce risk by having a good loan get even more solid. So they have reduced risk at a cost of less revenue.

It puts money in my pocket each month which I will either spend and help the economy, or I will save in the bank which helps the bank.

THE BAD

By allowing me to refinance, I am actually potentially taking away a refinance from someone who needs it more. But since it is not my job to help all the poor saps out there who got in over their heads, I don't care.

The loan holding company does loose a little in revenue as mentioned before so their bottom line is slightly hurt. But they are in China so what do we care.

The mortgage company did not require an appraisal. Even though it is the same mortgage company, you would think to avoid risk to the loan holding company, they would require it. The lawyer actually was surprised by this and not real happy that the mortgage company was doing this as he rolled his eyes when he found out.

THE UGLY

The ugly side of this is the future. Talking to both the lawyer and the mortgage officer, they were talking about the spike in the refi's in January when rates hit 5% and how that was great for business. But it tapered off in March. Then in late March with the fed driving down rates again, it has caused another spike in refi's. But what is interesting is, the spike is not as big as it was in January. Even though business is good, it seems to be falling off already even with rates around 4.75%. Both expect this to fizzle out in 60 days and it goes right back to pre-January levels of mortgage apps.

Also, very few non-foreclosed homes are being sold. Well over 80% of new mortgage apps they have processed over the last 60 days are foreclosures. The lawyer was disappointed in himself since he just bought a home in July thinking it was the bottom. He now sees the same homes in his neighborhood selling for significantly less via foreclosures. And he sees pricing continuing to get lower.

Both talked about this spike will end and cause stress on their businesses this year. They talked about the current rush and how quickly it faded in March. Unless rates go down under 4.5%, they think the credit market heads right back to where it was. They love the current business and they are taking advantage of it as much as possible. But it is not normal business for them. Refi's and foreclosures are not going to carry the mortgage business. They also said they do not see the light at the end of the tunnel for foreclosure property numbers to be reduced this year.

I was happy to get this done now. They don't see interest rates ever getting that low anytime soon. They see a clear bubble being created due to the euphoria of refi's and foreclosures. They both feel this period is creating a false sense that housing is improving but since 75% of loan apps are refi's, it is inflating the numbers.

I am not smart enough in real estate and mortgages to really know what this means long or short term. The key is, the numbers being thrown around may be misleading around housing, real estate and mortgage apps. So be careful.

Why You Should Avoid FAS and FAZ

2009-04-16T22:51:00.002-04:00

I know you have all heard it. The 3x and 2x ETFs should be avoided because of decay. Yet, we all have the tendency to put money in to them looking for quick moves. The gambler in us wants to use these tools to make that big hit.

Many of us have experienced gains in very short periods playing FAS and or FAZ. But this blogger is officially done purchasing either. I got out a couple of weeks ago and will never go back.

Why? The decay is staggering. In fact, I don't see how either exist in 4-6 months. Lets look at their relative values to each other over the last few months.

You would think since FAZ is a 3x inverse and FAs is a 3x bull, they would make exact opposite moves. And they do, except for the decay. Currently, FAS is at 9.04. In late January, FAS was around 9.04 as well. But there is a difference. In January, when FAS was at 9.04, FAZ was at 62. Today, FAZ is at 9.32. A tremendous amount of decay.

Even in February, when FAS was around 9, FAZ was around 50. But as time goes on, decay takes hold to a much larger level than can be seen by the naked eye.

So taking 3 moments in time when FAS was about 9, FAZ went from 62, to 52, to 9. Eventually both will be in the 4 or 5 range and eventually both will be in the 1 to 2 range. By then they will have to be reset.

FAZ and FAS are perhaps good tools to play for a day trade to do some scalping, but certainly should not be invested in for any period of time at all. This is obvious to the experienced ultra ETF trader. But I want to reiterate it here with these examples.

FAS and FAZ are best played via puts or playing them short. The decay is then on your side.

SKF also has decay but not to the level of FAS and FAZ. Even so, all of the financial ultra ETF's should be avoided not only because of the decay, but because financials are so unpredictable. There are some bad banks out there. You are much better off playing those individually.

Full Tilt

2009-04-16T15:44:00.001-04:00

With the market showing irrational exuberance, it can drive the bears nuts, causing them to make moves they would normally not make like selling out of all positions, doubling up, or even buying out of the money puts the day before OPEX.

