Blog Title: Rant About It

How To Get Wiped Out In One Day

Bear markets are famous for violent rallies. The volatility is high and trading volume is really heavy. Huge swing can be expected in either direction.

Bear markets see huge downward movement, but are always followed up mind-blowing upward spikes like the one we had today for 889 points. At every downward movement, analysts try to call a bottom, and at every upward spike bears call it dead cat bounce. Who is right no one really knows.

This bear market is so brutal that one can be wiped out in a single trading day if not played with discipline.

Lets just look at 3 charts to prove my point.

SRS - UltraShort Real Estate Proshares
The investment seeks daily investment results, before fees and expenses, which correspond to twice the inverse of the daily performance of the Dow Jones U.S. Real Estate index.

After spiking all the way to 205$ today, SRS fell to 133$, a drop of 66$ or -33%.

33% in one trading day ?


SKF - UltraShort Financial Proshares
The investment seeks daily investment results, before fees and expenses, which correspond to twice the inverse of the daily performance of the Dow Jones U.S. Financials index.

After spiking all the way to 184$ today, SKF fell to 136$ which means 24% drop of value.


FXP - UltraShort China 25 Proshare
The investment seeks daily investment results, before fees and expenses, which correspond to twice the inverse of the daily performance of the FTSE/Xinhua China 25 index.

FXP closed at 183$ yesterday. Today it opened at 150$ and closed at 118$, a drop of 64$ or -35%.


Bottom line is if you get too greedy or undisciplined in this bear market, say bye bye to your trading career. Early and late shorts will be squeezed each and everytime....

Job Losses Keep Piling - Will Prolong Recession

Jobs announcements from the past two days :

• Privately held Chrysler said on Thursday it is slashing 1,825 jobs after losing $1 billion in the first half of the year.
• Goldman Sachs [GS] plans to cut 10 percent of its staff, or almost 3,300 jobs after laying off hundreds of support staff and junior bankers in June.
• Money manager Janus Capital [JNS] said it would cut 9 percent of its staff a day after rival AllianceBernstein said it would make unprecedented job cuts.
• Xerox [XRX] announced job cuts of 5 percent, or 3,000 positions, due to a tough business environment.
• Mining equipment maker Terex [TEX] said it would lay off hundreds of workers and suspend its share buyback program to preserve cash.
• Starwood Hotels & Resorts Worldwide [HOT] said it plans to cut an unspecified number of jobs to offset slowing travel demand.
• United Parcel Service [UPS] sees layoffs in 2009 as customers need less shipping due to cutbacks on holiday gift purchases.
• Computer systems vendor Agilysys [AGYS] cut three senior management positions and is consolidating headquarters in Ohio
• Merck [MRK] announced plans on Wednesday to cut 12 percent of its workforce, citing a need to change its business model in order to survive.
• Fidelity National Financial [FNF], which controls one of the largest U.S. title insurers, announced 1,000 job cuts, office closings, a 10 percent pay cut and a 50 percent dividend cut.
• Biotechnology company Maxygen [MAXY] plans to cut nearly 30 percent of its workforce and explore strategic options due to the current financial environment.
• Popular Inc. [BPOP], parent of Banco Popular, is cutting 600 positions and more than a quarter of its branches in the United States.
• General Motors [GM], which previously said it would reduce salaried employment costs by 20 percent, reportedly plans more layoffs than expected in its salaried and contract workforce. GM also said it is reducing some employee benefits, including 401 k contributions and other programs.
• The insult to injury is you see Mervyn's going under; Yahoo is cutting 10% work force, Sears and Circuit City is closing stores.
  

EBS Continues Its Downtrend

Yesterday I posted a blog saying downside potential for EBS is huge. I shorted EBS two days back at 17.99$, once it started reversing. I covered at 16.50$ yesterday taking 8.3% gain in 1 day. Playing it conservative and wanting to book profits, I covered.

However I missed another 11% drop today. EBS can continue its downtrend all the way till $13.75 where it might find some support.

Its frustrating to predict the right behaviour looking at the charts and still bailing out early. I guess this market is so crazy that if you dont take quick profits you will see your gains wiped out soon.

Rule: An important rule to follow here is that once you are out, never look back. Dont regret the decision you made. This potentially affects your game ahead and you end up making silly moves just to get back. No one can predict how high or low a stock will go. Everyone should have an exit strategy before entering a trade. If you stick to that exit strategy and you will just do fine.

Charts Make Trading Easy

Yesterday i was short EBS. With a big run-up, it was time for some consolidation. EBS chart tells the story. I covered at 16.50$ taking 1.5$ gain or 8.3% returns in 1 day. Again and again charts have provided excellent insight on the movement of the stock.

Few factors that caused the drop
- overbought indicators, causing smart money to sell
- profit taking and new shorts causing selling pressure
- 500 pt drop on the Dow adding fear

Downside potential is huge as more and more buyers panic and trigger selling pressure. However I couldn't let 8.3% gain go away.

Excellent Analysis From TheBestNewsletters.com

Its been a while since I read something about the stock market that made sense. Enjoy the post.

