Friday’s Trading

Bernanke is speaking at 10am EDT, but the text of his speech will likely be released to the press a few minutes before that time.

Watch the comments section for updates throughout the day.

58 Responses to “Friday’s Trading”

  1. Randall says:

    Matt – possible LEH buyout has financials up, will you add to your SKF position on weakness?

  2. admin says:

    Randall,

    Yes, I am looking for a good entry point.

    Matt

  3. Charlie says:

    Hey Matt,

    what would be a “good” entry point in your mind? Seems like we’re under water a bit on our SKF :(

  4. Tony G says:

    I think the situation that Paul described a couple days ago may actually play out. Look at the chart between 4/11 and 4/15. the s&p broke below its upward trendline for a few days but rallied back around 4/15 to rejoin the upward trendline. The bear rally extended another month to May 19. this bear rally was approximately a 2/3 retracement of the prior high. if there really is a bid for Lehman or there is anything positive (even negative positive like the gov is buying sr debt in fannie/freddie) the xlf will have a significant bid that could last a few more weeks. this would push all the other indexes higher. i have a feeling that this bear rally is not over. there are too many things that could debunk the current sell off.

  5. eli says:

    Charlie
    The recent runup fib retracement is $125.62 for the 38.2 level. Next would be the 50 level at $122.

    Can’t recommend an entry point, but I would look at a stop loss under todays low, as once a stock passes a fib, on a close, they “tend” to move on to at least the next fib level.

  6. Charlie says:

    Amazing how they can recycle news and get the market to pop like this. Didn’t the Koreans already turn down a $5 billion take over bid of Lehman a few days ago? Why are they announcing this again now?

    Anyone? Is this “new” news? Was LEH under accumulation by anyone over the past few days since we all know that by the time we get this info, everyone institutional investor has already made their moves in the stock.

    SKF starting to look tempting for me to add my position to, but I’m quite frankly a little scared. Not sure if what Tony is referring to (regarding what Paul said) will come true or not.

  7. admin says:

    I just added to my SKF position. We’ve heard this same Korea/Lehman rumor a few weeks ago. I have all the SKF that I want now and will be holding it for an eventual test, and probably break, of the July low.

  8. Charlie says:

    Thanks for the advice Eli!,

    Seems like the current low of the day is holding.. but barely.

  9. Charlie says:

    doh! Spoke too soon!

  10. Charlie says:

    Hey Matt,

    are you still piling on shorts today or will you wait?

  11. Paul says:

    My financial short positions are obviously not doing too well today. I added started a new GS position @$160. I’m tempted to add to my JPM, but I’m already well exposed to financials now (JPM, GS, SKF) so I’ll add if XLF gets to 21, otherwise I’ll wait it out.

    Vix @ 18.66!!! Hopefully the call options respond (they haven’t been moving much this week) and I’ll buy October.

  12. K says:

    I still have SKF got at 123.50 a week ago. After financials are down (FRE and FNM) 50% in a few days someone has to cheer people up with bad news. ah how fun it is. I just sold 2/3 of my apple stock to make way for more short etf positions since i won;t short individual stocks.

    good luck

  13. Paul says:

    The Korean news is new: it is a different bank this time.

    http://www.tradingmarkets.com/.site/news/TOP%20STORY/1840869/

    However, both times it was Lehman that approached the Korean Bank. So maybe the answer to the GSE’s problem is that the US should ask Korea to back FNM and FRE’s debt directly.

  14. George says:

    I’m with ya Matt on the inverse stocks.

    Got SKF at 125.66 and SDS at 64.62. I’ll add to these during pull-backs.

  15. admin says:

    Charlie,

    I will probably be buying a large amount of SDS before the day is over.

    Matt

  16. Tony G says:

    i blew out of all my long spy and xlf calls and all my DDM and DIA shares. i’m considering averaging into SKF everyday for the next week. i always seem to get my ballz blown off when i buy SKF all at once.

  17. Tony G says:

    Matt, how are we looking on a technical level? Thx

  18. K says:

    SKF has a volume of 13.5 million already in 2 hrs
    almost 7 million an hr. i know it might slow down during lunch time.
    7*6hrs = 42 mill.
    for all i know is if we pass 40 million and skf is rebounding like it is now this could be another major run up.

    again good luck and i feel sorry for those that bought FRE at 3.50 today

  19. admin says:

    The selling volume on USO and XLE this morning has been light. The energy retracement rally may be able to run for a few more days.

