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Testy Tuesday Morning

Fed minutes come out at 2pm.

Keep that in mind today as it's very unlikely they lowered the rates to zero following the 12/16 meeting where they chatted about how nicely the economic outlook is improving.  The last Fed minutes were released on 10/29 and we spiked down but recovered in our election rally that took us to 9,600 on Nov 4th, after which we plunged to 7,500.  Now we are in our inauguration rally and we are expecting to see roughly the same high – we just hope they aren't followed by the same lows after the excitement wears out!

David Fry's monthly chart of the DIA gives us a good view of where we are in the big picture.  Note the extremely low RSI and the bottomish-looking MACD but we haven't turned up the moving averages yet and that makes this a very dangerous time when we could still get another bottom test before we make a real move.  Looking at the volume in 2002, when we turned the last bear market, you can see that we are far from putting in a high-volume reversal that can give us more confidence.  First things first this morning though – we got half the dip we expected in yesterday's choppy session and got the famous "stick save" into the close but, overall, it was not the kind of day you want to see following a $750Bn bailout announcement that includes tax cuts. 

During member chat, I noted that 8,900 was holding up suspiciously well and, sure enough, right at 3:30 somebody punched the buy button and the market jumped 60 points into the close.  Now we have to watch the same levels as yesterday for a break out but we may have to flip short if we run up to our opening levels (see yesterday's post) but can't break them ahead of the Fed as that could be the catalyst that sends us lower.  Also, we may see oil pull back sharply off $50 if they are rejected there, especially with yet another build in inventories expected in tomorrow's report.

This morning I posted an update on our very successful (up over 30% from our hedged entries) list of "Stocks to Buy at the Bottom" from Dec 1st and we'll be adding many more entries as earnings season begins to take shape and we get an idea of where to put our sidelined cash.  One addition to the list is going to be the XHB (homebuilders), which may actually be putting in a real bottom and Obama's tax plan will allow companies to use their tax losses to offset taxable income for the past 5 years.  This will also be an excuse to "rebate" tens of billions to the financials and they should get a pop too but the homebuilders, who took Billions in write-offs last year, will be proportionately looking at huge paydays.  We've already been bottom fishing HOV as a long-term naked hold but now I like XHB at $12.80, selling the Feb $12 puts and calls for $2.35 which puts you in for net $10.45 if called away at $12 on Feb 20th (14% profit) or having another round of the stock put to you, giving you an average entry of $11.23 (a 13% discount).  This is not as sexy as our more volatile selections but its a solid bet on a long-term recovery in the sector.

Asia was fairly flat in morning trading, not knowing what to make of yesterday's US trading.  Japanese exporters kept the Nikkei positive while the Hang Seng dropped a bit but coal and banks led the Shanghai up 3.25%.  Europe is up quite nicely ahead of the US open, which also looks pretty good in pre-markets.  European indexes are up about 2%, as Germany agrees on a stimulus package and they got good news on EU inflation, which was low enough to allow for further rate cuts.  So keep in mind that this is just another round of massive global stimulus keeping the markets afloat. 

[Slump Continues]Chrysler reported sales were off 53% in December but no one seemed to care and F (another naked gamble we took at $2) had a very nice day yesterday as their sales "only" fell 32% but, as you can see from the chart, we did seem to find some sort of bottom in November.  We're very please with TM, another one we hold long-term, who made a significant recovery with their "December to Remember" sale and should have no trouble holding $65 long-term, making them a great trading vehicle for us to sell options against.

We are, of course, not happy with an energy-led rally and we're still looking for some real signs of rotation – we'll see how well our XHBs do this week as well as the copper plays of RTP and FCX we jumped on yesterday as our first trade in member chat which we should probably cover into whatever rally we have today. 

We get Factory Orders (expected down 2%) along with ISM Services, which are going to be awful (37 expected) so that will be our first test of the day but then we have to wait on the Fed and see how willing the markets are to shake off what is very likely to be a very disturbing read.  Natural gas stocks are also flying as the Russia situation continues and MacWorld goes off today and we'll see if AAPL can justify it's run back over $95.  We remain directionally agnostic and stick to watching our levels as we still haven't had the volume to confirm any trend but a good day today could pave the way for volume buyers to come back in.

