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07
May
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[From the perspective of bears, of course!]
[Updated with NDX chart]
For eight weeks, it seemed like
- all bad news is either “priced in” or good news
- all good news is great news
- economy has “hit the bottom,” and the recovery is just a street block away
- gold is bad, dollar is good, stocks are on a tear, treasuries are strong
Something changed yesterday and today (via Bloomberg)
By Dakin Campbell
May 7 (Bloomberg) — Treasury 30-year bonds fell the most since February as investors demanded higher-than-forecast yields at today’s auction of $14 billion of the securities with the U.S. slated to sell a record amount of debt this year.
“This is a problem,” said Chris Ahrens, head interest- rate strategist at UBS AG in Stamford, Connecticut, one of 16 primary dealers required to bid in Treasury auctions. “The market required a fairly significant discount to buy the bonds.”
Yields climbed to a six-month high as the auction drew a yield of 4.288 percent, higher than the 4.192 percent average forecast in a Bloomberg News survey of seven primary dealers. Demand was below average, judging by total bids.
This may be too early in the game, demand for higher yields = fear of inflation. When the recovery hasn’t even started, rising rates will nip housing recovery in the bud.
When the Feds face a choice between Treasuries and stocks, I think they will choose the former. Pay attention to the treasury yields closely now.
Resistance is holding.
While S&P has not yet breached the fanlines I drew in my prev blog posts, NDX just breached the 3rd fanline decisively. NDX has been a leader and is less manipulated than S&P or financials. This could be a very significant development. If you are still a bull, you better watchout.
Interesting and pretty complex.
“Pay attention to the treasury yields closely now.” – so now rising yields are bearish for the stock markets?
May 7th, 2009 at 9:44 pm
Rising yields = rising mortgage rates: Manageable when housing inventories are not this high. Devastating for a recovery that hasn’t started yet.
Here is another simple explanation:
“The government had to pay greater interest than expected in a sale of 30-year Treasurys. That is worrisome to traders because it could signal that it will become harder for Washington to finance its ambitious economic recovery plans. The higher interest rates also could push up costs for borrowing in areas like mortgages.”
http://finance.yahoo.com/news/Traders-say-sell-ahead-of-apf-15176268.html?sec=topStories&pos=1&asset=&ccode=
May 7th, 2009 at 10:33 pm
TMV 30YR 3X inverse was up nicely for the day, +9.48%
“The results of “stress tests” of the 19 largest U.S. banks — due at 5 p.m. EDT (2100 GMT) — are the culmination of a months-long exercise aimed at reviving the financial system and are expected to show about half the banks need more capital.”
http://www.reuters.com/article/newsOne/idINN0733342620090507
Sell most of your shorts in after hour. Looks like a “W” formation
Mohan
Would you please elaborate on your post? I thought the fed was trying to prop up stocks using the media and the PPT. Dosen`t keeping yields low drive money into stocks?
May 7th, 2009 at 4:57 pm
In think that is the point Mohan is trying to make – higher yields means Fed money going out of stocks into treasuries.
May 7th, 2009 at 7:49 pm
that’s incorrect. Higher yields = less money is flowing into treasuries. People aren’t locking into Treasuries since they (the auction-issues, at least) are not indexed to inflation.
Bonds fall, stocks rise?
May 7th, 2009 at 7:50 pm
more like gold, copper, oil, the height of mattresses…
keep in mind that labor cost might be the largest impact to inflation. As a contractor, I can tell you that direct labor cost is down way way down due to reduced labor demand.
Stress test results are out! All GREAT NEWS!! tomorrow the markets rally!
All is good i America, no bad news, aint this great!!
Boy am I glad I sold my FAZ a few days ago
May 7th, 2009 at 5:40 pm
I’m waiting for FAZ $4 or less and will pile in 100k into FAS puts. If it doesn’t hit, so be it.
