Morning Call [7:45am ET] Rather than continue on a break from markets and blogging and miss the present goings-on, I decided to return. I feel damned if I do; damned if I don’t stay away.
Following the Toronto G-20, governments, led by Germany, are stating their intention to dramatically reduce current and future deficits as a percentage of GDP. We are starting to get the picture that economic hard times are ahead.
International equity market trading today, including the current equity and financial futures market prices, is clearly bearish. Any attempt by the market to bounce through resistance is met with more selling, another depressing picture.
In fact markets now are mostly in a primary bear phase, which, if you think about it, is a good thing because, by definition, one cannot recognize a Bear until prices are close (in terms of time or amplitude) to a cycle bottom, either an intermediate or long-term one. Since its 52-week high of 1219.80 on April 26, the S&P 500 index has dropped -15.72%.
Every period of extreme weakness is, as I have written, the time to look for stocks to accumulate if, as and when that point of market capitulation occurs. A couple of stocks that come to mind that I have written about are Cisco (CSCO) and Boeing (BA).
As for the ultimate bottom of the Bear, no one knows; however, I have said I believe it will be in the S&P 880 range, which would mean that at least one more down cycle is likely.
I have also stated my belief that we are likely to experience, in the near future, a rally attempt, to trap and squeeze the shorts. So far, however, any attempt to rally has been an opportunity to hit the bids. So the market malaise continues. It’s starting to feel like 1973-74.
In the past three months of trading, the S&P 500 has had 34 losing sessions to 29 winners. YTD, there has been 58 losing sessions out of 127. On the other hand, the principal trading desks of the top four US banks had a combined winning score of 252 for 252 winning days in the past quarter, which we all know is statistically impossible, leading us to the obvious conclusion the game is rigged. No wonder that most traders are depressed.
But doing nothing is probably not the right thing unless you can step 100% away from the market, and I can’t do that. So, I’m back. In the meantime, here’s some reading I found interesting:
Government for Sale: How Lobbyists Shaped the Financial Reform Bill
http://www.time.com/time/politics/article/0,8599,2000880,00.html?xid=rss...
World Series of Poker: Attack of the Math Brats
http://www.time.com/time/magazine/article/0,9171,1997467,00.html
The Shallows: What the Internet Is Doing to Our Brains
http://www.amazon.com/Shallows-What-Internet-Doing-Brains/dp/0393072223
One book I did read – it took a couple hours only – was “Simplify Your Life: 100 Ways to Slow Down and Enjoy the Things That Really Matter” by Elaine St. James.
http://www.amazon.com/SIMPLIFY-YOUR-LIFE-THINGS-REALLY/dp/0786880007
The editorial review at Amazon.com states:
For everyone who is overwhelmed by the increasing demands in their lives, here is the ideal guide for slowing down and finding peace of mind. In separate chapters covering career, household, health, social, finance, and personal affairs, this thought-provoking book offers one hundred proven, practical steps for creating a simple but elegant lifestyle.
Ah, peace of mind. Surrounded by so many dysfunctional people, most of whom are financially stressed, it’s an elusive concept. But this simple book helps get you thinking on the right path, I think.
For a little Bahamas history (of the worst kind) I started reading Cocaine Wars by Paul Eddy, which explores the seedier side of life that links Miami, Bahamas and Colombia. Although it’s well written, I found it too much of a downer for the relaxing break I was trying to have.
http://www.amazon.com/Cocaine-Wars-Paul-Eddy/dp/0553281712
As the day starts, there has been a bit of a pop from what had started in Asia-Pacific and Europe on a very bearish note. Prices are still down, but the action is very choppy. Basically, the market is undecided. Wait an hour or two and the weather will change.
Have a great day.
CTA Trading Desk Post-Close Report
After the furious rally today traders went home contemplating the answers to the following questions:
1. Was the upward surge (S&P+3.13%) simply a “one day wonder” rally destined to be quickly retraced as a bear phase reasserts itself?
2. Is the market about to replicate the 2009 runaway northbound train to nirvana, the much discussed head and shoulders pattern soon to be obliterated with prices pulled endlessly higher by Quantitative Easing Part II?
We could spend days debating the relative merits of each outcome but ultimately forecasting the eventual outcome is the realm of newsletter writers in search of a prediction to cement their reputation, securing more subscribers for their service.
