The Fed, along with Central Banks around the globe cut target interest rates in a massive coordinated effort to boost confidence. Now, those of you following me know that there is the theoretical rate and then there is reality, what interest rate the Banks will really lend commercial paper (short term loans) as set by the LIBOR. The Fed cut interest rates by 50bp and the LIBOR actually WENT UP! Is there anything else I need to say to confirm what I have been stating here all along......talk about firing blanks! The Ted spread, which is the difference between what Banks pay for three-month loans (3m LIBOR) and the three-month T-bill is up 44bp to 4.00% as reported on Briefing. The LIBOR, the Swap Spread Rate, and the Ted Spread are all ways of looking at the same thing, the real cost of short term loans is extremely high, and Banks are pretty much ignoring the Fed's (and other Worldwide Central Banks) target rates.
Earnings Season is starting with a whimper as AA missed.....Also, same store sales are coming in worse than expected (except for WMT, which is where bargain hunters always go in a bearish environment).
Yesterday I warned that we are getting close to a blow-off day, and that we are at risk for that day to begin with a sell-off into the 950 area on the SPX. Well, we hit 974 on the SPX on the gap down at the open just now, and the market is trying to bounce. I don't know what the precise number will be, but I do know that analysts are typically wrong, right at the bottom.....Which brings me to little, loud Jimmy Cramer, who told the world this morning to GET OUT OF THE STOCK MARKET AND STAY OUT FOR THE NEXT FIVE YEARS! Now, where was his advice to get out 10 months ago? It's like telling the passengers to jump of the Titanic after its hit the bottom of the ocean! It's just a little late in the coming.....I won't say what I really want to say about the competence of that statement by Jimmy, but I will say that it's actually GOOD NEWS! The more fools (ok, I said it) that tell people to jump off the Titanic AFTER it has sunk the better. Analysts are almost ALWAYS WRONG. Jimmy was a good trader once upon a time, but he has become a fool, especially this past year.
I am watching to see if we get a big Hammer after a blow-off move to signal the short-term, and maybe even intermediat-term change in the markets. We need to see a big comeback on huge volume before I believe that it's over for now, that the selling is done for the near-term. I'm not going to get too fancy with any trades unless I see some clean setups, but until then, I'll assume the status quo, which is an historically volatile market.....
Wednesday, October 8, 2008
Tuesday, October 7, 2008
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):
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:
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):
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)
(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.....
Monday, October 6, 2008
Europe and Asia Feed the Crisis but Market Dead Cat Bounces
The weekend financial crisis in Europe and Asia is carrying back over to the U.S. markets this morning as the cycle feeds its own frenzy.
Watch out for a short term oversold gap and pop, it's going to be pretty tough to buy puts right out of the gate. I am looking for a little bit of a short term oversold condition this morning. I'm not bullish on the markets, but we could pop a little out of the gap.
8:15 am MT: The next support down for the Dow is the 9,750 - 9,900 area.
9:00 am MT: The market is continuing to fade off the gap and the VIX is getting too hot for this to sustain much longer. I think we will get a short-term oversold climax today. I’m looking to pick up calls on the DIA and SPY on a Dead Cat Bounce strategy, which is countertrend, but suited for days like today.
9:30 am MT: I started cherry picking calls on DIA and SPY.
9:45 am MT: I added a little more to the DIA and SPY calls.
10:00 am MT: I added a little more to the DIA and SPY calls.
12:45 pm MT: I added the last of the calls I wanted on the DIA and SPY calls.
1:40 pm – 1:55 pm MT: I scaled out of all the calls. For the SPY trade I made .85 cents or 13% return intra-day. For the DIA trade I made .43 cents or 7% intra-day. I was pretty confident with the probable dead cat bounce so I took bigger positions. I ended up adding a total of $2,560 to the “paper” money account today, so it was a nice day of trading.
