Market divergence continues. Money flow loss leader for the past two days running has been SPY, indicating distribution.
Increasing FX volatility due to Japanese Central Bank intervention is also causing wild swings in the currency markets.
OPEX Thursday should be down substantially (1%+) and OPEX Friday should be flat to down if history is any guide.
The ST top is in, as is the Intermediate and long term.
Showing posts with label SPY. Show all posts
Showing posts with label SPY. Show all posts
Wednesday, September 15, 2010
Sunday, May 2, 2010
Tried and true market signal vs. “Fundamental Analysis”
Something I wrote down many years ago when I first started following and investing in the stock market was…
Basically I thought… “It’s different this time”.
Best long-term market timing system:
20 week moving average crosses over the 50 week moving average by one percent you go long… If it goes below by more than one percent you sell.
Everyone talks about esoteric technical systems like Elliot Wave or some crazy “can’t fail” chart pattern but in reality stock technical analysis boils down to two things.. support (and resistance) and most importantly TREND.
The 20/50 helps you get the trend part right.
How can you argue with a strategy (the 20/50) that:
- Got you to buy in the year 1994 at around S&P 450.
- Didn’t tell you to sell until year 2000 at S&P 1400.
- Got you back in the market in 2002 at S&P 900.
- Told you to sell again in Jan 2008 at S&P at 1450.
- Didn’t tell you to sell until year 2000 at S&P 1400.
- Got you back in the market in 2002 at S&P 900.
- Told you to sell again in Jan 2008 at S&P at 1450.
So given I know this signal and respect it, tell me what I was thinking back in the summer of 2009 when these two moving averages crossed again and gave a BUY signal at around S&P 1000? Why didn’t I buy there, I was actually just finishing selling my last longs at the time and shorting some things.
See Chart:
Basically I thought… “It’s different this time”.
The market had run from 666 to 1000 is just a few short months. I was long for most of it and felt like a genius.. Fundamentally I saw the economy was still very weak and there were many reasons good for us to go lower. All of these have been covered in my blogs and in other folks blogs.
I ignored the signal and did NOT go long. The only thing the signal did was keep me from trying to short and made me put ultra tight stops on the few shorts I tried because I realized the trend was against me. So the signal saved me lots of money I could have lost shorting but I did not buy the signal because of “fundamental analysis”.
A couple of weeks ago the market topped out at 1220, a full 20% above the 20/50 signal point.
That’s 20% that I missed on the long side because I didn’t follow a simple signal. There is a reason old pros say things like “charts don’t lie, people do”, “the trend is your friend”, “the market can stay rational longer than you can stay solvent”, etc.
It is because the market can always find a reason to go up or down that is disconnected from the fundamentals and informed participants are always surprised how far it will overshoot on the upside AND the downside.
The market is driven by panic, euphoria, outright manipulation, greed and a myrid of other human forces. In the long run it is fundamentals of course, but the long run is MANY YEARS.
So in summary the market has not really gone anywhere the last few weeks and you can see the red line gaining on the blue line in the all important chart above… Maybe the market has topped (no one knows for sure), but what I am SURE of is that the person who WAITS for the signal on the long and short side will always DESTROY the person who tries to pick bottoms and tops.
Trust the predefined mathematical market signals you believe in (whatever they may be) and not fundamental analysis if you are going to try to time the market.
Sunday, April 11, 2010
The Great Recovery in Pictures.
First lets take a look at the stock market over the last year.
Wow that’s quite a rally off the lows. Let’s see, what originally caused all these problems in the stock market?
If you had to sum it up in just a few sentences you would say that first real estate declined which caused people to get in trouble with their mortgages. That hurt the mortgage-backed paper, which hurt the banks, which lead to the mortgage crisis, which caused massive job losses. This caused even more problem like lower consumer credit, more job losses, more home delinquencies, etc…
Well looking at the first picture (of the stock market) I would guess that all of these issues have been solved or at least improved quite a bit…
First lets look at the crux of the problem, the housing market. To get a rally like in the stock market delinquency rates must have really improved or at least stabilized.
Lets look at the “prime” delinquency rate and see….
Fannie Mae Serious Delinquency rate:
Well, that doesn’t look very good. Actually the national delinquency rate has been skyrocketing in a “hockey stick” manner. 8.78% of all US mortgages are now at least 90 days late! In the bubble states the stats are pretty unbelievable. Florida’s statewide delinquency rate is up 7% over the last year and now stands at 19.38%.
Let that sink in for a minute. Currently 19.38% of all Florida “homeowners” are at least 90 days late on their mortgage. Do you think this is going to lead to higher home prices in the near future or lower? How will this effect mortgage backed paper? Also consider the fact that the $8000 handout from the government runs out at the end of this month.
Ok, so the housing market is not recovering at all. So this market rally must be based on a large turnaround in the jobs market. Folks out of work for a while must be finding jobs in droves. Lets take a look at how many people have been unemployed over 26 weeks.
Unemployed over 26 weeks:
Ok… that doesn’t look very good either.. maybe these folks are just some kind of losers and really the overall job market is improving?
Let’s take a look at all of the recessions since the 1940’s and this current recession and see how the overall job market is doing. With a 80% rally in the stock market it probably has turned quite a bit.
Oh… that doesn’t look too good either. Especially when you consider currently we are counting the 1.2-1.5 million temporary jobs for the US census in these numbers.
Well what about lending and consumer credit. A big part of this crisis according to the talking heads was “banks aren’t lending”. I assume consumer credit has turned around quite a bit then?
Oh… actually it has declined for 12 straight months now and has been declining throughout this whole market rally? Strange…..
So you have a situation where the real estate delinquencies are surging, the job market is not improving and banks are not lending yet the stock market is rallying like it is 1999. How can you explain this?
Easy, the government is spending and giving away more money than in any other time in history (and this is an understatement)
1.5 trillion dollars going to be spent just this year…
A record $220.9 billion deficit in February alone
For every dollar in taxes and other revenues the federal government took in, the government SPENT $3.05.
2.4 trillion needs to be auctioned off in the treasury market just this year.
From Chris Martenson:
"Taken together, this means that in only two short years, 2009 and 2010, as much new Treasury debt will be auctioned off to the public as was outstanding in 1995. Since government borrowing never gets paid down, at least in modern history, it means that the last two years have seen as much borrowing as happened over the period in which electricity was strung to every house, the highways were built, and our population tripled. What can we point to that was created over the last two years to rival those accomplishments? "
So we have paid for this stock market rally with our futures. And the sad part is we have not even improved the things that the average person on the street cares about like the price of their home, their job and if they have access to credit.... we just gave a bunch of money to banks who speculated in stocks and made another valuation bubble.
Do you feel this stock market rally was worth it?
Wow that’s quite a rally off the lows. Let’s see, what originally caused all these problems in the stock market?
If you had to sum it up in just a few sentences you would say that first real estate declined which caused people to get in trouble with their mortgages. That hurt the mortgage-backed paper, which hurt the banks, which lead to the mortgage crisis, which caused massive job losses. This caused even more problem like lower consumer credit, more job losses, more home delinquencies, etc…
Well looking at the first picture (of the stock market) I would guess that all of these issues have been solved or at least improved quite a bit…
First lets look at the crux of the problem, the housing market. To get a rally like in the stock market delinquency rates must have really improved or at least stabilized.
Lets look at the “prime” delinquency rate and see….
