Feel the Wrath
Friday, January 11, 2008 at 08:34AM My ongoing pessimism about the market is justified with the continued noise about more write downs, panic mergers & acquisitions, and consumer confidence falling like the rock that is the market. John Thain, the new Merrill Lynch CEO, decides to write down a 15 billion loss, which would equal a quarterly loss of no less than $4.50 per share. This is going to put pressure on Citigroup and a few other financials that have earning reports as early as next week. These companies are also in a panic to raise capital, which will mean that they may need to start liquidating profitable ventures, or grease a few private equity firms in the process. It's not uncommon for a new CEO to take one big loss all in one lump sum to push the company forward....but keep in mind it was 15 billion, as in billion with a B.
AXP is also taking a 10% hit this morning as another warning was dropped that the consumer is spending less money, and is no longer paying their credit card bills. Capital One gave a similar warning this week and has set aside $650 million to prepare for the worst.
Since the consumer isn't spending any money, not paying their mortgage or bills anymore, unable to get money out of their house, and no longer has the ability to get credit....tell me how this is at all good for the market? Sure the Fed will inject its cash and will continue to lower rates, but in the long run this doesn't help.
Pessimistic? Of course. I'm also honest.
Technically speaking, the chart I posted yesterday worked pretty well with today's price action. It also bodes well for the article I wrote on Forbes. As we maintain lower highs and lower lows on the short term and long term charts, and we exceed the 10% parameters of a "correction," my friends....this is a bear market. Make no mistake. It is the same bear market I have been waiting for since July of 06, when I warned of big market changes via Marketcast.
It all happens so suddenly, doesn't it?
Well, no reason to panic yet. The resources I have tried to help point out to you over the last few weeks have worked, which means that the means of making money in such market conditions do exist.
Anyway, here is what I like this morning...
You'd be hard pressed to find something as pretty as POT...
Unless I showed you how CF was treating me...
But then again, TNH is a daisy too...if you like to buy stock.
And I won't forget TRA, as it is a personal favorite.
But wait a minute...I just gave a speech on how bad the market looks, feels, trades, etc. Do you think I really ought to keep buying the dips in the strongest trending stocks?
You bet your ass. However, I will throw a few put candidates out there to satisfy my critics.
SHLD. After it broke it's support level, notice how it retraced back to it shortly thereafter. For those of you trading DRYS, consider this when thinking about whether or not to take profits. If you still question your judgement, don't question mine...(take profits).
You also will find plenty of gems fading the rallies in the homies, retailers, realty stocks (IYR is the appropriate ETF), and the financials.
Before I close I want to address a question I received from a dear friend, and a casualty I am dealing with here this morning...what do you do when a stock you are fond of receives a downgrade?
For the most part, I suck it up and take it, like I am doing with ATW this morning. My interpretation is that an analyst was reading my blog yesterday, loved my entry on the stock, but wanted to try and do better. He/she downgrades the company in order to bring down the price and attempt to pick it up at a cheaper level than I did. If you look closely, the stock is trading well off it's lows (which is why you don't sell anything until after lunch at least) which means that this analyst is now the proud owner of this stock.
Had this news taken the stock out of the context of it's upward trend, then I would find it appropriate to cut it loose...as long as the majority of trading activity is finished for the day.
In closing, I will withhold my attempt to point out the big movers within my portfolio and watchlist today, as I hope you are making an effort to track them yourself. I also want to thank some of my loyal and long time readers for your support yesterday, and for coming out of hiding in general. It's good to know you are still out there, and as always I appreciate your support and your understanding of my madness. I can appreciate that I am an acquired taste...but at least you know I mean well...even if I use the Matrix to block your silly ass from reading and participating in the profitable ventures I so freely share.
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Reader Comments (137)
Why won't lower rates help in the long run? If everyone can refinance their mortgage most people will be able to make the payments again, right?
Why are lower rates bad?
Sorry Jeff, I don't feel wrath from you. :-)
JH,
It's only a band aid for bigger issues that plague our economy, in my opinion.
From what I had observed, mortgage rates weren't really dropping until recently.
MER
Have they already locked up a cash infusion from Dubai or Sinapore to cover this $15 Bil write down? I'm sorry, but my small inexperienced mind cannot fathom how in the world this enterprise is up 5% this morning.
Jeff please advise
Thanks, Sam H
Jeff, so a crashing housing market and a crashing stock market helps our economy? I don't buy that.
Mortgage rates are falling rapidly now and I think we'll see a lot of refinancings before the situation gets out of control later this year.
Jeff,
Thanks for the great info.
Just to add to the conversation about people being able to refinance their mortgages: underwriting guidelines have changed significantly and a fair amount of those in need of refinancing will not qualify under the new guidelines.
