Wednesday’s Trading
There may be 90 billion barrels of oil at the North Pole and both the Canadians and Russians are training-up for Arctic combat. Russian bombers already patrol the area while Canadian fighters chase them off. The “cold” in this new Cold War now has a double meaning.
Oil is finally responding to Hurricane Gustav, but stocks are looking to open up on a “good” durable-goods number. My dream is for a move back up to 1285 where I will be shorting.
Watch the comments section for updates throughout the day.
August 27th, 2008 at 9:08 am
In light of this morning’s durable-goods surprise, it’s good to keep in mind Edward Leamer’s recession cycle:
“The temporal ordering of the spending weakness is: residential investment, consumer durables, consumer nondurables and consumer services before the recession, and then, once the recession officially commences, business spending on the short-lived assets, equipment and software, and, last, business spending on the long-lived assets, offices and factories. The ordering in the recovery is exactly the same.”
http://www.kc.frb.org/publicat/sympos/2007/PDF/Leamer_0415.pdf
The paper is very long, so make sure to study it when you have sufficient time.
Recessions don’t hit all sectors at once. There is a definite cycle and this recession is already rolling into the important “equipment and software” sector as Bloomberg reports:
“Business spending on new equipment and software dropped at a 3.4 percent annual pace last quarter, the second consecutive decline and the biggest since the first three months of 2004, according to the government’s advance estimate issued last month.”
August 27th, 2008 at 9:35 am
Hey Matt,
a good morning to you and the rest of the crew out there. Hopefully today is as you say… a jump up to the 1285 - 1290 level so that we can lay down some shorts
Good Trading!
August 27th, 2008 at 9:38 am
Oh.. forgot to mention.. Solars now rolling over as mentioned yesterday. SOLF taking a beating and WOW… another GAP up by UNG!
August 27th, 2008 at 9:43 am
Enjoy your reports Matt.
But i would like to understand your technical analysis better.
Do you have some reading suggestions?
August 27th, 2008 at 9:57 am
Paul,
This is the book that I use:
Technical Analysis of Stock Trends.
Matt
August 27th, 2008 at 10:05 am
thanks for the lead.
August 27th, 2008 at 10:32 am
how’s SKF to hold right now? to me it looks like some banks might report some good things knocking it to $110 in the next week or so.
any thoughts? Matt? your technicals on it?
August 27th, 2008 at 10:35 am
added a 2nd ndy oct 1700 put @ 14.10
August 27th, 2008 at 10:38 am
Paul,
have you visited any of these sites? They offer different perspectives on Tech Analysis.. Just interesting to watch someone analyze charts:
http://www.stocktock.com/
http://inthemoneystocks.com/Day_Trading_Archive_and_Vid.html
http://www.alphatrends.blogspot.com/ <- this last fellow also has written a book. Out of the 3, he seems the most seasoned and conservative with his calls.
it is interesting thought to watch them analyze the day’s trading activities while looking at the same charts.
August 27th, 2008 at 10:39 am
Last 3 years day after Labor has been up,in fact the last 3 years Sept. has closed higher than the last day of the month then the open on the after Labor day. Food for thought.
August 27th, 2008 at 10:43 am
K, I think that XLF has to pierce the 20.30 mark initially and then the $21 mark. Both are posing to be short term resistance points. Last Friday, it got through $20.30, but fell back on Monday. It tested $20.30 yesterday, but was pushed back. It is testing it again (or about to) today.
Will be interesting to see how things play out though. If everyone thinks that financials are going to be bad, then there isn’t much downside left.
August 27th, 2008 at 11:01 am
thanks Charlie.
August 27th, 2008 at 11:03 am
Well, I guess there’s two Pauls on the board now. I’ll just change mine to Paul F to avoid confusion.
Good post on the recession cycle, Matt. Looks like we are righ in the middle now. I guess this is where Tech loses its legs. From the begining of July, IBM built a 10% lead over the Q’s, but is now even. They broke key spport at $124. It’s a with the stronger dollar and weaker foreign sales, this stock will see $118 soon. There’s probabably better shorting opportunities out there, though, but August was a weak stock/strong tape month for IBM. I’m skeptical how long the consumer driven magic of AAPL will last. AAPL has a very clean looking descending triangle (bearish) forming. I think it will get past $175 one more time…
MBI and ABK have had one heck of an August. FNM and FRE are doing well recently. Anybody see what else is holding XLF up?
