2/13/09 (Leaks? China Recovery? Abercrombie!)

Traders,

Yesterday we saw interesting action, we saw the market pulling off as the concern about economic recovery and all the “if’s” associated with the stimulus package created more ambiguity than anything else. The market was just selling off – but at the end of the day a news story leaked out that created a pretty massive rally from the lows. The “leak” from the Obama administration started making it rounds – Reuters, Bloomberg, Knight, etc – the story was that “they” are near agreement on a subsidy plan to keep people in their homes. The “leak” came out about an hour prior to the closing bell and it seemed like the sellers took their foot of the pedal and the market just shot up. Unfortunately, their didn’t seem to be too much meat on the story – as reporters tried to figure out more of the details.
http://www.reuters.com/article/bondsNews/idUSN1247259120090212

However, it does show that optimism is alive and well – and certainly present in the equities market. A very well respected person said, that while he enjoys reading the Market Preview everyday – and while he agrees the news is pretty dismal, I need to inject some optimism (if I could find any). I understand his point and agree. I don’t want to sound negative or pessimistic. And as it says in the disclaimer – my passion gets the better of me sometimes. While it may sound like I am not an optimist, I would argue it is more about the reality of the situation rather than being an optimist or pessimist. A realist, which I would like to think that I am, is quickly labeled a optimist or pessimist – depending on which way the wind blows.

The advantage of the market marker (and options trader) is we do not HAVE to be an optimist or pessimist – we can take a position to profit in bullish, bearish, volatile, and even neutral markets. I do get feedback from friends in the FA, Broker, or other retail arena who consistently say that I am bearish or a pessimist. However, I would argue that is the times we are in – they are more critical of me because they cannot afford to be anything BUT an optimist – simply from the nature of their job. They are “BUY” side investors. They ONLY prosper (or their clients do) when the market goes up. They need, want, and hope for the market to go up. Hedging is not part of their vocabulary because they either don’t know how or are handcuffed from doing so.

That being said – I will tone down my rhetoric and be more open to “up side” or “hope” opportunities. I understand (even though it is NOT my duty) that enough people read this – I should probably avoid too much of the “doom and gloom” – it is just very hard to see the end of this tunnel.

Will we get through these difficult times? Sure – I most definitely think so – I think the questions we need to ask are not IF we will, but rather how and when. The road will be bumpy for sure and I believe the government CAN smooth those bumps – we must be optimistic that they can. My concern is what may seem like a optimistic solution NOW may create BIGGER problems for the futures – and thus move the WHEN date further down the road. But we also can’t be fully reliant on the government to solve our problems – we as a people MUST be self responsible, accountable, and liable. We collectively MUST work together. There is a lot of “blame game” and “class warfare” going on – and that solves nothing.






If you want my optimistic answer to the future – I think it can be best found in Calvin Coolidge’s quote:

“Nothing in this world can take the place of persistence. Talent will not; nothing is more common than unsuccessful people with talent. Genius will not; unrewarded genius is almost a proverb. Education will not; the world is full of educated derelicts. Persistence and determination alone are omnipotent. The slogan "press on" has solved and always will solve the problems of the human race”


NOTE: Yesterday, I inferred that Geithner worked for Goldman, he did not – he worked for the New York Fed and worked WITH (or FOR) Paulson (who is the ex-CEO of Goldman) during the bailout. Sorry for any confusion or misrepresentation.

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China maybe the first to recover

China which relies heavily on exports and has seen a massive job loss in the worker sector – may yet see better growth. China is working on several fronts - not just stimulus packages, but also is starting to see that their own people are a nation of consumers. If measured by domestic sales alone – the story is very impressive. The fast-food industry alone is expanding – even in this economy – very fast in China. Additionally – low-end retail product lines are still being sold. As many had moved from rural areas to seek jobs – even when layoffs occur many have remained in population centers.


China may yet come to terms that there export trade may not be as robust as it once was and growth (relative) maybe slow for sometime (but positive absolute). The shift to local consumption could help ease China’s problem – more so than other nations.
According to a Bloomberg survey China’s economy may expand by 6.6% - after the previous 6.3% quarter.

China has several advantages to recover quickly. Unlike the WEST (Europe and the U.S.) – they do not have massive consumer debt. Credit spending has NOT been available to the people (on any measureable scale vs. the population). That means a government stimulus package goes right to the bottom line and not to write-downs and to consumer debt. Expectations are for a quick recover on that alone.

How is this in play – well those companies that have larger exposure (as exporters) into China may be a little more recession proof than initially thought.
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Abercrombie & Fitch – rally?

Abercrombie made a smart move a few years ago – getting a wider foot print into middle America and really starting to set the trend among teenage and tweeners. Enough so – that they are now the leaders in the sector, followed by American Eagle. Once there was Gap – but Gap (just like other trends) is stuck in a middle ground. Those that once shopped at GAP (when it was the trend setter) are now in their 30s and 40s. GAP has also lost a grip on what market it is going for – and those that had shop there are now middle aged and measuring the buck’s buying power and not as easily persuaded by trend. Abercrombie has taken the torch for the younger crowd – and has done it well.
They are up in the pre-market and even in this slowing economy beat the estimates by 10% ! Fad and Trends are a big part of the American Consumer – it doesn’t matter the economy – when the 17 year old boy wants that faded pair of jeans – he will find a way to get them!

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Futures Pre-market

There was some positive stories out – the “leak” that sent the market higher, China’s quicker recovery, and ANF showing that retail can still make money. However, Obama losing another cabinet member and still having to SELL the stimulus is creating a drag. Futures were up and now down. We may yet see the ARB traders come into play – but for now expect a weaker opening.

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Support / Resistance

Was it short covering or did the sellers take their foot off the pedal when the “leak” circulated. It all happened at the same time and created a hyper rally at the close to finish positive or unchanged.

INDU 8000 (It seems that it was support and not it is a magnet resistance level. Can we close above it going into the weekend. If not 7500 is a serious support level and in the cards next week.)

NDX 1200-1250 (What was resistance a week ago 1200 – now seems to be support.)

SPX 800 (850) 900 (Sure 800 is in the cards – but we made a good move back up toward the 850 pivot level. It’s about the close today.)

RUT 400 (450) 500 (Close right ON that pivot point. If there was ever a magnet it is on that 450 line. Let’s see if it has staying power)

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Gold 900 – 950+ (900 was recently resistance – now support – FT had a story on 2/9 about the biggest gold bullion run in history. China is also a big player in gold buying. If we close above 950 then I really think 1000 is in the cards.)

SILVER 10-14+ (We are now up at 13.25 and I think while 14 may see some resistance – if gold head higher – silver will follow.)

OIL 35-40 / 50+ (We are just in the lower band below 35 – but this is still not a trading band but a support band.)

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Conclusion

We wait for the stimulus and as I said – the government can do a good job smoothing the bumps. My real concern is our future dollar and prolonging the recession. Please keep in mind that we could see a great move higher after the stimulus checks go out (just like last year). But take the time to learn how to hedge your positions and lock in those gains – don’t let the market take your winnings from you again.

I don’t expect too much volatility today – I don’t see too much in the new cycle – of course that could change fast.