Yesterday was perfect!
We got our test of 8,200, which held, then we broke through 8,400, tested it, held a higher low and then went through it to make our goal at 8,600. Of course, these are moves that used to take a week but we're getting used to the violent, intra-day nature in the market. In fact, at 1:19, with the Dow at 8,464 I was able to lay out the moves for the rest of the day, saying: "Lots of fear ahead of the BBook – that’s probably good because if we were up at 8,600 I’d be looking to short for sure. We could get a very sharp spike down followed by a rally or just a massive sell-off but let’s say 8,280 is the point I want to hold based on the last 2 days’ movement. Overall, I’d say I still favor a rally but not enough to put a big bet on it – just be ready to enjoy the ride…" You can see on the Dow chart, what a wild ride it was, hitting 8,280 on the button at 2:07 and rocketing back to 8,600 at the close – still the predictable roller coaster.
In fact, at 2:05 I had made a bold bottom call (we try to stay ahead of the turn) after digesting what I could out of the Beige Book and I said: "On the whole, that wasn’t much of a sell-off if it’s all they’ve got. SOX still up 2.5% and 27.50 held on the Qs so done with QID play." That was a call from 11:39, where we flipped out of our QID puts at $77 and jumped in the QID $70 calls at $10 – they ended up making a quick 30% at 2:05 and that is good enough in this choppy market, especially as they topped out there at $81 and fell all the way back to $75 by the day's end. We have, of course, been watching the Nasdaq for leadership and we caught the turn because the Qs held our 27.50 line at 10:24 but we caught that move at 10:14 when the SOX went green, which I had mentioned in the morning post was going to be our leading indicator.
Of course all of our plays worked so a big yawn there, more importantly the hectic nature of the rally made us dubious and we were unable to shift to a more bullish stance, tempting though it was. Today we need to hold our must hold levels of 8,400 on the Dow, 850 on the S&P and 1,450 on the Nasdaq in order to get through our resistance levels of 8,650, 875 and 1,500. Even if we take that out, we need to hit 8,900, 900 and 1,550 to avoid putting a bearish candle on the week so it's a tall order and that's why we rolled up our puts into the rally.
It's going to be a tough morning with layoff announcements and earnings warnings from Dow components DD, T and MRK and, of course, we still have Jobless Claims (8:30 update: 509,000 this week, 4.1M continuing) and Factory Orders today – both of which should be dreadful. On Friday we have Non-Farm Payrolls and Consumer Credit while next week is Home Sales, Wholesale Inventories, our joke of a budget, Trade Balance, PPI, RETAIL SALES and Business Inventories. The CPI is 12/16 and Net Foreign Purchases is 12/15 and the Philly Fed 12/18. Final GDP is our Christmas Eve present on 12/23 but for some reason they are scheduling Durable goods on 12/24. After that we get 2 weeks of almost nothing so really, the really bad data is over for now until Jan 12th and then it’s earnings. That's why the spin of this week and next is going to be critical as we have 3 weeks of drift after that!
Asia drifted down about a point with Exporters once again hitting the Nikkei on the rising Yen. While the Dollar looks good against the Euro, the Yen vs. the Euro is just as strong and on a steeper curve. TM announced production cuts and that send HMC and Nissan down along with them. The Shanghai was the bright spot in Asia, making a 1.8% gain to get over the 212 mark, now down "just" 64% for the year. Of course, the bounce from 172 at the beginning of November to 212, although a nice 23%, is still not a 10% retrace of the 415-point drop this year so let's not get all excited about the heavily stimulated China rally just yet. Commodity producers continue to drag down the global markets.
Over in Europe, as expected, we got our rate cuts but, also as expected, they aren't enough to generate any excitement. The ECB cut rates by .75 to 2.5% while the BOE knocked 1/3 off their rates, down to 2% and that got a huge "so what" from the markets as they gave up positive opens to drop about a point ahead of the US open. CS posted a $2.5Bn loss and cut 5,300 jobs and NOK cut it's global handset forecasts, warning that the slowdown has accelerated more rapidly than expected. As far as NOK's numbers go, I want to be very clear about this: You are hearing warnings from NOK, MOT and RIMM but NOT AAPL. Apple is very simply kicking the crap out of these guys!
IPhone has gone from zero to 30% of the smartphone market, according to Needham and Co, and the chart above can't even keep up with the gains. The drastic change you see is the July release of the IPhone 3G and it's important to note that AAPL tanked their own original IPhone sales with an early pre-announce of the 3G. We've been loving AAPL at $88 but did go for the covers at $95 as they do tend to get dragged down with the market and $6 for the $95 calls was too much to turn down as nice weekend protection. Long-Term, AAPL is still one of our favorite stocks.
Retail sales figures in general were terrible for November with WMT being the stand-out exception as it topped estimates on increased store traffic and transaction size. Even COST and TGT are struggling with declines and hopefully the WSJ will have a chart to play with tomorrow. Still, in addition to the daily savings afforded to US drivers, who are paying 50% less per tank than they did in the summer, there is some very good potential news from the Treasury, who are considering a program that will allow homeowners to refinance at 4.5%. This is a VERY big deal and would put hundreds of dollars into the pockets of tens of millions of people each month WITHOUT the temporary effect of an artificial stimulus and it's long overdue.
Also on the good news front is the UAW making some concessions to the Big 3 and we'll hear from Congress today but it should be a rubber-stamp on the bail-out as there is no way they can risk allowing another million jobs to evaporate after today's report. We'll be keeping an eye on our levels again but anything less than 8,650 today will put us a little more bearish into the weekend but let's see if 8,400 and company hold first! Our theme of the week is to shake off the bad news – we've got plenty of it today!
