Global Trade Grinds to a Halt
We’re hearing a lot about a credit thaw, but according to this Bloomberg story, global trade is still slowing down because of credit problems. Here is a quote from a shipping broker:
“We only see this kind of shock when we have outbreaks of war, or maybe the oil shocks of the 1970s…”
Cargo is still piling up on docks, and jobs are being lost above and beyond would we get if this were a plain-vanilla recession.
Pension Funding to Cut Dividends and Jobs
Pension plans own stocks, and since stock prices are down, companies are legally required to put more money into their pension plans. They are getting the money by cutting dividends and laying off workers. See the Bloomberg story here.
Put/Call Ratio Signals Danger
The last time that the put/call ratio was this low was right before the October plunge. Not bullish…
The Immelt Meltdown
GE CEO Jeff Immelt, got the blame for pulling the rug out from under the market before the close on Wednesday, but was it all really just a mistake? Maybe, but last I heard, GE was “participating” in the Fed’s commercial paper program (translation: begging for money.) If GE is so shaky that it is having trouble selling its CP on the open market, then why would the stock market even bother paying attention to anything Immelt is saying?
The truth is that what we saw in the last 8 minutes of trading was just more of the same: redemptions. There simply isn’t anything else short of a major disaster that could cause such selling.
The “Finite De-Leveraging” Meme
This meme says that hedge-fund de-leveraging is a “finite event.” At some point it will be over and the market will go back to the land of rainbows, lollipops, and puppy dogs. While it is true that it certainly will end at some point, where will the market be at that time? I’m guessing that we will be under the 2002 lows. And how will we be able to get back above without any leveraged-up hedge funds to gun stocks higher again?
A few days ago I posted a link to a story stating that hedge funds had $1.6 trillion dollars under “management”. It is estimated that they have barfed up about 10% of that, and may go as high as 30%. And I don’t know if that includes European hedge funds. Of course, the mutual fund industry is much larger, and they appear to still be getting redemptions too. And gargantuan pension funds like Calpers also have to sell.
The dramatic whoosh down that we had Wednesday afternoon almost certainly was not the last.
Bearish Doji Star
SPY, QQQ, and IWM all have patterns very close to the bearish doji star. XLF couldn’t quite muster enough of a rally for the doji, and it’s 4.9% drop on Wednesday is a bit of a red flag.
Matt, don’t be so pessimistic. I need two more up days.
What a relief, a well-reasoned negative look
It’s pumptard-city everywhere else.
I’m actually hoping for blood to run in the streets
Was hoping for it today, but disaster was averted because of the 1/2 pt rate cut. The bad news for me is that futures are way way up right now.. but still below the high of today. Will be adding even more short in that case…
As I’ve said before, I still believe that we’re in Wave 3 (sub wave 4). We may have peaked today, but don’t know yet. I just know that a 4% sell-off in the final 10 mins of a trading day is very very bearish IMO especially since that is usually the time when big boys take positions or relieve themselves of them.
OK, I’ll help the bears out by giving the bulls more reason to hope!
Global trade is down: This is old news. Larry has been mentioning the drop in the Baltic Dry Index way for months (before CNBC caught it – they must have read this blog, too). Also, Bloomberg even talked about it two weeks ago, so I this is somewhat priced in.
http://www.bloomberg.com/apps/news?pid=20601087&sid=ahkq91XcsKnY&refer=home,
Pension funding: this is a biggie. I noticed that story popped up right before 4pm…This could be what caused the last-minute panic. I think that this will cause more long-term damage (think years) and not have a big effect on a bear rally, since the timing of the selling can be more controlled by the PF managers.
