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Wednesday, July 23, 2008

Financials: Time to Go Ultra Short, Again

Alright, enough is enough. This artificial short covering bounce in financials on the sudden enforcement of 'no more naked shorts' has gone far enough.

On SKF anything around or below $120 looks attractive. SKF might overshoot and temporarily blow through the 200 day EMA (green line), so caution is warranted. I'm not going 'all in' here, and will keep enough powder dry to buy all the way down to $100 should it become necessary.

J.P Morgan Chase (JPM) has the largest weighting in the Proshares Ultra Short ETF at 6.10%. A bounce from $29.50 to $41.50 is just about large enough to blow most shorts out. The declining 200 day EMA (green line) should provide some resistance.

I don’t' expect business to pick in the fancy pants investment banking world anytime soon. I also believe that Bear Stearns will cause some severe indigestion...

Well, BAC is a major component of the Proshares Ultra Short Financials (SKF) ETF as well with a weighting of 5.60%. A bounce from $18.50 to $32.50 should be just about enough. This bounce takes prices back to the 'break down' area from the May Triangle. I also expect Countrywide to cause a severe hangover.

Citigroup (C) is the third largest component of the Proshares UltraShort ETF with a weighting of 4.20%. This bounce, just like the last bear rally, has taken prices beyond the declining 50 day EMA (red line), blowing out the shorts. The declining trend line (black line) should be an area of interest. The volume on this bounce, or more specifically lack thereof is suspicious. I expect this move to fizzle and die quickly. The oversold condition (Slow STO) has been remedied.

I expect more large losses from C and I don't believe C will be able to sell their assets, or portfolios at anyting resembling their optimistic forecasts. Don't forget, C has collected a good percentage of toxic crap through it's multiple massive SIV's that are now on it's balance sheet.

For more on the Proshares Ultra Short Financials (SKF) ETF click here.

12 comments:

dougiefreshhh said...

Wach-o-via's..dump 6Bil. Fannie/Fred..almost dead

And somehow this give folks hope for financial mkts?

Totally upsidedown.....

It just like the eye of a hurricane. A short lived hope. When the eye of the financial hurricane passes, the short shimmer of sunshine will too pass...and the full wrath of basic economics will be unleashed.

Good time to pick up some SKF

Anonymous said...

I was reading about the mystical Plundge Protection Team (PPT) on http://www.gamingthemarket.com/.

Now, this brings another level to trading when someone keeps pulling cards from his sleeve.

For the FED to throw all these lifelines, there's got to be major putrification in financials. Well, that ain't the latest news. SKF has been my favorite and I'm keeping an eye open on the liquidity injected into Financials - that bloody PPT could be real after all.

Man, don't you like that long-legged hammer shaping up on SKF? Ninja, I'm sure that you got in when it touched the 200...

navid said...

With the creative accounting and tiered assests of the big boys, do you have any specific financials in mind worth shorting? Especially ones that may go insolvent.

I'm thinking Key Corp and National City (although I can't seem to be able to short Nat City).

Vijay said...

Ben, I love your blog, but dude, doing technical analysis on SKF is meaningless. It tracks the DAILY movements of XLF, which means it behaves entirely erratically. Imagine this experiment:

Day 1: XLF=100, SKF=100
Day 2: XLF down 90%, SKF up 180% (i.e, XLF=10, SKF=280).
Day 3: XLF up 100%, SKF down 100%. I.e., XLF=20, SKF=0

If you'd shorted XLF you'd still be up 80% from day 1. If you'd bought SKF you'd be wiped out.

Just short XLF. Stay the hell away from proshares

Ben Bittrolff said...

"Man, don't you like that long-legged hammer shaping up on SKF? Ninja, I'm sure that you got in when it touched the 200..."

Hehe. I do have those 'cheeky' little bids out there for just such occasions. This allows me to trade around my core position.

BAC is buying back shares. Hahaha. Stupid BAC.

Ben Bittrolff said...

Vijay,

I trade SKF off XLF and BKX, as well as some of the larger components such as JPM, BAC and C.

It is also important to note that I 'trade' the proshares. I don't 'invest' in them. That means I'm in and out of them based on how the underyling indices move with predetermined risk and money management parameters.

Anonymous said...

Good move you bastard! I may be anticipating too much, but I'm keeping my eyes opened for a W pattern right there in SKF.

aperian said...

xlf banged up against the 50% retracement and the 50dma...missed getting in at $111...hoping it falls to $110. over corrects a bit...

for a 2x inverse, skf tracks pretty well...try playing fxp! you can make money but it doesnt track anything.

wintermute said...

This bear market has a major prop will be painful for shorters. Lower oil prices. As crude goes down the market is buttressed. (Crude goes down on demand destruction as economy weakens). It will be 12 months before we see the bottom and there will be many bear rallies killing shorts...

Anonymous said...

In Vijay example wouldn't SKF go down by 20 points on day 3 so SKF = 260, or am I missing something?

I can't see how it gets wiped out, please explain?

Vijay said...

Anon:9:26pm:

SKF tracks the daily PERCENTAGE move and doubles it. I.e., if XLF goes up 50% then SKF goes down 100%.

A move of that kind is extremely unlikely. However, it illustrates why these proshares things are bad to use if you want to short. I'll give an example. I bought SH back in march (short S&P), and even tho the S&P is off from its march bottom, SH was barely up.

You DO NOT want to track daily moves. Don't be an amateur. Just fucking short XLF directly.

Big props to Ben for calling the bottom on SKF though. You are a true ninja Sir.

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