30 March 2009

Portfolio Changes and What is Affecting This Week's Trading Outlook

Sold a couple hundred shares of FAZ at $23.595 this morning. These were the same shares I bought last week for $19.51, but my accounting methods dictate that I note the position's overall cost basis of $29.52 and write up the loss of $5.925 per share, or 20.1%.

I wanted to free up some cash for FAS/FAZ swing trading purposes.


There are downward pressures on the market arising from the recent sharp but overdone rally, as well as the terrible news on Japan's exports:

“Production cuts may already be bottoming out,” said Shinichiro Kobayashi, a senior economist at Mitsubishi UFJ Research and Consulting Co. in Tokyo. “That that doesn’t necessarily mean overseas demand is already recovering.”

Exports plunged a record 49.4 percent in February from a year earlier as sales of cars and electronics dried up. The World Trade Organization said last week that global commerce will shrink 9 percent this year, the most since World War II.

Also, Big Picture commenter Andy Tabbo posted this forecast this morning, accentuating the negative:

It is my conviction, though, that the SP500 will NOT go up unless the DX is falling, as the market is looking for assurances that “deflation” is behind us, at least temporarily.

Last Thursday I dropped a note about the SP500 looking a little tired and exhausted, in need of a pullback. I think this could be the beginning of a decent few days of corrective behavior, which is important in order to sustain larger moves higher. It would be a classic move to see a retrace back to 750/730 zone. We may see some support at 770 first, but a classic correction should get us back to 750/730. I still think this first leg higher from 666 was the initial wave of a larger bear market correction and that we’ll see higher levels in the SP500 coupled with lower levels in the DX. DX should have some good resistance into 86.70/87.20. I would look to sell those levels on the DX, becoming very nervous on any action above 88.30.

So Tabbo sees another ~20-to-60-point drop in the S&P in the next few days as a distinct possibility.

The following CNBC video from this morning points out the negative technical outlook for the markets if the S&P falls below 790 (which it already has), but also mentions this Thursday's ruling on FASB 157, a.k.a. mark-to-market:

A loosening of mark-to-market rules should be a big catalyst for the financials. I presume to the upside, even though the market may have already priced in some changes to FASB 157 in the recent run-up of bank stocks.

The bottom line: This week's strategy is to stay short the financials via FAZ into Wednesday, and prepare to swing to the long side via FAS for Thursday's news.

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