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Saturday, May 23, 2009
Indicators of equity market "internals" show strength now replaced by deterioration
Equity market internals for the S&P 500, Nasdaq and NYSE have deteriorated, as shown by these charts we'll review. My chief concern is not just that the indicators are at low levels, but that they've turned down from very high levels. I wonder whether this means there's "so much room down there below" that the markets themselves are vulnerable to retesting the March lows instead of doing a simple pullback. There are a lot of people now thinking that the markets will trace out just a pullback and then move to much higher levels. One way this is described is making the right shoulder of a reverse head and shoulders (H&S). We need to keep track of whether the markets will retain enough strength to do that, instead of just plumbing new lows. Here are various charts depicting this. For example, the bullish percent chart for the S&P 500 (BPSPX) which tracks the ratio of stocks in this index that are above their 50-day moving averages, recently reached a high even higher than in October 2007, and has rolled over to point downward:
http://unbiasedtrading.blogspot.com/2009/05/indicators-of-equity-market-internals.html
Thank you so much.
A prayer request for a woman named Dee who has cancer, please. I know prayers matter for I've seen the result in my own life, so would greatly appreciate the prayers of anyone reading this.
Thank you,
Lexi
Jeff...Thanks so much.
Lexi
Absolutely and hard to believe anyone with market savvy at all would fall for it.
Zero Hedge
"ON A LONG ENOUGH TIMELINE, THE SURVIVAL RATE FOR EVERYONE DROPS TO ZERO"
Friday, May 22, 2009
Chasing The Diminishing Marginal Buyer
Posted by Tyler Durden at 10:39 AM
In a flagrant example of chasing the marginal buyer as others offload their shares, Morgan Stanley just came out with a research piece which upgrades the price targets of virtually all banks by 33% on average (better known as stratospheric escape velocity).
It would seem Goldman's upgrades are not sufficient to bring the slowest, marginal buyer into the fray - the effort has now gone viral. Most amusing is the Bank Of America new target price which is increased from $25 to $32: quick, if readers call and buy at least 100 BAC shares in the next 10 minutes, they can lock in a phenomenal, unprecedented, one-time 180% upside to target. In fact, if you buy now, you will also get not one, not two, but 4 Sham-Wows to soak up the tears in 3 months when the upside to the new target will be roughly 1000%.
Among Morgan Stanley's key bullet points which are supposed to bring mom and pop bank stock buyer out of hibernation are:
Raising price targets on the large-cap banks by 33%, on average, due to lower betas and a resulting lower cost of equity (lower beta? we hope MS realizes that financial stocks ARE beta these days, as for lower cost of equity, that will likely be better evaluated once State Street and BoNY actually allows shorting in financials to return)
TARP: We think most banks will repay TARP by 4Q09 (well, duh - someone has to get paid bonuses without Barney Frank having a say in it)
We use 2012 for normalized earnings (phew, most others are pricing in 2049 future earnings: good to see that MS retains credibility and has really good visibility over the next 3 years)
Attractive industry view. We believe the risk of the bear case has been significantly reduced (you don't say)
In other news: tomorrow BAC upgrades BAC on the thesis that other banks will upgrade it.
P.S. Amusingly, in the compost heap of vile intentions known formerly as the equity market, BAC now is down while RF (which had the dubious distinction of being the only stock which had its TP lowered by MS) is up.
As for BAC's "low beta", it is indeed true that at Raw Beta of 2.806 (see below) there are only about 400 companies in the S&P 500 that have a lower beta.
http://zerohedge.blogspot.com/2009/05/chasing-diminishing-marginal-buyer.html
David Rosenberg: The Short-Covering Rally Is Finished, Here Comes The Leg Down
Joe Weisenthal|May. 19, 2009, 6:06 PM
Recently departed Merrill Lynch bear David Rosenberg is out with his first report from his new outfit, Gluskin Sheff.
Not surprisingly, he picks up where he left off from his last report out of Merrill. He explains further why he believes that this big, two-and-half month runup is a sucker's rally based on short covering in the trashiest, low-quality stocks.
The Pragmatic Capitalist offers up a big chunk of the letter:
WHAT TO DO IF THE BEAR MARKET RALLY HAS ENDED?
