Why the Rollover?

It’s still a bear market? My question would be why was market so strong out of the gate?

The same reason it has sold off seven other times at this level in the past month or so. Ain’t no buyers in the cash market. And, no one surely willing to buy a major gap at the open. Short term traders rule this market. They are bouncing it and selling it at the same levels over and over. I’d suspect this morning’s futures jump was an attempt to put a place marker in the market while the bosses extend their three day weekend into tomrrow.

Perhaps investors are starting to realize the almost second by second upside bias in the financail news and figure the facade can’t last too much longer.

Lower oil is not bullish for stocks. It is a signal; one of a weakening economy.

Well, under typical circumstances falling oil prices might be bullish, but so much of the global economic growth story and it’s positive effects on US exports has been driven by commodities that if the current collapse in commodity prices is sustained it could really drag the economies that are still growing straight into the gutter.

Volatility is increasing. A good reason is not needed anymore.

I have a longer term theory…

The market is waking up to the following:

Now that 2nd quarter earnings are in – the official trailing 12 months earnings on the S&P 500 is now official. $69.79.

$69 x 17 = 1173

1173 is 8% BELOW current levels.

AND…3rd Quarter / 4th Quarter earnings look to be BELOW $17 per share respectively with relatively little reason to believe Q1 or Q2 2009 will be much better.

THUS…1200 looks to be a CEILING in the S&P 500 in the coming weeks / months. NOT SUPPORT!

Add to that the growing (still minority – see David Rosenberg of ML) chorus that 2009 will be MUCH worse than 2008 in terms of earnings and you have a recipe for S&P 500 sub 1100.

One Caveat…the Fed’s will be looking to juice this BS market one last time over the next 6 to 7 weeks.

AAPL, RIMM dropped sharply, turning the market big time. Seems like a delayed reaction to the tweisel comments this morning.

One last thing in regards to my “PLUS, the dollar rally is NOT GOOD FOR LARGE MULTINATIONAL EARNINGS!” statement.

Look at chart for IBM over past few weeks as the US dollar rallied. Things that make you go HMMMMMM!

Better question: why did the market go up 200 points?

The market went up because: Gustav was kindler and gentler than Katrina (hurrah for the guy-hurricanes).
Oil stocks are overweighted in the S & P 500, and they were down from the opening.
The beach boys came back from vacation with OPM to spend.
my choice: the market is phrenetic and unwilling to believe we are entering a near-depression.

If you look at the 12 sectors in sector summary at finance.google.com you’ll see that Basic Materials and Energy are killing today’s market. That is, 2 out of 12 sectors.

I work for an investment mgmt firm which has a quite sophisticated industry model. But as a private holder of AGU for some time, it’s my belief that there are a lot of managers who lump all of Basic Materials and Energy into one basket and have the whole thing trigger off of the price of oil.
Or if one wants to be more sophisticated, these other managers have slightly more complex models than that. But for some good part of the last 12 mths, their models have had the _effect_ I describe above.

AGU has correlated vary closely, for some time, off the price of oil.

Not directly related to today´s move in the stock market, but i found it very interesting that in july the debit balances in margin accounts relative to NYSE market cap rose above the level, that was last seen at the highs in 2007. That´s unusual, because normally this number decreases when the market falls. Since 1995 there have only been a few months in the spring of 2000 when balances in margin accounts relative to NYSE market cap where bigger than in July. So there still seems to be a bit of deleveraging ahead.

why doesn’t anyone ever ask “why is the market up?” which would have been a better question this morning.

the market is down because of REALITY.

Reality setting in after the unofficial end of summer. Here comes the next big leg down…..

In addition to the fundamental reasons–weakening earnings, already overpriced stocks, no institutional buying, global slowdown–the Dow level is fairly significant. 11,700 was the high back in 2000. It’s also right around where the market bottomed in Feb 2007. It’s now acting as resistance. On top of that, that’s right around where the 200 week m.a.

We’re clearly in a bear. Rallies, therefore, should be sold.

UK + korea and melting down.

canaries in the coal mine?

UK + korea and melting down.

canaries in the coal mine?

The crash in commodities indicates to me that deflationary forces are taking root. This is not surprising and is very serious. Look at it this way; like a drug addict, we’ve been addicted to monetary stimulus for so long, we’re dependent. We need ultra-low rates to keep growing, or we crash. My prediction right now is the next Fed move, although it might be several months away, is down.

The 1300 handle on the S&P500 was never broached today and it might not be before the end of the week. Employment figures on Friday are key. But there is no question in my mind we have seen a ‘bottom’ psychologically.

The things I am looking for this fall are a tech rally, particularly bullish about AAPL when it reports earnings in October.

On macro continued sell offs on gold, oil & foodstuffs with broad strengthening of the USD.

