Bookkeeping: Starting Ultra Financial (UYG)
Impressive bounce off that 1260 level on the S&P. Like a magnet the market bounced to S&P 1275.... (thanks PPT) and away we go to 1280s. Reader Shax is happy and smug somewhere in Asia with his 100% long exposure. I just cannot see a break through that 1260 on the first attempt with all the King's Horses and all the King's Men here to socialize the market, all over again. They have charts too and realize how important this level is. It's going to take repeated attempts I believe, to break through their purchasing power.
Frankly at this point we have 2 outcomes (a) crash i.e. a 10% drop in the markets (June) followed by even more rampant selling layered on top or (b) an oversold bounce.
I wrote last week I was done for now with Ultrashort Financial (SKF) as the risk/reward started pushing towards risk (of reversal). [Jun 26: Cutting Ultrashort Financial to Nearly 0] And I still believe that, short of a crash scenario. I did not catch the top as we sold the last piece at $146 and today we're at $155 - that's ok, we probably were buying it when everyone believed the "2nd half recovery" story and it was trading in the $90s.
I also wrote in that piece
For a short term trade only (I reserve up to about 10% of the fund for shorter term actions) I'm eying Ultra (long) Financial (UYG) - but not yet.
At the time UYG was north of $22 and now its near $20. So I'm going to take a gander into this one and begin a stake here just north of that $20. This will obviously be a trade and not long term hold, but perhaps we can get a $23-$24 range if we get a VERY overdue oversold rally. Or at the very least that rotation from best of breed to junk that happens every 6-10 weeks. We are also VERY overdue in that department - granted it is hard to buy items simply on "they are due to have shorts cover their positions" and that's all this trade really is. This is the proverbial falling knife with zero support but I actually believe the risk/reward is more on my side - at this point I am not sure who is left to sell financials... and when they bounce there will be a lot of short covering to help them along. Ultra Financial (UYG) is a 3.7% stake.
We'll switch back to SKF exposure on any meaningful bounce....
Again a "crash" would make any long position moot, but that's an outlier probability - not something to count on, so hard to build a portfolio based on an assumption something that happens every 15-20 years is going to happen this or next week. But I do think Thursday's unemployment report will push us strongly either up or down - so we'll either have a potential crack through that support we've been bouncing along the past few days or our oversold bounce...
Long Ultra Financial, Ultrashort Finanical in fund; long Ultra Financial in personal account
4 comments:
Are you betting on a financial recovery or just a short term trade on this. What do you think of JPM? I had it for a while and sold it yesterday.
Hi,
Don't know how long you were in the market but I think financials are where technology was in late 2000/early 2001. You will get large oversold bounces along the way, but its going to be years of issues. And many will never get to old highs. But that does not mean you can make money on the long side in the interim. It will just have to be in smaller time frames and/or you have to be extremely selective.
All these times the banks raise capital that is a fancy way to say "we are selling a ton of shares to dilute our current shareholders"
Therefore their earnings PER share will be suffering for ages. So even if they could make the same amount of money as they used to, its spread over many more shares. And we're nowhere near the time they will make the same amount of money as they used to. Right now we are working through the credit crisis - there is almost nothing really discussed in terms of recession and faltering consumer loans (ex mortgages).
So I believe it will be many years in fact - but the winners will take market share (Goldman is already doing it on the investment banking side) and JPM is one of the best of the bunch in the money center side.
For me, this is a trade to try to squeeze some return out - I'll be back to SKF (the short) in due time. Probably building the position up when we begin the drumbeat of "1st half 2009" recovery :)
U ever think of the regional bank iShares ETF (IAT)? I got burned playing the marked w/QID in March but also bought UYG before the bell today. Let's hope for 10% pop
Nomar, no
I believe the Federal Reserve will provide backstop to the big banks but let some of the regionals fail so I am not that interested in them. Although they will all bounce together.
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