Thursday Morning

I got my oil rant out of my system last night so let's take a cue from our leaders and ignore it today!

Bush is speaking tonight and I'm quite confident that the White House has this situation well in hand and will wave their magic wand and make everything better so let's just accept the fact and move on…

The markets held up well yesterday despite silly concerns over energy prices.  According to the latest WSJ poll (possibly the last one not directly overseen by Rupert Murdoch) the President's approval ratings made a dramatic turn-around with a full 37% of the American people now thinking it may be possible to "win" the war.

"Only" 61% of the people diapprove of the job George Bush is doing as President, down a full 5% from the June high of 66% (1002 people polled, 3.7% margin of error).  38% of the people approve of Bush's handling of the economy, despite another poll of leading economists now predicting the probability of a  recession is now 36% – so congrats to the President on winning over the hearts and minds of the people!

11 of the 24 economists surveyed said there was a 50% or greater chance of a recession and don't forget, when you read these surveys, that economists have party lines too!  Consensus on this year's final GDP is now 1.9%, down 24% from last month's estimate of 2.5%.  Growth prospects for Q1 took a similar dip, from 2.6% to 2.1%.

According to the WSJ: Economists in the recession camp say that drops in employment — and housing declines of the current magnitude — rarely occur outside of periods around recessions. In addition, the housing-market decline is reducing household wealth and hurting consumers' ability to tap home equity. Also, the credit-market turmoil could exacerbate the housing problems and curb consumers' opportunities to borrow. The result, they say: Slower consumer spending, which accounts for 70% of economic activity.

Alliance Bernstein economist Joseph Carson, who puts the chance of a recession at just 5%, said consumers already have adjusted their spending as a result of the housing correction and a precipitous consumption drop isn't likely. And even though employment fell last month, overall incomes are growing. "We think the spending trends are still pointing to modest growth in the U.S., not a recession," Mr. Carson said

Who's right?  Well, since we are given the choice between the bear who says contraction and the bull who says flat, I'm not quite sure I care.

Yesterday's market action was neutral, but neutral is good and we made nice improvements in the charts of the Nasdaq and the S&P but the fundamental outlook led me to take a more bearish stance going into the close with our DIA put/call ratio at 650/250 to the dark side.  Looking at the pre-markets, that may be a position that will cost me, but there was nothing I saw in the actual data yesterday that led me to believe that all was suddenly right in the world now that we finally got the price of oil over $80 a barrel.

Asia took things rather well as Japan managed to tack on 23 Nikkei points as Abe (52 years old) was rushed to the hospital for "exhaustion and stress."  The Hang Seng opened at 24,500 (a gap up from yesterday's close at 24,300) then quickly fell to 24,225 and then recovered back to the open after lunch to finish a wild day up 226.  I seriously want to move to Hong Kong and just play index puts and calls all day long!  We seem to have finally broken out over the 24,000 mark and, more than anything else, it is the Asian economy that might pull us through the troubles we have at home.

Commodity stocks led the rally in Asia, including property companies.  PKX jumped 4.4% on a stronger outlook for steel with Hunan Valin Steel Tube & Wire and Maanshan Iron & Steel going limit up (10%) for the day.  This is a good time to take out our caller on X and we'll have to consider adding to our Jan positions despite the weak chart.  We can establish a position on the Jan $100s at $5.40 and look to sell the Sept $95s, now .85 on a good run to start working off some of the premium.  NUE also has a bad chart but may take off with the sector and the October $55s are worth a gamble at $2.15.

I would have chosen MT but they are already up big in Europe so they are not worth chasing.  Europe is fairly flat on the whole, spooked by a downward revision by ALU on weak US sales that sent the newly merged company plunging 11% in today's trading.  British mortgage companies are selling off but builders headed up and, of course, there was a massive energy rally that pulled everyone higher.

As we noted yesterday, the ECB dropped another $104Bn into the markets so you have to wonder what the EU exchanges would be doing without it.  Russia's Lukoil reported an 8.4% rise in profits despite a 12% rise in operating costs.  Revenues were up 9.9% on higher prices (1.4% rise in output) so it's nice to know that there is pretty much a 100% correlation between higher prices and higher profits for the majors.  The Swiss National Bank took a less than neutral stance on the situation and RAISED their rates "to head off inflation even as rising credit costs threaten to weigh on economic growth."  Switzerland is now the first CB to bring rates back to pre-9/11 levels – do not expect it to be the last!

Despite a lethargic European market the US futures are up sharply this morning despite us having access to pretty much the same news and it's possible we may open with a test of 13,400.  No matter what you think of the underlying fundamentals, you have to respect the charts and Happy Trading nailed it yesterday over at Wang's World:

We're going to have to be quick on our feet today as there's no sense fighting the tide but I will be sticking to my guns and rolling up the puts to a tight squeeze ahead of the Fed next Tuesday as the more we rise, the more catastrophic the fall might be if Uncle Ben doesn't throw us a bone.

Let's ignore the Dow today as GM, MCD and XOM all have uniquely good news this morning and concentrate more on the S&P and Nasdaq levels of 1,480 and 2,600, which have to hold.  Today is a very light holiday trading day and we have little data that is likely to throw the market so it's a great day to manipulate the indices – not that anyone would do such a thing of course!

We will also be watching the non-marquis numbers from the Russell (must retake 800), the NYSE (9,600) and the SOX (500) with the Russell and NYSE currently miles away from where they were when the Dow was last at 13,400 in early August.

We'll see if oil can break $80 and hold it today.  The NYMEX was fascinating yesterday as oil climbed $1.68 as 291Mb traded during the session BUT, at the end of the day, there were 18M LESS barrels ordered for October delivery than there were when I predicted this would happen on Tuesday.  The October count now stands at 248Mb while November has gone up 24Mb to 272Mb and December stands at 205Mb, up 1Mb since Tuesday.  Orders for Jan '08 actually DROPPED 3Mb (4%), to 68Mb BUT THE PRICE ROSE $1.49 (2%) FROM TUESDAY'S CLOSE.

Does that seem right to you?  As I said in yesterday's wrap-up, when you can sit on the floor of the NYMEX and watch the traders chanting "Go, Go, Go" as oil breaks the $80 mark, then it is very clear where their interests lie.  This is not commodity trading, it is commodity PUMPING – it is a large, concerted effort to deprive the American people of their money and IT WILL NOT STOP unless YOU do something about it!

Meanwhile, it's a bull market – let's try to have some fun out there!