SPX Relative Strength index, Chaikin Money Flow At October 2006 Levels (8/09)

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Here is a closer look at technicals on the $SPX continued from the ETFs Above 70 RSI post. The Relative Strength Index (RSI) and Chaikin Money Flow oscillator are hitting highs not seen since October 2006 on the S&P. The CMF oscillator measures the strength of the accumulation/distribution line. For a better explanation visit Stockcharts.com Chart School: CMF.

From the chart below you can see that once the head and shoulders breakdown failed, traders and investors rushed into the S&P 500. The RSI, CMF and volume all made strong moves..

SPX (S&P 500) 3 Year Chart (Stockcharts.com)

Nasdaq Volume Highest Since Oct 2008 ($COMPQ) (June 23, 2009)


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There are a few ETFs trading above 70 on the RSI (relative strength index). ETFs I included below are SPY (S&P 500 SPDRs), QQQQ (Nasdaq 100 Trust), RUT (Russell 2000 Index), DIA (Dow Diamonds Fund ETF), HYG (iShares iBoxx High Yield Corporate Bond) XLF (Financial Select Sector SPDR), KRE (SPDR KBW Regional Banking), IYR (iShares Dow Jones US Real Estate) and XHB (SPDR S&P Homebuilders).

Relative strength could overshoot and/or prices could move higher while strength declines, that would be the negative divergence to look out for. The RSI should also dip below 70 for confirmation. For more information on the RSI (relative strength index) Stockcharts.com and Investopedia have information. Here are chart snapshots you can find at Stockcharts.com. Also watch that 38.2% Fibonacci retracement level on the $SPX at 1,014.

XHB Dec Call Option Up 30 Percent In Eleven Days, RSI Alert

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The $XHB DEC 16 Call was active again today with over 30,000 contracts traded. If you remember my post on July 27 I wrote that 42,000 calls traded at the DEC $16 strike. To be exact 39,864 XHB Dec 16 Calls traded at 0.575. OptionMonster mentioned that it could have been a "ratio trade".

On August 3, 30,000 contracts hit the bid at 0.75 with 85,243 open (ht crimson mind). If a hedge fund bought 30,000 contracts at 0.575 and flipped it at 0.75 eleven days later that is a 30% profit, or $525,000. This is assuming the trade was solely speculative based on the price and volume. It could have been new money or part of a spread.

Denninger Looks Back At 2001 Bear Market Rally, Inventory Drawdown (CNBC)

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On July 31, Karl Denninger (market-ticker.org) was featured on Dennis Kneale's show on CNBC. He first discussed the Q2 GDP number. He then talked about the 2001 bear market rally where hope led to 30% losses from the peak. The 2001 bear market rally was fueled by an unexpected drawdown in business inventories. The most recent GDP report showed a record decline in inventories (economist reactions).. Will we see a 2002 redux? I provided the change in private inventories chart below from the St. Louis Fed. Look at the massive decline. Denninger and others believe this will lead to higher Q3 GDP. It will be interesting to see how the supply/demand equation plays out and if the replenishment overshoots.

Pimcos El-Erian: July Stock Rally Sugar High Built On Assumptions, Sees 2% GDP

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When the bond guys start making calls on equities, something has to give here. Pimco's Mohamed El-Erian, who manages $750 billion in bonds with Bill Gross, believes the July stock market rally was built on assumptions and on a sugar high. The Nasdaq is up 57% from the March lows and continued to rise with the better than expected Q2 GDP number.
"So as investment guys we look at the rally in equities, especially what happened in July, and you get a feeling that the equity market is now on a sugar high. Assumptions are being made, assumptions are being made on things like.. corporate profitability can continue to be driven just by cost cutting, that's not true you need revenue growth. Assumptions are being made that the stimulus is going to have a permanent affect, that's not true just look at what happened in China today. The Chinese equity market was down 5% on talk that some of the stimulus may be withdrawn. And finally an assumption is being made that the stabilization of housing is sufficient to get this economy going again. It's not sufficient, it's necessary but it's not sufficient. So our feeling is that the July part of the rally was a bit of a sugar high"

Skyworks (SWKS): Smartphone Growth, Aug Call Option Up 740% Since Feb

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SWKS is up 140% since we covered it in early February and currently trading at $12/share. Skyworks builds wireless semiconductor solutions (power amplifiers, front end modules, RF subsystems, diodes) for devices across different markets (smart phones, handsets, infrastructure, wimax, rfid, automotive, medical etc. skyworksinc.com). They continue to capitalize on the high-end smart phone trend with Samsung, Sony Ericsson, Motorola and LG all 10% customers (Nokia in the high single digits)-Q3 call.

Revisiting Arbinet Corp, Broke Above $2.0 (Small Cap $ARBX)

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Sometimes DV looks at illiquid small cap stocks and analyzes price valuation comparables and historicals. More often during times of growth and small cap buyouts (2005) with ThinkOrSwim Group the lonely exception (analysis pre-2008 TD Ameritrade buyout). Full disclosure I do not own ARBX. I've been watching this stock tank since the IPO. I'm revisiting Arbinet Corp after this post on April 3. Arbinet is a global telecom minutes exchange and call router. From their company overview:
"Arbinet is a leading provider of innovative voice and IP solutions empowering communications companies to create the most efficient and valuable global interconnections. Arbinet manages business relationships, backoffice operations and call routing for Members who route through Arbinet approximately 2% of the world’s international voice traffic to more than 1,300 destinations worldwide." Arbinet.com.

