Bottoms Up!?!?!

There's only one thing on every traders mind going into the late week trade....Is this a retest of 10/10 coming and will it be successful ?.

Here's some facts,

86% of bottoms have a retest.  75% of retest windows will pass by 11/23/08.   A large number believe the “low” was set on 10/10, when the S&P 500 fell to 839 intraday, representing a 46% decline peak to trough.   If 10/10 indeed proves to be the low,  a retest is almost a certainty.   Since 1900, retests are the norm, occurring 86% of the time.   Applying those past retest windows to the 10/10 “low,” we arrive at some dates that could be important.    By 10/26, we passed 25% of retests.   By 11/23/08, we should have passed 75% of retest windows.  The furthest out to see if 10/10 holds is to 1/22/09, which is the 2002 lows. Three bottoms had no retest, 1917, 1942, and 1949.

If history of retests can be used as a barometer,  it supports a mid/ late November rally.   This also coincides with the probable receding in the intraday hi-low ranges that is essential in calling a bottom.  Why?.....The surge in intraday volatility above 3% has been associated with the major lows of 1987, 1998 and 2002.  We've been in the 6% range since October and only recently have seen this drop off.  Is it enough to bring the institutions/ fundamental investors off the sidelines?.  That's the big question and we'll only know after a successful retest.

Finally, the 45-day redemption window for some hedge funds is 11/15 and this can play a role into any rally.   This issue has been discussed constantly this week putting fear in many.    Investors have been watching this window carefully for obvious reasons.  To the extent that funds have anticipated redemptions, this explains some of the selling we are seeing.   Additionally, no investor wants to add risk during a time when there is such an imbalance of sellers.  Thus,  investors are likely to wait for this window to clear before adding risk.   Unfortunately, a large number of hedge funds have 30-day redemption windows,  which means additional redemptions could be seen then.   Judging by the beatings taken by Solars and many material/ commodity today, liquidations are ongoing.

Let's hope history is on our side....

DJIM #46 2008

What looked like a stellar day forming late afternoon with a possible follow through on Thursday's rally left everyone in the dust in the last 30 minutes of trading as the indices tanked 5% across the board in less than an hour.   If you witnessed the event you were left scratching your head into the weekend as to what the hell just happened.   Well,  what happened doesn't need a reason, it just reinforces the volatility is back/ and or just never left.   There will be no bottom in this environment as no institutions,  fundamental investors will step into a wide low-hi intraday trading range,  no matter,  if we just did had makings of a successful retest starting off 10/10 lows.

Considering there was no news for the sell- off,  it is best to assume it's a plethora of things from the 45-day redemption we discussed playing into any rally to anything else your imagination can draw up.   If nothing concrete comes out over the weekend that could have been the lead for the destruction,  we should have traders come back and make Monday a green day as heads clear.  A tinge of green end of day is almost essential for some confidence in this market.   Many also may see the final score as a constructive pullback from a technical prespective, we'll see.   All that matters is what we said in the last Journal,  this isn't a buy and hold market, still!. 

We also can't get to high off a rally like we had Thursday, or to low off a huge sell- off.   It's almost impossible to do,  but it's the only constructive way to deal with the market or you'll lose your marbles.

...reversals..reversals..

Entering the trading day, pessimism was abound as the SPX  futures touched 829 overnight and no matter what early upside was shown,  you had the gut feeling we were going to test that level at some point intraday.   It became more clear we were going down due to the lukewarm reaction to HPQ's guidance in the SMH, Nasdaq etc.     A feeble attempt around noon to make highs piled in the shorts and by 3pm we had touched down to the overnight 829.     Even though it seemed buyers had become lackadaisical after 2 days of distribution,  seemingly ready to just let the market begin another leg down....but,  instead they stepped up to plate and drove the SPX 40 points just after close to 868.   The saving grace to us was that the market was only down 150-200 Dow points and so was not in panic mode at the retesting levels.   If we had opened and gapped down,  it might have been a different story.    Maybe, we've all become immune to be scared, we've seen almost all this market can cook up and calmness seemed to rule at the bottoms today.    Maybe it's just acceptance we are going lower one day or another,  maybe just not right now.     One positive for the next little while is everyone now knows buyers come out of the closet at these levels, support is being shown and so once, twice...three times a 'bottoms up' day, may emerge once again down the road.

Most likely,  we gap down some in morning as the late gains are digested,  at that point the market will begin to show if a follow through day is possible.    If this is the case, an upside trend bias should emerge into expiration date.   The market won't wait for Friday to make a move,  it would just carry through late Wednesday into Friday morning, simply it would make the biggest move Thursday in our view.