August 27th, 2008 at 11:03 am
K,
Florida’s largest bank, BankUnited (BKUNA) has been ordered to stop paying dividents, among other things. XLF is holding above $20 for now, but you would have to put a gun to my head to get me to be long financials.
Matt
August 27th, 2008 at 11:09 am
Also, UNG has had another big gap up. UNG’s rise was never a supply and demand story, though, but maybe this is the beginning of another leg up for oil. It certainly won’t reach $150 by December, no matter how much Goldman wants it to. Gasoline demand is dropping to 10 year lows in the US. I think $135 is the next top for oil until spring ‘09 at the earliest.
August 27th, 2008 at 11:14 am
i have 92% cash right now after selling apple so the 8% is SKF at $123.50 as i mentioned here.
http://investingfreak.com/2008/08/18/investing-in-a-bearish-market/
i think i will leave most money on the sideline now to see what goes on here.
but thanks for the insights and the links.
August 27th, 2008 at 11:28 am
The Q’s are lagging once again. I think that is a good sign that this rally won’t last beyond this week.
August 27th, 2008 at 11:35 am
back in xgd.to (Cdn equivalent to GDX)
August 27th, 2008 at 12:00 pm
K,
Good timing on SKF. I’m hoping for XLF 21 to get a good entry point on SKF. Thinking about it, I think that the rally’s best hope is that XLF does not hit $21 without a huge positive catalyst. If it drifts upwards towards $21, I believe volume will come along for the ride and take it down quickly.
after,
I think Gold is good for a bounce, but I don’t believe the fundamentals are there to back the move. The dollar is growing stronger. Most people that recommend gold have been recommending it for years.
August 27th, 2008 at 12:08 pm
Looks like we go sideways to maybe a bit up this week .I think we wait until Tuesday next week to see were this market is going,I am guessing up to test 1320 area if we break it we trend up for Sept. if not it should all come tumbling down. Of course we have that wildcard in the Gulf
August 27th, 2008 at 12:22 pm
ouch SKF take it easy
August 27th, 2008 at 12:23 pm
Crude tanker rates are down 99% in one month.
The speculators finally get a hurricane (maybe). The story of the last one was that it would somehow make a u-turn into the Gulf.
The GS and its sheeple, the last free money from Alan G, and some new from Ben B to IB’s then manages to push oil upwards.
All the economists on TV is ridiculing Fisher from Dallas Fed, while none of them is asking the cause and effect of this enormous dollarized global money/credit bubble.
What caused this bubble?
In the meantime average Joe is foreclosed on everything he owns and the cost of funding in India is approaching 25%.
Look for more Keynesian solutions and more mess.
What a spectacle and what a fraud.
Investment advice? None. Just had to say it.
August 27th, 2008 at 12:32 pm
SPX 1280s: Sell/short it. 1230s-40s next, then 1170s-80s.
Back next week after holiday.
Good luck.
August 27th, 2008 at 12:33 pm
Larry,
Do you have any links for the tanker rates?
Last week, I saw a story somewhere that tanker captains had been ordered to sail more slowly. It’s one way for the industry to reduce its capacity and hopefully boost pricing.
Matt
August 27th, 2008 at 12:41 pm
Yes you’re right Matt. They are sailing slower. Rates as you know are volatile so my use of them as indicator is questionable, but the fall now is dramatic.
No links, foreign language sites. And this from my mobile.
August 27th, 2008 at 12:43 pm
Relative to durable goods comments, I am a “member” of the Changewave
Community, run by Toby Smith, I believe is his name. It’s an investment/trading site.
Although I find him to be a bit of a snakeoil salesman, he does do surveys by members in the various business arenas.
The last IT survey showed the most reduced spending levels, both present and projected, in the last 4 years for the IT group surveyed. I take them with a grain of salt, but having participated in a few of his financial surveys (I am a retired CFO), I have to say they are pretty good survey questions, so they do warrant dome evidence of a slowdown in that particular area.
I also believe he is a regular commentator on the FOX Business Channel, which I watch whenever I feel constipated
August 27th, 2008 at 12:52 pm
AAPL is right on the upper line of the triangle I spotted ($175.6), so I bought Oct Puts.
I belive GS is the biggest laggard in the financials today, although I’m still hoping they stay above $155 for a little longer. If they close below $155 (especially with XLF up 1.8%), then I’ll buy back the Sep put I sold to let the long Oct put run some more.
August 27th, 2008 at 12:54 pm
The XHB is the leading sector today, which goes to show why you have to pay attention to Cramer: he can move stocks with his TV show. Last night, he pounded the table on homebuilders.
