Chrysler: Unfinished Business

Chrysler is filing for bankruptcy. Nardelli is out. Everything as it should be, with two small exceptions.

First of all, I don't like Obama and other Democrats attacking hedge funds. They do what they think is the best for their clients. Greed is not the right word here.

But another this is much worse. My heart bleeds for Chrysler workers, but UAW has no business controlling company. That creates huge conflict of interest and in the end destroys the company. I don't know why FIAT agreed for UAW to have 55% in the new Chrysler, only reasonable explanation is that they hope to get controlling interest later, when Chrysler would need more money. Maybe. But if UAW remains in control of the company, it's dead. We wouldn't wait long.

What Moves This Market?

This is a really critical question right now. Until about a week ago, it was a pure technical market. It ran for six weeks above 13 day moving average, then all three major indices, Dow Jones, S&P 500 and Nasdaq Composite dipped under MA 13. Then we had a week of divergence. When Dow essentially moved sideways, S&P and Naz resumed their march over MA 13. Which kinda invalidated my idea that party is over posted here. Let do a quick review.

Technicals

Dow Jones is over 50 days moving average, over 8000, and broke over downward trendline it had since November. S&P is also over MA 50, but failed to breach 875 line so far. Naz is screaming! It's only 90 points under 200 day moving average and at the high for the year. All technicals are extremely bullish, with one exception: market is extremely overbought. But it was overbought for the last seven weeks.

Sentiment

Sentiment is amazing. Despite huge bull run, it's mostly bearish, sometimes getting neutral for couple of days. Of course, I might be wrong, I'm using completely unscientific method: just count bullish and bearish commentators on CNBC when I watch it and several web sites. Anyway, if somebody can point me to bullish sentiment counts, I'm ready to recognize my mistake.

Fundamentals

Not much changes in fundamentals. Yes, a lot of companies managed to beat very low estimates and shot up like crazy. But earnings are weak, economy is in a weak shape, the only good news is that US consumer is alive and kicking. Fed is struggling to contain possible deflation, results are unclear so far.

I don't like the conclusion I'm about to make: outlook is bullish. I just have to make it, because technicals are bullish and sentiment is bullish as well (market climbs the wall of worry). Fundamentals are bearish, but for the last several months market didn't care about fundamentals. There are couple of things which can change the picture. First of all, this is the end of the month and there is a possibility of window dressing, although this is not the end of the quarter. Second, a lot depends on government, and it was quite unpredictable. I don't know if I want to commit more money on the long side right now, although tech and, surprisingly, REITs look quite tempting.

The Dying Deadwood Press: Anger

In the end of 1990s a lot of people predicted that internet will kill newspapers and most of magazines. Most of industry pundits reacted at the time that newspapers survived radio, TV and will survive internet. We heard from other corners of the markets that internet is just a fad, that internet companies don't make any money, that virtual goods can produce only virtual profits. That was the denial phase.

I think most newspaper people celebrated dot-com crash of 2000. Well, celebration was premature. In the last several years newspapers profits eroded and then completely disappeared. A lot of well known newspapers either died already or under Chapter 11 protection. Some switched to online-only publications (oh! the irony of it!). And suddenly we have a burst of anger coming from press. Lots of columnists are complaining, demanding some action, there are calls to charge Google (GOOG) for links to their news content. In other words, they want money from company which advertise their material for free! Why Google? Because it has boatloads of money, obviously. Their main point? Newspapers spend money to investigate the news and want their "fair share".

Newspapers are dead wrong. Their business model is dead. Advertisements are moving to the internet, nothing can stop this process. Press doesn't know how to run online business? It's not a reason to demand (and they don't ask, they demand) money from those who know. Let's find analogy in the past. Hm, the only one I can come up with is for horse transport owners of the second half of 19th century to demand payments from railroads, because most of the shipped goods come to railroads in horse drawn carriages. Of course, horse transport owners didn't have the abilities of the best columnists in the country. Just take a look at this piece by Maureen Dawd. But she is one of the best, and in today's article she Phil Bronstein from San Francisco Chronicle: “That’s the most hopeful thing you can say about print journalism, that old people are living longer.” That's close to acceptance.

