Friday, July 23, 2010

Break Out?

I would say no but tomorrow is important. Today was another confusing day. We lept above the trendline at the open and than just stopped. No real follow through. No volume. Today was like watching paint dry. Seemed very odd. Would not be surprised at this point if we broke back down or if started moving dramatically higher. In otherwords, I didn't feel like anything was really resolved today which is very counter to how I thought it would be when the stock market opened.

Thursday, July 22, 2010

Pressure and More Pressure

Add another reason why I hate this market, regardless if I am making money or losing money. The market is curling up like a high pressured spring. Something very large is going to happen in short order and there is little way to determine what that move is going to be in the short term. As a result, you have know your right in the longer term and manage the risk (which means lowering potential gains if the market does move your way in the short term) so a sharp move against you in the short term doesn't destroy you.

The market is torquing. I had been thinking for days that the probability would be it would break higher. The severity of the move down yesterday with the drop in the Euro made me think the probabilities had changed. However, like I said last night in my post, I was very unhappy with the way the market closed. There are two major trendlines in play right now. The one coming down from the April highs. We have hit that one half a dozen times. We also have an upward trendline coming off the July lows. These are coming together forming a sideways triangle. We hit the upward trendline yesterday before rolling over and basically hit the downward trendline yesterday during the sell off. The space is becoming very narrow and one of those trendlines will break very soon. Any move will probably be violent.

If we break higher, the built up pressure from scrambling shorts will send this market screaming. I still think it will be very short term (days to a few weeks) but that is how you get the stocks to move towards 1140. It will also cause everyone to get on one side of the boat again setting up for the fall.

The bearish case is we gap open up here (and we will gap big time)and there is no follow through. It gets us through tomorrow for the release of this European stress test staying below the big downward sloping trendline.

The bullish case is we climb above it and continue screaming above it. European economic data was really strong today. It probably has to do with the weakness in the Euro last month.

Adding to the bull case is copper is screaming higher again today.

Wednesday, July 21, 2010

Just Not Easy

Nothing is every easy is it. The markets broke down hard but it left investors questioning and bears wanting? I moved fairly swift adding alot of short exposure. The odds definitely went up that bulls worst nightmare may have started but like I said, nothing is ever easy. If the market would have closed below 1060, that would have been huge. Copper was up HUGE in the morning and than reversed. The reversal was big but not breath taking. Most of the move up was technical in nature and the reversal at a key area was a technical failure but once again it didn't reverse strong enough to quell all questions.

As mentioned in the previous blurb of a post, the sentiment is shifting negative against the European bank stress test. The Euro got pounded today. It has been up so much that some sort of snapback was almost inevitable but the last few days still remind me of a topping process.

At this point the market may completely fall apart or it may still try to hold it together. In my mind it has two trading days to try to trigger a short squeeze leading to something bigger before the door is slammed shut. Time is definitely running low. For the bears the market has no business going over 1085 and especially 1100.

Stick a Fork Into It?

Market percption of bank stress test is starting to turn negative. Bernanke opens his mouth (which is almost always market positive) and the market tanks. Very very bearish!!

Bears Should Be Nervous - Bulls Should Be Terrified

A couple of very interesting days. A couple of days that probably have most investors a little confused. Whether they know it or not, I think bears should be nervous right here. You have Bernanke speaking tomorrow, not alot of economic data this week reinforcing the economic double dip in progress, and the European bank stress test that will be released Friday that will for sure paint the most rosy picture possible. It is very possible the market could shoot higher multiple percentage points for a few days. In fact, I have been the most active I have been in weeks covering shorts especially yesterday and some today. The weakness in the morning has given some opportunities to prune some positions. Some of these positions were puts that were re-initiated at the end of the day extending out the duration. Overall I am less short than I was two days ago but I remain on a trigger finger. This leads me to the thought that I think bulls should be terrified.

I think starting next week, the ugliness could return with a vengeance. My focus shifts from market indicator to indicator. Today the sell off did not feel right at all and I was covering some of my short duration puts early in the morning. The short term indicator I was focusing on was copper and the volume related to the gap down. Copper never moved down. It was positive all day and than started skyrocketing very early in the trading day. The longer term indicator I am looking at is the Euro. My gut tells me the Euro has topped or is very close to topping. The last couple of days the Euro has stopped its upward climb trying to chop higher above 1.30 before each time failing and getting slammed back down. There could be another spike but I really think these bank tests are going to be buy the rumor sell the news type of events. Hungary is having problems even though the market is ignoring it currently and overnight rates continue to indicate stress. I think the bulls are protected by the stress test to some degree because I don't think the market is going to plummet before it but the next big leg down I think will be because of Europe and I think the clock is ticking. Any bear hoping for an earnings miss to help cause a market sell off is looking in the wrong place. If earnings could perpetuate what they are coming in at, the market isn't that expensive. However, if there is a global macro hiccup, which I think is almost a certainty, earnings are leveraged like never before. So the bears have to be looking forward and outward. Maybe the market can hold it together longer than I think but the clock seems like it is ticking. Tick tock tick tock.

