Before the Open

It has been a helluva week... Finally found a good pot dealer in the neighborhood, some super duper smoke, so I've been doing a lot of photo editing and not too much trading. I have a comment from a wise trader who caught the huge reversal in financials trading UYG, a solid counter trend move that I have much respect for, and seek to emulate in the future. My macro perspective of the market (weakening American economy in real estate, finance and discretionary) hindered my ability to see the obvious out performance of the aforementioned sectors in the recent mess. I got burned shorting real estate in the reversal, SRS from 130-122, though I've bought it back ~107, SKF ~102, and SCC ~94. What really caused my surprise was not the correction in SRS, but rather, the lack of upside in GDX (which proceeded to happen the next day), which gave me a helluva scare. Needless to say, I'm short the usual suspects via SCC, SRS, SKF and long precious metals via GDX, GLD and SLV yet again. Yen and Franc will continue to strengthen over the next few months as the mess spreads. IBKR had great earnings once again, but continues to struggle in the lower 30's, I guess it is hard to swim against the current. I'm still keeping a small position in BPT, huge dividend, and solid looking chart touching support. I'm also a tiny bit long energy and basic materials via UYM and DIG, but I expect to close these positions Monday, seeing as I was using them to hedge my bets over the weekend.

Pretty Unexciting

I'm long miners and gold/silver, short discretionary, real estate and have some exposure to china, along with agriculture. I'm 10 dollars richer...

Market Metaphors for the Maligned and Miserable Market Mavens

This past weekend I got drunker than the American consumer, only to find myself locked out of a friend's apartment like a depositor in a bank run. Like Mike Shedlock, I rang the bells and made some calls, but too no avail, for my cries fell upon unattenuated ears, similar to the monkeys on Capitol Hill. A companion gave me a boost as strong as a 100bps slashing of the fed funds rate, enabling me to swing high up on a fire escape like the October 2007 market. I pounded on the windows and screamed louder than a retiree looking at their 401k this coming Tuesday, hoping to wake my host, who was as unresponsive as the risk managers at Merrill. Apparently I was peering into the wrong apartment, because I was chastised by a neighbor, reminiscent of a dialogue between Peter Schiff and Tom Atkins. "What the fuck are you doing on the fire escape," said the would be Peter Schiff. "Errrr, ummmm, dahhhh," I said with my best Tom Atkins impression. Thankfully, my slumbering friend had arisen in the great cacophony, and opened the door (please insert metaphor). Like a fool, I could have used my pals window to enter safely, but I got suckered into talking the fire escape down. Like the mortgage backed securities market, the ladder only budged in fast and jerky downward motions. Finally, when I assumed things were safe, I got on the ladder, only to be shocked like a value investor who is looking for a bottom in MBIA. My foot was slammed by the metal rungs, caught between metal and a hard place, much like the Federal Reserve in periods of stagflation. More battered and bruised than the emerging markets, I finally made it to the ground, and hobbling into the apartment, which offered about as much relative safety as utilities. The next morning, there was the inevitable bit of swelling that comes with such accidents, but like a market bounce, it didn't last too long. Sadly, authorities had been notified, and my host was rather perturbed by the whole affair, making me as popular as Angelo Mozilo. Good luck Tuesday, ya'll gonna need it.

I don't know what tomorrow will bring, though I expect some high volume capitulation a la August 18th some time this week. Luckily I sold my GXC Friday for a nice 1-day 3.5% gain, though I may have shot myself in the foot by covering SLV, and buying a little GDX. I'm still short gold, and I will probably purchase some SCC and SRS if they make new highs on Tuesday. The blood in the emerging markets is impressive, but we are a long way from rivers of red in the street. I suspect there is a great deal of panic at leveraged hedgies unwinding unsustainable trades, but that is idle speculation. Yen and Swiss Franc are the safest bets in these environments, as carry trades unwind. I guess there will be strengthening in the USD as well, but I can't imagine how long that will last, for I believe the powers that be will try and inflate our way out of the remarkable trade deficit we've amassed over the years. I know I've been calling for a bounce for a few days now, and it hasn't materialized. This has been a bit of a lesson in the "trade what you see, now what you believe department," and I hope to improve my trading as my longer term macroeconomic thesis of American economic collapse comes to pass.