Whatever happens, on this the first trading day of the new season, you’ve got to LOVE this volatility. I mean the biggest one day trading range ($13) in 22 YEARS in crude oil! More, please!!

market dropped sharply when fed minutes were being discussed on cnbc. several members voted for raising rates because they believe inflation is a greater risk than slow growth. cnbc threw up a screen showing the market falling outta bed within minutes of the release….

not to mention all that other stuff covered in other comments.

It means were gonna CRASH, August was the first spotless month the sun had in 100yrs.

per:
http://www.dailytech.com/Sun+Makes+History+First+Spotless+Month+in+a+Century/article12823.htm

James Simon’s Medallion fund of Renaissance tracks these sunspot cycles as well as other geophysical and market cycles and is now MEGA short in the s&p.

Because we are in a bear market and the last sector with postive fundies just broke down……

Beacause hedge funds are blowing up TODAY.

Because the problem isn’t oil It’s DEBT.

As I’ve posted here many times. In a bear market you sell the rallies until it doesn’t work any more.

President Palin?

A sell off in the face of the Republican Convention getting geared up after their Gustav time-out is most interesting.

Either its that Bristol Palin won’t deliver in time to give us a market messiah in time before the coming crash or the PPT has mis-placed Paulson’s Bazooka.

Notify the pilots that parachutes are strapped on….wait, the pilots have already jumped….

First off, oil did bounce back $5…. and there is the potential of a Bear trap.

Second, No shortage of nuckleheads looked at the monthly market gains, and have seen that the Sept. is the most Losing month…. and they also are surprised that it’s not October.

So they came in selling.

Interesting thing is that the Losing period is from mid Sept to mid October. then October usually reverts to the Mean…. and likely rallies. Which is where everyone is looking for a “Bottom”…. If this bottom happens it will be the most forecasted bottom in the history of the market….. and every lemming will make money.(Worth note is this was the most forecasted recession… so why not?)

Who bets against the Lemmings?

My bet is the continued roller coaster.

Anyone watching the hurricane forecasts would have been stupid to be long this weekend. If things had gone just a little differently, Gustav would have been one of the top 5 most powerful storms to ever hit the US. The intensity and track forecasts were jumping all over the place. Entering a long weekend with an unpredictable hurricane entering an unusually warm gulf headed straight for major oil infrastructure provided plenty of reason to not want the overnight risk.

Here’s some samples of the forecast discussions from this weekend

Saturday 2:00pm EDT
http://www.nhc.noaa.gov/archive/2008/al07/al072008.discus.024.shtml?
SO MUCH FOR A SLOWDOWN IN THE INTENSIFICATION RATE OF GUSTAV. YESTERDAY AT THIS TIME WE CONVEYED THAT RAPID INTENSIFICATION OVER THE NORTHWESTERN CARIBBEAN WAS POSSIBLE…BUT THIS IS A LITTLE MORE THAN WHAT WE HAD IN MIND IN SUCH A SHORT TIME. THE HURRICANE HAS REACHED CATEGORY FOUR STATUS WITH AN INTENSITY OF 125 KT…HAVING BEEN A STRONG TROPICAL STORM JUST ABOUT 24 HOURS AGO.

Sunday 5:00am EDT
APPARENTLY…THE INTERACTION WITH WESTERN CUBA TOOK MORE OF A TOLL ON THE HURRICANE THAN EARLIER ESTIMATED.

If Cuba hadn’t somehow managed to weaken this storm, or if it had moved more slowly over the loop current, it would have been as strong as Katrina and Rita. Oil could have gone over $200.

So the gap up can be explained by people reopening the positions that they closed to eliminate hurricane risk. The downward movement since then is just a continuation of the market’s natural direction.

Lower oil prices are not going to help. Oil prices are dropping because people have no money to buy oil. Which also means they have no money to buy anything else.

Also, we have 3 tropical storms out in the Atlantic, all of which are forecast to become hurricanes in the next 1-3 days. Hurricane season has really just begun.

I’ll sort of echo what some have stated, but add in my own dash of contempt for daytrading playas… A bunch of people came back relaxed from from the long weekend, happy about the Palin gimmick and the weak hit by Gustav, and decided they were ready to buy some stock! When the market got to a certain point, the short sellers could no longer resist the tasty fresh swimmers in the water and sold the crap they had been thinking about selling for a long time.

There was no analytical reason for today’s gyrations, just people playing the players not the cards.

Take a look at this chart showing the VIX and the S&P Index – VIX still going up when S&P going up (not normal), and then BAM – market goes DOWN!
http://www.geldpress.com/2008/09/the-volatility-clue-to-the-market/

QUESTION: Is a huge October sell-off really telegraphed, or is this group just more aware and less complacent than the rest?

P/E ratios are very very high, as noted by Bloomberg today – they are actually higher than in many Bull markets. Like VT Trader says, sell the rallies until it doesn’t work.

I am wondering when forced selling and fund redemptions will impact the market? There is certainly evidence that several hedge funds have been mortally wounded by the oil bust (remember all those very young oil bulls who used to post in June? I suspect they are long gone now, more bubble victims).

