Crash Market Stocks - Financial Tips On Making Money In The Stock Market

Today’s jump of more than 2.5% may invite some side liners to join the game, but the shorts are still the largest player, this type of move is too strong for the economy’s current condition. Don’t be surprised by this move, short interest saw this coming.

Short interest results for the first half of April showed a decline for both the Exchange and NASDAQ. Though it was the first time since mid December that short interest fell, trust me the bulls are not coming to town just yet.

The 4.8% and 2.9% drop for the NASDAQ and NYSE respectively, is largely due to the shorts covering. The run beginning last month and continuing today has left many bears scrambling, while many bulls have come out of the shadows and are testing the waters. It’s a typical scenario for this type of market. All the ultra-conservatives may feel inclined to slowly invest again, but nothing to stir the market in their favor. Plus there are still too many signs the economy is struggling. One strong day or even month is not enough to counteract the past two years.

The awful GDP rating is a clear indicator of how the economy has been performing, yet the past two months have been full of misguided rays of hope. Don’t be fooled. With the market standing on superficial optimism, the bears may be in for a killing.

A sector to put on your radar is consumer spending, especially retail clothing stores. Recently Quicksilver’s founding partner came in and cleaned house, firing many of the top executives. The company has more than a 20% drop compared to their competitors in 2008.

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Bad investments such as Rossignol (which they purchased for 560 million in 2005 and sold for 50 million just last year) and the 900 million of debt which 50% comes due this year, has put the surfing giant on thin ice. Quicksilver is actively selling DC for about 500 million in hopes of eliminating their debt obligations. This year, Moody’s included Quicksilver on its Bottom Rung list of companies most likely to default on its debt. With luxury spending down considerably, Quicksilver may have seen its days, look for shorting opportunities.

Another major US company is on the chopping block as Chevron Texaco fights a 12 billion dollar lawsuit from the indigenous people of Ecuador. The Ecuadorians are claiming Texaco, which Chevron purchased in 2001, released 18.5 billion gallons of petroleum waste and waste water into the environment in the 1970s and 1980s.

Though Texaco was in partnership with PetroEcuador, the state oil company, the lawsuit blames Texaco for not fulfilling their clean-up obligations once the company left Ecuador. The court appointed scientific experts claim Chevron could pay as much as 27 billion in damages. The case is being tried in Ecuador and is expecting a decision during this year. A 27 billion dollar check would put considerable strain on Chevron sending their stock to all time lows.

Both Quicksilver and Chevron have major battles on the horizon; look to capitalize as times continue to heat up.

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-Chad Carlson

The economy has taken some major hits this week and shows no signs of retreat the next few. Everything from inflated quarterly reports to the apparent suicide of Freddie Mac’s CFO to the decline of existing home sales all points to a still struggling market. The much anticipated stress test of the financial system (read FF’s “Bears Win One for the Gipper” article, it’s spot on about the stress test) will be another show case of injecting hope and putting on a brave face. The faltering dollar will continue to weaken as the government hands out green to everyone and Pres. Obama’s attack on credit card companies, though beneficial in the long run, may further limit lending in the near future.

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All signs point toward a bear’s dream, but opportunities may not be so obvious. The market’s red/green swinging recently tells me investors are active, but are hesitant. One thing we are confident about is the economy is not turning around next week, the feeling that we may have been bottoming out or even on the rebound has been put to rest.

An interesting sector that has recently become attractive is precious metals. Gold plays well when the US dollar weakens and is trading over $900, which is common territory but as inflation kicks in, gold will rise. Currently, there is a 500-tonne shortfall of the metal according to experts. Financial institutions are no longer leasing gold from central banks, which in turn has slowed supply. As gold bar supplies become limited the demand will increase. With investors turning to gold itself instead of gold futures, gold may be stagnant for the short term but ultimately rising.


