Watch List

I should probably clarify that this watch list is very unofficial and just a collaboration of names ISYN thinks are worth watching. While the returns from open to close are realistic what happens in between is not. For instance SKF and SRS nearly hit 300 prior to coming back down and becoming profitable. That means the watch list position would have been in the red by 75/share which ISYN would not actually allow to happen because cutting your losses is essential (mental and/or real stops). Take this list for what it is, a forum for idea generation. Enjoy your turkey and pie!

 

If only it were as simple as ABC…

Interlude: For The Permabears

Break

With the exception of a couple posts here and there ISYN will be taking a short term hiatus – about three weeks or so. Please enjoy the rally.

It’s Time….

Don’t lose sight of the bigger picture…. it’s easy to get caught up in the daily fear. Check out this S&P monthly chart, the same one I keep posting with updates. We are severely overextended on the downside here.

S&P 500 Monthly

We’ve got to push it to the limit… all Bulls on deck – prepare to fire

Update

This is ISYN’s updated watch list for opportunities. Getting crushed in the long names.

Epic Short Opportunity

Check out the charts. This is a great time to short these two names if you believe a rally is on the close horizon. Never make an investment based on what you read here – do your own research! These are now part of the watch list as of the close today.

SKF - Ultrashort Financials

 

SRS - Ultrashort Real Estate

The Big PAYBACK

The bears are coming up on some serious PAYBACK…

As admitted before, I was early on my bullish call by 10% or so. Even so I’m more bullish now than I’ve ever been. While I know it’s rare to see this I won’t change my forecast simply because it’s gotten to the point where it’s easier to do so. I made the bullish forecast statement and with an open mind I stand firm. There has been nothing new that would justify a change of my view. I’m going to lay out the reasoning in support of my decision again and as often as I have to to reaffirm my views.

• There’s hundreds of billions (if not trillions) on the sidelines begging to be put in the game once the game doesn’t look so bleak
• The VIX has been at elevated levels for an extended period of time (see HERE for an article and below for a chart)
• Governments across the globe have been pumping money into the financial markets to boost liquidity as never seen before (we’re talking trillions people)
• Commodity prices (input prices) have come down drastically which makes it cheaper for firms to produce while widening profit margins
• Investors/Large Fund Managers have gone into cash… they’ve thrown in the towel for 2008. I suspect it’s because they’d rather close down shop and reopen with a fresh high water mark in 2009. Doesn’t make sense to start off 2009 at -30% when you won’t earn money until you exceed the difference and then some. When 2009 begins watch as everyone reopens positions so they #1- can invest their funds and #2-don’t miss the boat.
• Fear remains but it has transitioned into ‘giving up’ recently. When everyone starts to give up it means they’ve entered the final stage of the Bubble process – DESPAIR. See the chart directly below for further insight. This to me is the best sign… all the stock market truly is is the collective flow of personal sentiments. If you can frontrun the sentiment flows you will win. When there’s few if any high quality forward-looking reasons that are good enough to justify the risk of putting further negative pressure on the markets then we get an inverted slingshot effect. Especially when we’ve enjoyed three significant, consecutive months of sell offs.

While there’s plenty of trouble for the economy going forward I don’t see it causing the detriment of the financial markets. The main risks I see are the government screwing up or a Black Swan event. Other than that ISYN believes the game is about to be played and if you’re on the bench looking at the grass or the girls you’re going to miss some of the victory.

VIX

S&P 500

Front Porch BULLspittin’

A couple of things to consider.

I will remain bullish unless the S&P 500 breaks 800 on a monthly close. ISYN expects a long overdue rally… and a violent one at that. There is a strong possibility that we retest the lows again within the first six months of 2009 (assuming 2002/2003 lows are the actual lows). Some anecdotal evidence has begun to emerge as television shows have started discussing the stock market and weakening economy – not CNBC shows, but regular ones. Analysts are coming out with absurd predictions much like GS did with their $200 per barrel oil forecast when oil was around $135. When analysts start going to the extremes it’s a solid sign of an inevitable and imminent trend reversal. Added to this extremism is that hedge funds have begun to throw in the towel on 2008… see HERE to review a BBerg article. Executives are also beginning to snap up shares at a rapid pace…. see HERE for article. While that indicator has not yielded excellent results recently I expect it will reap positively over the next 6-12 months.