Traders need to focus on the price action at key support and resistance levels in order to ascertain the most probable near-term direction of equity prices. After the April 26 highs the S&P rallied approximately 62% from the May 6 flash crash lows eventually reaching a high of 1173 on May 13. Prices declined into May 25 bottoming at 1040, subsequently rallying to 1131 the 50% retracement level off the April highs and near the .618 retracement level off the intervening rally. Soon thereafter the S&P declined, printing 1010 on July 1 before beginning the current countertrend rally with the next targets 1070, 1086, and 1100.
Semiconductors (SMH+4.81%) and financials (XLF+4.76%) leading a rally are a sign investors are adding risk exposure to their portfolios and gives large pools of money the confidence to trade from the long side. The Bulls finally strutted their stuff today, reclaiming both S&P 1040 and 1050, giving the upside the benefit of the doubt in the short term.
The VIX (-9.48%) was clobbered Wednesday but still has room to decline another 10% if the stock prices remain buoyant over the next few weeks. The poor price action and penetration of support at 1040 caused a multitude of hand wringing and nervous defensive selling over the past week. Most money managers are paid to make money on the upside so don’t be surprised if this rally forces funds to chase prices as they move higher.
Although follow-through rallies have been scarce the past few months it makes sense any early weakness will be met by under-invested fund managers trying to put money to work now that key support has been reclaimed.
Have a great evening.
Comments
Gold
"This might explain, in part, the lack of a floor underneath gold prices right now.
Central banks, which had been building up their positions, are now dumping it."
http://www.businessinsider.com/central-banks-dumpi...
Thoughts on the rally attempt
Yesterday's attempt to break through the neckline at 1040 was a fakeout in a ploy to trap shorts. They seem to have everyone now leaning short and I personally see them testing it again but this time will break through on good volume trapping many on the short side which will lead to big rally as they try to cover. I still believe the gap around 1070 is in play as the upside target before we go any lower. Just my 2 cents in a huge bag of pennies.
Cara 100 Ratings Changes
Good morning.
AAPL - PT Raised from $355 to $370 @ Gleacher. Buy
ADBE - Adobe Downgraded to Buy from Conviction Buy at Goldman
BUCY - estimates, target raised at Morgan Stanley. Shares of BUCY now seen reaching $80. Estimates also increased, as the company is likely to benefit from the new expected India truck order. Overweight rating.
JNPR - Juniper upgraded to Overweight from Neutral at Piper Jaffray.
Piper Jaffray upgraded Juniper citing valuation and its longer-term outlook. The firm keeps a $31 price target for shares.
WMT - numbers reduced at UBS. Shares of WMT now seen reaching $60. Estimates also cut, given weak sales trends. Buy rating.
Re: Thoughts on the rally attempt
Yesterday there was a 1.5 billion block buy in the Q's at the close. That is seriuos stuff. Looks like what the panic sellers are tossing away is being bought up.
Dow +61 mil, S&P +343 mil, Rut +11.5 mil on top of Fridays 2.4 bil overall.
Consumers are pulling back
http://www.forexlive.com/117472/all/us-redbook-jun...
The Retail Sales Index was up +3.1% in the final week of June following a +2.5% gain the prior week.
Month-to-date, June was up +3.0% compared to June 2009 vs consensus estimate of +3.2% gain.
Month-over-month, June dropped -0.5% from May vs estimate of -0.3% drop.
So, this was a bit worse than had been expected.
GE's OLED lighting plans
just may see ENER catching a bid.. interesting volume today
NLS
TOF-
You still following this one? Appears to be on sale right now, but trying for a bounce. Still losing money but at a lesser pace... Do you still like the company here? I'm not sure what to make of it all. In addition to the financial challenges and economy etc, there seems to be a trend in the fitness world away from "machines" (i.e. crossfit, p90x, insanity, etc.) Aging boomers- demographics could potentially come into play. Interested in your thoughts...
KC
FTSE100 Breakout
Following up on yesterday's big rally, London pulled back at the open today - still well above yesterday's open - but has been rallying furiously for the last 4 hours and just now executed a very impressive breakout above yesterday's high.
http://tinyurl.com/34rwayf (Google chart)
(view the 5 minute chart)
Similar, action taking place in France and Germany.