In poker, we call this Full Tilt. And tilt is exactly what is happening to this market. The media is playing along by spinning any bad news into good news. 610K new job losses is suddenly a good thing. Lower retail numbers is good. Bankrupt REITs are good. It's all good.

Well, based on having some free cash and based on a little tilt action myself, and based on some TA that says this market needs a solid correction near 870, I am throwing some cash into the short side once again via SDS. SDS does not appear to have the same decay as other ultra short ETFs and there is certainly more downside risk in the market than upside potential from here.

So, call it Full Tilt if you want, but this poker player is playing the odds and entering the first new short position (other than put options) in a month.

As a disclosure, I currently hold SRS, SDS, EEM, GLL and TBT. I also have some June and May puts on VMW, GOOG.

I know this market has the shorts scared, but now is the time to start jumping in as a bear. I think this cycle is about over and a new bear cycle begins very soon if not tomorrow.

REITs are Cyborgs

2009-04-16T13:07:00.001-04:00

REITs are indestructible animals in the current market. They go up on bad news, no matter how bad the news is. Stock dilution? Price goes up. Bankruptcies? Price goes up. Higher defaults? Price goes up. Asset values plummeting? Price goes up.

The result is shocked and frustrated traders who know CRE is a mess and there is no bailout, nor is the a reason for a bailout. REITs just have to make an announcement. Any announcement. No matter how good or bad and the stock price will go up.

GGP files for bankruptcy today. More REITs are likely to follow but the result is, REIT prices continue to clime. There are no fundamentals behind this rise. They have almost all diluted their shares by 20-30% during Q1. Revenues are going down each month and debt maturity is coming up fast. Yet the euphoria on REIT stock is staggering.

This is how the market works. The market makers can control a particular sector quite easily and insure the maximum pain. The reason this is happening is the high percentage of short interest in REITs. It makes the market makers jobs quite easy. It is much easier for them to move a price up in order to hit a stop price on a short covering than to move down hoping to hit a limit price on a buy.

Until shorts are flushed out to a level that evens the playing field. REITs will continue to go up and SRS will continue to go down. It will create an unbelievable opportunity once this happens, but obvious as of April 16th, the MM's are having too easy of a time squeezing the shorts.

Home Builders Declare Bottom?

2009-04-15T21:20:00.002-04:00

Listening to the radio on the way home tonight, I heard there was some great news from home builders coming up. Waiting through the commercial break, I was dying to hear what the good news could possibly be. Another merger? New data? A bailout?

Then, after the break the reporter said that the home builders think this is a bottom because... They are seeing more traffic of viewers coming to see their model homes. They admit they are not signing any contracts, but they are getting more traffic. Wow! Great news! Lots of people looking at the houses they will be buying in 6 months at an additional 25% discount from current prices!

That is the world we live in. No matter how bad real estate is, any news can be spun as positive news. Its the trend of the market and the best thing to do is to play along with the game, but be prepared when it all collapses.

I was fortunate yesterday to get into SPG puts and sold at the end of the day. Today SPG spiked based on no news at all other than there may be some REIT takeovers. So I bought puts in SPG right at the close. If that is how they want to play the game, suit me up because I want in.

Banks are the same way. You have to be nimble and make quick moves. BAC options were very good to me and while I did not time my exit perfectly, I made out very well. Still holding the May options all on house money.

Tomorrow it is all about JPM earnings. If they knock it out, we gap up then fade back. If they miss, banks may have a rough day. Too risky to play either side other than a straddle or butterfly.

The VIX is at its lowest levels since September and showing no signs of reversing. I can't recommend making a big short position until it crosses the 20 dma. It has been below the 20 dma for 25 of the last 26 trading days. The last time it did this was from Dec 3rd to Jan 9th. I can't see we will see a reversal like we did in Jan and Feb but the VIX is not likely to keep up this trend much longer. The 20 dma is now a little over 41, its lowest level since September.

So, JPM will have a big say so on where the market goes from here. If they blow out, the market will go up but I don't believe it will go up much higher from here. Maybe 870. If JPM misses, we will see 815. I have to believe JPM has good earnings based on new accounting rules so you have to lean to the long side.

I am actually going to likely watch tomorrow. I got into EEM, GLL and also more TBT today. All pretty safe bets with little downside risk. Depending on what happens with the market tomorrow, I may play options on GOOG. It will be a pure gamble with earnings being reported the day before OPEX. Better than Vegas baby.