Traders,
Friday saw the market come down to hit those support levels in the indices and in some cases broke through a little. The question is do we hold. Initially – I thought of these as only short-term supports, not a place to get long – but rather flat. The credit problem is continue to trickle through the financial sectors and we are seeing stress in the credit card markets with several firms doubling up reserves. I expect that we remain fairly range bond and could continue lower back to March lows. Be careful getting short OR long hard delta positions in these markets – without hedging them. Any day could inject a $300 point euphoric rally or a $300 point panic sell-off.
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Wachovia – can you say WHACK-ovia!
Wachovia is getting seriously WHACKED in the pre-market as the company posts an “UNEXPECTED” loss (I don’t know how unexpected it was – but I guess many thought the worst was behind them – yeah right!).
Friday saw the market come down to hit those support levels in the indices and in some cases broke through a little. The question is do we hold. Initially – I thought of these as only short-term supports, not a place to get long – but rather flat. The credit problem is continue to trickle through the financial sectors and we are seeing stress in the credit card markets with several firms doubling up reserves. I expect that we remain fairly range bond and could continue lower back to March lows. Be careful getting short OR long hard delta positions in these markets – without hedging them. Any day could inject a $300 point euphoric rally or a $300 point panic sell-off.
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Wachovia – can you say WHACK-ovia!
Wachovia is getting seriously WHACKED in the pre-market as the company posts an “UNEXPECTED” loss (I don’t know how unexpected it was – but I guess many thought the worst was behind them – yeah right!).
The 4th largest U.S. bank reported a loss $400 million - (I guess sub-prime is still trickling in) – and will be cutting its dividend by 50% and “trying” to raise $7 billion in a share sale. Rumors included some additional job cuts and talks of sovereign fund investment capital (if the share sale doesn’t get them their much needed cash).
It would seem that there is NO bank out there that is not exposed to the credit problem - so stay vigilant in this sector. This is NOT a time to start picking bottoms in the banking sector – these stocks have MORE room to go down. Expect one or more of these larger banks to follow in Bear Stearns footsteps. I expect to see some mergers before all the dust settles.
Expect pressure in financials this morning with WHACK-ovia
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Retails Sales UP? – oh wait that was gasoline!
Initially when the retail sales numbers came out there was excitement! “Hey – retail sales were up, I guess consumers are still spending and things are not as bad as we all thought!” – then reality sunk its big teeth into the euphoric outlook. Retail sales INCLUDE gasoline sales – and if we strip out gasoline sales – well then the picture is not that rosy and retail sales were actually FLAT.
The higher gas prices are really effecting the consumer and will continue to do so – the retail sales numbers unfortunately include gasoline numbers which skew reality. I guess back when they started first reporting retail sales – gasoline was so cheap that no one really expected to make a big impact – well that sure changes as gasoline prices are at the $3.50 range and climbing.
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Blockbuster willing to drop a billion for Circuit City
Blockbuster had sent a confidential letter back in February for a purchase of Circuit City between $6 - $8 a share. The CEO of Blockbuster is taking tips from the success of Apple Store and wants to create a rival – a store that offers both media and equipment. Equipment could then be sold through the Blockbuster chain and they could expand into other media sectors. However, many critics don’t see eye-to-eye on this vision – however if he is able to mimic Apple Store idea – then he maybe on to something.The CEO of Circuit City has been under pressure as the stock continues to fall and they see qtr after qtr in losses. Several large shareholders have asked for the CEO to be ousted and a buyer found. Maybe this is the answer.
Circuit City is up in the pre-market. It’s an interesting story – but not worth getting involved unless you are looking to Arb the deal.
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Futures Pre-market
There has been some volatile action in the pre-market with the Wachovia news, G7 meeting, and retail numbers – it seems that there is more confusion and no one is really willing to take a stand either way – the futures are starting to move higher after taking some blows in earlier session. They are still front running the cash by a couple of points – expect to see some pressure on the cash basket at the opening.
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Support / Resistance
We got very close to support levels on Friday – some cases we broke through them or touched them intra-day. Friday close was a place to flatten out positions and take profits off the table. It looks like we may touch some of those supports again this morning – the question is do we break down!
