With more people focusing in on Elliott Wave as the current decline from 2007 conforms to an ideal Elliott Pattern, let’s take a look at a potential count that begins in October 2007 and is broken-down in respective subdivisions all the way to March 2009.
S&P 500 Daily Elliott Wave Structure:
(You’ll need to click to view the full picture)
I won’t go into much detail so as to let the proposed wave labeling speak for itself.
I’m relatively new to Elliott Wave and am stunned at how the Wave Structure has played out almost perfectly to the rules and guidelines developed by Ralph Elliott in the 1930s.
Impulse Waves subdivide into 5 Waves (in the larger trend) and Corrective Waves (labeled “ABC”) subdivide into 3 Waves.
The 3rd is never the shortest, but is oftentimes the longest wave (this plays out on almost all subdivisions).
What’s amazing me is that if you look closely, the October near-vertical downward plunge is located in the Wave Structure exactly where you would expect it to be, confirming the count: Sub-Wave 3 of Fractal Wave (3) of Major Wave 3 down. To me, that’s chilling.
It’s also known as the “Point of Recognition” where people begin to “catch on” that we’re in a bear market and they generally stop buying pullbacks. Until then, it was feasible to some investors that things weren’t so bad… though October officially changed that all.
Now, it seems everyone’s a bear and people – even on TV – are saying we’re going to be headed down for a long time and there’s no bottom in sight…
But if you look at the Wave Structure, we need a Wave (4) up and then a Wave (5) down to finish off Circled (Major) Wave 5 before launching upwards into some sort of upwards ABC Correction.
For now, take a moment to study over the Price Wave Structure that began in October 2007 and try to internalize it – to me, it appears a textbook example in real life of the Elliott Wave Principle.
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AIG will receive additional federal assistance of up to $30 billion as part of a revamped government bailout, The Wall Street Journal’s online edition reported Sunday, citing unnamed sources.
This morning details of what the next Government (taxpayer) bailout of American International Group (AIG) will look like are beginning to unfold. Also tomorrow morning (AIG) is expected to announce the largest corporate loss in United States history.
(AIG’s) Board of Directors are being called to a special Sunday night meeting to vote on another rescue for the company.
Information coming off the wires…
BOARD TO VOTE ON NEW BAILOUT PACKAGE THAT WOULD EASE THE TERMS OF THE BAILOUT!
- The revised (AIG) agreement is expected to include an additional equity commitment of about $30B, more lenient terms on an existing preferred investment, and a lower interest rate on a $60B government credit line
- The new equity commitment would give (AIG) the ability to issue preferred stock to the government at a later date
- (AIG) will also give the Federal Reserve ownership interests in American Life Insurance (Alico), which generates more than half of its revenue from Japan, and Hong Kong-based life insurance group American International Assurance Co (AIA) in return for reducing its debt
- (AIG) may also securitize some U.S. life insurance policies and give them to the government to further reduce its debt.
I think our great Government is really trying to find a way to put the taxpayer squarely at risk for taking the hits on these so called toxic assets by spinning some nonsense about getting a great deal on their value. Twenty five cents on the dollar are some numbers currently circulating. Check out this article “propping up a house of cards”. It seems surreal and amazing that our Government poured 250 billion into (AIG)…a quarter of trillion dollars to save this company. It is a penny stock for god sakes and (AIG) is just an empty shell. Throwing
Braunie at The Market Guardian is not optimistic that Warren Buffett’s investment style will make a successful comeback any time soon. As Joe Weisenthal‘s article (below) further illustrates, it’s not only the change in market forces that is so discouraging, but also the government’s ability and willingness to change the rules mid-game.
The Oracle Warren Buffett told his shareholders Saturday that 2008 was the company’s worst year on record, as the per share value of both the Class A and Class B stock fell 9.6%. In his annual letter, Buffett said neither he nor Charlie Munger, his partner in running Berkshire, can predict winning and losing years in advance, and that no one else can. “We’re certain, for example, that the economy will be in shambles throughout 2009 – and, for that matter, probably well beyond – but that conclusion does not tell us whether the stock market will rise or fall.”
