3:58pm
WSJ is reporting that the SEC is not looking to make short selling restrictions permanent.
3:56pm
And something is very wrong with AIG, trading at session lows: $11.60, -34%
MER is under $17, -13%
3:40pm
StockTock is short the S&P from about 1255. This is a risky trade that we plan on holding through the weekend. The gov’t has communicated it does not intend to use gov’t money to save Lehman. If private buyers won’t do a deal without the gov’t assuming some risk, perhaps no deal gets done. That would be disastrous for the markets. Lehman may declare bankruptcy and the implications would spread across the financial system. If a deal does get done, I doubt the market rallies huge. 1263 remains solid resistance. I like the risk/reward here. This trade is not for everyone due to the risk of a gap higher Monday.
3:36pm
Dollar down… big deal. No threat to uptrend.
Chart courtesy of Bespoke Investment Group.
3:09pm
Treasuries have fallen back toward session lows. The dollar is at session lows.
2:47pm
Since breaking the wedge, the market has rallied towards a double top level. Volume not impressive. This is the shorting opportunity.
2:30pm
ES trading very choppy. Wait for a break of the wedge on a 2-minute.
2:11pm
This is a very difficult market to trade because of the wild swings based on rumors. I’m inclined to build a short today and hold it though the weekend, but what about a gov’t bailout or a surprise emergency rate cut… tough to rule out. This is a high risk environment for any trader, so make sure you understand what you are getting involved with. Ultimately, I suspect any gov’t action will not solve the financial crisis. A bailout or rate cut might cause a short-term pop but it won’t hold. As much as the gov’t wants a stock market rally into the election, I don’t think its possible. If you short the market this afternoon, be aware that there is risk you will be down on your position come Monday morning. But if you wait, you could miss a huge move lower. Most traders should probably stay away.
~ The charts indicate the gov’t will let LEH fail and there will not be a rate cut, but the Fed has pulled surprises the week of options ex before.
2:07pm
WM back up 10%. I’m not watching it anymore. They are in trouble and I don’t care what the stock does unless it rallies back above $4.
2:02pm
WM now negative. That was fast. I do not like this kind of news driven market.
2:01pm
This is comical. CNBC’s Faber reporting WM not in talks with JPM.
1:54pm
S&P back into positive territory. WM now up 14%.
1:53am
Hurricane Ike still a category 2 storm according to the National Hurricane Center.
1:49pm
Oil just dipped below $100 for the first time since early April. Who said oil would see $100 before $150?
1:43pm
Main stream media now reporting on WaMu/JP Morgan talks. I have my doubts about this… as if JP Morgan didn’t buy enough crap from Bear Stearns.
1:40pm
Have you guys seen the radar pictures on Hurricane Ike? It looks huge! I don’t know anything about weather, but the mere picture of this storm might drive up energy prices as traders exit short positions heading into the weekend. Next update from the National Hurricane Center at 2pm. If it gets upgraded to a Category 3, it might be the catalyst.
~ Crude falling to a new session low, under 100.50
1:28pm
Despite a weaker dollar and a raging Category 2 hurricane in the Gulf, crude oil is trading lower by 25 cents to 100.62, at session lows.
1:22pm
Rumors that Washington Mutual (WM) is in deal talks with JP Morgan (WM).
1:20pm
AIG at a fresh session low to 12.05, down 31%.
1:16pm
The ongoing commentary on the Lehman situation is interesting. The gov’t said a deal will be done by this weekend but no gov’t money will be used. On the other side, there are reports that the buyers are backing away from the deal unless the gov’t takes on some of the risk. It’s like a dangerous game of chicken. What happens if no deal is achieved by this weekend? Does Lehman open on Monday? Does it declare bankruptcy? What are the implications? These are big unknowns and the market does not like uncertainty. If no deal gets done, the treasury will lose more credibility.
1:12pm
ES approaching 200MA support at 1240.33
12:48pm
Selling coming into the market here. Volume picking up. Not seeing any news to account for the sudden drop. I’m still on the sidelines.
12:33pm
ES consolidating above its 50MA. Treasuries falling to session lows. AIG at session lows, down 27% on huge volume.
