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David White is a software/firmware/marketing professional and a long time investor. He has worked in the networking field, the semiconductor equipment field, the mainframe computer field, and the pharmaceutical/scientific instrumentation field. He has bachelor's degrees in bioresource sciences... More
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  • Trader's Thoughts: Near Term SPY target is $83

    Sell in May and go away? The technical charting data tends to substantiate this adage, at least for the rest of this month and into next. The SPY rose from a low of $67.10 on Mar. 6, 2009 to a high of $93.22 on May 8, 2009. This is a wopping 40% gain from the low to the high. At the very least a little retracement is in order. From the SPY chart, it already looks like a double top has been put it (5/8/2009 and 5/20/2009). If this chart pattern continues to develop as expected, it means a good movement downward. Add to this the fact that volume on the SPY has been decreasing over the last month and one half. This too, indicates a downward movement is likely.The question then becomes, "how far downward will the SPY go?" There is no sure answer to this. Historically every bad recession (and this is a bad one) has bounced off its bottom at least twice. Since we hit a new low on Mar. 6, 2009, the SPY would technically have to bounce off this point for history to repeat itself. That may happen. Still forecasting based on history alone is a fool's errand.

    Looking at the SPY chart, one can see that the SPY closed at $83.11 on 3/26/2009 at a near term peak. In a near term trough it opened at $82.82 on 4/21/2009. These two points provide the best near term support point for the SPY. This means that this point (approx. $83 on the SPY) is a likely point to be reached on the SPY's likely near term downward movement. This is not to say the market won't move much further downward. It only means that this is a reasonable target price to expect to reach in the near term.

    How about the fundamentals? They seem to agree with this market direction also. Unemployment figures are still horrendous. Chrysler has gone into bankruptcy. It is closing huge numbers of dealerships. GM appears to be following. It may go into bankruptcy in a week's time. GM too is already closing huge numbers of dealerships. It is closing or idling plants. The commercial real estate market is imploding. It looks to get worse as unemployment worsens throughout this year. If mall stores go out of business, the malls soon will too. If businesses employ fewer people, they need less space to put them in, not more. The credit card companies' charge off rate are increasing rapidly. For April AXP's rate was 10.10%. BAC's rate was 10.47%. C's rate was 10.21%. These will only get worse as the unemployment rate rises throughout the year. Banks will be losing money in this business trhoughout 2009 and likely throughout 2010. Remember the Fed rece... predicted unemployment to continue at 9% or above throughout 2010. There is talk of the US losing its AAA credit rating due to its economic situation (and its money printing). The Japanese economy just reported worse than expected results. The European Sector did the same. Even if the US manages to recover, many think that Europe may now provide such a huge drag that the recession will go on for some time to come.

    Of course, some might argue that the banking industry has passed the stress tests. Many of the big banks are talking about repaying the TARP funds. The push to raise the banks' stock prices so that they might raise capital more easily has worked to a large extent. However, they have already had their run up. With the share dilution effects, etc. they are now more likely to go down than go up. The BlackRock CEO has said banking stocks will underperform the market over the next year. Meredith Whitney has warned one should stay away from these stocks. It seems more likley these stocks will move the market lower rather than higher for the rest of this year.

    In sum all of the stars seemed to have aligned for this movement. We could go down all the way to our March bottom. This may happen. However, it is easier to predict a more near term movement. The retracement to approx. the $83 level on the SPY seems much more assured. If you ask why I hedge on an all out sell off after all the above listed bad news, the answer is simple. The government has been throwing money at the US economy with abandon. This has to have a salutory effect. It is clear that the government is at least slowing the detrioration. If the government can somehow prevent the Chrysler and GM bankruptcies from revitalizing the downward death spiral, the US economy may actually start to recover. I personally hope the government can do this. As for predictions, I am watchful. I am alert to the possibilities. I am hopeful. Good luck trading.

