The Dow gained 200 points for the week.
It was a rotten week but at least that’s a good thing. The NYSE gained just 60, the S&P added 9 (0.7%) and the Nasdaq gained 10. Is that progress? With 300-point daily swings in the Dow, 200 points is not much progress at all but it’s our first up week since the first week of August. With expiration day looming, anything can happen next week and that’s a scary thing the way the market’s been acting lately.
We got the usual Manic Monday action and the SKFs we discussed in the morning post were indeed great downside protection for the financials (I was NOT happy with the bail-out) as that ETF went from $99 to $123 during the week as the opening high was indeed the ONLY hurrah for the financials. Oil was at $108 in the morning but I said: "Failing to get firm cutbacks from OPEC and a miss by IKE could send oil tumbling below $100 a barrel by the end of the week." Well, Ike was looking like, and was, a direct hit on Friday but oil hit $100.08 anyway – I wonder what next week will bring.
By Monday night I was already sour on the rally and I called the EOD rally in crude "utterly ridiculous." I also thought GOOG’s Monday finish at $420 was utterly ridiculous and the 2010 $400s I used in my example ended up nicely for the week as the stock took off for a strong finish but not before the stock jammed all the way down to $408 on Thursday’s open, undeperforming the Nasdaq by a wide margin right up until Thursday’s close, flushing out those of us who couldn’t hang on any more on a $100 drop since last expiration day. Tuesday morning it was obvious that the commodities were going to keep a drag on the markets – that sector has just gotten way too large to just go quietly… Tuesday was the beginning of the end for LEH, who dropped 45% on the day but were nowhere near done for the week as they gave up more than half again.
Wednesday’s we are often looking for direction and we got all of them in the day’s action. FRE and FNM were dropped off the S&P on Wednesday night and we talked about it in the morning but not one analyst I heard mentioned that may have contributed to their falls back from $1 to .46 and .74 by the end of the week. There are a LOT of S&P index funds and that was a sudden announcement, bound to cause some dumping… As expected, CRM and FAST went up as they were nominated as the replacement hitters. I wonder to what extent FRE and FNM selling off influenced the dramatic drop in the S&P into the close – certainly the volume of both was spectacular at the end of trading.
We got no directional clues from Wednesday’s action and I continue to be baffled by the administration’s policy of bailing out lenders but not the people they lend to. 20% of the people going behind on the $390Bn worth of morgage payments they make each year may cost the government $500Bn bailing out the GSEs but 20% of $390Bn is less than $80Bn a year to backstop all the financials at once – seems like a bargain compared to what is going on…
Thursday was, of course, the anniversary of 9/11 – always a creepy day for Wall Streeters. We retook the levels I was looking for in the morning by mid-day and we knew that was a good sign. I said in the morning "Don’t forget we have a hurricane barreling down on the heart of the US refining operations. This may not affect crude but gasoline production could be severely curtailed and gasoline prices will head sharply higher into the weekend" and that was the understatement of the week as retail gas prices came close to $5 in some areas and the October gas futures rose 8% in 2 days. It turns out the refiners were pretty much undamaged by the storm but there are major power outages that will curtail production.
By Friday we saw a glimmer of hope in the markets but we didn’t want to get ahead of ourselves with the weekend looming. We did our Big Chart review and decided we had grave concerns over the global indexes but I decided I liked VZ for a bottom call and we’ll have to wait to see how that goes. On the whole the day, like the week, was choppy but, as I said in the morning: "The test for the markets this morning is to see if they can hold the pre-crazy highs that we finished at on yesterday’s last minute buying spree" and we did manage that – even in the Nasdaq, although not the SOX and that has to remain a concern.
