Tuesday, July 31, 2007

The Yen's a Movin'

The above chart of the FXY, which is my preferred vehicle to play the Yen, shows some excellent developments with the Yen. Remember that the Yen has been a major, if not the major pillar underneath this market. In similar fashion to our mortgage market over the last 4 years where NINJA (no income no job, no assets) and liar loans were commonplace, there has been virtually free money in Japan for anyone who wanted it. All that was necessary was a pulse and that criteria could be waived under proper circumstances. Regardless this carry trade(borrow yen and invest elsewhere) has been all the rage and we all know how herd like the 'smart money' is.
The chart shows the most recent gap now open 3 days which is the 'all clear' sign to buy it. Volume is surging and you can argue that this is short covering(remember those corpses who borrowed it now have to repay it). Remember the quote in Reminiscences of a Stock Operator, he who sells what isn't hisn' must buy it back or go to prisn', I always liked that one. Anyone debated what kind of volume it is truly is meaningless. Do not be like that 4 year old nephew everyone has who always asks 'why'! It's fine for him to do it but not for us as investors, so forget the post mortem.
Good trading to you all.

SPX, Merrill Lynch, QID and SDS

The Ultrashort S&P 500 show a weekly bar breaking the trend line on positive diverging MacD. The caveat here is this happened back in February only to be a fake out. We need to see the lows of this move down hold and $58 taken out to the upside. Until then its advantage bulls.

Merrill is still my benchmark and as it goes, so goes the market. The bulls should be praying that the trend line holds.

The Ultrashort QQQ's proshares (remember this goes up if the Naz goes down) look to be hinting at a turn up as you can see the positively diverging MacD. Still some work but worth watching. Is this move down for real or is it another fake out only to reward the 'buy the dip' mentally out there.

S&P 500 shows the 3 lines of engagement so to speak. Skirmish #1 went to the bears with 2 to go.
Good trading to you.

Monday, July 30, 2007

The Sting

I caught an interview via the radio with a 'middle America' broker and after the standard "we're in for the long haul, this is how markets work, yada, yada, yada. The next question posed to him was something I didn't expect from mainstream media considering it had substance was, "is there a point, ie falling markets, where you might re-reconsider that stance ?" His response was basically there is no level at which they would sell because markets always go up. Boy o' boy does that sounds like so many of my former colleagues. Now my question would be directed to this ad visor's (and thousands of others like him) customers. If there is no point at which you would sell, why are paying this guy (a flat fee of say 1-2% of assets is commonplace) to orchestrate something a seeing eye dog could do ?

Asking this biased advisor if its time to buy is just as ridiculous as asking a realtor, whose existence is commission dependent(hence biased), whether it is a good time to buy. We are watching how the housing market is turning out and given my favourite chart, remember 'chart to burn into your memory'. Don't fall victim to this biased hype.

This weekends worth of trotting out of 'experts' on television to tout this market as 'a buying opportunity' and 'a normal pullback' was nauseating. Not in and of the fact that each prior dip has been just that but that it is being done in the face of deteriorating economics whether it be housing, jobs, credit, the dollar, you name it. This whole thing reminds me of The Sting. You remember that movie set in the 1930's with Robert Redford and Paul Newman, boy did they suck in that gangster Lonnegan. It might be a good time to watch it again as this is exactly what is going on right now, one big elaborate sting ! No conspiracy either as it is being done to investors with their eyes wide open. Fascinating to the point of being worth in depth PhD study in the corridors of psychology and sociology.

Friday, July 27, 2007

Finishing my thought

Remember that ISRG chart I mentioned earlier. I have posted it again today with a comparison to my Ultrashort Real Estate (SRS) just above. Please note the action in both charts when the bearish engulfing bar was finally broken thru. Instant action to say the least ! The longer term time frame the more significance the bar takes on(ie weekly bar more significant than daily).

If you are short...stay short.

I was dozing off the other evening channel flipping and came across the movie Goodfella's. You remember the one, Ray Liotta, De Niro, Sorvino and Pesci. An absolutely great flick about true events to boot ! I happened across the movie during the part where the restaurant owner is having trouble with Joe Pesci's character and he approaches Pauley(Paul Sorvino) via Henry(Ray Liotta) about partnering. Well, its all downhill from there as they pillage everything and when they've bled if for all its worth and there's nothing left but debts, they burn it to the ground. It got me to thinking that the restaurant would represent the broking/banking business, say JP Morgan or Goldman Sachs and the mob would be represented by the government. As I said I was dozing off at the time, but it's a thought, no?

This market smacks of distribution to me. After yesterday we should be lucky to get a rally day or week which will give 'the strong hands' the opportunity to continue to sell even more stock to 'the weak hands' under cover of financial media/pundit spin of "a strong economy", "good profits", buy the dips", "this time is different"(with specific comparison to tech in 1999 for good measure). Kinda like Blackstone did to the public.

