Financials have been responsible for the bulk of this bear market rally (SPY currently sitting at a 19% return in 9 days). Fundamentally I don't feel that anything has improved, at least with regards to unemployment, housing, growth, earnings, inflation, etc. And even though the market is a leading indicator, I don't see any of these improving in the next 6 months either.
You might think that today was a positive - i.e. printing another $1,000,000,000,000 via injecting liquidity into the economy, via buying up Ts. And in the short term it clearly was positive for the market (granted, there was a fair share of short covering today). But there is nothing positive about an economy in distress adding massive inflation and debt to its list of problems. To be fair though, they have run out of ideas.
Anyhoo, I wanted to delve a little deeper into this financial stock driven rally (since March 6th, the most recent 'bottom').
In the last 9 days the following stocks have returned the following % (approx):
C 217%
BAC 164%
MET 124%
WFC 120%
USB 96%
JPM 81%
AXP 45%
GS 44%
*XLF 60%
That's great! Although smells a bit of short covering and dumb money chasing and doesn't seem sustainable but who cares!
I remain bearish but I won't be stubborn. This market is absolutely capable of going to SPY 105 and I have to be prepared for that. If necessary I will definitely take on some long positions but I don't think it's time yet. Mainly because:
*SPY hasn't conquered this level of price resistance
*Or its 50 day EMA
*Conditions remain insanely overbought.
SPY
Wednesday, March 18, 2009
Printing Money
Monday, March 16, 2009
Building short positions
It may be time to start establishing some short positions. Obviously, it's not possible to know whether the bear market rally ends here or if it has 15% more upside (remember, lately the average bear market rally is good for 25%, on average, and we're only up 13%) . The strength of this current rally has to be respected but ultimately faded. One good way to do that without getting caught with your pants down, is to build positions over time and doing so around key levels of S&R. Here's 3 examples: FAS, JPM, and SPY
FAS
JPM
SPY
Friday, February 27, 2009
Banks going lower
Trading the banks these days isn't my idea of stress free, nonetheless, over the last 18 months it has been rather profitable to short them every time (actually only 80% of the time) they get overbought. Eventually all the banks will be trading at zero so naturally this trade cannot last forever but I think it still has some room to run. I mean, BAC is still at 3.95! That is an insult to your intelligence.
Shorting strength in names like XLF, KBE, UYG, and even in some of the individual names like JPM and GS has performed nicely.
KBE
Unless you have done your homework, I don't recommend the inverse - buying oversold dips - as long as the banks are under their 300 day MA.
Wednesday, February 25, 2009
Tuesday, February 17, 2009
Follow Up
Due to some significant moves today, here is a follow up to last week's charts. Most notably, there is SPY, which closed below 80. Be aware of the possibility of a reversal, such as the one that took place in November (SPY went from 74 to 90 in one week).
Assuming that doesn't happen again, 75 will be the next target. There will be a bounce between now and 75, so don't chase.
Short term conditions are getting oversold (2 & 5 day RSI), so as usual, either cover, or wait for some strength before getting short. Shorting oversold stocks is a guaranteed way to lose money in the long run and usually in the short term as well.
SPY
X
TIE
MA
OIH
JPM
XLE
Monday, February 9, 2009
Short JPM for a trade
JPM might make for a good short this week.
- there is resistance around 28
- 50 day EMA
- near the upper trend line of its price channel
- it remains overbought - 2 & 5 day RSI.
Stop: 29
Target: 22
JPM
Thursday, October 9, 2008
Hindsight trade of the week
Best hindsight trade of the week goes to SKF.
VIX (click to view) has never reached an intraday high of almost 65!
GM (click to view) has never dropped 31% in a day!
XOM has never dropped $9 in a day!
The market is poised for its worst week in history!
Late day selling has been popular as people are nervous to hold overnight; therefore, holding over the weekend likely won't be too popular either - so don't be shocked to see another down day. Not to mention (as per Homer Simpson) Officer Coo-Coo Bananas will be talking tomorrow at 10am and anytime he, Paulson, or Bernanke, have opened their mouth lately, the market drops.
That BIG BOUNCE might have to wait till next week.
Some Other Thoughts...
JPM
AMZN
GOOG
