7.17.09
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7.17.09 This was the biggest up week in four months after four weeks of down side action. We could certainly be wrong, but we believe the odds are that the positive action of the last three days is due to program-trading firms using their buy-programs to drive the market up in front of Friday's options expirations. That in turn is driving traders who had mostly moved to trading the downside on expectation of lower prices ahead, to move temporarily to the buy side each day to close out those short-sales, which has magnified the spike-up. If so, the week after options expirations is usually down, and traders could well begin putting those short-sale positions back on again, which would add to the usual downside pressure of the week after the expirations. For that reason it often risks whipsaws to make portfolio changes in the midst of the volatility in options expirations weeks. Wall Street has focused this week on a few good earnings reports, Goldman Sachs, JP Morgan, and Intel, to stir up optimism, while seemingly ignoring bad reports from others in their sectors, and out in the general economy, like CIT Group, MGIC, Dell, Nokia, Sony Ericsson, Marriott, Harley Davidson, etc. Even within the good reports from a couple of large ‘bailed-out’ banks, loan losses were reported as rising rapidly. And there was continuing bad news in the general economy that will not be solved for a long time; rising home foreclosures, etc. It seems to me that dismal news domination continued yesterday, although mostly ignored by Wall Street, and therefore the media. For instance, the Fed’s Philadelphia Area Mfg Index deteriorated further, falling to a negative 7.5 in July from negative 2.2 in June. IBM reported that while its 2nd quarter earnings rose 12%, due to laying off employees and cutting costs its sales actually declined. The company also reiterated what Dell said last week, that it sees no signs that consumers or businesses are ready to begin buying computers or IT products or services. G.E. reported that its 2nd quarter earnings plunged 47% and Bank of America reported its earnings fell 5.5%. Economic bellwether General Electric reported that its earnings plummeted in its second quarter, on continuing problems in its large financial divisions, including GE Capital (as well as declining activity in its non-finance divisions). In recent months GE cut its dividend for the first time in 60 years and lost its AAA debt-rating. But of course, somehow the 47% lower earnings beat Wall Street's estimates, and the stock rose on that 'good' news. What if in a few months bankrupted but bailed-out General Motors and Chrysler report stunning earnings? Will the fact that they did so by laying off tens of thousands of employees who have not been able to find new jobs; paying their remaining employees less; and wiping out debts to their suppliers via the bankruptcy route (putting many of them out of business permanently), be a sign that the economy is in good shape again, or just that it worked out well for those two lucky dog companies? And then there is the collapse and apparent pending bankruptcy of CIT Group, the large and important lender to small and medium size businesses, and its fallout on those small businesses which find it difficult to find other lenders willing to lend to them. But the weekly patterns are working out in July as they typically do in other months. The market tends to be down for the week before the options expirations week, which it certainly was last week. Then the options expirations week tends to be positive, which this week certainly has been. Keep in mind that the rest of the pattern is that the week after expirations weeks tend to be back down. We don’t believe there is any actual reason to think that things are any better than they were several weeks ago and we are keeping our money on the sidelines looking for some good indications that things are improving. For now we are still 100% in CASH. Till next week The MTA Staff |
