GM Bankruptcy - Podcast Update

I just wanted to give a quick weekend update and also inform you of the new podcast that was just posted for you subscribers. We head into a very significant week of trading. Not only do we have the power week for economic data, including unemployment, but GM will be declaring bankruptcy Monday, which should be an interesting tone to set the week with. Also, we are a week away from some serious PPI and CPI data that could be very triggering of some crucial data. We'll see you tomorrow.

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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.

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Profits Given - Profits Taken Away

treasury bond collapseJust as we saw last week following a strong opening day, today's trading answered yesterday's rally with a 173 point down day, eliminating most of yesterday's gains. We are slowly seeing volatility increase more and more. The VIX took a good pop today, which if the trend continues, could result in good profits for the leveraged ETFs. To see such a strong reaction to yesterday's big buying only solidifies my suspicion of market manipulation occurring on these first days of the week. Much like last week, the market exploded with really not much supporting data, forcing investors to cover their short positions. However, as I've said before, as increased volume returns to the market, manipulation will be much more difficult execute.

A big concern on many investor's minds right now is the problems being faced in the bond markets. The recent spike in the 10-year yield curve (the steepest in history) is causing much concern for government bond investors. Due to the most recent $100+ billion issued in government bonds and notes this week alone, many are liquidating bonds in fear of increasing yields in the short term. If indeed the problem worsens in the bond markets, this could cause some serious problems in the monetary system, especially when you consider how much debt has piled up with the Treasury in just the past few months. I do feel that there will be some buying opportunities with Treasuries and the US dollar, however, not until much of this mess gets figured out.

Today, existing homes sales data was announced, which came in right around market expectations at 4.68M. Even though this number was a slight increase from the previous month's number, there are some things to consider of why this can be looked upon as a negative indicator. First, we are beginning the prime for the housing season. Spring and Summer acts as the busy time for home buying, especially for families. As such, historically, the current months usually show a significant raise in home transactions and prices.

Second, consider the current foreclosures. Most of the homes being sold, currently, are foreclosed, distressed homes. When looking at the higher end homes, we see almost nothing trading. After the record setting foreclosures we have seen in the last few months, banks are pricing homes to sell, which are usually far below a For Sale by Owner's price. The only problem to this is the huge amount of inventory that exists to sell. We are not selling enough to break even to the amount being foreclosed on. Until that happens, I can't see signs of a recovery in the housing market anytime soon.

Today, there was a big technical reading on the S&P graph to go short today. This is very significant as, historically, the indicator does rather well. As a result, I will be taking a rather large position in either SH or SDS, to have a short position in regards to the S&P. Sure, the reading does not guarantee a downward movement, but there are many technicals that make up that reading. So, although we may continue to bobble back and forth a bit for some time, I am going with the model and taking a good position on the short side for the S&P. I go into this much more further in today's premium podcast (subscribe here) as well as talk about other shorts I bought today and some currently being considered.

A very likely, upcoming GM bankruptcy still remains a concern for many. Not just because it will be one of the largest bankruptcies in our country's history, but also because of the many problems that come with the package. The bankruptcy could not come at a worse time for the government, as they will, most likely, hold GM's hand through the process. Absorbing much of the auto giant's losses could cause more concern in the bond markets and deepen the wound that already exists. On the actual announced "D-Day" for GM, I am still expecting a pretty strong negative reaction from investors, even though the event is anticipated.

Another element which is causing concern in the economy is the recent spike in oil prices. Sure this may be great for those of you investing in oil, but for the overall economy, it's a negative. This effects transportation costs, food costs, material costs, and many other things. One big element that contributed to this recession, was the huge spike in energy prices. As I do feel oil show head back down during the summer time, current prices put some more pressure on already struggling businesses.

Tomorrow should be a pretty active day, especially when considering all the economic data being announced (initial jobless claims, new home sales, durables). Depending on how we see us open, I could definitely be making several moves tomorrow. I feel we're getting closer and closer to critical mass and opportunities are in front of us. For those of you who are continually trying to convince me that we are in bull market now, you are wasting your breath. I predicted such reactions would occur and wrote about it in my post back in March. So, such reactions only confirm my initial belief. Perception becomes easily distorted in such volatile markets and it is usually the weak, inpatient investor that gets killed in this type of environment. Morningstar has some great research tools, which you can try their free trial here: Morningstar Investment Research: Free Online Trial. 4,000 In-Depth Reports, Ratings. Data on 20,000+ Stocks and Funds.

I will try to be on chat more tomorrow as I believe we could see some significant movement, either up or down. Either direction, I have some moves waiting to be made. The charts are continuing to show us very close to critical mass. In my opinion, many have been fooled by this government stimulated rally and hopefully, in the future, the government will put money in places where it will make a lasting difference. Happy Trading.

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Some Good, Some Bad

consumer sentiment reportAfter four consecutive days of down trading, the Dow flew out of the gates to open up this short trading week. Much of the spurt was fueled by the new consumer sentiment report that was released today, showing the biggest number in the past 8 months at 54.9. The market was expecting a depressing 42, so the actual result created quite a buzz at the opening bell and set the pace for the rest of the day, having the Dow close up 196 points. Though the number on the outside looks to be very strong, there are some things to consider when evaluating it.

First off, remember that the consumer sentiment report is, in a sense, an opinionated survey. 5,000 households are given a survey of their opinion of the current market conditions as well as future expectations. 60% of the weight of the number is expectations, where 40% is current conditions. Even though it is relevant to know the opinions and sentiment of consumers out there, I do not place much fundamental weight on the outcome. The number itself is very volatile, especially when the market itself is volatile. The results do not represent any actual, existing fundamental data, just people's personal opinion. Also, I find it hard to allow a 5000 sample pool represent the entire country. That's considered a small population in statistics. I would not expect a negative number in the midst of such an aggressive rally. So, although the number came to some by surprise, I was expecting a rather positive number and am not wavered by such a positive sentiment report.

In the midst of such optimism that investors found in a strong sentiment report, not much response came from a horrible housing report. The Case-Shiller Home Price Index was announced today for the first quarter and came in worse than expectations. Home prices fell a record 19.1% from the previous year's first quarter. That now makes home prices down about 32% from the latest peak, which has got to eat into consumer sentiment. The Chairman of the index says that he sees no evidence that recovery in home prices have begun. Well, according to CNBC, not only has the recovery begun, but they are pretty much advising that you better get in the next 3 months or you risk missing the bottom. I usually take an economic professional's opinion more seriously than corrupt, greedy fund managers.

