Can we hold our ill-gotten gains today?
The markets are about 10% off of Friday's bottom so we will be very surprised not to get at least a 2% pullback, about a 50% retrace of yesterday's gains in today's trading. That's pretty much what happened in China but the Nikkei continued higher, adding another point to just under 8,400 but falling far behind the Dow after pacing it very closely during November. As I noted in last night's Big Chart Review, we are going to shift our focus back to those 40% lines (off the 2007 highs) in the various indices, with only the Dow, who are down 36%, over that mark in the US and only the FTSE, also down 36% ahead of that mark in Europe.
We are looking for the Dow to hold 9,000 of course but the 40% levels we will be looking for are: S&P 946, Nasdaq 1,717, NYSE 6,232, Russell 514, SOX 329 (miles away) and Transports 1,868. It may be surprising to you that we are just as close to 50% off as we are to 40% on most of our indexes, especially from the way the media has been fawning over the markets for the last few days and I pointed out to members last night that a move from 50% down to 40% down is nothing more than a 20% retrace of the drop – yet it is being spun for you as a 20% "rally" off the bottom!
The Nikkei was held up this morning by the banking sector as MTU had a successful 1Bn share stock offering that drove Japan's largest bank 6.5% higher. Real estate firms jumped up on a report that Japan's land ministry is putting together emergency steps to help support the nation's real-estate companies, and hopes for a government tax cut on housing loans and that sector gained 7.2% so let's put that 0.8% gain on the Nikkei into a little perspective. GDP data, also released today, confirmed Japan is in a recession and SNE announced 8,000 job cuts and a shutdown of 10% of their production facilities – not exactly rally material…
Over in Europe, the FTSE and CAC continue their winning streak this morning, up another 1% at 8:30 but the DAX is giving up early gains despite a better than expected economic survey showing investor confidence up after the recent rate cut. "Falling oil prices, a weaker euro and planned government measures to rescue the financial sector and the real economy seemed to have offset increased fears of a global recession," said Carsten Brzeski, analyst at ING Financial Markets.
As we expected, falling gas prices are cheering up global consumers as it's a very immediate and recurring sense of satisfaction to go to the gas station and get more than 3 gallons for $20. Europe is less impacted by this than we are as taxes are a bigger part of their gas bill and, frankly, the US needs to take this opportunity to put a $1 tax on gas, now that it's come down so fast, and put that $146Bn a year towards alternate energy. Obviously, we can survive paying $2.50 a gallon so let's not let gas go to $1.50 a gallon, let's keep those prices high and create 3M $50,000 jobs working towards a cleaner, greener America that will move towards making sure that gas never costs more than $2.50 again. I won't get into a whole thing about it here but if we put a $1 tax on gas and raise $146Bn, we can retool the Big 3 to produce all 35mpg cars and that would cut the average American's fuel consumption by 37%.
Buying 37% less gas at $2.50 is the same as paying $1.50 a gallon anyway so we can produce more fuel-efficient cars and sell them by offering $5,000 incentives for people to switch. $5,000 per car divided by our annual $146Bn tax pays for 30M people a year to get brand new 40mpg car from the Big 3. The total amount of cars and trucks sold in 2008 through Nov is right about 15M, a $5,000 incentive should be just enough to get people back to the showroom and boost auto sales significantly. If we get just 15M car owners a year to switch from 20mph cars to 35mph cars, every single year that the program is in effect the US will import 500kb less fuel per day by the end of each year of the program. A switchover of our entire fleet to 35mph cars would save 4Mbd, over 20% of all US fuel consumption – that's how you keep gas prices cheap for the next decade!
It's all about the auto bailout and a $15Bn bail-out is already priced in and hopefully will be enough to to keep them solvent through the holidays. There was a massive job cut you didn't hear about as NBC effectively fired 5 prime-time hours of television shows and replaced them with Jay Leno, who will now host the 10pm hour on NBC every night, saving the company $1.3Bn a year of production expenses on shows not too many people were watching anyway. Think about the significance of this move, this recession is so bad that a major US network is cutting 25% of it's programming – that is not a vote of confidence on a quick rebound.
We stayed very wary into yesterday's close and did not move to a more bullish stance despite the non-stop cheerleading from the MSM and I would continue to urge caution until we put in our 40% marks and hold them through a test but we haven't even gotten there yet and it's a little early to get excited. We get Pending Home Sales at 10 today, a shocking budget report tomorrow ($200Bn monthly deficit) along with Wholesale Inventories at 10 and Thursday we have the PPI and Retail Sales so let's try to get through that before we get all bullish.
Into yesterday's close we went with DIA puts and QID calls, expecting at least our 2% retrace so we'll be watching that line very closely but, if that doesn't hold, it's time for some mattress plays as there is a lot air underneath this rally and the 850 line on the S&P is begging to be tested from the other side.