The Old Oracle Buffett has had the worst 5 months in his career. His balance sheet is filled with bull market positions in this bear market. He hasn’t hedged his $38 billion of short puts. Warren is watching his fully invested position go down the drain. If stocks go to the p/e levels of 7-9x that we saw in ’74, he will be wiped out. I was recently reading an article where the author (a respected trader) said that he suspects Berkshire could be going to ZERO within the next 12 months. Seems very far fetched but who would have thought a year ago Dow 6000’s?
Mr. Buffett’s October investments were a complete show to help build confidence in the market. His infusions into Wells Fargo and Goldman Sachs were at least as dumb as the GE debacle. The act was stupid and egotistical of Buffett to think he could control market psychology. Buffett failed to recognize the situation for what it was -the end of an economic era. Like Greenspan, could this Guru of investment soon be a discredited?
It’s very sad to think Warren Buffett will witness the destruction of the company he built so many years ago. An entire
Since I’ve been writing about preferred and common stock so much this week, I thought I would just try to explain the arithmetic of the Citigroup deal announced today. (By the way, it isn’t a done deal: all it says is that Citi is offering a preferred-for-common conversion to its outside investors, and the government will match them dollar-for-dollar, although the WSJ says that several investors have agreed to participate.)
Right now, according to Google Finance, Citi has 5.45 billion common shares outstanding. It is offering to convert up to $27.5 billion of preferred shares held by “private” investors other than the U.S. government (like the government of Singapore and Prince Alwaleed) into common shares, at a conversion price of $3.25. That would create another 8.46 billion shares. For every dollar that is converted, the U.S. government will also convert one dollar of its preferred stock, up to $25 billion; that is the $25 billion from the first round of recapitalization back in October, which is paying a 5% dividend. (Fortunately someone realized we should convert that before converting the second chunk, which pays 8%.) That would create another 7.69 billion shares. So if everyone converts as much as possible, there will be 21.60 billion shares outstanding, of which the U.S. government will own 7.69, for an ownership stake of 36%, the number you read in the papers. (Actually, if the private investors convert exactly $25 billion and not $27.5 billion, the government would own 37%, but that’s a detail.) The other private investors would own 39%, and current shareholders would own 25%.
The government got some warrants on common shares in connection with the earlier recapitalizations. I assume the warrants it got for the first investment will no longer exist (because that first investment is being “paid back”), but the warrants on the second investment, if exercised, would presumably push the government up a couple percentage points.
Where did the $3.25 price come from? Who knows. Yesterday’s closing price was $2.46. If that price had been used, the government’s target ownership percentage would have been 38% instead of 36%,
We were bearish going into the week but not this bearish. It is unusual though that we have a weekly wrap-up with nothing but negative plays as we did last week but there was nothing very positive in the outlook after the action of the week of the 16th through the 20th, pictured here on this chart.
As I said in the last Weekly Wrap-Up: "Of course nothing beats sector specific covers against your own mix of positions but we like using the DIA puts as general virtual portfolio coverage although, as I mentioned last week, both the DAX and the Qs may now have farther to fall." The Qs ended up dropping 8.5% for the week while the DAX tumbled 6%, underperforming other global indexes as we had expected it would. Our hedge play , the DIA June $77 puts, which we went with at $8.22 on Friday and half covered with March $75 puts at $3.85 ended up at $9.85 and $5.40, not much improvement but accomplishing it’s goal of converting a net $6.29 entry into puts that are now 100% in the money to our net entry. At this point, every point down on the Dow is a penny we realize in intrinsic value. Per our original plan, the $75 puts can still be rolled to 2x the Apr $66 puts, now $2.32, allowing for our long puts to be $11 in the money against the puts we sold. The reality is more complex than that as we day-traded the covers around and rolled up the longer puts but we went into this weekend with the same bearish half-cover, not wanting to take chances after Friday’s poor performance.
