Finally Friday

In keeping with this week's tradition of being trapped in an infinte loop, I am repeating last Friday's headline and will be reusing last Friday's comments to illustrate how nothing has actually happened and we should all be very thankful that we didn't drop (as we were expecting going into the weekend).

I'm going to use a different font rather than keep quoting things so I hope this works but I could almost just repost the whole article and go back to bed!

What a disappointment it’s been.  We’ll have to wait until next week to see how much of this action is option pinning and how much is a genuine change in market sentiment.

See, it's working already, no options this week but this week the story is "Live by the BS commodity rally, die by the BS commodity rally."

As is often the case, when I take a day to step back and objectively observe the markets, I still see a lot of underlying strength but that doesn’t mean we can’t have a nice, healthy correction here.  As I said on Wednesday the 10th:  "Are you prepared for a down 295 point day?  Let’s remember I am a bull with a short-term target of Dow 11,500!  I would like to say I would be pleasantly surprised to be wrong but I will not be able to really enjoy additional advances unless we get a long-overdue correction out of the way.  As I said yesterday, if the IPhone can’t inspire people to get back into tech, then we really do have to lighten up at this point."

Oh, that guy is good!  I wonder if he picks lottery numbers too?

We won’t know until next week – whether this week’s action was natural or the result of a massive manipulation of stocks to force long-standing leaps out of the money (see yesterday’s comments) so the best thing to do is wait and see:

• Let’s see if the Dow can hold 12,550.
  • Let’s see if the Transports can hold 2,750.
• Let’s see if the S&P can hold 1,425.
• Let’s see if the NYSE can hold 9,100.
• Let’s see if the Nasdaq can hold the 50 dma at 2,430.
  • Let’s see if the SOX can get back to the 200 dma at 461 (our deadest canary!).
• Let’s see if the Russell can retake the 50 dma at 785.

Anything less than this and it is very, very likely that we have not broken orbit and will need to take another pass around 0% gains for the year before we can take another run at new highs!

As you can see from the image on the right, all obits return to the primary ( the 200 dma) , the cycle repeats until you establish a higher or lower orbit but it takes a lot of work (money flow in) to break free and, with money flying out of the commodity sector, there just isn’t enough thrust to break us free of the gravity of market neutrality.  The real trick at this point is to accept a pullback and just try to avoid a crash as we gear up to make another pass.

Well, that's what an orbit is right?  A big circle where you say "Gee, didn't we see that sun yesterday?"  Call it an orbit or a loop or a channel but the markets are stuck in something that's going to turn evil very fast if they can't shake it off by Monday.  So – Are you prepared for a 295 point drop or aren't you?

For those of you keeping score, for this week so far in relation to the above levels we have: Dow – Fail, Transports – Fail, S&P – Fail, NYSE – Pass, Nasdaq – Pass, SOX – Fail, Russell – 1 point away!  Well, isn't this what we wanted, a change of leadership from the dull old Dow and S&P to the Junior indices?  I'm telling you if we could only fix the hyperdrive motivator on the SOX drive, we'd hit warp speed in no time.

Asia was mixed, with Tech shares killing those markets too while Europe is off slightly, also on Tech!

I'm telling you, I didn't have to write anything today!  Asia was not mixed, the Hang Seng dropped 388 points, but still higher than it was last Friday.  Before you get all excited and short the FXI – the HSI is Hong Kong, not mainland China, and the Shanghai index actually threw off tow days of losses with 3 banks actually finishing limit up (10%) on that index as China makes comments on containing inflation (presumably by raising lending rates).

"While policy makers are likely pleased with the moderation in real activities, there remain concerns over the implications of excess liquidity in the financial system, especially with regard to asset prices," said Frank Gong, an economist with J.P. Morgan Chase & Co.  He raised his forecast for GDP growth this year to 10% from 9.5%, and expects the central bank to raise interest rates in the first quarter.

It was tech that dragged down both Asia and Europe this morning and that I find disturbing in light of MSFT's very nice beat.  The headlines are spinning the fact that they are off 28% from last year but the fact is that, even with the Vista delay, they beat on top and bottom lines by a wide margin.

