Tuesday Outlook: Commodities, Global Markets

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You have to expect these kinds of days. I can hear many market veterans mumbling, “Never short a quiet market” and that was true today. Bulls are looking for any shred of news to rally on and Meredith provided it today. She probably didn’t expect this big a reaction but you never know. Once you earn a reputation, even if it’s only once, you’re put on a pedestal until you’re knocked off.

Goldman Sachs remains unabashedly a major force on the Street, in DC and with the Fed. The Rolling Stone article coupled with other recently pieces should make your blood boil. It’s obviously been on our minds for several years given all our postings on the subject. GS will post earnings this week that should exceed their record profits in 2007, and they’ll do so by trading your tax money on the very junk of their own creation. You really can’t make this stuff up. Nothing is changing nor will it until people gain an understanding of just how the power forces in this country work. In the meantime, respect their power and accept the results. Hopefully some day there will be a reckoning.

Today was an oversold bounce. Perhaps Larry Kudlow, Jim Cramer and now Meredith Whitney are right. The bank’s crap assets are no longer marked to market, banks have been bailed out of all their responsibilities, the Fed and Treasury stand ready to keep them pumped up and politicians of either party just enjoy the donations flowing. There is no change, period.

Disclaimer: Among other issues the ETF Digest maintains positions in IYR and IEF.

The charts and comments are only the author’s view of market activity and aren’t recommendations to buy or sell any security. Market sectors and related ETFs are selected based on his opinion as to their importance in providing the viewer a comprehensive summary of market conditions for the featured period. Chart annotations aren’t predictive of any future market action rather they only demonstrate the author’s opinion as to a range of possibilities going forward. More detailed information, including actionable alerts, are available to subscribers at www.etfdigest.com.

Comments

[Macro_Man:]

How do you short IYR. I wouldnt worry about it. If you look at S&P on semilog basis, the market is stepping down in a price channel and we are close to the top of the channel, we may continue yesterday's bounce briefly but will get turned back by 905. Then we drop. IYR short will work by midday and will keep working.

Jul 14 07:07 AM

[MKW:]

Note that as far as volume was concerned, GS and XLF were the whole show yesterday - and even they just managed to get up to volume which would have been considered average in mid-April.

Jul 14 07:07 AM

[buyitcheap:]

Exactly! When you can make money by the Fed paying you for your "deposits" you don't have to do any risky lending to bad credits like, businesses or employed people, AND you can borrow for free AND you can buy your own toxic crap low and "mark it" to whatever the hell you please and call it a gain, why SURE they're going to report fabulous earnings. I don't actually see horns on their heads yet, but you can start to see the emergence of horned tails from the same spot where they normally are talking out of their arses...

Jul 14 07:25 AM

[Schweizer:]

Meredith is a Bear, and she and other smart bears got what they wanted by this bull trap move, a higher price to enter short.

Well played MW!

Jul 14 07:26 AM

[imex68:]

love is in the air, everywhere you look around .... tititititit

MWAG ♥ GS -

Jul 14 07:50 AM

[Archman Inv...:]

It is just another line in the ongoing plot line of Wall Street.
The real players always know the outcome, while mom and pop americans are left wondering why they couldnt figure out the real story. The playing field has never been this UN-level before in the history of the stock market.

compdivplan.com

Jul 14 07:54 AM

[basehitz:]

My contempt for GS has not changed. The outlook for financials in general due to rising defaults in credit card, CRE, prime mortgages, and the next mortgage crisis wave in Option ARMS, precludes investment in this group in general. And until unemployment crests, this won't improve.

However, now I question Meredith's objectivity, and whether trying to make it on her own while being bearish on the industry she specializes in was impacting her business prospects personally.

Jul 14 08:26 AM

[AndrewBaker:]

When the other guy at the table is playing with your money, they can bluff as much as they like, and even if they lose, they can't lose: it's your money anyway.

I can't laugh though, as rich and powerful get more rich with that power at the expense of all the other players.

What happened to integrity?

I know the market can stay irrational longer than I can stay solvent, and I wonder how long will it be before the financials and the banks in particular actually fall to their real values, which are so much less than the stock prices. And I know who'll get hurt when they do, and sadly it won't be those that should.

Jul 14 09:43 AM

[David Fry:]

Life isn't fair that's for sure.

The only thing missing from the Rolling Stone article is the discussion or mention of the demise in 1999 of Glass-Steagall and the rise of the CRA attached to that legislation. And, what a coincidence that Rubin was named Vice-Chair of the newly created Citigroup shortly thereafter as payback from the "villain in chief" Sandy Weill.

Just remember Weill who's the real man behind the screen along with his bipartisan gang from the DC money pit.

Jul 14 09:52 AM

[DDPearson:]

I shorted IYR by buying SRS.

Of all the sectors that I have looked at, the real estate is one of the worst for the next few months, so I will continue to play the downside.


On Jul 14 07:07 AM Macro_Man wrote:

> How do you short IYR. I wouldnt worry about it. If you look at
> S&amp;P on semilog basis, the market is stepping down in a price
> channel and we are close to the top of the channel, we may continue
> yesterday's bounce briefly but will get turned back by 905. Then
> we drop. IYR short will work by midday and will keep working.

