End Of Month

End of month marking yesterday will try to be supported by managers today hoping that the redemption monster does not appear with a wave of selling. Credit conditions are improving for world bank flows but rates in the mortgage markets are on the rise as overall demand for safety competes for debt supply. Lots of liquidity out there but credit standards restrict the ability to gain broad participation in a world which has come accustomed to large volume on thin margins. Less people borrowing less reduces risk but is a lousy growth scenario.

Nervous Trade After Fed

Volatile trade late in the session today as thin trade became vulnerable to profit taking. Different news stories are always attached to this kind of action but the real reasons are technical in nature. Either way, bulls cannot be happy with the close and now must defend prices as the market spins not only into the week's end but also the month end. There is talk of buy side influence to be applied by managers who will mark prices before the last trading day of the month, though there was little evidence of it today. This is a bottoming process and may take longer than the friendlies would like.

Charge

The rally today had great net change numbers but was a bit shy on volume. Market clearly trying to form a bottom as bear traps continue to be the biggest volatile feature. Higher on the week now for the DJIA, SP500, and NQ100 but as in life, it is not how you start it is how you finish. A bottom can be confirmed this week with a few more blasts such as today. A reversal tomorrow after a Fed rate cut would be a problem for the current technical base but would only be part of the basing process.

Transactional Voodoo DooDoo

The Fed and Treasury are now trying to figure out how they can help insurance companies avoid the same financial problems banks are having. Geez, banks and insurance companies. Two groups who have lobbied their way into legislation which empowers them to every business advantage possible. Two entities every American has had to bend to so that they may comply on loans, liability, and asset coverage. These two groups have had a license to steal and still screw it up. If they are going to give money to these folks, there is a great argument for wiring all the cash directly to the general public.

The mighty hedge funds have been smoked in this market. Citadel has taken pipe because it turns out they never were really very smart after all. They thought that if you simply accrued enough cash and rode the same mania trades as everyone else, great profits and sizable fees would result by the shear size of the mountain of money being managed. This transactional frenzy into illiquid voodoo doodoo was their real strategy, just like the banks and the insurance companies. As for Citadel's reputation for poaching the best and brightest traders, apparently they hired a bunch of smart guys who in the end were just clerks.

Bubbles and Sweat

Before the highs in 2000, the hubris surrounding the 'new economy' as it was called, had the same conviction to joy as the current market has to despair. While the bubble unwinding and the events of 911 took the markets down some 35% over two and a half years, this market is spinning into its first 50% retracement in 26 years. Ridiculous values on the tops and frightening opportunities on the bottom are always the result of the market's over shooting during the price discovery process. The violence of sell offs, as every professional trader knows, is a faster animal compared to the best of breed rallies. While there is still hedge fund unwinding going on, this morning early action is just plain panic. Remember, this is part of the bottom, not the top.

Bear Hunt

Counting the weak links in the current technical picture is easier than usual. As mentioned in the last post, for traders, shorting here may provide a short term opportunity, but why bother. Yes, the number of big name stocks dragged down the stairs are now at a point where they are sitting or leaning on the very edge of ugly. GE made another 52 week low today under $18 and IBM is near the $80 mark, after an unusually hard break from the summer highs of over $130. CME is now over 60% off its goofy ass high of 705 when every moron was convinced trading profits would never end. Now they are tied up in the exchange jumping where there will be some reckoning over the future of transactional volume. Looks grim, but the downside price construct will only provide peril to traders as bear traps abound.

Fishing The Bottom

A general retreat again today but hard to muster any reason to be short and have a future in it.
Liquidation and redemptions are one thing to watch but initiating shorts is generally a bad idea here. Pessimism is the predominate attitude, just as twelve months ago I warned of the toppy nature of the markets. Now only a fool sees a opportunity on the last percentages of a downward move no matter how long they stretch the bear clock.

Bring Out Your Dead

Bad stories about big name individual investors from the corporate and hedge world keep being counted in the lines of wounded who have been liquidated, stopped, or margined-out during the October break. Previous hard corrections such as LTCM or even in the crash of 1987 never quite had the dose of slammage which has occurred in 2008. And while the interventions has been unprecedented, never have all concerned been so unsure as to whether the worst of the price erosion is over, or whether the current action is just a relief rally. When repeated testimonials acknowledge that losses of up to 50% of retirement eggs has now altered the future investment strategies of the mutual and 401K armies, there is a problem with the up in upward. There are even reports that there are not even enough pallbearers to carry out the dead among those who thought they were professional day traders. Anyway, the new trend may be born sideways.

