Wershovenist Pig

Apple (AAPL) has a succession of lower highs.

2011-07-06T02:28:00.003-04:00

I took some notes on the Apple chart over the weekend. Notice the downward trendline showing a succession of lower highs.

And look what happened today. AAPL continued its rise to the trendline. Will this trendline prevail?

LNKD Going Lower

2011-06-22T16:01:00.004-04:00

LinkedIn is in a very nice descending trend channel. I picked up some puts at the 70-strike near today's highs, a.k.a. near the top of the channel. It'd be nice for LNKD to continue on its trend into the 50's.

Short XLF

2010-10-14T00:23:00.003-04:00

The XLF is hitting the $15 resistance level once again. Since descending through that level back in May, XLF has approached the $15-level seven times. As you may notice on the chart, the first six times, XLF has fallen significantly from that resistance level within two days. Will it happen a seventh time?

In late May, at the arrow marked A, XLF dropped to $14.30 in two days, giving back over %4.

In mid June, at arrow B, XLF dropped 50 cents in two days, and gave up over 11% through the remainder of the month.

In mid July, at arrow C, XLF fell 7% over the next five trading days.

Late July, at arrow D, XLF dropped a mere 50 cents in three days before hitting another peak at arrow E. XLF fell $1.80 in the first few weeks of August, a good 12% decline.

Mid September, at arrow F, XLF dropped 77 cents in two days, a bit over 5%.

Yesterday, XLF hit a high of $15-even before closing flat at $14.86. And this was on a day when the S&P was up 0.7%.

Might have to pick up some October puts for a quick one-or-two day trade...

UUP and SPY -- A Familiar Refrain: Long the Dollar; Short the S&P

2010-03-26T01:41:00.002-04:00

Long on the Dollar

2010-01-22T01:15:00.004-05:00

Here are a couple of charts of UUP, the long USD ETF, marked up to reflect the call options I hold, and where prices of UUP could move to in the next couple of months...if the market aligns just so:

Arbitrary lines on charts shouldn't be enough to take a position, so here's a sampling of pro-dollar articles and analyses I've collected over the past month:

Mish bullet-pointed out the pro-$ arguments:

US Dollar Positives

* Japan demographics as noted above
* Greece bailout
* Spain property bubble
* Baltic state currency collapse
* Savings rate in US headed north
* Extreme bearish US dollar sentiment
* Pending implosion in the UK
* Canadian property bubble bursting
* Australian property bubble bursting
* Hard landing in China, collapse of the RMB

Marc Faber called for a 5%-10% rise in the dollar against the Euro in late December:

“Sentiment on the U.S. dollar was really extremely negative over the last three months,” Hong Kong-based Faber said. “The other currencies are not much better. The dollar will appreciate against the euro by another 5 to 10 percent, and later on we’ll have to see, but that would be a near-term target.”

Morgan Stanley believes the dollar will rise:

As things stand, we are forecasting a trade-weighted rise in the US dollar of 8.0% against the major currencies while it remains roughly unchanged on a broad trade-weighted basis in 2010 as we expect many EM currencies to outperform.

Daniel Gross seems to have mixed up and reversed his thinking, since the dollar has been rubbish during the recent green shoots bull market rally:

If you believe the U.S. economy will scrape along bottom for the next few years and that inflation will spike, then prolonged dollar weakness seems likely. But if you believe the economic recovery is picking up steam; that the economy may grow at a rate between 3 percent and 4 percent in 2010 (as of Friday, Macroeconomic Advisers said fourth-quarter GDP was tracking at a 5.4 percent annual rate); that the United States will grow more rapidly than the United Kingdom, the Eurozone, and Japan; and that inflation, which has risen just 1.8 percent in the past 12 months, will remain under control, then the greenback's prospects look more rosy.

John Maudlin thinks the dollar is the least sucky currency right now:

The dollar may rise against the major currencies during the first part of the year. As I wrote weeks ago, world trade is slowly picking up. While that growth has not been very visible in the US, it is becoming evident among the emerging-market countries that were not overly leveraged when the crisis began. And trade is still in dollars.

Businesses sold their dollars during the crisis, as they did not need them for trade. But now, with trade picking up, they once again have to buy dollars. That is one reason for the recent bull market in dollars. The other is that the markets are massively short the dollar. When everyone is on the same side of a trade, that trade may have run its course, at least for a while. And that seems to be the case recently for the dollar.

I Like What I Like, So Here's A New Sloan Single

2009-10-02T01:50:00.001-04:00

A Flyby of Two Airline Stocks

2009-10-01T01:01:00.004-04:00

Audit Integrity recently released a list of 20 companies likely to go bankrupt in the next year. Two companies on the list were domestic carriers, AMR, parent company of American Airlines with an eponymous ticker, and Continental Airlines, ticker CAL.

Around the time I read this list, the Financial Times posted a quick profile on the foreboding future for U.S. airlines. The FT name-checks both CAL and AMR, but singles out US Airways as the most vulnerable:

US airlines’ strategy can now be reduced to one word – survival. Overheads and staff costs have been pared to the bone. Every financing option has been sought and, for some airlines, exhausted. Money was first raised against the good aircraft, then the old aircraft and finally less dependable assets such as spare parts and rights to landing slots (as Delta did last week, as part of a fund raising). Vendors, from the aircraft manufacturers to maintenance companies and credit card partners, have been tapped for financing support. Finally, helped by buoyant share prices, Continental, American Airlines and US Airways have issued equity.
But industry revenues per passenger are down about 20 per cent on last year, while domestic capacity is down by a 10th, notes Creditsights, and still shrinking. Oil at $65 a barrel is only just tolerable. At the very least, airlines need corporate travellers to return. But to address the problem of shrinking sales and high fixed costs, ticket prices must also rise. Unfortunately, business spending returns only slowly. It took years for prices to start rising after the downturn following September 11 2001.
So the breathing space bought by fresh funds, which in turn appears to have helped propel the latest market rally, is merely that. Up by two-thirds in three months, the sector is being treated as a long-odds bet on economic recovery, but long-term problems of debt and overcapacity remain. Substantial pension payments and debt refinancing must be met in the next two years and there is little slack left to absorb a rise in the oil price or a weak recovery.
For example, US Airways – the most domestically focused, and with perhaps the most marginal route network – has barely any fuel hedging in place now. Should the winter prove particularly harsh, liquidation or consolidation will be the only realistic options remaining. The latter will be good for the industry, if not for the forced mergees, but only slowly and after considerably more pain.

Here are some charts of AMR and CAL:

Of course, it seems that since the airlines were deregulated a few decades ago, they've been as adept at burning jet fuel as they are at immolating shareholder wealth. Why should the next twelve months be any different?

These charts aren't the most compelling shorts I've come across, but like nearly every other equity right now, both AMR and CAL look overextended.

3 Chansons

2009-10-01T00:46:00.000-04:00

Two Poppy Songs

2009-09-23T00:27:00.003-04:00

Greg Kurstin, a.k.a. Geggy in the 90's and the Bee in the 00's, is the common thread in these songs. First up is Geggy Tah's single, "Whoever You Are" which received significant radio play during my time living in St. Louis with a car that featured a fully-functioning AM/FM radio, but a busted tape deck. Following that is The Bird and the Bee's "I Hate Camera" in a live clip, and then in a fan-made video featuring the album version.

Janjuah Is Calling for 550 on the S&P

2009-09-22T02:07:00.003-04:00

RBS' Chief Credit Strategist, Bob Janjuah, is back making some bold bearish pronouncements, found via Zero Hedge and this now dead link on Pragmatic Capitalist:

I do however think that we are VERY MUCH in the tail end of the correction of the Oct 07 to Mar 09 bear move, where S&P lost nearly 60% from peak to trough, and where the correction from the Mar low would, at 1120, represent the 50% retrace. Once what I assume is a bear mrkt correction finishes, over the next month or so, I expect the Bear to return with vengeance and I retain my call for NEW LOWS in equities. That’s 550 S&P!!

Okay, here are some meatier excerpts that go beyond the bold 550 call:

HISTORY tells us that this will end in failure, with ugly consequences, the net result being MORE DEBT that needs to be repaid thru vicious spending cuts & higher taxes, a (monetary) inflationary BUST and/or a currency shocker - to be swiftly followed by a longer term Debt Deflationary bust. So, in 1 line, all I think is certain - if you think like me - is that the longer the current bubbles persist & the bigger these bubbles are blown up, the BIGGER the explosion will be when it all goes POP. And realistically, I am talking weeks/moths, NOT qtrs/years. YOU may be smart enough to 'get out' of risk in time, but the overwhelming majority will not. And at that time, there will be NOBODY left to bail us all out......

...

When risk assets top out - level, timing - is always difficult to predict. I think its weeks/months away, and I very much think we are in the deep tail of the risk asset rally. I know a lot a smart folks who think this can go higher and for a bit longer then I think, and I can see the argument. But nearly all the folks who I respect and have talked to for a long time agree that if it goes on for much longer then it will end in a terrible mess.

Fresh Live Weakerthans

2009-09-22T01:48:00.003-04:00

Aside, from the recent Weakerthans show at the Music Hall of Williamsburg:

Plea from a Cat Named Virtute, not from the recent Brooklyn show:

Inaugural Trams (Live)

2009-09-14T23:26:00.002-04:00

This is a video of SFA performing Inaugural Trams at their Highline Ballroom show on 9/11. Their 9/12 show at Hoboken's Maxwell's which I attended did not have the light show, but was far more intimate. But nobody's posted any videos from the Jersey show, so this'll have to do.