Fannie Mae Serious Delinquency rate:
Well, that doesn’t look very good. Actually the national delinquency rate has been skyrocketing in a “hockey stick” manner. 8.78% of all US mortgages are now at least 90 days late! In the bubble states the stats are pretty unbelievable. Florida’s statewide delinquency rate is up 7% over the last year and now stands at 19.38%.
Let that sink in for a minute. Currently 19.38% of all Florida “homeowners” are at least 90 days late on their mortgage. Do you think this is going to lead to higher home prices in the near future or lower? How will this effect mortgage backed paper? Also consider the fact that the $8000 handout from the government runs out at the end of this month.
Ok, so the housing market is not recovering at all. So this market rally must be based on a large turnaround in the jobs market. Folks out of work for a while must be finding jobs in droves. Lets take a look at how many people have been unemployed over 26 weeks.
Unemployed over 26 weeks:
Ok… that doesn’t look very good either.. maybe these folks are just some kind of losers and really the overall job market is improving?
Let’s take a look at all of the recessions since the 1940’s and this current recession and see how the overall job market is doing. With a 80% rally in the stock market it probably has turned quite a bit.
Oh… that doesn’t look too good either. Especially when you consider currently we are counting the 1.2-1.5 million temporary jobs for the US census in these numbers.
Well what about lending and consumer credit. A big part of this crisis according to the talking heads was “banks aren’t lending”. I assume consumer credit has turned around quite a bit then?
Oh… actually it has declined for 12 straight months now and has been declining throughout this whole market rally? Strange…..
So you have a situation where the real estate delinquencies are surging, the job market is not improving and banks are not lending yet the stock market is rallying like it is 1999. How can you explain this?
Easy, the government is spending and giving away more money than in any other time in history (and this is an understatement)
1.5 trillion dollars going to be spent just this year…
A record $220.9 billion deficit in February alone
For every dollar in taxes and other revenues the federal government took in, the government SPENT $3.05.
2.4 trillion needs to be auctioned off in the treasury market just this year.
From Chris Martenson:
"Taken together, this means that in only two short years, 2009 and 2010, as much new Treasury debt will be auctioned off to the public as was outstanding in 1995. Since government borrowing never gets paid down, at least in modern history, it means that the last two years have seen as much borrowing as happened over the period in which electricity was strung to every house, the highways were built, and our population tripled. What can we point to that was created over the last two years to rival those accomplishments? "
So we have paid for this stock market rally with our futures. And the sad part is we have not even improved the things that the average person on the street cares about like the price of their home, their job and if they have access to credit.... we just gave a bunch of money to banks who speculated in stocks and made another valuation bubble.
Do you feel this stock market rally was worth it?
Thursday, October 22, 2009
Only 2 Billion of government treasury purchases remain.
Ironically the start of this bear market rally was kicked off when the Fed started its “Quantitative Easing” program. In layman’s terms this means the government printing money to buy treasuries. It is one of the only times in our monetary history that we have done such a thing and if you have been reading this blog for a long time you know that I call this the “Big Red Button” or the “Nuclear Option”.
I said for a few years that they would only use the “Nuclear Option” if their backs really got against the wall and there was no alternative. I also said that at some point they would do it even though it would be horrible for our economy. Well in March that is exactly where they were and as I expected they hit that button.
In all, the program was somewhat successful in holding rates down for the short run. The 10-year bond was trading at 3.00% when the program was announced. (up from 2.00% at the lows) Even with the massive rally in stocks which would usually cause a large flight from bonds the 10-year today is only trading at 3.40%. This is because the Fed was pouring in billions in purchases every week from today since March.
https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEib-wRSpEUe8bXyGLpqf9rQCIUL68hhhSzBO6ZOKNTdHbIEi_uMZJHPNd7GArux1iTsfbTukPQ_atCi86JZA54d56Eu17roT-mOkxCHHt-K-P-F9vmkFl5YTd_gpmzx1k2qkLRbqGNWY2g/s1600-h/FedTreasuryPurchases.jpg
Now I see this story on Calculated Risk which says that with the Fed’s 1 billion in purchases yesterday they are left with only 2 billion of the initial 300 billion.
http://www.calculatedriskblog.com/2009/10/fed-treasury-purchases-just-2-billion.html
Back in May 2009 I wrote a blog here called:
“Dollar or the bond market Benny, your choice…”
http://caps.fool.com/Blogs/ViewPost.aspx?bpid=198854&t=01001808419327792238
This is what I said at that time, this is when rates started to rise and the dollar first really started to fall.
"
The people selling the bonds were selling to force the Fed to buy more. Whenever a market participant makes a bluff like “Paulson’s Bazooka” from last year the MARKET CALLS THE BLUFF. That is why the yields are rising.
The people selling the dollar on the other hand, were selling because they are AFRAID that the Fed will print money to buy more.
So now the Fed has a choice.
1. Buy more bonds now and continue the dollar obliteration but hold down yields a bit..
2. Don’t buy more bonds and watch the dollar strengthen but yields rocket higher.
Because I think they are going to chose #1 I covered most of my shorts in real life… I went heavily short at 888 back on April 30th and today we closed at the same exact level (888). I still think stocks could be headed a GREAT DEAL lower but I thought the more “sure thing” at this point was gold and gold stocks yet again. Plus those ultrashorts BLOW and I don't like using puts. I bought a lot of gold on the break of $930 a few days ago and some of my favorite miners at the same time.
“
That worked out well, unfortunately I did not have the conviction to hold all of those positions till today but I always hold a good amount of gold.
Anyway….
So now we are at an interesting crossroads. Really I should have saved the title “Dollar or the bond market Benny, your choice…” for today’s post. When I wrote that post the Dollar was trading ABOVE 80 on the USDX and the 10-year bond rate was only 3.20%
Today the dollar is down below 75 and even with all the billions in buying from the Fed rates are just a bit higher at 3.40%. On one had the dollar crash has to be getting out of hand even in the Fed’s mind at this point. We have Oil well over $80 even though there is practically no demand for it because of this dollar issue. On the other hand the real estate market has not turned and higher rates at this time would still be disastrous for this economy.
Because of these issue I believe the Fed will wait before this issue a second Quanitative Easing program. They are going to spend their last 2 billion next week and see how the auctions go without them buying. I think the auctions will go poorly but if stocks were to roll over a bit the “flight to safety” could keep the bond market from outright crashing.
Either way if the Fed does not issue a second program yields are going to go higher unless stocks crash (down more than 30%). Even with a stock market crash I don’t see the 10-year ever getting to it’s December 2008 low yield mark of 2.00% where I called the bottom.
http://caps.fool.com/Blogs/ViewPost.aspx?bpid=120472&t=01001808419327792238
The only way that is going to happen is if they hit the “Big Red Button” again. If they were to do that though I believe we truly would be at the endgame for our currency. Seriously if they were to issue another 1 trillion MBS/Treasury purchase program I would be joining the camp of the hyperinflationists. Currently I am still solidly in the camp of the stagflationists (the guys who are winning).
Because I think they know at least as much as I do I believe they will hold off on a second Quantitative Easing program and we will get to see the TRUE treasury market over the next few months.
Let’s hope we don’t have to see what happens if their back gets to the wall again.
I said for a few years that they would only use the “Nuclear Option” if their backs really got against the wall and there was no alternative. I also said that at some point they would do it even though it would be horrible for our economy. Well in March that is exactly where they were and as I expected they hit that button.
