By Forrest Lowell

Sticking with my theory that bad jobs numbers are good for the market, I am setting up for a decent jobs number that will send the market down. When hopes are high there can only be disappointment. The good news was put into the market today and I really think all there is bad news to come on Friday. If the jobs number is worse than expected then I think there could be significant profit taking and a large down turn in the market. Now that the rally is nearing in on 8 weeks I think there is also significant pressure on market for a sizable correction and perhaps Friday is the start of it.

I was lucky enough to sell most of my position in CHK this afternoon on fears that the earnings would be a buy on the rumor sell on the news. Chesapeake was a little late to the game in deciding that they were going to cut production and how far they were going to cut it. They burned thru quite a bit of cash and are going to have to continue to monetize assets while prices are at very depressed levels. The headline number was very poor because they were forced to write down oil and gas properties that they acquired last year but are now worth considerably less at these natural gas levels. Thankfully their hedges are still working to their favor and they had a considerable gain on realized positions there. There is some risk going forward that their hedges are going to start to run out and they will be forced to sell their production at market levels. I am in the wait and see mode now for CHK, I am optimistic that by the time their hedges run out there will be enough production cuts across the industry that the supply and demand will be more in line with each other. The advantage that natural gas has is that the natural rate of decline for mature fields is something on the order to 10% vs. 4-5% for oil. This means that the industry is very able to quickly decrease production by just not drilling anymore wells. Of all the natural gas players CHK has the most aggressive hedges and still have assets to monetize to keep them afloat. But until the price of natural gas gets back into the $7-8 per million BTU no one makes money in the industry, some just lose it quicker than others. Disclaimer

Before the bell on Monday morning is perhaps going to be the most important earnings report of the season so far, Bank of America is expected to report earnings of 5 cents per share. There are several reasons why I think recent history proves this number is significantly too low.

(more…)

By Forrest Lowell

I think there is a better than even chance that General Motors will file for bankruptcy this weekend. This obviously means the common shares are going to go to 0 and the bond holders are going to take a major haircut. If I wasn’t already fully invested in this current rally I would be a buyer of Ford. I think they are going to take market share from both GM and Chrysler and have the government do the dirty work of breaking the unions. The last point is the most important, the unions have to be broken, but I don’t think in the way that most people believe. The current workers might be a bit overpaid but the real problem is the retirees and their benefits. Something has to be done about the 3 thousand dollars per car that is spent on retiree healthcare costs. There has to be a solution this problem, I am not sure what the solution is but no matter what it is, it is going to benefit the carmakers. Granted it might be on the backs of the taxpayers, but regardless you can profit by owning the surviving car makers. On a fundamental level I also feel that Ford is ahead of the curve in introducing new vehicles that consumers actually want, both fuel efficient and including all the “cool” gadgets the new generation of car buyers is going to demand. This whole theory is a very high risk trade but I think it is coming to a resolution one way or another very soon. Disclaimer.

By Forrest Lowell

What has happened to the people that were so convinced the S&P 500 was headed to 450? In late February Goldman lowered their estimates for earnings of S&P companies to $40/share. Putting a recession type multiple on that of 10-12 times, gives an S&P level of $400-$480. Right now the S&P is trading at around the $840 so it seems to be vastly over valued right now. I think there are a couple of reasons that the market is ignoring this scenario. First, earnings estimates have been wildly inaccurate over the past few quarters and most analysts are using an abundance of caution with their numbers so as to not get surprised to the downside. Hopefully we will get some clarity on the earnings estimates as they start to roll out these next few weeks. If the reported earnings are at the levels predicted or even lower I think the current bull market is over. I believe the analysts want to be surprised to the upside so that they can say the worst is over. If they are correct however, that means their worst case scenarios have come true and that is not a bullish case.

(more…)

By Forrest Lowell

News Flash! The American economy is worth 7% more now than it was 24 hours ago! Of course the economy is not worth more today than yesterday; 20,967 more people are unemployed, thousands more just defaulted on their mortgage, millions of homes went unsold, 10’s of millions of square feet of commercial property continue to be unrented, and the tax payer just lost another trillion dollars. All in all I would say it was a pretty crappy day, unless of course you owned anything with a ticker symbol, then you think today was fantastic. But one needs to ask themselves if anything has changed.

