Panda Bear Rally: They Eat the Green Shoots

The recent "banks need to sell shares" rally is a "Panda bear rally". Pandas like to eat the green shoots.

Most Oversold and Overbought Companies in the S&P 500 Index

Here is the list of most overbought and oversold companies in the S&P 500 index updated using prices as of May 13 EOD.

Most oversold by RSI7:



(please click to enlarge)

Most overbought by RSI7:

US Budget Deficit: $1.8T; Debt to GDP Ratio Hits Shocking 70%

US Budget deficits are projected in the trillions for years to come. Belows are two charts which represent this visually. Pictures are worth thousands of words - or trillions. Shocking numbers.

1. US Budget Deficits

2. US Debt to GDP Ratio

Debt to gdp ratio is closing in on an astronomical 70%.

Dr. Doom (Marc Faber) in Montreal: Bonds are the Short of the Century

Marc Faber, editor and publisher of the "Gloom, Boom, & Doom Report", was on BNN today (watch). Interestingly, he was in the Swiss national ski team in his youth, when he used to ski and drink a lot. He still skis but says it is not as fast as he used to (but he still drinks a lot in the business world).

Some of his points today:

- Sees US deficits in the trillions for decades to come.
- Government bonds are the "short of the century".
- The USD is a doomed currency, as are most other currencies who are just printing and printing.
- Oils and minerals will appreciate
- Should start to nibble on real estate
- Technology: strong companies (MSFT, INTC, Infosys) will take market sgare
- Markets right now need a correction
- Right now not the best buying opportunity

UCO Oil Straddle for June

Compared with recent months oil has been much more stable than it used to, and straddles are a little harder to come by. UCO is trading close to $10 making it ideal for a 9-11 June strangle or a 10-10 straddle. 9-11 is my preferred since there is lots of time to expiration. 10-10 is safer.

These are the maximum moves required computed with our StraddlesCalc tool.


9-11 Strangle:



10-10 Straddle:

Oil Contango Narrows: Bullish Sign

The oil contango continues to narrow. The table below shows the contango changes in June to December contracts between May 7 and today. On May 7 the difference June to October contracts it was $4.01, now is around $3.46:




USO:




Oil has gone up in great part due to the recent decline in the USD. Nevertheless, declining contango is a bullish sign.

Nortel Results for Q1 2009

Nortel has just reported its results for Q1 2009. The company has revenues of just over $1.7B. Q1 revenue per business unit (in $M):




The company made no announcements of specific sales of its divisions, but said that assessments (by 3rd parties/buyers) are ongoing. It also said that it is decentralizing its global and common operations, which makes it easier for each unit to become fully standalone, a clear indication that the sales of its business units are ongoing.

At 9:35PM shares are oscillating around Friday's closing price of $0.30. With sales of $1.7B in the quarter, there clear value here. High gain, high risk.

UPDATE 10AM: There was a dip to $0.23 which presented a great buying opportunity, price recovered to $0.26/$0.27.

S&P 500: 11 Oversold and 205 Overbought Companies

After the close on Friday, we now have 11 oversold companies whose RSI7 is under 30, and 205 overbought companies whose RSI7 is over 68. They are:

Oversold:



Overbought:



(please click to enlarge)


The most overbought company is GNW, Genworth Financial, with an RSI7 of 95.58. Its current price is $5.28. Chart:

Joseph Stiglitz (Nobel Prize): The System Based on Dollar is Falling to Pieces

In an article published today by O Estado de Sao Paulo, Joseph Stiglitz says that the crisis opens field for a new currency and that the system based on the dollar is falling to pieces.

Stiglitz says Brazil has space of maneuver in the monetary politics due its policy of high interests. Speaking in the Conferences of the Estoril, Stiglitz said that the Country is in capable of stimulating the economic growth by dropping interest rates. "A great advantage that Brazil has, curiously, is that the Central bank was excessively restrictive its monetary policy. One of the advantages to have high taxes of interest is that you can lowert them". In contrast, Europe and the United States do not have this possibility: "When it is arrives at zero, is has nowhere to go. Therefore, Brazil has space to maneuver in the monetary policy while the United States and the Europe do not" According to Stiglitz, Brazil has a privileged situation relative to the other countries because it can use exports as an impulse to leave the crisis.

"Brazil is one of the few cases where the recovery depends in some degree on the resumption of exports. But Brazil is a economy of great dimensions and exports have a relative weight."

Stiglitz believes that the crisis opens the way for the sprouting of a new international currency, with a global central bank. The proposal was formulated by the Chinese authorities. "The system based on the dollar is falling to pieces. I am the president of the commission of United Nations for the reform of the financial system and we are arguing the mechanisms through which this can happen."

He also said that the destruction of the subprime and derivatives market was a test of the idea that the market can regulate itself, and that it was a mistake. According to Stiglitz, another idea that did not work was of the economic darwinism: "They believed that there would be a natural selection, that the fittest would survive, but that was not what happen with American banks.

USO Rollover Report for May, Sharp Drop in Contango

ROLLOVER MAY REPORT

USO rollover for May ended yesterday, Friday May 8 2009. This is what happened with USO and UCO during the rollover days:



There was only one down day. There was, of interest, one major intra-day drop with big volume.
We would conclude at this point that there were no major efefcts of rollover this time around.


