Well......
"Goldman analyst William Tanona said Citigroup and Merrill Lynch may be forced to take writedowns of $8.9 billion and $4.2 billion, respectively, and raise additional capital. He also added Citigroup to Goldman's "Americas conviction sell" list." From cnbc.com
Looks like I was right to add in Citigroup last week =D. But I am actually quite disappointed with the oversight of Merrill Lynch on my part. I shouldn't have stuck on with Lehman with a "till death do we part" mentality, after all Lehman already had announced most of its bad news. It makes more logicial sense to move on to other firms. Lesson learnt.
Recap of the week
1. It was said that we have reached the brink of a bear market. Usually they define a 20% decline as a bear market condition. We are very to close it.
2. The Dow Jones industrial average finished the week down 4.2 percent, while the Standard & Poor's 500 Index slid 3 percent, and the Nasdaq Composite Index dropped 3.8 percent.
3. Oil has broken $140 and stayed above it! This is very important.
4. Well, everything was down. LOL
For a detailed recap, you can click here.
Er... are we doomed?
YES.
I have already said, there is no reason for you to be holding any stocks. Either you short with me or you stay in cash. Like I have mentioned many times over before, everything falls in a bear market, and that includes rock solid stocks like Coca-Cola and Procter & Gamble.
You don't want to be hoping for a bear market rally, deceiving yourself and putting yourself in a self-denial mode. Things will not get better and next week could be even worse. I hope I have knocked some sense into your mind. Hoping is the BIGGEST taboo in the stock market.
The Dollar for Next Week
Again, our focus is on the dollar. Fed didn't help the dollar on wednesday which was expected. To make the matter worse, next week ECB is announcing it's rate decision.
1. Chart wise, the dollar is in a two black crow formation. We should be seeing a complete three black crow easily. I can't find any positive things for the dollar.
2. We have ECB's decision on 3 July. I don't think the ECB will hold their rates. They are more keen to fight inflation than the Fed. I don't blame the Fed also after all, it is a very delicate situation. But a rate hike is definitely in play, some of you may argue that a rate hike is already priced in and the Euro may not appreciate that much again the dollar because of growth issue in the Europe's economy.
Bad news will be amplified in a bear market. After all, it is the first time that they will raise it since July 2007. There could be excuses or speculations that they will raise it further for months to come.
3. I believe we will re-test the $1.6 dollar/euro level again or index of about 71.5 on the dollar.
In conclusion, weaker dollar = higher oil price = more downfall in the market. I think oil going towards $150 is really a no-brainer thing right now. Alternatively, if you are uncomfortable with oil, buy Gold. Marc Faber, aka Dr Doom, one of my best friends (I seem to have many best friend lol), also believe that you should be buying gold. You can read it here.
My opinion on the market hasn't changed. Don't find me too naggy. I think you should be doing the following:
1. Long oil.
2. Long gold if you are not going long on oil.
3. Short anything (alright slightly more/overweight on financials)
4. If you don't wish to do No.3, remember this - CASH IS KING.
5. Ignore those unethical analysts that tell you to buy and hold. They are probably selling while you are buying.
Market Outlook
Everything remains the same. Just want to have some confirmation about the situation for next week. Dollar should be on its way down, so oil will approach $150. This means that we are going to officially going into a bear market. DJI is in a two black crow, which is pretty much similar to the dollar. To make things worse, it broke the previous low of 11500 and closed below it. Next week is a short week because of Independence day. If my memory doesn't fail me, the last time we had a short week during Jan, there were plenty of panic selling for no reason. This time we have some strong reasons actually.Will Fed have an emergency meeting and raise rate if there is a panic selling and we see ugly pictures like DJI futures down 400 points? lol who knows.
Some Gut Feeling
Everyone is probably asking this themselves, "How low can we go?"
No historical data matches what we are seeing right now, prices are off the charts which render technical analysis useless. RBS said that S&P would fall 300 points which makes it holding at the 1000 level.
My theory is a bit fuzzy. I believe that whatever you take away from the Mr. Market, he will eventually take it back from you. Of course, there will be some smart ones that retain most of the money.
So I look back at when and where the bull market actually takes off. My conclusion is S&P at 1100 and DJI at 10000 in mid 2004. For STI it is actually about 2400. I will probably do some more research to justify this.
Stocks that I shorted
Because my stand for these shorts are for months. So I shall have this section every week to see how I have performed.
Name Price shorted Current price % change
Lehman Bros. $24.15 $22.25 -7.87
General Motors $13.99 $11.55 -17.44
AMR $6.22 $5.35 -13.99
Citigroup $19.40 $17.25 -11.08
*Fannie Mae $21.51 $20.80 -3.30
*AIG $27.82 $27.75 -0.25
*Stocks shorted on Wednesday.
I never short any Singapore stocks because the market is boring in the day. But I will short them if I can actually so I will make another table for those stocks as well. Remember, we want to short the property stocks and SGX. I have decided to drop off the banks because I think it is pointless to cover so many stocks.
SGX $7.16 $6.92 -3.35
Capitaland $5.85 $5.59 -4.44
CityDev $10.20 $10.82 +6.07 =(
Actually, when I look back at the STI components there is one more stock that is pretty interesting - Yanlord. It is a china/property stock. What a combo that is. It drops off 5% this week and I think it's kinda cheating if I add it in as well.
I think I am shorting too much (lol), so I shall show my long positions as well - oil and gold. I am positive on them long ago so it is not really based on hindsight.
Price bought Current price $ change
Oil $135.15 $140.21 $5.06
gold $884.80 $929.30 $28.50
Have a nice ride next week. Ciao
I’ve got friends, of course, but my business has always been the same – a one-man affair. That is why I have always played a lone hand.
Jesse Livermore
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