The loudest complain is that newspapers spend a lot on the news research. But complainers forget to mention the fact that a lot of reporters don't work for a particular newspaper or TV station: they are freelancers. Nothing would stop them from selling their stories to some internet companies instead of deadwood press. There are no such companies right now, most of the internet news pages, like Yahoo! News or Google News are aggregators. But I don't see any barriers to entrance, except for quite serious capital requirements. I think such companies will appear quite soon.

I just wonder how much scream are we going to hear from TV stations, when they start going out of business?

Full disclosure: at the time of publication author had a long position in GOOG and no positions in any newspaper or TV companies. Positions can change any time.

Stopped Out of DGZ

I've been shorting gold using DB Gold Short ETN (DGZ). Well, it didn't work out and I got stopped out today at the open.


Full disclosure: at the time of publication author did not have positions in DGZ or any other gold-related stocks. Positions can change any time.

Gilead: Biotech No More

Gilead (GILD) just reported a blockbuster quarter.

I owned Gilead shares for couple of years, sold in 2008. Had an impressive gain (about 80% in couple years). Reasons for selling are outlined here.

Gilead is on the conversion path. It was a biotech company. Now it's becoming a plain drug company. Sure, it has a great HIV franchise, and a bunch of unique drugs. But we know from Jim Cramer's book "Real Money: Sane Investment in an Insane World" that biotech companies are valued on the base of their pipeline. At the time I decided to sell, company had a pipeline information on the web site. It was there, although it wasn't impressive at all. Now this information has gone. All you see are currently available drugs.

That's no good. Looks like current management decided to cut research expenses and live from current stock. Which changes investment conditions completely. Gilead currently trades at P/E 22, which is low value for a biotech company. But it's way too high for a drug company. For comparison, Pfizer (PFE) trades at P/E under 11. In other words, as a drug company, Gilead is twice overpriced. Of course, Gilead is a better company than Pfizer, it has longer patent protected terms for cash cow drugs, it's HIV franchise is peerless, so it probably can command higher P/E. But 22 feels too high, and company doesn't pay dividend.

I still don't see a reason to buy GILD. I can change my mind if company declares dividend or if stock pulls back significantly.

Full disclosure: at the time of publication author did not have any positions in GILD or PFE. Positions can change at any time.

Party Is Over

Six week long rally is over. It was huge. Dow Jones is up almost 1500 points.

But party is over. Dow Jones fell under 13 day moving average, same thing happened to S&P 500 and Nasdaq composite. I had some hope that Naz can stay above 13 day MA, but no such luck. This is a major technical signal, discussed several times in my entries:

The Signs of The Bottom: Technicals
Dow Is Over 13 Days MA!
This Rally Might Still Have a Chance
Dow Rally: New Milestone
This Wonderful Rally
Exhaustion?

Now what? According to 1932 scenario, we might have 2-3 months long slump, followed by another bull market. Or market can go down big time, cross down 50 day MA and test March lows. I think that Dow is going to stay in 7000-8000 range for a while, but Mr. Market might have couple of surprises for us.

Important decision time. I'm going to act on a premise that Fed is in control of the situation and current crisis is just a Great Recession, which is not going to become a Great Depression 2.0. Which means that either March low holds or new low will not be much lower. With stocks going down, I'm going to load on three groups: tech, financials and bonds. Particular stocks are to be defined. To reduce risk, I'm going to keep transaction sizes small and take profits if I feel they are good enough. No particular stock picks right now, need to see the action.

Exhaustion?

Rally is still rolling. Nothing to complain about, yet. But it should end sooner or later. We are in the sixth week of it so far, and we might have two more, three tops.



The biggest technical hurdle seems to be Dow Jones 8000. We didn't see confirmed breakout though this level. With 13 day moving average closing to 8000, rally is starting to show signs of exhaustion. It looks like Dow is settling in the 7000-8000 range. Which would be an achievement anyway, compared to horrible slump in February.

Bad technical sign: so far Dow didn't break downtrend which started in November 2008 (green line). Good sign: current rally broke major downtrend started in September 2008 (blue line). It probably means that we are over the major panic, but not over the planned sell-off.