Indicies March Higher as the Dollar Declines

2009-09-11T00:33:00.004-04:00

I recently examined the NASDAQ trendline in not one but two posts. The downward trendline that began in late '07 was recently breached during the last five days of bullish market irrationality:

The next chart shows the NASDAQ's incredible bullish march since March. A trading channel seems to have developed. With that in mind, here's my textual annotation from the chart:

The NASDAQ could conceivably trade in this channel. The RSI readings are short-term and medium-term overbought. But shorting the market since March has proven very painful. The fundamentals may still suck, and corporate insiders are selling their shares at astronomical ratios, but I think the weakness of the dollar is helping push the indices higher.

So let's take a look at some charts for the almighty dollar:

The bearishly-inclined, like yours truly, believes there is limited upside to the equity markets right now, but the risk is a cheaper dollar will push the indices higher. The dollar's downward move does look a bit overdone in the short-term if you take into account the RSI readings. But the dollar could fall significantly further to levels seen in the first half of '08.

Saw Doctors

2009-09-11T00:17:00.002-04:00

It's been nearly a year since I traveled to Ireland. Perfect time for some Saw Doctors, then.

New Two Hours Traffic

2009-09-10T23:56:00.002-04:00

Newsfrom1930.blogspot.com

2009-09-04T00:33:00.003-04:00

I came across this intriguing blog today, newsfrom1930.blogspot.com. It reminded me of a classic book from the Great Depression, Oh Yeah?, that I've had since childhood. Oh Yeah? in 1931 presented quote after oblivious quote from politicians and businessmen who believed in the early-30's version of green shoots. News from 1930 likewise captures the day-to-day reportage from 80 years ago that eerily parallels much of what is happening today. It's a fascinating work in progress, even though we know what happens.

Here's a link to News from 1930's amusing mission statement and an excerpt:

Q. Okay, why are you doing this blog? Are you saying we're in for a replay of the 30's?

A. How did I know you were going to ask me that? No, I don't think things are going to get as bad as in the 30's.

Q. So you're an optimist.

A. Well, that's only mildly optimistic. I mean things in the 30s got really, really bad. For example, between 1929 and 1932, the number of cars produced declined from 4.8 million to 1.2 million ...

Q. Okay - that's pretty bad, but it's only one industry ...

A. Looking at the economy as a whole, GDP went down by 40% and unemployment went from around 3% to 24% ...

Q. Wow! That is really bad.

A. It's actually even worse than that, because back then many more people worked on farms. When you take out farm workers, unemployment hit 37% - an almost unimaginable level for us today ...

Q. You must be a blast at parties ... Well then, if you don't think we'll repeat the 30's, are you saying, in Mark Twain's words, that history won't repeat but it will rhyme?

A. Hey! I wanted to use that line!

Q. Sorry. Well, do you think that?

A. Yes. I believe 1929-1930 has a couple of important similarities to 2008-2009. First and fundamentally, there was a big buildup of debt leading up to both. This was followed by a couple of major economic problems, including many banks running into trouble and a loss in perceived wealth by lots of people. These problems in turn have deflationary implications since they lead to less credit and spending ...

Q. Could you get to the second point before I fall asleep?

Click this to read the rest.

The NASDAQ Downward Trend Is Intact

2009-09-03T02:05:00.002-04:00

I recently asked which NASDAQ trendline will prevail?

Looks like the overhead downward trend has prevailed:

Click on the image to enlarge. You'll see the NASDAQ has fallen below its recent steep upward trendline.

The Gray Lady and I See Eye to Eye

2009-09-03T01:11:00.002-04:00

The Gray Lady sums up my market point-of-view just about perfectly.

First, the bear-market-rally is overdone, with corporate insiders selling their shares:

“The people who know are getting out early,” said Art Cashin, the director of floor operations at UBS, who said his “gut feeling” about the markets prompted him to sell some stocks last week. “This rally’s a little long in the tooth.”

On Friday, the research firm TrimTabs reported that insider selling had grown to $6.1 billion in the month of August through last Thursday, its highest levels since May 2008 — when the Dow Jones industrial average was floating above 12,000, compared with just over 9,500 at Friday’s close.

The ratio of insider selling to insider buying also soared in August, to about 30 to one, its highest levels since the firm started keeping numbers in 2004.

Second, trash stocks, i.e. financials, led this horseshit rally:

Analysts say that financial stocks are looking even frothier as trading in a handful of big banks has come to dominate the action on Wall Street. The KBW Bank Index, which tracks two dozen national and regional lenders, has surged more than 150 percent since early March.

Shares of the troubled insurance giant American International Group have quadrupled. And Citigroup, Bank of America and Wells Fargo, while still down sharply from their record highs, have been some of the rally’s biggest winners.

Third, the overwhelmingly bullish sentiment in the market offers up a contrarian indicator. Other technicals, like the Elliot Wave folks, are also questioning the rally:

Just before stocks turned around in early March, only 2 percent of investors were optimistic, according to the Daily Sentiment Index, which measures the mood of small traders and is run by Jake Bernstein, an independent market analyst. Now, the index shows that about 89 percent are feeling bullish. Investors were equally cheery when the Dow hit its record high in October 2007.

Robert Prechter, president of Elliott Wave International, a technical analysis firm in Gainesville, Ga., cut his negative outlook on stocks in late February. “Now,” he wrote in an e-mail message, “we are firmly back on the bear side.” Investors might be embracing greed once again, but Mr. Prechter said he doubted the stock indexes could replicate the remarkable gains of the past five months.

And fourth, Doug Kass is calling the top:

The hedge fund manager Doug Kass, who declared in March that stocks had skidded to a “generational bottom,” said last week the rally had run its course.

Like other investors who expect the markets to falter, Mr. Kass said he believed the economy was not heading toward a quick or easy recovery. Companies have made themselves look profitable by slashing costs, but he said they are not going to rake in more money in the months ahead as long as weakened consumers stay in hiding.

“I think we’ve seen the high for the year,” he said. “There’s a time to hold ’em and a time to fold ’em. And I think we’re at that point.”

Then there's Paul Tudor Jones, whom Bloomberg reported is calling bullshit on Goldman Sachs' call that the market and economy are in recovery mode:

Paul Tudor Jones, the billionaire hedge-fund manager who outperformed peers last year, is wagering that Goldman Sachs Group Inc. and Morgan Stanley got it wrong in declaring the start of an economic recovery.

Jones’s Tudor Investment Corp., Clarium Capital Management LLC and Horseman Capital Management Ltd. are taking a bearish stand as U.S. stock and bond prices rise, saying that record government spending may be forestalling another slowdown and market selloff. The firms oversee a combined $15 billion in so- called macro funds, which seek to profit from economic trends by trading stocks, bonds, currencies and commodities.

“If we have a recovery at all, it isn’t sustainable,” Kevin Harrington, managing director at Clarium, said in an interview at the firm’s New York offices. “This is more likely a ski-jump recession, with short-term stimulus creating a bump that will ultimately lead to a more precipitous decline later.”

Which NASDAQ trendline will prevail?

2009-08-30T23:04:00.001-04:00

You know I believe the downward trend will finally prevail.

Eno, Clarkson, & an Aston Martin

2009-08-30T22:45:00.000-04:00

The Magazine Cover Indicator Strikes Asia

2009-08-18T23:35:00.004-04:00

As I write this, the Asian markets have continued to fall.

Bearish Projections Come Out of Hibernation

2009-08-12T00:02:00.000-04:00

A few weeks back, I wrote that the market was incredibly overbought. Well, that was back when the S&P closed at 954.58. The market continued to surge higher and get even more overbought as it surged past 1000, tagging 1015 last Friday.

The market's downward action this week has worked off some of that overbought condition, and some tremendously bearish near-term projections have come out of hibernation.

The first one appeared in a Marketwatch headline from earlier today:

But one market technician believes trading volume in recent days on the S&P 500 Index is a sign that the broad market gauge will test last month's lows, then likely fall under its March low either next month or in October.

The decline in volume started on Friday and suggests the S&P 500 will make a new low beneath its July 8 bottom of 869.32, probably next week -- on the way to a test during September or October of its March 6 intraday low of 666.79, said Tony Cherniawski, chief investment officer at the Practical Investor LLC, a financial advisory firm.

"In a normal breakout you get rising volume. In this case, we had rising volume for a while; then it really dropped off last week," said Cherniawski, who ascribes the recent rise in equities to "a huge short-covering rally."

The S&P has rallied more than 50% from its March lows, briefly slipping in late June and early July.

Friday's rise on the S&P 500 to a new yearly high was not echoed on the Nasdaq Composite Index, bringing more fodder to the bearish side, according to Cherniawski. "Whenever you have tops not confirmed by another major index, that's another sign something fishy is going on."

The second bearish projection appeared in the comments at Slope of Hope. The chart drew my eye, and soon enough, the host of Slope of Hope featured it in its own post. Here's SoH commenter Virginia Jim's handywork:

Rural Alberta Advantage

2009-08-11T23:35:00.002-04:00

The Rural Alberta Advantage first caught my ear while listening to the weekly CBC Radio 3 podcast. This three-piece from Toronto?!? has a catchy lo-fi pop sound that you may find enjoyable, so here are three examples of their work:

Trashcan Sinatras - In the Music - Live in Japan

2009-07-29T23:55:00.002-04:00

The Trashcan Sinatras have returned with a new record (soon to be available here in the States) and are touring starting right about now. Here's the title track, recently performed live in Japan:

Superchunk Live at South Street Seaport

2009-07-22T00:12:00.002-04:00

Superchunk live at South Street Seaport last Friday.

I first saw 'em play outdoors at Swarthmore in 1993. They still rock.

"Learned to Surf," off of the Leaves in the Gutter EP released earlier this year:

"Driveway to Driveway," off of 1994's Foolish:

"The First Part," an ode to foreplay (I believe), also off of Foolish:

And they closed the set with "Slack Motherfucker":

Or you can watch the last three songs together in this superior video:

Superchunk | NYC @ South Street Seaport Pier 17 | 17 Jul 2009 from UN:ART:IG on Vimeo.