(more…)

by Bryce

It should be no surprise to anyone following the markets or even current events that the US had a huge rally today encompassing nearly all stocks. Bloomberg has an article entitled ‘U.S. Markets Wrap: S&P 500 Caps Biggest 10-Day Gain Since 1938‘ summarizing the days price action that was largely driven by announcements from the Treasury. Now the focus is on whether the move marks the beginning of a bull market or yet another bear market bounce. I would opt for the latter although that does not mean we won’t go higher in the short term. What I do expect is some consolidation. The attached chart demonstrates that the SPY an ETF for the S&P500 crossed the 50-day moving average today. At this point if one wishes to be long the S&P expecting a further market appreciation, I would encourage using the 50-day moving average as a sell stop. I would also examine the RSI indicator at the top of the image to determine any overbought condition. It appears as though the SPY is reaching such an apex and will need some consolidation before further gains if there are to be any in the short term. 

(more…)

by Keith

Today we witnessed the continuation of a recent bullish trend in the market. After a fuss over executive compensation, the markets witnessed a nice gain to begin the week. While today, and most likely over the next few weeks, offers opportunities to accrue nice gains, we must be cautious. The obvious questions at the moment are: have we seen if there finally going to be a sustained rally? and have we seen capitulation? Personally I think the answer is no to both, but it is hard to say in these times. The changes in the housing figures released recently make one want to believe things could last, but as always we must be careful. In light of this, I think it is time to remember the importance of separating trades from investments. In bear markets (as with any other market) we have to set metrics for ourselves about what to buy, and when to sell it. One would have done well to view things as trades, and only trades. Making purchases only for the short period of time to time the ebb and flow of this bear market was certainly easier to handle than trying to buy up long term holdings after the first few lows. As this rally continues one must question what to sell and what to hold to test the life of this rally. I would suggest the simple question of whether your holdings are investments or trades, because it is much easier to swallow pulling the trigger too early on trades since we see questionable long-term value to them. While your investments will stir draw your ire should you miss out on a sell, if it is a true investment you will not be upset in the long run. All of this should not be new to anyone, but in this market it does not hurt revisiting your basics.

By Forrest Lowell

Everything was going very well with the bear market rally until congress decided to become principled, which I will get to later.  But that being said this is an absolutely perfect time to realize that the rally is for real and you can buy the financials for something like 20% less than they were on Tuesday.  As soon as the current news cycle is over and congress reverts back to being incompetent the technical rally can continue.  You have been presented with an opportunity to see a dress rehearsal of the rally to come.  You have the opportunity to do what has very rarely happened before; you can see the market’s rally, have an unrelated issue undue the rally, and then position yourself based on previous observations.  If congress will just get out of the way the march to S&P 900 can continue.  In a stroke of luck I heard about the plan to tax the bonuses at 90%, and at that point I realized if they actually got it past the house the markets would be really displeased.  This allowed me to buy SRS at 57 and I sold it Friday afternoon at 70, but that trade is over.  With the proceeds from that I am going put my faith in the incompetence of congress once again and assume their attention span is that of a Chihuahua on cocaine.  The rally is going to resume this week, I am not sure if it is going to be Monday morning or not but the story of AIG is getting old, and once that is out of the way, hello S&P 900!

(more…)

My play on Wells Fargo has certainly done me well these past couple of trading sessions.  I think a lot of the easy money has been made in the short term in the financial names but it is never a good idea to get in the way of a market trading on momentum.  Also the FASB and SEC gave testimony on Capitol Hill yesterday and stated that they are going to give guidance to relax the rules of mark to market accounting in about three weeks.  I can’t help but think the anticipation of this news has been largely responsible for the rally these past couple of sessions.  This is probably one of those situations where you buy on the rumor but sell on the action.  If the financials continue to rally for the next couple of weeks I would be wary of putting new money to work for the short term.  I think many of the financials are undervalued for the long term but that does not mean they can’t have a 50% retracement once this current market bear market rally is over.  And I think it is important to note that this indeed a bear market rally, there has been no fundamental change in the economy and changing accounting rules is only going to have a short term effect on the financials.  In fact the economy is still getting worse at an accelerating rate, the first time unemployment figures this morning were even at the high end of expectations, which does not bode well for the recession ending anytime soon.  But luckily the stock market looks forward and does not necessarily reflect the economy as it is now.  If you expect a large one day downside coming soon, as I do, it is very tempting to get long the ProShares double short commercial real estate, SRS. It has gone from 110 to 60 in just one week, a bounce downward in the market could be a bounce up in this fund.  It also has had a pretty well established bottom in the high 40’s to low 50′ so your downside is potentially limited. It is a high risk high reward trade.

(more…)