Wow, talk about a round-trip.
All that work last week and here we are, right back at last Monday's close with Tuesday's open looking like last Tuesday's open – which was a gap up that led to a flatline of a day with a sell-off into the close. In our first alert of the day last Tuesday, we were watching for breakouts at: Dow 7,636, S&P 805, Nas 1,525, NYSE 5,075 and Russell 420 – the same levels we blew yesterday. We were also cautious of a possible retrace to the downside, our 10% (off the non-spike bottom) levels of Dow 7,404, S&P 775, Nas 1,466, NYSE 4,839 and RUT 402. That sure does make today easy as we're right between the two again as our stock market roller coaster makes another loop around the tracks.
My additional commentary in that same Member Alert was: "As usual, the Russell is going to be our best indicator, so over 425 is good, 420 is dangerous and 402 is very bad. Also, note in the morning post that if we adjust our breakout targets (which were set two weeks ago) to compensate for the 7.5% drop in the dollar we still have a ways to go before we can relax and go long: That's going to be Dow 8,000, S&P 847, Nas 1,585, NYSE 5,321 and Russell 456." Keeping an eye on those levels last week allowed us to get out right at the top and flip bearish, where we rode out the 7.5% pullback (so far). We went into yesterday's close 55% bearish – after enjoying the ride down, we're ready for a change but not yet willing to throw caution into the wind. The adjustment to bullish is easy, we simply sell more short puts against our long puts and we hope to have good reason to add to our 1/2 covers this morning but it will take more than the 1% bump I'm seeing in pre-markets (7am) to get us to saddle back up.
As usual, we made our bullish plays yesterday, while everyone else was selling. We once again got our $5 FAS entry and selling the naked $5 puts for $1 means our worst-case scenario is FAS is put to us for net $4 – that's something we can live with long-term! We were too early trying some SPY calls but we got a nice entry (we hope) selling X puts, a fun C spread and even a play on GM calls, where we played the $3s for .29 ahead of Obama's talk. We were looking for .50 and we got .47 – A 62% gain is nothing to complain about for an hour's work!
We flipped bearish again at 1:08, when we couldn't hold our 788 target on the S&P and we drifted into the close from there with a quick dip and recovery that came out just .47 under the 788 target – not bad for levels we've been watching for a week! As you can see from David Fry's chart, we really can't afford ANY downward follow-through with that 50 dma right at 788 NEEDING to act like serious support because it would look A LOT more natural for the S&P to double test the bottom (target box) before mounting a serious rally. Since this 3-week leg just happens to correspond with earnings season – you can forgive us for hedging to the downside just a bit!
Speaking of earnings – here's a good one: Zero Hedge claims to have "inside information" from a trader who claims essentially that the "good earnings" claimed by C, BAC et al that led to the rally of March 10th were nothing more than a gift from the Treasury, funneled through AIG in the form of ridiculously profitable counter-party trades that made Billions for the banks which AIG turned around and wrote off as their stupefying losses. If true, it's a hell of a scandal and it's also a great reason to load up on FAZ, which fell from over $100 on March 9th to as low as $20, closing yesterday at $24.64. No matter what you think of the financials, I bet you can sleep better through earnings season with the Oct $24s for $11 backstopping your bullish financial plays.
Asia was mixed this morning with the Nikkei falling 1.5% but the Hang Seng, Shanghai and Bombay all put up about a point – which is far less than exciting when put into perspective against the drop, as our 1.5% bounce will be this morning if that's all we get. What's scary about the Nikkei is they jammed the Dollar all the way back to 98.5 Yen, which should have thrilled the exporters and they still dropped 1.5% on the session despite continued stimulus talk. Perhaps Japanese traders have their eyes on the Baltic Dry Index, which fell yet another 2% on the day, now 28% off the 3/10 high.
Europe is off to a happy start this morning, up over 2% across the board as British Retailer, Marks and Spencer, beat expectation with "only" a 4.2% drop in sales. Things in the UK are bad enough that that is considered something to celebrate… We're going to be back to watching our EU levels from last week to see what sticks: FTSE 3,880, DAX 4,200 and CAC 2,900 – only the FTSE is likely to test at the moment, up 3.3% for the day so far. The S&P put Ireland on credit watch but – shhhhhh!
Oil got a nice boost from Moscow this morning as Russia's Energy Minister, Igor Sechin said Russia's resources "are a God-given good that should be used effectively," he said in his first major interview with a foreign media outlet. "Somebody is always wanting to take them away." He supports "coordinating actions" with OPEC because of the shared interest in lifting prices. He said Moscow isn't in a position to mandate lower production, but Russian oil companies will curb output this year as falling prices cut into their ability to produce. That was enough to send oil up 3% in pre-market trading, back to test $50 after touching our target $48.50 yesterday.
That should give a nice pop to the OIH and XLE and XLF ought to retest $8.50, which will be a major pass/fail for the morning rally. The quarter ends today and we'll see how things end up but we're not going to get all excited about a bounce this morning until we start making some real progress. In addition to Ireland, the S&P also issued a warning on Hungary that is no surprise but all that could put pressure on the Euro and another dollar surge this week could be a real rally killer for our markets. Don't forget there's a huge G-20 protest scheduled for 1pm tomorrow at the Bank of England (just ahead of US market's open).
The Case-Shiller Home Price Index showed 19% declines for January with average home prices in the US back to where they were in 2003. This is worse than the -18.6% expected but not really a market mover as no one expected much from January. Chicago PMI is out at 9:45 and Consumer Confidence will be at 10 – both are March readings and both are expected to be awful. Tomorrow morning we also get the ADP Report and that's been a market mover and then we get Construction Spending, Pending Home Sales and ISM at 10 so a very exciting day tomorrow at least.
Speaking of Chicago, the Sun-Times Media Group filed for Chapter 11 this morning. This is a very big deal as the Sun-Times publishes 400 papers worldwide…