Citi to unload government stake

According to a recent news article there are talks about Citi to unload 34% of the government own interest. One of the only way they can accomplish this is by selling off whatever viable business units they have or of course the obvious of doing yet again a secondary stock offering which means the stock will be diluted. Read Full Article Here!

Obama and Wall Street Regulation

After watching the CNBC interview with President Obama, it's an obvious fact that Wall Street will face a regulation overhaul. It make sense for the financial systems to go through some type of reform because the system we have now is vulnerable to systemic risk. There are many hedge funds, and financial institutions that have access to leverage on a scale one can only question. I mean does it really make sense for a $10 Billion hedge fund to the ability to leverage $40 for every $1? This has always been the problem and the cause for many of the market meltdowns. It happen during the crash of '29, crash of '87,.... Read Entire Article Here!

September Stock Market Hot Sectors

Original Post

Lately there has been a lot of talk about a correction in the works that may hit the market sometime in September, and if we somehow survive this, then definitely October will be the month for the market to have a correction. The Media is making a big hype to caution investors about entering the market at this level, and analyst still yelling that we are going to drop another 15-20%. Are they right? Well who knows!? If they knew, would they be sharing this knowledge with us? Of course not!?

So what is next to come? Well honestly,I don't know, but what sectors are receiving billions in investment is something I do know. Money Market funds are still at record highs, and this light volume rally from May to now, means that there is still over $3 Trillion dollars on the sidelines. To be more precise, since March to now, Money Market funds have decreased from around 3.71 trillion to about 3.50 trillion earning less that .25% (right around fed funds rate). A bigger question to ask is where has this money been going? If you're saying to yourself, well of course the stock market, you are mostly right, and of course let us not forget the bond market. It's pretty obvious that in order for our economic stimulus to work, cash, or the US dollar, isn't the place to be, and risk appetite is starting to look attractive again if we are going to be in a low interest rate environment for at least the next 2-3 years.

Let's focus on what sectors have been outperforming the market. Materials is a sector that has outperform the market, and the very hot tech sector. It's up year to date around 55% and in these last 20-30 days there has been money movement into the Construction Material sub-sector, the Metals and Mining sub-sector (Explains the run on gold to $1000) and subsector paper and forest products. This has been the sector that has seen money in motion for the last 6 months, and probably will continue until early to mid next year. Click on the photo above to get a better view on how other sectors are doing.

Markets and Gold

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Wall Street ended a choppy week with a relief rally today after the long-awaited release of government stress test results. In a day in which federal regulators closed four banks, the Dow closed up 119.23 (down 55.04 for the week), the S&P closed up 14.31 (down 3.37 for the week), and the Nasdaq closed up 42.08 (up 21.22 for the week). The question now becomes whether this week’s small decline was due to profit-taking from the last six weeks or whether it is the start of more losses to come. I think that a small decline was a healthy market reaction, especially with the anticipation towards today’s government report, and that today’s buying came as investors breathed a sigh of relief.



Gold advanced approximately 1% today while copper, a barometer of economic growth, advanced approximately 3%. While I feel that talk of a rally in commodities is immature, strength in the metals is an indicator of economic growth, and hence inflation. Keep an eye on the 1000 level for gold (currently the metal is at 914). Even without news favorable to growth and inflation, this level (known as resistance) can act as a magnet, but without good fundamental news to drive the price above, the price will tend to stop at that level. If traders feel that situations for the economy are improving, however, it could drive the price above that level. Just as a magnet pushes a metal away when the metal is on the other side of it, that previous resistance would then become a support, and tend to support the price of the metal (gold) and even accelerate the advance when it goes above it.

Exxon Mobil Earnings 1/30/09

Looking at the S&P 500, it's has taken close to a 50% decline. It is by far the worse decline in the market since the great depression. If you look at most the stocks out there and other mutual funds, they've performed relatively close to the S&P 500. There are a handful of stocks that didn't take a big of loss compared to the overall market, but one of these stocks surprises me on why it trading where it's at. It also happen to be the stock that is 5% of the S&P 500 and the biggest company in the world, Exxon Mobil. It has performance superior to its peers, and seems as if they are immune to this market down turn. This is what investors think, and that is why they have flocked to Exxon. I mean it has a safe dividend, huge amount's of reserved, and a sound business plan. Then again, these are the capital markets and we need to see continued growth in their business, which is starting to slow down. They were the top dog when crude oil was trading at $140, but how about now when oil is trading at $40 a barrel, a 70% decrease. All of the other diversified oil companies like ConcoPhillips, Royal Dutch Shell, and BP have given up their market share and we see the deterioration in their margins. This requires no rocket scientist to figure out what is expected to happen to Exxon in the next few months. Exxon will have roughly a 35% decrease in earnings per share (EPS) from their 2008 earnings ( rough estimate depending on tomorrows number)which is roughly around 8.40, that means they are expected to make around 5.39 or so in 2009. Then you have a forward Price Earnings Multiple(P/E) of 9.5, a slight increase from 8.5 then the expected market share price of your stock should be valued at around $52 or so. I think this valuation are a little out of whack, and may the foward P/E should be around 12 or so compared to the rest of the other oil stocks. But even that will give you a stock price of around 63.50. I think this stock has been a hide out for investors, and a lot of people will be smoked out with in time. The valuations are off, and about a month ago they did a revision of their EPS for 2009 from 6.29 to where it's at now at 5.39. Now the price does not reflect this at all and it's almost like it is ignoring the warning signs. I believe their earnings might come inline with the street views, but it's the forward guidance that bothers me about Exxon. I don't think they are going to be great given the economic environment where are in, and I do expect an accelerated sell off tomorrow. The stock closed today at 77, off about 4% from a couple days ago, and I think it has a good chance of going down to 72 tomorrow. If the GDP report is bad and XOM disappoints this will put a lot of selling pressure on the market and which we lead us to retest the 820 on the S&P 500 and causing oil to retest $40 a barrel. Hang in for the ride.

