Trading Strategy
Thursday, November 13th, 2008
We predicted this last month. We are seeing a W in the Candle charts. If this retest is successful today, we will aim higher. Otherwise lookout below.
Here is an excerpt from BigPicture blog.
Markets have come increasingly close to their October 10th lows. Contrary to what you may have read or heard on TV, this is precisely as it should be. Why? Major lows get retested. That is a basic tenet of market behavior, and crowd psychology. (This has been verified by a variety of studies by different technicians, economists and traders).
There are a variety of different ways to define the terms, yielding some variations, but the basic outline remains the same: All major sell offs hit a point where markets become so deeply oversold, that a rally ensues. Depending upon how deep the prior sell off is, this rally typically lasts anywhere from 3 to 6 weeks. Our work at FusionIQ shows that these snap-backs typically go for about 4 weeks and average ~24%.
http://www.ritholtz.com/blog/2008/11/retest-of-the-october-lows/
The number of newly laid-off individuals seeking unemployment benefits has jumped to a level not seen since just after the Sept. 11, 2001, terrorist attacks, as companies cut more jobs in the face of a slowing economy.
http://biz.yahoo.com/ap/081113/jobless_claims.html
Filed under: Economy, Trading Strategy, Financial Press, Finance | | 1 Comment »
Saturday, October 11th, 2008
As most of you know this past week was the worst week ever for most global indices.
Filed under: Economy, Financial Markets, Trading Strategy, Global Finance | | No Comments »
Friday, October 10th, 2008
More on this story soon.
But I think S&P is finally close to 15xp/e. I am not saying you should get out and buy stocks today. But it is definetely looking attractive compared to a month ago. I think as the DOW approaches to 2002 lows of 7500, we can look into nibbling some long term investment plays.
Filed under: Financial Markets, Trading Strategy, Finance | | No Comments »
Thursday, September 18th, 2008
Sep 18 - Update to our yesterday’s posting.
I guess I nailed this one. I called the short term bottom yesterday. It turned out to be true. Both Longs and Shorts battled out today in this historic trading day, which only made the investors on the sidelines even more nervous. In the final hours of the day, market breadth turned extremely positive pushing all major indices 4-5% greener and higher. Volatility Index, VIX surpassed 42 to end at 34. Usually a spike in VIX followed by a reversal means a short term bottom is in. It will be interesting to see if market actions today will initiate a short term bear market rally.
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Sep 17 - Wall Street plunged again in a crisis of confidence Wednesday as anxieties about the financial system still ran high after the government’s bailout of insurer American International Group Inc. The Dow Jones industrial average dropped about 450 points, and investors seeking the safety of hard assets and government debt sent gold, oil and short-term Treasurys soaring…. » read more
I can’t believe I am saying this, but is this a near bottom? VIX touched Jan, mid March lows again.
Filed under: Financial Markets, Trading Strategy, Finance | | No Comments »
Sunday, September 14th, 2008
New York, Sunday 14, 2008
Lehman is once again in the spotlight. But something tells me that this maybe this the last time it will be on anyone’s radar. In the recent weeks, there has been a number of rumors, speculations and mis-statements that Lehman will be absorbed in parts or in whole by some major financial institution. Since the credit crunch began in 2007 fall, Lehman and other Financial majors have been actively pursuing for additional capital to survive the credit crisis. Since the fallout of Bear Sterns, Fed and Treasury have taken an active role in preventing major financial meltdowns. On the one hand Government involvement has stabilized the market in the short term, on the other hand it creates a longer term issue.Lehman has approached several Financial institutions (both Domestic and Foreign) in the recent weeks for cash infusion. But none of them showed any interest after reviewing Lehman’s balance sheet. Lehman is one of the worst exposed among the Investment banks to the whole real estate market. Lehman pre-announced its third-quarter earnings last Thursday. Despite Lehman’s promise to purge its balance sheet of more than $30bn in weak real estate assets, most analysts remained skeptical of its rescue plan.
