Collapses, Corruption & Bailouts, Oh My!

Financial's and banking failures, the auto manufacturer's collapse, the Madoff debacle; I'm just waiting for one more shoe to drop and judge the market's reaction to it.  The recent settling of the markets (primarily due to the holidays) has been constructive in order for the indexes to put in a bottom.

At +492,000 Jobless Claims came in much better than expected with today's report.

Caterpillar (CAT)

Caterpillar (CAT 43.77), Ascending Triple Top Breakout, 12/17/08, p.o. of 58. I am watching for a push through $45.70 before taking any action.

Steve Jobs is Dead

No, not really.  That is the stuff of rumors and the very headline Microsoft would like to see while Apple shareholders would not.  While I wouldn't want to see Jobs go it is inevitable that he will and that Apple should get on with it sooner than later.  They need to shed themselves of this cult of personality created over the years.  The stock would come under pressure in the short term and considering their strong balance sheet, good product lines and market shares may present a nice buying opportunity.

Valleywag Blog

Gizmodo

Close Rydex Inverse 2X S&P 500

Close out any hedges, RSW.  The indexes aren't scary right now and down just 5 from the point the hedge was put on.

Q3 GDP at -.5% Afterall

The finalized Q3 GDP number was released today to be -0.5% coming in line with previous expectations.

BRCM (16.98)

Broadcom is looking pretty confident and trying to put in a bottom.  I'd love to see the stock now settle a little above its upturning 50 dma which is currently around $15.60.  We could be setting the stage for a leg up considering the 50 dma could turn to the upside coinciding with a possible breakout above $18.  

Perfect scenario: the stock trades within the 17 to 18 range for another couple of weeks allowing confidence to buildout a nice base.  At that point we'd be looking at an inclining 50 dma and a set up for a push through $18.  A move above 18 on heavy volume would be an all-clear.

AutoNation (AN 8.93)

Despite a possible White House bailout there is too much uncertainty surrounding this industry.  I'll let the entire position go for now and revisit.  I won't even mind buying it higher so long as some of the risk is mitigated.

AutoNation (AN 9.50)

AutoNation will find support at $8.10, incidentally right where the pre-market has it priced.  I'll show it the door if 8.10 can't hold.

Just short of posting it I'd thought that the White House would step up and provide the funds for the bailout out of the TARP money.  I think it's likely that they do but how the auto stocks will ultimately react is up in the air.  Seeking alpha but managing beta.  I've a very itchy trigger finger.

No Auto Bailout

The bailout for the US auto industry is seeing stiff opposition in the Senate.  Bloomberg article.

The US markets will be in for a rocky ride Friday as Asian markets are currently in the midst of a selloff with the Nikkei down over 5% and the Hang Seng down almost 7%.  

This failed bailout may be the stimulus that forces the markets to retest the bottom in short order. For the DOW that would mean nearly 7500, the NAZ, about 1300 and the S&P almost 740.  The RSW hedge put on at the close Thursday may help stifle the declines I expect.

What happens to our AutoNation position? There is too much uncertainty at this point and with an expected drop in the stock coming I'm going to be looking for the door.  

Is There Anything to Buy?

We'll watch these:

• Dollar Tree (DLTR 40.86); look for it to clear 42.20 on heavy volume (+4 mm)
• EZCORP (EZPW 16.35); operates over 400 pawn shops or payday loan businesses. Good economic climate for this sector. Good top line growth, strong balance sheet. They are currently expanding with the purchase of another 11 pawn shops in Nevada on the heels of a large acquisition last month of Value Financial Services. I'm looking for it to reach it's all-time high of $18.80 and hopefully offer up an entry point if the stock acts right.
• Caterpillar (CAT 42.20); Construction is down, the cost of steel is down, the stock has been beat down and spending on the US infrastructure may be on the rise.

Madoff

Bernie Madoff!  What the hell were you thinkin'? News like this regarding "investment professionals" will do nothing but further disenfranchise the American stock investor.

Rydex Inverse 2X S&P 500 ETF

The Indexes have reversed on the P&F.  Into hedge (RSW) right here, S&P 876.

URBN Getting Ripped

StreetInsider.com: Urban Outfitters Inc. (Nasdaq: URBN) 15% LOWER; Analysts note the company made cautious comments on sales trends in their 10-Q

And this is why you need an exit strategy with every position, even big winners.  With URBN it was time to book profits with a break below $20.

AutoZone (AZO $128.62)

Automotive replacement parts serve as a hedge against a slow or falling new car market.

Increased y/y revenues but lower earnings.  AZO is in the midst of a stock repurchase program. I'd like to see a break above 127 on heavy volume.  Lampert owns 40%.

AutoNation (AN 10.05)

Archiving some pertinent AutoNation news:

• 11/21/08 BusinessWeek: Gates discloses 10% stake
• 12/5/08 Tampa Bay Business Journal: Gates raises stake to 12.2%
• 12/8/08 Fox Business: Mike Jackson, "There will be a deal."
• 12/10/08 Miami Herald: Mike Jackson tells us why a bailout is needed

Carbon-based Life Forms

This is what it's all about.

Some day you'll wake up and discover that everything is worth nothing if you've done nothing with everything.  You must contribute.  You must figure out your way to a legacy.  Don't just breathe and consume.  Don't just take up space.  Don't just die another carbon-based life form. Maybe it's contributing your time.  Maybe it's advice. Maybe money. Whatever it is find your Carbon Way.

Auto Bailout

The "bailout" for GM, Ford and Chrysler has just passed the House.

Is the Sky Falling?

I've been advocating that a slowdown and, technically, a recession, was looming ominously for over a year and that defensive measures, positions and trades should reign supreme .  With all of the talk of another Great Depression, a worldwide collapse, and economic calamity I thought it time to gain some perspective.

It's been discovered now that the GDP was down .17% in Q4 of 2007 coupled with a Q3 2008 reading of -.25%.  Compare these reports with Q3 2001 of -1.4%, Q4 1990 (-2.99%) and Q1 1991 (-2.02%) and our current reports seem pretty tame.

The S&P is currently down approximately 45% from its high not unlike the decline of roughly 45%, peak to trough, following the 2000-01 slowdown and you can certainly draw parallels between the irrational exuberance of the internet bubble and the most recent real estate bubble. The S&P was off around 20% during the more orthodox and predictable 1990-91 recession bottoming in October 1990 preceding the Q4 1990 GDP report of -2.99% and the Q1 1991 reading of -2.02%, numbers that pummelled those of 2000 and 2008. The index went on to appreciate 25% by the end of Q1 1991.

I guess my point is this: it's futile to predict or gauge what will happen during this bout with a slow economy.  The economy has taken harder hits in the past yet the stock markets didn't react at the rate that we've seen in 2000 and 2008.  The great wealth effect of the world has created self-fulfilling prophecies.  The marketplace is now so complex, so dynamic, that the sheer magnitude and moving parts of the financial instruments, the immense scale of money flow is more culpable than bonafide economic activity.  It was simpler before the enormous marketplace - find demand, growth, and earnings and you can find ROI.  It was when research by way of EIC was simply Economy, Industry, Company.  You'd base your investments on companies that would perform in a given industry during a particular economic climate.  Now it seems to be EIC2 (squared); Economy, Industry, Company and Community (or Crowd).  And the community, the crowd, the cloud, well, therein lies the rub.  My thanks goes to Chris Skrinak, years ago, to opening my eyes on this.

So, is this going to be the worst financial crisis in our lifetimes? Worse than the oil shock of the 70s? Worse than the previous financial meltdown and real estate collapse of the 80s? Worse than Long Term Capital and the Asian Flu? Worse than the internet bubble? Worse than 9/11?

C'mon, is the sky really falling?  Or must you simply adapt, overcome and trade the market that we've been given?

Southern Company (SO 36.56)

Been keeping an eye on utilities.  Into a little Southern Company @ 36.47, underweighted.  

General Mills (GIS 61.73)

General Mills is simply not working for me.  Take the 5% loss and cut it loose.

Is Santa Coming?

Is this the beginning of the aforementioned Santa Claus Rally?

The indexes are making assaults on their resistance levels and the P&F charts are going double top breakout for all three today with price objectives of 10,600, 1890 and 1090.

• DOW closed at 8934 about 11 points (.1%) higher than my 8923
  
• NAZ, 1572, 18 (1.1%) short of 1590
  
• S&P, 910, 5 (.5%) short of 915

Sitting right on the resistance levels we'd indentified it will be interesting to see what happens now. Is Santa really coming?

