Google implosion

Well the 1 google put paid off nicely. I purchased at $22.60 on 1/25 and sold for $50.80 on 2/1. For a net gain of about $2800. The amzn puts were a different story. I was involved doing other things so i ended up holding on to them. This was a big misstake as it recovered most of the losses. Currently i am down about $350. I will look to unload at the most timely price i can this coming week.

In both cases a not bad quarterly result was sold off agressively. So far it looks like the goog drop will stick a little more than the amzn drop did. So what we are seeing is multiple contraction. From my previous post where i talk about the PEG ratio you can see that any reduction in the estimates going forward can have a great effect on what investors are willing to pay for a stock. We saw this with apple and many other former highflyers.

I currently put on some shorts, but i have to admit i'm concerned i might be wrong. So my position size is relatively small. On the S&P 500 we are coming into the previous support area near 1400. This could offer serious resistance, but i think we need some negative news to inspire the market to sell-off from this level. If there is little news this week then it is possible the market will keep advancing through this resistance. And it could actually cause a short squeeze.

On the other hand we could get more news on the mono line bond insurers. If they do get downgraded that could instigate a sell-off.

The bigger picture is that there is more bad news to come and this will continue to pressure the market. It is most likely that one or more homebuilders will declare bankruptcy and that one or more smaller banks will as well. At some point in the future when the Fed get's the rates down to 2% or so; bad news will pop out from somewhere. Then The Fed will be powerless to do anything about it and the market will know it. If dropping rates from 5.5% to 2% didn't "solve" the problem how is dropping rates to 0% going to help?

We will see but for the next year i can only see a negative bent to things. The debt bubble needs to unwind, consumers need to clean up their balance sheets, which means they need to cut back a lot. All the Fed's latest moves do is encourage people to borrow more, but they are already tapped out. If you cannot service your current debt load how can you borrow more? You can't. You must cut back even if the rates are really really low.

We will see how things play out. The markets tend to have nothing to do with the real world so you could have a rally in the stock market while the average Joe is struggling. So never buy the story, just watch what the charts are telling you.
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