Friday, February 6, 2009

I SWEAR, I'M ABOUT TO TURN INTO THIS GUY

MARKET COMMENTARY (2-5-08)

9:20AM - Visualization of the employment situation:

8:37AM - Wow, those numbers really sucked (-598K/+7.6%). We lost a total of about 3.6 million jobs since the recession started in December 2007, FYI.

Here’s WSP to make you feel better (WARNING: Extremely Offensive):



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We are at a critical juncture at the moment. The market was creating a flag all day yesterday right above the 20-day MA. It's obvious that the Employment Situation and/or the Senate vote on the stimulus/bank plan will be the catalysts that will allow the market to exit from this month long symmetrical triangle.


At this point, it looks like it'll be an upside breakout. Many financials are showing reversal signals, such as hammers/doji, and those signals are supported by massive volume, e.g. BAC. If the financials lead the market, then we definitely go higher. Keep in mind the following levels on the SPX:

Support: 820, 815, 805 -> total breakdown
Resistance: 850, 855, 860 (30-day MA), 867 (50-day MA), 875.



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Thursday, February 5, 2009

GETTING RID OF MARK-TO-MARKET IS DUMBER THAN....

…tripping over a cordless phone.

…getting locked in a grocery store and starving to death.

…trying to put M&M’s in alphabetical order.

…climbing over a glass wall to see what’s behind it.

…getting locked out of a convertible with the top down.

…getting stabbed at a shoot out.

…taking a spoon to the Superbowl.

…asking for a price check at a dollar store.

…thinking that sexual battery is some kind of dildo.

…buying a solar powered flashlight.

…sending a fax with a stamp on it.

…studying for a blood test.

…selling the car for gas money.

…taking a ruler to bed to see how long you slept.

…trying to kill a bird by dropping it off a cliff.

…sticking a quarter in the parking meter and asking “where’s my gumball?”.

…trying to wake up a sleeping bag.

…getting run over by a parked car.

…sitting on the TV and watching the couch.

…buying a book on “How to Read”.

…stealing a free sample.

Wednesday, February 4, 2009

MARKET COMMENTARY (2-4-09)

Yesterday's economic numbers weren't as bad people thought. That's what CNBC said. I though the numbers were horrible. We had the Challenger Job-Cut report that came in at 241,749. The previous reading was 166,348. Around when the recession first started around January 2008, the reading was 74,986, so we've come a long way and we still have a ways to go. ADP came out with a -522,000 reading with the previous reading being -693,000. As you can see from the charts below, both employment indicators continue to go parabolic.

The ISM Non-Manufacturing report came out with a 42.9 reading within a consensus range of 37 to 44, with the final consensus being 39. This might seem like something to celebrate, but look at the chart. This is far from over.


Don't forget that we have Jobless Claims at 8:30AM EST today. The consensus is 583,000 within a consensus range of 480,000 to 620,000. The previous reading was 588,000. I don't see how claims would decline when many states experienced a systerm overload from an overwhelming number of claims. Just last monday alone, we had 55,000 announced layoffs. Even if claims drop, that's just a blip. The chart below might as well be the VIX in Sept & Oct.


Today, we bounced off of the 20-day MA resistance level. Besides the 20-day, we also have the 30 and 50-day MA's, and 850-855 on the SPX as immediate resistance levels. Once we bounced, it appeared that we were forming a bull flag, but that failed after forming for several hours. From 2PM-4PM, it looks like we're forming a continuation bear flag to the downside.

What do we look for today? First, whether we gap up or down in response to the claims, productivity and costs (Also at 8:30AM EST), factory orders (10:00AM EST) and whatever the market speculates ahead of Friday's Employment Situation report.

If we gap up 845-847 becomes initial resistance (20-day + upper trend). If the market breaks out, then we are seeing 850-852 as the next major resistance level. If we breakdown, I would caution unloading some short positions at the 820 level prior to reach the lower tri-line. As you can see, we are in a symmetrical triangle, built over 35 days or so.


