8/29/08 (Mmmm Kool-aid, Spending Slow, Oil ??? )

Traders,

I received a call during “Peak Hours” from my father, unusual as “frugal” is his middle name (the Middle Class Americans could learn from him – maybe we wouldn’t have massive consumer debt), was everything ok? He said he was going to watch the Obama speech. No big deal, I too have been watching the DNC convention. Obviously my response didn’t create a rise, but then (my father not being a Bush fan – who is?) I quickly find out he has drunk the Kool-aid. He is going to see Obama’s speech at a movie theater, but not just any movie theater, a movie theater in Michigan built and owned by Michael Moore. Look, I like Obama, Michelle Obama’s speech was awesome, I even like Michael Moore movies (taken with a grain of salt – great subject matter to much heavy slanted editing). But going to a Michael Moore movie theater to watch Obama’s speech – that Kool-aid has been spiked!

I saw the speech – great speech – but that was expected – as all speeches (Republican and Democrat) is about firing up the audience – nothing more or less. Remember this is not a debate, just a speech geared to fire up the audience. The speech was very good – he does have a way with words, but what kind of got me weirded out was the audience. I mean this looked like one of those massive church rallies in a football stadium, with people crying and waving their hands in the air. It was like Obama was the second coming, you could feel the hatred for Bush as people cling for any change or hope. I can’t blame them the economy looks pretty weak – but that also doesn’t mean we should blindly drink the from the well of socialist reform. I hope people vote for Obama because they believe in Socialism, not because they hate Bush. I thought for a second I was seeing the opening ceremonies from the Beijing Olympics – even the White House Set on stage as if they were walking back into the White House at the end of the speech and then the fireworks go off. Wow, impressive demonstration of theater – like the Beijing Olympics it will probably be decades before a spectacle like that is repeated. Hopefully – my dad will make a conscious choice to vote Obama or McCain because of policies, his belief of what the government’s role is, and not be swayed by the razzle-dazzle.

Sorry for the rant – the market rocketed yesterday. As I mentioned it was NOT based on any news or fundamental shifts in the market – it was just positions wedging into a situation that either the shorts would be force to cover in a break-out or the longs would be forced to dump if the supports didn’t hold.

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US Consumer Spending Slowed

The GDP news yesterday was great – however we always need to look past the number, but look at the math on how GDP was calculated. As I pointed out yesterday the GDP was based off the increase in trade by the multinationals because of the weak dollar making US product attractive, secondly the Federal Government pumped billions into the system via the stimulus check , which was quickly turned into to consumption (not savings). However, economist (had predicted an increase – not the much) and even the Fed (based on their minutes) believe that the 2nd half is going to see a bigger slowdown.

The US Consumer Spending report is beginning to show just that. The .2% rise matched forecast and was down from the previous month of .6%. Prices were also reported to rise the most in 17 years. Anyone telling you we are not seeing inflation, obviously is dead and no longer consumes anything or failed math.

The futures got hit after the news was released as reality after the euphoric GDP rally is settling in – we are not out of the woods yet and that GDP number might of just been that last ditch pop (on the back of trade and a massive stimulus check).

Added to this bleaker news for the 2nd half of 2008 was the increase in jobless claims and a income drop of .7% (the first decrease since 2005).

Again – GDP sends the market up, only to have another piece of economic data send it back down. This is NOT a bull or bear market – but a market trying to make heads or tails out of what IS reality and when will this end. Continue to expect volatility.

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OIL prices – another big storm

The big yellow cone on those weather channels continue to center right on the middle of the bulk of our oil refineries and rigs. New Orleans is getting prepared and they are already talking about evacuating several districts this weekend. At least they sound like they are getting prepared. However, that is also sending a spike in oil premiums.

Oil has been fairly ranged bound since that massive spike from 120 to 140 (created by the massive fund SemGroups $3 billion loss covering their short position), we are back down to those levels before the spike and have been sitting here. Maybe because Hurricane season is keeping some premiums in oil, maybe because Russia’s war with Georgia (as the world’s second largest pipe-line runs through the region), maybe because supply/demand is still a narrow spread, maybe because of refinery capacity. But probably because of all of the above and more. It looks like we will be living in the $110 - $120 range for a while – unless something happens – if the storm hits expect a pop in oil prices, if the storm is a bust we could drop fast back down to $110 or even lower.

