Market Fades Away

The SEC extended the ban on short selling of Financial stocks to October 17. The ban was due to be lifted today. This was what I speculated would happen when I heard the original ban end-date.

The LIBOR (London Inter-Bank Offer Rate), which is the world-wide benchmark interest rate for short term loans that banks offer, is steadily dropping, which means that banks are starting to be more willing to make overnight and short term business loans (which is obviously good for the world economy).

The Senate passed its revised version of the $700b bailout plan by a vote of almost 3-1, now it goes to the House for a vote.

MOS missed earnings and it looks like Chemical/Agricultural stocks in general are going to be under pressure today.

Weekly Jobless Claims came in worse than expected, which will probably bring some volatility to the markets today because the Employment Report is due tomorrow, and traders will now wonder if it will miss expectations.....Pre-market futures are down about the same amount as yesterday morning.

I speculate that we will see similar price action today as we had yesterday. It looks like we'll get the same type of gap down at the open, but then we may see some wiggle and bouncing back. Energy and Commodity stocks may see some selling today while Financial stocks may actually hold up. So another volatile day in paradise, and another day of playing short swings or intra-day swings on any directional trades. Just like yesterday (I finished with a $304 profit on the day), I will not be looking to make a big splash.

12:45 pm MT: The market gapped down and kept right on fading. The Naz is at a critical point right now trying to hold Monday's lows. Traders are just not in the mood these days. The Naz had a breakdown through the mini, two-day Pennant. The Dow and SPX are rolling down from a form of a Hanging Man.

We are getting close to another tipping point. If the indexes give up much more ground then the market is probably headed for another 1-2 day leg down. However, remember how incredibly newsy we are right now, so I won't hold full positions overnight on directional trades.

1:00 pm MT: The selling is very broad based today. Here are some of the worst hit sectors (pretty much in order of worst first): Chemicals, Railroads, Energy, Manufacturing/Machinery, Coal, and Steel. There are other areas as well like Tech, Insurance, and even Gold (ABX is an Island Reversal today for example). So the market is actually more bearish than it appears at first glance (which was plenty bearish). I'm not looking for this to come back in the next couple of days, especially during earnings warning season. Traders are shrugging of the potential bailout and dumping stocks today. They are probably positioning themselves for what they believe will be a bad Employment Report tomorrow, or a continuation of bad economic data and earnings misses over the next several weeks.

9:30 pm MT: Quick Market Wrap: Remember to keep an eye on the Employment Report that comes out pre-market tomorrow, and the bailout vote in the House, which looks like it will be set for tomorrow.

Also, here is a brief on what I talked about on vc tonight: The willingness of financial institutions to offer short term loans can be measured by the interest rate those institutions charge for the loans. The higher the rate the tighter the liquidity. You can measure those rates with the LIBOR (mentioned above) and the Swap Spread (on Interest Rate Swaps above the corresponding U.S. Treasury rate). I will write up a bit about this when I have more time, but suffice it to say that these two charts approximately measure the willingness of financial institutions to make short term loans. You can see by the HUGE spike in the charts recently that the willingness has pretty much gone out the window. Click on the name to get the chart:

LIBOR Rate

Swap Spread

Until these rates settle back down, then business activity is going to slow because of the higher rates and issues with getting short term loans.