At some point the growing distress in the high end of the housing market may be beginning to cause some additional liquidation of stock portfolios (the sub-prime mortgage holders didn’t have that option). Remember, the folks with the trophy homes will hang on to the house at all costs, but something has to give. Pre-owned Lamborghinis, anyone?

The Oil Drum is reporting a 40% drop in Gulf production for 30 days because of Gustav.

“GoM is about 25% of US production, 40% of the GOM’s contribution of 25% is 10% of the total US production.”

The market seems oblivious to this.

http://www.theoildrum.com/node/4480

Why the roll-over? You are kidding, right?

Because every Big Boy hedge fund, mutual fund, and every other mutating assemblage of greedy hedonistic capitalists, are squeezing every last penny out of every minute of trading, effectively turning every day of every week into an eternal Options Week.

These things too shall pass, when the final “Hair Trigger” is pulled.

To quote Warren Buffet from years ago:
________________________
“There are more people [like hedge-fund managers] that go to bed at night with a hair trigger than ever before, it’s an electronic herd, they can give vent to decisions that move billions and billions of dollars with the click of a key. We will have some exogenous event, we will have that. There will be some kind of stampede by that herd….

“When you have far greater sums than ever before, in one asset class after another, that are held by people who operate on a hair-trigger mechanism, then they lend themselves to more explosive outcomes. People with very short time horizons with huge sums of money, they can all try to head for the exits at the same time. The only way you can leave your seat in burning financial markets is to find someone else to take your seat, and that is not always easy….”
_____________________________________

http://money.cnn.com/2005/05/01/news/fortune500/buffett_talks/

Fasten your seatbelts for a wild ride IMO!

Reminds me of Jackson Browne’s “Before the Deluge.” Give it a good listen again!

Cheers,

Peter

PS — If we are in nested EWT 1-2 1-2 count, things could devolve quickly needless to say. SPY 126.5 support, MA(50) and MA(20) look pretty important here IMO.

I’m a centrist Republican. I put in an order for a total stock market fund, expecting that the weekend’s election news would depress Wall Street. It’s better (for me) than I expected, but not as bad as it could have been (for Wall Street).

Thats funny Dennis…

Bob C asked;

“What I want to know is why the dollar keeps getting stronger. The Fed makes more money available via fancy “loan facilities” and people think the dollar is worth more? I’m confused.”

Because a $ in the hand is worth two in some emerging market fund or commodity fund…. simply put, in a deflationary bust the $ itself becomes worth more than rapidly deflating $ denominated assets.

The $ will fall again when the next round of reflation begins, but not yet. The Fed can’t risk lowering rates yet, until the winter oil prices are completely under control.

Why a rollover? The market is ready to roll over. Pay attention to what the market says, not what you think, wish, or hope for. The message is obvious… heed it or suffer the consequences.

Tech is starting to show cracks because of the weakening worldwide economy and the strong dollar. Before the recent dollar rally, tech could count on foriegn buyers of their products. Now they face a double hit with the weak worldwide economy and the fact that their products are also getting more expensive in Euro’s and pound’s. Tech sales will probably be lower one year from now.

Bob C asked;

“What I want to know is why the dollar keeps getting stronger. The Fed makes more money available via fancy “loan facilities” and people think the dollar is worth more? I’m confused.”

Because a $ in the hand is worth two in some emerging market fund or commodity fund…. simply put, in a deflationary bust the $ itself becomes worth more than rapidly deflating $ denominated assets.

The $ will fall again when the next round of reflation begins, but not yet. The Fed can’t risk lowering rates yet, until the winter oil prices are completely under control.

Posted by: leftback | Sep 2, 2008 6:46:52 PM
????????????????????????????????????
guys, this is what seems paradoxical….
more deflation, more power to Bernanke to
print more USD.

I know it is tinfoil-hat territory, but it is hard to dismiss the idea that the dollar is rallying because of intervention in the currency markets. Can’t prove it….

But “nobody would expect” that the current Fed would act in a way that enabled the GOP with an election coming up, now would they?

Alternatively, our very good friends the Saudis could be involved also. Not mutually exclusive, for sure.

OK, gimme a 7.75 Reynolds Wrap chapeau…….

Here’s a funny joke…Cramer saying the rally is for real…

http://www.cnbc.com/id/26510603

Tuesday was a horrid technical day for stocks – not ifs, ands or buts. When stocks explode to a 240-point DJIA gain within 15 minutes of the open then reverse 300 points without a meaningful rally and close down, serious technical damage was exacted. 1305 on the SPUs once again acted as major resistance.

Even though oil and commodities collapsed the DJTA declined.

A collapse in commodity prices and an August ISM of 49.9 with a big decline in Prices Paid (77 from 88.5) fomented almost a two-point bond market rally from low to high. New Orders increased to 48.4 from 45 due to exports jumping to 57 from 54. The employment index declined to 49.7 from 51.9. What will happen to exports now that the dollar has surged?