Yesterday was a wild one.
We call it "Testy Tuesday" for a reason and our 5% rule was tested twice during the day but the market failed to break out despite what seemed to be a contrarian rally to Fed minutes that I summarized to members at 2:02 as "BAD!!!!" Of course we expected them to sound bad, I said as much in the morning post and Forbes summed it up better than me with a headline stating "Fed Minutes Offer No Comfort."
As the market was "rallying" I predicted we would not break our watch levels for the day and we ran right up to them and failed. Sadly, we were looking at put plays on FCX and OIH and selling SKF puts (which pay off when the financials go down) in a reversal of our positions from last week. We're hoping to hold the line on the sell-off and gear up for an Obama rally next week but that's 3 long days away at the moment. We actually love days like this as we get to test the resolve of the bulls, who still have not shown up in force and now will have to defend 8,866 and 8,650 to show us that they do mean business.
I remain bottomish and I'm going through the good exercise of re-analyzing the 38 stocks I had selected for members in various sectors on December 1st as my favorite bottom picks and, about halfway through, we still have no rejects although 2 (TIE and GLW) have fallen off our buy list for this month. Since we had picked TIE at $7.28 (now $9.39) and GLW at $8.45 (now $11.55) it's really just a choice not to be greedy and possibly push our luck too far.
I am proud to say that our list went 38-0 with better than 30% average gains since December 1st and the format is popular enough that we'll try do a list like it ahead of each cycle (currently we are selling Feb contracts so in early February we'll be looking at March).
We'll need to make 30% a month the way Obama is casually talking about the US running up "Trillions" in debt during his administration. That was enough to halt the dollar's recent rally as we took a harsh rejection of the 50 dma at 84, finishing near the day's lows at 82.83. 81.50 is the line to watch on the dollar and we need to hold that in order to keep a positive trend on the 200 dma. 81.50 is our mid-point on the dollar and represents a 5% decline from our 12/11 breakdown as well as 5% up from the 12/18 bottom. At 82.83 we are still down 5% from where we were on 12/1 and you can see from this chart that oil, priced in relative dollars, has not been as impressive as you may have thought on their "bounce." $50 is indeed the magic number and, even priced against the falling euro, we can see oil has not yet broken over any technical long-term declines. $50 is NOT the 50 dma of WTIC so failing there is a VERY poor showing by the NYMEX pump crew and Criminal Narrators Boosting Crude are working overtime this week trying to get people back into that busted bubble.
The energy pushers also need to beware of France and Egypt, who are teaming up to put together a cease-fire agreement between Israel and Hamas on this 12th day of bombing. Russia is pushing the other way as they have accused the Ukrain of stealing gas (they are) and have now cut off shipments entirely but natural gas is a local matter and this is not enough to support a gain in US prices. Today we have the crude inventory report and another big build can send oil quickly back to $45 and that will take the markets with it as the energy sector has been our rally leader for the past week so let's be very careful out there today. As I said on Monday morning, this is not an economy that can support a run-up in oil when every $10 barrel gain costs US consumers $1.4Bn a week.
We forgot to pick up the very cheap FXP's in yesterday's excitement, that is one of our favorite covers when we turn a little bearish and that's a shame as the Hang Seng dropped 3.4% on the Fed's prospects of a very weak 2009 for their largest customer. AA's outlook was no help either but what really killed Asia today was a 7% drop in India as SAY turns out to be a scam with years of ficticious profits. Satyam fell 78% and took the whole Indian tech sector with it. "Some people have been saying it's time to buy but I think it's not time yet. I wouldn't hold my breath and say the worst is over," said one analyst at a local brokerage in Singapore.
Europe is off about 1.5% ahead of our open, led down by the energy sector despite Russia's escalation with the Ukraine. Banks were also hit hard asthe EU debates the fate of credit default swaps and profit taking hit the miners (mainly coal), who had led the recent rally. UK retail giant Marks and Spencer announced the closing of 27 stores on a 7.1% decline in sales along with declining margins in December and German auto sales were off 6.6%.
Obama is holding a press conference this morning but we already got an ADP report that shows 700,000 jobs were lost in December and that does not bode well for Friday's Payroll Report. We also had warnings from TWX and INTC which wil be no help this morning. Tomorrow we get weekly jobless claims so the hits may just keep on coming this week – a wonderful environment to test our levels so let's keep our eye on our 38 favorites and see what discounts we are offered this week.
