Thursday, November 13, 2008

Boing! The 2002 Lows Hold

Good Afternoon Folks!

Well we got our answer today on the retest. The 2002 lows held! The reason for the bounce today was purely technical here folks. We knew that one of two things was going to happen today when we got to around 820 on the S&P(2002 lows):

A. We were going to break through the lows and head into the abyss.

B. The 2002 lows were going to hold and stocks would go parabolic on the long side.

The market chose B for now! Folks, this move means nothing from a long term perspective. All it tells you is how sick and desperate the market is. Investors are completely bi-polar right now. They are terrified to miss the next great bull market. At the same time, they are also terrified that they may lose all of their money. This results in a bunch of volatile trading that means nothing from a fundamental standpoint.

The big boys(hedgies, investment funds etc.) all jumped in and bought the technicals when we hit retested the lows this morning. The rest of the afternoon, Wall St basically turned into a feeding frenzy as everyone piled in thinking that this is the bottom. The shorts of course started covering like crazy in the process which exacerbated the move and before you know it... POOF! We had a 7% up day. Umm.... question here: Haven't we seen this show before?:



Note that as of today, we have seen three parabolic moves upward from the lows as the DOW continues to skim along the bottom at around 8000. As you can see above, the first one occurred in early October followed by a second one in late October. Both of the retests failed miserably. I see no reason why this one won't do the same.

I say this because the news is only getting worse, and the fundamentals continue to deteriorate. More importantly, we had a poor treasury auction today:

"Highlights

Demand was poor for the Treasury's 30-year bond auction where the stop-out rate of 4.310 percent was nearly 10 basis points over the 1:00 bid. The bid-to-cover ratio was soft at 2.07. Reaction was swift as money moved out of the Treasury market in response.

Results of the quarterly refunding were mixed showing strong demand for Monday's 3-year note sale, mixed results for yesterday's 10-year auction and poor ones for the 30-year bond. Strong demand is a vital for the Treasury which is facing a mountain of borrowing needs."

My Take:

I warned earlier this week that if treasury demand drops off significantly going forward, the game is over. We got a warning shot accross the bow today that demand already is starting to weaken. Yields soared on treasuries as word got out about the poor treasury demand for the 30 year auction held today. Here is a chart of the yields on the 10 year today. Mortgage rates will be rising as a result. That will do wonders for the housing market. NOT!

I can't stress how important this is to watch folks. The Fed/Treasury is going to be forced to sell Trillions of dollars in treasuries in order to pay for the bailout of America. they are going to need the best salesman in America in order to get this done. Maybe they can bring Chris Farley back from the dead and use "Tommy Boy" to sell these trillions of government IOU's!

Folks, if demand for treasuries is already starting to become poor, whats demand going to be like as the world recession deepens and our foreign debt buyers need to start spending their money at home like China announced earlier this week?

There is only so much money to go around in the world. More and more countries are going to be be forced to spend their national funds feeding their own people and trying to fix their own economy as this recession deepens. If they don't do it, governments will find themselves out of power as their fellow countrymen rise up. We all know politicians are all about getting re-elected and staying in power! Demand for treasuries is going to fall off a cliff folks! We got some proof of this today as noted by the auction above.

Bottom Line:

Try to keep a steady hand as you try and navigate through this market. Its very easy to let emotions get the best of you in situations like this. These moves do nothing but tell you that the market is sick. There is no bull market that's going to take us back to DOW 14,000. Today's move was based on panic not optimism.

The odds IMO are much greater that we will eventually break the 2002 lows. One thing I am going to watch right now is how far we bounce back on this move. Notice that the last two times we moved higher, the move died right around 9500. I think it will be very bearish if we don't get back up there on this bear market rally.

As for trading positions, I got rid of some of my shorts and took profits the last few days. I am still holding onto some SDS and QID. This move doesn't mean a whole lot in my view and I don't have a problem holding onto these. This move was way too violent and was based purely on emotion. It could very well be a one day rally. However, we may see some follow through tomorrow and Monday on any potential good news coming out of the G-20 summit this weekend.

I bought some TBT today because I think think treasuries are going much lower.

That's all for now. Watch the bond market folks. They are starting to get a little bothered by whats going on.

Stay Tuned.

8 comments:

growler said...

AS always Jeff, excellent.

Jeff said...

Growler

Thanks!

Crazy day today. This is one tough market.

johndaniels said...

good eye. i was wonderign what the big rally was... technical. funny seeing these degenerates try and call the bottom. I dont trust em. the big question is: is the deleveraging done? or are these bastards just going back on margin? thats what the treasury wants, bailing out consumers. bonds in trouble? dollar in trouble? inflation time? i dont think so...its just picking the scab off the wound and making it bleed again.

Jeff said...

JD

I don't trust em either.

Deleveraging might be slowing done but foward earnings are way way way too high going forward into 2009.

On top of that the consumer has hit a wall. Talk about bailing out consumers: Did you see the FDIC is guarenteeing Circuit City gift cards? thats not a joke! Talk about desperation.

Another thing I am hearing about today was the failed treasury sale forced people out of bonds and into equities. I am not sure if I buy that one.

Lets see the follow through tomorrow. It should be interesting.

Growler said...

Today was nuts! I played most of it from the sidelines but eventually decided to nab a few scalps on the upside.

Jeff said...

Growler

Nice

I am hoping to dump my UYG on this rally.

I have a few other long specs that I might dump as well. Taxes are right around the corner.

Lets see what happens tomorrow!

Anonymous said...

does that mean gold might finally go up?....

Jeff said...

Anon

Gold made a big move and is up $42 this morning...There is still a ton of fear in the markets.

Todayhould be a great day for you own a ton of gold.

Retail numbers were awful today. Nokia pulled down the NAsdaq qith a big miss.

DOW is trying fiercly to hold onto the gains from yesterday and is pretty flat. The bulls desperately want to defend yeterdays move.

I think the data today will make it very difficult for them to do so. I think we give some of the gain back today.