Monday Mourning?

Is it time for bottom fishing?

Not on a non-merger Monday!

Oh sure VZ bought someone for $757M and South Korea’s Doosan is buying Bobcat from IR for $5Bn but come on – what is that?  After the $100Bn we discussed last Monday (which gave us a whole 90 point, one day boost) we are pretty much at zero one week later.  The market likes BIG deals and we can not lie and the other bourses can’t deny when a deal comes in with an itty bitty premium then investors won’t be buying in (I can keep going but at this point you either get it or you don’t!  Click Pebbles for clues).

So the BOTTOM LINE is that the thrill is gone and without someone to show us the money, either in blockbuster earnings or on the M&A front, this is no time to be diving back into the market.  If you are ahead then this is a good time to count cash, watch sectors for signs of strength and select a second half strategy (see this week’s newsletter for our first sector pick), if you are behind, it’s a good time to be thankful for what cash you have, reviewing the behavior that got you here and looking over your losers for possible hidden gems.

Some of our biggest misses of the year are likely to be the second half’s biggest gainers.  That’s because I’m generally a fundamentals player so when a company we’re betting on misses, we don’t tear up our tickets and go home – we reanalyze, reposition and redeploy our capital looking for a better opportunity down the road.  As option traders, we are acutely aware of the fact that timing is everything and we don’t blame a good stock for going down nor do we get too excited about a poor stock going up – we just like go get a little ahead of the game and then go with the flow.

So this week we are going to shake it, shake it, shake our virtual portfolio and decide which of our babies are coming back (this song is going to be stuck in my head all day!).

Asia’s got back today with the Nikkei making a spectacular end of day recovery from an early 170-point drop and Hong Kong also got a nice, non-suspicious boost at the close much like our Dow is getting pre-market.  HBC, who started this whole sub-prime mess last year, came in with a strong quarter on very strong growth in Asia and, of course, investment banking as they took their share of this year’s $2T in deals.  After writing down close to $3Bn worth of loans last year, one could say HBC had nowhere to go but up and this will be another shining example of our theme for this earnings period: A celebration of mediocrity!

A small rebound is to be expected this week but I’m still looking for 13,600 (now pretty far away) before I can declare the market to be on the mend.  After the markets closed, China announced additional reserve requirements, now 12% ""to strengthen management of liquidity in the banking system and inhibit the excessively fast growth of credit."  So let’s take those Asian market gains with at least a small grain of salt.

The World’s economic leader, the EU, is trading decidedly down through their lunch session and it’s very hard to manipulate their markets (not that anyone would manipulate the markets but…. if they did try, it would be harder in Europe).  Something is going wrong with the $95Bn ABN bid, as the board has withdrawn its recommendation for both offers.  This seems exceedingly strange to me but does explain last week’s drop off, which must be a coincidence as no one would have traded this buyout target down 7% based on inside information – because that would be wrong!

We won’t know until this afternoon whether the futures action this morning is wrong or not but prepare for a fantastic celebration of mediocrity if the Dow breaks 13,400, which would constitute a weak bounce at best.  At times like this, I defer to our beloved Commander in Chief, who offers the sage market advice "Fool me once, shame on you, fool me — you can’t get fooled again!"  As with many Bushisms, there’s a grain of truth in the statement and I often caution the members that it is NOT our job to save the markets – nor are we going to miss anything by sitting out the first 100 points of a supposed 700 point recovery if it’s truly in the making.

Analysts are split as to whether or not the bull market has peaked and we are split in our virtual portfolio but looking for a nice pump today with the number (but NOT the value) of our calls exceeding our puts by 3:1.  Sadly our chart is not as pretty as used to be but all is not lost yet:

Let’s watch those "must hold" levels VERY closely but of course we’re going to bounce off them – that’s why I predicted months ago that those levels MUST HOLD!  If the S&P can’t retake 1,470 or Nasdaq and SOX slip out of our DIScomfort zone, then it will be time for a new chart – and you aren’t going to like the direction one bit so feel free to join the lemmings as CNBC et al tells you to BUYBUYBUY but I’ll be sitting on the sidelines for now, keeping tabs on where the money flows so we can position for the real action later.

Happy Trading drew up this Nasdaq chart and that’s going to be our focus for the day, I will be pleasantly surprised if the S&P gains 10 points but I’m certainly not counting on that:

Oil is still hanging around $77 and I’m still saying we are not going to get a market recovery with $3+ gasoline but ZMan and I have a cautious outlook in energy and are not playing it either way, with the exception of our Hurricane Lottery Plays, which will be out shortly in this week’s newsletter.

The dollar continues to squeeze higher and I will consider the market movements to be much more significant when that music stops and gold breaking back over $666 will be the first sign of a dollar turn back down.

Let’s be very careful out there today, if we turn down and lose our levels it will be Monday mourning indeed!