As you may be able to tell, there were lots of different people videorecording this show and they kindly posted the results on YouTube.

Word for Wednesday is OVERBOUGHT

2009-07-21T23:52:00.000-04:00

Metric

2009-07-21T22:27:00.002-04:00

I think I'm meeting the CanCon requirements considering how much music I post on this blog from up north.

I've been digging on the new Metric record. The Grey Lady just posted an article on Metric's Emily Haines and other DIY musicians who are eschewing the outmoded record label business model.

Here's the video for Gimme Sympathy, which has a Chinese fire drill much like Sloan's Losing California video, which is not available on YouTube.

Nimbly Trading The S&P Next Week

2009-07-17T23:48:00.005-04:00

The markets in general had a spectacular run this week. The major U.S. indices are extremely overbought according to RSI(2). However, that doesn't mean one should load their portfolio with puts or uber-short ETFs, take a week off, and then sell 'em for substantial profit. It's not quite such a sure thing...

I wrote the following on the above chart, but it's the key takeaway, so it's worth reiterating: Where will the S&P go from here? The previous three extreme RSI(2) events give us three possibilities: 1. S&P goes down; 2. S&P goes up; or 3. S&P goes sideways.

Let's take a step back, filter out some of the noise, and note the general S&P trends:

The market trend is still sideways, with the price action soon to bump into some nice overhead price resistance.

I'm holding nimble short positions right now, meaning I'm looking for some profit-taking opportunities if the market decides to become less overbought next week, but I'm ready to dump my shorts quickly if the S&P convincingly breaches the ~950-955 overhead resistance level. That would mean that sideways trend F is giving way to upward trend G.

Update on the S&P Trading Outlook

2009-07-15T01:21:00.002-04:00

This is the chart I made quite recently with my near-term outlook on trading the S&P 500:

And here is an updated version, with an educated guess as to what may happen to the S&P 500 after the initial excitement of some earnings beats gets priced into the market:

Gold Bust

2009-07-15T01:18:00.003-04:00

My dour gold trade hasn't worked out quite as planned:

Trading Outlook for the S&P 500 Next Week

2009-07-11T00:24:00.002-04:00

Charts for Wednesday

2009-07-08T00:28:00.001-04:00

Coeur de Pirate

2009-07-07T23:37:00.002-04:00

Listening to the 200th CBC Radio 3 Podcast this afternoon, I heard the lovely lilt of Coeur de Pirate. Grab a plate of poutine and enjoy:

End of a Rangebound S&P 500?

2009-07-06T00:50:00.003-04:00

Here is an up-to-date chart of the S&P 500 for the past three months:

The market has been trading within a 60-point range over the last two months. The S&P is currently heading toward the lower end of the range after last Thursday's 2.6% dump.

The questions for me are:

1. Does the convergence of the 200DMA line and the lower end of the recent trading range mean we'll see the S&P fall toward the ~880-level, fail to penetrate it, and perpetuate the rangebound trading action through the summer?

2. Or, on the other hand, if the ~880-level is convincingly broken, should I then pile into a healthy short position as the market breaks down yet again?

I'm waiting and watching, with a small amount of money currently engaged in the market.

With these questions in mind, I have a couple of other annotated charts in the back of my mind.

Here is a longer-term chart of the S&P showing an interesting trendline I found. The red line shows support in late-January and early-February became overhead resistance in May and June.

On the chart below, we see another recent, related trading channel broken to the downside:

Matt & Kim

2009-06-30T23:56:00.002-04:00

Pitchfork pointed me to Brooklyn's Matt & Kim. My first impression is they've got that Beat Happening DIY-thing going, but with infectious energy. And they make good videos. Here are a couple:

Ed McMahon's Legacy

2009-06-24T00:11:00.006-04:00

On a more tasteful, serious note, I bet Ed said "Here's Johnny" during the golden toilet scene. And the lawyers flushed that line. No, really.

Speaking of flushing, the price of gold is swirling down...

Tim Knight at the Slope of Hope convincingly made the technical argument for going short gold in several posts. Here's the post that caught my attention:

06/18/2009
I {Heart} GLD Short

Sorry to keep harping on this - - particularly to those who belong to the First Church of Precious Metals, but I'm just ga-ga over shorting GLD right here. It's (a) a clean trend break; (b) a terrific failed pattern; (c) has a clean-as-a-whistle stop; (d) a great risk/reward ratio.

Unfortunately, Tim closed out his GLD short just as I piled into some puts. I think he may have pulled the trigger too soon. Let's look at some charts (click on 'em to make 'em large and legible):

A fundamental reason for gold to fall is deflation.

Here's an updated annotated chart with my trading plan:

Innocence Mission on PRISM circa 1995

2009-06-12T00:27:00.003-04:00

Below is the Innocence Mission's appearance on a PRISM show featuring performances from the Chameleon club in Lancaster, PA. The band had recently released Glow, my favorite record of theirs, so enjoy.

Throwing Back the Apple

2009-06-11T00:37:00.004-04:00

This is Pale Saints, a shoegaze band signed to 4AD Records during the late-80's and early-90's. "Throwing Back the Apple" appeared on their 1992 record, In Ribbons.

Looking at AAPL, if I were long, I wouldn't be throwing back the apple just yet:

Golden Crosses

2009-06-10T01:30:00.007-04:00

Bloomberg ran a premature piece yesterday by Julie Cruz on the golden cross. What is the golden cross? Here's an excerpt that explains the phenomenon:

The Standard & Poor’s 500 Index is approaching a so-called golden cross that’s considered a buy signal by analysts who make predictions based on patterns in price charts.

A golden cross occurs when the 50-day moving average, which is currently at 878.04 for the S&P 500, rises above the 200-day moving average, which is at 918.33, Bloomberg data show. The formation implies further gains for the stock market, according to this type of technical analysis.

“If the S&P can hold above its 200-day moving average, the potential for a golden cross increases,” Mary Ann Bartels and Stephen Suttmeier, technical analysts at Bank of America Corp., wrote in a report to clients yesterday.

The U.S. benchmark index’s 50-day moving average has been below the 200-day moving average since December 2007. The 40-day moving average already went above the 150-day moving average in May this year, forming a so-called silver cross, according to Bank of America.

As much as I enjoy playing with technical analysis, I find I'm still quite skeptical of its reliability and predictive capabilities. So I fired up charts of the S&P 500 since 1980 and picked out the twelve golden crosses over the past 30 years.

I have attached and annotated those twelve golden crosses in charts below. I have marked the date of the golden cross with a purple vertical line, the next day's open price with a red/green line, and charted the next six months-or-so to see if the trade was profitable or not. Please click on the image to make it large and legible.

Before considering the success rate of buying the index at the open following the golden cross event, one should note one significant caveat: the bull market of 1982-1999 encompasses nine of the twelve S&P 500 golden crosses since 1980. That means there's already a positive bias on these results. However, the most recent three golden cross trades were post-1999, and were all very profitable.

Taking into account upwards of a six-month holding period for the trade, my quick-and-dirty analysis says that golden cross trades numbered 1, 3, 8, 9, 10, and 12 provided excellent returns. Trades numbered 6 and 11 provided good returns. Trades 2 and 5 had their moments but were mediocre. And trades 4 and 7 were craptastic.

From this admittedly small sample size, the golden cross S&P 500 trade looks pretty good, but with a one-in-six chance for craptastic results, is far from foolproof. Golden crosses can engender golden blunders.

Kingdom of Rust/Ill-Placed Trust

2009-06-04T01:19:00.001-04:00

One Great City

2009-06-04T00:41:00.000-04:00

Health Net's Fit Chart

2009-06-03T00:56:00.002-04:00

Over in the comments at Slope of Hope, Health Net (HNT) was mentioned as having a technician's dream chart.

I've annotated HNT's chart above. I question how dreamy it is, given the overhead resistance about $2.50 north of today's close. And speaking of today's close of $15.27, after hours trading brought HNT's price down to $14.90. So HNT has that going for it.

South Korea Trade - After the Initial Nuclear Threat from the North

2009-05-29T01:17:00.005-04:00

I closed out the South Korea trade by selling my June $35 EWY calls for $1.90. That's a quick gain of 46% off of a cost basis of $1.30. Considering how craptastic my shorts have been over the last month, I am very pleased at this one-day result.

As I write this, the KOSPI is down about 0.25%, so it looks like I timed closing out this position better than when I opened it.

Even though the inspiration for this trade was buying in on overreaction to bad geopolitical news, the relative strength of the South Korean stock market and its strong upward trend may invite me back into buying more calls in the near-term. Here's the pictorial justification for such a trade:

Jay Bennett, R.I.P.

2009-05-28T00:48:00.004-04:00

Some fine fellow uploaded this Wilco performance on Austin City Limits from 1999. This concert features my favorite Wilco incarnation from the late 90's, featuring the unfortunately late Jay Bennett on keys, guitar, and the motherfuckin' 12-string on "Nothing'severgonnastandinmyway(again)" sporting some serious dreadlocks.

W.R. Grace - A Potential Trade

2009-05-28T00:18:00.005-04:00

One short idea from Tim Knight's Slope of Hope caught my attention this evening, the corporate star of A Civil Action, W.R. Grace:

I'm more comfortable with Stockcharts.com's charts, so here's an annotated daily chart of GRA:

And here's a compelling weekly chart, replete with how I'm considering entering into a GRA trade:

Calling Bullshit on North Korea By Buying EWY Calls

2009-05-27T23:56:00.003-04:00

Totalitarian holdout North Korea attempted to scare its oppressed people into further submission by testing nukes. The South Korean stock market reacted accordingly:

May 27 (Bloomberg) -- South Korea’s won dropped 0.2 percent to 1,265.45 per dollar after North Korea threatened military action in response to the Seoul-based government joining a program to seize weapons shipments.

