I’m been AWOL for a while.  It’s been an ridiculously busy time lately and soon calm down for me after November.  I should be off on vacation again in December.  But I haven’t had the same type of eagle focus that I’ve had before on my trading account.  But it’s been doing solidly since putting it on automatic since July.  The money is still coming off the sidelines but at this time, I think it’s hit and gone beyond my yearly targets so I am getting a bit weary about the run at this point without any clear path to increasing sales earnings for companies.

Let’s be clear.  The market will still rise solely based on hope and liquidity.  The world is flush with money and it has to come out from underneath all those mattresses.  However I don’t see a shift away from bonds that signal that everything is in the clear yet.  The economy will not return quickly.  The affects of stimulus and cost cutting are disappearing quickly while revenue and sales stay stagnant.  There is going to be growth but from where?  This basically tells us that this is a stock pickers market from now on and there will no longer be broad based rises in the market.  I feel at this time, certain stocks are at fair value or beyond it.  There are sectors that are trailing and will catch up.  So to bet on the whole mark now is a flawed strategy.  This is where the smart makes money because everyone joe smuck out there was making money this last eight months.

So you’re finally going to get what you’ve been waiting for…my forecast for the next month to end of the year.  I figured there is a few scenarios.  One the market pulls back and we can reload on certain plays that I think look just sheer winners in a year or so.  The market keeps rising and so do valuations.  Three, the market trades sideways for a while.  I pick either side ways or down.  If it goes down, you need to pick strong companies with great earning potential.  So positions that I’m looking or holding include GE, SLW, MON, ALL, CNO, STT, BGC, and a few more.  It’s a stock pickers market.  So decide well.  I’m hedge about 70% long and %70 short.  So I’m trying to protect gains and make some money in case the possibility of a 5-10% pull back occurs.  I think as the market goes into the holiday period, there’s going to be some volatility like usual and could force the market to pull back to the bottom of the consolidation range.  If it breaks that I think it could come close to the 1000 level on the S&P but we’ll see.

The market has been hitting highs again and again.  Now it seems that everyone is happy and cheery now.  I think the worst is definitely behind us because we’re not going to see the type of financial collapses that we saw last year and we all expect unemployed to keep sinking.  So the downside is a bit limited since money still coming off the sidelines and there’s a lot of it.  So I don’t expect another major drop like the 1930s because 20% unemployment is probably the only thing that will push the market down and at this point, it’s highly unlikely unless there is some natural catastrophe or major epidemic or god forbid another major terrorist attack.

I’m seeing something more a smaller retracement led by the leaders of the rally which are techs and commodities.  As the dollar trade pushes back a bit, we’ll probably see commodities pull back a bit.  Perhaps oil to the low $60s and techs just retracing back some gains.  It looks like at this point the pull back for the S&P would be to around 1000 so that’s 6% and I see that for the Nasdaq as well.  So we’ll see.  I think it’ll be a slow and strange six percent.

The key to this historic rally is based on real estate and we’ll see if all that shadow inventory of real estate comes out as a drip or a river.  If it’s a river, we’re dead.  If it drips, we’ll be ok.  But one thing I am going to look out for in the future is probably real estate maybe going up like crazy in certain areas.  Not because of Americans buying real estate but because of foreigners.  When rates start moving up with inflation, US borrowers will face higher rates so they can afford less but those crazy foreigners will pay cash as prices will stay down because rates are so high.  And before you know it, you’ll have a lot more Chinese and Indian neighbors.

The extension of the unemployment benefits to thousand of fallen Americans during the great rush to layoff excessive workers, ultimately cushioned what could have been a very fragile consumer.  But with the great Bear Sterns debacle coming to it’s one year anniversary, many are faced with the realization that their final source of income is coming in a very fast halt in a jobless recovery stabilization of the economy.  According to the National Employment Law Project, we are going to see 540,000 have their benefits expire in about six weeks at the end of September while 1.5 million in total will face the fate by the end of this year.

