Good Afternoon Folks!
I am going to be a little brief today due to some holiday plans. The bulls charged this morning taking stocks up 200 points as they cheered the auto bailout. Unfortunately, stocks couldn't hold onto the gains as continued worries around the recession took the DOW into negative territory by the close.
I thought the price action was interesting today. There is a huge tug of war going on between the bulls and the bears right now. Rallies are almost always sold into as traders take profits. On red days, we seem to see a lot fewer sellers. The volatility has really dropped off this week. The VIX dropped down to 45 today.
I think the lack of direction in the markets combined with horrific economic data has made many traders afraid to hit the buy button. The economic numbers really are frightening folks. Oil plummeted yet again today down into the $33 range! Staggering isn't it. Those $4/gallon gas days are becoming a distant memory aren't they?
This dramatic drop in oil is a big concern from an economic standpoint. Its a great barometer to measure how things are doing in the economy. I say this because oil is used everywhere folks: Auto's, manufacturing, airlines, transports. When there is absolutely no demand for oil it tells you something: Nothing is being made, driven or moved!
Here is the auto bailout story for those of you who missed it.
"Dec. 19 (Bloomberg) -- General Motors Corp. and Chrysler LLC will get $13.4 billion in emergency government loans in exchange for substantially restructuring their businesses, President George W. Bush announced.
Another $4 billion will be available to GM in February provided Congress releases the second half of the $700 billion Troubled Asset Relief Program fund originally set up to bail out financial institutions. The automakers have until March 31 to meet the conditions of the loans, including demonstrating they have a plan to become profitable, or be forced to repay."
I am sure many of you are shocked that our government would bailout an industry. HA! YEAH RIGHT! It seems to be the only governmental response to any failure in the economy. Who needs bankruptcy's when you have Uncle Sam's wallet in your back pocket?
The one piece of language that I thought was interesting in the bailout was the fact that they need to have a plan for profitability by March of next year. HA! Good Luck With That! There is no demand or credit to buy auto's right now. Even if someone wanted to buy a car, it would be very difficult to get financing for it. The only business plan for profitability for these clowns that I see would be to shut down the BIG THREE for 5 years until the credit markets come back!
Gary Shilling's Prediction: 600 on the S&P 500 in 2009
I strongly advise that everyone takes a look at Gary Shilling's thoughts for next year. There is also a video interview with Gary on the page in the upper left hand corner.
Mr. Shilling has been spot on throughout this downturn and I think his call for next year is spot on. Make sure you listen to his thoughts on China at the end of the video. Folks, China scares the daylights out of me. Without us consuming I don't see how they can keep their economy together.
The potential for political instability and risk for an uprising that takes down their government is very high in my opinion. The export numbers out of China have fallen off a cliff, and the factories over there are closing up faster than investment banks on Wall St. If this occurs, they will lose the rising middle class that has fueled a lot of their growth.
Keep an eye on the Far East.
It was a surprisingly quiet day. I have done no trading the past couple days. I am content to stay mildly short. I may put on a few small speculative long trades on next week. The volumes should be low due to the holiday, and the bias tends to be bullish.
The bulls also got the auto bailout, so there are really no big shoes that could drop over the short term(Watch, now that I said that we will end up with a panic next week:))
If things are calm like they ended today, I think we might see some green days as Christmas approaches.