Click chart to enlargeOne of the largest uncertainties hanging over the market is the future of the U.S. automakers.
We believe that the market will not rally substantially until this is resolved. Above is a chart of General Motors (GM). It can be had for approx $3 per share, down from over $40 per share a year ago. Even just a quick glance at this chart shows a company heading for bankruptcy. No fundamentals required to make that call. The chart of Ford (F) is no better. A share of Ford can be had for below $2 per share, and its descending triangle with support at new lows shows further bearishness.
The government may bail these companies out in some form or another. But they won't do it until it becomes an emergency. The time frame for this bailout will not be driven by GM or F's needs. Rather, it will come from Wall Street's action. Only after a sharp drop in the Dow, and perhaps when it is in position to threaten breaking its lows, the government will consider this an emergency. If these companies are allowed to fail, it will be a severe blow to the U.S. economy, one which we clearly cannot afford.
We're looking for an opportunity to shift our portfolio to either an all-long or all-short bias to get out of this sideways rut we've been in for some time. If we have a decent selloff, we'll sell FXP and EEV and start adding DDM and SSO. Overall, we still see the market moving closer to the averages rather than breaking the lows and moving further away from them. Much of this depends on how the scenario with the automakers plays out.
The other catalyst this week is Walmart's earnings due out Thursday. Rumor has it that people cannot afford to shop anywhere but McDonald's, Walmart and DollarTree. But are they even shopping at all? Walmart will answer that question for us this Thursday.
21 comments:
CNBC just flashed across the bottom of their screen that at 2PM EST the government will be making an announcement on both the Auto Makers and the GSEs.
let capitalism works! NO BAIL OUT
That announcement might do the PPT's job for them today, especially if they're waiting until there's only two hours of trading left before they make it.
Just got another slug of DXO filled at 4.49...I continue to believe that OIL is not staying under 60 for very long. What a bargain!
Bottom fished JASO. Bought too early. JASO stabalizing at 3.3. Trader-turned-into-investor now. Wish me luck!
Pullo, if you are the one who first mentioned DXO on here, thanks. That is the only thing I've made money from in the past week. I also bought some today at $4.50 after selling off everything yesterday at $5.30. Even DXO is frightening, though. Some think oil will go to $50 or $40. But if you catch the dips and rips right on DXO, you can make quick 8% trades. The Fastmoney crew has been talking about how buy and hold doesn't work right now and lots of people have turned into traders.
"Feds move to steamline help process for homeowners
The Federal Housing Finance Agency, which seized control of the two mortgage finance companies in September, scheduled a press conference for 2 p.m. EST
The new initiative will likely have tremendous importance because Fannie Mae and Freddie Mac own or guarantee about half of U.S. home loans.
To qualify, borrowers would have to be at least three months behind on their home loans, and would need to have home loans worth at least 90 percent their house's value. The interest rate or principal amount of the loan would be reduced so that borrowers would not pay more than 38 percent of their income on housing expenses, the industry official said.
The announcement comes as major banks are stepping up their efforts to curtail losses from souring mortgages. More than 4 million American homeowners with a mortgage were at least one payment behind on their loans at the end of June, and 500,000 had started the foreclosure process, according to the most recent data from the Mortgage Bankers Association."
So everybody will have to be 3 months behind their mortgage payments to get a lower interest..
End everybody will stop paying their mortgages to get a lower interest rate.
CRAZY and INSANE!
Putting out the fire down with fuel
http://finance.yahoo.com/news/Feds-move-to-steamline-help-apf-13533695.html
Anon, I've seen a few other posters on here mention DXO so I can't take all the credit, but I'm glad to hear that someone is actually making some money out there on this one. I think DXO is a total no brainer right here because the underlying commodity supply can be outright manipulated and that's built right into the "business model" and that's just the way it is and no one can do anything about it.
I heard on CNBC this morning that OPEC is considering another emergency meeting to cut back production even further, so just like I have a hard time betting against world governments ultimately propping up world markets, I also have a hard time betting against OPEC ultimately propping up the price of oil. Sooner or later they'll push it back up to $80, and my bet is that we'll see $80 before we ever see $40.
I think if a barrel oil even drops to $50 OPEC will cut production by 5M barrels a day on the spot and they'll strangle the world's oil supply until they get the price back up to where they want it.
