Friday, February 27, 2009

Drip Drip Drip

Good Evening Folks

TGIF. Its been a long week(especially if you are a banker!).

Must Read

Please take a look at this excellent research note out of Citi that I picked up this week. Note that they have a long term target of 360 on the S&P if the double top is confirmed. Yikes!

Market Notes:

Stocks dropped once again today. I feel like I am beginning to sound like a broken record! Unfortunately, we didn't get a confirmation signal as to where we go from here. We broke through the key 741 S&P support level and closed at 735. This is technically a breakthrough, but I gotta admit, I am impressed how well the market held up given the news it had to fight.

We could have easily dropped 400 points on Friday. I mean the market took 3 big blows to the head:

- The 4th quarter GDP number was adjusted to a -6.2% which was the worst since 1980.

- Citigroup announced that is was "quantitatively" nationalized.

- Mighty GE announced a huge slash in their dividend.

My Take:

In any other market, stocks would have folded like a tent. The bulls somehow managed to find a way to hang in there. As I said yesterday, the next support level is down over 100 handles from here so I expected the tape to be pretty stubborn on the downside.

That being said, I never would have guessed that equities would have held up this well today given the news flow I discussed above.

One thing to take note of from this week is the rising yields on the 10 year in the bond market:

Hmmmm.....Is the bond market making a statement following Obama's planned spending binge? Its too soon to tell, but I find the action in the bond pits to be quite interesting. We can't continue to spend trillions of dollars that we don't have folks.

If you think the government spending can't be stopped you are sorely mistaken. Go see what happened to Mr. Clinton when he tried to pull the same spending stunt in the early '90's. He was stopped right in his tracks. If the bond boys have decided they have had enough and take yields higher, Obama's wallet is going to be empty in a heartbeat. Its too soon to tell for now. Keep an eye on the chart above.

Bottom Line:

No new positions for me today despite the fact we broke through 741. The resilience of the market despite the horrific news must be respected. This is a very dangerous trading level here: We could see a huge move in either direction and if you try to front run it and you are wrong you are going to get reamed badly.

I am playing small and looking for more of a confirmation. I held onto my small position in SPG PUTS.

Long term, I see nothing to like about this market folks. There has been zero evidence that the economy is bottoming. ALL of the economic data continues to WORSEN. Its hard to go long anything here until this trend is broken.

However, a bear market rally short term would not be a surprise me at all if we can hold these levels. In fact, I am very tempted to go long here with a small position if the 735 area holds on Monday morning and the news flow over the weekend quiets down.

Watch AIG over the weekend. The Treasury needs to figure out what to do with this nightmare and their $62 billion quarterly loss. This is a potential catalyst to the downside.

Stay Tuned!


Joey said...

Nice Jeff.

I went to 100% cash around 12noon today. The tape was way too messy to try anything with confidence.

If the trend remains to the downside, we'll know soon enough. I guess, I'll have to find a low(er) risk entry near some support and hope for the best. I'm definitely not a fan of shorting into a hole.

For right now, I think the USD is the tell. If it goes UP, equities go DOWN & vice versa.

Jeff said...

Thanks Joey

Tough tough tape isn't it? Cash is a great place to be.

I am confused as well. Great point on the dollar: Currencies have been moving the market the last few weeks.

Hopefully we get some answers soon.

Joey said...

Check it out:

Buying on Weakness Data printed $577 Million for the SPYs

Nov. lows printed $380 Million of Buying on Weakness.

Typically $200-/+ is enough to produce a top.

One could infer from this data a huge rip may be coming soon.

Jeff said...


Great stuff. Thats how I would read it. I think we coud see a bounce here.

Be careful though. Check this out. BofA just came out with this over the weekend. $44 billion dollar blunder on their books. Wells and Citi also reported the same.

I am starting to wonder if their books are getting scrutinized. This could sting the financials on Monday.