Midnight Musing

20% of stocks are trading below their 200 day moving average, the VIX is hovering around 30, the White House is expected to release some sort of temporary stimulus package, and tomorrow is options expiration... my bet is on a dead cat bounce. Though I'm mostly in cash, I've taken a position in the badly beaten Chinese index GXC, some ICLR, and AMED (which has a fantastic short position)... I'm sill short gold and silver (which goes against every ounce of my fundamental fiber, but remains profitable), and I expect Friday to continue the head spinning roller coaster ride that this past week has brought. Needless to say, I've lost a bit of capital this week, nearly 1.5% of my overall capital, but when I look at how the markets have been trading, I guess I can't complain. I'd love to see a nice strong bounce, especially in the financials, real estate, and consumer discretionary, because I don't feel comfortable going short at these levels. I think gold will trade down to 830-840 an oz before resuming its upward momentum, so there should be a few more points to the downside in my GLD short. SLV might trade as low as 155, but it is showing much more strength that I imagined, even though it tends to be more volatile than gold. The weakness in energy and materials has done some enormous damage to DIG and UYM, which may prove to be an excellent entry point for a bounce as well. On the other hand, everybody seems to expect a bounce, and that doesn't bode well, because there is less conviction amongst the bears, and therefore less potential for a short squeeze. I watched an interview with John Thain, the CEO of Merrill Lynch, wherein he said he doesn't expect to have anymore significant write downs because they only have another 4.8 billion in subprime exposure... guess that leaves prime loans to go bad, but only time will tell.

Pitiful Pitfalls Prevent Profits

Trading has many advantages, but articulating long term strategies is not one of them... Though I expect good things from the precious metals sector over the next year, today is the second day of high volume downwards action, confirming my thesis that there is a short term top in gold ~900. I've sold all my precious metal related stocks (GLD, SLV, GDX), and have gone short for the time being, who knows when this market will find a bottom. In the "one that got away department", INTC numbers fell sufficiently short of the nervous markets expectations, and the semiconductors are getting pounded (SSG). Agriculture seems to be following gold, and thus I've moved a good deal of my positions short, in cash, or in the yen. Blogging and trading might not mix too well, it is difficult to time recommendations to a reasonable degree in which the remain profitable for weeks to come, not just a few days... I will have to figure out a better method... I'm hoping the Chinese indexes continue lower... they appear to be headed to my long term bargain zone. Using linear regression, I think FXI will be attractive ~120.

Interfestering

It has hardly been a few days since I posted my bullish thoughts on GLD, but what a difference a few days can make... With such a sharp run up in GLD, things looked good this morning as it continued to make new highs... but there was a sharp sell off today, but more importantly, it was on HIGH volume... FOUR times the 3 month average. This is not a good short term sign, and I will be monitoring this closely with the expectation of cutting my gold position in half. Though I still feel it is a very good place to be in the long run, the recent price action has gotten a bit ahead of itself, and with the Fed Futures already pricing in a 50 bps cut, I can only assume such expectations are baked into gold as well... Long term investors shouldn't be too worried, but it looks like the short trade is more viable in the near future, probably indicating a new consolidation range. This will also have a negative effect on the more volatile miners with whom I have placed much faith... needless to say, I'm not trading to be right, but to make money, and thus it may be prudent to take some profits off the table and watch from the sidelines... This mean I will be cutting down on silver (SLV), DBP, HGU.TO and GDX if negative price action persists, all of which I have had a great run with over the last month... I expect GLD to move to 83-84 over the next few weeks.

