Depression Comparison update

Enough said....

AMZN on the bounce...

How about some Deep In The Money Calls on AMZN for the bounce. If you're not in yet there will probably be another opportunity today or tomorrow. Take a look at the big Green rectangle as it highlights the gap up of late 2006-2007. The 200 monthly EMA and this gap are huge support areas. In other words easy stop loss points to go long and most definitely a time to get short if they are broken because AMZN will fall to $45 if broken. But for now it's the bounce....

Into the ABYSS....

The only question there is, "Where's the Bottom"?

The S&P 500 has pierced its 200 Monthly EMA....

But the $INDU or Dow 30 still has some room to fall to 8,800...

The VIX is over 50 and thus making Options extremely expensive and Bid/Ask Spreads WIDE. This would be a prime opportunity to sell some way out of the money option contracts on either side PUT/CALL. The premiums are unreal.......

Congratulations to the Bears ad condolences to the Bulls.....

Bailout passed - Bear martket resumes

I'm away for the weekend and do not have access to charting. The DOW was up 265 points and the bailout vote came. By the end of the day the Dow was down 137 points. Enough said.

The markets are WAY oversold, BUT the state of the economy is at best apathetic globally. I find it interesting that no one is picking a bottom here. Cramer called a bottom a couple of months ago and we are now below those levels.

Bottom line is there are no buyers in the market and until volume increases on a significantly UP day it is entirely too risky to be long.

Blood in the Streets....

Not quite blood in the streets, but by far the Transportation sector got hit the hardest today. Basically they took the Reagan quote of "if it moves" and applied it to selling stock.
It's hard to say what to expect tomorrow as the monthly employment numbers come out prior to the open and the "It's not a Bailout" Bailout House vote is scheduled for noon.

Were the last two days nothing but a Bull trap? I guess (and that is pretty much as good as anyone else's opinion at this point) we will have to wait and see what the reaction is after the vote.

Bailouts & Policy change rumours boost Financials

Paulson, Bernanke and the boys and girls on Capitol Hill were playing with your head again today. First of all the "No Short" list was supposed to end at the close of today, but was rumored to be extended.
Secondly another rumor from across the Atlantic alleged that France was putting together a major bailout plan of their own for Europe which was immediately condemned by Germany and was later refuted by the French Finance minister as rubbish.
And if that wasn't enough excitement the Senate puts on their snow blade and pushes the Bailout bill to their floor tonight at 9:30 EST causing the roller-coaster of a day into a broad upswing to the close led by the financials and more specifically the Regional Banks. It appears that the Regionals will be the big beneficiaries of the bailout plan.

Anyway the charts below of BBT, WFC, JOSB, and for comparison ETFC depict the effect of the governmental intervention. But a word of caution.....This sector may mightily bounce, but they may fall even harder and father as those who have been trapped get the chance to hit the exits. Take profits quickly and definitely before earnings season begins in earnest.

Also Steel got hammered again today so here's a longterm look. Can you say "Global Slowdown"?

1/2 way house or bounce?

I had a hard time getting my back test software to yield data on specific days of percentage loss and the following day bounce. I did manage to get the Total retracement levels of the worst historical falls. Granted the 2007-2008 data may be incomplete it does give some perspective.

Solid Bounce that it is....is nothing to get overly bullish about. Markets are still underneath short term moving averages. However, roughly 1/2 of yesterday's fall was recaptured as the Bernanke, Paulson , and the bailout boys work feverishly to come to terms and "Calm" the financial markets.

The SPY daily still in a Bear trend
QQQQ still well below day EMA...

Patience, patience, patience.....wait for the other half of the bounce and either get out or get neutral and set up for the barrage of BAD earnings coming in approximately 3 weeks.

The Devil (-666) & (-111) = Dow down 777...

I wonder what combination of our knowledgable leaders make up the -111 part of the selloff?
Bush, Paulson, Bernanke, Pelosi or was it the summation of the House's 1/3 + 2/3 = 1 failed bailout vote? Either way at this point it is more interesting to look at What did not get creamed:

Lockhead Martin and the long term chart is quite impressive. LMT is bouncing between longterm Fib lines and has recently bounced off the 200 day EMA.

IRBT or IRobot - This could be a niche defense play with a tight stop @ $14.49.

And a couple of bottom feeders of the economy Dollar Tree and Ross Stores both held up where other discounters could not. Another notable here would be COST or Costco.


And for comparison sake in the Short that got away category - CALM.
OUCH! I guess eggs in New England are out of favor in the Fall. Note the "Should have bought Puts here" oval. I just wanted to emphasize the importance of the making of Lower Highs. This one should have been EZ Picken's.....

Is AAPL crushed?

For the speculative at heart how about some AAPL Calls to play the bounce with a stop $99.99. If AAPL breaks $100 next stop is at least $80. In other words if the Call gets stopped out immediately replace with $80 Puts.


