Tag: US Markets

  • Where Are We Heading Now?

    Tough Markets, the worst June for Dow since the great depression of early 30s. The Dow is down nearly 9.5%, S&P500 nearly 8%, RUT nearly 5.5% and Nasdaq nearly 7.5% for the month of June so far and we still have one more trading day left. Dow Jones industrial average is down nearly 20% since it’s all time of 14,198 in Mid Oct’07. Clearly we are, at least, in the short term bear markets.

    Goldman Sachs said “Conviction Sell” for Citibank. The most brilliant bankers on the street are saying this “now” when Citibank has already lost 2/3 of its market value since the peak just about a year ago, impressive! Isn’t it? is that what you expect from the top notch professionals to realize this so late, the same guys who were betting against the subprime and made fortunes. I still have a long way to go to learn what goes on the Wallstreet. Even yours truly, on this site, as early as November had openly mentioned his bearish stand on Citibank and to the extent that he doesn’t want to keep much cash there. I talked about CFC, FRE, and FNM when those were still high fliers.

    Coming back to Markets, I am looking at the big picture for both Dow and S&P500 and there are are a few things that I would like to share with you.

    Attached is a 20Year, Monthly chart of Dow. I generally, not necessarily always, look at 12month, 60months and 120month moving average to develop one of the big pictures. As you will notice, Dow briefly touched the 60 months MA @11,300 and is sitting almost there. The previous significant bottom was around 2003 (Just before the Iraq War) and the peak was Oct’07. If we use these two as data points, you will notice that Dow has fallen below 61.8% fib retracement, not a good sign. Another support area, that I consider to be a major support is 50% retracement i.e. 10,697 which is almost in the same vicinity as 120months moving average a very solid support area that has been touched only once in last 20years. Another worrisome part is that MACD monthly histograms have not yet completed it’s cycle and RSI is not in the oversold area. Though on daily charts basis, it’s in the oversold reason and we may see dead cat bounce, but I will be very cautious as markets may still have way to go before finding any meaningful bottom. 11,300, followed by 11,000 and finally 10,700 are the area I would be watching closely.

    The story is almost similar on S&P500 but it has some other twists its story. S&P 500’s 61.8% retracement since Mar’03 bottoms is 1270 and that’s where it bounced back on Friday. It is sitting right there AND it is also sitting on 60months moving average that I mentioned above for Dow. But what’s keeping me awake on S&P500 is the VIX. There hasn’t been any panic reflected by high VIX so far. I am attaching a chart for SPX vis-à-vis VIX and you’ll find VIX is nowhere near the last highs when markets sold off. S&P500 is also in the same territory as far as MACD and RSI is concerned. So, same story, on daily basis, it is oversold, but on long term basis, it is not. I shall be careful of 1270, 1225 and finally 1172.

    There are a lot of other things going on in the equities market. India is down, China is down, people have lost lot of money in these markets as many of the “investors” are for first time experiencing bear markets in their recent “prosperous” life time , Japan is down, Hong Kong is down, Europe is down and heading for worst 1st half in last 20 years, Dollar is down, Oil is up, short-selling interest is amongst the highest level, banks are most down, Baltic dry index is slowing, new lows on NYSE is increasing, commodities are rising leaving less money for spending and in fact in some parts of the world it is triggering riots, and many more things to come.

    No one can manage your money better than yourself, and hence preserve the capital as much as possible. Cash will return much better returns than being fully invested, how? Because you will be able to buy things at much lower prices if markets were to fall further. There is no harm in missing an “opportunity” as one can always participate in bull rallies but panic selling doesn’t give time to get out. Panic selling doesn’t let one think straight and therefore may result in decisions that may be even worst.

    And I wonder if “The day” is still ahead. Let me remind you of the old saying, In the bear markets, the winner is the one who loses the least. Choose your asset classes right, if you were to still remain invested.

    For OPNewsletter, we are 65% in cash for the month and we shall take advantage of the upcoming bounce that we may see.

    Stay cautious, stay profitable

  • Interest Rates – Increase or Flat?

    There are two major economic indicators due today. Durable good order at 8:30am US EST and of course the FOMC announcement at 2:15pm. Markets may not move as much in the morning but expect the big move around 2:15pm to 2:30pm. Implied volatility of the July options will rise before falling back after the announcement. There is lot of uncertainty whether or not Fed is going to increase interest rates.

