Can we hold S&P 900 today?
It didn’t take us long to go negative yesterday. My opening comment to members at 9:36 was: "I don’t think I’d want to be rushing in to chase things at the moment, that was a big gap up and strains credibility as the Dow leaps to 2.5% ahead of everything else." We set some watch levels like NYSE 6,000, Russell 515, S&P 950 (see David Fry’s Chart) - all of which quickly failed and left us with a negative bias. 4 minutes later we shorted USO, which I thought was some low-hanging fruit at $53 and the $61 puts quickly hit our 25% goal (and $50 target) for a day trade.
By 9:46 we were back in the DXD Dec $65s at $11.75, which finished the day at $14.95 and remain excellent protection since the Nov $78s can be sold to cover at $5 if the market turns (and we can only hope it does). Obviously they were much higher during the day as DXD topped out at $78 before pulling back. We ended the day still bearish and my 3:41 comment was: "S&P must hold 900 of course, no sense in making a play to the upside as the danger of gapping below 900 and triggering a massive sell-off looms for tomorrow. Since we’re 300 points away from getting back to today’s open, there’s not much of a sense of urgency to reposition here."
Today is Veterans Day and the bond market is closed so it should be a slow stock day and that means it’s going to be difficult to turn the markets. The China stimulus euphoria was very short-lived and global markets are pulling back about 2% this morning with the Hang Seng worst off, giving back all of yesterday’s gains with a 4.8% loss this morning. If 4 Trillion Yuan is not enough to stimulate the market for more than a day, then it’s back to BBB trading for us - that’s Beans, Bullets and Bullion for our fallout shelters! It may indeed be time to duck and cover in the markets, and we leaned more bearish in yesterday’s trading
The Shanghai Composite fell back to 189 while the Nikkei lost 3% and finished the day at 8,809 almost mirroring the Dow now on a daily basis. In early trading this morning (7:30) the European markets were off about 2% as they headed into lunch. The FTSE gave us an early trouble indication yesterday as they came off their highs ahead of our open. Oil is testing the very critical $60 mark today and yesterday was the first time we didn’t play it for a bounce as we’re no longer confident they can hold it. This is very bad news for oil-backed currencies like Canada and the Middle East, and Australia and New Zealand are also suffering from declining commodity prices. That’s been keeping the dollar strong and we held the 85 level yesterday, which is very bad news for the dollar bears.
Dollar strength gives us a very different view of the S&P when priced in Euros, where we have already filled the gap in the above chart and have already been rejected by the declining 50 dma. Based on this chart, 940 is our critical break-out level on the S&P (7.37 on the converted chart). Of course, currency fluctuations keep this a moving target but it is possible for our market to make a positive move if we can hold it together at 900. I don’t know what will give us reason to rally but S&P 900, Nasdaq 1,600 and Dow 8,500 will be our lines in the sand.
What we’ve been looking for in the market for quite some time is signs of real sector rotation from Energy / Commodities into Tech. So far, it’s the Semis that have kept us down and, at 60% off the highs, it’s now or never for the SOX to make a move. Intel (INTC) is being given away at $14.35 and you can buy it for that price and sell the Dec $14 calls for $1.45 and sell the Dec $14 puts for $1.05 which puts you in for net $11.85 and you will either be called away with an 18% profit or you will have another round put to you for an average entry of $12.93, which is a 10% discount off today’s price. Intel pays a 3.8% dividend and already had good earnings - the company has promised a mid-quarter update on Dec 4th. When you enter a stock at $13, if you can make just .10 per month selling calls, you will be making a 9% return ON TOP OF THE DIVIDENDS. These are the kinds of plays we need to be concentrating on in these terrible markets!
We’re hoping that what we’re seeing this week is a blow-off bottom ahead of the G20 meeting in Washington this weekend. China’s economy is indeed slowing down but the WSJ paints a 19.2% increase in exports (down from a 21.5% increase in September) as some sort of sign of a crisis. Imports in China are "only" growing 15.6% over last October, which drove their trade surplus to a record $35.24Bn - Oh no, crisis! (end sarcasm font). Unfortunately, Mr. Murdoch gets to decide the headline on this information will be "Weak Data Point to China Slowdown." Are the rich pressuring the G20 to dump money on the economy (much of which the same wealthy people will benefit from)? Well, someone organized 17 economists to petition the G20s to "act quickly on stabilizing the economy when they meet on Friday" - an issue also pressed in Uncle Rupert’s journal.
So are things really as dire as they seem or are our global leaders being bamboozled into opening their treasuries to be pillaged by what Robert Frank aptly termed the Nation of Richistan, something I addressed in my June ‘07 article "The Door Nibor Economy." As I predicted at the time, the bottom 99% are clearly suffering and we are now getting to the divergent point where, for example, the economy in Europe continues to be very weak yet the investor class is seeing opportunity as the multi-Trillion dollar money grab is a game that is being played by all (all meaning all who own corporations).
So $50Bn of your tax dollars are going to make sure Rick Wagoner and the other engineers of this disaster can keep their jobs at GM. When a venture capital firm is forced to inject massive capital into a company to save their investment, they usually insist on a management change - why is this not happening at AIG and GM and countless other companies we are bailing out? These are our tax dollars - this is our future debt that we are borrowing to bail out completely irresponsible executives. There are 5M unemployed people in this country, surely one of them could do a better job running GM!
Everyone has their hand out for a handout and now American Express (AXP) has gotten approval to become a bank-holding company so now they can qualify for taxpayer-funded capital from the Treasury. Morgan Stanley (MS) and Goldman Sachs (GS) are already on that gravy train and there have been no management changes made to any of these companies. The Treasury has already committed $290Bn of the first $350Bn granted under TARP but Fannie Mae (FNM), who just lost $29Bn in Q3, has already said they won’t make it through Q4 without more money. The next $350Bn, which will be absolutely necessary to bail out the auto makers, require Congressional approval so is it a coincidence or a conspiracy that the markets are taking just as the stars line up for Paulson to be able to strong-arm Congress into accelerating the rest of the $700Bn he said just last month would take 9 months to spend?
At the same time the Federal Reserve is refusing to identify the recipients of almost $2 trillion of emergency loans from American taxpayers or the troubled assets the central bank is accepting as collateral. Both Bernanke and Paulson said in September they would comply with congressional demands for transparency in a $700 billion bailout of the banking system. Two months later, as the Fed lends far more than that in separate rescue programs that didn’t require approval by Congress, Americans have no idea where their money is going or what securities the banks are pledging in return. “The collateral is not being adequately disclosed, and that’s a big problem,” said Dan Fuss, vice chairman of Boston-based Loomis Sayles & Co., where he co-manages $17 billion in bonds. “In a liquid market, this wouldn’t matter, but we’re not. The market is very nervous and very thin.” WHEN WILL THIS MADNESS END?
Also, have I mentioned I like gold lately? Money is simply being tossed around in the Trillions and being given to the very people who have already proven that the last thing you should do is trust them with money - that is madness! I’m hoping it is a conspiracy and that Paulson and his chums at GS (who, along with other Financials, have been on a downgrading rampage) along with Uncle Rupert and his pals are simply making things seem terrible in order to scare the G20 into opening up the global vaults so they can plunder while the plundering’s good. That’s what we HOPE is happening because, if things really are this bad - we’re totally screwed!
Have a nice day!