This is now the second week straight we've seen a strong buying first day of the week. However, you will remember that after last week's strong opening, it was followed by four consecutive days of selling. I assume that investors will not leave profits in very long on this bounce, especially with the upcoming GM bankruptcy being more inevitable than ever. People are taking profits quicker and quicker now, which is why I began taking my profits much earlier than usual a couple weeks ago...and it's paid off.

crashmarketstocks podcastGlobal turmoil with North Korea nuclear launches caused for some strong gains in the US dollar today. As a result, gold was punished after the strong week last week. This could not have come any sooner for the US, considering they are planning in releasing $101 billion worth of bonds and notes just this week. Such mass selling of bonds would have, in normal circumstances, given a good beating to the dollar and most likely cause for more strides in gold. I do still expect to see some good trading in gold, especially as things calm down with North Korea.

The $101 billion of new government debt being issued brings more red flags to my already very red flagged economic perspective. It is estimated that 10-year US government paper may reach 6% by 2011! Can you imagine what interest rates will be at if that's the case? What people don't understand is that massive inflation is almost guaranteed in our future. As a result, interest rates for homes could very well reach the teens again. What kind of demand would exist in the housing market if financing was available at 9 or 10%? Indeed, prices may be even more lower than they are now, but the means to fund the house will, most likely, be much different than it is currently.

As is always the case, I usually look for buying opportunities on big moving days like today. Of course, all of the shorts were crushed, with both SRS and FAZ being down more than 10%. Most everything was up today, which gives me a lot of things to consider when looking at what to buy on the short side. Many things stood out to me today. As always, my June expiring SRS option looked very tempting for me, as it did very well for me last week. Today, it was down over 100% at one point. I went in and put in buy orders for several contracts before I left, but unfortunately, none of them hit. I may be regretting this tomorrow, but hopefully I have another opportunity in the morning.

LVS and MGM have to be put back on my radar as subjects of a short. I just returned from Las Vegas last week, and in the midst of a large international conference, it was still dead. Here we are, going into the Las Vegas off season, so I would expect some very dreary numbers from the casino builders.

Oil I think has reached its temporary peak. Although I feel equilibrium lies around $70-80 per barrel, I have to think going into summer months, especially with big deflation worries, we should see a re-tracement. I will be looking at DUG for some good, strong, short-term gains.

This week should be a wild week of economic data following last week's bore. GDP will be reported towards the end of the week, so I am sure all eyes are on that. Like I've always said, I remain very skeptical of our current quarter's numbers, considering that much of current producing results have been largely influenced by massive government spending. June should be a very telling month of real market conditions, only if we don't see a TARP 2 or TARP 3 by then.

So tomorrow should have some fireworks, and I would expect some rather sound profit taking either tomorrow or Thursday. Join The Investing Social Network for free. They've got some good voices on there and provide some good data. I will be on chat tomorrow giving my real time thoughts on market trading. Also, I will be giving a more in depth portfolio look to all you premium podcast subscribers (subscribe here) this week. Happy Trading.

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Memorial Day Weekend - Fed's Bad Memories

I just wanted to give a quick update and share with you some disturbing videos in regards to the management of the trillions of dollars we have seen spent the past few months. I have continually expressed my frustration with the government in the amount of money that has been spent so quickly and easily, without consequence. Hopefully, in the future, we will see more accountability than we have in the past and that the markets can naturally be restored to health and not artificially. The two videos below show just how disturbing it is that these people can spend trillions the way they do. Look for their phrase "off balance sheet transactions", or as we like to call it on this site, PPT.

I give much more of my opinion on today's premium podcast (subscribe here) posted today. Enjoy and have a great weekend.

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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 and TradeKing, as they have some really competitive rates. Have a good evening and Happy Trading.

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Volume Increases - More Problems in Commercial Real Estate

commercial real estate problemsI apologize for no post yesterday, as due to the busyness of the ICSC conference, I was unable to find time to get something up. The conference ended today, so daily posts should be expected once again from here on out. I am glad nothing too significant has taken place this week thus far (aside from the 200+ point rally on Monday) as I haven't had the easiest access to my trading account to make moves. I am now back in business and received some great knowledge and insights from the conference that has reaffirmed my existing thoughts on the economy and the future of the stock market.

There were several professionals at the conference who did not stay the whole duration of the conference, due to costs and a lack of meetings from poor attendance. Many of the companies, cut their attending staff in half or even more. I discuss the conference in much more detail in today's premium podcast (subscribe here) and talk more about Simon Property Group and GGP's influence (or lack thereof) on the conference.

I believe it is very safe to say that problems for commercial real estate are just breaking. Although there has been a slow bleeding in the industry for over a year now, the problems are becoming more severe and are accelerating for commercial real estate owners. Remember, a lot of money had been made in real estate from 2003 to 2007, so many of the companies were decently capitalized and had reserves for some properties in case of some difficulties. However, there were very few who expected problems as severe as we have seen them in this market.

One big trend I found in my conversations at the conference is the lack of activity going on in the business. Most everyone was saying the same thing, which was that now is not the time to buy and that they are waiting for the "distressed" real estate to hit the market as well as the REO properties. This lack of activity in such a large financial market will have big effects on the the overall economy. As a result, banks will not be issuing many loans in commercial real estate, tenants will continue to struggle, and landlord's income will continue to bleed. Eventually, these problems once again are put back on the banks, which is why I have continue to be very bearish with financials.

Another common conversation was the zero existence of financing, especially with the banks. Most deals that are being done are either through seller financing, private equity, or all cash. Even some of the trophy assets that you would think should not be a problem to get financed are having problems with banks. Much of the problem is due to the rapid cap rate compression we saw the past five years, due to the strong compression we saw in interest rates. Now that interest rates have risen from the low 5% to now 7-9%, all in a year, cap rates have not caught up. This is a big reason for the lack of transactions in the market.

