Powerful Rally

Powerful short covering rally today as the Fed provided unique relief for bad paper. The breadth of the rally was strong with big buy programs executed, indicating the bear may have to rest awhile before being able to mount another assault. Last weeks highs of the March contracts in SP500 and NQ100 are 1345 and 1773 respectively and a close over then this week would signal the lows for the first half of 08 are in. That would lead to a retest of 1420 basis the spot SP500 futures.

Bottom Fishing

Markets continue to over-extend themselves on the downside as some sort of bottom is being fished out. News continues to be bearish with all sorts of content being published which addresses the derivative dangers and the threat they collectively pose to the economies of the world. Hell, the dollar bill is a derivative. Regardless, the price action will build into a some form of bottom either with high volume exhaustion or short covering structure which will disappoint those looking for the hard down completion.

Sleeping Comfort

Markets looking for a short term bottom with talk of an emergency rate cut. Hedge Funds are receiving margin calls with haircut requirements being raised. The result of course is the sale of quality positions by hedge funds to create some sleeping comfort for those who provide capital for speculation. Markets are oversold and are subject to short covering rallies.

Just Bad

Continued stress on the the indexes from bad data, bad price action, and pessimistic forecasts kept pressure on the markets Friday. Approaching quickly is the test of significant price areas and a potential emergence of a psychology of liquidation which can be a monster one should not waken.

Learning bad habits in good markets and learning good habits in bad markets is always the case, it is just that the former, when finally reckoned with, is so devastating, that the general trading community and the overall economy are left much thinner. The 80/20 rule is the same in trading, 20% traders know what they are doing and the other 80% do not or work on Wall street. We have moved into a new era of global electronic trading, but not new enough that extremely stupid strategies can avoid being executed. The success will always be in the strategies which identify risk first and opportunity second.

Lousy Jobs

Job's number was lousy, now the markets will try to discover a price level where a story can be built. The bottom comes when they stop selling the good stuff to pay for the bad stuff. The SP500 and NQ100 need to trade and hold above 1317 and 1746 respectively to claim any victory today.

Risk Legs

Indexes scrambled around yesterday with a quick look at the mid section of last Friday's hard break but reversed course and made new session lows. Continued negative news coming from the paper hangers with Carlyle Mortgage Fund missing margin calls several times on positions related to sub-prime loans. Also, the much awaited resolution of the Ambac problem is viewed as insufficient. All these issues continue to come from the risk issues created when positions became linked to financial products that were created from bad correlation models. In creating these instruments, little thought was given to the liquidity side spread leg which in the best of trades will only cover a portion of bad action. Risk spread legs are not made of gold, they are an admission at execution that trades are notoriously capable of moving away from you. When virtually all liquidity disappears on all products correlated to your own risk leg, there is no way to get it back. There is a trading expression which is that you only get one look at a bad trade. Meaning you get one chance to get out of a bad position. That apparently was at initial execution on the risk correlations trades formulated by Wall street.

Markets will wait for tomorrow's unemployment data to mark the week.

Late Rallies

Last two sessions the indexes have been on or near the lows only to have late rallies and end the day in fairly decent shape. Yesterday's late rally began when, CNBC's Charles Gasparino, the Judith Miller of financial television, again addressed the Ambac issue and the apparent resolution reached among the parties. The market has gotten two rallies from no agreement indicating how sensitive traders are to potential bottom action. No one wants to be left behind, just in case the worst is over. The NQ100 tested the lows and with the exception of GOOG acted well enough to avoid a dismal close. It will be the tech stocks that lead any meaningful recovery. Overall, the SP500 and the DJI are still acting as though there is buying interest at these levels, but that will disappear if there is another test of the lows.

Morning Market

Early pressure a feature again this morning with Intel talking about lower chip forecasts. Cheap dollar, crude prices, and continued bank/brokerage leaking is limiting the bull's ability to reverse prices declines. Bears looking to provide a new speedway to the lows with a lousy jobs number on Friday being the event to drive markets lower. The bulls hope if hard down does appear, it will be the end of a short, though somewhat unpleasant, correction.

Push

Market ended as a push on the day. No real buying showed up and the downside was limited to minor selling. Indexes seemingly content to slosh around this week until the unemployment data on Friday, although any sharp move before then could negate any influence the jobs data might have. Bears still have to battle election year influences.

Early Trade

Indexes trying to get a footing this AM. SP500 and NQ100 took out last week's lows overnight. Definitely a lack of consensus from all camps as to the near term outlook which usually means one can follow the current directional action.