As longtime readers know, we don't put much stock in making market predictions. We've borrowed Marty Zweig's famous quote many times in the past and think it is once again appropriate today. Marty said "Those who rely on a crystal ball in investing will wind up with an awful lot of crushed glass in their portfolio." In our humble opinion, truer words were never spoken. And it is for this reason, that we spend our time focusing on what IS happening in the market instead of what we think ought to be happening.

However, when times get tough, it is actually very helpful to have some sort of a historical guide to assist us in discerning what might be coming next. Think of this as being prepared from a long-term perspective. And as another famous saying goes, "history doesn't repeat, but sometimes it rhymes."

Make no mistake about it; what we are seeing today has never happened before. In short, we are experiencing a paradigm shift in our financial system and the deleveraging and restructuring that is occurring will take time to play out. So as our first point this weekend, please, please, please don't expect the stock market to suddenly snap back and "be all better again" in short order. The road to recovery is going to take a while.

Yet, at the same time, it is important to recognize that we have seen this type of market action before. And it is for this reason that we have been consulting our Crash Playbook with regularity these days. So this weekend, we thought we'd review what we know about the aftermath of market crashes and what we are looking for next.

The Waterfall Decline

We may not know exactly what lies ahead in the stock market. However, we can with utmost certainty say that what we've seen over the past few weeks is a crash, or what is also called a waterfall decline. Believe it or not, this type of action is not all that uncommon and often marks the bottom of bear market declines (as does the month of October).

As we've discussed recently, this type of drop is violent in nature and occurs over a short period of time. And I think we can all agree that the decline of -22% in the DJIA over the first 8 trading days in October certainly qualifies - so let's go ahead a make a checkmark here.

Crashes are also accompanied by several other factors. First, there is usually massive volume as investors rush to the exits at the same time (check). Next, the reason for the decline produces fear, panic selling and mind boggling volatility (check, check, and check). In addition, you will see the stock market on magazine covers and all over the news (check). Then the forced selling (aka margin calls) usually exacerbates the decline because there are no buyers around (double check). You will also see massive oversold readings and extremely negative sentiment indicators (check and check - current oversold and sentiment readings are matching up with those seen in 1974 and 1987). And finally, all of the above happens so fast that it is nearly impossible to maintain your bearings in the market (big, bold checkmark - the Dow can move more than 500 points in 5 minutes these days!).

The Bounce and Retest

The Crash Playbook tells us that what usually comes next is a dead-cat bounce, which allows investors to breathe a sigh of relief. This blast skyward is usually short lived and violent in nature. And in looking at the current market, we are pretty confident that the Dow's bounce of 24% from mid-morning on Friday, October 10th through the first 5 minutes of Tuesday October 14th qualifies as a classic dead-cat bounce.

Next comes the all important "retest." And frankly, this is the money move. You see, to those without a Crash Playbook, the retest of the lows appears to be a resumption of the waterfall decline. This causes fear to return in a big way and anyone who has not yet sold will panic and do so here (cries of "I can't take it anymore" will be prevalent among this crowd of sellers). Ideally, we would like for this decline to occur on lighter volume, which would indicate that the selling pressure has finally abated.

The hard part, of course, is the retest phase is scary! Oftentimes the recent low is actually violated, which is unnerving and will bring out technical selling on the "breakdown." However, as long as the volume does not increase and the breadth of the market isn't as bad as it was during the waterfall, a minor and short lived breakdown is actually acceptable behavior.

However, IF the market averages break to new lows on strong volume and intensely negative breadth, all bets are off as this action would likely indicate a new leg of the bear is underway.

So, IF we see a new down leg begin, which is certainly a possibility given the uncertainty of what's still on bank balance sheets, the unwillingness of banks to lend, and the redemptions coming out of funds, you will need to hit the reset button on our crash pattern and start looking to make checkmarks all over again.

The Recovery Game

IF the low of October 10th holds up, the good news is that we can then start to play the recovery game. But, before you get too excited, we should point out that the early phases of a market recovery are anything but easy. Investor fear persists and the media will likely continue to pound the doom and gloom theme.

However, THIS is the time where it pays to really understand what is going on. As we have pointed out before, Ned Davis research tells us that one-half of a new bull market's gains occur in the first one-third of the move. And remember, according to Ned's qualifications, the average bull market gain since 1900 has been about 80.5%.

The point is that if you are a true investor, you cannot afford to wait until things "feel good" again before you return to the market. In short, by the time things calm down and everybody in the media is comfortable again, the bull move could easily be one-half over.

So, since things will undoubtedly "feel bad" during the bottoming process and recovery phase, you need some sort of a signal to guide you back into the game. As we've mentioned a time or two lately, we will be looking for a surge in the breadth statistics of the market. We'd like to see the 10-day ratio of advancing stocks to declining stocks move above 1.91. We'd like to see the number of industries that are technically healthy improve quickly to over 65%. We'd like to see a couple of days where the up/down volume (on operating companies) is greater than 9 to 1. And we'd like to see the number of stocks above their 50-day moving averages become positive.