3:30 pm MT: Market Wrap: Here’s the easy version of this…..the global financial crisis pushed back and forth across several continents today. That pretty much sums up the day. I was watching for a Dead Cat Bounce all day, and I traded it profitably. The Naz was the only index that actually turned (dead-catted) at a key support area, which was exactly on the 61.8% Retracement (Fibonacci Retracement) of the Bull Market. The SPX was the next closest to bouncing off a key support area as it bounced off a bottom of 1,007, which is very close to the round number of 1000. The Dow kind of bounced in space, although it did reach near a semi-round number of 9,500 before jumping back intra-day. I speculate that the Naz 61.8% retracement and the SPX 1000 were more important numbers to traders today. Any way you slice it, we were dramatically oversold short-term and the VIX was screaming at the market with a reading of 58.
I warned that we could have a 2-3 month topping out process on the VIX, so this is volley shot number one. I expect that we will get a short-term oversold bounce with a volatility compression tomorrow or the next day, but I’m still not doing anything other than what I did today – play it intra-day. I don’t want to get caught in a volatility collapse by holding a long position overnight.
There is a lot of chatter amongst traders that the Fed will cut rates dramatically at the October 29 FOMC meeting. Now think about that for a moment…..I’ve shown you the irrelevance of a rate cut because the real short term interest rate number as represented by the LIBOR and the Credit Swap Spread is totally ignoring the Fed Target Rate. Benny knows a rate cut is pointless. I’ve taught you that. Now, also think about this, the Dow dropped over 1,200 points from the end of Friday to the middle of today, or in about 9 trading hours. In addition, the world is on fire as European and Asian markets dump the big dump over the financial crisis (what planet were those traders on the past 10 months?). So if Benny was going to cut, he would have cut RIGHT NOW. Look what happened in January with the emergency 75bp inter-meeting cut. Why not now? What’s he waiting for? That’s exactly why I warned you last week that the Fed has nowhere to go with rate cuts on the short end of the yield curve. That’s exactly why I showed you those LIBOR and Credit Swap Spread charts. In fact, the Fed did exactly what it could do today - what really had a chance to affect the market. They attempted to improve liquidity by doubling the outstanding Term Auction Facilities balances to $900b. The TAF’s targets liquidity by allowing depository institutions to borrow from the Fed using the same collateral that is accepted at the discount window. So the Fed is trying to provide financial institutions with CASH, which is far more important right now than a short term rate cut.
The two bits of good news from today were that the market bounced sharply off the lows and that oil dropped down into the $87 area. The market may even bounce a little more off the short term oversold condition as I wrote above. However, don’t lose sight of the fact that the macro, global financial picture is still squishy, and that we are still in Earnings Warning Season, then we get Earnings Season, then we get the Fed, then we get the Elections, and we get various Economic Reports throughout all that period of time. We may bounce short term, but I haven’t seen the huge, blow-off climax followed by the huge, even bigger bounce yet. In other words, I haven’t seen the signal that this is done yet. I keep warning about this, but don’t lose sight of the fact that we probably won’t get a one and done on the VIX. I still speculate it will be a 2-3 month process, even if we find a market bottom in October…..which means I’m in short swing mode for the foreseeable future. It’s plenty profitable, as I demonstrated today, it just means understanding what to do in these type of market conditions.
I showed the DIA chart above because I wanted to demonstrate visually the type of trade I mean when I say intra-day swing. It's the only kind of directional trade I am willing to go heavier with right now. Everything else is nibbling.
Watch out for a short term oversold gap and pop, it's going to be pretty tough to buy puts right out of the gate. I am looking for a little bit of a short term oversold condition this morning. I'm not bullish on the markets, but we could pop a little out of the gap.
8:15 am MT: The next support down for the Dow is the 9,750 - 9,900 area.
9:00 am MT: The market is continuing to fade off the gap and the VIX is getting too hot for this to sustain much longer. I think we will get a short-term oversold climax today. I’m looking to pick up calls on the DIA and SPY on a Dead Cat Bounce strategy, which is countertrend, but suited for days like today.
9:30 am MT: I started cherry picking calls on DIA and SPY.