More later on the Events of the day and the lack of our Leadership.

Quarter's End

It is a good practice to look at different charting time-frames so I have a calender reminder set to jog my memory to look at Quarterly & Yearly charts. It is interesting to see the moving average levels as well as the recent action. Take for instance the S&P 500.

By looking at this long term yearly graph it looks as though the S&P has made a double top and somewhat retraced this year. It is fairly easy to see the moving averages acting as major support.

Now let's take it down to a Monthly time frame and focus on that double top. Is this looking more like a cup and handle now? The bottom of the cup being the 200 month EMA and the handle tracing back to the Long term Fibonacci fan line. Most importantly we can see that resistance going higher will be met at the 50 month EMA - 1311.

It's pretty obvious that the Financials or XLF will tip us off to the overall direction of the market. Here's a 10-year Quarterly. See anything interesting. I thought the close on the 23.6% Fibonacci line as well as the high of the quarter just above the 38.2% fib and yet below the 50 EMA. The bailout may move the XLF higher, but I believe getting short the XLF above $24.50 using the 50 -EMA as a stop could be decent trade.

The consumer staple stocks are sporting a cup with handle. However it could be viewed as a failed breakout with that blowoff top of this quarter. Bottom line here is the 50 EMA is crossing the 200 EMA and XLP is worth watching a little closer. An Call entry point in the low $26 range with a stop closely below the 100% fib line of $25.92 may be a decent hedge to all the short plays to be put on after the bailout is announced.

Why a RIMM call makes sense....

RIMM got killed today after reporting earnings and cutting their profit margin forecast by 10%. Oh they are only going to make 48% instead of 52%. That just does not correlate to 25% haircut of the stock price in my book. Anyway take a look at a 5 year weekly. Retraced straight back to the 38.2% Fibonacci line which is slightly above the 200 week EMA. Interesting you say......

(To enlarge charts to full screen just a mouse click away and hit your back button to return)



The daily reinforces again the wonder and amazement of Fibonacci levels. Drawing fib retracement from June highs to today's low brings out the lowest low prior to the gap down or roughly $88 per share and coincidently the 23.6% retracement line. It may take a Federal bailout or a few days, but the likelyhood of $88 is enough for me.

What is LIBOR?

So it's all about the banks......Check out the Reliabilty statement published on Wikipedia back in May as sourced from the Wall Street Journal.

Gleaned from Wikipedia.com:

The London Interbank Offered Rate (or LIBOR, pronounced /ˈlaɪbɔr/) is a daily reference rate based on the interest rates at which banks offer to lend unsecured funds to other banks in the London wholesale money market (or interbank market). LIBOR will be slightly higher than the London Interbank Bid Rate (LIBID), the rate at which banks are prepared to accept deposits.

Reliability
On Thursday, May 29, 2008 the Wall Street Journal released a study suggesting that banks may have understated borrowing costs they reported for LIBOR during the 2008 credit crunch.[2] Such underreporting could have created an impression that banks could borrow from other banks more cheaply than they could in reality. It could also have made the banking system appear healthier than it was during the 2008 credit crunch.
For example, the study found that rates at which one major bank "said it could borrow dollars for three months were about 0.87 percentage point lower than the rate calculated using default-insurance data."
In response to the study released by the WSJ, the British Bankers' Association announced that LIBOR continues to be reliable even in times of financial crisis. According to the British Bankers' Association, other proxies for financial health such as the default credit insurance market, are not necessarily more sound than LIBOR at times of financial crisis.

Market held captive by Government

The major indicies are crowding up to the trendline off the July lows and the market is definitely being held captive by a Government that requires credit be given to the "savior" of the financial system. I'm holding true to the belief that there will be a deal prior to the opening of Monday and stocks will surge off of the "Relief" to the liquidity situation. However, ultimately this rise will turn out to be the Bears opportunity to reload for the impending doom fall of terribly bad earnings to come.



For now the VIX is providing a nice PUT opportunity with a tight stop at the $36.72 Fib level.

LOW, HD, MAS, & the $$$$

I just love a comparrison chart for perspective......

Does it appear that Lowe's is slowly closing the gap downward?

Wow that Masco investment back in 1988 has reaaaaalllllllly paid off.......Is this the dog wagging the tail or the tail wagging the dog. To me they all have fleas....

Now here's the USD/EUR finding support ot a major Fib line. This looks like a nice cup with a handle. Could this mean Europe is a WHOLE lot weaker than the US in this Financial mess?

Things you can not see by only looking at daily charts

What you don't see about today's action if you are only looking at daily charts is the beginning of a bottoming process. These 20 day 30-min charts show that the "Fade" downtrend from the "Financial Bailout" was broken. Coincidentally the timing of this bull move immediately followed the ending of the Senate committee hearing starring Paulson & Bernanke. And as always Fibonacci lines are marking important resistance/support levels.