Recent Successes

• Urban Outfitter's (URBN 20.68) support is $20.  A break below would warrant a sale of the position we'd taken at $13.76 on 11/20.
• Broadcom (BRCM 15.46), a break above $15.62 would be positive and even more so above $16.
• AutoNation (AN 10.16) has been very strong and hasn't taken a breath to allow another vest. It will run into trouble around $11.50-11.60.  I'm not identifying any point to get more  so, for now, just gotta' sit back, protect profits and watch.

Non-Farm Payrolls -533,000

The U.S. government reported that 533,000 jobs were lost and unemployment hit 6.7% in November, up from 6.5%. Read Forbes article.

Market Malaise

The US markets had a rough day yesterday:

• DOW -679.95
• S&P -80.03
• NAZ -137.50

Don't look at it as a buying opportunity. Don't look at an up day today as a buying opportunity. Outside of a few select names don't look at a bonafide buying opportunity until the resistance levels outlined yesterday are taken out.

Here's another article on the recession.

Take a Bite?

Our first entry into Apple (AAPL $89.50) was November 25, 2002, over 6 years and 1,300% ago. Due to the hype for so many years I've been apprehensive to enter again. Watching closely for a nibble. Apple is trading with a Current Ratio of 2 and just 6X cash. See their 10K.

Maybe we'll take a bite in the low 80s?

Pitfalls Everywhere

Pilgrims Pride files for bankruptcy protection citing higher supply (read grains) costs. We were looking at consumer staples and for companies that demonstrated financial stength with a product that consumers would seek out in a tough economy coupled with a brain trust of whales like Cohen so PPC popped up on our radar.

Here's a company on a run rate in '08 to produce nearly 16% revenue growth y/y but a gross profit that may have been cut in half and operating income that went negative. COGS simply soared representing 97.5% of revenues in the quarter ending 6/28/08 vs 88.8% in the same quarter of 2007. For a low margin business like chicken and eggs, the sky might as well have fallen.

Once again I'm glad that technical prowess staved off a purchase. Proof positive that buying from strength and not the bargain bin offers up the higher odds for success.

US in Recession

In a report released Monday, the National Bureau of Economic Research confirmed what many have long believed - that the nation is in a recession. According to the NBER, the official body that calls economic cycles, the U.S. has been in a recession since December 2007. Read CNN story

Imagine that. The writing has been on the wall for some time but fell short of any conclusions. My first mention of recession was 11/7/07.

AutoNation ($8.14)

AN has been acting a lot better since our last Add. In fact a triple top breakout was indicated on 11/28 and with a push through $8.67 I'd be a buyer again.

Bailout for Automakers

Why shouldn't the U.S. automakers get a bailout? They've bigger issues to resolve than cash flow. They have broken systems and higher costs than their competitors. Why should the American taxpayer get stuck with a bill that supplements high priced labor.

Heads of automakers speak in front the House Financial Services Committee.

This post from DownsizeDC.org blog was recently shared with me and I thought it was excellent.

State of the Markets

Resistance and pivotal levels:

• Dow: 8900-8923, then 9275, coinciding with its 50 dma.
• NAZ: 1590, then 1700-1725, coinciding with its 50 dma and incidentally the NASDAQ threw up a Double Top Breakout on November 26 with a price objective of 1720. Needless to say a move through 1720 would be very constructive and clearing 1785 might indicate that the worst is behind us.
• S&P: 915, then 950 and its 50 dma. Confidence may be restored if 1007 is breached and holds. Double Top Breakout on 11/26 indicates a 1020 p.o.

HNZ ($37.81)

The stock is simply broken; it's breaking down and looks horrible. Despite the recent numbers there is very little buying interest and it may be necessary to let it go.

The 'Uber Rich' Like Socialism

The "uber-rich" like government bailouts from CNBC.

Futures indicate a higher open after the last couple of days had produced the worst two day decline in 20 years.

Here is a list of "Blue Chips" for $10 or less.

Profit and sales rise in the quarter for long-standing position Heinz. Probably worth another look.

URBN

I can't resist picking up a spec stake in Urban Outfitters around $13.50. I'm not certain if this is the right price but it qualifies as "some point" and that's good enough for me. It's a new underweight position.

AutoNation (AN)

Another small stake in AutoNation (AN) at $6.25 following Eddie's lead; he's raised his stake to 44.5%.

AutoNation's revenue breakout for the three months ended 9/30/08:

• Domestic (primarily GM, Ford, Chrysler) 33.8%
• Import (primarily Toyota, Honda, Nissan) 39.8%
• Premium Luxury (primarily Mercedes, BMW, Lexus) 25.5%
• Corporate and other .7%

Income excluding Corporate and other:

• Domestic 19.4% of $119.1 million
• Import 44.2%
• Premium Luxury 36.4%

AutoNation has been orchestrating company direction based on their prediction of new vehicle sales in the low-13 million unit level for 2008.

As a sidebar I consider it to be a tremendous year to be down just 5.07% YTD and considering that the Bud liquidation (a monster position) has now increased cash reserves to nearly 45% I'm growing inclined to ratchet up our risk just a tad.

Neither being a quant nor a technical analyst is very helpful in the current investment climate, however, if you've had a successful year and you're flush with cash then you can take a little bit more risk and try to vulture some trades. We're looking at AutoNation, bailout or not.

Hedge Let Go A Little Early

The futures indicate a fair ass kickin' for the markets today so it seems that the RSWs sold at the close yesterday was a bit premature.

According to CNBC the futures are indicating:
DOW -324
S&P -34.7
NAZ -45.50

Closing Out Our Hedge

Put on this hedge at 867. S&P now around 806. Selling RSW.

Budweiser = King of Cash

By now you should see the cash infused for the Budweiser deal and in our case our cash position just went up 11%. It was a wild ride and on October 24th, at $56, I had my doubts.

Happy Days.

Fireworks from Afar

Paulson seems to have switched gears again and there is no end in sight for the seemingly bottomless pit of bailouts. Compound this with the wildcard of a new administation's policies and you have a perfect storm of uncertainty. Interestly, bad news can be just as positive for the markets as good news so long as it's just that - news. Uncertainty, however, is as toxic as the assets we've been hearing so much about.

Just sitting back and watching the fireworks.

URBN ($18.25)

From Briefing.com:
Urban Outfitters Q3 comp sales increase 10%; co reports Q308 net sales (URBN) 20.13 : Reports Q3 (Oct) net sales increased 26% year/year to $477.95 mln vs the $476.42 mln First Call consensus. Co reports comparable store sales increased 10% during the quarter.

Albeit, completely out of Urban it is still a well managed company that executes so at some price point it will warrant another position.

Cash and Paper is King

• Equities 34.2%
• Cash 33.7%
• Treasuries 27.4%
• Hedges 4.7%

URBN ($21.85)

Sell out of position in Urban Outfitters. There is too much risk between the overall market's behavior, the election's result and retail numbers due.

Obama Elected President

"Change" has come to America.
As reported by Fox News Obama has won the election with a 349-161 electoral vote. Perhaps more important is the full Democratic control, albeit short of filibuster-proof, of Senate.
The broadcasts were amazing last night as throngs of people gathered in Chicago and Times Square, shouting, yelling, screaming, and crying. A positive to draw on is the record turnout for the election. The long lines and dedication of voting Americans were simply incredible. At the minimum, you could say that something, someone had finally motivated more voters, both liberals and conservatives, to take action.
I'm very interested to see what man will now show up in the oval office.

Obama Slide?

A capital gains tax increase is weighing on Wall Street. Will equities hit the skids with an Obama victory or is a win already priced into the market? You must think that it's priced in. In fact I would feel pretty confident that we'd get a very healthy bounce up if McCain wins.
When Biden spoke of their new administration getting tested within the first 6 months was he referring to a market selloff rather than an act of terrorism?
It's too risky to hold much more than 30 to 40% in equities. Maintain cash and treasuries and wait for the election to shake out and for the indexes to get healthy.

BUD and BRCM

Lightening up going into tomorrow's elections. Boooooook profits.

Some hedge funds are raising money rather than liquidating funds. SAC, Cornell and Lehigh U. are mentioned in the article.

Broadcom (BRCM 17.75): In a conversation today I'd identified $16.37 as a reason to sell.

Pivotal Levels

In reviewing the Fibs retracement taken from 11,867 I realized that the Fibbonacci 38% is the 9337 level and I don't know why I saw 9450. The Dow hit 9363 yesterday and I guess my point is this, and it's probably moot, but whether it's 9337 or 9450, the market won't look better until it pushes through either one.

GDP -0.3% Annual Rate

As expected the economy shrank in the 3rd quarter but I'd say it was a better-than-expected number. Most prognostications were -0.5; perhaps that's what the market was telling us with Tuesday's 900 point day.
I'd say that the months ahead will certainly warrant monitoring since this 3rd quarter number will likely be revised.

Chaos and Fear

The markets are set to open lower on recession fears.

