Tuesday’s Trading
Turn-Around Tuesday Rally?
SPY really needs to rally today. It is short-term oversold and at uptrend-line support. If it can’t rally, it will be a case of the dog that didn’t bark.
Credit Crunch to Crush Jobs
Last week, I poked fun at Jim Cramer after he greeted the dismal results of the Fed’s survey of senior loan officers as good news. While that survey is a bit obscure, it is a good indicator. What does it indicate? When banks tighten lending as much as they are now, you can depend upon a tidal wave of job losses over the next year. See the animated graph at the Financial Times here.
I Still Have Power
Even though Tropical Storm Fay is making landfall on the west coast of Florida, the east coast is on the “dirty” side of the storm. So, we are getting lots of rain and wind here. My power can go out at any moment.
Cold War 2 Updates
A few days ago, I mentioned that the conflict with Iran might be back on the front-burner due to the new cold war with Russia that President Bush has launched. Well, over the weekend, it appears that Egypt and Saudi Arabia asked the Iranians to tone things down a bit so as not to provoke an escalation from the USA, Israel, and Europe. Instead, the Iranians launched a payload into orbit demonstrating that they had missile technology capable of striking targets as far away as Europe. We may see the beginning of a naval blockade of Iran soon. The US Navy did exercises recently to train-up for the mission and a large contingent of Navy vessels will be arriving in the Persian Gulf soon.
Some Russians officers have stated that the foolish President of Georgia did not sign the cease-fire agreement as it was negotiated, but instead scribbled amendments onto the document before signing. The Russians show no sign of leaving Georgia.
Over the weekend, President Bush ordered the Russians out of not only Georgia, but also South Ossetia and Abkhazia. Bush said that there was “no room for debate” on the subject, however, the last that I heard, the Russians weren’t “debating” the issue. In response, the Russians instead moved SS-21 missiles into South Ossetia. The SS-21 is a very accurate short-range tactical ballistic missile that is capable of carrying a nuclear warhead, along with other types of warheads. I believe that it will be able to hit any target in Georgia from where the batteries are positioned.
And Russian bombers had to be escorted away from Alaska by American fighters.
August 19th, 2008 at 1:05 am
MSCI Pan-Asia -1.7%, for lowest level in 2 years. -22% ytd.
China and India growth rates are slowing in this global credit crunch. Oil falling and I’m short.
August 19th, 2008 at 7:19 am
Last month was the worst month for hedge funds since April, 2000:
http://tinyurl.com/HedgeFundReturns
August 19th, 2008 at 8:11 am
The hedge fund sheeple were long oil. Followed GS.
August 19th, 2008 at 8:51 am
I’m thinking I’ll pay more than 40 to add more qid if i have to - lets see how the market opens…
August 19th, 2008 at 8:53 am
sp trend line broken, the 3 day low broken, the 8 day low is awaiting.
ppi is UGLY, and this means corporates are eating it instead of
passing it onto cpi, again UGLY.
guess we bounce first!
August 19th, 2008 at 8:55 am
ouch, s&p futes down 13 i see…
Matt, I’m looking forward to your opening thoughts…
thx !
August 19th, 2008 at 9:12 am
What if there are no buyers, no more shorts to cover, and all the bears, tech’s and quants are waiting for for SPY to go above 130?
And then the retail investor starts to sell?
Wishful thinking from a short.
August 19th, 2008 at 9:18 am
the amateur goes short at the open…..hence a rally to positive territory is likely…..then the blood flows. just my hunch
August 19th, 2008 at 9:21 am
Hi after,
I haven’t changed my opinion from yesterday: I will be shorting any kind of strength.
Matt
August 19th, 2008 at 9:26 am
Matt, what will you be doing if the mkt continues to trade down without the bounce we are looking for?
August 19th, 2008 at 9:32 am
I don’t understand the Russia/Alaska thing, unless it is much more common and not reported.
Damnit, Bush is an idiot and he’s going to get us in trouble if he doesn’t stop playing that mine-is-bigger-than-yours game. That’s what happens with a oil-man in the WH.
Honestly though, I don’t think the Russians have as much economic power (and therefore, military power) as they think. We’ll see in 5-10 years.
August 19th, 2008 at 9:35 am
Tony,
That’s a good question. If you buy in the morning, you may miss a better spot later. However, if the market falls as much as it looks like, the rally is over and it has a long way down.
August 19th, 2008 at 9:44 am
SPY’s volume so far is much higher than yesterday morning, so this could be the big crack.
Tony G, the market probably won’t go straight down. After the big crack on May 21st, you had an excellent entry point for short positions two weeks later on June 5th.
August 19th, 2008 at 9:51 am
I decided to go in at market and add 3/4 of a % of QID. Got it at 40.13, looks like a whole nickel below the open, so slightly prudent to wait !
I’m building a position gradually here, but certainly watching commentary here for shorting rallies as well…my avg cost on qid is 39.68 now.
thanks all for your thoughts.
August 19th, 2008 at 10:01 am
Paul, I didn’t even know about Alaska. Now also flying in neutral space close to NATO-member Norway. That will turn on the alarm bells at NATO HQ. Now Euro’s need to get involved if Putin continues.
