Markets 2008

This will be the last post of 2008 for BaseOp2 as the year of every possible directional swing comes to a close. While the individual and institutional investors struggle to comprehend the magnitude of hurt put on the money pile worldwide, the deep bid/offer index markets of the US continue to provide the mechanics for sorting out value. Legging into recovery will occur as professional trading strategies along with the support of governmental intervention discover what value combinations will be the underpinnings for market recovery. New rules will be part of the 2009 trading environment with less leverage, but just as much opportunity for those able to decipher risk points to buy and sell in building winning performances.

It is tough to be courageous in these markets, and is made harder when relying on those elements of the market to recover, banks and brokerage, which failed us so. They survived in large part putting transactional deals together which had no value other than passing paper. It is easy to build daily routines in business and in life which offer no challenge, create nothing of value, and ultimately fail to build wealth to power good works.

Dull Again

Not much to say today. Like yesterday, today's volume was diminished as zero rates collided with zero interest in equities. Maybe these are bargains of a lifetime but investors have little taste to partake when every five days some new disaster story hits the wires. Managers to manufactures, technology to banks, they all seem to flinch every time the morning trading bell rings.

Avoiding Road To Empty

The Fed had run out of room on interest rates so they basically told the world they would do whatever it takes to manage the current economic disaster. Gee, I hope that is enough because if it is not, we are all in for a long road to empty. Technical programs run here are happy with the rally but a couple of indicators still say not so fast.

Talent

Fed meeting today and tomorrow as they will obviously continue to provide the easing and other additional actions for a hopeful upturn from current dismal economic scene. Between revelations of money manager disasters such as Madoff's or the suspension of redemptions by Citidel, the world is still working through the unwinding of real positions initiated on perceptions of trading talent. Cheap money with lots of lending created transactional nirvana for the trading industry and now cheap money with little lending is helping drive the value of all assets lower. Real talent tells you where to buy it and where to sell it over and over again as it nets postive returns. It never works only from the buy side.

You Are Fired

Well the next phase of 'save us from ourselves' has started as banks such a BAC announce huge layoffs now that they have more than enough cash stuffed into the vaults. Rates are at zero and there is plenty of cash to go around, but like the Japan model, no lending. Well, no lending unless there are guarantees that is.

The great business class, preaching the merits of Republicanism and now once again needing to get bailed out. Not an idea what to do because the only real talent they have includes devising ways to make pigs look good.

As stated in previous post, some technical elements run at this location have rollover characteristics. The sound of the floor cracking is being heard tonight as markets sell off into Friday's session. A hard down day on big volume after repeated modest gains on light volume would not be what this market needs. These markets need to have hard upside reversals to remain base builders.

Rolling Over?

Little accomplished in today's action in either the indexes or economic events. Big 3 are going to get a small stipend and hope the rest will come later. Treasuries in the three month variety still a virtual zero and stocks slept on low volume.

Market timers will be looking for big volatility next week as the cycles start setting up for end of year marks along with the normal end of quarter positioning.

One of the indicators looked at here is starting to roll over but has not made new lows as of yet.

Negative Rates

Three month notes traded at a negative rate today as money continues to pour into Treasuries and away from just about everything else. Should those rates submerge more this week, it is likely to bring a serious attack on the legs of the current index support levels. Though there are compelling reasons to nimble on stocks with healthy cash positions relative to all obligations, that may be the basic necessity for any investments now that credit has all but been eliminated as a market driver. Generational ideas about low PE ratios now have their chance to prove they are valid entry indicators.

Obama Infrastructure

Early strength on Monday attributed to Obama's infrastructure pledge but markets are just simply finding lack of sellers as oversold conditions persist. The bottom formation of the DJIA, SP500, and NQ100 look solid enough to build on but needs a couple of stretches from powerful rallies to confirm the worst is over.

Stranger Than Fiction

The jobs number was bad but the reaction by the market to this point has continued to be one of dull interest in selling the lower end of the ranges. Big 3 pleadings on Capital Hill along with Fed cries for mortgage intervention form a backdrop to a stranger than fiction world of economic conditions being met with creative trading strategies based on building spread legs where any new positions are backed by government guarantees. Except for the limited uses of high frequency trading operations to generate income, the macro moves are being plotted to take advantage of the opportunities available over the next three years. Banks will be flush and even the worst the recession will be long passed. What is left standing besides the banks however will be of great interest.

Jobs Number Tomorrow

All hands waiting for tomorrow's jobs data with some interest in what the Big 3 folks will say today in front of Congress. So, best link today is this article about how bad the hedge folks are getting kicked in the ass. Story.

Scenarios

The DJIA, SP500 and NQ100 have settled into a pre-Friday unemployment data ranges. Bears look to assault the lows of the 24th before the jobs number and then crash into new lows to end the week's trading. Bulls hope to reject the lower ranges and climb above last week's highs to put an end to this bear market. With the volatility of these past few month, the indexes may make each scenario look believable at some point interday before they reverse.

Surplus Population

The strategy to stabilize the US financial system is based on the theme of providing enough liquidity in the market until the banks and brokerage firms can develop plans utilizing all the features of the loans and guarantees implemented by the Fed/Treasury. These plans will contain two overall principals; raise enormous amounts of cash; and change the risk profiles for conducting future business. The first principle allows the banks to survive a severe downturn without lending money. The second principle will be their excuse. Goldman and Morgan have started to implement the sale of 3 year notes denominated in Euros to add to their own bulging money piles supplied by the US. These notes are guaranteed by the FDIC and pay about 1 to 1.5 over comparable market instruments.

The new administration will have to endure the criticism of a general recovery strategy which has the Fed/Treasury saving their own at the expense of the economies of families across the country. What Bernanke and Paulson have delivered thus far is radical intervention only when viewed against how the notion of free markets have come to rely so heavily on social coffers to save a select group of private investors. If the banks are still not lending or qualifying loan profiles drastically restrict growth, the real meltdown will be the burden of the 'surplus population', as Dickens would say.

Valuations Adjust

The revalue tumbler keeps on rolling through the various financial products. The valuations created primarily by major brokerage and banks in pricing debt and a sundry of derivative paper by literally marking prices to stoke performance data, keeps trying to find buyers. Along with trying to sharply reduce holdings is private equity firms, major institutions are trying to cash up by selling billion dollar positions in the secondary market. Hedge funds are seeing continued withdrawals and many have now temporarily halted redemptions. All this plays into the credit squeeze as bridge funding competes with everyday transactions and a general unwillingness to lend to even the best of names.

Shopping Crunch

How the holiday shopping will turn out is certainly a subject of a little more interest this year. A bad start would confirm some of the worst fears of preparatory planning by consumers who are expecting a significant downturn given stock performances to date and the daily serving of economic death march data given out by market news prognosticators. If the news is better than expected, look for the markets to extend gains as manager's pricing increases just in case the bottom action is more than just a bear pause.

Price data crunch still shows positive numbers with a caution being the 24th's major indexes lows being a critical hold for next week.

Pig

The concern over the fairness of distributing bailout funds to various financial entities is being argued daily. Many believe a great blunder was committed when Paulson, Bernancke and Geithner, decided to let Lehman fail. What they really have to be worried about however is not early mistakes, but rather their ability to convince people they now have a grasp on the overall dilemma and can adjust at the right places to bring about broad cures which greatly influence the 80% of the population which drives the economy. It would be a political disaster as well as a economic one if after all that is said and done the banks and insurance companies were cashed up and the rest of the working population was left with a pig.

Bottom Hopes

Construction of the bottom continues today as back filling is the main feature. Several programs run here which indicate momentum, based on Nov 5th and continue to signal an upturn. Though they are not as strong as previous turns, they have had a move in the right direction.

