The market action today was nothing short of astonishing! If you were out for the day and returned you would have seen the Dow close down -0.01% (almost 1 point!), the NASDAQ close down -0.88% (24 points) and the S&P 500 close down 3.71 points or -0.24%. No big deal right?
Wrong! It was a rollercoaster!! As we mentioned in last night’s update, the $7.9Bn write down of CDOs and sub-prime mortgages at Merrill Lynch was the catalyst to pervasive concerns. Futures were looking extremely bleak around 6am EDT when we first alerted you to the potential of a bearish day ahead. Approximately 1 hour later, the Futures began to creep up from their lows. Around 9:30am EDT, when the Dow opened, the market was almost flat and then as the morning progressed the bears asserted control. The Dow was driven down by more than 180 points (twice), touching an intra-day low of 13,470, before staging a monumental late day rally that actually saw the Dow go positive before finishing just in the red by 0.98 points.
Why the massive reversal? Was it something substantive? Rumors abounded that Fed was going to cut rates again. Phil was on top of this early in the day with comments at 11.01AM
“Fed Funds now at 100% chance of a cut. Madness! Maybe they can get oil up to $90 this time by throwing money at the problem.”
The most unprofitable trade all year has been to bet against Bernanke. His monetary policy has been equated by many to that of a protective put (i.e. insurance!). Who cares if the economy is driven off a cliff if we have a parachute for the first third of the fall that makes it appear as if the landing will be soft? Perhaps SuperHank Paulson will figure out how to fly in and save us before the thud.
Well let’s move on to the fun stuff! Here’s your trivia question of the day…what do you get when you cross a bull with a cat?
Caterpillar (CAT), of course! CAT was reviled earlier in the week but was positive today even when the Dow was down 180 points. Anytime you see a stock remain bullish on a huge market down day it’s time to pay attention because the likelihood is it will be very bullish on an up day. The technical trend is clearly bearish and today’s move did change that trend but we will be watching very closely to see if a breakout does occur soon.
Flagship names like Apple (AAPL) [Aside: Is this the iPhone killer? We won’t bet the house on it! http://tech.yahoo.com/blogs/patterson/7551/touchy-feely-with-the-sprint-touch] and Research In Motion (RIMM) remained firm in the face of the decline. Google (GOOG) also held on nicely to finish flat for the day after being down by as much as $17 intraday. We highlighted yesterday that weakness in Apple might offer a nice bull put opportunity and we backed that up with our alert an hour before the market closed.
The New York Stock Exchange (NYX) had another excellent day and finished right at $90.00 (intraday high of $92.80). We highlighted it long ago when the stock was at $68 and again at $70 as a Trade Alert with strong fundamentals and nothing has changed our thesis in that regard. As you are aware we took our profits when we hit our Target Exit Point but if you are still in the position, we encourage prudence at this stage. That means rolling the long calls up in strike price to bank some gains. A profit is only a profit when you CASH IN.
Another interesting occurrence relating to the NYX is the huge amount of after-hours volume: 13,571, 300, which is likely attributable to the company’s addition to the S&P500 tonight. If we see a sell-on-the-news reaction, we might use the opportunity to initiate a new bullish position.
It’s a little spooky that Halloween overlaps the day the Fed announces so prudence dictates remaining hedged.
Stay safe out there!
Stock and Option Trades