As far as individual stocks there was not much movement into the close,  it seems all are fixated on the SPY-SSO-SDS as we've been here.

..going to zero!.

It may look grim as hell, but the markets ain't going to zero, even at this insane pace of 5-6% daily declines.  What is going to 'zero' and what may save this market is a zero interst rate policy for as long as it needs to be.  Deflationary recession is shouting out.  The FED has to make a statement to go zero for as long as it takes.   We don't have anything juicy to add tonight,  the numbers below speak for themselves.  We don't need to speak of another potential relief rally. 

It was late October that we said..."the U.S markets are lagging the crashes in percentage terms seen all over the world markets and may need to get a dose of their own medicine".   Well, it's been a hard pill to swallow..

Equities           Level      1Day        Week       Month      YTD
S&P 500            752      -6.7%     -17.4%        -16.1%    -48.8%
NASDAQ           1037     -4.7%     -16.5%        -16.2%    -50.3%
DJIA                 7552     -5.6%     -14.5%        -11.3%     -43.1%
FTSE                3875      -3.3%      -7.1%          -4.1%     -40.0%
Hang Seng     12299     -4.0%      -7.0%         -13.8%    -55.8%

This is the ' ZERO' call from JPM tonight..

Deflation could incent inventory liquidations...Fed needs to say "low for long" w/ZIRP - ALERT

The S&P 500 closed at 752, closing below 800 for the first time since October 2002 and putting us back to 1997. In May 1997, the S&P 500 closed 800 on its eventual rise to 1576. Deflation and a Fed at Zero Interest Rate Policy are only the most recent ofthe multitude of concerns raised as the recession gains in severity.

• Deflation will have an impact on the Industrial supply chain. Already, our Industrials analysts have noted that companies are leaning towards liquidating inventory as their expectations of price declines in commodities and products disincent inventory builds.
• In other words, the deflation that is talked about has broader implications, and would put further downside risk to our $75 S&P 500 EPS estimate for 2009. Already, our $75 estimate looks like a reach, suggesting that Street bottoms-up of $88 is even more unrealistic.
• The implication is that the Fed will need to make sure businesses and households do not develop long-term deflation expectations. Our Fixed Income teams and Economists note that it will be important for the Fed to say “low for long” to prevent this negative inflation bias.
• Since mid-September, we had to alter our view on equities as this turned from a potentially minor bear market to a major/more severe decline. And given the lack of visibility of the depth of the macro downturn, we see a folly in trying to call “a bottom” at this time. But at the same, a lot has been discounted given the now 53% decline in stocks, but we just do not know if the whole recession has been discounted.
• Finally, there are some positive developments. It seems that short-term markets have seen broad and material improvements. Demand for short-term paper has moved from overnight only to one-month and three-month products. The ZIRP would potentially expand demand for government, agency instruments, further aiding shortterm markets.
• Elsewhere in credit, the news is still grim – CMBS now in the 40s, High Yield now reflecting 58% implied default rates.

Bottom line. Stay defensive as we lack visibility on the ultimate magnitude of the economic downturn and we still do not know whether redemptions and forced selling are distorting prices. It has not paid to be a contrarian (annihilated months ago) nor focus on valuation. The VIX at 81 now implies at +/- 28% move in the next 30 days (as a less than 1 std. deviation event). In other words, an S&P 500 range of 541 to 963.

..Sustainable?..

Is the day and change rally sustainable?.  Guess, the thinking here is simple considering we were going short the SPX end of day.  The good thing is we get any fantasies of an extended run out of our heads quickly as the market does all it's talking in a very fast way, as in 10% gains in hours.  Our emotions don't need to be build up over weeks only to be let down once again.  It hurts more that way, this is better. The only thing that could sustain this is the fact it's a holiday week and most may just rather wait,  maybe even let this market climb a bit more into some potential bad news till next week and than go short.

The past few days, the market is just glowing from a strings attached save the bank bailout and a new 'dream' team administration.  Our question to the market is how fast will you dim this light of hope.  Besides,  we know the market has short term memory and likes to just go on to the next piece of news.    Life simply goes on around here and it becomes realistic once again, sooner than later.    We've just witnessed this in October as 2 day rallies became useless,  this one should too.    We have more recessionary data on the way this week, starting with GDP and consumer confidence and that should sober up the market quickly to the severe downturn in the economy.

Just keep it keep it simple the rest of the week with major indices ETF's,  but that includes keeping away from those FAZ ball's 3x.  Did you see some those today?.lol.   As far individual stocks,  don't get suckered in buying because you see your watchlist glow green with stocks up 15-20% and think you missed something.  These only look good because they are so cheap.   Remember what you really missed is the huge drops for days and weeks that allow such gains now. 