Recession Is Over According To Newsweek, Obama Responds

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The cover of Newsweek.... Get your party hats on. Barack Obama responded to this Newsweek article during a speech in Raleigh, North Carolina (video below).

"The Great Recession, which rolled over our financial lives like one of P.J. Keating's giant pavers, is most likely over. Home sales, while still far below the levels of a year ago, have risen for three straight months—a first since 2004. The stock market has rallied 44 percent since March, thanks to renewed optimism and improving earnings from big companies like Goldman Sachs and Apple. In June, seven of the 10 indicators in the Conference Board Leading Economic Index pointed upward, including manufacturing hours worked and unemployment claims...... Read full article"

SPX Testing 1000 and 38.2% Fibonacci Retracement 1014, QQQQ Eyeing 50%

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SPX is eyeing the magical 1,000 level. Nothing is stopping this market. This morning it opened at 975 and rallied quickly to 996.

Looking at the $SPX (S&P 500) 3 year chart w/ annotations it is currently testing the 1,000 level which was hit during the Oct, 2008 bear market rally. An important level that might get trading bots hyperventilating is the 1,014 38.2% Fibonacci retracement level measured from the October, 2007 high 1,576.09 and the March, 2009 low 666.79. However, above 1,000 there is ZERO overhead resistance which could pave the way for a 1,121 50% retracement test. We'll see folks. Eventually we'll have to test that long term downtrend line which hits today at 1,200 but it could come months from now and at lower levels. SPX is up about 50% from the March lows. The bears are waiting for a downside catalyst which is yet to appear.

Fund Initiates Large $SPY Ratio Put Spread Expiring In December (1x2)

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On July 23, a total of 720,000 $SPY AUG 80-92 and DEC 82-95 PUT contracts traded on ISE which, according to sources below, appeared to be a 1x2 ratio put back-spread rolled from August to December as a way to hedge long exposure, cash neutral. This was one of the "largest trades ever conducted on the options market" (WSJ).

More color on that gigantic SPY put trade on Thursday (HamzeiAnalytics)
"It was a 120K by 240K put backspread rolled from August to December, executed on behalf a major US-based hedge fund; 120k of Aug 92 puts were traded up to Dec 95 puts and 240K of Aug 80 puts were traded up to Dec 82 puts; the transaction was virtually fresh cash-neutral for the fund."

Quoted from Reuters: S&P 500 ETF draws big bearish play as losses eyed:
"This trade is bearish and has a large area under which it would remain profitable to the downside," said Joe Kinahan, chief derivatives strategist at online brokerage thinkorswim Group. "This institutional investor is definitely looking for a pullback in the S&P 500 between now and December expiration."

Rather than an outright bearish bet, this appears to be a hedge on a long stock position in the Spiders, Schwartz said." (Reuters, July 23)

Here is when the AUG Puts were originated. Hopefully it was just a hedge against a large SPY position ($SPY rallied 11.3% since June 15).
"At least one option trader appears to be on the defensive in an exchange-traded fund that tracks the performance of the Standard & Poor's 500 index .SPX on fears the benchmark could suffer extended losses this summer."

"The Aug $92 and $80 puts have jumped to the top of the most actives list in morning trade as an investor apparently bought the $80-$92 (2X1) put ratio spread 120,000 times for about $1.75 premium on the International Securities Exchange, said WhatsTrading.com option strategist Frederic Ruffy. Both legs look like opening trades, he added." (Reuters, June 15)

Additional Information on the trade:
Other Plunge Protection Team: 122,017 December SPY $95 Puts (Zero Hedge)
S&P 500 ETF draws big bearish play as losses eyed
Huge Deal Captivates Traders (WSJ)
Massive Trade Printed on the ISE in options on the SP500 ETF (WhatsTrading)
Don't Get Lulled by the Calm (Barron's)
Beware of the Options Boogie Man (Barron's)

Ron Insana Reporting Crash of 1987 Live at CBOE, Old School FNN Videos

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Here are more old school teletext videos while I'm on Youtube. Below is Ron Insana of the Financial News Network (FNN) reporting the 1987 stock market crash live at the CBOE. Another classic video.

Next is an eight minute FNN promo from 1990 featuring Jim Rogers and the last FNN segment before they were bought out by CNBC. They show the evolution of the tape and feature CNBC commentators (Bill Griffeth, Insana and Sue McMahon).

More old school videos:
Paul Tudor Jones 1987 PBS Film "Trader: The Documentary"
Jim Cramer "Betting the Market" PBS Frontline '97
Revisiting the 1987 Stock Market Crash!! (NBR, FNN Videos)

Paul Tudor Jones 1987 PBS Film "Trader: The Documentary"

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In 1987 PBS did a film on Paul Tudor Jones called "Trader: The Documentary". His firm saw statistical correlations between the 1920s and 1980s which enabled them to predict and short the crash of 1987 (watch part 2). Also check out the 1997 PBS documentary "Betting the Market" featuring Jim Cramer and Revisiting the 1987 Stock Market Crash (NBR, FNN Videos).

**They took these videos off Youtube, however duplicates popped up at http://www.youtube.com/user/traderdocumentary. Hopefully they stay.

$XHB Sep and Dec Call Options Active, New Home Sales Data Monday

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XHB (S&P Housing ETF) is setting up for New Homes Sales data on Monday (Market expects 352K) and the S&P/Case-Shiller Home Price Index (Market expects -17.8%). There was huge call volume on XHB on Friday. 20,000 $XHB SEP $14 calls traded at 0.75 with 18,284 open and 62,500 $XHB DEC $16 calls traded with 4,721 open. The DEC calls traded 42,500 contracts at 0.55 and 20,000 at 0.65. Here are 1 min charts via OptionsXpress.