XHB’s volume today is way below average, so it doesn’t look the large funds are among Cramer’s followers. XHB has formed a symmetrical triangle over the past several trading days, so let’s see if it can break out of it.
August 27th, 2008 at 12:54 pm
Matt,
Have you shorted today’s strength?
August 27th, 2008 at 12:58 pm
Rut 2000 leading the way again this could last into Tuesday
August 27th, 2008 at 1:06 pm
http://bigpicture.typepad.com/comments/2008/08/50-spx-stocks-d.html
hmm interesting
August 27th, 2008 at 1:07 pm
Bought Oct XHB puts. It looks like the doofus on Fast Money gave us a gift yesterday. I’ll be looking to sell a Sep Put to hedge
August 27th, 2008 at 1:18 pm
eli - I was in Change Wave for about 3 months and cancelled my subscription. It’s okay I guess, just no my style (which I’m still trying to find!) lol
August 27th, 2008 at 1:19 pm
Paul F,
This rally may have peaked, but it is a month-end, so the big funds will likely be able to keep the market up through Friday, barring any disasters. So, I expect to see some sideways action and will be looking to get my short positions on before the end of the week. By Friday, my three-day moving-average TRIN indicator should be back to overbought like it was last Friday.
Matt
August 27th, 2008 at 2:01 pm
George
I am a non pay subscriber. More entertainment than good investing ideas.
FWIW, the site I do belong to is Breakpointtrades, which is one of the best I have been involved with over the last 10 years. Has a great blog, it’s the only other one I monitor during the day besides Matt’s here. They are very unbiased, and currently have a similar take as Matt does technically on a bearish market.
August 27th, 2008 at 2:04 pm
eli - I’ll check out Breakpointtrades. I have tried several others but I haven’t found one that I really like. Except for this site.
Thanks for the tip!
George
August 27th, 2008 at 2:10 pm
“Floaters” are the next banking crisis. About a trillion dollars worth of floating-rate notes are coming due for banks.
Wall Street Journal article here.
Bloomberg article here.
August 27th, 2008 at 2:11 pm
We need a rally into the close to set up a sweet short into Friday,come on PPT or however lets get this over 150 dow today
August 27th, 2008 at 2:14 pm
I’ve been in the SKF and SDS since shortly after 1 pm and they keep edging upward.
Maybe the fund managers are getting their “goodies” early.
August 27th, 2008 at 2:31 pm
added a 3rd ndy oct 1700 put @ 12.10 just now.
August 27th, 2008 at 2:43 pm
Matt,
I know what you mean about the EOM, especially ahead of the 3-day weekend. I think that the funds will have their hands full keeping the market up, but it will cost too much to push the market past resistant levels.
Reading the articles you wrote, it has become clear to me the real deal behind nationalising the GSEs: lower bond rates for the banks. So bascally there are two scenarios that I see for the short term (1-2 months):
1) No GSE bailout; falling stock market; steady or rising USD
2) GSE bailout; sideways or rising stock market; falling USD
So what is the best strategy here? It seems to me short small caps is the best play 3 months out, but for closer in, perhaps long oil or gold may do better. Short financials could get burned in the near term on a GSE nationalization move. We all know what financial firm seems to be taking things on the chin lately and what Treasury Sec used to be head of that firm…
August 27th, 2008 at 3:04 pm
Matt,
tankerworld has some info about rates (but I don’t know if these are the same Larry is looking at). I did a project once where we used weekly data from Platts but that was not helpful.
I’m have not seen a reliable model that uses these data points (same for the BDI) to forecast prices and markets but I’d be very interested if someone has such a thing…
The floating rate notes (and the mortgage-refinancing mess) are the prime reason for the fed to keep short term rates low, lower. Inflation is fought with words but if they would rise rates, the system would not digest that well. Why the dollar goes up in this scenario is beyond me…
August 27th, 2008 at 3:06 pm
qqqqs hit resistance fall nto the close
August 27th, 2008 at 3:16 pm
SKF, SDS, working out great so far. Those beauties are smokin’!
August 27th, 2008 at 3:24 pm
I think that this is headfake time. Bear Trap before the last 30 mins of close. Watch XLF to see if it pierces the 20.30 (support now) and if it does.. watch for confirmation candle. Might rally into close after the bounce.
