Missed it By THAT Much!

Okay, so I missed the breakout by one day. After the great results on Wednesday afternoon and post-market announcements by IBM and EBAY, I thought Thursday would be the BIG DAY. So, what did we get? One measly point on the DOW. Some big breakout day. Maybe just a breather for big things to come.

I have been pointing to today for a couple of weeks. Today is the day for Citibank to announce earnings. It started looking good for Citi a couple days ago as its price starting creaping up. Great insight, or leaked information? Who knows, but good news is usually working into the price before the news is official.

So, this morning the news is out. It isn't stunningly great and was a loss of $1 per sahre, but is apparently good enough. New CEO Viktor Pankrit said the credit markets have become much more liquid and Citi is able to move its paper now. He is confident in their future. Citi is up to over $26 in the pre-market, up from around $20 on March 19 (the BSC bottom day). It can move up with a loss and a small miss because many traders were short figuring that Citi was going to zero.

Google also announced much better than anticipated earnings this AM. GOOG is another market leader, like it or not. It is now considered a metric on the economy since a large percentage of corporate advertising budgets has moved to Google. What is good for GOOG is good for the economy.

These two stories, along with other better news and a generally more positive vibe on Wall Street means a good day is coming (the day I thought would come yesterday!!) The good news is improving the case for the end of the bear. The S&P500 is now above its 50 day moving average. As it continues to move above its 100 and 200 day averages, the price action creates a floor for traders. Averages that at one time were ceilings become foundations. The critical psychological level for S&P is 1400. It could go through that today on a big rally.

We also are now 18 days out from the turn in the VIX signal (breaking below its 100 day moving average on March 31). The further out we go, the stronger that signal is. If you look at charts going back a couple decades, the market never turns on this signal when it is two month long (VIX is below its 100 day average for that length of time).

I think we will all be a lot happier (financially and hopefully otherwise) at the end of today.

November and the Market is Ugly

Brian, Today was wild! Do you think we test the lows on the S & P? Does someone step up and buy a Canroy? Oil to mid 80's, old to 760?. VIX to 37?, Candian dollar down 2.3%. Any thoughts on the future?

My gut is this is just a correction but all fundementals are in place for lower dollar, higher gold, higher oil and another buyout of a Canroy...

Jake, I agree this is a pretty ugly market and another leg down in what began in July. Amazing how all the gains of 3 months (since the recovery in mid-August) can be wiped out in a week. This is not a very confident market. People are looking for any reason to sell and are sure getting out now. There is a lot of fear about the housing and financial markets taking down the economy.

I think this market action is showing a rotation from real estate to consumer durables to finance to retail and now on to tech and commodities, including oil and gold, as fear of a global recession spreads (though not much evidence of that). The good news for our commodity plays is they are all high yield, which makes this whole process easier to deal with. The finance stocks bounced a little today and were up against this lousy market. The home builders are also kind of washed out, though I think there must be another leg down for them and I wouldn't get close to them until there are some bankruptcies, signalling the end of the collapse (as supply is taken off the market).

I definitely think we will test the lows of August in the Dow and S&P, which aren't that far away now. We could break through and fall back to the March lows. But I don't think the environment is nearly bad enough to fall to the 2002 lows (7500 on the Dow and 800 on S&P). The financials will establish the bottom and lead the market back, maybe within the next 3-4 months. They always lead the market back.

The big question is do we go into recession and if so, how big a recession? If the rest of the world continues to grow and doesn't collapse, it will help pull the US stock market out by continuing to purchase our goods keeping our exports strong and helping the industrial base build employment.

I think the bigger banks will end up consuming the weaker banks once most of the trouble is on the table. But we still don't know how bad the trouble is, so all the banks are getting whacked. I have picked Citibank and Bank of America to survive and eventually thrive. But they are both hurting now and I was early on them, so it has hurt me. But their 6% yields make it a little better.

The good news in all of this is that the market P/E never got that high in this cycle (20) and has come down now to around 16. If we hit 11,500 on the Dow and the earnings just stay flat (no growth), we will be back under 14 for the first time since the early 90s. That was a good time to be investing in the market since the Dow was only about 3000 then (1992) and is now 4x higher.

I don't know where all the commodities could go if we get the R word going. There is a lot of fundamental reasons for gold and oil to go higher in the long term (growth of demand in the BRIC economies and ever more expensive to produce or limited supply). But over a period of a year or two, reasons for price are more technical and speculative in nature. I think 760 is the minimum pullback, but 650 is a lot more likely. If you do a chart on gold for seven years, you see that the bottom of the uptrend channel is about 650 right now.

Same thing with Oil, you can look at the channel (http://www.chartsrus.com/chart1.php?image=http://www.sharelynx.com/chartstemp/free/chartindCRUvoi.php?ticker=FUTCL) and see the lower trend line is about 65. Oil stocks, like drillers, could go down 35-40% (I am cutting my exposure to drillers) and the Canroys could go down 15-20%, though the dividend should keep them from falling too far. I am looking at writing (selling) more puts on PWE if the price gets down to $27, which it might the next couple of days. I would try to get a $1.50 premium on the $25s (maybe on the March contract). That offers me protection down to 23.50. I think the chance of the dividend on PWE getting cut is very small, so that price would be super secure since the annual dividend is over 3.00, putting the yield when the price is at $25 a t over 12%.

When VIX hits 37-40, that is the bottom, as it was last time (in August) and almost every correction before. That shows a lot of volatility that can only happen when there is some "sell-off" panic in the market. VIX was at 31 today, so on its way.

If you really want some excitment and have your options account set up, try buying at-the-money calls on your favorite names, especially if they are high volatility. Citibank (C) and BAC would be two good ideas. Cisco is another one. You can buy the March 08 $35 C call for $3 right now. That means the break even is $38 on March 17. If the stock goes back above $41 between now and then, which it definitely could, it will be a double on your bet (and if it got back to $44, it would be a triple $9 divided by $3). But if it ends up less than $35, you lose the investment.