Matt Trivisonno’s Blog

Last week, I posted my “No Bottom for XLF” piece where I correctly predicted that XLF’s March low would not hold. If you look in the comments of that post, you will see hedge-fund manager Doug Kass taking issue with my call.

The results? Kass, a star at RealMoney.com and on Kudlow, was crushed. As you are probably aware, XLF plunged through the March low, rallied back a bit on Friday, but still closed below the lowest print on March 17th.

Any other hedgies wanna come get some?

Here is another amusing anecdote: on Monday morning, after JPMorgan downgraded GE, Kass posted:

“Seems to me that as Grandma Koufax used to say, “Dougie, you can’t get killed falling off the curb!” And that phrase might apply to GE, which has been a non-participator in the market’s rally over the last few years.”

Well, there was another 5.8% of curb for GE to fall off of.

Note to Grandma Koufax: Don’t quit your day job!

P.S. I bet heavily on my analysis by shorting the XLF via SKF and made a huge profit.

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I just took huge profits on about 20% of my SKF position. As I have mentioned in recent posts, I am exercising my discipline to buy-to-cover on weakness, and short on strength. I also want to have maximum firepower to short tech in case there is one more bounce before the big crash.

The BKX is only down 1% as I write, and the QQQQ is down almost 3%, so my prediction from a week or so ago that tech could take over the lead on the downside might be coming true.

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Richard Fader, a spokesman for the Florida State Department told Trivisonno.com:

“You would think that with the cheap dollar, more tourists would be coming to Florida from overseas. However, we have recently learned that there is some sort of problem with jet fuel costs. While it is true that we might have as many as 21 billion barrels of oil off of our coast, we feel it is only fair to let the Cubans drill it.

“The USA has lots of coal, and we make good trains. So, the State of Florida thinks that the best solution to the problem is to build a railroad under the Atlantic Ocean so that our European friends can once again visit us.

We are a very well thought-out state unlike those dummies in Texas who drill all those un-sightly holes in their state.”

We here at Trivisonno.com heartily endorse this proposal. As the Miami Beach tourist business dries up, it’s time to take action!

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With oil down almost $5 today, you might have expected a to see a gigantic rally in stocks. But it didn’t happen, and today’s action once again underscores the weakness of this market.

SPY, QQQQ, IWM, and XLF all had increased volume, so it does look like some of the money coming out of oil rotated into those ETF’s. However, a day like today is perfect for large institutions to dump a lot of stock with nobody noticing. The jump in SPY volume probably should have produced a larger gain, but perhaps a big-dog was selling hard into the rally…

SPY, IWM, and XLF remained within their down-trend channels, though QQQQ is now peeking above it’s down-trend line. Normally, you want to see a 2-3% penetration of a trend-line before declaring it defunct, and QQQQ has not achieved that yet.

The model that I use didn’t quite make it to a short-term over-bought reading today, but just before the close I bought some more QQQQ puts.

Oddly enough, the bull-flag formation on the oil chart that I wrote about yesterday is still intact. USO moved down to the lower-end of its recent trading range, and today’s big drop moved USO from short-term over-bought to short-term over-sold. So, today may have only served to coil-up oil for a strike higher. However, the pick-up in volume is not something that you want to see in a bull-flag. Gun-to-head, I would buy it. The fact that the chart didn’t breakdown after news of price-hikes in China, and higher production from Saudi Arabia, is pretty remarkable. The oil price-chart remains in a very strong pattern.

The lies from the bankers continued today with Citigroup taking the top spot on Mount Lie-More. Once again I ask, what good is fundamental analysis of these companies when all that you have to analyze are lies?

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Economist Tony Crescenzi wrote a piece on RealMoney.com today titled: “Jobless Claims Dip” regarding this morning’s unemployment report.

Nowhere in the piece did Crescenzi mention that the most important metric for this data-series actually got worse. We will need to go to Bloomberg to get objective reporting:

“The four-week moving average for initial claims, a less volatile measure, increased to 375,250 from 372,000.”

I have been reading Crescenzi for many years and am aware that he is an optimistic perma-bull, but I certainly don’t expect him to whitewash important data. This is a shameful way for a professional economist to behave.

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Note: As you may have noticed, I enjoy writing catchy headlines…

Yesterday, I wrote about “bear flags”, and that analysis was a smashing success. So today, let’s examine a bull flag. Take a look at this chart of the USO oil ETF (click to enlarge):

Notice prices tracing out a flag pattern (or you could call it a pennant) which I have bounded in red. Now look down at the volume. The “flag pole” was a high-volume move, and the flag itself is a low-volume consolidation.

This is a classic bull flag!

The completion of this pattern-in-progress would see prices running up an equivalent magnitude of the flag pole. The pole began around $100 and ran up to about $113, so another $13 would be the target for USO. On the futures contract, that would take us up to $150-land.

I don’t trade commodities because I don’t have an edge on the fundamentals as I believe I do on the broad stock market. However, this is such a perfect pattern that I just might pick up a few USO shares.

Flags are short-lived patterns. This thing could break out at any moment. If it does, stocks will suffer, and my short positions will rocket even higher. So, I will benefit from a breakout in oil, and I don’t need to play this directly. However, if there is another move down to the low end of the range around $107 on light volume, I might be tempted to jump in.

