Bando Bucks: “Less Bad” economy
Hello to all of you from 50 Broad Street in New York City, and welcome to the newest segment of the Average Joe L-E Blog, Bando Bucks. I’m a twenty-something Wall Street trader and just so happened to start my career as the worst recession in 50 years began. I’ll be chiming in every now and again with a young professional’s perspective on our new financial landscape, economy and trading to complement Joe’s blog. You’ll come to learn that I have many opinions on the stock market and the economy. Trading is a hobby of mine that I enjoy, but it’s also what I do for a living. You can say I’m like any young guy trying to make it in finance…but with 25% of a normal base salary. How I make my living is almost entirely based on trading performance, so I do my homework and take my trading seriously. I’m in this career because of its unlimited upside…sitting in a small room with a few millionaires under 35 doesn’t hurt my motivation either.
There’s been a lot of positive news out there in the last three months, more than I have seen in my short career and that I can remember for a few years now. It’s pretty safe to say the worst may be over, we’re not going to 5,000 in the dow, we’re not having a depression, etc etc. At the same time it’s in my not so humble opinion that recession talk has too quickly gone from cautious optimism to imminent economic recovery by summer’s end. Cautious optimism should continue to be the phrase.
Right now I can tell you I’m selling this market, I’m short (betting the market is going lower). Why would I do this when every newspaper headline says things are looking better and we’re near recovery? I’ll sum it up by saying we scorched nearly 50% higher from our March 9 low because of, among other things, “less bad” news.
Every week big economic data points are released, ranging from your basic unemployment figures to existing home sales. If anything, these are generally seen as longer term gauges on the health of the economy. For nearly ten weeks now most of these data points have beaten analyst expectations. Almost every single day for ten weeks I have seen people furiously buying in fear of missing out. (Update 6/19 8:50am: “China is thinking of making a “hefty injection” in hedge funds on concern it could miss opportunities near the bottom of the market are providing a measure of support.” - Briefing.com) I’ve heard so many guys the last two weeks say “I can’t miss” that I want to puke. There’s a serious problem I have buying this late into the rally. Analysts who forecast the economy, those who give estimates on economic figures, firms such as Lehman Brothers Bank of America, seem to have low-balled the estimates for quite some time now. The economy looks as though it is in full blown recovery mode when economic data and company earnings consistently beat analyst estimates, right? I’m sure you have all seen it: Newspaper headlines the next day read “Stocks higher because of better then expected retail sales.” Let’s face it though, the numbers still suck…they just suck a little bit less, and we have somehow found ourselves 40-50% higher than early March because of it. Unemployment will be 10%, home prices will continue to decrease, and as oil breaches $70 a barrel it is safe to say the general economy is worse off paying $2.65 a gallon into the summer.
We’re at what I believe is the end of this rally, one that’s been overbought due to things being “cheap,” a lot of money on the sidelines, and “less bad” news. I’m a bear the first part of this summer, and I’m going to keep selling on a day by day basis. The last few days have only confirmed my belief that we’re heading lower. The Dow, S&P 500, Nasdaq and Transportation index have all failed to break higher from the trading range we have been in for roughly two weeks, hovering around unchanged for 2009. Being a trader who focuses on chart patterns as well, this is evidence enough for me to suggest the path of least resistence lower, and that we can not break into new 2009 highs until news is actually good, not just “less bad.”
User Comments
JFK
June, 2009
I’m very interested in your take on the economy. I’ve recently begun buying oil and natural gas stocks (on the bandwagon), but I also picked up Intel (INTC).
What’s your take on the UNG? Do you agree with Jim Cramer’s take on that ETF?
I like Intel’s chart also.
I don’t know a lot, but I am definitely confident that nat gas will be moving up (considering its split with the price of oil at record-setting levels).
Looking forward to reading more of your posts…
Bando
June, 2009
Natty gas has been the topic of some interesting talk around the street. The UNG is definitely the best way to invest in the actual commodity, but supply and demand issues have worn on the commidity and it hasn’t enjoyed the upside in recent weeks like oil has. It’s a big troubling that it hasn’t seen much of a bounce on the dollar weakness as well. It comes down to supply/demand factors and there’s been serious oversupply of natty gas and doubts as to the future of natty gas in society, though that seems way down the road. UNG chart looks as though it is basing and risk/reward with natty gas makes it a good pick to start small with and add to if it starts working.
Intel is a pretty “safe” pick, it’s a bit range bound since april, trading in a $1.50 range so a break under $15 or above $16.50 can signal a breakout one way or the other. Also with less volatile stocks the 30 day simple moving average is a classic indicator to look at if you have a week by week time frame, with the 50 or 200 day simple moving average being used for a longer time frame. Classic rule of thumb is you never want to be long a stock when it’s under the moving average best suitable for your time frame. INTC closed right on it’s 200 day today.