.a speech a day

...keeps the doctor away!.   As long as Obama makes a speech, an appointment every day the market should be in the green for the year by New Years!;).    Unfortunately,  every week is not a holiday week to boost moral as this week has been.   The market (SPX) penetrated the resistance we've discussed and just kept on rolling (on very volume) as end of day selling did not happen for a 4th straight day.  Why?.  Simply, the 'whales' are away!.  Whales are all those hedge funds, institutions that manage 100 mln+ that will return to action next week and only than will we know if this move is sustainable.   Also, remember just before any big holiday there is seemingly a gag order on bad news.   We saw this last year into XMAS season, only to have bad news start to spill early in the year.  It hasn't stopped since. 

This week is purely retail trading, in years past it would involve groups of stocks in say HLS. (Homeland Security stocks),  but this year the infatuation so far is with the ETF's and not individual stocks.   Friday will be very thin trading as markets are only open to 1pm and some stocks/ groups may get manipulated.   The question is which may be played?.  Unfortunately, the world just witnessed the attacks in Mumbai and maybe, just maybe HLS stocks will be those that get manipulated.   We've had a few names here in AXYS, ICXT, IRBT.   Other names COGT, NICE.

The market has shrugged off every piece of bad news this week.  The question to start Monday's trading is what it will do with "Black Friday' numbers.

...lunch meat

No reason to be wishy- washy, the market got the post- holiday stuffing kicked out if it with one day losses of nearly 10%.   Almost every possibility, we discussed in the previous week came to fruition as the Bears got the turkey leg off the rally feast.   At Mondays closing price with SPX at 850, we wrote...

.."Is the day and change rally sustainable?. Guess, the thinking here is simple considering we were going short the SPX end of day.  The good thing is we get any fantasies of an extended run out of our heads quickly as the market does all it's talking in a very fast way, as in 10% gains in hours. Our emotions don't need to be build up over weeks only to be let down once again.  It hurts more that way, this is better. The only thing that could sustain this is the fact it's a holiday week and most may just rather wait, maybe even let this market climb a bit more into some potential bad news till next week and than go short."

By the time the market broke 870 later on,  most were on the topic of a inverse head and shoulders breakout or something and we squeaked out 890+ overnight into today's trading.   Unfortunately,  we got everything that was feared...the market was led up higher on lower volume during the week, only to be reduced to turkey bone of 815 SPX level by 'Whales'...equity desks continued to see institutional/real sellers (along with some fresh shorts) hammer the market into the close, with ZERO demand on the other side of the trade = a very heavy market.   Also the 'bad news',  which we said seems to have a gag on during holiday trading week flowed in.   The abundance of bad news was widespread, international and domestic, brutal China manufacturing led, Russia, S.Korea, U.S,   some ominous credit stuff such as the chicken stock flying the coop into bankruptcy...Reluctance from Germany to participate in large fiscal stimulus measures (Germany is needed for any large European plan). ....Despite Holiday sales coming in better than feared - concerns over Dec. sales and margins given the highly promotional environment, and the potential for the fragile political situation overseas to disrupt commerce.   Oh yeah, when the gov't officially announces we're in a recession there is no rush to buy anything.   Nice of them to wait till today after everyone's turkey fun.

As we alerted,  if 840 was approached as it was starting to look as a possibility or else why would we alert market conditions intraday, the Bull would be leftover meat!.... 815 from 890 is just that end of day.   We also posted the Inflow/ Outflow summary from the previous week that showed it was just retail traders pushing the market up as there were no funds flowing into longer term equity funds during the bigger volume days of the rally.    The last thing we wanted to see was such action for the health of the market going forward,  such a beating knocks the life out of a lot hope out the window brought on by last weeks Obama antics,  bad news shrugging off....weekend journal... "Right now, we are looking at an extended market that desperately needs a pullback.  However, we have to be careful of what we wish for as a pullback can turn into a nasty collapse like in early November. What we keep our eyes on is the health of financial stocks".   Today was the nasty and financial stocks took the brunt of the beating.   The only positive is Meredith Whitney's comments were taken the wrong way in some respects to consumer credit cards and a morning bounce of sorts maybe in the cards or it just may bounce some cause it was such an ugly close and can't get uglier, just yet.   We're flat going into Tuesday's trade with Capital Hill/ Automakers shenanigans on the agenda,  we'll wait for the reaction.

Encouraging...

It's pretty clear why the market reverse from the gap down and finished on an encouraging note.  Last week we were saying the market is 'shrugging' off bad news,  we expected this to change early this week as the whales came back.  They did and drove the market down nearly 10% in a single day.   But, as of today,  we can say the market is shrugging off bad news once again and this cannot be ignored at this time of the year.   Also, we can't ignore that the Financials are also making a quick recovery off a few bad days, following a nice run in the prior week.  This needs to stick to go forward!.

