Tuesday’s Trading
According to my trading program, the TRIN closed Monday at 2.03. While that is a very oversold level, it is no guarantee that the market will bounce. Looking at recent history, a high TRIN only presaged a bounce while the market was up-trending. So, if the market is beginning another leg down, then it will do so regardless of how oversold it is.
However, since this is Month-End Markup Week, I would be surprised to see a plunge. The big funds will do their best to keep their holdings up so that their marketing departments will be able to paint rosy pictures for the month. And with volume being so light, the big funds can easily levitate the market.
Of course, if there is a disastrous event, not even the big funds will be able to keep things from falling apart. Such an event would be along the lines of a super-spike in oil, a massive loss of jobs, or a spectacular bank failure.
If we don’t get anything like that, then this week could look much the same as last week: maybe a little more downside, then the big funds come in and buy, the market stabilizes, and then rallies to end the week.
But I wouldn’t hold any long positions over the weekend, because such a scenario would be a recipe for another Monday Massacre.
Hurricane Gustav is headed straight for the Gulf of Mexico, but if it does go there it wouldn’t arrive until next week. So far, oil is not reacting to the storm.
Watch the comments section for updates throughout the day.
August 26th, 2008 at 4:54 am
Asia and Europe down. Shanghai down 2.6%, it is now down 61% from ATH. (Imagine Cramer on TV every day in that downturn).
VLCC (Very Large Crude Carrier) rates are at rock-bottom. Rates are way below break-even point and carriers will not take shipment from Middle East to Asia.
You will have crude tanks floating around the oceans. Not because of shortage of oil, but because there are no buyers of oil. Look out below for the 115 USD oil price, the crunch is working through.
August 26th, 2008 at 7:22 am
dollar gained , oil down. market up?
August 26th, 2008 at 8:35 am
long term yields down, credit risk up. market down?
ok, most likely not today
August 26th, 2008 at 8:48 am
Looks to be a flat open and a flat day to me. The market needs to calm down after 2 mega moves in both directions. I’ll watch closely and becareful of a break of 1263 on the SPX as that might be used to sucker in shorts for a push up by end of week. I will definitely be short this market, but only if it drifts upwards by end of the week.
I agree with Matt.. being long right now is very risky and only do it if you can be around your comp during the day.
August 26th, 2008 at 8:49 am
“…(Imagine Cramer on TV every day in that downturn)”
We’ll be able to see that in 2009.
August 26th, 2008 at 9:10 am
Yesterday, Cramer had the audacity to blame the GSE’s and the Treasury (for not nationalising them) for the stock market’s problem. It took him all of one day to take back his market-bottom call and admit that we will see test the July lows (without GSE nationalization).
What do you guys think about GSE nationalization? I had thought that the market would take this as a negative (housing is in worse shape than thought + weaker dollar). One theory is that the nationalization would reduce the spreads between Treasuries and GSE bonds. As the theory goes, this lower interest rate would then be passed on to home buyers, and the problems in the housing market would be gone. Personally, I still don’t buy it.
1) I think it will take time, not lower interest rates to heal the housing market. Otherwise, the banks could just reduce their current spreads and fix the market themselves.
2) GSE nationalization would result in lower loan rates as well as a weaker dollar. Would the effect be that much different than if the FED lowered the funds rate? You can say hello again to higher commodities.
3) If FRE and FNM are doing that bad, than the banks’ loan businesses would be doing even worse since they have riskier loans on the balance sheets. I wouldn’t be surprised if the banks just use most of the larger spread to heal themselves instead of passing it one to home-buyers.
I’ve changed my opinion on GSE nationalization. IMHO nationalization will cause a rally (something bears should be cautious off), because the short-term investor market setiment (Cramer) thinks it will be good. Long term, it just draws out the process, so we may not test the July lows again until next 2009. Any other opinions?
August 26th, 2008 at 9:21 am
My feeling is the nationalization of the GSES will most likely cause a rally, as it will be once again be seen by the public that the government is willing to step in and do whatever is neccessary to stabilize the markets, regardless of the long term consequences. Think Bear Stearns bailout.
This is not to say we can’t fall back afterwards, but the initial reaction would be a rally.
