To: Friends and Family
Subject: Re: Market Update March 11 2009
One sentence tonight...I bought puts this morning and expect to only add to the position. One chart tonight...the COT (Commitment of Traders) chart continues to show the only ones buying this market are the little guys and in fact the commercial hedgers and large investors (hedge funds/institutions) are increasing their shorts and have been since the January bounce. I want to be on the side of the big boys. Keep listening to that CNBC and you will go broke.
I will remain short unless $775 is taken out, then I will have to reevaluate. The key will be what happens in the fibo area of $735 to $711. Good Luck things could get bloody again.
Wednesday, June 3, 2009
Market Update Email 3-11-09
To: Friends and Family
Subject: Market Update March 11 2009
Subject: Market Update March 11 2009
This is a quick update tonight as I am traveling in Baton Rouge this and next week for work. The bounce is finally here!!! I expect at least one more push higher and then it may be complete. This bounce will be similar in nature to the January bounce in size and power.
I have updated the chart and attached it. We are currently in the red zone I had laid out, so that means I will start buying some more puts for this final push lower. This will be an aggressive trade that I wouldn't necessarily recommend as this final move down will be really open ended...meaning it could be a very small move not making new lows, a large move to new lows (expected), or something very puzzling and erratic...who knows. All I know is right now the count is incomplete and we need another leg down to complete the big move down from Oct 2007. I will know more once it starts to show itself. I would use this next move to close out shorts as the next move should be a BIG multimonth summer rally.
What I do know is this rally CANNOT get above $800 on the $SPX or my count is wrong and I will have to close all my shorts and get long. That is a really long ways away, though, and I dont expect it to get close. Notice on the chart that even though Tuesday was a huge day, we still aren't even in the fibonacci retracement zone of 38-62% of this latest move down.
Heres what Im doing: Adding shorts awaiting final move lower, most likely to the low 600s, but nothing is definite and we will have to stay nimble in this volatile last leg.
Good luck.
GMR Email 3-8-09 4Q 2008 Earnings Update
To: Friends and Family
I am still a believer, especially with the stock below $7.00/share. GMR's earnings on the surface were bad because of some one time severance charges as part of the merger which I think may be part of the reason for the selloffs of late, but the ongoing expectations are for an even lower base of SG&A costs which should push EBITDA margins north of 50% permanently. Looking at the 4Q alone, adjusted EBITDA was 53% of revenues or $47MM. This number only includes a few days of Arlington results as well. So on a pro forma basis EBITDA is going to be more like $55-60MM with about $10MM of capex (conservative) and $8MM of interest per quarter. So, quarterly free cash flow will be in the range of $37-$42MM which should more than cover the $28.9MM required to meet the $0.50 dividend payment/quarter on the post acquisition 57.9MM shares. There is also over $100MM of cash on the books now too to cover any short falls. Also, very important I think, is the company paid its full dividend for the quarter last week, even though most of its competitors have cut theirs. If GMR were to cut the divy the time to do that was last week as almost all the other divy paying companies have done. This is uplifting news. A few other points...
gross PP&E is now on the books at $1.5Billion and net PP&E at $1.3Billion. With the stock currently at $6.86 ($400MM market cap) and net debt outstanding of $886MM the enterprise value of the company is $1.28Billion. That means the stock is currently trading under its gross and net pp&e book values as well. Another positive fundamental metric.
The one thing that has me not all out loading up on shares is the latest S3 filing by the company up to $500MM. I suspect the company is going to issue more debt to either make another acquisition, buy back shares, buy more tankers or a combo of a few. The company is already levered over 4x EBITDA, so that may be spooking investors as well, especially in the current times of deleveraging. The filing is just the start of the process, so who knows if it will ever get done and for how much, but nevertheless it is interesting they have filed to take some sort of cash raising. The existing debt doesnt start to become due until 2011. The difference between GMR's debt and most other companies is it is backed by their tankers, so they get ridiculously low interest rates. Current average rate on existing debt is below 5%. So, more debt isn't necessarily bad, it's just something that I need to follow...especially to find out its usage.
Overall I am happy with the results and am looking to lock in some good shares at these low prices. My valuation models have the stock worth anywhere from $4 to $22 depending on future growth rates. But, my conservative average price is $10.63/share. With the current $2.00 dividend yield over 25% and expected payment continuation, I see no reason to not start buying shares. A 25% annual return over the long run should be well worth any short term downside in price, if that should continue. The risk/reward is now skewed heavily to the upside, unless something happens with the oil market or international shipping laws.
Good Luck. Next update when any major news comes out.
