Rally Of The Dogs Presents A Short Selling Opportunity
Wednesday, 23. July 2008, 06:33:32
Secretary of the Treasury Hank Paulson spoke, and the stock market rallied.
Tech Ticker's, Aaron Task in article Roubini: More Than $1 Trillion Needed to Solve Housing Crisis, relates that Treasury Secretary Hank Paulson has been putting on a full-court press in the last 24 hours, making the case for his plan to shore-up Fannie Mae, FNM, and Freddie Mac, FRE.
"I would rather not be in the position of asking for extraordinary authorities to support the GSEs," Paulson said in a speech Tuesday in NYC. "But I am playing the hand that I have been dealt. There is a need to support efforts that strengthen Fannie and Freddie's ability to continue to play their important role in financing mortgages and in our capital markets more broadly."
After trading closed, U.S. lawmakers reached agreement on a rescue plan for Fannie Mae and Freddie Mac that the House may vote on Wednesday July 23, 2008 Representative Barney Frank said
Brian Faler of Bloomberg reports that
U.S. lawmakers reached agreement on a rescue plan for Fannie Mae and Freddie Mac that the House may vote on tomorrow, Representative Barney Frank said.
Under a modified version of proposals made by the Bush administration, the Treasury Department would gain authority to inject capital into the two largest U.S. mortgage finance companies, through loans and equity investments.
The plan would give Paulson power to restrict the companies' dividend payments and require regulatory approval of the salaries of top executives.
The Senate may vote on the legislation as early as July 24, said Jim Manley, a spokesman for Senate Majority Leader Harry Reid of Nevada. The bill would then go to President George W. Bush for final approval.
A Congressional Budget Office estimate released today put the cost of Paulson's plan at $25 billion, a figure below the total that some lawmakers had expressed concern about.
Lawmakers rejected a proposal to bar Fannie Mae and Freddie Mac from paying dividends while they are tapping the expanded line of credit with Treasury, Frank said. They decided instead to give Paulson the power to restrict such payments or to take preferred stock in the companies, he said.
Paulson wanted Congress to grant the Treasury temporary authority to buy stock in the companies and offer an unlimited federal credit line.
The yen carry traders took profits on oil and bought housing, financial, consumer services, retail, real estate, private equity, preferred and mortgage REITS.
The Russell 2000, IWM, flew 2.5% through resistance at 70 to close at 71.47. The Nasdaq, QQQQ traded even, on disappointment on Apple, AAPL, Google, GOOG, Microsoft, MSFT, and a 3% semiconductor sell, XSD, sell off, with Texas Instruments, and Cypress Semiconductor, falling sharply.
The Russell 2000 Value, IWN, rose 3.4 higher to 50 day moving average support, with the Russell 2000 Growth, IWO, lagging at 2.2%; both reached their 50 day moving average support as well.
The Dow, DIA, rose 1%; and the S&P, SPY, 1.2%.
Lamdar provides analysis on the S&P and relates "The market was surprisingly strong today. After opening down, it managed to bounce back despite a lack of great news. AAPL managed to claw it’s way back to end just a couple percent down, showing surprising strength much to my chagrin. I guess it’s good that it’s not hitting a buy point yet, since the market isn’t really in any condition to establish new longs anyway. Next up on the earnings parade, AMZN, reporting tomorrow after the market close". (Lamdar's Chart of The S&P)
It was a year ago, that the yen carry trade unwound; it has since recovered. And given that the chart of its barometer, EUR/JPY, FXE:FXY, has manifested a dark cloud cover, it appears to be on the verge of unwinding again, despite today's rally, which occurred in the last hour and a half of trading. (Illustration A)
Stockcharts.com comparative chart of the Russell 2000 Growth shares IWO, relative to the Russell 2000 Value shares, IWN, IWO:IWN, shows that of late the growth shares had been the investors darling with stocks such as Cabot Oil and Gas, COG, being highly favored by yen carry traders. But this basic material, IYM, and energy and natural producer, fell 7.5%, as natural gas, GAZ, fell 4.5% today, and oil, USO, fell 3.1%, as the yen carry traders disinvested to go long the banks, KBE, which rose 9.9, stockbrokers, IAI, 8.0%, and investment bankers, KCE, 7.7% higher.
