Testy Tuesday Morning

It's a virtual portfolio test day for me today.

I have meetings today and will miss the fun but it's always good to see how the virtual portfolios performs under fire when I leave them alone.  The Short-Term Virtual Portfolio finally hit 600% yesterday and we'll have to see if it can hold that line on auto-pilot.

Our virtual portfolios survived my summer vacation in good stead but, the way the market has been going, I am more nervous now, leaving for a day than I was when I left for 2 weeks in mid-August!  The market showed us a little strength during the day yesterday but had a disappointing finish and could stil go either way but I did adjust our DIA to a more bullish net neutral stance (as our positions are fairly bullish but well hedged) with the following spread:

• 100 OCT 132.00 DIA CALL (DAWJB)
• 150 OCT 131.00 DIA CALL (DAWJA)
• 200 SEP 132.00 DIA CALL (DAWIB)
• 100 SEP 131.00 DIA CALL (DAWIA)
• 150 OCT 130.00 DIA PUT (DAWVZ)
• 200 SEP 131.00 DIA PUT (DAWUA)
• 100 OCT 131.00 DIA PUT (DAWVA)
• 100 SEP 132.00 DIA PUT (DAWUB)

There is slightly more cash committed to the plus side as we held my 13,050 line pretty well yesterday but, with Bernanke making a statement today, pretty much anything can happen.  As I said to the members yesterday: "My plan, with Bernanke speaking is to cover tightly with October calls and take my lumps if I have to on that end but generally still bearish because if the Cramer crew wants a cut, letting Bernanke know it tomorrow with a huge sell-off if he doesn’t throw them a bone may be their best chance – on the 18th it will be too late with the next Fed meeting on Oct 30th."  We'll how see that plan works out today!

Cramer already backed me up last night, when Mr. BUYBUYBUY told us that "For months and months I have told you we are heading into a Recession" (I kid you not – he is claiming this!) "For months I have been saying that hundreds of thousands, perhaps millions of people will lose their homes.  For months I have said that unemployment is coming."  Aside from the obvious paint job on his previous position, we have to wonder what Mr. Cramer's motives are now?  Is it just ratings (people tune out in a bad market) or has a well-worn BUYBUYBUY button left him and his cheerleading roach pals holding too many bags as they ran out of rubes to pull into their tent?

Is Cramer putting pressure on the Fed while shaking out his "weak handed" viewers or has he truly realized what I was saying back on the 29th, that a rate cut, even one greater than 5%, won't do anything to help the people who actually need it?!?  Now that he's caught up on my column, watching his show like is a master class in Big BrotherTechniques in the Media as, no matter what the market does, Jim WAS simply NEVER wrong:

"Day by day and almost minute by minute the past was brought up to date. In this way every prediction made by the Party could be shown by documentary evidence to have been correct; nor was any item of news, or any expression of opinion, which conflicted with the needs of the moment, ever allowed to remain on record." – Orwell, 1984

While I am less gloom and doom than Cramer about the Fed doing the right thing and LEAVING RATES ALONE – If I make any move from the road today it would be to roll the profits out of my calls and raise my puts if the Dow retests 13,300 or higher and pulls below that line (13,250 for example).  That would be my target for a healthy day, 13,250 to 13,300 so let's see how that would fit in with the Big Chart:

Are you surprised by the week's changes?  Greenspan and I warned you last week that those who forget the past are condemned to repeat it – could it be that we've already forgotten how far we've fallen in just 5 trading days?  Since last Tuesday we've added red to the Dow, Transports (2), S&P, Nasdaq, SOX, and the DAX.  The Russell, Nikkei, CAC and FTSE were already in such pathetic shape that we will have to roll out a new chart to accommodate them.

The current chart is being held aloft by the Shanghai, who have clearly left orbit but, had they not been joined by the BSE I would have had to give up on these levels entirely so a 10% pullback in China or a 4% pullback in India with continued US and EU weakness will certainly be the signal for us to switch to the dark side and go short for a while.  Let's hope it doesn't come to that!  Look for a run up ahead of Bernanke's speech today and the possibility of a sell-off to retest yesterday's lows to punish Bernanke if he doesn't want to play nice with Cramer and his hedge hog buddies…

Asia had an uninspiring session with the Nikkei taking back 112 points but failing to retake Monday's open (last Thursday's low) and the Hang Seng dropped again, just 47 points but a second consecutive day as Chinese inflation surged to a decade-high 6.5%.  This forces the PBC to tighten very soon and we can expect some interim steps to reign in spending, possible another stern statement aimed at shocking the markets into a 5% retreat in the very least.

Europe is just happy we survived yesterday and they are bouncing back a point ahead of our open although there are signs of a housing/credit bubble in the UK and perhaps all of Europe as well.  The ECB reversed last week's move and pulled $82Bn OUT of the market as they felt they overshot the mark in flooding the market with Euros over the past two weeks.  This level of tinkering would have Bernanke driven out of the Fed on a rail but bravo to the ECB for caring more about getting it right than pretending to be infallible!

Oil is still way too high and I'm out of puts and anxious to buy more.  The usual suspects are shortable on a good run up: XOM, VLO, COP, CVX, SU, XLE – anyone that retakes Thurdsday's highs would be fine to initiate October puts on again and we'll hope tomorrow's inventory report is a disappointment.  If not, remember those were THURSDAY'S highs and we wish we had waited last week!

Have fun; it should be an interesting day!

– Phil