I am still a believer, especially with the stock below $7.00/share. GMR's earnings on the surface were bad because of some one time severance charges as part of the merger which I think may be part of the reason for the selloffs of late, but the ongoing expectations are for an even lower base of SG&A costs which should push EBITDA margins north of 50% permanently. Looking at the 4Q alone, adjusted EBITDA was 53% of revenues or $47MM. This number only includes a few days of Arlington results as well. So on a pro forma basis EBITDA is going to be more like $55-60MM with about $10MM of capex (conservative) and $8MM of interest per quarter. So, quarterly free cash flow will be in the range of $37-$42MM which should more than cover the $28.9MM required to meet the $0.50 dividend payment/quarter on the post acquisition 57.9MM shares. There is also over $100MM of cash on the books now too to cover any short falls. Also, very important I think, is the company paid its full dividend for the quarter last week, even though most of its competitors have cut theirs. If GMR were to cut the divy the time to do that was last week as almost all the other divy paying companies have done. This is uplifting news. A few other points...
gross PP&E is now on the books at $1.5Billion and net PP&E at $1.3Billion. With the stock currently at $6.86 ($400MM market cap) and net debt outstanding of $886MM the enterprise value of the company is $1.28Billion. That means the stock is currently trading under its gross and net pp&e book values as well. Another positive fundamental metric.
The one thing that has me not all out loading up on shares is the latest S3 filing by the company up to $500MM. I suspect the company is going to issue more debt to either make another acquisition, buy back shares, buy more tankers or a combo of a few. The company is already levered over 4x EBITDA, so that may be spooking investors as well, especially in the current times of deleveraging. The filing is just the start of the process, so who knows if it will ever get done and for how much, but nevertheless it is interesting they have filed to take some sort of cash raising. The existing debt doesnt start to become due until 2011. The difference between GMR's debt and most other companies is it is backed by their tankers, so they get ridiculously low interest rates. Current average rate on existing debt is below 5%. So, more debt isn't necessarily bad, it's just something that I need to follow...especially to find out its usage.
Overall I am happy with the results and am looking to lock in some good shares at these low prices. My valuation models have the stock worth anywhere from $4 to $22 depending on future growth rates. But, my conservative average price is $10.63/share. With the current $2.00 dividend yield over 25% and expected payment continuation, I see no reason to not start buying shares. A 25% annual return over the long run should be well worth any short term downside in price, if that should continue. The risk/reward is now skewed heavily to the upside, unless something happens with the oil market or international shipping laws.
Good Luck. Next update when any major news comes out.
Market Update Email 3-6-09
To: Friends and Family
Subject: Current Chart
All, it's been awhile since I sent out an updated chart, so here it is. As I mentioned I took some profits today and am frankly unsure of whats going to happen next. I still am waiting for that bounce and we have a possible wave count completion (see chart), but my indicators say we could have a lot more downside before that bounce.
Im just not sure. I will do some more research this weekend. For some reason I am not trusting my indicators. What I am sure of is we will get a multiday bounce when this down leg is over followed by another big selloff which should complete our market bottom at new lows.
The 2nd chart is one of the VIX (the implied volatility on options contracts). This is one of my indicators and it should be peaking as the market falls. The chart I built has the VIX inverted so that it tracks the market (which means it should be spiking down as the market falls). As you can see there is some crazy divergence going on now that hasn't happened this entire bear market. Why is the VIX not tanking? That is what I need to study more.
Good luck. Nothing wrong with staying out of the market when you are unsure of things.
Subject: Current Chart
All, it's been awhile since I sent out an updated chart, so here it is. As I mentioned I took some profits today and am frankly unsure of whats going to happen next. I still am waiting for that bounce and we have a possible wave count completion (see chart), but my indicators say we could have a lot more downside before that bounce.
Im just not sure. I will do some more research this weekend. For some reason I am not trusting my indicators. What I am sure of is we will get a multiday bounce when this down leg is over followed by another big selloff which should complete our market bottom at new lows.
The 2nd chart is one of the VIX (the implied volatility on options contracts). This is one of my indicators and it should be peaking as the market falls. The chart I built has the VIX inverted so that it tracks the market (which means it should be spiking down as the market falls). As you can see there is some crazy divergence going on now that hasn't happened this entire bear market. Why is the VIX not tanking? That is what I need to study more.
Good luck. Nothing wrong with staying out of the market when you are unsure of things.
Market Update Email 3-5-09
To: Friends and Family
Subject: Quick Market Update - Taking some profits
Just wanted to let you all know that I am taking some profits on my shorts. I still think we will see lower lows, but I am also expecting that decent bounce I have been talking about, therefore I am going to a more cash stance for now until I am able to do some more research. Currently that bounce can run as high as $775 when it does occur, but I doubt it will have that much steam. Theres a few things I must figure our first including the VIX, put/call, and relative strength of the nasdaq 100.
Im still bearish, but being the aggressive trader that I am, taking some money off the table seems like the smart money management thing to do. So, wait and see mode it is for me. I am still holding some shorts, but have closed all of my put options on the market. The one regret I may have is if this market crashes, which the VIX and Put/Call are certainly supporting right now, but I would rather miss out on that than risk my profits of the last 2 months. Besides, I am banking on that next opportunity in a week or two.