In all, the program was somewhat successful in holding rates down for the short run. The 10-year bond was trading at 3.00% when the program was announced. (up from 2.00% at the lows) Even with the massive rally in stocks which would usually cause a large flight from bonds the 10-year today is only trading at 3.40%. This is because the Fed was pouring in billions in purchases every week from today since March.
https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEib-wRSpEUe8bXyGLpqf9rQCIUL68hhhSzBO6ZOKNTdHbIEi_uMZJHPNd7GArux1iTsfbTukPQ_atCi86JZA54d56Eu17roT-mOkxCHHt-K-P-F9vmkFl5YTd_gpmzx1k2qkLRbqGNWY2g/s1600-h/FedTreasuryPurchases.jpg
Now I see this story on Calculated Risk which says that with the Fed’s 1 billion in purchases yesterday they are left with only 2 billion of the initial 300 billion.
http://www.calculatedriskblog.com/2009/10/fed-treasury-purchases-just-2-billion.html
Back in May 2009 I wrote a blog here called:
“Dollar or the bond market Benny, your choice…”
http://caps.fool.com/Blogs/ViewPost.aspx?bpid=198854&t=01001808419327792238
This is what I said at that time, this is when rates started to rise and the dollar first really started to fall.
"
The people selling the bonds were selling to force the Fed to buy more. Whenever a market participant makes a bluff like “Paulson’s Bazooka” from last year the MARKET CALLS THE BLUFF. That is why the yields are rising.
The people selling the dollar on the other hand, were selling because they are AFRAID that the Fed will print money to buy more.
So now the Fed has a choice.
1. Buy more bonds now and continue the dollar obliteration but hold down yields a bit..
2. Don’t buy more bonds and watch the dollar strengthen but yields rocket higher.
Because I think they are going to chose #1 I covered most of my shorts in real life… I went heavily short at 888 back on April 30th and today we closed at the same exact level (888). I still think stocks could be headed a GREAT DEAL lower but I thought the more “sure thing” at this point was gold and gold stocks yet again. Plus those ultrashorts BLOW and I don't like using puts. I bought a lot of gold on the break of $930 a few days ago and some of my favorite miners at the same time.
“
That worked out well, unfortunately I did not have the conviction to hold all of those positions till today but I always hold a good amount of gold.
Anyway….
So now we are at an interesting crossroads. Really I should have saved the title “Dollar or the bond market Benny, your choice…” for today’s post. When I wrote that post the Dollar was trading ABOVE 80 on the USDX and the 10-year bond rate was only 3.20%
Today the dollar is down below 75 and even with all the billions in buying from the Fed rates are just a bit higher at 3.40%. On one had the dollar crash has to be getting out of hand even in the Fed’s mind at this point. We have Oil well over $80 even though there is practically no demand for it because of this dollar issue. On the other hand the real estate market has not turned and higher rates at this time would still be disastrous for this economy.
Because of these issue I believe the Fed will wait before this issue a second Quanitative Easing program. They are going to spend their last 2 billion next week and see how the auctions go without them buying. I think the auctions will go poorly but if stocks were to roll over a bit the “flight to safety” could keep the bond market from outright crashing.
Either way if the Fed does not issue a second program yields are going to go higher unless stocks crash (down more than 30%). Even with a stock market crash I don’t see the 10-year ever getting to it’s December 2008 low yield mark of 2.00% where I called the bottom.
http://caps.fool.com/Blogs/ViewPost.aspx?bpid=120472&t=01001808419327792238
The only way that is going to happen is if they hit the “Big Red Button” again. If they were to do that though I believe we truly would be at the endgame for our currency. Seriously if they were to issue another 1 trillion MBS/Treasury purchase program I would be joining the camp of the hyperinflationists. Currently I am still solidly in the camp of the stagflationists (the guys who are winning).
Because I think they know at least as much as I do I believe they will hold off on a second Quantitative Easing program and we will get to see the TRUE treasury market over the next few months.
Let’s hope we don’t have to see what happens if their back gets to the wall again.
Wednesday, October 21, 2009
Outside Day! Bears take over?
Outside Day:
"Outside days can occur frequently on daily charts. The secret of the outside day is the bigger the better and it has more meaning if found at the end of a trend.
The outside day (OD) should completely encompass the previous day. It must have a higher high than the previous day and a lower low than the previous day.
One of the most important things about this pattern is that the bar closes in the opposite direction of the trend. If the trend is down the close on the OD must be near the high or in the upper part of the bar. The opposite is true of the up trend. The OD may still work if this is not the case but my research show that it is more effective if it does close in the opposite direction."
Stole this from definition from:surefire-trading.com
We even went slightly above all the levels everyone was calling for as the top to hit their stops. Classic market action.
Today's outside day has a range from 1101 to 1080, which is a MASSIVE range. Not to mention we were at key resistance in October (traditionally weak time for stocks) and over 20% above the 200 day moving average AND to top it all off we closed near the lows.. I have not even gotten into the fundamentals but from a purely technical standpoint today was the “waterloo” day for the bears.
The only thing that could have made this better is if we closed below support at 1080… (near where all the bears were calling the top. That old resistance is now support.)
We held this support level into the close. Also volume was not as high as it should have been given the way the market traded.
Still, this massive an outside day, taking into account all of the other factors already stated make today’s reversal look VERY SIGNIFCANT INDEED.
"Outside days can occur frequently on daily charts. The secret of the outside day is the bigger the better and it has more meaning if found at the end of a trend.
The outside day (OD) should completely encompass the previous day. It must have a higher high than the previous day and a lower low than the previous day.
One of the most important things about this pattern is that the bar closes in the opposite direction of the trend. If the trend is down the close on the OD must be near the high or in the upper part of the bar. The opposite is true of the up trend. The OD may still work if this is not the case but my research show that it is more effective if it does close in the opposite direction."
Stole this from definition from:surefire-trading.com
We even went slightly above all the levels everyone was calling for as the top to hit their stops. Classic market action.
Today's outside day has a range from 1101 to 1080, which is a MASSIVE range. Not to mention we were at key resistance in October (traditionally weak time for stocks) and over 20% above the 200 day moving average AND to top it all off we closed near the lows.. I have not even gotten into the fundamentals but from a purely technical standpoint today was the “waterloo” day for the bears.
The only thing that could have made this better is if we closed below support at 1080… (near where all the bears were calling the top. That old resistance is now support.)
We held this support level into the close. Also volume was not as high as it should have been given the way the market traded.
Still, this massive an outside day, taking into account all of the other factors already stated make today’s reversal look VERY SIGNIFCANT INDEED.
Wednesday, September 23, 2009
Will sanity finally be making a return?
On CAPS alone today there are about 10 players calling the market top. In the blogosphere in general the top calls are everywhere. Of course its many of the same people that have been calling tops the whole way up but a 20 point reversal when we are this far away from the moving averages on the S&P makes it a pretty easy target. I think I agree with the consensus here even though I usually love to be a contrarian. The last retail sheep has probably already bought at this point.