INDU 12250 / 12500 (We almost hit 12250 on Friday and could test it again this morning. The question is do we hold at these levels. This is a key area at the MIDPOINT of the recent range (12000 – 12500) – It’s not a place to take a HARD delta stand in either direction – but rather use GAMMA and OTM options to capture some curvature on a good move. The close will be important.)
NDX **1800** (We are at that short-term support area – not a place I recommend to get long – however we could bounce off this number. If we break 1750 is in the cards. This is a pivot point and with the high volatility issues as heavy weights – expect a good move AWAY from this number – I am 70/30 downside.)
SPX 1325 / 1375 (We are right above short-term support area right now and could visit the support in the morning. Not a place to get long – but rather flat. Watch the close – if we crack – expect 1300.)
RUT 680 / 700 (We are right above 680 – we saw almost a 3% loss on Friday and if we cannot hold 680 than it could get ugly fast. WATCH 680!)
These are pivot mid-range support areas – which we COULD bounce – but don’t bet hard deltas on it.
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Conclusion
The G7 meeting stressed the weak US dollar and put some pressure on Bernanke and Paulson to get in touch with the dollar and seriously think about future rate cuts – INFLATION is real – regardless of what economic data states. The ECB didn’t cut rates and China is thought to be raising rates – which is working to keep inflation at bay. I think the retail numbers this morning is proof of inflation – specially with gasoline prices (priced in dollars). After the meeting the dollar saw a little rally – but only got smacked back down.
Futures Pre-market
There has been some volatile action in the pre-market with the Wachovia news, G7 meeting, and retail numbers – it seems that there is more confusion and no one is really willing to take a stand either way – the futures are starting to move higher after taking some blows in earlier session. They are still front running the cash by a couple of points – expect to see some pressure on the cash basket at the opening.
________________________________________________
Support / Resistance
We got very close to support levels on Friday – some cases we broke through them or touched them intra-day. Friday close was a place to flatten out positions and take profits off the table. It looks like we may touch some of those supports again this morning – the question is do we break down!
INDU 12250 / 12500 (We almost hit 12250 on Friday and could test it again this morning. The question is do we hold at these levels. This is a key area at the MIDPOINT of the recent range (12000 – 12500) – It’s not a place to take a HARD delta stand in either direction – but rather use GAMMA and OTM options to capture some curvature on a good move. The close will be important.)
NDX **1800** (We are at that short-term support area – not a place I recommend to get long – however we could bounce off this number. If we break 1750 is in the cards. This is a pivot point and with the high volatility issues as heavy weights – expect a good move AWAY from this number – I am 70/30 downside.)
SPX 1325 / 1375 (We are right above short-term support area right now and could visit the support in the morning. Not a place to get long – but rather flat. Watch the close – if we crack – expect 1300.)
RUT 680 / 700 (We are right above 680 – we saw almost a 3% loss on Friday and if we cannot hold 680 than it could get ugly fast. WATCH 680!)
These are pivot mid-range support areas – which we COULD bounce – but don’t bet hard deltas on it.
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Conclusion
The G7 meeting stressed the weak US dollar and put some pressure on Bernanke and Paulson to get in touch with the dollar and seriously think about future rate cuts – INFLATION is real – regardless of what economic data states. The ECB didn’t cut rates and China is thought to be raising rates – which is working to keep inflation at bay. I think the retail numbers this morning is proof of inflation – specially with gasoline prices (priced in dollars). After the meeting the dollar saw a little rally – but only got smacked back down.
However – the G7 was MORE concerned about commodity prices and food shortages – which we are seeing reflected in commodity prices hitting record highs. Higher prices will increase food shortage supplies as many regions can NOT afford higher prices. Expect this to be an on-going concern.
WAMU last week, WHACK-ovia this week – we are not talking about little local regional banks, but the largest savings and loan bank and the 4th largest U.S. bank that are having SERIOUS problems that don’t seem to be going away. Bad news puts more pressure on the bank as withdrawals increase – putting them further behind the 8-ball in the need of MORE capital.
Expect the FED to make MORE deals at the discount window.
We are not even close to being out of this financial storm.
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