And here we are back at 12,958, 21 points below Monday's open and 22 points below Friday's close.
Had I known that I would have stayed on vacation! We did make some fun intraday trades and had a great time rolling, rolling, rolling our positions while buying back callers at the open and reselling them mid-day, per the plan I laid out in the morning post so I can't say this isn't fun too. We had a nice closing rally that seemed to have some volume conviction to it with Dow volume at 4.3Bn, up from 3.7Bn yesterday and WAY up from 1.6Bn on Friday (average volume has been about 3.5Bn since 10/1).
Volume is also coming back in the QQQQs but still well off where we were earlier in the month and the pattern I see there is striking and goes very much in line with my premise that we are going to channel into expiration this month. While the Dow can jump and dive 200 points here and there, the Qs haven't strayed over $50.50 or under $49 in 2 weeks, that's about a 2% trading range while the Dow has had a wider berth between 13,300 and 12,700 or 4%. The Nasdaq and the Dow have been getting very much in sync lately and both are holding a critical Fibonacci level at a 2/3 pullback off their highs for the year. If we can hold this level, I'd have to stay bullish and say we've held a higher low in tech, a sign of the rotation we've been hoping for.
So we're going to pay very close attention to the Qs around 50 and the Nasdaq at 2,600 and not worry so much about the stodgy old Dow. The Russell, on the other hand, is of grave concern and we really need to get that index back above 750 or it will be hard to buy into any sort of rally on the major indices. I'm looking for the Russell to be a leading indicator and hedging towards a nice break of the Qs, back to $55, retesting 2,800 on the Nasdaq possibly with a Q4 earnings centered breakout as expecations are low, low, low.
This is a tactic my 7-year old daughter has mastered, she will come into the room and go: "Mom, Dad – terrible news!" and we'll say "What?" and she'll say "We're out of Oreos." Madeline has realized that by preparing us for very bad news, she can be sure her actual message will be delivered in a good light and that she is more likely to get the result she wants (us telling her we will resolve the Oreo crisis) than if she simply came in and said "We're out of Oreos," which will probably get the response, "So eat a banana." If you think my wife and I are easy marks, cut this out and keep it by your monitor for when you start buying into the next "relief rally!"
There's a great technical paper on the subject entitled "The Dynamics of Earnings Froecast Management" that you might be interested in reading. Traders are especially susceptible to psychological manipulation as it is our job to anticipate market moves and react in advance so we become hyper-sensitive to "signs" about the future, whether they are true indicators or they are manufactured for us. When we feel we're missing the boat, we tend to leap before we look and a lot of times we end up getting wet and the market makers know this and play it to their advantage. Today Goldman Sachs cut ratings on airlines, autos, lodging, office furniture, REITs, staffing, truckers, integrated oil, oil services, IT Processors, metals and software as part of their ongoing campaign to force a market bottom.
I'm not mad at GS, I've been saying for a long time that we need some nice, healthy consolidation if we are ever going to break out to the next level and those guys are pretty smart so I'm sure they see it too. The difference between me and Goldman Sachs is; while I can say we need some consolidation, Goldman can force it to happen! They are like doctors applying leeches (I know, I HAVE to get a better HMO!) to suck the excess liquidity out of various market sectors but, unlike most doctors, they are also very happy to cut you up and sell you for parts if it adds to their bonus at the end of the year.
I found it very interesting, especially as an active commercial real estate investor, that GS decided to downgrade REITs and office furniture and I'm sure the people from MLHR would find that strange too as this manufacturer of high-end office furniture raised guidance 10% while restructuring to cut costs. We've been watching MLHR, hoping they would put in a bottom and I'll have to declare them officially oversold at this point. GS has market expectations so low that the May $22.50s are just $3.45 but that should be the price of the $25s tomorrow (they are up 10% after hours) and I'm going to initiate a play here, looking to sell the Dec $25s for $1.50+ as a safety stop if they can't hold $25. It's scary to go up against GS but I'm just not buying the story they are working so hard to sell this month.
Oil got hammered on the commodity downgrade as well as reality as the NYMEX is working very hard to trim excess barrels. Oil gapped down $3.50 (3%) yesterday and stayed there, costing January barrel holders a quick $1Bn. They are still holding onto 386M barrels of January oil that you know they don't really want anyway and, if GS is calling an end to this scam, we may see how fast the roaches can scramble to salvage what they can of that $36Bn worth of black goo before the jig is finally up.
While the finanicals have fallen well below the summer '06 levels, the XLE is still up 50% over last fall's lows and oil itself is close to double what we paid in January. We need oil to come down in order to truly re-energize this economy. The difference between $60 a barrel oil we had last winter and $95 a barrel oil we have now is $700M A DAY (not including refining mark-ups) that is being sucked out of the wallets of consumers in the US alone. Worldwide we are talking about over $80Bn a month OVER AND ABOVE what consumers spent last holiday season to gas up the Hummer and drive to the mall. $80Bn a month, over $1Tn a year – think of all the great wars we could fight with that money! Think of all the Wiis we could buy (if they were available)…
Our government may be full of inept morons who stand by and let this nightmare continue but at least Goldman Sachs is finally blowing the whistle on this scam (now that they've made their money on the upside). Speaking of inept, ineffective and corrupt politicians – less than 1 year left in the current administration!
