NYT

The Daily News reported the hypothetical possibility that Mike Bloomberg may buy the New York Times. After his term ends. Which would mean sometime in 2010.

Mayor Bloomberg has been encouraged by advisers in his inner circle to consider making a bid for the Old Gray Lady after he leaves office, Newsweek magazine reports.

A source with close ties to the billionaire media magnate told the magazine that a friendly Bloomberg News-New York Times merger appealed to the mayor's sense of "civic-mindedness."

"It is clearly a brand that Bloomberg could help preserve and that he cares about immensely ... and could pay a competitive price" for, the source said of The Times.

Bloomberg declined to comment on the matter. But it is not the first time the idea has been put forth.

Wall Street Journal managing editor Paul Steiger raised the prospect of a Bloomberg News-Times marriage in a January column marking his departure from The Journal, which is published by Rupert Murdoch.

2010 is a long way off to ponder establishing a position in a takeover target. Unlike the Bancroft family who recently relinquished ownership of the WSJ, the Sulzbergers control and actively run the Times.

It doesn't help that NYT shares are now priced at almost $21 after falling below $14 in January.

Perhaps I can set up Blogger to automatically repost this in December 2009. That's when I'd even consider looking at NYT (as an investment; I look at the nytimes.com several times a day).

Weak Dollar + Rising Interest Rates = End of Bear Rally?

Avner Mandelman in The Globe and Mail wrote an interesting column back on April 12 (a Saturday) on former Fed chair Paul Volcker's public criticism of Helicopter Ben's current Fed.

[L]ast week Mr. Volcker spoke his mind bluntly. He said, in effect, that the current Fed is not doing its job.

This would have been unusual enough. But Mr. Volcker went further. Not only is the Fed not doing its job, he said, but it is doing the wrong job: It is defending the economy and the market, instead of defending the dollar. And just to stick the knife in, Mr. Volcker added that this bad job now will make the real job - defending the greenback - much harder later. It'll cause even greater economic suffering.

The impetus of the column is not merely that a politician who should know better spoke out of turn, but that the current bear rally is indeed only that, a temporary upward move in a market facing the overdue need to strengthen the dollar.

Will rates indeed rise? I have no doubt they must. Not now, perhaps, but at the end of this year or the beginning of 2009, with a new president in the White House. The stock market, which usually looks six to nine months ahead, already understands this and may soon react. In fact, when Mr. Volcker's words sink in, the markets are likely to sink as this bear market rally ends.

For surely you understand we are still in a bear market - and only in the beginning of it? Yes, we are experiencing a rally, and like most bear rallies, it is sharp and spiky. But when bear rallies end, they leave a lot of spiked bulls behind - and this rally should be no different. When it is over - in the next few weeks, methinks - the waterfall could continue, as the market begins to digest the inevitability of higher inflation and higher interest rates ahead.

Against all protocol, Mr. Volcker just went out on a limb and warned you of this. I urge you to heed his words.

Overbought Condition of the S&P 500

Here is another way of looking at overbought/oversold stocks, albeit in a broader context (S&P 500) than my usual focus on the Dow 30. The following is from the Bespoke Investment Group blog, posted on April 18, care of The Kirk Report:


Overbought Stocks in the S&P 500
Currently, 47.8% of companies in the S&P 500 are trading in overbought territory. Overbought levels are met when a stock's price moves more than one standard deviation above its 50-day moving average. As shown below, this many companies haven't been overbought (green line) since the market peaked back in early October. Likewise, the last time so few stocks were oversold was also early October.

Below we highlight stocks in the S&P 500 that are the most overbought. When individual stocks get this overheated, the risk/reward tradeoff begins to favor the risk side in the short term. As shown, ETN is the most overbought, trading 4.29 standard deviations above its 50-day moving average. ETN is followed by ALTR, GD, NSC and BLL. Other notables on the list include CAT, SLB, ORCL, HAL and DD.
Regardless of whether these overbought levels cause a pullback next week, after the declines that we've had since late 2007, it's a relief to know that stocks can in fact go up.