 

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So the strategy is let it sit for now.  And when opex comes next month, or when we re-evaluate and become more certain of support levels and how bullish we are on it and see clear movement/settling towards new price ranges, do the appropriate rolls to stay in.  Otherwise just let it expire worthless with a nice gain and move on to our next opportunity.  Thanks, I think it’s all more clear to me now and unnervingly simple.

Alcoa news (13500 jobs to go , slashing output) and BAC warning. Perhaps I did get the top. Shrug that off ???

Broken’ Billionaire Merckle Killed Self, Family Says………….sad…and if Uncle Sam was real he’d throw himself off the Empire State building

 Hi Guys,
In my opinion, I think we are falling unavoidably into the Second Great Depression. This one is going to be much more severe than the one my grandfather had to endure. In his day the US had a gold backed currency and it had a very robust manufacturing and agricultural based economy. Today we have a fiat currency and our manufacturing base has been closed down and moved to China, India and Mexico. It is hard now to buy any tangible product that is made in the USA. Tragically it is usually marked "Made in China" now.

I for one have decided to conclude my participation in "Wall Street". It has become such a corrupt and fraudulent system that I no longer have any hope or trust in it as a means of putting my wealth productively to work. Wall Street has become a "den of thieves". I have made a strategic lifestyle decision to disintermediate myself  from them and other middlemen. As much as possible I am removing all corporate middlemen from the goods and serivces I need to surivive. For food, I am growing my own in my backyard, buying fresh from local farmers and reducing my dependence on grocery store chains. For energy, I’m reducing my dependence on the grid and making more fo my own electricity. I’m reducing my exposure to fractional reserve banking and the USD by converting to gold and silver held physically in my own posession. I’m keeping real non-deflation money "in the mattress" like my grandfather’s generation. This seems the sensible way to go now.

I think we are experiencing a fundamental change in the US. Things will not be as they were during the last two generations. I think I will have to live the way my grandfather used to live, which means living below my means, storing up for periods of trouble when goods and services may be disrupted for extended periods, and living self sufficiently in ways that depends on the productivity of my ground and what I can personally grow and tangibly produce by my own hands or acquire locally. The days of living off the speculations of the bubble economy are coming to an end and we all have to start living in the real world and by the harsh laws of the real economy.
 
Wall Street has become a gambling casino. Those who play it are going to get tragically hurt eventually. The only ones who will profit are those who are running the game from the inside because they are thieves who think you are their fool and their chattel who deserves to lose your money and welath into their pockets. I for one will not be so willing anymore to play the part of their fool and slave. I choose to survive and live free and independently.
 
Regards,
Merkhava

bought some axp feb 20 puts at the bell.  won’t take much for them to drop to 17.5.  may even sell jan 17.5’s if we get a little drop before expiration.

Merkhava, good luck to you.

Good Morning All

Asia Markets :    Wednesday, January 07, 2009
(The following is from WSJ; please cross check with other sources to confirm.)   

Nikkei Average*                          9239.24     158.40     1.74%
Hang Seng*                              14987.46    -522.05    -3.37%
China: DJ Shanghai*                   211.37        -0.49    -0.23%
Seoul Composite*                     1228.17       33.89      2.84%
Bombay Sensex*                       9586.88    -749.05    -7.25%
Baltic Dry Index                            775.00    3.00    0.39%

*at Close

Asian Stocks End Mostly Higher, Dollar Firm

Asian stocks were mostly higher Wednesday, extending their recent rally into an eighth straight day, inspired by hopes massive U.S. government spending and tax cuts will continue to support the dollar and stimulate demand for exports. The string of gains was the longest since October 2007, supported by a rebound on Wall Street and a steady improvement in Asian investment grade credit spreads as policymakers slash interest rates and pour capital into struggling industries to mitigate damage from the financial crisis.

