How to spot a reversal: Vix is my slave. Vix above 36 was the rally point.

Aloha traders! 

The Vix has been working real well so far.  Again, the Vix works best in volatile markets, when the Vix trades at extremes, and when there is a lot of uncertainty in the markets.

I posted this earlier this week on Tuesday.  And yesterday I warned that the Vix did actually get above 36, which signaled a great opportunity to get long, and cover shorts.  The Dow is up +300 points.  I nailed today’s rally yet again with the Vix:

Ignore the news.  The headlines are posting “hopes,” and when I see that kind of newslines then I know the Vix will be a good indicator. 

Aloha!
=gio=
theHawaiiTrader

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 A few questions for you:

• Why is International Business Machines Corp. [[IBM]] on this list?
• How will this rule affect the NYSE short-interest ratio?
• Do you think banning shorts helps financial stocks?
• Why did JPMorgan Chase & Co. [[jpm]] request to be removed from the list?
• If you short stocks, how have you changed your strategy to play a bearish market?

I’d suggest using “Ctrl F” to find a ticker.  This list is big:
Here’s the Excel Spreadsheet Link

		SEC NYSE SHORT SALE PROHIBITION ADDS/DELETES FOR 9/25/08
FUR		WINTHROP REALTY TRUST
LPS		LENDER PROCESSING SERVICES, INC.
CVS		CVS CAREMARK CORPORATION
UDR		UDR INC.
SLG		SL GREEN REALTY CORP.
KRG		KITE REALTY GROUP TRUST
WSH		WILLIS GROUP HOLDINGS LIMITED
ATN		ATLAS ENERGY RESOURCES, LLC
MVC		MVC CAPITAL, INC.
		SEC NYSE SHORT SALE PROHIBITION ADDS/DELETES FOR 9/24/08
MHS		MEDCO HEALTH SOLUTIONS, INC.
ABR		ARBOR REALTY TRUST, INC
DDR		DEVELOPERS DIVERSIFIED REALTY CORPORATION
HRB		H&R BLOCK, INC
IBM		INTERNATIONAL BUSINESS MACHINES CORPORATION
MFA		MFA MORTGAGE INVESTMENTS, INC
ASI		AMERICAN SAFETY INSURANCE HOLDINGS, LTD
LFG		LANDAMERICA FINANCIAL GROUP, INC
PHH		PHH CORPORATION
BAP		CREDICORP, LTD.
LXP		LEXINGTON REALTY TRUST
FUR		WINTHROP REALTY TRUST
BEE		STRATEGIC HOTELS & RESORTS, INC
		SEC NYSE SHORT SALE PROHIBITION  ADDS/DELETES  FOR 9/23/08
GGP		GENERAL GROWTH PROPERTIES, INC.
EIG		EMPLOYERS HOLDINGS, INC.
CHC		CENTERLINE HOLDING COMPANY
AGM.A		FEDERAL AGRICULTURAL MORTGAGE CORPORATION
JMP		J M P GROUP INC (Removed from list at the Company’s request (as of 09/23/08)
		SEC NYSE SHORT SALE PROHIBITION  ADDS/DELETES  9/22/08 (EOD)
IVZ		INVESCO LTD.
HBC		HSBC HOLDINGS PLC
MET		MET LIFE INC.
PRS		PRIMUS GUARANTY LTD.
