Since early January, MHO has retraced from $6 to $19. Now is a great opportunity to go short on this homebuilder. Also, though I’m no expert at reading a balance sheet, just a cursory look doesn’t instill a lot of confidence.
Archive for the 'Charts' Category
After Tuesday’s huge up day (I saw freaking 7-10% gains for some banks and brokers), yesterday could be termed as consolidation, though after Bernanke’s testimony the markets turned downward for modest losses.
Now I think most people are worried or hoping that this rally will continue. Here are some charts of volatility and advance/decline. These charts show that we are at a critical juncture.
And one last chart of volatility: the CBC put/call ratio.
The AP reports that BNSF Railway Co., the nation’s top hauler of container rail freight, is parking miles of railcars in Montana and elsewhere because there isn’t enough freight to keep them rolling:
Cars that often carry 40-foot containers of goods shipped from Asia stand like an iron fence between the Missouri River and this Montana burg known for world-class fly fishing. They stretch as far as Sandee Cardinal can see when she stands outside her home on the river’s west bank between Helena and Great Falls.
“What is that but a symbol of how America is down in the dumps right now?” Cardinal asked as she gazed at the cars that haven’t moved for about three months.
The cars parked are the type that haul cargo from ships on the coast to points inland, mainly imported goods — an area that’s starting to slow down due to the weak economy. Analysts say transportation usually is among the first sectors to show signs of a downturn in the economy and with Americans feeling pinched — employers eliminated 63,000 jobs last month amid declining consumer confidence — it could be a while before the idle cars move.
Another piece of bad news for this RR company is that Archer Daniels Midland is suing them. ADM is accusing the 5 big railroads of violating antitrust laws in fixing their fuel surcharges. Does not sound good for BNSF, does it?
Well, here’s a chart of BNSF Railway Co. (BNI). You can make the decision for yourself whether or not you would buy long or sell short.
As you can see, BNI recently made a new all-time high, but if you were going to trade on this news and chart, I think there’s a high probability that BNI will retrace.
I’ve got two views that seem to be opposed to each other, both from blogs I frequent. The first comes from Todd Sullivan of ValuePlays. Sullivan does not seem to believe a recession is imminent or that we are even experiencing a recession at the moment. He argues that growth is just slowing and that we as a nation are simply spoiled:
It has been almost two decades since the last true recession in the US. I know we experienced slowdowns in the mid 1990’s and early 2001-2002 but if we are being honest, those were just simply bumps in the road. In Q4 1990, GDP fell 3% and Q1 1991 followed with a 2% drop from there. We have not had consecutive negative quarterly growth since then. In short, we are spoiled. Prior to the 1990-1991 recession, people had only go back 9 years in their memories to remember the last one. We are currently approaching year 19 which means there are a whole class of investors who have never actually experienced a recession in their investing lives…
The second view comes from Tim Iacono of The Mess That Greenspan Made. Tim looks at the same data as Sullivan, but seems to be much more cynical about the markets and the inevitable direction of GDP:
Earlier today, the Commerce Department reported that economic growth in the last quarter of 2007 was unchanged at 0.6 percent and growth slowed to 2.2 percent over the entire year, the slowest pace in five years.
The outlook is for zero real growth in the first quarter, which ends on Monday, and a contraction of one percent is now expected during the second quarter.
Those shrinking blue bars in the chart below will make all the difference in upcoming reports. The long-anticipated decline in personal spending may be at hand, though the demise of the American consumer has been oft-predicted, yet never realized before.
I am inclined to agree with the more negative outlook, but I would not mind if a recession does not manifest itself.
Throughout the years, many Democrats have complained of the so-called power and influence of “big oil,” the companies like Exxon who apparently have too much power and have gouged consumers by charging too much, especially after hurricanes and powerful weather events. I say this in sarcasm. But still, some politicians have called for taxing profits of these companies and now Obama has hinted that he would use the Strategic Petroleum Reserves to combat increased oil prices.
With all this in mind, the QandO blog does an excellent job of debunking the myth held by liberals and Democrats that “big oil” wields too much power. Some of the points made is that almost 80% of the oil market is controlled by foreign national oil companies. These are entities like the Saudi Arabian Co., National Iranian Oil Co., and the Iraq National Oil Co.