With many other reasons, these are just a few of why I continue to be bearish in the real estate market and in financials. Plays like SRS, I feel will be very rewarding when this next turn comes into fruition. However, shorting individual REITS and other real estate companies could prove to be stronger for a longer term investment as to not get hit with decay from the leveraged ETFs. There may be a lag time in these problems fully being exposed in these companies, due to the recent financial help from the government, however, I believe great difficulties and bankruptcies are inevitable for many of these companies.

We have now seen a couple straight days of downward trading following the big rally on Monday. It has been a pretty mellow week in regards to economic data, as only new homes were announced yesterday, and actually proved to be much worse than the market anticipated. I believe we will begin to see us slowly return to earth from this government spending honeymoon the markets have enjoyed the past few months.

Bank of America will be issuing 825 million shares to the public at $10 a piece. The most amazing thing about this is that the stock was up today! That is like going to the store and asking the clerk if you could pay an extra dollar for a stick of gum. The offering is more than 10% below its current price, which is quite of a large gap compared to other offerings we've seen. It is these things that I see in our market that makes me wonder who on earth is in this market right now. Eventually, the stock price should adjust, but good luck to those that are buying it now.

I will be looking to take some positions, possibly tomorrow or Friday, depending on how we see the market move and what the volume is doing. I am very comfortable with our current market position and the opportunities I see ahead of us in the short term. I will be on chat tomorrow so that if you have any other questions from the conference you can ask me then, or post it as a comment. It's good to be back and Happy Trading.

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More Earnings - Read Between The Lines

lowes earningsI'm writing today from Las Vegas, while I am attending the ICSC Recon conference, which is the largest International conference held for retail real estate in the world. In times past when I had attended, the volume of people had been anywhere from 60-70,000 people in attendance. However, due to the recent downturn in real estate, this year's "registered" visitors totaled in at about 24,000. It's one giant ghost town out here. What use to be several convention floors filled with people setting meetings, discussing deals and opportunities has become much less populated with many conversations filled with phrases like "We're not really doing anything, how about you guys?" The whole south building used to be filled with financial firms, buzzing with meetings and people all inquiring about how to do the next deal. This year, there is more barren, vacant space than there are booths. In fact, Starbucks, who use to be a big player in the conference, decided not to even show up. How quickly things can change in just one year.

As depressing it is out here in the real world, you would have never guessed that such things existed in our economy as a result from today's stock market. After having futures spend almost the whole weekend in red trading, stocks flew out of the gates in the green. Although there were a few "perceived" positive announcements that hit the headlines, nothing, in my opinion, justified a 200+ move in the markets. The really interesting part about the whole thing is how low the volume was despite the huge movement. Like I've said before, markets become very vulnerable to manipulation in such low volume amounts. Let's discuss a few of these perceived positive reports and I'll give my reason why I'm not cheering.

India's "Obama" was elected over the weekend which fueled a 17% gain in their markets. Due to the enormous hopes of "change" and "reform" of the new candidate (sound familiar?), the markets soared purely on speculation. Sure, our markets have very little dependence on India's market, however, such a move is bound to be influential. As the 17% move is impressive, India should learn from our mistakes. After our first Obama honeymoon, in which stocks were soaring as a we got closer to the election date, we quickly saw a rude awakening where markets reached new bottoms. So yes, hope can be very contagious and emotional, but sometimes reason and logic becomes compromised.

Lowe's posted "better than expected" earnings and gave a very favorable projection for next quarter's earnings. Even so, they still posted a 22% drop in earnings. However, we overlook that just as we do with everything else. Sure, they're business may improve in the near term, due to recent slash to mortgage rates and the huge inventory of REO, bank owned houses for sale at discounted prices. However, please keep in mind that there were several bottoms for real estate in the early 90's. I believe many people are pulling the trigger pre-maturely, due to impulse. When interest rates go back up, which they will, that is when we will really start to see prices fall.

Goldman Sachs gave Bank of America a "buy" rating today, which in turn provided a big boost for the stock. Come on! That is like Kobe Bryant saying that The Lakers will win the championship. They are just one of several financial institutions that offered a slew of shares to the public to raise capital. Quite honestly, I have always been concerned about taking GS ratings serious as they're main form of business is in cash and asset management. You don't think they have a conflict of interest problem? Goldman Sachs recommended a lot of stocks last year, which have died since the rating. Just recently, their buy ratings for commercial REITs have not worked out well for them. Obviously there are many that listen to what they say, as financials got quite a boost today.

Luckily for myself, I took a lot of profits on Friday, as I have been trying to take profits much quicker in this environment. Until, volume really kicks in, this market remains very vulnerable to manipulation. Such days like today do not upset me (it helps that I sold Friday) as I just think of it as yet another fire sale for some of my favorite shorts. Unfortunately, due to the conference, I was unable to take any positions today. After a day like today, I have to like shorts on financials, MGM, LVS, and some select retailers. If tomorrow proves to be another day of rallying (which I doubt), you can expect me to take some strong positions, even despite being at the conference.

These ping pong like trading days are very common at the point of change in a rally. In times past, we have seen these trading trends last a month or more before locking into a direction. I still feel a strong pull back is in our midst and that time is at the gates. Last week proved to be very good for me and I plan to have a similar week this week. American Express's new job cuts should bring some people back to earth. My Lending Club investment went through another round of payments today, which is still cash flowing 10.5%. It also could be a great alternative for consolidating debt, as cost of debt through them is significantly lower. Have a great evening, Happy Trading and we'll see you tomorrow.

PS - Tonight or Tomorrow I will be giving a podcast update (subscribe here) about some great information I have received from some of the banks at the conference, so stay tuned.

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Short Covering and Option Expirations

After two days straight of down trading (three for the S&P), markets ended in the green today, having the Dow close up 46 points. The small rally comes with no surprise as some short covering was sure to be happening after two rather strong days of selling. Yesterday, I had a strong debate with myself whether or not to take some profits off the table in case of some short covering. Looking back, I probably should have, but hopefully I'll catch the next bus. I don't expect any huge buying volume anytime soon, and I still am enjoying 20-30% profits from my entry point. So, I would like to see the week end in the red, but in this market, you never know.

