Friday, September 19, 2008

FRI. SEP. 19- Temporary Bottom In Place


Bloomberg: "Short Sellers Under Fire in the U.S. & U.K. after fall of AIG


SEC RULES: "New Shorting Rules"

So, did we hit a bottom yesterday? The definition of a “V” bottom according to most technical analysts is a reversal of a sheer panic sell-off on record volume. Guess what happened yesterday? The Dow, after trading ahead of 200 points, fell to down 130, and then closed just off of its high, up 410 on record NYSE volume exceeding 10 billion shares. Why did this happen? Because of several measures-rumored or otherwise- one after the other. First, the Fed ‘encouraged’ a number of foreign central banks to inject their systems with dollars. This is why the markets opened higher. Coercion. Second, the British government randomly decided to ban the practice of short selling in the financial stocks. Communist-like move. Then, yesterday afternoon, there were rumors that Fed Chairman Paulson will now become the largest hedge fund manager in the free world with the government purchasing substantially all the bad debts on the books of the banks, thus making the American taxpayer loaded to the hilt with mortgage bonds among other illiquid securities. What this grand plan would do is free up the banking system by allowing banks to freely make loans and got monies flowing anew. What is not clear is whether the Feds would just own the bonds (or at what price they pay or how they dispose of the assets) or if they annex equity in banking and brokerage stocks as well. Basically, understand that the government basically becomes very long American housing. Time will tell. For day traders, we must pay extraordinarily close attention to this plan and be very studious of the news as well as cognizant of the fact that we will not be able to short many stocks which of course forces more artifical upside pressure to prices. We need to thoroughly understand because if everything comes to fruition re the plan, it will become the topic de jour for weeks to come if not longer.

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 based on direction of the market unless specified

Today’s list is highly unusual and more of a list than specifics. Yesterday afternoon produced one of the wildest closes in the history of trading. At the bell, there were massive imbalances in many stocks as discussed on the chatroom at that time. Many of those stocks had gigantic moves on the close. Thus, there are two ways to play this- focusing mainly on the stocks that had buy imbalances and closed on their highs. First, if the market opens higher this morning and these stocks open higher, they will inevitably be the first to decline in any market correction because they’ve artificially risen so much already. For instance, BIDU rallied almost 30 points on the close yesterday to close at 305. So, if it opened higher this morning and approaches unchanged to the downside, short it because of the spike at the close. If it opened below 305 and approached that number in a rallying market, buy it thru 305 as it shows strength. The ‘good’ below are the buy imbalances to focus upon and the ‘bad’ were the sell imbalances.



ORCL- great earnings

Banks such as C, WB, WFC, USB, BAC- should be strong with plan rumors
Brokers such as GS, MER, MS should be strong with plan rumors



WM- deal may not go through
PALM- bad earnings

None today

Good luck today.

Thursday, September 18, 2008

THURS. SEP. 18- Is This Capitalism?

There are arguments as to exactly where the phrase was derived, but most etymologists agree that the saying “May you live in interesting times” is not a wish for prosperous times, but rather it is a Chinese curse. Seriously. Well, these are certainly interesting times. These are historic days for modern finance as we know it much less ‘capitalism.’ We use that word “capitalism” loosely following what happened with AIG. As discussed in detail in this space two weeks ago, there have been a number of bailouts of major American companies and industries. But the whole face of America’s ‘laissez faire’ policy toward business was turned upside down on Tuesday night. For we actually finally did come across one company that is truly too big to fail in AIG. Few people realize the repercussions a full-fledged bankruptcy of AIG would have had on the world’s markets. People in Singapore were standing in lines for goodness sakes to retrieve their policies overnight before the Feds came in and stopped it. The portfolio of arcane and arguably worthless financial instruments on AIG’s books is literally unknowable right now. An attempt to unleash these positions combined with an inability to attain cash could have been catastrophic to the point where the markets may not have been able to open yesterday. As for day traders, what it does for us is make us all realize that anyone can be next. Do not let anything surprise you as you trade these days- good or bad- because anything truly is possible- at movement speeds several times normal delta.

Overnight, markets in Asia was ravaged early, but came back amid reports that there seems to be some plan for foreign banks to pump dollars into their systems. This led Hong Kong back from a 7% decline to close flat. In Europe, stocks are up. It’d seem like the markets in the US are poised for an oversold bounce. Look for a sharply higher open. After that, there will likely be some sort of sell-off as people are programmed to sell into any strength. But if the initial sell-off holds, it will likely be a major A-B-A2 to the upside today on a rash of short covering amid the Draconian short covering measures passed by the SEC last night.