Just trying to do some money mangement for now. Send me individual questions if you have any.
Good luck.
Subject: Quick Market Update - Taking some profits
Just wanted to let you all know that I am taking some profits on my shorts. I still think we will see lower lows, but I am also expecting that decent bounce I have been talking about, therefore I am going to a more cash stance for now until I am able to do some more research. Currently that bounce can run as high as $775 when it does occur, but I doubt it will have that much steam. Theres a few things I must figure our first including the VIX, put/call, and relative strength of the nasdaq 100.
Im still bearish, but being the aggressive trader that I am, taking some money off the table seems like the smart money management thing to do. So, wait and see mode it is for me. I am still holding some shorts, but have closed all of my put options on the market. The one regret I may have is if this market crashes, which the VIX and Put/Call are certainly supporting right now, but I would rather miss out on that than risk my profits of the last 2 months. Besides, I am banking on that next opportunity in a week or two.
Just trying to do some money mangement for now. Send me individual questions if you have any.
Good luck.
$VIX Blog entry on Stocktock
This blog links to a blog I posted on stocktock.com...
The VIX has yet to confirm this move even though we are down 20% from the nearest high...im still trying to figure it out. either this is a gift from the put buying gods or something is up. Maybe some comments will help figure it out.
Bear market until proven otherwise!
The VIX has yet to confirm this move even though we are down 20% from the nearest high...im still trying to figure it out. either this is a gift from the put buying gods or something is up. Maybe some comments will help figure it out.
Bear market until proven otherwise!
Market Update Email 3-1-09
All, no charts tonight, but nothing has really changed. We are heading down and continue to head down hard. The bounces have been very weak and my embedded scenario is playing out (mentioned in last week's letter). The big double bottom bounce was very weak, if not nonexistent, and makes me think the bounce I am waiting for (which corresponds with the 4th wave bounce of the final 5 down) has still not happened yet. This is how I am playing it, anyways. The fact we just blew by the 2002 and November 2008 lows without a whimper is scary, frankly. There should have been some conviction of buyers there, but wasn't.
The Volatility index (VIX), put call ratios, and volume all say this decline is far from over. In fact, on the committment of traders chart, which is a chart that tracks the small speculators, large speculators, and large institutions actions, the only group of people who are net long are the small speculators. This group is always wrong about the market as a whole! This group represents the general investing public. This is also the first time since the March 2008 bounce that the only bulls have been the small speculators. This is scary, too. The VIX also has barely moved since the early January top, even though we have fallen over 20% since then! Complacency is way too high. Too many people think the bear is just about done. This is also supported by the amount of call buying versus put buying which continues to be a great indicator.
Bottomline is the wave 1 I have labeled on the Feb 20 chart last week is still applicable for all intents and purposes. We just haven't gotten that double bottom bounce with the suckers rally to the red zone. The red zone is fully below $800 now, by the way. Once that bounce occurs there will be one more ample opportunity to get short before the final sell off at least into the $600s, and most likely low $600s (at least that's how it looks today).
Tomorrow looks like it could be a bloody day.
Good Luck. Chad
The Volatility index (VIX), put call ratios, and volume all say this decline is far from over. In fact, on the committment of traders chart, which is a chart that tracks the small speculators, large speculators, and large institutions actions, the only group of people who are net long are the small speculators. This group is always wrong about the market as a whole! This group represents the general investing public. This is also the first time since the March 2008 bounce that the only bulls have been the small speculators. This is scary, too. The VIX also has barely moved since the early January top, even though we have fallen over 20% since then! Complacency is way too high. Too many people think the bear is just about done. This is also supported by the amount of call buying versus put buying which continues to be a great indicator.
Bottomline is the wave 1 I have labeled on the Feb 20 chart last week is still applicable for all intents and purposes. We just haven't gotten that double bottom bounce with the suckers rally to the red zone. The red zone is fully below $800 now, by the way. Once that bounce occurs there will be one more ample opportunity to get short before the final sell off at least into the $600s, and most likely low $600s (at least that's how it looks today).
Tomorrow looks like it could be a bloody day.
Good Luck. Chad
Market Update Email 2-20-09
To: Friends and Family
Subject: Put/Call ratio today once again set a very bearish mark
Down to one of the lowest levels of the bear market at .69. I imagine this will change as the market falls the rest of the day today, but should still be a bearish number.
Subject: Put/Call ratio today once again set a very bearish mark
Down to one of the lowest levels of the bear market at .69. I imagine this will change as the market falls the rest of the day today, but should still be a bearish number.
