Sentiment Turning?

Over the last few days we've had a pretty significant rally. The market pundits are out in full force on CNBC all day long now calling the "Bear Sterns Monday" a bottom in the markets. I dont buy that. Firstly, with higher commodity costs due to inflation(avg. household grocery bills and gas costs have risen significantly), lower home values and the decrese in the USD have started taking its toll on the US population. This was reflected is the US Consumer Confidence data reported this morning. From Bloomberg:

"US consumer confidence has fallen to a five-year low, according to the closely watched Conference Board report. Its index of consumer sentiment fell this month to 64.5, its lowest showing since March 2003.
The situation was even worse regarding the Conference Board's forward-looking expectations index, which fell to 47.9, the weakest performance in 34 years. "

I feel this is just the tip of the iceberg. The full pain hasnt yet percolated through the system. As for trading, I have just made 1 trade in the last 2 days. Since i dont believe in this rally, i'll give it a little more room to run before i start shorting aggresively. However, if over the next few days if i do see a lot of market action that points to institutional buying, i'll change my views and probably go long the market. However, i dont see anything resembling that yet.

I shorted Mastercard(MA) through puts today around 225. I see the buying pressure in the stock starting to ease and selling starting to kick in. However, i do expect the stock to churn around a bit before breaking down.

As for my other shorts RIMM and RTH, they are down a significant amount. I have just 1 put each left now which are very minimal sizes. Both the puts are longer term (Oct 08 expiry) so i've held on to them.

Rise of the new Bubble?

I am currently researching what the next potential bubble is cause by the FED's massive cutting of rates and have a few ideas. In the 90's when the Fed had cut interest rates to an all time low, we had a massive bubble in the form of new IPO's (lead by cheaper financing) of .dot com companies. Ofcourse, we know how that ended.

In 2002-03 with lower interest rates again, we had the formation of our currently deflating housing bubble. Ofcourse, we all know how that is ending now.

So with interest rates starting to fall again, what do you guys think will be the next bubble? I think if we can identify it, we can all get in early on the next bubble and maybe make a penny or two off it in the next year :) We have all wondered at some point how we would have made real good money in the prior 2 bubbles if we only had the means when it happened (i.e. knew more about trading and had more disposable income to put into the market in 1999 so i could have ridden amazon.com to $400, knew more about the housing market and actually bought a house in 02-03 and ridden it for a 70% gain, etc) I think by having a blueprint ready, we can act swiftly if and when we do see the next bubble emerge.

As for my thoughts: I think the next bubble is in commodity prices. All the commodities have risen to all-time inflation adjusted highs (Oil, Gold, Wheat, etc). Also i do believe the USD is bottoming out right here and will start rising once the market realises the FED is coming to an end with the rate cuts. Over the next few days, I will be researching how to start playing the USD through currency ETF's and also look into shorting OIL and GOLD. I am very confident that oil will CRASH this year in to the $65-$75 range from $110/barrell by the end of 2008.

Any thoughts/comments on what the next bubble can be? I am very interested in hearing new ideas.

And We're Back Up Again....

This is exactly what i meant yesterday when i said you have to be extremely nimble in a bear market and book your profits fast. The DOW is back up big again (240 points as i type). It seems more of a short covering rally before a long weekend to me that actual buying, but its a rally nevertheless. Although BIDU continued its downfall today (down $12), i did not want to risk losing my gains yesterday and so i closed out the position. As you can see, its very hard to accumulate profits in this market unless you make day trades or extremly short term trades, which is the strategy i'm currently using. You will have plently of time to build your long-term positions once the volatility subsides and the market bottoms. For now though, you have to stay nimble and "faster than the ticker" :)

DAMN it feels good to be a Gangstir!

So as predicted, DOW was down big today (300 points). Along with the DOW, down came BIDU. BIDU fell by $25 today and i closed out my put position 2 mins before close for a 38% profit (in 1 day). I still feel BIDU could go much lower, but since i had such a nice profit in it i wanted to lock it in. For all you know, the DOW could rally 500 points tommorow and i would have given up all my gains.

Remember: We are in the middle of the bear market. Trade small sizes and lock in your profits quickly cause they could be taken away from you just as fast as you got them.

Shoutout

I want to give a shoutout to my upcoming trader buddy, Sahal. On Monday, he mentioned he wanted to buy LEH into the panic and i believe he would have too if his brokerage account was open. He definately would have made out good the next day.