GDP growth and Cramer's Cyclical and Investing Chart

In Jim Cramer's Mad Money he references an economic cycle based on Gross Domestic Product and the Federal Reserve's positon on interest rates. It has been said through various other souces that the cycle typically runs on seven year intervals. However, Cramer does not put a timeframe on his chart, but simply puts forth the idea that the Market will react a certain way given cetain circumstances or conditions.

Currently the GDP report is due Thursday and it's consensus estimate is for GDP growth of 3.3%. So let's take a look at where we are and what we should be doing based on Cramer's playbook.

Yearly Chart:


Quarterly Chart:


It is plain to see that the cycle bottomed out in the last quarter of 2007 and GDP has actually risen in 2008. Yes I know, "We are in a recession". Well, not according to the governments data. Given, we may be in the financial crisis of a lifetime, but the data does not lie. Anyway, who cares? The question is how do we make money on what is going on?

Well according to Cramer's playbook if GDP is rising and between 3-4% we should have already bought "smokestack" stocks like DE, IR, CAT, MMM and begin selling financial, housing, retail, & auto stocks like BAC, WFC, LEN, TOL, PHM, CTX, WMT, TGT, F, GM. As GDP tops 4% we should be buying metals and minerals such as: NUE, AA, NEM. Since this was published in 2006 I wonder if he would add Gold stocks like GLD, AUY, & ABX? Oh, was that Monday's show?

The Fed shold be tightening rates based on the growth, but we all know that they are in no position to cut or raise rates based on current commodity price instability and the global financial crisis.

Bottom-line folks is that when this housing/financial mess is cleared according to the market there will be a HUGE upward rocket type swing. Perhaps now is the time to be looking at long leap calls on the majors SPY, DIA, QQQQ, & IWM.

Bank of Hawaii, Oil, & China

Bank of Hawaii has weathered the financial crisis extremely well and looks to be a solid buy. Picking up some long calls with a stop just below the 50 week moving average may pay off huge in the near future. The next three charts give a long term, intermediate, and short term look.




Crude was the story today, but be real careful getting long here as it has only retraced back to a longterm trendline and Fibonacci.

The China index sporting similar action to Crude and could very well be a bull trap. Shorting here or some short-term puts 3-6 months with a stop at the fib line may be the play.

ZION

ZION: 52.83 +7.61 (+16.83%) : ZIONS BANCORP - Yahoo! Finance
4:00pm 09/19/2008
$52.83

Low: $38.76
High: $107.21
Change:+7.61 +16.83%
Volume:14,189,097
Avg Volume: 6.18M
Shares Out: 107.57M
P/E: 16.16

This is an awesome example of how volatile days should be traded:

What if instead of anxiously/fevorishly trying to sell your calls on the Open spike you instead place Buy on Open Puts WAAAAAAYYYYYYYY Out of the money at "key" strike levels. For example: What price would a market PUT order to trigger at $105 strike been filled at the Open versus trying to clumsily pick a limit order to set in order to sell your calls? What about creating a Vertical Put Spread to trigger at certain levels?

No matter how you look at it the goal is to preserve the profits gained on your long held calls by the insane open. What difference does it make if you just get neutral with a corresponding PUT amount of contracts? Technically you would be even thus preserving the maximum profits of the gap open....

The issue is which order is easiest to make? The one you can place for practically nothing the night before or

1. the stab in the dark limt order that may not get filled at your wish price
2. or worse gets filled WAAAYYYYYY below the Open bid thus leaving major profits on the table
3. or the catastrophic not get filled at all as the bid and profits quickly disapate

Bottom line:

Regardless of the Call profits that were made; how much do you think a $105 strike PUT +ZNQMD would be worth if it did get filled at $0.05? By my math around $52 or for 10 contracts or $52,000. Well the close for +ZNQMD on 9/19/08 was $86.20 or $86,200.

BUY 10 +ZNQMD if ZION >= $105 $0.05 09/19/08 $17.49 = ($67.49)
SELL 10 +ZNQMD MOC Market on close $86.20 09/19/08 $17.49 =$86,182.51
Profit $86,115.02

To me that makes selling those calls later in the day a WHOLE lot easier.......

Market outlook

Next week I expect the market to absorb the huge gap up by tediously fading back. If support is found at the shoulder lines it will lend more credence to charts across the board setting up for an inverse H&S pattern that could send things back up the year highs. The QQQQ's is looking like easy money if this turns out to be the case.

US GOVT inc. - Great trade with 80% stake in AIG

In arguably the greatest insider trading deal in history....the US Goverment takes control of AIG.

No wonder they would not let any more shorts.......

Checkout this excellent post on Friday: http://quantifiableedges.blogspot.com/

I'll do another post later this weekend setting up for next week......