Other significant gainers included Consumer Services, CPSS, 8.5%, Home Construction, ITB, 8.0%, India, INP, 7.5%, Insurance, KIE, 4.7%, Retail, XRT, 4.5%, REIT Mortgages, REM, 4.5%, Health Care provider, IHF, 4.0%, Private Equity, PSP, 3.9%, Real Estate, IYR, 3.2%, REITS, RWR, 3.2%.
Metal manufacturing, XME, fell 3.8%, the HUI indexed mining shares, GDX, 3.5%, the energy producers, XLE, 3.3%, and the energy service shares, OIH, 2.7%.
The 3 month ongoing chart of the USD/JPY, shows a rise higher to close at 107.26. (Illustration B)
The gold ETF, GLD, fell 2.2% and the gold mining shares, GDX, fell 3.5%.
The 6 month ongoing Yahoo Finance chart of the gold ETF, GLD compared to the HUI Indexed precious metal mining shares, GDX, shows that since the Federal Reserve TAF, TSLF, PDCF rally ended on March 18, 2008, gold has risen 4%percent and the gold shares have disconnected from the price of gold for a 4% loss. (Illustration C)
The US Dollar, USD, closed at $72.50; and gold closed at $946; the chart of gold, $gold, shows it to be in breakout since May 1, 2008; and then in breakout again on June 23, 2008 when the minutes of the May meting of th Bank of Japan, BoJ, were published by sources such as CEP News, indicating that inflation is now an investment risk factor. It was at that time that the yen carry traders really unloaded their investments in the BRICS, EEB, a process that saw significant disinvestment with the ending of the TAF, TSLF, and PDCF rally on May 19, 2008. Despite today's fall in gold, the chart clearly shows an Elliott Wave 3 outbreak in process with an Elliott Wave 1 Up on May 18, 2008, and then an Elliott Wave 2 Down to June 22nd, and an Elliott Wave 3 up ever sense. (Illustration D)
The 5 day ongoing Yahoo Finance chart of the banks, KBE, compared to the precious metal mining shares, XME, shows that the banks have risen 32% in the five days since the five days since the Fannie Mae and Freddie Mac Rally has commenced, while the metal manufacturing shares have fallen 9%.
The 6 month ongoing Yahoo Finance chart of the HUI indexed precious metal mining shares, GDX, compared to the zero coupon government bond mutual fund, BTTRX, and the S&P, shows that a Deflationary Hurricane at work in stock and bond markets. On March 18, 2008, the Federal Reserve announced the TAF, TSLF, and PDCF, facilities, which stimulated an eight week long rally until May 19, 2008 at which time the Federal Reserves' stimulus failed. (Illustration E)
Then as seen in the 6 month ongoing, Yahoo Finance chart of the gold shares, GDX, compared to the bank shares, KBE, shows institutional investors sold out of the high yield dividend payers in May 2008, to go long with the yen carry traders in gold mining shares, GDX, and commodity futures, and in commodity indexed funds, such as commodities, RJI, gold, GLD, natural gas, GAZ, and agricultural commodities, DBA. (Illustration F)
Today, commodities, RJI, fell 1.7%, gold, GLD, 2.2%, natural gas, GAZ, 4.5% and agricultural commodities, DBA, 1.8%.
Despite today's rally a down turn is imminent
Today, continues a "five day rally of the dogs" -- the sectors that have been at the epicenter of the credit crisis bear market have rallied: home construction, banks, investment bankers, stock brokers, insurance, retail, India, REIT Mortgages, health care providers, consumer services, Russell 2000 Value, Russell 1000 value, real estate, REITS, and private equity.
The five day Freddie and Fannie Rally leaders are financial, IYF, 24%, home construction, ITB, 24%, India, 20%, and Retail 11%.
Everything that is debt, has debt, and is consumer based has rallied strongly over the last five days; and thus is totally unsustainable.
There are a number of factors suggesting an immediate downturn:
First, today, was simply a market adjustment made by yen carry traders, that has temporarily recapitalized the financial sector, as window dressing, that is an embellishment to ease acceptance for the passage of the Dodd Frank Housing Bill, and to generate acceptance for Ben Bernankes' action of lending to the GSEs as well as his desire of their capitalization.
