Wall Street rebounded today on news that Abu Dhabi bailed out Citi to the tune of $7.5 billion. The news was viewed as relief from the continual negative disclosures coming out of the financial sector.
The deal actually underlines the severity of the crisis facing the banks. Without this infusion, Citi would be in a situation where it would probably be forced to merge with investors (including many in the Middle East) receiving pennies on the dollar. The situation still is not attractive for Citi; the bank still does not have a CEO and will shortly be laying off 45,000 employees. A good portion of assets are still impaired and need to be written down.
The upside is that the bank managed to swing this deal despite the dismal environment. It brought hope that Sovereign wealth funds may rescue other large financial institutions.
Citigroup Sells Abu Dhabi Fund $7.5 Billion Stake
http://www.nytimes.com/2007/11/27/business/27citi.html?_r=2&ref=business&oref=slogin&oref=slogin
Citigroup Plans New Round Of 'Massive' Job Cuts
http://www.cnbc.com/id/21974307
Stocks Higher After Citi Secures Capital
http://biz.yahoo.com/ap/071127/wall_street.html
Tuesday, November 27, 2007
Quick Takes: U.S. Real Estate Crisis Score Card
- $500B in loan related write-downs at banks and rising.
- $2 Trillion in economic credit impairments in lending.
- 446,726 homes currently in foreclosure (1 for every 196 households).
- 1.4 Million or more homes expected to enter foreclose in 2008.
- Foreclosures increasing at over 34% per quarter.
- U.S. GDP projection for 2008 lowered to 1.9% due to mortgage problems – down a full percentage point.
- Likelihood of 6.4% unemployment with an additional 3 million jobs lost.
- Property value drops nationwide estimated at 7% for 2008 – a loss of $1.2 Trillion to homeowners.
- U.S. Home Prices fall 4.5% nationwide in Q3 of 2007 – the largest decrease ever.
- 191 Mortgage Lenders out of business.
- Cities expected lose a minimum $400B of economic activity due to the housing crisis.
Was loosening the traditional lending standards really worth it?
References:
S&P: 3Q Home Prices Fall by 4.5 Percent
S&P Says 3rd-Quarter Housing Prices Dropped by Sharpest Rate in Index's 21-Year History
http://biz.yahoo.com/ap/071127/home_price_index.html?.v=2
Report: Foreclosures Will Sap U.S. Cities
http://www.cbsnews.com/stories/2007/11/27/business/main3542359.shtml
Since late 2006 - 191 major U.S. lending operations have "imploded" (11/27/2007 figure)
http://ml-implode.com/
Have We Seen Worse of Mortgage Crisis?
New Wave of Mortgage Failures Could Create a Nightmare Economic Scenario
http://biz.yahoo.com/ap/071124/doomsday_scenario.html?.v=2
Housing to slow growth in 2008
A report warns of 20 percent hit on Triangle economy; U.S. growth may slow 25 percent
http://www.newsobserver.com/business/story/795068.html
Increasing Risk: Real Estate in China
There is one real estate market where a meltdown would comparatively make the situation in the U.S. appear to be minor league. Only one country has both the population and rising speculative real estate values to claim this distinction – China.
A number of economists such as Yi Xianrong are sounding the alarm. There are two primary issues, the first being the false data on many mortgage applications. This is somewhat tempered by the requirement for large down payments on many real estate loans in China.
"I estimate that the large majority of mortgage holders would not meet the standards for even subprime loans," Yi said in an interview with the state-run magazine Oriental Outlook.”
The second risk is the speculative real estate spiral. A good number of owners view real estate as a money-making scheme, similar to the “flip this house” phenomena in the U.S.
“Many Chinese families are already deep into speculating on property, a main driver of the surging prices that have Chinese authorities worried that a bubble might be forming.”
It is still an open question regarding how long the situation can continue and how badly this speculative cycle will end. There is still a huge demand for housing in China, this has to be countered with the huge price increases and questionable credit practices for personal housing loans.
