"Sell in May and Go Away"

selling may stocksAll of Tuesday's big losses were pretty much given back on Wednesday and Thursday as the Dow closed up another 122 points today. Like I said on Tuesday, you need to be careful in getting false signals of market momentum on reactive selling days. To many, it looked like indeed it was a start to correction in the market. Reactive selling days have tendency to quickly give back the profits they took. So for now, any downward momentum that was created on Tuesday is completely non-existent at this point.

Now this isn't to say that we won't be heading down soon. I'm just saying from a technical standpoint, there is no significant momentum forming. However, one thing on people's mind as we begin to close out April is the good 'ole saying, "Sell in May and go away." Historically, May has been a strong selling month and it makes sense when you consider why. First off, it usually follows earnings, which is never the best time to trade. If we go through a bad earnings period, people are beat down with low sentiment and have little confidence to buy. If we have a good season of earnings, many stocks get overbought due to extreme optimism, which causes for a bit of a hangover effect to follow. We also head into the summer months, which for most businesses, tend to have slower sales (except homes).

However, this May is not your usual May. The market has already shown its ability to overlook resisting trends and push forward and the government continues to prove that it will do all that it can to continue to lift up the economy. Surely, the unemployment report will set the tone for the month of May. Many are feeling that this next month is the month. Job growth will look positive, GDP growth will be high, and earnings will stay strong. If data shows otherwise, I expect to see a lot of unhappy traders.

For Friday, don't be surprised to see some selling. Many people went long yesterday and today and they have received large enough gains to not have to risk holding them over the weekend. If we do start out in the green in the morning, I will most likely take some short positions, because I would expect many investors to close out their positions before close. Also, even though it looks Greece is going to be bailed out by the European IMF (which could help markets tomorrow), there still remains uncertainty about foreign economies. Happy Trading.

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Palm Gets Lift From HP

Following Wednesday close, Hewlett-Packard announced that they will be acquiring the smartphone for $1.2 billion. This is roughly a 28% premium to their current stock price. As a result, Palm has leaped in after hours, currently being up over 23%. These are definitely things to keep an eye out for in 2010. I expect to see a lot of consolidation and buyouts this coming year, which can lead to some very profitable returns. Right now, certain big businesses are finding strong revenues at this point in the economy. However, other smaller companies are still fighting just to stay alive. This large gap between the two is a perfect environment for some both non hostile and hostile take overs. The goal is to find the companies that are prime for picking.

Palm is a perfect fit of the "ideal buyout candidate." They are a smaller company that has dominated market share in the past and has been dwindling since. They have great brand recognition and still a pretty solid retention rate. However, they're growth has been struggling for years as has their stock price and newly entered smart phone players like Apple, Microsoft, and Google are quickly gobbling up market share. This is a perfect scenario for takeover. So keep a look out for stocks (probably under $15), who currently hold a lot of liabilities, and holds a well known name brand that seems to have disappeared the past few years. The NASDAQ will be full of them so keep your eye out.

Financials rebounded rather strongly today, which help my "straddle" position bode well for today. Much of the cause behind the strength was more Fed reassurance that interest rates are not going anywhere anytime soon. Of course many people initially applaud these announcements, hence the jump in financials today. However, when you consider the cause for the 0% rates extension, it does not reflect well on the economic recovery. The Fed will only keep interest rates this low if they feel that by not doing so, the economy would respond very poorly. So in Layman's terms, No interest rates : No economic sustainability.

This week is the markets big chance to make a run before heading back into unemployment week, which is always a nervous week for investors. With the partial rebound in today's trading, much of Tuesday's downside momentum has been neutralized for the time being, unless bears can weasel their way in tomorrow and set up for a selling Friday. I cashed out of my positions today and will most likely hold tight until mid morning to see what the charts are saying. Happy Trading.

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A Successful Straddle

As I stated yesterday, I closed out the day by taking both short and long positions in the market with the intent to losing one with a stop loss and outperforming the other with higher gains. Thus far, it has worked liked a charm. I was hoping for a bit more gains on the long side, but indeed the day is not over and momentum is slowly building as the day goes on. Plus, maybe for once I will gain from the PPT.

