Stocks for the Rest of Us
Archive for November, 2008
XTO Short. Natural Gas Looks Good But The Equities Look Ripe For A Selloff
Nov 28th
While I do like natural gas as a long I think the equities could be overbought. Take a look at XTO. This thing is bumping up on the upper band of a downtrending channel and has already failed to rally while the market was up today. Furthermore, the stock is getting up into the range of the previous bottom where all the would be bottom pickers are waiting to unload as the stock comes back up into the range where they bought it. I call that the “dear god please let me out range”. In addition to that the Force Index is reading slightly overbought and is peaking in a range which in the past has proved to be a short term top. I think you can short this thing right here with a stop at yesterday’s high or slightly above it.
XTO short
S&P Oscillator: Why It Doesn’t Always Work
Nov 28th
The S&P oscillators are great tools, the one in particular that I use is available at stockcharts.com ($spxa50r). However, I’m starting to find that these tools don’t work in extremely emotional environments like the one in which we are currently in. This particular oscillator simply looks at the percentage of stocks above their 50 day moving average in an attempt to gauge an overbought or oversold condition within the S&P 500. Under normal circumstances this works great. When we get to around 80 we’re overbought and one should exercise caution going forward. During a sell-off or correction, the oscillator will dip down to around 20 indicating an extreme oversold condition.
In bear markets when the moving averages start to turn down naturally most stocks are going to be under their 50 day moving averages so you need to adjust your point of reference on the scale. Furthermore, emotions tend to be extreme in bear markets so while a reading of 20 used to indicate an oversold condition chances are that the markets ability to become MORE oversold will be greater.
Is Now The Time To Buy Stocks? Why Is It Always “A Great Time To Buy Stocks”? Don’t Listen To The Media
Nov 26th
Maybe it’s just me but I’m getting tired of the pundits on TV telling me that “It’s a great time to buy stocks”. They’ve been saying this for the past year and they’ve all been completely 100% wrong. Why are these people still allowed on TV? I understand that buy and hold is the traditional method of dealing with the stock market and that’s how wall street makes money but it’s clearly not necessarily the best method. I have yet to see a single person come on tv and say “hey you should be in cash until this volatility subsides”. I think CNBC should start putting little YTD performance meters More >
SDS, S&P 500 Double Short ETF Sitting On Support
Nov 26th
Here’s an easy trade. Pick up some SDS right here with a stop just under the 50 day moving average. The 50 day moving average will give you a point of reference as a stop to keep you disciplined. Another approach would be to trade a smaller position and loosen the stop up to about 80. This will give you a little more leeway (which is fine since the stock is in an established up trend) and still keep losses contained in the event that it breaks down.
SDS
UMPQ, Regional Bank Could Be Good For A Trade
Nov 26th
This little regional bank could be good for a trade. As you can see, 11 has been prior support for quite some time. As the stock pulls back, consider getting long around 11 with a stop just under that. Buying close to support with a tight stop will help minimize losses and keep you in the game. You can consider buying a small piece here and add to it as it comes down but I would prefer to wait. While you may miss some upside if the stock doesn’t pull back it’s much safer to be patient and wait for a stock to setup in such a way that will minimize any potential losses.
UMPQ
Stock Market Rally Warrants Caution
Nov 26th
If you’re long, consider being less long. We’ve rallied hard off the last bottom and that kind of move warrants caution. If you’re in a long only portfolio, consider hedging yourself with some SDS. Here’s why. We’re currently moving up into what I like to call the “Dear God Please Let Me Out” range. This is the range where traders bet incorrectly that we saw the bottom on October 10th and were in a panic as we blew right through that previous support around 850. Now that we’re back around 850 those people want OUT and we will most likely start to see some resistance as the holiday trading subsides and the big boys come back to the office on Monday. As a side note we’re also approaching the 50 day simple moving average which will be natural resistance to anyone looking at a basic chart.
Dear God Please Let Met Out Range
Thoughts On The Auto Industry Bailout And Why I’m Against It
Nov 18th
It’s sad that the pinnacle of American manufacturing has come to this point. Rick Wagoner and the rest of the Big 3 CEOs are in Washington begging lobbying for taxpayer money to keep their businesses afloat. Now I realize the importance of an auto industry here in America but at what cost. In my opinion the ailing economy is not what has brought General Motors to its knees. Let’s not forget, GM has been losing money since 2005 when the economy was moving along at a respectable pace. So who’s to say that sales will pick up when the economy turns around. The fact of the matter is that GM has simply lost market share to other manufacturers and is too big and bloated to continue operating in it’s current form. There just isn’t enough demand to warrant their current capacity.
So how do we solve this problem? Well, here’s an idea…BUILD BETTER CARS!!! You can’t turn out junk for 40 years and expect people to continue buying your junk. I don’t understand why we can’t build better cars. Some people blame it on the American workers but Honda and Toyota both build cars right here in America with American workers and their cars are of much better quality. Why can’t these guys learn from the Japanese how to build a better car?
Unfortunately, it appears as though time has run out for these guys. My problem with bailing them out is that I don’t see any real plans going forward to reverse the downward death spiral that is General Motors’ business plan. Who’s to say they simply won’t burn through the 25 billion in 6 months and require more capital (think AIG). I think the best option, while risky, may be to put the automaker into chapter 11 bankrupty with the federal government as the DIP financier backing the warranties and suppliers. This would allow GM to get out of crippling labor contracts and re-organize (downsize considerably) under the protection of bankruptcy while giving some sense of confidence to the consumer and the parts suppliers.
I understand the arguement against bankruptcy and the rippling effect that it could have on the rest of the economy as a whole but unfortunately it looks as though no matter which path we choose the American auto industry is going to be downsized and tens of thousands of jobs will be lost. It’s just matter of whether it’s now or later.
Bear Market Rally Underway: SSO For The Win!!!
Nov 13th
We bounced hard just below the old lows this morning in the S&P 500. I initiated some longs in the form of the double long S&P 500 ETF (SSO). Volume in the SPY was huge so there are clearly some large buyers coming in and buying. I’m keeping an eye on the old lows but the target is again going to be around 1000 on the S&P 500. The fear of being left behind is definitely kicking in here and causing this enormous rally with momentum on the upside. If it continues at this pace I’ll be looking to sell probably within the next couple days.
Update: This is why stops are so important. Keep them tight and positions small and you will survive.
Stock Market Stuck In The Trading Range
Nov 12th
The stock market is stuck in a trading range and right now wer’re at the bottom of that range. Unfortunately, I’m starting to feel that everyone knows about the range and is already trading around it. I would be careful picking up stocks here. As I mentioned in my previous post the financials are seeing new lows and the market overall could follow. If you’re short, I would cover. However, I would wait to see if a bounce develops before going into any long positions.
S&P 500 trading range
Financials Appear To Be Leading The Way Lower
Nov 12th
Considering that the finaicials are at the epicenter of this crisis one could assume that they will lead the market in whatever direction they go. Unfortunately, right now they appear to be heading lower. While the market overall is holding those October lows, the XLF, the financial sector ETF, is breaking to new lows as I type. This is very troublesome for the market and because of this I’m leaning more towards breaking those lows rather then bouncing off of them like I previously stated. Rather then jumping in expecting the bounce I’m going to wait to see if a bounce develops. I’d rather be safe then sorry.