Housing market, risk surge in China
http://www.newsobserver.com/business/story/795070.html
A number of economists such as Yi Xianrong are sounding the alarm. There are two primary issues, the first being the false data on many mortgage applications. This is somewhat tempered by the requirement for large down payments on many real estate loans in China.
"I estimate that the large majority of mortgage holders would not meet the standards for even subprime loans," Yi said in an interview with the state-run magazine Oriental Outlook.”
The second risk is the speculative real estate spiral. A good number of owners view real estate as a money-making scheme, similar to the “flip this house” phenomena in the U.S.
“Many Chinese families are already deep into speculating on property, a main driver of the surging prices that have Chinese authorities worried that a bubble might be forming.”
It is still an open question regarding how long the situation can continue and how badly this speculative cycle will end. There is still a huge demand for housing in China, this has to be countered with the huge price increases and questionable credit practices for personal housing loans.
Housing market, risk surge in China
http://www.newsobserver.com/business/story/795070.html
Monday, November 26, 2007
Black Friday: Not So Happy for Retailers
It appears that the spending on Black Friday was not enough to hold up the retailers today, despite the best effort of the ladies in my family to boost the retail index by heading out at 3am.
Despite initial estimates that sales increased 8.3 percent from a year earlier to $10.3 billion by research firm ShopperTrak RCT Corporation based on a measurement of foot traffic, in reality each customer spent an average of 3.5% less according the National Retail Federation.
U.S. Consumers Spent Average of 3.5% Less on Shopping
http://www.bloomberg.com/apps/news?pid=20601087&sid=aDisryZePitQ&refer=worldwide
As expected this news caused the retail sector to plunge nearly 2% today, combining with continued credit fears to drive the market to the downside.
Retail Stocks Fall; Black Friday Spending Seen Lower
http://www.cnbc.com/id/21977888
Despite initial estimates that sales increased 8.3 percent from a year earlier to $10.3 billion by research firm ShopperTrak RCT Corporation based on a measurement of foot traffic, in reality each customer spent an average of 3.5% less according the National Retail Federation.
U.S. Consumers Spent Average of 3.5% Less on Shopping
http://www.bloomberg.com/apps/news?pid=20601087&sid=aDisryZePitQ&refer=worldwide
As expected this news caused the retail sector to plunge nearly 2% today, combining with continued credit fears to drive the market to the downside.
Retail Stocks Fall; Black Friday Spending Seen Lower
http://www.cnbc.com/id/21977888
Sunday, November 25, 2007
Screening to Win: RSI (Relative Strength Index)
This is the second installment in the series "Screening to Win". This article discusses utilizing the Relative Strength Index technical indicator in your screening. The first article about Moving Averages can be found at:
The overview below describes one of the common technical indicators – Relative Strength Index and provides insights on how to utilize it in your stock selection. Hopefully this outline will provide traditional fundamental investors with some solid insight on how to incorporate technical indicators into their screening. The free HingeFire Stock Screener which can be found at http://www.hingefire.com is one of the few tools available that includes a wide selection of fundamental and technical criteria for selecting stocks. Using a combination of fundamental and technical screening is a powerful tool for winning in the market.
RSI
Relative Strength Index Overview
First if is important to not confuse the RSI (Relative Strength Index) technical indicator with the Relative Strength fundamental criteria. Relative Strength compares the price of a stock to an index (or another stock) over a period of time and performs a comparison; while the RSI momentum oscillator compares the magnitude of a stock's recent gains to the magnitude of its own recent losses and transforms that information into a number that ranges from 0 to 100.
Relative Strength Index was developed by J. Welles Wilder and introduced in his 1978 book, New Concepts in Technical Trading Systems. The basic components include the Average Gain, the Average Loss, and the calculated RS values over a period of 14 days. RSI converts the underlying information as an index that runs from 0 to 100. High values of RSI are generally considered an indication that the stock is overbought while low values are regarded as oversold.