9:45 am MT: I added a little more to the DIA and SPY calls.
10:00 am MT: I added a little more to the DIA and SPY calls.
12:45 pm MT: I added the last of the calls I wanted on the DIA and SPY calls.
1:40 pm – 1:55 pm MT: I scaled out of all the calls. For the SPY trade I made .85 cents or 13% return intra-day. For the DIA trade I made .43 cents or 7% intra-day. I was pretty confident with the probable dead cat bounce so I took bigger positions. I ended up adding a total of $2,560 to the “paper” money account today, so it was a nice day of trading.
3:30 pm MT: Market Wrap: Here’s the easy version of this…..the global financial crisis pushed back and forth across several continents today. That pretty much sums up the day. I was watching for a Dead Cat Bounce all day, and I traded it profitably. The Naz was the only index that actually turned (dead-catted) at a key support area, which was exactly on the 61.8% Retracement (Fibonacci Retracement) of the Bull Market. The SPX was the next closest to bouncing off a key support area as it bounced off a bottom of 1,007, which is very close to the round number of 1000. The Dow kind of bounced in space, although it did reach near a semi-round number of 9,500 before jumping back intra-day. I speculate that the Naz 61.8% retracement and the SPX 1000 were more important numbers to traders today. Any way you slice it, we were dramatically oversold short-term and the VIX was screaming at the market with a reading of 58.
I warned that we could have a 2-3 month topping out process on the VIX, so this is volley shot number one. I expect that we will get a short-term oversold bounce with a volatility compression tomorrow or the next day, but I’m still not doing anything other than what I did today – play it intra-day. I don’t want to get caught in a volatility collapse by holding a long position overnight.
There is a lot of chatter amongst traders that the Fed will cut rates dramatically at the October 29 FOMC meeting. Now think about that for a moment…..I’ve shown you the irrelevance of a rate cut because the real short term interest rate number as represented by the LIBOR and the Credit Swap Spread is totally ignoring the Fed Target Rate. Benny knows a rate cut is pointless. I’ve taught you that. Now, also think about this, the Dow dropped over 1,200 points from the end of Friday to the middle of today, or in about 9 trading hours. In addition, the world is on fire as European and Asian markets dump the big dump over the financial crisis (what planet were those traders on the past 10 months?). So if Benny was going to cut, he would have cut RIGHT NOW. Look what happened in January with the emergency 75bp inter-meeting cut. Why not now? What’s he waiting for? That’s exactly why I warned you last week that the Fed has nowhere to go with rate cuts on the short end of the yield curve. That’s exactly why I showed you those LIBOR and Credit Swap Spread charts. In fact, the Fed did exactly what it could do today - what really had a chance to affect the market. They attempted to improve liquidity by doubling the outstanding Term Auction Facilities balances to $900b. The TAF’s targets liquidity by allowing depository institutions to borrow from the Fed using the same collateral that is accepted at the discount window. So the Fed is trying to provide financial institutions with CASH, which is far more important right now than a short term rate cut.
The two bits of good news from today were that the market bounced sharply off the lows and that oil dropped down into the $87 area. The market may even bounce a little more off the short term oversold condition as I wrote above. However, don’t lose sight of the fact that the macro, global financial picture is still squishy, and that we are still in Earnings Warning Season, then we get Earnings Season, then we get the Fed, then we get the Elections, and we get various Economic Reports throughout all that period of time. We may bounce short term, but I haven’t seen the huge, blow-off climax followed by the huge, even bigger bounce yet. In other words, I haven’t seen the signal that this is done yet. I keep warning about this, but don’t lose sight of the fact that we probably won’t get a one and done on the VIX. I still speculate it will be a 2-3 month process, even if we find a market bottom in October…..which means I’m in short swing mode for the foreseeable future. It’s plenty profitable, as I demonstrated today, it just means understanding what to do in these type of market conditions.