Bush forgot diplomacy across the world. Busy in Iraq. Gave away Kosovo to please the Arabs. Supported a cowboy in Caucasus. Now the Russian is angry and as always extremely unpredictable. Catch 22. The White House needs a simple history lesson. Do not touch Ivan’s tiny orthodox buffer zone.
August 19th, 2008 at 10:10 am
Larry,
On the Alaska thing, my gut tells me that this happens all the time. We were on friendly relations for Russia, so it wasn’t news in the past, so it would not have been commonly reported. I know that it was routine during the Cold War. If Russia accompanied their bombers with fighter escorts, then I would be concerned…
August 19th, 2008 at 10:11 am
XLF bounced off 20. It will probably test 21 this week or next, which will give a good chance to short.
MBI and ABK are still strong today. Glad I got out of that. I didn’t really show much discipline going into that trade.
August 19th, 2008 at 10:37 am
Where are the buyers?
August 19th, 2008 at 10:56 am
Larry,
Buyers for XLF? They are out there…
GS is showing support at $160, when most people think it will get to $155 or $150, or even test its July low of $140.
As I mentioned, ABK and MBI have buyers.
BAC will have dividend buyers until Sep 5
FNM and FRE seem to have buyers every time they fall a bunch, people looking for a trading bounce
Besides, Larry, as I often hear on CNBC, don’t you know that the financials are at “once-in-a-lifetime buying opportunity prices” that “you’ll never see again”
August 19th, 2008 at 10:58 am
Larry,that was Kramers rant last week
August 19th, 2008 at 11:15 am
From a technical point, it the SPX cracks 1262, it will be very negative and probably test the July lows before any bounce up. That area may be the bounce point as well, and it may get there today with the financials weak and oil neutral.
QQQQs need to hold $42.26 or that will head even lower as well.
August 19th, 2008 at 11:16 am
Make that $47.26 on the QQQQ’s. Sorry. It’s still early out here in San Francisco
August 19th, 2008 at 11:25 am
Paul and Larry, Russian flights above international waters outside of Norway resumed about a year ago; they were common practice during the cold war, but have not been happening continuously — they stopped around Gorbachev. Norwegian (NATO) planes routinely scramble to escort them, and the Norwegians are not alarmed by this alone. Nukes on Russian submarines in the Baltic would be a different matter. Bush isn’t negligent and occupied elsewhere; he is actively pushing on Russia’s sphere of interest and restarting the cold war. If you’ve seen reports on the Russian news coverage of the South Ossetia incident, it makes a credible propagandistic case, and there appears to be massive support in Russia to “stop the genocide by the US puppet regime”. This is part of the Project for a New American Century, and we’ve woken the bear. They see us wanting to control the energy sources of Central Asia as a long-term strategic objective. We might recall this is why Hitler’s Nazis didn’t move on Moscow in ‘41 but instead got sidetracked too far from their home bases and defeated at Stalingrad; the Russians fought so hard the Nazi’s joked “we’ve won the sitting room but are still fighting for the kitchen”. What we’ve done in Iraq makes it blatantly obvious how far we’ve willing to go, and the Russians will push back hard. Again, it’s not clearly a legitimate NATO issue; Russia has zero strategic interest in threatening Europe (other than as a front against the US); it has no ideology to spread, and Europe is its most profitable energy customer.
Bacevich’s thesis is that the US is primarily driven by the desire to maintain material consumption levels, and the population is not prepared to make sacrifices for some ideological cause. The notion that spreading democracy is a goal in itself of US foreign policy is no longer credible; what is driving our foreign policy is largely commercial concerns and we’re perfectly happy with friendly dictators. We’ll attempt to wheedle our way to power in Central Asia, but will predictably buckle under Russian pressure.
The US will continue to transfer a significant part of its wealth to Russia and OPEC (including Iran, even if indirectly) to maintain its way of life, and to use its military against those same nations to try to secure energy by force. It’s starting to become blindingly obvious this dual-prong strategy for maintaining prosperity will fail. At some point the American public will see this and elect leaders that will deal with the realities of the situation; in the meantime, we’ll be bleeding ourselves dry.
August 19th, 2008 at 11:42 am
The Q’s are attempting to make a rounding-bottom pattern on the 5-minute intra-day chart. SPY and XLF too.
August 19th, 2008 at 11:45 am
Kailash,
Thanks, that makes sense. I’m sure Bush wants to invade Iran, but luckily the public frustration with Iraq has siphoned to Congress, so that was averted.
However, an overt act of aggression against a European democratic ally, gives Bush more excuses. Unfortunately, I don’t think that things will get worse before November, and by then it may be too late. Hopefully, McCain will continue to run close to Obama. In that case, the Republicans may keep Bush in check to avoid PO the public and blowing the election completely.
August 19th, 2008 at 11:54 am
It’s hard to battle headlines of wholesale prices increasing 9.8% yoy, agency shares going to zero, home building at 17-year lows, and massive new bank writeoffs. The news are just too bad to sustain the rally.
