3.7 C
New York
Tuesday, November 29, 2022


Monday Market Melt-Down

We’re pretty bearish and there’s lots of bad data comingWe’re going to be watching our global 60% off levels today:

  • Nikkei blew it, below 7,320 (7,280)
  • Hang Seng blew it, below 12,800 (12,314)  HSBC was suspended on news they were raising $18Bn in capital at a 48% discount to current price and finanicals collapsed in panic.
  • Shanghai still holding at 234 (235 is 60%)
  • Bombay still holding at 8,607 (8,480 is 60%)

The DAX and FTSE have a long way to go before hitting 60% off.  The CAC is closest at 2,622 (already down 3% this morning, 2,467 is 60% off the highs) so we’ll be watching them closely.  Like the Dow, the FTSE is the only EU stock holding 50% of it’s highs (3,377) at 3,696 but it doesn’t look far away looking at this chart!  We’re going to watch that 3,700 line very closely today to see if we stand a chance of holding up over here.  On the US indexes, 7,011 is 50% down for the Dow, they are the only index we follow holding that line at all but it’s a very big deal if they fail to hold it and they will certainly open below there this morning.  There is no way we do anything bullish if they can’t take it back!

Keep in mind that 630 is the 60% off line for the S&P and 5,608 is that level for the Dow, with 1,144 being the death line on the Nasdaq (which we are looking to for leadership on the turn).  With the Dow below the 50% line, all this is possible and Transports don’t have far to fall to get to their 60% line at 1,246 (now 1,392).  The SOX need to gain 10% to get back to 60% off at 220…  6,995 is the 20% off level for the Dow from Jan 1 so that level is doubly critical to hold as it’s also the 50% line at 7,011.  We stay 60/40 bearish unless the Dow retakes that mark.  Other 20% lines are:  S&P 724, Nas 1,260, NYSE 4,600 and Russell 400 (already blown).  We need to retake those before we can even call a move back up a bounce.

News today is harsh, in addition to the HBC thing (which will cost the US another 6,600 jobs), the government had to pony up another $30Bn to keep AIG solvent while they break them up (this could take years so get used to it), driving government interest up to 77.9% as the company reports a $62Bn loss.  The finance sector made a shambles out of Asian and European trading this morning.   "People are worried there are more problems in the banking system, and they're probably right," said Andrew Sullivan, a trader at Main First Securities. "Some aggressive sellers are actually seeing great opportunities now, because they can place large sell orders and still find buyers for them," he said.  Money from around the globe is flying to the relative safety of the US dollar and that is putting pressure on foreign exporters, commodities as well as US equities, which are priced in dollars – a perfect storm for a panic!

Data-wise, the week is starting off with a bang, running headlong into a very likely wall on Friday of 8% unemployment.  Let's not get ahead of ourselves though, we have plenty to deal with just today as we get Personal Income and Spending for Jan, Core PCE and Construction Spending for Jan as well as the Feb ISM at 10 am.  Tomorrow we get the bad news on Pending Home Sales for Jan along with Auto Sales for Feb (both of them!).  On Wednesday, the ADP report foreshadows our Friday jobs numbers and ISM Services may follow today's report below 40 (last 42.9).  Of course we have oil inventories but also the Fed's Beige Book in the afternoon but the real excitement on Wednesday will come from earnings on discounters BIG, BJS and COST, retailers LIZ and FL and once super-builder, TOL.  Thursday we get Productivity and the Usual jobless claims and Friday it's Non-Farm Payrolls and Unemployment for February along with Consumer Credit in the afternoon.

Are you looking forward to hearing ANY of these data points?  It's hard to see any bright side to the carnage of the past two weeks that is continuing this morning.  CMED had great earnings and guided up so they are a buy for the brave at $14.  Gee, who'd have thought a medical device company in a country with government-sponsored universal health care would beat estimates by 400%?  The stock is trading at less than 1/3 of it's highs and Cramer just said to stay out of them on Friday  – what more evidence could we need that this is a good play?  With the stock around $14 you can give yourself an additional discount selling the Apr $15 calls for $1 and selling the Apr $12.50 puts for $1.50 which puts you in for $11.50 with a nice $3.50 profit if called away (30% profit) or puts you in the stock with an average entry of $12 (11.7% discount).  This is a nice way to play positive on socialized medicine!

8:30 Update:  Personal Income is up 0.4% (down 0.2 was expected), and Personal Spending is up 0.6% (up 0.4% was expected) so once again the "expert" estimates are off by a wide mark.  This is a huge turnaround from a 0.2% drop in income and a whopping 1% drop in spending in December.  The PCE, which is supposed to show a DEflationary 0.1% is showing 0.2% at the core, last month was -0.5%, which is where all these ridiculous deflationary extrapolations were coming from.  While this is not great news, it's not anywhere near as dire as predicted.

