More than anything else, that is spooking the markets today. Japan is taking it especially hard with a 262 point drop in the Nikkei as investors were poised to take profits for any reason and this was a pretty good one!
The Hang Seng bounced back 185 points, but was alone in its recovery as the rest of Asia sold off in what was generally seen as profit taking. Google Inc. (NASDAQ:GOOG) bought a piece of Xunlei (and you'd better learn how to pronounce these if you want to invest in the global marketplace!) which should give them another 50M eyeballs. It's funny because people say "how can Google possibly expand further?" when all it takes is a few minor alliances to give them access to more people than live in all of North America...
Europe is off slightly but nothing alarming but they are also expecting growth to slow to about 2.2% next year -- this does not bode well for commodities!
The jobs report was MUCH better than expected and there were minor upward revisions to prior months with the service sector taking up much of the slack from manufacturing and construction with average hourly earnings up 4.5% over last year -- this is not the kind of economy you sell short!
We'll be doing another test of our lows this morning, which makes my job easy as I just cut and paste my levels from way back on yesterday morning:
- Dow 12,400 has to hold, below that is no support until a very critical test at the 50 DMA at 12,300 that we'd rather not take.
- Transports need to hold 2,650.
- S&P must hold 1,410 or it will be testing the 50 DMA at 1,400.
- NYSE 9,100 has to be a line in the sand, not getting back over 9,150 should be considered a problem.
- Nasdaq MUST hold 2,425! If we are rotating out of commodities it will not be enough to move into transports, tech must take leadership.
- The SOX will have a very tough time holding 470.
- Russell needs to pass 800 to lead us into a real rally, and must not fail 780.
Oil will test $55 this morning and it will be amazing if it goes below that into the weekend! I don't see how the markets can be sad with crude at $55, but I suppose they're just not buying it or there may be a perception that oil is dropping because the global economy is slowing rather than because it was all a giant scam that is now blowing up in people's faces.
Like any great bubble burst, the commodity bubble will take innocent victims with it, but again we need to look to the Nasdaq and the Russell to give us rotational leadership out of this mess. I'm still very concerned that we are heading for some more Amaranth-style meltdowns that may rock the financial sector. How can so many analysts from so many firms be so wrong on oil yet none of them are actually harmed by it?
I know it sounds logical, but it sounded just as logical when I first said it in September, and I got smoked shorting Goldman Sachs Group Inc. (NYSE:GS) back then -- so burned that I couldn't bring myself to do it again, even at $206 per share, which I still consider ridiculous.
Let’s keep an eye on our oil resistance levels of $57.21, $55.66 and $54.34. I will be shocked if we break $54.34 to the downside, and will be using that point to lighten up on puts into the weekend if it holds. I'm not going to take any new plays this morning, but we will be flipping into some February plays in comments as the Jans are getting to close to expiration (although we may still take some Jan mo plays...).
We'll keep an eye on gold as a quick indicator of dollar strength, but North Korea is back on the nuclear warpath so we may get a little bit of "fear factor" creeping back into shiny metals. Still, whatever the reason, if gold breaks $630 the dollar is going down. Conversely, if gold breaks $620 -- then the dollar is very likely to pop over the 50 DMA at 84.33 which will crush oil, gold and copper even further.
We're playing defense today so no new trades. I think we are still just in stage one of a major rotation with $230B coming out of energy stocks in the past 2 days alone!
Put yourself in those people's shoes: They just lost, say, $25B, and maybe still have $1T tied up in energy, so they are not likely in any mood to put money into something else until they can unwind that trade and get their bearings. In absence of some new leadership (hello Nasdaq!) there is little reason for them to do anything with the money they just put on the sidelines.
As I've said all week, if $300B coming out of commodity stocks only drops the Dow 100 points in a week -- we are in very, very good shape because it has to go somewhere eventually, and savings accounts and bonds just don't cut it when the average mutual fund returned 13% last year.
Once nervous investors get over their fear of a Democratic Congress I think we'll get the all clear for our next leg up.
For those of you panicking about Motorola Inc. (MOT) -- well you're right, this is a disaster...
We see if we can get .50 for the Jan $20s and be glad to be out. I'm holding the leaps in hopes that the .10 per share loss was caused by Motorola gearing up a new secret plant for iPhone production, but I also waited until 10 p.m. on December 24th with my kids for Santa to come down the chimney so take it all with a grain of salt....
Our Circuit City Stores Inc.'s (NYSE:CC) and Best Buy Co. Inc.'s (NYSE:BBY), both of which had bad news, are both on the mend -- as it turns out I was right about them and the analysts are idiots, and we doubled-down there to very good effect. I'm not calling for a reinvestment in MOT just yet but, like I said when we got the "horrible news" on CC and BBY, I'm saying don't panic just yet....
They did, in fact, sell 50% more phones than last year!
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