12,000: We Hardly Knew Ya

One hour to go on a Quadruple witching expiry, with a near $4 rise in Oil, more trouble in the finance sector (9th inning! 9th inning!), the Duoline downgrades, Ford (and GM) downgrades, and the Israeli prep for an attack on Iran are all pressuring the indices.

Where are we:  On the Dow, 11,740 was the recent major closing low (March 10th 08); The intraday low this year in January at 11,635.

Some of this is clearly expiry driven; the weak week means that options that ar ein the money are forcing a negative bias in the action. Some of it is simply a fear of holding long positions over a weekend — thereis increasing chatter that Israel could blow up Iran. I have no opinion on the odds of that happening, but if it did, we could see Oil could pop to  $175 (daily limits be damned!). In that event, the Fed could cut rates to zero and we would still have a 500+ point gap down (that’s a low probability event).

Regardless, some technical breaks, negative breadth and heavy downside volume are adding to the overall negative whackage.

Let’s hope Hank Paulson is smarter than George Schultz James Baker (or was it Greenspan?) who was rumored to have warned of a possible dollar devaluation over the weekend prior to Black Monday.

Dow Industrials Intra-day Day
Dow_62008

 

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What's been said:

Discussions found on the web:
  1. john haskell commented on Jun 20

    It was James “Recount” Baker, the Paulson of his day, who came up with that brilliant comment on “letting the dollar slide” right before Black Monday.

  2. Ben commented on Jun 20

    Hey, first, be bullish. Second, think longterm. And we have Dennis from CNBC. Everything will be exceptionally fine in the future. Finally, believe what I just said.

  3. DL commented on Jun 20

    The “Farrell bottom” was an illusion.

  4. Joel commented on Jun 20

    It was James Baker that rumored the devaluation of the dollar with the Plaza Accord prior the Black Monday.

  5. Jeff commented on Jun 20

    “We gotta hang ONto our Goldilocks Economy!!”

    Um, maybe not.

    P.S. I’m sure that Larry, Dennis and the other perma-bulls will find a way to blame this on something related to Obama.

  6. Ben commented on Jun 20

    Oh did I hear it’s too LATE to sell?

  7. DL commented on Jun 20

    “… there is increasing chatter that Israel could blow up Iran… “

    Blowing up Iran? That’s O.K.
    Just don’t buy any oil futures on margin.

  8. Vermont Trader commented on Jun 20

    Greed and Fear.

    Watch for confirmation bias. The market is not your friend.

    The only price that matters is the one you cover at.

  9. Paul in NYC commented on Jun 20

    This stagnant market looks to me a lot like the one from the late 60’s and through the 70’s. Just add a little inflation and it’s the 70’s all over again.

  10. Jonathan commented on Jun 20

    I think the new hot commodity is going to be firearms, although better to invest in the real thing than some pansy ETF.

    Full Disclosure: I am long firearms ;)

  11. bluestatedon commented on Jun 20

    “Blowing up Iran? That’s O.K.”

    Be careful what you wish for. Iran ain’t Iraq. $175 will look like a pipe dream after they close the Straits of Hormuz and give the green light to the Shia in Iraq. All hell will break loose. But George’s nutty evangelical buddies will get a woody over it all, since it brings them closer to their precious Armageddon/End of Days crap.

  12. EdDunkle commented on Jun 20

    I keep myself sane by thinking that the 00’s are forming a gigantic cup and handle. Some year, the market will go up.

  13. Mary commented on Jun 20

    OT, but maybe the unraveling begins-I live at 52 & 1st in NYC and a man just jumped from his 17th floor apartment across 1st from me, just 30 minutes ago-5:30PM.

  14. gregh commented on Jun 20

    blow up Iran?

    I soon to be long Haliburton

  15. John commented on Jun 20

    Putting on my Tinfoil Hat for moment the question for this weekend will be what ‘The Plan’ is going to be from the PWG on Financial Markets (and perhaps from Congress) as we near the Re-Test point of the ahh “March Lows”.
    Do we get more Reassurance from Hank and Ben, or perhaps from ‘The Decider” himself, that the underlying fundamentals of the economy are still Ro-Bust? Do we get more “Oil-Commodities are in a Bubble Talk” and are ready to crack at any moment? Or perhaps covert/discreet intervention into the currency markets to prop up the dollar? So what is it that’s going to give us the “Double Bottom” bounce off of the March Lows and ammunition for the (now utterly Ridiculous) CNBS cheerleaders to start Sh*tting about. Will it be:

    A: More Happy Talk from Hank, Ben and “The Decider” on the strength of the Fundamental Backdrop of the economy at-during the FOMC/FOMC announces surprise rate hike/cut– (sh*t, what was it again that props up the Stock Market???)