  20. Paul says:

    K,

    Don’t feel sorry for them. Today’s GSE buyers are either traders or speculators. Not even the financial news cheerleaders and analysts have been pumping the GSE’s. I do feel sorry for those that bought the GSE’s before July: some were retail investors that were just misled.

    Has anybody else looked at the bank data from the Federal Reserve (I posted the link last week)? Namely JPM?

  21. George says:

    FRE – I made good profit when it made the dip to 5 then up to 10. My wife got a trip to Ireland. LOL

  22. K says:

    I almost got into FRE at 2.95 yesterday and would have ideally sold at 3.45.
    No complaints tho hehe

    Paul Do you mind posting the link here again?
    I haven;t been on this blog for that long so I haven;t looked back at old comments yet.

    Thanks
    K
    http://www.investingfreak.com

  23. billybeer says:

    FRE & FNM have resumed their swan dives into oblivion. I guess they realized that their ticker is not LEH. I would look for them to start a slow drag on the financials for the rest of the day. On a side note, who in their right mind would want to hold those things over the weekend?

    I added some SPY puts about 30 minutes ago.

    I was shorting LEH several months ago and have been playing in SKF since February. SKF can be tricky, it swings so hard you have to set your stop loss pretty low (I usually go for 10-12%) and then watch the thing like a hawk.

    As for LEH, this is not news. They are in talks (sorta) with another Korean Bank. I doubt there would be a sale above $15/share. But then again, MER settled with the New York AG and has to buy back 10-12 Billion in bonds by January and they are doing fine, so what do I know about finance?

    On a side note, apparently Bernanke thinks we’re in gale force winds since March and they haven’t subsided (despite all of the crap he’s done to try to stop it).

  24. Paul says:

    K

    Here you go:

    http://www.ffiec.gov/nicpubweb/nicweb/Top50Form.aspx

    There is so much info (more than annual reports), that most people probably can’t make heads or tails of it, but I’m a numbers guy. So I’ve seen something in the JPM data that made me buy some lottery ticket 22.5 Oct puts.

    JPM is too big to fail, but so are the GSE’s and look at their stocks. Compared to all the other major financials, JPM has had it good since they bought BSC. Most people assume that they bought it because they had the strongest balance sheet. My theory is that they bought it because they had the most to lose if BSC went down, similar to if GM bought GMAC.

  25. Paul says:

    Also, I think the big guns know that JPM’s day of reckoning is coming (although I may be early on my October time frame). JPM’s 2-year chart looks like JNJ’s 5-yr chart upside down.

  26. eli says:

    All might want to look at Wachovia as a financial short, acting very weak today. I was short WB, but closed it out yesterday, should have held, but bought SDS. Has a lot of exposure to the mortgage area, and if it gets back to $15.64 area, I believe it’s a screaming short, especially a rise on lower vol.

  27. admin says:

    I just doubled the size of my large SDS position, and bought a few more SPY puts. I’m thinking that this morning’s euphoric gap opening might mark the peak just like it did last Friday.

  28. Paul says:

    Hi Matt,

    I know that a lot of investors don’t deal with options, either because of lack of experience or account (retirement) restrictions. For them it makes sense to use inverse and ultra ETFs.

    However, since you trade options, why do you use the Ultra and Inverse ETF instead of Put and Call options on SPY and XLF?

    Paul

  29. admin says:

    Paul,

    I like the ETF’s because they have no burning fuses attached. I can hold them for as long as I want without having to worry about expiration.

    Nothing but selling pressure on GS since the opening pop…

    Matt

  30. David says:

    Matt…..I’ve been using SDS, SSO, QID, and QLD for the past week or so. You mention “large positions”…..and that has been a source of frustration for me (referring to block trades in those ETF’s). What’s the largest single trade block you execute on those? Do you find that you get fair fills when trading larger blocks?

    CHEERS!

    D

  31. Paul says:

    Matt,

    That makes sense. That’s why I never short stocks (I buy puts): I don’t want a margin call right before the shorts start to pay off. Of course, sometimes liquidity is an issue (especially with deep ITM VIX options).

