Consumer Confidence Up - Market Reacts With Mixed Emotions

You know times are getting bad when banks are offering trading accounts with free commissions attached. I thought I would never see the day. In my research today, I found Zecco, an online brokerage company, offering free trades for new account sign ups. I think you get 10 free trades every month and then it's only $4.50 per trade, wow. There platform was pretty solid too. I am highly considering switching over from my rip off platform! Anyway, if you're interested you can find more info at Zecco.com


I think it was only two days ago you couldn't go to any financial related site without seeing the words, DEPRESSION, MARKET CRASH, FINANCIAL CRISIS, etc. Today, it seems as if everyone is back to normal, like the past 6 months haven't even existed. Today, we're seeing, THE WORST IS OVER, WE'VE REACHED THE BOTTOM, WELCOME BACK BULLS. Oh how quick we are to forget. I compare this time much like the eye of a hurricane, except that the back part of the storm is a category 5, compared to the category 3 we just weathered. Historically, holiday season is the bull time of the season. So I don't find it that shocking that our markets are holding up relatively stable (only for the past 3 days!). Also, considering that we actually increased in consumer confidence this past month (the market expected a loss), and we still barely made it into the green today, makes me still incredibly skeptical about the market and a strong believer that the worst is still very much to come.

To increase the good fluff, Secretary Paulson discussed the continued efforts of lowering mortgage rates by purchasing mortgage debt, hoping to unfreeze the very frozen financial markets. Obama has also discussed his plans to cut spending to help balance the budget after the spending of the huge expected dollars needed to help fund this multiple trillion dollar effort. I also woke up with a gold nugget under my pillow. Words are words, and although they sound inciting and persuasive (especially out of the mouths of politicians), it is a lot harder than people think to get all these problems fixed. Even if we made the perfect move, every time, it would still take over year to get everything sorted out. Once again, we find ourselves in a false reality with talks of good news to try and over power reality. Holiday cheer helps with keeping spirits high, but I believe we are in for a mess in or even before first quarter '09.

Nobody talks of inflation (in fact everyone talks of deflation worries), however when we bounce from this thing, I see us bouncing right into hyper inflation. I mean the discount rate is almost down to 0! Sure the Fed can quickly meet to tighten money supply, but I still see interest rates heading back toward the teens, at least for a short period. There has also been a severe over correction on commodity prices. We could see a quick jump back up with commodities as we regain some of our footing. This could also lead to a quick inflation. This is why I have been extremely bullish on Gold.

I don't believe, aside from mortgage debt from houses, much of this credit crisis has hit the actual "consumer" yet. Sure, many have lost their jobs and may be living off of severance or unemployment right now, or maybe even an emergency fund. Try being jobless for a year, unable to open any lines of credit, with unemployment checks running out, 3-4 mouths to feed and nowhere to work. I think we are headed for these types of times for Americans. As much as I want to rebound from this crisis, and make some money on the long side again, I just can't find the will to believe the worst is done. So believe what you want to, I personally feel that the worst is still yet to come.

Overall, it was a pretty good day for me. I saw green in almost everything. Both FXP and EEV ended in the green, while UYG and DIG also continued to receive. Even though I remain very bullish on gold, I sold a lot of my GDX options today (more than doubling my investment), only because I think I can catch it again on another dip. Anytime I can double on the long side, I take it! I just think even gold will get brought down with the rest of the market again before it pops good. China continued to show weakness yesterday with doubt creeping in and many feeling like their gains the past few weeks have been a little too optimistic. I believe that perspective will continue for a while.

I am continuing to hold on to my UYG and DIG. Even though I believe our woes with oil is still not over, OPEC meets on Friday to discuss the possibility of maybe yet another cut in supply. This usually causes a nice little pop. What I have noticed, though, is to usually sell out of these "anticipation pops" the day before the news is announced, especially in this market. Usually, after the announcement we are finding a lot of "over anticipation" and correction in value and can sometime eat into your profits anywhere from 3-6%.