The last five days of trading gains can and will easily be sold at a profit; just as profits were taken during the last five days on oil, USO, natural gas, GAZ, agricultural commodities, DBA, metal manufacturing companies, XME, steel manufacturers, SLX, and coal producers, KOL.
Secondly, the chart of the yen carry trade barometer, EUR/JPY, FXE:FXY, manifested a dark cloud cover; it appears to be on the verge of unwinding again, just like it did a year ago, despite today's rally, which occurred in the last hour and a half of trading.
Third, a number of lenders which have large positions in subprime loans, or Alt-A mortgage backed securities, or option ARMs, were volatile today; I consider these banks to be distressed, despite they, for the most part, being recapitalized today as the following percentages indicate:
Bank United, BKUNA, -5%
First Horizon National Corp, FHN, 16%
Huntington Bancshares Inc, HBAN, 13%
Washington Mutual, WM, 6%
Regions Financial, RF, 9%
KeyCorp, KEY, 5%
Sovereign Bancorp Inc, SOV, 8%
Wachovia Corporation, WB, 27%
Corus Bank, CORS, 17%
AIG Insurance, AIG, 6%
Capitol One Finance, COF, 0%
CIT Group, CIT, 12%
Thus a short selling opportunity exists in the above financial companies and in these stocks and ETFs as well:
True Religion Apparrel, TRLG, 4%
Wellcare Group, WCG, 24%
Pulte Homes, PHM, 9%
Reinsurance Group of America, RGA, 9%
Western Union, WU, 8%
BJS Services, BJS, 5%
Woodward Governor, WGOV, 18%
WW Grainger, GWW, 4%
Ryder, R, 6%
JB Hunt, JBHT, 6%
Kansas City Southern, KSU, 4%
Hovnanian, HOV, 9%
Covidien, COV, 3%
Mattell, MAT, 3%
Finish Line, FINL, 3%
Childrens Place, PLCE, 4%
Panera Bread, PNRA, 5%
Ethan Allen Interiors, ETH, 6%
Buckle, BKE, 6%
Carnival, CCL, 12%
Royal Carribean Cruises, RCL, 17%
PepsiAmerics, PAS, 23%
Rehab Group, RHB, 5%
Lincare, LNCR, 5%
Baxter Properties, BXP, 3%,
Long Term Properties, LTC, 5%,
Healthcare Realty, HR
Alexandria R E Equity, ARE, 2%
SOHU.com, SOHU, 2%
Blackrock, BLK, 3%
State Street, STT, 8%
Badger Meter, BMI, 0%
America's Car Mart, CRMT, 1%
Flir Systems, FLIR, -2%
AZZ Inc, AZZ, 1%,
Graham, GHM, 0%
Flowserve, FLS, -4%
Exactech, EXAC, 0%
APH, Amphenol, -3%
Peerless Manufacturing, PMFG, 3%
Valmont Industries, VMI, -2%
Biotechnology stocks SVNT, ONXX, ALXN, OSIP, MYGN, NVS.
Education providers EDU, GPX, COCO, ESI.
General Motors, GM 10%
Ford, F, 7%
Consumer Services, CPSS, 8.5%, Home Construction, ITB, 8.0%, India, INP, 7.5%, Insurance, KIE, 4.7%, Retail, XRT, 4.5%, REIT Mortgages, REM, 4.5%, Health Care provider, IHF, 4.0%, Private Equity, PSP, 3.9%, Real Estate, IYR, 3.2%, REITS, RWR, 3.2%, Entertainment, EPR, 3.7%, Biotechnology, XBI, 3%, China, FXI, 1.7%, Convertible, CHI, 1.3%, Sin, PUF, 2.7%, Gaming, BJK, 0.5%, Preferred, PFF, 0.3%.
Fourth, the fourth reason why a down turn is imminent, is that the Russell 2000, IWM, has retraced to 50 day moving average of 71.47, which is just short of 72.50 -- a pivotal point for the Russell 2000 that goes back to October 2, 2006, where a broadening top pattern formed. Street Authority relates: "When you see a broadeing top, the market will eventually drop".
Said in a conservative way: the Russell 2000 at 72.50 is now at strong support; that which was once strong support will now be resistance.
