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?
Friday, June 5, 2009
Lets Talk SRS
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.
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.
Thursday, June 4, 2009
A VIX Chart Of Interest
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?
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.
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.
Wednesday, June 3, 2009
Dead Cats and Such
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
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.
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
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.
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.
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