As you can see from the two graphs, both have responded to today's trading with volatility. I was able to get out of the one with minimal losses and capitalize on the gains of the other. It can be a risky strategy at times, but there are times when charts become very transparent. Today was one of them.

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Tuesday's Selloff - Wednesday Critical

greece junk bondTuesday experienced the largest one day decline in the markets since February 4th, as the Dow closed down over 200 points. What was even more interesting than this, was that the volume was considerably higher during today's sell off, leading me to believe that indeed the many that have been on the sidelines are more bear than bull at this point.

The big selling day was mostly influenced by the downgrade from Standard & Poor's in regards to Greece's debt from BB+ to "junk" status. The news sent markets down rather quickly as well as gave some strength to gold and Treasuries. Of course, along with the problems in Greece are all the problems Wall Street is experiencing with our banks. Goldman Sachs continues to defend its position against fraud charges and the Senate is still pushing for votes to get the Bank Reform bill passed. However, it was voted against for the second time today...Back to the drawing board.

This was the first big down day we've had in a while and it was accompanied by volume. Close to 10% gains were found in some of the highly leveraged ETFs, which I'm sure is peaking interests at this point. However, I am not fully sold quite yet in a continual drop at this point. Today's sell off was an isolated sell off day, which means a surprise news event sparked the selling. It isn't a dragging economic variable or a factoring fundamental to our economy that will have effect for months. As such, these type of selling days have tendency for quick, strong rebounds. This is what makes Wednesday such a critical trading day, as it should better define today's retreat.

On days like today, I like to open up positions right before close on both sides of the market (bull and bear). I then place very strict stop losses on both of them, as to minimize my losses. Tomorrow, I am expecting another lopsided victory, either for bull or bear. If bulls come out tomorrow, I expect a significant amount of today's losses to be given back. If the bears come out fighting once more, this could spur another strong round of selling and even more volume. I believe it will be either or. One side of my position should strongly outperform the other tomorrow. So we'll see. Other than that, it looks that some force is returning back to markets. Happy Trading.

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FAZ - Did We Awake A Sleeping Giant?

Just as I expected yesterday, Tuesday's trading opened up hard on the downside, especially for financials. FAZ took nearly a 10% jump today off the unsettling news that continues to hit financials. I have cooled off from some of these highly leveraged ETF's recently, but is there some upside once again in some of them? The charts say so, you decide.

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Meredith Whitney Says No To Big Banks

Many months ago I shared an interview with Meredith Whitney in which she felt that banks were in for quite a ride upward. At the time, banks were currently just starting to see slight windows of opportunity, but there were not many (including myself) who believed they were on the verge of a massive rally. However, Whitney boldly declared that banks were currently in position to see some serious gains in their stocks. She was 100% correct. I have always respected Meredith as she is a straight talker and does not blindly go with the rest of the media cattle. She is her own person and looks closely at fundamental data. Her track record speaks for herself.

Currently, Whitney is singing a different tune in regards to big banks than she was last time. In fact, currently, she does not have one bank issued as a "buy" except for Visa and MasterCard. Above I have posted today's interview in which she goes into good detail just why she believes big banks are going to have a hard time finding ways to support at their current levels and why she sees weakness in financials. She also addresses problems heading towards the bank giant Goldman. She talks of the effect the recent fraud charges have had on the institution and how its "tarnished" reputation is factoring into their foreign relationships. At any rate, the video is a great resource and worth watching.

In addition to what Meredith said, there are other problems that are looming around banks. First off, the government is trying hard to get the recent Bank Reform bill passed, however, Senate voted against the bill on Monday, giving Wall Street some time to breathe. Although the bill was blocked, the anticipation still exists, which is not boding well for investors. The picture that has been painted of the need for more bank transparency does not transfer well to investor confidence.