It is still looking like GM will be forced to enter into bankruptcy, and is looking to do so in the same manner that Chrysler did so. The company has a June 1st deadline to be able to get their debts in order, which would take a miracle if they were able to do so. Even though many are now expecting the bankruptcy, I don't think the consequences have fully been factored into the market. We saw what kind of influence the Chrysler bankruptcy had on the initial jobless claims report today, which came in worse than expected at 637,000. GM is a much larger company and as a result, should impact the overall economy much more significantly. Remember, it doesn't just effect employment. Think of all the dealerships that will be closed that they will be able to get out of their lease through bankruptcy. This should kill thousands of landlords around the world. Yet another bullet heading straight for commercial real estate. In today's premium podcast (subscribe here), I really outline some serious problems heading towards commercial real estate and why I am bullish in SRS and other funds.

PPI came in right in line with expectations. Like I said yesterday, such data does not necessarily suggest that deflation is no longer an issue. There are several indicators which measure deflation, one of which is CPI which is announced tomorrow. Look for CPI to set the mood for investing tomorrow. I would expect to not see much of a variance from last month's number, but we may be surprised.

More and more problems are creeping to the surface. One big problem about this economic crisis is that it is a global economic crisis. We are in uncharted territory in experiencing a massive, global recession in which almost all major economies are suffering severely. As a result, all governments are engaging in their own stimulus plans and is closing doors to a lot of imports, as they hope to keep manufacturing businesses within their country's borders. This is a plague for countries like China, Mexico, and Brazil, whose economies rely so strongly on major markets. Instead of looking to other nations to help stimulate our own economy, we and many other nations are forced to keep printing money and go more and more into debt.

Despite the rebound in financials, there still remains much concern for the future of banks. There has been so much focus on many of the "big banks", that many have thrown aside the thousands of regional banks that exist across the nation. These are the bread and butter of the financial systems. Even though their debt may seem insignificant compared to that of big banks, as a whole, they act as much of the equity providers for local real estate markets. Many of these banks will not find a TARP fund or bailout plan for them and will most likely have to go under. It is important to consider this when investing in financials.

I went in and bought some SRS call options for June today, as I wanted to take advantage of the down day. REITs received a lot of love today, who knows why, which I was kind of happy to see, considering that I had not positioned myself in SRS for quite some time now. I am hoping for a strong week from SRS this next week, as clearly commercial real estate is more and more coming into the spotlight.

Tomorrow I will be looking for the CPI numbers as well as the earnings data to set the tone. If we see yet another up day in stocks, I will most likely go in and buy up some more short as I feel that we are at the crest of the rally. I still see some great opportunity on the short side in the near term and look forward to some strong profits in my account. Happy Trading.

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Retail Sales Down – Deflationary Down Spiral

macys bad earningsThe market was surprised today with a negative move in retail sales for the month of April. Most analysts (even myself, slightly) were expecting at least the same as March’s numbers, probably even stronger. However, retail sales showed a loss of 0.4% for the month, 0.5% without autos. Such news supports my theory and thoughts on us facing more harsh times in the near future. The fact is that despite the massive discounts and liquidations that have been occurred the past few months and retail sales are continuing to weaken shows that consumers are still not spending and liquidity problems still remain. Remember, these numbers track the total receipts of retail stores, not actual net income. With the slash to margins, such news should tell us that many retailer’s bottom line is getting killed. Like I’ve said before, as we keep treading in this swamp of low liquidity, one by one more and more retailers and businesses will begin to go under, which will bring us to the next chapter in this crisis: The Bankruptcy Stage (which usually leads directly into the unemployment stage).

Today’s downward movement acts as a pretty big technical move for bears, as we have not seen strong, consecutive selling for quite some time. Our current position in the market is very vulnerable to technical reversals. Today, keeping the S&P under 890 was a very strong technical and should indicate a near retracement down to the 750 levels. Here is another Free S&P Technical Analysis video, which discusses this critical point in more detail. Sure, we are still vulnerable to upswing days and profit taking, but I am becoming more and more convinced that this selling should continue much further. We will learn a lot from the PPI and CPI report which comes out tomorrow and Friday.

Last month, we received a horrible -1.2% MONTHLY drop in PPI (Producer Price Index or wholesale goods). This data was very significant, as it shows our deflationary state worsening more and more (you can get solid economic data from Morningstar, which they have a free trial: Morningstar Premium Membership - 14-day free trial). Tomorrow, they are expecting the results to remain flat from the previous months. Such a result would not refute the possibility or existence of a deflationary down spiral, as like I’ve said before, we can expect slight month to month swings. However, if indeed we see a worse number reported, I would see this as a big red flag to the markets, and I will most definitely be gearing up and preparing, for what I believe, will be a rather aggressive down leg. CPI will also be factored in, especially on a year over year basis. So I will make sure to be keeping everyone updated on my moves, especially on the podcasts (subscribe here).

Ignorant bulls (not that all bulls are ignorant, but some are being pretty stubborn these days) are already throwing this small sell off aside saying that we all expected a pull back and there is no need to worry. As expecting the rally may be the case, there is still a big debate of how severe the pullback will be. I admit, there isn’t much to cheer about quite yet as a bear, but I would be very careful moving forward as a bull for the next couple of months, because the clouds are there for a perfect storm to form. It all depends on which way the wind blows. To say this is only “profit taking” and an opportunity for investors to buy into the bull market at lower levels is risky and down right foolish. Unfortunately, if we do push lower, many will be caught chasing lost profits. This is why I always preach patient and careful moves.

There was more green in my portfolio for me to enjoy as a result from today’s trading. FAZ closed up 13.8%, which weathered well for my FAS Put options as well as my actual FAZ share holdings. Also, SRS closed up 13.8% as more and more worries for commercial real estate are coming to light. My Put options on PRU are also performing very well, as they continue to struggle. I will have to look at taking some off the table at some point, but for now, I cannot complain. I hope some of you were able to short my last week’s Market Trend Feature which was LVS. Since then, the stock has taken over a 40% beating.

Macy’s came out with worse than expected numbers, which took a bite out of their stock. Last month I gave a list of retailers that should especially struggle in this economic environment and Macy’s was at the top of my list. I expect department stores to continue to take a back seat for the next several months as many people are going back to Wal-Mart and other cheaper retailers. Wal-Mart does release earnings tomorrow, which could definitely be better than expected as they are considered a “discount retailer”, and more people are shopping cheap. From a macro economic standpoint, you almost have to take that as bad news, as most likely, people are replacing their other retailers by just choosing to go to Wal-Mart. I don’t expect their results to be too influential, but worth noting.

