Isn't it amazing how quickly news can drop the markets? It wasn't even news, it was a rumor. What rumor do I speak of? The one where Gasparino came on yesterday saying that the "bad bank" idea may not even materialize. So, why did they even report on it at all? CNBC should really stick with the facts like they're supposed to do.
Although I do not look at fundamental research often, I did spend some time reading up on important reports, most notably Meredith Whitney's "No Bad Bank Please". She had some great questions that I'm sure people thought about, such as "how will the Gov't price the toxic assets?". In addition to rumormongering, Charlie did state that these assets are at around $0.22/$1. Even this number varies among the different products out there.
If the Gov't paid par, or actually the perceived value (since no one wants to buy this crap), then these institutions may very well go out of business due to a combination of lower earnings power, heightened reserve requirements, a higher expense structure, etc. If the Gov't pay a premium, whatever that amount would be, then that will no doubt cause serious uproar among taxpayers (me included). Let's say the Gov't paid a ridiculous 100% premium, just saying, then these institutions will still take a major hit. It seems like a lose-lose situation.
I think the Gov't as the come to the conclusion that some of these motherfuckers need to fail. They should fail. It's the survival of the fittest, right? Natural selection favors the failure of the stupid and the rise of genious. We're doing the exact opposite. Odd, no? Also, several smaller banks are second thinking the bailout and are starting to refuse the money. The deal doesn't look so hot anymore, does it? There is no free lunch, unless the Fly buys you a sandwich.
Here are some notable tables in Whitney's report that I found to have caught my eye:
As for the market, this is ridiculous. I am once again holding over 90% cash overnight and I am keeping my maniacal day trader hat on until this whipsawing resolves itself. It is too early to tell if this is a pullback or the start of a deeper problem. I wasn't expecting a corrective measure to be as deep as it was yesterday. Who knows, we could have an up day today. I can't really write on specific direction, because I, myself, have to play the market on a minute-by-minute basis.
Unless there is deeper selling and broader market participation in it, with the financials filling their Wednesday gap and continuing the drop, I'd have to say that the move is still a corrective move. I'm not kidding about taking this market minute-by-minute. My thesis can and often does change intraday. If the market cannot form a rounding bottom today, then we're going to have some major problems.
Updated GDP chart: Don't forget to try the Free Trend Analysis. It's FREE, so give it a shot!
I can't say that we're going to go up in a straight line, as there will be consolidations, but at the moment, we are likely to head higher over the next few days. Looking at a 15-day chart, we are in the 865-880 trading range on the SPX. Did you notice how symmetrical the chart is becoming? It means that we could be consolidating here before another breakout. It's apparent that strong-handed longs will be holding their positions for a longer short-term period.
I signal some caution because we've been up for 4 days straight, and the chance of a down day is extremely high, but that shouldn't bother you unless the majority of yesterday's gains are wiped out. Before that happens, though, it's important to identify a down day as a normal correction (pullback on low volume) or an all out meltdown (accelerated sell-off on high volume). A nice correction is the opportunity to add onto existing positions.
Make note that the 20, 30, and 50-day moving averages will provide support/resistance (on the 40-day chart). Use these MA's as guides for today's trading, because they will dictate the pullbacks and bounces.
We also have durable good orders (8:30AM EST), jobless claims (8:30AM EST) and new home sales (10:00AM EST) coming out today. The consensus for the durable goods is -2% with a range of -6% to +1.2%. The previous reading was -1%. The consensus for jobless claims is 575,000 with a range of 540,000 to 650,000, although I believe the whisper number is getting bigger every week. The previous reading was 589,000. Finally, the consensus for new home sales for Dec is 400,000 with a range of 350,000 to 410,000. The previous reading was 407,000.
Don't forget that we have the GDP report coming out tomorrow. The expectation is -5.4% Q/Q change! The previous reading was -0.5%. The range is -7% to -3%. Terrible.
In my post yesterday, I described that I was looking for a breakout or breakdown in the financials and it appears that it may be coming today. During after-hours, the banks spiked +7-10% higher on news that the "bad bank" plan could be introduced as soon as next week. It's a necessary evil, it seems. I mean, who else is going to buy this worthless crap?
