..finger on...on/off switch

The Financial rattling continued predominately in the FNM/FRE/LEH, this led to the uptrend from July lows was busted up in the SPX, most notably.  So you'd think we're in deep trouble!.  Fortunately, this isn't necessarily the case in the immediate term as sometimes it's all about timing.  The time is late August and the dry volume allows for quick rallies especially at oversold levels we find the market in now and late August doesn't allow for gigantic drops (unless some horrible news slips in) as the big money is sidelined waiting to return in a few weeks.   Also, the great thing about trading day to day is you can sometimes find a silver lining or two.   Recently, it's been focusing on a few selective stocks and the case for this continued as our Journal morning notes on FSYS, AFAM led just nicely.  The other silver lining is we have an OFF/ON switch always ready to go at all times.  No matter how close the $CRX looks for a tumble as it plays with 800 again, we must give it the benefit of the doubt and appreciate it's move off 800 today.  The timing may be just right for the hard metals to make a move with the USD/Oil stabilizing after big moves.  We're not calling a bottom/top in anything, only that we should look for an opportunity to make some money off the coals, steels, E&P energy plays off our list.   Speaking of timing,  it's also seasonally/history right for things such as coal.  An important role of the daily Journal is a view into the next  trading day,  simply our eyes are back on the commods' for the next few trading days and we're ready to turn on the switch for a trade.   If the $CRX behaves right early Wednesday,  we won't waste too much time entering some positions spreading them around the 3 groups above.  Still, we are in a strict trading mode and we won't be blowing a fuse as in not taking profits generated/ or cutting a lagging/losing trade.   No fat fingers here with a broken uptrend. 

As we all know the stocks off our shadowlist can make big daily moves and this is what we are anticipating shortly.   The oil inventory number in the morning may just be the right catalyst for the $CRX and it's best to wait for it to come out.   It is possible we see strength in the commods' and the overall market at the same time.  This something we don't see often. 

Follow through...

..desperately needed.....Basically, we are making a general comment with regard to all the plays out there.    Yes, apparently, other than FNM/FRE to the downside,  it's pretty much an uncertainty for any big movers to have follow through action to the upside this summer.     There was no shortage of action today and we have to give it to this market despite some grave concern for two of our largest mortgage lenders.   As we said yesterday in conclusion,  it is possible for the commodities to run with the broad market.  We had spurts of this all day and if it wasn't for this FNM/FRE mess it would have happened!

Here's the thing, with that many movers with 4-10%+ or 5 pts+ gains from our Shadowlisted commodity plays, ...including solar..

ENER +10.28% MON +4.63% RIMM +3.44% POT +1.27% AFAM -2.07%

SOL +9.26% X +4.62% ANR +3.39% FLS +0.80% FSYS -6.78%

HK +8.43% CRK +4.62% MOS +3.29% PRXL +0.03%

CLR +7.28% CMP +4.36% MT +2.87% ICLR 0.00%

JRCC +6.76% BIDU +4.01% RIG +2.86% DRYS -0.03%

PCX +6.22% SCHN +3.96% WLT +2.06% CEDC -0.08%

GDP +5.97% PVA +3.96% ROCK +1.58% USPH -0.15%

FSLR +5.51% EBIX +3.82% ILMN +1.57% AXYS -0.44%

IPHS +5.40% CF +3.69% MEE +1.39% CRL -0.54%

CLF +5.31% AKS +3.62% AAPL +1.33% ANSS -0.76%

......you couldn't help but to feel it's more than just a mere coincidence.   Can a sector rally be in the works?    Of course, we've all been fooled a few times since the correction began weeks ago and it's probably best leaving the question unanswered at the end of the day.    As traders, even though we act often off our instinct, we still have to be open-minded for any possibilities.     Yes, as many probably agree, we are sick and tired of playing intraday points because trends last 5 minutes.   Today was just another dizzy day.   We'd like to see some meaningful follow through whether its' from E&P Shales or Solars or Steels/ Coals or any recent EPS plays.

