We’re pretty bearish and there’s lots of bad data coming. We’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!