Financial pain is lasting longer than I thought. I’m reducing my bets. I sold Merrill Lynch and Lehman and MBI and Citibank today, and I’m buying more IYT - an ETF tracking the Dow Jones Transportation average. IYT has been stunningly resilient lately in the face of high oil prices and a stagnating economy.

I also took a bet on AAPL to drop via a long put. Check out the chart. There’s a resistance zone at roughly 160, marked by the brief consolidation before January’s MacWorld selloff, by the Nov ‘07 bottom, and less strongly by the Oct ‘07 bottom / consolidation zone. Last week, AAPL bounced off of that resistance and made a nearly perfect shooting star formation on good volume at resistance. We’re snagging a bit on a minor consolidation zone from a few weeks back today, but I’m not worried. I plan to hold this put at least through earnings on the 23rd. I expect that sales of the MacBook Air will underwhelm in the thinning economy, just as its presentation at MacWorld did. Read the rest of this entry »

Bear Stearns blew up, and the Fed is bailing them out. Their stock closed down almost 50% lower on Friday (and I picked up a few shares as a highly speculative bet.) What we have here is a form of corporate welfare — profits are private, and losses are socialized.

That is neither here nor there, however. Whatever the (lack of) philosophical merits of this system, so it is, and within it we must manage. Take a look at this weekly chart of the S&P 500. Despite the high volatility and the BSC blowup, we didn’t make a lower low last week on the S&P — though, ominously, other indices such as the NASDAQ Composite and the Russell 2000 did, and bounced back. (The Russell 2k even closed slightly up for the week.) I would have expected much more selling on the news of a major bank bailout by the government. That we didn’t close on a lower low is a positive sign. Read the rest of this entry »

I’m getting sick of reading “the markets are volatile and will remain so” articles and posts, but that’s about all that can be said with any certainty about the current situation. Anyone who says otherwise is either selling something or crazy.

I’ve got slaughtered the past few days. I have a large position in financial stocks, based on my earlier calls for a bottom. Financials, as you know, are getting crushed. However, I also have large positions in gold and in Euros, which are also depressed. This is new. Previously, down days in equities were always offset by gains in gold and Euros. The past few days, however, it looks like the money is moving into Treasury bonds and oil. I have a small bond position, and I won’t touch oil since it’s insanely volatile and speculative relative to anything else. Some transportation stocks are weathering the storm nicely. Is it too late to get in? Read the rest of this entry »

AAA banking and finance interest rates are higher than they were a month ago, despite massive interest rate cuts and Bernanke’s bluntly stating his willingness to provide whatever amount of liquidity the banks want. From Bloomberg’s rates and bonds of today, February 17th:

This is not a good sign. Read the rest of this entry »

Investing in Russia seems like one of the best bets available today. The Russians are determined to rebuild their economic power, and the political will to do so has just recently congealed. Dmitry Medvedev’s selection as Vladimir Putin’s successor marks the final end of political uncertainty, and assurance of continuity in policy. A well-educated workforce, vast untapped energy and commodity reserves, and record high prices for both will amply fund the current economic restructuring. Meanwhile, Russia is slowly rebuilding its considerable international influence, setting up partners around the world to compete with the United States on its own turf, in the arena of global capitalism. Read the rest of this entry »

Confirmation bias looms like a spectre today. My forecast on the 23rd called for a market bottom, and today’s broad 3% selloff counts as a point against that hypothesis. After looking at the charts, I can find a number of reasons to stick to my guns and regard the lower prices today as a great buying opportunity. Of course, the danger is that I may be seeing what I want to be seeing.

Trading psychology dictates that I must see what is happening in the markets, not what I want to see. Naturally, I want to be right about the calls I make, like everyone else, so I must guard carefully against any tendency to see only evidence that confirms my theories. On the other hand, I also have to be careful not to go too far in the other direction and ignore valid evidence that confirms my theories simply out of an abundance of caution and overcompensation. After considering the matter, I’m going to stick with my forecast for now. I did call for lots of volatility before the overall targets were hit, and today has certainly borne that portion of the forecast out. I’m going to roll the dice and still call this a buying opportunity. Read the rest of this entry »

I bought some Argentine pesos in June while visiting as an experiment in currency speculation. Argentina’s economy was (and is) booming, with 2007 real GDP growth estimated at 8.4% by The Economist. This was very evident on the ground there, where the signs of economic vibrancy are many and obvious. Compared to the rather anemic economy of the United States, ( estimated at just 1.8% real GDP growth in 2007), I found it strange that the peso was slowly losing value to the dollar under these circumstances. Read the rest of this entry »

Technical analysis and fundamental analysis have been at war for a hundred years. Each has its zealots and adherents who disparage the other entirely and argue endlessly about which is the better way to trade the markets. Many people sit somewhere in between and use both in their trading decisions, which seems like the best bet to me.

Technical analysis consists essentially in looking for patterns in the path of volume and price over time (and in the paths of mathematical derivations thereof) to make trading decisions. Technicians have created a vast array of purported patterns and indicators for different purposes. To fundamental analysts, trained to look at factors like profitability and cash flow and book value to come up with a theoretical “real” value for a share of stock, this seems little different from tea leaf reading.

I take a middle view: I believe both technical and fundamental analysis can be useful tools. The fundamental value of a stock will dictate price movement (in the long run, and as Keynes said, “the market can stay irrational longer than you can stay solvent”), but this is not mutually exclusive with the existence of chart patterns that can uncover telling information on current buying and selling that can have predictive and tradeable value. Read the rest of this entry »

The Macbook Air underwhelmed. MacWorld disappointed this year, and Apple (AAPL) tanked bigtime. The market has been in a heady state of euphoria since the iPhone bombshell was dropped in January of 2007. Steve Jobs announced Apple’s switch to Intel processors in 2006. The market was irrationally expecting a neverending sequence of stunners, and “a thinner laptop” just didn’t cut it. What can we learn from the charts? Read the rest of this entry »

Financials and homebuilders are on fire. A week on, my forecast is holding up (but expect more volatility!):

Bank of America Corp., JPMorgan Chase & Co. and Citigroup Inc. climbed in New York Stock Exchange trading and led financial shares to their fourth advance in five days on expectations that reduced borrowing costs will boost profits. Lennar Corp. and Centex Corp. rallied, sending homebuilders’ shares to the highest level since October, as the prospect for lower interest rates overshadowed a government report showing the biggest yearly drop in new-home sales on record.

What can we expect? The markets are still very jittery. Expect volatility. Any unexpected writedown or a million other sundry unforeseeable events could well set off some broad selling, but I think the worst is over. I am (cautiously!) going to regard any selloffs as buying opportunities for more homebuilders and financials, until faced with compelling evidence to the contrary. Why am I so confident? Even during the carnage last week, even on Tuesday, these sectors went up while the rest of the market sold off. This trend shows no signs of abatement.

Other good bets here? Ben Bernanke built his career on the idea that the Fed could have prevented the Great Depression by just printing lots of money, and now is his chance to test his theory. He will almost beyond a doubt continue pumping liquidity into the money market until the equities market stabilizes on a sustained positive trajectory. Therefore, bets on LIBOR to fall more (i.e. LIBOR futures to rise) sound good to me. Read the rest of this entry »