It may be safe to a certain portion of this population is perhaps just relaxing on the unemployment benefits until their expire but the job market does not seem to be recovering but very cautious as there is growing preference for temporary and contract workers.  In fact, looking at statistics from outsourcing sites, I’ve seen a rather large growth in outsourcing but not just out of this country but within this country as more and more of the formerly employed are positioning themselves as a freelance or contract employee.  This may be a growing trend as companies will attempt to stay lean in the face of more global competition.

The statistics will put increasing pressure on consumer confidence even if the unemployment benefits are extended as they are widely expected as I expect another stimulus by sometime next year although a smaller one to supplement states.

The market is beginning to show some weakness and that was probably expected but the fact that it pretty much recovered much of a huge drop Monday of last week was a good sign.  Walmart’s earnings were a good positive as well as John Paulson’s SEC filings showing this interest in the banking sector especially a huge position in Back of America.  I saw a good entry into gold miners but Paulson’s filing made them run away from my entry.  Again I was eying Angola Gold (AU) which is slowly removing their hedge book which will dramatically boost their profits.  But it’s difficult to question the only man to really make huge money last year.  We really don’t know how he is hedging his positions so it’s difficult to see how he is really positioned but his large positions are much more difficult to hedge.

Here is a summary of the upcoming week.

Monday, August 17:

Lowe’s (LOW), Agilent (A)

Tuesday, August 18:

Cardinal Health (CAH), Home Depot (HD), Target (TGT), TJX Companies (TJX), Hewlett-Packard (HPQ)

*****Housing Starts (July)… PPI (July)

Wednesday, August 19:

BJ’s Wholesale (BJ), Deere (DE), Limited (LTD), Network Appliance (NTAP), PetSmart (PETM)

Thursday, August 20:

Barnes & Noble (BKS), GameStop (GME), H. J. Heinz (HNZ), Hormel Foods (HRL), Ross Stores (ROST), Sears Holdings (SHLD), Gap (GPS)

***Initial Unemployment Claims

Friday, August 21:

Ann Taylor (ANN), J.M. Smucker (SJM)

Options Expiration… Existing Home Sales (July)

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Looking at the week, Tuesday is probably the headliner with earnings from Home Depot, Target, and HP but of course the housing data seems to always makes headlines there days as existing and housing starts will make news.  With options expiration this Friday and housing data, it looks to be a feverish finish to the week.  I’m not quite positioned long but waiting for some positions to come in to my ranges.  I don’t sense that at this point the market will roll over until something  more dramatic occurs in terms of events.  Now that many companies were able to raise money the last six months, it looks like we are buying some time.  But there are many shoes that may fall in the coming months which include a wave of foreclosures and the end of unemployment benefits.

So we are about half way through the summer and it looks like the dog days of summer aren’t quite dog days.  The headlines state that it was the best July since 1987 so it’s something to celebate yet the market seriously seems to be at a point of fatigue but yet the valuation if we normalize earnings would still be between 980-1120 based on my analysis earlier this year.    Yet at this point the market’s move seems a bit irrational but at the same time it is a bit rational if it’s foreward looking.

But I heard a good argument about how it would be tough for the US to rebuild the lost consumption from an increase in the savings rate.  I will break it down a bit further into another post about the savings rate but this is a quick and dirty argument.  So let’s start with the 14 trillion dollar GDP which is about 70% driven by consumers so that amount to 9.8 trillion.  So let’s keep the math simple and say 10 trillion.  So the savings rate with peak earnings for 2007 and 2008 was 0.55% and 1.78% by my calculations.  Now let’s compare that to the average that I computed from the savings rate data from the St. Louis Fed was 6.84%.  Comparing just 2008 with the historical average of 6.84% (we just hit 6.9% recently on the last report in May 2009) then that would be about 5% decrease in spending.  Five percent of 10 trillion is 500 billion dollars in lost consumption for this year.  Imagine if savings rates increased more because of reduced credit and employment expectations and don’t forget the reduction in personal wealth.  The government spending is compensating at this point but there has to be another revenue engine for the economy in the future and as far as I can figure out.  Well there is the alternative energy economy that may help but further research in need to figure out what the contribution will be to offset the lose in the decline of the dirty energy economy. But yet the levels of the market at this point aren’t far fetched but in the short term, it just may be.

