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Monthly Archives: June 2010

Levels on the SPX

Another really brutal day in the markets as we sold off through 1035 right at the end of the day closing on the day lows at 1024. So what does this mean and what are some of the next support levels to be thinking about?

First this is clearly a negative event in the market, but certainly does not mean that we confirmed this break or that we can’t get a move back up and through 1035 which now will serve as resistance. We broke out of 1100 two Mondays ago and all things looked good in the market but here we are 100 handles lower. The SPX spent five days above that level and broke hard to the downside, so next Wednesday could be important if we are still below these levels from simply a time standpoint, this is a minor data point but one to keep in mind.

Second, there are levels of support that we can still hold onto such as 1019, 1008 and of course the psychological level of 1000. This is a dangerous game of course because there are always levels and data points that you can look for to stay long, that is why a line in the sand is so important.

Now the bad news is first and foremost we did close through an important level, one that has been defended a number of times, just as resistance was defended before breaking. The next piece of negative information is that we are well below all Moving Averages that I follow on the daily, weekly and all but the 20 day on the monthly which sits at 995.60 and that is really not a good sign of support.

Personally speaking this has been very tiring and stressful quarter and frankly I am glad to see it go and psychologically the whole street must be feeling the same way. We shall see what the next quarter holds for us, summer rally, confirmation of this break, nobody knows so all you can do is make the best decisions you can with the information at hand and execute your plan as close to perfection as possible.

Asset Allocators and Several Sellers

Today was another disheartening day in the market with the S&P 500 closing down over 1%. Not surprisingly, the much anticipated ADP employment numbers missed estimates and immediately sent the market down 4 handles. It seemed as if the number had been forgotten by 9:50 as the market rallied to new highs and entered what appeared to be an upward grind. At 11:30, I watched intently to see if the market could put in a higher high and continue to move higher. Marc and I discussed this time period before; he said that he has seen a recurring pattern many times throughout his career. He told me that if the market attempts to make a higher push around 11:30 and is unable to do so it is more likely than not that the remainder of the day will be a disappointment. Needless to say, this pattern once again proved itself today.

The other factor on my mind today was asset allocation. At the end of every month, many asset managers are required to shift out of securities such as cash and bonds and put that money to work in the equities market. I was particularly attentive when the clock struck 1:00, 2:00, and 3:00 as these are common times for buy programs to be switched on. Unfortunately, as the market began to sell off late in the day, it became apparent that the bid of asset allocators was potentially overshadowed by redemptions, continued liquidations, fear, and those who could no longer bear the pain. With great uncertainty looming in the markets it remains unclear when real buying will resume. Hopefully Friday’s jobs report and the House vote on financial reform will ameliorate some of this uncertainty in the short term until earnings season commences in two weeks; I expect it to be a long two weeks.

Amazon Acquires Woot Inc.

Just came across the headline post market.  I have never heard of Woot.com, actually.  They are an online deal site.  The terms of the acquisition are not disclosed yet, but Amazon (AMZN) expects the deal to close in 3Q10.  Amazon has acquired about 22 companies since 1998, including the awesome Internet Movie Database (IMDB) and Zappos.

Actually, the real purpose of this blog is so I could talk about a letter to all Woot employees from their CEO, Matt Rutledge.  He writes, “[W]e plan to continue to run Woot the way we have always run Woot – with a wall of ideas and a dartboard… Woot and all our various sites will continue to be an independently operated company full of horrible, useless products and an untalented jerkface writing staff, same as it ever was.”  Talk about (unique) company culture!  And I’ll end with a rap video that the company produced regarding this acquisition, featuring a monkey puppet.

I’ll bet Amazon execs are wondering what they just got themselves into.

Terrible Economics

As we grapple with the market’s penchant for making lower lows, we continue to sit at the edge of our seats in this frenzy of negative economic news. Economic data in the last two weeks  has been nothing but terrible (except for today’s in line Chicago PMI number). The market certainly shows it all as the two week return in the S&P is 6.6% in the last ten trading days. Aside from excellent Q1 2010 earnings, there really hasn’t been oustanding positive economic news in the last few months. Is this what the bears are trying to convey to everyone? After taking a look at the graph below, I can’t help but think the bear has got the upper hand in this battle. The phrase “Double dip recession” can be found in almost every financial blog or new article. Since April, the S&P is down 15% and the Shanghai composite, being down 25% since April, is pulling down the US market with it.

