Market Summary - AIG get Bail-out from the US Government

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That’s another fine mess you got us into…

… Laurel and Hardy

 

American International Group (AIG), a publicly traded company and a ‘for profit’ corporation has been rescued by the US Taxpayers.

AIG was unsuccessful in obtaining the necessary capital from the private sector in recent days and turned to the Federal Reserve & US Treasury for help. And help they got, to the tune of $85 Billion Dollars. (see our previous post for the press release). So while it appears that common and preferred shareholders of AIG may be wiped out, the company will be able to meet it’s financial obligations to the rest of the financial community, for now.

This was, in some way, an even more bizarre trading day on Wall Street then yesterday, when we lost over 500 points on the Dow Industrials. We gained 141 points, but it was like watching a demolition derby. All day long the market gyrated on every rumor of what might happen with AIG. In the end, the market was able to build up enough momentum to hold the gains. When the bell rang we were left with the following:

Dow Industrials: Up 1.3%

Nasdaq: Up 1.28%

S&P 500: 1.75%

The gains today were not enough to erase yesterday’s huge losses. But, it did create the potential of another ‘bear market rally’. I sense that the jubilation of AIG not filing for bankruptcy will be short lived, because it all comes back to the credit markets and the economy, both of which are still deteriorating.

S&P 500 futures are up to 1225 at the time of this writing. The market closed at 1217, so the AIG news has lifted the futures 7 points. Not as much as one might have expected, following a bail out of AIG. But it shows that there are some smart people out there who understand that the AIG bailout is only a fix for a symptom, not a cure to the illness. It’s the taxpayers who are being forced to buy the cold and flu pain relievers.

Remember Bear Stearns? Everyone thought that was the end of the crisis and the market rallied.  We know how well that ended! What makes this bail-out any different?

Our view remains unchanged, in light of tonight’s events; we remain in a bear market.

The S&P 500 chart shown below reveals that the lower channel line I identified in the video last night provided support for the market today. Where we go from here in the short term is unknown. The market is highly charged over this recent news concerning AIG. I sense that any rally will be quickly sold down.

 (S&P 500 - Daily Chart)

 

 (Gold [GLD] - Daily Chart)

Sunday Thoughts for August 10th 2008

First off I want to welcome you to the newly designed RebelTraders site. I hope you find it pleasing and I welcome any suggestions or comments. Remember that you can always find our email addresses in the ‘About Us’ page.

I want to go over some charts tonight. The S&P 500 and Gold (GLD). First we’ll cover the S&P 500.

(S&P 500 - Multi Year Chart)

On the multi year chart of the S&P 500 index I have drawn the primary trend lines. On this chart it is clear that the bull trend that was in place over the last four years has been ‘broken’.

 (S&P 500 - Daily Chart)

The daily chart shows the significant resistance levels which is identified by the bearish trend lines (the two downward sloping lines), and price level resistance shown by the blue rectangle.

 

 (S&P 500 - 60 minute chart)

Attempting to gauge how far the current counter trend rally will go, or how long it will last is extremely difficult at this time. The geopolitical events currently unfolding will have an impact on the markets and every bit of news will either be a boost upwards or a new weight applied on top of the market and turn it back down once again.

All geopolitical events aside, the economy continues to weaken further and it remains our view that this continued decline is not priced into the markets yet. While it is true that the market is the greatest discount mechanism and always trades on future expectations we feel that the market is short sighted at this time.

On to Gold. There is a substantial debate in the media and other circles about oil and gold. It is an interesting human trait that reveals itself whenever there is a market direction change, even a short one. Those who would say oil was going to $200 and provided all of the reasons why suddenly change their mind and follow the mainstream euphoria. And they suddenly change their reasons of why it will now go lower. Instead of sticking with their original thesis they flip flop to be “in favor with the majority hope”. Everyone hopes that crude oil will continue to go down (well, except OPEC) and analysts change their long term views to be inline with the newly fueled (no pun intended) excitement.

Same happens with Gold. I have been trading Gold (GLD) in two different portfolios. One a short term swing trade, and the other is a longer term account. Over the past few days an interesting pattern has emerged and has kept me in my GLD position. I am still holding GLD on the long side and I do anticipate adding to that position.

