Wednesday, November 26, 2008

WED. NOV. 26- Shuffling Of The Deck

The market had a sudden major reversal on Friday with the advent of the announcement of Tim Geithner as the next Treasury Secretary. Many traders mistakenly took the news as the reason the market rallied, but it goes much deeper. Throughout this entire crisis since the election, President-Elect Obama has tried to walk a fine line between stepping on President Bush’s toes and being a ghost. Obviously, Bush is very much a lame duck leader at this time, but he is still the leader. However, by staying very opaque, Obama created an image of not being prepared which helped to precipitate the decline in the equity markets. However, now that Obama is seemingly having daily press conference, it has helped lend an air of normalcy to the situation- regardless whether you agree with Obama’s politics. Yet, all of this is not the root cause of the rally. Instead, and it may well be ephemeral, there is finally a feeling of stability because there is now a widespread belief that the U.S. government will do whatever it takes to stabilize the system. Now, mind you, there are limited resources that even a behemoth entity such as the Federal government can lend out, but in the immediate-term, there is this feeling that everything will be OK. It may well not be. Bank of America (BAC) may well be the next domino to fall. Problems in Detroit at General Motors (GM) and Ford) aren’t going away. But, right now, we’re in a bit of an air pocket. It is very notable that Citicorp’s (.C) common stock actually rallied due to the different structuring of this particular backstop. It is also notable that just yesterday the Fed announced they will repurchase up to $500 billion of MBS’s. For day traders, these are just more cards to throw into the deck. There are still many problems out there, but be aware that there are a few more positives in the here and now anyway which will likely make things even choppier than normal as we look to close out the year in a mere five weeks.

After the aforementioned relatively optimistic column you just read, well, the news today is not good. Very notable yesterday was that the dollar was crushed against the yen, 10 year bond yields hit levels not seen since the Kennedy administration, and oil back down 4 dollars a barrel. This morning, markets were mixed in Asia, but solidly lower by 2 ½% in Europe…and this BCE news will help nobody. Futures are holding up OK (amazingly well) at down ½% as of this writing, but it is very likely not going to last. Look for some profit-taking ahead of the holiday with dwindling volumes throughout the day. There can be a disconnect between stocks and external factors around holiday time, but the tone today looks to be fairly overwhelmingly negative.

Reiterating-If the whole story is not there -
If something is good, assume either a short thru unchanged or an A-B-A2 based on direction of the market unless specifiedIf something is bad, assume either a buy thru unchanged or an A-B-A2 (preferably to the downside in a downside market and the upside in an upside market) based on direction of the market unless specified-

Good- The following stocks have good news and/or a strong technical pattern

LNC- very strong yesterday

LTM- closed on its high after a stake disclosed by an institution

DHI- noted its cash balance was fine yesterday morning; stock closed near top part of its range

DLTR- closed near a high after a couple of days of good gains as well as good earnings

CBRL- closed near a high after decent earnings

JRCC- has doubled in less than a week; in a good market, look for A-B-A2 through 10.50 as a trigger buy entry

KFS- very strong; if it opens down or unch, look to buy thru yesterday’s 5.55 high

Bad-The following stocks have bad news and/or a weak technical pattern

ZLC- closed near low after horrible earnings; looking to short thru 5.15, particularly if it opens lower

JCG- horrible earnings outlook

VRGY- bad earnings outlook

HRZB- a small bank clearly in trouble; closed near a low yesterday…looking to short thru yesterday’s 1.74 low

TNB- warned on its earnings

MBT-suffered a mid-day reversal yesterday; will likely be a pretty good A-B-A2 play at some point mid-morning off of the open pending market direction

NTY- broke to a new trend low; look to short thru yesterday’s 13.24 low if market is weak

BCE- deal to go private may not go through based on their auditor’s views

TIF- warned on earnings

DE- warned on earnings





Good luck today.


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