SRS was almost in purchasing position. If it gets below $120, my round of buying will begin once more. Also, for you day traders, SRS is a great intra-day trading fund. Today, the spread on SRS was from $125 to $152. That's a 21% spread. Time the bumps right, and you can make a pretty healthy 1 day profit. This goes the same for SKF. It should be interesting to see how the market reacts tomorrow, being a day before a holiday. It's almost like a mini Friday. I think we have been itching for a pretty strong sell off, so don't be surprised if we spend most the day in the red. However, we are in a state of "bailout fluff" again, so more news could still bring some gains. I just think people want to pocket some of these recent gains and go and buy their turkey. So expect to probably see us teeter tottering back in forth from red to green, like we saw today.

I think the resistance we're seeing during this "bull season" is showing that we are definitely not out of the hole yet. Not even close. This year's black Friday has to compete with BK Friday, who are all the retailers liquidating their inventory for Chapter 7. Housing sales got killed today, which was expected, but was barely noted behind all the noise Paulson was making from the podium. While volatility still remains high, and volume is still higher than average, we continue to be in a vulnerable state for market failure. Stay on your toes, and watch out for investing in retailers for the holidays. Their usual holiday bumps they receive, could be replaced with losses this year. Have a good evening everyone and Happy Trading.

13 comments:

  1. Will Says:

    I read about Zecco too but i heard they have alot of hidden fees.

    http://mrwavetheory.blogspot.com/2006/10/zecco-not-entirely-free-lots-of-hidden.html

    What online broker do you use?

  2. Finance Fanatic Says:

    Right now I have been using Schwab, which has a great interface, but the commissions are kind of pricey. Thanks for the Zecco info. Maybe I will just open one up for my stock trades and nothing else.

  3. seizure Says:

    i actually am using Zecco right now to trade. It's great. Last month in october they gave the entire 30 days for free trades. I just use it to do simple Stock Transactions nothing more. Not even options. Trying to limit my trades to 10/month

  4. Dave Says:

    FF, your eye of the storm analogy is spot-on. Not to mention that it literally made me laugh out loud before I even read the text.
    Thanks for sharing your strategy.

  5. Jed Says:

    Hey, this is a really great blog. Been reading it rabidly for about a week. Anyone who thinks this is a bull market is insane. That said, as you have said, long options at this point on oil and commodities are not a bad idea. I enjoy your analysis of individual stocks and ETF's as well as the more macro stuff. keep it up.

  6. MonsieurStat Says:

    Yes indeed, the "troubles" are just starting to surface, and there is little "hope" of "change" with the new government. At least not by the way things are shaping up so far. I had the pleasure of reading a piece by Chomsky published on zmag.org today. Here are some extracts:

    The leading figures in Obama's economic team are Robert Rubin and Lawrence Summers, both enthusiasts for the deregulation that was a major factor in the current financial crisis. As Treasury Secretary, Rubin worked hard to abolish the Glass-Steagall act, which had separated commercial banks from financial institutions that incur high risks. Economist Tim Canova comments that Rubin had "a personal interest in the demise of Glass-Steagall." Soon after leaving his position as Treasury Secretary, he became "chair of Citigroup, a financial-services conglomerate that was facing the possibility of having to sell off its insurance underwriting subsidiary...

    Rubin was replaced as Treasury Secretary by Summers, who presided over legislation barring federal regulation of derivatives, the "weapons of mass destruction" (Warren Buffett) that helped plunge financial markets to disaster. He ranks as "one of the main villains in the current economic crisis," according to Dean Baker, one of the few economists to have warned accurately of the impending crisis. Placing financial policy in the hands of Rubin and Summers is "a bit like turning to Osama Bin Laden for aid in the war on terrorism," Baker adds.

    The business press reviewed the records of Obama's Transition Economic Advisory Board, which met on November 7 to determine how to deal with the financial crisis. In Bloomberg News, Jonathan Weil concluded that "Many of them should be getting subpoenas as material witnesses right about now, not places in Obama's inner circle." About half "have held fiduciary positions at companies that, to one degree or another, either fried their financial statements, helped send the world into an economic tailspin, or both." Is it really plausible that "they won't mistake the nation's needs for their own corporate interests?" He also pointed out that chief of staff Emanuel "was a director at Freddie Mac in 2000 and 2001 while it was committing accounting fraud."
    =========

    So it seems it will business as usual. We are far from Ron Paluian ideas of overhauling the system to save it from itself. How these people will be "saving" this economy remains to be seen. It is interesting that so far Obama has strongly supported all the initiatives of the Bush administration who got us into this mess in the first place.