The Treasury and Fed have thrown just about every conceivable trick at the market lately to help the banking and insurance industry from imploding. These creative measures need to work sooner than later.

Money For Nothing Chicks For Free

Markets strong this AM with CITI bailout news and ahead of Obama's announcements regarding his economic team at mid day today. Last week's action saw a confluence of potentially unprecedented governmental future funding dilemmas as the realization of Japan like economic conditions of the 80's and 90's were becoming evident. Realization that overnight rates will probably go to zero after the first of the year with three month T bill rates reaching their lowest level, just above zero, last week. The world does not really want US assets unless they are treasuries. The Fed is in effect flooding the world with dollars and will do so aggressively for the foreseeable future as it aims to liquidfy the transactional financial pipelines. A world where negative interest rates requires you to pay to save and get paid to borrow, especially if you have a supply of treasures, is to say the least a bit upside down.

Hedged Out

Interest rate futures had there single biggest range day since 1987 yesterday as another component on the capitulation check list was marked off. Big 3 negotiations have been kicked down the road but some sort of re-balancing with design performance mandates will be put into place before or shortly after the new administration takes office. Hedge funds, a major contributor to the high days in stocks, are now down to a mere 17% exposure to stocks according to Bloomberg.

Connecting these huge daily trading ranges is the topographical feature of an expanded bottoming process. Filling in the bottom is made more interesting by the lack of any clear vision as to a national recovery plan especially since the Treasury and Fed have been anything but transparent so far to date. The Obama folks as of yet have not tipped their hand in a strategy, probably reasoning there is little to be gained from presenting a plan that they are powerless to enforce.

So by and far the key market participants are adjusting by liquidation and trying to figure out how to get into the G's pants. Insurance companies have developed a plan to buy small banks to enable them to qualify for Tarp or in-kind funds. Hedge funds as mentioned are cashing up by liquidating not only stocks but by eliminating giant positions in commodities which accounted for the vast majority of the idiocy play called developing world demand.

Down As The Absurd

The bulls are bailing. The bears who rode the market down and starting buying in October are bailing. Down as the absurd has finally reached a thunderous capitulation where even the elderly would be run down if they were standing in the exits. The play by play business talk personalities have scripted themselves into a drama which is more thrilling than the clever put downs of the bears they played for years. A new category for the Emmy awards could read, Best Prone to Hyperbole in a Daytime Market Series.

This is not about blaming the messenger. It is about how little knowledge these tv personalities have on a daily basis in identifying and disseminating important business analysis and market behavior. What was wrong with Wall Street was hardly ever an issue during the bull run. What was right about judging risk correctly was mundane. Now the shit is hitting the fan and they are helping to fan it. These shows have always perpetuated the great analytics employed by Wall Street which has always come down to two things; buy it and hold it. Important analytics identifies risk and changes direction enough correctly so that when adverse events do occur, there is plenty of cushion.

Pile

Bond traders are having a time figuring out the plays these days as typical benchmark indicators have become meaningless. Excess reserves held by banks at the Fed are now bigger than the Fed Fund Market. The Fed's own one percent target rate now exceeds the overnight rate, which is less than half of one percent. Money is sitting in piles with no intention of moving.

Like a car pileup in a thick fog, each sector of the economy keeps on plowing into the next as logjams emerge. Real cars at Port of Long Beach are not moving from the offloading lots and stand at a record along with numerous other items looking to be exported.

The question is not whether the US can handle and ultimately solve the crisis now before it. Rather, it is to what degree market adjustments need to ratchet to before values of all kinds are reflected in a volatility judged as normal.

Saving the top of the economy is always the path of choice and least resistance. Preserving wealth and those of influence becomes a reasoning too obvious since wealth is always at the seat of power. If we are in the first of many battles in a war to save institutional businesses and assets at the expense of the greater common wealth, we may face a prolonged economic lethargy supporting a population guided by corporate leaders weaned on supervising service industries where less people do more work producing little of real value.

The Big 3

Detroit finds itself in a bit of bad timing. Given Paulson's poor strategic performance with TARP, the Big 3 find themselves at a place in line while Congress is hearing a growing noise of dissatisfaction from constituents as to the progress on the war against economic disaster.

It is essential to provide relief to the Big 3 during this period of economic upheaval. Republicans in Washington keep using the mismanagement argument to explain their opposition to a bailout. They claim Detroit had years to adjust to the marketplace but merely pursued a strategy of fuel inefficiency and poor quality.

They are absolutely right, but we need to bailout the auto industry. The US cannot afford to continue to allow our manufacturing base to disappear regardless of the current automakers upheavals. The Republicans got the problem right but as usual have missed the complexity of the issue. To allow manufacturer producers as large as auto to sink without understanding the linkage to so many other vital elements of commerce is short sighted. From auto parts which provide for the nations existing auto population, to strategic industrial capabilities for national security, an industry which actually produces something, rather than the ones Paulson is pimping for who simply charge fees for designing financial instruments which do not work, is worth saving. Congress can mandate terms in an agreement this time rather than laying down as it did for Treasury. Bankruptcy will drag on forever and feed upon the uncertainty which is driving the fear in today's markets.

Markets Adjust

The weekend tv programs are dominated by the 24 hour news/talk cycle and the presentation of a continuum of evidence pointing to economic disaster. Job cuts, Big 3 survival, and whackage reports from 401K statements across the US are cutting confidence in asset values of all kinds. Nothing will work talk is increasingly being presented as a portrait of reality as the panic sets a new course. The market's value adjustments which initiated the anxiety, now reflect a lack of confidence produced in a large part by a incompetent government. The lead talking head, Paulson, is clearly not up to crafting a rescue plan beyond rewarding the incompetence of banks and insurance companies.

Victory over the current economic mess will be victory of attrition. Many will suffer and others will strive to recover the financial gains they lost over the last several years for the next ten years. But the equity markets have already begun to adjust to adaptive strategies and will regain footing well before the worst has hit the general public. Investment sores will recover and another absurd investment fad will appear.

Market Searching

So far, at mid session, the indexes today have the same look they have had for what is going on months now. The steady beat of liquidation adjustments continue and even with yesterday's rally, the return of a selling configuration is evident. As mentioned in an early post, stocks such as GE are not exciting, but they represent an attitude about institutional positions and the future of the upside. Those stocks need to see the liquidation slow so that a positive price construct can begin represented by upside price reversals on large volume. Hopefully those days are at hand.

The Fix Is On

Packing a lunch for another trading day in which the bears will try to take advantage of the insecurity created by the constant delivery of bad news about corporate asset mismanagement or more recently, the bungling of TARP strategies. Tell me Paulson does not come out of the same corporate culture of Wall Street, from the great geniuses of Goldman, and collective transaction fee morons who equate insider positions with trading skills.

Paulson and Bernanke cried about the need for rescue funds and the creation of a new vista of transparency. Now, Bloomberg Corp has filed a Freedom of Information action against the Treasury just to get them to reveal what banks and other entities borrowed 2 trillion dollars and what was the collateral. Even Barney Frank is saying it is better for the public not to know about the identities of the parties involved.

Sinking every day without transparency is better than sinking everyday with transparency is an interesting theory but certainly not what we were told was going to happen as the financial cleanup boys screamed for legislation. It is hard for Treasury theorist which are heavily ex Goldman staffed, to really understand anything beyond working "the fix". Their ideas have always been based on taking care a transactional system which greases the insiders at the expense of market. They are fixers alright and the fix is on.

Confidence On The Line

If one looks over the business news lately, the sheets are full of quotes from the all the hedge and used to be investment bank chiefs. The previous Big 5 names still pop up and are always reviewing the current market conditions. Talent is over rated on Wall Street and even in Chicago when you consider guys such Citadel's Griffin, although the Windy City has always had the superior talent pool. Anyway, the view from the top of these organizations is devoid of any insight as to the future of the markets which is not surprising given the discovery that all the great trading income of the last couple of years were from mark ups from products that had no market.