P/C ratio: I noticed this in David’s charts as well. I think low P/C ratios are bigger warnings when they occur in bull markets. Interestingly, the big drop in the ratio on October 13 was caused by a massive reduction (-40%) in open Puts (similar to the big drop in March), while the recent big drop now is caused by a massive increase (60%) in calls. Implied volatility is a measurement of option demand. So, if there is a decrease in the VIX while there is an increase in total Open Interest, this means that there was excessive supply. So perhaps stock holders took advantage of the two day gain and sold calls (to market-makers) to lock in some of their gains (I did). If the VIX had risen instead, then the increase in open Calls would be due to excessive demand from speculators (buying from market-makers), which would be read that the options market had turned bullish (which would be bearish for the market). Is that perfectly unclear
Immelt meltdown: I agree that this was likely not the real story of the sharp drop. It was either hedge funds (as you noted) or perhaps the pension fund story spooked people. However, I think that selling CP to the FED at <2% interest is just smart business, not necessarily a sign of weakness.
Finite deleveraging: Yup, 2002 lows will come…eventually. Also did you notice the last paragraph:
“If the fund suffers large investment losses, it has little choice but to hit up employers — such as cities and counties — to increase their contributions. Calpers recently indicated plans to raise the contribution level starting in 2010 and 2011, unless the recent investment losses can be reversed.” This goes along with my theory that the pension fund shortfalls at companies will hit hard, but not in the short term.
This week, all is priced in. Maybe we get 980 dare I say 1000 intraday. Europe & futures up, end-of-month, last but not least Dressguard and I want higher prices this week…
On Tuesday 50% of the dax’s massive trading volume was in VW… Over the weekend we can contemplate what rumoured 20 bln losses for hedge funds/banks multiplied by leverage imply for assets – barf, barf. Looks like Porsche will be removed from the corporate car policy by some players and from some private shopping lists as well
With futures surging again this morning does look as though we are nearing a short-term top.
But I very much doubt that the inevitable retrace will come anywhere close to the lows. New lows will have to wait for 2009 IMHO.
Finally we a decent report in MSM on factories in China.
http://www.forbes.com/business/2008/10/28/china-toys-pearl-river-delta-biz-manufacturing-cx_pm_1028china.html
Austrian School of Economics: Demand for capital goods will plummet and rampant overcapacity will become apparent.
Add a domestic Chinese recession (lower growth in money supply) and we have a double-whammy.
Commodities and oil has not hit bottom. Even if the USD should stabilize. Watch out below.
Matt-
I was wrong about the FED yesterday. My guess
is that they thought a rate cut would pump-up
their 401 K’s.
The uncooked GDP is at least minus 3.8%.
Have a great trading day. Follow the big
S&P 500/DOW futures players.
Sherry
Matt-
By the way I feel sorry for the current GE
CEO. The prior CEO had a habit of taking
money out of the pension fund to meet
numbers.
Sherry
That is sad news about the pension funds. What a mess.
Larry, that’s communist propaganda, trying to blame outsiders for their own overproduction of superfluous goods. Even in the biggest crisis the US gdp is almost stable, showing the resilience of statistics and the superiority of the capitalist system. Aren’t we going to gap up, are we?
Yerk, statistics are a great tool. Especially GDP.
I’m taking a real beating if this rally continues.
$20+ for ICE?
call me a bear, but I see a head and shoulders pattern forming on the SPX 1 min… right shoulder just formed. It doesn’t have a perfect neckline though..
Matt-
Will we see a spike and ledge pattern today?
Sherry
Charlie;
Is the head the bottom part? Isn’t that bullish?
Hey George,
no.. typically it is bearish. The head was hit @ 963.. so far.. there is an elongated right shoulder forming.. not looking like an ideal pattern though.
I did some reading on H&S last night, so I am still a student.
I couldn’t find anything on “pancake” markets.
OK, I had it backwards then.
Thanks
Hi Sherry, say hello to MEB. Baltic Dry -4.3% to 885.
hey George,
here is a quick read on the Head and Shoulders Pattern.
http://www.incrediblecharts.com/technical/head_and_shoulders.php
The volume today seems to confirm the pattern somewhat. Now waiting for a high volume break of the 951 level on the spx.
Dollar has regained all of its sharp early losses.
More evidence that a short-term market top is here or at least near.