Follow Through Thrusday? -- I don't think so

Looks like the financials couldn't extend their gain for a second day in a row. Both weekly unemployment numbers and durable good orders didn't offer investors a piece of mind that the market is at a bottom. The futures were down first thing in the morning and got stopped out of my Proshares Ultra S&p 500 (NYSE : SSO)@ 23.21. I decided that this financial bull run is dead and it's time to jump on the opposite side of the trade and jumped into the Direxion 3x Short Financials ( NYSE : FAZ) at 43.47. I figured that this time around, we might have some push back give that the republicans in congress decided not to vote for the bill. You can throw taking a bipartisan approach to fix the problem out the window. With this said I had to take advantage of jumping in to shorting the financials. The market slipped away in the last hour of trading, and oil finished at $41.66. Not to much action in oil, but tomorrow brings a big day with earnings and GDP! This report will give us a good indication on how fast the economy is contracting. This should be an interesting. It's going to be a volatile day, either up or down, but given the weakness in this market I believe that we will retest 820 on the S&P very soon. I am looking to take my profit on FAZ around $52 and change. Hopefully with all this turmoil, I can dump it tomorrow.

Crude Oil Inventories 1/28/09

If you read my post yesterday about the the curve ball that has come into light yesterday, then you were aware that inventories where due today. If you looked at my chart yesterday the trend lately was in an increase in oil supply and that is exactly what you got. Of course I warned you not to trade oil as the news in the financial sector might cause oil to hold its ground which it did closing around $42.05. The initial trade when the numbers came out put selling pressure on traders. Watching SCO ( Proshares Ultra Short Crude Oil) it had a huge range today. This is what I was trying to avoid. I mean I love volatility but this thing was moving quick. It had a day low of 31.88 and a day high of 36.90, but finished at 34.48 up about .41c. Weekly unemployment numbers come out tomorrow and durable good orders for December. This might put more pressure for oil for breaking below $40. Given the news that came out today, oil held it's ground but nonetheless will continue deteriorating from here. I don't feel that these two economic figures that are coming out tomorrow are going to push oil up. Both reports are due out at 8.30am EST as well as new home sales if that means anything at 10a EST. Look for oil to continue losing ground tomorrow, but beware of holding it overnight with Friday being a big day. Don't forget GDP, Exxon Mobil, and Chevron reporting on Friday.

Financial Bull Market Run?

Let this be no surprise to my readers, but the financials rallied hard today. Thanks to the news that the Obama Administration is working on a deal to do something with the toxic debt on the banks balance sheets. Before I go any further into detail, let me start by giving you my outlook on the market. I tend to have a weekly outlook as oppose to a annual outlook like most investment firms or analyst have. Reason being is that there are surprises in earnings and major economic news that can alter the performance of the market, for better or for worse. With this said, I didn't give you an outlook for January, and will tell you what my market out look is on this coming Sunday. I am short term bull, for now and trading strictly on technical analysis and any rumors or news. The news that came out yesterday was a prelude of what is yet to come. But let us digest what was really in the news article in simple terms. We all know the financial sector is in bad shape, and most of the institutions are still in grave danger of going chapter 11. Things aren't getting any better here at home or abroad. All the was said yesterday was, that the current administration is working on a deal on what to do with the toxic assets, and set to finalize the deal sometime next week. Not exactly specific at all, but there was a positive reaction Tuesday night and follow through today. Come to think of it, this isn't really classified as news. Even though this is fact, there is a sense of hope that this might help lift the financial sector. I mean they already got a bail out, now what? Of course if there's a trend in financial news, is that the initial reaction is always positive, but then followed by a strong down trend. Let us study the government intervention in July 2007 when the financial sector was getting crushed. The Government came in and said hey guess what you can't short sell stocks in financials. All they did was prolong the problem. They came in and pointed fingers at the hedge funds, short sellers, traders, etc that they were part of the cause for the down turn in the market. Guess what, even with the short selling ban, there was still a continue deterioration in the market place. Long story short, Wall Street has a problem and it has to do with the financial sectors, more specifically with some of the big name banks. They are a threat to our financial system and the Government knows that play to big a role in our system and can't fail. Until this deal is finalize, we might see a continue bull run. Remember, the stock market is trading in a channel. Looking at the S&P support is at 800, the first level of resistance is at 850 and second is at 900 which it looks where we are headed to. I took my profit on UYG at 3.90 and change, not bad for an entry at 3.50. Wells Fargo Bank lead the financials higher, which lead the overall market to go higher. After dumping my UYG I took a modest position in the Proshares Ultra S&P 500 NYSE symbol SSO at 24.40, and just patiently waiting on the sidelines looking at the Direxion UltraShort Financials NYSE symbol FAZ as it approaches its support at $35. I don't think this financial run is going to last long, and strongly believe it will fade fast, but for now I'll play the S&P for another few points.

