..puff the magic dragon..where you go?

In the middle of the latest rally as the market came to ~940 SPX,  we wrote in the first journal, (DJIM #1 2009), we believe we will see SPX go back down to low 800 at some point during the year.”.   Little did we think,  ‘later in the year’ would be 11 trading days later. 

Expectation was with a few hiccups 1000 SPX would be reached sometime at the end of first Q of 2009 and than a fall to 800, maybe 750 before all the Obama economics and gov’t intervention of 2008 would lead to a rally back to 1000 or higher later in the year.    Right now,  the only hope is all this has been sandwiched closer together and a rally, maybe not the yet expected later in the year,  but still one of significance as 800/ 750 present the low range of this range bound market we see (750-800 to 1000 SPX).   Unfortunately these levels are coming at a very nervous time with banks globally under heavy pressure (BKX down 20% and at levels not seen since the early '90s) and we‘re in the middle of earnings season that is expected to stink up the already stinky joint.   Financial co’s are now less than 10% of the SPX index
 
All this on inauguration day,  maybe at the end of the day it was a deserving welcome considering the new president’s first 'puff'  act just hours after taking office is to halt Guantanamo trials.. Come on, really, this is not what the market needs or wants to smoke after an already non-inspiring market speech earlier in the day.!

Yesterday, we said the building crisis was sort of saved by the long weekend, today there was nothing to save the financial collapse as we picked up just where left off on Friday.  There was no Obama magic dragon rally many had their sights on in blog land. at least.  There was only many unanswered questions as to what must or can be done to save the banks.    Please..if a relief rally (maybe imminent) occurs ,  don’t call it an Obama rally if it happens!.   We were just at 860SPX cash Sunday night as many moved ahead with their losing calls into inauguration,  only to be blown apart by global banking news soon after.   It will just be an oversold to lower range bounce, if we get one.   The giant headlines, news flow will continue to flow out of Washington and the U.K, the time to be short would have in anticipation of the gag coming off into 2009 from 900’s SPX and not now even if the headlines are ominous from the banking sector.    The magnitude of selling seen the past few days shouldn’t last.   It is best to be prepared for a bounce this week from these levels not seen since November.    The difference now to November is what seems to be a stronger credit market with spreads tighter and issuance stronger.  Iif this is truly a positive than stocks are close to buy range in this range bound market.   If there changes in the credit market going forward this year, say goodbye to this lower 750-800 PX range.

Also as we get closer to February and earnings from steel and solar names come before us, we’d look at any rally to short these sector equities.    In the meantime, we focus on this weeks big tech earnings and hope more are like IBM’s (good luck!),  GE is also on deck, it is worrisome this behemoth is being shorted to seemingly oblivion these past few trading days.