  

 

Over the coming days I will fine tune our new web site. Bear with me as ‘tweaks’ are applied.

Good night to all and see you in the morning…

S&P 500 Charts - July 17th 2008 - Technical Analysis

The following charts are that of the S&P 500 Index. Each chart highlights a different perspective in time and method of analysis.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Stock Market Summary for March 17th 2008

Today’s movements in the market was very erratic, confusion in the market was quite evident. Strong selling volume right after the opening bell with a quick short covering rally that only took 10 minutes to get underway. That took the S&P back up to where the market opened by around 11:00am. From there we saw a steady flow of selling which took us down to new intra day lows around 12:30pm. That is where the ‘confusion factor’ really picked up in intensity. The remainder of the day it became a battle of those who are betting that the Federal Reserve will cure all ailments and we have only one direction to go, up. And then there were those who kept selling right alongside those who were trying to rally the market upwards.

Insanity in the market is prevalent everywhere one looks, and I have to say this "thank goodness I have access to the Bloomberg Financial channel", for CNBC has become so lame in their coverage of events that it is sickening. Their floor walkers continue to transverse the aisles of the NYSE talking about how "resilient" the market is, or that "the bottom is in". They are feeding the hunger of those retail traders / investors just waiting for someone to tell them it is time to start buying. I assure you that the smart money managers in the world do NOT listen to what is said on CNBC. CNBC is solely geared to the retail money and it is retail money that has yet to completely acknowledge the gravity of the situation at hand.

I said that people are expecting the Federal Reserve to cure all ailments. The situation with Bear Stearns over the weekend was a surgical removal of a cancerous tumor by Dr. Ben Bernanke and his trusty nurse Hank Paulson Ratchet (for our foreign readers, definition of what nurse ratchet means). Lets make sure we make an important distinction here, when we refer to the ‘financial system’ we are talking about the backbone of our economy which is the exchange of money from one bank to another, the flow of credit, etc. When we refer to ‘the markets’ we are discussing the stock market and the trading of equities. We all know by now that the health of the economy and in turn the financial system has been deteriorating. The US financial system has cancer and it is spreading. Bear Stearns’ implosion represented a large cancerous tumor that was about to explode and spread sepsis throughout the entire financial system unless it was surgically removed right away. Banks and other financial institutions are growing tumors within the entire system, threatening the life of the financial system. The US Government has been trying to cure the cancer by treating the symptoms and not the disease. The constant rate cutting by the Federal Reserve makes the market feel all warm and cozy for a short time before the pain starts up again, and then it wants even more. All the while the cancer that has been working its way through the body of the financial system has been growing.

Bear Stearns was a cancerous tumor that was about to spread a life killing toxin throughout the system and it had to be removed. So with the help of the the JP Morgan surgical center, Dr. Bernanke and his nurse Hank Paulson Ratchet, performed a swift removal of the tumor before it could infect the rest of the body any further. Instead of practicing preventative medicine from the beginning of this crisis the Dr.s have only been doing pain control and the occasional tumor removal in order to sustain life, albeit on life support that it is.

What happened to Bear Stearns should have never had to happen, if only the Government had been responsive to this situation early on instead of constantly saying that everything was fine with the economy it would have never gotten this far and this bad. Eight thousand employees of Bear Stearns are now going to be unemployed because of the inactions by the Government. Don’t get me wrong here, Bear Stearns deserves plenty of credit for their own demise as well as they needed to tell the truth of their condition. They have been hiding behind level 3 assets for so long that when JP Morgan went into Bear Stearns HQ over the weekend to do the due diligence they found the situation so bad that they felt the company was only worth $2.00 per share. Two bucks! Do you see the gravity of this? A company that had been telling the world they had good cash flow, healthy liquidity, and so on was now worth only $240 million dollars when it was discovered just how much toxic paper they were keeping hidden in the closets. If every financial institution (bank, brokerage, investment house, hedge fund, etc) were to bring their level 3 assets out of the basement and put a value on them at current market rates then the earning of the those companies would nose dive instantly. These financial institutions are playing a shell game with what they are leveraged to and to what extent!