Mortgage Refi
I have been in touch with my mortgage broker this week about taking advantage of this mad herd rush into treasuries that is bringing interest rates down to historically low levels. I purchased my home last year and was able to take advantage of the $8000 freebie from Uncle Sam. At that time I put 20% down and locked in a 30-year fixed at 5.25%. Today I am getting ready to refi into a 20-year fixed at 4.5%. After crunching the numbers, this refi will not only increase my monthly payments by only 8.5%/month (which I am fine with) but will reduce my long term interest expenditure by about 38% over the life of the mortgage. (I took a look at the 15 year fixed, which would get me all the way to 4.25% but the increase in monthly payment wasn't justifiable for the avoided interest - I guess I'll have to wait and see if the herd can get any more irrational).
For those of us frustrated with the state of the equity markets, etc this is really one grand opportunity to reduce interest expenditure.
Thoughts?
Re: abolish income taxes
Response to yesterday's thread.
davefairtex -
It's a new day, so you should forget AUSTERITY in the U.S. for now. Sinclair and all the Austrian School boys point out that once Quantitative Easing starts, it can't be stopped without loss to those in power. UK only went 75 billion pound sterling down the QE rabbit hole, so austerity has been initiated under new leadership with relative ease ... so far. Bernanke's Fed and the current Administration is committed to being hoisted by their own petard now. Expect to see Ben in a bomb vest with a detonator in his hand at the next FOMC charade. Can you just imagine the political backlash to a balanced budget proposal by the current U.S. Congress?! To whom is a union boss supposed to direct his bloc vote? Answer me that one.
loannetter -
"When you say 'debt will be washed away' are we talking only the Fed and Friends debt or across the board?"
Certainly, Fed and Friends debt will be inflated away or repudiated since it looms large and can't possibly be paid down now even with austerity measures (runaway taxation, cancellation of QE). As for personal debt, it's the old deflation/inflation debate. I figure housing will continue to deflate for a long, long time while food and energy inflate for now. Job recovery and personal income growth (and inflation) are the big mystery as the current Administration socializes production and ignores small business interests which make up the majority of GDP. Clearly, these issues put a lot of pressure on the private sector to service its underwater debt. Add in that interest rates eventually must rise, excelerating real estate's fall, and that will be an obvious signal that the QE runaway train is ending. Perhaps then we see the currency event, a hyperinflationary currency, and an easy conclusion to individual's mortgage debt that's properly locked without pre-payment penalty or an adj rate. All others will be re-sentenced to some form of debtor's prison with a term equal to the note's duration. Th on-going ramp up of 'default and walk' and the meaningless 7-year Fan/Fred stain-on-your-credit threat will become a badge of courage ... if Fan/Fred even exists much further past the Nov elections.
bios/baz22
thx for the heads up baz22, glad something I am doing involves an adult as many of my plays seem rather juvenile lately.......the ARNA is working well, I bgt the stock in the 2's and sold both sides of the 3 for this mo, if they take it away next week I will start selling only the 3 put, sold a reasonable amount of the VVUS 5 puts for next week, FDA meets a day or two before option exp but the premium seems to justify any risk.....the golds are hammering me but I was amply warned so viewing them now as a long term hold (way to justify a dumb position)am playing them rather tight and the option premiums should rescue me........glad bill commented today as its always helpful.......good trading
Re: Mortgage Refi
A penny saved is a penny earned... Sounds like just about the best "trading" plan I've read here in a long time :)
Re: bios/baz22
keeps the blood flowing, eh ? !! ... back in, in a big way this am.... best of trades to you, Tobyt...
Re: Mortgage Refi
Hi Billy S. - Hope he/she is covering most of your costs @ 4.5%. Might want to shop your deal a bit. For a decent scenario I show 4.375% with me making 1.5% with your costs being about $2200. Rates are as favorable now as we saw during late 2008. Happy Trading
Re: Consumers are pulling back
I don't see those numbers as any serious indication of pulling back. Still positive.
Re: NLS
Knife - funny you ask because I bought it last week at $1.49. My position size was so small I forgot about it and didn't sell in the spike yesterday. If I remembered I wouldn't have let that profit opportunity slip away. Oh well.
For a high risk turnaround story I like ACMR better than NLS. They are redoing all of their stores into a more profitable model that they have successfully tested out in a few stores. There has been some insider buying and balance sheet looks ok. It's risky though.