Looking at the Overbought/Oversold chart, you can see that the percentage of stocks in the S&P 500 that were overbought approached ~60% during the big bull run of last April through June, and approached ~65% in October at the market peak. The recent market rally has not returned to those levels, but this is another interesting and useful piece of data to keep in the back of my mind, and accessible on this blog.

SHRPQ - Comment on the Sharper Image Liquidation

I don't have any substantive analysis on the soon-to-be-liquidating '80's relic. But as I perused MarketWatch earlier today, some joker added this comment to MW's story :

That's a shame as I liked my Sharper Image air purifier. The steroids I take make me really gassy and the ozone masked the smell quite well. What is a girl supposed to do now?
- VeraDiMilo

This certainly helps lighten the mood on a rough market day.

FXP

Oof.

The Chinese government cut the "stamp duty" tax on equity trades today, reducing it to 0.1 percent, from 0.3 percent. Chinese shares trading here rallied on this news. And FXP took a hit.

Some choice explanation from Bloomberg:

``The government is trying to put a floor on the market,'' said Tony Hann, who helps manage $5 billion of investments in emerging markets at WestLB Asset Management in London. ``That will cause it to rally.''

Brokerages such as Citic Securities Co. may advance the most as the tax reduction boosts trading, Hann said. Transactions on the two main stock exchanges slipped from a weekly average of 14.7 billion shares in 2007 to 6.3 billion shares last week.
The stamp assessment was tripled last year in an attempt to cool a rally that was drawing more than 300,000 new investors a day. The CSI 300 Index surged sixfold in 2006 and 2007 before slumping this year on concern government efforts to stem inflation will curb earnings growth.

``China is literally trying to pump up their stock market,'' said Jack Ablin, who oversees more than $60 billion as chief investment officer at Harris Private Bank in Chicago. ``They fear that a crash could have a deleterious effect on the attitudes of their middle class.''

I added a small number of shares to my beaten-down FXP position at $65.50, for a new cost basis of $90.25.

RSI(2) and RSI(14) Chart for 3/31-4/18

Looking back over the past three weeks of trading, the Dow was significantly overbought on 4/1, and gradually moved to oversold territory by 4/14 before quickly returning to the overbought realm on 4/18. Today's market was mixed, with the Dow retreating slightly and the NASDAQ continuing further into the overbought range.

The Pig mistakenly failed to lighten his short position in mid-April--I hope to rectify that when the chart cells turn green.

XLF or UYG? - Fast Money Focusing on Financials

Apparently, Fast Money talked up the financials right when I started pondering 'em on Monday night:

On CNBC's "Fast Money" TV show, Guy Adami noted that Wachovia Bank (WB - Cramer's Take - Stockpickr) had cut its dividend. He said that previously, the bank had said there was no reason for it to cut its dividend, but that he has learned to be skeptical of what the CEOs of financial firms say. Despite the bad report, the stock is setting up for a trade on the long side with a tight stop.

Karen Finerman said she wouldn't go near the financials, but if she had to go one way or another, she would be long the sector.

Jeff Macke said that it might be worth it to buy Citigroup (C - Cramer's Take - Stockpickr) or the Financial Select Sector SPDR (XLF - Cramer's Take - Stockpickr) on dips.

Pete Najarian said that $24.50 is a level of support for the XLF. He said that because the fund reached that level today, he's rotating back into calls. He said there may be more room to the downside, but the $24-to-$27 range has been working in the XLF.

He said he wasn't sure about the prospects for Bank of America (BAC - Cramer's Take - Stockpickr) or Wells Fargo (WFC - Cramer's Take - Stockpickr). On the other hand, he said USBancorp (USB - Cramer's Take - Stockpickr) should be a good investment, even if it is a little more conservative and boring.

Adami said it's all right for investors to get long anything as long as they have a well-defined exit.

Not having watched the actual broadcast, all I can do is glean the Fast Money gang's sentiment from this recap. They seem wary of more downside, but are cautiously optimistic. The entry trade in the financials is "almost there." I can hear Porkins repeating, "Stay on target."



XLF is the sector-diversified choice for Macke and Najarian that will protect against individual names blowing up like the Death Star. Should I consider XLF instead of UYG?