Still fundamentals were thrown out the window around Thanksgiving and there is nothing to get bullish about unless we take back our 20% (for the year) and 50% (from the top) discount levels.  We are actually 5% off a dollar-adjusted 60% drop in the S&P from our October '07 high.  We are still breaking through November lows and if we throw out the spike to 2,036 (dollar adjusted) and call 2,000 the top, then we're looking for 800 on this chart to be the bottom, 35 points below Friday's close.  Of course, this figure changes with the dollar but note we have fallen from 1,150 on Jan 1 to 835 here, almost exactly 30% so we'll look for a translated drop to no lower than 700 there and a bounce to 742 would be a 20% retrace and that just so happens to be the same 741 break point we've been watching on the 5% rule, which is also the November low which is also the month and year the US and Iceland signed a defense alliance and Iceland was the first country to implode in this crash so don't tell me that's a stretch! 

Speaking of ice, there's a huge storm moving in on the Northeast and that will knock commerce for a loop this week, probably the very last thing retailers and airlines needed to see after what had been a relatively mild winter.  This is bad for oil too as grounded flights and stuck drivers don't use gas so we'll see if they can hold $40 this week but we're alread trading the April contracts and summer driving season should be a little better than last years for reason's we discussed in chat over the weekend.  Also hurtful to oil is the potential grounding of all transportation in Eastern Europe as the EU rejected a proposed bailout and sent those markets tumbling this morning.  This will be a great time to study the domino theory of global finance as the collapse of Eastern Europe was one of the things I said could knock 20% off the markets way back in the Fall.

I’ve discussed some of our ongoing put and ultra-short plays in the Weekend Wrap-Up.  There are a couple of stocks I’m watching this morning that I sent out using our new alerts system but, again, not with the Dow under 7,000!   It’s going to be a crazy morning, let’s be careful out there!



Notify of
Inline Feedbacks
View all comments

Hey Phil the alerts were working great today. Thanks!

TNA – SmallCap Bear 3X. Made about 10% buying it in pre-Open and selling around 3:30pm. Afraid to hold overnight but will repeat tomorrow if futures point to a down open and Asia/Europe also down more than 1%.
Good and easy trade for IRA accounts with restrictions on what/how you can trade.

Obama Watch:   S&P 500 down  30.4% since election day.

Cap, unfair comment about Obama, let me rephrase,
world in peril, economies in peril, huge debt, etyc, thanks George,
Obama cannot fix what George messed up in 8 years.

I have 1500 GE stock with a basis of 14.64 now 7.60
I can essentiall DD by converting to 30 2011Jan7.50C
What do you think??  I give up the dividends but have a better chance of getting even.

Yes, I’m ahead on this XOM one. Just wanted to see if I should cash out, or if there’s anything I can do with the Mar 70 putter. Actually, looking back at it, I’ve made a very nice profit on this trade. I should just cash it out and run.

Phil, on my more complicated XOM trade (Mar 75 puts w/ Mar 70 and 80 putters), I think I’m going to wait for the July roll (as you suggested, the 75-70-65s).
Another idea I had…what do you think of this… I close out the Mar 75s and Mar 80 putters closer to expiration. I’m then left with a naked ITM putter (Mar 70). I roll that as we usually do when a naked putter goes the wrong way on us. I could roll it to the Jul 65s or 2x the Jul 55s?

RMM, I do think it is somewhat fair.  The market rallied into his election and sold off ever since.  His actions and those of his administration are not inspiring any confidence.  Maybe he can give another speech and throw in a few dozen "crisis" and "catastrophe" references, along with some massive spending program and tax increases.

I know there are a litany of issues; the market is voting that it doesn’t have confidence in this team to fix them and is worried that they are making things worth.
Besides, I am also just trying to get Phil agitated !

But I can’t do it !
Phil is just too cool today !

Cap: whoever is to blame, I am mad about my losses todfay, portfolio.
The key is that everything has been let deterirate so this massive deflation is happening.

Just a reminder that I need help with my problem of short puts. Also wanted to explore what you thought about rolling the UYG to the FAS and how to go about doing it. Thanks

I don’t see the banking sector leveling off soon.  Confidence won’t return until the Eastern European problem is addressed and resolved.  Too much risk, too many variables. We could easily go down another 500+ from here, a real mess.