Since its founding in 1850, Lehman has successfully survived many of the historic events such as Civil War, WW1, Depression Era, WW2. It has slowly and agressively expanded into other banking segments such as Fixed Income Sales, Trading and Research, Investment Banking, Private Investment Management, Asset Management and Private Equity.
Figure 1: Lehman Multi-Year Chart, Boom gone bust
While it has always been a consistent risk taker in the past, it has only been in the recent past that it took excessive risk without considering the consequences. Most employees at Lehman will agree that Dick Fuld was responsible for this whole mess. He refused to see the gravity of the problem and continue to stay in denial mode.
This weekend, many of the major financial insitutions are meeting with Fed and Treasury Dept to figure out a way to provide lifeline to Lehman. Recently Bank of America Corp and Britain’s Barclay’s Plc have been mentioned as possible suitors. Goldman Sachs Group Inc., which also was being talked about as a potential buyer, is not interested, according to an industry official who ask not to be named.
On Thursday, the cost of credit insurance for Lehman debt rose as high as 805 basis points - meaning investors would be willing to pay $805,000 a year to insure $10m of debt for five years - before easing later on.
Meanwhile mortgage related problems continue to haunt other major Investment Banks and Insurance majors such as American Insurance Group (AIG), Merrill Lynch and Washington Mutual. It seems like both Fed and Treasury Dept have too many fires to put off and they wish this was all just a pretty bad dream.
May the force be strong with Federal Reserve and Treasury Dept!
Filed under: Economy, Financial Markets, Housing, Trading Strategy, Bankruptcies | | 1 Comment »
Tuesday, September 9th, 2008
Just an update on my previous call.
Fannie/Freddie collapsed Monday as I predicted a few months ago.
Lehman imploded today due to capital concerns. I mentioned before that Lehman might be the next one to go down in history. They are having a hard time securing financing from foreign lenders (well what da ya expect?). I doubt that Fed/Treasury will bail out Lehman. But you never know. What’s another trillion dollar debt ehh? Let’s print more dollar.
Whoever called the bottom in Financials or Housing are proven dead wrong again. These bottom callers must live in a different planet. I think this Financial train wreck will face one hell of a climax ending.
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I think Lehman’s days are numbered. Even though they may not end up like Bear Sterns, they are in serious trouble here.
I read this on Yahoo messageboard which I thought was a pretty good analysis on Lehman’s current position.
Problems:
1) Earnings power. De-leveraging reduces LEH’s ability to make money. (if you need this explained you are too stupid for words)
2) Markdowns on “assets” reduce book value; big markdowns are coming.
3) Longs are crowing about the stock being at $34??? It was $45 two weeks ago. Hmmm, who’s winning?
4) Negative press is limiting LEH customers trading which is another strike to earnings.
5) Business model broken. It is agreed that LEH will need to reinvent itself in order to grow earnings. Nobody has offered an explanation of how.
6) Uncertainty about forward numbers. The market LOATHES uncertainty and LEH epitomizes it.
7) LEH’s top fixed income strategist has acknowledged that problems aren’t easily remedied and that the next few years should prove problematic. YEARS!!! ouch.
8) shorts are being attacked which generally means that they’re onto something otherwise they just lose money and go away. That doesn’t seem to be happening here does it?
9) The FED members, while openly offering to lend to LEH, have said that the BSC action was a bad move which is unlikely to be repeated.
10) still no rebuttal of Einhorn’s comments with factual data supporting their position.
11) seeking new capital even though they “don’t need it” seems like an admission that the pretty picture they paint has been misrepresented to some degree.
Filed under: Financial Markets, Trading Strategy, Financial Bailouts, Bankruptcies | | No Comments »
Friday, August 8th, 2008
Here are 4 interesting charts
1) Dow Technical
For those who follow technicals, you can clearly spot a double-top in the chart and a Head and Shoulder pattern. Dow is below 9, 50 and 200 dma and poise to move lower (target 10,000) by year end.
2) Oil Technical
We pointed this out before. Oil broke the up trend in mid July. It continues to fall as demand destruction and sector rotation continue to weigh on the price. I think it’s nothing to cheer about the falling Oil price. It says a lot about the health of our Global economy.