For now oil prices are still injecting volatility into the equity markets and the dollar.

Yeah – you’ll hear it again – more volatility.

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Dude, your getting a Dell?

Dell has been seeing pressure from Levno (the Chinese company that bought out IBM’s PC unit) – unfortunately that puts the squeeze play on DELL – especially in overseas sales which Dell was hoping would pick up the pace on the weak dollar. That’s just not happening. Toss in Apple now competing directly in the PC market because they are running the same chipsets and you know could buy a Apple and run Vista or Windows XP just as easily as any PC. As a matter of fact, the lead programmer and partner of Silexx Financial Systems (our trading software company) has a Eight-Core MAC Computer running Vista - just because it was less expensive than a Dell.
Dell in the pre-market is down and dragging down the tech sector with it.

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Futures Pre-market

The futures are getting hit in the pre-market, Dell, the storm and oil prices, weakening dollar, and Dell are not creating any good news. The spread is pretty narrow – but expect a gap to the downside as the market opens.

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Support / Resistance

The market hit those spots are broke with a big move. Remember – this is simply driven by positions unwinding – nothing more or less. So don’t read into the big rally as if something fundamentally shifted in the economic landscape. Positions were increasing (long and short), volatility was shrinking, and the market was getting very wedgy – we just broke out of that wedge.

INDU 11,500 / 11,800 (The break-out from the wedge sent a knee jerk hard rally to the upside, short-covering kicked in and fueled the rally even more. 11,800 probably has some GTC resistance in it – but don’t hold your breath. Going into the long week-end it is really going to be about want kind of risk exposure you want to hold over the 3 days with a storm looming and other volatility news items.)

NDX 1900 / 1950 (we didn’t see any big moves here, but again this index was not wedging like the others. It’s seeing pressure and Dell being down in the pre-market is not helping. Watch the close 1900 is a keep area to close above.)

SPX 1275 / 1300 (We snapped up just like the INDU – but then stalled at 1300. Is it resistance – I think it’s a place to get FLAT deltas for sure – if you want to lean short, do it with Gamma. I would NOT be long at 1300.)

RUT 720 (740) 760 (This index which traditionally is a great tool for measuring money flow and over-all market sentiment has turned into a volatility beast. It looks like a Dot.Com stock and the statistical volatility (intra-day) is insane. 720 showed to be support, 760 was a blow-off top. Anything in the middle is a crap shoot. The good news – it went up, the bad news is the hyper-volatility in this index. Big volatility doesn’t NOT spell confidence or certainty. I would keep an eye on that 760 and 720 level. For now that is a MASSIVE band for this index.)

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Conclusion

Don’t get me wrong, by trying to read too much into my opening rant. I like Obama, specially his wife after listening to her. I really think he would be one hell of a great candidate in 2012 or 2016. He really doesn’t have any experience, we really don’t know his voting record because he doesn’t have one, he has spent more than half his time campaigning as a Senator (I heard he has spent less time in the House than any other Senator) – obviously he is campaigning. It’s not that I hate Democrats and love Republicans – I certainly don’t. I just find the euphoria behind Obama based on one thing “CHANGE” and “HOPE” – but isn’t that the message of every candidate? I thought Hillary (while I am not a fan of hers) is a better and proven candidate for the Democrats. Not only does she have some political cache and experiences – you know where she stands beyond what she says – why – because she has a record. I hate to say it – but I think Obama is the Flash-in-the-pan candidate because he is New, Different, African American, etc. I have to give him credit – he is smart and made it this far. Should be very proud of all his accomplishments – I think he would be a great friend and neighbor. I think he is probably a great lawyer. I really like the guy. But just because I like him – do I really think he has the political clout, experience, and know how to be the president of the US. Probably not – until he puts some more time in the game. He is an unproven rookie.

If you were going to the Super bowl and had a rookie that looked really good on the practice field but never played in the big game – would you put him in to play the big game, probably not – maybe next year. I have to hand it to the DNC – they sure can put on a concert and big show. I am not saying to go out and vote McCain – DON”T unless you believe in his message. What I am saying – is simple – don’t vote for Obama because of the razzle-dazzle and that he is NOT BUSH. The Change and Hope message is great – but it is NOT policy. Wait for the debates.

Anyway – go out and enjoy the holiday weekend.