Ah Gordon Gekko, fictitious corporate raider of the 1980s. He was a smarmy SOB but as a capitalist he nailed it. When everyone is out for a buck, everyone tries to one up the other guy and product quality goes up and cost goes down. Yes, there are situations where some regulation is good to protect the public but when the suits in DC wanted to curb futures trading in energy that wasn't it.
Fortunately, the house did not pass that bill. Hmmm, could it be that oil dropped 25 bucks in the interim? Speculators are bad when oil goes up and good when it falls. They are good when house prices go up but not when they fall. And the reverse for stocks, right?
We've gone over this topic before but here is a more comedic twist, courtesy of Fortune Magazine and posted to a chat list by a trader/analyst names Clayton Seitz.
What Onions Teach Us About Oil
Basically, everyone was whining when there was a futures contract here and prices plummeted. They banned it and now onion volatility dwarfs oil and corn.
Guess who is asking that onion futures trade again? You guessed it, the same onion growers that wanted it banned.
"There probably has been more volatility since the ban," said one of them.
Silly rabbit, restricting free trade is for ________ (you fill in the blank)
Thursday, July 31, 2008
Tuesday, July 29, 2008
Energy Up, Financials Down
The big trade for the past few years was buying energy and shorting financials. As I wrote last week in Barron's Online, that relationship got way out of whack and snapped back violently to something more "normal."
With oil at a floor of sorts and financials responded to bad news again, it seems as if the trend here is back. But rather than think the old trade is going to work the way it did before, which it never does, let's just say that the fun in financials is over and it is time to make a little money in energy again. How much? Not that much as this is still a bear market. But on a relative basis energy seems to be back on top of financials.
The chart shows two distinct phases - range and trend. In the range, stochastics goes way up and way down, as you'd expect for a trading range type of oscillator. But in a trend, and don't forget we are talking about the trend in the ratio of two ETFs, stochastics only dips down to the middle of its own range.
Watch to see if the center line of the Bollinger Bands in the chart is violated and stochastics dips to the nether regions again. That will be the signal to reverse the trade and go long financials and short energy.
I suspect it will happen at the end of the bear market.
With oil at a floor of sorts and financials responded to bad news again, it seems as if the trend here is back. But rather than think the old trade is going to work the way it did before, which it never does, let's just say that the fun in financials is over and it is time to make a little money in energy again. How much? Not that much as this is still a bear market. But on a relative basis energy seems to be back on top of financials.
The chart shows two distinct phases - range and trend. In the range, stochastics goes way up and way down, as you'd expect for a trading range type of oscillator. But in a trend, and don't forget we are talking about the trend in the ratio of two ETFs, stochastics only dips down to the middle of its own range.
Watch to see if the center line of the Bollinger Bands in the chart is violated and stochastics dips to the nether regions again. That will be the signal to reverse the trade and go long financials and short energy.
I suspect it will happen at the end of the bear market.
Thursday, July 24, 2008
Where is the Diversity of Opinion?
Quick, what sectors are EVERYBODY talking about these days?
Energy, mortgages, banks, brokers and homies. Under that filter, up until today's rout these were your big movers and nothing else existed. Sell energies, buy financials!! There was no other game in town.
Just a month ago, it was buy steel, coal and fertilizer (and sell financials). There was nothing else.
What about in 2000? Buy tech! and it will drag everything else up with it.
Getting my drift? At extreme points in the market the focus gets very, very narrow. I wish I had a study prepared for you but it is fairly common knowledge that when everybody piles into a crowded theater the danger rises. All it takes is one kook to yell fire or some company to announce worse than expected earnings and the stampede to the exits will crush the masses (thanks a load, WM and UBS).
They sure stampeded for the exits today in the financials, didn't they? But that was a knee jerk one-day panic in an otherwise soft but exhausted bear market.
But when the masses zig, the contrarians zag and we've been in biotech for about three weeks. Lo and behold the sector was up a bit on a day the Dow sheds 283 - not too shabby. Guess who else was up? Yes, finally we are seeing some more action in the consumer staples. Subscribers, we'll look at more in the coming days to go along with today's purchase (which closed higher by a few shekels today).
Energy, mortgages, banks, brokers and homies. Under that filter, up until today's rout these were your big movers and nothing else existed. Sell energies, buy financials!! There was no other game in town.