Charlie – good call! I’m letting my SDS run.
SDS bumping up against resistance soon on 15min 36MA. Trying to clear same on 5 minute right now.
Several areas of potential support coming up though so be careful.
with spx I mean.
mind the gap…
See how ICE is? Should be tanking, yet moving up against market. It knows something I don’t know or a late player.
SDS trying to fill gap?
Larry-
I’ll tell Dad hello for you. He wants to know if
you are an Ayn Rand fan yet.
Sherry
SDS at the 15min 36MA. We’ll see what it does.
George,
ICE posted 12% earnings pop
newbie;
Sweet – that must be the reason.
Tks
Charlie;
Where do I send the check?
<$6 and ICE has a $20 day!
BBT feeling the effects of the rate cut.
you got that P/C ratio right. it was one of the things I used last night to make my call. this morning the MA on my chart got dangerously low. and according to Individual Investors Association, bulls outweigh bears at this level. since institutions sat out of the big rally the other day…well you draw your own conclusions.
lol George
Glad things worked out for you. My broker has been down all morning. Just called them and they said that they are going to be down for a few more
Was unable to do anything today
SDS bounced off resistance .. consolidated a bit and it looks like it is making a run at it again.
Boo on the broker. Should have backups, fault-tolerant equipment.
SDS making another stab. Double goodies. Its 5min is trending with 15min MACD moving up not trending, and 30min showing some life, not trending.
That will make for some pancake moves until it or SSO gets a groove.
BBT setting up again.
George,
SPY bouncing off $94. I have a small short at $95.
Took out the 93.9 low on the SPY. New low $93.81
Thanks newbie…
Maybe it does not mean much on a one minute chart, but the SPY has a downward channel since 10:10 AM. In that channel are two parallel channels that are much steeper. Currently testing the top of the channel at $94. Never mind, now heading to the bottom of the channel.
Do the 1 minute charts carry much weight short term?
All of this mornings amazing gains are gone.. Markets going negative. My broker is still down.. I hope they burn in hell…. just kidding..:)
Yup. Good to be short even if it is a tiny position. Stops in place, gotta go.
Good luck today.
SPY is still in that 2nd steep channel.
George, you have to be loving your SDS now
gap closed. what’s next?
Never fear… reversals are always near…
newbie;
Done switched to SSO, got some BBT. I love ‘em all… not prejudce.
Not “prejudice” – gotta get the spelling correct.
SPY broke out of narrow channel still in wider channel with resistance at $94.25 Looks like we turned around at 94.01
Oil and commodities taking a beating. I’m taking a winning. Someone must have read the blog again.
More bottom-callers on TV. They never give up.
No moss on these stocks, De Boyz & Girlz is’a rolling them over mighty fast.
This is a newage market to some extent.
GO SSO!
WTG Larry – rake it in.
Sherry: I’m getting there. Need another month
George: good call on how fed rate is hurting BBT. Maybe you need to look for a new long-term trend for your scalps?
If ICE hits +$20, I’ll take us all to Vegas. Bring your own peanuts.
If SDS 15min MACD starts trending… and it’s close right now, then we’ll end up in the red. Lots of times it will get rejected when the trendlines touch the histogram zero line.
GO SSO!
Larry-
It is a BIG book. Took Dad a LONG time
to read it.
Hang in there…your profits will multiply.
Dad told me to take a bet on reaching
DOW 6000 next year.
Take care.
Sherry
Larry, Sherry.
what is the name of the book?
Not looking good for SDS right now. SSO is the way to go.
K-
The name of the book is “Atlas Shrugged.”
Sherry
Charlie,
Good call at 12:35.
SPY sure did break out of that channel. I got stopped out at 12:32, but I didn’t see it until I came back to the computer.
Only a couple of bucks away for ICE to hit the +$20 mark.
Pack your bags.
SDS 15min MACD has not crossed so anything can happen, expecially if it gets a bounce off of the lines meeting, or almost meeting, and turns up.