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 based on direction of the market unless specified


MS- all sorts of rumors about capital infusion/buyout. Stock could move anywhere yet if it opens down and it gets some short covering in a good market, buy thru unch and then look to buy new highs all day…and vice versa for that matter if the opposite scenario plays out.

WB- rumored to be involved with MS. Needs to hold early strength; if so, A-B-A2 to upside…if not, short thru unch.


NLY- mortgage entity; very weak…if it opens higher and market begins selling off, short thru yesterday’s low of 12.85.

HUN- seems like takeover was botched. Looking to short through yesterday’s 9.53 low if market is weak.

PLD –warned on earnings.

MEA- has denied anything is wrong yet stock keeps falling. If market weak, looking to short thru 4.90.

PL,ALL,TRV,MET,AINV,AMP,FII- among others, insurance/investment entities that are weak. Worries over counterparty risk…looking to short thru yesterday’s lows in bad market or A-B-A2 to upside if market strong on short covering

NRG, FE, AYE, ESV- among others, these energies were weak yesterday despite oil being way up. Looking to short thru new lows in case they follow in CEG’s footsteps amid liquidity concerns or A-B-A2 to upside if they fail to break in first half hour or so post-open of market.



CCL 1.58/4.84B .37/3.49B 2.75/14.73B 2.72/15.78B

FDX .95/9.88B 1.27/10.27B 4.98/40.56B 6.00/43.35B

PIR -.22/327M .09/365M -.18/1.43B .18/1.47B


CAG .24/2.83B .45/3.15B 1.49/12.41B 1.65/13.00B

CTAS .52/1.01B .55/1.03B 2.25/4.14B 2.47/4.40B

I.HS .48/214M .54/228M 1.94/847M 2.38/956M

LEH -5.21/286M -.76/2.38B -10.46/3.02B 2.29/14.97B

ORCL .27/5.45B .35/6.25B 1.50/26.13B 1.73/29.01B

PALM -.18/323M -.13/362M -.41/1.44B .07/1.79B

Good luck today.

Wednesday, September 17, 2008

Wed. SEP. 17- Look At All These Rumors

So, anyone out there heard of Timex Social Club? They were an old school rap group who wrote a song called “Rumors;” the song appeared in the Billboard Hot 100 in the summer of 1986 so it actually was popular for awhile! Well, in day trader parlance, ‘rumors’ have ruled trading the last few days. Late last week, for instance, many traders were trying to trade off of rumors that either LEH was going to fail or remain solvent, get funding or not get funding, and so forth. Even more exaggerated was the reaction of shares of Apple (AAPL) to a presentation by Steve Jobs amidst worries of his cancer history. Never mind the next generation of AAPL technology. Day traders acted off of whether Jobs was gaunt, what he said afterwards (that he’d lost weight), his denial over being sick, the company’s board’s denial to discuss health, and a myriad of other sub-issues. The stocks gyrated in percentage points rather than mere fractions. Yesterday, AIG swung wildly on ‘will they/won’t they’ rumors of financial aid. Nobody has a clear idea as to what is going on and what will happen so everybody is hunch over the edge of their buttons ready to act. This type of frenetic action will likely only become more exaggerated; if you are new to this game, stay away from rumor-centric arenas. And if you’ve been around awhile, it is still a very dangerous angle in which to play albeit a very profitable angle if you know how to interpret the news and corresponding stock reaction. But we well aware that this whipsawing of prices will continue for the foreseeable future and if something is going against you and accelerating, the best thing to do is to hit the exit button and live to fight another day.

Overnight, the Hang Seng fell another 3%, but the rest of the overseas markets were marginally higher. Today will be based on AIG's reation and, it does not look good...while it'd seem like the worst has past, i.e. who could possibly be next?, the fallout from this crisis may well continue today as the victims of AIG and LEH declines come out of the woodwork.

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 based on direction of the market unless specified

MS- great earnings; likely will keep uptrending if market holds all day

ADBE- good earnings

DRI- neutral earnings, but on “Mad Money” last night

SNDK- the board received a $26/share buyout bid…stock should go towards there, but if it acts weird in not rallying early, it may peel back off a bit.

