What a week this has been!
Three days in a row we've had to flip 60% bullish at the open as we break our watch levels – that's amazing performance. Yesterday took just 28 minutes before I put out an alert to fully cover long put covers, putting us 60% bullish and we held that stance until 2:59, when we were able to buy back those covers for a 20% profit and we finished the day half covered (55% bearish) with the same DIA $80 puts back at $2.50. As I said earlier in the week, it's a gas and brakes model on our long covers while we are able to let our long plays run and we made plenty of those yesterday as the markets firmed up at higher levels.
Once we get past this morning's Jobs report we'll feel much better but certainly we'll be heading into the weekend with a wishy-washy half cover again as it's just too scary to risk. RIMM really surprised us with great earnings and that goosed the Nasdaq after hours and the pre-markets are showing half percent gains as of 7 am. Of course, as I mentioned yesterday, this was our game plan as we got the FASB news we expected yesterday, followed by the mandatory Cramer pump that could give us a little added momentum in the morning.
CNBC (GE) follows up with a headline this morning that says "March Job Loss May Signal That The Worst Is Finally Over." What is their logic for this statement? “It almost can’t get any worse,” says economist David Jones of DMJ Advisors. Also:“I don’t see how we can sustain job losses this severe, never mind intensify them,” says Ken Goldstein, who follows labor and consumer trends for The Conference Board. “I don't see why or how business can sustain it.” Oh I wish I were joking but this is actually what passes for logic in corporate news…
Maybe I'm old fashioned but I tend to think a layoff cycle is ending when people STOP being laid off in record numbers, not while we're posting new records. Yes it may be peaking, but PMIs and ISMs are still showing severe contraction and, as I've been saying all week, the government is simply not doing enough to address the core issue of unemployment and home foreclosures yet to effectively turn anything around. Cramer's logic is that somehow the announcement of a plan means the plan is already working and I think anyone in New Orleans who is still waiting for their city to be fixed or the people of New York, who are still staring at a 4-block hole where the World Trade Center fell over 7 years ago would tell you that a plan is not the same thing as an action.
David Fry sums up our market mood very well in last night's post: "Is this rally based on good economic data; earnings news; the G-20; more regulation; higher taxes; more debt and bailouts? Hell no! This is about the FASB caving to political pressure to allow financial institutions to mark their toxic waste to a model fantasy. It’s plain for all to see so please put the BS aside. Now, I’m just a technician (no doubt with an attitude) and my job is to follow the dictates of the tape as best as I see it. Therefore, we’re long but, like I said yesterday, holding our nose all the way."
People, people – this is the SAME market that opened at 7,924 last Friday (I know, 7 days ago – history is sooooo boring!) and on Monday's close we had fallen to 7,522. Today we're up at 7,978 and the mood of the media can be neatly summed up by just watching the Cramer show from last Thursday (ahead of the 7% drop) where he says: "When a market rockets again and again like it did today…. you are seeing panic by the money managers who cannot take the pain… The rally will continue…" Now I don't completely disagree, I do like tech long-term but NOTHING has changed since last week and we can still have massive pullbacks, even as we rally higher. That's why it's important to have hedges, you will hear this BS from the media whichever way the wind blows from day to day – we need to invest with longer-term perspectives. Adam Hewison of market club has a very good video called: "What next for the S&P" where he examines the chart from a techincal standpoint.
This morning, there is a serious LACK of discussion of problems in the MSM. Apparently everything is fine now and all of our problems went away this week. Next week there is little major economic data and earnings season kicks off on Tuesday evening with AA, BBBY, MOS and RT but, between now and then, attitude is going to be everything and if the markets want to go gung-ho bullish – we'd be fools to stand in the way. We took a bullish but hedged play on AA yesterday morning, in member chat, as well as ZION, AUY, UYG, M, TXT, CAL and GE – each one hedged and looking for 20-25% profits by May expirations (and all they have to do is hold current levels!) with 15% downside protection. As short-term hedges, we went with QID (not looking good with RIMM earnings) and FXP (always a favorite) and our plan is to grab QQQQ calls as momentum plays this morning if things are heading up, the QID puts we'll probably roll and keep for weekend protection.
Our watch levels for today will be the same as yesterday: Dow 7,900, S&P 833, Nasdaq 1,580, NYSE 5,225 and Russell 444. It will be very impressive if we can hold those for the day. In Europe the FTSE is well over our 4,000 mark at 4,100 (8 am), the DAX is well over 4,250 at 4,420 and the CAC also blew through our 2,900 mark, now trading at 3,024. So, from a purely technical standpoint, it looks like game on for our 8,200 target (see math in yesterday's post) and we have learned the futility of fighting technicals in this market.
Asia may have been just a little worried this morning as the markets there generally flatlined – other than the Bombay Sensex, which jumped 4.5% on entthusasm that the meeting with Obama went well (they really like him over there!). The Baltic Dry Index fell yet another 2.3%, giving back 2 months of hard-fought gains in 3 weeks but – shhhhhhhh! Just because no one is shipping any actual goods doesn't mean the economy's in trouble right? Look at oil – it's back at $52.50, even though the EIA says there is a "high probability" of a downward revision in the IEA’s next monthly report, due on April 10. “There’s nothing bullish in the fundamentals in the near future,” said Raymond Carbone, president of Paramount Options Inc. and a Nymex trader. He said oil gained “on hope” yesterday as the G-20 met. Oil prices “have bottomed out now and we HOPE they will improve, EVEN THOUGH fundamentals are really the same,” OPEC Secretary-General Abdalla El-Badri said yesterday before the Paris oil conference. As I often say to members: Hope is not a strategy, Abdalla!
So, no one is buying oil but they're raising the price and no one is shipping anything (giving them a cheap place to store unused oil) and no one sees any actual improvements in the global economy but the Pumpmeister General and the rest of the MSM are telling you to BUYBUYBUY – it's madness I tell you! It will take more than an act of will or financial shell games to bring money off the sidelines and back into the markets with enough volume to sustain the recent move up. Sure I think the market should be in the mid 8,000s but I think we need to get there naturally, not artificially and this is very artificial so far. Keep in mind that the current "rally" is coming on a TRIPLING of IMF funds to $1TN – that's a lot of stimulus!
8:30 Update: Europe is now flatlining ahead of our open, which has turned down in the futures as another 663,000 jobs bite the dust AND January was revised upward to 741,000 lost jobs. THAT, David Jones (see above), is how we can sustain job losses this severe – they are already more severe than you thought! January's decline is the third-largest on record. However, the other two — a 834,000 decline in 1949 and a nearly two million plunge in 1945 — were driven by one-time events including a large coal and steel strike and by the end of World War II. When marginally attached and involuntary part-time workers are included, the rate of unemployed or underemployed workers hit 15.6% last month, up from 14.8% in February and more than six percentage points higher than it was one year ago.
We'll see how low we can go on that news but there is certainly still a strong technical undercurrent and these numbers should come as no surprise to investors so now we'll get a much better idea of whether the buyers truly have conviction or if they should simply be convicted for manipulating the markets in order to draw Cramer's sheep to the inevitable slaughter. Hopefully our levels will hold and we can keep our technically bullish outlook but our overriding plan to short the financials into the FASB rally remains intact. If the markets can shake this data off this morning, it's going to be hard to take up short positions but reality looms large over market euphoria and even just losing momentum, as Asia did this morning and Europe may be now, can lead to another harsh reversal next week.