**This just came out of OptionMonster.com: Heavy trading in homebuilders ETF

XHB SEP $15 CALL (Courtesy of OptionsXpress)

XHB DEC $16 Call (Courtesy of OptionsXpress)

The actual chart of $XHB looks interesting. It broke out of a downtrend, formed a potential inverted head and shoulders pattern, gathered relative strength (close to overbought) and might be diverging with the MACD (broke above zero). Also volume rushed into XHB on the upside. XHB still has the ultimate $14 resistance level to violate. XHB closed at $13.56. So were the calls speculating a break above $14, or were they leaning on resistance? I'll be watching those 42,000 Dec 16 calls (XXJLP.X) that exchanged hands at 0.55-0.57. New Home Sales come out tomorrow at 10:00am. Tonight the S&P E-Mini future is up 0.33%, Dow up 0.34%, Nasdaq up 0.41%, USD Index down 0.44% and Oil is up 1.35% to $69

NAHB Builder Confidence Index Highest Since September 2008 (17, Chart)

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I engineered a chart with the most recent Housing Market Index and Traffic of Prospective Buyers data. The data was released on July 16, 2009. In July the National Association of Home Builders/Wells Fargo Housing Market Index (HMI) or Builder Confidence Index was up 2 points to 17 and the ToPB Index was up 1 point to 14. We are testing levels not seen since September 2008 and both downtrends have been violated. We'll see if we retest the lows. Until then the trend is your friend.

NAHB/Wells Fargo Housing Market Index (NAHB.org Data)

Dow Chart Dating Back to 1929 Market Crash, 1932 Market Bottom

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I didn't realize you could chart out the Dow Jones Industrial Avg on Yahoo Finance dating back to the 1929 stock market crash and great depression. The S&P 500 chart only goes back to the 1950s. I provided the long term linear and logarithmic chart with trend line. I'm wondering if the long term trend line on the log chart has any significance due to the speed of innovation and information recognition. However, if stocks and indexes have to revert back to their mean or long term trend could you say the Dow has more depletion ahead? I'm wondering what you think. Or the other possibility, could we move sideways for the next 15 years to hit this trend? If you look at the trend line from 1929 the Dow rallied hard from 1945 to 1965 and then moved sideways until 1983 (the bottom that hits the long term trend today). From 1983 to 2007 the Dow rallied 11 fold (when Max Keiser was hating on yuppies lol). The chart at the bottom shows the Dow bottoming out in 1932 after the crash. Also, were we already in a recession before the 1929 crash/great depression?

Monthly TEU Statistics, Cargo Volume + Port of Long Beach

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In addition to the Port of LA, the Port of Long Beach provides valuable cargo data. You can find the most recent month, YTD annual container trade totals, an archive of monthly totals since 1995, in terms of TEUs for import export and empty containers. They also provide a five-year comparison of cargo volume, value and container units or TEUs. Also they provide a "report on year-to-date tonnage figures, with statistics on inbound cargo, outbound cargo, containers, general cargo, petroleum/liquid bulk and dry bulk".

Website link:

Posted by newsbysector.blogspot.com.

SpaceX Falcon - Razaksat Launch Video (July 13)

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Elon Musk's SpaceX passes the test. Awesome.

Quoted from Youtube bio and Spacex.com.
Musk stated, "We nailed the orbit to well within target parameters...pretty much a bullseye. Satellite has separated and is communicating with (the) ground." This launch marked the 5th flight of the Falcon 1. Liftoff from Omelek Island, Kwajalein Atoll occured at 8:35 P.M. PDT.

Bernanke Video: State of the Economy and Monetary Policy (July 22)

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Here is the full Bernanke testimony video and text before the Senate Committee from CSPAN.org.

"Federal Reserve Chair Ben Bernanke testified in a hearing on the Humphrey-Hawkins Semiannual Monetary Policy Report, current economic conditions, and the outlook for the financial sector and the broader economy. Several members voiced concerns about the commercial real estate market, and expressed concern that troubles in that market could threaten any recovery. Additionally, lawmakers pressed Mr. Bernanke for more solutions to tight credit markets and continued foreclosures." CSPAN

Treasury ETFs TLT, TLH Setting Up For $200 Billion Auction

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The Treasury is set to auction off $235 Billion worth of Treasuries (70 day cash management bills to 7-Year notes) next week. Karl Denninger at the Market Ticker provides more info on the auction schedule. This is a big debt issuance.
"NEW YORK, July 23 (Reuters) - The U.S. government is set to sell record amounts of long-dated Treasury securities next week in an effort to raise billions to fund its economic stimulus package and industry bailouts." (Reuters)

Today 9,000 $TLT (iShares 20+ Treasury ETF) December $90 out-of-the-money puts traded at $4.50 with 82 contracts open . $TLT closed at $91.01 around $90 support. Including the premium, these contracts would net profit if exercised below $85.50 before December 18, 2009 if the trade was bought-to-open.

TLT 3 Year Chart(Stockcharts.com)
TLT DEC 90 PUT (Yahoo Finance)

David Rosenberg Sees 2002 Redux, Not Fazed By SPY Breakout

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$SPY breakouts don't faze David Rosenberg... He's still bearish. The Chief Economist and Strategist at Gluskin Sheff & Associates was on Bloomberg Radio today (July 23) - Bloomberg.com Audio Link, Windows Media Player.
Tom Keene: "David Rosenberg you say it is a redux of 2002, what do you mean by that, what is a redux of 2002?"

