Monday, September 29, 2008

from a very bad day

Jeffrey Cooper

03:50:00 PM

No positions in stocks mentioned.

Market Action... Reaction

As Todd mused, do you think Greenie is blowing the clarinet now? Is Hank going postal as Bernanke heads for temple none too soon? Bush certainly has his boyz under control pardner.

The republicans who voted against this may have lost the party which I believe was founded a Fib 144 years ago. They played right into the Dems' hands.

They voted the emails from their constituency. Do they think their constituency really understands the fragility of the system and whats at stake?

Pump up the volume on that violin music, the USS Titanic is listening.

Jon Doctor J Najarian

03:45:00 PM

No positions in stocks mentioned.

VIX Spikes to $48.40 as DJIA Trades Down 700 Points

The VIX futures are spread 5 points front to back. 32 front to 27 back. Both are way, way, way below the cash VIX which is pennies away from 48. That's telling me that the short term volatility will be violent, which has been dead on and that the spike is expected to be short-lived. Given the complete lack of leadership in government, and their failure to increase SIPC and FDIC, I'd say that spike our model predicted this morning (50) is right around the corner!

The best trade here is to buy the lifeboat stocks: Goldman (GS), Morgan (MS), JP Morgan (JPM), Bank America (BAC) and Citi (C) on dips and to take profits on the rips. This has happened twice in the past few weeks.

* JPM ran from $40 to $49 and you could repurchase around $43 right here.
* Morgan Stanley ran from $13 to $36 and back to $20.
* Goldman Sachs ran from $85 to $145 and is now back at $115.
* Bank America ran from $27 to $39 and back to $31.
* Citi ran from $14 to $22 and is now back to $18.50.

Thus, you can be patient and wait for the lower end of these ranges rather than jumping in. Also, as far as takeovers go the prices have been under market, thus takeunders, so stay away from bullish speculation in the regional banks.

Minyanville Staff

03:40:00 PM

No positions in stocks mentioned.

Turnaround Tuesday?
Here's the radar for tomorrow.


9:00 S&P CaseShiller Home Price Index: 167.7 prior.
9:00 S&P/CS Composite – 20 (y/y): -16.0% cons.
9:45 Chicago Purchasing Manager: 54.0 cons.
10:00 Consumer Confidence: 55.0 cons.
10:00 NAPM-Milwaukee: 54.0 cons.
5:00 ABC Consumer Confidence

Click here for the full trading radar.

Fil Zucchi

03:32:37 PM

No positions in stocks mentioned.

Now what?

I never thought that Toddo's long standing mantra that "when THEY'd run out of bullets the last one would be aimed inwards" would take on such a real form.

We are now clearly in uncharted waters, so take the following with a bag of salt, but my understanding is that under recent legislation the Federal Reserve has the power to intervene in the market without requiring debt funding from the Treasury, i.e. it can literally "PRINT" currency.

I'll leave to our imagination the consequences of such actions.

Todd Harrison

03:25:43 PM

No positions in stocks mentioned.

Engine Room, More Vibes!

* There are two ways we can view this dew: The S&P is almost 30% lower than it was last October or it's 45% above the 2002 lows.

* I'll again offer that the sooner we go through this, the quicker we'll get through this.

* That, on the margin, makes this mess incrementally positive (hey, I'm trying).

* The key will be containing the credit contagion, which is easier said than done.

* Remember, stocks are a thermometer but credit is the backbone. As it stands, it can't stand.

* Try as I might, I can't shake the October 1st stateside transfer of troops from my crowded keppe.

* It's called a process of price discovery for a reason.

* I sincerely hope the FBI investigation goes up the entire food chain.

* Seriously, if we're gonna take back our country, let's re-establish integrity of the system and force those responsible to accept culpability.

* I wonder what Alan Greenspan is thinking right about now.

* Deep breath, Minyans, this too shall pass.


Smita Sadana

03:20:42 PM

No positions in stocks mentioned.

Flee Market?
Finally, we are seeing signs of fear that I talked about this morning? You need fear to progressively build during the day.

Check out the VIX.

Click here to enlarge.

Could this fear be real, and not just an imaginary monster hiding within our closets?
Given the way stocks have been trampled, it seems like most people have run out of the market already.

My only worry remains, that if VIX doesn’t reverse today, will we need another spike tomorrow for it to turn around? Almost reminds me of the wresting matches where the referee is yelling to the downed opponent, one, two, and three...

If the market needs to attempt a bounce, now is the time.

MV Trivia

03:12:30 PM

No positions in stocks mentioned.

Busy Bee

An average worker honey bee makes 1/12 teaspoon of honey in a lifetime. Honey bees must tap 2 million flowers to make one pound of honey.

Congrats Minyan Jeff Brockway!

Choose your critter!

Todd Harrison

03:01:09 PM

No positions in stocks mentioned.

The School of Hard Knocks
Where do we go from here? That's the question on everyone's mind as we digest the implications and ramifications of taking our medicine right here and right now.

I walked through the two-sided consequences this morning and they very much remain in place.

The Upside of Anger, I suppose, is that we'll evidently take our medicine now as opposed to passing the devalued buck to our kids.

The Downside of Anger is that we'll evidently take our medicine now and it'll likely be a painful pill.

What have I done? Trading-wise, I unwound my anti-dollar bets as we figure it out. Person-wise, I walked down the street to JP Morgan Chase (JPM) and took out some cold, hard cash. As the teller counted out the currency, I turned to President Fish and said "Let's hope this marks the bottom." Perhaps it will but better safe than sorry.

As a free-market guy, there's a part of me that feels a sense of relief that this bill wasn't passed. As a professional derivatives trader with 17 years of experience, my concern is that politicians don't understand the gravity of the situation.

