Thursday, July 30, 2009

Six Observations

I am about to hit the road again heading back to San Antonio but a few thoughts before I do.

First - the General Electric upgrade is ridiculous. Upgraded on the fact that the political pressure is decreasing to break apart GE Industrial and GE Capital. Maybe it increases the option value of the stock, I don't know, but it doesn't impact the future income streams of GE industrial or improve the credit quality of GE Capital. A hallow upgrade that is just absurd.

Second - XLF (the financials etf) is right at $13. This is back to the early May price. Financials did not set a higher price in June and have so far not set a higher price in July even as the S&P 500 has. To the extent that financials break $13 in a meaningful way, it would signal more bullishness ahead. Check out this graph. I am to much in a hurry and to lazy currently to place it in the blog. It is a six month chart of XLF. Notice volume peaked in early July around 11 and has been decreasing ever since even as the the etf has rallied. I don't consider that particularly bullish. Keep an eye on the 13 level.

Third - Today seems to be the normal end of the month ramp. Decently heavy futures volume so far with incredible breadth but very average to low cash market volume.

Fourth - So far commodities have not completely reveresed yesterday's drop. To the extent this holds, it will also be telling.

Fifth - Once we broke 945 in the S&P 500 it was almost guaranteed that we would challenge 1,000. Once again it is interesting we are coming up against this resistance point even as financials are coming up against its resistance point which is not a new high but simply back to the early May highs. There is probably a test, a failure, and then another test coming. That second test is what is important.

Sixth - Lastly, the sentiment is finally starting to change it seems to being uber bullish. CNBC this morning had Steve Liesman and others were barely able to talk out of prospects of the potential for a very strong economic recovery versus a tepid economic recovery. They were falling over themselves. The investor intelligence poll came out and bulls are 42.2% versus 36.7% the prior week. Bears are down to 31.1%. This is shifting rapidly though not at extremes just yet.


Mrs. Watanabe said...

Hang in there, kiddo.... I'm getting roiled on the short side, too, but I'm much more long than short (pretty much always). I've been selling longs today... as well as last week.

GE is ridiculous... $48 billion in FDIC insured bonds, with 17 billion more to go. Good businesses do not need that kind of subsidy, but therein lies the problem, that they have a subsidy. I currently have no shorts in GE, but it is starting to look interesting.

Market Seer said...

Ha - What I am short is going beserk but that is to be expected. In general I am very long cash. To a certain extent I have been playing spectator for months. The key is trying to time the short side. At some point I want to make a very big bet. So far I have held off. I tend to think we will break 1000, the jobless number may be better than what people are thinking, and it will be the last big push higher before we are done. However, there is a distinct possibility we will not break 1000. We will sell off and rally again to try to break and fail again. The momentum guys will scream double top which will be self fulfilling. It is getting that timing right which is pertinent which is not nearly as important on the long side.

As far as GE - I don't think it is possible to split them at this point even if you wanted to. Let me say that a different way. There is not enough value in GE Capital to spin it off as a seperate entity if the company desired. Now, the government could come in and backstop enough stuff and they could split it apart but normal capitalism would not allow a spin off. So the whole crux of the upgrade seems ridiculous. Either way, to be expected. One of the last laggards of this whole rally. To the extent that we will roll over (always a possibility we won't) you need the last laggards and the last bears to give up the ghost. David Rosenburg hinted that he sort of was giving up the ghost in his letter today.