This is getting tedious.
We tested my morning level of 1,266 on the S&P just perfectly but there was nothing thrilling in the way we came back. GOOG tested my long-predicted $460 bottom for the range but we're not seeing any real evidence that it's going to head back over $500 anytime soon. Even adjusting for the rising dollar, the top of my GOOG trading range should be at least $490 and that is our new expiration day goal but it sure looks far away at the moment.
As Trader Mike points out on the Nasdaq chart, we're holding technicals but the on-balance volume SUCKS and his take on the week's action matches mine, saying: “These [market] changes are beyond halts and turns that signify genuine differences in preferences. If anything these wild pirouettes smack of incoherence. It is impossible to believe the market is expressing opinions that can be taken seriously. With this is mind, we have no choice but to be patient about letting the market calm itself and return to some semblance of rationality.”
Mike blames the back to back conventions for confusing investors and I blame fund machinations that are trying to force as many people as possible to capitulate out of what is the only properly investable market on the planet before they place their end of year bets. The problem, as the great John Maynard Keynes used to say is that "the markets can stay irrational longer than you can remain solvent" and, to that end, we are going to have to consider taking covers tomorrow – even though we don't really want to.
Tom2oc and I are both happy about the VIX not breaking 22 but, as I commented to members, it does look dangerously like it's consolidating for a big break-out and a spiking VIX is usually accompanied by a plunging market. Oil failed to break $110 but that doesn't matter until we see the inventories tomorrow. I said this morning that I'd love a big spike to short into but I don't think this market is strong enough to take $110 oil, even briefly.
The Russell provided our bright spot in the markets and has been outperforming all week, perhaps due to the same observation I made in the morning post regarding the dollar – that companies that make their money here in the US are going to outperform with a rising dollar and the Russell is just chock full of those kinds of corporations. Our friends at Bespoke were kind enough to illustrate the point with this chart of the S&P showing that the 148 stocks with no overseas exposure are drastically outperforming the other 352 over the past 2 months:
The dollar itself shows no signs of slowing and we have rate decisions from the ECB and the BOE tomorrow and, despite their tough talk on inflation, it is doubtful they will be able to push through a rate hike in the very negative business environment that is gripping Europe. That means we are not likely to get a big pullback in the buck, now at 78 so oil will have to find some fundamental reasons to go up although they do have the hurricanes to fall back on for another month.
Natural gas tested $7 yesterday, down 17% from my 8/26 bear case on that market. $7 is a good, bouncable spot though and if UNG holds $32.50, it's worth a gamble as weather insurance, more so than oil, which has quite a long way to fall if they break down from here. Jan $31s are selling for $5.30 with $3 in premium and you can collect a quick $1.50 for the $35s on a run-up into inventory tomorrow that is almost certain to come. The Jans should hold value pretty well as hurricane season lasts through October.
The two bright spots I see are the VIX not breaking 22 (so far so good) and the Nasdaq's advance/decline line continuing to creep up off the July 15th lows. All week I've been noting that the selling in the Nas has been concentrated on the leadership, something funds may do to give the impression that the Nasdaq is weaker than it really is to keep buyers away while they accumulate the lesser names. The logic of this is that they can always buy GOOG or AAPL and make 10%, whether GOOG goes from $460 to $506 or $550 to $605, it's the same 10% to them and likewise with AAPL or RIMM or whoever but picking up AKAM at $20 when no one is paying attention is a real coup. I like the AKAM spread of the Jan $17.50s for $4.50, selling the $20s for $1.25 which puts us in a $2.50 spread for $3.25 with 3 months to roll but it's tough to throw money at this very irrational market – especially when we need to concentrate on staying solvent!
