He's Baaaaaack

Just when you thought is was safe to let the children come out to play.......WHAM! Here comes the CDO Monster to shred the markets!

Two things, the first is that I have been warning that if we did see slowing then it was bye bye to the Commodity and Energy stocks. The second thing that I have been warning is that we aren't out of the woods yet with the Financials. Both of these key market fundamentals are contributing heavily to the grinding chop and slop. Hence the continuation of the Day Trader's Market. All of you directional traders will be doing yourselves a huge favor if you trade the 60m swings intra-day to 2 days for now, or the Day Swings as I like to call them.

Back to the two things. Remember, big-time traders don't make money waiting for the actual data to come out. They SPECULATE. So when in speculatorville, do as the Big Money does. It doesn't matter that we haven't gotten really bad economic news yet, it only matters that Big Money thinks we might get bad economic news. Therefore, see-yah later to the Commodity and Energy stocks today.....By the way, the bear gaps down on Monday in those sectors were the huge warning sign, today confirmed it. We are PROBABLY headed for more consolidation in Commodity and Energy stocks, maybe even intermediate term consolidation. And when our current market leadership goes bye bye, and we see the rotation into bonds and not some other sector of the stock market, then you can expect the Grinder Market to continue. We'll be through the grinder when we're through, for now, were not.....

and The other of those two things was MER suing XL Capital Assurance, a bond insurer like AmbacMBIA - heard this before? Seems that MER wants XL to honor $3.1 billion of guarantees on CDO's (by now, this should be all too piercingly familiar to you). Now, MER isn't the liquidity goof that BSC was, but MER was the biggest speculator on CDO's of all the world's major banks and securities firms - to the tune of $24.5 billion in writedowns of the $195 billion total worldwide losses so far. So even though LEH and GS eased our fears yesterday, and MS did even better today. And Freddie and Fannie are being allowed to expand up to $200 billion in funds to the mortgage-backed securities market.....Which is all great news for the Financial Sector.....It all comes back down on the MER news. Uncertainty comes back up like a bad dry heave, and we go right back to our Grinder Market.

I have another interesting thing to yap about commodities. I have been speculating for a little while now that the "forced" corn planting program by the government (ethanol.....) wasn't going to hold up to the free market. When wheat hit an all time high, any farmer with any perspicacity was going to plant - drum roll please - wheat! Here is a nice little blurb from Bloomberg on what could be the beginnings of the commodities compression in any currently expensive crops:
Monsanto Co. (MON), the world's biggest seed producer, fell the most in five years, losing $13.21, or 12 percent, to $98.87. Wheat, corn and soybeans dropped by the maximum permitted by the Chicago Board of Trade as rain improved crop prospects in Australia and farmers worldwide prepared to sow more grain to take advantage of last month's record prices.
And there you have it, the free market, once again, trumps the controlled market.

Here's what I think about tomorrow. The markets got thumped today and Commodities and Energy sold hard right into the close. We are probably due for a bounce in the morning. I played some PEP calls at 71 (half the position). I will add the other half in the morning around 70 and then if we bounce for a couple of hours, take whatever is there and walk. I will play a SPY and DIA bounce in the morning as well. But I'll be exiting half the trades on the 15m charts and the other half on the 30-60m charts. I still think we could sell into the close ahead of a long weekend. So we may be setting up for a bounce in the morning and a fade into the close. Therefore, I will look at some puts on any Bear Flags over the first couple of hours on a couple of the following stocks: Gold like ABX, some Chemicals like MOS, maybe some Steel or Copper, some Mining like POT or CLF, and some Energy stocks like SU, OXY, and MUR, maybe an HMO like CI or HUM, and a Drug Wholesaler like MCK (nice Shooting Star) or CAH. I won't be holding much over the weekend, I want to be out of at least half of each position by the end of the day, probably a lot more than that.

As always, I don't know if this will play out the way I set the table, so I have my stops in place on any trades. We'll see what tomorrow brings.....