The only reason Bear Stearns got in trouble was that they could not contain the losses and they had to call the Doctor. Instead of revealing to the public (and they were a public company) what their problems were, they lied to their shareholders and the general public. And then secretly went to Bernanke for help. All the while screwing the average share holder of the stock.

Now what happens? How many operating room ‘tumor removals’ will Dr. Ben and Nurse Hank Paulson Ratchet be able to keep doing in the name of keeping the financial system on life support? The housing market and home values will not be cured by rate cuts, consumer spending will not be cured by rate cuts, and the $600 check being mailed out to everyone shortly will be used for paying debt and not used to buy the latest iPod. The average American is hurting badly, the cost of living has increased materially over the past 18 months. More rate cuts may ease the pain in the financial system, but it will increase the pain on the average American. No matter what they do at this point it seems as if the Doctors have a terminally ill patient and it is only a ‘pain management’ issue at this point.

Tomorrow the markets will find out how big of a morphine injection the Doctor will be giving. Ahhh, the euphoria of morphine… but when it wears off we are still in a recession and in a bear market.

We remain short the Dow Jones Industrials (our entry was 12750). We are holding this short position unless our stop loss (break even) closes the trade. We are still in a bear market until proven otherwise.

Charts:

 

 

 

 

 

 

 

 

 

(S&P 500 Technical analysis - Daily Chart)

 

 

 

 

 

 

 

 

 

 

(Nasdaq technical analysis - weekly chart)

 

 

 

 

 

 

 

 

 

(Financial sector ETF technical analysis - daily chart)

Dow Closes Under 11900

The Dow closed at 11893 and all indices closed below their January lows.  It was definitely a “ride the waves” day of trading, but the selling outweighed the buying.  I didn’t even see a substantial amount of short covering at the close.  We have a lot to look at this evening, and we need to analyze all of the Fed moves today.  Check back later tonight and over the weekend for a more complete analysis of the market, economy, and our trades.  I hope all of our readers had a great day!

S&P 500 Index Chart Analysis

Lets go over the S&P 500 Large Cap Index chart. The chart shown below is a daily chart and I want to go over where we are currently.

• From the high in October 2007 to the low last week the S&P reached 19.3% decline from that high in October. As of the close on Friday we are currently down 11.4% from that high in October.
• The RSI peaked in October 2007 along with the highs in the price levels. Since that time the RSI has weakened further and currently has approached resistance.
• The price level has reached a very significant resistance level which is identified by the blue rectangle on the chart. The fact that the RSI is at resistance at the same time the price is at resistance tells us that we are likely to see either a sharp pullback soon or at the very minimum some consolidation around these current price levels.
• The long term view of the index, and of the markets in general remains bearish. In order for there to be some restored confidence in the markets we need to see the S&P reach 1510. At this time we don’t see this happening any time soon.

There has been much in the press lately that has said once Ben Bernanke cuts interest rates the bull market would return and the markets would reach new highs soon. We don’t see that scenario playing out at this time, there are still too many economic indicators and company earnings that tell us that we still have more downward moves to come.

It has been said that a bear market occurs when an index reaches a loss of 20% or greater. But other technical indicators along with the intense nature of the selling we have seen tells us that a bear market is already here. Now the question is how long will it last and just how severe will it get.

My view, taking into account the economy, credit crisis, housing crisis, the losses by major financial institutions, and the remaining uncertainty of the global economy as a whole is that this will be a substantial bear market. Every effort is being made by the FOMC and the Government to stimulate the economy. But the damage is too severe to be turned around quickly. Recessions take time to correct, they don’t improve overnight.

The President has made it a point to say repeatedly that the "fundamentals of the economy are strong". In actuality the fundamentals of our economy are in a dire situation and are still deteriorating.

 

 

 

 

 

 

 

 

 

 

Market Close

The afternoon bounce was as lame as they get.  Selling was the word for the day.  This market continues to saw off it’s legs one by one.  Dow closed at 12959, Naz Comp at 2593, S&P at  1433.  The transports fell 2.3%, a 52-week low.  The only sector that was green was Utilities! Should also note that, according to a newsletter, a company by the name of Cooper Arch, a $1 Billion hedge fund, is going to liquidate. 

After hours:

 Hewlitt-Packard reports Q1 $0.80, ex items vs $0.77 Reuters consensus; sees revenues  of $27.4-27.5 bln vs $27.04 bln Reuters consensus.