    B: Liklihood of the passage from Congress and signature from the President on the 300+ billion dollar home foreclosure rescue Bill (probably old news already priced into the market).

    C: Higher Earnings/ beaten expectations from Big-Name Tech/Industrials— RIMM kicks off the show next Wednesday– AAPL, QCOM, IBM, AMZN, GOOG, CAT et al. One Caveat here though– These stocks have already had a nice run-up and any guidance that smacks of a slowdown will likely send the Hot Money Flying out of these stocks…

    D: Major Commercial Bank/Investment Bank admits (privately) to Insolvency and Big Player(s) step in to buy it– suggesting that “The Buyer(s)” has/have done their accounting due-diligence of the insolvents assets/liabilities/toxic crap on the balance sheets/income statements and feels comfortable enough to assume the risk.
    (Highly unlikely since the Housing Market, in my view, has lots more pain heading it’s way).

    E: Somebody at the Fed/Treasury all of a sudden Grows a Pair of Ballzz, admits that the entire U.S. Banking System is Insolvent, (says ‘Phuck It’–Inflation be Damned!) and issues a statement that the Treasury will begin printing $100,000 dollar checks to every man, women and child living in the Continental United States. (This of course will be combined with Overt/Non-Discreet Intervention into the currency Markets to Blast the dollar into the Stratosphere and Crush the Gold/Commodities Markets.

    F: Other– Please Fill In…

  16. tranchefoot commented on Jun 20

    Can any of you technical-minded guys shed some light on how the market is looking at the moment?

  17. scorpio commented on Jun 20

    josh rosner a bond guy, said on Bloomberg “if this is the 7th inning, then it’s the 7th inning of the first game of a seven-game series”. now, that’s funny

  18. Jonathan commented on Jun 20

    scorpio: there was also once a baseball game that too over 30 innings to end. If the bulls and the bears keep trading places, we could stay tied for years. The game is only over when one of the teams win.

  19. Jonathan commented on Jun 20

    I think I am going to short happiness.

  20. John commented on Jun 20

    “Can any of you technical-minded guys shed some light on how the market is looking at the moment?”– tranchefoot

    From my layman’s perspective on technical analysis the Dow and Financials look short term over-sold. The Transports and the USD pulling back to 50dma, with Tech still hanging tough–not strong enough of a break below 50dma to go short.
    Given that we’re close to the “retest point” of the March lows, Earnings kicking off next week beginning with RIMM (with the spread of some of the estimates big enough to drive a Truck through), and my personal belief that the FED/PWG on Financial Markets will use this “re-test opportunity” to try (with whatever ammunition it is they have left) and put in some (temporary) bottom into the Stock Markets. I would expect a Short Covering/Trading Rally for 3-5 weeks, especially in Tech Stocks … but see the “Caveat” in my post above in part C:…

  21. Marcus Aurelius commented on Jun 20

    I’m long starting over. Get ready for a level playing field, boys! By the end of summer, we’ll have the opportunity of a lifetime.

    The signifying monkey’s smart ass is on the way down. As soon as it hits ground, I’m gonna’ thrash that little MF within an inch of his life. Then I’m going to eat his lunch. Then I’m going to put a leash on him and make him fetch me the high fruit.

    Life is good.

  22. JOE BATTIPAGLIA commented on Jun 20

    Battipaglia buried Brian Westbury again on your show! How can that clown come on and say what he says with a straight face? I guess he gets his paycheck no matter what, so what does he care. He has no cred though. His arguments are absolutely laughable. folks Wall Street types like him are not your friend in a bear market – they will say buy all the way down and bury you. I hope you all know this by now. Hard lesson for many in 2000, which is now going to be another hard lesson for a new herd of fools.

  23. Todd commented on Jun 20

    Now that the Fed has forced money into the stock market by slashing rates so low, and it’s looking treacherous as hell with the exception of a few excellent sectors.

    Junk bonds and munis are all trading like crap now. Other than my trading account which is holding up but is only a small portion of my investable assets, I’m finding the choice of making virtually zero in money market funds or CD’s or losing money in other income producing assets. Why is it I have to take on inordinate risk to generate a decent return on what I consider to be safe money that I don’t want to take risks with?

  24. William Laird commented on Jun 20

    The administration will have the full court press on…saudi’s, kuwaiti’s… anybody that can turn the spiggot on full blast will do so. To greese the skids, U.S. will have to be soft on Iran with Saudi/Kuwait. Therefore, U.S. will *not* give it’s blessing to Isreal as long as Iran is at least still paying lip service to the U.N.