    Tags: SPY
    May 22 2:59 PM | Link | Comment!
  • COF Up On Lower Than Expected April Charge Off Rate

    This morning COF is up in the pre-market by about $1. This appears to be in response to COF's announcement that the April charge off rate was only 8.56%. Since the March charge off rate was 9.3%, most people had expected the April charge off rate to be above 9%, especially with unemployment still rising. There is no arguing, this is a great result for this economic time for COF. However, you shouldn't bite on this bait to buy in. COF has still risen from a low of $7.80 on Mar. 9. It has risen from a more recent low of $12.51 on April 21, 2009. It has recently fallen from its stress test boom high of $31.80 on May 8. It is currently at $25.44.

    COF is still slated to lose a lot of money for the rest of this year and probably most if not all of next year. These losses could be huge (billions). This is not the stock you want to own for the near future. It's credit card business is still souring. No less an authority than Ken Lewis (BofA CEO) has told us that this whole industry is souring quickly. The recent market move upward may have helped decrease the charge off rate temporarily. However, the charge off rate will climb. This is almost an invariant rule with high unemployment. Unemployment is now 8.9%. The most recent weekly figures indicate that it is still rising rapidly. The current predictions are for about 10.5% unemployment by the end of this year. The actual results could be even worse, since I don't think the 10.5% prediction really took into account Chrysler and GM bankruptcies. The current predictions are for an implosion in the commercial real estate market. The current predictions are for continued foreclosure problems in residential real estate throught out  2009 and 2010. COF has been losing lots of money. It seems more likely that this situation will worsen measurably in the very near future. Yes, COF has a TCE of 4.8% (== well capitalized), but it has just about everything else going wrong for it. Chrysler is starting to close a large percentage of its dealerships. GM is following suit. GM is likely following Chrysler into bankruptcy. The unemployment rate seems likely to jump dramatically. The charge off rates should jump with the higher unemployment rate. The commercial real estate problems may jump with this also. There is technical support for COF at approximately $20.30 and $19.20. This is still a long way down from the current price. Don't be caught up in the current bank hype. The banks are not going back to the profitability of the 2005-2007 period soon. They will not be making those many ill advised loans of those boom years in 2010-2013. They have at least learned a temporary lesson. COF has been significantly underperforming its sector. It has been losing huge amounts of money. Its losses are likely to mount quickly in the coming months. It is a much smarter play to the downside for the near future.

    Tags: COF
    May 15 9:07 AM | Link | 2 Comments
  • Technical trade Point (R3) Reached on the SPY for Monday. A Reversal Is Likely

    The pending US homes sales index for March was +3.2%. This was +1.1% from a year ago. The Construction Spending was +.3% versus an expected -1.3%. This was very good news for the markets. However, the markets quickly reached a technical trading point (R3 = $89.70 on the SPY). While there is no absolute in trading, only very infrequently will an index move beyond its R3 on any given day. For this reason alone, the direction of the market for the rest of the day may be flat to down. If you are enthused about today's news, you may wish to wait to buy in. Technically this may not be a good point to do so. You could get in just in time for the slide. Adding to my the technical reversal probablity is the fact that the 10-minute chart RSI for SPY is at 87 (highly overbought). The fast stochastic is at 94 (overbought). The volume spiked on the news, but is now considerably lower. All of these indicators would tend to indicate that the market is more likely to reverse than to go higher from hereon today. I note this is only meant to be a prediction for today. It is only a probability, not a certainty.

    Tags: SPY
    May 04 10:14 AM | Link | 2 Comments
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  • I meant to say DURATION not Distribution. A good reference on this is
    Nov 17, 2015
  • I am doing well compared to others who wrote a lot about energy and basic materials. Can't really compare that to a strictly finance writer.
    Nov 17, 2015
  • My rating plummeted with oil. I did obviously shift to writing about finance, REITs, and some healthcare.Rating system doesn't work for this
    Nov 17, 2015
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