Here is a chart of the Naz showing the Dead Cat Bounce off the 61.8% Fibonacci Retracement today:
(click on image to enlarge)
Here is an intra-day 5m chart of the DIA showing the entry points for one of the "paper" trades I did today. The entry points are in green highlight circles and the exit area is in the blue rectangle. You can check the time stamps on the "paper" trades in my Papermoney account on the Wednesday VC for a more precise look:
(click on image to enlarge)
Here is the same DIA chart on a 15m time frame so you can see the swing a little better:
(click on image to enlarge)
(click on image to enlarge)
Here is an intra-day 5m chart of the DIA showing the entry points for one of the "paper" trades I did today. The entry points are in green highlight circles and the exit area is in the blue rectangle. You can check the time stamps on the "paper" trades in my Papermoney account on the Wednesday VC for a more precise look:
(click on image to enlarge)
Here is the same DIA chart on a 15m time frame so you can see the swing a little better:
(click on image to enlarge)
I showed the DIA chart above because I wanted to demonstrate visually the type of trade I mean when I say intra-day swing. It's the only kind of directional trade I am willing to go heavier with right now. Everything else is nibbling.
Sunday, October 5, 2008
Market Update
The financial crisis is now hitting Asia and Europe with the same ferocity as it did the U.S. There have been several bank mergers (collapses) in Europe over the weekend. In addition, one major Asain-related Hedge Fund went under, and a major Real Estate Holding company is getting bailed out. Central Banks and similar organizations around the globe are coming in and bailing out troubled financial institutions all over the world. In a word, it's a mess.
The major indexes are seeing some ugly chart damage, but there's still room to drop. Unfortunately, the big U.S. government bailout was filled with so much pork and special interest that came to light in the past week, that when Big Money started to realize the potential negative long-term ramifications of the bill, it created a degree of uncertainty in the market. If you take the bailout package and list all the short-term positives and then stack that side by side with the long-term negatives, the net result could actually be somewhat bearish for capitalism. Another way to look at this is that the bill could have made a bullish impact of about 8-10 on the Richter scale, but instead it now may only be about a 2-3, and could possibly even become a slight negative short-term.
All you have to do is see how Big Money reacted to the news of the passage of the bill in the House of Representatives on Friday to get a feel for what Smart Money thinks. The Dow had a reversal of almost 450 points to the downside on Friday after the news announcement.
The greatest irony in all of this, and the biggest revelation of ongoing political incompetence, is the fact that one of the very reasons the bailout was rushed to Capital Hill in the first place was to save the Financial Markets along with the Financial System. We heard all kinds of end-of-the-world outcries from political representatives about the necessity of the bailout to save the markets and save the system. If the bailout didn't happen, the political intelligentsia was predicting the end of all life as we know it. So the bailout happens and the market dumps 450 points! The very thing the intervention was designed for was to prevent a collapse, and as soon as the bailout passed, the market dumped. I don't know how you get any more clarity on just how much incompetence with have in Congress than that.....
Even though the markets have another level they could drop to, and even though we have too much incompetence from our political leadership, I'm still optimistic about our country and our markets. America and its people are resilient, hard-working, innovative, and capable. I think we will pull through this eventually, but I also think we are in for more volatility in the next 1-2 months. I said that I anticipated a topping out process on the $VIX to last 2-3 months, and that plays right into the rest of the year. We have earnings warning season next week, followed by earnings season. We have more economic data in the next two months to sort through. We have the Fed at the end of the month, and we have the election rhetoric and then the elections in the next month or so. That doesn't even include the continued unwinding of the mess in the worldwide financial system. I will stand by my forecast of a 2-3 month topping pattern in the $VIX instead of a quick spike and a new bull market next week.
As for trading, I will keep taking it one day at a time. I'm keeping my directional trades to short swings, and I won't hold full positions overnight, unless it's a clear setup on the stock and the market. I will post some stocks to watch in the next few days, but I'm more focused on quick swing trades on the DIA, SPY, QQQQ, and IWM as much as anything right now.
