Options Trader: Monday Outlook

Includes: DIA, QQQ, SPY
by: Philip Davis

I was hoping to get a coherent picture over the weekend but after reading the WSJ, Barrons, the Economist, the Financial Times and the Investor’s Business daily I’d have to say I’m just confused.

The Journal surveyed economists and came out with a very dreary outlook for the first half of the year. The Economist says "the fears over the municipal-bond market in America look overdone." The Financial Times shows food inflation is so out of control that the World Food Program will have to ration aid to starving people while Barron’s interviewed David Winters, who said that "We view this as a gigantic after-Christmas sale. There has been a lot of indiscriminate selling at any price." Not exactly the clarity I was hoping for!

I’ve been siding with Winters for the past few weeks but things are still looking very scary out there and we are by no means out of the woods and are unlikely to be for some time. Patience is going to be key to navigating this markets and we will need to adjust our trading strategies to reflect the flat but choppy nature of this directionless market. Trader Mike pointed out that: "Skittish. Confused. Insane. One or maybe all of those words describes the current market environment." and illustrated the point with this S&P chart, which shows it simply flatlining into a range:

Fortune had a fantastic interactive timeline called "50 Years of Market Swings" that really puts our current "downturn" into perspective and it’s very, very amusing to see the patterns formed by the election of certain parties and the NEGATIVE performance of the market while they are in power but, since it’s only Monday and we save politics for the weekend, I won’t attempt to draw any conclusions as to which party has a long history of economic destruction.

They had a swinging time over in Asia this morning with the Nikkei jumping 414 points but getting a minor rejection ahead of the 14,000 mark. The HSI dropped 35 points but fell 300 points from the gap open, finishing below the critical 23,300 line. Banking shares let Tokyo higher and the market there also got a boost from speculation that China's Sovereign Wealth Fund would be investing $10Bn in the Japanese markets. I don’t really see how this is news since they have $200Bn to invest and Japan is 1/10th of the global economy but I guess anything is a reason to rally when you’re in the mood. Most importantly, India had a much-needed nice day, gaining 300 points back to 17,650 despite suicide bombs going off in neighboring Pakistan.

Europe is having a lovely morning with 1% gains across the board, also led by financials as everyone seems to be excited about the bond insurers’ bail-out except the US pre-markets, which are trading flat to negative in early trading. I blame LOW, who picked today to remind us we have a housing downturn (if you don’t say something, traders seem to forget) with a poor earnings report.

The WSJ is coming around to my prediction that GS is on the wrong side of the market, which explains their blatant attempts to take the market down at every opportunity so perhaps now people will stop listening to these idiots. ABK seems to be moving forward with a raise of $3Bn, which will make our other favorite market manipulator lose a little sleep this week! Speaking of hyena’s, ex Fed Chairman turned bond pimp, Alan Greenspan decided today would be a good day to say: "Economic growth in the US had gone to zero and was likely to move negative soon" as well as commenting that high oil prices would "go on forever." Whether Greenspan was sucking up to the Saudis gathered at the conference in Jeddah or scoring points for his masters as PIMCO is hard to determine but it’s interesting how every single threat of a market rally is met by waves of media shock troops, who jump out to tell you how bad things are out there.

The actual CEOs, who run our corporations DO NOT see a recession with ONLY 3.6% of those surveyed by the Business Council expecting the US economy to decline in the coming year. 85% said they expect economic conditions to improve over the next 6 months but - what do they know? They’re only the guys taking the orders and budgeting the capital expenditures and talking to the customers and watching the sales and inventory numbers…

Let’s ignore them and listen to the bond pimps and other hyenas who are hoping to profit on an economic downturn!