A BBC report indicating that I'm getting some of the ingredients I'm looking for: chaos and fear.

RTT News reports on Carnage.

Seeking Alpha article stating that the forced selling among hedge funds are creating opportunites. I agree but contrary to the author's opinion, I'm not certain we've seen the street flow red just yet.

Budweiser (BUD 56.93)

Is this deal in jeopardy or not? The stock has even been down into the mid-50s. Selling in the 68s was the right call but leaving the position alone at that time figured to be relatively safe considering the exit plan, the inevitable buyout.

The world view has certainly been a game-changer though. What to do now? Do you cut ties and basically break even or look for an easy 15% assuming the stock goes back to the high 68s and count on the takeover?

Rydex Inverse 2X S&P 500 ETF

Probably be wise to hedge with a little RSW now with the Dow at 8349 and S&P at 867.

BUD (55.49)

I'm growing more and more confident that the Budweiser deal will NOT happen. The stock was $68.58; should've "freed up the cash and moved on."

This Could Get Interesting

News from CNBC:

"We are in a panic mode, I don't know how else to describe it and when you're in panic mode, all rational thought goes out of the window," said City Index chief market strategist Tom Hougaard. "We've just got to let this thing rage. I think we'll see the Dow below 8,000 today."

"We've just got to let this thing rage." Finally, this is one of the smartest things I've heard lately. What? No relief, no bailout, no trauma saving policies, no intervention to save the poor little socialist system?! Oh, the horror!

It's possible that the market is trying to tell us that the Q3 GDP number expected on Thursday is going to be low, maybe -1.0% low, who knows?

Blood in the Streets

I'm not so sure that we've felt real pain yet. We'll see what happens with a market that craters. It's set to open lower today. Buy when there is true fear, tears, suicides, stories of chaos and that the end is near. You will know then that we're close to a bottom. Don't pull back or postpone your 401k contributions; now is the time to ratchet them up.

More Greenspan: Kansas City infoZine

Break Out the Defibrillator

Today was somewhat encouraging as the DOW was down a couple hundred and put together a rally to finish the day higher. However, nothing would do us better than to see a -800 day, down to around 7800, only to rebound, capping off the day +3 or 4 hundred on heavy volume. Some pivotal resistance levels to keep in mind:

• Dow 9450, (8.5% from here) laying over a fibonacci 38%.
• S&P 1010 (11%)
• NAZ 1950 (21%)

Jobless claims rise 15,00 to 478,000. CNN's release. Bloomberg's.

Incidentally, not only do utilities offer a good recession hedge but likely ourperformance in the months ahead based on the lessening costs of doing business, read lower oil prices. Although, not a utility, someone whispered AMR to me.

Foreclosure filings spike 71%; CNN.

Link to GDP data

Economic calendar from Briefing.com

Ideologue Greenspan admits to flaws in his free market stance.

Whipsaw or Chainsaw

The market's whipsaw action can be a little hard on the gastronomical reflexes, I know, but it is constructive and the nature of the beast in such an uncertain time. The market is trying to establish values, searching for the bottom or at the minimum some baseline at which to launch it's next bull market. It may take a great deal of time and you'd be fooling yourself if you think that you could time the bottom - won't happen.

"The only thing I know is that I don't know anything."

Sandisk getting killed. Samsung has backed out of their deal. Good thing we'd not speculated, even with a small stake.

General Mills (GIS 66.23)

The market will open weaker again today. Lighten up in GIS overweight position with half of stake over $65. We'll be back to equal weighted.

Broadcom (BRCM 13.80)

Broadcom will release today. The risk is there to disappoint and move the stock down but holding it through the release has an equal risk of missing an upside surprise. Either conclusion will certainly dictate a trading decision in the next day or two.

Chesapeake (CHK 22.85)

Book profits in CHK, $22.76. No remaining postion.

Loans to Cash-strapped Companies

There's hope that government provided loans will help those cash-strapped companies facing failure. You might brush aside the thought of violating free market principles. You might declare, "whatever is necessary to spare us of financial pain and suffering" but there is something far deeper than simply helping to mend a financial calamity. Most governments, worldwide, are finding it necessary to help their private sectors. Putin and the Russian President Dmitry Medvedev have pledged to provide loans to cash-stapped companies too. Oh, but, how about this tidbit from the Bloomberg article?

The $50 billion that the prime minister and President Dmitry Medvedev have
pledged to lend cash-strapped companies will extend state control over business
leaders. Billionaires seeking bailouts -- including Oleg Deripaska,
Russia's richest man, and Mikhail Fridman -- will
have to give authorities veto power over their companies' financing decisions.
``This will give the state more leverage over the country's biggest
companies and main industries,'' said Chris Weafer, chief
strategist at UralSib Financial Corp in Moscow. ``In 2008, there is only one
real oligarch: the state.''

Sound familiar?

A Little Here, A Little There

You've gotta' love Buffett. He's dipping a toe into U.S. stocks now and says, "a simple rule dictates my buying: Be fearful when others are greedy, and be greedy when others are fearful." I couldn't agree more. I've advocated putting cash to work now, just don't be reckless.

And the Hits Just Keep Comin'

Cuomo is demanding AIG to recover bonuses paid out to former executives.

Car Dealers Say Credit Crunch Will Crush Them; see Fox News article

You know it's tough out there when strippers aren't buying houses and NASCAR is hurtin'.

DOW 8979 +401; S&P 946 +39; NAZTY 1718 +89
Today's market action may be considered fairly constructive, DOW down 400 and reversing to gain 400 on the day. I would have preferred to see 7800-7900 (down around 700) followed by the reversal to the upside, but for the most part, pretty constructive.

OK, so now we know there's going to be a recession. The only question is how severe and how prolonged? I doubt we'll see terrible GDP numbers for the 3rd qtr. but certainly for Q4 and Q1 2009. With that said we'll likely set up quite nicely for the 2008 Santa Claus Rally, January Effect and ensuing run into April. Lighten up on equities thereafter and cash coast through the Summer 2009 doldrums. Is a double dip possible?

Selectively picking away at favorites:

• Urban Outfitters (URBN): Spec stake at $22.25, underweighted.
• Broadcom (BRCM): Added at $13.96, equal weight

Treading Lightly

• Broadcom (BRCM $13.75): I'll be looking for more below 14.
• Chesapeake Energy (CHK $16.34) offers up a trade.

11:12 AM: Budweiser deal not in jeopardy? The market is telling me that it is, BUD down $2.75 to 57. Volume isn't excessive though.

Chesapeake ($17.02)

Aubrey just getting killed with margin calls. The stock is probably due for a bounce. Adding at $16.97 brings us to equal weight now.

The Blame Game

"This is the first time in American history that the federal government has applied restrictions on the compensation that goes to top executives,'' House Financial Services Committee Chairman Barney Frank said in a statement. ``We will be watching how the Treasury implements these important provisions to ensure that the restrictions are binding and enforceable.''

The first time we've applied restrictions on compensation?!

Yeah, well, no shit. That's how it works in a capitalist society. You let the market dictate what to pay. I'll bet none of the shareholders who reaped hundreds, thousands, millions, in gains over the years weren't bitching as their stock holdings rose in value. They wouldn't sell, wanted more gains, got greedy, got slaughtered and now the company executives are to blame.
I am not suggesting that there aren't excesses. Unscrupulous policies and violations of economic principles eventually get exposed and when they do the market reacts and punishes accordingly. It wasn't allowed to play out.

Unbelievable time in our history!

Read. Research. Be Patient.

• Sandisk (SNDK 16.92): Even if Samsung doesn't follow through Sandisk would probably remain in play. It's a good company with great products so the risk is minimal at these levels. Certainly one to watch. SanDisk's iPod Challenge.
• Covance (CVD 74.85) was favorably mentioned on Fast Money tonight.

I won't be doing much of anything until this market trades in range. It's also probable that we retest the lows.

Based on this list of Hedge Fund Category Indexes in Morningstar I'd say our relative performance isn't shabby.

Free Market Killer or Killer Trade?

The governement's investment into the nation's banking industry smacks of Socialism. Couple this news with the no-short list and no court or independent reviews of the Treasury Secretary and his policies and you have a government's absurd intrusion into the Free Market and a complete breach of the Constitution's limitation of power. It is simply scary. Are we headed to a socialist state?

The free market judgement is being overridden. Letting companies fail wasn't even an option. Like the Great Depression the government is stepping in to fend off disasters. In reality it will be the government intervention ultimately responsible for the prolonged suffering that will ensue from the inevitable recession. This recessionary period would have certainly come either way, whether letting the free market separate the wheat from the chaff, allowing companies to fail, or having allowed the government to intervene.

