Market Thought... just the technicals

If we are to look at the markets, strictly on a technical perspective, it is hard not to be bearish here.

The SP500 and the Nasdaq both look to want to test the 200 SMA, which typically is support area for consolidating markets when mature into a rally.






Make no mistake, the markets are very very oversold and I am very hesitant about shorting it here due to the oversold condition, and on a valuation basis on key market players. (IMO, the easy money short, has been made.)

In fact, I have been slowly entering names, and am eagerly awaiting target prices on other names, as I previously mentioned, to enter.

I do not know if the markets will contract just yet to the 200 SMA, or if the markets will churn and meet the 200SMA at some point in the next few weeks. The only thing I do know, is what I will do. If markets continue to decline to the 200SMA, we will approach valuation of Nov 2008/March 2009 and I will go 'all in'.

Perspective - GOOG, AAPL, IBM

At the time of potential Global Economic Armageddon (Nov 2008) quality names were selling at a huge discount. The three I currently care about, as they can be compared via normalized earnings, are GOOG, AAPL and IBM.

The three stocks show their bottoms in Nov 2008, and subsequently their lowest valuations. Lets see how their valuations compare today...

GOOG:

Nov 2008 GOOG was trading with a trailing PE of 16. At the SP500 low, in March 2009, GOOG was trading with a PE of 21. As of Friday, GOOG is trading with a trailing PE of 26. (Assuming GOOG does 27 eps in 2010, GOOG is trading with a 2010 PE of 19.)

Does the valuation, in a relatively stable economy, for the most efficient method of advertisement (as per ROI) make sense? Did EPS growth stop? Will EPS growth reverse? Did the growth in YouTube irrelevant?

AAPL:

Nov 2008 AAPL was trading with a trailing PE of 14-15. It maintained its lower valuation, despite have the best products, and years a head of any competitor (and still are years ahead), due to the health issues of Steve Jobs. As of Friday, AAPL is trading with a trailing PE of around 20. But the new accounting makes AAPL look that much more inexpensive at the rate they are selling their products/services.

It is a dirt cheap stock, especially with iPad. Many are critical of it, but those people do not understand. (But I don't hold it against those people because 'they' visionaries. They do not see the world as it could be, they see the world as it was.) Not to mention the things they got going on in the pipeline with respect to the iPhone and mobile advertising.

The only deterrent against AAPL is Steve Jobs' health. The stock will crater if anything should happen to him. However, the culture of innovation is ingrained in AAPL, and the product line up and developments will mean Apple will continue with very nice EPS growth for the next few years, at least.

IBM:

Nov 2008 IBM was trading with a trailing PE of 8.5. At the SP500 low, in March 2009, IBM was trading with a PE of 9. As of Friday, IBM is trading with a trailing PE of 12. (Assuming IBM does "at least 11 eps" in 2010, as indicated in the conference call in the previous earnings report which blew away all analyst metrics, IBM is trading with a 2010 PE of 11.)

Does this make sense? Did those selling IBM listen to the Conference Call? please re-visit my post

The fact remains, the market is not in the same situation as it was in November 2008. Valuations should not approach those of Nov 2008, and I would argue they should not approach those of March 2008.

Market Thought... step back

Been doing a lot of thinking about this market. Obviously I have not been a fan of how it has been trading, but now that 'the smell' is calming down from Washington it is time to re-evaluate just what the market is telling us here.


Its no surprise the market was due to correct. Well, now that we are knee deep in the correction, does continued weakness make sense?

Here is what we know:

1. Earnings this quarter have been good. With the decline in the market, and earnings beating expectations, valuations are not optimistic. So much so, we now have GOOG and AAPL trading with a 2010 PE of 19-20.

2. Bernanke got re-confirmed, and after Obama's speech the other day, a lot of the smell from Washington was removed. However, the political pandering amongst the people that are suppose to be leading is still very present.

3. Technically, the market very oversold, but intraday action is simply WEAK. No sugar coating it, the action sucks. The big boys just do not know what to do, so they are choosing to sell.

