Market Update and Comments - April 9, 2009
We haven't posted any of our client emails in more than a week, so I thought I'd put one out today before the long weekend. Yesterday, we decided to take advantage of the Pulte/Centex scheme. We put on three short positions: Centex, Toll Brothers and Ryland. We traded out of TOL and CTX before the end of the day as follows:
1 - Shorted TOL at .54 and covered at .87 for a 7.34% PROFIT
2 - Shorted CTX at .90 and covered at .90 for a 10.10% PROFIT
3- Shorted Ryland (RYL) yesterday at .54 but did not exit this trade. It finished the day at .98 for a 3.39% paper profit.
One other trade we booked yesterday was our Short on Suntrust Banks.
4- Shorted Suntrust (STI) at .57 on March 13 and covered at .72 for a .72% PROFIT
5 - Shorted a second position in Met Life (MET) at .25
6 - Shorted a second position in Prudential (PRU) at .00
With that out of the way, here is the early morning email I sent to clients at 4:30AM. There will be another update this morning and a conference call at 9:10AM. We anticipate putting on several new positions today. We will issue Trade Alerts accordingly to clients. Here is the client email from this morning:
It's 4:30AM. I will get this out now, and update later or on the call this morning. I have quite a few things on my list before our conference call this morning.
Elizabeth Warren – Her report was released. Here is a link http://cop.senate.gov/documents/cop-040709-report.pdf
I have not had time to read the 148 pages, but I've already heard the talking heads on this report. For the most part, the bobbleheads that have received air time are painting her as some scary revolutionist that came out of a dark basement. Karl Rove called her the lady from the far left. Let's face it. She's telling it like it is. She was appointed Harry Reid, one of the most prominent Democrats in DC. We just don't want to hear the truth . . . and that is why we are in so much trouble. The papers that did the best job presenting this issue are the foreign papers and blogs. Republican Senator John Sununu and Congressman Jeb Hesarling dissented from the report. The sleeping fool Richard Neiman issued separate findings. Let's face it, as New York State Superintendent of Banks, Neiman has a lot of explaining to do for his own dirty laundry and being asleep on the job.
Today's Market – Asia was up on Japan's announcement of more stimulus. That's great. After 20 years of economic disaster they are going to spend a few more bucks. Unfortunately, it is far too little and far too late. Japan's problems will not be solved until the global situation is resolved, unless Japan isolates themselves as they did long ago. The Hang Seng is approaching 15,000 again, bringing it back to where it started the year. The Asian markets have been seeing an inflow of money from investors believing the worst is over and China will recover first. Maybe China recovers first, but the worst is not over. Once the fickle Chinese investors start to run, this market will drop back to the 10,000 water line.
Europe opened higher on news that Germany is going to nationalize their first bank and Ireland received another round of downgrades. Wow, isn't that simply marvelous news for a rally. Since the opening the markets are moving lower. But it's a non-event day, unless we see some startling news. Even thought the European markets are now moving lower off the opening, Germany is still 1% higher and obviously very proud of their first nationalization since Hitler. This gets crazier by the day.
Futures – Our futures were much higher overnight and are now indicating a higher open in the half percent range, but with Europe moving lower, we should see deterioration in our futures and with a little luck a lower opening . . . and continuation of the bear market.
Pulte Buying with Centex – If I had time I would write about this one, but I really don't have time unless someone wants to pay for the time. This is just such a bad deal for Pulte on so many fronts. It is a great deal for Centex, as Pulte bid a 30% premium to a price that was at least 50% higher than where Centex should have been trading. Centex was probably the next builder trading over per share to collapse to the low single digits. Horrible management, low end product, ugly debt and a mind boggling combobulation of land, partially completed developments and specs. Just a regular mess. We were not long Centex, and we used yesterday to make a day trade with a 10% profit on the short side. We might be back for more on this one, but we are still short Pulte.
UpTick Rule(s) – If you believed the talking heads, we should have rallied to the moon today because the SEC was going to announce plans to shut down short selling. That's not exactly what happened, and the SEC has opted for a variety of rules. This actually was a positive for short sellers, as compared to what we were hearing. There will be a public comment period and then we will see the SEC come back with a set of rules that hopefully will only put an end to the malicious short selling and the truly illegal short selling of shares that were not available. Those guys belong in jail. And until the SEC send these guys to jail, they will keep doing what they're doing because they are making millions at it. The new rules don't have any teeth to put these guys in jail.
