It was a long weekend for me. Drove up to Chattanooga, Tennessee with three of my teammates to compete in some bicycle races. Here are two charts that look good to me.
This is a chart of BUCY. I like it because it looks as though it is topping out and it is also very close to the top of its trend channel. Intermediate target price is $85.31 and longer term target would be approximately $67.
This is a chart of PCP. It’s broken several trend lines and I expect it to go lower. I know nothing about this company at all, but just going by the name, it seems to be involved in manufacturing precision castparts. With a global economic slowdown currently underway, I suspect demand for such things will fall. First target price is around $92.50 with a long term target of $75.
Spanish Property Auction Flop Brings Down Gavel on Housing Boom:
Thanks to Spain’s slumping property market, house buyers are as popular as movie stars — and they can cause even more excitement.
Reporters outnumbered bidders as lot No. 1 hit the slate in Europe’s first “Dutch auction” for real estate last weekend in Madrid. Of 216 lots, 194 were withdrawn when they weren’t purchased at the reserve price. One man, investor Manuel Sainz, bought almost half of everything sold.
“Next stop Hollywood!” laughed Sainz, head of property company Las Terrazas de San Blas SA, as he fought off the press after buying 10 properties at discounts of as much as 30 percent.
The event shows the depth of Spain’s housing bust after prices tripled in the past decade. In January, the government’s housing policy director, Rafael Pacheco, called the slowdown “moderate and orderly” after January sales volume fell 27 percent from a year earlier as the global credit shortage forced banks to reduce lending.
Sounds as good as ever a reason to short the Spain ETF, EWP. Also consider the fact that the slumping U.S. economy will have an effect on many other countries around the world.
A couple of days ago, the Resourceful Bear Blog pointed out an article entitled “Is Iceland the Canary in the Mineshaft of Global Financial Contagion?” The article addresses some serious financial issues that, if true, neither bodes well for the small, island nation, nor for the rest of the banking world.
The aforementioned article says that Iceland a Nordic hedge fund masquerading as a country with carry trades that are now unwinding and causing investment flight. Interest rate hikes and currency devaluations are now raising inflation; a credit freeze is also in effect due to highly leveraged bank portfolios gone bad. To me, it sounds like a grim situation.
There is also further news of the rising cost to protect the bonds of Iceland’s three biggest lenders from default. One alarming statistic is that “The financial sector’s net $35.3 billion of debt represents 211 percent of the country’s gross domestic product.”
Investment Application
The Resourceful Bear has some suggestions for investment application in this situation. Similar to previous advice, he suggests that one invest in the gold ETF GLD and use your margin to short any of Iceland’s three largest banks, which are Kaupthing, Glitnir, and Landsbanki.
I’ve already looked and none of these banks are traded on the major American exchanges. However, my broker Tradeking does allow me to buy Kaupthing (available on the pinksheets), but I can’t sell it short. Ho hum. It would be cool to sell short these Icelandic banks, but opportunities abound with pretty much any major financial institution these days.
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.
Purchasing a put on Southern Copper Corp (PCU) was my only trade for Tuesday March 11, 2008. The limit price for my put could have been better as I should have waited for the market close for a better deal, but oh well, this deal was still fairly good considering the stock was up by a lot.
This trade is based on two factors. First, my belief that all sorts of commodities are severely overbought, copper in particular. Second, I believe that this stock in particular is at an extremely strong point of resistance; I feel it is now at a formidable barrier of two different retracements and is hugging a very long-term trend line.
I always feel a little like a chump doing these charts because I’m no expert in technical analysis. But it’s fun to see whether or not I am right about my predictions! Anyways, here is the chart for Fossil (FOSL), the “the “global design, marketing and distribution company that specializes in consumer fashion accessories.”
The chart shows a bearish symmetrical continuation triangle. The slow stochastic indicator appears to have crossed over to the downside, the stock price is near the top of its trend channel, and the retail sector is a weak one in general now that Americans are starting to hold back on spending.
I feel there is a better than average chance of profiting on this stock by shorting it or buying puts at least 3 months out. This stock is most likely going to retest $30 and then maybe $25, both areas of strong support.
Nevertheless, Fossil was recently upgraded to a “Buy” by Piper Jaffray. Fossil claims that global growth and raising the prices on its watches are going to contribute to higher earnings. We’ll soon see about that when it reports on the 19th.