There are some potentially severe risks associated with long positions here. If the autos don’t receive some form of aid it will destroy the economy and plunge us into a much longer and deeper recession. The package doesn’t have to be a bailout but something does have to happen. There is also an increased risk of a terrorist attack as our new president transitions into office. This is the period when we seem to be most vulnerable as a government. Global political tensions have been increasing as well due in part to the faltering global economy. The main concern I have is with the event nobody’s considered yet… something out of right field… a Black Swan of sorts. Despite all of the uncertainty ISYN remains bullish until I see something to change my mind. I’ve only become bullish as of October 22, or 955 on the S&P 500. I was definitely a bit early.

Sweet Vindication For One

Bubble Phases

Gio over at IBankCoin.com made a comment in his article “I Smell A Bull Trap” which got me to thinking. ISYN believes this is not a bull trap and here’s why:

I’m going to fast forward to Phases III and IV, Mania and Blow Off. New Paradigm was the whole “decoupling” belief that the world was no longer attached at the hip to the U.S. economic environment. Plain and simple they were quite wrong as we’re seeing still…. the global economy is slowing down and/or in a recession primarily due to events that began in the US. The subprime crisis hit and all the talking heads came out and said “Fear not! This shall be contained.” Hence the Denial stage as the market sold off and then rebounded Q407-Q108. During this time the majority of professionals began to believe it had been contained and things had returned to somewhat Normalcy following the selloff. The Bull Trap had been set. Then came the Fear as global economics and financial markets began to gain downward momentum on worse data and announcements. Credit markets seized up tighter and then came the Fall of 2008. September, October, and the beginning of November saw absolute Fear and Capitulation as hedge funds went bust or simply shut down to reopen next year. Redemptions ran rampant from mutual funds and hedge funds alike as hundreds of billions of dollars had been pulled out the financial markets for the short term (it’s going to come back in eventually and it’s going to have to chase the bulls up). ISYN believes we’re in the Despair phase as individual investors, 401k participants, wealth managers, hedge fund managers, and mutual fund managers have lost all trust in the markets. This is ESSENTIAL to the bottoming process. The goal is to start accumulating assets when everyone else is simply disgusted with them. Buy low, sell high ring a bell? From my own experiences I’ve been hearing stories of clients who “just don’t want to deal with it anymore” and want to go to cash for six months. They’ve given up. They’ve essentially thrown up their hands and quit for the time being – that is the essence of desperation. When everyone’s been doing the same thing for a relatively long time (whether by time periods or severity) you should do the opposite. This holds especially true in the financial markets.

 

Here are a couple comments debating this idea and ISYN’s response – figured I’d keep the conversation going.

1. SatanicChihuahua Says:
   Good points. But I dont we can have a new bull market without robust credit creation.

   The big banks got TARPed $25B each, and since then they’ve lost 30%-60% of their value in less than two months. That’s important because the rapid selloff comes so late in the crisis and AFTER so much monetary and fiscal intervention. While it does have a capitulatory feel to it, the only reason I can imagine why investors would take them down this hard so late in the crisis and after a big injection of capital by the government is they’ve learned about some some new, very nasty shit that needs discounted. I don’t know what the nasty shit is that they’ve suddenly decided to discount over the past few weeks, but I’d bet a hamburger that whatever it is will cause the banks to keep their sphincters tight and continue to restrain lending.

   Also, per the Merrill Lynch High Yield index, option adjusted high yield credit sreads are an unbelievably high +1600. While down a few basis points from their all time highs this past October, they are way wider than the previous peaks of about +1100 that were reached during the 1990 LBO bust and the tech bust equity low in Oct. ‘02. So, the point is that at +1600, the high yield new issuance market is effecitvely closed and will remain closed until spreads tighten to levels where it is economically viable for issuers to come to market. That won’t happen until actual defaults spike and begin to approach levels implied by current pricing in the high yield market.

   The bottom line is that IMO, you can’t get a new bull without robust credit creation and the action in the banks and the high yield new issuance market suggest to me that is still many months away. We may have a decent rally for a few weeks or even a couple of months after today’s round of profit taking, but I’d bet a cheeseburger we make another trip down to at least test the lows again.

   Sorry for the long post.

   November 14th, 2008 at 11:37 am e    +0

2. Gio Says:
   Hey, glad you analyzed this chart. You did a good job in attaching recent trader psychology to this chart and I’m certainly with you on red october. However, Given that the bull rally from 2003-2007 was so huge, I think you have to extend the “mania phase” of this chart, and therefore extend the blow off phase, in particular the denial and fear stages. but i gotta admit, a lot of stocks out there are amazingly emulating this famous chart (see HANS, GRMN, CROCS, VMW, too many). maybe when the old leaders like AAPL, GOOG, and CME hit capitulation then we will be further down the blow off phase.