The morning had a slew of tech disappointments that led to the gap down.   What happened next was RIMM's negative preliminary 3Q results were being shrugged off as it reversed at the bell from a bad premkt.   Seemingly, the buy side had been quicker to discount the bad news than the sell side!.   Basically, the street was already very cautious.   RIMM’s fundamentals are still strong, and very few large cap tech names can claim growth of this magnitude.   As we watched this positive action, we felt it was important to post that CSCO/Chambers were having a conference starting at 10am as it could be a turning point for the market.   One glance back at the intraday charts and you can see CSCO was starting to move during the conference,  leading the market higher.   Chambers said that trends thus far in the Q are consistent with the assumptions management made when setting guidance November 5th,  signaling business is tracking to plan, albeit a weak plan.    This was enough to set the Semi's in the SOX off as the best performers in tech land.

So,  if we stick to the premise that the majority of days lately the market is discounting , shrugging off bad news and therefore is not being driven by negative headlines, including ADP and manufacturing  data in the morning, later the beige book notes in the afternoon.    So, we ask what is the market trading off??. 

Simple.. we flashed SPX support/ resistance levels before the open..."Some levels to watch...SPX 826, 800, 752 support; 848, 860 resistance on upside ."   Once 848 was broken,  860 was the next level to watch.  It was evident late in the day a battle was underway for this front and a break was very possible.  Finishing at 871, up 22 was well North and gives potential for an early good start tomorrow.    Treasuries, not only equities rallied into the close.   Also helping the mkt is the fact that the government is willing to come in and buy mortgage backed securities as well as bonds with longer duration which is forcing fixed income portfolio managers to purchase longer duration bonds.   Another big positive,  yet not finalized is the Treasury is considering a plan to halt the slide in home prices and UK gov't announced a plan whereby struggling homeowners can demand a 2 yr "mortgage holiday" backed by taxpayers.  These are the good headlines and market is reacting in a positive manner.

Weighing and not to be forgotten on the market is still the Auto Washington Aid unanswered questions.   We also have the retailers reporting November sales Wed night and Thurs morning (the releases could also include some color on Black Friday trends).   Jobs numbers for Nov due out this Friday, consensus on  right now is for a loss of 325K jobs..GS is saying 400K +as of today

In an almost perfect Santa Claus rally world,  we'll get these data figures 'shrugged off'!.   Do you believe in Santa Claus?

DJIM #49 2008

A few things from last week Journal focus showed it's colors by Friday!.

"Shrugging off"….what better indicator of shrugging off bad news than what we witnessed Friday after the brutal employment number, yet market rebounded strongly.  Sells off are becoming shorter in duration.    A teflon market is seemingly here.   The market had reasons to go to bed and not get up, Economic data was horrendous last week…ISM, factory orders, ADP and endless EPS wrecks, outlook cuts in RIMM leading a pack of NOK AMD PALM ISIL SWKS TSM WFR XRTX  etc.   Add a bankruptcy news from PPC and at least 5 more defaults, credt mkts still trouble (Cali, NY/NJ),  geo -political tension(India) and the never ending Automaker debacle weighted in,  yet the market lived!.     Okay, it wasn’t all bad news, we had plenty of good stuff such as MBA/ mortgages numbers showing a huge refi boom , banks/gov’t interventions all over the world,  a potential gigantic and radical cash infusion in the U.K,  a strong USD and low Oil despite all the FED print work and more fed/ Bernanke positive announcements/ quantitative easing.   CSCO implied trends so far are consistent with guidance was a mid week positive.

In conclusion,  everything is deterioating from eco- news to EPS outlooks..but stocks held the previous week gains pretty well.   We have to think year end melt up possibility….basically we have to be openminded late in the year it seems or we may miss some substantial gains.

"Financials"…..there was one positive early Friday and many times it’s a tale of things to come.  During the early morning beating,   XLF (financials),   thus many brokerage and Financial stocks were OUT-performing.    We also had the Insurers  acting great,   HIG,  given out by a member led the way into a squeeze that lasted the day and probably into Monday!.    We keep harping to keep an eye on the financials and this is even true for day to day action trends, not just long term.    If they are doing well in a bad market day like Friday,  the market will most likely do well at some point intraday.    Friday proved this.   So always keep an eye on what's working and what's not,  even in bad markets as it may be a signal of things to come.    There is also news reports that the life insurance industry could receive relief from state regulators when it comes to capital, also a positive.