Rosenberg: "Well what I was saying was that you know today we talk about the green shoots and back then we were talking about V-shaped recoveries. Essentially what I was talking about Tom was that the stock market on September 24, 2001 hit what everybody believed at the time was going to be the low for the cycle. 955 on the S&P 500 that was universally believed to be THE low and we didn't bail out banks at that point but we were bailing out airlines, tremendous fiscal monetary stimulus and people were building in this view that we were going to have post 9/11 reconstruction, gobs of fiscal stimulus, the FED had cut rates dramatically and of course the fabled inventory rebuild which we saw and it took the ISM above 50 into the opening months of 2002 and it was all good. The Nasdaq rallied about 40%, all the major averages were surging, bonds were getting killed and the primary view was that we were going to get a really nice post recession recovery and the problem of course is that in an asset deflation cycle which that was, it wasn't easy street it took about a year and a half before we got a durable sustainable economic recovery. This time around it wasn't just asset deflation times three, it was coupled with a credit collapse and here we have this universally held view that the March lows are going to hold. Everybody believes that and maybe they will but I'm a bit of a Maverick contrarian at heart. Everybody believes those March lows are going to hold and everybody is talking about the green shoots and the onset of the economic recovery and of course we're probably going to see a positive third quarter GDP number because of the rebuilding of inventories in the auto sector and everybody is extrapolating that into the future as they did in the opening months of 2002."

"...We actually didn't put in the conclusive low in the stock market until 2003 which was a year after the recession ended.." (Listen to full 17:24 audio)

Other David Rosenberg interviews:
Rosenberg: Secular Bear Market at Halfway Point (CNBC Video) (July 7, 2009)
$SPY Testing May 2008 Downtrend, Technical Views From Strategists (June 9, 2009)

Market Bottom Chart Comparisons:
1973-75 Recession History, Chart, 2009 Comparison? (June 6)
Charts Comparing 1974, 1982, 2002 Market Bottoms To Today, 80s Recovery (June 7)

*Good find Pragmatic Capitalist.

VIX Futures Trading at Premium to Spot, Implied Volatility at Premium to Historical

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Even though VIX (CBOE Volatility Index) futures are being pulled down during this market rally, VIX futures going out until October are trading at a steep premium to spot and VIX implied volatility is up significantly. An article at OptionMonster.com says this is a rare situation. I put together 2 charts with the VIX Futures Curve (on 7/20/09 and 7/22/09) using CBOE data. You can see the nice premium gap. It will be interesting to see how this gap fills and how the options play out.

S&P Looks In The Mirror And Sees The U.S Dollar

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Look at the tight inverse relationship between the U.S Dollar and the S&P. Watch both prices at these critical levels.

US Dollar vs. S&P 500 (Stockcharts.com)

SPY/UUP Ratio to SPY + Jim Rogers on Dow 30,000 (Video) (June 16)
Gold-USD-S&P Charts. Reflation, Stag or Deflation Correction? (May 24)

Gasparino Disses Zero Hedge, CNBC Hates On Bloggers

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Source: TraderTim on Flickr
The financial blog wars continue... With the $VIX close to 1 year lows it's hard to find action these days, unless you're watching implied volatility on financial journalism. Today Charlie Gasparino dissed
Zero Hedge calling it "Zero Intelligence". This is after Dennis Kneale had some words about Zero Hedge and The Fly (links below). Tyler at Zero Hedge came out with this response today (Charlie Lets Zero Intelligence Have It) and also provided a CNBC vs. Zero Hedge Google search chart comparison lol. Don't hate the player, hate the game CNBC! By the way I'm deep in the money on my financial media $VIX OTM calls purchase.

Denninger Featured On CNBC, Kneale Disses The Fly (July 10, 2009)
Kneale of CNBC Takes On Financial Bloggers! (June 30, 2009)

Jeff Jarvis, Future of Ads and Marketing (Videos)

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Brands will soon be valued on their google juice! Jeff Jarvis on the future of ads on FORA.tv.

"Jeff Jarvis: Future of Media and the Prospects for Brands Columbia Business School".

Port of Los Angeles TEU (Cargo) Statistics

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Go to the Port of Los Angeles website for container statistics. Go to: TEU Statistics (Container Counts) (loaded inbound, outbound, total loaded, total empty), Historical TEU Statistics (by calendar year; includes monthly data), Tonnage statistics (general bulk, liquid bulk, dry bulk). Go to this statistics page for monthly data. The Los Angeles Board of Harbor Commissioners have webcasts and special meeting videos (special meeting 7/2/09 video) Overall great information for the health of our economy.

Calculated Risk also analyzes this March, Junedata. Also the Port of Long Beach which I'll touch on later.

Posted by newsbysector.blogspot.com.

Goldman Sees $52 Earnings, 1,060 S&P Target

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GOLDMAN SEES S&P 500 2009 EPS $52, 2010 EPS $75, 2010 S&P 500 TARGET 1,060

Goldman sees S&P 500 rallying 13% by year's end (LA Times)
Goldman Sachs Puppet Master? (Motley Fool)
Goldman Ups S&P 500 Target for End-Year (CNBC Stock Blog)
Bullish Calls Drive Markets Higher (SeekingAlpha)
S&P 500 to Rally Most Since 1982, Goldman Sachs Says (Bloomberg)

Posted by newsbysector.blogspot.com.