3) Financials (XLF)
Financials continue to fall this year.
XLF has moved up in the last few days while volume has dramatically dropped off. At the bottom of this chart, I have also plotted the on-balance volume (OBV) indicator.
The OBV indicator is a running cumulative total of upside and downside volume. It’s calculated by adding the volume on up days and subtracting it on down days. The reason I am showing this indicator is because it’s clearly diverging with the price of the index. That’s not a good sign.
4) Titanium (Agriculture)
As Oil fell, it took all the Commodities with it. Titanium went public last December and has been a high-flyer since its debut. But when the commodities broke down last week, stocks like Titanium felt the pain. Where is the bottom now?
Filed under: Financial Markets, Trading Strategy | | No Comments »
Saturday, July 19th, 2008
Something dramatic happened last week. Both Financials and Oil reversed its usual trends. Two important things happened.
1) Last Sunday, the Treasury department and Federal Reserve unveiled a rescue plan that would bolster the two mortgage giants, Freddie and Fannie which play a crucial role in the U.S Housing market
2) Seperately, SEC took charges against short-sellers by issuing an emergency rule to curb short selling (U.K did last month)
These actions drove short-sellers and speculators cover their shorts both in Financials and Energy sectors. We saw a major outflow of money going from Energy into Financials sector. Investors and Traders closed their positions in the speculative Oil market. Does this mean the Oil bubble has burst? More importantly, has the Financials bottomed yet? Answer is “Maybe” in the short term. I think “a” bottom is in for the Financials. Has the crisis in the Financials fixed overnight? I don’t think so. I doubt this over-levereged, cheap money driven financial bust is over already. In the longer term, Financial sector is going to see more write-downs, zero to minimal earnings growth and more regulations from both Fed and Treasury and more government supervision.
As far as trading ideas, I would buy DUG at the next bottom, short USO, buy XLF for a short-term trade.
Have a great weekend fellows.
Filed under: Economy, Financial Markets, Trading Strategy | | 2 Comments »
Saturday, June 28th, 2008
A few months ago a friend of mine asked whether Citi was a good buy since it was so cheap ($19). I said wait for another few months and you will find yourself asking the same question when it is lower than what it is now. As investors, you have to adapt to reality and adjust your investment psychology and style. We are seeing a major asset re-pricing occuring at a Global macro level. Frankly, investors lost confidence in the U.S financial markets and banking systems. We are seeing investment banks rushing to downgrade each other which only amps up investor anxiety. Whatever happened to “you scratch my bach. I scratch yours” concept?
Citigroup, Lehman Brothers, Merril Lynch are all facing severe credit crunches. I wouldn’t be surprised any one of these major banks will go bankrupt in the near future. Lehman has the worst credit spread among the banks widening 30 basis points last Thursday. Disclosure: short on Lehman and XLF.
Will there be a economic recovery in the 2nd half of the year? I really doubt it. We are entering into a recession (possibly stagflation) and I do not see any recovery until 2010. Fed is caught beween Rock and Hard place. Will Fed reduce (or hold) rates to spur up the economy, or raise rates to fight off the inflation and support dollar? Bush’s tax refund/break is definetely not working here (i think it was a dumb idea to begin with). As dollar continue to decline, Oil and commodities will continue to raise.
Technology sector has been performing great until last week. RIM’s dissapointing news put a stop in the Tech rally. I think Nasdaq will test its March lows again. So, in summary we are not out of the woods yet. If anyone says otherwise, predicts a recovery in the 2nd half of 08, they don’t know what they are talking about. My prediction for Dow Jones by year end - 10000, S&P - 1100. We are most probably going back to 2006 levels. Take a break from all these depressing news and enjoy the summer.
Pic 1: Dow 2008 Target
Pic 2: S&P 500 2008 Target
Short Financials and Tech -
RIMM, LEH, Citigroup, Merrill
Long Commodities, Agriculture and Energy -
Titan Industries, USO, Monsanto, Agrium, Haliburton, Potash
Filed under: Economy, Financial Markets, Trading Strategy | | No Comments »
Saturday, June 21st, 2008
Anyone see a parallel here?
