Traders,
Can you say Pushmepullyou (The Dr. Dolittle – mythological creature with two heads) – well that is what the market was doing yesterday at the resistance point. It wanted to break-down from the resistance and also rip to the upside – but just couldn’t move either way. The combination of technical’s indicating a good buy and the economic fundamentals indicating that there are still problems on the horizon kept it from making any big move. However – one thing is for sure – “hidden volatility” gets injected into the market when it doesn’t move – but wants to. Expect the longer we stay at the resistance, the bigger the jerk away from there (either up or down).
Also – I will be speaking tonight at the IBD investor group: 6pm in Sarasota. If you are interested in attending please let me know.
_______________________________________
Motorola – to split into two stocks?
Motorola, the once darling of the cell phone industry, has been clobbered by competition – with AAPL getting into the mix has even sent them further down the list. The stock hovering down at the $10 level. So their plan? Let’s split into two companies (one for making cell phones, the other services) – great instead of having one company worth $10, you will now have two worth $5 each (sorry for the sarcasm) – however I have seen this time and time again – and those kind of (expensive) decisions usually inject a little rally from the excitement – but when the dust settles – one of the two usually head into the toilet.
Expect some volatility and action in both the options and the stock. I am sure there is going to be some good plays in there – specially once the split happens (there will probably be some arbitrage opportunities once the process moves forward.)
_______________________________________
Orders for Durable Goods = FELL!
Companies are battening down the hatches and shoring up capital, thus not SPENDING money (reflected in the drop in orders.) The 1.7% drop, followed by the 4.7% drop the month earlier caught economist by surprise (as they thought Feb. would have seen some relief) – I guess from assuming that the injection of capital by the Fed would of freed up companies to borrow more, thus order more. However – the opposite has happened and they are getting ready to ride out the storm.
It clearly a sign that companies believe we are headed or already in a recession – since they would rather stock pile cash then spend it. Add in the weakening dollar and they KNOW they will need MORE dollars as their buying power shrinks.
The futures got a mild hit when the news was released – but I still think there is the fight at the resistance. But this is another bullet for the sellers!
__________________________________________
Citigroup on the fast track to more downgrades
A couple of analyst are lowering Citigroup estimates considerably – by as much as 4x there initial expectations. Early estimates were for losses of .28 per share have been now raised to $1.15 per share – reflecting additional writedowns. Oppenheimer’s analyst (Meredith Whitney) had correctly predicted the reduction of their dividend and downgraded them with lower expectations – this most recent estimate will put more pressure on the stock.
Expect to see more pressure in the banking sector – specially those exposed to mortgages and other debt obligations. The financial sector is going to see some negative pressure today.
__________________________________________
Futures Pre-Open
Initially the futures were seeing some pressure after the Durable Goods information and the lower estimates of Citi – however they seem to be holding levels pretty well. The futures are currently front running the cash by $4 points so we may see a slight rally in the futures going into the opening as the ARB traders start buying futures to short the basket. There will be some opening pressure on the market from short basket sellers – but since we are at a pivotal resistance in the indices I think they may back off and we will see less aggressive program trading at the opening.
__________________________________________
Support / Resistance
We are loading up at these resistance levels – after two long days fighting here. The more we stay at these levels the more “hidden volatility” is injected – so when it does release the more violent it will become. Expect more downside pressure then upside – from the Durable Goods news and the Citi estimates.
INDU 12500 (This is a pivot point – which could switch from a resistance point to a support point if we can move higher from here. However, the negative news from Citi is going to put pressure on the banking sector – not to mention the durable goods indicating that companies are seeing a recession – are going to put pressure on the market. The bulls (technically speaking) have a chart saying this is the bottom and want to go higher. I am giving it still a 70/30 downside at these points – however if I am wrong – expect a violent rally to the upside as sellers step away and shorts are forced to cover – injecting MORE buying. But it will be short lived and 12750 to 13000 will see major resistance.)
