Saturday, April 24, 2010

State of the Markets 04/24/2010

Hello and good evening, today is currently 04/24/2010 and welcome to Buzzworthy's first blog post. The objective of this blog is mainly to comment on news and current events that "Actually Matter" to today's society. The bias here is for commentary and opinions on the financial markets. This is not a blog intended to be a "bearish" or "bullish" blog, but rather to provide an objective opinion and help traders and investors alike identify market trends. We are all students of the market, and this is a great opportunity for us to learn together. I welcome all comments and I especially welcome criticism, as that's the best way to grow. I plan on growing Buzzworthy to be the next great source for trading, investing, and relevant "buzz worthy" news & media content. Please keep an eye on which I plan on launching very soon.

Let's start off with today's State of the Markets.

S&P 500 (SPY)
Here's a 3-yr daily chart of the S&P 500 ETF, commonly known as the SPYders. Notice the massive inverse head and shoulders pattern beginning in November 2008, forming its head at the March 2009 bottom and completing in July of 2009. Coincidentally, July 09 is when we got the 200/50 day moving average "Golden Cross" in which blessed the markets on their relentless rise ever since. One must use extreme caution though entering positions right now, as we are slowly approaching the 61.8% retracement since the decline begain in 2007. The 61.8 retracement lies around SPY 122.95. These levels are often important as they're watched by nearly every trader and especially the market makers. There is a gap that began during the decline that is about to get filled, implying that the markets can move higher from here. The sideways movement as of late is a sign the market is trying to burn off its "overbought" conditions in which traders take profits in anticipation of the market's next move. Should the market exceed the 61.8 retrace and close above, the next anticipated target is a resistance level at the red line of 131, which should be the equivalent of SPX 1300. With the moving averages still pointing up, there's not yet any indication of a change of trend. Tread cautiously here. I took a long position this last week on the /ES (S&P Futures E-Mini contract) at 1195, and have moved up my stop-loss to 1200 when the market. Currently my profit in the position is 17 points since the entry. I anticipate the market to rise from here unless we get significant news, therefore I will raise my stop accordingly as the market creates support levels.



Fundamentals
Given the fundamentals of this market, I would love to be a bear and short the hell out of it. I made the mistake a couple of times last year of listening to many very experienced traders and bloggers who insisted the markets were going down. The problem was that they were biased. That was very costly, I learned a very important lesson, and that is when trading, you MUST BE unbiased or objective and listen to what the market tells you. That is a cardinal rule.

Goldman Sachs & Financials
The evil Vampire Squid, as Wall Street calls it. I would stay away from being Goldman Sachs, and as a result stay away from banks in particular. Goldman Weighs heavily on the financial sector and could drag down the rest of this sector. The Washington Post cites in a new email release from Goldman execs that they knew they stood to benefit from the decline (Washington Post, 1). Goldman insists that betting against Mortgage Backed Securities is part of their normal hedging practices. Although that may be, that's the kind of thing you want to tell your investors before you defraud them for a billion dollars. It's amazing that they have been charged under Civil prosecution rather than Criminal. Criminal prosecution of course, could spell more than just doom for the firm. Their reputation and credibility in the entire world would be shot, if it's not already. Here's a chart of Goldman Sachs. You can see that ever since GS fell out of its bullish channel, it's been struggling to get back up above last year's high. Several crosses of the 200/50 MA have indicated the stock's indecision to move up or down. GS may survive and be a stock worthy of buying, but not anytime soon. They can't let it go to Criminal charges. Current support levels are at 147, and below that 137. Should GS fall below 137 on volume, they've got a long way down as the next minor support levels lie between 118-120. Summary: Stay away until GS is out of the spotlight, which could be a very long time.




Interest Rates & Housing
Note in this chart we have the Ten Year Treasury, which has tagged the 4.00 twice this year already. Banks have stepped in to assist the Fed in buying treasuries since the program has ended, in an attempt to keep borrowing costs low and to prevent a stop to the so called "housing recovery". Much of the recovery and buying of course is attributed to the soon to expire $8,000 home buyer tax credit. Those of you looking to buy, need to sign your contract before 04/30/2010, and close your transaction before 06/30/2010 to receive credit. The housing recovery will be dictated by the overall costs of borrowing. The TNX (10year treasury) is merely just a summary of the bond markets. Short term interest rates should remain low, as long as the Fed's monetary policy is to hold rates steady as banks and consumers are building up savings and repairing their balance sheets. Government backed debt, or the longer term debt such as the TNX, is what is feared to be rising sooner than later. Should a major bond market player and US Treasury such as China or Japan decide to liquidate substantial amounts of treasuries, our rates could potentially suffer dramatically without the a secondary Quantitative Easing policy carried out by the Fed. For those of you who think that longer term rates are on the rise, here's a stock that could stand to benefit greatly, which I am a recent buyer of. CIM:Chimera Investment Corporation. CIM makes profits by earning spreads on the difference between the short end and the long end of the yield curve, primarily by trading RMBS. I know I know, mortgages are toxic and out of favor. That's exactly why these guys are able to snap up non-agency MBS for pennies on the dollar. Not to mention their leverage ratios have come down significantly since the mortgage fiasco, they are much less subjective to a drop in the prices of these securities. With programs like TARP and TALF in place, they easily have places to dispose of these assets quickly should they turn toxic. In a recent common equity offering, they raised $331 Million to invest in distressed assets. They've got a juicy 17% yield with a secondary objective to earn capital gains. The accounting nature of this company involves classifying the gains of their purchases below par prices and declaring them as profits. This is what allows the payouts and the enormous yield. Of course, all trades should be made with stops. My entry was at 3.90. I have placed my stop on this trade at last major support of 3.53 which is coincidentally the 17% relationship in price from current levels which is also the current yield. I bought this in my trading account and in my 401k. With the recent dilution from the equity offering, the dramatic increase in price shows demand for this stock. Notice the rising trendline connecting the higher lows as prices have recently edged above it and closed at that level. Even if we don't go higher from here, I'll gladly collect a 17% yield. This is more of an intermediate to long term hold, than a trade. Notice the pickup in volume and price spikes as indicated by the white ovals. These dates also coincide with major insider buying periods. On the TNX, pay attention to the inverse head and shoulders pattern targeting rates above 2007 levels.

Charts for the TNX and CIM are here:





That about wraps it up. Tomorrow when I have more time, I'll comment more on matters like Gold, VIX, and everyone's favorite, Tech Stocks that never go down! Man, I regret not buying Apple stock at $100, but back then, sentiment was way too bearish to buy anything at all.

Cheers everyone!

Sources
1) http://www.washingtonpost.com/wp-dyn/content/article/2010/04/24/AR2010042401049.html

3 comments:

  1. why buy apple at 100 much better to buy one that can go up 1000 times than just 200 no?

    ReplyDelete
  2. Absolutely. Many more picks & comments to come :)

    ReplyDelete
  3. Nice first blog. Keep up the good work!

    ReplyDelete

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