Just a month ago, it was buy steel, coal and fertilizer (and sell financials). There was nothing else.
What about in 2000? Buy tech! and it will drag everything else up with it.
Getting my drift? At extreme points in the market the focus gets very, very narrow. I wish I had a study prepared for you but it is fairly common knowledge that when everybody piles into a crowded theater the danger rises. All it takes is one kook to yell fire or some company to announce worse than expected earnings and the stampede to the exits will crush the masses (thanks a load, WM and UBS).
They sure stampeded for the exits today in the financials, didn't they? But that was a knee jerk one-day panic in an otherwise soft but exhausted bear market.
But when the masses zig, the contrarians zag and we've been in biotech for about three weeks. Lo and behold the sector was up a bit on a day the Dow sheds 283 - not too shabby. Guess who else was up? Yes, finally we are seeing some more action in the consumer staples. Subscribers, we'll look at more in the coming days to go along with today's purchase (which closed higher by a few shekels today).
Monday, July 21, 2008
Yowza! Did I say that?
Anyone seeing the headline of today's Barron's Online column without reading the fine print is going to want to do an Obama on me, Jesse Jackson style. Leave it to the editors to make a headline that grabs your attention!
Yes, I did say that I thought the financials have bottomed but more importantly I never said it was time to buy them! Big difference!. American Express earnings reaction is proof. But after another big earnings decline, or should I say shellacking, that beat analyst doom and gloom projections, Bank of America was the latest "we didn't die!" rally machine. Something is very different in the sector.
But it is time for a correction and even BAC closed near its worst levels of the main trading session.
Another point - I also said the sector was forming a base and that means a trip down to old lows is entirely possible and I might add likely. But watch as it happens. Betcha volume, sentiment, momentum and every other technical metric sets a higher low. That's probably when I say it is safe to get back in.
And what if the technicals fall apart again? Well, that's the breaks. Nobody puts Baby in a corner.
Yes, I did say that I thought the financials have bottomed but more importantly I never said it was time to buy them! Big difference!. American Express earnings reaction is proof. But after another big earnings decline, or should I say shellacking, that beat analyst doom and gloom projections, Bank of America was the latest "we didn't die!" rally machine. Something is very different in the sector.
But it is time for a correction and even BAC closed near its worst levels of the main trading session.
Another point - I also said the sector was forming a base and that means a trip down to old lows is entirely possible and I might add likely. But watch as it happens. Betcha volume, sentiment, momentum and every other technical metric sets a higher low. That's probably when I say it is safe to get back in.
And what if the technicals fall apart again? Well, that's the breaks. Nobody puts Baby in a corner.
Thursday, July 17, 2008
Believe Nothing
A few days ago, everyone was looking for a bounce in the stock market and the market obliged by probing new lows. Today, following the dead Wall Street analyst bounce, (OK dead cat, but PETA's wrath is on you) the market scooted up 100 Dow points, dipped to flat, then up 50, then actually into the red, then somewhat up again. And it is not even lunch time yet.
Everyone was on one side of the boat. Wells Fargo burped and Jamie Dimon (JP Morgan) let it out the other end and everyone quickly ran to the other side of the boat. It was as if a naked Miss America (or Mario Lopez, for you ladies, or have we seen far too much of him already? But I digress.) was out there tossing money to everyone. What joy!
Then the boat rocked again, didn't it? It is trying to shake everyone off.
My advice is to hunker down and not get cute. You are not going to pick off 18% one-day gains today. You are not going to buy UAL at the bottom and get a 40%-er. But you are free to buy Coke at the open after it announced great earnings and be down 3.5% by mid-day today.
Don't let the prospect of a nice counter-trend rally fool you. After all, it is COUNTER TREND to a bear market.
rant time
Let's Go, Feds! Let's Go, Feds! (with apologies to Mets fans).
Why are speculators bad for oil when it goes up and bad for stocks when they go down? I would like to know if they still plan to schtup the windfall profits tax on the oil companies now or is the CRISIS OVER? No they are back to Wall Street "abusers." Are they going to go after importers next because the dollar is weak? How about farmers for not growing crops when there is a food problem? Oh wait, they pay them not to grow crops, don't they.
Stop meddling in the markets. It never works. Ever.
