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Five Things You Need to Know: Goldman Sachs; Back To the Dog Pound; Wedding Chicago Style; Complacency Everywhere; Changing The Rules


There is nothing but rampant complacency...on the part of the bears that is - who seem perfectly content to become extinct while waiting for an Armageddon that just won't come.


1. Yesterday Toddo mentioned he was considering some puts on Goldman Sachs (GS).

  • I buzzed earlier this week that were it not for a slew of cheap calls on GS which I luckily purchased just before the stock (and the market) took off, at this stage of Hoofy's rampage I'd have been a hurting gator. Yet, if there ever was a statistically promising setup to turn coat and head Boo's way, this chart suggests it may be now. Since 2002, every time the weekly RSI hooked down, a short trade was good for 5-20%; the rise of the last 5 weeks has been vertical and has taken the price 3 standard deviations away from the 200 DMA for only the second time since October 2002. As I am already leaning short and shorter, I dare not get on the bad side of GS, but I have sold enough stock against my calls to be "delta neutral" at these prices.

2. Citrix Systems (CTXS) heads for the dog pound.

  • I was dead on when I suggested that the premium in CTXS March 40 calls seemed skimpy given the volatility of this stock, especially around earnings. Unfortunately, I was dead wrong on the direction of the move. CTXS was down $4+ after hours after reporting the quarter. There were a couple of items that could have been better, but altogether there was little wrong with the numbers; third only to Akamai (AKAM) and F5 Networks (FFIV), CTXS has the technology to bring about the reality of web based applications. At 20x '07 estimates for a 15% grower, with about 15% of its capitalization in net cash (about $800 mln), I am paying for the calls by selling some puts – fully prepared to buy the stock if necessary.

3. Funky action in the stock of the Chicago Merc (CME) after its bid for the Chicago Board of Trade (BOT).

  • Some talking heads were openly skeptical about the move, while others suggested that the BOT caved on the cheap after a number of BOT members were crushed by the recent move in agricultural commodities. Time will tell, but right now CME is about to leave two straight "gravestone" candles (a bearish reversal pattern) on the weekly chart, and momentum was notably absent for the last $100 up. That said, I am not about to step in front of a stock that's up 1,349% in less than 5 years.

4. Not a day goes by without one of the Professors buzzing in with a new reason why the market should (will) tumble.

  • Yours truly pleads guilty on all counts in that regard. So before I mention something related to me by our friends at MS Howells, let me preface it by saying that if lately Boo seems to be grasping at ever more tenuous reasons to regain control of the action, it is not because he is running out of "good" reasons, but because the thinness of the ice supporting this bull market is such that it won't take much to sink the whole thing into the cold abyss. What did our MS Howells friends suggest to me? That the bears are probably right, and in the face of all these dangers there is nothing but rampant complacency...on the part of the bears that is – who seem perfectly content to become extinct while waiting for an Armageddon that just won't come.

5. The one constant about this quarter's reports by financial companies is that credit quality is deteriorating.

  • Last night Washington Mutual (WM), Radian Group (RDN) and Capital One (COF) (EPS beat notwithstanding) chimed in with their bad news. In the case of RDN, the news was actually awful. WM was so confusing to these untrained eyes (financials of financials have never been my strength), but between the ducking and dodging of questions, and what you could figure of the numbers, it was really really bad. COF avoided another bad miss, but was nothing to write home about. The one thing you need to know came out of the WM conference call, and has to do with the new lending guidelines for exotic mortgages. Recall that Hoofy's story envisions that bubble-trapped speculators will be able to waltz their way out of toxic ARM mortgages and into conventional ones without missing a beat, and the debt orgy will roll on. Maybe they will, maybe they won't. However, these new rules have shut the safety hatch right in their face, just as the water appears to be rising. It was "interesting" to hear WM execs squirm around the issue. Stay tuned for the reports by the remaining suspects, especially Monday's show by BankUnited Financial (BKUNA).

Pepe, my hat off to you for being able to crank out the "Five Things" every day, and don't get any ideas about taking too many days off.

Have a great one Minyans.

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Positions in GS, CTXS, AKAM, RDN, COF, BKUNA, WM and complacency
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