today’s tape

The current rally in equities is eerily familiar with the surge off the October lows.  Unfortunately for the bulls, not much has changed.  We are still in a bear market despite the major indices enjoying their best weekly performance in many decades.  To the delight of the bulls C was saved, and investors are now betting GM and F will be bailed out when Congress resumes next week.  And the still dreadful economic news was shrugged of all week.

Now, next week we will see the results of another dismal jobs report.  We know the number will be terrible.  But whether the market sells off or holds firm is still up in the air.  If equities can actually advance after another 150,000 jobs have been lost after the major indices have already earned 15%, then we may actually be fighting to end this bear market.  Until then, I’m not convinced we move sub substantially higher.

That doesn’t mean you cannot selectively own outperforming stocks.   The integrated oils are still the best energy stocks to own.  MCD and WMT are starting to break higher.  CL and PG are turning the corner.

But everything else remains a problem.  Technology is dreadful.  AAPL, GOOG and RIMM are going nowhere.  The financials cannot be touched.  Commodity names lost ground Friday after bouncing from oversold positions.  Don’t buy into this market just yet.

today’s tape

Well C won’t go bust, and apparently that’s reason enough for the market to surge another 5% after  Friday’s rally.  If you want to buy the financials (today’s best sector), be my guest.  We’ve seen this play out before, and the banks always turn lower again.

You may not have noticed this at the end of Monday’s trading, but the DOW dropped 250 points in about 8 minutes starting near the 3:30 mark.  This decline was led by the integrated oil names.  Look at a one day chart of CVX and XOM.  I have continued to suggest that these names are leading the market, so we need to keep track of their performance.

The other item of note today was the weakness in the Dollar.  The FXE finished above its 30 day moving average for the first time since September.  Today’s dollar weakness aided crude oil’s rise, and it also sent gold prices much higher for a second consecutive session.

Not to sound like a broken record, but we have seen the market rally like this before.  And we eventually trade lower.  Technically, the S&P 500 couldn’t break through 850 resistance,  that was solid support in early and late October and mid November.  With the market no longer severely oversold, what will drive this market higher?  I still see no catalyst.

today’s tape

The market rallied strong late Friday afternoon as reports indicated president-elect Obama would select NY Fed President Tim Geithner as Treasury Secretary.  It’s ridiculous to attribute the rally to Geithner.  The market was so oversold that any piece of news can spark an equity surge.  The market has dropped about 50% over the past year, and we have still seen some of the largest ever one day gains.   Heck, the DOW gained 1,700 points off the October 10th lows to the highs of the 14th.  And yet, we still found our way to lower equity prices a couple weeks later.

I remain perplexed to the strength of certain energy stocks.  XOM has become one of the safest stock to own despite oil trading lower than $50.  The DOW has lost 30% over the last 3 months; XOM’s price is flat.  To the other end of the spectrum, drillers, such as RIG and NOV, are dropping like stones.  I think a new pair trade could be owning XOM and shorting RIG.  Over the past month, XOM has gained 7.5% while RIG has lost 20%.

After months of trading below the $75 resistance, the GLD broke out with a gigantic move on Friday.  Gold and gold stocks may be breaking out to higher ground.  Possibly supporting this trend is the Dollar’s recent stalemate versus the Euro.  After months of dropping to new levels, the FXE has held near the $125 for a few weeks.  A reversal in the FXE could send gold prices higher still.

Monday will be a very interesting day.  With names like C, MER and MS falling in the same fashion as BSC and LEH before them, panic may begin to spread again in the financials.  In fact, large bets are being placed that these companies may go bust.  Slightly before 12PM on Friday, 15,000 puts at the January 2009 $2.50 strike were purchased for MER.  That’s not a protection/hedge trade.

With Friday’s rally, the DOW and S&P 500 have some cushion above the lows form 2002.  But as I keep saying, this recession with run much longer and much deeper.  Don’t let quick oversold rallies fool you (again!) into thinking we’ve reached another (false) bottom.

today’s tape

May recent commentary has focused on the relative strength of the energy sector, and their ability to prevent the major indices from breaking below their October lows.  In my prior post, though, I cautioned whether the sestocks would continue to advance with the broader market and crude oil prices still sinking.

November 17:

The financials are dead, so it will be up to the energy sector to turn this market higher.  But the reverse is more likely to happen, in my opinion.  I suspect that the energy names will eventually crack, following the lead from the rest of the market.  And that means the October lows will soon be taken out.

And this is exactly what happened on Wednesday.  With C trading below $7, and the rest of the financials dropping like flies (again…heavy put buying in names like MER and MS are back) the energy names could remain firm no longer.  They began to crack around mid-day as selling began to accelerate into the afternoon.