I've long said that time and price are the arbiters of our financial fate and to get through this, we must go through this. Through an optimistic lens, we're one step closer to the eventual recovery and the goal remains to get there in one piece.

Fare ye well into the bell and as always, I hope this finds you well.


MV News

02:58:40 PM

No positions in stocks mentioned.

House Alert

U.S. House plans to abandon pre-election recess to deal with the financial crisis. (Reuters)

Kevin Depew

02:35:50 PM

No positions in stocks mentioned.

Under the Hood

* New point and figure sell signals are leading new buy signals by a wide weird margin, 220 to 14.
* Overall sell signals are leading 458 to 22.

Jon Markman

02:30:00 PM

No positions in stocks mentioned.

No Shorting!

The lunacy of the no-shorting rule is so evident now. Normally shorts would cover around here. Now there are no forced buyers, only forced sellers.

Todd Harrison

02:23:22 PM

No positions in stocks mentioned.

So, what's new?

You mean, other than determining the construct of capitalism, voting on the socialization of America and the potential for a cataclysmic decline?

Yeah, that.

The game continues to change as the House rejects the rescue bill. We can debate the merits of this till we're blue(r) in the face but we must continue to adapt if we are to survive.

Through that lens, I've exited my anti-dollar bets for the time being, including the UDN and FXY, both of which have upticked (as the dollar declines).

Yeah I know, the passing of the bill should have been dollar negative and the blockage should be dollar positive. Bizarro World indeed and as much as I love risk, I'm devoid of it at present.

We scribed a potential roadmap on Friday and at the risk of tempting the Trading Gods--now that they're really pissed--I will again put it in front of you.

Lucidity now, Minyans. Now more than ever.


Jess Thompson

02:16:46 PM

Position in SPY

Change of Heart

The SPY has now thrust down to the 111 handle. My firm is now recommending looking for investors to initiate new longs.

This is the first time we have recommended initiating new longs in stocks since advising readers to liquidate in Oct '07.

Todd Harrison

02:08:17 PM

No positions in stocks mentioned.

Pucker up, Buttercup!

* Forget Hedonism vacations, this tape has more swing than... oh wait...

* Minyan Mason Slaine--a close friend and the former president of Thomson Financial--offered up an alternative solution to this stressy mess. I'm interested in hearing Minyans opinions on this matter so feel free to weigh into The Exchange, which is the only form of socialism you'll ever find in the 'Ville.

* Capitulation. Ca-pit-u-la-a-tion is making me wait. If we slip and slide to S&P 1080 and VXO 70, however, I might dip my wick for the Turnaround Shtick. Either way and independent of the next 500 points, risk management trumps reward chasing as the stylistic approach of choice.

* We've been talking of the "toss up" that is financial calamity or socialism. Pick your poison but please do so sans acrimony. Easier said than done, I know, but that is our task at hand.

* If you were Hank Paulson trying to get a plan through congress, would you not push the button until your plan is passed? Just asking.

* The S&P is moving around in twenty handle clips. I haven't seen that since the morning of September 11th.

* I sincerely hope this finds you solid, lucid, mindful and aware. This is what we've trained for and that is why we'll survive. Just remember, you're a Minyan--perseverance is in your blood.


Jeffrey Cooper

01:54:11 PM

No positions in stocks mentioned.

Will This Thing Turn?

I don't know if it turns, BUT...

Ultra QQQ ProShares (QLD) is 720 degrees down from the 123 all-time high and VIX hit a 46 target I had from a Rule of 4 Breakout shown in my report over a week ago .

Sean Udall

01:52:10 PM

No positions in stocks mentioned.

Props to Katz excellent post on IT spend
I generally agree with this excellent piece by Adam. I have felt the figures used to show IT represents 15-20% of total global spend are somewhat suspect and include a lot of tertiary biz that is not pure bank/brokerage/insurance. And much of this spending is related to the finance divisions of very strong multi-national companies.

However, here's the rub. In this type of market it might not matter how poor of a 2009 is priced in. What may matter much more, is how far below a any rationale valuation measure we fall to.

The vote is going on right now. I'll check in later.

MV News

01:49:31 PM

No positions in stocks mentioned.

Bailout Bill
S&P plunges 7.2%. Most since October 26, 1987 on news that the majority of the House has voted against the bailout plan.

Jeffrey Cooper

01:39:07 PM

No positions in stocks mentioned.

Not here, not now?

The 1172 SPX midpoint comes into play once again. Although the index closed below that on a daily basis, it has not done so on a weekly basis.

Such a weekly close may represent a listing and a tipping point toward the 2002 lows in my opinion, but I do not expect that right here right now.

Jeff Macke

01:16:39 PM

No positions in stocks mentioned.

Hitting the Fans

Greetings from New York where where Roget himself would be running out of ways to say “I don’t like ‘em long or short” by now. Someday there’s going to be a big rally. That rally may or may not come after a massive drop. There’s plenty to discuss in what’s going on in this fascinating, historical, time. There’s simply no trades being generated from the palaver and sound bites getting cranked out all over the place. As Leonard Cohen sang, “Everybody knows the dice are loaded". They have been for a long time. The difference now is simply that we have committees who don’t understand craps actively reloading the dice in close-door meetings.

You can put your money on the felt based on a hunch how the new game is going to be fixed. I have no idea. As a result I remain largely cashed out and, if not “happy” about it, at least much less stressed. Which doesn’t mean I’m not watching the game unfold. Here’s what’s standing out to me about the train wreck du jour:

It’s not the news but the reaction. Apple (AAPL) down $17 on a downgrade is what we in the industry a “negative” stock reaction. It’s $110 as I type. If I were a) addicted to taking risk or b) going to spend my entire day in front of the monitor, I’d consider a long shot with a $105 stop. Of course, neither A nor B is the case.

