Traderbill's Financial Markets Weblog

Bloomberg Quote of the Day: “To avoid criticism do nothing, say nothing, be nothing.” _ Elbert Hubbard (a distant relative of TB’s…really!)

TB’s Quote of the Day: “Things always resolve themselves…just not always as  wish them to be.” – TB 7/16/09

…those of you who served in the military know what that means…for those that didn’t merde! should suffice. TB apologizes for all of his analysis that we could not take out the 40 and 50 day moving averages…but the combination of Meredith Whitney, Goldman Sachs, and Intel proved overwhelming! While the volume was still 150 million shares below average and C (28%) and BAC (27%) combined to make volume the highest since July 8…that was because once the broached the 40 and 50 day moving averages even the bears were forced to cover. Besides that, a rumor was circulating that the government was about to bailout CIT…a big boost. The combination allowed those nearby 40/50 day m/a’s to be taken out by force creating a ratio of new 52 week highs to lows of 7.5:1 highest since they turned negative and only the third positive since. Advance/Declines and Breadth were very strong…NYSE 9.6:1 and 28x and Nasdaq 4.8:1 and 14.5x!

Then, after the close CIT said they are not even close to getting government support. So? Because it isn’t just the company it is thousands of small and intermediate businesses that rely on them for their FINANCING! So if CIT is saved doesn’t that imply that there is less risk in the stock market? Yes, it does and that was THE one concern TB had in his bearish forecast but it seemed remote that that could come to fruition this week or next – and it was! Don’t you find it interesting that underestimating the impact of a Lehman collapse is universally seen as the biggest mistake the government made in the crisis yet they are willing to risk that again…and with a company that supports hundreds of thousands of jobs through the businesses it finances…especially retailing? TB does.

That said…TB blew it…along with the other bears he admires…ones who scoff at ‘green shoots’ as a diversion from reality. So where are we now that the 40 and 50 day moving averages are below us…and not just below but converged and that means critical support! The answer is this: since the peak of the rally in mid June from the March lows, we have had one…and now two ‘LOWER highs’ and two ‘lower lows’ meaning false rallies! This last surge being the second one…so major resistance is at the July 1 highs…and we tanked on July 2. IF we take those out we still have a huge number of ‘trapped long positions’ from the ‘plateau’ that lasted from June 1 and culminated with a major selloff on June 15…meaning there are a huge number of investors wishing they had not bought! By way of contrast the second rally lasted just FIVE days and also ended miserably. So for reference…and if these get taken out you may scoff at TB, here are the highs:

(C) TBD Capial

Notes on highlighted dates.

1. The Dow peaked early with both the high and the lower high in June

2. Dow Transports peaked back in May thus not cofirming Dow 30 rally (Dow theory)

3. Both Nasdaq Indices gapped up yesterday and closed a gap created from 7/1-7/2, a very strong indicator…thus the asterisk! Therefore these indices are the ones to watch!

So there you have it in a nutshell…just a few key numbers to watch along with the support levels created by the converged 40 and 50 day moving averages (see summary)

But what CIT giveth…CIT may taketh away since after the close they announced that NO government aid is forthcoming. Also, according to a Bloomberg article this morning management has stoically (?) maintained that they have no capital problems. That is true because it is not a capital problem they face…it is a LIQUIDITY problem and no amount of capital can solve a liquidity problem: they are the victims of the crisis. Not just they, but the Fed has consistently maintained them in their top tier…and if this is so how many others are in trouble. Did you know that most of the banks that have had to be taken over were deemed in good shape right up until they were taken over…does that give you confidence in our financial institutions OR their regulators? Hopefully not…or you are as blind as they are! Still, the Fed is saying the financial system is strong enough to weather a CIT collapse…does that sound like a bailout is imminent…or that the commercial paper market which CIT relied on is imploding…forcing even issuers like ConEd and Kellogg to issue long term debt? TB knows his answer…do you know yours?

JPMorgan Chase reported earnings overnight and they were blowout…BUT the revenues came from TRADING…same as Goldman Sachs…AND Jamie Dimon said that he doesn’t expect credit cards to return to profitability until 2010…optimistic to TB’s way of thinking. Think of this…the most respected bank is making its money from trading profits. That reminds TB of Cal Fed…a California S&L that did the same thing for years under the able hand of TB’s friend and former client, Don Pistulka…until it didn’t! Don sadly made one bet too many and violated his own rules of doing nothing but arbitrage (butterfly trades) and doing them well. He instead bought $400 million 10 year T-Notes at THE high trade in 1986…just before the Fed tightened…he lost, First Interstate who sold them to him won and the notes never hit par again until maturity! True story! That is what happens when an institution relies on trading profits…yes, even Goldman can do it!

By the way JPM closed at $36.26 yesterday with a high of $36.76 and ITS  May 29 high was $37.73, May 19 $37.73 and 12 month high was $38.94 on May 6! Watch it!

So would TB have played it differently? Of course!…knowing what he does now. He made a bigger bet than he should have but did it in a tax deferred account to lock in gains. While it pains him to have left money on the table it wasn’t that much…in comparison to the downside risk…and it is hard to believe there are enough green shoots to keep this market climbing…you decide!

Note that Phillip Verleger a former government energy consultant says oil will fall to $20 since China growth is slowing rapidly and despite huge OPEC production cuts the glut is growing at 1 million barrels a day…somehow I trust him more than the industry or the government data. Also the increase in CPI and PPI was mainly due to oil.

Bonds have fared poorly lately and especially TIPS…inflation protection bonds. TB is concerned about all this talk of an exit strategy for the Fed and why Geithner said…and he is correct…that we cannot afford to put on the brakes too quickly. DEFLATION, not inflation should be our concern with unemployment so high…yet there are others who take the other side of the coin…and TB feels that not only are they wrong but the U.S. will suffer badly if their advice is heeded. You decide.

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Will the Obama family’s spending habits hurt not only his credibility but approval ratings? Dunno, but he and his handlers had better be considering it. He and Michelle are making too many gaffs at a time they have knocked CEO spending on corporate jets and expense accounts while they are paying the cost of commercial travel while the taxpayers are picking up the difference…that doesn’t sit well with 10%…actually 16.5% unemployment. What’s good for the goose…

Have a great day and may your investments be gold…not dross!

TB

Trader Bill thinks it is clear to anyone reading these missives that they are merely commentaries…as he sees it…and do not necessarily reflect the views of anyone other than his own. Information is gathered from sources he has found reliable, but no guarantees of accuracy are implied. These are merely observations of events in the marketplace offering in an attempt to offer a non-mainstream viewpoint. Hope you find it useful. Copyright TBD Capital LLC, © July 16, 2009.