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  • Pullback on Monday? [View article]
    Leading into earnings season the street expected reports to disappoint but felt guidance would move markets. Ahead of financial reports WFC pre-announced "record profits" for Q1, sparking the fierce exodus of short positions into Easter weekend. Initial reaction to the "earnings blowouts" among financial firms has been positive, but banks stocks have risen drastically and many are suspect of earnings numbers, given the new recording options of toxic asset values under mark to market revisions.

    Economic indicators such as jobless claims and housing data began to slow their rate of decline simultaneous to the aforementioned earnings reports, causing euphoric sentiment to extend the rally in U.S. equities. However, the thought process leading stocks to the current levels must subscribe to "V shaped recovery" theories, which will be debunked as economic conditions continue to worsen.

    The S&P 500 is diving towards support at 830, which should hold up in the short term. Below that the next level is 790, symbolic of the 50 day SMA, and will serve as the hard floor through which a bull market would not break. Keep an eye on macro data and earnings from tech, which may keep things in this range for a time, but take profits on pops and look to short banks and retailers.
    Apr 20, 2009. 02:38 PM | Likes Like |Link to Comment
  • Forecasting the Forecasts (Spring Edition) [View article]
    This seems to be the trend. While those who are actually collecting economic data are finding nothing but sluggish news, the equity market is digging for anything it can get its hands on that might support a "buy thesis".

    The economy is sick and we will see this soon enough as mortgage defaults, consumer spending and continuing jobless claims all trend worse. It seems that many bull players are thanking the "market gods" for the rally and hoping that if we just stay still and keep doing what we're doing that the market will go higher.

    When critics ask "why should it go further?" the bulls unanimously chime, "because the market knows what will happen in the future and we should all buy stocks!"

    For those who want to sign the 401K over to the wizard of Oz be my guest.
    Apr 17, 2009. 03:03 AM | 2 Likes Like |Link to Comment
  • 'Less Bad News' Drives Markets [View article]
    I read your blog Cetin and I'd like to inform you that as long as entrepreneurs aren't breaking the law and are filing 1099 and W2's they are included in employment.

    Second, Citing Twitter as an economic generator is crazy because they haven't been able to funnel the technology craze into profits, just like Google has struggled with You Tube. Having a product that a lot of people want to look at doesn't create revenue or jobs unless they buy it.

    We aren't in 2002 and this recession doesn't need a tech rebound, it needs a real economic recovery from the sectors that have been and continue to be pillaged (i.e. housing, industrials, retail, financials, hard tech producers, business services).

    We need real jobs, we need actual things being produced, and we can only hope to god that the nationalist "begger thy neighbo-esque" global stimuli don't drive us into global depression.
    Apr 16, 2009. 01:59 PM | 1 Like Like |Link to Comment
  • 'Less Bad News' Drives Markets [View article]
    Cetin,

    I'm flattered that you tracked down my profile to contradict my article after I posted criticism of yours. This is how we learn.

    Please elaborate on why "Job loss and unemployment are not a big deal". That is a weak argument. How is setting new record highs for continuing claims every week not a big deal? We saw some mercy from employers over the Easter week, but expect higher initial claims next week.

    P.S. Take a look at the historical comparisons of changes in VIX and changes in S&P 500 after bear market pops. My prescription to you is an Ambien with a shot of whiskey because it's going to be a long dark night my friend.
    Apr 16, 2009. 01:44 PM | Likes Like |Link to Comment
  • Lessons from the Volatility Shock of 2008 [View article]
    The VIX can be used as a gauge of potential market growth over a 30 day period. Assuming that a very high VIX anticipates larger magnitude returns, wouldn't a sharp trend down in VIX over the short term be a signal that markets are overbought and that they have little room to the upside?

    You hear a lot of people claiming that indexes are stable with the S&P 25% higher in 25 trading sessions, yet I see it as evidence for a severe pullback given the obvious uncertainty of the U.S. equity market and thus overall volatility.