Looking at data from Google Finance, I see that XLF has an average daily volume of 151M shares traded, versus 12M for UYG. Liquidity is good for both holdings, but XLF is clearly the preferred issue in the marketplace.

Over the past year, XLF has traded between $22.29 and $38.15 a share. The difference between the 52-week high and low is $15.86. If you divide that into the 52-week low value of $22.29, you'll get .71. In other words, XLF has traded at prices up to 71% off its 52-week low over the past year.

UYG has traded between $24.01 and $72.96 a share. The difference between the 52-week high and low is $48.95. Dividing that value into the 52-week low of $24.01 comes to 2.04. UYG has traded up to 204% off its 52-week low.

XLF looks good if you can't stomach the extra volatility. Volatility, schmolatility. On the next dip, Macke may buy XLF, but I'll be otherwise distracted by some ugly UYG.

UYG - Ultra-Long Financials When I Feel the Urge to Go Long

Above is the chart for UYG, Proshares' ultra-long financial sector ETF. This sector has been rightfully punished by the market for its components' indiscretions, forays into now-illiquid markets, and other eff-ups.

My short position in the overall market remains strongly-held. Charles Kirk, over at his namesake site, bolstered my market viewpoint this morning with the following comment:

With key technicals breaking down on Friday, the market is vulnerable for at least another test of the March lows. The key will be whether investors keep getting more unexpected bad news above and beyond what they already anticipate this week. The combination of this week's inflationary data and earnings will be pivotal.

However, I want to be ready for the opportunity to go long if the market does indeed break down, test the March lows, and encourage me to liquidate my short positions.

Beyond broader market ETF's like QLD and DDM, I think eventually establishing a short-to-intermediate term position in the financials could be a profitable move.

Here's a link to the daily top 10 holdings of UYG. And here's the top 10 holdings as of last Friday:

as of 4/11/08 Top 10 Holdings | Show All
Security Description	Weight
BANK OF AMERICA CORP COM	7.23%
JPMORGAN CHASE & CO COM	6.27%
CITIGROUP INC COM STK	5.30%
AMERICAN INTERNATIONAL	4.27%
WELLS FARGO & CO COM STK	3.89%
GOLDMAN SACHS GROUP INC	2.62%
US BANCORP DELAWARE COM	2.45%
WACHOVIA CORP COM STK	2.40%
BANK OF NEW YORK MELLON	2.12%
AMERICAN EXPRESS CO COM	1.94%

As of today's close, each of these companies were affected by the Wachovia announcement of its need to raise $7B in additional capital. The RSI(2) for these stocks fell to deeply oversold levels:

AIG - 2
AXP - 1
BAC - 0
BK - 13
C - 5
GS - 2
JPM - 0
USB - 10
WB - 12
WFC - 1

UYG also had its RSI(2) fall to 1.

So, why buy UYG when all of these components are oversold and volatile?

Since February 1, these companies have traded anywhere from 10-40% off their peak values. The main draw of UYG would normally be its 2X volatility, but in this market, the diversity of names is just as important. I want some protection from an individual name blowing up, like the aforementioned Wachovia.

I'll track UYG, and will establish a position if the market affords the opportunity. The charts below (of the top 10 holdings of UYG in portfolio-weighted order) show the financials sector is already enticingly oversold, but bearish stocks (and sectors) can remain oversold for extensive periods of time.

Dow Candlestick and RSI(2)/RSI(14) Chart

I have made no trades for a while, as the market finally turned downward, thanks to GE surprising Wall Street with its crap earnings. Currently, at today's closing prices, my positions in DXD and QID are basically back to where I entered into them. FXP, well, that's still underwater, for now.

It's interesting to see that the Dow was unable to break out of the top end of the range, as shown in the above annotated candlestick chart. Now that earnings season is underway, and Dow components like AA and GE have disappointed, I'm still confident that the market is headed back towards the bottom of the range (11,800).

Moving onto my RSI(2)/RSI(14) chart, you may notice that today's move placed 20 out of 30 Dow components into green oversold territory. While this may seem extreme, if you look at the April 1 column, you'll see that 28 out of 30 components were in red overbought territory.