May 7th, 2009 at 5:43 pm
ditto
Yep. Banks need another xxxxxxx billion. BUY BUY BUY!!!!!!!!!
May 7th, 2009 at 5:35 pm
Awh, whats a few hundred billion among friends! Besides, the US taxpayers will give you all the money you need if you’re short a couple billion.
Tweet Tweet
NEW YORK—The Federal Reserve Bank of New York announced today that Stephen Friedman, chairman of the board of directors of the New York Fed, has informed William C. Dudley, president and chief executive officer of the New York Fed, and the Board of Governors of his decision to resign effective immediately.
http://zerohedge.blogspot.com/2009/05/ny-fed-chairman-stephen-friedman.html
May 7th, 2009 at 5:44 pm
he cut a good deal
May 7th, 2009 at 6:50 pm
Rats jumping ship…
May 8th, 2009 at 12:54 am
exactly…he will be gone for a few days and then we wilget the news he is a CEO of big bnak/investment firm
Bank stocks “priced to perfection”
who wants to be the first to say this guy ‘ain’t nobody’. Ok, I will. He ain’t nobody…
http://www.reuters.com/article/GCA-CreditCrisis/idUSTRE5466DI20090507
As has been leaked (of course) the banks will have 30 days to come up with a plan once the results are made public.
Tweet Tweet
One very interesting note, which David Zaring picked up on, is that in this 30 day period “…firms will need to review their existing management and Board in order to assure that the leadership of the firm has sufficient expertise and ability to manage the risks presented by the current economic environment.”
In other words, if you’re on the least-favored CEO list — we’re looking at you Citigroup CEO Vikram Pandit and Bank of America (BAC) CEO Ken Lewis — it’s time to start talking about succession, planning for the future and resignation.
http://www.businessinsider.com/feds-give-bofa-and-citi-30-days-to-fire-their-ceos-2009-5
CRE was not included in the Stress tests – HELLO!!
This is estimated to have worse losses than subprime. Also rarely mentioned is the Alt-A and Jumbo resets that are about to hit just as interest rates are rising.
This will result in a huge sell-off to new lows. Unavoidable.
Pictures Worth A Thousand Words
http://www.reuters.com/news/globalcoverage/bankingcrisis#stressgraphic
May 7th, 2009 at 6:40 pm
and a couple of charts…
http://comstockfunds.com/files/NLPP00000/414.pdf
May 7th, 2009 at 6:43 pm
and a couple of charts…
Trough earnings?
May 7th, 2009 at 11:39 pm
Thanks! I had no idea it was this dramatic.
Some Thoughts From
* Yves Smith, financial analyst
* William K. Black, former banking regulator
* Douglas Elliott, Brookings Institution
* Simon Johnson, M.I.T. economist
* Bert Ely, banking consultant
* Alex J. Pollock, former chief, Federal Home Loan Bank of Chicago
http://roomfordebate.blogs.nytimes.com/2009/05/06/grading-the-banks-stress-test/#yves
Appropos of that: http://www.youtube.com/watch?v=7MTdxnAVZNo
FAS ……… STILL HAVING A TOUGH TIME BUYING THIS LIE. so i’ll continue with the SRS FAS pair trade at closing from now until this rally ends.
——– 912 ——— this a very key level and the release of the test results have FAS moving up but the market not breaking this level in AH. so , will we see another GAP and FAILURE like we did today. i’d love that everyday
my account needs stimulus and GAP and FAIL is one trade every bear can fall in love with.
JUST CAN’T FALL OFF THE BEAR TRAIN ….. you have to believe that most people long this market don’t believe in the recovery that is being touted all over the mainstream media. something will have to give. it simply does not add up. banks need billions more? didn’t we already bail them out a few times? GM needs more… even my GRANDMA’S KNITTING BUSINESS is going to hell… bail her out! im sure all of our trading accounts could use a little stimulus too. anywhoodle.
if we can keep heading higher on JOB LOSSES MOUNTING , NEVER ENDING BAIL OUTS, FALLING RETAIL SALES, COLLAPSING CITY BUDGETS, UI PROGRAMS IMPLODING, FOOD PRICES RISING, OIL MOVING UP, ……. and the list goes on and on. there is nothing out there to cheer about in the real world so how can consumer confidence really be up. some nights i have a tough time sleeping after giving my girls a hug and a kiss. my consumer confidence is down in the dumps tyvm.