Platinum is another goldmine. Currently trading at about $1180, platinum is off by a thousand this same time last year. Gross surplus of platinum tripled over 260,000 ounces in 2008 following a rapid decline in vehicle production which accounts for more than 50% of the precious metals use in catalytic converters. Floods and power issues in South Africa, where production fell by 7%, resulted in strong investor trading that shot platinum to all time high of $2376 in March of last year.
The independent precious metal group GFMS reported that platinum will bottom out in 2009 at about $900. That range makes sense since palladium, a cheaper copy of platinum, has been a substitute for catalytic converters and jewelry in late 2008 running into 2009. While palladium saw a jump, auto catalyst scrap also saw a jump as auto makers searched once again for a cheaper substitute; giving platinum another reason for major decline.

So the $2300 days are over for now. The sizable reduction in overall demand of platinum should bring on some great opportunities. One thing to keep an eye out though is the Asian market. Individual Japanese investors have been known to take advantage of platinum prices, but the sharp decline in automobiles and with the increase of palladium, I believe platinum will hit that $900 mark or drop even further. Click here to open a Zecco Trading account.

-Chad Carlson

I am bullish by nature, but I can smell bull from a mile away. BAC reported earnings yesterday with a “better than expected profit”. If I had a quarter for every time I heard that quote, the last month I could report my net worth as “better than expected profit”. One breath of fresh air is the market reacted as it should.

If the government injected 40, 50, 100 billion into a company, they better report a profit. It’s the source of the profit. Do they really think they can report all time losses for the past two years, and then miraculously report record highs? It is the same mentality when the market jumps up 500 points in one day, it’s superficial. You know the following day or two all those gains will be washed away and we’re back to square one. Don’t get sucked into earning reports, especially during this market.

Quarterly earning reports are as worthless as Morningstar reports for mutual funds. I don’t how many times I had wholesalers pitching me how their fund is so amazing because of their 5 star rating. All the fund has to do is perform at a certain level for one quarter and they can receive that illustrious rating. I even had wholesalers who confessed how their company “did what they needed to do” to keep the rating. It’s all about putting up a front and looking good.

In September of last year, amid all the bank bailouts, Morgan Stanley held a company wide meeting for all brokers. In this meeting, John Mack reported that Morgan Stanley had 180 billion in cash; that’s right a 180 billion in cash. He went on to say the company had enough reserves to continue business for the next 2 ½ years no matter what happens to the stock price. Then why did Morgan Stanley have to become a bank? Why did they accept 10 billion from the government and 9 billion from Mitsubishi? It’s all about looking good.

We all know business is business. But what we don’t see is how companies fluff their numbers. If Morgan Stanley had 180 billion in cash, (which turned out to be cash assets and even that was a stretch) then why accept bailout money? Some things just don’t add up.

Obviously expect some rebound with financials in the next few days as the shorts sell off, but it will not last. MS more than likely will not report gains as high as other financials as their bonds have taken a swing recently, resulting in a 1.2 -1.7 billion dollar loss. Keep your eye out and there might be a play for all you shorts.

BAC, C, JPM, GS, WFC all reported profits this past quarter. Coincidence? If this is truly the case, in my opinion, then we are on the way up and this recession has seen its days. Don’t believe it. It’s all about looking good and every company is putting on a brave face, but there is no depth. This may be one of the few times I agree with the emotion of the market. Consumers are not buying into these inflated numbers and rightfully so. As others report, the market will continue to drag its feet, expect more pull backs as fears rise.

Amidst all of this there are some opportunities out there. Keep an eye out for FAS as a put option. The tech sector and consumer spending sectors from EBAY to AMZN to AXP should all follow suit from the financials, which by the way if you're looking for a good brokerage account with low cost trades, TradeKing is a great option.

-Chad Carlson

When it comes to making money in a recession, understand two things; it can be done and flexibility.

For the past two decades, especially the 90’s and the tech boom, it was common to see a stock double or even triple within a short period. There was no major statistical analysis, throw the darts and roll the dice. Things have changed, the pendulum has swung. Our market is not producing the same results, yet we still want our portfolios to increase 10-12% a year. Obviously in a recession that is not going to happen, but our portfolios do not have to be down 40% either.