I also like PIR, which I bought over the past week at $6.10. I also bought some STT yesterday (got lucky) and SPY the past few days. I agree completely with Bev's take on the markets. I think the dip buyers here (myself included) need to be quick in taking profits, but I do think we go above 1,050 to scare the shite out of shorts and then I think we go lower.
Re: Mortgage Refi
Luggie,
Yes I forgot to mention, closing costs are expected to be between $750-950. They will be around $750 if I can avoid the cost of an additional appraisal (+$200 if I need another appraisal). Because I bought the home only 1 year ago, I may be able to get lender approval to use the old appraisal (market conditions have been stable to positive in my area in the last year).
So, I guess compared to your $2,200 estimate, at $750 my costs would be 65% covered ($1450 of the $2200 = 65%) in return for that rate difference of 0.125% (4.5% - 4.375%).
Let me know if you think this sounds reasonable as I have not yet pulled the trigger as I wait for my broker to wrap up some meetings. I appreciate the input!
New Gold (NGD)
Good entry point today while there's a Mexican standoff in the court.
Disclosure: I own it.
decent day... back to cash now
have a good afternoon
DLB
one of the best lagging tech stocks still room to move today.
Re: New Gold (NGD)
Dr. S,
I'm an owner of NGD as well. Do you have any insight into the court situation? It seems particularly troubling.
Re: ARNA
I saw exchange about ARNA earlier, this is fresh related new for it:
2:51:36 PM
Arena Pharmaceuticals Inc FDA Official: Risks associated with Fen-Phen are unique and will not impact review of Vivus or Arena medications
- Official notes new diet drugs submitted for review by ARNA and VVUS have different ingredients than Fen-Phen.
Re: ARNA
yes, Vad, that had been the big squabble between arna/vvus message boards - which could convince the FDA that the other was not worthy !! If I had money to burn, I would short vvus, as I think the statement today by FDA means they really have other problems with the efficacy/saftey.. one never knows, but I would not be suprised to see vvus at $ 3.00 in two weeks.... take care.
Daily dose of idiocy
Almost every day I hunt down some piece of wisdom imparted from high above that constitutes what I call "Daily Dose of Idiocy". Today's one waited with entrance till the end of the day but is unusually large:
3:35:24 PM
(US) Fed's Kocherlakota: Financial institutions should be taxed based on the risk they create
- Getting the tax right would cover the true cost of risky activities
- Bailouts of financial markets are inevitable, no legislation could eliminate market crises
Focus on Retailers
Although there were numerous groups that traded up over +4% and +5% today and Retailers ($RLX) was up "just" 2.44%, of the 55 on my screen, 51 were winners, with 12/55 > +5%, 27/55 > +3% and 40/55 > +2%.
Btw, Cisco (CSCO) was up +5.34% today, and BA +3.16% (same as S&P).
Re: Thoughts on the rally attempt
I figured yesterday was a fakeout and we would rally today, but never thought the SPX would jump +32.21pts.
Re: Daily dose of idiocy
That sounded so ridiculous out of context that I had to do some google searches to verify.
I found this link on automatedtrader.net
http://tinyurl.com/22m67ab
"As for how the tax would be calculated, Kocherlakota said the government will estimate the expected, discounted value of bailouts that the financial institution -- or any of its stakeholders -- will receive in the future. The discount rate should be "possibly substantially less" than the rate of return on Treasuries.
"Having done this calculation, the government then charges the firm a tax that is exactly equal to the expected discounted value of the firm's bailouts," he said. "
I was thinking it would make more sense when put into context. Boy was I wrong, it just sounds more idiotic. Good Riddance!
Re: Daily dose of idiocy
This sounds familiar to me.
Twenty-five or thirty years ago I had an antique pistol stolen in a burglary. The amount the insurance company paid was way lower than the value I turned in from an qualified appraiser.
I complained that it had actually appreciated.
The insurance agent said, "I understand, but we depreciated the appreciation which took place over time."
I contested, of course, and got the full value.
Re: Daily dose of idiocy
"Bailouts of financial markets are inevitable, no legislation could eliminate market crises"
Wow coming from the Fed, an organization of bankers, for bankers, run by bankers, this seems unsurprising. "My goodness, one absolutely must spoil children, there's simply no other way to handle the little dears." Let's start placing five year olds in charge of candy stores, while we're at it.
