Wednesday already?
Holy cow, this week is flying by! Will the Dow stay in my 13,000-13,300 range and make me look like a genius or will we have to scramble to cover another big move up? Actually, we ended up too bullish yesterday as so many of our callers stopped out and we had no good reason to re-cover as the markets drove ever higher into the close. I’m not too worried (see wrap-up for VIX logic) and we did jam on some index puts (475 DIA puts vs. just 50 DIA calls with 125 Nov $136 puts sold short).
Over in Asia, they don’t care why we’re rallying, as long as we’re rallying and the Hang Seng ran right into the 5% rule, up 1,362 points on the day and the Nikkei gapped right up to the 2.5% rule and held that all day. Mizuho (Japan’s 2nd largest bank) took a $630M loss on sub-prime loans and warns of more yet the banking sector was a BUYBUYBUY in Asia. As I’ve been saying to members this week – it’s all about the sentiment, no one wants to hear about the fundamentals!
HBC fundamentally lost ANOTHER $3.4Bn on bad sub-prime loans but that is being taken as good news today as the bank has "only" lost $7.5Bn so far. "There has been a broad deterioration of the whole housing market and associated credit. I don’t think anybody knows if we’ve reached the bottom — the U.S. economy is a conundrum," Chairman Stephen Green told a conference call. BSC also announced a $1.2Bn Q4 write-down but they say "that’s it" and their stock is up huge in pre-markets on that premise. As I said over the weekend, we can rally the markets despite well over $200Bn in losses, what investors want to know is that there is a bottom somewhere.
Europe is having a nice bounce on this news as well and their earnings have been strong all quarter.
We get LOTS of data today and tomorrow, here’s the chart from Briefing.com:
| Date | ET | Release | Period | Commentary | Consensus | Prior |
|---|---|---|---|---|---|---|
| Nov 14 | 08:30 | Retail Sales | Oct | Must beat! | 0.2% | 0.6% |
| Nov 14 | 08:30 | Retail Sales ex-auto | Oct | " | 0.3% | 0.4% |
| Nov 14 | 08:30 | PPI | Oct | Expected too low | 0.3% | 1.1% |
| Nov 14 | 08:30 | Core PPI | Oct | " | 0.2% | 0.1% |
| Nov 14 | 10:00 | Business Inventories | Sep | Bad if up | 0.4% | 0.1% |
| Nov 15 | 08:30 | CPI | Oct | I think worse | 0.3% | 0.3% |
| Nov 15 | 08:30 | Core CPI | Oct | What a joke! | 0.2% | 0.2% |
| Nov 15 | 08:30 | Initial Claims | 11/10 | Meaningless | 325K | 317K |
| Nov 15 | 08:30 | NY Empire State Index | Nov | Ouch! | 18.0 | 28.8 |
| Nov 15 | 10:30 | Crude Inventories | 11/09 | Build will kill oil | NA | -821K |
| Nov 15 | 12:00 | Philadelphia Fed | Nov | Pathetic | 5.0 | 6.8 |
| Nov 16 | 09:00 | Net Foreign Purchases | Sep | If down, look out! | $66.0B | $-69.3B |
| Nov 16 | 09:15 | Industrial Production | Oct | 0.1% | 0.1% | |
| Nov 16 | 09:15 | Capacity Utilization | Oct | We need better | 82.0% | 82.1% |
Hmm, maybe I should have bought some more puts! This is unlikely to be a set of data we’re going to like… Retail sales will trump all if they look like WMT did yesterday but it’s my theory that WMT took sales from everyone else BUT our PSW Retail Survey (which is going great so far, please contribute!) shows a lot of good activity so far. Our bullish premise rests on holiday spending beating very low expectations and we got caught off guard by WMT’s sparkling report yesterday although it needs to be noted that it was profits that were great – sales were only so-so.
Not everyone has WMT’s pricing power (as they celebrate their 3,000th International Store opening today) and rallying off Wal-Mart’s earnings is kind of like all of us running into a hail of bullets because they didn’t hurt Superman. Not every retailer is a Wal-Mart and it’s not so much that they are making sales (which, according to our survey, they seem to be doing) but it’s HOW they are making those sales. If they have to slash prices to get people to shop this early in the game, they run the risk of cannibalizing holiday sales in order to make their pre-Thanksgiving numbers.
8:30 update: PPI was up just 0.1% with a core PPI reading flat and retail sales came in right at 0.2%, which a rational person would think is nothing great but the futures market is loving it! The year over year PPI is up 6.1% but we’re going to ignore that too! Now I’m glad I didn’t buy more puts but I’ll be selling into this rally as I think the premise is flawed. Retail sales were just in-line with terrible expectations and 1/2 of the increase was from GASOLINE SALES! How is this a good thing?
Food sales were also up due to price, not quantity and demand was off 1% on mail order (look out AMZN!) and down 0.9% in furniture stores and down 0.4% at sport and hobby stores and general merchandise dropped 0.1%. If this sounds familiar to you, it’s pretty much the same thing as last month when we rallied on a bad sales report
Well there’s nothing to do but watch our levels and see if they hold, if the market is determined to rally on the same bad news it dove on last week then who are we to stand in the way but I will be covering and cashing into this run as there is nothing here that warrants a 400-point recovery in such short order. The market seems schitzo (and I’ve dated enough to know the signs), this has trouble written all over it. If we break out on technicals, we’ll give it a fresh look but this sudden, irrational movement is not the kind of rally I can see forming a long-term relationship with.
Let’s be exceedingly careful out there and we’ll look to lock in our ill-gotten gains (and it helps if you think of them that way) with either November or December calls and then we’ll just have to wait and see if we can really get back to our comfort zones: Dow 13,500, Transports 2,900, S&P 1,505, NYSE 10,000, Nasdaq 2,600 (we’re there, 2,750 is breakout), SOX 490 (long way) and Russell 830. That’s what it will take to resume our uptrend – we’ll take what we can get today but without at least a couple of clear break-outs, I’m not going to sleep well as it can all be undone in the morning!
