How 'bout that stock market?

Ski_Banker · 1 August 2007

swbatte said:
Things are different here in Canada. We can't get interest only loans, we can't deduct our mortgage interest on our taxes, and our banks are quite centralized and very very stable. We don't have the same problem here, although a slow down in your market has lead to a drop in materials, so new house construction inflation has cooled a little.

If you haven't seen a big run up in residential prices in the last few years, you're probably right. Good luck either way. :smile:

Ski_Banker · 1 August 2007

Ryanmcd2 said:
RE is hard, I did not enjoy trading but doing RE I think I liked even less. It's funny here in atlanta you can tell all of the people that got the intrest only loans at 3-4% there homes are for sale now, reduced, and been on the market for about 8-12 months.

Take a vaca to Miami. The cloud of distress from homeowners hanging over this city is as visible as smog in LA.

Onsoku · 4 August 2007

Friday, August 3, 2007

Friday Financial Roof Fire<SCRIPT></SCRIPT>

Jobs jobs and more jobs!

Well, not quite...

The blowups in Hedgistan are now a daily event. Here's the latest; a lockup but not an explosion yet....
"Union Investment Asset Mangement has temporarily closed its ABS-Invest fund for institutional investors and halted redemptions, said spokesman Markus Temme."
Is that good?

Nonfarm payrolls up 92,000 in July, unemployment basically flat at 4.6%, earnings up 0.3%.

As ADP predicted, this number is WAY LIGHT . Construction and manufacturing both down (duh). The futures<SCRIPT></SCRIPT> did not like it a bit , collapsing by nearly half a percent instantly, but then recovered some. The dollar shit the bed .vs. the Yen immediately as well; that's potentially more important and its not the piece that people are watching.

Oh, Countrywide? The Option MMs listed five dollar options today on them. FIVEs! Including for the front month - August - which expire in two weeks! If you want to play on a raw bankruptcy in the next two weeks on them, now you can.

Amazing.

And the credit markets? They're thinking that might be a good bet! Credit spreads went apeshit the last two days on Countrywide's debt , widening by nearly 100 basis points today alone! That, by the way, is a roughly thirty percent increase in one day. Does someone smell something rotten seeping out from under the door?

Nor is it just them. Look at IndyMac Bank and WaMu for more examples.

Essentially the story today is "if you write mortgages, you're getting roached." To that I say - its about damn time.<SCRIPT></SCRIPT> These "exotic" products have gotten way, way too common the last few years and it is my sincere hope that when the risks are exposed those who wrote 'em are forced to eat them.

Last night in response to IndyMac posting a letter on their web page basically bleating for a government bailout I penned a letter to Chris Dodd (Chairman of the Banking Committee) asking that he do exactly nothing. Click the link to read it, then reword as you deem appropriate and, if you are of like mind, fax him something similar. The markets must be allowed to punish those who have inappropriately taken risk!

ISM Non-manufacturing fell to 55.8, much worse than the expected 59. More evidence that we're headed for a recession as the economy cools!

The equity markets are finally waking up to the truth about "Subprime" (that is, its not about subprime at all; its about the real estate bubble created by our former Fed Chairman), and its not liking it a BIT. In the days and weeks to come I predict we'll be talking about this:<SCRIPT></SCRIPT>

Of course you won't hear that from our mainstream media idiots - at least not for a while. But someone will eventually write a book or three about this, and who's really responsible for the nuclear blast and knock-on effects that are certain to roil our financial markets - and the economy - in the coming months.

You have to love the talking heads today - they're all over CNBS talking about how "electronic trading makes it all so volatile and makes it easy to explode." Yeah, right. What makes for blasts in the financial markets is raw, intentional mispriced risk - in short when GREED - or "animal spirits" if you wish - overrides good common sense.