  I’ve got 10 BAC Mar 9 puts, 20 C Mar 5 puts, and 10 DRYS Mar 5 puts. I forgot that I had already rolled by UYGs out to June. I like the RKH idea but the only problem is that the Apr 35s are thinly traded w/ only 35 open contracts so I worry about the liquidity. Do you think that’s a problem? Any other ideas for getting out of this mess? I’ve been waiting for the administration to say the right thing but I’m not sure how much longer I can wait. Thanks

 The administration will say the right things (and possibly do them) when the Bipartisan bickering ends (fat chance).  Failure to do so and the meltdown and thus renewed contagion continues to destabilize the market.  Essentially the market is saying, key financial problems are not being addressed, the economic recovery is being further delayed (not the broad market discount which will not consider commencing until clear signals are given).  The only discount that is occurring at present is the market pricing in is lower multiples based on trillion dollar (multiple) debts to be repayed.  In other words, the implications are lower multiples based on longer term debt repayments based on current perceived economic and administrative inefficiencies.  A perfect example of this,(the aforementioned bipartisan bickering foisted as politics), New Hampshire passed a house resolution (and was mindlessly followed by other states) threatening constitutional annulment and consequently secession from the Union (honest I’m not making this stuff up).  My question is, "How does this resolve unemployment, foreclosure, frozen credit and other key economic issues ?"

Alerts working well, thanks Phil. I get them within 1-2 minutes on Gmail.

Good Morning Phil & all

Asia Markets :    Tuesday, March 03, 2009
(The following is from WSJ; please cross check with other sources to confirm.)   

Nikkei Average*                         7229.72       -50.43    -0.69%
Hang Seng*                             12061.73    -255.73    -2.08%
China: DJ Shanghai*                  235.78        -1.66    -0.70%
Seoul Composite*                    1025.57          6.76     0.66%
Bombay Sensex*                      8427.29    -179.79    -2.09%
Baltic Dry Index                          2014.00        28.00    1.37%

*at Close

Tokyo Briefly Hits 25-Year Low, But Asia Trims Losses

Stocks in Tokyo hit a 25-year low Tuesday and most major indexes in Asia were down, caught in the downdraft of risk aversion sparked by renewed concern over the global financial sector.

Japan’s broad Topix index hit a 25-year intraday low, while the Nikkei slipped to a four-month trough. However, there were signs that some investors were picking up bargains and shaving their safe-haven positions. The MSCI index of Asia-Pacific stocks outside Japan swung from a three-month low to show a small gain on the day and the dollar index backed off a three-year high reached in early dealings.

The Nikkei ended down 0.7 percent, trimming its losses after hitting a four-month closing low as banking shares fell, but investors picked up beaten-down exporters. Although the benchmark briefly turned positive in afternoon trade, it hovered just short of a 26-year low amid worries about the U.S. financial system. It slid as low as 7,088.47 in the morning — a level not seen since the 26-year low of 6,994.90 recorded late last October.

South Korea’s KOSPI ended 0.6 percent higher, erasing an earlier 2.55 percent decline, as technology and auto exporters rebounded, helped by lingering weakness in the won, but financials fell on continued global bank worries.

Australian stocks recovered two-thirds of their losses to close down 1 percent after the central bank held interest rates steady, which investors took as a thumbs up for the Australian economy. The market fell through a key support level at 3,200 in early trade.  But it bounced back to hold above 3,200, considered an important psychological level as it was 50 percent below last year’s high, after the central bank surprised the market by holding rates at 3.25 percent.

Hong Kong shares closed 2.3 percent lower as Chinese counters picked up pace ahead of China’s annual parliamentary session this week.

Singapore’s Straits Times Index fell back into the red, ending 0.3 percent lower. Shares of Neptune Orient Lines, the world’s seventh largest container shipper, was down 5.2 percent after the company said it moved 35 percent less cargo in the six weeks to Feb 6, 2009 from a year ago.

China’s Shanghai Composite Index was down 1.1 percent on concern about the weakness of the U.S. financial system, but it came off its lows after nearing major technical support. Financial, coal and non-ferrous metal shares led the declines, partly on worries that the turmoil in the United States could mean long-term weakness in demand for commodities.

Bombay Stock Exchange’s Sensex ended at 8411.30, down 195.78, its lowest close since November 20, 2008. The index touched an intra-day low of 8390.21 and high of 8635.20. The index had closed at 8451.01 on November 20, 2008 and hit 52-week low of 7697.39 on October 27, 2008. Indian indices plunged in the last one of hour of trade as investors booked profits in frontline stocks.

Europe Stock Index Hits Life Low; Banks Fall

European shares fell in early trade on Tuesday, with a key index hitting a lifetime low as investors sold out of the banking sector and concerns about the health of the economy weighed on sentiment.

The pan-European FTSEurofirst 300 index of top shares was down 0.7 percent at 677.44 points having hit a lifetime low of 676.57 points. The index rose to as high as 690.26 points earlier but lost steam rapidly.

