Implications..implications

Seems like this market is endlessly at the mercy of this and that...Oil, FNM/ FRE (GSE's), the Russia-Georgia escalation and if this wasn't enough we had a countdown to something new and old.  There was something called the FDIC, no not the FOMC to analyze late in the day and a dude named Gustav heating up in the middle of nowhere and days away.  Unfortunately, all of this is not making for much of anything as the street is a ghost town and by Friday, we might not even be here in cyber town!.  This is ridiculous,  the odds of trying to find a trade and than winning on it is just not favorable.  To make matters worse, the idea (history) of this market picking up post Labor day may not even occur with all the possible implications abound this year.  Who in their right mind wants to come off the sidelines and stick their toes in this market environment. The excuse of low volume in part may be attributed to the holiday time of the year, but the fact it is something like 30% off last years and you know it is more than that!. 

It seems if you're hard up for cash,  we have a 'destruction' trade unfolding.  It was quite pathetic to see stocks of 2005 surface today waiting on Gustav to destroy peoples lives!.  Anybody...remember IPII (manufacturer/ distributor of building products), well this now worthless stock rose 70% today on speculation of destruction. The funny thing is this POS stocks business is primarily away from where the storm is pointing to!.   Even tough trading is based on implications of this and that in the world, we just can't put ourselves to speculate if people will be boarding their homes!.  One thing is to react to turmoil as a trader, another is to speculate to this potential risk arising and bet on peoples lives.

Anyways, hurricane season's potential implications almost guarantees Oil will stay above $110.  The impact on the energy markets will be in focus for days to come as this is the summer's first storm that may play havoc with the energy infrastructure.  A glimpse into the past shows Natural gas balloons in comparison to the price of Oil in such circumstances, our cheat/ tear sheet  will focus on the E&P stocks on our list to end the week.   Unfortunately, with the new high list so pitiful this week,  there is no other  potential "most wanted"  stock/ group in this ghost town as of today.

...data data

As the market comes to what will be the 10th consecutive day of volume less than a billion, it also comes with improving Eco. data.  Even though we said yesterday a good GDP will add to a higher move, a move we wouldn't put too much credence into because of low volume, we wonder now if more surprises from Friday's data may just be the ticket for those coming back next week to put some money into the market.  Nobody wants to be left out of an uptrend and no matter how inflated, manipulated the data may be, it may be enough to get the conviction (volume) missing soon.  Today was interesting as the broader market lifted from GDP, an unexpected turn occurred, Oil dropped instantaneously (3+%) as Nat. gas supplies ballooned to take the wind out of Gustav'.  In this market, you have to know what your stocks do and to what data they are vulnerable to.   A larger than expected build in Nat. gas inventories and it didn't matter what damage Gustav' may do.   Simply, the trade ended a day earlier than how we envisioned it as the circumstances changed, but selling/shorting was still the prudent trade to do.   If anything the drop provided a nice entry, but this better be one helluva hurricane in the making to make some money now in these E & P Shales.   Unfortunately..by Friday`s close it`s too far away to make that prediction.  One short term trade we alerted was in DJIM listed FLS, but that also lost it`s luster with everything else related to Gustav.  Still, if Gustav leaves anything in need of repair,  they`ll need a plumber or two and playing infrastructure may be a better route than thinking inventories will shrink.  Remember, this is not the end, it`s the beginning and these trade ideas will have sustainability into September.  It may be lucrative to just hold on and not flip these related plays at every turn. This is up to your own predictions and what your trading style allows.  We`re not meteorologists and we know none are on the Forbes list from trading their own forecasts.

The technicals may point to an advantage for the Bulls as we`ve moved above last Friday`s closes on the SPX,DJIA, IWM($RUT). A 4th straight of gains may be too much to ask for, but the data may lead to such.  We`d just take a flat day and first hope the data doesn`t turn things upside down again in the morning. 

The Russians are coming, Gustav is coming, Oil is leaking, dollar is sprinking, Freddie`s fannie...it`s all too much and it`s the most challenging trading times seen in years....so, please......ENJOY, your looooo-ng weekend!.

