We hit our pullbacks yesterday and ovesrhot by just a bit.
I said in the morning post we expected a 2% pullback at least and, of course, we have our 2.5% rule. The Dow fell 2.72%, S&P 2.3%, Nas just 1.5%, NYSE 2% and Russell 3.3%. Of the group, only the Russell is really disturbing but I still like the UWM $17s at $2.08, which I pointed out at 2:59 in member chat as a speculative upside play. We were kind of wishy-washy into the close as we were at the lower end of our index tolerance so we also went with FXP Jan $30s at $11.65 and they will take a beating this morning with a 5.6% gain on the Hang Seng. Ideally, these can be covered and rolled down to the $25s for $2.50 or less as we play for a pullback off of what is now a 15%, one-week run in the HSI.
We are 50:50 in our virtual portfolios and playing both sides of the fence as we face a very critical test today of the S&P priced in Euros – what has been our most reliable index for quite some time. If we break through the declining 50 dma, there is hope that we are finally turning the corner for a real upswing but failing here makes yet another bottom test very likely. As this is also a test of the 50 dma of the S&P priced in dollars, we have VERY heavy resistance at 925 and breaking over there and holding it will be very significant.
Our beloved DRYS finally pulled it together yesterday, along with other shipping companies, despite FDX's terrible report dunking the Transports. That one makes me feel good as the fundamentals were driving me nuts as they traded below $5 and a lot of us were literally going down with the ship as we kept at them on the way down. Now we have a triple since last week and it's time to cut back as we can always follow it down again or get back in once they show stability up here.
Asia was off to the races this morning, shaking off poor US performance to put in a 3% gain at the Nikkei, 2.5% on the Shanghai along with the 5.6% gain on the Hang Seng. The Global Dow (chart left) is back to 1,487, just about 50% off the top after bouncing off 1,250 so we are 20% up after being 60% down but, until we get through that magic 1,500 mark – it's still a bounce. I mentioned yesterday and in Monday night's Big Chart Review the critical importance of the 40% off lines in the US. If we cannot take this back, nothing that happens in the emerging markets will matter very much.
Auto companies led Asia higher as the $15Bn bailout was far less than US automakers asked for and investors began swithing horses to the more likely survivors as TM (got 'em) went up 6.5% and HMC jumped 10% on the Japanese session while Hyundai rose 9.2% and Kia gained 8.5% in Korea. Parts suppliers for Japanese cars also had a very good day. The pending bail-out of real estate that we discussed by the Japanese land ministry is keeping momentum going in that sector and shipping companies celebrated the second consecutive day of gains on the Baltic Dry Shipping Index. Property developers also led China higher on HBC's call that the Hong Kong Bank would cut lending rates further and Chinese financial companies also rose sharply on the hopes of more market-boosting measures by the government as the country's top leadership wrap up a three-day Central Economic Work Conference Wednesday. So it's stimulus, stimulus, stimulus and, when in doubt, stimulus to push the Asian cart up our roller coaster tracks…
There is an excellent article by Ellen Brown on the underpinnings of our "New, New Deal" and the pitfalls that lie in our current monetary policy and it is stunning to see the accelerating pace at which global governments are adding to the bailout bonfire (have I mentioned I like gold lately?). Commodities overall are getting a good bounce on hope that the Big 3 won't go bust and may actually order some base materials next year. It's a good thing we didn't panic out of FCX last week, they are back over $21 already. Keep in mind that the undelying economy still sucks – China's exports dropped 2.2% in November – the first decline in 7 years! This is no small thing, October's year over year comparison was up 19.2% so we have a very dramatic turn here.
"The whole world including China is experiencing the biggest demand shock in many years," Ting Lu, an economist for Merrill Lynch, wrote in a research note. The financial crisis likely amplified the trade impact of declining demand in the U.S. and other major nations. "A majority of that shock could be due to the collapse of [the] global financial system which provides liquidity and credit to international trade." The rapid decline in imports also suggests that export orders for coming months are also very weak, since a large portion of China's imports are parts and components that go into exported goods. "Manufacturers all have very bad forecasts," Chen Yubin said. "Everybody is suddenly going into austerity mode."
Europe is flat ahead of the US open because that particular car on the global roller coster is lacking stimulus this morning. German Chancellor Merkel is now facing criticism for not doing enough to stimulate Europe's largest economy, as it's almost impossible to try to be the responsible one in a World gone wild with stimulation fever. Italy is now bailing out the cheese industry and this week it is somehow viewed as a positive that so many industries need a bail-out. The banking sector is not cooperating in Europe: "We remain cautious on the European banks sector," said analysts at Credit Suisse. "Economic conditions have deteriorated notably in the last few months and there is little to suggest things will get better soon," they said.
We are expecting a bail-out bill for the auto makers today and we're going to ignore AIG's $10Bn loss (and, if you pay taxes, that's YOUR company) but we're not going to ignore our levels today – they are the same as yesterday and we remain skeptical of any move up that can't make our critical marks.