You should be very afraid. They will ridicule the naysayers like they did to Gary Shilling last night. The other 5 on Kudlow's show(Ritholtz excluded) couldn't carry Mr. Shillings bags let along compare market acumen, yet the "market journalists" with specific note the Ms. MacDonald and Mr. Bowyer 2 of the finest CLOWNS I have ever seen, listen to these two at you own peril. I understand and welcome opposing views and frank disagreement and but the derision directed at Shilling went beyond reprehensible. Shame on Kudlow for permitting it.

Just shut up and stick to the charts. Okay, Okay ! Good trading to you all.

Thursday, July 26, 2007

What a waste of an hour

I did something today I don't usually do anymore, watch CNBC. When I was in retail we used to have it on in the office on the overhead tv's. Well, with everything happening today I decided to watch pom pom TV for the last hour of the market and I must tell you, it is nauseating. To say that I disagree with EVERYTHING I have heard would be an understatement. To watch CNBC cackle(thx Maria) about is why things are so great, why you should not panic, why any down move is an overreaction, why any downdraft is a buying opportunity and why anyone who disagrees is an idiot.

Why the focus on how far we've "bounced off the low", maybe its driven by a natural disposition to optimism, maybe it is driven by who butters their bread regarding advertising, who knows. The one thing I do know is that if you are listening to that station to get your investment posture I wish you well. You will be holding your "the fundamentals haven't changed" stocks all the way down, just like the tech bubble. You will fall in love with your stocks and the further they plummet the harder it will become to sell, you will continue to look at hte old highs as attainable and then after the relentless, grinding implosion, amidst the ruins of your positions (ie. your $80 trading for $18) the incessant babbling by dumb and dumber(Radigan and Pisani), the money dummy or was it honey?(Maria, are they acting or reporting) will have moved on to the next hot sector, like we have currently with the Dow 30 and assorted multinationals (stocks you could have bought at enormously cheaper levels).

THEY were busy hyping tech to the point where you feel intellectually bankrupt if you don't own them. As it was then with Cisco, Intel, Dell and Nortel today we have Caterpillar, U.S. Steel, Philip Morris, etc. Please learn the lessons from history so you can avoid repeating them. That being said, the one person worth listening to is the one person who gets the least amount of air time, Art Cashin.

To quote Jesse Livermore "we don't want to be on the bear side or the bull side but the right side." Good trading to you all.

Somebody's got to pay for it...... .and it ain't gonna be me.

HUD chief Alphonso Jackson went to China to ask (re: beg) them to buy mortgage securities. Correct me if I am wrong but did we not tell the Chinese to buzz off when they wanted to buy Unocal a while back? Now all we need to do is ask Dubai (remember the ports?) to buy this toxic sludge and we have covered all our bases. This goes in the hypocrisy folder which gets thicker by the day. Is the housing credit problem spreading to corporate ? Bill Gross of Pimco thinks so but you can decide for yourself. This problem is not contained, in fact it is spreading. It is global and you ignore it at SIGNIFICANT risk to you financial health !

Wow, did Panera Bread get whacked yesterday, as if the gap down back in early June wasn't enough. It sure is a great place to eat but the chart is another story.

Regarding these hundred point up mornings, reverse, down afternoon, reverse up. My take is that this volatility is not the hallmark of a market bottom but instead of a market fighting with itself and forming a top of some significance. Tops are made amidst euphoric cheering and fanfare while bottoms are made quietly, amidst disdain and frustration. Govern yourself accordingly !

I said before that "if ze Germans cant't fix Chrysler what makes Snow, Quayle, et al. think they can. Well hubris of course !! Doesn't Merriam-Webster define hubris as; keenness and depth of perception, discernment, or discrimination especially in practical matters. Ooops, I am sorry, that was the definition for acumen.

Now we get news that syndicating banks cannot find buyers and will have to eat the deal.(this eating of loans is a MAJOR LEAGUE big deal, and mark my works, the talking heads on pom pom TV will spin it that this crap ( sorry, ultra high yield securities) is really a great investment for the bank. Do not believe it! Makes me think of the movie Wall Street again, remember the sales manager talking to Bud Fox when the customer wouldn't pay and he closes out the account, " somebody's got to pay for it and it ain't going to be me. And you wonder why the financials are tanking, well here is your news which as Jesse Livermore always implored, "news conforms to the tape!"

Here is the one way you can incorporate your insatiable desire for news to trade. Yesterday we got relatively bearish inventory figures for crude and crude went up. When a market goes up consistently on bad news think buy and when it goes down on good news think sell. You're looking for a market to 'buy the dips' ? I would humbly suggest the energy arena. Remember I have called energy the 2x4 to the forehead of this market, please don't forget that contrary to what dumb and dumber say on CNBC (Ratigan and Pisani). No offence fellas, your comments speak for themselves.

A friend told me he saw Michael Jackson from Autonation on CNBC this morning and he said that "he cringes every time he sees some specialist on TV crowing about how the housing spillover is contained." Now why would someone want to listen to someone who lives on the front lines every day surveying the battlefield.