Well now on to business.  The week ahead we don’t have many major companies reporting but here is a summary is below.  But it seems that Kraft, Proctor & Gamble and Cisco will be the big earnings news to pay attention to as to news on the general economy in general.  I expect Kraft and P&G to be fine while Cisco should be fine as everyone is upgrading their networks 3G networks and working feverousily on their 4G networks.  I don’t expect Kraft or P&G to move the market but Cisco may have an affect on the Nasdaq.  But the biggest news will be initial jobless claims and the jobs report.  That will probably be the biggest mover of the market next week.  I noticed that the last two sessions as opposed to the last couple weeks, the marke thas been selling off so that may be not a good sign but we’ll see.  My portfolio has been suffering on trying to fade the market while my father’s IRA is up almost 30% for this year (his portfolio is holding McDonald’s only by the way).  Chalk another one up for buy and hold.

Monday, August 3:

Humana (HUM), Marathon Oil (MRO), MGM Mirage (MGM), Tyson Foods (TSN), Anadarko Petroleum (APC), Chesapeake Energy (CHK), Principal Financial Group (PFG)

Tuesday, August 4:

Archer Daniels Midland (ADM), CVS Caremark (CVS), Duke Energy (DUK), Emerson Electric (EMR), Entergy (ETR), Tenet Healthcare (THC), Kraft Foods (KFT), Whole Foods Market (WFMI)

*****Personal Income & Spending (June)… Pending Home Sales (June)

Wednesday, August 5:

Baker Hughes (BHI), Dean Foods (DF), Procter & Gamble (PG), Transocean (RIG), Allstate (ALL), Cisco Systems (CSCO), Prudential (PRU), Sunoco (SUN)

***ADP Employment Change (July)… Factory Orders (June)… ISM Services (July)

Thursday, August 6:

Comcast (CMCSA), DirecTV (DTV), Huntsman (HUN),  Thomson Reuters (TRI), CBS Corp (CBS), NVIDIA (NVDA)

***Initial Unemployment Claims (week ended Aug. 1)

Friday, August 7:

Edison International (EIX), Magna International (MGA)

Employment Report (July)… Consumer Credit (June)

Most car companies are hitting highs of recent along with the market but much of the move is based off the ideas that car sales will rebound.  If you look at Toyota, Honda, and Ford, they are making either new highs or close.  I wished I would have made this trade but unfortunately I did not.  But however I would like to look at whether the one billion dollar program will help the car companies.  One billion divided by $3,500 to $4,500 would provide the incentive for sales of about 250,000 cars so will this ultimately help them recover.  We’ll need to look at the large total US car sales number which is about 7.7 million for last year.  That 250,000 cars is about 3% of total sales which will help but will it ultimately save the industry.  The resounding answer is no.  It may make the numbers a little better and help adjust inventories for this year but the hype behind this is probably overly optimistic.  But ultimately this does help but does not exactly back the price to earnings of Toyota (TM $82.65) and Honda ($30.70) which are trading at respective PEs of about 26 and 24.  I do say that they are good investments if they pull back as the number of imports being bought are actually in an uptrend while domestics are in a downtrend. Toyotal faces major resistance at $88-90 while Honda faces resistance at about $32.  There is slight upside but not much.

I hope to be writing more as my business projects are keeping me busy but in the end, unless you’re a big time trader, you need to make a good living doing something else.

To save time on this post: I’m just going to paste my conversation from an email to a friend about market direction and trading.  But as of today, I went from being almost net way long on Monday to net way short as the end of today where I sold nearly everything except a few long positions plus some naked puts in YUM at 33.  I am looking into getting defensive in health care or utilities but perhaps after the market pulls back a little bit.  I don’t see much value in stocks right now or maybe I’m just not looking hard enough for some good positions but I stand with a pretty short book right now.
EMAILS:

On Wed, Jul 15, 2009 at 4:12 PM, MISTER BULL wrote:

All luck buddy.  But I have gotten really short after today so you might be able to get everything back so no worries but patience is kinda key in everything now.

Here’s a few things that I go by:

1. Always hedge – at least partially because hedging makes you think of the other scenario
2. Always buy or sell in lots because you can always average down or up on a trade – if it moves your way before you get your whole lot, it’s still profit.  Otherwise leg in.
3. Protect your profits.  I have a problem of letting my winners run still but I protect my profits first but if I had another source of income, I would probably let them run more but living on trading profits makes you a bit conservative.