Does electronic trading make it easier to "pile in"? Sure. But electronic trading actually reduces the risk of market dislocations - there is nothing worse than a market in which you cannot sell at any price because the volume overwhelms the system. THAT is the kind of thing that REALLY begets trouble, and electronic trading reduces that risk.<SCRIPT></SCRIPT>

The credit squeeze is getting worse and the street is starting to wake up. Try this:
"But the fallout could get worse. Some experts say the debt crunch could squeeze underperforming companies that have, until now, been able to finance their way out of trouble - and trigger a wave of corporate bankruptcies.
"There have been a lot of operational problems and other problems within some companies that have been masked by liquidity in the marketplace and the ability to refinance their debt," said Jeff Marwil, a partner in Winston and Strawn's restructuring and insolvency practice in Chicago."

Naw, you think? I do.

But boy are the talking heads trying to dismiss it. All of it. Anyone remember how CNBS for months talked about the "LBO PUT" under the equity market? Well guess what - its forking GONE now guys! Now add to this the risk of some REAL bankruptcies (not to mention that they seem to actually be happening!)

So how come with that "PUT" gone you think its unreasonable<SCRIPT></SCRIPT> that some of that price appreciation comes back off? And let's be straight here - the market has essentially a 30% premium in it - even now with the "correction" - from that PUT !

Decelerating earnings growth, a slowing consumer, the housing market is bad and going to get a lot worse and people are bitching about a 5% correction being "overdone"? YOU ARE NUTS CNBS! My minimum downside target on this market is 20% and a 30% retracement from the 2003 lows is more likely! IF those levels don't hold - and they may not - then we are gunning for those '03 numbers!

Bear Stearns tried to soothe the markets about their exposure (and the financials in general) and instead threw gasoline, propane, butane and diesel fuel on a roaring fire - and I think they also parked a truckload full of ANFO next to the blaze. There's a good chance they have lit the fuse with that call - we shall see, but the market didn't like it a bit up front and it turned what was a fairly quiet day into a total rout going into the close.

Heh Bear Stearns (and the Credit Markets) - DAMN IT, YOUR ROOF IS ON FIRE!

How many times do I need to tell you before you figure it out!

Cramer went nuts today on the air! You have to see this link....
http://www.cnbc.com/id/15840232<WBR>?video=452808336

Amazing stuff. I swear the guy's going to blow an aneurysm right on National TV!<SCRIPT></SCRIPT>

As for what the mortgage market is going to look like for the next few years, well, its basically what it looks like now:
"Some nontraditional mortgage loans have vanished from lenders' menus, while others have gotten more expensive during an eventful week for those in the mortgage industry.
But a looming credit crunch for riskier mortgage debt has not yet spilled over to traditional, creditworthy borrowers, who can still obtain conventional financing at market rates, mortgage lenders say."

And it won't. Agency paper will remain available, if you have 20% down, a 36% back end ratio (DTI) and want a conventional mortgage (no more than 400kish.) If you need a Jumbo, it'll be a point higher (as it was in the 80s and early 90s.)

If you want to get cute with an interest-only loan, option-arm or other means of committing financial suicide via lender extortion so that Wall Street can pay out a few billion in bonuses and mortgage house CEOs can cash half a billion in options over 2 years, sorry, that window has been closed.

THAT IS A WINDOW THAT SHOULD HAVE NEVER BEEN OPENED, AND THE PEOPLE WHO DID OPEN IT SHOULD BE IN FEDERAL PRISON FOR THEFT BY CONVERSION FROM THE AMERICAN PUBLIC, NOT WHINING TO UNCLE BEN AND DEMANDING FED RATE CUTS (which wouldn't help anyway!)<SCRIPT></SCRIPT>

EAT THIS mortgage company CEOs and Wall Street spinmeisters - The INVESTOR, including foreign governments like CHINA, Pension funds, Endowments and others have woken up to the FACT that your claimed "AAA" paper IS NOT AND NEVER WAS. They have WOKEN UP by being exposed to BILLIONS (that's with a capital "B") in REAL losses and they're NOT going to get assraped a second time by you guys. THE GAME IS OVER and Cramer ought to tell his "buddies" to take a walk off the parapet on one of the nice 40 floor building roofs on Wall Street when they call him next time!

