NET Money Chart 03-08-09 and other market ideas.

Fellow Traders,
 

These markets get more exciting every day.  Friday morning before the market opened I mentioned in the Chat Room that I would be trying 5 long trades Friday.  Why you might ask?  I've been doing just about 4 shorts to every long trade these last few months quite successfully.  My mantra has been to sell rallies until we lose money.  In this case, the market was down about 7% this past week coming into Friday and down 12 out of 15 days.  On Friday and with some rather interesting news items this coming week, the shorts would look to cover to protect profits while the longs would try to jam them.

After 1 short and 4 longs we were headed into an EOD move about 3:30 PM near S&P 665.  I had already alerted my chart readers about a 663 buy area for calls on the 2:00 PM "B" chart.  The OEX 320 calls selling around $0.65-$0.85 were an interesting throwaway trade.  The calls closed over $5.00 in 45 minutes. This handsome profits setup or weekly Money Charts - see the attached chart.

Follow up on a few stock ideas:

Linn Energy (LINE) is my favorite long here.  I call LINE an oxymoron - safe dividend with speculative upside.  Call me if you do not understand this concept.

How Huntsman Might Explode, Business Week, March 16th issue:

After months of litigation, specialty chemical outfit Huntsman (HUN) which makes products for the auto, construction and aerospace industries agreed in November to call off its sale to Apollo Global Management's Hexion Specialty Chemicals unit for a price of $6.5 billion.  Apollo paid Huntsman $1 billion to pull out of the deal.  Huntsman's suit against Credit Suisse Group (CS) and Deutsche Bank (DB), which backed off from financing the deal in October, is pending in court. Benjamin Segal, president of Winchester Capital Management, expects Huntsman to win and collect another $1 billion.

 "Huntsman—with its cash hoard, book value of $9 a share, and the stock's fall [to 2.43] from 24 last Mar. 13—is very undervalued," says Segal, who holds shares.

The recession has crimped sales and analysts have avoided the stock but big institutions such as Fidelity Investments and State Street (STT) own shares. 

The Obama Housing Plan and Mortgage REIT Stocks:

The announced Obama Housing Plan is very interesting as it relates to the risk of mortgage REIT's.  Unlike many of the other plans which effectively created a prepayment of an existing mortgage, today's plan calls for an interest payment subsidy to be shared by the servicer and the government.  The way I read this, the current mortgage stays in place and is subsidized by the servicer and government.

If this housing plan is to come about, why is it good for NLY and the other M-REITs?  The plan actually slows prepayments on high-coupon mortgage-backed securities (MBS) because the party that controls the refinancing decision or the homeowner is now receiving a deeply discounting interest rate for the next five years.  MBS holders get a 6% coupon even though the homeowner is only paying 2%.

Now, I could be wrong but that's how the Treasury Department’s Executive Summary reads.  If someone knows something different, please let me know – thanks.  All the talk about dividend cuts is, at best, wildly misguided (and this talk is most likely spread by the shorts)!  REIT dividends are going one way near term - higher.  Buy NLY and HTS. 

Near-Term Rally?:

There may be a small covering rally this week given that Congressional Hearings start 3/12 on mark-to-market accounting.  I am still selling rallies but I feel a big one coming soon to a theatre near you.

I'll put out a much more comprehensive summary of just what I believe the situation to be in Huntsman in another email.  HUN is a great story. Stay tuned.