Alarming rise in the Black Swan Indicator

Brought to you by Wolf on Wall Street
This Sunday I showed you the SKEW Index which is brought to you by the CBOE (same place the VIX comes from). The SKEW is a rather new tool for the CBOE and is meant to reflect the probability of a "Black Swan" event.

The SKEW runs between around 100 (probability of a market crash very small) to 150 with an average of 115. I noticed the rate of change of the SKEW had increased in the post linked above and thus it was worth a post as a possible warning.

Here's what the SKEW looked like Sunday

And here is what it looks like today (1-day change), note that it has increased significantly in one day, near multi-month highs. This is one indicator you may want to keep an eye on, especially with 3C long term charts looking the way they do.

Brandt Uses Worden's TeleChart and StockFinder 5 Exclusively

The Baltic Dry Index Hits Multi Year Lows

About a week ago at Wolf on Wall Street I featured a chart of the Baltic Dry Index which tracks the worldwide price of dry shipping cargo. The Index can be quite volatile, but the trend of the index is telling.

The BDI tells us what demand is for the shipping dry goods (meaning it excludes Oil, Natural Gas, etc) across the world. When prices are low, there is plenty of capacity and it tells us that worldwide economic activity is slowing, demand for imported goods is slowing, exports are slowing, when prices are high it tells us the economy is running at a healthy clip as demand for everything from textiles to I-phones is strong.

The last BDI update skipped the volatility and an underlying downtrend was clear.

Here's today's update (note the BDI is updated every day).

Here's the recent Trend...

And on a 3 year chart, the BDI just hit 1014, levels not seen since 1/27/2009.

Obviously this is macro data and you probably could have guessed it wouldn't be good, but at the levels of early 2009 is quite dramatic, especially when one considers where the stock market is now compared to early 2009.
Brandt Uses Worden's TeleChart and StockFinder 5 Exclusively

Thoughts on the Euro-Zone Short Term Debt Auctions

The analysis below is brought to you by Wolf on Wall Street.
ECB Intervention in sovereign debt auctions today?
This morning, my first post of the day talked about the large number of short term notes/debt that were by and large, well received despite last week's S&P downgrade. Also the EFSF was downgraded and also placed $1.5 billion euros in short term debt (barely a drop in the bucket compared to the $1 trillion plus leverage of the EFSF that was conceived and went no where).  This morning I specifically said,  (note highlighted portions)

Overnight as European markets opened, there was some good news; the EFSF after being downgraded successfully auctioned off $1.5 bn euros in 6 month bills at a yield of .2664% with a healthy bid to cover ratio. 

The bottom line, even after the downgrade, EU countries are not having much trouble selling short term debt. Who knows if there was ECB "round-about" intervention, they did make some interesting comments about the ratings agencies.

Overnight and this is kind of the strange part, the ECB's deposit facility hit another record high at $502 bn Euros. I wouldn't expect an increase if money, especially any LTRO money was being used to buy the short dated debt sold today.  

And as far as those Draghi comments:

Draghi Questions Role of Ratings Companies After Downgrades

Draghi said,

“I will never comment on ratings as such, but certainly one needs to ask how important are these ratings for the marketplace overall, for investors?” Draghi said late yesterday at the European Parliament in Strasbourg. “It seems to a great extent markets have anticipated these ratings changes and priced them in. We should learn to do without ratings, or at least we should learn to assess creditworthiness”  
And you may be wondering where I'm going with this... As in the U.S., the ECB is forbidden to participate in direct/primary soveriegn debt auctions. They can buy all they want in the secondary market for many of the countries and support yields that way, but primary markets are off limits and that is what these auctions were today, primary offerings. I mentioned Draghi's seeming disdain for the ratings agencies and also said, "Who knows if there was ECB "round-about" intervention,".
I mentioned this specifically because there were several primary auctions that came in with yields below that of the secondary market, this would suggest that the ECB "may" have intervened in the primary auctions via some mechanism like passing cash on to several banks to do the buying for them in a clandestine-type of POMO operation which if they bid aggressively enough, would cause the auction to come in below the secondary market yields. Given Draghi's view on the rating agencies, given the past oddities in several auctions in which the ECB has been suspect, it's not so far fetched that they might want to do some damage control after the ratings downgrades. 
Here is where it gets interesting...