    At every other critical point, the administration has “come through” to prop things up for another leg up for the election. I’m with Kass on this one. This market is short term oversold, and there are still a few tricks left in this poney.

    I expect Monday to be a big gap up day on the open with all the fresh news about Saudi’s coming to the rescue. King Abdullah’s face will be plastered all over the news and the press as a here. Saudi’s can go as high as 1M Barrels before their capacity is maxed out, and have already hinted about a “surprise” announcment during the weekend (above the 200K previously announced).

    I wouldn’t be surprised if oil gaps down $5 on Monday morning, and Mr. Market is up 300 points on a relief rally.

  25. Simon commented on Jun 20

    Forget returns for the next six months. Preservation of capital is all you can wish for. Just buy some metal and hold a good bit of cash..

    War or peace will be good for metals and cash will be handy at the bottom.

  26. Shorty McShorterson commented on Jun 20

    Ben,

    You can cut but you can’t run. I’m comin’ for ya and I’m gonna git ya.

    But not just yet. Nice wave 2 bounce coming very soon. And I want you to think that everything is dandy again so how about if we set a date for late July?

    Your pal,

    Shorty

  27. leftback commented on Jun 20

    So – we are awash in bad news and expiration is behind us, some relief in oil is in the offing – surely all the ingredients for a classic trading bounce? 1375 looks like the ceiling this time, so what’s that? – about a 4% bounce – over two weeks or so?

    That should be enough to have Goldilocks wetting her knickers, Larry praising a Big Mac rally and Dennis Kneale raving about opportunities in tech. He’s right about the sector – but just about 2-3 years early.

    It does all seem kind of predictable, yet it is so hard to make a lot of money even when you can kind of predict a lot of the action. Full disclosure: short the drillers, long the refiners and a tiny bit of the financials (because it is already so obvious that the earnings will stink), for next week – with VERY tight stops.

    Anyone looked into going long Friday nights and then going short on Wednesday at noon? Every week is a tale of two tapes. We can go on like this for months until the day we break the Farrell bottom, and then we are on the express to SPX 1175, or worse. See you there. October, anyone?

  28. a guy called john commented on Jun 20

    It does all seem kind of predictable, yet it is so hard to make a lot of money even when you can kind of predict a lot of the action.

    meh. place your bets (via proshares etf’s), have your significant other or kid change the password on your brokerage account, cancel the internet and newspaper, don’t talk money to anyone…then come back at the end of the summer. $$$$$$$$$$$$$$$!

  29. Golfus commented on Jun 20

    ” Saudi’s can go as high as 1M Barrels before their capacity is maxed out, and have already hinted about a “surprise” announcment during the weekend (above the 200K previously announced).

    I wouldn’t be surprised if oil gaps down $5 on Monday morning, and Mr. Market is up 300 points on a relief rally.”

    Pardon for my English, but
    here is the problem:

    The Saudis have increased production during the last month, and they “couldn’t find buyers” for that extra supply of barrels.

    Why?

    Most of the countries buy a fix amount of barrels per month. It does not matter if it is $100 or $150.
    They don’t buy more or less barrels of oil. They buy a fix number of barrels or what they can refine and has been budgeted, specially in developing countries

    Oh, well we’ll see !

  30. Risk Averse Alert commented on Jun 21

    tranchefoot:

    If you look at the VIX, it’s suggesting the market is not “oversold.” However, if you look at the Volatility Spread, it’s indicating the market is “oversold.”

    There also are a number of other technical indications suggesting the market is not yet oversold.

    I don’t mean to confuse you with this seemingly mixed message. Indeed, I believe there is more selling yet to come. The question simply is how soon.

    My work suggests two things you might be interested knowing. First, a powerful, double-digit-percentage advance in all major stock indexes remains in store, beginning sometime during the months ahead. And second, before this advance gets under way indexes likely will decline below their respective January/March lows.

    Up until the past two days I have been looking for a capitulation resembling the crash of October ’87 to complete a multi-month consolidation of the market’s advance from 2002-2007. This could still happen. However, the technical evidence — despite much of it suggesting the market is NOT yet oversold — alerts me to consider an alternative scenario. Rather than January/March lows being imminently taken out, it may be some weeks before this happens (or, more accurately, before the risk of this happening becomes even more elevated than it is right now).