SPY Inverse Head and Shoulders Breakout Chart Analysis (S&P ETF)

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I was watching $SPY intraday action today and saw that the 5 min chart looked exactly like the 2 year weekly chart. In the morning $SPY broke down through a descending triangle and formed an inverse head and shoulders pattern, breached neckline resistance and broke out to the upside into the close. Look how it compares to the 2 year chart, the set up is very similar. So you can see what would happen if the S&P 500 or $SPY broke through inverse h&s neckline resistance with conviction. $SPY is right at downtrend resistance, testing June resistance and the golden cross is in still in effect, in other words stay strapped w/ protection.

Inside Look at Lehman's Colossal Failure (Lawrence McDonald on CNBC)

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Lawrence McDonald, who traded distressed debt at Lehman Brothers from 2004-2008, wrote a book called "A Colossal Failure of Common Sense" which gives a behind the scenes look at Lehman leading up to it's collapse. He promoted it on CNBC below.

Roubini: March Lows Will Stick, Chance of Correction (CNBC - July 20)

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Roubini was on CNBC yesterday (July 20). He thinks the recession will be over by December, recovery will be weak with a 1% growth rate, unemployment will peak next year at 11% and the March lows will stick. However Roubini expects downside earnings surprises which could correct the market (and build that doggone inverse head and shoulders pattern). In early March Roubini thought the S&P would hit 600 (CBOE Conference Speech).

GLD Symmetrical Triangle, GDX, $USD, Australian Dollar/Gold ($XAD/GOLD)

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Gold is still trying to figure out where it wants to go.... $GLD formed a near term symmetrical triangle or inflection point. It all depends on the US Dollar and inflation expectations going forward. There are still many analysts in the deflation or disinflation camp (links: Roubini, Shilling, Tom Lee of JP Morgan). You can see the inverse relationship between the USD and GOLD and the direct relationship between $XAD (Australian Dollar) and GOLD.

SPY P&F Chart Pierced 94 Resistance, Sideways Channel Since May

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Last week SPY pierced through 94 resistance on the P&F chart (previous post shows the resistance test). It printed an X at 94 since it hit an intra-day high above $94 on Friday. For more information on point & figure charts go to stockcharts.com. The chart labeled the move on July 16 as a "Double Top Breakout" with a preliminary price objective of 109. In the very short term it could pave the way for a June 96 retest however I'd be ready to flip SPY if it rolls over and short/buy puts to position a h&s neckline retest. Since early May SPY has traded in a sideways channel and at some point a new trend MUST begin. The slow death of the VIX (volatility index) imo anticipated this 3 month trading range.

More $XLP (Consumer Staples) Call Activity (14000 XLP SEP 25 CALL)

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Continued from my previous post: Consumer Staples ETF $XLP Calls Active, 40000 Jan 2010 $24 Calls Traded, XLP saw more call activity last Friday (JUL expiration). A large block dropped on the SEP XLP CALL. It closed w/ 14,503 contracts traded/1848 open. Looking closer via ISE, 10,000 contracts were traded at 10:11am on the ISE at 0.25. The ISEE value (ISE Customer Opening Long Calls/ISE Customer Opening Long Puts)*100 = 1.03M up 1.02M or 13.97k%. Calls/Puts = 10.32k/1 and Average Calls/Puts = 2.55k/2.09k.

Karl Denninger is Short the S&P!

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Karl Denninger who runs The Market Ticker blog was featured on Kudlow & Company on CNBC (moving on up from Dennis Kneale's show). Karl was not optimistic on the economy and disclosed that he shorted the market on Friday.
"Well my basic view point is that when it comes down to whether or not you're going to have profits you have to look at the income statement first and when you look at revenues what you see isn't bullish at all. Harley Davidson for example is 30% down on shipments, we have the automakers all going from 14 million units to about 10 million units a year that's about a 30% decrease, we had REVpar for Marriott down about 19%, we had GE's revenue down 17-18% and the same story keeps getting told. We're in the high teens, low twenties, thirty percent decrease on revenue. What you're seeing is profits from operating efficiency and how do you get operating efficiency? You offshore and you fire people. That's great for the bottom line but it isn't any good for America on (as a) whole."

"I think it's time to get very short. This rally is absolutely unsustainable and unsupportable on the fundamentals."

"GE is too late to sell they are already in the toilet. As far as being short the S&P yes I shorted it hard at the close today and the reason is this, you have a credit recession that was caused by too much debt being throughout the economy in banks, in consumers, in businesses everywhere. Consumers have managed to take $60 billion out of a $1 trillion between secured and unsecured debt not including mortgages off their balance sheet since the peak which was just a few months ago. That's less than 6% and you're telling me that's enough deleveraging for the consumer. Not a chance Larry."

3M-10Y Treasury Yield Spread at 3.45, Yield Curve is Steep and Normal

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Take a look at the 3M-10Y Treasury yield curve spread. The Fed lowered the Fed Funds rate to 0-0.25% to get money flowing again. This free money on the short end combined with Treasury bond volatility is responsible for the steep curve which benefits net interest margin on the bank income statement.

Yield Curve (Bloomberg.com)

Consumer Staples ETF $XLP Calls Active, 40000 Jan 2010 $24 Calls Traded

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The Consumer Staples ETF ($XLP) saw bullish call activity today. Over 40,000 January 2010 $24 calls traded today between 1.00-1.05. According to SeekingAlpha and CrimsonMind, 20,000 were bought this morning at 1.02. So this fund paid $2,040,000 for the right to own 2,000,000 shares of XLP at 24 which would profit above $25.02 or if call volatility spikes.