Anyway, look for a potential spike for the rest of the week into next week blowing out some shorts and establishing a bullish bias. If (and that is a decent if) we get the spike look to take an aggressive swing anywhere between 1110 and 1150 on the short side.

The most immediate bearish scenario I think centers around Bernanke testimoney tomorrow if he his words start sounding more downbeat than investors would like to hear.

Monday, July 19, 2010

Euro Rally About Done?

On June 13th when the Euro was around 1.20 and on June 24th when the Euro was around 1.22, I postulated the Euro (which at the time was hated) could see a bounce to 1.30. Well we are at 1.30. We are getting close to where it makes sense to potentially starting shorting the Euro. I think a 1.33 to 1.35 handle is possible but at this point I wouldn't bet on it.

This is like the counter trend bounce from the March 2009 lows for the equity market. I tend to be early with respects to when I think it could be over (I did start getting really bearish on the equity markets again around August / September of 2009 only to be really early). So the Euro may have further to go but I think we are closer to the top than the bottom (for that statement not to be true the Euro would have to rally above 1.40). You have the banking stress test results this Friday. This Euro rally could be buy the rumor sell the news sort of thing. Or it may cause the final spike.

With Hungary over the weekend, rumors of problems in some European banks, and overnight rates that continue to creep up, it shouldmt be long (days to a few months) before the Euro starts heading lower in earnest.

Republicans - A Nightmare for the Stock Market

This is not meant to be a political post. I typically vote Republican, lean Libertarian, and abhor free spending. But, in my opinion, this Bloomberg article has it 100% wrong.

From Bloomberg

Growing dissatisfaction with U.S. President Barack Obama before this year’s elections is good news for stock investors, if history is any guide.

The Standard & Poor’s 500 Index has surged 48 percent on average starting in the second year of each U.S. presidential term, measured from its lowest level through the high the next year, according to data going back to 1928 compiled by Bloomberg. That compares with trough-to-peak gains of 38 percent in other years.

An advance this year would come after Obama already presided over the biggest rally during the start of a presidency since Franklin D. Roosevelt in the 1930s. Bets on Intrade show a 54 percent chance Republicans will take control of the House, enabling them to block Obama’s policies. That may help prevent a bear market after equities tumbled as much as 16 percent in the past two months, says billionaire Kenneth Fisher.

“I envision a rally from before the midterm elections,” said Fisher, who oversees $35 billion in Woodside, California, as chief executive officer of Fisher Investments. “Markets love gridlock. What the market wants to see is no change: less legislation that engages in changes in taxes, spending, regulation or property rights.”

Wow. Talk about relying on an old playbook losing all sense of context. I have never really liked Kenneth Fisher, and like the last several years believe he is wrong here also. Republicans winning in November has been one of my catalyst for a big stock market meltdown. I professed this theory to several investors back in February and stand by it. Republicans take over Congress and I think the market tanks (it will tank before that leading up to the election). The reason has to do with the only thing that had been holding up the market was free spending by Washington and other world governments. The MASSIVE shift in market sentiment back in June surrounding the IMF and the global move to austerity. That is extremely deflationary and very stock market negative.

If the Republicans win Congress it will be because of the tea party movement type candidates who will feel like they have a mandate to cut spending and watch over the Fed. For the stock market I think there couldn't be a more negative scenario. We need to go through a depression (actually we don't need to but it is inevitable) and that would greatly quicken the process. Right now Intrade is putting it at 57% that Republicans take over the house. That started moving up big time in May ish which is when the US markets started rolling over. If that becomes more certain, I think the stock market will head lower.

Sunday, July 18, 2010

Europes Tipping Point?

Well, this market remains one to hate whether your making money or losing money. In my opinion Friday should have been Thursday. Classic tipping point where the bad economic news all week just built and built and built until finally the last piece of economic news, the consumer sentiment, just pushed the market over the edge. Thursday was where the real meat of the bad economic news occurred but was blurred with the BP news that the oil well was capped and the Goldman Sachs news that they had settled with the SEC with basically a slap on the wrist.