While on the topic of analysis, years and years ago analysts lived on the road covering their sector. There was no replacement for being there and getting a feel for what the pulse of the business was. Today that has been replaced with teleconference calls and industry conventions conducted in locales thousands of miles from the front lines of the actual business. Just something to consider when a Wall St. shill tells you everything is fine(remember that word) or the Fed official who travels, eats, and breathes on the government chit, and yet has the gall to tell you inflation is muted. Hang on, thats not entirely true, they do reach into their wallet when visited one of Heidi Fleiss' establishments, but I digress. Good luck and good trading.

Wednesday, July 25, 2007

Yield, yield and ... well yes, more yield.

These stocks or income trusts as they are known could have a place in a suitable portfolio. Great yield (as a basket) and excellent upside potential if you are energy bullish !
Good luck and good trading to you.

Tuesday, July 24, 2007

Bullish on These

Some stocks above that I am bullish on.

I have taken the following exerpt from Bill Fleckenstein from out on the left coast. His thoughts are sobering, unequivocal, and in my opinion, spot on.

Lastly, as a foil to what passes for investment knowledge on the airwaves, I'd like to make a comment about analysis versus opinion. In the investment business, there are two components of an outcome you expect to see in the marketplace. The first is your analysis of the phenomenon or security you are scrutinizing. The second is your opinion (educated guess) about how other people will greet (price) the outcome that you expect.

For some time now, I have been chronicling the problems in the subprime-mortgage market and what they mean. It was possible to look at what had been occurring in subprime and know that a large number of these loans shouldn't have been made, as they weren't going to be paid back. In addition, it was possible to know that the people who owned the loans were levered up, as were the people on the hook for them. Thus, it was logical to conclude that many of these mortgages would be defaulted on, creating ramifications throughout the financing and economic food chain.
Those of us who believed in that analysis have been correct, and I believe we continue to be correct. However, those people (like me) who thought that analysis would matter to the stock market (the opinion part) have been incorrect, as thus far it hasn't mattered.
Nonetheless, I am more convinced than ever that the outcome I envision is unavoidable, even as the timing remains unpredictable.

In the final analysis, analysis is best Why do I bring this up? Because folks at home trying to determine whom they'd like to listen to and what information to consider -- versus what to ignore -- need to be aware of those two components. I say that because if somebody continually gets the analysis part wrong, even if he gets the guess part right -- i.e., temporarily makes money buying stocks because he says that subprime either doesn't matter or is contained -- that incorrect analysis ultimately will see him get carried out. In the long term, correct analysis is more important than your guess about how people will react to it.

Today's bulls have all been right about their belief that stocks should go up every day, but many have been wrong in their analyses. One of these days, Mr. Market is going to exact a penalty for the guessers who've guessed right for the wrong reason. I believe that day is coming sooner rather than later and will cause far more damage than anyone expects.

His comment about price and value reasonate with me which is why I try to marry some fundamentals(the foundation) with lots and lots of technicals. As an example I believe in peak oil and it along with the fundamentals of the world energy scene are the foundation. I now have an arena I can operate in and now will go to technicals for specific items for consideration. I am a notorious value poacher, which means I watch guys like Charles Brandes to see what stocks he is buying. He usually will own multiple names in a sector, for example about 24 months ago he was loaded with the telecoms (VZ, BLS, DT), and the drugs (MRK, PFE, SGP). This will give me ashopping list to start my technical work on. Nothing to complicated as that would make my head hurt!

Good luck and good trading to you.

Yen/Euro Cross

I found this piece which comes from extremely insightful Jim Grant and his publication the Interest Rate Observer.

"The liberating feature of Basel II is that the financial institutions to which it applies may hold more assets per dollar of equity captial than they previously could-provided a ratings agency judges the assets to be top-flight. Specifically under Basel II a broker must set aside just 56 cents in capital to hold $100 in triple A rated securitizations-but $4.80 to hold $100 of triple B rated securitizations."

Now just as mortgage brokers prodded and coerced home appraisers to make the number to get the deal done is it a stretch to believe what many have suspected that the same was going on with the ratings agencies like Moodys, Fitch, and S&P? Is it any wonder that global derivatives, or weapons of mass destruction that Warren Buffett called them, have swollen to $345 TRILLION which represents about 9X world GDP !

This months piece by Bill Gross which is always worth the read is especially so this month. He mentions the Bank of America report that $500 billion is adjustable rate mortgages set to re-set up in 2007 by an average of 200 basis points (2%) and another 700 billion in 2008. The kicker here is that 3/4 of the 700 billion are sub prime. What about all the people that won't even qualify for the mortgage under the new guidelines. If Gross is right (he is an extremely bright mind) and the Fed cuts, then gold and silver could be ready to rock and roll.

Robert Prechter, about whom you can argue with his inflexibility but not his extensive homework with which he is without peer, had a chart that outlined stock market peaks coinciding with skyscraper projects. Is the planned tallest building in the world out of Dubai a sign of the times?