Japan’s Nikkei rose 1.7 percent to hit a two-month closing high as exporters surged on a softer yen and amid hopes for a U.S. stimulus package to boost the economy. The benchmark logged its first seven-day winning streak in nearly three years, gaining 8.5 percent during the period, including two half-days of trading before and after the New Year holiday.

Seoul shares ended up 2.8 percent to hit a three-month closing high led by technology issues up on hopes of firmer memory chip pricing, while POSCO rose on a potential output cut.

Australian stocks extended their rally, finishing 1 percent higher, lifted by the top miners on tentative optimism that generous spending by governments around the world may speed up an economic recovery. Having lagged offshore gains in the first two trading days of the new year, Australia caught up on Tuesday and Wednesday as the few traders in the market drove up previously shunned miners.

Hong Kong shares gave up early gains to close 3.4 percent lower, hurt by news Bank of America was selling a China Construction Bank stake, triggering worries of a similar equity sell-down in other lenders. Chinese telecom stocks also fell after Beijing confirmed it was handing out the long-awaited licences for next generation (3G) mobile networks.

Singapore’s Straits Times Index was down 1.7 percent.

Chinese stocks closed mostly lower in active turnover. Many second-tier shares gained but blue chips were sluggish and telecommunications-related shares were hit by profit-taking.

Bombay Stock Exchange’s Sensex which fell to a low of 9,510.15 earlier in the day, closed at 9580.31, down 755.62 points or 7.31 per cent. The index touched an intra-day high of 10469.72. Indian equities ended sharply lower Wednesday as investors’ dumped realty and IT stocks after B Ramalinga Raju, chairman of Satyam Computer Services made startling confessions of fraudulence in company’s books.  Earlier in the day, Raju tendered his resignation as chairman admitting to gross manipulation of company accounts.

Euro Shares Fall, Dragged by Energy, Banks

European shares declined about 1 percent by mid-morning Wednesday after rising the previous six sessions, with British oil major BP leading the energy sector down and banking shares coming under renewed pressure.

The FTSEurofirst 300 index of top European shares was down 1 percent at 881.11 points after finishing 1.9 percent higher in the previous trading session, reaching its highest closing level since Nov. 10. The index lost 45 percent in 2008.

Energy stocks also tracked crude, which fell as profit taking outweighed escalating tensions in the Middle East and widening supply cuts from the Russian gas row. BP fell 3.5 percent on market talk the company was telling analysts that its fourth-quarter earnings would be lower than expected, three dealers said. BP declined comment. Royal Dutch Shell and GDF Suez shed 0.8 to 2.1 percent.

Banks were lower, with Royal Bank of Scotland declining 5.5 percent, Standard Chartered losing 5.8 percent, HBOS down 1.5 percent, HSBC falling 1.4 percent and UBS down 1.3 percent.

Mining stocks fell as concerns mounted that a recession would hurt demand for basic metals. BHP Billiton, Anglo American , Vedanta Resources, Antofagasta and Rio Tinto dropped 0.3 to 4.1 percent.

The U.S. operations of LyondellBasell, the world’s third-largest petrochemical company of which Swiss lender UBS is a major creditor, filed for bankruptcy protection under the weight of a massive debt load and falling demand for its products.

British retailer Marks & Spencer reported its worst quarterly sales performance for a decade and said it would cut around 1,230 jobs in a bid to save money in a tough trading environment.

Britain’s Chancellor Alistair Darling also said the UK was "far from through" the recession, and that the job to achieve economic recovery was a long way from completion.
 

Oil Eases Toward $48, Gas Price Row Deepens

Oil fell slightly on Wednesday, but drew support from cold weather and an escalation in the Ukraine-Russia price dispute that has choked off gas supplies and increase demand for refined oil products. The market awaits weekly inventory data from the U.S. energy department released later on Wednesday for the latest indication of demand for oil from the world’s biggest fuel consumer.

Crude inventories were expected to show a jump in stockpiles.

U.S. light, sweet crude    [  48.29    -0.29  (-0.6%) ] for February delivery was down, while
London Brent crude rose [  53.44    0.17  (+0.32%)].