Today’s month end windowdressing day was a distaster to say the least. For a day when PM’s should be adding money into a cheap market, the S&P closing down 1% is quite depressing. After last week’s poor housing numbers, yesterday’s dismal consumer confidence missing by nearly 20%, today’s woeful ADP unemployment number, the only positive news this market has had to chew recently is a slightly improved personal spending number and an inline manufacturing number. Tomorrow’s wave of economic data should shed some light on what will pan out for the beginning of a new month. The line up is unemployment claims followed by, ISM manufacturing, pending home sales, construction spending and natural gas storage. Hopefully July’s sunshine weather will be a barometer for the market.

ADP Employment Change

(Apologies, my blog titles might start getting boring going forward for business purposes.)

I think we will not see an uptick in employment.  The unemployment rate will go up again.  From a personal standpoint, I can say the whole employment picture has gotten grossly worse.  Friends who have just graduated from college are continuing the trend from last year’s class of ’09, namely, to go back to school for a master’s, largely due to the weak job market as opposed to out of personal preference.  The hiring picture is drastically different than it was earlier in the year and even late 2009; again, I am speaking only from personal experience as I was on an active job search at that time.  A few friends who have been working in this industry have also voiced to me that there are no jobs out there.  Between the aforementioned and having a well qualified sister who is on borderline breakdown mode now after a few months of job hunting and still being unemployed, I really cannot foresee an uptick in employment for a (long) while.

In a weak attempt to counter that bearish outlook, I still think the debt situation in Europe is blown out of proportion.  I have a hard time seeing a real double dip recession.  Consumers certainly aren’t acting like we are nearing a period of recession again.  I am still not seeing any companies coming out and stating that they are experiencing negative economic impacts from the European crisis.  The financial reform was deemed a “win” for the banks.  Yet points here and there like a weak job market provides for a disconnect somewhere in this market.  Then is this just unjustified fear that is spreading in the markets?  I don’t know.  In conclusion, I have no idea what’s going on.  (Great conclusion, I know.)

MARK-et thoughts 6/30/10

A rough day for the markets but holding support (for now). It was only about 8 days ago that we had a break above resistance after news on China letting their currency float and here we are now 85 handles lower and again on support. We have data at 8:15 and then Friday payrolls are going to be critical to health of this market so by the time you read this it could be outdated.

Today is going to be a day of patience for me as the pivots are wide and may not produce a signal on the Spooz so I will have no clear direction meaning I will trade off of individual stock signals and the support and resistance from the charts.

Listen in to find out my thoughts after ADP.

Happy Trading!

Told You So…

I hate being the person who says I told you so, but I did mention yesterday that Consumer Confidence was a big number. Of course, I will sweep under the rug that I expected a constructive report to lift stocks higher. There’s nothing like getting egg on one’s face except possibly getting that egg smeared all over. I suppose that is what happened to me Tuesday as well as the past several trading sessions as the SPX has sold off over 8% during that timeframe. Similar to previous difficult moments when I have misread the market, I will reevaluate my conviction to see if something has been missed to alter the original view.
Certainly, the Conference Report’s release of the miserable sentiment data had no strings attached unlike the abysmal housing and jobs numbers which had dirty data because of the previously expired first time buyer housing credit and the presence of several hundred thousand temporary census workers respectively. At first glance, it now appears clear that the economy again sits on very shaky ground. Fortunately, we get another few cracks at righting the ship for the rest of the week starting with this morning’s ADP jobs estimate at 8:15 AM and the Chicago PMI after the Open. Curiously, analyst estimates for the data predict either no changes or even solid increases versus last month’s releases for all the various reports. In my opinion, numbers which meet these aggressive consensus figures will require a Herculean effort which will be hard to come by. If, however, the recovery does stand tall and print decently, then I would expect the market to launch aggressively.
So if our economic knees have buckled, then why on Earth do I continue to maintain a bullish stance? First, given month and quarter end predicted asset allocation flows, today should enjoy a solid bounce as fund managers with static class weightings will clearly need to shift dollars away from fixed income to fund purchases of equities. Given the modest returns yesterday in both treasuries and gold, both classic flight to quality securities that should have greatly benefitted from an over 3% selloff in the SPX, I suspect a massive shift started a day early. If we are to ride this wave, look for the market to grind up as early as lunchtime or as late as 3:30 PM.
First of the month buying usually comes on the heels of asset allocation, which hopefully will provide some breathing room off these current lows. Beyond Thursday, the nation’s Jobs Report will hold us hostage for some time as the economic calendar falls off pace with little more than Jobless Claims next week. Fortunately, Alcoa will kick off the reporting season on July 12. In my opinion, management teams across the country only need to supply us with inline numbers and guidance to provide a final backstop for equities. With 2011 earnings for the SPX still holding stubbornly at $95, then the blue chip index trades cheaply at approximately 11x. Slash that number over 10% to $85 and one can still easily find plenty of value at 12.2x. Unless companies cry uncle when releasing their results, with the Rolling Average NYSE Closing Tick falling back into deeply oversold territory thanks to this recent pass lower accomplished on only moderate volume, I remain confident that these levels continue to offer a solid buying opportunity.