I heard Amex increased loan loss reserves 85%. Wachovia tripled theirs the other day, now why would they be doing that if the housing problem is contained. Just being prudent you say, well actually the time for prudence was when they were lending the money not now after the horses are out of the barn. And to think of all the wasteful spending on a 'risk management' that seems to be there for esthetics only.

Caterpillar's gap is open now 3 days. Very bad sign. Was this not an international company that is immune to bad things.

Back on July 10th I called Home Depots stock buyback announcement a gift. It was and still is, sell it while you can as these prices will look awfully good compared to $20 which is where we are headed. We are now well below $40 which is where the Depot was prior to the announcement. Short term gain for long term pain... or was it supposed to be the other way around.

The euphoric high of J&J's announced stock buyback has worn off and the hangover is setting in, we are now below $62 which is where the stock was prior the debt laced announcement.
Streettracks Gold trust (ticker GLD) $69 and $72 that's it, gotta get thru. Just trying to keep it simple.

Dennis Gartman brought the above Yen/Euro cross (chart top) to attention which he called,
"a barometer of the world's risk appetite. That when healthy and rising the yen weakens relative to the Euro and global equities have tended to rally. When the appetite is constained the Yen gains on Euro and carry trade is imploded and global equities put under pressure."
The trend line from the low June has been broken and he is watching 166.50 so I will too. Good trading to you all.

Charts of Interest (re-done)

I think there was a problem with the charts in that they were too small. Hopefully the problem is corrected. Please let me know if you have a problem viewing charts as they are the only thing worth 2 cents on this site.

I am learning the intricacies of blogging as I go and I now am able to mark up my charts for you so hopefully the posts will get less verbose. (my word of the day!) Now don't panic as I will still get on my soapbox to rant.

A noted back in late June the 10 year note yield ($TNX) had broken all 5 down trend lines. The day to day vagaries are for the guys trading in the pits in Chicago. We need to concern ourselves with the longer term picture which I think clearly shows a sea change in the rate picture. This is huge. Remember when this chart goes up bond prices are going down like a teeter-toter.
Here are the 5 descending trend lines on the $TNX have been broke (noted in chart above).They are in order form high point:

158.40 (15.84%) on Sep 1981
139.90 on May 1984
102.30 on Oct 198
80.20 on Nov 1994
67.80 on Jan 2000

Good luck and good trading to you all.

Monday, July 23, 2007

Some Thoughts ...if you can call them that.

I know I harp on how duplicitous Wall St. is and they are but in reality they are only responding to the needs of the market. Just like a drug dealer responds to his market demand, the brokers only respond to market forces, selling to the (public) marks hoping to make their fortune. Caveat emptor right? I want to take this opportunity to say I left the retail brokerage biz of my own accord and am just calling it like I saw, and continue to see it.

But even as the public steps into the morass that is Wall St. there are some lights at then end of the tunnel. There are some who are bold enough to speak their mind and risk purgatory for it. Voices of reason are not always limited to the independents or the buy side of the street. Sometimes you do find it in the strangest of places. During the tech bubble chief strategists like Chuck Clough of Merrill who was sick of being fogged quit (and has probably never been happier and added years to his life in the process) along with Michael Metz of Oppenheimer who was demoted to their asset management division for his bearish caution (where's Joe Battapaglia when you need em') were just such voices. You just cannot be a major Wall St. firm strategeist with a neutral or negative strategist it is just not conducive to good profits. Memo to clients, we will take care of you until your interests and our interests diverge, then, you're on your own!. Nice the see Bernstein over at Merrill recently voicing some caution on this market. For the uninitiated his use of the word volatility is Wall St. lingo for downside. Just like 'high yield bonds' is code for junk bonds or plain ol' crap and 'hold' is code for sell, and fast.

CNBC keeps trotting out every shill they can find to keep telling us the consumer is fine. My question is if the consumer is fine (freaked-out, insecure, neurotic and emotional with apologies to Donald Sutherland in the Italian Job), which he is not but who cares what I think, but if he is fine why do Brunswick and Harley Davidson charts look so bad. These are the quintessential adult toy stocks. Just something to consider along with the fact that you need to ask yourself why do they keep repeating everything is fine over and over again ??

The other evening I was considering the deteriorating technicals of the financials and it got me to thinking about how at the turn of the century industry was king and the country MADE things. Things that, as Dennis Gartman likes to say "if you dropped them on your foot it would hurt." Finance at the time was an ancillary by-product of that manufacturing, the tail of the dog, so to speak. So what does it say that the the tail is now the main driver of the game, to the point where the days of the 4 C's of credit (which by the way are character, capacity, collateral, and conditions) are not even known by the inhabitants of the industry and have been perverted to the extent that we have no money down, adjustable rate, negative amortized lending ! I wonder what J. Pierpont Morgan would have to say about all this.