Said in a contemporary and more fitting way: now that the Russell 2000, $RUT, has once again risen up to the apex of its broadening top pattern, it will once again fall.
We live in a time of awesome financial waves. The wave that is coming immediately is going to literally sweep these small US based companies off the map as they are highly dependent upon a dysfunctional and broken credit and lending system.
Investment Application
The short selling opportunity of a lifetime has manifested; one could sell the stocks and ETFs I have listed above.
Or one could sell the market short by investing -- by purchasing these Proshares 200% inverse bear market ETFs which have either sold off significantly during the last five days of trading, or are like the last two now starting to move significantly higher:
Google Finance Comparative Chart
SKF Financial -30%
SRS Real Estate -20%
SJF Russell 1000 Value -16%
FXP China -16%
SCC Consumer Services -13%
Google Comparative Chart
DXD Dow 30 -12%
TLL Telecommunications -7%
RXD Health Care -3%
SSG Semiconductors +2%
TBT US Treasuries +3%
Having presented the option of short selling, my investment recommendation is to be invested in gold.
I am very suspect of the motives of Hank Paulson and Ben Bernanke; when the latter testified before Congress on monetary policy he did not comment on either money supply or interest rates. The word "money" did not appear at all in his testimony. The only time "interest rate" appeared in his testimony was in relation to consumer credit card rates.
Many of the US lawmakers likely have no idea what they have done, Freddie and Fannie should have been allowed to fail. The fact that naked short selling of these two and other financial organizations has been banned by the SEC, will not prevent their capital depletion. A literal pandora's box of unintended consequences will emerge. The action will soon stimulate a run on both the US Dollar, $USD, and a run on US Treasury bonds, $USB, which of course will be quite good for gold; and it will be disastrous for those with a dollar denominated portfolio -- that is why I cannot recommend short selling.
Granting the Federal Reserve more authority will lead one day to the unified regulation of global banking that New York Federal Reserve president Timothy Geithner has called for.
I see the day when a chief global banking officer will arise, a Seignior, to rule over commerce, trade and investing world wide.
Credibility of such comes from the greater authority granted the Federal Reserve Chief will be getting as well as the CreditWritedowns report The EU looks to become regulator-in-chief that relates Cross-national banks will no longer be monitored in each country individually, but by international Oversight Boards. "In crisis situations a fast, full exchange of information is particularly important," the draft directive says. Therefore, the flow of information between supervisors, finance ministries and central banks will be regulated.
For a major international bank like Unicredit, active in Poland for example, the Polish supervisory authority would receive new disclosure rights. The home regulator - in Unicredit's case, the Italians - would have the last word on key issues of risk management and reporting. Disputes between supervisors would be settled by the Committee of European Banking Supervisors (CEBS).
In the industry, Oversight Boards are largely uncontroversial. But Eastern European and smaller EU states are blocking similar plans for group supervision of insurance companies. They fear losing control of the financial institutions that are active in their markets.
Gold manifested bearish engulfing today: that is usually a sell signal. Yet despite today's fall in gold, the chart clearly shows an Elliott Wave 3 outbreak in process having risen from $855 with an Elliott Wave 1 Up on May 18, 2008, and then an Elliott Wave 2 Down to June 22nd, and an Elliott Wave 3 up ever sense.
Gold is volatile, it could easily fall to $890.
My investment maxim is simple: in a bull market be a bull; in a bear market be a bear. In a bull market, one buys on dips; in a bear market, one sells into strength.
Therefore, the current fall in gold presents a buying opportunity.
The US has told it must either cooperate or face a confrontation within 10 days; their cooperation is unlikely; the US and the EU is likely to carry out a military strike to eliminate the security threat poised by Iran's nuclear ambitions. Either this will result in a systemic risk event, or a systemic risk event will arise from some other source, where one may not have full and immediate access to one's wealth to invest in gold at that time.
Therefore, I recommend that one start to now to 'dollar cost average' a diversified investment in gold day-by-day at BullionVault.com, GoldMoney.com, and in a gold ETF, in a trust account, in Switzerland. (Gold: Illustration G), (Gold ETF: Illustration H)
Suggested Reading
The Failure Of The American Banking System The author relates the desperate plight of the banking system.
Financials: How - And When - We Reached the Bottom The author is leading the gullible investor and all the lemmings off the cliff of financial disaster; I hope the above information serves as Cliff Notes preserving the readers wealth.