It is also important to recognize what works coming out of a bear market bottom. While playing the conservative sectors such as health care and consumer staples may sound logical due to the fact that they are usually less impacted by tough economic times, these are NOT the areas to be in once the market has bottomed and a recovery is underway.

No, once a bottom has been established, in the past it has paid to play the higher beta areas - namely technology, consumer discretionary, industrials, and especially in this case, the financials. Why does this work? First, because the stock market discounts the future and when stocks bottom they are looking ahead to better times. And second, since the higher beta areas also get beat up the most during the bear market, they have mean reversion (i.e. the catch up game) working for them.

Let's Be Careful Out There

Although we do believe the chances are good that we saw the low on Friday, October 10th, it is not time to get aggressive - yet (unless you are a very active trader - then you can start buying the dips here). Yes, we've seen a dead-cat bounce. Yes, we are seeing a retest. But, at this time, we do not have confirmation that the retest has been successful.

So, with the Crash Playbook by our side our plan is to continue to be cautious. However, we are leaning toward the buy side at the present time - at least for an intermediate-term trade.

Wishing you all the best for a profitable week ahead.

Emergent BioSolutions Inc - Time For Reversal

Emergent BioSolutions Inc. (EBS) is a multinational biopharmaceutical company focused on the development, manufacture and commercialization of immunobiotics, consisting of vaccines and therapeutics that assist the body’s immune system to prevent or treat disease. It manufactures and market BioThrax, also referred to as anthrax vaccine adsorbed. It develops immunobiotics for use against infectious diseases that have resulted in significant unmet or underserved public health needs and against biological agents that are potential weapons of bioterrorism and biowarfare.

After looking at EBS chart, we can see that the stock has run up quiet alot and its time for some consolidation. This also means there is money to be made on the short side. Once it broke the 18$ mark, I took a short position, shorting at 17.99$. The day ended with EBS at 17.46$ providing me a healthy gain in one day. I intend to cover around lower 17s.

Reasons for shorting
- Stock run up (up 40% in last 3 months)
- RSI and MFI points to overbought levels
- Accumulation was rising, but now flattening out
- Heavy down volumes suggesting selling pressure/profit taking

Risks at hand
- Biotech stocks are not always predictable shorts (any drug news can cause sudden spike)
- Featured in Investor's Business Daily (IBD) (stock pumping)

Make charts your good friend and you will end up on the winning side more than often.

New Stock Market Terms

CEO --Chief Embezzlement Officer.

CFO-- Corporate Fraud Officer.

BULL MARKET -- A random market movement causing an investor to mistake himself for a financial genius.

BEAR MARKET -- A 6 to 18 month period when the kids get no allowance, the wife gets no jewelry, and the husband gets no sex.

VALUE INVESTING -- The art of buying low and selling lower.

P/E RATIO -- The percentage of investors wetting their pants as the market keeps crashing.

BROKER -- What my broker has made me.

STANDARD & POOR -- Your life in a nutshell.

STOCK ANALYST -- Idiot who just downgraded your stock.

STOCK SPLIT -- When your ex-wife and her lawyer split your assets equally between themselves.

FINANCIAL PLANNER -- A guy whose phone has been disconnected.

MARKET CORRECTION -- The day after you buy stocks.

CASH FLOW-- The movement your money makes as it disappears down the toilet.

YAHOO -- What you yell after selling it to some poor sucker for $240 per share.

WINDOWS -- What you jump out of when you're the sucker who bought Yahoo @ $240 per share.

INSTITUTIONAL INVESTOR -- Past year investor who's now locked up in a nuthouse.

PROFIT -- An archaic word no longer in use.

What Happens Next After 900 Point Rally

Bulls: Treasuries will do everything they can to jump-start bank lending. The government is now providing capital to and insuring the debt of these banks, so their solvency is no longer in question. This means we have bottomed and up we go.

Bears: We have a long way to go from the bottom, this was just dead cat bounce. This cash injection is not enough to solve the problem. By the way, just curious who is going to bail out the government ?

Bulls: Shorts will cover soon, as the fear to invest in banks fade way.

Bears: Shorts is not the reason market is falling. Hedge funds are liquidating since they realize this can go much much lower. Have you ever looked at the Volatility Index (VIX)

Bulls: The dollar is rallying and oil is going down. This means Americans will pay less for gas and use the money elsewhere boosting the economy.

Bears: The dollar is in a trash. The dollar hasn't collapsed because all other currencies were inflated in unison. That doesn't make the dollar any stronger.

Bulls: The earnings were good. Look at IBM, Intel and Johnson & Johnson.

Bears: What about Bank of America, Research In Motion, Mosaic. Oh ya what about Pepsi ?

As a matter of fact, neither party know the answer. CNBC joker Jim Cramer keeps predicting market bottom every other day on his show. Finally he gave up and now changed his position saying the markets will keep falling. Well just after he said that, the next day we got 900 point rally. If you do the exact opposite of his call, its more likely you will be on the winning side.