29-Aug 8:30 Personal income (Jul, %m/m)  -0.2 0.1 (street, prior)
8:30 PCE core (Jul, %m/m) 0.3 0.3
9:45 Chicago PMI (Aug, Index) 50.0 50.8
9:55 U. of Michigan cons conf (Aug F , Index) 62.0 61.7

....not pretty

The broad markets produced a gap up and than what can only be called a 'negative' reversal day.  You can't slice it any other way, a strong open which saw DJIA up more than 240+pt at one point and close 27pts down is just ugly.  This type of action simply shows there was not a sufficient amount of buyers to sustain the initial move up.  Maybe, it was it too much to expect that a level of buyers necessary to sustain any move would all of a sudden come out on the first trading day following summer vacations.   If this wasn't ugly enough, it was even uglier on the sector/ group watch as the biggest downside was on the energy and materials groups.  The best trade possibility noted Thursday of going short the energy sec.(or at least selling out before) over the weekend if the hurricane did not live up to worst case scenario,  played out.   If all things come in 3's,  we should have remembered what we have seen seen the last 2 months and that is huge sell-offs in commodities in the beginning of a new month and played that into the weekend.  Unfortunately, we did nothing, we don't bet against a potential wrath from mother nature or bet that all things come in 3's.! . 

Does this action mean we are heading back to July 15th times?.  As long as the Discretionary stocks hold up, probably not....but, it does look as if traders/ investors may just be exhausted and have left not only for the summer, but are out all together for the rest of 2008!.   We discussed this possibility last week that the volume may just not return as expected come every September this time around.    Since one day is not enough to make this possibility come to fruition, we'll continue to wait it out. 

It's back to the drawing board as we said yesterday to start the Q, but after yesterday it just got muddier!.

....Liquidation day

One thing we should always remember and never take for granted in the future is what we discussed before Wednesday's open!.  "Negative reversals" .  Yep, they're not pretty and after the broad market sell -off of 3% today, we know once again you can't put a bag over something as ugly as Tuesday's action and trade happily ever after in the near term.  Not only was there not enough buyers to sustain a move to the upside early in the week, the chance of buyers coming in now would be nothing more than those looking for a quick oversold trade.  Since the sell -off involves so many negative factors, including ECB rule changes causing liquidation,  the thesis of not testing the July 15th lows is almost out the window.    It is incredible how quickly this market changes, how fast new headwinds can squash any potential upside.  Today, we had our "tech worrisome"  , come to a quick realization.  As you know the drop in Oil has changed the forecast for earnings for every stock related to energies.  One thing that hasn't been discussed is the same thing is going to happen to the GOOG's , AMZN, EBAY etc, because a strengthening, firming $USD dollar is going to do the same thing Oil is doing to energy names earnings.  Right now, the emphasis is on slowing economies abroad, nobody is talking about what FX is going to do to companies revenues, profitabilty models. Some giants realize 50% or more of their business outside of the U.S.   There are going to be earnings revisions all over the place as the USD continues it's run.  This will have minor effect on Q3, but we will start to hear guidance noise for Q4 and we all know nobody likes lowered guidance, FX related or not. 

The SPX tested the 1260 level 8 times recently and today it also busted through 1250, which was also a technical support level for many.  A sharp decline was inevitable as 1260 got knocked out and now we are looking at 7/15's intraday and closing levels of 1200 and 1215, respectively.  Friday is the Aug. jobs report and of course this added to the fuel of todays declines.  This report will carry the trade on Friday and if we see July's lows. The street consensus is 75k, a big downside to say 125k ( we think very possible) and you can say July's lows ..here we come!.    If we don't get a meaningful number, the prospect for a trade to the upside exists following an oversold thesis.  As we noted above, it would be just a quick oversold trade and carrying/ holding it into the weekend will not suit us.  

..who's gonna win?