Speaking of cult stocks, Google (GOOG) is spelunking under $400 today on even less news than Apple. What does Google have to do with a debt meltdown? It’s a stock and thus subject to bear market whims. The most darkly amusing thing about outlawing “evil shorts” is the idea that bear markets are brutal for everyone, bulls and bears alike.

Speaking of nowhere to hide, the Irish stock market fell 11% today, the Emerging Market ETF (EEM) is taking a 7% plus beating and China’s FXI ETF is down 9%. Every culture has a word for “Pain”.

Far be it from me to speak out against venting and anger. I’m a big fan of each. I just don’t think we’re going to be able to speed along the free market “fixes” being proposed here. It’s going to take time and it’s going to hurt. The market we knew for the last decade is gone. I’ll mourn for it and I may even do a couple rebound-date type of trades. But it’s going to take me a while before I can trust again.

Todd Harrison

01:05:24 PM

No positions in stocks mentioned.

Hank is Moody!

* We said it on Friday and we'll say it again. If there are two things I know for certain, it's that people on ludes should not drive and politics and derivatives don't mix.

* There are two primary points of concern: structural and psychological. The former is a function of the interwoven financial fabric and the latter matter is faith in the former free-market system.

* Particularly given how haphazard the political decision-making process has been.

* My crude stab was stopped out for a small loss, so you know. Discipline over conviction as we find our way through this process of price discovery.

* S&P 1080 doesn't seem so far-fetched anymore.

* If I had the back of an envelope, I would venture to guess that it would sorta align with VXO 70. I'm not in the "let's draw a line in the sand" business but as we've discussed it, I wanted to circle back to it.

* On the bright side, Californication has started the new season. So at least we've got that going for us.

* The wild-card in this equation? I know, loaded question but here goes. Redemption Songs. There will be far fewer hedge funds going forward and the unwinding of that risk--on top of the obvious big bank culprits--hasn't been discussed much by the media.

* Or should I say, the mainstream media. In that vein, we humbly ask ye faithful to help us spread the good word. The Minyanville content is our very best (and only)advertising and if you're finding it of value, please tell two friends. You know, it's the whole Faberge thing...


Sean Udall

12:59:19 PM

No positions in stocks mentioned.

House of Pain
The market fits but I’m not referring to the market or that great rap group that got everyone jumping.

I'm talking the U.S. House of Representatives. A delay in agreement on this bailout is probably half the damage today or more as this should have been voted on yesterday at latest.

How do you sell insurance to someone that already has cancer?

Would Wachovia (WB) have made it had the deal passed last week?

Is the market perceiving a greatly watered down version of Paulson's original plan?

Meanwhile the Solars are just getting crushed on follow through weakness from Friday. The fact is the House version for the alternative energy space which contains the solars' 8 year extension is viewed as vastly worse and may get vetoed. The Senate bill was clean and streamlined. This tax extension and the push to alt energy investing will be a massive jobs creator, and frankly I'm amazed the House chose to take a chance on this being vetoed given the economic backdrop.

Meanwhile, tech remains the favorite short trade of the commercials I believe as we are indeed pricing in 2002 Fundies again. Whether we see those 20-30% declines in sales for many leading companies remains to be seen but that currently doesn't matter. The U.S. government has only given us the green light to own a handful of stocks that they have
essentially said are bullet proof and none are in the land of technology.

Meanwhile many stocks have hit incredible buy ranges, but I continue to bide my time and wait for the next trade like we had a week and a half ago.

Apple (AAPL) is one such example, but I'll remain patient for the green light turn again. Additionally, if there is one name that may hit numbers on the consumer front it's this name, but the fact remains that an entry well below $100 is better than one above.

MV Trivia

12:49:16 PM

No positions in stocks mentioned.

Tonight marks the Jewish New Year, Rosh Hashana. It is customary to eat honey for a 'sweet' new year.

How much honey does 1 bee produce in its lifetime?

'Bee' the first Minyan to answer!

Vitaliy Katsenelson

12:39:04 PM

No positions in stocks mentioned.

Global Growth? Think Again
This weekend’s papers provided new signs of global economic slowdown. The first came from Japan. For the first time in 26 years – a long time – Japan became a net importer (imports exceeded exports). FT article sums it up:

The contraction was led by plunging sales of Japanese cars and trucks in a weak US automobile market. Exports to Europe also declined while growth in shipments to China and other Asian countries – including sales of Japanese factory equipment used in those countries’ own export industries – slowed sharply.

Note that deceleration in growth in demand from “unstoppable” China. As you can see from this FT article – a demand for steel started to decline in China – a second sign.

Indian iron ore exporters on Monday warned that demand from steel mills in China had fallen sharply over the past month and that Chinese buyers were defaulting on contracts with suppliers.

Could the Japanese slowdown in sales of cars be driven solely by high oil prices? Could Chinese decline in demand for steel be driven by post Olympian (short-term) slump? I suppose. But in the past neither country had to make an excuse. The probabilities have just increased that we are facing worldwide economic slowdown. That may not be a bad thing. We need things to cool down and normalize. But if you think the “stuff” stocks (energy, materials and industrials) are “growth” stocks that are just taking a breather before they embark on a continuation of the run we saw over last four years, think again.

I hope the following two articles will explain why I think that may not be the case.

Look to the margins when using the price/earnings ratio

Chinese and Starbucks Late Stage Growth Obesity

MV News

12:31:03 PM

No positions in stocks mentioned.

Midday News Buzz

* European markets closing prices: DAX -4.23%, CAC -5.04%, FTSE -5.30%.

* The Fed will inject an additional $630 bln into the global financial system. It has increased its existing currency swaps with foreign central banks by $330 bln to $620 bln and the Term Auction Facility will expand by $300 bln to $450 bln. (Bloomberg)

* Part of the selling pressure on Apple (AAPL) today is because Morgan Stanley analyst Kathryn Huberty cut her stock price estimate on the stock by 35% today to $115 from $178. (Bloomberg)

Rod David

12:22:43 PM

No positions in stocks mentioned.