The bulls enjoyed and the bears endured a massive 37% rally in the S&P 500 from the March 9th lows to the May 8th highs. Both in terms of duration and magnitude, this proved to be the most intense rally during this 20-month long bear market. And, the bounce has been so impressive that it has taken what was widely considered to be a massively undervalued stock market in early March to one that is now at least moderately expensive. (The FTSE All-World market P/E ratio on forward earnings estimates is now around 15x, well above pre-Lehman collapse levels and nearly double the lows for the cycle.)
Since the rebound from the March 9th lows was again led by the four sectors that led the decline during the bear phase – financials, consumer discretionary, materials and industrials – it stands to reason that this was just another counter-trend rally. What we know about history is that the sectors that led the downturn are never the ones to emerge as leaders in the next sustainable bull market.
The fact that the best performing stocks were the ones with the lowest quality ratings and with the largest short interest says a lot about the nature of this rally as well — the 50 heaviest shorted stocks tripled the advance among the 50 least shorted stocks — that its sustainability is in doubt. In other words, this was a rally built largely on short covering, pension fund rebalancing and the emergence of hope wrapped up in ‘green shoot’ data points. Technical factors ostensibly played a role too because the bounce in March came off the most oversold levels in the equity market since 1932 and the rally ended just as the S&P 500 kissed the 200-day moving average – as it has been known to do in these bear market rallies. In the aftermath of the weak April U.S. retail sales results (see more below) even in the face of the latest round of tax relief, some second-guessing over the extent of any second half economic recovery has occurred. This may have shown up in the markets towards the end of the latest rally as volume weakened as the major averages advanced. Considering that cyclical bear markets typically end 4-5 months before recessions run their course, it is imperative that the downturn ends by August to justify the March lows in the S&P 500 and the other major averages. As doubts emerge over whether in fact the green shoots amount to anything more than dandelions, it now looks as though the major averages are about to embark on the fabled retesting phase towards the March lows. (We should add that the just-released consensus forecasts published by the Philly Fed show that professional economists just trimmed their Q3 real GDP projections to a 0.4% annual rate from the 1.0% estimate previously.)
We will be watching to see whether the lows hold as they did in March 2003, which symbolized the onset of the cyclical bull phase at the time; or whether this turns out to be a violation of the lows as was the case in the summer of 2002, which represented the final severe leg of the tech-induced bear market of that prior cycle.
For the near-term, it matters little because the testing process does seem to be in place right now and this carries with it well-established investment patterns. Over the past year, we have seen four other testing phases (they all failed as the market did break to new lows). Under the proviso that the S&P 500 hit an interim peak back on May 8th at 930 (it is down 3% since, even with yesterday’s bounce), here is what the recent historical record tells us to expect (at a minimum, take profits).
• The average length of the testing phase is 53 calendar days and 38 business days (versus 45 calendar days and 33 business days for the interim bear market rallies).
• On average, the S&P 500 undergoes a correction of more than 20%.
• The sectors that led during the rally, corrected most during the selloff. This means that financials, consumer discretionary, materials and industrials should underperform in the next few months, while health care, consumer staples, utilities and telecom services should emerge as the leaders.
• Market volatility more than doubles, on average.
• Bonds rally, with the 10-year Treasury note yield down nearly 15 basis points, on average.
• The flight-to-safety during these periods means that the Canadian dollar declines (on average by 10%), while the trade-weighed U.S. dollar rallies more than 6%.
• Commodity prices decline an average of 15%, again as cyclical trades unwind.
• Corporate spreads (Baa) widen an average of more than 60 basis points; it is very important to be focused on high-quality paper during these market testing periods as high-yield spreads widen, on average, by more than 300 basis points (and keep in mind the vast outperformance, which is typical, during the bear market rallies).
• What we discovered during this process was that gold performed quite well during both the bear market rallies and the subsequent sell offs (and despite the flows back in the U.S. dollar). This may be an indication that gold is in a secular bull market.
• So what works best during the retest? Health care, staples, utilities; high quality bonds; the U.S. dollar.
http://www.businessinsider.com/david-rosenberg-the-short-covering-rally-is-finished-here-comes-the-leg-down-2009-5
Financials are holding unbelievably stronger than I would expect on this move down. I heard that a guy on FAST MONEY the other night said that mutual fund companies had bought, doubled and tripled down, and did not appear to be selling the financials.
