A Turn in Technicals and Bogus Upgrades

AIG problemsAnother day of selling took place on Wall Street, as today's 130 point loss in the Dow acts as the third consecutive day of selling we've had since the big 200+ rally we had on Monday. At one point, we were down around 200 points, but of course we saw the end of day rally come into play. Unfortunately, due to some reasons I'll explain later in this post, I did not profit much from today's losses, as most financial and real estate stocks closed relatively flat. However, there looks to have been a change in the winds, especially on the technical side, which I believe should lead to more selling in the near future.

Despite the rather strong down day we saw today, financials and real estate remained rather strong. First of all, you will most likely see these two industries trade almost side to side as real estate depends so much on the fate of the banks. However, at this point, I believe there is much more downside for commercial real estate than there is for banks at this current time. Today, both remained rather strong with help of yet another upgrade issued by no one other than our own big bank, Goldman Sachs. Goldman went through and pretty much upgraded every major bank it hadn't previously upgraded. I have expressed my feelings before on the validity of such ratings issued by another bank. The bias involved in such ratings is ridiculous, which is why I take such ratings with half a grain of salt. You don't have to look to hard to see what Goldman's motivation would be to issue the upgrades. They claim it was due to their recent raising of new capital that has made them a more stronger investment. Let us not forget, that debt did not come free, well maybe to them it did.

I still find it ridiculous that many believe the problems for banks are behind us. The fact that Bank of America went from needing $130 billion of new capital to $35 billion in a couple months, shows the kind of manipulation and write offs that are being done. Bank of America has already announced its plan to begin in selling off some of their foreclosed assets to the private sector in hopes to raise additional cash. However, it will require much more assets than what they have already foreclosed on. This is why, sooner or later, we will see a huge spike in foreclosures in the commercial sector. I know several people who have not been paying their mortgage on their commercial real estate for months and the banks are doing nothing about it. This will eventually have to end, especially when the need for capital becomes more severe and Uncle Sam isn't there to bail them out.

The largest bank failure of the year took place today after close in Florida with a bank called BankUnited Financial. The bank, which has over $12 billion in assets, was taken over today by US bank regulators and sold the banking operations to WL Ross. In turn this will take a $4.9 billion hit on their insurance company. Such news should continue to show that bank's problems are far from over, especially with the smaller, regional banks. This news will probably not be featured on the headlines, as it is bad news, but it is very significant in our current crisis and should cause some noise tomorrow.

We saw a big technical move occur on yesterday. Yesterday we saw a "key" reversal, which is in a sense when the market trades higher than the previous day's highs as well as lower than the previous day's lows. On Wednesday, we saw this happen only to close further down, followed by a pretty good sell off today. This type of move is a strong technical indicator of a shift or a reversal and gives yet another strong reason for me to consider a good sell off in our near future. You can see from the market trends graph below, that the first sell indicator (red triangle) we have seen for a while was given today for the Dow. You will also notice the converging of the two trends. First, the longer term trend which is pointing downward. Second, the short term up ticking trend we've seen from the recent rally. After today's close, we see that we are favoring the longer trend, which always takes precedence over the shorter. This is why closing the S&P under 890 was rather significant. It is also important to note the rather large spike in volume we saw in yesterday's trading that you can see in the below graph as well. There was obviously some institutional dumping going on. So, technically, we are now beginning see things start to fall in bear's favor.

dow technical trends
Due to concern with the downgrade of AAA bond ratings and the recent cuts we've seen done in the UK, value of bonds and the dollar have been hurt. As a result, gold has and probably will continue to get a lot of love and head towards and possibly above the $1000 range. Although it may seem too late to get in right now, there still remains plenty of upside.

Holiday weeks tend to want to end in the green, however, markets will be going into the day tomorrow with a lot of adversity, with the recent bank failure and the stepping down of the CEO of AIG. If we do see a green day, I will go in and take more positions in FAZ, as well as possibly shorting individual banks like BB&T and State Street, as I feel these recent gains are from unjustified upgrades. So we'll see how tomorrow plays out and I will be ready to make some trades.. Many of you have asked me who offers option trading. Most major brokerage houses do. I personally enjoy Zecco.com and TradeKing, as they have some really competitive rates. Have a good evening and Happy Trading.

4 comments:

  1. S.T. Says:

    FF,

    I remember you were bullish on VZ to put in IRA. Do I remember right? VZ has had a down trend recently. do you think it is a good price to get in? Thanks.

  2. Finance Fanatic Says:

    I still like them, mostly because of their stability and dividend. They have held up so strong in this market, so when I have to go long, I like going long with VZ

  3. Anonymous Says:

    can you ban Faisal from the chat already? nothing but rude behavior nonstop every day

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