So we’ll see if we can finally see a hat trick in selling tomorrow. Volume is slowly getting higher and VIX levels are climbing, which both act as very good indicators for downward momentum. We are sure to see continual bank problems as well as more problems hitting the private sector. Be alert and careful, Happy Trading.

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Pains, Trends, and Automobiles

retail salesAnother day of violent, volatile market movement. Day-traders are having a field day with this market, as the NYSE is looking more and more like the penny markets. In this waffling state of the market, I am being very careful of taking profits a bit more quickly when I have them, at least until some more consistency sets in either on the long or short side. Like I've said before, we are in a very critical point in this rally, where it looks like we are wanting to retrace a bit, however, with the low volume, bears are unable to make a firm move. Most stocks were down in early trading as more and more company stock offerings were announced. As I discussed yesterday, this should be a trend we continue to see from many companies, as there really is no other way to get capital at the moment, aside from The Fed. Wells Fargo, Morgan Stanley, KeyCorp and Capital Financial were just a few more of the companies that have decided to sell more stock.

After seeing most of the day trade in the red, especially with financials and real estate companies, once again we saw this continual "coincidental" end of day rally kick into gear, which at one point got the Dow up over 80 points, but closed just over 50 points. So, we witnessed yet another 100 point swing in a matter of minutes during the last hour of trading. I've harped on my suspicions of such activity in previous posts, so I will hold back, but what I will say is that I continue to be aware of the trend, especially as volume continues to be on the light side. Below, I have outlined this U trading trend that we have continued to see with the Dow recently, where we miraculously shoot up at the open, only to trade down for most of the day, then close with a violent jump. The fact is, whatever it is, we have to deal with it, and I have factored it in my trading strategies.

stock market manipulation
Tomorrow, the government will once again attempt to "control" the media tomorrow and set the mood for the day, as Secretary Geithner has scheduled a broadcast for 9:00 AM with the banks, conveniently to be following some retail sales numbers, as well as some earnings reports (Macy's and Dr. Pepper). It will be no surprise to me if we see retail numbers "better than expected", as we have been seeing a lot recently. It is no secret that March and April have had more encouraging data than January and February, in some departments. Sure, it has helped that the government dumped trillions of the dollars into the system, but even so such results are not unfamiliar in this type of environment.

In the graph below you will see the several strong, violent bear market rallies we experienced during The Great Depression from 1929 to 1932. In fact, you will notice the very aggressive 60% bear market rally directly following the initial 1929 crash. This rally lasted for 6 months! Here we are about two months into ours and look how many people are already planning for the good times to come back this year (Larry Kudlow). I can only imagine what some people were saying back then. The point is, it is normal for economic data to fluctuate in this type of environment. From the graph below, you can see the several different violent rallies, however, the frozen credit markets eventually took its toll, as the overall downward trend lasted for three years. This is why it is much too early to be making any sort of calls, especially considering that all of the data being released now until about October has a big asterisk next to it that says, "Including trillions of dollars from government spending factored in." So a slight increase in retail numbers will not take me by surprise, in fact I believe most are expecting it. However, in my opinion, fundamental data is still showing much more pain and problems heading our way, which I discuss more in today's premium podcast (subscribe here).

1929 bear market rallies
GM hit a 76 year low for their stock price as it flirted oh so close with that $1 mark. It is pretty evident that bankruptcy is in the near future for the auto giant, and I assume when it finally hits the headlines, we should see some adverse trading as a result. Not just factoring the jobless claims and pensions that will be hit as a result, but just the psychological fact that an All American company like GM is going bankrupt. It definitely refutes the old "buy and hold" strategy many live and die by. I think we will see many corporations follow GM to bankruptcy, especially in the end of 2009, early 2010 as these new bottoms and problems become established. I cannot stress enough the impact the trillions of dollars of government spending has had on the overall economy here in the short term. The problem is that it is unsustainable, and that the debt must be repaid.

So, tomorrow will be interesting. I expect to see markets shoot up right before opening, as the trend has been and possibly stay up a bit, slowly trading down throughout the day. However, the opening retail and earnings results should have a pretty big influence on morning trading, so if a worse than expected number takes us by surprise, watch out. I am sure Geithner will be singing his praises to banks, confirming that the worst is behind us. So it will be interesting to see if we can start bringing up the trading volume soon. The good news is, is that even in this volatile market, I am still enjoying my constant 10.5% return I am getting from my Lending Club investment, which acts as a good buffer, especially for some of my extra cash. I'll be on chat tomorrow and post some things on the message board tonight. Happy Trading.

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Financials Overbought? What’s Not?!

bank problemsI hope everyone had a good weekend and that those mothers out there all had a good Mother’s Day. This coming week definitely acts as a very critical week for trading and could be a huge influence of where we will see the markets go for the next month or two. There continues to be a big debate in regards to attempting to define this current rally we’re in. Is it a Bull Market now or just a Bear Market Rally? You all know where I stand on the subject (if you don’t just read the posts on this page) and I don’t plan on wavering from that belief anytime soon. I believe we are seeing and will see more indicators this week that will confirm my belief.

One huge red flag that instantly stands out to me, regarding market trading, is the mass move by many companies to issue stock for capital. Like I’ve said before, unlimited government spending is unsustainable and to continue with it would be irresponsible and result in monumental destructive economic consequences. If you take away the government as a source of capital, who’s left in this market? Banks are definitely not lending to the degree that would be beneficial to many businesses. Most private equity groups have their hands tied with their own problems with real estate and negative leveraged assets. So who? The answer is wall street.

Yes Wall Street. Instead of forcing ALL taxpayers to have to "invest" in dying companies through Federal bailouts, just let those wanting to gamble decide to do it themselves by issuing more share offerings.. The fact is, many of these companies needed capital long ago, however, due to the hammering we saw of the market during the first quarter, it prevented a lot of companies from selling shares for equity. I mean can you imagined if Bank of America would have tried to issue 10 billion worth of shares when they were below $4? Think how much more bang for buck they will be getting now, more than three times. I believe part of the plan and hopes for the government in boosting up this market, was to at least get stock share prices to a point, where if companies were to liquidate some, they could get some value out of it. At the February levels, this wasn’t possible for many companies.