We'll see if we can manage to hang around last week's levels, I'm hoping someone steps in and starts buying ahead of the weekend and I'm hoping that person doesn't buy oil, homebuilder or gold stocks.  Is that too much to hope for?  I hope not… 

Let's keep an eye on the dreaded $55 level for oil but it's going to be all about the dollar and whether we can get that pesky Euro down into the $1.28s (it's at $1.2900 right now!).  $54.60 should be our genuine point of resistance with $54 offering weak support below it.  $53.23 is the best we can realistically hope for and I would certainly be taking profits on our puts into the weekend on any bounce from there.

Zman has a great report today on the continuing weak inventory fundamentals for oil but, coming into the weekend and the coldest month of the year, we both urge caution with energy stocks today.

Watch gold to break down below $640 if the dollar starts to take off and don't forget, the dollar closing above 85.16 will cause wild things to happen all over the world!

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Hedge funds are under fire for an often-used tactic of "borrowing shares" from brokerages (yes, your shares!) and using them swing a vote to get an outcome they bet on.  "Shareholders often are unaware that a big voting bloc has no real ownership stake in the company — and that it may vote directly opposite the wishes of the stock's actual owners."

From the WSJ:

The opportunity for "empty voting" arises when brokerage firms or institutional fund managers lend the shares they manage to hedge funds or other firms, for a fee that can rise with how difficult the shares are to get. The value of securities borrowed on any given day has reached $1.6 trillion after several years of double-digit growth, according to Astec Marketing Research Group Inc., a New York capital-markets research firm.

When it comes times for a shareholder vote, it's the borrowers that hold the voting rights. Under Delaware law, where most large companies are incorporated, voting rights belong to whoever holds the stock on a date the company chooses in advance of its stockholder meeting. It's as if in the U.S. electoral system, someone could borrow your voting rights and use them to vote in your place without your knowing it. Individual share owners often are unaware that contracts with brokerages normally allow the brokerages to make money by lending out stock if it's held in margin accounts, just as banks profit from lending their cash deposits."

How many of your shares did you actually vote this year?  What do you think happens when you are apathetic about the companies you own stock in?  I'm frankly surprised they are focusing on this as this is very low on the list of horrible things that funds do to manipulate the markets.  I think they are throwing regulators a bone here so they can pretend they are making a difference to distract the new congress from some of the much more profitable abuses that are going on.

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Still mostly maintaining today, while I am cautiously optimistic (see yesterday's wrap-up) I'm still more than happy to go pretty much all cash (short-term positions) and start fresh next week.

CAT came in much better than expected in revenues (not earnings) and raised guidance.  This will be nice for our leaps and only a little sad if you sold the Feb $60s against them for $1.55.  While it may dampen our gains this month, we have a nice 23 months ahead of us to make money on our '09 $60s, which are already a double from 11/6!

HAL beat low estimates with Q4 profits off "just" 40% but there were tax provisions and all sorts of shenanigans and I wouldn't touch these guys with a 10-foot pole.

KBH (who we're short on) are being formally investigated by the SEC regarding stock options grants – we can only hope they are punished half as much as Apple has been! 

On top of that news for KBH we have the existing home sales report showing a huge drop (down 8.4%) and we will find out today whether that is because new homes have just been too much of a bargain or because people just aren't buying any homes at all.

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This one is much too good to let go;

Our gal Maria Bartiromo of CNBC (Coercing Neophytes to Buy Crude) is under fire regarding her relationship with Citibank's head of Wealth Management, Todd Thomson, who just got canned by the bank.  Reasons, according to the WSJ, were: "Concerns related to judgment issues, including improper use of the corporate jet — one case involving a trip from Asia with Ms. Bartiromo — and a decision to spend $5 million on a Sundance Channel program in which she would appear, according to a person familiar with the situation."

Wow, I guess dinner and a movie just doesn't cut it with Maria!

"CNBC says any trips by Ms. Bartiromo on the Citigroup jet were preapproved and fell under the "source development" section of its code of ethics. The channel considers the matter closed and says it isn't investigating Ms. Bartiromo's relationship with Citigroup."

Wow, that's one loose code of ethics!  Yes, if you want to focus your attention on a CNBC correspondant and fly them around the world in your private jet while you give them your spin on what sectors people should be buying or selling and if you set them up with $5M "development projects" to promote something else you may want the public to be suckered into know about, that's all good!

"Mr. Thomson has told colleagues that bringing Ms. Bartiromo to events was a great "business-building tool" with important clients."