Wednesday, March 11, 2009

Financials Already Back At Key Resistance

I want to show you how the spike up in Bank Stocks has played out in relation to past rallies.

All you have here is a sector rallying up into declining moving averages (Black Green & Blue Lines). That is the definition of a Bear Market.

Look at how each time the Financials have spiked down, they have rallied back up into moving averages and then cracked again. I don’t think this time will be any different.

Financials are now short-term overbought and may reverse hard from these moving averages.

Each spike down in RSI(2) below 10 has set up a nice rally in FAZ.
The inverse of this is the that XLF has rallied into moving averages and rolling over.
Maybe this move is different, but I think the setup will need to be traded.

Here is my trigger –
I will use a break of the Hourly 15-EMA (Black Line) to get me into the Short Financial ETFs (I’ll use FAZ).
The Black Arrows are where the Daily RSI (2) got below 10.
Those have proven to be pretty good trades.
I hope we don’t gap down big tomorrow…

Tuesday, March 10, 2009

Citi Is Shovel-Ready

I hate to burst any bubbles, but there is no way that Citigroup is profitable.

If they were, they would not be selling Smith Barney to Morgan Stanley, they would not need a "stress test" and the stock would not be trading for a buck fifty a share.

Pandit is lying and the markets know it.

The longer these guys are allowed to make a mockery of ethics and financial disclosure laws, the futher down the markets will crash.

I am not bitter. I owned FAS (300% Financials) coming into today. I think it was up 38% today. Another good day or two and I am out and looking to go short.

Keep in mind that each time the financials and their preferred shares pop, the big insurance companies and pension plans are able to sell more shares to shore up their balance sheets at the expense of an unsuspecting public.

I almost bought a couple thousand shares of Citi today, so that when it tanks again, I can sure Pandit for securities fraud and material harm. I may get a few friends together to do it with me, so that we can file a class action lawsuit against Pandit. I'm thinking that he is personally liable for his actions, under Sarbanes-Oxley.

Remember, The NASDAQ doesn't rally 7% in a Bull Market. Also keep in mind that there is zero leadership and there are very few companies capable of leading the markets higher from here. In 2003, there were entire asset classes that did not break down as the NASDAQ crashed. These were the leaders of the 2003-2007 Bull Market. I see nothing capable of leading this market higher. It will take time, and lots of it, to heal the damage of this Bear and set up the next Bull Market.

Sorry. I have to call them like I see them and not how I want them to be.

Read This Internal AIG Report

Holy cr*p

AIG may need to be 100% nationalized by the weekend. Confidence in them is now zero and I would expect a run on their insurance products to commence as early as yesterday...

Could an insurance company version of TARP be too far away?

I am not short banks, insurance companies or AIG. I do not own a share of SKF and have no intention to buy it. I am not trying to start a rumor or directly or indirectly benefit from one. My intention is to get information out to people so that they can make their own decisions. I think the AIG pdf has been widely distributed, but wanted to get it out as well. (this is my SEC disclaimer...)

Monday, March 9, 2009

Geithner Is Done

He has bothered me since he was first announced as the Candidate to head the US Treasury. He always struck me as Paulson-Light. He was put in place to protect the Bank Shareholder at the expense of the US Taxpayer.

His appointment was a sick joke from Day 1. How the heck does a tax cheat end up running the IRS? Ridiculous! How can there be any integrity under those circumstances?

Bernanke and Geithner testify before Congress that all the banks are solvent. Nobody believes their lies any more. Their policies have been a disaster. The market has crashed. The economy is frozen and in a Depression. At the airport tonight, there are 3 passengers in line and 14 guys scanning luggage. The economy is frozen. To me, that is a Depression.

Too Big Has Failed
In case you missed it on Friday, there was a speech given by Thomas M. Hoenig. Mr. Hoenig is the President of the Federal Reserve Bank of Kansas City. Here is his speech –

This speech is a seminal even. I think it puts Hoenig in line to run the Fed, just as Bernanke’s “Deflation – Making Sure It Doesn’t Happen Here” speech set him up to replace Greenspan.

Make no mistake about it, Mr Hoenig did not just wake up on Friday morning and decide to give this speech. His policy proposals are 180 degrees from what the Obama Administration is pedaling. This leads me to believe that Obama is about to do a Mea Culpa and fire his current advisors.

I expect Geithner to be out of a job in the very near future. He will be replaced by FDIC head Sheila Bair, Paul Volcker or Mr Hoenig (if I had to guess). Summers in gone too. Volcker will get one of these two jobs.