Ok, technicals, and I'm sure you want to see 'em. Here's the charts and the reality:

Ouch. But it gets much, much worse. Here are the transports:

Now this sucks. Severely. For Dow theorists, this is "game over." You've got a violation of support confirmed by the Transports. For The Bulls, this is serious, it is severe, and it is undeniable.

Now here's the SPX:

There ain't a thing to like here. Next stop is the February lows. All the "normal" Fib retracements and support levels have been broken with conviction. No ifs, ands, buts or maybes. Now the February lows loom below us, and if they don't hold...... well..... here's what we're facing:<SCRIPT></SCRIPT>

Ok, here's the deal guys. Assuming the decline does not stop right here, the next place we target is the February lows.

That is an extremely serious support level because it is suspiciously near the long-term trendline!

If that level violates CONVINCINGLY then WE ARE NO LONGER IN A LONG-TERM BULL MARKET!

We then have a number of support levels below, including a strong support level around 1165, which is 50% retracement plus a late 05 support, and 1072 plus 958 below that, but we are also eyeing 768! Aieeeee!

Now we got one morecritical support matter to attend to. The Nasdaq Composite violated second-level support today on a closing basis ( a new signal not seen before) BUT BUT BUT - and this is important - the NDX (Nasdaq 100 and QQQQs) DID NOT. It DID, however, break the short-term support from earlier this week. 1900 is the critical level to watch there, with 1880ish below that.

So this is what we got, as I see it here:

<SCRIPT></SCRIPT><LI style="VERTICAL-ALIGN: top; COLOR: #29303b; LINE-HEIGHT: 18pt">There are people calling for a "corrective rally" in the indices to retrace part of the first move downward, followed by a roller-coaster plunge. Many have said they expected this to be a common "wave" sort of retracement. Today's price action shows why expecting a 50% or 61.8% retracement on a "Elliott Wave" basis can rape you raw - if you traded for a long retracement the other day you got murdered this afternoon. NEWS OVERRIDES TECHNICALS! In fact we did get a fib retracement, but it was the 23.6% level early in the week - a level which is rarely seen. <LI style="VERTICAL-ALIGN: top; COLOR: #29303b; LINE-HEIGHT: 18pt">The risk is quite high that we are setting up for a huge plunge Monday. At this point this is not a matter of Elliott Waves; it is a matter of news flow, the credit markets and especially what happens to the Yen Sunday night in the FX market when it re-opens. If the Yen goes under 118 into the 117s (or worse, below 117!) the risk goes up<SCRIPT></SCRIPT> precipitously of forced-unwinding of Carry Trades. THAT IS THE FUEL FOR A CRASH MONEY MORNING . WATCH THE FX AND CREDIT MARKETS, AND BLOOMBERG BOTH SUNDAY NIGHT AND THE EARLY MONDAY FOR HINTS!

An alternative scenario and one you must guard against if you are short anywhere in this market - that is a SURPRISE Bernanke Fed RATE CUT. I rate the odds of this extremely low but you cannot ever turn your back on risk in the market guys! As such if you don't have protective stops over all your shorts in the market, go out there RIGHT NOW and put them on. IF - and I say IF - because I think there is less than a one percent chance this happens - Bernanke was to cut rates Monday (or Tuesday) we would get a violent whipsaw and I cannot predict which way it would go. Odds are it would fuel a market collapse as it would all but be an admission of a recession but there is the possibility that the market could shoot up 500 points in minutes. You simply must protect against being caught offsides!

