I hope everyone had a good day. Just a quick note. As you can see, the "AAA" credit spreads are once again nearing their highs:
My Take:
Its becoming quite clear that that the financial sector is unravelling once again. Bank of America just moved up their earnings announcement up to tomorrow. Citi earnings are out on Friday as well. Expect some financial fireworks! I smell something really fishy here considering its options expiration.
Nevertheless, I continue to think Citi is dead. I closed out half of my short position near the close. 100% return in 24 hours. No sense in being a pig.
The rise in AAA credit spreads is extremely troubling folks. Expect another "Lehman/AIG" like weekend IMO. The second half of the TARP was released tonight. These are certianly extrordinary times. Expect the Treasury to work long hours over the weekend as they try to figure out what to do with our deteriorating insolvent banks.
Bottom Line:
Today played out pretty much like I anticipated. We dropped sharply at the open and then reversed once we neared the 2002 lows. I wish I was home to jump in long today after the selloff. Oddswise it was a very lucrative play.
I think tomorrow is an absolute crapshoot. Options expiration combined with the earnings reports of our two largest banks should make for some serious fireworks tomorrow. I went long on tech near the close and held. I put a tight stop on, and I think we will open green tomorrow. Intel hit lowered expectations after hours. I am still short the financials via FAZ. We will see how this works out.
More importantly, I see a potential long term sector rotation. No one appears to want to touch financials anymore and I don't blame them! I can see mutual funds rotating out of financials and into other sectors. There is simply too much risk here for a fund manager so expect them to start reducing their exposure in this area.
IMO, the "nationalization" of our banks is not out of the question. A rumor floated around Wall St. today that this could happen to Citi over the weekend. Citi denied the rumors of course.
Watch the credit markets. The fact that spreads are almost back up to their highs means its "lights out" in the very near future.
The TARP can't stop the debt bubble from bursting.
All it does is delay the inevitable.
9 comments:
Learned a hard lesson not to be a big today. Bought FAZ at $47 on Tuesday and should have sold today with the nice profit (up as high as $65). The banks do seem to be unraveling but the market seems to like TARP II as it relates to the banks. You think FAZ sees a dip and then a jump back up or do you think TARP II rules? These 3x ETFs move real fast on you.
jeff, seriously, at least in Vegas you get fee drinks! :).
The market is valued just like federal reserve notes...government fiat, not a true market. who knows what these pricks will do to us.
Nice C trade Jeff.
$BKX is at its lows. Where we go tomorrow is indeed a crap shoot.
MA (short), ICE (short), GLD (short) and UUP (Long) have worked out well for me this week.
I may take a quick long scalp on MA at the open. Other than that, I'm sitting on hands.
ZMon
You may see $65 or higher tomorrow if Citi and BofA blow major chunks.
I would get out at the open if the earnings are bad and the financials take big hits.
If this setup occurs, I may dip into some financials on the long side following the drop. I think both banks are looking to get passed the bad news and a reversal is possible here if earnings aren't too horrific.
JD
Unbelievable isn't it?
Until transparency comes back, I think more and more investors will abandon the financials.
I am just trying to think like a criminal and go long when I believe these "bubbleheads" want to take this "casino" higher.
Joey
Thanks. Every squirrel gets a nut every now and then. I love your MC short.
I know someone that hit a 10 bagger going short when this peaked. You can't use the MAstercard when you are maxed out and can't pay your mortgage!
I think gold drops here too. Classsic deflation play. Cramer(he was on in the gym I had to watch) was talking about an analyst who was describing problems with the ETF GLD. I almost felt like shorting GLD. There were issues with the derivs.
The dollar will reverse at some point as we continue the bailouts but thats a nice trade as well!
Thanks for the advice Jeff. I didn't sell at the open but when my FAZ play rose to up 20% I decided to learn from my lesson and sell. This thing may still run up as I don't see how the financials are anything close to solvent even with the gov. backstop but I'm trying to stay nimble.
The MA short is genius.
Guess I bought the head fake on FAZ as it is now back up to its highs of yesterday ($65). I have a lot to learn, although maybe the lesson is to make the trade, move on to the next and not do a post-mortem of the prior trade.
Zmon
It never hurts to take profits! Nice trade.
I got out of my NASDAQ longs near the open when it started to roll over.
Still holding onto my FAZ. This weekend will be interesting. Englands banks are in deep trouble and will be dealt with over the next few days. We have counterparty risk to them.
I am not saying jump back in though.
I shorted some treasuries today. Missed today's move but expecting a reaction when Obama gets in. I think yields will rise.
I will take some pain until then.
GL
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