Wild Times on Wall Street

I did three segments Tuesday on Yahoo Tech Ticker at the Nasdaq: 

Here is the first, on closing shorts and getting a bounce:

Click for video

We ran out of time, but I was going to discuss the infrastructure plays also . . .

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Source:
Wild Times on Wall Street: What Now for Investors?   
Aaron Task
Yahoo Tech Ticker, Jul 15, 2008 07:00am EDT
http://finance.yahoo.com/tech-ticker/article/39407/Wild-Times-on-Wall-Street-What-Now-for-Investors

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  1. Scott commented on Jul 16

    Nice call — i thought you were crazy last week, but it seems to have worked out.

    You reminded us not to long ago that you tend to be a little early in these . . .

  2. super-anon commented on Jul 16

    I feel a lot better today about dumping the UYG shorts last week. Would have been nice to take it all the way to yesterday though.

  3. super-anon commented on Jul 16

    You reminded us not to long ago that you tend to be a little early in these . . .

    Well you have to give him credit.

    And it sure is nice to see bad stocks go screaming higher when you’ve money in your pocket to short them all over again.

  4. Carl commented on Jul 16

    Hi Barry,

    Your timing for covering your shorts is eerie (and fantastic)…

    It seems to us, that the Buy Programs kicked on in earnest yesterday and continued on this morning.

    You can see a graphic of the Buy Programs kicking on here:

    http://www.transactionlevelanalysis.com/2008/07/sp-recap-156jul08.html

    If you just covered your shorts you did it at a great time.

    Totally dig your blog.

    All the best,
    C

  5. Adam B commented on Jul 16

    Hmmm.

    Financials up 17% today, Fannie and Freddie up 30%, BUT spreads on Fannie debt, and U.S. swap spreads, are both wider by 10%.

    That would make sense if the market believes that the Treasury is less likely to nationalize the agencies today than they were yesterday. But then you would expect to see CDS spreads on T-bonds come in substantially. However, they also widened today to a new record 21.8 bps (vs. 1.5 bps historical average until mid-June). To be clear, this means that to insure $10,000,000 face worth of 5 year U.S. Treasury bonds AGAINST DEFAULT, it costs EUR 21,800 today vs a historical average of EUR 1,500 (obviously you wouldn’t insure a default against U.S. Treasury debt with dollars!)

    Why would credit spreads widen if the market, as demonstrated by such a strong rally in stocks, feels more secure about the financials and the agencies.

    I am reminded of the old investment saw that when there is a disagreement between the stock market and the credit market, always side with the credit market.

    There have been lots of stories of witch-hunts today – 30 subpoenas sent out by the SEC to various hedge funds and iBanks (Goldman Sachs is one, along with SAC and Citadel, two of the largest hedge funds) inquiring about improper trading practices (i.e. naked shorts, rumour-mongering, etc.) Apparently the SEC makes lots of noises and blows lots of wind, but they haven’t actually sent out subpoenas en masse like this since the market timing scandal a few years back.

    Now, if you were the head of compliance at an investment bank or hedge fund, and you received subpoenas from the SEC regarding your trading practices in U.S. financials, what would you do? Would you instruct your CEO to unwind any off-side trades in a hurry? Where would you start? Probably naked shorts, right, because they are easy to discover in the system.

    And what has been the dominant hedge-fund bet this year? Short financials and long energy you say? Ahah! So when you unwind your financial shorts you have to unwind your energy longs. I see.

    I think this unwinding process began yesterday. Volumes in the banks support the short-covering thesis as well. Fannie and Freddie volume was strong but not as strong as yesterday.

    In that context, it’s amazing that the energy complex and the commodity sectors held in as well as they did today.

  6. michael schumacher commented on Jul 16

    More luck than anything… Just as it was for me monday and tuesday.

    Using the term “oversold, volatile and counter trend” is not a strategy….seems that makes people look smarter than the rest.

    How about some concrete reasons as to why???

    I’d dearly love to see some real reasons other than spouting off a few generic tech. terms for the reasons…

    Trading on ‘feel’ isn’t going to cut it though is it??

    Been doing this long enough to see gut feel trading…that’s what you/me/others have right now. Nothing more or less.

    Ciao
    MS

  7. JC commented on Jul 16

    Cox of SEC threw the financial sector a big juicy bone yesterday with special short rule enforcement specifically for their benefit – and it didn’t take long to see the results – the biggest day for financials ever! Unfortunately he can’t do anything to prevent the release of their 2Q results.

  8. Steve Barry commented on Jul 16

    A very suspicious rally…I’m looking at a bunch of financial stocks, all gaining 10-30%, and all they did chartwise was get back above the bottom Bollinger band and are still below the falling 10 day MA. VIX still has to rise 50% from here to hit previous buy signals. Total market put/calls, Commitment of traders open options and futures on equity indices and QQQQ short interest are nowhere near indicative of a bottom.

  9. leftback commented on Jul 16

    Yes, you absolutely should give Barry credit for calling this and hopefully saving you all a lot of money. Being too greedy can get you slaughtered – this goes both ways. Markets never go down in a straight line and these counter-rallies can be brutal.

    You can mock technicals all you want but as Andy T has pointed out SPX 1175 is a monster support level so we were inevitably going to see a rally at some point. 8% is a good rule of thumb – so this puppy could even pop all the way to 1300 before it fails.

