Welcome to Stock Geometry! This casual music and financial blog typically involves posts of music videos and candlestick stock charts looking at intermediate term trends. Think MTV meets CNBC. My positions fluctuate, but I’ll always disclose positions in posted stocks. You are responsible for your investments! – Dr. pythagoruz
MCLEAN, Va., June 16 /PRNewswire-FirstCall/ -- Freddie Mac (NYSE: FRE) today announced that the company has notified the New York Stock Exchange (NYSE) of its intent to delist its common stock and the 20 listed classes of its preferred stock. This notice was made pursuant to a directive by the Federal Housing Finance Agency (FHFA), Freddie Mac's conservator, requiring Freddie Mac to delist its common and preferred securities from the NYSE. According to a press release by FHFA, the Acting Director of FHFA issued similar directives to both Freddie Mac and Fannie Mae.
Freddie Mac Starts Mortgage Relief For Gulf Coast Homeowners
Freddie Mac (FRE) said Thursday it was invoking a mortgage-relief policy for borrowers hurt by the massive oil spill in the Gulf of Mexico, echoing similar moves by sister company Fannie Mae (FNM) a day earlier.
It looks like Lehman is going to be the test case where we see what happens when one of these gigantic financial institutions really goes bankrupt. Is Lehman "too big to fail," well I guess we'll find out. Up until now the mammoth firms that went under were bailed out by the gov (FNM, FRE), a bigger fish (BAC/CFC) or both (JPM/BSC). I'm excluding IMB in this because they were small compared to these others ($40B in assets).
I heard a trader use an interesting metaphor for the situation last week. When a pack of lions has a herd of buffalo surrounded, the one with the fewest connections at the edge of the herd is the one the lions will eat. Right now the buffalo at the edge of the pack are WM, LEH and MER while the lions are GS, JPM, BAC and WFC.
With Halloween approaching and blood all over markets I thought that it was time for another installment of Nightmare on Wall Street, part three. The eight below are hourly plots of some of the worst blugeoned stocks over the past two weeks. I want to stress that these are not just some no-name penny stocks that are dropping like stones in freshwater, we saw Washington Mutual drop more than 50% before rebounding a little yesterday afternoon:
And of course we all know about the governemnt sponsored entity (GSE) that manages half the US mortgage market, Fannie Mae (FNM). Thats some serious market value (about $8B) that just got decapitated:
I don't know about youbut when I look at these charts, Metallica just comes to mind. The destruction, the horror, the scale of it all, enter sandman:
Lehman Brothers (LEH), one of the biggest US financial institutions in the US, founded in 1850, is at the center of the most recent panic. LEH appears to be about to file for bankruptcy as evidenced by reports of their inability to raise capital at any cost and their rapidly declining market value (currently $3B (and falling)):
Taking a step back to look at the broader picture, the S&P 500 hasn't really declined all that much in magnitude yet but the chart is anything but bullish. The benchmark index still lies below major resistance at 1265 and the declining short and long term trendlines. Any rallies are sharp and quick to get sold, I doubt the S&P can move much higher before heading back down to test the recent lows:
So there's evidence that this relentless selling is not isolated to the financials. Take a look at Apple, ouch. Some important longer term trends and support levels have been diced on AAPL this week, I have puts:
Not even our good renewable friend JASO is immune to the power selling:
Oh, and how could I forget about AIG, it one of the dow components and the 18th largest company in the world. AIG has lost almost 30% (about $30B in market cap) since Monday morning:
This last one is more for fun since it doesn't demonstrate a significant downtrend in the short term. To keep with the theme, United Airlines (UAUA) did get bludgeoned pretty bad earlier this week when Bloomberg incorrectly reported that United had filed for bankruptcy. The stock lost nearly all of its value in a few minutes before recovering:
These must be long sleepless nights for the dudes on Wall Street. Unfortunately, the waking life does not escape the nightmares in the headlines. It seems we will be hearing news of market gore for some time to come.
My take on why this is happening now and not months ago, the strength in the dollar makes it possible. This action will no doubt end the rally in the dollar and we'll just have to see how commodities react to this news next week. While the feds talk a strong dollar they secretly love a weak one because it makes American goods and services more competitive. So this inflationary action (a bailout) is likely to put pressure on the dollar. Take a look at the US Dollar index, talk about a bear market rally, wow:
I don't think I could be more disillusioned with our government right now. Why is there no national uproar over the fraudulent activities of our central government and the federal reserve? I think since they got away with the Bear Stearns heist they think they can do anything they want. Rather than say the same things others have said I will just quote Tim Knight over at the Slope of Hope, he writes:
"I have to say, I'm both disappointed and angry. The gigantic bailout that the Federal Government is shoving through the system creates a series of winners and losers. Specifically:
Winners
The CEOs and other executives of FNM and FRE, all of whom pull down seven-figure and eight-figure salaries and have pulled one of the great corporate heists in business history
The lower-middle class blockheads that gobbled up real estate at sky-high prices, thinking they would be the next Donald Trump, who are going to simply walk away from their "investments"
The shareholders of FNM and FRE, who have been spared a $0 stock
Losers
All the citizens of the United States, particularly those who pay taxes
Honest, hardworking people that got mortgages through honest means, pay their payment promptly each month, and have received no help or favors from anyone (I am pointing not-so-subtly at myself right now.....)
So the honest and hardworking folks are the fools. And the charlatans and crooks are the winners. And the entire country slips that much closer into oblivion with this travesty."
So ignoring the insane and fraudulent activities of the US government for a minute, how do we protect ourselves in this environment? Obviously, you can short stocks but that makes people nervous and you must get the timing right or have nerves of steel. Jim Rogers recommends buying China and agriculture commodities and I like those ideas. It seems like the most straightforward thing to do is to buy things that will benefit from a collapsing US dollar. Generally speaking that means foreign currencies (FXE, FXA, FXY, etc) and commodities (DBC, DBA, USO, GLD, etc). Any other ideas?
In the midst of this market meltdown almost every stock looks like a great short. Tonight I just want to throw out some specific 6 month charts that I think demonstrate the scale of the collapse and offer big opportunities on the downside. I will start with charts that look the worst and then show you better looking situations. The result will be that the more conservative (lower risk, lower reward) plays are first then I'll get to the really aggressive (higher risk, huge reward potential) ideas. Be sure to click on each chart to see the details of my thoughts on the charts including support, resistance and targets. These are the days that bears wait years for, enjoy!
Sears Holdings/ Kmart (SHLD): Home Depot (HD): Fannie Mae (FNM): Bank of America (BAC): Intel (INTC): Google (GOOG): And my favorite of all shorts in the entire market right now is FSLR. Not only do I think that wallstreet has this stock fundamentally wrong, its also gone up a ton with few pullbacks to create support. I'm looking for a $100 drop in this stock in a short period of time.
First Solar (FSLR): Just one cautionary note. When things look worst that is usually the best time to take profits on shorts and things look pretty bad right now. I am of the mind that we began a new scale of decline last Friday and things are about to look much, much worse. I have been wrong before though and I am constantly worried of some emergency move by Bush, Paulson and Bernanke to try and wipe out shorts. They have done things like emergency rate cutes before and I expect the bulls to go down kicking and screaming. So just be on your guard and take profits casually on the way down while aggressively shorting the rallies. Its time to start acting like bears!
Disclosure: I own BAC, FNM and FSLR puts and I wish I had puts on all of these.