Friday was nice but there was several things I didn't like. The VIX never elevated. Was this complacency or a sign that the market isn't ready to go down? Also, volume was lighter than alot of down days especially considering it was an options expiration day. From a bears perspective, what I did really like was the market closed below 1070.

Tomorrow is a key day. If you would have asked me Friday I would have guessed that the market was a correction of the overbought nature and the market still has some juice left in it before the final roll over from the economy slowing. This Saturday through a wildcard into it though.

This from Reuters is potentially huge news.

The IMF and EU suspended on Saturday a review of Hungary's funding program, set up in 2008 to save the country from financial meltdown, saying it must take tough action to meet targets for cutting its budget deficit.

Suspension of talks means Hungary will not have access to remaining funds in its $25.1 billion loan package, created by the International Monetary Fund and European Union and which it now uses as financial safety net, until the review is concluded.

Negotiations with the lenders had been expected to finish early next week. Analysts said the forint currency could fall sharply when financial markets reopen Monday due to uncertainty over the international safety net for Hungary, which has financed itself from the markets since last year.

Is this Europes Lehman? This could be a massive catalyst for a blow up in Europe or the market may ignore it. It really shouldn't be the catalyst but the question is if it ruptures the tipping point. Just the consumer sentiment number was probably the least important economic number of the week, once again it was just the final push that sent the market over the edge? Is this it for Europe? I really have no idea. It also may not happen first thing tomorrow if it does happen. It could be slightly delayed. Things to watch for? Watch the CDS of European countries. Watch the Euro. Watch the markets (both government bond and equity) of the periphery countries (i.e. Spain).

Like I said, it probably shouldn't be the tipping point but it could be.

If the market really has turned over, tomorrow into Tuesday is very important. You should probably see some awesome earnings numbers out this week. Microsoft being one of them. It just depends whether the market is looking forward and the macro hurricanes on the horizon or the rear view mirror with the earnings from last quarter. As a bear I don't want to see the market get back above 1075 which isn't that far away.

Wednesday, July 14, 2010


The professional hazards of blogging. Boy was I wrong yesterday. Not only did things reverse but they reversed with a vengeance. The frustrating thing was, I had no idea why. I woke up this morning and do what I normally do. Roll over in bed, grab my blackberry, and scroll through the headlines. I look at the headlines, and I said to myself, eww, we are going to be down today. Than I looked at futures which were screaming and do a double take. I am like, I most have missed something. Go back through the headlines only to see the same bearish headlines I saw before. German survey well below what was expected, U.S. small business survey just abysmal, Portugal downgraded, Asia down the previous night with China really getting nailed, and some bad numbers out of the UK. By noon I just wanted to punch something, so I went and worked out. :)

Anyway, I have no idea what sparked the rally today. Alcoa lagged the markets. CSX whose earnings were also talked about was down. Maybe it was all a lead into Intel. Intel's numbers were truly amazing. Even as a bear, I must admit they were solid on every single framework.

The bears were getting their heart ripped out. I heard from all my bear friends who I don't hear from unless they are getting squeezed to death. What that means of course is a capitulation on the bear side. That doesn't mean the market will start going down as it isn't a capitulation to buy as much as a capitulation just to get out of shorts.

I hate this market. I hate everything about this market. I hate when I am making money. I hate when I am losing money. There is no rhyme or reason for anything. It is straight up or straight down. Has been for months. The market is broken. Just entirely broken.

We are now as much overbought as we were oversold 2 weeks ago. That is incredible. 7 days, up about 9%. ON NOTHING. No major economic news as the last two weeks has sort of been a quiet period for economic news. The news that has come out has been neutral to bad UNTIL the Intel numbers today. That was legitimate good news. So you could say all the bad stuff is priced in. Great, but the market shouldn't go up 9% in 7 days going to extreme overbought territory. That just isn't healthy even if your a bull. It is just absurd.

So where do we go from here (after my thoughts from yesterday, you probably shouldn't read this part)? I don't really know. Odds are high for some sort of pullback ASAP because we are so oversold but because of Intel the market may be up strong tomorrow exacerbating the situation. 1105 is important. We are at the 50 dma. The 200 dma is above around 1110. At this point after a pullback I could easily see us going to 1140. We may not. The market is really schizo right now. Not much makes alot of sense and from an investor standpoint I don't think there is alot to do. Is the economy slowing or isn't. So many warning signs that it is.