    I have been anticipating this for several days now – I have been net long for about a week – lower oil may have been the trigger in this case, and as BR has pointed out, once these BM rallies start the amplification effect of the short covering is quite amazing, is it not? Anyway, soon there will be a great opportunity to get short banks, real estate, retail and other insolvent sectors.

    Well it has been a lovely week already. I wonder if the oil bulls are still laughing? My guess would be that we see a reversal in oil now into the weeked but that $137 now acts as resistance. If that forms a lower high then we might see further weakness in oil and more of a prolonged stock rally. Supply and demand….

  10. leftback commented on Jul 16

    Forgot to add: Great stuff on the video, BR and thanks for the sanity on the blog in the last two weeks of madness. Brilliant.

    Agreed that oil in the $100-$110 range is probably the “new normal” but the push to $145 was irrational exuberance…

  11. Bob A commented on Jul 16

    Can you post the site meter readings for the last couple days please?

  12. Juhuti commented on Jul 16

    CPI 1.1% Core .3% and the market rallies? Did WFC cause the (bear market) rally? WFC’s charge off for CRE was up 32%, up 28% for first home mortgages and up 16% for nonperforming assets. The writeoffs would have been higher but WFC changed the length of time for a loan becoming a writeoff to 180 days from 120 days. WTH???

    Or was it the oil reserves increasing more than expected? Inquiring minds want to know.

  13. mikkel commented on Jul 16

    Juhuti was it just WFC or all banks? We’re only a JPM or C report away from giving it all back and more.

    Or Google which has traded pretty sloppy compared to the QQQQ so it makes me wonder.

  14. dave commented on Jul 16

    Well it is Options Expiration week, and the pattern I have been loosely trading with options since fall was a big rally during the last days of OPEX week to get the market makers out of trouble. This OPEX would have been a disaster on the put side without a major rally. The pattern broke in June, but may be back. It would not take that many phone calls among the MM and IBs to get a rally going and get the MoMo traders behind it. Lets see how it holds up next week.

  15. michael schumacher commented on Jul 16

    leftback-

    I am not “mocking technicals” as you put it. Technical indicators have been as useful as the paper our money is printed on-so to say the very basic terms floated in his conversation is not the main reason for what happened.

    The January/March lows have been artificially created and the system counts on people to watch those levels by sheer sense of survival. This is, by definition, a result of effect/cause not the cause/effect that would normally be produced by sheer TA.

    There is a BIG difference.

    I use TA but in a fundamental way. That left the building in late ’06……

    Patting yourself on the back because you say the market is oversold a week ago and it actually happens (but not for some fundamentally strong or sound reason other than I say so) is akin to the Jim Cramer approach. You can predict something and you have a 50-50 chance that it will happen.

    That is what is at work here. My selling of LEH put options late last week and early this week has nothing to do with BR’s call….I am smart enough to realize it is a combination of skill and luck with luck being more emphasized in this particular situation….not because the market was “oversold”, or “volatility increased”.

    Ciao
    MS

  16. wunsacon commented on Jul 16

    I gotta thank Barry and everyone on this board for their thoughts. I’m not making money this year. (And, frankly, I’m embarrassed by my mistimed shorts last year and this year.) But, I’m not losing much either.

    Thank you, people.

  17. catman commented on Jul 16

    Barry – How about a post on infrastructure. Saw Amory Lovins on Charlie Rose last night. What a guy! What a point of view. Grounded iconoclasts like you two are rare indeed. Link us all together brother.

  18. omodes commented on Jul 16

    The market has rallied but that isn’t going to fix reserve levels. Smart money sold into this market. I’m with Carl 100%.

  19. Paul in NYC commented on Jul 16

    It warms the cockles of my heart to see all the good cheer here but most Americans aren’t short players or even actively invested in stocks beyond 401ks. Most poor chaps out there are dealing with inflation and decreased job security and this market is just a meaningless sideshow to them. But still, I hope the good cheer lasts into the next depression, ’cause it’s coming for sure.

  20. JC commented on Jul 17

    looks like the financials short squeeze is ending, didn’t take long. Mish Shedlock had an interesting piece about financials not on the list of 19 being “thrown to the dogs”. Mid size banks are not “too big to fail” and have a harder time raising capital anyway. Both ML and CITI report their results for tomorrow, that should be a gas.ML wants to talk about their Bloomberg sale,wonder how hard Bloomie squeezed their nuts knowing they needed some happy news for today, $1/2B? CITI doesn’t have a smokescreen in place yet.

  21. JC commented on Jul 17

    Are F&F exempt from “going concern warning” due to implied gov guarantees?

    Paulson is asking Congress for trillions because they ARE adequately capitalized? What would he do if they weren’t adequately capitalized? Will their CPAs have to put in hedging words about explicit gov guarantees, continued access to the discount window, government investment?

    Will congress give up their summer vacation to listen to Jim Bunning and others filibuster?

  22. JC commented on Jul 18

    Apparently I was grossly wrong about the short squeeze ending so quickly. I imagine it was extremely difficult to take short positions in those 19 stocks this week with the rules still in formulation, even ML was OK today after a horrendous Q and C was pretty awful too, only slightly better than forecast, as was WF. The way I look at it how good can the banks get with RE prices continuing to deteriorate and consumer loans as the icing on the recession cake? The banks have only had 3 bad Qs so far and this 3Q looks to be at least as bad and I don’t think anyone expects a turnaround any time soon, and the insurer and PMIs aren’t going to be much help at this scale of disaster

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