Fooled You Friday

Did you get all bearish yet? Have you dumped all your stocks? If so, then the traders have done their jobs. You see, while they were off on vacation some of you had the nerve to buy their stocks after they “sold in May and went away.” They left the S&P at 1,260 on May 15th and that’s where they like it so, just like my Grandpa when he comes home and finds the heat on, the big boys are turning the market back down. http://stockcharts.com/gallery/?spx I like to ascribe evil macro motives to these things because it’s more fun but there is also a simple economic explanation for this action as well. Mr. Big manages a fund who’s goal is to beat the S&P. The fund, in May forecasts a downtrend and sells off some shares into the Summer doldrums (8 out of 10 Summers, yadda yadda) pocketing the 6% YTD gain. This is sort of a self fulfilling prophesy as the selling drops the S&P, so Mr. Big automatically outperforms it (nice gig). So he goes on vacation thinking when he gets back he will start buyig again but, when he gets home, he finds some jerk bought up his market – back to where he started selling it! This is not good, he is now performing flat to the S&P but, since he still has hundreds of Billions of dollas in stocks, he does something very easy – sell some again and take the 5% gains off the table. Again we have the self fulfilling prophesy and Mr. Big is again outperforming the S&P and his table at the yacht club is secure for another year! The net effect is that you annoying retail buyers have been shaken out of positions like fleas off a dog. The big guys don’t care becuase they are still half or more in the position for the long haul and they are going to “buy on the dips.” The question is, where is their comfort level? They need to get back in if they have sold more than intended, so what is the entry point? Is it the Fibonacci point A of S&P 1,290, just about the mid-point between the year’s open at 1,250 and the high of 1,325 or is it point B, the 200 (and 50) dma at 1,280? Either way I think we are close enough to these logical turn signals that I think we may be out of this sell-off by October, but that is small comfort for September 8th… Asia is bouncing off their 200 dmas without too much conviction. I like BIDU on a rebound there but we need to watch the overhead resistance of the 50 dma at $80. The BOJ did not raise rates, another boost for the dollar. Europe is poking up hopefully but is unlikely to make a real move until the US markets confirm direction. The Bank of England, which doesn’t play ball with the EU, held their rates at 4.75%. Here’s what really annoys me about Europe: Vivendi posted a 53% rise in net, Suez (SZE – utilities) is up 39%, Carrefour is up 11% (like WMT), Ahold (Stop and Shop) up 70%, InBev up 22%… This is just this week!!! Come on Europe – people are making money – wake up!!! It will be surprising if the Dow can turn up before hitting 11,200, it has too much top spin now to pull a U-turn. Likewise, the S&P will be more comfortable moving down a bit more from here, perhaps to 1,280 but a turn there will be very bullish. The NYSE may be the first to turn at either 8,200 or 8,100. Today we need to watch the S&P to see if the early bounce has any legs as the S&P must hold 8,300 for any kind of rally to take place. The Nasdaq is at a nice mid-point between the inverted 50 and 200 dma and must lead us one way or the other. Let’s also keep an eye on SOX: 440 = Good, 430 = Bad and TRANQ, which will signal the real rally by breaking 2,400 or signal a major pullback below 2,300. To get perspective on our current situation we have to get in our time machine and go way back to August 14th, when we had just gone through a big sell-off and broken below the 200 dma on the S&P and things looked very bleak. Oil had broken up to $77 2 days earlier and the doomsayers were out in full force that Monday. Only one nutty guy had a positive outlook: http://philstocks.blogspot.com/2006/08/momentum-monday.html Oil is seeking a bottom and Iran is talking to the EU this weekend (I know, a government that works on weekends, imagine that!) so I’m glad I’m out of my main oil puts. At this point we need to see if $68 provides a solid ceiling but hopefully we can get a nice potential floor test of $65 next week. $67 was my target price in the 8/14 article and I have to think the old me may have been on right on the money so I’m getting a little caustious here even though the chart looks pretty dire for oil: http://stockcharts.com/gallery/?