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Fear of Fear Itself

Published on November 7, 2008

Fear of Fear Itself

November 7, 2008

Two 90% volume down days in a row!! Last time that happened on Oct 6th and 7th, we saw sell-off on Oct 10th. We saw a brief rally that couldn’t last any longer and bears pounded with full force. Market closed below 50% retracement from Oct bottom to short-term peak, and it doesn’t speak well. It seems likely that we are about to retest Oct bottoms. The stock futures are up as of this writing, which I think will change depending upon the outcome of the most awaiting employment data to be released at 8:30 EST. 

The speed with which liquidity is being injected into the system, rates are being cut, it tells how severe the situation has become. According to Bloomberg, Yesterday’s cuts by the Bank of England and European Central Bank, which came with the Federal Reserve and Bank of Japan on the cusp of zero rates, are a bid to shock life back into their recessionary economies and strained money markets. It may be an uphill battle as consumers and businesses show greater interest in saving than spending, and banks hoard capital rather than lend it. Who would have thought, LVS will be looking for funds in such a dire state. The company might be next bankrupt if the funding is not made available quickly. I think they will get it as these projects are too important for these countries to allow it to fail. Such is the fear in the market, that cash is also not being considered cash. Here is what I shared with OPNewsletter members-

oh btw, any rationale why this thing will sell below even cash offer, assuming 0.093 shares of ASH has no value – HPC Hercules announces shareholders vote in favor of merger with Ashland Inc. (18.10 +1.30) . Co announces at its special shareholders meeting held earlier today Hercules’ shareholders adopted the Agreement and Plan of Merger, dated July 10, 2008, pursuant to which Ashland (ASH) has agreed to acquire Hercules. The Merger Agreement was adopted by holders of more than two-thirds of Hercules’ outstanding common stock, as required by Hercules’ Certificate of Incorporation and the Merger Agreement. The terms of the Merger Agreement call for Hercules shareholders to receive, for each share of Hercules common stock, $18.60 in cash and 0.0930 of a share of Ashland common stock. Hercules and Ashland expect the transaction to close on November 13, 2008.

The funding is committed, deal closure is next, approved by sharedholders what more is needed, the > $20 bucks was being thrown for $17.5 by the time I posted it for OPNewsletter member. Talk about Fear. Markets finally woke-up to the price discrepancies on HPC, on a huge sell-off day and in spite of ASH being down 7%, the HPC was up +9% . I had picked up a few hundred shares earlier, so that was a sweet bonus for one day holding. I sold half and still have half.  A speculative pick also faired pretty well-

AGU will be announcing earning tonight, my feel is that they will beat estimates and also may raise the outlook, those looking for speculative play may look at this for further analysis..but again, no more than 2-3% of capital…this is not part of OPN..

AGU rallied after announcing results and I booked gains.

The value has emerged and I have started my thought process to start value stock investment portfolio. I had shared an initial list with OPNewsletter members results of which are so far so good. I shall be publishing a separate report on this.

More after the employment data.

Profitable trading, OP

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