The trend has changed, and the sell-off may have begun in earnest. Naturally, we're becoming bullish.
Those 52-week lows attract buyers like moths to a flame.
Time to remind ourselves:
(a) The indexes are likely to trend lower. Bottoms aren't usually accompanied by bullish sentiment.
(b) Keep counter-trend positions small. Avoid the temptation to hit one out of the park. Sellers will entice you with the promise of outsized gains- those aren't the pitches to swing at. A related emotional curve ball is (c).
(c) During the initial phase(s) of a sell-off, losses in (the average long) portfolio are typically small (they may not seem 'small' at the time)- it's human nature to want to buy into the first leg down in hopes of 'making it back.' That's almost always a mistake- one ends up instead a trapped bull watching losses mount.
The goal is capital preservation.
today could very well be wild, but i'm guessing it will be on low vol so either way (finishing up or down) i'm not going to read too much into it.
ReplyDeletethat said, I'd feel a whole lot better if we can defend 1070
jb- A related note: I wouldn't take any swings at the ultrashorts either. We may think we can play a spike down, but odds are we'll be shaken out by the inevitable short squeezes along the way.
ReplyDeleteyou're exactly right 2nd....today of all days is a "sit on my hands" day.....not even going to fire up fido.
ReplyDeleteGood idea- remember, we can in fact 'make it all back' at the real bottom. The way to recognize its arrival will be a total lack of desire to buy anything at that time. If we can stomach buying in that environment, and then sit on our hands again, we could absolutely make our year.
ReplyDeleteRe: Using Ultrashorts As A Hedge newSubmitted by 2nd_ave (4483 comments) on Fri, 08/20/2010 - 07:25 #67558
ReplyDeleteThese are double-edged instruments. The inevitable short squeezes during any sell-off are enough to shake out most holders of the leveraged inverse ETFs. Only a truly detached personality (which may be possible using very small position sizes) can make serious money with them. JMO.
SD - JC's comments...
ReplyDeleteSandRidge Energy, Inc. (SD)
Jim: You know, as I have said twice now, I think that that was a huge disappointment... that that quarter should have been a good quarter. It was a bad quarter. I see insider buying. I don't know why. I'd like to know, because I don't see anything I like. Boy, that stock's been bad... just awful... just awful
David- With comments like the above, why exactly would you want to allocate any money to the stock?
ReplyDeleteIf you have to concentrate your holdings in one stock, hey- look at the potential for INTC over the next 5 years.
Landry-
ReplyDeleteRandom Thoughts:
Obviously the indices got whacked pretty hard.
A little over a week ago the media and many others were celebrating that the market was headed higher.
This is yet another testament to not trying to buy a market when it's stuck in a range.
For the aggressive, I'm still seeing some high flying stocks (i.e.
high relative strength) forming Pioneer First Thrust (email me if you need the First Thrust Pattern).
Other than that, overall, the best action still remains mostly no action while the big blue arrow continues to point sideways. Please don't try to draw these at home. It has taken me many years to learn this skill.
HPQ threatening to set a new 52-wk low...
ReplyDeleteHPQ prints a new 52-wk low newSubmitted by 2nd_ave (4484 comments) on Fri, 08/20/2010 - 09:53 #67574
ReplyDeleteThat's one pitch I'm passing up right now, even though I'm interested in eventually establishing a position.
TZA-> provides a nice example of why it's suicide to trade the ultrashorts even during a sell-off. If you'd entered during the last spike down at 38.4x+, and weren't fast enough to dump it at 38.6x, you'd probably be whipped out right now at 38.0x, even though the DJIA has bounced only 17 points off the low.
ReplyDeletere: hpq, after working w/those folks for the past 12+ months whatever success they've had seems to be in spite of themselves.....not really impressed with their mtg team.
ReplyDeleteGRMN - Bought some @ $26.90, nice divy and short float is 14%+...
ReplyDeleteTZA/ Rules of the Road newSubmitted by 2nd_ave (4485 comments) on Fri, 08/20/2010 - 10:18 #67580
ReplyDeleteThe 3x inverse ETFs remind me of the warnings painted on the backs of trucks in the seventies. If you forego the patience required for a straight-up short in order to try racking up big gains with a high-risk trade 'passing on the right,' it's not the 'Passing Side-' it's 'Suicide.'