When shorts are outlawed, only outlaws wear shorts.

You've heard of the FOIA? It's the Freedom of Information Act. Since the SEC's Christopher Cox banned short-selling of financial stocks, we now have the FFIA - Freedom from Information.

So, how's that going, anyway? Well, here's Wachovia's (WB) chart through Friday.

Click to enlarge

I'll be the first to warn against basing broad decisions on a single data point. After all, WB was an isolated incident Friday, right? So, isn't this example an exception to the the rule?

Actually, I submit that this WB example is the rule. Had short-sellers been involved, the effect of their negative opinion could have inhibited last week's high - if not prevented it altogether. Instead, the short-squeeze probably did what surge's do, attracting lesser informed buyers to get long in time for the kill. The complacent mid-week consolidation certainly didn't scare anyone away, either.

Probably among those were the innocent retail crowd whom Cox is supposed to be protecting. Yes, the short-sale ban is an emergency measure that was intended to protect the markets at a fragile time. That time has passed, and I think WB's chart proves it.

Todd Harrison

12:07:52 PM

position in fxy, udn

Answers I Really Wanna Know...

* Does anyone else think that this is nuckin' futz?

* Define "Big" please?

* What's a better vehicle to bet against the buck, FXY (Yen) or UDN (short dollar)?

* You can lead a bank to liquidity but you can't make it lend?

* If you Google "the process of price discovery," would you find a picture of our September to Remember?

* While the banking survivors have been circled--JP Morgan (JPM), Wells Fargo (WFC), Bank America (BAC) and now, I suppose, Citigroup (C)--will Minyans please remind themselves that there's a difference between a good company and a good stock?

* For didn't we have the same conversation about Research in Motion (RIMM) when the stock was twice the price of current levels?

* Is there a rule regarding the suspension of Judaic Habeas Corpus?

* In other words, is it kosher for me to do live TV tomorrow morning before attending services with me Moms?

* Aw come on, haven't we learned that a little levity goes a long way?


Adam Katz

12:04:18 PM

Positions in NOVL, RHT, EMC.

IT Beyond the Tape
At my firm, we have been of the mind that 2009 will be the worst year for IT spending since 2002 for some time now. Thus we have expected that street expectations for technology would come down for 2009 and the recent crash in credit has simply accelerated this process. What people need to keep in mind is that 1. IT spending is an enormous number (will finish around $3.4 trillion for 2008 according to Gartner) and 2. The top two expenses by category are people and electricity. The point here is that as more processes become automated and virtual environments move further into production, both of these expenses come down leaving a greater percentage of your budget for other types of purchases. The notion that what's going on in the financials is bad for tech I believe is reasonably known.

This is no time to be getting negative on technology, that money has largely been made already. The market is already heavily discounting in a disastrous year end, and, to a certain extent, an unexciting first half of 2009 and best. In the meantime, I believe the secular story for technology spending has never been more intact. The world is getting flatter and while you have seen a lot of hot air come out of emerging markets and developing nation's stock markets, those secular growth stories are still in play and will be for years to come. The answer to getting more productivity out of your IT infrastructure is continued investment. Even with respect to the recent crash in the credit markets and the ensuing panic, if you choose to see the forest from the trees you can reasonably expect a paradigm shift in the oversight and regulatory landscapes which will create tremendous demand for technology. As more information is made readily available over the Internet, the secular stories in security software stocks, infrastructure stocks, virtualization, and service oriented architecture will likely thrive.

The point here is this: what we know is that we are in the midst of an economic crisis that is clearly destroying substantial IT customers. However, I believe that because it is so widely known, it is widely being priced into the market, and will likely continue to be between now and the end of the year. I also believe that it's in times like these where real wealth can be created by looking beyond that, and finding names where that doom and gloom is already priced in, and there are plenty of them out there. Novell (NOVL), EMC (EMC), Cisco (CSCO), Red Hat (RHT), and Microsoft (MSFT) come to mind. I'd be slowly building positions between now and year end. I think if you fast forward 18 months from now, you are sitting on a cost basis that you are really going to like because at that point, a good portion of a recovery in IT will likely be priced in.

Jeffrey Cooper

11:56:25 AM

No positions in stocks mentioned.

No Soup for You!

UltraShort QQQ ProShares (QID) has eclipsed its high on the 18th. See the chart here:

Click to enlarge

Back below those highs and holding below will give a Soup Nazi sell signal as the trend followers get 'cooked'.

Just a possible short term reversal signal to watch for.

Michael Paulenoff

11:45:54 AM

No positions in stocks mentioned.

Promising Upside for Pfizer

I have looked at dozens of charts this morning, and one that pops out at me because it looks promising on the upside is Pfizer (PFE).

Let's notice that the price structure has put in significant work around the 17.00 area in the form of double-bottom lows in May and again in Sept. Since the 9/17 low, PFE has clawed its way up the right side of the pattern and is "threatening" to climb towards a test of key resistance at 19.30 and 20.00/20 to complete and confirm the pattern. A break below 18.00 will begin to compromise the timing of the anticipated upside test of the key resistance levels.

Click to enlarge

Jeffrey Cooper

11:36:17 AM

No positions in stocks mentioned.

Apple's Play

Checking the square of 9 calculator, 105.50 Apple (AAPL) is opposition today's date.

90 degrees in price up from today's low is 115.50.

Terry Woo

11:27:26 AM

No positions in stocks mentioned.

Hoofy n' Boo

A few updates from this morning's Two Ways to Play:

From the Bull Pen:

* Gold continues to be the favorite in the commodities sector as it is an inflation hedge and has positive event risk. Bulls can consider the gold ETF (GLD) with near term sell stops below $85.
GLD is trading +2.11% to $88.45.
* Is CTL ready to bust out above $40? Near term sell stops can be set in the $37-38 range.
CTL is trading -2.94% to $37.60.