The level of ridiculousness would depend on how the Gov't plans on pricing these bad assets. I'm actually curious if they'll create some new type of fancy accounting. Seriously, not even a homeless man would take these toxic assets, so we've come to the point where the Gov't is the only entity that is willing and able to buy the worst assets in the entire world on behalf of taxpayers . No one else can buy up enough shit to make a difference. Also, why do they still call them "assets"? If these "assets" brought down the financial world, then they are liabilities, regardless of what any accounting textbook says.
The big difference here is that the Treasury was buying preferred stock, conveniently deviating from the TARP's original plan. The Gov't will now be buying common stock. Taxpayers, keep in mind that this presents an even greater amount of risk to you, but who will keep the Gov't accountable? The fact that the Gov't will be buying up common stock in banks will send bank shares much higher. Expect significant short covering in the morning.
This plan obviously overshadows the FOMC meeting later today. No one seems to care too much because there's nothing really the Fed is expected to do. Are they going to drop rates to 0% or -0.25%? No. Are they going to raise it? They wouldn't dare + that's absurd and the market will frown upon it. Therefore, I expect no action. Besides, there mf-ers are too busy trying to resuscitate the economy with these creative programs, paid for by your kind donations to the Treasury.
Today's day was a perfect set up for the upside move, but I didn't have the guts to go long. It's fine, like I give a damn what you think. In fact, I've been in 100% cash overnight for almost 3 days, which is a very long time for me. Unless you're long, having an ample cash reserve gives you the opportunity to personally take advantage of the additional misuse of taxpayer's funds. The market completed a 5-day ascending triangle, which will break to the upside (as of 1:09AM EST). The financials should be your focus for today, so keep an eye on BAC, C, JPM, WFC, GS, MS, etc.
I have a feeling that the financials will spike higher on consecutive or near-consecutive multiple days, in a very short time. I talked about the flag formation in my post yesterday and it looks like today will present the upside breakout. The after-hours action (as of 8:00PM EST) dictated that most financials will open slightly above their respective flags' only resistance area. A long spike at the close will also create a 'Cradle' pattern, one of the highest reliable and profitable candle combo patterns during a downtrend. They are one of the most dramatic displays of immediate changes in sentiment. This only matters if the banks CLOSE UP and above their flags' resistance. Did you hear what I said? There needs to be a strong close. This means that if a "WTF" pattern popped it's head up at 3:55PM and crashed the market, then this negates everything. For the open, I'd prob add an initial starter position in the banks, then either 1) add on sustained momentum, or if the gap suddenly fills, 2) add on a breakout of the gap's opening price. Both are determined in the first 15-30 mins of trading. Trade accordingly.
One more detail: Don't forget that the House will vote on the $816 billion stimulus bill TODAY. There's never been a time where I've seen the words "billion" and "trillion" appear so freakin' much. Congress throws these words around as if it's chump change. Am I right? You hear "billions" more than "millions" as if spending the latter went completely out of style.
Cramer is starting to use technicals. God help us.
Examples of anticipated immediate financial breakouts: Warning: Extremely offensive.
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I saw this article on iTulip about how wholesale liquidators, the companies that sell goods for companies that are going bankrupt, are themselves going bankrupt. In addition, just sampling losses in tech jobs, the trend seems pretty clear to me. The bad news keeps pouring in, yet the market holds. Odd, no?
Also, the updated chart on yesterday's Existing Home Sales data:
Yesterday, we formed a doji, or for some technicians, a small shooting star. Clearly, we are flagging on lower volume. This is 'healthy', but is usually signals a continuation in the prevailing trend. I will not put overnight money to work until we clear this 800-855 level on the SPX, otherwise, you're bound to see more faking. This consolidation area is purely a daytrader's haven, so if you're swinging, it's good to wait for a breakout or breakdown.
I am still focusing on the financials, because they are forming very clear flags and pennants on lower and lower volume. What you want to see is a breakout of breakdown on much greater volume that usually exceeds the past 2-3 days' volume levels. They will make really great swing trades when, like I said, the time is right.
Finally, countries in a recession, or pretty damn close to one:
As for the market, this is ridiculous. I am once again holding over 90% cash overnight and I am keeping my maniacal day trader hat on until this whipsawing resolves itself. It is too early to tell if this is a pullback or the start of a deeper problem. I wasn't expecting a corrective measure to be as deep as it was yesterday. Who knows, we could have an up day today. I can't really write on specific direction, because I, myself, have to play the market on a minute-by-minute basis.
Updated GDP chart:
Don't forget to try the Free Trend Analysis. It's FREE, so give it a shot!