S&P 500 September E-Minis Key Technical Levels

Support: 1035.25, 1032.75/30.25, 1026.00/25.00, 1021.00/20.00, 1015.00, 1000.00

Resistance: 1044.00, 1047.25, 1055.75, 1062.75, 1066.50, 1071.00, 1078.50/80.00, 1081.75/83.75

L/S Review 6/29/2010

The Long/Short book outperformed the market today closing down 2.49% versus a market that was down 3.1%. Although the book did outperform the market it did have its worst day since inception closing down just shy of $100,000. The spooz made a new intra-day low today on poor economic numbers and negative news out of China.

The market tested the 1040 level for the third time and today broke through. With the break of 1040 we took down our long positions by roughly $400,000. We also covered the rest of our short position’s including the FXE hedge, which was our best performer on the day.

The other four winners in the Long/Short book were our shorts, NAV which was down 6%, AVY down 5.26%, AIG down 5.11%, and BG down 4.95%. The two top laggards in the book were also our largest positions BA down 6.33% and GOOG down 3.77%. The other three losers were TPC down 6.5%, CBS down 7.5%, and MTSN down 7.4%.

We took the absolute value of the book down $1.8mln dollars but covered all of our short positions and sit 100% long. We did bounce off the lows to close at 1035 and will be looking for a good ADP employment report at 8:15.

Return on Education (ROE)

In regard to my previous post on Return on the World Cup. The S&P did in fact close down .22% yesterday for the US losing team. The Russell 2000, which is the US small cap benchmark index of the bottom 2000 stocks in the Russell 3000, was down .55%. The large cap stocks measured in the Russell 3000 closed down .26%, confirming that the ROW thesis stands correct. Americans with primary holdings in small caps stocks must have been shattered by their loss to Ghana.

While I’m on the topic of returns, I thought I’d share an interesting case for returns on college education. I’ve talked about a project I did in a Labor Econmics class at school where I figured out my returns on my investment at Lehigh University. Well, I stumbled upon the actual statistics on returns at specific universities published by Payscale. This has been a hot topic on the desk as we discussed yesterday the value of a our education in the REAL WORLD. The prevailing question was whether or not we apply our concentrations of study to our job. For the most part, skills are learned on the job not in a classroom. Some of the principals argued that students these days are too tech-heavy or skill-oriented and there’s not enough of a humanities in our course load. I think there should be an equal weight on humanities and the sciences in a college education. There is no other time in our lives, at an impressionable age at least, when we can explore the teachings of Fukuyama, study about Greek mythology or debate the Israeli-Palistinian conflict. Without taking an array of electives as an undergraduate, students limit themselves and become narrow minded in that one-path mentality. Now more than ever there is more of linear approach to the college education where students are directed to think, ”If I do x then I will do Y and then I will land the Z job”. Rather, the most important education we can get from college is learning to think critically, which comes from exposure to many schools of thought. With a solid foundation of knowledge, our career becomes a journey not a linear path.

The return on our education is becoming a heated subject as the costs of higher ed are skyrocketing. More and more families are taking out loans to send their kids to good schools and then the burden is left on the graduates to pay off these exhorbitant loans. All of this contributes to the credit bubble that we currently find ourselve trying to lift ourselves out of. So, is attending the university of your dreams worth it when the returns from one school are marginally similar to the returns from another school?  According to Payscale,  the highest returns on education are also from the most competitive and highest ranked schools? Will this trend last forever? Check out where your school ranks.

XOM update

Normally I dont just update individual stocks but XOM is a very important company/stock and as of this writing is going to open below very important support at 58.46 a level we stopped at first in the flash crash and second on May 25, another test of the lows. XOM coupled with AAPL confirming a bearish engulfing pattern is making this a tough market to want to be long, but we have yet to break support and intraday I may be bearish, I cannot ignore that this may be a great opportunity to get very long with a stop upon that break of support.