No matter what anyone tells you, the only two things to trust in this stock market is

1. The company earnings and
2. Stock charts.

A Bear Market History

Last Friday's rollercoaster action, with the Dow Industrials swinging wildly from negative to positive, and back down again to end the day down 128 points, capped off one of the worst weeks in U.S. stock market history.

That gave the blue chips an 8-day loss of just under 2,400 - or 22.1%. To put it in perspective, the S&P 500 - the broader indicator that market pros prefer to use as a gauge - posted its worst weekly performance since 1933.

Both the S&P 500 and the Dow have dropped over 40% since making new all-time highs last October. Below, you can see a recap of S&P bear markets since 1970. Because it's fallen 46% from its peak this time around, it easily takes third place for worst recent history performance.

Three Musketeers – Bush, Bernanke and Paulson

Now, let us see the facts today:
$ 512 Billions – Already written off by banks and brokers
$ 59 Billions – Given to Bear Stearns and JP Morgan combine
$ 200 Billions – given recently to Fannie Mae and Freddie Mac
$ 85 Billions – given to AIG as capital
$ 2,400 Billions – Needed by Fannie Mae and Freddie Mae
$ 1,300 Billions – Needed by AIG for future provisions
$ 700 Billions – Requested by Paulson – Bernanke for immediate need for Buying Bad debts
$ 400 Billions – Requested by Paulson – Bernanke for funding Money Market Fund Brokers
$ 5,656 Billions – TOTAL
$ 600 Billions – Losses of Lehman Brothers not yet written off
$ 6,156 Billions – Updated Total

Even if you ignore the future obligations of AIG and Fannie Mae/Freddie Mae, the amount comes to staggering 2,456 Billions or 2.4 Trillions.

Failure of Morgan Stanley – Goldman Sac and making them Banks

Looks good news - both MS and GS have become banks. And why did they become banks overnight? Because their take over by Wachovia, Chinese Banks etc broke down. No one wanted to buy MS or GS, and they would have become bankrupt this week. By giving them status of bank, their status changed overnight. They know nothing about commercial banking. The license to become a bank, which usually takes over 6 months, was given in 24 hours. Mr. Paulson is now portrayed as "savior of America"

Where was Paulson only 10 days back when Lehman Brothers and Merrill failed?

Paulson is an ex-Goldman Sac guy. He was the President and obviously has lot of stock holding in that firm, directly or indirectly. He did not want competitors to Goldman, so he allowed the demise of Bear Stearns, then Lehman Brothers and then crucified Merrill Lynch by forcing them to merge with Bank of America.

Now that field was clear, he permitted Morgan Stanley and Goldman Sachs to become banks. He destroyed the whole economic fabrics of United States of America. He knows that most of the bad assets have ZERO value, and yet he portrays that the value is still 80% (only 20% loss – if that was so, any one can afford). Against this valuation, he wants FED to pay 65% (discount of 35%) to all holders of Bad Debts, prominent of whom are Goldman Sachs, Morgan Stanley (to lesser extent) and other banks. He is going to write the check for $ 700 Billions with no questions asked. So he will buy those trash assets and dump them into FED Trash House. He will save the Goldman Sac, destroy all other brokers, and he will be the most powerful KUBER in the world with power to print as much as $ 1.3 trillions of dollars in just under 3 months and distribute them to anyone he likes.

President Bush is a man with retarded intelligence. He is exhorting Congress to approve the package to buy trash assets, whereas almost all local governments of 50 odd states are clamoring for $ 200 billions collectively, which is denied to them. He spent $ 500 billions in Iraq and murdered 1 million Iraqis in addition to killing over 5000 Americans in Iraq and Afghanistan, and now he wants Congress to approve $ 1.3 trillions in less than 7 days. The Americans blindly support their leaders – they are Intelligent Idiots. They have no idea what their leaders are doing and how their and future generations lives are destroyed.

Bernanke has become a Gate keeper for Paulson. He opens the gate to the treasury to the person nominated or permitted by Paulson. He also signs and delivers the tons of dollars to anyone coming to him with Warehouse Delivery Order duly signed by Paulson. These three musketeers – Bush, Bernanke and Paulson have virtually gone berserk. They are the most powerful people in the world today with virtually no accountability. Democracy in America is ruined by them.

Arnold Schwarzenegger, Governor of California and very sincere worker, is refusing to travel out of capital even for a campaign; unless his budget, deficient for a few billions, is passed by the Democrats dominated Congress. He has virtually imprisoned himself to ensure that his state does not suffer. He is not getting $ for his genuine needs. Various state/Municipalities are borrowing from the market @ 10% to 20% whereas FED rate is just 2%.

Enough said.

No End In Sight: More And More Bad News

ECONOMY

• The Labor Department reported that jobless claims jumped by 32,000 to a seasonally adjusted 493,000 last week
• The Commerce Department said that new orders to factories for big-ticket manufactured goods fell by 4.5 percent last month
• The average price of a new home fell in August by 11.8 percent to $263,900, the biggest one-month drop on record. The median home price was down 5.5 percent to $221,900.
• Bookings for transportation equipment dropped 8.9 percent, today's report showed. Orders for commercial aircraft decreased 38 percent and those for automobiles fell 8.1 percent, the most since January 2007.
  