"Beaten down stocks"...one glance at HIG and other SPX leaders for the week lead to one way of thinking,  HIG +78%, CIT +51%, PFG +34%, PRU +28%, CTX +28%, LEN+28%, PLD +26%, LNC +23%, SHLD +23%, KBH +21%, BBBY +20%, BSX +20%, XL +19%, TIF +19%, DHI+17%, THC +16%, ODP +15%, LSI +15%, CI +15%, SNDK +15%.

It is time to look at beaten stocks,   particularly in the SPX that can have great gains in days-hours,  if we are in a melt up holiday ensuing market.   So, watch for news that may seem irrelevant.    Any other day in the EPS world, you'd look at HIG's EPS headline and let it pass,  but we have stocks at such beaten values the chances of a squeeze are great.   If we are in such an environment, start using the Forum to throw out a few names, some may turn out great like HIG, others may not.  We are responsible for own decisions if to chase the dollar store stocks (cheapies) or not.

"Oil".... sooner than later this will be a great opportunity,  even if it oil goes to $60.   That's a 50% gain.  We haven`t been at these prices since January 2005.   The money to be made won't be in in individual stocks.  Oil rig stats are declining day by day going forward.   Let's look at the ETF's instead.   Last week we had a question about the 3X ETF`s ERX-ERY on forum and said they are not going to follow OIL price,  but the R2K energy stocks component.   Well,  we saw more as we were monitoring their action.   One look at Fridays action and you can see why these can be powerful movers and have nothing to do with the price of OIL.   The rebound in say ERX went with the market rebound, Russell2002-SPX,  not the price of oil which basically stayed at the lows of the day, while ERX went from 26 to 32.70 by close.    Simply,  not only will these ETFs move with the indices such as the Russell small cap indices, but when energy-oil stocks also lead the way, these ETF`s will have even greater moves as they often move the SPX all by themselves in the past because of the weight of them in the index.    Basically, these ETFs can move in various ways…an index move, an index move led by energy and of course can move when oil finally spikes.   You have to think being so much under 200MA in oil is not going to last forever and this "risky" overnight hold maybe the way to play intraday.  DIG/ DUG are the 2x ETF's.

Into the trading week....."SPY"....Levels to watch on SPX futures , 855-850 on the downside and 875-900 on the upside.   Stocks worldwide should be playing some catch up to our markets overnight.  We also have some more Obama noise on a massive public spending program hitting the rounds and the apparent progress this weekend in regards to the Automakers.  Plus, stimulus/ cuts in China / India.   We should test 900 SPX resistance early on.  Under the terms of the agreement being discussed, $14-15B would be taken from the $25B worth of appropriated “green” funds sitting at the DOE to bridge the industry through early ‘09, when a more comprehensive restructuring package will be considered.   Also, not much Eco data this week to worry about,  this should ease concerns of buying into the market.

...a pulse in commodities

Once again the market did the unthinkable 'early on'.    It rallied off more slashing of guidance/ bad news all around, predominately in the tech sector (which led higher).    But, as soon as the SPX closed in on previous days high of 918,  reality sank in or more importantly the 'technical' trade rolled in.    It was just unsustainable off a big move in the previous session , improbable to shrug off more bad news immediately.   SPX bounced off 886 (its 30MA) almost back to 900,  we'd look at this as support in tomorrow's trade and anticipate some Automaker news.

Despite, the closing numbers, it just didn't look like sellers were taking control, more like just buyers petering out after a nice multi day rally.   Basically, it didn't look scary, probably due to no one really wanting be ahead of a pending Auto deal.   The decline can also be attributed to......Treasury yields approach 0%…..Treasuries rose, pushing rates on the three-month bill negative for the first time….The Treasury sold $27 billion of three-month bills yesterday at a discount rate of 0.005 percent, the lowest since it starting auctioning the securities in 1929. The U.S. also sold $30 billion of four-week bills today at zero percent for the first time since it began selling the debt in 2001 (Bloomberg).

Meanwhile,  back at DJIM's ranch our early focus (alert) turned to the E&P's off some positive drilling results on the heels of CHK's liquidity plan from previous day and it continued throughout the day.   We all remember the great, but somewhat short lived trade (3 months) off the Haynesville Shale stocks.   CHK is the dominant name here with smaller caps like HK, GDP, CRK, XCO, GMXR.    Almost all bubbled up as names moved off each others results as in the past.    The broader tape was rather flat as most commodities were down or flat.   This included par performance from bigger energy names which subdued these moves somewhat.  It wasn't the perfect storm,  we hope for a widespread oily move tomorrow to help these Shales along.