GMR Emails 2-25-09 2 parts
To: Friends and Family
Subject: GMR earnings tonight; Price below $10 again
Email 1
GMR announces its 4Q 2008 results which will have a few days worth of the Arlington acquisition too, tonight...should be interesting. I have heard a few of the other oil tankers have dropped their dividends, but those ones have been also been a lot more overvalued from a share price perspective and the announcements came months ago. No such announcement yet on GMR. From a Free cash flow perspective this thing is still spitting out over $150MM of EBITDA/year with interest expenses of $27MM; so over $100MM of pure cash a year to do as it pleases on 31MM shares ($3.00+/share/year). The stock is currently tanking hard today on very light volume (giving up all of its gains yesterday) which makes me happy because I am going to put in a little slug of shares sometime today before the earnings call. These numbers are all pre acquisition, but should be similar in nature pro forma for Arlington.
If they don't cut their dividend today, then I don't see them doing it anytime. Now is the time to cut since everyone else is. So today is D-Day so to speak.
I expected a final move down, and am getting it. I think it could still fall farther as oil falls below $35 again and the market makes a new low, but I don't want to miss out in case they do have a great quarter. Being a long term investor we have the luxury of being early. With that, I am adding a little whip cream to my existing slice of pie.
I will try to send out the updated model thursday/this weekend. Good Luck,
Email 2
One other thing I just noticed too is that the company has recently registered to file $500MM in a secondary share offering. At first thought, this is not a good thing. Why would they be willing to sell $500MM worth of shares while the stock price is at a multi year low? Sounds like GE when they were buying back shares at $30 and then recently issued shares at $15...losing $15/share in cash
I am going to assume the purpose is to pay down debt, which is arguably a decent thing to do in these times, but I would counter argue that when their debt is at a very low rate of like 5% doing so may not be prudent. Also, they could easily pay down $50-$100MM/year using free cash flow. Just doesn't make sense. Notice too that the offering never hit the news wires. I found it on the SEC website. Perhaps they are going to continue to be acquisitive as well...who knows. Tomorrow we find out.
I am on guard though and may reverse the purchase I just made to wait and see.
This call tomorrow will be interesting. It is at 10am central.
Subject: GMR earnings tonight; Price below $10 again
Email 1
GMR announces its 4Q 2008 results which will have a few days worth of the Arlington acquisition too, tonight...should be interesting. I have heard a few of the other oil tankers have dropped their dividends, but those ones have been also been a lot more overvalued from a share price perspective and the announcements came months ago. No such announcement yet on GMR. From a Free cash flow perspective this thing is still spitting out over $150MM of EBITDA/year with interest expenses of $27MM; so over $100MM of pure cash a year to do as it pleases on 31MM shares ($3.00+/share/year). The stock is currently tanking hard today on very light volume (giving up all of its gains yesterday) which makes me happy because I am going to put in a little slug of shares sometime today before the earnings call. These numbers are all pre acquisition, but should be similar in nature pro forma for Arlington.
If they don't cut their dividend today, then I don't see them doing it anytime. Now is the time to cut since everyone else is. So today is D-Day so to speak.
I expected a final move down, and am getting it. I think it could still fall farther as oil falls below $35 again and the market makes a new low, but I don't want to miss out in case they do have a great quarter. Being a long term investor we have the luxury of being early. With that, I am adding a little whip cream to my existing slice of pie.
I will try to send out the updated model thursday/this weekend. Good Luck,
Email 2
One other thing I just noticed too is that the company has recently registered to file $500MM in a secondary share offering. At first thought, this is not a good thing. Why would they be willing to sell $500MM worth of shares while the stock price is at a multi year low? Sounds like GE when they were buying back shares at $30 and then recently issued shares at $15...losing $15/share in cash
I am going to assume the purpose is to pay down debt, which is arguably a decent thing to do in these times, but I would counter argue that when their debt is at a very low rate of like 5% doing so may not be prudent. Also, they could easily pay down $50-$100MM/year using free cash flow. Just doesn't make sense. Notice too that the offering never hit the news wires. I found it on the SEC website. Perhaps they are going to continue to be acquisitive as well...who knows. Tomorrow we find out.
I am on guard though and may reverse the purchase I just made to wait and see.
This call tomorrow will be interesting. It is at 10am central.
Market Update Email 2-20-09
To: Friends and Family
Subject: Weekend Reading Rainbow - Market Update
Things pretty much played out exactly as I expected them yesterday and today. We got our very clear 5 wave move down from $875 and are currently getting our double bottom bounce. I haven't been by a tv this week, but I hope the media has done its part calling for the double bottom. The bounce probably started this afternoon. The clear five waves down the last two weeks almost certainly means we are now in the 5th and final wave down. See the attached chart. There is one kind of bullish scenario that I have outlined below, still left. But it is really weak. Then the bear scenarios I have laid out afterward.
The key line in the sand so to speak that I am looking at everyday is I DO NOT EXPECT THIS MARKET TO GET PAST THE TOP GRAY TRIANGLE TRENDLINE currently at $900 and falling. Therefore I will remain net short at any price movement below this.