• German Finance Minister said the U.S. will lose its position as the world's undisputed financial superpower
• HSBC, Europe's largest bank by market value, cut 1,100 jobs in its global banking and markets division as deepening financial crisis threatens to crimp earnings.
• Washington Mutual Inc. may be seized by regulators later today and parts sold to JPMorgan Chase & Co. in what will rank among the biggest banking failures in U.S. history.
• Lennar Corp., the second-largest U.S. homebuilder, this week reported its sixth straight quarterly loss and said the government must take measures to boost home prices that are down by nearly a fifth from their 2006 peaks.
  
• While GMAC's auto lending is suffering from dwindling truck sales at GM, home foreclosures account for the majority of the company's losses. Minneapolis-based ResCap, the 12th biggest U.S. subprime lender in 2006, has lost $7.2 billion in the past seven quarters, compared with a $4.4 billion deficit for the company as a whole. With $65 billion in assets, ResCap is less than half the size of the global auto business, which has $169 billion in assets, according to GMAC.
• GE cuts profit forecast for year as loan and leasing business is hurt by market turmoil

Interesting Updates From The Market

Morgan Stanley, Goldman Search for Deposits

Goldman Sachs, Morgan Stanley: Playing It Safer

Blame Fannie Mae and Congress For the Credit Mess

Fannie Mae to sell $2 billion bills Wednesday

WaMu Deal Could Take Time

Holiday sales set for worst gain in 6 years

Gold Futures Extend Gains on Demand for Haven; Silver Advances

Microsoft to buy back $40 billion of stock

Fertilizer outlook still strong

Apple will sell 5 million iPhones in Q4

First Google Android phone to cost $199

Is Goldman And Morgan On Right Track ?

Goldman Sachs Group Inc. and Morgan Stanley have transformed themselves into bank holding companies. The change in status allows the last two major independent investment banks on Wall Street to take advantage of different accounting rules, gives them more access to federal funds and buys them time to stabilize their funding base by acquiring deposits.

The move was aimed to improve market confidence. The move provides Goldman with time to continue the process of de-risking itself to a level deemed suitable by the market. Instead of carrying all of their loans, bonds, stocks and other assets at market value, as investment banks are required to do, the two New York-based firms can now avoid further write-downs by moving some assets into their banking units. They will also gain the ability to borrow from the Federal Reserve indefinitely.

Morgan Stanley plans to sell as much as 20 percent of the firm to Tokyo-based Mitsubishi UFJ Financial Group Inc. for $8.4 billion. Goldman has no immediate plans to raise capital, although it may decide to if it finds attractive investment opportunities.

Morgan Stanley's deposits amounted to about 4 percent of the firm's liabilities at the end of August, while Goldman's amounted to 2 percent of liabilities, which are relatively very low. At larger banks, deposits typically account for between 40 percent and 60 percent of liabilities.

Goldman Sachs, now the fourth-largest U.S. bank by market value, is more interested in buying deposits than in buying entire banks. The firm sees opportunities to buy deposits in the wholesale market and also to buy deposits of failed institutions, such as IndyMac Bancorp Inc., that are under the control of the Federal Deposit Insurance Corp.

In return for the advantages accorded by their new status, Goldman and Morgan Stanley won't have to change much about the way they operate. Neither firm is being required to dispose of non-financial assets, such as commodities or stakes in companies, that banks normally are prohibited from owning, for at least two years, according to the Federal Reserve orders.

Efforts by the companies to reduce their so-called leverage, or ratio of assets to shareholder equity, are more about trying to reassure markets than to meet any requirements imposed by the Fed.



Both charts look pretty much identical. The fundamental question to ask here is with this transformation, is Goldman Sachs and Morgan Stanley on the right track. Is this the time to buy them ? Both have shred off a-lot of points but still pose down-side risk as investors lost confidence that a proposed U.S. $700 billion government bailout would solve the industry's bad-debt problem. Its better to keep watching and stay on side-line on this one.

Short Attack: Lehman Dead Duck

Major U.S. stock indexes turned higher in afternoon trading Thursday afternoon, in an excessively volatile session focused on Lehman Brothers (LEH) fight for survival, and trader attacks on Merrill Lynch (MER) and Washington Mutual (WM). Indexes turned higher amid market buzz that troubled investment bank Lehman, which is fighting for survival, is looking for a someone to help it bolster its tattered balance sheet. The shares came under selling attack Thursday amid continued doubts about the firm's viability, continuing their declines from the previous three sessions. Lehman led the broader financial group lower Thursday, though the sector came off its worst levels of the day.

Lehman Brothers shares came under heavy selling pressure amid worries about the firm's ability to raise capital. Goldman Sachs (GS) downgraded its rating on the shares to neutral from buy. Citigroup (C) and Merrill Lynch also reportedly downgraded the stock.

