Not So Terrible Tuesday???

We were so close!

Oh well, what does a responsible pilot and crew do when the ship fails to respond? Safety checks! It’s time to step back, take a look at our levels and assess the situation before we decide to either continue the mission or abort.

As always, safety is key so let’s keep the protection of our precious assets foremost in our minds as it would be a terrible shame if a sudden depresurization blew them all out into space!

[Chart]

Thailand threw the Asian markets into chaos in an attempt to put the brakes in their runaway currency as they announced a "clamp down on speculative inflows." The Bank of Thailand, the country’s central bank, said that from today all banks would be required to hold in reserve for one year 30% of capital inflows that aren’t trade- or services-related or repatriation of Thai residents’ investments abroad.

The net effect of this is to make it MUCH less attractive for foreign investors to put money into Thai banks and the Thai markets dropped 15% in one day! This had a bit of a domino effect as investors realized emerging markets (surprise) aren’t as stable as the majors. What? Your broker never told you that? Your mutual fund manager didn’t mention that they were taking a huge risk with an emerging market virtual portfolio in order to acheive those gains? Oh well, live and learn…

The drop is not reflected in this chart but the Set Index closed at 622 so imagine the horror of the graph on your own!

The rest of Asia suffered from the disruption as many financial stocks were hammered by losses in Thailand (expect Goldman to have known this was going to happen and somehow benefit from it!). The Hang Seng and the Nikkei lost a point while India, Indonesia. Pakistan and Singapore dropped about 2.5% each.

China announced that they plan to keep an "absolute ability to control… critical areas: military industry, power and the power grid, petrochemicals and oil, telecommunications, coal, civil aviation and shipping." Sounds like Dick Cheney’s letter to Santa!

The BOJ left rates steady, giving the dollar some breathing room, which was nice (although based on continued weak consumer spending) and US regulators returned the favor by issuing enforcement actions against MTU just because they look the other way while people are laundering a little money! Let’s not panic but probably take the MTU Jan ’08 10s off the table. They were at $3.80 (up 36%) and there’s no point in risking it!

Europe is off about a point and the US futures (7:30) are looking weak along with them. The NYSE/Euronext deal is steaming along and this will change the way we trade as much as electronic trading did over the next few years. Tech shares were hammered on the ORCL report (which wasn’t that bad)

With all this scary stuff going on, let’s see if our markets can stand the heat today!

The Dow looks pretty happy above 12,400 but let’s see them prove it!
- This is it for the Transports – can they hold the 200 dma at 2,580 ahead of potential saviour FDX’s earnings tomorrow?
The S&P will either hold 1,420 or is very likely to retest 1,410, a level we must not fail!
The NYSE is already a comotose canary at 9,100 and below 9,050 makes this dead canary #2
The Nasdaq is a canary with pneumonia above 2,425 and slips into a coma below that with a projected line of death at 2,400
- I don’t know how many times I told them not to rally without their SOX, which need to be pulled up over the 480 mark while 470 just leaves us barefoot in the snow.
The Russell needs to pull out of its power dive before it hits the 50 dma at 775.

CC just came out with earnings and they were terrible. People are buying stuff but CC (like BBY) isn’t making any money selling it! Bad, bad, bad and we need to take a big step back and think about what’s going on here…

The PPI is up 2% in November and the core rate is up 1.3% – very big numbers! Also very bad! Housing starts made a 6.7% recovery put permits are down, a mixed bag…

If the economy isn’t as hot as we think it is then oil is in big trouble. OPEC has already told us we are oversupplied with oil but if the rosey demand outlook falls below the 1.3Mbd growth they are still projecting – Uh oh! I promised a myth-busting article on Chinese oil demand and I will get to that soon but others are already doing my work for me:

The ever bullish EIA says China is not going to grow into forecasts.
Japan’s (#3 oil consumer) demand will drop 2.4% next year.
The IEA (I know, confusing) says demand will be flat.
Warm weather is cutting into US demand.

Let’s see if crude can hold $62 today while $61.69 is still a valid break point that we set way back in September as the dollar is just 1% off that mark today. If we apply a 1% adjustment to $61.69, we see that February oil slipped below $62.30, essentially as soon as it started trading, and is very likely to break the non-adjusted technical mark today, which will force us to dust off all of our lower targets again.

We’ll see if gold can actually bounce off $620 or if it begins to feel comfortable down there while the dollar should rocket off the Thai news (no, just kidding) or at least not go down on the BOJ news.

Not a day to play the markets but a very good day to test the inner strength of the US markets. It will be a real gut-check day, much like last Tuesday was, when everyone panicked ahead of Thursday’s huge gains. The physics (data) haven’t really changed and let’s remember what levels we were looking for last Thursday morning, when we were still worried:

Dow 12,300 must hold although we tested 12,200 already this week. It still looks more ready to break up than down.
- Transports are just sad and 2,580 is a breakdown
The S&P has been comfortable over 1,410 and any move below will be a strong signal to tighten up our stops.
The NYSE gave us leadership yesterday and needs to hold 9,050
The Nasdaq must hold 2,425 and must break 2,450 or what the heck are we doing holding tech?
- Any additional downward movement in the SOX may leave them unrecoverable short-term
The Russell is flashing danger signs under 790 and must retake it

It always pays to keep things in perspective – that’s one of the reasons I started keeping a Blog!

9:15 UPDATE: Thai government to markets: Never mind! Just 18 hours after wiping out 12% of their nation’s GDP in market losses the Thai government is lifting controls on foreign – way to look stable boys!

This is the same Thailand that had a military coup in September and, at the time, I marvelled that people would keep throwing money into a market where all the government officials were new at their jobs (not to mention unelected). "But it was such a nice, peaceful coup" – investors said.

My thanks to Kustomz for keeping on top of this story!

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All trades are day trades today so let’s keep an eye on the early movement and make some good (not fast) decisions in comments. I’ll probably want to cover with SPY $141 puts for .60 and we still have the DIA $123 puts (picked up at .95) to guard against a crisis that never happened last week.

Back on 11/27 I said: "Another credit card company I like is MS (Discover) if they pull back a little." Well, they were at $78.70 that morning, dropped to $74.50 on 12/1 and today (at $80) MS announced they are implimenting my plan and spinning off the Discover unit!