Friday, February 29, 2008

More Talking Heads For Your Auditory Pleasure

I found myself watching more Talking Heads tonight to end this sweet week (for those who are short out the wazoo like me) and I thought I would post a few more music videos. No one has commented on these Talking Heads videos, do you guys love this stuff or what? This may be one of the most under appreciated yet greatest bands of all time, in my humble opinion.

I could listen to this stuff all day long.

Damn, I love that babe on the bass, she has some serious rhythm.

And I'll leave you with this one...

I realize most people probably didn't watch all of these, but to be honest I will come back to this post and watch these again and again, so its a worthy post in my eyes. If you actually watched all of these leave a comment.

This Must Be The Place (Naive Melody)


I love this song, its probably one of my favorites of all time. I just can't get enough Talking Heads, click here for the lyrics. My guess is most of you have seen the film that this song famously appears in, anyone know which one? Hint: Oliver Stone directed it.


Update on the Horror Show

Last weekend I mentioned that this week's economic data was likely to read like a horror show. Well, how did things turn out? Here is a brief summary of the data points this week:

Track One is falling home sales:
"Purchases of new homes in the U.S. fell more than forecast in January as lending restrictions and plummeting prices kept buyers away.

Sales dropped 2.8 percent to an annual pace of 588,000, the fewest since February 1995, from a 605,000 rate the prior month, the Commerce Department said today in Washington. The median price slumped a record 15.1 percent from a year earlier." -source

S&P Case-Shiller Home Prices Show 9.1% yoy decline for December

Track Two is inflation:
"On Tuesday the government announced the Producer Price Index rose 1.0% in January, while core inflation, stripping out food and energy costs, rose 0.4%. The PPI measures inflation pressures before products reach the consumer...

"It was a lot worse than expected," said David Wyss, chief economist at Standard and Poor's, "and it shows the problems the Fed has with fighting inflation while also fighting recession." To keep the economy from slowing too much, the Federal Reserve has been cutting interest rates, but in doing so it risks creating a monetary environment conducive to inflation." -source

Track Three is a manufacturing slowdown:
"Orders for U.S. durable goods fell more than forecast in January as a slowing economy prompted companies to reduce spending...

Companies have put investment plans on hold as consumers rein in spending in the face of the biggest housing slump in a quarter century and near-record fuel costs. Federal Reserve Chairman Ben S. Bernanke, testifying before Congress today, may reiterate that policy makers are ready to keep lowering rates in a bid to avert a recession...

Other factory surveys in recent weeks have shown weakness. The Fed Bank of Philadelphia's index of business activity for February fell to the lowest level in seven years, while a New York Fed survey showed manufacturing in the region contracted for the first time in almost three years." -source

Track Four is flagging economic growth and job losses:
"The U.S. economy expanded less than forecast in the fourth quarter as domestic spending declined and exports prevented an overall contraction.

Gross domestic product rose at a 0.6 percent annualized rate, unchanged from the initial estimate last month, after a 4.9 percent gain in the third quarter, the Commerce Department said today in Washington.

"The first quarter will be ugly,'' said Joseph LaVorgna, chief U.S. economist at Deutsche Bank Securities Inc. in New York. "The strength of exports is what would keep us out of a recession if we don't go into one.'' ...

The Labor Department said initial claims for unemployment insurance climbed 19,000 last week to 373,000, higher than forecast. The level was the second-highest since a surge in claims in the aftermath of Hurricane Katrina in 2005.

"We have absolutely no momentum going into the first quarter,'' said Josh Shapiro, chief U.S. economist in New York at Maria Fiorini Ramirez Inc. "Things are looking pretty grim for the economy. If we're not in a recession already, we're very close.'' -source

Track Five is the consumer spending drop:
"Consumer spending in the U.S. rose more than forecast in January, reflecting a jump in prices that is eroding Americans' buying power.

The 0.4 percent rise in spending followed a 0.3 percent gain in December, the Commerce Department said today in Washington. The Federal Reserve's preferred measure of inflation climbed 0.3 percent, the most in four months.