RETAIL SALES FALL BUT NOT AS MUCH AS LAST TIME WE REPORTED … and this is bullish. things are wacked out but are we really that stupid? if retail sales were given a score of 100 at the start of this recession. they dropped to 70 in the first quarter of the game so 30% and now they have dropped to 55 or just 20% more in the second quarter…. oh yeah baby … cant wait for the half time show because the third quarter of the first game comes this fall/christmas. time to load up on JANUARY PUTS on that discretionary income ETF which i have not a clue on the ticker symbol .
PLEASE HELP ME OUT… what is the ticker for the consumer discretionary bull etf! i want some puts on that and can’t wait another fargin day.
now for some amusement: http://www.youtube.com/watch?v=nr3UBAMvHaw
look back at his other videos … way back.. he has been pretty bang on.
May 7th, 2009 at 7:53 pm
XLY is the one you are looking for…
May 7th, 2009 at 9:39 pm
thanks, have it on my radar …………..oooo o… dat looks so topply – but what doesnt?…. not many stocks look bottomy right now. what we need to decide is who will fall the hardest and the soonest and this has to be the one.
puts on this makes more sense than SRS no? this market can’t see past its own nose and if it aint failing this minute (CRE) then it gets the thumbs up. so im going to take a bigger position buying puts on this ETF and take those profits into a secondary postion on SRS. sadly, this strategy makes sense so its doomed.. .doomed i say.
last time i took a decent position VSH and said don’t follow it is doing everything i want. so don’t follow this play as it is doomed
May 7th, 2009 at 7:55 pm
Richard, it’s been so long I’d totally forgotten about this guy! Thanks for the video. He’s great!
MOHAN — MOHAN — MOHAN … took a look at your chart “resistance is holding” . why do you not have the trendline touching the candle bodies on the left. this significantly changes the angle of this resistance line. have to somewhat disagree with this positioning.
say you put the trend line touching the lower body of the candle on the left and run it through the bottom of the body of the candle in the center. would it not then travel right through the center of the chart “GAP GAP GAP” which seems to make sense if it is major resistance. how many times have we seen major resistance broken with a gap. with this change in angle the result would be that we are currently fighting on either side of resistance that should be around the 915 level and that makes a ton of sense no? the battle ground today seemed to be 912 and AH again we sit at 912. please draw a second chart with these considerations as i strongly feel that this will give a healthier indication that we are currently sitting right at resistance after a breif breakout.
your thoughts on this thinking ?
May 7th, 2009 at 9:49 pm
I tried both (touching the shadow as well as the body). The resistance is intact in both cases.
May 7th, 2009 at 11:19 pm
We can hardly expect that line thru the gap to fit the candles precisely with so many touches over such a long period. Opinions differ as to what constitute a line break. Almost all want the bar to CLOSE on the other side of the line; some go so far as to want three consecutive bars to do so by a margin of at least 3%. However, that particular line is less interesting than the upper boundary of the wedge, which is a very good fit indeed. The long upper shadow on Thursday’s candle spiked several converging resistances (including a downtrend not shown in the chart linked below), but fell back into a particularly long-bodied red candle on even higher volume than the previous day’s huge number. Normally, I would call this a highly bearish chart, but who knows what will happen next?
http://i43.tinypic.com/xlkt46.png
The most important trendline right now is going up and not down. You guys trust the charts and only the charts right?
we need to ask Sosa. He’ll find us a better deal
Nice work Mohan. I believe you are on to something my friend. Take care.