Traders,
I am starting to think my trader friend was write and the April 1st rally was more April Fools than anything else – the fools thinking (overnight) the economic landscape magically changed. The market faced serious stalling after the run and we did have some additional short-covering (as I was informed) the following morning – but for the most part the euphoric hopeful optimism was done and reality injected it’s ugly self again. Continue to expect BIG volatility UP and DOWN as we have a long way to go both economically and politically – before we even see the light at the end of the tunnel. The Political card has not been played yet, we still don’t even know which Democrat will be running, let alone who the president (and subsequently) economic and political agendas set forth – again injecting MORE (not less) volatility. So stay vigilant and don’t buy into a one day move (up or down) as to a top or bottom in this uncertain market.
______________________________________
Commodities rocketing
Rice and Corn are hitting record highs – following oil, gold, steel, cement, and other commodities. Jimmy Rogers back in late 2006 predicted that commodities will be the next big bull market – from OIL, Corn, Steel, Cement, etc. His forecast was predicated on a booming Asian area. He made a statement (which I will butcher) that China, India, and others are in their prime industrial, service, and technological revolution at the same time – giving RAPID growth in all sectors. However – it will be commodities more than anything else that are needed to build these new massive economic growth areas. Additionally – these nations (unlike the US) have a MASSIVE consumer group. All these Asians – that once were paid pennies a day to stitch shirts together or living in the rural areas will start increasing their income (slowly but surely) and will start purchasing items – from TVs, DVDs, Cell Phone, Cars, etc. And unlike other nations they can build and sell from with-in. Their biggest NEED will be commodities (staple products) to sustain the growth.
He was right – these nations are growing very fast (hype fast) and while it will slow (the hyper growth) it will continue to mount. While Rogers has openly admitted to shortening the dollar, pulling his money out of US equities, and getting long commodities and Asian growth sectors. I feel there are still valuable companies in the US that can and will participate in China (and Asia’s) growth sector – however there is a catch – the DOLLAR. These companies may take advantage of the currency swap as to their margins – but we as investors don’t we have to buy these stocks with US dollars and still may feel the pinch of the dollar getting smacked down. So make sure (making those investments) to hedge your dollar (inflation) exposure risk.
There are also ETFs, Futures, and other great products (not just US equity – stocks) to participate in this booming growth. We can’t stop it – and I think in a decade’s time China, India, and other parts of Asia will surpass the US as being the Economic Super Power. Do NOT be patriotic with your investments – be smart. The smart money (Buffet, Rogers, Pickens, Ross, etc.) have all made continual trips to China – they know growth, they are looking for growth, they are following the money – they do NOT get married to stocks.
_____________________________________
Late payments on the rise – it’s just not the Housing Bubble anymore!
Consumers fell behind on car, credit-card, and YES home equity loans to the highest levels in 15 years according to the American Bank survey. With jobless claims on the rise and consumers being tapped out of credit lines – spending is slowing. Several firms in Europe are predicting the slow-down in spending to reach their shores as well. While Europe has a positive savings rate among citizens – and therefore I don’t think they will be hurt nearly as bad – they did invest heavily in the credit/debt growth of the US.
American Express and Capital One have doubled their reserves to TRY to ride out the storm as late payments mount – but they continue to lend. Late payments on car loans (which make up 2/3rds of all closed-end consumer loans increase to 1.9% and is expected to surpass 2% by end of the 2nd quarter.
With commodity prices (food, gas, energy) at these levels – late payments will ONLY continue to rise. If the commodity prices rise further – expect the late payments (and defaults) to increase exponentially – as credit lines are further tapped out.
Don’t ever forget it is the CONSUMERS of this nation that keeps the wheels spinning. Traditionally this country spends more than it earns (as tracked by negative savings rates and the ever increasing credit card purchases – as tracked by Wal-mart.). The last big bull market was spurred when people “realized” that their homes had “untapped” credit lines and went on the next massive spending cycle – which they could not pay back. To get MORE credit they bought more homes.
We are in for the BIG crunch – I am sure it is only going to get uglier before it gets better.
Additionally – this will put more pressure on the dollar.
__________________________________________________________________
Initial Jobless claims rose – unexpectedly
Jobless claims increased by 38,000 to the highest levels since Hurricane Katrina (which put undue stress in the South) – unfortunately this time it wasn’t an act of God that had created a short-term bust – this is an larger economic problem that is hitting all corners of this nation. The credit lines are tapped and companies (as shown by business purchasing last month) are battening down the hatches and are getting squeezed. The weak dollar, slowing consumer spending, increased shipping and fuel prices are forcing companies to shed jobs to keep margins wide. The implosion of the housing market has also knocked out huge sectors of the economy (from construction, finance, mortgage companies, real-estate agents, etc. – all shrinking rapidly).
Expect the recession (if not already here) to be deeper and last longer than some expect. Unless these things change – margins will only get squeezed further.