Earlier today we had the oil inventory report that was considered very disappointing for the commodity groups.   However, crude oil reversed early weakness and still ended up with a pretty healthy gain.     In case you haven't noticed, oil price has basically been in the same price range during the last few trading sessions.    With its positive reaction to a negative inventory report today, you can't help but think we may have hit a bottom already.     Many oil related stocks behaved really well today and you can certainly feel the same enthusiasm across all of the commodity sector.    We aren't saying there's going to be an immediate and powerful commodity rally here.     We are simply pointing out that we like what we see the last couple of days from the commodity area and we have to be prepared to give it a good ride if the action is confirmed.    Speaking of which, we are looking for some follow through moves from many gainers today.    Follow through moves do not necessarily mean another huge up move the day or two after.    We feel any subsequent firming action from the gainers today would be considered very healthy and we'd then view it as launch pad for some potential sustained up moves.

In terms of individual plays,  our alert buy of ENER exploded and has broken out cleanly today.   It is due to report next week and the entire solar sector is getting a lift lately by various earning reports and contracts.  Again, as with recent plays, if you miss a first leg up as in AFAM, FSYS or miss a breakout as in ENER yesterday wait for a decent dip/ pullback.

Tension is good...

Okay, we aren't going to judge the right or wrong of the world's major issue on this site.    The tension in the little region called Georgia has provided a delayed heavy lift to crude oil intensifying the commodities rally.    This tension, along with what could be the technical bounce of oil price, is certainly good for all of the commodity sectors.  As far as the indexes go, it was a mixed day, but the SPX battle of recent weeks looks to have been won by the 'Bulls' for the week and some short covering may take place Friday.  We may have more than just the commodities to trade.

Yesterday, we noted in the journal that we are hoping to see some follow through in the commodity sectors and today, miraculously, we got our wish!    Perhaps, traders may use the conflict in Georgia as the catalyst to buy up oil, but we think oil probably would' ve gone up today regardless because of the stabilization we`ve talked about a few days ago.     When we look at USO, the main tracking stock for oil and gas futures, we couldn't help but feel the downtrend has been broken and now we look at $100 as a resistance level.    Does this suggest a multi day run-up is coming up ahead of us?   It is certainly possible, but essentially as long as it inches higher, we don't really care how fast or slow it creeps up!.  Take into consideration, since our Journal this week in regards to having our fingers on the commodities switch, the $CRX is up around 5% since and some creeping back is always possible as the USD/OIL plays it's usual role.

This upside move is definitely good news for many of our, "love it or hate it" type of plays.    Many of the familiar "Shale" plays, Coal plays had a blast today.     We really like what we saw today and as we said before Wednesday`s trade, "...we won't waste too much time entering some positions spreading them around .....".  That's right, we aren't just sitting there watching the plays,  we all have our favorite commodity plays in each group to trade and the switch has been turned on to get back on board the last few days.    As the day progressed the more it felt like last week's low was the short term bottom for oil and as well as many commodity plays.   Assuming oil stays relatively healthy the next little while, we'd like to see some more back filling from the commodity plays with an upward bias.   That way, there'd be plenty of time and opportunity for us to get back in and trade them higher.    It surely beats watching FNM/FRE taking their beatings every single day.

As far as EPS plays go, ROCK tried to break out today and we are keeping a very close eye on it.  The volume isn't great but it did manage a nch at the end.     After some early shakeout, FSYS also managed to close above 9 ema as well and it doesn't feel like the play is over.   It's literally one hour worth of trading away from a new high as well.    With AFAM, it looks like patience is needed but we like what we see during the last couple day's worth of action.  We added former DJIM play, SPWR back to our list.

Bottom line, all of sudden, we`ve found ourselves busy again.   Like we said before, when oil goes, the entire commodity sectors go with it.   Fundamental reasons are also present.   We have to take advantage of these kind of opportunities.