The HingeFire tool provides supp
ort to incorporate RSI in your creation of screens for stocks. Support for multiple common levels is included. Users can scan to determine if a Relative Strength Index is greater than or less than a particular level, and also establish if the RSI just crossed above (JCA) or below (JCB) a threshold.
Relative Strength Index Overview
First if is important to not confuse the RSI (Relative Strength Index) technical indicator with the Relative Strength fundamental criteria. Relative Strength compares the price of a stock to an index (or another stock) over a period of time and performs a comparison; while the RSI momentum oscillator compares the magnitude of a stock's recent gains to the magnitude of its own recent losses and transforms that information into a number that ranges from 0 to 100.
Relative Strength Index was developed by J. Welles Wilder and introduced in his 1978 book, New Concepts in Technical Trading Systems. The basic components include the Average Gain, the Average Loss, and the calculated RS values over a period of 14 days. RSI converts the underlying information as an index that runs from 0 to 100. High values of RSI are generally considered an indication that the stock is overbought while low values are regarded as oversold.
The HingeFire tool provides supp
ort to incorporate RSI in your creation of screens for stocks. Support for multiple common levels is included. Users can scan to determine if a Relative Strength Index is greater than or less than a particular level, and also establish if the RSI just crossed above (JCA) or below (JCB) a threshold. How to use RSI in screening
In his book, Wilder recommended using 70 and 30 and overbought and oversold levels respectively. His work postulated that if the RSI rose above 30 then it is considered bullish for the underlying stock. Conversely, an RSI dropping below70 is a bearish signal. Some traders identify the long-term trend and then use extreme RSI readings as entry points. For example if the long-term trend is bullish, then oversold RSI readings could denote possible entry points.
Since the time of the original RSI work from Wilder, many traders have adopted the 20 and 80 levels of RSI as the levels of most interest instead of 30 and 70. Which levels are of most value is regular subject of theoretical debate. The 20 and 80 RSI levels represent greater extremes that operate better in more volatile markets. Investors should try both and determine which are most useful for their stock selection process. The HingeFire tool provides support for all of these levels.
RSI is a momentum oscillator and a solid indicator of medium term trends. Investors normally use RSI to time transactions or to filter stocks to exclude.
Oversold Territory
Stocks with an RSI below 30 or 20 are considered to be oversold. Some oversold stocks are due for a bounce back. Others have negative fundamental and trend information associated with them and may continue to dive in price. A number of investors screen for stocks with low RSIs and then sort through the results to see if any gems are available at attractive prices.
Avnet Inc (AVT) rece
ntly endured a downtrend and has arrived at an RSI level below 30 which indicates that the stock has entered oversold territory. If an investor believes that the long term fundamentals associated with the stock are sound then they may select this as an entry purchase point and expect the stock to reverse the trend as the selling fizzles out.
In his book, Wilder recommended using 70 and 30 and overbought and oversold levels respectively. His work postulated that if the RSI rose above 30 then it is considered bullish for the underlying stock. Conversely, an RSI dropping below70 is a bearish signal. Some traders identify the long-term trend and then use extreme RSI readings as entry points. For example if the long-term trend is bullish, then oversold RSI readings could denote possible entry points.
Since the time of the original RSI work from Wilder, many traders have adopted the 20 and 80 levels of RSI as the levels of most interest instead of 30 and 70. Which levels are of most value is regular subject of theoretical debate. The 20 and 80 RSI levels represent greater extremes that operate better in more volatile markets. Investors should try both and determine which are most useful for their stock selection process. The HingeFire tool provides support for all of these levels.
RSI is a momentum oscillator and a solid indicator of medium term trends. Investors normally use RSI to time transactions or to filter stocks to exclude.
Oversold Territory
Stocks with an RSI below 30 or 20 are considered to be oversold. Some oversold stocks are due for a bounce back. Others have negative fundamental and trend information associated with them and may continue to dive in price. A number of investors screen for stocks with low RSIs and then sort through the results to see if any gems are available at attractive prices.