After adjusting for the increase in prices, spending stalled for a second month, raising concern the biggest part of the economy is faltering as fuel costs rise, property values fall and banks restrict lending. Federal Reserve Chairman Ben S. Bernanke this week signaled the central bank is prepared to again lower the benchmark interest rate to revive growth." -source

And how about that ABK "bailout": Never materialized, or as they say on CNBC it "hit a snag."

You can't make this stuff up folks, things are getting ugly out there.

Thursday, February 28, 2008

Never mind the Triangle

There has been much talk on the charting blogs about "the triangle", which recently broke to the upside. Despite that upside break there is still substantial resistance on the charts. Here are two that I noticed today.




When you add the momo indicators of RSI, CCI and even stochastics you can clearly see a short term market top. The cheerleading media notwithstanding, eventually this weeks round of real news will have to take effect.

disclosure: I own DIA puts.

Wednesday, February 27, 2008

Bizarre Action in the Wheat Market

" Instability characterized U.S. grain markets Wednesday, featuring bipolar trading in wheat futures, which forced some prospective buyers to pull all cash bids.

Winter wheat futures closed about 80 cents a bushel higher on the day, even though cash contracts of spring wheat plunged 5-10%.

"Iraq bought 550,000-600,000 metric tons (20-22 million bushels) of U.S. hard red wheat overnight," said a CBOT market report. "The Iraq buying was partially offset by news that Japan (recently a major buyer of spring wheat) canceled their weekly wheat tender."

With spot wheat futures now seeing daily trading ranges of $2-$3 per bushel, and neither buyer nor seller confident of current market values, export basis bids for all classes of spring and winter wheat were left completely unquoted by USDA late Wednesday.

At this point, it is difficult to rationalize what has happened in the wheat market," said Benson Quinn Commodities analyst Dave Lehl. "Fear and greed have become the predominant factors driving price direction for wheat."" -read the full article at futuresource.com

This certainly could help explain why DBA, an agriculture exchange traded fund (ETF), made a new all time high and traded the heaviest volume ever today:


*Update: One dead body so far, or should we call this guy a rogue trader?

Tuesday, February 26, 2008

Big Money Flows Out of Index ETFs

"In the past five trading days, U.S. equity exchange-traded funds redeemed $5 billion ($997 million daily). Futures-related ETFs redeemed $6 billion, non-futures-related ETFs issued $2.6 billion and short ETFs issued $1.1 billion. ...

The leading redeemers were Spiders (amex: SPY), which redeemed $3.7 billion (5.4% of assets); iShares Russell 2000 (amex: IWM), which redeemed $2.1 billion (25.4% of assets); and PowerShares QQQ (nasdaq: QQQQ), which redeemed $1.2 billion (7.8% of assets). ...

Based on the flows of ETFs, which are traded mostly by institutional investors, portfolio managers are either betting heavily on further market declines or using ETFs to hedge long positions in other investment vehicles. Futures-related ETFs redeemed $6.1 billion (3.7% of assets) in the past week and $11.5 billion (6.9% of assets) in the past two weeks.

By contrast, short ETFs issued $1.1 billion (10.1% of assets) in the past week and $1.4 billion (12.5% of assets) in the past two weeks. " -read the full article here

Slippery Currencies



SPY to test 50 dma

Monday, February 25, 2008

Poor GOOG

Oh, you know I can't resist myself...

Forclosure Arson

Compressed Volatility (SPY Update)


Here's the update to my Valentine's Day post. The symmetric triangle/pennant/wedge continuation pattern that everyone seems to be talking about came to apex late last week. I figured with all the bad news going around and the primary downtrend in place that the break out be decisively lower but instead the market has decided to chop back and forth in a narrow range for the last week. Most intermediate indicators are looking neutral and volatility seems to be getting compressed as the market waits for...? As I mentioned yesterday, there will be a ton of economic data next week and certainly disastrous earnings from the likes of Fannie Mae, Freddie Mac and most homebuilders. Perhaps that is what the market awaits before the next big move? While you know I am pretty convinced that this market is going to break down bad and soon, the chart is saying there could be a pop first. With certainly, I am definitely expecting volatility to explode (a big move) next week, one way or both.