On Wednesday, Lehman posted a preliminary third quarter loss of $5.92 per share on net revenue of negative $2.9 billion. It also reported gross mark-to-market adjustments of negative $7.8 billion, said it would slash its annual dividend to 5 cents, spin off to shareholders $25-$30 billion of its of commercial real estate portfolio, and sell a majority interest in its investment management division. Lehman noted that it was committed to exploring all strategic options.

Who will be buying Lehman ??? I would stay away from Lehman. Not worth playing either side. From this point onwards its pure gambling game. Stay AWAY...Hint: Bear Sterns.....

Winning Streak Continues With Google Being Latest

Yesterday i bought Google at 414$ for a quick upward bounce. I was hoping to sell it around 440$ level with time frame of 3-4 days. However Google made a 20$ jump today closing at 433.75$. I decided to take profits. Nothing wrong in bagging 4% profit in 1 day. I sold off before my price target of 440$ because it was hard for me to gauge price movement we had today.

Is this a trend reversal or a dead cat bounce ?? Not sure. It looks like a solid move upward with good volume and maybe i sold premature. Lets see how it plays out tomorrow.

For now my winning streak continues with recent trades being GOOG, RIO, KGC, TOL, ROCK and RSH.

• GOOG Trade
• RIO & KGC Trade
• TOL Trade
• ROCK Trade
• KGC Trade
  

Why Charts Are Your Best Friend

Yesterday I loaded up KGC and RIO. Special thanks to dumb-ass Cramer for his predictions.

KGC up 5.8% for the day. Surprizingly gold is down to 759$ level.

RIO up 5.3% for the day. Lets see if it was a dead-cat bounce or time for some reversal.

Both were over-sold and due for the bounce and that is exactly what happened. I sold both of them today for a sweet 1-day profit. Can't complain.

Today i bought the internet-giant Google at the close ($414.40). 5 day chart shows 11% drop. Time for reversal ??

GOOG chart tell an interesting story. Previously Google bottomed at 412$ in mid-March. Can this be the double bottom ? I think so. With such lower RSI and Stochs, Google makes up for a safer bet. However if Google can't hold 400$, it could drop even furthur. I would put my stop loss at $399.

The Lehman Story: Are They Off The Hook ?

Lehman Brothers tried to bolster investor confidence by releasing quarterly results and announcing measures to keep the firm afloat.

A day after trouble for investment bank Lehman Brothers (LEH) started a broad stock sell-off, major stock indexes opened higher Wednesday when Lehman made a series of surprise announcements designed to bolster investor confidence.

On Tuesday, an investment deal with a South Korean bank appeared to fall apart, causing the investment bank's shares to plunge 45%. That prompted Lehman Brothers to release earnings a week early and announce measures to keep the firm afloat.

Lehman Brothers posted a preliminary loss of $3.9 billion in the third quarter. Losses on bad investments totaled a net $5.6 billion. Investors worried Lehman needs capital to stay afloat.

The firm will slash its annual dividend to 5 cents and it will spin off to shareholders Lehman's $25 billion to $30 billion commercial real estate portfolio. The firm plans to sell a majority interest in its investment management division, as well. Executives say they are committed to exploring all strategic options, which could include a sale of the company.

Lehman shares opened higher on Wednesday.

Cramer Predicts Commodities To Drop: Bullish Signal

Cramer predicted a worst-case scenario for these names: They could lose all the gains they’ve seen since April 2005. That means Vale [RIO 20.96] drops 68%; U.S. Steel [X 93.69] 50%; fertilizer stocks like Potash [POT 140.26], Mosaic [MOS 77.01] and Agrium [AGU 66.65] could fall 80% to 90%. But this is only if you believe that the rise of these stocks was due solely to the increased value of commodities and not any growth by the companies themselves, he said.

So what’s it going to take to stop this? The world’s central banks – U.S., Europe, even China – have to cut interest rates. Industry consolidation would help, too. A rate cut in China might revive that country’s appetite for commodities, and that would mean investors would be getting a great discount on all these stocks right now.

If China doesn’t come back, Cramer said, “the commodity collapse has the potential to bring down the whole market.”

Cramer is one of those CNBC clowns that almost everytime get it wrong. If Cramer thinks the commodities are going down, its a bullish sign. I bought RIO today at 21.09$ and KGC at 12.01$ hoping to see a turnaround soon. Both RIO and KGC have been hammered lately and provide much safer bet to go long.

5 day chart for RIO shows 17% drop. Is the pain over ? No one knows. The trend is definitely going lower, but I believe its time for some bounce back.

6 month trend shows RIO bleeding.....no end in sight.....can that trend change ??


As for KGC, gold is going through a huge correction. Market manipulation has lead to jump in the dollar. Upward movement of the dollar looks short-lived, driven due to lower oil prices and Freddie/Fannie news bringing in global investors. Hurricane season and world politics can easily send the oil prices roaring upwards. Housing has not bottomed. Inventory levels are still high. Job losses make it even more difficult. Foreclosures are still reaching record high levels. This can turnaround in a flash causing dollar to take a dump and gold to go higher.