And Matt, not to be conspirital in nature, but I don’t see any govt employment figures coming out really negative at this time with the market so close to a fallout
August 26th, 2008 at 9:36 am
Paul, this is the main reason i have hesitated to initiate a short position. i think the nationalization of the GSEs or even another statement by the PPT will lead to a rally. i think it would be very positive for the mkt for a few reasons: 1) it gets rid of the uncertainty; 2) it lowers mortgage rates and high mortgage rates have been exacerbating the housing depression; 3) GSE security prices stabilize and investors place more confidence in the price of those securities — even if the equity price goes to $0 and the pfd gets wiped out. i have obviously been wrong b/c i thought somethign would have happened over the wknd. the risk here is that the PPT doesn’t do anything for months, equity markets blast past their lows and once everyone is short, they announce the bailout.
August 26th, 2008 at 9:43 am
I also agree with Eli and Paul,
Nationalization will be “perceived” to be good as it shows the government is doing something to help. Just like how the stimulus checks were seen as being good or the Bear Sterns bailout and hence there will be a rally, BUT, it will actually have a overall negative impact. People won’t see it as being negative until it fully plays out though and by then, it will be old news.
We need to be very careful here.
BTW.. Paul, did anyone answer your question about a site/tool that can be used to compare volumes for markets yesterday? Interesting in finding something that show that too.
August 26th, 2008 at 9:44 am
Short-term interest rates are up quite a bit. I think that Charlie and Matt are right, a drop today is a bear trap.
Perhaps the best idea is to follow the professional traders: take a neutral position, then take a 6-day weekend.
August 26th, 2008 at 9:55 am
Charlie,
No, I still don’t have intra-day volume averages. I suppose if anyone knows where to download intraday volume, then the averages could be computed.
On another note, it looks like UNG may have bottomed yesterday (near its 1 year lows of Sep & Dec 07). Oil probably isn’t far behind.
For the bears weary of a GSE takeover, perhaps shorting IWM is the way to go (Matt has already pointed out the weakness there yesterday). Lower interest rates will not benefit small-caps as much as large caps (cheaper bonds) and financials. Also, the weaker dollar will hurt them.
August 26th, 2008 at 10:00 am
covered my shorts
August 26th, 2008 at 10:13 am
A solution to the GSE mess will make sure
a) that the Chinese don’t have to pay for it (and they went even public a couple of days ago - showing their limited understanding of risk in financial transactions but they have nukes showing their superior understanding of risk-mitigation strategies)
b) will not cost the US banks billions in write-downs (JPM going to take a 600 million hit because of GSE stock price decline in Q3. Regional banks have no nukes but they are closer to home and it is an election year)
c) Mr Paulson can get his entry in the history books
My gut feeling is something like a nationalization of the losses might do the quick and dirty trick, not necessarily of the shares. Details to be sorted out later. c) should lead to impressive results.
The market will go up, because any action is good action. Wait a couple of months and overoptimistic earning expectations missed and the size of the mess in the financial markets will bring stocks down again. So this is more likely a short termish (months) issue. I have no feeling for when the soundness of the dollar will be called in question…
Any action will (should) be timed to prevent a rapid decline in markets, so a market level around the July lows will be an interesting time. Let’s see how the market reacts to fabricated double-bottoms where neither the first nor the second low were caused by market forces but by interventions. (So much for the quant guys and their time series…)
Interesting times.
August 26th, 2008 at 10:21 am
Market seems to have a lot of support in the low 1260s; I’ll prob wait until either it breaks this area or undertakes another rally to re-enter. Paul’s hypothesis re rally continuing is still viable.
August 26th, 2008 at 11:05 am
Paul,
If your trading software is programmable, you might be able to code your own intra-day volume indicator, or hire a programmer to do it for you. I’ve been thinking about doing that myself, but I can’t find a trading platform that I can commit to yet. The coding shouldn’t be too hard. You would just take the volume for the day, and the elapsed time for the day, and calculate a projected value.
I saw Cramer backing off on his “July bottom gospel” last night. Hilarious.
Matt
August 26th, 2008 at 11:16 am
UNG made a nice double bottom yesterday. Everyone has been calling for a bounce of this thing though… we’ll see.
SPX hit the 200 and bounced off it. Maybe it will get through it today.
Also.. solars that have been rallying like mad recently might have topped off and are starting to look a tad weak.
Anyone have any thoughts on volume for today?
August 26th, 2008 at 11:26 am
The Q’s are holding back this rally attempt.