Speaking of compressed volatility...



And speaking of exploding volatility...



Disclosure: I own SPY puts.

Sunday, February 24, 2008

The Leading Indexes: Crosseyed & Painless




Disclosure: I own QQQQ puts and if anyone else was wondering about the plural spelling for index click here.

Saturday, February 23, 2008

Deluge of Economic Data (aka The Horror Show)

"The large batch of economic data due out next week reads like a lineup for the soundtrack of a horror show for financial markets.

Track One is falling home sales. Track Two is inflation. Track Three is a manufacturing slowdown. Track Four is flagging economic growth and job losses, and Track Five is the consumer spending drop. All these tunes will play over a drumbeat of retail earnings reports, where the outlook is not upbeat." -source


"The market will be greeted Monday with January existing home sales, which are expected to fall slightly. On Tuesday the February Producer Price Index, a key inflation measure, is due before the open, as is the Case-Shiller home price index for December and the entire fourth quarter.

Tuesday also gets February's consumer confidence reading, followed Wednesday by a report on durable orders from January, new home sales, and the weekly mortgage application figures.

Thursday features perhaps the most important piece of data for the week, a preliminary reading on fourth-quarter U.S. GDP. Economic growth is expected to tick higher after a 0.6% reading in the third quarter but remain slow. Various reports over the past few weeks have shown signs of sluggishness, especially in manufacturing. Soaring commodity prices have also fanned fears of inflation.

Last week was mixed, but mostly negative, for U.S. stocks. Even after a late rally pushed the market to a gain Friday, the Dow still fell 0.7% for the week, the S&P edged 0.4% lower, and the Nasdaq dropped 1.8%.

In corporate news, CNBC reported Thursday that a bailout plan for struggling bond insurer Ambac Financial Group could be announced as early as Monday or Tuesday." -source



Yeah, I'm just going to let other people do the writing and contribute nothing more than another Talking Heads video. We have no shame here at Stock Geometry. Next week should be fun.

Saturday Rock Blogging: Psycho Killer

Thursday, February 21, 2008

Subprime Cartoon

I got these from a longer cartoon called "Subprime Primer" that my Dad emailed me. I'm not sure who the original artist is but this cracked me up. Its always good to have a sense of humor about this stuff.
















If you are wondering how this song relates, check out the lyrics here.

As funny as that is, there are some serious problems with the global financial system as a result of those Wall Street assholes. I saw this article this morning: German State Owned Banks on the Verge of Collapse

And she's buying a stairway to heaven... (with gold)


Wednesday, February 20, 2008

One Article

In my opinion, the current failures in the bond auctions are more than capable of inducing the so called Spitzer Tsunami. The situation in the municipal bond markets gets worse daily, almost hourly, as investors are fleeing those markets.

But there is no need for me to write it up when someone else has done a much better job than I ever could. If you read one article today, this one is it;

http://www.financialsense.com/fsu/editorials/cherniawski/2008/0219.html

Tuesday, February 19, 2008

Monday, February 18, 2008

What goes up must come down? (3 yr charts)

RIMM
PCU
FSLR
DRYS
DECK
MOS
LED ZEPPELIN

MON

POT
AAPL
GME

Disclosure: I own DRYS, FSLR & RIMM puts. Also, Led Zeppelin calls.

IOTN (USHG) to hide under a new name (AERG)

"TUCSON, Ariz.--(BUSINESS WIRE)--Ionatron, Inc., (Nasdaq:IOTN - News), today announced that effective February 20, 2008 it will change its corporate name to Applied Energetics, Inc., and the company's shares will begin trading on the NASDAQ Global Market under the ticker symbol "AERG". The name change reflects the transition of the company from its roots in directed energy weapons research, to its emerging mix of engineering and production programs for military, aerospace, and industrial customers.