On Monday morning, I was not at all enthusiastic about our prospects for the week as we had the Bernanke testimony Tuesday and Wednesday and Trichet started us off with a thud by stating: ""In recent weeks we have seen the first signs of falling credit flows. An important part of this fall is demand-driven. However…there are indications that falling credit flows reflect also supply-side factors and tight financing conditions associated with a phenomenon of deleveraging. If such a behavior became widespread across the banking system, it would undermine the raison d’etre of the system as a whole." Perhaps he was channeling Nouriel Roubini, who on Saturday had told the Wall Street Journal: "J.P. Morgan…
Citigroup plunged 39% on Friday to $1.50, a price last seen in 1992.
The plunge was in response to a Citigroup U.S. Accord on a Third Bailout that will convert the government’s preferred shares to common, thereby diluting existing common shareholders and exposing US taxpayers to more losses.
Citigroup Inc. and the federal government agreed to a third rescue that will give U.S. taxpayers as much as 36% of the bank but expose their ownership stake to greater risk from the recession and housing crisis. The deal will punish existing shareholders of Citigroup, who will see their stake diluted by 74%, and likely do little to change the awkward relationship between federal officials and management of the New York company.
Depending on how many current holders of Citigroup preferred stock agree to a similar move, the company’s tangible common equity could surge to $81.1 billion from $29.7 billion at Dec. 31. That would reverse the recent slide in tangible common equity — a gauge of what shareholders would have left if the company were liquidated — that fueled a downward spiral in Citigroup shares.
The conversion leaves taxpayers exposed to the risk of greater losses. The government’s preferred holdings had stood ahead of common stock in Citigroup’s capital structure, meaning they were less likely to lose value if the company’s woes continue to mount. In addition, by converting much of the U.S. stake to common shares, Citigroup won’t have to pay the hefty dividend payouts that were attached to the preferred stock.
"The government is bending over backwards to not go along the lines of nationalization," said Bernie Sussman, chief investment officer of Spectrum Asset Management, a unit of Principal Financial Group Inc. that manages about $6.9 billion in assets. "They had the alternative to completely zero out the common stock."
First of all, stop right now if you haven’t read Warren Buffett’s Chaiman’s Letter in the Berkshire Hathaway Annual Report. He can tell you a lot more about the state of the economy than I can. Although I will go over some of the highlights of The Oracle of Omaha’s 100-page report, you should read the whole thing – go ahead and read it, then come back – I’ll wait…
Berkshire Hathaway has produced a compounded annual gain in value of 362,319% since it’s founding in 1964, about 10 times what you would have gotten investing in the S&P 500, roughly a 20% annual growth rate. Included in that figure is a 9.6% decrease in book value last year, the first loss since 2001 and the second loss EVER. The average S&P company dropped 37% of their book value in 2008 and this year is looking worse already. "By the fourth quarter," says Mr. Buffett, "the credit crisis, coupled with tumbling home and stock prices, had produced a paralyzing fear that engulfed the country. A freefall in business activity ensued, accelerating at a pace that I have never before witnessed. The U.S. – and much of the world – became trapped in a vicious negative-feedback cycle. Fear led to business contraction, and that in turn led to even greater fear."
Buffett does not provide a positive outlook, he expects a rough 2009 and "for that matter, probably well beyond" but that does not shake his outlook that, over time, investments made today will pay off in the future. He has a quote that is almost identical to one of mine: "Whether we’re talking about socks or stocks, I like buying quality merchandise when it is marked down."
Commentary on the housing market was: "The 1997-2000 fiasco should have served as a canary-in-the-coal-mine warning for the far-larger conventional housing market. But investors, government and rating agencies learned exactly nothing from the manufactured-home debacle. Instead, in an eerie rerun of that disaster, the same mistakes were repeated with conventional homes in the 2004-07 period: Lenders happily made loans that borrowers couldn’t repay out of their incomes, and borrowers just as happily signed up to meet those payments. Both parties counted on “house-price appreciation” to make this otherwise impossible arrangement work. It was Scarlett O’Hara all over again: “I’ll think about it tomorrow.” The consequences…
When high-ranking executives are fired from a company, for whatever reason, they don’t go to the back of the unemployment line. Instead, they typically receive compensation in the form of the “golden parachute.” Golden parachutes can include severance pay, cash bonuses, stock options or other benefits. In the case of the financial crisis and the ensuing bank failures, if it seems like these executives are being rewarded for poor performance, you may be right. Here’s a look at what some bankers made on their way down.