But let’s hope of the reversion to the mean…I mean but my expectations are this: that for GOOG, BAC earnings that the market either doesn’t move or moves down.  Just profit taking especially on options Friday!!!

On Wed, Jul 15, 2009 at 3:16 PM, XXXX > wrote:
Good call man.

On Thu, Jul 9, 2009 at 5:12 PM, MISTER BULL > wrote:
Hhahaaha….not eating is hard but trading is just challenging.

Hello my loyal three readers…perhaps two now because of my hiatus.

I was a little bit early on my short call on the market but I remain bearish on the market for at least the next few weeks.  Consumers and businesses are still being squeeze by the lack of credit but also by the lack of opportunity.  There are few opportunities for businesses to generate money other than cut costs which many are already doing (with the exception of Goldman Sachs who makes golds out of dog crap – excuse my French).  My forecast, which I am reluctant to do, is that the S&P will find some support around 830-850 so there is about 5-7% downside at this time.  But in the end, we all know that people will have to find a place to put there money eventually.

But this blog will be updated a little more often but less about trading but more about education and analysis.  For those traders, I will still update my trades on twitter but please don’t depend on it for trades because I am not the best at keeping it updated.  However to keep everyone busy until my next post, here is a great article from Michael Lewis about AIG that was published in Vanity Fair.

Michael Lewis AIG

Sorry again for the lack of blogging.  Yes it’s been a rather crazy half year for me and there are a ton of things going on but I’m still trading and doing decently although my father’s IRA is doing much much better than mine which I happen to manage.  So the market is making new highs again and it’s something to cheer about but it seems a bit over bought in my opinion but of course the market doesn’t listen to my opinion.  However the point that I’m trying to make it that everything that is positive is being priced into the market at this time.  

• We are expecting real estate to bottom either this year or next. 
• We are expecting the stimulus to give the economy a pop
• We already have commodities rising like a bat out of hell (have you gone to the gas station lately?)
• We have gone through earnings and are making upgrades
• We have no more bailouts and fed programs to go through
• We have sucked up all the new equities issues already and there’s more on the way

So then the question is now what?  What will make the market move up anymore?  Is there anymore catalyst to push it any higher or we just buying because we don’t want to miss out?  Well let’s try not to be the greater fool because the market gapped higher on Monday and it should at least close that gap.  Bascially everyone is buying but only searching for the great fool.  Don’t be that fool.  

However I am finishing up another quarter for my masters so I will have another summer to blog and travel but before then here are some picks that would be interesting with the catalyst: 

Long Excelon because of Cap and Trade Legislation

Short Moodys because of rating agencies legislation

Long BGC and ABB on Smart Grid trade

Long EMC and TDC on the storage trade

But I’ll be posting more later but there is a lot of opportunity out there especiall with the dollar moving and the equities moving much faster.  So it’ll be one heck of a summer at least.

Everything seems to be running like clockwork in the market and it would be foolish to go against the tidalwave that is consuming everything in its way including bears.  The markets are pretty much a function of people’s expctations and emotions.  At this point, it’s optimism and cheer.  I would prefer not going long at this time while looking for a pull back.  Since I have been off from trading and working on a few projects which seem to be growing so far, the market has risen about 34% since I posted my Up Up and Away post.  Of course I am disappointed by missing out on much of the rise but I don’t fear missing out because the markets are very merciful if you are patient.  Right now I’m looking for a short term pull back as the markets are running more on emotion than fundamentals.  The earnings are gone and much of the good news are priced in but there may be some more upside because analyst will start raising price targets and the government will continue their economic puppetteering.  Free markets are no match for government intervention for now.  But everyone has to take note that yesterday, the rise in the markets made front page in most news sites so it is perhaps a sign that a pull back is near.  Of course that is not anything scientific but worth noting.  However it is also worth noting that the purchase of higher risk bonds and equities are a signal of a shift in momentum but again wait for a pull back and when it pulls back, don’t be afraid to pull the trigger.