Commenting on the name change, Applied Energetics Chairman, President and Chief Executive Officer Dana Marshall stated, Our company has moved well beyond our foundation in scientific discovery. Our new name is intended to better express this focus on delivering practical capability, and reflect the broadening of our targeted markets and applications. Our customers have embraced our innovative concepts for guided energy, and today we are meeting their needs for well engineered production hardware for their real-world applications. We also hope that this new name will highlight the significant changes weve made to our management approach as we have matured this business over the past two years.

In conjunction with the name change, the companys new website www.appliedenergetics.com will be online starting February 18, 2008." -source

You can change your name, but we won't forget. It looks like Robert Howard and Thomas Dearmin ditched a while ago, what a sorry story that was:

Nov 11, 2005: "Tucson-based Ionatron Inc. says testing is on track for a device intended to detect and destroy improvised bombs for the U.S. military in Iraq but that details remain top secret.

Ionatron Inc. Chief Executive Thomas Dearmin told analysts the company's Joint Improvised Explosive Device Neutralizer has been tested by the military, "and they have determined the units have military utility."

He said the military has asked for pricing proposals for production quantities of 50, 500, 1,000 and 2,000 units.

The devices are supposed to detect improvised bombs, which are responsible for most of the deaths of U.S. soldiers in Iraq, and destroy them with an electrical pulse.

Dearmin said the company's Stennis, Miss., manufacturing plant is being readied for production, but it is unclear when any contract would be offered or signed.

"They've asked us to ramp up the Stennis facility for production, and we're doing that on our own," he said.

An official of the Defense Department's Joint IED (Improvised Explosive Devices) Defeat Task Force would confirm only that the Ionatron devices remain "under testing.""

It was a real shame that none of these things ever materialized yet Dearmin walked away with almost $10M in stock sales in 2006 and 2007. Furthermore, he still owns over 7M shares even after the insider trading scandal!! I remember owning shares when USHG changed their ticker to IOTN and when they took it to the Nasdaq, it seems like such a long time ago...


Their old site is still up here, anyone have a link to that first presentation with Star Trek and Terminator 2 images? That was classic. I guess they'll have to change the acronym for their new "laser group."

Sunday, February 17, 2008

Some Quotes

"Ambac Financial Group Inc. is in discussions to effectively split itself up ... A halving of Ambac would create one unit that insures municipal debt and one that would cover rapidly diminishing securities tied to the mortgages in a structure that effectively creates a so-called "good bank" and "bad bank."" -source

"Regulators' plans to break up bond insurers into "good'' businesses covering municipal debt and "bad'' businesses liable to subprime-related losses may trigger "years of litigation,'' Bank of America Corp. analysts said.

"It is the equivalent of going to a casino and trying to keep only the winning bets,'' said Tim Mercer, chief investment officer at Hong Kong-based hedge fund Musashi Capital Ltd. "This would be a straightforward case of fraudulent conveyance and everyone involved would be liable for damages from deprived creditors.''" -source

"Australia & New Zealand Banking Group Ltd. fell to a 2 1/2-year low in Sydney trading after Chief Executive Officer Michael Smith said the "bloodbath'' in debt markets will erase profit growth this year.

"Credit costs are going up, well above underlying earnings growth,'' said Smith, who joined ANZ from HSBC Holdings Plc last year, in a webcast briefing. The Melbourne-based bank, Australia's third largest, will also take a $200 million charge for derivatives linked to U.S. debt insurer ACA Capital Holdings Inc." -source

"Chancellor of the Exchequer Alistair Darling said the U.K. government will nationalize Northern Rock Plc (Bank) because bids from private companies didn't ensure taxpayer loans to the struggling lender would be repaid quickly enough." -source

This clip is from last September:


"Bank of America Corp. will join the Dow on Feburary 19th... Coincidently, analysts at investment researcher Morningstar Inc. made a bold prediction for the Dow to rise 50% by this time in 2011 -- more than 6,000 points -- just as Dow Jones & Co., publisher of MarketWatch, announced the index changes." -source (lol)

"The housing market continues to fall deeper into recession,'' said Michelle Meyer, economist at Lehman Brothers Holdings Inc. in New York. -source

"I don't see a housing market recovery right now,'' said Mason, 43, who predicts Treasury yields will fall as investors continue to buy the debt as a haven from losses in higher risk markets. "People can't get a mortgage'' because "banks are restricting access to credit,'' he said.