WFC, USB, JPM, PNC, BAC- all strong yesterday; looking for continued strength today. If wrong and they open higher, short thru unch if they get there.

GIS- good earnings


AIG- in all likelihood, the stock will be diluted today due to the bailout.

CEG- rumors that its operations would be ceased due to a lack of funding yesterday; stock plunged and then bounced…stock will move with the rumors again today

SYUT- has gotten drubbed the last two days due to its problems in China- some of its baby formula killed two children allegedly
FRZ- has been in trouble ever since announcing probe a few months ago. Decline may continue today; if no bounce on open and it opens a little higher, short through yesterday’s low of 4.26

PMII- horribly weak with terrible close near the low; likely short through yesterday’s 3.05 low

Good luck today.

Monday, September 15, 2008

TUES. SEP. 16- Is AIG Next?

Throughout the first part of this decade, American International Group (AIG) was the premier insurance company on the planet. The company had its hands involved in every imaginable aspect of the insurance business from auto to home to car…to mortgage insurance. And that is where they lost their way. They put much focus into their mortgage securities and collaterized debt obligation division- putting faith in a host of esoteric and arcane financial instruments that the brightest minds in the world cannot figure out. The firm lost $13 billion through June 2008 and it is ostensibly impossible to tell where the company’s balance sheet stands now because so many of their financial holdings are ostensibly unsellable. On Friday afternoon, S&P announced a negative outlook for AIG’s credit and the company suddenly faced a need for $20 billion after this report. Over the weekend, there were rumors that the company has sought a $40 billion bridge loan from the government. Yesterday, the governor of New York paved the way for the company to borrow money from itself so to speak, i.e. to borrow from the good to fund the bad. This only buys the company time, however. If adequate financing cannot be obtained, this company will default. The bankruptcy would dwarf anything we’ve seen so far as the company has a near unfathomable $1 trillion balance sheet. The unwinding of this process will take months if not years to fix by anyone’s estimate. This will be the situation to monitor for the duration of the week for day traders as this will likely be the new ‘LEH’ for traders to monitor.

As this is being typed a bit after 11PM ET, most Asian markets are violently lower with Hong Kong down over 6% and Tokyo approaching 6%. Futures are indicated sharply lower again with the Dow down 140 and the S&P about 1%. Today will hinge on GS first when it reports, what the Fed does at its meeting 2nd, and how AIG does. GS may lead the way in the morning, but AIG will lead by the end of the day in all likelihood.

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 specified

If something is bad, assume either a buy thru unchanged IF THE MARKET OPENS WAY DOWN AND RALLIES, an A-B-A2 based on direction of the market unless specified (particularly if the market opens higher), or a short if the market is strong yet the individual stock is weak.


Everything looked at closed weak so none today.

Bad- GS- due out with earnings. Stock was down 19 yesterday. Had a bizarre close…it ticked to 140 on the NYSE and then closed at 135 ½ in another weird twist- all after-hours. If it has decent earnings and opens down, look to buy thru unch. MS- will follow GS after finishing down 5 plus yesterday MER- unbelievably, managed to finish up once cent on the day after thinking that it’d be close to 29 based on the BAC deal. Also had strange print on closed, falling 50 cents. If it opens at or near there- particularly below 17 and begins rallying, buy thru unch otherwise A-B-A2. BGCP- horrible daily; looking for A-B-A2 to downside if market opens weak and keeps going. CIT- horribly weak yesterday, closing at its low down nearly 25%.

LPX- closed at a low; very weak close.

MTG- down 20% plus at a low.

MPG- wretchedly weak down 20% plus on a low.

SLM- may follow FNM/FRE if market begins falling hard.

WB- everyone wonders if this is next to fail.

JPM- closed on a low, but gapped over a dollar on close. If stocks opens at 37ish or below and market begins rallying this will be one of the highlights to upside.

WFC-gapped down 1 ½ on close. If it opens at 31ish or lower and market rallies, this will likely go with JPM hard to the upside.

BAC- terribly weak on the heels of the MER buyout. Spread on deal widened all day.
Good luck today.

GNW- closed horribly weak.

PRU- closed horribly weak, down 10%.

PLD –gapped into close. Last sale was two points down from before close. If it opens at 38 ½ or south and market rallies, it is a buy thru unch.

