DJIM #42, 2008

Just another wild week, even a modestly flat close on Friday was spun from another 7% range from hi- low on the SPX.   Based on Thursday’s trade, our tone had changed towards the market and Friday morning the investing world woke up to Buffett’s, “ Buy America. I am”.     Buffett reinforced he was buying Thursday morning,  but stopped as the markets were rallying.   The way we look at this is simply what we believe now in starting positions for either intraday or longer trades and that is buy on the dips.    This example is well- served from Fridays action,  we noted night before to maybe start some homework and this included looking back into the commodity stocks.    The morning started with a gap down and the commods‘ followed suit tracing the $CRX, OIL (OIH our oil vehicle) to nice gains till profit taking ensued around 1:30pm in the broad market.    In consideration of the daily wild swings, buying dips beats trying to catch a runaway move that can start to flop by 1:30 like on Friday.   If commodity plays continue to do act well as in the last few days,  the late day sell-off may have been another dip opportunity.    Some days,  you’ll just get lucky and forget about accumulating and just take the profits generated that day, eg a POT run of up to 10pts or any of the other nice low-hi ranges in the commodity stocks witnessed. CMP, is our safe play favorite here as it's got more going for it (diversified) as in it's salt business with winter coming.

The big picture remains, a faltering global economy,  latest U.S figures confirm recession  ( latest retail numbers, homebuilders survey new cycle low,  early October factory surveys from the Philadelphia Fed (down to -37.5) and New York Fed (-24.6).......plunged !),  hit with additional financial credit shock  that isn’t going away overnight,  despite signs of subtle improvements, thawing of the credit markets late in the week.     The severity of the damage is hard to gauge and we just have to trade around it,  even if the result is the worst recession since the early 1980’s.    The consumer will tell the tale of how long and how deep of an economic contraction this is going to be.  Right now, hope is short and shallow.  Last week’s rebound in US and Japanese stocks,  amid awful economic data, is the first sign of a resistance level.     It is encouraging that equities went up this week even as economic data continued to deteriorate.     Equity markets gained 4% for the week after the previous week’s 20% crash.  Daily volatility remains very high and the VIX reached a new record high.   

Nobody can tell if a deep Global recession is priced in,  but considering we are off 45% in global equities since October,  it may suggest it is priced in.    We discussed last week the signs that policy actions are working on funding markets,  we won’t consider going long seriously overnight till we see impact of all that has been done.    The only cushion is the price of crude,  besides the newest policy initiatives that relieve total gloom.    These are pretty powerful forces to cushion the economic fall and boost spending, but is it enough to fight all the strong negatives out there.   Unfortunately,  as traders we’d like crude to spike here and there,  so the vast commodity names get some life.   Downside risk from a further decline in oil and gas prices is much less at Oil levels here, so most commodity plays have potential for upside from their current price levels.

The only stock making NCH's these days is EBS (alerted Oct 1st),  it also made #1 IBD this weekend,  this pretty well sums up the market and the difficulty in finding anything to go long for a period of time.

A big scope of corporate earnings this upcoming week (see earnings link), investor reaction is what we will monitoring closely to give the market some direction, besides the commodity plays

Buckle up...

We've wanted the low- high ranges to recede, but we didn't expect everyone to line up at the Polls early today and give us a measly 155 range today.   The good thing is the daily charts on the major indices, including things like the NDX look they are a welcoming in a pop.   Generally , it looks like the market is gearing up for something, doesn't it?.   As far as today, it was a whole lot of nothing in terms of trading and there was just nothing meaningful in terms of corporate news.

We've all wondered at one point or another,  which President is good for this market?.    In truth,  a new President probably cannot determine the outcome of any market.    Why is that?   What someone promises is not exactly the same as what one is actually going to do for any particular issue.  Today, we saw a move in Solars,  but isn't it rather late to play an 'election' edge' the day before?.    We probably think so!.   At this point,  we have to stay very open- minded as to the longer term impact of a new President and a potentially new administration.    For now,  what everyone cares about is if we are going to have an immediate rally or a sell- off following the vote.     Does the election result even matter when it comes to this market?    There's no way of knowing what some of those big institution's managers are thinking at this moment.   We bet they are wondering the same about their comrades.   If anything,  it'll be more of a chain reaction as oppose to an unanimous consensus on one particular action.   Considering all the macro issues flowing,  this Presidential vote may play a larger role than what has historically occurred down the road.   The average 1-2 week performance market gains is about 1% following an election,  we get that in an hour these days.

Today, if anything, the little play EBS  made up for any of doldrums in the market.    Yes,  it isn't like the huge small cap winner in the past,  but it's really nice to have one in the current market condition that hits 20% in a few trading days.     We also have EMS  on the table and despite some boring action,  it has held well off the earning gap.    Right now, we are basically waiting for this market to make a move.    A lot of indices are showing a similar pattern and we think a breakout around this election, is likely.   It may be brief though.   Nobody is willing to put any huge bets on anything these days,  we just don't know if those crazy volatile are still just around the corner and/ or if some negative news will from the sky.   VIX (chart up yesterday) has gone down considerably the last few days, but it's still higher than any level in the previous 5 years.

Like most people, we'll be glued to tube to watch the progress of this election.    Lets just hope whatever happens , we can get some good action in the market post - election for an extended period of time.

..something for Main St.

We have to admit, for the moment, this market is liking the recent turn of events that are giving some people a new found level of bullishness.  Maybe, it's because we hit the 5 trillion aid mark?;)  This time it was Main street that got some Thanksgiving handouts pre market,  not Wall street.   Still, despite the Main street help the market was pretty well a draw today, which could be looked at in a couple ways.  One, the rally needed a rest or two, which could be a negative, is why didn't it go higher with Main street getting aid.   We remain tilted to the short side short term as the market couldn't penetrate a resistance mark (see chart spy in link here) on very good news for the consumer.

It might be that we've become too accustomed with the analogy that every quick bounce has to be sold down hard and furious.  This one just could be different, we have to keep an open mind.   Granted this week is skewed as a lot of traders may have taken this week off all together due to the holiday.     We do have to give it to the policy makers for being so aggressively responsive to the dire financial crisis even in a holiday week.     Maybe, this is all part of the effort to calm people down, or cheer people up, at their annual Thanksgiving dinner tables.    It's the least thing that the government can give to the people, hope!

Again, today's announcement of a new TALF program, and yesterday's Citi bailout deal, are directly aimed at the root of the problem.   This is actually what market wanted to see.    Whether these programs will have any effect or not, still remain to be seen, but the initiative is definitely being welcomed so far.     Remember, market will go wherever our financials go.    If we want a meaningful rally that's sustainable for more than a couple of days, you don't have to look any further than the financials.      We have 1.5 more trading days to go before this week's end.    At this point, we really don't want to bet heavy one way or the other into the weekend.

Other than the usual ETF's we're concentrating (DJIA/SPX related).   We are also keeping our eyes on all of the recent plays we recently traded....

EBS, closed with a NCH and again showed it's one to buy on the dips.  AXYS, one we noted moves quick points in any rally has not disappointed climbing over 10 points during rally.  ASEI,  has also notched a NCH.   FLR,  came all the way back near its post eps gap level.   As you can see, some of the plays remain trades on dips.  On the other side,  MYGN  may be looking like a quick short now.

Happy Thanksgiving to all...