This entire process, the "bailout" and the government investments, may turn out to be the most epic trade ever put on? It may work out very favorably, very profitably for the government (not so certain taxpayers will reap any reward) but it will come with a very high cost at the expense of principle - the violation of free market principles - in a so-called capitalist society.

What a Difference Three Weeks Can Make

Thursday, September 25, Got Stocks? Compare performance now to the post of 9/25:
MTD: -3.94% QTD: -3.94% YTD: -5.23%
+13.62% vs S&P last month and +22.87% in the last 6 months.

It is obviously too early to call a bottom but as always pundits are calling their shot and claiming Friday. Positive comments surrounding government policies concerning the credit crisis worldwide is sparking confidence and buying interest. Was I one day too early?

AN getting crushed and I dropped the ball. It's been a costly mistake and very out of character. Stock is still getting its face ripped off, falling below $8, rooted primarily with concerns over credit and the ramifications in the auto financing business.

Heinz (HNZ) and General Mills (GIS) acted like aggressive stocks yesterday

GM is worth less than it was in 1929, a staggering statistic.

I did not know that McClendon (CHK) was borrowing so much to buy his stock. In fact, it boggles my mind at how many of the men running these companies gamble recklessly with their own money let alone shareholder's. Natural gas is the second most abundant energy resource in the U.S., behind coal.

Executed on Some Names

Into speculative, underweighted position:

• Chesapeake (CHK) at $23.34

Added to current positions:

• Bud (BUD) at $63.61
• UST, Inc. (UST) at $62.64

Select Names

I'm not typically a bottom feeder but to grab small positions in industry leaders when they're beaten down isn't sacrelige. Take a stab and keep the stops tight. I've been in and out of some of these names since 2000.

• Nibbled on Broadcom (BRCM) yesterday at $14.85, speculative, underweighted position.
• Must look at a little Chesapeake (CHK) soon. I've not enough hubris to think that I can call the bottom but I lose nothing by sitting idly by for the right visceral feeling to jump. Perhaps I get it at the absolute low, probably not.
• More Budweiser (BUD)
• More UST, Inc. (UST)

Discipline Saves the Day

A previous position, Cal-maine (CALM), missed earnings which shattered the stock, down another 20%. Defining the point at which to sell and having the discipline to do so avoided this meltdown. If I were to pound the table about one thing it would be preaching discipline and not the fact that getting it wrong is going to happen. Most people, the sheep, would wait to sell because they're programed to avoid losses, to hate losses, to reject losses.

Financials could never push through resistance of 302 and that too saved us from this entire calamity. The bailout news for Freddie and Fannie around 9/9 had us thinking financials and thankfully the technical vantage point, again, swooped in to save the day.

Covance, AutoNation & Budweiser

Stopped out of Covance (CVD) at $89.66 and into more AutoNation (AN), equal weight now, at 11.67. Looking for more Bud here in the 63s and UST in the 64s.

Got Stocks?

Does it make sense to even hold any stocks right now? Sure. Stomach the volatility, if you're on the right side of the tape, and keep stops tight. Don't be afraid to sell at a small loss and get liquid again. Conversely, if you're looking to go looooong, why? Don't even think about it until the S&P breaks 1365 and the NAZty goes through 2350.

Here's a look under the hood:

• AutoNation; Underweight and working, up 37%
• UST Inc.; Equal weight and stable, takeover
• Budweiser; Overweight and stable, takeover
• Heinz; Equal weight and working, up 15%
• General Mills; Overweight and so-so, up 2%, including recent purchase of 70.60
• Consumer Staples ETF; Overweight and watching closely for any hiccups, up 1%
• Covance; Underweighted, ready to sell at a moments notice, down 4%.

+.62% MTD, +.19% QTD, and -.77% YTD.

+6.4% vs S&P last month and +11.4% in the last 6 months.

Selling JNJ; 50 DMAs are concrete walls.

Sold JNJ at $69.26 based on the support level of which I'd previously posted; no JNJ remains.

All three of the major indexes interacted heavily with their respective 50 dma.

DOW (11016 -372) can't break through 11,400.
NASDAQ (2179 -95) was turned away at 2315.
S&P (1207 -48) shackled at 1260.

Remember, policy never signals a bottom. Recall all of my comments on financials signalling a bottom?

Revised GIS stop: $67.75

Freeport McMoran (FCX) mentioned on Fast Money on 9/9 around $65.

When do you buy HD or Lowes?

Capitulation? Not so much

So much government intervention is not in the normal definition of capitulation but this week's events are helping to form a near-term trading opportunity. We've not likely seen the end to the malaise but trade the market that is and keep stops tight.

Holding Tight

MTD: +.72%
QTD: +.29%
YTD: -.67%

54% cash & paper. Holding tight with lots of dry powder.

JNJ: Watch support here at the 50 dma of 69.50.
GIS: Add with a limit of $70.60; stop at 64.95; overweight position.

Capitulation in Financials?

Is this the capitulation that could signal a turnaround on Wall Street? The marketplace has been rocked by news of Mother Merrill's passing. Coupled with the recent Lehman news and it may be a recipe for the white flags, a good sign. Let the investing public throw up the white flag, wave their hands in disgust as their holdings plummett, sell to avoid further losses thereby exasberbating the fall and, voila, a bonafide buy-at-the bottom moment for those with the discipline and fortitude to do so.

Review of current holdings yields the same concern posted here.

AutoNation and EMS

Looking to add more to AN; according to the Fibonaccis, add at 11.41. It warrants a short leash, however, stops at 10.50.

Emergency Medical Services (EMS 32.93). Underweight position if it breaks above $34.54 on greater than 400k volume. Cohen holding.

Discipline

Cal-Maine continued to get slaughtered. Discipline. Being Stopped out at 36.78 helped to avoid another 14% in losses.

Discipline is also harbinger to second-guessing. Take URBN for example. I can't say enough about the management but when the stock is telling you to go, you go. That out prevented us from being involved for the ensuing run-up in the stock.

However, the decision to sell or executing upon an exit strategy is far more difficult than any decision to buy and it will prevent major losses more often than keeping you from riding winners.

BTW, stay away from Apple until it gets into the 120s.

Multifarious Morsels III

The bailing out of Freddie and Fannie is lending to continued strength in financials. The S&P Financial Sector Index (SPSY 303.43) is up another 6% since this post. A break through 302 would really build confidence that the markets have bottomed.

• Pharmaceutical Product Development, Inc. (PPDI 45.03) Spread Triple Top Breakout, watch for further strength above $44.90 to be accompanied by strong volume.


• JNPR (24.96) attempting to fill the gap up resulting from good news in June.


• Aeropostale (ARO 36.52) A move above 37.40 on 5 to 6 million shares. Double Top Breakout on September 3. Previous posts.

Altria to buy UST?

First it was BUD, now UST. I'm likin' the consumer staples this year.

Non Cyclicals looked good today

UST was up over 4% today on huge volume and no news only to fall back at the close. Add to the current "equal weight" position if it moves past $58.58 on heavy volume.

Kellogg (K) reaffirmed earnings guidance. Watch for a break above the 55s.

CALM

Interesting. I've just noticed that Cramer mentioned Cal-Maine in a short squeeze scenario late last month. Nonetheless, the position had been stopped out.

State of the Market

Financials continuing to show strength as demonstated by the S&P Financial Sector Index (SPSY 290.76). A break through 302 would be very positive. Should this coincide with a NASDAQ break through 2550 it would be a good enough long-term buy signal for me.

Current Positions

• Heinz (HNZ 51.25) watch closely; support $51
  
• UST, Inc. (UST 53.54) support $53


• Health Care Sector SPDR (XLV 32.73) support at 200 dma of $32.66


• Cal-Maine (CALM 39.20) was support @ $42, then right here: 39-39.25. Stop at $37.75.


• Consumer Staples Sector SPDR (XLP 28.11) support $28


• Covance (CVD 93.80) support $92

Currently 10 equity positions and it seems as though the majority are on a watch list to breakdown rather than breakout.

Summer Rally

I've gotta' continue to buy into this NASDAQ rally if it breaks through 2550, about 4% from here, on good volume then it's for real and the train will leave the station. For now continue to look for good technology and biotech names, watch financials closely, keep stops tight and ride what seems to be a legitimate summer rally.

Positive market moves, with conviction, will take even poor economic news and make it moot. The stock market will always tell you what is happening with the economy before the "experts" do.

Today's Action

NAZ should be finding resistance here in the 2450s. In fact the S&P is doing the same, resistance, here, 1290ish. Interesting to note the NASDAQ is down around 8% for the year versus the S&P, -11%, and the DOW, down 13%.

Consumer prices up at the highest rate since 1991.

CALM looking good, up around 9%. A little late to add more.