Another piece of evidence are the earnings of the oil industry. The oil and natural gas industry falls far behind many other industries in terms of earnings, so why is “big oil” constantly picked on by liberal politicians? Perhaps they’re just easy targets and scapegoats, but nevertheless, the so-called big oil companies wield a VERY insignificant amount of power and influence compared to the oil cartel OPEC and the foreign national oil companies.
The slope of the 50 day moving average for SPY is still pointing down. There is also some evidence that chances of a pullback increase when the market closes higher 3 days in a row while under its 200 day moving average.
One last, large factor that indicates a pullback from this small rally is the lack of volume. Volume has decreased over the last few trading days, thus creating a negative divergence between volume and price, and this is not favorable for a rising market.
With all this in mind, I feel its highly unlikely the market will rise, but certainly more likely that the markets will be in a trading range or will be falling once again.
When I read the news that J.P. Morgan had upped its bid for Bear Stearns from $2 a share to $10 a share I felt like I would be one of the few who would consider such news BAD, as opposed to GOOD. If JPM had to be bribed to take on Bear Stearns assets, why would paying more be a good thing? And by the way, JPM is now on the hook for just the first billion in losses that might occur from Bear Stearns assets. Formerly, I think JPM was on the hook for zero losses.
Anyways, I just want to show you this chart of JPM with its insane megaphone. I was short JPM as of yesterday.
Do you remember the days when the VIX was in the single digits? Boy, those were smooth and easy times. I found this great post and chart over at VIX and More:
I last spoke about VIX Macro Cycles at length in December, at which time I posed the question, Was 2007 the Beginning of a New Era in Volatility? Given the extreme slope of the VIX increase over the course of 2007, I concluded that a new VIX macro cycle was indeed under way, but hedged my answer a bit at the time when I said “the current rise in volatility should persist through all of 2008, even if the rate of rise in volatility begins to slow.”
At the time I made that statement, I certainly did not anticipate that we would see multiple VIX spikes in the 30s during the first 2 ½ months of the new year, but even those events and the broad concerns about the stability of the financial system have not caused me to back away from my December prediction that volatility would flatten out “in the low to mid-20s range.” In fact, I still anticipate that volatility will spend a good portion of 2008 in the neighborhood of 22-26. Looking at the current VIX futures quotes, where the May through December futures are all trading just below 26, it looks as if my prediction is on the low end of the market consensus.
The big question I have is about the duration of current VIX macro cycle – and of course the slope of any continued increase in volatility. If the current slope of the volatility increase holds and the minimum cycle time is two years, that would project to a sustained VIX of about 40 by the end of the year. I don’t expect to see that scenario unfold, but it will be interesting to see how long it takes for the runup in volatility that started about 15 months ago to run out of steam.
I remember seeing an interesting chart from some blog showing a long term chart of some broad-based index showing the rarity of a decline in the markets for four straight months, but I can’t seem to find the chart or blog. Thus, I’ve created my own chart, a 20 year monthly chart of the S&P 500. I’ve highlighted the points where there have been 4 or 5 straight months of decline.
The important thing to note is that these series of declines have all taken place during a period of recession. Also, there is usually a good-sized rally after these series of declines. Just something to keep in mind.
This was one of the most volatile weeks I had ever seen in the markets. This might have a little to do with me being on spring break and therefore was able to watch the markets in more detail, but probably more so to do with these troubling economic times. With only four trading days this week, we saw hundred point gains and losses every single day I think.
Here’s the intraday chart of IWM, an ETF that tracks the Russell 2000 index, that shows the index bouncing and bounding across the intraday fib lines:
It’s really uncanny watching streaming quotes of the market and see the prices of stocks bounce off of and hover around the retracement lines. But anyways, it seems that the market is finally going for a rally after nearly 4.5 months of decline. Money is getting sucked out of leveraged positions in commodities and being put back into securities. One example of this I think is General Electric (GE).
GE had an huge day yesterday, making a 5% gain. For this week, GE went from a low of 32.83 to a high of 37.74. And just look at the huge volume on Thursday. GE has NEVER seen volume like that ever. I actually bought a put on GE, but if the market movers are getting back into GE, that might not have been the wisest decision. But in my defense, I bought the put as GE was pushing up against the 38.2% fib line. The stock moved up past that but now its cozying up to another point of resistance as you can see from the blue line.
