Wednesday, December 10, 2008

Morning Update 12/10

Good Morning,

DOW futures are up about 120 points.

Interesting development with GM… it seems that after all the speculation of them being able to offload their bad debts with the treasury in exchange for taxpayer cash, they have run into a little snag:

GMAC Fails to Meet Conditions to Convert to Bank Dec. 10

By Ari Levy

(Bloomberg) -- GMAC LLC, the auto and consumer lender seeking federal aid, failed to obtain enough capital to become a bank holding company and may abandon the effort, casting new doubt on the company’s ability to survive.
A debt exchange by GMAC and its Residential Capital mortgage unit designed to bolster the company’s finances didn’t attract enough participation, GMAC said today in a statement. So far, GMAC remains short of assembling $30 billion in regulatory capital that Federal Reserve requires, and the regulator has said the conversion won’t be approved if the requirement isn’t met.
GMAC has pinned its hopes for recovery on its plan to become a bank holding company and gain access to federal rescue programs. The Detroit-based company gave debt holders another three days to consider its exchange offer, adding that if it doesn’t complete the swaps and win Fed approval by Dec. 31, “it would have a near-term material adverse effect on GMAC’s business, results of operations, and financial position.”
Less than 25 percent of GMAC and ResCap’s existing debt covered by the exchange offer has been tendered, the statement said. GMAC needs about 75 percent participation for the plan to work, the statement said.
Last Updated: December 10, 2008 08:37 EST

Failed to meet capital requirements? What a joke! Our system doesn’t even have positive reserves at all.

So, why all of the sudden does the exchange for bad assets program stop with GMAC? Are they really any worse than the other institutions that have been allowed to turn themselves into banks? Yet more inconsistent favoritism by the inept people running our government. There will be no confidence in this system going forward, how can there be? Personally, I think this was the right decision, but it should have been the same for everyone and the government taking in bad assets should have never been allowed.

Technicals: I still believe we are in a symmetrical wave ‘c’ up, which is mirroring wave ‘a’ which began on 11/20. Once this wave ‘c’ completes, that should comprise the larger wave A up of the still larger wave B up – follow? This small wave ‘c’ should complete either tomorrow, or Friday, then we should begin a corrective wave down.

As you can see in the chart above, the 30 minute stochastic is oversold and thus I would expect some upside from here. The 60 minute fast is also oversold, but the slow has yet to cycle beneath the mid point.

Yet another gap for an open, this time up. Will that gap fill, or will we just head straight on up? I’m not entirely sure, normally I would say fill first, but in this instance the symmetry of this pattern on a time perspective says that it’s time to get going. So, from that perspective it may just run, but if it does gap fill then it should be relatively quick. I actually think a gap fill down to about the 890 area would make a good long entry, but again I am cautious with these counter-trend moves. The overall trend is still down, do not be fooled!

Have a good day.