Here is a chart graphically showing what I posted about yesterday regarding the Fed day pattern. After 5 of the last 7 Fed days the market was significantly lower. The two that did not follow the trend still had downside. The first actually reversed ON the Fed day and the second put in a doji the following day and then moved significantly lower on the second day after the Fed.
However like I also warned yesterday it is possible that with today being EOM that we go slighly higher today and go down big on Monday.
Here is a chart that I found showing exactly what the market did after Fed day.
https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhPzb3iPV37LwvB8qnT6yWMIduJM1Qwl-APXZRBdHNBeWUQj59hDVV01QZVWVbNmTtXJjOtfg3nhYAzOlUNpn8TERbJuq-1Xc1LFk-akhe_u8t96FPGH4bH0rtaki2xV-JR6TBfyUuP2dNO/s1600-h/FOMC%5B2%5D.png
Thursday, April 30, 2009
Wednesday, April 29, 2009
Classic Fed day, will we get follow through?
The pattern for the Fed days have been ramp job right up to the announcement and then no follow through and prices fall for at least several days. I expect this pattern to continue. It is possible that with tomorrow being the EOM that they try to keep prices elevated. If this occurs then Friday we could be very red.
Upside remains very limited. Downside remains significant.
Upside remains very limited. Downside remains significant.
Met with Mike Mayo of CLSA yesterday (he along with Merideth Whitney are the UBER BEAR faces of banks)
Post the meeting I went back to the slide that interested me the most to compare the results from the Great Depression to what we are seeing today (most comparisons for anything go back to then and that was the last major deleveraging period). I thought the findings were pretty interesting and the net is that if this cycle follows the depression cycle, and if the banks anticipate the peak in NPA’s by three months like they did in the 1990’s cycle or coincidently like they did in the 2000’s cycle then my guess is sometime in the beginning of 2010 it will be the right time to be more bullish on banks. The movie will not follow the exact same script but I thought this was an interesting way to look at the state of the union currently.
Details:
· 1927-1930 and 1937-1941 exhibited similar net charge offs (.41% of loans) compared to the non stressed periods in the 90’s and 00’s (.45%) (ex 90/91/92/01/02/08).
· 1931-1936 is a much different story as NCOs went from .68% in 1930 to 1.29% in 1931, 2.29% in 1932, 3.14% in 1933, 3.36% in 1934, 1.57% in 1935 and .93% in 1936.
· The peak in NPAs (the leading indicator and what I think people are again watching again this cycle) was in the end of 1932/beginning of 1933 or 1-2 years ahead of the peak in NCOs in 1934.
· Here is my logic for the beginning of 2010 as being a potentially good time to be more bullish on banks. 2008 saw NCOs of 1.56% vs. the .52% seen in 2007 and the 1.29% seen in 1931. Therefore call 2008 1931, 2009 1932, 2010 1933 and 2011 1934 (Q109 largest 20 banks put up an annualized 2.13% NCO rate vs. 2.29% for 1932 so this continues to feel right). We therefore would not see a peak in NCOs until 2011 (that feels about right given where we are in the C&I and CRE credit cycles). However NPAs would peak 1-2 years ahead of that or sometime in the beginning of 2010. If you say coincidently the banks will outperform that peak in NPAs that would mean the beginning of 2010 would be the time to turn bullish.
All of the above being said I shorted FITB today and went long PBCT in a pairs trade. There is no way FITB's equity looks next week like it does this week. That bank needs to be shot. The government will either force them to raise private capital or force them to sell assets to others or the PPIP and there is no way it will be at a premium. There are 3 buckets of banks in the stress test. Bucket A are the survivors with little or no need for additional capital from where we sit today (JPM and GS fit this bill). Bucket B are the survivors that will need additional capital (WFC, STI, BAC fit this bill). Then there is Bucket C which is those that should have already died and FITB is in that camp IMHO, maybe even Citi. The reports have gone from saying only 1 bank needs capital this weekend, to 3 by Monday, 3-4 by yesterday and now 6 today. My guess is that it moves to 8-10 when the results are released next week. Maybe I am wrong but FITB is a dead horse nonetheless. I used PBCT as the long offset as they have something like a 20% TCE ratio, which is rediculous. The major banks are around 4% and the regionals that have yet to go through the C&I and CRE cycle are around 6%. PBCT will 1) be around, 2) not have to raise capital and 3) will be able to buy loans/securities from others. I view them as a way to buy a piece of the 1990's RTC or a play on this cycle's RTC, the PPIP. Would love to hear what you all think of the above. Like Pink Floyd said is there anyone out there (other than Solwold)?