This is the spread on the EFSF, note today it dropped from about $142.50 to the $138 area based on the solid auction. However, once the auction passed, the EFSF hit $146.94 later in the day, or the highest level since December 21st (the date of the LTRO). If sentiment was positive enough to have a successful auction and knock the spread down, why didn't it stay down? It appears there may in fact have been some intervention in not only the EFSF auction, but most likely all of them to, once again, do damage control and suggest to investors in bonds that the ratings downgrades had no effect on a sovereigns ability to rase short term borrowing at favorable yields.

Just something to chew over.

Brandt Uses Worden's TeleChart and StockFinder 5 Exclusively

Alcoa and the Earnings Shell Game

I've been putting bits and pieces of passing news in my rather short term memory bank, but the trend is something that my long term memory bank remembers pretty well.


So AA is kicking off earnings season, but how many of us remember what has happened running up to earnings season?


Remember the song, "What have you done for me lately"? Earnings are about expectations, the entire market is about expectations or you might call it sentiment. So is a beat really a beat when the bar is lowered significantly enough for a step to look like a high hurdle?


As of last Friday, 130 of the 500 S&P companies pre-announced among a back drop of analysts lowering expectations. Of the 130 S&P companies, 99 of them, almost 20% of the S&P came out with negative pre-announcements, only 30 were positive.


Thompson-Reuters did some simple math and added some historical perspective. The ratio of negative to positive pre-announcements is 3.3 (99 divided by 30) thus far. As for the historical perspective, 3.3 is the largest Negative/Positive ratio since Q4 of 2008 during the midst of the recession.


The thing is, many unsophisticated investors are headline scanners only, they see a beat and they buy, but did they remember the lowering of guidance several weeks earlier?


It should be an interesting earnings season as Wall Street plays the shell game.


Since AA is in the commodity space, lets look at the trend there.

It's not looking good for the 4th quarter, especially on a year over year basis, but can they spin this in to something positive?


As for AA, they should have reported by now, let's see what they came out with....


A fourth Quarter loss of $193 million. Last year AA's Q4 was $258 million in profits, that's a turnaround y.o.y of $451 million!


Revenue however was up this quarter 6% to $5.99 billion vs a year ago at $5.65 billion. That's 6% and below the double digit returns the S&P s normally expected to produce.


Consensus was for a loss of $.02 a share on revenue of $5.72 billion, they came in at a loss of $.03 per share (missed there) but beat on revenue at $5.99 billion and what everyone wants to hear at least until it's lowered several weeks before the next report, they expect a rise in demand of 7%.


The shell game part is kind of neat..


AA on a operational basis, meaning no accounting gimmicks, lost $.18 a share and that on higher revenue! That's called a margin squeeze, but to make sure no one other then a PhD in Wall Street accounting can really figure out what to make of this report, Alcoa added $232 million in restructuring charges and extra costs for this quarter alone. Hmmm.


Based on Cap-Ex, Alcoa spent cash this quarter, maybe I'll take back the part about a margin squeeze, it's a bit worse then that when they're burning through cash to keep the smelters running.


One curious bit caught my attention, they are forecasting 7% demand growth and a GLOBAL aluminum supply deficit in 2012.


Kleinfeld the chairman/CEO said, “For 2012, we expect global aluminum demand to grow 7 percent and are forecasting a global deficit in primary aluminum supply.”


The 7% demand is above AA's 6.5% demand that is needed to justify AA's forecast of a doubling of global demand between 2010-2020. Sounds pretty good then right?


I wonder why AA announced yesterday that they'll be shutting down smelters?


Here are some more being shut down.


AA is pretty much flat in after hours, which may explian why I couldn't find any real earnings edge in 3C before the close.



Brandt Uses Worden's TeleChart and StockFinder 5 Exclusively

No Santa Claus Rally, Made a Few Bucks Anyway.