There has also been talks of the 105 sections that banks are dealing with. Currently, banks were issued a section 105 clause, which allows them to refrain from reporting liabilities for sale or being marketed on their balance sheet for earnings reports. You would think that this section 105 is not significant. Well, banks are averaging 44% of their liabilities being listed in this section 105 clause, which is not showing up on their earning statements. The SEC is now addressing this issue and is aware that the system has been taken advantage of. Sure, it has provided a loop hole for banks to stay solvent for the time being, but the reality of their balance sheets are not being reported to the public. I expect to see any changes to this policy have a strong effect on stock performance.

Today we saw a bit of resistance in trading, providing that most of the day was in the green. Stocks retreated going into close which may show that we have a bit of resistance on our hands. I am expecting to see a bit of a strong selling day, either tomorrow or Wednesday, at which some of these financial stocks could take big hits. It will be nice to get a bit more volume and volatility back to Wall Street. Happy Trading.

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Investors Want More Than "Matched Expectations"

amazon earningsNow that we are dealing with, in my opinion, an inflated market, investors are becoming more and more demanding of companies and their ability to squeeze out higher profits. Microsoft and Amazon were two of the many participants in today's earnings announcement and both beat expectations rather easily. However, for most of the day, investors were not satisfied. By the end of the day (after a massive manipulated push upwards in the markets) both stocks did end in the green, but far less than you would expect and directly after the news both took a rather strong tumble. The truth is, heading into the second quarter, investors want to start seeing evidence of stability and strong growth. This could be a difficult task heading into the second and third quarters.

As I expected, Thursday had much more definition than the last two days. After starting down over a 100 points, the Dow was able to rebound all the way back and actually close in the green today. By now, no one is surprised and with only 200M traders, it doesn't take much to push Wall Street around these days. One thing is for sure, there still exists a huge void of hedge fund and institutional traders. From what I hear on the street, many still are waiting on the sidelines, waiting for day traders and market movers to get bled out. Who knows when that will be?

I am keeping my eye on Verizon for the time being. I have enjoyed having Verizon in my IRA (considering their very strong dividend), but I do see some short term potential for gains as there is a strong buzz going around about them possibly getting the iPhone next year. Nothing has been officially confirm, but there has definitely been a lot of "flirting" from the two companies. Even today, Verizon said that they are ready for the iPhone when Apple is. Such a move would be a huge move for Verizon, as AT&T has been killing them in new contracts the past couple of years, mostly due to the large success of the iPhone. The mixture of Apple's iPhone with the much better Verizon network should be a strong combination. Also, as a result of this, I expect to see some weakness in AT&T's stock. So I will keep my eye on that.

After such a resilient turn around like today, it is tough to pinpoint tomorrow's trading. Part of me feels that Friday will bring an exhaust selling day with some profit taking nerves before the weekend, especially following the 130 point turn around we had today. However, another part of me feels that due to such a strong reversal, that could be for an even stronger day to close out the week. Whatever does happen, one thing is starting to trend. If we start out in the morning with a rather strong selling trend, I may pick up some longs, considering that recently the market movers have been very successful in some strong reversals. Happy Trading.

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Early Week Breather for Markets

apple earningsMarkets seem to be exhausted a bit on Tuesday and Wednesday after the strong sell off on Friday, followed by the equally strong rebound which happened on Monday. Today's trading was in more of a "teeter-totter" formation as the market bounced from red to green for most of the day. However, what looked to be selling closed quickly bounced back to what brought the Dow slightly in the green by close.

Financials started the day out decently strong, but quickly reversed as the day went longer, probably due to good amounts of profit taking from yesterday's rally. Apple saw a nice 6% jump in stock price today after a big earnings report showing a huge increase in iPhone sales. The apple earning's jump has become almost a guarantee for those looking for a quick one day profit. Everyone forgets that Apple undercuts their earnings every quarter, which usually causes for a bit of a correction at first (which I expect to start tomorrow or Thursday). However, when earnings shows up, they blast expectations out of the water. On top of this, they continue to blow away other tech companies with their innovation. This is why I have plenty of Apple in my IRA.