August 27th, 2008 at 3:29 pm
Matt,
thanks for the link… I’ll digest the paper later on. As long as the banking system issues are not solved - and as far as I can see, we are still at a stage of reenforcing feedbacks downwards - no recovery in the real economy is possible due to lack of credit. That no everyone has joined the recession yet does not imply that the early joiners are already on their way out.
In Germany business expectations have been in freefall since 3 months from strong growth to a level just a bit higher than the worst recession readings on record. And this time expectations are leading as-is sentiment down. Why is Germany important? Because economic growth is heavily dependant on exports. So much for the state of the global economy…
August 27th, 2008 at 3:41 pm
i am thinking next 2 days huge rally and SKF will be shot down. hmm
any final thoughts before we can no longer execute trades?
August 27th, 2008 at 3:50 pm
Charlie;
Yep. You’re right. I took profits on both, now I’ll close it down for the day.
August 27th, 2008 at 3:54 pm
I wish I could add to the strategic side of things such as the ones you folks present. I sure enjoy reading and following everything on this blog. It’s the best thing I’ve come across.
I’m just a simple trader scraping a few bucks here-and-there trying to make a living.
I need to type less and read more.
But I do appreciate all of you and your market analysis.
Thanks - George
August 27th, 2008 at 4:00 pm
Wow.. what a headfake that was on the XLF. Dropped like a rock and now rallying hard. Didn’t think I would be spot on that call. It even pierced 20.30. Hope no one got caught!
August 27th, 2008 at 4:01 pm
The big funds control 50% of the tape. It’s not easy fighting them when they are motivated, like now, when they are trying to keep their month’s numbers looking good. I would be surprised to see the market flop over before next week. They can’t run their stocks up Thursday and Friday since the SEC frowns opon such things, but they will bid underneath as best they can.
August 27th, 2008 at 4:02 pm
got some JAVA at 8.86 i hope it’s a wise choice
August 27th, 2008 at 4:02 pm
BTW.. Good trade today George for a short scalp trade. I was away from the comp for part of the day and didn’t get a chance when SKF was below $126 around lunch time. Glad you made it out with some profits
August 27th, 2008 at 4:03 pm
Good call on XLF, Charlie.
I can deal with this market: low volume rallies that stop at resistance levels.
August 27th, 2008 at 4:06 pm
While the market hasn’t rolled over yet, it is now in overbought country, short-term. I may take a short position in the futures later on tonight just in case the unemployment number is nasty.
August 27th, 2008 at 4:07 pm
Matt what time does that number comeout tomorrow?TIA
August 27th, 2008 at 4:07 pm
Thanks Charlie.
I did very well on that as well as SSO this AM and SDS this PM. I guess that’s playing both sides of the market.
Anyway, a lot of that is luck. I need more skill to do better. I’m learning. That’s why I like this blog.
I need to contribute to this site if there is a need and way to do that.
August 27th, 2008 at 4:12 pm
While I don’t always have time to answer all comments, I do read them all. Your comments are my primary way of learning new things now, so keep them coming.
A good example was when MEB posted a book recommendation for Street Smarts a couple of weeks ago. I got the book, and have learned some critically important things from it.
August 27th, 2008 at 4:16 pm
pooch,
The unemployment-claims numbers is every Thursday at 8:30am. It is a good idea to check the Bloomberg Calendar every day.
Matt
August 27th, 2008 at 4:17 pm
What time does the number come out???????
C’mon Pooch.
August 27th, 2008 at 5:31 pm
Crash I don’t sit around at leisure like you everyday
August 27th, 2008 at 6:20 pm
Matt, have you noticed the descending triangle formation on the s&p? horizontal line at 1260.
August 27th, 2008 at 9:30 pm
About a half hour ago, I took a short position in the futures at 1280.50.
August 27th, 2008 at 10:32 pm
Tony G,
Yes, I was looking at that earlier today. So, now we have a market that is overbought with a bearish pattern on the chart. I like the odds of being short here very much.
I think the big funds should be able to hold the market above 1260 through Friday. But after that, I think we will be testing 1250 very quickly.
Matt
August 27th, 2008 at 11:17 pm
Hi Matt,
you are using TRIN as an indicator for overbought conditions. But is the TRIN also
good to see oversold ones?
August 27th, 2008 at 11:52 pm
Hi dressguard,
Long time no see.
I have only just begun to use the TRIN on a daily basis. My impression is that it has been giving better sell signals than buy signals recently. However, it is indeed widely regarded to be a good indicator for both overbought and oversold conditions.
Matt