    Here’s another trick sometimes use to avoid the time fuse. With JPM, I bought Dec 40 puts and sold JPM Sep $35 Puts. So I’m actually theta positive on that trade.

    Still, I’d just as soon exit the positions early than watch the market slowly creep up and then crash in a week or 2.

  32. Paul says:

    I figure that small investors don’t buy Treasuries that much, so I started watching the 13-week rates (http://finance.yahoo.com/q?s=%5EIRX) as an indicator of whether Treasuries were being bought or sold. The rate has been coming down, indicating higher demand, so it looks like the big money is not buying the rally today.

  33. Mike Tulz says:

    Where is that Rich guy?

  34. Mike Tulz says:

    Hope your right Paul

  35. Tony G says:

    heavy resistance at 129.3 on spy. i’m not doing anything until oil closes….shorts might squeeze oil higher in the last minutes of trading. i’m contemplating a going long after oil mkt closes and holding over the wknd, as i really think something happens re financials over the wknd.

  36. Paul says:

    Mike,

    I hope I’m right as well!

    It’s a new indicator for me, so we’ll see. The other aspect is that that future expectations of a stronger dollar will also increase treasury demand.

    Here’s one aspect that looks reliable: you can see the rate really takes a dive before big market bottoms: 3/14-20, 7/9-7/14. Unfortunately, there doesn’t seem to be spike ups at market tops. With some time, you could probably take a look at the magnitude of the daily change or divergence from a moving average or something to create a more meaningful indicator.

    I do think that the lack of small investors makes this a good chart to watch, especially when it show divergence from the market direction. In a strong bull rally, big investors will hop on board equities and sell treasuries, so treasury rates should go up during a rally.

  37. Tigrami says:

    Tony, I also think something maj1or will happen over the weekend… but do you think that something will be positive or negative for the financials?

  38. George says:

    The 10 year $TNX is up .32.

  39. admin says:

    As oil plunged $7 between 2-2:30pm, SPY stayed flat. So, stocks look tired.

  40. Alex says:

    From Yahoo:

    NYSE: up vol, 61%; down vol, 37%
    new highs 16, new lows 58

    Nasdaq: up vol, 77%; down vol 22%
    new highs 37, new lows 86

    Agree with Matt, market looks tired.

  41. Kevin says:

    Matt,

    INDU is in a bullish flag formation on the 15min. Monday bullish?

  42. Paul says:

    George,

    It looks like the 10 year rates are up 0.032 (3.2 basis points). So demand for the 10-yr is decreasing while demand for the 3-month is increasing. My time frame is 0-3 months, so I’ll follow the 3-months more closely.

    Matt,

    Agree with you about the stocks. SPY hit the trend line and stopped.

    There is some mystic glue holding up VIX call option prices (or maybe it’s just demand…). VIX October and November calls are at the same price level as 2 weeks ago when the VIX was 10% higher. Although VIX seems to be at a screaming buy level, it seems as if the VIX option market has already priced that in. Even the deepest in-the-money Sep calls and puts are priced for a VIX above 20. That’s more good news for the bears.

  43. Charlie says:

    I grabbed a small SDS position at the close. The price isn’t too bad and SPX is right at resistance right now. Will take a lot for it to push through I think.

  44. George says:

    Paul,

    I see your logic.

    Thanks

  45. admin says:

    SPY fell below its trendline on on light volume Tuesday, and rallied back up to it today on even lighter volume. Is the rally dead or alive? It’s a hard call, but I am still voting for dead.

  46. Randall says:

    WOW – a really bad day for the shorts, I think with the dip in oil and financial rumors, the market has legs for at least another day or two (or if you like 24 – 48 hours…then dum da dum dum…)

    I am also looking to get short the market via SDS and SKF, but think a better entry will be had next week.

  47. David says:

    Matt…..FWIW…..I played some SDS today and the fills were pretty rough. I also played USO….and the fills were much “snappier” even though volume for the two are about identical….and notably I was playing USO at a slow time of day (and their fills were still much more “fair”.

    The rep at my broker attributes crummy fills on SDS, SSO, QID, and QLD (all Proshares funds)……to “intermarket sweeps”…..which is a fancy way of saying that the MM’s don’t have to give the best bid / ask fills. This happens to me consistently on any larger block trades……do you have any thoughts / experience regarding bigger trades on those four Proshares ETF’s?