12:04pm
Shares of AIG are down 22% to 13.67. The dollar is rebounding off its lows and oil is pulling back towards the flat line.
11:53am
Since touching the descending trendline, the ES has pulled back on light volume towards its 50MA (1247.66).
11;28am
ES just hit the descending trendline. I’m holding off on shorting until a move above the trendline, perhaps around 1263 (maybe coinciding with the 2pm reversal time). I’ll keep you posted.
11:25am
ES pushing out to session highs above 1255.
11:07am
ES attempting to break above its 50MA. Money is flowing out of treasuries. Here’s a 10-minute chart of the 10-year Treasury yield:
10:55am
The US dollar is losing ground. Gold, metals, miners, steel, and energy names are leading the market higher. Treasuries are at their lowest levels of the day. ES just under its 50MA (1247.35).
10:23am
ES moving higher towards its 50MA (1247.75).
10:05am
FYI: I’ve covered all market shorts. To position for next week, I’m going to let this rally play out and try to short at session highs.
9:56am
Consumer Confidence 73.1 v 64.0e
ES trying to hold its 200MA, from which it could stage a rally.
9:50am
ES making new lows under its 200MA.
9:39am
ES threatening to break its 200MA. This is very bearish if we break.
9:34am
AIG -16.5% to 14.60 LEH -15% to 3.60 MER -10% to 17.30 XLF -2.6%
9:32am
ES sitting right on its 200MA. Looks poised to rally.
The dollar is getting hit this morning, sending commodities and commodity stocks higher.
9:18am
ES moving lower to its 200MA (1238.25). This level may serve as some support. Oil is higher by about $1, to 102.
12:30am
I know I should sleep more. Here is some required reading:
~ The Big Picture reports on the latest developments with Lehman.
~ Mike “Mish” Shedlock sheds some light on the impact of the bailouts to the financial markets.
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September 12th, 2008 at 3:11 am
Some comments rule there:
Breaking News: Lehman To Be Acquired by Tooth Fairy
The market responded with enthusiasm to reports that the Tooth Fairy has agreed to acquire Lehman. The purchase price has not yet been determined and will be set by Dick Fuld wishing upon a star, clicking his heels three times, and being transported back to that magical place where Lehman still sells for over $70 per share.
In related news, Lehman has agreed to sell all of its level III capital, including CDOs, ABSs, pet rocks, baseball cards, slightly used condoms, and credit default swaps written by MBIA and Ambac. Lehman’s level III capital will be acquired for 150% of its face value by Tinkerbell, who will carry it off to Neverland to be fed to a crocodile. Lehman is financing 90% of the acquisition at an interest rate that has not been announced; Tinkerbell’s up-front payment consists of a handful of pixie dust, three crickets, and a bullfrog. Analyst Dick Bove estimates that the bullfrog could eventually be transformed into three princes and a pumpkin coach. The deal gives Lehman no recourse to any of Tinkerbell’s assets other than the Level III capital. If Tinkerbell defaults, Lehman’s successor entity will stick its hand down the crocodile’s throat and attempt to get it to regurgitate. The firm’s historical value-at-risk analysis shows that sticking your hand down a crocodile’s throat is completely safe.
Treasury Secretary Hank Paulson issued a statement: “I am delighted that SWFs (Sovereign Wealth Fairies) continue to express confidence in the terrific values represented by American financial institutions. As I have been saying since August of 2007, this shows that the crisis is now over.”
Meanwhile, the SEC has announced an investigation of mean, evil, bad short-seller David Einhorn. While out for a beer with a friend, Einhorn reportedly suggested that the Tooth Fairy does not exist and that wishing upon a star is not a wholly reliable price discovery mechanism. Christopher Cox, chairman of the SEC, said, “Vicious rumors attacking the Tooth Fairy will not be tolerated. Our entire financial system and indeed the American way of life depend on the Tooth Fairy and wishing upon a star. How else could one value level III capital appropriately?” The SEC is reportedly planning to set up re-education camps for short-sellers.
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September 12th, 2008 at 10:18 am
Did you write this?