Filed under: Financial Markets, Trading Strategy, Energy | | 1 Comment »
Wednesday, June 18th, 2008
Will this be happening again?
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Tuesday, June 10th, 2008
June 11 (Bloomberg) — Japan’s first-quarter economic growth was faster than the government initially reported after figures showed businesses spent more than estimated. Gross domestic product expanded an annualized 4 percent in the three months ended March 31, the Cabinet Office said today in Tokyo, quicker than the 3.3 percent estimated last month. The median estimate of 22 economists surveyed by Bloomberg News was for 3.8 percent growth.
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I also thought I would share this chart with our readers. We predicted that Japanese market will do better this year compared to other Asian peers and ofcourse our U.S market.
This chart compares the iShares MCSI Japan Index and iShares FTSE/Xinhua China 25 index.
Japan - China comparison
Let me know what you think!
Filed under: Financial Markets, Trading Strategy | | No Comments »
Sunday, June 8th, 2008
We discussed this before many times. We predicted Oil to reach $150 - $200 by year end. Seems like that prediction might come true.
Only a few days ago, we wrote about the impact of $200 oil on the economy. Economist, the weekly magazine notes in their last issue (“Recoil” cover story”) there is about 60% speculation in the oil price.
Jacques Chahine writes in his outlook paper “An oil bubble to rival the internet boom”.
| In terms of stock market capitalisation, the energy sector (together with electricity and gas utilities) is the largest in America, with 17.6% of the S&P 500 total. It has overtaken the fi-nancial sector, which before the subprime crisis accounted for 22.3% of the index. In 2006, energy accounted for 8.6% of US household spending; crude prices climbed an average 10% in 2007 and are expected to be up 47% in 2008.
Unquestionably, there is a bubble in oil company profits, although masked by what look like low PERs. EPS have risen 8.7 times over since 1994, and this is another record. The sec-tor’s share prices have risen ‘only’ 512% over the same period, but are extremely vulnerable to a change in the economic situation.
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For those of us who missed the oil rally, how do you play this one out? Is there an opportunity to cash out on the oil bubble? I believe yes. All bubbles eventually face the same destiny. Eventually they will burst and price comes back to earth (reverse to mean). When the oil peaks and burst, one easy way to make money is to buy short funds such as UltraShort OIL & GAS (Amex: DUG). This fund invests 80% of assets in financial instruments with economic characteristics that should be inverse to those of the index.
Filed under: Financial Markets, Trading Strategy | | No Comments »
Wednesday, April 23rd, 2008
SHANGHAI, China - Retiree Guan Yuhuai plunged into stock trading for the very first time when prices were beginning to soar two years ago. Within a month, he doubled his investment, and he was hooked. But with the market’s recent plunge to half its October all-time high, Guan and millions of other Chinese investors are getting a rude introduction to the downside of capital markets.
Millions of individual Chinese investors dumped their savings into the stock market as the Shanghai Composite index soared 130 percent in 2006 and 97 percent in 2007.
But it has fallen sharply since hitting an all-time high of 6,124.04 in mid-October after regulators suspended sales of mutual funds to new subscribers, deflating what they feared was a bubble in stock prices. Repeated interest rate hikes and other tightening measures have also contributed to the decline.
With inflation running at over 8 percent, authorities are unlikely to relax monetary policy - the one thing that might actually rekindle buying sentiment, he says.
Chinese mutual funds, the main vehicle for individual investments, lost $93 billion in the first quarter of this year, with combined assets under management falling to $357 billion, Xinhua News reported Tuesday. It cited figures compiled from earnings reports by TX Investment Consulting, a local securities company.
http://www.forbes.com/feeds/ap/2008/04/23/ap4923930.html
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![Freakonomics[Revised and Expanded]](/images/21xRHBWYYML.jpg "Freakonomics[Revised and Expanded]")