August 26th, 2008 at 11:27 am
FOMC minutes at 2pm. If memory serves, recent releases have caused at least an initial negative reaction in stocks.
August 26th, 2008 at 11:35 am
Sept 6th Bradely turndate?
August 26th, 2008 at 11:43 am
Matt,
I don’t have progarmmable software right now. One of my friends recommended ThinkOrSwim, which is highly programmable. Cramer is hilarious indeed, but kind of scary in that some people take him seriously. Did you catch him whining about the GSE’s going up? They are up big again today. I hope he is shorting them with some leverage.
The Qs took SPY up last week, and now they are holding down?
pooch,
what?
August 26th, 2008 at 11:55 am
Paul….From Bradley Turn Dates for 2007, today, 10/17/07, is supposed to be the most important turn date for 2007.
The Bradley siderograph (more information) was developed in the 1940’s by Donald Bradley to forecast the stock markets. Bradley assigned numerical values to certain planetary constellations for every day, and the sum is the siderograph. It was originally intended to predict the stock markets. William Eng, a noted technical analyst, singled out the Bradley as the only ‘excellent’ Timing Indicator in his book, “Technical Analysis of Stocks, Options, and Futures” (source: Astrikos).
These are the eight Bradley Turn Dates for the remainder of 2007 and 2008:
December 22, 2007 (A most important date)
March 8 to March 9, 2008
April 4, 2008
April 27, 2008
May 24, 2008
June 6, 2008 (A most important date)
September 9, 2008
September 20, 2008
December 14, 2008 (A most important date
August 26th, 2008 at 11:57 am
Paul,
I have ThinkOrSwim and it can probably do what you want. However, instead of following the Windows user-interface standard, ThinkOrSwim uses its own bizarre interface which I hate. The program has some features that I can’t live without at the moment, but I am still looking for something better.
Matt
August 26th, 2008 at 11:58 am
Pooch, I would recommend something else.
August 26th, 2008 at 12:16 pm
On Thursday, the Q’s spent about 3 hours at the $46.50 level before finally bouncing. Now, they have spent the last 8 hours at that level and still no bounce.
August 26th, 2008 at 1:19 pm
pooch,
interesting read about the dates:
http://www.amanita.at/e/faq/e-bradley-com.htm
Without getting into the basis behind the points, I don’t think the points are that helpful when there is 1 or 2 occuring each month and they are supposed to be valid for +/- 1 week.
Le’s run an experiment. Can you post the 2009 Bradley dates?
Here’s my “Paul Turn” dates for 2009:
01/13/09
03/01/09
05/21/09
06/17/09
07/31/09
08/05/09
10/11/09
11/05/09
11/27/09
August 26th, 2008 at 1:25 pm
Debka is reporting that a US Navy ship, and a US Coast Guard ship will attempt to dock at the Georgian port of Poti, which is still controlled by Russian forces. The Russians are saying that they will search the ships. NATO and Russian fleets are also maneuvering in the Black Sea.
If you are fighting two wars, is it really a good idea to fight a third? Is it really a good idea to make Russia your third opponent?
August 26th, 2008 at 1:37 pm
Matt,
http://georgiandaily.com/index.php?option=com_content&task=view&id=6661&Itemid=65
US Embassy: “umm, never mind..”
If the ships do end up docking at Poti, the US may concede to letting Russia search cargo once unloaded, but Russians searching a Navy destroyer? I don’t think so…
I saw this headline:
“Russia’s Georgia Invasion May Be About Oil”
How outrageous! That’s like saying the President of the USO, um, I meant USA, invaded Iraq because of oil.
August 26th, 2008 at 1:51 pm
Question: can GS take out its July low on a day that the market has barely moved?
Answer: Sure looks like it wants to! I’m actully hoping that it holds until after SPY breaks down completely.
August 26th, 2008 at 1:57 pm
Wow Paul,
GS is looking awfully ugly today. I’m hoping too so that I can re-enter my SKF position.
August 26th, 2008 at 2:08 pm
Another Wow!
A lot of suckers were taken for a ride on the FRE/FNM train today. Imagine if you bought at today’s tops..!!
August 26th, 2008 at 2:45 pm
Is this a small head&shoulder formation the S&P has developed over the last week?
August 26th, 2008 at 2:47 pm
sold my one NDY oct 1700 put just now @ 17.97
standing pat besides that, bitin’ my nails…
trying to avoid being too cute, although the above move might well have been an example of that…
August 26th, 2008 at 2:47 pm
Might be Yerk, but the shoulders don’t look quite high enough.