Markets are tired and trying to base but you can simply look to companies such as GE to view the barometric pressure of things. That stock has got to get up and go or simply continue to be a symptom of the general cycle of liquidation adjustments which keep on attacking the market. A failure to hold and a rollover of these markets will lead to the test of the October 02 lows and that would not be pleasant. The new folks going to Washington should watch the price failure line carefully to avoid a deflationary scare which would claim confidence in all sectors.

Courage And Risk

The trading year thus far has experienced enough stress to test the merits of all participants. If you are a buy and hold investor, it has been a disaster. If you are a floor trading bear and you did not make enough to quit, quit because you suck. If you are a floor trading bull and managed to avoid disaster, better days are ahead. Of course, if you are an insurance company or bank and have made some questionable strategic decisions, you are in a bull market for bailouts. You win.

It has always been true that many live much better than their IQ would merit. Bad financial decisions for most have direct results, but the bailout frenzy is questioning all of it. Banks and insurance companies have always been the place for those less courageous careers. They are supposed to be stewards of savings and assets and be thoughtful and prudent. But like so many, they became confident and brave about the future when the fees were piling in from the sub prime dirt, but now they have failed. Courage is easy when you are overpaid and stupid.

Nine out of ten traders do not understand risk so why should a banker or an insurance company be able to figure it out. They have a model to generate fees or premiums based on volume without true risk calculators. The risk test for traders and others are in markets such as these. If your risk strategies did well over the last months, you get the prize.

Adjustments

Indexes unable to defend against position adjustments yesterday. This will continue for some period of time as the markets will have to balance liquidation selling against positional pricing as some raise cash and others place bets. When hand exchanges or position swaps are taking place, often times strong rallies and breaks have a big bark but no bite. The overall picture is still one of forming a bottom.

Quiet But Up

Indexes continuing to build a base off of the October 10th and 27th lows. Volume is light and the volatility has been substantially lower in the last five trading sessions. This is not what the technical bulls would like but it beats death dives every other day. Pricing is a large component along with lack of any real liquidation. Selling is in on the horizon however as there are legions waiting to sell decent gains.

November Markets

November begins with plenty of data including Friday's jobs number. Some of the volatility is leaking out of the market but everyone will be ill at ease for some period of time. Bears will be looking to take out the October 02 lows of 7197 in the DJIA and 767 in the SP500 this month, while the bulls will claim the bear is dead and build on the almost 50% retracement of the 1982 to 2007 bull run. Whichever camp one adheres to, all would agree severe damage had been done to the general investment environment. Runs to the upside will appear but the participants will increasingly be professional without a great deal of help from traditional buyside public enthusiasts. Markets often turn on the greatest marginal advantage and a cautious market will be a thinner market.

End Of Month

End of month marking yesterday will try to be supported by managers today hoping that the redemption monster does not appear with a wave of selling. Credit conditions are improving for world bank flows but rates in the mortgage markets are on the rise as overall demand for safety competes for debt supply. Lots of liquidity out there but credit standards restrict the ability to gain broad participation in a world which has come accustomed to large volume on thin margins. Less people borrowing less reduces risk but is a lousy growth scenario.

Nervous Trade After Fed

Volatile trade late in the session today as thin trade became vulnerable to profit taking. Different news stories are always attached to this kind of action but the real reasons are technical in nature. Either way, bulls cannot be happy with the close and now must defend prices as the market spins not only into the week's end but also the month end. There is talk of buy side influence to be applied by managers who will mark prices before the last trading day of the month, though there was little evidence of it today. This is a bottoming process and may take longer than the friendlies would like.

Charge

The rally today had great net change numbers but was a bit shy on volume. Market clearly trying to form a bottom as bear traps continue to be the biggest volatile feature. Higher on the week now for the DJIA, SP500, and NQ100 but as in life, it is not how you start it is how you finish. A bottom can be confirmed this week with a few more blasts such as today. A reversal tomorrow after a Fed rate cut would be a problem for the current technical base but would only be part of the basing process.

Transactional Voodoo DooDoo

The Fed and Treasury are now trying to figure out how they can help insurance companies avoid the same financial problems banks are having. Geez, banks and insurance companies. Two groups who have lobbied their way into legislation which empowers them to every business advantage possible. Two entities every American has had to bend to so that they may comply on loans, liability, and asset coverage. These two groups have had a license to steal and still screw it up. If they are going to give money to these folks, there is a great argument for wiring all the cash directly to the general public.

The mighty hedge funds have been smoked in this market. Citadel has taken pipe because it turns out they never were really very smart after all. They thought that if you simply accrued enough cash and rode the same mania trades as everyone else, great profits and sizable fees would result by the shear size of the mountain of money being managed. This transactional frenzy into illiquid voodoo doodoo was their real strategy, just like the banks and the insurance companies. As for Citadel's reputation for poaching the best and brightest traders, apparently they hired a bunch of smart guys who in the end were just clerks.

Bubbles and Sweat

Before the highs in 2000, the hubris surrounding the 'new economy' as it was called, had the same conviction to joy as the current market has to despair. While the bubble unwinding and the events of 911 took the markets down some 35% over two and a half years, this market is spinning into its first 50% retracement in 26 years. Ridiculous values on the tops and frightening opportunities on the bottom are always the result of the market's over shooting during the price discovery process. The violence of sell offs, as every professional trader knows, is a faster animal compared to the best of breed rallies. While there is still hedge fund unwinding going on, this morning early action is just plain panic. Remember, this is part of the bottom, not the top.

Bear Hunt

Counting the weak links in the current technical picture is easier than usual. As mentioned in the last post, for traders, shorting here may provide a short term opportunity, but why bother. Yes, the number of big name stocks dragged down the stairs are now at a point where they are sitting or leaning on the very edge of ugly. GE made another 52 week low today under $18 and IBM is near the $80 mark, after an unusually hard break from the summer highs of over $130. CME is now over 60% off its goofy ass high of 705 when every moron was convinced trading profits would never end. Now they are tied up in the exchange jumping where there will be some reckoning over the future of transactional volume. Looks grim, but the downside price construct will only provide peril to traders as bear traps abound.

Fishing The Bottom

A general retreat again today but hard to muster any reason to be short and have a future in it.
Liquidation and redemptions are one thing to watch but initiating shorts is generally a bad idea here. Pessimism is the predominate attitude, just as twelve months ago I warned of the toppy nature of the markets. Now only a fool sees a opportunity on the last percentages of a downward move no matter how long they stretch the bear clock.

Bring Out Your Dead

Bad stories about big name individual investors from the corporate and hedge world keep being counted in the lines of wounded who have been liquidated, stopped, or margined-out during the October break. Previous hard corrections such as LTCM or even in the crash of 1987 never quite had the dose of slammage which has occurred in 2008. And while the interventions has been unprecedented, never have all concerned been so unsure as to whether the worst of the price erosion is over, or whether the current action is just a relief rally. When repeated testimonials acknowledge that losses of up to 50% of retirement eggs has now altered the future investment strategies of the mutual and 401K armies, there is a problem with the up in upward. There are even reports that there are not even enough pallbearers to carry out the dead among those who thought they were professional day traders. Anyway, the new trend may be born sideways.

Monday Morning

Indexes are somewhat quieter this AM with what would be called modest gains of 150 in the DJIA as of this post. Bernanke speaking today said he was not adverse to another stimulus package to help the public through what is generally viewed as a tough year ahead.

Oil has gone beyond the 50% retracement of the rally so any additional downside will be limited.

Markets should begin a process weaning off of volatility as the month draws to a close although trading ranges will remain historically wider.