The pattern of trading today, clearly showed it's a tug of war for the short term.   The sides facing off consist of the "confidence" camp versus the "slowing world economy" camp.  The confidence group is the one that believes the GSE bailout will provide the confidence to put money back in the U.S market.   In other words, the equity market has had the risk of a major meltdown taken off the table as credit spreads should tighten because liquidity has been enabled.  Since Financials are major holders of ABS, the illiquidity problems of many credit products will go slowly go away making the group look more favorable.  Considering there are 3.6 billion shares sold short of Financials which is over 30% of the overall short market and you have the potential for a short covering rally.  This is what we saw early today, but how long it lasts depends on how fast  'confidence' comes back (if).   On the other side of the fence,  you clearly see the "slowing world economy' camp rearing it's ugly head by the action in the NASD today.   The group is showing bad news ahead.   We already had a slew of negative news come from TSM, DELL, CIEN, Samsung and even smaller names such as AUTH  today.   Today,  we had terrible action from RIMM, AAPL hampering any broad based rally.  Deteriorating demand, strong USD in part, will likely make this space implode over the October earnings period.    So, there you have the ensuing tug of war and you can trade it either way..long financials, short techs into earning season.

As far as the commod' trade, keep watching the $USD/ $XDE as we noted again yesterday, it clearly shows which way those Coal, Steel, Ag's will trade that day and so you have an opportunity to go either long/ or short intraday.   Oil is not pacing the way these days.   Also, the way Coal stocks are trading makes you wonder if it's signaling a stronger dollar, the market coal pricing is stable, but they keep showing signs of another underlying factor, possibly the dollar pushing them lower.   We are waiting patiently for the day this liquidation ends as there will be some huge sporadic upside pay days ahead , it's just a matter of time ....and the same goes for energy plays.

..much ado about nothing

After all the recent moves in broad indexes,  it was inevitable to have a day of rest.   In some respects, we had hoped to see the Bears show follow through to continue the beating from Tuesday,  unfortunately they didn't even show up to play.    Basically, the day had a look of indecision on both sides with no incremental news/ eco. data to drive a trade either way.  At the close, a negative bias remains as profit taking came in and Bears await some ammunition into weeks end.

As we've noted the last 2 days,  we're watching Commodity stocks for a long trade in expectation of liquidation ending soon.    Interestingly,  we had a strong USD,  yet all the Coals, Steels, Ag's, Shales moved to the upside as of 11:30am coinciding with inventory numbers.    We haven't seen this USD trade in the longest time.    Is this a sign of a change tides?. ...   Hold your horses!......Coal +7.1%, Steel +6%, Gold/Silver +4.6%, Natural Gas +3.9%, Oil +3.8%, Commodity Index +3.4%, Oil Service +2.7%.        As with any type of trade, you want confirmation before proceeding in any substance to hold overnight/ days,  this move had nothing more than a normal bounce theme to it.     Do not be fooled by looking at does gains of 5%-10% in a day at this stage from these stocks and think you missed something great.      We're used to having these stocks trade 5%-10% in a day and they would be up 5-10 pts,  now all you're getting for 5%-10% moves is a stock up a few bucks.  That is how much of a beating they have taken during this liquidation period.     Basically, we had more confidence buying 1000 share lots a few months ago at much higher prices than say today in these plays at these lows.    It's much easier for a eg. PCX to give up a 5% gain which may look great, but it's only $1.64, which could easily evaporate by the first trade next morning at this point.  

Simply,   the risk now is not worth the same in dollars as you'd have buy twice the shares to get the same dollar return you were getting recently.   It's not worth the risk now to double/ triple your share intake on a play in our view.    It's always been a theme to collect points in stocks, a $1 up= 1..$5 up= 5 points and so today's moves did not have the intraday range we're looking for.    Anyways, at least it was good to see them buck the $USD trend for a day.     It will very interesting to see what the $USD does at 80 here,  its a major level and it should pullback some which may provoke the buying in commodity stocks we're anticipating..  wait and see 

Here's the catch,  we've seen Gold shoot to $1000,  we had Oil shoot to 140+....we think it's a possibility the $USD dollar does the same and if it does,  what will happen to these resource stocks?.   These are crazy times and we've had rockets in GOLD/ OIL,   why can't we have another in $USD.!

