Yesterday was wild but fun.
At 10:03, with the Dow at 8,564, I said to members: "Blew 480 on the RUT so we are now fully negative so make sure you are covered for a drop to at least 8,400 – it would not take much to send us lower than that." We were well on our way there by 2:58 and I had to leave early for a meeting so my last call of the day was: "Well I have to go now but we pretty exactly hit 8,400 which is what I expected so if we close at 8,500 or better the day is not a total loss. RUT is very disturbing if it can’t retake -4% and the S&P needs to get to -2% or better (now right on 2.5%) with the other indexes staying over -2% or we are looking bearish into tomorrow." That's pretty much exactly what happened – I wasn't even at my desk when we got our "stick save" (David Fry's chart right)which proves I don't MAKE the markets move, I simply tell people what's going to happen…
Of course I'm just watching our levels and following the rules and that's what I've been emphasizing for months in this very technically driven market where trading programs have replaced humans far more efficiently than the Terminators did in that movie as there was no resistance at all to the dehumanization of the stock market. Aside from the removal of the uptick rule, this single worst thing to happen to the markets in the past few years was the phasing out of specialists on the floor, we have literally given control of the markets to soulless machines who could care less if you and your investment dollars live or die.
The Hang Seng completed a 10% drop this morning and finished close to that mark, indicating they are not quite done falling yet. Those FXPs are providing excellent protection and we should lighten up or perhaps cover a bit if the US puts in a close over 8,600 but more likely we'll continue to drift into the holdiay although it's tough to call tomorrow's half session. Shanghai was worse than the Hang Seng, closing down 4.6% and also not looking good for tomorrow and the Nikkei was wisely closed for Emperor Akihito's 75th birthday. This is a monarchy that has been around since 660 BC, which I think is very cool…
Belgium's monarch, King Albert II, fired his Prime Minister yesterday (oh if only I had been given that power!) over the totally botched handling of their bank bailout scandal, staring Fortis – who sort of kicked off the entire global mess last year. The King even gets to pick the replacement so a lot of royal butt-kissing is to be expected this week. The rest of the EU markets are modestly higher this morning after a pretty bad day yesterday (down about 2%) and are also likely to drift into the holiday. Banks are improving and energy companies are falling but you can't call it rotation with such low volume. The UK economy fell 0.6% in Q3, closely matching our now official 0.5% drop in GDP. Factory orders throughout the Euro-zone simply sucked in the latest report, falling 15% since last year.
Obviously we'll still be watching 480 on the Russell today as we are bearish below that line and anything below 460 is a reason for us to shif our weighting to 60/40 bearish. That would correlate to 860 on the S&P and 8,400 on the Dow, 1,550 is already blown on the Nasdaq (about 30 on the Qs) and we lost 5,600 on the NYSE so we have no tolerance for failure if 3 of our majors are below. We bought more AAPL yesterday at the bottom and I still love selling the July $60 puts naked for $5.55 as that puts you into Apple for $54.45 and if you don't want to own AAPL at that price, then you never will! Assuming your broker holds 50% margin against the stock being put to you, you would be in for $30 in margin less the $5.55 cash from the puts you sell whcih works out to $24.45 with a 22.7% gain if AAPL finishes above $60 or you will be getting Apple put to you at the lowest price since 2005, almost 75% off the top – Merry Christmas!
We're still just drifting along on low volume so not much to say and no real news and we all know that a lack of stimulus means the best we can hope for is to coast along the flat part of the tracks on our stock market roller coaster. We're hoping we find a floor higher than 8,400 but a negative finish today means we're probably going to be heading back there this week – or even today the way this market goes. As volatile as the market seems intra-day, taking a longer view shows you some pretty obvious tops and bottoms. In fact, looking at the 5-year view, we can see that we are most likely consolidating for a breakout since the September crash so it looks like volatility will be back, for good or bad, in the new year.