Avnet Inc (AVT) rece
ntly endured a downtrend and has arrived at an RSI level below 30 which indicates that the stock has entered oversold territory. If an investor believes that the long term fundamentals associated with the stock are sound then they may select this as an entry purchase point and expect the stock to reverse the trend as the selling fizzles out.Overbought Territory
Stocks with RSI levels above 70 or 80 are considered over bought. A number of these stocks may continue to rise and exhibit high RSI readings for a period of time. A good quantity of these stocks are due for a tumble however as they approach an exhaustion level of available purchasers in the market. A number of traders screen for high RSI levels and then review the charts for possible short candidates.
The RSI for Suntec
h Power Holdings (STP) recently crossed above 70 again. Note the previous price retrenchments of more then $8.00 when the RSI indicator rose above 70 in late October and early November as buying was exhausted.
Stocks with RSI levels above 70 or 80 are considered over bought. A number of these stocks may continue to rise and exhibit high RSI readings for a period of time. A good quantity of these stocks are due for a tumble however as they approach an exhaustion level of available purchasers in the market. A number of traders screen for high RSI levels and then review the charts for possible short candidates.
The RSI for Suntec
h Power Holdings (STP) recently crossed above 70 again. Note the previous price retrenchments of more then $8.00 when the RSI indicator rose above 70 in late October and early November as buying was exhausted.Filtering Buys
A number of investors filter their potential purchase decisions with an RSI level of above 20. This will exclude stocks that are demonstrating continually lower days which have the possibility of dropping further over the upcoming weeks.
Filtering Sells
Investors focused on shorting stocks will filter the market for candidates with an RSI below 80. This avoids stocks exhibiting continually higher days that may continue to increase in price for a period of time (until exhaustion occurs).
Break above Oversold
One of the most common uses for RSI is to scan for stocks that just broke above the oversold condition and now should continue to rise. The HingeFire tool supports searching for stocks that just crossed above (JCA) various thresholds. A breakout above 20 or 30 indicates a solid change in momentum for a stock as it exits an oversold condition while increasing purchases occur.
Wyndham Worldwide (
WYN) recently experienced a spree of selling with an associated drop in price over the past several weeks. The RSI just crossed above the 30 level which may be a signal that the downward momentum is broken and the stock price has potential to rise.
Break below Overbought
Inversely, another common use for RSI is to look for stocks that have just crossed below (JCB) the overbought condition at the 70 or 80 level. This normally serves as notice that the stock may continue to fall over the upcoming few weeks. Sometimes the stock will revert on increasing volume into the overbought condition again if new buyers flood the market; more normally this indicates the start of a medium term reduction in purchasers for the equity.
The RSI for Saul Cent
ers (BFS) recently just crossed below (JCB) the 70 level. Note the several week downtrend that occurred with the stock after the RSI dropped below70 in mid- October. At this point the buying was confirmed to be exhausted and BFS continued to drop in price.
Inversely, another common use for RSI is to look for stocks that have just crossed below (JCB) the overbought condition at the 70 or 80 level. This normally serves as notice that the stock may continue to fall over the upcoming few weeks. Sometimes the stock will revert on increasing volume into the overbought condition again if new buyers flood the market; more normally this indicates the start of a medium term reduction in purchasers for the equity.
The RSI for Saul Cent
ers (BFS) recently just crossed below (JCB) the 70 level. Note the several week downtrend that occurred with the stock after the RSI dropped below70 in mid- October. At this point the buying was confirmed to be exhausted and BFS continued to drop in price.Avoiding Extremes
Some investors simply want to avoid extremes when timing their stock transactions. These investors will filter their decisions with an RSI >= 20 and < 80 (or use 30 and 70). This type of filter enables investors to avoid stocks that are currently in greatly oversold or overbought conditions. In many ways, this is a method of reducing volatility risk for long term investors.
RSI Summary
A number of investors look at RSI on charts to scrutinize for divergences between RSI and the price trend of the stock. There are also investors who utilize the mid-point of 50 as a single break level between rising and falling prices; however most screens based on midpoint show no real potential unless the investor evaluates the associated chart information. The most common utilization of RSI however is screening for oversold and overbought levels as outlined above.
