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Posts Tagged ‘SKF’

Down 300 points in 10 minutes to close one day, up 700 points in 2 hours to finish the next.

Gains of 10.88% in the Dow Jones are to be expected as a good annual growth rate, not as an intraday move. Explanations include nothing particularly helpful (short covering, pricing in a FED rate cut, relief rally) given the sentiment of late.

My take on the market has been (since September 15th) to stay in cash – or a money market fund – and sit this one out. Even if you have enough time to sit in front of a computer screen and make quick trades, you can get wiped out in a single day…Look at one of my favorite market plays, SKF (shorts financials at 200%):

…Down $41.99 in a day.

After a day like today, there are very few investments which are “cheap.” The market is trading in too great a range to decipher where it could go next – technical analysts, or people who like to study movements in charts, haven’t been able to conclude anything meaningful since the TARP program was passed.

The obvious question, in the very short term, is this: can we hold most of the progress we made today, without establishing a lower low? The best means of judging this will be the Volatility index, or the VIX. It has been in a range of 60-80 for close to a month, when the highest it had reached was 37 in months prior. Should the VIX abate below 30, and the market sustain a tradeable range, then this would be the best signal for an entry point with a tight stop on losses.

*If it seems weird that I’m writing about an investment timetable, it’s because this is a market summary for the Lehigh Investment Management Group, a club I’m affiliated with…figured it might be interesting to others as well.

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August 13th:

I’ll be starting class again soon, so I’m not sure how much blogging I’ll do going forward (barring anything fun to write about).

This will be one of my last posts before school, and I think this is a good time to write what I’ve been feeling about the markets for a while.

Well, the Olympics have begun and oil is down 22% from its all time high. (The timing of my prediction was right, but my reasoning was incorrect…I guess its better to be lucky than good)

As one would expect, this was welcomed with open arms (the consumer may be saved from demand destruction, the Fed can keep rates at 2%). The rotation out of all things pertaining to commodities (oil, agriculture, metals) have provided an interesting situation: there is now nowhere left to hide, and there is nothing which is untouchable from the downward trend of the broader market. In other words, there are no bullish “momentum” stocks to park your money in, as all of those have gone into free fall at one point or another, and have since stabilized at a lower price. At the same time however, because of the fall in oil, there have been some unfounded gains in certain places (chiefly anything financial), until today!

If you notice from the chart, financials have sort of, drifted higher recently. The rally which occurred after the bottom on July 15th was sustained because of the simultaneous drop in oil…The only thing is that, some day oil will also stop falling, and will stabilize. Many say that will happen at $110/barrel. I think that is a sound prediction, but believe that it can be around $85-$95 through the winter. Winter is 4 months away though, and once oil stabilizes, the hot money has to go somewhere. More importantly, there won’t be anything fueling the rally in financial services, because they are still in horrendous shape.

Finally, the prediction….

I think the saying “markets do not repeat themselves, but they rhyme.” applies to our current situation. In case you have repressed this information (I did, until today) the last sell off in financials was sparked by none other than a series of downgrades…on Tuesday, we had another round of downgrades and cuts in earnings estimates (Goldman, JP Morgan, Morgan Stanley).

While we do not have as negative a catalyst such as rising oil prices, we do have, what I believe to be a drying pipeline for good news now that commodities have dropped big. This also means that Financials are in the spotlight because they can no longer share the blame of a bad environment with high oil prices. TO TOP IT OFF, a more severe catalyst for financial services can emerge, and that is the deterioration of banks like JP Morgan, which have been virtually unscathed…until Tuesday. If they were believed to be the fortress from this whole mess, and they come out in bad shape through 2009 (which was picked up by their press release, hence the biggest drop in 6 years) we can see a serious sell off.

Finally, by now we must know that the news of Merrill Lynch selling their CDO’s was a bad sign, not good, and John Thain might go down as one of the worst CEO’s in finance history because of it. Not only did he sell the pre-2006/2007 CDO’s – which represent the better quality basket simply because debt from that time frame is more likely to get paid back – but the good CDO’s within that tranche were undoubtedly cherry-picked by the guys who bought them. (Honestly: if you were spending billions of dollars on such a toxic investment, wouldn’t you make sure you got the best ones?)

The inevitable realization of losses in Level-3 assets/off balance sheet assets, coupled with instability amongst the bulge bracket banks, will result in another sell off, and another bottom (no one can really say if it will be worse than the last one, and I surely won’t begin to speculate)

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