Campbell Soup in play? Heinz suspect. CPB breaks above $38.59 I'd be a gamer.

Making Moves

Retailers on fire today.

CALM, shouldn't pay more than $41.16. Can't buy AZO until it successfully tests $140.

Into Covance (CVD) at $97.46, underweight position. Don't pay more than $101.65, stop loss $90.

Some Cohen holdings:

• Incyte (INCY) recent public offering @ $9 and Cohen's involved. Reanaissance here too, over 4% stake.


• Inspire Pharmaceuticals (ISPH) Increased to 5.1% stake.


• Akorn (AKRX) has potential with a move through $8. Increased to 5.6% stake.


• Pilgrims Pride (PPC)


• Sanderson Farms (SAFM)

Market Bullets

The NAZ faired better than the other two indexes for most of the day before closing at 2355 closely playing on the pivotal level mentioned previously.

Looking back at potential resistance in my 7/30 post, apparently 11,700 should have been the number for the DOW, I was a little off with 11,750. I was spot on with the NAZ, 2350, and the S&P, 1290ish.

NAZ Power

With the contnuing strength of the NAZ I've been searching for high tech names and paying particular attention to semis.

• EMC Corporation (EMC 14.79) watch for a move through $18.


• Airvana (AIRV 5.79) is interesting. Renaissance again, though a small stake.

Separately, Covance (CVD 97.26) putting together a nice rally since posting on it. Watch closely maybe a shot at $97. AmerisourceBergen (ABC 42.22) did, indeed test $40, opening at the low of the day, $39.97.

Today's Action

General Mills (GIS 66.19) Another vest @ $66.01; Equal Weight now (50% of full stake).

NAZ looks good if it breaks through 2353. Revisit resistance levels following today's surge across the board, all indexes up over 2.8%.

Healthcare, based on the SPDR (XLV 33.02) is surging to March 2008 levels. Could find pressure right here, at resistance and the 40 dma. Looks good if it moves through $34.

Consumer Cyclicals up huge today, over 4%.

AutoNation performing well, up 20% from purchase but should find resistance here at $11.40ish, the 50 dma. I'd like to see it settle back to $10.75 to lock in another vest. Double top breakout signalled today, P.O. of $16. It was reported 7/31 that Lampert boosted his stake, yet again, to 44%. In review of the purchase day and must make mention of the inverted hammer.

Fed left rates alone; no surprise there.

A Couple of Stocks from Last Week

Covance (CVD 91.52) is setting up nicely and making headlines today. It could do $2B in revs. for 2008, a 25% increase, with good ratios and good sponsorship. Ascending Triple Top Breakout shortly after my 7/24 post and the stock broke to $92.69. All time high (96.81) in January. I like it, looking for an entry.

AmerisourceBergen (ABC 41.82) has come down to trade below $42.40, thus the 200 dma. Perhaps it will now fill the gap to $40.

Searching Non-Cyclicals

Cal-Maine Foods (CALM 39.19) Tough times and expensive food costs have Americans looking for cheap protein. Enter eggs. Funny, I'm bumping into Renaissance Technologies again; they own 2%. Certainly, they've been in for the 6X return since the end of 2006.

Fred Adams Jr., CEO and Chairman, owns 35% of the stock. 2:1 current ratio, great returns on their money and good margins. Ascending Triple Top Breakout on 8/1/08. I'd like it to go to about $48.75. Underweight position at $40.97.

Broad Market Resistance levels

• DOW 11750, 12100
• S&P 1290ish, then 1325
• NAZ 2350, 2450ish

Of the three, NAZ looks the best.

Today's Action

Had to protect profits and bail on Broadcom at $24.44

Into JNJ with a spec stake, $69.27

Ford (F 5.11) got its teeth kicked in today.

Financials took a deserved breather and Healthcare was up for most of the day, in fact it appears as though the healthcare sector, judging by the Health Care SPDR (XLV 31.68), is coming up to levels not seen since the first week of June and prior to that it was March.

Cramer pounding the table tonight on Disney (DIS 31.02)

Up in the face of adversity:

AmerisourceBergen (ABC 43.15) is breaking out, Quadruple Top Breakout today. It would be attractive if it settles down to around $42.40ish, where the 200 dma and the 50 dma reside. Even better if it slacks to $40, filling the gap created by today's action.

Covance Inc. (CVD 88.50) is interesting. Renaissance Technologies holds 2%.

Invitrogen (IVGN 42.89) too. Renaissance owns 1.8%.

AutoNation (AN 9.39)

AutoNation reported results this morning followed by a vibrant Mike Jackson on CNBC. It looks like the stock will open higher today and likely attract some more attention. Definitely try to pick a shot today for another 25% stake.

Likewise, news from Ford (F 6.03) sends another message that perhaps the automobile industry has hit the bottom. General Motors (GM 14.62) is up over 50% from its low.

Chesapeake (CHK) and AutoNation (AN)

Checked out of CHK, $49.52. No current position.

AutoNation pulled back to 9.25 so dipped a toe, spec stake at $9.45. Could ride it to $12 or sell if it falls below $9.

AutoNation (AN 10.27)

AutoNation is hot today and never stood still at 9; took off out of the gates. The blame lies on news of Gates' stake but that news was released at 4:30 on Monday so why didn't we see this type of action yesterday? It's likely a pump so it's not necessary to pile in now. Let it settle, there's time.
Buying at the abolute low would smack of hypocrisy.

Take-Two (TTWO 24.84)

In reviewing yesterday's comments I'd like to know why Cohen has taken a position in this stock at $26 when EA is trying to take it over near $26. What's the upside? What's he know?

Broadcom misses, Gates hits

AutoNation (AN 9.17) Gates owns 5.5%. Starting to get an itchy trigger finger. Heavy volume today and traded propitiously above $9. Watch for it to fall back to rest on 9 then start to trade higher on heavy volume. No action if it falls back below 9.

Broadcom's (BRCM 27.64) profit quadruples but, like Sandisk (SNDK 13.62) today, the shares are tumbling. Support at 25.75 and current position would be in jeopardy if 25 falls.
Semiconductors performed exceptionally well coming out of the 1990-91 recession so perhaps they'll get shellacked so to produce a bonafide buying opportunity. That opportunity will come only after real pain, blood in the streets, the capitulation that we're waiting for. Then, when everyone is afraid, selling, panicking and jumping from windows it will be time to dot the blotter with buys.

I don't know if that level of pain is in the cards but I'm willing to wait and see.

Chesapeake (CHK 50.98) sell remaining stake if it breaks $50.

General Mills (GIS 64.91) looked good today on heavy volume.

The S&P opened lower and traded around 1260 for most of the day until a post 3:00 rally to close at 1277.

The S&P, then and now

Fibonacci laying over the March 2003 to October 2007 rally reveals interesting levels:

38% ~1285

50% ~ 1197

1285 had come into play throughout 2006 and more recently in March of this year before the index made an assault on 1200 July 15th.  My 1275 makes even more sense now.

Check on the performance of Biotech during the 1990-91 recession.  My hunch is you'll want to be in financials and biotech during the recovery.  When to go long, therein lies the rub.

No witty title

Financials, via the S&P 500 Financial Sector Index (SPSY 278.26) are up nearly 20% since July 15, 2008. Financials will be demonstrating strength long before it's obvious that the trouble is over.

TTWO, $24.66: Stevie Cohen took a position in Take-Two. SAC Capital paid approximately $107,576,865 of investment capital to purchase the 4,099,540 shares of Take-Two (about $26.24 per share).

UST, $52.28: Can let it fall to $51 before cutting loose. It breaks 51, all out.

JNJ, $67.11: Watch for the cup and handle. A move through 68.81 on good volume would be a go. Triple Top Breakout indicated on 7/16/08.

Markets are likely to open weak tomorrow, particularly technology, due to Apple's earnings adjustment (AAPL 166.49).

General Motors (GM 11.17)

My research upon the automotive industry got into high gear just yesterday with the headlines of GM's restructuring. The stock is up 14% today. It's a Low Pole Reversal signalled just today. The stock will likely settle and allow time to accumulate a low position if warranted. My question before yesterday was, "how much more can they (US auto manufacturers) take?"

AutoNation

AN ($7.57) In addition to his 40% stake in AutoNation Lampert owns roughly 36% of Autozone (AZO ). AZO is in the midst of a major stock repurchase program. From whom does Sears or Autonation buy their parts for auto repairs?
South Florida Business Journal article

Florida Trend article

Another article on CEO Mike Jackson suggesting his no-holds-barred attitude.

Todd Sullivan's Value Plays takes a position in AN.

