Bulls Gain Victory Despite Very Bad News


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I think it's pretty clear that bulls are not going to back down for the time being as we saw another day ending in the green, despite some really bad numbers announced in the morning. I strongly feel there is some sort of manipulation happening right now, either with government bailout funds being allocated to market stimulation or PPT movement. In either case, with the data we received today, there should be no cause for celebration and especially buying (in my opinion) for that matter.

Whatever the case, it is pretty clear that someone wants a "Santa Bull", despite still large sell off tendencies throughout the day. The more strange part about it is that we started the day in the red and didn't kick into the green until after all the bad news came out. I guess the PPT likes to sleep in. Even though the rest of the world may be ignoring these numbers that came out today, I am not. These were big numbers that are not good for us in the coming months. ISM's (Institute for Supply Management) sector index got slashed 7.1 points to 31.3, a record low for this 11 year old index. This is a very bad number. On top of that, it is a number that points to the future. We won't see the effects of this decline for a few months, which makes me wonder how this would influence someone to buy.

On top of that, our ADP employment(private employment) fell 250,000 instead of an expected 205,000. Another wrenching number. Then to top if all off, Paulson continued to stress that the outlook for 2009 is not good and that he already wants access to the remaining $350 billion that is left of the bailout fund to use at his discretion. We are running out of bailout funds. My prediction is that he'll be back in his seat in front of congress asking for a trillion dollars within 3 months. The debt that is surfacing is too much to count. And just wait until all of the 5 year, very highly leveraged, commercial real estate conduit loans that were purchased between 2003 and 2007 start coming due. It is going to be another heyday for banks, just like the housing market.

As I said yesterday, its hard to say what is going to happen here in the short term. As long as there is this bull manipulation going on, it doesn't matter what is announced, we could still go up. However, I still believe that it won't last, and when these new numbers finally do get factored into the market, it should hit us pretty hard. I really think we should be in the low 7000, with our current state of our economy. I still plan to stick with fundamentals and put my money where reality is. I have accepted it may be a few months until my shorts are in selling position, but I am in no hurry.

Today, I actually reloaded up on SRS again at $119. SRS is probably my favorite inverse etf and I believe will be the big performer for 2009. I believe there are going to be a lot of retailers and REITS going BK next year. If I can sell at around $150-$160, I'll be a happy camper. I almost want to buy some FAZ right now, because of the grim outlook for Morgan Stanley and Goldman Sachs for the next year. I still believe financials have been over bought recently and have plenty of trials ahead of them. Plus, I believe our government cant continue to bailout every bank nearing bankruptcy.

I have officially put FXP on the back burner and am just going to let it set. I guess I will have to wait until there are mass public riots, so that people will begin to see the real trouble going on in China. Chinese stocks received more love today, when their government flushed capital into some of their major banks. All of these quick moves that the Chinese government continues to make just reiterates how bad off they are.

I am still continuing to make strong gains on my UYG, DIG, and Apple options. If we continue to rally through this week, I will probably begin selling those off by Friday. Friday is a key day to watch. Recently, we have seen Fridays ending in strong rallies. However, this Friday we may receive the worst news thus far, with the new unemployment numbers. This number should be very, very bad. Even though expectations are low, when reality settles in, it should jolt the market quite a bit. This is something that effects the consumer more directly and can hurt sentiment. However, in this market, you never know what's going to happen.

Stay on your toes. Volatility is still increasing, which always makes me nervous. There is a reason they call it a market crash. Not a downwards trend, or a hill. A crash hits when people least expect it, or when they think the worst is over. And on any given day, I feel that we could have a crash. I don't think it is very likely at this time, but it makes me comfortable to have some short positions. Have a good evening and Happy Trading.

16 comments:

  1. Smart Says:

    Hi FF,

    I used to use a website to track institutional transactions online and almost live, but I cannot find it. Would you please help me with that?

    Thanks

  2. Mohan Embar Says:

    Hello,

    I'm new to all of this and have a question. What do you all make of
    this article (which is in the top left corner in Google Finances for
    SRS)?:

    http://wallstnation.com/SRS-Short-Real-Estate-12032008.html

    ...as well as these charts:

    http://finance.yahoo.com/q/op?s=SRS&m=2008-12

    Like I said, I'm new to all of this and only half-understand what put
    and call options are. From the Yahoo chart (linked to from the
    article), all of the prices have gone down. Is this saying that SRS is
    going down or am I misinterpreting something?

    Thanks in advance.