August 26th, 2008 at 2:58 pm
Paul don’t have the turndates for 2009.Money management ? would you roll Sept puts into Oct. Q’s & S&P
August 26th, 2008 at 3:09 pm
That last question is for anyone out there
August 26th, 2008 at 3:11 pm
If you fear that the bottom will be put in by some GSE actions…
Even worse, if the Fed were to be used to bail out the GSEs its balance sheet might not be large enough to provide enough cheap money to the banks - which they desperately need (same in Europe btw):
“Investors on average demand yields of 4.14 percentage points more than what they can get on Treasuries to purchase bank bonds, up from the low last year of 0.76 percentage point in January, according to Merrill Lynch index data.”
“The credit crunch is only now beginning because bank capital is so constricted by losses to date, that they will have to begin shutting off credit to households and corporations and that’s when we get the defaults,”
And this is not priced in right now, no way. Neither in banks nor in corporations. Has anyone got a list of s&p or nasdaq corporations sorted by reliance on short-term external funding?
http://www.bloomberg.com/apps/news?pid=20601087&refer=home&sid=aQLwsxFqjNQ0
August 26th, 2008 at 3:18 pm
While the S&P is dead flat, the tape has a slight uptrend on the NYSE and the NASDAQ. So, it looks like the big funds are being more-or-less successful in holding things up.
August 26th, 2008 at 3:22 pm
yes if they can’t move this down then they will move it up… least resistance
August 26th, 2008 at 3:25 pm
Yerk,
As I understand it, the Fed is way too small to save the GSE’s.
How scary is that?
Matt
August 26th, 2008 at 3:27 pm
Paul,
I’m glad to see that President Bush hasn’t completely lost his mind.
Matt
August 26th, 2008 at 3:32 pm
pooch,
If I had Sep puts, I would sell them today and buy Oct puts later this week, but that’s just me. It would surprise me, but not shock me if SPY reaches 130 (although I do think 1320+ may now be out of reach without a major catalyst). Another idea is to buy UltraInverse positions like SKF. As Matt said, you can wait on these and not lose time value.
As an example, I bought a GS Oct 165 put, and sold a GS Sep 155 put. On this trade, profit will be maximized if GS is at $155 at September expiration. I am hoping GS will be between $155-$160 before SPY collapses. Also, I legged into the position (buying the 165 when GS hit $160, and selling the 155 put when GS hit $155).
One thing to note: XLF peaked before SPY in May, so it may have already peaked for this down leg. In May, I was early on some of my shorts and paid for it, so I’m fine being late: opportunity cost losses are much easier to take. Also, I’d save at at least 15-20% cash in your trading account. You’ll rarely regret not throwing more money at a winning position, but not having cash at the right time can really hurt.
August 26th, 2008 at 3:37 pm
Matt,
At the risk of offending Bush fans, take a look at this:
http://www.theonion.com/content/video/bush_tours_america_to_survey
Also, CNBC just indicated that “Fast Money” would be covering small caps (sounded optimistic) this evening, so anyone short IWM might want to close postions today.
Paul
August 26th, 2008 at 3:41 pm
Hope no one got fooled when SPX went to the 1263’s earlier. Right now.. the big boys are laying down their positions in the last 1/2 hr of trading. The tape sort of shows the direction they want to go.
Pooch, you got it spot on when you said that if they can’t take it down, they will take it up, which is exactly where things seem to be headed right now. Seems like people are thinking (or are being made to think) that the GSE’s are going to be bailed out anytime now. If that happens.. wait for the gap up.. and short 2 days after the news.
August 26th, 2008 at 3:45 pm
Thanks Charlie and Paul sold my q’s
August 26th, 2008 at 3:47 pm
More fun from the banks …
“Total assets of troubled banks jumped from $26 billion to $78 billion in the second quarter, the FDIC said, with $32 billion of the increase coming from IndyMac Bank, which failed in July.”
If you ignore IndyMac, it’s still from 26 to 46 billion in one quarter…
http://ap.google.com/article/ALeqM5jN7tdqNOWZW7G2KCjs4znl3OxAFgD92Q58KG0
August 26th, 2008 at 3:58 pm
bought back one NDY oct 1700 put @ 16.10
still keeping 9 % allo to QID…