You can slice this current easy money orgy, (courtesy of Greenspan) which has led to the current state of affairs, any way you want but in the end the pension funds bought the worthless paper based on A) favourable ratings from the agencies and B) an insatiable desire to outperform and get their bonus $$ and/or promotion. I was at a local hospital charity fundraiser recently. It was a casino theme with players allotted play money for blackjack and poker tables. It was very eye opening to watch how people gamble when the money is someone else's. Logic to me says the same goes on in your pension fund or that mutual fund in your retirement account. In the end, you the taxpayer will be called on to bail out this quagmire via the PBGC (why this entity other than for political pay-back appointments I have no idea) under the guise of 'systemic risk to the economy' which just encourages more reckless behaviour. Stop bailing these guys out now no matter how big or how important or they will never learn any lessons. As with children there must be consequences for their actions.

To finish of I want to say that being bearish or negative regarding the market is not unpatriotic as is made out by the talking heads on biz TV. If conditions call for it then why not. Just as calling into question decisions that our politicos make is part of our freedom of speech no matter how much others will disagree. Good luck and good trading to you.
P.S. I was thinking about Cramer's 4 horsemen again, (he is quite the vaudevillian showmen is he not), and I was thinking I should have my own 4 horsemen. How about GLD, USO, SRS and SKF. I'm gonna think about that one, but at first blush, I like it!

Week Ending Charts

The bank index($BKX) is looking ominous indeed. The weekly chart(above) shows a bearish engulfing candle or outside reversal bar. What is very disconcerting about this situation is that it has occurred under the 40 week MA which has acted as a lid on prices here. The bar last week prior formed a hammer or hanging man. Now compare this action to end of April early May, same thing a hanging man then a bearish engulfing followed by an 8.5% drop. I can't caution strongly enough that this is ominous for the market.

Now look at the financial spiders (XLF) where we can see huge bursts in volume coming in on down days, again NOT GOOD for those that listen to pom pom TV (CNBC). $34 and then $31 are the next stops for this train.

The Dow Jones financial index ($DJUSFN) paints pretty much the same picture with the trend line from the Oct of 2005 low being clearly broken.
Just as they (the market cheerleaders) downplayed the severity of the sub prime problem which is a misnomer since the sub prime cancer is spreading to the Alt-A arena, it is a housing bubble problem, they will downplay the lack of participation (nice term) of the financials. Do not be fooled and if it not a time to panic it is a least time for caution. Good luck and good trading to you.

Saturday, July 21, 2007

The Chart

In the past they would circle the wagons as there is safety in numbers. Whether it was Jack Grubman, Frank Quattrone, Mary Meeker or Henry Blodgett, (tech analyst extraordinaire. Quick, free 2 for 1 Dennys coupon to anyone who knows Henry's prior gig to internet fame at Oppenheimer and then Merrill Lynch. Drum roll please........ proof reader at Random House) they would deny, deny, deny and proceed to write a check while neither admitting nor denying wrongdoing. I just love that phrase neither admitting nor denying wrongdoing.
Then without warning someone breaks rank, gets cold feet and panic sets in. Everything in the toxic world of sub prime slime was fine as long as they all kept up appearances. The brokers all knew the paper was worthless yet their charade of mark to model was still being swallowed by the clients so none the wiser. But then Merrill broke ranks (he who panics first panics best.) and turned on comrade in arms Bear Stearns. Now we get news the gloves are off.

It just boggles my simple mind how they (the Fed, Wall St., NAR, mainstream media) expect me to believe sub prime is contained (wait till the discussion spreads to Alt-A) and how this housing problem which is 30% of the economy is no big deal ?! Housing has accounted for, according to multiple sources, 40-45% of all new jobs in this economy the last few years. The consumer represents about 60-70% of the economy and has been using his house as an ATM. Lending standards are on the rise, and retirees have been counting on their home to help fund his/her pension years.

The ARM (adjustable rate mtg) crowd is facing the perfect storm. This perfect storm is composed of 3 variables to the mortgage scene for the average couple. His job, her job and the interest rate. I have long believed that all 3 have to be in favourable mode to keep 'the game' going and if any one of these were not, financial calamity looms. Here we are now where rates are higher with the mortgage about to re-set and in many cases 1 or both income earners are suffering. Now add in tightening lending standards which will now spread like wildfire as the pendulum swings back from overt recklessness to overt curmudgeonness (such a word?)

Hence I show you THE CHART, again, cause if you're like me you need to see it again to get it to sink in. (after much effect I found osmosis doesn't work for me) The implications of this chart is something you should be very afraid of. Forewarned is forearmed.

More evidence of trouble in consumer land. Brunswick getting wacked and stock heading much lower.

Another sign that you should fasten your seat belts. Fund of the year in 2006.

Boy is the U.S. dollar sick. Just can't seem to get out of its own way. I am sure glad I am not in Ben Bernanke's shoes. Hmmmmmm.... lets see, if he raises rates to save the dollar and contain inflation he will crush the housing/credit/derivative markets and if he lower rates to save housing/economy/Wall St. he will crush the dollar and put inflation into overdrive. Good luck and good trading to you.

Friday, July 20, 2007

Some Thoughts

Given my take that:

A) the economy is already in a recession if you compare GDP to population growth ,
B) that interest rates have had a tectonic shift from lower rates to higher, and

C) that crude (energy) is in long- long term bull market mode.