Acknowledging that "we cannot borrow our way out of debt," Ellen Brown suggests the Federal Reserve stimulates our debt-ridden economy by creating new, essentially interest-free money, which does not have to be paid back. Here’s how.
“Diseases desperate grown are by desperate appliances relieved, or not at all.” – Shakespeare, “Hamlet”
Moody’s credit rating agency is warning that the U.S. government’s AAA credit rating is at risk, because it has taken on so much debt that there are few creditors left to underwrite it. Foreigners have bought as much as two-thirds of U.S. debt in recent years, but they could be doing much less purchasing of U.S. Treasury securities in the future, not so much out of a desire to chastise America as simply because they won’t have the funds to do it. Oil prices have fallen off a cliff and the U.S. purchase of foreign exports has dried up, slashing the surpluses that those countries previously recycled back into U.S. Treasuries. And domestic buyers of securities, to the extent that they can be found, will no doubt demand substantially higher returns than the rock-bottom interest rates at which Treasuries are available now.1
Who, then, is left to buy the government’s debt and fund President Obama’s $900 billion stimulus package? The taxpayers are obviously tapped out, so the money will have to be borrowed; but borrowed from whom? The pool of available lenders is shrinking fast. Morever, servicing the federal debt through private lenders imposes a crippling interest burden on the U.S. Treasury. The interest tab was $412 billion in fiscal year 2008, or about one-third of the federal government’s total income from personal income taxes ($1,220 billion in 2008). The taxpayers not only cannot afford the $900 billion; they cannot afford to increase their interest payments. But what is the alternative?
How about turning to the lender of last resort, the Federal Reserve itself? The advantage for the government of borrowing from its own central bank is that this money is virtually free. This is because the Federal Reserve rebates any interest it receives to the Treasury after deducting its costs, and the federal debt is never actually…
When (if) interest rates rise, perhaps in 6 months or sometime around when my grandchildren are graduating space college, there will likely be some pressure on various portions of your portfolio. But where? And how bad might it be? And for what duration will the pain last?
We can’t know in advance. But we can try to get an understanding of what went down during previous hiking cycles. This will be the hysterical topic du jour in the financial media for the rest of the summer (trust me, I attend the planning meetings). My new article for Fortune Magazine, published today, encompasses all of the historical context you need to inure yourself (and your portfolio) from the noise.
With business confidence collapsing, Bloomberg's Consumer Comfort index - after dropping to its lowest since December - plunged once again this week to 40.9 (from 42.4). This is the lowest since Novemeber and extends the losing streak to 7 weeks - something we have not seen sionce May 2008. This confirms Gallup's weekly tracking of consumer confidence dropped back to its lowest levels since early December 2014 with 53% of Americans now saying the economy is getting wo...
The tug of war between the bulls and bears has created an unusual situation this year, a historically tight trading range! The chart below reflects that the Dow Jones has traded within a 6.68% high to low trading range this year. That is the 4th tightest trading range through May, in the past 115 years.
CLICK ON CHART TO ENLARGE
The inset table to the right looks at future performance of the Dow following narrow trading ranges through May. As you can see, most of the time the market has ended the year to the upside. Will it be different this time?
Wednesday’s action was almost a 180 degree turn from Tuesday’s with the S&P 500 up 0.92% and the NASDAQ 1.47%. Sone vague belief in (yet another) resolution in Greece seemed to be the catalyst. Greek Prime Minister Alexis Tsipras said on Wednesday the negotiations are on the “final stretch” towards a positive deal, Reuters reported. Later in the day, German Finance Minister Wolfgang Schaeuble said there was not much progress in the Greek debt talks and he was surprised by the upbeat tone from some Greek government officials. Athens must make a 300 million euro payment to the International Monetary Fund on June 5, ahead of several other payments due to the IMF later in the month, for a total of 1.6 billion euros.
