Where's our Santa Clause rally?
I don't know why our long positions are suddenly turning into lumps of coal but we'd better get on top of this thing quick! Like a wave that is cresting, you don't want to get caught in the undertow of the markets as all that money starts flowing the other way.
I can see what's happening out there – Paxios just pointed it out in comments this morning – some of you Grinches are turning a little bearish out there! The bullish percent indicator, which we already said was at a very unsustainable level, has turned sharply down this past week. It looks like close to 10% of you turned bearish in the past 7 days.
Much like the Grinch though, the bears' bark is worse than their bite as the S&P has only dropped 13 points from it's highest high, still not an actual percentage point (.0091%) – If that's the sound of 10 bears leaving then Elvis has not yet left the building! I think the fundamentals are still there and many top economists agree with me…
To test that bold theory let's look at some other indicators:
- We have the put/call ratio, the last time it dove like this (and we participated yesterday as we dumped a lot of calls!) was around 11/27, when we gave up 300 points in the market – so far we've over half of that drop with just 1/6 of the drop.
- The advacne-decline line is still through the roof! While December has turned choppy, a fact we were on top of way back on the 6th!
- The vast majority of Nasdaq stocks are still A LOT closer to their highs than their lows – so any money you are losing is some kind of fluke! 😉
So I remain bullish but cautious, I'm sure I'm not the only person who thinks – "Gee, we're so far ahead, why risk gains when 6 out of the next 10 days the market is closed." These are not strong volume moves that we are getting and the last time the bears were able to get the upper hand was our last holiday weekend, but they were quickly put back in their cage the following week!
Markets do pull back (so I've heard), if people couldn't take money out to buy presents it wouldn't be a very popular place to put your money would it? So let's give our pal the market the benefit of the doubt as it (hopefully) consolidates for our next attempt at a higher orbit.
Space flight is tricky and you have to have "the right stuff," if you go into this with a Grinchy attitude you may miss the joy of the season.
RHAT reported a joyous quarter last night with a 45% jump in revenues and a 48% increase in subscriptions so it's not that companies are buying less, they are just buying less MSFT and ORCL!
Free Linux software may not be good for our two tech titans but, for the companies that are able to use it and work to improve an open source system to increase productivity without being hampered by the limitations of the platform, this could be a very good thing indeed!
Also with blowout numbers was RIMM, who sold more than expected, earned more than expected and raised guidance by 5% for Q4 – that will help pay for a lot of perfectly timed option grants! I guess selling those Jan $130 puts for $7 the other day was a good idea after all!
The Asian markets were full of Christmas cheer and added roughly half a point across the board (even Thailand). Chinese real estate led the march on the Hang Seng, which rose to 19,320 while Japan was led higher by autos and steel with the Nikkei hitting 17,104.
Here is an interesting view of how far we've slipped in the global market race. Play with the timeline to gain a little perspective. Do we have a lot of catching up to do or are we permanantly out of contention?
We've got that same old story about TM passing GM in sales but I'm going to urge caution if you are still in the Jan $115s, now $15.80 (up 532%) from our "Forgotten Trades" folder. I promised the members I would close all these out so we can start with a fresh batch in January that we can track together in 2007! We're going to do a big wrap-up on these before the month's end.
Europe was off to a lazy start as they get ready for the holidays. Asia's big holiday is new year's, not Christmas and China celebrates 2 different ones.
My favorite story out of Europe this morning (and one that will not surprise readers of this or ZMan's column) is an ongoing story about how the Russian mafia is heavily involved in manipulating global energy prices. Semion Mogilevich, one of the FBIs most-wanted men, "describes himself as a businessman involved in commodities trading." We have a word for that sort of person in this country – Ameteur!
It's an I don't know what's going to happen sort of day but, like I said, I still think the fundamentals are there. The entire miss in the GDP was caused by weaker than expected housing numbers and other sectors of the economy did very well holding it up. Unfortunately I will be missing it as something came up I have to go to so please watch your levels closely!
I've uploaded the most recent spreadsheet and we can still use that as a guidline for positions to get back into but I still advocate a holiday cash position – if it's a real rally, we're not going to miss much of it between now and January 2nd!
Let's keep an eye on our safety meters:
- BRK.A needs to stop falling, people who feel the need to cash out $110,000 shares might know something!
- Also keep an eye on GE, the global economy is booming so the only reason this one will go down is a true lack of investor confidence.
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The Dow is safe over 12,400 only, down is not an option!
- Transports need at least a dead canary bounce off 2,550 and have little chance of reviving above 2,582 today.
- The S&P will give us the first positive signal if it can break and hold 1,420.
- The NYSE is more volatile and needs to hold 9,100 (just 3 points away!).
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At this point, we're just going to hope the Nasdaq can avoid 2,399 as it can pick up a whole lot of downside momentum if it doesn't.
- Much like my children, the Nasdaq thinks it can go out without its SOX BUT IT CAN'T, especially in a cold market! 470 is a must!!!
- The Russell can't just hold 780, we need to make some progress.
Speaking of Grinches, Goldman Sachs cut it's crude forecast for 2007 – all the way to $72! I love it when even the big guys can admit they're wrong, even if it is only 5% at a time… And speaking of Russian strong-arm tactics – after spending $12Bn in cash to develop Sakhalin II in Russia, RDS.A has "decided" to relinquish control of the massive oil and gas project to Gazprom for $7.45Bn. Gee, wasn't Gazprom mentioned in conjunction with our pal Mogilevich? Small world!
A Shell spokesman said the company viewed the deal as "acceptable," declining to elaborate. The spokesman couldn't comment on how Shell would account for the transaction. Did you wonder why I said I'd rather double down those puts than sell them? The Jan $70 puts are still buyable at .65 but I'm not too keen on shorting more into the weekend.
We're still watching for a breakdown at our $62.40 mark but upside tests of $63 and even $64 are possible on continued dollar weakness as the one unmistakable economic truth is that pretty much every other country on this planet is gaining on us! Think of the dollar as the stock price of the US as other countries look at our earnings and our balance sheet and are concerned that we have topped out as a nation.
Gold should be able to bounce off the rising 50 dma at $622 and, if not, finds additional support at the 200 dma just $4 below it but we may have some put plays on miners if it slips below! No one is expecting gold to go below $600 and there may be some good money to be made if a downside develops!
If I don't make it back by EOD (and even if I do) have a happy holiday weekend! I'll be posting the wrap-up and a few other thoughts while the kids are sleeping but hopefully you have better things to do than read them!
All the best to you and your family,
– Phil
My oldest daughter, Madeline!