Summing up, many astute investors use the HingeFire tool to screen for the following situations with Relative Strength Index.
Oversold Territory – Screening for stocks with RSI levels below 20 or 30.
Overbought Territory – Screening for stocks with RSI levels above 70 or 80.
Filtering Buys – Looking to purchase stocks only with RSI levels above 20.
Filtering Sells – Looking to only short stocks with RSI levels below 80.
Break Above Oversold – Screening for stocks that JCA the 20 or 30 level.
Break Below Overbought – Screening for stocks that JCB the 70 or 80 level.
Avoiding Extremes – Screening for stocks only between 20 and 80 (or 30 and 70).
Combining technical indicators such as Relative Strength Indicator with commonly used fundamental criteria when selecting your investments helps put the market edge in your corner. The RSI support in the HingeFire Stock Screener adds a powerful tool for timing your buy and sell transactions to pull excess alpha out of the market.
Some investors simply want to avoid extremes when timing their stock transactions. These investors will filter their decisions with an RSI >= 20 and < 80 (or use 30 and 70). This type of filter enables investors to avoid stocks that are currently in greatly oversold or overbought conditions. In many ways, this is a method of reducing volatility risk for long term investors.
RSI Summary
A number of investors look at RSI on charts to scrutinize for divergences between RSI and the price trend of the stock. There are also investors who utilize the mid-point of 50 as a single break level between rising and falling prices; however most screens based on midpoint show no real potential unless the investor evaluates the associated chart information. The most common utilization of RSI however is screening for oversold and overbought levels as outlined above.
Summing up, many astute investors use the HingeFire tool to screen for the following situations with Relative Strength Index.
Oversold Territory – Screening for stocks with RSI levels below 20 or 30.
Overbought Territory – Screening for stocks with RSI levels above 70 or 80.
Filtering Buys – Looking to purchase stocks only with RSI levels above 20.
Filtering Sells – Looking to only short stocks with RSI levels below 80.
Break Above Oversold – Screening for stocks that JCA the 20 or 30 level.
Break Below Overbought – Screening for stocks that JCB the 70 or 80 level.
Avoiding Extremes – Screening for stocks only between 20 and 80 (or 30 and 70).
Combining technical indicators such as Relative Strength Indicator with commonly used fundamental criteria when selecting your investments helps put the market edge in your corner. The RSI support in the HingeFire Stock Screener adds a powerful tool for timing your buy and sell transactions to pull excess alpha out of the market.
Wednesday, November 21, 2007
Happy Thanksgiving
Best wishes to everyone for a happy and safe Thanksgiving. Our entire family will be visiting my in-laws up at the lake this weekend and I expect to be off-line relaxing till Sunday.
The big event never seems to be the turkey anymore, it is Black Friday. All the ladies in our extended family will be up bright and early on Friday to make our family’s direct contribution to the retail spending index.
Just a couple quick articles before the Black Friday festivity…
Consumers glum on eve of key shopping season
http://www.reuters.com/article/businessNews/idUSN2118240120071121?pageNumber=1&virtualBrandChannel=0
Leading index growth rate at a 63-week low: ECRI
http://www.reuters.com/article/economicNews/idUSNAT00343120071121
Now Shop Hard! …. You can make a difference. :)
But more importantly, enjoy the holiday and focus on what is really important… your family and friends.
The big event never seems to be the turkey anymore, it is Black Friday. All the ladies in our extended family will be up bright and early on Friday to make our family’s direct contribution to the retail spending index.
Just a couple quick articles before the Black Friday festivity…
Consumers glum on eve of key shopping season
http://www.reuters.com/article/businessNews/idUSN2118240120071121?pageNumber=1&virtualBrandChannel=0
Leading index growth rate at a 63-week low: ECRI
http://www.reuters.com/article/economicNews/idUSNAT00343120071121
Now Shop Hard! …. You can make a difference. :)
But more importantly, enjoy the holiday and focus on what is really important… your family and friends.
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