    Anyone else out there getting “nickel and dimed” to death when trading those four ETF’s?

    CHEERS!

    D

  48. admin says:

    Kevin,

    I never look at the DOW, because it is a price-weighted index.

    SPY did finish in a bull-flag as you pointed out, however a bull-flag is a continuation pattern that occurs during a fast move. If the flag lasts too long without continuing higher, it loses its significance.

    SPY’s three-day pattern is pretty close to a Bearish Hanging Man. And that fits with my idea that the lid was kept on today’s rally by the big funds selling into it.

    Matt

  49. Tony G says:

    Tigrami, I think that whatever the govt does with Fannie/Freddie will be interpereted as positive in the stock mkt — kind of like the Bear bailout– even if the fannie/freddie equity is wiped out. i think this is a priority to the govt bc the problems at fannie/freddie are pushing mortgage rates higher and making the housing depression worse and worse. Anything type of successful fundraising by Lehman or investment in Lehman will also be positive. i blew out of everything at the close despite this gut feeling….just don’t want to risk profits with the mkt right up agains resistance.

  50. admin says:

    David,

    I am aware of the problem with the ETF’s, but I don’t day-trade them in large sizes so it doesn’t really affect me.

    Matt

  51. Paul says:

    I don’t know which way it will go next week. Today’s trading looks bullish, but the same blah volume. Th resitance line is upward sloping, so I guess we’ll see. A catalyst will be needed to get above 1300, and 1320 will be even tougher. Also, I don’t see XLF breaching 21, especially with two boat anchors (GSE’s).

    I think that the Invisible Hand is okay with a falling market, as long as it doesn’t fall too fast. I don’t see any intervention any time soon.

  52. Anon says:

    I had a similar problem, it took over 30 seconds!!! to fill a 300 share limit order on SDS with both the bid and ask below the WHOLE time.

  53. Paul says:

    Tony,

    At the time of the BSC bailout, there was serious jeopardy to the financial sytem, mainly through cascading counterparty defaults. If BSC couldn’t pay JPM, then JPM couldn’t pay Cit, who couldn’t pay Merrill, who couldn’t pay BSC, etc.

    The jeorpardy was at least an order of magnitude higher if the GSE’s defaulted on their bonds. However, both the FED and the Treasury opened their wallets to the GSEs, so the bonds are safe. The market already priced this in: that was the cause of the July – August rally. As I explained yesterday, any GSE intervention would be negative for the market at this point (things have gotten worse + weaker dollar).

    In terms of the brokers, certainly any firm price that a big player places on them will have major impact that could go either way. Lehman will never be in as much trouble as Bear was, simple because they can borrow directly from the FED.

  54. Paul says:

    Almost forgot, Obama has picked his VP and will name him/her this weekend. This could have affect on specific sectors. The DNC convention starts Monday.

  55. Charlie says:

    Paul, Matt,

    do you think that the markets will react given the VP that Obama picks?

  56. Charlie says:

    After looking at a number of factors, I’m not so sure of a move lower in the markets. The only positive thing for those of us that are short is that today’s volume was very light and hence lacks the conviction of a true rally. Then again, this is typical of summer months and hence there is nothing preventing the market from forming a solid base to rally off in the weeks to come.

    Now.. on the contrary, if most people feel encouraged, especially from a TA perspective that the recent break of the upward trend in the SPX now has been recovered, the logical thing for institutions to do would be to sell into this strength and once again leave retail investors holding the bag.

    So right now.. mixed, but I may lighten up on a few of my shorts if we get a pullback on Monday so that I have more capital left to play another day.

    Thoughts? Paul, Matt, Eli.. everyone else??

  57. Randall says:

    Biden??? Give me a break!

    McCain isn’t old enough?

    Obama is too young, too inexperienced…..and too black – so he had to pick someone too old, too experienced…..and too white??? “Balance” the ticket???

    Obama gets a D- for this pick. Biden isn’t a bad guy, he is a devoted public servant, household name recognition, foreign policy experience.
    But if Obama is all about “balance”, “political correctness”, “appearances”, “expediency” just for the sake of public perception, he will make a LOUSY president.