Jul 14 10:00 AM

[Puerto:]

"The sense of responsibility in the financial community for the community as a whole is not small. It is nearly nil." John Kenneth Galbraith (The Great Crash: 4/21/53)
As you say, Dave, "There is no change, period."

Jul 14 10:15 AM

[DellRocks:]

Agree, and did you get a load of Cramer and his waving the white flag saying Meridith has surrendered to the bullish camp. That guy is dangerous. He didn't even report what she said. What an ass.


On Jul 14 06:17 AM doubleguns wrote:

> As always thanks Dave!!
>
> In regards to Whitney I believe that once people read what she actually
> said, not just the rumor, they may have a second opinion of yesterdays
> rally.

Jul 14 10:23 AM

[LIVE FREE O...:]

Even after yesterday, the sort ETF charts look great (SRS, TZA, SDS, ETC.) and the long financial charts, etc. look horrible. SRS looks fabulous (and when the commerical real estate debacle becomes well known....wow!).


On Jul 14 10:00 AM DDPearson wrote:

> I shorted IYR by buying SRS.
>
> Of all the sectors that I have looked at, the real estate is one
> of the worst for the next few months, so I will continue to play
> the downside.

Jul 14 12:51 PM

[LIVE FREE O...:]

Cramer is consistent though (we just have to run the opposite way).

Is there a Sort Cramer ETF??????


On Jul 14 10:23 AM DellRocks wrote:

> Agree, and did you get a load of Cramer and his waving the white
> flag saying Meridith has surrendered to the bullish camp. That guy
> is dangerous. He didn't even report what she said. What an ass.<br/>

Jul 14 12:53 PM

[White Shield:]

In the "dollar (FRN toilet paper) versus oil" battle, Bucky has flatlined. Obama goes to Russia - oil dips.
Place your bets.
to be cont'd...

Jul 14 01:48 PM

[BARBI520:]

Isn't Whitney a little late. Financials are up huge in the last few months.

That is the point Cramer is making. Now she says BAC is cheap which I believe it is. I bought it at 3.40 a share.

Jul 14 03:59 PM

[Old Trader:]

Barbi,

Yep, they are, but remember this is/was a "garbage" rally. As pointed out above, and as I commented yesterday, MW is not enamored of the sector, so I'm not certain how Cramer, or anyone else, can claim she "threw in the towel", so to speak.


On Jul 14 03:59 PM BARBI520 wrote:

> Isn't Whitney a little late. Financials are up huge in the last few
> months.
>
> That is the point Cramer is making. Now she says BAC is cheap which
> I believe it is. I bought it at 3.40 a share.

Jul 14 05:32 PM

[johnthebears:]

Dave, I agree with your short of IYR, takes more than one day to make a market, the best is yet to come for the shorts. I even own $5 puts in IYR and EEM that expire in 2010. Unfortunately for me the "irrational bull trap" keeps hanging on and my time-value keeps going down.

A word of warning to those in the SRS and FXP camp...

Note how SRS was once $200 and now only $20?

Think about it, as IYR plays around in a trading range SRS keeps dropping due to basic math. SRS keeps ratcheting downward rather than returning back toward $200. Now look at how big the factor would be required to get back to 200. Do the math, you will learn a lot from the exercise.

So, for your protection.... I suggest you always keep a tight stop-loss order when you own SRS. The next day after a 7-12% run up, SRS always drops back with a thud. Be ready to buy or sell in the last 15 minutes. Nothing else during the day seems to matter. Never buy a double short unless you are prepared to trade often. The math factor will kill you. So keep the cash register ringing in your ears with nearly daily profits! I wish I had been smarter sooner.

When you plot on the same graph (using Yahoo charts) FXI, EEM, FTSE, GDAXI, n225 and S&P you will see the same pattern developing, world wide. Further decline is in the cards pointing back to a test of Dow 6400.

Seems the developing markets are coming to realize they cannot buy enough of their own stuff to make up for what US, Europe and Japan are not buying. No amount of stimulus can make up that difference. I understand that EEM is trading about a 40 PE! I have also come to realize that the crossing of the 50 and 200 day moving averages provide a very clear buy and sell signal for short term investors.

Thanks for all your work Dave, you are special.

Jul 14 09:26 PM

[Up Yours SP500:]

I like fat chicks but I'd make and exception and bang her....she looks like a smarter version of Sarah Palin. Just curious, how many shares you think she bought before she made the buy call? Watch GS trade down the next couple of days as sheep find out they got swindled.

Jul 15 03:33 AM

[ERCaptain:]

I think it is more than high end "window dressing" (i.e., picking it after it already looks good).
She made the call before GS announced earnings which the consensus amongst analysts had widely missed (nearly 50% off).
With Goldman being one of the last global investment banks. They do not have many people with whom to share the profits. It is likely they will continue to make large profits until their competitors can get their feet back under themselves.
This is a political liability for Goldman because now they stick out like a sore thumb. Congress, and many others, will now have someone that they can point to and use as the symbol of corporate greed.
Merrill and Bear are hidden behind the drapery of their bank owners and still wobbly on their feet. Goldman is a good stock pick no matter how much one may fear the way they made their money.

On Jul 14 03:59 PM BARBI520 wrote:
> Isn't Whitney a little late. Financials are up huge in the last few
> months.

Jul 15 01:20 PM