DJIM# 34 2008

Let's just say Friday's USD+/ Oil steep slide led to a big upside day on the broad markets.  Still, despite the huge slide in Oil, excluding the E&P energy Shaes,  the damage was minimal to the rest of our commodity stocks we either monitor for direction and /or trade.  This was a surprise following the commodity run of more than 5-6% mid week.  A pullback possibility was noted before Friday's trading, the non-severity of the pullback was an opportunity to pocket gains as losses to any profits would have been minimal heading into a weekend.

ROCK +1.88% AKS -1.76% JRCC -3.91%

ANR +1.37% IPHS -1.78% GDP -5.75%

SCHN +0.29% POT -2.12% CLR -6.37%

CLF -0.48% CMP -2.19%

MOS -0.71% PCX -2.71%

CF -0.74% CRK -2.95%

WLT -0.98% GMXR -3.20%

MON -1.04% MT -3.23%

HK -1.42% MEE -3.33%

RIG -1.50% PVA -3.43%

Thanks to this 1-2 USD/ OIL punch,  the brutal intra-week volatility/ pullback during the week would have been the topic of conversation coming into this trading week,  instead the DJIA ended down a measly 32, SPX -6, NASD -38pts for the week.   Volume continues to be extremely light and yr/yr comparisons are almost unbelievable, down at least 30%.   As the usual course,  we are not focusing on the technical which on the DJIA is one of a retracement back to an ascending wedge and it's potential resistance with an army of technical shorts possibly lining up.   Instead,  we continue to focus on individual groups and stocks.  If we weren't open-minded and looking for new opportunities, we wouldn't have been ready for the mid-week commodity run or a solar opportunity, specifically in the ENER, SPWR alerts.   Simply, the reality is it's a mess out there,  but we're not giving up looking for a flower or two amongst the weeds.  In regards to Solar, we are sticking to the core and that means SPWR ENER as our favorites and avoiding a spree into many of the cheaper ones that we followed before when there was a wild run on anything solar.   Also note,  we are avoiding the Steels as stock action, notably in X, is responding to continued weaker international spot pricing.   Copper is showing better stability and FCX is getting some eyes on it as the best play on the group.

Inconclusive action...

By looking at the final boxscore, you'd conclude that today was an extremely bad day, opposite image of Friday's action.  Well, that is just on the surface.  Sure, this action was very broad based, all sectors were down at least 1% and 95% of the SPX stocks were down, but volume was the lightest of the year and therefore inconclusive.  Over the weekend, there was really no earth shattering event/ news which can contribute to today's loss.  If anything,  it is the tenuous Russia-Georgia relations and the related risk, including a collision course with Western nations that played a role.     At DJIM, we stopped the blaming game a while ago because there's always something familiar which you can point your finger to.     As time goes on, the blame game does get old, no matter what it is.

So can we totally ignore today's action?. Yesterday, we noted the potential resistance and army of shorts waiting on the retracement  to the rising July-August trendline lows,  it definitely seemed like this technical angle played out..  Also, an area which has stood out from the pack during the last few weeks is the technology laden group, NDX!    Based on today's heavier than Friday's volume action,  it does look like NDX is on the verge of breaking down the recent support.     While we haven't been really playing much of the technology stocks to begin with, we still have to be prepared for psychological impact if this group gets taken down in any meaningful way.   Eventually, there may be nowhere to hide other than a few biotech issues.  Imagine the fun in that!

Right now, everything seems vulnerable, we seriously need to take that into consideration with any play selection and strategy.    Crude oil isn't as invincible as it was for most of the year.   Now we have the USD to deal with,  it makes the whole oil/inflation thing that much more trickier.      Basically, there's a lot of issues and uncertainties at this particular time of the year.     To top it off, this is an election year and thing's are exactly crystal clear in that race either.

