What Unemployment? We've Got Obama

From trading on Friday, you would have never guessed that we received the worse job loss report in 34 years as the market blew right past that number on Friday and turned to new hope for bailouts and freedom from debts by closing the Dow up 217 points. As I said last week, currently, we are very vulnerable to these short term, violent rallies as speculation has become the steering wheel to market trading. As I also discussed earlier in the week, we knew we were expecting something from Obama to combat the dreaded unemployment number that everyone expected to be devastating. The term "Buy the rumor, Sell the news" seems to be in effect currently as everyone jumped on the bank buy train on Friday(including myself) hoping for some serious news over the weekend. The only news that happened Friday, was a pretty mediocre press conference from Obama talking about his "plan" to stimulate the economy, and the rest were a bunch of leaks that made it to the news talking about what is suppose to be announced Monday (I'm sure the government didn't mean to leak that, right?!). They estimate that over 3 million jobs have been lost since we began the "recession in December of 2007. Over half of these jobs have been lost the past three months. This is a very bad sign, as it clearly shows we have not reached the crest of this job crisis. So I continue to believe this rally will be short lived.

I woke up early on Friday in anticipation to the big day. Seeing the futures trading up, I had a feeling we were going to be experiencing the day we did. I also knew that Ken Lewis, Bank of America's CEO, was planned to be interviewed on CNBC. In most cases, CEO's go on air to sell a company to the public. If it is bad news, they usually send the accountants or lawyers. I knew Lewis would be selling B of A to death and that's exactly what he did. So, I ended up buying into BAC in the morning, even though it was already up 14%. Lewis talked of their successes and that he has not once talked of or been talked to about nationalizing Bank of America. He also said that the plan was to pay back TARP funds by three years. Just during his speech, the stock jumped another 7% and eventually got as high as 33% up. As for the validity of his words, who knows and frankly I don't plan to be in his stock for very long.

My stop loss came into effect with my FAZ and I ended up making a pretty good profit, considering FAS ended up almost 20%. Sometimes, this strategy doesn't work if we reach a volatile day with the Dow bouncing back in forth. However, I felt that Friday was going to go only one direction, and it would go that way with conviction. The market trend FAS technical score is -75, so I don't know how excited I am to stay in it much longer (get your own symbol analyzed for free, all you need is a name and email, Click Here). However, as for now, I am remaining in both my BAC and FAS for the time being.

SRS was showing a lot of strength in early hours of trading as you can see from the chart. However, during mid-day, a big sell off began. I think bailout hopes and more rumors surfacing convinced many investors to get out for the time being. I am remaining in SRS, as I feel it is one of the better shorts for 2009. I do think they are vulnerable to some losses during all this mess, so I may be averaging down as it may continue to go down.

srs drop
Obama's bailout team has revisited their original stimulus plan over the weekend and have supposedly made some changes (I personally feel they did because they knew they didn't have the vote!). Anyway, it seems as if the bailout amount will be reduced to $750 billion and that there have been a lot of changes to the "bad bank" plan, which wasn't getting a lot of popularity with the media and republicans. They still will supposedly have a toxic asset protection program but are straying from the "bad bank" plan and working on a "ring fence" concept. In a sense, the "bad bank" would buy up to $500 billion in troubled assets and then perform stress test on banks to see if they need more.

Now, where market to market accounting gets changed is when these assets are transferred. As of now, a bank would have to take a loss on their books to transfer these assets, which would kill bank's balance sheets to transfer a lot of these toxic assets. So, rumor is that they may be altering the accounting system where they can "carry market value" in hopes to keep bank's balance sheets healthy. A lot of moving pieces are in this plan and a lot can go wrong. Let's hope they know what they're doing. Secretary Geithner is suppose unveil the plan on Monday. These kind of announcements make me very timid in this market, which is why I am pretty hedged right now and sitting in a lot of cash at the moment. So we'll see how it goes. That mixed with the stimulus vote, which is planned for Tuesday, could cause one crazy trading week next week. In the end, the fundamentals are still very bear, so that is where I remain. I am just waiting for the right time to get in my bear positions fully, and that time may be coming soon.

So, it will be another early morning for me on Monday. I am expecting more volatility this next week in the market as I believe there could be a lot of "exhaust selling" after all of these announcements are done with. "Buy the rumor, sell the news."

I wanted to end with a clip from CBS news featuring the Lending Club we've been talking about. They have been getting a lot of publicity lately, which continues to reinforce my decision to invest in them. So far so good! Remember, the now $200 promotion ends this month for Lending Club, so check it out if you haven't already, click here.



So, we wait until Monday. Hopefully next week yields some serious green for my Zecco.com trading account. This last week wasn't too shabby, although I could have done without Friday. Happy Trading and have a good weekend. Oh and PS, I did pick up some SKF right before close on Friday, just in case...

13 comments:

  1. Anonymous Says:

    The FAS/FAZ plan with a 5% stop sounds like something that could work most of the time. I plugged in the historical numbers on this pair and found that if you use a 2.5% stop loss and done this every day over the last month that in the end you would be up 99.37%. I've played with this back testing in Forex and it isn't always accurate. This sounds too good to be true, and probably is. But I got some pretty good calculations going in my spreadsheet and it sure looks like a plausible plan to me.

  2. Jeremy Says:

    FF,

    These leverage short ETFs will only waste your money if you keep them for a long time even if you average up. The reason is because of the volatility and the time decay in them (I am sure you are aware of that). You may even be right about the sentiment but this way, you lose money in the long run. You may instead consider shorting the long ETF at its peaks over time. This way, you will gain by time decay. Hope this helps.