Oil update.. Curve Ball

Well today's trade was successful. It wasn't a surprise to me or nor should it be a surprise to you. Oil was trading at a high of 45 and change today. I loaded up with SCO, and I expected a pull back and that is exactly what we got today. Now I do have to admit, that I didn't expect oil to pullback as much as it did. I was even thinking about holding SCO overnight, until I heard the breaking news on CNBC. It seems like the Obama administration is close on a deal on what to with all the toxic debt the banks have. I saw a quick reaction in the financials, especially in Bank of America, (NYSE : BAC) and Citigroup ( NYSE : C). With Wells Fargo ( NYSE : WFC) reporting earnings tomorrow, this might cause a rally in the days to come. Let's be real, Wells is one of the better banks out there. Their balance sheet isn't perfect, but when compared to Bank of America and Citigroup, they are as better off the the black sheep's in the crowd. With this information on hand, I decided to take my profit on SCO in the Extended Hour Session. I figured why give up the 15% odd percent that I made today and lose it all tomorrow. By no means does this change my outlook on oil on the next 3-6 months. Remember what I said yesterday, the market is starting to trade with Oil again. If there is a rally here in the short term, Oil will have no problem getting back to $46 -$48 range. Once again we are in a trading range so take advantage of these moves. If oil goes back to these level I will start building up my position. Now I know we have had about 3 weeks of straight declines in the market, and this leads me to my conclusion that this might be the start of a rally that may last a few days, maybe a full week or two. I am bullish on this news and picked up some Proshares Ultra Short Financials ( NYSE : UYG) at around 3.50 in the after hours market. It closed regular session around 3.25 or so. I think we might be in for a good bull run here to last a few days. We have a couple of wild cards in play though. Lets not forget crude oil invetories tomorrow at 10:30 EST, and the Fed Announcement tomorrow. Focus on the image below. It tells you the build up we have been having in inventory. It's a strong trend, but for some reason even though we have more inventory I don't feel that is going to knock oil down so much. Lets avoid the oil trade for tomorrow, and go long financials and enjoy the ride up. See you tomorrow and good luck trading.

Oil Next Big Move

Here we are in the end of January, and we have seen oil climb from $35 a barrel to right around $45 to where it currently is at right now. It seems like now the Market tends to move with the price of oil. It seems like we have entered a trading range for oil, well, at least for now. Resistance is right around $50, + or - 2 and support seems to be right around $35, + or -2. Lately the word on the street is that Oil is heading lower and that it has about another 50% on the downside bringing it to about $25 dollars a barrel. Now the thing that scares me about Wall Street is that when analyst talk, people listen. And for some odd reason, those people spread the word if the analysts that are speaking make sense and have the proper facts to reinforce their predictions. Now you have the traders and investors out there convinced that its going lower, and some how its almost the opposite of what happen last year. In my previous post, you may recall that the word on the street was that crude oil was going to $200 and dog gone it, they had me convinced. So I loaded up on commodity stocks that were bound to move, and shorted Airline stocks that were obviously on their way down. Now we are on the other end of the trade, the macro economic have changes, so I won't go long airline stocks, but I will short oil at this level. Of course with an entry at $46-$47, I will continue to add to my position even at $50-$52 with stop orders at $56-$60. Since I feel pretty confident about this trade, I loaded up on SCO, which is the Proshares Ultra Short Crude oil. Hence the NYSE symbol SCO. I will probably place trailing stop orders once oil is at $40 and try to follow it all the way down to $35 or even lower. Inventories are out soon, and GDP is out this coming Friday which will probably tell us how fast the US economy is contracting. I feel that this is going to put pressure on oil and will probably bring it lower. Good luck to you all, and hopefully we'll see where the next big move in oil actually is.