Unlike the other internet folks though I can be honest on how wrong I had this market because I have nothing to sell you and no agenda... I started dumping longs at 850 and got aggressively short at 888. We went higher at first, then back below 900 and when we broke back above 900 I covered everything and went 100% cash as posted here in my last post in early July. I thought I was covering the at THE top selling FAZ in the 5’s (before the 10-1 reverse split) and SRS around $20, not to mention all the put positions… Thank god I did what I did….Had I been stubborn and NOT covered I would seriously be broke at this point. (in the trading account)
Brings me back to a saying I have heard many times… “Its not how many times you are right or wrong its how long you STAY wrong”
Of course I have done the check of how much money I would have made had I held all the longs I bought in the 600’s and 700’s all the way up to 1080, but I take solace in the fact that my 401K is up this year and up over the last 3 and 5 year periods… Not too many people can say that. It is because I had the balls to buy this market near the bottom like mad when no one else was buying and I knew NOT to be in during 2007.
Going back in time to when the market was in the 800’s this spring and EVERYONE was saying to short the market (including yours truly), I remember vividly listening to and interview with Robert Prechter. One of those Fast Money idiots asked him “Is it time to sell this bear market rally”.
His response was classic…. “As long as you are calling it a bear market rally it is not time to sell it yet, when you start arguing that it is NOT a bear market rally THEN it is time to sell”.
How true did that turn out to be. As I have been out of this market for months watching it go higher and higher every day I saw more interviews and now if someone says it’s a “bear market rally” they get laughed at by the same people.
I could go on and I have seen many things I wanted to blog about over the last few months but my life has been very busy recently and I have not gotten around to writing a blog.
One thing I did want to blog about is how the Stagflationists have the winning ticket in the “What will happen to the market in 2009” sweepstakes.
I remember back in October 2008 when I posted: “I’m the last man alive in the stagflationist Alamo”
This is what I had to say then:
I realize we are in the middle of the biggest deflationary panic in my lifetime. I also realize every single stagflationist has had their CAPS score go below zero, mine is right there.Stagflation is “an economic situation in which inflation and economic stagnation occur simultaneously and remain unchecked for a period of time.”This is exactly what we are getting in the longer run.
In November I reaffirmed my belief in Stagflation with:
“The speed bump on the road to inflation” and said you needed to buy
SLW at $3.70A
UY at $4.75
GDX at $ 21.35
http://caps.fool.com/Blogs/ViewPost.aspx?bpid=107406&t=01001808419327792238
I also called the bottom in oil at $33.50
http://caps.fool.com/Blogs/ViewPost.aspx?bpid=121461&t=01001808419327792238
Anyway, the point of all of this is I was ranting about stagflation when it was NOT cool to be ranting about stagflation (late 2008) and stagflation is EXACTLY what we are getting. Official unemployment near 10% (with real unemployment near 20%) yet even with the economy at a standstill. Gold is over $1000 and Oil is in the 70’s. Plus the dollar gets the crap beat out of it every day and is back near its all time lows.
Of course if the market is to reverse here like it seems it might we are going to get a pullback in oil and gold and the dollar will rise… But we have seen the lows in these commodities and the high’s in the dollar. Stagflation is here to stay and although I may have been “the last man alive in the stagflationist Alamo” the Alamo held!
Anyway, I will try to muse about my market and more importantly my economic thoughts on a bi-weekly/monthly basis like have been for the last few years again in the upcoming months.
Unlike the other internet folks though I can be honest on how wrong I had this market because I have nothing to sell you and no agenda... I started dumping longs at 850 and got aggressively short at 888. We went higher at first, then back below 900 and when we broke back above 900 I covered everything and went 100% cash as posted here in my last post in early July. I thought I was covering the at THE top selling FAZ in the 5’s (before the 10-1 reverse split) and SRS around $20, not to mention all the put positions… Thank god I did what I did….Had I been stubborn and NOT covered I would seriously be broke at this point. (in the trading account)
Brings me back to a saying I have heard many times… “Its not how many times you are right or wrong its how long you STAY wrong”
Of course I have done the check of how much money I would have made had I held all the longs I bought in the 600’s and 700’s all the way up to 1080, but I take solace in the fact that my 401K is up this year and up over the last 3 and 5 year periods… Not too many people can say that. It is because I had the balls to buy this market near the bottom like mad when no one else was buying and I knew NOT to be in during 2007.
Going back in time to when the market was in the 800’s this spring and EVERYONE was saying to short the market (including yours truly), I remember vividly listening to and interview with Robert Prechter. One of those Fast Money idiots asked him “Is it time to sell this bear market rally”.
His response was classic…. “As long as you are calling it a bear market rally it is not time to sell it yet, when you start arguing that it is NOT a bear market rally THEN it is time to sell”.
How true did that turn out to be. As I have been out of this market for months watching it go higher and higher every day I saw more interviews and now if someone says it’s a “bear market rally” they get laughed at by the same people.
I could go on and I have seen many things I wanted to blog about over the last few months but my life has been very busy recently and I have not gotten around to writing a blog.
One thing I did want to blog about is how the Stagflationists have the winning ticket in the “What will happen to the market in 2009” sweepstakes.
I remember back in October 2008 when I posted: “I’m the last man alive in the stagflationist Alamo”
This is what I had to say then:
I realize we are in the middle of the biggest deflationary panic in my lifetime. I also realize every single stagflationist has had their CAPS score go below zero, mine is right there.Stagflation is “an economic situation in which inflation and economic stagnation occur simultaneously and remain unchecked for a period of time.”This is exactly what we are getting in the longer run.
In November I reaffirmed my belief in Stagflation with:
“The speed bump on the road to inflation” and said you needed to buy
SLW at $3.70A
UY at $4.75
GDX at $ 21.35
http://caps.fool.com/Blogs/ViewPost.aspx?bpid=107406&t=01001808419327792238
I also called the bottom in oil at $33.50
http://caps.fool.com/Blogs/ViewPost.aspx?bpid=121461&t=01001808419327792238
Anyway, the point of all of this is I was ranting about stagflation when it was NOT cool to be ranting about stagflation (late 2008) and stagflation is EXACTLY what we are getting. Official unemployment near 10% (with real unemployment near 20%) yet even with the economy at a standstill. Gold is over $1000 and Oil is in the 70’s. Plus the dollar gets the crap beat out of it every day and is back near its all time lows.
Of course if the market is to reverse here like it seems it might we are going to get a pullback in oil and gold and the dollar will rise… But we have seen the lows in these commodities and the high’s in the dollar. Stagflation is here to stay and although I may have been “the last man alive in the stagflationist Alamo” the Alamo held!
Anyway, I will try to muse about my market and more importantly my economic thoughts on a bi-weekly/monthly basis like have been for the last few years again in the upcoming months.
Tuesday, July 7, 2009
If Bernanke were a CAPS poster he would get zero recs a post by now
Copied from my CAPS blog:
I think his whole “Subprime is contained” speech would have lost him his last readers… anyway…
This is not another “I told you post” from a bear. An “I told you post” would have been in order if on top of getting in near the bottom of the crash I would have said to hold all your longs until 950, THEN told you to sell… Oh well.
Either way, the market has given up the all of May and June’s gains and more impressively took out the lows from 2 weeks ago at 888.
Personally I am not trying to profit on the decline anymore.
I sold FAZ in the low 5’s back in late June, since the XLF has been DECIMATED yet FAZ only trades at $5.35 today. I sold my put positions back then as well and I look at them now and the quotes are only slightly higher then for what I sold them for because of the time value/IV crush even though the stocks are much lower.. WYNN is the only one I am kicking myself over.
Bottom line is it is tough to profit on a decline unless it is steep and exactly where/where you call for it to happen. It is much easier to profit in a bull market as you can buy a stock and be wrong for quite some time and EVENTUALLY be right. I am starting to think if you really want to profit on the decline of stocks you need to just be straight short the stock but really I am also starting to believe what a friend (Dawgs) told me a while ago that shorting is gambling and not investing.
