SP500 Weekly Lows

SP500 took out last week's lows while the Nq100 and DJI were just able hang onto to theirs.Last Friday's late news by CNBC, drilling the bears, that Ambac had would announce a workout early this week was sheepishly covered with ten minutes left in trade today and revealed a workout never materialized. Oops. Well, if there is news, it will sure be news to CNBC.

Catching Cold

The bears have the early lead today so far with last week's lows as the target. If they are successful, there will be much groaning and despair among the TV talking heads as they struggle to understand the meaning of the decline. To them, up is up and down is, well, down is TV off. So what would stop the bear from hacking through the ratings? In actuality, their ratings and the hopes of the markets may rests on how much the expanding wealth of the outside world will step up and bale out the US markets by applying the power and velocity of world investment cash to the purchase US assets. The US catches cold and the rest of the world sneezes might be replaced with the end tag 'the rest of the world pleases.' This could have some uncomfortable side effects, such as possible greater foreign influence on domestic economic corporate affairs, but that may be the world created by the desire for ever expanding world financial interplay. The current value of the US dollar certainly is a factor in the overplayed commodity markets and may be as powerful in the foreign acquisition of US equities, real estate, and debt. Making a market for the rest of the world is a liquidity pool filled with players, fools, and opportunities. The question then, is this the opportunity for fools or players?

Banking and Brokerage Brothels

Looking at this week's action one can ask whether or not the action for the week indicates a top or a bottom. There is some range building being done which is needed to lift the markets, but direction could easily turn into another leg down as overall price action is linked to continued bad news from virtually every brokerage and banking brothel. Once again these guys have proven their profitable endeavors have been derived via transaction fees from financial products so poorly conceived they are almost useless in protecting any asset. These geniuses are great a marketing but not at making a market. If the market has misjudged the underlying strength of the current price construct, it will quickly adjust to the south.

Mixed Indexes

The Indexes ended mixed today as Bernanke testimony continued to sound more worried about growth rather than inflation and left the door open to more rate cuts. That really means he is seriously worried about the banking system and the consumer who has been virtually responsible for all of the economic growth over the last ten years. If the job market were to worsen appreciably, the financial outlook for the US could become unclear and possibly worse than imagined up to this point. Further, the US dollar continues to slide against the Euro in direct response to the Fed's interest rate inclination. New home sales sunk to a new 13 year low and banks may soon find themselves in a mortage bind do to a class action suit soon to be decided upon in federal court.

The bulls need to take this market to the next level higher or face the test of the lows. Testing the lows has been viewed as a buying opportunity by some trend traders, but it is one thing to talk about and another to act when the market gets there. In trading, the expression is Cancel If Close.

MBIA and Bernanke

Standard and Poors and Moodys have declared that they now trust MBIA, the battered guarantor. This confidence provides real bank balance sheet relief but hopefully a psychological boost to the fixed income and stock markets. But an interesting article in Bloomberg points to what the opinion of the debt investors is regarding MBIA value based on the bid and offer. In short, based on where comparable problem company debt is trading, the market believes it is junk.

Bernanke speaks today so the pounders and the lifters will be slapping at the big ball.

Moderate Action

Indexes continued the rally with moderate gains helped by the IBM buyback plan. While IBM's action does nothing for the larger issues facing stocks, it is another bit of news that peppers the bears. SP500 and DJI are continuing to add on to Friday's gains without much of a look back. They still need to make new monthly highs before a turn can be declared and as of the close the SP500 is 100 points below with the DJI 600 under. Despite the two and a half day rally, the indexes have shown short covering to be the only feature.

Driving PPI

Indexes reacting to PPI number early. Bears have been on their heels since late Friday's session and are looking for something to drive. Going through yesterday's lows would be the first meaningful objective for them.

The Gaming of Expectations

SP500 and DJI rallied strongly today as the market anticipated and received confirmation from S&P that the AAA rating would remain, at least for MBIA. Not much of a surprise really but the gaming of expectations seems to be the only way to get the inside track on a move these days. One can imagine the downside opportunity for those in the know if a snag were to develop at the last minute on the deal for Ambac Financial. But that is what the markets are left with since the general economic picture seems devoid of meaty move scenarios. Traders know however that even bullshit action can be powerful, so let the big dogs eat. The large cap techs such as AAPL and GOOG are having a tough time of it presently and the overall market will have trouble to produce a bull argument until they sort out a bottom.