We’ll see if yesterday’s move was the head fake or today’s was shortly.
Early last week, stocks broke out, with the S&P 500 setting a new high with blue skies overhead. But then the market basically flat-lined for the rest of the week as bulls just couldn’t gather the fuel and conviction to take prices higher. In fact, the technical picture now has turned a bit defensive, at least for the short term, thus joining what has been a neutral-to-defensive tilt to our fundamentals-based Outlook rankings.
In this weekly update, I give my view of the current market environment, offer a technical analysis of the S&P 500 chart, review our weekly fundamentals-based SectorCast rankings of the ten U.S. business sectors, and then offer up some actionable trading ideas, including a sector rotation strategy using ETFs and an enhanced version using top-ranked stocks from the t...
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Understanding the new normal of a business model is key to the success of any company. The managment of companies need to adapt to the changing demand, but first they must recognize what changes are taking place. Big Pharma's business model is changing rapidly, and much like the airline industry, there will be but a handful of pharma companies left at the end of this path.
Most Big Pharma companies have traditionally done everything from research and development (R&D) through to commercialisation themselves. Research was proprietary, and diseases were cherry picked on the back of academic research that was done using NIH grants. This was in the heyday of research, where multiple companies had drugs for the same target (Mevocor, Zocor, Crestor, Lipitor), and could reap the rewards on multiple scales. However, in the c...
Bitcoin, the virtual digital currency, has been called the future of banking, a dangerous fad, and almost everything in between, but we're finally about to get some solid data to help settle the debate.
On Monday, the Nasdaq (NDAQ) stock exchange said it would ...
Chris Kimble likes the idea of shorting the US dollar if it bounces higher. Phil's likes the dollar better long here. These views are not inconsistent, actually, the dollar could bounce and drop again. We'll be watching.
Phil writes: If the Fed begins to tighten OR if Greece defaults OR if China begins to fall apart OR if Japan begins to unwind, then the Dollar could move 10% higher. Without any of those things happening – you still have the Fed pursuing a relatively stronger currency policy than the rest of the G8. So, if anything, I think the pressure should be up, not down.
UNLESS that 95 line does ultimately fail (as opposed to this being bullish consolidation at the prior breakout point), then I'd prefer to sell the UUP Jan $25 puts for $0.85 and buy the Sept $24 call...
Back in December, I wrote a post on my blog where I compared the performances of various ETFs related to the oil industry. I was looking for the best possible proxy to match the moves of oil prices if you didn't want to play with futures. At the time, I concluded that for medium term trades, USO and the leveraged ETFs UCO and SCO were the most promising. Longer term, broader ETFs like OIH and XLE might make better investment if oil prices do recover to more profitable prices since ETF linked to futures like USO, UCO and SCO do suffer from decay. It also seemed that DIG and DUG could be promising if OIH could recover as it should with the price of oil, but that they don't make a good proxy for the price of oil itself.
Kim Parlee interviews Phil on Money Talk. Be sure to watch the replays if you missed the show live on Wednesday night (it was recorded on Monday). As usual, Phil provides an excellent program packed with macro analysis, important lessons and trading ideas. ~ Ilene
The replay is now available on BNN's website. For the three part series, click on the links below.
Part 1 is here (discussing the macro outlook for the markets)
Part 2 is here. (discussing our main trading strategies)
Part 3 is here. (reviewing our pick of th...
This is a non-trading topic, but I wanted to post it during trading hours so as many eyes can see it as possible. Feel free to contact me directly at email@example.com with any questions.
Last fall there was some discussion on the PSW board regarding setting up a YouCaring donation page for a PSW member, Shadowfax. Since then, we have been looking into ways to help get him additional medical services and to pay down his medical debts. After following those leads, we are ready to move ahead with the YouCaring site. (Link is posted below.) Any help you can give will be greatly appreciated; not only to help aid in his medical bill debt, but to also show what a great community this group is.
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