Click chart to enlargeThe chart above is the chart of Emergent Biosolutions (EBS). Normally we would think nothing of a single stock with a nice chart in this market, but this one isn't acting alone. It is among a group of smallcap biotech stocks enjoying their own little bull market. Others in the space include QCOR, CBST, and OSIR. It's exciting to find a pocket of strength like this in a market where it's difficult to find even one good chart. It shows that there is light at the end of the tunnel.
We figured that if there is strength in a sector, perhaps its ETF would also have a strong chart. Unfortunately, this wasn't the case. The biotech ETF charts (BBH,FBT,IBB,PBE,XBI) do not look bullish yet. Nor do the charts of the pharmacuetical ETF's (IHE,IXJ,PJP,PPH,XPH). Nevertheless, pockets of strength like this are the first step in turning a sector around, which of course is the first step in turning the market around.
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It is our feeling that based on the amount of time the market has been bearish without respite, we are soon due for a very formidable rally. Our time frame is longer than many on this board, as we have developed incredible patience for this game. When we say that we're due for a substantial rally, we're looking at the big picture. At some point over the next several months, we're looking for a rally that takes the market over 10,000. Anyone with a retirement account and a long time frame would likely be doing the right thing by buying into the indexes (in layers) on weakness. We just don't see the market as having much more downside below 7,500.
That's not to say there isn't money to be made on the short side. A return to 7,500 before the rally begins is entirely possible. Once we reach 10,000, we fully expect the market to lose a few thousand points again. We just aren't buying Dow 5,000 considering that all of the government's bailouts and rate cuts will start taking affect shortly. Stock prices will reflect the benefits of these actions 6 months ahead.
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A note on GS's earnings: We think the risk/reward ratio on their report is such that there is more downside than upside. They're a government-supported company with inside information that the SEC turns a blind eye to. They're playing poker with a full view of everyone's cards. So, of course, they are expected to do reasonably well. The upside is therefore minimal. If they disappoint, however, the market will be very shocked.
24 comments:
Snot,
Is your DOW to 10K prediction supported by chart analysis too or is it mostly your market sentiment?
Anon123
It looks like GS is trying to keep up their end of the bargain with the Feds by attempting to avoid shocking the market with their earnings. Last weeek they announced they'd be posting their first loss as a publicly traded company, and this morning I saw something flash across the bottom of CNBC's screen that said GS just announced that one of their hedge funds lost 55% of it's value in October. Maybe if GS keeps pre-announcing their various losses in dribs and drabs like this all the bad news will already be out by the 16th.
And then GS will probably end up killing the market anyway. :)
Anon, it's based on both. We've been looking for a return to the averages for a long time now. The market only stays extremely negative or extremely positive for relatively short periods of time. It's our gut feeling that that amount of time is winding down. It spends the remainder of the time closer to the averages.
I stand still bearish after the last 2 crazy trading days.
When the state of NJ and California are about to go bankrupt i see no light at the end of the road yet. keep in mind that Califonia is the 9th largest economy in the world.
Shanghai has been up the last 2 days. Closed dec at 2001.50 Which is still below the resistance at 2050. If it doesnt break that level there is only one way but down.
http://stockcharts.com/h-sc/ui?c=$SSEC,uu[h,a]daclyyay[pb50!b200!f][vc60][iue12,26,9!lc20]
And it all depends from today's market in US. Looks like Europe turned red.
Bought more FAZ at the end of the day yesterday.
Iggy, 55% in one month?! Wow, that's incredible! Wonder if they're still paying that manager. Gary could replace him, but would require a $70M sign-on package.
hk22, chart of fxi shows an ascending triangle since the Oct low. Resistance at 28. It's also just at its 50dma now, so its next move will be extremely strong, particularly if it's a break to the downside as you suggest.
FAZ is back to where it began in early Nov, while FAS is nowhere near back to where it began. Seems that the depreciating effect of 2x ETF's are amplified quite a bit when they are 3x. Just be careful of that because if you don't just use them for very quick trades, you can get stuck in them as they both go to zero.
hk22, the odds of us having another period of time as bad for financial stocks as the first 3 weeks of Nov is slim. Citi went from $15 to $3 during that time. Had you owned FAZ during that time, you would have tripled your money, but staying in just one day too long would have brought you back to where you started, even though it only brought Citi back to $6. Sounds like the odds are stacked heavily against you with these casino instruments of wealth destruction.
3X ETFs = casino instruments of wealth destruction is right on Snot.
But watch, just how shaving blades got ridiculous so will the magnified ETFs. I mean c'mon, who needs FIVE blades? But there must be a market for them somewhere. So when the first "Schick" ETF comes out with a 5X UltraShort Financial ETF I bet there will be a market for that too.
Terrifying.
Snot,
Thanks for the post on a sector. Of the ETFs you listed, most are around a 21 P/E except for XBI which is higher at about 27. Most performed as well as the S&P or somewhat better over the last 3 months. BBH performed the best -- relatively. IBB has the highest daily volume by far, if one is attracted to that in an ETF. It makes the setting of stops easier. FBT and XBI are the lowest in volume. FBT might be the best one for trying silly-bids, as Art C. calls them on CNBC, where you sometimes get lucky on a ridiculously cheap buy at the open.