Of course,  the biggest moves can be seen in the 'beaten down' under $10 stocks, which comprises almost all shipping stocks.    The moves can be attributed to one piece of news from a single company citing there has been a pick up in activity in Asia re Iron Ore, Coal, Copper, Steel.   Also, bulk shipping rates had rose for 1st time in 14 days have caused some exuberance.   Unfortunately, we keep reading negative headlines at same time,... Nippon Yusen K.K., Japan’s largest shipping line by sales, cut its fleet expansion plan by up to 60 vessels as slowing economic growth curbs demand for transporting steelmaking commodities including coal and iron ore.   We just can't get excited for a turnaround here, just yet,  it is strictly your own decision to trade these intraday at this juncture.

Anyways,   the commodity stocks are showing a pulse,  one look at NUE's (steel) action off guidance today is telling that maybe the market has priced in more than enough bad news heading into 2009.

Sliced and diced...

SPX 885 was sliced and diced and by the look at the Futures ES (SPX)...870 was minced and 850 was shredded. That's a lot of support taken out in hours, no matter how bad the Auto Bill rejection seems overnight.     We've focused on SPX as an important reading of late,..."Technically, 885.85 (886) was held again on the SPX and 925/ 930 is the upside resistance. The direction of your trade should be glued to these levels"....and said at 2pm the market may start looking ahead soon with the Senate problems and Financial earnings on the way.       Considering we're off about 700 off DJIA since the alert, the market not only looked ahead soon after,  but may have just got ahead of itself.    Simply, a chance for a Friday short covering bounce exists, maybe to 850-860 as Friday's have brought on rallies almost every week lately.   Still,  we would probably trade nothing,  maybe some indices ETF's and just sit quietly into the weekend.   It's been a good week with the Energy sector here, maybe some of you shorted (or just got out of stocks) at 885 and wake up to a nice surprise.    No need to be reckless now,   just wait for the next headline, hopefully something positive.

Away from this Auto debacle,   the market was on fumes unable to go higher, buyers were not chasing any longer and short covering part of rally seemed to end.    The psychology turned sour with Financials, which peaked Monday, took over headlines as their own executives opened their mouths.    One was BLK's Fink saying Q4 earnings for financials will be 'horrific and shockingly bad".    Later, it was JPM's CEO, saying it had a terrible November and December also looked bleak.    Is this something new?.    At this point as far as the Financials are concerned, nothing is new or surprising.    It's not a coincidence that negative headlines always happen at support or good news at resistance.    There's usually catalysts to bring the indices to R/S levels and bust them,  unfortunately today it came at support with CEO's blab, failed rescue plan, an ex- Nasdaq Chairman Madoff,  head of a multi billion hedge fund involvement in a giant Ponzi scheme.    The latter is probably quite damaging as investor confidence may be rattled once again.  Who can you trust on Wall Street,  if not a 70 year old who can pass for a Mall Santa this season.    Guess, his suit will have pinstripes instead.    So...we have all this negative news out there that may not be "shrugged off" as all the recent negative headlines have been....let's wait it out

..duck flying shoes, maybe...but GS, GE, FED

..all in one day for the market?

A quick round- up into the trading day(s) before all the shoe throwing begins.   The question is how will the market react to the plethora of news events starting in the premkt and lasting long into the week.   As far as today’s trade,  it was mostly a sitting on your hands kind of market before tomorrow.   This was no surprise as quiet days are pretty well the norm ahead of `big` catalysts.   Crude-commodities continued to outperform early on dollar weakness, but crude swung $6 later in the day and was the main reason for the weaker market.   We highlighted shipping  names going into the day on news of a revival/ charter prices up threefold in a week and they held their own most of the day after gapping ~15%.   CMP,  we tossed out again and it caught about 3 points afterwards,  if we get a good market we expect more from this chem play as mother nature is starting to play havoc this winter.   On the technical side,  we put a lot of emphasis last week on bounces from 850-860 on the SPX.   It seemed we got program trading kicking in around 330pm today as the SPX spiked from ~850.    So, support seems to be here.   This was the only glimpse of institutional trading all day, it was mostly a sitting and waiting game all day.

GS,  earnings are on the mound first and all eyes will be set here.  CC at 11am.   The immediate trading action will be something to behold with wild fluctuations that will continue into the first hours of the regular trading day.   The reaction is what we’re all waiting for as it will signal if the market is truly looking forward.   The financials again were one of the weakest groups today and have been on sale since they peaked on December 8th.   GS, like many other brokerage stocks have had ½ of their gains wiped away since the rally started Nov 21.   If the market wants to react favourably, it can cook in any bad earnings outlook into these 50% declines in the past week and move forward! .