The major indexes are seeing some ugly chart damage, but there's still room to drop. Unfortunately, the big U.S. government bailout was filled with so much pork and special interest that came to light in the past week, that when Big Money started to realize the potential negative long-term ramifications of the bill, it created a degree of uncertainty in the market. If you take the bailout package and list all the short-term positives and then stack that side by side with the long-term negatives, the net result could actually be somewhat bearish for capitalism. Another way to look at this is that the bill could have made a bullish impact of about 8-10 on the Richter scale, but instead it now may only be about a 2-3, and could possibly even become a slight negative short-term.
All you have to do is see how Big Money reacted to the news of the passage of the bill in the House of Representatives on Friday to get a feel for what Smart Money thinks. The Dow had a reversal of almost 450 points to the downside on Friday after the news announcement.
The greatest irony in all of this, and the biggest revelation of ongoing political incompetence, is the fact that one of the very reasons the bailout was rushed to Capital Hill in the first place was to save the Financial Markets along with the Financial System. We heard all kinds of end-of-the-world outcries from political representatives about the necessity of the bailout to save the markets and save the system. If the bailout didn't happen, the political intelligentsia was predicting the end of all life as we know it. So the bailout happens and the market dumps 450 points! The very thing the intervention was designed for was to prevent a collapse, and as soon as the bailout passed, the market dumped. I don't know how you get any more clarity on just how much incompetence with have in Congress than that.....
Even though the markets have another level they could drop to, and even though we have too much incompetence from our political leadership, I'm still optimistic about our country and our markets. America and its people are resilient, hard-working, innovative, and capable. I think we will pull through this eventually, but I also think we are in for more volatility in the next 1-2 months. I said that I anticipated a topping out process on the $VIX to last 2-3 months, and that plays right into the rest of the year. We have earnings warning season next week, followed by earnings season. We have more economic data in the next two months to sort through. We have the Fed at the end of the month, and we have the election rhetoric and then the elections in the next month or so. That doesn't even include the continued unwinding of the mess in the worldwide financial system. I will stand by my forecast of a 2-3 month topping pattern in the $VIX instead of a quick spike and a new bull market next week.
As for trading, I will keep taking it one day at a time. I'm keeping my directional trades to short swings, and I won't hold full positions overnight, unless it's a clear setup on the stock and the market. I will post some stocks to watch in the next few days, but I'm more focused on quick swing trades on the DIA, SPY, QQQQ, and IWM as much as anything right now.
Friday, October 3, 2008
Bailout Vote Keeps Market on Hold
The Employment Report was not good, but probably priced in yesterday after the Weekly Jobless Claims number. Nonfarm payrolls fell 159k in September, although the Unemployment Rate held steady at 6.1%.
WFC is merging with WB in a stock-for-stock deal without FDIC assistance. Well.....how about that? If there was a Financial Institution that wasn't going to go running to the government for help, I would have expected it to be WFC.....good for them! And good for WB to get the deal done without the greedy stubbornness of company's like LEH and WM. The deal is valued at $7.00 per WB share. It looks like capitalism still has a tiny heartbeat left after all.....now to see if the gigantic pork barrel spending project - I mean bailout - will get passed today in the House.
Speaking of the bailout, pre-market futures are holding steady, and even a little positive despite the Nonfarm payroll number, probably because of what I just re-capped: Traders are watching the bailout, the WFC/WB merger, and the fact that traders probably priced in some of the bad Jobs Data yesterday.
As long as the Dow can't get above 10,650 I will maintain a bearish stance, and the possibility for another fade later in the day. But if the Dow starts pushing through the short term resistance (10,600 - 10,650) and clears 10,700 then I won't look for a fade, but rather another wacky back to back down - up crash that seems to be the norm the past several weeks.....
WFC is merging with WB in a stock-for-stock deal without FDIC assistance. Well.....how about that? If there was a Financial Institution that wasn't going to go running to the government for help, I would have expected it to be WFC.....good for them! And good for WB to get the deal done without the greedy stubbornness of company's like LEH and WM. The deal is valued at $7.00 per WB share. It looks like capitalism still has a tiny heartbeat left after all.....now to see if the gigantic pork barrel spending project - I mean bailout - will get passed today in the House.