Capital One (COF) and NetSpend agree to terminate acquisition agreement.

AT&T and EchoStar apparently do not have any agreements in the works, in spite of the rumor to the contrary.  That rumor pushed up the price of Echo (DISH).

 Nordstrom’s (JWN) preliminary: $0.59 vs $0.52 Reuters consensus with revenues $1.97 bln vs $1.96 bln Reuters consensus.  They see FY08 $2.88-2.92 vs $2.76 Reuters consensus.  Well, they can dream can’t they?  I admire their ambitious nature.

There will be more in the wrap-up tonight. 

S&P 500 Chart

An update on the S&P 500 index. Charting these broad market indices is difficult with the large market swings. But there are still trend lines which remain visible.

I will post charts on the NasDaq and the DOW throughout the day today.

The Day that Was-October 24, 2007

The existing home sales numbers showed more houses waiting to be sold and prices going lower.  Merrill Lynch is having some major problems with the “sub-prime” issue.  They are writing down billions, and during the conference call they were not willing to discuss how much worse it could get.  This caused the stock to drop even further.  There is no clear picture on how bad these losses will be for any financial institution.  This problem is far from being “contained”.  Not a great start to the day.

The Dow had another up/down time today that can give one whiplash!  13400-13500 is the area to watch on the Dow, not wanting to see it below.  The S&P closed over 1500, but under the weekly trendline. 1490 is a critical support short term.  The yen is holding it’s strength, adding to worries of carry trade unwinding.  The Nasdaq composite is trading in a rising wedge on the daily (Chuck will put charts up tomorrow, he may disagree, but I see the wedge).  The semiconductor sector (what I deem “tech”) is sickly.  The SMH and $SOX lost a good bit of ground today.  The QQQQ seems to have a mind of it’s own, but weakness in the Nasdaq 100 may finally have an effect on it’s upward trajectory. The financials, homebuilders and retail sectors are still down.  And the flight to safety in bonds continues.

 The volume today was higher than normal, decliners outpacing advancers, more new lows than highs.  The pattern continues with higher volume on the down days.  The rally at the end of the day was interesting.  Apparently, there was talk of the Fed’s instituting an emergency rate cut of 50 basis points.  Why an emergency cut would be necessary before the meeting next week is beyond me.  Confirmation did not come and the market pulled back a bit from it’s upward frenzy.  What this shows, however, is the extreme emotions at work here.  It could be a preview of what will happen when the Fed’s do cut rates next week.  Of course, I have no idea if they will cut or by how much.  But, if I were a betting woman, I’d say they are cutting rates.  This volatility will be at work in the market for some time.  Don’t forget that the popular momentum stocks can go down even more quickly than they go up, so understand you are playing against big funds when it comes to these stocks.

 The primary trend of the market is still upward.  That doesn’t mean that the short-term trend is up, or even the intermediate term trend!  That’s why we are watching more than just the major indices to tell us the health of any move in the market.  Then we make our trading plan.  That keeps us from jumping into or out of stocks based on an emotion-driven, rumor-laden move. 

These wild swings in the market can drive a trader crazy.  It will bring out emotions you don’t want others to see in public, especially if your stock is dropping.  Even if your stock is rapidly going up, your heart races, your palms get sweaty, you get knots in your stomach.  It’s a bit like meeting a blind date.  Your friend said he has a great personality and he sounds intelligent on the phone. You’re nervous about seeing him for the first time. Then, you meet and he’s incredibly handsome to boot, and now you’re really nervous! (Anyone who’s ever been in this situation knows what I’m talking about).  But, the thing that keeps you from stuttering, sputtering, and acting silly, is if you have a plan for the date.  Dinner, movie, drinks, and dancing.  It’s the same with trading.  To keep us from acting silly we have a plan with entry/exit, support/resistance, broad market outlook. We have to keep things in perspective.

See you in the morning!

The Day that Was - October 22nd 2007

We had a technical bounce right where we identified major support would be on the S&P 500. From a technical stand point, today could have been a text book page on what a technical bounce is. The S&P 500 low of the day was 1490.40. Does this mean everything is all OK now? No, unfortunately not. A technical bounce is just that, it is not on fundamentals changing, just oversold conditions and short covering. We are likely to see a continued upward advance,albeit on light volume until the next downward leg sets in.