Is there any encouraging action out there?   The only thing that looked a little encouraging for us today is AFAM and a couple of Shale stocks, but that's like throwing a dart into pages of stocks symbols and hitting something green in a market filled with terrible breadth.   Also, what looked encouraging today can look like a total joke tomorrow.    We are simply pointing out the obvious.   

The bottom line, this market is very tough to trade these days and the last thing you want to do is to pressure yourself into a trading machine to seek an unrealistic trading edge.

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.

Gustav...

If the name isn't familiar to you, you are probably like many traders out there who's taking a break from this market.   Let's be realistic here, the market pulled one of those post- Christmas day volumes which means not many people care one way or another of what is occurring on the markets.   A positive came from Eco. data (Durable goods report), but that won't bring volume to the table.  A good GDP # in the morning may add to a higher manipulated move, a move we wouldn't put too much credence in because of low volume.

Aside from the E&P Shale plays (GDP,CRK, XCO, HK, PVA,GMXR), noted as the only 'most wanted' group yesterday, there's really not much going on anywhere else.    Toward the end, we feel even these plays are looking a little exhausted.   Of course, you can never guess what mother nature is capable of, so we believe the story may still carry some weight into Friday's close.  If these do get a nice kick up in the next 2 days, the best trade may be to short late Friday and put a bet on that the storm will cause little damage over the long weekend.  You are also betting, if you don't sell any Shales accumulated so far into any strength by weeks end.  The question is though do you really want to watch the weather channel all weekend, instead of getting a reprieve from the markets.  Anyways..come Tuesday, we may have a "Hanna" to monitor.

Right at this moment, trading is slowing down to the point where anyone left is pretty much looking forward to the long weekend.  Unless something major happens between now and then, which we very much doubt, the trading pace will be slow and directionless.   Tomorrow, we have one report from ENER which may cause a little splash in the solar market.    Honestly, unless the report (including guidance) is as spectacular as the last one, it most likely will be a sell on news event for the entire solar sector.    Basically, we wouldn't be holding our breath for something exciting to trade tomorrow morning.

...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

DJIM #35 2008

Back to school!   As we witness millions of kids heading back to school, we as traders are wondering if we ought to be doing the same thing?    The only thing is, there's no such thing as a school for us traders and the most appropriate term would be for us to go back to the drawing board.   It is clear investors are overwhelmingly negative, there is plenty of reasons to remain bearish and we just have to trade with that always in mind.

Yes people, we are officially entering the last 4 months of the trading year and it can mean "do it or die" time for many of investors/ traders.  During the last three months, market has hit an intra year low and we are currently about 1000 points below where we were at the beginning of June.    By the way, we are also 600 points or so away from the intra year low.    This is a pretty gloomy picture, right?   Well, many of us have concluded that  "it could've been worse"!    More importantly, now that the volume will supposedly return to this market, where do we go from here?.  Did the major gloom areas trough mid-July?

Right now,  just about every issue that have been haunting the market three months ago is still deeply entrenched among traders' minds.   There hasn't been any indication that any of the market issues are anywhere near the end of its cycle.   On the contrary, not only are we unsure about how everything will unfold from this point on,  we have other market moving agenda that have popped up during the last couple of weeks.

Here's a few things we'll be hearing over and over again next little while...

1.  Credit issue!   Many investment banks/brokerage firms are set to report their earnings in September and it'll be interesting to see how much more in writedowns they will report.    FNM/FRE duo is also going to be a headline grabber for the next little while until people are more comfortable with whatever decision comes with the capital structure issue.

2. Corporate earnings!   No matter what economic data comes out on a weekly basis, it's the earnings that matters the most to investors/traders.   This will be an area with the biggest question mark!    There's an apparent slowdown in global economy, but at this point we just don't know the full impact to corporate earnings, yet.