  3. Anonymous Says:

    Nice comment Jeremy. Thanks. I will try to use it.

  4. John Says:

    why dont you guys look at the: qid sds twm sds. I dont see any time decay. who ever held for a short in these bear etfs loss a avg of 120%-180% and got huge margin call to pay the banker. look at the charts below see for yourself. you say time decay but you have no idea the PPT is holding down these etfs, gold, indexs. yes your plan has work so far yes but when it fails. you would be down400%-500%. and owe the bank or broker $40,000- $50,000 per $10,000 shorting of the bear etfs. I dont hear anyone saying sds dxd twm qid are decays. because try many times before decay fail now these etfs have held there value very well this year. next is comeing too all bull3x and bear3x etfs the PPT will fail to hold them down. these rallys in the market are fake. only to suck in investors and bullish only daytraders. why dont you read this.

    http://www.rense.com/general52/secretsoftheplunge.htm

    http://www.theinternationalforecaster.com/International_Forecaster_Weekly/Acts_Of_Insanity_Are_What_Destroyed_The_Economy


    I dont see time decay here?????????
    I also wonder what your reaction is to this. look at weekly charts below

    http://stockcharts.com/charts/gallery.html?sds

    http://stockcharts.com/charts/gallery.html?dxd

    http://stockcharts.com/charts/gallery.html?qid

    http://stockcharts.com/charts/gallery.html?twm

    the PPT may be fooling most people but not the wise ones. most bears were right all there calls like BSC WM LEH AIG FNM FRE that they are $0.00s.

    whos next you ask BAC C AXP GE HD COF HBC WFC GM F PRU BBT an many other banks. the only banks I see last man standing IS JPM & GS.

    WHO will get hurt from this goog aapl bidu and others. banks will sell these large holdings. will be force to sell winners rise cash and more cash when they dont know where get it and obama saying if you get bailout money your paycheck is only $500k. If I was a banker. I would pick selling big holdings and failing, illegal insiders selling all the stock of my own INC/CORP. would Never Ever think of takeing smalltime money like $500,000 when avg every year $10,000,000 -
    $80,000,000.

    these are the cold hard facts

  5. Jeremy Says:

    Hey John,

    The time decay thing is valid for both long and short ETFs as they work based on the daily gain/loss of a special sector.

    For example, look at the 3 month charts of URE and SRS, which are the exact opposite stocks. Both of them are down by about 55% !!! Won't you expect that if one is down 55%, the other should be up by 55%??? There are a lot of articles confirming this and it has to do with pure mathematics. Look at this link:

    http://cosmos.bcst.yahoo.com/up/player/popup/?rn=289004&cl=11868639&src=finance&ch=4535474

    So, there is no PPT here. We all know that the market is volatile. Volatility is the prime reason for this time decay.

    All I was telling you was that if you are bullish on FAZ, you may be better off shorting FAS instead and keep averaging up if it goes up. These short ETFS are "only" good if a crash happens in which case, I prefer to buy lets say $80 call option on FAZ instead. If a crash doesn't happen, the volatility will take both FAZ and FAS to shit! Hope it is clear.

  6. Finance Fanatic Says:

    The theory of time decay for inverse etfs have been a bit misunderstood from the several articles which have been written on it. It is true you can not do snap shot analysis with these inverse etfs, as if they track perfectly with their related sector, because they won't.

    However, the movement of these etfs are more tied in with VIX levels then time decay. True, that over long periods of time, you will most likely cut into your profits, but if VIX levels are on your side, you can also go from $65 to $200 in a short amount to time, as we saw back in October.

    I do like shorting the longs, but I don't fear holding the etfs for longer than a week. Good comment Jeremy.

  7. Anonymous Says:

    Love your blog. Just a tip about your latest entry - the term is "mark to market," not "market to market."

    Keep up the great work.

  8. Newbie Says:

    FF, glad to see you picked up some SKF just before the close on Friday. I picked up a small position in FAZ myself. I picked up some BAC shares after the market closed (the price was just too tempting). I exited my original BAC position early Friday after a nice profit, but think it has another bounce in it though I don't expect I'll be holding it for much time. I'll stick with FAZ for a while and look to pick up more shares along the way. Enjoy reading the blog. Thanks.

  9. Andriy Says:

    Anonymous, have you taken bid-ask spread and transaction cost into account? FAZ spread is huge -- my calculations show that it will it up all your profit...

  10. Dave Says:

    Handy link posted on google FXP board - view the Xinhua 25 http://tinyurl.com/df9weh

    I'm still looking for re-entry point in FXP. Have a GTC buy limit order at $30.50, but may drop this down to $25-$27 range.

    Any thoughts?

  11. Jeremy Says:

    FF,

    Unless you wanna do day trading, your best bet it to buy FAZ or SRS etc. March or April call options with the amount you are willing to lose (it already has a controlled loss built in). If you are looking for a potential to get them to $160 any day. These options will make your investment 10-20 times. Just trying to show you smarter ways to take advantage of a crash.

  12. Finance Fanatic Says:

    Jeremy,
    Options are a good option for sure and I did buy some back in October, however, lately because of the low VIX levels, options prices have been pretty moderate. As soon as we begin to spiral down with more definition, I will for sure be buying SRS and SKF options.

  13. QUALITY STOCKS UNDER 5 DOLLARS Says:

    We are turning into a low wage job economy.