Oil prices have risen nearly 50 percent since a low of $32.40 reached on Dec. 19, boosted by worries over supply disruptions from Israel’s deepening incursion into Gaza, Russia’s gas row with Ukraine, and mounting evidence of OPEC’s compliance with production cuts.

Evidence of members implementing OPEC’s biggest ever output cuts grew on Tuesday as Kuwait and Iran told customers of bigger supply curbs this month in a bid to prop up prices. The producer group has cut output three times since September in a bid to halt the market’s slide.

Israel and Hamas studied a proposal by Egypt for a ceasefire in the Gaza Strip on Wednesday that won immediate backing from the United States and Europe.

Dollar Rally Loses Traction, Euro Still Vulnerable

The dollar fell broadly on Wednesday, with its recent run to one-month high’s against the euro and yen losing steam as jitters began to surface on the state of the U.S. employment market. The speed of the dollar’s rise also made it vulnerable to profit-taking, with dealers citing central bank buying of euros at lower levels for reserve-management purposes and interest from funds. But the euro area and, by extension, the single currency’s vulnerability were never far from investors’ radars as data from Germany showed a larger-than-expected rise in unemployment.

The U.S. ADP private employment report, due at 1:15 pm London time, is expected to show that 473,000 jobs were shed in December. The report is seen by some as a precursor to key U.S. non-farm payrolls numbers on Friday that are expected to make sobering reading.

The dollar fell 0.4 percent against a basket of six major currencies to 82.585, while it also retreated 0.6 percent to 93.04 yen after hitting one-month highs the previous day.

The euro [ 1.3631    0.0099  (+0.73%)    ] was up on the day versus the dollar, having dipped to a one-month low of $1.3308 on Tuesday according to Reuters data.

The single currency clawed back some of its major losses against sterling, [ 0.9131    0.0057  (+0.63%)    ] but stayed some way off record highs scored above 98 pence in late December.

The yen [ 93.2    -0.43  (-0.46%)    ] gave up some gains in the global session on a newspaper report that Japan’s government will seek to scrap capital gains taxes for foreigners investing in Japanese companies through funds, which could encourage capital flows into the country.

Persistent signs of economic weakness in the euro zone that may force its central bank to cut interest rates remained in focus after data on Tuesday showing a fast fall in inflation.

The Federal Reserve’s most recent policy meeting suggested the central bank is concerned that downside risks remain substantial, with the central bank seen determined to employ whatever measures are needed to keep rates low.

Gold steadies, supported by dollar; platinum up

Gold steadied in Europe on Wednesday, with a softer dollar and firm investment demand supporting prices but weaker oil markets keeping a lid on gains. Platinum meanwhile climbed to a near three-month high as investors switched their attention from fears over demand from carmakers — the major buyers of the precious metal — to the gloomy outlook for production as prices fall.

Gold was quoted at $864.10/865.70 an ounce at 1055 GMT, against $863.35 late in New York on Tuesday. U.S. gold futures for February deliver GCG9 on the COMEX division of the New York Mercantile Exchange were down 70 cents at $865.30.

The precious metal is benefiting from falling interest rates, which cut the opportunity cost in holding gold, and from uncertainty over the global economic outlook, he said. The dollar is also providing some short-term support. It slipped broadly on Wednesday after striking a one-month high against the euro as traders fretted over the outlook for the U.S. employment market. Gold is often bought as an alternative investment to the U.S. currency and tends to move in the opposite direction to it. However, weakness in oil is capping gains in gold. Crude prices slipped towards $48 a barrel on Wednesday as gloomy U.S. economic data sparked a bout of profit taking.

Platinum rose through the $1,000 an ounce level for the first time since October 15 to reach a session high of $1,000.50 an ounce. It was later quoted at $988/993 an ounce, up from $965.50 an ounce late in New York on Tuesday. The precious metal’s resilience to the ailing car market has boosted hopes its price slide may be at an end, analysts said.

Among other precious metals, palladium edged up to $197.50/202.50 an ounce from $196, while spot silver eased to $11.34/11.42 an ounce from $11.44.
 

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