Speaking of the bailout, pre-market futures are holding steady, and even a little positive despite the Nonfarm payroll number, probably because of what I just re-capped: Traders are watching the bailout, the WFC/WB merger, and the fact that traders probably priced in some of the bad Jobs Data yesterday.
As long as the Dow can't get above 10,650 I will maintain a bearish stance, and the possibility for another fade later in the day. But if the Dow starts pushing through the short term resistance (10,600 - 10,650) and clears 10,700 then I won't look for a fade, but rather another wacky back to back down - up crash that seems to be the norm the past several weeks.....
Thursday, October 2, 2008
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:
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
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.
Wednesday, October 1, 2008
Revised Bailout or Rearranging the Deck Chairs?
Market futures are down a little after yesterday's big jump after the day be fore's big dump.....Traders are supposedly focusing on the probability of an economic recession, but I don't think a full blown recession is out there yet, at least not based on the data. However, traders are speculating that the ISM Index due 30m after the open today, and the Employment Report due on Friday, will show numbers that cause the market to sell down a bit. These are the two biggest economic reports of the month, so the market will actually take a brief break from the political gyrations in Washington and focus on the current economy.
The market will probably push back and forth a bit this morning on the ISM, depending on the number. But traders will eventually look towards the ramifications of a bailout for more clues on where the economy may be headed in the next few months. If the ISM is a decent number in the 49-50 area then traders will probably have a somewhat muted reaction, which means that jobs and the Employment Report will take center stage along with the bailout. We will probably still see some newsy conditions the rest of the week, so keep taking this day to day.
7:40 am MT: I nibbled on some SPY and DIA puts on the gap down and break of the Bear Flag on the 120m charts.
7:55 am MT: I added to the puts on the gap test just ahead of the ISM.
8:15 am MT: I sold both puts for a 7% gain in about 30m. I’m just diddling around right now, but it was a quick $332 gain in a few minutes. The ISM number was a fairly nasty 43.5, which is well below the 49.5 estimate. Traders will have to wring through all the data with a protractor and some surgical gloves, so I’ll sit back and let them gyrate the market for a little while before the next trade.
8:25 am MT: I nibbled back in on the SPY puts on the next Bear Flag on the 5m charts.
8:40 am MT: Price action started slowing down, so I sold the puts for a small .15 cent gain, which is basically breakeven on normal spreads. I really am just diddling around and keeping myself sharp. I think the market is conflicted over bad economic numbers and a potential recession on the one hand and a huge government bailout on the other hand.
WFC is really hanging tough right now, so I may nibble on some calls over there.
9:00 am MT: I just can’t get the pricing on the spread I want for WFC, so it’s a no go. The market is probably going to go a little tighter today. It had every chance to sell off after the poor ISM, but traders blew it off and are holding the line for now.
3:30 pm MT: Market Wrap: We did indeed finish with a tighter day as I suspected. The market was a little nervous over GE’s financial services division, but GE is raising capital through offerings and through Warren Buffet, so GE is of the torture rack for now. Traders are watching to see how the Senate’s revised bailout vote goes tonight. Personally I’m wondering how much of the socialist language was stripped out of the bailout bill.
The market pretty much ignored the terrible ISM number today. The yapping heads made a HUGE deal out of the bad ISM number because it meets their agenda of fear and insecurity. By contrast, it looks like professional traders are treating the ISM as near-term slowdown in manufacturing but not necessarily a recession of the broader economy. So Big Money didn’t sell the ISM even though Big Media made it all the rage today.
