Top Line: The market tried one more day of rally and this might be the last effort in this up move. The over zealous buyers in the NASDAQ just couldn't buy fast enough leaving the blue chips to lag on Wednesday. This is a dangerous sign that the up move is Over.
To us it doesn't seem worthwhile to discuss much about the day's trading because we think tomorrow's trading should be much more interesting. The stock market, at least in terms of the NASDAQ, seems to have put in a high for the move which means that we should be headed into the strong down move that should follow.
We marvel at the market advancing for these last two days and just wonder what these buyers are thinking. Some of them, it would seem, are merely covering short positions they couldn't hold for one reason or another. Others, caught up in the "This is Definitely thE Bottom" thinking, just want to make a quick trade.
And, then after the close AIG announced their latest bombshell, a $5.36 Billion loss in the latest quarter due to writedowns tied to the, say it with me, Housing slump. For our colleagues at American General Finance, we see the article discusses the Wilmington Finance mortgage business:
"AIG's American General Finance lost $40 million as the home lender increased its allowance for loan losses and spent money to scale back its Wilmington Finance Inc. mortgage business. The unit earned a profit of $43 million in the same period a year earlier."
We continue to view AIG as a market leader, especially a financial sector leader. Right now the company has put up three negative quarters in a row with no current end in sight, something which should be coming to a financial company near you.
Speaking of financial companies having difficulty, we wanted to mention Freddie Mac this evening. FRE posted earnings, well not earnings at all, just losses, to the tune of $1.63 a share. This GSE does what again??? Right it makes money in the mortgage market, or again, just loses money in the mortgage market.
Fannie Mae (FNM) and FRE are poster children for the Wednesday Update's housing theme. These companies are essentially bankrupt, meaning they don't have any surplus on the balance sheet but they continue to do business because of their apparent government sponsorship. We don't want to spend much time here on this subject because we think we've sufficiently pounded it into the ground, but we will let someone else write that part. The article indicates that the new CEO thinks he can "time the stock sale" even after a little dividend cut:
"Freddie today slashed its dividend at least 80 percent, and Chief Executive Officer Richard Syron reiterated that the company wants to raise $5.5 billion in new capital, saying it is evaluating what the appropriate timing would be to do so."
How much does this guy Make???
Looking back over the past couple of weeks, we said some things that have actually turned out to be correct but we Didn't wait for them and ended up missing out on the good timing...great. As always we seem to jump the gun a little but we would rather be a little early than a little late.
The market decided it didn't want to actually be done with the upward correction and managed to prolong the move for another ten days longer than we anticipated. It is possible that the correction is still not over but today's action in the NASDAQ seems final even though it still may try a few more points on the upside.
In the end the Bear will win the battle and we will move into a severe down slope and we think that is upon us as early as tomorrow (Thursday to you). Yes, we had a thought it might have been last Friday morning after the jobs' report and then again right after the Fed's announcement on Tuesday. The market has held on and put in a new high for the move starting at the July lows, not in all our major indexes but some. This divergence seems to be important and we will watch to see if it is over the next few days.
FSI: 83.12 (good move but still nearly 10% off the July high)
VXO: 20.96 -1.09 (extraordinary, absolutely No fear left)
SDS: 65.25 -0.44 (down again)
QID: 41.67 -1.27 (that hurts)
Dow Industrials: 11,656.07 +40.30
Both Jackson and Grampa were trying to take a little nap.
Two pals :-)