Tech Ticker's, Aaron Task in article Roubini: More Than $1 Trillion Needed to Solve Housing Crisis, relates that Treasury Secretary Hank Paulson has been putting on a full-court press in the last 24 hours, making the case for his plan to shore-up Fannie Mae, FNM, and Freddie Mac, FRE.
"I would rather not be in the position of asking for extraordinary authorities to support the GSEs," Paulson said in a speech Tuesday in NYC. "But I am playing the hand that I have been dealt. There is a need to support efforts that strengthen Fannie and Freddie's ability to continue to play their important role in financing mortgages and in our capital markets more broadly."
After trading closed, U.S. lawmakers reached agreement on a rescue plan for Fannie Mae and Freddie Mac that the House may vote on Wednesday July 23, 2008 Representative Barney Frank said
Brian Faler of Bloomberg reports that
U.S. lawmakers reached agreement on a rescue plan for Fannie Mae and Freddie Mac that the House may vote on tomorrow, Representative Barney Frank said.
Under a modified version of proposals made by the Bush administration, the Treasury Department would gain authority to inject capital into the two largest U.S. mortgage finance companies, through loans and equity investments.
The plan would give Paulson power to restrict the companies' dividend payments and require regulatory approval of the salaries of top executives.
The Senate may vote on the legislation as early as July 24, said Jim Manley, a spokesman for Senate Majority Leader Harry Reid of Nevada. The bill would then go to President George W. Bush for final approval.
A Congressional Budget Office estimate released today put the cost of Paulson's plan at $25 billion, a figure below the total that some lawmakers had expressed concern about.
Lawmakers rejected a proposal to bar Fannie Mae and Freddie Mac from paying dividends while they are tapping the expanded line of credit with Treasury, Frank said. They decided instead to give Paulson the power to restrict such payments or to take preferred stock in the companies, he said.
Paulson wanted Congress to grant the Treasury temporary authority to buy stock in the companies and offer an unlimited federal credit line.
The yen carry traders took profits on oil and bought housing, financial, consumer services, retail, real estate, private equity, preferred and mortgage REITS.
The Russell 2000, IWM, flew 2.5% through resistance at 70 to close at 71.47. The Nasdaq, QQQQ traded even, on disappointment on Apple, AAPL, Google, GOOG, Microsoft, MSFT, and a 3% semiconductor sell, XSD, sell off, with Texas Instruments, and Cypress Semiconductor, falling sharply.
The Russell 2000 Value, IWN, rose 3.4 higher to 50 day moving average support, with the Russell 2000 Growth, IWO, lagging at 2.2%; both reached their 50 day moving average support as well.
The Dow, DIA, rose 1%; and the S&P, SPY, 1.2%.
Lamdar provides analysis on the S&P and relates "The market was surprisingly strong today. After opening down, it managed to bounce back despite a lack of great news. AAPL managed to claw it’s way back to end just a couple percent down, showing surprising strength much to my chagrin. I guess it’s good that it’s not hitting a buy point yet, since the market isn’t really in any condition to establish new longs anyway. Next up on the earnings parade, AMZN, reporting tomorrow after the market close". (Lamdar's Chart of The S&P)
It was a year ago, that the yen carry trade unwound; it has since recovered. And given that the chart of its barometer, EUR/JPY, FXE:FXY, has manifested a dark cloud cover, it appears to be on the verge of unwinding again, despite today's rally, which occurred in the last hour and a half of trading. (Illustration A)
Stockcharts.com comparative chart of the Russell 2000 Growth shares IWO, relative to the Russell 2000 Value shares, IWN, IWO:IWN, shows that of late the growth shares had been the investors darling with stocks such as Cabot Oil and Gas, COG, being highly favored by yen carry traders. But this basic material, IYM, and energy and natural producer, fell 7.5%, as natural gas, GAZ, fell 4.5% today, and oil, USO, fell 3.1%, as the yen carry traders disinvested to go long the banks, KBE, which rose 9.9, stockbrokers, IAI, 8.0%, and investment bankers, KCE, 7.7% higher.