The Bullish view (I give this only a 15% chance):I do expect a follow thru to todays afternoon bounce next week. In fact I expect a nice short term bounce back up to $800 area (shaded in red). Longer term the only hope for the longs is that we are still in our triangle as I have labeled black D with an expected Black E bounce that theoretically could get all the way back to that upper trendline, but this is a very low probability event, primarily because the Dow and a lot of other indices have already made new lows. I will be able to tell if this is playing out based on the action around $800 when/if it gets back up there. Bottomline is this will be a time to get out of longs and lay on the shorts again.
The Bearish view (85% chance): Bounce occurs next week like the bull scenario, but it stalls in either the redzone or just above labeled by the fibonaccit retracement lines. I do not expect $875 to get taken out. If it does we are probably in the bullish scenario outlined above. I will be able to tell by the way the price shapes up if we will stall in that red zone or just above. That is where I will lay on more shorts. That is the double bottom bounce of hope I expect. Ideally I hope we get above $800 on this bounce and stay below $875 because that most likely will mean that we are in an embedded 3rd wave and have only completed wave one of it. That would also mean we have a very long way to go down (talking sub $650 here). We will cross that road when we come to it.
Bottomline is I expect a decent rally next week that hopefully gets to the red zone. This will bring the put/call back down to big time bullish and also bring the VIX back to the trendline. This is also where I will expect to short and short heavily with a stop above $875. A break below today's low will also be bearish and I will have to see how the waves play out and update the chart, but we should eventually get a decent bounce that probably started today.
On a side note, I find it very interesting that the NASDAQ has become the safe haven. It seems money managers have nowhere else to put their money since 8 out of 10 sectors have horrible earnings coming thru. I plan to look more into this Sunday. Usually the NASDAQ leads the market in both directions, so perhaps it is signaling that this bounce will have some legs. I guess the question is, when will the recession start hitting the techs harder?
Have a great weekend.
Your reporting from New Orleans and about to go catch some beads in Mandeville, analyst,
Chad
Subject: Weekend Reading Rainbow - Market Update
Things pretty much played out exactly as I expected them yesterday and today. We got our very clear 5 wave move down from $875 and are currently getting our double bottom bounce. I haven't been by a tv this week, but I hope the media has done its part calling for the double bottom. The bounce probably started this afternoon. The clear five waves down the last two weeks almost certainly means we are now in the 5th and final wave down. See the attached chart. There is one kind of bullish scenario that I have outlined below, still left. But it is really weak. Then the bear scenarios I have laid out afterward.
The key line in the sand so to speak that I am looking at everyday is I DO NOT EXPECT THIS MARKET TO GET PAST THE TOP GRAY TRIANGLE TRENDLINE currently at $900 and falling. Therefore I will remain net short at any price movement below this.
The Bullish view (I give this only a 15% chance):I do expect a follow thru to todays afternoon bounce next week. In fact I expect a nice short term bounce back up to $800 area (shaded in red). Longer term the only hope for the longs is that we are still in our triangle as I have labeled black D with an expected Black E bounce that theoretically could get all the way back to that upper trendline, but this is a very low probability event, primarily because the Dow and a lot of other indices have already made new lows. I will be able to tell if this is playing out based on the action around $800 when/if it gets back up there. Bottomline is this will be a time to get out of longs and lay on the shorts again.
The Bearish view (85% chance): Bounce occurs next week like the bull scenario, but it stalls in either the redzone or just above labeled by the fibonaccit retracement lines. I do not expect $875 to get taken out. If it does we are probably in the bullish scenario outlined above. I will be able to tell by the way the price shapes up if we will stall in that red zone or just above. That is where I will lay on more shorts. That is the double bottom bounce of hope I expect. Ideally I hope we get above $800 on this bounce and stay below $875 because that most likely will mean that we are in an embedded 3rd wave and have only completed wave one of it. That would also mean we have a very long way to go down (talking sub $650 here). We will cross that road when we come to it.
Bottomline is I expect a decent rally next week that hopefully gets to the red zone. This will bring the put/call back down to big time bullish and also bring the VIX back to the trendline. This is also where I will expect to short and short heavily with a stop above $875. A break below today's low will also be bearish and I will have to see how the waves play out and update the chart, but we should eventually get a decent bounce that probably started today.
On a side note, I find it very interesting that the NASDAQ has become the safe haven. It seems money managers have nowhere else to put their money since 8 out of 10 sectors have horrible earnings coming thru. I plan to look more into this Sunday. Usually the NASDAQ leads the market in both directions, so perhaps it is signaling that this bounce will have some legs. I guess the question is, when will the recession start hitting the techs harder?
Have a great weekend.
Your reporting from New Orleans and about to go catch some beads in Mandeville, analyst,
Chad
Market Update Email 2-17-09
To: Friends and Family
Subject: Market Update: My triangle update after today's big move down
There are a few more people I have added to this email chain. Bear with me and connect with me individually and I will get you up to speed. It is best to look at the chart I have attached while reading...now onto the analysis!
