Crash Market Stocks - Financial Tips On Making Money In The Stock Market

Another day of violent, volatile market movement. Day-traders are having a field day with this market, as the NYSE is looking more and more like the penny markets. In this waffling state of the market, I am being very careful of taking profits a bit more quickly when I have them, at least until some more consistency sets in either on the long or short side. Like I've said before, we are in a very critical point in this rally, where it looks like we are wanting to retrace a bit, however, with the low volume, bears are unable to make a firm move. Most stocks were down in early trading as more and more company stock offerings were announced. As I discussed yesterday, this should be a trend we continue to see from many companies, as there really is no other way to get capital at the moment, aside from The Fed. Wells Fargo, Morgan Stanley, KeyCorp and Capital Financial were just a few more of the companies that have decided to sell more stock.

After seeing most of the day trade in the red, especially with financials and real estate companies, once again we saw this continual "coincidental" end of day rally kick into gear, which at one point got the Dow up over 80 points, but closed just over 50 points. So, we witnessed yet another 100 point swing in a matter of minutes during the last hour of trading. I've harped on my suspicions of such activity in previous posts, so I will hold back, but what I will say is that I continue to be aware of the trend, especially as volume continues to be on the light side. Below, I have outlined this U trading trend that we have continued to see with the Dow recently, where we miraculously shoot up at the open, only to trade down for most of the day, then close with a violent jump. The fact is, whatever it is, we have to deal with it, and I have factored it in my trading strategies.


Tomorrow, the government will once again attempt to "control" the media tomorrow and set the mood for the day, as Secretary Geithner has scheduled a broadcast for 9:00 AM with the banks, conveniently to be following some retail sales numbers, as well as some earnings reports (Macy's and Dr. Pepper). It will be no surprise to me if we see retail numbers "better than expected", as we have been seeing a lot recently. It is no secret that March and April have had more encouraging data than January and February, in some departments. Sure, it has helped that the government dumped trillions of the dollars into the system, but even so such results are not unfamiliar in this type of environment.

In the graph below you will see the several strong, violent bear market rallies we experienced during The Great Depression from 1929 to 1932. In fact, you will notice the very aggressive 60% bear market rally directly following the initial 1929 crash. This rally lasted for 6 months! Here we are about two months into ours and look how many people are already planning for the good times to come back this year (Larry Kudlow). I can only imagine what some people were saying back then. The point is, it is normal for economic data to fluctuate in this type of environment. From the graph below, you can see the several different violent rallies, however, the frozen credit markets eventually took its toll, as the overall downward trend lasted for three years. This is why it is much too early to be making any sort of calls, especially considering that all of the data being released now until about October has a big asterisk next to it that says, "Including trillions of dollars from government spending factored in." So a slight increase in retail numbers will not take me by surprise, in fact I believe most are expecting it. However, in my opinion, fundamental data is still showing much more pain and problems heading our way, which I discuss more in today's premium podcast (subscribe here).


GM hit a 76 year low for their stock price as it flirted oh so close with that $1 mark. It is pretty evident that bankruptcy is in the near future for the auto giant, and I assume when it finally hits the headlines, we should see some adverse trading as a result. Not just factoring the jobless claims and pensions that will be hit as a result, but just the psychological fact that an All American company like GM is going bankrupt. It definitely refutes the old "buy and hold" strategy many live and die by. I think we will see many corporations follow GM to bankruptcy, especially in the end of 2009, early 2010 as these new bottoms and problems become established. I cannot stress enough the impact the trillions of dollars of government spending has had on the overall economy here in the short term. The problem is that it is unsustainable, and that the debt must be repaid.

So, tomorrow will be interesting. I expect to see markets shoot up right before opening, as the trend has been and possibly stay up a bit, slowly trading down throughout the day. However, the opening retail and earnings results should have a pretty big influence on morning trading, so if a worse than expected number takes us by surprise, watch out. I am sure Geithner will be singing his praises to banks, confirming that the worst is behind us. So it will be interesting to see if we can start bringing up the trading volume soon. The good news is, is that even in this volatile market, I am still enjoying my constant 10.5% return I am getting from my Lending Club investment, which acts as a good buffer, especially for some of my extra cash. I'll be on chat tomorrow and post some things on the message board tonight. Happy Trading.

Green, green and more green. Will it ever end? Bulls came out swinging to start the week off, with the help of some more “perceived” recovering economic data that some have said is signaling a bottom in the markets. If you had watched CNBC this morning, it would have been impossible to tell that we are in a recession, as they must have officially decided not to report both sides of the economic argument anymore. Smart on their part by either GE or the government, who gave them the initiative to push positive sentiment onto beaten down investors across the world, as they are by far the single largest influencing factor in the market today. You don’t think the government has made a trip or two to talk to the executives at GE to discuss the sentiment shown on the network? Well, maybe it’s just me, but I’ve been around in the corporate world long enough to know that there exists plenty of fraud and manipulation. I just hope that investors do their own research when these numbers are released as well as earnings numbers, so that they are not so easily convinced from the rubbish that Larry Kudlow and Gang recommend on their morning shows. If Kudlow had been on the Titanic when it sank, he would have still been sound asleep while the ship was half under water.