FNF		FIDELITY NATIONAL FINANCIAL INC.
BLK		BLACKROCK
AB		ALLIANCE BERNSTEIN
OB		ONE BEACON
IBN		ICICI BANK LIMITED
FBR		FRIEDMAN, BILLINGS, RAMSEY
DFR		DEERFIELD CAPITAL
WBK		WESTPAC BANKING CORPORATION
IDC		INTERACTIVE DATA
CYN		CITY NATIONAL
NNI		NEINET
NLY		ANNALY CAPITAL MANAGEMENT
CSE		CAPITAL SOURCE
AGM		FED AGRICULTURAL MTG
F		FORD MOTOR COMPANY
CT		CAPITAL TRUST
UBB		UNIBANCO
ITU		BANCO ITAU HOLDING FINANCEIRA
BMA		BANCO MACRO
AMB		AMB PROPERTY CORP
MHP		MCGRAW HILL COMPANIES
PLD		PROLOGIS
NRF		NORTHSTAR REALTY FINANCE
SLM		SLM CORP.
RWT		REDWOOD TRUST
IX		ORIX CORPORTION
STD		BANCO SANTANDER S.A.
KB		KOOKMIN BANK
NBG		NATIONAL BANK OF GREECE S.A.
AZ		ALLIANZ SE
BBD		BANCO BRADESCO S.A.
BCH		BANCO DE CHILE
SAN		BANCO SANTANDER – CHILE
BFR		BBVA BANCO FRANCES S.A.
HDB		HDFC BANK LIMITED
WF		WOORI FINANCE HOLDINGS CO., LTD.
		SEC NYSE SHORT SALE PROHIBITION  ADDS/DELETES  9/22/08
CS		CREDIT SUISSE GROUP
GLG		GLG PARTNERS, INC.
GE		GENERAL ELECTRIC CO.
OCN		OCWEN FINANCIAL CORPORATION
KBW		KBW, INC.
GFG		GUARANTY FINANCIAL GROUP, INC.
MFG		MIZUHO FINANCIAL GROUP, INC.
STC		STEWART INFORMATION SERVICES CORPORATION
FMR		FIRST MERCURY FINANCIAL CORPORATION
FCF		FIRST COMMONWEALTH FINANCIAL CORPORATION
MTB		M&T BANK CORPORATION
DFS		DISCOVER FINANCIAL SERVICES
BMO		BANK OF MONTREAL
TD		TORONTO DOMINION BANK
CM		CANADIAN IMPERIAL BANK OF COMMERCE
FMD		THE FIRST MARBLEHEAD CORPORATION
BBV		BANCO BILBAO VIZCAYA SA
CIB		BANCOLOMBIA SA
LM		LEGG MASON, INC.
NFP		NATIONAL FINANCIAL PARTNERS CORP.
AXP		AMERICAN EXPRESS COMPANY
CIT		CIT GROUP, INC.
GM		GENERAL MOTORS CORPORATION
HIG		THE HARTFORD FINANCIAL SERVICES GROUP
ADS		ALLIANCE DATA SYSTEMS CORPORATION
ALD		ALLIED CAPITAL CORPORATION
RAS		RAIT FINANCIAL TRUST
DRL		DORAL FINANCIAL CORPORATIONS
FSR		FLAGSTONE REINSURANCE HOLDINGS
MCO		MOODY’S CORPORATION
COF		CAPITAL ONE FINANCIAL CORPORATION
		SEC NYSE SHORT SALE PROHIBITION LIST   ADDS/DELETES 9/19/08
ABK		AMBAC FINANCIAL GROUP INC
ACE		ACE LTD
AEG		AEGON N V
AEL		AMERICAN EQUITY INVT LIFE HLDG C
AET		AETNA INC NEW
AF		ASTORIA FINANCIAL CORP
AFG		AMERICAN FINANCIAL GROUP INC NEW
AFL		A F L A C INC
AGO		ASSURED GUARANTY LTD
AGP		AMERIGROUP CORP
AHD		ATLAS PIPELINE HOLDINGS L P
AHL		ASPEN INSURANCE HOLDINGS LTD
AIB		ALLIED IRISH BANKS PLC
AIG		AMERICAN INTERNATIONAL GROUP INC
AIZ		ASSURANT INC
ALL		ALLSTATE CORP
AMG		AFFILIATED MANAGERS GROUP INC
AMP		AMERIPRISE FINANCIAL INC
AOC		AON CORP
AWH		ALLIED WORLD ASSUR CO HLDGS LTD
AXA		A X A UAP