I’m just working the 1 minute stochastic right now until direction gets resolved on the 15.
HEHE, ICE .50c away from $20. I got the tickets already.
Rather $1.50.
George,
do you think it has enough juice to make it? I’m starting to feel like the ICE chart is weakening.
clear negative MACD divergence on the ICE 5 min chart right now.
Some more potential strength coming for SSO right now though.. We are approaching the 2pm reversal time.. so anything can happen at this moment.
Does anyone have any views of the volume today?
12 cents away… I guess you’re right George
Grats George!! you got it..
Yeah! Vegas, here we come…
Still not out of the woods on the 15 minute yet.
Matt? do you have any shorts left in your store?
I’d like to get some today seeing Bennie drop another tomorrow
and what do you guys think should I get some or is this the week that the bulls win on friday?
Hey K..
hard to tell at this point. Believers in EW theory suggest that we are in wave 4 of 3 and still have wave 5 of 3 to ride out. Non-believers or those that counted the waves differently believe that we are forming a base and have finished wave 3 and that we are in the beginning of wave 4.
I’m so tempted to short right now…
K;
How did you do on your UYG yesterday… should have done very well.
yeah but got out
only have DIG now. am thinking of selling it too
sold apple before today as well. I really have to control emotions! hehe
I got out of UYG yesterday too.
hehe/ now am looking at PSTA as a small gamble. earnings nov 6. pasta seems recession proof
ok i can;t find any good pasta or seafood stocks LOL
We have a conflict. SSO has a spike low and wants to go up, SDS bounced off the 15 and wants to go up.
SDS was a stochastic bounce but the MACD trendlines are still below zero.
Been in SDS on 5 minute since 3:15pm. If its 15 minute MACD tics up, we go red.
Market is fighting for it’s life it seems. Big stocks like GS are tanking, but others are holding up well.. very conflicted market right now.
Hedgies didn’t want much today.
Nice Day!
Hell or high-water, SSO is going to that 33 area.
I just had to do another trade past my cut-off time.
Utter chaos. Went long a few GE JAN09 19.00 puts. It has simply not meaningfully participated in the rally. Total debt is half a trillion. Hard to believe this was once considered a safe haven blue chip.
something interesting
Overnight Libor has dropped to its lowest levels in years to 0.73125%. Libor is now below the 1% Fed Funds Rate.
Charlie,
I like to use theories that have “common sense” behind them. So I believe in cycles, since these can be explained by periods of irrational exuberance (greed) and panic (fear). However, I haven’t found EW theory useful as a predictive tool, because the timing doesn’t seem precise enough.
The biggest problem I see is that the theory is TOO flexible. If something doesn’t go as predicted, then “that was just a sub-wave of a bigger wave”; it is too easy to explain away discrepencies after the fact. For example, you wrote that “Non-believers or those that counted the waves differently believe that we are forming a base and have finished wave 3 and that we are in the beginning of wave 4.” So if have 1000 EW theorists, all with slightly different interpretations, then 1 of them may hit things on the nose, justifying EW as a great tool and claiming everybody else just used it wrong.
Please understand, I am not criticizing your understanding or interpretation of EW, I am just questioning whether EW theory itself can be used to effectively place consistently profitable trades. What is your experience on that? Thanks
K,
On overnight LIBOR, this is mixed news. It is a sign of loosening credit that the rate is so low, obviously a very positive development.
However, the 1% is the Fed Funds target rate. The actual Fed Funds rate is much lower, as indicated by 13-week Treasuries trading at 0.38%. This is bad news, as it means the short term Treasuries are still in very high demand. Of course, since the target rate was cut in half since Oct 8, it is hard to say how this reads on Treasury demand vs historical values (remember it went to 0% in Sep).
One new item in the mix: the FED is now paying banks interest on their reserves, which are just as secure as Treasuries. So banks can loan out their short term Treasuries at 0.38% and deposit the cash with the FED getting paid 0.65% risk-free.
also bank of japan has a tentative monetary policy meeting today..