University of Michigan: "The Economy, Competition, and the Retail Automotive Dealer" 2001

Urban Outfitters (URBN 28.82)

I love the management and love the company's business policies but the price action alarms me. It's time to lock in the 20% gains from 11/2/07 purchase and wait for another entry point. Sold at $28.16

Broadcom (BRCM 28.94) watch for a break above 29.72

JNJ, $67.70, looking good, watch 67.84. Good run from March 2001 to March 2002.

General Mills (GIS 64.11)

Entered GIS with spec stake at $64.15
Ascending Triple Top Breakout with a PO of 82.

Current Portfolio Stats

9 Securities

Performance:
QTD: -0.33% vs S&P (-3.08%), DOW (-2.20%), NAZ (-2.35%)
YTD: -1.28% vs S&P (-14.63%), DOW (-16.32), NAZ (-15.58%)

Returns vs S&P 500:
Last Week: 2.06%
Last Month: 6.02%
Last 3 Months: 9.08%
Last 6 Months: 11.26%
Annualized: 24.15%

Allocation:
Cash & Treasuries: 55.94%
Consumer Staples: 29.86%
Energy: 7.87%
IT: 3.31%
Consumer Discretionary: 3.02%

Alpha/Beta vs S&P 500:
Alpha: 8.73%
Beta: 0.32
R-Squared: 0.48

Turnover:
Last Month: 10.55%
Last 3 Months: 12.51%
Last 6 Months: 37.32%

Budweiser, an American Institution

The deal for BUD is pretty much done and so are we. It won't trade to $70 yet so we'll take somewhere north of $68.50, sell, free up the cash and move on.

BUD (65.78) at $70?

Budweiser gets closer to a friendly deal at $70. Speculation of such 2 weeks ago and added another 25% of full stake (now 75%) 6/27 at $62.59

Equity Positions

• Broadcom (BRCM ) watch for break above 29.72, average volume is about 13 mm. Upgraded today by Piper Jaffray.
• BJ Services stopped out today.
• CHK (64.34), watch 61, sell half of position if it breaks.
• UST (53.76), support here at the 40 & 200 dma
• GLW (22.22), support at 22.

Multifarious Morsels II

BJS (30.79): BJ Services, probably stepped in too early, neg 7% since purchase.

RAI (47.32): Can't buy until July 14 (Wash Sale)

ROST (35.89): Ross Stores, among one of the many retailers sold 1/17/08. Broke through $30 on huge volume and followed through on 4/10/08. Should have been a buyer then around 31.50

AN (8.98): AutoNation has been hammered from a month ago when Lampert had attained a 40% position. The volume has been heavy since 6/19 and the high 12s. Lampert unwinding? AN CEO addresses some industry challenges. The stock is the lowest since September 2001.

CLR (66.44) and FRO (63.83): stocks to watch.
Continental Resources, can't stomach the rich valuations.
Frontline Ltd., private placement of 3 million shares, raising $210 million, or $70 per common share. What other dilutive effects will the placement have? Will brokers rally the stock back/past $70 again? Look for the volume. I like the business and there's a history of extraordinary dividends.

BJS and CHK

Entering into BJ Services trade (BJS 33.14), 25% of full stake.

Chesapeake is on fire today. Gapped open at 73.10 from the close of 67.36.
Chesapeake in Haynesville Shale joint venture with Plains Exploration

Current position in CHK is 50% of full stake, up 83%. Purchased 11/2/07 at $39.80. Must wait for pullback and subsequent follow through before adding more.

UST Inc. (UST 54.54)

UST reaffirms FY08 EPS guidance, "even in a challenging U.S. economy, we remain on track to deliver our previously announced diluted earnings per share target for the year of $3.65, with a range of $3.60 to $3.70."

UST maintains the largest market share in smokeless tobacco.
Based on UST's reaffirmation what say RAI?

Slow economy = low consumer confidence = drinkin' and smokin'

Add more?

InBev May Need $7 Billion More to Win Over Anheuser (BUD)

June 27 (Bloomberg) -- Inbev NV, the Belgian brewer pursuing a takeover of Anheuser-Busch Cos., may have to offer an additional $7 billion to persuade the U.S. company's board to sell.
Anheuser-Busch, the St. Louis-based maker of Budweiser beer, rejected InBev's $46.3 billion proposal yesterday as "financially inadequate'' and kept the door open for a higher offer or another suitor.

"We've entered into hostile territory,'' said Tom Pirko, president of Bevmark LLC, a consulting firm in Buellton, California. "InBev is a very aggressive company. They don't take no for an answer.'' Pirko, whose firm has analyzed the beverage industry for 30 years, also said InBev may offer as much as $75 a share.

Full Story

This news may give us an opportunity for significantly more in gains. Watch the call volume.

State of the Market

DOW sitting right on support around 11670 and the lowest level since Sept., 2006. A break below would send us to 11250.
S&P, support 1325, then 1275ish
NAZ, support here, 2350, thereafter: 2310? 2275?

Do nothing, ride it out, trade the market that is. Glad to be 51% in cash and paper!

Interesting commentary from my December 14, 2007 post. Good investor poll in that post too.

Stocks to Watch

• JNPR (23.10) good numbers last quarter, stock is down, and could fall further. Watch for inordinate volume.
• URBN, watch 32.82; Sell, 30ish. But it's only a spec. stake (25% of full position) up 36% so there's a little breathing room. I'd probably allow it to fall to 28.84 before I'd sell.
• DIS crushed numbers (32.22) last quarter. Camp Rock a factor in Q3? A move above 34.99 would be positive.
• HNZ: Watch for Heinz to breakout (50.44) on strong volume.
  Ascending Triple Top Breakout on May 12, 2008 at 48.58 and bullish P.O. of 62
• RAI: In the 48s. Lowest level since Jan. 2006. At what point does this stock start to act well again. Slow economy = low consumer confidence = drinkin' and smokin'
• BJ Services (BJS 32.89) set 52 week high. Watch for follow through on heavy volume.
• Arch Coal (ACI 72.81) all time high of 77.40.
• Frontline (FRO 70.10)
• Continental Resources (CLR 64.63)

UST Inc. (UST 56.14)

Watching UST for a break above 57 on heavy volume to add another 25% stake, currently holding a 50% position. Get real aggressive with a move above 59.52, the high from Dec. 10, 2007. All time high is 60.71 set Feb. 20, 2007.

Food for thought:

• If oil rolls over trouble for stocks as a whole?
• Why are consumer staples trading at a 3 month low?

Consumer confidence tumbles to 16-year low. The reading was the lowest since February 1992, when it was 47.3.

Did you get trapped?

The market was looking recovery until the Trap unfolded. The rally was enticing, almost convincing, and more than anything else it is hardest to sit out, to do nothing in the stock market. Don't get sucked in and trade for the sake of trading.

The DOW went to the 40 day moving average coinciding with the psychological level of 13,000 and was turned away.

S&P interacted with its 40 dma in the same manner around the 1425 level. Consequently, the 200 dma was a factor at 1440.

NAZ not as much as the aforementioned indexes but pivotal just the same, near 2515.

Compare this reality as it played out to this commentary and I would reiterate this diatribe.

GDP and "recessions"

I was in a discussion today about the most recent US recession by which I replied 2000-2002. It turns out to be technically incorrect since the US did not see a fall in real gross domestic product in two or more successive quarters; three quarters, yes, but not successively.

Technically speaking, then, the last recession we've had was 1990-91, but it would be unjust to quantify it as such without recognizing 2000-2002. After all, the aforementioned had the required two quarters of severe and short-lived troughs as opposed to the latter's three quarters of negative growth and a significant economic slowdown due to the market's selloff and ensuing wealth effect. Albeit, '00-'02 did not present a grinding halt to the economy it was certainly more painful than '90-'91.

A rose by any other name.

Current Portfolio Stats

12 Securities

Performance:
QTD: 3.58% vs. S&P (1.75%), DOW (-.99%), NAZ (5.50%)
YTD: .04% vs. S&P (-7.86%), DOW (-8.47%), NAZ (-9.35%)

Allocation:
Consumer Staples: 39.02%
Cash & Treasuries: 36.85%
Energy: 10.65%
IT: 8.68%
Consumer Discretionary: 4.80%

Alpha/Beta vs S&P 500:
Alpha: 7.80%
Beta: .40
R-Squared: .51

Turnover:
Last Month: 1.96%
Last 3 Months: 1.96%
Last 6 Months: 55.22%

Reynolds (RAI 52.85)

Should have sold the 12/4/07 purchase of 70.92 around 1/22/08 @ 64, sold the 11/29/07 block of 68 at 3/28/08 @61 and the 11/2/07 at 63, now.

We're getting taken out of BUD

Market cheers InBev's $46 bln Anheuser-Busch bid

Shares are up about 7% to 62.68.