If you'd entered TZA @ 38.4x on the last spike down and weren't fast enough to exit @ 38.6x, you would probably have been shaken out @ 38.0x (on a meager 17 point bounce in the DJIA).
JPM @ 37.05.
ReplyDeletecp & 2nd -- Lately I've been taking another look at BC's RSI Buy alert tool and the approach of shorting OTM puts to acquiring say INTC or GRMN (GRMN Oct 25 selling for 1.10 for instance)
ReplyDeletehttp://rsi.caracommunity.com/RSIApp/RSIApp.html#aone%20hpq%20intc%20grmn
Kyle- Yeah, that seems to be a combination of the AZ/DZ approach + shorting puts (a strategy David also seems to favor).
ReplyDeleteKyle- I think this may be the first leg down. No way to really know until after the fact.
ReplyDeleteWhat if it's possible to buy/add to INTC at 16, for instance? We don't know. So scaling in, trading around the position, and using different time horizons is the only way to avoid being trapped.
ReplyDelete2nd- Yes, shorting OTM puts seems to help partially offset my predilection for trying to catch falling knives :-)
ReplyDelete2nd- Agree with that. Believe 1060 has to be tested (like mid-Jul) then perhaps 1040-1050???
ReplyDeleteProbably jumped the gun on shorting the INTC Oct 18 put & the HPQ Nov 38 but at least there's a little premium there...
CRM has been a monster. I've looked at it but just don't get it.
ReplyDeletecrm - first mover advantage delivering "enterprise class apps" in the cloud, pe is totally insane but if most co's end up moving big parts of their biz apps from on premise to on device they could end up get sub fees from 10's of millions (if not more) employees.
ReplyDeleteKyle- One could theoretically work a 'rolling short puts' strategy the same way some traders work a 'rolling covered call' strategy, collecting monthly premiums almost like dividends...
ReplyDeleteSee...I told you I didn't get it :)
ReplyDelete2nd- Yes, good point.
ReplyDeleteBWEN looks like SD....
Kyle - Let us know if/when you get it all down, my account isn't a margin account and I have no idea how to accomplish any of that.
ReplyDeleteYea, I've been thoroughly dummied down along with the entire flock of sheeple but I'm sure it's for my own good so I don't get myself into trouble like all those sub-prime borrowers got themselves. Oh wait, their problems aren't their problems, their problems are my problems...
cp - See if this writeup helps...
ReplyDeletehttp://www.triplescreenmethod.com/Special%20Report/100531_SpecialReport_WritingNakedPutsVollatileMarket.asp
Key thing is to write puts ONLY on things you wouldn't mind owning...
FAZ headed back up to 16.35??
Improving economy - I could have sworn I heard Obama claim in a speech a few days ago that the economy was improving....
ReplyDeleteCloud - Sounds like bad news for those millions of IT guys who seem to dominate in office environments.
ReplyDeleteWhat does McAfee have to do with cloud, anything?
FAZ - I should buy some just to make it go down!
ReplyDeleteCP - could be bad news for some IT folks, that's for sure.
ReplyDeleteINTL is still crafting their gtm/value around mcafee but the net (at least how i understand it), millions+ of handheld devices will be accessing biz data, via the cloud, and intl will build in security for all those devices, via mcafee s/w, within their portfolio/platforms....now i need to hop on a call w/dell to talk about the cloud...:)
PAL - Someone must've dumped, but it was quickly bought.
ReplyDeletejp - I suffer from "brain cloud" occasionally too.
ReplyDeleteme too....and more than usual listening to these dell jokers
ReplyDeleteSSO/TNS convergence once again.
ReplyDeleteMaybe Intel will develop a catchy phrase for their new product such as "My Cloud", "My Fog", "McCloud", "I-Cloud", "Hi-Cloud", or something along those lines...