Everyone was on one side of the boat. Wells Fargo burped and Jamie Dimon (JP Morgan) let it out the other end and everyone quickly ran to the other side of the boat. It was as if a naked Miss America (or Mario Lopez, for you ladies, or have we seen far too much of him already? But I digress.) was out there tossing money to everyone. What joy!
Then the boat rocked again, didn't it? It is trying to shake everyone off.
My advice is to hunker down and not get cute. You are not going to pick off 18% one-day gains today. You are not going to buy UAL at the bottom and get a 40%-er. But you are free to buy Coke at the open after it announced great earnings and be down 3.5% by mid-day today.
Don't let the prospect of a nice counter-trend rally fool you. After all, it is COUNTER TREND to a bear market.
rant time
Let's Go, Feds! Let's Go, Feds! (with apologies to Mets fans).
Why are speculators bad for oil when it goes up and bad for stocks when they go down? I would like to know if they still plan to schtup the windfall profits tax on the oil companies now or is the CRISIS OVER? No they are back to Wall Street "abusers." Are they going to go after importers next because the dollar is weak? How about farmers for not growing crops when there is a food problem? Oh wait, they pay them not to grow crops, don't they.
Stop meddling in the markets. It never works. Ever.
Tuesday, July 15, 2008
The VIX
Someone commented on the previous blog entry saying (in jest) that we've hit the bottom and cited a WSJ blog talking about the VIX hitting the magic 30-level.
Please, right now, everybody stop listening to journalists' opinions. Read them for facts and news. Although this particular journalist was quoting what he thought was a technical metric it is very far from the truth.
Here is a monthly chart of the VIX. You tell me if the 30-level means squat.
As my Grandmother would say, it's "bupkis!"
Please, right now, everybody stop listening to journalists' opinions. Read them for facts and news. Although this particular journalist was quoting what he thought was a technical metric it is very far from the truth.
Here is a monthly chart of the VIX. You tell me if the 30-level means squat.
As my Grandmother would say, it's "bupkis!"
Sunday, July 13, 2008
REM was right
It's the end of the world as we know it...
and I...feel... fine..... - REM
They bailed out Freddie and Fannie just in time for the Asian market open Sunday - as we all knew they would. Guess what else happened right afterwards?
The dollar tanked.
Bonds dropped.
Gold and Silver popped up.
I don't know what they will look like in the morning but the initial reaction is telling us one thing - INFLATION is just a matter of time.
Over the weekend, I went to a rather tony restaurant touted as a Wine Bar and Grill. Hundreds of different wines from all over the world priced from 36 to 90 to well over 300 dollars per bottle. The point is that this place used to be packed on a Saturday night and not only was the first seating not full but the second was downright empty.
Since when will a fancy pants restaurant seat you when only two of a party of six has arrived? Sure, right this way, sir! Can I give you a neck massage while you wait.
OK, a little exaggerated but my businessman friend looked at me with a straight and sad face and said - the economy.
So now they opened the Fed window to Fannie and Freddie. This is not over. Yes, the stock market may bounce or it may even rally for a few weeks as everyone rejoices that the Feds are not going to give up without a fight.
But at what cost?
and I...feel... fine..... - REM
They bailed out Freddie and Fannie just in time for the Asian market open Sunday - as we all knew they would. Guess what else happened right afterwards?
The dollar tanked.
Bonds dropped.
Gold and Silver popped up.
I don't know what they will look like in the morning but the initial reaction is telling us one thing - INFLATION is just a matter of time.
Over the weekend, I went to a rather tony restaurant touted as a Wine Bar and Grill. Hundreds of different wines from all over the world priced from 36 to 90 to well over 300 dollars per bottle. The point is that this place used to be packed on a Saturday night and not only was the first seating not full but the second was downright empty.
Since when will a fancy pants restaurant seat you when only two of a party of six has arrived? Sure, right this way, sir! Can I give you a neck massage while you wait.
OK, a little exaggerated but my businessman friend looked at me with a straight and sad face and said - the economy.
So now they opened the Fed window to Fannie and Freddie. This is not over. Yes, the stock market may bounce or it may even rally for a few weeks as everyone rejoices that the Feds are not going to give up without a fight.
But at what cost?
Friday, July 11, 2008
Where there's smoke, there's fire
Or should we say "where there's smoke, people get fired?"