CONTANGO

Also of interest is that there was a further reduction in the contango between June and October contracts. The difference is now $3.26, down sharply from $4 yesterday. Note how all future months had a drop in price, while the front month of June saw an increase in price.






ROLLOVER CALENDAR

Here is the rollover calendar:



For reference, we reproduce the April and May effects.

April effects:



March effects:

Nortel Has Gone Parabolic, +25% on High Volume

This is a follow-up o our recent post on Nortel as a good speculative stock. Today the price has risen +25%, on high volume. The company will be reporting Monday.




Lunch money is on the house.

Last Day for USO Rollover, Watch the Dump

Today is the last of the 4 days of the monthly USO rollover of contracts. Yesterday this seems to have been accomplished by a rather large dump around 1PM-2PM:



We are watching carefully.

UPDATE 4:30PM:

The following chart shows what happened today. There does not seem to be any visible activity or effect due to rollover:



Activity for the last 5 days, 4 of which were rollover days:

Top 20 Global Banks by Market Capitalization: The Decline of American Banks & The Rise of Goldman Sachs

The Financial Times has a very interesting shockwave application showing how the top banks by market capitalization have changed for the last few years. You can clearly see the Goldman Sacks ascension and the decline of the American banks.

- In 2005 GS was ranked 19th out of the 20 largest. Today it is ranked 8th.
- In 2005 there were no Canadian or Brazilian banks in the top 20, today there are 4.
- In 2005 there were no Chinese banks, today there are 5.
- In 2005 there were 10 US banks in the top 20, today there are 3.

Please click on images to enlarge. $ shown are in Billions.


2005:



2006:



2007:



2008:



2009:

US Bank Stress Results: Read or Download Complete Document Here

The Bank Stress has been finally released by the Fed. You can download the entire document here or read it below.

10 U.S. banks need to raise a total of $74.6 billion in capital, whichChairman Ben S. Bernanke claims will "reassure investors about the soundness of the financial system"! No kidding.
The results showed that losses at the banks under “more adverse” economic conditions than most economists anticipate could total $599.2 billion over two years. Mortgage losses present the biggest part of the risk, at $185.5 billion. Trading accounts were the next highest risk, with potential losses of $99.3 billion.

You can scroll, zoom, flip through pages, right on the screen below.


Bank Stress

Publish at Scribd or explore others: Finance Business & Law

Natural Gas Report: Great Time to Get Out

If you are still invested in natural gas, today may be a great time for an exit. An injection of 95Bcf was reported today. The storage curve is still looking awful, numbers are significantly higher than last year and are touching the top of the 5-year channel:




BNN interviewed two natural gas experts today. One is slightly bullish (Ira Eckstein, Area International Trading) the other one, Randy Ollenberger from BMO, sees real danger of natural gas prices touching a $2 handle. Prices have run from $3 last week to over $4 today! You can watch the show Commodities Report here.

As of 1:01PM:

UPDATE: Current price at 3:20PM is now $4.12. Here are the 3-month and 1-year natural gas prices charts:

Most Overbought Stocks in the S&P500

Quick update, with prices as of EOD yesterday. Most overbought stocks by RSI7:

MEE 88.11132437
GCI 88.35313917
MTW 88.53878219
DIS 89.95185623
OMC 90.21268744
GNW 90.6982365

UCO Straddles for May Update

On April 20 we commented on the UCO straddles for May.

Here is an update:

7.50/7.50 Straddle:

Then, as posted:



Today:

Calls: 2.40
Puts: 0.10
ROI: +78%


6-9 Straddle:

Then:



Today:

Calls: $1.00

Puts: $0.00

ROI: +65%

Actual move on the underlying was +31%.

Markets Are Overbought, RSI7 Update: SPY, DIA, XLF, IWM, USO, UNG

The markets are well into overbought territory according to the RSI7 indicator. Here are the numbers as of the close yesterday:

SPY: 79.60
IWM: 73.38
XLF: 74.42
DIA: 79.65

Oil and Natural gas:

Oil is overbought, natural gas is almost there.

USO: 72.95
UNG: 67.46

Note that we are in the middle of the USO rollover. Any spike up today could be a golden opportunity to short oil, if the pattern repeats from previous rollover months.

Biovail Lowers Dividends, Straddle is Today's Big Winner

Biovail announced results today, beating by $0.12, but missing on revs Reports Q1 (Mar) earnings of $0.42 per share, revenues fell 16.9% year/year to $173.3 mln vs the $176.9 mln consensus. More importantly, the company announced it is lowering its quarterly dividend to $0.09 per share.

As a result, the stock is down 14%.

The earnings straddle is returning +125% profit as of 11:30AM. You can track them here.

A Rally With No Volume?

The table belows shows the average 1-year volume of DIA, SPY, XLF and IWM, as well as the average for the last 30 days and the volume Tuesday May 5.



There are very significant declines in trading volume, particulary with the most popular ETFs, SPY and DIA. A rally without volume is one to be very worried about. Is the current rally being fabricated, or have investors simply lost their money and can't get back in the market, or have they lost faith in the stock market?

Please see the volume in the charts below (kindly click to enlarge):