Look at the 5-month charts of the SPX and the DJIA. The SPX is forming a symmetrical triangle while the DJIA is forming a descending triangle, the latter of which has a much higher probability of a breakdown. The DJIA only contains 30 stocks, therefore, keep the SPX as your main index. Once you start seeing DJIA components like BAC, GE, C, JPM, etc. breakdown, then we're going to have some major problems.

We have a massive load of earnings pre-market today. Here they are: AMBD, ATG, LNT, ANR, STST, ARTG, STD, BIP, BPO, BG, BKC, CAH, CSL, CI, CBB, CINF, CNMD, DTPI, UFS, DUK, EXP, ELNK, ELON, EQR, EVR, FLIR, FLO, IT, RX, IPCC, IFF, KIM, KNL, EL, LII, LZ, MAG, MA, MMS, MNI, MD, MV, MF, MCO, MPS, NCR, NTT, NXXI, CHUX, OPTX, PARL, PENN, POL, PBH, RVSN, ROLL, RSTI, RGLD, SWM, SIRO, SON, SE, SPR, SPH, TEN, TBL, UN, UL, WMG, WW, WU ,WNS.

There's 2x more than that if you add in the ones intraday and after-hours, but you can go look them up yourself.

As of right now, I am still bearish, especially on the financials, but more so with the regional pieces of shit that are going to sub-$1.

WARNING: Extremely Offensive



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MARKET COMMENTARY (2-03-09)


Today's move was expected. In yesterday's post, I mentioned that we could be forming a double bottom and if we did, 830 SPX would be the neckline. We broke out after we hit upper resistance several times, forming an ascending triangle. If you noticed between 12-2PM, we were churning while making a higher low since yesterday at 3PM. This pattern is one of the more highly reliable bullish patterns out there. Don't ask me if it'll last, because that all depends on the plethora of news that is supposed to come out this week. As for news...

What the hell is wrong with WFC? They were going to Vegas! I swear, these people just don't get it. Someone is going to flip out one day. You're going to see attacks on bankers. When the public hits a psychological tipping point, people start becoming irrational. This is how protests start, which then turn into riots, then sometimes, full-scale revolts. People are pissed off, but we haven't hit the tipping point. There are protests and riots going on everywhere in the world, so don't think that it won't happen over here.

I also read that "19 million homes stood vacant in 2008" on Bloomberg. That's the largest amount of housing supply that I've ever heard of. Most of you haven't seen many vacant properties, but let me just show you some in my photography collection. These are properties scattered throughout Baltimore and most of these can be bought for less than $5,000 apiece:



Depressing, right? This isn't just Baltimore's problem. Vacant properties are turning into a national plague for reasons I mentioned in yesterday's post. We just have to ride this out until supply and demand find equilibrium. Forcing banks to lend is a problem, not the solution. How is pushing more debt on people a smart decision? Massive amounts of debt is what started this mess in the first place. The gov't keeps trying to force things to happen. This will eventually lead to disaster.

Isn't this something? Also, don't forget that Chrysler is giving $20,000 plus a $25,000 voucher for a new car. Are you kidding me? Guess who's paying for all those cars? I am. You are. You seriously have to ask yourself, "where is all the bailout money going?". I guarantee you that these people will be coming back for another hand out. This is total horseshit.

Take a look at the 40-day and the 4-month charts. The market is "boxed in". It is a term that I do not use frequently, but it basically means that the market is trapped within so many support and resistance levels that it has become more and more difficult to gauge pivot points for swing trading. If you have noticed, I've been in 80-90% cash overnight for weeks, and for good reason. Play this market minute-by-minute, day-by-day because "breaking news" is just around the corner.



Yesterday's top plays were short STI, PNC, RF, WFC, BAC, and LVS. The regional bank short play is and will continue to be lucrative for weeks to come. When a stock hits below the $2 mark, I cut all my profits + a min. of 50% of the original principal and rotate it into a higher priced stock. Rinse and repeat. This reduces risk for short squeezes or potential acquisitions.

