DC Diatribe

Tiger Woods yall

Wed, 02 Dec 2009 17:58:22 -0700

For all you Apple groupies who parrot the commercials

Thu, 04 Jun 2009 20:13:54 -0700

http://support.apple.com/kb/HT3549

Turning point for the NDX?

Sat, 28 Mar 2009 12:22:41 -0700

More 'stock market bottoming' seems to be in the air lately, as always attributed to some 'government will save us all' plan. Color me skeptical. Interesting to note the potential double bottom in the NASDAQ-100 though, tech (and smallcap) have traditionally led the way out of recessions. It will be critical to see how the index reacts here in 'overbought' territory; will it push through and remain overbought or will there be a giant throwback and resumption of the march lower?

The SPX is in a much tougher technical position in my opinion. It is still in a clearly defined downtrend hovering precariously above a 50dma breakout and bumping against a down trend channel.

This is a chart of the percentage of SP500 stocks that are above there 50dma's. I have found its extremes to be pretty reliable indicators of tops and bottoms, however it will not in my experience indicate the severity (time frame) of the trend change very accurately, ie. whether it is a short term pullback or a change of trend. Putting this technical picture together in its entirety leads me to expect two scenarios - a small pullback and then a resumption of upwards movement in the indices or a violent throwback that begins the next leg downward.

A picture is worth a thousand words

Fri, 06 Mar 2009 15:55:48 -0700

Gold

Mon, 16 Feb 2009 13:25:04 -0700

Hola Amigos. Been a while since I posted, that pesky day job is keeping me busy again. Everyone seems to be in general agreement that we are in the worst recession/depression in a generation; hundreds of thousands of jobs are being lost every month, government is enacting huge stimulus bills and consumer spending has nosedived.

All of this uncertainty and government spending would seem to be positive catalysts for an investment in gold, and they have proven to have been so as gold has been one of the few positively performing assets over the past year. But has this run up in gold been overdone? I am starting to become of the opinion that it has. I'll start with an idea - has gold's performance been due to its use as a parking spot for cash proceeds of unwound trades and investments? Consider that short term treasury debt has been yielding close to zero and has been on a downward trend for the entire previous year.

Also consider that in 2008 money markets broke the buck and 25 banks, including some very large ones like IndyMac and Washington Mutual, failed. In addition, U.S. companies are expected to default on record amounts of corporate debt in 2009, making corporate bonds unattractive to park cash in (as a speculative investment I think there are some good opportunities). Given this choice of zero yielding instruments, I believe a large amount of cash was parked in gold by big money players during the crisis. This trade has paid well for those who got into it early but I think it will suffer as risk appetite returns to the market, and the data is beginning to show that it is. Notice in the above figure that short term rates are beginning to creep up slightly.

Bank borrowing from the Fed is coming down.

The usd/yen is bottoming

Investment grade corporate borrowing rates are easing

Additionally, gold is starting to take on some of the classic warning signs of bubble behavior; exhibit A is the super bowl commerical bought by "Cash4Gold". I have also heard a lot of "man in the street chatter" about gold as an investment, similar to people getting excited about buying oil at $140/bbl. Finally, I will post a monthly chart of the gold ETF GLD. In my opinion it is setting up for a possible double top formation. This in and of itself does not mean much but coupled with the economic data and bubble characteristics I think it gives gold a favorable risk reward for a short entry around $1000 an ounce. For the trade to be successful I would like to see gold break through $1000 on good volume sucking in all the late weak hands and then stall and violently reverse. If it breaks through, re-tests and continues upwards I think that would be evidence supporting a long entry and a continued bull run in gold. As always, not intended as advice.

The Crash of '08 - AKA borrowing money from the Chinese and selling each other insurance != growth

Wed, 15 Oct 2008 22:30:54 -0700

Sorry for the extended absence folks, and no it's not due to me blowing out my trading account or any such other sillyness, I've been busy with a job change as trading is unfortunately not full time for me. I've been riding out this storm in cash, which as of late has been a fairly good trade in itself, even though those of us who are long dollars are really only making up lost ground and are nowhere near whole. At least we can have faith that the snooty Europeans ca't buy us for pennies yet!

Where are we headed? I wish I knew or even had a good guess. My gut however wants to say Japan, with its stagnant markets and growth and zombied banks and companies kept alive by a government and population with its head in the sand. They experienced a massive real estate bubble and crash and are the frontrunners of the industrialized world's aging demographics. Aging demographics + real estate bubble implosion + compaines that are not competitive (ahem, GM) kept on life support - does that sound like any other country you might know right now? The consumer is broke, and US growth is, depending on how you measure, non-existent or shrinking. Add to that the uncertainty of a Treasury department and it's leader's mini-me having the power to monetize anything and everything it wants to with virtually no oversight and a Federal Reserve that has turned on the spigots at full blast.