<SCRIPT></SCRIPT>In short this sort of action illustrates why last weekend I said that there was much risk here for both Bulls and Bears, and that it is nearly impossible to know what the right "count" or right "level" is to pull the trigger on shorts or longs. This is a market where defined-risk plays are the safest but they're getting expensive - the options MM guys are wising up FAST to what may be on deck, as was seen in the lenders this week. Expect this to spread to index options FAST if a plunge starts to develop.
As I see it here attempting to play for a bounce going into the close today was a bad bet. But - if we open up Monday and regain the 200 on the SPX and Transports, you must consider stepping aside until this pattern resolves.
However, odds now favor the scenario of the corrective rally being far weaker than anyone (including me!) had looked for last weekend, and for it being over as of today.
<SCRIPT></SCRIPT>This means that we are now at serious risk of a major plunge Monday or Tuesday, and if we don't get it Monday then all eyes will be on The Fed.
If you think the risk was high last Friday, its off the charts now.

<SCRIPT></SCRIPT>
China stopped buying US mortgages in May
Look out for dark days in housing. Those of you who put off buying are about to be rewarded for your patience. While prices will fall back to 1999 levels in my opinion, we are about to see a big decline in the next few months.
Finally, a big drop in prices.
The reason: investors don't want to buy mortgages. First, the securitized market is constipated like an owl, to use the phrase from Bill Gross at PIMCO. The back bone of lending will be government bonds. But who buys them? China owns $100 bil of government mortgage bonds, and they stopped buying.
That's right, China stopped buying our mortgages in May. The liquidity in all of mortgage lending is drying up.
Over the last several years, the People's Bank of China has led the way among central banks in buying U.S. mortgage-backed securities, accumulating an estimated $100 billion worth of them, according to people with knowledge of the central bank's trading. The People's Bank of China has long chosen some of the most creditworthy tranches of these securities.<SCRIPT></SCRIPT>
But with the malaise in the U.S. housing market, even the value of some previously creditworthy mortgage investments is starting to erode. The Chinese central bank abruptly halted purchases of U.S. mortgage-backed securities in May, although it does not appear to be liquidating existing holdings, said one person who follows the bank's trading practices closely.

If 90% of buyers are eliminated by the new lending rules, then anyone who wants to sell has to drop their price a lot. A lot. Builders and bank REO departments come to mind. Home owners have to compete.
I expect a big decline in prices over the next 6 months, as sellers awaken to the reality of the new lending rules.