At some point, Obama will have to give in to the reality that his policies are wrong and harming the country and its citizens. The sooner he does, the sooner the economy recovers. If not, then the Depression becomes his Iraq War, where the President is a prisoner to his ideology and drives the Nation off of a cliff.

Here is some of what Mr Hoenig said. Tell me if it reminds you of what I have been saying for the last 7 months. The solutions are obvious. We just need a leader with some guts to take on the interests of the Banking Lobby and begin the heavy lifting –

“We have been slow to face up to the fundamental problems in our financial system and reluctant to take decisive action with respect to failing institutions” (page 2)

“We understandably would prefer not to “nationalize” these businesses, but in reacting as we are, we nevertheless are drifting into a situation where institutions are being nationalized piecemeal without resolution of the crisis.” (page 2)

“Any financial crisis leaves a stream of losses among the various participants, and these losses must ultimately be borne by someone. To start the resolution process, management responsible for the problems must be replaced and the losses identified and taken. Until these kinds of actions are taken, there is little chance to restore market confidence and get credit markets flowing. It is not a question of avoiding these losses, but one of how soon we will take them and get on to the process of recovery.” (pages 4-5)

“When examining previous financial crises, in other countries as well as in the United States, large institutions have been allowed to fail. Banking authorities have been successful in placing new and more responsible managers and directors in charge and then recapitalizing them. There is also evidence suggesting that countries that have tried to avoid taking such steps have been much slower to recover, and the ultimate cost to taxpayer has been larger.” (page 5)

“…TARP began without a clear set of principles and has proceeded with what seems to be an ad hoc and less-than-transparent approach in the case of banks judged “too big to fail” (page 7)

“Resolving the Current Crisis”

“First, the losses in the financial system won’t go away – they will only fester and increase while impeding our chances for a recovery”

“Second, we must take a consistent, timely, and specific approach to major institutions and their problems if we are to reduce market uncertainty and bring in private investors and market funding.”

“Third, if institutions -- no matter what their size – have lost market confidence and can’t survive on their own, we must be willing to write down their losses, bring in capable management, sell off and reorganize misaligned activities and businesses, and begin the process of restoring them to private ownership.” (page 9)

“Our bank resolution framework focuses on timely action to protect depositors and other claimants, while limiting spillover effects to the economy. Insured depositors at failed banks typically gains full and immediate access to their funds, while uninsured depositors often receive quick, partial payouts based on expected recoveries.” (page 10)

“These options focus on transferring important banking functions over to sound banking organizations with capable management, while putting shareholders at failed banks first in line to absorb losses.” (page 10)

“Shareholders would be forced to bear the full risk of the positions they have taken and suffer the resulting losses.” (page 11)

“In fact, for failed institutions that have proven to be too big or too complex to manage well, steps must be taken to break up their operations and sell them off in manageable pieces.” (page 12)

“If an institution’s management has failed the test of the marketplace, these managers should be replaced. They should not be given public funds and micro-managed, as we are now doing under TARP, with a set of political strings attached.” (page 13)

“The issue that we should be most concerned about is what approach will produce consistent and equitable outcomes and will get us back on the path to recovery in the quickest manner at a reasonable cost.” (page 14)

Rallies Keep Getting Sold

It has been a few days since I posted, because I have either been in meetings or traveling since Wednesday.

I am now back in town and want to go over a few things.

First – No More Voodoo
My bread and butter is interpreting price and volume. I can tell when stocks are being accumulated and when they are being distributed. I buy when and what Big Money is buying and sell when and what they sell. This requires a lot of work each and every night, but it has kept me out of the Bear and will get me into the Bull.

Elliott Waves and retracement levels are great theory, but if Big Money wants to sell, they will do it. Regardless of whether or not there is potential support. That means that if Big Money wants to take out the 2008 Low on the NASDAQ, then it will and there is nothing that can be done to stop it. We’ll see how the NASDAQ trades the next few weeks.

Right Now, Big Money Is Selling
This may change when I walk into the office in the morning, but the selling is obvious. Every rally (they last an hour or so) is sold hard.

The selling now may include those who wrote insurance on failed banks and insurance companies shorting the stocks of these same companies to protect themselves from the potential bankruptcy of these banks.

There is now a general defeatist attitude amongst those who have held the entire way down. The pundits on CNBC continue to call “Bottom” everyday, but now the hosts laugh at the absurdity of their proclamations.

The market will not bottom because somebody wants it to. It will not bottom on one day. Bottoming will be a process of many months and a lot of fear. Markets NEVER bottom during good news.