Details:
· 1927-1930 and 1937-1941 exhibited similar net charge offs (.41% of loans) compared to the non stressed periods in the 90’s and 00’s (.45%) (ex 90/91/92/01/02/08).
· 1931-1936 is a much different story as NCOs went from .68% in 1930 to 1.29% in 1931, 2.29% in 1932, 3.14% in 1933, 3.36% in 1934, 1.57% in 1935 and .93% in 1936.
· The peak in NPAs (the leading indicator and what I think people are again watching again this cycle) was in the end of 1932/beginning of 1933 or 1-2 years ahead of the peak in NCOs in 1934.
· Here is my logic for the beginning of 2010 as being a potentially good time to be more bullish on banks. 2008 saw NCOs of 1.56% vs. the .52% seen in 2007 and the 1.29% seen in 1931. Therefore call 2008 1931, 2009 1932, 2010 1933 and 2011 1934 (Q109 largest 20 banks put up an annualized 2.13% NCO rate vs. 2.29% for 1932 so this continues to feel right). We therefore would not see a peak in NCOs until 2011 (that feels about right given where we are in the C&I and CRE credit cycles). However NPAs would peak 1-2 years ahead of that or sometime in the beginning of 2010. If you say coincidently the banks will outperform that peak in NPAs that would mean the beginning of 2010 would be the time to turn bullish.
All of the above being said I shorted FITB today and went long PBCT in a pairs trade. There is no way FITB's equity looks next week like it does this week. That bank needs to be shot. The government will either force them to raise private capital or force them to sell assets to others or the PPIP and there is no way it will be at a premium. There are 3 buckets of banks in the stress test. Bucket A are the survivors with little or no need for additional capital from where we sit today (JPM and GS fit this bill). Bucket B are the survivors that will need additional capital (WFC, STI, BAC fit this bill). Then there is Bucket C which is those that should have already died and FITB is in that camp IMHO, maybe even Citi. The reports have gone from saying only 1 bank needs capital this weekend, to 3 by Monday, 3-4 by yesterday and now 6 today. My guess is that it moves to 8-10 when the results are released next week. Maybe I am wrong but FITB is a dead horse nonetheless. I used PBCT as the long offset as they have something like a 20% TCE ratio, which is rediculous. The major banks are around 4% and the regionals that have yet to go through the C&I and CRE cycle are around 6%. PBCT will 1) be around, 2) not have to raise capital and 3) will be able to buy loans/securities from others. I view them as a way to buy a piece of the 1990's RTC or a play on this cycle's RTC, the PPIP. Would love to hear what you all think of the above. Like Pink Floyd said is there anyone out there (other than Solwold)?
Tuesday, April 28, 2009
NTRS capital raise today
We will look back next week and realize that the capital raise by NTRS today was brilliant! They are using the proceeds to pay back the TARP that they did not need in the first place. The reason why it was a brilliant move is they now move out of underneath the gubment, which will allow them to be a share taker going forward as they don't have to put up with a bunch of bunk (can pay people what they want, can run their business and take risks how they see fit and they can hire people whereever in the world they want). Secondly since they are not part of the stress test they did not have a disclosure hurdle that needed to be made before this capital raise, like BAC or C would have since they currently know the results of the stress test. Next week it will come out that the banks need to raise capital and there will be a lot of supply on the market. You tell me which hedge fund or private equity fund will step up and buy a crappy bank on the bank's terms. Didn't work too well for TPG with Wamu last year and that was on TPG's terms. Net I continue expect this to be a negative catalyst for the entire market. Solwold would love to talk to you on your shorts of JPM, BIDU and AMZN. BIDU and AMZN have high multiples fo shizzle, but investors are paying up for growth right now so how do you know when that party will stop (BIDU's fundamentals last night actually made me less negative on them given that I thought they would have a few quarter hickey from having to take advertisers off of their site).
The trend has finally changed.