Other significant gainers included Consumer Services, CPSS, 8.5%, Home Construction, ITB, 8.0%, India, INP, 7.5%, Insurance, KIE, 4.7%, Retail, XRT, 4.5%, REIT Mortgages, REM, 4.5%, Health Care provider, IHF, 4.0%, Private Equity, PSP, 3.9%, Real Estate, IYR, 3.2%, REITS, RWR, 3.2%.
Metal manufacturing, XME, fell 3.8%, the HUI indexed mining shares, GDX, 3.5%, the energy producers, XLE, 3.3%, and the energy service shares, OIH, 2.7%.
The 3 month ongoing chart of the USD/JPY, shows a rise higher to close at 107.26. (Illustration B)
The gold ETF, GLD, fell 2.2% and the gold mining shares, GDX, fell 3.5%.
The 6 month ongoing Yahoo Finance chart of the gold ETF, GLD compared to the HUI Indexed precious metal mining shares, GDX, shows that since the Federal Reserve TAF, TSLF, PDCF rally ended on March 18, 2008, gold has risen 4%percent and the gold shares have disconnected from the price of gold for a 4% loss. (Illustration C)
The US Dollar, USD, closed at $72.50; and gold closed at $946; the chart of gold, $gold, shows it to be in breakout since May 1, 2008; and then in breakout again on June 23, 2008 when the minutes of the May meting of th Bank of Japan, BoJ, were published by sources such as CEP News, indicating that inflation is now an investment risk factor. It was at that time that the yen carry traders really unloaded their investments in the BRICS, EEB, a process that saw significant disinvestment with the ending of the TAF, TSLF, and PDCF rally on May 19, 2008. Despite today's fall in gold, the chart clearly shows an Elliott Wave 3 outbreak in process with an Elliott Wave 1 Up on May 18, 2008, and then an Elliott Wave 2 Down to June 22nd, and an Elliott Wave 3 up ever sense. (Illustration D)
The 5 day ongoing Yahoo Finance chart of the banks, KBE, compared to the precious metal mining shares, XME, shows that the banks have risen 32% in the five days since the five days since the Fannie Mae and Freddie Mac Rally has commenced, while the metal manufacturing shares have fallen 9%.
The 6 month ongoing Yahoo Finance chart of the HUI indexed precious metal mining shares, GDX, compared to the zero coupon government bond mutual fund, BTTRX, and the S&P, shows that a Deflationary Hurricane at work in stock and bond markets. On March 18, 2008, the Federal Reserve announced the TAF, TSLF, and PDCF, facilities, which stimulated an eight week long rally until May 19, 2008 at which time the Federal Reserves' stimulus failed. (Illustration E)
Then as seen in the 6 month ongoing, Yahoo Finance chart of the gold shares, GDX, compared to the bank shares, KBE, shows institutional investors sold out of the high yield dividend payers in May 2008, to go long with the yen carry traders in gold mining shares, GDX, and commodity futures, and in commodity indexed funds, such as commodities, RJI, gold, GLD, natural gas, GAZ, and agricultural commodities, DBA. (Illustration F)
Today, commodities, RJI, fell 1.7%, gold, GLD, 2.2%, natural gas, GAZ, 4.5% and agricultural commodities, DBA, 1.8%.
Despite today's rally a down turn is imminent
Today, continues a "five day rally of the dogs" -- the sectors that have been at the epicenter of the credit crisis bear market have rallied: home construction, banks, investment bankers, stock brokers, insurance, retail, India, REIT Mortgages, health care providers, consumer services, Russell 2000 Value, Russell 1000 value, real estate, REITS, and private equity.
The five day Freddie and Fannie Rally leaders are financial, IYF, 24%, home construction, ITB, 24%, India, 20%, and Retail 11%.
Everything that is debt, has debt, and is consumer based has rallied strongly over the last five days; and thus is totally unsustainable.
There are a number of factors suggesting an immediate downturn:
First, today, was simply a market adjustment made by yen carry traders, that has temporarily recapitalized the financial sector, as window dressing, that is an embellishment to ease acceptance for the passage of the Dodd Frank Housing Bill, and to generate acceptance for Ben Bernankes' action of lending to the GSEs as well as his desire of their capitalization.
The last five days of trading gains can and will easily be sold at a profit; just as profits were taken during the last five days on oil, USO, natural gas, GAZ, agricultural commodities, DBA, metal manufacturing companies, XME, steel manufacturers, SLX, and coal producers, KOL.