AXS		AXIS CAPITAL HOLDINGS LTD
BAC		BANK OF AMERICA CORP
BBT		B B & T CORP
BBX		BANKATLANTIC BANCORP INC
BCA		CORPBANCA
BCS		BARCLAYS PLC
BEN		FRANKLIN RESOURCES INC
BK		BANK OF NEW YORK MELLON CORP
BLX		BANCO LATINOAMERICANO DE EXP SA
BNS		BANK OF NOVA SCOTIA
BOH		BANK OF HAWAII CORP
BRK A		BERKSHIRE HATHAWAY INC DEL
BRK B		BERKSHIRE HATHAWAY INC DEL
BX		BLACKSTONE GROUP L P
BXS		BANCORPSOUTH INC
C		CITIGROUP INC
CB		CHUBB CORP
CBC		CAPITOL BANCORP LTD
CBU		COMMUNITY BANK SYSTEM INC
CFR		CULLEN FROST BANKERS INC
CI		C I G N A CORP
CIA		CITIZENS INC
CMA		COMERICA INC
CNA		C N A FINANCIAL CORP
CNB		COLONIAL BANCGROUP INC
CNC		CENTENE CORP DEL
CNO		CONSECO INC
CNS		COHEN & STEERS INC
CPF		CENTRAL PACIFIC FINANCIAL CORP
CVH		COVENTRY HEALTH CARE INC
DB		DEUTSCHE BANK AG
DFG		DELPHI FINANCIAL GROUP INC
DR		DARWIN PROFESSIONAL UNDERWRITERS
DSL		DOWNEY FINANCIAL CORP
DUF		DUFF & PHELPS CORP NEW
ENH		ENDURANCE SPECIALTY HOLDINGS LTD
EV		EATON VANCE CORP
EVR		EVERCORE PARTNERS INC
FAC		FIRST ACCEPTANCE CORP
FAF		FIRST AMERICAN CORP CALIF
FBC		FLAGSTAR BANCORP INC
FBP		FIRST BANCORP P R
FED		FIRSTFED FINANCIAL CORP
FFG		F B L FINANCIAL GROUP INC
FFH		FAIRFAX FINL HOLDINGS LTD
FHN		FIRST HORIZON NATIONAL CORP
FIG		FORTRESS INVESTMENT GROUP L L C
FII		FEDERATED INVESTORS INC PA
FNB		F N B CORP PA
FNM		FEDERAL NATIONAL MORTGAGE ASSN
FRE		FEDERAL HOME LOAN MORTGAGE CORP
GBL		GAMCO INVESTORS INC
GCA		GLOBAL CASH ACCESS HOLDINGS INC
GHL		GREENHILL & CO INC
GNW		GENWORTH FINANCIAL INC
GS		GOLDMAN SACHS GROUP INC
GTS		TRIPLE S MANAGEMENT CORP
HCC		H C C INSURANCE HOLDINGS INC
HMN		HORACE MANN EDUCATORS CORP NEW
HNT		HEALTH NET INC
HS		HEALTHSPRING INC
HTH		HILLTOP HOLDINGS INC
HUM		HUMANA INC
ICE		INTERCONTINENTALEXCHANGE INC
IFC		IRWIN FINANCIAL CORP
IHC		INDEPENDENCE HOLDING CO NEW
IMP		IMPERIAL CAPITAL BANCORP INC
ING		I N G GROEP N V
IRE		IRELAND BANK
ITC		I T C HOLDINGS CORP
ITG		INVESTMENT TECHNOLOGY GP INC
JEF		JEFFERIES GROUP INC NEW
JNS		JANUS CAP GROUP INC
JPM		JPMORGAN CHASE & CO
KEY		KEYCORP NEW
KFS		KINGSWAY FINANCIAL SERVICES INC
L		LOEWS CORP
LAB		LABRANCHE & CO INC
LAZ		LAZARD LTD
LFC		CHINA LIFE INSURANCE CO LTD
LNC		LINCOLN NATIONAL CORP IN
LUK		LEUCADIA NATIONAL CORP
LYG		LLOYDS TSB GROUP PLC
MBI		M B I A INC
MCY		MERCURY GENERAL CORP NEW
MER		MERRILL LYNCH & CO INC
MF		M F GLOBAL LTD
MFC		MANULIFE FINANCIAL CORP
MI		MARSHALL & ILSLEY CORP NEW
MIG		MEADOWBROOK INSURANCE GROUP INC
MKL		MARKEL CORP
MOH		MOLINA HEALTHCARE INC