4. On the macro-economic front, commodity leadership was completely lost. (I guess our monetary policy is not causing commodity prices to go through the roof.) China's effort to slow down, and the dollar rallying are most likely the reason. (The one exception to this is Sugar. The SGG is still very strong, which makes me keep liking fertilizer names, like SQM, despite POT's sell-off today.)

China took steps to slow down, but they are not grinding to a halt. Despite their ghost cities, and malls, China still has $2trillion to keep things humming.

5. Unemployment. Job creation is simply not here yet. (Gauging the productivity number seen late last year, I was expecting job creation to accelerate. But the proof is in the pudding, and it is just not here yet.)

So the economy has two fairly strong head winds to swallow... 1. lack of Job Creation and 2. the perception of China grinding to a halt.

Do these head winds justify a 2010 PE of 19 to GOOG and AAPL? (considering the Mobile Web is suppose to growth expodentially faster than the PC role out) Does it justify IBM having the lowest PE in 5 years, after it produced a simply blow out quarter and indicated faster EPS growth?

In my completely irrelavent opinion, NO.

There are reasons for the market to be weak, no doubt about it, and with commodity leadership lost, I am sure many big boys are scratching their heads because their thesis is shot to hell. (loose monetary policy equals higher commodity prices). Personnally, I disagree with this thesis at the moment because its not monetary policy that causes higher commodity prices. An acceleration in dollars entering the system is what causes higher commodity prices, and we just do not have that. But hey, to each their own.

The market should be churning here, as all leadership is lost, and this should be a stock picker's market. Instead we are in blind selling.

To the Big Boys: take a step back, look around you and grow a fucken pair.

Perspective - GS

BlackRock reported a really nice quarter this morning, and it gave me perspective toward GS.

We all know GS is under attack by Washington (and its so hard to stay angry at Obama, watching him give his speech, he is just so freaken charismatic! :), but how much different is GS to BLK?

BLK has a forward PE of around 20, and they are an Asset Manager. GS has a forward PE of about 7 (not accounting for the reduced cash bonus payout to execs that will INCREASE their earnings power), and they are a 'bank holding' company at the moment.

Both companies are in the same line of businesses, except for a few areas. So why doesn't Goldman remove their 'Bank' status and return to an Investment Bank or be considered a Banana? (courtesy of Matt Simmons for the Banana reference... read an article to where he mentioned it :)

GS maybe waiting for the implications of changing their status, as Washington has not made clear yet what the regulation of the 'new' status would entail. Basically, 'stick with the devil you know' concept.

IMO, once there is clarity on the type of regulation for a status, GS will decide. My guess is that they will no longer have a bank status by the end of the year. And with the removal of that status, and greater clarity, GS will be trading at a higher multiple. (I would argue 10-13, if not higher.)

Once Wall Street understands this, GS stock will rise, and IMO, rise hard.

(I am not worried about the increased capital requirements that will be placed on trading, as I feel, this is very necessary within the industry. But GS already had very tight control as to how it trades, and I do not expect their model to significantly alter due to the increase requirements.)

Market Thought... the smell continues

Until there is any sense of leadership, and not pandering, in Washington, I do not see how any good news can be deemed relevant.

For fuck sake, Roubini (Dr. Doom) even stated Bernanke ultimately did the right thing in his speech at Davos.

I happen to completely agree with Cramer on this point, WTF is President Obama thinking? (Unless there goal was to game the Treasury market and create demand for T-bills.)

This decline is squarely on the shoulders of Washington, from the President to the Senate. The uncertainty they have created, is causing this.

Many argue the market had a big run, but when factor in this quarter's earnings, valuations are not grossly overvalued as pundits are making them out to be. Its simply not the case.

And 'the smell' continues...

Trade - GS

I am playing GS for an expected pop on the testimony tomorrow. After reading this article, there appears to be evidence to show GS was willing to cancel the CDS' provided AIG made payment based on GS' real-estate valuations. Obviously that did not happen.

I think tomorrow will show GS, and the NY Fed, were not to blame for anything.