Oh, I believe you. No problem there. There are lots of things I miss. BTW, guy was just on cnbc saying that if our country's rating is in doubt then a risk premium will be put on things...in short, I can't see how it would be anything but a neg for the whole econ, banks included.
Thanks. I remember for a long time I didn't see it, but I really don't remember looking when it was running. There went that theory. Think the close of today will tell us a lot about if fear has really set in. Not sure if I posted this here or not but Pimco's Gross was on TV saying the sell off is due to fears that U.S. is at risk of losing AAA rating.
LOLLLLLLLLLLLL You think it's because FAZ is the one going up and not FAS? Maybe they just report the one going up.:)
As I understand it, S & P has good S @ 875 and if that breaks, we could go to 825.
I saw that too.:) BTW, FAS broke below its trend line.
BAC...To irritate you further...:)
Insider Summary
Last 3 Mo. Last 12 Mo.
Number of Insider Trades: 8 69
Number of Buys: 8 53
Number of Sells: 0 16
Net Activity: 205,693 1,805,670
Total Shares Traded: 205,693 3,417,418
Number of Shares Bought: 205,693 2,611,544
Number of Shares Sold: 0 805,874
So 0 shares sold the last three months, yet 205, 693 were insider buys.:)
I'm still dazzled by how it traded higher after diluting the company by 800M shares.:)
If this is the beginning of a move up, on a fib extension calculator, I put the low of this move (A= 4.43). the high of the move up (B=6.35), then the low of the retrace (C=4.62). Targets given are:
5.81
6.54
7.73
Now of course this would be nearer term.
http://www.ddmachine.com/default.asp
Click on FIB EXTENSION CALC if you want to do this method.
FAS has made a lower low than the past two day's lows.
I've been watching my streamer since the info on Fed came out and there hasn't been much of a move either way on things that I can tell. NYSE Financial Index is a bit green, then a bit red, and now a bit green.:) DIA doesn't seem to have made much of a move either.
http://finance.yahoo.com/q/cq?d=v1&s=C+CBH+WFC+BAC+BK+COF+amtd+ben+bsc+cof+cme+etfc+fii+fig+fcsx+gs+itg+ice+ing+leh+pru+mer+nmx+nyx+trad+trow+jpm++
**Edit..in the time it took to make that post things turned green even more..
UEC...Nice move up today...@1.63, if it passes 1.69, a previous high, I would think it would really move up then.
Would you kindly tell me what to do in order to put a whole group of symbols into a portfolio at once instead of one at a time. I did it awhile back, but don't remember how to do it.
Thank you,
Lexi
FAZ passed yesterday's HOD and the MACD on the daily has been improving. I'd just like to see it move up for more than a day. We need it to pass 6.35 for more conviction.
"It's because the recent rally in FAS and the banking stocks is basically B-S,"
Agree with you that this push up in financials certainly wasn't based on any merit.
You know I just told my husband the very same thing.:)
Thanks for input. An observation...
It seems to me that with FAS and FAZ, the one that is lower in price often trades a greater % of shares than the other one. Right now FAZ is 103M and FAS is 101M which to me isn't the norm.
Art Cashin says the bears had the ball and now the bulls have it.:)
Right...thinking those blue skies are about to have darkening clouds.:)
Correct me if I'm wrong, please; but it seems to me I read somewhere that when utilities are doing very well it indicates a market top. If so, look how utilities are going...
http://stockcharts.com/def/servlet/Favorites.CServlet?obj=msummary&cmd=show,iday[Y]&disp=SXA
BTW, agree with you that we are on the brink of a big drop that will be more than just a few days. Can't believe BAC is up after announcing additional dilution yesterday. Don't you love it when one loser bank upgrades another?:)
Lexi
Can't believe it. BAC announced selling all those shares, now it's up. How can dilution be something to celebrate????
I watch that show and I heard the guy who appeared to be very biased toward BAC. I'm just betting he has a lot of shares and is protecting his holding.
Right, but unfortunately CC holders are going to have to wait nine months, I believe, before they go into effect.