One other point. Again, copper underperformed today. It was basically flat on the day when the dollar was getting pummelled and other commodities and the market was screaming. It may be nothing but I still look at it as at least a warning sign.

Monday, July 12, 2010

Fish Losing Its Smell

Today made me a little more comfortable with the bear case. Alot of underpinnings in the market looked like it was starting to reverse. How big this potential reversal is I don't know, but all in all today was a bearish day.

I'll start off with copper since I named it as one of my top concerns in the last post. Copper lagged the markets badly all day. Overnight it is selling off again. A top risk appetite metric.

I also mentioned the Euro. I mentioned over a month ago I was expecting a rally. People had just gotten to bearish on it. I mentioned in the previous post I thought it might have more to run. Reading some over of the weekend and thinking about it I am starting to doubt that proposition. I am longer term bearish on the Euro so just a question of timing. Today looked weak and there is more and more chatter (especially in European newspapers)about provisions for sovereign default and problems with the stress test. We could see a serious move down in the Euro soon. If it is for the wrong reasons (Euro viability concerns), the correlation will return strongly of Euro down / stocks down.

There were problems on the periphery today with Spain taking a hit. Bond offerings didn't go so well in Europe and there are alot more the next couple of days.

The Russell 2000 got slaughtered today (at least relatively). I did a double take at the end of the day. Dow, S&P, and Nasdaq were up but the Russell 2000 was down over 1.1%. That is a huge relative move also showing risk off.

Though even the major indexes were up volume was lighter again today. Friday was the slowest full day of the year and today was even slower. Than if you look at market internals, there were more stocks down than up today.

Finally, on a short term basis the stock market is very overbought.

I think the odds have shifted that there is a very good chance at least for a short term sell off if not something bigger. Something bigger is dependent on Europe. I was shorting a little today. Should be interesting.

It will be interesting if the market does turn down hard and earnings are coming out looking good if investors will finally get that individual corporate performance is a small part of the equation right now. Alcoa came out with "good" earnings but it was a slide of hand again. This is getting old. Below is a compilation of thought on Alcoa earnings from me and a friend.

"My thing about Alcoa is it comes in at $.13 EPS versus consensus of $.11. We got a whopping 18% beat!! A month ago (just 30 days) the consensus was $.16 EPS. So the headline could have been Alcoa misses estimates by 19%. Now we can all cheer and marvel at how Alcoa beat EPS estimates by 18%. I am glad 30 days and a little slide of hand can make everyone feel better about everything."

"You got to love Alcoa claiming demand is picking up with prices down over 10% YTD. Hope springs eternal."

"Another interesting Alcoa tidbit - look at their capex - 213 million. 2nd lowest quarter (4th quarter of 2009 was 208 million) since like 2000. Back in 2007 and 2008 cap ex never dropped below 700 million and a couple of quarters was over a billion. Management obviously has alot of confidence."

Friday, July 9, 2010

A Fishy Smell

Sorry all. Been on the road. First the 4th of July holidays and than working on some business related issues. We are in a very predictable rally but where we go from here is very unpredictable. This is why I hate this market and have hated it for months. This is why to a large degree bottom up investing has been dead for a couple of years. Everything moves together either straight up or straight down. After essentially 10 days down in a row now we are up 5 days in a row. Not little moves but massive moves up and down. I postulated about a break back above 1040 and we are getting really close to where we need to stop if this isn't something bigger. It is just a stupid game of timing but if your on the short side you have to at least look at that stupid game.

Since I am bearish and think the inevitable move at some point will be back below 900 I will focus on the bearish viewpoint and my immediate concerns in the short term. Top among them is copper. Copper has very quietly gone back above it 50 day moving average. Why. I have no idea. It is a great harbinger for risk appetite and economic strength. At the same time the Baltic Day Index is down a record 30 days in a row. This typically means less need for shipping. There is a disconnect there. Watching copper not make new lows when the markets broke 1040 was one thing that gave me pause thinking there would be a bounce but seeing copper continue to move up makes me wonder if there isn't something more going on.

Secondly is the dollar and the euro. The correlation broke down some but I speculated the Euro would bounce and it continues to bounce and it seems like there could be more to come. Can the U.S. markets really plummet if the dollar is falling as that means more risk appetite? Let me be clear, I don't think the Euro has made its final low. I also think there are going to be some major European problems coming yet again in the relatively near future. But I could easily see the Euro rallying for several more weeks or a few more months.

