That was some day yesterday.
We even had to flip bullish in the afternoon (slightly and reluctantly) but, when push came to shove and they asked me for my opinion on TV, I had to tell them I still thought we were toppy. I said that despite the Fast Money crew sitting in the studio right below me actively advising their viewers to chase the performance and, right after them, our friendbuddypal Jim Cramer told his viewers that no news is good news and the market is in a "a positive and delicious void" where we don't have to worry about any pesky facts interfering with our buying premise.
To that end, Cramer suggests chasing AAPL, GOOG, GS, BAC and WFC and anything else that is not nailed down. "There are only 35 days of trading left in the year," Cramer says, "so we can expect money managers to pile into these companies when they realize the 2010 numbers are too low. Retail investors should be sure they aren’t left behind." Yes, we should blindly follow the money managers because they've never steered us wrong before (end sarcasm font).
Does it bother me to have be on the other side of the trade from "the finest minds on Wall Street"? A little, to be honest. As I pointed out yesterday in reminding you about what happened in 1999 and as John Maynard Keynes reminded us all decades ago: "The market can remain irrational longer than you can remain solvent." We discussed this logic back on October 12th, when I warned the bears that you can't keep supporting the wrong team when they are clearly losing the game.
We had stayed about 55% bearish into the weekend but quickly covered up in the morning after all that stimulus talk against the declining dollar. In my 9:43 Alert to Members I said: "If we break over 10,120, then the selling the DIA $103 puts, now $2.55 are a great momentum play if you have the longer covers to protect you." Those puts finished the day at $1.70, a nice, quick 32% gain on the day and that's how fast you can rebalance using index covers and those profits came AFTER buying back the Dec $99 puts we sold for $2.50 at $1.80 – 28% from Friday to Monday.
In the morning post, I had set up a chart for the week and added our 25% targets of Dow 10,250, S&P 1,100, Nasdaq 2,187, NYSE 7,000 and Russell 600 and, as we expected, only the NYSE was able to make it (they only needed 42 points) and we ended up going long on the Russell and the Nasdaq as they were the farthest away from their highs. That put us very slightly, very reluctantly bullish into the close but we also pushed up our DIA puts to give ourselves much more leverage for the ride back down.
Another set of levels we were watching yesterday were our 5% levels. Not from yesterday's open but from the consolidation points at the beginning of the month. For each 5% level we expect a retrace of 20% of the gains before the index moves higher so the 5% levels I set yesterday (which all came very close) and the retraces we expect to see tested today or tomorrow are: Dow 10,206 (10,125), S&P 1,086 (1,075), Nas 2,152 (2,130), NYSE 7,087 (7,020) and Russell 588 (583). With this confluence of 25% gains off the July consolidation point, the 5% rule and making new highs, I will be truly amazed if the "finest minds on Wall Street" called it right yesterday and we keep going higher with no pullback.
Asia stalled out big-time this morning, especially considering the "fantastic" day we had that all of my MSM brethren were crowing about on their respective platforms. After gapping up 350 points at the open, the Hang Seng fell and fell all day and finished up just 60 points at 22,268 but that is over their 25% line of 21,875 so they are "good" until they fail that. Financials led China higher as CS upgraded ICBC and C upgraded AMP Ltd. Japan's Finance Minister also helped pump up the financials by saying domestic banks won’t be punished if their Tier 1 capital ratios fall briefly below 4 percent. That gave the Nikkie an exciting day as well, gapping up 100 points, rising 75 more points into lunch and then falling all the way back to just a 61-point gain for the day.
China continues to preventing its currency from appreciating after overseas sales slumped 11 straight months through September. Exports fell 13 percent from a year earlier in October, the smallest decline this year, according to the median estimate of 31 economists surveyed by Bloomberg. The customs bureau will release the latest export data tomorrow. Consumer prices slid 0.8 percent in September from a year earlier. Government data to be released tomorrow may show prices fell 0.4 percent last month, a separate Bloomberg survey showed.
Another interesting China prediction I made earlier this year is also coming true as China may now have to re-export part of their 350,000 ton copper stockpile, which can quickly cripple the metals bubble as China has been virtually the only sucker buyer for copper all year. “We can hardly find buyers for refined copper,” said Luo Shengzhang, general manager of the copper department at Xi’an Maike. The company ranks among the country’s three biggest importers, according to the executive. “China’s got to export some copper from now and next year,” Luo said in an interview. Xi’an Maike has had to re-route some bonded copper to London Metal Exchange warehouses in South Korea because the company was unable to find buyers in China, with local supply outpacing demand, said Luo.
Buying the metal from overseas to sell in the Chinese market has not been profitable since at least July, according to Bloomberg calculations. Prices in Shanghai were more than 1,300 yuan a ton lower than London yesterday, after accounting for China’s 17 percent value added tax. Needless to say we like shorting FCX after the 10% gain they pulled this week. The Dec $80 puts are $3.90 and Nov $85 puts (now $3.80) can be sold against them if momentum takes them higher but I think this whole copper and gold trade falls apart by December expiration.
Europe is trading flat ahead of the US open despite having all night to stare in awe at yesterday's magnificent gains. As David Fry points out in this S&P chart, perhaps the lack of volume makes the move less than convincing – especially when you convert that S&P chart to Euros and realize that we are merely bouncing around in the same trading range we've been in since Septermber – only the violent movement of the dollar is giving us the illusion of market progress.
German Economic Confidence put a damper on the EU party this morning as expectations plunged from 56 points last month to 51.1 in the current survey. "The jobs market is increasingly becoming a problem," said ZEW economist Peter Westerheide. Deteriorating employment prospects alongside a rising price level may be hurting private consumption, he added. So far, the relative propensity for Germans to buy has been a buttressing factor for Europe's largest economy. Gee, but Cramer says nobody cares about jobs… Those silly Germans!
The Pound pulled back from a 3-month high and somehow the "reason" they are pointing to is Fitch agreeing with what Moody's and S&P already said: That the UK is in danger of losing it's AAA rating. “It was a warning shot to the U.K. authorities that they need to get their house in order,” Lee Hardman, a foreign- exchange strategist in London at Bank of Tokyo-Mitsubishi UFJ Ltd., said by phone today. “There’s still a lot of risk if policy makers don’t come up with a credible plan” to restore fiscal stability, he said.
Keep in mind that the thing that can reverse this rally faster than anything is a dollar bounce, something I warned about last week but, so far, no one agrees with me. Russia is doing what little they can, cutting their own rates to record lows in order to stem Ruble gains that threaten an export recovery. This is what I predicted would happen – one by one, in their own self interest, various central banks would have to support the dollar – even if our own Central Bankers have no interest in doing it themselves.
Will the US markets continue their streak of 6 consecutive up days in November or are we running out of gas back at the top of our trading range. While Cramer thinks no news is good news so the market can continue to rise fueled on ignorance – I think that the absence of positive news is just never going to bring the much sought-after money off the sidelines and, without an external catalyst – all the trade-bots in the world are not going to be enough to support this house of cards.
We will be happy to be proven wrong. We are ready to switch our brains off and follow the levels but let's see at least one day with volume hold up first…