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September 12th, 2008 at 8:10 am
Craig,
This market is obviously a traders market. However if you are a bull, this volatility seems to be driving away retail investors. This market cant make its mind up and if I were a bull, capitulation would be the best thing . After capitulation a fairly flat period with gradual increases in equity prices. This kind of action with 300 up and then 300 down makes no sense and most people will not put long term money to work in this environment.
Thanks
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September 12th, 2008 at 9:48 am
If the big money wants to entice retail buyers into this market to later sell to. Then either they should capitulate the market or rally the market towards 1370. This kind of sideways action will not get any meaniful buy retail investors, it likely drives them away.
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September 12th, 2008 at 10:09 am
Good morning Craig, when I woke up this am at 5, S&P futures were up about 3 pts. I wondered if this was the touch of the descending trendline you mentioned in the video last night. I am currently on the sidelines, but if this market tries to rally up to 1254, I will be shorting. If markets are unable to rally and starts to turn south again, I may start a modest short position.
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September 12th, 2008 at 10:16 am
Craig
Can you explain a little bit more your thoughts behind your short-covering. What have leaded you to believe that markets will move higher (short-term/intraday)?
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September 12th, 2008 at 10:19 am
The pattern looks like a bullish setup. Traded lower on light volume during the pre-mkt, right into the 200MA.
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September 12th, 2008 at 10:21 am
I respect your chart reading abilities, and trying to understand how you think
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September 12th, 2008 at 10:31 am
Several thoughts here. I covered all my shorts this morning.
First, the VIX needs to retrace. You can see my VIX chart here:
http://stockcharts.com/def/servlet/Favorites.CServlet?obj=ID3037482&cmd=shows150144425&disp=P
Second, here is my SPY 30-min chart:
http://stockcharts.com/def/servlet/Favorites.CServlet?obj=ID3037482&cmd=shows150316603&disp=P
See the double bottom pattern yesterday and the broader double bottom forming since September 5th? Watch for a cup and handle perhaps off of this recent bottom as it moves higher.
Thirdly, the max pain for SPY options is $129 - $130 (depending if you use Yahoo or CBOE):
http://www.optionpain.com/MaxPain/Max-Pain.php
I think the next leg down is immanent, but I think market manipulators will run the prices up first.
Just my two cents. I cannot stand the fact that the government will not come clean on LEH and do it during market hours. Instead, they allow big firms to lose billions of taxpayer dollars (effectively) while they make millions themselves. It is an evil and crooked game, and I will not be fish bait.
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September 12th, 2008 at 10:32 am
Well it looks like my charts didn’t come through correctly. You can use the droplist on the right to find SPY 30-min and VIX daily (not the VIX hourly).
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September 12th, 2008 at 10:36 am
I also forgot to mention that I have a harmonic Gartley pattern forming that would have a sell target on SPY up around 130. Of course, patterns are not valid until they form, but it makes me extremely cautious.
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September 12th, 2008 at 10:42 am
Zen. I like your charts on StockCharts.com.
Do you pay for their premium service?
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September 12th, 2008 at 10:50 am
And this option pain site is very useful. How accurate to you find their data? Do you notice that the underlying equity trades to the max pain point at options ex?
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September 12th, 2008 at 10:57 am
Hey Craig, thanks! Yes I pay StockCharts for their premium services.
My charts are not nearly as updated as I want mainly because I am slammed from all directions in life right now, but I plan on expanding the.
Regarding max pain, I have followed it for two months and found dead on for XLF and SPY. I have not watched other options with it. The price will not be exactly the max pain but it should be close.
This month will be a good test of max pain because the volume was so light last month that it was easier to manipulate the price. I had Sept. puts and had to accept a small loss because there are too many risk signs flashing right now.
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September 12th, 2008 at 10:59 am
One technique I have been trying is to watch the hourly stochastics, and, when they are overbought/oversold, then I wait for a 10-min divergence or MACD trendline break. It usually works pretty well.
This time, however, the MACD broke but it is a very weak break. Another signal to me that the markets will probably move up.
Quite frankly, I am in the camp that this is a big game and retail investors are taken to the cleaners regularly. I think that will happen here.
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September 12th, 2008 at 11:04 am
And just to be clear I would not bet on max pain. I am still testing it. It worked the past two times, but it may not work this time.