Taking a look at the XLP stock chart, all of this activity could be setting up for a break above $24 resistance. XLP closed at 23.91 today and rallied out of a symmetrical triangle/downtrend. Call volume also picked up in the AUG 24 and 25 strike (6,550 between 24-25) and December saw 3,900 $26 calls trade. Click on the charts for a better view. The MACD and RSI are relatively healthy and XLP is trading above the 50 and 200d moving averages. I'll be watching the $24 resistance level during the next 6 months.

Gary Shilling Still Bearish, Expects Deflationary Pressures

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FYI these embeddable videos are from Yahoo's Tech Ticker:

The Market's Going to Crash: Here's What to Buy

Obama to Change His Tune: Get Ready For A Second Stimulus, Shilling Says
Market to Hit New Lows While We Wait for Next Year's Economic Recovery

Gary Shilling still believes we are in for deflationary pressures and 600 on the S&P by year end. He was spot on predicting the housing led recession. You have to respect his stance here with the market reversing and breaking through both shoulder resistance levels within the head and shoulders set up (1, 2). We'll see if this was just a crowded trade squeeze.

$SPY Technicals, Point & Figure Chart and Resistance Levels + Targets

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This week has been a great week for $SPY with Goldman Sachs and Intel coming out with decent earnings. $SPY rallied off of it's 200 day moving average and broke through the 50 day today. The head and shoulders trade was very crowded imho, however $SPY still needs to break above 96 resistance, or the head, to prove itself. The P&F chart has a target of 80 however if $SPY breaks above 94 it would print a new X and be bullish for the ETF. If $SPY breaks above 96 it would be pricing in some potent green shoots and allow a clear path to $100. We'll see how the market reacts to the CIT news tomorrow. The e-mini S&P is down 0.58% tonight. QQQQ (tech) has been dominating the tape technically and the Qs could lead us out of this great recession (w/ jobs replaced by robots).

Roubini and Shiller Featured on Bloomberg Radio (July 9, 2009)

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Professors Roubini and Shiller were featured on Bloomberg Radio on July 9, 2009. In 53 minutes they covered the economy, housing, unemployment rate, fiscal consolidation, consumer spending, stimulus and their outlook.

CIT Group Implied Volatility 250%, 2010 Bond Yields 82%, CDS 34%, Will FDIC Subsidize Default Risk?

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CIT Group is another victim of the credit crisis. They are a middle market lender to over a million small businesses and have $75 billion in assets with $10-$12 billion in debt due through 2010. Implied volatility is at 250%, bonds due February 2010 yield 82% and CIT CDS tightened this morning to 34% from 40% upfront. S&P says 1,881 synthetic CDOs are exposed to CIT Group (Reuters). All eyes are on the FDIC to save this company. If CIT gets subsidized by the FDIC implied volatility could sell off, CDS spreads tighten and bonds rally. Or this will print a big fat zero. Another interesting article states that CIT Group borrowers could survive without the company (Bloomberg). CIT would be the 4th largest bankruptcy in US history. Here is a chart of CIT's implied volatility, 2/2010 CIT bond and stock. On another note, from a glance at CNBC it looks like the porn industry needs a bailout. We live in interesting times. $DJI is up 202 and $SPX is up 22 this morning on Goldman/Intel earnings. Afternoon update: CIT Trading Halted as Lender Awaits Word on Possible U.S. Aid (Bloomberg).

Barney Frank On Home Ownership 2005 vs. 2009 (Daily Show)

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Just to clear up what Jon Stewart was talking about when he quoted Barney Frank on his show regarding home ownership. You can argue the meaning of his language. Frank said he was for affordable rental housing and regulating Greenspan on sub-prime mortgages. In 2005 Barney's thoughts on the housing bubble were spot on.. for 6-9 months.

Barney Frank June 27, 2005 - House Floor
"We have, I think, an excessive degree of concern right now about home ownership and it's role in the economy. Obviously speculation is never a good thing. But those who argue that housing prices are now at the point of a bubble seem to me to be missing a very important point. Unlike previous examples we have had where substantial excessive inflation of prices later caused some problems. We are talking here about an entity, home ownership, homes, where there is not the degree of leverage that we have seen elsewhere. This is not the dot com situation. We had problems with people having invested in business plans for which there was no reality, with people building fiber optic cable for which there was no need. Homes that are occupied may see an ebb and flow in the price at a certain percentage level but you're not going to see a collapse that you see when people talk about a bubble. So those of us on our committee in particular will continue to push toward home ownership."

Barney Frank's reply to his quotes on the Daily Show July 13, 2009:
".... But not for low income people. Home ownership for people that could afford it"

Commercial Real Estate Needs CPR, Systemic Risk? (Joint Economic Committee)

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It shouldn't be a surprise that commercial real estate and CRE debt markets continue to de-lever and re-price during this recession. Toxic commercial real estate was levered up just like the housing market and the "other shoe" is falling as we speak as unemployment increases, cash flows dwindle, Rent/FFO declines, vacancies and delinquencies increase and properties underwater become hard to refinance. Banks exposed to this toxic CRE debt will see their capital position deteriorate further. This is why the Government (essentially the taxpayer) is trying to backstop bank stress and jump start the CMBS (CRE debt securities) market.