In spite of the efforts to re-inflate this mess, credit markets are still tight, equities are cratering, and the yield curve is steepining. What's an investor to do?

Equities
Certainly there are opportunities, especially for intra-day plays but I wouldn't dare try to swing trade this mess. Buying with a long horizon probably makes sense here, but tell that to those who bought the Nikkei in 1993 - 3 years after the crash.

Bonds
Bonds were a good play last October, before this mess really started taking its toll. Until we know the effects of Washington's plan to monetize bad debt the risks to bonds from possible future inflation is too high for my taste.

Real Estate
If you can get a loan, may not be a bad idea, although I still think the bottom is some ways away with the amount of supply still on the market. I'm waiting for it to be out of the news and quiet down.

Commodities
Bubbles that implode like the commodity markets just did do not recover overnight. Demand destruction could be in play for several years but I do prefer to own companies in the hard asset business, especially with the global population marching ever upward. Seasonal plays in ags and energy will probably become more consistent again now that the distortion of the bubble money has left the scene. Patience will be a virtue here, in my opinion.

Cash - USD
Hasn't been a bad play but is fundamentally unsound. Could defy the fundamentals for many many years to come though. Subject to future inflation expectations - see bonds.

Gold
Heavily manipulated and whipsaw-y market and not really a hedge against inflation anymore, more of a hedge against total collapse which is still on the table, in my opinion. If trading for inflation expectations I prefer bonds.

Guns, canned goods and farmland
The ultimate hedge? :-)

With all the problems out there, a mix of the above assets is probably the only real way to hedge yourself. Liquidity will most likely remain tight for some time to come so keeping my powder dry and easing into assets over time will be my strategy. Good luck, and as always this is not intended as advice, just sharing some thoughts.

Trading idea - PXP

Fri, 30 May 2008 22:27:08 -0700

Looking at a long entry on this stock.

Pros: Trading near trend channel/linear regression support and 20 SMA (not pictured) support - allows for a tight stop. Is an oil industry company, energy is still leading sector in the market performance wise and should be respected until convincingly dethroned.

Cons: PXP is not the leader in its field (CHK is, but has had a bigger run up). While oil has pulled back significantly limiting industry downside risk, risk still exists that this is the beginning of an extreme oil correction.

Price target: $80, top of trend channel.

Stop: ~ $65 based on chart formations, channel and volatility.

Risk reward: Looking for a little more pullback for an entry around $70 resulting in 2:1 RR ratio.

Market Update

Sat, 10 May 2008 10:50:47 -0700

Energy is really driving full speed ahead as of late, my possible trade of short OXY never materialised. The good thing about trading patterns and price action though is that a failed setup is as good as a fulfilled setup as an entry. The double top failed to break down and now the overhead resistance has become support. For the record, I have no position in OXY but I think it is a good example of patterns and why they can be fakeouts, especially in sectors with a lot of hot money in them. That's why it's important to wait for confirmation before attempting to trade a double top, in my opinion. See chart.

We've had a bit of a pullback but in my opinion the market remains in overbought territory, as shown by the percent of S&P stocks above their 50 day moving average.

For this rally to break through the considerable overhead resistance of the down trend line and the 200 day moving average I think we'll need to pull back a bit more before attacking that resistance again. Also facing considerable resistance on the weekly chart. See below.

I still stand by my belief that energy is a bubble and is overdue for a severe correction, at least in the short to medium term, but these trends always seem to last longer than you think and we will not see the real blowoff until every short has thrown in the towel. I do not think we have reached that point yet but the amount of news, message board and "joe on the street" chatter about the subject is a tip off that the top is near. As always, just my opinions and not intended as advice. Good trading.

Let's go Caps!

Sun, 13 Apr 2008 09:49:17 -0700

Nice to see one DC area team doing well for a change. Here's to Ovechkin and the boys handing Philly another loss at 2 pm today.

Possible Trade: Short OXY

Thu, 20 Mar 2008 21:54:05 -0700

Are commodities a bubble? Maybe, maybe not - only time will tell. This current round of selling could just as easily be hedge funds selling winners to make margin calls as it could be the popping of a bubble. With the unraveling of the derivitave powered leverage who knows what may happen. This double top on Occidental petroleum is looking pretty ominous though. If it breaks below $64 could be a confirmation to go short or buy puts. As a comparison, here's a long term chart of OXY and of the NASDAQ bubble.

More interesting food for thought is the activity in the January 2009 $50 puts, which would imply a lot of downward traction if price does turn over.