I believe that after 3 weeks of trading in a 50 point range we are finally poised to break out downward. Momentum has clearly been moving from the bulls to the bears. There is a legitimate EW count that puts us in the early stages of a move downward. Rumors are swirling that both C and BAC failed the stress test and several other banks, including WFC, did not do well. The whole swine flu thing, although terrible, is just noise. It is an excuse for the headline writers. It is easier to blame the weakness on the flu than on the fact that we are overbought and overdue for a correction.
Anyway if we open below 845 today could be VERY ugly. If we open over this price we may fill the gap, like yesterday, before turning down again. Today should end red.
I am adjusting my IT term outlook. The tight range trading over the last 3 weeks has muddied the IT picture and to some extent the LT picture. From an EW perspective the most probable scenario is for a shallower fall in prices before a final move up that could reach 1000+. However, since we put in such a long and solid top I am wondering if 875 will be the top. We can put in a low in the 750 area in the next couple of weeks, then push back up near 875 and satisfy the EW requirements for this bear rally. It is less common than a move over 875, but it definately could happen.
Also making things less clear is the shenanigans with the shrinking liquididty. This could add massive volatility to the markets making moves more extreme or it could be much ado about nothing. We will see and react.
Therefore I am adjusting my odds for the possible scenarios. #1 - 50%, we drop to the 725-750 range and then bounce to new highs before reversing in the next bear market. This has been my favored scenario for about 3-4 weeks. #2 - 25%, we drop to about 725-750 then bounce back to test 875 and fail. Then we start with the next bear market. #3 - 25%, The top is in and the next bear has begun. Although we technically satisfied the minimum EW requirements for this bear rally it is not very "neat". I keep an open mind, though, and the top we put in could be lasting so I have increased the odds for this scenario.
All of the technical indicators and my analysis suggest that the next 100 points is down. Therefore I am short. I have 5 short positions (CHRW, QCOM, BAC, AAPL and FAS)and I am long 4 inverse etfs (FAZ, SDS, SRS, QID). I am about 66% short. I will add to my shorts if we pullback today and try to close the opening gap. On my watchlist to short are EXPD, IBM, JPM, AMZN, BBY, SMH, GS and BIDU. Other inverse etf's I am looking at are SKF, TZA and EEV.
My plan is to stay short until the evidence points to some kind of correction upward.
Anyway if we open below 845 today could be VERY ugly. If we open over this price we may fill the gap, like yesterday, before turning down again. Today should end red.
I am adjusting my IT term outlook. The tight range trading over the last 3 weeks has muddied the IT picture and to some extent the LT picture. From an EW perspective the most probable scenario is for a shallower fall in prices before a final move up that could reach 1000+. However, since we put in such a long and solid top I am wondering if 875 will be the top. We can put in a low in the 750 area in the next couple of weeks, then push back up near 875 and satisfy the EW requirements for this bear rally. It is less common than a move over 875, but it definately could happen.
Also making things less clear is the shenanigans with the shrinking liquididty. This could add massive volatility to the markets making moves more extreme or it could be much ado about nothing. We will see and react.
Therefore I am adjusting my odds for the possible scenarios. #1 - 50%, we drop to the 725-750 range and then bounce to new highs before reversing in the next bear market. This has been my favored scenario for about 3-4 weeks. #2 - 25%, we drop to about 725-750 then bounce back to test 875 and fail. Then we start with the next bear market. #3 - 25%, The top is in and the next bear has begun. Although we technically satisfied the minimum EW requirements for this bear rally it is not very "neat". I keep an open mind, though, and the top we put in could be lasting so I have increased the odds for this scenario.
All of the technical indicators and my analysis suggest that the next 100 points is down. Therefore I am short. I have 5 short positions (CHRW, QCOM, BAC, AAPL and FAS)and I am long 4 inverse etfs (FAZ, SDS, SRS, QID). I am about 66% short. I will add to my shorts if we pullback today and try to close the opening gap. On my watchlist to short are EXPD, IBM, JPM, AMZN, BBY, SMH, GS and BIDU. Other inverse etf's I am looking at are SKF, TZA and EEV.
My plan is to stay short until the evidence points to some kind of correction upward.