We have tons of earnings out today:

Pre-market: ALU, ALVR, ARJ, BRS, CKSW, DVN, DBD, XJT, FOR, GR, KFT, NOV, NSTC, HI, RL, R, TWC/TWX, WIN.

Intra-day: AGN, BOFI, BCO, CFFN, CRNT, CSCO, CLX, CVLT, EFX, HSTX, HRC, LFUS, MPAC, PM, EGOV, SLE, SFLY, SLAB, SUN, TUP.

After-hours: AKAM, AEC, AIZ, ATML, AVB, BMC, CDNS, DTLK, CBL, DEL, DCP, ESS, HRS, MET, NEU, NXTY, OPNT, PRU, REG, SPTN, SSWS, VARI, V.


WARNING: Extremely Offensive.



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Tuesday, February 3, 2009

MARKET COMMENTARY (02-02-09)

Bloomberg had this article out about how the U.S. housing market lost $3.3 trillion in 2008 AND that 1 in 6 people with mortgages are underwater, or 17%. It's not getting any better. We have pending home sales coming out today at 10:00AM - consensus 82.3 (range: 78.2 to 84, previous actual: 82.3). I'll be really surprised if pending sales remained "unchanged". Motor vehicle sales are also coming out (total consensus: 7.7M (range:7.3M to 8.1M, previous actual: 7.7M). This is another consensus estimate where it is also "unchanged". Whatever.

You see, 2.6 million people lost jobs in 2008. How in the world are these people going to pay their mortgages? For most families, this is the single largest monthly expense. How are they going to pay it? They can't! This fuels the supply side of the foreclosure market, thus creating more vacancies and pressure on other homeowners to reduce their prices (against their will).As long as there are less buyers who are interested and qualified, this death spiral will continue. It all comes back to the jobs, you see?

I spent some time investing in residential real estate in Baltimore, buying up properties for $1,000-3,000 each. I can tell you that most of Baltimore is in the shitter. But this isn't isolated. Cities all over the US are seeing the effects of this crisis. What do I mean? Consider this: a single foreclosure can cost the local gov't $34,000 (stuff like trash removal, unpaid utility bills, police, inspection, etc.). A vacant house is usually looted within 72 hours of being vacant in some neighborhoods.

It's no wonder then why California, among other states, is getting terminated. In fact, credit-default swaps, for anything that has to do with Cali, has tripled since September. This lost tax revenue is killing the local municipalities. When the locals start asking for help en masse, the states get burdened, and then what? The states have to turn to the federal government. They can't support shit right now. Who's going to support them? The Chinese? Give me a break. This whole thing is ridiculous. It's like a bad dream, except it's a real-life nightmare.

Don't even get me started on these people not paying taxes. Or, how about the fact that BAC spent approx. $10 million to sponsor a bullshit Super Bowl "Fun Fest"? Ask the taxpayers if they're having fun. Daily news like this don't cease to amaze me. Where the hell is all of our money? These banks, I'm tell you, they just don't get it. One of these days...someone is going go apeshit on these bank execs. You know what I'm talking about.

As for the charts. We are back in the 800-855 range once again. This market got crushed on high hopes of a bad bank plan. You know what I don't understand? Why would someone even announce the plan if, in it's entirety, it may not even come into fruition? That's synonymous to a lie. The market floats on this ephemeral feeling that the gov't has the perfect solution. Here's the solution: let the recession/depression take it's course, not matter how many years/decades it will take to recover. History has shown that gov't intervention only prolongs the problem and delays inevitable.

We need these clogged up institutions to fail so we can clean out the system. No one wants to do it, but usually, doing the right thing is harder than taking the easy way out. If these institutions do not fail, and if the same people in the executive ranks are not replaced, then hardly anything will change. According to Ben Franklin, insanity is "the act of doing something over and over again and expecting different results". The firms on the verge of failure deserve to fail.

Anyway, in the ultra short-term, we can see a bit of neutral ranging action between 815-830 SPX. Neutral ranges often mark continuations in the prevailing trend which, in this case, is down. However, an upside breakout reversal is possible as well, thus forming a double bottom. You just have to wait and see. There's so much "breaking news" these days, you really have to be cautious about what comes out of people's mouths. This market is on a heightened news-driven, emotionally-charged roller coaster full of illogical riders.

