8,131. That was Monday's open.
7,957. That was yesterday's close. Let's keep some perspective before we jump to put on our rally caps just because we had a 2.5% "stick save" in the last 30 minutes of trading. The Nasdaq raced from 1,632 right up towards the 1,660 Nasdaq target I had set in our 9:30 Member Alert. The VERY fake way in which we got to our 7,950 target on the Dow led me to call an audible in member chat and NOT cover the other half of our long DIA puts, keeping us just slightly bearish into the close.
One reason for this caution was that, for the second day in a row, we were on a bottom-fishing expedition – this time picking up 8 positive plays along with 2 neutral ones and no shorts so a little extra protection seemed worth keeping despite the market's very irrational exuberance in the afternoon. How irrational was it? Well, if you want to see an illustration of what it takes to make a stick save, check out Zero Hedge's Chart of S&P Trades during yesterday's session. Nobody wanted the index at 848, 849, 850 or 851 but, with 10 minutes left to trade at 852 – WOW! It's also interesting to note that no one even got a chance to ASK at 851.50 but the bidding was fast and furious in those final minutes. As Anton said in Member Chat: "You wouldn’t see this kind of nonsense in a Third World stock market."
Nonsense is indeed everywhere lately. Last week we had a stick save Friday as the market was pushed to make a new high for the week. That will take quite an effort today as we still need 174 points but anything is possible as the Fed releases their "stress test" criteria to prepare us for the upcoming miracle of ALL 19 banks under the program passing with flying colors because everything is just fine in the financial sector and any lack of financing you may be experiencing personally can be a figment of your imagination, most likely caused by grain alchohol served to you at a college party. As Paul Farrell says in his brilliant article on the subject: "Even Jack Bauer Can't Stop The Goldman Conspiracy." So move along folks, nothing to see here…
Also seen very briefly but barely heard is the Ken Lewis/Hank Paulson scandal. Something you would think would be the front page of every paper in America as the government of the United States of America took the CEO of one of our largest corporations into a back room and forced him (and the board) to screw over his stockholders and cover up losses of a company he was being forced to buy in order to hide the scope of the economic crisis that was facing this country in the fall of 2008. Have I missed anything? Oh yes – the coverage! Where is it? Seriously folks, there is jaded and we sure have reason to be but this is OBLIVIOUS! One of our European members said they could not believe the lack of outrage in the US mainstream media and I pointed out that, if the US Government is willing to threaten one of our largest banks to knowingly take on a disaster and then cover it up, they certainly aren’t going to be shy about telling the MSM that, if they don’t back off on the reporting – there will be consequences. Since our media giants may be next in line for government bailouts – everyone is playng ball on this one.
Since everything is so great in America, the dollar was down big in overnight trading and that hit the Nikkei hard, dropping that index 139 points (1.5%) to finish the week down 200. Actually, a longer-term look at the Nikkei is a chart of what the US markets SHOULD be doing – a slow sell-off to reach a point of consolidation but "THEY" are so terrified to test a lower level (for fear of failure) that we can almost just blindly start buying every day at 2pm and ride the waves up into the closes. As I said above, we are not day trading the market (well, not much) but we are pursuing a very effective strategy outlined in Tuesday's post: "How To Buy A Stock For A 15-20% Discount." We are now in the 6th month of running our Buy List on this strategy and the results have been excellent and, at 1:30 yesterday, we had excellent entry opportunities on ZION, LVS, MGM, UYG and F. Congrats to all PSW members who played F by the way, we've been in them since early March and have made many upside plays since and today's earnings (or declining losses) justify our faith in what may soon be America's ONLY auto maker.