Also, GS is very oversold (from a short-term and long-term perspective), and a upward correction is due.

Would like to see a move to 165, but I am expecting a move to 160.

Market Thought... the smell

Its everywhere.

-The Administration stinks. The pandering to populist bullshit, and diverting attention from its continued short-comings in Washington, is causing uncertainty within the Street. (And I am a big fan of President Obama, but he lost a lot of brownie points last week due to this.)

-The Senate smells like stupid. The fucken morons do not get it. You vote Bernanke out, the probably of going into a Depression severely increases, and they will all be out of jobs. They vote to reconfirm him, they have a fighting chance. I love the way they blame him for the short comings of themselves. Bernanke does not have a doctrine to create jobs, that is the duty of the free market, and he makes sure the markets are functioning responsibly. (Which HE IS DOING!) He set to motion plans that simply can not be stopped over night, and the best person to run them and unwind them, is the person that put them in place. The Senate's pandering to populist bullshit is causing uncertainty, and will ultimately hurt this country very badly if they act stupidly.

-The markets smell like fear. Did you know the VIX is up 57% in 2-3 days? Why? Just take a deep breath and enjoy the nasty smell from Washingtion. (When the markets rise 60% everyone cries 'overvalued', but when the Vix does it, everyone cries 'sell the market'. Doesn't make too much sense does it.)

I highlighted when to protect (via my Market Thought... confusion post and indicated as such from the 'maybe, just maybe' and 'fear too soon' market posts), but the above events, IMO, exacerbated the decline and added more uncertainty than what the markets should be expecting, especially within the financials. Regardless, this is the situation we find ourselves in.

From a technical perspective, we are at a juncture that I wanted to become an aggressive buyer.


See how the Vix (blue line) approached the dotted upper red line. Also, many many names are very very oversold, and seem reasonably priced for a recovering economy.

But that smell coming for Washington is really giving me a fucken headache, and makes me question Washington's ability to lead.

So, how do we trade around 'the smell'?

Since some of my 'buy' triggers were achieved, I repositioned some options expecting a bounce on Monday. But I am also in 'day-trader' mode now. (Since many of you do not day trade, I am not going to post all my trades continuously.)

On Monday I will reposition my portfolio.

1. I will sell GS, regardless of it being up or down. (Its main function was to act as an income generator with the cash I am not using to actively trade, thinking it would trade in a channel, but 'the smell' is really fucking with the stock, and the income thesis is shot to hell. Although I think it is ridiculously inexpensive right now, 'the smell' can possibly make it go below 100.)

2. I will sell COST if I have to raise capital to invest else where. It is very oversold, and am expecting a pop to 59-60. But below I have developed a list, and if opportunities arise from that list, I would prefer them over COST.

3. Doing nothing with IBM.

4. PWR - the same reasoning as #2. But I expect a pop to the 20 level.

If Bernanke gets reconfirmed, I would like to enter these names with a declining market:

CHK - low/mid 20s
F - mid 8
IBM - low 120s
SQM - mid 30s
AAPL - around 185
GOOG - around 500
PBR - mid 30s (assuming oil remains above 66)
GS - there is technical support around 140, but I will have to re-evaluate how bad the smell is at that point in time

Now, the above market thesis assumes Bernanke gets reconfirmed, and is a positioning toward Bernanke not being reconfirmed. IF, Bernanke does not get reconfirmed, I am expecting the market to be a blood bath. I will...

1. sell all my positions (everything)
2. go short heavy the market via the 110 March Puts.

I will cover my market short position when the Vix overlay of the SP500 (via an 11 month perspective on the chart, approaches the SP500 level of 1150). That might not make a lot of sense to people who do not follow the vix much, but it does for those that do. (interpretation of data is what separates traders, and why many consider it Voodoo) I see a pattern w/in the 'SP500/Vix overlay' chart that suggests that will be the market bottom for such a thesis-shifting event.


I really pray the Senate is not that stupid. (seriously)

I will have very little confidence in the global economy, and will simply take short-term trades, after I think the markets bottom.