Top Line: As the market opened on Thursday there was a sense that maybe it would break through the support levels but within the first hour of trading all major indexes had found their lows for the day and moved up from there. The move up doesn't look like a major up move starting but rather a counter trend move that will be fully retraced back down.
We thought in our last post that Thursday was going to be an important day but it turned out to be like so many others where the market opened one way and then reversed to the other way. In this case we started down on the day and reversed to the upside. We see the market seems to be trying to follow the price of oil for direction. As far as oil goes, it was up in the morning but then fell all day to end down nearly $5 on the day. This gave stocks a reason to move up all day.
As we have said many times before, once something seems like it's going to "always" work, it won't. So far though, the market wants to believe that if oil goes down, the stock market will have no worries. Another familiar theme here at the Update is the price of oil has moved up with the stock market. Yes, the oil move has outlasted stocks but it has been due to the same liquidity availability.
Our position continues to be that liquidity has now been reduced because financial companies are pulling in their horns and trying to raise capital. Banks only want to loan to the cleanest risks out there as opposed to giving 100% LTV (Loan to Value) mortgages to anyone who could fog a mirror (no, it's not our saying but we like it).
The biggest news item was from the CFO of C (Citigroup) who indicated that he thought there would be, according to the article, "substantial additional writedowns and more losses on consumer loans." That doesn't sound like it's company specific or that the Bottom is in on the mortgage crisis. C was down on the news.
In other banking news, BBT (BB&T Corp, a regional bank) was under pressure during the early part of the day due to the market expecting them to cut their dividend; but, the company said it was "thinking" about raising said dividend and the stock jumped out of the doldrums back to even on the day, a huge round trip move on the day. Of course, this news, in contrast to the news from C, was applied to the entire banking industry, well except for C.
As we close the books on another week, we think the market is one bad day away from really taking a dive. Whether we have to wait a couple of days, weeks or months, really doesn't matter. We are short and we are patient. Friday is the options expiration day and may provide some fireworks on both sides of zero so we'll be watching.
FSI: 94.48 ( another record high for RIMM )