   November 14th, 2008 at 11:39 am e    +0

3. IShortYouNot Says:
   SmallDog and Gio,

   Solid points and well taken.

   SmallDog (yes I’m too lazy to type your stated name even though I’m selectively lazy and willing to type out this entire sentence explaining it), you’re correct on the credit markets. They are the economy’s blood and without blood the body stops working/growing. However there has been such massive global stimulus (blood transfusions) that I suspect while it may take a little bit of time to flood the global economy (veins) with this blood, it is certainly making its way through the system, albeit at a trickle a minute. Odds of us retesting after the new year? Pretty good, but in terms of a several week to several month rally I’m convinced. Especially since it’s the inflection points where the most efficient money is made and everyone I speak to or know of that doesn’t daytrade is terrified and sick and tired of this market – they’ve all but given up and many have given up.

   Gio – I view the chart as emotionally proportional regardless of size and scope of various Phases. It’s not drawn to scale but rather represents sentiment flows over time that follow that pattern whether it be a very short term thing (think of Crocs or any other fad) or the longer term stock market. As such I base my views of our progress along the curve on the emotional flows in the market and not on relative time or nominal changes in value. It’s as subjective as it gets but that’s the beauty of inefficient markets – if you figure out the change in sentiment before others you’ll recognize the benefit of their chasing to catch up. I measure the flows based on personal anecdotes in everyday life. Hope that made some kind of sense.

S&P Holds 850!

Yesterday the S&P 500 held the line it needed to on a technical basis (850). This was key for those that follow tech analysis and could represent the temporary shifting of fear back to greed. The 4th quarter is typically a good one for stocks (excluding October) and I expect the market is looking for some relief following the drastic declines from the past 2.5 months. Below is a chart showing the S&P 500 holding the 850 line.

Also, refer back to THIS POST to examine ISYN’s expected November outcomes….

Here’s a graphic from that post showing what has become an increasingly probably scenario. Pay closer attention to the bottom of the graphic where it shows ISYN’s expected November outcome on the candles.

On a side note, due to my lack of knowledge with blogs if you’d like to be updated with new posts please email GrandSynergy@gmail.com.

Interlude: Vengeance of the Bulls

Bears were correct up until today when we nearly broached 800 on the S&P…. that’s the 2003 resistance level which I consider to be the bottom for this market going forward. It would seem people jumped ahead of hitting 800 in anticipation and caused an abrupt about-face to the north. Here is a visual rendering of what occurred to bears at that point in time, then again as the market rallied after a fade.

TNA

One of the best mantras I’ve heard is “it’s not the size of the dog in the fight, it’s the size of the fight in the dog”. Hence I introduce to those of you who have yet to hear the 3x Leverage Small Cap ETF (TNA). Very new on the scene this puppy is a volatile name that tracks, on a daily basis, three times the performance of the Russell 2000. If you expect a rally in this market TNA is not a bad place to be.

Do your own research and never make investments/trades based on what you read on ISYN. Always assume I’m biased on a direct or indirect basis.

 

 

I’m betting these fellas could use some TNA…

As The Market Turns…

Just a follow up on yesterday’s post…

Here’s the S&P 500

Here’s the VIX and the line’s been broken

This is going to be a defining couple of days. If the market closes down below 850 we’re in for some trouble. Market wants to bounce but the problem is there’s a ton of money on the sidelines waiting for 2009 to re-open funds and reapply capital, etc. Why maintain a highwater mark instead of starting fresh? Integrity? What’s that?

November S&P Outcomes

The S&P 500 has seen a 30% decline in just over 2.5 months of trading sessions (as a heads up the written figures in the chart are approximations and for these purposes don’t require great accuracy). ISYN proposes three probable outcomes for the remainder of November.

1: S&P declines further on a bankruptcy or something unexpected – max downside approximately 10%.

2: S&P sees moderate rally from the ~900 level and closes around 950.

3: S&P receives whatever minor excuse it needs to rally through the end of November and it finishes up (1,000 – 1,050 range).

Given these outcomes ISYN expects a 66% chance of a rally into month end. I’ve been quite bullish over the past few weeks and as such I’ve also been quite wrong. One of the largest difficulties with the stock market is that being early can be just as disasterous as being completely wrong. However I stand with the bulls on this one as I have not seen anything to warrant the changing of my view. ISYN thinks the market is tired of being sold, tired of the negativity, and now is like a drunk guy with a loaded shotgun – it’s just waiting for an excuse….. to rally.