The Good, The Bad, The Ugly

Didn't spend much time watching the markets today, settling instead for an informal lunch, matchmaking a friend from overseas with my father... but that is hardly why you read this site, so here is today's news.
It has been another bad day for the longs, with some extra face stomping, as the SPY gently broke through last weeks support. China (FXI, GXC), which I hoped to be making a bullish pennant, broke to a new low in its 4 month consolidation range, increasing the likelihood of some more selling pressure, though I wouldn't say the bullish case is over quite yet. GXC/FXI are an excellent example of why it is safer to wait for a pattern to confirm itself, before jumping in early with the expectation of some extra points.
Inverse Real Estate, Financials, Consumer Discretionary and Small Cap Value (SRS, SKF, SCC, SJH) had a great day, and surprisingly, agricultural commodities held up rather well (DBA). The Yen and Swiss Franc show excellent strength, and the Yen actually broke its 1 year high (FXY). Disappointingly, GLD was down a hefty 1.7%, but considering its remarkably fast run in the last two weeks, I would say some consolidation is to be expected. GDX took a market under performing hit, with at +3% loss that outta shake out some of the weak hands, as this too has had a rather dramatic rise over the last 3 weeks. Newmont Mining (NEM), though down on the day, was quite strong, as was Humana (HUM), both of which I expect to outperform in the coming months. I'm sad to see I was stopped out of BPT... I hope to reenter the position on strength, though the short term technical picture isn't all that great.
The horrific numbers from Citigroup come as no surprise, but the negative retail numbers are certainly worrisome for those expecting to find value in the retail sector. Thus I remain short consumer discretionary, financial and real estate sectors, with an expectation for precious metals and defensive stocks in general to outperform.
Fundamentally: The markets are beginning to see information indicating a spillover of economic malaise into otherwise untouchable sectors (the American consumer), and this will continue to weigh stocks down until lower interest rates buoy the economy. This will only increase the value of commodities, especially as Asian consumption rises.
Technically: The market seems far from oversold, and thus any trades to the long side seem extra risky... That said, be prepared for anything as the overall volatility continues to rise (as seen on the VIX) and the shorts get ahead of themselves, leading to the inevitable dead cat bounce squeeze.
Sentimentally: Investors should be starting to panic and traders will be able to take advantage of their misery.
Recommendations: Keep the portfolio market neutral, shorting under performance and buying out performance in the aforementioned sectors, always with a nice tight trailing stop to avoid any nasty surprises.

Mid-Day Musing

Surprise surprise, precious metals and related miners are up, retail, financials and real estate are down, and both the Swiss Franc and Yen continue to show strength, even though the market is posting a moderate move to the upside. A tip of the hat to Mike Shedlock, who has a great post over at MGETA related to my rant about AXP. We share the same view of the credit card debt industry, and he has some very nice charts confirming my thesis of the next wave of financial disaster.
There has been some great performance by GDX and SRS this morning, but the real winner is HGU.TO which returns 200% of the S&P/TSX Gold Miners Index. HGU.TO has been on a stellar run in the past couple of weeks, up 40% since mid December. Anyone following GLD's bullish pennant could have guessed HGU.TO was due for an enormous move, especially after its break past 28. It is still making all time record highs, and continuing upwards at an incredible pace. A pairs trade long HGU.TO and long SRS (200% inverse of Dow Jones Real Estate Index) could prove quite valuable, providing some relative market neutrality.
As always, 7% trailing stops are a wonderful way to avoid major mistakes; leveraged ETF's tend to be incredibly volatile and costly when they are entered during consolidation periods.
Keep an eye on BPT, an oil trust supposedly yielding 11% with a great looking chart, and a recent breakout above 80.
Other movers include SSG with a much needed 5% pullback, probably due to renewed strength in Intel (dead cat bounce?). Semiconductors have been leading this market down, and I see no reason (yet) that this trend should end. With Intel's numbers coming out soon, perhaps it is best to wait on the sidelines and short any strength that may come from earnings week.

Post Porno Precious Metals

After a solid jerk to the moans of Ms. Haze, I'm inclined to write a piece on an asset I'm bullish on, lest my dear reader assume I'm a total curmudgeon and hater. A slowing economy is often followed by falling interest rates, which in turn weakens the currency of that economy, thereby increasing the nominal value of assets denominated in said money. Gold reflects this reality, and has done so for the last 6 years.
Since the first rate cuts of the millennium in September 2001, gold has tripled, leading many to believe that the easy money has been made in the shiny yellow metal. Yet, as William O'Neil so concisely points out, "What seems too high and risky to most investors is likely to continue rising. And what seems low and cheap usually goes down."
Gold will appreciate for fundamental, technical and sentimental reasons in the coming months. The best ways to play this trend include ETF's like GLD, GDX, DBP, HGU.TO, and the options tied to these underlying securities. There will also be stellar performance by the likes of Newmont Mining (NEM) and Barrick Gold (ABX), but to offset individual company risk, sectors funds like GDX may be a better bet.
Fundamentally: Gold is called a hedge against inflation, and it has done pretty well in this category, rising with the price of energy and agriculture since the commodities boom began in the late 90's. It is also a safe haven during times of perceived global instability, so as long as there are planes plastering the Pentagon, bombers in Bali, boys blowing up Bhutto and Negros 'nihilating Nigeria, gold will continue to shine. Finally, unlike the fiat currencies of every industrial nation, the value of gold cannot be easily debased (unless you believe there is a conspiracy to add base lead to the bars held by the Central Banks and sold to retail investors).
Technically: Precious metals have enjoyed a solid run over the past few days, months and years, generally moving upwards at a 45 degree angle across the charts. Currently GLD sits ~5-10% above the most recent consolidation levels (starting points are dependent upon subjective analysis), and is making new highs after breaking out of the bullish pennant formed over the past few months.
Sentimentally: Fear has gripped the Street as a fog of uncertainty clouds the quality of assets currently on/off the balance sheets of many financial institutions. This has led Central Banks to do what they do best, cut interest rates to encourage borrowing, further exacerbating the situation by allowing speculators to acquire money on the cheap and invest it in hard assets (i.e. gold and wheat). So long as these quasi-government institutions kowtow to the passions of commercial banks and other lenders, precious metals will move higher.
Recommendation: Buy precious metals on dips, on breakouts, in consolidations wherever, whenever you get a paycheck.