    What does it all mean for us small traders? My bet is that the economy will be run down to the ground at the expense of the whole society who will see its wealth diminish several folds over the next little while. A deep recession will have the effect of catalyzing the transfer of wealth from the middle class to the upper class. MANY will be left behind! keep your eyes on the ball folks, and don't be fooled by the rhetoric of politicians.

    The present chaos is our only chance of making a few dollars to only conserve our standard of life as it is today. If you miss it, expect working twice as hard for half of your actual pays. That will be the new reality.

  7. andy Says:

    It seems as if SRS is going to dip below 120 sometime today... I also believe Obama has another TV Pow Wow on monday... Do you think people are gonna continue feeling good every time he talks? Possibly causing SRS to dip a little lower than 120?

  8. Finance Fanatic Says:

    Andy, with the market in it's vulnerable state, anything shakes it up. Sure, I think Obama could jolt another little move, and if it goes down more, great, I'll buy more. I just will begin my loading up at $120. I will keep buying as it goes down in 10 dollar increments. Remember, the inverse reactions to disappointments are going to be harsher than these bump rallies.

  9. brian Says:

    Hi, you blog is great. I own both FXP and a lot of EEV, both are down big time as I dollar cost average to about 90 & 126 respectively. Probably should of sold them at break even when dow was at 7500. I don't have any ammo (or guts) left to dollar cost average now. Just one question, there's talk that our US currency will start weakening once deleveraging is over and gov't start printing the $$$. Wouldn't commodities/emerging market start rising again with US currency weakening again going into next year?

  10. Finance Fanatic Says:

    I believe commodities will go up based on the weakening dollar, but I don't think emerging markets will get much of a push, just because I think all currencies will weaken with us. China did a huge rate cut yesterday (which is why FXP is so down today) and Europe just did a big stimulus package yesterday, giving EEV a hit.

    We may keep this mini rally going during the holiday season, but I am very bullish in my shorts and feel all of them are or are getting in Great Buy territory.

  11. D Says:

    Love the blog, and I largely agree with your perpectives.

    However, I am seeing a disturbing trend.

    To play devil's advocate...the market no longer seems phased by dismal (or even horrific) economic reports. It is strengthened by *any* kind of good news, of which there is a lot to come.

    The government has made it clear that they will throw as much money as is necessary at the big financials to keep them afloat. And while they hypocritically taunt the auto makers, they will eventually provide some kind of bailout for the big 3 as well. And I fully expect a couple other industries to see some aid before all is said and done.

    Sadly for my favorite, FXP, China seems to be following the lead of the U.S. government, and may continue to see similar rallies due to their own actions as well as ours.

    December will likely bring more announcements of "deficit be damned" government bailout money, and more appointments of old economics professors to newly fabricated advisory positions -- plus general holiday and end-of-year cheer.

    January will be a month-long party to ring in the new year, the new congress, and the new president, all of which may be viewed as saviors, and all of which will no doubt bring new official measures and new hope...even if that hope is, in reality, foolish.

    The market seems to be looking for any excuse to rally, and there seem to be plenty of excuses on the way. Are we doomed to wait until February or March to see profits on our short funds again? Maybe longer???

    Would appreciate everyone's thoughts...

    D

  12. richardking Says:

    Wow, how quickly sentiment can change in one week. I don't even know what to think at this point- the economic numbers today were way worse than any predictions, yet we skyrocketed 400 points from market open to close. At this rate, with auto bailouts on tap for next week, it seems like FXP/SRS/etc are worthless... but I really don't see how the market is getting any better with WORSE news coming out every day...

  13. Lama Trout Trader Says:

    Another deep discount broker is: http://www.optionshouse.com/

    I haven't tried it yet, but I hope to in the next month. Only $3 stock trades, flat rate. Doesn't look like there are any minimums either.