Understand what you mean. I mostly post on a board at SI and I mentioned in a post that I've been hesitant in posting some of the things that I wouldn't hesitate to post here. Why? I don't want to be a downer, even though I feel we are going to have a significant retracement. Since this is a bear BB, I tend to post more of that nature here. I understand that you're supposed to take what the market gives you and not trade in a biased way for the market often acts differently than common sense tells us it should. First of all the banks took on all that risk, then they took massive losses and were allowed to write off many of them, next came the bailout, earnings season was a farce, and due to a change in rules, taxpayers supporting banks, and any number of things the banks continue to be up. Surely the time is now for some reality to hit.
Lexi
BAC offering 800M shares at $10 a share according to CNBC.
Thanks. CNBC says: BANKS MYSTERIOUSLY LOWER IN AHs.:)
Think CNBC said JPM had a CC and apparently some less than favorable things said. In addition, they mentioned BAC shares dropping in AHs.
Was there news? I just looked again and FAZ is gaining and FAS is dropping along with some financial companies.
FAZ..Yes, moving nicely in AHs. I've been keeping an eye on volume of FAS and FAZ trying to get a better understanding of them and their movement. FAZ traded over 40M shares more today than yesterday and by the looks of it, a very nice amount came at the end with those huge block trades.
That's looking for the good. LOL
Wow, look at the huge blocks of FAZ that went through at EOD:
05/19/09 15:59:23 5.1101 5.11 5.12 210212
05/19/09 15:59:25 5.11 5.11 5.12 204225
05/19/09 15:59:27 5.10 5.10 5.11 325781
05/19/09 15:59:28 5.10 5.10 5.11 91895
05/19/09 15:59:29 5.1001 5.10 5.11 203676
05/19/09 15:59:30 5.10 5.10 5.11 160340
05/19/09 15:59:31 5.09 5.09 5.10 261736
05/19/09 15:59:33 5.0925 5.09 5.10 53238
05/19/09 15:59:35 5.09 5.09 5.10 212819
05/19/09 15:59:37 5.09 5.09 5.10 104727
05/19/09 15:59:38 5.09 5.09 5.10 47825
05/19/09 15:59:39 5.0901 5.09 5.10 263520
05/19/09 15:59:40 5.09 5.09 5.10 140111
05/19/09 15:59:41 5.09 5.09 5.10 46140
05/19/09 15:59:42 5.09 5.09 5.10 68470
05/19/09 15:59:45 5.10 5.09 5.10 33120
05/19/09 15:59:46 5.09 5.09 5.10 66916
05/19/09 15:59:46 5.09 5.09 5.10 149815
05/19/09 15:59:48 5.09 5.09 5.10 184915
05/19/09 15:59:48 5.0901 5.09 5.10 17320
05/19/09 15:59:49 5.0901 5.09 5.10 77260
05/19/09 15:59:50 5.0901 5.09 5.10 24667
05/19/09 15:59:51 5.0901 5.09 5.10 39460
Another thing I've noticed is lower volume and how we often move up during the day on this low volume; that happened today and FAZ was taken down. IMHO distribution took place and now FAZ is up again.
Think this is worth reading:
Buried in a puff-piece story about the TARP is an admission that the folks in Congress (and in Topeka Kansas) ought to pay attention to:
May 19 (Bloomberg) -- Goldman Sachs Group Inc., JPMorgan Chase & Co. and Morgan Stanley applied to refund a combined $45 billion of government funds, people familiar with the matter said, a step that would mark the biggest reimbursement to taxpayers since the program began in October.
The three New York-based banks need approval from the Federal Reserve, their primary supervisor, to return the money, according to the people, who requested anonymity because the application process isn’t public. Spokesmen for the three banks declined to comment, as did Calvin Mitchell, a spokesman for the Federal Reserve Bank of New York.
Ding ding ding ding.
So where is the Congressional scrutiny that should come when a primary supervisor fails to prevent these institutions finding themselves in a position where they need to take a combined $45 billion of taxpayer money to stay afloat, irrespective of when or if they pay it back?
Missing, that's where.
And yet as I noted in the White Paper yesterday, this entire mess has in fact been due to one and only one thing: The regulators in charge of the banking system allowed banks to write more in unsecured loans than they had in excess capital, resulting in hundreds of billions of dollars of loss that was shifted to the taxpayer, over $20 billion in direct losses taken by the FDIC, and over $2 trillion more in "direct and indirect support" by The Fed - all of which has become a taxpayer liability.