Friday Raceway

Indexes recovered well today as liquidations faded and buy programs began about one hour into the day session. Big banks found early buyers as traders became mindful of the Treasury's warning it would be watching the performance of certain financial stocks. So the indexes now sit at or just below the mid point of this week's range. Just enough to provide a point from which Friday's trade can whip back and forth, with the last hour of trade to be claimed by the bulls or bears. A powerful rally tomorrow would confirm the worst is over for the diving team, while another hard break would be seen as a invitation for grim volatility.

The Game Is On

Market is in the midst of testing the lows as continued redemption and position adjusting takes place. This test of the government's intervention policies is going to be an interesting trade. Despite the claims it will take a while to start to see the affects of the government's hand, there are clearly some equity bids the Treasury can implement to stem some of the selling. The markets should start to see a pissing match between redemptions and bear drivers on one side, and interventionists and bottom fighters on the other. The strategy for any buy programs will be to have enough strength to force the arb to run for cover repeatedly.

Position Adjustments

Indexes failed to close higher today as the scale of yesterday's move may have been too much to add on to. One vexing implication to chaining gains together is that, given the lengths to which the Treasury and Fed had to intervene, many of the recovery elements prevalent in previous turnarounds may be missing this time given the severity of world financial problems. Most importantly, the across the board pounding of the general public's investment accounts will certainly result in a less adventurous approach to investing. Further, if lending standards are simply refined, it will eliminate a significant stimulus compared to when lending was less stringent. There also continues to be a constant drip drip of liquidation selling as all position adjustments related to redemptions and financial institutional problems are yet to be completed.

Monster Rally

Monster rally in the indexes as short covering became a force in reaction to the downward actions of last week. The large waves of redemption and margin selling hit a peak on Thursday and again on Friday morning as anxiety grew about poor price performance and world credit markets. While liquidation remains an element of the current trading make-up, the focus will shift as the markets try to achieve an equilibrium between buying strategies, which may now be able to take advantage of lower prices, and the markets particular appetite for investments which have been subject to so much pain.

Risk Value

Nothing quite like the break occurring over the last two weeks in the DJIA, SP500, and NQ100, as well as numerous other markets not as closely covered by this site. Real damage has been done to investors, traders, and to the underlying economy. Blame is contagious now in this political season as second guessing about allowing certain strategies such as letting Lehman fail, has infected all those who would classify anything but up unacceptable. Like corn farmers complaining about falling prices, there is a simple idiot test. If you think speculators and hedge funds are responsible for the current crash, you're an idiot. Up, like down, is part of the
moving target called value, and risk is its cousin. Seasoned traders get confused about the relationship of risk value and end up making incorrect decisions about opportunity and danger. When people are allowed to make choices about value, buying or selling, you can be either right or wrong. And when diminishing values create a race to capture remaining values, thing can get cheap quickly, as we have seen.

There are no guarantees about choices which contain risk. But there are no real opportunities without it. When risk is measured and quantified correctly and used in adaptive programs and not in supporting mindless long position in some portfolio by the endless ranks of Wall Street Ivy leaguers concerned with pathetic standard deviation measures, it works, and is able to withstand the pummelling of a crash.

We are witnessing the unwinding of static traditional and exotic portfolio positions competing with the low bid participation created by a squeeze on banks. Raising cash is always harder when others are racing you to the buyer. The de-regulation, less government, and lower tax, self serving neo-conservatives, are experiencing a surge of social medicine they never imagined. Maybe we misunderstood them when they claimed it all for free markets. Maybe they said flee markets.

There is a balance between allowing the markets to discover value and appropriate oversight crafted to regulate tranparency without any grey areas. The worst of the under sight is over, the best of the markets is yet to come.

Where The Bear Stops?

Markets with an early plunge today as the Great Unwind continues. The relative ease of the generational gains which started in August of 1982 have met a few road blocks, the dot com break and 911. This stock market is experiencing what every commodity trader learns to trade around, the occasional death dive. The breaks usually fall until they reach the 50% retracement level of the entire bull or bear run, which in this case can be measured over 26 years. The crash of October 1987 reached 1616 or a 41% decline from 2746. The great bull run of the last century saw its last leg,( the first leg started in the 30's), begin in August of 1982 with a low 769. The rally reached a high 14198 in October of 2007. A 50% retracement lands at 7484. Today's inter day low as of this post is 7882. Close enough?

The Bottom Indicator

The NQ100 is battling to make a stand while the SP500 and DJIA continue to drag along the bottom of the recent declines since they contain the bulk of stocks being liquidated. Lending is still sluggish as risk attitudes have now changed for the foreseeable future. This change goes hand and hand with the potential for a worldwide recession and is keeping a lid on much if any upside so far. The greatest marginal advantage will turn to the buy side once the liquidation slows and prices are perceived to be cheap enough to make a long term play. NQ100 will be the indicator that the bottom has been achieved.

Global Action

DJIA is down over 200 points as of this post after a morning of whip saw action due to a global rate cut and recession worries. Probing for value with rapid deceleration and plunging action has managers staying busy with redemptions and screen jaw. These are fast markets for anyone who has ever traded on any floor or been a screen jockey all their lives. Nibbling continues in these cheaper values areas but no one is really sure if things are cheap. NQ100 will make a bottom first and lead the markets higher, but that has not happened yet.

Looking Clever

Market players are trying to figure how to drive trades into clever positions given all the incentives the injections of liquidity are providing. Once traders figure out what they can lean on strategically, they will pounce on a consensus trade and do it until it is over done. Never has there been so much cash plowed into stabilizing world assets and it is hard to believe there are not selective prizes being totally ignored by fear. The old trading floor adage of buying the first thing that makes new session highs worked yesterday for big stocks like GE which made early session lows and may be the signal of larger pricing being executed. Having said that, markets will have to dodge liquidation waves caused by fund redemption action.

Markets Look Ahead

Week is beginning under pressure as the DJIA is defending 10000 with various financial fires burning around the globe. Now that the $700 billion bailout has been passed, banks are still reluctant to lend, thus keeping a tight bias as they hoard cash. This will force the Fed to lower rates as they try to drive the cost of borrowing lower, but the only impact may be to increase the profit margin on new lending standards.

Warren Buffett continues selective purchases of preferred stock as he takes advantage of falling share prices. Looking to this guy as some type of economic saviour is like believing your insurance agent is really your friend and doing you a favor buy accepting your premiums. Warren does not have a clue.

Presidential politics will become incredibly ugly in the final days as Democrats launch retaliatory strikes against Republicans who are now unleashing the negative machine as they try to make character an issue. Slinging mud and a slumping economy will not please the enraged voter.

Bailout Bill Passed

House has passed the bailout bill with some anxious choppy trade and idiot news talk surrounding it. Now markets can focus on more important data, weekend baseball playoff games and Sunday NFL football.

House Watch

Indexes attempting to rally after avoiding an unemployment number surprise. Now the markets
will have to wait once again for early trade on Sunday US to see how the House bailout bill fared.
Passage provides no guarantees of higher markets but may loosen the tight credit grip between banks.

The Sell Vote

Stock indexes continue to reflect liquidation of hedge funds, mutual funds, and individual stock positions as the market seems unsure of all that has been done thus far to settle world financial markets. The fixes for Bear Stearns and Lehman and now the possible bailout package from Congress are beginning to be viewed as a bailing out of the previous bailout, with no end in sight. Cashing up and or out is a vote of no confidence in the markets. The question of whether or not the indexes are exhausting or moving to a lower, much lower trading range will be answered over the next few sessions.