Looks like I was faked out with that crazy move on Thursday along with alot of other people. It is a good thing I knew it would be short lived with little upside at the top of triangle and didn't close out all my shorts. Today as you can imagine moved well beyond the lower triangle trendline and in fact took out the $800 (S&P500) point which is our next confirmation. Currently market's at $796. I will be very happy if the market closes and stays below $800 today. I am adding a few more shorts today, but the real time for that will be once we get the next big suckers bounce which I suspect will correspond within a double bottom area around $760. At this point we should hear all the cheerleaders on tv talking about the double bottom. This will spook the weak shorts and give one last false hope for a rally. This will also be a great time to short. The triangle will help us there too, as once again we should not move into the red area or anywhere north of the upper trendline. I don't suspect that bottom will be the ultimate bottom because I don't think enough people would have sold yet, frankly. THERE NEEDS TO BE PANIC...similar to the October sell off. People need to hate stocks when this is all said and done.
In times like these you have to trust the charts. They are the only things reliable right now. The put/call, volume, Committment of Traders, and wave counts will let me know when the liklihood of a bottom occurs. Right now it is far away, there are just too many bulls out there. The financials are also once again the leaders of the market and are about to break to new lows below $8 on the XLF. This is not good for the market. Since they are the leaders, when they make new lows, the market as a whole will follow. By the way, the Transports have just made new lows. Just need the Dow to follow and we will get our Dow Theory Confirmation. It is currently only a few percentage points away.
By the way, for the first time in its history, the S&P is about to have a negative earnings quarter. FIRST TIME IN HISTORY. Granted there are some new rules and derivatives and such over the past 15 years, but no one was complaining about these things on the way up. As a result, the 2009 forward P/E ratio is like over 40x or something crazy. Historically bottoms occur in the single digit area. From this standpoint that would mean either the market goes nowhere for years until earnings catch back up, or the S&P would have to fall to sub 400 (50% below where it is now)....I suspect a combination of both, but I don't expect earnings to get any better this year. There has to be positive new hires, that will be the leading indicator. That way people will start net spending again.
Remember, this is all just my opinion and I am not "qualified" to give investment advice. You all have different goals, risk tolerances, etc and need to make your own decisions. I am just telling you what I am doing because you all at some point have expressed interest. All I can suggest is do something to protect yourself in this tough environment. Don't be a victim. We all have insurance for death, health, and other accident prone events, we should also have insurance for our retirement accounts and money.
Good Luck and I will keep you posted. By the way, I expect to have a website or a blog going by summertime so I won't have to keep clogging up everyone's inbox. I am also looking at what the best areas to put my money will be once this bottom occurs (looking like late March/April time frame now). Hint: it has to do with one of the most beat up and risky sectors as well as Canada!
Thanks,
Chad
Subject: Market Update: My triangle update after today's big move down
There are a few more people I have added to this email chain. Bear with me and connect with me individually and I will get you up to speed. It is best to look at the chart I have attached while reading...now onto the analysis!
Looks like I was faked out with that crazy move on Thursday along with alot of other people. It is a good thing I knew it would be short lived with little upside at the top of triangle and didn't close out all my shorts. Today as you can imagine moved well beyond the lower triangle trendline and in fact took out the $800 (S&P500) point which is our next confirmation. Currently market's at $796. I will be very happy if the market closes and stays below $800 today. I am adding a few more shorts today, but the real time for that will be once we get the next big suckers bounce which I suspect will correspond within a double bottom area around $760. At this point we should hear all the cheerleaders on tv talking about the double bottom. This will spook the weak shorts and give one last false hope for a rally. This will also be a great time to short. The triangle will help us there too, as once again we should not move into the red area or anywhere north of the upper trendline. I don't suspect that bottom will be the ultimate bottom because I don't think enough people would have sold yet, frankly. THERE NEEDS TO BE PANIC...similar to the October sell off. People need to hate stocks when this is all said and done.
In times like these you have to trust the charts. They are the only things reliable right now. The put/call, volume, Committment of Traders, and wave counts will let me know when the liklihood of a bottom occurs. Right now it is far away, there are just too many bulls out there. The financials are also once again the leaders of the market and are about to break to new lows below $8 on the XLF. This is not good for the market. Since they are the leaders, when they make new lows, the market as a whole will follow. By the way, the Transports have just made new lows. Just need the Dow to follow and we will get our Dow Theory Confirmation. It is currently only a few percentage points away.
By the way, for the first time in its history, the S&P is about to have a negative earnings quarter. FIRST TIME IN HISTORY. Granted there are some new rules and derivatives and such over the past 15 years, but no one was complaining about these things on the way up. As a result, the 2009 forward P/E ratio is like over 40x or something crazy. Historically bottoms occur in the single digit area. From this standpoint that would mean either the market goes nowhere for years until earnings catch back up, or the S&P would have to fall to sub 400 (50% below where it is now)....I suspect a combination of both, but I don't expect earnings to get any better this year. There has to be positive new hires, that will be the leading indicator. That way people will start net spending again.