The benchmark Kospi stock index dropped 0.7 percent to 1,363.54.

Of course, this happened on a day when Japan climbed ~1+% and the Hang Seng rocketed up 4+%.

So I picked up some June EWY $35 calls a bit prematurely for $1.30. My annotated chart below projects a price target of at least $38 by June options expiration. This assumes that EWY will continue on its trendline prior to this nuclear threat hiccup.

Real Estate Follow-Up

2009-05-27T00:30:00.003-04:00

Here's an updated annotated chart of IYR:

Towards the end of today's melt-up, I bought some June $22 SRS calls for $1.65. Let's hope Wednesday's market makes some sense and reflects rationality. I'm not holding my breath--and I'm glad I have 18 trading days until June options expiration.

On the substantive side, the Times reported on the glut of Manhattan commercial real estate by focusing on one of the players in my industry:

At 1095 Avenue of the Americas, Dechert, a law firm with a lease for the 25th through 31st floors, is seeking to sublet two floors, each 37,000 square feet.

Brokers say that many sublandlords will probably need to bend over backward to sublease their space, given the sharp rise in vacancies.

In Midtown Manhattan, for example, 13 percent of prime, modern, well-located offices — which brokers often refer to as Class A space — was available in April, up from 6.5 percent a year earlier, according to Colliers ABR, a commercial real estate services company. And sublets now account for some 40 percent of the space available in Midtown, compared with 30 percent of the much smaller total that was available a year ago, the company said.

In some cases, the ink was barely dry on the original lease before the space went back on the market for sublet.

For example, Dechert, a global corporate law firm, has completed one year of a 15-year lease for the 25th through 31st floors at 1095 Avenue of the Americas, a 41-story office tower between 41st and 42nd Street, overlooking Bryant Park.

When the firm moved in last year, it intentionally took an extra floor, which it planned to use for future expansion, and from the start it has had a subtenant on the whole 31st floor. But that sublease expires in July, and the subtenant does not plan to renew. Since last year, the law firm has also had several rounds of layoffs, and it needs less space.

Judith B. Tellefsen, the director of real estate and purchasing for Dechert, said the firm would like to sublet two floors, preferably lower floors, which are each 37,000 square feet. “We are only partially occupying the 25th and 26th floors, and we could easily consolidate those lawyers on other floors,” she said. Ms. Tellefsen said that the firm would be flexible, though, if a subtenant wanted the 31st floor instead.

Trading the Woes of Commercial Real Estate

2009-05-26T00:42:00.005-04:00

The real estate bubble is old news, priced into the market long ago. The focus has been on the housing side of things, but with the recent bankruptcy of General Growth Properties, the #2 mall operator, some media is starting to notice the shit's hit the fan in commercial real estate.

At the center of the worries is some $3.5 trillion in debt backed by everything from strip malls to offices and apartments across the nation -- the lion's share of which is badly underwater because this recession followed a five-year commercial property boom fueled by easy money and loose underwriting standards.

Now the owners of the less-than-full malls, apartment complexes and office buildings are succumbing to the worst economic collapse since the Great Depression -- because they can't refinance the debt.

The commercial debt securitization market is dead.

"Because there is no securitization the system cannot process the wave of maturities coming due," said Scott Latham, commercial property broker at Cushman & Wakefield.

"This is arguably the most important fact we're going to be dealing with. If there's no mortgage market that can feed the machine you're just not going to have deals," he said. "It's going to be years before we recover and even when that happens we're going to discover that we're in a new paradigm," Latham added.

About $1.4 trillion in real estate debt is set to mature over the next four years, with some $204 billion coming due this year alone.

The fundamental story is clear. Let's look at the technical side of things with an annotated chart of IYR, the iShares Dow Jones U.S. Real Estate ETF:

The nice upward channel recently ended. Now we're looking at a triangle formation with decreasing volume. It looks to me like this real estate rally has petered out.

How will I play this? I'll take a look at the 2X-levered short ETF, SRS. As you can see below, all of the cool kids are checking out SRS:

This chart of SRS shows that lots of money has evaporated during this bear-market rally. Shares of SRS have fallen from ~$111 down to ~$20.

My plan for this week is to look at picking up some shares of SRS, or at the very least, some June $25 calls.

Technical Analysts Think Oil Could Drop from $60 to the Mid-$40's

2009-05-20T00:08:00.005-04:00

Oil may drop from $60 down to the mid-$40's, according to technical analysts at Citi.

That would certainly benefit my DUG calls. And that's why I'm going through the rigamarole of posting this story and creating the chart below.

Margot Habiby at Bloomberg filed the story. Here's an excerpt:

Crude oil prices may fall to the mid- $40s, after failing to sustain a move above $60 a barrel last week, according to Citi FX technical analysts.

Oil’s rally stalled at a six-month high of $60.08 a barrel on May 12, after rising 79 percent from a low of $33.55 three months earlier. It also failed to break $60 in a 4.8 percent rally yesterday.

“Crude faltered at the psychological $60 level, and momentum has turned down, suggesting the danger of a shorter- term correction,” said Tom Fitzpatrick, chief technical analyst at Citi FX, part of Citigroup Capital Markets in New York, in a report co-written with London-based analyst Shyam Devani.

Oil has “good support” at $54.50 to $55 a barrel, in line with the futures contract’s high of $54.66 a barrel on March 26. Further support lies at $50 to $50.50 a barrel, a range that encompasses crude’s highs in December and January.

The Bloomberg story did not provide an annotated chart, so I crafted one:

Granted, the price of oil does not correlate with the price of the Dow Jones U.S. Oil & Gas Index, the index underlying the DIG/DUG duo. However, the price of oil is a decent proxy for providing supporting evidence for my trade.

If oil falls to the $55-level, DUG should move up to $21-$22. If oil breaches that support level and falls to the $49-level, DUG should move up to $25-$26. If oil were to fall to the mid-$40's, DUG could shoot up to $28-or-more.

Initiated the Oil Trade - Part One

2009-05-19T00:17:00.004-04:00

I initiated my oil swing trade this morning, picking up some June $19 DUG calls at $1.50.

Here's an annotated chart of the underlying index for DUG, the Dow Jones U.S. Oil & Gas Index:

And here's a wishfully-annotated chart for DUG.

Phoenix - Lisztomania

2009-05-19T00:14:00.000-04:00

Oil Swing Trade

2009-05-18T00:12:00.004-04:00

Here's the oil-based swing trade I have in the works.

First off, Tim Knight provided the first bit of inspiration with a post pointing out the breakout of ERY, the 3X-bear energy ETF:

Anyway, one interesting graph (which is my best dollar gainer today) is ERY, which I think has a pretty clear shot to $30.

Instead of trading ERX/ERY, or the 2X-levered energy ETFs DIG/DUG, or the XLE, I took a look at the options for each. The June 20 DUG calls seem to offer the best combination of liquidity, a tighter bid/ask than the ERY calls or XLE puts I considered, and, of course, the best bang for the buck if my call is correct.

Here's DUG's chart:

My price target for DUG is $23-$25. The sooner the better, but I'm looking out five-to-ten trading days. The bid/ask spread for the June 20 calls on Friday closed at $1.50/$1.70. Considering the down Asian markets and the down futures, let's see how valid these price points remain later this morning.

Mish offers up some analysis of the oil markets backing this position:

Gasoline Prices - Where To From Here?

Inquiring might be asking about gasoline prices in the short term. Let's consider some technical and fundamental factors starting with the following daily chart of crude prices.

$WTIC Light Crude Daily Chart

Tight Storage May Lead To Huge Oil Price Drop

Technically, crude prices are a bit extended, no doubt in conjunction with the belief the economy is recovery. A likely place for the rally to fail would be near the 200 Exponential Moving Average (EMA) in red. Moreover, there are a number of fundamental reasons for the rally in crude oil prices to falter soon.

Please consider Tight storage may lead to huge oil price drop.
The present contango in oil prices bears all the hallmarks of an oil market where supplies are well above present fundamental physical consumption.

The recent large inventory build of petroleum, under a steep contango which now is flattening, within the big oil consumers (like the OECD countries and China) have left some with the expectation that major economies soon will begin to grow again, and that the contango now signals increased oil demand and higher oil prices in the future.

My analysis indicates that in recent months, as much as 2 -3 Mb/d of global petroleum supply has been used to build inventories. This is about to come to an end, because available storage is getting closer and closer to full and contango has begun to flatten. When additions to storage cease, the resulting drop in demand can be expected to lead to substantial downward pressure on oil prices.
...
All things considered, oil prices are due for a pullback and gasoline prices at the pump are likely to follow. Moreover, with the possible exception of food, consumer prices in general will remain under pressure, if not indeed negative on a year over year comparison basis for quite some time as well as falling producer prices pass up the chain.

I did say that I had a swing trade in mind. I still have my eye on going long OIH but now I'm prefer to see my long DUG calls earn some profits that I can pour into OIH if OIH falls back toward the top of its previous trading range, around $87-a-share.

The Return of the Doves

2009-05-17T23:43:00.002-04:00

St. Vincent

2009-05-15T00:24:00.003-04:00

Annie Clark, better known as St. Vincent, finally caught my attention from this passage in the Times:

She dismisses the notion that shredding can’t be girly. “Growing up, I was never made aware of the idea that because I’m anatomically female, my fingers and brain don’t work as well,” she said. “I never did feel like I was constantly having to overcome, ‘I’m a girl but I can play.’ That’s just silly.” She proudly calls herself a pedal nerd, having invented a “stomp board” to simulate drums when she’s playing solo.

