9/4/08 (ECB rates, Wal-mart strong?, More jobless!)

Traders,

Yesterday was another mixed day of action across the board. The broader based RUT saw 740 as a sticking point and other indices continue to flirt with support areas. Oil also did not revisit the previous day’s lows and remained closer to the 110 mark. The dollar on the other hand saw a serious shift in strength and treasuries as well are getting a little hot. The market continues to remain poised to move higher or lower – but with no fundamental solvency to really determine its course.

We also were able to hear from the GOP VP candidate (Palin) last night for the first time – putting some ease to those that haven’t heard her speak. Tonight is McCain and the end of both conventions – and hopefully we can start getting to the meat of the political debates. Speeches from both sides are nice, but we need to see some debates and serious discussion about our economic situation – not praise for candidates. Hopefully we will see energy policies, economic policies, tax issues, and government lending at the Discount window and to the GSEs be SERIOUSLY addressed.

Tension between Russia and the West are mounting, VP Cheney went to Georgia and spoke semi-tough and didn’t offer any conclusion or real response to Russia’s action. I think there are still many concerned in the WEST, mainly those countries the border Russia or rely on oil from them – before uniting at NATO to make any overt response. It would seem this story is still unfolding and can create more volatility to the commodities market.

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ECB still fights inflation

As the US policy makers continue to “hope” that the European Central Bank lowers rates to help strengthen our currency, the ECB decided in Frankfurt today to leave rates unchanged at 4.25% (a seven year high). While the slowdown in the European economy is at hand, inflation is also rearing its head – mainly in food and gas prices. Many economist expected them to remain unchanged, but that hasn’t stopped some analyst and even politicians stating that the ECB needs to cut rates and are making things difficult for the US dollar. There is further causing concern is that the ECB may RAISE rates again, not cut them as those in the US hope. That would put more inflation pressure on the US dollar.

But even in Europe there is conflict, while they may all be under a single currency - government policies differ drastically from country to country. Some countries want a rate cut, while others want a raise. The good news, that all have (pretty much) agreed on, is the 9% decline in the Euro against the US dollar means a big shift in the export growth. When the dollar was weak, we saw trade increase as foreign countries wanted to buy products cheaper from US companies, now that shift is moving towards the Euro – as the dollar has recently strengthen. This could put some stress on those sectors that directly compete with European counterparts for that elusive sale to foreign nations.

At the end of the day – if the ECB remains pat on rates or even raises them we could see pressure eventually return to the US dollar.

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Wal-mart – recession proof?

Wal-mart, as I have said in the past is the recession-one-stop-shop. As we see other retail sectors fail because of their singular product line, Wal-mart’s expansion into food, banking, pharmaceuticals, tires, etc – has made it easy for those consumers that are cost conscious and price sensitive to higher gas prices make the decision easy. Once you’re in Wal-mart – why do you have to go anywhere else. This is not about quality of products or quantity of products – it simpler than that – it’s about diversification.

Now the numbers are showing that Wal-marts position in the market as the one-stop-shop is real, August sales exceeded analyst estimates (1% gain) – by a surprising amount. Wal-mart sales increased 3%, while mono-line retailers fell. No doubt that Wal-mart is capturing business from many other stores.

As the economy continues to remain weak – expect Wal-mart to be a survivor – while I expect Wal-mart will see negative impacts, it is their diversification that will help them remain strong in the tight economic landscape, even if things get worse.

Stock is up in the pre-market.

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ADP reports 33,000 job cut / Jobless Claims up

ADP Employer Services reported a rather sharp drop off as companies reported a cut in 33,000 estimated jobs by companies in August. While we have seen oil and commodities make a significant drop recently – the higher prices are still creating a squeeze on margins. Additionally – the slowdown in consumer spending is also putting the squeeze on. The housing market still has yet to find a bottom, that means equity lines continue to shrink as well.

The silver lining remains the multi-nationals that are able to either sell product overseas or have a bigger foreign presence. The dichotomy between domestic vs. foreign business models is rather alarming – while a GDP report might report an increase based on trade, the domestic side of things are not looking rosy.

First-time jobless claims increased to 15,000 to 444,000 in the week ended in Aug. 30th – reported today by the Labor Department. The unemployment rate is rising and companies are running a leaner ship to make sure they are operating in the black.

It’s clear that this numbers are increasing over the average - and that means we have not bottomed – yet. I expect to see the same trend through the 1st quarter of 2009, however don’t be surprised to see a pop in holiday sales (they may look weak) but it will still be a pop.

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Futures Pre-market

The futures are getting hit in the pre-market session. No doubt the increase in jobless claims and the ECB standing pat on rates is not setting the market up for a good opening. The ARB traders will buy futures going into the opening and short the cash – so expect some pressure on the market at the opening.

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Support / Resistance

While yesterday was mixed and hovering at supports – today we are already seeing pressure at the opening – but anything can happen intraday.

INDU 11,275 (11,500) 11,750 (Again we sit at the straddle strike – we move away fast and hard and then return. Eventually that will snap. Expect a big move away again – from 11,500. The opening is looking to the downside.)

NDX 1800 / 1850 (Yesterday we broke support – July’s resistance area – and now we are in the middle of a volatile range. 1800 is in the cards – however that is a HUGE support area. If we do NOT hold that area then we could see a big drop further. So watch 1800 closely.)

SPX 1260 / 1300 (Again we are just above a support area – but if we don’t hold then 1250 is in the cards. These markets want to move and so far we really haven’t seen the HUGE breakout that is coming.)

RUT 720 (740) 760 (This index is not going to sit here long – it’s going to move and if 720 on the downside doesn’t see good volume and support then look out below.)

These indices are like a big spring getting squeezed – we haven’t seen a good jolt in a while – so expect a move to come – sooner than you think.

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Conclusion

Can’t decide if your are bullish or bearish – good – don’t bother. These are not the times to take a stand, these are the times to hedge your positions, get some gamma on your sheets and leave yourself wide margins. Any time could deal us a big up or down move in the market – and not necessarily based on news or fundamentals – but just positions rolling and unwinding. That means when the train is coming – don’t stand in front of it – it will hurt.

Stay on the ball – don’t let anything get away from you. Don’t dicker, pay the sticker. Buy when you can, not when you have to. You don’t want to be polarized in this market. If you are long and wrong, get out – don’t hope. If you are short and not hedged – cover. Hard deltas can break you in this market – be careful with them.

Decisions?