    I enjoyed the article and would appreciate any feedback concerning derivatives of the VIX that may explain the volatility of the VIX itself and what that could tell us about the future of markets.
    Apr 16, 2009. 03:12 AM | Likes Like |Link to Comment
  • Beige Book Reflections [View article]
    Dear Cretin,

    The stock market has been relieved of short selling in financials over the past five weeks, which has allowed that sector to pop like the cork from a bottle of Dom. As financials improved the rest of the market followed suit and we saw some unexpected sales jumping in January skew actual earnings from estimates. It isn't surprising that some major U.S. firms correctly forecast the degree to which they would perform worse over the first quarter, apparently this is "bullish". It is equally understandable for banks to have made a decent profit over the quarter due to interest yields of 4%+ for banks during a moratorium of foreclosures. These were unforeseeable "pluses" for banks when they were issuing guidance and they won't be there for Q2.

    We now know that the yields for banks can go no higher unless mortgage rates go up, since the Fed Funds is essentially 0%. Defaults are rising in every category according to the Beige Book and home prices are dropping, which will put more home owners under water. March data showed CPI was deflationary, sales were terrible, and production worse than expected.

    Following the stock market as some psychic oracle of a turnaround 6 months out is synonymous to the blind leading the blind... eventually you'll all walk off the cliff. This market is violently passionate up and down because it is extremely UNCERTAIN. Trusting that major oscillations in any direction are suggestive of further moves in the same direction is risky on a technical level and clinically insane if you are current with any economic data being released.
    Apr 16, 2009. 02:47 AM | Likes Like |Link to Comment
  • Ghosts of Past Bear Markets [View article]
    I agree that the 25% bounce from the March 9, 2009 low isn't sustainable. P/E levels are unrealistically high given murky earnings outlook and technical indicators such as the RSI (relative strength index) makes the case that the market is overbought. Tenuous credit markets will also provide resistance to consumer spending and thus block a recovery lead by individual spending growth.

    This said, I don't necessarily agree with a simple time line chart comparison as evidence. I see that your visual shows shaded areas of previous recessions up until market bottoms. The 1973 and 2000 recessions actually trended much higher from these levels and never retested lows. Are you suggesting that we are going to see a bull market pullback or that we are in a bear market bounce? Well we test our lows?
    Apr 16, 2009. 01:37 AM | Likes Like |Link to Comment
  • Consumer Credit and Savings: Heart of the Crunch for Retailers [View article]
    You are essentially proving my point. It isn't that people are just as wealthy as they previously were and are simply gaining some financial wisdom on a whim. There are three types of consumers out there right now. The first consumer has a job and access to credit, the second has a job and is having his credit cut, while the third has no job and is facing collectors.

    The U.S. economy has been fueled by the consumer bearing over 70% of GDP during leading into this recessions, and it is foolish to expect that during times of recession the average person is able to save more and pay off credit card bills. If your argument holds true, you would essentially be claiming that the recession that we are experiencing is "all in our heads" and we just need to go spend. Of course a large part of any "economic winter" is psychological, but firms and consumers are REALLY suffering.

    The savings rate is increasing as those who can't get credit for big ticket purchases (i.e. houses, cars, appliances) aren't buying, and those with cash aren't spending it for fear that they will lose their jobs. If unemployment comes crashing back to 4.5% I might buy your argument, but allowing for a continued rise in jobless claims, it just can't work.