As I posted last Sunday in this video, I was skeptical of any seasonal Santa Rally, the video explains why and turns out to be right on track.
At Wolf on Wall Street I always say, take what the market gives. 
We had a nice signal on BAC mid week and used some puts to make a 1 day gain of nearly 30%! (The video is linked).
We also had a 10% 1 day gain in the IWM and today as slow as it was, made 5+% using puts on the IWM in a 2 hour trade.
Here was the signal...

3C went negative showing distribution and we entered the trade.
I chose the IWM because it was the most frothy vs the $USD/Euro correlation and had the most to lose; it turned out to be the right choice. So in the Wolf on Wall Street options model portfolio, we ended the week with about an 8% gain which isn't bad considering how slow things were, no losing trades.
I'll be posting some more over the weekend and I wish everyone a great New Year, it's going to be interesting!

Brandt Uses Worden's TeleChart and StockFinder 5 Exclusively

A Boring Week, but some nice gains....

Brandt Uses Worden's TeleChart and StockFinder 5 Exclusively

Making 30% in 1 Day

Here's a trade where Wolf on Wall Street members made 30% in 1 day trading BAC.
Information about Wolf on Wall Street
Become a member today

Santa Rally 2011?

Small Caps and the Russell 2000 are lagging while the Dow-30 is leading, a more defensive posture in the market. Take a look at some of the metrics comparing the 2010 Santa Rally period vs now.

Brandt Uses Worden's TeleChart and StockFinder 5 Exclusively

AAPL Follow up

Last Thursday I threw Trade-Guild readers a trade from our member site, Wolf on Wall Street. It was a perfect set up and it was published here before it even took place, all you had to do was watch for 1 thing to occur, that original post is right here.
In the spirit of that trade which has already made us 14 points, I'll tell you that we are expecting a short lived market bounce that is originating with the Euro and the market will follow it because of legacy arbitrage. So you can make good use of it or you can get kicked out of your position if you don't understand what is happening behind the scenes.
 I said that I would post some charts with AAPL's long term outlook, but with the market's volatility, you have to know when to get in, like that trade idea posted here which was literally no more then 30 minutes before the trade opened up. You enter at the wrong time and you may have the direction right, but the entry may be wrong and cost you money on an otherwise "correct position'.
So here's AAPL's longer term outlook and we have a few stocks we are getting ready to put positions on that are ever WORSE then this one.

 Here's our entry short last Thursday, the post linked above and the 14 points we've made since then.

 Here's a leading negative divergence in AAPL on a daily chart, you can see the top form as distribution starts and now how much worse it is. A leading divergence is the most serious kind.

If we look at the long term outlook for AAPL since 1991, we have the worst leading negative divergence (massive distribution by smart money) that we have seen. Still, if you don't enter the position right and don't manage the trade and know what to expect in advance, you can blow even a set up like this.
Wolf on Wall Street give you an inside look at what smart money is really doing.
Here's one of many member comments:

"You are really onto something special with 3C Brandt, I am amazed and so very grateful for your first-class analysis and incredible hard work you put into it. I have been trading for 15 years or so and have never felt more confident and knowledgeable about what's really going in the markets.  The degree of lies and bs fed to the sheep is stunning!  It is a pleasure and an honor and a true LEARNING experience being in your Wolf Pack.  I am looking forward to meeting you one day - I'm going to make a point of coming to see you some time.'
For more information, check out what WOWS is all about,
Brandt Uses Worden's TeleChart and StockFinder 5 Exclusively

BBY Follow Up

Earlier in the year, I used 3C at Wolf on Wall Street to prove to members that earnings are routinely leaked, I picked 22 stocks and made the call on the direction prices would take after earnings, we hit 19 of the 22 earnings calls dead on, nearly a 90% success ratio. I looked at BBY (BestBuy) before earnings and posted what  thought the outcome would be, the actual Wolf on Wall Street post is linked here.
Now we have a 17% gain on the short in 2 days! It's time to close the trade and take the easy money. 

Check out Wolf on Wall Street and see what it's about. 
See What WOWS members have to sayIf you don't know what your edge is, you don't have one. Get an edge!
Brandt Uses Worden's TeleChart and StockFinder 5 Exclusively