On the DOW, the closing price was right under the 50 day moving average on the daily chart. That is not a strong resistance point, but it did provide resistance during the trading today and will likely be easily overcome in the next few sessions. But we still have a general market that is ‘trendless’. A market that is unsure of what direction to go makes swing trading very tough. Because within a trend-less market the various sectors are also all over the map. In a healthy bull market when a sector makes an advance out of consolidation it is, more often than not, a buy signal for equities within that sector. The problem we are facing is that sectors are making wild swings, what is a buy signal one day becomes a sell signal only a few days later. And it is not just the big cap stocks and sectors. This is occurring on every major index (Russel 2K, Wilshire 500, small caps, mid caps, etc). During a normal market, swing trading is our primary money maker. And while no trade is ever ‘easy’ (meaning that all trades require work to manage them properly) it is difficult in a trend-less market to grab something that will offer the best reward profile. Last night we presented some stocks in a sector that recently displayed signs of further weakness, and within that sector we chose some stocks that are prone to succumb to that weakness. Today the retail sector was up on the technical bounce, but we still see continued weakness for that sector. So while we may present you wi th trade ideas it will not automatically mean they will trigger the next day, they have to be watched for the conditions to present themselves and then we jump on board.

But I will tell you this, our markets currently are as fragile as the lead-up to the tech bubble burst in 2001. We have not seen this much uncertainty in the markets in a very long time. This uncertainty in the trading can be seen in the tape, it is almost frightening to see some of the things crossing the tape. Until the market makes a decisive move one direction or the other we are going to remain in this state of trend-less back and for th ranging action. A swing traders nightmare. We are still working on the new web site with live interaction capability so that we can present daytrading ideas for those who day trade.  A blog is not the forum on which to present day trades. I’m am very confident you will like the full site when it is introduced. The more I work on it the more excited I am to introduce it.

Tonight, Apple released earnings and they were good, a surprise upside. A bit over the top in our opinion on their forward guidance.  Based on previous revenue growth reported by Apple, we can’t see how they will be able to manage that much of an increase with the retail sector showing a reduction in spending. Expensive toys (iPods, iMacs, and such) take a back seat to food, gas, clothes, and other living expenses. All of which are costing more and will likely go up even more this winter.

After hours tonight, Target (TGT), a bell weather for retail spending, issued a warning on their sales. They have reduced their same-store sales estimates by a substantial margin. They cut their sales growth in half. What was going to be a 3-5% growth has been cut down to 2-4%. This is no small event, this is one more knife in the retail sector back. This is what we mean by having 20/20 vision.  One has to keep the headlights on to see what lies ahead down the road. But, regardless of what is likely to happen and what is happening currently, many traders don’t associate them. They wait for danger to fall in their lap before they worry about it, and even once danger has fallen in their lap and they get burned, they forget about it very quickly and are prone to make another dangerous choice again later. We think Apple is a wonderful company.  Do we think the price is over extended, you bet we do. Going back to the slot machine metaphor I used last night… this machine is going to run dry and stop hitting soon, and someone is going to be left holding a large empty bag, for all the quarters will have been taken by someone else.

Texas Instruments released earnings today and they were not so great. The tech sector will likely be impacted by this. The extent and duration remains to be seen. After hours Thornburg Mortgage (TMA) announced that their chief lending officer was going to retire (that is a nice way of saying he was fired). I guess things are still not going so well at Thornburg

 Events on the calendar for the rest of this week:

Economic:

Wednesday, October 24th- 10am: Existing Home Sales; 10:30am: Crude Inventories

Thursday, October 25th- 8:30am: Durable Orders, Initial Claims; 10am: New Home Sales

Friday, October 26th: 10am: Michigan Sentiment

Speakers:

Tuesday- 8:30am:U.S. Treasury’s Paulson speaks about China-U.S. relations

Wednesday-U.S. Treasury’s Paulson speeks on India’s economy

Thursday- 9am: Fed’s Consumer Advisory Council to discuss mortgage rules

Friday- 4:15pm:Fed Governor Mishkin speeks on financial instability

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