<SCRIPT></SCRIPT>

<HR align=center width="100%" SIZE=2>

December 8, 1984
THE DAY LOS ANGELES'S BUBBLE BURST

By BENJAMIN STEIN ; BENJAMIN STEIN'S LATEST BOOK IS ''FINANCIAL PASSAGES.''
My pal Jerry P. just bought a condominium in Century City, in Beverly Hills, for 60 percent of what it sold for in 1980. Down the street from me here in the Hollywood hills, four houses have been on the market since 1981. The asking prices now are about one-third less than they were three years ago. Up and down Sunset Boulevard in West Hollywood, apartment houses that were converted to condos lie empty, boarded up, not one unit sold, in bankruptcy, with banks holding title.
New Yorkers do not like to believe they could learn anything from California, but perhaps in this one case they might try.
The Southern California residential real estate boom began in about 1974. It was not just a boom. It was a superboom, with miserable bungalows in Santa Monica running up from $40,000 in 1974 to $400,000 by 1980. Two-story colonials in Beverly Hills went from $200,000 to $800,000 and then over a million. One-bedroom condos in Hollywood were built and sold for $100,000 - what a house in Beverly Hills had been five years before. Every day, home buyers would look at the prices and say, ''It can't go on.'' But every day, for five years, it did go on. Middle-class families were priced out of the market, and the brokers said, ''But the rich will always be able to buy.'' Ordinary rich people were squeezed out of the market in some areas, but the brokers said, ''Never mind, the music business people will buy anything.'' The music business fell into a depression in 1979, and the brokers said, ''The<SCRIPT></SCRIPT>
foreigners are buying. Compared with Paris or Teheran, real estate in Holmby Hills is a bargain.''
Everyone wanted to get in to the game, get the down payment on a house, somehow struggle with the payments for a year, then sell out and get rich quick. Inflation pushed housing prices into the stratosphere. But even when inflation stopped, brokers said, ''The prices have nothing to do with inflation. Everyone on earth wants to live in L.A. The price will go up forever here, no matter what else happens in the rest of the country.''
Then the music stopped, some afternoon in 1980. As if a spell had fallen over the city, suddenly things began to stay on the market for three months, six months, a year, two years. Buyers disappeared. Asking prices stayed high, but nothing sold.
The great Southern California real estate boom was over. Prices had gotten so high that they could no longer be justified by inflationary expectations, or the influx of foreigners, or the climate, or for any other reason.
Now, four years later, those brokers who are still in the game tell sellers to expect that their houses will be on the market for two years. Other brokers have sold their BMW's and are now working as ''financial planners'' or public-relations people, dreaming of the days when they worked for 6 percent of infinity.
Not long ago, I was in New York City looking at co-ops, talking with recent buyers, would-be buyers, brokers. The conversation is eerily familiar. Listen to the buyers: ''Of course, we'll take two extra jobs and avoid having kids to buy this studio apartment facing an airshaft for $150,000. Next year, it'll be $250,000.'' And the brokers: ''Of course, there aren't many Americans who can afford to buy here any longer. But there will always be rich foreigners. New York is the most exciting city in the world. New York is unique, and two bedrooms on the West Side should cost half a million dollars.''<SCRIPT></SCRIPT>
Do not believe it. Trees do not grow to the sky, and the great New York co- op boom will eventually go the way of the great L.A. bubble. Yes, New York apartments were underpriced for years. Yes, New York is an exciting place. Yes, there are a lot of rich people who like New York. Yes and yes and yes. But no real estate bubble ever goes on forever, and the day when everyone agrees that it will go on forever is usually the day it ends.
Maybe this boom will go on a little longer. Maybe, as some of my banker friends tell me, it has already started to totter. Who knows, exactly? But when buyers consider tying themselves in knots to get onto the housing merry-go-round, in the certain belief that they have a sure thing by the tail, they might remember the housing boom in L.A. and the shuttered condos in West Hollywood. The only thing certain about housing bubbles is that they never last.

buckle up!

da3dalus · 4 August 2007

You know that image I posted earlier last week? It was holding a support level trying to decide if this was a correction or a selloff. Friday the market decided in its afternoon selloff after toying with the level for the entire week. Hold onto your hats boys... THIS IS NOT A TIME TO BUY "BARGAINS". Its gonna get bumpy this week!

Cheers!

Ski_Banker · 9 August 2007

Cheers from London, mates!

Thought this would be a good time for a thread bump... :biggrin: :biggrin:

da3dalus · 10 August 2007

Hate to say i told you so, but....

Ski_Banker · 10 August 2007

I love this stuff!!! Wish I was at a HF at the moment though.

Anyway...I just had a moment of clarity regarding what is going on, and where things are headed in the near term. The short answer is still DOWN.

Understand, typically market crashes occur when exuberrance is quickly changed to fear. Like, in a matter of days. Not over the course of 6 weeks, where the writing is on the wall. In other words, why is the market going down *despite* all the fear and pessimism??

My moment of clarity is this: fear of the unknown. Typical economic changes can be quantified (by banks, gov'ts, institutions, funds) and the downside risk can be "boxed". All it takes is factual data and a level head. This credit meltdown, and the less talked about, derivatives exposure is a giant global black box. Senior bankers at Goldman, for example, know what their "book" looks like for all sorts of OTC products, but valuing that book depends in part on knowing the value of assets on the other side of the trade (which can be estimated in stable markets but who knows now?). This credit meltdown is, NOW, unrelated to U.S. subprime mortages (which can still be "boxed", even if it means the loans are only worth 80cts/$). The European central bank doesn't provide $200Bn of emergency liquidity just because the (quite small) U.S. subprime mortgage market falls apart. No way.