I sold some for profits yesterday and am back to 40% cash in stock account. Still 45% cash in retirement funds. If jobs number on Friday takes us down in a significant way, I'll be buying. Consider VIG, an ETF of dividend bearing stocks. Also UVG which is not devoted to the same but has value stocks, many of which are dividend bearing, and it is an ultra.
Dry bulk shippers are down over 90%. Fast Money Karen says, "Don't buy yet." I bought a tiny starter in DRYS at $3.91, though. If the BDI starts to turn up, I'll pile in. They are beaten down so badly and have such low P/E's that any upturn in the BDI could give one 100%, 200% or 300% returns in short order.
http://www.cnbc.com/id/28015843
Signed,
Anonymous
Snot
Yesterday, anon wrote that this board is looking like a bunch of day traders. Well, it does, but not by choice. Weeks of normal trading are compressed sometimes into bare hours. Also, a couple of months ago you talked about staying in the market in order to keep current, stay sharp. Thus, the 'day trading'. Believe me, I'd like nothing better that to go long, really long and let the market take care of the rest, but the question remains: How?
The market, as you say, needs a breather, a return to the averages so to speak. I do not concur. Like a sick child, it needs to throw up some more in order to feel better. What would be the reagent? What would be the catalyst? You mentioned the Fed's money taking hold, but, at best, I think that will simply slow the inevitable fall and keep us out of a depression.
Bought QID at 75.12, SKF at 132.16.
Snot,
Our current Dow-O-Matic poll is sitting at 6054. That's about 20% lower than your worst case. Comments?
You don't think the market has thrown up enough yet sbbuilder? And don't you think that the Big3 auto loans could be a catalyst? How about Obama and his new administration coming in? Reagent? How about a guaranteed second stimulus that will be coming out? More catalyst? What about world governments lowering rates heavily as they did today with more rate lowering to come? More reagent? And what about lower oil? That is catalyst in the making. Hard to believe that hasn't had more of an effect actually.
Seems like there's nothing but catalyst and reagent out there. We just need someone with a big stick and a bunson burner to stir things up and get this sucker liquid again. IMHO. We'll find out who's right and who's wrong soon enough.
sbbuilder- 6054 does not seem realistic over the next few months. What is your timeframe for that prediction?
Add some USO's shares at $36.12.
Bigboy!
You are average down! Is that the good way? I'd rather average UP. The chart looks so bearish. I think oil will hit new low. I will wait to see which way will go. Seems like it goes south.
bigboy,
you must have a lot of powders to keep adding USO
Longer term (5-10 years)I think OIL is winer but NOT now! The world will need more oil than ever when economy recover...
Hi Snot,
Can you suggest an ETF for BioTech to buy now? Thanks
Looks like 37,5 was not the bottom for USO.
Meanwhile DTO was good to me, again.
While no one knows the future there is no catalyst for the markets to go up anytime soon. All these bailouts are a disaster to the future of this country. This will lead to hyper inflation. While DOW 5K might seem a fantasy I don't see the markets doing anything for the next decade. Nasdaq is a perfect example. Nasdaq took 2 1/2 years to bottom out from its highs of May in 2000. I think we'll see a similar pattern in the DOW. NAZ is at the same levels it was 12 years ago. Financial, housing, and oil bubble will follow the tech bubble in terms of recovery. There won't be any for the next decade. New rules have been implemented that will prevent what happen. You take away the corruption you take away the profits of these institutions.
I think DOW should bottom out at 5K in another 2 years. No reason to do anything but trade this market.
I add more at $35.21.
btw I bought some dug @$34.52 in the morning.
bigboy8882008: good luck.
But why are you play this "macho" thing? The market doesn't care about you. You see that the oil is in freefall, then why are you average down? It's suicide. And it's the beginners way, too, no offense (never, never, never ever average down).
The next support for oil is at ~40 USD, it's 10% more to the downside.
If you think the price is going to recover, then it is ok to average down. I bought over 500 shares of FAZ today under $50, and averaged my basis cost down to 52 just before it exploded. I did so with full confidence, believing that it was going to go up. (Crazy as it might be.) Of course I wouldnt do that with USO, because its chart is awful and I cant find any kind of technical support for a reversal.
Of course oil could reverse at any given moment. And it just might. If you look at the chart, its about due. But it could just as easily be at $28 before it bounces.
Iconoclast421: I always trade what I see, not what I think. Oil's reversal is in the air, but right now where is it? I don't see.
Btw I talked about the light crude oil (support at 40) and not about the OIL or USO. The OIL and the USO are just ETFs, just like the DTO, DXO, SDS, FXP, FAZ and the others. Before I buy anything like that (an ETF or ETN) I always watch the source and not the ETF.
I bought some DXD when the Dow reached the 8600 level, and not because the DXD's technicals, but because the DJIA's technicals.
Sorry for my English.
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