BUD has had a rough ride during the last 6 months but sticking to defensive positions including a great company like Anheuser-Busch has paid off. Was looking to add more with a push through it's 52 week high which it accomplished on May 27 on monster volume of over 21 mil. shares. Currently a 50% of full stake and didn't get a chance to add before this news broke.

Watching AutoNation (AN $14). Eddie Lampert's position has now reached 40% aftering increasing his position yet again in May. No position yet.

CHK $43.62

Note on Chesapeake Energy from 11/28/07:

"Chesapeake Energy might be the class of the three given the price action; recently set all time high of $41.19 and the CEO has been buying shares in mid-30s."

Oil is moving upwards on OPEC's moral suasion.

Current State of the Markets

Are we shaping up for a Trap or a bonafide rally?

• DOW 12524 up from 12069, 3.8%
• NAZ 2367 up from 2253, 5.1%
• S&P 1365 up from 1317, 3.6%

SIGM $44.01

Sigma Designs, adding spec stake (25% of full position). Buying the 200 dma. Contemplate adding again if it can blow through $47 on big volume.

3:05 Update:
SIGM at 40.80, one of the quickest -7% in recent memory. Precipitous drop from from $42 to $40 1/2 between 2:05 and 2:20 on big volume. Close to pulling out.

3:55 Update:
SIGM out. Absolutely ridiculous.

RAIL +6.70%

Freightcar America ($40.75) moving on good volume.
From Briefing.com:
Reports Q4 (Dec) earnings of $0.58 per share, excluding non-recurring items, in-line with the First Call consensus of $0.58; revenues fell 64.9% year/year to $137.1 mln vs the $147 mln consensus. Co says the North American railcar market has contracted, but long-term fundamentals remain strong.

Resistance Again

The Broad Markets have hit resistance again:

• DOW: 12,768
• NAZ: 2,419
• S&P: 1,396

It appears that these levels are somewhat validated. Does the recent rally from 1/22/08 constitute a Trap?

Greenbrier Companies $25.03

GBX up 20% today on Icahn's big stake. Does it have more room to run? $400 mm cap, 4 mm shares traded thus far today. Another rail company; been reading a lot about the rail industry. Hmmmm.

UST (56.93) +3.51%

Monster Volume. Breaking through 56.90 would be a big confidence builder. Advocating more considering what the broader market does. Currently a 25% (of Full) stake.

Resistance Hit Again

The markets were up nicely yesterday until 3 PM when prices were:

• DOW 12,678
• S&P 1,386
• NAZ 2,396

Compare to these levels. Now that the markets are heading down again today I suppose now that hedging would have been a good idea; hindsight is a beautiful thing.

Fireworks Indeed

Bernanke and Co. sending a strong message with a half point cut in rates. I didn't think they'd do that and I'll be happy sitting tight, no hedges, no new positions.

Fed Fireworks?

Will the Fed provide any fireworks today? Will 50 bps be as disappointing as 25 bps? I'm speculating that the cut will be 25 bps and I'm prepared to hedge for a down market this afternoon.
Look at ETFC for the last two days; +16.5% on monster volume. Shoulda' coulda'. Insider purchases have sparked an interest.

Recent Trading Levels

Taking note of some recent levels in comparison to those that might be pivotal:

• NAZ: peaked at 2408 on Friday
• S&P: hit 1369 on Friday
• DOW: peaked at 12,487 on Friday

There are skeptics when it comes to technical analysis and the stock market. Look, it's more about psychology than it is about stocks. Just glad to know what I'm doing.

Also, as of Jan. 25, 160 S&P 500 companies have reported earnings. 59% have beat expectations, 14% have been in-line, and 28% missed, according to Thomson Financial.

And The Last of This Week's MoMo Trades

ETFC, all done, $3.76

RAIL +14%

Freightcar America making a nice move today on good volume. Maybe it's a buy on a pullback to its 50 dma of $33.84? Stevie Cohen held a 4.6% stake at one point and this stock has been associated with Buffett, too. Now there's two that couldn't be more different.

FRE 30.77

Was in @ $31.37. Out if it breaks 30.

12:52 PM update:
FRE, $30.61, gotta' go.
AGU +14%, that's enough, don't 'ya think? Gone.

3:09 PM update:
SPY, no one will want to hold into the weekend, out $132.87

I Love This Headline

"Premarket Movers: Broadcom, E-Trade Up"
Now that the market is open:

• ETFC $3.68 +5.75%
• BRCM $24.23 +7.78%

Etrade traded as high as $4.20 yesterday evening so we'll see if it's got the legs to get back up there. Ratchet up the stops and keep 'em tight.

A Couple to Look At

I read about SNCR ($25.40, +19.42%) yesterday; thought it was interesting
Agrium, AGU ($60.05 +6.26%) doing well today, watch the $65 level
Sigma Designs, SIGM ($44.88 +7.19%)

Tourniquet

The street was pretty much spared of any bloodshed & considering yesterday's monster volume (6.9 billion shares) there seems to be some conviction behind this oversold bounce. Afterall the markets overcame a near 3% drop to finish up over 2% on the day, its largest single-day reversal in more than five years. So, now what?
Probably be looking at a tradeable rally back up to the following levels:

• DOW 12,700s
• NAZ 2,400
• S&P 1370/80

It's likely that we've not found a bottom in this market since there wasn't a sense of capitulation and suffering. There was waaaay too much speculative trading going on and too many winners/penny stocks up over 30/40% in the last couple of days.

Conversely, it's worth mentioning that the financials have acted pretty well, something to watch very closely.

"What you watch here is rallies in bear markets are short, sharp and die in low volume," Art Cashin of UBS said on CNBC after the market closed. "You got very healthy volume today. When the volume starts to dry up, get worried."

"I'm going to look towards tomorrow and Friday also," Peter Costa of Eckhart said. "Because what we want to see is follow-through with volume ... If tomorrow's volume is similiar to today with this kind of move, now we've reached a base and we can start to move upwards."

ETFC

Somethings brewing: Innnn $3.47, spec stake

Markets Oversold, Maybe

I'm counting on it, spec positions (25% of full stakes):

• BRCM $21
• AGU $54.25
• FRE $31.37
• SPY $130

Regional Banks Doing Well

Regional Banks doing well today up over 4% in most cases and Money Center Banks up over 3.5%

Watching the financials to give us a sign.

Bear Stearns Upgrades National Banking Sector to "Market Overweight" After Fed Cuts Rates

Markets are Working Hard to Recover

The broad markets are still in negative territory but up nearly 3% from their lows of the morning. Particularly strong are the retailers positive by over 4%.

Concerning the Fed cut today:

Madlen Read, AP Business Writer

It was the first time the Fed altered the target federal funds rate between scheduled meetings since the markets reopened after the Sept. 11, 2001 terrorist attacks. The cut was the biggest one-day rate move by the Fed since it lowered rates by a full percentage point in December 1991, when the country was trying to emerge from recession.
One reason Wall Street is so terrified about the economy is because its own financial muscle has atrophied. The banking industry in the second half of 2007 watched its portfolios shrink by some $135 billion because of losing bets on mortgages. Just Tuesday, Bank of America Corp. posted a 95 percent drop in fourth-quarter profit, and Wachovia Corp. reported that its fourth-quarter earnings dove 98 percent.

Surprise! 75 Basis Points!

WASHINGTON (AP) -- The Federal Reserve, confronted with a global stock sell-off fanned by increased fears of a recession, cut a key interest rate by three-quarters of a percentage point on Tuesday, the biggest one-day move by the central bank in recent memory.
I am, like, part soothsayer.

European Markets This Morning

The FTSE bottomed at nearly -10% from Friday's levels & have rebounded around 3.5%.
The DAX, down around 12% from Friday, has rebounded nearly 3% this morning.
Similarly, the CAC 40, off 12% or so has bounced over 3%.

There is no doubt that the US markets are going to gap down big. The question is will they bounce 3% or more from the morning bottom or stay down on the matte, pulling the European markets into the toilet. I think the FTSE, DAX and CAC will see their lows of the morning again once the Mother of All Markets opens for business.

Disciplinez-vous imbécile

Discipline you Fool!

1. Holding WDFC - should have sold on 12/27 or 28, above $37, after it cracked its 50 dma
2. Holding SPY - should been out at 1363 on the volume of that decline and what was I doing buying at 138.50 when the support was 137?
3. Selling QID - NAZ shook me out with that little jog above 2480 only to top out at 2504. It WAS discipline at work so it's tough to be critical of this one. I would like to have it back though!

Keeping things in perspective: The SPY and QID trades were highly speculative with 1/4 position spec stakes or 2.5% of the portfolio. The 7% hit taken on the SPYs equates to a .18% decline in portfolio value.

Blood in the Streets Yet?