DJIM #37 2008

...Pay the piper day for all the excessive looting by all investments banks in the form of bonuses etc. year over year has come!. The fundamental definition of the investment banking business has changed and it will never be the same.  Unfortunately, 50k more,  most not living the greed, but just trying to live the American dream are on the street and it ain't Wall street!.   Who would've 'thunk it' last year at this time, we'd have no Bear Stearns, no Lehman Bros and no Merrill Lynch brand.    Historic times, we live in, trade in, as investment banks collapse like domino's!.  The repercussions are not clear and that's the scary part, nobody knows how far the 70+ trillion credit derivative market unraveling because of LEH will go,  nobody knows anything for sure and it's useless to talk about.    The gov't intervention in FNM/FRE unraveled this banking mess this weekend and now we face the consequences of not knowing what comes next.    There is no clarity at all.   All we know is what we've saying of late and that is cash is king.   As traders, we can only ask is this plunge going to give us the opportunity to have the downside break, we've been looking for?.  Okay, let's not kid ourselves..to make predictions for a trade in the morning is insane as more surprises...bad and maybe some good will dictate every minute of this weeks trading.     Many unwarranted stocks will be looted and you may pick up a quick intraday trade...to each his own!....be safe is all we can say, today!

..what's new?..

Oh well,   just another bailout with an injection of $85 billion of taxpayer money!.   Now what?....As expected the sentiment is mixed, if you've followed this closely you know this outcome was not going to rocket the market futures, but if it didn't happen,  it surely would have shot the market dead.   Basically,  it's another band-aid and all that will most likely happen is the negative bias will turn somewhere else and/or someone else.    We witnessed more of this today as MS was looking to be next in line for a run sell- off,  forcing the company to their earnings after the close to avoid more damage.     Maybe,  putting the the taxpayer on the hook will give the market some relief ( sounds ridiculous, but true..lol),  but we stand by what we've been saying and that is there is no reason to step in front of the bus!.  

At least,  we held the new support of SPX 1170, which may give us something to work from, reverse..bounce,  if we can just avoid another crisis in a financial firm in the next little while.   We had a huge volume/ reversal day in signifcant areas eg. DIA and if technicals can override the market turmoil, it should be now.  That's the 2 day outlook before the weekend, we'd still keep all trades on a short leash, number of positions to a minimum.

The market is under significant pressure, investors concerns have not changed overnight and will stay uncommitted as to getting in front of the bus.  To put it into perspective,  there is one trade and it is a stuffed cash trade!.   When we talk of needing sideline money to come back,  we are not talking a piggy bank savings here.   There is a hoard of cash in Money Market Funds that will eventually make this market rocket,  but it needs conviction and capitulation would get the ball rolling!.......unfortunately, we just can't roll as the Gov't keeps getting it's hands in the way.  

There has been nearly a ``trillion`` added to money markets since we started this crisis in August of 2007.   This is about $400billion more cash raised than the last bear market in 2000-2003.  When this ``trillion`` balance falls and it will fall in the hundreds of billions,  it will create an incredible Bull rush!!!.   So, do you want get in front of the bus now and risk not participating with the billions that will move the market because you blew your cash now!...Just something to think about if you`re frustrated, impatient day over day to make money by trading..investing.  

..making the rounds at JPM offices today

..in London, UK...Manchester United's New sponsor....

...Paulson for president..;)??

There is momentum trading,  which we've become very familiar with and have loved over the years.  This week, we've experienced a momentous trading circus and hope we don't ever see it again!.  What is it Willie said??,....."Mamas don't let your babies grow up to be Cowboys"... Change Cowboys to Traders after this roller coaster ride of emotions!.  What we saw on Thursday was just more fuel to an already exhausting week and we`re not just talking about the late day rally off the U.S mop up plan!.   The trading ranges on stocks from low to highs intraday are the wildest we can remember and not just in those being attacked (GS..MS..).   Stocks were having incredible ranges, eg., a $30 stock goes up and than falls $24, before climbing to $33 at close.  Yep, and that's a bloody coal stock with a 30% range... MS probably had a 100% price range..lol. . Midday, just before the announcement of the UK shorting plan,  it felt like doom or a final stage of capitulation as stocks we closely follow,  slowly slid lower and lower on weaker volume.     A collapse was imminent it seemed,  all it would have taken was wind of one big hedge, a fund, who'd had enough and start to liquidate.  This would set off domino's... off a cliff.    One thing only on our mind at this point was believe it or not and that was the Fed, the gov't was on high alert and would do SOMETHING!!.  Did you actually think Paulson was going to let GS be destroyed??? .   Something, he did/  they did has boxed adverse market conditions.    The world got it started,  even though the ensuing rally based on the U.K`s FSA headline seemed like just another reason to sell into as it was there and not here!.    But,  what this did was put pressure on the SEC here to do something and after the close it was pretty evident they were gonna stick a fork into short selling, in what capacity is not clear, yet, but there will be an untouchable..un-shortable group of related financial stocks for sure.   The UK plan was followed by word of a government toxic clean up job, honestly, we never read or heard of the RTS!.   This covers the bond market.   Next this morning is a treasury 50 billion guaranty program for the much scrutinized, possible run on Money Market funds for a fee covering the casual investor.  This is a huge relief!.    Incredible, historic events to take the U.S off an "orange' alert!.     As we said yesterday, the selling has not been "casual stuff", extreme forces were at work, orchestrated or not by more than one entity to destroy.   Heads will probably roll, investigations will go on for years possibly to find the root of all this.   Okay, that's the X-files version!..lol....You can say this collapse was inevitable and could have been seen coming a year or years ago, but those responsible for the havoc were not slowly building up short positions for a year.    If you even just watched and were not trading the ongoings midday, you could not help, but feel scared to death of would was on the edge!.   We are drained and many of you are as well, we're sure!.  If it wasn't for the Internet to use in the future, we'd be buying all the Financial newspapers this weekend to stash away and hold and show our 'cowboys' one day. 