A close confidant of mine with Morgan Stanley has focused on taking advantage of the swings in the market by utilizing leveraged ETFs. The ideology is simple, but the need for flexibility is great. Two ETFs to keep in mind are Direxion 3x FAS and BGU. Both are bullish Financials and Large Cap respectively. But you need to understand exactly how ETFs work. ETFs can be traded just as easily as any other stock. All you need is a brokerage account. Zecco.com has some of the best rates around.

They have the diversification of a mutual fund but trade like a stock. The attraction recently to ETFs is their ability to take advantage of volatility, much like an option, but without the hassle of understanding calls and puts. But remember an ETFs whole goal is simply to outperform their respective sector each day, not over a long term basis. When an ETF claims to “double the DOW”, their time horizon is today, not tomorrow. Do not believe if over a five year period the DOW gained 10% that your return should be 20%, it does not work that way.

We all know emotion is driving the market, an ETF is susceptible as anything else. It’s amazing to me how much power the talking heads have on the market, don’t get caught up in what they say, look deeper into the sector you’re investing in. Break the mold.

This may not be your flavor, but it’s one idea that has worked. This is not a long term play; this is a day trade maneuver. There are a number of ETFs that hit on just about every sector of the market; find one and follow the sector for a few weeks. When the market is so inconsistent, taking a protected risk can have huge payouts. This is what “smart money” is doing, think about it.

-Chad Carlson

Wow! “Death of capitalism”! One might expect this phrase out of some extreme left-wing or maybe even a political figure jumping on the band wagon, but a twelve year old girl! That’s right, a twelve year old girl.

In London last week, thousands stormed the financial district in response to the G-20 summit meeting, where such nobles as Pres. Obama and Prime Minister Gordon Brown discussed ideals on how to overcome the global recession. Many hope to compare this meeting to the 1944 New Hampshire conference, where ultimately the winners of WWII set an orderly financial system to repair the war torn markets. But instead of coming together under one umbrella, many are still arguing the century old debate of capitalism vs. socialism.

One may argue that a strong national government is the only way to securely monitor the financial system, as many argue today. The ideology sounds fair. But when you pull back the cover and study the politics behind the system, you might be singing a different tune.

Compare a baseball club where the manager consults with his players on decisions but still has the final say. Sounds fair, right? Sure, since the manager and the players have a thorough understanding not only for the game but the strengths and weaknesses of each member and how to maximize their potential. Pretty straight forward. But now throw in the CEO. All of a sudden the manager and players are washed out by one “above” them. The buck simply passes over the manager’s desk and lands wherever the CEO decides. Now decisions are made by one, ignoring those (and the majority) who know best. And people wonder why the Yankees are so screwed up.

Everyone agrees our financial system needs leadership; it always has and always will. You cannot run such a dynamic power without rules and regulations corralling the greed factor. But do we need the extra CEO? Does the government have a silver bullet? Do we really believe a government ran market is the absolute best scenario? This country fought a war over the same issues many seem to embrace today. Last time I checked this nation is for the people and by the people, not for the government and by the government.

If we start believing “death of capitalism”, our financial system will weaken dramatically. Why are there so many foreign investors dumping billions in our market while basically ignoring their own? The growth happens here. Now is the time to take advantage. Like Warren Buffett said, “Be fearful when others are greedy, and be greedy when others are fearful”. Capitalism may have taken a hit, but we have over two centuries of exceptional growth to outweigh the last two years. Think about it.

-Chad Carlson

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One of my goals of this website is to try and provide more and more knowledge and insights to you as readers. To help accomplish this goal, I have invited a good friend of mine to be an author on the blog as well. Chad Carlson has some great experience working at Morgan Stanley and will be a great contributor to Crash Market Stocks. His insider experience can bring a new light to the site and discuss other elements of trading that I have not experienced. I will continue to give my daily posts, so sometimes there will be two posts a day, so keep your eyes out. You can access all of Chad's posts at anytime by clicking either the link on top or on the side bar that says Chad's Corner. So on that note, I give you Chad Carlson:

Reinvent The Wheel

Chad Carlson