MRH		MONTPELIER RES HOLDINGS LTD
MS		MORGAN STANLEY DEAN WITTER & CO
MTG		M G I C INVESTMENT CORP WIS
MTU		MITSUBISHI UFJ FINANCIAL GP INC
NAL		NEWALLIANCE BANCSHARES INC
NCC		NATIONAL CITY CORP
NFS		NATIONWIDE FINANCIAL SERVICES IN
NMR		NOMURA HOLDINGS INC
NSH		NUSTAR G P HOLDINGS LLC
NYB		NEW YORK COMMUNITY BANCORP INC
NYM		N Y M A G I C INC
NYX		N Y S E EURONEXT
OFG		ORIENTAL FINANCIAL GROUP INC
ONB		OLD NATIONAL BANCORP
OPY		OPPENHEIMER HOLDINGS INC
ORH		ODYSSEY RE HOLDINGS CORP
ORI		OLD REPUBLIC INTERNATIONAL CORP
OZM		OCH ZIFF CAPITAL MANGMNT GRP LLC
PFG		PRINCIPAL FINANCIAL GROUP INC
PFS		PROVIDENT FINANCIAL SVCS INC
PGR		PROGRESSIVE CORP OH
PJC		PIPER JAFFRAY COMPANIES
PL		PROTECTIVE LIFE CORP
PMI		P M I GROUP INC
PNC		P N C FINANCIAL SERVICES GRP INC
PNX		PHOENIX COS INC
PRA		PROASSURANCE CORP
PRE		PARTNERRE LTD
PRU		PRUDENTIAL FINANCIAL INC
PTA		PENN TREATY AMERICAN CORP
PTP		PLATINUM UNDERWRITERS HLDGS LTD
PUK		PRUDENTIAL PLC
PZN		PZENA INVESTMENT MANAGEMENT INC
RBS		ROYAL BANK SCOTLAND GROUP PLC
RDN		RADIAN GROUP INC
RE		EVEREST RE GROUP LTD
RF		REGIONS FINANCIAL CORP NEW
RGA A		REINSURANCE GROUP OF AMERICA INC
RJF		RAYMOND JAMES FINANCIAL INC
RLI		R L I CORP
RNR		RENAISSANCERE HOLDINGS LTD
RY		ROYAL BANK CANADA MONTREAL QUE
SAF		SAFECO CORP
SBP		SANTANDER BANCORP
SCA		SECURITY CAPITAL ASSURANCE LTD
SF		STIFEL FINANCIAL CORP
SFG		STANCORP FINANCIAL GROUP INC
SHG		SHINHAN FINANCIAL GROUP CO LTD
SLF		SUN LIFE FINANCIAL INC
SLM		S L M CORP
SNV		SYNOVUS FINANCIAL CORP
SOV		SOVEREIGN BANCORP INC
STI		SUNTRUST BANKS INC
STL		STERLING BANCORP
STT		STATE STREET CORP
STU		STUDENT LOAN CORP
SUR		C N A SURETY CORP
SWS		S W S GROUP INC
TCB		T C F FINANCIAL CORP
THG		HANOVER INSURANCE GROUP INC
TMK		TORCHMARK CORP
TRH		TRANSATLANTIC HOLDINGS INC
TRV		TRAVELERS COMPANIES INC
UAM		UNIVERSAL AMERICAN CORP
UB		UNIONBANCAL CORP
UBS		U B S AG
UNH		UNITEDHEALTH GROUP INC
UNM		UNUM GROUP
USB		U S BANCORP DEL
UTR		UNITRIN INC
VLY		VALLEY NATIONAL BANCORP
VR		VALIDUS HOLDINGS LTD
WAL		WESTERN ALLIANCE BANCORPORATION
WB		WACHOVIA CORP 2ND NEW
WBS		WEBSTER FINL CORP WATERBURY CONN
WCG		WELLCARE HEALTH PLANS INC
WDR		WADDELL & REED FINANCIAL INC
WFC		WELLS FARGO & CO NEW
WHG		WESTWOOD HOLDINGS GROUP INC
WHI		W HOLDING CO INC
WL		WILMINGTON TRUST CORP
WLP		WELLPOINT INC
WM		WASHINGTON MUTUAL INC
WPL		STEWART W P & CO LTD
WRB		BERKLEY W R CORP
WTM		WHITE MOUNTAINS INS GROUP INC
XL		X L CAPITAL LTD
Y		ALLEGHANY CORP DE
ZNT		ZENITH NATIONAL INSURANCE CORP

