Monday, September 15, 2008

Downside Pressure

Top Line: The Dow dropped over 500 points on Monday which sounds like a lot of downside. We didn't see much fear exhibited during the day. There were several bombs that went off but it seemed like the main driver was that this was a good buying the bottom is still a ways off.

The fallout from the weekend's big meetings was a rough start to the week's trading. The Dow opened down about 300 points. One of the things we tried to get into last night's vanishing post was a discussion not of how much the initial drop but of the Next move. We have seen buyers step in on most of these "little" morning drops but this is a Bear market and things are different in a Bear market.

Today's reaction to the initial drop was the predictable buying but it really didn't get very far. Ok, maybe it was a 150 point up move but in the grand scheme of the day, it wasn't very far. And, that move turned out to be the high of the day. From there, Persistent selling took the market down and down until about a half hour when a rally moved the market out of the 400 loss to a loss of only 300 going into the last 15 minutes. From there, a vicious selloff occurred taking the Dow down 200 points to close down the 500 you have already heard about.

The market didn't seem to exhibit much fear and the 100 point rally late in the day sort of proves that theory. We see some recognition of the financial problems in the market coming in but capitulation has not arrived. The VXO did spike to 34 this morning so it's moving toward our target of 50.

There is a little Fed meeting on Tuesday to put a big question mark in the near term stock market plans. The Asian markets are down quite a bit this evening and that seems to be dragging down the overnight US futures but we all know how fickle those thinly traded futures can be. Plus, with the events of the weekend, the Fed Funds futures actually show a chance that the Fed could lower rates tomorrow by 25bps. We have been of the opinion that no rate cut will happen tomorrow but we could be wrong. If we had to predict the move by the Fed, we would have to say no change tomorrow but look for future cuts in the meetings to come.

The market is still due for a drop with the Dow dropping below 10K and our guess would be near 9K over the next few weeks. Like we have said, we are on red alert looking for a place to switch out of our short positions (QID and SDS) and into something a little more...bullish.

As far as Treasury bonds are concerned, they had a giant upside move today. The TLT's moved above the 98 level and are getting to a point where there may be little upside left in them. At any rate we are getting ready to sell our positions here in the 98 to 100 range. If the stock market can open lower, bonds could open up and prices near 99 seem pretty good given our entry point around 91 or lower.

And, oil has dropped well below 100 so our target has been met there. Gas futures fell hard today after Ike has moved on but we see that pump prices have popped a bit over the weekend. This move up is not justified by the market but we understand how prices get pushed on the whiff of fear generated by a large hurricane. Scarcity in some areas has been reported to sort of justify the high prices.

GDX Friday 31.25 Monday 30.33
BGEIX Friday 15.15 Monday 14.49
HUI: Friday 290.45 Monday 276.91

FSI: Friday 74.83 Monday 72.81

VXO: Friday 29.33 Monday 33.61 (heading up to 50)

SDS: Friday 67.41 Monday 74.01
QID: Friday 47.09 Monday 50.11

Dow Industrials: Friday 11,421.99 Monday 10,917.51 -504.48

Yes, we do have more pic's of Jackson from this weekend which we will try to post in the next few days. Too late to do that this evening.

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