Monday Morning

Indexes are somewhat quieter this AM with what would be called modest gains of 150 in the DJIA as of this post. Bernanke speaking today said he was not adverse to another stimulus package to help the public through what is generally viewed as a tough year ahead.

Oil has gone beyond the 50% retracement of the rally so any additional downside will be limited.

Markets should begin a process weaning off of volatility as the month draws to a close although trading ranges will remain historically wider.

Friday Raceway

Indexes recovered well today as liquidations faded and buy programs began about one hour into the day session. Big banks found early buyers as traders became mindful of the Treasury's warning it would be watching the performance of certain financial stocks. So the indexes now sit at or just below the mid point of this week's range. Just enough to provide a point from which Friday's trade can whip back and forth, with the last hour of trade to be claimed by the bulls or bears. A powerful rally tomorrow would confirm the worst is over for the diving team, while another hard break would be seen as a invitation for grim volatility.

The Game Is On

Market is in the midst of testing the lows as continued redemption and position adjusting takes place. This test of the government's intervention policies is going to be an interesting trade. Despite the claims it will take a while to start to see the affects of the government's hand, there are clearly some equity bids the Treasury can implement to stem some of the selling. The markets should start to see a pissing match between redemptions and bear drivers on one side, and interventionists and bottom fighters on the other. The strategy for any buy programs will be to have enough strength to force the arb to run for cover repeatedly.

Position Adjustments

Indexes failed to close higher today as the scale of yesterday's move may have been too much to add on to. One vexing implication to chaining gains together is that, given the lengths to which the Treasury and Fed had to intervene, many of the recovery elements prevalent in previous turnarounds may be missing this time given the severity of world financial problems. Most importantly, the across the board pounding of the general public's investment accounts will certainly result in a less adventurous approach to investing. Further, if lending standards are simply refined, it will eliminate a significant stimulus compared to when lending was less stringent. There also continues to be a constant drip drip of liquidation selling as all position adjustments related to redemptions and financial institutional problems are yet to be completed.

Monster Rally

Monster rally in the indexes as short covering became a force in reaction to the downward actions of last week. The large waves of redemption and margin selling hit a peak on Thursday and again on Friday morning as anxiety grew about poor price performance and world credit markets. While liquidation remains an element of the current trading make-up, the focus will shift as the markets try to achieve an equilibrium between buying strategies, which may now be able to take advantage of lower prices, and the markets particular appetite for investments which have been subject to so much pain.

Risk Value

Nothing quite like the break occurring over the last two weeks in the DJIA, SP500, and NQ100, as well as numerous other markets not as closely covered by this site. Real damage has been done to investors, traders, and to the underlying economy. Blame is contagious now in this political season as second guessing about allowing certain strategies such as letting Lehman fail, has infected all those who would classify anything but up unacceptable. Like corn farmers complaining about falling prices, there is a simple idiot test. If you think speculators and hedge funds are responsible for the current crash, you're an idiot. Up, like down, is part of the
moving target called value, and risk is its cousin. Seasoned traders get confused about the relationship of risk value and end up making incorrect decisions about opportunity and danger. When people are allowed to make choices about value, buying or selling, you can be either right or wrong. And when diminishing values create a race to capture remaining values, thing can get cheap quickly, as we have seen.

There are no guarantees about choices which contain risk. But there are no real opportunities without it. When risk is measured and quantified correctly and used in adaptive programs and not in supporting mindless long position in some portfolio by the endless ranks of Wall Street Ivy leaguers concerned with pathetic standard deviation measures, it works, and is able to withstand the pummelling of a crash.

We are witnessing the unwinding of static traditional and exotic portfolio positions competing with the low bid participation created by a squeeze on banks. Raising cash is always harder when others are racing you to the buyer. The de-regulation, less government, and lower tax, self serving neo-conservatives, are experiencing a surge of social medicine they never imagined. Maybe we misunderstood them when they claimed it all for free markets. Maybe they said flee markets.

There is a balance between allowing the markets to discover value and appropriate oversight crafted to regulate tranparency without any grey areas. The worst of the under sight is over, the best of the markets is yet to come.

Where The Bear Stops?