Secondly, the chart of the yen carry trade barometer, EUR/JPY, FXE:FXY, manifested a dark cloud cover; it appears to be on the verge of unwinding again, just like it did a year ago, despite today's rally, which occurred in the last hour and a half of trading.
Third, a number of lenders which have large positions in subprime loans, or Alt-A mortgage backed securities, or option ARMs, were volatile today; I consider these banks to be distressed, despite they, for the most part, being recapitalized today as the following percentages indicate:
Bank United, BKUNA, -5%
First Horizon National Corp, FHN, 16%
Huntington Bancshares Inc, HBAN, 13%
Washington Mutual, WM, 6%
Regions Financial, RF, 9%
KeyCorp, KEY, 5%
Sovereign Bancorp Inc, SOV, 8%
Wachovia Corporation, WB, 27%
Corus Bank, CORS, 17%
AIG Insurance, AIG, 6%
Capitol One Finance, COF, 0%
CIT Group, CIT, 12%
Thus a short selling opportunity exists in the above financial companies and in these stocks and ETFs as well:
True Religion Apparrel, TRLG, 4%
Wellcare Group, WCG, 24%
Pulte Homes, PHM, 9%
Reinsurance Group of America, RGA, 9%
Western Union, WU, 8%
BJS Services, BJS, 5%
Woodward Governor, WGOV, 18%
WW Grainger, GWW, 4%
Ryder, R, 6%
JB Hunt, JBHT, 6%
Kansas City Southern, KSU, 4%
Hovnanian, HOV, 9%
Covidien, COV, 3%
Mattell, MAT, 3%
Finish Line, FINL, 3%
Childrens Place, PLCE, 4%
Panera Bread, PNRA, 5%
Ethan Allen Interiors, ETH, 6%
Buckle, BKE, 6%
Carnival, CCL, 12%
Royal Carribean Cruises, RCL, 17%
PepsiAmerics, PAS, 23%
Rehab Group, RHB, 5%
Lincare, LNCR, 5%
Baxter Properties, BXP, 3%,
Long Term Properties, LTC, 5%,
Healthcare Realty, HR
Alexandria R E Equity, ARE, 2%
SOHU.com, SOHU, 2%
Blackrock, BLK, 3%
State Street, STT, 8%
Badger Meter, BMI, 0%
America's Car Mart, CRMT, 1%
Flir Systems, FLIR, -2%
AZZ Inc, AZZ, 1%,
Graham, GHM, 0%
Flowserve, FLS, -4%
Exactech, EXAC, 0%
APH, Amphenol, -3%
Peerless Manufacturing, PMFG, 3%
Valmont Industries, VMI, -2%
Biotechnology stocks SVNT, ONXX, ALXN, OSIP, MYGN, NVS.
Education providers EDU, GPX, COCO, ESI.
General Motors, GM 10%
Ford, F, 7%
Consumer Services, CPSS, 8.5%, Home Construction, ITB, 8.0%, India, INP, 7.5%, Insurance, KIE, 4.7%, Retail, XRT, 4.5%, REIT Mortgages, REM, 4.5%, Health Care provider, IHF, 4.0%, Private Equity, PSP, 3.9%, Real Estate, IYR, 3.2%, REITS, RWR, 3.2%, Entertainment, EPR, 3.7%, Biotechnology, XBI, 3%, China, FXI, 1.7%, Convertible, CHI, 1.3%, Sin, PUF, 2.7%, Gaming, BJK, 0.5%, Preferred, PFF, 0.3%.
Fourth, the fourth reason why a down turn is imminent, is that the Russell 2000, IWM, has retraced to 50 day moving average of 71.47, which is just short of 72.50 -- a pivotal point for the Russell 2000 that goes back to October 2, 2006, where a broadening top pattern formed. Street Authority relates: "When you see a broadeing top, the market will eventually drop".
Said in a conservative way: the Russell 2000 at 72.50 is now at strong support; that which was once strong support will now be resistance.
Said in a contemporary and more fitting way: now that the Russell 2000, $RUT, has once again risen up to the apex of its broadening top pattern, it will once again fall.