Today's Action

Action with less energy today as the markets look to a Senate vote tonight and a possible House redo on Friday. Warren Buffett is buying stock here he claims, with himself providing cable business news interviews explaining his reasoning. He like all traders will always qualify any view of the market by paying homage to uncertainty. It is hard to get a handle on the market's moves since every effort to stabilize the monster has ultimately failed. Each trader is hoping for passage of the bailout bill but none will place a large bet that it will do the trick. News of continued hedge fund bombs poor out as many of them seem to have twisted themselves into inescapable strategies.

Despite yesterday's rally, markets remain quite oversold. With the Senate and House votes coming up along with Friday's unemployment data, the action shall spin again.

Deal on Bailout?

Markets rebounded more than half way back from yesterday's disaster on light volume in the DJIA and average volume in the SP500 and NQ100 futures. Even if yesterday's action turns out to be an exhaustion bottom, traders may have to endure another head fake death dive. Another attempt is being made to pump up the bailout bill with Senate leaders claiming all will end well, while some members of the House say not so fast. Deal or no deal will be the focus for the balance of the week leading up to the unemployment data on Friday.

Agreement

We would all like to know the demographic and socioeconomic make-up of the outraged voters pounding on the door of their congressman. Boomers no doubt, but let's look to where we can agree with the today's no votes.
Willingness to take their chances against the dire predictions of economic catastrophe, I like. Saying no to a group of insider, it is who you blow, transactional trading market bullies is fine by me.
Having to jump to a time table without all the information, no one likes.

Political, treasury, and Fed leadership failed to explain the four question about the material makeup of the troubled financial obligations;
what are they?
where are they?
how much will they cost?
what is the market?
Being able to answer those questions may get the deal done.
"Trust me" will not work.

Bailouch

Markets took a broadside early from generally bearish attitudes towards the future of financial institutions as well as thoughts the bailout vote would be close. Well it turned out to be not so close as the Republicans failed to generate enough votes to guarantee passage. There was talk Speaker Pelosi was responsible for alienating Republicans with a pre-vote rant but ultimately the responsibility was the Republicans and their ability to prove they could endorse their presidential candidate's slogan of "country first." It continues to be a party of few ideas, unable to articulate exactly anything beyond flag waving and calls for lower taxes. The Republicans would have more credibility if they actually were advocating a demand for direct main street intervention, payments to business or troubled mortgage holders, but they end up appearing morally outraged without a practical idea.

Now what? It will have to play out as the pros talk about another re-vote or as some new approach. The markets will thrash and perform the price discovery dance.

Bailout Blues

Markets are heavy but off their lows after first hour of big board trading. House Republicans are working the angst for all it is worth since this is the first time they can powerfully separate themselves from a president they believe has failed them on the policies of conservative economics. Not sure where that leaves the rest of the nation, but this is a group somewhat outside rational thought and are most likely to pursue any course they find politically self rewarding. The markets would not be amused with a down vote on the bailout bill and may find a wave of liquidation selling by those who have waited for some relief before cashing out.

Bailout Agreement

Agreement has been reached in Congress on the bailout bill and it is hoped to be voted on as soon as Monday evening. Markets will sort through the viability of the bill passing and the other shoes that are dropping around the rest of the US economy. The rationalizations for supporting the bailout has been to avoid a possible total meltdown of the lending capabilities of the national if not international economies. Some have reasoned such dire consequences speak to a world market that is now flat and cautious about growth, thus leaving world stock markets with some upside but a bunch of sideways action. We shall see, but the bears may have run out of news for a time.

Let It Burn

Those chanting 'let it burn' may in an odd way be right, but who wants to travel down that road to find out. Most believe it is safer to bailout the pathetic titans and deal with the devil you know. But there is no mistaking that people are pissed off at Wall Street and the Treasury Secretary, who is from Wall Street, who played apart in creating the credit crisis, and now has the audacity to ask for $700 billion for bailout deals and then have all the actions exempt from judicial review. A Secretary who is a part of an administration which has provided so little intelligent thought, from an idiotic war, to the 2004 SEC ruling to allow the big 5 to leverage up to 40 to 1 , from the previous limit of 11 to 1. Now the big 5 are gone in one way or another. It is amazing the political race is as close as it is but the rank and file are there to pull the chain. Now we know which chain they are pulling.

In Between

Markets find themselves in between good news and bad news as traders try to find a sleeping position which will allow them some comfort in what will probably be another attempt to solve a major financial problem before Asia opens on Sunday night US. The political polarization this country suffers from shows up just about everywhere and now Wall Street is in a version of Meet the Puritans. This is the same group Pres. Clinton had to deal with but only without the sex. The consensus seems to be that a solution will be worked out but these guys are as weird as the bankers are stupid, so anything is possible.

Spinning

Bailout legislation is about complete according to news reports. The end of quarter action next week could bring some interesting twists and volatility which may or may not be an indicator as to the direction of the fourth quarter. Spinning out of the turns will remain the daily action for now as markets will begin to look beyond the bailout.

Smoked Bull

As some resistance grows towards the bailout plan, there is some positioning and pricing going on in the DJIA, SP500, and NQ100. While the overall market does not want to get ahead of itself before the vote on intervention, some pros do not want to miss a potential rally shot. It is thought by some that it will be unlikely to have another federal infusion of this magnitude in a trading lifetime and ultimately it will play well for a great many stocks. Warren Buffett's Goldman purchase is mostly about making money but the PR of it does cause other traders to think about their own timing.

Those actively banging it out these days, this is as tough as trading gets. All is in front of you, choppy trade quickly consumed by a move on breaking news in a direction to be quickly reversed. And since the bears have now played every doomsday card, the action from here will either confirm or leave an opening for smoked bulls.

Waiting For Whatever

Well, if the market will not stabilize until the passage of the bailout package, then the longs may have some down to endure. It is clear that Congress has some reservations about a request coming from an administration which does not have an attractive record when it comes to correctly interpreting pertinent information. What is more concerning for the market may be that, whether or not the bill is passed, how much de-leveraging will continue to appear in the form of selling in the stock markets. If in fact stocks, at current levels, are in essence cheap and are being subsidized in price under the proposed federal bailout, then a major pricing rally is about to begin. If however there is a significant readjustment occurring in values which must match up with falling real estate values, then exactly where the bottom may be vexing.

The bailout is such a large target as not to be missed by the participants who price or attempt to establish a value area for a given traded contract, stock, or option. So far, the price action has been horrible. Markets many times, not always, reflect their closing price action. Many traders make a living on closes. This market does not close like a bull, yet. Last Thursday and Friday had the makings of that type of action but that has faded. This market cannot sit here at these lower levels much longer without becoming a bear raid victim.

Confidence Game

Moderate down volume yesterday for the SP500 and NQ100, while the DJIA put in a pathetic
low volume break. Everyone waiting to see if once the bailout bill is passed, whether or not the market will hold. Bernanke and Paulson pleading for quick passage but they seem not sure of the immediate outcome. A dismal close into new lows this week would definitely cast a dark shadow over this fall's trading. But more than enough has been done to help the financial industry, now the rest is a confidence game.

Leverage Lost

As stock markets start the week they will begin to see the execution of various strategies conceived from brain storming sessions among industry leaders and their traders over the last few days in reaction to the new rules and limits for the markets. The trading industry which leveraged itself to new heights over the last eight years in order to increase profit margins will now have to adjust to a world of shrinking leverage ratios and the eventual overall flattening of volatility. Many hedge fund's models are now useless and will be under pressure to raise funds if they do not have risk sensitive strategies with high returns. Good luck.

In the long run, this large intervention will act much like large farm subsidies behave on commodity prices, it will support stock prices, especially those of well run companies, and it will flatten volatility. The peaks and valleys of stock prices will have long distances between them.