August 19th, 2008 at 11:56 am
Apple has been holding up the Q’s, but the rest of the market isn’t looking so lucky.
August 19th, 2008 at 11:58 am
i think this is definitely the end of the bear rally. mkt has no desire to go higher.
August 19th, 2008 at 12:04 pm
Apple took a nasty spill and it looks like the rally attempt is defeated.
August 19th, 2008 at 12:05 pm
Tony G,
I agree. Now the question is: how long does it take to roll over?
Matt
August 19th, 2008 at 12:13 pm
It looks to me like natural resource stocks may have put in a bottom. Has anyone else noticed this?
August 19th, 2008 at 12:20 pm
Vix at 22. Oil up to 115.
Watch that oil price reverse and you might get your bottom in SPY.
August 19th, 2008 at 12:33 pm
Matt, how and when will you scale into your short positions? I want to have a predetermined strategy so i don’t let my emotions interfere. I am thinking end of day and tomorrow. If there is a rally then short into strength.
August 19th, 2008 at 12:53 pm
Tony G,
The rally is over, so you have some margin of safety. My timeframe is for the bear leg to last into October. I’m trading options, so I figure all the brokers and most of the big banks will be down by then.
Not everybody got the memo (and CNBC sure isn’t going to share it…), so many think the rally will continue. With a rally close behind us and two big down days, I think that the financials and SPY will be up some time tomorrow relative to wherever we close today. So unless the markets curb their losses to <0.5%, I’ll wait for tomorrow to add positions.
There are also targets: XLF 21 will be an easy short (or even 20.8, since 21 is well known). If the markets manages to scrape up to these, I’ll short today. What do you think, Matt?
August 19th, 2008 at 12:58 pm
My short-term model is still deeply oversold, so I want to see that condition worked off before I think about adding short positions.
August 19th, 2008 at 1:06 pm
Paul and Matt - thanks.
August 19th, 2008 at 1:50 pm
Matt,
With volume so low, are you willing to call an end to the current bear market rally? Low volume moves can lead to nasty traps.
I bought some IBM PUTs today cuz I want to play the global slowdown and strong dollar. HP is reporting after the bell. They could provide some global insight.
C
August 19th, 2008 at 2:32 pm
Crash,
That is a concern, but it is August and volume is hard to come by. I think the rally is over, but the top is always a process.
Matt
August 19th, 2008 at 3:04 pm
Volatility, Volume, and Naked shorting
One theory on volume: perhaps the SEC’s previous interference (naked shorting) has changed the market dynamic for a while. The anti-naked-shorting rule is gone, but they’ve used it once and shorties don’t want a nasty surprise again.
Assuming that naked shorting will be vastly diminished, this means several things for the market:
1) Huge volume usually down days will be less common (less naked shorting)
2) Huge volume up days will be less common (less short covering)
3) day-to-day volatility will be lower
This will likely mean that bear legs will be longer (time) and not as deepl, since we won’t have capitulation days to end them. Bottoms may end up being U-shaped instead of V-shaped.
We also have to consider the pattern. From yesterday, we determined that today had to be an *up* day to maintain SPY’s support line from July. That support is now gone and has turned into resitance on SPY, reagrdless of volume. Check where today’s high is. So I think the rally may continue, but we now have a top-line resistance. Instead of buying at lower resistance, short-term traders can now sell at upper resistance. Take a look at the trend line connecting the low’s from 3/17, 3/31, and 4/10. That could be what is ahead for us, which would mean the rally could continue.
I will say that I haven’t been charting that long, but volume is as important as price to most patterns. I’m about 40% short (JPM, GS, XRT) and 20% long (XLV, JNJ, MSFT).
August 19th, 2008 at 3:08 pm
I bought a smidge more qid a half hr ago just under 41. 7 % allocation now.
all the numbers keep getting redder…
I’ll try not to look any more till tomorrow…
August 19th, 2008 at 4:01 pm
The VIX (representing SPY Put demand for the most part) has dropped quite a bit from its peak. The VIX call options (representing where the VIX is headed) have not.
August 19th, 2008 at 4:04 pm
We bounce tomorrow morning,but will it hold thru out the afternoon?
August 19th, 2008 at 4:32 pm
HP beat by .03 now we will be up tomorrow.Wonder how much the street lowered there expectations
August 19th, 2008 at 5:14 pm
Paul, also, if you draw a horizontal line across the chart, we are right at the 3/17 low on the S&P. if we can hold above that level and make a higher low, i think the rally could continue. then again, the mkt is now interpereting bad news as bad news which is a sign that the mkt wants to go lower.
August 19th, 2008 at 6:14 pm
Today was unmitigated bad news and hard to ignore. The top still doesn’t look like it’s in, but we may need some excuse, however feeble, to get there.
August 19th, 2008 at 7:36 pm
Top is in
August 19th, 2008 at 7:36 pm
In fact top was in last Monday
August 19th, 2008 at 7:41 pm
Wow 65% of HP’s revenue is from overseas,still want a strong dollar?
August 19th, 2008 at 9:59 pm
KING DOLLAR!
(That’s my Larry Kudlow imitation.)
The top for SPY was probably on the 11th.