Jeff,
I am one of the ones that often hides, but NEVER misses your insightful posts EVER. I fully intend to participate more actively in the future, but I want to really understand what I am doing first. I don't want to post anything other than questions until I have a proven track record. I'm getting there because of you and your blog!
I should tell you that because of this blog and the Marketcast, I "turned a corner" in my trading last year, and even markets like this current one have me far less perplexed and emotional than ever before. For me to be able to say that I'm not losing money in this market is pretty good! (And I'm only about 1/3 in cash). I think I am slowly making money even.
At this point, I think I would be lost without a daily dose of your blog. (Finding time to do all of my own research is very difficult when I have a family and house to manage.) But, I can really tell that I can do this now, and it has so much more to do with you than any other factor.
Anyway, just wanted to offer you a public thank you. I've told you before: you're changing peoples' lives everyday. That's got to be a great feeling for you no matter what your critics may say!
Andrea
Any thoughts on ESRX? Should I hold on to it? Analyst upgrade didn't do much for this stock today.. Hold or Bail?
JH,
I don't recall saying those words, but I think a blow off is healthy here.
I dont dispute refinancings either. In fact, I think it is common sense.
Is it me, or do you surface just to argue with me? :)
Ams,
Is your trend still intact?
Andrea,
Thank you.
Denver,
Great point.
POT does look tasty here. Been waiting for it to come to support. Might have to step in today.
{Greetings OAs from poolside, living my dream with umbrella drink in hand. I have documented it, with my OA t-shirt and will post pictures on my blog when I get home Sunday night. This is THE perfect place for an OA get-together - details after the market is closed.}
Back to busines - with banks bailing out banks and this nation's assets being bought up by foreign countries...are we rapidly becoming a third world nation?
Jeff - in light of what you said about credit and defaults, etc. I've been looking at MA which is down hugely now. It has come down to a horizontal as well as diag. support. If it breaks this, I see another 30 points down.
I surface when I don't understand your reasoning.
Gotcha.
Jeff,
You're great, buddy. I hope to shake your hand someday in person and thank you. Maybe at the next annual conference. I am excelling in every facet of growth as a trader because of your generosity and instruction. In fact, the other blogs and pay-sites I've been in for months, I don't even bother to visit anymore because they're just not specific enough to the work that I'm following on this blog. You and your blog family simply rock.
Btw, anyone see CMA at another bounce entry off descending triangle for a second attempt? Only for those who like to take an early-entry bounce off desc. triangles. Just curious. Entry/exit would be nice here for me. Any takers?
Sledge
Trader JH,
One thing to keep in mind is that even if interest rates are lower, by no means can everybody refinance their mortgage, or get themselves out of the mess they may be in. Because of this credit crunch/sub prime mess, mortgages are getting harder and harder to obtain unless you have very good credit. Lenders have tightened their guidelines considerably and require higher credit scores. Not to mention, the days of 95% and 100% loans have gone by the wayside for the most part, and unfortunately, many people have pretty much maxed out the equity in their house.
This coming from a mortgage broker that lives through this $&%& every day!
Barely.. I'm this close to liquidating.. What would Jeff do?? Wait till the market close to decide whether to stay in or out ESRX? The analyst upgrade is making me all confused!! On normal circumstances I would have bailed.
Nice call on GOLD btw!
Sledge,
CMA looks as a great entry....using the 50dma as resistance...I'd take some here, but I am fully invested...goog luck if you get in!!
Ams,
I just got into ESRX this morning, so I'm right there with ya. I'll hang in there until 30 minutes before the close to see where it goes. It's so close, I can't cut it short now. Keep the faith, until near the close, if you can! :)
Sledge
Thanks for the comment on downgrades. When I asked I did not want for you to be going through it as well. But perfect learning example. Hang in if the trend is still in tact, unlike my poor,poor ISRG. smack down.
FYI I entered SHLD + POT yesterday.
....
Ams,
ESRX broke my trend yesterday. I bailed out first thing in the morning with a small lost.
Jeff,
Do you ever go completely positive on the market with call options only or completely negative with put options only? Or, do you always have some calls and puts as a hedge on the market?
Dan B, thanks!
Man, I enjoy this community support! I can remember when there was no one but Chuck Norris staring over my shoulder, threatening me into making strict good entry/exit trades!
Taking down CMA puts now.
Sledge
Thanks guys for the quick response.
I hate being uncomfortable like this.
Note to self: Eliminate emotions because it makes you less intelligent.. Be an android till the close..
ESRX is putting a hurt on me. I'm out on a close below 72.
Jeff:
Your Wrath rocks.
I entered into POT yesterday, CF this morning, and SHLD on Tuesday. Without this blog pointing out these opportunities and your instructions on how to be a successful technical trader, I never would have seen these gems nor known how to successfully trade them.
Thank you and please do not change this blog.
Jeff, Jeff, Jeff.... you too funny as usual. Thanks for taking the block off the matrix for me.