Machine Heads North

Kicking the bull when he is down has resulted in an unprecedented attack on the bears in order to protect the asset classes. The stupid down mentioned in a previous post had become a fear spiral, knocking out the legs of any confidence in the markets which is essential for the orderly daily conduct of business, bull or bear. Measures being taken by the Fed, Treasury, and Congress will certainly be overkill but that is the game played when constituents are to be pleased. There will be a tremendous amount of scrambling and sorting through stock values from these low levels which will lead to buy and or cover first and ask about value later as a result of this historic intervention by the G.

Interventions

Central Bank or Banks injections of liquidity a stimulant for the bull in early trade. All efforts to stem the tide of share losses have failed to this point and the market will believe the tide has turned when they see a string of major upside days with high volume.

Down Pays

Markets continue under pressure the morning after the Fed's intervention of AIG. Lack of leadership among any sector has the early action testing the lows for the move to see if there is another leg lower. Various attempts to limit downside action such as restrictions on naked short selling will be supposedly enforced by the SEC.

Down still pays at the trading operations of the world and until repeated downside attempts are repelled this will not change.

No Fed Cut

Fed chose not to give in on a rate reduction as they finally put some reason into the mix which to this point has been driven by downsiders in every hope to ride the train lower. Panic Inc. is the trade fad among an industry known for capitalizing on what pays, such as sub-prime. Without down, a good portion of the easy opportunities will disappear as the market will have to short cover, price, and figure out what values are available.

Cable Business News

Battles are everywhere in the stock indexes with a bear assault being waged on the value of the financial industry. The goofy cable business coverage may have to start hoping to catch someone jumping out of a window to increase their ratings since no one will be watching them much if the markets keep going down. These markets were stupid up for years with the same TV commentators telling everyone about the shortage of stock in the world and how low interest rates presented economies with little resistance. Now the same morons are in hysterics and helping to foster stupid down with a nothing will help view of every troubled industry. Some one slap these idiots.

The great business class of Wall Street and their voting supporters have created a piece of work, while unfortunate, is totally manageable. So now, whether we like it or not, we are a part of the swings of world markets and are going to have to price and speculate on the value of a piles of debts and assets with a huge trading machine created as a result of the evolution of financial connectivity. It is interesting that the same TV talent whose insight into the financial bungling of several large brokerage firms and their troubled counterparts have provided little insight into the sheer size of the world economy and what a small percentage of world wealth is actually represented in these unfortunate events. Re-price and move on.

Markets and Dead Rats

The DJIA, SP500, and NQ100 fought all week against the negative reflexes of the deafening news cycle of impending doom for LEH and others infected with the mortgage blight. As of this posting, the Fed and Treasury are meeting with the leaders of Wall Street to find a solution to LEH before the Asian markets open Sunday U.S. time. Apparently FET, (Fed and Treasury), have told the banking and brokerage mongols they need to figure this thing out amongst themselves without the guarantees given in the Bear Stearns deal. This will not stop the finance boys from trying to squeeze another trade out of the FET, but it does seem to be a motivator considering they all in some way are sharing the same rope.

Current market conditions are tough for all types of traders and there are even some mixed reports about the success of the current trading cult culture vehicle, high frequency trading. High frequency has become in it's own life cycle a refuge of the talentless and those unable to calculate risk. Plus, the additional advantage of the transactional boost made possible because of monopolies held by clearing entities such as the CME Group which are able to charge exorbitantly high fees and commissions for services that cost virtually nothing to facilitate. While those costs to trade charged to large volume operations are mere pennies per trade, the profit margin and resulting volume racing has provided massive revenue to the CME Group where more than 75% of income goes to the bottom line. This added volume has done nothing to help the price discovery process but has certainly exacerbated the daily price swings.

For those of us with a successful track records of designing low frequency and high alpha programs, there is a trading perspective which allows a bit more clarity to the overall trading environment. Just as the current hurricane forecasts have been more media hype than devastating reality, so the play on investors fears have been an opportunity for money center banks, hedge funds, and other players to position themselves into the nation's pockets as they bargain from an insiders position.

There is an old response on the trading floor when reacting to another trader's bid or offer when a market is made to another trader; 'I'd rather eat a dead rat!' The FET should make these insiders eat some dead rat and let the markets move on.

Dressing Up or Down

Indexes fighting to leave the consolidation behind after a Monday rally/reversal and a Thursday break/reversal. The fate of LEH and other financial stock concerns probably not as much of a factor in the market as the cable business shows present but traders have to deal with all the elements playing in the markets. Index prices would look much better with strong buying on the closes over several sessions, something they have been unable to do for some time.

Bear Play

Indexes feeding on the known negatives facing the financials especially LEH. This is a bear play that feeds on itself and where the money is being made by professionals in the market. Upside relief has faded on each recent attempt so the end of the spiral lower will come from a downside reversal on record volume.

Indexes Today

Slippery slope these days as markets cannot extend rallies. Indexes begin today with little new information but are sure to once again fly around in an extended range. Key areas to attain are the same as previous post. Rational to sell down at these levels still tough.

Key Areas For DJIA, SP500, NQ100

DJIA, SP500, and NQ100 all struggling to follow up on yesterdays action. While volume is less than yesterday, the markets need to get through some key areas on the upside to prevail. The DJIA needs to close over 11632, the SP500 over 1271.5, and the NQ100, the weakest link needs to climb over yesterday's high of 1815.25.

Underwriting Freddie and Fannie

The issue regarding the G's underwriting of all of Fannie and Freddie is too simple. Housing is where 'everyman' lives and to stand by and let the trade vultures create a run on the assets because of a perception there is nothing that can be done is ludicrous. Those who talk about the 'moral hazard' created by government bale outs are the same people who believe there are truly free markets and the Cubs can actually win the World Series. Forget it. We all live in the same house although it may be a smaller house these days. Wall Street always get confused about the difference between free markets and the freedom to make markets. The former is what you talk about when you wave the flag and vote the straight business line. The latter leads to massive losses as a result of faulty trade strategies and you need the G to rescue you.

Intervention Rally

The G has stepped in to guarantee the paper of Freddie and Fannie whatever the cost. While expected if the two mortgage giants could not stabilize, the action along with the other previous interventions amount to financial underwriting without peer. It will create a bizarre spread between the housing market, which will clearly begin recovery now, and interest rates, which will undoubtedly begin a rate climb for a variety of stimulative reasons primarily as overall demand for capital will climb in a environment where restrictive qualifications matter.

As to what this intervention means for stocks will be told by the trading action this week. The professionals are short especially in tech where a value play has created perceived downside opportunities in anything acting better than the rest of the market. More importantly, like all market traders, they do what is working and down has been working better than up. So if this market is turning, the brain function to turn down to up will bring more than a hefty rally, it will bring back the bull.

Motivational Selling

Indexes defending the lower part of the range this morning with a slightly but not totally unanticipated bearish unemployment number. Goldman cutting Merrill to a sell and other financial stock headaches keep a spin on the downside. No one is riding to the rescue so far as causalities now appear to be coming to those who bought the first break in debt and stocks. Bill Gross of PIMCO cries for more intervention as he lugs large positions of bad paper he figured would have been completely covered by the G by now. He and others are caught in a value play where main street is finding professional trade desks more than willing to sacrifice the brokerage side of the industry to the downside profits and potential bargains of much lower market prices. Whether the bears can deliver new lows will require a new set of tank treads as now the technical price values have reached levels where motivational short side reasoning gets tougher.

Negatives

Action continues to be bad as of mid session today. Bill Gross's comments about the potential "financial tsunami" if the Fed does not take on more of the bad paper is certainly the kind of data stimulating negative sentiment. The Republican Convention last night did not inspire any great hope that either Pres or VP can pass an economics class regardless of how the VP delivers a speech. The indexes are extremely oversold but are nervous about tomorrow's employment data.