S&P 500

OR like an old lady aiming for your “toodles”

**UPDATE**

EXTREMELY BULLISH AT S&P 850

Interlude: Your Worth

Everybody enjoys a little Rocky Balboa… plus a message everyone benefits from.

VIX update

Despite mounting pressure to subscribe to the alternate view I’m still bullish through Thanksgiving. Nothing has given me reason enough to believe market sentiment will flow to the downside in November after so much brutality in October.

VIX chart below is breaking through/coming up against resistance. ISYN expects one of two things: a slingshot higher or a breakdown resulting in a rally. I’m leaning more toward a breakdown even if it closes above resistance. This should result from positive sentiment flow in the equity market. If you’re going to be long to Thanksgiving now is a good time to enter/add to a position. However due to the situation I would include a hedge… new triple leveraged ETFs are out which could service that need. Check out BGZ (Direxion Large Cap Bearish ETF).

Look to GM for a bailout – if it happens the market will rally. The amount of job losses from a GM bankruptcy would be a massive negative for an already struggling economy.

-ISYN

BUY BUY BUY

VIX is coming up against strong resistance after two days of intense selling pressure (see chart below). This is a strong bearish pattern with three spikes higher, each on successively more of an increase above the prior with a sharp sell off followed by the retest of the moving average as resistance. It’s highly doubtful that the market sentiment will become so negative tomorrow that the VIX two day trend will continue further. IF the employment number is horrendous expect to see significant resistance in the 70 area although I don’t believe we’ll break through our current moving average resistance. The sell off was healthy seeing as how we’d rallied ~18% in six trading sessions prior to it. Feeling very confident even with jobs number coming out tomorrow – so much hype over it already.

VIX

This is what the bears have to look forward to tomorrow…

Talkin’ To Ya, Ms. Market

There’s just something about the way she drops 500 points in a day….mm mm mmm and still I’m bullish.

ISYN is still on board for the rally through Thanksgiving. While it’s difficult to do so one needs to be convicted in their belief/projection while maintaining a completely open mind…otherwise you’ll end up spending your investment life chasing a wave instead of riding it. One of the key lessons I’ve learned is to check your ego at the door because there’s no room for it in the marketplace. The phrase “he who exalts himself shall be humbled” rings true. I’m not claiming I can predict with any certainty the direction of the market but I use what tools/signals are available at the time to make an educated guesstimate of market sentiment and the flow of that sentiment. ISYN is bullish right now but it only takes one kink in a hose to shut off the water flow – thus a bullish rally may also be turned off.

Employment numbers on Friday should cause a big fluctuation up or down so it may be a good idea to throw in a minor/major hedge if you’re long or short.

S&P 500

S&P 500 To Thanksgiving

This is not the sort of beginning to a rally following a double bottom characterized by a rapid slap in the face correction. This is one significant rally followed by several days of clawing higher incrementally. This is the real deal people… ISYN would be staying long (holding stocks) to Thanksgiving from here. Check out ISYN’s watch list a post or two the right of this one for some of the names that interest us.

S&P 500

If the bulls angry and motivated stay out of it’s way…. or you bears will lose your pants like this guy

Republicans – Fret Not

There’s no point in my talking to the Democrats right now because they’re all awash in the sweetness of a probable victory. However you Republicans should understand that there is a potential silver lining that comes with this victory.

Typically the stock market has averaged twice the gains during Democrat presidencies versus Republican presidencies (this excludes Hoover). Check THIS OUT to see a visual chart.

While I typically lean a bit toward the conservative side ISYN always enjoy good, solid stock market returns.

November/Interlude

As a heads up November is going to be a light month of posting due to the rapidly-approaching CFA exam. ISYN has to get his study on in a serious way. I’ll be posting intermittently and will come up with a few ideas here and there. In the meantime enjoy the interludes and check out IBankCoin.com and DealBreaker.com.

Watch List Update: CIEN

Do your own research prior to making any investment decisions. Always assume that ISYN is biased with its analysis by way of direct or indirect ownership.

CIEN is being removed from the watch list today and ISYN will use the closing price to calculate the G/L from the transaction. CIEN is being removed because ISYN believes there are better opportunities in better industries to exploit.

Interlude: Freedom

The market’s crying out to break free from the bear market….