Now I have to see her play live. In the meantime, these videos must suffice:

Charts! Charts! Charts! -- OIH, Russell 2000, and $RIFIN (the Underlying Index for FAZ/FAS)

2009-05-14T00:33:00.002-04:00

Buying OIH On The Dips, Or Should I Risk Swing Trading It?

2009-05-10T23:44:00.004-04:00

Big bear Tim Knight is considering buying OIH on the dips after nine treacherous weeks of this bear market rally:

TWO- the most bullish thing this market could get would be a hefty retracement next week. Take a look at OIH, for example. Am I a buyer here? Absolutely not! Would I be a buyer at $90. Yes, yes, yes! Indeed, a chart resembling CROX on quite a few more important issues (like OIH, DBC, and the like) would be astonishingly attractive.

At this point, the market's retracement is on the side of a milk carton. It has gone missing, and no one knows if it'll ever be found again. We are in our ninth straight week of this insanity.
I'll say one other thing - - - the confidence regained by the bulls virtually ensures the retracement will be nothing more than just a retracement. In other words, a buying opportunity. I do not anticipate any Big Kahuna plunge to return for many months. We have to get to a level of conceit and confidence among the bulls equal to what we saw in October 2007. Until then, my plan is (a) cover shorts/sell puts upon the completion of any decent retracement (b) load up on the best-looking long opportunities I can find.

Take a look at the recent annotated OIH chart of the past three months, followed by a weekly OIH chart over the past three years, and concluding with a chart in between, covering the last seven months:

OIH closed on Friday at $103.15, May 105 puts closed at $3.60. June 105 puts, ~$7.50.
Also,note the 200DMA of OIH is $103.76. OIH pushed above it to $104.50 intraday, but resistance held.

Hmmm.

The combination of high RSI(2) on the daily and weekly charts, plus the overhead 200DMA makes this an interesting put play. However, puts are the riskier purchase, as Tim is supporting the idea of buying the dips, i.e. buy calls when OIH hits $90.

Fair enough. Going short this market has been painful, even when the charts suggest it's a good play.

Portfolio Changes

2009-05-05T00:39:00.003-04:00

Sold out my TZA position on Friday and today, after the S&P crossed over the 875 resistance level with some gusto. Yes, I should be using the underlying Russell 2000 chart instead of the S&P, but the failure of the major resistance level on the S&P put me over the edge.

Sold for an average price of $28.89, from a cost basis of $41.83, for a loss of 30.9%.

However, I replaced some of the underlying TZA stock with some May $25 TZA calls at $3.70.

Bought some May $7.50 FAZ calls at $1.15.

Needless to say, the afternoon market surge knocked the value of these positions down a wee bit. But tomorrow's another trading day.

And related to absolutely nothing, it seems that 91% of the S&P 500 is now trading above its 50-day moving average, as shown in the increasingly ridiculous chart below:

437 Stocks of the S&P 500 Trade above Their 50-Day Moving Average

2009-04-30T18:07:00.002-04:00

875 Resistance Level on the S&P Holds Yet Again

2009-04-30T16:42:00.000-04:00

The Bearish Case as April Thankfully Comes to a Close

2009-04-30T00:54:00.004-04:00

452 stocks in the S&P 500 are now trading above their 50-day moving average. That's 90.4% of the index.

Oy.

As you can see on this chart, depicting three years of S&P history, 80% trading above their 50-day moving average is infrequent. But 90%? We now have a data point where no data point has gone before:

Barry Ritholtz took note of these S&P 50-DMA charts on his blog earlier today. Misery indeed loves company.

Moving on, Trader Mike still sees the need for a significant pull-back:

The technical picture remains about the same as it’s been for the last week and a half or so. The longer-term overbought indicators are still near extreme levels (T2108 is 88.4) and I still have to believe that the market is due for a pullback. But getting short just because of an overbought condition can be a painful prospect. The bulls are being stubborn and are still buying all the dips.

The ~875 overhead resistance level on the S&P 500 is still in play, barely:

But barely is good enough, for now.

On the fundamental side of things, there's plenty of bad news for this market to ignore.

First, it looks like Chrysler is going to go Chapter 11 later today:

Barring an agreement, which looked increasingly difficult, Chrysler was expected to seek Chapter 11 protection on Thursday, most likely in New York, these people said.
...
People briefed on the negotiations said that while it seemed certain Chrysler would survive and avoid liquidation, it was not yet clear whether it would have to be placed into bankruptcy to sort through any unresolved issues with creditors.

Guess my Chapter 7 prediction was a bit premature.

And second, Bloomberg reports that 6-out-of-19 banks will need additional capital. Apart from Citi and Bank of America, some other banks were singled out as likely to appear in next week's release:

SunTrust Banks Inc., KeyCorp, and Regions Financial Corp. are the banks that are most likely to require more capital, according to an April 24 analysis by Morgan Stanley.

My portfolio is now well prepared for a pummeling by the bulls. I fully expect the bulls to ignore the sound technical and fundamental factors featured in this post, as I continue to confidently lose money in this irrational market.

Portfolio Changes

2009-04-30T00:51:00.002-04:00

Call me a glutton for punishment (pigs are known for their gluttony), but I added some more shares of FAZ today at $8.45, bringing down the cost basis of my position to $9.30. My next move regarding FAZ may be to eschew the shares themselves and pick up some FAZ calls, instead. But I'm not there, yet.

Superchunk

2009-04-28T00:44:00.003-04:00

Superchunk recently released a new EP after 20 years of playing together. I certainly feel younger when I listen to the 'chunk. You can, too, at their Merge Records page.

ABC News Amplified has a fawning interview with Mac McCaughan. Embedding has been disabled, so right-click on the link if you want to watch it.

Here are a couple of videos of "The First Part." One is from the recent Coachella; the other the original video. This song's riff is one I end up playing if I have a guitar in my hands for more than ten minutes.

If Bears Can't Generate Profits, They Sure Can Generate Charts

2009-04-27T23:18:00.006-04:00

The market actually went down today, and for the most part, stayed down. I guess it took a pig flu pandemic scare, an earthquake, and a low-flying plane over Lower Manhattan to take down the market. Or not. Perhaps it was just a small Monday sell-off in an overheated market.

Here are some basic charts I'm taking into trading tomorrow:

Tim Knight offers up a bevy of additional annotated charts supporting his thesis that more weakness is coming. Here are two of them, the Russell 2000 and the S&P 500:

Mike Shedlock offers up even more technical indicator charts supporting the bearish perspective. Again, here are just a couple plucked from his blog post:

Another Day, Another Attempt to Make the Bearish Case

2009-04-25T00:10:00.003-04:00

Another day, another attempt to make the bearish case, i.e. talking my book, in the face of tremendous bullish headwinds.

Fundamentally, when company insiders are buying up shares hand-over-fist, it's generally a good signal to join in on the buying activity. And when insiders are dumping shares, it's best to dump along with them:

Executives and insiders at U.S. companies are taking advantage of the steepest stock market gains since 1938 to unload shares at the fastest pace since the start of the bear market.

Gap Inc.’s founding family sold $45 million of shares in the largest U.S. clothing retailer this month, according to Securities and Exchange Commission filings compiled by Bloomberg. Daniel Warmenhoven, the chief executive officer at NetApp Inc., liquidated the most stock of the storage-computer maker in more than six years. Sales by the co-founders of Bed Bath & Beyond Inc. were the highest since at least 2001.

While the Standard & Poor’s 500 Index climbed 26 percent from a 12-year low on March 9, CEOs, directors and senior officers at U.S. companies sold $353 million of equities this month, or 8.3 times more than they bought, data compiled by Washington Service, a Bethesda, Maryland-based research firm, show. That’s a warning sign because insiders usually have more information about their companies’ prospects than anyone else, according to William Stone at PNC Financial Services Group Inc.

“They should know more than outsiders would, so you could take it as a signal that there is something wrong if they’re selling,” said Stone, chief investment strategist at PNC’s wealth management unit, which oversees $110 billion in Philadelphia. “Whether it’s a sustainable rebound is still in question. I’d prefer they were buying.”

...

Insiders from New York Stock Exchange-listed companies sold $8.32 worth of stock for every dollar bought in the first three weeks of April, according to Washington Service, which analyzes stock transactions of corporate insiders for more than 500 institutional clients.

That’s the fastest rate of selling since October 2007, when U.S. stocks peaked and the 17-month bear market that wiped out more than half the market value of U.S. companies began. The $42.5 million in insider purchases through April 20 would represent the smallest amount for a full month since July 1992, data going back more than 20 years show. That drop preceded a 2.4 percent slide in the S&P 500 in August 1992.

Then there's this batch of macro-level bad news from David Rosenberg c/o Zero Hedge. Bottom line, Rosenberg says the announced reduction in automotive production, the lack of a bottom in the housing market, and the rise in the unemployment rate to 9%, then to 10% all points to the continued degradation of the U.S. economy.

Looking at some charts, the S&P still climbed this week, yet the ~875 resistance level is still holding, and the MACD is now showing negative momentum:

Looking at the $SPXA50 chart, we're at 11 days-and-counting with more than 400 of the S&P 500 trading above their 50-day moving average. When you're holding leveraged shorts like TZA and FAZ in a market like this, it's fraking annoying. And I know, I recently examined the interminable stretch (for the bulls, at least) when fewer than 100 stocks in the S&P 500 traded above their 50-day moving average for 48 trading days. In that post, I didn't even bother to point out the recent 15-trading-day period in February and March, when again, fewer than 100 S&P 500 stocks traded above their 50-day moving average. Let's just say I have some Obama-esque hope that the markets pull back next week. These bearish-case posts are getting to be a bit tedious, and repetitive.

Super Furry Animals

2009-04-23T23:41:00.003-04:00

My second-favorite Welsh product, after Doctor Who...