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September 12th, 2008 at 11:03 am
Wave 4 on the dollar is underway. I am expecting this to allow $USD to correct to 76 atleast.
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September 12th, 2008 at 11:24 am
A falling dollar and rising oil should give the markets a boost because commodity stocks will stabilize.
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September 12th, 2008 at 11:31 am
gold should be the winner if dollar breaks, gold stocks, DGP and AUY
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September 12th, 2008 at 11:32 am
Politics and news, like Craig says, may complicate the oil trade.
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September 12th, 2008 at 11:46 am
As I said yesterday, the VIX is again attempting to break a descending trendline and failed again today, giving a boost to the market. If that line breaks, this rally could go awry. But the intra day momentum indicators are bearish on the VIX.
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September 12th, 2008 at 11:47 am
VIX below 24.6 region would give stocks a huge boost, As of now, that is my bet.
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September 12th, 2008 at 12:14 pm
any comments on how the hurricane might affect insurers (perceived risk), including AIG?
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September 12th, 2008 at 1:35 pm
Not sure, it seems AIG has other problems…
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September 12th, 2008 at 12:15 pm
I can’t believe how they have taken AIG out back and beaten senseless. Anybody see a bottom in this stock?…Doesn’t look like any chance of reversal today with a slow steady sell-off.
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September 12th, 2008 at 12:35 pm
AIG has a 12 handle now…
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September 12th, 2008 at 12:52 pm
My puts are doing well. I am not complaining.
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September 12th, 2008 at 1:15 pm
I don’t know about being senseless. It seems like AIG is one of those games where the end is known. Who would want to watch a game where you already know the winner? It is even more obvious after LEH blow-up. Besides, average daily trading vol is 44 mil. It has 2.35 bil shares in float. At 44 mil per day, it will take 50 days to sell, if you find buyers. To me it doesn’t make any sense to buy this
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September 12th, 2008 at 1:18 pm
EWZ may have put in a bottoming candle this week. Gigantic tail on PBR. RIO has a huge hammer as well.
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September 12th, 2008 at 1:19 pm
Craig,
I wanted to get your opinion on the vix. vix keeps creaping higher now at 26.5. this to me is very bearish unless market suddenly reverses to the upside. vix is up 8% just today.
also what is your expectation of the fed on tuesday. if the do an emergency cut this weekend, the bears would be in trouble. if on tues , they cut also bears in trouble. what if the switch to an easing bias. what would that mean to you.
Thanks
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September 12th, 2008 at 1:28 pm
The VIX is moving higher, fear is mounting. What else is there to say? I never feel comfortable reading too much into the VIX. It’s highly manipulated my hedge funds.
If the Fed cuts rates, I imagine the market will get a short-term pop. But what does it really change? It’s pushing on a string, and Wall Street knows it. The pop will be short lived and the market will fall soon thereafter.
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September 12th, 2008 at 1:30 pm
I’m not Craig but I agree 100% with his analysis. I use the VIX but it looks really tired on the hourly chart. If it breaks and retraces 38% (which it has done in other cycles to capitulation) then that will mean a rally next week. But it is a selling rally, not a investing rally.
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September 12th, 2008 at 1:43 pm
Just something I wanted to note. To my understanding the creation of all of these newer ETFs are changing the levels of the VIX. This is why we didn’t see the VIX spike up to 35-40 level like we are used to. Is this true?
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September 12th, 2008 at 1:46 pm
I have not heard that. But that’s interesting.
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September 12th, 2008 at 1:42 pm
Craig,
I am wondering why you prefer to trade futures using ETF’s as opposed to options ? Since options provide more leverage, wouldn’t it be a better idea to use options ? I know that one distinct advantage about using ETF’s is not having to worry about the time value. However, in this kind of environment, it would not be prudent to hold any position for too long anyway.
Please let me know your thoughts. Thanks.
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September 12th, 2008 at 1:52 pm
Bob, sometimes I do trade options and I don’t have a preference. But options are more complicated and confusing to less experienced traders. I believe traders should become consistently profitable equity traders before they venture into the options markets.