Sentiment is improving, which is a bad sign too. Reaction to earnings have changed: big sell-offs after great earnings at Goldman (GS), Intel (INTC) and Abbott Labs (ABT) look pretty bearish to me. Compare that to reaction to Research in Motion (RIMM) earnings two weeks ago.

Of course, I can be wrong and rally can continue through Dow 8000 and break November-April downtrend. Next several days will show us direction. I'm sitting tight, not buying or selling anything.

I completely ignore fundamentals right now, because market ignores them. Mr. Market is smarter than any of us.


Full disclosure: at the time of publication author did not have positions in any stocks mentioned. Positions can change any time.

This Wonderful Rally

Just returned from vacation and market looks better and better. Dow Jones is running over 13 day moving average like it did in 1932. Let's take a closer look at the market.

Technicals

Like in July-September of 1932, 13 days moving average is the most important indicator. All major indices are running above it. Dow almost touched it couple of times, but never crossed down since March 11, not even intraday. All indices are also crossed above 50 days moving average, and 13 days MA is above 50 days MA. Dow is also holding above very important technical level of 8000. Granted, some technicals show signs of exhaustion, for example, breadth is down, but overall things look bright.

Sentiment

Strangely enough, after a month long beautiful rally, a lot of market players still don't believe it. For example, Todd Harrison thinks it's a bear market rally. Quick look at CNBC today doesn't show very bullish sentiment. Notably, Jim Cramer and Doug Kass are both bullish, but overall sentiment is bearish to neutral, which is, of course, is a bullish sign.

Fundamentals

Honestly, fundamentals are as bearish as they only can be. It looks like S&P 500 index had negative earnings in the first quarter. If so, it would be the first time since times unknown. There are some positive surprises, mostly from tech companies. But they happen after multiple downgrades and don't compare favorably with year ago quarters. Bank earnings don't tell me anything, because with all accounting changes you can't compare this quarter earnings with the last year. So fundies are bearish.

Again, who cares about fundamentals in technical market? This rally looks good so far and I'm not selling anything until Dow breaks down through 13 days MA. Next support levels are 8000 and 7500. If it retraces below 7500, we can get to March lows or even lower. I think that we had a bottom in March, but you never know until it's too late. On the way up, rally has one height to take: 200 days MA. But it's way too high from now and I don't think we'll get there without some dips.

I Am Back

I am back from vacation. Extremely pleased by continuing rally. Keep watching, new articles are coming soon...

See You In a Week

I'm out for a week. Will return on 13.

So, Jim, It Is (Has Been) Depression After All?

Jim Cramer came clear today on CNBC. Both in "Stop Trading!" and "Mad Money". We are in depression. He actually said that we have been in depression, but I'm not that sure. Even if we had the bottom of the stock market in March. Thing is, during previous depression, bottom was reached 1932, but Great Depression was going on for several years more.

But this is not about nuances. This is about a role of a journalist. Jim just confirmed that he lied to us on TV since September 2007. Every time he said "depression is off the table", every time he called current time "recession" he lied. He thought one thing and told us another.

I already wrote here that it's no business of a journalist to try to form opinions. Journalist should report facts and if he wishes, his interpretation of facts. If he knows something related to his reports, if he can prove or at least argue it, it's his duty to report it. The only exception is somebody's personal life, although there are a lot of reporters who don't care about people's privacy. But this is an event of the century. And one of the best in the business refuses to tell us exactly what he thinks about it.

Jim, this is not acceptable. You made mockery of journalism. I don't care that correct information can scare somebody. For every scared person there would be at least one who can make correct conclusions. Politicians are listening to you, correct definition could've made them act faster.

Dow Rally: New Milestone

On April 1 Dow Jones index reached new milestone: 13 days moving average crossed over 50 days moving average. And this is not Fool's day joke. This is an extremely bullish signal. Again, I am sure that this rally can continue while Dow is over 13 days MA. Why Dow? I don't know. Of course, S&P 500 is much more representative, and Nasdaq 100 looks more bullish this year. But in the last 18 months Dow technical indicators have been showing market direction much better.