In a previous post, I wrote that surprises happen in the direction of the trend. Of course, someone gave me a cyber "duh" essentially saying that's why its called a trend.
Well, that's not quite right but the point is that as long as the trend in any stock, sector or stock is solidly to the downside we can expect more bad news to surface. The Enron scandal broke literally months AFTER the stock broke down and shed multiple dozens of percent of its value.
As for when it's done, the market looks into the future and knows when the coast is clear. We know when the market knows because the trend eases and a basing, or repairing, pattern begins to form.
Remember, the market is not trading on the news today but what the news will be tomorrow. No, not the exact news that a CEO steps down or that the entire derivatives portfolio has been purged but the general news that the worst is over. Somebody always knows something and acts on it no matter how hard the SEC comes down on insider trading. And somebody sees when that first somebody takes action.
Explain rallies into "whisper numbers" any other way.
Either people are guessing or they know something. And that something may even be legal but it is not distributed to the general public.
But back to the topic at hand - the trend in the financials was super down and still is. And there has been no capitulation yet, either, so mark my words, a major bank, broker (gee which one could that be?) or insurance company is going to fail. I won't say a credit card company like Visa or MasterCard is on the same boat because why? Their trends are not spiralling into Hades. Capital One is also arguably OK, solely based on the trend and what the market thinks of the whole thing.
Don't forget the free technical analysis offer in the previous blog post. What have you got to lose? It's free!
In a previous post, I wrote that surprises happen in the direction of the trend. Of course, someone gave me a cyber "duh" essentially saying that's why its called a trend.
Well, that's not quite right but the point is that as long as the trend in any stock, sector or stock is solidly to the downside we can expect more bad news to surface. The Enron scandal broke literally months AFTER the stock broke down and shed multiple dozens of percent of its value.
As for when it's done, the market looks into the future and knows when the coast is clear. We know when the market knows because the trend eases and a basing, or repairing, pattern begins to form.
Remember, the market is not trading on the news today but what the news will be tomorrow. No, not the exact news that a CEO steps down or that the entire derivatives portfolio has been purged but the general news that the worst is over. Somebody always knows something and acts on it no matter how hard the SEC comes down on insider trading. And somebody sees when that first somebody takes action.
Explain rallies into "whisper numbers" any other way.
Either people are guessing or they know something. And that something may even be legal but it is not distributed to the general public.
But back to the topic at hand - the trend in the financials was super down and still is. And there has been no capitulation yet, either, so mark my words, a major bank, broker (gee which one could that be?) or insurance company is going to fail. I won't say a credit card company like Visa or MasterCard is on the same boat because why? Their trends are not spiralling into Hades. Capital One is also arguably OK, solely based on the trend and what the market thinks of the whole thing.
Don't forget the free technical analysis offer in the previous blog post. What have you got to lose? It's free!
Thursday, July 10, 2008
Bribing for Subscribers
Since this is my blog, anything goes.
For the rest of July, we are offering two free reports for anyone taking a free test drive of the Quick Takes Pro newsletter. Sign up now and we'll send you:
These are quick lessons on technical analysis but without all the jargon and definitely no math.
Give us two weeks to show you our style and if you don't feel that Quick Takes Pro helps you make money and learn more about charting and investing then cancel during the trial, owe nothing and keep the reports as our gift.
enter the code "free reports" in the comments section when you order.
For the rest of July, we are offering two free reports for anyone taking a free test drive of the Quick Takes Pro newsletter. Sign up now and we'll send you:
Just What is a Chart Anyway?
and
The Basics: Support and Resistance
and
The Basics: Support and Resistance
These are quick lessons on technical analysis but without all the jargon and definitely no math.
Give us two weeks to show you our style and if you don't feel that Quick Takes Pro helps you make money and learn more about charting and investing then cancel during the trial, owe nothing and keep the reports as our gift.
enter the code "free reports" in the comments section when you order.
Wednesday, July 9, 2008
Finally Legit
I've been charting the market for 22 years and now I can finally say I am legitimate. I have just received my CMT (chartered market technician) designation. For anyone working in this business - and that includes individual investors - I recommend the CMT program, if not for the three letters you can add after your name but for the knowledge you will gain during the process.
Visit www.mta.org for more details. And no, they did not pay me or even ask me for the plug.
Visit www.mta.org for more details. And no, they did not pay me or even ask me for the plug.