Maybe the unwinding of Wall Street will be boxed in from here, but as far as trading today goes, it will still be a fast and furious playing field where you better have a big bladder or your gains may go flush before you get a chance to go flush!

We want to see " CONVICTION " and not just the enthusiasm we'll see early today.  The conviction we want is of what we discussed the other day and that is to see money come back in an orderly manner starting next week.   We want stability now, fear leaving will take sometime.  So, considering the trip of this week, we'll gladly just watch, maybe pull of a few trades quick trades and begin our much needed weekend.   We hope all survived, enjoy your weekend!. 

..It all makes sense!

Yeah, right!...Nothing really made sense today, sure after Friday's and 1 hour from Thursday of huge gains, we expected a pullback of sorts,  but nobody envisioned the market would give all of Friday's gains amidst all the happenings that should have been positive for some sectors.   If you told us a huge short squeeze in Oil ahead of Oct. expiration, a tumbling record day $USD would not at least boost Commodity stocks to a decent close,  we'd say you're nuts!.   Sure, a surging Oil and a declining $USD isn't good for the broad averages,  but when one of the events is a very positive buyback from MSFT,  you would not expect the NASD to give away over 4%, would you?.   Anyways, we don't have an interest in Techs as we've been saying due to earnings concerns this Q, but the action in commodity stocks that we're looking/ expecting for was very spotty in all the groups.    Once again, the trading ranges were insane.   A look at the coal stocks and you'd think we were back in the twilight zone from last week... lows to high spreads and everywhere in between swings intra-day,  WLT $62- 69.4, MEE $42- 48,  JRCC $31.5-36.5,  ANR $63-71.... Throw in the fact most of the stocks gave up their gains after the afternoon Oil spike and you may feel demoralized trading these stocks.    As disappointing/ confusing as it was, we still believe in slowly building up positions into autumn, primarily Coals, Ag's- Chemicals.   We still don't like Steel because of pricing pressure, we noted recently.  The Coals, Ag's do not have the same symptoms and we'd start looking here to start.

It's unrealistic to think this tainted market was going to give the all green- buy the market signs right away.  It will take time to see stabilization and confidence come.   It will not occur overnight and it shouldn't.  The faster the haggling over details in the rescue plan ends, the better it will be for all.  This plan has implications all around, commodity related as well.   This is the new thing to deal with now, volatility coming from whatever the sentiment is like coming from Washington.

...Paralyzed

While Congress sits on the dock wasting time, we are left watching the market roll away!.   Simply, as they vent on behalf of the public and their egos,  the market is paralyzed waiting for what should have been a quick resolution.   Buffett and Bill Gross have weighted in on the importance of all this.. Is anybody listening?.   By the time this plan is done, it might be so diluted it will look like GSachs stock and nobody will be happy!.  GREAT!... now Obama/ McCain invited themselves to the pig roast, a little late and probably will only make this take longer to get done!...All this is an incredible distraction, seemingly all traders have their eyes on the tube leaving broad market volumes to dwindle down..down.  