Everyone knows the age-old adage on Wall Street: Buy when there's blood on the streets. On Monday, after the BSC news hit, the streets were filled with blood and guts all over the place. You do make the fastest money when there's blood on the streets but its also the hardest time to click on that "BUY" button!

Fed's Crisis Management Tactics

So i'm sure you all have heard the BSC news. $2/share!!! Talk about a firesale! JPM makes out like a knight in shining armor for saving BSC at the same time snatching up the deal of the decade. Make that 9 decades (thats how old BSC is). As this deal was being put together over the weekend, the fed steps in with a discount rate cut too. Anyone else notice how the Fed acts at crucial market times only. We were about to take out the Jan 22 '08 lows on Monday which would have triggered another MASSIVE round of selling (DOW 10,500 anyone?) but ofcourse the fed steps in sunday night with a cut followed by another 75 basis on Tuesday. Does anyone still think Mr. Bernanke isnt a puppet for Mr. Wall Street?? I dont blame him at all though...with so much of the entire country's wealth and economy tied up in the financial markets (think everyone's 401K), Ben's gotta do what Ben's gotta do..hand out free money.

I still believe we are headed lower. Theres only so much that band-aid and smoke and mirrors can fix. At some point you do need to go in for surgery if the pain is too bad...and i strongly believe it is.

As i have emphasized before, we are still in a bear market where you will get sharp rallies. This is my first real bear market that i am trading in and learning along the way. The rallies in a bear market seem to be much more vicious and fast than bull market rallies..go figure. But thats the way it is, and you have to learn to deal with it.

I got stopped out of half my short positions last week in the 400 point rally. We had another 400 point rally yesterday but i didnt close out my leftover shorts yet. I still think we go lower but things are looking a little rosy for a while right now. I might add more shorts once i see the buyin pressure ease a bit.

I have also mentioned that i doubt anyone besides day trades are making good money in this market. You just cant hold onto a position longer than 1-2 days here. If anyone reading this is making profits, please let me know. I would like to learn a thing or two from you. This is the same reason why people consider bear markets bad, because of the vicisous rallies. Otherwise it would be as simple as shorting everything under the sun and sitting on it for 6 months.

I did make 1 trade yesterday. I shorted BIDU. In such a strong market like yesterday and with the NASDAQ rallying 4.5%, BIDU acted very very poorly. If a 400 Point rally cant get any buyers into BIDU, i dont know what can. This tells me that when the DOW does drop hard one day (and it will soon), BIDU will get crushed. Ofcourse, if i do see some strength in BIDU over the next few days, i'll happily close out my short position for a small loss.

Current positions: Short: RIMM (puts), BIDU(puts), RTH(puts)
Long: ALJ

Quick Update

So the lack of buying pressure i mentioned 2 weeks ago in GS was true. The big boys were staying away from buying the brokers because of concerns regarding their liquidity. A week after i said right here that GS lacked institutional buying support and i was going to bail out of my long position for a small loss (5% i think), Bear Sterns (BSC) announced a liquidity problem. The big boys (hedgies, mutual funds, etc) who execute margin trades with the desks at these brokers probably figured something was amis and stayed away. Friday turned out to be BSC's worst nightmare with 50% of the market cap being shaved right off the stock price. The news that JP morgan and the Fed might inject capital into BSC to alleviate the liquidity concerns did more harm that actually ease investor concerns. The main reason for this, i believe is, that investors are now starting to rethink how bad the subprime problem is, if Bear needs emergency liquidity injection. Ofcourse, these concerns spread across the other brokers (LEH,GS, MER, etc) and took them down too.

Also, the market has been very frustrating to trade lately. Earlier in the week we had the 415 Dow rally which automatically triggered my stop loss points for FSLR and MON and got me out. I usually use traling stop losses for exactly these types of instances where i can protect atleast some of my profits in a reverse move. I tooks off 75% of my DUG position too yesterday at a stop-limit order price of 39.7. My average price for the DUG position was 36.5.

Evene though i have barely made 2-3 trades in the last 2 weeks, just watching the market action is frustating me and i can imagine what its doing to people actually trading it. There just seems to be no follow through in either direction (>2-3 days) and i doubt anyone is really making any decent money in this market except intraday traders. If you are feeling just as frustrated with this market as i am, i think your best bet is to step back and do nothing until things calm down a little.