Then below that in smaller font the real issue - Questions abound over bailout.
What really caused the spike on Friday? With what appears to be an imminent economic meltdown are the pros really buying up stock or where the shorts scrambling to cover scared of what more craziness this government might do to calm the countries fears.
First they took away the up tick rule and then eliminated shorting in the financial sector. Talk about party poopers..
The shorts had quite a ride with Citicorp!!
Don't you just love dubya's quote "There will be plenty of time to debate the origins of this problem. Now is time to solve it."
The solution: buy up all the crap mortgages from the failing financial institutions. That’s hundreds of billions of $$$ by the way. Whoever said there is no such thing as a free lunch was obviously not a CEO. Of course one mans free lunch is another billions peoples burden.
As far as debate the origins of the problem - well that really won't be much of a debate the answers are obvious. The finger pointing and excuses however will offer some great reading. All the hearings will also give George something to do in his retirement.
And finally that issue of question abound over bailout. Like most great solution the devil is in the details.
As an example: I am a mortgage officer who needs to get his numbers up, you come to me wanting a mortgage, well I have a deal for you we are offering $0 down and 0% interest for 5 years. My appraiser also tends to be Liberal on his estimates and the fact that you work in the American auto industry doesn't really concern me. Outcome you have a mortgage of 110% of the value of your house and can just barely cover the monthly payments. The extra $ you got went to buy new car, big screen TV, iPods for the family, trip to Bahamas etc. No savings. Fast forward - real estate values have dropped, auto industry layoffs, and interest payments now due.
Ant they wonder why no one has been able to sell these mortgages. Talk about your hot potato!!!
Now if the banks had to value these mortgages correctly they would be bankrupt, so the government will pay face value save the banks and then have to come up with a way that people don't walk away from there homes and cause a continued downward spiral in the real estate markets. Sounds like its not only the CEO's that are going to get a free lunch….
Some possible solutions: discount the principal so people can stay and pay something or reduce interest rates or …..
In the meantime what do us traders do?
This last week has been a day traders dream. But not for the faint of heart. There is excitement and then there is craziness. I suggested small positions if at all and that Cash is King.
Still am not to anxious to trade until the dust settles a little more.
For the more conservative of us swing traders I suggested moving to ETF's where the dogs were not so crazy. We got nicked into the XLE on Thursday at $66.50 seeing it get as high as $78.10 on Friday and close at $71.25. Not a bad move for 2 days. But again insane action best left to the pros..
For ETF's:
XLE - still long. Unless you took advantage of Fridays craziness. Stop $69.
XLV - crazy open. This is why we wait to see open and/or use limit orders. wait
XLB - same as above
XLK - same as above
XLU - same as above
GSG - nice divergence waiting for daily fractal
GLD- still for day trading only
SLV- still for day trading only
USO- nice divergence waiting for daily fractal
QQQQ- flat waiting
As far as stocks:
As you would expect we had some nice breakouts, but pullbacks into the afternoon similar to the etf's.
Peter
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