However, now, many companies are finding it to be the right time to issue shares. This concept is a simple law of economics. First of all, most companies try to avoid share offerings, as it dilutes stock prices and usually causes some negative reactions from investors. When companies do wish to sell their own stock, they shoot for the highest value point they feel that they can get with the current market conditions. If by chance a big announcement is coming or something else which would cause an increase in value of their stock price, most companies will wait until after that event happens. In most cases, if companies find their stock “oversold”, many will take the initiative to buy back some stock shares, because if they’re oversold, it should be a good investment, right? This is the simple fundamental explanation of company offerings.

Well, today there were several companies who offered additional sales to the market and I believe many will follow. Us Bancorp, Capital One, BB&T, Microsoft, and Simon Property Group were just to name a few of some of the companies announcing offerings of billions worth of shares to the public. Sure, you can make the argument that companies are having to go to shareholders as a lender of last resort, considering there is nowhere left. That may be the case, but such action does not shed positive light on the market and makes me believe that many of these companies feel that their current stock price levels are the best they’re probably going to get for a while.

Other news that could have a negative effect on trading is the probability of GM’s bankruptcy. GM has already announced their plans to close thousands of their dealerships around the world and have also said that bankruptcy is looking to be a likely scenario. Unfortunately, this decision is once again after taxpayers had given tens of billions of dollars for nothing, in which now will probably never been seen again. This is why I showed a lot of frustration in the government’s decision to give such easy handouts. Oh well, hopefully the government will learn from some of these mistakes. As a result, I plan for some new sting in upcoming jobless numbers as a GM bankruptcy will be a big blow.

PPI and CPI are coming out this week, which is very significant when discussing deflationary indicators. Last month’s data showed us very close to some dangerous deflationary numbers and I suspect that this month’s number won’t deviate far from that. As I have stated many times before, I believe it will be deflation that kicks this crash into third gear. Such deflationary numbers are very close as we have been seeing year over year CPI and PPI numbers getting killed. So keep your eye out for them later in the week.

As I discussed as a strong possibility on the podcast over the weekend, today we saw a rather large pullback in PRU’s stock price. I was able to pull the trigger on both some PRU put options for October on Friday as well as picking up some FAZ shares, which worked out quite well for me today. Due to travel, I was unable to get a post out Friday, but I did give an update on the podcast (subscribe here). I think Prudential’s problems will only continue to get worse as the next stage of commercial real estate failure becomes evident. So I plan on holding onto the options for a little while, but overall there was a lot of green in my trading account.

Sure, today’s down trading will not be enough to convince bulls that there is still need to worry. Many are already re-structuring their IRA for the next 5 years. I, personally, believe we will begin to see this market take a turn and start to see some more consistent, downward trading. If markets do bounce back a bit tomorrow, it does not mean that the turn is not here, as consistency is always the key. Another day in the red tomorrow, will only confirm my suspicions even more so.

On Friday, I advised much of my family and friends to take their profits for the last two months, especially in financials, as I (and many others, including Meredith Whitney) have some serious doubts about bank's strength here in the short term. Below is a link for a great technical analysis video discussing the current rally, and what technical and fundamental indicators are showing us. If you like it, you can subscribe to them free and get new video updates. Happy Trading.

Market Trend Technical Video

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Are Stress Tests Reliable? Speculation Remains

bank of america stress testFinally, a pretty solid day of selling occurred today after several days of mixed and optimistic trading. Today was a perfect example of how the market can be overruled, even in the midst of manipulation, with the help of higher volume levels. Once again, after hours and pre-market trading was showing a lot of green trading (hmmm...somehow), opening the market at pretty high levels. However, immediately after the opening, the market took a pretty aggressive dart down into red. Bears were not interested in manipulating attempts to pull the market up today, as for the first time in a while, volume was relatively high. A good sign on a selling day.

Bernanke spoke again this morning, in which he discussed his optimistic outlook for banks after completing the stress tests. As we expected, none are to be deemed "insolvent", and only a few will be required to raise additional capital (or so they say). Obviously, investors were not nearly as optimistic about it as most of the financials took a fairly strong dive as the day went on. Much of this was most likely due to the huge response we saw from yesterday's media leaks, where many of the banks were up nearly 20%. We often like to buy on the rumor and sell on the news.

As a result, the shorts finally had a pretty reasonable day. SRS ended up over 10% and FAZ was just behind it. After we saw some strength in gold and oil, both DIG and GDX ended in the red. As a result from today, I saw some nice healthy profits from my FAS Put options I purchased yesterday, which is always good to see (if you're looking to trade options, TradeKing has some of the best rates around). I believe SRS should begin to show some strengthening signs as commercial real estate is slowly creeping into the spotlight for the next disaster on the list to face. It is estimated that commercial real estate loans make up about 15% of all the outstanding debt. Even though, the amount seems small compared to housing mortgages, you need to remember that most commercial loans are 5-10 year terms compared to 25 to 30 year terms for residential. As such, there is a much greater turnover in commercial loans, which should be just as big as a threat for some of these big banks, especially ones like Wells Fargo and Wachovia, who have a lot of outstanding commercial debt.

crash market stocks podcastAfter today's close, the "actual" bank stress test data was released to the public. Nothing earth shattering was noted that wasn't already discussed. However, after hours have responded strongly to it. Many of the banks are up 10% or over in after hours. It is difficult for me to understand why such results would yield such optimism. Indeed, the actual "needed capital" that was reported was slightly less for some of the banks. The estimates were not far off, but I guess many believe it is enough. So we find out Bank of America probably only needs $35 billion and their stock goes up 18%. Then we find out they really only need $33.5 billion, and they go up another 10%? Just remember, many of these banks will most likely get the additional capital they need from issueing stock. Dillution anyone? I do also believe that due to the much lighter volume that exists in after hours in pre-market trading, there is a lot of manipulation that exists. I have noticed, this past week especially, that conveniently markets are almost always opening rather strongly in the green for no reason. It causes me to wonder...

