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Tuesday, April 16, 2024

Testy Tuesday – A Very Dangerous Line in the Sand

Well we are up in the pre-markets (7am) – that's something

Interestingly the global markets took our dip rather well.  The Shanghai fell 2.8%, the Hang Seng gave back yesterday's 3.5% gain, India hit the 2.5% rule, and the Nikkei fell 2.2% – a bad day but not worse than ours, as is often the case in Asia.  The DAX is, of course, leading Europe lower with a 2% loss into lunch but the CAC and FTSE are down just a point.  I had a busy evening doing a Big Chart Review and indulging in my political rant of the week about the budget fiasco but maybe that will be a weekend article as my comments alone in the members section were over 2 pages.

We went mildly bullish into yesterday's close, mainly by covering our long index puts, looking for at least a bounce off what is now a 1,100 point drop since February 9th, when we did our previous Big Chart Review.  We are actually 14% below the 8,280 on the Dow that we held that morning so another 1% down to go before we hit our next bounce, just over the 7,000 mark.  The gravity of the 5% rule dictates that we are more likely to go down than up now that we blew through 12.5% and finished at yesterday's low and getting back to that 12.5% line (7,245) will be our challenge for the day.  On the S&P we'll be looking for 760 to be taken back but we are just a hair over 738, which is the 15% drop off that 2/9 open.  The Nasdaq is about 2% over 1,352 and just under the 12.5% line at 1,392 so we'll be looking for leadership there to the upside. 

The NYSE is our most worrying index.  They are aleady down more than 15% (4,675) at 4,633 and the Russell (see David Fry's chart) is the NYSE's partner in crime, failing the 15%, 400 mark by 5 points already.  So it's going to be an easy day to look for a turn as we need the NYSE to break over 4,675 and 4,790 is our next stop.  The Nasdaq needs to hold 1,352 and get back over 1,392 and the Russell must break over 400 and return to 411 in order for us to see anything more than a weak bounce in today's action.  Notice 411 was the Russells failure point yesterday and keep in mind we are talking about numbers that exactly adhere to the 5% rule from a chart that was put up 2 weeks ago – you should take these levels very seriously!

The week's datafest begins in earnest today with Case/Shiller Home Prices at 9, Consumer Confidence at 10 and, about that time, Bernanke will begin his two-day interrogation by our clueless Congress.  It's hard to get optimistic after the partisan debacles we've seen so far whenever Congress gets on TV with our policy makers and Fed speak is so far over most of these people's heads that it would be funny to watch if not so tragic

22-feb-v2.jpgKeep in mind that EVERY Republican you see voted against the stimulus – twice!  So you don't really have to wonder to yourself – "How does he really feel."  That means the success of this stimulus would make them look foolish.  It is very much in the political interest of the Republican party to paint the bailout as a total failure already, forget the consequences of their negativity…  This is certainly not going to be a confidence booster for the market as the Democrats made mixed votes and even the ones who voted for it will probably have some serious concerns to raise.  Gloom, gloom with patches of gloom is my forecast for the next two days and Bernanke is the anti-Greenspan from a confidence building perspective.  The confidence builder in Chief speaks to Congress and the nation this evening but he will probably not be sugar-coating our problems so no help there is likely.  More positive already were President Clinton's comments on energy, the economy and Obama's performance to date

We had some nice earnings reports last night from FST, HLS (who guided UP), JWN, OWW and PSB (which was surprising).  GGP missed but not the catastrophic miss people were expecting.  This morning FWLT was BTE, FDP continued the positive run by food companies (lower input costs), MVL continued to do well (Iron Man), MHS has a nice beat, PWR beat but lowered guidance, RIGL lost less than expected and JOE had a beat that shows excellent cash management and makes me want to take a stake in them down here.   We can give ourselves a nice discount off the $20.91 stock price by selling the naked Apr $17.50 puts for $1.  If put to us, it's a net entry at $16.50 (a 21% discount) and if the stock finishes above $17.50 we keep the $1 against $8.75 in margin, which is an 11% gain in 60 days so generally a nice risk/reward profile.   

According to Cap, someone on the YHOO message board was counting the number of times CNBC talking heads said "nationalization" this morning and, as of 8:15, they were up to 300 times.  Sadly, this is the fear-mongering that is driving the markets to new lows while Cramer continues to keep his sheeple out of protective ETFs like SKF.  So you have the man's network telling you financials are going to zero while dog and pony boy tells his minions to sell ALL the financials, causing them to go to zero – even though they could hold on and protect themselves with conta-funds, if Cramer didn't spend 3 days a week convincing his viewers contra-funds are poison.  I've never seen anything like this outside of a racketerring investigation.  Speaking of racketeering – Dennis Kucinich nailed it when he pinned that charge on Paulson and company back in November.

Meanwhile, Shiela Bair, the head of the FDIC, says key decisions on shoring up the shaky financial system will hinge in part on a "stress test" to determine how the largest banks would perform if the economy weakens further.  She cautioned against rushing to a judgment that Washington intends to take over the industry, saying "I think there's ambiguity in the word 'nationalization.' Bair said, "I think that is something that would be surprising." She said on CBS's "The Early Show" Tuesday that the stress test must be done first, "before we determine what type of additional capital investments the government may need to make."  But please, don't confuse CNBC with facts, it's 8:47 now and we're up to 330 mentions…

9 am Update: Home prices came in down 18.55%, 0.4% lower than last month and 0.3% worse than expected by people who have no concept of seasonality, the mortgage market or the overall economy but seem to be considered "expert opinions."  We are still waiting for our Consumer Confidence (or lack thereof) numbers but German Business Sentiment hit a record low in February. "On the whole the survey results do not signal a cyclical turning point," said Hans-Werner Sinn, president of the Ifo Institute.  Actually, sentiment in retail and construction improved – although from very low levels. The business climate among German services companies improved slightly, although firms plan to shed some more staff, Ifo said.

Our wall of worry continues to be a steep one.  After yesterday's failure we do not expect too much out of today, we'll be happy to just see a bottom at this point but it's looking a little more likely that we're heading into a capitulation event that can take us down to frightening levels.  The 60% line is a line the markets dare not cross but, as I pointed out yesterday, we already lost the SOX and the Nikkei, with the Hang Seng and the BSE hanging on by a thread.  Let's take these levels very seriously, if the administration can't turn it around this week – the downward momentum can easily pick up steam. 






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