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The market may be “falling”, but at least enjoy some Hawaiian music.

 

And here’s a live version of the same song.  I couldn’t make up my mind which one to post.  This one has fine island girl in the intro.  CrudeBroker, where you at?!

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New long: EXM (19.72)

I’m playing a possible rally at the end of this week.   The $Vix spiked above 26, which was my entry point for longs.  Hence, I am getting long a beat down sector, the shippers, for a squeeze.  I’m still overall bearish here.

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Completely sold longs: 

 JASO ( +9.07% at 14.20, bought at 13.00)

HK (  +1.60% at 25.41, bought at 25.10)

GMXR looks weak.  Taking profits in energy.  I’m looking to short gold.  Check out JRCC.  Weakness on dilution.  JASO looks like a good day trade short.

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I’ve had DRYS under 70 as a “short the shippers” point in my trading notes for a while, since it tried to break 75 a few weeks ago, but horribly failed.  One last gasp of air before the ship sinks.

Here’s a chart that shows how DRYS, the sector leader, acts in relation to the BDI, Baltic Dry Index in London.  Its a complicated index that measures different size ships, but just take a step back and notice the correlation between the index and stocks like DryShips Inc. [[DRYS]] .  But first, what is the Baltic Dry Index, and why should you know about?

The Baltic Dry Index is a daily average of prices to ship raw materials. It represents the cost paid by an end user to have a shipping company transport raw materials across seas on the Baltic Exchange, the global marketplace for brokering shipping contracts.  The exchange maintains prices on several routes for different cargoes and then publishes its own index, the BDI, as a summary of the entire dry bulk shipping market. This index can be used as an overall economic indicator as it shows where end prices are heading for items that use the raw materials that are shipped in dry bulk.

 

Keys and Correlations

Okay, look at the chart.  Here comes the death cross in September, as DRYS is about to fall below the BDI %-wise.    To me, that means fresh lows for all shipping stocks.  Notice what happened between May and June… do you know what happened there to cause that quasi-double top?  China cut production.  These shipping stocks were trading at too high premiums, banking on China’s growing economy.  Well, Olympics shut factories down, China’s growth numbers came lower than expected, and the Shanghai Index just jumped off a plane with no parachute.  Yes, there is a powerful correlation between foreign production, demand for commodities based on foreign countries, and the demand for ships to transfer these commodities.  But China’s demand wasn’t the only thing driving the BDI down… remember, there is a strong correlation between energy commodities, especially coal, and metals like steel when dealing with the BDI.  Therefore, from late July through August, as the commodities everywhere began to fall, so did the BDI.  Its VERY IMPORTANT to keep these associations in mind when trading dry-bulk-shipping stocks, any changes to these fundamentals will tell you how to trade the shippers.   

How to Profit From the BDI

First off, let me say that the BDI is at a critical level.  I expect shippers to get lower on the medium term.  But on the short term, I wouldn’t short the dry-shippers just yet.  Remember the “correlations”?  One of them was the price and demand for energy… hence, with oil moving up a little and trying to form a base above $100, I would wait for oil to get back below there before shorting.  I already posted DRYS at 70 as a spot to short dry bulks, DRYS now trades in the 40s, so I’m thinking the easy money shorting them is done and its important to know where to cover.  Well, right now, DRYS is trading about $2 away from its 52-low, so I would wait to see if DRYS bounces here.  If it does, then cover.  If not, then start shorting again while buying calls as a hedge to play the trend.

Another good way to profit from the BDI is to use it to find a reversal in energy stocks, especially COAL!  I believe that a bounce in the BDI is quite possible, and a very good trade on the long side (look how volatile the BDI is!) can be made on a relief rally on dry-bulk shippers and energy.  Therefore, when BDI rebounds, then get long coal via Patriot Coal Corporation [[pcx]] , International Coal Group, Inc. [[ico]] , James River Coal Company [[jrcc]] (Note:  JRCC just diluted their shares last night)

Above the Comments:

Shippers have been trending down, and now we have an idea why.  Long term, the shippers are done.  There will be a few relief rallies here and there, which can be day traded on the long side, but I will look to short at key resistances, while buying calls as a hedge on the dips.   DRYS used to be a favorite stock on the IBD100, and one of my favorite stocks to trade too.  I intend on milking these trades on both the long and short side.  In fact, I’m looking to get long a day trade as early as tomorrow.  I also have a feeling there will be at least one more relief rally that will squeeze these shippers higher, giving you an opportunity to get long for a swing trade, and a better entry point to short than now.  We’ll see.  Check them out:  [[drys]], Diana Shipping Inc. [[dsx]] , TBS International Limited [[tbsi]] , Excel Maritime Carriers Ltd [[exm]] , Eagle Bulk Shipping Inc. [[egle]] , Genco Shipping & Trading Limited Genco Shipping & Trading Limited [[gnk]] .

3-month chart for “short the ships”

1-year chart  …massive H&S patterns. 

Aloha!
-gio-  aka, “THT”

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