"The Very Best of Neil Diamond" off of the new Super Furry Animals' Dark Days/Light Years:

And some SFA classics. Check 'em out; they still respect the video as an art form:

Receptacle for the Respectable, featuring Paul McCartney chewing percussive celery:

Then I found this a cappella version from a Carleton College group. They replace the death metal ending with a more appropriate, show-offy close:

Chart Pattern Trader Loves FAZ

2009-04-23T01:36:00.003-04:00

I added another newly discovered blog onto the Pig Pen blog roll, the Chart Pattern Trader.

On yesterday's video, the Chart Pattern Trader saw "bearish sign after bearish sign." He listed major overhead resistance, bearish divergences, trend breaks, bearish indicators and candle patters while summing up his negative position on the markets. Here is his brief rundown:

The reversals are panning out, with the right shoulder of a head and shoulders pattern looming over the S&P 500 chart. I explore more strategies and reversal signals on the charts. I bought all my shares back and added to my positions of SDS, QID, and FAZ. Look for the explosive sell off over the next two sessions. Remember, we will get word on the stress tests of the banks on Friday. Moreover, 25 % of the corporations on the S&P 500 are reporting this week.

For purposes of my portfolio, the Chart Pattern Trader analyzes FAZ starting at 20:25 and continues until 27:15, when he switches over briefly to looking at the chart of SKF, that old-school 2X-short financial ETF. If you're interested in the fate of FAZ, you should watch the video, but bottom line, he sees a likely break above the recent $13.26 peak, and a move significantly higher from that, with a short-term target of $25. I personally can't see holding my shares of FAZ straight through these healthy targets, but these forecasts may convince me to continue trading in and out of just the short side.

New Trading Blogs (At Least New to Me) and Their Consistent Bearish Outlooks

2009-04-22T00:57:00.009-04:00

I seem to be getting introduced to several trading blogs of which I was previously unaware, like Slope of Hope, Quantifiable Edges, Zero Hedge, and The Financial Ninja.

Speaking of the Financial Ninja, he called Monday as the day the Trend changed:

Reasons why the sell off yesterday was not just a profit taking correction, but a trend change.

1) Yesterday was a Major Distribution Day. When this occurs AFTER a large, long rally it signals a trend change.

2) After a big decline in volatility (VIX) the sell off was confirmed by a 15% spike in the VIX.

3) The US dollar index (USD) strengthened, clearing resistance and is now above both the 20 and 50 day EMAs. A strengthening dollar represents a flight to safety and foreshadows weakness in equities.

After all, the market is The Most Overbought Market in at Least 23 Years.

That last link directed me over to Quantifiable Edges who corroborated the idea that unfortunately, deeply oversold markets offer superior swing trading signals than deeply overbought ones:

As you can see above, returns have generally been positive following other times the indicator has reached extreme levels. On the low end the results are about the same as the long-term market drift. While not shown, periods leading up to 20-days are also all generally positive. As the indicator moves higher the results look even more bullish. But instances are incredibly low, so not much can be extrapolated. I see two points to take away from this exercise: 1) When the market gets extremely overbought that is not necessarily a bad thing, and on its’ own is certainly not a signal to sell short. 2) By this measure the market is now more overbought than it has been in at least 23 years.

And a reader kindly pointed me to Tim Knight's Slope of Hope blog. Knight looks to be targeting ~815 on the S&P, which I find to be quite agreeable with my market outlook. Click on the link not for his simple chart, but also for the 120+ comments/discussion he generated.

SPXA50 Chart for April 21

2009-04-21T18:34:00.002-04:00

The SPXA50 climbed back up to 425. 85% of the S&P 500 is now trading above its 50-day moving average. Click on the chart below to enlarge:

Portfolio Changes

2009-04-21T16:00:00.002-04:00

I picked up some FAZ during the last ten minutes of trading at $9.63 and at $9.30, or at an average cost basis of $9.56.

As I write this, according to Google Finance, ~340M shares of FAZ traded today, compared to a 92.5M average. Its inverse counterpart, FAS, traded ~481M shares.

And there was a moment earlier today on CNBC when the stock ticker crawl only showed FAS trade after FAS trade.

S&P 500 Short-Term Forecasts

2009-04-21T00:02:00.003-04:00

The Pig is in short-term trading mode, keeping an eye on the Russell 2000 on behalf of my 3X-Bear R2K ETF, TZA, as well as looking for enticing opportunities to trade the FAS/FAZ combo. Aside from those, I'm interested in keeping abreast of the S&P 500 and its action over the coming weeks.

Carl Swenlin at Stockcharts.com's ChartWatchers blog posted several nice charts showing a likely short-term pullback in the S&P 500. Click on the link for all of the graphical goodness. If you don't need the visual evidence, here's Swenlin's conclusion:

Bottom Line: Based upon my perception of market behavior versus indicator status, I am expecting some kind of correction, possibly a short consolidation -- a week or so -- or a quick, scary couple of down days. Regardless of how the overbought conditions are cleared, I am assuming that the rally is not over and will persist for at least a few more weeks.

Today qualified as a "quick, scary" down day:

We'll see if the gravitational pull on the market continues tomorrow. A quick look at the $SPXA50 chart below shows that the number of stocks trading above their 50-day moving average dropped from an ionospheric 448 to a mere stratospheric 413:

Zero Hedge offers up some more technical analysis suggesting 816 as a potential downward target for the S&P, which is only a 2% drop from today's close. Again, this is a short-term target (Zero Hedge's linked report calls for ~April 30 as the target date, what with Chrysler's presumed Chapter 7 filing coming around that date). That seems like a conservative target to me, considering today's thorough sell-off.

Trader Mike took note of today's sell-off, pointing out the steep upward trendline has now been broken, meaning the short-term trend for the market is now negative. But it's not yet time for the bears (or a certain Pig) to celebrate and run rampant:

I think we all knew this selloff was coming, the only question was when. This was the biggest drop in several weeks and has broken all the March trendlines on the major indices. The bulls didn’t even put up a fight at those trendlines, which is a big change from the past few weeks. Financials led the way down, thanks to Bank of America (BAC). Despite BAC’s 24% drop today the chart doesn’t look terrible. It’s just back to where it was about a week ago. Let’s see if it can find support around the late March highs.

Portfolio Changes

2009-04-20T13:18:00.002-04:00

I wrote yesterday that I would be "ready to sell if some quick-and-dirty profit opportunities come my way."

As Snagglepuss says, "Exit, stage left."

A few moments ago. I unloaded my FAZ position at $10.87, from a cost basis of $8.85, for a gain of 22.8%.

Yes, FAZ has continued its run, crossing $11/share as I write this, but again, the FAZ purchase was for a quick trade, unlike my improving TZA position.

Thoughts on the S&P 500 for the Coming Week

2009-04-19T23:34:00.003-04:00

89.6% of the S&P 500 is trading above its 50-day moving average. That's 448 out of 500 for the mathematically disinclined.

I seem to be posting updated versions of this chart every few days now, as this market continues to defy gravity and rationality.

Again, I ask the question, will this market rally end soon?

Looking at the S&P 500 chart below, you'll see that some significant overhead resistance, as well as some short-term overbought indicators, could put the brakes on this rally:

Corey Rosenbloom at Afraid to Trade sees a potential bearish rising wedge forming in the S&P 500. Click on the link and check out the post on Afraid to Trade for his annotated chart, but here's the suggested strategy:

The expected play at a minimum is for a retest of the rising trendline around 850, but aggressive traders might want to hold on for a larger target should price weasel its way out of the wedge formation, which would be quite bearish. Should price continue to rally and break outside the wedge, the stop-loss point would be clearly defined.

Portfolio Changes

2009-04-19T23:19:00.003-04:00

Since I still believe that this irrational rally is overdue for some subsiding, I picked up shares of FAZ at $8.85.

Fozzie has fallen ~70% over the last month. The chart below shows the underlying index for FAZ, and its red-hot performance during March and April. Yes, I'm bucking the trend here, so I'm ready to sell if some quick-and-dirty profit opportunities come my way.

When Will This Bear-Market Rally End?

2009-04-17T00:31:00.004-04:00

When will this bear-market rally end?

I recently discovered a hyper-prolific blog that's asking the same question from a variety of angles.

First, an excerpt from the Barclays note care of Zero Hedge:

It is fair to say that just about everyone is bewildered and trying to understand when this rally will end.
...
Normally, when we call for a trend to stop, we need to see three things. First, the trend has to have been strong and dramatic. Second, the trend has to have recently increased its trajectory in a hyperbolic way, to have accelerated its performance. And third, we need to have seen the trend reverse the clear majority of the prior trend.

On all three dimensions, we believe the current market conditions are clear and unambiguous. The current trend is strong and dramatic. We have clearly seen the trend accelerate, with the performance now coming from the tails of the distribution. And, we have reversed far more than the build-up of the prior trend. Think of a rubber band. What we are trying to identify is when the rubber band has been stretched far past its normal state. We believe unambiguously that we are at that point today.

All of this was true a week-and-a-half ago so we felt comfortable then calling for an end to the underperformance in Sentiment and the outperformance in Valuation. Today, we feel even more comfortable. And while on average, it takes 10 to 15 trading days after this condition has been met for the reversal to take hold, so we still have time, we certainly haven’t been proven right yet. As a prior boss repeatedly reminded me, and I humbly note here, there is no difference, though, between being early and being wrong.

Today, Zero Hedge pointed to the one month T-bill offering a fear-reflecting 0.01% yield:

Last levels seen during the fiasco after the November crash. Was at 0.08% two days ago. All money is running for near term safety, despite CNBC's urges for tresury investors to jump into equities - well, the opposite is happening...Maybe the real money is seeing something, and is accelerating purchasing of T-bills into this melt up.