    -- Mohan

  3. Finance Fanatic Says:

    Smart,
    bloomberg has some good info dealing with Institutional purchasing, see here

    Mohan,
    Of course there is speculation with all of the inverse etfs, if not everyone would be in them. However, my niche happens to be real estate, commercial more specifically, and the commercial side hasn't even begun the foreclosure process we have seen in the housing market. 2009 will be a bloody year for commercial real estate. I believe SRS will continue its up and down volatility in this current, crazy bull year end market, but I believe it will find is footing in the high 200's and above by 2009. Those are my thoughts

  4. Mohan Embar Says:

    Thanks for your answer.

    How confident do you feel about SRS as an ETF? Some talk about counterparty risks:

    http://sovereignspeculator.com/2008/09/17/counterparty-risk-too-acute-in-short-and-levered-etfs/

    Like I said, most of this is over my head so I rely on smart people like you to make sense of this.

    Thanks again for this blog and the time you put into it, by the way.

    -- Mohan

  5. Mohan Embar Says:

    Here's another one:

    http://wallstreetexaminer.com/blogs/cutting/?p=166

    -- Mohan

  6. Smart Says:

    Hey FF,

    Yes, I finally found the one I used to have. You may also want to use it. You enter the symbol and it will show you live institutional transactions of the stock. I was wondering why RIMM warning today with awful estimates ended up the stock 5% higher! So I am going to look how the institutions traded it today.

    Thanks

  7. Astro Says:

    How long do you think this mini-bullish thought process will be?? Until 2-3 weeks after Obama takes presidency? I think there'll be small uptrends in December but if there's a drop, then it'll drop HARD. I'm still holding FXP/EEV and averaging down. Do you think I should stay away from adding more FXP/EEV?

  8. Smart Says:

    oops, forgot to send the link:

    http://www.mffais.com

  9. MonsieurStat Says:

    Market manipulation is a real possibility. In China, it is much more probably, but in North America, given it is illegal.... But then again, the Law has never stood in the way of the present government! If caught, they'll just say they were doing it for a Greater Cause! Nonetheless, FXP is acting quite strange as well. I trade or at least follow a dozen ETF's on a daily bases. None of them goes up and down like FXP. I just can't figure out what makes it tick anymore!!

    100% agree on commercial real estate! It will be very ugly once it really starts....

  10. Smart Says:

    Hey,

    By the way, I am reading on news now that GM may go for a prepack bankruptcy and bankruptcy may be a cheaper option to go. That may be a negative sentiment for tomorrow.

  11. Finance Fanatic Says:

    Mohan,
    It is pretty clear that many of those writers don't know that much about these inverse etfs and how they work. There is speculation about everything and many analysts openly speak out on them because many of them are hedge funds managers and these funds hedge against their performance. I know many portfolio managers that use these etfs right now. I feel they are good buys in this market, there are people who disagree.

    Smart,
    Thanks for the site link, I will check that out. Rimm has also been catching my eye, I like their balance sheet.

    Astro,
    It's tough to say when this little rally will end. There are announcements set up that could continue to push the market up with a possible GM bailout, more global rate cuts, Obama. However, either way, I feel q1 2009 will be a very tough quarter for the market. But I think the rally could end any day. This market is so volatile it's scary and could crash on any given day.

    Monsieur,
    I would like to believe there is no manipulation in our markets, however, with certain trends it's hard to not believe it. I think FXP should be getting back on track in the next couple months, it just needs to shake off some of this government intervention. Thanks for the comments guys! good stuff.

  12. Finance Fanatic Says:

    Smart,
    Ya if GM goes BK, that definitely will weigh heavy on the market.

  13. Purdue Fan Says:

    FF,

    It really looks like the market wants to rally between now and the end of the year. So I'm afraid to enter into any more short positions until we see that big rally (i.e. DOW above 9,000). I'm thinking that by then, SRS might be well below 100 and then I could pick up a lot of shares cheaply (It's 108 as I write). Thoughts?

    I bought some Apple options when the stock was approx $87 a few days ago and plan on holding those until the big rally. Apple has hit $110 a few times since the first big drop in the market in October, so if it goes back to that level at least, I would expect the options to double in value.

    I notice every year that the market seems to drop in January, I guess due to tax purposes. But I would think it would actually go down in December because of people selling their positions and then go up in January from people buying those positions back. Can you give us some insight into that yearly pattern?

    Thanks!

    Purdue Fan

  14. Tim Says:

    FF,

    Enjoyed reading over the past couple weeks, I have learned some great stuff.
    What source do you use to know what is going on in the financial market in the coming weeks? For example in your current post about unemployment numbers coming this Friday.

    Keep up the good work!

    Tim

  15. Anonymous Says:

    BioFuel (BIOF) said it expects to operate at cash breakeven levels in the first quarter of 2009, prior to debt repayments, based on recent spot margins.

    Apparently they've worked out a deal with the company that was holding them hostage.

    Excellent @ Bulls!

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