So, fear of the unknown (and, more importantly, the unknowable) is what is driving the global equity and credit markets down. An all out panic, here, will be disasterous to the financial system. Unfortunately, I think an all out panic is within the realm of reasonably possible.

Klayton · 10 August 2007

This is bad, very bad, black friday.

nsx2tall · 10 August 2007

Sell Mortimar, Sell, Sell SELLLLL!

DrVolkl · 10 August 2007

http://www.washingtonpost.com/wp-dy...AR2007081000689.html?nav=rss_email/components

"Stocks tumbled around the world today while the U.S. Federal Reserve and other central banks in Europe, Japan and elsewhere continued pumping money into the financial system to keep it functioning despite spreading turmoil in the credit markets."

"The injection on Thursday of $130 billion into the financial markets by the European Central Bank was the largest amount ever provided in a single operation, exceeding the amount added after the Sept. 11, 2001, attacks. It came after France's biggest bank, BNP Paribas, froze three funds that had invested in the troubled U.S. mortgage market. The move sent banks in Europe scrambling for cash. The Federal Reserve followed by adding $24 billion to the U.S. banking system."

"I think the Fed and the other Central Banks are trying to calm things down, which is what they should do . . . but they're closing the barn door after all the animals are already out," said Hugh Moore, partner at Guerite Advisors and former chief financial officer of a subprime mortgage company. "There's relatively little they can do because they don't really control the securitization market," which packages mortgages into securities that are then sliced and diced and sold to investors around the world, including large hedge funds, pension funds and insurance funds. He said, "There's little they can do to immediately rectify the situation. It's not like the savings and loans crisis."

Uh oh!

All you damn lenders and your subprime loans! You're going to sink the ship! lol

JadeFox · 10 August 2007

Wow. Just wow. What a scary time indeed...

SilverStone05 · 10 August 2007

Not to go against the grain here, but I'm jumping in on some bargains. There are still some great companies out there that are getting hammered for not much reason. In a lot of circumstances, the earnings are there to justify prices.

I picked up NCC...a regional bank here in the midwest.
AVG cost was 27.05.....over a 6.2% yield if I choose to hold on to it long enough to get a dividend payout.

I bought Blackstone (BX) this morning at $24.26.

Otherwise, cash cash cash. I'll sell out when I'm up a point. NCC is almost there. :biggrin:

In other news, I locked my mortgage rate last week. Broker called me telling me that this week, ARM rates are a point higher, and are higher than fixed conventionals. Crazy times.

EDIT: Sold em both after a point rise. Time to go look for some more bargains.

da3dalus · 10 August 2007

Its good you got out of NCC... shes looking weak to me right now. Looks like the burst up was to test resistance, which it did, and then failed. Good trade!

SilverStone05 · 10 August 2007

If you're looking at technicals EVERYTHING is looking weak after the past two weeks. :wink:

Just picked up MSFT 28.59.

da3dalus · 10 August 2007

I don't trade 'technicals' technically speaking. But MSFT looks strong! The 28.50-60 area was the perfect entry spot! If its gonna work, thats where i'd be in from. Are you a long term trader, swing trader, or day?

SilverStone05 · 10 August 2007

da3dalus said:
I don't trade 'technicals' technically speaking. But MSFT looks strong! The 28.50-60 area was the perfect entry spot! If its gonna work, thats where i'd be in from. Are you a long term trader, swing trader, or day?

Yea, i've been trading MSFT all week. I'd probably be pegged as a swing trader, although Ameritrade has classified me as a pattern day trader. :wink:
Which I don't mind, I like having the margin capabilities of a pattern day trader.