Equities: have fun buying stuff.

How about we look at some charts that should make us feel better about questioning the post-nuclear-cockroach-like survival of this rally.

Here is the three-year chart of the $SPXA50 showing 88% of the S&P 500 is currently trading above its 50-day moving average. Breaching 80% is infrequent. 88% is downright rare, and at the very least, hasn't happened in the past three years:

Here is an annotated chart of the put/call ratio. The low 10-day moving average of the put/call ratio suggests the market is far too optimistic. Except the recent low reading from mid-March only slowed down the pace of the current rally--it didn't signify a market turnaround. Harumph.

And here's my current focus, the Russell 2000. I went short far too early, it seems, as the R2K is indeed jamming right up against both the overhead resistance levels established in January and February, and is near the top of its current bull trend channel.

This market looks so ripe that it's overdue for a bit of rot to form. Maybe I'll keep all of this negative evidence in mind tomorrow, and day-trade some under-$10 FAZ. I mean, what could happen? The market rises another 2% on more bad news?

Bob Mould is Back

2009-04-16T08:48:00.003-04:00

Bob Mould is back with out with another record, "Life and Times." Newsweek, of all media venues, has a Q&A and video with Bob.

Here's the YouTube version of the aforementioned video:

And for old times' sake, here's the video for Sugar's heavy and catchily cacophonous "Tilted":

Balloon Man

2009-04-14T23:52:00.002-04:00

I recently heard this classic while leaving my ipod on shuffle.

Why do I like the song so?

The chiming guitars. The walking bass. The Midtown locales mentioned. And the line, "and it rained, like a slow divorce." Those are plenty of reasons, I think.

Here's a live video of recent 2007 vintage. I think I saw him in Hoboken on this tour, not that you care one whit.

Unfortunately, the original video is nowhere to be found on YouTube, so you'll have to settle for the original song:

Russell 2000 is Flashing Warning Signs

2009-04-13T07:15:00.002-04:00

Russell 2000 is flashing warning signs, reports Lynn Thomasson at Bloomberg:

The Russell 2000 Index’s record one-month gain is sending danger signals to investors who remember how similar rallies in U.S. stocks came to an end.

The gauge of companies with a median value of $301 million is beating the Standard & Poor’s 500 Index, where stocks have an average market value of $6.5 billion, by 9.8 percentage points. Gains in the Russell 2000 are being led by an 11-fold jump in Spansion Inc., a bankrupt chipmaker, and a sevenfold rise for Hayes Lemmerz International Inc., a wheel manufacturer that hasn’t had a profit since 2006.

While small-caps tend to lead the way out of bear markets, when they have outpaced larger stocks by this much, both indexes erased gains and fell, according to data compiled by Birinyi Associates Inc. Increased trading and ratios of advancing to falling stocks have also risen to levels that preceded declines, boosting investor concerns that the S&P 500’s 27 percent advance since March 9 will end the same way as the 24 percent rally that fizzled in January.

“This move is too explosive to be sustainable,” said Jack Ablin, chief investment officer at Chicago-based Harris Private Bank, which oversees $60 billion. “None of the structural underpinnings of the market have really changed. It’s going to be a multiyear healing process.”

...

Steeper jumps for small-cap stocks one month into a rally are signs of indiscriminate buying and usually come before equities fall, said Cleve Rueckert, a Birinyi analyst. The Russell 2000’s 36 percent climb since March 9 is its steepest since the index began in 1979, according to Bloomberg data.

...

“It’s unusual for a new cycle to start with such an abrupt gain,” Rueckert said. “Bear market rallies are broad. Everything goes up really sharp, really fast and not necessarily for a particular reason.”

None of the bull markets tracked by Birinyi included small- caps outperforming after a month by the rate they are now. On average, smaller stocks are tied with the S&P 500 at this stage of a lasting recovery, the data show.

New York Times Debate on the Bear Market Rally

2009-04-10T11:57:00.003-04:00

The Gray Lady features a debate on the bear market rally this morning, featuring Barry Ritholtz, whose blog the Pig visits several times each trading day.

M.I.T. professor Simon Johnson leads off the debate with this worrying thesis:

Some stock market rallies are reassuring. Others provide at least temporary respite. And a third kind, more commonly seen in emerging markets, actually expose deeper underlying problems and contribute to a further downturn.

We seem to be experiencing this third kind of rally in the U.S. right now. Equity prices are up sharply, but the debt market continues to indicate a high probability of default. In particular, the level and recent trajectory of credit default swap spreads suggest that, as the financial system as a whole stabilizes, market participants expect increasing odds of failure (and failed bailout attempts) for the very largest banks.

Stanford professor Nicholas Bloom follows up, arguing that while the global economy is still uncertain about future growth, it is far less uncertain than it was in the Autumn:

Fortunately, the G-20 leaders have agreed to maintain free markets as well as sensible increases in financial regulation — which is radical, unprecedented stuff. As a result stock market uncertainty – measured by implied volatility, commonly known as the “financial fear factor” - has fallen. A measure of uncertainty (tracking implied volatility of the S & P 500) shows a more than three fold jump after the collapse of Lehman in September 2008. But that measure has fallen back by 50 percent as political uncertainty has receded.

Of course, there is still tremendous uncertainty about the extent of the damage to economy. We still don’t know the value of the toxic assets central to the banking crisis. Fear remains a factor, leading firms to postpone investment and hiring decisions. But we are moving past the big spike in uncertainty of last fall. And if uncertainty continues to decline, growth should start to rebound.

Barry Ritholtz looks at the bigger investing picture, and warns against both buy-and-hold, and more importantly, hunting for bottoms:

[I]f you managed to catch the exact low in December 1974, well, then, you would have had to accept an enormous level of volatility. That low was followed by a 75 percent rally, a 27 percent sell off, a 38 percent rally and a 24 percent sell off. But those are nominal numbers. Adjust the returns for inflation, and you actually lost about 75 percent of your money in real terms.

AAII Bull/Bear Index Signals Sell

2009-04-10T11:47:00.002-04:00

Continuing on the overbought market theme, I found this piece from Bloomberg this morning, Return of Stock Bulls Signals Time to Sell: Technical Analysis.

Key excerpt:

Investors turned optimistic for the third time since the credit crisis started last year, gauges of sentiment among individual investors in the U.S. show, a pattern that Helmsman Global Trading says is a signal to sell.

The difference between the American Association of Individual Investors Bull Index and Bear Index surged to 5.6 as of April 2. When the reading rose to 11.5 in November and 13.6 in January it coincided with the end of “bear-market rallies” of at least 21 percent by the MSCI World Index.

“What that’s going to show is that people always want to look at the glass as if it is half full,” said Martin Marnick, head of trading at Helmsman Global Trading Ltd. in Hong Kong. “Using common sense you know what that general trend is. We’re in a recession and this is not the start of a bull market.”

The spread, which has fluctuated between 63 and minus 54 in the past two decades, has climbed above 5 in only three periods since the collapse of Lehman Brothers Holdings Inc. in September. It retreated to minus 8.6 according to data released yesterday.

Trading by Analyzing the S&P 500 Stocks above the 50 Day Moving Average

2009-04-10T11:25:00.003-04:00

I have annotated three charts analyzing what the number of S&P 500 stocks trading above their 50-day moving average can predict about what's to come in the stock market.

Please click on the images to make them large and more legible.

And if you want to keep check on this chart, the symbol is $SPXA50 at stockcharts.com.

These charts tell me that odds are, the recent bear market rally is just that, a violent spike off of the lows. And we're going to see the market pull back in the near term.

The only data point calling that prediction into question is the $SPXA50 data from last October and November, when the number of S&P 500 stocks trading above their 50DMA remained at extremely LOW levels for ~six weeks without much of rebound.

Fibonacci Retracements on the Dow and R2K

2009-04-09T17:39:00.003-04:00

Found this video presentation of Fibonacci tools via Afraid to Trade. The presentation is basic, but it did alert me to the fact that today's market rally came to a screeching halt at the 61.8% retracement level described in the video. Here's my annotated chart to make the point:

Will the Dow sell off next week? The Fibonacci retracement suggests that the Dow should pull back from today's close, but I have no idea, and I'm more interested in what the Russell 2000 is doing, since that's where my money is.

I worked up a chart of the Russell 2000, for comparison's sake, since I'm currently holding shares of TZA that took quite a shellacking today.

Click on the above chart to make it, and my comments, larger. The ~472 level on the R2K is where I'll be paying attention when trading resumes on Monday. Why? Because it's still the overhead resistance level from earlier this year, and to a lesser extent, 472 represents the 61.8% retracement from the early-November high.

Portfolio Changes

2009-04-08T14:22:00.005-04:00

Sold off the remaining shares of FAS at $6.26, from a cost basis of $5.79, for a gain of 8.1%

Bought additional shares of TZA at $43.11, bringing up the cost basis of that position to $41.39.

Update at 4:03 pm:

And just before the closing bell sounded, I picked up some more shares of TZA at $42.88. That moves up the cost basis to $41.83.

Yo La Tengo's Ode to Connecticut

2009-04-07T01:11:00.002-04:00

Portfolio Changes

2009-04-06T16:01:00.002-04:00

Sold off some more shares of FAS today at $6.75, off of my cost basis of $5.79, for a gain of 16.6%.

I attempted to add to my TZA position toward the close, but my order remained unfilled as four o'clock rolled around.