%24wtic If you missed any oil puts and want to get in you should get a chance today as Florence looks like a storm enough to get the oil pumpers moving again but the chane of this hitting the gulf is about 10% which is only 10% less than the chance of this becoming a Cat 3 or greater storm. The whole thing may be over by mid-day if the storm begins to drift North as it is already tracking way high for a gulf storm. There’s also an OPEC meeting next week so expect idiot “analysts” to make fools of themselves trying to convince you that people are going to voluntarily not sell you a milllion barrels of oil a day for $65. Perhaps when oil was only $20 you could get people to hold off but if I go to your house and offer you $2 for every glass of water you can give me, are you going to stop because your neighbors are worried you might be saturating the market? Gold will key off the Dollar but will have a heck of a time trying to reassert itself if we go back on Fed watch. There’s always the crazy world leader factor but I think Bush is taking the weekend off (since absolutely no one wants him to campaign for them!). http://www.cbsnews.com/stories/2006/09/04/ap/politics/mainD8JTTGPG0.shtml We will have to wait and see which way we go, I think it’s a little too early for a turn up but I won’t be surprised if we get a mega rally in the next 5 sessions. I will be surprised (and back to cash) if we get a mega drop but a slowing downtrend would suit my master plan just fine. Fear of Fed will dominate this week but the minutes of the meeting clearly indicate that just 2 of 12 regional banks wanted to raise rates. Since other CBs are holding firm, it is very unlikely the Fed will raise again, just more of the Big boys shaking the tree… http://online.wsj.com/article/SB115765751940956647.html?mod=home_whats_news_us ====================================== Buying today is very risky, it’s a nice day – go swimming instead, you’re missing the whole summer! I’m only watching a few things today. You know how much these things bother me – someone needs to tell CAT and VOLV that they are in the same industry. Cat has slightly better growth prospects and we already made our money there but let’s watch both for a sign to reenter CAT Oct $70s for $1.50 or less when VOLV turns back up. http://finance.yahoo.com/q/bc?s=CAT&t=3m&l=on&z=m&q=l&c=volv CAL took a nice bounce off the 200 dma yesterday so I feel good about the Dec $30s for $1.20. I can’t believe I’m defending an oil company but Cramer said GIS is better than Exxon because they make .60 on a box of cereal and XOM only makes .10 on a gallon of gas. This is a dangerous drift by Cramer into PT Barnum logic as you really don’t have a valid comparison until Americans start buying a Billion boxes of cereal every single day. Come on Jim, don’t go hollywood at the expense of good advice! HPQ is so tempting but this scandal is out of control. I’m hoping it defys all fundamental logic and trades back down to $33ish where Cramer and I will both be doing a ‘mon back. PALM and RIMM both crack me up. PALM has a p/e of 4.5 thanks to the recent sell-off while RIMM has a p/e of 40 thanks to the recent run-up. I’m not playing either of these as the lunatics are certainly running this asylum but it sure is fun to watch! http://finance.yahoo.com/q/bc?s=PALM&t=3m&l=on&z=m&q=l&c=rimm I take it back, RIMM is a good play to defend your calls against a market drop. So as a hedge, I like the Oct $75 puts for $2.80. Going back to my article on there being a flood of rigs (which, by some great stretch of logic analysts can’t seem to grasp – may lead to a flood of oil), BHI announced their rig count rose 4% last month: http://yahoo.reuters.com/news/articlehybrid.aspx?storyID=urn:newsml:reuters.com:20060908:MTFH00967_2006-09-08_10-13-35_WEN5148&type=comktNews&rpc=44 LEN says that their 16 analysts are a little off base with their $1.81 Q3 estimate. LEN says $1.30 is the number they come up with. Only one of the 16 analysts have a sell on Lennar… Last Q3, LEN turned in a $2.06 number with a strong Q4 outlook and the stock was at $55. With the earnings down 33% and the outlook in the toilet, it will be interesting to see how low they can go. Oct $40 puts are .80. http://stockcharts.com/gallery/?len I don’t understand the business well enough to play it yet but FOXH has some really exciting stuff. Unfortunately, that doesn’t always make you rich (think Sirius, Tivo) but this is really the technology of future medicine: http://biz.yahoo.com/prnews/060908/sff021.html?.v=64 Oops, BRCM says they found a few more bad options: http://biz.yahoo.com/ap/060908/broadcom_stock_options.html?.v=1