Volatile Markets - GDP Anxiety

dell earningsThe popcorn continues in Wall Street as we continue to see a daily trade off of up and down days. Such activity shows the instability and skepticism going on with investors, as many concerns of the economy still remain. Continuing low volume shows that not all that many investors are participating in the trading, especially institutions. Day-traders are enjoying the volatility as quick profits can be made, if you are playing the bumps right. As for myself, I tend not participate much in day-trading and try to look at the markets with a bit more of a macro view.

Much of yesterday's downfall was due to concerns of the large amount of government debt being issued this week and how investors would respond. Well, this afternoon, the government issued about $26 billion worth of Treasuries, which much of the 7 years and more did much better than expected. I am very curious of who is buying Treasuries right now, especially the day after we saw the largest spike in the yield curve in history. If I had to guess, I would say that The Fed had a little hand in helping those Treasuries get sold. Just a hunch. I'm pretty sure Europe, nor China are buying. So if you eliminate those two, there is not that much left.

As a result of rallying government debt, the markets took a turn for green and rallied on, having the Dow close up over 100 points. At one point, the markets were trading in the red, but many found it as a positive indicator to see the government debt trade with such ease. I personally don't see it as that positive of news. Sure, it's nice that we can still borrow money, but at the end of the day, we are still putting ourselves in more and more debt that will eventually have to be paid back.

Today, we yet again saw another day of increasing energy and oil prices. With gas prices pushing towards $3 a gallon at the pump now, this is yet another negative factor that consumers are going to have to consider. If things weren't hard enough for consumers, now they have to once again worry about high gas prices. The oil increase may be good for oil investors, however it will take its toll on the economy as well. I do feel that equilibrium for oil lies in the $70-$80 per barrel range, however, I feel it has some lowering to do before it reaches those numbers.

Goldman Sachs UPGRADED Starwood Hotels today from Sell to Buy. I am really starting to wonder if there is anyone home at the famous Investment Bank. They state that due to a expected increase in their REVPAR, they should see stronger profits. I work with many hotel professionals, and anyone who is actually in the hotel business knows that the past quarter has been one of the worst for hotels, and the outlook doesn't look to improve for several years. Vacancies are record high, REVPAR is decreasing, and it does not look to be improving anytime soon.

The problem with many of these banks who are issuing these ratings is that they are trying to compare our current recession to ones we've had the past thirty years. To do such things does not make sense and will, in my opinion, end up surprising many of these institutions when the economy does not move like previous recessions. The fundamental problems we are seeing, not just in the US, but in the entire global economy, is something that our world has never seen. We are heading into untread waters. So I am very skeptical of these banks and their upgraded ratings.

All eyes will be on GDP tomorrow and most likely the result will set the pace for trading for the entire day. The market is expecting a -5.5% move, compared to last months -6.1%. The slight increase makes sense, when you factor all of the money that has been flushed into the economy by the Fed. If the number is reasonably "better than expected", I would expect to see a pretty positive reaction from the market. We saw this today after hours with Dell. Despite their horrid 60%+ loss in earnings, their stock stayed strong in after hours due to the result being "better than expected." I fear that the lack of intelligent trading that exists currently will bring more devastation to the markets in the long run. Such performance is not sustainable and shows the weakness of the tech sector in this market.

Today, I ended up buying a good portion of SDS. Even though the markets traded up today, and may do so tomorrow, I'm sticking with technicals in that we have some downward trading to endure. I may pick up some more options tomorrow too, depending on how the market does. These guys offer some great tools for option trading, check them out : optionsXpress. The housing report came out flat today, which is a depressing sign for the housing market. In the midst of all the foreclosures, many were hoping for a good increase. Mortgage rates are slowly increasing as well, which also puts a divot in demand. Although the current market popcorn can be frustrating, I still very much believe there is opportunity here to make some good profits. Happy Trading.

5 comments:

  1. Sappi Says:

    Hi, Can you tell me what expiring SDS Options did you buy ? If the market remains flat in the next month, we may lose the premium amount. So I am thinking of buying deep in the money calls expirint in Dec-09. Please let me know your suggestions. Thanks !!

  2. Finance Fanatic Says:

    Sappi,
    I actually bought SDS shares, this time around. There is quite a big premium right now for shortside trading on the S&P. Should tell you a bit about people's expectations.

  3. Anonymous Says:

    I read your site since 7 month and I agree with most of your ideas.
    But this is not about patient anymore.
    Nothing matters. No jobless claim, no GDP ,no GM bankruptcy, NOTHING!!
    I'm sure we will see a green Monday!
    If the government don't want a pull back because it could trigger a big sell off, it will not happen.
    And at that time when we will see a "pull back" it will be close to doomsday and you don't need the money anymore.
    I'm still 80 % in cash and 20 % in short that are slowly bleeding out.
    I don't know were you see the future, but with todays number of $ 550 million owned by each household after Obamas health reform, it can't be good.
    We live in a country were the weakest looser survive and kill the strong remaining ones.
    Here goes the American dream.

  4. Anonymous Says:

    sorry $ 550.000 each household!

  5. Finance Fanatic Says:

    PPT loves friday's closing. A new perfect storm forming in the housing market. Mortgage and refi denials are spiking, mortgage rates are creeping back up, and Shiller-Case index still falling... not near bottom.