I never though I would type those words but back in mid-April when the market was at the same levels I did say…
“I am not as concerned with making all the money that will be made on the downside as shorting is stressful and dealing with Ultrashorts or put options is like juggling chainsaws….”
After some juggling I guess now I just believe my words more!
So where are we now on the market? The P/E of the market is still high, earnings and earnings growth are still horrible. The economy is still getting worse, not better. House prices are still falling, we are still losing jobs, blah blah blah…. I could write a book on this but that’s why you have all the other CAPS blogs…
The long-term timing signals for a LONG TERM buy on the S&P are still VERY far away from being triggered… From eyeballing the long-term chart I would say if the market stayed exactly where it is today it would take AT LEAST 8 more months to get the long term moving averages in a place where you could tell your Grandma to buy. That 8-months also assumes that the market does not drop back down into the abyss and that is not an assumption I am willing to make.
So bottom line is even with the market pulling back 8% from it’s recent highs, it’s not a good time for an investor to be buying much. The market is probably headed lower in the short run and even more so in the longer run (multi-month) but lots of people are piled on the short side yet again so the chance for another “get shorty” ramp job up back to 950 or 1000 always exists.
California IS the short term:
Really in my opinion the short term performance of the market is NOT dependant on the “Head and Shoulders” on the S&P or some MAGIC Elliot wave pattern, it has 100% to do with the situation in California right now.
If California were a country it would have the 10th largest GDP and would be ahead of Italy, Mexico, Spain and Canada. It has been paying its debts in ponzi-notes for the last week. Banks came out yesterday and said they would not accept the notes anymore come FRIDAY OF THIS WEEK. So you have this behemoth that is a good portion of the ENTIRE United States GDP that is completely bankrupt, starting printing Monopoly money and now they are saying the Monopoly money is no good. I think a 6 year old would understand why this is a huge problem for the market.
So it comes down to this… Do the men in the smoky room who knowingly or unknowingly control the market (in the short run) let this situation in California go on or do they throw a few billion their way and band-aid the problem.
Letting the situation get worse and talking down the economy at the same time would continue to hurt the stock market which would get more votes in congress for the second stimulus bill that everyone is talking about now. The more 200-300 point down days we have the more chance this bill has to pass…
So maybe that is the route they go, personally I am tired of making investing decisions based on what some folks in a smoky room decide. I realize that this has been the short-term market since 2007 or so, but at this point it has gotten ridiculous.
So I wait in cash for the buying opportunities that will be presented to INVESTORS in the future. I have been closing out my CAPS picks over the last week as I do not intend on following the market as closely again for quite some time, until the investors can come back. From looking at the volume of the market over the last few months I can see quite a few people have probably made the same decision I have.
Understand for me that means only reading about it for 10 hours a week instead of 50, but still… :)
I think his whole “Subprime is contained” speech would have lost him his last readers… anyway…
This is not another “I told you post” from a bear. An “I told you post” would have been in order if on top of getting in near the bottom of the crash I would have said to hold all your longs until 950, THEN told you to sell… Oh well.
Either way, the market has given up the all of May and June’s gains and more impressively took out the lows from 2 weeks ago at 888.
Personally I am not trying to profit on the decline anymore.
I sold FAZ in the low 5’s back in late June, since the XLF has been DECIMATED yet FAZ only trades at $5.35 today. I sold my put positions back then as well and I look at them now and the quotes are only slightly higher then for what I sold them for because of the time value/IV crush even though the stocks are much lower.. WYNN is the only one I am kicking myself over.
Bottom line is it is tough to profit on a decline unless it is steep and exactly where/where you call for it to happen. It is much easier to profit in a bull market as you can buy a stock and be wrong for quite some time and EVENTUALLY be right. I am starting to think if you really want to profit on the decline of stocks you need to just be straight short the stock but really I am also starting to believe what a friend (Dawgs) told me a while ago that shorting is gambling and not investing.
I never though I would type those words but back in mid-April when the market was at the same levels I did say…
“I am not as concerned with making all the money that will be made on the downside as shorting is stressful and dealing with Ultrashorts or put options is like juggling chainsaws….”
After some juggling I guess now I just believe my words more!
So where are we now on the market? The P/E of the market is still high, earnings and earnings growth are still horrible. The economy is still getting worse, not better. House prices are still falling, we are still losing jobs, blah blah blah…. I could write a book on this but that’s why you have all the other CAPS blogs…
The long-term timing signals for a LONG TERM buy on the S&P are still VERY far away from being triggered… From eyeballing the long-term chart I would say if the market stayed exactly where it is today it would take AT LEAST 8 more months to get the long term moving averages in a place where you could tell your Grandma to buy. That 8-months also assumes that the market does not drop back down into the abyss and that is not an assumption I am willing to make.
So bottom line is even with the market pulling back 8% from it’s recent highs, it’s not a good time for an investor to be buying much. The market is probably headed lower in the short run and even more so in the longer run (multi-month) but lots of people are piled on the short side yet again so the chance for another “get shorty” ramp job up back to 950 or 1000 always exists.
California IS the short term:
Really in my opinion the short term performance of the market is NOT dependant on the “Head and Shoulders” on the S&P or some MAGIC Elliot wave pattern, it has 100% to do with the situation in California right now.
If California were a country it would have the 10th largest GDP and would be ahead of Italy, Mexico, Spain and Canada. It has been paying its debts in ponzi-notes for the last week. Banks came out yesterday and said they would not accept the notes anymore come FRIDAY OF THIS WEEK. So you have this behemoth that is a good portion of the ENTIRE United States GDP that is completely bankrupt, starting printing Monopoly money and now they are saying the Monopoly money is no good. I think a 6 year old would understand why this is a huge problem for the market.
So it comes down to this… Do the men in the smoky room who knowingly or unknowingly control the market (in the short run) let this situation in California go on or do they throw a few billion their way and band-aid the problem.
Letting the situation get worse and talking down the economy at the same time would continue to hurt the stock market which would get more votes in congress for the second stimulus bill that everyone is talking about now. The more 200-300 point down days we have the more chance this bill has to pass…
So maybe that is the route they go, personally I am tired of making investing decisions based on what some folks in a smoky room decide. I realize that this has been the short-term market since 2007 or so, but at this point it has gotten ridiculous.
So I wait in cash for the buying opportunities that will be presented to INVESTORS in the future. I have been closing out my CAPS picks over the last week as I do not intend on following the market as closely again for quite some time, until the investors can come back. From looking at the volume of the market over the last few months I can see quite a few people have probably made the same decision I have.
Understand for me that means only reading about it for 10 hours a week instead of 50, but still… :)
Sunday, May 31, 2009
Bears will know if they are wrong in the next few days.
Copied from my CAPS blog:--------------------------------------------
We FINALLY hit the 200-day moving average on that ramp job in the last few seconds of the day on Friday (5/29). Everyone said it needed to happen and it appears as if everyone was right.
Personally I am glad we got it over with, but what now?
Personally I am glad we got it over with, but what now?