6 month trend of KGC looks ugly too. It has experienced huge price drops. Is this the bottom ?

Trading Discipline A Key To Success. Proof >> KGC

I sold my KGC shares at the open since I didnt get the jump I was looking for. Also I didnt want to hold anything over this weekend. KGC opened at $14.25 and I sold my 1000@ KGC at $14.29 bagging 400$ profit in 1 day. Turned out to be a pretty good trade since KGC dropped all the way to $13.54 an hour later. I was tempted to buy it back, but I got conservative here and wanted lower 13s to get it back again. Turns out it didnt go that lower and infact jumped right back up, eventually closing at $14.19. Missed an excellent opportunity to bang around 500-600$ gain.

Bill Gross Makes You Just Want To Short The Market

Bloomberg reports what Pimco CIO Bill Gross had to say about current markets: U.S. Must Buy Assets to Prevent Tsunami

The U.S. government needs to start using more of its money to support markets to stem a burgeoning financial tsunami, according to Bill Gross, manager of the world's biggest bond fund.

Banks, securities firms and hedge funds are dumping assets, driving down prices of bonds, real estate, stocks and commodities, Gross, said in commentary posted on the firm's Web site today.

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If we are to prevent a continuing asset and debt liquidation of near historic proportions, we will require policies that open up the balance sheet of the U.S. Treasury.

The government needs to replace private investors who either new assets or have been burned by losses, Gross said. Pimco, sovereign wealth funds and central banks are don't have the money to buyreluctant to fund financial firms after losses on investments they made to support the companies, Gross said. The world's biggest banks and brokers have raised $364.4 billion in new capital after more than $500 billion in writedowns and credit losses since the beginning of last year.

Since financial markets seized up a year ago as the subprime-mortgage market collapsed, the Standard & Poor's 500 Index has fallen 13 percent and home prices are down more than 15 percent.

Gross cast a bleaker view for the prospects of the world's financial markets than in previous notes to clients. The fund manager has previously called on lawmakers to support housing with legislation passed in July that allows lenders to forgive some of homeowners' debt and then refinance them into government-insured loans.

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As Fannie and Freddie, banks, securities firms and hedge funds shrink, yields on all debt assets will rise compared with benchmark rates and volatility will increase, Gross said. The declines will end once sellers have depleted their assets and sufficient capital has been raised, Gross said. Unless new balance sheets emerge, prices of almost all assets will drop, even those of impeccable quality, he said.

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There is an increasing reluctance on the part of the private market to risk any more of its own capital, Gross said. Liquidity is drying up; risk appetites are anorexic; asset prices, despite a temporarily resurgent stock market, are mainly going down; now even oil and commodity prices are drowning.

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The decline in home prices hasn't been seen since the Great Depression, Gross said. That drop translates to an even bigger decline in overall wealth as the effects ripple through markets, Gross said.

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Gold Stocks Getting Cheaper Again

I used the market panic to picks up gold miner Kinross Gold (KGC) again at 13.88$. With KGC entering oversold levels, it might be a good swing trade. Gold is hovering around 800 level and holds a key resistance level. 1 month chart shows KGC has dropped 21%. I might be bit early to jump in, but I believe the odds of profiting from this trade are higher.

Recently KGC won the shareholder approval of bidding for Aurelian Resources and will take control of the rich Fruta del Norte gold deposit in Ecuador.

Ecuador froze all mining earlier this year while it rewrites its mining law, a move that stripped more than 50 percent from Aurelian's share price and allowed Kinross to get it for far less than it might have cost. Many Aurelian shareholders complained the company was selling out at too low a price.

This might turn out as a good investment in the long haul.

Is This An Institutional Investor Warning?

Is this an Institutional Investor Warning?

You know the reality ... Institutional Investors have the directional control over the markets because they are responsible for 50% to 70%+ of the stock market's volume on any given day.

Above is a chart showing the "top core holdings index" held by the large Institutional Investors. Take a quick look at it ... what do you see?

Note the MACD pattern that occurred last December which was followed by a sizeable downside move in the stock market.

Now, look at the current MACD pattern. Looks familiar doesn't it?

The message it sends is a Warning that investors should be cautious and on the alert for another possible downside move on the MACD which would correlate with another downside leg in the market.

At the close yesterday, the MACD hadn't yet signaled such a down move, but a "CAUTION Alert" is definitely warranted. The current pattern doesn't guarantee that the next MACD trend will be a down move, but it does say that we are at an important pivot point where an important change is not very far away.

(Source: StockTiming)

Is The Oil Rally Over ??

United States Oil Fund, LP (USO) is a commodity pool that issues limited partnership interests or units that may be purchased and sold on the American Stock Exchange (the AMEX). The Company invests in futures contracts for light, sweet crude oil and other types of crude oil, heating oil, gasoline, natural gas and other petroleum-based fuels that are traded on the New York Mercantile Exchange (NYMEX), International Currency Exchange (ICE) Futures or other United States and foreign exchanges (collectively, Oil Futures Contracts).