From the Bear Cave:

* Copper bears can consider Freeport McMoRan (FCX) with an eye on the $60 level. Will that support level hold? A close below that mark, and bears can expect downside acceleration.
FCX is trading -11.96% to $56.19.
* Comcast's (CMCSA) rally Friday was impressive but bears notice the stock was unable to recapture its 50 and 100 day moving averages. Those attempting the downside can set buy stops above that level (near $20.75).
CMCSA is trading -8.88% to $18.89.

Jeffrey Cooper

11:13:49 AM

No positions in stocks mentioned.

Alamo! Alamo!

Interestingly today is opposition or square 1172/1173 S&P on the Square of 9 calculator or Wheel of Time & Price.

As long as we hold that level going into the new quarter, we may see a relief rally.

Jon Markman

11:05:48 AM

No positions in stocks mentioned.

Morning Vibes

Big mergers are terrible news for tech. Banks are huge buyers of IT and the fewer the banks, the fewer the workers, the less software and services and hardware needed.

* The markets are saying the TARP plan doesn’t attack the root problem: You can give the banks all the money you want, but you can’t make them lend it. Especially in a recession.

* Noteworthy is China’s exports to the U.S. It’s growing at the slowest pace since 2002. The busiest port in north China, Tianjan port, will miss its volume target.

Todd Harrison

10:54:46 AM

position in fxy, dbo.

Keep on Rockin' in a Free World

* When all else fails, we've still got Neil Young.

* This is your friendly Minyanville reminder (again) that price discovery is a process rather than a point, particularly given the interwoven derivative machination, proposed rescue plan, inevitable hedge fund shutters, thinning liquidity and psychological fragility.

* In addition to my yen for Yen (sorry), I've dipped a pinkie toe into crude. Please note that I'm not playing the USO but rather the PowerShares DB Oil Fund (DBO).

* There's no shame in admitting it's hard, there's only shame in ignoring that fact. When the dust settles, there will be far fewer players on the field. The Minyanville mission is to arrive at the place of relative safety en masse.

* Green beans in the Red Sea? Consumer non-durables such as Johnson & Johnson (JNJ), Procter & Gamble (PG), Pepsi (PEP) and Campbell (CPB) (again, be careful with these--we were keen on them at the beginning of the year (before they sprinted to 52-week highs) but the mere specter of hyperinflation will lead to the perception of margin contraction. And in this market, as you know, perception becomes reality awfully quick.

* Note the VXO (44, +14%) which is creepin' while ya peepin' (How's the peepin' Tom?).

* I can't shake "VXO 70" from my crowded keppe but that's admittedly nonsensical.


Jeffrey Cooper

10:37:31 AM

No positions in stocks mentioned.

Quick Scalp

There is a lower channel on the Ultra QQQ (QLD) at 52.50.

It could be a reasonable risk-to-reward long scalp, but you realize that if it fails, you gotta move.

Regardless, we could pop a little here on a backtest of that level.

Jeffrey Cooper

10:31:26 AM

No positions in stocks mentioned.

Price Discovery or Panic?

They say the market is trying to make sense of the events.

No. It is in a full-fledged panic.

Investors and traders have been terrorized.

This isn't about price discovery.

It's about a fire.

Smita Sadana

10:24:58 AM

No positions in stocks mentioned.

Chill in the Air

And that’s not from the anticipated arrival of Fall. For the first time in many days, there seems to be fear wafting in the air. Maybe that’s what will get the oversold readings going.

For what it’s worth, VIX is up almost 12% at 38.85.

Click to enlarge

Now that S&P 500 has breached 1180, the next level of `support’ remains the closing-low of 1156 hit on Sept 17th.

Too many people out the same exit door! Did someone yell ‘Fire’?

Here’s what I feel:

* So, short? Too late; Have you been caught in a bull stampede?
* Sell some positions? If you have not already trimmed, we’ll pass this way on the way up. Hopefully soon, after a gut-wrenching ride.
* Buy? Too early; we are hitting new lows across the board.

Jeffrey Cooper

10:18:17 AM

No positions in stocks mentioned.

It's Mine

Agnico-Eagle Mines (AEM) (gold) turned its weekly swing chart down this morning and immediately reversed (potentially bullish).

See the daily chart here:

Click to enlarge

Smita Sadana

10:13:35 AM

No positions in stocks mentioned.

Fear Factor
At 1626, NDX is lower than Sept 17th lows of 1632. Should that be any surprise, since Apple (AAPL), Google (GOOG) and Research in Motion (RIMM) are lower than their respective September closing lows?

The lack of leadership that I have been lamenting about still persists (please link market reaction to bailout 9-26) with many names like Caterpillar Inc (CAT), Deere & Co (DE), Arcelor Mittal (MT), United States Steel (X) and Potash (POT) hitting new lows in today’s action.

Jeffrey Cooper

10:08:42 AM

No positions in stocks mentioned.

Back to the midpoint

Back to S&P 1172, the big midpoint of 2002/2007.

A measured move on Apple (AAPL) on a weekly a-b-c measured move is approximately 104/105.

Todd Harrison

10:03:28 AM

position in fxy

Gate Sniffage!

* Mr. Practical offered on Friday that while he wasn't an advocate of a rescue package, any plan should include dilution of equity at failed institutions and the protection of deposits (savings). Washington Mutual (WM) and Wachovia (WB) are examples of that precise process.

* I dipped a toe into the FXY (Currency Shares Japanese Yen Trust) for some diversification as we weigh Our Wishbone World. It's a starter position (and not advice) but given the potential that capital preservation shifts to capital conversion, I wanted to establish precedence.