We live in a time of awesome financial waves. The wave that is coming immediately is going to literally sweep these small US based companies off the map as they are highly dependent upon a dysfunctional and broken credit and lending system.
Investment Application
The short selling opportunity of a lifetime has manifested; one could sell the stocks and ETFs I have listed above.
Or one could sell the market short by investing -- by purchasing these Proshares 200% inverse bear market ETFs which have either sold off significantly during the last five days of trading, or are like the last two now starting to move significantly higher:
Google Finance Comparative Chart
SKF Financial -30%
SRS Real Estate -20%
SJF Russell 1000 Value -16%
FXP China -16%
SCC Consumer Services -13%
Google Comparative Chart
DXD Dow 30 -12%
TLL Telecommunications -7%
RXD Health Care -3%
SSG Semiconductors +2%
TBT US Treasuries +3%
Having presented the option of short selling, my investment recommendation is to be invested in gold.
I am very suspect of the motives of Hank Paulson and Ben Bernanke; when the latter testified before Congress on monetary policy he did not comment on either money supply or interest rates. The word "money" did not appear at all in his testimony. The only time "interest rate" appeared in his testimony was in relation to consumer credit card rates.
Many of the US lawmakers likely have no idea what they have done, Freddie and Fannie should have been allowed to fail. The fact that naked short selling of these two and other financial organizations has been banned by the SEC, will not prevent their capital depletion. A literal pandora's box of unintended consequences will emerge. The action will soon stimulate a run on both the US Dollar, $USD, and a run on US Treasury bonds, $USB, which of course will be quite good for gold; and it will be disastrous for those with a dollar denominated portfolio -- that is why I cannot recommend short selling.
Granting the Federal Reserve more authority will lead one day to the unified regulation of global banking that New York Federal Reserve president Timothy Geithner has called for.
I see the day when a chief global banking officer will arise, a Seignior, to rule over commerce, trade and investing world wide.
Credibility of such comes from the greater authority granted the Federal Reserve Chief will be getting as well as the CreditWritedowns report The EU looks to become regulator-in-chief that relates Cross-national banks will no longer be monitored in each country individually, but by international Oversight Boards. "In crisis situations a fast, full exchange of information is particularly important," the draft directive says. Therefore, the flow of information between supervisors, finance ministries and central banks will be regulated.
For a major international bank like Unicredit, active in Poland for example, the Polish supervisory authority would receive new disclosure rights. The home regulator - in Unicredit's case, the Italians - would have the last word on key issues of risk management and reporting. Disputes between supervisors would be settled by the Committee of European Banking Supervisors (CEBS).
In the industry, Oversight Boards are largely uncontroversial. But Eastern European and smaller EU states are blocking similar plans for group supervision of insurance companies. They fear losing control of the financial institutions that are active in their markets.
Gold manifested bearish engulfing today: that is usually a sell signal. Yet despite today's fall in gold, the chart clearly shows an Elliott Wave 3 outbreak in process having risen from $855 with an Elliott Wave 1 Up on May 18, 2008, and then an Elliott Wave 2 Down to June 22nd, and an Elliott Wave 3 up ever sense.
Gold is volatile, it could easily fall to $890.
My investment maxim is simple: in a bull market be a bull; in a bear market be a bear. In a bull market, one buys on dips; in a bear market, one sells into strength.
Therefore, the current fall in gold presents a buying opportunity.
The US has told it must either cooperate or face a confrontation within 10 days; their cooperation is unlikely; the US and the EU is likely to carry out a military strike to eliminate the security threat poised by Iran's nuclear ambitions. Either this will result in a systemic risk event, or a systemic risk event will arise from some other source, where one may not have full and immediate access to one's wealth to invest in gold at that time.
Therefore, I recommend that one start to now to 'dollar cost average' a diversified investment in gold day-by-day at BullionVault.com, GoldMoney.com, and in a gold ETF, in a trust account, in Switzerland. (Gold: Illustration G), (Gold ETF: Illustration H)
Suggested Reading
The Failure Of The American Banking System The author relates the desperate plight of the banking system.
Financials: How - And When - We Reached the Bottom The author is leading the gullible investor and all the lemmings off the cliff of financial disaster; I hope the above information serves as Cliff Notes preserving the readers wealth.
WIDGETIZE