I usually buy in 1000 share lots, if I get a pop I sell, if I get a large enough drop sometimes i'll buy more to lower my basis. I'm trying more and more to be cash at the end of the day so I can size the market up before it opens the following day. This market is new to me and I'm learning a LOT in this period of extreme volatility. It is common place for a 400 swing intraday.

If possible I try and stay away from NYSE Listed stocks. I'm sure you've seen the games that go on and the inferior liquidity/execution the specialists provide with NYSE stocks. I have no idea how an issue that trades 20,000,000 shares a day has a 5 penny spread at all times. Manipulation at its best. I've got a video where I was trying to cover a short position and I'd enter my order (which was in the money), see it go up on level ii, and immediately the specialist would raise the ask. Then I'd cancel the order, and then the ask would drop right back to where it was. In the video this happened five times without a single share trading hands in the meantime. Can't wait for the NYSE to go full electronic what with the likes of LaBranche, and Van der Moolen handling order volume.

I've been alternating long and short positions several times daily on SNDK and M lately and have been doing pretty well.

MSFT hasn't done boo in the last 5 minutes.

da3dalus · 10 August 2007

Not a bad idea to be flat at the end of the day in these markets. The globex sessions now are trading more contracts than most of the days were jan-may which means a LOT can happen, and is happening overnight. Especially lately with the foriegn markets being sucked into the credit woes.

*btw* MSFT not looking so sexy to me now. Failed where it should've broke. Looking for it to head lower into the close.

steveny · 10 August 2007

Sure wish I still had my 5000 shares of apple I bought at ~19 and sold at ~23:frown:

SilverStone05 · 10 August 2007

da3dalus said:
Not a bad idea to be flat at the end of the day in these markets. The globex sessions now are trading more contracts than most of the days were jan-may which means a LOT can happen, and is happening overnight. Especially lately with the foriegn markets being sucked into the credit woes.

*btw* MSFT not looking so sexy to me now. Failed where it should've broke. Looking for it to head lower into the close.

So if you aren't looking at technicals, what kind of analysis are you using to make these predictions?

At the close, I took my $100 and ran. I guess you don't go broke making a profit.

da3dalus · 10 August 2007

Eh, without getting to in-depth I measure market swings with fibbanocci levels. Everybody has something they like, and for me, this is it. I figure, if the brokerages on wall street are using them to implement buy and sell programs it might be a good tool. I'm absolutly amazed at how virtually any market reacts to these measurement. You can see a simple measurement I had on the S&P in post #54. Not saying its an end-all-be-all, but I like it.

Either way you can't go wrong taking profit! Cheers!

SilverStone05 · 13 August 2007

Yea, but might have done well to hold on to BX over the weekend. They killed their earnings. Great company.

Onsoku · 13 August 2007

.

As I sit here the futures have recovered basically all of their dump from Friday after the close. So I guess I shouldn't bitch that I bailed at 3 minutes to 4, eh? Only if I had the fortitude to stick a tight stop on that over the weekend would it have worked out ok.

Anyway, I want to present the following chart which is a 10 year weekly of the S&P 500, and discuss it a bit, because I'm seeing a lot of "bullshit" flying around on various blogs about how "there's nothing wrong here" and other similar nonsense.

(Click the chart for a pop-up window in its original size)

Ok, let's go over a few things. I have drawn a trendline (which is somewhat difficult to see, but its there - in red) from the 2003 lows. Note that we have not breached this trendline. It is roughly at the 100 DMA, or 1349ish.

Also note that over the course of a month it rises by about 10 points. But - in a purely sideways market we have about 10 months before we violate the long-term uptrend.

Also, based on that chart, we have some Fibonacci retracement levels outlined from the 2003 lows when the current Bull Market began. The critical ones are at 38.2% which is right near the 200 WMA, the 50% right near the 1175 level, and the 61.8% level at roughly 1075. All three of these are downside targets and are important resistance levels. Both the 50% and 61.8% levels are also coincident with natural chart support which enhances their support structure.