An American Expresses Title Writing Block

After a pot of coffee, a few shots of vodka/brandy, and hours of television, I cannot sleep, so I will join the thousands (millions?) of virtual entities on the web in publishing my mental drivel for all to see. The focus of this blog will be investing/trading, but I'm sure it will degenerate into drunk ranting and childish banter as I grow weary of bearing my soul to the 4 people who come across this electronic bastion of wit. I've been meaning to keep a trading journal for years now, and I figure this is as good a place as any, but rather than talk about my motives, how about some nitty gritty...
I just read a post on seekingalpha that blew me away. In a rare moment of passionate hatred, I found myself writing a rather sarcastic missive about Mr. Kenyon's opinion of American Express. I'm consistently surprised with the amount of crap that is written by asset managers that are more learned than I, with degrees and real jobs/experience in finance, who completely misunderstand the nature of the current market. Let me be the first to admit my utter stupidity and total lack of understanding when it comes to Wall Street, but honestly, what the fuck are people thinking trying to catch falling knives in this market?
Granted, AXP is a huge brand recognized across these great states, and accepted just about everywhere plastic money is used, but has Mr. Kenyon failed to read anything in the financial press over the last 6 months? Last I checked, there is a massive problem in the credit markets, reportedly restricted to subprime loans, but more likely tricking into other types of debt... auto, alt-a, yadda yadda, and yep, you guessed it... credit card debt.
As I pointed out to Mr. Kenyon, unlike Mastercard or the soon to be IPO Visa, AXP is not merely a service provider collecting transaction fees, but actually a lender exposed to the credit risk of defaulting American consumers. These consumers have no more home equity and face increasing unemployment as their manufacturing jobs are shipped to Chindia, a land of cheap manufacturing cost.
To be fair, I'm an unemployed American who does little but dream idly about blimps and bitches, but unlike my fellow gringo, I have no delusions of American prosperity and greatness. But I digress without purpose, and rather than continue to complain about the economy and my patriotic brothers, let me return to AXP.
Fundamentally: AXP looks horrific as it trades @ a p/b of 5.6, and a debt/equity ratio approaching 7. Not only are these unimpressive numbers, but this assumes that AXP's assets (loans) aren't going to turn into liabilities. How do assets turn to to liabilities you say? Well, somebody is going to be liable for all the money lost lending to unproductive cheeseburger eating fucks. And that entity will be AXP, whose shareholders will watch their book value shrink faster than a dick in cold water.
Technically: AXP appears impotent as well, drooping well below its declining 20,50 and 200 EMA. Though such dramatic falls are often followed by impressive and scary (if your short) rebounds, this is hardly time to play hero (unless you're into montecarloesque options with defined risk).
Sentimentally: AXP is tied to some of the worst performing sectors of 2007 (and 2008-2010), finance and consumer discretionary. With just about every person in Barron's 2008 Round Table talking about the impending slowdown in U.S. growth due to contracting credit, Wall Street does not appear to favor the likes of AXP.
Recommendation: Underweight. Sell. AXP will be a good short on strength, or a viable pairs trade against MA and Visa. Mr. Kenyon's clients should hire a lawyer or hit man.