I've been watching this market for 2 years now and this cash crunch will MURDER sub-prime CRE debt originated at 100% LTV (loan-to-value) at the height of the CRE bubble. On a positive note Big REITs recently raised equity to pay down debt (Simon Properties, Vornado, Kimco, Acadia, Kite Realty). The commercial real estate market is still distressed and might need a TALF/PPIP backstop if realized CRE deflation poses a systemic threat. Of course that would mean rigging the market of natural price discovery.

The Joint Economic Committee held a hearing (Webcast: Commercial Real Estate: Do Rising Defaults Pose Systemic Threat?. Here are quotes from the hearing. Visit link above or click the photo to be redirected to the hearing.

Denninger Featured On CNBC, Kneale Disses The Fly

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This feud kind of reminds me of the East vs. West Coast rap rivalry during the mid 90s. Now it is CNBC's Dennis Kneale vs. Financial Bloggers and Dennis keeps putting fuel on the fire. Is CNBC trying to start a show that features financial bloggers? Karl Denninger who runs The Market Ticker blog was featured on Kneale's show for a few minutes based around his recent blog post. Karl made a longer reply to Kneale on YouTube. Dennis then dissed The Fly (second video below). Financial journalism implied volatility is catching a bid and there's activity in the out-of-the-money calls. So who is Suge Knight, GE

RRE's James Robinson on StockTwits Traction -CNBC Video

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Venture Capitalist James Robinson (@JDrive) of RRE Ventures was on CNBC discussing tech at the Sun Valley conference. He's putting new money to work. He mentioned his recent investment in Revolution Money (a Steve Case venture). He is looking for companies that demonstrate traction and he mentioned StockTwits.
"What you are really looking for now is some sort of traction. The companies that we see at the earliest stages have, even without venture funding, demonstrated traction. If you follow Twitter there's a group called StockTwits founded by an entrepreneur named Howard Lindzon, and what Howard did is instead of doing anything other than some angel funding he went out and built a community of 100,000 people so now he can get venture funding because he has proven his concept. By the way I'm not an investor and I probably should've been". (Double check wording, starts at 3:25)

Credit Default Swap (CDS) Market Needs Transparency, Still a Good Signal

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Wikipedia Definition of Credit Default Swap:
"A credit default swap (CDS) is a swap contract in which the buyer of the CDS makes a series of payments to the seller and, in exchange, receives a payoff if a credit instrument - typically a bond or loan - goes into default (fails to pay). Less commonly, the credit event that triggers the payoff can be a company undergoing restructuring, bankruptcy or even just having its credit rating downgraded."

Ever since Bear Stearns, Fannie, Freddie, Lehman Brothers, Merrill, Citi and AIG blew up in 2008 (which all started when two Bear Stearns structured product hedge funds blew up in June 2007 pre-Gov bailout: Bear Stearns Tells Fund Investors `No Value Left' -Bloomberg), credit default swaps were supposed to insure against losses on defaults but instead brought down the whole financial system (AIG Trading Partners Squeeze Insurer Before Bailout Bloomberg June, 09).

The Lehman Brothers bankruptcy put the nail in the coffin (Lehman CDS Settlement Disappoints - WSJ) and taxpayers ended up being the credit default swap. Here's a great article from Financial Sense on June 6, 2008 predicting the CDS crisis (CREDIT DEFAULT SWAPS THE NEXT CRISIS by Financial Sense) and Time also had an article. Also Soros warned about CDS in early 2008 in the Financial Times (more below) and Warren Buffet wrote in Berkshires 2002 shareholder letter that they were "financial weapons of mass destruction".

Rosenberg: Secular Bear Market at Halfway Point (CNBC Video)

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David Rosenberg, former Merrill economist now at Gluskin Sheff was featured on CNBC. Here is the video and a summary of his thoughts.
  • 40% dead cat bounce from March to May
  • 6 points of multiple expansion during rally, not earnings driven
  • Consensus: $75 operating earnings per share priced into 2010
  • At best we'll see $50 this year in S&P earnings
  • Equities are pricing in an earnings recovery we won't see until 2012
  • $50 in EPS + 13-14 multiple = $675ish... (So, retest?)
  • Another fiscal package won't save the day
  • Had 18 Year bull market (1982-2000), we move in 18 year cycles..
  • Halfway through secular bear market in equities, w/ two price peaks (wow)
  • There will be huge spasms along the way, you can't be a buy and hold investor!

SPY Put/Call Volume Ratio Low vs. Open Interest

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Look at the difference between SPY put/call open interest ratio and put/call volume Ratio via Schaeffersresearch yesterday. The $SPY put/call open interest ratio was at monthly highs and put/call volume ratio was at monthly lows. At the 7/6/09 close the SPY put/call open interest ratio was at 1.83 and the 21 day SPY put/call volume ratio was at 0.77. The last time we saw 0.77 was when SPY sold off from 89 to 68 (March 2009 lows). Look at the chart. The sentiment reading could totally flip to be contrarian in nature though. So traders are loading up on puts vs. calls but trading more calls vs. puts (21 day average? from Schaeffers). So will a volume rush into puts make put holders money? The VIX has been in a range since May (24-33) so a put premium volume spike would need to occur, or a big complacent SPY sell off.

SPY Put/Call Volume Ratio (Courtesy of schaeffersresearch.com)

SPY Put/Call Open Interest Ratio (Courtesy of Schaeffersresearch.com)

$SPY is down 1.34% as we speak and there are technical levels near by that could CRUSH the S&P if broken (June 28: SPY Head and Shoulders Chart Pattern, Watch 875 Neck Line). A head and shoulders neckline breach would bring in sellers. I'm thinking this is why traders/institutions are speculating or hedging with puts imho. You never know though. In May the put/call open interest ratio hit monthly highs while the market kept rallying, so those contracts were ripped up or a big fund pocketed some nice premium if those puts were sold-to-open (SPY May Put Pessimists Squeezed, Contracts Ripped Up).

