Next Time

The bears got this close to claiming technical victory last week but as usual could not accomplish much of anything. They are fighting various elements that include the Fed's renewed vigilance. Of course it is said that the Fed has little impact on the crucial matter of sub-prime loans, but try telling that to traders who are short. Like villagers carrying torches, big brokerage houses have stormed the Federal Reserve to seek relief in anyway possible in order to give their positions some type of edge. The irony of which is pointed out in Stein's article about Goldman.
Look for the bears to continue to seek turning points while trying to avoid the DJI close over 13982 and a SPX close over 1553.

Which Way?

The Friday rally made the week easier to swallow for the bulls. The extremely light trade made a bottom tenuous, so the bear will be eager to sell any decent re-tracements. The great minds on wall street are looking for another rally to help salvage the mountain of bad trades created while trying to return alpha. The bears still have to close the market at lower levels and 08 bulls will be there to ease any fall. The interest rate markets are expecting lower rates again at the Fed's next meeting but stock markets will have to be making significant new lows for that to happen.

No Knock-Out

There was no knock-out punch from the bears last week but they are still lingering at the market's edge. The year's end is in sight and the bulls are hanging on to additional Fed relief and the thought that next year will see gains so why not buy now. The bear is looking more long term and seeing the mortgage issues as a heavy drag on the consumer/investor. The outcome will be something in the middle and it might be best for traders not to expect too much from these markets from here. Vol animals will have to be satisfied with what they have experienced over the last two and half months and expect less. The trend is still on the bull-side for now.

Bear at the Door

The bears are hoping to raise their flag if they can get another ugly down week. Tech, which all the other stock indexes had been tethered, got a dose of 'get out' from the professional side. As we stand, the NQ 100 cash is sitting 12.5% off of the August 16th reversal lows, with the SP500 cash plus 6% and the DJI sitting on a narrow plus 4%. Closes under the summer lows would provide the technical resistence area the bears could defend for some period of time. Relative to the other indexes, the tech play started back in June and as of late had left few opportunities. While Google and Apple are many times the face of the tech return stories, they become merely speculative trading stocks at the end of a run when values become stretched. They may catch late comers in those stocks with serious losses. The definition of a long term trader is one who is stuck with a loser. It may be the buy and hold crowd's turn to hang-on, but the bear's success will depend on tech.

Bears Still Waiting

The ability of the DJI and other indexes to avoid the death dive has led to much confusion in the bear camps. Now we like to poke fun at the bulls, but the bears seem to be perpetually abused by these markets. Each time we have seen the market on the brink of destruction, (Aug. 16th, Oct 22, and Nov. 1st) the final whack fails to appear. Comparisons to various years where hard breaks or crashes appear are being made daily. The credit crisis and the toll on banks and brokerages are claimed to be clear evidence of impending doom. Since economic strength in world financial markets is continually credited to the shaky global growth story, one cannot help but feel vulnerable to the downside. After all, global growth is all about commodity prices, and if anything can turn to crap quickly it is any commodity chart. But the bear's problems stem from their inability to close below levels, such as last springs lows, which will bring out meaningful liquidation and not merely downside volatility. Now the NQ has significant buying interest by managers simply for being a relative value play compared to other indexes. But interest in that market here and abroad is the overall reason the market downside has been limited. Turn the techs down hard and the bears may just get their break, otherwise forget it.

Big Week Coming?

Well the indexes just could not reverse the down action of the previous week and now must wait to see if the Fed can provide continued comfort. The two reasons for the overall support for the markets, it is explained on television, is liquidity and global growth. The first is represented by giddy types like Maria ' let them eat cake' Bartiromo laughing at the downside because, as she knows, markets never will go down as long as her checks keep clearing. The latter support explanation is of coarse the never ending supply of money created by global growth and the ever weakening dollar. Global growth really means China, and there so many Chinaman. Do the math. Let's face it, these markets will never ever go lower. Gold, oil, and every other commodity have entered zero gravity and wealth is a forgone conclusion. Well, until it goes down.

Go Deep, Then Stop

Well, we did warn you. Lousy index action after the recovery of the August downturn has resulted in another index meltdown. This coming week's action will have great liquidation potential and may, if low enough, put in a low that the forth quarter that the bears will have to live with. Bond futures topping this week, oddly enough with most commodities, will have the markets looking for re-tests next week to the high ground from which they will fall. Some may of coarse, with the exception of the stock indexes which may find it hard to generate much upside interest in the next sixty days.

Any Which Way

The heads are putting their spin on data for the final quarter. The argument over the real amount liquidity the Fed is providing is making guys like Gross of Pimco jaw about treacherous banking conditions. Ever since the rate cut the treasury futures have been heading south. Gross needs continued Fed easing for his current positions to work. John Hussman of Hussman Funds explains that the Fed has added virtually no reserves. Maybe that is why Gross is worried.
The miraculous recovery of the stock markets have allowed them to catch-up to the market performance of models known to consistently out perform the indexes. Hedge funds are piling in and buying from willing sellers who only a month ago thought they had missed their chance to get out at a decent price. These markets are running on upside energy and while that will of coarse end badly, it makes it more interesting for traders. We all want to be short when it fails, but the upside idiocy creates great opportunities daily to trade both sides.

Bull Fish

DJI, SP500, and NQ100 knee-jerked a rally today after Fed minutes release. Pumping up the balloon continues despite the chances of another Fed cut seem unlikely. Various hedge managers are calling for substantial gains in stock prices over the balance of the year, but listening to them will not increase your IQ. These markets are tremendously overbought, but bubbles are always resistant to rational thought. Data the rest of the week is mild and will likely be viewed supportive regardless. Let the bull fish run with the bait.

Indexes Smell

Back on September 10th we wrote about the bears inability to establish a downtrend. A Fed that is easily fooled and a buyside machine currently meeting little resistance while flying the global growth flag has the bear thinking ugh. But this market behaves oddly. Much like the ' new economy ' reasoning leading up to the tech bubble, the global growth rationale seems to have the same bad smell. Whenever the market is in bed with surging commodity prices, which are often used as evidence as to the validity of global growth, one has to wonder how long this party will last. The DJI, SP500, and NQ100 have had manic action ranging from the depths of a supposed global credit crisis on August 16th, to new highs in two of the three indexes last week. Whatever joy the bull believes waits ahead may be short lived given the current market construct.