Saturday, July 18, 2009

The Forest Through the Trees

It's hard to see sometimes, especially when banks that needed backstops of over $100 billion continue to report billions of dollars in profits. I was hoping for one more market dump on Monday to get out of our FAZ calls with a small gain and reset after this bogus earnings season, but Meredith Whitney trumped me by turning GS bull on Monday morning. We knew the fix was in when she appeared on CNBC, something any bear has been loath to do. Wonder is she had any heads up from the inside as her estimates were by far the most accurate, and over $1/share higher than the average?

While the market was raging higher this week, we were presented with a golden goose in the form of CIT. But while I was busy putting on a JPM hedge that earned 10% in 2 days (late to this party as well), CIT was busy going bankrupt. Around 2:50 on Wednesday, shares were halted at $1.64. They opened again on Thursday at .40, only to hit .90 at one point yesterday. But $1 puts purchased on Wed. for .05 went to near .70 on Thursday, not bad for a days work if you had the courage. I was too entranced by the 250-point run up to put my money down.

Despite the market's rapid rise this week, only GS really rose after actual earnings. One-time gains from tax credits and huge loss reserves didn't seem to sooth most investors. Only GS' ridiculous gains from being the only game in town were considered legit, if not criminal. It was nice to see an op-ed by Krugman yesterday on the back of last week's Taibbi article condemning Goldman as a profit-machine benefitting not only from implicit government guarantees, but the demise of the American financial system. Even CNBC's on-air editor Charlie Gasparino (who was quickly pushed off-air) said that GS' ability to make money like this, given the money they sought from the govt., is obscene. He reminded us that he was there in September, and that GS was indeed one day away from going bankrupt with everybody else.

If there's one phrase I hate from the MSM stockpickers, it's "don't fight the tape." With that said, who knows what kind of catapult or trap-door the rest of earnings season holds? I've already made my short bets, will look to hedge next week with SSO or SPY out-of-the-money calls.

1 comment:

Michael said...

Adam,

This week just showed a market trading within the trading range it has established for itself over the past ~100 days (3 1/2 months).
Yes, it went from close to the bottom of the trading range to close to the top of the range in 4 days. But unless it can definitively break out of this range in the next few days (and I would be that it can't) then we will be range bonund for another month or two.
Boring. But there is a lot of money to be made if you pick the right stocks near the top or bottoms of their ranges and ride them (or preferably their options) from the top to the bottoms of their ranges.
Happy trading to you and yours.