ReplyDeleteHere's a quick list of root-words for their marketing team:
cumulus
stratus
cirrus
nimbus
GRMN - Out @ $27.22
ReplyDeleteMaybe the second leg of the sell-off has started. But then, maybe not. Notice that $CAD is making clear higher lows against $USD since late May: http://www.x-rates.com/d/USD/CAD/graph120.html. Now, coupling this with the fact that the high-yield bond spread is making clear lower highs since early June (according to markit), it suggests that the risk perception in the market is steadily abating since the May panic. So let's not get too surprised if the pre-May speculation returns, now fueled by even lower bond yields, and S&P rallies to 1400 (an outcome to which Jeremy Grantham assigns 0.45 probability).
ReplyDeleteMark: did you hear from your MOG anything about SD?
ReplyDeleteToday's drop in the markets has decreased the price differential between in-the-money September and December SPY puts, and so I took this opportunity to roll over my September puts to December. I also purchased an extra January $60 put on IWM.
ReplyDeleteAlso, I have just covered at $0.32 the 5 XHB naked calls I sold on Wednesday at $0.52 for a $100 profit.
ReplyDeleteFinally, I have just placed a sell limit order on 3 UCO September $9 puts at $0.7 (to open a new position) -- let's see if that order gets hit today.
ReplyDeleteRTK - Those synfuel dudes don't have the answer to today's energy surplus, do they my friend?
ReplyDeleteBWEN - Is the green energy craze blowin' in the wind?
UNG is getting better by the day. :) Instead of backup up the truck and selling LOTS of October $7 puts if/when UNG drops below $6.70, I decided to scale into those puts and just sold 5 October $7 puts for $0.5 each.
ReplyDeleteWonder if FTWR has contemplated the thought of another reverse split in their 5-year plan?
ReplyDeleteKind of ironic how as corporate America lays off workers their market caps fall, doesn't sound like a good plan to me.
ReplyDeleteWonder which of the two are greater, job losses in the private or public sector? Greece's unemployment is skyrocketing due to austerity measures, seems like that's happening here as well.
David - any idea what the ECRI was today?
ReplyDeletelong PIR at $6.1
ReplyDeleteTOF, the prior reading for the WLI Growth was revised down from -9.8% to -10.2%, while today's reading came in at -10%.
ReplyDeleteHowever, the changes in the WLI Growth rate can be well predicted by monitoring the data from its key components (I saw a web site where they were doing such predictions and actually explaining how the observed changes in the key components have contributed to the latest change in the index. So today's reading is "old news."
Also, don't forget that this growth rate is basically a smoothed first derivative of the actual WLI index, which is now at the same level at which it was on July 2. So if the index keeps being stuck in its current range, then its smoothed first derivative will eventually become 0, and so WLI Growth will rise from -10% to 0%. So looking at the trend in the index itself is more informative now than looking at the Growth Index.
I would also like to point out that the consumer index (which measures daily consumer activity) is higher now than it was one month ago:
ReplyDeletehttp://www.consumerindexes.com/index.html
So after the May/June panic, the leading economic indicators have stabilized.
David - thanks for those...
ReplyDeleteBy the way, if anyone else is watching PIR:
http://www.theflyonthewall.com/permalinks/entry.php/PIRid1183243
They have a price target of $11.
Went long more PIR at $6.158.
Good stuff David, thanks from me as well.
ReplyDeleteTBT- starter position @ 31.78...
ReplyDeletewow, get tied up on calls and i come back to find that the nasdaq has turned green, good turn around for dell and intc
ReplyDeleteSome more thoughts about the WLI index: the economy had a very abrupt plunge in late 2008 to early 2009, then a very abrupt "statistical" recovery from those depths due to government stimulus, and now that the stimulus is fading, the artificially inflated numbers are dropping down pretty fast, back to some true level of the economy. So the current unusually fast decline in WLI does not mean that we are about to enter a recession -- it used to mean that in the past, when such a rate was recorded after the economy was growing "naturally" for some years (and that natural growth rate was MUCH slower than the artificial "high" in the economy following the largest ever government stimulus). So my claim is that the very sharp drop in WLI we are observing was totally EXPECTED after the dose of stimulus received by the economy. Thus, we DON'T have a sufficient evidence yet about the economy going into a double dip recession. A very slow growth around 1% in GDP -- maybe. But not a -4% drop in 6 months.
ReplyDeleteI'll e-mail the above claim to Hussman and see how he responds. Hussman was recently using the -10% WLI growth as if it was indicating a real recession coming, so I'll basically challenge him in his thinking.