Declining property values are also making it harder for a growing number of homeowners to refinance. By year-end as many as 15 million households may owe more on their mortgages than their homes are worth, according to an estimate from Jan Hatzius, chief U.S. economist of New York-based Goldman Sachs Group Inc."-source

"Guy de Blonay, Philip Gibbs and Kokkie Kooyman, the managers of Europe's three best-performing funds focused on financial companies, say they're buying bank shares after an 11 percent decline in a benchmark index in 2007.

"We never saw the collapse in subprime happening to the extent it did,'' said Kooyman, who's based in Cape Town and whose fund is registered in Dublin. "But we'll always find shares somewhere that we think are cheap.''" -source (lol)

"Former Federal Reserve Chairman Alan Greenspan said the U.S. economy is on the verge of its first recession in six years as falling home values hurt consumer spending. "We are clearly on the edge,'' he said.

"Home prices will continue to weaken,'' the 81-year-old former Fed chief said. "When a bubble breaks, you go to primordial fear.''"-source

Feel free to add quotes xerxes, btb and indigo.


Coiled PCU

I'd be inclined to short it here with a tight stop at the 200 dma of $101.83 with an initial target of $86 and a longer term target of $70 ish. But really any break of the tight recent range ($99-$103) would be very meaningful. Whats most important for the longer term is a close above the 200 dma or a close below the 50 dma ($98.10). But be warned, this stock could still be in a long term uptrend.

Sunday, February 10, 2008

Scuba Diving, Snowboarding, and Daytrading. Life is Good!

Well pythagoruz is taking some time for vacation and I just got back from mine, so I'll put up a couple of trade ideas, and hopefully we'll get a few ideas in the comments section too.

I'm all cash at the moment and looking for a couple of small positions, taking note of the fact that options expiry is this Friday. Looking at the upcoming earnings, I see KO reporting Wednesday and as the stock is trading off its highs I am tempted to go long this one. KO is one company that benefited from the weakening of the US dollar in 4th quarter of 2007. I'm also impressed by last weeks strength in PEP, on similar reasoning.

Analysts from various firms are dueling it out with upgrades and downgrades on beverage sector stocks, but I prefer short term trades for good reason, and never mind the long term.

I'm looking to buy the KO Feb $57.50 call, probably some time early Tuesday.

I see the housing stocks popped while I was gone. Emergency rate cuts can do that of course, but the recent earnings reports in that sector still supports the bear position. As positions go though, it's a crowded short. Covering of short positions probably explains much of the recent move in stocks like MDC.

The MDC Sept08 $35 put priced at $3.20/$3.50 has caught my eye. There is plenty of time for bad news to develop in the housing sector between now and then. But as I don't see a catalyst for a downside move in the near future, I'm keeping my powder dry for now.

That's one long, one short from me. So what are you trading, or looking at? Let's hear your ideas in the comments section, and maybe we'll see you in our daily chat.

Update: I bought the Feb KO $60 calls at the open, on good results from CCE.

