Yesterday was another pretty good day!
We didh't quite make my Nasdaq (missed by 1) or S&P (missed by 5) levels but we're just 122 points from 14,000, where we will either break on through to the other side or crash and burn – this is so exciting!
Deus Ex Buffett was used to lift the financials, which had been struggling (other than GS, of course) all day. There is nothing sexier in the markets than when Mr. Buffet smiles upon a sector and, whether the rumor is true or not (I think not) it sure does get people to take a serious look at the many undevalued financials.
We've been in the BSC calls since they hit my $100 target that I set way back on August 6th when I said: "GS – I think BSC is a better value right now. Hopefully they sell off to some extreme as I feel strongly that $100-$110 is a fair bottom for them. I’d be looking to begin setting up a nice ‘09 or maybe ‘10 play, perhaps the $110s with a 3/4 sell of current $10 out of the moneys."
Our BSC Jan '10 $120s are in very good shape and we'll be repositioning them if the stock keeps heading higher but Buffett or no Buffet, I expect them to meet some strong overhead resistance at $140 before moving on to test new highs, still miles away at $172. In the end, we went with GS too and the Jan $220s are in great shape, already up 30% with the $220s sold against them at $3.60. We're far enough ahead to let GS test $220 before we roll our caller but, if the Buffett rumor is true, we need to pull them on momentum and resell whatever level we run out of gas at.
Japan jumped 396 points as financial mania swept Asia and the Hang Seng added (yawn) another 634 points, breaking the 27,000 mark just 2 days after breaking the 26,000 mark after gapping right through 25,000 on the 19th (over a week ago!). That puts the Hang Seng up 35% for the year and almost exactly 10,000 points higher than last September, when we thought the 1-year run from 14,000 to 17,000 was bound to end "soon."
If you wonder where the money will come from to support this madness – well, you just haven't been reading my stuff… China! That's right China, who we have long discussed is sitting on what is now $1,500,000,000,000 US dollars in cash (that could be earning $150Bn a year in interest in a standard Australian bank account, but is probably doing much better if they are playing their own markets) is finally establishing it's sovereign weatlth fund (likely to be called the China Investment Corp) on Saturday – the agency that will deploy $200Bn in investments.
A cynic might say that this whole recent rally is nothing but well orchestrated window dressing in order to attract this unprecidented amount of investment capital from the worlds richest entity. The stakes are high as the fund has already indicated there are likely to be just a few hundred lucky winners. In their first investment, they took a $3Bn stake for 30% of the BX IPO (so far they are down about a Billion on that one). The planners are "obviously fending off lobbying from different interest groups," said Stephen Green, senior economist at Standard Chartered Bank in Shanghai. "And we still have no idea to what extent they'll operate independently from the government." So that's $200Bn in hot, new money that will be flowing into the markets in the near future, we spoke about this in detal on September 10th, but it's nice to see the WSJ catching up!
Further enticing Chinese investment capital is the record-low dollar, which is still consolidating along the 78.5 line but still looking ready to break down rather than up. If it takes another 1% decline in the dollar to give us a 1% rise in the market, I'll be playing the VIX to snap back over 20, the dollar to bounce back to 80 and the Dow to fall all the way back to 13,500 as that's just too many things lining up for a correction at the same time!
Europe is chugging along nicely with another round of half-point gains pre-market with very nice internals in heavy industry, despite a slowdown in EU growth. I suppose slowing growth leads to easing rates there too so but banks over there hit the ECB up for $5.5Bn overnight, indicating there are still some very serious liquidity issues on the continent as well as the obvious troubles in the UK.
At home we have an easy day, simply looking for 13,900 to hold on the Dow while we get the S&P over the hump at 1,530 and see the Nasdaq hold 2,700. If we get that, we keep making our Dow plays and ignoring the news except, perhaps, for the 10am housing numbers which are going to be dreadful but that's anticipated too. Happy Trading and I feel the Nasdaq is well on it's way and it's the S&P that needs to prove itself this week so we'll be watching that chart closely:
We added the HXL Dec $22.50s to the Happy 100 yesterday, still trading at $2.50 but it is silly not to spend another quarter to shift to the Jan $22.50s and that was my mistake so I'm going to roll it today.
Aside from a falling dollar, oil prices will get a lift going into the weekend becasue a butterfly flapped it's wings in Aftica, causing a breeze that turned into turbulance over the Atlantic which picked up some moisture that might fall within 1,000 miles of an oil platform. At this point in the season, evacuating an oil platform is like taking a snow day in March – they've already set aside the time and everyone is itching for a day off so they'll take any excuse to shut down.
We're going to start to cover ahead of Black Friday or Monday Meltdown or Terrible Tuesday or whatever cold slap of reality lies in store, it's well worth the comfort over the weekend just in case this is actually the weekend that someone takes a good look at the economy or Mr. Buffett says "Are you nuts? There's no way I'd buy a brokerage in this environment."
Let's remember not to stand around wishing for things to go our way, we need to go with the flow or, as CSN&Y put it:
Don't be angry, Don't be sad
Don't sit cryin' for good times you had
There's a girl right next to you
And she's waiting for something to do
Turn your heartache into joy
She's a girl and your a boy
Get together, make it tonight,
You ain't gonna need no more advice
And there's a rose in a fisted glove
And the eagle flies with the dove
And if you cant be with the one you love
Love the one you're with