Friday, April 24, 2009
BAC is a good Short here
Jay's analysis shows the deteriorating fundamentals for BAC. Now is a technically safe entry for a short position. It just broke through a line of support and tested it from the bottom. The line is now resistence. The next line of support is about $0.20 below and the next support under this is $0.60 below. Set a stop over the resistence.
http://www.screencast.com/users/J-So/folders/Default/media/06f6b2fd-a742-4a8e-98ab-04865cf35c2d
http://www.screencast.com/users/J-So/folders/Default/media/06f6b2fd-a742-4a8e-98ab-04865cf35c2d
Wednesday, April 22, 2009
Follow up
This is a follow up to the "Tick tock" post from a few days ago. More evidence is pouring in regarding extreme market inconsistencies. Accoring to data directly obtained from the NYSE Goldman Sachs has become the only force left in the game. Their program trades have accounted for 1/3 of ALL program trades in the entire market, that's 850 million shares PER DAY just for GS! Furthermore their principal trades are 81% of all of these trades. Principal trades are trades for GS and not for a client. To put things in perspective GS is trading more shares per day than all of the other top 15 brokers COMBINED!
Couple this fact with the continuation of the dissappearing market liquidity and this trend will not end anytime soon.
According to a report from Matt Rothman of Lehman, this rally has been a historic outlier. He writes "The previous rally was driven primarily by beaten down, cheap, low priced stocks of questionable quality. An equally weighted portfolio of stocks that had prices under $5 as of close on March 9th had generated a positive return of 128.5% through April 17th, outperforming Russell 1000 by almost 2.5 times (Russell 1000 return for the same period was up 52.6%). Similarly, an equally weighted portfolio of 100 stocks with the lowest Market Sentiment score as of March 9th, yielded 116.7% during the same period."
This market has been stretched like a rubber band. One could put together a pretty compelling case that GS has been intentionally raising the prices of the most shorted (and worst companies) stock since the bottom at 666. Through this process they have managed to force several large quants to deleverage (cover their short positions) which has raised these prices on the shitty stocks forcing more quants to deleverage. A continuing process. Their goal would be to seemingly drive the competition from the market and of course profit along the way.
The tape over the last 5+ weeks shows a series of fairly significant quick ups and downs. The trend only seems to last for one or two days. What this looks like to me is a repeat of a sell-off based mostly on short selling, then buying by the "buy the dips" crowd (and apparently GS). This buying forces all of the shorts to cover which forces prices higher until the bears try to pick another top.
Ultimately this process will end. Once all of the quants have deleveraged and all of the bears finish trying to pick the top and all of the "buy the dips" crowd has gone in on stocks this will top. When it does we are set up for what could be one of the worst drops in market history.
I have no idea how long this plays out. The evidence already shows distribution by the institutional players (GS?). They may be getting ready for a fall. However this could strecth on for another couple of weeks.
Couple this fact with the continuation of the dissappearing market liquidity and this trend will not end anytime soon.
According to a report from Matt Rothman of Lehman, this rally has been a historic outlier. He writes "The previous rally was driven primarily by beaten down, cheap, low priced stocks of questionable quality. An equally weighted portfolio of stocks that had prices under $5 as of close on March 9th had generated a positive return of 128.5% through April 17th, outperforming Russell 1000 by almost 2.5 times (Russell 1000 return for the same period was up 52.6%). Similarly, an equally weighted portfolio of 100 stocks with the lowest Market Sentiment score as of March 9th, yielded 116.7% during the same period."
This market has been stretched like a rubber band. One could put together a pretty compelling case that GS has been intentionally raising the prices of the most shorted (and worst companies) stock since the bottom at 666. Through this process they have managed to force several large quants to deleverage (cover their short positions) which has raised these prices on the shitty stocks forcing more quants to deleverage. A continuing process. Their goal would be to seemingly drive the competition from the market and of course profit along the way.
The tape over the last 5+ weeks shows a series of fairly significant quick ups and downs. The trend only seems to last for one or two days. What this looks like to me is a repeat of a sell-off based mostly on short selling, then buying by the "buy the dips" crowd (and apparently GS). This buying forces all of the shorts to cover which forces prices higher until the bears try to pick another top.
Ultimately this process will end. Once all of the quants have deleveraged and all of the bears finish trying to pick the top and all of the "buy the dips" crowd has gone in on stocks this will top. When it does we are set up for what could be one of the worst drops in market history.
I have no idea how long this plays out. The evidence already shows distribution by the institutional players (GS?). They may be getting ready for a fall. However this could strecth on for another couple of weeks.
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