I was away from the market Thursday and Friday and unfortunately I got stopped out on my FAZ at $4.99 (few penny loss) but the rest of my shorts are still on although they are a little bit underwater. (I put these shorts on during the 200-point rally on 5/25, as noted in the comments section)
Here is my plan. If we break down here or very close to here I will get more short, hold the rest of my shorts and prepare for the pullback. If we ramp higher and clearly break out above these resistance levels I will just go back to cash. 8600 on the Dow, 930 on the S&P should not be taken out and we shouldn’t close too much above these current levels as of today (8500 on the Dow, 920 on the S&P) IF the bear case is still in play.
There is a reason I have an IF in that statement. The dollar index is trading down to 79.2. It traded right around 79 in December 2008 and that was its low since the dollar rally began in earnest. If that low were to fall I would think the dollar will probably go back to it's all time historical lows at 72 and you wouldn't want to be short anything if the dollar continues it’s crash.
In my opinion the dollar crashing is the only thing holding the market up right now. Think about this…
Way back on April 30th when I wrote that I believe the market had topped at 888:
The Dollar index was trading at 86…Now it is at 79.2 which is an 8% loss in only one month.
Oil was trading right below $50 and now is $66.50 or a 25% gain in one month.
Silver was $12 and now is $15.70 or a 31% gain in one month.
The CRB (commodity index) was trading at 217 and now is trading at 253 or a 17% gain in one month.
Even the laggard Gold is up from 890 to 980 (10% gain which seems weak in comparison)
This was the reason I first covered my shorts when we blasted back through 900 after the first pullback a few weeks ago (but put them back on back at 910 on 5/25), the dollar crashing scares the HELL out of me as an equity bear.
As someone who shorted the market in 2007 while the dollar was crashing I learned the hard way it is tough to be short when companies can produce "earnings" via a weak dollar and energy is a very LARGE portion of the S&P these days....
Stocks can have ALL the fundamental reasons in the world to go down but when the dollar is losing greater than 1% every day it is hard for stocks to go lower in that environment.
Bottom line is this…. Since April 30th (1 full month) the market is up from 888 to 919 or 3.5% and in that same time period the dollar has lost 8% of its value. Look at the gains in EVERYTHING else during that time period! Is it good for the market to be up 3% and in the same time period oil to be up 25% and the dollar to be down 8%?
Of course that is HORRBIBLE news but you won’t here that on CNBC. What the bears need to be careful of though is the dollar crashing can continue to lift equities upward reluctantly if it keeps happening.
With the market sitting right at the 200-day moving average and having the dollar right near support makes it worth while to try to short again, but you have to be ready to pull it all off again if it looks like the market wants to keep going higher above these key levels.
Watch the dollar for clues on what the stock market will do, if the dollar breaks lower get to the sidelines but if the dollar can stabilize or rally the bears have life again…
Dollar debasement is all this market has right now but it is a powerful force.
Sunday, April 19, 2009
S&P percentage gains on a per week basis during this rally…
Copied from my Motley Fool CAPS blog....
Look at the “percentage gained” over this 6-week rally and see if you notice a trend…
Week of: Start End Points Percentage
13-Apr-09 856.91 869.6 12.69 1.48%
6-Apr-09 839.75 856.91 17.16 2.04%
30-Mar-09 832.98 845.61 12.63 1.52%
23-Mar-09 803.24 832.98 29.74 3.70%
16-Mar-09 758.29 803.24 44.95 5.93%
9-Mar-09 680.76 758.29 77.53 11.39%
Gains have been getting weaker and weaker. Most of this rally all took place in the first 2 weeks.
Also some must view links for this upcoming week:
1. Percentage of stocks above the 50-day moving average, multi-YEAR high:
http://stockcharts.com/h-sc/ui?s=$SPXA50R&p=W&yr=3&mn=0&dy=0&id=p24812634319
2. Retail is now OFF THE CHARTS bullish because we eeked out another measly 1% rally on the week.
http://www.sentimentrader.com/
3. Put-Call ratio is 0.56, multi-year low. Traders are gorged with calls…
http://stockcharts.com/h-sc/ui?s=$CPCE&p=D&yr=1&mn=0&dy=0&id=p79337359546
4. Since the rally started on March 9th, there have only been three 2-day corrections and ZERO 3-day corrections. A big run up with no pullback lead to “weak longs” and the longer the rally goes on the more momentum, non value driven, short term traders get on board. These traders are fickle.
Although I cannot tell you the day this bear market rally ends, I can tell you that we will wipe out all of the piddly gains over the last 3 weeks of this rally in just a few trading sessions, what happens after that is more up in the air.
Richard Russell: The scariest declines in bear markets are typically the ones when investors think they are making progress and recovering their losses, only to see stocks go into a new free-fall.
“That cycle of decline, followed by hope, followed by fresh losses, is really what ultimately puts a final low in place. The final decline of a bear market tends to be based on “revulsion” – a growing impatience among investors who conclude that stocks are simply bad investments, that the economy will continue to languish, and that nothing will work to help it recover. Revulsion is not based so much on fear or panic, but instead on despair and disillusionment. In a very real sense, investors abandon stocks at the end of a bear market because stocks have repeatedly proved themselves to be unreliable and disappointing.”
Good analogy for what is going to happen to this rally below:
http://www.youtube.com/watch?v=uHz2xCV64n8
Look at the “percentage gained” over this 6-week rally and see if you notice a trend…
Week of: Start End Points Percentage
13-Apr-09 856.91 869.6 12.69 1.48%
6-Apr-09 839.75 856.91 17.16 2.04%
30-Mar-09 832.98 845.61 12.63 1.52%
23-Mar-09 803.24 832.98 29.74 3.70%
16-Mar-09 758.29 803.24 44.95 5.93%
9-Mar-09 680.76 758.29 77.53 11.39%
Gains have been getting weaker and weaker. Most of this rally all took place in the first 2 weeks.
Also some must view links for this upcoming week:
1. Percentage of stocks above the 50-day moving average, multi-YEAR high:
http://stockcharts.com/h-sc/ui?s=$SPXA50R&p=W&yr=3&mn=0&dy=0&id=p24812634319
2. Retail is now OFF THE CHARTS bullish because we eeked out another measly 1% rally on the week.
http://www.sentimentrader.com/
3. Put-Call ratio is 0.56, multi-year low. Traders are gorged with calls…
http://stockcharts.com/h-sc/ui?s=$CPCE&p=D&yr=1&mn=0&dy=0&id=p79337359546
4. Since the rally started on March 9th, there have only been three 2-day corrections and ZERO 3-day corrections. A big run up with no pullback lead to “weak longs” and the longer the rally goes on the more momentum, non value driven, short term traders get on board. These traders are fickle.
Although I cannot tell you the day this bear market rally ends, I can tell you that we will wipe out all of the piddly gains over the last 3 weeks of this rally in just a few trading sessions, what happens after that is more up in the air.
Richard Russell: The scariest declines in bear markets are typically the ones when investors think they are making progress and recovering their losses, only to see stocks go into a new free-fall.
“That cycle of decline, followed by hope, followed by fresh losses, is really what ultimately puts a final low in place. The final decline of a bear market tends to be based on “revulsion” – a growing impatience among investors who conclude that stocks are simply bad investments, that the economy will continue to languish, and that nothing will work to help it recover. Revulsion is not based so much on fear or panic, but instead on despair and disillusionment. In a very real sense, investors abandon stocks at the end of a bear market because stocks have repeatedly proved themselves to be unreliable and disappointing.”
Good analogy for what is going to happen to this rally below:
http://www.youtube.com/watch?v=uHz2xCV64n8
Sunday, April 12, 2009
Nearing the end of the current bear market rally, BUT….