3. Oil and commodities!   Now that "Gustav" fever is almost over, apparently with more bark than bite causing oil to penetrate the $110 support area, what is it going to do next?.  Another downtrend will only be confirmed if the $100 psychological level is broken.  We like to think that oil is very much a global "demand and supply" issue and a slowing global economy cannot be healthy for oil and other commodities, but this is not something anyone has a firm grasp on at this point.

4. Election!   Government spending is the biggest spending out there.   Without knowing which administration is going to take up the oval office, a lot of bets are holding off until a winner is decided.

With all of the ongoing issues and prospect of more turbulent trading, we often wonder how we're ever going to get through 2008.   This is when we remind ourselves time after time why we do this gig.    Well, we simply love this gig!  We honestly wouldn't give this up for any other gig.    Bottom line, the next four trading months will most likely be the most exciting trading period of this year.    It's time to juice up our intensity level to finish the year in grand fashion.

....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!.

Worrisome Techs...

For a while now,  much of the market focus has been concentrated on the capital markets.   The banks, investment brokers, lenders... were all under spotlight in a constant fashion.    That was until maybe last week or so where all of a sudden, focus seems to be away from the group.   Is this a way to stabilize the market?   Perhaps, or maybe market is brewing some perfect storm down the road.    As market participants, we are actually glad that, for a change, this market isn't being strangled at the mercy of any particular credit news.    The fact that the entire financial group is behaving much better than any other group right now is also the reason we aren't seeing any follow through to the downside.   The Discretionary group noted yesterday is the other.  This is at least true for DJIA and SPX!     Before the earning season kicks off and without any earthshattering bad news from financial sector, we can't see this market being pushed down much further.     The cushion from the financial/ discretionary groups and the demise of commodity group are providing, believe it or not, a stabilizing ground for the overall market.  Unfortunately, as traders these disinflation groups ( financials/ discretionary) and the stocks in the groups from HD to AXP to MCD are not exactly big daily/ weekly gainer potential we like to trade.

Hopefully, this ignorant trend will not last much longer as we await the earning reports from major financial institutions the next little while.   The one part of the market that showed the biggest weakness these days, is the technology group.    Last week, we noted that COMP and NAZ charts were flashing some warning signals and then DELL news followed.   Today, we have GLW guiding down due to glut.    Ok, these two aren't small players in any means and they represent a pretty wide space of technology group also.  Today, the SOX was down over 4%.   It's no coincidence that many of the popular tech names are testing recent lows or heading toward the July area. 

The point is, technology group often foretells the global economy and the bad guidance from a few key players can really spell the shape of our economy.   We are monitoring the market closely for any more warnings like these.  Also, one look at the commodity stocks this week and you know this is not because of a firm $USD.  There is an underlying, yet not totally known or accepted factors involved.   One could be hedge firms in trouble and liquidating, but the real factor is a probable worldwide slowdown being priced in.     Right now, cash and discipline are the only two things you need to survive through this market.   We have been scanning daily gainers/new high list to get a feel where the money is moving but the results have been pretty much the same last little while.   Oh yes, you can tell by the number of alerts we've been putting out the last few weeks.    However, this isn't to say that this trend will continue like this and we are hopeful that sooner than later, opportunities will pop out in front of us to give us something to be excited about.  It always does in the markets.

....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.  

DJIM #36, 2008

The big news or the only news took place this weekend is the "effective takeover" of Fannie and Freddie by the government of U.S until they stabilize.    Perhaps, this news has been expected all along by the market participants.    However, it's still pretty mind- boggling given its historical significance.     For those that always believe in the idea of free market, well...  this one ought to be "shocking" to you!

Okay, the message is clear from this(or any) administration, something like FRE/FNM business just cannot fail.   What does this mean to this market?   Of course,  the knee -jerk reaction is for the financial/ insurance companies to get a boost off this news, temporaily, at least.    For other stocks,  it doesn't really mean anything, seriously..and of course, FNM/FRE existing shareholders won't fare well at all.     Future is currently suggesting a very strong gap up and we'd use that as an opportunity to watch the reaction, one is $USD, Oil for potential commoditity trades.   Basically, watch how the broad market performs 30 minutes into trading.  Our plan is to let the initial excitement settle and then we'll see which sector is worth buying/shorting.