So, just as I warned on Monday, we are not quite out of the woods of all the fluff from the banks. I do believe we are close, which is why I decided to pull the trigger on some puts yesterday. Tomorrow, could result in a strong green day of trading, especially if a "better than expected" unemployment number is released. As I have said before, whatever the number will be, it is a bad indicator and will eventually need to be factored in. Even if it is in the -500k region, I do not consider those results good news for our economy. Many make the argument that the good news is the perceived slowing down of the recession. However, you cannot make that assumption based on one or two months of slightly stronger economic data. Throughout the Great Depression, there were several changes in direction of economic data. However, the overall regression trend remained in a downward slope for several. This is why it was so devastating, because of the slow, bleeding process that took place. It was the unemployment that plagued society later into the depression, but it was sparked by the crash of the banks in 1929. So don't be fooled by month to month changes in economic data. I have to see consistent, consecutive changes in order to begin to become a believer.

In light of all the joy from these stress test results, there still are causes for concern when you look at the numbers that were released, which you can see in full here. One scary thing is the amount of credit card loans that make up these bank's outstanding debt. In this type of environment, I would consider consumer credit card debt as some of the highest risk of default, especially once personal bankruptcy begins to soar (which usually has a slight lag from unemployment numbers). Considering that 18-22% of many of the bank's loans are made up of credit card debt is very alarming to me. Sure, the high interest returns serve as a motivator for banks to issue the debt, but in these economic conditions, watch out. There are many other alarming numbers which you can see for yourself, but I hope investors go through these numbers and realize what they are buying into.

I will actually be looking to make a move tomorrow, especially if we see green trading. Prudential Insurance has been soaring the past few days, due to some upgrades and better than expected earnings report. Prudential has a very large stake in commercial real estate, which many of their properties are in risk of default. I can't imagine why such praise would be given to them, when in my mind, some of their worst months lie ahead of them. After a 40% rise in their stock in the past two days, I have to believe there is some opportunity for me to short them. I will be looking to pick up some put options tomorrow, hopefully during the peak of the rally, if there is one. Aside from that, conditions seem to be pushing closer to a turn in this rally. I would be very surprised if we didn't see it turn in the next week or so. So I will be waiting. Have a good night and happy trading.

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Bank Stress Tests Revealed

citi bank stress testI think it is safe to say that whenever an expected significant announcement is scheduled to be made, we can most likely expect it to hit the media 2-4 days before the scheduled date. Indeed this was the case for the much anticipated bank stress test results. After rescheduling the public release date for the results three times, results from tests hit headlines almost two days before the scheduled announcement. Much to what I expected, there was nothing earth shattering that was revealed, as none of the 19 banks tested are deemed to be "insolvent." Five of the banks are believed to not need any capital (JPM, GS, RF, AXP, and BK), considering many of them went to their shareholders to raise their additionally needed capital, as they should.

Bank of America, Wells Fargo and Citi were the big question marks for many, as it was expected they would most likely be needing significantly more capital. Results came in to show that Bank of America will need $35 billion, Wells Fargo $15 billion, and Citi about $5 billion. Despite the rather large deficits in capital that still exists, markets opened up trading in the green after a horrible evening of pre-market trading, where the Dow was down around 200 points at one point. The reaction coming from investors boggle my mind, especially those that are just now buying into these institutions. We all knew this would be the result of the tests, and it should be no surprise.

This is one of the few times I have ever seen a deficit amount hit headlines, where then investors reacted positively in buying the company's stock. Despite over $45 billion that Bank of America has already received from TARP funds, plus the 0% interest money they are receiving currently from The Fed to loan out, they need another $35 billion according to "stress" conditions that have already been reached in our current economy to remain solvent. This is not too mention all the dollars saved from the mark to market accounting change. As a result, the stock closes up 17%. These are the times we live in. Many analysts say that it was the "clarity" investors received which sparked the positive buying in the stock. Give me a break. Clarity of a $35 billion deficit? There are many things going on behind the scenes that, unfortunately, you and I will never be able to see, which have a big influence of why the markets are moving the way they are.

In times past, we have seen the popular trend to Buy The Rumor, Sell The News. I think we will find this to be the case with financials. Even though we will be hearing from Bernie and Tiny Tim and the bunch tomorrow, the core of the news was released today, and the market reacted. In my opinion, people are just double and triple dipping into financial stocks that were over bought to begin with two weeks ago. Seeing a reaction of this multitude from the results of a "prospective test" that really has no fundamental meaning, gives me some strong desires to short. In fact, it took a lot of patience from me to not buy some heavy shares of FAZ and SKF as I believe this rally was for nothing. I did make some moves, which I'll talk about a bit later on in the post and in more detail in today's premium podcast (subscribe here).

Wall Street continues to be filled with manipulative trading, as we saw clearly at the close of trading today. After being up well above 100 for the day in the Dow for quite a while, we began to see a pretty strong resistance settle in towards the end of the day, bringing the Dow just up about 35 points. While seeing this, I warned many of you on chat the motivation to close this market above the 8500 mark. Many doubted me, especially when we were getting into the last 3 minutes of trading and the Dow was at about 8470. Never underestimate the PPT, while, literally, in the final seconds, we saw the Dow jump from about 70 points up to close up about 105 points at 8512 (see the huge V turn right at close below). You would think they would be more discrete about it, but at this point, I don't think they care anymore. It's not so hard to believe, when you consider that the government has spent trillions this year alone on bettering the economy. You don't think they will allocate several billions of that to lifting the most influential vehicle of our economy, the stock market? Of course they will, the only problem is you can never rely on it, because eventually it needs to stop, or it gets harder to manipulate with increasing volume.

dji 5-6-09 PPT
During the peak of the rally earlier in the day, I had to at least pick up a little bit of short position. Even though we're not quite out of the woods with all the fluff surrounding the bank stress tests, I just felt today's rally was much too over-zealous. As a result, I went in and picked up a few FAS Put Options at an $8 strike, expiring in October. At $2.25, I felt very comfortable with my odds. Plus, I feel that by October, we should be well into the first stage of commercial real estate problems, which should open up brand new wounds for many of the banks. Just from the change today, the option got up to $2.60, so hopefully we will see some exhaust come from this parade in financials.

My big doubts about financials are rooted in their remaining inability to lend. Sure, you can go in and get a mortgage loan for a house or even an SBA loan with good enough credit, but there is no money being lent for commercial real estate, small businesses and development. If right now, following the largest capital influx into the lending system our country has ever seen, has not de-thawed credit markets, why on earth should it get better, especially when many still believe economic conditions should get worse. The answer, in my opinion, is because the banks are hoarding and will continue to hoard any capital they receive until they have safely sailed through this upcoming commercial real estate storm. Of course they will loan on a home mortgage, because those loans are coming from The Fed with 0% interest. They should be approving everyone that goes in there with those kind of profits.

