All Fine on Friday – Drop, What Drop?

We are starting to love our stick!

From our first Alert of the day, at 9:47 we went bullish into the drop, selling the naked DIA $94 puts and covering our longer put plays fully.  After picking TZA hedged ($11.15/14.32) and a short on COST (who had jumped 10%) it was all mooing with longs on MCO, ERTS, BSX and VZ but then a bearish play on GLD at $97.50 as, again, we didn't think gold will hold $1,000.  The market started a sell-off at 1:25 but took a bounce but, as you can see from David Fry's chart, the S&P held 995 at 2:45 and at 3:07 I said to Members:

Volume right at 100M at 3pm.  140M is "stickable."  Mr Stick stopped coming after he got hosed on Monday with someone(s) selling like crazy into the attempted closing pump but "they" jacked it up pre-market on Tuesday and got their money back Tues am at which point they les the market slide to (hopefully) get rid of the jokers who had the nerve to sell into the stick.  After an almost 72 hour rest period, I think Mr. Stick is tanned and rested and ready to put a positive spin on this week into the holiday weekend.   That’s my market story at the moment.  I’ll be right if we get a move either into this close or possibly a pre-market pump into a Free Money Day tomorrow that jams us back to 9,500 on very low pre-holiday volume.   Those DIA $94 puts are still $2.15 and I still like them as a way to play for a move up (short sale).  The $95 calls came down to .69 as the bulls have lost faith and that makes them a fun play to get back into as well.

So far, my market story is looking pretty good and it's a quick 150–point ride back to 9,500, which will be a tall order if Non-Farm Payrolls disappoint but looking at then Hang Seng this morning, which got the Grand Mother of all stick saves into their close (500 points in 45 minutes), I'd have to say pretty much anything is possible.  This morning's "rally" in the Hang Seng came off an announcement by authorities that China will raise the ceiling on foreign investments AND shorten the "lock-up" period on certain types of investments considerably.  This came on the heels of another announcement that a plan to stop banks from counting cross-held subordinated debt as part of their capital will be implemented only "gradually."  "These liberalizations, and potentially an accelerated pace of approvals, may signal official efforts to stabilize the domestic equity market," said Jing Ulrich, J.P. Morgan's managing director and chairman of China equities.  Ah, nothing like Chines government stimulus backed up by approval from one of the Gang of 12 to get a market going! 

Speaking of the Gang of 12 – Hank "the Hitman" Paulson is in the new today.  Not in America of course because this news is not favorable but in Europe and investigation into Lehman's bankruptcy that Paulson PREVENTED Barclays from mounting a rescue attempt and the UK Finance Minister Alistair Darling has flat-out denied Paulson's account of the situation, which blamed Darling for mis communications that doomed one of Goldman Sachs' biggest rivals to failure.  All a coincidence I'm sure – thank goodness for Hank Paulson – had it not been for him, something terrible might have happened but it is hard to imagine something more terrible than what actually did happen (to almost everyone but GS). 

So China's "rally" boosted all global markets.  As I noted earlier in the week, it is much easier to manipulate the Hang Seng than the Shanghai so it's interesting that the Hang Seng finished the day up 2.8% and the Shanghai, which had fallen farther, is only up 0.8% on the day.  The Nikkei closed before the China move and finished the day down a bit and under that critical 10,200 mark.  Riots continued in Northwestern China Thousands of police, many in riot gear or armed with assault rifles, lined up behind barricades, as trucks mounted with loudspeakers urged residents not to gather.  thousands of people demonstrated against the Communist Party for failing to maintain security amid continuing ethnic tensions complaining angrily about the government's inability to protect them in the wake of a spate of recent stabbings by assailants wielding syringes. Han residents have blamed the attacks on Uighurs, the region's predominantly Muslim ethnic group.  Move along folks, nothing to see here.

Speaking of moving along and pretending not to see things:  Our Non-Farm payrolls are out and "only" 216,000 net jobs were lost in August.  That's 14,000 less than expected (6%) and I should stop right there because whoever is jacking up the futures sure must have as the next line of the report says unemployment jumped up to 9.7% (vs 9.5% expected from 9.4% in July) as the actual number of unemployed people rose 466,000 to 14.9M, the biggest increase since May after two months of more or less flatlining.  Teenage unemployment rose to 25.5% and black unemployment hit 15.1% vs 8.9% for whites and 7.5% for Asians (aren't statistics fun?).  Another fun statistic is the Employment/Population ratio, which dropped to a post WWII low of 59.2%.  9.1M people are working part-time involuntarily – They are considered employed but are underemployed at best. 

Another 2.3M people were not counted as unemployed because they have not actively looked for a job in the past 4 weeks but they consider themselves "want to and available for work."  This is always a grea help to unemployment data during a prolonged downturn as people who can't find work for 6 months or more tend to take a break from begging for work at some point and then the government gets to write them off as if they don't exist.  Construction accounted for almost a third of the job losses with 65,000 last month and the robust financial sector handed out 28,000 more pink slips.  That sector has dropped 537,000 jobs in the past 2 years – that would be the entire population of Atlanta fired!  Miami, by comparison, only has 420,000 people and Hell, we fired half of them just this month!  The population of Sacramento California is 463,000 and you can't fire them – because they already don't have jobs!  Ah, good times…

The ECB added some spin to the global markets this morning by raising their growth outlook even as our man, Trichet, indicates that there is no plan to withdraw quantitative easing in the near future.  The IMF gave it a spin by warning governments against "premature exits from monetary and fiscal policies" so stimulus is in the air as the official Gang, the G-20, get together this weekend to decide where they can throw money in Q3 (hint: if you are a homeowner or a job seeker, don't get your hopes up).  EU markets are up over 1% ahead of the US open (9am) with only some pullback so far off our jobs report. 

Meanwhile back in the USA – I'm all happy again because Uncle Rupert has a big headline in the WSJ that "Job Losses Moderate" so I guess everything is going fine and Bloomberg is going with the headline: "US Index Futures Gain on Jobs Data; S&P 500 Poised to Trim Drop for Week."  Well, when you have Mayor Mike and Uncle Rupert all lovey-dovey like this, who are we to argue.  Anyway, this was the plan I predicted yesterday and, as I said, we're learning to love Mr. Stick as he gets more and more predictable and is starting to pay off like a cash machine as we anticipate the moves in the market.  In a low volume day like today anything can happen and we'll see how our targets hold up but the higher we go, the more likely we are to go a little more bearish into the 3-day weekend.

Let's watch oil at $67.50, if they can't hold that we are likely to fall but a lot of effort has been made to support the market today and I don't think "THEY" will let it go to waste.  Gold will be good to watch around $1,000, I'm nervous about inflation but not THAT nervous…  Our key levels to retake and hold are: Dow 9,400, S&P 1,010, Nasdaq 2,000, NYSE 6,600 and Russell 575 – anything less than that is a real failure by the bulls today.

Have a great weekend,

– Phil