GE’ s, full outlook is tomorrow as well and it’s being ignored with GS, FED taking the headlines,  but it can carry a big stick to the markets direction.

FED  decision is in the afternoon and you have to expect the volatility to continue afterwards.   The FED has been aggressive over the financial crisis and a reasonable chance exits we go to zero..ZIRP,  but it is more likely a 50bp ease step 1 to ZIRP taking place later.   The statement will be scrutinized and we’ll likely hear again the FED has sufficient tools at it’s disposal to achieve it’s goals and nothing more.

If this wasn’t enough,  we have lots more market moving possibilities to deal with later in the week.  We’ll save those for later.   Tomorrow’s approach has to centre around the SPX and the levels of importance (Resistance /Support).    Which direction we trade will be focused around these important levels.   Don’t hurt yourself analyzing GS, FED reports, the market will lead you in either direction.   It’s going to be an interesting day.

...3 'ducks' in a row

GS, FED, GE….the market got more than a ugly gaudy sweater for XMAS this year from these 3 behemoths in their own right!.   Most importantly,  the FED did pretty well what we pleaded for in the middle of November…”What is going to ‘zero’ and what may save the market is a zero interest rate policy for as long as it needs to be….The FED has to make a statement to go to zero for as long as it takes”.   

It took the market more than a few minutes to digest what was really said as it acted like a deer in the headlights.  Even though,  we said it was reasonable to go to zero the night before,  it was still a pleasant shock of sorts as the FED finally got somewhat ahead of the curve.     At the end of the day, it seemed like XMAS for many as the market applauded in action and words.    Here's the of the decision and statement...

1) will target a RANGE (not an explicit target) for the fed funds rate of 0-0.25% (expectations were for a cut to 0.5%); 2) comments on the economy signal a further weakening; 3) inflation no longer a concern;4) they say that rates will probably. stay at "exceptionally low levels of the federal funds rate for some time"; 5) the Fed reits that they are purchasing MBS and agency debt and will increase these purchases as conditions warrant; 6) Fed reits they are looking at buying longer-term Treasury securities; 7) Fed reits the TALF will kick off early in '09 (which should help consumer financing markets); 8) was a unanimous decision.

Yes, Santa has a helicopter, not a sleigh!.    As far as GS & GE,  let`s just say they were stocking stuffers
Both were received positively,  GS just by surviving and GE by reaffirming.

An integral part of our Journals is to prepare all of us for the next trading session.    By releasing the last Journal the night before,  we set out the importance of the day which revolved around the SPX levels and news items.   You know a move will happen in either direction as these items get their release.   We followed up in Alerts and Forum as the day progressed as to what we were eyeing as crtical levels,  stocks (financials insurers-major indices ETF`s) to go after if a level broken.   ..."Now that GS seems to have survived, looking at 885+ break to add a few ETF relating to major indices and some financials like JPM`…Depends if the financials go and we rally, insurers will piggy back , HIG probably has the shorts all over it again, so move could be nice...we wouldnt play it alone as of now.., 16.50 is a wall to watch ..KIE is the Insurer ETF …..FED has gone all out on this it seems, mkt should like,,,901 50ma SPX next important level. 2:31pm.

Simply, by being prepared to watch certain technical levels and what sec'/ stocks would benefit most or not,  we all should have had a nice day.    SPX financial up 11% inc. a nice move by JPM, 885 level melt up..etc.

By trading day’s end,  we broke through a key technical level the S&P cash of 901 and finished at 913,  a close above the 50 ma for the first time since the beginning of September.  This did and should bring out many a traders-investor who require such levels to wash the market with money.  It`s just a safer trade for many if we stand above the 50ma as some nervousness dissipates here.  Let`s just hold it now, a small pullback in the morning and than a push higher would be the positive action to bring more in.   There was real buying in the move to go with short covering, most importantly it seems forced selling is pretty well gone at end of day.  But, we`re not out of the woods in the short term as in this week as we have some unfinished business.  Quick rundown of major catalysts being watched in this last full trading week of the year: 1) autos resolution in Washington; 2) OPEC meeting 12/17 w/ a cut of at least 2MM BPD expected); 3) MS earnings on Wed; 4) earnings Thurs, ORCL, RIMM; 6) SPX indexes-Nasdaq 100 rebalancing, quad witch to close the week.

