Yesterday say some mix action, we got some strength in a few tech stocks (the over-weights) that sent the NDX up fairly well, however the broader market RUT – was pretty flat and stayed below 700. SPX did get a boost by a few over-weights as well – but being broader than NDX it was not able to see the same strong rally. Reflecting the general market was flat and a few key stocks were in the driver’s seat. The volatility pulled back a little but is still in the higher bands and the skew remains steep. This is a fairly big week with some economic numbers and also Bernanke will grace us with his presence. Would could get some “knee jerks” up and/or down.
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GM – find me the REAL numbers
There was much confusion this morning – as people sift through the GM numbers. It is getting hard to figure out what the EPS really represents – since it is no longer “Black and White”. There are charges, costs, one-time this and one-time that. The first news to hit the street was GM reports a $64 million dollar profit * (or .08 a share) – beating all expectations. The stock rallied $1.50 in the pre-market. However, notice the (*) after profit!!! Ever since Maris broke Babe’s homerun record (61) and an asterisk had to be put after the number to indicate “BUT” because of special circumstances (he did it in more games than Babe), now with Bonds and other questionable records – the asterisk has come to signify – there is possibly MORE to the story. Well – in GM case the story is the same $64* million. Oh – wait – that little asterisk means they included a tax benefit, $1.6 billion for the Allison transmission unit, a $7.7 billion reduction in pension liabilities, etc, etc, etc. So – as you can see that $64 million is not even close to what is really going on behind the curtain. Too bad it couldn’t be simple like with Maris – he only played 8 more games than babe. Maybe GM should of put several asterisks after that profit or even better * to the power of 10.
Needless to say GM has come back down to earth as more “talking heads” decipher the numbers. CNBC will probably need to higher some military code breakers to start figuring out these earnings reports. GM now at $26.40 a share (down from $28.50 when the news came out they had a profit).
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Buffet dawns his cape, or does he?
Buffet swoops down in what SEEMS to be a bailout of the bond insurers, but with like everything else – Buffet is no dummy and rather than being the perceived super hero – he is more the likeable vulture picking over the good meat. Buffet is offering to reinsure $800 billion in liabilities of the three largest bond insurers MBIA, Ambac, and FGIC (which are all on the break of bankruptcy). However, here is the catch he wants to take the fresh meat and leave the rotten meat on the bone. He is only making an offer on the (NONE RISKY) municipal liabilities. Brilliant!!! He wants to insure the bonds that probably can’t go bankrupt (ala government bonds). It’s as brilliant as title insurance. I would be extremely surprised if they agreed. One has already refused (probably laughing hysterically in the fetal position about the offer – save me - please).
Talking heads would have you think Buffet is coming to the rescue to bail them out – I don’t think so – you don’t become a billionaire by tossing good money after bad. If he pulls this off – my hat is off to him – however we would still have 3 dead animals laying in the road with rotting meat and stinking up the joint.
Just like the GM story – on the surface it seems rosy and the pre-market futures are getting a boost – but once you pull back the curtain – well it’s nothing short of a lot of asterisks *************************************************
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Futures Pre-Open
The futures got a good pop on the GM news, followed by Buffet “supposedly saving the bond insurers”, but the rally is optimistic at best – but then again the market has been moving up and down on greed and fear rather than any fundamental news – thus creating MORE volatility. The spreads are 2-5 points in the ES / NQ – so expect some ARB to short futures into the opening and buy the basket – thus putting some initial buy pressure on the opening. It seems that the spreads are starting to settle down after the news is getting digested. After the opening it is questionable if we get any follow-through.
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Support / Resistance
The market is looking poised to rally – feeding on any news that seems optimistic looking for hope. So it is quite possible we rally out of this – and violently to the upside if the shorts cover and the sellers step away. Then euphoria will return and people will forget the real shit-storm the economy is in – for a little while at least.
INDU 12000 / 12500 (If the sellers step away – news like Buffet and GM could bring hope back to the market and send this up fast. I don’t think we will sit at 12250 for any length of time. The market is wanting to rally after all the bad news.)
NDX 1800 (We are at a pivot point and if we can get above 1800 with any strength this puppy could BOLT higher – it is possible maybe even to see 1900 in the near-term - however any rally is based on Greed and Hope - don’t get along without hedging yourself. However – there could be some quick profit plays to the upside – short term.)
SPX 1350 (If we break 1350 this market as with the others could launch. Everyone is trying to spin economic negative news into hope and optimism. Remember the market MOVES on perception – not reality. If we CAN break 1350 we could head towards 1400 – a place you might want to unload and start going short again)
RUT 700 (For the rest of the market to get a strong rally the broader market needs to get above 700 and head towards 725. If this does NOT happen expect any pops in the narrower based indices above to be VERY short lived.)
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Conclusion
Reality – well the economy sucks – no denying that. However, EVERYONE is sick of that story and no one wants to hear it anymore, neither do I. It is just old news and bad news. We have taking a good beating going into the beginning of the year and now we are hoping for some sort of recovery. The market moves on perception until the fundamentals can catch up (note the fundamentals are pretty shitty right now) – but if we can keep the party going (cut more rates and bail out the insurers and banks) well we might get some short-term pops to the upside. It’s like the first ROCKY movie – you know he is going to get up off the mat again and again (when fundamental he should stay down – he is just getting brain damage at this point) – and what happened in the END, he lost!!! So why bother getting up – knowing you are going to lose. Well – investors are optimist – until the Fat Lady sings (or the Final Bell in Rocky) they will continue to pick bottoms and hope. Based on Greed and Hope – we could get a violent rally to the upside.
However when reality sets in – maybe a few weeks down the road – that consumer buying power is dried up and homes STILL are not selling – and the dollar continues to slid – well the sellers will step back in.
We are at a pivot point and the market WANTS to rally (because investors and “talking heads” want it to) – don’t fight it. If you are short – step aside and get on the train and let the market rally. However, keep in mind that while Rocky may get off the mat again and again – it is better to hedge your bets and put some money on Apollo Creed!
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