The Coming MBIA Bubble

Take a look at this –

MBIA

What is it, you ask?

It’s a year’s worth of daily chart from bond insurer MBIA Inc. (NYSE:MBI), a company that’s had some wild swings ever since the market broke down in 2008. In fact, MBIA was one of the more wildly stomped upon issues at that time because her fortunes are tied directly to stable markets, not imploding ones. And more than that, a raft of lawsuits that ensnared the company post-crash sent the stock swirling and bouncing about like a Taliban informer in a Marine barracks.

The chart above shows regular moves of between 40% and 80%, up and down, every few months. But it always shows an upward bias, regularly bouncing higher off support at the long term (411 day) moving average, in yellow.

And that’s precisely why we played this thing like Vegas drunk for the first half of the 2013. Made good money, too.

But we backed off since then because we expected the resolution of a couple of key court cases would simmer the stock down somewhat – and that it did.

But today we’re looking at a technical formation that we believe could send the stock orbital again in the near term.

Consider the daily chart once again – just six months worth this time – with the emphasis placed elsewhere –

BB02271422-e1393528493170

From this chart, we see a wildly bullish picture emerging.

Consider –

  • Both RSI and MACD indicators are cruising comfortably above their waterlines (in black, at bottom),
  • Three moving averages are trending higher and one’s flattened and about ready to rise, and
  • As of yesterday’s trade, we have a new retracement high on the stock (blue box) that cracks the bears’ hope that a five month head and shoulders top will drive prices lower.

It’s just not likely anymore.

With the head and shoulders top (in red) now behind us, higher prices appear to be a shoo-in. And if history (and a century of technical analysis) is any guide, we could see much higher prices.

Why? Because a broken head and shoulders top is both a reliable reversal pattern and a harbinger of steep price rises.

That’s it?

Whoa Nelly! Take a look also at the following chart of MBIA’s business in a nutshell.

It’s a series of charts, actually, depicting the largest American banks and brokers and the price of their credit default swaps (CDS).

What’s a CDS?

In essence, it’s a five year, term insurance policy that reimburses the swap holder if the bond he’s holding defaults within that time frame.

The actual numbers posted on the charts represent the cost in dollars to insure $10,000 worth of that company’s bond.

Here’s the chart –

BB02271444-e1393528500169

As you can see, the price of ensuring corporate bonds is now at its lowest level since the Lehman crisis, and with it, MBIA’s business is exposed to less riskmaking it more palatable to investors seeking stability.

And the same trend is evident in sovereign default risk profiles.

Here’s a recent chart of CDS prices for a handful of developed and emerging market nations. Note the drop – in some cases extreme – in the cost of ensuring sovereign debt from last year to this (G7 nations are boxed in black).

BB02271455

Here, too, the trend is toward lower prices as a feeling of greater stability in the sovereign debt market takes hold.

All of which is why we would tend toward aggressive bullish betting on MBIA’s prospects for both the near- and intermediate-term.

What else y’got Hugh?

One more idea for all ye sick buzzturds looking to make a million on a single roll of the dice.

Gawd love ya. It goes like this –

Facebook (NASDAQ:FB) is the name of the game, as far as we’re concerned, and this is the “Facebook Bull Market”, as we’ve repeated on too many occasions. There is no stock (or company) that better typifies both the times we’re living in and the market we’re stuck with.

But we’ll ramble on more about this another time. Today, suffice to say that there’s no stopping this machine of a stock from climbing.

Look at a chart of FB paired against the S&P 500

BB02271466-e1393528503938

The outperformance is clear. And while it’s anybody’s guess what might happen in the event of a general market retreat, so long as the indexes are rising, you can count on Facebook beating them.

Play it with a paired CALLs trade – long FB and short the market.

And go out a year.

At least.

Many happy returns,

Matt McAbby
Senior Analyst
Oakshire Financial

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