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September 12th, 2008 at 1:59 pm
Options also have wider spreads.. so for really short day trades, futures/stocks might actually be more profitable..
I see a head and shoulders developing here.
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September 12th, 2008 at 1:59 pm
O.K. Craig, time for the 2:00 o’clock rally. Are you ready to show us amateurs how to jump into our shorts?
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September 12th, 2008 at 2:06 pm
Al, there is a fine line between amateur and professional. And that line is all about discipline. I don’t like trading such a rumor driven market. I’m tempted to get short and stay short but what about a weekend rate cut? Tough market.
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September 12th, 2008 at 2:43 pm
It seems like the best way to play this market is to watch and wait for a big move, then anticipate its exhaustion for the return trip back.
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September 12th, 2008 at 2:18 pm
‘Oil just dipped below $100 for the first time since early April. Who said oil would see $100 before $150?’
- But Goldman Sachs said it was going to 150 and then 200 in July, so it must be true! (sarcasm…) . The hard asset trade was over a month ago. People who had built years worth of capital gains have unwound and will continue to in the intermediate term. The dollar’s bottom is in, as you and I discussed back in June.
Craig - I’ve been sitting the past couple of weeks out. Improved my cost basis on my core holdings off the rallies from the July 15 low. I didn’t break even yet on all the original positions, but grabbed and swapped around 8 stocks at multi year lows. I’m just waiting at this point. Options expiration next week, and a Fed Meeting soon, will push this market around further.
Good luck trading to all.
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September 12th, 2008 at 2:41 pm
Hi Craig,
Been following your blog regularly, great stuff ! I appreciate you putting in so much time and be willing to share it with the rest of us.
Here’s a basic question: If you were to go by your Elliott Wave charts, there is a time component and a price component to it. The price says we need to reach 1170, the time says the downmove was completed yesterday. So, I’m surprised why you would want to go short this market !
Isn’t it actually time to go long.. I know the fundamentals are crappy, but so does everyone. Okay, I can’t convince myself to go long either (!), but shorting seems to involve too much news risk and technical risk as well.
Shout-outs to Matt, a.k.a “Zen”, been following your posts on Y!, great work.
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September 12th, 2008 at 2:46 pm
T-dub,
Thanks for your thoughts.
According to Elliot Wave Theory, wave 3 needs take out 1200, not necessarily 1170. And why was the down move supposed to be completed yesterday? I’m seeing Oct. 20 as a more important date to complete the 5-wave pattern, but I don’t have any time frame for wave 3 specifically.
I am somewhat new to Elliot Wave so let me know what you see.
Thanks.
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September 12th, 2008 at 3:13 pm
Craig,
Sorry for the confusion, I was referring to the timing of wave 3. No doubt, October last week / November first week seems to coincide with wave five from what I see as well. I am beginner to EWT as well. Why does wave 3 have to take out 1200 ? The July closing low was 1214.
I guess the pieces of the puzzle will fit if we gap down by 40 points on Monday and start wave 4 right then and there. Will a LEH collapse do it ? Probably not. I saw the news this morning and the average Joe is shocked about how bad its gotten at WaMu… these are indications that a short term capitulation bottom is either just ahead of us or just behind us. Lets watch.
Thanks !
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September 12th, 2008 at 3:21 pm
There are 2 ways of performing EWT: using closing prices for high/low. I performed my analysis using high/low. I know some traders perform both. This is where EWT gets a bit iffy.
Another thing that makes me feel confident this is not a bottom was consumer confidence. The number was way better than expected. When’s the last time consumers accurately called the bottom? It is such a lagging indicator.
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September 12th, 2008 at 3:36 pm
Consumers are responding to falling prices at the pump. Lower prices since July will be seen as a reprieve that will leave more in their pockets for spending. The unwinding of the oil trade is the big story. No one is talkign abotu inflation anymore and it was done without monetary policy. Oil is relatively inelastic and effects the prices of almost all finished goods that consumers buy. As lower costs make their way through the supply chain in the months ahead, the consumer will benefit, and companies will have better visibility, whether they are good or bad, to their future earnings.
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September 12th, 2008 at 3:48 pm
Hence, the impressive rally in retailers.
