Monday Morning Markets

While we’d like to see a bounce here, this is not time to get our hopes up.

I posited an argument over the weekend for members that, using a dollar-adjusted model, we should bottom out here between 13,000 and 13,300 and hopefully get ourselves past the worst of the housing crisis while we rotate into sectors (non-commodity) that can take us back to record levels.  Most chart watchers, however, do not adjust for the dollar value of equities and, from a technical standpoint, we still have a long way to go before finding a real bottom.

Asia joined us in looking for a bottom this morning with the Hang Seng giving up 1,117 points (4%) and the Nikkei plunging another 386 points for the day (2.5%) while the Shanghai was calm by comparison, dropping "just" 1.5%.  Our big chart has quickly flipped from glad to sad but, after careful consideration, I’ve decided to hold onto our current chart levels until it is really time to give up:

See, not so bad!  We still have the Dax holding us up in Europe and we still have both the Hang Seng and the BSE holding Asia together and the NYSE isn’t dead yet, the Dow is holding on by it’s last finger but the Nasdaq, who we have long said would need to lead us into the promised land, is not in bad shape yet.  What I’m going to be watching is the SOX, who will drag the Nasdaq down if they can’t pull it together, and the Russell, which has to retake that 810 mark or any victory we have in the larger caps will be hollow and short-lived.

There’s no market shaking news today, this is all about sentiment so we need to be patient and just see what happens this week.  If we hold our levels, we can dip our toes back in the water and pick up some bargains (we started last week), but if we can’t hold what’s left of our Big Chart together – then it’s time to join the bears and start watching for which levels will break DOWN next!  Today SHOLD be a slow day with the bond markets closed for veteran’s day and boy can we use the rest…

Happy Trading and I agree that watching the XLF will be critical this week:

Did GLD give us a blow off top last week?  Check out the volume on Wednesday and Thursday!  USO put in a similar move:

Ever since the summer I have said we need a painful correction out of commodities and financials and into tech leadership in order to truly get on the road to 15,000 – the question is, does small-cap America have what it takes to pick up the baton from our faltering leaders or will they get flushed down the drain with the rest of the market.

Don’t cry over the financials, these were ill-gotten gains and they ran their little valuation scam until they got caught.  Trading houses like GS should come up like roses as they play both sides but there are plenty of companies, like ETFC, who will be left holding a very large bag.  My single biggest market concern is that someone like E-Trade takes such a tremendous hit that they go under and causes a confidence crisis.

Apparently we are going to blow through my $200Bn estimate of sub-prime losses and get closer to the middle of my $200Bn-$600Bn range.  I think the market can recover from anything but MORE than $600Bn but, until we see a real number, uncertainty will dominate the financial sector.  We should get some additional clarifications this week as end of year accounting forces more bad loans to light and I’ll be keeping an eye out for the delta changes from company to company.

My top remaining concern is the Yen falling below 110 to the dollar, a level that can begin to further unwind the carry trade.  Again, most at risk will be the commodity markets and the lenders as one of the World’s great cash spigots runs dry and this week is either going to be the week we hold the line at 13,000 or the beginning of the great drop of ’07 so let’s be very careful out there!