Confirmation of the FXP Position

Here's the key graph from this recent MarketWatch story on the Hang Seng:


Andrew To, sales director at Tai Fook Securities, said the market was in an "overbought" zone after rising nearly 4,000 points in the past two weeks and faced profit-taking pressure. "Some analysts expect the beginning of another bull run would take the Hang Seng index to 26,000 or even higher. My personal view is that (the recent rally) is just a big technical rebound, rather than a turnaround, in the current bear phase," said To.

The Market Is Swinging Like Roger Stone

This market is swinging like Roger Stone.

The Dow climbed skyward today, adding 391 points. The chart below shows the sudden shift in market sentiment for the start of the second quarter of 2008.


The above chart also shows how volatile the market's been, bouncing up and down.

The chart below shows the 2-day RSI readings for the Dow and some ETF's for the last three trading days. You should be able to recognize without clicking on the image that the cells have swung from mostly green to overbought red overnight. I'm using overnight in the sense of someone on a three-day bender would think of overnight.

How did I react to this shot to the upside?

After a couple choice swears, I added to my prematurely purchased FXP position...prematurely. I had orders filled at $88.06 and at $84.79, lowering my cost basis to $91.49.

And I temporarily sold off the ALB position at $36.60, as I did not care for the lackluster price action in ALB. I think the market could have been playing a bit of an April Fool's joke on the bulls. Even after today, I think the overall bear trend is ongoing. Hopefully, I can re-establish my position in ALB soon enough, at a better price.

Looking Back Over The Pig's RSI Chart for March 10 through March 28

Click on the above chart to expand it to legibility. Again, for clarity's sake, the chart shows the Relative Strength Index for the Dow 30 components, as well as some ETF's of interest. The first number in each cell is the 2-day RSI. The second number in each cell is the 14-day RSI. The 2-day RSI shows how much a stock is overbought or oversold over a very short term, whereas the 14-day RSI gives a longer-term reading. For short-term trades, I am far more interested in the statistically significant, and tradeable 2-day RSI number.

As I've mentioned before, the colors make the chart Christmas-y. They also offer visual impact, showing the market to be oversold (and greener) or overbought (and redder).

On March 10, 24 out of 30 Dow components were in deep oversold territory. Between March 18 and 25, the Dow had recovered significantly, and many cells had turned pink, if not so much overbought red. As of March 28, the markets had fallen back towards greener pastures.

I continue to hold positions in DXD, QID, and FXP, reflecting an overall negative short-term view on the market. My position in ALB, one of the Zacks Top 10 picks for 2008 is currently my only long position, and is for the longer term.

This week, I am looking for DXD to head towards $62, QID up towards $55, and FXP upwards to $115-120. As they say on Bravo, let's watch what happens.

Is the Bear Sleeping? Or Is He Festering Carrion?

I recently read a Business Week piece on whether or not the market rebound earlier this week was a sucker's rally? Is the bear taking a quick snooze, or is he decomposing carrion?

My read on the market is Growler nodded off a bit after a rampaging start to the year. A bear needs some time to digest some of the ample offerings this season, like the cannibalistic devouring of Bear Stearns.

Here are some excerpts from Business Week:

The stock market is like a sprinter, says Chris Johnson of Johnson Research Group: It runs in one direction and eventually needs a break. "There's only so far a market can go before it gets oversold," Johnson says.

In other words, even a rampaging bear needs a breather now and then. In a bear market rally, despite weeks of losses, a bleak economy, and a raging credit crisis, stocks will bounce back. Temporarily.

To distinguish a bear market rally from a true market bottom, investors often look for extreme levels of pessimism. When investors get extremely pessimistic, they've reached the end of their selling, the theory says, and that's a great time to buy stocks.

...

Johnson says the market bottom is more likely to be a "process" than one single event. He's carefully watching the VIX index, a measure of volatility in the market that is traded on the Chicago Board Options Exchange. The VIX was above 25 on Mar. 25, and, through the worst of the recent crisis, the VIX has traded up to about 35. When this measure of fear hits 40, Johnson says, pessimism might finally have hit extreme, and bullish, levels.