Copied from my Motley Fool Blog:
It’s been a while since I wrote a long post on my thoughts on the market out here.
--------------------------------- Background
When this whole rally started in the 600’s I bought in with both feet. I loaded up on Citigroup, UYG, GE, SSO, Alcoa, TAN, DXO and I sold all my gold and silver miners near the peak after the Fed announcement of Quantitative Easing at GDX = $38 a share.. I even put 100% of my 401K in the market near the lows.
Well I finally have gotten rid of all my longs except for a few I sold in the money covered calls on for April that will probably get called away from me.
I even have dipped my toe into shorting the last few days but I have kept it VERY small and actually have been stopped out for now as the “animal spirits” are really in the equity markets right now.
That being said we are nearing the end of this bear market rally. I am not smart enough to tell you if it is today at 856 on the S&P. I am always early on predicting market moves and luckily I have adjusted my trading to fit my “always early” timing.
For instance I was finally getting bullish on this market again when it broke 750 to the downside on February 22nd when I posted:
“You want to see what irrational panic looks like, look no farther than today.”
http://caps.fool.com/Blogs/ViewPost.aspx?bpid=149024&t=01001808419327792238 2/22/09
But I noted in my post that I was just STARTING to nibble on long side candidates when I said..
“I am FINALLY adding some NON-gold related longs to my real account.”
This is the number one lesson trading these markets has taught me, you are never going to catch the exact top or the exact bottom. I started buying things at 750, bought all the way down to 666 and started selling above 830…
I have made great profits this year and am not as concerned with making all the money that will be made on the downside as shorting is stressful and dealing with Ultrashorts or put options is like juggling chainsaws…. Look the single day, 50% loss in FAZ Thursday for a good example. I shorted Lehman Brothers the whole way down with puts in 2008 and I believe I took 3 years off my life doing so. :)
--------------------------------- The BUT….
There is a reason I have a “but…” in the title of this post…. The reason is although this may be another bear market rally, 666 on the S&P could have been the REAL low.
But to me that does not really matter, in my opinion even if it was the REAL low we are NOT just going to go straight up off of a V bottom like what is happening right now. We are up 28.5% from the lows in exactly 1 month’s time. A 28.5%, 1 month rally is NOT the way a market bottoms. So selling here makes sense if you believe 666 was the ultimate bottom OR you believe the real bottom is lower.
Arguing if that was really the low or not matters very little as it is 30% away from where we are now. Do you want to hold even if we only retrace half of the rally? (15% decline) I know for sure I do not.
--------------------------------- The Reasons….
Anyway, if you want more proof that we are due for a pullback of some sort, or maybe something more sinister (like new lows) I will offer up some proof from a technical perspective and from others. Really I probably should have just limited my post to this info.
1. The “dumb money index” at http://www.sentimentrader.com/ has swung to positive in the short run AND the long run.. First time this has happened since September 2008.
2. Corporate Bond spreads, although off the all time record levels of January 2009 have not improved substantially and are still sitting at levels that would have been unthinkable in 2008.
3. This chart, which needs no explanation. (C-RSI over the last 8 years)
http://www.stocktiming.com/Tuesday-DailyMarketUpdate.htm
4. Mutual fund inflow finally have started to surge. Trimtabs reported 11.9 billion in Mutual fund inflows last week. The previous week there was only 3 billion of inflows and that had been the trend through much of March. Mutual fund money is “the dumbest of the dumb money” and you always see a surge of mutual fund money coming in when the market tops.
5. At the same time Equity ETF’s had outflows for the second consecutive week. So pro traders are selling to mom and pop mutual fund holder.
6. A great deal of credit indexes are STILL HITTING NEW LOWS. The ABX indexes all put in new lows. What about the Public Private Purchase program? :) The CMBX spreads are still above the levels where they BLEW OUT in November 2008. Triple A CMBX spreads are at 600 basis points and they were at 200 during the stock market crash in October. So right now CMBX spreads are 3 times worse than October 2008 and ABX prices are at their worst levels ever. Yet the market continues to rally.
5. Although unemployment is a lagging indicator it is surging at an increasing and mind-boggling rate.
https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEg35EYd0kRByWIt7YAX8IPRMmjj1C5lHzDg2wy3Me6K3Mg4WZ75QUTyRwnNRQnk-2EaIhsCkJMMkFicJi5sQTA0jlFbTJJre2VDnLQXpYlOe7oAiTq7WYMM3S5F2mBCxgtC5lrwJdVBofhx/s1600-h/Unemployment+Rate-2009-03.png
6. The bottom at 666 had no capitulation associated with it.
“in January 2008, when the S&Ps were in the early stages of what was to become a devastating collapse, domestic equity mutual funds were worth about $6.5 trillion. Lo, a little more than a year later, in February 2009, we see that the value of these funds had fallen by about 48%, to $3.4 trillion. But guess what: Over that time, net redemptions totaled only 2%, or about $100 billion! What that means, explicitly, is that mutual fund investors have stuck with this bear market throughout the decline.” Rick Ackerman from www.rickackerman.com One of the best investors I read.
7. The trailing P/E of the market is 100… you won’t find that stat on CNBC.
8. World trade has fallen off a cliff and has not recovered during this market rally. The Drybulk index has been down 21 of the last 22 days yet the market has rallied this whole period. Here is a graphical picture of world trade.
http://www.advisorperspectives.com/commentaries/images/jm021309image001_0F6C5DDE.gif
9. The big money was DUMPING hardcore into the financial run up on Thursday.
http://online.wsj.com/mdc/public/page/2_3022-mflppg-moneyflow.html?mod=mdc_leader
10. Jim Cramer called the bottom for the 10,000 time at 856 on Thursday.. (29% off the lows) Also he is still on TV and I have always said I believe the real bottom comes when his show gets pulled because no Cramericans have any money left.
I think that is enough for now. Something I realize is FACTS ARE NOT SHORT TERM TRADING INDICATORS but they should still be kept in mind when trying to determine the longer-term picture. For instance some REITS are paying their dividends by issuing more stock which is the “ponziest” thing I have ever heard, but that being said SRS which shorts REITS was down 24% on Thursday.
One thing I learned from 2007 is being right on the macro level is not the same as being right trading the markets. Still all these things are to be kept in mind as eventually FACTS MATTER.
Thanks for reading this extra long post. Please rec and comment.
PS: Quote of the day: “Buying our own treasuries: Paying other people interest to loan ourselves money we don't have.”
It’s been a while since I wrote a long post on my thoughts on the market out here.
--------------------------------- Background
When this whole rally started in the 600’s I bought in with both feet. I loaded up on Citigroup, UYG, GE, SSO, Alcoa, TAN, DXO and I sold all my gold and silver miners near the peak after the Fed announcement of Quantitative Easing at GDX = $38 a share.. I even put 100% of my 401K in the market near the lows.
Well I finally have gotten rid of all my longs except for a few I sold in the money covered calls on for April that will probably get called away from me.
I even have dipped my toe into shorting the last few days but I have kept it VERY small and actually have been stopped out for now as the “animal spirits” are really in the equity markets right now.
That being said we are nearing the end of this bear market rally. I am not smart enough to tell you if it is today at 856 on the S&P. I am always early on predicting market moves and luckily I have adjusted my trading to fit my “always early” timing.