Economic indicators are downright scary (the FED stated as much yesterday).  I see no catalyst to reverse the current down trend.  The major indices are still well above their 2002 lows.  And, as I keep saying, the current recession will run much longer and deeper.  This is not a recipe to own stocks.

today’s tape

Once again the DOW and S&P 500 have held above the October lows because the energy names are resisting the current market slide.  Oil prices are still dropping, but XOM, CHK, SWN, CVX, HK and others are handily outperforming the broader market.

The proposed bailout of GM and F is likley the top priority for this market, but the performance of the energy sector is preventing the DOW and S&P 500 from collapsing.  The financials are dead, so it will be up to the energy sector to turn this market higher.  But the reverse is more likely to happen, in my opinion.  I suspect that the energy names will eventually crack, following the lead from the rest of the market.  And that means the October lows will soon be taken out.

today’s tape

Simply astounding.

I don’t know how else to describe this market.  The major indices began sliding midday Thursday as each index began breaking beneath their October lows.  The selling began to accelerate as stop losses were triggered to avoid larger losses below the October support.  The market looked hopeless, ready to lose another 20% in an instant.

But then something happened.  Buyers came into this market, making a last stand to prevent another catastrophic decline. In three hours the DOW gained over 800 points (more than 10%), giving the bulls yet another chance to save this market.

Regular readers of this blog know I have begun to shift my focus from away from the broken financials to the energy names.  As the market as a whole has traded back to their 52 week lows, I have found it odd that the energy names have resisted the latest decline.  I have raised this issue many times recently.

October 23:

One other point to bring up today.  If you can, find a 2 week comparison chart of the USO (crude oil) and the XLE (energy ETF).  The USO is down 13% in the 10 previous sessions, but the XLE is actually UP 10% during this time.  This caught my eye today.

Now…you may recall crude oil ran high from the beginning of June until mid July.  But the XLE actually lost about 8% from June to mid July.  This signified the top for crude.  Could we be seeing the same trade in reverse?  Are the energy stocks acting as a leading indicator again, predicting another reversal in crude oil prices?  We will probably find out very soon.

October 30:

But the market is beginning to expose some new themes (for lack of a better word).  For instance, the energy stocks exploded today despite oil and natural gas getting pounded.  Look at how HK performed and then understand that natural gas lost 7%.  Gold was also dropped 2%, but most miners performed well.  These stocks have been mirroring the actual commodities for month – which have done nothing but fall from the sky.  So one must take notice that HK is up 55%(!) in 10 days while natural gas is down 9%.

November 8:

I am seeing some interesting trading among the inverse ETFs.  For instance, take a look at the ultra short oil and gas fund, DUG.  This security is more than 50% off from it’s recent high.  Now look at DIG, the ultra long fund.  DIG is barely off its recent low.  I find this peculiar.  Even though money is still leaving energy (OIH, XLE and USO are still trading in the basement), DUG has crashed back to earth.

November 13:

So what will be the cause that sends the market to new lows?  I propose that it all depends on the energy stocks.

The market first rallied off the October lows because of the strong buying in the oil and natural gas stocks.  XOM, HK, CVX, XTO and other names soared higher with the rest of the market.  Now that the DOW and S&P 500 are back to the October lows, many energy names are still trading anywhere from 10 to 15% higher from their October bottoms.

I find this divergence even more compelling because the price of oil and natural gas continue to reach new depths.  In fact, crude oil has lost 32% since last month.  Yet, XOM is only down 5%.  Somehow, the energy names have held up well of late as energy prices slide (gas is back to $2 a gallon!)  But the integrated oil names began selling off during yesterday’s afternoon slide.

Every other sector is back to new lows.  The financials are terrible; reports from M and BBY showed retail cannot be owned because the consumer is staying home; heathcare has been rolling over for weeks.  If XOM, CVX and COP continue yesterday’s drop the October lows will be taken out.

You may find it interesting to hear that energy stocks were trading much higher Thursday as the market began to slide down 2%.  XOM, CVX and others held firm as the major indices traded right on their lows from October.  The bears were not able to break the oil stocks, and I believe this saved the market on Thursday.

Friday’s trading similarly erratic.  The market traded much lower early on the session.  As it has been the case recently, equities began to rally in the afternoon, pushing the DOW into positive territory.  Then, in the final hour of trading the DOW lost 400 points.