NDX 1800 (I know we are at 1825 and as long as we see the index above 1800 we could get some juice to send this up to 1875 or even 1900 – but it will have to be lead by the top overweights – AAPL, INTC, MSFT, GOOG, RIMM – there are big shorts in those issues which could inject some upside bias. I think this more about the tail wagging the dog – and I would look to the SPX and RUT as to whether this market will go higher or fall off. Looking at the broader indices I think the NDX has more downside rather than upside possibilities.)
SPX 1350 (Again the pivot point and a better indicator were the NDX will go. The financial sector will be a drag and is showing some downside pressure. We are locked for now at 1350 – but like the INDU I am giving it a 70/30 downside from the resistance. It will be hope and short-covering to get this to rally – so watch out for a ripping upside if we do go up.)
RUT 700 (This is the broadest of the above indices and it needs to stay about 700 to get the narrow based indices to see higher highs – however if this starts slipping along with the SPX we could see other indices get dragged down as well. The NDX has more upside potential from the massive shorts in those issues – but the RUT could still help pull it down. Again – watch the close.)
The Pushmepullyou continues!
_____________________________________________
Conclusion
The Citi estimates has me a little concerned that MORE massive writedowns are on the horizon, but with Bear Stearns bailout we now KNOW that the FED will bail them out and take down worthless paper at the government’s (taxpayers) expense. However, is that enough? I feel that too MUCH bailout relief will stress the dollar to such a weak level that the bailouts may not be worth much. Foreign nations (central banks) will not want to touch the US dollar if the bailouts start mounting and it would be very possible to see OPEC make their drastic move early and reprice oil to the Euro (or basket of currencies) – the dollar would fall as the world reserve currency and would send more people to start unloading their dollars and buying Euros. So while it might domestically save the big financial institutions – it will at the same time send inflation up and the dollar down.
For sure Bernanke is in a tough spot – knowing that banks like Bear Stearns holds $10 trillion in counter party positions (that cannot fail without causing a worldwide domino effect) – but he must know that bailing them out and others, coupled with lowering rates is putting serious stress on the dollar and sending inflation up.
We are still in the “fogs of war” and don’t really know what is on the horizon – other than expect more volatility.
Can you say Pushmepullyou (The Dr. Dolittle – mythological creature with two heads) – well that is what the market was doing yesterday at the resistance point. It wanted to break-down from the resistance and also rip to the upside – but just couldn’t move either way. The combination of technical’s indicating a good buy and the economic fundamentals indicating that there are still problems on the horizon kept it from making any big move. However – one thing is for sure – “hidden volatility” gets injected into the market when it doesn’t move – but wants to. Expect the longer we stay at the resistance, the bigger the jerk away from there (either up or down).
Also – I will be speaking tonight at the IBD investor group: 6pm in Sarasota. If you are interested in attending please let me know.
_______________________________________
Motorola – to split into two stocks?
Motorola, the once darling of the cell phone industry, has been clobbered by competition – with AAPL getting into the mix has even sent them further down the list. The stock hovering down at the $10 level. So their plan? Let’s split into two companies (one for making cell phones, the other services) – great instead of having one company worth $10, you will now have two worth $5 each (sorry for the sarcasm) – however I have seen this time and time again – and those kind of (expensive) decisions usually inject a little rally from the excitement – but when the dust settles – one of the two usually head into the toilet.Expect some volatility and action in both the options and the stock. I am sure there is going to be some good plays in there – specially once the split happens (there will probably be some arbitrage opportunities once the process moves forward.)
_______________________________________
Orders for Durable Goods = FELL!
Companies are battening down the hatches and shoring up capital, thus not SPENDING money (reflected in the drop in orders.) The 1.7% drop, followed by the 4.7% drop the month earlier caught economist by surprise (as they thought Feb. would have seen some relief) – I guess from assuming that the injection of capital by the Fed would of freed up companies to borrow more, thus order more. However – the opposite has happened and they are getting ready to ride out the storm.
It clearly a sign that companies believe we are headed or already in a recession – since they would rather stock pile cash then spend it. Add in the weakening dollar and they KNOW they will need MORE dollars as their buying power shrinks.
The futures got a mild hit when the news was released – but I still think there is the fight at the resistance. But this is another bullet for the sellers!
