LIBOR, Labor, and Earnings Oh My

Pre-market futures are a little soft this morning as the LIBOR on overnight loans is up and BAC warned that earnings will be down (what a surprise.....). We are getting through the tail end of Earnings Warning Season as AA starts the first of the major Earnings Season announcements tonight. However, we won't get heavy earnings until next week. Traders continue to be focused on the Financial markets and the cash crunch, and the Labor markets and the jobs bleed.

Today will probably be a bit of a settling down day from yesterday's wild ride. It will be important for the market to hold up today and try to follow through on yesterday's late day bounce - either today or tomorrow - in order to call this a short term bottom. I'm speculating that we will see the short term bounce, but as always, we shall see.....

8:00 am MT: The Fed announced that it will buy three-month commercial paper (short term loans) in order to loosen up the extremely tight conditions in the short term credit market. Commercial paper is another way of saying short term loans that financial institutions provide to each other and to many other businesses to meet current cash needs like payroll, supplies, expansion, and other near term obligations. Remember that the LIBOR is the rate that banks charge each other for these short term loans, and the tightness in that market went beyond crisis levels two weeks ago (which you can see from the spike on the chart, which I first posted several days ago):

Here is the chart of the LIBOR

Here is the chart of the Overnight Commercial Paper Rate

You can see the extreme volatility and the recent spikes in the short term lending rates from those charts. The Fed is attempting to stabilize the short end of the yield curve now…..AND THEIR NOT DOING IT BY CUTTING RATES. This is an ongoing follow-up to what I have been saying for over a week now about the irrelevance of the Fed Funds and what traders are doing with the Fed Funds Futures. The Fed knows that cutting a theoretical target is almost a complete waste of time right now. That’s why they are actually going out now and buying real paper instead of trying to fiddle with the theoretical rate (the Fed Funds Target Rate).

11:00 am MT: The market is starting to fade off too much to recover today. It will become critical for the Naz, SPX, and Dow to hold yesterday’s lows or because of the vacuum to the next levels of support.

4:00 pm MT: Market Wrap: This was a disappointing day for the healing process of the markets. The Dow is now at fairly high risk for a drop to 9,000. The SPX is at fairly high risk for a drop to 950. And the Naz is at fairly high risk for a drop to 1,500 - especially if it doesn't hold the line right here, right now. The Naz support level is the least probable of the three because it represents a steeper decline, but it's still possible. I speculate that we could see a blow-off on the SPX to 950. If we get it I will look for another intra-day Dead Cat Bounce like yesterday. Perhaps a climactic blow-off to 950 would start the process of the end of the selling.....it’s possible that we need something that dramatic or more in order for Big Money to step back into the market.

I’m not going to spend any more time on the news of the day, it’s becoming largely irrelevant. The market is going to do what it’s going to do. So here are the charts of the indexes. Look for the very real possibility of a blow-off day this week, perhaps tomorrow:

Here is the Weekly Chart of the Dow
(click on image to enlarge)


Here is the Weekly Chart of the SPX
(click on image to enlarge)


Here is the Weekly Chart of the Naz
(click on image to enlarge)

I really don't think I need to say anything else.....