Bottom line, last week was so devastating that this "bailout" news may merely acts as a pause to more inevitable downside.   Remember, the decline from last week (NASD -4.7%, DJIA -2.8, SPX -3.2%) was the worry of poor economy and earnings outlook.    The FNM/FRE news does not change that view, unfortunately.

..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.

Knockout result...

Yesterday, we asked the question whether this market can maintain at least a couple of days of positive momentum following GSE bailout...".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)".     Well, today we have an answer that is loud and clear due to LEH uncertainty.    Never mind DJIA gave back the entire gain from yesterday,  SPX gave back gains from yesterday and Friday.    Nasdaq, well, it never participated in any rally last three days.

You may think today's drop was purely because of LEH,  but its issue cannot simply affect all of the S&P500 components or simply everything else.   From what we can tell, there's definitely a thick cloud of fear and panic out there that people simply wanted to be out of the market before it gets any worse.     The reasons are simple,  if we get a global economic slowdown, many of the companies that have heavy international exposure will have their estimates dramatically reduced.     The way it works with Wall Street is that nobody waits for actual confirmation before acting.     Of course, the slow reacting ones are always the actual analysts who cover the stocks.

If you are remotely uncomfortable looking at stocks, never mind trading in this current environment, cash is still the KING for you.     For most traders/investors, staying in cash is simply the best way to preserve capital and to survive through this carnage.    Keep in mind, what's happening out there isn't slow grinding action like in a true bear market.      What's happening during the last few trading days has capitulation feel to it around the corner.  Risk appetite for investors is dwindling and many are just uncommitted to throwing money into it until the markets break to the upside or downside (capitulation)

Lets take a look a few key sectors here...

Financials, what happened to FNM/FRE is simply an exception as the government had no choice but to bail them out.   Too much was at stake with the duo and so it's inevitable the bailout action was taken.    We think for other financial companies, they may not even get the benefit of any further government help.    So basically, you draw your own conclusion, as we've said months before, we think it will take an awfully long time before we see any stability in the sector.     Housing market is also a key and we'd watch for monthly data to see the progress in that area.    The easy money may have been made shorting the sector, but we feel if the key support gets broken on XLF, we have no problem of jumping further on SKF . Today's alert based on LEH was an easy 5 pts as things deteriorated by end of day.  Considering LEH will most likely hold a CC tomorrow,  it's best to close out the position and go with the news flow in the morning.

Techs.. things are not looking good from the trading last three days.    Clearly, people want to get out of all of the beta names on any rally.   We noted back in Aug. that there's still too much optimism / expectation on upcoming earnings report for most of the tech companies.    Perhaps,  DELL, GLW and NOK provided a wake up call for those believers and the action is taken last few days to avoid any surprising disappointment.    We aren't doing anything in this area until smoke is clear.

Commodity Stocks,  wow and simply wow!    This is the only area we feel that's going through true capitulation.    People are simply dumping anything and everything left and right.    Oh yeah, it's been going on for days now!    However, we feel this is the area that is closest to a bounce compare to rest of the market.     Yes, global slowdown in economy will hurt these plays, but a drop of 30 to 40% within few days will call a potential bounce into play.  We noted in conclusion yesterday this is something we are anticipating.    The volume on many commodity plays is getting an extreme unwinding feel and that's a good sign for a potential short term bottom to occur.     We are praying for a gap down tomorrow actually to get this into play on the long side trade.  Otherwise, some good news out of nowhere, a weak USD, something..anything to do with these groups for an intraday trade.

In conclusion, every trade you make is on a short leash as any development (eg. LEH today), tosses out any trade ideas/holds you may have.   Market is in a very fragile state and living off any headline to turn one way or another.