Profit Taking Begins - Investors Find Safe Haven in 0% Treasuries


Well, as expected we saw our day of profit taking. Like I said yesterday, a 600 point rally in a bear market is more than you can ask for if you’re going long. Continual negative forecasts and outlooks brought Wall Street back down to reality for today, as people started digesting all this economic data we have been receiving. Personally, I don’t know who is doing the buying right now, because it is sure not the institutions. In fact, I believe the institutions are selling. The Treasury sold $32 billion in 0% yielding 4-week bills. $32 Billion! That shows just how many people feel that our market is in for a bad run. These people are happy having a 0% yielding return, which sounds great if you think a big downfall is on the horizon. Our foreign investor friends and institutions are looking like they are not wanting to roll the dice with the NYSE. Is it really all that surprising? ICSC (International Council of Shopping Centers) announced their negative outlook on retail for the next year. Fed Ex and Texas Instruments also joined the party of cutting their forecasts for the next quarter.

Even though we had this sell off day, we could see the market still continue to be bullish for the next week or two, especially if there is an agreement on the auto bailout this week. However, I feel that the bull is running out of steam. This Friday we have retail sales which , in my opinion, should be pretty lousy. We also have the PPI (Producer Price Index) on Friday, which expectations are pretty low as well. In any case, during this holiday season, there is not much to be cheerful about in regards to the stock market. However, the market has continued to push up and I have absolutely no idea who is buying right now. I think the government may just be printing money and putting it into the market, ha. At any rate, I still think we could see a crash any day. As soon as momentum starts pushing down again, it’s going to be hard to turn that train around.

SRS, my favorite ETF, was best of the shorts today, ending the day up over 12%. SKF also did well, as financial’s green streak came to an end. FXP and EEV were alright, however, I would like to see a stronger performance from them in the near future. DIG and GDX both held up strong despite the sell off. As I said yesterday, energy and commodities are the only buys I like long right now.

Right now, many people are using the “end of the year” term as a scapegoat. Broadcom cut their forecasts today saying that “many of their customers are postponing their purchases until 2009.” Yeah, like things are going to get better next year . It is the same with China and Europe, as they are hiding behind “year end uncertainties” to explain their market instability. The fact is they will use any excuse to hide behind to try and instill investor confidence. If foreign investors pulled out of those emerging markets, they would be killed. As soon as 2009 hits, I believe that is when reality will hit most. Coupled with the exhaust from holiday spending, year end earnings reports, continued unemployment, and slowly increasing energy costs. Right now, we are very lucky that oil has hit such lows. Just don’t expect it to be at $42 a barrel for much longer. As colder, winter months settle in, the demand for oil should increase.

We could see another day of sell off tomorrow, depending on the auto situation. If so, I will probably sell out of some of my long options and finally cash in on my profits. I have good positions in short right now, so no need to bulk up on more of those. If we go green again, I will, however, be picking up some more SRS in the low 80’s or high 70’s. I do expect a red day tomorrow, as I would expect foreign markets to react negatively to our down day today. But, who knows in this market, with these crazy buyers. I hope everyone has a good evening and thanks again for the donations, much appreciated. Happy Trading and we’ll see you tomorrow.

12 comments:

  1. Kuntal Says:

    Hi,

    I would like to thank you for the analysis you provide. As I am new to this trading, you give me some insightful information.

    Could you please elaborate whether it is a good time for me to buy DIG and GDX now should I wait for another round of sell off.

    Thanks
    Kuntal

  2. Anonymous Says:

    Hey FF,

    I have a feeling that tomorrow will be green because of approval of the bailout. All these rallies have been in anticipation of the bailout, which has not happened yet. So, once it happens tomorrow, we should see the real rally. The sell off should start next week. My prediction is Tuesday. My 0.00002 cents :)

    Any thoughts? Thanks.

  3. Finance Fanatic Says:

    Kuntal, in the short term, it's hard to say. Energy and commodities are getting killed when the market tanks. But I believe they are the most oversold. I am bullish on GDX even at $25. Digg should go up as oil begins creeping back to the $75 a barrel range. I like both for a long term buy, very low price.

    Anon,
    I agree with you, if the bailout does indeed pass like it is expected to, we should see green. I don't think it will last long, however, we factored in the bailout 1 week ago. But we should get some green out of it for the short term.

  4. s Says:

    I don't think oil is coming near the 70 mark , not soon at least.After the holidays are over get ready for a loooong red.The economy is going to be hit really hard , my opinion , after Obama takes office.Who do you think is going to buy the oil?Those 6,something unemployed , soon to be 7%?
    My guess is that the bets for 25/barrel in February are more realistic.That's when I'll start shopping for my big boys.Hopefully those prices(on my boys) will double by next January when we should see some improvements , if any , from the new administration.

  5. s Says:

    Still on F :).Greed , greed and fear , that's what it's all about.
    Good night guys.

  6. Finance Fanatic Says:

    The reason why I see oil going up, is Obama is most likely going to reverse all of the off shore drilling and the "gas rock" drilling in Utah that were just recently approved, when he is in office. Most likely, the saudi's will not allow oil to get to $25. They will just shut off supply. Even though, oil may continue to go down in the short term, there is a lot of upside on the longside for oil.

  7. Smart Says:

    Hey FF,

    Thanks for all the good insight. I am wondering how we can find the key upcoming announcements and dates that potentially affect the stock market? (for example IPP, rate cut ...) Is there a web site listing all that?

    Thanks a lot.

  8. Finance Fanatic Says:

    Yahoo Finance has a good economic calender

  9. sunil Says:

    Can you please comment on why SRS is down so much and so fast by afternoon (76.8) where is dow is still 8761

    thanks
    sunil

  10. annoyed anon Says:

    SRS does not track against the DJIA.

    Do some research please before you ask questions please.

  11. Finance Fanatic Says:

    Sunil,
    SRS tracks a variety of REITS and developers, not just the Dow. Usually, these stocks move with the Dow, but not always. You can see the full list that it tracks here

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