* Who's gonna bail out Citigroup (C)-Wachovia? Or, by default, has the government included them in the Circle of Must?

* Lest you've been away from the market for a while, this tape is thinner than Kate Moss on Atkins. I'm talking spooky thin, which won't help the hedge funds liquidating into quarter-end.

* You know what would go a long way towards re-establishing a semblance of normalcy and credibility? A MEA CULPA from the SEC and others who vehemently voiced the view that short-sellers were to blame for the shame.

* Following up on Friday's feel that the path of maximum frustration would be "straight down" in the face of the rescue plan, my sense--and it's just that, a sense--is that we're setting ourselves up for true capitulation.

* Once that arrives, I plan to position myself for the hyperinflation side of the wishbone although I reserve the right to call an audible. Hey, if the government can change the rules in the middle of the game, I can most certainly adapt my stance.

* I'll be back, Minyans. As always, I hope this finds you well.


Minyanville Staff

09:59:34 AM

No positions in stocks mentioned.

Vibes from Minyan Tony "Snoop" Dwyer of FTN Midwest

Last night, the Treasury Department held a conference call to discuss the Emergency Economic Stabilization Act (EESA) with Wall Street analysts. The call in my view is one of the reasons there has been no solution to the current credit crisis in the financial markets. My skepticism stems from the following:

* The Treasury officials would not respond to questions regarding how to price the assets. In my view, this is because they are still trying to figure it out.

* It will take weeks to buy any trouble assets due to the logistics of hiring portfolio managers and setting up an entity(ies) that will be the buyer. Banks are failing by the day, so this time lag can be significant.

* The $700 billion will come in pieces, with the last $350 bln needing approval from Congress. The reality is that means it is a $350 bln program. If it is going well, they will say no more money because it has worked and if it is not going well, Congress will say it isn't working and we need a new plan. The Treasury didn't see this as a problem because the President can veto the move by congress and that means he could approve the last $350 bln unless the veto is overturned through a 2/3 vote in Congress. Just think about the outcry at this process. For all intents and purposes, this is a $350 bln package. It is simply not enough.

The problem with this legislation was that it was opened up to the public to discuss issues that even the most seasoned financial veterans find difficult to get their arms around (me included). To highlight this, over the weekend I discussed the issues facing the financial markets and economy with two neighbors that are successful business executives. They had no idea what was in the background of this problem (overseas issues, credit derivatives, commercial real estate, etc.). They just thought the government was trying to help Wall Street.

Couple this with the fact that Europe is clearly as distressed as the U.S. and has no way of dealing with their problems as a union. That puts the ECB under enormous pressure to help resolve the problem while the ECB leader continues to discuss inflationary pressures. This crisis has become a global economic contagion and that perception needs to change in order to experience a long-term recovery.

I continue to be so fundamentally negative due to this credit crisis that I cannot be tactically negative for the equity markets. When credit is locked up to the current degree and sentiment is this panicky a news item could lead to a vicious countertrend move. What could such a news item be? (1) A massive coordinated global rate cut coupled with a mortgage rescue package in the U.S., or (2) the NY State regulators decide to suspend or eliminate any Credit Default Swaps (CDS) not tied directly to a bond. There is no counterparty risk to something that doesn't exist. When the government let Lehman default, they unleashed a $54 trillion dollar evil genie. You cannot stuff it back into the bottle and now with Washington Mutual's (WM) failure, the genie just got an awful lot bigger with the prospect of becoming even larger as Wachovia comes under pressure. The only way to put the genie back into the bottle is to cancel or suspend contracts protecting something that doesn't exist.

MV News

09:33:09 AM

No positions in stocks mentioned.

Citigroup for Wachovia

* Citigroup (C) cut its quarterly dividend to 16 cents a share.

* Company has agreed in principle to buy over $700 bln of Wachovia’s (WB) banking units.

* Citigroup will raise $10 bln in common equity.

* Will pay $2.16 bln in stock and assume $53 bln of Wachovia’s debt.

* Tier 1 capital ratio is expected to be 8.8% with the deal.

* See pretax charges of $3.7 bln. (Bloomberg)

MV Respect

09:27:39 AM

No positions in stocks mentioned.

Jeff Saut's Call for This Week
This morning we have the recondite rescue bill on the table, yet it is anything but
transparent, creating worries that it may not pass. And that has the preopening futures sharply lower. Nevertheless, two weeks ago today I suggested another tradable “low” was being made (the fourth of the year) and suggested trading types scale-buy into weakness using the indexes of their choice (ETFs).

My firm also stated that more conservative types should probably wait for a session that exhibited positive closing action on the assumption that would lead to a skein of better days ahead. A week ago today my firm said, “The lows are ‘in’ for the year” (a statement that will be tested today); to which we now add, “Provided the pandering politicians pass the ‘buyout’ plan.”

Accordingly, trading accounts should be “long” half of their index positions, having sold the other half into September 19th’s 400-point Dow Wow on the premise the politicos don’t have a clue as to how to fix the problem. Still, as we enter the fourth quarter participants should keep in mind that since 1960 the S&P 500 has produced positive returns in the final quarter of the year 77% of the time and that Technology has tended to be the best performer. Also worth considering is that the only sector with positive net earnings estimate revisions during the past month has been Telecom Services.

Additionally, my firm has “warmed” to stuff-stocks again (particularly the oversold energy complex) now that the Olympics/Paralympics are over and China’s factories are back “on line.” Speaking to China, the Shanghai Composite Index’s plunge has left the average price/earnings ratio of listed Chinese firms at roughly 17 times historic earnings, making China again look interesting. Ditto a number of other international markets look attractive, but not so for Europe.