Anyways..... frustrated, distracted, paralyzed.....The way trading is going or may go,  it maybe only the non- trading taxpayers that are going to make money out of this plan..

DJIM #39, 2008

Unfortunately,  it seems the noise this morning is that Republican holdouts have not given their assurance 'votes' on the rescue plan, Wachovia is being sliced and diced, including billions of losses to be absorbed, while across the pond,  U.K/ Europe goes through nationalizing everything and anything...Bradford & Bingly (mortgage lender), Belgo- Dutch (banking Insurance group) etc.   Confidence is fragile this morning..simply.    The bill could get approved on Monday or get pushed to Wednesday.   Treasury intends to start purchasing assets quickly with a sizable amount initially in order to give it a jump start.  However, it will likely take the Treasury 2/3 weeks to start purchasing assets in order to be able to set up the operational requirements such as appointment of asset managers    There are many unclear aspects to the plan in relation to many different things and it probably will weigh on the plan till all is resolved.    

The stock rebound from big early losses on Friday, is just a blurb now and we're back to being frustrated, paralyzed waiting as all of you.   It's a rainout trading day as of this morning,  the playing field is covered by this 'TARP'!.

..revival or not

As we said, fooled once, fooled twice... and you become hesitant to enter into a market because of expectation number 3 that the bailout plan will happen sooner than later.   To us the 'bailout' trades have already happened.. up and down.   No matter,  if this rivival is passed....who cares!.    Well, of course we care for the longer term prospects, but as traders, the reactionary trade we `ve been seeing may no longer be there by the time the bill gets the vote.   The 5% reflex rebound erased the post vote losses and all it did was probably allow shorts to think if the markets extend higher,  they`ll get another opportunity.   We`d feel better if this move didn`t take a day,  we just allowed for a pullback.

As we've pointed out the last few months, biggest losses in the commodity sector happened in the first few days of a new month.  We are here again and with the probability hedge funds are faced with huge redemptions after a horrible September,  we think we may see heavy selling again this week.   We`ve been saying the steel trade is over for awhile and now we think the Coal trade maybe the next victim as things are deteriorating (including the critical China demand).   After today`s rebound, commodity stocks may have put themselves into a position to be sold off hard.    It could be argued that Monday`s 20% declines in commodity stocks was the sell -off,  but we think there may be more in store. 

There is unprecedented strain,  besides the obvious problems in the credit markets, equity markets,  we have signs from it spreading all over....resource companies bailing out on deals (eg Xstrata- Lonmin) , huge construction plans stopped in Moscow by a company.    Simply,  day by day, we are seeing a slowing down worldwide,  the noise is widening across every aspect of daily life. 

..waiting game

The waiting game is on, the only question now is will it be the crying game for the market by Friday's close?.   If it is the crying game, it would set- up for a memorable close and/ or Monday morning.  The consequences from the combo of a jobs report-unemployment # and the lunch time(?) vote should bring volatility hour by hour,  especially after yesterday's pounding!.    Both could be catalysts or just one,  it could go ugly before it has a chance to get good later.   Just roll the dice, folks, it could be one crazy day!!.    Thanks to today's bleeding and considering we're back to or lower to panic levels from last week,  we're back into the possibility of a reactionary trade to the vote.   Take into account the sell-off in commodity stocks last 2 days and with say a higher oil day,  maybe lower $USD and we'd look here for a long intraday trade.   This is just the reverse of what we've been in saying before Wednesdays trading day of the possibility of an imminent early October swoon in commodity stocks and than a fallout from MOS to other commodity sectors.  The $CRX decline of almost 10% was right up there with the previous early month beatings this summer,  if not the biggest.   Congrats, if you went short on the idea of another big fade, some of those sector stocks are off 20-30% in a few days and that excludes the Ag-Chem stocks.  The pace of this action suggests not only a worldwide slowdown, but a complete halt to all activity and that just won't happen, so be prepared to go long for a trade today or quite soon .  Again, today is all dependent on the reaction to eco data/ 'vote' by the broad mkt.

An early trade possibility is to look short Russian stocks for a day, eg WBD, VIP, MBT, maybe even neighbor stocks like CETV as the Russian mkt is feeling pain once again.