Click image to enlarge There now exists a piggy bank in the image of con artist Bernard Madoff. It's made of faux bronze, fitting for a faux money manager. The plug at the bottom is fused shut, so money deposited in the bank is lost. That is, until you smash Bernie over the head with a sledge hammer. Hats off to Palmer Murphy, the NYC artist who created it.
We bought some SSO today, enough to bring our long positions back up to 30%. They had deteriorated to just 24% of our account given the selloff of the past few months. We don't intend to do any more buying unless the market breaks down to new lows. The fact that Citi has been operating at a profit for the past several months is great news... if it's true. It would mean that we, as taxpayers, would no longer have to bear the burden of paying Citigroup's bills to keep them alive each month. When we were, it was costing us $15B a month, $3B more per month than the cost of the war in Iraq.
If today does turn out to be the start of the next sustained rally, then you're not too late to buy. We could potentially rally another 1,100 points to Dow 8,000, which is where the 75dma currently is. We're mentioning the 75dma because the Dow seems to keep bouncing off of this line each time it rallies. A break of this resistance would be very significant in that we haven't traded above it since last June. We returned to it in September and then again in January, but haven't broken through it. It therefore is the strongest resistance level the Dow has right now, despite being an "odd" number. It coincides with what once was support for the Dow, that 8,000 level that the market struggled to stay above for 4 months before finally breaking down in February. We would certainly do some selling near the 8,000 level if it turns out to be the next stop for the market. Until then, we remain focused on buying somewhere near the bottom of any major selloff.
16 comments:
icon,
what's your thought on GDX and GLD at this level?
thebat
What is going on with LDK?
Anon, try the Yahoo financial news page on LDK. Major losses from inventory write-downs. Lousy projection for the future. Peng no longer a billionaire. Price of silicon dropping through the floor. Old technology. Tough competition. Snot says it is going to zero. Stay away from it and keep your money. I wonder if IBCNU has any left?
LDK's Yahoo message board is pitiful. Pathetic retail posters are trying to browbeat others puny retail holders into banding together to get their stock certificates and unite against the evil short empire. Conspiracy theorists everywhere putting the blame for their losses on the evil shorts. LDK's $1.25 loss per share is insignificant. LDK's poor guidance is irrelevant. It is the evil shorts. How sad.
For whatever reason, newbies to the stock market throw all of their money into one stock and hold onto it no matter what. They think that somehow by doing more research than the next guy, they'll magically come out ahead. This mentality persists no matter how large the loss becomes. There are LDK longs who are down over 90% who are buying more, and securing their purchase with even more thorough research. Even being down 98% will not be enough for them to admit that maybe they were wrong. Instead, they will raise more money and buy the shares really "cheap". Then they'll do more research. They'll convince themselves that all the research they did will pay off, and now that they have a substantial number of shares, they'll be well rewarded for their time. It isn't until the stock bounces around between $1 and $2 for 18 months that they finally realize that being down 98% while the rest of the market is taking off probably isn't a good way to make money. Next time, instead of falling in love with a stock, they'll sell when it stops going up every day, and have the experience to just walk away. During the next bear market, they will become the Snotwheels of the world, warning the newbies that all stocks eventually go to zero. We learned that in the late 80's/early 90's, and then again in 2001. Now we're learning that even the indexes eventually go to zero! Well, for everyone's sake, let's hope not.
The reason I started following LDK was that it was highly dependent on energy prices. This was a great quality to look for in a stock "on the way up". However, "on the way down" its not going to look pretty. I highly doubt LDK will miss out on any big rallies. If you look at the number of natural gas rigs out there right now, and the rate they are declining, you can see that there is going to soon come a point when it overshoots the contraction in the economy. Then either prices for energy (and LDK) shoot upwards, or we contract even more.
Bottom line, no one is going to be interested in solar panels when there are hundreds more natural gas rigs than the market currently requires, and there are whole tankers full of oil parked in ports around the world waiting for the price of energy to rise.
GDX has been performing as predicted. On wednesday it bounced off a rsi support line convergence. Today it looks like it is going to bounce off a resistance line. A sell signal will be generated if GDX has a down day today. However, GDX may have some momentum from the buy signals generated at wednesday's close. Again, yesterday's bounce was off of a convergence, which actually generated two buy signals. Therefore I am neutral on GDX at this time. I generally avoid betting against stocks that bounce off of convergences. I think I mentioned this particular convergence in my previous coverage of GDX. At any rate here it is for those who arent clear on what I'm talking about: textbook convergence
--Now we're learning that even the indexes eventually go to zero!
Then what is the point of investing? can you just short everything and check back in 10 years?
snot,
You have my respect but note one thing here before you repudiate LDK investors.
No doubt you're right that the LDK board has many newbies to the market and they put all their eggs in one basket. No doubt it was more of a gamble in that the success of LDK depends on many aggressive executions, which for now, turns out to be a major disadvantage.