Looking ahead to themes for the next 10 years, my firm continues to embrace agriculture (farming/forestry), water (water rights, water treatment, etc.), new technologies playing to energy conservation (including alternative energy and nuclear); as well as climate change, including environmental pollution and resource limitation. Meanwhile, our political leaders continue to pander to a mis/under-informed electorate while failing to address the nation’s real issues. For example, the top 1% of wage-earners pay nearly 29% of the nation’s total taxes, while the top 5% of wage-earners pay some 48% of the total tab. This fact seems lost amid the current political blustering; or as Oscar Wilde noted, “The public has an insatiable curiosity to know everything except what is worth knowing.”

Jeffrey Cooper

09:20:33 AM

No positions in stocks mentioned.

Intervention or Bailout?

Many in the media and many in politics oppose government interventions and brand such interventions as bailouts.

In effect, they are efforts to stabilize a collapsing banking system--to prevent the possibility of cascading collapses.

It is easy to oppose something because it is easy to point to negative consequences. But we do not have the luxury looking for the perfect over a good. As Voltaire said, "the perfect is the enemy of the good."

Unfortunately we must pick our poison and hope it doesn't do us in. We are faced with a financial Sophie's Choice.

We do not have the luxury of Time. Time has been squandered. Faith has been broken.The world's economy is facing a crisis: any delays will make better solutions moot.

Charles Payne

09:14:59 AM

No positions in stocks mentioned.

Technical View

The Dow Jones Industrial Average continues to hang in there in a double bottom formation.

Key resistance points include 11,400 then 11,800, which has loomed large as a major breakout point since July (it was previously a key support point, having held in January and March).

Click to enlarge

Jeffrey Cooper

09:07:43 AM

No positions in stocks mentioned.

Tough Times

There is just too much luck and not enough edge involved in trading at the moment.

Trading has become like throwing a dart at a wall after the wall has had a few drinks.

So I will be content to sit and watch the reaction to the news going into quarter end until and unless I can see the whites of their eyes.

This too shall pass.

Click here to enlarge.

Bennet Sedacca

09:02:36 AM

No positions in stocks mentioned.

The devil made me do it?

Wachovia (WB) trades down from $10 to $0.85.

It must be those nasty short sellers.

NOT. It is Mr. Market at work.

More in an article later.

Jon Doctor J Najarian

08:55:06 AM

No positions in stocks mentioned.

Bailout Fallout, Fortis and Bradford and Bingley

Bailout Fallout - Europe trades to multi-year lows overnight, partially in reaction to our bailout plan and partly due to their own banks heading down, this led Fortis down over 20 percent today after taking three days of multi-percentage hits last week. But its not just Fortis, it's Royal Bank of Scotland (RBS) which is down 14 percent and the nationalization of UK Mortgage giant Bradford and Bingley. The FTSE is down 3.17 percent, Germany's DAX is down 3.1 percent, France's CAC 40 is down 3.2 percent.

Two Brokers Cut Apple (AAPL) Into Pieces - Pardon the very bad pun, but two brokers did significantly downgrade AAPL this morning. Morgan Stanley cuts its rating for the iPhone maker to Equal Weight from Overweight and lowered its target to $115 from $178. RBC also reduces its rating, going from Outperform to Sector Perform. Shares are down $8.00 in the pre-market.

Two Bright Spots: Crude and Gold - Crude is down $4.28 to $102.61 in the pre-market, and I'll grant you that isn't all that much of a bright spot, as Texas Tea is down because a global slowdown would mean less consumption. Nonetheless it is a slight positive in the short-term. But how about this; Gold futures are down $1.30 to $887.20. Most would expect Gold to be experiencing a flight to safety buying spree but instead it can't find any footing.

Stopping Runs On The Banks - The Federal Deposit Insurance Corporation (FDIC) and the Securities Investor Protection Corporation (SIPC), maintain special reserve funds authorized by Congress to help investors. They are the first line of defense in the event a bank (FDIC) or brokerage firm (SIPC) fails, owing customer cash and securities that are missing from customer accounts. If the Congress wants to stop the runs that we follow on a daily basis they should double or triple the insured deposits of cash and securities at FDIC and SIPC institutions respectively. To bailout, or rescue the banks and brokers without such a move is like building an extra large sump pump for your basement rather than stopping the leak. If they plug this leak (runs on small and medium banks and brokers) then they wouldn't have to go away a la WaMu (WM) and Wachovia (WB). Just a thought.

Kevin Depew

08:48:25 AM

No positions in stocks mentioned.

Where We Stand

Below is where we stand with the point and figure bullish percent indicators for equities, based on Investors Intelligence data.

Note that the NYSE, S&P 500 and NDX bullish percents each reversed down to negative with Friday's action.

* NYSE Bullish Percent: Os (Negative) 36.7%
* S&P 500 Bullish Percent: Os (Negative) 41.6%
* Nasdaq Composite Bullish Percent: Os (Negative) 32.8%
* Nasdaq-100 Bullish Percent: Os (Negative) 31%
* Russell 2000 Bullish Percent: Xs (Positive) 52.1%
* NYSE High-Low Index: Os (Negative) 11.2%
* Nasdaq High-Low: Xs (Positive) 16.6%

Todd Harrison

08:39:29 AM

No positions in stocks mentioned.

Band on the Run!

So, how was your weekstart? With a notable nod to needed sleep, ketchup reading and despite the second heart-breaking Raider loss in a row (grr!), mine was just what the doctor ordered. Heck, I even managed to squeeze a smile or two in there. Imagine that.

Yet in the blink of an eye, here we are again, right back in the thick of it. Hit me again Ike, and this time put some STANK on it!

Some Random Thoughts to start the Freaky Week:

* Well the undertaker drew a heavy sigh seeing no one else had come. And the bell was ringing in the village square for the rabbits on the run.

Indeed, as we mused Friday, the potential existed that Hoofy was getting all dressed up for the rescue package and nobody would come to his party. It's early, natch, but I've spoken to alotta traders who bought to sell into the rescue rally.

