Analyzing The Market This Week
First the Greek debt crisis and the Euro. I see a near term upside bounce in the EURUSD after its recent total thrashing since early December 2009 1.50 price. The EURUSD could possibly bounce back up to 1.29, 1.34, 1.37, 1.40, and 1.44 which are all Fibonacci retracement price levels. The 1.37 price area is the 50% retracement of the 1.50 December 2009 sell off to the current low of about 1.2350.
Sure the Europe debt problem is very bad, but everybody knows it and is on that side of the trade. At some point short covering might set in as it usually does and the price would head higher. Longer term, the Euro still looks in bad shape with more sovereign debt problems coming in Spain and Portugal in which the Euro would be greatly devalued again by helping to bail out those European countries in financial trouble.
I’m a dollar bull for the rest of the year, but only for the idea that it’s the lesser evil of all the currency evils out there. Currency evil, meaning money printing machines. In the long-term, I see USA defaulting the last after Europe. What a thing to think, and even worse to say. Not, it’s a very possible reality, and my money doesn’t have any emotion. What if that happens? Something to think about and try to prepare for because it’s very possible now. Cash is king, hold a little gold and silver, if buying buy quality companies, short selling rewards being favored, and good old fashion hard work in a job or a business of your own to help increase the gross domestic product of the country your living in is a good idea now to bring struggling economies out of recession which I would call a depression if not now very soon.
Monday Morning Financial Headlines from Bloomberg
Euro Swaps Corner Trichet in Currency Tumble Showing No Signs of Slowing. Prudential Plc Starts Rights Offer to Raise $21 Billion for AIA Purchase. Euro Tumbles to Four-Year Low as Budget Cuts Threaten to Undermine Growth. Universal Health Agrees to Purchase Psychiatric Solutions for $3.1 Billion. Hedge Fund Rules to Get European Union Review Over U.K., U.S. Opposition. Buying Europe on Euro Collapse Makes Darst Join Herro as Valuations Tumble. Recovery Rewards U.S. Investors With Unemployed Denying Historical Rebound. Thailand Demands Protesters End Attacks Before Peace Talks After 36 Killed. Amsterdam, Edinburgh Airports Closed on Volcanic Ash; London Faces Curbs.
My Stock Pick This Week is a Short Sell on a New York Investment Bank
It’s Greenhills Investment Bank in New York that specializes in mergers. A smaller investment bank compared to JP Morgan and Goldman Sachs and as of recently, one of the best managed investment banks in the industry. Greenhills looks like it’s going to fall out of bed here looking at the chart below. When all the good news is out on a company, and everyone is invested in it, the fundamental valuations are at the highest, and there’s less and less money to push the price higher, short selling the stock now becomes a low-risk high-reward venture. This is one of those situations I believe.
Review the Greenhills stock chart below. See the recent prices and the “1 – 2 – 3” on the chart? These are price waves of a normal total of 5. The 3rd wave is always the biggest and strongest of the 5 price waves in terms of price movement. It suggests there’s much further room for the Greenhills price to fall. See my trade plan below for sell entry, stop-loss, and take profit price targets. Wave 4 is a counter trend move to the primary trend of Wave 1 & 3, and wave 5 is the last of the primary trend move, until consolidation, a reversal or a continuation of the main trend happens.
I invest and trade the 3rd waves a lot because the momentum is already built into the trade by the time the 3rd wave is clearly identified. It’s the trend is your friend theory. I call it low-risk high-reward trading. I jump on board the 3rd wave on Monday, and swing-trade until Thursday or Friday or longer depending. Finding the end of the 2nd wave, which is the beginning of the 3rd wave is the optimal entry point, but that is hard to determine in advance many times, because the 2nd wave can extend past your projected entry point, and stop you out of your position many times. I just wait for the 3rd wave to identify itself, and go with that trend to key support resistance levels until it looks like the price move is expiring, and close my position. I don't the entire 3rd wave move but a get enough to to low-risk high-reward satisfied.
3rd wave swing-trading with daily price bars in the equity and forex markets has by far been the most profitable trading method for me, especially lately with the markets moving big. I’ve got better things to do than day-trade all day, and I don’t have or manage huge amounts of money that for example Warren Buffet has to hold long-term. I wouldn’t hold long term anyway in this current economic environment going forward. I would consider holding long-term starting in June 2016 when I see a bear market bottom in the equity markets. More on that in future posts here. Until then we still have to make money, so I’ll buy them and sell them, use stop-loss, and whatever it takes to survive and much better profit.
“Greenhill Shares Set to Fall” – Barron’s - Sunday May 16, 2010
A rare earnings shortfall at Greenhill & Co, could begin to break the spell that the financial-advisory firm has cast over the investment community.
Barron’s: Greenhill Ticker GHL, which advises big corporations globally on mergers and acquisitions, arguably has been Wall Street's best-managed firm in recent years, and has been rewarded with the sector's highest price/earnings ratio. At a recent 77 a share, the company is trading at an outsized 30 times projected 2010 profit of $2.54 a share, and for 10 times book value. This valuation is appreciably above that of financial boutiques such as Evercore Partners (NYSE:EVR) and Lazard.
Reuters: High-priced shares of merger-advisory firm Greenhill & Co (NYSE:GHL) could tumble unless there is a boom in corporate mergers, Barron's reported in its May 17th edition.
The company has one of the highest valuations of any Wall Street firm, trading at 30 times earnings per share estimates for this year. Rivals, such as Lazard (NYSE:LAZ) and Evercore Partners (EVR), trade at around 16 to 26 times projected 2010 earnings per share.
Barron's noted that Greenhill insiders recently sold 3 million shares, indicating they think the stock is fully priced.
However Greenhill supporters point to a looming merger boom as justification for the firm's high valuation, Barron's said.
Sell Short Greenhills Investment Bank – Ticker GHL
Sell Entry: 80.53 to 74.85
Take Profit Areas: 66.96 to 66.31, 55.78 to 55.10
Greenhills Investment Bank Company Profile
Greenhill & Co., Inc. operates as an independent investment bank. The company focuses on providing financial advice on mergers, acquisitions, restructurings, fund placement, financings, and capital raisings to corporations, partnerships, institutions, and governments. It acts for clients located worldwide from its offices in New York, London, Frankfurt, Tokyo, Toronto, Chicago, Dallas, Houston, Los Angeles, and San Francisco. The company was founded in 1996.
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Click the Greenhills Investment Bank stock chart for a larger view.
Disclosure: Going Short on GHL Per Trade Plan Above