    On Apr 12 06:24 AM SIEANDME wrote:

    > So let me understand this. The consumer is paying off creditcard
    > debt at a record pace and at the same time building up a nest egg
    > in a savings account. Does that mean when the economy begins to recover
    > and consumer confidence begins to rise that all this available credit
    > and cash sitting on the side line will be fuel to futher the expansion
    > of that recovery?
    >
    > Is it possible that America will recover?
    Apr 13, 2009. 11:04 AM | Likes Like |Link to Comment
  • There's Still Plenty of Crude [View article]
    I can't jump on board the "up and away oil" boat because the demand for gasoline and other petroleum based products is dropping while the supply of crude is growing. EIA petroleum status reports have cited increases in crude supplies week after week as the rally in equities has inflated crude barrel prices to unrealistic levels. The bulls cite "not as terrible as expected" labor, inventory, and sales numbers as second derivative changes in macro conditions. I don't contest the "better than doomsday" outlook, yet we have shot past the appropriate magnitude of expectations for global commodity demand.

    Take a look at the EIA Report from Wed. April 8, 2009 and let the inventory chart sink in: www.bloomberg.com/mark....

    360 million barrels of crude oil inventory, matched with negative earnings for S&P 500 fiscal year '09 and negative GDP growth don't scream increases in demand. Simultaneously, oil producing countries around the globe will not cut production until prices are at a level where their domestic economies have regained a foundation. OPEC can't seem to follow it's own output cuts and other leaders dependent on oil (Russia) have no intentions of raising prices in an environment or receding demand for fuel.

    Once this US equity rally fades from it's delusional path to nowhere and companies announce their strength and forward looking statements, reality will kick in yet again and remind us that employment, sales, discretionary income and consumer credit are still going to be negative moving forward.
    Apr 10, 2009. 05:01 PM | 1 Like Like |Link to Comment
  • L-Shaped Recovery? Short Term Bulls Heading for Trouble [View article]
    Taking all of the comments in jest, I greatly appreciate the forum for debate spurred by this article. It seems interesting to me that so many people seem to be citing the almost mythical 9000 level on the DJIA and 900 on the S&P. I wish that those with such lofty expectations for the market to shoot way past 100 day SMA's would give some evidence as to how fundamental valuations are going to support such moves. As earnings continue to decrease on the S&P 500 which most analysts expect they will and the "e" continues to shrink, the current p/e level of 17.6 (as of 3/31/09) will continue higher. These levels aren't sustainable and aren't anywhere near historical recession levels which average closer to 12.

    We are heading lower. Much lower. We've seen a double top around 840 on the S&P 500. Take the positive news from mortgages and consumer product inventories as a chance to short the broad index. Retailers, home builders, and financials will be hurt most since they have profited most.
    Apr 9, 2009. 12:05 AM | Likes Like |Link to Comment
  • Mark to Market Aside, Job Decay Must Take Toll on Equities [View article]
    As a trader, the first sign you should exit a trade is when your opinion is the same as everyone else's. If you traded on your ideas first and others followed, you made money. If you traded on the idea after many others first had it, you'll probably be taken to the bank.

    You're right, the equity market is a leading indicator of economic activity but you must realize that the market is actually a group of people at the end of the day and people aren't psychic. Do you really think that stocks trading above their 50 and 100 Day SMA's are going straight to the moon from here. Even the bullish bulls must expect a pull back here.

    The most depressing thing for the market is going to occur when everyone realizes that the market has jumped the gun and while the consensus has changed from "end of the world" to "not end of the world", equities aren't going to rally along side unemployment straight to 10%. How do you expect mom and pop to react when the "worst case scenario" for housing and unemployment provisioned by their President turns out to be child's play compared to the real problems in this country?


    On Apr 02 06:49 AM Vox Rationalis (aka BS Detector) wrote:

    > The stock market is a leading indicator for a reason - it tends to
    > have a much better long-term view than consumers. Historically speaking,
    > equity valuations are low, and there are a lot of very good companies
    > on sale.
    >
    > So will the market go up from here or down from here? I have an
    > opinion like everybody else, but my confidence in it is not much
    > better than 50/50.
    >
    > My long run outlook, however, is extremely bullish. Invest for your
    > horizon.
    Apr 2, 2009. 09:04 AM | 4 Likes Like |Link to Comment
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