If you look at a recent chart of a bullish market, you'll see that the market occasionally pauses, and pulls back to its 50-day moving average, before continuing along its longer-term trend. The chart below shows the Dow from October 2006 through June 2007--a bull market with a series of small pull-backs, or bull naps, along with a more substantial rest for the bull in March 2007.



The current bear market has had its share of bear naps, as the arrows on the chart below helpfully point out.



Eventually, the bear will one day go to sleep, and fail to wake up. No kids, he's won't be dead, just hibernating.

Chris Johnson in the Business Week piece kinda sorta hedgingly believes that the bear will shuffle off this mortal coil when the VIX hits 40. I get the feeling that he pulled that nice round number out of his posterior, but it can't hurt to keep track of the VIX and look for extremes in sentiment.

Here's a weekly chart of the VIX. Notice that volatility has been quite elevated recently. Also notice we are nowhere near a VIX reading of 40 right now.

FXP

The Pig picked up shares of FXP early in the day at $98.67, and just before the market close at $96.41. Together, my position in FXP is at a cost basis of $97.54.

FXP closed today at $96.98, down $9.79 or 9.17%. Intraday, FXP traded between $95.88 and $103.02. Its RSI(2) at the close was 14.61. If you click to expand the chart below, you'll see why this low, but not extremely low RSI(2) reading has been a successful buy signal in 2008.

Ultra-short ETF's on Another Big Up Day

I couldn't resist posting the stock certificate featuring a sniffing, huffing pig.

Today's big market upswing on news that JPMorganChase quadrupled the value of their offer for Bear Stearns offered me an opportunity to increase my position in DXD at a lower price. It's a good thing I didn't get filled last Thursday at $55.99, as I picked up shares at $54.205, cost-averaging my position in DXD down to $55.60 a share.

If you click on the chart below, you'll see that DXD has been trading within a tightening range throughout 2008. I am operating under the thesis that today's market action is a reaction to positive news within the context of a downward-trending bear market. With that in mind, I am looking for shares of DXD to head back up towards $62.



QID, the ultra-short QQQ ETF dropped 8.25% today, whereas shares of QQQQ gained 3.46%. The shellacking of QID drew my attention, as well as some investment dollars. I established a position at $48.39 per share. The same investing thesis holds for this position as with the DXD position. If QID remains range-bound, I will look eagerly to the $56-57 levels in the near term.

Bought and Sold

Did a wee bit of buying and selling today. Squeezed it in before the long holiday weekend. Maybe I'll actually find time to get a haircut tomorrow, since I won't have the alluring distraction of this swing-y market to keep me put between 9:30 and 4:00.

First off, I closed out my QLD position at $68.11. From a basis of $72.79, that comes to a loss of 6.4%. This was the other half of the QLD position that I mentioned in the previous post. If you consider that I had a 7.9% gain from that sale, it looks like I came out ahead 0.3%, or break-even if you take into account transaction costs.

On the buying side of the ledger, I opened up a position in DXD at $56.99, and not quite added to the position at $55.99. Almost had that order filled as the market approached the close, but I just couldn't get my bargain price.

And I fortified my holdings in ALB, adding shares at $34.15. Averaging in my other shares bought at $37.15, my ALB position currently has a basis of $34.90.

Dow Surges 420 Points on Fed Rate Cut and Earnings

Yes, the above headline appeared on the New York Times website earlier today.

Good day for the long positions, and the Dow rose a nice round number that will linger in memory long after I've shifted over to shorting the market, and back.

Speaking of long positions, since I blogged last, I added to my ultra-long NASDAQ position (QLD) on March 10 at a price of $63.46. March 10 was a very good day to pick up some long positions. March 10 is represented on the chart below by the mostly dark green column.



I closed out that portion of my QLD position today, selling at $68.50, for a gain of 7.9%. I'm still holding the QLD position I mentioned in a previous post with a basis of $65.73, as well as some shares bought at the end of '07 and beginning of '08. While that 7.9% return looks gaudy, my remaining position now has a cost basis of $72.79, so unless the NASDAQ goes on another tear, I'll be glad to sell out the remaining position (hopefully tomorrow) at a small loss.

Also closed out the ultra-long Dow position (DDM) today, selling at $72.855 from a basis of $69.90, for a return of 4.2%.