Saturday, February 09, 2008

Blogger Gone Skiing

In a bout of perfectly lucky timing I will be on vacation next week. The markets look poised to stay in the recent range by drifting higher next week ahead of the February options expiration. Even with Thursday's big rally, the S&P 500 closed the week down a whopping 4.68%! On Tuesday morning we saw a sobering ISM report which led to most of the weeks declines following the bullish euphoria the week before over lower interest rates. Looking at the charts, the market seems to be doing pretty much the same thing it did last time the fed cut rates as scheduled:

As you can see above, the market has moved into what looks like a pretty reliable channel downwards. In particular, I'd like you to note what happened the last two times the federal reserve had a scheduled meeting where they cut interest rates. The market rallied up to the event (blue lines), popped on the news, then began the next leg lower. In fact, if you shorted stocks into the rate cuts you would up huge in the last few months. However, given last Thursday and Friday's action it appears as though we will drift higher back up to the upper end of the channel next week. The chart appears to be shaping up exactly like mid December (see orange circles) when there was a relief rally after the initial decline following the rate cut. Once that upper trend line got tested in December, the market sold off hard and made big declines to new lows. I have also noted in the chart our target below the recent lows of $126.

Thats a long winded way of saying I am expecting SPY to rally up to around 136 next week or about 12,500 on the dow, maybe a little higher. This will be a much safer area to re-enter or add to shorts before the next big decline. Personally, I am still short with some hedges because since I'm going skiiing next week I won't be able to play any upside moves. Furthermore, the downside opportunity greatly outweighs the possibility of getting in at better prices. Now for a few individual charts that have been on my mind lately.

Last Wednesday I began to get bearish on RIMM after the CSCO ceo said he had "confirmation of a continuing stream of data points we've gotten in the past two months that business is decelerating." This can't be a good sign for the RIMM which has made a name for itself supplying the savy businessman a smart phone. Ok sure, we knew that consumers are hurting and that side of RIMM's business would probably take a hit. That explains part of the recent decline in RIMM's share price. But now that business spending is slowing too, that could really do some damage to RIMM's bottom line. I'll be sure to do a bigger post on RIMM at some point. For now, just check out the chart:


I want to congratulate UpNorth for making a great call in chat on Friday for a strong close on RIMM, nice one! To me the chart has clearly topped and I thought that the break of it's 200 dma would lead to a sharp decline late last week. But RIMM found support in the $80 area (and at its 200 dma) and was able to run following the CSCO earnings report Thursday despite the obviously bad news. I think there is a decent chance that RIMM could rally back up to strong resistance around $100 where it will be fantastic short in my view. But once again, in my view the downside (my target is $60 in the chart above) greatly outweighs the upside or the potential to get short at better prices.

Another stock that came to mind last week was one that I got burned on last year by getting short way too early. SIRF dropped more than 50% last week after a weak quarter and a disappointing outlook:


Right after I discovered the stock's downtrend and started getting bearish on it, Wall Street firms began to pump it like crazy. There were upgrades and all sorts of bullish articles on yahoo that began appearing so I lost money and go out. By the way, SIRF makes GPS chips for hand held devices like car navigators and blackberrys (RIMM). Anyways, I learned a couple of things from this situation:
  • Never underestimate the stupidity of wall street analysts
  • Stocks can fall much further than most expect
  • Be patient
  • The device stocks are in trouble (RIMM, GRMN, AAPL, etc)
Ok, thats most likely the last post from me for a week but we'll see, I might be inclined to do a post if something big happens. I'll be in Jackson Hole, Wyoming surfing the snow and hoping to forget about the markets. Good luck out there!



Disclosure: I own CSCO and RIMM puts.

Saturday Rock Blogging: Jamming


In honor of Bob Marley's birthday I wanted to pay a little tribute to one of the greatest musicians of all time. Marley was born on February 6th 1945 and would have been 63 last week. He died on May 11th 1981 but is his spirit lives on in music.

In these times of trouble, it never hurts to throw on some Marley. His music eases the mind and soothes the soul.

Stock Geometry readers expect new lows in 2008


In our second poll, we overwhelmingly (88% of voters) agreed that we expect new lows on the S&P 500 this year. I actually started this poll before that 5.6% decline last week, so since having put it up we have cut the distance to new lows by about half. Nice call so far! I should note however, that the poll closed Tuesday night and I called for readers to vote on Monday after only receiving 15 votes. So at least some of the extremely bearish attitude of the voters can be contributed to the 370 point decline on the dow Tuesday due to the service report that suggested that we have plunged into a recession.