The market is being whipped around by speculation as to the future of the economy.  We are certainly recessing, but how high will unemployment rise?…10%?…15%?  Will GM and F be bailed out?  Will foreclosure rates continue to rise?  How bad will the holiday season shopping be?  I tend to think it will be worse than the market is anticipating.  For that reason, and the continued decline of asset prices, suggests being bearish is the proper stance to take.  And keep your eye on the energy stocks.

today’s tape

Wednesday’s decline pushed the major indices back to the now fragile October lows.  It appears my suspicion that the market would remain range bound will be tested soon.  So what will be the cause that sends the market to new lows?  I propose that it all depends on the energy stocks.

The market first rallied off the October lows because of the strong buying in the oil and natural gas stocks.  XOM, HK, CVX, XTO and other names soared higher with the rest of the market.  Now that the DOW and S&P 500 are back to the October lows, many energy names are still trading anywhere from 10 to 15% higher from their October bottoms.

I find this divergence even more compelling because the price of oil and natural gas continue to reach new depths.  In fact, crude oil has lost 32% since last month.  Yet, XOM is only down 5%.  Somehow, the energy names have held up well of late as energy prices slide (gas is back to $2 a gallon!)  But the integrated oil names began selling off during yesterday’s afternoon slide.

Every other sector is back to new lows.  The financials are terrible; reports from M and BBY showed retail cannot be owned because the consumer is staying home; heathcare has been rolling over for weeks.  If XOM, CVX and COP continue yesterday’s drop the October lows will be taken out.

today’s tape

Monday’s session began with some much needed (for the bulls, anyway) euphoric buying after China announced a $500 plus billion stimulus package.  Commodities were soaring higher before the cash market opened, hoping the payments to citizens would be dispersed throughout the Chinese economy.  But the US market started to drop shortly after opening.  Perhaps investors were thinking something along these lines: Growth in China must really be slowing for the government to pass this stimulus.

China’s economy has never dealt with slowing growth.  For the past few years, GDP in China has roared above the 10% mark.  As the world economy slows, China will not be immune.  Can the Chinese citizens and businesses and government come to terms with a slowing economy?  We will soon see.

We’ve seen the blowups in the banks, and the market has since thrashed commodity names.  Now we are seeing the insurance firms get taken down.  A couple months of the blow up of AIG we are seeing other insurance companies starting to unwind.  PRU, MET, HIG, these companies are now in serious trouble.

But right now, all focus has shifted to the auto-making industry.  GM and F are practically insolvent, requiring government bailouts.  To prevent a depression like scenario, I think these two battered companies need bailouts.  If not, unemployment will shoot through the roof, likely well above 10%.  If that happens, this market will probably crash again.  Watch the 850 level on the S&P 500 and 8,200 on the DOW.  If these levels are breached, look out below.

today’s tape

Friday’s employment report was worse than expected, but the market ended a two day 10% decline with nearly 3% in gains.  As I stated last week, another swift large scale drop for the major indices is likely off the table.  But the catalyst for a sustained rally remains nonexistent.  This market will likely remain range bound, with the S&P 500 struggling to press higher than the 1,000 mark.  But the 850 low from October appears to be safe.  For now.

I am seeing some interesting trading among the inverse ETFs.  For instance, take a look at the ultra short oil and gas fund, DUG.  This security is more than 50% off from it’s recent high.  Now look at DIG, the ultra long fund.  DIG is barely off its recent low.  I find this peculiar.  Even though money is still leaving energy (OIH, XLE and USO are still trading in the basement), DUG has crashed back to earth.  The same can be said with the financials.  Compare the SKF and XLF.

Money is leaving the inverse ETFs in large numbers despite the dearth of buying in the market.  I view this as additional evidence that the market will become stuck in its current trading range.  If investors were worried about another crash, I suspect the DUG and SKF would be trading much higher.

today’s tape

With central banks and governments cutting rates, flooding economies with liquidity and passing stimulus packages to avert a global depression, the market is beginning to establish a bottom.  We aren’t going to see MS or MER or C go bankrupt.  Paulson and Bernanke will not let it happen.  Everything is being done to prop of financial institutions.  I think this now prevents a further crash.  This does not mean the market will head higher, however.

Though the financial crisis spawned the current bear market, the drops in the energy, mining and infrastructure sectors indicates investors are now worded about a prolonged recession.  That is why oil now trades below $70.  It’s why names like FCX, MDR and X have been crushed.

But the energy and mining names are have been rallying of late as investors hope the current recession will be less intense than advertised.  The economic data the past few days has been terrible, yet the market has rallied.  Perhaps much of this data is already baked in the cake, as they say.  What is not baked in the cake is how high unemployment will reach.  Will we reach 8% or 10% or even higher?

The global financial system will not collapse – that’s been taken off the table.  But there is still little catalyst to send equities higher.