Markets with an early plunge today as the Great Unwind continues. The relative ease of the generational gains which started in August of 1982 have met a few road blocks, the dot com break and 911. This stock market is experiencing what every commodity trader learns to trade around, the occasional death dive. The breaks usually fall until they reach the 50% retracement level of the entire bull or bear run, which in this case can be measured over 26 years. The crash of October 1987 reached 1616 or a 41% decline from 2746. The great bull run of the last century saw its last leg,( the first leg started in the 30's), begin in August of 1982 with a low 769. The rally reached a high 14198 in October of 2007. A 50% retracement lands at 7484. Today's inter day low as of this post is 7882. Close enough?

The Bottom Indicator

The NQ100 is battling to make a stand while the SP500 and DJIA continue to drag along the bottom of the recent declines since they contain the bulk of stocks being liquidated. Lending is still sluggish as risk attitudes have now changed for the foreseeable future. This change goes hand and hand with the potential for a worldwide recession and is keeping a lid on much if any upside so far. The greatest marginal advantage will turn to the buy side once the liquidation slows and prices are perceived to be cheap enough to make a long term play. NQ100 will be the indicator that the bottom has been achieved.

Global Action

DJIA is down over 200 points as of this post after a morning of whip saw action due to a global rate cut and recession worries. Probing for value with rapid deceleration and plunging action has managers staying busy with redemptions and screen jaw. These are fast markets for anyone who has ever traded on any floor or been a screen jockey all their lives. Nibbling continues in these cheaper values areas but no one is really sure if things are cheap. NQ100 will make a bottom first and lead the markets higher, but that has not happened yet.

Looking Clever

Market players are trying to figure how to drive trades into clever positions given all the incentives the injections of liquidity are providing. Once traders figure out what they can lean on strategically, they will pounce on a consensus trade and do it until it is over done. Never has there been so much cash plowed into stabilizing world assets and it is hard to believe there are not selective prizes being totally ignored by fear. The old trading floor adage of buying the first thing that makes new session highs worked yesterday for big stocks like GE which made early session lows and may be the signal of larger pricing being executed. Having said that, markets will have to dodge liquidation waves caused by fund redemption action.

Markets Look Ahead

Week is beginning under pressure as the DJIA is defending 10000 with various financial fires burning around the globe. Now that the $700 billion bailout has been passed, banks are still reluctant to lend, thus keeping a tight bias as they hoard cash. This will force the Fed to lower rates as they try to drive the cost of borrowing lower, but the only impact may be to increase the profit margin on new lending standards.

Warren Buffett continues selective purchases of preferred stock as he takes advantage of falling share prices. Looking to this guy as some type of economic saviour is like believing your insurance agent is really your friend and doing you a favor buy accepting your premiums. Warren does not have a clue.

Presidential politics will become incredibly ugly in the final days as Democrats launch retaliatory strikes against Republicans who are now unleashing the negative machine as they try to make character an issue. Slinging mud and a slumping economy will not please the enraged voter.

Bailout Bill Passed

House has passed the bailout bill with some anxious choppy trade and idiot news talk surrounding it. Now markets can focus on more important data, weekend baseball playoff games and Sunday NFL football.

House Watch

Indexes attempting to rally after avoiding an unemployment number surprise. Now the markets
will have to wait once again for early trade on Sunday US to see how the House bailout bill fared.
Passage provides no guarantees of higher markets but may loosen the tight credit grip between banks.

The Sell Vote

Stock indexes continue to reflect liquidation of hedge funds, mutual funds, and individual stock positions as the market seems unsure of all that has been done thus far to settle world financial markets. The fixes for Bear Stearns and Lehman and now the possible bailout package from Congress are beginning to be viewed as a bailing out of the previous bailout, with no end in sight. Cashing up and or out is a vote of no confidence in the markets. The question of whether or not the indexes are exhausting or moving to a lower, much lower trading range will be answered over the next few sessions.

Today's Action

Action with less energy today as the markets look to a Senate vote tonight and a possible House redo on Friday. Warren Buffett is buying stock here he claims, with himself providing cable business news interviews explaining his reasoning. He like all traders will always qualify any view of the market by paying homage to uncertainty. It is hard to get a handle on the market's moves since every effort to stabilize the monster has ultimately failed. Each trader is hoping for passage of the bailout bill but none will place a large bet that it will do the trick. News of continued hedge fund bombs poor out as many of them seem to have twisted themselves into inescapable strategies.

Despite yesterday's rally, markets remain quite oversold. With the Senate and House votes coming up along with Friday's unemployment data, the action shall spin again.