Tech Is Wrecking

Indexes cannot get out of their own way given the action yesterday and so far today. Tech is heavy and dragging the others along with weak price action. The overall action is in danger of setting the table for a real run to the lows as election data also adds to the prospects of a Democratic victory in November. Historically the Democrats have managed the economy much better the Republicans but the professionals on the hedge side would not be disappointed in any scare that would enable bargain hunting later this fall.

Rally/More Data

Early strength today trying to establish the lower levels as tested support. NQ100 still needs to lead the other indexes higher and will have to have a couple of big days to get there from here. Volume should pick-up now that September has arrived but would a disappointment to the bulls if it does not. Obviously a big week for data so all bull-side evidence would go a long way in putting the lows behind.

Key Levels

The NQ100 through yesterday had become a bit timid with the DELL announcement after the close adding to weakness. There is no price bottom without the NQ100 leading and holding key levels as the market tries to move away from lower consolidation. Last Friday's highs represents a key level to maintain. For the three animals we watch, the DJIA, SP500 spot and NQ100 spot, those prices would be ; 11632, 1294, and 1941.

Rally Needs

Indexes a bit higher this am trying to build on yesterday's close and the GDP number. The DJIA, SP500, and NQ100 all need to climb above last Friday's high and hold to have any chance of moving into the next leg up.

Big Price Week

Once again, important week for price action which will establish whether or not we rally until the end of year or break through the election and beyond. This weeks lows or ever so slightly lower lows next week will be the benchmark for buy/sell.

Base Building

After yesterday's sell-off, indexes trying to find some footing. This range bound action finds the indexes about in the middle of the overall range with increasingly bearish media coverage about banks and brokerage. Base building this week has to develop into the next step up or a softer September will lead to a potentially lethal October.

Trading Paces

These markets are scrambling to attain clear site lines over the wreckage of a disastrous eight year period where nearly every sector of the economy has been damaged. As Republicans beg for another chance to repair the economic events unraveling under their watch, Democrats believe they can do better with a candidate Wall Street desperately fears. Predicting how things work out in both the political arena and in fixing the economic plumbing of the country is helping to drive the current trading values. The trading pace will quicken as fall trading begins with hopes of a clearer picture emerging as to the effects of financial interventions already implemented.

Confirm A Bottom

Early action this morning showing strength in the stock indexes but still remain well of this week's high. We are entering a critical time period for establishing a base for the final three months of the year with closes needed over 11800, 1322, and 1933 in the DJIA, SP500, and NQ100 respectively to confirm a bottom.

The Three Indexes

DJIA is the weakest link right now as the indexes try to fight off the most recent declines. The SP500 follows in the number two spot on strength with the NQ100 continuing to lead the three with the first level of key support down at the 1853 mark basis the spot futures. Taking a cue from NQ strength can be a nervous venture since solid gains can disappear quickly.

Cloudy

News is slapping the futures down as the view ahead is clouded with inflation and bank worries. Technical internals are not bad but the indexes will need an upside reversal to get shake off the pessimism over price potential. Bears need a headline to drive the market lower.

Indexes Will Tip Their Hand

Starting new week with little market energy as mid of August has turned into the quietest action since the beginning of the year. Bulls will try to extend gains again this week but are starting to run into some doubters as to the legs of the current rally. Commodity prices and their correction have had little to do with this rally despite what the market morons think. Stock indexes will tip their hand when next week they create a range which will be the bull/bear dividing line for the rest of the year.

Worth Less

As mentioned in a previous blog, commodity prices declining is a positive as long as it does not couple with the notion of all things being worth less. Commodities are currently in the 50% retracement flight path and will settle into a trading range that will last a significant period of time, especially after the absurd levels they attained on the upside. So it is hard for indexes to get comfortable at higher levels simply because hard assets are correcting. The best cure for the bull is higher prices and we have yet to reach levels to confirm the bottom.

Trying To Rally

Indexes will try to rally today and deflect some of the increased anxiety over whether there will be a test of the lows in the not to distant future. NQ100 continues to be the strong hand with the AAPL cult helping to lead the way. DJIA and SP500 have been hindered by JPM and Deere along with other not so positive earnings results. The bulls still have the upper hand in here but consistantly bearish professional trade is an obstacle.

Chances Of Deflation

Indexes having to defend gains of July and August as financial stocks such as JPM get hurt.
The deflationary implications of commodity and stock prices falling together is being floated and as of yet has not gained much momentum. It would, if accepted, become the cruelest cut of all for the markets as they try to base into the fall.

SP500, DJIA, NQ100

SP500 and the DJIA are trailing the NQ100 in relative strength during this current rally. This is the right configuration but the first two need a boost to close over the June 26th highs to confirm a bottom.

Commodities 50% Rule

Last week commodity prices continued their inevitable crash and stock indexes rallied to solid gains. The two had nothing to do with each other however despite what market folks put out. Commodities are always, always subject to the 50% retracement rule. No matter how high commodities go, they will appear at some point in time half way back from their journey. So calculate that for oil, gold, corn, etc.

Stock indexes on the other hand rallied last week simply due to a pervasive bearish malaise which made it virtually impossible for them to break. Now the bears have been driven to the edge of failure but still hang on as this week begins, looking for trading to reject the closing levels of Friday and resume the despair.

Range Trade

Have had some large gains and losses during the course of the week with the indexes range bound slightly in the upper half way of the range created between the end of June and July 15th. The bulls are leading but not by much and the technicals are flat to sideways. NQ100 is stronger than the DJI and SP500 but it suffering from short term overbought conditions which may be temporary problem.

Top Of Range Targets

Range bound at the mid to upper end of the range is the feature these last couple of days. DJI, SP500, and NQ100 have to close over 11810, 1322, and1933 respectively to confirm the October 07 to July 08 trend is over. Bulls still have the greatest marginal advantage of trading action.

Rally Close But

Nice rally yesterday in the main three indexes this blog follows DJI, SP500 and the NQ100. Almost made it into break out territory but stopped just shy enough to leave room for failure. A case can still be made for either camp although the bears have come up right to the edge of having to move their tents back a distance. A follow through 150 to 200 point rally in the DJI today would end the bears run begun in October.

This Summer's Range

Since entering this trading range on June 26th, the indexes have thrashed around including yesterday's action and the bump up this am. Bull or bear camps can claim victory but the range terrain is summer-like with economic disaster added. Bears have more to prove than the bulls as finding willing sellers at lower levels may be tough. Fed today, but who cares.

Real Estate Watch

The rolling real estate cloud continues to hang over the market as increases in prime mortgage delinquencies are being reported in an article by the New York Times today. Just how long and deep the slow down in all sectors of the economy will be is what the markets are trying to determine at this mid point of the price range since the lows of July 15. Indexes are still somewhat oversold as the prevailing bearish attitude toward price remains intact. Fed announces tomorrow in what is widely expected to be a hold with all attention on the verbiage contained in the release. Bulls need to pony up this week or be dragged down into a real test of the lows.

Directional Supremacy

Unemployment data basically a wash as far early reaction and puts the battle of directional supremacy onto today's trading turf. The month begins with the bulls looking to put together a rally through the last five months of the year while the bears will go with the plan of sideways to lower trade until October when the final death dive will occur.

All In or Pile Out?

There is a good chance tomorrow's close will indicate direction for the balance of the trading year. Any long term bear trend the bears may have hoped for rests on tomorrow's unemployment numbers. Awash in bale-outs and Fed interventions, the markets are sloshing around with enough cash to fix immediate problems, but raising cash may be easier than restoring confidence in an economy where consumers are finding all sources less willing to oil the big green lending machine. Should trade reaction interpret future job growth to be resilient, the all in bell will ring. On the other hand, no one likes rejection, but the bulls may find that piling on is an art form when price action turns ugly.