For instance I was finally getting bullish on this market again when it broke 750 to the downside on February 22nd when I posted:
“You want to see what irrational panic looks like, look no farther than today.”
http://caps.fool.com/Blogs/ViewPost.aspx?bpid=149024&t=01001808419327792238 2/22/09
But I noted in my post that I was just STARTING to nibble on long side candidates when I said..
“I am FINALLY adding some NON-gold related longs to my real account.”
This is the number one lesson trading these markets has taught me, you are never going to catch the exact top or the exact bottom. I started buying things at 750, bought all the way down to 666 and started selling above 830…
I have made great profits this year and am not as concerned with making all the money that will be made on the downside as shorting is stressful and dealing with Ultrashorts or put options is like juggling chainsaws…. Look the single day, 50% loss in FAZ Thursday for a good example. I shorted Lehman Brothers the whole way down with puts in 2008 and I believe I took 3 years off my life doing so. :)
--------------------------------- The BUT….
There is a reason I have a “but…” in the title of this post…. The reason is although this may be another bear market rally, 666 on the S&P could have been the REAL low.
But to me that does not really matter, in my opinion even if it was the REAL low we are NOT just going to go straight up off of a V bottom like what is happening right now. We are up 28.5% from the lows in exactly 1 month’s time. A 28.5%, 1 month rally is NOT the way a market bottoms. So selling here makes sense if you believe 666 was the ultimate bottom OR you believe the real bottom is lower.
Arguing if that was really the low or not matters very little as it is 30% away from where we are now. Do you want to hold even if we only retrace half of the rally? (15% decline) I know for sure I do not.
--------------------------------- The Reasons….
Anyway, if you want more proof that we are due for a pullback of some sort, or maybe something more sinister (like new lows) I will offer up some proof from a technical perspective and from others. Really I probably should have just limited my post to this info.
1. The “dumb money index” at http://www.sentimentrader.com/ has swung to positive in the short run AND the long run.. First time this has happened since September 2008.
2. Corporate Bond spreads, although off the all time record levels of January 2009 have not improved substantially and are still sitting at levels that would have been unthinkable in 2008.
3. This chart, which needs no explanation. (C-RSI over the last 8 years)
http://www.stocktiming.com/Tuesday-DailyMarketUpdate.htm
4. Mutual fund inflow finally have started to surge. Trimtabs reported 11.9 billion in Mutual fund inflows last week. The previous week there was only 3 billion of inflows and that had been the trend through much of March. Mutual fund money is “the dumbest of the dumb money” and you always see a surge of mutual fund money coming in when the market tops.
5. At the same time Equity ETF’s had outflows for the second consecutive week. So pro traders are selling to mom and pop mutual fund holder.
6. A great deal of credit indexes are STILL HITTING NEW LOWS. The ABX indexes all put in new lows. What about the Public Private Purchase program? :) The CMBX spreads are still above the levels where they BLEW OUT in November 2008. Triple A CMBX spreads are at 600 basis points and they were at 200 during the stock market crash in October. So right now CMBX spreads are 3 times worse than October 2008 and ABX prices are at their worst levels ever. Yet the market continues to rally.
5. Although unemployment is a lagging indicator it is surging at an increasing and mind-boggling rate.
https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEg35EYd0kRByWIt7YAX8IPRMmjj1C5lHzDg2wy3Me6K3Mg4WZ75QUTyRwnNRQnk-2EaIhsCkJMMkFicJi5sQTA0jlFbTJJre2VDnLQXpYlOe7oAiTq7WYMM3S5F2mBCxgtC5lrwJdVBofhx/s1600-h/Unemployment+Rate-2009-03.png
6. The bottom at 666 had no capitulation associated with it.
“in January 2008, when the S&Ps were in the early stages of what was to become a devastating collapse, domestic equity mutual funds were worth about $6.5 trillion. Lo, a little more than a year later, in February 2009, we see that the value of these funds had fallen by about 48%, to $3.4 trillion. But guess what: Over that time, net redemptions totaled only 2%, or about $100 billion! What that means, explicitly, is that mutual fund investors have stuck with this bear market throughout the decline.” Rick Ackerman from www.rickackerman.com One of the best investors I read.
7. The trailing P/E of the market is 100… you won’t find that stat on CNBC.
8. World trade has fallen off a cliff and has not recovered during this market rally. The Drybulk index has been down 21 of the last 22 days yet the market has rallied this whole period. Here is a graphical picture of world trade.
http://www.advisorperspectives.com/commentaries/images/jm021309image001_0F6C5DDE.gif
9. The big money was DUMPING hardcore into the financial run up on Thursday.
http://online.wsj.com/mdc/public/page/2_3022-mflppg-moneyflow.html?mod=mdc_leader
10. Jim Cramer called the bottom for the 10,000 time at 856 on Thursday.. (29% off the lows) Also he is still on TV and I have always said I believe the real bottom comes when his show gets pulled because no Cramericans have any money left.
I think that is enough for now. Something I realize is FACTS ARE NOT SHORT TERM TRADING INDICATORS but they should still be kept in mind when trying to determine the longer-term picture. For instance some REITS are paying their dividends by issuing more stock which is the “ponziest” thing I have ever heard, but that being said SRS which shorts REITS was down 24% on Thursday.
One thing I learned from 2007 is being right on the macro level is not the same as being right trading the markets. Still all these things are to be kept in mind as eventually FACTS MATTER.
Thanks for reading this extra long post. Please rec and comment.
PS: Quote of the day: “Buying our own treasuries: Paying other people interest to loan ourselves money we don't have.”
Sunday, March 15, 2009
A look back
On March 6th, I sent this note to many of our loyal readers in an e-mail:
"Thanks to all of this market destruction, there are some extreme examples of market volatility that could provide what I call, easy money.... You can write puts for December 09 on the S&P at 400 and pocket a $150 premium. Using a bull put spread option, you can buy puts for December 09 on the S&P at 350 for $75. You collect a net premium of $75 and your required collateral to hold is $500 (the difference of 400 on the S&P and 350), making your total return 15% and annualized 18%.... Even in my wildest bear dreams the S&P will not be below 400 this year, that would be another 40% decline from where we are today."
On March 6th, the S&P was at 683. Today, the S&P is at 756. If you executed this strategy, the puts you wrote would now be worth $75 each and the puts you bought would be worth $46 each. You take a $75 gain on the puts you wrote and a $29 loss on the puts you bought and that gives you a $46 profit per contract pair (spread) in just over one week. $46 on $500 collateral is 9.2% return, but annualized its 478%.
We all need dry powder in our accounts for opportunities like this!
"Thanks to all of this market destruction, there are some extreme examples of market volatility that could provide what I call, easy money.... You can write puts for December 09 on the S&P at 400 and pocket a $150 premium. Using a bull put spread option, you can buy puts for December 09 on the S&P at 350 for $75. You collect a net premium of $75 and your required collateral to hold is $500 (the difference of 400 on the S&P and 350), making your total return 15% and annualized 18%.... Even in my wildest bear dreams the S&P will not be below 400 this year, that would be another 40% decline from where we are today."
On March 6th, the S&P was at 683. Today, the S&P is at 756. If you executed this strategy, the puts you wrote would now be worth $75 each and the puts you bought would be worth $46 each. You take a $75 gain on the puts you wrote and a $29 loss on the puts you bought and that gives you a $46 profit per contract pair (spread) in just over one week. $46 on $500 collateral is 9.2% return, but annualized its 478%.
We all need dry powder in our accounts for opportunities like this!
Subscribe to:
Posts (Atom)