Testing Friday

Markets will test the rally strength from late Friday as they get underway this week. A data heavy week which includes Bernake testimony will provide plenty of churning. Volatility has been declining for a month now as the markets have become more range bound. The consumer has taken some direct hits from energy inflation to housing de-flation and stock markets are unsure whether stimulus events are anything more than short term trade opportunities.

Bear Drilling

Friday's rally which began with about thirty-five minutes left in trading saved the bears from a lousy week. The bulls got drilled as short covering escalated into a rout after CNBC reported a possible workout might be announced early next week for Ambac Financial which holds about 500 billion in guarantees. As mentioned in the previous post, daily price action can be a trap and that works both ways with Friday's action. The bears got way to comfortable late, leaving the bulls to do hardly any lifting as the shorts scrambled. But the bulls will have to abide by the same rules in these ranges and be cautious of any action that does not lift the indexes to new monthly highs.

Breakdown Breakout

Looking across the indexes for some indication as to which direction will prevail in this range bound action reveals a mixed picture. The Nq100 remains the weakest with lower weekly lows, but the SP500 and the DJI are also leaning slightly south of the weekly range mid point this morning. All are at or near the tipping point as demonstrated by this week's swings and morning reversals. Traders are willing to believe in breakdowns or breakouts, but the daily price action can be very misleading. Most times it pays to look to the weakest link, in this case the NQ100, to see how the battle goes. Since the NQ100 has already taken out last week's lows (1763.75), it is important for it to stay and close above them.

Early Gains

Early rally in indexes as part of the follow through from yesterday's reversal of morning losses. Range bound, the bulls keep chipping away to get more footing to attack monthly highs. Some talk about the Fed being unlikely to continue cutting due to escalating inflation problems. If the bulls believe they need the Fed to keep cutting this year then they may find all the bullets have been fired on rate cuts. There is a growing belief the issues regarding bad paper can only be solved over a fairly long period of time which may keep a lid on the upside potential of stocks because of restrictive credit policies ahead.

Weekly Action

Indexes starting out the reverse of yesterday with sellers claiming crude and bad paper stories as the reason. The clock however may be beginning to play into the hands of the bears as the bulls struggle to avoid price pattern roll-over. Last week's low for the SP500, Nq100, and DJI were 1320.25, 12069, and 1763.75 respectively. The NQ100 has already penetrated that low and continues to suffer as GOOG and AAPL find sellers. The DJI is trying to avoid a third consecutive week of lower lows and the downside momentum problem it might create.

Pick Your Data

Indexes starting the week with a rally. Optimism over various interventions for houses holding bad paper such as the nationalization of Northern Rock has all the free enterprise crowd so happy. Price action rallies have edged higher with the hope the worst is behind the market. Some have pointed out the trading volume remains historically high despite falling benchmark returns. This being interpreted as proof the brokerage/trading industries damage will be minimal.

Looking on the bright side of the last couple quarters is certainly a function of the search for vital signs in the investment world. Interpreting the data however is not easy. The average increase in volume is skewed by December and January in large part as a function of the extraordinarily large risk adjustments due real bad trading strategies being outed. Those were exceedingly rare price events, although the poor trading talents of bankers and hedge types should never be underestimated. The markets still need the bull to sustain big volume. But part of the volume story is true. Lower costs and the growth of algorithmic trading has generated more volume across more markets. Further, there is still a sea of money pursuing speculative sectors in Bubbleland. The current bubble boys are visiting agricultural commodities, gold, and oil. The fools apparently are not done yet.

Uneasy Markets

Prices will continue to try base building this week while dealing with the uneasy stories about various financial instruments. The NYTimes has a interesting article about Credit Default Swaps and the lack of transparency involved in determining a market. Even when a transaction has taken place, the coverage is much like a fire policy on a house. That is, what one thinks is covered is subject to negotiation. Federal regulation is sure to appear in some form latter this year.

Bulls have successfully fought off a few tests but will need to make new monthly highs to add proof of a bottom. Bears need lower lows on the weekly action such as the DJI has been experiencing.