Not So Fast

Market a bit ahead of itself yesterday given the data being released today and tomorrow. Indexes will settle back and wait for unemployment data which may be crucial in determining the whether or not a real base can be built upon previous downside action. A hard break on Friday would create some serious trouble for the bulls and the argument that the various interventions have done the job.

Are Bears Missing Something?

The bears, whose numbers are vast, have had to stomach two sessions of short covering and pricing. But let's look at their strongest and weakest arguments about the direction down.

Strongest- Not since the 1930's has such contagious financial losses effected the bottom line in the bulge bracket sector.

If confidence is the name of the game in the making of long term success for investments and a willingness to lend money, then the bear may live in markets continuing to appear as if the worst is over only to see repeated failed rally attempts.

Weakest - Capitulation is the only way to a bottom. The end will come with such force and negativity there will seemingly be no hope for recovery.

Tough to base an argument on the ' know it when I see it ' rule. Bears need to be ready to accept that the speed of intervention by the G and Fed may have trumped the death dive.

Despite all the claims of the bears, great wealth on Wall Street is being created for those who are positioning themselves between bale-out and intervention. Hard to imagine the bears missing that one.

In any event, the ability for the market this week to put the lows behind rather quickly will be the tell on the upside strength. So far, it is still a range trade.

More Up

Stock indexes rejected Monday's break and now have a target placed on last week's highs. It will all come down to Friday action when the jobs number is released. A strong rally and close will confirm the worst is probably over for the year on the downside but yet leaving plenty of room for upside resistance. The question will be whether the price action will be enough to turn on the 'buy' math inside the production boxes in professional trading rooms which grind everyday. As posted earlier in Seed's of Summer, summer lows can lead to a significant upside gain over the next twelve months.

Bears Bomb

Reversal with better volume in the SP500 and NQ100 today as the DJI also turns around. Extreme bearish attitudes are the driving force that provide fuel for recoveries and are setting the stage for a test of the recent rally highs. The easy down is going to be a problem as mentioned before as the greatest marginal advantage has moved to the bulls.

Keeping Them Down

Dull morning after a decent down day as markets wait for various data releases. Bears need to keep the DJI, SP500, and NQ100 under last Friday's lows, being 11325, 1249.25, and 1815.25 respectively, if they are to prevent an up leg test of recent rally highs. Given the end of the world analysis presented every day by the pundits it should be no problem. Unless.

The Big Empty

Market moved lower again on moderate volume as the living dead were trotted out in the form financial stock woes and the pessimism of the IMF regarding the future of US housing. No one has ever cared what the IMF thought, but in a world of doubt, people would believe a talking dog. Merrill did not help things late when they announced a large write down and the intention to raise cash by issuing stock.

Today's action continues the first re-test of downside support created in mid July. The test of the first rally always provides only spotty low volume support. While there is no guarantee of the integrity of current lows, this test process is virtually unavoidable when there is such extreme bearish sentiment. Accompanying this particular break is a professional trading profile of sell side strategies somewhat unique since the advent of electronic trading. There are truly more hands pushing the cart down the hill, which of course, will only add to the chaotic scene of running up the hill when a serious short covering rally does appear. The bears can gain the upper hand by driving these markets into new lows at week's end but will have to convince traders that they are not selling the bottom, otherwise known as the big empty.

Flail About

Now the markets will see just how big the hole is in the side of the overall economy and whether the stimulus and relief packages will be enough to steady if not raise all boats. Bill Gross of Pimco, while not bullish on overall economic outlook, is on the other hand explaining the merits of investing in Freddie and Fannie as better than anything else on the risk side. Of course Pimco has a substantial position in the two and any spin Gross can add cannot hurt.

Hedge funds it appears may have had their worst month in five years according to Bloomberg. This is the result of deteriorating large bank positions and catch the falling knife purchases made when apparent bargains were appearing earlier this year.

Unemployment week is here along with several other bits of data so the market may flail about while trying to build a base for the balance of the year.

Taking Down For Granted

Covering a bunch of down territory yesterday with unimpressive volume and the same old news regarding banks and the economy. Bears must not get too comfortable in this environment because the illiquid nature of price in ranges such as these can provide as much energy on the upside.

Breakdown

The repudiation break written about in the post Tactical Moves arrived today. Tomorrow will be of great interest as it will help determine whether or not today's wide range sell-off is part of an expanded range bottom or part of a more dismal directional pattern. IBM's strength and new eight year high could be the ultimate divergent clue for the indexes.

Dull Chop

Indexes ran into some selling yesterday but not enough to knock them around much. Volume was moderate as many waited to see if new buying would push markets still higher on this pricing and short covering rally. Housing data will be released today and commodities will try to regain some lost ground. Tomorrow's action probably more important than today's as it will give a clue as to the kind of volatility we will have through next week.

Tactical Moves

Commodities taking some hits as tactical attitudes shift on future price outlooks. Grains have had a great run but a growing unease about the ability of crops such as corn to maintain high prices as acres worldwide are expanding and the ethanol scam is running into some headwinds in states such as Texas that are seeking a waiver from EPA on blending. There is no question at some point the ethanol alternative energy plan will be virtually eliminated.

DJI, SP500 and to a lesser degree the NQ100 are continuing their run from the bottom. This combination of short covering and pricing reported in previous posts can lead to powerful rallies. Traders and investors should not forget however these rallies will crescendo at some point nearby and have a repudiation break with some force. Stories of the financially living dead will be resurfaced and the bull/bear battle will engage over a larger terrain.

Down Is Out Today

Bears having trouble making headway as pricing continues to enter since the lows were made last week. Stocks such as AAPL today finished lower but had a huge rally off the lows. Markets will find path of least resistance on the upside into next week.

Marginal Advantage

The bears now face the some of the same merit of trend obstacles the bulls faced earlier this year. With diminished expectations just about everywhere, it is harder to use bad news as a instrument for downward pressure. If the most bearish are right, a grinding phase may be the be best the bears can achieve. Yesterday's bad news on earnings may help reveal whether the trading environment has changed to where the greatest marginal advantage has moved to the bull side. If so, the participants are looking for opportunities and not relief, which makes all the difference in trends.

Is It Safe?

Earnings this week with the cult AAPL releasing today. Flinging prices around will be the norm as the bottom boys press their case with solid gains from last week and the forever bearish will claim nothing has changed.

Is it safe? No. But the bias will remain up for the short term despite a few death dive looks. What traders have lost in trend is being made up for in range and volume. This just means there is an ability to be both right and wrong but still make money.

Bears Waiting

Although a decent rally has occurred, the bank and financial stories will be back since it is hard currency to the bears. Without the fees of M&A, Sub-Prime, and the willing buying a bull market brings, brokerage and hedge have their best interests in the downside. So after the current pricing and short covering runs through July, the shadows will reappear. The old pit adage of ' never buy the first rally ' may be the bear's best ally.

Baseball / More Rally

Baseball fits into the data crunch profile. Stats for
teams, players, and parks match the world where numbers count. More baseball later.

Markets this week started rejecting the over extended selling of the past weeks and now the bears will have to turn a market while a significant amount of pricing will be taking place. It does not take much buying when competing with short covering to drive the markets a bit higher than the gloom of early last week had anticipated. So expect more rally before the bear can launch a counter attack.

Will Tech Show Up ?

Whether this rally becomes a romp on a large stagnant bear complacency will be determined in the next two weeks. Regardless, the often times refrain from bulls of cash on the sidelines is finally true. There is enough energy which could be applied to this market when making a play for six months or a year out. Although the broader market will be the initial leader, tech stocks will have to kick in and lead or else any hopes for an extended rally will fail quickly.

Rally

With no bulls in sight, the markets yesterday put in strong performance but significant follow through will be the only confirmation of the bottom. GOOG and MSFT earning will be watched closely.