Tuesday, July 8, 2008
Bonds
I have been bearish on bonds for months now and the breakdown seen in June has been negated. Not only that, but it looks as if a new short-term uptrend has begun, too. So much for rising rates...or is it?
While Treasuries are seeing lots of buying, both high quality corporate bonds are still being sold and high yield, aka low quality corporate bonds are being sold with a vengeance. To me that means flight to quality, not a bad call on interest rates.
Yes, it is the treasury market that sets the tone for rates but the action in the corporate market is telling us that something is not quite right. Maybe it is not inflation. Maybe it is just lousy earnings prospects and either way I do not want to get locked into any long-term maturities.
While Treasuries are seeing lots of buying, both high quality corporate bonds are still being sold and high yield, aka low quality corporate bonds are being sold with a vengeance. To me that means flight to quality, not a bad call on interest rates.
Yes, it is the treasury market that sets the tone for rates but the action in the corporate market is telling us that something is not quite right. Maybe it is not inflation. Maybe it is just lousy earnings prospects and either way I do not want to get locked into any long-term maturities.
Friday, July 4, 2008
Worse than we thought
I can't give it all away as paying subscribers would be cheated but read Carl Swenlin's latest piece on Decisionpoint.com (free article). The bottom line is that in bear markets things don't really bounce so much and that oversold can become more oversold.
Yeah, I've said all that, too. But he added that deeply oversold conditions in bear markets may lead to a crash, too. While he did not predict one nor would he take credit for calling it (his words) if one happened, you have to respect the bear.
I am not using the "C" word but I have already posted on the dreaded "C" wave.
We'll be doing some repositioning work this week in the newsletter.
Sleep well, kiddies!
Yeah, I've said all that, too. But he added that deeply oversold conditions in bear markets may lead to a crash, too. While he did not predict one nor would he take credit for calling it (his words) if one happened, you have to respect the bear.
I am not using the "C" word but I have already posted on the dreaded "C" wave.
We'll be doing some repositioning work this week in the newsletter.
Sleep well, kiddies!
Wednesday, July 2, 2008
Fair and Balanced - not
The media, me included, made reference to the fact that we have just seen the worst June since 1930 - and we all know what was going on back then (hint - the post 1929 crash bear market). The media has a job to do and it is not just provide information. It is to sell subscriptions or keep ratings high for advertising dollars and digging through the archives for a "worst June in 78 years" headline will definitely qualify.
Let's get some of these reporters on Jerry Springer, though. Where were the reports that the rally from the mid-April low to the ultimate peak in the S&P 500 in mid-May was just about the same size? How about the rally from the March low to the early April high being even bigger in terms of points than the June decline?
Everyone is lazy and cannot pick market starts and finishes. Calendar readings are so much easier. And we can even automate the process.
It does not matter that we measure from the start of the month to the end of the month but rather that we measure from the start to the end of trends of any size you choose. Calendar dates are artificial cutoffs and the market does not care about them.
Yes, we need structure to pay managers on performance and in that case it is apples to apples. Manager A beat Manager B in June and over time the intra-month peaks and troughs don't matter.
But if you are trying to create a sensationalistic headline with the worst June since the depression, please, please, please be fair and say that the "big decline" was preceded by an equally as big and equally as fast gain!
But when the market goes up everybody is happy and details are not so important, right? Sounds like complacency in a dangerous market.
Let's get some of these reporters on Jerry Springer, though. Where were the reports that the rally from the mid-April low to the ultimate peak in the S&P 500 in mid-May was just about the same size? How about the rally from the March low to the early April high being even bigger in terms of points than the June decline?
Everyone is lazy and cannot pick market starts and finishes. Calendar readings are so much easier. And we can even automate the process.
It does not matter that we measure from the start of the month to the end of the month but rather that we measure from the start to the end of trends of any size you choose. Calendar dates are artificial cutoffs and the market does not care about them.
Yes, we need structure to pay managers on performance and in that case it is apples to apples. Manager A beat Manager B in June and over time the intra-month peaks and troughs don't matter.
But if you are trying to create a sensationalistic headline with the worst June since the depression, please, please, please be fair and say that the "big decline" was preceded by an equally as big and equally as fast gain!
But when the market goes up everybody is happy and details are not so important, right? Sounds like complacency in a dangerous market.
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