Monday, September 22, 2008


We are truly living in interesting times. We are living in the days where financial history makes big history almost every day. Take today for example. The U.S. Dollar fell 2.6%, its largest loss in seven years. Oil spiked as high as $130 a barrel, settling at $120.92 up 15.7%. And then we have our crazy equity markets that seem to move 3-5% on a daily basis. I’m surprised the VIX closed up only 5.5% today and we’re still waiting for that $700 bailout plan. The SEC added 30 more stocks on its short list, expanding its market manipulative powers. The fact that Congress and the Treasury are fighting over whether or not homeowners deserve a bailout is outrageous. Get on with it, I say!

Now that I got my rant out of the way, the metals commodities such as gold and silver were up big today (I would suspect some hedge fund(s) got squeezed to literal death). Gold closed at $904.60, up 4.6%. Overall, the commodities group saw its biggest one-day gain in commodities trading history. As I scanned the breakouts in the market, the majority came from the metals and mining industries. Here are a few:

All four gold stocks are either within a range between the 50-day MA and the 200-day MA or, in the case of Randgold Resources (GOLD), closed above both on its third gap up. I suspect that gold stocks will continue to form gaps up in the next few days until they hit their respective resistance points.

A non-metal stock that broke out today was Secure Computing (SCUR). McAfee announced that they will buy SCUR for $413 million in cash, paying $5.75 per share. If you look on the chart, the reason why the candle is so small is because the day’s range was only two cents. This is a very tight doji formation and usually in this case, the stock drifts in or around this range for quite some time. Watch for any potential breakout, signaling that the stock will surely go higher.

Fairfax Financial Holdings (FFH) was added to the short-selling ban by Canada over the weekend, so that’s one reason for the spike. The second possible driver is FFH’s announcement to make a Normal Course Issue Bid for up to 1.19 million subordinate voting shares. The maximum number of shares able to be purchased represents 10% of the float. I think the short squeeze had to do with the majority of today’s move.

We had a lot of financials fall about 10-30% today, but they did not meet my breakdown rule. Many of these financials look like they might meet my rule tomorrow. Here’s one more for today:

Federal Agricultural Mortgage (AGM) dropped 59% today after they revealed in a filing that it owned $60 million in senior debt issued by Lehman Brothers. Um…isn’t it kind of late for this announcement? Are you looking for a support level? You won’t find one here. Try a chart from 1999.

General Growth Properties (GGP) dropped 24.9% on news that the company is considering selling its properties to raise capital to meet debt obligations. As a commercial real estate investor, I can say that typically in a real estate downturn, residential real estate is the first to go and while that goes on, commercial, multi-family, office space, strip malls, and storage are next in line. Since commercial property has only begun to crack, this stock is toast. Didn’t they see this coming?

There are a lot of housing reports coming out this week including the House Price index tomorrow, Existing Home Sales and Weekly MBA Mortgage Applications on Wednesday, and New Homes Sales on Thursday. Keep an eye out for Lennar (LEN) which reports tomorrow and KB Home (KBH) which reports on Friday. Whatever the cause of the decline, Beazer Homes (BZH) broke its trend and has failed the 50-day and closed below it. It looks like BZH has a good chance of going down from here.


Anonymous said...

I work in the housing industry (in one of the few "good" markets), almost everyone in my office has doubled their SRS position. I agree with John, BZH is on the way down.

John C. Lee said...

What do you do if you don't mind me asking and which market (Texas?)