    Now, the geo-political hot button Barry mentions, indeed, could erupt overnight. However, Scott McClellan was very well behaved before the House Judiciary Committee today, so the need for President “Don Vito” Cheney to deflect a potential political fire storm by pulling the strings of his gangsta friends in Israel appears to be abated. (Hat tip to that oh so “liberal” NY Times for the heads up on the early June Israeli military exercises on the day Mr. McClellan testified before the Congress.)

    Per forecast price targets of a pending decline taking out January/March lows — whether imminent or delayed some weeks (possibly extending even a couple months) — look in the vicinity of lows respective indexes set in 2004. This implies an objective of 1050-1100 in the SPX.

    Again, once we get a final capitulation (a la 2002), I expect the stock market to melt up, extending well beyond peaks reached in 2007.

    p.s. How does anyone come to the conclusion a collapse in oil prices will spark a powerful rally? Energy (and more generally commodities) related issues are putting a floor under the market. Wall Street NEEDS inflation. Bottom line, the name of the game is INFLATE OR DIE. All things remaining equal, if the commodities market collapses, so too will the stock market. Truth is, though, that is not going to happen. Outside Wall Street’s Structured Finance, those major financial components underpinning the infrastructure sustaining globalization continue firing on all cylinders. What will be the culmination of profound imbalances being created by the current arrangement? How will it end? Probably by some severe social upheaval. And therein lies a great danger. It is a sheepish culture lacking conviction and courage that makes itself vulnerable to the designs of thugs. The demise of Wiemar Germany and its aftermath were no accident unrelated to our present, self-imposed circumstance.

  31. zackattack commented on Jun 21

    Technically, I’d agree with the other posts that the markets are oversold by the oscillators.

    There’s a lot of divergence in the indices this time. Dow’s more oversold by some measures than in either January or March.

    We’re just a few sticks from the closing lows back in early March. I’d expect the bulls to make a stand there. If that fails, then you’re probably looking at the summer, 2006 lows.

    Nasdaq is barely oversold here.

    S&P’s in the middle – oversold, but not dramatically so.

    They’re all just sorta hanging in the air above support. No compelling reason to get long right here at all.

    I tend to see things as pairs, long/short in varying percentages.

    This should not be taken to constitute investing advice: if I had to have some skin in the game, my theme would probably be how one would expect the Nasdaq/Dow disparity to resolve itself. Of course, there are two ways that can happen.

    My position would probably be something like QID/DDM. Long Dow over short Nasdaq.

    What I’m actually *doing* is covering, looking at building some longs. I went into the week about 60/40 short/long and exited it about 55/45.

    Also making note of that H&S in TLT. The instrument there might be TBT to play that. Oh, there’ll be no raising rates.

  32. zackattack commented on Jun 21

    Another important factor to remember on the long side – we’re going into end of quarter. That likely means some window-dressing on the long side.

    We are, after all, Long Nation.

  33. Mike in NOLA commented on Jun 21

    My thanks to you guys (is it all guys?) for amusing Saturday morning reading.

    My two cents: Those who do not remember history, etc.

    Avg. bear market decline is over 30%; we ain’t close yet. And many of those numbers making up the average were when the underlying economy was in better shape. Does not mean there won’t be rallies on the way down like the recent one or small spikes. The way down in the Great Crash looked like a sawtooth.

    Chart here

    I’m not saying ours will be that bad. China’s may be; it’s most of the way there already.

    Expect a bear market rally when VIX gets up around 30. That’s been the pattern the last year if you compare the VIX and S&P/DJ: 30’s are intermediate lows; mid-teens are intermediate tops. Of course, like gambling systems, if too many people watch it, it will lose its effectiveness as an indicator.

  34. Ben commented on Jun 21

    http://www.reuters.com/article/ousiv/idUSL2153473620080621

    “Top world oil exporter Saudi Arabia has decided to increase oil supply to meet demand from customers, a Saudi oil source said on Saturday.

    Saudi Arabia will raise output to 9.7 million barrels per day in July, the fastest daily rate in decades.”

  35. bnj646 commented on Jun 23

    Just a theory . . .

    Adjustable rate mortgage resets have recently peaked signaling the possible short term end to write-downs so we could see a recovery of financials going into the beginning of 2009; these ARMs will begin resetting again in early 2009 and will peak in 2011. This peak of resets in 2011 will coincide with the consolidation of Special Purpose Entities (new regulations being introduced by the FASB-140 and 46R). These SPEs are used to hold assets and liabilities off balance sheet in order to hide the true financial position; allows companies to take more risk. Now FASB is debating to require them to consolidate these SPEs on the balance sheet which will expose the true liabilities and worthless assets that many companies hold through SPEs. Sounds like a bad mix to me.

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