Working with loaded dice in the world's largest casino putting odds in your favour.
Tellabs, EMC, NOK, MSFT, WFC, INTC, TXN, ETH, AMAT - these are the stocks which this thread has highlighted during the last three months and what a run we've had on these! NOK came with roaring earnings and took the market by surprise. Market insiders tell me that the target is $130 for this stock. In my last post, 16957, I referred to the possibility of banking taking a breather as well as SPA. We did see that although SPA did not touch my 1008 level but it did bounce up 1011 like a bullet. When it broke through 1018 on Thursday, I called Chicago and checked what's happening, and the guys told me that they were just running some stocks taking shorts once again to the slaughterhouses. They triggered some shorts at 1018 and then they saw some more shorts at 1012 levels, took the index there shorted everyone brought it back to 1022, shorts had to run for cover, and we saw DOW and S&P climbing up from heavily down to 60+ territory on Thursday. Now go back and see, I get real problems in connecting from Kuwait but my e-mail tells me that people are looking for shorting the market here. Again, as I put in my earlier 16957 post, that's the way to do it exactly.if you want to short the market then be nimble. Look at BKX also did not exactly touch our 758 level but did come to 762, and then back up on Thursday. As far as Friday is concerned, we saw BKX touching 766, I'm concerned about BKX because in my big picture, Hong Kong, Nikkei and Korea are sitting on critical supports here +/-200 points, rather, Nikkei is sitting below 16800 which is a break of important intermediate support, so for me, I'm concerned about this configuration and hence will be anxiously looking for Monday international markets performances.
I would think that the same logic based on which I called to go long in banking because it was the Far East which gave me the message to go long on US banks, so it will again be the performance of the Far East markets that will determine my course of action on banks. I believe that 758 is on the cards, if the slide on Monday is not stopped, we may even see 737, but that is a long shot on the short side. The test of 737 if it comes on BKX will translate HFX 355, DOW 8200, and S&P 1000, so my correlation equation continues and that is an absolutely new model which I have developed - global correlation with US markets. I'm trying to add DAX, CAC40 and FTSE, so that we cover 70% of the total global capitalization, that will be something like $20 trillion we're talking about here. But again, I don't want my friends to overwhelmed with these numbers or with these indexes or with the correlations, this is a new phenomena of globalized market economy, and we as part and parcel of this globalized phenomena need to decimate this information all over the globe through our thread.
As I dictate this note to Samira and try to make some comparisons with global indexes, I find that divergence and convergence are two issues which need to be taken into account with every move. Sometimes, within a week, depending on the nature of crisis, if it is not serious enough, the ASEAN markets and DOW show divergence, but if the nature of the crisis becomes serious, then you will see ASEAN and DOW will show some convergence, i.e., they may move in the same direction - south or north. So one needs to know what triggers a sellout in ASEANs. Now that I look at it, I find that the new sell-off is based on Indonesian Rupiyah roller-coaster, once Jakarta decided that they are going to impose a currency peg and IMF and creditors disagreed on that, we saw Rupiyah hitting 9500 against the dollar, but it recovered from there and closed at 7700. Now Indonesia is planning to peg Rupiyah between 6000-7000, and I think that they will be able to handle it at that level like the Mexicans were able to with the Peso. I see that there are chances of high volatility next week in ASEAN and as Madeleine Albright, US Secretary of State, has been quoted as saying, Asia's recovery from a financial crisis battering the region will take time and further tremors are possible. She was addressing the Brettonwood Committee and urging Washington to provide additional monies requested by the IMF. I think the Congress, the pundits which hold key to big money, all understand that the Asian crisis cannot be allowed to continue, and I think that the President will be able to get rapid approval from Congress of credits totaling $18 billion to the IMF.