The markets are gonna' get rocked tomorrow. The futures were down significantly today (cash markets were closed due to MLK day) and worldwide markets were smashed. Expect the DOW/NAZ/S&P down 4% or more at the onset. It's anyone's guess thereafter.

Surprise Fed cut? That's not to say it would be tomorrow but it wouldn't shock me. Of course that would send buyers swooning into the markets only to see any significant gains evaporate over the weeks to come. Only time and capitulation can heal a damaged market not a single catalyst like Fed intervention. Sure the markets would surge and trading profits booked but in all liklihood the run would be short-lived.

The Dow is now 14.6% below its Oct. 9 record close of 14,164.53. A down 20% market would suggest a target of 11,331. Incidentally, the P&F charts call for a downside target of 11,500 based on the Triple Bottom Breakdown issued on 1/15/08.

Must watch the financials' earnings this week, their reaction to the releases. The eventual upturn in the broader markets will be led by financials.

Performance as of 1/17/08

Trailing 30 days:

• Return: -4.04%
• DOW (return of -8.11%)
• NAZ (return of -9.60%)
• S&P (return of -8.37%)

Down 4% despite being 43% cash and treasuries & 40% Consumer Staples. Must step up, review and find the outliers.

Home Construction Largest Drop in 27 Years

Construction of New Homes Falls 24.8 Percent in 2007, the Largest Amount in 27 Years
WASHINGTON (AP) -- The prolonged slump in housing pushed construction of new homes in 2007 down by the largest amount in 27 years with the expectation that the downturn has further to go. Full Article
From the article: Many economists believe that the current slump in housing will rival the dive in the late 1970s and early 1980s when housing construction fell for four straight years before beginning to recover after the severe 1981-82 recession. For December, construction fell by a bigger-than-expected 14.2 percent.
WSJ: Housing Starts at Lowest Level Since 1991. Full Article

Diamond Offshore

DO (116.44) -4.56% is getting crushed by a downgrade from Oppenheimer. Beautiful

Stocks are Set to Plunge on Intel's News

Intel has a poor outlook and compounding the Fed's conundrum is news of increasing inflation. What's the Fed to do? They're expected to head off the popular opinion of an upcoming recession yet they're hands are increasingly becoming tied by this inflation news.

This is going to be a bumpy ride and I'm not comfortable doing anything right now but there's a certain urge (that I must resist) to try and time the bottom and chase performance. Got to sit tight.

Diamond Offshore

Adding 25%, DO (122.14) at its 50 dma (123.25)
Total: 50% position

Blockbusted!

Blockbuster ($2.71), -16.10%, is getting killed by Apple's news to rent videos via iTunes. How low is too low, don't know, don't know. Just glad to have dodged a bullet, having been out, Jan. 7, at an average of $3.45

A Trade

Perhaps the markets will find support down here (S&P 1370ish) and start a positive run. Into a trading position with SPY, limit of 138.50, for 4% or so. Back up to 1480 (6.8%) would be nice. We'll see.

Here We Go Again

• DOW (12574) -1.6%
• NAZ (2426) -2.11%
• S&P (1388) -1.97%

Keeping an eye on those pivotal levels again. If the markets crack those levels we are in for Pain.

VIGN ($14.53) +17.77%

Well, didn't see that strong of a response to their news. Not pulling the trigger; will have to wait and see. Perhaps it will ramp into their 1/24 release then pullback.

VIGN ($12.38)

Looking to take a speculative stake (25%) in Vignette
I don't care for the balance sheet but they are investing in themselves, they've announced that they may be at the high end of their revenue range (for what it's worth) and Rennaissance Technologies has a 3.84% position.
Alright, maybe not a compelling story but I like the price here and will keep it tight.
They'll host a conference call and live Webcast regarding its fourth quarter and full year financial results on Thursday, January 24, 2008, at 8:00 a.m. EST

Markets Up on IBM Report

There really wasn't a sense of conviction behind the day's trade though; volume didn't excite. Interesting to take a note of Pivotal Levels and the market's recent action.

• DOW hit a low mark of 12,502 last Wed.
• NAZ 2,407
• S&P 1,379

I was looking at the Trap scenario again and, when it plays out, the more I think the market could trade a little higher than I'd previously thought, maybe:

• DOW 13,300ish
• NAZ around 2,630 or so
• S&P near 1,480

There are certainly some trades out there but to error on the cautious side is prudent indeed for the primary downtrend is intact.

SIGM & Apple

Contemplated a speculative position (25%) in Sigma Designs ($44.65) based on Apple's keynote coming tomorrow. They equip parts of the iPhone but based on the volume during the selloff last week I must deem it too risky, even for a spec. stake. Does the market know something we don't? Ordinarily, the answer is yes; the market always knows before you or I.

Sigma Designs, Inc. offers silicon-based digital media processors primarily for Internet protocol (IP) video technology, connected media players, high-definition televisions, and personal computers. I believe in their industry and their products just not the price, yet.

Markets...Not So Good

I guess Bernanke didn't set up the Trap and I wish I still had my QID hedge.
Markets are off again on economic worries. Despite the mostly negative reaction to the preceding news items, the financial sector is providing leadership as traders speculate on further industry consolidation and capital infusions.

DOW (12625) -1.78%
NAZ (2447) -1.69%
S&P (1404) -1.16%

Trapped or not?

No, not yet. A Trap would have you convinced that we're on the road to recovery, that all is going to be fine, that the current, depressed levels are a good buy and that you need to buy in before it's too late. One day's (1/10/08) bounce does not a Trap make. We're heading back down at the open today but what's next? Who knows. Just sitting tight.

Stocks Head to Lower Open on Worries of Further Investment Bank Writedowns
NEW YORK (AP) -- Wall Street headed toward a lower open Friday amid renewed fears that financial companies will suffer larger-than-expected writedowns from the ongoing credit crisis.
The start of earnings season has investors worried about how banks and brokerages have fared after suffering losses in the collapse of the subprime mortgage market. The nation's biggest financial institutions will report results next week, including Merrill Lynch & Co., Citigroup Inc. and JPMorgan Chase & Co.
Merrill Lynch might take a $15 billion hit from its exposure to soured subprime mortgage investments, according to a report in The Wall Street Journal. The nation's largest brokerage is also said to be seeking another capital infusion to help shore up its balance sheet.
Investors were also nervous after American Express Corp. warned late Thursday that slower spending and more delinquencies on credit card payments will hamper profit throughout 2008. This follows a similar announcement from rival Capital One Financial Corp., which set aside $650 million to prepare for unpaid credit card bills.

Separately, there was good news on inflation in December, when import prices were unchanged, the Labor Department said.
Also on Friday, Federal Reserve Governor Frederic Mishkin and Boston Fed President Eric Rosengren are set to make speeches during the session. They follow Fed Chairman Ben Bernanke, who on Thursday made clear in a speech that the central bank is poised to cut interest rates later this month.

According to the RBC Cash Index, Consumer confidence has hit an all-time low of course we've only been tracking this index since January 2002.

Bernanke on Deck

Out of QID and awaiting Bernanke's comments at 1:00 PM. His proactive comments will probably set the markets up for the aforementioned Trap. Who knows?

Hedging with QID

In ProShares Ultrashort QQQ @ $43.71
If the NAZ moves through 2480, I'll sell.

Recession & Retail

In addition to the surfacing recession debate, retailers report weak results.

Pivotal Levels:
DOW: 12,500
NAZ: 2,400
S&P: 1,370ish

The Soothsayers are Nearing a Fever Pitch

It seemed as though we got a rash of recession news yesterday. I'd previously hypothesized on similarities to the late '80s recession and, logically, rationally, fell short of any predictions as its not my place. Frankly, I don't care if we go into a recession or not, I just need to know the odds. You certainly can't fault the Soothsayers for their predictions afterall it's their job but you gotta' love the talk show-esque campaigning soon to come so to prove their theories prescient and ahead of the curve.
Goldman likes their chances at predicting a recession and they put a flag in the ground in November. They should have kept Abby quiet in December.

Mother Merrill is calling their shot.

Even Pat Robertson is throwing his hat into the ring.

CNNMoney is reporting on the Soothsayers and the Government is coming to the rescue.

The most recent Payroll numbers we'd gotten a week ago:

The Dept. of Labor said December nonfarm payrolls grew by 18K, down from the previous reading of 115K.
and Briefing.com's comment at the time:
"Briefing.com believes the market is overreacting, considering hourly earnings rose 0.4% and total spending power won't subside unless payrolls drop 150,000 to 200,000 per month, as is typical after a recession starts."

The report that got the Soothsayers revved up suggests the highest unemployment since Hurricane Katrina. Speaking of Katrina, the scourge of the earth have resurfaced. A Quadrillion dollars sounds like a lot of money.