Just as we saw in the beginning of the real estate recession in the early 90's, we are once again beginning to see the demolishing of brand new houses. In parts of California and Texas and some other states, banks are demolishing brand new or almost completed homes, which have been foreclosed on, as a "safety precaution." When it is worth more to hire a demolition truck to raze brand new houses than it is to try and resell them to the public, then problems still very much exist in the residential sector. Yet, our officials say that we are nearing a bottom in the residential market. Just as soon as we plow over all those new houses, right?

I expected a response, like today's, from investors as I wrote about it in last week's post, so to see it fulfilled is not a surprise. I do still believe that we are seeing the finale of this rally and that we could see a turn as early as next week, maybe even sooner. Technically, the volume levels are not there to be building additional momentum on the bull side, and many stocks, especially financials, are severely overbought. Hopefully, we will see this market turn shortly, which at that point I will be ready with my shorts.

Remember, unemployment will be coming out on Friday, which as I said yesterday should be a "better than expected" number, nevertheless very discouraging for our economy. We have lost well over 2 million jobs this year alone, and the trend should not be changing anytime soon in my opinion. I am sure there are many of you which have experienced a change in occupation. If you are looking for a job, you might want to check out JMAC, who has Openings at $100K & Above! It is free to sign up and they can provide you with many opportunities to keep making a salary in a tough economy. Just remember one thing, every time you lose 50% of a stock price, it takes a 100% to bring it back, which we still remain 40% lower in the Dow from our October 2007 highs. A very critical principal to remember. Happy Trading.

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What Will Unemployment Be?

mgm mirage beat earningsEvery day that goes by the market is becoming stranger and stranger. Today was no exception. We're beginning to see more of a separation of sectors in trading. For the last few months, it has seemed that most all stocks were trading in the same direction. If financials were down, so would tech, energy, and pharmaceuticals. However, lately, we are beginning to see these sectors begin to develop their own investment outlook as more variability is coming into the market. Much of this is due to the rather stagnant trading we've had the past few weeks, but it is something worth noting.

There was a lot of anticipation going into trading this morning as many were waiting for more hopeful words from our Fed Chairman Ben Bernanke. Lately, any government official or staff member at the podium has seemed to stimulate investors to want to go long. However, today was not the case with Big Ben. Due to much boredom and the large quantity of rambling which took place, I did not catch the whole hearing of Bernanke with Congress, however, I heard enough to make me even more nervous for our economic future here in the short term.

I especially enjoyed Ron Paul's tough questions for Bernanke, asking him about upcoming massive inflation worries and the possibility of making The Fed more transparent. As a response, Bernanke seemed not as worried about inflation (I don't know how) and felt that The Fed could become "more transparent" in some areas, but that other functions of the Fed would best to be left not public. Of course, why should the public be informed about all of the corporate and bank manipulation that is going on, as well as the foreign policy manipulation. Slowly The Fed is becoming more and more like The Men in Black. If the public knew of the beasts The Fed had to combat, we would most likely all go insane.

crash market stocks podcastAt any rate, if anything, Bernanke's words were a let down. I could definitely sense doubt in his voice as he attempted to remain as optimistic as possible and you can't blame him, that's his job. Unfortunately, when he makes comments like commercial real estate is fine, and you are professional in that industry, it is easy to see just how little information they are giving to the public.

MGM and LVS soared today due to another case of "better than expected earnings." Even though MGM suffered a 20% loss in revenues, this amount was small enough to send the stock up over 40% at one point during trading. Of course, no one failed to mention that the big Vegas company did sell one of their prized assets (Treasure Island) this past quarter for over $700 million, which I'm sure helped quite a bit. I said in the chat a month ago, that LVS was one of my favorite long gambles, as either it was going BK or it was going to soar, due to a confidence brought back to financials. For those that bought in, I applaud you.

However, with such big increases like we saw today, I can't help but think of the big shorting opportunity there is for me with LVS now. LVS, owner of the Venetian hotel in Las Vegas, is going through some serious debt problems. I understand they are considered similar to MGM, however, they are in much different boats. I actually wanted to maybe pick some puts up today, but missed my opportunity. I'm sure an opportunity will present itself either tomorrow or Thursday.

Friday we will be receiving unemployment data, which always sparks a reaction in trading. Just a warning for bears, there could definitely be some buying momentum building into the end of the week. Thursday we have the results for the bank stress tests, which I still believe will be nothing but praises to the banks, noting that all or most are well capitalized, at least when placed in front of the measly stress tests. If we see such a move, the bulls could find more support when a "better than expected" unemployment number is released. Market is expecting a horrible -643,000 jobless report, which for April, would be a very devastating number. I would expect the number to most likely not be this bad, which once again should cause for this sense of cheering from investors. If unemployment numbers end up being this bad, I would be running for the hills, however, I am sure bulls have a good rebuttal prepared in case of the bad news. I believe these are just a few reasons why much of the bear volume is sitting on the sidelines at this point.

So even though it is boring, I will still patiently wait through some of these uncertainties so that I can start to see more clarity in the market. I may look to double up on some options, by buying and selling calls and puts of the same stock at different strike prices in order to pocket the premium difference. As expiration nears, these plays become more appealing to me.

Tomorrow could be another green day due to some "better than expected" Disney earnings which were released after hours. However, GM's desire to have a 100 to 1 reverse stock split is not sitting very well with investors after hours, which it shouldn't. That is usually done as a last attempt to salvage value. So who knows. As I've said before, I believe these over-corrected market expectations which are manipulating investor's reaction will eventually come back to bite these company's stock price. The same goes with the economic data like Friday's unemployment rate. So we'll see how these companies can sustain, when enduring 30-60% drops in revenue. MorningStar is a good place to keep track of company's earnings, check out the free trial: Morningstar - Valuable insights and innovative portfolio tools. Get the Morningstar advantage with a FREE 14-day trial membership! Times are becoming more and more interesting and I believe some big opportunities are around the corner for me. Have a great night and Happy Trading.

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Short Interest Down: Quicksilver, Chevron to Follow

quicksilver sell offToday’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.chevron sell off

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

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