Tuesday Top Off

Wow, what a week and it's only Tuesday!

From record drops to record pops in one day is no way to run a market and it's still a day trader's paradise as what works one day is poison the next and vice versa.  This morning we started out looking for better than 20% bounces off yesterday's drop and it didn't take too long for us to get on track.  We started out cautious but it only took until 10:04 to decide we were on an uptrend as we noticed the big banks leading the charge and I called for covers on the SKFs.  We got a nice Consumer Confidence number an a better than expected Chicago PMI at 10 and by 10:13 our indexes were testing the 2.5% rule.

The momentum picked up at 10:18 when I saw on CNBC: "Now Kudlow is talking about what the Fed, FDIC and Treasury can do without Congress that I talked about above, this is going around and may give us some traction to the upside so watch out for those financial puts!"  That led to a very large amount of bullish trade ideas which obviously worked out on an up 485 day and we ALMOST started looking at full covers at 3:17 but, just 6 minutes later, we got the word the SEC would be changing the mark to market accounting rules which allowed us to be a little braver about tomorrow. 

We're still worried about hedge fund redemptions causing an unwinding of positions but that will be part of the very large wall of worry we will be dealing with all week, even after they pass (hopefully) the bailout package.  The Dow finished above my 10,800 target by 50 points, also a good sign but we're not going to get too excited until we take back all of Monday's losses, something that will really perk up our weekly chart of the S&P measured in Euros as the dollar made great gains today as well.

Looking at our Big Chart, things could certainly have been worse:

Well, not much worse – yesterday the sole green box in all of the world's markets would have been the Russell, which held the line at 657.  That, my friends, is the proverbial abyss we stared into and may again if Congress is determined to repeat Monday's madness.  It looks like a 66% drop was finally enough for the Shanghai, which bottomed out at 203 on the 18th and is up 17% in the two weeks since and is the only index to put in a positive week.

We still have a lot of work to do to take back our 25% levels and we'll be looking to London and Japan to make up some ground tomorrow ahead of our open.  The S&P needs 20 points to earn another green box and that's our best hope for tomorrow but the Dow MUST NOT cross that 10,644 line again as it's a long, long way to the bottom that is being shared by the Hang Seng and the Shanghai at 50% off the highs (that would be Dow 7,000!).

In the morning post, we discussed the action in Ireland to bail out the banks as well as things the Fed and Treasury and FDIC could do without Congressional approval to improve the situation and today it seems as if the government is going to be doing pretty much all of them in some form or another.  The FDIC is also considering increasing deposit insurance limits from $100,000 to $250,000 which is very nice until you realize that the FDIC already insures $4.5Tn worth of deposits and has just $45Bn in the actual fund – Now that's leverage!

"What we're seeing, in general terms, is almost irrational behavior on the behalf of some consumers who are panicking," said Scott Polakoff, the senior deputy director at the Office of Thrift Supervision, which regulates savings and loans.

I still don't know for sure that Congress will approve the bailout package, I still hear enough conflicting information to make me think it may not pass but plenty of things are being done and the markets were certainly encouraged today and there were no new bank failures (even WB gained 90% and NCC picked up 28%) so we'll take what we can get, one day at a time for now….