However, one thing majorly different for some of the solar investors versus the snotwheels is that besides making money, there is ethical reasons behind it. Sounds stupid? Maybe it is. It would only have to be another 10, 15 years or so that the major global news and politician wondering why didn't we have more support for sustainable energy such as solar. The greed that causes the mortgage collapse is the same greed that causes the global warming and ultimately the collapse of the natural climate cycle.
Anon, on Snot saying something is going to zero, you have to have been reading this blog for many months to understand the metaphor. What he means is that a stock (or sector, or index) is declining. In your mind, tell yourself it is going to zero. That way you won't try to catch a falling knife. Don't buy back into it until it hits a bottom and makes an upward trend. It may still reverse on you in a heartbeat, but you put the odds in your favor by buying it as it comes off the bottom of the channel and is moving up toward a moving average. It is a mindset to convince yourself that the stock isn't cheap just because it is 50% less than it was 6 months ago. Buffett thought GE was cheap at $26. I thought it was cheap at $18. I had to get out quick though. At $7 and change, it probably, finally was cheap. With today's downgrade of their credit rating not being as bad as expected, GE may form an upward trend and be a buy.
Anon
I just wrote a blog entry that explains my current opinion on alternative energy.
Right now I just want to lay out my forecast for the next couple weeks. The last 3 weeks I've been saying we would rally hard off of my intraday target of 6500/650. I was too high on the DOW and too low on the SPX, but the accuracy was more than tolerable. After the DOW fell below 6500, I stopped buying BGU and switched to FAS @ 2.60 for the bigger gain. Bought many thousands of shares and have been having a blast since. FAS has now reached my target of 4.60, a 100% gain from its low. I also noticed GE is up over 50% from my buy target.
I think the rally will last till opex on March 20th. My target for IYR by March 20th is 29.73. My weekly closing price target for SPX this week is 775. At close next friday, I expect SPX to be no higher than 765. But I would not be surprised if it touches 800 during the week. When IYR hits its 50dma, I think that will be the top for at least a couple weeks. I'm looking to XLE/IYE for guidance, since it seems to be leading the other sectors.
Icon, what is your link for alt E blog?
http://finance.yahoo.com/news/House-panel-gets-FASB-pledge-apf-14620758.html
Mark to marketing rules changes coming.
Today's rally had only one catalyst... Madoff! Finally, he's behind bars where he belongs. Investor confidence can now begin it's long, tedious reparative process. This isn't to say that the market has hit a bottom yet, but at least we've got a strong support at 6,500. If it winds up being the absolute bottom, it's safe to say that Madoff's jailing was the catalyst that ended the cynicism that took the financial markets straight down for over a year.
We're still focused on the indexes, but can't help but notice some stocks we might just buy if we were forced to buy individual names...
The first is GS. Hands down the safest financial play.
Second is GE. The chart doesn't have the relative strength of our other picks, and Buffett's timing may be off, but his instincts are generally correct given enough time.
Third is MOS. Its relative strength over the past several months has been phenomenal.
AAPL is a distant fourth. The chart seems to have put in a bottom and has tested it repeatedly, but the CEO's health is still an unknown.
Icon, you bought SRS for $49 about 7 weeks ago. In a little over a month it went up to $110 (intraday). Now in less than a week it has already dropped to $61. With the effect of regression on the double inverse ETF, when do you think SRS will be a buy again?
It is tempting to look at the ultrashorts as technical indicators. Especially SKF. When I saw that SKF was making another mountain top peak, I knew that it was going to fall off a cliff very soon, because that's what it always does. So I knew FAS was going to do a moonshot. But when it comes to buying the ultrashorts, I'll never do it based solely on where they were the last time they peaked or bottomed. Once the index they are based on goes up by more than 50%, all correlation breaks down. SRS will make a new 52 week low if IYR rallies to its 50dma. My rough calculation shows SRS at 46.50 when IYR hits its 50dma. As before, I will be loading up on SRS as soon as it makes a new 52 week low, and will anticipate it falling all the way down to 44.
Dont forget theyre going to be doing distributions this month, shortly after opex. I guess that could possibly keep the rally going for another week, if enough people avoid buying proshares shorts because they dont want to get caught in the middle of distributions.
Snot, how is this for investor psychosis. A Yahoo AIG message board poster claims to have bought 5000 shares for $53.00 and held. He now claims to have bought 100K shares for 34 cents so he is averaged down to $2.15. What is it about a loss on one stock that makes some investors think that they must make up their loss on the same stock, thus the averaging down? A loss is a loss and if he sells at $2.15, after holding for a LONG time possibly, he will still have to sell the original 5000 shares at a loss. Why not bail out, do damage control, and wait for a winner?
Joe
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