Banks reversed early gains to become the top losers on the index.

The only stand out riser was Standard Chartered which gained 4.3 percent after the group said 2008 profit rose by 19 percent to $4.8 billion.HSBC, Credit Suisse, UniCredit and Barclays were down 1.6-6.2 percent. Munich Re fell 1.1 percent after it said its goal of achieving earnings per share of 18 euros in 2010 is no longer realistic and added that it cannot give a forecast for 2009 annual results amid the financial market turmoil.

Energy stocks also reversed early gains as crude hovered around $40 a barrel. BG Group, BP, Royal Dutch Shell and Total were 0.2-1.2 percent lower.

Miners lost ground to trade in the red. Antofagasta, Vedanta Resources and Rio Tinto were down 1.7-3.1 percent.

Defensive Drugmakers Gain There were few sectors in positive territory. AstraZeneca, GlaxoSmithKline and Roche were up 1.5-3.1 percent. Bayer lost 2.3 percent after it cut its 2009 outlook for underlying operating profit to a decline of 5 percent, having previously foreseen an increase, as a slump in demand for its plastics and foams overshadowed growth at its drugs unit.

Across Europe, the FTSE 100 index was down 1 percent, Germany’s DAX was down 0.8 percent, France’s CAC 40 was 0.4 percent lower and the broader DJ Stoxx 600 index fell 0.7 percent.

Oil Rises Above $40, But Demand Worries Remain

Oil rose above $40 a barrel on Tuesday after a 10 percent slump on Monday but showed no sign of a return to last week’s bull run as global equities extended a fall on worries about the global economy and outweighed OPEC’s strong compliance with supply curbs.

U.S. crude [ 40.82    0.67  (+1.67%)] was up, after tumbling $4.61 overnight, while London Brent crude [ 43.14    0.93  (+2.2%)] rose.

OPEC oil supply fell in February for a sixth straight month as members enforced a deal to cut output and prop up oil prices, a Reuters survey showed on Monday, but analysts expect more cuts by the producer group when it meets in Vienna on March 15.

Inventory figures on Tuesday and Wednesday will show the impact on demand from the world’s top energy consumer and February unemployment and non-farm payroll data on Friday will shed more light on the state of the U.S. economy. Mixed macro-economic data out of top energy-consumer the United States on Monday showed milder shrinkage in manufacturing and a slight bounce in consumer spending, but the improvement was likely a blip amid a rapidly deteriorating economy.

Dollar Dips as Stocks Rise, RBA Lifts Aussie

The dollar slipped on Tuesday with Wall Street set to recover some of the previous day’s hefty losses and as traders bought the euro and other higher-yielding currencies after the Reserve Bank of Australia unexpectedly left interest rates on hold.  The dollar index, a gauge of its strength against a basket of six other major currencies, hit a three-year high in overnight trade as investors sought shelter in the world’s most liquid currency. But it pared gains as the RBA kept rates unchanged at 3.25 percent on Tuesday, confounding hopes for a cut, saying stimulus already in the pipeline was helping the country avoid the depths of recession seen elsewhere.

The dollar index was 0.45 percent lower at 88.893, after hitting a three-year high of 89.026 in Asian trading.

The Australian dollar [ 0.6404    0.0106  (+1.68%)    ] jumped against the greenback.

The euro received a boost as speculators bought back the European single currency following a jump in the Australian dollar, and ahead of a policy meeting by the European Central Bank later this week.

The euro [1.2599    0.0024  (+0.19%)    ] rose against the dollar, recovering losses suffered in the wake of European Union leaders’ rejection of a mass bailout for Eastern Europe, which weighed on the single currency the previous day.

Sterling [ 1.4023    -0.0031  (-0.22%)    ] was up versus the dollar.

The dollar [ 97.67    0.24  (+0.25%)   ] was higher against the yen, staying below a 3-1/2 month peak of 98.72 yen struck last week.

Gold hovers below $930, eyes on stock market

Gold was trading at $924.00 per ounce at 0427 GMT, down 0.2 percent from New York’s notional close of $925.35 on Monday. It earlier fell as low as $921.00, an almost three-week low and down more than 8 percent from an 11-month high of $1,005.40 marked on February 20.

The world’s largest gold-backed exchange-traded fund, the SPDR Gold Trust, said holdings remained at a record 1,029.29 tonnes on March 2, unchanged from February 26 when it first hit that level.

  Thanks for the explanation. Long-term I think financials are at their biggest discount in over a decade. It’s just a balance of being long and getting paid to wait while your capital is tied up. I think I’ll put the RKH play into motion.

Stay Connected


Latest Articles

Would love your thoughts, please comment.x