Also on Wednesday, the Senate voted on the bill that would ban banks from participating in the very lucrative swaps market. The trading of swaps is what many analysts are blaming as one of the big factors that led to our severe credit crunch that eventually dried up the entire lending market. Many people are against the bill saying that such a plan would be "a step backwards" in helping to regulate the big banks and possibly provide less transparency in the future for some of the big boys. At any rate, a lot of uncertainty remains in financials at the moment, which makes a lot of the financial stocks a big question mark. If this bill were to pass, I would expect a big negative response from Wall Street. This could once again yield some good gains for FAZ or SKF.

The market should take more of a direction tomorrow as most of the exhaust should have burned off by today's trading. Profit takers are once again looking for new positions and should begin taking them tomorrow. Happy Trading.

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Goldman? Are you Surprised?

goldman sachs lawsuitFriday's trading closed on a negative note after a pretty solid week of buying. News of the SEC's lawsuit filing against Goldman Sachs claiming the existence of fraud. Really? Of course, these details were known by pretty much everybody for the past three years, but the government enjoyed turning the other cheek. I guess now they feel that the market is in a "stable" enough position for the government to go after the largest Wall Street bank and put blame on them for many of the current problems dealing with the financial credit crunch.

For so long now, the government has been a friend to Goldman, however, it looks like their out for blood now. In the end, I don't expect many repercussions to be made. Maybe a few slap on the wrists, a couple firings, and some slight changes to policy. Other than that, I am pretty sure Goldman will make it out pretty unscathed. However, it did cause for alarm with investors as GS closed down over 12% today.

Another wrench in today's trading was the unexpected low consumer confidence report. Many economists felt that after such a good string of positive indicating numbers, we would for sure see a healthy rise in consumer confidence. However, we saw a decrease. Due to continuing employment turmoil as well as other dragging economic indicators, consumers remained skeptical on which way the economy is headed. Sure, the inflated stock market has got to have helped consumers feel that we have recovered, but obviously that is not enough. I have said this time and time again that the recovery lies within employment. Sure, it may be considered a "lagging indicator", but the fact remains that with 1 out of 10 Americans unemployed, we are not going to race to any quick recovery.

I do not see today's retraction making much of an impact on the momentum as a whole. I believe that, over the weekend, the Goldman news will become distant and we should see some more green in markets beginning next week. If by some chance more serious consequences are heading towards GS, there is a possibility that we could see a retreat from 11000 pretty quickly, which could lead to some aggressive selling. I will be looking for directional momentum on Monday to most likely set up what the rest of the week will entail. Next week should be a good opportunity to make some quick money. Happy Trading.

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11000 and Beyond

exportsYesterday, we breached that critical 11000 mark for the Dow. Today, we were able to combat a selling opening and sustain above 11000 levels for the time being. Buying was sparked by a strong by a report of rising prices of imports as well as an increase in exports. As a result, many analysts are revising 1st quarter GDP growth estimates to around 4%. Cramer (how valid can his opinion be right?) is as bold to say that he expects a "prosperous economy" by the end of the year. At any rate, there is a definite division of economists regarding the future of the economy. If I were to take a snapshot of my local economy (Southern California), I would say that we are not out of the woods yet.

There have been many glimpses of good this past quarter and there should be. The money that is circulating the economy is record setting. Businesses and consumers have the opportunity to credit more than they ever have been able to for taxes, and interest rates have been record low for home buyers. So is this our doing or the government's artificial hand? That is where much of the debate lies. Whatever it may be, the market will continue to move and I hope to be on the right side.

Lately, things have been working well for me. Retailers have been gaining since I purchased some select retailer stocks, the dollar has held up nicely, and the Yen continues to struggle. Although my portfolio continues to remain rather "lightly" invested at this point, for the most part, these moderate investments are yielding quite nicely. Plus, I can go to sleep peacefully knowing that much of my portfolio is in cash.

I do believe we have potential to push further at this point, as our current good times are sure to push further and cause for some more positive data points. I do, however, feel that many of these levels will be unable to sustain. Cramer believes that the stock market can be manipulated just by convincing everyone that the recession is over, resulting in people buying again. However, fundamental economic factors need to change before a authentic recovery can be made. Those changes have not occurred and if it were not for the government's massive intervention, we would be worse off than the Great Depression.