But what about unemployment? And the savings rate is moving higher for the first time in years…
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September 12th, 2008 at 3:49 pm
Perhaps the deflation in home values is more important than deflation in energy costs?
September 12th, 2008 at 4:00 pm
Unemployment is actually higher than the reported numbers. I mentioned this once when I posted a pro/con to the market about a month ago. It is one of the big cons. The numbers are much higher, becuase they dont include people who arent looking, or whose UI benefits have expired, Or the impact of people who have been forced to take multiple jobs.
An extension of Unemployment benefits is one of the best props to an economy. Don’t be surprised if the party in power throws that out there before the election.
***Unemployment is a Lagging number relative to the market. Wall Street and the market will turn well before Main Street and the economy does.***
September 12th, 2008 at 2:44 pm
As of yesterday, the fed fund futures was only pricing a rate cut at 10 %. Has that gone up significantly today ? I am not sure how the talk of rate cut has suddenly become so vocal today. Also, why would there be a rate cut over the weekend when the next FOMC meeting is scheduled on Tuesday ?
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September 12th, 2008 at 2:51 pm
No, they have not gone up for the Sep. meeting, still 10%. The probabilities for a cut by the end of the year rose. But I’m with you. I think Rick Santelli started the talk, but I think its highly unlikely. And it doesn’t make any sense to see an emergency rate cut with a meeting on Tuesday.
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September 12th, 2008 at 2:49 pm
Craig,
It certainly feels like a pre-crash trading atmosphere to me. It all comes down to one thing. Loss of trust.
Investors across the globe lost complete trust in company managements, the Government and the Feds. I really have a bad feeling about this.
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September 12th, 2008 at 2:54 pm
I agree with you. This feels like we are on the brink.
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September 12th, 2008 at 2:56 pm
Sellers have been curiously absent the last 2 days, perhaps the calm before the storm. Nothing has gotten better, only worse. LEH can’t find a buyer. AIG and MER have joined the party. The gov’t had to bail out FNM/FRE because the market forced their hand.
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September 12th, 2008 at 3:19 pm
Did anyone buy LEH today? I bought 1 share
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September 12th, 2008 at 3:24 pm
haha,
Kiss your $3.50 goodbye!
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September 12th, 2008 at 3:32 pm
BTW, was FRE’s 20% rise after the FED took it over a short squeeze rally?
If LEH goes to zero, will there a short squeeze rally?
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September 12th, 2008 at 3:35 pm
depends on what happens to LEH. If there’s a takeover, Arbitrage players will be buying a penny above the takeover price, preventing a short-squeeze.
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September 12th, 2008 at 3:58 pm
short covering in LEH ongoing
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September 12th, 2008 at 3:23 pm
BAC is still in an uptrend, but looking like a risign head and shouder with a base in the low 30’s. Interesting how now one is concerned with BACs mortgage and heloc risk.
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September 12th, 2008 at 3:46 pm
Given the lingering environment in financials it is difficult to gauge the short term risk of BAC in the low 30s. In the week after July 15, it recovered quickly to the high 20s on enormous volume. I was fortunate to pick some at 18 and 22 in mid July. If there is a shakeout in the weeks ahead in the general market, it could easily trade in the 20’s again.
The long term - BAC absolutely stole Country Wide… This will be clear in hindsight. They now have their hands in upwards of 20% of the US mortgage market. Countrywide was and instance of too big too fail. Had they went under, that capacity would have dissappeared, and that couldn’t have been allowed to happen. Nobody screamed anti-trust when the acquisition took place.
BAC will do what all smart banks will do in this environment - Lend. They will do their utmost to keep people with negative equity in their homes, rather than allow delinquencies to turn into defaults and be forced to sell repossions at distressed prices.
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September 12th, 2008 at 3:36 pm
Looks like we will get an exact opposite of yesterday. SOme 10+ S&P point move down.
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September 12th, 2008 at 3:50 pm
AIG just printed a 11 handle.
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September 12th, 2008 at 4:02 pm
One more thing… Mortgage rates have fallen notably in the past week since FNM/FRE were taken over. This is a plus going forward for those who need to refinance.
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