Sunday, February 10, 2008

Timer Digest Market Timing Commentary

Timer Digest Market Timing CommentarySocialTwist Tell-a-Friend
Fari Hamzei

With Feb Options X this week and overall negative sentiment in every traders' mind, it is not a surprise that market participants have been dumping stocks on Fridays. This week is a slow economic news week which will make the popular stocks bleed further.

Be aware of expiration week reversals -- come Tuesday or Wednesday of the expiration week........till then stay short your core positions... we should see 11,700 on DJIA before the next dead cat bounce commences.

Cheers......

Wednesday, February 6, 2008

Timer Digest Market Commentary

Timer Digest Market CommentarySocialTwist Tell-a-Friend
Fari Hamzei

Given that on Feb. 1st, the McClellan Oscillators for NYSE & NASDAQ went into a massive over-bought condition, the sell-off this week should not be a surprise to any avid student of our markets. Our current target is 1267 area on SPX (down to -3 sigma).



What was interesting is the intensity of big names being discarded, i.e., GOOG, RIMM, AAPL and CME. These were the darlings of Wall Street during the run-up last year.

Here is Sigma Channels for SPX Volatility Index (VIX): Given that we are still at +1 sigma, this leg down has ways to go (up to +3 sigma).




At this point, ceteris paribus, we fully expect the January lows to be exceeded (to the downside) since the reversal on Jan. 23rd did NOT come from oversold conditions and which told us (as we mentioned here before) the ensuing run-up will not be more than a dead cat bounce.

STAY SHORT.......

Tuesday, February 5, 2008

Barbell Time

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Fil Zucchi

I won’t begin to guess whether we have seen a multi-month bottom in the broad indices, or whether we will knife through the late January lows on our way to a full-fledged nasty bear market. But I am quite convinced that whichever way the market breaks, it is likely to put in some jaw-dropping moves. Based on that I am adopting a barbell approach to my positions: shorts consist of leveraged bearish ETF’s and volatility in the form of long dated puts, and longs include high beta equities, many of which have suffered some truly remarkable beatings relative to their fundamentals.

Here are some long ideas that should play-out well for longer than a trade if we embark on a multi-month ramp:

Harris Corp. (HRS): the company has a long history and culture of being a build-to-suit manufacturer of military radios; it’s been a safe business model because its market was pre-determined, but it’s also been a frustrating low grower. HRS is now vowing to design spec products, i.e. the “build’em and they will come” approach. If they are successful, the new market and growth opportunities could be tremendous. If it works, this is a “multiple expanding” event for HRS, and if you multiply that by current EPS estimates well north of $4, this stock has the potential of trading at par within two years. Its Broadcast business and the appeal of the company as a take-out candidate (ITT, L-3 Communication, and any number of major defense contractors being possible buyers) are but the cherry on top of this story. If however HRS fails to compete on the basis of innovation, then things could get ugly. But at least the reward here seems commensurate with the new and higher level of risk.

The traffic jams in certain areas of the IP highway are growing worse by the day, and carriers do not seem to have a choice over upgrading their networks. Sticking with the high beta factor, Infinera (INFN) begs to be bought here. They have bar none the most cost effective chassis/blade product to add capacity to any network in a matter of days, and the just reported quarter proves that customers have taken notice. If they can ramp a “metro” product (right now they operate mostly in the long haul area) in time to compete with the Ciena’s (CIEN) of the world, this stock has multi-bagger potential. And speaking of CIEN, much of the skepticism about gross margins and revenue growth for the rest of the year seems to be in the price, and then some. If CIEN can shoehorn itself in the coming Verizon optical build-out, it’s fair to say that none of that upside is in the estimates. Otherwise CIEN may still do just fine by continuing to cater to its largest customer, AT&T (T).

Also in the internet space, I have discussed Akamai (AKAM) at length before, and at risk of stepping in front of its earnings, my sense is that the story there is as good as ever, and the stock has not been this cheap in years.

