I forget the saying about vengeance, but I am sure there are several people that are gloating over Spitzer. Needless to say Clinton, whom he has been campaigning for and endorsing, is distancing herself from him. Well, all I can say is that it could not of happened to a more squeaky clean guy – he has been a cause for some personal headaches (which I know some of you readers can attest to – I sure can). Thanks Cinnamon, or whatever your name is! No pity here – he made (or didn’t make) his own bed.
The market broke any and all supports yesterday and there really is not much of any supports going forward to place any large bets on. Now we wait for news, hope, or massive short covering. It will be hard to place any long positions without comfortably hedging your positions.
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The FED takes drastic action
The futures are making a huge pop in the pre-market. The Fed will not only (probably) cut by 75bps at the next meeting (according to fed fund future prices), but now they are taking action by dumping $200 billion into the market, via ANOTHER new lending tool. You have to hand it to Bernanke he is coming up with his own creative finance solutions (the irony is this is exactly what everyone is criticizing the bank lending institutions for).
The concern is that the credit markets must be in even worse condition than we are being informed, you don’t lend $200 billion into a system unless things are not good.
I also find it interesting that this coincides with the major broad based market supports that all failed yesterday. I tend to find coincidences usually have something a little more behind them. Is Bernanke just trying to say the banks? Is Bernanke taking queue from the market? Is Bernanke even remotely concerned about inflation, the dollar, or the economy as a whole? It’s hard to say – one thing for sure – 75bps cut and $200 billion flooded into the market is sending up alarm bells – look at gold, the dollar, and oil! While the market is getting a good kick in the pants to the upside. Which may be short-lived. Don’t look to $200 billion being the end or the saving grace.
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Futures Pre-open
The futures are getting a MASSIVE rally into the pre-market. The futures are front running the cash by $15 points at 9am ET – expect the ARB traders to start shorting futures and buying the cash basket coming into the open. The spread is so wide you could drive a freight train through it. The market is rallying on a $200 billion injection to credit lines. So look at this as a massive knee jerk reaction. How well it holds is questionable. What COULD happen is that it MAY spark massive short covering and if it does it could get some follow-through during the day. If not – expect a large retracement to the down side. Either way – it’s going to see some big volatility action in the AM.
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Support / Resistance
The market broke all supports yesterday and now with the $200 billion injection we could see the market rally and a short covering really get this thing moving. The future spreads are pretty massive which will close by the opening. I think we WILL see a pull back in the futures pre-open to close that spread.
INDU 11500 / 12000 (We could get some massive follow through. However – be careful getting long at the opening. The market pop is based on Fed injection of capital – at the 1,000’ view that means the credit markets are in trouble. Could this be a dead cat bounce? Probably.)
NDX ????? / 1700 (We just broke down through the 1700 support level – but we will probably be above it going into the opening. However, WATCH the close – today is NOT the day for investors to bottom pick – rather this is a traders day.)
SPX 1270 / 1300 (We could visit 1300 – but that may be short lived. Again don’t read too much into the pre-market pop or the $200 billion injection as a good thing – cause it’s more of a bailout – that WILL help – but it’s going to put serious load on the dollar and the government.
RUT 650 (Will we close above 650? This will be the most important index to watch – while we will pop in the pre-market – the close and how the market reacts after the opening and into the close WILL determine how the market receives the news.)
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Conclusion
The FED coming to the rescue, but at what expense to the economy? No doubt the banks and lending firms NEED money and it has been rumored that Citi is close to bankruptcy. The FED is definitely looking to keep the major banks from failing and this is a bailout by any stretch of the imagination. Ross’s statements yesterday on CNBC was a shocker no-doubt stating that some banks WILL go out of business and the government will do what they can to keep some of the larger one’s from going under (like a $200 billion injection). Add in Dubai investment group making similar statements that Citi is going to need a lot more than the recent $14 billion.
Take care trading today and unless we get some strong follow through (may be some short covering) – if not then don’t expect pop to last.
Investor should probably stay side-line.
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