Bernanke Predicts Ugh

Markets ran out of gas today. Bernanke said he would accommodate should the need arise and that continued weakness in the financials would have to watched closely. Great whining could be heard from the bulls since there was no jolly talk or guarantees as to the duration of the vetting process of current bad positions by those holding them.

Clearly the market is trying to put the worst behind it, but there is this nagging fear of a severely weakened economy due to the tremendous hit the real estate industry has taken. The hope has always been that the sub prime mess would not leak into the good paper, but Bernanke hinted today a significant case of ugh may appear in the months ahead.

The bears believe it is a matter of time before the indexes test their lows since the reality of bad price action will crush current rationalizations about cheap values. The bulls believe there is a strong bid under the indexes based on demand created by a cheap dollar and strong balance sheets. Whatever the case, the greater opportunities will present themselves for those not so committed to trend.

Bernanke Today

Markets will listen to Bernanke today when he speaks before a Senate committee. Most think he will offer little but one never knows. Bulls looking to close above the last two weeks highs if the can. This is still range bound action with no clear winners yet.

Fair Value?

One of the great market blogs is The Big Picture by Barry Ritholtz. He questions today the merits of an article published in Morningstar predicting the DJI will reach 18500 over the next three years. Now, I hope the author from Morningstar, Jeffrey Patk, is right. Unless you can only make money being short, and there are a few, all of us in the trading business benefit from a climbing DJI. More trade and opportunities to trade a particular price make-up presented on a daily basis is a positive. The problem is in Ptak's manner of establishing a 'fair value'. Without going into the construct he uses, the concept of fair value is just another crutch for an industry based on a directional bias that never includes the short side. But let us say there is a way to determine fair value for a stock, or a business, or a sector. So what. The price on a given day is made up many elements as the price discovery process unfolds. To simply apply some linear extraplolation pointing to a point in time is weak, but hardly new. Too much credit has been given to the skills of investors who have made money simply being long stock. They made money because they were long stock on a wonderful trend that really began around 1934. It had nothing to do with knowing the fair value of a stock. It had everything to do with expanding economies and a growing crowd of various market participants particularly from pension and other pooled resources. The energies delivered to preserve rising markets is a strong one as we have seen lately with Congressional action, Fed action, and other stimuli. How does fair value play into this supposed 'free market' manipulation is hard to explain. Does fair value explain or predict every action that will affect price? Fair value is just another way to work the confidence game played every day as a part of the opinion formed in the bid and offer.

Price Action

Market reacting to data this morning. Retail Sales figures gave a lift to futures as of this post but a number that really means little. The indexes need to continue to work on filling in some price holes created by the sharp sell off in January. A big positive would be taking out last weeks highs and closing above them. For the DJI, SP 500 futures, NQ 100 futures that would be; 12750, 1400, and 1869.25 respectively. Next bit of data of importance will be anything Bernanke has to say on Thursday.

Not Good Enough Yet

SP 500 index and DJI close fairly well but a bit disappointng. These markets found plenty of selling when the DJI was up over 200 points. Tomorrow morning data may help but probably going to see a bit of give back tomorrow. AAPL led the NQ 100 lower with no help form GOOG. There is a window of vulnerability here for the bulls as these indexes try to build a base. The relative strength of some of these techs point to a sloppy price config.

Traversing The Range

Indexes are rallying on lack of follow through of last week's downside and some minor psychological comfort from Buffett's offer in the bond insurers market. Traversing the weekly range for the third time in three weeks may be the path the indexes take as the back and fill activity continues. Many would prefer to buy a test of the lows but if the last two week's highs are taken out, look for serious buy programs to develop.

Waiting For Data

Market is waiting for data beginning Tuesday to provide some direction. Vix was strong early but closed weaker as volatility faded. Everyone is anticipating bad data and volatility
to be the main theme and rarely is everyone right. Not so bad data and falling volatility may be the upcoming surprise as we head into the middle of February.

MSFT is not going to take no for an answer from YHOO apparently, with a hostile take-over probably a main part of the initial strategy. Let the big boys duke it out. Nobody really cares unless you are holding YHOO and then you are probably unhappy anyway.