Lets see, what else might one do? Oh, how about letting bondholders take the losses, zeroing out the shareholders, and replacing top management of any failed organizations? No no, not possible. Way, way too scary. Investors might get the idea that banking as its now conducted routinely is actually a risky business, and that simply won't do.
Re: New Gold (NGD)
From the Q1 2010 guidance, still making decent production from the mine in question, the Cerro San Pedro Mine, which represents roughly one-third of New Gold's total production. Ore production has been hindered by the Mexican environmental agency's legal action. Here is a link to a local paper on the subject from late 2009:
http://tinyurl.com/22mukzu
It looks to be politically motivated as the issue revolves around ground water contamination, which is recycled due to limited supply, from the leach pad with technical standards not clarified between NGD and the Mexican evironmental agency. A lot of jobs are at stake and at the mercy of the court system here.
As bad as all that sounds, the performance and balance sheet looks damn good and, I'm purely speculating, a full-blown shutdown and closing will be avoided if they're running a clean ship. Successful churn of the stock price by gov't insiders?
80% chance of 2nd hurricane in the Gulf tomorrow
http://www.stormpulse.com/
I have no clue why the headline from NOAA says No Active Storms at this time, and why this storm is not named. Projections are for it to hit just north of the Texas-Mexico border, and for sure will disrupt oil spill remedial operations.
I'm sure the White House and BP have co-opted the National Hurricane Center for the season this year.
good read
on market, including lead up to today's big day.
www.djimstocks.com
Is Goldman Sachs Obscene? and does that matter?
A French lawyer thinks so: Begins roughly at 13:00 area in video.
http://www.huffingtonpost.com/janet-tavakoli/shoul...
We are not the enemy
Says Anderson Cooper:
http://maxkeiser.com/
Sorry, this will work better:
http://www.youtube.com/watch?v=sGS4IXxlZZE&feature...
No Confidence in the Fed head
Can this Fed remain oblivious to reality?
http://jessescrossroadscafe.blogspot.com/2010/07/i...
Re: abolish income taxes
Dr S - once you figure out we're headed towards disaster, and come to terms with it emotionally, it's difficult to accept the possibility that it might actually not happen, especially when you've tailored your portfolio to handle this event you foresee. In other words, like me and everyone else, you are most likely talking your book, and may be prone to dismiss alternative outcomes. :)
Just a thought...
Re: 80% chance of 2nd hurricane in the Gulf tomorrow
http://www.stormpulse.com/severe/mexico
Bill, using your link it just took me to my local area (Hawaii), I tried the Share Map option on their website, but nothing happened, so I just copied the URL from the top of the browser.
Re: Focus on Retailers
Yeah, and retail was the pimps word on why this rally happened, HBB can't even keep it's liars coordinated anymore.
Re: abolish income taxes
Dave
" In other words, like me and everyone else, you are most likely talking your book, and may be prone to dismiss alternative outcomes. :)"
This comment really hit home as far as touching on our psychological tendencies (in regards to the markets, of course) to view the implications of major events much differently when they affect us personally as opposed to when we are completely objective observers. We all strive (as traders) to be objective observers, but when our money and livelihoods are wrapped up in particular outcomes, well, heck, sometimes it just ain't pretty.
China
AP 7/8/10 7:09am
BEIJING (AP) -- China will keep its currency at a "basically stable and reasonable" level and financial pressure for the yuan to rise is easing due to Europe's debt woes, the country's foreign exchange regulator said Thursday.
...just as expected, but it worked well as a pre G-20 talking point.
http://tinyurl.com/2don7bc
Re: abolish income taxes
Dave and Billy,
There is always the tendency to support our preconceived ideas. Taleb refers to this in "Black Swan" when he says we make up stories and draw conclusions too soon and look for backup justification. In "Operation Mincemeat" the story of a British deception pre-Sicily invasion, the Germans bought into it totally.
On the other hand, I don't think objectivity is hard to come by. People who are in the eye of the economic storm (CA,IL, etc.) can actually see a much different picture than those who have jobs, see houses selling and haven't got friends and family living on edge minute to minute.
Vad has the right idea — don't bet on any forecast — trade (and live) what you see.