    Let’s assume two scenarios. One in which Uncle Ben leaves rates as it is and another one in which case Dr Ben is not happy with the inflation figures and decides to increase interest rates (hiding Food and Oil doesn’t really work now as Oil is in the limelight in every news paper). He is stuck in a very delicate situation. Raise rates and economy falls into recession “officially” and don’t cut the rates then commodities, metal, and oil all surge to new highs.

    What to do? My best guess is that rates will remain unchanged at least for this meeting.

    For the first scenario, markets may remain where those are currently. There may be little bit of uncertainty, initial rallies and then dust will settle. I, in that case, shall be positioning for the commodities rise. If however, scenario #b happens then I think we’ll see selling. Dow specifically is sitting very close to 52wks low and all it would take is a “rate hike’ to send it lower then that level. And if that happens, we may even see increased selling pressure.

    Put diagonals for bearish scenario may be good as implied volatility will increase and the put value will increase with the falling prices thus maximizing your gains from the fall. if however, you decide for the bullish scenario, credit spreads may be a good idea as IVs will fall after the announcement and theta plus delta will work in your favor.

    Ignore what Mr Buffett says at your peril. The legendry investor warned global investors to be cautious of China stocks back in October’07 and guess what; china markets are nearly 50% down since then. You may argue that it’s all retrospect. Then, let’s get ready for what Mr Buffett mentioned sometime back-

    Buffett offered to bet any taker $1 million that over 10 years and after fees, the performance of an S&P index fund would beat 10 hedge funds that any opponent might choose.

    Wow, that’s quite a bold prediction of the financial market’s future. Protégé has placed its bet on five funds of hedge funds – specifically, the averaged returns that those vehicles deliver net of all fees, costs, and expenses. Of course the funds list is not disclosed.

    It’s between Buffett (not Berkshire) and Protégé (the firm, not its funds). And there’s serious money at stake. Each side put up roughly $320,000. The total funds of about $640,000 were used to buy a zero-coupon Treasury bond that will be worth $1 million at the bet’s conclusion. That $1 million will then go to charity. If Protégé wins, it has asked that the money be given to Absolute Return for Kids (ARK), an international philanthropy based in London. If Buffett wins, the intended recipient is Girls Inc. of Omaha, whose board includes his daughter, Susan Buffett.

    So it seems, if you were to go with what Mr Buffet says that index funding will probably be the best approach for next decade.

    Whatever your choose, expect turbulance today and in many ways it may also be one of the deciding days,

    Trade carefully, Trade profitably, OP

  • Obama, US and The Change

    Sen. Barack Obama won the Democratic Party’s presidential nomination Tuesday, becoming the first African-American to be nominated for president by a major U.S. political party, dealing a stunning defeat to one-time front-runner Sen. Hillary Clinton and bringing to a dramatic close an unprecedented and historic primary race in American politics. Marketwatch a full story, read here.

    Markets are tough, inflation is rising, consumers is tightening the belt, financial still struggling, construction and buildings has pretty pessimistic outlook, India is cooling [India just allowed it’s Oil& Gas companies to increase pricing (they were selling below cost) and stopped rice exports], China starting to cool, and so on….Do you see any bright spot to start the day? It’s as if the world coming to an end.

    I am bullish about life and hence I try to look for bright spots even though how unimaginable it maybe. So, Who is going to save, the answer may be ironic. The spender will be the US government. Yeah I know currently US has over 9 trillions of National Debt and is facing monstrous deficits, but no matter who wins the office, they have to spend, spend and spend. That seems to me the only options to revive the economy and I don’t think the day is too far. The type of spending and where it goes is all subjected to your analysis, but it is coming.

    How do you profit, there is an interesting article “How to win from stock market no matter who wins” from New York Magazine from none other than Jim Mad Cramer. Read it carefully, it has some good insights but don’t invest without proper due diligence.

    It’s a hopeful change, in fact a major event on US political stage. I shall encourage my readers to pay close attention to events, discussions, debates, articles from now till November presidential elections. You may find some of the most bullish opportunities that occurs only at turning points.

    Profitable trading, OP