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Imagine What’s Next

Published on December 1, 2007

Imagine What’s Next

December 1, 2007

(for details pls visit www.OptionPundit.net)

I have been bearish and been saying for nearly a month. But this was an interesting week and quite positive. Dow gained +3.0%, S&P500 gained +2.8%, The Nasdaq +2.5% and the Russell 2000 gained +1.7%. Amazing, isn’t it?  I am not yet convinced though (as if that really matters). Before I dive further, let me also state another point for the month of November, both Dow and S&P lost 4% and Nasdaq lost about 7%. So I am thinking what has changed vs last week.

Citigroup received funding from Abu Dhabi Investment Authority (ADIA) for selling a 4.9% stake for $7.5billions. Citi (C), the same guys who, in Aug, said “very little to no substantial” exposure to sub-prime sector, is now struggling with cash and it doesn’t even precisely know how much is the exposure. The same guys who upgraded HSBC to “buy” in Aug shrugging-off sub-prime fears. And guess what, Moody just lowered its rating outlook on HSBC for precisely opposite reason. Do you get the picture of what’s going on behind the scene (The wall street as it is known). They are nicely paid to pass the cool s**t while shareholders have lost about 25% of the value since Aug’07 and have a mighty SWF as new shareholder.

Hope Fed will cut interest rates. Of course, it is a 100% surety (alright, 99.99%) for a rate cut on  Dec 11 meeting. The speculation will be “how much”. My guess is “50bps” cut. Uncle Ben has no choice but to inflate US. “Liquidity crunch” ghost is romancing with US credit markets. Uncle Ben and all other Uncles & Aunties have been saying again and again to do everything to avoid recession. Markets are interesting, they speculate even for what is written on the wall. Alright, blessings, Mr Greenspan!

Markets were overly sold as of last week and a bounce was a natural. But this was a beautiful week. Average of 100 points everyday. I was little intrigued by 13,300 range though.

dec-1-dow-2007.png When looking at time/price/volume chart, I found that 13,300 range was a 38.2% fib expansion point from the 14,200 fall that started in Mid Oct’07.  But do note that, markets are still below 50days moving average.

Dow P&F Dec 1 2007.gif Next question in my mind was to remove time, RSI noise from the charts so I headed to P&F and found that 13,300 box represent a pretty good support/resistance area. Net, let’s watch-out next week which is going to present some key economic data and Dow has roughly worked through the oversold region. But hey, isn’t this one of the best seasonal time for the stock markets? I don’t care.

I am on sidelines with a bearish bias vs being bullish.

Gold Dec 1 2007.gif Based on some of the views that I subscribe to, Gold has never ended a month above $800. Interesting! While there are views that Gold is bound for correction, I am bullish and will continue to hold my gold stocks (etf). That is probably the only other holding that is truly long term in my portfolio (Other one I have been holding for past 8 years). In any case, $775 seems to be support box while I am eagerly waiting for December future expiration.

There is so much to write but very little time. I had a few >+100% wins (CRDN, FRE) but that doesn’t really count as the % of portfolio is low and it’s only for fun when I have time.

Due to traffic load, the site was down for a couple of days. I had to move to a dedicated server and now the expenses are increasing. I have discontinued OP’s E-Alert as I would like this site to be a self-sustaining site. Expect a fee for OP’s E-Alert if I restart as adsense alone can’t fund for the site expense.

Profitable trading, Chilling out, OP

3 Comments

  • Avatar Bubs says:

    I clicked on ad for support, every penny counts. I was just browsing your site and was wondering why you don’t accept any new members to the newsletter service? Keep up the great work and thanks for the excellent articles.

  • Avatar Tony Chai says:

    Hi OP :

    Nice article once again.

    I read that funds across US which have sub-prime exposure were withholding withdrawals from investors who were anxious to withdraw their deposits.

    Are we not seeing and end to this credit crunch yet?

    Regards,

    Tony Chai
    My Options Trading Blog

  • Avatar OptionPundit says:

    Thanks for the support Bubs. I am not accepting new members for the service as I want to do a quality service rather than another newsletter. I had very little time left with me due to other priorities so decided to take it off for a while.

    Dear Tony, pls read my latest post on Subprime. Hopefully it answers part of your questions.

    Cheers and profitable trading, OP

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