Defending The Trend

DJI weekly action almost exactly traversed the previous week's 655 point range except to give the bears an edge by providing a slightly lower high and scant lower low. Given the large amount of data coming out in the week ahead and Bernanke testimony before the Senate on Thursday, there will be enough action to continue the struggle to build a base. The DJI continues to hold onto the best of a powerful trend which began in the mid nineties. Bears contend the current 14% decline from the October 11th highs is just the beginning of a retracement of the DJI when it sat at just over 4000 in 1995. The bulls rest on the top of a trend which technically has had little damage and will be best defended they believe by attrition as the economy works through current events.

Making Bad Look Good

Indexes will have to demonstrate an ability to look bad all week and still close well enough to attract buyers at week's end. Bad news is everywhere so the chores of base building are a matter back and filling. There is no lack of investment dollars to begin the bottoming process. This is evident by just looking at the bubble boys who now occupy a room at the Commodity Inn. Whether it is the biodesiel scam or the gold morons, the bubble boys footprints are all over a worn out welcome mat. Now the hedge types have positioned themselves in commodity markets where there are restrictive daily price limits. When that bubble pops, they exit door is opened periodically to let the wounded out. This 'trade like a death wish' is becoming an investment hedge against prosperity by professional trading houses throughout the markets. Pursuing alpha is great but the commodity price event is the next trade event.

Building Support

Indexes worked hard today at establishing a support area. Sp500 futures held the lows from last week which ignited a 35 point rally from the days lows. Nq100 continues to be the pig with liquidation a daily feature but is substantially oversold and holding above the lows made on January 23rd. The DJI languished in choppy trade and rejected bear attempts to drive it lower late.

The market has absorbed significant selling and professionals are not particularly interested in being short down here. Friday upside action would build on the washout action of three weeks ago.

Testing Lows

Indexes in the downside support battle again this morning. CSCO's outlook was not optimistic and the tech side is sensitive to each liquidation opportunity. SP500 and DJI are testing last weeks lows while the NQ100 is through them and nearing new lows. The market is waiting for substantial buying to appear in order to begin to build another leg up from these support areas. More Fed speak will be around so any perceived negative comments may be a problem.

Last Week's Lows

Yesterday the bears piled on through the newly recaptured August lows and then some. The test of last weeks lows for the DJI (12112), SP500 futures (1311.5), and NQ 100 (1761.5) is the next hurdle down. Early recovery this morning has nothing to do with stocks like Disney (DIS) but simply a resting bounce while markets prepare for the daily session. If the bulls can hold the area around the last week's lows there will be significant end week buying.

Testing August Again

Beginning to test the August lows this morning and may see a bit of chop as the indexes explore this support. More than anything, the sup-prime story is still being talked about and some of the market strength may be determined on whether or not the effects of the story are beginning to diminish. An overall worse case number has been examined by most institutions and now the test will be how a slow down in the economy will influence prime mortgages and other widely held debt. The bear's story is growing old, but if the of the underlying base of the economy has been so severely damaged, then a test of the lows should be rapid. Lingering in a trading range, building a base, waiting for stimulus validation, ultimately plays into the hands of the bulls.

Fed Speak

Little data coming up except for Fed govs speaking throughout the week. Look for the market to react to some of the Fed speak but mainly bears hoping to establish an attack on key price areas; DJI 12518 SP500 1375, NQ 100 1814.

Trading Dynamics

Good week for the bulls as they continue to put some distance from the washout of Jan 22nd. This market will continue to fight bad news and as mentioned before, this election year will create many obstacles for the bear. Clearly the trading world related to sub-prime, the rating agencies involved, and the oversight by various regulatory elements have left the economy with bubble all over it's shoes. However, the dynamics of trading stocks and their derivatives many times have periods of total disconnect from the directional bias of the overall economy. Declines culminate with liquidation, intervention, and insider positioning which allow the anchoring investment/brokerage/banks to right themselves. These primarily conservative, free enterprise champions are always the first to accept Federal Reserve and or government intervention while having spent careers whining about government spending. Like so many wall street conservatives, it is always about principal, until it is about money.

Bears will have plenty of opportunities to launch volatile sell-offs, but a base in building.

Battle For Direction

Markets have a bit of everything today. Surprise number on unemployment and a not so much of a surprise from Msft bidding on Yhoo. Many yahoo folks are pleased to be baled out because most folks own that stock substantially higher but it beats the current stock price disaster.

A real battle is currently underway for direction with the bears having a bit of traction problem. The DJI, SP500, and NQ100 all have closed over the August lows and now are trying to reject the markets hard break.