Going forward,  the  Broker-Financials-Insurers  are definitely beneficiaries of the the FED decision.  But, we also have because of the larger than expected cut & reiteration of buying agencies/MBC/etc equalling a dollar bearish.   This brings the whole commodity picture into the framework of what we are going to be trading further.   The timing could not have been better as we've been on this dog's tale lately anyway.   In our view,  the action even though mentioned late today as heavy commodity ruled,  we did not see this materialize to the degree we expected.    For one thing, most Ag's-Chem stocks (POT MOS)  were already moving before the decision on the back of a Merrill Lynch upgrade.  CMP , continued it's 2 day move after the announcement.    What surprised many was that Oil and its'/ sector was no flaring up.    We think this totally b/c of the sell the news headline out earlier that Saudi Arabia is calling for a 2mbd before the OPEC meeting.   Crude should move with a significantly weaker dollar sooner than later.

..Santa rally needs a booster

It seems we just finished discussing how there is always news in the direction of resistance/ support (R/S) to break either one.   Well, we did actually about 885 SPX just a few days ago and than the FED decision broke that R and today was payback as we crossed 50MA support while sitting around it thanks to an ill timed SP outlook cut on GE.   Just when GE didn’t throw a shoe out at the market by reaffirming, someone else throws a stinky shoe and shows GE does carry a ‘big stick’ in respect to the market direction.  

Once again with no ‘new catalyst’,  the market couldn’t even reach 918 this time (911 high) and it was time for the Bears to declare a victory as in an end to this rally by close.   In our view,  this GE headline will be forgotten and life will move on very shortly.    A bigger nag on the market might have been Washington’s comments on the Auto bailout…oh yeah, remember that one?.    Well, this bailout stuff may just be the ‘new catalyst’ on freaky Friday where it’s almost been a given to hear good news the past month.    We pointed this out before last Fridays trade and we got a rally early in the morning.   In preparation of such an event tomorrow,  we don’t look at ‘small break'  of support as anything to be very discouraged about just yet, as we have potential positive news flow as a possibility to finish the week above 50MA.    Even though support was crossed,  it is only natural for sellers/ profit taking to come if we breach those levels.    The sellers/ profit takers, of course, as expected all over the ‘recent winners’ , especially in the commodity space as the dollar strengthened and stopped its consecutive days drop.   One survivor and maybe an important gauge on the markets health is GS.    Fortunately, the breach of support wasn’t extreme as we didn’t close that much below it.   Considering, we’ve been in a tight range, we probably have a few supports in different traders eyes, some maybe looking at 885 (held at close) as that was the break point in both directions the past few weeks.   Of course, all of this is dependent and could be worthless talk if we get ‘negative news overnight/ pre-market.

Anyways..that’s lead into trading day, it’s very simple.    There is no need to discuss any sectors or specific stocks in detail as they will only follow the news flow.   A few headlines heading into the day such as the Ag-Chem (IPI, POT) negative or RIMM, ORCL positive reports  will hinge on the big picture, most likely.

* Don't freak when you see a very low Oil tomorrow ( in JAN crude), it will be a very high Oil compartively on Monday.  It has to do with expirations with FEB crude becoming the new front month.

..somewhat lucky

..or just good?

The worst possible scenario on an expected low volume day is a rash of negative headlines.    Stocks/ Sectors plummet as buyers are nowhere in sight and sellers will relieve themselves of their shares almost at any price.    At end of the day,  we simply got exaggerated moves to the downside because of the low volume.     If it wasn't for the fact we don't want to carry many different positions over the holidays, it might prove to have been an excellent opportunity to open positions in beat up sectors like the Shales (downgrade sec, by RJ).    The negative headlines running the day...very negative data regarding Asian trade metrics, a negative outlook on Alcoa and a bunch of downgrades to the commodity/ industrial sectors.     Throw in an astounding Oil price,  a declining Dry Bulk Index (3rd day in a row) and you have what looks like a fallout occurring from the initial excitement of the US/ China initiatives of spending.   Oh yeah,  commercial real estate headlines also weighted in on the the market, particularly on life insurers because of portfolio concerns.    The short covering here lately (eg,HIG) has abated on new concerns, clearly.   Bank/ brokers space also felt this and besides JPM, most were down 3-7%.    Toss in a Tech mess led by AAPL, more Retail,  Auto bailout concerns and you have to say we were lucky to come out 60 and 16 points down on the DJIA/SPX, respectively.   We were simply down across the board and final tallies in the major indices are looking quite lucky to escape bigger overall declines.

Speaking of the SPX,  we bounced off support at 855 and resistance is now the 50ma at about 900.

If there is an opportunity till the end of the year,  we think it may come from the 'sale' of the commodity/ industrial equities and so we'd watch this space more closely than any other.

Markets close at 1pm Wednesday and our next Journal will lead into Friday's trading day.  Considering how fast we recovered late in the day, we're still going to be around just in case this week ain't a complete wash on the trading front.  Anything is possible.

Happy Holidays to all our friends and your families.

D&J