Remember, this is all just my opinion and I am not "qualified" to give investment advice. You all have different goals, risk tolerances, etc and need to make your own decisions. I am just telling you what I am doing because you all at some point have expressed interest. All I can suggest is do something to protect yourself in this tough environment. Don't be a victim. We all have insurance for death, health, and other accident prone events, we should also have insurance for our retirement accounts and money.
Good Luck and I will keep you posted. By the way, I expect to have a website or a blog going by summertime so I won't have to keep clogging up everyone's inbox. I am also looking at what the best areas to put my money will be once this bottom occurs (looking like late March/April time frame now). Hint: it has to do with one of the most beat up and risky sectors as well as Canada!
Thanks,
Chad
Market Update Email 2-12-2009 Part 2
This is the follow up email later in the evening...
I hate to do it but I have to. The charts are telling me to. This afternoon's action was crazy! Not only did we pop like 3% in the last hour, that pop also carried us back INTO THE TRIANGLE!!! THIS MARKET IS DRIVING ME MAD! Why can't it just fall like it's supposed to!
Anyways, we are back in the triangle, which means our breakdown is not confirmed as I mentioned needed to happen this morning, so...we are back similar to where we were last week. Except now it looks like our lower trend line needs to be repositioned as I show in the chart below. This also means the highest probability is for a decent move north of 5-10% before we finally start the next move down. I mentioned this possibility in my update last week. Things haven't changed, though, and new lows should come, but it seems they have been delayed at least a few days.
This is what triangles are supposed to do. They are supposed to drive both the bulls and bears nuts to the point of exhaustion before a breakout occurs. That's why the resulting move is so powerful, almost always in the direction of the prevailing trend, because everyone then piles in after breakout with all the pent up energy.
Looking at the chart, you will see a few things...first, the dotted trendline is where the old triangle support was. You can also see by that big black bar, just after the gray vertical, today's huge afternoon move back into the original triangle which is now negated. The move back up is not confirmed yet, but the move down has been halted for now at least. This is also supported by the VIX charted below that brokedown as I have notated on the chart. VIX will have to start rising before the downtrend can be renewed. The moving average indicator also bounced off of its trendline, another reason to think this bounce could last a few days.
I will be adding long positions to hedge my short positions for the next week or two. I am doing this primarily because I have options expiring in a week that a move up would obliterate. You most likely are in a different situation, though, and probably don't need to hedge this short move up. However, if you made some decent money on the move down this week and are still in the green, then you may want to take profits with the expectation to get back in at a higher price. To each his own. As I said, the upside on this is pretty limited at this point with a max at less than 10% right now, but this move will try to suck every bull in it can as it should be the very last one there is before this next leg down. There are just very few wave counts left that support anything else. Trading is all about risk/reward and right now the risk is to the upside, albeit for a limited amount.
Unless today was some kind of weird govt. intervention and/or short cover rally, I don't expect anything major to change and expect us to continue north for a few days with the expectation of sending an update out mid next week.
Sorry for all the back and forth and flip flop, but this is a triangle and it will jerk the heck out of us until it decides which way it wants to move (which eventually will be down). Im trying to stay ahead of it and want you all to know my thoughts even if it is a little frustrating. Believe me. I know!
Good Luck
Chad
I hate to do it but I have to. The charts are telling me to. This afternoon's action was crazy! Not only did we pop like 3% in the last hour, that pop also carried us back INTO THE TRIANGLE!!! THIS MARKET IS DRIVING ME MAD! Why can't it just fall like it's supposed to!
Anyways, we are back in the triangle, which means our breakdown is not confirmed as I mentioned needed to happen this morning, so...we are back similar to where we were last week. Except now it looks like our lower trend line needs to be repositioned as I show in the chart below. This also means the highest probability is for a decent move north of 5-10% before we finally start the next move down. I mentioned this possibility in my update last week. Things haven't changed, though, and new lows should come, but it seems they have been delayed at least a few days.
This is what triangles are supposed to do. They are supposed to drive both the bulls and bears nuts to the point of exhaustion before a breakout occurs. That's why the resulting move is so powerful, almost always in the direction of the prevailing trend, because everyone then piles in after breakout with all the pent up energy.
Looking at the chart, you will see a few things...first, the dotted trendline is where the old triangle support was. You can also see by that big black bar, just after the gray vertical, today's huge afternoon move back into the original triangle which is now negated. The move back up is not confirmed yet, but the move down has been halted for now at least. This is also supported by the VIX charted below that brokedown as I have notated on the chart. VIX will have to start rising before the downtrend can be renewed. The moving average indicator also bounced off of its trendline, another reason to think this bounce could last a few days.
