April 2nd – coming back relaxed and refreshed

After a spanking yesterday, I am ready to make adjustments

Well, there is no doubt we can see 1390 today in the SPX. But that far that fast seems like a short to me. I may be a buyer on pullbacks, especially if it hits the backside of the downtrend line.
That said, We are 6% off our all-time high in the indicies, only one broker/investment bank went out of business. Yet the government is so ready to change all regulation. The flipside, we lots of headwinds including a bulk of ARM resets June and July. And will lenders still want to loan on homes underwater ( 400K loan, on 350K house). Uh, no!
As I mentioned in last weekend’s post, I think this is a power play for the fed and the govt. Anyway to gain more power. I don’t like it.
I will probably take some heat this morning, but I think we will see a retracement of yesterday’s powerful rally.
Good News – T Rowe Price didn’t change my accts prior to yesterday’s rally. I was able to catch yesterday domestic, and today’s overseas rally. Nice. Now I will be looking to reallocate if we have an up day today.
UST – Purchased 4 more units @ .73, .72, .70, 69. The mid mark dropped to .575., but the lowest price filled was .69.. Now that MO has split, there is a possibility that PM may bid for UST. We will see. UST low 52.5, closed @ 53.55.
GLD – bought 1 unit @ 87.98 on a breakout. and prior to Bernanke’s testimony. Stopped @ 87.23
COF – stopped on the 50/40p position @ 54.52 for 2.30 and 2.25. I just have the 50p calendars on now.
EMR – Stopped out @ 54. Exited May/June 50p for .55 on 2 units. I took a .02 loss.
CTXS – Exited 30p calendar for .37 and. .38. I want to take some risk off the table with a little profit.
POZN – HORRAY!! something finally went right!!! Sold Apr/Jun 12.5p calendar for .96 and .85. and Apr/May 10p for .60 and .55
KO – scratched my 57.5p calendar for .42.
And a heads up on HON- earnings on friday morning.
This is getting interesting. GS Implied Volatility is compelling for a number of Lower IV trades
I am looking at backratio call spreads for GS. Play “behind the net” when playing these volatility trades. Better to not get the trade, than to be on the wrong side of the trade.
Interesting VIX – The volatility is resting on the 200 day MA and the Lower Bollinger Band. If it marks a bottom of a market move. Can it market a top as well?
When all was said and done, it felt like a victory after yesterday. My accts were up .6% on the day.
This rally is utterly foolish, but it is here. And being that I am invested at this point I must face those facts. The fact that we are rallying for silly reasons is something to take note of in the short term. But here are some realizations in the form of an article on RealMoney.com by Tim Melvin.

Wall Street threw an April Fool’s Day party with a massive rally on Tuesday. As I have made no secret of the fact that the only thing I like less than the stock market are my Orioles’ chances of losing less than 100 games, I had to take a deeper look at what was causing the huge rally.
The biggest headline under market news Tuesday was that the stock market was rallying on bank news and improved economic reports. Fear has left the market, as reflected in the CBOE volatility index’s recent drop of more than 50%. Since I seem to be the only one even marginally afraid, I went and read the reports on the economy and the banks to see what I was missing.
I don’t think I missed a thing. Are you telling me that UBS (UBS – commentary – Cramer’s Take) losing $19 billion in asset writedowns is a reason to rally? The stock was up more than 15% Tuesday on news that it received a $15 billion capital infusion.
This is not good news. The capital infusion is dilutive to current shareholders and they had to raise the capital. This is not money to expand and grow; it is cash to plug massive losses in the balance sheet. The bank still has over $30 billion of exposure to U.S. subprime and alt-A mortgages.
Deutsche Bank (DB – commentary – Cramer’s Take) estimates that it will take more than $4 billion in asset losses from commercial and residential real estate as well as leveraged transaction loans. Lehman Brothers (LEH – commentary – Cramer’s Take) sold $4 billion of convertible preferred stock to quiet its critics. To make investors feel better, the investment bank diluted current shareholders’ equity by 15% and raised its dividend expense by $269 million. Company officials said that the offering was not to shore up its balance sheets but to assure critics that it had the confidence of the investment community and is a viable institution going forward. This is quite philanthropic of them, unless you are a current shareholder or care about future profits.
In a final piece of good news for financial stocks, Goldman Sachs raised its loss estimates for both Citigroup (C – commentary – Cramer’s Take) and Merrill Lynch (MER – commentary – Cramer’s Take) for the first quarter. The analyst also cut the full-year earnings forecast for Citigroup by 60% and Merrill by more than 80%. I cannot believe I missed these positive signs for the financial sector and did not buy stocks up to my full limit!
What did I miss in the economic reports? Again, I don’t think I missed a thing. The industrial sector fell for the second month in a row. Norbert Ore, the chairman of the ISM committee that that conducts business surveys, pointed out that this was the worst quarter for U.S. economic activity since 2003. Perhaps that means it is bottoming and brighter days are ahead? Ore pointed out that there is continued weakness in new orders and that order backlogs are declining. Keep in mind that the 2003 low was reached after we exited a recession, not before we entered one.
The other piece of good news Tuesday morning was that construction spending dropped again. Residential real estate construction activity has dropped every month now for two straight years, an unprecedented streak. In spite of this, the inventory of unsold homes remains well above average and will likely continue to be as the record level of foreclosed homes comes into the market over the next several months.
Commercial construction activity also contracted for the third straight month. Government construction spending rose, but nowhere near enough to offset the residential and commercial declines. If all of this is good economic news, things are worse than even I thought.
Stocks rallied because of news from the banks and the economic front. Not only does the emperor have no clothes, he is not looking too healthy and seems headed for a fall. So is the stock market.

Leave a Reply

Your email address will not be published. Required fields are marked *