Well yesterday went pretty much as planned.
It’s nice to see the market behave normally for a change, going down on big volume and actually staying down as we get mixed economic news. Volume was at the highest levels since Sept 17th where, sadly, we dropped another 5% over the next two weeks. Watching our levels kept us from making stupid mistakes yesterday and by 10:28 we had lost faith in the "rally" and we went for SRS as a long and sold the $9 puts for .60, now .40. This is a fun way to play the volatile ultra-ETFs as we don’t mind owning SRS at net $8.40 (would be all-time low) if it went the wrong way and was put to us.
We lowered our bar on the Dow to 9,920 (green zone on Tim Knight’s chart) to make some bullish plays but that line held at 1pm and 1:45 and, by 3:50, the most they could manage on a spike was a few seconds over 9,900 and a big surge of volume into the close didn’t move the markets up a bit. These are all bad signs for today’s open regardless of the nonsense you see in the futures market.
Today we can use the 9,900 line to initiate some upside plays but the real line of concern will be our first major index failure, which will be NYSE 6,900. That’s today’s big test, followed (if they fail) by Russell 575. As we expected, the Russell blew 595 yesterday and that is now their critical recovery point for the day. The Russell and NYSE led us up in this rally, it should be no surprise if they are to lead us down.
BIDU (who we were short on!) shows you just how ridiculous values have become and even Mr. BUYBUYBUY himself has finally changed his tune and actually made a very good point last night, noting that many earnings reports use the caveat "albeit at lowe levels:"
While these statements may have been permissible at Dow 8,000, Cramer said, they are not at Dow 10,000. At this level, investors want to hear, “After stabilizing, we are now seeing sales accelerate” to levels at or above those before the downturn. But, again, the only firms saying that are GOOG, AAPL and AMZN. There are a few other tech companies touting stability at pre-downturn figures – Microsoft, Intel, Marvell Tech and SanDisk – but they’re not seeing sales growth beyond that point. Outside of tech, there isn’t much stabilization at all, certainly not in oil and natural gas, most of the banks and many retailers. And with so few companies at least finding some solid footing, there isn’t enough positive earnings news to push us beyond Dow 10K.
So after a month of herding the sheeple into the market at 10,000, Mr. Cramer now says there may not be enough positives to get us past 10,000. BRILLIANT! I thinkk the shock of seeing BIDU off $100 may spook a few people out of some Nasdaq high-flyers, hopefully AMZN, who we are tragically short on too. I don’t want to bash AMZN but a p/e of 82 is a little ridiculous and it’s even higher than BIDU’s was yesterday (but not much). AMZN is, of course, past earnings but it amazes me that no one has pointed out that their net income of $199M included a tremendous amount of Kindle profts.
The mistake people are making in valuing AMZN is to take the relatively modest $100M profits (estimated) generated by the sale of an electronic device and applying it to the entire $8Bn in quarterly sales as this growth will continue. As I pointed out to members, by that logic, APPL should buy AMZN, merging their $5Bn in profits on $32Bn in sales (15%) with Amazon’s $800M profit on $20Bn in sales (4%) to form AppleZon, which would have $5.8Bn in profits on $52Bn in sales (11%) which, given AMZN’s p/e ratio, would form a $500Bn retail powerhouse from two companies with a combined market cap of $234Bn. Doesn’t that make sense? If not, then why hell are you buying AMZN at $125?
They weren’t buying anything in Asia this morning as the Shanghai came back from vacation and dropped 2.8%. The Hang Seng gapped down 600 points at the open but bounced off the 22,000 line to "rally back" to 22,169, down 1.8% for the day. Over in Japan, the Nikkei should have been happy with the dollar holding 92 Yen for an entire day but there is just no pleasing some people and the Nikkei dropped a neat 150 points, skating right along that 10,200 mark that we’ve been watching for ages as a key indicator of global direction.
Andrew Sullivan, sales trader at Main First Securities, said the strong corporate results in the U.S. as well as in Japan were only being aided by stimulus measures. "People are becoming more concerned, looking to lower the beta of their virtual portfolios to minimize the downside risk," said Mr. Sullivan. Still, "nobody wants to sell, because every time you sell, the markets have seen a rally. There is inertia at the moment to sell."
Europe is in a slightly better mood this morning, up about half a point at 9am almost entirely to a big move up in BP, which is leading the energy sector up with profits "only" off 34% from last year. For the year, it looks like BP will earn $4 per share vs. $8.38 last year but that’s not stopping the stock from hitting $60 a share in EU trading, just 16% below the all-time high of $71.45. Gosh I am trying so hard to find nice things about the market so I’m not going to say anything about BP here….
In a related story (as I spoke yesterday about how high oil prices are destroying the recovery), there is the hearwarming tale in the NYTimes about a TD Bank in downtown Manhattan where greeters are emptying the branch’s coin-counting machines, known as Penny Arcades, 30 times a day as people break open their piggy banks to pay the rent. Isn’t that a nice Christmas story? Also, good news for Santa, as it looks like his sleigh will be lighter this year as truck tonnage declines 0.3% in September. Those needing a place to hold Christmas dinner may consider Detroit, where the good news is that over 1,500 properties were sold at auction for as little as $500! What’s the bad news – over 7,000 properties offered FAILED to get the minimum bid of $500!
Nationally, Case-Shiller says our home prices are down 11.3% from August last year to this August, which is up from down 13.3 % in the July to July reading. Somehow, CNBC is trying to paint this as a positive so I will quickly say this. If housing was $100,000 in July and fell to $95,000 in August last year and this July housing is down 13.3% at $86,700 and this August we are down 11.3% from $95,000 at $84,075, who in thier right mind would call this an improvement?
We’ll see if the NYSE holds it’s levels today. We get Consumer Confidence at 10am and I think that may miss expectations and we have plenty of earnings and lots of data tomorrow so we’ll just be hanging out and watching the markets this morning – neither too bullish (of course) or two bearish until we get a confirmation from our levels.
