Traderbill’s Financial Markets Weblog

…we have had incredible volatility lately. To wit: in the 12 trading sessions since 12/26 (the last high and TB’s birthday), there has not been one day with less than a 100 point range on the Dow Industrials, the lowest was 115 and the highest was 340 points with an average of 220 points… that’s huge. For the record the swing on that 12/26 high was just 71. Now look at the composition of those 12 days: six were up and six down with the average advance being just 80 points and the average decline 192. Over this period the Dow has declined 5.7%. Yet the bulls keep pointing to the small victories…such as the 0.9% gain in financials yesterday and adding that it was financial stocks that led the way in the prior rallies of 2007. It is as if they haven’t heard a word about subprime, housing, derivatives and lower consumption. Also look at what happened on each selloff from a record high since the Feb. 26 plunge from a rally which began on 7/16/06. The major damage was done the first day on by the capitulation trade on Mar.14 we were in rally mode until July 19, followed by a selloff until the August 16 capitulation. from there we rallied until the Oct. 9 record close, selling off until Nov. 27 (with one countertrend rally in the middle), then the final surge to Dec. 10 with the bounce to Dec. 26 but each of the countertrend rallies was lower than the previous and we are now well below the Nov. 26 close. 

It is the length of the selloff period that is worrisome as it is increasing while the rallies become less meaningful and short-lived. But what is remarkable is that stocks rallied thru the subprime crisis…a total state of denial when financial stocks were declining and about 30% of the market. Thanks to the cheerleaders of CNBC, led by Larry Kudlow, we were told it would go away and was a grossly overstated problem…which is most certainly was not and Kudlow of all people should have recognized this. Now, virtually every Wall Street firm and money center bank has been impacted and the impact keeps growing. Still, the bulls see all the capital infusions by sovereign funds as a positive, dilution be damned…not to mention the deals they are getting.

Despite TB’s warnings since Friday of options expiry this week, nary a mention of it as a cause on CNBC. When you get moves like this it becomes the key factor in trading. Because of the aforementioned volatility TB believes a lot of the shorts are now off the table and that they will begin to feel comfortable shorting again…perhaps as early as Friday afternoon.

Yesterday’s tech ‘rally’ was due to IBM’s preannouncing earnings…as if that is enough to imply the entire sector will behave accordingly. Much was made of the bounce in semiconductors…it was meaningless as we are at levels not seen since 2003! If financial institutions are taking major hits to their balance sheets as well as their income statements…do you really believe cap ex won’t suffer?

Let’s revisit Citicorp since they just announced earnings as well as a $12.5 billion capital infusion from Chinese investors and Prince Alaweed…already the largest shareholder (he is the second largest holder of the stock behind Capital Research…but that is data from 9/30, so probably largest now). They took another $15 billion write-down, posted a $9.83 billion loss and are looking to cut jobs…oh and they are slashing the dividend (which they swore they wouldn’t) by 40% so that nice 7.8% dividend as of yesterdays close is now…4.4%! CNBC is lauding the new CEO Pandit for this but TB would be that it was Prince Alaweed who demanded it…what does he want with the dividend? He wants to see capital gains like he did the last time he pumped in money  …and this is bad news for the rest of shareholders. By the way if you recall TB drubbed the Trust Preferred they issued  …want to be it doesn’t see the dividend this year?…they can defer payment for up to 10 years!…yet another suckers bet!

Now we are waiting for Wells to report and the predictions are for more of the same…sans the dividend cut. More to come.

Today we have Producer Prices which will be watched closely (results are in overnight section), Retail Sales and Business Inventories. Even more important will be CPI tomorrow as a jump could hamper the Fed’s ability to cut rates as rapidly as the market wants them to.

Just remember: you can’t solve a problem until you recognize there is one…and we have just begun to recognize it. The response by the government has been predictably poor and short of meaning.

Here’s yet another sign of a bad market: investing scams: channellingstocks.com which relied on a steady trend to make money by buying at bottom of trendline and selling (trading) by selling at the high end is not advertising…instead, TD Waterhouse is advertising you can create your own backtest for up to 10 years?…what will that tell you in this market, pray tell? Others are telling you how to profit from real estate foreclosures (by running a seminar), and a myriad of trading systems guaranteed to cost you money…now they are hyping options, commodities, and even currencies as being easy to trade! B.S.!

Once again, TB may be wrong on his bearishness, but will happily apologize if he is…it’s not fun to be the bearer of bad news…they shoot messengers, don’t they?