D) that companies have taken a page out of the private equity playbook of borrowing money to buy back stock only to leave the company saddled with even more debt (refer to B).

Why are they buying back stock with borrowed money when they can just increase the dividend if they are that bullish in their business. Why? Because stock buybacks help their stock/option grants immediately that's why. Like a good friend of mine in the political consulting business always tells me politicians never do whats right they do what will get them re-elected and the same goes for CEO's.

I think a very vulnerable stock in this environment would be Federal Express (FDX 2nd chart) This stock has been a bull market darling for some time and with good reason. If you look at the weekly chart you can see a bearish engulfing candle back in February of this year, the high of which has not been bettered. The stock is in no man's land right now but I bring it to your attention as something you should keep on your radar with particular interest in the $110, 104 and $96 levels.

As I have mentioned before, heads are gonna roll over at Wachovia regarding the buyout of that cancerous entity that was GoldenWest Financial. Just like the rocket scientists over at Merrill that talked Stan O'Neal into buying First Franklin. They don't get fired rather,they become part of the walking dead, guys/gals whose careers are dead ended. If I heard correctly Wachovia tripled their loan loss reserves, which I have no idea as to why they would when Greenspan, Bernanke, and Paulson have repeatedly told us sub prime is contained. Seems like a waste of productive capital to me that could be more prudently used buying inverted yield, Swedish Kronar denominated, collateralized Zimbabwean debt obligations. On margin of course! Imagine the fees !

For those of you that may have came away from yesterdays post, The Rails, thinking, man that cat needs therapy or he's plain ol' jealous, or maybe just sour grapes. Well doggonit if I don't stumble across across this (for those that needed empirical evidence) from the always entertaining site Naked Shorts outlining how disgraced NY comptroller Alan Havesi steered state pension fund money to his sons hedge fund. Like the prefect in Casablance " I am shocked, shocked to find their is gambling going on in here!' Where the heck is Seargeant Schultz when you need him.

Could we finally be breaking thru on the Yen(top chart)? Could be. Today some acceleration along with some volume coming in. Its early but this is encouraging. We need some separation here before we can relax some. A move thru 83 would make this fella feel much better. Good luck and good trading.

Thursday, July 19, 2007

Late Thursday

Here is some evidence that the pendulum has indeed swung from an inclusionist, border less world to an increasingly belligerent isolationist one. As Dennis Gartman fondly says of Putin, "you don't rise to the position of lieutenant colonel in the KGB by being nice", along with "once KGB always KGB." Just some things to remember when considering Russia and her moves and motives.

Are there any civil liberty attorneys out there who can explain what this means in plain English. I have the feeling this is not good for freedoms in general but I am open to being enlightened.

You can ignore a lot of things in life and never have to worry but I implore you to not ignore what the financials are doing right now. They are sick, very sick. They should be leading and they are not. Wait, correct that, they are leading, to the downside. It does not matter what you indicator you follow, $BKX, $DJUSFN, XLF, or IYF the story is the same. Please pay heed to this!

Rather than drone on about crude any more than I already have I will focus in on who should be a loser with this and that is the airlines. Continental (CAL 3rd chart) started the day with a gap up and is forming a nice bearish engulfing bar today. It is also being turned back by a descending trend line from it's old high about $52.50 along with the 50day(heading down) and a 200day ma which is looking ripe to roll over. I would expect a rally up todays bar so waiting for the stock to break today's low is adviseable.

I came across the above cartoon today(2nd from top) and it made me think of Blackstone (BX chart top) and its IPO. Maybe it was because of this and how Zell took advantage of all those MBA's over there. As to what Blackstone does, I read this a while back had to laugh, buy undervalued companies, fix them up, and sell them for a profit !! Is this Krantz guy kidding? The guys at Blackstone target companies with fairly decent balance sheets, go out (hat in hand) begging for institutional money using very little of their own, saddle the company in question with a trainload of debt destroying the balance sheet and the existing bond holders in the process (just ask the BCE bond holders if you don't believe me), pay themselves a special dividend which consumes any and all cash on the balance sheet, and then sell the boated, debt laden pig of its former self company to the unsuspecting public. Regardless everyone, which includes participants in the IPO of $29 are now under water. Good luck and good trading to you.

Disclaimer- an attorney friend reminded me to remind you (the reader) that my comments are not to be construed as recommendations but rather my thoughts on the markets. Do your own homework and never invest money you cannot afford to lose.

The Rails

I came across a couple of nice looking patterns you may find of interest. Union Pacific, (UNP top chart) one of the current market darlings had a beautiful shooting star yesterday on very heavy volume. I move below yesterdays low of $125.59 would be the signal to go short. Norfolk Southern (NSC 2nd chart from top) and Burlington Northern (BNI last chart) both show the same pattern with corresponding heavy volume. A move below their lows of yesterday would be the trigger. For Norfolk its $57.78 and for Burlington it's $91.87. Could be a top in the rails of some substance only time will tell. For those interested Norfolk's action today is indicating a bearish engulfing bar which is very negative.