As for earning, we still have quite few (being the season for it and all). Coming out pre-market are as follows: AMSC, ADM, ADP, CME, AXE, CEVA, CLP, COCO, DHI, DOW, EMR, HCA, HDWR, HNT, KSU, LDR, MGG, MAN, HZO, MKL, MOT, MYGN, NNN, NOC, PTRY, PNR, PRGO, COL, RTI, SGP, SMG, TPP, UPS.

We have more coming out during the day: BKH, CAM, CMI, ETR, MRO, MDU, MRK, NEWP, OESX, PRC, PNC, QUIK, TZOO, TRMB, TRP.

And, afterhours: ACE, ACTL, ADVS, ASYS, BYI, BRE, CTX, DIS, EDGR, ERTS, FISV, GLAD, JKHY, ILMN, IVAC, JLL, LEG, MEE, MET, MWA, NLC, NBIX, PEC, PDRT, PXD, PLNR, RSYS, RVBD, SLTC, SLGN, UTI, UNM, UPI, VIGN, WSFS, YUM.



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Sunday, February 1, 2009

SHORT INTEREST UPDATE

If you are an avid short seller, the financial sector is of particular interest. I did some research on short interest levels for various financial-related industries and, as a whole, the sector's short interest level was down 3% (as of Jan 15th). The industries researched are the 1) broker-dealers, large banks, 2) securities processors, 3) regional banks, 4) online brokers, 5) specialty/mortgage finance, 6) life insurance, 7) asset management, 8) p&c insurance, and 9) reinsurance.

The largest increase in short interest came from the securities processors, up +42% (partially thanks to STT: +86%). The runners up were the broker-dealers and large banks, up 8%. Next came asset management with a +4% increase. Life insurance saw a 0% increase, and all other sub-sectors saw a decrease in short interest (regional banks: -3%, reinsurance: -3%, speciality/mortgage finance: -5%, p&c insurance: -6%, online brokers: -7%).

Interestingly, when analyzing the days to cover, the regional banks, clumped together as an aggregate, will take 7 days to cover. The next longest is the speciality/mortgage finance with 3.6 days to cover. The shortest time belongs to the broker-dealers and large banks with 0.9 days to cover. Short interest (as a % of the float) is 8.9% for both the regional banks and speciality/mortgage finance. All others came in between 1.6% to 3.9%.

Furthermore, looking at a 1-month price change, the regional banks lost -13%, the most of any sub-sector. The second largest losing sub-sector was specialty/mortgage finance (-6%). Looking at a 3-month price change, the broker-dealers and large banks lost -36% and the regional banks lost -32%. Looking at a 6-month price change, the regional banks are the top dogs with a +1%. I believe that the regional banks have a huge potential for profit on the short side. They still have more room to fall. A lot more.

I am more inclined to short the regional banks strictly because of the fact the regional, community banks with smaller asset sizes are not "too big to fail". In fact, many of these banks near inevitable failure don't even make headlines in the news. It's obvious that size does matter in this huge bailout game. The only threat to short sellers is if a larger bank decides to acquire one of these banks, well then, your short position is screwed.

However, large institutions are in trouble themselves, struggling with capital and liquidity and digesting their previous acquisitions. These guys do not know what came with every deal. With BAC acquiring Tangelo's Countrywide and Mr. Commode's Merrill, and JPM acquiring Bear and WaMu, and other institutions going on acquisition binge in 2008, the interest and the ability to acquire more banks has become much more difficult. Acquisitions will be placed on hold until all of these so-called "smart" people figure out what's going on.

Let's break this down by sub-sector, individual firms, and so forth:

1) Broker-dealers and large banks. These are the pillars of a crumbling world of finance which include names such as C, JPM, GS, MS, etc. They also include smaller firms such as COWN, RJF, JEF, PJC. After MS, C had the largest increase in short interest (+14%). JPM and GS saw an increase of +1% and +2%, respectively. In the current 3-month period, MS has the largest increase in short interest, currently at +154% with a 5.8% short interest (as a % of float). Over 10% of RJF and JEF's float is short.