Also, I see central bankers meeting in Bali under BIS, Bank of International Settlements based in Basle, which is also known as central banks' central bank, will help to restore financial stability and international financial floats. The dispute about currency board which Indonesia wants and sorting out the mess first which started the recent sell-off, I think it is a matter of detail and timing, however, the currency boards and recent announcement by Malaysia that South East Asian trade with Japan will be settled in Yen is the first sign of emergence of an ASEAN monetary system, which is going to be very helpful for the global trade and will take out a lot of FX uncertainty at least within inter-region trade. So for the next week the ASEAN markets will be volatile but will hold supports; I have seen some reports on lowest level of Japanese consumption seen in the latest numbers, that may trigger some profit taking of Nikkei, someone who has gone long may come out at 16700 but I think 16200 will hold. Same goes for Hong Kong and Malaysia and Indonesia along with Thailand. I doubt this spate of recent selling on ferocity or volume will match October to December days. Naturally, we have seen quite a drastic movement from the lows, and like tremors and after effects after a strong earthquake, we will see weaker hands who have long positions from lower levels will like to transfer to stronger hands, but markets as you know are forward looking and hence once markets are sure that recovery is on the way, Japanese consumption may have reached the bottom and might only go up, same with Europe rising from slumber and T-bills showing historical low of 5.82% yields on long bonds with absolutely no sign of inflation in the horizon, rather, America showing strong industrial production, good capacity utilization, high level of employment, no wage pressures, and importing price stability from Asia, all these point out towards a mix of a great corporate profitability for the next 3-4 years. So we are looking at DOW 10000-12000, by year 2000, but in the meantime I think we will test 6900 once again, that is the kind of range I look at for the next 3-4 years - 6900-12000. Any market which goes up one way is destined to a big fall, so for me, consolidation is as important an event as going up.
So one cannot be a bull or a bear in this market, one HAS TO BE realistic. If you remember in October days I have been writing about Dr. Ravi Batra and a lot of big intellectuals who were talking about bankruptcy in America in the nineties; they were looking at hockey stick pattern rising on federal deficit reaching to $600 billion by 1995 and by some estimate by a trillion dollars annually by the year 2000. But what sweet revenge American public and corporate executives have exacted from these doomsday seers. They now find themselves in a corner. A new paradigm of economy is a reality; productivity has certainly increased. Naturally, along with it will come higher stock markets with higher volatility; a 100-point move up has become a normal day event, so if we have five down days of 100 points we should not be too surprised. At the moment we are still looking at 1008 to be short to a level of 992, if 992 is taken out we are going to go short till 960, on the up we are looking at 1040 to 1070, depending on your view of the market, but I think during 1998 we will see 1130 but we will also see a 150-points volatility. So, this is not a market for the faint-hearted. If you take July puts, for example, for 1000 and sell 1080 calls, you will see your level both sides but if you have the heart to stay with that position till July, this can be a high tension profitable combo but this is not the kind of thing I would propose to an ordinary trader, it has a high risk and a higher pain threshold, therefore, it is a good hedge, like I would do it for 30% of my long exposure, but depending on individual situation one has to decide.
Coming to more banal and mundane things in life, I would still be looking long at SOX and hoping to achieve 320 because NOK, Ericsson and Motorola earnings are showing me a direction that the demands very high. Were not these very companies supposed to be worse hit by the ASEAN crisis? Were we not told a few months ago that Malaysia and Indonesia were not buying any luxury gadgetry? And here, in comes Nokia with what surprise earnings! So when your networking is doing fine, with 1.2 million new users on AOL, your telephone business are going great guns, as I put in my last post, ASND will run, in fact it IS running, same with CSCO. So, the big picture tells me that somewhere someone is getting it all wrong. Maybe its me, but I remain a committed long in this market unless I find a fundamental change in the big picture. As I put it yesterday, NWX will move higher, DDX is taking out 200 once again, basically, SOX should attempt 320 and take it out. Of course, this will not happen before INTEL takes out 90 and TXN takes out 60 and that is what the stumbling block is, but I will not end up taking the bill if INTEL and TXN takes out my support I'll chop their heads off, and I will play the game on the short side for a short term. That is what markets are all about.you don't get married to an idea, you don't have a frame of mind, you're not predetermined in your attitude towards the market, let it be fluid. When you're in the market you are on the biggest casino on the earth. S&P is one of the most volatile and the largest gambling arena, we with all these ideas try to make the odds in our favour, that is the purpose and when you trade with odds in your favour it is like loaded dice.your chances of winning are higher. |