BXP, VNO, SPG- all gapped amazingly hard into close…SPG fell 10 points on the last tick! If they by some miracle open near their lows, looking to buy any of them in any rally particularly thru unch.

ICE- closed terribly weak.

LM- closed on its absolute low.

CVC- closed terribly weak.

OSK- down 10% and closed weak.

FSP- gapped down over a dollar on close. Stunning move. If it opens 11.25 or lower and market rallies, buy thru unch. If it opens higher and market sells off, short thru 11.25.

XOM- yes, even XOM gapped over a dollar into close. With oil down again, if it opens weak and oil rallies, buy thru unch.

NUE- closed on its low despite pre-announcing earnings to the upside! Looking to buy if it opens flattish and market rallies.

BBY – earnings due out this morning.


Sunday, September 14, 2008

MON. SEP. 15 - The Death Of Lehman

This is being written late Sunday night in an effort to make sure all Richard Rizzos are aware of what is going on- obviously, things may change between now and the morning, but this is the best that can be done at this time- again, in the interest of getting the information/thoughts/ideas out there

Following up on Friday since we were asked many quetsions about that entry- it was meant in terms of trading only. Obviously, Lehman (LEH) and everything associated with it will have vast reprecussions worldwide, but as a trading vehicle, the frenetic pace of movement did indeed slow down on Friday and we did not want day traders to get hurt scalping the stock for mere pennies when there were such gigantic moves in many other stocks. As for today, it is going to be an extraordinary session. First, lets discuss the death of LEH. A group of major banks and securities firms (including Goldman Sachs- GS among others) have announced plans to provide a $70 billion loan program which financial firms can tap if need be. Now, how this came to pass is something that is not appropriate for this space because it'd involve a great deal of speculation, but indeed, this is how it is. In the interim, LEH's $80 billion plus of 'bad' loans are going to be split into another entity. It is unclear who will suffer the majority of those losses except that the vernerable LEH will see ts shareholders be completely wiped out The second way this has played out is that it has created ripples across the financial world. AIG (AIG) - the world's largest insurance company- is now teetering on the edge of its own financial demise. They may announced some sort of plan today to try to avail themselves of their own problems- or else. Merrill Lynch (MER) is being bought out by Bank of America (BAC) for $29/share, a 70% premium to Friday's close as MER was apparently ordered to put itself up for sale over the weekend. It is unclear at this time if the deal is all cash, stock, a combination, and if the government will be involved. Throughout the day today, there will be rumors, conjecture, and wild swings; PLEASE BE CAREFUL. Today is a day that can make or break many day traders. If you find yourself mistaken on a position, get out. Nio questions. Do NOT get trapped. Conversely, do NOT scalp; this is a day whereby if you try to purchase thousands of shares of a stock like a Downey (DSL) because it is 'cheap,' you may find yourself down tremendously in rapid fashion. Be quick and be prepared; do all of the reading possible on everything and be ready to trade early.


MER/BAC- being bought out for 29. Trading in this and BAC will be fascinating today. On March 17 (When JPM boght out BSC), JPM closed higher. If BAC opens down, but rallies, buy thru unch. If not, a likely A-B-A2 to downside of grand magnitude as people fret over whether BAC overpaid.

JPM, WFC, ZION- all strong Friday; watch for any strength today as they seem to be survivors.

TRE- closed strong on Friday; if it holds unch, likely a buy thru 3.05


AIG- There is no telling what their story will be; the stock may evaporate or htey may save themselves. It is either a major A-B-A2 off the open or if it opens well down and rallies, buy everything thru unch that you can stomach because if it does not go down today, it will have massive short covering as traders/investors feel the firm survives.

LEH- if it trades today, the stock will evaporate. Unless last minute suitors come in, only trade it to the short side if at all- but it is best to stay away.

CEBK- announced massive writedowns Friday afternoon. Likely A-B-A2 to downside

AGM- Farmer Mac. May follow in Freddie and Fannie's footseps.

GAP- traded absymally late Friday afternoon after closing off al ow. Watch for trouble with this belagured entity.

WB- will it follow WM and other banks?

MS/GS- will survive, but wonder if stocks crack very hard today as invstors wonder exactly what they have on their books

MEA- has been weak for days; somethnig strange going on.

EK- very weak on Friday.

PNRA- crushed Friday on the heels of CMG's warning.