My chart shows a progression from green to pink/red. It filters out/obscures the wild market moves of the last few days.

I am happy to take these profits from today's upward surge. But the overall trend is still bearish in my view. The annotated chart below offers the pudding for those of you who want more than some words for proof. From my reading of the chart, plus my reading of The Big Picture, the Times, the Economist, etc., I am more comfortable on the short side of this market, and will look to build up those positions tomorrow via QID, DXD, and FXP.

The Wait Is Over

Sell Mortimer, Sell!

Patience paid off as I finally closed out my remaining positions in DXD and FXP. I didn't sell at the deepest troughs of today's action, but I profited nicely, posting an 8.3% gain on the DXD sale (sold for $59.00, from a basis of $54.48) and a 12.7% gain on the FXP sale (sold for $95.55, from a basis of $84.80).


Buy! Buy! Buy!

I did buy at close to the bottom of today's trading, going long on both the Dow and the NASDAQ. Each was extremely oversold at midday. Picked up shares of DDM at $69.90 and QLD at $65.73.

Patience, Grasshopper...

...kept my power dry, twiddled my thumbs, etc. Can't think of any other cliches signifying that I did absolutely nothing but watch the markets today, like a creepy voyeur holed up in an oak tree.

The Dow opened lower, and rebounded a couple of times, but it couldn't quite manage to buck the downward trend.

My RSI(2) chart is still quite green, with 12/30 Dow components in dark green, and 3/30 in light green. That compares with 16/30 and 9/30 respectively on Friday.




Hopefully tomorrow will provide a lucrative opportunity for me to close out my positions in DXD and FXP.

I will not necessarily jump into a long Dow position using DDM.

Why?

It is trickier to trade profitably on the upticks in a down-trending market. If I miss an opportunity to close out a long position in a fleeting uptick, I may not see that level again.

But the market looks like it's moving sideways.

Looking at a daily chart:



Over the last six weeks, we see that the Dow has been trading in a range between roughly 11,750 and 12,750. The market swung back-and-forth in what looked like a triangle pattern. (Not that the triangle pattern shows us anything of any import, but the eye is drawn to such orderly geometric patterns.) Nevertheless, that triangle formation looks to have ended on the 27th, when the Dow broke that 12,750 level.

A weekly chart shows that the broader trend since October has been decidedly bearish:



Right now, I am more comfortable in picking up shares that short the Dow and China, like DDM and FXP, when those markets have fleeting episodes of strength.

Another cliche, the trend is your friend, is apt. Don't fight the tape. (Gah! The cliches are relentless.)

However, I will not shy from going long in the short-term with DDM. But only when the RSI(2) is most encouraging. Until then, I wait quietly...

The Dow Leapt from Red to Green

The Pig took some profits on his short positions on Leap Day. I felt like I jumped the gun for a meager 3% gain on the sale of shares of DXD. Those shares were sold at $57.15, with a cost basis of $55.48 basis. I still hold a position in DXD with a basis of $54.48.

I got caught up in the selling atmosphere (in a good way) and unloaded shares of SDS for $64.00, from a $59.50 basis, for a gain of 7.6%, and made a quick three-day trade of FXP, selling shares for $90.20 at 3:59pm, from a $80.88 basis. That's a nice 11.5% pick-up in short order.

16 out of 30 Dow components are showing up dark green in my chart. From the 27th of February to the 29th, the RSI(2) reading for the Dow swung from one extreme to another, from 93 to 8.

I am excited for the first few trading days in March. If the market continues downward, as the bad news out of Boeing portends, I will look to clear out the remaining DXD holdings, as well as another block of FXP shares. And on the purchasing front, I will look to bolster my holdings in ALB for the long-term, and pick up some DDM for a short-term swing trade.

In spite of my eagerness, patience is the operative word for Monday. Establishing every trade on my wish-list immediately would be hasty and hoggish. After glancing over my collected RSI data, I have noticed that there's often about a three day period where the market lingers in its positive, or negative, as it is right now, sentiment. You can see an example of this in the above chart--the Dow was overbought and was mighty red from the 25th of February through the 27th. Friday was the first day in oversold territory, so we may be in store for at least a few more.