For now, I will continue to ride the rally train. At this point I cannot clearly say where I believe contractions will begin to show, but I will be very cautious heading into late 2nd quarter and early 3rd. Home builders are also presenting an opportunity for returns at this point as new housing starts are looking to get bumped up. All of this government money is benefiting businesses like Lowes and Home Depot. My hope is to not get caught on the wave. Happy Trading.

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Trillions Going Out... Nothing Coming In

Obama TaxesMarkets bounced back today after yesterday's aggressive sell off. Strong earning reports from retailers helped boost up the market and finish in the green. Once again we are starting to flirt with that 11,000 mark on the Dow, which if broken, could spark another nice little rally. Keep in mind that volume still remains critically low, which can result in some serious intra-day swings.

Just as I discussed in a post a few weeks ago, we should be expecting pretty good earnings numbers, especially from the retailers. Macy's, GAP, and American Express all put out strong earnings numbers, which caused for some pretty good gains for their stocks. I expect most retailers to have relatively strong earnings for this quarter, so it may be wise to buy up some stock about two to three days before these retailers present. The day before usually results in a nice little run as does the actual day of the announcement. However, I like to get out immediately after the announcement, as the following day often sees an exhaust day.

Increasing stock prices for retailers will provide a great shorting opportunity in the future. Sure, these earnings reports are looking good, but they are not based on true consumer spending. Much of the money circulating in the economy right now is government placed money or freed up money from government tax credits. The pains and problems of the recession still exist (which is evident by the still struggling job market). We are just enjoying the numbness of government stimulus for the time being. As many of these retail stocks will inflate for the next quarter or two, I am very much expecting another round of this recession to take effect. The government can't afford to keep paying the bills and here's why.

It's estimated that 50% of Americans will not be paying Federal Taxes for the year of 2009. Due to the massive increase of tax credits and capital losses that has taken place this past year, many consumers will enjoy a tax free year. A family with 2 kids under 17 with a household income of $50,000, will walk away tax free due to all of the new tax credits available. However, not all are enjoying low taxes. For those making $300,000 and more are paying even more. In fact, the top 10% of earners are expected to pay 73% of Federal Taxes for 2009.

My question is, where will the government get their money. We have endured and will continual to endure some of the largest amounts of government spending we have ever seen, while at the same time, we are seeing a record low amount of tax revenue. This is how massive spending can quickly drive the economy into a down spiral. For now, successful Treasury sales are helping to defer this debt to outside nations, but surely this will decline. The Fed, being the #1 buyer of Treasuries, has to begin to think about slowing their purchasing. The government will eventually need to find revenue opportunities and you better be sure they will look to taxes. So don't get too comfortable paying no taxes this year, especially you guys in the higher brackets. It will only get worse. Happy Trading.

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Fed Says Nothing's Changing

fomc meeting Trading was mixed for most of Tuesday as the Dow ended slightly down and the S&P ended slightly up. Many were anxiously awaiting results from the latest Fed meeting, wondering if and any changes were going to be made to interest rates and policy. Like we expected, no changes were announced and as a result, investors felt a bit happier about buying going into the close.

Once again, The Fed made it very clear that as long as we exist in a a dragging employment condition, they will do all that they can to help spark consumer spending. Their big tool to do that is of course their control of interest rates, which they are keeping at essentially 0%. They also announced that as long as there exists strong pressures on consumer income, they will leave rates low (that is of course pending that there are no massive inflation risks looming).

They also announced that there were some positive growth in certain parts of the economy, but that their outlook remains cautious due to the continual struggle with unemployment. More and more we are starting to see opposition grow within The Fed and different members of the committee. Some are in favor of the central bank starting now to tighten policy, saying that we would be worse off to start too late than to start too early. Also, their are disagreements of when and how much Treasury dollars to liquidate, as The Fed has been very, very active in purchasing US debt. These division should increase as more time goes on.