Yesterdays rally in the markets from the depths of despair will give the conspiratorialists out there more fodder for discussion. Do I believe the plunge protection team exists, well I am not naive enough to believe that they don't. If the government will print money like drunken sailors are we to believe they would not buy a few futures contracts with the phuny muny. In the end a far wiser trader than I could ever be, who I communicate with often told me there are more fruitful uses to expend my mental capital on, to which I wholly agree. Whether they are or aren't we have to analyse the tape and leave discussion on the PPT to others more connected.
The yen continues to consolidate down here with the battle lines at 82 clearly evident. If we can make a meaningful move thru here the implications cannot be overstated as the Yen carry trade is almost as popular with the 'smart money' crowd as the CDO and CDS garbage they are all hiding on their books. Remember the more sophisticated it is the more they will like it. This is so they can tell everyone how much sweat, hard work and street smarts it took to make the trades in the hedge fund daddy and associates seeded them with. The reality is these guys and gals trade in similar fashion to where they dine, live and socialize, the hot spot, where EVERYONE else is of course! Just lemming following lemming to the trade of the day. Makes that Ivy league degree the trust fund bought real valuable. The volume on FXY was encouraging but we need to clear this hurdle or another down draft is a distinct reality. Good luck and good trading to you.

Wednesday, July 18, 2007

Late in the Day

Just and advance warning that you should prepare better yourself for more of this. You are going to be reading and learning plenty more than you bargained for about the concept of 'reversal of unrealized gains'. Lending firms like Downey (DSL), Countrywide(CFC), and Wachovia (WB- even more so with their takeover of cancer causing Golden West financial) the like have been booking neg-am ARM's payments at full fare for years under the assumption the homeleasor, (debtor is too harsh a word for most and homeowner is an oxymoron, so homeleasor it is) will be good for it. We may find out they turned the practice into an art form. I really don't care if its GAAP or not its wrong and you don't need much formal education to come to that conclusion.

Stocks with good earnings don't act this way. Merrill had blow out numbers yesterday and the opening trade $83 was 23 cents from the high turned down and didn't look back. This action can be put in the memory folder called how a stock should not act. Today's action on MER, gap down on the open only confirms yesterdays action. I just caught some hack sorry analyst, (on pom pom TV a.k.a CNBC) touting Merrills book value, blah blah, int'al biz, blah blah. He should come out and say the truth, " with all this liquidity, buy the dips. I have no clue as to what and how much of what they're doing but we got some heavy institutional clients that are up to their collective necks in the stock and my butt will be in a sling if we can't get them out." At least we could then appreciate his significantly compromised position to be impartial and ignore his assessment. To be fair the other cat with Punk Ziegle made some candid remarks so as Bill Fleckenstein would say he might not be a "dead fish"

Don't look now but Sears (SHLD) broke..... fasten seat belts, put trays and seats in upright position .......$135 here we come

We now get word on the 2 Bear Stearns toxic funds. Nice. You just gotta love 'professionally managed money'. Good luck and good trading to you.

The More I Look the Less I See

I am continually trying to look for reasons to be bullish. I am driven by price and yes the indices are making new highs. So whats my problem? Well to start, my friend Dennis Gartman, when advocating a position often talks of the fundamentals and the technicals lining up together. I would have to put myself into this camp as well. The underlying rot with this market is well documented yet here we are faced with a potential melt-up dead ahead. I just don't see the fundamentals lining up here with the technicals long term. At least even neutral fundamentals would suffice for me. So I look to my confirmation bag of tricks and in this I look to volume and what I see gives me great cause for concern.

The transports for example are making new highs yet the IYT (chart above) which I follow due to the volume, shows the end of May break out thru 94 was via uninspiring volume. The correction back to $90 was on increased volume. The recent break out thru $96 was again lacking convincing volume. Now you may think I am nitpicking or 'thinking' to much but I just need VOLUME to believe. Now couple this technical analysis with the fact that crude is running then you can see Many of the indices tracking stocks exhibit similar characteristics which are identifiable is you take the time to just compare the breakouts to volume.

To give an example of a breakout I like look at the 2005 time period for the IYT. A big consolidation which broke out to the upside in November that year on healthy volume and good follow thru and never looked back. The Spiders(SPY) Diamonds (DIA) in particular are worrisome. I may be really wrong about this but I feel very comfortable being short financials (SKF), and real estate (SRS), and long crude (USO), gold(GLD), silver(SLV), yen (FXY) and agriculture (DBA).

They say a picture is worth a thousand words so I have included above (top 3 charts) some pictures to show you what is going on in the mortgage backed security market. I have included only AAA paper as it is considered the best. Now what will you do if this happens in any of the broader markets and don't say it can't or it won't because IT HAS and IT WILL again.

Stay sharp, stay focused, do your OWN homework and do not take as gospel anything charlatans like Cramer, Luskin, Kudlow, Pisani et. al. say. Caveat Emptor !! Good luck and good trading to you.

