Friday, April 17, 2009

GE and Still Looking For a Top

Well I was wrong about GE having a bad miss though their release was less than stellar. The managed to still be able to work the accounting games, incredible how much rope the accounting rules gives them. Eventually it may cause them to hang themselves. Revenue actually came light compared to expectations but lower tax rates caused them to be able to beat. Also provisions for GE Capital (where the major problem is) were lower than expected and lower than what GE had previously laid out. So basically GE guided to a certain provision for future losses and then realized, ewww, if we do that this quarter we won't make the numbers. So they lower the provisions and are able to beat.

So that leaves us looking for some sort of interim top for some sort of correction to the downside. Technically we still haven't broken 870 and yesterday still may have marked the top but if that is case my call will have just been luck since it was hinged on GE missing. In my mind, the probabilities have now changed and so while that may be the top, its not the unbelievable risk reward setup I once thought it was. Which leads me to a tangent. I thought it was a great risk reward setup for a top and so added to short exposure. I didn't get what I was looking for but what made it a great risk reward setup was because if I was wrong, I was unlikely to lose much. GE and Citigroup beat but it was priced in, no sell off, but I was able to reverse the short exposure I added yesterday (keeping what I have had) for a very slight profit. A bad risk reward setup (and how you know you are getting probabilities wrong) is that if your wrong, you get your head handed to you.

So still looking for the catalyst that will usher in a correction. Europe is still the top of the list. The EURO has been down 4 days in a row and is back at a 1 month low compared to the dollar. From a Bloomberg article:

The euro fell for a fourth day against the dollar in the longest stretch of declines since October as European Central Bank President Jean-Claude Trichet’s pledge to spur confidence failed to assure investors that policy makers aren’t divided.

and I thought this was really interesting

The euro fell against the Canadian dollar and South African rand after a report showed yesterday that February factory output in Europe plunged.

“When you look at the data flow out of Europe, you could even argue we’ve seen an accelerating downward move,” said Michael Klawitter, a currency strategist at Dresdner Kleinwort in Frankfurt

That is surprising to me especially considering the advantage of having a weak Euro in the last several months which should have helped exports. It is surprising in timing only as I think Europe is heading towards the black death in economic terms.

In the interim, the Euro is something to watch though so far the European stock markets are shrugging it off so not putting to much weight into it as of yet.

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