The weak dollar sent gold and oil back to month highs as global investors looked for safer havens to place capital once again. Japan's Nomura Holdings lost 709Bn yen ($7.24Bn) in the first quarter, more than 10 times what they lost all of last year. The damage was across the board: 150 billion yen in trading losses including exposure to Bernard Madoff's fraud and Iceland's banking crisis, another 150 billion yen in merchant banking and real estate write-downs and a 230 billion yen hit mostly from buying bits of Lehman. "The challenge for Nomura is to reduce expenses, which ballooned due to the acquisition of the business units of Lehman Brothers, to an adequate level in this severe business environment as a substantial recovery in earnings is unlikely," said Yuri Yoshida at Standard & Poor's Ratings Services.
The Hang Seng got their own "stick save" into the close, finishing up 44 for the day (.25%) and the Shanghai was flat as well. The longer-term chart of the Hang Seng shows the same rollover from the top in China that we see in Japan but a strong day in the Indian banking sector kept the BSE from looking too awful, although still in a downtrend off the highs of 2 weeks ago. Like the US indexes, the EU indices are racing to get flat for the week, up about 2% in early trading and 2% is what it will take our boys to make their marks as well. It seems kind of silly to discuss fundamentals and we'll just switch our brains off today and follow our levels, as noted in yesterday's post. We will roll up our long puts as this is all still likely to end very badly but we will cover those positons fully as long as the Dow is over 7,950 but we will go 55% bearish into the weekend, even if we do finish back over 8,100.
Volvo, the world's second-largest truck maker, wiped out all of last year's profits this quarter, losing twice as much as expected and says the order intake for trucks "continued to be very weak" in the quarter, Volvo said. It said the net order intake, which takes into account cancellations, plunged 65% compared with the first quarter of 2008. "Demand weakened sharply in all markets during the first quarter," Chief Executive Leif Johansson said, noting the company now is slashing costs to better face the tougher market environment. Another global leader, Samsung, saw a 72% drop in net income for Q1 (but a profit!) and Samsung executives said they expect the second quarter to be slightly better, but pressure in its memory-chip business — long its biggest source of profit — would continue to experience difficulty. Executives said that uncertainty in the global economy made it difficult for them to call a turning point in performance.
We were concerned about the Durable Goods Report this morning but I don't know why we should have been. Last month the number was up 3.4% and this month it was down just 0.8%, only half as down as expected by the always-accurate "experts" they poll for these things. Oh – funny story… It turns out that last month wasn't actually up 3.4%, the government seems to have exaggerated February's numbers by 61% and last month was only up 2.1%. So if you take the -1.3% adjustment to last month and the -0.8% reading this month (hopefully they won't be adjusting that down too), then we're off another 2.1% (down 27.1% from last year), far WORSE than expected BUT THAT WOULD BE THINKING AND WE DON'T DO THAT IN THIS MARKET. So party on markets as the durable goods number was a beat! New home sales are expected to be 340,000 for March, that's just 0.3% of US households added as new homes vs. 2M at the peak so yay, I guess….
Earnings continue to come in, not strong but better than expected, with winners outnumbering losers by almost 3:1 this week and notable wins since the close from AMZN, BNI, CAKE, CB, DECK, JNPR, WFR, NFLX, WDC, F, ITT, SLB, SWK and XRX. Indications are that cost cutting is working very, very well in Q1 and, if we can pull out of this slump all will indeed be well but there are still a lot of warning signs out there – too many to throw caution to the wind and our best strategy is to pursue our hedged entries and keep a good eye on our levels. There's just one week to go before the traditional "sell in May, go away" period. Last May 1st we were right at 13,000 on the Dow, held that level until the 6th, rallied back into May option expirations on the 16th and then proceeded to fall roughly 2,000 points without stopping through mid-July.
If you look at the late April chart of last year, you may see a VERY similar pattern forming into the month's end as we were at the tail-end of a huge recovery off the March 10th lows. Remember: "Those who cannot remember the past are condemned to repeat it." We don't know if we're locked in the same pattern as last year but, until we see a clear break – we're going to continue to play with caution so be careful out there and have a great weekend!