2) Securities processors. This group includes STT, NTRS, BK, among others. In a one-month period, this group saw the largest spike in short interest with +86% for STT, +42% for NTRS, and +35% for BK. Interestingly, only 2.1% of STT's float is short with 1.9 days to cover.

3) Regional banks. This is a huge group. The companies with the largest increase in short interest are STI (+21%), CBSH (+50%), CFR (+31%), VLY (+81%), MTB (+19%), and many more that are currently under enormous pressure. The small cap regional banks especially heavily shorted - around 50% of them with over 10 days to cover. Out of the large cap regionals, BBT has the largest % increase in short interest at +9%.

4) Online brokers. You might use one of the following: SCHW, ETFC, AMTD, OXPS. This group includes market structure such as CME, ICE, ITG, NDAQ, MKTX, NYX, MF, NITE, PNSN, GFIG, among others. Out of this sub-sector, AMTD and ITG saw the largest % increases in short interest with +51% and +52%, respectively. All others saw declines, except NITE (+6%) and SCHW (no change). ETFC currently has 14.4% of it's float shorted with 8.5 days to cover and MF has 14.8% of it's float shorted with 8.7 days to cover, the two largest of the sub-sector.

5) Specialty/Mortgage finance. This group includes ACF, AXP, MA, SLM, DFS, V, CSE, COF, CIT, FED, HCBK, GKK, KFN, NRF, SFI, CRE, NLY, CIM, etc. P.O.S. companies such as FRE and FNM can be ignored because they've become black holes sucking all of the money out of the system. CIT saw the largest decrease in short interest with a -30% change, however, 8.9% of their float is still short. CIM saw the largest increase with +129%, but only 1.8% of it's float is short. NLY is the second largest gainer with +32%. The largest short interest (as a % of float) belongs to FED with +28.1%.

6) Life insurance. Everyone needs it, but that doesn't mean buy their stocks, people! AIG is a good example of what not to buy. Also in this sub-sector: HIG, MET, PFG, PRU, TMK, CNO, GNW, AFL, AMP, SFG, PNX, RGA, LNC, PL, etc. The largest short increases go to LNC and PFG, both with a +21% increase. Looking at the 3-month % change, about half of these names saw a +100% increase or more in short interest.

7) Asset management. Names such as LM, TROW, FIG, BLK, CLMS, AMG, AB, IVZ, JNS, EV, WDR, OZM, BEN, and FII should come to mind. WDR saw an increase of +131%, followed by FII with +61%, and JNS with +42%. As an aggregate, this seb-sector's short interest increased by 3.7% or 90 bps. Even FII, a defensive stock in bear markets with 85% of their funds in MMs, is under pressure from reduced fees. Americans just don't want idiots managing their money anymore.

8) P&C insurance. There seems to be this perception that pricing has bottomed for property and casualty insurance, or that valuations for this sub-sector is extremely low. Hell, they could get even lower. This group includes ACE, AIZ, BRK.A, NAVG, CB, RLI, WRB, TRV, XL, ALL, PGR, etc. With the exception of AIZ (+88%) and p&c brokers (AOC, MMC, WSH), this sub-sector has seen decreases in short interest across the board with a -15% median decrease.

9) Reinsurance. This group includes ACGL, PTP, RNR, RE, PRE, MRH, ENH, AHL, etc. This group saw a -3% decline in short interest (As a whole), which is much better than a +45% increase looking at the 6-month change. This sector is actually up +6% (1-month % price change).

Compare this with the median 1-month % price change with p&c insurance (-2%), asset management (+2%), life insurance (+2%), specialty/mortgage finance (-6%), securities processors (+7%), online brokers (+2%), regionals (-13%), and the broker-dealers and large banks (-3%). The regionals are horrible.

I see shorting opportunities in the regionals. There are so many of them out there.