Oil sold off a bit today after the Weekly Inventory Report showed a bigger than expected build in inventory levels. As usual, a drop in the price of oil is a positive for discretionary spending and the economy (as long as we don’t get huge inventory builds because of an imploding economy). Traders will be focused on the Employment numbers tomorrow and especially Friday. They will also be very focused on the bailout gyrations. In addition, we are in Earnings Warning Season, then we get Earnings Season, then we get Political Season, so there’s plenty of potential volatility in the works for the next several months. I'm not expecting a strong trend to develop in the next few months (but as always, I'm open-minded). Rather, I speculate that will we see more quick, sharp short term moves followed by some choppiness until the next move (similar to much of the price action from the Summer). I expect the VIX will probably have a 3-4 month peaking out period in the 4th Quarter, similar to 1998 and 2002. That means I will probably be playing short swings (1-3 day swings) and intra-day swings for much of the rest of 2008. Hey, why would we want 2008 to change now?.....We’ve only got one quarter left, we might as well finish it out the way we started.....
The market will probably push back and forth a bit this morning on the ISM, depending on the number. But traders will eventually look towards the ramifications of a bailout for more clues on where the economy may be headed in the next few months. If the ISM is a decent number in the 49-50 area then traders will probably have a somewhat muted reaction, which means that jobs and the Employment Report will take center stage along with the bailout. We will probably still see some newsy conditions the rest of the week, so keep taking this day to day.
7:40 am MT: I nibbled on some SPY and DIA puts on the gap down and break of the Bear Flag on the 120m charts.
7:55 am MT: I added to the puts on the gap test just ahead of the ISM.
8:15 am MT: I sold both puts for a 7% gain in about 30m. I’m just diddling around right now, but it was a quick $332 gain in a few minutes. The ISM number was a fairly nasty 43.5, which is well below the 49.5 estimate. Traders will have to wring through all the data with a protractor and some surgical gloves, so I’ll sit back and let them gyrate the market for a little while before the next trade.
8:25 am MT: I nibbled back in on the SPY puts on the next Bear Flag on the 5m charts.
8:40 am MT: Price action started slowing down, so I sold the puts for a small .15 cent gain, which is basically breakeven on normal spreads. I really am just diddling around and keeping myself sharp. I think the market is conflicted over bad economic numbers and a potential recession on the one hand and a huge government bailout on the other hand.
WFC is really hanging tough right now, so I may nibble on some calls over there.
9:00 am MT: I just can’t get the pricing on the spread I want for WFC, so it’s a no go. The market is probably going to go a little tighter today. It had every chance to sell off after the poor ISM, but traders blew it off and are holding the line for now.
3:30 pm MT: Market Wrap: We did indeed finish with a tighter day as I suspected. The market was a little nervous over GE’s financial services division, but GE is raising capital through offerings and through Warren Buffet, so GE is of the torture rack for now. Traders are watching to see how the Senate’s revised bailout vote goes tonight. Personally I’m wondering how much of the socialist language was stripped out of the bailout bill.
The market pretty much ignored the terrible ISM number today. The yapping heads made a HUGE deal out of the bad ISM number because it meets their agenda of fear and insecurity. By contrast, it looks like professional traders are treating the ISM as near-term slowdown in manufacturing but not necessarily a recession of the broader economy. So Big Money didn’t sell the ISM even though Big Media made it all the rage today.
Oil sold off a bit today after the Weekly Inventory Report showed a bigger than expected build in inventory levels. As usual, a drop in the price of oil is a positive for discretionary spending and the economy (as long as we don’t get huge inventory builds because of an imploding economy). Traders will be focused on the Employment numbers tomorrow and especially Friday. They will also be very focused on the bailout gyrations. In addition, we are in Earnings Warning Season, then we get Earnings Season, then we get Political Season, so there’s plenty of potential volatility in the works for the next several months. I'm not expecting a strong trend to develop in the next few months (but as always, I'm open-minded). Rather, I speculate that will we see more quick, sharp short term moves followed by some choppiness until the next move (similar to much of the price action from the Summer). I expect the VIX will probably have a 3-4 month peaking out period in the 4th Quarter, similar to 1998 and 2002. That means I will probably be playing short swings (1-3 day swings) and intra-day swings for much of the rest of 2008. Hey, why would we want 2008 to change now?.....We’ve only got one quarter left, we might as well finish it out the way we started.....
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