Congratulations to all who rode out the maelstom yesterday!
We're getting a delayed reaction today to our first Merger Monday in a very long while, as I said at the close of yesterday's post: "As SGP shareholders can tell you, it does get to a point where some stocks just get too low to leave alone!" In the Weekend Wrap-Up, I laid out my chase for why C was likely worth far more than a dollar and I laid out 5 different trade examples that were designed to return 500-2,500% more in a good rebound – if you haven't read that article yet, it's only a little bit late with C up 25% this morning. Again, I am not advocating putting more than a small percentage of the virtual portfolio to work this way but hopefully a morning like this one will remind you why a little upside exposure can go a long, long way.
In my special report yesterday, I laid out my case for why I think the media was driving a fear-induced bottom and, lo and behold, yesterday there was a great article in Gawker.com that pointed out that FEAR SELLS. CNBC is keeping their ratings up by keeping you terrified – isn't that nice to know? After being lambasted for being catastrophically wrong about everything its anchors and reporters are paid to understand, the business network is actually enjoying its notoriety. It's the reality-TV theory of publicity; as long as people are talking about you, it doesn't matter what they are saying. "If I get gushy, then I'm not going to be relevant," Cramer said.
Yesterday I said to watch the FTSE and that action gave us hope through another togh day and is following through this morning with a full 5% run off the bottom, where we expect it to rest around 3,622. We'll be looking for the CAC (2,625) and the DAX (3,780) to confirm the move and, of course, we're still looking for the US levels I set yesterday as our targets for the week: Dow 6,765, S&P 700 , Nasdaq 1,350, NYSE 4,400 and Russell 360. We did a lot of bottom fishing yesterday and I had 5 trade ideas for members already at 9:04. Also, in that same comment (which was also our first alert of the day), I said: "Gotta love those SKF puts – you just gotta! 😎 Keep in mind $330 was Friday’s low so watch that, as we get closer to expiration you can less and less afford to mess around although this could be the big one if we take off back through those 2.5% levels…" At 11:24, I advised the day trade crowd to take the quick profits on the next attempt at $230 and then reposition on the bounce. As I often say to members, I can't MAKE the markets move – I can only tell you what they're going to do ahead of time!"
Things looked grim at 1:42 but I said to members: "Whole market is just sickening but at least we’re holding Friday’s floor (so far). We expected the 1% bounce down and SKF did just what I thought they’d do so I’m not feeling like it’s a misread. Next month’s (April) $145 puts are now my favorites at $13.30, looking to roll up for $1 per $5. Good time to at least half cover DIA puts too. 1/2 $68 puts for $3.50 (my favorite selling price) can be rolled way down so I like those." In addition to that play we added a bullish play on GOOG and QLD (ultra-long Nasdaq) into the close, both of which should go well this morning but we remain skeptical until we see what sticks although, obviously, we're full covering the DIAs to flip more bullish this morning (with tight stops).
As David Fry's chart shows, our premise that commodities don't lie, CNBC does, is holding up as oil, food, base metals and shipping continue to move up. This indicates, despite what you hear in the MSM, that SOMEBODY, SOMEWHERE is buying SOMETHING – if only we could figure out what it is… By the way, now is a very fun time to try DIG, an ultra-long oil and gas fund that hasn't gone anywhere considering they fell from $130 to $17 durring the big oil collapse. The Sept $15 calls are $6.50 and if the ETF gets back to $30 ($100 off the top) they will be $15 in the money so, it you want to insure $2 gas for yourself over the summer, hedge your gas purchases with 1 $650 contract of the Sept $15s and a rise in gas to $3 should net you about $600, enough to offset a good portion of your summer driving. If DIG can't break $20 by March expiration (20th), the Apr $20s can be sold for $2, which makes it a nice spread anyway.
Our star of the day is, of course CitiGroup, who say they were profitable in the first two months of 2009 and that the bank is "confident about it's capital strength after tough internal stress tests" Chief Executive Vikram Pandit told staff in an open letter. In the letter, Pandit said he was disappointed with Citi's stock price and "broad-based misperceptions about our company and its financial position. We believe our credit spreads are disconnected from our condition and are inconsistent with the government's announcements regarding support for the financial system." In the note, Citigroup said it was having its best quarter-to-date performance since the third quarter of 2007 — the last time it made a quarterly net profit.
We're not going to get too excited today. We need to break and hold our levels and then we need a whole new set of levels to break and hold before we even consider getting our hopes up that the markets are normalizing but we have our Buy List and we've already taken the high-leverage bets on the financials, which is the sector most likely to get short-squeezed so all we have to do is cover our long puts, put our feet up and enjoy the show if we're going to get a major rally but we are NOT going to get carried away as this market has yet to put two consecutive up days together since Feb 6th (and that was only the 2nd time all year).
The Hang Seng had a very nice morning with a 3% gain and the Shanghai added 2%, back to 246. The Nikkei was a party pooper, falling half a point but much of that was a pullback in the drug sector as there is fear that MRK/SPL will change the global game. I decided Australia was a good place to bet on yesterday and they're up 1% this morning, we'll start keeping an eye on them too. Auto sales were up 25% in China for February, a rebound due to the timing of the last, negative report, which we knew to ignore due to the timing of the Lunar New Year (but which the markets panicked on anyway). That was back when we thought investors were smart enough to read the papers – now we know better and we only trade the headlines! Orders for Honda's new hybrid were triple expectations and still GM can't figure out what people want…
Europe is up about 2% as of 9 am and the big news there is that the EU Finance ministers ARE now going to help Eastern Europe in a back-door fashion by doubling their IMF contributions to $500Bn. The IMF is also being tasked with strengthening international financial regulation – something the US is against and this will become a big topic at the G20 meeting on April 2nd as the US wants the money used for direct stimulus, not to strengthen the IMF. German Finance Minister Peer Steinbrück, heading to a meeting of euro-zone finance ministers, told reporters Monday there would be "no more additional money" for economic stimulus in Germany. The country has criticized sweeping stimulus packages, saying a credit crisis can't be fixed by more massive borrowing.
Bernanke subtly is backing the IMF's play with a speech to the Council on Foreign Relations where he signaled it isn't too early to consider longer-term reforms including — in the U.S. — putting responsibility for addressing possible systemic risks with one authority. He outlined four steps related to: systemically important and interconnected firms; financial infrastructure; regulation; and addressing systemic risks under one authority. Referring to big interconnected firms, known as "too big to fail," Mr. Bernanke said "any firm whose failure would pose a systemic risk must receive especially close supervisory oversight of its risk-taking, risk management, and financial condition, and be held to high capital and liquidity standards."
We'll be watching our levels today and we also have wholesale inventories at 10, which will probably be down a bit more. Tomorrow is retail sales for February, which we already know are a bit better than expected from last week's survey but we'll let the market be surprised and hopefully it will give us 2 up days in a row – but let's hold onto today first!