Isn't that what you'd do if you controlled the supply of a necessary commodity that you felt was being sold too cheaply? Plus they can conserve what's left under their sand for when it really DOES hit $200 a barrel over the next five years or so.
Just my 2 cents.
GLTA out there!
Just bought some DDM at 31.9
We keep waiting for these extreme moves in which to go all long or all short and we miss them by just a few hundred Dow points. Perhaps we're at the low right now. That's how it's played out the last several times we set up to make a major change to our allocation.
Would be nice to get DDM at 30 or less, but it may not happen.
Snot,
Any idea how the market is going to react to all October economic news this Friday? I am afraid the next leg down is brewing, but I just figure out the market!
Anyone else think that DRYS has been overdone here? It's trading at $10 which gives it a P/E of 0.48. I'm used to seeing it trading at 2x what EXM is and it's barely $1 over EXM at this point. And doesn't DRYS own a ton of RIG stock?
Any thoughts would be welcome.
thoughts on oil-
right now the world has stopped using it so much even though its price has fallen by 1/2. last tank i bought was over a month ago!
i think the reason is people are fearing the economy, and have stopped buying everthing.(we'll know more as snot said when walmart reports.)
if thats the case, opec cutting back on production will only cut their own throats, as usage will fall even more with any price increases.
there is a balance where production volume makes up for lost revenues, and they have to find it. increasing production to a point now will allow them to make up for lost income.
think of it like this, they can sell one barrel for $1 billion (unlikely), or sell 1 billion barrels at $1(that works great).
since opec wants to cut production, that makes me think oil has even more to fall. it's a snowball effect, much like the housing crash is fueling itself with more and more forclosures.
only when everyone is flush with cash(years from now) can oil get away with higher pricing. basically, the arabs screwed themselves, which they well knew could happen if oil went to high. they saw in coming but didn't react to it.
8888's
(i will sign like this from now on so you know who anon is, LOL!
Lightsource, here may be something you like. Does that mean FXI is a better buy than DDM for now? http://seekingalpha.com/article/105386-comparing-valuations-in-china-and-the-u-s?source=yahoo
Luckly Sold half of my FXP position at 1 : 40. at 77.
I'm not concerned about the other half.
Snot, any opinions regarding FXY?
DRYS has strong support at 10, if it break we could see 5.60. I just bought for a bound but put stop loss...No business for shipping right now...
Friday's move depends on where we close Thursday. No doubt between Friday's report and GM hanging over the market, we need more downside. If we rally into Thursday, then Friday tanks. If we drop hard into Thursday, then we'll bet for a neutral day Friday. Either way, no big up day ahead of a weekend. If Thursday is a big up day, shorting the market into the close Thursday sets you up for a good risk/reward ratio, as even a good Friday is neutral.
DRYS looks like a great short. We wouldn't be in the least bit suprised if it goes below $5 and can no longer be shorted. The chart is pointing towards that outcome, regardless of fundamentals.
Citigroup, too, for that matter.
I must say that i'm with Lightsource in so far as holding solars through earnings. Unlike US automakers these companies are all profitable and expanding exponentially and it is hard to see how they could announce anything in earnings that could justify the 90% hiarcut they have taken recently.
A possible scenario is that company X announces that due to restrictions on financing they are going to slow down or stop thier expansion process. As a result earnings are the same as last quarter, or even less due to margin compression. Even with this disastrous scenario they will still have a trailing PE of 3 given that their price has fallen so much lately and that is value in any book.
It is hard to see any guidance bieng bad enough to justify these prices.
FNM and FRE are talking bail out. Why don't the GOV'T should subsidize all homeowners. Cut interest rate to all mortgage holders to 1%. I would happy to get that. Why keep bail out bank, car industry and all executives... By the way, I went SHORT on DRYS.
Gary is up 2.4% compared to a loss of 7.1% for the S&P thus far.
He is taking a drubbing on some of his longs, but steep declines for BCSI and GOOG have more than offset them.
Check out LPHI. Anyone brave enough to go long that chart now that it's pulled back to its 100dma?
HS in the VIX. GOing south:
http://social.stocktock.com/photo/vix-hs
Regarding oil...
"Demand is poor and should get worse as the recession deepens."
http://www.bloomberg.com/apps/news?pid=20601087&sid=aiiNR7Xs6Osc&refer=home
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