I will be adding long positions to hedge my short positions for the next week or two. I am doing this primarily because I have options expiring in a week that a move up would obliterate. You most likely are in a different situation, though, and probably don't need to hedge this short move up. However, if you made some decent money on the move down this week and are still in the green, then you may want to take profits with the expectation to get back in at a higher price. To each his own. As I said, the upside on this is pretty limited at this point with a max at less than 10% right now, but this move will try to suck every bull in it can as it should be the very last one there is before this next leg down. There are just very few wave counts left that support anything else. Trading is all about risk/reward and right now the risk is to the upside, albeit for a limited amount.
Unless today was some kind of weird govt. intervention and/or short cover rally, I don't expect anything major to change and expect us to continue north for a few days with the expectation of sending an update out mid next week.
Sorry for all the back and forth and flip flop, but this is a triangle and it will jerk the heck out of us until it decides which way it wants to move (which eventually will be down). Im trying to stay ahead of it and want you all to know my thoughts even if it is a little frustrating. Believe me. I know!
Good Luck
Chad
Market Update Email 2-12-2009
This email I sent out midday of the 12th. I followed it up after the close later that night...
To: Friends and Family
Subject: Market Update - triangle breakdown
I will be out of town next week, so not sure what my schedule will be, but wanted to get an update out b/c a ton has happened since last week (in case you didn't notice)!
Im getting pretty comfortable with the bearish picture. Once this triangle breaks down (today), give it 2-3 days for confirmation or another down move and my bearometer ticks up to the next notch of 75% short. Once $800 on the $SPX is taken out there is little support all the way down to new lows and I expect to be heavily short. Theoretically it should all happen pretty quick, like a huge move next week with 3+ big down days, but if I start to see smaller embedded waves that will mean a slower grind all the way down similar to today's action (gap down, small rally, sell off, repeat).
Bottom line, Bear case has gained a ton of ground this week and I will continue to add to my short position as the triangle continues to break down. Sell on Rallies should be your normal thought process now. For hedgers I would think about buying some TZA, the 3x inverse russell 2000 etf which will protect you an any big downside moves.
Exact same chart I sent last week, just updated for price movement...
Good Luck and let me know if you have any questions. Once again, let me know if the chart looks funky.
To: Friends and Family
Subject: Market Update - triangle breakdown
I will be out of town next week, so not sure what my schedule will be, but wanted to get an update out b/c a ton has happened since last week (in case you didn't notice)!
Im getting pretty comfortable with the bearish picture. Once this triangle breaks down (today), give it 2-3 days for confirmation or another down move and my bearometer ticks up to the next notch of 75% short. Once $800 on the $SPX is taken out there is little support all the way down to new lows and I expect to be heavily short. Theoretically it should all happen pretty quick, like a huge move next week with 3+ big down days, but if I start to see smaller embedded waves that will mean a slower grind all the way down similar to today's action (gap down, small rally, sell off, repeat).
Bottom line, Bear case has gained a ton of ground this week and I will continue to add to my short position as the triangle continues to break down. Sell on Rallies should be your normal thought process now. For hedgers I would think about buying some TZA, the 3x inverse russell 2000 etf which will protect you an any big downside moves.
Exact same chart I sent last week, just updated for price movement...
Good Luck and let me know if you have any questions. Once again, let me know if the chart looks funky.
TLT Update Email 2-10-09
To: Friend
Subject: and finally...the TLTs
I built this chart over the weekend, got a breakthrough yesterday, and now confirmation. Flight
to safety again occuring?
Subject: and finally...the TLTs
I built this chart over the weekend, got a breakthrough yesterday, and now confirmation. Flight
to safety again occuring?
Market Update Email 2-10-2009
Email chain sent 2-10-09; Chart from 2-8-09
To: Friend
Subject: by the way...
Original Email:
double top at the 50% retracement from the January top...we may have the beginning of the 3rd leg or the 1st leg of the final 5th down...Wont know for sure until key lows are taken out though. Watch that triangle chart I sent ya.
Friend's reply:
Yeah I see the DT on Jan and 50% retracement – so 5th down would give us new lows??? And 3rd would represent an up leg???
Response:
Looks like my thesis is playing out!
You are close. I don't know if the January top was the top to start the count from or if yesterday was the top, therefore today is either the start of wave 3 down (of the larger fifth wave that will bring us to new lows) which implies that the January decline was wave 1, or, an even bearisher count is that yesterday was the start of wave five down which would mean we are in wave one of five right now. That scenario means my triangle has played out and the end of the 4th wave correction was at yesterday's double top. It's just too early to tell. Either way, we are in what looks like a fifth wave down to new lows now. This will be confirmed with the prices I laid out on the triangle chart. The put call ratio once again was a huge help in calling this top.
This next low will be the one to buy.
Let me know if this chart looks screwed up...Chart is from Feb 8
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