When I saw the S&P futures open a meager 4 handles higher last night (6:00 EST), I knew that Zed would be red by the time we got out of bed.

In addition to concerns regarding the potential effectiveness of the rescue package, global government bailouts of banks (Belgium, Luxembourg, The Netherlands, UK, Iceland) contributed to concern.

The greatest oppportunities are bred from the most profound obstacles. A such, I've been sifting through some charts looking for defined risk. Research in Motion (RIMM) was among the stocks I looked at (after Friday's face plant) but when I pulled up some multi-year persepctive, I found that this was a $20 stock a few short years ago. YES, business has boomed and it's a great product (read: don't you dare take mine from me). I'll simply say that good companies don't always equate to good stocks. That's not RIMM particular, it's more of a general thought as we wade through these waters.

Man, this market is like trying to play hockey while reading a newspaper. SO... Citigroup (C) is going to acquire Wachovia's (WB) banking operation with the assistance of the FDIC, Fed and Treasury. Wachovia is trading at $1.70 as I pound the keyboard but--and this is the important part--the deposits are protected.

Sounds a lot like someone in Washington read Mr. Practical over the weekend.

The upside of anger? Accountability, or so it seems. The single biggest bummer in the original plan was the absence of culpability and the request for immunity by those putting it in place. Again, this isn't something one would wish for but if it has to happen, there must be checks and balances.

I try to tackle these issues (and more) in my morning missive. Grab a fife and come on down, Yo.

Minyans are encouraged to communicate their thoughts in The Exchange, which is the only type of socialization you'll ever see in the 'Ville. It's free, it's thought provoking and it's there for the benefit of ye faithful.

Oh yeah, that! Remember when they shifted the construct of capitalism and suspended the free market system? The fallout from hedge funds will be fierce and many of those redemptions will hit into quarter-end. Yes, many funds will fail and we'll need to remember that they have counter-parties tied together with derivatives and those funds have counter-parties tied together with derivatives and those funds...

According to the FT, one prime broker said “Many funds will have to close. There were a flood of redemption notices at the beginning of the quarter but many investors said they wouldn’t actually withdraw the money if performance improved. It hasn’t."

There's a LOT going on Minyans and I'll again offer that price discovery is a process rather than a point. I'm not smart enough to know how this will play out in Our Wishbone World but I'm confident in our collective ability to find our way to better days and easier trades. And how are we gonna do that? Together.

Good luck today.


MV News

08:30:49 AM

No positions in stocks mentioned.


* Personal Income: 0.5% vs. 0.2% cons.

* Personal Spending: 0.0% vs. 0.2% cons.

* PCE Deflator (y/y): 4.5% vs. 4.5% cons.

* PCE Core (m/m): 0.2% vs. 0.2% cons.

* PCE Core (y/y): 2.6% vs. 2.4% cons.

David Waggoner

08:23:11 AM

No positions in stocks mentioned.

Close to a Bounce?

Continuing with the thesis from Friday in the S&P e-minis, the probable bounce is just below at 1180ish. If we take that out (break not breach) there is considerable risk of taking out the low.

Click to enlarge

Rod David

08:08:04 AM

No positions in stocks mentioned.


A draft of the "Emergency Economic Stabilization Act of 2008" is widely available on the web. I would encourage all to read it, although it's not very exciting. Maybe I expected a little too much from something whose title includes the word "Emergency." Many of its paragraphs challenged the weight my eyelids. But there are a few scary parts that sent a shiver down my spine.

Having heard the advance buzz all week, I was most interested in the plot twists (warning: spoiler alert!). And like the best writing, it's not what is said, but what is not. For example, Section 117, "Study and Report on Margin Authority." The scene starts innocently enough:

"Comptroller General shall undertake a study to determine the extent to which leverage and sudden deleveraging of financial institutions was a factor behind the current financial crisis. The study required by this section shall include an analysis of the roles and responsibilities of..." (insert cast of characters here).

I don't want to spoil the surprise ending, except to say that there is no surprise. The Act is written by a legislative body, many of its members having sat in oversight of the very mess they now pride themselves on rescuing. So it's no surprise that the characters under review include the Fed, SEC and Treasury, but the Congressional oversight committees are free from suspicion.

So it seems that plans are already underway for a sequel, "not later than June 1, 2009." The study will flesh out the darker relationships between some of the characters, including "an analysis of the authority to regulate leverage, including by setting margin requirements, and what process the Board used to decide whether or not to use its authority; an analysis of any usage of the margin authority by the Board; and recommendations for the Board and appropriate committees of Congress with respect to the existing authority of the Board."

Hmmm, tighter margin restrictions, you say? It's a real cliffhanger for the market. That is, if the anticipation hasn't yet driven the market off a cliff.

Hoofy and Boo

07:41:04 AM

No positions in stocks mentioned.

Monday Radar

8:30 Personal Income: 0.2% cons.
8:30 PCE Deflator (y/y): 4.5% cons.
8:30 Personal Spending: 0.2% cons.
8:30 PCE Core (m/m): 0.2% cons.
8:30 PCE Core (y/y): 2.4% cons.


Before: CC, SCS, WAG



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MV News

07:19:38 AM

No positions in stocks mentioned.

Good Morning Minyans
A new week gets ready to rumble as foreign markets are trading in the red.

Asian trading closed with the Hang Seng -4.29%, Nikkei -1.26% and Sensex -3.87%.

A quick check of Europe finds the CAC -2.87%, DAX -2.68%, FTSE -3.57%, ATX -4.35%, Swiss Market -2.28% and Stockholm -3.16%.

In commodities, crude oil is trading lower -3.30 to 103.59 while gold is higher +2.9 to 885.8 this morning.

Good luck today!

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