Technicals – We did not "violate the previous day's lows" as the hard core techies like to say. But this is only because of the Pulte/Centex announcement at 6AM. Prior to that double-stink, the markets were facing a 1% drop on the opening, which would have violated previous day lows. That's how easy a day of technical can be tossed out the window. The pre-10AM high was 824.92. The close was basically the same 825.16. For the pure techies we are still just above trendlines, while below the 100 Day MA, yet above the 10, 20 and 50 Day MAs. A 2-3% move either way will give us an indication of direction, but not today. Today is a holiday trading day, and there could be wide swings and manipulation.
The upside to the market yesterday was clearly misplaced hopes that we are seeing "green shoots" coming from housing. The smart money knows Centex was going to die this year, and Pulte's bid to buy Centex was a rope a dope deal which we hear was initiated from Centex. Very interesting chatter, but the bottom line is . . . you can't put skunk stink and fish stink together and get sweet perfume. All you get is stinkier stink, and that is exactly what Pulte will realize when they start trying to unravel the land Centex owns and the debt. Prior to the announcement at 6AM, the futures were indicating a 1% drop in the markets. That all changed when the boys and girls on CNBC started singing about "green shoots." Too bad they have no clue whatsoever what they are talking about most of the time, and in this case they were reading from talking points provided by Pulte and Centex. In any event, this through techincals out the window for much of the trading day.
However, if we want to look at technicals in light of the fundamentals, this was a tremendous day for confirming the top of this rally may have been set last week. Next week we will get confirmation by the end of the day on Tuesday, at the latest. I did not want to see the market trading above the 100 Day MA of 829.12, and it stopped dead in it's tracks at 827.83, and stumbled back down to 816. That was a big bingo. As I noted yesterday, I was contemplating closing out positions if we traded above 835 intraday. We didn't even get close. Ideally, I wanted to see a close below 810. I had hoped we were going to see that when we pushed back down to the 815 level in the last hour . . . but then we saw the talking heads ramping up the chatter about the Pulte/Centex deal and bailouts for the insurers. The market moved up on the relentless noise coming out of CNBC, but it did so on very light volume. This was also confirmation that the bear market will resume it's march down below 780. After yesterday's close the 10 Day MA is at 819.84 and the 100 Day at 828.85. These are both important, but the best of both worlds would be a movement below the 20 Day at 801.38.
This week you have heard the technical boys talking up the market and the low volume. If they were true technicians, they would also be telling you the score on that volume in UP versus DOWN, and the down volume has been crushing the UP volume by as much as 5:1 this week. Thursday should a very light volume day, so it could trade either way. With that said, I'm not really concerned with where we trade Thursday, unless it is a super push higher on light volume. If that happens, we will sell into the market. If we simply trade sideways, we will probably be sitting back and waiting for confirmation of the bear market on Monday and Tuesday.
I want to see us below 810 by the end of the day Tuesday. Our modified trading philosophy will be smaller bites and taking losses in smaller gulps as well. I've not traded like that in the past, but in this market, we will need to place more emphasis on technicals, trends and the bobbleheads on CNBC. It is not just the bobbleheads, but the front runners like Bill Gross, Mohamed El-Irian, Wilbur Ross, Dick Bove, etc. If anyone else did what these guys did, we'd be in jail. Well . . . actually we wouldn't, because the SEC is too busy shuffling paper and taking orders from guys like Bill Gross, Mohamed El-Irian, Wilbur Ross and Dick Bove.
Gold – Fundamentally, I love it. Actually, the miners in our portfolio. Technically, yesterday all lines held and we are ready to head back to the 0 level before hitting technical resistance. Fundamentally, we are buying miners for long term holds of 6-24 months. I am not concerned about the IMF sales because we are hearing that Russia and China will be buyers. I would not be surprised to see some other large buyers sneak in for some quiet purchases without arousing the markets.
Oil – Remains just under , but nothing changes. I am still negative on oil and we are still short USO. Inventories are up and countries are pumping more in total disregard for cartel levels.
Calendar – Jobless numbers at 8:30AM
Dow Jones - 7837.11 (+47.55) +0.61 %
S&P 500 - 825.16 (+9.61) 1.18 %
Nasdaq - 1590.66 (+29.05) +1.86 %
Russell 2000 - 442.12 (+10.42) +2.41 %
Spot Gold - 884.80/oz. (+2.60) +0.29%
Crude Oil - .38/bbl. (+0.23) +0.46%
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