$SPY Head and Shoulders Pattern?

Oil Put in a Double Top -Credit Suisse Sneddon (7/6/09)

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Reported from BloombergTV today (7/6/09). Credit Suisse technical analyst David Sneddon said oil put in a "double top" today. "Double tops signal the trend is changing. Oil prices stalled out at roughly the same price over the last month". Sneddon sees $59 as the first support level with a potential break to $57.75.

Goldman Sachs Program Trading Code Stolen

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I thought this may be of interest. According to Reuters and Zero Hedge (must read), Sergey Aleynikov, a former Goldman employee, was arrested for allegedly stealing Goldman's secret program trading codes. He uploaded them onto a German website registered by a person in London. The complete affidavit can be found at those two articles (PDF). Was this dude a quant spy? Goldman code stealer by day and professional dancer (h/t Reuters) by night? We shall see.. The story is kind of a mix between Hackers, Pi, Wall Street and Office Space. If he gets off for "accidentally" stealing Goldman's proprietary code, he should definitely play the lead role in Wall Street 3. Here's more from Bloomberg: Goldman Sachs’ Investment in Trading Code Put at Risk by Theft.
“The bank has raised the possibility that there is a danger that somebody who knew how to use this program could use it to manipulate markets in unfair ways,” Facciponti said. “The copy in Germany is still out there, and we at this time do not know who else has access to it.” (Bloomberg)

UltraShort Oil & Gas $DUG Testing $20 Resistance

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The UltraShort Oil and Gas ETF $DUG is testing ceiling and downtrend resistance at $20. A break above $20 could bring some upside momentum. We'll see if this oil correction is for real and if it breaks below the 50 day moving average. Crude could then test $57.50-60 support/200dma, imo.

If the US Dollar breaks down, equities catch a bid, middle east tensions arise or a hurricane hits, this oil correction would be short lived. Protect yourself...

UltraShort Oil & Gas $DUG (Courtesy of Stockcharts.com)

UltraShort Oil & Gas Weekly DUG (Courtesy of Stockcharts.com)

Crude Oil ($WTIC - Stockcharts.com)

JPMorgan Strategist Lee Bullish On Cyclical Stocks, ISM Rebounds

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The weekend strategy session continues. Here is JP Morgan's Thomas Lee on BloombergTV. He thinks the rebound in manufacturing data shows an industrial recovery (JPMorgan Global Manufacturing PMI, 46.9% - July 1, 2009 PDF). He sees a V-shaped recovery on cyclicals or "smoke stack" industrials given the recent rise in ISM data. From the report:
"The worldwide manufacturing sector took a further step towards recovery in June. The JPMorgan Global Manufacturing PMI — which acts a barometer of the overall health of the sector — posted 46.9, its highest reading since last August. Output expanded slightly following a year-long period of contraction." (Source)

The June ISM Manufacturing Index number increased 2% to 44.8%. The 17 month trend trend in economic activity is still contracting at a SLOWER pace. Look at the downtrend. History shows dramatic rebounds after ISM hits less than 40%. The chart does not show ISM during the 1930s. The # needs to break above downtrend.

ISM Manufacturing: PMI CompositeIndex (St. Louis Fed)

Summary of JP Morgan's Thomas Lee on Bloomberg:
  • Manufacturing is a huge generator of corporate earnings, 30% profits/9% employment
  • 2002 playbook was consumer credit expansion, 2009 recovery = global industrial cycle
  • Sees V-shaped industrial recovery pulling us out of recession
  • Will be different recovery, smoke stack industries will beat expectations
  • If ISM recovery plays out, will be upside revisions to transports, steels, auto parts, tankers
  • Lee Doesn't like GOLD, output gap and slack in terms of unemployment not inflationary
Roubini is also bearish on GOLD and inflation so keep an eye on $GLD. Also $XLI (Dow Jones Industrials SPDR), $IYT (iShares Dow Jones Transports), $SLX (Market Vectors Steel) for JPM's industrial recovery forecast.

Peter Schiff Market, $USD Video Update July 4, 2009

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Peter Schiff July 4, 2009 Video Update from Euro Pacific Capital. It is always interesting to hear what Peter Schiff has to say.

  • 80 points from head and shoulders neckline, a close below could spell a bigger decline
  • Catalyst for weakness was jobs data, lost 470,000 jobs, higher than expected
  • Gov bailouts are interfering with the correction process that will ultimately lead to hiring
  • Days of dollar rallying off of bad economic news will soon come to an end
  • India calling for alternative, in addition to Russia and China is negative for Dollar
  • **But read this: Reuters: China says dollar to remain leading world currency (7/5/09)
  • Schiff Expects economy to weaken further, unemployment rise

Other videos featuring Peter Schiff:
Peter Schiff on Jon Stewart, Yes He Was Right 6/10/09
Peter Schiff Expects a New Low in Nominal Terms (4/10/09)
Peter Schiff Says Beware of Inflation, US Dollar (3/22/09)
Schiff: Dow Hits New Low Priced in Gold, TIPS Understate Inflation (2/12/09)
Peter Schiff Compares U.S Economic Crisis to Collapse of U.S.S.R. (1/10/09)
Peter Schiff, Rick Santelli Talk Gold and US Dollar Recycling (10/23/08)