Expanding on the above thinking: in case you have not seen the historic WLI Growth chart (from 1970), the growth rate in the summer of 2009 was the HIGHEST growth EVER recorded. So the *numbers* in the economy had an amazing spike in the summer of 2009, and we all know what must follow an amazing spike -- an abrupt decline, which is what we are witnessing now.
ReplyDeleteIn order to get a better idea of the LEVEL of the real economic activity to which we have dropped following the "artificial" spike in the summer of 2009, we should look at the ECRI US Long Leading Indicator (USLLI), which does not have stock prices as one of its components (unlike the WLI index).
"While everyone continues to over-emphasize recent housing and employment data, ECRI points out their U.S. Long Leading Index [USLLI] is far less ominous: ECRI concluded: “In essence, the recent slight dip in the USLLI is not as pronounced, pervasive and persistent as it was before the double dip in the early 1980s.”
I think this proves my point quite well. I am now in agreement with ECRI.
Here is a chart of the USLLI index:
ReplyDeletehttp://www.ritholtz.com/blog/2010/07/u-s-long-leading-index/
which indeed shows that unlike the WLI index that peaked in the summer of 2009, the USLLI kept growing until January 2010 and is now experiencing only a little dip according to ECRI (they sell the latest USLLI reading to their professional subscribers, so I couldn't find the latest readings on the web).
That's gold David, thanks again.
ReplyDeleteMy pleasure. :) Now if only the market will prove me right and "justify" my decision of closing out my TWM position at $22 yesterday.
ReplyDeleteIf someone wants to post my ideas on CC as a service to "the people", let me know and I'll form one coherent post. My account on CC was blocked after I posted a link to this site there, which demonstrates the extent to which Bill cares about helping "the people" to navigate this market vs. promoting his own services.
ReplyDeleteHistorical observations from the past two decades make it glaringly obvious to me the US government has no interest in US infrastructure or factory investment. Both have steadily deteriorated and neither of these two items has been pursued during this financial crisis.
ReplyDeleteThat's just it, Bill's so full of prejudice it's horrifying. I can apply a majority of what he writes directly to him, there's no free speech or social equity on the Cara blog that's not subject to his approval.
ReplyDeleteWho died and made him God?
David- Why don't you post your thoughts as a new poster? Rephrase it a bit to take out 'tags' that might reveal who you are, and you can let the 'community' weigh in.
ReplyDeleteGood idea, 2nd_ave!
ReplyDeleteMake it a challenge- put yourself in the role of an 'actor' cloaking yourself in a new identity...
ReplyDeleteAMAT- At the close, I decided to open a starter position. The NDQ closed strong, which may give the chips a little momentum going into Monday.
ReplyDeleteDavid - You could take a chance on Bill and email your idea directly to him asking he post it on your behalf?
ReplyDeleteThat way you wouldn't have to pretend you're someone else...
AMAT - That looks like a pretty decent entry to me...
ReplyDeleteBased on that link to Ritholtz's website, the dip in the USLLI for 2008 wasn't that severe...certainly not as severe as the dips in 73/4, 80, 90...so this index probably isn't all that correct.
ReplyDeleteTOF, the USLLI index probably did not have enough time to react to the halt in the economy following the Lehman collapse, since the Fed started expanding its balance sheet immediately, in late 2008.
ReplyDeleteDavid, thanks for posting this link on CC. That's the way I found it.
ReplyDeleteI really enjoy reading the posts after work, know how the market "flowed" during the day, and looking at the time stamp on the comments!!
ReplyDeleteTOF- Fing great entry in PIR.
David- I did talk with MOG yesterday and he also gave me some proprietary info on SD. I'll review it and post a comment about it this weekend. But basically right now it's a high stakes game of chicken.
CP- You scalping bad boy!
Position update....
Held all and my computer picked up 3K shares of HEK @ 3.98. If I was here I wold have sold them at the close for the $350 bucks.
Ended the day green, but only by a couple of hundy as energy was lagging all day. I suspect that wont last much longer....
Time for a drink :)
CVS - Looks kinda like it's headed for $27, I'm gonna have to keep watching this one.
ReplyDeleteGRMN - I really like this one for some reason, probably the liquidity as compared with that of CADC which traded twice as many shares today as yesterday @ 25k vs 12K.