Trader JH,
The Fed LOWERING interest rates creates higher inflation, a weaker dollar, thus higher gold and silver and euro etc.
The Fed RAISING interest rates creates a stronger dollar, but more costs for earnings poor businesses, not to mention lots of people losing their homes and going bankrupt carying all of their credit card debt.
If the fed can weaken the dollar, the trade deficit will also be devalued. The war costs more than all of it combined. We are in for MUCH higher inflation, a weaker dollar, a more dire situation. And in my opinion...No liquidity.
The players in the market know that lowering interest rates wont solve this financial problem. The general public will find out about the coming higher inflation soon enough. But why start a panic?
I think Jeff is just trying to tell you how to play the market down. It certainly wont help the economy but it will help us MAKE MONEY. Ka ching.
dc,
Great question.
Answer: Never.
If you ever happen to be in my archives you'll notice that even in the greatness of the bull market, I was always buying puts. Depsite a day like today when the Dow is down 2 bills...I am buying calls.
I never play one side of the market for fear of being wrong, and fear of leaving my account unprotected.
Sledge,
CMA....I assume you know that earnings are due out next week...last time they came out the stock tanked, but who's to say what will happen this time...just so you know!!
Dan B,
Whoops...actually I'm embarrassed to say that I missed that info. I'll be watching it carefully over the next few days and maybe get out early if need be. Thanks for the heads up, man. That could have been a disaster. This flu virus has been messing with my attention span for days. Looks like I picked the wrong week to stop taking cough drops!
Susan, why are mortgage rates falling in the face of this higher inflation you're talking about? Why aren't long term treasury yields rising in the face of higher inflation?
Answer = there isn't higher inflation. Housing and stock market crashes are deflationary events. Where is all of this inflated money that people have to spend? Where are the rising wages? I thought that was the problem, that people don't have enough money?
Look at the Great Depression. Were people worried about inflation then?
POT,
Hung onto that one. The trend still looks good. Anyone watching or playing CME?
Did someone say "stock market crash?"
Last I checked we are not too far off the highs.
Anyone considering a synthetic short on IHP? Can't borrow the stock to short and I am not thrilled with pricing on the puts. I'm a synthetic virgin so would love some input. Looking at the 45s in February.
Jeff,
How do you like PFCB for some puts? Up more than 10%, close to resistance.
Enter now or wait for more of a push up?
Thanks.
Berkshire.Rockaway
Jeff,
Something doesn't seem right with the markets today. Market internals are roughly 2:1 in favor of the bears. Financials are up for the most part. Markets are down 200+ points. TRINs are holding off their highs from this morning. Should we anticipate a hard bounce the way we did on Wednesday? I don't see how we're down 200 points and the internals are relatively tame with respect to the nasty selloffs we've had.
VIP down to 40.81. I'm looking a possible decending triangle. Thoughts?
Trader JH,
I can see we wont agree on this, but that's ok.
All I know Dow down 200 MOS up over $4. my new favorite stock.
Hey Jeff, What calls are you buying today? VIP, MBT?
Elissa,
IHP put on quite a rally, with some good volume behind it. I fear that the worst might be over as their stock lost nearly 50% from high to low. However, should you decide on a synthetic short, you have my blessing.
I would get out of MOS, hitting a high, with profit-taking bound to happen,and slide over to POT with room to grow.
Any agriculture stock is the place to be based on Jeff's recommendations and on what's happening with the market. Just check out DBA! The defense stocks are getting slammed!
I'm worried about VIP as well. Bought call as it bounced. It'll break one way or the other soon. Anybody else buy CX puts when it broke support? I guess, the question now is, is anyone still in?
Berkshire,
Love the stock for a short...but I might wait until Monday to see how/if it cools off.
Jorge,
I've owned this stock forever (one of my top 3 positions) and this price action is similar to how it traded in November. I wouldn't get too bearish on it yet.
Mike in SL,
I already own those two...I think they still look pretty good though. You taking any of them down?
FCX looks like its going to close outside my triangle today on the downside.
What wins this argument for FCX:
The Chart, or the fact that Gold and copper are at all time highs and PE ratio is about 10.
OA
Just took some VIP and looking to take down some MBT by days end.
Jeff,
I see the previous action on VIP in November. Almost exactly the same. You're right, but I'll still keep an eye on that support just in case ;-)
Susan, I'm just trying to be objective here.
The market is apparently not concerned about long term inflation, otherwise they would not be bidding up long term treasuries.
Short term there may be inflation, but the argument that we will have a long term inflation problem due to lower rates is not supported by any market indicator that I know of.
It doesn't have to make sense to you or me, but that is what the market is telling us.
Long term inflation will be fine and there will probably be a major break in the commodities markets within the next 4-8 weeks, in my opinion.
I like the VIP action and just bought a call on it.