Wake up America.
Your 401k became a 201k, you lost your job and your house not due to some random event or some "ordinary business cycle", but rather as a direct and proximate result of regulatory malfeasance and misfeasance among those who have the direct and proximate responsibility for making sure that our financial system operates in a safe and sound manner.
And the worst part of it is that you're still snoring away to American Idol instead of raising hell with Washington DC, demanding that every single person involved in and responsible for this winds up losing their house - and their freedom.
Disclosures: Still short Bernanke and The Fed up to my neck.
http://market-ticker.org/archives/1048-Admissions-Hidden,-but-Admissions.html
American Express, Interpublic, MGM Mirage: U.S. Equity Preview
Share | Email | Print | A A A May 18 (Bloomberg) -- The following companies may have unusual price changes in U.S. markets tomorrow. Stock symbols are in parentheses after company names, and prices are as of 5:50 p.m. in New York, unless stated otherwise.
Standard & Poor’s 500 Index futures expiring in June added 0.3 points to 907.40.
American Express Co. (AXP:US) lost 0.4 percent to $26.02. The largest U.S. credit-card company by purchases will cut about 6 percent of its workforce as cardholders squeezed by rising unemployment fail to pay debts.
Interpublic Group of Cos. (IPG:US) added 2.3 percent to $5.38. The second-largest U.S. advertising company said in a regulatory filing it amended a credit pact, preserving its ability to tap the agreement if General Motors Corp. or any of its affiliates file for bankruptcy.
Invesco Ltd. (IVZ:US) lost 6.6 percent to $14.55. The manager of the Aim and PowerShares funds plans to sell $400 million of additional common shares. The sale of additional shares may dilute the value of those held by investors.
MGM Mirage (MGM:US) gained 2.4 percent to $8.95. The largest operator of casinos on the Las Vegas Strip amended its loan agreement with lenders led by Bank of America Corp. to waive covenant defaults and allow it to pay down debt, according to a filing with the Securities and Exchange Commission.
MSCI Inc. (MXB:US) fell 10 percent to $21.03. Morgan Stanley, the sixth-biggest U.S. bank by assets, plans to sell its remaining 27.7 million shares in the index provider in a public offering that may garner about $650 million.
To contact the reporter on this story: Eric Martin in New York at emartin21@bloomberg.net.
Last Updated: May 18, 2009 18:24 EDT
American Express, Interpublic, MGM Mirage: U.S. Equity Preview
Share | Email | Print | A A A May 18 (Bloomberg) -- The following companies may have unusual price changes in U.S. markets tomorrow. Stock symbols are in parentheses after company names, and prices are as of 5:50 p.m. in New York, unless stated otherwise.
Standard & Poor’s 500 Index futures expiring in June added 0.3 points to 907.40.
American Express Co. (AXP:US) lost 0.4 percent to $26.02. The largest U.S. credit-card company by purchases will cut about 6 percent of its workforce as cardholders squeezed by rising unemployment fail to pay debts.
Interpublic Group of Cos. (IPG:US) added 2.3 percent to $5.38. The second-largest U.S. advertising company said in a regulatory filing it amended a credit pact, preserving its ability to tap the agreement if General Motors Corp. or any of its affiliates file for bankruptcy.
Invesco Ltd. (IVZ:US) lost 6.6 percent to $14.55. The manager of the Aim and PowerShares funds plans to sell $400 million of additional common shares. The sale of additional shares may dilute the value of those held by investors.
MGM Mirage (MGM:US) gained 2.4 percent to $8.95. The largest operator of casinos on the Las Vegas Strip amended its loan agreement with lenders led by Bank of America Corp. to waive covenant defaults and allow it to pay down debt, according to a filing with the Securities and Exchange Commission.
MSCI Inc. (MXB:US) fell 10 percent to $21.03. Morgan Stanley, the sixth-biggest U.S. bank by assets, plans to sell its remaining 27.7 million shares in the index provider in a public offering that may garner about $650 million.
To contact the reporter on this story: Eric Martin in New York at emartin21@bloomberg.net.
Last Updated: May 18, 2009 18:24 EDT