Oil is trading around 109$/bbl and recently breached its 200 day moving average on the downside. Oil has corrected multiple times on its way up but has never dropped below the magically 200 dma. Does this mean end of rally for oil ?? It will be an interesting few days to watch the movement. Lower oil means green days for the market.



Lower oil means happy days for airline stocks.....

Additionally oil refiners love to see lower oil prices.

Lower oil price means depressing profits for oil exploration companies.....

Similarly solar stocks becomes less valuable as an alternative source of energy when oil becomes cheaper...

Worst Slump In Recent History For Auto Sales

Yahoo has latest story about worst auto sales: August auto sales fall; some say worst may be over

Nearly every major automaker saw its U.S. sales drop in August, but many are seeing signs that the worst slump in recent history may have bottomed out.

Most upbeat were executives from General Motors Corp., which posted a 20.3 percent sales decline from a year ago but a 31 percent improvement over July's totals.

Much of the gain came from offering all buyers employee discounts on many models, but Mark LaNeve, GM's vice president of North American sales, said there's hope that June and July were the trough for U.S. sales.

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Overall, U.S. sales fell 15.5 percent compared with August of last year but rose 10 percent from July's dismal figures, according to Autodata Corp. The seasonally adjusted annual sales rate for August was 13.7 million, up from 12.5 million in July, the worst month in 16 years.

Chrysler LLC said its U.S. sales fell more than 34 percent last month, while Ford Motor Co. reported a 26.5 percent decline. Toyota Motor Corp.'s sales dipped 9.4 percent, and Honda Motor Co. saw a 7.3 percent slide. Nissan Motor Co. was the only major automaker to report an increase over August 2007. Its sales climbed 13.6 percent.

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But the increase over July buoyed most automakers, with sales executives saying that lower fuel prices were starting to ease consumers' minds. They also reported the market shifting a little bit back toward trucks and sport utility vehicles, driven by incentives and lower gas prices.

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Automakers said consumer sentiment was improving, housing price declines and manufacturing production are stabilizing, and exports continue to be strong.

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"I think there are some positives," Pipas said. "But the underlying economic conditions and the credit situation, which has given rise to this summer's low level of sales, still persist.

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Employee pricing, low-interest financing and other incentives pulled buyers off the fence and into the market last month and raised pickup truck sales, said Jesse Toprak, executive director of industry analysis for the automotive information site Edmunds.com.

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While Chrysler had a huge decline from the year-ago period, it showed a 12.3 percent gain over July. But compared with August of last year, Chrysler's car sales were down 39 percent and its truck sales were off 33 percent.

Ford sales dropped 3.6 percent compared with July, due in part to its continuing plan to reduce low-profit sales to rental car companies and other fleet buyers, Pipas said. The company said Wednesday that it plans to cut 50,000 more vehicles from its production plan in the second half of the year, reducing its output to 890,000 in the last six months of 2008.

The Dearborn-based automaker said its Ford, Lincoln and Mercury car sales dropped nearly 9 percent in August, while truck sales were off more than 32 percent from a year earlier.

There were some bright spots for Ford. Sales of its Focus small car were up 23 percent in August, while Escape small SUV sales rose 17 percent compared with the same month a year ago.

Both Ford and GM reported big inventory reductions in August as they switch to the 2009 model year.

Toyota said its car sales were down 3.4 percent from August 2007, and trucks were down 17.6 percent. Sales of the tiny Yaris were up more than 20 percent for the month, while the Camry midsize sedan saw sales grow by 3.3 percent, the company said.

GM said its sales of light trucks tumbled 24.1 percent from August of last year, while car sales fell 13.9 percent.

Honda's car sales fell 4.9 percent and demand for trucks dropped 10.3 percent.

Nissan said its car sales fell 0.8 percent but its truck sales climbed 34.8 percent on strong sales of its Frontier, Xterra and Rogue models and the Infiniti EX and FX crossovers.

Gold Enters A Period Of Volatile Consolidation

Bloomberg has latest story about falling gold prices: Gold Tumbles Below $800

Gold slumped for the fourth day as lower crude oil prices and a stronger dollar reduced the appeal of the precious metal as a hedge against inflation and as an alternative asset. Gold is trading currently below 800$ mark

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Our view is that gold is entering a period of volatile consolidation following the sharp July-August sell-off, Greg Canavan, analyst at Fat Prophets Management Ltd., said today by phone from Sydney.

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The weakness is being driven by a resurgent U.S. dollar, said Canavan.

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Newcrest Mining Ltd., Australia's largest gold mining company, fell 9 percent to close at A$22.60 on the Australian stock exchange, its biggest one-day fall since Aug. 5. The stock, which has slumped 32 percent this year, has dropped for three days and has a market value of A$10.2 billion ($8.4 billion). Lihir Gold Ltd., the second-largest producer on the Australian stock exchange, declined 8.4 percent to A$2.06.

Canadian miners Kinross Gold Corporation (KGC) and Yamana Gold (AUY) got hammered on NYSE as well as the popular SPDR Gold Trust ETF (GLD)