__________________________________________________________________
Futures in the Pre-Market
Futures are taking a little hit in the pre-market as the reality of the economy sets in – the Jobless claims, oil still above $100, and the dollar sliding – have not gone away after the $400 point rally April Fools rally. Goldman and Bill Gross have forecasted continual write downs and more stress to come. Futures are pretty flat to the cash basket in the pre-market – so I don’t expect the sell program to kick in too much at the opening – but if the futures get ahead – expect more pressure on the basket.
__________________________________________________________________
Support /Resistance
We could get any follow-through from that MASSIVE rally – which is too bad. Everything has stalled and the jobless claims are putting new stress on the down side.
INDU 12250 / (12500) 12750 (We got close to 12750 which was the short area – and are just hovering above 12500 – If we hit 12500 do NOT get long. If you think it will bounce ONLY get flat with gamma. Cause if we don’t hold 12500 we will fall pretty fast. – if we pop up to 12750 area – look to get short – but over hedge incase of another short-covering rally – which I think is less likely – but could still happen.)
NDX 1800 / 1850 (This is a shorting area – but ONLY fully or over hedged to the upside – incase of another short-cover rally spike. The tech sector is still massively infused with short positions – so it could get a short covering rally. But I don’t know how many buyers really want to step in after the massive rally we had already. )
SPX 1300 (1350) / (1375) 1400 (Between 1350 – 1375 is a very whippy area and not a place to take big hard deltas – play the long and short game in here fully hedged and use soft deltas to get gamma on your sheets. Between 1375 – 1400 is the area to take bigger short hard deltas (but fully hedged or over hedged for positive bullets to the upside)
RUT 680 / 720 (The RUT is stuck – and if it gets back below 700 - that will certainly be the resistance area going forward. )
___________________________________________________________________
Conclusion
It seems that just when everyone says the worse is behind us and we get that euphoric rally – reality
sets back in and we realize that nothing has really changed. The consumer is lowering their standard of living to meet utility efficiency which is curtailing spending. They are tapped out and don’t have cash. It’s easy to get sucked into the rally’s and listen to talking heads stating that they can see the light at the end of the tunnel and NOW is the time to get NAKED LONG FINANCIALS and STOCKS, maybe because that is ALL they know?
The storm is still looming and hedging your positions is the NUMBER 1 issue. Its principal protection time – not a time to be a hero or take unwarranted risks trying to pick the next Google.
Traders – use soft deltas to load up on gamma. Watch your short-Vega positions – while they work on the pop – they will pull you down on the drop. Extra bullets on both ends will give you needed ammo to take MASSIVE hard delta positions when the intrinsic value kicks in. However – all current hard deltas should be hedged (or over hedged for the inverted play.)
I am starting to think my trader friend was write and the April 1st rally was more April Fools than anything else – the fools thinking (overnight) the economic landscape magically changed. The market faced serious stalling after the run and we did have some additional short-covering (as I was informed) the following morning – but for the most part the euphoric hopeful optimism was done and reality injected it’s ugly self again. Continue to expect BIG volatility UP and DOWN as we have a long way to go both economically and politically – before we even see the light at the end of the tunnel. The Political card has not been played yet, we still don’t even know which Democrat will be running, let alone who the president (and subsequently) economic and political agendas set forth – again injecting MORE (not less) volatility. So stay vigilant and don’t buy into a one day move (up or down) as to a top or bottom in this uncertain market.
______________________________________
Commodities rocketing
Rice and Corn are hitting record highs – following oil, gold, steel, cement, and other commodities. Jimmy Rogers back in late 2006 predicted that commodities will be the next big bull market – from OIL, Corn, Steel, Cement, etc. His forecast was predicated on a booming Asian area. He made a statement (which I will butcher) that China, India, and others are in their prime industrial, service, and technological revolution at the same time – giving RAPID growth in all sectors. However – it will be commodities more than anything else that are needed to build these new massive economic growth areas. Additionally – these nations (unlike the US) have a MASSIVE consumer group. All these Asians – that once were paid pennies a day to stitch shirts together or living in the rural areas will start increasing their income (slowly but surely) and will start purchasing items – from TVs, DVDs, Cell Phone, Cars, etc. And unlike other nations they can build and sell from with-in. Their biggest NEED will be commodities (staple products) to sustain the growth.
He was right – these nations are growing very fast (hype fast) and while it will slow (the hyper growth) it will continue to mount. While Rogers has openly admitted to shortening the dollar, pulling his money out of US equities, and getting long commodities and Asian growth sectors. I feel there are still valuable companies in the US that can and will participate in China (and Asia’s) growth sector – however there is a catch – the DOLLAR. These companies may take advantage of the currency swap as to their margins – but we as investors don’t we have to buy these stocks with US dollars and still may feel the pinch of the dollar getting smacked down. So make sure (making those investments) to hedge your dollar (inflation) exposure risk.
There are also ETFs, Futures, and other great products (not just US equity – stocks) to participate in this booming growth. We can’t stop it – and I think in a decade’s time China, India, and other parts of Asia will surpass the US as being the Economic Super Power. Do NOT be patriotic with your investments – be smart. The smart money (Buffet, Rogers, Pickens, Ross, etc.) have all made continual trips to China – they know growth, they are looking for growth, they are following the money – they do NOT get married to stocks.
