Come on bears, is that all you've got?
I called for a retest of 13,500 yesterday but below that and things may get very ugly indeed as we could easily drop back to 13,200 and even the dreaded 13,000 mark where we failed to consolidate properly back in August when we had the chance.
Just holding 13,500 would be great today but a quick bounce (possible off the jobs report) will again lift us to levels where there is little support. Why are the funds and the fed so afraid to let the market consolidate? That's what makes me nervous. If the economy is healthy and the markets are healthy and the corporations are healthy then you let the Nervous Nelly's take their money out until cooler heads prevail and people come to realize the true value of the mighty US markets.
That's how the markets are supposed to work. It's how they've worked for hundreds of years, free markets are SUPPOSED to be a pure and reliable indicator of value. If the government/GS (same thing) is not letting the markets "do their thing" then the logical conclusion is there must be something to hide – something so terrible that they would rather destroy the integrity of the measuring system than allow an accurate measurement!
Speaking of lies and cover-ups: MER has apparently been mismarking securities with the help of hedge funds in order to make their losses on mortgage-backed securities seem less severe. According to the WSJ: "The SEC is looking into how the Wall Street firm has been valuing, or "marking," its mortgage securities and how it has disclosed its positions to investors, a person familiar with the probe said. Regulators are scrutinizing whether Merrill knew its mortgage-related problem was bigger than what it indicated to investors throughout the summer." See, I told you CEOs don't leave over one bad quarter – where there's smoke, there is often fire.
I won't get into all the shenanigans as the WSJ article covers it very well but if you think the this deal is something only MER did you are truly on drugs. The hedge funds bought $1Bn in bad paper from MER in exchange for a GUARANTEED minimum return and the right to sell it all back to MER. The net effect is getting the bad paper off MER's books so they can pretend they "ONLY" lost $7.9Bn this year. MER is very happy to pay $100M to not lose another $1Bn and the hedge fund is thrilled to get $100M guaranteed on a safe Billion with an upside bonus if the mortgage market bounces back next year.
Since the deal is so good for hedge funds and since hedge funds have TRILLIONS of dollars they need to park somewhere, do you really think the funds didn't approach other brokers, banks etc. with this scheme and do you really think they all (several hundred lenders) said no except MER? I'll tell you one thing for sure – NOT ONE of them blew the whistle on the funds or went public saying they were being solicited to deceive investors. That in itself should make you wonder about the moral environment, the one I warned you about when we discussed all the Federally prosecuted companies that make up the DJIA. When there is no penalty for bad behavior, what kind of behavior do you expect?
8:30 am: None of that seems to matter in pre-markets as we got a good jobs number (166,000) with low wage growth (0.2%) with steady unemployment (4.7%) and the media are throwing a party as if this changes something. Expectations were for 88,000 jobs so the 100% miss by analysts is somehow considered a good thing whereas it seems to me that this means nobody knows what the hell is going on in the economy – not ideal one would think.
Asia was off 2% across the board led by a 1,024 drop (3.25%) in the Hang Seng. China inflation threatens to spiral out of control, destroying the spending power of 1.2Bn people and Hong Kong (as I predicted) was forced to lower their rates to maintain their peg to the weakening dollar. These two items will save the dollar from testing 76, where a failure would lead to cascading monetary issues so we dodged that bullet for this week.
BIDU is flying in pre-markets this morning as Jim Cramer declares it one of the "Four Horsemen of China." This thinly traded ADR is subject to wild swings and we have puts on it so we can cover with close calls and ride the wave up if they break $400 while we roll the puts higher in case the market doesn't back the initial excitement. ""I don't care if China's a bubble. I care about making money" said Cramer. With advice like that, what can go wrong?
Europe is nowhere near as excited about our jobs report as our pre-market traders seem to be as indices over there are down close to a point, following yesterday's 2 point drop. The ECB looked at rising oil prices and may RAISE their inflation forecast over the 2% limit that will force action to contain the threat. As I write this SuperBanker Paulson is flying over there (under his own power) to explain the fabulous US concept of core inflation, which let's our Fed pretend none of this is really happening.
CVX had poor earnings but that was a given after yesterday's XOM debacle, we'll see how our COP puts do but Jimbo for some reason decided to get on their bandwagon as well but the WSJ has finally come to my side of the table and is declaring (after the fact) that "Big Oil's Profits May Have Peaked."
Have our markets peaked? Before we put on our rally caps this morning, let's make sure we make back more than 80 of the 400 points we lost since Thursday at 3pm (2.86%). This is so far a neat 2.5% rule move for the Dow and we expect to hold 98% of 13,900 or 13,622 if we are going to have any kind of real rally so let's watch the action around that spot. The Nasdaq did not fall as far but must retake 2,820 to be taken seriously and the S&P is right on the 2.5% line from 1,550 so not staying over 1,510 would be a VERY bad sign. 1,525 would be an investable break-out there and then we can see how we perform between 1,520 and 1,530 to position our plays, which are mainly neutral at the moment.
Mattress players need to quickly add a layer to our calls if we break 13,650 at the open but I'd rather roll up than stop out the put side as we REALLY want to maintain a tight strangle into the weekend.
Let's be careful out there today!
Quick note: My favorite Republican (didn't know I had one did you?), Rudy Giuliani was on Kudlow yesterday and he seems to be finding his groove. If you watch the interview you'll see the great prosecutor in action, hammering his points home to the jury, circling back to his talking points, savaging his rivals and turning negatives into positives. I could see him as President but he still has that flaw of overdoing it A LOT (listen to how many different angles he comes at Hillary – effective but mean), which rubs a lot of people the wrong way. You can really see this guy actually getting into the White House and solving some problems. While there would probably be homeland security cameras placed in your bedroom during his second term, I'm pretty sure a lot of macro problems would be solved as well. Now if we could only get him to stop sucking the brains out of babies! 