ReplyDeleteI like TOF's REDF and PIR too, expect those'll do well.
REDF scares the hell out of me the way it trades, but so far it's green by 8.75%.
ReplyDeleteCVS line in the sand would seem to be 27.37.
ReplyDeleteAren't there some subscription/payment issues here with medicare or something??
V coming back to us.
ReplyDelete2nd- Price/volume/RSI are damn compelling here.
ReplyDeleteThere was also some positive chatter on KCBS today. Can't recall what, sorry.
Price/volume/RSI comment was about TBT...
ReplyDeleteBORN - This chart reminds me of CNAM several months back.
ReplyDeleteCHICAGO, Aug 20 (Reuters) - U.S. regulators on Friday seized notable Chicago-based community development bank
ReplyDeleteShoreBank after Wall Street backers failed to rescue the institution, and its deposits will be taken over by a newly chartered
bank.
ShoreBank, a privately owned bank known for its philanthropic activities, had received multi-million dollar investment
commitments in recent months from Goldman Sachs, Citigroup, JPMorgan and Bank of America, as well as from General
Electric.
But the bank, which was put on the ropes when the recession hit its lower-income borrowers especially hard, was unable
to secure the funds it was seeking from the government's Troubled Asset Relief Program, or TARP, it needed to match
private-sector pledges.
ShoreBank's deposits will be taken over by a newly chartered institution called Urban Partnership Bank (UPB). Its 15
branches also will shift to the new bank.
William Farrow, a former banker with First Chicago Corp, will be president and chief executive of UPB and David Vitale,
former executive chairman of ShoreBank, will be chairman.
The Federal Deposit Insurance Corp said ShoreBank had $2.16 billion in assets and $1.54 billion in deposits as of June 30.
The FDIC estimated that the cost to the Deposit Insurance Fund of the failure will be $367.7 million. "Compared to other
alternatives, Urban Partnership Bank's acquisition was the least costly resolution," the FDIC said in a statement.
Urban Partnership Bank will pay the FDIC a premium of 0.50 percent to assume all of the deposits of ShoreBank and in
addition will purchase "essentially all of the assets except for the marketable securities and fixed assets," the agency said.
The FDIC and Urban Partnership Bank also entered into a loss-share transaction covering $1.41 billion of ShoreBank's
assets.
UPB will have a Tier 1 capital ratio of at least 8 percent and sufficient capital to meet pre-opening expenses, projected
growth and overall capital needs, UPB said in a statement.
The new bank was "capitalized by financial institutions, philanthropic organizations and socially responsible individuals
from Chicago and nationally," it said.
ShoreBank is one of the larger banks to fail in recent months and the 114th FDIC-insured institution shut down so far this
year.
Seven other U.S. banks closed on Friday in Virginia, California and Florida as the community bank sector continues to
struggle with poorly performing loans and recovers at a pace that lags behind that of Wall Street and the larger economy.
Los Padres Bank, Solvang, California, Independent National Bank, Ocala, Florida and Imperial Savings and Loan
Busy, busy, busy....
ReplyDeleteTEXT-Fitch raises Bank of America Corp ratings
August 20, 2010 17:40 ET
(The following statement was released by the rating agency)
Fitch Ratings has upgraded the Individual and Preferred Stock ratings of Bank of America Corporation (BAC) and removed
them from Rating Watch Positive --Individual to 'C' from 'C/D'; --Preferred Stock to 'BBB-' from 'BB-'; --Trust Preferred to
'BBB-' from 'BB'.
Other ratings, including the long-term Issuer Default Rating (IDR) of 'A+' and the short-term IDR of 'F1+', are affirmed at
current levels. The Rating Outlook is Stable. A full rating list is shown below.
The upgrades reflect BAC's efforts to boost common equity and liquidity combined with stable to improving asset quality
trends in various portfolio categories. The ratings also recognize BAC's sizeable and diversified banking franchise as well
as the resolution of management uncertainties since Fitch's last rating action in December 2009.
Someday Dorthy, some day, all off the assets will finally be moved from the weak hands to the strong hands- Plato
ReplyDeleteIt's really that simple in the end, isn't it?
