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Saturday, March 2, 2024

Thrill Ride Thursday – Could this be the End of the Line?

Weird Train Ride

I've listened to preachers 

I've listened to fools 

I've watched all the dropouts 

Who make their own rules 

One person conditioned to rule and control 

The media sells it and you live the role 


Mental wounds not healing 

Driving me insane 

I'm going off the rails on a crazy train 

Heirs of a cold war

That's what we've become 

Inheriting troubles – I'm mentally numb 

Crazy, I just cannot bear 

I'm living with something' that just isn't fair 


That pretty much sums it up for the markets in September – especially for the silly old bears, who were as sure that we were going down in flames at the beginning of September as the bulls are sure that we are going to the moon at the beginning of October.  As one of the few people left in America who has the ability to step back and look at the bigger picture (the one where "history" goes back further than last weekend), it's kind of funny when we pull out the old 1-year chart (I know – "what's that?") to see what all the fuss is about.  

Last Tuesday we looked at the International markets and set targets.  Japan was a worry then and continues to be a worry with the Nikkei now LOWER than it was last week, much more so as they fell another 2% in this morning's trading as the Yen made new highs and Industrial Output dropped 0.3% in August, missing forecasts of 1.1% by 400%.  This is Japan's 3rd straight drop, after tumbling 1.1% in June and 0.2% in July and seems worse as the government already tried to intervene, but to no avail.  In fact, now that auto incentives are ending, auto makers predict a 10.5% drop in October!  "We have not seen such a negative surprise for some time," said HSBC Securities chief economist Seiji Shiraishi. The result underscores the risk that Japan's economic growth may stumble further, Mr. Shiraishi said.    

The Shanghai Composite and the Baltic Dry Index continue to flash warning signs and the CAC (3,750) and the DAX (6,300) were both rejected from their 5% lines while the FTSE is struggling to hold theirs at 5,500.  We'll be very interested in seeing how well Europe holds up into the close today.  Our concern is that today will be the final prop job and the sell-off could begin as early as 1pm but, then again, we may be able to hold up until almost the 15th (options expiration day in October).

Our revised Q2 GDP came in at 1.7%, beating the 1.6% expected and dashing the bear's last hope of a downward revision that was "guaranteed" to be in the cards just a month ago.  This was the same nonsense we heard in June when I tried to explain it with "The Worst-Case Scenario: Getting Real With Global GDP!" which was another article about getting some perspective.  

I know it's a little confusing as I get more bullish at the bottom and more bearish at the top because I am RANGEISH, the closer we get to the bottom of our trading range, the more I have to argue the bullish case and the closer we get to the top of our trading range (the 10% lines) the more relatively bearish I get and the only question we really grapple with is whether to move our mid-range target up 2.5% to 1,100, which we expected to be able to do but the overall fakeness of this move up has us hesitating as we still have yet to spend a full day with all 5 of our 7.5% lines holding up.  

Today should be the chance for the bulls as we "only" lost 453,000 jobs last week and that's 7,000 less than expected so that, coupled with the BTE GDP and a very surprisingly good NY ISM report (58.3, up from 55.6 in Aug) had better get us back to the week's silliest highs, in the very least!  

Already in the 9am pre-markets, the Dow is up over 100 points from it's morning lows, up about 40 in the futures from down over 60 on Asian trading.  Europe has also done a 1% reverse off their open with the DAX flying from 6,200 all the way back to test that magic 6,300 line again – isn't the 5% Rule fun?

What's going to be real fun is buying Dow puts at the open.  If we figure DIA can pop back to $109, that should drop the price of the Sept 30th (quarterly) $109 puts to about .20 at the open and, although that's an annoying premium, a 50-point drop in the Dow will return .50 and we do expect a pullback around 1pm so scaling into a position like that can be rewarding.  Those puts expire at the end of the day so a pure gamble but they should hold .10 through lunch (also a good price to get in) and .05 through 2:30 so you can control your losses as long as you get a good entry.  Of course it's very tough to call before the open but we'll refine it and come up with better plays in Member Chat. 

Today is going to be very exciting.  We'll see how high the bulls can take us this morning.  There's still plenty of data to digest with the Chicago PMI hitting us at 9:45 (hence the short out of the gate) and KC Manufacturing Activity at 11.  Bernanke holds a Town Hall Meeting at 2:30 as well and tomorrow is Datapalooza Day with Personal Income and Spending along with PCE ahead of the open followed by Michigan Sentiment, Construction Spending and ISM at 10 with Auto Sales coming in throughout the day.  As long as all the data is good, everything should be just find but, obviously, we're not betting on it!

Be careful out there!



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