Commodities showed a lot of strength today, which was surprising considering that the dollar also moved up as well. The correlation of them moving together could happen more and more as this inflation/deflation paradox continues. There are still distinct signals of deflation in some areas of the economy, while others look to be experiencing inflation. Paradoxes like these are just one of several reasons why many investors are enjoying the view from the sidelines.

Tech stocks are performing well and are getting a lot of help from Apple's latest gadget, the iPad, which went on sale to the public this past Saturday. It was estimated that over 300,000 units were sold on the opening day. Next quarter's earnings for Apple should be just fine. Happy Trading.

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Lose Your House and Make Money

pending home salesConsidering that the government is estimated to have made an 8.5% return on investment from the recent bailouts issued in 2009, things are looking quite "peachy" for the economy, as we started off in the green on Monday yet again. At least, so it seems. The Dow is inching even closer to that 11000 mark, which I would assume we reach by tomorrow or Wednesday, at which a pretty strong run could follow. If you have read some of my other posts, you understand my beliefs in this market running correlating more with the loose money supply, more so than the actual economy and consumer back on their two feet. Whatever it may be, there seems to be nothing able to stop this market, so why get off the train right?

Buying aggressively into this rally at this point, is a bit much for my blood, so I will stick with what I currently have. Shorting the yen, longing the dollar, and a few strategic longs in retailers in which I believe will crush earnings pretty well this corner. However, the real estate market continues to stay at a big question mark. Today, the HAFA (Home Affordable Foreclosure Alternative) plan takes place and it will be very interesting to see how many people buy into it.

HAFA is much like the "Making Home Affordable Program" (government loan mod program), however, applies to the millions out there who don't qualify for these loan mods. Well now, they will have a chance to earn some hard earn government money by simply choosing to short sell their house or perform a deed-in-lieu foreclosure. Just the past week, the incentive was doubled to $3000 to be given to home owners who sell to help with "relocation costs" (which I'm sure every penny will go). Up until now, banks have been sitting on defaulted properties, hoping to not completely tank the real estate market. However, as we begin to gear up for the spring/summer market (the most popular buying season), you can be sure that we are going to see a very big jump in short sales and foreclosures. I mean you could probably get most of these people to move for a free TV, let alone $3000.

I keep reiterating the importance of home values in relationship to the overall economy. For most, a home is a consumer's largest investment. A continual downturn in home prices can greatly affect consumer confidence, resulting in further contraction of consumer spending. If indeed these foreclosures start to pile up and the banks open up their flood gates, we can say good bye to any signs of an upturn in the residential real estate market. Happy Trading.

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Unemployment Sends Mixed Signals

government spendingAfter a worse than expected ADP job loss report that came out Wednesday (we lost jobs instead of an expected growth in initial claims), investors were quite anxious to see what Friday's number showed. The results are mixed. Jobs increased 162,000, which was short of the expected 200,000 number analysts were expecting, however, there were other details that made investors a bit more confident.

Going into Friday, over half of the expected job growth was anticipated to be from the recent temporary census jobs being offered by the government. It is hard to take these jobs into account, because they are short term and many of these people will be back on the job hunt in a few months. Friday's number showed that only 48,000 jobs of the 162,000 were from census hiring. As a result, investors cheered the higher than expected private sector job growth that occurred last month. On the other hand, many are stating that last months "improved" hiring had a lot to do with the vicious weather of February. At any rate, any remote sign of job growth will obviously cause optimism, considering that optimism has existed in the market for over a year now with absolutely zero job growth!

Due to the holiday, markets were closed for cash trading on Friday, however, futures were opened half day and traded mostly up. The big question on everyone's mind and what will ultimately be the deciding factor is if this current growth is sustainable. There is no doubt that much of the recent growth we have seen have been a result of government spending and incentive programs. The government has done a very good job of "numbing" the pain of a massive recession/depression. However, at what consequences do we enjoy this numbing. In past times, other countries have had devastating affects from ruthless spending during contracting times. Hopefully, we can escape this without just delaying these problems for the next generation. Only time will tell. Happy Trading.

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