No doubt the housing report was the big spark behind today’s rally, which shot the Dow up 215 points to inch so very close to that 8500 number. A 3% increase in existing home sales along with a slight .3% increase in US construction spending caused for most of this cheer on Wall Street. Of course such numbers have to mean that indeed the worst has come and we are on the road back up again. I mean, the duration of the recession has been about 17 months, which is about normal, so this all makes sense right? Well, that’s what many are saying, however, I still remain not that easily convinced.

I must give credit to those traders who have remained bullish this far into the rally, despite much of the downward pushing factors, as there are not many that saw this coming. I, myself, made some great profits riding this rally only until the first week in April, at which point I cashed out in fear of a near retracing. Afterward, I did not position myself strong on the short side, just took some smaller short positions, mostly of the continual fear I had of the possibility of more government intervention and manipulation. Indeed we have seen that come to pass and continue to come to pass. Even though it seems, for some, that nothing can put a stop to this upswing and that the days for bear’s profits are gone, I still remain ready for when this market decides to make a turn. Let me explain why.

First, the housing data. As I have said over and over again, there lies almost 0 significance when evaluating housing data on a month to month basis. Housing reports have some of the most seasonally influenced results out of all the economic data that is reported. Even though this is the second straight month of a positive month to month change in existing home sales, the year over year data continues to remain horrible. Only will several consecutive months of significantly changing housing data begin to effect my opinion of the current market. Let us not forget that Spring and Summer are the most popular times to buy homes and that combined with the recent large drops in housing prices, has caused for some traction in the housing sector, not to mention the many incentives the government is making for home buyers with all time low interest rates as well as tax credits to home buyers. The big question is, is it sustainable? I give more details of my opinion on today's premium podcast (subscribe here). You can see from the below chart, existing homes data is always changing and has sporadic ups and downs. It is the continual regression trend which is what you want to watch. Remember, the real estate recession in the early 90's lasted over 4 years with multiple bottoms.


Take any company that many of you may be working for at this point of time. I am sure, many of them are struggling with the current economic conditions and may have been forced to perform job and salary cuts, ask for a rent reduction from landlords, and have also maybe had to make some operational changes to survive in current conditions. If someone were to knock on your company’s door and offer them tens of millions of dollars in cash (or more or less depending on the scale of the company), and ask for nothing in return but to play by their rules, do you think your company would do it? I am sure most would at this point. As a result, it would totally change the look of your company’s balance sheet. Old bad debts could be written off, current expenses and payroll are able to made with flying colors, and next quarter’s outlook would begin to look much more brighter. But how long would that money last? If outside conditions became worse and worse, would it be sustainable?

I use this example as I believe it relates to what is going on in the banking system. Out of nowhere, banks have been blessed with mountains of cash. These new influxes do not need to be factored in on their balance sheet as a normal note would be. This is because the capital is coming from the mother ship itself(The Fed), who are allowed to expand and contract their balance sheet at will. The point is, after multiple trillions which have already been spent or announced to be spent this year alone, it is no surprise to me that we have seen some sort of traction in the market. Compare it to a drug induced high. People are able to escape the many pains of reality for a period of time, because of the injection of a hallucinogen. For a period of time, there is not a worry on the earth and everything feels right as rain. However, there comes a time where this high wears off, which is always followed by a crash or hangover. I compare our current times to one big high injected by the government. Either, our government keeps injecting us all with such doces of bailouts and TARP funds that we've seen recently, or we risk coming out of the high with one awful hangover.

So yes, I still remain a firm believer in the eventual collapse of these markets. It just may take some more time for nature to take its course. Investors can be fooled, but I only believe for a period of time. Volume is still remaining quite low, even on high moving days like today. It is very clear that big money has not entered these markets at this point and are still waiting for something. I think even many of the bulls are becoming skeptical about how much longer this rally can go on for. I said that I wanted to wait out the time until the bank stress test results were announced, which unfortunately keeps getting pushed back. I believe, that once we can sift through all of that mess, we will begin to see some opportunities on the short side. At that point, I will be ready with my capital, which I have preserved, in which I believe those that have remained patient will see a lot of opportunity on the short side. The real fundamental signs continue to be in bear’s favor, however, many of those are failed to be mentioned on many bull networks.

Many emailed me this weekend asking about my Lending Club experience, in which I have said before. I have had no delinquent payments on my loans I invested in and have still maintained my 10.5% return I sought out to receive in the beginning. So, no complaints here. I continue to remain patient and am only seeing more and more opportunities surface for me when the time is ready for the short side. Have a good evening, I’ll be on chat tomorrow, Happy Trading.