After the rout of the last couple of months, dry-bulk carriers are setup to trade more like internet stocks than stodgy ship operators. Excel Maritime just agreed to a buy-out of Quintana Marine (QMAR), and while the combined company will have a fair chunk of debt, leverage cuts both ways; both fleets are mostly booked for ’08, ’09 and most of ’10, and at some point the cash flow will have to be discounted in the stock price. The same applies to smaller Paragon Shipping (PRGN), which yields more than 12% right now and was trading north of $25 just a couple of months ago.

In the med-tech area Hologix’ (HOLX) merger with Cytic Corp. (formerly CYTC) has formed the kind of company that will either eat the competition alive, or else is big enough to be a nice addition to a mega-cap looking to juice its growth. I own this one in the “buy it and forget it” part of the Fund.

In the GPS/logistics space, TomTom (TOM2 NA) and Garmin (GRMN) are putting the screws on the component makers – as you can tell by the beating Sirf Tech. (SIRF) has taken in response to its earnings (or lack thereof). That’s not to say that GRMN and TOM are not seeing their share of pricing pressures, but with Broadcom (BRCM) selling its soul to penetrate that market, the gadget makers are in the catbird seat. If the economy holds up and/or the speculative juices return (and remember that assumption is one of the ends of the barbell) GRMN and TOM can make up a lot of lost ground in a hurry.

I stated at the beginning that I would not try to guess which way the markets will break, and I won’t. But my bet (not my guess, just my bet) is that we are in the early stages of a secular bear market. That’s why I rather play the short side with leveraged ETF’s / and or Index puts, rather than individual names. The longs above (and I have positions in almost all of them) are just the kind of names I must and want to own in case the market decides to move higher.

One last macro comment: the media is incessantly comparing the current credit / macro problems to the various credit/currency crisis of the ‘90’s, the junk credit meltdown of ’00-’02, the GM debt crisis in ’05, etc., all of which resolved themselves with equities eventually going higher. Here are the major differences (imho): (i) those past events did not take place with a backdrop of $45 trillion of debt derivatives bet against the credit markets; (ii) even if counterparties risk on these derivatives could be managed, the clearing system for these derivatives has never been stress tested; if it fails to work the consequences on the markets would likely be similar to a counterparty credit failure; and (iii) the past crisis consisted of neatly contained / containable default events: the current credit crisis is already no longer contained; the only question we can’t yet answer is how widespread it will end up being. And that by itself is a frightening proposition.

Thursday, January 24, 2008

Counter-Trend Rally

Counter-Trend RallySocialTwist Tell-a-Friend
Frank Barbera

Primary Wave (A) to the downside of a developing cyclical bear market that is likely bottomed over the last two days. From here, we expect a sizable counter-trend rally in stocks moving the S&P back up into the 1400 zone, with the daily news flow improving over the next few weeks taking away some of the negative gloom overhanging the credit crisis. For a time in the weeks ahead, it may well appear as though the skies have cleared and the sun is out shining once again in the land of financial markets.

This is the job of Wave B, to move the herd back to the center of the boat. That said, stocks have been, and are very likely to remain in bear market mode for some time, even if one or two market averages were to record a matching or token new all time high, unlikely, but not impossible. Commodities look toppy and are expected to weaken as the US and the world deals with the deflationary trend now emerging in the global economy...

Margin Data Suggest Prolonged Bear Market to Come

Margin Data Suggest Prolonged Bear Market to ComeSocialTwist Tell-a-Friend
Ashraf Laidi

One essential indicator for the future performance of US equity indices is the aggregate margin debt used by member firms of the NYSE. After attaining a record high of $381 billion in July, member firms’ margin use continued to tumble for the following 4 months, reaching a low of $322 billion. Such declines in debt result from the execution of margin calls as client losses escalate to unsustainable levels, which is the case during mounting market volatility.

