Market Update

Hello Folks

Just a quick post. Today was a fairly quiet day considering all of the pressures that continue to mount regarding our collapsing economy. The DOW closed down around 1/2% while the NASDAQ and S&P both closed mildly higher.

There has been a lot of discussion around the DOW and its value as a measurement on Wall St. Many of the financials that have collapsed under $10 are part of the DOW index. Citigroup and Bank of America are two that come to mind. GE is another company on the DOW that you could throw into this group considering its morphed into a financial hybrid. Many of these companies will be forced out of this index as a result of their low share prices.

The talking heads on CNBC and elsewhere have been reporting that if you marked the financials that are now on the DOW down to zero, the index would only lose around 300 points.

As a result, the DOW has become a very inaccurate tool when it comes to gauging the health of the markets. I would focus on the S&P if you are looking to see how the market is moving in general. Today's divergence on the DOW from the other indices is a great example of what I am talking about.

Got Gold?

This was the story of the day. The bullion surged up to almost $900 an ounce. Congratulations to all the goldbugs!

This move has been fueled by the potential collapse of the UK in combination with fears that the world economy is about to collapse.

Merrill's David Rosenburg's latest discusses gold and is a must read. Here is the link. Note his take on the bullion. The gold supply is shrinking as the money supply is rapidly increasing around the world. This is econ101 here folks: Supply versus demand + fear means gold should work nicely here in the near term.

Bottom Line

We really didn't learn much today. It was a tug of war between the bulls and the bears all day. The economic news continues to be horrific. Aflac was downgraded by S&P late today. I am beginning to wonder if this is the next area of destruction. The insurers all carry a boatload of level 2 and level 3 assets just like the banks did. We all know how that played out. We are now just starting to seriously pick up the rocks and look for the cockroaches.

I expect we will learn that almost every nook and cranny of the financial sector was infected by debt bubble disease.

From a trading perspective, I can see the market breaking in either direction. The consensus seems to be 50/50. Some think we soar to new highs as we ride the Obama wave while others think we break lower as the economy collapses. I have been leaning towards a bounce, but I am starting to question this.

I say this because the market had every reason to rally today. Google earnings beat estimates last night and GE met estimates this morning. Despite the positive news, the futures sold off to -200 today at the open as the world markets were taken a beating. The fact that we rallied all the way back but couldn't take stocks higher in the afternoon must have be discouraging for the bulls.

I see no confidence out there folks. I am afraid the collapses overseas may prevent our markets from moving higher. There is a lot of fear out there. Look at gold! If treasuries start to sell off and yields begin to get attractive then the equity markets could take a beating. Why? Because if you can get 5% yields or higher in treasuries then why bother dealing with the cesspool that we like to call Wall St?

A treasury selloff is a distinct possibility if the rhetoric between Obama's administration and China continues. The weakness in the economies around the world should also weaken further demand for treasuries. Keep your eye on the yields folks. I actually picked up some TBT today.

That's about it for the day everybody. My guess is we head south on Monday. The futures sold off fairly hard after hours. That is usually not a good sign. I am still hedged short.

Have a nice weekend!