_____________________________________
Late payments on the rise – it’s just not the Housing Bubble anymore!
Consumers fell behind on car, credit-card, and YES home equity loans to the highest levels in 15 years according to the American Bank survey. With jobless claims on the rise and consumers being tapped out of credit lines – spending is slowing. Several firms in Europe are predicting the slow-down in spending to reach their shores as well. While Europe has a positive savings rate among citizens – and therefore I don’t think they will be hurt nearly as bad – they did invest heavily in the credit/debt growth of the US.American Express and Capital One have doubled their reserves to TRY to ride out the storm as late payments mount – but they continue to lend. Late payments on car loans (which make up 2/3rds of all closed-end consumer loans increase to 1.9% and is expected to surpass 2% by end of the 2nd quarter.
With commodity prices (food, gas, energy) at these levels – late payments will ONLY continue to rise. If the commodity prices rise further – expect the late payments (and defaults) to increase exponentially – as credit lines are further tapped out.
Don’t ever forget it is the CONSUMERS of this nation that keeps the wheels spinning. Traditionally this country spends more than it earns (as tracked by negative savings rates and the ever increasing credit card purchases – as tracked by Wal-mart.). The last big bull market was spurred when people “realized” that their homes had “untapped” credit lines and went on the next massive spending cycle – which they could not pay back. To get MORE credit they bought more homes.
We are in for the BIG crunch – I am sure it is only going to get uglier before it gets better.
Additionally – this will put more pressure on the dollar.
__________________________________________________________________
Initial Jobless claims rose – unexpectedly
Jobless claims increased by 38,000 to the highest levels since Hurricane Katrina (which put undue stress in the South) – unfortunately this time it wasn’t an act of God that had created a short-term bust – this is an larger economic problem that is hitting all corners of this nation. The credit lines are tapped and companies (as shown by business purchasing last month) are battening down the hatches and are getting squeezed. The weak dollar, slowing consumer spending, increased shipping and fuel prices are forcing companies to shed jobs to keep margins wide. The implosion of the housing market has also knocked out huge sectors of the economy (from construction, finance, mortgage companies, real-estate agents, etc. – all shrinking rapidly).
Expect the recession (if not already here) to be deeper and last longer than some expect. Unless these things change – margins will only get squeezed further.
__________________________________________________________________
Futures in the Pre-Market
Futures are taking a little hit in the pre-market as the reality of the economy sets in – the Jobless claims, oil still above $100, and the dollar sliding – have not gone away after the $400 point rally April Fools rally. Goldman and Bill Gross have forecasted continual write downs and more stress to come. Futures are pretty flat to the cash basket in the pre-market – so I don’t expect the sell program to kick in too much at the opening – but if the futures get ahead – expect more pressure on the basket.
__________________________________________________________________
Support /Resistance
We could get any follow-through from that MASSIVE rally – which is too bad. Everything has stalled and the jobless claims are putting new stress on the down side.
INDU 12250 / (12500) 12750 (We got close to 12750 which was the short area – and are just hovering above 12500 – If we hit 12500 do NOT get long. If you think it will bounce ONLY get flat with gamma. Cause if we don’t hold 12500 we will fall pretty fast. – if we pop up to 12750 area – look to get short – but over hedge incase of another short-covering rally – which I think is less likely – but could still happen.)
NDX 1800 / 1850 (This is a shorting area – but ONLY fully or over hedged to the upside – incase of another short-cover rally spike. The tech sector is still massively infused with short positions – so it could get a short covering rally. But I don’t know how many buyers really want to step in after the massive rally we had already. )
SPX 1300 (1350) / (1375) 1400 (Between 1350 – 1375 is a very whippy area and not a place to take big hard deltas – play the long and short game in here fully hedged and use soft deltas to get gamma on your sheets. Between 1375 – 1400 is the area to take bigger short hard deltas (but fully hedged or over hedged for positive bullets to the upside)
RUT 680 / 720 (The RUT is stuck – and if it gets back below 700 - that will certainly be the resistance area going forward. )
___________________________________________________________________
Conclusion
It seems that just when everyone says the worse is behind us and we get that euphoric rally – reality
sets back in and we realize that nothing has really changed. The consumer is lowering their standard of living to meet utility efficiency which is curtailing spending. They are tapped out and don’t have cash. It’s easy to get sucked into the rally’s and listen to talking heads stating that they can see the light at the end of the tunnel and NOW is the time to get NAKED LONG FINANCIALS and STOCKS, maybe because that is ALL they know?The storm is still looming and hedging your positions is the NUMBER 1 issue. Its principal protection time – not a time to be a hero or take unwarranted risks trying to pick the next Google.
Traders – use soft deltas to load up on gamma. Watch your short-Vega positions – while they work on the pop – they will pull you down on the drop. Extra bullets on both ends will give you needed ammo to take MASSIVE hard delta positions when the intrinsic value kicks in. However – all current hard deltas should be hedged (or over hedged for the inverted play.)
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