The chart below clearly shows that the rapid declines in margin debt from their record highs correctly predicted the prolonged bear market in equities in fall 1987, fall 1998 and spring 2000. The continued declines in margin debt in December to $322 billion from the July high of $381 billion suggests that continued losses are due in the market, which is consistent with our expectations for a prolonged bear market in equities. The 12-15% declines in stocks we predicted back in December are already underway. We expect another 15-25% of declines to come by end of H1 as the macroeconomic deterioration coupled with prolonged losses in US banks and profit warnings (no currency translation effect this time as the dollar stabilized in Q4-Q1) will overwhelm the easing measures of the Fed.

The importance of determining where the general equity indices are heading is highlighted by the 70-20-10 rule, which states that 70% of a stock’s movements are influenced by the broad indices, 20% are driven by stock’s sector and 10% by the fundamentals of the individual stock. As history has shown without fail, individual stocks have consistently followed the broad averages during prolonged bear markets regardless of their individual fundamentals.

Incorporating this outlook to currencies, continued risk reduction should maintain the yen as the key beneficiary of falling risk appetite and unwinding of carry trades. Further declines in USDJPY, GBPJPY and CADJPY are in store as we anticipate 103, 202 and 100 respectively before the end of the quarter.











Editor's Note: Do not miss Mr. Laidi's Q&A session with the Financial Times last week regarding currencies located at
http://www.ft.com/cms/s/2/34139f9c-c50b-11dc-811a-0000779fd2ac.html

Wednesday, January 23, 2008

Timer Digest Market Commentary

Timer Digest Market CommentarySocialTwist Tell-a-Friend
Fari Hamzei

While the Equity and Debt Markets were having a wild ride on Tuesday, Uncle Ben joined the White House to pressure Nancy Pelosi, Harry Reid & Co. to move faster on a gigantic Stimulus Package. The real facts are a) Washington is too slow to move effectively in this Internet Age and b) the damage done by the Subprime Go-Go Days is simply huge.

The collective brain of the market is smarter than all of the above. While we may have seen a short-term-bottom-in-progress yesterday, this is no more that a dead cat bounce. Tuesday action reminds me of April 4, 2000. There is a lot of pain ahead for the longs.

Here are some charts. We will get into more details in our Webinar this afternoon.


I wanted us to see a -300 or lower reading on NYSE Advance-Decline McClellan Oscillator as we did last March.



Dow Jones Industrial Average closed below 12K but NYSE Volume did not get over 3 Bils. Notice we did not reach -3 sigma as we did last Aug 16th.



Notice we almost hit 5 sigma on VIX. This is rare.

Wednesday, January 9, 2008

Equity Index Update

Equity Index UpdateSocialTwist Tell-a-Friend
Brad Sullivan

The index markets suffered through a massive liquidation in the final 90 minutes of trading. At 1:30cst yesterday the SPH contract was trading at a recent high of 1432.50, that bid was quickly erased as heavy selling hit the market below 1425 and 1415…eventually leading to the ultimate puke that pushed the contract as low as 1393 after the cash close. Clearly the market is in a state of turmoil and during these times prices get out of line due to “need” based selling. The question, of course, is whether or not we are at that juncture…lets take a look at the past down moves in 2007:




As one can discern, the market has been awfully difficult for those that are purely long over this period. However, given the extremes in price movement one should be prepared for buying opportunities, even in the shortest of durations (from a time frame perspective). We have entered a spot that markets do not see that often and one thing that I have learned throughout these moves is that the market tends to go further than one thinks possible. In other words, yesterday may not have been the washout.

From the intraday perspective…the obvious target for the SP is the cash closing low from the spring of ’06 (1377.95). That level is certainly not to be construed as a line in the sand. Rather, just a benchmark about where the current market is trading. Keep a close eye on bounces, particularly in the morning that lose steam in the afternoon. Resistance lies between 1407.50 and 1414 in the SPH. Any settlement above 1423 is a positive and should lead to a position long.

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