Note: The bear-flags that I wrote about yesterday all broke down on high volume today. That is very strong proof that the trend for the stock market is still down. And if you add that to this scary oil bull-flag, you have a recipe for a mini-Armageddon. Perhaps the world will end early next week since expiration should keep things pinned down until then. That would also give stocks time to move sideways and work-off their over-sold condition.

My strategy for the near-term is to short the hell out of any bounce in stocks.

Yesterday, I wrote a post titled “Bear Flags Flying!” Today, Barron’s picked up the theme with “The Bears Have Left Their Caves” - make sure to take a look at Michael Kahn’s QQQQ chart. Here’s a quote:

“Stocks are in a bear market and technical indicators confirm that sellers are more aggressive than buyers.”

Indeed!

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Ken Heebner was on Kudlow last night extolling the virtues of banks. As I have been printing money by shorting the financials, I didn’t realize that Heebner was on the other end of my trades. Will I out-perform one of the greatest investors ever this month? If he’s lugging a lot of banks, I probably will.

Apparently, a lot of the “smart money” have been buying banks lately. This reminds me of the smart-money buying home-builders back in 2006. It’s the same massacre all over again! How can banks make money with no real-estate market? Who would think that banks could thrive while home-builders suffer?

And today the situation is far more clear than it was back in 2006. After all, back then the economy was actually growing at a strong clip. So, maybe you could be excused for expecting the home-builders to rebound. But today? Is there any shred of fundamental evidence that points to better profits for banks?

Wayne Angel, a former Fed Head, also cut into Heebner on Kudlow. I was shocked out how the usually mild-mannered Angel pounced on Heebner as Heebner blamed inflation on global growth. Things got very testy.

Heebner was just saying that a rapidly growing global economy had gobbled up resources driving their prices higher. While many people call that “price inflation” it really has nothing to do with “monetary inflation” where a central bank prints too much money. So, Angel attacked Heebner over a perfectly innocent statement. For example, the price of oil is probably high due to real world supply-and-demand, and a weak dollar.

The big-money trade recently has been to short financials and buy oil. A lot of traders are trying to do the reverse of that, calling for a top in oil and a bottom in financials, and getting killed in the process. Heebner has a different take: he says buy oil and financials. So, he has, no doubt, been doing a bit better than the short-oil-long-banks crowd.

Since recessions kill inflation and the price of oil, I think it is only a matter of time before oil kills itself by choking the global economy. Will Chinese airlines keep flying as American airlines shut down? Are they magically immune to the price of oil? Maybe they can withstand the shock better, but I think that they put their pants on one leg at time just like we do.

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The market is short-term over-sold now and should be able to stabilize, assuming this isn’t The Big One. (Take a look at the 60-minute stochastic for SPY.)

So, I have taken profits on a small number of my SDS shares (the double-short SPY ETF). I will use the profits to sell into any dead-cat bounce from here.

My portfolio is still 90% leveraged short, and I am just exercising my discipline to buy-to-cover on weakness.

P.S. Sorry it took me so long to make the bear-call last night. The market is complicated and I can’t always solve the puzzle as fast as I would like. I hope that you’ve been paying attention to my blog motto at the top of the page…

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I am seeing the same bear-flag pattern on lots of charts! What does this mean? It means that last week’s deeply over-sold condition is being worked off with a low-volume, short-covering rally. The big players are not buying in.

Here is an update of the XLF chart showing today’s move being rejected at the blue resistance line, and puncturing the lower green bear-flag line (click to enlarge):

Here is SPY with its own bear-flag, note the purple line highlighting the declining volume:

(I’m not quite sure how to draw SPY’s top resistance line, but any way you draw it, it’s not far overhead.)

Now it’s your turn! See if you can spot more bear flags. Hint, you can start with QQQQ and IWM.

Expiration? FOMC meeting? Who cares! The bear army is marching!

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This morning, before the market opened, Jim Cramer wrote:

“Run, don’t walk, to the things that Doug Kass is hearing. They will define today’s show, and Dougie’s got a hot hand with this bank call. You need to get the agenda for the day — Doug is setting it.”

“Hot hand?” The BKX banking index was down 3.68% today! Kass’s baby, Citigroup was down 1.82%. (C was rejected at the $21.25 resistance yesterday and today. If it can’t mount another charge tomorrow, a test of last week’s low will be in the cards.)

The BKX also closed below its March 2003 low today, and is now plumbing the October 2002 lows. Some people are expecting that to be a support area, and while there should be at least one bounce, we have to remember that the real-estate business was very strong back then, and is hardly alive now. There is no fundamental reason why the banks should hold at that level.

Kass was on Kudlow last night and stated that he thought the capital-raise for the banks was 90% complete. Today, Goldman Sachs said banks need another $65 billion. Of course, Goldman profits from these offerings since that is one of its businesses, and they might be engaging in a bit of salesmanship, but I am more inclined to believe their estimate.

I don’t subscribe to Kass’s letter, but I hoped that he bailed out of his C position today…

Jim Cramer, you were high on banks on the very day that they took out their March 2003 lows. Hang your head in shame.

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