Subprime crisis

Some of the largest banks across the world have encountered huge losses by having exposure to the subprime crisis. The crisis doesn't seem to have any end in sight as more and more banks uncover their exposures. Bear Sterns was on the verge of collapse, if it was not for the FED-JPM rescue.
Last Tuesday, UBS unveiled another $19 billion in losses amounting to a total of $37 billion loss in subprime.
UBS tops the list of subprime losses with $37 billion followed by Merill Lynch with $25.1 billion. Citigroup comes third with $23.9 followed by HSBC with $12.4 billion.

Article on New York Times. Click on chart on left hand side that lists current losses per bank.

Even though financial stocks are rallying for the past few weeks, remember to unwind your positions as S&P 500 nears 1400 level. We will going back and breaking the lows set in Jan & March 2008.

MON and other AGA stocks broke out

MON staged a breakout of this downtrend channel. All AGA stocks posted a nice breakout following this news:
April 3 (Bloomberg) -- Rice climbed to a record on speculation the 3 percent annual increase in global demand for cereals will outstrip supply as governments curb exports to prevent shortages.

MON earnings

MON reported earnings of $1.79. The expectation was for $1.72. Previous year-ago EPS was at $0.99.
Basically beat earnings.

Reaction to the numbers was not very good. This usually happens when expectations are high.
Bottom line:- On the Chart, you see it is in a downtrend channel. The channel should be broken out of to have any momentum. Till then, this stock will travel to the bottom of channel.
Good Luck !

Chart of S&P 500 with Elliott wave counts

This chart has served me well over the past few months with very few modifications. Counted the Elliott waves for S&P 500.
Note we have completed the A wave and now are in a counter-trend B wave. You don't want to be in a short mode during the B wave. We need to complete a small down wave in the B wave before completing the final upleg in the B wave. After that we should be having a trending C-wave which will follow the same direction as the A wave. Where the C-wave begins is a big question. But looking at the chart, it seems we should start it somehwere in 1400-1420 level.

Dry Bulk Shipper Stocks Outlook

I believe we are in a simple downtrend in all the shipper stocks. Any good bounce to trendlines should be shorted. I think DRYS will be heading to 40s or even lower. Just as we have been seeing disassociation between GLD and gold stocks 1-2 years back, we are seeing the same behavior in BDI and shipping stocks.
GLD and gold stocks are in the same place (higher correlation) this year as BDI and shipping were in 2007.

As far as EW is concerned the B-waves were completed in late Feb on shipping stocks and now we are working on C-wave.

In terms of fundamentals, I think shipping stocks are dependant on world economy and the amount of infrastructure build out in India and China. There is a massive buildout in the second tier cities in India and Olympics has helped China's buildout. So, more steel, coal and raw materials will be transported to these countries from natural resource countries such as Brazil, Australia etc. From a long-term perspective, yes the fundamentals are in place for future rate increases. But what is affecting these stocks is Sentiment. The sentiment that as US slows, the emerging countries will slow down. If US is or would get in a deep recession, then the buildouts will be slower.

2008 Top Sectors & Stocks

I have been analyzing the market very closely over the past one month to find new leaders. The old leaders of 2007 will not be the leaders in 2008.

So, here are the top sectors and stocks to trade/invest in 2008:

1. Steel and Metal stocks: SID, MTL
2. Coal Stocks: FDG
3. Gold and Silver stocks: GLD-ETF
4. Other Commodity related stocks: FLS, BUCY, CMP, KWK

• Companhia Siderurgica Nacional (CSN) is a fully integrated steel producer in Brazil. The Company produces carbon steel, and also sells a variety of steel products. Its products are sold both domestically and abroad as a main raw material for several different manufacturing industries, including the automotive, home appliance, packaging, construction and steel processing industries.
• Mechel OAO (Stal’naya gruppa Mechel OAO or Mechel Steel Group ОJSC) is a Russia-based integrated mining and steel company.
• Fording Canadian Coal Trust (the Trust) is an open-ended mutual fund trust.
• StreetTRACKS Gold Trust (the Trust) is an investment trust. The Trust holds gold and from time to time issues streetTRACKS Gold Shares (Shares) in blocks of 100,000 Shares (Baskets) in exchange for deposits of gold and distributes gold in connection with redemptions of Baskets
• Bucyrus International, Inc. designs, manufactures and markets draglines, electric mining shovels and rotary blasthole drills (collectively, machines) used for surface mining, and provide the aftermarket replacement parts and service for these machines. The Company’s equipment is primarily used by companies engaged in surface mining for a range of commodities.
• Compass Minerals International, Inc. (Compass) is a salt producer in North America and the United Kingdom.
• Flowserve Corporation (Flowserve) is a manufacturer and aftermarket service provider of flow control systems.
• Quicksilver Resources Inc. (Quicksilver) is an independent oil and gas company. The Company is primarily engaged in the development, exploitation, exploration, acquisition and production and sale of natural gas, natural gas liquids (NGLs) and crude oil.

Tech was the leader in 2007 but this year is a big laggard. That has to do with the increase in chances of a recession. Following Friday's job numbers that reported a loss of 63,000 jobs, the chances of a recession are now even higher.

If you carefully go over the stocks and sectors that I mentioned, you would observe that I have listed only commodity related stocks. With the dollar weakening and setting new lows, commodities converted back to dollars are setting new highs. Oil above $100 and Gold near $1000 are good indications of this phenomenon. Also, most of the companies mentioned above have a lot of international exposure. More international revenues when converted to Dollars directly correlate to more revenues.
I have purposefully left out Agriculture leaders of 2007 viz. MOS, CF POT etc as on a TA basis, they seem to be in a no-man's land. I would like to watch their action over the next couple of weeks before adding thme to this list.

All these companies in the above list have excellent balance sheets and are fundamentally sound. The TA setups are also great pointing to great performances in 2008.

Homebuilder rally- New trend or not ?

Watch any homebuilder stock for the month of January. They have all rallied atleast 50%. Right now all the money flow has been going to these names.
The homebuilder index XHB ETF by itself has completed a 50% move. It has also broken an important downtrend line. Check chart of Hovnanian homes- HOV. This stock has rallied a massive 106%. Other residential home stocks like CHCI, MHO, PHM have rallied more than 70%.

These rallies have been fueled by the FED emergency cut of 0.75 and last week's additional cut of another 0.50.

Honestly, I completely missed these rallies. But no worries, remember there are always retracements to Fibonacci levels. I will be closely watching to see if this move can be sustained or if it was just a one-month wonder and short covering rally.

In stark contrast, check the cover of Business Week. It talks about further meltdown in the Housing market ;)