__________________________________________
Citigroup on the fast track to more downgrades
A couple of analyst are lowering Citigroup estimates considerably – by as much as 4x there initial expectations. Early estimates were for losses of .28 per share have been now raised to $1.15 per share – reflecting additional writedowns. Oppenheimer’s analyst (Meredith Whitney) had correctly predicted the reduction of their dividend and downgraded them with lower expectations – this most recent estimate will put more pressure on the stock.
Expect to see more pressure in the banking sector – specially those exposed to mortgages and other debt obligations. The financial sector is going to see some negative pressure today.
__________________________________________
Futures Pre-Open
Initially the futures were seeing some pressure after the Durable Goods information and the lower estimates of Citi – however they seem to be holding levels pretty well. The futures are currently front running the cash by $4 points so we may see a slight rally in the futures going into the opening as the ARB traders start buying futures to short the basket. There will be some opening pressure on the market from short basket sellers – but since we are at a pivotal resistance in the indices I think they may back off and we will see less aggressive program trading at the opening.
__________________________________________
Support / Resistance
We are loading up at these resistance levels – after two long days fighting here. The more we stay at these levels the more “hidden volatility” is injected – so when it does release the more violent it will become. Expect more downside pressure then upside – from the Durable Goods news and the Citi estimates.
INDU 12500 (This is a pivot point – which could switch from a resistance point to a support point if we can move higher from here. However, the negative news from Citi is going to put pressure on the banking sector – not to mention the durable goods indicating that companies are seeing a recession – are going to put pressure on the market. The bulls (technically speaking) have a chart saying this is the bottom and want to go higher. I am giving it still a 70/30 downside at these points – however if I am wrong – expect a violent rally to the upside as sellers step away and shorts are forced to cover – injecting MORE buying. But it will be short lived and 12750 to 13000 will see major resistance.)
NDX 1800 (I know we are at 1825 and as long as we see the index above 1800 we could get some juice to send this up to 1875 or even 1900 – but it will have to be lead by the top overweights – AAPL, INTC, MSFT, GOOG, RIMM – there are big shorts in those issues which could inject some upside bias. I think this more about the tail wagging the dog – and I would look to the SPX and RUT as to whether this market will go higher or fall off. Looking at the broader indices I think the NDX has more downside rather than upside possibilities.)
SPX 1350 (Again the pivot point and a better indicator were the NDX will go. The financial sector will be a drag and is showing some downside pressure. We are locked for now at 1350 – but like the INDU I am giving it a 70/30 downside from the resistance. It will be hope and short-covering to get this to rally – so watch out for a ripping upside if we do go up.)
RUT 700 (This is the broadest of the above indices and it needs to stay about 700 to get the narrow based indices to see higher highs – however if this starts slipping along with the SPX we could see other indices get dragged down as well. The NDX has more upside potential from the massive shorts in those issues – but the RUT could still help pull it down. Again – watch the close.)
The Pushmepullyou continues!
_____________________________________________
Conclusion
The Citi estimates has me a little concerned that MORE massive writedowns are on the horizon, but with Bear Stearns bailout we now KNOW that the FED will bail them out and take down worthless paper at the government’s (taxpayers) expense. However, is that enough? I feel that too MUCH bailout relief will stress the dollar to such a weak level that the bailouts may not be worth much. Foreign nations (central banks) will not want to touch the US dollar if the bailouts start mounting and it would be very possible to see OPEC make their drastic move early and reprice oil to the Euro (or basket of currencies) – the dollar would fall as the world reserve currency and would send more people to start unloading their dollars and buying Euros. So while it might domestically save the big financial institutions – it will at the same time send inflation up and the dollar down.
For sure Bernanke is in a tough spot – knowing that banks like Bear Stearns holds $10 trillion in counter party positions (that cannot fail without causing a worldwide domino effect) – but he must know that bailing them out and others, coupled with lowering rates is putting serious stress on the dollar and sending inflation up.
We are still in the “fogs of war” and don’t really know what is on the horizon – other than expect more volatility.
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