For one to win, one must lose.- Panda Express
:)
I have just noticed that January 2011 $40 calls on PST (ultrashort 7-10 year treasuries) are bidding at only $1.70! PST was at $52 4 months ago! So even if it retraces only a part of that decline, say rises to $46, then these call options will triple! I am definitely buying some on Monday.
ReplyDeleteJB emailed me this link to a zero hedge piece on Shore Bank, which explains my "Dorthy" comment last night...but I know you savvy cats got it....
ReplyDeleteAfter a lengthy attempt to bail out his pet bank, ShoreBank Chicago, Illinois, which included several alleged armtwisting episodes by the administration, the president has finally let the bank die (with its assets valued at about 50% of face). Yet instead of going to hell, it was immediately resurrected with a bevy of new owners, among them Goldman, Morgan Stanley, and BofA, all of whom received nearly $400 million in taxpayer money for their "generosity" to keep the bank zombified even in teh afterlife.
Some details on the bank from the FDIC press release: "As of June 30, 2010, ShoreBank had approximately $2.16 billion in total assets and $1.54 billion in total deposits." In other words, the value of ShoreBank's assets was well below 70% of face, if the bank was undercapitalized at its current deposit level. Continuing: "The FDIC and Urban Partnership Bank entered into a loss-share transaction on $1.41 billion of ShoreBank's assets. Urban Partnership Bank will share in the losses on the asset pools covered under the loss-share agreement. The loss-share transaction is projected to maximize returns on the assets covered by keeping them in the private sector. The FDIC estimates that the cost to the Deposit Insurance Fund (DIF) will be $367.7 million." Netting the incremental cost of taxpayer DIF subsidies, means that the real value of assets was ($1.54 billion - $367.7 million)/$2.16 billion or 54% of face. And this is a bank that Obama wanted to keep alive at all costs? And just who is this "Urban Partnership Bank" that is receiving a taxpayer subsidy of $368 million? Why all the usual suspects of course: "The significant investors in Urban Partnership Bank are American Express Company, Bank of America, Citigroup, Ford Foundation, GE Capital Equity Investments, Inc., Harris Bank, the John D. and Catherine T. MacArthur Foundation, JPMorgan Chase & Co., Key Community Development Corp., Morgan Stanley, Northern Trust Corporation, PNC Investment Corp., State Farm Mutual Automobile, The Goldman Sachs Group, Inc., and Wells Fargo & Company." And so the old "out-of-one-taxpayer-pocket-and-into-another-Wall-Street-pocket" game continues, only this time it includes administration darling banks that should have been liquidated long ago.
By keeping ShoreBank artificially alive for far longer than it deserved, the assets amortized far more than they would have had it been taken into receivership by a non-conflicted bank, and thus the final cost to taxpayers would have been far less.
As it stands, Goldman and 11 other banks are receiving a multimillion dollar gift to conduct a portfolio liquidation run-off of ShoreBank's assets, while merely making sure existing deposits are serviced. At least we now know just how truly angry at Wall Street Obama is.
The funniest bit: this is how efficient the auction process was (from the press release):
FDIC received only one bid, which included an asset discount of $146 million and a 0.5 percent deposit premium. This saved the FDIC’s insurance fund $250 million to $334 million over liquidation.
This also padded the top line of the abovementioned banks by $368 million off the bat, over and above whatever they make as they collect the proceeds from the portfolio run off.
In other words, Wall Street's core banks could have come up with any bid they wanted, and the FDIC would have had no choice but to fund the difference, because the alternative would be, gasp, so much scarier. Hm, where have we heard this before.
new post
ReplyDeleteMy strategy with PST calls will be to buy 1 call on Monday, then if PST drops to $39 to buy another 1 call, to $38 -- another 1 call, etc., until I have about $2K invested in them. For each purchased call, I'll set a sell limit order at twice the purchase price. So even if PST keeps going down for some time and then rebounds only up to $40, then the calls I will buy later on will still double in price.
ReplyDeleteWhy buy PST now? It seems to have found a bottom at 2.5% on the 10-year yield, and Bernanke did mention in this famous speech that a preferred method of quantitative easing would be to keep buying treasuries until the yield drops to 2.5%. So I think the downside for PST is pretty limited at this point.