Charts to Ponder for the Start of the Trading Week

2009-04-06T00:40:00.002-04:00

Before I get to the charts I'm pondering for the start of the trading week, Trader Mike suggested reading this market outlook piece by Dr. Duru. Here's the choice excerpt:

Investing gets much dicier as we nudge ever so closer to the well-watched resistance level of 875 on the S&P 500 - maybe the market pushes to 900 just to salt the wounds of bears. T2108, the percentage of stocks trading above their 40-day moving average hit 83% on Thursday. The last two times this happened, we got a top the first week of January, 2009, and the all-time top in October, 2007. Recall that since 1986, selling the S&P 500 when T2108 crossed the 70% threshold, above or back below, has provided a practical capital preservation strategy. This means that we are in over-bought territory. The risk/reward is now very poor for playing chicken with the S&P 500's next resistance level. This next push represents just another 5% of performance. Not a good spot for initiating new longs, and a great spot for selling shorter-term holdings into the rally.

With this quote in mind, onto the annotated charts:

Portfolio Changes

2009-04-03T16:11:00.003-04:00

Added to my 3X-short Russell 2000 position at the close, picking up additional shares of TZA at $39.875, bringing down the cost basis of my position to $40.53.

I prematurely sold off 40% of my FAS holdings at $6.61, from a cost basis of $5.79, for a gain of 14.2%. Considering FAS closed today at $7.20, I left cash on the table, but I'm still pleased that my remaining FAS position did so well on such a relatively quiet market Friday.

Portfolio Changes

2009-04-02T16:11:00.003-04:00

At the close, I picked up some shares of TZA, the Russell 2000 3X-levered Bear ETF. Cost basis: $41.60. I'm using this short position as a hedge against my larger long position in the financials.

Proper Use of Leveraged ETFs

2009-04-01T22:50:00.004-04:00

Trader Mike alerted me to this interesting article by David Penn of Trading Markets regarding the proper, i.e. short-term, use of leveraged ETFs:

However, a closer look at leveraged ETFs warns that in the longer run, leveraged ETFs may not provide long-term investors with the kind of returns their 2-to-1 or 3-to-1 banners suggest. Between fees and the unique way that leveraged ETFs are structured, investors who rely on leveraged ETFs may end up getting significantly less than 2-to-1 or 3-to-1 on their leveraged ETF investments. And although this does not mean that investors and position traders cannot use leveraged ETFs to good effect, it does mean that investors looking to leveraged ETFs should in some ways temper their expectations and, if not “do the math” first, at least be sure they read the fine print.

For short-term traders of ETFs, though, many of the problems that leveraged ETFs bring to investors are not problems at all. Because of the relatively short holding period of five to eight days, short-term ETF traders have a far better opportunity to reap the benefits of 2-to-1 or 3-to-1 leverage without many of the drawbacks that longer-term ETF investors must face.
...
What does this mean for traders? Not as much as the financial press will lead you to believe. Traders are in positions only a few days and when they trade these ETFs, they are not hurt much (if at all) by the rebalancing costs. Hold these ETFs for many weeks and months, and returns will potentially underperform. But trade them for a few days as TradingMarkets does, and a trader will be fine. A look at a classic, short-term trading strategy using ETFs shows how it applies to the world of leveraged ETFs.

Penn continues by advocating the two-period RSI swing trading strategy that I often use and describe on this blog.

Go me.

Otherwise, the moral of the story is, if you want long-term long or short exposure to indices or sectors, stick to buying and holding straight-up unleveraged ETFs. But if you are looking to juice your returns in the short-term, the leveraged ETFs are the preferred vehicle.

Portfolio Changes - Swinging from FAZ to FAS

2009-04-01T22:50:00.000-04:00

The financials were bid up over the last two trading days, much to the chagrin of my FAZ position. I unloaded the remaining shares of FAZ at $20.075, from a cost basis of $29.52, for a loss of 32%. That's what I get for getting cute and trying to swing trade flat-footed against the trend.

With the sale of my FAZ shares, I swung over some of the proceeds into FAS, buying shares at $5.745 and $5.85, for a cost basis of $5.79.

In support of my swing trade from short financials to long...Barney Frank, Chairman of the House Financial Services Committee, wants to retroactively change mark-to-market accounting rules:

A key lawmaker on Tuesday said he would support allowing banks in some circumstances to recoup losses they have already taken due to controversial mark-to-market accounting rules. House Financial Services Committee Chairman Barney Frank, D-Mass., said he would support a procedure for firms to make the case that they have been forced to take losses on assets that they are holding to maturity. Mark-to-market rules are an accounting methodology that requires banks and other corporations to assign a value to an asset, such as mortgage securities, credit-card debt or student-loan investments, based on the current market price for either the security or a similar asset. Frank said he would talk to the Securities and Exchange Commission about a rule change.

Casting doubt on my swing trade idea, Joe Weisenthal at Clusterstock thinks the financials will sell off after the mark-to-market announcement:

After trading down in the morning, the major financials are all solidly in the black today. Supposedly, there's enthusiasm over tomorrow's likely relaxation of mark-to-market rules.

Citigroup (C) is up over 5% and Bank of America (BAC) is up over 3%.

One trader we talked to thinks this is a classic buy-the-rumor-sell-the-news kind of deal. You've got retail investors who think a major change is coming, but after it's over, investors will realize there's no there there.

And this evening, Marketwatch joined the chorus singing the sell-on-the-news tune:

For weeks, investors have been expecting regulators to change accounting rules that would allow banks to recoup some losses already taken on illiquid mortgage assets, making Thursday's official decision by the Financial Accounting Standards Board almost a nonevent, analysts said.

But those high expectations are setting the market up for a big disappointment if rule makers actually balk at making changes.

"There might be a little bit of a positive reaction, but the move in stocks has already taken place as regulators already said they were considering changing the rule back in early March," said Fred Dickson, chief market strategist at D.A. Davidson & Co.
But "in the event they recommend no changes, we could see a sell-off," Dickson said.

Guess I'm bucking the analysts' conventional wisdom, this time. Maybe I am just a mere retail investor.

For some technical pros, and one con, click on the annotated chart below:

Catherine Wheel

2009-03-31T00:50:00.004-04:00

While reading this piece in The Onion's A.V. Club on records that must be listened to straight through, I was surprised to see a Catherine Wheel mention amongst the expected Hüsker Dü Zen Arcade and XTC Sklyarking records:

13. Catherine Wheel, Adam And Eve (1997)
Catherine Wheel’s swooping Adam And Eve was up against some stiff competition when it came to 1997 sorta-concept albums by British bands with a couple of hits under their belts. (In case the reference isn’t clear enough: OK Computer.) Adam And Eve was apparently too ambitious or ill-timed to hit the big time, in spite of the huge singles “Delicious” and “Ma Solituda.” Maybe that’s because it’s best to listen in one big chunk, with the spare, bluesy “Intro” and “Outro” bookending the band’s strongest set of recorded material. There’s no real theme per se, but at least a few running ideas about the future. But it all means something, maaaaan.

I had moved on from listening to Catherine Wheel by '97, so I missed this album the first time around. But thanks to the interweb, I don't have to pour through stacks of discs on St. Marks, trying to dig out those records I failed to pick up during the previous decade.

Delicious was a single off of Adam and Eve:

Rob Dickinson playing Heal solo and acoustically:

And my introduction to the band, Black Metallic:

Fast Money on FASB 157 a.k.a. Mark-to-Market

2009-03-30T18:50:00.002-04:00

The Commissioner-less Fast Money crew discussed this Thursday's mark-to-market ruling coming out of FASB:

You can also read the CNBC recap if you're so inclined, but the gist of the segment is on April 2, FASB will almost certainly make some adjustment to the mark-to-market rules. This rule change should be a positive catalyst for financial stocks. Finerman suggested the XLF; Najarian suggested the juicier FAS. Guy posited that the "stars could align" and we'll see a retest of S&P 741 this week, followed by a financials-led run. I hope he's right, as that's my market outlook this week, and it's how I've set up my portfolio.

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

2009-03-30T11:41:00.004-04:00

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.

Why?

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.

Charts for Today

2009-03-26T10:36:00.000-04:00

Portfolio Changes

2009-03-24T18:29:00.003-04:00

Staring in the face of this bear market rally, I picked up additional shares of FAZ at $19.51. That brought the cost basis of my FAZ position down to $29.52. FAZ closed today at $21.15, which seems quite a long way from $29-and-change, but remember, FAZ is levered 3X. For some perspective, here's the FAZ price chart for March:

FAZ's trading range during March is $18.25 to $115.50. That's what happens when you take an inherently volatile trading vehicle and combine it with a hot sector.

Lush

2009-03-24T02:10:00.001-04:00

After being short during today's 7% rally, I need a 12-string elixir...

The Connells

2009-03-21T03:10:00.001-04:00

Bowery Electric

2009-03-20T00:17:00.003-04:00

Bowery Electric, when the shoegaze sound moved from Brits with guitars to a couple of New Yorkers with computers.

"Fear of Flying" is from 1997. I probably first heard it on KDHX, and picked up the needlessly double-disc Vertigo at Vintage Vinyl. I revisited today while digging through piles of cd's that aren't loaded on my laptop, but really should be.

The Darkness Returns

2009-03-19T02:14:00.002-04:00

Well, sorta.

Justin Hawkins, late of the Darkness, is back with a new band called Hot Leg.

Like Life on Mars became Ashes to Ashes, Hot Leg takes its hair-metal irony from the 80's over the Darkness' 70's flair.

My take on "Cocktails" is Hawkins wrote this song so he could sing the song title's first syllable repeatedly in the chorus.

Portfolio Changes

2009-03-19T02:04:00.003-04:00

On Tuesday, I unloaded a significant portion of my FAZ holding for $37.20, for a craptastic gain of 3.2%.

Yesterday, I picked up some additional shares of FAZ at $29.74, bringing the cost basis of my position down to $33.52.

Crashteroids

2009-03-16T17:58:00.003-04:00

If you're really, really bored, and want to play a game, I suggest Jim Cramer's Crashteroids.

Here's a screenshot:

I scored about $13,000 on my first and only half-assed try.