Ok, so why did I put up this poll? Well, you know I have my opinions about the market, stating the obvious here, and yeah I think we are going to make new lows in 2008. In fact, I think we are going to make the recent lows look like a great place to have sold in 2008 (and making selling here even better). I have a number of reasons why I feel this way and I'm sure the readers do to. But sometimes this blog can feel like a one way street and feedback is always good. I have much respect for the readers of this blog and I value your opinions greatly. With the mainstream media spewing all sorts of junk at us about the economy and the stock market at us, I really wonder if people buy it. Its especially encouraging to know that there isn't as much uncertainly in the minds of our readers as there seems to be in the media.

Please in the future feel free to comment regularly. I've seen some really great communities of traders/investors get built out of a blog in the past and I hope that we can achieve something like this here in the future.

Thanks for your participation and I'm glad that we are pretty much on the same page now. Any thoughts?

Wednesday, February 06, 2008

Monday, February 04, 2008

Don't forget to vote


Our second poll will be concluding tomorrow and I want to know what the typical Stock Geometry reader thinks right now. It certainly feels like a cross roads for the US economy, the markets and politics to me but I've been wrong before. I would really like to encourage every reader vote, regardless of how frequently you participate or how certain you might be. There were almost 1000 unique visitors here in the past month but only 15 votes so far. You have until 5 am EST Tuesday night to get your vote in, what say you!?

In the last poll we did here you called the top on a 5 year run in stocks and so far that looks like a pretty incredible call. Making new highs or making new lows will involve a big move from here and the outcome could validate or negate the last prediction (end to the bull market).

On another note, if you live in a super Tuesday state like me (IL), tomorrow is your day to vote in the primaries. If you are undecided I urge you to give some thought to Dr. Ron Paul, he has my vote.

Also check out Tim Knight's new video, I'm jealous of his positions.

Sunday, February 03, 2008

Dr. Shiller on the Housing Market

Pop then drop?

I should really listen to myself more often. Back on Jan 23rd (1.5 weeks ago) I said: "This rally is going to go far higher than anyone expects and many will be suckered into thinking the bears are dead and the bull is back. I expect the major indexes to retrace at least back up to their 50 day moving averages, probably more." As you can see in the S&P 500 chart below, we are still about 2.5% below the 50 day moving averages that I had been targeting yet I got suckered into getting short on Wednesday by the hammer reversal.

While the pullback completed on the dow jones, it technically has not on the S&P 500 or the Nasdaq. Furthermore, the 50 day moving averages (where I like to enter positions) are a bit higher up. The Nasdaq 100 is actually 7.4% below it's 50 dma, which it no doubt due to the recent disappointing earnings from bellwethers like AAPL, INTC and GOOG. So potentially, the Nasdaq 100 (QQQQ) could see a decent rally here, much more so than the other indexes. Looking at the chart below I can see two possible scenarios. If the QQQQ breaks resistance at $46 then there is nothing to stop it from popping up to the confluence of the 50 dma, 200 dma and breakdown point at $49. So if QQQQ breaks $46 I'm out of my QQQQ and AAPL puts in a hurry but I will be sure to jump back in up at $49. On the other hand, if the cross of death turns out to be a good sell signal and $46 holds back the QQQQ, then the next leg lower could begin in earnest. Either way we are going lower in my view, its just a matter of whether there will be one last big squeeze here or not.


For aggressive traders who want to play the pop, I like SIGM and WFR best. For the next big slide , FSLR and AAPL are my favorites in tech. For longer term investors, I think this will be a great week to sell/short stocks no matter what happens.

Disclosure: I am very short (QQQQ, AAPL, BAC, FNM, MDC...) but also I own some JASO calls.

Some news bytes:

Profit declined 22 percent yoy for S&P 500 components
Credit card companies telling "risky" customers to take a hike
Most Yahoo employees: "there is no way in hell that I am going to work for Microsoft."
Homebuilders face growing threat of bankruptcy
In America, the land of bubbles, the next pop will be biggest