Tuesday, July 17, 2007

Don't Believe the Hype...... Its a Sequel !

This is directed at all the this time its different crowd out there. The same ones who rationalise away all the underlying rot that is so clearly evident. An acquaintance (and this in no dummy for sure) was apprising me of the wholesomeness of this current advance due to the 'old school' names leading the way such as IBM and Caterpillar to name a few. He explained to me how the tech bubble was based on pipe dreams and this is based on companies who make something and have revenues. I listened intently as he conveniently told me there was nothing to worry about sub prime because Hank Paulsen and Ben Bernanke and even today Merrill's CFO said that sub prime is contained. (Add Merrills' CFO to that list as of today).

Wow, am I relieved. WTF was I worrying about. That these 2 pimps have given the all clear sign to investors everywhere, I should be beating a path to the local loan shark to bet my life on this market. It got to the point where I began to wonder if he was convincing himself or me of the merits of this market. I have learned through experience to bite my tongue as I have been through all of this before via the tech bubble so to say I am a battle hardened at dealing with the cocktail party market strategist would be an understatement. It lead me to the title of today's post, don't believe the hype.....its a sequel. (with credit to Public Enemy).

It truly is a sequel and I wanted to take this opportunity to send this out to all those who went through the should have, would have could have, post mortem after the tech bubble. To the same people who told me at parties why stock splits were bullish for their shares and why in the new economy standards like P/E's didn't matter. To the same folks who still own the shares since late only 8 years since the bubble was popped but their investors so that is no time at all.(all prices split adjusted)

Intel at $55 which currently stands at $26.33
Nortel at $700 which currently stands at $24.33
Microsoft at $45 which currently stands at $30.77
Sun Micro at $60 which currently stands at $5.29
Cisco at $70 which currently stands at $29.73
Dell at $50 which currently stands at $29.19

So to all those who said I wish I would have sold. If, and that's a big if, you are still involved in the markets and have positions that are evoking the same type of feelings of invincibility, names like Jim Cramer's 4 horsemen Apple, Google, Baidu, and Research in Motion. Please protect yourself. There I have done my civic duty. Remember that Gordon Gekko said a fool and his money are soon parted, assuming they are lucky enough to get together in the first place and Sir John Templeton said that "this time is different" are the 4 most expensive words ever uttered in the history of the markets. Good luck and good trading.

Monday, July 16, 2007

Charts of Interest

Dow Okay, okay first it was a double top, then it was a triple top, what next bozo. There, I fessed up. Being wrong is a big part of being in this business. Being able to admit you are wrong well, that's the mark of a real trader. Just ask Nick Leeson from Barings or Brian Hunter from Amaranth, but then again it wasn't their dough on the line, just playing with OPM (other people's money)

The break out on the Dow which I am watching thru the diamonds (last chart) was volume suspect. I am not making excuses but a breakout of that magnitude should have seen block buster volume. Lets just say I am unimpressed and am not trading it long. Those perma-bull souls are looking good but better not drink too much of the Larry Kudlow kool-aid and lose their objectivity. This could be a deak out, or a 2B move as Victor Sperandeo calls em'.

I hope $136.50 holds for ya bulls because thru $136 I will be nibblin' short. The financials should be leading and they are not and until they are this rally is suspect, couple that with what I have outlined (as many others have) in the bonds, along with what I see in the yen and crude and basically its not a foundation I would lay may house on(full disclosure I rent). I couldn't resist throwing in the housing analogy given my affection of that toxic arena, which is spreading to the Alt-A arena as we speak.

Sears (SHLD 3rd chart from top) has a very nice low volume flag forming here. Trap door dead ahead. As they say in the tubes, mind the gap! Eddie Lampert is a balzy trader, but there is nothing he can do. The charts are the charts and they don't discriminate. A break of $155 and 152.65. should do the trick. Simple yet elegant I think.

I came across an interesting chart over the weekend Bankrate.com (RATE 2nd chart top of page) I think it could be a double top (not a typo), especially given housing and my bond market call. Looks like a low risk entry area with stops into new high territory. My friend Dennis Gartman repeated advises traders to put their rocks in the wettest sacks and this one is not exactly wet, more like bone dry. But the chart screams potential double top here. (notwithstanding my Dow double top call!)

Natural Gas ($NATGAS chart at top) is in the midst of a large consolidation pattern between $6 and 9. The daily chart shows some short term divergences that are worth watching here. You can play this via the U.S. Natural Gas fund (UNG) or as I like to via NGS which is retracing back to the breakout and is in buy territory again. NGS is also a nice rounding bottom on the weekly for those that watch those charts.
Before I forget crude has had a 7 handle on it for almost 2 weeks now and it gets brushed aside by the media next to resale tails or rather retail sales. Remember, crude is and most definitely will be a 2X4 across the forehead of this stock market. CNBC casually mentions it as if its a good thing for equities which its is NOT !! Good luck and good trading.