This leads me of course to the European Bank Stress Test. Can the markets really be that stupid two times in a row? The American Bank Stress Test was a farce but was it enough to shift sentiment. This combined with the fact that banks were raising equity help them get away it. Can this one do the same thing or is it buy the rumor sell the news type of thing? That is extremely important to figure out. That is in two weeks so maybe the Euro rallies through than before rolling over?

Than you have the way this rally looks. It seems much stronger than the rally a month or so ago from 1040. We get so dang oversold and what you want to see is sideways choppy action with spurts and starts as you grind higher. That works off the oversold condition. This stupid rally has been straight up in a very short amount of time. It doesn't do nearly as much to work off oversold conditions and get overbought.

Finally and most importantly is the sentiment. Gotten extremely bearish. Stocks just can't go down when everyone is bearish. That means everyone has sold who has wanted to sell. Now this week hopefully helped some but has it helped enough? I don't know. Doug Kass was out at the beginning of this week saying we have seen the low for the year. While I think he is wrong he was zeroing in on how bearish everyone had gotten.

If we do have a much bigger rally ahead of us the target has to be around that 1150 are. So do we see 1150 or 950 first. If you asked me two weeks ago I would have guessed on a rally but strong probability for 950. The way this rally is unfolding I still think 950 but the probability break down in my mind is more like 60% not the previous 80 or 90% like I was thinking. So at least for me it is hard to bet either direction.

For the bearish perspective one has to hope this is just a relief rally before news hits. Buy the rumor sell the news. Earnings start next week and in two weeks is the release of the European stress test. Both in reality mean very little but it is always the reaction.

The biggest things going for the bears (and it is a big deal) is that once again on the moves up volume is becoming less and less. Todays volume was nonexistent. I mean the street was dead. 1.2 ish million ES contracts. Maybe 800 million on the NYSE big board. TALK ABOUT DEAD!!

Anyway, I don't really have a clue right now. All I know is that from a bears perspecitive this rally smells fishy in it could be a trap. Of course if your wrong and than right you just have short term pain but if your using options or leverage being to wrong on timing can be very painful.

Thursday, July 1, 2010

Steve Wynn Interview

This is a short interview of Steve Wynn from late May that I missed. Talk about saying the way it is. It reminds me so much of the book the Forgotten Man which is about the Great Depression. We are getting close to the time when everyone will start claiming they saw the double dip coming, the markets going back down. Complete BS. Think just three months ago and how the world was wonderful, was saved, and the stock market was going to new highs. What has changed from 3 months ago, 6 months ago???? Absolutely jack. Nothing has changed it is just people wanted to blindly hope. Belief in the tooth fairy is always better than thinking about taking care of your teeth and getting that root canal you need.

Weird - Simply Weird

Today was a weird weird day. May have been the weirdest day of the year. Even weirder than the flash crash day. The Euro surged. I mean took a rocket ship higher. A move you very rarely ever see in currency land. The supposed reason is liquidity squeeze in Europe which meant that European banks desperately needed Euros to meet obligations denominated Euros causing a mad rush for Euros. That is a net negative longer term for Europe and the Euro but the technical nature of it caused a massive squeeze in the Euro. This caused the dollar to plunge.

Now I had been warning about the potential of dollar weakness and Euro strength. Did not think it would happen this way. It was a very negative event in Europe that caused the Euro to spike and this could go on for awhile before it plunges again. What caught investors off guard though is the plunge in the dollar was accompanied by a plunge in commodity prices in dollar terms!!! Oil down over 3%. Copper down over 2%. Gold down over 4%. Down $50.00 an ounce!! Adjust that out of dollar terms and it was an incredible liqudiation. Just annihilated.

Stock market was also interesting. US stock market was down. I was really expecting a gap down at the open and then big reversal up. We basically opened close to flat. Sold off hard until mid morning and than had a big reversal still finishing down. The non farm payroll number and the long holiday could cause a spike tomorrow. That is very possible. Challenging the 1135 area is very possible but everything that went on today screams of market stress, of a system that is falling apart. One has to be careful from a leverage standpoint because some kind of squeeze could happen that could cause the stock market to go up 4% in a fashion caused by a negative event. I don't know what but I wouldn't have thought that my idea for Euro currency strength would be because of negative events in Europe that caused a massive negative technical squeeze.

It is very dangerous out there. We are standing on the edge of a precipice. We are below 1040. At least on a short term time horizon you have equal danger for the bears. When the markets get this out of whack it is very hard to be a massive winner because the risk on both sides are very large.