You can also see that if you break the 61.8% level there really isn't anything left in the chart to keep us off the 100% retracement all the way down to 768! That first move up was near-parabolic and thus offers zero resistance on the way back down. Better hope 1075 holds!

Now the Bull Case rests on this chart, which is what everyone is reading and prognosticating from.

But I want you to look at something else, because it is verrrrry interesting.

Let us presume for a minute that the selloff last summer was an attempt to actually break the back of the Bull. That is, it did not establish part of a long-term trendline but in fact broke below it; that is, the chartists are DRAWING THE LONG TERM TRENDLINE INCORRECTLY!

So we will look for a long-term trendline that ignores the summer '06 selloff. Is there one?

Hmmmm....

Indeed. If we ignore the '06 selloff as an attempt to puncture the Bull Market which was arrested - that is, it was not an ordinary correction back to the means, but rather was an abortive attempt to shut the Bull down, then we see that there is indeed another, factually stronger long-term support line and we are sitting right on top of it right now!

That support line was established by the late '05 pullback and the February lows!
That's THREE points as opposed to the TWO that everyone else is using!
And far more ominously, we are sitting right on top of that trendline right now.
This doesn't change the Fib retracement picture and where support is on the downside from here at all. But it does change - dramatically - the odds. A significant further downstroke in the S&P 500 below the current levels, certainly anything below 1400, leaves us with the sinking possibility that we've been modelling this "bull run" off the wrong numbers!
And if so, we are just one more significant weekly decline - another 3-4% - from breaking the Bull's back with conviction.
Now add to this my "Where we've Ben" post from yesterday, and you can see where the risks and rewards lie in the market right now.

We could bounce here. But we pretty much have to do it here. If the downside continues for any material length of time from the current levels, we likely have actually broken the Bull thesis, despite protests to the contrary. Below S&P 1400 there is little doubt we're headed back to at least the 1225ish level - the '06 lows - and I'd take an even money bet we're headed to at least a 50% retrace around 1175.

We could DIVE here but not strongly enough to break the ACTUAL trendline. This could be a ruinously bad bear trap for shorting the broader market, much like last summer was! The "buy the dips" guys could actually be right.

Let's temper this technical analysis with fundamentals.

The credit markets are a wreck. The mortgage securitization pipeline is dead and not coming back for anything other than GSE-grade paper any time soon - if ever. Nor should it. Even if this does not extend beyond the housing market it already has and will continue to screw consumer spending, which has a very high probability of leading to a recession. Housing will continue to fall apart for at least another year.

The "LBO Put" has driven markets higher since summer of '06, when it really got cranking. In fact it can be argued that basically ALL of the gains since then and then some were due to this "Put" of liquidity and the fact that you couldn't short crap companies without risking having your head cut off the following Monday. This is now gone.

Consumer debt overhang continues to grow and has shifted out of MEWs to credit cards. See #1.

The number of analogies to "firing on all cylinders" has radically increased. Well, if you're doing it as best you can now, there's only one direction to head for corporate profits from here, right?

Add all this up and I see a market headed for trouble - but one with risks on both sides.
Therefore, my view is that while I do think we're staring into the maw of a New Bear Market, I am not willing to commit big money to the short side of the broader market until I have confirmation of a new primary trend.
As a noted before, a break above 1520ish on the S&P would cause me to abandon a view that we are staring at a new intermediate-to-long-term trend change. I do not believe, given the macro backdrop, that this is possible. But - you have to go with what the market does, not what you want it to do.
Now individual sector bets and daytrading the futures? That's a different matter. But on the macro level, this is what I see at the present time.

Ski_Banker · 16 August 2007

And...here comes the big one!

Ryanmcd2 · 16 August 2007

LOL true true, just shorted the EUR/USD

da3dalus · 16 August 2007

I thought this day might revive this thread a bit.

How 'bout that stock market?

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